<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 14, 1996
REGISTRATION NO. 333-01601
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
AMENDMENT NO. 4 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
SMITH'S FOOD & DRUG CENTERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 1550 SOUTH REDWOOD ROAD 87-0258768
(STATE OR OTHER JURISDICTION OF SALT LAKE CITY, UTAH 84104 (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) (801) 974-1400 IDENTIFICATION NUMBER)
</TABLE>
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
--------------
MICHAEL C. FREI
SENIOR VICE PRESIDENT AND GENERAL COUNSEL
SMITH'S FOOD & DRUG CENTERS, INC.
1550 SOUTH REDWOOD ROAD
SALT LAKE CITY, UTAH 84104
(801) 974-1400
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------
COPIES TO:
THOMAS C. SADLER, ESQ. MICHAEL A. BECKER, ESQ.
LATHAM & WATKINS CAHILL GORDON & REINDEL
633 WEST FIFTH STREET 80 PINE STREET
LOS ANGELES, CALIFORNIA 90071 NEW YORK, NEW YORK 10005
(213) 485-1234 (212) 701-3000
--------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
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, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
--------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF SECURITIES TO AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
BE REGISTERED REGISTERED PER UNIT OFFERING PRICE FEE(a)
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<S> <C> <C> <C> <C>
% Senior Subordinated
Notes due 2007 $575,000,000 100% $575,000,000 $198,276
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</TABLE>
(a) The registration fees were paid in connection with the original filing of
the Registration Statement on March 11, 1996.
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 THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MAY 14, 1996
PROSPECTUS
[LOGO OF SMITH'S FOOD & DRUG CENTERS]
$575,000,000
SMITH'S FOOD & DRUG CENTERS, INC.
% SENIOR SUBORDINATED NOTES DUE 2007
----------
The offering (the "Offering") by Smith's Food & Drug Centers, Inc. ("Smith's"
or the "Company") of its % Senior Subordinated Notes due 2007 (the "Notes")
is part of the financing required to consummate the Recapitalization (as
defined) of Smith's and the Merger (as defined) of Smitty's Supermarkets, Inc.
("Smitty's") with a subsidiary of Smith's. Consummation of the Offering is
conditioned upon the closing of the Merger and the Recapitalization.
Interest on the Notes will be payable semiannually on each May 15 and
November 15, commencing on November 15, 1996. The Notes will be redeemable, in
whole or in part, at the option of the Company, at any time on and after May
15, 2001, at the respective redemption prices set forth herein. In addition, on
or prior to May 15, 1999, the Company may, at its option, use the Net Cash
Proceeds (as defined) of one or more Public Equity Offerings (as defined) to
redeem up to an aggregate of 35% of the Notes originally issued, at the
respective redemption prices set forth herein. Upon a Change of Control (as
defined), each holder of Notes will have the right to require the Company to
repurchase such holder's Notes at a price equal to 101% of their principal
amount plus accrued and unpaid interest to the date of repurchase.
The Notes will be senior subordinated unsecured obligations of the Company
and will be subordinated in right of payment to all Senior Indebtedness (as
defined) of the Company, including the New Credit Facility (as defined). At
March 30, 1996, on a pro forma basis after giving effect to the Transactions
(as defined) and the California Disposition (as defined), the aggregate
outstanding amount of Senior Indebtedness of the Company would have been
approximately $813.2 million, which amount excludes any borrowings or amounts
available to be borrowed under the New Revolving Facility (as defined). The
Notes will be effectively subordinated to all existing and future liabilities,
including indebtedness, of the Company's subsidiaries. At March 30, 1996, on a
pro forma basis after giving effect to the Transactions and the California
Disposition, the Company's subsidiaries would have had indebtedness and other
liabilities reflected on the Company's consolidated balance sheet, including
trade payables and accrued expenses (but excluding guarantees of Senior
Indebtedness), of approximately $143.0 million.
The Company does not intend to apply for listing of the Notes on any national
securities exchange. See "Underwriting."
----------
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN RISK
FACTORS THAT SHOULD BE CONSIDERED BY POTENTIAL INVESTORS.
----------
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>
=================================================================================
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(3)
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<S> <C> <C> <C>
Per Note................................... % % %
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Total...................................... $575,000,000 $ $
=================================================================================
</TABLE>
(1) Plus accrued interest, if any, from date of original issuance.
(2) The Company has agreed to indemnify the Underwriters (as defined) against
certain liabilities, including liabilities under the Securities Act of
1933, as amended. See "Underwriting."
(3) Before deducting expenses of the Offering payable by the Company, estimated
at $ .
----------
The Notes are offered by the Underwriters, subject to prior sale, when, as
and if delivered to and accepted by the Underwriters, and subject to approval
of certain legal matters by counsel. It is expected that delivery of the Notes
will be made on or about May 23, 1996, at the offices of BT Securities
Corporation, One Bankers Trust Plaza, New York, New York.
----------
BT SECURITIES CORPORATION
CS FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
CHASE SECURITIES INC.
----------
The date of this Prospectus is , 1996.
<PAGE>
FOR CALIFORNIA RESIDENTS:
WITH RESPECT TO SALES OF THE NOTES OF SMITH'S FOOD & DRUG CENTERS, INC.
BEING OFFERED HEREBY TO CALIFORNIA RESIDENTS, AS OF THE DATE OF THIS
PROSPECTUS, SUCH NOTES MAY BE SOLD ONLY TO: (1) "ACCREDITED INVESTORS" WITHIN
THE MEANING OF REGULATION D UNDER THE SECURITIES ACT OF 1933, (2) BANKS,
SAVINGS AND LOAN ASSOCIATIONS, TRUST COMPANIES, INSURANCE COMPANIES,
INVESTMENT COMPANIES REGISTERED UNDER THE INVESTMENT COMPANY ACT OF 1940,
PENSION AND PROFIT-SHARING TRUSTS, CORPORATIONS OR OTHER ENTITIES WHICH,
TOGETHER WITH THE CORPORATION'S OR OTHER ENTITY'S AFFILIATES, HAVE A NET WORTH
ON A CONSOLIDATED BASIS ACCORDING TO THEIR MOST RECENT REGULARLY PREPARED
FINANCIAL STATEMENTS (WHICH SHALL HAVE BEEN REVIEWED, BUT NOT NECESSARILY
AUDITED, BY OUTSIDE ACCOUNTANTS) OF NOT LESS THAN $14,000,000 AND SUBSIDIARIES
OF THE FOREGOING, (3) ANY PERSON (OTHER THAN A PERSON FORMED FOR THE SOLE
PURPOSE OF PURCHASING THE NOTES BEING OFFERED HEREBY) WHO PURCHASES AT LEAST
$1,000,000 AGGREGATE AMOUNT OF THE NOTES BEING OFFERED HEREBY, OR (4) ANY
PERSON WHO (A) HAS AN INCOME OF $65,000 AND A NET WORTH OF $250,000, OR (B)
HAS A NET WORTH OF $500,000 (IN EACH CASE, EXCLUDING HOME, HOME FURNISHINGS
AND PERSONAL AUTOMOBILES).
---------------
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES AT
LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-3 (the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the Notes. Each of the Company and Smitty's is subject
to the reporting and other informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations promulgated thereunder, and in accordance therewith files reports
and other information with the Commission. Such reports and other information
filed by the Company or Smitty's with the Commission can be inspected without
charge at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the regional
offices of the Commission located at Seven World Trade Center, Suite 1300, New
York, New York 10048; 500 West Madison Street, Chicago, Illinois 60601; and
5670 Wilshire Boulevard, Suite 500, Los Angeles, California 90036. Copies of
such materials can also be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W. Washington, D.C. 20549, at prescribed
rates. The Class B Common Stock of the Company is listed on the New York Stock
Exchange and reports, proxy statements and other information concerning the
Company can also be inspected at the office of the New York Stock Exchange, 20
Broad Street, New York, New York 10005.
This Prospectus summarizes the contents and terms of documents not included
herewith. These documents are available upon request from Smith's Food & Drug
Centers, Inc. at 1550 South Redwood Road, Salt Lake City, Utah 84104,
telephone number (801) 974-1400, Attn: Michael C. Frei, General Counsel and
Secretary.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Smith's with the Commission under the
Exchange Act are incorporated herein by reference: (i) Smith's Annual Report
on Form 10-K for its fiscal year ended December 30, 1995; (ii) Smith's current
report on Form 8-K dated February 20, 1996, (iii) Smith's Quarterly Report on
Form 10-Q for its fiscal quarter ended March 30, 1996, and (iv) the sections
of Smith's 1996 Proxy Statement for its Annual Meeting of Stockholders
entitled "The Recapitalization Agreement," and "Executive Compensation." In
addition, all documents filed by Smith's with the Commission pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date
hereof and prior to the termination of the Offering shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein, or in any other subsequently filed document that also is, or is deemed
to be incorporated by reference herein, modifies or supersedes such statement.
Any such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
Copies of documents incorporated herein by reference (excluding exhibits
unless such exhibits are specifically incorporated herein by reference) may be
obtained without charge upon request from Smith's Food & Drug Centers, Inc. at
1550 South Redwood Road, Salt Lake City, Utah 84104, telephone number
(801) 974-1400, Attn: Michael C. Frei, General Counsel and Secretary.
i
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the Financial Statements and notes thereto, appearing elsewhere in this
Prospectus. Except as otherwise stated, references in this Prospectus to
numbers of stores prior to the consummation of the Merger are as of May 1,
1996. References to the "pro forma" number of stores to be operated by the
Company following the consummation of the Merger are based on the May 1, 1996
totals for Smith's and Smitty's and give effect to the anticipated sale of two
Smitty's stores. Unless otherwise noted, the market share data contained herein
has been prepared by management of the Company based upon internal research.
THE COMPANY
Smith's is a leading supermarket company in the Intermountain and
Southwestern regions of the United States, operating 120 stores located in Utah
(35), Arizona (30), Nevada (22), New Mexico (19) and Idaho, Texas and Wyoming
(collectively, 14). Substantially all of Smith's stores offer one-stop shopping
convenience through a food and drug combination format which features a full-
line supermarket with drug and pharmacy departments and some or all of the
following specialty departments: delicatessens, hot prepared food sections, in-
store bakeries, video rental shops, floral shops, one-hour photo processing
labs, full-service banking and frozen yogurt shops. The Company's 114 food and
drug combination stores averaged approximately 63,000 square feet and $420,000
per week in sales volume in fiscal 1995. The Company has recently opened four
price impact warehouse stores and also operates two conventional supermarkets.
Through its 48 years of operations, the Company believes it has developed a
valuable and strategically located store base, strong name recognition,
customer loyalty and a reputation for quality and service.
The Company is pursuing a series of transactions designed to enhance
stockholder value and liquidity:
. Arizona Merger and Consolidation. The Company has entered into an
agreement to acquire Smitty's Supermarkets, Inc. ("Smitty's"), a
regional supermarket operator with 28 stores in the Phoenix and Tucson
markets, in a stock-for-stock exchange (the "Merger"). The Merger will
significantly enhance the Company's market position in Arizona. Smitty's
is controlled by affiliates of The Yucaipa Companies ("Yucaipa"), a
private investment group specializing in the supermarket industry.
Affiliates of Yucaipa will own approximately 13.6% of the Company's
outstanding common stock following the Merger and the Recapitalization
(as defined).
. California Disposition. The Company has completed the sale or lease of
16 stores, three non-operating properties and its primary distribution
facility in Southern California and has closed its remaining 18 stores
there (the "California Divestiture"). Management determined that because
of the attractive growth prospects in the Company's principal markets
and the competitive environment in Southern California, it would
redeploy Company resources from California into such other markets.
Following the consummation of the Transactions, the Company intends to
accelerate the disposition of its closed stores and excess land in
California (the "California Asset Disposition", and together with the
California Divestiture, the "California Disposition").
. New Senior Management. The Company will enter into a five-year
management services agreement (the "Management Services Agreement") with
Yucaipa. Ronald W. Burkle, the managing general partner of Yucaipa, will
be appointed as Chief Executive Officer of the Company. In addition,
Allen R. Rowland recently joined Smith's as President and Chief
Operating Officer. Mr. Rowland was employed by Albertson's, Inc. for 25
years and had senior executive responsibilities for all of the principal
regions in which Smith's operates.
. Recapitalization. The Company is offering to purchase 50% of its
outstanding common stock (excluding shares issuable in the Merger) for
$36.00 in cash per share (the "Tender Offer"). In addition, the Company
is refinancing certain of its existing indebtedness and is refinancing
or assuming certain existing indebtedness of Smitty's concurrently with
the consummation of the Merger.
1
<PAGE>
For the fiscal year ended December 30, 1995, after giving pro forma effect to
the Transactions and the California Disposition, the Company would have had net
sales and EBITDA (as defined) of approximately $3.0 billion and $255.4 million,
respectively. See "Unaudited Pro Forma Combined Financial Statements." In
addition, management believes that the Company will benefit from significant
operating synergies and cost saving opportunities following the Merger.
COMPANY STRENGTHS
Management believes the Company has the following principal strengths: (i)
leading market positions, (ii) attractive markets, (iii) new and recently
remodeled stores, (iv) prime store locations, (v) advanced backstage operations
and (vi) substantial owned real estate.
Leading Market Positions. Pro forma for the Merger, the Company will operate
146 stores and will have the largest or second largest market share in each of
its principal markets: Salt Lake City (31%), Phoenix (24%), Las Vegas (24%) and
Albuquerque (23%). The Company believes its reputation for offering a broad
selection of quality products and low pricing combined with a high level of
customer service has created a valuable franchise with strong name recognition
and customer loyalty.
Attractive Markets. The Company's stores are located predominantly in Utah,
Arizona, Nevada and New Mexico, which are among the fastest growing states in
terms of population and employment. According to the U.S. Bureau of the Census,
the population of those four states has increased at a compound annual growth
rate of 3.0% since 1990, compared to the national average of 1.1% over the same
period. According to the U.S. Bureau of Labor Statistics, employment in the
same four states has increased at a compound annual growth rate of 4.0% since
1990, compared to the national average of 1.3% over the same period. In
addition, management believes that operating in distinct markets in several
states provides advantages due to their differences in economic cycles,
demographics and competitive conditions.
New and Recently Remodeled Stores. After giving effect to the Merger and the
California Divestiture, approximately 84% of the Company's stores will have
been opened or remodeled within the last seven years. During the five fiscal
years ended December 30, 1995, Smith's spent approximately $414 million in
capital expenditures (excluding capital expenditures associated with California
operations), which have been primarily used to build new stores and to expand
and remodel existing stores. During the five-year period ended December 30,
1995, Smitty's spent approximately $72 million in capital expenditures,
including approximately $42 million since mid-1994 to remodel substantially all
of its Phoenix-area stores.
Prime Store Locations. The Company's 48 years of operation have allowed it to
choose its store locations selectively as new residential areas have been
developed. The Company believes that many of its stores are in developed areas
where land values and the unavailability of suitable parcels would make it
difficult to replicate the Company's existing store base.
Advanced Backstage Operations. The Company owns and operates one of the most
modern and efficient backstage operations in the industry. During the five
fiscal years ended December 30, 1995, the Company spent approximately $163
million (excluding the divested California operations) to build, expand or
remodel its warehousing, distribution and processing facilities. Management
believes that the Company's approximately 3,000,000 square feet of backstage
facilities will be able to accommodate the Smitty's volume following the Merger
and support anticipated future growth.
Substantial Owned Real Estate. The Company will own 107 of the 146 stores it
will operate upon consummation of the Merger. The Company also owns its primary
warehousing, distribution and processing facilities. In addition, the Company
owns land for development, expansion or sale, as well as other non-operating
real estate assets. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview."
2
<PAGE>
THE CALIFORNIA DIVESTITURE
Smith's has completed the sale, lease or closure of its Southern California
regional operations. In December 1995, Smith's entered into an agreement to
sublease its Riverside, California distribution center and dairy plant to
Ralphs Grocery Company ("Ralphs"), an affiliate of Yucaipa, for the remaining
23-year term of Smith's lease. Ralphs also agreed to purchase certain related
equipment and inventory. In January 1996, Smith's entered into agreements to
sell or lease 16 stores and related equipment and three non-operating
properties to various supermarket companies (including Ralphs) and others.
Smith's has closed the remaining 18 stores and it is anticipated that these
closed stores will be sold or leased to other retail companies. The Company has
received net cash proceeds of approximately $67.2 million from the California
Divestiture and expects to receive an additional $10.6 million shortly after
the consummation of the Transactions. In connection with the California
Divestiture, the Company recorded pre-tax restructuring charges of $140 million
(the "California Divestiture Charge") for the year ended December 30, 1995 and
classified the assets to be leased or sold as "assets held for sale." The
California Divestiture Charge reflected (i) a provision for anticipated future
lease obligations, (ii) the anticipated cost to the Company of closing its
California stores and distribution center (primarily termination payments and
inventory), and (iii) asset valuation adjustments for the equipment in all of
the California stores and the distribution center and for the land and
buildings associated with the properties being sold or leased. The California
Divestiture, including the transactions with Ralphs, was unrelated to the
Merger or the Recapitalization.
OPERATING STRATEGY
Management, in conjunction with Yucaipa, has developed a strategic plan
designed to: (i) expand operations in existing and adjacent markets, (ii)
realize operating synergies and cost savings resulting from the Merger, (iii)
improve working capital management, (iv) grow its recently introduced price
impact warehouse stores and (v) dispose of remaining California real estate
following the consummation of the Transactions.
Expand Operations in Existing and Adjacent Markets. Management believes that
there are significant opportunities to increase the Company's sales and gain
efficiencies in its existing markets through new store openings and store
remodels. From 1991 through 1994, management primarily focused on the Southern
California market, opening 32 new stores in Southern California compared to a
net of 10 new stores in its other markets. In 1995, the Company opened a net of
17 new stores, only two of which were located in California. In an effort to
more fully realize its market potential in its non-California markets, in 1995
the Company began opening smaller combination stores (54,000 to 60,000 square
feet) in existing markets as part of a "fill-in" strategy. By pursuing a growth
strategy which emphasizes opening new stores within its existing and adjacent
markets, the Company believes it can increase its market share and improve its
distribution and other efficiencies, while taking advantage of such markets'
favorable growth prospects.
Realize Operating Synergies and Cost Savings Resulting from the Merger.
Management believes that approximately $25 million of net annual cost savings
are achievable over a three-year period following the Merger. The majority of
such cost savings opportunities relate to its Arizona operations and are
believed to be achievable (on an annualized basis) by the end of the first full
year of operations following the Merger. The estimates of potential cost
savings resulting from the Merger contained in this Prospectus are forward
looking statements that involve risks and inherent uncertainties that could
cause actual net annual cost savings to differ materially from those projected.
See "Risk Factors--Ability to Achieve Anticipated Cost Savings."
. Advertising Cost Savings. Smith's and Smitty's advertising programs in
the Phoenix and Tucson markets substantially overlap and, as a result of
the Merger, management expects that the Company will be able to
eliminate a substantial portion of the combined advertising expenses.
Management estimates that annualized advertising cost savings of
approximately $7 million are achievable by the end of the first full
year of operations following the Merger.
3
<PAGE>
. General and Administrative Cost Savings. Management expects the Company
to achieve savings from the elimination of duplicative administrative
staff and headquarters facilities and the consolidation of management
information systems. Management estimates that annualized general and
administrative cost savings of approximately $13 million are achievable
by the end of the first full year of operations following the Merger.
. Warehousing and Transportation Cost Savings. Smitty's currently operates
without any of its own distribution facilities. By incorporating the
Smitty's volume into Smith's Tolleson, Arizona warehousing and
distribution facilities, the Company expects to eliminate the expense
associated with Smitty's being supplied primarily by an independent
wholesaler, as well as reduce average unit costs resulting from improved
capacity utilization. Management estimates that annualized warehousing
and transportation cost savings of approximately $4 million are
achievable by the end of the second full year of operations following
the Merger.
. Direct Store Delivery and Store Systems. The Merger is expected to
result in an opportunity to utilize Smith's electronic direct store
receiving system in all Smitty's stores, resulting in increased control
over direct store deliveries and corresponding payments. In addition, by
utilizing Smith's front-end systems in Smitty's stores, improvements in
the efficiency of Smitty's stores are expected. Management estimates
that annualized cost savings of approximately $2 million related to such
direct store delivery and store systems are achievable by the end of the
second full year of operations following the Merger.
. Purchasing Improvements. Management believes that the Company can
achieve savings as a result of increased promotional allowances and
discounts through a coordinated buying effort with Yucaipa-affiliated
supermarket chains with aggregate annual sales (when combined with the
Company) in excess of $11 billion. Management estimates that annualized
cost savings of approximately $6 million are achievable from such
purchasing improvements by the end of the third full year of operations
following the Merger.
The sum of the components of the estimated annual cost savings exceeds $25
million; however, management expects that a portion of the savings will be
reinvested in the Company's operations. In connection with the Transactions,
the Company and Smitty's are evaluating the format mix of the combined Arizona
store base and are assessing the possibility of modifying the formats of
certain stores. It is anticipated that approximately $17 million of capital
expenditures and approximately $15 million of other expenses will be required
to integrate the Arizona operations over the next two years and realize such
cost savings.
Improve Working Capital Management. Management believes that the Company can
improve its working capital management. Under Yucaipa's management, other
companies have achieved working capital improvements; however, there can be no
assurance that similar improvements can be achieved by the Company.
Grow Recently Introduced Price Impact Warehouse Format. The Company recently
developed a price impact warehouse store format and during 1995 opened four of
these stores in the Las Vegas area operating under the name "PriceRite Grocery
Warehouse." Management believes that a number of the Company's markets are
underserved by price impact warehouse stores and that there are substantial
opportunities for expansion of the Company's PriceRite format through the
conversion of existing stores and the opening of new stores. Yucaipa, through
its management of other supermarket companies, has extensive experience in
expanding and profitably operating price impact warehouse formats.
Dispose of Remaining California Real Estate. Following the consummation of
the Transactions, management, in conjunction with Yucaipa, anticipates that it
will pursue a strategy to dispose of its remaining real estate assets in
California which consist of 18 non-operating stores and excess land. The
Company would use the net cash proceeds from the California Asset Disposition
to either reinvest in the Company's business or
4
<PAGE>
reduce indebtedness incurred in connection with the Transactions. At December
30, 1995, the aggregate book value of such assets was approximately $260
million. If this strategy is adopted, as anticipated, the Company would record
a pre-tax charge to earnings, which is presently estimated to be approximately
$125 million (the "California Asset Disposition Charge") to reflect the
difference between the anticipated cash proceeds from the accelerated
dispositions and the Company's existing book values for such assets. See "Risk
Factors--Anticipated Charges to Earnings Following the Transactions."
THE TRANSACTIONS
The Merger. On January 29, 1996, Smith's and a wholly owned subsidiary of
Smith's ("Acquisition"), entered into a Recapitalization Agreement and Plan of
Merger (the "Recapitalization Agreement") with Smitty's and Yucaipa. Pursuant
to the terms of the Recapitalization Agreement, Smitty's will merge with
Acquisition, as a result of which Smitty's will become a wholly owned
subsidiary of Smith's. The consideration payable to the stockholders of
Smitty's in the Merger will consist of 3,038,888 shares of Class B Common Stock
of the Company.
Tender Offer. Smith's is offering to purchase 50% of its outstanding Class A
Common Stock and Class B Common Stock (collectively, the "Common Stock") for
$36.00 per share in cash in the Tender Offer. The shares issuable to the
stockholders of Smitty's will not be eligible to participate in the Tender
Offer. Smith's is also offering to purchase for cash certain outstanding
options to purchase Common Stock held by certain officers and employees of
Smith's for an aggregate purchase price estimated to be approximately $13.7
million.
Smith's Debt Refinancing and Preferred Stock Redemption. Smith's will repay
in full substantially all of its existing indebtedness ($661.6 million at March
30, 1996), including all outstanding borrowings under its existing revolving
credit facilities, and will purchase approximately $1.0 million of its
outstanding Series I Preferred Stock.
Smitty's Debt Refinancing. At the time the Merger is consummated, the Company
will cause Smitty's and its subsidiary, Smitty's Super Valu, Inc. ("SSV"), to
repay in full certain existing indebtedness (approximately $33.7 million
principal amount at March 30, 1996), including all outstanding borrowings under
SSV's bank credit facility. In addition, Smitty's is offering to purchase all
of the $29.025 million principal amount at maturity (accreted value of $19.0
million at March 30, 1996) of its Senior Discount Debentures due 2006 (the
"Smitty's Debentures"), and SSV is offering to purchase all of the $50.0
million principal amount of its Senior Subordinated Notes due 2004 (the
"Smitty's Notes"). Smitty's and SSV will concurrently solicit consents from the
holders of such securities to certain amendments to the respective indentures
under which such securities were issued. The foregoing debt refinancing
transactions of Smitty's and SSV are referred to herein collectively as the
"Smitty's Refinancing."
The Offering, the Tender Offer, the purchase of certain management stock
options, the Series I Preferred Stock purchase, the Smith's debt refinancings
described above and the closing under a new senior credit facility (the "New
Credit Facility") to be provided to the Company are collectively referred to
herein as the "Recapitalization." The Recapitalization, the Merger and the
Smitty's Refinancing are collectively referred to herein as the "Transactions."
5
<PAGE>
The following table illustrates the pro forma sources and uses of funds to
consummate the Transactions, assuming the Transactions and the California
Disposition had been consummated as of March 30, 1996. Although management
believes the pro forma amounts estimated below are reasonable under the
circumstances, actual sources and uses may differ from those set forth below.
SOURCES AND USES
(dollars in millions)
<TABLE>
<CAPTION>
SOURCES USES
------- ----
<S> <C> <C> <C>
New Term Loans (a)...... $ 805.0 Purchase Smith's Common Stock............. $ 451.3
New Revolving Facility
(a)(b)................. 7.9 Purchase Smith's Management Options....... 13.7
Notes................... 575.0 Purchase Smith's Series I Preferred Stock. 1.0
Repay Smith's Mortgage Notes.............. 251.6
Repay Smith's Unsecured Notes............. 410.0
Repay Smitty's Notes (c).................. 50.0
Repay Smitty's Debentures (c)............. 19.0
Repay Smitty's Bank Credit Facility....... 33.7
Debt Refinancing Premiums................. 56.8
Accrued Interest.......................... 13.5
Fees and Expenses......................... 87.3
-------- --------
Total Sources........... $1,387.9 Total Uses................................ $1,387.9
======== ========
</TABLE>
- --------
(a) The Company has obtained a commitment from Bankers Trust Company ("Bankers
Trust") and The Chase Manhattan Bank ("Chase Manhattan") for a new senior
credit facility that will provide up to $805 million aggregate principal
amount of term loans ("New Term Loans") and a $190 million revolving credit
facility (the "New Revolving Facility") which will be available for working
capital requirements and general corporate purposes. A portion of the New
Revolving Facility may be used to support letters of credit, approximately
$28 million of which are anticipated to be issued upon consummation of the
Transactions (the "Closing"). The New Credit Facility will be guaranteed by
all subsidiaries of the Company, including Smitty's. See "Description of
New Credit Facility."
(b) The information presented is derived from the Unaudited Pro Forma Combined
Financial Statements contained elsewhere herein which reflect (i) the
receipt of cash proceeds from the California Divestiture and the assumed
receipt of cash proceeds from the sale of the Company's remaining
California assets pursuant to the California Asset Disposition, in an
amount equal to the net book value of such assets after giving effect to
the California Asset Disposition Charge; and (ii) the application of a
portion of the cash proceeds therefrom to repay $7.9 million of
indebtedness anticipated to be incurred under the New Revolving Facility in
connection with the consummation of the Transactions. The Company has
received net cash proceeds from the California Divestiture of $67.2 million
and expects to receive an additional $10.6 million in proceeds from the
California Divestiture shortly after the Closing. The Company intends to
use such additional proceeds to reduce revolving loans under the New
Revolving Facility. The Company has not entered into any contracts relating
to the California Asset Disposition and there can be no assurance as to the
timing or the amount of net proceeds, if any, which the Company will
actually receive from such disposition. See "Unaudited Pro Forma Combined
Financial Statements" and "Business--The California Divestiture."
(c) Assumes that all outstanding Smitty's Notes and Smitty's Debentures are
tendered and accepted for purchase in connection with the Smitty's
Refinancing. If all of the outstanding Smitty's Notes and Smitty's
Debentures are not tendered and accepted for purchase, the Company
anticipates that it would reduce other borrowings.
6
<PAGE>
THE OFFERING
Securities Offered...... $575,000,000 aggregate principal amount of % Senior
Subordinated Notes due 2007.
Maturity Date........... May 15, 2007.
Interest Rate........... The Notes will bear interest at the rate % per
annum.
Interest Payment Dates.. May 15 and November 15 commencing on November 15,
1996.
Optional Redemption..... The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or after
May 15, 2001, at the following redemption prices if
redeemed during the 12-month period commencing on May
15 of the year set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2001......................................... %
2002......................................... %
2003......................................... %
2004 and thereafter.......................... 100.0%
</TABLE>
in each case plus accrued and unpaid interest to the
date of redemption.
In addition, on or prior to May 15, 1999, the Company
may, at its option, use the Net Cash Proceeds from
one or more Public Equity Offerings to redeem up to
an aggregate of 35% of the principal amount of the
Notes originally issued, at a redemption price equal
to % of the principal amount thereof plus accrued
and unpaid interest to the date of redemption.
Ranking.................
The Notes will be senior subordinated unsecured
obligations of the Company and will be subordinated
in right of payment to all Senior Indebtedness (as
defined) of the Company, including the Company's
obligations under the New Credit Facility. At March
30, 1996, on a pro forma basis after giving effect to
the Transactions and the California Disposition, the
aggregate outstanding amount of Senior Indebtedness
of the Company would have been approximately $813.2
million, which amount excludes any borrowings or
amounts available to be borrowed under the New
Revolving Facility. The Notes will be effectively
subordinated to all existing and future liabilities,
including indebtedness of the Company's subsidiaries.
At March 30, 1996, on a pro forma basis after giving
effect to the Transactions and the California
Disposition, the Company's subsidiaries would have
had indebtedness and other liabilities reflected on
the Company's consolidated balance sheet, including
trade payables and accrued expenses (but excluding
guarantees of Senior Indebtedness), of approximately
$143.0 million.
Change of Control....... Upon the occurrence of a Change of Control (as
defined), each holder will have the right to require
the Company to repurchase such holder's Notes at a
purchase price equal to 101% of the principal amount
thereof plus accrued and unpaid interest to the date
of repurchase.
7
<PAGE>
Certain Covenants....... The indenture pursuant to which the Notes will be
issued (the "Indenture") will contain certain
covenants that, among other things, limit the ability
of the Company and its Restricted Subsidiaries (as
defined) to make restricted payments, incur
additional indebtedness, create liens, sell assets,
create dividend or other payment restrictions
affecting Restricted Subsidiaries, enter into
transactions with affiliates, consummate mergers or
certain other transactions or incur indebtedness
subordinated to any other indebtedness but senior to
the Notes and the ability of the Restricted
Subsidiaries to issue preferred stock.
The Company does not intend to apply for listing of the Notes on any national
securities exchange. See "Underwriting."
8
<PAGE>
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth summary unaudited pro forma combined financial
data for the 52 weeks ended December 30, 1995 and the 13 weeks ended March 30,
1996, after giving effect to the (a) Transactions and the application of the
proceeds therefrom and (b) the California Disposition and the retention of the
anticipated proceeds therefrom as cash (after reducing pro forma revolving
credit balances to zero), in each case as if they had occurred on January 1,
1995 with respect to the pro forma operating and other data for the 52 weeks
ended December 30, 1995, as of December 31, 1995 with respect to the pro forma
operating and other data for the 13 weeks ended March 30, 1996, and as of
March 30, 1996 with respect to the pro forma balance sheet data. Such pro forma
information: (i) eliminates the results of operations of the Company's
California retail division for the 52 weeks ended December 30, 1995 and for the
13 weeks ended March 30, 1996 from Smith's results of operations for such
periods and eliminates the related assets and liabilities from Smith's balance
sheet data as of March 30, 1996, and (ii) combines the operating results of
Smith's for the 52 weeks ended December 30, 1995 and the operating results and
balance sheet data of Smith's as of March 30, 1996, in each case pro forma for
the elimination of the Company's California retail division and the related
assets and liabilities, with the operating results of Smitty's for the 52 weeks
ended January 14, 1996 and the operating results and balance sheet data of
Smitty's as of and for the 12 weeks ended April 7, 1996, respectively. The pro
forma financial data set forth below is not necessarily indicative of the
results that actually would have been achieved had such transactions been
consummated as of the dates indicated, or that may be achieved in the future.
The pro forma combined financial data does not reflect (i) any of the net
annual cost savings which management believes are achievable by the end of the
third full year of operations following the Merger, (ii) the anticipated costs
expected to be incurred in connection with the integration of operations in
Arizona following the Merger or (iii) a $2 million severance payment to the
Chairman and Chief Executive Officer of the Company. In addition, the summary
pro forma combined operating data does not reflect the California Divestiture
Charge, the California Asset Disposition Charge, an extraordinary loss on
extinguishment of debt, an anticipated charge relating to certain costs
expected to be incurred by Smith's in connection with the Merger, or
compensation expense in connection with the repurchase of certain management
stock options as part of the Recapitalization. See Note (g) to the Unaudited
Pro Forma Combined Statement of Operations. The following pro forma financial
data should be read in conjunction with the Unaudited Pro Forma Combined
Financial Statements, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the historical consolidated financial
statements of Smith's and Smitty's, and related notes thereto, included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
52 WEEKS ENDED 13 WEEKS ENDED
DECEMBER 30, 1995(A) MARCH 30, 1996(A)
-------------------- -----------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
OPERATING DATA:
Net sales.......................... $2,993.4 $ 755.4
Gross profit....................... 703.3 176.5
Operating, selling and administra-
tive expenses..................... 452.2 111.2
Depreciation and amortization...... 89.9 23.3
Interest expense................... 141.7 35.2
Net income......................... $ 3.8 $ 2.7
Ratio of earnings to fixed
charges(b)........................ 1.06x 1.11x
BALANCE SHEET DATA (END OF PERIOD):
Total assets............................................ $1,691.2
Total debt(c)........................................... 1,431.4
Redeemable preferred stock.............................. 3.3
Common stockholders' equity (deficit)................... (126.4)
OTHER DATA:
Capital expenditures............... $ 159.7 $ 19.6
EBITDA (as defined)(d)(e).......... $ 255.4 $ 67.3
EBITDA margin(f)................... 8.53% 8.91%
Ratio of EBITDA (as defined) to in-
terest expense.................... 1.80x 1.91x
Ratio of total debt to 1995 EBITDA
(as defined)...................... 5.60x
</TABLE>
9
<PAGE>
- -------
(a) For purposes of the Summary Unaudited Pro Forma Combined Financial Data,
the Company has given effect to the California Asset Disposition as if
each of the relevant properties had been sold for a cash amount equal to
its net book value after giving effect to the California Asset Disposition
Charge. The proceeds of such assumed sales, together with the proceeds of
the California Divestiture, are reflected in the Company's pro forma cash
balances (net of pro forma revolving credit balances, which have been
eliminated) at March 30, 1996. INVESTORS ARE CAUTIONED THAT THE COMPANY HAS
NOT ENTERED INTO ANY CONTRACTS RELATING TO THE CALIFORNIA ASSET DISPOSITION
AND THAT THERE CAN BE NO ASSURANCE AS TO THE TIMING OR THE AMOUNT OF NET
PROCEEDS, IF ANY, WHICH THE COMPANY WILL ACTUALLY RECEIVE FROM SUCH
DISPOSITION.
(b) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consist of income (loss) before income taxes and fixed charges.
"Fixed charges" consist of interest on all indebtedness, amortization of
deferred financing costs, and one-third of rental expense (the portion of
annual rental expense deemed by the Company to be representative of the
interest factor).
(c) Total debt includes long-term debt and current maturities of long-term
debt. As a result of the assumed application of a portion of the proceeds
of the California Disposition (see note (a) above) to eliminate pro forma
revolving credit balances, pro forma total debt at March 30, 1996 does not
reflect anticipated revolving credit facility borrowings upon consummation
of the Transactions of $7.9 million.
(d) EBITDA (as defined) represents income (loss) before interest expense,
income taxes, depreciation and amortization, LIFO provision and
restructuring charges. EBITDA is a widely accepted financial indicator of
a company's ability to service debt and, with certain variations in
definition, is an indicator of compliance with various covenants in the
Company's debt agreements. However, EBITDA should not be construed as an
alternative to operating income (as determined in accordance with
generally accepted accounting principles) or to cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) and should not be construed as an indication of the Company's
operating performance or as a measure of liquidity. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
For additional information concerning the Company's historical cash flows,
see "Selected Historical Financial Data of Smith's" and the Consolidated
Statements of Cash Flows included elsewhere herein.
(e) Pro forma EBITDA (as defined) does not give effect to net annual cost
savings (as compared to such costs for the pro forma combined fiscal year
ended December 30, 1995) which management believes are achievable by the
end of the third full year of combined operations following the Merger.
The sum of the components of the estimated annual cost savings exceeds $25
million; however, management's estimate of $25 million in net annual cost
savings gives effect to an offsetting adjustment to reflect its
expectation that a portion of the savings will be reinvested in the
Company's operations. The estimates of potential cost savings resulting
from the Merger contained in this Prospectus are forward looking
statements that involve risks and inherent uncertainties that could cause
actual net annual cost savings to differ materially from those projected.
See "Risk Factors--Ability to Achieve Anticipated Cost Savings." The sum
of the Company's pro forma EBITDA (as defined) ($255.4 million) and the
full amount of the estimated net annual cost savings to be realizable by
the end of the third full year of operations following the Merger ($25.0
million) is $280.4 million. See "--Operating Strategy--Realize Operating
Synergies and Cost Savings Resulting from the Merger."
(f) EBITDA margin represents EBITDA (as defined) as a percentage of net sales.
10
<PAGE>
SUMMARY HISTORICAL FINANCIAL DATA OF SMITH'S
The following table sets forth summary historical financial data of Smith's
for the five fiscal years ended December 30, 1995, which have been derived from
the financial statements of Smith's audited by Ernst & Young LLP, independent
auditors. The summary historical financial data of Smith's for the 13 weeks
ended April 1, 1995 and March 30, 1996 have been derived from unaudited interim
financial statements of Smith's which, in the opinion of management, reflect
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair presentation of such data. The following information should be read in
conjunction with the Unaudited Pro Forma Combined Financial Statements,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical consolidated financial statements of Smith's and
related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 13 WEEKS 13 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 28, JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 30, APRIL 1, MARCH 30,
1991 1993 1994 1994 1995 1995 1996
------------ ---------- ---------- ------------ ------------ -------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales.............. $2,217.4 $2,649.9 $2,807.2 $2,981.4 $3,083.7 $ 746.7 $ 693.2
Gross profit........... 498.6 611.6 637.2 669.1 697.0 168.3 146.6
Operating, selling and
administrative
expenses.............. 344.4 419.7 430.3 440.8 461.4 112.8 111.4
Depreciation and
amortization.......... 50.5 67.8 82.2 94.5 105.0 24.7 22.6
Interest expense....... 30.3 36.1 44.6 53.7 60.5 15.1 14.5
Restructuring
charges(a)............ -- -- -- -- 140.0 -- --
Net income (loss)...... $ 45.1 $ 53.7 $ 45.8 $ 48.8 $ (40.5) $ 9.5 $ (1.2)
Ratio of earnings to
fixed charges(b)...... 3.02x 3.06x 2.55x 2.18x -- 1.83x --
BALANCE SHEET DATA (END
OF PERIOD):
Working capital........ $ 30.7 $ 91.2 $ 160.4 $ 62.3 $ 162.7 $ 112.6 $ 87.8
Total assets........... 1,196.7 1,486.1 1,654.3 1,653.5 1,686.2 1,661.8 1,486.0
Total debt(c).......... 395.4 612.7 725.5 718.9 746.2 765.0 672.8
Redeemable preferred
stock................. 8.5 7.5 6.5 5.4 4.3 5.1 4.3
Common stockholders'
equity................ $ 474.4 $ 515.4 $ 542.2 $ 475.3 $ 416.7 $ 477.6 $ 411.7
OTHER DATA:
Stores open at end of
period(d)............. 109 119 129 137 154 142 120
Capital expenditures... $ 281.6 $ 288.0 $ 322.3 $ 146.7 $ 149.0 $ 25.2 $ 18.3
EBITDA (as defined)(e). $ 154.2 $ 192.0 $ 208.5 $ 230.8 $ 239.6 $ 56.6 $ 36.9
EBITDA margin(f)....... 7.0% 7.2% 7.4% 7.7% 7.8% 7.6% 5.3%
</TABLE>
- --------
(a) Reflects charges in connection with the California Divestiture. See Note K
to Notes to Consolidated Financial Statements of Smith's included elsewhere
herein.
(b) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consist of income (loss) before income taxes and fixed charges.
"Fixed charges" consist of interest on all indebtedness, amortization of
deferred financing costs and one-third of rental expense (the portion of
annual rental expense deemed by the Company to be representative of the
interest factor). For the 52 weeks ended December 30, 1995, the Company's
earnings were inadequate to cover fixed charges by $69.8 million. However,
such earnings include non-cash charges of $105.4 million, primarily
consisting of depreciation and amortization, and restructuring charges of
$140.0 million. For the 13 weeks ended March 30, 1996, the Company's
earnings were inadequate to cover fixed charges by $2.0 million. However,
such earnings include non-cash charges of $22.7 million, primarily
consisting of depreciation and amortization.
(c) Total debt includes long-term debt and current maturities of long-term
debt.
(d) See "Business--Store Development and Expansion."
(e) EBITDA (as defined) represents income (loss) before interest expense,
income taxes, depreciation and amortization expense, LIFO provision and
restructuring charges. EBITDA is a widely accepted financial indicator of a
company's ability to service debt. However, EBITDA should not be construed
as an alternative to operating income or to cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) and should not be construed as an indication of Smith's
operating performance or as a measure of liquidity. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
For additional information concerning the Company's historical cash flows,
see "Selected Historical Financial Data of Smith's" and the Consolidated
Statements of Cash Flows included elsewhere herein.
(f) EBITDA margin represents EBITDA (as defined) as a percentage of net sales.
11
<PAGE>
RISK FACTORS
Prospective investors should carefully consider the following factors, in
addition to the other matters described in this Prospectus, before purchasing
the securities being sold in the Offerings.
LEVERAGE AND DEBT SERVICE
Following the consummation of the Transactions, the Company will be highly
leveraged. At March 30, 1996, pro forma for the Transactions and the
California Disposition, the Company's total debt and stockholders' equity
(deficit) would have been $1,431.4 million and $(126.4) million, respectively,
compared to actual debt and stockholders' equity of $672.8 million and $411.7
million, respectively, on such date. The Company would also have had
additional borrowing availability under the New Revolving Facility on a pro
forma basis, subject to the borrowing conditions contained therein. In
addition, after giving effect to the Transactions and the California
Disposition, scheduled payments under net operating leases of the Company and
its subsidiaries for the twelve months following the Merger would have been
approximately $38.7 million. The Company's ability to make scheduled payments
of the principal of, or interest on, or to refinance its indebtedness
(including the Notes) and to make scheduled payments under its operating
leases depends on its future performance, which is subject to economic,
financial, competitive and other factors beyond its control.
Based upon the current level of operations and anticipated cost savings and
future growth, the Company believes that its cash flow from operations,
together with borrowings under the New Revolving Facility and its other
sources of liquidity, will be adequate to meet its anticipated requirements
for working capital, capital expenditures, lease payments, interest payments
and scheduled principal payments. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources." There can be no assurance, however, that the Company's business
will continue to generate cash flow at or above current levels or that
anticipated cost savings or future growth can be achieved. In addition, no
assurances can be given as to the timing of, or the net proceeds to be
realized upon, the California Asset Disposition and, therefore, as to the
timing or amount of receipts thereof as reflected in the Unaudited Pro Forma
Combined Financial Statements. If the Company is unable to generate sufficient
cash flow from operations in the future to service its debt and make necessary
capital or other expenditures, or if its future cash flows are insufficient to
amortize all required principal payments out of internally generated funds,
the Company may be required to refinance all or a portion of its existing
debt, sell assets or obtain additional financing. There can be no assurance
that any such refinancing or asset sales would be possible or that any
additional financing could be obtained, particularly in view of the Company's
high level of debt following the Transactions and the fact that substantially
all of its assets will be pledged to secure borrowings under the New Credit
Facility and other secured obligations.
The Company's high level of debt and debt service requirements will have
several important effects on its future operations, including the following:
(a) the Company will have significant cash requirements to service debt,
reducing funds available for operations and future business opportunities and
increasing the Company's vulnerability to adverse general economic and
industry conditions and competition; (b) the Company's leveraged position will
increase its vulnerability to competitive pressures; (c) the financial
covenants and other restrictions contained in the New Credit Facility and
other agreements relating to the Company's indebtedness and in the Indenture
will require the Company to meet certain financial tests and will restrict its
ability to borrow additional funds, to dispose of assets or to pay cash
dividends on, or repurchase, preferred or common stock; and (d) funds
available for working capital, capital expenditures, acquisitions and general
corporate purposes will be limited. The Company's continued growth depends, in
part, on its ability to continue its expansion and store conversion efforts,
and therefore its inability to finance capital expenditures through borrowed
funds or otherwise could have a material adverse effect on the Company's
future operations. Moreover, any default under the documents governing the
indebtedness of the Company could have a significant adverse effect on the
market value of the Notes.
The Company's capital structure immediately after the Transactions will
include a significant amount of floating rate indebtedness, causing the
Company to be significantly more sensitive to prevailing interest rates than
has historically been the case. The Company intends to enter into interest
rate protection agreements which, for the duration of such agreements, will
effectively provide fixed rates of interest or ceiling rates of interest on
12
<PAGE>
a portion of such floating rate indebtedness. There can be no assurance that
the Company will be able to enter into such agreements on favorable terms. See
"Description of New Credit Facility." In addition, following the Transactions,
the Company's blended average rates of interest are anticipated to be higher
than the rates of interest on the Company's indebtedness outstanding
immediately prior to the Transactions.
ABILITY TO ACHIEVE ANTICIPATED COST SAVINGS
Management of the Company has estimated that approximately $25 million of
annualized net cost savings (as compared to such costs for the pro forma
combined fiscal year ended December 30, 1995) can be achieved over a three-
year period as a result of integrating the Arizona operations of Smith's and
Smitty's. The estimates of potential cost savings contained in this Prospectus
are forward looking statements that are inherently uncertain. Actual cost
savings, if any, could differ materially from those projected. All of these
forward looking statements are based on estimates and assumptions made by
management of the Company, which although believed to be reasonable, are
inherently uncertain and difficult to predict; therefore, undue reliance
should not be placed upon such estimates. There can be no assurance that the
savings anticipated in these forward looking statements will be achieved. The
following important factors, among others, could cause the Company not to
achieve the cost savings contemplated herein (principally those set forth in
"Summary--Operating Strategy" and "Business-- Operating Strategy") or
otherwise cause the Company's results of operations to be adversely affected
in future periods: (i) continued or increased competitive pressures from
existing competitors and new entrants, including price-cutting strategies;
(ii) unanticipated costs related to the Transactions and the integration
strategy; (iii) loss or retirement of key members of management or the
termination of the Management Services Agreement with Yucaipa; (iv) inability
to negotiate more favorable terms with suppliers or to improve working capital
management; (v) increases in interest rates or the Company's cost of borrowing
or a default under any material debt agreements; (vi) inability to develop new
stores in advantageous locations or to successfully convert existing stores;
(vii) prolonged labor disruption; (viii) deterioration in general or regional
economic conditions; (ix) adverse state or federal legislation or regulation
that increases the costs of compliance, or adverse findings by a regulator
with respect to existing operations; (x) loss of customers as a result of the
conversion of store formats; (xi) adverse determinations in connection with
pending or future litigations or other material claims against the Company;
(xii) inability to achieve future sales levels or other operating results that
support the cost savings, and (xiii) the unavailability of funds for capital
expenditures. Many of such factors are beyond the control of the Company. In
addition, there can be no assurance that unforeseen costs and expenses or
other factors will not offset the projected cost savings in whole or in part.
ANTICIPATED CHARGES TO EARNINGS FOLLOWING THE TRANSACTIONS
Upon consummation of the Transactions, the Company anticipates that it would
record charges to earnings in connection with (i) the adoption of a strategy
to accelerate the disposition of certain real estate assets in California
pursuant to the California Asset Disposition, (ii) the payment of certain
refinancing premiums and the write-off of certain debt issuance costs, (iii)
the purchase of certain management stock options, and (iv) the integration of
its Arizona operations with Smitty's. As a result of the foregoing, the
Company anticipates that it would record a substantial charge to earnings for
the quarter in which the Transactions are consummated. The Company currently
estimates that the total charge for all such items would be approximately $220
million (pre-tax). However, such estimate is based on information available as
of the date of this Prospectus and the actual total charge may differ
materially from such estimate if the actual information available to the
Company at the time the charge is recorded varies from the information
currently available. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Overview."
COMPETITION
The supermarket industry is highly competitive and characterized by narrow
profit margins. The Company's competitors include national and regional
supermarket chains, independent and specialty grocers, drug and convenience
stores and the newer "alternative format" food stores, including warehouse-
style supermarkets, club stores, deep discount drug stores and "supercenters."
The Company's competitors continue to open new stores in the Company's
existing markets. In addition, new competitors have entered the Company's
markets in
13
<PAGE>
the past and could do so in the future. Supermarket chains generally compete
on the basis of price, location, quality of products, service, product variety
and store condition. The Company regularly monitors its competitors' prices
and adjusts its prices and marketing strategy as management deems appropriate
in light of existing conditions. Some of the Company's competitors have
greater financial resources than the Company and could use those resources to
take steps which could adversely affect the Company's competitive position.
The Company's ability to respond to competitive pressures could be adversely
affected by its highly leveraged financial condition. See "Business--
Competition."
CONTROL OF THE COMPANY
The Company's Class A Common Stock and Series I Preferred Stock are each
entitled to ten votes per share and the Company's Class B Common Stock is
entitled to one vote per share. Upon consummation of the Transactions, members
of the Smith Group (as defined) are expected to have beneficial ownership, in
the aggregate, of approximately 24.5% of the outstanding Common Stock and
31.6% of the outstanding Series I Preferred Stock of the Company, representing
approximately 41.8% of the aggregate voting power of the Company's capital
stock, and certain affiliates of Yucaipa will have beneficial ownership of
approximately 13.6% of the total outstanding Common Stock of the Company,
representing approximately 1.3% of the aggregate voting power of the Company's
outstanding capital stock. Pursuant to a standstill agreement (the "Standstill
Agreement") entered into by such Smith family members (the "Smith Group"),
certain affiliates of Yucaipa (the "Yucaipa Group") and the Company, upon
consummation of the Recapitalization the Company will use its best efforts to
reconstitute its Board of Directors to consist of seven directors, and each of
the Smith Group and the Yucaipa Group will have the right to nominate two
directors so long as it holds at least 8% of the outstanding Common Stock and
the right to nominate one director so long as it holds at least 5% of the
outstanding Common Stock. As a result of the ownership structure of the
Company and the contractual rights described above, the voting and management
control of the Company is highly concentrated. The Smith Group has effective
control of the Company and will effectively be able to direct the actions of
the Company with respect to matters such as the payment of dividends, material
acquisitions and dispositions and other extraordinary corporate transactions.
See "Certain Relationships and Related Transactions," "Principal Stockholders"
and "Description of Capital Stock."
NEW SENIOR MANAGEMENT AND BOARD OF DIRECTORS
Upon consummation of the Transactions, substantially all of the existing
members of the Company's Board of Directors will resign and be replaced by the
new directors identified in this Prospectus. Jeffrey P. Smith will remain as
Chairman of the Board but will resign as Chief Executive Officer of the
Company. Ronald W. Burkle, the managing general partner of Yucaipa, will be
appointed Chief Executive Officer of the Company and Allen R. Rowland will
continue his recent appointment as President and Chief Operating Officer. As a
result, the Company's senior executive officers and a majority of the members
of the Board of Directors will be new appointees. There can be no assurance
that the changes in the Company's Board of Directors or senior management will
not adversely affect the Company's operating performance. Mr. Burkle will
provide his services as Chief Executive Officer pursuant to the Management
Services Agreement between the Company and Yucaipa; however, such agreement
does not require Mr. Burkle to spend any specified amount of time on Company
affairs. Yucaipa will receive an annual fee of $1 million for providing the
services of Mr. Burkle and the other partners and employees of Yucaipa. The
Management Services Agreement may be terminated by the Company's Board of
Directors on 90 days' notice or by either party upon the occurrence of certain
events. If the Company seeks to terminate the Management Services Agreement,
subject to limited exceptions, it is required to pay Yucaipa a termination fee
of between $5 million and $10 million, depending on the time of termination.
Yucaipa will also receive certain fees in connection with the consummation of
the Recapitalization. See "Management" and "Certain Relationships and Related
Transactions."
14
<PAGE>
CONTINGENT LIABILITIES RELATING TO CALIFORNIA DIVESTITURE
In connection with closing stores and otherwise redeploying assets, the
Company has assigned leases and subleased stores and other facilities at
various times, including the sublease to Ralphs of the Company's Riverside,
California distribution center and dairy plant and the assignment or sublease
of 10 stores to various supermarket companies (including nine to Ralphs) in
connection with the California Divestiture. Since the Company will generally
remain either primarily or secondarily liable for the underlying lease
obligations with respect to these stores and other facilities, the Company has
a contingent liability to the extent the Company's sublessees or assignees
default in the performance of their obligations under their respective
sublease or underlying lease. For additional information concerning the
California Divestiture, the Company's sale-leaseback financing and certain
related claims and other matters, see "Business--California Divestiture" and
"--California Sale-Leaseback Financing."
FRAUDULENT CONVEYANCE RISKS
Various fraudulent conveyance laws have been enacted for the protection of
creditors and may be utilized by a court to subordinate or avoid the Notes in
favor of other existing or future creditors of the Company.
Proceeds of the Offering are being used, in part, to purchase shares of
Smith's Common Stock in the Tender Offer, to redeem options to purchase Common
Stock held by Smith's management, and to purchase shares of Smith's Series I
Preferred Stock. If a court in a lawsuit on behalf of any unpaid creditor of
the Company or a representative of the Company's creditors were to find that,
at the time the Company issued the Notes, the Company (x) intended to hinder,
delay or defraud any existing or future creditor or contemplated insolvency
with a design to prefer one or more creditors to the exclusion in whole or in
part of others or (y) did not receive fair consideration in good faith or
reasonably equivalent value for issuing the Notes and the Company (i) was
insolvent, (ii) was rendered insolvent by reason of such stock purchases and
redemptions, (iii) was engaged or about to engage in a business or transaction
for which its remaining assets constituted unreasonably small capital to carry
on its business, or (iv) intended to incur, or believed that it would incur,
debts beyond its ability to pay such debts as they matured, such court could
void the Notes and void such transactions. Alternatively, in such event,
claims of the holders of Notes could be subordinated to claims of other
creditors of the Company. The Company may be viewed as insolvent at the time
of or as a result of the Tender Offer, redemption of options and preferred
stock, if the fair value of its assets does not exceed its probable
liabilities at the time of, or following such transactions.
Based upon financial and other information currently available to it,
management of the Company believes that the Notes are being incurred for
proper purposes and in good faith. Certain courts have held, however, that a
company's purchase of its own capital stock does not constitute reasonably
equivalent value or fair consideration for incurring indebtedness. By
extension, the redemption of options to purchase capital stock of a company
may also be viewed as not constituting reasonably equivalent value or fair
consideration to the company. The Company believes that it (i) is solvent and
will continue to be solvent after issuing the Notes notwithstanding the fact
that the Company, after completion of the Tender Offer, redemption of options
and redemption of preferred stock, will have a negative net worth under
generally accepted accounting principles, because the Company believes that
the fair value of the Companys' assets exceeds and will exceed its probable
liabilities, (ii) will have sufficient capital for carrying on the business it
intends to conduct after such issuance, and (iii) will be able to pay its
debts as they mature. See "Management's Discussions and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." There
can be no assurance, however, that a court would concur with such beliefs and
positions.
It is a condition to the consummation of the Tender Offer that the Company
shall have received an opinion from an independent valuation firm (i) as to
the value of the Company's assets and liabilities, after giving effect to the
consummation of the Transactions, and (ii) that the fair value of the
Company's assets would exceed its total stated liabilities and identified
contingent liabilities both before and after giving effect to the Transactions
by at least the aggregate par value of its issued capital stock. Houlihan,
Lokey, Howard & Zukin, Inc. has been retained by the Company to deliver such
an opinion.
15
<PAGE>
SUBORDINATION OF THE NOTES
The payment of principal, premium, if any, and interest on, and any other
amounts owing in respect of, the Notes will be subordinated to the prior
payment in full of all existing and future Senior Indebtedness, including
indebtedness under the New Credit Facility. As of March 30, 1996, on a pro
forma basis after giving effect to the Transactions and the California
Disposition, the aggregate outstanding amount of Senior Indebtedness of the
Company would have been approximately $813.2 million, which amount excludes
any borrowings or amounts available to be borrowed under the New Revolving
Facility. In the event of the bankruptcy, liquidation, dissolution,
reorganization or other winding up of the Company, the assets of the Company
will be available to pay obligations on the Notes only after all Senior
Indebtedness has been paid in full, and there may not be sufficient assets
remaining to pay amounts due on any or all of the Notes. In addition, under
certain circumstances, the Company may not pay principal of, premium, if any,
or interest on, or any other amounts owing in respect of, the Notes, or
purchase, redeem or otherwise retire the Notes, if a payment default or a non-
payment default exists with respect to certain Senior Indebtedness and, in the
case of a non-payment default, a payment blockage notice has been received by
the Trustee (as defined). See "Description of the Notes--Subordination."
The New Credit Facility permits the Company to pay interest on the Notes,
subject to the subordination provisions of the Indenture, so long as no event
of default or potential event of default has occurred under the New Credit
Facility.
The Notes will be effectively subordinated to all secured indebtedness of
the Company and its subsidiaries. The borrowings and obligations under the New
Credit Facility are secured by substantially all of the assets of the Company
and its subsidiaries. At March 30, 1996, on a pro forma basis after giving
effect to the Transactions and the California Disposition, the Company would
have had approximately $813.2 million aggregate amount of secured indebtedness
and other obligations outstanding, which amount excludes any borrowings or
amounts available to be borrowed under the New Revolving Facility.
The Notes will also be effectively subordinated to all existing and future
liabilities, including indebtedness, of the Company's subsidiaries. The
obligations of the Company under the New Credit Facility will be guaranteed,
jointly and severally, by the Company's subsidiaries, including Smitty's. At
March 30, 1996, on a pro forma basis after giving effect to the Transactions
and the California Disposition, the Company's subsidiaries would have had
indebtedness and other liabilities reflected on the Company's consolidated
balance sheet, including trade payables and accrued expenses (but excluding
guarantees of Senior Indebtedness), of approximately $143.0 million. Claims of
creditors of the Company's subsidiaries, including trade creditors, will
generally have priority as to the assets of such subsidiaries over the claims
of the Company and the holders of the Company's indebtedness, including the
Notes.
ABSENCE OF ESTABLISHED MARKET FOR THE NOTES
There is no established market for the Notes and there can be no assurance
as to the liquidity of any markets that may develop for the Notes, the ability
of holders of the Notes to sell their Notes, or the price at which holders
would be able to sell their Notes. Future trading prices of the Notes will
depend on many factors, including, among other things, prevailing interest
rates, the Company's operating results and the market for similar securities.
The Underwriters have advised the Company that they currently intend to make a
market in the Notes. However, the Underwriters are not obligated to do so and
any market-making may be discontinued at any time, by any or all of them,
without notice.
16
<PAGE>
PRO FORMA CAPITALIZATION
The following table sets forth the consolidated pro forma capitalization of
the Company at March 30, 1996, giving effect to the Transactions and the
California Disposition. This table should be read in conjunction with the
Unaudited Pro Forma Combined Financial Statements and the historical
consolidated financial statements of Smith's and Smitty's, and the related
notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
---------------------
(DOLLARS IN MILLIONS)
<S> <C>
Current portion of long-term debt:
New Term Loans.................................... $ 12.3
Other indebtedness................................ 4.2
--------
Total current portion of long-term debt......... $ 16.5
========
Long-term debt:
New Term Loans(a)................................. $ 792.7
New Revolving Facility(a)(b)...................... --
Senior Subordinated Notes......................... 575.0
Other indebtedness................................ 47.2
--------
Total long-term debt............................ 1,414.9
--------
Redeemable preferred stock, $.01 par value.......... 3.3
Common stockholders' equity:
Common Stock, $.01 par value(c)................... 0.2
Additional paid-in capital........................ 164.8
Retained earnings (deficit)....................... (291.4)
--------
Total common stockholders' equity (deficit)..... (126.4)
--------
Total capitalization.......................... $1,291.8
========
</TABLE>
- --------
(a) The Company has obtained a commitment from Bankers Trust and Chase
Manhattan for the New Credit Facility that will provide up to $805 million
aggregate principal amount of New Term Loans and a $190 million New
Revolving Facility which will be available for working capital
requirements and general corporate purposes. A portion of the New
Revolving Facility may be used to support letters of credit, approximately
$28 million of which are anticipated to be issued at Closing. The New
Credit Facility will be guaranteed by all subsidiaries of the Company,
including Smitty's. See "Description of New Credit Facility."
(b) Assumes that all outstanding Smitty's Notes and Smitty's Debentures are
tendered and accepted for purchase in connection with the Smitty's
Refinancing. If all of the outstanding Smitty's Notes and Smitty's
Debentures are not tendered and accepted for purchase, the Company
anticipates that it would reduce other borrowings. As a result of the
assumed application of a portion of the proceeds of the California
Disposition to eliminate pro forma revolving credit balances, pro forma
total debt at March 30, 1996 does not reflect anticipated revolving credit
facility borrowings upon consummation of the Transactions of $7.9 million.
(c) Does not reflect (i) management options to purchase up to an aggregate of
808,250 shares of Class B Common Stock expected to be outstanding upon
consummation of the Transactions or (ii) Warrants to purchase shares of
Class C Common Stock of the Company (at an initial exercise price of
$50.00 per share) to be issued to Yucaipa upon consummation of the
Transactions. See "Certain Relationships and Related Transactions."
17
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements of the
Company for the 52 weeks ended December 30, 1995 and the 13 weeks ended March
30, 1996 give effect to (a) the Transactions and the application of the
proceeds therefrom and (b) the California Disposition and the retention of the
anticipated proceeds therefrom as cash (after reducing pro forma revolving
credit balances to zero), in each case as if such transactions occurred on
January 1, 1995 with respect to the pro forma operating and other data for the
52 weeks ended December 30, 1995, as of December 31, 1995 with respect to the
pro forma operating and other data for the 13 weeks ended March 30, 1996, and
as of March 30, 1996 with respect to the pro forma balance sheet data. Such
pro forma information: (i) eliminates the results of operations of the
Company's California retail division for the 52 weeks ended December 30, 1995
and for the 13 weeks ended March 30, 1996 from Smith's results of operations
for such periods and eliminates the related assets and liabilities from
Smith's balance sheet data as of March 30, 1996 and (ii) combines the
operating results of Smith's for the 52 weeks ended December 30, 1995 and the
operating results and balance sheet data of Smith's as of and for the 13 weeks
ended March 30, 1996, in each case pro forma for the elimination of the
Company's California retail division and the related assets and liabilities,
with the operating results of Smitty's for the 52 weeks ended January 14, 1996
and the operating results and balance sheet data of Smitty's as of and for the
12 weeks ended April 7, 1996, respectively.
As indicated above, the Unaudited Pro Forma Combined Financial Statements
give effect to the California Divestiture and the California Asset Disposition
and the retention of the anticipated proceeds therefrom as cash. In connection
with the California Divestiture, Smith's entered into agreements to sell or
lease 16 stores and related equipment and three non-operating properties.
These transactions are expected to generate net cash proceeds of
$77.8 million, of which $67.2 million has been received to date. The remaining
18 stores in California have been closed. In connection with the California
Divestiture, the Company recorded the $140 million (pre-tax) California
Divestiture Charge for the year ended December 30, 1995 and classified the
assets to be leased or sold as "assets held for sale." The California
Divestiture Charge reflected (i) a provision for anticipated future lease
obligations, (ii) the anticipated cost to the Company of closing its
California stores and distribution center (primarily termination payments and
inventory), and (iii) certain asset valuation adjustments. The asset valuation
adjustments included in the California Divestiture Charge reflected the
reduction in net realizable values for the equipment in all of the Company's
California stores and distribution center and for the land and buildings
associated with those properties being sold or leased. Pursuant to the
California Asset Disposition, following the consummation of the Transactions
the Company intends to accelerate the disposition of its 18 non-operating
stores and its excess land in California. As a result of the adoption of this
strategy, the Company intends to record a pre-tax charge to earnings of
approximately $125 million (the California Asset Disposition Charge) to
reflect the difference between the anticipated cash proceeds from the
accelerated dispositions and the Company's existing book values for such
assets. For purposes of the Unaudited Pro Forma Combined Balance Sheet, the
Company has given effect to the California Asset Disposition as if each of the
relevant properties had been sold for a cash amount equal to its net book
value after giving effect to the California Asset Disposition Charge. The
proceeds of such assumed sales, together with the proceeds of the California
Divestiture, are reflected in the Company's pro forma cash balances (net of
pro forma revolving credit borrowings, which have been eliminated) at March
30, 1996. INVESTORS ARE CAUTIONED THAT THE COMPANY HAS NOT ENTERED INTO ANY
CONTRACTS RELATING TO THE CALIFORNIA ASSET DISPOSITION AND THAT THERE CAN BE
NO ASSURANCE AS TO THE TIMING OR THE AMOUNT OF NET PROCEEDS, IF ANY, WHICH THE
COMPANY WILL ACTUALLY RECEIVE FROM SUCH DISPOSITION.
The pro forma adjustments to give effect to the California Disposition and
the Transactions are based upon currently available information and upon
certain assumptions that management believes are reasonable. The statement of
results of operations used to derive the adjustments to eliminate the
California results of operations differs from a complete statement in that
allocations for interest expense and certain services provided by the Company,
including, but not limited to, portions of legal assistance, employee benefits
administration, treasury, accounting, auditing, tax functions and real estate,
have not been made. The Merger will be accounted for by the
18
<PAGE>
Company as a purchase of Smitty's by Smith's and Smitty's assets and
liabilities will be recorded at their estimated fair market values at the date
of the Merger. The adjustments included in the Unaudited Pro Forma Combined
Financial Statements represent the Company's preliminary determination of
these adjustments based upon available information. There can be no assurance
that the actual adjustments will not differ significantly from the pro forma
adjustments reflected in the pro forma financial information. The Unaudited
Pro Forma Combined Financial Statements are not necessarily indicative of
either future results of operations or results that might have been achieved
if the foregoing transactions had been consummated as of the indicated dates.
The Unaudited Pro Forma Combined Financial Statements should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical consolidated financial
statements of Smith's and Smitty's, together with the related notes thereto,
included elsewhere in this Prospectus.
The Unaudited Pro Forma Combined Financial Statements do not reflect (i) any
of the net annual cost savings which management believes are achievable by the
end of the third full year of operations following the Merger, (ii) the
anticipated costs to be incurred in connection with the integration of
operations in Arizona following the Merger, or (iii) a $2 million severance
payment to the Company's Chairman and Chief Executive Officer. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview" and "Certain Relationships and Related Transactions--
CEO's Severance Agreement." The Unaudited Pro Forma Combined Statement of
Operations included herein does not reflect the California Divestiture Charge,
the California Asset Disposition Charge, an extraordinary loss on
extinguishment of debt, an anticipated charge relating to certain costs
expected to be incurred by Smith's in connection with the Merger or
compensation expense in connection with the repurchase of certain management
stock options as part of the Recapitalization. See Note (g) to the Unaudited
Pro Forma Combined Statement of Operations.
19
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
52 WEEKS ENDED
-----------------------------------------------------------
JANUARY 14, ADJUSTMENTS
DECEMBER 30, 1995 1996 FOR PRO FORMA
---------------------------------------------- ------------ CALIFORNIA COMBINED FOR
SMITH'S ADJUSTMENTS FOR PRO FORMA SMITH'S SMITTY'S DISPOSITION CALIFORNIA
(HISTORICAL) CALIFORNIA FOR CALIFORNIA (HISTORICAL) AND DISPOSITION
(AUDITED) DIVESTITURE(A) DIVESTITURE (UNAUDITED) TRANSACTIONS AND TRANSACTIONS
------------ --------------- ----------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $ 3,083.7 $(674.6) $ 2,409.1 $ 584.3 $ $ 2,993.4
Cost of goods sold...... 2,386.7 (516.2) 1,870.5 419.6 2,290.1
---------- ------- ---------- --------- ------ ----------
697.0 (158.4) 538.6 164.7 703.3
Expenses:
Operating, selling and
administrative....... 461.4 (145.6) 315.8 136.0 0.4 (b) 452.2
Depreciation and
amortization......... 105.0 (27.0) 78.0 12.3 (1.3)(c)
0.9 (d) 89.9
Restructuring charges. 140.0 (140.0)
Interest.............. 60.0 60.0 18.4 63.3 (e) 141.7
Amortization of debt
issuance costs....... 0.4 0.4 1.0 8.8 (e) 10.2
---------- ------- ---------- --------- ------ ----------
Income (loss) before
income taxes........... (69.8) 154.2 84.4 (3.0) (72.1) 9.3
Income tax expense
(benefit).............. (29.3) 63.2 33.9 (0.7) (27.7)(f) 5.5
---------- ------- ---------- --------- ------ ----------
Net income (loss) (g)... $ (40.5) $ 91.0 $ 50.5 $ (2.3) $(44.4) $ 3.8
========== ======= ========== ========= ====== ==========
Net income (loss) per
common
share (g).............. $ (1.62) $ 2.00 $ (2.30) $ 0.24 (h)
========== ========== ========= ==========
Weighted average common
shares outstanding..... 25,031,000 25,284,000 1,001,000 15,530,000
========== ========== ========= ==========
Ratio of earnings to
fixed charges (i)(j)... -- 2.27x 1.06x
</TABLE>
See Notes to Unaudited Pro Forma Combined Statement of Operations.
20
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
12 WEEKS
ENDED
13 WEEKS ENDED APRIL 7, ADJUSTMENTS
MARCH 30, 1996 1996 FOR PRO FORMA
---------------------------------------------- ------------ CALIFORNIA COMBINED FOR
SMITH'S ADJUSTMENTS FOR PRO FORMA SMITH'S SMITTY'S DISPOSITION CALIFORNIA
(HISTORICAL) CALIFORNIA FOR CALIFORNIA (HISTORICAL) AND DISPOSITION
(UNAUDITED) DIVESTITURE(A) DIVESTITURE (UNAUDITED) TRANSACTIONS AND TRANSACTIONS
------------ --------------- ----------------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $ 693.2 $(73.1) $ 620.1 $ 135.3 $ $ 755.4
Cost of goods sold...... 546.6 (62.9) 483.7 95.2 578.9
---------- ------ ---------- --------- ------ ----------
146.6 (10.2) 136.4 40.1 176.5
Expenses:
Operating, selling and
administrative....... 111.4 (32.3) 79.1 32.0 0.1 (b) 111.2
Depreciation and
amortization......... 22.6 (2.3) 20.3 3.1 (0.3)(c)
0.2 (d) 23.3
Interest.............. 14.5 14.5 3.9 16.8 (e) 35.2
Amortization of debt
issuance costs....... 0.1 0.1 0.2 2.2 (e) 2.5
---------- ------ ---------- --------- ------ ----------
Income (loss) before
income taxes........... (2.0) 24.4 22.4 0.9 (19.0) 4.3
Income tax expense
(benefit).............. (0.8) 9.5 8.7 (7.1)(f) 1.6
---------- ------ ---------- --------- ------ ----------
Net income (loss) (g)... $ (1.2) $ 14.9 $ 13.7 $ 0.9 $(11.9) $ 2.7
========== ====== ========== ========= ====== ==========
Net income (loss) per
common share (g)...... $ (0.05) $ 0.54 $ 0.89 $ 0.17 (h)
========== ========== ========= ==========
Weighted average common
shares outstanding..... 25,072,000 25,500,000 1,009,000 15,575,000
========== ========== ========= ==========
Ratio of earnings to
fixed charges (i)(j)... -- 2.40x 1.11x
</TABLE>
See Notes to Unaudited Pro Forma Combined Statement of Operations.
21
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(a) Reflects the elimination of the 1995 operating results for the California
stores, excess real estate and distribution center which were sold, leased
or closed, and the reversal of the restructuring charge recorded, in
connection with the California Divestiture and the anticipated sale of the
Company's remaining California real estate pursuant to the California
Asset Disposition, but does not reflect the California Asset Disposition
Charge of $125 million (pre-tax) which is anticipated to be recorded in
connection with the adoption of a strategy to dispose of such remaining
California assets following the consummation of the Transactions.
(b) Represents fees payable to Yucaipa pursuant to the Management Services
Agreement ($1.0 million for the 52 weeks ended December 30, 1995 and $0.3
for the 13 weeks ended March 30, 1996) and the elimination of the
historical Yucaipa management fees ($0.6 million for the 52 weeks ended
December 30, 1995 and $0.2 for the 13 weeks ended March 30, 1996) paid by
Smitty's. See "Certain Relationships and Related Transactions--Management
Services Agreement."
(c) Represents a reduction in depreciation expense associated with the $16.1
million write-off of accumulated depreciation and amortization which
adjusts Smitty's property and equipment to estimated fair market value.
(d) Reflects the amortization of excess costs over net assets acquired in the
Merger ($2.0 million for the 52 weeks ended December 30, 1995 and $0.5 for
the 13 weeks ended March 30, 1996) and the elimination of Smitty's
historical amortization ($1.1 million for the 52 weeks ended December 30,
1995 and $0.3 for the 13 weeks ended March 30, 1996). Amortization has
been allocated on the straight line basis over a period of 40 years.
(e) The following table presents a reconciliation of pro forma interest
expense and amortization of debt issuance costs:
<TABLE>
<CAPTION>
52 WEEKS 13 WEEKS
ENDED ENDED
DECEMBER 30, 1995 MARCH 30, 1996
----------------- --------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Interest expense:
Smitty's.............................. $ 18.4 $ 3.9
Pro forma Smith's..................... 60.0 14.5
------ ------
78.4 18.4
------ ------
Plus: Interest on:
New Term Loans........................ 71.5 18.0
Bank fees............................. 0.3 0.1
Notes................................. 63.3 15.8
Less: Interest on:
Old bank term loans:
Pro forma Smith's................... (59.5) (14.3)
Smitty's............................ (3.1) (0.6)
Bank fees............................. (0.4) (0.1)
Smitty's Notes........................ (6.5) (1.5)
Accretion of Smitty's Debentures...... (2.3) (0.6)
------ ------
Pro forma adjustment................... 63.3 16.8
------ ------
Pro forma interest expense.............. $141.7 $ 35.2
====== ======
Historical amortization of debt issuance
costs.................................. $ 1.4 $ 0.3
Plus:
Financing fees--New Credit Facility... 7.2 1.8
Financing fees--Notes................. 3.0 0.7
Less:
Historical financing costs:........... (1.4) (0.3)
------ ------
Pro forma adjustment................... 8.8 2.2
------ ------
Pro forma amortization of debt issuance
costs.................................. $ 10.2 $ 2.5
====== ======
</TABLE>
(f) The pro forma adjustment to income tax benefit is based upon an assumed
blended rate of 39% applied to the pro forma net loss adjusted for
permanent differences between book and tax income. The deferred tax asset
recognized in the Unaudited Pro Forma Combined Financial Statements is
more likely than not to be realized due to the expected future reversal of
taxable temporary differences and the existence of taxable income in each
of the prior three carryback years available.
(g) The Unaudited Pro Forma Statement of Operations does not reflect the
California Asset Disposition Charge, the California Divestiture Charge or
costs related to (i) expenses to be incurred in connection with the
purchase of certain management stock options as part of the
Recapitalization which are estimated to be $12.5 million, (ii) the
integration of the Company's operations which are estimated to be $15.0
million over a two-year period, and (iii) a $2 million severance payment
to the Company's Chairman and Chief Executive Officer. See "Business--
Operating Strategy" and "Certain Relationships and Related Transactions--
CEO's Severance Agreement." The Unaudited Pro Forma Statement of
Operations also does not include an extraordinary item for the loss on
extinguishment of debt of $42.5 million, net of $27.2 million income tax
benefit.
22
<PAGE>
(h) Net income (loss) per common share has been computed using the weighted
average number of shares of Smith's Common Stock outstanding after giving
effect to the issuance of 3,038,888 shares of Class B Common Stock of the
Company to the stockholders of Smitty's as consideration in the Merger and
the purchase of 50% of the outstanding Smith's Common Stock (excluding
shares issuable in the Merger) in the Tender Offer. Common stock
equivalents in the form of stock options do not have an impact on the
weighted average number of common shares.
(i) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consist of income (loss) before income taxes and fixed charges.
"Fixed charges" consist of interest on all indebtedness, amortization of
deferred financing costs, and one-third of rental expense (the portion of
annual rental expense deemed by the Company to be representative of the
interest factor). For the 52 weeks ended December 30, 1995 (historical),
the Company's earnings were inadequate to cover fixed charges by $69.8
million. For the 13 weeks ended March 30, 1996 (historical), the Company's
earnings were inadequate to cover fixed charges by $2.0 million. See
"Selected Historical Financial Data of Smith's" and the notes thereto.
(j) EBITDA (as defined) represents loss before income taxes, plus interest
expense, depreciation and amortization, LIFO provision and restructuring
charges. EBITDA is a widely accepted financial indicator of a company's
ability to service debt and, with certain variations in definition, is an
indicator of compliance with various covenants in the Company's debt
agreements. However, EBITDA should not be construed as an alternative to
operating income (as determined in accordance with generally accepted
accounting principles) or to cash flows from operating activities (as
determined in accordance with generally accepted accounting principles)
and should not be construed as an indication of the Company's operating
performance or as a measure of liquidity. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The following table presents a reconciliation of pro forma EBITDA (as
defined):
<TABLE>
<CAPTION>
52 WEEKS ENDED 13 WEEKS ENDED
DECEMBER 30, 1995 MARCH 30, 1996
----------------- --------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
EBITDA (as defined):
Pro forma Smith's EBITDA (as defined). $226.8 $59.1
Historical Smitty's EBITDA (as
defined)............................. 29.0 8.3
Less: Pro forma adjustments............. (0.4) (0.1)
------ -----
Pro forma EBITDA (as defined)........... $255.4 $67.3
====== =====
</TABLE>
23
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
APRIL 7, ADJUSTMENTS
MARCH 30, 1996 1996 FOR PRO FORMA
---------------------------------------------- ------------ CALIFORNIA COMBINED FOR
SMITH'S ADJUSTMENTS FOR PRO FORMA SMITH'S SMITTY'S DISPOSITION CALIFORNIA
(HISTORICAL) CALIFORNIA FOR CALIFORNIA (HISTORICAL) AND DISPOSITION
(UNAUDITED) DIVESTITURE(A) DIVESTITURE (UNAUDITED) TRANSACTIONS AND TRANSACTIONS
------------ -------------- ----------------- ----------- ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash
equivalents........... $ 11.0 $ $ 11.0 $ 9.0 $ 98.4 (b)(c) $ 118.4
Rebates and accounts
receivable............ 18.6 (0.6) 18.0 10.3 28.3
Inventories............ 298.0 298.0 54.6 1.1 (d) 353.7
Prepaid expenses and
deposits.............. 17.0 (0.6) 16.4 3.2 19.6
Refundable income
taxes................. 9.4 9.4 0.5 9.9
Deferred tax assets.... 14.5 13.1 27.6 18.0 (e) 45.6
Assets held for sale... 42.8 (42.8)
-------- ------ -------- ------ ------- --------
Total current assets. 411.3 (30.9) 380.4 77.6 117.5 575.5
Property and equipment:
Land................... 279.6 279.6 18.6 (128.3)(c) 169.9
Building............... 614.7 614.7 51.2 (107.6)(c)(f) 558.3
Leasehold improvements. 54.8 54.8 9.8 (20.4)(c)(f) 44.2
Furniture and
equipment............. 498.4 498.4 71.6 (31.1)(c)(f) 538.9
-------- ------ -------- ------ ------- --------
Less allowances for
depreciation and
amortization......... (392.3) (392.3) (16.1) 27.5 (c)(f) (380.9)
-------- ------ -------- ------ ------- --------
Net property and
equipment........... 1,055.2 1,055.2 135.1 (259.9) 930.4
Goodwill, net........... 31.4 45.6 (g) 77.0
Other assets............ 19.5 (0.9) 18.6 10.8 78.9 (h)(i) 108.3
-------- ------ -------- ------ ------- --------
$1,486.0 $(31.8) $1,454.2 $254.9 $ (17.9) $1,691.2
======== ====== ======== ====== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts
payable............... $ 164.0 $ (0.2) $ 163.8 $ 36.2 $ 0.0 $ 200.0
Accrued sales and
other taxes and other
liabilities........... 41.4 (4.0) 37.4 11.3 (13.5)(j)
10.0 (k) 45.2
Accrued payroll and
related benefits...... 77.9 (14.2) 63.7 18.5 82.2
Current maturities of
long-term debt........ 24.1 24.1 9.2 (16.8)(l) 16.5
Current maturities of
Redeemable Preferred
Stock................. 1.0 1.0 (1.0)(m)
Accrued restructuring
costs................. 15.1 (15.1)
-------- ------ -------- ------ ------- --------
Total current
liabilities......... 323.5 (33.5) 290.0 75.2 (21.3) 343.9
Long-term debt, less
current maturities..... 648.7 28.6 677.3 135.8 617.5 (n)
(28.6)(c)
(0.9)(n)
4.5 (i)
16.8 (l)
(7.5)(o) 1,414.9
Accrued restructuring
costs, less current
portion................ 40.0 (40.0)
Deferred income taxes... 58.8 13.1 71.9 13.8 (27.0)(p)
(30.7)(e) 28.0
Other liabilities....... 20.0 7.5 (o) 27.5
Redeemable Preferred
Stock, less current
maturities............. 3.3 3.3 3.3
Common Stockholders'
Equity:
Convertible Class A
Common Stock........... 0.1 0.1 0.1
Class B Common Stock.... 0.2 0.2 (0.1)(q) 0.1
Additional paid-in
capital................ 285.1 285.1 11.0 (11.0)(r)
(165.8)(q)
45.5 (s) 164.8
Retained earnings(t).... 233.1 233.1 (0.9) (35.2)(u)
(405.9)(q)
(76.3)(e)
(7.1)(v)
0.9 (r) (291.4)
-------- ------ -------- ------ ------- --------
518.5 518.5 10.1 (655.0) (126.4)
Less cost of common
stock in the treasury.. (106.8) (106.8) (464.9)(q)
571.7 (q)
-------- ------ -------- ------ ------- --------
411.7 411.7 10.1 (548.2) (126.4)
-------- ------ -------- ------ ------- --------
$1,486.0 $(31.8) $1,454.2 $254.9 $ (17.9) $1,691.2
======== ====== ======== ====== ======= ========
</TABLE>
See Notes to Unaudited Pro Forma Combined Balance Sheet.
24
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(a) Reflects the sale of the California stores and other related assets,
excess real estate and distribution center in connection with the
California Divestiture. The Company has received $67.2 million in proceeds
from the California Divestiture and expects to receive an additional $10.6
million shortly after the consummation of the Transactions. The net
proceeds of such sale is reflected as a payment of certain liabilities in
the Company's Unaudited Pro Forma Combined Balance Sheet at March 30,
1996.
(b) Reflects gross proceeds received from (i) New Term Loans, (ii) the New
Revolving Facility, and (iii) the Offering used to finance the
Transactions and pay related costs and fees as set forth in the following
table:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
---------------------
<S> <C>
New Term Loans...................................... $ 805.0
Notes............................................... 575.0
Repay Smitty's Notes................................ (50.0)
Discount on Smitty's Notes.......................... 0.4
Repay Smitty's Debentures........................... (19.0)
Discount on Smitty's Debentures..................... 0.5
Repay Smitty's Bank Credit Facility................. (33.7)
Repay Smith's Mortgage Notes and Other Indebtedness. (661.6)
Purchase existing Smith's Series I Preferred Stock.. (1.0)
Purchase 50% of Smith's Common Stock................ (451.3)
Purchase Management Options......................... (13.7)
Accrued Interest.................................... (13.5)
Fees and Expenses................................... (145.0)
-------
Use of California Proceeds (See Note (c)).......... $ 7.9
=======
</TABLE>
(c) Assumes the anticipated sale of the Company's remaining California real
estate pursuant to the California Asset Disposition. Also reflects the
California Asset Disposition Charge of $125 million (pre-tax) in
connection with the adoption of a strategy to dispose of such remaining
California assets following the consummation of the Transactions.
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
---------------------
<S> <C> <C>
Disposal of Property and Equipment
Land.......................................... $ 128.3
Buildings..................................... 104.0
Leasehold improvements........................ 19.6
Furniture and equipment....................... 19.4
-------
271.3
Depreciation and amortization................. (11.4)
-------
Net book value of property and equipment...... 259.9
Write-down of California assets to net real-
izable value................................. (125.0)
-------
Proceeds from California Asset Disposition.... 134.9
Reduction in Smith's pro forma revolving
credit balance............................... (28.6)
Reduction of anticipated indebtedness under
the New Revolving Facility
(See Note (b))............................... (7.9)
-------
Cash provided by the California Asset Dispo-
sition..................................... $ 98.4
=======
</TABLE>
(d) Reflects the elimination of Smitty's historical LIFO reserve which adjusts
Smitty's inventory to reflect current estimated selling prices less costs
of disposal and a reasonable profit allowance for the acquiring company.
(e) Represents the $125 million California Asset Disposition Charge, tax
effected at 39% tax rate and the recognition of the related deferred tax
asset. The California Asset Disposition Charge reflects the write-down of
California assets, other than assets held for sale at March 30, 1995,
under the Company's strategy to accelerate the disposition of its 18 non-
operating stores and excess land in California following the consummation
of the Transactions.
(f) Reflects the write-off of accumulated depreciation and amortization which
adjusts Smitty's property and equipment to estimated fair market value.
25
<PAGE>
(g) Reflects the excess of costs over the fair value of net assets of Smitty's
acquired in connection with the Merger ($77.0 million) and the elimination
of Smitty's historical goodwill ($31.4 million). The purchase price for
Smitty's will be determined by reference to the trading price of the
Company's Class B Common Stock following the consummation of the Merger.
The purchase price and preliminary calculation of the excess of costs over
the fair value of net assets acquired is as follows:
Purchase Price:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
---------------------
<S> <C>
Smith's equity received in exchange for Smitty's
equity
with an assumed market value of $15.00/share...... $ 45.5
Fees and expenses.................................. 1.5
------
Total purchase price............................... 47.0
Fair value of assets acquired...................... 224.7
Fair value of liabilities assumed.................. 254.7
------
(30.0)
------
Goodwill........................................... $ 77.0
======
</TABLE>
(h) Reflects the debt issuance costs associated with the New Credit Facility
($52.5 million) and the Notes ($33.5 million). These amounts have been
capitalized as deferred financing costs.
(i) Reflects the elimination of deferred financing costs associated with the
Smitty's Bank Credit Facility ($1.7 million), the Smitty's Notes ($3.0
million), the Smitty's Debentures ($0.6 million), the Smith's Mortgage
Notes and Other Indebtedness ($1.8 million) and the write-off of an
interest rate swap agreement ($4.5 million), included in historical long-
term debt, to be refinanced in connection with the Merger.
(j) Reflects the payment of accrued interest on Smitty's Bank Credit Facility
($0.3 million), Smitty's Notes ($2.0 million) and Smith's Mortgage Notes
and Other Indebtedness ($11.2 million) to be repaid in connection with the
Merger.
(k) Represents severance payments and other costs associated with the
integration of Smith's and Smitty's.
(l) Reflects the repayment and cancellation of the current maturities of the
Smitty's Bank Credit Facility ($7.9 million) and Smith's Mortgage Notes
and Other Indebtedness ($21.2 million) and the recording of the current
maturities of the New Term Loans ($12.3 million).
(m) Reflects the retirement of 3,000,000 shares of Series I Preferred Stock.
(n) Reflects the repayment and cancellation of the Smitty's Bank Credit
Facility, the Smitty's Notes, the Smitty's Debentures, the Smith's
Revolving Credit Facility, the Smith's Mortgage Notes and Other
Indebtedness and records borrowings under the New Term Loans and New
Revolving Facility and the issuance of the Notes.
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS)
---------------------
<S> <C>
New Term Loans..................................... $ 805.0
Notes.............................................. 575.0
Repay Smitty's Notes............................... (50.0)
Discount on Smitty's Notes ........................ 0.4
Repay Smitty's Debentures.......................... (19.0)
Discount on Smitty's Debentures ................... 0.5
Repay Smitty's Bank Credit Facility................ (33.7)
Repay Smith's Mortgage Notes and Other
Indebtedness...................................... (661.6)
-------
$ 616.6
=======
</TABLE>
(o) Represents a reclassification of $7.5 million of Smith's deferred
compensation and other long-term liabilities to conform to the pro forma
combined classification.
(p) Represents the deferred tax asset associated with the write-off of the
deferred debt issuance costs and the premium over book value on Smith's
and Smitty's debt to be refinanced. The deferred tax asset recognized in
the Unaudited Pro Forma Combined Financial Statements is more likely than
not to be realized due to the expected future reversal of taxable
temporary differences and the existence of taxable income in each of the
prior three carryback years available.
(q) Reflects redemption of 50% of Smith's outstanding Common Stock prior to
the Merger at $36.00 per share, the retirement of all treasury shares and
the purchase of certain outstanding management stock options.
(r) Reflects the elimination of Smitty's historical equity.
(s) Represents the issuance of 3,038,888 shares of Smith's Common Stock at an
assumed market value of $15.00 per share as consideration in the Merger.
(t) The Unaudited Pro Forma Combined Balance Sheet does not include (i)
certain costs related to the purchase of certain management stock options
as part of the Recapitalization which are estimated to be $12.5 million,
(ii) the integration of the Company's operations which are estimated to be
$15.0 million over a two-year period, and (iii) a $2 million severance
payment to the Company's Chairman and Chief Executive Officer. See
"Certain Relationships and Related Transactions--CEO's Severance
Agreement."
(u) Represents the premium over book value attributable to "make whole"
payments and other premiums payable in connection with the retirement of
Smith's Mortgage Notes and Other Indebtedness and the Smitty's Notes and
Debentures, net of 39% tax rate. The actual amount of such payments may
vary substantially based on the yields of certain U.S. Treasury debt
securities at the time such indebtedness is actually repaid.
(v) Represents the write-off of the historical deferred debt issuance costs of
Smith's and Smitty's related to its refinanced debt, net of 39% tax rate.
26
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF SMITH'S
The following table sets forth selected historical financial data of Smith's
for the five fiscal years ended December 30, 1995 which have been derived from
the financial statements of Smith's audited by Ernst & Young LLP, independent
auditors. The selected historical financial data of Smith's for the 13 weeks
ended April 1, 1995 and March 30, 1996 have been derived from unaudited
interim financial statements of Smith's which, in the opinion of management,
reflect all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of such data. The following information
should be read in conjunction with the Unaudited Pro Forma Combined Financial
Statements, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the historical consolidated financial statements of
Smith's and related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 13 WEEKS 13 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
DECEMBER 28, JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 30, APRIL 1, MARCH 30,
1991 1993 1994 1994 1995 1995 1996
------------ ---------- ---------- ------------ ------------ -------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Net sales.............. $2,217.4 $2,649.9 $2,807.2 $2,981.4 $3,083.7 $ 746.7 $ 693.2
Gross profit........... 498.6 611.6 637.2 669.1 697.0 168.3 146.6
Operating, selling and
administrative
expenses.............. 344.4 419.7 430.3 440.8 461.4 112.8 111.4
Depreciation and
amortization.......... 50.5 67.8 82.2 94.5 105.0 24.7 22.6
Interest expense....... 30.3 36.1 44.6 53.7 60.5 15.1 14.5
Restructuring
charges(a)............ -- -- -- -- 140.0 -- --
Net income (loss)...... $ 45.1 $ 53.7 $ 45.8 $ 48.8 $ (40.5) 9.5 (1.2)
Ratio of earnings to
fixed charges(b)...... 3.02x 3.06x 2.55x 2.18x -- 1.83x --
BALANCE SHEET DATA (END
OF PERIOD):
Working capital........ $ 30.7 $ 91.2 $ 160.4 $ 62.3 $ 162.7 $ 112.6 $ 87.8
Total assets........... 1,196.7 1,486.1 1,654.3 1,653.5 1,686.2 1,661.8 1,486.0
Total debt(c).......... 395.4 612.7 725.5 718.9 746.2 765.0 672.8
Redeemable preferred
stock................. 8.5 7.5 6.5 5.4 4.3 5.1 4.3
Common stockholders'
equity................ $ 474.4 $ 515.4 $ 542.2 $ 475.3 $ 416.7 $ 477.6 $ 411.7
OTHER DATA:
Stores open at end of
period(d)............. 109 119 129 137 154 142 120
Capital expenditures... $ 281.6 $ 288.0 $ 322.3 $ 146.7 $ 149.0 $ 25.2 $ 18.3
Cash provided by (used
in) operating
activities............ 61.9 84.6 118.6 203.6 140.6 (15.9) 6.3
Cash provided by (used
in) investing
activities............ (277.4) (286.6) (164.4) (127.4) (146.3) (23.9) 66.1
Cash provided by (used
in) financing
activities............ 212.8 203.1 92.3 (123.9) 7.5 38.3 (77.5)
EBITDA (as defined)(e). $ 154.2 $ 192.0 $ 208.5 $ 230.8 $ 239.6 $ 56.6 $ 36.9
EBITDA margin(f)....... 7.0% 7.2% 7.4% 7.7% 7.8% 7.6% 5.3%
</TABLE>
- -------
(a) Reflects charges in connection with the California Divestiture. See Note K
to Notes to Consolidated Financial Statements of Smith's included
elsewhere herein.
(b) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consist of income (loss) before income taxes and fixed charges.
"Fixed charges" consist of interest on all indebtedness, amortization of
deferred financing costs, and one-third of rental expense (the portion of
annual rental expense deemed by the Company to be representative of the
interest factor). For the 52 weeks ended December 30, 1995, the Company's
earnings were inadequate to cover fixed charges by $69.8 million. However,
such earnings include non-cash charges of $105.4 million, primarily
consisting of depreciation and amortization, and restructuring charges of
$140.0 million. For the 13 weeks ended March 30, 1996, the Company's
earnings were inadequate to cover fixed charges by $2.0 million. However,
such earnings include non-cash charges of $22.7 million, primarily
consisting of depreciation and amortization.
(c) Total debt includes long-term debt and current maturities of long-term
debt.
(d) See "Business--Store Development and Expansion."
(e) EBITDA (as defined) represents income (loss) before interest expense,
income taxes, depreciation and amortization expense, LIFO provision and
restructuring charges. EBITDA is a widely accepted financial indicator of
a company's ability to service debt. However, EBITDA should not be
construed as an alternative to operating income or to cash flows from
operating activities (as determined in accordance with generally accepted
accounting principles) and should not be construed as an indication of
Smith's operating performance or as a measure of liquidity. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
(f) EBITDA margin represents EBITDA (as defined) as a percentage of net sales.
27
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF SMITTY'S
The following table sets forth certain selected consolidated historical
financial and operating data of Smitty's and its Predecessor. The operating
and balance sheet data of Smitty's as of and for the year ended July 30, 1995
and the period from June 29, 1994 to July 31, 1994, and of the Predecessor as
of for the period from August 2, 1993 to June 28, 1994, the 52 weeks ended
August 1, 1993, the 53 weeks ended August 2, 1992 and the 52 weeks ended July
28, 1991 set forth in the table below have been derived from the financial
statements of Smitty's and its Predecessor audited by Coopers & Lybrand
L.L.P., independent accountants. The operating and balance sheet data of
Smitty's as of and for the 36 weeks ended April 7, 1996 and the 36 weeks ended
April 9, 1995 have been derived from unaudited financial statements of
Smitty's which, in the opinion of management, reflect all material
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of such data. The following information should be read in
conjunction with the Unaudited Pro Forma Combined Financial Statements,
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and the historical consolidated financial statements of Smitty's
and its predecessor, and related notes thereto, included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR SMITTY'S
---------------------------------------- --------------------------------------
PERIOD FROM PERIOD FROM
52 WEEKS 53 WEEKS 52 WEEKS AUGUST 2, JUNE 29, 52 WEEKS 36 WEEKS 36 WEEKS
ENDED ENDED ENDED 1993 TO 1994 TO ENDED ENDED ENDED
JULY 28, AUGUST 2, AUGUST 1, JUNE 28, JULY 31, JULY 30, APRIL 9, APRIL 7,
1991 1992 1993 1994 1994 1995 1995 1996
-------- --------- --------- ----------- ----------- -------- -------- --------
(DOLLARS IN MILLIONS) (DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales(a)............... $625.3 $599.1 $605.1 $551.7 $ 48.4 $594.0 $423.8 $411.9
Gross profit........... 158.9 160.9 150.5 138.0 12.9 162.0 113.8 116.5
Operating, selling,
general
and administrative
expenses(b)(c)(d)..... 143.9 138.8 147.5 117.4 10.8 131.4 91.5 95.6
Depreciation and
amortization.......... 10.2 10.2 9.5 8.0 1.0 10.9 7.1 9.1
Interest expense(e).... 10.1 7.3 6.5 6.4 1.5 18.7 12.4 12.7
Net income (loss)...... $ (3.0) $ 2.3 $ (8.2) $ 3.1 $ (0.4) $ 0.3 $ 0.9 $ (0.9)
BALANCE SHEET DATA (END
OF PERIOD):
Working capital........ $ 0.8 $ 5.0 $ 5.3 $ 31.5 $ 27.9 $ 17.3 $ 23.1 $ 2.5
Total assets(f)........ 245.1 242.8 242.8 204.8 235.3 265.7 260.6 254.9
Total debt(g)(h)....... 72.5 59.9 66.6 140.3 143.9 147.9 153.8 145.1
Total stockholders'
equity(h)............. $126.4 $128.7 $120.5 $ 11.2 $ 10.6 $ 10.9 $ 11.5 $ 10.1
OTHER DATA:
Stores open at end of
period................ 24 24 28 27 27 28 28 28
Capital expenditures... $ 3.1 $ 7.2 $ 16.2 $ 3.7 $ 0.3 $ 22.9 $ 11.0 $ 21.8
Cash provided by
operating activities.. 10.7 18.9 16.6 9.0 1.1 18.2 13.7 3.5
Cash provided by (used
in) investing
activities............ (2.0) (7.2) (4.2) 7.9 (0.3) (9.0) (7.4) (15.6)
Cash provided by (used
in) financing
activities............ (7.3) (13.2) (10.3) (13.4) 4.4 (3.5) (2.8) (4.5)
EBITDA (as defined)
(i)................... $ 13.6 $ 22.9 $ 26.9 $ 26.1 $ 2.4 $ 29.0 $ 20.9 $ 21.4
EBITDA margin (j)...... 2.2% 3.8% 4.5% 4.7% 5.0% 4.9% 4.9% 5.2%
</TABLE>
- -------
(a) In fiscal 1993, Smitty's leased its food service operations to Morrison,
Incorporated, thereby increasing operating income but decreasing sales and
gross profit. In September 1994, Smitty's resumed its food service
operations. As a result, food service sales and attributable costs are
included in the consolidated results of operation subsequent to such date.
Food service sales were $14.5 million, $11.8 million, $17.8 million, $0,
$2.5 million and $24.9 million for the 36 weeks ended April 7, 1996, the
36 weeks ended April 9, 1995, fiscal 1995, fiscal 1994, fiscal 1993 and
fiscal 1992, respectively. Food service gross profit was $9.1 million,
$7.6 million, $11.4 million, $0, $1.5 million and $16.5 million for the 36
weeks ended April 7, 1996, the 36 weeks ended April 9, 1995, fiscal 1995,
fiscal 1994, fiscal 1993 and fiscal 1992, respectively.
(b) In November 1993, Smitty's agreed to a settlement of a litigation which
required Smitty's to pay $4.75 million in cash and issue a $6.25 million
two-year mortgage note. Fiscal 1993 results of operations include an $11.0
million charge for the settlement, plus a $1.8 million charge for Smitty's
litigation costs. Smitty's used the proceeds from a four-year term loan to
finance the cash payment. Also in November 1993, Smitty's reached a
settlement of a litigation filed by a former supplier providing for a $0.5
million cash payment and a $0.5 million one-year mortgage note. Fiscal
1993 results of operations include a $1.0 million charge for this
settlement. Both mortgage notes were repaid on June 29, 1994.
28
<PAGE>
(c) Included in operating, selling, general and administrative expenses are
parent reorganization costs incurred by Smitty's in connection with
efforts initiated by its former stockholder, Steinberg International,
Inc., to sell its interest in Smitty's. Reorganization costs were $0.7
million and $0.6 million for fiscal 1994 and 1993, respectively. There
were no reorganization costs for the 36 weeks ended April 7, 1996, the
36 weeks ended April 9, 1995, fiscal 1995, fiscal 1992 and fiscal 1991. In
fiscal 1995, Smitty's had a $1.9 million benefit resulting from the
Morrison litigation settlement.
(d) A real estate development partnership in which Smitty's was a partner was
liquidated in July 1993. In connection with this liquidation, Smitty's
obtained ownership of an operating shopping center property and an
undeveloped shopping center property in exchange for the forgiveness of
notes and accrued interest receivable from the partnership and its
managing partner. Fiscal 1993 results of operations include an
$8.9 million charge representing the difference between the current value
of these two properties and the carrying value of the notes and accrued
interest receivable. Such properties were transferred to Steinberg
International, Inc. prior to the acquisition of SSV by Smitty's.
(e) Includes amortization of deferred financing costs of $0.7 million, $0.6
million, $0.9 million, $0.2 million, $0.2 million, $0.2 million, and $0.2
million for the 36 weeks ended April 7, 1996, the 36 weeks ended April 9,
1995, fiscal 1995, fiscal 1994, fiscal 1993, fiscal 1992, and fiscal 1991,
respectively. Interest expense for the 36 weeks ended April 7, 1996, the
36 weeks ended April 9, 1995, fiscal 1995 and fiscal 1994 includes $1.7
million, $1.5 million, $2.1 million and $0.2 million, respectively, of
non-cash interest expense attributable to the Smitty's Debentures.
(f) Except at April 7, 1996, April 9, 1995, July 30, 1995 and July 31, 1994,
total assets includes certain properties which were not purchased by
Smitty's in the acquisition from Steinberg International, Inc. that had a
net book value of $27.5 million at August 1, 1993.
(g) Total debt includes total long-term debt and current maturities of long-
term debt.
(h) During fiscal 1991, Smitty's issued 688 shares of common stock to
Steinberg International, Inc. in exchange for $1.2 million cash and the
cancellation of $65.6 million of indebtedness.
(i) EBITDA (as defined) represents income (loss) before income taxes, plus
interest expense, depreciation and amortization, severance and employment
contract termination costs, loss on store closing, LIFO provision and Non-
Operating Expenses. Non-Operating Expenses are defined as parent
reorganization costs, gain (loss) on real estate disposals, loss on
partnership liquidation, and litigation settlements, all of which are
included in operating, selling, general and administrative expenses.
EBITDA is a widely accepted financial indicator of a company's ability to
service debt and, with certain variations in definition, is an indicator
of compliance with various covenants in Smitty's debt agreements. However,
EBITDA should not be construed as an alternative to operating income (as
determined in accordance with generally accepted accounting principles) or
to cash flows from operating activities (as determined in accordance with
generally accepted accounting principles) and should not be construed as
an indication of Smitty's operating performance or as a measure of
liquidity.
(j) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Due to the Transactions and the California Divestiture, the Company believes
that its future operating results may not be directly comparable to its
historical operating results. Certain factors which are expected to affect the
future operating results of the Company (or their comparability to prior
periods) are discussed below.
California Divestiture. Smith's has historically focused on expansion into
high growth markets, which led to its entrance into Southern California in
1991. During the period from 1991 through 1995, Smith's opened 34 stores in
Southern California and a 1,100,000 square foot distribution center and dairy
plant in Riverside, California. Management determined that because of the
attractive growth prospects in the Company's principal markets and the
competitive environment in Southern California, it would redeploy Company
resources from California into such other markets. In December 1995, the
Company executed a sublease with Ralphs pursuant to which Ralphs agreed to
sublease the Riverside distribution center and dairy plant for the remaining
23-year term of Smith's lease. Ralphs also agreed to purchase certain related
equipment and inventory. The sublease term commenced and the related purchases
were consummated on January 29, 1996. In January 1996, the Company entered
into agreements to sell or lease 16 of its California stores and related
equipment and three non-operating properties to various supermarket companies
(including Ralphs) and others. Smith's has closed the remaining 18 stores and
it is anticipated that these stores will be sold or leased to other retail
companies. Of the stores being sold or leased, four stores owned by Smith's
are being sold outright, two store leases are being assigned, three stores
owned by Smith's are being leased and seven leased stores are being subleased.
Since December 30, 1995, the Company has received net cash proceeds of
approximately $67.2 million from the California Divestiture and expects to
receive an additional approximately $10.6 million shortly after the
consummation of the Transactions. All of the remaining California stores were
closed by March 16, 1996. In connection with its decision to cease operations
in California, Smith's recorded the California Divestiture Charge of $140
million (pre-tax) for the year ended December 30, 1995 and classified the
assets to be leased or sold pursuant to the California Divestiture as "assets
held for sale" on its balance sheet at such date. The California Divestiture
Charge reflected (i) a provision for anticipated future lease obligations,
(ii) the anticipated cost to the Company of closing its California stores and
distribution center (primarily termination payments and inventory), and (iii)
certain asset valuation adjustments. The asset valuation adjustments included
in the California Divestiture Charge reflected the reduction in net realizable
values for the equipment in all of the Company's California stores and
distribution center and for the land and buildings associated with those
properties being sold or leased. See Note K of the Notes to Consolidated
Financial Statements of Smith's.
Certain information pertaining to the Company's California operations is
summarized below:
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED ENDED
DECEMBER 28, JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 30,
1991 1993 1994 1994 1995
------------ ---------- ---------- ------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
California stores at end
of period.............. 9 18 26 32 34
Net sales............... $ 35.9 $320.4 $472.8 $652.9 $674.6
Capital expenditures:
Stores................ 118.4 160.0 136.1 53.0 23.4
Backstage facilities.. 1.1 33.8 80.6 2.7 1.3
------ ------ ------ ------ ------
Total capital
expenditures....... $119.5 $193.8 $216.7 $ 55.7 $ 24.7
====== ====== ====== ====== ======
</TABLE>
Remaining California Real Estate. After completion of the California
Divestiture, Smith's continues to own real estate assets in California having
an aggregate book value at December 30, 1995 of approximately $260 million.
These assets include the stores leased or subleased as part of the California
Divestiture (having an aggregate book value at December 30, 1995 of $42.5
million), the closed stores (aggregate book value--$115.3
30
<PAGE>
million) and certain non-operating stores and other excess real estate
(aggregate book value--$102.2 million). These properties have annual carrying
costs of approximately $7 million (excluding depreciation and amortization).
Management's present policy is to own and manage its real estate assets,
including those in California, in order to maximize their long-term values,
and, as a result, the Company maintains a fully staffed real estate,
construction and property management capability. The Company believes that
there are several viable strategies for maximizing the value of its remaining
California real estate assets over the next five years and that the
implementation of these policies would not have any material negative impact
on future earnings. Following the consummation of the Transactions, however,
management, in conjunction with Yucaipa, anticipates that it will pursue a
strategy to accelerate the disposition of its remaining real estate assets in
California including its non-operating stores and excess land. The Company
would use the net cash proceeds from the sales of these assets to either
reinvest in the Company's business or reduce indebtedness incurred in
connection with the Transactions. If this strategy is adopted, as anticipated,
the Company would record a charge to earnings, presently estimated to be
approximately $125 million (pre-tax), to reflect the difference between the
anticipated cash proceeds from the accelerated dispositions and the Company's
existing book values for such assets. This charge will cause a substantial
decrease in the Company's earnings for such period and net worth, but is not
otherwise anticipated to adversely affect the Company's liquidity or ongoing
results of operations. See the "Unaudited Pro Forma Combined Financial
Statements" included elsewhere herein.
Debt Refinancing and Recapitalization Charges. In connection with the
anticipated consummation of the Transactions, the Company will refinance
substantially all of its existing mortgage notes and unsecured indebtedness
(approximately $661.6 million at March 30, 1996), including all outstanding
borrowings under its existing revolving credit facilities. The Company will
also refinance approximately $102.7 million of existing indebtedness of
Smitty's (pro forma at March 30, 1996 and assuming a 100% tender of the
existing Smitty's Notes and Smitty's Debentures). In connection with such debt
refinancings, the Company will pay make-whole and other premiums estimated at
approximately $56.8 million. These refinancing premiums, together with
approximately $12.0 million of debt issuance costs, will be written off upon
the consummation of the Transactions and reflected as an extraordinary charge
for the quarter in which the Transactions are consummated. It is estimated
that this charge, net of taxes, will be approximately $42.5 million. The
Company will also record approximately $12.5 million of pre-tax compensation
expense in connection with the purchase of certain management stock options as
part of the Recapitalization.
Integration of Arizona Operations. Following the Merger, management of the
Company has estimated that approximately $25 million of net annual cost
savings (as compared to costs for the pro forma combined fiscal year ended
December 30, 1995) are achievable by the end of the third year of combined
operations. See "Risk Factors--Ability to Achieve Anticipated Cost Savings."
Management believes that approximately $17 million in Merger-related capital
expenditures and approximately $15 million of other expenses will be required
to integrate Arizona operations over the next two years and realize such cost
savings. Management anticipates that a charge related to such costs will be
recorded in the quarter in which the Transactions are consummated.
Purchase Accounting. The Merger will be accounted for as a purchase of
Smitty's by Smith's. As a result, the assets and liabilities of Smitty's will
be recorded at their estimated fair value as of the date the Merger is
consummated. The purchase price for Smitty's will be determined by reference
to the trading price of the Company's Class B Common Stock following the
consummation of the Merger. The purchase price in excess of the fair value of
Smitty's assets will be recorded as goodwill and amortized over a 40-year
period. The purchase price allocation reflected in the pro forma statements is
based on management's preliminary estimates. The actual purchase accounting
adjustments will be determined following the Merger and may vary from the
amounts reflected in the Unaudited Pro Forma Combined Financial Statements
included elsewhere herein.
31
<PAGE>
RESULTS OF OPERATIONS OF SMITH'S
The Company's fiscal year ends on the Saturday closest to December 31. The
following table sets forth the selected historical operating results of
Smith's for the three fiscal years ended December 30, 1995 and the 13 weeks
ended April 1, 1995 and March 30, 1996:
<TABLE>
<CAPTION>
AS A PERCENTAGE OF SALES
-------------------------------------------------------
52 WEEKS 52 WEEKS 52 WEEKS 13 WEEKS 13 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 13 WEEKS 13 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
JANUARY 1, DECEMBER 31, DECEMBER 30, APRIL 1, MARCH 30, JANUARY 1, DECEMBER 31, DECEMBER 30, APRIL 1, MARCH 30,
1994 1994 1995 1995 1996 1994 1994 1995 1996 1996
---------- ------------ ------------ -------- --------- ---------- ------------ ------------ -------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales....... $2,807.2 $2,981.4 $3,083.7 $746.7 $693.2 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit.... 637.2 669.1 697.0 168.3 146.6 22.7 22.4 22.6 22.5 21.1
Operating, sell-
ing and admin-
istrative ex-
penses......... 430.3 440.8 461.4 112.8 111.4 15.3 14.8 15.0 15.1 16.1
Depreciation and
amortization... 82.2 94.5 105.0 24.7 22.6 2.9 3.2 3.4 3.3 3.3
Operating
income......... 124.7 133.8 130.7 30.8 12.6 4.4 4.5 4.2 4.1 1.8
Interest
expense........ 44.6 53.7 60.5 15.1 14.5 1.6 1.8 2.0 2.0 2.1
Restructuring
charges........ -- -- 140.0 -- -- -- -- 4.5 -- --
Income taxes
(benefit)...... 34.3 31.3 (29.3) 6.3 (0.8) 1.2 1.1 (1.0) 0.8 (0.1)
Net income
(loss)......... 45.8 48.8 (40.5) 9.5 (1.2) 1.6 1.6 (1.3) 1.3 (0.2)
</TABLE>
COMPARISON OF SMITH'S RESULTS OF OPERATIONS FOR THE 13 WEEKS ENDED MARCH 30,
1996 WITH SMITH'S RESULTS OF OPERATIONS FOR THE 13 WEEKS ENDED APRIL, 1 1995
Net Sales. Net sales decreased $53.5 million, or 7.2%, from $746.7 million
in the 13 weeks ended April 1, 1995 to $693.2 million in the 13 weeks ended
March 30, 1996. The sales decrease in 1996 was primarily attributable to the
closure of 34 stores in California, offset in part by the addition of 11 net
new stores outside of California since the end of the first quarter of 1995.
As adjusted to exclude Smith's California stores, net sales increased $35.7
million, or 6.1%, from $584.4 million in the 13 weeks ended April 1, 1995 to
$620.1 million in the 13 weeks ended March 30, 1996. As adjusted to exclude
Smith's California stores, same store sales for the first quarter of 1996
decreased 2.7%, caused primarily by Smith's discontinuance of its "ad match"
program in the Phoenix and Tucson markets.
Gross Profit. Gross profit decreased $21.8 million, or 12.9%, from $168.3
million in the 13 weeks ended April 1, 1995 to $146.6 million in the 13 weeks
ended March 30, 1996. Gross margins during the 13 weeks ended April 1, 1995
and the 13 weeks ended March 30, 1996 were 22.5% and 21.1%, respectively.
Excluding the Company's California operations, gross profit increased $28.0
million, or 6.2%, in the first quarter of 1996 compared to the first quarter
of 1995 and the gross margins were relatively flat. The pre-tax LIFO charge
was $1.8 million in the 13 weeks ended March 30, 1996 compared to $1.0 million
for the same period in 1995. Newly opened stores apply pressure on gross
margins until the stores become established in their respective markets.
Operating, Selling and Administrative Expenses. Operating, selling and
administrative expenses ("OS&A") decreased $1.4 million, or 1.2%, from $112.8
million in the 13 weeks ended April 1, 1995 to $111.4 million in the 13 weeks
ended March 30, 1996. As a percent of net sales, OS&A increased from 15.1% in
the 13 weeks ended April 1, 1995 to 16.1% in the 13 weeks ended March 30,
1996. The increase in OS&A as a percent of net sales was primarily
attributable to the closure of the Company's 34 California stores offset
somewhat by the opening of 11 net additional stores over the prior year. As
adjusted to exclude Smith's California stores, OS&A as a percent of net sales
was flat.
Depreciation and Amortization Expenses. Depreciation and amortization
expenses decreased by $2.1 million, or 8.5%, from $24.7 million in the 13
weeks ended April 1, 1995 to $22.6 million in the 13 weeks ended March 30,
1996, primarily due to the closure of the Company's California stores in 1996,
offset slightly by the addition of new food and drug combination stores
elsewhere.
32
<PAGE>
Interest Expense. Interest expense decreased $0.6 million from $15.1 million
in the 13 weeks ended April 1, 1995 to $14.5 million in the 13 weeks ended
March 30, 1996, primarily as a result of net decreases in the average debt
amounts for each period.
Income Taxes. Smith's recorded a tax benefit of $0.8 million in the 13 weeks
ended March 30, 1996 compared to an expense of $6.3 million in the 13 weeks
ended April 1, 1995.
Net Income (Loss). Smith's incurred a net loss of $1.2 million, or $0.05 per
common share, in the 13 weeks ended March 30, 1996, compared to net income of
$9.5 million, or $0.37 per common share, in the 13 weeks ended April 1, 1995,
due to the costs related to the closure of the Company's California
operations. Excluding the California loss of approximately $14.9 million, net
income for the first quarter of 1996 was approximately $13.7 million.
COMPARISON OF SMITH'S RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED DECEMBER
30, 1995 WITH SMITH'S RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED DECEMBER
31, 1994
Net Sales. Net sales increased $102.3 million, or 3.4%, from $2,981.4
million in 1994 to $3,083.7 million in 1995. The sales increase in 1995 was
attributable to a net increase of 17 stores as of the end of 1995, offset in
part by a 3.4% decrease in same store sales. As adjusted to exclude the
Company's California stores, net sales increased $80.7 million, or 3.5%, from
$2,328.5 million in 1994 to $2,409.2 million in 1995. As adjusted to exclude
the Company's California stores, same store sales decreased 3.2% in 1995,
caused primarily by the Company's discontinuance of its "ad match" program in
the Phoenix and Tucson markets and new stores opened by competitors in the
Company's markets.
Gross Profit. Gross profit increased $27.9 million, or 4.2%, from $669.1
million in 1994 to $697.0 million in 1995. Gross margins during 1995 and 1994
were 22.6% and 22.4%, respectively. The increase in 1995 is due primarily to
less aggressive promotional activity in the Phoenix and Tucson markets
following the discontinuance of the Company's "ad match" program, reduced
charges for inventory shrinkage and improved competitive conditions in Utah,
which were partially offset by the increase in the LIFO charge and increased
new store openings. The pre-tax LIFO charge was $4.0 million in 1995 compared
to $2.5 million in 1994. Newly opened stores apply pressure on gross margins
until the stores become established in their respective markets. Smith's
opened 19 new stores during 1995 (including two in California) compared to
eight stores in 1994 (including six in California).
Operating, Selling and Administrative Expenses. OS&A increased $20.6
million, or 4.7%, from $440.8 million in 1994 to $461.4 million in 1995. As a
percent of net sales, OS&A increased from 14.8% in 1994 to 15.0% in 1995. The
increase was caused principally by the increase in new store opening costs
compared to the prior year. The decrease in same store sales also contributed
to the increase of OS&A as a percentage of net sales.
Depreciation and Amortization Expenses. Depreciation and amortization
expenses increased by $10.5 million, or 11.1%, from $94.5 million in 1994 to
$105.0 million in 1995, primarily due to the addition of new combination
stores and equipment replacements in remodeled stores.
Interest Expense. Interest expense increased $6.8 million from $53.7 million
in 1994 to $60.5 million in 1995 primarily as a result of net increases in the
average debt amounts for each period.
Restructuring Charges. As a result of the California Divestiture, the
Company recorded $140.0 million of pre-tax restructuring charges to reflect
the estimated costs associated with the sale, lease or closure of its Southern
California stores and the Riverside distribution center. See Note K of the
Notes to Consolidated Financial Statements of the Company included elsewhere
herein.
33
<PAGE>
Income Taxes. The Company recorded a tax benefit of $29.3 million in 1995
compared to an expense of $31.3 million in 1994. The benefit recorded in 1995
reflects an adjustment (benefit) of $53.4 million of the Company's deferred
taxes as a result of losses incurred in connection with the California
Divestiture.
Net Income (Loss). Net income before restructuring charges decreased by $5.3
million, or 10.9%, from $48.8 million in 1994 to $43.5 million in 1995. Income
per common share before restructuring charges decreased 0.6% from $1.73 in
1994 to $1.72 in 1995. Primarily as a result of the restructuring charges, the
Company recorded a net loss of $40.5 million for 1995 ($1.62 per share)
compared to net income of $48.8 million in 1994 ($1.73 per share). The
weighted average number of common shares outstanding was 25,030,882 in 1995
and 28,176,907 in 1994.
COMPARISON OF SMITH'S RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED DECEMBER
31, 1994 WITH SMITH'S RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 1,
1994
Net Sales. Net sales increased $174.2 million, or 6.2%, from $2,807.2
million in 1993 to $2,981.4 million in 1994. The sales increase in 1994 was
attributable to a net increase of eight stores as of the end of 1994, offset
in part by a 2.3% decrease in same store sales. As adjusted to exclude the
Company's California stores, net sales decreased $5.9 million, or 0.3%, from
$2,334.4 million in 1993 to $2,328.5 million in 1994. As adjusted to exclude
the Company's California stores, same store sales decreased 1.3% in 1994. The
decrease in same store sales (excluding California) in 1994 was caused
primarily by competitive new store openings in the Company's principal market
areas and increased overall price competition in Utah.
Gross Profit. Gross profit increased $31.9 million, or 5.0%, from $637.2
million in 1993 to $669.1 million in 1994. Gross margins during 1994 and 1993
were 22.4% and 22.7%, respectively. The decrease in gross margin in 1994 was
caused primarily by Smith's aggressive Utah pricing program which commenced in
the second half of 1993 and continued through most of 1994. To reinforce
Smith's everyday low price program, prices in Utah stores were lowered on more
than 10,000 grocery, meat and produce items. Smith's opened eight new stores
during 1994 (including six in California) compared to ten new stores during
1993 (including eight in California).
Operating, Selling and Administrative Expenses. OS&A increased $10.5
million, or 2.4%, from $430.3 million in 1993 to $440.8 million in 1994. As a
percent of net sales, OS&A decreased from 15.3% in 1993 to 14.8% in 1994. The
decrease in 1994, resulting primarily from Smith's program to reduce operating
costs, was somewhat offset by the higher operating and labor costs associated
with the expansion into Southern California.
Depreciation and Amortization Expenses. Depreciation and amortization
expenses increased by $12.3 million, or 15.0%, from $82.2 million in 1993 to
$94.5 million in 1994, due to the addition of new food and drug combination
stores and distribution and processing facilities.
Interest Expense. Interest expense increased $9.1 million from $44.6 million
in 1993 to $53.7 million in 1994 as a result of net increases in the average
debt amounts for each period.
Income Taxes. Income taxes as a percent of income before income taxes were
39.1% in 1994 and 42.8% in 1993. The Omnibus Budget Reconciliation Act of 1993
increased Smith's Federal tax rate from 34% to 35%. As a result of the
increased tax rate, net income for 1993 was reduced by $2.75 million, or $0.09
per common share. This reduction consisted of $0.8 million, or $0.03 per
common share, for the rate increase on income earned in 1993 and $1.95
million, or $.06 per common share, for the increase in recorded deferred
taxes.
Net Income. Net income increased 6.6% from $45.8 million in 1993 to $48.8
million in 1994. However, as a result of a reduction in the number of shares
outstanding through Smith's buy-back programs, net income per common share
increased 14% from $1.52 to $1.73. During 1994, Smith's repurchased 4.9
million shares of Common Stock in the open market. The weighted average number
of shares of Common Stock outstanding in 1994 was reduced by approximately 1.9
million shares, which increased net income per common share by $0.11.
34
<PAGE>
RESULTS OF OPERATIONS OF SMITTY'S
Smitty's is a leading regional supermarket operator based in Phoenix,
Arizona with 25 stores in the Phoenix area and three stores in the Tucson
area. Smitty's stores offer high quality fresh and prepared foods, groceries
and general merchandise, restaurants and ancillary services in a shopping
environment which emphasizes service, convenience, quality, selection and
customer satisfaction. On June 29, 1994, Smitty's became the sole stockholder
of SSV when it acquired all of the outstanding shares of common stock of SSV
from Steinberg International, Inc. ("Steinberg"). Smitty's was formed in April
1994 by affiliates of Yucaipa for the purpose of effecting such acquisition.
Smitty's currently operates (i) 21 food and general merchandise "super
combination" stores which average 105,000 square feet in size, (ii) six food
and drug combination stores, which average 52,000 square feet in size, and
(iii) one conventional supermarket. The "super combination" stores offer a
full line of supermarket items, a broad range of drug store and pharmaceutical
items and an expanded selection of general merchandise. These stores offer
numerous services and specialty departments, including video and photo
departments, pharmacies, food courts, restaurants and full-service bank
branches, family style hair salons and airline ticket counters. Smitty's food
and drug combination stores offer a full selection of products and services,
including full-service fresh meat, delicatessen, seafood and bakery
departments, an expanded line of health care and beauty aids, a restaurant,
snack bar or food court and full-service banking.
Smitty's completed its comprehensive remodel program in November 1995 which
included 18 stores and resulted in 93% of its stores being new or remodeled
within the last three years. Upon completion of the remodel program, Smitty's
launched an extensive marketing program to promote its newly remodeled stores
which included an increase of 50% in both broadcast and print media, a
billboard campaign estimated to have been seen by 50% of the Phoenix
population and a customer service training program that included substantially
all of Smitty's employees. Smitty's management believes the extensive
marketing program and the newly remodeled stores were significant factors in
the reduction of the decline in same store sales from 10.8% in the first
quarter to 2.4% in the second quarter and 0.4% in the third quarter of fiscal
1996. In addition, the Easter holiday was included in the third quarter of
fiscal 1996 and in the fourth quarter of fiscal 1995. The remodel program
includes an increased allocation of floor space to the supermarket section of
each store resulting in at least 60% of the square footage in each super
combination store being devoted to supermarket items compared to 40% prior to
the remodel. The expanded supermarket selling areas provide increased display
and shelf space and enlarged self-service bakeries, dairy, frozen food and
produce departments. Display cases and related refrigeration in meat, deli,
bakery, produce, frozen foods and dairy departments have generally been
replaced and upgraded.
On September 25, 1994, the lease by which Morrison, Incorporated
("Morrison") leased and operated Smitty's food service operations was
rescinded in connection with the litigation between Smitty's and Morrison. In
connection with such rescission, Morrison paid Smitty's $2.6 million and
transferred title to all of the inventories, fixtures and equipment to
Smitty's and Smitty's began operating food service operations. Rental income
from Morrison was $2.0 million in the 36 weeks ended April 9, 1995. Food
service sales and gross profit were $14.5 million and $9.1 million,
respectively, in the 36 weeks ended April 7, 1996.
35
<PAGE>
Smitty's fiscal year ends on the Sunday closest to July 31. The following
table sets forth the selected historical operating results of Smitty's for the
36 weeks ended April 7, 1996, the 36 weeks ended April 9, 1995, the 52 weeks
ended July 30, 1995 ("fiscal 1995"), the 52 weeks ended July 31, 1994 ("fiscal
1994") and the 52 weeks ended August 1, 1993 ("fiscal 1993"):
<TABLE>
<CAPTION>
AS A PERCENTAGE OF SALES
---------------------------------------------
52 WEEKS 52 WEEKS 52 WEEKS 36 WEEKS 36 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 36 WEEKS 36 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
AUGUST 1, JULY 31, JULY 30, APRIL 9, APRIL 7, AUGUST 1, JULY 31, JULY 30, APRIL 9, APRIL 7,
1993 1994(1) 1995 1995 1996 1993 1994 1995 1995 1996
--------- -------- -------- -------- -------- --------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................... $605.1 $600.1 $594.0 $423.8 $411.9 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit............ 150.5 150.9 162.0 113.8 116.5 24.9 25.1 27.3 26.8 28.3
Operating, selling,
general and
administrative
expenses............... 147.5 128.2 131.4 91.5 95.6 24.4 21.4 22.1 21.6 23.2
Depreciation and
amortization........... 9.5 9.0 10.9 7.1 9.1 1.6 1.5 1.8 1.7 2.2
Operating income
(loss)................. (6.5) 13.8 19.7 15.1 11.8 (1.1) 2.3 3.3 3.5 2.9
</TABLE>
- --------
(1) The operating results for the 52-week period ended July 31, 1994 combines
the results of operations of Smitty's for the period from June 29, 1994 to
July 31, 1994 with the results of operations of its predecessor for the
period from August 2, 1993 to June 28, 1994.
COMPARISON OF SMITTY'S RESULTS OF OPERATIONS FOR THE 36 WEEKS ENDED APRIL 7,
1996 WITH SMITTY'S RESULTS OF OPERATIONS FOR THE 36 WEEKS ENDED APRIL 9, 1995
Sales. Sales decreased $11.9 million, or 2.8%, from $423.8 million in the 36
weeks ended April 9, 1995 to $411.9 million in the 36 weeks ended April 7,
1996. The decrease is primarily the result of a decline in same store sales
and the closure of one store in the fourth quarter of fiscal 1995, partially
offset by sales from food service operations and sales increases from the
opening of two stores in the second quarter of fiscal 1995. Although same
store sales decreased 4.6% in the 36 weeks ended April 7, 1996, the decline in
same store sales has improved from 10.8% in the 12 weeks ended October 22,
1995 to 2.4% in the 12 weeks ended January 14, 1996 and 0.4% in the 12 weeks
ended April 7, 1996 due in part to the completion of the remodel program and
increased advertising and promotions associated with the grand re-opening of
the remodeled stores. In addition, the Easter holiday was included in the
third quarter of fiscal 1996 and the fourth quarter of fiscal 1995.
Gross Profit. Gross profit increased $2.7 million from $113.8 million, or
26.8% of sales, in the 36 weeks ended April 9, 1995 to $116.5 million, or
28.3% of sales, in the 36 weeks ended April 7, 1996. The increase in gross
profit margin in the 36 weeks ended April 7, 1996, is primarily attributable
to increased vendor allowances and rebates arising from improved procurement
practices and reduced inventory shortages.
Operating, Selling, General and Administrative Expenses. Operating, selling,
general and administrative expenses ("OSG&A") were $91.5 million, or 21.6% of
sales, in the 36 weeks ended April 9, 1995 and $95.6 million, or 23.2% of
sales, in the 36 weeks ended April 7, 1996. This increase was primarily
attributable to the fixed cost component of OSG&A being compared to a lower
sales base and increased rent expense associated with new and remodeled
stores. In addition, Smitty's incurred $1.8 million of advertising and
promotional expenses for an extensive marketing program implemented in the
second quarter of fiscal 1996. These additional expenses were offset by
advertising allowances received in connection with the marketing program. In
the 36 weeks ended April 9, 1995, Smitty's had a $1.9 million benefit
resulting from the favorable Morrison litigation settlement.
Depreciation and Amortization. Depreciation and amortization was $7.1
million in the 36 weeks ended April 9, 1995, and $9.1 million in the 36 weeks
ended April 7, 1996. The increase relates primarily to the depreciation of new
stores, property and equipment, depreciation on new fixtures and equipment in
newly remodeled stores.
36
<PAGE>
Operating Income. Operating income decreased $3.3 million from $15.1 million
in the 36 weeks ended April 9, 1995 to $11.8 million in the 36 weeks ended
April 7, 1996. The decrease in operating income is primarily attributable to
the factors described above.
COMPARISON OF SMITTY'S RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JULY 30,
1995 (FISCAL 1995) WITH SMITTY'S RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED
JULY 31, 1994 (FISCAL 1994).
Sales. Sales decreased $6.1 million, or 1.0%, from $600.1 million in fiscal
1994 to $594.0 million in fiscal 1995. The decrease was primarily the result
of a 6.7% decline in same store sales and the closure of one store partially
offset by sales from food service operations and sales increases from the
opening of two new stores in Phoenix and the new store that opened in fiscal
1994. The same store sales decline was attributable to sales lost at stores
undergoing remodels and competitive factors, including an increase in new
stores opened by competitors and pricing and promotional activities.
Gross Profit. Gross profit increased $11.1 million from $150.9 million, or
25.1% of sales, in fiscal 1994 to $162.0 million, or 27.3% of sales, in fiscal
1995. Excluding food service, gross profit as a percentage of sales increased
from 25.1% in fiscal 1994 to 26.1% in fiscal 1995. These increases were
primarily attributable to reduced cost of goods sold, reduced inventory
shortages and additional vendor allowances and rebates arising from improved
procurement practices.
Operating, Selling, General and Administrative Expenses. OSG&A was $131.4
million and $128.2 million in fiscal 1995 and 1994, respectively. Excluding
food service expenses and rental income from Morrison, OSG&A decreased $0.2
million from $127.1 million in fiscal 1994 to $126.9 million in fiscal 1995.
On this basis, OSG&A as a percentage of sales increased from 21.2% in fiscal
1994 to 22.0% in fiscal 1995. This increase was primarily attributable to
increased advertising and promotional expenditures, new union pension fund
contributions and increased rent expense associated with new stores.
Additionally, in fiscal 1994, Smitty's incurred severance and employment
termination costs consisting of a $2.0 million payment to the former Chief
Executive Officer of Smitty's in connection with the termination of certain
rights under his employment contract, a $0.5 million loss relating to closing
a store which was subleased, and a $2.9 million expense primarily from real
estate disposals and reorganization costs. In fiscal 1995 Smitty's had a $1.9
million benefit resulting from the favorable Morrison litigation settlement.
Depreciation and Amortization. Depreciation and amortization increased by
$1.9 million from $9.0 million in fiscal 1994 to $10.9 million in fiscal 1995.
These increases related primarily to depreciation of new stores property and
equipment and increased amortization of beneficial leaseholds.
Operating Income. Operating income increased $5.9 million from $13.8 million
in fiscal 1994 to $19.7 million in fiscal 1995. The increase in operating
income was primarily attributable to the factors described above.
COMPARISON OF SMITTY'S RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JULY 31,
1994 (FISCAL 1994) WITH SMITTY'S RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED
AUGUST 1, 1993 (FISCAL 1993).
Sales. Sales decreased $5.0 million, or 0.8%, from $605.1 million in fiscal
1993 to $600.1 million in fiscal 1994. The decrease was primarily the result
of a 5.8% decline in same store sales and the closure of two stores in 1994,
partially offset by the opening of one new store in Tucson, and sales
increases from four new stores opened in fiscal 1993. The same store sales
decline was attributable to competitive factors, including an increase in new
stores opened by competitors and pricing and promotional activities.
Gross Profit. Gross profit increased $0.4 million from $150.5 million or
24.9% of sales in fiscal 1993 to $150.9 million or 25.1% of sales in fiscal
1994. These increases were primarily attributable to additional vendor
allowances and rebates earned during fiscal 1994.
37
<PAGE>
Operating, Selling, General and Administrative Expenses. OSG&A was $128.2
million and $147.5 million in fiscal 1994 and 1993, respectively. OSG&A was
affected by severance and employment contract termination costs in fiscal 1994
consisting of a $2.0 million payment to the Chief Executive Officer of
Smitty's in connection with the termination of certain rights under his
employment contract and a charge of $0.5 million relating to the loss on the
closing of a store which was subleased during the period. In addition,
Smitty's incurred other expense of $23.3 million and $2.9 million in fiscal
1993 and fiscal 1994, respectively. The fiscal 1993 expense consisted
primarily of $8.9 million arising from the liquidation of a partnership whose
former properties have been transferred to Steinberg and $13.8 million related
to litigation settlements. The fiscal 1994 expense consisted primarily of a
$2.2 million loss on real estate disposals. Excluding the items noted above,
OSG&A decreased by $1.4 million from $124.2 million in fiscal 1993 to $122.8
million in fiscal 1994. On this basis, OSG&A, as a percentage of sales,
remained constant at 20.5% for both periods. The decrease in OSG&A primarily
reflected reductions in supplies expenses and liability insurance costs and a
lower sales base.
Depreciation and Amortization. Depreciation and amortization decreased by
$0.5 million due to the sale and leaseback in fiscal 1993 of certain fixtures
and equipment related to four stores and the completion of the amortization of
deferred Shoppers Passport card costs in fiscal 1993. Shoppers Passport is
Smitty's "frequent shopper" program.
Operating Income. Operating income increased $20.3 million from an operating
loss of $6.5 million in fiscal 1993 to operating income of $13.8 million in
fiscal 1994. The increase in operating income was primarily attributable to
the factors described above.
COMPANY LIQUIDITY AND CAPITAL RESOURCES
Smith's cash flow from operating activities was $140.6 million for fiscal
1995 and $203.6 million for fiscal 1994. The decrease in cash flow from
operating activities was due primarily to balance fluctuations in operating
assets and liabilities resulting from the execution of cash management
policies based upon cash availability. Trade accounts payable decreased cash
provided by operating activities by $21.7 million in 1995 and increased cash
provided by operating activities by $50.6 million in 1994. One of the
Company's principal uses of cash in its operating activities is inventory
purchases. However, supermarket operators typically require small amounts of
working capital since inventory is generally sold prior to the time that
payments to suppliers are due. This reduces the need for short-term borrowings
and allows cash from operations to be used for non-current purposes such as
financing capital expenditures and other investing activities.
During the first quarter of 1996, Smith's cash provided by operating
activities was $6.3 million reflecting balance fluctuations in operating
assets and liabilities resulting from the closure of the California region and
the execution of cash management policies based upon cash availability.
Payment of accrued restructuring charges in the first quarter of 1996 reduced
cash provided by operating activities by $42.9 million. The California closure
also caused the reduction of inventory, trade accounts payable and accrued
expense balances.
Smith's cash used in investing activities was $146.3 million during fiscal
1995 and $127.4 million during fiscal 1994. Investing activities consisted
primarily of additions to property and equipment for new stores, remodels and
equipment purchases. Cash provided by investing activities was $66.1 million
for the first quarter of 1996 as a result of proceeds from the sale of assets
in the California region offset by the expenditures of the Company's ongoing
expansion program.
Smith's received approximately $7.5 million of cash from financing
activities for fiscal 1995 and used approximately $123.9 million of cash in
financing activities in fiscal 1994. The primary difference in financing
activities from 1994 to 1995 of $131.4 million was the repurchase of Common
Stock in 1994. In 1994, the Company purchased approximately $109.2 million of
its Common Stock under its stock buy-back program. Cash used in financing
activities totaled $77.5 million for the first quarter of 1996 as a result of
payments of long-term debt.
38
<PAGE>
In order to consummate the Transactions, Smith's expects to utilize total
new financing proceeds in the amount of approximately $1.4 billion. The
Company will enter into the New Credit Facility pursuant to which it will
borrow up to $805 million of New Term Loans and will have available a $190
million New Revolving Facility, of which approximately $7.9 million is
anticipated to be borrowed in connection with the Transactions. The Company
will also issue $575 million principal amount of Notes. The proceeds from the
New Credit Facility and the Offering will provide the sources of financing
required to consummate the Transactions and pay related fees and expenses
(including debt refinancing premiums). The Company will also assume certain
existing indebtedness of Smitty's. See "Summary--The Transactions--Sources and
Uses."
The New Revolving Facility will be available, subject to the satisfaction of
customary borrowing conditions, for working capital requirements and general
corporate purposes. A portion of the New Revolving Facility may be used to
support letters of credit, approximately $28 million of which are anticipated
to be outstanding upon consummation of the Transactions. The New Revolving
Facility will be non-amortizing and will have a six and one-quarter year term.
The Company will be required to reduce loans outstanding under the New
Revolving Facility to $75 million for a period of not less than 30 consecutive
days during each consecutive 12-month period following the Closing. At
December 30, 1995, on a pro forma basis, giving effect to the Transactions and
the California Disposition and letter of credit issuances, the Company's
remaining borrowing availability under the New Revolving Facility would have
been approximately $162.0 million. Pursuant to the New Credit Facility, the
New Term Loans will be issued in four tranches: (i) Tranche A, in the amount
of $325 million, will have a six and one-quarter year term; (ii) Tranche B, in
the amount of $160 million, will have a seven and one-half year term; (iii)
Tranche C, in the amount of $160 million, will have an eight and one-half year
term; and (iv) Tranche D, in the amount of $160 million, will have a nine and
one-quarter year term. The New Term Loans will require quarterly amortization
payments. The New Credit Facility will be guaranteed by each of the Company's
subsidiaries and secured by liens on substantially all of the unencumbered
assets of the Company and its subsidiaries and by a pledge of the Company's
stock in such subsidiaries. The New Credit Facility will contain financial
covenants which are expected to require, among other things, the maintenance
of specified levels of cash flow and stockholders' equity. See "Description of
New Credit Facility."
The capital expenditures of the Company (excluding expenditures in
California) were $91.0 million for fiscal 1994, $124.3 million for fiscal 1995
and $16.5 million for the first quarter of 1996. The Company currently
anticipates that its aggregate capital expenditures for fiscal 1996 will be
approximately $100.0 million, excluding the approximately $17 million of
capital expenditures which are estimated to be required in connection with the
integration of Arizona operations. The Company intends to finance these
capital expenditures primarily with cash provided by operations and other
sources of liquidity including borrowings and leases. No assurance can be
given that sources of financing for capital expenditures will be available or
sufficient. However, the capital expenditure program has substantial
flexibility and is subject to revision based on various factors. Management
believes that if the Company were to substantially reduce or postpone these
programs, there would be no substantial impact on short-term operating
profitability. In the long term, however, if these programs were substantially
reduced, management believes its operating businesses, and ultimately its cash
flow, would be adversely affected.
The capital expenditures discussed above do not include potential
acquisitions which the Company could make to expand within its existing
markets or to enter other markets. Future acquisitions may require the Company
to seek additional debt or equity financing depending on the size of the
transaction. With the exception of the Transactions, the Company is not
currently engaged in discussions concerning any material acquisition which it
considers probable.
Following the consummation of the Transactions, the Company will be highly
leveraged. Based upon current levels of operations and anticipated cost
savings and future growth, the Company believes that its cash flow from
operations, together with available borrowings under the New Revolving
Facility and its other sources of liquidity (including leases), will be
adequate to meet its anticipated requirements for working capital, capital
expenditures, lease payments, interest payments and scheduled principal
payments. There can be no assurance, however, that the Company's business will
continue to generate cash flow at or above current levels or that estimated
cost savings or growth can be achieved. See "Risk Factors--Leverage and Debt
Service."
39
<PAGE>
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS
TO BE DISPOSED OF
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment of Long-
lived Assets and for Long-lived Assets to be Disposed Of." The Company adopted
this standard in the first quarter of 1996. The adoption of SFAS No. 121 did
not have a significant impact on the Company's financial condition.
EFFECTS OF INFLATION
The Company's primary costs, inventory and labor, are affected by a number
of factors that are beyond its control, including availability and price of
merchandise, the competitive climate and general and regional economic
conditions. As is typical of the supermarket industry, the Company has
generally been able to maintain gross profit margins by adjusting retail
prices, but competitive conditions may from time to time render the Company
unable to do so while maintaining its market share.
DEFERRED COMPENSATION AGREEMENTS
The Company has entered into agreements with certain of its executive
officers and other employees to provide certain additional retirement benefits
and supplemental compensation (collectively, the "Deferred Compensation
Agreements"). See "Executive Compensation--Pension Plan and other Retirement,
Death and Disability Arrangements" which is incorporated into this Prospectus
from the Company's 1996 Proxy Statement. Pursuant to the Recapitalization
Agreement, the Company has agreed to use its best efforts to amend its
supplemental compensation agreements with certain of its executive and other
officers to provide that if any such officer is terminated without cause
during the two-year period following the consummation of the Transactions, all
of such officer's unvested benefits under his agreement will become
immediately and fully vested. See "Certain Relationships and Related
Transactions--Company's Stock Options; Deferred Compensation Plans." It is the
Company's policy to accrue its liabilities for future payments under these
agreements during the period in which the individual becomes vested in the
benefits under the terms of the applicable Deferred Compensation Agreement.
The Company does not believe that its liabilities under these Deferred
Compensation Agreements will have a material adverse effect on its future
financial condition or results of operations.
40
<PAGE>
BUSINESS
GENERAL
Smith's is a leading supermarket company in the Intermountain and
Southwestern regions of the United States, operating 120 stores located in
Utah (35), Arizona (30), Nevada (22), New Mexico (19) and Idaho, Texas and
Wyoming (collectively, 14). Substantially all of Smith's stores offer one-stop
shopping convenience through a food and drug combination format which features
a full-line supermarket with drug and pharmacy departments and some or all of
the following specialty departments: delicatessens, hot prepared food
sections, in-store bakeries, video rental shops, floral shops, one-hour photo
processing labs, full-service banking and frozen yogurt shops. The Company's
114 food and drug combination stores averaged approximately 63,000 square feet
and $420,000 per week in sales volume in fiscal 1995. The Company has recently
opened four price impact warehouse stores and also operates two conventional
supermarkets. Through its 48 years of operations, the Company believes it has
developed a valuable and strategically located store base, strong name
recognition, customer loyalty and a reputation for quality and service.
The Company is pursuing a series of transactions designed to enhance
stockholder value and liquidity:
. Arizona Merger and Consolidation. The Company has entered into an
agreement to acquire Smitty's, a regional supermarket operator with 28
stores in the Phoenix and Tucson markets, in a stock-for-stock exchange.
The Merger will significantly enhance the Company's market position in
Arizona. Smitty's is controlled by affiliates of Yucaipa, a private
investment group specializing in the supermarket industry. Such
affiliates of Yucaipa will own approximately 13.6% of the Company's
outstanding Common Stock following the Merger and the Recapitalization.
Following the Merger, the Company will consolidate its Arizona
operations with those of Smitty's. See "--Operating Strategy."
. California Disposition. The Company has completed the sale or lease of
16 stores, three non-operating properties and its primary distribution
facility in Southern California and has closed its remaining 18 stores
there. Management determined that because of the attractive growth
prospects in the Company's principal markets and the competitive
environment in Southern California, it would redeploy Company resources
from California into such other markets. Following the consummation of
the Transactions, the Company intends to accelerate the disposition of
its closed stores and excess land in California pursuant to the
California Asset Disposition.
. New Senior Management. The Company will enter into the five-year
Management Services Agreement with Yucaipa. Ronald W. Burkle, the
managing general partner of Yucaipa, will be appointed as Chief
Executive Officer of the Company. In addition, Allen R. Rowland recently
joined Smith's as President and Chief Operating Officer. Mr. Rowland was
employed by Albertson's, Inc. for 25 years and had senior executive
responsibilities for all of the principal regions in which Smith's
operates.
. Recapitalization. The Company is offering to purchase 50% of its
outstanding Common Stock (excluding shares issuable in the Merger) for
$36.00 per share in cash in the Tender Offer. In addition, the Company
is refinancing certain of its existing indebtedness and is refinancing
or assuming certain existing indebtedness of Smitty's concurrently with
the consummation of the Merger.
For the fiscal year ended December 30, 1995, after giving pro forma effect
to the Transactions and the California Disposition, the Company would have had
net sales and EBITDA (as defined) of approximately $3.0 billion and $255.4
million, respectively. See "Unaudited Pro Forma Combined Financial
Statements." In addition, management believes that the Company will benefit
from significant operating synergies and cost saving opportunities following
the Merger.
OPERATING STRATEGY
Management, in conjunction with Yucaipa, has developed a strategic plan
designed to: (i) expand operations in existing and adjacent markets, (ii)
realize operating synergies and cost savings resulting from the Merger,
41
<PAGE>
(iii) improve working capital management, (iv) grow its recently introduced
price impact warehouse stores and (v) dispose of remaining California real
estate following consummation of the Transactions.
Expand Operations in Existing and Adjacent Markets. Management believes that
there are significant opportunities to increase the Company's sales and gain
efficiencies in its existing markets through new store openings and store
remodels. From 1991 through 1994, management primarily focused on the Southern
California market, opening 32 new stores in Southern California compared to a
net of 10 new stores in its other markets. In 1995, the Company opened a net
of 17 new stores, only two of which were located in California. In an effort
to more fully realize its market potential in its non-California markets, in
1995 the Company began opening smaller combination stores (54,000 to 60,000
square feet) in existing markets as part of a "fill-in" strategy. By pursuing
a growth strategy which emphasizes opening new stores within its existing and
adjacent markets, the Company believes it can increase its market share and
improve its distribution and other efficiencies, while taking advantage of
such markets' favorable growth prospects.
Realize Operating Synergies and Cost Savings Resulting from the
Merger. Management believes that approximately $25 million of net annual cost
savings are achievable over a three-year period following the Merger. The
majority of such cost savings opportunities relate to its Arizona operations
and are believed to be achievable (on an annualized basis) by the end of the
first full year of operations following the Merger. The estimates of potential
cost savings resulting from the Merger contained in this Prospectus are
forward looking statements that involve risks and inherent uncertainties that
could cause actual net annual cost savings to differ materially from those
projected. See "Risk Factors--Ability to Achieve Anticipated Cost Savings."
. Advertising Cost Savings. Smith's and Smitty's advertising programs in
the Phoenix and Tucson markets substantially overlap, and as a result of
the Merger, management expects that the Company will be able to
eliminate a substantial portion of the combined advertising expenses.
Management estimates that annualized advertising cost savings of
approximately $7 million are achievable by the end of the first full
year of operations following the Merger.
. General and Administrative Cost Savings. Management expects the Company
to achieve savings from the elimination of duplicative administrative
staff and headquarters facilities and the consolidation of management
information systems. Management estimates that annualized general and
administrative cost savings of approximately $13 million are achievable
by the end of the first full year of operations following the Merger.
. Warehousing and Transportation Cost Savings. Smitty's currently operates
without any of its own distribution facilities. By incorporating the
Smitty's volume into Smith's Tolleson, Arizona warehousing and
distribution facilities, the Company expects to eliminate the expense
associated with Smitty's being supplied primarily by an independent
wholesaler, as well as reduce average unit costs resulting from improved
capacity utilization. Management estimates that annualized warehousing
and transportation cost savings of approximately $4 million are
achievable by the end of the second full year of operations following
the Merger.
. Direct Store Delivery and Store Systems. The Merger is expected to
result in an opportunity to utilize Smith's electronic direct store
receiving system in all Smitty's stores, resulting in increased control
over direct store deliveries and corresponding payments. In addition, by
utilizing Smith's front-end systems in Smitty's stores, improvements in
the efficiency of Smitty's stores are expected. Management estimates
that annualized cost savings of approximately $2 million related to such
direct store delivery and store systems are achievable by the end of the
second full year of operations following the Merger.
. Purchasing Improvements. Management believes that the Company can
achieve savings as a result of increased promotional allowances and
discounts through a coordinated buying effort with Yucaipa-affiliated
supermarket chains with aggregate annual sales (including the Company)
in excess of $11 billion. Management estimates that annualized cost
savings of approximately $6 million are achievable from such purchasing
improvements by the end of the third full year of operations following
the Merger.
42
<PAGE>
The sum of the components of the estimated annual cost savings exceeds $25
million; however, management expects that a portion of the savings will be
reinvested in the Company's operations. In connection with the Transactions,
the Company and Smitty's are evaluating the format mix of the combined Arizona
store base and are assessing the possibility of modifying the formats of
certain stores. It is anticipated that approximately $17 million of capital
expenditures and approximately $15 million of other expenses will be required
to integrate the Arizona operations over the next two years and realize such
cost savings.
Improve Working Capital Management. Management believes that the Company can
improve its working capital management. Under Yucaipa's management, other
companies have achieved working capital improvements; however, there can be no
assurance that similar improvements can be achieved by the Company.
Grow Recently Introduced Price Impact Warehouse Format. The Company recently
developed a price impact warehouse store format and during 1995 opened four of
these stores in the Las Vegas area operating under the name "PriceRite Grocery
Warehouse." Management believes that a number of the Company's markets are
underserved by price impact warehouse stores and that there are substantial
opportunities for expansion of the Company's PriceRite format through the
conversion of existing stores and the opening of new stores. Yucaipa, through
its management of other supermarket companies, has extensive experience in
expanding and profitably operating price impact warehouse formats.
Dispose of Remaining California Real Estate. Following the consummation of
the Transactions, management, in conjunction with Yucaipa, anticipates that it
will pursue a strategy to dispose of its remaining real estate assets in
California which consist of 18 non-operating stores and excess land. The
Company would use the net cash proceeds from the California Asset Disposition
to either reinvest in the Company's business or reduce indebtedness incurred
in connection with the Transactions. At December 30, 1995, the aggregate book
value of such assets was approximately $260 million. If this strategy is
adopted, as anticipated, the Company would record a pre-tax charge to
earnings, which is presently estimated to be approximately $125 million, to
reflect the difference between the anticipated cash proceeds from the
accelerated dispositions and the Company's existing book values for such
assets. See "Risk Factors--Anticipated Charges to Earnings Following the
Transactions."
PRINCIPAL MARKETS
The Company's stores are located predominantly in Utah, Arizona, Nevada and
New Mexico, which are among the fastest growing states in terms of population
and employment. According to the U.S. Bureau of the Census, the population of
those four states has increased at a compound annual growth rate of 3.0% since
1990, compared to the national average of 1.1% over the same period. According
to the U.S. Bureau of Labor Statistics, employment in the same four states has
increased at a compound annual growth rate of 4.0% since 1990, compared to the
national average of 1.3% over the same period. In addition, management
believes that operating in distinct markets in several states provides
advantages due to the differences in economic cycles, demographics and
competitive conditions among such markets.
The Company has achieved strong competitive positions in each of its
principal markets. Smith's currently has leading market shares in Salt Lake
City (31%), Las Vegas (24%) and Albuquerque (23%) and, after giving effect to
the Merger, the Company will also have a leading market share in Phoenix
(24%). The Company believes its reputation for offering a broad selection of
quality products and low pricing combined with quality customer service has
created a valuable franchise with strong name recognition and customer
loyalty.
STORE FORMATS
Smith's operates three types of retail stores: (i) 114 food and drug
combination stores; (ii) four warehouse stores; and (iii) two conventional
supermarkets. The food and drug combination stores range in size from 30,000
to 88,000 square feet (with an average size of 63,000 square feet) and offer
an extensive line of supermarket, non-food and drug products. A typical
Smith's food and drug combination store offers approximately 50,000 SKUs, in
comparison to approximately 20,000 SKUs offered at the average conventional
supermarket
43
<PAGE>
nationwide. All stores carry a full line of supermarket products, including
groceries, meat, poultry, produce, dairy products, bakery goods, frozen foods
and health and beauty aids. In addition, combination stores carry a wide
variety of general merchandise, including drugs, toys, hardware, giftware and
small appliances. Within each category of merchandise, the stores offer
multiple selections of nationally advertised brand name items. In addition,
the stores carry an extensive selection of private label merchandise, which
provides comparable quality products priced lower than national brands. The
Company also carries a variety of bulk merchandise and generic brand products
which enhance the Company's low price image. These stores feature modern
layouts with wide aisles and well-lighted spaces to facilitate convenient
shopping, a variety of specialty departments along the periphery and
centralized checkout facilities. The Company's four price impact warehouse
stores operating under the PriceRite Grocery Warehouse name, average 55,000
square feet in size, and are targeted to price-conscious consumers rather than
conventional supermarket consumers. The PriceRite stores offer lower prices,
fewer SKUs and fewer service departments than the Company's food and drug
combination stores and conventional stores. The Company's conventional stores
average 26,000 square feet in size and have the appearance of traditional
supermarkets.
Smitty's, which will become a subsidiary of the Company upon consummation of
the Merger, currently operates (i) 21 food and general merchandise "super
combination" stores which average 105,000 square feet in size, (ii) six food
and drug combination stores, which average 52,000 square feet in size, and
(iii) one conventional supermarket. Smitty's has reached agreements relating
to the disposition of one of its stores in Phoenix and one of its stores in
Tucson. The "super combination" stores offer a full line of supermarket items,
a broad range of drug store and pharmaceutical items and an expanded selection
of general merchandise. These stores offer numerous services and specialty
departments, including fresh produce, full-service fresh meat, delicatessen,
seafood, bakery, prepared foods, fresh-cut flowers and video and photo
departments, pharmacies, food courts, restaurants and full-service bank
branches, family style hair salons and airline ticket counters. Smitty's food
and drug combination stores offer a full selection of products and services,
including full-service fresh meat, delicatessen, seafood and bakery
departments, an expanded line of health care and beauty aids, a restaurant,
snack bar or food court and full-service banking. In connection with the
Merger, the Company and Smitty's are evaluating the format mix of the combined
Arizona store base and are assessing the possibility of converting the format
of certain stores.
STORE DEVELOPMENT AND EXPANSION
The following table sets forth information concerning changes in the store
base of the Company and Smitty's over the last five years.
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
STORES OPENED (NET):
Smith's:
Intermountain and Southwest...................... 5 1 2 2 15
California....................................... 9 9 8 6 2
Smitty's.......................................... 0 2 3 0 (1)
TOTAL NUMBER OF STORES (END OF PERIOD):
Smith's:
Intermountain and Southwest...................... 100 101 103 105 120
California....................................... 9 18 26 32 34
Smitty's.......................................... 24 26 29 29 28
</TABLE>
After giving effect to the Merger, approximately 84% of the Company's stores
will have been opened or remodeled within the last seven years. Over the past
five fiscal years, the Company's capital expenditures for the construction of
new and remodeled stores (not including California operations) totaled
approximately $414 million. In addition, during the same period the Company
invested approximately $163 million in distribution, processing and other
support facilities (not including California operations). During the five year
period ended December 30, 1995, Smitty's spent approximately $72 million in
capital expenditures, including approximately $42 million since mid-1994 to
remodel substantially all of its Phoenix-area stores.
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The Company's real estate department locates, acquires and develops sites
for future stores. The Company's 48 years of operation have allowed it to
choose its store locations selectively as new residential areas have been
developed. The Company believes that many of its stores are in developed areas
where land values and the difficulties in locating suitable parcels would make
it difficult to replicate the Company's existing store base. The Company has
historically sought to purchase the best potential new store locations
available in any target market. If the Company cannot purchase the best
potential locations, however, it will consider leasing a location from its
owner or a local developer. As a result of this strategy, after giving effect
to the Merger, the Company will own 107 of its 146 stores, including the
underlying land with respect to 97 of such owned stores. See "Business--
Properties." In order to maximize its future capital expenditure resources,
the Company intends to place a greater emphasis on leasing new stores
following the consummation of the Transactions.
MERCHANDISING
The Company's merchandising strategy is to offer customers the ability to
fulfill a significant portion of their daily and weekly shopping needs at one
convenient location and to establish and promote its reputation as a low price
leader in the trade area of each of its stores. The cornerstones of this
strategy include:
Everyday Low Pricing. The Company offers its products on an everyday low
pricing ("EDLP") basis in all markets other than Phoenix and Tucson, where the
Company offers a combination of EDLP and promotional pricing. The Company
offers an EDLP program in most markets because the Company believes that it
generally allows for higher overall profitability than a promotional pricing
program. An EDLP program allows for more consistent prices over time than a
promotional program, which entails variable pricing and higher levels of
demand for sale products. As a result, EDLP simplifies inventory management
and lowers operating costs.
Quality Customer Service. The Company believes a key to its success is its
emphasis on quality customer service. The Company provides courteous and
efficient customer service by placing a high degree of emphasis on employee
training. Most stores have a customer service counter located near the store
entrance to answer questions and to assist customers in locating merchandise.
The Company also provides rapid in-store checkout services, aided by the use
of computerized scanning devices and the bagging of groceries at checkout. In
most locations, stores are open 24 hours each day.
Advertising and Promotion. The Company reinforces its low price image
through extensive television advertising and through print advertising in
newspapers and circulars. The Company divides its advertising budgets in a
similar manner across its markets, with approximately 80% committed to print
advertising and approximately 20% committed to radio and television
advertising. The Company also takes an active interest in the communities in
which its stores are located and maintains programs designed to contribute
funds, products and manpower to local charities and civic groups.
Specialty Departments. Each combination store provides certain specialty
departments designed to provide one-stop shopping convenience to customers and
to increase the frequency with which customers return to the store. The
specialty departments, which vary depending upon store size and location,
include delicatessens with prepared foods, full-service fresh fish and meat
departments, bakeries, dry cleaning drop-off facilities, U.S. Post Office
branches, pharmacies, video rental departments, take-out food counters, camera
and photo departments with on-site film processing, floral departments and in-
store banking provided by a regional or local bank.
Private Label Program. Through its private label program, the Company offers
in excess of one thousand items under the "Smith's," "Mountain Dairy," "Creek
View" and other brand names. These products provide customers with quality
comparable to that of national brands but at lower prices. Management believes
that the Company's private label program is one of the most successful
programs in the industry. The Company's owned manufacturing and processing
facilities, including its milk and beverage plants, cultured dairy products
plant, ice cream processing plant and frozen dough plant, supply the Company's
stores with private label milk, milk products, fruit punches, sour cream,
yogurt, cottage cheese, chip dip products, ice cream and novelty items, baked
goods and other products and allow the Company to generate gross margins on
such private label items that are generally higher than on national brands.
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Frequent Shopper Program. Smitty's has developed a proprietary information
system that updates and maintains a comprehensive customer database used for
its unique frequent shopper program, Shopper's Passport. Customers obtain a
Shopper's Passport bar-coded scan readable card which entitles them to receive
a number of benefits, including discounts on certain purchases, check cashing
authorization and participation in special promotions held throughout the
calendar year. Management believes that as a result of this program, Shopper's
Passport has established one of the most comprehensive supermarket customer
data bases in the country. The Company is evaluating plans to utilize the
Shoppers Passport program in Smith's stores throughout the Phoenix and Tucson
markets following the Merger.
OPERATIONS
The Company is divided into two major operating regions, the Intermountain
Region and the Southwest Region, which are segmented into eight geographic
districts. The Intermountain Region consists of stores in Utah, Idaho, Nevada
and Wyoming. The Southwest Region consists of stores in Arizona, New Mexico
and Texas. The districts are staffed with operational managers who are given
as much autonomy as possible while retaining the advantages of central control
over accounting, real estate, legal, data processing and other functions at
the Company's headquarters. This operational autonomy enables management to
react quickly to changes in local markets.
District and store managers are responsible for store operations, local
advertising formats, employee relations and development, customer relations,
community affairs and other functions relating to local operations. The
regional staff includes supervisors responsible for the meat, produce, bakery,
non-food, pharmacy, one-hour photo, deli and prepared foods departments, who
help each regional manager.
PURCHASING, DISTRIBUTION AND PROCESSING
The Company's purchasing activities are regionally centralized, with most
food products and all general merchandise being purchased in volume through
regional buyers supervised by headquarters' management. Certain specialized or
perishable products are purchased at regional warehouse levels. Management
believes that, following the Merger, the Company can achieve increased
promotional allowances and discounts through a coordinated buying effort with
Yucaipa-affiliated supermarket chains with aggregate annual sales (when
combined with the Company) in excess of $11 billion.
The Company owns and operates one of the most modern and efficient backstage
operations in the industry. The Company's warehousing, distribution and
processing facilities, which comprise approximately 3,000,000 square feet,
have all been built, expanded or remodeled in the last five years. Central
distribution facilities in Salt Lake City and Layton, Utah supply products to
all stores in the Intermountain Region and distributes the majority of non-
food merchandise, pharmaceutical products and certain bulk products to stores
in the Southwest Region. An integrated distribution and processing center in
Tolleson, Arizona includes complete warehousing operations and a dairy
processing plant. The facility supplies products to all stores in the
Southwest Region and Las Vegas. The Company also operates two produce
warehouses, one in Ontario, California and the other in Albuquerque, New
Mexico. See "--Properties." Approximately 80% of products sold in 1995 were
shipped through the Company's distribution network.
The Company transports food and merchandise from its distribution centers
primarily through a Company-owned fleet of tractors and trailers which
primarily serve nearby stores and through common carriers for stores located
at greater distances. As of December 30, 1995, the Company's owned fleet
included 158 tractors and 406 trailers. The Company seeks to lower costs on
shipments by taking advantage of backhauling opportunities where available.
The Company's processing facilities located in Tolleson, Arizona and Layton,
Utah produce a variety of products under the Company's private label for
distribution to Company stores. The Company's dairy plants process a variety
of milk, milk products and fruit punches. The Company's automated frozen dough
plant produces frozen bakery goods for final baking at in-store bakeries. The
Company's cultured dairy products plant
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<PAGE>
produces sour cream, yogurt, cottage cheese and chip dip products. The
Company's ice cream processing plant supplies all stores with Smith's private
label ice cream and novelty items.
The Company believes that its central distribution facilities provide
several advantages. Management is able to control inventory levels throughout
its system in order to maximize the Company's in-stock position, while at the
same time optimizing the use of store shelf space. Costs of products are
reduced through centralized volume purchases and effective management of per-
item transportation costs. Stores are also served more efficiently through
central control of delivery schedules. By managing overall inventory levels,
the Company seeks to maximize inventory turns and minimize investments in
inventory. Management believes the Company's backstage operations will be able
to accommodate the increased volume resulting from the integration of the
Smitty's operations in Arizona following the Merger and to support anticipated
future growth.
Smitty's currently makes approximately 60% of its annual purchases from
Fleming Companies, Inc. ("Fleming") under a supply agreement which by its
original terms expires in June, 1997. Smitty's has been engaged in discussions
with Fleming regarding the termination of the existing supply agreement,
subject to certain conditions, and the possibility of entering into a new
agreement whereby Fleming will no longer be a full-line supplier to Smitty's.
It is contemplated that under such a new agreement, Fleming would supply
Smitty's and, following the Merger, the Company for a limited period of time.
The terms of such a new agreement are subject to ongoing discussions between
the parties and no assurances can be given that a new agreement will be
signed. In any event, management does not believe that the ultimate resolution
of Smitty's ongoing discussions with Fleming will adversely affect the
Company's Arizona operations in any material respect. Smitty's is also party
to a second supply agreement with Fleming relating to the purchase of general
merchandise and health and beauty aids. The Company and Fleming have discussed
terminating this agreement for a specified cash payment.
INFORMATION SYSTEMS AND TECHNOLOGY
The Company is currently supported by a full range of advanced management
systems. Smith's has implemented store-level inventory and item management
systems developed on UNIX in-store processors using the Informix relational
database. This application includes direct store delivery store receiving,
which allows goods to be scanned electronically upon arrival at each store
receiving dock. This system also includes price verification and order entry
using hand-held personal computers. Store checkout is supported by NCR point-
of-sale scanning. Smith's stores are supported by pharmacy, video rental,
labor scheduling and time and attendance systems which help the Company
facilitate customer service while managing labor costs.
The Company's buying operations are supported by the AS/400-based E3
forecasting and purchasing system which uses statistical models of
seasonality, promotions and buying behavior to optimize inventory levels. The
Company's distribution centers operate utilizing leading software of the
Dallas Systems Company. The key components are the Distribution Center
Management Control System, which is used for all inventory processing, and the
Distribution Center Assignment Monitoring System (DCAMS), which is used for
labor standards management. To increase operating efficiency and decrease
labor costs, the DCAMS system transmits work assignments to lift drivers and
order selectors through a radio-frequency terminal. Smith's is currently
installing the OMI purchasing and forecasting system which will be used for
distribution center replenishment. The installation is expected to be
completed during 1996.
Smith's computer operations and applications development activities were
outsourced to Electronic Data Systems in 1992 under a ten-year outsourcing
agreement.
COMPETITION
The supermarket industry is highly competitive and characterized by narrow
profit margins. The Company's competitors include national and regional
supermarket chains, independent and specialty grocers, drug and convenience
stores, and the newer "alternative format" food stores, including warehouse-
style supermarkets, club stores, deep discount drug stores and "supercenters."
In addition, new competitors have entered the Company's markets in the past
and could do so in the future. Supermarket chains generally compete on the
basis of price, location, quality and variety of products, service and store
condition. The Company regularly monitors
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<PAGE>
its competitors' prices and adjusts its prices and marketing strategy in light
of existing conditions. Some of the Company's competitors have greater
financial resources than the Company and could use those resources to take
steps which could adversely affect the Company's competitive position.
The Company's principal supermarket competitors in the Salt Lake City market
are Albertson's, Ream's Food Stores, Harmons, Fred Meyer, and Dan's Foods. In
the Phoenix market, the Company's principal supermarket competitors include
Fry's, Bashas Markets, Safeway, ABCO, Albertson's and Mega Foods and, prior to
the Merger, Smitty's. In Albuquerque, the Company's principal supermarket
competitors are Furr's, Jewel Osco and Albertson's, and in Las Vegas, the
Company's main supermarket competitors are Lucky, Vons and Albertson's. The
Company also competes with various drug chains and other non-food operators in
each of its markets. See "Risk Factors--Competition."
EMPLOYEES AND LABOR RELATIONS
The Company's policy is to train and develop its employees and promote from
within. The Company generally prefers to promote its own employees to store
manager positions. Management-level employees, including store department
managers, participate in incentive compensation programs tied to
profitability, and such compensation programs can represent a significant
percentage of such managers' total compensation. The Company believes that its
employee retention rate is high within the industry, especially at the store
manager level and above.
Excluding California operations, as of December 30, 1995, Smith's employed
approximately 16,000 persons, approximately 53% of whom were full-time and 47%
of whom were part-time. Approximately 42% of the Company's employees are
unionized. The Company's unionized employees work under 15 collective
bargaining agreements with local labor unions, primarily in Arizona, Nevada
and New Mexico, which typically have three-year terms. Management of the
Company believes that it will be able to renew existing agreements on terms
satisfactory to the Company. If it is unable to do so, however, there could be
a material adverse effect on the Company's operations. The wages and benefits
provided in the Company's collective bargaining agreements are substantially
similar to those of its supermarket competitors. The Company has not
experienced a work stoppage in the past ten years and considers its relations
with its employees and labor unions to be satisfactory.
As of January 14, 1996, Smitty's employed approximately 4,600 people, of
whom approximately 36% were full-time and approximately 64% were part-time.
Approximately 4,100 employees working in the stores, constituting
approximately 89% of Smitty's employees, are covered by a collective
bargaining agreement that expires in October 1997. Smitty's has not
experienced a work stoppage in the past ten years and considers its relations
with its employees and labor unions to be satisfactory.
From time to time the Company's unions and other employees have made, and in
the future may make, claims concerning various matters pertaining to
compensation, terms of employment or other related matters. While such claims
could be substantial, such claims have not had, and are not expected to have,
a material adverse effect on the Company. See also "--California Divestiture."
PROPERTIES
As of March 30, 1996, after giving effect to the Merger and the California
Divestiture, the Company would have owned 107 of its 146 operating stores,
including the underlying land with respect to 97 of such owned stores. The
Company's stores are located throughout a seven-state area as follows:
<TABLE>
<CAPTION>
STATE STORES OWNED STORES LEASED TOTAL
----- ------------ ------------- -----
<S> <C> <C> <C>
Arizona.................................. 39 17 56
Utah..................................... 30 5 35
Nevada................................... 12 10 22
New Mexico............................... 15 4 19
Idaho.................................... 4 1 5
Wyoming.................................. 3 2 5
Texas.................................... 4 0 4
--- --- ---
Total.................................. 107 39 146
=== === ===
</TABLE>
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The Company leases or subleases 40 of its operating stores from third
parties under leases expiring between 1997 and 2023. Eleven of the Company-
owned stores are located on property which is ground-leased from third parties
under leases expiring between 2007 and 2045. In most cases, such building and
ground leases are subject to customary renewal options.
The Company owns a 1,180,000 square-foot distribution and dairy processing
center in Tolleson, Arizona, 573,000 square feet of grocery warehousing
facilities and 348,000 square feet of processing plants in Layton, Utah and a
226,000 square-foot non-food warehouse in Salt Lake City, Utah. The Company
also leases a 40,000 square-foot produce and forward-purchasing warehouse in
Albuquerque, New Mexico, a 408,000 square-foot non-foods warehouse in Salt
Lake City, Utah and a 205,000 square-foot produce warehouse in Ontario,
California, under leases expiring in 1997, 1997 and 1999, respectively.
The Company's corporate offices, data processing and records storage
facilities are located in over 100,000 square feet of office and warehouse
space owned by the Company in Salt Lake City, Utah.
CALIFORNIA DIVESTITURE
In late 1995, management determined that because of the attractive growth
prospects of the Company's principal markets and the competitive environment
in California, the Company would attempt to sell its California operations and
redeploy its resources into its non-California markets.
In December 1995, Smith's entered into an agreement to sublease its
Riverside, California distribution center to Ralphs. On January 29, 1996,
Ralphs commenced the sublease of the Riverside distribution center and dairy
plant for an initial term of 23 years. Ralphs also purchased certain equipment
and inventory for an aggregate purchase price (net of certain offsetting
payments) of approximately $8.7 million. The sublease provides for a subrental
of approximately $8.8 million per annum, which is substantially the same
amount as is payable by Smith's under the master lease, and requires Ralphs to
fulfill substantially all of the other monetary obligations of Smith's under
the master lease.
In January 1996, the Company entered into agreements to sell or lease 16 of
its California stores and three non-operating properties. The Company has
substantially completed the sale of these stores, including related equipment
and inventory. Of the stores being sold or leased, the Company has leased or
subleased eight operating stores and one non-operating store to Ralphs. The
non-operating store, located in Beaumont, California, is partially completed,
and has been subleased by Ralphs in "as is" condition. The subleases to Ralphs
are for terms, and at subrentals, that are substantially equivalent to the
terms of, and the rentals payable under, the master store leases (except that
Ralphs is not responsible for rent escalations in the master store lease of
one of the subleased stores). The remaining eight stores were sold to other
supermarket companies, four pursuant to outright sales, two pursuant to
assignments of underlying leases and two pursuant to subleases. The two
subleases are subject to early termination if the Company has not satisfied
certain conditions within 18 months. In order to satisfy these conditions, the
Company is required to either (i) obtain fee simple title to the properties by
removing them from the Sale-Leaseback Financing (as defined below) and
delivering such title to the sublessee or (ii) obtaining certain estoppel,
non-disturbance and attornment agreements to protect the sublessee's interests
in such premises. If the Company is unable to satisfy either of these
conditions, then each sublessee will have the option to terminate the sublease
and receive indemnification for certain costs. In order to convey fee simple
title to the properties, the Company may be required to assume certain related
indebtedness and would apply the net proceeds of the sale to reduce other
indebtedness. See "--California Sale-Leaseback Financing" below.
The Company has completed the California Divestiture transactions described
above and, since December 30, 1995, has received net cash proceeds of
approximately $67.2 million (excluding store inventory). The Company expects
to receive approximately $10.6 million of additional cash proceeds from the
sale of certain undeveloped real estate shortly following the consummation of
the Transactions. All of the remaining California stores were closed by March
16, 1996. In connection with its decision to cease operations in California,
Smith's
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<PAGE>
recorded pre-tax restructuring charges of $140 million for the year ended
December 30, 1995 to reflect the anticipated cost to Smith's of the California
Divestiture. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
In connection with the California Divestiture, the Company entered into a
settlement agreement with the California Attorney General (the "CAG") relating
to the stores that were sold, leased, or closed. Under the settlement
agreement, the Company agreed that, for a period of five years, it would not
operate any of the closed stores as supermarkets without the permission of the
CAG. In addition, for the same five-year period, the Company agreed not to (i)
transfer the closed stores to third parties for supermarket use without the
CAG's approval, (ii) transfer such stores for non-supermarket use without
prior notice to the CAG, and (iii) sell any of such stores subject to
restrictions as to future supermarket use.
On January 8, 1996, the Company sent 60-day WARN Act notices to its
California employees in connection with the California Divestiture. In many
circumstances, the Company's stores were closed prior to the expiration of the
required 60-day period, making the Company responsible for the pay associated
with the number of shortfall days, which the Company duly paid. Certain labor
unions in California are asserting a claim for additional compensation to many
of the Company's California employees on the theory that the WARN Act notice
shortfall payments were not properly calculated by the Company. In addition,
as a result of the California Divestiture, such unions have asserted that
Smith's is liable for a retroactive payment to the health and welfare benefit
trust(s) associated with the unions by virtue of the union contract. The
Company does not believe that the unions' claims are meritorious and intends
to contest them vigorously. The Company does not believe that these claims
will have a material adverse effect on its financial condition or results of
operations.
CALIFORNIA SALE-LEASEBACK FINANCING
In order to finance its Riverside, California distribution center and eight
of its California stores the Company completed a sale-leaseback financing (the
"Sale-Leaseback Financing") in 1994. Pursuant to such financing, the Company
sold a portion of its interest in the properties to an owner trustee and
entered into an operating lease for each property. In order to provide the
financing for owner trustee's purchase of the properties, the Company filed a
registration statement with the Commission pertaining to a public offering of
$152.4 million of pass through certificates. Each of the pass through trusts
issuing the certificates used the proceeds of the offering to acquire notes
from the owner trustee (which in turn used the proceeds to acquire its
interest in the properties from the Company). Neither the notes nor the pass
through certificates are obligations of, nor are they guaranteed by, the
Company and, accordingly, are not reflected as indebtedness or other
liabilities of the Company under generally accepted accounting principles.
Under the terms of the Sale-Leaseback Financing, the Company may terminate
its lease with respect to the various California properties if it deems such
properties to be obsolete, uneconomic for use or surplus to the Company's
needs. In connection with any such termination, the Company may elect to
satisfy all of the rights and obligations of the owner trustee in respect of
the related notes by exchanging such notes for (a) if the property is sold to
a party other than the Company, unsecured, full recourse securities of the
Company or (b) if such property is sold to the Company, secured, full recourse
securities of the Company. In addition, the Company may substitute other
properties (including properties located outside California) for properties
which it deems to be obsolete, uneconomic for use or surplus to its needs. The
substitute properties must have a fair market value, utility and useful life
equal to or greater than that of the substituted property. The Company would
not be required to assume any indebtedness in connection with such a
substitution. Any such exchange or substitution may be made by the Company
only if certain conditions are satisfied.
In April 1996, the Company received a letter from a holder of pass through
certificates pointing out an inaccurate statement in the 1994 pass through
certificate prospectus. The letter referred to a statement in the prospectus
disclosing that holders of the certificates would not receive any covenant
protection in the event of a highly leveraged transaction involving the
Company, including any transaction resulting in a change of control. The
prospectus went on to state that none of the then-outstanding indebtedness of
the Company contained
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<PAGE>
provisions affording holders of such indebtedness protection in the event of a
change of control, which was characterized in the letter as a material
representation. At the date of such prospectus, a substantial amount of the
Company's then-existing indebtedness did contain such change of control
provisions. The Company has pointed out to the holder that consummation of the
Transactions will not result in a change of control of the Company under the
terms of such existing debt instruments although the indebtedness under such
debt instruments will be repaid in order to remove certain financial and other
covenants contained therein that would otherwise hinder the Company's ability
to consummate the Transactions. The Company is currently reviewing the
relevant facts and circumstances. The letter suggested that all interested
parties be made aware of the existence of the alleged misrepresentation, but
made no specific claim or demand on the Company. Although no assurances can be
given, the Company does not believe that any claims by the holders of the pass
through certificates, if made, would have a material adverse effect on the
Company or its ability to complete the California Disposition.
ENVIRONMENTAL MATTERS
The Company is subject to a variety of environmental laws, rules,
regulations and investigative or enforcement activities, as are other
companies in the same or similar business. The Company believes it is in
substantial compliance with such laws, rules and regulations. These laws,
rules, regulations and agency activities change from time to time, and such
changes may affect the ongoing business and operations of the Company. The
Company, from time to time, has or may in the future receive requests from
environmental regulatory authorities to provide information or to conduct
investigation or remediation activities. None of these requests is expected by
management to have a material adverse effect on the Company's business.
GOVERNMENTAL REGULATION
The Company is subject to regulation by a variety of governmental
authorities, including federal, state and local agencies which regulate the
distribution and sale of alcoholic beverages, pharmaceuticals, milk and other
agricultural products, as well as various other food and drug items and also
regulate trade practices, advertising, building standards, labor, health,
safety and environmental matters. The Company from time to time receives
inquiries from state and federal regulatory authorities with respect to its
comparative advertising practices, pricing policies, employment practices and
other trade practices. None of these inquiries, individually or in the
aggregate, has resulted, or is expected by management to result, in any order,
judgment, fine or other action that has, or would have, a material adverse
effect on the business or financial position of the Company.
TRADE NAMES, SERVICE MARKS AND TRADEMARKS
The Company uses a variety of trade names, service marks and trademarks in
its business including "Smith's," "Smith's Food & Drug Centers," "Mountain
Dairy," "Creek View," "PriceRite," and numerous others. While the Company
believes its trademarks are important to its business, except for "Smith's,"
"Smith's Food & Drug Centers," "PriceRite" and, following the Merger,
"Smitty's," "Smitty's Super Valu" and "Shoppers Passport," the Company does
not believe any of such trademarks are, or will be, critical to its business.
LEGAL PROCEEDINGS
The Company, in the ordinary course of its business, is party to various
legal actions. Management believes these are routine in nature and incidental
to the operations of the Company. Management believes that the outcome of any
proceedings to which the Company is currently a party will not, individually
or in the aggregate, have a material adverse effect on the operations or
financial condition of the Company.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
persons who are expected to serve as the executive officers and directors of
the Company following the consummation of the Transactions. Following the
Recapitalization, the Board of Directors will be comprised of seven directors,
including two nominees of the Smith Group (as defined) and two nominees of the
Yucaipa Group (as defined). See "Certain Relationships and Related
Transactions--Standstill Agreement."
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
Jeffrey P. Smith.................... 46 Chairman of the Board
Ronald W. Burkle.................... 43 Chief Executive Officer, Director
Allen R. Rowland.................... 51 President, Chief Operating Officer,
Director
Robert D. Bolinder.................. 65 Executive Vice President--Corporate
Planning and Development
Matthew G. Tezak.................... 40 Senior Vice President, Chief
Financial Officer
J. Craig Gilbert.................... 48 Senior Vice President, Regional
Manager--Intermountain Region
James W. Hallsey.................... 53 Senior Vice President, Regional
Manager--Southwest Region
Richard C. Bylski................... 57 Senior Vice President, Human
Resources
Michael C. Frei..................... 50 Senior Vice President, General
Counsel and Secretary
Kenneth A. Martindale............... 36 Senior Vice President, Marketing
Fred F. Urbanek..................... 60 Senior Vice President, Facility
Engineering
John T. Standley.................... 33 Senior Vice President,
Administration
Fred L. Smith....................... 48 Director
Linda McLoughlin Figel.............. 32 Director
Bruce Karatz........................ 50 Director
Bertram R. Zweig.................... 61 Director
</TABLE>
Jeffrey P. Smith has been a director of Smith's since 1971. He has served as
Chairman of the Board and Chief Executive Officer since 1988. He served as
Chief Operating Officer of Smith's from 1984 to 1988.
Ronald W. Burkle has been the Chairman of the Board of Smitty's and a
director of SSV since 1994 and Chairman of the Board of SSV since October
1995. Mr. Burkle co-founded Yucaipa in 1986 and has served as a director of
Ralphs Grocery Company since 1995. Mr. Burkle served as Chairman of the Board
of Ralphs Grocery Company from 1995 to January 1996 and as Chief Executive
Officer and a director of its predecessor, Food 4 Less Supermarkets, Inc.
since 1987. Mr. Burkle served as Chief Executive Officer and a director of
Dominick's Supermarkets, Inc. from 1995 to 1996 and currently serves as its
Chairman of the Board. From 1986 to 1988, Mr. Burkle was Chairman and Chief
Executive Officer of Jurgensen's, a Southern California gourmet food retailer.
Mr. Burkle has served as a director of Kaufman and Broad Home Corporation
since March 1995.
Allen R. Rowland has been President and Chief Operating Officer since
joining Smith's in January 1996. From 1989 to 1996 he served as a Senior Vice
President/Regional Manager of Albertson's, Inc. From 1982 to 1989 he was a
Vice President/Division Manager with the Florida and Texas Divisions of
Albertson's, Inc.
Robert D. Bolinder has been a director of Smith's since 1985. He has served
as Executive Vice President, Corporate Planning and Development of Smith's
since 1993. He served as Executive Vice President and Chief Financial Officer
of Smith's from 1988 to 1993, after serving four years as a supermarket
industry management consultant. He is also a director of Hannaford Bros.
Company, Inc., a regional supermarket chain, and Idaho Power Company, a public
utility company. Prior to 1984, Mr. Bolinder was Vice Chairman and a director
of Albertson's, Inc. for many years.
52
<PAGE>
Matthew G. Tezak has been Senior Vice President and Chief Financial Officer
of Smith's since 1993. He served as Senior Vice President, Finance and
Treasurer from 1992 to 1993 and Vice President, Finance and Treasurer from
1987 to 1992. Mr. Tezak, a certified public accountant, joined Smith's in 1979
as Assistant Controller.
J. Craig Gilbert has served as Senior Vice President, Regional Manager,
Intermountain Region of Smith's since 1993. From 1992 to 1993 he served as
Senior Vice President, Regional Manager, Southwest Region. From 1991 to 1992
he was Vice President, Regional Manager, Southwest Region and from 1985 to
1991 he served as Vice President, Sales and Merchandising, Intermountain
Region.
James W. Hallsey has served as Senior Vice President, Regional Manager,
Southwest Region since 1995. He rejoined Smith's in 1994 as Senior Vice
President, Special Projects after serving most of 1994 as Senior Vice
President at McKesson Drug Company, a pharmacy company. In 1993, Mr. Hallsey
retired as a director of Smith's (a capacity in which he served since 1985)
and Senior Vice President, Corporate Nonfoods Director (a capacity in which he
served since 1992). From 1980 to 1992 he served as Vice President, Corporate
Nonfoods Director of the Company.
Richard C. Bylski has been Senior Vice President, Human Resources of Smith's
since 1992. He served as Vice President, Human Resources of Smith's from 1985
to 1992.
Michael C. Frei joined Smith's in 1990 as Senior Vice President, General
Counsel and Secretary. Prior to that time, Mr. Frei served as Vice President
and General Counsel of Price Development Company, a commercial real estate
developer, since 1981.
Kenneth A. Martindale has served as Senior Vice President, Marketing of
Smith's since 1995. He served as Vice President, Merchandising, California
Region from 1991 to 1995. From 1984 to 1991, he served as a district manager
in the Intermountain Region.
Fred F. Urbanek has been Senior Vice President, Facility Engineering of
Smith's since 1992. He served as Vice President, Facility Engineering of
Smith's from 1985 to 1992.
John T. Standley is the Chief Financial Officer, Vice President and
Assistant Secretary of Smitty's and SSV, and upon consummation of the Merger,
will be the Senior Vice President, Administration of the Company. Mr. Standley
joined Smitty's in December 1994. Prior to that time, Mr. Standley was Vice
President of Finance for Food 4 Less Supermarkets, Inc. from 1991 to 1994.
Prior to 1991, he was a manager at Arthur Andersen & Company.
Fred L. Smith has been a director of Smith's since 1968. Since 1988, he has
been President of Fred Smith's Honda Automobiles of Palm Springs, an auto
dealership, prior to which time he was a private investor. Since 1989, he has
also been President of Fred Smith's Jaguar/Rolls Royce of Rancho Mirage, an
auto dealership.
Linda McLoughlin Figel joined Yucaipa in 1989 and became a general partner
in 1991. Prior to that time, she was employed by Bankers Trust Company in its
Structured Finance Group.
Bruce Karatz has been the President, Chief Executive Officer and a director
of Kaufman and Broad Home Corporation since 1986 and its Chairman of the Board
since July 1993. Mr. Karatz is also a director of Honeywell, Inc., National
Golf Properties, Inc. and a Trustee of the National Park Foundation and the
RAND Corporation.
Bertram R. Zweig is a partner with the law firm of Jones, Day, Reavis &
Pogue. Mr. Zweig was with Jones, Day from 1962 to 1978, and rejoined the firm
in 1995. Between August 1992 and June 1995, Mr. Zweig was a partner with the
law firm of Graham and James, and from January 1988 to July 1992 he was a
partner with the law firm of Stroock & Stroock & Lavan. He is a member of the
Board of Directors of Wedbush Corporation, the parent of Wedbush Morgan
Securities, Inc., a regional investment banking firm in Los Angeles. Mr. Zweig
is a member of the Board of Directors of Aquatic Water Systems Incorporated.
53
<PAGE>
CLASSIFIED BOARD OF DIRECTORS
The Amended and Restated Certificate of Incorporation of the Company will
provide that the full Board of Directors will be comprised of seven directors
and, without the unanimous approval of the directors then in office, the
number of directors may not be altered. The Board of Directors will be divided
into three classes as nearly equal in number as possible, with the term of
office of one class expiring each year and each director serving for a term
ending at the third annual meeting of stockholders of the Company following
the annual meeting at which such director was elected, except for the
directors to be elected at the Company's 1996 annual meeting of stockholders,
who shall have the one, two or three-year term for which such directors are
elected at such meeting.
Any increase in the number of directors or any vacancy on the Board of
Directors may be filled, subject to the rights of any holders of any series of
Preferred Stock to elect additional directors, only by the affirmative vote of
a majority of the remaining directors then in office, even though less than a
quorum of the Board. Any director elected in accordance with the preceding
sentence will hold office for the remainder of the full term of the class of
directors in which the new directorship was created or such vacancy occurred.
54
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table provides certain information regarding ownership of the
Company's voting securities as of April 15, 1996, giving effect to the
Transactions. The table has been prepared based on the assumptions that (a)
50% of the outstanding Common Stock of each holder is purchased pursuant to
the Tender Offer, (b) 3,000,000 shares of Series I Preferred Stock are
purchased by the Company from the Dee Glen Smith Marital Trust I (2,100,000
shares) and Ida Smith (900,000 shares), and (c) 2,101,377 shares of Series I
Preferred Stock are directly or indirectly conveyed by the Dee Glen Smith
Marital Trust I to certain institutions. Based on such assumptions and giving
effect to the foregoing events, the following table sets forth the ownership
of Common Stock and Series I Preferred Stock of the Company by each person who
to the knowledge of Smith's will own 5% or more of any class of the Company's
outstanding voting stock, by each person who will be a director or executive
officer of the Company, and by all executive officers and directors of the
Company as a group. Share amounts and percentage ownership information set
forth below are subject to change pending finalization of the Recapitalization
and may vary depending on the actual number and class of shares tendered in
the Tender Offer. The actual number of shares of Series I Preferred Stock
which (x) the Company elects to purchase and/or (y) the Dee Glen Smith Marital
Trust I directly or indirectly conveys to other parties in connection with the
consummation of the Transactions may be increased or decreased by amounts that
are not expected to have a material adverse effect on the Company.
<TABLE>
<CAPTION>
CLASS A CLASS B SERIES I
COMMON STOCK COMMON STOCK PREFERRED STOCK PERCENT OF
----------------- ------------- ------------------- ALL VOTES OF
NUMBER NUMBER NUMBER ALL CLASSES
OF SHARES % OF SHARES % OF SHARES % OF STOCK
--------- ---- --------- --- ----------- ----- ------------
BENEFICIAL OWNER(A)
- -------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Jeffrey P. Smith
1550 S. Redwood Rd.
Salt Lake City, UT
84104................... 1,670,954(b) 29.4 5,300 * 3,253,623(c) 32.7 29.5
Dee Glen Smith Marital
Trust I
c/o Ida W. Smith
1066 North East Capital
Blvd.
Salt Lake City, UT
84103................... 231,210(d) 4.1 -- -- 3,253,623(d) 32.7 20.8
Richard D. Smith
1550 South Redwood Road
Salt Lake City, UT
84104................... 1,174,463(e) 20.7 -- -- -- -- 7.0
Fred L. Smith
74285 Quail Lake Dr.
Indian Wells, CA 92210.. 957,498(f) 16.8 -- -- -- -- 5.7
Trust for the Children
of Jeffrey P. Smith
2551 Brentwood Circle
Salt Lake City, UT
84121................... 577,650(d) 10.2 -- -- -- -- 3.5
Trust for the Children
of Fred L. Smith
74285 Quail Lake Dr.
Indian Wells, CA 92210.. 577,650(g) 10.2 -- -- -- -- 3.5
Trust for the Children
of Richard D. Smith
1038 North East Capital
Blvd.
Salt Lake City, UT
84103................... 557,650(h) 9.8 -- -- -- -- 3.3
Corporation of the
President of
the Church of Jesus
Christ of
Latter-day Saints
50 East North Temple
Salt Lake City, UT
84150................... -- -- -- -- 2,000,009 20.1 12.0
University of Utah
Athletic Department
407 Park Building
Salt Lake City, UT
84112................... -- -- -- -- 1,267,731 12.7 7.6
University of Utah
Medical School
407 Park Building
Salt Lake City, UT
84112................... -- -- -- -- 1,000,000 10.0 6.0
Utah State University
Athletic Department
Logan, UT 84322......... -- -- -- -- 833,646 8.4 5.0
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
CLASS A CLASS B SERIES I
COMMON STOCK COMMON STOCK PREFERRED STOCK PERCENT OF
----------------- ----------------- --------------- ALL VOTES OF
NUMBER NUMBER NUMBER ALL CLASSES
OF SHARES % OF SHARES % OF SHARES % OF STOCK
--------- ---- --------- ---- --------------- ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
City of Hope
1500 East Duarte Road
Duarte, CA 91010........ -- -- -- -- 500,004 5.0 3.0
Ronald W. Burkle
c/o The Yucaipa
Companies
10000 Santa Monica Blvd.
Los Angeles, CA 90067... -- -- 2,225,406(i) 22.3 -- -- 1.3
Allen P. Martindale..... 310,000(j) 5.5 -- -- -- -- 1.9
Allen R. Rowland........ -- -- -- -- -- -- --
Kenneth A. Martindale... 53,500(k) * 9,497(l) * -- -- *
Robert D. Bolinder...... 50,000 * 15,000(m) * -- -- *
J. Craig Gilbert........ 32,500(n) * -- -- -- -- *
Matthew G. Tezak........ 30,000 * 16,048 * -- -- *
James W. Hallsey........ 16,750(o) * -- -- -- -- *
Michael C. Frei......... -- -- 1,584 * -- -- *
Richard C. Bylski....... 28,009(p) * 983 * -- -- *
Fred F. Urbanek......... 22,500 * 505 * -- -- *
John T. Standley........ -- -- -- (i) -- -- -- --
Linda McLoughlin Figel.. -- -- -- (i) -- -- -- --
Bruce Karatz............ -- -- -- -- -- -- --
Bertram R. Zweig........ -- -- -- -- -- -- --
All directors and
officers as a group (16
persons)............... 2,861,711 50.4 2,274,323 22.8 3,253,623 32.7 37.9
</TABLE>
- --------
* Less than one-percent.
(a) Each person has sole investment and voting power with respect to the
shares indicated, except as otherwise set forth in the footnotes to this
table. Each share of Class A Common Stock is convertible at any time at
the option of the holder into one share of Class B Common Stock.
(b) Includes 771,055 shares which are held of record by four trusts of which
Jeffrey P. Smith is the trustee and of which his children and the children
of Richard D. Smith are beneficiaries, and 231,210 shares held of record
by a trust for benefit of Ida W. Smith and of which Mr. Smith is trustee.
(c) Such shares are held of record by a trust for the benefit of Ida W. Smith
and of which Jeffrey P. Smith is trustee.
(d) Included in the shares shown for Jeffrey P. Smith.
(e) Includes 733,501 shares which are held of record by four trusts of which
Richard D. Smith is trustee and of which his children and the children of
Jeffrey P. Smith are beneficiaries and 5,871 shares held of record by Mr.
Smith's wife.
(f) Includes 679,389 shares which are held of record by four trusts of which
Fred L. Smith is trustee and of which his children are beneficiaries, and
17,600 shares held of record by Mr. Smith's wife.
(g) Included in the shares shown for Fred L. Smith.
(h) Included in the shares shown for Richard D. Smith.
(i) Includes 100,000 shares to be issued to Yucaipa as a prepayment of a
portion of the management fees payable to Yucaipa under the Management
Services Agreement and 2,125,406 shares held of record by the following
four limited partnerships of which Yucaipa is the general partner: Yucaipa
SSV Partners, L.P. (1,140,816); Yucaipa Smitty's Partners, L.P. (300,667);
Yucaipa Smitty's Partners II, L.P. (136,793); and Yucaipa Arizona
Partners, L.P. (547,130). Mr. Burkle is a limited partner in two of those
partnerships and is also the controlling general partner of Yucaipa. Linda
McLoughlin Figel, a nominee for director of the Company, is a limited
partner in Yucaipa SSV Partners, L.P. Mr. Standley, who will be the Senior
Vice President, Administration of the Company following the Merger, is a
limited partner in Yucaipa Smitty's Partners, L.P. and Yucaipa Smitty's
Partners II, L.P.
(j) Such shares are held of record by a trust for the benefit of Mr.
Martindale and his wife and of which Mr. Martindale is trustee.
(k) Includes 3,500 shares held of record by two children of Mr. Martindale and
of which Mr. Martindale is custodian.
(l) Includes 4,800 shares held of record by two children of Mr. Martindale and
of which Mr. Martindale is custodian.
(m) Includes 15,000 shares issuable upon exercise of vested options as of
April 15, 1996.
(n) Such shares are held of record by a trust for the benefit of Mr. Gilbert
and his wife and of which Mr. Gilbert is trustee.
(o) Includes 500 shares held of record by a child of Mr. Hallsey and of which
Mr. Hallsey is custodian.
(p) Includes 5,119 shares held of record by a partnership of which Mr. Bylski
is a general partner and 600 shares held of record by children of Mr.
Bylski and of which Mr. Bylski is custodian.
56
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MANAGEMENT SERVICES AGREEMENT
Yucaipa will provide certain management services to the Company pursuant to
the Management Services Agreement to be executed upon consummation of the
Transactions. The Management Services Agreement will have a five-year term and
will provide for annual management fees of $1,000,000, plus reimbursement of
all of Yucaipa's reasonable out-of-pocket costs and expenses. Under the
Management Services Agreement, Yucaipa, through its partners, employees or
other designated agents, will provide the Company with management consultation
and advice regarding strategic planning and development, budgeting and future
financing plans, selection and retention of management personnel, integration
strategy, legal and governmental affairs, board presentations and similar
management services as may be requested from time to time. In addition, the
Company may retain Yucaipa in an advisory capacity in connection with certain
acquisitions or sale transactions, debt and equity financings, or any other
services not otherwise covered by the Management Services Agreement, for which
the Company will pay Yucaipa additional compensation in an amount to be agreed
upon by the Company and Yucaipa (and approved by a majority of the Company's
disinterested directors). The Company will prepay a portion of the management
fees payable to Yucaipa under the Management Services Agreement through the
issuance of 100,000 shares of the Company's Class B Common Stock at its then
current fair market value.
During the term of the Management Services Agreement, Ronald W. Burkle, the
managing general partner of Yucaipa, will, if he so elects, have the right to
serve as the Chief Executive Officer of the Company and will have all rights
and responsibilities customarily vested in a Chief Executive Officer. Mr.
Burkle will not receive any compensation for serving in such capacity beyond
the management fees paid to Yucaipa under the Management Services Agreement.
The Management Services Agreement may be terminated by the Company: (a) at
any time by giving Yucaipa at least 90 days' written notice; (b) if Yucaipa
shall fail to reasonably perform any material covenant, agreement, term or
provision under the Management Services Agreement following 60 days' written
notice of such failure; (c) at any time if Yucaipa commits any act of fraud,
dishonesty or gross negligence in connection with its performance under the
Management Services Agreement which is materially detrimental to the Company's
business or reputation; (d) upon the occurrence of certain defaults or events
of default under the Indentures, the New Credit Facility, or any other
material debt agreements entered into to refinance such indebtedness, if such
default is not cured or waived within a specified period; (e) if Yucaipa is in
material default under the Standstill Agreement following 90 days' written
notice of such default; or (f) at any time if Yucaipa and its affiliates own
less than 50% of the shares of Class B Common Stock acquired by them in the
Merger. Yucaipa may terminate the Management Services Agreement: (a) if the
Company fails to reasonably perform any material covenant, agreement, term or
provision under the Management Services Agreement following 60 days' written
notice; (b) if the Company fails to make any payment to Yucaipa under the
Management Services Agreement following 30 days' written notice of such
failure; (c) if the Yucaipa nominees cease to hold Board seats as required by
the Standstill Agreement; (d) if the Board of Directors fails to approve two
or more material recommendations by Yucaipa to the Board (provided that
Yucaipa may not designate more than four such matters during any calendar year
as material) or the Board otherwise takes action which materially interferes
with the ability of Yucaipa to perform its responsibilities under the
Management Services Agreement following 60 days' written notice; or (e) if Mr.
Burkle ceases to be Chief Executive Officer of the Company, other than by
reason of his death, disability, termination for cause or voluntary
resignation. Either Yucaipa or the Company may terminate the Management
Services Agreement upon a change of control of the Company (defined generally,
subject to certain exceptions and conditions, as either (i) the acquisition of
beneficial ownership of 40% or more of the Company's outstanding shares of
voting stock, or (ii) the sale of substantially all of the Company's assets or
capital stock, excluding any transaction with Yucaipa or any of its partners
or affiliates or any member of the Smith Group). If the Management Services
Agreement is terminated (i) by the Company for the reason set forth in clause
(a) of the first sentence of this paragraph, (ii) by Yucaipa in accordance
with the Management Services Agreement, or (iii) pursuant to a change of
control of the Company, Yucaipa will be
57
<PAGE>
entitled to the greater of (x) $5 million, or (y) twice the total fees that
would have been earned by Yucaipa under the then remaining term of the
Management Services Agreement.
Yucaipa will agree that during the term of the Management Services Agreement
it will not, without the Company's prior written consent, provide management
or consulting services to, or make equity investments in excess of 5% in, any
business which operates in excess of five retail supermarkets in any market in
which the Company operates in excess of five retail supermarket stores,
subject to certain exceptions and conditions.
During the term of the Management Services Agreement, the Company will agree
to indemnify and hold harmless Yucaipa and each of its affiliates, partners,
officers, agents and the employees from and against all losses, claims,
damages, liabilities or expenses (collectively, "losses") resulting from any
claim, lawsuit or other proceeding by any person to which any of them may
become subject which is related to or arising out of the performance of the
services to be provided under the Management Services Agreement or the
Recapitalization Agreement, including all reasonable out-of-pocket expenses,
unless such losses result from (i) Yucaipa's or such party's gross negligence
or willful misconduct or any intentional, material breach of the Management
Services Agreement, or (ii) any settlement effected without the written
consent of the Company, which consent will not be unreasonably withheld.
STOCKHOLDERS' AGREEMENTS
On January 29, 1996, Smith's, Acquisition and certain stockholders of
Smitty's entered into a stockholders agreement (the "Smitty's Stockholders
Agreement") and Smitty's, Yucaipa and certain stockholders of Smith's entered
into a similar shareholders agreement (the "Smith's Shareholders Agreement").
Under the terms of the Smitty's Stockholders Agreement and the Smith's
Shareholders Agreement, each of the parties thereto agreed (i) to vote its
respective shares of Smitty's Common Stock or Smith's Common Stock, as
applicable, in favor of approval of the Recapitalization Agreement; (ii) to
refrain from soliciting any person other than Smitty's or Smith's, as
applicable, to purchase all or any material portion of the assets of, or
equity interests in, the Company; (iii) to refrain from transferring their
shares of the Company's stock without consent from Smith's or Smitty's, as
applicable, and the Company; and (iv) to take no action inconsistent with the
Recapitalization Agreement or that would prevent any condition precedent to
the Merger from being satisfied. Under the terms of the Smith's Shareholders
Agreement, the Smith's stockholders parties thereto have agreed to tender a
sufficient number of their shares of Common Stock in the Tender Offer to
enable Smith's to purchase 50% of the outstanding shares of Common Stock in
the Tender Offer.
STANDSTILL AGREEMENT
On January 29, 1996, the Company, Yucaipa and each of the limited
partnerships which own shares in Smitty's for which Yucaipa acts as the
general partner (the "Smitty's Principal Stockholders"; together with Yucaipa,
the "Yucaipa Group") entered into the Standstill Agreement. Pursuant to the
Standstill Agreement, the Yucaipa Group has agreed that for a 10-year period
ending on January 29, 2006, it will not acquire, offer to acquire, agree to
acquire, become the beneficial owner of, or obtain any rights in respect of
any Company Voting Securities (as defined below), by purchase or otherwise, or
take any action in furtherance thereof, if the effect of such action would be
to increase its aggregate beneficial ownership of securities that are entitled
to vote generally for the election of directors (the "Company Voting
Securities") above (x) 20% of the total number of votes that could be cast at
a stockholders' meeting of the Company (the "Combined Voting Power") or (y)
25% of the total number of Company Voting Securities outstanding, subject to
certain exceptions. In addition, without the approval of a majority of the
Disinterested Directors (defined as directors of the Company who are not
employees or officers of the Company, are not serving as designees of the
Yucaipa Group, and are not associates of Yucaipa or its affiliates) and
subject to certain limited exceptions, no member of the Yucaipa Group will
during such 10-year period (i) submit any proposals to acquire a majority of
the Combined Voting Power of Company Voting Securities (a "Change of Control
Proposal"), (ii) directly or indirectly sell, transfer any beneficial interest
in, pledge, hypothecate or otherwise dispose of any Company Voting Securities
or any shares of Company Common
58
<PAGE>
Stock to be acquired from the Company pursuant to the Warrant Agreement, other
than to another member of the Yucaipa Group or their respective affiliates in
any transaction or series of transactions that would result in a transfer of
greater than 3% of the Combined Voting Power or would result in any person
having, or having the right to acquire, beneficial ownership greater than 5%
of the Combined Voting Power, (iii) solicit any proxies, or assist any other
person in any way in solicitation of proxies, or submit any proposal for the
vote of stockholders of the Company, or induce another person to take any such
actions with respect to the voting of any of the Company Voting Securities,
(iv) directly or indirectly solicit or induce any person to bid for or acquire
Company Voting Securities in excess of 5% of the Combined Voting Power of
Company Voting Securities, or (v) engage in certain affiliate transactions.
Pursuant to the Standstill Agreement, the Company will use its best efforts
to cause to be elected to the Company's Board of Directors two designees of
the Smith Group, two designees of the Yucaipa Group, one member of the senior
management of the Company and two "independent directors" (as required by the
rules of the NYSE) who are also Disinterested Directors. Subject to the
provisions of the Certificate of Incorporation and By-laws of the Company and
the approval of the Company's stockholders, as long as the members of the
Smith Group and the Yucaipa Group and their respective affiliates each
beneficially own at least 8% of the outstanding shares of Common Stock, each
such Group will have the right to designate two directors of the Company, and
so long as the members of the Smith Group and the Yucaipa Group and their
respective affiliates each beneficially own at least 5% of the outstanding
shares of Common Stock, each such Group will have the right to designate one
director of the Company. However, no individual who is an officer, director,
partner, or principal stockholder of any Significant Competitor (as defined in
the Management Services Agreement) of the Company or any of its subsidiaries
will serve as director. At any time when the Yucaipa Group and its affiliates
or the Smith Group and its affiliates no longer beneficially own at least 5%
of the outstanding shares of Common Stock, such Group will not have the right
to designate any director of the Company, such Group's rights with regard to
the voting of Company securities will terminate and such Group will cause its
designees to the Board of Directors to resign.
Jeffrey Smith and Fred Smith have been nominated to be directors of the
Company as designees of the Smith Group and Ronald Burkle and Linda McLoughlin
Figel have been nominated to be directors of the Company as designees of the
Yucaipa Group.
In addition, each of the Smith Group and the Yucaipa Group has agreed that
they each will, at any annual or special meeting of the stockholders at which
the directors of the Company are to be elected or in connection with a
solicitation of consents through which directors of the Company are to be
selected, to vote (or give a written consent with respect to) all of their
respective Company Voting Securities in favor of the election to the Company's
Board of Directors of the nominees designated by such other Group.
The Standstill Agreement will terminate at any time that the Yucaipa Group
and its affiliates own less than 2% of the outstanding shares of Common Stock.
The Standstill Agreement may be amended or waived if such amendment or waiver
is in writing and executed by all parties thereto; provided that any amendment
or waiver requires the approval of a majority of the Disinterested Directors
of the Company.
YUCAIPA WARRANT
Upon closing of the Recapitalization, the Company has agreed to issue
Yucaipa warrants to purchase shares of Class C Common Stock of the Company
(the "Warrants") representing approximately 10% of the outstanding shares of
Common Stock on a fully diluted basis upon consummation of the Transactions.
The initial exercise price of the Warrants will be $50.00 per share. One-half
of the Warrants will be designated "Series A Warrants" and will be exercisable
at the election of Yucaipa on or prior to the fourth anniversary of the
Closing, and one-half of the Warrants will be designated "Series B Warrants"
and will be exercisable at the election of Yucaipa on or prior to the fifth
anniversary of the Closing. The foregoing expiration dates will each be
extended by five years in the event that, prior to such respective dates, the
market price of Class B Common Stock equals or exceeds the exercise price (as
adjusted from time to time) for a period of not less than 60 consecutive
trading
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days. The cashless exercise provisions of the Warrants allow the holder to
elect to exercise the Warrants without the payment of cash consideration,
provided that the Company will withhold from the shares otherwise issuable
upon such exercise a number of shares having a fair market value as of the
exercise date equal to the aggregate exercise price. The Class C Common Stock
to be issued to Yucaipa upon exercise of its Warrants will be identical in all
respects to the Class B Common Stock, except that the Class C Common Stock
will be non-voting. Shares of Class C Common Stock will be convertible into an
equal number of shares of Class B Common Stock following the transfer of such
shares by Yucaipa to any person or entity not affiliated with Yucaipa. The
number of shares to be issued upon exercise of the Warrants and the exercise
price are each subject to adjustment under standard anti-dilution provisions.
REGISTRATION RIGHTS AGREEMENT
Pursuant to the Recapitalization Agreement, upon consummation of the Merger
the Company will enter into a registration rights agreement (the "Registration
Rights Agreement") with Jeffrey Smith, Yucaipa, and certain holders of
Smitty's Common Stock who will receive Class B Common Stock as consideration
in the Merger (collectively, the "Holders"). Under the terms of the
Registration Rights Agreement, each of (i) Yucaipa and the holders of Smitty's
Common Stock receiving Class B Common Stock in the Merger and their
transferees, as a group (the "Yucaipa Holder Group"), and (ii) Jeffrey Smith
and his affiliates and transferees, as a group (the "Smith Holder Group"),
will be entitled to require the Company to effect a registration under the
Securities Act (a "Demand Registration") of all or a portion (but not less
than 20%) of the Registrable Securities (as defined) held by such Holders,
subject to certain limitations. Upon such demand, the Company will give prompt
notice thereof to each registered holder of Registrable Securities and will
prepare, file and use its best efforts to cause to become effective a
registration statement in respect of all Registrable Securities requested to
be included therein. Each of the Smith Holder Group and the Yucaipa Holder
Group will be entitled to two Demand Registrations. Notwithstanding the
foregoing, the Company will not be required to effect more than one Demand
Registration during any six-month period. Such Demand Registration may, at the
election of the demanding Holders, be in the form of an underwritten offering
and such demanding Holders shall be entitled to select the underwriters.
Members of the Yucaipa Holder Group may at any time prior to the second
anniversary of the Closing Date demand that the Company promptly file a shelf
registration statement pursuant to Rule 415 under the Securities Act which
will provide for resales of Registrable Securities held by the Yucaipa Group.
The Company will keep such Shelf Registration statement continuously effective
for at least 120 days following the effective date (or such longer period as
such Holders' Registrable Securities constitute "restricted securities" under
Rule 144 and are subject to the two-year holding period for affiliates under
Rule 144(c)); provided that in no event will the Company be required to keep
such shelf registration statement effective after the second anniversary of
the Closing Date.
Holders of Registrable Securities will also have the right to include such
Registrable Securities in any registration statement under the Securities Act
filed by the Company for its own account or for the account of any of its
securityholders (other than (i) a registration statement on Form S-4 or S-8,
(ii) a registration statement filed in connection with a Demand Registration
or a Shelf Registration or (iii) a registration statement filed in connection
with an offer of securities solely to existing securityholders) for sale on
the same terms and conditions as the securities of Smitty's or any other
selling securityholder included therein (a "Piggy-Back Registration"). In the
event that, pursuant to any Demand Registration or any Piggy-Back
Registration, the Company is advised by the managing underwriter therefor that
the total number of shares proposed to be included therein is such as to
materially and adversely affect the success of the offering, the Company has
granted certain priority rights to the Smith Group which enables the Smith
Group to have its Registrable Securities (up to certain designated amounts)
included in such registrations before the Yucaipa Group is entitled to include
its Registrable Securities in such registrations.
The Company will be obligated to pay its expenses associated with
registration of the Registrable Securities, regardless of whether any
registration statement required by the Registration Rights Agreement becomes
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effective, and the reasonable fees and expenses of any party to the
Registration Rights Agreement who participates in any registration effected
thereunder. In addition, the Company will provide a customary securities law
indemnification to any party who participates in any registration effected
under the Registration Rights Agreement.
The Registration Rights Agreement will terminate upon the earlier to occur
of (i) the mutual agreement by the parties thereto, (ii) with respect to any
Holder, such Holder ceasing to own any Registrable Securities, (iii) the
fifteenth anniversary of the Closing Date, or (iv) with respect to the Smith
Holder Group or the Yucaipa Holder Group, the date on which the aggregate
number of shares of outstanding Registrable Securities held by the Smith
Holder Group or the Yucaipa Holder Group, as applicable, is less than 20% of
the Registrable Shares originally held by the Smith Holder Group or the
Yucaipa Holder Group, as applicable, immediately following the consummation of
the Transactions (except with respect to any Holder that is an "affiliate" of
the Company within the meaning of the Securities Act).
OTHER TRANSACTIONS WITH YUCAIPA OR ITS AFFILIATES
Pursuant to the Recapitalization Agreement, Yucaipa will receive a success
fee of $15 million upon consummation of the Offering and the Recapitalization.
In December 1995, the Company entered into an agreement to sublease its
Riverside, California distribution center and dairy processing plant to
Ralphs, an affiliate of Yucaipa. Pursuant to the sublease, Ralphs will pay the
Company annual rent of approximately $8.8 million for the remaining 23-year
term of the lease. In connection with such transaction, Ralphs purchased
certain inventory, fixtures and equipment from the Company for an aggregate
purchase price (net of certain offsetting payments) of approximately $8.7
million. As part of the California Divestiture, in January 1996 the Company
entered into agreements to lease or sublease certain of its real property
located in California, including eight operating stores and one non-operating
store, to Ralphs, an affiliate of Yucaipa. See "Business--California
Divestiture."
CEO'S SEVERANCE AGREEMENT
The Company and Jeffrey Smith, the Chairman and Chief Executive Officer of
the Company, have reached an agreement in principle regarding the termination
of his employment with the Company. Although Mr. Smith will resign as the
Chief Executive Officer of the Company, he will continue as Chairman of the
Board after the consummation of the Transactions. Mr. Smith and the Company
have tentatively agreed to provide Mr. Smith, as a severance payment, with the
ownership of the Company airplane after the consummation of the Transactions.
The airplane has an appraised value of approximately $2 million.
COMPANY'S STOCK OPTIONS; DEFERRED COMPENSATION PLANS
In the Recapitalization Agreement, the Company has agreed to offer employees
who hold options under the Company's 1989 Amended Stock Option Plan
("Options") immediately prior to the Closing Date, the opportunity to elect
either to: (i) receive on the Closing Date cash payments with respect to half
of the shares subject to the Options in an amount equal to (A) the number of
shares of Common Stock that would be received by such holder upon exercise of
one-half of such Options multiplied by $36.00 per share minus (B) the
aggregate exercise price of such Options, and, in consideration of such
payments, to execute amendments to each existing option agreement such that
the remaining half of the shares subject to the Options will not be
exercisable prior to the exercise date stated therein (without regard to the
transactions contemplated by the Recapitalization Agreement) and will have the
exercise price reduced from $19.00 to $15.00 per share of Common Stock; or
(ii) have all such employees' Options continue to vest in accordance with the
stated terms of the Options as in effect as of the date of the
Recapitalization Agreement. Assuming that all of the Company's employees who
hold Options make the election set forth in clause (i) above, the estimated
aggregate value of the Company's proposed
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treatment of the Options will be approximately $16.9 million (comprised of
approximately $13.7 million representing the cash payment for half of the
Options and $3.2 million representing the exercise price reduction for the
remaining Options). Of such estimated aggregate value, approximately $252,000
will be for the account of members of the Smith Group and approximately $5.2
million will be for the account of the Company's other directors and executive
officers who are not members of the Smith Group but who have indicated their
intention to vote in favor of the Recapitalization Agreement.
In addition, the Company has agreed to use all reasonable efforts to amend
its deferred compensation agreements in effect as of the date of the
Recapitalization Agreement with each of Frederick F. Urbanek, James A. Acton,
Richard C. Bylski, Larry R. McNeill, Kenneth A. White, Matthew G. Tezak, Paul
D. Tezak, James W. Hallsey, Michael C. Frei and Harry M. Moskal to provide
that if within two years after the Closing Date the Company terminates such
officer's employment without cause (as such term will be defined in such
amendments to the reasonable satisfaction of such officers, the Company and
Yucaipa), all of such officer's unvested benefits under his deferred
compensation agreement will become immediately and fully vested.
OTHER TRANSACTIONS
During fiscal 1995, Smith's paid $217,524 in advertising fees to radio and
television stations operated by subsidiary companies of Bonneville
International Corporation ("Bonneville"). Rodney H. Brady, a former director
of Smith's, serves as President and Chief Executive Officer of Bonneville, but
has no role in Smith's advertising decisions. Also during fiscal 1995, Smith's
paid $15,385 to an automobile dealership owned by Fred Smith, one of Smith's
directors, in connection with the purchase of an automobile for use by
Smith's.
In January 1996, Alan R. Hoefer, a former director of Smith's, received
consulting fees from the Company in an aggregate amount equal to $250,000 in
connection with certain financial consulting services rendered by him in 1995.
Smith's believes that the terms of the foregoing transactions were no less
favorable to Smith's than those which could have been obtained from
unaffiliated third parties.
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DESCRIPTION OF NOTES
GENERAL
The Notes will be issued under an indenture (the "Indenture"), to be dated
as of May 23, 1996, by and among the Company and Fleet National Bank of
Connecticut, as Trustee (the "Trustee").
The following summary of certain provisions of the Notes and the Indenture
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, the Trust Indenture Act of 1939, as amended (the
"TIA"), and to all of the provisions of the Notes and the Indenture, including
the definitions of certain terms therein and those terms made a part of the
Indenture by reference to the TIA. The definitions of certain capitalized
terms used in the following summary are set forth below under "--Certain
Definitions." A copy of the form of the Indenture has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part.
The Notes will be issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples thereof. Initially, the Trustee
will act as Paying Agent and Registrar for the Notes. The Notes may be
presented for registration or transfer and exchange at the offices of the
Registrar, which initially will be the Trustee's corporate trust office. The
Company may change any Paying Agent and Registrar without notice to holders of
Notes (the "Holders"). The Company will pay principal (and premium, if any) on
the Notes at the Trustee's corporate office located in New York, New York. At
the Company's option, interest may be paid at the Trustee's corporate trust
office or by check mailed to the registered address of the Holders.
As used below in this "Description of Notes," the "Company" means Smith's
Food & Drug Centers, Inc., but not any of the Subsidiaries.
PRINCIPAL AND MATURITY OF AND INTEREST ON THE NOTES
The Notes are limited in aggregate principal amount to $575,000,000 and will
mature on May 15, 2007. Interest on the Notes will accrue at the rates per
annum set forth on the cover page of this Prospectus. Interest on the Notes
will be payable semi-annually on each May 15 and November 15, commencing on
November 15, 1996, to the Holders of record on the immediately preceding May 1
and November 1.
Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
issuance. Interest will be computed on the basis of a 360-day year comprised
of twelve 30-day months.
OPTIONAL REDEMPTION
The Notes will be redeemable, at the option of the Company, in whole at any
time or in part from time to time, on and after May 15, 2001, at the following
redemption prices (expressed as percentages of the principal amount) if
redeemed during the twelve-month period commencing on May 15 of the year set
forth below, plus, in each case, accrued and unpaid interest to the date of
redemption:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2001.......................................... %
2002.......................................... %
2003.......................................... %
2004 and thereafter........................... 100.0%
</TABLE>
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In addition, on or prior to May 15, 1999, the Company may, at its option,
use the Net Cash Proceeds of one or more Public Equity Offerings to redeem up
to an aggregate of 35% of the principal amount of the Notes originally issued,
at the following redemption prices (expressed as percentages of the principal
amount) if redeemed during the 12 months commencing on May 15 of the year set
forth below, plus, in each case, accrued and unpaid interest, if any, to the
date of redemption (provided that the redemption notice shall have been sent
not later than 60 days after the consummation of such Public Equity Offering):
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
1996.......................................... %
1997.......................................... %
1998.......................................... %
</TABLE>
The documents evidencing Senior Indebtedness will restrict the Company's
ability to optionally redeem Notes.
NOTICES AND SELECTION
In the event of a redemption of less than all of the Notes, the Notes will
be selected for redemption by the Trustee pro rata, by lot or by any other
method that the Trustee considers fair and appropriate and, if the Notes are
listed on any securities exchange, by a method that complies with the
requirements of such exchange; provided, however, that any redemption of the
Notes pursuant to the provisions relating to a Public Equity Offering shall be
made on a pro rata basis unless such method is otherwise prohibited. Notice of
redemption will be mailed at least 30 days but not more than 60 days before
the date of redemption to each Holder to be redeemed at such Holder's
registered address. On and after the date of redemption, interest will cease
to accrue on Notes or portions thereof called for redemption (unless the
Company shall default in the payment of the redemption price or accrued
interest). Notes that are redeemed by the Company or that are purchased by the
Company pursuant to a Net Proceeds Offer (as defined under "--Certain
Covenants--Limitation on Asset Sales") or pursuant to a Change of Control
Offer as described under "--Change of Control" below or that are otherwise
acquired by the Company will be surrendered to the Trustee for cancellation.
SUBORDINATION
The payment of the Obligations on the Notes will be subordinated in right of
payment, as set forth in the Indenture, to the prior payment in full in cash
or Cash Equivalents of all Senior Indebtedness, whether outstanding on the
Issue Date or thereafter Incurred, including, with respect to Designated
Senior Indebtedness, any interest accruing thereon subsequent to the
occurrence of any Event of Default specified in clause (v) or (vii) of the
first paragraph under "--Event of Default" related to the Company, whether or
not such interest is an allowed claim enforceable against the Company under
any Bankruptcy Law.
Upon any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities upon any dissolution,
winding up, total or partial liquidation or reorganization of the Company
(including, without limitation, in bankruptcy, insolvency, or receivership
proceedings or upon any assignment for the benefit of creditors or any other
marshalling of the Company's assets and liabilities and whether voluntary or
involuntary), the holders of Senior Indebtedness shall first be entitled to
receive payment in full in cash or Cash Equivalents of all amounts payable
under Senior Indebtedness (including, with respect to Designated Senior
Indebtedness, any interest accruing after the commencement of any such
proceeding at the rate specified in the applicable Designated Senior
Indebtedness whether or not such interest is an allowed claim enforceable
against the Company in any such proceeding) before the Holders will be
entitled to receive any payment with respect to the Notes (excluding Permitted
Subordinated Reorganization Securities), and until all Obligations with
respect to Senior Indebtedness are paid in full in cash or Cash Equivalents,
any distribution to which the Holders would be entitled (excluding Permitted
Subordinated Reorganization Securities) shall be made to the holders of Senior
Indebtedness.
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No direct or indirect payment (other than payments by a trust previously
established pursuant to the provisions described under "--Defeasance of
Indenture" below) or distribution of any asset of the Company of any kind or
character by or on behalf of the Company of Obligations on the Notes or on
account of the purchase or redemption or other acquisition of the Notes
whether pursuant to the terms of the Notes or upon acceleration or otherwise
shall be made if, at the time of such payment or distribution, there exists a
default in the payment of all or any portion of principal of, premium, if any,
or interest on (i) any Designated Senior Indebtedness or (ii) any other Senior
Indebtedness which, at the time of determination, is equal to or greater than
$50 million in aggregate principal amount ("Significant Senior Indebtedness")
(and the Trustee has received written notice thereof), and such default shall
not have been cured or waived by or on behalf of the holders of such
Designated Senior Indebtedness or Significant Senior Indebtedness, as the case
may be, or shall have ceased to exist, until such default shall have been
cured or waived or shall have ceased to exist or such Designated Senior
Indebtedness or Significant Senior Indebtedness, as the case may be, shall
have been discharged or paid in full in cash or Cash Equivalents, after which
the Company shall resume making any and all required payments in respect of
the Notes, including any missed payments.
In addition, during the continuance of any other event of default with
respect to any Designated Senior Indebtedness pursuant to which the maturity
thereof may be accelerated, upon the earlier to occur of (a) receipt by the
Trustee of written notice from the holders of a majority of the outstanding
principal amount of the Designated Senior Indebtedness or their
representative, or (b) if such event of default results from the acceleration
of the Notes, the date of such acceleration, no such payment (other than
payments by a trust previously established pursuant to the provisions
described under "--Defeasance of Indenture" below) or distribution of any
asset of the Company of any kind or character shall be made by the Company
upon or in respect of the Notes (including without limitation on account of
any principal of, premium, if any, or interest on the Notes) or on account of
the purchase or redemption or other acquisition of Notes for a period
("Payment Blockage Period") commencing on the earlier of the date of receipt
of such notice or the date of such acceleration and ending 179 days thereafter
(provided such Designated Senior Indebtedness shall theretofore not have been
accelerated) (unless (x) such Payment Blockage Period shall be terminated by
written notice to the Trustee from the holders of a majority of the
outstanding principal amount of such Designated Senior Indebtedness or their
representative who delivered such notice or (y) such default is cured or
waived, or ceases to exist or such Designated Senior Indebtedness is
discharged or paid in full in cash or Cash Equivalents), after which the
Company shall resume making any and all required payments in respect of the
Notes, including any missed payments. Notwithstanding anything herein to the
contrary, in no event will a Payment Blockage Period extend beyond 179 days
from the date on which such Payment Blockage Period was commenced. Not more
than one Payment Blockage Period may be commenced with respect to the Notes
during any period of 365 consecutive days. No event of default which existed
or was continuing on the date of the commencement of any Payment Blockage
Period with respect to the Designated Senior Indebtedness initiating such
Payment Blockage Period shall be, or be made, the basis for the commencement
of a second Payment Blockage Period by the holders of such Designated Senior
Indebtedness or their representative whether or not within a period of
365 consecutive days unless such event of default shall have been cured or
waived for a period of not less than 90 consecutive days.
If the Company fails to make any payment on the Notes when due or within any
applicable grace period, whether or not on account of the payment blockage
provisions referred to above, such failure would constitute an Event of
Default under the Indenture and would enable the Holders to accelerate the
maturity of the Notes. See "--Events of Default."
By reason of such subordination, in the event of the insolvency of the
Company, the Holders may recover less, ratably, than holders of Senior
Indebtedness.
At March 30, 1996, on a pro forma basis after giving effect to the
Transactions and the California Disposition, the Company would have had
approximately $813.2 million aggregate amount of Senior Indebtedness
outstanding, which amount excludes any borrowings or amounts available to be
borrowed under the New Revolving Facility.
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In addition, the Notes will be effectively subordinated to all existing and
future liabilities, including Indebtedness, of the Subsidiaries. At March 30,
1996, after giving pro forma effect to the Transactions and the California
Disposition, the Subsidiaries would have had Indebtedness and other
liabilities reflected on the Company's consolidated balance sheet (other than
guarantees of Senior Indebtedness), including trade payables and accrued
expenses, of approximately $143.0 million.
The New Credit Facility permits the Company to pay interest on the Notes,
subject to the subordination provisions of the Indenture, so long as no event
of default or potential event of default has occurred under the New Credit
Facility.
CHANGE OF CONTROL
The Indenture will provide that, upon the occurrence of a Change of Control,
each Holder will have the right to require the repurchase of such Holder's
Notes pursuant to the offer described below (the "Change of Control Offer"),
at a purchase price equal to 101% of the principal amount thereof plus accrued
and unpaid interest to the date of repurchase (the "Change of Control Offer
Price").
The Indenture will provide that no later than 30 days following the date
upon which the Change of Control occurred, the Company must send, by first
class mail, a notice to each Holder, with a copy to the Trustee, which notice
shall govern the terms of the Change of Control Offer. The Indenture shall
require that notice of an event giving rise to a Change of Control shall be
given on the same date and in the same manner to all Holders. Such notice
shall state, among other things, the purchase date, which must be no earlier
than 30 days nor later than 40 days from the date such notice is mailed, other
than as may be required by law (the "Change of Control Payment Date"). Holders
electing to have a Note purchased pursuant to a Change of Control Offer will
be required to surrender the Note, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Note completed, to the Paying Agent at
the address specified in the notice prior to the close of business on the
Business Day prior to the Change of Control Payment Date. Each Change of
Control Offer is required to remain open for at least 20 Business Days or such
longer period as may be required by law.
The Indenture will further provide that, notwithstanding the foregoing,
prior to the mailing of the notice of a Change of Control Offer referred to
above, within 30 days following a Change of Control, the Company shall either
(a) repay in full all Indebtedness, and terminate all commitments, under the
Credit Agreement (or offer to repay in full all such Indebtedness and
terminate all such commitments and repay all such Indebtedness owed to each
lender which has accepted such offer and terminate all such commitments of
each such lender), or (b) obtain the requisite consents under the Credit
Agreement to permit the repurchase of the Notes as provided above. The Company
shall first comply with the covenant in the immediately preceding sentence
before it shall be required to repurchase Notes pursuant to the provisions
described above. The Company's failure to comply with the covenants described
in this paragraph shall constitute an Event of Default under the Indenture.
Notwithstanding the foregoing, the Company shall not be required to make a
Change of Control Offer, as provided above, if, in connection with any Change
of Control, it has made an offer to purchase (an "Alternate Offer") any and
all Notes validly tendered at a cash price equal to or higher than the Change
of Control Offer Price and has purchased all Notes properly tendered in
accordance with the terms of such Alternate Offer.
The Company must comply with Rule 14e-1 under the Exchange Act and other
provisions of state and federal securities laws to the extent applicable in
connection with a Change of Control Offer or an Alternate Offer.
CERTAIN COVENANTS
Except as otherwise specified below, the Indenture will contain, among other
things, the following covenants:
Limitation on Restricted Payments. The Indenture will provide that the
Company shall not, and shall not permit any Restricted Subsidiary to, directly
or indirectly, make any Restricted Payment if, at the time of such proposed
Restricted Payment, or after giving effect thereto, (a) a Default or an Event
of Default shall have occurred and be continuing, (b) the Company could not
Incur $1.00 of additional Indebtedness pursuant to the proviso in the covenant
described under "--Limitation on Incurrences of Additional Indebtedness" below
or (c) the aggregate amount expended for all Restricted Payments, including
such proposed Restricted Payment (the amount of any Restricted Payment, if
other than cash, to be the fair market value thereof at the date of payment as
determined in good faith by the Board of Directors of the Company as evidenced
by a Board Resolution),
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subsequent to the Issue Date, shall exceed the sum of (i) 50% of the aggregate
Consolidated Net Income (or if such aggregate Consolidated Net Income is a
loss, minus 100% of such loss) earned during the period beginning on the Issue
Date and ending on the date of the proposed Restricted Payment (the "Reference
Date") plus (ii) 100% of the aggregate Net Proceeds received by the Company
from any Person (other than a Subsidiary) from the issuance and sale
(including upon exchange or conversion for other securities of the Company)
subsequent to the Issue Date and on or prior to the Reference Date of
Qualified Capital Stock (excluding (A) Qualified Capital Stock paid as a
dividend on any Capital Stock or as interest on any Indebtedness and (B) any
Net Proceeds from issuances and sales financed directly or indirectly using
funds borrowed from the Company or any Subsidiary, until and to the extent
such borrowing is repaid), plus (iii) 100% of the Net Proceeds from (x) the
sale or other disposition of Investments (other than Permitted Investments
described in clauses (i)-(vi) inclusive of the definition thereof) made by the
Company or any Restricted Subsidiary or (y) the sale of the Capital Stock of
any Unrestricted Subsidiary by the Company or any Restricted Subsidiary or the
sale of all or substantially all of the assets of any Unrestricted Subsidiary
to the extent that a liquidating dividend or similar distribution is paid to
the Company or any Restricted Subsidiary from the proceeds of such asset sale.
The Indenture will provide that the provisions set forth in the immediately
preceding paragraph will not prevent (1) the payment of any dividend within 60
days after the date of its declaration if the dividend would have been
permitted on the date of declaration, (2) the acquisition of any shares of
Capital Stock of the Company in exchange for or solely out of the Net Cash
Proceeds of the substantially concurrent sale (other than to a Subsidiary) of
shares of Qualified Capital Stock of the Company, provided that no proceeds of
such sale of Qualified Capital Stock shall be included in clause (ii) of the
preceding paragraph, (3) the repurchase, redemption or other repayment of any
Subordinated Indebtedness in exchange for or solely out of the Net Cash
Proceeds of the substantially concurrent sale (other than to a Subsidiary) of
Subordinated Indebtedness of the Company with an Average Life equal to or
greater than the then remaining Average Life of the Subordinated Indebtedness
repurchased, redeemed or repaid, and (4) Permitted Payments; provided,
however, that, at the time of, and after giving effect to, any Restricted
Payment made under clause (3) or (4), no Default or Event of Default shall
have occurred and be continuing; provided, further, however, that the
declaration of each dividend paid in accordance with clause (1) above and each
payment under clause (iv) of the definition of "Permitted Payments" shall each
be counted for purposes of computing amounts expended pursuant to subclause
(c) in the immediately preceding paragraph, and no amounts expended pursuant
to clause (2) or (3) above or clause (i), (ii), (iii), (v), (vi) or (vii) of
the definition of "Permitted Payments" shall be so counted.
Limitation on Incurrences of Additional Indebtedness. The Indenture will
provide that the Company shall not, and shall not permit any Restricted
Subsidiary to, directly or indirectly, Incur any Indebtedness other than
Permitted Indebtedness; provided, however, that if no Default with respect to
payment of principal of, or interest on, the Notes or Event of Default shall
have occurred and be continuing at the time or as a consequence of the
Incurrence of any such Indebtedness, the Company or any Restricted Subsidiary
may Incur Indebtedness if immediately after giving effect to the Incurrence of
such Indebtedness the Operating Coverage Ratio would be greater than 2.0 to
1.0.
Limitation on Liens. The Indenture will provide that the Company shall not,
and shall not permit any Restricted Subsidiary to, directly or indirectly,
create, incur, assume or suffer to exist any Lien (other than Permitted Liens)
that secures any Indebtedness of the Company which is expressly by its terms
subordinated in right of payment to any other Indebtedness of the Company on
any asset or property of the Company or any Restricted Subsidiary, unless the
Notes are secured by a Lien on such asset or property that is (x) pari passu
with such other Indebtedness if such other Indebtedness is pari passu with the
Notes or (y) if such other Indebtedness is subordinated to the Notes, senior
in priority to the Lien securing such other Indebtedness, in each case, until
such time as such obligations are no longer secured by a Lien.
Limitation on Asset Sales. The Indenture will provide that the Company shall
not, and shall not permit any Restricted Subsidiary to, consummate an Asset
Sale unless (a) the Company or such Restricted Subsidiary, as
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the case may be, receives consideration at the time of such Asset Sale at
least equal to the fair market value of the assets sold or otherwise disposed
of (as determined in good faith by the Company) and (b) upon consummation of
such Asset Sale, the Company will within 365 days of the receipt of the
proceeds therefrom: (i) apply or cause such Restricted Subsidiary to apply the
Net Cash Proceeds of such Asset Sale to (A) a Related Business Investment, (B)
an investment in properties and assets that replace the properties and assets
that are the subject of such Asset Sale or (C) an investment in properties and
assets that will be used in the business of the Company and the Restricted
Subsidiaries existing on the Issue Date or in businesses reasonably related
thereto; (ii) in the case of a sale of a store or stores, deem such Net Cash
Proceeds to have been applied to the extent of any capital expenditures made
to acquire or construct a replacement store in the general vicinity of the
store sold within 365 days preceding the date of such Asset Sale; (iii) apply
such Net Cash Proceeds (or cause such Net Cash Proceeds to be applied) to the
permanent repayment of Pari Passu Indebtedness, any Indebtedness of any
Restricted Subsidiary or any Senior Indebtedness; provided, however, that the
repayment of any revolving loan (under the Credit Agreement or otherwise)
shall result in a permanent reduction in the commitment thereunder; (iv) use
such Net Cash Proceeds to secure Letter of Credit Obligations to the extent
the related letters of credit have not been drawn upon or returned undrawn; or
(v) after such time as the accumulated Net Cash Proceeds not applied pursuant
to the foregoing clauses (i) through (iv) equals or exceeds $20.0 million,
apply such Net Cash Proceeds (or cause such Net Cash Proceeds to be applied)
to the purchase of Notes tendered to the Company for purchase at a price equal
to 100% of the principal amount thereof plus accrued and unpaid interest, if
any, to the date of purchase pursuant to an offer to purchase made by the
Company as set forth below (a "Net Proceeds Offer"); provided, however, that
the Company shall have the right to exclude from the foregoing provisions
Asset Sales subsequent to the Issue Date, the proceeds of which are derived
from the sale and substantially concurrent lease-back of a supermarket and/or
related assets or equipment which are acquired or constructed by the Company
or a Restricted Subsidiary subsequent to the date that is six months prior to
the Issue Date, provided that such sale and substantially concurrent lease-
back occurs within 365 days following such acquisition or the completion of
such construction, as the case may be. Pending the utilization of any Net Cash
Proceeds in the manner (and within the time period) described above, the
Company may use any such Net Cash Proceeds to repay revolving loans (under the
Credit Agreement or otherwise) without a permanent reduction of the commitment
thereunder.
Each Net Proceeds Offer will be mailed to the record Holders as shown on the
register of Holders not less than 325 nor more than 365 days after the
relevant Asset Sale, with a copy to the Trustee, shall specify the purchase
date (which shall be no earlier than 30 days nor later than 40 days from the
date such notice is mailed) and shall otherwise comply with the procedures set
forth in the Indenture. Upon receiving notice of the Net Proceeds Offer,
Holders may elect to tender their Notes in whole or in part in integral
multiples of $1,000 in exchange for cash. To the extent Holders properly
tender Notes in an amount exceeding the Net Proceeds Offer, Notes of tendering
Holders will be repurchased on a pro rata basis (based on amounts tendered). A
Net Proceeds Offer shall remain open for a period of 20 Business Days or such
longer period as may be required by law.
The Company must comply with Rule 14e-1 under the Exchange Act and other
provisions of State and federal securities laws to the extent applicable in
connection with a Net Proceeds Offer.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Indenture will provide that the Company shall not, and shall
not permit any Restricted Subsidiary to, directly or indirectly, create or
suffer to exist, or allow to become effective any consensual Payment
Restriction with respect to any of the Restricted Subsidiaries, except for (a)
any such restrictions contained in (i) the Credit Agreement and related
documents as any such Payment Restriction may apply to any present or future
Subsidiary, (ii) the Indenture, (iii) any agreement in effect at or entered
into on the Issue Date, as each of the agreements referred to in the foregoing
clauses (i), (ii) or (iii) is in effect on the Issue Date or as thereafter
amended, supplemented or amended and restated in a manner, as it relates to
such restrictions, not materially adverse to the Holders and (iv) Indebtedness
of a Person existing at the time such Person becomes a Restricted Subsidiary
(provided that (x) such Indebtedness is not Incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary, (y) such
restriction is not applicable to any Person, or the properties or assets of
any
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Person, other than the Person so acquired and (z) such Indebtedness is
otherwise permitted to be Incurred pursuant to the provisions of the covenant
described under "--Limitation on Incurrences of Additional Indebtedness"
above); (b) limitations contained in agreements governing secured Indebtedness
otherwise permitted to be Incurred pursuant to the provisions of the covenants
described under "--Limitation on Incurrences of Additional Indebtedness" and
"--Limitation on Liens" above on the right of the debtor to dispose of the
assets securing such Indebtedness; (c) customary non-assignment provisions
restricting subletting or assignment of any lease or other agreement entered
into by a Restricted Subsidiary; (d) customary net worth or similar provisions
contained in leases and other agreements entered into by a Restricted
Subsidiary in the ordinary course of business; (e) customary restrictions with
respect to a Restricted Subsidiary pursuant to an agreement that has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of such Restricted Subsidiary; (f) customary
provisions in joint venture agreements and other similar agreements; (g)
restrictions contained in Indebtedness Incurred to refinance, refund, extend
or renew Indebtedness referred to in clauses (a) and (b) above; provided that
the restrictions contained therein are not materially more restrictive taken
as a whole than those provided for in such Indebtedness being refinanced,
refunded, extended or renewed; and (h) Payment Restrictions contained in any
other Indebtedness permitted to be Incurred subsequent to the Issue Date
pursuant to the provisions of the covenant described under""--Limitation on
Incurrences of Additional Indebtedness" above; provided that any such Payment
Restrictions are ordinary and customary with respect to the type of
Indebtedness being Incurred (under the relevant circumstances).
Limitation on Transactions with Affiliates. The Indenture will provide that
the Company shall not, and shall not permit any Restricted Subsidiary to, in a
single transaction or series of related transactions, (i) sell, lease,
transfer or otherwise dispose of any of its properties or assets or issue
securities (other than equity securities which do not constitute Disqualified
Capital Stock) to, (ii) purchase any property, assets or securities from,
(iii) make any Investment in, or (iv) enter into or suffer to exist any
contract or agreement with or for the benefit of, an Affiliate or Significant
Stockholder (or any Affiliate of such Significant Stockholder) of the Company
or any Subsidiary (any of the foregoing, an "Affiliate Transaction"), unless
(I) (A) such Affiliate Transaction is in the ordinary course of business or
otherwise on terms that are at least as favorable to the Company or such
Restricted Subsidiary, as the case may be, as might reasonably have been
obtainable at such time from an unaffiliated party; (B) in the case of an
Affiliate Transaction involving aggregate payments in excess of $2.0 million
and less than or equal to $5.0 million, the Company or such Restricted
Subsidiary, as the case may be, shall have delivered an officers' certificate
to the Trustee certifying that such Affiliate Transaction is on terms that are
at least as favorable to the Company or such Restricted Subsidiary, as the
case may be, as might reasonably have been obtainable at such time from an
unaffiliated party; and (C) in the case of an Affiliate Transaction involving
aggregate payments in excess of $5.0 million and less than or equal to $15.0
million, the Company or such Restricted Subsidiary, as the case may be, shall
have delivered an officers' certificate to the Trustee certifying to the same
effect as specified in clause (B) above and also that such Affiliate
Transaction has received the approval of a majority of the disinterested
members of the Board of Directors of the Company or such Restricted
Subsidiary, as the case may be, or, in the absence of any such approval, that
an Independent Financial Advisor has provided the Board of Directors with
written confirmation to the effect specified in clause (II) below and (D) in
the case of an Affiliate Transaction involving aggregate payments in excess of
$15.0 million, the Company or such Restricted Subsidiary, as the case may be,
shall have delivered to the Trustee a written opinion of an Independent
Financial Advisor to the effect specified in clause (II) below or (II) the
Company or such Restricted Subsidiary, as the case may be, shall have
delivered to the Trustee a written opinion of an Independent Financial Advisor
to the effect that such transaction is fair to the Company or such Restricted
Subsidiary, as the case may be, from a financial point of view or that the
terms of such Affiliate Transaction are at least as favorable to the Company
or such Restricted Subsidiary, as the case may be, as those that might
reasonably have been obtainable at such time from a Person that is not an
Affiliate of the Company or such Restricted Subsidiary, as the case may be.
The provisions of the foregoing paragraph shall not apply to (i) any
Permitted Payment, (ii) any Restricted Payment that is made in compliance with
the provisions of the covenant described under "--Limitation on
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Restricted Payments" above, (iii) reasonable and customary fees and
compensation paid to, and indemnity provided on behalf of, officers,
directors, consultants or employees of the Company or any Restricted
Subsidiary, as determined in good faith by the Board of Directors of the
Company or such Restricted Subsidiary or the senior management thereof, (iv)
transactions exclusively between or among the Company and any of its wholly
owned Restricted Subsidiaries or exclusively between or among such wholly
owned Restricted Subsidiaries; provided such transactions are not otherwise
prohibited by the Indenture, (v) the Standstill Agreement and any other
agreement in effect on the Issue Date as in effect on such date (or any
transaction contemplated thereby) or as amended thereafter (including
transactions contemplated pursuant to such amendment) so long as any such
amendment is not disadvantageous to the Holders in any material respect, (vi)
the existence of, or the performance by the Company or any of the Restricted
Subsidiaries of its obligations under the terms of, any stockholders agreement
(including any registration rights agreement or purchase agreement related
thereto) to which it is a party as of the Issue Date and any similar
agreements which it may enter into thereafter; provided, however, that the
existence of, or the performance by the Company or any Restricted Subsidiary
of obligations under any future amendment to, any such existing agreement or
under any similar agreement entered into after the Issue Date shall only be
permitted by this clause (vi) to the extent that the terms of any such
amendment or new agreement are not otherwise disadvantageous to the Holders in
any material respect, (vii) transactions permitted by, and complying with, the
provisions of the covenant described under "--Limitation on Mergers and
Certain Other Transactions" below and (viii) transactions with suppliers or
other purchases or sales of goods or services, in each case in the ordinary
course of business (including, without limitation, pursuant to joint venture
agreements) and otherwise in compliance with the terms of the Indenture which
are fair to the Company, in the reasonable determination of the Board of
Directors of the Company or the senior management thereof, or are on terms at
least as favorable as might reasonably have been obtained at such time from an
unaffiliated party.
Limitation on Subsidiary Assets and Indebtedness. If at any time subsequent
to the Issue Date (i)(a) the Company transfers any of its property, plant or
equipment to one or more of the Restricted Subsidiaries (other than
Guarantors) and (b) as a result of such transfer or transfers, the book value
of all such transferred property, plant and equipment of the Company and the
Guarantors, as reflected on a balance sheet prepared in accordance with GAAP
in any filing made with the Commission, is greater than 35% of the then book
value of the total property, plant and equipment of the Company and the
Restricted Subsidiaries, on a consolidated basis; or (ii) any Restricted
Subsidiary (other than a Guarantor) incurs Indebtedness (other than Permitted
Indebtedness pursuant to clause (a) (to the extent such Indebtedness
represents a guarantee of obligations under the Credit Agreement or a
revolving loan thereunder), (b), (c), (d), (g), (h), (i), (j), (k) or (l) of
the definition thereof) that, together with any other Indebtedness (including
Permitted Indebtedness) Incurred subsequent to the Issue Date by all
Restricted Subsidiaries (other than those that are then Guarantors) then
outstanding, would represent more than 35% of the consolidated total long-term
Indebtedness of the Company and the Restricted Subsidiaries as reflected on a
balance sheet prepared in accordance with GAAP in any filing made with the
Commission (each of the foregoing clauses (i) and (ii) being referred to
herein as a "Guarantee Condition"), then the Company shall, promptly following
any such filing with the Commission, cause one or more of the Restricted
Subsidiaries to unconditionally guarantee, jointly and severally, the
Company's obligations under the Notes on a senior subordinated unsecured basis
(the "Guarantees"), pursuant to supplemental indentures satisfactory in form
to the Trustee, so that following the issuance of such Guarantees, neither of
the Guarantee Conditions shall exist. The Indebtedness represented by each
Guarantee (including the payment of Obligations on the Notes) will be
subordinated on the same basis to senior indebtedness of the Guarantors as the
Notes are subordinated to Senior Indebtedness. So long as no Default or Event
of Default shall have occurred and be continuing, one or more Guarantors may
be released within 10 Business Days following any filing with the Commission
from their Guarantees pursuant to supplemental indentures or such other
instruments satisfactory in form to the Trustee if after giving effect to such
release neither of the Guarantee Conditions shall exist. Notwithstanding the
foregoing, neither of the Guarantee Conditions shall be deemed to exist during
any period when the Company's Operating Coverage Ratio is greater than 3.0 to
1.0.
Upon the sale or disposition (whether by merger, stock sale, asset sale or
otherwise) to any Person which is not a Restricted Subsidiary of all of the
Company's or any Subsidiary's Capital Stock in, or all or substantially
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all of the assets of, any Guarantor, which sale or disposition is otherwise in
compliance with the Indenture, in each case, such Guarantor shall be deemed
released from all its obligations under its Guarantee without any further
action required on the part of the Trustee or any Holder.
The obligations of each Guarantor under its Guarantee shall be limited to
the maximum amount as will, after giving effect to all other contingent and
fixed liabilities of such Guarantor and after giving effect to any collections
from or payments made by or on behalf of any other Guarantor in respect of the
obligations of such other Guarantor under its Guarantee or pursuant to its
contribution obligations under the Indenture, result in the obligations of
such Guarantor under such Guarantee not constituting a fraudulent conveyance
or fraudulent transfer under federal or state law. Each Guarantor that makes a
payment or distribution under a Guarantee shall be entitled to a contribution
from each other Guarantor in a pro rata amount based on the relative net
assets of each Guarantor.
Limitation on Preferred Stock of Restricted Subsidiaries. The Indenture will
provide that the Company shall not permit any of the Restricted Subsidiaries
to issue any Preferred Stock (other than to the Company or to a wholly owned
Restricted Subsidiary) or permit any Person (other than the Company or a
wholly owned Restricted Subsidiary) to own any Preferred Stock of any
Restricted Subsidiary.
Limitation on Mergers and Certain Other Transactions. The Indenture will
provide that the Company, in a single transaction or through a series of
related transactions, shall not (i) consolidate with or merge with or into any
other Person, or transfer (by lease, assignment, sale or otherwise) all or
substantially all of its properties and assets as an entirety or substantially
as an entirety to another Person or group of affiliated Persons or (ii) adopt
a Plan of Liquidation, unless, in either case, (1) either the Company shall be
the continuing Person, or the Person (if other than the Company) formed by
such consolidation or into which the Company is merged or to which all or
substantially all of the properties and assets of the Company as an entirety
or substantially as an entirety are transferred (or, in the case of a Plan of
Liquidation, any Person to which assets are transferred) (the Company or such
other Person being hereinafter referred to as the "Surviving Person") shall be
a corporation organized and validly existing under the laws of the United
States, any state thereof or the District of Columbia, and shall expressly
assume, by supplemental indenture, all the obligations of the Company under
the Indenture and the Notes; (2) immediately after and giving effect to such
transaction and the assumption contemplated by clause (1) above and the
Incurrence or anticipated Incurrence of any Indebtedness to be Incurred in
connection therewith, the Surviving Person shall have a Consolidated Net Worth
equal to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction; and (3) immediately before and immediately after
giving effect to such transaction and the assumption of the obligations as set
forth in clause (1) above and the Incurrence or anticipated Incurrence of any
Indebtedness to be Incurred in connection therewith, no Default or Event of
Default shall have occurred and be continuing.
The Indenture will provide that upon any consolidation or merger or any
transfer of all or substantially all of the assets of the Company or any
adoption of a Plan of Liquidation by the Company in accordance with the
foregoing, the surviving Person formed by such consolidation or into which the
Company is merged or to which such transfer is made (or, in the case of a Plan
of Liquidation, to which assets are transferred) shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture with the same effect as if such surviving Person had been named
as the Company therein; provided, however, that solely for purposes of
computing amounts described in subclause (c) of the first paragraph of the
covenant described under "--Limitation on Restricted Payments" above, any such
surviving Person shall be deemed to have succeeded to and be substituted for
the Company only with respect to periods subsequent to the effective time of
such merger, consolidation or transfer of assets.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise) of all or substantially all of the properties and assets of one or
more Subsidiaries, the Capital Stock of which constitutes all or substantially
all of the properties and assets of the Company shall be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
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Limitation on Other Senior Subordinated Indebtedness. The Indenture will
provide that the Company shall not, directly or indirectly, incur any
Indebtedness that by its terms (or by the terms of the agreement governing
such Indebtedness) is subordinate in right of payment to any other
Indebtedness of the Company unless such Indebtedness is also by its terms (or
the terms of the agreement governing such Indebtedness) made expressly either
(a) pari passu in right of payment with the Notes or (b) subordinate in right
of payment to the Notes in the same manner and at least to the same extent as
the Notes are subordinate to Senior Indebtedness.
Limitation on Restricted and Unrestricted Subsidiaries. The Indenture will
provide that the Board of Directors of the Company may, if no Default or Event
of Default shall have occurred and be continuing or would result therefrom,
designate any Restricted Subsidiary to be an Unrestricted Subsidiary if such
designation is at that time permitted under "--Limitation on Restricted
Payments" above. The Indenture will also provide that the Board of Directors
of the Company may, if no Default or Event of Default shall have occurred and
be continuing or would result therefrom, designate an Unrestricted Subsidiary
to be a Restricted Subsidiary; provided, however, that (i) any such
redesignation shall be deemed to be an Incurrence as of the date of such
redesignation by the Company and the Restricted Subsidiaries of the
Indebtedness (if any) of such redesignated Subsidiary for purposes of "--
Limitation on Incurrences of Additional Indebtedness" above; and (ii) unless
such redesignated Subsidiary shall not have any Indebtedness outstanding
(other than Indebtedness which would be Permitted Indebtedness), no such
designation shall be permitted if immediately after giving effect to such
redesignation and the Incurrence of any such Indebtedness, the Company could
not incur $1.00 of additional Indebtedness pursuant to the proviso of the
covenant described under "--Limitation on Incurrences of Additional
Indebtedness" above. Any such designation by the Board of Directors of the
Company shall be evidenced to the Trustee by the filing with the Trustee of a
certified copy of the Board Resolution of the Company's Board of Directors
giving effect to such designation or redesignation and an officers'
certificate certifying that such designation or redesignation complied with
the foregoing conditions and setting forth in reasonable detail the underlying
calculations.
The Indenture will provide that Subsidiaries that are not designated by the
Board of Directors as Restricted or Unrestricted Subsidiaries will be deemed
to be Restricted Subsidiaries. The designation of a Restricted Subsidiary as
an Unrestricted Subsidiary shall be deemed to include a designation of all of
the subsidiaries of such Unrestricted Subsidiary as Unrestricted Subsidiaries.
REPORTS TO HOLDERS
The Indenture will provide that the Company shall deliver to the Trustee
within 15 days after the filing of the same with the Commission, copies of the
quarterly and annual reports and other reports, if any, which the Company is
required to file with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act. The Indenture will further provide that, notwithstanding that
the Company may not be subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act, the Company shall file with the Commission, to the
extent permitted, and provide the Trustee and Holders with such quarterly and
annual reports and other reports specified in Sections 13 and 15(d) of the
Exchange Act. The Company will also comply with the other provisions of TIA
(S) 314(a).
EVENTS OF DEFAULT
The following events constitute "Events of Default" under the Indenture: (i)
failure to make any interest payment on the Notes when due and the continuance
of such default for a period of 30 days, whether or not prohibited by the
provisions described under "--Subordination"; (ii) failure to pay principal
of, or premium, if any, on the Notes when due, whether at maturity, upon
acceleration, redemption, required repurchase or otherwise, whether or not
prohibited by the provisions described under "--Subordination"; (iii) failure
to comply with any other agreement contained in the Notes or the Indenture, if
such failure continues unremedied for 30 days after written notice given by
the Trustee or the Holders of at least 25% in principal amount of the Notes
then outstanding (except in the case of a default with respect to the
covenants described under "--Change
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of Control," "--Certain Covenants--Limitation on Restricted Payments," "--
Limitation on Asset Sales" and "--Limitation on Mergers and Certain Other
Transactions," which shall constitute Events of Default with notice but
without passage of time); (iv) there shall be a default under any Indebtedness
of the Company or any Restricted Subsidiary, whether such Indebtedness now
exists or shall hereinafter be created, if both (A) such default either (1)
results from the failure to pay any such Indebtedness at its stated final
maturity or (2) relates to an obligation other than the obligation to pay such
Indebtedness at its stated final maturity and results in the holder or holders
of such Indebtedness causing such Indebtedness to become due prior to its
stated final maturity and (B) the principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in default
for failure to pay principal at stated final maturity or the maturity of which
has been so accelerated, aggregates $20 million or more at any one time
outstanding; (v) any final judgment or order of any court, regulatory agency,
administrative agency, or other body of competent jurisdiction for payment of
money in excess of $20 million shall be entered against the Company or any
Significant Subsidiary and shall not be discharged for a period of 60 days
after such judgment becomes final and nonappealable; (vi) either the Company
or any Significant Subsidiary pursuant to or within the meaning of any
Bankruptcy Law: (a) commences a voluntary case or proceeding; (b) consents to
the entry of an order for relief against it in an involuntary case or
proceeding; (c) consents to the appointment of a Custodian of it or for all or
substantially all of its property; or (d) makes a general assignment for the
benefit of its creditors; (vii) a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that: (a) is for relief against the
Company or any Significant Subsidiary in an involuntary case or proceeding;
(b) appoints a Custodian of the Company or any Significant Subsidiary, or for
all or any substantial part of their respective properties; or (c) orders the
liquidation of the Company or any Significant Subsidiary, and in each case the
order or decree remains unstayed and in effect for 60 days; or (viii) the
lenders under the Credit Agreement shall commence judicial proceedings to
foreclose upon any material portion of the assets of the Company and the
Subsidiaries.
In the event of a declaration of acceleration because an Event of Default
set forth in clause (iv) above has occurred and is continuing, such
declaration of acceleration shall be automatically rescinded and annulled if
either (x) the holders of the Indebtedness which is the subject of such Event
of Default have waived such failure to pay at maturity or have rescinded the
acceleration in respect of such Indebtedness within 90 days of such maturity
or declaration of acceleration, as the case may be, and no other Event of
Default has occurred during such 90-day period which has not been cured or
waived, or (y) such Indebtedness shall have been discharged or the maturity
thereof shall have been extended such that it is not then due and payable, or
the underlying default has been cured (and any acceleration based thereon of
such other Indebtedness has been rescinded), within 90 days of such maturity
or declaration of acceleration, as the case may be.
If an Event of Default (other than an Event of Default under clause (vi) or
(vii) above with respect to the Company or a Significant Subsidiary) occurs
and is continuing, the Trustee or the Holders of at least 25% in principal
amount of the then outstanding Notes may declare due and payable all unpaid
principal and interest accrued and unpaid on the then outstanding Notes by
notice in writing to the Company, the administrative agent under the Credit
Agreement and the Trustee specifying the respective Event of Default and that
it is a "notice of acceleration" (the "Acceleration Notice"), and the same (i)
shall become immediately due and payable or (ii) if there is any Indebtedness
outstanding under the Credit Agreement, shall become due and payable upon the
first to occur of an acceleration under the Credit Agreement, or five business
days after receipt by the Company and the administrative agent under the
Credit Agreement of such Acceleration Notice. If an Event of Default under
clause (vi) or (vii) above with respect to the Company or a Significant
Subsidiary shall occur, all unpaid principal of and accrued interest on all
then outstanding Notes shall be immediately due and payable without any
declaration or other act on the part of the Trustee or any of the Holders.
After a declaration of acceleration under the Indenture, subject to certain
conditions, the Holders of a majority in principal amount of the then
outstanding Notes, by notice to the Trustee, may rescind such declaration if
all existing Events of Default are remedied. In certain cases the Holders of a
majority in principal amount of outstanding Notes may waive a past Default and
its consequences, except a Default in the payment of or interest on any of the
Notes.
The Indenture will provide that if a Default or Event of Default occurs and
is continuing and if it is known to the Trustee, the Trustee shall mail to
each Holder notice of the Default or Event of Default within 90 days
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after such Default or Event of Default occurs; provided, however, that, except
in the case of a Default or Event of Default in the payment of the principal
of or interest on any Notes, including the failure to make payment on a Change
of Control Payment Date pursuant to a Change of Control Offer or payment when
due pursuant to a Net Proceeds Offer, the Trustee may withhold such notice if
it in good faith determines that withholding such notice is in the interest of
the Holders.
The Indenture provides that no Holder may pursue any remedy thereunder
unless the Trustee (i) shall have failed to act for a period of 60 days after
receiving written notice of a continuing Event of Default by such Holder and a
request to act by Holders of at least 25% in principal amount of Notes and
(ii) has received indemnification satisfactory to it; provided, however, that
such provision does not affect the right of any Holder to sue for enforcement
of any overdue payment of principal of, premium, if any, or interest on,
Notes.
The Indenture provides that two officers of the Company are required to
certify to the Trustee within 120 days after the end of each fiscal year of
the Company whether or not they know of any Default that occurred during such
fiscal year and, if applicable, describe such Default and the status thereof.
DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, elect to have the
obligations of the Company discharged with respect to the outstanding Notes
("Legal Defeasance"). Legal Defeasance means that the Company shall be deemed
to have paid and discharged the entire Indebtedness represented by the Notes
except for (i) the rights of Holders of Notes to receive payments in respect
of the principal of, premium, if any, and interest on Notes when such payments
are due solely from the funds held by the Trustee in the trust referred to
below; (ii) the Company's obligations to issue temporary Notes, register the
transfer or exchange of Notes, replace mutilated, destroyed, lost or stolen
Notes and maintain an office or agency for payments in respect of Notes and
money for security payments held in trust in respect of Notes; (iii) the
rights, powers, trusts, duties and immunities of the Trustee and the Company's
obligations in connection therewith; and (iv) the Legal Defeasance provisions
of the Indenture. In addition, the Company may, at its option and at any time
elect to have the obligations of the Company released with respect to certain
covenants described above under "--Certain Covenants" ("Covenant Defeasance"),
and thereafter any omission to comply with such obligations shall not
constitute a Default or Event of Default.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must have irrevocably deposited with the Trustee, in trust, for the
benefit of the Holders, cash in U.S. dollars, U.S. Government Obligations (as
defined in the Indenture), or a combination thereof, in such amounts as will
be sufficient, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and interest on
the outstanding Notes to redemption or maturity provided that the Trustee
shall have been irrevocably instructed to apply such money or the proceeds of
such U.S. Government Obligations to said payments with respect to the Notes on
the maturity date or such redemption date, as the case may be; (ii) the
Company shall have delivered to the Trustee one or more opinions of
independent counsel to the effect that (A) the Holders will not recognize
income, gain or loss for federal income tax purposes as a result of such Legal
Defeasance or Covenant Defeasance, as the case may be, and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Legal Defeasance or Covenant
Defeasance, as the case may be, had not occurred (which opinion, in the case
of Legal Defeasance, shall be based upon a change in the applicable federal
income tax law since the Issue Date or a ruling received from or published by
the Internal Revenue Service), (B) after the 91st day following the deposit
the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally and will not be subject to any rights of holders of Senior
Indebtedness and (C) the deposit will not cause the Trustee or the trust so
created to be subject to the Investment Company Act of 1940; (iii) no Default
or Event of Default shall have occurred and be continuing on the date of such
deposit or insofar as clauses (vi) and (vii) under the first paragraph under
"--Events of Default" above are concerned, at any time in the period ending on
the 91st day after the date of deposit; (iv) such Legal Defeasance or Covenant
Defeasance shall not cause the
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Trustee to have a conflicting interest with respect to the Notes; (v) such
Legal Defeasance or Covenant Defeasance shall not result in a breach or
violation of, or constitute a default under, the Indenture or any other
material agreement or instrument to which the Company is a party or by which
it is bound (and in that connection, the Trustee shall have received a
certificate from the administrative agent under the Credit Agreement to that
effect with respect to such Credit Agreement if then in effect); (vi) the
Company shall have delivered to the Trustee an officers' certificate stating
that the deposit was not made by the Company with the intent of preferring the
Holders over other creditors of the Company or with the intent of defeating,
hindering, delaying or defrauding creditors of the Company or others; and
(vii) the Company shall have delivered to the Trustee an officers' certificate
and an opinion of counsel, each stating that all conditions precedent provided
for relating to the Legal Defeasance or Covenant Defeasance, have been
complied with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect as
to all outstanding Notes, when either (a) all Notes theretofore authenticated
and delivered (except lost, stolen or destroyed Notes which have been replaced
or paid and Notes for whose payment money has theretofore been deposited in
trust and thereafter repaid to the Company) have been delivered to the Trustee
for cancellation; or (b)(i) all Notes not theretofore delivered to the Trustee
for cancellation have become due and payable by reason of the making of a
notice of redemption or otherwise and the Company has irrevocably deposited or
caused to be deposited with the Trustee as trust funds in trust for the
purpose an amount of money sufficient to pay and discharge the entire
indebtedness on Notes not theretofore delivered to the Trustee for
cancellation for principal, premium, if any, and accrued interest to the date
of maturity or redemption; (ii) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit or shall occur as a
result of such deposit and such deposit will not result in a breach or
violation of, or constitute a default under, any other instrument to which the
Company is a party or by which it is bound; (iii) the Company has paid all
sums payable by it under the Indenture; and (iv) the Company has delivered
irrevocable instructions to the Trustee to apply the deposited money toward
the payment of Notes at maturity or the redemption date, as the case may be.
In addition, the Company must deliver an officers' certificate and an opinion
of counsel to the Trustee stating that all conditions precedent to
satisfaction and discharge have been complied with.
MODIFICATION OF THE INDENTURE
The Indenture, the Notes or any Guarantee (if any), may be amended or
supplemented (and compliance with any provision thereof may be waived) by the
Company, the Guarantors (if any), the Trustee and the Holders of not less than
a majority in aggregate principal amount of Notes then outstanding, without
any notice to any other Holder, except that (i) without the consent of each
Holder of Notes affected, no such amendment, supplement or waiver may (1)
change the principal amount of the Notes the Holders of which must consent to
an amendment, supplement or waiver of any provision of the Indenture, the
Notes or any Guarantee (if any), (2) reduce the rate or extend the time for
payment of interest on any Notes, (3) reduce the principal amount of any
Notes, (4) change the Maturity Date or alter the redemption provisions in the
Indenture or the Notes in a manner adverse to any Holder, (5) make any changes
in the provisions concerning waivers of Defaults or Events of Default by
Holders or the rights of Holders to recover the principal of, interest on or
redemption payment with respect to any Notes, (6) make the principal of, or
interest on, any Notes payable with anything or in any manner other than as
provided for in the Indenture and the Notes or any Guarantee (if any), or (7)
modify the subordination provisions of the Indenture (including certain
related definitions) so as to adversely affect the ranking of any Note or any
Guarantee (if any); provided, however, that it is understood that any
amendment the purpose of which is to permit the Incurrence of additional
Indebtedness under the Indenture shall not be construed as adversely affecting
the ranking of any Note or any Guarantee (if any) and (ii) without the consent
of Holders of not less than 66 2/3% in aggregate principal amount of Notes
then outstanding, no such amendment, supplement or waiver may change the
Change of Control Payment Date or the purchase price in connection with any
repurchase of Notes pursuant to the covenant described under "--Change of
Control" above in a manner adverse to any Holder or waive a Default or Event
of Default resulting from a failure to comply with the covenant described
under "--Change of Control" above.
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In addition, the Indenture and the Notes may be amended by the Company, the
Guarantors (if any) and the Trustee, together, (a) to cure any ambiguity,
defect or inconsistency therein; provided that such amendment or supplement
does not adversely affect the rights of any Holder or (b) to make any other
change that does not adversely affect the rights of any Holder in any material
respect.
THE TRUSTEE
The Indenture will provide that the Holders of a majority in principal
amount of the outstanding Notes may remove the Trustee and appoint a successor
trustee with the Company's consent, by so notifying the trustee to be so
removed and the Company. In addition, the Holders of a majority in principal
amount of the outstanding Notes have the right, subject to certain
limitations, to direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or of exercising any trust or power
conferred on the Trustee.
The Indenture will provide that, if a Default or an Event of Default has
occurred and is continuing, the Trustee shall exercise such of the rights and
powers vested in it by the Indenture, and use the same degree of care and
skill in the exercise thereof, as a prudent Person would exercise or use under
the circumstances in the conduct of such Person's own affairs. Subject to the
latter provision, the Trustee is under no obligation to exercise any of its
rights or powers under the Indenture at the request, order or direction of any
of the Holders, unless they shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities which may be
incurred thereby. If the Company fails to pay such amounts of principal of,
premium, if any, or interest on, the Notes as shall have become due and
payable upon demand as specified in the Indenture, the Trustee, at the request
of the Holders of a majority in aggregate principal amount of Notes at the
time outstanding, and upon being offered such reasonable indemnity as it may
be required against the costs, expenses and liabilities incurred by it, except
as a result of its negligence or bad faith, shall institute any actions or
proceedings at law or in equity for the collection of the sums so due and
unpaid, and collect in the manner provided by law the monies adjudged or
decreed to be payable.
The Indenture will contain limitations on the rights of the Trustee, should
it become a creditor of the Company, to obtain payment of claims in certain
cases or to be realized on certain property received by it in respect of any
such claims, securities or otherwise. The Trustee is permitted to engage in
other transactions; however, if the Trustee acquires any "conflicting
interest," it must eliminate such conflict or resign.
CERTAIN DEFINITIONS
"Affiliate" means, with respect to any Person, any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "affiliated," "controlling" and "controlled" have meanings correlative
to the foregoing; provided that Bankers Trust New York Corporation and The
Chase Manhattan Bank, N.A. and their respective Affiliates shall not be
considered to be Affiliates of the Company or any of its Subsidiaries. So long
as the Management Services Agreement is in effect or Yucaipa (together with
its Affiliates) owns voting securities representing more than 10% of the total
voting power of the then outstanding voting securities entitled to vote on a
regular basis for the Board of Directors of the Company, Yucaipa and its
Affiliates shall be deemed Affiliates of the Company.
"Asset Sale" means any sale, transfer or other disposition or series of
sales, transfers or other dispositions by the Company or any Restricted
Subsidiary (including, without limitation, any merger or consolidation of any
Restricted Subsidiary with or into another Person (other than the Company or
any wholly owned Restricted Subsidiary) whereby such Restricted Subsidiary
shall cease to be a Restricted Subsidiary) to any Person (other than to the
Company or a wholly owned Restricted Subsidiary) of any assets of the Company
or any Restricted Subsidiary, including, without limitation, assets consisting
of any Capital Stock or other securities held by the Company or any Restricted
Subsidiary, and any Capital Stock issued by any Restricted Subsidiary, in each
case, outside of the ordinary course of business, excluding, however, any
sale, transfer or other disposition, or series of related sales, transfers or
other dispositions (i) resulting in Net Proceeds to the Company and the
Restricted
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Subsidiaries of $500,000 or less, (ii) pursuant to any foreclosure of assets
or other remedy provided by applicable law to a creditor of the Company or any
Subsidiary with a Lien on such assets, which Lien is permitted under the
Indenture; provided that such foreclosure or other remedy is conducted in a
commercially reasonable manner or in accordance with any Bankruptcy Law, (iii)
involving only Cash Equivalents or inventory in the ordinary course of
business or obsolete equipment in the ordinary course of business consistent
with past practices of the Company; (iv) involving only the lease or sublease
of any real or personal property in the ordinary course of business; (v)
pursuant to the California Disposition or involving certain other assets set
forth on a schedule to the Indenture; or (vi) resulting from (a) the
designation of any Restricted Subsidiary as an Unrestricted Subsidiary, or the
contribution to the capital of any Unrestricted Subsidiary, in accordance with
the applicable provisions of the Indenture or (b) the sale of the Capital
Stock of any Unrestricted Subsidiary or the sale of all or substantially all
of the assets of any Unrestricted Subsidiary.
"Average Life" means, as of any date of determination, with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products
of the number of years from the date of determination to the dates of each
successive scheduled principal payments of such debt security multiplied by
the amount of each such principal payment by (ii) the sum of all such
principal payments.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or
foreign law for the relief of debtors.
"Board of Directors" means, with respect to any Person, the Board of
Directors of such Person or of a subsidiary of such Person or any duly
authorized committee of that Board.
"Board Resolution" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participation or other equivalents (however designated) of
corporate stock, including each class of common stock and preferred stock of
such Person.
"Capitalized Lease Obligation" means obligations under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP, and the amount of Indebtedness represented by such obligations shall be
the capitalized amount of such obligations determined in accordance with GAAP.
"Cash Equivalents" means (i) obligations issued or unconditionally
guaranteed by the United States of America or any agency thereof, or
obligations issued by any agency or instrumentality thereof and backed by the
full faith and credit of the United States of America, (ii) commercial paper
rated the highest grade by Moody's Investors Service, Inc. and Standard &
Poor's Ratings Group and maturing not more than one year from the date of
creation thereof, (iii) time deposits with, and certificates of deposit and
banker's acceptances issued by, any bank having capital surplus and undivided
profits aggregating at least $500 million and maturing not more than one year
from the date of creation thereof, (iv) repurchase agreements that are secured
by a perfected security interest in an obligation described in clause (i) and
are with any bank described in clause (iii), (v) shares of any money market
mutual fund that (a) has at least 95% of its assets invested continuously in
the types of investments referred to in clauses (i) and (ii) above, (b) has
net assets of not less than $500 million, and (c) has the highest rating
obtainable from either Standard & Poor's Ratings Group or Moody's Investors
Service, Inc. and (vi) readily marketable direct obligations issued by any
state of the United States of America or any political subdivision thereof
having one of the two highest rating categories obtainable from either Moody's
Investors Service, Inc. or Standard & Poor's Ratings Group.
"Change of Control" means the acquisition after the Issue Date, in one or
more transactions, of beneficial ownership (within the meaning of Rule 13d-3
under the Exchange Act) by (i) any Person (other than any Permitted Holder) or
(ii) any group (within the meaning of Section 13(d)(3) of the Exchange Act) of
Persons (excluding any Permitted Holders), in either case, of any securities
of the Company such that, as a result of such
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acquisition, such Person or group beneficially owns (within the meaning of
Rule 13d-3 under the Exchange Act), directly or indirectly, voting securities
representing 40% or more of the total voting power of the then outstanding
voting securities entitled to vote on a regular basis for the Board of
Directors of the Company (but only to the extent that such beneficial
ownership is not shared with any Permitted Holder who has the power to direct
the vote thereof); provided, however, that no such Change of Control shall be
deemed to have occurred if (A) the Permitted Holders beneficially own, in the
aggregate, at such time, voting securities representing a greater percentage
of such voting power than such other Person or group or (B) at the time of
such acquisition, the Permitted Holders (or any of them) possess the ability
(by contract or otherwise) to elect, or cause the election, of a majority of
the members of the Company's Board of Directors.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means, with respect to any Person, any and all shares,
interests or other participations in, and other equivalents (however
designated and whether voting or nonvoting) of, such Person's common stock,
whether outstanding at the Issue Date or issued after the Issue Date, and
includes, without limitation, all series and classes of such common stock.
"Consolidated Interest Expense" means for any period, the aggregate amount
of interest, whether expensed or capitalized, paid, accrued or scheduled to be
paid or accrued during such period (except to the extent accrued in a prior
period) in respect of all Indebtedness of the Company and the Restricted
Subsidiaries (including (a) original issue discount on any Indebtedness
(including (without duplication), in the case of the Company, any original
issue discount on the Notes but excluding amortization of debt issuance costs)
and (b) the interest portion of all deferred payment obligations, calculated
in accordance with the effective interest method, in each case to the extent
attributable to such period but excluding the amortization of debt issuance
costs). For purposes of this definition, (a) interest on a Capitalized Lease
Obligation shall be deemed to accrue at an interest rate reasonably determined
by the Company to be the rate of interest implicit in such Capitalized Lease
Obligation in accordance with GAAP, (b) interest on Indebtedness that is
determined on a fluctuating basis shall be deemed to have accrued at a fixed
rate per annum equal to the rate of interest of such Indebtedness in effect on
the date Consolidated Interest Expense is being calculated, (c) interest on
Indebtedness that may optionally be determined at an interest rate based upon
a factor of a prime or similar rate, a eurocurrency interbank offered rate, or
other rate, shall be deemed to have been based upon the rate actually chosen,
or, if none, then based upon such optional rate chosen as the Company may
designate, and (d) Consolidated Interest Expense shall be increased or reduced
by the net cost (including amortization of discount) or benefit associated
with Interest Swap Obligations attributable to such period.
"Consolidated Net Income" means for any period, the aggregate of the net
income (or loss) of the Company and the Restricted Subsidiaries for such
period on a consolidated basis, determined in accordance with GAAP; provided
that (a) the net income of any other Person in which the Company or any
Restricted Subsidiary has an interest (which interest does not cause the net
income of such other Person to be consolidated with the net income of the
Company and the Restricted Subsidiaries in accordance with GAAP) shall be
included only to the extent of the amount of dividends or distributions
actually paid to the Company or such Restricted Subsidiary by such other
Person in such period; (b) the net income of any Restricted Subsidiary that is
subject to any Payment Restriction shall be excluded to the extent such
Payment Restriction would actually prevent the payment of an amount that
otherwise could have been paid to, or received by, the Company or a Restricted
Subsidiary not subject to any Payment Restriction; and (c)(i) the net income
(or loss) of any other Person acquired in a pooling of interests transaction
for any period prior to the date of such acquisition, (ii) all gains and
losses realized on any Asset Sale or any other sale of assets that would
constitute an "Asset Sale" but for the exceptions set forth in clauses (i),
(ii), (v), or (vi) of the definition thereof; (iii) all gains realized upon or
in connection with or as a consequence of the issuance of the Capital Stock of
the Company or any Restricted Subsidiary and any gains on pension reversions
received by the Company or any Restricted Subsidiary, (iv) all gains and
losses realized on the purchase or other acquisition by the Company or any
Restricted Subsidiary of any securities of the Company or any Restricted
Subsidiary, (v) all gains and losses resulting from the cumulative effect of
any accounting change pursuant to the application of Accounting Principles
Board Opinion No. 20, as
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amended, or Statement of Financial Accounting Standards No. 121, (vi) all
other extraordinary gains and losses, (vii) (A) all non-cash charges, (B) all
severance, deferred compensation or other employee termination costs, (C) up
to $20 million of compensation expenses resulting from the repurchase or
amendment of certain management stock options, (D) all debt refinancing
premiums and (E) any other reserves or charges (provided, however, that any
net cash payments actually made (after-tax) with respect to the liabilities
for which such reserves or charges were created shall be deducted from
Consolidated Net Income in the period when made), in each case under this
clause (vii), recorded by the Company or any Restricted Subsidiary in
connection with the Transactions and the California Disposition, including,
without limitation, the integration of operations in the State of Arizona,
(viii) losses incurred by the Company and the Restricted Subsidiaries
resulting from earthquakes and (ix) with respect to the Company and the
Restricted Subsidiaries, all deferred financing costs written off in
connection with the early extinguishment of any Indebtedness, shall each be
excluded.
"Consolidated Net Worth" means, with respect to any Person, the total
stockholders' equity (exclusive of any Disqualified Capital Stock) of such
Person and its Restricted Subsidiaries determined on a consolidated basis in
accordance with GAAP.
"Credit Agreement" means the Credit Agreement, dated as of the Issue Date,
by and among the Company as borrower, its subsidiaries as guarantors, the
Lenders referred to therein, Bankers Trust Company and The Chase Manhattan
Bank, as arrangers, and Bankers Trust Company, as administrative agent, as the
same may be amended, extended, renewed, restated, supplemented or otherwise
modified (in each case, in whole or in part, and without limitation as to
amount, terms, conditions, covenants and other provisions) from time to time,
and any agreement governing Indebtedness Incurred to refund, replace or
refinance any borrowings and commitments then outstanding or permitted to be
outstanding under such Credit Agreement or any such prior agreement as the
same may be amended, extended, renewed, restated, supplemented or otherwise
modified (in each case, in whole or in part, and without limitation as to
amount, terms, conditions, covenants and other provisions). The term "Credit
Agreement" shall include all related or ancillary documents, including,
without limitation, any guarantee agreements and security documents. The
Company shall promptly notify the Trustee of any such refunding or refinancing
of the Credit Agreement.
"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator
or similar official under any Bankruptcy Law.
"Default" means any event or condition that is, or after notice or passage
of time or both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) in the event any Indebtedness is
outstanding under the Credit Agreement, all Senior Indebtedness under the
Credit Agreement and (ii) if no Indebtedness is outstanding under the Credit
Agreement, any other issue of Senior Indebtedness which (a) at the time of the
determination is equal to or greater than $50 million in aggregate principal
amount and (b) is specifically designated in the instrument evidencing such
Senior Indebtedness as "Designated Senior Indebtedness" by the Company. For
purposes of this definition, the term "Credit Agreement" shall not include any
agreement governing Indebtedness Incurred to refund, replace or refinance
borrowings or commitments under the Credit Agreement other than any such
agreements governing Indebtedness Incurred to refund, replace or refinance the
entirety of the borrowings and commitments then outstanding or permitted to be
outstanding thereunder.
"Disqualified Capital Stock" means, with respect to any Person, any Capital
Stock of such Person or its subsidiaries that, by its terms, by the terms of
any agreement related thereto or by the terms of any security into which it is
convertible, puttable or exchangeable, is, or upon the happening of any event
or the passage of time would be, required to be redeemed or repurchased by
such Person or its subsidiaries, including at the option of the holder
thereof, in whole or in part, or has, or upon the happening of an event or
passage of time would have, a redemption or similar payment due, on or prior
to the Maturity Date, or any other Capital Stock of such Person or its
subsidiaries designated as Disqualified Capital Stock by such Person at the
time of issuance; provided, however, that if such Capital Stock is either (i)
redeemable or repurchasable solely at the option of such Person
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or (ii) issued to employees of the Company or the Subsidiaries or to any plan
for the benefit of such employees, such Capital Stock shall not constitute
Disqualified Capital Stock unless so designated.
"EBITDA" means, for any period, the Consolidated Net Income for such period,
plus, in each case to the extent deducted in computing Consolidated Net Income
for such period (without duplication) (i) provisions for income taxes or
similar charges recognized by the Company and the Restricted Subsidiaries
accrued during such period, (ii) depreciation and amortization expense of the
Company and the Restricted Subsidiaries accrued during such period (but only
to the extent not included in Consolidated Interest Expense), (iii)
Consolidated Interest Expense of the Company and the Restricted Subsidiaries
for such period, (iv) LIFO charges (credits) of the Company and the Restricted
Subsidiaries for such period, (v) the amount of any restructuring reserve or
charge recorded during such period in accordance with GAAP, including any such
reserve or charge related to the Transactions or the California Disposition,
less, without duplication, the amount of all net cash payments made by the
Company and the Restricted Subsidiaries during such period to the extent that
such cash payments have been provided for in a restructuring reserve or charge
referred to in clause (v) above (and were not otherwise deducted in the
computation of EBITDA for such period).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the Commission thereunder.
"Existing Indebtedness" means all indebtedness of the Company and the
Restricted Subsidiaries to the extent outstanding on the Issue Date after
giving effect to the Transactions (other than Indebtedness under the Credit
Agreement and the Indenture), including operating leases outstanding on the
Issue Date that are, or may be, required under GAAP to be reported or
reclassified after the Issue Date as Capitalized Lease Obligations.
"Foreign Exchange Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect
against fluctuations in currency values.
"Guarantor" means each Restricted Subsidiary, if any, which becomes a
guarantor of the Notes in compliance with the provisions set forth under "--
Certain Covenants--Limitation on Subsidiary Assets and Indebtedness."
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise),
assume, guarantee or otherwise become liable in respect of such Indebtedness
or other obligations or the recording, as required pursuant to GAAP or
otherwise, of any such Indebtedness or other obligation on the balance sheet
of such Person (and "Incurrence," "Incurred" and "Incurring" shall have
meanings correlative to the foregoing).
"Indebtedness" means with respect to any Person, without duplication, (i)
all liabilities, contingent or otherwise, of such Person (a) for borrowed
money (whether or not the recourse of the lender is to the whole of the assets
of such Person or only to a portion thereof), (b) evidenced by bonds, notes,
debentures, drafts accepted or similar instruments or letters of credit or
representing the balance deferred and unpaid of the purchase price of any
property (other than any such balance that represents an account payable or
any other monetary obligation to a trade creditor (whether or not an
Affiliate) Incurred by such Person in the ordinary course of business of such
Person in connection with obtaining goods, materials or services and due
within twelve months (or such longer period for payment as is customarily
extended by such trade creditor) of the Incurrence thereof, which account is
not overdue by more than 90 days, according to the original terms of sale,
unless such account payable is being contested in good faith), or (c) for the
payment of money relating to a Capitalized Lease Obligation; (ii) the maximum
fixed repurchase price of all Disqualified Capital Stock of such Person; (iii)
reimbursement obligations of such Person with respect to letters of credit;
(iv) obligations of such Person with respect to Interest Swap Obligations and
Foreign Exchange Agreements; (v) all liabilities of others of the kind
described in the preceding clause (i), (ii), (iii) or (iv) that such Person
has guaranteed or that is otherwise its legal liability; and (vi) all
obligations of others secured by a Lien to which any of the properties or
assets (including, without limitation, leasehold interests and any other
tangible or intangible property rights) of such Person are subject,
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whether or not the obligations secured thereby shall have been assumed by such
Person or shall otherwise be such Person's legal liability (provided that if
the obligations so secured have not been assumed by such Person or are not
otherwise such Person's legal liability, such obligations shall be deemed to
be in an amount equal to the fair market value of such properties or assets,
as determined in good faith by the Board of Directors of such Person, which
determination shall be evidenced by a Board Resolution). For purposes of the
preceding sentence, the "maximum fixed repurchase price" of any Disqualified
Capital Stock that does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to this Indenture, and if such
price is based upon, or measured by, the fair market value of such
Disqualified Capital Stock (or any equity security for which it may be
exchanged or converted), such fair market value shall be determined in good
faith by the Board of Directors of such Person, which determination shall be
evidenced by a Board Resolution.
"Independent Financial Advisor" means a reputable accounting, appraisal or
nationally recognized investment banking or consulting firm that is, in the
reasonable judgment of the Board of Directors of the Company, qualified to
perform the tasks for which such firm has been engaged and independent with
respect to the Company and its Affiliates.
"Interest Swap Obligation" means any obligation of any Person pursuant to
any arrangement with any other Person whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated
by applying either a fixed or floating rate of interest on a stated notional
amount in exchange for periodic payments made by such Person calculated by
applying a fixed or floating rate of interest on the same notional amount;
provided that the term "Interest Swap Obligation" shall also include interest
rate exchange, collar, cap, swap option or similar agreements providing
interest rate protection.
"Investment" by any Person in any other Person means any investment by such
Person in such other Person, whether by share purchase, capital contribution,
loan, advance (other than reasonable loans and advances to employees for moving
and travel expenses, as salary advances or to permit the purchase of Qualified
Capital Stock of the Company and other similar customary expenses incurred, in
each case in the ordinary course of business consistent with past practice) or
similar credit extension constituting Indebtedness of such other Person, and any
guarantee of Indebtedness of any other Person. In addition, for purposes of the
covenant described under "--Limitation on Restricted Payments" above, (i) an
"Investment" shall be deemed to have been made at the time any Restricted
Subsidiary is designated as an Unrestricted Subsidiary in an amount
(proportionate to the Company's equity interest in such Subsidiary) equal to the
net worth of such Restricted Subsidiary at the time that such Restricted
Subsidiary is designated as an Unrestricted Subsidiary; and (ii) at any date the
aggregate of all Restricted Payments made as Investments since the Issue Date
shall exclude and be reduced by an amount (proportionate to the Company's equity
interest in such Subsidiary) equal to the net worth of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary (in each case "net worth" to be calculated based upon the
fair market value of the assets and liabilities of such Subsidiary as of any
such date of designation, as determined by the Company's Board of Directors).
"Issue Date" means the date of original issuance of the Notes under the
Indenture.
"Letter of Credit Obligations" means Indebtedness of the Company or any of
the Subsidiaries with respect to letters of credit issued pursuant to the
Credit Agreement, and for purposes of determining the aggregate amount of
Indebtedness at any time, shall be deemed to consist of (a) the aggregate
maximum amount then available to be drawn under all such letters of credit
(the determination of such maximum amount to assume compliance with all
conditions for drawing), and (b) the aggregate amount that has then been paid
by, and not reimbursed to, the issuers under such letters of credit.
"Lien" means, with respect to any asset or property, any mortgage, pledge,
lien, encumbrance, charge or security interest of any kind in respect of such
asset or property, whether or not filed, recorded or otherwise perfected under
applicable law (including any conditional sale or other title retention
agreement, any lease in the
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nature thereof, any option or other agreement to sell or give a security
interest, and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction);
provided, however, that in no event shall an operating lease be deemed to
constitute a Lien.
"Management Services Agreement" means that certain Management Services
Agreement dated as of the Issue Date, between Smith's and Yucaipa (as such
Management Services Agreement may be amended or replaced, so long as such
amendment or replacement has been approved by a majority of the Independent
Directors (as defined in the Standstill Agreement) and is not disadvantageous
to the Holders in any material respect).
"Maturity Date" means May 15, 2007.
"Net Cash Proceeds" means Net Proceeds received in the form of cash or Cash
Equivalents.
"Net Proceeds" means (a) in the case of any Asset Sale or any issuance and
sale by any Person of Qualified Capital Stock, the aggregate net proceeds
received by such Person after payment of expenses, taxes, commissions and the
like incurred in connection therewith (and, in the case of any Asset Sale, net
of the amount of cash applied to repay Indebtedness secured by the asset
involved in such Asset Sale), whether such proceeds are in cash or in property
(valued at the fair market value thereof at the time of receipt as determined
with respect to any Asset Sale resulting in Net Proceeds in excess of $10
million in good faith by the Board of Directors of such Person, which
determination shall be evidenced by a Board Resolution) and (b) in the case of
any conversion or exchange of any outstanding Indebtedness or Disqualified
Capital Stock of such Person for or into shares of Qualified Capital Stock of
the Company, the sum of (i) the fair market value of the proceeds received by
the Company in connection with the issuance of such Indebtedness or
Disqualified Capital Stock on the date of such issuance and (ii) any
additional amount paid by the holder thereof to the Company upon such
conversion or exchange.
"Obligations" means all obligations of every nature whether for principal,
reimbursements, interest, fees, expenses, indemnities or otherwise, and
whether primary, secondary, direct, indirect, contingent, fixed or otherwise
(including obligations of performance) under the documentation governing any
Indebtedness.
"Operating Coverage Ratio" means the ratio of (1) EBITDA for the period (the
"Pro Forma Period") consisting of the most recent four full fiscal quarters
for which financial information in respect thereof is available immediately
prior to the date of the transaction giving rise to the need to calculate the
Operating Coverage Ratio (the "Transaction Date") to (2) the Consolidated
Interest Expense for the fiscal quarter in which the Transaction Date occurs
and the three fiscal quarters immediately subsequent to such fiscal quarter
(the "Forward Period") reasonably anticipated by the Board of Directors of the
Company to become due from time to time during such period. For purposes of
this definition, if the Transaction Date occurs prior to the first anniversary
of the Transactions, "EBITDA" for the Pro Forma Period shall be calculated
after giving effect on a pro forma basis to the Transactions and the
California Disposition as if they had occurred on the first day of the Pro
Forma Period. In addition to, but without duplication of, the foregoing, for
purposes of this definition, "EBITDA" shall be calculated after giving effect
(without duplication), on a pro forma basis for the Pro Forma Period (but no
longer), to (a) any Investment, during the period commencing on the first day
of the Pro Forma Period to and including the Transaction Date (the "Reference
Period"), in any other Person that, as a result of such Investment, becomes a
Restricted Subsidiary, (b) the acquisition, during the Reference Period (by
merger, consolidation or purchase of stock or assets) of any business or
assets, which acquisition is not prohibited by the Indenture, and (c) any
sales or other dispositions of any Restricted Subsidiary or any line of
business (or geographical area thereof) of the Company or any Restricted
Subsidiary occurring during the Reference Period, in each case as if such
incurrence, Investment, repayment, acquisition or asset sale had occurred on
the first day of the Reference Period. In addition, for purposes of this
definition, "Consolidated Interest Expense" shall be calculated after giving
effect (without duplication), on a pro forma basis for the Forward Period, to
any Indebtedness Incurred or repaid on or after the first day of the Forward
Period and prior to the Transaction Date. If the Company or any Restricted
Subsidiary directly or indirectly guarantees any Indebtedness of a third
Person,
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the Operating Coverage Ratio shall give effect to the Incurrence of such
Indebtedness as if the Company or such Restricted Subsidiary had directly
Incurred such guaranteed Indebtedness.
"operating lease" means any lease the obligations under which do not
constitute Capitalized Lease Obligations.
"Pari Passu Indebtedness" means the Notes and any Indebtedness of the
Company which ranks pari passu in right of payment to the Notes.
"Payment Restriction" means, with respect to a subsidiary of any Person, any
encumbrance, restriction or limitation, whether by operation of the terms of
its charter or by reason of any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation, on the ability of (i) such
subsidiary to (a) pay dividends or make other distributions on its Capital
Stock or make payments on any obligation, liability or Indebtedness owed to
such Person or any other subsidiary of such Person, (b) make loans or advances
to such Person or any other subsidiary of such Person or (c) transfer any of
its properties or assets to such Person or any other subsidiary of such
Person, or (ii) such Person or any other subsidiary of such Person to receive
or retain any such (a) dividends, distributions or payments, (b) loans or
advances or (c) transfer of properties or assets.
"Permitted Holder" means (i) Yucaipa, or any entity controlled thereby or
any of the partners thereof, (ii) Jeffrey P. Smith, Richard D. Smith, Fred L.
Smith, Ida Smith, the Dee Glen Smith Marital Trust I, Trust for the Children
of Jeffrey Paul Smith, Trust for the Children of Richard Dee Smith, and Trust
for the Children of Fred Lorenzo Smith, (iii) an employee benefit plan of the
Company, or any of its subsidiaries or any participant therein, (iv) a trustee
or other fiduciary holding securities under an employee benefit plan of the
Company or any of its subsidiaries or (v) any Permitted Transferee of any of
the foregoing Persons.
"Permitted Indebtedness" means:
a. Indebtedness of the Company and the Restricted Subsidiaries (and the
Company and each Restricted Subsidiary (to the extent it is not the primary
obligor thereof) may guarantee such Indebtedness) (i) under the Credit
Agreement (including the Letter of Credit Obligations) in an aggregate
principal amount at any time outstanding not to exceed $1,025.0 million,
less all principal repayments of Term Loans and all permanent commitment
reductions under the revolving credit facility, in each case, pursuant to
and in accordance with the covenant described under "--Certain Covenants--
Limitation on Asset Sales" above or (ii) Incurred under the Credit
Agreement pursuant to and in compliance with (x) clause (n) of this
definition and (y) the proviso in the covenant described under the caption
"--Limitation on Incurrence of Additional Indebtedness" above;
b. Indebtedness of a Restricted Subsidiary owed to and held by the
Company or a Restricted Subsidiary; or Indebtedness of the Company owed to
and held by a Restricted Subsidiary;
c. Indebtedness Incurred by the Company or any Restricted Subsidiary in
connection with the purchase or improvement of property (real or personal)
or equipment or other capital expenditures in the ordinary course of
business (including for the purchase of assets or stock of any retail
grocery store or business) or consisting of Capitalized Lease Obligations,
provided that (i) at the time of the Incurrence thereof, such Indebtedness,
together with any other Indebtedness Incurred during the most recently
completed four fiscal quarter period in reliance upon this clause (c) does
not exceed, in the aggregate, 3% of net sales of the Company and the
Restricted Subsidiaries during the most recently completed four fiscal
quarter period on a consolidated basis (calculated on a pro forma basis if
the date of Incurrence is prior to the end of the fourth fiscal quarter
following the Issue Date) and (ii) such Indebtedness, together with all
then outstanding Indebtedness Incurred in reliance upon this clause (c)
does not exceed, in the aggregate, 3% of the aggregate net sales of the
Company and the Restricted Subsidiaries during the most recently completed
twelve fiscal quarter period on a consolidated basis (calculated on a pro
forma basis if the date of Incurrence is prior to the end of the twelfth
fiscal quarter following the Issue Date);
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d. Indebtedness Incurred by the Company or any Restricted Subsidiary in
connection with expenditures in an aggregate principal amount not to exceed
$25.0 million; provided that such expenditures relate solely to the
integration of the operations of the Company, Smitty's and their respective
subsidiaries as described in this Prospectus;
e. Indebtedness of the Company Incurred under Foreign Exchange Agreements
and Interest Swap Obligations entered into with respect to Indebtedness
otherwise permitted to be Incurred under the covenant described under "--
Certain Covenants--Limitation on Incurrences of Additional Indebtedness"
above, including this definition of "Permitted Indebtedness" (other than
this clause (e)), in a notional amount not exceeding the aggregate
principal amount of such Indebtedness;
f. guarantees Incurred in the ordinary course of business by the Company
or a Restricted Subsidiary of Indebtedness of any other Person in aggregate
not to exceed $20.0 million at any time outstanding;
g. Refinancing Indebtedness;
h. Indebtedness of the Company or any Restricted Subsidiary for letters
of credit relating to workers' compensation claims and self-insurance or
similar requirements in the ordinary course of business;
i. Existing Indebtedness;
j. Indebtedness arising from guarantees of Indebtedness of the Company or
any Restricted Subsidiary or other agreements of the Company or a
Restricted Subsidiary providing for indemnification, adjustment of purchase
price or similar obligations, in each case, Incurred in connection with the
disposition of any business, assets or Restricted Subsidiary, other than
guarantees of Indebtedness Incurred by any Person acquiring all or any
portion of such business, assets or Restricted Subsidiary for the purpose
of financing such acquisition; provided that the maximum aggregate
liability in respect of all such Indebtedness shall at no time exceed the
gross proceeds actually received by the Company and the Restricted
Subsidiary in connection with such disposition;
k. obligations in respect of performance bonds and completion guarantees
provided by the Company or any Restricted Subsidiary in the ordinary course
of business;
l. guarantees by the Company or a Restricted Subsidiary of Indebtedness
Incurred by the Company or a Restricted Subsidiary so long as the
Incurrence of such Indebtedness by the Company or any such Restricted
Subsidiary is otherwise permitted by the terms of the Indenture;
m. Indebtedness Incurred by the Company in connection with the
termination of a lease of, or the transfer to the Company or a third party
of, the California assets leased by the Company from certain trusts and
securing such trusts' obligations to the Smith's Food & Drug Centers, Inc.
1994-A Pass Through Trusts (the "Related Assets"); provided, however, that
(i) if the Related Assets are transferred to the Company, the Company shall
consummate an Asset Sale with respect to such Related Assets within 90 days
after the Incurrence of such Indebtedness and shall apply the Net Proceeds
of such Asset Sale to permanently reduce Pari Passu Indebtedness,
Indebtedness of any Restricted Subsidiary or Senior Indebtedness, and (ii)
if the Related Assets are transferred to any Person other than the Company
or any Subsidiary, the Company shall, within 90 days after the Incurrence
of such Indebtedness, apply any proceeds received from the owner trust in
respect of such transfer of the Related Assets to permanently reduce Pari
Passu Indebtedness, Indebtedness of any Restricted Subsidiary or Senior
Indebtedness; provided, further, however, that up to $5.0 million in
aggregate amount of Net Proceeds under clause (i) or proceeds under clause
(ii) may be applied to repay outstanding borrowings under the revolving
credit facility pursuant to the Credit Agreement without a corresponding
reduction in commitments; and
n. additional Indebtedness of the Company or any Restricted Subsidiary
(together with the Indebtedness Incurred pursuant to clause (a)(ii) above)
in an aggregate amount not to exceed $140.0 million at any time
outstanding.
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"Permitted Investment" by any Person means (i) any Related Business
Investment, (ii) Investments in securities not constituting cash or Cash
Equivalents and received in connection with an Asset Sale made pursuant to the
provisions of the covenant described under "--Certain Covenants--Limitation on
Asset Sales" above or any other disposition of assets not constituting an
Asset Sale by reason of the exceptions contained in the definition thereof,
(iii) cash and Cash Equivalents, (iv) Investments existing on the Issue Date,
(v) Investments specifically permitted by and made in accordance with the
second paragraph of the covenant described under "--Certain Covenants--
Limitation on Transactions with Affiliates," (vi) Investments in the Company
or the wholly owned Restricted Subsidiaries, (vii) guarantees by the Company
or any Restricted Subsidiary of Indebtedness under the Credit Agreement and
(viii) additional Investments in an aggregate amount not exceeding $15.0
million.
"Permitted Liens" shall mean (i) Liens for taxes, assessments and
governmental charges or claims not yet due or which are being contested in
good faith by appropriate proceedings promptly instituted and diligently
conducted and if a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made therefor; (ii) statutory
Liens of landlords and carriers, warehousemen, mechanics, suppliers,
materialmen, repairmen or other like Liens arising in the ordinary course of
business, deposits made to obtain the release of such Liens, and with respect
to amounts not yet delinquent for a period of more than 60 days or being
contested in good faith by an appropriate process of law, and for which a
reserve or other appropriate provision, if any, as shall be required by GAAP
shall have been made; (iii) Liens incurred or pledges or deposits made in the
ordinary course of business to secure obligations under workers' compensation,
unemployment insurance and other types of social security or similar
legislation; (iv) Liens incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety and appeal bonds,
government contracts, performance and return of money bonds and other
obligations of a like nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money); (v) easements,
rights-of-way, zoning or other restrictions, minor defects or irregularities
in title and other similar charges or encumbrances not interfering in any
material respect with the business of the Company or any of the Restricted
Subsidiaries incurred in the ordinary course of business; (vi) Liens upon
specific items of inventory or other goods and proceeds of any Person securing
such Person's obligations in respect of bankers' acceptances issued or created
for the account of such Person to facilitate the purchase, shipment or storage
of such inventory or other goods in the ordinary course of business; (vii)
Liens securing reimbursement obligations with respect to letters of credit
which encumber documents and other property relating to such letters of credit
and the products and proceeds thereof; (viii) Liens in favor of customs and
revenue authorities arising as a matter of law to secure payment of
nondelinquent customs duties in connection with the importation of goods; (ix)
judgment and attachment Liens not giving rise to a Default or Event of
Default; (x) leases or subleases granted to others not interfering in any
material respect with the business of the Company or any Restricted
Subsidiary; (xi) Liens encumbering customary initial deposits and margin
deposits, and other Liens incurred in the ordinary course of business that are
within the general parameters customary in the industry, in each case securing
Indebtedness under Interest Swap Obligations and Foreign Exchange Agreements
and forward contracts, option futures contracts, futures options or similar
agreements or arrangements designed to protect the Company or any Restricted
Subsidiary from fluctuations in the price of commodities; (xii) Liens
encumbering deposits made in the ordinary course of business to secure
nondelinquent obligations arising from statutory, regulatory, contractual or
warranty requirements of the Company or the Restricted Subsidiaries for which
a reserve or other appropriate provision, if any, as shall be required by GAAP
shall have been made; (xiii) Liens arising out of consignment or similar
arrangements for the sale of goods entered into by the Company or any
Restricted Subsidiary in the ordinary course of business in accordance with
past practices; (xiv) any interest or title of a lessor in the property
subject to any lease, whether characterized as capitalized or operating other
than any such interest or title resulting from or arising out of a default by
the Company or any Restricted Subsidiary of its obligations under such lease;
(xv) Liens arising from filing UCC financing statements for precautionary
purposes in connection with true leases of personal property that are
otherwise permitted under the applicable Indenture and under which the Company
or any Restricted Subsidiary is lessee; (xvi) Liens in favor of the Trustee
and any substantially equivalent Lien granted to any trustee or similar
institution under any indenture governing Indebtedness permitted to be
Incurred or outstanding under the Indenture; and (xvii) Liens securing
Indebtedness permitted to be Incurred pursuant to clause (m) of the definition
of Permitted Indebtedness above, provided that such Liens extend only to the
Related Assets (as defined in such clause (m)).
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"Permitted Payments" means
(i) the consummation of the Transactions as described herein;
(ii) payments by the Company to effect the mandatory redemption of its
Series I Preferred Stock; provided, however, that such payments shall not
be made on any date earlier, or in any amount greater, than the dates and
amounts provided for in the Company's Certificate of Incorporation as in
effect on the Issue Date;
(iii) any payment by the Company or any Subsidiary to Yucaipa or the
principals or any Affiliates thereof for consulting, management, investment
banking or similar services, or for reimbursement of costs and expenses (x)
pursuant to the Management Services Agreement or (y) as approved by a
majority of the Independent Directors (as defined in the Standstill
Agreement);
(iv) any payment to pay for the purchase, retirement or other acquisition
for value of any Capital Stock of the Company held by any future, present
or former employee or director of the Company or any Subsidiary pursuant to
any management equity plan or stock option plan or any other agreement,
provided that the aggregate amount of Restricted Payments made under this
clause does not exceed $5 million in any fiscal year (provided that any
unused amounts may be carried over to any subsequent fiscal year subject to
a maximum amount of $10 million in any fiscal year);
(v) pro rata dividends paid by any Restricted Subsidiary that is not
wholly owned by the Company or another wholly owned Restricted Subsidiary;
(vi) Investments in Unrestricted Subsidiaries in an aggregate amount not
to exceed $10.0 million; and
(vii) other Restricted Payments in an aggregate amount not to exceed
$25.0 million.
"Permitted Subordinated Reorganization Securities" means securities of the
Company issued in a plan of reorganization in a case under Bankruptcy Law
relating to the Company which constitutes either (x) Capital Stock (other than
Disqualified Capital Stock with the reference to "Maturity Date" in the
definition of such term modified to relate to the final stated maturity of any
debt securities issued in such plan of reorganization to the holders of
Designated Senior Indebtedness ("Senior Reorganization Securities")) or (y)
debt securities of the Company which are (i) unsecured, (ii) have no scheduled
mandatory amortization thereon prior to the final stated maturity of the
Senior Reorganization Securities and (iii) are subordinated in right of
payment to the Senior Reorganization Securities to at least the same extent as
the Notes are subordinated to Designated Senior Indebtedness.
"Permitted Transferees" means, with respect to any Person, (i) any Affiliate
of such Person, (ii) the heirs, executors, administrators, testamentary
trustees, legatees or beneficiaries of any such Person, (iii) a trust, the
beneficiaries of which, or a corporation or partnership, the stockholders or
general or limited partners of which, include only such Person or his or her
parents, spouse or lineal descendants, in each case to whom such Person has
transferred the beneficial ownership of any securities of the Company, (iv)
any investment account whose investment managers and investment advisors
consist solely of such Person and/or Permitted Transferees of such Person and
(v) any investment fund or investment entity that is a subsidiary of such
Person or a Permitted Transferee of such Person.
"Person" means any individual, corporation, limited or general partnership,
limited liability company, joint venture, association, joint stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Plan of Liquidation" means, with respect to any Person, a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such Person otherwise than as an entirety
or substantially as an entirety and (ii) the distribution of all or
substantially
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all of the proceeds of such sale, lease, conveyance or other disposition and
all or substantially all of the remaining assets of such Person to holders of
Capital Stock of such Person.
"Preferred Stock" means, with respect to any Person, Capital Stock of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such Person, over
shares of Capital Stock of any other class of such Person.
"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms of the Indentures, a calculation in accordance with
Article 11 of Regulation S-X under the Securities Act of 1933, as amended, as
interpreted by the Company's chief financial officer or Board of Directors in
consultation with its independent certified public accountants.
"Public Equity Offering" means an underwritten public offering of Common
Stock of the Company pursuant to a registration statement filed with the
Commission in accordance with the Securities Act.
"Qualified Capital Stock" means, with respect to any Person, any Capital
Stock of such Person that is not Disqualified Capital Stock.
"Refinancing Indebtedness" means, with respect to any Person, Indebtedness
of such Person issued in exchange for, or the proceeds from the issuance and
sale or disbursement of which are used to substantially concurrently repay,
redeem, refund, refinance, discharge or otherwise retire for value, in whole
or in part (collectively, "repay"), or constituting an amendment, modification
or supplement to, or a deferral or renewal of (collectively, an "amendment"),
any Indebtedness of such Person existing on the Issue Date or Indebtedness
(other than Permitted Indebtedness, except Permitted Indebtedness Incurred
pursuant to clauses (c), (d), (g), (i) and (m) of the definition thereof)
Incurred in accordance with the applicable Indenture (a) in a principal amount
(or, if such Refinancing Indebtedness provides for an amount less than the
principal amount thereof to be due and payable upon the acceleration thereof,
with an original issue price) not in excess of (without duplication) (i) the
principal amount or the original issue price, as the case may be, of the
Indebtedness so refinanced (or, if such Refinancing Indebtedness refinances
Indebtedness under a revolving credit facility or other agreement providing a
commitment for subsequent borrowings, with a maximum commitment not to exceed
the maximum commitment under such revolving credit facility or other
agreement) plus (ii) unpaid accrued interest on such Indebtedness plus (iii)
premiums, penalties, fees and expenses actually incurred by such Person in
connection with the repayment or amendment thereof and (b) with respect to
Refinancing Indebtedness that repays or constitutes an amendment to
Subordinated Indebtedness, such Refinancing Indebtedness (x) shall not have
any fixed mandatory redemption or sinking fund requirement in an amount
greater than or at a time prior to the amounts and times specified in such
repaid or amended Subordinated Indebtedness, except to the extent that any
such requirement applies on a date after the Maturity Date and (y) shall
contain subordination and default provisions no less favorable in any material
respect to Holders than those contained in such repaid or amended Subordinated
Indebtedness.
"Related Business Investment" means (i) any Investment by a Person in any
other Person a majority of whose revenues are derived from the operation of
one or more retail grocery stores or supermarkets or any other line of
business engaged in by the Company or any of the Subsidiaries as of the Issue
Date; (ii) any Investment by such Person in any cooperative or other supplier,
including, without limitation, any joint venture which is intended to supply
any product or service useful to the business of the Company and the
Restricted Subsidiaries as it is conducted as of the Issue Date and as such
business may thereafter evolve or change; and (iii) any capital
expenditure or Investment, in each case reasonably related to the business of
the Company and the Restricted Subsidiaries as it is conducted as of the Issue
Date and as such business may thereafter evolve or change.
"Restricted Payment" means (i) any Stock Payment or (ii) any Investment
(other than a Permitted Investment).
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"Restricted Subsidiary" means any Subsidiary that, as of the date of
determination, is not an Unrestricted Subsidiary.
"Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations of the Commission promulgated thereunder.
"Senior Indebtedness" means the principal of, premium, if any, and interest
on, and all other Obligations with respect to, any Indebtedness of the
Company, whether outstanding on the Issue Date or thereafter Incurred, unless,
in the case of any particular Indebtedness, the instrument creating or
evidencing the same or pursuant to which the same is outstanding expressly
provides that such Indebtedness shall not be senior in right of payment to the
Notes. Without limiting the generality of the foregoing, "Senior Indebtedness"
shall include (x) the principal of, premium, if any, and interest on all
obligations of every nature of the Company from time to time owed to the
lenders under the Credit Agreement, including, without limitation, the Letter
of Credit Obligations and principal of and interest on, all fees and expenses
payable under the Credit Agreement, and (y) interest accruing thereon
subsequent to the occurrence of any Event of Default specified in clause (vi)
or (vii) under "-- Events of Default" relating to the Company, whether or not
the claim for such interest is allowed under any applicable Bankruptcy Law.
Notwithstanding the foregoing, "Senior Indebtedness" shall not include (a)
Indebtedness evidenced by the Notes, (b) Indebtedness that is expressly
subordinate or junior in right of payment to any Indebtedness of the Company,
(c) Indebtedness which, when Incurred and without respect to any election
under Section 1111(b) of Title 11, United States Code, is without recourse to
the Company (other than Capitalized Lease Obligations), (d) Indebtedness which
is represented by Disqualified Capital Stock, (e) obligations for goods,
materials or services purchased in the ordinary course of business or
obligations consisting of trade payables, (f) Indebtedness of or amounts owed
by the Company for compensation to employees or for services rendered to the
Company, (g) any liability for federal, state, local or other taxes owed or
owing by the Company, (h) Indebtedness of the Company to a Subsidiary of the
Company, and (i) that portion of any Indebtedness which is Incurred by the
Company in violation of the Indenture.
"Significant Stockholder" means, with respect to any Person, any other
Person who is the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of more than 10% of any class of equity securities of such
Person that are entitled to vote on a regular basis for the election of
directors of such Person.
"Significant Subsidiary" means each Restricted Subsidiary that is either (a)
a "significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X under
the Securities Act and the Exchange Act (as such regulation is in effect on
the Issue Date) or (b) material to the financial condition or results of
operations of the Company and the Restricted Subsidiaries taken as a whole.
"Standstill Agreement" means the Standstill Agreement dated as of January
29, 1996 among the Company, Yucaipa and each of the limited partnerships that
owns shares in Smitty's for which Yucaipa acts as the general partner (as such
Standstill Agreement may be amended or replaced, so long as such amendment or
replacement has been approved by a majority of the Independent Directors (as
defined in the Standstill Agreement as in effect prior to such amendment or
replacement) and is not disadvantageous to the Holders in any material
respect).
"Stock Payment" means, with respect to any Person, (a) the declaration or
payment by such Person, either in cash or in property, of any dividend on
(except, in the case of the Company, dividends payable solely in
Qualified Capital Stock of the Company), or the making by such Person or any
of its subsidiaries of any other distribution in respect of, such Person's
Qualified Capital Stock or any warrants, rights or options to purchase or
acquire shares of any class of such Capital Stock (other than exchangeable or
convertible Indebtedness of such Person), or (b) the redemption, repurchase,
retirement or other acquisition for value by such Person or any of its
subsidiaries, directly or indirectly, of such Person's Qualified Capital Stock
(and, in the case of a Subsidiary, Qualified Capital Stock of the Company) or
any warrants, rights or options to purchase or acquire shares of any class of
such Capital Stock (other than exchangeable or convertible Indebtedness of
such Person), other than, in the case of the Company, through the issuance in
exchange therefor solely of Qualified Capital Stock of the
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Company; provided, however, that in the case of a Restricted Subsidiary, the
term "Stock Payment" shall not include any such payment with respect to its
Capital Stock or warrants, rights or options to purchase or acquire shares of
any class of its Capital Stock that are owned solely by the Company or a
wholly owned Restricted Subsidiary.
"Subordinated Indebtedness" means Indebtedness of the Company which is
subordinated in right of payment to the Notes.
"subsidiary" of any Person means (i) a corporation a majority of whose
Capital Stock with voting power, under ordinary circumstances, to elect
directors is, at the date of determination, directly or indirectly, owned by
such Person, by one or more subsidiaries of such Person or by such Person and
one or more subsidiaries of such Person or (ii) a partnership in which such
Person or a subsidiary of such Person is, at the date of determination, a
general partner of such partnership, but only if such Person or its subsidiary
is entitled to receive more than fifty percent of the assets of such
partnership upon its dissolution, or (iii) any other Person (other than a
corporation or a partnership) in which such Person, a subsidiary of such
Person or such Person and one or more subsidiaries of such Person, directly or
indirectly, at the date of determination, has (x) at least a majority
ownership interest or (y) the power to elect or direct the election of a
majority of the directors or other governing body of such Person.
"Subsidiary" means any subsidiary of the Company.
"Term Loans" means the term loan facility under the Credit Agreement and any
agreement governing Indebtedness Incurred to refund, replace or refinance any
borrowings outstanding under such facility or under any prior refunding,
replacement or refinancing thereof (in each case, in whole or in part, and
without limitation as to amount, terms, conditions, covenants and other
provisions).
"Unrestricted Subsidiary" means any Subsidiary (including its subsidiaries)
so designated by a Board Resolution adopted by the Board of Directors of the
Company in accordance with "--Certain Covenants--Limitation on Restricted and
Unrestricted Subsidiaries" above. Notwithstanding the foregoing, an
Unrestricted Subsidiary shall be deemed to be redesignated a Restricted
Subsidiary at any time if (a) the Company or any other Restricted Subsidiary
(i) provides credit support for, or a guarantee of, any Indebtedness of such
Unrestricted Subsidiary or any of its subsidiaries (including any undertaking,
agreement or instrument evidencing such Indebtedness) or (ii) is directly or
indirectly liable for any Indebtedness of such Unrestricted Subsidiary or any
of its subsidiaries, (b) a default with respect to any Indebtedness of such
Unrestricted Subsidiary or any of its subsidiaries (including any right which
the holders thereof may have to take enforcement action against any of them)
would permit (upon notice, lapse of time or both) any holder of any other
Indebtedness of the Company or any Restricted Subsidiary to declare a default
on such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its final scheduled maturity or (c) such Unrestricted
Subsidiary or any of its subsidiaries Incurs Indebtedness pursuant to which
the lender has recourse to any of the assets of the Company or any Restricted
Subsidiary.
"Yucaipa" means The Yucaipa Companies, a California general partnership, or
any successor thereto which is an affiliate of Ronald W. Burkle or his
Permitted Transferees.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Upon filing of the Amended and Restated Certificate of Incorporation, the
Company's authorized capital stock will consist of (i) 20,000,000 shares of
Class A Common Stock, par value $.01 per share (the "Class A Common Stock"),
(ii) 100,000,000 shares of Class B Common Stock, par value $.01 per share (the
"Class B Common Stock"), (iii) 20,000,000 shares of Class C Common Stock, par
value $.01 (the "Class C Common Stock"), and (iv) 85,000,000 shares of
Preferred Stock, par value $.01 per share, of which 34,524,579 shares are
designated as Series I Preferred Stock. As of April 15, 1996, there were
11,366,532 shares of Class A Common Stock outstanding, 13,705,191 shares of
Class B Common Stock outstanding and 12,956,747 shares of Series I Preferred
Stock outstanding.
COMMON STOCK
All holders of shares of Class A Common Stock, Class B Common Stock and
Class C Common Stock are entitled to receive such dividends, if any, as may be
declared from time to time by the Company's Board of Directors in its
discretion from funds legally available therefor, and upon liquidation or
dissolution are entitled to receive all assets available for distribution to
the holders of Common Stock. Under the Delaware Corporation Law, the Company
may declare and pay dividends only out of its surplus, or out of its net
profits for the fiscal year in which the dividend is declared or the preceding
year. Under certain of the Company's credit agreements, the Company's ability
to pay dividends is restricted based on various measures, including the
Company's net income for designated period. All of the outstanding shares of
Common Stock are legally issued, fully paid and nonassessable. Holders of
Common Stock have no preemptive or other rights to subscribe for additional
shares which the Company may issue and there are no redemption provisions or
sinking fund provisions applicable to any class of Common Stock, nor is the
Common Stock subject to calls or assessments by the Company.
The voting powers, preferences and relative rights of Class A Common Stock
and Class B Common Stock are identical in all respects, except the holders of
Class A Common Stock are entitled to ten votes per share and the holders of
Class B Common Stock are entitled to one vote per share on all matters
submitted to the vote of stockholders for their vote or approval, including
the election of directors. The holders of Class C Common Stock will not be
entitled to vote on matters submitted to the vote of Company stockholders.
However, if shares of Class C Common Stock are transferred to a holder other
than an Original Class C Holder (as defined in the Amended and Restated
Certificate of Incorporation), such transferred shares of Class C Common Stock
will be convertible, at the option of the holder, into shares of voting Class
B Common Stock. There is no provision made for cumulative voting, and no class
of outstanding Common Stock or Preferred Stock alone is entitled to elect any
directors. The holders of Class A Common Stock and the holders of Series I
Preferred Stock, voting together have, and after consummation of the
Transactions will continue to have, effective control of the Company through
holding approximately 94% of the combined voting power of the outstanding
capital stock and will have the ability to elect all the directors of the
Company and to effect or prevent certain corporate transactions which require
majority approval of the combined classes, including mergers and other
business combinations.
Under the Company's bylaws, directors may be removed with or without cause
by the holders of a majority of the votes entitled to be cast for the election
of directors. However, under Delaware law, stockholders in a company with a
staggered board (such as Smith's) may only remove directors for cause, unless
the certificate of incorporation provides otherwise. A vacancy on the Board
created by the removal or resignation of a director or by expansion of the
authorized number of directors may be filled by the remaining directors then
in office or by the stockholders at a special meeting.
Under the Delaware General Corporation Law, the holders of Class A Common
Stock, Class B Common Stock and Class C Common Stock are entitled to vote as
separate classes on any amendment to the Company's Amended and Restated
Certificate of Incorporation that would increase or decrease the aggregate
number of authorized shares of such class, increase or decrease the par value
of the shares of such class, or alter or change the powers, preferences or
special rights of the shares of such class so as to affect them adversely.
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Each share of Class A Common Stock is convertible at any time at the option
of the holder into Class B Common Stock on a share-for-share basis. The
Company's Certificate of Incorporation also provides that each share of Class
A Common Stock will be converted automatically into one share of Class B
Common Stock if, at any time, the number of shares of Class A Common Stock
issued and outstanding shall be less than 2,910,885. The Class B Common Stock
has no conversion rights.
Shares of Class A Common Stock may not be sold, gifted, or transferred
except to and among the Company, a spouse, child, grandchild, sibling or
parent of the person to whom the Class A Common Stock was issued originally (a
"Permitted Transferee"), and certain entities controlled or owned by one or
more Permitted Transferees. The Company's Certificate of Incorporation
provides that any holder of shares of Class A Common Stock desiring to
transfer such shares to a person other than a Permitted Transferee or such
transferee must present such shares to the Company for conversion into an
equal number of shares of Class B Common Stock upon such transfer. Thereafter,
such shares of Class B Common Stock may be freely transferred to persons other
than Permitted Transferees.
SERIES I PREFERRED STOCK
Except as described below, each share of Series I Preferred Stock is
entitled to ten votes per share on all matters submitted to the vote of the
stockholders, including the election of directors, for their vote or approval.
Except as described below, holders of Series I Preferred Stock vote together
with the holders of Common Stock, including the election of directors. The
affirmative vote of the holders of a majority of the Series I Preferred Stock,
voting as a class, is required upon any amendment to the Company's Certificate
of Incorporation adversely affecting in any manner the rights of such holders.
Under the Company's Certificate of Incorporation, upon liquidation of the
Company, each share of Series I Preferred Stock is entitled to a liquidation
preference of $.33 1/3, on a pro-rata basis with any other series of Preferred
Stock ranking on parity with the Series I Preferred Stock, before any
distribution to the holders of any class of Common Stock.
All shares of Series I Preferred Stock are subject to redemption at any time
upon 60 days' notice at the option of the Board of Directors, in such numbers
as the Board may determine, at a redemption price of $.33 1/3 per share (the
"Redemption Price"). In addition, on December 1 of each year commencing in
1989, one-eleventh of the total authorized number of shares of Series I
Preferred Stock is subject to mandatory redemption at the Redemption Price.
The Series I Preferred Stock has no dividend requirement. If approved by a
majority of the outstanding shares of Series I Preferred Stock, the Amended
and Restated Certificate of Incorporation will include certain provisions with
respect to the Series I Preferred Stock which: (i) eliminate for a five-year
period the annual mandatory redemption of original outstanding shares of
Series I Preferred Stock (with mandatory redemptions of one-eleventh of the
outstanding shares of Series I Preferred Stock resuming thereafter), and (ii)
restrict for two-year period the optional redemption of shares of Series I
Preferred Stock, and (iii) the addition of transfer or sale restrictions which
reduce the number of allocated votes per share of Series I Preferred Stock
from ten votes to one vote per share in the event of transfers or sales not
made to certain affiliated or other designated transferees.
UNDESIGNATED PREFERRED STOCK
Additional Preferred Stock may be issued from time to time in one or more
series and the Board of Directors, without further approval of the
stockholders, is authorized to fix the dividend rights and terms, conversion
rights, voting rights, redemption rights and terms, liquidation preferences,
sinking funds and any other rights, preferences, privileges and restrictions
applicable to each such series of Preferred Stock. However, under the
Company's Amended and Restated Certificate of Incorporation, no series of
Preferred Stock may have rights or preferences superior to the Series I
Preferred Stock, and no share of Preferred Stock other than shares designated
as Series I Preferred Stock may be entitled to more than one vote upon any
matter presented to the Company's stockholders for vote or approval, including
the election of directors.
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DESCRIPTION OF NEW CREDIT FACILITY
In connection with the Transactions, Smith's will enter into the New Credit
Facility with a syndicate of financial institutions for whom Bankers Trust
will act as administrative agent. Smith's has accepted a commitment letter
(the "Commitment Letter") from Bankers Trust and Chase Manhattan pursuant to
which Bankers Trust and Chase Manhattan, as Arrangers (the "Arrangers"), have
agreed, subject to certain conditions, to provide the Company $995 million of
financing under the New Credit Facility. The following is a summary of the
anticipated material terms and conditions of the New Credit Facility. This
summary does not purport to be a complete description of the New Credit
Facility and is subject to the detailed provisions of the loan agreement (the
"Loan Agreement") and various related documents to be entered into in
connection with the New Credit Facility.
GENERAL
The New Credit Facility will provide for (i) term loans in the aggregate
amount of $805 million, comprised of the $325 million Tranche A Loans, the
$160 million Tranche B Loans, the $160 million Tranche C Loans and the $160
million Tranche D Loans; and (ii) the $190 million New Revolving Facility
under which working capital loans may be made and commercial or standby
letters of credit in the maximum aggregate amount to be agreed upon among the
Company and the Arrangers, under which approximately $28 million of letters of
credit are expected to be issued upon consummation of the Transactions.
Proceeds of the New Term Loans and loans under the Revolving Credit Facility
on the Closing, together with proceeds from the Offering and the California
Divestiture will be used to fund the cash requirements for the Tender Offer
and the Smitty's Refinancing, refinance certain other existing indebtedness of
Smith's, redeem a portion of Smith's Series I Preferred Stock, redeem Smith's
management options and pay various refinancing premiums fees, expenses and
other costs associated with the Transactions. The New Revolving Facility will
be available to provide for the working capital requirements and general
corporate purposes of the Company and to issue commercial and standby letters
of credit.
INTEREST RATE; FEES
Borrowings under (i) the New Revolving Facility and the Tranche A Loans will
bear interest at a rate equal to the Base Rate (as defined in the Loan
Agreement) plus 1.50% per annum or the reserve adjusted Euro-Dollar Rate (as
defined in the Loan Agreement) plus 2.75% per annum; (ii) the Tranche B Loans
will bear interest at the Base Rate plus 2.00% per annum or the reserve
adjusted Euro-Dollar Rate plus 3.25% per annum; (iii) the Tranche C Loans will
bear interest at the Base Rate plus 2.50% per annum or the reserve adjusted
Euro-Dollar Rate plus 3.75% per annum; and (iv) the Tranche D Loans will bear
interest at the Base Rate plus 2.75% per annum or the reserve adjusted Euro-
Dollar Rate plus 4.00% per annum, in each case as selected by the Company.
Applicable interest rates on Tranche A Loans and the New Revolving Facility
and the fees payable under the New Revolving Facility on letters of credit,
will be reduced in increments of 0.25% per annum, up to an aggregate of 0.50%
per annum, after the New Term Loans have been reduced by such amounts and if
the Company meets certain financial tests to be agreed upon among the Company
and the Arrangers. Up to $30 million of the New Revolving Facility will be
available as a swingline facility and loans outstanding under the swingline
facility shall bear interest at the Base Rate plus 1.00% per annum (subject to
adjustment as described in the preceding sentence). After the occurrence of a
default under the New Credit Facility, interest will accrue at the rate equal
to the rate on loans bearing interest at the rate determined by reference to
the Base Rate plus an additional 2.00% per annum. The Company will pay the
issuing bank a fee of 0.25% per annum on each standby letter of credit and
each commercial letter of credit and will pay the lenders under the New Credit
Facility a fee equal to the margin on Eurodollar Rate loans under the
Revolving Credit Facility (the "Eurodollar Margin") for standby letters of
credit and a fee equal to the Eurodollar Margin minus 1.00% per annum for
commercial letters of credit. Each of these fees will be calculated based on
the amount available to be drawn under a letter of credit. In addition, the
Company will pay a commitment fee of 0.50% per annum on the unused portions of
the New Revolving Facility and for purposes of calculating this fee, loans
under the swingline facility shall not be deemed
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to be outstanding. The New Credit Facility will require the Company to enter
into hedging agreements to limit its exposure to increases in interest rates
for a period of not less than two years after the Closing. The New Credit
Facility may be prepaid in whole or in part without premium or penalty.
AMORTIZATION; PREPAYMENTS
The Tranche A Loans will mature six and one-quarter years after the Closing
and will be subject to amortization, commencing on the nine month anniversary
of the Closing in the amount of $7.5 million, and thereafter commencing on the
first anniversary of the Closing on a quarterly basis in aggregate annual
amounts of $45 million in the second year, $55 million in the third year, $65
million in the fourth year, $65 million in the fifth year, $60 million in the
sixth year, and $13.75 million on the sixth anniversary of the Closing and in
the first quarter of the seventh year. The Tranche B Loan will mature seven
and one-half years after the Closing and will be subject to amortization on a
quarterly basis in aggregate annual amounts of $1.6 million for the first six
years and in the seventh year payable in installments of $4.0 million in the
first quarter and $18 million in each of the last three quarters and in the
eighth year payable in installments of $22.7 million in the first quarter and
$69.7 million in the second quarter. The Tranche C Loans will mature eight and
one-half years after the Closing and will be subject to amortization on a
quarterly basis in aggregate annual amounts of $1.6 million for the first
seven years and in the eighth year payable in installments of $0.4 million in
each of the first two quarters and $25 million in each of the last two
quarters and in the ninth year payable in installments of $25 million in the
first quarter and $73 million in the second quarter. The Tranche D Loans will
mature nine and one-quarter years after the Closing and will be subject to
amortization on a quarterly basis in aggregate annual amounts of$1.6 million
for the first eight years and in the ninth year payable in installments of
$0.4 million in each of the first two quarters, $29 million in the third
quarter and $32 million in the last quarter and in the tenth year in an
installment of $85.4 million in the first quarter. The New Revolving Facility
will mature on the same date as the Tranche A Loans. The Company will be
required to reduce loans outstanding under the New Revolving Facility to $75
million for a period of not less than 30 consecutive days during each
consecutive 12-month period following the Closing. The Company will be
required to make certain prepayments, subject to certain exceptions, on the
New Credit Facility with 75% of Consolidated Excess Cash Flow (as defined in
the Loan Agreement) and with the proceeds from certain asset sales, issuances
of debt and equity securities and any pension plan reversion. Such prepayments
will be allocated pro rata between the Tranche A Loans, Tranche B Loans,
Tranche C Loans and the Tranche D Loans and to scheduled amortization payments
of the Tranche A Loans, the Tranche B Loans, Tranche C Loans, and the Tranche
D Loans pro rata, provided that at the election of the Company mandatory
prepayments of Tranche A Loans made with Excess Land Proceeds (as defined in
the Loan Agreement) may be applied to the Tranche A Loans in forward order of
maturity up to $50 million. At the option of the Company, mandatory
prepayments on the Tranche B Loans, the Tranche C Loans and the Tranche D
Loans will be used to make an offer to repay such Loans and to the extent not
accepted by the holders of such loans (x) in the event such mandatory
prepayments are to be made from Excess Land Proceeds, such mandatory
prepayments not so accepted will be applied to the prepayment of the Tranche A
Loans and (y) in the event of all other mandatory prepayments, 50% of such
amount will be applied to reduce Tranche A Loans on a pro rata basis and the
remaining 50% may be retained by the Company.
GUARANTEES AND COLLATERAL
All subsidiaries of the Company will guarantee the Company's obligations
under the New Credit Facility. The Company's obligations and the guarantees of
its subsidiaries will be secured by a first priority lien on all existing and
after-acquired personal property of the Company and its subsidiaries,
including a pledge of the stock of all subsidiaries of the Company and by
first priority liens on all unencumbered real property fee interests of the
Company and its subsidiaries and the Company and its subsidiaries will use
their reasonable economic efforts to provide the lenders with a first priority
lien on all unencumbered leasehold interests of the Company and its
subsidiaries.
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COVENANTS
The obligation of the lenders under the New Credit Facility to advance funds
is subject to the satisfaction of certain conditions customary in agreements
of this type. In addition, the Company will be subject to certain customary
affirmative and negative covenants contained in the New Credit Facility,
including, without limitation, covenants that restrict, subject to specified
exceptions, (i) the incurrence of additional indebtedness and other
obligations, (ii) mergers and acquisitions, (iii) asset sales, (iv) the
granting of liens, (v) prepayment or repurchase of other indebtedness, (vi)
engaging in transactions with affiliates, (vii) capital expenditures, (vii)
the making of investments, (ix) dividends and other payments with respect to
equity interests, or (x) rental payments. Certain of these covenants may be
more restrictive than those in favor of holders of the Notes as described
herein and as set forth in the Indenture. In addition, the New Credit Facility
will require that the Company maintain certain specified financial covenants,
including a minimum fixed charge coverage, a minimum EBITDA, a maximum ratio
of total debt to EBITDA and a minimum net worth.
EVENTS OF DEFAULT
The New Credit Facility also provides for customary events of default,
including a change of control (which may be defined differently than in the
Indenture). The occurrence of any of such events of default could result in
acceleration of the Company's obligations under the New Credit Facility and
foreclosure on the collateral securing such obligations, which could have
material adverse results to holders of the Notes.
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UNDERWRITING
Subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement") among Smith's and BT Securities Corporation ("BT
Securities"), CS First Boston Corporation ("CS First Boston"), Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ"), Goldman, Sachs & Co.
("Goldman Sachs") and Chase Securities Inc. ("Chase") (collectively, the
"Underwriters"), the Underwriters have agreed to purchase, and the Company has
agreed to sell to the Underwriters, the entire principal amount of the Notes
offered hereby.
The Underwriting Agreement provides that the obligation of the Underwriters
to pay for and accept delivery of the Notes is subject to the approval of
certain legal matters by counsel and to various other conditions. The nature
of each Underwriter's obligation is such that each is severally committed to
purchase the aggregate principal amount of Notes set forth opposite its name
if it purchases any.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF NOTES
------------ ----------------
<S> <C>
BT Securities Corporation.................................. $
CS First Boston Corporation................................
Donaldson, Lufkin & Jenrette
Securities Corporation....................................
Goldman, Sachs & Co. ......................................
Chase Securities Inc. .....................................
------------
Total.................................................. $575,000,000
============
</TABLE>
The Underwriters propose to offer the Notes directly to the public at the
public offering price set forth on the cover page hereof, and to certain
dealers at such price less a concession not in excess of $ per $1,000
principal amount of the Notes. The Underwriters may allow and such dealers may
reallow a concession not in excess of $ per $1,000 principal amount of
the Notes. After the initial public offering of the Notes, the public offering
prices and other selling terms may be changed.
The Company does not intend to apply for listing of the Notes on a national
securities exchange, but has been advised by each of the Underwriters that it
presently intends to make a market in the Notes, as permitted by applicable
laws and regulations. The Underwriters are not obligated, however, to make a
market in the Notes, and any such market making may be discontinued at any
time by one or all of the Underwriters at the sole discretion of such
Underwriters. There can be no assurance that an active public market for the
Notes will develop.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments the Underwriters may be required to make in respect thereof.
BT Securities and CS First Boston have been engaged by Smitty's to act as
dealer managers and consent solicitation agents in connection with the
Smitty's Refinancing. BT Securities and CS First Boston will receive customary
fees in connection with such services.
Chase Manhattan, an affiliate of Chase, has been the administrative agent
and a lender under SSV's existing credit facilities. Proceeds of the Offering
will be used, in part, to repay indebtedness to Chase Manhattan and the other
lenders under such credit facilities. Bankers Trust, an affiliate of BT
Securities, and Chase Manhattan are the Arrangers of the New Credit Facility,
and Bankers Trust will act as administrative agent for the New Credit
Facility. Bankers Trust and Chase Manhattan will receive customary fees in
connection with such services. It is anticipated that Bankers Trust, Chase
Manhattan and Pearl Street L.P. (an affiliate of Goldman Sachs) will be
lenders under the New Credit Facility.
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An affiliate of Chase is a limited partner in a partnership controlled by
Yucaipa which owns shares of Smitty's Class A Common Stock. The partnership
will receive shares of Smith's Class B Common Stock in the Merger in exchange
for such shares.
Goldman Sachs is serving as financial advisor to the Company in connection
with the Transactions and has delivered a written opinion to the Company's
Board of Directors that, as of January 29, 1996, the exchange ratio pursuant
to the Recapitalization Agreement is fair to the Company. Goldman Sachs has
been engaged by the Company to act as dealer manager in connection with the
Tender Offer. Goldman Sachs has received, and will receive, customary fees in
connection with such services.
Affiliates of CS First Boston own shares of Smitty's Class B Common Stock
and will receive shares of Smith's Common Stock in the Merger in exchange for
such shares of Smitty's Class B Common Stock. CS First Boston has been engaged
by Smitty's to provide financial advisory services in connection with the
Merger and will receive customary fees in connection with such services.
Each of the Underwriters has from time to time provided investment banking
and financial advisory services to one or more of Smith's, Smitty's, Yucaipa
and/or their respective affiliates and may continue to do so in the future.
The Underwriters have received customary fees for such services.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the Company
by Latham & Watkins, Los Angeles, California. Certain legal matters in
connection with the Offering will be passed upon for the Underwriters by
Cahill Gordon and Reindel (a partnership including a professional
corporation), New York, New York.
EXPERTS
The consolidated financial statements of Smith's Food & Drug Centers, Inc.
at December 30, 1995 and December 31, 1994 and for each of three years in the
period ended December 30, 1995 included in this Prospectus have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The consolidated balance sheet of Smitty's Supermarkets, Inc. as of July 30,
1995 and July 31, 1994 and the related consolidated statements of operations,
stockholder's equity, and cash flows for year ended July 31, 1995, and for the
period from June 29, 1994 (date of inception) to July 31, 1994 (Smitty's), and
for the period from August 2, 1993 to June 28, 1994 and the year ended August
1, 1993 (Predecessor), included in 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.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
PAGE
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<S> <C>
SMITH'S FOOD & DRUG CENTERS, INC.:
Report of Independent Auditors (Ernst & Young LLP)....................... F-2
Consolidated balance sheets at March 30, 1996 (unaudited), December 30,
1995 and December 31, 1994.............................................. F-3
Consolidated statements of income for the 13 weeks ended March 30, 1996
(unaudited) and the 13 weeks ended April 1, 1995 (unaudited) and the
years ended January 1, 1994, December 31, 1994 and December 30, 1995.... F-4
Consolidated statements of common stockholders' equity for the 13 weeks
ended March 30, 1996 (unaudited) and the years ended January 1, 1994,
December 31, 1994 and December 30, 1995................................. F-5
Consolidated statements of cash flows for the 13 weeks ended March 30,
1996 (unaudited) and the 13 weeks ended April 1, 1995 (unaudited) and
the years ended January 1, 1994, December 31, 1994 and December 30,
1995.................................................................... F-6
Notes to consolidated financial statements............................... F-7
SMITTY'S SUPERMARKETS, INC.:
Report of Independent Auditors (Coopers & Lybrand L.L.P.)................ F-18
Consolidated balance sheets as of July 31, 1994 and July 30, 1995 and
April 7, 1996 (unaudited)............................................... F-19
Consolidated statements of operations for the 52 weeks ended July 30,
1995 and for the period from June 29, 1994 (date of inception) to July
31, 1994; for the period from August 2, 1993 to June 28, 1994 and the
year ended August 1, 1993 (Predecessor); for the 36 weeks ended April 7,
1996 (unaudited) and the 36 weeks ended April 9, 1995 (unaudited)....... F-20
Consolidated statements of stockholders' equity for the 52 weeks ended
July 30, 1995 and for the period from June 29, 1994 (date of inception)
to July 31, 1994; for the period from August 2, 1992 to June 29, 1994
and the year ended August 1, 1993 (Predecessor); for the 36 weeks ended
April 7, 1996 (unaudited)............................................... F-21
Consolidated statements of cash flows for the 52 weeks ended July 30,
1995 and for the period from June 29, 1994 (date of inception) to July
31, 1994; for the period from August 2, 1993 to June 28, 1994 and the
year ended August 1, 1993 (Predecessor); for the 36 weeks ended April 7,
1996 (unaudited) and the 36 weeks ended April 9, 1995 (unaudited)....... F-22
Notes to consolidated financial statements............................... F-24
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
of Smith's Food & Drug Centers, Inc.
We have audited the accompanying consolidated balance sheets of Smith's Food
& Drug Centers, Inc. and subsidiaries as of December 30, 1995 and December 31,
1994, and the related consolidated statements of income, common stockholders'
equity, and cash flows for each of the three fiscal years in the period ended
December 30, 1995. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Smith's Food
& Drug Centers, Inc. and subsidiaries at December 30, 1995 and December 31,
1994, and the consolidated results of their operations and their cash flows
for each of the three fiscal years in the period ended December 30, 1995, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Salt Lake City, Utah
January 29, 1996
F-2
<PAGE>
SMITH'S FOOD & DRUG CENTERS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 30, DECEMBER 30, DECEMBER 31,
ASSETS 1996 1995 1994
------ ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
Current Assets
Cash and cash equivalents.............. $ 11,022 $ 16,079 $ 14,188
Rebates and accounts receivable........ 28,008 23,802 25,596
Inventories............................ 297,974 394,982 389,564
Prepaid expenses and deposits.......... 17,045 21,255 15,858
Deferred tax assets.................... 14,500 23,900 1,400
Assets held for sale................... 42,800 125,000
---------- ---------- ----------
Total Current Assets................. 411,349 605,018 446,606
Property and Equipment
Land................................... 279,573 276,626 303,701
Buildings.............................. 614,700 610,049 619,056
Leasehold improvements................. 54,795 55,830 42,369
Fixtures and equipment................. 498,367 509,524 589,480
---------- ---------- ----------
1,447,435 1,452,029 1,554,606
Less allowances for depreciation and
amortization.......................... 392,282 390,933 364,741
---------- ---------- ----------
1,055,153 1,061,096 1,189,865
Other Assets............................. 19,484 20,066 16,996
---------- ---------- ----------
$1,485,986 $1,686,180 $1,653,467
========== ========== ==========
<CAPTION>
LIABILITIES AND COMMON
STOCKHOLDERS' EQUITY
----------------------
<S> <C> <C> <C>
Current Liabilities
Trade accounts payable................. $ 163,998 $ 214,152 $ 235,843
Accrued sales and other taxes.......... 41,447 50,749 44,379
Accrued payroll and related benefits... 77,924 97,455 84,083
Current maturities of long-term debt... 24,093 20,932 19,011
Current maturities of Redeemable
Preferred Stock....................... 1,008 1,008 1,017
Accrued restructuring costs............ 15,060 58,000
---------- ---------- ----------
Total Current Liabilities............ 323,530 442,296 384,333
Long-term debt, less current maturities.. 648,681 725,253 699,882
Accrued restructuring costs, less current
portion................................. 40,000 40,000
Deferred income taxes.................... 58,800 58,600 89,500
Redeemable Preferred Stock, less current
maturities.............................. 3,311 3,311 4,410
Common Stockholders' Equity
Convertible Class A Common Stock
(shares issued and outstanding,
11,366,532 in 1996, 11,613,043 in
1995 and 12,140,317 in 1994).......... 114 116 121
Class B Common Stock (shares issued
18,595,479 in 1996, 18,348,968 in
1995 and 17,821,694 in 1994).......... 185 183 178
Additional paid-in capital............. 285,119 285,236 285,592
Retained earnings...................... 233,088 238,027 293,456
---------- ---------- ----------
518,506 523,562 579,347
Less cost of Common Stock in the
treasury (4,890,288 shares in 1996,
4,890,302 shares in 1995 and 4,772,822
shares in 1994)....................... 106,842 106,842 104,005
---------- ---------- ----------
411,664 416,720 475,342
---------- ---------- ----------
$1,485,986 $1,686,180 $1,653,467
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
SMITH'S FOOD & DRUG CENTERS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
13 WEEKS ENDED 52 WEEKS ENDED
------------------- ------------------------------------
MARCH 30, APRIL 1, DECEMBER 30, DECEMBER 31, JANUARY 1,
1996 1995 1995 1994 1994
--------- -------- ------------ ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............... $693,165 $746,673 $3,083,737 $2,981,359 $2,807,165
Cost of goods sold...... 546,606 578,351 2,386,707 2,312,228 2,169,987
-------- -------- ---------- ---------- ----------
146,559 168,322 697,030 669,131 637,178
Expenses:
Operating, selling and
administrative....... 111,353 112,770 461,401 440,844 430,258
Depreciation and
amortization......... 22,639 24,696 104,963 94,491 82,173
Interest.............. 14,545 15,077 60,478 53,715 44,627
Restructuring charges. 140,000
-------- -------- ---------- ---------- ----------
148,537 152,543 766,842 589,050 557,058
-------- -------- ---------- ---------- ----------
Income (loss) before in-
come taxes............. (1,978) 15,779 (69,812) 80,081 80,120
Income taxes............ (800) 6,300 (29,300) 31,300 34,300
-------- -------- ---------- ---------- ----------
Net income (loss)....... $ (1,178) $ 9,479 $ (40,512) $ 48,781 $ 45,820
======== ======== ========== ========== ==========
Net income (loss) per
share of Common Stock.. $ (0.05) $ 0.37 $ (1.62) $ 1.73 $ 1.52
======== ======== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
SMITH'S FOOD & DRUG CENTERS, INC.
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(INFORMATION WITH RESPECT TO THE END OF THE FIRST QUARTER OF
1996 AND THE PERIOD THEN ENDED IS UNAUDITED.)
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
----------------- ---------------- ADDITIONAL
NUMBER OF PAR NUMBER OF PAR PAID-IN RETAINED TREASURY
SHARES VALUE SHARES VALUE CAPITAL EARNINGS STOCK TOTAL
---------- ----- ---------- ----- ---------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 3,
1993................... 13,403,132 $134 16,558,879 $165 $285,980 $229,110 $515,389
Net income for 1993.... 45,820 45,820
Conversion of shares
from Class A to
Class B............... (785,687) (8) 785,687 8
Purchase of Class B
Common Stock for the
treasury.............. $ (11,074) (11,074)
Shares sold to the
Employee Stock Profit
Sharing Plan.......... (212) 3,237 3,025
Shares sold under the
Employee Stock
Purchase Plan......... (771) 4,853 4,082
Cash dividends--$.52
per share............. (15,530) (15,530)
Other.................. 485 485
---------- ---- ---------- ---- -------- -------- --------- --------
Balance at January 1,
1994................... 12,617,445 126 17,344,566 173 285,482 259,400 (2,984) 542,197
Net income for 1994.... 48,781 48,781
Conversion of shares
from Class A to
Class B............... (477,128) (5) 477,128 5
Purchase of Class B
Common Stock for the
treasury.............. (109,239) (109,239)
Shares sold to the
Employee Stock Profit
Sharing Plan.......... 143 1,505 1,648
Shares sold under the
Employee Stock
Purchase Plan......... (668) 6,713 6,045
Cash dividends--$.52
per share............. (14,725) (14,725)
Other.................. 635 635
---------- ---- ---------- ---- -------- -------- --------- --------
Balance at December 31,
1994................... 12,140,317 121 17,821,694 178 285,592 293,456 (104,005) 475,342
Net loss for 1995...... (40,512) (40,512)
Conversion of shares
from Class A to
Class B............... (527,274) (5) 527,274 5
Purchase of Class B
Common Stock for the
treasury.............. (9,039) (9,039)
Shares sold to the
Employee Stock Profit
Sharing Plan.......... 2 108 110
Shares sold under the
Employee Stock
Purchase Plan......... (926) 6,094 5,168
Cash dividends--$.60
per share............. (14,917) (14,917)
Other.................. 568 568
---------- ---- ---------- ---- -------- -------- --------- --------
Balance at December 30,
1995................... 11,613,043 $116 18,348,968 $183 $285,236 $238,027 $(106,842) $416,720
Net loss for the first
quarter 1996.......... (1,178) (1,178)
Conversion of shares
from Class A to
Class B............... (246,511) (2) 246,511 2
Purchase of Class B
Common Stock for the
treasury.............. (1,114) (1,114)
Shares sold under the
Employee Stock
Purchase Plan......... (294) 1,114 820
Cash dividends--$.15
per share............. (3,761) (3,761)
Other.................. 177 177
---------- ---- ---------- ---- -------- -------- --------- --------
Balance at March 30,
1996................... 11,366,532 $114 18,595,479 $185 $285,119 $233,088 $(106,842) $411,664
========== ==== ========== ==== ======== ======== ========= ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
SMITH'S FOOD & DRUG CENTERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
13 WEEKS ENDED 52 WEEKS ENDED
------------------ ------------------------------------
MARCH APRIL 1, DECEMBER 30, DECEMBER 31, JANUARY 1,
30, 1996 1995 1995 1994 1994
-------- -------- ------------ ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Activities
Net income (loss)...... $ (1,178) $ 9,479 $ (40,512) $ 48,781 $ 45,820
Adjustments to
reconcile net income
(loss) to cash
provided by (used in)
operating activities:
Depreciation and
amortization........ 22,639 24,696 104,963 94,491 82,173
Deferred income
taxes............... 9,600 2,150 (53,400) 10,500 15,400
Restructuring
charges............. 140,000
Other................ 177 196 568 635 485
Changes in operating
assets and
liabilities:
Rebates and accounts
receivable......... (4,206) 1,307 1,794 (4,758) (4,038)
Inventories......... 97,008 14,049 (5,418) (11,625) (36,523)
Prepaid expenses and
deposits........... 4,210 (26,417) (5,397) (1,324) (518)
Trade accounts
payable............ (50,154) (39,319) (21,691) 50,618 1,119
Accrued sales and
other taxes........ (9,302) 4,369 6,370 5,616 6,625
Accrued payroll and
related benefits... (19,531) (6,442) 13,372 10,616 8,007
Accrued
restructuring
costs.............. (42,940)
-------- -------- --------- --------- ---------
Cash provided by (used
in) operating
activities............. 6,323 (15,932) 140,649 203,550 118,550
Investing Activities
Additions to property
and equipment......... (18,271) (25,220) (149,035) (146,676) (322,301)
Sale/leaseback
arrangements and other
property and equipment
sales................. 83,775 1,221 5,841 20,949 159,137
Other.................. 582 92 (3,070) (1,649) (1,258)
-------- -------- --------- --------- ---------
Cash provided by (used
in) investing
activities............. 66,086 (23,907) (146,264) (127,376) (164,422)
Financing Activities
Additions to long-term
debt.................. 51,000 45,978 27,000 262,000
Payments on long-term
debt.................. (73,411) (4,880) (18,686) (33,594) (149,197)
Redemptions of
Redeemable Preferred
Stock................. (350) (1,108) (1,042) (1,039)
Purchases of Treasury
Stock................. (1,114) (4,709) (9,039) (109,239) (11,074)
Proceeds from sales of
Treasury Stock........ 820 1,031 5,278 7,693 7,107
Payment of dividends... (3,761) (3,747) (14,917) (14,725) (15,530)
-------- -------- --------- --------- ---------
Cash provided by (used
in) financing
activities............. (77,466) 38,345 7,506 (123,907) 92,267
-------- -------- --------- --------- ---------
Net increase (decrease)
in cash and cash
equivalents............ (5,057) (1,494) 1,891 (47,733) 46,395
Cash and cash equiva-
lents at beginning of
period................. 16,079 14,188 14,188 61,921 15,526
-------- -------- --------- --------- ---------
Cash and cash equiva-
lents at end of period. $ 11,022 $ 12,694 $ 16,079 $ 14,188 $ 61,921
======== ======== ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
SMITH'S FOOD & DRUG CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Smith's Food &
Drug Centers, Inc. and its wholly-owned subsidiaries (the "Company"), after
the elimination of significant intercompany transactions and accounts. The
Company operates a regional supermarket and drug store chain in the
Intermountain and Southwestern regions of the United States.
Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Definition of Accounting Period
The Company's fiscal year ends on the Saturday nearest to December 31.
Fiscal year operating results include 52 weeks for each year.
Interim Financial Statements
The consolidated balance sheet of the Company as of March 30, 1996 and the
consolidated statements of income, common stockholders' equity and cash flows
for the interim periods ended March 30, 1996 and April 1, 1995 are unaudited,
but include all adjustments (consisting of only normal recurring accruals)
which the Company considers necessary for a fair presentation of its
consolidated financial position, results of operations and cash flows for
these periods. These interim financial statements do not include all
disclosures required by generally accepted accounting principles, and,
therefore, should be read in conjunction with the Company's financial
statements and notes thereto included herein. Results of operations for
interim periods are not necessarily indicative of the results for a full
fiscal year.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short-term investments with
maturities less than three months. The amount reported in the balance sheet
for cash and cash equivalents approximates its fair value.
Inventories
Inventories are valued at the lower of cost, determined on the last-in,
first-out (LIFO) method, or market. Approximately 95% of inventories in 1995
and 1994 were valued using the LIFO method. Other inventories were valued
using the first-in, first-out (FIFO) method. The FIFO cost exceeded the LIFO
value of inventories by $8.1 million in 1995 and $4.1 million in 1994. The
pretax LIFO charge was $4.0 million in 1995, $2.5 million in 1994, and $1.6
million in 1993.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
provided by the straight-line method based upon estimated useful lives.
Improvements to leased property are amortized over their estimated useful
lives or the remaining terms of the leases, whichever is shorter.
Accrued Insurance Claims
The Company is self-insured, with certain stop loss insurance coverage, for
workers' compensation, non-union employee health care and general liability
claims. Claims expense is recorded through the accrual of claims reserves
based on estimates of ultimate claim costs, including claims incurred but not
reported. The liabilities for accrued insurance claims were $31.8 million and
$25.3 million at the end of 1995 and 1994, respectively. These liabilities are
not discounted.
F-7
<PAGE>
SMITH'S FOOD & DRUG CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Pre-Operating and Closing Costs
Costs incurred in connection with the opening of new stores and distribution
facilities are expensed as incurred. The remaining net investment in stores
closed, less salvage value, is charged against earnings in the period of
closing. For leased stores that are closed and subleased to third parties, a
provision is made for the remaining lease liability, net of expected sublease
rental. For leased stores that are closed but not yet subleased, a provision
is made based on discounted lease payments through the estimated period until
subleased.
Interest Costs
Interest costs are expensed as incurred, except for interest costs which
have been capitalized as part of the cost of properties under development. The
Company's cash payments for interest (net of capitalized interest of
approximately $1.4 million in 1995, $5.8 million in 1994 and $14.5 million in
1993) amounted to $60.7 million in 1995, $54.0 million in 1994 and $39.8
million in 1993.
Income Taxes
The Company determines its deferred tax assets and liabilities based on
differences between the financial reporting and tax basis of its assets and
liabilities using the tax rates that will be in effect when the differences
are expected to reverse.
Net Income Per Share of Common Stock
Net income per share of Common Stock is computed by dividing the net income
by the weighted average number of shares of Common Stock outstanding of
25,030,882 in 1995, 28,176,907 in 1994 and 30,238,811 in 1993. Common Stock
equivalents in the form of stock options are excluded from the weighted
average number of common shares in 1995 due to the net loss.
Adoption of Accounting Standard
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Statement 121 also addresses the
accounting for long-lived assets that are expected to be disposed of. Due to
the nature of the Company's operations and the number of estimates required to
assess the impact of Statement 121, the financial statement impact of adoption
has not yet been determined.
Litigation
The Company is a party to certain legal actions arising out of the ordinary
course of its business. Management believes that none of these actions,
individually or in the aggregate, will have a material adverse effect on the
Company's results of operations or financial position.
Reclassifications
Certain reclassifications have been made to the 1993 and 1994 financial
statements to conform with the 1995 presentation.
F-8
<PAGE>
SMITH'S FOOD & DRUG CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE B--PROPERTY AND EQUIPMENT
The Company depreciates its buildings over 25 to 30 years and its fixtures
and equipment over a period of 2 to 9 years and amortizes its leasehold
improvements over their estimated useful lives or the life of the lease,
whichever is shorter. Property and equipment consists of the following (dollar
amounts in thousands):
<TABLE>
<CAPTION>
ALLOWANCES FOR CURRENT YEAR
DEPRECIATION AND NET DEPRECIATION AND
COST AMORTIZATION BOOK VALUE AMORTIZATION
---------- ---------------- ---------- ----------------
<S> <C> <C> <C> <C>
DECEMBER 30, 1995
Land.................. $ 276,626 $ 276,626
Buildings............. 610,049 $108,985 501,064 $ 19,907
Leasehold
improvements......... 55,830 12,556 43,274 2,970
Fixtures and
equipment............ 509,524 269,392 240,132 82,086
---------- -------- ---------- --------
$1,452,029 $390,933 $1,061,096 $104,963
========== ======== ========== ========
DECEMBER 31, 1994
Land.................. $ 303,701 $ 303,701
Buildings............. 619,056 $ 92,542 526,514 $ 18,334
Leasehold
improvements......... 42,369 10,122 32,247 1,842
Fixtures and
equipment............ 589,480 262,077 327,403 74,315
---------- -------- ---------- --------
$1,554,606 $364,741 $1,189,865 $ 94,491
========== ======== ========== ========
</TABLE>
F-9
<PAGE>
SMITH'S FOOD & DRUG CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE C--LONG-TERM DEBT
Long-term debt consists of the following (dollar amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Mortgage notes, collateralized by property and
equipment with a cost of $420.7 million in 1995
and $413.0 million in 1994, due through 2011
with interest at an average rate of 9.68% in
1995 and 9.73% in 1994.......................... $254,385 $270,082
Unsecured notes, due in 2002 through 2015 with
varying annual installments starting in 2000
which accrue interest at an average rate of
7.68% in 1995 and 1994.......................... 410,000 410,000
Revolving credit bank loans...................... 68,000 27,000
Industrial revenue bonds, collateralized by prop-
erty and
equipment with a cost of $11.7 million in 1995
and $11.6 million in 1994 due in 2000 through
2010 plus interest at an average rate of 7.44%
in 1995 and 7.47% in 1994....................... 6,308 6,597
Other............................................ 7,492 5,214
-------- --------
746,185 718,893
Less current maturities.......................... 20,932 19,011
-------- --------
$725,253 $699,882
======== ========
</TABLE>
Interest rates on the revolving credit bank loans averaged 6.06% in 1995 and
5.89% in 1994. The agreements are reviewed annually with the banks, at which
time the date each installment is due is generally extended one year. At
December 30, 1995, the Company had unused lines of credit related to unsecured
revolving credit bank loans of $60.0 million.
The Company's loan agreements contain provisions which require the Company
to maintain a specified level of consolidated net worth, fixed charge coverage
and ratio of debt to net worth.
Maturities of the Company's long-term debt for the five fiscal years
succeeding December 30, 1995 are approximately $20.9 million in 1996, $22.1
million in 1997, $23.7 million in 1998, $45.4 million in 1999 and $28.9
million in 2000.
The amounts classified as revolving credit bank loans approximate their fair
value. The fair value of the Company's long-term debt was estimated using
discounted cash flow analysis, based on the Company's current incremental
borrowing rates for similar types of debt arrangements.
NOTE D--REDEEMABLE PREFERRED STOCK
The Company has 85,000,000 shares of $.01 per share par value Preferred
Stock authorized. The Company has designated 34,524,579 of these shares as
Series I Preferred Stock, of which 12,956,747 shares and 16,281,777 shares
were issued and outstanding in 1995 and 1994, respectively. The Series I
Preferred Stock has no dividend requirement.
F-10
<PAGE>
SMITH'S FOOD & DRUG CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
All shares of the Company's Series I Preferred Stock are subject to
redemption at any time at the option of the Board of Directors, in such
numbers as the Board may determine, and at a redemption price of $.33 1/3 per
share. The scheduled redemptions of the Company's Series I Preferred Stock are
approximately $1.0 million each year until all outstanding shares are
redeemed. Upon liquidation of the Company, each share of Series I Preferred
Stock is entitled to a liquidation preference of $.33 1/3, on a pro rata basis
with any other series of Preferred Stock, before any distribution to the
holders of Class A Common Stock or Class B Common Stock. Each share of Series
I Preferred Stock is entitled to ten votes. Series I Preferred Stock is stated
at redemption value in the balance sheet.
The amount included in the balance sheet for Series I Preferred Stock
approximates its fair value.
NOTE E--COMMON STOCKHOLDERS' EQUITY
The voting powers, preferences and relative rights of Class A Common Stock
and Class B Common Stock are identical in all respects, except that the
holders of Class A Common Stock have ten votes per share and the holders of
Class B Common Stock have one vote per share. Each share of Class A Common
Stock is convertible at any time at the option of the holder into one share of
Class B Common Stock. The Company's Certificate of Incorporation also provides
that each share of Class A Common Stock will be converted automatically into
one share of Class B Common Stock if at any time the number of shares of Class
A Common Stock issued and outstanding shall be less than 2,910,885. Future
sales or transfers of the Company's Class A Common Stock are restricted to the
Company or immediate family members of the original Class A Common
Stockholders unless first presented to the Company for conversion into an
equal number of Class B Common Stock shares. The Class B Common Stock has no
conversion rights. At December 30, 1995 there were 20,000,000 shares of $.01
per share par value Class A Common Stock and 100,000,000 shares of $.01 per
share par value Class B Common Stock authorized.
NOTE F--INCOME TAXES
Income tax expense (benefit) consists of the following (dollar amounts in
thousands):
<TABLE>
<CAPTION>
52 WEEKS ENDED
------------------------------------
DECEMBER 30, DECEMBER 31, JANUARY 1,
1995 1994 1994
------------ ------------ ----------
<S> <C> <C> <C>
Current:
Federal.................................. $ 20,220 $17,211 $15,715
State.................................... 3,880 3,589 3,185
-------- ------- -------
24,100 20,800 18,900
Deferred:
Federal.................................. (46,681) 9,247 13,012
State.................................... (6,719) 1,253 2,388
-------- ------- -------
(53,400) 10,500 15,400
-------- ------- -------
$(29,300) $31,300 $34,300
======== ======= =======
</TABLE>
Income tax expense included a charge of $1.95 million in 1993 resulting from
applying the increased federal tax rate to deferred tax items. Cash
disbursements for income taxes were $19.2 million in 1995, $21.7 million in
1994 and $17.3 million in 1993.
F-11
<PAGE>
SMITH'S FOOD & DRUG CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The difference between income tax expense (benefit) and the tax computed by
applying the statutory income tax rate to income before income taxes is as
follows:
<TABLE>
<CAPTION>
52 WEEKS ENDED
------------------------------------
DECEMBER 30, DECEMBER 31, JANUARY 1,
1995 1994 1994
------------ ------------ ----------
<S> <C> <C> <C>
Statutory federal income tax rate...... (35.0)% 35.0 % 35.0%
State income tax rate, net of federal
income tax effect..................... (4.3) 4.7 5.2
Effect of income tax rate changes on
deferred taxes........................ (3.6) 2.4
Other.................................. .9 (.6) .2
----- ---- ----
(42.0)% 39.1 % 42.8%
===== ==== ====
</TABLE>
The effect of temporary differences that give rise to deferred tax balances
are as follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Deferred tax liabilities:
Depreciation and amortization.................... $ 81,008 $ 98,186
Other............................................ 13,572 11,935
-------- --------
94,580 110,121
Deferred tax assets:
Accrued restructuring costs...................... (33,305)
Accrued insurance claims......................... (12,271) (10,126)
Rent............................................. (8,138) (6,006)
Other............................................ (6,166) (5,889)
-------- --------
(59,880) (22,021)
-------- --------
34,700 88,100
Net current deferred tax assets.................... 23,900 1,400
-------- --------
Net non-current deferred tax liabilities........... $ 58,600 $ 89,500
======== ========
</TABLE>
NOTE G--FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and related fair values of the Company's financial
instruments are as follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 30, 1995 DECEMBER 31, 1994
----------------- -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash and cash equivalents............... $ 16,079 $ 16,079 $ 14,188 $ 14,188
Long-term debt.......................... 746,185 803,613 718,893 680,460
Redeemable Preferred Stock.............. 4,319 4,319 5,427 5,427
</TABLE>
The methods of determining the fair value of the Company's financial
instruments are disclosed in the respective notes to the consolidated
financial statements.
F-12
<PAGE>
SMITH'S FOOD & DRUG CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE H--LEASE AND COMMITMENTS
The Company leases property and equipment under terms which include, in some
cases, renewal options, escalation clauses or contingent rentals which are
based on sales. Total rental expense for such leases amounted to the following
(dollar amounts in thousands):
<TABLE>
<CAPTION>
52 WEEKS ENDED
------------------------------------
DECEMBER 30, DECEMBER 31, JANUARY 1,
1995 1994 1994
------------ ------------ ----------
<S> <C> <C> <C>
Minimum rentals......................... $46,460 $39,852 $19,539
Contingent rentals...................... 235 293 281
------- ------- -------
46,695 40,145 19,820
Less sublease rental income............. 7,334 5,953 5,506
------- ------- -------
$39,361 $34,192 $14,314
======= ======= =======
</TABLE>
At December 30, 1995, future minimum rental payments and sublease rentals
for all noncancellable leases with initial or remaining terms of one year or
more consisted of the following (dollar amounts in thousands):
<TABLE>
<CAPTION>
MINIMUM LESS
RENTAL SUBLEASE
PAYMENTS RENTALS TOTAL
-------- -------- --------
<S> <C> <C> <C>
1996.............................................. $ 48,781 $ 16,419 $ 32,362
1997.............................................. 40,223 16,932 23,291
1998.............................................. 43,759 16,934 26,825
1999.............................................. 46,205 16,600 29,605
2000.............................................. 45,998 16,433 29,565
Thereafter........................................ 697,832 201,864 495,968
-------- -------- --------
$922,798 $285,182 $637,616
======== ======== ========
</TABLE>
At December 30, 1995 the Company had contract commitments of approximately
$3.6 million for future construction and a contract for information technology
services requiring payments of approximately $19.6 million in 1996, $21.3
million in 1997, $24.1 million in 1998, $26.7 million in 1999 and
$35.0 million in 2000.
NOTE I--EMPLOYEE STOCK PLANS
In 1993 the Company established a stock profit sharing plan under which year
end employees who are compensated for more than 1,000 hours during the year
are participants. Eligible employees are allocated shares of the Company's
Class B Common Stock based on hours of service up to 2,080 hours.
Contributions are made at the sole discretion of the Company based on its
profitability. The contribution expense was $1.4 million in 1995, $1.6 million
in 1994 and $3.0 million in 1993.
In 1993 the Company established a stock purchase plan which permits
employees to purchase shares of the Company's Class B Common Stock through
payroll deductions at 85% of fair market value at the time of purchase.
Employees purchased 282,485 shares, 309,553 shares and 180,950 shares from the
Treasury during 1995, 1994 and 1993, respectively.
F-13
<PAGE>
SMITH'S FOOD & DRUG CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has a Stock Option Plan which authorizes the Compensation
Committee of the Board of Directors to grant options to key employees for the
purchase of Class B Common Stock. The aggregate number of shares available for
grant under the plan is equal to 10% of the number of shares of Class B Common
Stock authorized. However, the number of outstanding and unexercised options
shall not exceed 10% of the number of shares of Class A and Class B Common
Stock outstanding. The number of unoptioned shares of Class B Common Stock
available for grant was 890,671 shares and 973,419 shares at the end of 1995
and 1994, respectively. The options may be either incentive stock options or
non-qualified stock options. Stock options granted to key employees and
options outstanding are as follows:
<TABLE>
<CAPTION>
OPTION PRICE NUMBER OF
PER SHARE SHARES
------------ ---------
<S> <C> <C>
Balance at January 3, 1993........................ $19.00 1,107,500
Granted......................................... 19.00 622,000
Forfeited....................................... 19.00 (232,000)
---------
Balance at January 1, 1994........................ 19.00 1,497,500
Granted......................................... 19.00 81,000
Forfeited....................................... 19.00 (33,000)
---------
Balance at December 31, 1994...................... 19.00 1,545,500
Granted......................................... 19.00 317,000
Forfeited....................................... 19.00 (246,000)
---------
Balance at December 30, 1995...................... 19.00 1,616,500
=========
</TABLE>
<TABLE>
<CAPTION>
NUMBER OF
SHARES
---------
The options are exercisable as follows:
<S> <C>
Options exercisable in the future
1997.......................................................... 25,000
1999.......................................................... 453,000
2000.......................................................... 130,000
2001.......................................................... 207,000
2002.......................................................... 64,500
2003.......................................................... 528,000
2004.......................................................... 11,000
2005.......................................................... 138,000
---------
1,556,500
Options currently exercisable................................... 60,000
---------
1,616,500
=========
</TABLE>
Compensation expense for the difference between the market value of the
options on the grant date and the grant price is recognized on a straight-line
basis over the vesting period of the options. The amount charged to operations
in 1995, 1994 and 1993 was immaterial.
F-14
<PAGE>
SMITH'S FOOD & DRUG CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE J--PENSION PLANS
Employees whose terms of employment are determined by negotiations with
recognized collective bargaining units are covered by their respective multi-
employer defined benefit pension plans to which the Company contributes. The
costs charged to operations for these plans amounted to approximately $4.6
million in 1995, $4.2 million in 1994 and $3.3 million in 1993. Other
information for these multi-employer plans is not available to the Company.
The Company maintains a defined benefit pension plan for all other permanent
employees which provides for normal retirement at age 65. Employees are
eligible to join when they complete at least one year of service and have
reached age 21. The benefits are based on years of service and stated amounts
associated with those years of service. The Company's funding policy is to
contribute annually up to the maximum amount deductible for federal income tax
purposes. Net pension cost includes the following components (dollar amounts
in thousands):
<TABLE>
<CAPTION>
52 WEEKS ENDED
------------------------------------
DECEMBER 30, DECEMBER 31, JANUARY 1,
1995 1994 1994
------------ ------------ ----------
<S> <C> <C> <C>
Service cost--present value of benefits
earned during the period................. $ 2,119 $ 2,326 $ 1,869
Interest cost on projected benefit obliga-
tion..................................... 1,966 1,725 1,350
Actual return on plan assets.............. (9,692) 237 (1,053)
Net amortization and deferral............. 7,598 (1,615) (304)
------- ------- -------
$ 1,991 $ 2,673 $ 1,862
======= ======= =======
</TABLE>
The following table presents the plan's funded status and amounts recognized
in the Company's consolidated balance sheets (dollar amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 30, DECEMBER 31,
1995 1994
------------ ------------
<S> <C> <C>
Actuarial present value of accumulated bene-
fits based on service rendered to date:
Vested...................................... $29,649 $16,965
Non-vested.................................. 3,482 3,438
------- -------
33,131 20,403
Fair value of plan assets (primarily in equity
and fixed income funds and real estate)...... 37,934 20,993
------- -------
Fair value of plan assets in excess of pro-
jected benefit obligation.................... 4,803 590
Unrecognized net loss......................... 7,473 5,737
Prior service cost............................ 133 160
Unrecognized net asset........................ (978) (1,141)
------- -------
Net prepaid pension cost...................... $11,431 $ 5,346
======= =======
</TABLE>
The weighted average discount rate used to determine the actuarial present
value of the projected benefit obligation was 7.25% in 1995 and 8.5% in 1994.
The expected long-term rate of return on plan assets was 8.5% in 1995 and
1994, and 9.5% in 1993.
F-15
<PAGE>
SMITH'S FOOD & DRUG CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company provides a 401(k) plan for virtually all employees. The plan is
entirely funded by employee contributions which are based on employee
compensation not to exceed certain limits.
NOTE K--RESTRUCTURING CHARGES
In December 1995, the Company recorded restructuring charges amounting to
$140 million related to its decision to sell, lease or close all 34 stores and
the distribution center comprising its Southern California Region. The
Southern California Region contributed sales of approximately $675 million,
$653 million and $473 million in 1995, 1994 and 1993, respectively, and
recognized operating losses of $14.2 million, $18.8 million and $12.9 million
in 1995, 1994 and 1993, respectively. These losses do not include allocations
for interest expense and corporate overhead. The restructuring charges include
the following components:
<TABLE>
<CAPTION>
ACCRUED
RESTRUCTURING
TOTAL ADJUSTMENTS COSTS
RESTRUCTURING TO -----------------
CHARGES CARRYING VALUE CURRENT LONG-TERM
------------- -------------- ------- ---------
<S> <C> <C> <C> <C>
Charges for lease obliga-
tions................... $ 65,600 $25,600 $40,000
Asset valuation adjust-
ments:
Closed stores.......... 21,700 $21,700
Assets sold............ 20,300 20,300
Inventory................ 16,000 16,000
Termination payments..... 10,000 10,000
Other.................... 6,400 6,400
-------- ------- ------- -------
$140,000 $42,000 $58,000 $40,000
======== ======= ======= =======
</TABLE>
The lease rental obligations primarily relate to closed stores and consist
of average annual lease expense over a five year period net of any sublease
income discounted at a rate of 9%. Also included is a $15 million charge for
certain fees associated with the sublease of the distribution center which is
expected to be paid by March 1996. The distribution center and nine stores
have been leased or subleased to another supermarket company controlled by the
same group of investors that controls Smitty's Supermarkets, Inc., with whom
the Company has entered into a definitive merger agreement (see Note L).
The charges for store and distribution center inventories represent
incremental losses for shrinkage, damage and liquidation sales expected to be
incurred during the closing process.
The termination payments relate to substantially all of the Company's 3,900
store and distribution center employees in the Southern California Region. The
termination payments are expected to be made by the end of March 1996 and have
been estimated based on existing employment contracts and involuntary
termination statutes.
The other costs represent charges for taxes, fees, contractual obligations,
and other costs associated with closing the region.
The restructuring charges include management's best estimates of the amounts
expected to be realized on the disposal of the remaining stores and closure of
the region. At December 30, 1995, the Company's carrying value of closed
stores, leased stores and excess land in California was approximately $260
million. The Company's current management has not determined the ultimate
disposition or use of these real estate assets and believes that their
disposal in the ordinary course of business would not result in a significant
impact on carrying
F-16
<PAGE>
SMITH'S FOOD & DRUG CENTERS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
values. However, should the Company complete the subsequent event (see Note
L), management may decide to pursue the sale of these assets. The amounts the
Company may realize on disposal could differ significantly in the near term
from the carrying values.
NOTE L--SUBSEQUENT EVENT
On January 29, 1996, the Company announced it had entered into a definitive
merger agreement with Smitty's Supermarkets, Inc. ("Smitty's") in which
Smitty's will become a wholly owned subsidiary of the Company. The merger will
be completed by issuing 3,038,888 shares of the Company's Class B Common Stock
for all of Smitty's outstanding common stock, subject to adjustment under
certain circumstances. The Company will assume or refinance approximately $148
million of Smitty's debt.
The Company also announced it will commence a self tender offer to purchase
50% of its outstanding Class A and Class B Common Stock for $36 per share,
excluding shares to be issued in connection with the Smitty's merger. Debt of
approximately $1.4 billion is expected to be issued at various interest rates
to finance the stock purchase, repay certain existing indebtedness, and pay
premiums related to early repayment.
Completion of the tender offer will be subject to the tender of at least 50%
of the Company's outstanding Common Stock, the receipt of adequate financing
and various other conditions. Completion of the merger with Smitty's will be
conditioned on the Company's purchase of shares pursuant to the self tender
offer, receipt of adequate financing, regulatory approvals, approval by the
Company's stockholders and various other conditions. The tender offer is
expected to commence in April 1996 and is expected to be consummated May 1996.
The merger with Smitty's is expected to be consummated concurrently with the
closing of the tender offer.
F-17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Smitty's Supermarkets, Inc.
We have audited the accompanying consolidated balance sheets of Smitty's
Supermarkets, Inc. and subsidiaries as of July 30, 1995 and July 31, 1994 and
the related consolidated statements of operations, stockholders' equity and
cash flows for the year ended July 30, 1995 and the period from June 29, 1994
(date of inception) to July 31, 1994. We have also audited the consolidated
statements of operations, stockholders' equity and cash flows of the Company's
predecessor (the "Predecessor") for the period from August 2, 1993 to
June 28, 1994 and the year ended August 1, 1993. 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 financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Smitty's
Supermarkets, Inc. and subsidiaries as of July 30, 1995 and July 31, 1994 and
the consolidated results of their operations and their cash flows for the year
ended July 30, 1995 and the period from June 28, 1994 (date of inception) to
July 31, 1994 and the consolidated results of the Predecessor's operations and
cash flows for the period from August 2, 1993 to June 28, 1994 and the year
ended August 1, 1993 in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Phoenix, Arizona
October 3, 1995, except for Note 18
as to which the date is January 29, 1996
F-18
<PAGE>
SMITTY'S SUPERMARKETS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 7, JULY 30, JULY 31,
ASSETS 1996 1995 1994
------ ---------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Current Assets
Cash and short-term investments............... $ 9,029 $ 25,653 $ 19,969
Accounts and notes receivable, net of allow-
ances of $458, $506 and $683................. 10,318 7,700 7,994
Inventories................................... 54,551 55,475 51,013
Prepaid expenses.............................. 3,223 3,767 2,177
Refundable income taxes....................... 492 2,471 546
-------- -------- --------
Total current assets......................... 77,613 95,066 81,699
Property and equipment, net.................... 135,124 128,289 119,218
Goodwill, net of accumulated amortization of
$1,471, $917 and $40.......................... 31,345 31,899 17,500
Property held for sale......................... 2,985 2,360 2,154
Other assets................................... 7,839 8,108 14,741
-------- -------- --------
$254,906 $265,722 $235,312
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities
Accounts payable.............................. $ 36,206 $ 35,247 $ 25,396
Accrued compensation.......................... 5,600 6,514 4,876
Taxes, other than income taxes................ 6,686 5,482 4,781
Deferred income taxes......................... 4,642 4,642 3,356
Other accrued expenses........................ 12,810 19,764 12,805
Current portion of long-term debt............. 9,220 6,089 2,560
-------- -------- --------
Total current liabilities.................... 75,164 77,738 53,774
Long-term debt................................. 135,845 141,835 141,356
Deferred income taxes.......................... 13,767 13,767 15,658
Other liabilities.............................. 19,968 21,449 13,937
-------- -------- --------
Total liabilities............................ 244,744 254,789 224,725
Stockholders' Equity
Preferred stock, $.01 par value; 10,000 shares
authorized
Class A common stock, $.01 par value;
1,000,000 shares authorized; 696,700 shares
issued and outstanding at July 30, 1995 and
July 31, 1994; 705,697 shares issued and
outstanding at April 7, 1996................. 7 7 7
Class B common stock, $.01 par value; 500,000
shares authorized; 303,300 shares issued and
outstanding.................................. 3 3 3
Additional paid-in capital.................... 11,036 10,936 10,936
Retained earnings (deficit)................... (884) (13) (359)
-------- -------- --------
Total stockholders' equity................... 10,162 10,933 10,587
-------- -------- --------
$254,906 $265,722 $235,312
======== ======== ========
</TABLE>
See accompanying notes.
F-19
<PAGE>
SMITTY'S SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
--------------------------------------------------- -----------------------------
36 WEEKS 36 WEEKS PERIOD FROM PERIOD FROM
ENDED ENDED JUNE 29, 1994 AUGUST 2, 1993
APRIL 7, APRIL 9, YEAR ENDED TO TO YEAR ENDED
1996 1995 JULY 30, 1995 JULY 31, 1994 JUNE 28, 1994 AUGUST 1, 1993
----------- ----------- ------------- ------------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Sales................... $ 411,866 $ 423,848 $ 594,019 $ 48,411 $551,681 $605,132
Cost of sales........... 295,322 310,059 432,067 35,476 413,696 454,672
--------- --------- --------- --------- -------- --------
Gross profit............ 116,544 113,789 161,952 12,935 137,985 150,460
Operating, selling,
general, and
administrative
expenses............... 95,641 93,416 133,242 10,828 117,350 147,472
Litigation settlement... (1,866) (1,866)
Depreciation and
amortization........... 9,089 7,106 10,855 959 8,022 9,461
--------- --------- --------- --------- -------- --------
Operating income (loss). 11,814 15,133 19,721 1,148 12,613 (6,473)
Interest expense:
Interest expense,
excluding amortization
of deferred financing
costs................. 12,019 11,755 17,797 1,422 6,219 6,364
Amortization of
deferred financing
costs................. 666 625 923 83 134 182
--------- --------- --------- --------- -------- --------
12,685 12,380 18,720 1,505 6,353 6,546
--------- --------- --------- --------- -------- --------
Income (loss) before
income taxes and
extraordinary item..... (871) 2,753 1,001 (357) 6,260 (13,019)
Income taxes (benefit).. 1,826 655 2 2,492 (4,822)
--------- --------- --------- --------- -------- --------
Income (loss) before
extraordinary item..... (871) 927 346 (359) 3,768 (8,197)
Extraordinary item:
Loss on extinguishment
of debt, net of $413
income tax benefit.... (628)
--------- --------- --------- --------- -------- --------
Net income (loss)....... $ (871) $ 927 $ 346 $ (359) $ 3,140 $ (8,197)
========= ========= ========= ========= ======== ========
Income (loss) per share:
Income (loss) before
extraordinary item.... $ (0.87) $ 0.93 $ 0.35 $ (0.36) $ 3,716 $ (8,084)
Extraordinary item..... (619)
--------- --------- --------- --------- -------- --------
Income (loss).......... $ (0.87) $ 0.93 $ 0.35 $ (0.36) $ 3,097 $ (8,084)
========= ========= ========= ========= ======== ========
Weighted average common
shares outstanding..... 1,004,000 1,000,000 1,000,000 1,000,000 1,014 1,014
========= ========= ========= ========= ======== ========
</TABLE>
See accompanying notes.
F-20
<PAGE>
SMITTY'S SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
------------- ------------- ADDITIONAL RETAINED TOTAL
PAR PAR PAID-IN EARNINGS STOCKHOLDERS'
SHARES VALUE SHARES VALUE CAPITAL (DEFICIT) EQUITY
------- ----- ------- ----- ---------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
THE COMPANY
BALANCE AT JUNE 29, 1994
(INCEPTION)
Sale of common stock... 696,700 $7 303,300 $ 3 $10,936 $ 0 $10,946
Net loss............... (359) (359)
------- --- ------- --- ------- ----- -------
BALANCE AT JULY 31,
1994................... 696,700 7 303,300 3 10,936 (359) 10,587
Net income............. 346 346
------- --- ------- --- ------- ----- -------
BALANCE AT JULY 30,
1995................... 696,700 7 303,300 3 10,936 (13) 10,933
Sale of common stock... 8,997 100 100
Net loss (unaudited)... (871) (871)
------- --- ------- --- ------- ----- -------
BALANCE AT APRIL 7, 1996
(UNAUDITED)............ 705,697 $ 7 303,300 $ 3 $11,036 $(884) $10,162
======= === ======= === ======= ===== =======
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK
------------- ADDITIONAL RETAINED TOTAL
PAR PAID-IN EARNINGS STOCKHOLDERS'
SHARES VALUE CAPITAL (DEFICIT) EQUITY
------ ----- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
PREDECESSOR
BALANCE AT AUGUST 2, 1992...... 1,014 $ 1 $126,420 $ 2,260 $128,681
Net loss...................... (8,197) (8,197)
----- ---- -------- ------- --------
BALANCE AT AUGUST 1, 1993...... 1,014 1 126,420 (5,937) 120,484
Purchase of common stock...... (284) (27,823) (27,823)
Net income.................... 3,140 3,140
----- ---- -------- ------- --------
BALANCE AT JUNE 29, 1994
(pre-acquisition)............. 730 1 98,597 (2,797) 95,801
Cancellation of Predecessor
equity....................... (730) (1) (98,597) 2,797 (95,801)
----- ---- -------- ------- --------
BALANCE AT JUNE 29, 1994
(post-acquisition)............ -- $-- $ -- $ -- $ --
===== ==== ======== ======= ========
</TABLE>
See accompanying notes.
F-21
<PAGE>
SMITTY'S SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
------------------------------------------------------------ -------------------------------
PERIOD FROM PERIOD FROM
36 WEEKS ENDED 36 WEEKS ENDED YEAR ENDED JUNE 29, 1994 AUGUST 2, 1993 YEAR ENDED
APRIL 7, 1996 APRIL 9, 1995 JULY 30, 1995 TO JULY 31, 1994 TO JUNE 28, 1994 AUGUST 1, 1993
-------------- -------------- ------------- ---------------- ---------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash provided (used) by
operating activities:
Net income (loss)....... $ (871) $ 927 $ 346 $ (359) $ 3,140 $(8,197)
Adjustments to reconcile
net income (loss) to
net cash provided by
operating activities:
Depreciation and amor-
tization............. 9,089 7,106 10,855 959 8,286 9,461
Amortization of de-
ferred financing
costs and discount
on long-term debt.... 739 696 1,025 92 1,236 587
LIFO provision........ 538 538 325 270 228 708
Deferred income taxes. 8 374 26 3,172 (6,825)
Accreted interest on
debentures........... 1,659 1,482 2,136 195
Loss (gain) on
disposals of assets.. (344) (69) 590 (88)
Loss on partnership
liquidation.......... 8,900
Litigation settle-
ments................ (1,866) (1,866) 13,805
Adjust rentals to
straight-line........ 97 (198) (169) 75 51 (904)
Changes in operating
assets and
liabilities, net of
acquisition
adjustments:
Accounts and notes
receivable......... (2,614) (267) 184 (340) (225) (413)
Inventories, net of
LIFO............... 386 (8,677) (4,514) 4,147 (5,953) (504)
Prepaid expenses.... (987) (989) (2,067) 400 (354) (919)
Refundable income
taxes.............. 1,979 546 (1,925) (24) (157) (410)
Other assets........ 62 2 54 165
Accounts payable.... 959 7,464 9,851 (4,261) (1,340) 2,315
Accrued expenses and
other liabilities.. (7,579) 6,337 3,938 (33) 285 (299)
Income taxes pay-
able............... 609 (775)
------- ------- ------- ------- ------- -------
Net cash provided by
operating activities... $ 3,457 $13,716 $18,151 $ 1,078 $ 9,013 $16,607
======= ======= ======= ======= ======= =======
</TABLE>
See accompanying notes.
F-22
<PAGE>
SMITTY'S SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
------------------------------------------------------------- --------------------------------
PERIOD FROM PERIOD FROM
36 WEEKS ENDED 36 WEEKS ENDED YEAR ENDED JUNE 29, 1994 TO AUGUST 2, 1993 TO YEAR ENDED
APRIL 7, 1996 APRIL 9, 1995 JULY 30, 1995 JULY 31, 1994 JUNE 28, 1994 AUGUST 1, 1993
-------------- -------------- ------------- ----------------- ----------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash provided (used) by
investing activities:
Purchase of property
and equipment........ $(21,842) $(11,042) $(22,855) $ (271) $ (3,729) $(16,233)
Proceeds from sale of
assets............... 7,880 3,260 8,464 4 6,074 13,745
Deferred gain on sale
of real estate....... 1,877
Payments for other
assets............... (1,671) (1,242) (392) (35) (375)
Repayment of notes
receivable........... 41 1,625 5,811 3,871 538
Advances to
partnerships......... (169) (1,901)
-------- -------- -------- ------- -------- --------
Net cash provided (used)
by investing activities (15,592) (7,399) (8,972) (267) 7,889 (4,226)
-------- -------- -------- ------- -------- --------
Cash provided (used) by
financing activities:
Proceeds from
borrowings........... 6,500 10,601
Principal payments on
borrowings........... (4,589) (2,514) (3,178) (108) (19,303) (20,712)
Payments of debt
issuance costs....... (317) (317) (915) (226)
Proceeds from sale of
stock................ 100
Proceeds from
acquisition
financing, net....... 8,401
Payment of acquisition
costs................ (2,947)
Purchase of preferred
stock from affiliate. (585)
-------- -------- -------- ------- -------- --------
Net cash provided (used)
by financing activities (4,489) (2,831) (3,495) 4,431 (13,388) (10,337)
-------- -------- -------- ------- -------- --------
Increase (decrease) in
cash and short-term
investments............ (16,624) 3,486 5,684 5,242 3,514 2,044
Cash and short-term
investments, beginning
of period.............. 25,653 19,969 19,969 14,727 11,213 9,169
-------- -------- -------- ------- -------- --------
Cash and short-term
investments, end of
period................. $ 9,029 $ 23,455 $ 25,653 $19,969 $ 14,727 $ 11,213
======== ======== ======== ======= ======== ========
Supplemental cash flow
disclosures:
Interest paid.......... $ 9,658 $ 8,703 $ 14,299 $ 1,025 $ 7,232 $ 5,959
Income taxes paid...... 663 2,643 573 3,198
Income tax refunds
received.............. 1,979 1,958 1,578 11
Non-cash investing and
financing activities:
Capital lease
obligations entered
into................. $ 10,889 $ 4,948 $ 10,933 $ 4,929
Notes receivable
obtained through
sales of property and
equipment............ 11,126
Assets transferred to
affiliate in exchange
for preferred stock.. 27,238
Notes receivable
obtained in exchange
for preferred stock.. 27,823
Common stock acquired
from cancellation of
note receivable...... 27,823
</TABLE>
See accompanying notes.
F-23
<PAGE>
SMITTY'S SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(THOUSANDS OF DOLLARS)
1. SIGNIFICANT ACCOUNTING POLICIES
Consolidation
The consolidated financial statements include the accounts of Smitty's
Supermarkets, Inc. (the "Company") and its wholly-owned subsidiaries. All
intercompany transactions and accounts are eliminated in consolidation. The
Company is a partner in a real estate development partnership which is being
accounted for under the equity method.
Statement Presentation
On June 29, 1994, the Company acquired Smitty's Super Valu, Inc. (the
"Predecessor"). The financial statements for both the Company and the
Predecessor are included herein.
Fiscal Year
The Company's fiscal year ends on the Sunday nearest the last day of July.
The 1995, 1994 and 1993 fiscal years consisted of 52 weeks each.
Interim Financial Statements
The consolidated balance sheet of the Company as of April 7, 1996 and the
consolidated statements of operations and cash flows for the interim periods
ended April 7, 1996 and April 9, 1995 are unaudited, but include all
adjustments (consisting of only normal recurring accruals) which the Company
considers necessary for a fair presentation of its consolidated financial
position, results of operations and cash flows for these periods. These
interim financial statements do not include all disclosures required by
generally accepted accounting principles, and, therefore, should be read in
conjunction with the Company's financial statements and notes thereto included
herein. Results of operations for interim periods are not necessarily
indicative of the results for a full fiscal year.
Short-Term Investments
Short-term investments consist of highly liquid investments with original
maturities of three months or less. The Company considers such investments to
be cash equivalents for purposes of determining cash flow.
Inventories
Merchandise inventories are valued at LIFO (last-in, first-out) cost, which
is lower than market, for about 95% of the total inventory, and at the lower
of FIFO (first-in, first-out) cost or market for the balance of the inventory.
Property and Equipment
Owned property and equipment are stated at cost and capital lease assets are
stated at the present value of future rentals, less accumulated depreciation
and amortization.
Maintenance and repairs are charged against operations in the year incurred
and major additions to property and equipment are capitalized.
Depreciation and amortization are computed by the straight-line method based
upon the following lives:
<TABLE>
<S> <C>
Buildings and improvements................................. 40 years
Store fixtures and equipment............................... 10 years
Transportation equipment................................... 6 to 12 years
Leasehold improvements, capital leases and beneficial
leaseholds................................................ Term of lease
</TABLE>
F-24
<PAGE>
SMITTY'S SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF DOLLARS)
Goodwill
Goodwill represents the excess of the purchase price over the fair value of
acquired assets, less accumulated amortization. Goodwill is amortized on the
straight-line method over forty years. It is the Company's policy to
periodically review and evaluate the recoverability of the acquired
intangibles by assessing current and future profitability and cash flows and
to determine whether the amortization of the balance over its remaining life
can be recovered through expected future results and cash flows.
Deferred Charges
Deferred debt issuance costs are amortized using the interest method.
Property Held for Sale
Property held for sale is comprised of several undeveloped properties and is
valued at the lower of cost or estimated net realizable value.
Self-Insurance
The Company self-insures, with certain stop loss insurance coverage, for
workers' compensation, non-union employee health care and general liability
claims. Claims expense is recorded in the year of occurrence through the
accrual of claim reserves based on estimates of ultimate claims costs and
settlement expenses discounted at a rate of 8%.
Pre-opening and Remodel Costs
All costs associated with store openings and promotional costs associated
with major store remodels are charged to operations ratably over the twelve
months following store openings and remodel completion dates, respectively.
Income Taxes
Effective August 2, 1993, the Predecessor adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes ("SFAS 109"). Under
the provisions of SFAS 109, deferred tax assets and liabilities are recognized
for the expected future tax consequences of events that have been included in
the financial statements or income tax returns. Deferred tax assets and
liabilities are determined based on the difference between the financial
statement and tax basis of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
Reclassifications
Certain reclassifications have been made to the 1994 and 1993 financial
statements to conform to the presentation in the 1995 financial statements.
2. BUSINESS ACQUISITION
On June 29, 1994, the Company acquired the Predecessor for $24,768 net of
transaction costs and the repayment or assumption of certain liabilities (the
"Acquisition").
The Acquisition has been accounted for by the purchase method. Accordingly,
the costs of the Acquisition were allocated to the assets acquired and
liabilities assumed based upon their respective fair values. The
F-25
<PAGE>
SMITTY'S SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF DOLLARS)
allocation of the purchase price was finalized during 1995. Because of the
effects of the Acquisition, the consolidated financial statements of the
Company are not comparable to the consolidated financial statements of the
Predecessor.
The purchase price was allocated as follows:
<TABLE>
<S> <C>
Fair value of assets acquired.................................. $ 218,046
Fair value of liabilities assumed.............................. (226,094)
Excess costs over acquired net assets.......................... 32,816
---------
Total purchase price........................................... $ 24,768
=========
</TABLE>
In connection with the Acquisition on April 28, 1994, the Predecessor paid
$585 and transferred property and equipment and property held for sale with a
net carrying value of $27,238 to SLHC Holdings, Inc. ("Holdings"), a wholly-
owned subsidiary of the Predecessor's former sole shareholder, Steinberg
International, Inc. ("International"), in exchange for Holdings' preferred
stock. On June 29, 1994, prior to the Acquisition, the Predecessor repurchased
certain shares of its common stock from International in consideration of a
$27,823 promissory note payable. Subsequently, also on June 29, 1994 and prior
to the Acquisition, the Company transferred Holdings' preferred stock to
International in consideration of the repayment of the promissory note.
3. CONCENTRATIONS OF CREDIT RISK
The Company's financial instruments that are exposed to concentrations of
credit risk consist primarily of short-term investments and receivables.
The Company's short-term investments are in high quality securities placed
with major banks and financial institutions. The Company's investment policy
limits its exposure to concentrations of credit risk.
The Company's receivables result primarily from vendor rebates and
allowances, and redemption of manufacturer coupons. The vendor rebates and
allowances reflect a broad base, while the coupons are concentrated with one
processor. As a consequence, concentrations of credit risk are limited. The
Company routinely assesses the financial strength of its vendors and coupon
processor.
4. INVENTORIES
If inventories had been valued using the FIFO method, inventories would have
been higher (lower) and gross profit and operating income would have been
greater as follows:
<TABLE>
<CAPTION>
GROSS
PROFIT AND
OPERATING
INVENTORIES INCOME
----------- ----------
<S> <C> <C>
THE COMPANY
July 30, 1995 and the year then ended............... $(4,370) $325
July 31, 1994 and the period from June 29, 1994 to
July 31, 1994...................................... $(4,695) $270
PREDECESSOR
June 28, 1994 and the period from August 2, 1993 to
June 28, 1994...................................... $ 4,776 $228
August 1, 1993 and the year then ended.............. $ 4,548 $708
</TABLE>
F-26
<PAGE>
SMITTY'S SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF DOLLARS)
5. PROPERTY AND EQUIPMENT
Property and equipment including assets under capitalized leases consist of
the following:
<TABLE>
<CAPTION>
JULY 30, 1995 JULY 31, 1994
------------- -------------
<S> <C> <C>
Land and improvements........................ $ 19,861 $ 24,332
Buildings and improvements................... 76,528 69,748
Store fixtures and equipment................. 32,163 16,697
Beneficial leaseholds........................ 9,233 9,233
-------- --------
137,785 120,010
Less accumulated depreciation and amortiza-
tion........................................ (9,496) (792)
-------- --------
$128,289 $119,218
======== ========
</TABLE>
Included in property and equipment above are assets recorded under capital
leases consisting of the following:
<TABLE>
<CAPTION>
JULY 30, 1995 JULY 31, 1994
------------- -------------
<S> <C> <C>
Land and improvements......................... $ 1,358 $ 1,358
Buildings and improvements.................... 21,211 21,296
Store fixtures and equipment.................. 4,948
Beneficial leaseholds......................... 9,233 9,233
------- -------
36,750 31,887
Less accumulated amortization................. (1,982) (165)
------- -------
$34,768 $31,722
======= =======
</TABLE>
At July 31, 1994, store fixtures and equipment and accumulated depreciation
and amortization includes $1,295 and $28, respectively, relating to subleased
equipment. At July 30, 1995 there were no store fixtures and equipment
subleased.
Depreciation expense relating to property and equipment are as follows:
<TABLE>
<S> <C>
THE COMPANY
Year ended July 30, 1995.......................................... $9,432
Period from June 29, 1994 to July 31, 1994........................ $ 792
PREDECESSOR
Period from August 2, 1993 to June 28, 1994....................... $7,324
Year ended August 1, 1993......................................... $8,261
</TABLE>
F-27
<PAGE>
SMITTY'S SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF DOLLARS)
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JULY 30, 1995 JULY 31, 1994
------------- -------------
<S> <C> <C>
Term loan payable to banks, interest at LIBOR rate
plus 2%, 8% at July 30, 1995, maturities to 1999. $ 37,382 $ 40,000
Senior subordinated notes, 12 3/4% interest, net
of debt discount of $496 and $552, respectively,
due 2004......................................... 49,504 49,448
Senior discount debentures, 13 3/4% interest, net
of debt discount of $506 and $552, respectively,
due 2006......................................... 16,819 14,637
Sinking fund bonds, 10 1/2% interest, semi-annual
maturities to 2016............................... 12,123 12,198
Mortgage notes payable, repaid in 1995............ 77
Capital lease obligations......................... 32,096 27,556
-------- --------
147,924 143,916
Less current portion.............................. (6,089) (2,560)
-------- --------
$141,835 $141,356
======== ========
</TABLE>
In July, 1994, the Company's subsidiary entered into a Credit Agreement
whereby the lender agreed to provide a $40,000 Term Loan Facility (the "Term
Loan") and a $20,000 Revolving Credit Facility (the "Revolving Loan"). At July
30, 1995, $37,382 was outstanding under the term loan and $1,640 of the
revolving loan was utilized for various outstanding letters of credit. No
compensating balances are required. The interest rate for both facilities is
equal to, at the Company's option, the bank's prime rate plus 0.75% or LIBOR
rate plus 2%.
In connection with the Acquisition described in Note 2, the Company issued
$29,025 Senior Discount Debentures (the "Debentures"). The Debentures are
issued at a discount to their aggregate principal amount and the original
issue discount in the Debenture accretes from the issue date until June 15,
1999. Cash interest will not accrue on the Debentures prior to June 15, 1999.
The Debentures will bear cash interest payable semi-annually in arrears on
June 15 and December 15. The Debentures may be redeemed beginning in 1999 at a
redemption price of 105%. The redemption price declines ratably to 100% in
2004.
The Company's subsidiary issued $50,000 principal amount of Senior
Subordinated Notes (the "Subordinated Notes") in connection with the
Acquisition described in Note 2. The Subordinated Notes bear interest, payable
semi-annually on June 15 and December 15 at an annual rate of 12.75%. The
Subordinated Notes are subordinated to all Senior Indebtedness (as defined) of
the Company's subsidiary, and may be redeemed on or after June 15, 1999 at a
redemption price of 105%. The redemption price declines ratably to 100% in
2000.
Under the most restrictive covenants of the Company's long-term debt
agreements, payments of cash dividends and acquisition of capital stock are
not permitted. Additionally, the agreements require maintenance of specified
ratios.
At July 30, 1995, substantially all of the Company's assets were pledged as
collateral for the Term Loan, the Revolving Loan and the Sinking fund bonds.
F-28
<PAGE>
SMITTY'S SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF DOLLARS)
Maturities of the long-term obligations as of July 30, 1995 are as follows:
<TABLE>
<S> <C>
1996........................................................... $ 6,089
1997........................................................... 10,194
1998........................................................... 12,169
1999........................................................... 14,282
2000........................................................... 1,755
Thereafter..................................................... 103,435
--------
$147,924
========
</TABLE>
7. LEASES
The Company is a party to a number of non-cancelable lease agreements for
store and warehouse facilities with remaining lease terms ranging from 1 to 25
years and, in certain instances, providing for renewal periods of 5 to 30
years. The Company also subleases store departments, warehouse facilities and
properties with remaining lease terms ranging from 1 to 10 years. At July 30,
1995, future minimum lease payments under capital leases and future minimum
rental payments under operating leases having initial or remaining non-
cancelable terms of more than one year are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING SUBLEASE
LEASES LEASES RENTALS TOTALS
-------- --------- -------- --------
<S> <C> <C> <C> <C>
1996................................ $ 5,014 $ 10,253 $(1,669) $ 13,598
1997................................ 5,051 9,264 (1,108) 13,207
1998................................ 4,922 7,075 (903) 11,094
1999................................ 4,925 5,442 (861) 9,506
2000................................ 5,024 4,965 (828) 9,161
Thereafter.......................... 64,380 68,570 (2,042) 130,908
-------- -------- ------- --------
89,316 $105,569 $(7,411) $187,474
======== ======= ========
Less amount representing
executory costs.................... (5,658)
Less amount representing interest... (51,562)
--------
$ 32,096
========
</TABLE>
F-29
<PAGE>
SMITTY'S SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF DOLLARS)
Effective September, 1992, the Predecessor entered into an agreement to
lease its restaurant, snack bar/food court and candy departments to Morrison
Incorporated ("Morrison"). The agreement provided for an initial lease term of
ten years and three five-year renewal options. Minimum rentals under the lease
were $2,525 in the first year, $3,500 in the second year, and $4,000 per year
thereafter. In addition, Morrison was obligated to pay electricity and
property taxes for the leased premises. In September, 1994, the Company
resumed its food service operations and sales and costs attributed to such
operations are included in the Company's financial statements for the year
ended July 30, 1995. Results of operations prior to the agreement and
subsequent to September 24, 1994, for these departments are as follows:
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
------------- --------------
YEAR ENDED YEAR ENDED
JULY 30, 1995 AUGUST 1, 1993
------------- --------------
<S> <C> <C>
Sales........................................ $17,753 $2,476
Cost of sales................................ 6,329 933
------- ------
Gross profit................................. 11,424 1,543
Expenses..................................... 10,478 1,351
------- ------
Operating profit............................. $ 946 $ 192
======= ======
</TABLE>
Rental income from Morrison, determined on the basis of the straight-line
amounts of the total rentals during the ten-year lease term, are as follows:
<TABLE>
<S> <C>
THE COMPANY
Year ended July 30, 1995......................................... $2,783
Period from June 29, 1994 to July 31, 1994....................... $ 273
PREDECESSOR
Period from August 2, 1993 to June 28, 1994...................... $3,068
Year ended August 1, 1993........................................ $3,293
</TABLE>
Rent expense for all leases is as follows:
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
------------------------------ --------------------------------
PERIOD FROM PERIOD FROM
YEAR ENDED JUNE 29, 1994 TO AUGUST 2, 1993 TO YEAR ENDED
JULY 30, 1995 JULY 31, 1994 JUNE 28, 1994 AUGUST 1, 1993
------------- ---------------- ----------------- --------------
<S> <C> <C> <C> <C>
Minimum rentals......... $ 7,913 $ 625 $ 6,518 $ 5,169
Contingent rentals:
Capital................ 393 34 318 410
Operating.............. 31 6 34 176
Less sublease.......... (5,229) (471) (5,779) (5,891)
------- ----- ------- -------
$ 3,108 $ 194 $ 1,091 $ (136)
======= ===== ======= =======
</TABLE>
Contingent rental payments are principally determined on the basis of store
sales volume.
F-30
<PAGE>
SMITTY'S SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF DOLLARS)
8. PENSION AND PROFIT-SHARING PLANS
The Company maintains a profit-sharing/401(k) plan for employees.
Contributions are made to the plan at the discretion of the Company's Board of
Directors. The Company also contributes to a multi-employer defined benefit
union pension plan covering union employees. Contributions to these plans are
as follows:
<TABLE>
<CAPTION>
PROFIT MUTLI-
SHARING EMPLOYER
401(K) PLAN PENSION PLAN
----------- ------------
<S> <C> <C>
THE COMPANY
Year ended July 30, 1995........................ $525 $1,402
Period from June 29, 1994 to July 31, 1994...... $ 38 $ 3
PREDECESSOR
Period from August 2, 1993 to June 28, 1994..... $386 $ 26
Year ended August 1, 1993....................... $360 $ 268
</TABLE>
At September 30, 1993, the date of the most recent actuarial valuation, the
assets of the union pension fund exceeded the liability for vested benefits.
The Company's relative position with the union plan is not determinable.
9. SEVERANCE AND EMPLOYMENT CONTRACT TERMINATION COSTS
During 1993, the Predecessor underwent a reorganization which resulted in
the elimination of various office, store and warehouse positions. The 1993
results of operations include charges of $329 for severance payments and
related benefits for employees whose positions were eliminated.
In February, 1994, the Predecessor and the Predecessor's chairman entered
into an amendment to the chairman's employment contract. Results of operations
for the period from August 2, 1993 to June 28, 1994 include a $2 million
charge for a payment to the chairman under the terms of the amendment.
10. LITIGATION SETTLEMENTS
In November, 1993, the Predecessor agreed to a settlement of a lawsuit in
which an adverse jury verdict had been rendered. Under the terms of the
settlement agreement, the Predecessor agreed to pay $4.75 million cash and
issue a $6.25 million two-year mortgage note. Fiscal 1993 results of
operations include an $11 million charge for the settlement, plus a $1.8
million charge for the Predecessor's litigation costs incurred in fiscal 1993
and expected to be incurred in fiscal 1994. The Predecessor used the proceeds
from a four-year term loan payable to bank to finance the cash payment. Also
in November, 1993, the Predecessor reached a settlement of a lawsuit filed by
a former supplier providing for a $500 cash payment and a $500 one-year
mortgage note. Fiscal 1993 results of operations include a $1 million charge
for this settlement. Both mortgage notes were repaid on June 29, 1994.
In October, 1993, the Predecessor was served with proceedings in Maricopa
County, Arizona Superior Court instituted by Morrison seeking rescission of
the 1992 lease agreement and damages of not less than $3,000. In August, 1994,
the Company settled its litigation with Morrison. The settlement provided for
the cancellation of the lease agreement on September 25, 1994, in
consideration for which Morrison paid the Company $2.6 million and transferred
title to all of its inventories and fixtures and equipment in the restaurant,
snack bar/food court and candy departments.
F-31
<PAGE>
SMITTY'S SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF DOLLARS)
11. STEINBERG REORGANIZATION
In May, 1992, International's sole shareholder Steinberg, Inc. ("Steinberg")
filed for protection under Section C-36 of the CCAA. During the period from
June 29, 1994 to July 31, 1994, the period from August 2, 1993 to June 28,
1994 and fiscal 1993, the Predecessor incurred $50, $635 and $631,
respectively, of costs arising from the filing by Steinberg for protection
under Section C-36 of the CCAA and the subsequent reorganization of Steinberg.
In connection with the Acquisition, on April 28, 1994, the Predecessor paid
$585 and transferred property and equipment and property held for sale with a
net carrying value of $27,238 to SLHC Holdings, Inc. ("Holdings"), a wholly-
owned subsidiary of the Predecessor's former sole shareholder, Steinberg
International, Inc. ("International"), in exchange for Holdings' preferred
stock. On June 29, 1994, prior to the Acquisition, the Predecessor repurchased
certain shares of its common stock from International in consideration of a
$27,823 promissory note payable. Subsequently, also on June 29, 1994 and prior
to the Acquisition, the Predecessor transferred Holdings preferred stock to
International in consideration of the repayment of the promissory note.
12. LOSS ON PARTNERSHIP LIQUIDATION
A real estate development partnership in which the Predecessor was a partner
was liquidated in July, 1993. In connection with this liquidation, the
Predecessor obtained ownership of an operating shopping center property and an
undeveloped shopping center property in exchange for the forgiveness of notes
and accrued interest receivable from the partnership and its managing partner.
Fiscal 1993 results of operations include a $8,900 charge representing the
difference between the current value of the properties and the carrying value
of the notes and accrued interest receivable. The properties were transferred
to Holdings on April 28, 1994.
13. INCOME TAXES
In February, 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, Accounting for Income Taxes ("SFAS
109"), which supersedes Statement of Financial Accounting Standards No. 96
with the same title ("SFAS 96"). SFAS 96 was never adopted by the Predecessor.
The Predecessor adopted the provisions of SFAS 109 on August 2, 1993 and
elected not to restate prior year financial statements. The effect from prior
years of adopting SFAS 109 as of August 2, 1993 was not material.
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
------------------------------ --------------------------------
PERIOD FROM PERIOD FROM
YEAR ENDED JUNE 29, 1994 TO AUGUST 2, 1993 TO YEAR ENDED
JULY 30, 1995 JULY 31, 1994 JUNE 28, 1994 AUGUST 1, 1993
------------- ---------------- ----------------- --------------
<S> <C> <C> <C> <C>
Current........ $281 $(24) $(1,093) $ 2,003
Deferred....... 374 26 3,172 (6,825)
---- ---- ------- -------
$655 $ 2 $ 2,079 $(4,822)
==== ==== ======= =======
</TABLE>
The provision for income taxes for the period from August 2, 1993 to June
28, 1994 is net of $413 income tax benefit relating to the loss on
extinguishment of debt.
F-32
<PAGE>
SMITTY'S SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF DOLLARS)
A reconciliation of the provision (benefit) for income taxes and the amount
that would be computed using statutory federal income tax rates on income
before income taxes is as follows:
<TABLE>
<CAPTION>
THE COMPANY PREDECESSOR
------------------------------ --------------------------------
PERIOD FROM PERIOD FROM
YEAR ENDED JUNE 29, 1994 TO AUGUST 2, 1993 TO YEAR ENDED
JULY 30, 1995 JULY 31, 1994 JUNE 28, 1994 AUGUST 1, 1993
------------- ---------------- ----------------- --------------
<S> <C> <C> <C> <C>
Income taxes computed at
statutory federal
income tax rates....... $ 340 $(121) $1,774 $(4,426)
State income taxes...... 56 (9) 293 (684)
Amortization of
intangible assets...... 298 16 (104) 259
Deduction of tax
goodwill............... (425)
Amortization of discount
on capital lease
obligations............ 77 70
Increase in valuation
allowance.............. 336
Other................... 50 116 39 (41)
----- ----- ------ -------
$ 655 $ 2 $2,079 $(4,822)
===== ===== ====== =======
</TABLE>
At July 30, 1995 the Company had minimum tax credit and general business
credit carryovers for tax purposes of $2,956 and $488, respectively. Upon
recognition, the minimum tax credit carryover will be credited to the
valuation allowance.
The income tax effects of loss carryforwards, tax credit carryforwards and
temporary differences between financial and income tax reporting that give
rise to the deferred income tax assets and liabilities under the provisions of
SFAS 109 are as follows:
<TABLE>
<CAPTION>
JULY 30, 1995 JULY 31, 1994
------------- -------------
<S> <C> <C>
Deferred tax assets:
Accounts receivable................................ $ 649 $ 547
Inventories........................................ 298 332
Other assets....................................... 59 59
Accrued liabilities................................ 15,145 9,425
Capital Leases..................................... 2,313
Net operating loss carryovers and credits.......... 11,515 12,587
-------- --------
Gross deferred tax assets......................... 29,979 22,950
Valuation allowance............................... (29,979) (19,998)
-------- --------
Net deferred tax assets........................... 2,952
-------- --------
Deferred tax liabilities:
Inventories........................................ (4,642) (4,686)
Property and equipment............................. (13,767) (16,922)
Other assets....................................... (358)
-------- --------
Gross deferred tax liability...................... (18,409) (21,966)
-------- --------
Net deferred tax liability........................ $(18,409) $(19,014)
======== ========
</TABLE>
The changes in deferred tax assets and liabilities during 1995 primarily
resulted from the Company's finalization of the allocation of the Acquisition
purchase price. See Note 2.
F-33
<PAGE>
SMITTY'S SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(THOUSANDS OF DOLLARS)
14. FAIR VALUE OF INSTRUMENTS
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 Short Term Investments
The carrying amount approximates fair value because of the short maturity of
these instruments.
Accounts and Notes Receivable
The carrying amount approximates fair value as a result of the short
maturity of these instruments.
Long-term Debt
The fair value of the Company's long-term debt is estimated based on quoted
market prices or if market prices are not available, the present value of the
underlying cash flows discounted at the Company's incremental borrowing rates.
The carrying amounts and fair values of the Company's significant financial
instruments at July 30, 1995 are as follows:
<TABLE>
<CAPTION>
CARRYING AMOUNT FAIR VALUE
--------------- ----------
<S> <C> <C>
Cash and short-term investments................ $25,653 $25,653
Accounts and Notes receivable.................. 7,700 7,700
Long-term debt................................. 147,924 143,888
</TABLE>
15. CONTINGENCIES
The Company or its subsidiaries are defendants in a number of cases
currently in litigation or potential claims encountered in the ordinary course
of business which are being vigorously defended. The Company believes that the
ultimate resolution of these matters will not have a material adverse effect
on the financial position of the Company.
16. RELATED PARTY TRANSACTIONS
The Company has a five-year consulting agreement with an affiliated company,
effective June 29, 1994 for management services. The agreement is
automatically renewed on January 1 of each year for a five-year term unless
ninety (90) days' notice is given by either party. The contract provides for
annual management fees in an amount equal to one-tenth of one percent of
consolidated sales of the Company and advisory fees for acquisition and
financing transactions.
Fees paid for management services were $600 and $50 for fiscal years ended
July 30, 1995 and the period from June 29, 1994 to July 31, 1994,
respectively. Advisory fees paid or accrued for financing transactions are
capitalized and amortized over the term of the related financing. In
connection with the Acquisition, capitalized fees of $3 million were paid to
this affiliated company in fiscal 1994 for acquisition services.
F-34
<PAGE>
SMITTY'S SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(THOUSANDS OF DOLLARS)
17. OTHER INCOME (EXPENSE)--NET
The components of other income (expense) included in operating, selling,
general and administration expense are as follows:
<TABLE>
<CAPTION>
THE COMPANY THE PREDECESSOR
------------------------------ --------------------------------
PERIOD FROM PERIOD FROM
YEAR ENDED JUNE 29, 1994 TO AUGUST 2, 1993 TO YEAR ENDED
JULY 30, 1995 JULY 31, 1994 JUNE 28, 1994 AUGUST 1, 1993
------------- ---------------- ----------------- --------------
<S> <C> <C> <C> <C>
Gain (loss) on real
estate disposals....... $(2,173) $ 41
Steinberg reorganization
costs.................. $(50) (635) (631)
Loss on partnership
liquidation............ (8,900)
Litigation settlements.. $1,866 (13,805)
Other................... 387
------ ---- ------- --------
$1,866 $(50) $(2,808) $(22,908)
====== ==== ======= ========
</TABLE>
18. SUBSEQUENT EVENT
On January 29, 1996, the Company entered into a definitive Recapitalization
Agreement and Plan of Merger (the "Recapitalization Agreement") by and among
Smith's Food & Drug Centers, Inc., a Delaware corporation ("Smith's"), Cactus
Acquisition, Inc., a Delaware corporation and wholly owned subsidiary of
Smith's ("Acquisition"), the Company and The Yucaipa Companies, a California
general partnership, pursuant to which Acquisition will be merged with and
into the Company (the "Merger"), subject to the satisfaction or waiver of
various conditions. The Company, as the surviving corporation in the Merger,
will become a wholly owned subsidiary of Smith's. Consummation of the Merger
is subject to various conditions, including the receipt of regulatory
approvals and other necessary consents, receipt of financing and consummation
of the Recapitalization described below.
Upon effectiveness of the Merger, each share of common stock of the Company,
without distinction as to class, will be exchanged for 3.011803 shares of
Smith's Class B Common Stock, par value $.01 per share, subject to adjustment
under certain circumstances. This represents an aggregate of 3,038,888 shares
of Smith's Class B Common Stock issuable as consideration in the Merger.
Pursuant to the Recapitalization Agreement, on the closing date of the
Merger, Smith's shall assume, repay, or cause to be repaid, all outstanding
principal and interest, and other amounts payable, under the 12 3/4% Senior
Subordinated Notes due 2004 of Smitty's Super Valu, Inc., a wholly owned
subsidiary of the Company, the 13 3/4% Senior Discount Debentures due 2006 of
the Company, and the Company's existing credit facility with The Chase
Manhattan Bank, N.A.
Pursuant to the Recapitalization Agreement, Smith's will, subject to various
conditions, commence a tender offer to purchase 50% of its outstanding Class A
and Class B Common Stock; issue an aggregate of approximately $575 million of
new senior subordinated notes; borrow approximately $805 million under a new
$995 million bank credit facility; repay certain existing indebtedness and
engage in certain other recapitalization transactions (collectively, the
"Recapitalization") concurrently with the Merger. Smith's will also use its
reasonable efforts to cause Ronald W. Burkle, the Chairman of the Board of the
Company, to be elected Chief Executive Officer of Smith's upon the
consummation of the Merger and the Recapitalization.
F-35
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE NOTES OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE NOTES BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO
ANY PERSON TO WHOM 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 INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... i
Incorporation of Certain Documents by Reference........................... i
Summary................................................................... 1
Risk Factors.............................................................. 12
Pro Forma Capitalization.................................................. 17
Unaudited Pro Forma Combined Financial Statements......................... 18
Selected Historical Financial Data of Smith's............................. 27
Selected Historical Financial Data of Smitty's............................ 28
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 30
Business.................................................................. 41
Management................................................................ 52
Principal Stockholders.................................................... 55
Certain Relationships and Related Transactions............................ 57
Description of Notes...................................................... 63
Description of Capital Stock.............................................. 90
Description of New Credit Facility........................................ 92
Underwriting.............................................................. 95
Legal Matters............................................................. 96
Experts................................................................... 96
Index to Financial Statements............................................. F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
------------------
PROSPECTUS
------------------
[LOGO OF SMITH'S FOOD & DRUG CENTERS(R)]
$575,000,000
SMITH'S FOOD & DRUG
CENTERS, INC.
% SENIOR SUBORDINATED NOTES DUE 2007
BT SECURITIES CORPORATION
CS FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
GOLDMAN, SACHS & CO.
CHASE SECURITIES INC.
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with the
issuance and distribution of the Notes.
<TABLE>
<S> <C> <C>
SEC registration fee...................................... $250,000
NASD filing fee........................................... 30,500
Blue Sky fees and expenses................................ 30,000
Accounting fees and expenses.............................. 410,000
Legal fees and expenses................................... 500,000
Printing and engraving expenses........................... 240,000
Trustee fees.............................................. 9,000
Miscellaneous............................................. 25,000
----------
Total................................................. $1,494,500
==========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Smith's is a Delaware corporation and its Certificate of Incorporation and
Bylaws provide for indemnification of its officers and directors to the
fullest extent permitted by law. Pursuant to Section 102(b)(7) of the Delaware
General Corporation Law (the "DGCL") the Certificate of Incorporation of
Smith's eliminates the personal liability of its directors to Smith's or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liabilities related to breach of duty of loyalty, actions not in
good faith, and certain other liabilities.
Section 145 of the DGCL permits the indemnification by a Delaware
corporation of its directors, officers, employees and agents in connection
with actions, suits or proceedings brought against them by a third party or in
the right of the corporation, by reason of the fact that they were or are such
directors, officers, employees or agents, against liabilities and expenses
incurred in any such action, suit or proceeding.
The Underwriting Agreement provides for indemnification by the Underwriters
of Smith's and its directors, officers and controlling persons for certain
liabilities arising under the Securities Act.
The directors and officers of Smith's are insured against certain
liabilities under directors' and officers' liability insurance.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
A list of exhibits filed with this Registration Statement on Form S-3 is
set forth in the Index to Exhibits on page E-1, and is incorporated herein
by reference.
(b) Financial Statement Schedules
Not Applicable.
ITEM 17. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the foregoing provisions, or otherwise, the
registrants have 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
II-1
<PAGE>
a claim for indemnification against such liabilities (other than the payment
by the registrants of expenses incurred or paid by a director, officer or
controlling person of the registrants 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 registrants
will, unless in the opinion of their counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by them is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(b) The undersigned registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrants pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
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.
(c) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Salt Lake City, State of Utah, on
May 13, 1996.
Smith's Food & Drug Centers, Inc.
By /s/ MATTHEW G. TEZAK
-----------------------------------
MATTHEW G. TEZAK
SENIOR VICE PRESIDENT AND CHIEF
FINANCIAL OFFICER
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
* Chairman of the
- ------------------------------------- Board and Chief May 13, 1996
JEFFREY P. SMITH Executive Officer
* President and Chief
- ------------------------------------- Operating Officer May 13, 1996
ALLEN R. ROWLAND
/s/ MATTHEW G. TEZAK Senior Vice
- ------------------------------------- President and Chief May 13, 1996
MATTHEW G. TEZAK Financial Officer
(Principal
Financial and
Accounting Officer)
* Director
- ------------------------------------- May 13, 1996
DELONNE ANDERSON
* Director
- ------------------------------------- May 13, 1996
ROBERT D. BOLINDER
II-3
<PAGE>
SIGNATURES TITLE DATE
---------- ----- ----
* Director
- ------------------------------------- May 13, 1996
ALLEN P. MARTINDALE
* Director
- ------------------------------------- May 13, 1996
NICOLE MILLER
* Director
- ------------------------------------- May 13, 1996
DUANE PETERS
* Director
- ------------------------------------- May 13, 1996
RAY V. ROSE
* Director
- ------------------------------------- May 13, 1996
FRED L. SMITH
* Director
- ------------------------------------- May 13, 1996
RICHARD D. SMITH
* Director
- ------------------------------------- May 13, 1996
SEAN D. SMITH
* Director
- ------------------------------------- May 13, 1996
DOUGLAS JOHN TIGERT
* Director
- ------------------------------------- May 13, 1996
KENNETH A. WHITE
*By: /s/ MATTHEW G. TEZAK
---------------------------------
MATTHEW G. TEZAK
ATTORNEY-IN-FACT
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
+1.1 Form of Underwriting Agreement by and among Smith's Food & Drug
Centers, Inc. ("Smith's") and BT Securities Corporation, CS
First Boston Corporation, Donaldson, Lufkin & Jenrette
Securities Corporation, Goldman, Sachs & Co. and Chase
Securities Inc. (the "Underwriters") with respect to the %
Senior Subordinated Notes due 2007 (the "Notes").
+2.1 Recapitalization Agreement and Plan of Merger dated as of
January 29, 1996 by and among Smith's Food & Drug Centers,
Inc., Cactus Acquisition, Inc., Smitty's Supermarkets, Inc. and
The Yucaipa Companies (incorporated by reference to Exhibit 2.1
of the Company's Annual Report on Form 10-K for the fiscal year
ended December 30, 1995).
3.1 Form of Amended and Restated Certificate of Incorporation of
Smith's.
3.2 Form of Amended and Restated Bylaws of Smith's.
+4.1 Form of Indenture by and between Smith's and Fleet National
Bank of Connecticut, as Trustee, with respect to the Notes.
5.1 Opinion of Latham & Watkins regarding the legality of the
Notes, including consent.
10.1 Form of Credit Agreement dated as of May 23, 1996 by and among
Smith's, Bankers Trust Company and The Chase Manhattan Bank, as
Arrangers, the lenders named therein and Bankers Trust Company,
as Administrative Agent.
10.2 Standstill Agreement dated as of January 29, 1996 by and among
the Company, The Yucaipa Companies, Yucaipa SSV Partners, L.P.,
Yucaipa Smitty's Partners, L.P., Yucaipa Smitty's Partners II,
L.P., Yucaipa Arizona Partners, L.P., Jeffrey P. Smith, Richard
D. Smith, Fred L. Smith, Ida Smith and the other shareholders
of the Company named therein, as amended.
+10.3 Smith's Shareholder Agreement dated as of January 29, 1996 by
and among Smitty's Supermarkets, Inc., The Yucaipa Companies
and the shareholders of the Company named therein.
10.4 Smitty's Stockholder Agreement dated as of January 29, 1996 by
and among the Company, Cactus Acquisition, Inc. and the
stockholders of Smitty's Supermarkets, Inc. named therein, as
amended.
+10.5 Form of Registration Rights Agreement by and among the Company
and the holders of the Company's Common Stock named therein.
+10.6 Form of Management Services Agreement by and between the
Company and The Yucaipa Companies.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<C> <S> <C>
+10.7 Form of Warrant Agreement by and between the Company and The
Yucaipa Companies.
12.1 Statement regarding computation of ratio of earnings to fixed
charges.
21.1 Subsidiaries of the Company.
23.1 Consent of Latham & Watkins (included in the opinion filed as
Exhibit 5.1 to the Registration Statement).
23.2 Consent of Coopers & Lybrand L.L.P., independent accountants.
23.3 Consent of Ernst & Young LLP, independent auditors.
+23.4 Consent of Houlihan, Lokey, Howard & Zukin, Inc.
+24.1 Power of Attorney (included on signature page to the
Registration Statement).
25.1 Statement of Eligibility and Qualification on Form T-1 of Fleet
National Bank of Connecticut, as Trustee with respect to the
Notes (No. 22- ).
27 Financial Data Schedule.
+99.1 Consent of Linda McLoughlin Figel to be named as a proposed
Director.
+99.2 Consent of Ronald W. Burkle to be named as a proposed Director.
+99.3 Consent of Bruce Karatz to be named as a proposed Director.
+99.4 Consent of Bertram R. Zweig to be named as a proposed Director.
</TABLE>
- --------
* To be filed by amendment
+ Previously filed
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
SMITH'S FOOD & DRUG CENTERS, INC.
We, the President and Secretary of Smith's Food & Drug Centers, Inc.,
a Delaware corporation (the "Corporation"), do hereby certify as follows:
First: That the name of the Corporation is Smith's Food & Drug
Centers, Inc.
Second: That its certificate of incorporation was originally filed
with the Secretary of State of the State of Delaware on January 18, 1989.
Third: That the amendment and the restatement of the certificate of
incorporation have been duly adopted in accordance with the provisions of
Sections 242 and 245 of the Delaware General Corporation Law by the Corporation.
Fourth: That the text of the certificate of incorporation of the
Corporation, as amended, is hereby restated as further amended by this
certificate, to read in full, as follows:
ARTICLE I
---------
Name
----
The name of the Corporation is Smith's Food & Drug Centers, Inc.
ARTICLE II
----------
Registered Office
-----------------
The registered office of the Corporation in the State of Delaware is
located at 1209 Orange Street, in the City of Wilmington, County of New Castle.
The name of the Corporation's registered agent in the State of Delaware at such
address is The Corporation Trust Company.
ARTICLE III
-----------
Purpose
-------
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware.
1
<PAGE>
ARTICLE IV
----------
Capital Stock
-------------
Section 4.1. Number of Shares Authorized; Par Value. The Corporation
--------------------------------------
shall be authorized to issue two classes of shares of stock to be designated,
respectively, "Common Stock" and "Preferred Stock"; the total number of shares
which the Corporation shall have authority to issue is Two Hundred and Twenty-
Five Million (225,000,000), divided as follows:
(a) Common Stock. The total number of shares of Common Stock shall
------------
be One Hundred and Forty Million (140,000,000), divided into three classes
designated as Class A Common Stock, Class B Common Stock and Class C Common
Stock, as follows: the total number of authorized shares of Class A Common
Stock shall be Twenty Million (20,000,000), and each share of Class A Common
Stock shall have a par value of one cent ($0.01); the total number of authorized
shares of Class B Common Stock shall be One Hundred Million (100,000,000), and
each share of Class B Common Stock shall have a par value of one cent ($0.01)
and the total number of authorized shares of Class C Common Stock shall be
Twenty Million (20,000,000), and each share of Class C Common Stock shall have a
par value of one cent ($0.01).
(b) Preferred Stock. The total number of shares of Preferred Stock
---------------
shall be Eighty-Five Million (85,000,000), and each share of Preferred Stock
shall have a par value of one cent ($0.01).
Section 4.2. Voting Rights.
-------------
(a) Class A Common Stock. Each share of Class A Common Stock shall
--------------------
carry the right to ten (10) votes for the election of directors of the
Corporation and to ten (10) votes upon any matter presented to the stockholders
for their vote or approval, subject to conversion upon transfer as provided for
below.
(b) Class B Common Stock. Each share of Class B Common Stock shall
--------------------
carry the right to one (1) vote for the election of directors of the Corporation
and to one (1) vote upon any matter presented to the stockholders for their vote
or approval.
(c) Class C Common Stock. Each share of Class C Common Stock shall
--------------------
carry the right to no votes for the election of directors of the Corporation and
to no votes upon any matter presented to the stockholders for their vote or
approval, subject to conversion upon transfer as provided for below.
(d) Preferred Stock. Shares of Preferred Stock shall have such
---------------
voting rights as shall be fixed by the Corporation's Board of Directors from
time to time as provided in Section 4.5(b) below; provided that no share of
Preferred Stock other than shares designated as Series I Preferred Stock under
Section 4.5(c) below shall be entitled to more than one (1) vote for the
election of directors of the Corporation and one (1) vote upon any other matter
presented to the stockholders for their vote or approval.
Section 4.3. Sales or Transfer of Shares of Class A Common Stock;
----------------------------------------------------
Conversion of Shares of Class A Common Stock.
- --------------------------------------------
(a) "Original Class A Stockholder" Defined. For purposes of this
--------------------------------------
Section 4.3, an "Original Class A Stockholder" shall mean, with respect to any
given share of Class A Common Stock,
2
<PAGE>
the person to whom such share was originally issued; provided that in the event
that a share of Class A Common Stock is issued to a person that is a
corporation, partnership, association or trust (hereafter an "Entity Holder") in
a merger from which the Corporation is the surviving corporation, and if such
Entity Holder obtained the securities which were in such merger converted into
Class A Common Stock (for purposes of this subsection, the "Securities") from a
natural person, the Original Class A Stockholder with respect to such share of
Class A Common Stock shall be deemed to be the natural person from whom such
Entity Holder obtained the Securities, as shown on the records of the merged
corporation.
(b) Restrictions Upon Sale or Transfer of Shares of Class A Common
--------------------------------------------------------------
Stock. No share of Class A Common Stock may be sold, assigned, pledged (subject
- -----
to the provisions of Section 4.3(f), below), hypothecated, transferred (by gift,
will, laws of intestacy or otherwise) or exchanged or otherwise disposed of
(herein all these actions are referred to as a "transfer" or to be
"transferred") by the holder thereof except only to the following persons (each
a "Permitted Transferee"):
(1) a spouse, child, grandchild, sibling, parent or other lineal
descendant of such share's Original Class A Stockholder (a "Family
Member"); and
(2) an Entity Holder, all of the equity and/or beneficial interests
in which are owned beneficially and of record by such share's Original
Class A Stockholder and/or such Original Class A Stockholder's Family
Members (a "Family Entity").
(c) Requirement to Convert to Class B Common Stock. Upon the
----------------------------------------------
occurrence of any of the events listed below in this Section 4.3(c) with respect
to any share of Class A Common Stock, the holder and, if applicable, the
transferee of such Class A Common Stock shall promptly present such share(s) to
the Corporation for conversion into an equal number of shares of Class B Common
Stock:
(1) the transfer of Class A Common Stock by the holder thereof to
other than a Permitted Transferee of such shares;
(2) the transfer of any equity or beneficial interest in a Family
Entity which is a holder of Class A Common Stock to other than a Permitted
Transferee of the Original Class A Shareholder of the shares of Class A
Common Stock held by the Family Entity, as determined under Section 4.3(a),
above;
(3) foreclosure upon Class A Common Stock by a bona fide pledgee
thereof; or
(4) the agreement to transfer Class A Common Stock by a trustee in
the bankruptcy of the estate of the holder thereof.
(d) Enforcement of Requirement to Convert. The Corporation shall be
-------------------------------------
entitled to seek specific enforcement of the requirements of Section 4.3(c) upon
the failure of any holder and/or transferee of shares of Class A Common Stock to
comply with the requirements thereof. In such event the Corporation shall be
entitled to recover from the holder and the transferee who failed to comply with
Section 4.3(c), jointly and severally, the court costs, reasonable attorneys'
fees and other costs and expenses incurred by it in connection with the
obtaining of such specific enforcement. The Corporation shall further be
entitled to actual and consequential damages incurred as a result of a willful
violation of the requirements of Section 4.3(c), including without limitation
court costs and reasonable attorneys' fees.
3
<PAGE>
(e) Annual Report to Corporation by Entity Holders. In order to
----------------------------------------------
enable the Corporation to enforce the provisions of Section 4.3(c), each Entity
Holder shall report in writing to the Corporation no later than the last day of
December each year the names and addresses of every person who, during the year
then concluded, owned a beneficial or equity interest in such Entity Holder, as
well as a list of the officers, trustees, general partners, etc. of such Entity
Holder who held office during the year.
(f) Pledge of Shares of Class A Common Stock. Shares of Class A
----------------------------------------
Common Stock may be pledged or otherwise encumbered to secure a bona fide loan
or other obligation without violating the restrictions set forth in Section
4.3(b) or invoking the requirements of Section 4.3(c); provided that a
foreclosure upon any pledged shares by the pledgee for the purpose of selling
such pledged shares other than to a Permitted Transferee of the Original Class A
Stockholder of such pledged or encumbered shares shall invoke upon the pledgee
the requirements of Section 4.3(c) to present such shares to the Corporation for
conversion to shares of Class B Common Stock prior to any transfer by the
pledgee.
(g) Optional Conversion into Shares of Class B Common Stock. Any
-------------------------------------------------------
Class A Stockholder shall have the right at any time to convert any share of
Class A Common Stock into one (1) share of Class B Common Stock, by presenting
the necessary certificates to the Corporation for transfer.
(h) Mandatory Conversion of Class A Common Stock into shares of Class
-----------------------------------------------------------------
B Common Stock. If at any time the total number of shares of Class A Common
- --------------
Stock issued and outstanding shall be less than 2,910,885, as reflected upon the
stock records of the Corporation, then each share of Class A Common Stock issued
and outstanding at such time shall automatically convert into one (1) share of
Class B Common Stock, each outstanding warrant, option or other right to receive
or purchase shares of Class A Common Stock outstanding at such time shall
automatically convert to a right to receive or purchase an equal number of
shares of Class B Common Stock, all without the need for the Corporation or any
stockholder to take any action, and no further shares of Class A Common Stock
may thereafter be issued by the Corporation. After such automatic conversion,
each owner of an outstanding certificate or certificates theretofore
representing shares of Class A Common Stock shall be entitled, upon surrendering
such certificate or certificates to the Corporation, to receive in exchange
therefor a certificate or certificates representing the number of shares of
Class B Common Stock into which the shares of Class A Common Stock theretofore
represented by the surrendered certificate or certificates shall have been
converted as herein provided. Until so surrendered, each outstanding
certificate which, prior to such automatic conversion represented shares of
Class A Common Stock, shall be deemed, for all corporate purposes, to represent
the ownership of the shares of Class B Common Stock into which such shares of
Class A Common Stock were converted on the basis herein provided.
Section 4.4. Sales or Transfer of Shares of Class C Common Stock;
----------------------------------------------------
Conversion of Shares of Class C Common Stock.
- --------------------------------------------
(a) "Original Class C Stockholder" Defined. For purposes of this
--------------------------------------
Section 4.4, an "Original Class C Stockholder" shall mean, with respect to any
given share of Class C Common Stock, any person or entity deemed to be a member
of the "Investor Group" pursuant to that certain Standstill Agreement dated as
of January 29, 1996 (as amended, the "Standstill Agreement"), among the
Corporation, The Yucaipa Companies, Yucaipa SSV Partners, L.P., Yucaipa Smitty's
Partners, L.P., Yucaipa Smitty's Partners II, L.P., Yucaipa Arizona Partners,
L.P., and the stockholders of the Corporation named therein, as it may be
amended from time to time.
(b) Permitted Conversion to Class B Common Stock. Upon the transfer
--------------------------------------------
of Class C Common Stock by an Original Class C Stockholder to a third party
other than another Original Class C
4
<PAGE>
Stockholder, the transferee of such Class C Common Stock may present such
share(s) to the Corporation for conversion into an equal number of shares of
Class B Common Stock. No conversion of Class C Common Stock into Class B Common
Stock shall be permitted for shares of Class C Common Stock held by an Original
Class C Stockholder or any party bound by the terms of the Standstill Agreement
as a member of the Investor Group, as in effect from time to time.
Section 4.5. Other Rights and Preferences.
----------------------------
(a) Common Stock. Except as otherwise specifically set forth herein
------------
as to voting powers, all shares of Common Stock shall have the same rights and
preferences.
(b) Preferred Stock. Except as set forth below in Section 4.5(c),
---------------
the rights and privileges of the Preferred Stock shall be fixed by the
Corporation's Board of Directors from time to time by resolution. By such
resolution the Board of Directors may establish a series of such Preferred Stock
and fix and determine the relative voting powers, preferences, rights and
qualifications, limitations and restrictions of the shares of any series so
determined in respect to the Common Stock and in respect to the other series of
Preferred Stock; provided that no series so designated shall have rights or
preferences superior to the rights and preferences of Series I Preferred Stock,
as set forth in Section 4.5(c) below; and provided further that no share of
Preferred Stock other than shares designated as Series I under Section 4.5(c)
shall be entitled to more than one (1) vote for the election of directors of the
Corporation and one (1) vote upon any other matter presented to the stockholders
for their vote or approval.
(c) Series I Preferred Stock. Thirty-Four Million Five Hundred
------------------------
Twenty-Four Thousand Five Hundred Seventy-Nine (34,524,579) shares of Preferred
Stock are hereby designated as Series I Preferred Stock, which shall have the
following rights and preferences:
(1) Preference. If the Corporation shall be dissolved or liquidated;
----------
if it shall sell all or substantially all of its assets, whether voluntary
or involuntary, or whether required or ordered by any federal or state
authority, agency, court, or body; if it shall become insolvent; or
distribute its capital in a winding-up of the Corporation, the holders of
the issued and outstanding shares of Series I Preferred Stock shall be
entitled to receive the amount of Thirty-Three and One-Third Cents ($0.33-
1/3) per share on a pro-rata basis with the holders of other series of
Preferred Stock before any sum shall be paid or any assets distributed to
the holders of shares of Common Stock.
(2) Redemption
----------
(i) Redemption Price. The redemption price for all
----------------
redemptions of Series I Preferred Stock made in accordance with this
Section 4.5(c)(2) shall be Thirty-Three and One-Third Cents ($0.33-
1/3) per share.
(ii) Optional Redemption. All shares of Series I
-------------------
Preferred Stock shall be subject to redemption by the Corporation at
any time after May 1, 1998 by order of the Board of Directors. If
less than the whole amount of the outstanding Series I Preferred Stock
shall be redeemed, each holder of Series I Preferred Stock shall be
entitled to have a portion of his, her or its shares redeemed on a pro
rata basis. In the case of such a redemption, the Corporation shall
send written notice thereof to each of the registered holders of
Series I Preferred Stock at least sixty (60) days prior to the date
designated in such notice for such redemption. Such notice shall set
forth the manner in which the
5
<PAGE>
certificates shall be surrendered in order to receive payments of the
redemption price. Upon presentation of any certificate representing
the shares to be redeemed, properly endorsed, the Corporation shall
deliver its check to the holder thereof in payment of the redemption
price for those shares. In the event all of the Series I Preferred
Stock represented by the surrendered certificate are not redeemed, the
Corporation shall promptly deliver to the holder of such certificate a
new certificate representing the shares of the Series I Preferred
Stock represented by such surrendered certificate which are not being
redeemed.
(iii) Mandatory Redemption. Shares of Series I Preferred
--------------------
Stock shall be redeemed as follows:
(A) On the 1st day of each December, beginning December 1,
1989, the Corporation shall, to the extent permitted by the laws
of the State of Delaware, redeem from the holder or the holder's
successor, one-eleventh (1/11th) of the number of authorized
shares of Series I Preferred Stock; provided that for the five
--------
year period between December 1, 1996 through December 1, 2001 the
Company shall not redeem any portion of its Series I Preferred
Stock.
(B) The redemption price of Thirty-Three and One-Third
Cents ($0.33-1/3) per share of Series I Preferred Stock shall be
paid by check upon presentation by the holders of such shares to
the Secretary of the Corporation of a certificate or certificates
for the appropriate number of shares then to be redeemed,
properly endorsed by such holders. In the event that such
certificate or certificates represent a greater number of shares
than the number of shares to be redeemed pursuant to this Section
4.5(c)(2)(iii), the Corporation shall promptly deliver to the
holders of such certificate or certificates a new certificate
representing the shares of Series I Preferred Stock represented
by such surrendered certificate or certificates which are not
being so redeemed.
(iv) Remedy upon Failure to Redeem. In the event of the
-----------------------------
failure of the Corporation to redeem any of the shares of Series I
Preferred Stock as required by Section 4.5(c)(2)(iii) above, each
holder of Series I Preferred Stock shall be entitled, at his, her or
its option, to require the Corporation to redeem all of the then
outstanding shares of Series I Preferred Stock held by such holder,
provided that the Corporation's default has not been cured within
thirty (30) days after a delivery to the Corporation of written notice
of default by such holder. In the event of the exercise of such
option by any holder of Series I Preferred Stock, the Corporation
shall, to the extent permitted by the laws of the State of Delaware,
pay a redemption price of Thirty-Three and One-Third Cents ($0.33-1/3)
per each share of Series I Preferred Stock by check upon presentation
by such holder of the certificate or certificates representing all
shares of Series I Preferred Stock to be redeemed, properly endorsed
by such holder.
(v) Retirement and Cancellation. All shares of Series I
---------------------------
Preferred Stock which shall have been redeemed as herein provided
shall be cancelled and shall not be reissued as Series I Preferred
Stock, and the Corporation shall from time to time take such
appropriate corporate action as may be necessary to reduce the
authorized number of shares of Series I Preferred Stock accordingly.
6
<PAGE>
(3) Voting Rights.
-------------
(i) General Voting Rights. Except as otherwise set forth
---------------------
in Section 4.5(b)(3)(ii) below, each share of Series I Preferred Stock
shall be entitled to ten (10) votes for the election of directors of
the Corporation and to ten (10) votes upon any matter that comes to a
vote before the stockholders of the Corporation on which the holders
of any series of Common Stock are entitled to vote; provided that the
holders of shares of Series I Preferred Stock shall be entitled to
vote as a class upon any amendment to the Corporation's Certificate of
Incorporation adversely affecting the rights of the holders of Series
I Preferred Stock. The affirmative vote of the holders of a majority
of the issued and outstanding shares of Series I Preferred Stock shall
be required to approve any such amendment.
(ii) Reduction of Voting Rights Following Certain
--------------------------------------------
Transfers.
---------
(A) If, on or after June 1, 1996, any share of Series I
Preferred Stock is sold, assigned, pledged, hypothecated,
transferred (by gift, will, laws of intestacy or otherwise) or
exchanged or otherwise disposed of, other than to a Permitted
Series I Transferee (as defined below), then, without any action
required by the Corporation or the transferor or the transferee
of such share, such share of Series I Preferred Stock shall
automatically have the number of votes allocated to such share
reduced from ten (10) votes per share to one (1) vote per share.
(B) For purposes of this Section 4.5(b), a "Permitted
Series I Transferee" shall mean, with respect to any given share
of Series I Preferred Stock, (1) a spouse, child, grandchild,
sibling, parent or other lineal descendant of (or, with respect
to any shares held by a person that is not a natural person, any
affiliate (as defined in Rule 12b-2 under the rules and
regulations of the Securities Exchange Act of 1934, as amended)
of) such share's Original Series I Preferred Stockholder (as
defined below), (2) any other Original Series I Preferred
Stockholder or (3) any person which is a party to the Standstill
Agreement referred to in Section 4.4(a). An "Original Series I
Preferred Stockholder" shall mean, with respect to any given
share of Series I Preferred Stock, the person to whom such share
was originally issued.
ARTICLE V
---------
Bylaws
------
In furtherance and not in limitation of the power conferred upon the
Board of Directors by law, the Board of Directors shall have power to make,
adopt, alter, amend and repeal, from time to time, the Bylaws of the
Corporation, subject to the right of the stockholders entitled to vote with
respect thereto to alter and repeal Bylaws made by the Directors.
7
<PAGE>
ARTICLE VI
----------
Directors
---------
Section 6.1. The number of directors which shall constitute the full
------------
Board of Directors shall be determined by resolution of the Board of Directors
from time to time, provided that such resolution shall not designate a number of
directors other than seven (7) without the unanimous approval of the directors
then in office.
Section 6.2. The board of directors, other than those directors
------------
elected by the holders of any series of Preferred Stock as may be entitled to
the election of directors, shall be divided into three classes, as nearly equal
in number as possible, with the term of office of one class expiring each year
and with each director serving for a term ending at the third annual meeting of
stockholders of the Corporation following the annual meeting at which such
director was elected.
Section 6.3. Except as otherwise provided for or fixed pursuant to
------------
this Restated Certificate of Incorporation relating to the rights of the holders
of any series of Preferred Stock to elect additional directors, and subject to
the provisions hereof, newly created directorships resulting from any increase
in the authorized number of directors, and any vacancies on the Board resulting
from death, resignation, disqualification, removal, or other cause, may be
filled only by the affirmative vote of a majority of the remaining directors
then in office, even though less than a quorum of the Board. Any director
elected in accordance with the preceding sentence shall hold office for the
remainder of the full term of the class of directors in which the new
directorship was created or in which the vacancy occurred, and until such
director's successor shall have been duly elected and qualified, subject to his
earlier death, disqualification, resignation or removal. No decrease in the
number of directors constituting the Board shall shorten the term of any
incumbent director.
Section 6.4. Notwithstanding the provisions of Sections 6.2 and 6.3
------------
of this Article VI, each director shall serve until his successor is elected and
qualified or until his or her death, retirement, resignation or removal.
ARTICLE VII
-----------
Written Ballot
--------------
Elections of directors need not be by written ballot unless the bylaws
of the Corporation shall so provide.
ARTICLE VIII
------------
Personal Liability of Directors
-------------------------------
Section 8.1. To the fullest extent that the laws of the State of
------------
Delaware, as the same exist or may hereafter be amended, permit elimination of
the personal liability of directors, no director of the Corporation shall be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director.
8
<PAGE>
Section 8.2. Any amendment or repeal of this Article VIII or adoption
------------
of any Bylaw of the Corporation or other provision of the Certificate of
Incorporation of the Corporation which has the effect of increasing director
liability shall operate prospectively only and shall not affect any action
taken, or any failure to act, by a director of the Corporation prior to such
amendment, repeal, Bylaw or other provision becoming effective.
ARTICLE IX
----------
Indemnification of, and Advancement of
--------------------------------------
Expenses to, Directors, Officers and Other
------------------------------------------
The Corporation shall indemnify its officers, directors, employees and agents as
provided in its Bylaws.
9
<PAGE>
IN WITNESS WHEREOF, Smith's Food & Drug Centers, Inc. has caused this
certificate to be signed by Jeffrey P. Smith, its President, and Michael C.
Frei, its Secretary, this _____ day of ___________, 1996.
SMITH'S FOOD & DRUG CENTERS, INC.
By:________________________________
Jeffrey P. Smith
President
Attest:
_________________________
Michael C. Frei
Secretary
STATE OF UTAH )
: ss.
COUNTY OF SALT LAKE )
On this ____th day of ________ 1996, personally appeared before me
Jeffrey P. Smith and Michael C. Frei, who being duly sworn did say that they are
the President and Secretary, respectively, of Smith's Food & Drug Centers, Inc.,
and that they signed the foregoing Restated Certificate of Incorporation on
behalf of such corporation by authority of its bylaws and a resolution adopted
by its board of directors, and they acknowledged to me that such corporation
executed the same, and verified that the information contained therein is true
and correct.
___________________________________
Notary Public
Residing at:_______________________
My Commission Expires:
______________________
10
<PAGE>
EXHIBIT 3.2
SMITH'S FOOD & DRUG CENTERS, INC.
(a Delaware corporation)
BY-LAWS
ARTICLE I
OFFICES
-------
Section 1.01. Registered Office. The registered office of Smith's
------------ -----------------
Food & Drug Centers, Inc. (the "Corporation") in the State of Delaware shall be
at 1209 Orange Street, City of Wilmington, County of New Castle, and the name of
the registered agent in charge thereof shall be The Corporation Trust Company.
Section 1.02. Other Offices. The Corporation may also have an office
------------ -------------
or offices at such other place or places, either within or without the State of
Delaware, as the Board of Directors (the "Board") may from time to time
determine or as the business of the Corporation may require.
ARTICLE II
STOCKHOLDERS
------------
Section 2.01. Annual Meetings. Annual meetings of the stockholders
------------ ---------------
of the Corporation for the purpose of electing directors and for the transaction
of such other proper business as may come before such meetings may be held at
such time, date and place as the Board shall determine by resolution.
Section 2.02. Special Meetings. Special meetings of the stockholders
------------ ----------------
may be called at any time, for the purpose or purposes set forth in the call, by
the Chief Executive Officer, President or the Board of Directors by delivering a
written request to the Secretary. At any time, upon the written request of any
person or persons who have duly called a special meeting, it shall be the duty
of the Secretary to give due notice thereof. Special meetings shall be held at
such place, either within or without the State of Delaware, and at such time and
date as may from time to time be designated by the person or persons calling the
meeting and as specified in the notice of the meeting.
Section 2.03. Notice of Annual and Special Meetings. Except as
------------ -------------------------------------
otherwise expressly required by law, notice of each meeting of stockholders,
whether annual or special, shall be given at least ten (10) and not more than
sixty (60) days prior to the date on which the meeting is to be held to each
1
<PAGE>
stockholder of record entitled to vote thereat by delivery of a notice thereof
to him personally or by sending a copy thereof through the United States mail or
by telegram, charges prepaid, to his address appearing on the records of the
Corporation. Each such notice shall specify the place, day and hour of the
meeting and, in the case of a special meeting, shall briefly state the purpose
or purposes for which the meeting is called. A written waiver of notice, signed
by the person or persons entitled to such notice, whether before or after the
date and time fixed for the meeting shall be deemed the equivalent of such
notice. Neither the business to be transacted at nor the purpose of the meeting
need be specified in a waiver of notice of such meeting.
Section 2.04. Quorum. A stockholders' meeting duly called shall not
------------ ------
be organized for the transaction of business unless a quorum is present. At any
meeting the presence in person or by proxy of stockholders entitled to cast at
least a majority of the votes which all stockholders are entitled to be cast on
the particular matter shall constitute a quorum for the purpose of considering
such matter, except as otherwise expressly provided by law or by the Certificate
of Incorporation or By-Laws of the Corporation. The stockholders present at a
duly organized meeting can continue to do business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum. If a meeting cannot be organized because a quorum has not attended,
those present may adjourn the meeting from time to time to such time (not more
than thirty (30) days after the next previous adjourned meeting) and place as
they may determine, without notice other than by announcement at the meeting of
the time and place of the adjourned meeting.
Section 2.05. Voting.
------------ ------
(a) At every meeting of stockholders, each holder of record of issued
and outstanding stock of the Corporation entitled to vote at such meeting shall
be entitled to vote in person or by proxy and, except where a date has been
fixed as the record of date for the determination of stockholders entitled to
notice of or to vote at such meeting, no holder of record of a share of stock
which has been transferred on the books of the Corporation within ten (10) days
next preceding the date of such meeting shall be entitled to notice of or to
vote at such meeting in respect of such share so transferred.
(b) Shares of its own stock belonging to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors in such other corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor be
2
<PAGE>
counted for quorum purposes. Persons holding stock of the Corporation in a
fiduciary capacity shall be entitled to vote such stock. Persons whose stock is
pledged shall be entitled to vote, unless in the transfer by the pledgor on the
books of the Corporation he shall have expressly empowered the pledgee to vote
thereon, in which case only the pledgee, or his proxy, may represent such stock
and vote thereon. Stock having voting power standing of record in the names of
two or more persons, whether fiduciaries, members of a partnership, joint
tenants in common, tenants by entirety or otherwise, or with respect to which
two or more persons have the same fiduciary relationship, shall be voted in
accordance with the provisions of the General Corporation Law of the State of
Delaware.
(c) Any such voting rights may be exercised by the stockholder
entitled thereto in person or by his proxy appointed by an instrument in
writing, subscribed by such stockholder or by his attorney thereunto authorized
and delivered to the secretary of the meetings; provided, however, that no proxy
shall be voted or acted upon after three years from its date unless said proxy
shall provide for a longer period. The attendance at any meeting of a
stockholder who may therefore have given a proxy shall not have the effect of
revoking the same unless he shall in writing so notify the secretary of the
meeting prior to the voting of the proxy.
(d) Except with respect to the election of directors, resolutions of
the stockholders shall be adopted, and any action of the stockholders at a
meeting upon any matter shall be taken and be valid, only if at least a majority
of the votes cast with respect to such resolutions or matter are cast in favor
thereof, except as otherwise expressly provided by law or by the Certificate of
Incorporation or By-Laws of the Corporation. The vote at any meeting of the
stockholders on any question need not be by ballot, unless so directed by the
chairman of the meeting. On a vote by ballot each ballot shall be signed by the
stockholder voting, or by his proxy, if there be such proxy, and it shall state
the number of shares voted.
(e) The Chairman of the Board (if one has been elected and is present)
shall be chairman, and the Secretary (if present) shall act as secretary, at all
meetings of the stockholders. In the absence of the Chairman of the Board, the
Chief Executive Officer shall be chairman; in the absence of the Chief Executive
Officer, the President shall be chairman; and in the absence of all of them, the
chairman shall be designated by the Board of Directors or if not so designated
shall be elected by the stockholders present; and in the absence of the
Secretary, an Assistant Secretary shall act as secretary of the meeting.
3
<PAGE>
Section 2.06. List of Stockholders. The Secretary of the
------------ --------------------
Corporation shall prepare and make, at least ten (10) days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at a
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 2.07. Judges. If at any meeting of the stockholders a vote
------------ ------
by written ballot shall be taken on any question, the chairman of such meeting
may appoint a judge or judges to act with respect to such vote. Each judge so
appointed shall first subscribe an oath faithfully to execute the duties of a
judge at such meeting with strict impartiality and according to the best of his
ability. Such judges shall decide upon the qualification of the voters and
shall report the number of shares represented at the meeting and entitled to
vote on such question, shall conduct and accept the votes, and, when the voting
is completed, shall ascertain and report the number of shares voted respectively
for and against the question. Reports of judges shall be in writing and
subscribed and delivered by them to the Secretary of the Corporation. The
judges need not be stockholders of the Corporation, and any officer of the
Corporation may be a judge on any question other than a vote for or against a
proposal in which he shall have a material interest.
Section 2.08. Procedure at Stockholders' Meetings. The organization
------------ -----------------------------------
of each meeting of the stockholders, the order of the business thereat and all
matters relating to the manner of conducting the meetings shall be determined by
the chairman of the meeting, whose decisions may be overruled only by majority
vote (which shall not be by ballot) of the stockholders present and entitled to
vote at the meeting in person or by proxy. Meetings shall be conducted in a
manner designated to accomplish the business of the meeting in a prompt and
orderly fashion and to be fair and equitable to all stockholders, but it shall
not be necessary to follow Roberts Rules of Order or any other manual of
parliamentary procedure.
4
<PAGE>
Section 2.09. Action Without Meeting. Unless otherwise provided by
------------ ----------------------
the Certificate of Incorporation, any action required to be taken at any annual
or special meeting of stockholders, or any action which may be taken at any
annual or special meeting, may be taken without a meeting, without prior notice
and without a vote, if a consent or consents in writing, setting forth the
action so taken, shall be signed by the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote therein were
present and voted, and such written consent is delivered to the Corporation by
delivery to its registered office in Delaware, its principal place of business
or an officer or agent of the Corporation having custody of the book in which
proceedings of meetings of stockholders are recorded.
ARTICLE III
DIRECTORS
---------
Section 3.01. General Powers. The property, business and affairs of
------------ --------------
the Corporation shall be managed by, or under the direction of, the Board.
Section 3.02. Number, Election and Term of Office. The number of
------------ -----------------------------------
directors which shall constitute the full Board of Directors shall be determined
by resolution of the Board or by the stockholders at the annual meeting. Each
director shall hold office for the term for which he is elected and thereafter
until his successor is duly elected or until his prior death, resignation or
removal in the manner hereinafter provided. Directors need not be stockholders.
Section 3.03. Annual Meetings. Annual meetings of the Board of
------------ ---------------
Directors shall be held each year at the same place as and immediately after the
annual meeting of stockholders, or at such other place and time as shall
theretofore have been determined by the Board. At its regular annual meeting,
the Board of Directors shall organize itself and elect the officers of the
Corporation for the ensuing year, and may transact any other business.
Section 3.04. Regular Meetings. Regular meetings of the Board of
------------ ----------------
Directors may be held at such intervals and at such time and place as shall from
time to time be determined by the Board. After there has been such
determination and notice thereof has been once given to each person then a
member of the Board of Directors, regular meetings may be held at such intervals
and time and place without further notice being given.
5
<PAGE>
Section 3.05. Special Meetings. Special meetings of the Board of
------------ ----------------
Directors may be called at any time by the Board, by the Chairman of the Board,
by the Chief Executive Officer, by the President or by any two directors to be
held on such day and at such time and place as shall be specified by the person
or persons calling the meeting.
Section 3.06. Notice of Annual and Special Meetings. Except as
------------ -------------------------------------
otherwise expressly required by law, notice of the annual meeting of the Board
of Directors need not be given. Except as otherwise expressly required by law,
notice of every special meeting of the Board of Directors specifying the place,
date and time thereof shall be given to each director in writing either by
being mailed on at lest the fifth day prior to the date of the meeting or by
being delivered by telegraph, confirmed air courier or personally at least 48
hours prior to the time of the meeting. A written waiver of notice of a special
meeting, signed by the person or persons entitled to such notice, whether before
or after the date and time stated therein fixed for the meeting, shall be deemed
the equivalent of such notice, and attendance of a director at a meeting shall
constitute a waiver of notice of such meeting except when the director attends
the meeting for the express purpose of objecting, when he enters the meeting, to
the transaction of any business because the meeting is not lawfully called or
convened.
Section 3.07. Quorum and Manner of Acting. At all meetings of the
------------ ---------------------------
Board of Directors, except as otherwise expressly provided by law or by the
Certificate of Incorporation or By-Laws of the Corporation, the presence of a
majority of the full Board shall be necessary and sufficient to constitute a
quorum for the transaction of business. If a quorum is not present at any
meeting, the meeting may be adjourned from time to time by a majority of the
directors present until a quorum as aforesaid shall be present, but notice of
the time and place to which such a meeting is adjourned shall be given to any
directors not present until a quorum as aforesaid shall be present, but notice
of the time and place to which such a meeting is adjourned shall be given to any
directors not present either by being by telegraph or given personally or by
telephone at least eight hours prior to the date of reconvening. Resolutions of
the Board of Directors shall be adopted, and any action of the Board at a
meeting upon any matter shall be taken and be valid, only with the affirmative
vote of at least a majority of the directors present at the meeting, except as
otherwise provided herein. The Chairman of the Board (if one has been elected
and is present) shall be chairman, and the Secretary (if present ) shall act as
secretary, at all meetings of the Board. In the absence of the Chairman of the
Board, the Chief Executive Officer shall be chairman; in the absence of the
Chief Executive Officer, the President shall be chairman; and in the absence of
all of them, the directors present shall select a member of the Board of
Directors to be
6
<PAGE>
chairman; and in the absence of the Secretary, the chairman of the meeting shall
designate any person to act as secretary of the meeting.
Section 3.08. Action Without Meeting. Any action required or
------------ ----------------------
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if a consent in writing,
setting forth the actions so taken, shall be signed by all members of the Board
or such committee, as they case may be, and such written consent is filed with
the minutes of proceedings of the Board or committee.
Section 3.9. Participation by Conference Telephone. Members of the
----------- -------------------------------------
Board of Directors of the Corporation, or any committee designated by the Board,
may participate in a meeting of the Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
Section 3.10. Resignations. A director may resign by submitting his
------------ ------------
written resignation to the Chairman of the Board (if one has been elected) or
the Secretary. Unless otherwise specified therein, the resignation of a
director need not be accepted to make it effective and shall be effective
immediately upon its receipt by such officer or as otherwise specified therein.
If the resignation of a director specifies that it shall be effective at some
time later than receipt, until that time the resignation director shall be
competent to act on all matters before the Board of Directors, including filling
the vacancy caused by such resignation.
Section 3.11. Removal of Directors. The entire Board of Directors or
------------ --------------------
any individual director may be removed at any time for cause by the holders of a
majority of the shares then entitled to vote at an election of directors. The
vacancy or vacancies caused in the Board of Directors by such removal may only
be filled by the affirmative vote of a majority of the remaining directors then
in office, even though less than a quorum of the Board.
Section 3.12. Vacancies. Any vacancy that shall occur in the Board
------------ ---------
of Directors by reason of death, resignation, removal, increase in the number of
directors or any other cause whatever shall be filled by a majority of the then
members of the Board, whether or not a quorum, and each person
7
<PAGE>
so elected shall be a director until he or his successor is elected by the
stockholders at a meeting called for the purpose of electing directors, or until
his prior death, resignation or removal.
Section 3.13. Compensation of Directors. The Corporation may allow
------------ -------------------------
compensation to its directors for their services, as determined from time to
time by resolution adopted by the Board of Directors. The Board may also
provide that the Corporation shall reimburse each such director for any expense
incurred by him on account of his attendance at any meetings of the Board or
Committees of the Board. Neither the payment of such compensation nor the
reimbursement of such expenses shall be construed to preclude any director from
serving the Corporation or its subsidiaries in any other capacity and receiving
compensation therefor.
Section 3.14. Committees. The Board of Directors may, by resolution,
------------ ----------
designate one or more committees consisting of directors to have and exercise
such authority of the Board in the management of the business and affairs of the
Corporation as the resolution of the Board creating such committee may specify
and as is otherwise permitted by law. The Board of Directors may designate one
or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. In the absence
or disqualification of any member of such committee or committees, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another director
to act at the meeting in the place of such absent or disqualified member.
Section 3.15. Personal Liability of Directors.
------------ -------------------------------
(a) To the fullest extent that the laws of the State of Delaware, as
the same exist or may hereafter be amended, permit elimination of the personal
liability of directors, no director of this Corporation shall be personally
liable to this Corporation or its stockholders for monetary damages for breach
of fiduciary duty as a director.
(b) Any amendment or repeal of this Section 3.15 or adoption of any
By-Law of this Corporation or other provision of the Certificate of
Incorporation of this Corporation which has the effect of increasing director
liability shall operate prospectively only and shall not affect any action
taken, or any failure to act, by a director of this Corporation prior to such
amendment, repeal, By-Law or other provision becoming effective.
8
<PAGE>
ARTICLE IV
OFFICERS AND EMPLOYEES
----------------------
Section 4.01. Executive Officers. The Executive Officers of the
------------ ------------------
Corporation shall be the Chief Executive Officer, the President, a Secretary and
a Treasurer, and may include a Chairman of the Board, one or more Vice
Presidents, and one or more Assistant Secretaries as the Board of Directors may
from time to time determine, all of whom shall be elected by the Board of
Directors. Any two or more offices may be held by the same person. Each
Executive Officer shall hold office until the next succeeding annual meeting of
the Board of Directors and thereafter until his successor is duly elected and
qualifies, or until his earlier death, resignation or removal.
Section 4.02. Additional Officers: Other Agents and Employees. The
------------ ------------------------------------------------
Board of Directors may from time to time appoint or hire such additional
officers, assistant officers, agents, employees and independent contractors as
the Board deems advisable; and the Board or the Chief Executive Officer shall
prescribe their duties, conditions of employment and compensation. Subject to
the power of the Board of Directors, the Chief Executive Officer may employ from
time to time such other agents, employees, and independent contractors as he may
deem advisable for the prompt and orderly transaction of the business of the
Corporation, and he may prescribe their duties and the conditions of their
employment, fix their compensation and dismiss them, without prejudice to their
contract rights, if any. The Board may delegate to any officer of the
Corporation or any committee of the Board the power to appoint, remove and
prescribe the duties of any assistant officers, agents or employees.
Section 4.03. Removal. Any officer, assistant, agent or employee of
------------ -------
the Corporation may be removed, with or without cause, at any time: (i) in the
case of an officer, assistant, agent or employee appointed by the Board, only by
resolution of the Board; and (ii) in the case of an officer, assistant, agent or
employee, by any officer of the Corporation or committee of the Board upon whom
or which such power of removal may be conferred by the Board.
Section 4.04. The Chairman. If there shall be a Chairman of the
------------ ------------
Board, he shall be elected from among the directors, and shall preside at all
meetings of the stockholders and of the Board at which he shall be present. He
shall have such other powers and duties as from time to time may be prescribed
by the Board or these By-Laws.
9
<PAGE>
Section 4.04. The Chief Executive Officer. The Chief Executive
------------ ---------------------------
Officer shall have general responsibility for implementation of the policies of
the Corporation, as determined by the Board of Directors, and for the management
of the business and affairs of the Corporation. He shall have such other powers
and duties as from time to time may be prescribed by the Board or these By-Laws.
Section 4.05. The President. The President shall be the chief
------------ -------------
operating officer of the Corporation, unless otherwise specified by the Board by
resolution. Subject to the control of the Board of Directors and the Chief
Executive Officer, the President shall have general policy supervision of and
general management and executive powers over all the property, business,
operations and affairs of the Corporation, and shall see that the policies and
programs adopted or approved by the Board are carried out. The President shall
exercise such further powers and duties as from time to time may be prescribed
by the Board of Directors, the Chief Executive Officer or these By-Laws.
Section 4.06. The Vice Presidents. The Vice Presidents may be given
------------ -------------------
by resolution of the Board of Directors general executive powers, subject to the
control of the President, concerning one or more or all segments of the
operations of the Corporation. The Vice Presidents shall exercise such further
powers and duties as from time to time may be prescribed in these By-Laws or by
the Board of Directors, by the Chief Executive Officer or by the President. At
the request of the President or in his absence or disability, the senior Vice
President shall exercise all the powers and duties of the President.
Section 4.07. The Secretary and Assistant Secretaries. It shall be
------------ ---------------------------------------
the duty of the Secretary (a) to keep or cause to be kept an original or
duplicate record of the proceedings of the stockholders and the Board of
Directors, and a copy of the Certificate of Incorporation and of the By-Laws;
(b) to attend to the giving of notices of the Corporation as may be required by
law or these By-Laws; (c) to be custodian of the corporate records and of the
seal of the Corporation and see that the seal is affixed to such documents as
may be necessary or advisable; (d) to have charge of the stock books of the
Corporation, and a share register, giving the names of the stockholders in
alphabetical order, and showing their respective addresses, the number and
classes of shares held by each, the number and date of certificates issued for
the shares, and the date of cancellation of every certificated surrendered for
cancellation; and (e) to exercise all powers and duties incident to the office
of Secretary, and such other powers and duties as may be prescribed by the Board
of Directors, the Chief Executive Officer or the President from time to time.
The Secretary by virtue of his office shall be an Assistant Treasurer. The
10
<PAGE>
Assistant Secretaries shall assist the Secretary in the performance of his
duties and shall also exercise such further powers and duties as from time to
time may be assigned to them by the Board of Directors, the Chief Executive
Officer, the President or the Secretary. At the direction of the Secretary or
in his absence or disability, an Assistant Secretary shall perform the duties of
the Secretary.
Section 4.08. The Treasurer and Assistant Treasurers. The Treasurer
------------ --------------------------------------
shall have custody of all the funds and securities of the Corporation. He shall
collect all moneys due the Corporation. He shall collect all moneys due the
Corporation and deposit such moneys to the credit of the Corporation in such
banks, trust companies, or other depositories as may have been duly designated
by the Board of Directors. He shall endorse for collection on behalf of the
Corporation, checks, notes, drafts and other documents, and may sign and deliver
receipts, vouchers and releases of liens evidencing payments made to the
Corporation. Subject to Section 5.01 of these By-Laws, he shall cause to be
disbursed the funds of the Corporation by payment in cash or by checks or drafts
upon the authorized depositories of the Corporation. He shall have charge of
the books and accounts of the Corporation. He shall perform all acts incident
to the office of Treasurer and such other duties as may be assigned to him by
the Board of Directors or the Chief Executive Officer. The Treasurer by virtue
of his office shall be an Assistant Secretary. The Assistant Treasurers shall
assist the Treasurer in the performance of his duties and shall also exercise
such further powers and duties as from time to time may be assigned to them by
the Board of Directors, the Chief Executive Officer, the President or the
Treasurer. At the direction of the Treasurer or in his absence or disability,
an Assistant Treasurer shall perform the duties of the Treasurer.
Section 4.09. Vacancies. Vacancy in any office or position by reason
------------ ---------
of death, resignation, removal, disqualification, disability or other cause,
shall be filled in the manner provided in this Article IV for regular election
or appointment to such office.
Section 4.10. Delegation of Duties. The Board of Directors may in
------------ --------------------
its discretion delegate for the time being the powers and duties, or any of
them, of any officer to any other person whom it may select.
11
<PAGE>
ARTICLE V
SHARES OF CAPITAL STOCK
-----------------------
Section 5.01. Share Certificates. Every holder of stock in the
------------ ------------------
Corporation shall be entitled to a certificate or certificates, to be in such
form as the Board of Directors may from time to time prescribe, signed by the
Chairman of the Board, the Chief Executive Officer, the President or any Vice
President and by the Treasurer or any Assistant Treasurer or the Secretary or
any Assistant Secretary. The signatures of such officers may be facsimiles.
Each such certificate shall set forth the name of the registered holder thereof,
the number and class of shares and the designation of the series, if any, which
the certificate represents. The Board of Directors may, if it so determines,
direct that certificates for shares of stock of the Corporation be signed by a
transfer agent or registered by a registrar or both, in which case such
certificates shall not be valid until so signed or registered.
In case any officer of the Corporation who shall have signed, or whose
facsimile signature shall have been used on, any certificate for shares of stock
of the Corporation shall cease to be such officer, whether because of death,
resignation, removal or otherwise, before such certificate shall have been
delivered by the Corporation, such certificate shall nevertheless be deemed to
have been adopted by the Corporation and may be issued and delivered as though
the person who signed such certificate or whose facsimile signature shall have
been used thereon had not ceased to be such officer.
Section 5.02. Transfer of Shares. Transfers of shares of stock of
------------ ------------------
the Corporation shall be made only on the books of the Corporation by the
registered holder thereof or by his attorney thereunto authorized by an
instrument duly executed and filed with the Corporation, and on surrender of the
certificate or certificates for such shares properly endorsed or accompanied by
properly executed stock powers and evidence of the payment of all taxes imposed
upon such transfer. Except as provided in Section 5.04 of this Article V, every
certificate surrendered for transfer shall be cancelled and no new certificate
or certificates shall be issued in exchange for any existing certificate until
such existing certificate shall have been so cancelled.
Section 5.03. Transfer Agents and Registrars. The Board of Directors
------------ ------------------------------
may appoint any one or more qualified banks, trust companies or other
corporations organized under any law of any state of the United States or under
the laws of the United States as agent or agents for the Corporation in the
transfer of the stock of the Corporation and likewise may appoint any one or
more such qualified banks, trust companies or other corporations as registrar or
registrars of the stock of the Corporation.
12
<PAGE>
Section 5.04. Lost, Stolen, Destroyed or Mutilated Certificates. New
------------ -------------------------------------------------
certificates for shares of stock may be issued to replace certificates lost,
stolen, destroyed or mutilated upon such terms and conditions, which may but
need not include the giving of a satisfactory bond or other indemnity, as the
Board of Directors may from time to time determine.
Section 5.05. Regulations Relating to Shares. The Board of Directors
------------ ------------------------------
shall have power and authority to make such rules and regulations not
inconsistent with these By-Laws or with law as it may deem expedient concerning
the issue, transfer and registration of certificates representing shares of
stock of the Corporation.
Section 5.06. Holders of Record. The Corporation shall be entitled
------------ -----------------
to treat the holder of record of any share or shares of stock as the holder and
owner in fact thereof and shall not be bound to recognize any equitable or other
claim to or interest in such shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise expressly
provided by the laws of the State of Delaware.
Section 5.07. Fixing of Record Date. The Board of Directors may fix
------------ ---------------------
a record date which does not precede the date on which the resolution fixing
such record date is adopted,
(a) in order to determine the stockholders entitled to notice of or to
vote at any meeting of stockholders, provided such record date is not less than
ten (10) or more than sixty (60) days prior to the date of any such meeting;
(b) in order to determine the stockholders entitled to consent to
corporate action in writing without a meeting, provided such record date is not
more than ten (10) days after the date on which the resolution fixing such
record date is adopted; and
(c) in order to determine the stockholders entitled to receive payment
of any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion or exchange of stock, or for the purpose of any other lawful action,
provided such record date is not more than sixty (60) days prior to such action.
13
<PAGE>
In such case, only such stockholders as shall be stockholders of
record on the date so fixed shall be entitled to notice of, or to vote at, such
meeting or to receive payment of such dividend, or to receive such allotment of
rights, or to exercise such rights, as the case may be, notwithstanding any
transfer of any shares on the books of the Corporation after any record date
fixed as aforesaid.
ARTICLE VI
LOANS, NOTES, CHECKS,
CONTRACTS AND OTHER INSTRUMENTS
-------------------------------
Section 6.01. Notes, Checks, etc. All notes, drafts, acceptances,
------------ -------------------
checks, endorsements (other than for deposit) and all evidences of indebtedness
of the Corporation whatsoever shall be signed by such officers or agents and
shall be subject to such requirements as to countersignature or other conditions
as the Board of Directors from time to time may designate. Facsimile signatures
on checks may be used unless prohibited by the Board of Directors.
Section 6.02. Execution of Instruments Generally. Except as provided
------------ ----------------------------------
in Section 6.01 of this Article VI, all contracts and other instruments
requiring execution by the Corporation may be executed and delivered by the
Chief Executive Officer, the President or any Vice President, and authority to
sign any such contracts or instruments, which may be general or confined to
specific instances, may be conferred by the Board of Directors upon any other
person or persons. Any person having authority to sign on behalf of the
Corporation may delegate, from time to time, by instrument in writing, all or
any part of such authority to any person or persons if authorized so to do by
the Board of Directors.
Section 6.03. Proxies in Respect of Stock or Other Securities of
------------ --------------------------------------------------
Other Corporations. Unless otherwise provided by the Board of Directors, the
- ------------------
President may from time to time appoint an attorney or attorneys or an agent or
agents of the Corporation to exercise in the name and on behalf of the
Corporation the powers and rights which the Corporation may have as the holder
of stock or other securities in any other corporation to vote or consent in
respect of such stock or other securities, may instruct the person or persons so
appointed as to the manner of exercising such powers and rights and may execute
or cause to be executed in the name and on behalf of the Corporation and under
its corporate seal or otherwise all such written proxies or other instruments as
he may deem necessary or proper in order that the Corporation may exercise its
said powers and rights.
14
<PAGE>
ARTICLE VII
GENERAL PROVISIONS
------------------
Section 7.01. Corporate Seal. The Board of directors may prescribe
------------ --------------
the form of a suitable corporate seal, which shall contain the full name of the
Corporation and the year and state of incorporation. Such seal may be used by
causing it or a facsimile or reproduction thereof to be affixed to or placed
upon the document to be sealed.
Section 7.02. Fiscal Year. Unless otherwise determined by the Board
------------ -----------
of Directors, the Corporation shall have a 52/53 week fiscal year ending on the
Saturday closest to December 31 each year.
ARTICLE VIII
VALIDATION OF CERTAIN CONTRACTS
-------------------------------
Section 8.01. Validation of Certain Contracts. No contract or other
------------ -------------------------------
transaction between the Corporation and another person shall be invalidated or
otherwise adversely affected by the fact that any one or more stockholders,
directors or officers of the Corporation
(i) is pecuniarily or otherwise interested in, or is a stockholder,
director, officer, or member of, such other person, or
(ii) is a party to, or is in any other way pecuniarily or otherwise
interested in, the contract or other transaction, or
(iii) is in any way connected with any person pecuniarily or
otherwise interested in such contract or other transaction, provided the fact of
such interest shall be disclosed or known to the Board of Directors or the
stockholders, as the case may be, and in any action of the stockholders or of
the Board authorizing or approving any such contract or other transaction, any
and every stockholder or director may be counted in determining the existence of
a quorum with like force and effect as through he were not so interested, or
were not such a stockholder, director, member or officer, or were not such a
party, or were not so connected As used herein, the term "person" includes a
corporation, partnership, firm, association or other legal entity.
15
<PAGE>
ARTICLE IX
AMENDMENTS
----------
Section 9.01. Amendments. These By-Laws, or any of them, may be
------------ ----------
altered, amended or repealed, and new By-Laws may be made, (i) by the Board, by
vote of a majority of the number of directors then in office as directors,
acting at any meeting of the Board, or (ii) by the stockholders, at any meeting
of the Board, or (ii) by the stockholders, at any annual meeting of
stockholders, provided that notice of such proposed amendment, modification,
repeal or adoption is given in the notice of special meeting. Any By-Laws made
or altered by the stockholders may be altered or repealed by either the Board or
the stockholders.
ARTICLE X
INDEMNIFICATION OF, AND ADVANCEMENT OF
EXPENSES TO, DIRECTORS, OFFICERS AND OTHERS
-------------------------------------------
Section 10.01. Rights Indemnification. Except as prohibited by law,
------------- ----------------------
every director and officer of the Corporation shall be entitled as of right to
be indemnified by the Corporation against all expenses and liability (as those
terms are defined below in this Section 10.01) incurred by such person in
connection with any actual or threatened claim, action, suit or proceeding,
whether civil, criminal, administrative, investigative or other, or whether
brought by or against such persons or by or in the right of the Corporation or
otherwise, by reason of such person being or having been a director or officer
of the Corporation or a subsidiary of the Corporation or by reason of the fact
that such person is or was serving at the request of the Corporation as a
director, officer, employee, fiduciary or other representative of another
corporation, partnership, joint venture, trust, employee benefit plan or other
entity (such claim, action, suit or proceeding hereinafter being referred to as
an "Action"); provided, however, that no such right to indemnification shall
exist with respect to an Action brought by an Indemnitee (as defined below)
against the Corporation (an "Indemnitee Action") except as provided in the last
sentence of this Section 10.01. Persons who are not directors or officers of
the Corporation may be similarly indemnified in respect of service to the
Corporation or a subsidiary of the Corporation or to another such entity at the
request for the corporation to the extent the Board of Directors of the
Corporation at any time designates any of such persons as entitled to the
benefits of this Article X. As used in this Article X, "Indemnitee" includes
each director and officer of the Corporation and each other person designated by
the Board of Directors of the Corporation as entitled to the benefits of this
Article X; "expenses" means
16
<PAGE>
all expenses actually and reasonably incurred, including fees and expenses of
counsel selected by an Indemnitee; and "liability" means all liability incurred,
including the amounts of any judgments, excise taxes, fines or penalties and any
amounts paid in settlement. An Indemnitee shall be entitled to be indemnified
pursuant to this Article X against expenses incurred in connection with an
Indemnitee Action if (i) the Indemnitee Action is instituted under Section 10.03
of this Article X and the indemnitee is successful in whole or in part in such
Indemnitee Action, (ii) the Indemnitee is successful in whole or in part in
another Indemnitee Action for which expenses are claimed or (iii) the
indemnification for expenses is included in a settlement of, or is awarded by a
court in, such other Indemnitee Action.
Section 10.02. Right to Advancement of Expenses. Every Indemnitee
------------- --------------------------------
shall be entitled as of right to have the expenses of the Indemnitee in
defending any Action or in bringing and pursuing any Indemnitee Action under
Section 10.03 of this Article X paid in advance by the Corporation prior to
final disposition of the Action or Indemnitee Action, provided that the
Corporation receives a written undertaking by or on behalf of the Indemnitee to
repay the amount advanced if it should ultimately be determined that the
Indemnitee is not entitled to be indemnified for the expenses.
Section 10.03. Right of Indemnitee to Bring Action. If a written
------------- -----------------------------------
claim for indemnification under Section 10.01 of this Article X or for
advancement of expenses under Section 10.02 of this Article X is not paid in
full by the Corporation within thirty (30) days after the claim has been
received by the Corporation, the Indemnitee may at any time thereafter bring an
Indemnitee Action to recover the unpaid amount of the claim and, if successful
in whole or in part, the Indemnitee shall also be entitled to be paid the
expense of bringing and pursuing such Indemnitee Action. The only defense to an
Indemnitee Action to recover on a claim for indemnification under Section 10.01
of this Article X shall be that the conduct of the Indemnitee was such that
under Delaware law the Corporation is prohibited from indemnifying the
Indemnitee for the amount claimed, but the burden of proving such defense shall
be on the Corporation. Neither the failure of the Corporation (including its
Board of Directors, independent legal counsel and stockholders) to have made a
determination prior to the commencement of such Indemnitee Action that
indemnification of the Indemnitee is proper in the circumstances, not an actual
determination by the Corporation (including its board of Directors, independent
legal counsel or stockholders) that the conduct of the Indemnitee was such that
indemnification is prohibited by Delaware law, shall be a defense to such
Indemnitee Action or create a presumption that the conduct of the Indemnitee was
such that indemnification is prohibited by Delaware law. The only defense to an
Indemnitee Action to recover on a claim for advancement of expenses under
17
<PAGE>
Section 10.02 of this Article X shall be failure by the Indemnitee to provide
the undertaking required by Section 10.02 of this Article X.
Section 10.04. Funding and Insurance. The Corporation may create a
------------- ---------------------
trust fund, grant a security interest, cause a letter of credit to be issued or
use other means (whether or not similar to the foregoing) to ensure the payment
of all sums required to be paid by the Corporation to effect indemnification as
provided in this Article X. The Corporation may purchase and maintain insurance
to protect itself and any Indemnitee against any expenses or liability incurred
by the Indemnitee in connection with any Action, whether or not the Corporation
would have the power to indemnify the Indemnitee against the expenses or
liability by law or under the provisions of this Article X.
Section 10.05. Non-Exclusivity; Nature and Extent of Rights. The
------------- --------------------------------------------
rights to indemnification and advancement of expenses provided for in this
Article X shall (i) not be deemed exclusive of any other rights, whether now
existing or hereafter created, to which any Indemnitee may be entitled under any
agreement, provision in the Certificate of Incorporation or By-Laws of the
Corporation, vote of stockholders or disinterested directors or otherwise; (ii)
be deemed to create contractual rights in favor of each Indemnitee who serves at
any time while this Article X is in effect (and each such Indemnitee shall be
deemed to be serving in reliance on the provisions of this Article X); (iii)
continue as to each Indemnitee who has ceased to have the status pursuant to
which the Indemnitee was entitled or was designated as entitled to
indemnification under this Article X and inure to the benefit of the heirs and
legal representatives of each Indemnitee; and (iv) be applicable to Actions
commenced after this Article X becomes effective, whether arising from acts or
omissions occurring before or after this Article X becomes effective. Any
amendment or repeal of this Article X or adoption of any By-Law of the
Corporation or other provision of the Certificate of Incorporation of the
Corporation which has the effect of limiting in any way the rights to
indemnification or advancement of expenses provided for in this Article X shall
operate prospectively only and shall not affect any action take, or any failure
to act, by an Indemnitee prior to such amendment, repeal, By-Law or other
provision becoming effective.
Section 10.06. Partial Indemnity. If an Indemnitee is entitled under
------------- -----------------
any provision of this Article X to indemnification by the Corporation for some
or a portion of the expenses or liability incurred by the Indemnitee in the
preparation, investigation, defense, appeal or settlement of any Action or
Indemnitee Action but not, however, for the total amount thereof, the
Corporation shall indemnify the Indemnitee for the portion of such expenses or
liability to which the Indemnitee is entitled.
18
<PAGE>
CERTIFICATE OF ADOPTION OF BY-LAWS
By Resolution dated the ____ day of May, 1996, all Directors of
Smith's Food & Drug Centers, Inc., unanimously approved and adopted the
foregoing By-Laws as the By-Laws of said Corporation effective as of May 23,
1996. This Certificate is dated May 23, 1996.
SMITH'S FOOD & DRUG CENTERS, INC.
By________________________________
Michael C. Frei
Secretary
19
<PAGE>
Exhibit 5.1
[LETTERHEAD OF LATHAM & WATKINS]
May 13, 1996
Smith's Food & Drug Centers, Inc.
1550 South Redwood Road
Salt Lake City, Utah 84104
Re: Smith's Food & Drug Centers, Inc.
Registration Statement on Form S-3 (File No. 333-01601)
-------------------------------------------------------
Ladies and Gentlemen:
In connection with the Registration Statement on Form S-3 (File No.
333-01601) originally filed with the Securities and Exchange Commission on March
11, 1996 (as amended or supplemented, the "Registration Statement") by Smith's
Food & Drug Centers, Inc., a Delaware corporation (the "Company"), with respect
to $575,000,000 aggregate principal amount of its Senior Subordinated Notes due
2007 (the "Notes"), you have requested our opinion with respect to the matters
set forth below.
In our capacity as special counsel to you in connection with such
registration, we are familiar with the proceedings taken and proposed to be
taken by the Company in connection with the authorization, issuance and sale of
the Notes, and for purposes of this opinion, have assumed such proceedings will
be timely completed in the manner presently proposed. In addition, we have made
such legal and factual examinations and inquiries, including an examination of
originals or copies certified or otherwise identified to our satisfaction of
such documents, corporate records and instruments, as we have determined
necessary or appropriate for purposes of this opinion.
In our examination, we have assumed the genuineness of all signatures,
the authenticity of all documents submitted to us as originals, and the
conformity to authentic original documents of all documents submitted to us as
copies.
We are opining herein as to the effect on the subject transaction only
of the federal laws of the United States and the internal laws of the State of
New York and the General Corporation Law of the State of Delaware. We express
no opinion with respect to the applicability thereto, or the effect thereon, of
any other laws.
<PAGE>
[LATHAM & WATKINS LETTERHEAD]
Smith's Food & Drug Centers, Inc.
May 13, 1996
Page 2
Subject to the foregoing, it is our opinion that the Notes have been
duly authorized, and upon issuance, delivery and payment therefor in the manner
contemplated by the Registration Statement, will be validly issued.
We consent to you filing this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the heading "Legal
Matters."
Very truly yours,
/s/ LATHAM & WATKINS
<PAGE>
================================================================================
EXHIBIT 10.1
$995,000,000
CREDIT AGREEMENT
DATED AS OF MAY 23, 1996
AMONG
SMITH'S FOOD & DRUG CENTERS, INC.,
AS BORROWER,
THE LENDERS LISTED HEREIN,
AS LENDERS,
BANKERS TRUST COMPANY
AND
THE CHASE MANHATTAN BANK, N.A.,
AS ARRANGERS,
CHASE SECURITIES, INC.,
AS SYNDICATION AGENT,
AND
BANKERS TRUST COMPANY,
AS ADMINISTRATIVE AGENT
================================================================================
<PAGE>
SMITH'S FOOD & DRUG CENTERS, INC.
CREDIT AGREEMENT
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
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<C> <S> <C>
SECTION 1. DEFINITIONS.......................................................... 4
1.1 Certain Defined Terms................................................ 4
---------------------
1.2 Accounting Terms; Utilization of GAAP for Purposes of Calculations
------------------------------------------------------------------
Under Agreement...................................................... 45
---------------
1.3 Other Definitional Provisions and Rules of Construction.............. 46
-------------------------------------------------------
SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS........................... 47
2.1 Commitments; Making of Loans; the Register; Notes.................... 47
-------------------------------------------------
2.2 Interest on the Loans................................................ 56
---------------------
2.3 Fees................................................................. 62
----
2.4 Repayments, Prepayments and Reductions in Revolving Loan
--------------------------------------------------------
Commitments; General Provisions Regarding Payments................... 62
--------------------------------------------------
2.5 Use of Proceeds...................................................... 75
---------------
2.6 Special Provisions Governing Eurodollar Rate Loans................... 76
--------------------------------------------------
2.7 Increased Costs; Taxes; Capital Adequacy............................. 79
----------------------------------------
2.8 Obligation of Lenders and Issuing Lenders to Mitigate................ 83
-----------------------------------------------------
2.9 Replacement of Lender................................................ 84
---------------------
SECTION 3. LETTERS OF CREDIT.................................................... 85
3.1 Issuance of Letters of Credit and Revolving Lenders' Purchase of
----------------------------------------------------------------
Participations Therein............................................... 85
----------------------
3.2 Letter of Credit Fees................................................ 89
---------------------
3.3 Drawings and Reimbursement of Amounts Paid Under Letters of
-----------------------------------------------------------
Credit............................................................... 90
------
3.4 Obligations Absolute................................................. 92
--------------------
3.5 Indemnification; Nature of Issuing Lenders' Duties................... 94
--------------------------------------------------
3.6 Increased Costs and Taxes Relating to Letters of Credit.............. 95
-------------------------------------------------------
SECTION 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT............................ 96
4.1 Conditions to Term Loans and Initial Revolving Loans and Swing
--------------------------------------------------------------
Line Loans........................................................... 96
----------
4.2 Conditions to All Loans.............................................. 108
-----------------------
4.3 Conditions to Letters of Credit...................................... 109
-------------------------------
SECTION 5. COMPANY'S REPRESENTATIONS AND WARRANTIES............................. 110
5.1 Organization, Powers, Qualification, Good Standing, Business and
----------------------------------------------------------------
Subsidiaries......................................................... 110
------------
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
5.2 Authorization of Borrowing, etc...................................... 111
-------------------------------
5.3 Financial Condition.................................................. 112
-------------------
5.4 No Material Adverse Change; No Restricted Junior Payments............ 113
---------------------------------------------------------
5.5 Title to Properties; Liens........................................... 113
--------------------------
5.6 Litigation; Adverse Facts............................................ 114
-------------------------
5.7 Payment of Taxes..................................................... 114
----------------
5.8 Performance of Agreements; Materially Adverse Agreements;
---------------------------------------------------------
Material Contracts................................................... 115
------------------
5.9 Governmental Regulation.............................................. 115
-----------------------
5.10 Securities Activities................................................ 115
---------------------
5.11 Employee Benefit Plans............................................... 115
----------------------
5.12 Certain Fees......................................................... 116
------------
5.13 Environmental Protection............................................. 117
------------------------
5.14 Employee Matters..................................................... 118
----------------
5.15 Solvency............................................................. 119
--------
5.16 Matters Relating to Collateral....................................... 119
------------------------------
5.17 Related Agreements................................................... 120
------------------
5.18 Permits.............................................................. 120
-------
5.19 Disclosure........................................................... 120
----------
5.20 Real Property Assets................................................. 121
--------------------
SECTION 6. COMPANY'S AFFIRMATIVE COVENANTS...................................... 121
6.1 Financial Statements and Other Reports............................... 121
--------------------------------------
6.2 Corporate Existence, etc............................................. 127
------------------------
6.3 Payment of Taxes and Claims; Tax Consolidation....................... 128
----------------------------------------------
6.4 Maintenance of Properties; Insurance................................. 128
------------------------------------
6.5 Inspection; Lender Meeting........................................... 129
--------------------------
6.6 Compliance with Laws, etc............................................ 130
-------------------------
6.7 Environmental Disclosure and Inspection; Remedial Action Regarding
------------------------------------------------------------------
Hazardous Materials.................................................. 130
-------------------
6.8 Execution of Subsidiary Guaranty and Personal Property Collateral
-----------------------------------------------------------------
Documents by Future Subsidiaries..................................... 132
--------------------------------
6.9 Additional Real Property............................................. 133
------------------------
6.10 Interest Rate Protection............................................. 138
------------------------
SECTION 7. COMPANY'S NEGATIVE COVENANTS......................................... 138
7.1 Indebtedness......................................................... 138
------------
7.2 Liens and Related Matters............................................ 141
-------------------------
7.3 Investments; Joint Ventures.......................................... 143
---------------------------
7.4 Contingent Obligations............................................... 145
----------------------
7.5 Restricted Junior Payments; Other Restricted Payments................ 147
-----------------------------------------------------
7.6 Financial Covenants.................................................. 148
-------------------
7.7 Restriction on Fundamental Changes; Asset Sales and Acquisitions..... 154
----------------------------------------------------------------
</TABLE>
(ii)
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
7.8 Consolidated Capital Expenditures.................................... 156
---------------------------------
7.9 Restriction on Leases................................................ 157
---------------------
7.10 Sales and Lease-Backs................................................ 158
---------------------
7.11 Sale or Discount of Receivables...................................... 159
-------------------------------
7.12 Transactions with Shareholders and Affiliates........................ 159
---------------------------------------------
7.13 Disposal of Subsidiary Stock; Restrictions on Subsidiaries........... 159
----------------------------------------------------------
7.14 Conduct of Business.................................................. 160
-------------------
7.15 Amendments or Waivers of Certain Related Agreements;
---------------------------------------------------
Amendments of Documents Relating to Subordinated Indebtedness;
--------------------------------------------------------------
Designation of "Designated Senior Indebtedness" ..................... 160
-----------------------------------------------
7.16 Fiscal Year.......................................................... 161
-----------
SECTION 8. EVENTS OF DEFAULT.................................................... 161
8.1 Failure to Make Payments When Due.................................... 161
---------------------------------
8.2 Default in Other Agreements.......................................... 161
---------------------------
8.3 Breach of Certain Covenants.......................................... 162
---------------------------
8.4 Breach of Warranty................................................... 162
------------------
8.5 Other Defaults Under Loan Documents.................................. 162
---------------------------------------------------
8.6 Involuntary Bankruptcy; Appointment of Receiver, etc................. 162
----------------------------------------------------
8.7 Voluntary Bankruptcy; Appointment of Receiver, etc................... 163
---------------------------------------------------
8.8 Judgments and Attachments............................................ 163
-------------------------
8.9 Dissolution.......................................................... 163
-----------
8.10 Employee Benefit Plans............................................... 164
----------------------
8.11 Change in Control.................................................... 164
-----------------
8.12 Invalidity of Subsidiary Guaranty.................................... 164
---------------------------------
8.13 Failure of Security.................................................. 164
-------------------
8.14 Failure to Consummate the Transactions............................... 164
--------------------------------------
8.15 Action Under Related Financing Documents............................. 165
----------------------------------------
SECTION 9. AGENT................................................................ 166
9.1 Appointment
-----------
9.2 Powers and Duties; General Immunity.................................. 167
-----------------------------------
9.3 Representations and Warranties; No Responsibility For Appraisal
---------------------------------------------------------------
of Creditworthiness.................................................. 169
-------------------
9.4 Right to Indemnity................................................... 169
------------------
9.5 Successor Agent and Swing Line Lender................................ 170
-------------------------------------
9.6 Collateral Documents and Subsidiary Guaranty......................... 170
--------------------------------------------
SECTION 10. MISCELLANEOUS........................................................ 171
10.1 Assignments and Participations in Loans and Letters of Credit........ 171
-------------------------------------------------------------
10.2 Expenses............................................................. 174
--------
10.3 Indemnity............................................................ 175
---------
10.4 Set-Off.............................................................. 177
-------
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
10.5 Ratable Sharing...................................................... 177
---------------
10.6 Amendments and Waivers............................................... 178
----------------------
10.7 Independence of Covenants............................................ 180
-------------------------
10.8 Notices.............................................................. 180
-------
10.9 Survival of Representations, Warranties and Agreements............... 180
------------------------------------------------------
10.10 Failure or Indulgence Not Waiver; Remedies Cumulative................ 181
-----------------------------------------------------
10.11 Marshalling; Payments Set Aside...................................... 181
-------------------------------
10.12 Severability......................................................... 181
------------
10.13 Obligations Several; Independent Nature of Lenders' Rights........... 181
----------------------------------------------------------
10.14 Headings............................................................. 182
--------
10.15 Applicable Law....................................................... 182
--------------
10.16 Successors and Assigns............................................... 182
----------------------
10.17 Consent to Jurisdiction and Service of Process....................... 182
----------------------------------------------
10.18 Waiver of Jury Trial................................................. 183
--------------------
10.19 Confidentiality...................................................... 184
---------------
10.20 Counterparts; Effectiveness.......................................... 184
---------------------------
Signature pages............................................................ S-1
</TABLE>
(iv)
<PAGE>
EXHIBITS
I FORM OF NOTICE OF BORROWING
II FORM OF NOTICE OF CONVERSION/CONTINUATION
III FORM OF NOTICE OF ISSUANCE OF LETTER OF CREDIT
IV-A FORM OF TRANCHE A TERM NOTE
IV-B FORM OF TRANCHE B TERM NOTE
IV-C FORM OF TRANCHE C TERM NOTE
IV-D FORM OF TRANCHE D TERM NOTE
V FORM OF REVOLVING NOTE
VI FORM OF SWING LINE NOTE
VII FORM OF COMPLIANCE CERTIFICATE
VIII FORM OF OPINION OF LATHAM & WATKINS
IX FORM OF OPINION OF O'MELVENY & MYERS
X FORM OF ASSIGNMENT AGREEMENT
XI FORM OF AUDITOR'S LETTER
XII FORM OF FINANCIAL CONDITION CERTIFICATE
XIII FORM OF COLLATERAL ACCOUNT AGREEMENT
XIV FORM OF PLEDGE AGREEMENT
XV FORM OF SECURITY AGREEMENT
XVI FORM OF TRADEMARK SECURITY AGREEMENT
XVII FORM OF SUBSIDIARY GUARANTY
XVIII FORM OF MORTGAGE
XIX FORM OF LANDLORD'S ACKNOWLEDGEMENT AND CONSENT AGREEMENT
(v)
<PAGE>
SCHEDULES
2.1 LENDERS' COMMITMENTS AND PRO RATA SHARES
2.4B STORES UNDER DEVELOPMENT
3.1C EXISTING LETTERS OF CREDIT
4.1B CERTAIN RECENT DEVELOPMENTS
4.1I REAL PROPERTY ASSETS
5.1 SUBSIDIARIES OF COMPANY
5.2C REGISTRATION STATEMENTS, CONSENTS AND APPROVALS
5.11 EMPLOYEE BENEFIT PLANS
5.12 CERTAIN FEES
5.13 ENVIRONMENTAL MATTERS
5.18 CERTAIN PERMITS
5.20 SURPLUS LEASED PROPERTIES; SURPLUS OWNED PROPERTIES; EXCESS
CALIFORNIA LAND; CALIFORNIA STORES
7.1 CERTAIN EXISTING INDEBTEDNESS
7.2 CERTAIN EXISTING LIENS
7.3 CERTAIN EXISTING INVESTMENTS
7.4 CERTAIN EXISTING CONTINGENT OBLIGATIONS
7.7 NON-CALIFORNIA PROPERTIES TO BE SOLD AFTER CLOSING
(vi)
<PAGE>
SMITH'S FOOD & DRUG CENTERS, INC.
CREDIT AGREEMENT
This CREDIT AGREEMENT is dated as of May 23, 1996 and entered into by and
among SMITH'S FOOD & DRUG CENTERS, INC., a Delaware corporation ("COMPANY"), THE
FINANCIAL INSTITUTIONS LISTED ON THE SIGNATURE PAGES HEREOF (each individually
referred to herein as a "LENDER" and collectively as "LENDERS"), BANKERS TRUST
COMPANY ("BANKERS") and THE CHASE MANHATTAN BANK, N.A. ("CHASE"), as arrangers
for Lenders (in such capacity, each individually referred to herein as an
"ARRANGER" and collectively as "ARRANGERS"), CHASE SECURITIES, INC. ("CHASE
SECURITIES"), as syndication agent (in such capacity, "SYNDICATION AGENT"), and
BANKERS, as administrative agent for Lenders (in such capacity, "AGENT").
R E C I T A L S
- - - - - - - -
WHEREAS, Merger Sub (this and other capitalized terms used in these
recitals without definition being used as defined in subsection 1.1) has been
formed by Company for the purpose of acquiring Smitty's by merging Merger Sub
with and into Smitty's, with Smitty's being the surviving corporation (the
"MERGER");
WHEREAS, each share of Smitty's common stock outstanding immediately
prior to the Merger will be converted in the Merger into 3.011803 shares of
Company's Class B Common Stock, for an aggregate consideration payable to the
Smitty's shareholders of 3,038,888 shares of Company's Class B Common Stock;
WHEREAS, each share of Merger Sub's common stock outstanding immediately
prior to the Merger will be converted in the Merger into one share of common
stock of the surviving corporation in the Merger, and all of such surviving
corporation's shares will be owned by Company;
WHEREAS, concurrently with the consummation of the Merger, Company
intends to (i) purchase approximately 13,400,000 shares in the aggregate of
Company's Class A Common Stock and Class B Common Stock (excluding shares of
Class B Common Stock issued or issuable in connection with the Merger but
including certain Existing Management Stock Options) representing 50% in the
aggregate of all shares of Class A Common Stock and Class B Common Stock
outstanding on a fully diluted basis, at a cash price not to exceed $36.00 per
share for an aggregate payment of approximately $465,000,000, (ii) authorize a
1
<PAGE>
new Class C Common Stock and issue a warrant to Yucaipa to purchase shares of
such Class C Common Stock representing approximately 10% of the aggregate shares
of Company's Common Stock on a fully-diluted basis (the "YUCAIPA WARRANT") and
(iii) redeem approximately 3,000,000 shares of Company's Redeemable Preferred
Stock for an aggregate redemption payment not exceeding $1,000,000;
WHEREAS, concurrently with the consummation of the Merger, Company
intends to (i) prepay and obtain the release of any collateral securing all of
its outstanding Indebtedness under the Existing Company Credit Lines in the
aggregate principal amount of $10,000,000 and terminate any commitments to
extend credit thereunder and (ii) prepay and obtain the release of any
collateral securing approximately $248,600,000 in aggregate principal amount of
existing mortgage Indebtedness and approximately $410,000,000 in aggregate
principal amount of existing unsecured senior Indebtedness (collectively, the
"COMPANY EXISTING DEBT PREPAYMENTS");
WHEREAS, concurrently with the consummation of the Merger, Company
intends to cause Smitty's to (i) prepay and obtain the release of any collateral
securing all of its outstanding Indebtedness under the Existing Smitty's Credit
Agreement in the aggregate principal amount of $33,600,000 and terminate any
commitments to extend credit thereunder and (ii) prepay in full approximately
$50,000,000 in principal amount of Existing Smitty's Subordinated Notes and
approximately [$19,300,000] in accreted value of Existing Smitty's Discount
Debentures (collectively, the "SMITTY'S EXISTING DEBT PREPAYMENTS");
WHEREAS, to effect the Smitty's Existing Debt Prepayments, Smitty's is
soliciting consents from the holders of Existing Smitty's Discount Debentures to
certain amendments to the Existing Smitty's Discount Debenture Indenture and
offering to purchase all of the Existing Smitty's Discount Debentures for
[$19,300,000] in cash, plus accrued interest thereon, plus for each Existing
Smitty's Discount Debenture accepted for purchase, a premium and a consent
payment as described in the Smitty's Debt Purchase Offers;
WHEREAS, to effect the Smitty's Existing Debt Prepayments, Smitty's is
also soliciting consents from the holders of the Existing Smitty's Subordinated
Notes to certain amendments to the Existing Smitty's Subordinated Note Indenture
and offering to purchase all of the Existing Smitty's Subordinated Notes for
$50,000,000 in cash, plus accrued interest thereon, plus for each Existing
Smitty's Subordinated Note accepted for purchase, a premium and a consent
payment as described in the Smitty's Debt Purchase Offers (together with the
offer and solicitation with respect to the Existing Smitty's Discount
Debentures, the "SMITTY'S DEBT PURCHASE OFFERS");
WHEREAS, Company has received aggregate net cash proceeds of not less
than $67,200,000 from the disposition of certain of its California properties;
WHEREAS, in order to finance (i) its purchase of approximately 13,400,000
shares of its Class A Common Stock and Class B Common Stock pursuant to the
Equity
2
<PAGE>
Tender Offer (including certain Existing Management Stock Options) for an
aggregate purchase price not exceeding $465,000,000, (ii) its payment of Company
Existing Debt Prepayments of up to $668,600,000, (iii) its payment of Smitty's
Existing Debt Prepayments of up to $102,900,000, (iv) its redemption of
approximately 3,000,000 shares of its Redeemable Preferred Stock for an
aggregate redemption payment not exceeding $1,000,000 and (v) its payment of up
to [$160,700,000] in fees, expenses, premiums, accrued interest and other costs
in connection therewith and other transactions contemplated by the Loan
Documents and the Related Agreements (such fees, costs, expenses and premiums
being referred to herein as the "TRANSACTION COSTS"), Company will (a) issue the
Senior Subordinated Notes for aggregate gross proceeds of not less than
$575,000,000, (b) utilize not less than $67,200,000 in net cash proceeds from
the disposition of certain of its California properties; and (c) utilize the
proceeds of up to $805,000,000 in Term Loans and the proceeds of up to
$13,200,000 in Revolving Loans;
WHEREAS, in addition to the Revolving Loans made to Company on the
Closing Date, Company has requested that Revolving Lenders provide a revolving
credit facility which shall allow for the making of Revolving Loans and the
issuance of Letters of Credit to meet the working capital requirements and
general corporate purposes of Company and its Subsidiaries;
WHEREAS, Company desires to secure all of the Obligations hereunder and
under the other Loan Documents by granting to Agent, on behalf of Lenders, a
first priority Lien on certain of its real, personal and mixed property,
including without limitation a pledge of all of the capital stock of each of its
Subsidiaries (other than any Inactive Subsidiaries); and
WHEREAS, all of the Subsidiaries (other than any Inactive Subsidiaries)
of Company have agreed to guarantee the Obligations hereunder and under the
other Loan Documents and to secure their guaranties by granting to Agent, on
behalf of Lenders, a first priority Lien on certain of their respective real,
personal and mixed property, including without limitation a pledge of all of the
capital stock of each of their respective Subsidiaries;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, Company, Lenders, Arrangers,
Syndication Agent, Co-Agents and Agent agree as follows:
3
<PAGE>
SECTION 1. DEFINITIONS
1.1 CERTAIN DEFINED TERMS.
---------------------
The following terms used in this Agreement shall have the following
meanings:
"ACQUISITION" means the consummation of the Merger in accordance
with the terms of the Recapitalization and Merger Agreement, which shall result
in Company owning all of the outstanding capital stock of Smitty's.
"ADJUSTED EURODOLLAR RATE" means, for any Interest Rate
Determination Date with respect to an Interest Period for a Eurodollar Rate
Loan, the rate per annum obtained by dividing (i) the arithmetic average
--------
(rounded upward to the nearest 1/16 of one percent) of the offered quotations,
if any, to first class banks in the interbank Eurodollar market by Reference
Lenders for U.S. dollar deposits of amounts in same day funds comparable to the
respective principal amounts of the Eurodollar Rate Loans of Reference Lenders
for which the Adjusted Eurodollar Rate is then being determined with maturities
comparable to such Interest Period as of approximately 10:00 A.M. (New York
time) on such Interest Rate Determination Date by (ii) a percentage equal to
--
100% minus the stated maximum rate of all reserve requirements (including,
-----
without limitation, any marginal, emergency, supplemental, special or other
reserves) applicable on such Interest Rate Determination Date to any member bank
of the Federal Reserve System in respect of "Eurocurrency liabilities" as
defined in Regulation D (or any successor category of liabilities under
Regulation D); provided that if any Reference Lender fails to provide Agent with
--------
its aforementioned quotation then the Adjusted Eurodollar Rate shall be
determined based on the quotation(s) provided to Agent by the other Reference
Lender(s).
"AFFECTED LENDER" has the meaning assigned to that term in
subsection 2.6C.
"AFFILIATE", as applied to any Person, means any other Person
directly or indirectly controlling, controlled by, or under common control with,
that Person. For the purposes of this definition, "control" (including, with
correlative meanings, the terms "controlling", "controlled by" and "under common
control with"), as applied to any Person, means (i) the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of that Person, whether through the ownership of voting securities or
by contract or otherwise, or (ii) the ownership of more than 10% of the voting
securities of that Person; provided that Bankers Trust New York Corporation,
--------
Chase and each of their respective Affiliates (as defined above) shall not be
considered to be an "Affiliate" of Company or any of its Subsidiaries; and
provided further that Yucaipa shall be deemed an Affiliate of Company so long as
- -------- -------
(a) the Management Agreement is in effect or (b) Yucaipa, together with its
Affiliates (as defined above), is permitted to designate one or more members of
Company's Board of Directors pursuant to the terms of the Standstill Agreement
or any successor agreement.
4
<PAGE>
"AGENT" has the meaning assigned to that term in the introduction to
this Agreement and also means and includes any successor administrative Agent
appointed pursuant to subsection 9.5A.
"AGREEMENT" means this Credit Agreement dated as of May 23, 1996, as
it may be amended, supplemented or otherwise modified from time to time.
"AMOUNT OF UNFUNDED BENEFIT LIABILITY" means, with respect to any
Pension Plan, (i) if set forth on the most recent actuarial valuation report
with respect to such Pension Plan, the amount of unfunded benefit liabilities
(as defined in Section 4001(a)(18) of ERISA) and (ii) otherwise, the excess of
(a) the greater of the current liability (as defined in Section 412(l)(7) of the
Internal Revenue Code) or the actuarial present value of the accrued benefits
with respect to such Pension Plan over (b) the market value of the assets of
such Pension Plan.
"APPLICABLE BASE RATE MARGIN" means, as of any date of
determination, (i) 1.25% per annum in the event that (a) the Interest Coverage
Ratio is equal to or greater than 2.00:1.00 and (b) the aggregate outstanding
principal amount of Term Loans is less than $755,000,000; (ii) notwithstanding
clause (i), 1.00% per annum in the event that (a) the Interest Coverage Ratio is
equal to or greater than 2.50:1.00 and (b) the aggregate outstanding principal
amount of Term Loans is less than $680,000,000; and (iii) 1.50% per annum in the
event that neither of the foregoing clauses (i) nor (ii) is applicable,
including for the period from the Closing Date until a Margin Determination
Certificate is delivered pursuant to subsection 6.1(xviii) establishing that
either of clause (i) or clause (ii) is applicable.
"APPLICABLE EURODOLLAR MARGIN" means, as of any date of
determination, (i) 2.50% per annum in the event that (a) the Interest Coverage
Ratio is equal to or greater than 2.00:1.00 and (b) the aggregate outstanding
principal amount of Term Loans is less than $755,000,000; (ii) notwithstanding
clause (i), 2.25% per annum in the event that (a) the Interest Coverage Ratio is
equal to or greater than 2.50:1.00 and (b) the aggregate outstanding principal
amount of Term Loans is less than $680,000,000; and (iii) 2.75% per annum in the
event that neither of the foregoing clauses (i) nor (ii) is applicable,
including for the period from the Closing Date until a Margin Determination
Certificate is delivered pursuant to subsection 6.1(xviii) establishing that
either of clause (i) or clause (ii) is applicable.
"ARRANGERS" has the meaning assigned to that term in the
introductions to this Agreement.
"ASSET SALE" means (i) the sale, assignment or other transfer
(whether voluntary or involuntary) for value (collectively, a "transfer") by
Company or any of its Subsidiaries to any Person other than Company or any of
its wholly-owned Subsidiaries of (a) any of the stock of any of Company's
Subsidiaries, (b) substantially all of the assets of any division or line of
business of Company or any of its Subsidiaries, or (c) any other assets (whether
tangible or intangible) of Company or any of its Subsidiaries, excluding (1) any
---------
5
<PAGE>
Cash Equivalents or inventory sold in the ordinary course of business, (2) any
such transfer to the extent that the aggregate value of the stock or assets
transferred in any single transaction or related series of transactions is equal
to $50,000 or less, or $1,000,000 or less in the aggregate in any Fiscal Year
for all such excluded transfers and all excluded occurrences described in the
succeeding clause (ii), and (3) any transfer in an arm's-length transaction by
Company or a Subsidiary of Company to a Developer of a Development Site
constituting a Development Investment permitted under subsection 7.3(vi) or
constituting a California Development Investment permitted under subsection
7.3(x); or (ii) the occurrence of any complete or partial loss, damage or
destruction of any assets of Company or any of its Subsidiaries giving rise to
insurance proceeds, excluding any such occurrence to the extent that the
---------
aggregate value of the assets lost, destroyed or damaged in any single
occurrence or related series of occurrences is equal to $50,000 or less, or
$1,000,000 or less in the aggregate in any Fiscal Year for all such excluded
occurrences and all excluded transfers described in clause (i)(2) above.
"ASSIGNMENT AGREEMENT" means an Assignment Agreement in
substantially the form of Exhibit X annexed hereto.
---------
"AUDITOR'S LETTER" means a letter, substantially in the form of
Exhibit XI annexed hereto, executed by Company and delivered to Company's
- ----------
independent certified public accountants pursuant to subsection 4.1R.
"BANKERS" has the meaning assigned to that term in the introductions
to this Agreement.
"BANKRUPTCY CODE" means Title 11 of the United States Code entitled
"Bankruptcy", as now and hereafter in effect, or any successor statute.
"BASE RATE" means, at any time, the higher of (x) the Prime Rate or
(y) the rate which is 1/2 of 1% in excess of the Federal Funds Effective Rate.
"BASE RATE LOANS" means Loans bearing interest at rates determined
by reference to the Base Rate as provided in subsection 2.2A.
"BUSINESS DAY" means any day excluding Saturday, Sunday and any day
which is a legal holiday under the laws of the State of New York or the State of
Utah or is a day on which banking institutions located in such states are
authorized or required by law or other governmental action to close.
"CALIFORNIA ASSET SALE" means any Asset Sale of California
Development Investments, Excess California Land and/or California Stores.
"CALIFORNIA DEVELOPMENT INVESTMENTS" means (a) a loan by Company or
a Subsidiary of Company to a Developer, the proceeds of which are to be used to
finance the
6
<PAGE>
development of Excess California Land and/or California Stores; (b) a cash
contribution by Company or a Subsidiary of Company to the capital of a
Developer, the proceeds of which are used to finance the development of Excess
California Land and/or California Stores; (c) a contribution by Company or a
Subsidiary of Company to the capital of a Developer of any interest of Company
or such Subsidiary in one or more parcels of Excess California Land and/or
California Stores; or (d) Consolidated Capital Expenditures incurred in
connection with Excess California Land and California Stores; provided that in
--------
each case Company reasonably believes, taking into account the amount of such
loan, contribution or expenditure, that such loan, contribution or expenditure
will improve its ability to sell or lease such property on economic terms more
favorable to Company. The amount of any California Development Investment (i)
referred to in clauses (a), (b) and (c) above shall be the amount of cash so
loaned or so contributed or the fair market value of the parcel or parcels of
real property so contributed, which fair market value shall be determined,
without regard to the proposed investment, at the time of such contribution, in
good faith by Company, in each case minus the amount of cash received by Company
-----
or any of its Subsidiaries with respect to such loan or contribution, whether by
repayment or purchase of such loan or contribution, and (ii) referred to in
clause (d) above shall be the amount of Consolidated Capital Expenditures
incurred minus the amount of Net Asset Sale Proceeds received by Company or any
-----
of its Subsidiaries from the sale of such Excess California Land or California
Stores but in any event not in excess of the Consolidated Capital Expenditures
incurred with respect to such property.
"CALIFORNIA STORES" means Company's existing Southern California
store operations which Company anticipates selling after the Closing Date in
connection with Company's discontinuance of its California operations, which
stores are identified as such on Schedule 5.20C annexed hereto.
--------------
"CAPITAL LEASE", as applied to any Person, means any lease of any
property (whether real, personal or mixed) by that Person as lessee that, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of that Person.
"CASH" means money, currency or a credit balance in a Deposit
Account.
"CASH EQUIVALENTS" means, as at any date of determination, (i)
marketable securities (a) issued or directly and unconditionally guaranteed as
to interest and principal by the United States Government or (b) issued by any
agency of the United States the obligations of which are backed by the full
faith and credit of the United States, in each case maturing within one year
after such date; (ii) marketable direct obligations issued by any state of the
United States of America or any political subdivision of any such state or any
public instrumentality thereof, in each case maturing within one year after such
date and having, at the time of the acquisition thereof, the highest rating
obtainable from either Standard & Poor's Ratings Group ("S&P") or Moody's
Investors Service, Inc. ("MOODY'S"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and having, at the time of the
acquisition thereof, a rating of at least A-1 from S&P or at least P-1 from
7
<PAGE>
Moody's; (iv) certificates of deposit or bankers' acceptances maturing within
one year after such date and issued or accepted by any Lender or by any
commercial bank organized under the laws of the United States of America or any
state thereof or the District of Columbia that (a) is at least "adequately
capitalized" (as defined in the regulations of its primary Federal banking
regulator) and (b) has Tier 1 capital (as defined in such regulations) of not
less than $100,000,000; (v) shares of any money market mutual fund that (a) has
at least 95% of its assets invested continuously in the types of investments
referred to in clauses (i) and (ii) above, (b) has net assets of not less than
$500,000,000, and (c) has the highest rating obtainable from either S&P or
Moody's; and (vi) repurchase agreements with respect to, and which are fully
secured by a security interest in, obligations of the type described in clause
(i) or clause (ii) above and are with any commercial bank described in clause
(iv) above.
"CERCLA" has the meaning assigned to that term in the definition of
"Environmental Laws".
"CERTIFICATE RE NON-BANK STATUS" means a certificate in form and
substance satisfactory to Agent delivered by a Lender to Agent pursuant to
subsection 2.7B(iii) pursuant to which such Lender certifies that it is not (i)
a "bank" as such term is defined in subsection 881(c)(3) of the Internal Revenue
Code; (ii) a 10 percent shareholder of Company within the meaning of Section
871(h)(3)(B) or Section 881(c)(3)(B) of the Internal Revenue Code; or (iii) a
"controlled" foreign corporation related to Company within the meaning of
Section 864(d)(4) of the Internal Revenue Code.
"CHANGE OF CONTROL" means (i) any Person (other than a Permitted
Holder) or any group (within the meaning of Section 13(d)(3) of the Exchange
Act) of Persons (other than any Permitted Holders), shall have acquired
beneficial ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Exchange Act), directly or indirectly, in one or
more transactions, of Securities of Company (or other Securities convertible
into such Securities) representing 25% or more of the combined voting power of
all Securities of Company entitled to vote in the election of directors, other
than Securities having such power only by reason of the happening of a
contingency, or (ii) a change in the composition of the Board of Directors of
Company has occurred such that a majority of the members of the Board of
Directors are not Continuing Directors.
"CHASE" has the meaning assigned to that term in the introductions
to this Agreement.
"CHASE SECURITIES" has the meaning assigned to that term in the
introductions to this Agreement.
"CLASS" means, with respect to Lenders, each class of Lenders under
this Agreement, with there being two separate classes of Lenders, i.e., (i)
----
Lenders having Tranche A Term Loan Exposure and/or Revolving Loan Exposure
(taken together as a single class) and (ii) Lenders having Tranche B Term Loan
Exposure, Lenders having Tranche C Term
8
<PAGE>
Loan Exposure and/or Lenders having Tranche D Term Loan Exposure (taken together
as a single class).
"CLASS A COMMON STOCK" means the Class A Common Stock of Company,
par value $.01 per share.
"CLASS B COMMON STOCK" means the Class B Common Stock of Company,
par value $.01 per share.
"CLASS C COMMON STOCK" means the Non-Voting Convertible Class C
Common Stock of Company, par value $.01 per share.
"CLOSING DATE" means the date on or before June 30, 1996, on which
the initial Loans are made.
"CO-AGENTS" means those Lenders designated as "Co-Agents" by
Arrangers.
"COLLATERAL" means all of the real, personal and mixed property
(including capital stock) in which Liens are purported to be granted pursuant to
the Collateral Documents as security for the Obligations.
"COLLATERAL ACCOUNT" has the meaning assigned to that term in the
Collateral Account Agreement.
"COLLATERAL ACCOUNT AGREEMENT" means the Collateral Account
Agreement executed and delivered by Company and Agent on the Closing Date,
substantially in the form of Exhibit XIII annexed hereto, as such Collateral
------------
Account Agreement may hereafter be amended, supplemented or otherwise modified
from time to time.
"COLLATERAL DOCUMENTS" means the Pledge Agreements, the Security
Agreements, the Trademark Security Agreements, the Collateral Account Agreement,
the Mortgages and all other instruments or documents delivered by any Loan Party
pursuant to this Agreement or any of the other Loan Documents in order to grant
to Agent, on behalf of Lenders, a Lien on any real, personal or mixed property
of that Loan Party as security for the Obligations.
"COMMERCIAL LETTER OF CREDIT" means any letter of credit or similar
instrument issued for the purpose of providing the primary payment mechanism in
connection with the purchase of any materials, goods or services by Company or
any of its Subsidiaries in the ordinary course of business of Company or such
Subsidiary.
"COMMITMENT FEE PERCENTAGE" means .50% per annum.
9
<PAGE>
"COMMITMENTS" means the commitments of Lenders to make Loans as set
forth in subsection 2.1A.
"COMMON STOCK" means the Class A Common Stock, Class B Common Stock
and Class C Common Stock of Company.
"COMPANY" has the meaning assigned to that term in the introductions
to this Agreement.
"COMPANY EXISTING DEBT PREPAYMENTS" has the meaning assigned to that
term in the recitals to this Agreement.
"COMPLIANCE CERTIFICATE" means a certificate substantially in the
form of Exhibit VII annexed hereto delivered to Agent and Lenders by Company
-----------
pursuant to subsection 6.1(iv).
"CONSOLIDATED ADJUSTED EBITDA" means, for any period, without
duplication, the sum of the amounts for such period of (i) Consolidated Net
Income, (ii) Consolidated Cash Interest Expense, (iii) provisions for taxes
based on income, (iv) total depreciation expense, (v) total amortization
expense, and (vi) other non-cash items reducing Consolidated Net Income less
----
other non-cash items increasing Consolidated Net Income, all of the foregoing as
determined on a consolidated basis for Company and its Subsidiaries in
conformity with GAAP.
"CONSOLIDATED CAPITAL EXPENDITURES" means, for any period, an amount
equal to (i) the sum of (a) the aggregate of all expenditures (whether paid in
cash or other consideration or accrued as a liability and including that portion
of Capital Leases which is capitalized on the consolidated balance sheet of
Company and its Subsidiaries) by Company and its Subsidiaries during that period
that, in conformity with GAAP, are included in "additions to property, plant or
equipment" or comparable items reflected in the consolidated balance sheets of
Company and its Subsidiaries plus (b) to the extent not covered by clause (i)(a)
----
of this definition, the aggregate of all expenditures by Company and its
Subsidiaries during that period to acquire (by purchase or otherwise) the
business, property or fixed assets (other than current assets consisting of
inventory or accounts receivable) of any Person, or the stock or other evidence
of beneficial ownership of any Person that, as a result of such acquisition,
becomes a Subsidiary of Company minus (ii) the sum of (a) Consolidated Capital
-----
Expenditures (as defined in clause (i) above) constituting Development
Investments permitted under subsection 7.3(vi) or Capital Leases required to be
recorded in connection with a Development Investment and permitted under
subsection 7.9; (b) the principal amount of Indebtedness permitted under
subsections 7.1(iii) and 7.1(vii) to the extent relating to equipment, fixtures
and other similar property acquired after the Closing Date; (c) an amount equal
to the proceeds received by Company or any of its Subsidiaries from a sale-
leaseback transaction of a store or equipment permitted under subsection 7.10 so
long as such transaction occurs after the Closing Date and within 180 days or,
to the extent permitted by
10
<PAGE>
subsection 2.4B(iii)(a)(ii), one year of the completion of such store or
acquisition of such equipment and to the extent prior expenditures, up to an
equivalent amount for the asset so sold and leased back, constituted
Consolidated Capital Expenditures (as defined above) in such period or in any
prior period; (d) an amount equal to the increase in "property, plant or
equipment" which results from any required reclassification under GAAP of
Operating Leases of Company and its Subsidiaries existing as of the Closing Date
to Capital Leases (other than a reclassification that results from an amendment
to such Operating Leases); (e) expenditures in an amount not to exceed the
proceeds of insurance, condemnation awards (or payments in lieu thereof) or
indemnity payments received from third parties, so long as such expenditures
were made for purposes of replacing or repairing the assets in respect of which
such proceeds, awards or payments were received and so long as such expenditures
are made not later than 24 months of the occurrence of the damage to or loss of
the assets being replaced or repaired; (f) Consolidated Capital Expenditures (as
defined in clause (i) above) constituting California Development Investments
under clause (d) of the definition thereof permitted under subsection 7.3(x);
and (g) an amount equal to the increase in "property, plant or equipment" which
results from the transfer to Company of Related Assets in connection with
Company becoming liable with respect to Indebtedness permitted under subsection
7.1(viii); provided that, solely for purposes of the calculations made under
--------
subsection 7.8 for the period commencing on the Closing Date and ending on
December 28, 1996, the exclusions set forth in clauses (b) and (c) of clause
(ii) above shall not be applicable in determining "Consolidated Capital
Expenditures."
"CONSOLIDATED CASH INTEREST EXPENSE" means, for any period, (i)
total inter est expense (including that portion attributable to Capital Leases
in accordance with GAAP and capitalized interest) net of any interest income
received in Cash by Company or any of its Subsidiaries on a consolidated basis
with respect to all outstanding Indebtedness of Company and its Subsidiaries,
including, without limitation, all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance financing
and net costs under Interest Rate Agreements, plus all dividends on the
Redeemable Preferred Stock paid or payable in Cash but excluding, however, (i)
any amounts referred to in subsection 2.3 payable to Agent and Lenders on or
before the Closing Date, (ii) any interest expenses not payable in Cash
(including amortization of discounts and of debt issuance costs), and (iii) the
fees, costs and expenses payable by Company relating to the issuance of or
consent to modifications of Indebtedness of Company or Smitty's in connection
with the Transactions.
"CONSOLIDATED EXCESS CASH FLOW" means, for any Fiscal Year, an
amount equal to (i) the sum (without duplication) of the amounts for such Fiscal
Year of (a) Consolidated Net Income; (b) any after-tax gains attributable to
returned surplus assets of any Pension Plan; (c) the amount of Net Asset Sale
Proceeds received in such Fiscal Year that are not otherwise included in
Consolidated Net Income and that are required to be used to prepay the Term
Loans and/or permanently reduce the Revolving Loan Commitments pursuant to
subsection 2.4B(iii)(a), but excluding amounts returned to Company pursuant to
the last sentence of subsection 2.4B(iv)(c) which are not used by Company to
prepay the Term Loans and/or permanently reduce the Revolving Loan Commitments;
(d) the aggregate
11
<PAGE>
amount of Cash proceeds (net of underwriting discounts, similar placement fees
and commissions and other reasonable costs and expenses associated therewith)
from the issuance after the Closing Date of any debt or equity Securities of
Company or any of its Subsidiaries that are required to be used to prepay the
Loans pursuant to subsections 2.4B(iii)(c) or 2.4B(iii)(d), as the case may be,
but excluding amounts returned to Company pursuant to the last sentence of
subsection 2.4B(iv)(c) which are not used by Company to prepay the Terms Loans
and/or permanently reduce the Revolving Loan Commitments; (e) consolidated
depreciation and amortization expense for such Fiscal Year; (f) the net decrease
(if any) in deferred tax assets and the net increase (if any) in deferred tax
liabilities of Company and its Subsidiaries; (g) other non-cash charges reducing
Consolidated Net Income; (h) (to the extent not included in Consolidated Net
Income) any cash extraordinary gains; (i) an amount equal to the Net Asset Sale
Proceeds excluded from mandatory prepayments required to be made under
subsection 2.4B(iii)(a) pursuant to clauses (i) and (iii) of the first proviso
thereof; provided that such Net Asset Sale Proceeds which meet the following
--------
requirements ("Excluded Proceeds") shall not be added pursuant to this clause
(i): (x) they have not been reinvested as permitted pursuant to such clauses (i)
and (iii) and (y) the period for permitted reinvestment pursuant to such clauses
(i) and (iii) extends beyond the last date of the Fiscal Year; (j) all Cash
proceeds received by Company or any of its Subsidiaries in payment or repayment
of any Development Investment or California Development Investment previously
made by Company or such Subsidiary; (k) an amount equal to the Excluded Proceeds
from the previous Fiscal Year; and (l) cash proceeds which result in reductions
in long-term assets minus (ii) the sum (without duplication) of the amounts for
-----
such Fiscal Year of (a) Consolidated Capital Expenditures permitted under
subsection 7.8 made during such Fiscal Year; (b) payments of principal made in
respect of any outstanding Indebtedness of Company or any of its Subsidiaries to
the extent such payments are permanent reductions in Funded Debt and not
prohibited under subsection 7.5; (c) the net increase (if any) in deferred tax
assets and the net decrease (if any) in deferred tax liabilities; (d) the amount
of all Development Investments permitted under subsection 7.3(vi) or California
Development Investments permitted under subsection 7.3(x) which are paid or
payable in cash and are made during such Fiscal Year; (e) other non-cash charges
increasing Consolidated Net Income; (f) cash payments which result in reductions
in reserves and/or long term liabilities in such Fiscal Year; (g) cash payments
made by Company after the Closing Date to redeem the Redeemable Preferred Stock
in accordance with subsection 7.5; and (h) for Fiscal Year 1996, $10,000,000,
all of the foregoing as determined on a consolidated basis for Company and its
Subsidiaries in conformity with GAAP.
"CONSOLIDATED FIXED CHARGES" means, for any period, the sum (without
duplication) of the amounts for such period of (i) Consolidated Cash Interest
Expense, (ii) Consolidated Rental Payments, (iii) scheduled principal payments
attributable to any Indebtedness of Company and its Subsidiaries and (iv) cash
payments made by Company after the Closing Date to redeem the Redeemable
Preferred Stock, all of the foregoing as determined on a consolidated basis for
Company and its Subsidiaries in conformity with GAAP.
12
<PAGE>
"CONSOLIDATED NET INCOME" means, for any period, the net income (or
loss) of Company and its Subsidiaries on a consolidated basis for such period
taken as a single accounting period determined in conformity with GAAP; provided
--------
that there shall be excluded (without duplication) (i) the income (or loss) of
any Person (other than a Subsidiary of Company) in which any other Person (other
than Company or any of its Subsidiaries) has a joint interest, except to the
extent of the amount of dividends or other distributions actually paid to
Company or any of its Subsidiaries by such Person during such period, (ii) the
income (or loss) of any Person accrued prior to the date it becomes a Subsidiary
of Company or is merged into or consolidated with Company or any of its
Subsidiaries or that Person's assets are acquired by Company or any of its
Subsidiaries, (iii) the income of any Subsidiary of Company to the extent that
the declaration or payment of dividends or similar distributions by that
Subsidiary of that income is not at the time permitted by operation of the terms
of its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Subsidiary, (iv) any after-
tax gains or losses attributable to Asset Sales or returned surplus assets of
any Pension Plan, (v) Restructuring Charges incurred during such period, and
(vi) (to the extent not included in clauses (i) through (v) above) any net
extraordinary gains or net non-cash extraordinary losses; provided further there
-------- -------
shall be included as a reduction to net income the aggregate amount of cash
payments made by Company during such period in connection with the matters
referenced in clauses (ii), (iii) and (iv) of the definition of Restructuring
Charges to the extent that such cash payments reduce the reserves or other
noncash charges established in connection with the matters referenced in such
clauses (ii), (iii) and (iv).
"CONSOLIDATED NET WORTH" means, as at any date of determination, (i)
the capital stock and additional paid-in capital plus (ii) retained earnings (or
----
minus accumulated deficits) of Company and its Subsidiaries on a consolidated
basis determined in conformity with GAAP plus (iii) Restructuring Charges for
----
the period from and including the Closing Date to such date of determination.
"CONSOLIDATED RENTAL PAYMENTS" means, for any period, the aggregate
amount of all rents paid or payable by Company and its Subsidiaries on a
consolidated basis during that period under all Operating Leases to which
Company or any of its Subsidiaries is a party as lessee (net of sublease
income).
"CONSOLIDATED TOTAL DEBT" means, as at any date of determination,
the aggregate stated balance sheet amount of all Indebtedness of Company and its
Subsidiaries plus the Redeemable Preferred Stock, determined on a consolidated
----
basis in accordance with GAAP.
"CONTINGENT OBLIGATION", as applied to any Person, means any direct
or indirect liability, contingent or otherwise, of that Person (i) with respect
to any Indebted ness, lease, dividend or other obligation of another if the
primary purpose or intent thereof by the Person incurring the Contingent
Obligation is to provide assurance to the obligee of such obligation of another
that such obligation of another will be paid or discharged, or that any
13
<PAGE>
agreements relating thereto will be complied with, or that the holders of such
obligation will be protected (in whole or in part) against loss in respect
thereof, (ii) with respect to any letter of credit issued for the account of
that Person or as to which that Person is otherwise liable for reimbursement of
drawings, or (iii) under Hedge Agreements. Contingent Obligations shall include,
without limitation, (a) the direct or indirect guaranty, endorsement (otherwise
than for collection or deposit in the ordinary course of business), co-making,
discounting with recourse or sale with recourse by such Person of the obligation
of another, (b) the obligation to make take-or-pay or similar payments if
required regardless of non-performance by any other party or parties to an
agreement, and (c) any liability of such Person for the obligation of another
through any agreement (contingent or otherwise) (X) to purchase, repurchase or
other wise acquire such obligation or any security therefor, or to provide funds
for the payment or discharge of such obligation (whether in the form of loans,
advances, stock purchases, capital contributions or otherwise) or (Y) to
maintain the solvency or any balance sheet item, level of income or financial
condition of another if, in the case of any agreement described under subclauses
(X) or (Y) of this sentence, the primary purpose or intent thereof is as
described in the preceding sentence. The amount of any Contingent Obligation
shall be equal to the amount of the obligation so guaranteed or otherwise
supported or, if less, the amount to which such Contingent Obligation is
specifically limited.
"CONTINUING DIRECTORS" means, as of any date of determination, any
member of the Board of Directors of Company who (i) was a member of such Board
of Directors on the Closing Date (after the consummation of the Transactions
including without limitation the Merger) or (ii) was nominated for election or
elected to such Board of Directors either with the affirmative vote of a
majority of the directors who were either members of such Board of Directors on
the Closing Date or whose nomination or election was previously so approved.
"CONTRACTUAL OBLIGATION", as applied to any Person, means any
provision of any Security issued by that Person or of any material indenture,
mortgage, deed of trust, contract, undertaking, agreement or other instrument to
which that Person is a party or by which it or any of its properties is bound or
to which it or any of its properties is subject.
"COVERED PERIOD" means the period from the date hereof to and
including the Transfer Date, but excluding the period, if any, prior to the
Transfer Date, during which (A) Indemnitee or its Affiliate has obtained and
then remains in possession and control of the Mortgaged Property or Covered Real
Property, as the case may be, and (B) neither Company nor any of its Affiliates
is in possession or control of such property or engaging in any Hazardous
Materials Activity on or at such property.
"COVERED REAL PROPERTY" has the meaning assigned to that term in
subsection 6.9.
"CURRENCY AGREEMENT" means any foreign exchange contract, currency
swap agreement, futures contract, option contract, synthetic cap or other
similar agreement or arrangement to which Company or any of its Subsidiaries is
a party.
14
<PAGE>
"DEFERRED COMPENSATION AGREEMENTS" means those certain deferred
compensation agreements entered into by and between the Company and certain of
its current and former employees as in effect on the Closing Date (or as amended
in a form acceptable to Arrangers), including those certain deferred
compensation agreements entered into by and between Company and James A. Acton,
Robert D. Bolinder, Richard C. Bylski, Michael C. Frei, James W. Hallsey, Larry
R. McNeill, Harry M. Moskal, Matthew G. Tezak, Paul D. Tezak, Frederick F.
Urbanek and Kenneth A. White.
"DEFERRED TRADE PAYABLES" means promissory notes (whether interest
bearing or non-interest bearing) executed by Company or any of its Subsidiaries
in favor of such entity's suppliers to finance the purchase price and delivery
costs of inventory in connection with such entity's opening or acquisition of
new stores or remodeling of existing stores.
"DEPOSIT ACCOUNT" means a demand, time, savings, passbook or like
account with a bank, savings and loan association, credit union or like
organization, other than an account evidenced by a negotiable certificate of
deposit.
"DEVELOPER" means any Person which owns, leases or otherwise
controls or intends to acquire an interest in a Development Site.
"DEVELOPMENT INVESTMENT" means (a) a loan by Company or a Subsidiary
of Company to a Developer, the proceeds of which are to be used to finance a
Development Project of such Developer, (b) a cash contribution by Company or a
Subsidiary of Company to the capital of a Developer, the proceeds of which are
to be used to finance a Development Project of such Developer, or (c) a
contribution by Company or a Subsidiary of Company to the capital of a Developer
of an interest of Company or such Subsidiary in a Development Site, but in any
event excluding any California Development Investments. The amount of any
Development Investment shall be the amount of cash so loaned or contributed or
the fair market value of the interest of a Development Site so contributed,
which fair market value shall be determined, without regard to the proposed
investment, at the time of such contribution in good faith by resolution of the
Board of Directors of Company, in each case minus the amount of cash received by
-----
Company or any of its Subsidiaries in repayment of such Development Investment.
"DEVELOPMENT PROJECT" means a project for the development by or at
the direction of a Developer of a Development Site, including the construction,
remodeling, expansion or renovation of a store thereon, which store is to be
leased to and operated by Company or one of its Subsidiaries.
"DEVELOPMENT SITE" means, with respect to a Development Investment,
real property which is identified by Company or one of its Subsidiaries as the
intended location for a store or a shopping center and related improvements to
be constructed, remodeled, expanded or renovated by or at the direction of the
Developer thereof, which in each case shall include a store intended to be
leased to and operated by Company or one of its
15
<PAGE>
Subsidiaries, and with respect to a California Development Investment, any
Excess California Land or California Store.
"DOLLARS" and the sign "$" mean the lawful money of the United
States of America.
"ELIGIBLE ASSIGNEE" means (A) (i) a commercial bank organized under
the laws of the United States or any state thereof; (ii) a savings and loan
association or savings bank organized under the laws of the United States or any
state thereof; (iii) a commercial bank organized under the laws of any other
country or a political subdivision thereof; provided that (x) such bank is
--------
acting through a branch or agency located in the United States or (y) such bank
is organized under the laws of a country that is a member of the Organization
for Economic Cooperation and Development or a political subdivision of such
country; and (iv) any other entity which is an "accredited investor" (as defined
in Regulation D under the Securities Act) which extends credit or buys loans as
one of its businesses including, but not limited to, insurance companies, mutual
funds and lease financing companies; and (B) any Lender and any Affiliate of any
Lender; provided that no Affiliate of Company shall be an Eligible Assignee.
--------
"EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" as defined
in Section 3(3) of ERISA (i) which is, or, at any time within the five calendar
years immediately preceding the date hereof, was at any time, maintained or
contributed to by the Loan Parties or any of their respective ERISA Affiliates
or (ii) with respect to which any Loan Party retains any liability, including
any potential joint and several liability as a result of an affiliation with an
ERISA Affiliate or a party that would be an ERISA Affiliate except for the fact
the affiliation ceased more than five calendar years prior to the date hereof.
"ENVIRONMENTAL CLAIM" means any accusation, allegation, notice of
violation, notice of potential liability, claim, demand, abatement order or
other order or direction (conditional or otherwise) by any governmental
authority or any Person for any damage, including, without limitation, personal
injury (including sickness, disease or death), tangible or intangible property
damage, contribution, indemnity, indirect or consequential damages, damage to
the environment, nuisance, pollution, contamination or other adverse effects on
the environment, or for fines, penalties or restrictions, in each case relating
to, resulting from or in connection with Hazardous Materials and relating to
Company, any of its Subsidiaries, any of their respective Affiliates or any
Facility.
"ENVIRONMENTAL LAWS" means all present or future statutes,
ordinances, orders, rules, regulations, plans, policies or decrees and the like
relating to (i) environmental matters, including, without limitation, those
relating to fines, injunctions, penalties, damages, contribution, cost recovery
compensation, losses or injuries resulting from the Release or threatened
Release of Hazardous Materials, (ii) the generation, use, storage,
transportation or disposal of Hazardous Materials, or (iii) occupational safety
and health, industrial hygiene, land use or the protection of human, plant or
animal health or welfare, in any manner
16
<PAGE>
applicable to Company or any of its Subsidiaries or any of their respective
properties, including, without limitation, the Comprehensive Environmental
Response, Compensation, and Liability Act "CERCLA" (42 U.S.C. (S) 9601 et seq.),
-- ---
the Hazardous Materials Transportation Act (49 U.S.C. (S) 1801 et seq.), the
-- ---
Resource Conservation and Recovery Act (42 U.S.C. (S) 6901 et seq.), the Federal
-- ---
Water Pollution Control Act (33 U.S.C. (S) 1251 et seq.), the Clean Air Act (42
-- ---
U.S.C. (S) 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. (S) 2601
-- ---
et seq.), the Federal Insecticide, Fungicide and Rodenticide Act (7 U.S.C.
- -- ---
(S)136 et seq.), the Occupational Safety and Health Act (29 U.S.C. (S) 651 et
-- --- --
seq.) and the Emergency Planning and Community Right-to-Know Act (42 U.S.C. (S)
- ---
11001 et seq.), each as amended or supplemented, and any analogous future or
-- ---
present local, state and federal statutes and regulations promulgated pursuant
thereto, each as in effect as of the date of determination.
"ENVIRONMENTAL LOSSES" means any and all losses, liabilities,
damages (whether actual, consequential, punitive, or otherwise denominated),
demands, claims, actions, judgements, causes of action, assessments, penalties,
costs and expenses (including, without limitation, reasonable attorneys' fees
and disbursements), of any and every kind or character, foreseeable and
unforeseeable, liquidated and contingent, proximate and remote. suffered or
incurred by any Indemnitee, arising out of or as a result of: (I) any Hazardous
Materials Activity that occurs or is alleged to have occurred on or prior to the
date hereof or during the Covered Period; (II) any violation on or prior to the
date hereof or during the Covered Period of any applicable Environmental Laws
relating to the Mortgaged Property or Covered Real Property or to the ownership,
use, occupancy or operation thereof; (III) any investigation, inquiry, order,
hearing, action, or other proceeding by or before any governmental agency in
connection with any Hazardous Materials Activity that occurs or is alleged to
have occurred on or prior to the date hereof or during the Covered Period; or
(IV) any claim, demand or cause of action, or any action or other proceeding,
whether meritorious or not, brought or asserted against any Indemnitee which
directly or indirectly relates to, arises from or is based on any of the matters
described in clauses (i), (ii), or (iii), or any allegation of any such matters.
---------------------------
"EQUITY TENDER OFFER" means Company's purchase pursuant to the
Equity Tender Offer Materials of approximately 13,400,000 shares in the
aggregate of Company's Class A Common Stock and Class B Common Stock (excluding
shares of Class B Common Stock issued or issuable in connection with the
Merger), representing 50% in the aggregate of all shares of Class A Common Stock
and Class B Common Stock outstanding on a fully diluted basis, at a cash price
not to exceed $36.00 per share for an aggregate payment, for all such shares and
for the Existing Management Stock Options, of approximately $465,000,000.
"EQUITY TENDER OFFER MATERIALS" means the Proxy Statement and Offer
to Purchase for Cash 50% of the Outstanding Shares of Class A Common Stock and
Class B Common Stock at $36 per share dated April 25, 1996 and other materials
enclosed therewith.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, and any successor statute.
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<PAGE>
"ERISA AFFILIATE" as applied to any Person, means (i) any
corporation which is, or was at any time within the five calendar years
immediately preceding the date hereof, a member of a controlled group of
corporations within the meaning of Section 414(b) of the Internal Revenue Code
of which that Person is, or was at any time within the five calendar years
immediately preceding the date hereof, a member; (ii) any trade or business
(whether or not incorporated) which is, or was at any time within the five
calendar years immediately preceding the date hereof, a member of a group of
trades or businesses under common control within the meaning of Section 414(c)
of the Internal Revenue Code of which that Person is, or was at any time within
the five calendar years immediately preceding the date hereof, a member; and
(iii) any member of an affiliated service group within the meaning of Section
414(m) or (o) of the Internal Revenue Code of which that Person, any corporation
described in clause (i) above or any trade or business described in clause (ii)
above is, or was at any time within the five calendar years immediately
preceding the date hereof, a member.
"ERISA EVENT" means (i) a "reportable event" within the meaning of
Section 4043 of ERISA and the regulations issued thereunder with respect to any
Pension Plan (excluding those for which the provision for 30-day notice to the
PBGC has been waived by regulation); (ii) the failure to meet the minimum
funding standard of Section 412 of the Internal Revenue Code with respect to any
Pension Plan (whether or not waived in accordance with Section 412(d) of the
Internal Revenue Code) or the failure to make by its due date a required
installment under Section 412(m) of the Internal Revenue Code with respect to
any Pension Plan or the failure to make any required contribution to a
Multiemployer Plan; (iii) the provision by the administrator of any Pension Plan
pursuant to Section 4041(a)(2) of ERISA of a notice of intent to terminate such
plan in a distress termination described in Section 4041(c) of ERISA; (iv) the
withdrawal by any of the Loan Parties or any of their respective ERISA
Affiliates from any Pension Plan with two or more contributing sponsors or the
termination of any such Pension Plan resulting in liability pursuant to Section
4063 or 4064 of ERISA; (v) the institution by the PBGC of proceedings to
terminate any Pension Plan, or the occurrence of any event or condition which
might reasonably be expected to constitute grounds under ERISA for the
termination of, or the appointment of a trustee to administer, any Pension Plan;
(vi) the imposition of liability on any of the Loan Parties or any of their
respective ERISA Affiliates pursuant to Section 4062(e) or 4069 of ERISA or by
reason of the application of Section 4212(c) of ERISA; (vii) the withdrawal of
any of the Loan Parties or any of their respective ERISA Affiliates in a
complete or partial withdrawal (within the meaning of Sections 4203 and 4205 of
ERISA) from any Multiemployer Plan if there is any potential liability therefor,
or the receipt by any of the Loan Parties or any of their respective ERISA
Affiliates of notice from any Multiemployer Plan that it is in reorganization or
insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to
terminate or has terminated under Section 4041A or 4042 of ERISA; (viii) the
occurrence of an act or omission which could reasonably be expected to give rise
to the imposition on any of the Loan Parties or any of their respective ERISA
Affiliates of fines, penalties, taxes or related charges under Chapter 43 of the
Internal Revenue Code or under Section 409 or 502(c), (i) or (l), or 4071 of
ERISA in respect of any Employee Benefit Plan; (ix) the assertion of a material
claim (other than (a) routine claims for
18
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benefits, (b) any claims in an aggregate amount not exceeding $3,500,000 made by
the United Food and Commercial Workers Union Employees Benefit Fund for Southern
California, or any affected union, with respect to contributions allegedly owed
by Company to such fund as a result of Company's sale and closure in 1996 of
certain of its operations in California, and (c) solely for the purpose of
subsection 8.10, claims (and any resulting liabilities) under or with respect to
the Deferred Compensation Agreements to the extent not in excess of $30,000,000
and then only to the extent of such excess) against any Employee Benefit Plan
other than a Multiemployer Plan or the assets thereof, or against any of the
Loan Parties or any of their respective ERISA Affiliates in connection with any
Employee Benefit Plan; (x) receipt from the Internal Revenue Service of notice
of the failure of any Pension Plan (or any other Employee Benefit Plan intended
to be qualified under Section 401(a) of the Internal Revenue Code) to qualify
under Section 401(a) of the Internal Revenue Code, or the failure of any trust
forming part of any Pension Plan to qualify for exemption from taxation under
Section 501(a) of the Internal Revenue Code; or (xi) the imposition of a Lien
pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue Code or
pursuant to ERISA with respect to any Pension Plan.
"EURODOLLAR RATE LOANS" means Loans bearing interest at rates
determined by reference to the Adjusted Eurodollar Rate as provided in
subsection 2.2A.
"EVENT OF DEFAULT" means each of the events set forth in Section 8.
"EXCESS CALIFORNIA LAND" means Company's existing real property
holdings in the State of California which were being held by Company for future
development, and which sites are identified as such on Schedule 5.20C annexed
--------------
hereto.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor statute.
"EXCLUDED SITE" means, as of any date, provided that there shall not
then exist a Potential Event of Default or an Event of Default, all of the
following, excluding any fee interest in Real Property Assets on which Agent
shall have been granted a Lien in accordance with the terms hereof: (a) any fee
interest in undeveloped land acquired by Company or any of its Subsidiaries for
the development of a grocery store, so long as less than one year has elapsed
since the date such fee interest was first acquired by Company or any of its
Subsidiaries (the "Acquisition Date"), (b) any fee interest in Real Property
Assets owned by Company or any of its Subsidiaries consisting of a grocery store
under construction, so long as less than one year has elapsed since the date
such construction commenced, and (c) any fee interest in a grocery store, the
construction of which is complete, which fee interest was not previously a
Covered Real Property, so long as not more than 180 days has elapsed since the
date of completion of such construction; provided that the maximum length of
--------
time that a property may be characterized as an Excluded Site is two years from
its Acquisition Date; provided further that if on any date there are more than
-------- -------
five (5) properties that meet the foregoing definition of "Excluded Site", only
the five (5) such properties with the earliest
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Acquisition Dates (and on which Agent shall not have been granted a Lien in
accordance with the terms hereof) shall constitute "Excluded Sites". "Excluded
Site" shall also include as of the Closing Date any Real Property Asset
identified as such on Schedule 4.1I annexed hereto which Company or any of its
-------------
Subsidiaries are in the process of selling, subleasing or otherwise disposing of
such Real Property Asset; provided that any such Real Property Asset shall cease
--------
to be an "Excluded Site" if not so sold or leased within [120] days of the
Closing Date.
"EXISTING COMPANY CREDIT LINES" means those certain unsecured credit
lines between Company and certain financial institutions, in the maximum
aggregate committed amount of $100,000,000.
"EXISTING COMPANY IRB'S" means Company's (i) $2,850,000 in initial
aggregate principal amount of 8.85% Industrial Development Revenue Bonds
(Smith's Food King Properties, Inc. Project) due 2000 (the "BRIGHAM CITY
BONDS"), (ii) $2,470,000 in initial aggregate principal amount of Industrial
Development Revenue Bonds, Series 1985 due 2010 (the "NORTH OGDEN BONDS") and
(iii) $3,800,000 in initial aggregate principal amount of Industrial Development
Revenue Bonds, Series 1985 (Provo-Smith's Associates Project) due 2010 (the
"PROVO BONDS"), in each case issued pursuant to the applicable Existing Company
IRB Indenture.
"EXISTING COMPANY IRB INDENTURES" means (i) the Indenture of Trust
dated September 1, 1980 between Brigham City, Utah, and First Security Bank of
Utah, N.A., as trustee, pursuant to which the Brigham City Bonds were issued,
(ii) the Indenture of Trust dated as of December 1, 1985 between North Ogden
City, Utah, and Zions First National Bank, as trustee, pursuant to which the
North Ogden Bonds were issued, and (iii) the Indenture of Trust dated as of
December 1, 1985 between Provo City, Utah, and Zions First National Bank, as
trustee, pursuant to which the Provo Bonds were issued, in each case as amended
prior to the Closing Date.
"EXISTING LETTERS OF CREDIT" means the Letters of Credit listed in
Schedule 3.1C annexed hereto.
- -------------
"EXISTING MANAGEMENT STOCK OPTIONS" means the outstanding stock
options granted to certain employees of Company under Company's 1989 Stock
Option Plan prior to the Closing Date, as set forth on Schedule 4.2 to the
------------
Recapitalization and Merger Agreement, which, upon payment of an exercise price
of $19 per share, are exercisable into an aggregate of approximately 1,700,000
shares of Company's Class B Common Stock.
"EXISTING SMITTY'S SUBORDINATED NOTES" means the $50,000,000 in
initial aggregate principal amount of 12.75% Senior Subordinated Notes due 2004
issued by Smitty's Super Valu, Inc. pursuant to the Existing Smitty's
Subordinated Note Indenture.
20
<PAGE>
"EXISTING SMITTY'S SUBORDINATED NOTE INDENTURE" means the indenture
dated as of June 15, 1994, among Smitty's Super Valu, Inc., Saint Lawrence
Holding Company, as subsidiary guarantor, and United States Trust Company of New
York, as trustee, pursuant to which the Existing Smitty's Subordinated Notes
were issued, as amended prior to the Closing Date.
"EXISTING SMITTY'S DISCOUNT DEBENTURES" means Smitty's $29,025,000
in initial aggregate face amount ($19,300,000 in estimated accreted value on the
Closing Date) of 13.75% Senior Discount Debentures due 2006 issued pursuant to
the Existing Smitty's Discount Debenture Indenture.
"EXISTING SMITTY'S DISCOUNT DEBENTURE INDENTURE" means the indenture
dated as of June 15, 1994, between Smitty's and United States Trust Company of
New York, as trustee, pursuant to which the Existing Smitty's Discount
Debentures were issued, as amended prior to the Closing Date.
"EXISTING SMITTY'S CREDIT AGREEMENT" means that certain Credit
Agreement dated as of June 29, 1994 among Smitty's, SSV Acquisition Sub, Inc.,
Smitty's Super Valu, Inc., Chase, as agent, and other financial institutions
named therein, as amended prior to the Closing Date.
"EXISTING SMITTY'S SINKING FUND BONDS" means $13,000,000 in initial
aggregate principal amount of 10.50% First Mortgage Sinking Fund Bonds, Series
1986 due July 31, 2016 issued by Saint Lawrence Holding Company pursuant to the
Existing Smitty's Sinking Fund Bond Indenture, as such bonds may be amended from
time to time to the extent permitted under subsection 7.15B.
"EXISTING SMITTY'S SINKING FUND BOND INDENTURE" means the indenture
dated as of July 16, 1986 between Saint Lawrence Holding Company and First
Interstate Bank of Arizona, N.A., as trustee, as supplemented by that certain
First Supplemental Indenture dated as of July 16, 1986 by and between Saint
Lawrence Holding Company and First Interstate Bank of Arizona, N.A., as trustee,
pursuant to which the Existing Smitty's Sinking Fund Bonds were issued, as
amended prior to the Closing Date and as such indenture may be amended from time
to time to the extent permitted under subsection 7.15B.
"FACILITIES" means any and all real property (including, without
limitation, all buildings, fixtures or other improvements located thereon) now,
hereafter or heretofore owned, leased, operated or used by Company or any of its
Subsidiaries or any of their respective predecessors or Affiliates.
"FEDERAL FUNDS EFFECTIVE RATE" means, for any period, a fluctuating
interest rate equal for each day during such period to the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next
21
<PAGE>
preceding Business Day) by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day, the average of the
quotations for such day on such transactions received by Agent from three
Federal funds brokers of recognized standing selected by Agent.
"FINANCIAL PLAN" has the meaning assigned to that term in subsection
6.1(xiii).
"FISCAL PERIOD" means a fiscal period of Company and its
Subsidiaries, consisting of a four-week period or five-week period, as the case
may be.
"FISCAL QUARTER" means a fiscal quarter of Company and its
Subsidiaries, consisting of a 13-week period or, in the case of the first Fiscal
Quarter of any Fiscal Year which has 53 weeks, a 14-week period.
"FISCAL YEAR" means the fiscal year of Company and its Subsidiaries,
consisting of a 52- or 53-week period, ending on the date which is the Saturday
closest to December 31.
"FLOOD HAZARD PROPERTY" means a Mortgaged Property located in an
area designated by the Federal Emergency Management Agency as having special
flood or mud slide hazards.
"FUNDED DEBT", as applied to any Person, means all Indebtedness of
that Person which by its terms or by the terms of any instrument or agreement
relating thereto matures more than one year from, or is directly renewable or
extendable at the option of the debtor to a date more than one year from
(including an option of the debtor under a revolving credit or similar agreement
obligating the lender or lenders to extend credit over a period of one year or
more from), the date of the creation thereof.
"FUNDING AND PAYMENT OFFICE" means (i) the office of Agent and Swing
Line Lender located at One Bankers Trust Plaza, 130 Liberty Street, New York,
New York 10006 or (ii) such other office of Agent and Swing Line Lender as may
from time to time hereafter be designated as such in a written notice delivered
by Agent and Swing Line Lender to Company and each Lender.
"FUNDING DATE" means the date of the funding of a Loan.
"GAAP" means, subject to the limitations on the application thereof
set forth in subsection 1.2, generally accepted accounting principles set forth
in opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment
22
<PAGE>
of the accounting profession, in each case as the same are applicable to the
circumstances as of the date of determination.
"GOVERNMENTAL AUTHORIZATION" means any permit, license,
authorization, plan, directive, consent order or consent decree of or from any
federal, state or local governmental authority, agency or court.
"HAZARDOUS MATERIALS" means (i) any chemical, material or substance
at any time defined as or included in the definition of "hazardous substances",
"hazardous wastes", "hazardous materials", "extremely hazardous waste",
"restricted hazardous waste", "infectious waste", "toxic substances",
"pollutant", "contaminant" or any formulations intended to define, list or
classify substances by reason of deleterious properties such as ignitability,
corrosivity, reactivity, carcinogenicity, toxicity, reproductive toxicity, "TCLP
toxicity" or "EP toxicity" or words of similar import under any applicable
Environmental Laws or publications promulgated pursuant thereto; (ii) any oil,
petroleum, petroleum fraction or petroleum derived substance; (iii) any drilling
fluids, produced waters and other wastes associated with the exploration,
development or production of crude oil, natural gas or geothermal resources;
(iv) any flammable substances or explosives; (v) any radioactive materials; (vi)
asbestos in any form; (vii) urea formaldehyde foam insulation; (viii) electrical
equipment which contains any oil or dielectric fluid containing polychlorinated
biphenyls; (ix) pesticides; and (x) any other chemical, material or substance,
exposure to which is prohibited, limited or regulated by any governmental
authority or which may or could pose a hazard to the health and safety of the
owners, occupants or any Persons in the vicinity of the Facilities.
"HAZARDOUS MATERIALS ACTIVITY" means any use, storage, holding,
existence, release (including any spilling, leaking, pumping, pouring, emitting,
emptying, dumping, disposing into the environment, and the continuing migration
into or through soil, surface water, or groundwater), emission, discharge,
generation, processing, abatement, removal, disposition, handling or
transportation to or from the Mortgaged Property or Covered Real Property, as
the case may be, of any Hazardous Materials from, under, in, into or on such
property or surrounding property, including, without limitation, the movement or
migration of any Hazardous Materials from surrounding property or groundwater
in, into or onto such property and any residual Hazardous Materials
contamination on or under such property.
"HEDGE AGREEMENT" means an Interest Rate Agreement or a Currency
Agreement designed to hedge against fluctuations in interest rates or currency
values, respectively.
"INDEBTEDNESS", as applied to any Person, means (i) all indebtedness
for borrowed money, (ii) that portion of obligations with respect to Capital
Leases that is properly classified as a liability on a balance sheet in
conformity with GAAP, (iii) notes payable and drafts accepted representing
extensions of credit whether or not representing obligations for borrowed money,
(iv) any obligation owed for all or any part of the deferred purchase price of
property or services (excluding any such obligations incurred under ERISA),
which
23
<PAGE>
purchase price is (a) due more than twelve months from the date of incurrence of
the obligation in respect thereof or (b) evidenced by a note or similar written
instrument, and (v) all indebtedness secured by any Lien on any property or
asset owned or held by that Person regardless of whether the indebtedness
secured thereby shall have been assumed by that Person or is nonrecourse to the
credit of that Person. Obligations under Interest Rate Agreements and Currency
Agreements constitute (X) in the case of Hedge Agreements, Contingent
Obligations, and (Y) in all other cases, Investments, and in neither case
constitute Indebtedness.
"INDEMNITEE" has the meaning assigned to that term in subsection
10.3.
"INACTIVE SUBSIDIARY" means any Subsidiary of Company that does not
engage in any significant business activity and is designated as such on
Schedule 5.1 annexed hereto; provided, however, that all Inactive Subsidiaries
- ------------ -------- -------
in the aggregate shall not own assets with an aggregate fair market value in
excess of $3,000,000 and shall not generate aggregate annual revenues in excess
of $3,000,000; and provided further that no Inactive Subsidiary shall have any
-------- -------
Subsidiary other than an Inactive Subsidiary.
"INTELLECTUAL PROPERTY" means all patents, trademarks, tradenames,
copyrights, technology, know-how and processes used in or necessary for the
conduct of the business of Company and its Subsidiaries as currently conducted
that are material to the condition (financial or otherwise), business or
operations of Company or any of its Subsidiaries.
"INTEREST COVERAGE RATIO" means, as at any date of determination,
the ratio of (i) Consolidated Adjusted EBITDA to (ii) Consolidated Cash Interest
Expense for the four Fiscal Quarters ending as of the last day of the Fiscal
Quarter immediately preceding the Fiscal Quarter during which such date of
determination occurs except that if the date of determination is the last day of
a Fiscal Quarter, the four Fiscal Quarters tested shall include the preceding
three Fiscal Quarters and the Fiscal Quarter then ending; provided that the
Interest Coverage Ratio shall be calculated, for any date of determination (i)
on or prior to December 28, 1996, for the one-Fiscal Quarter Period ending on
September 28, 1996; (ii) on or prior to April 5, , 1997, for the two-Fiscal
Quarter Period ending on December 28, 1996; and (iii) on or prior to July 5,
1997, for the three-Fiscal Quarter Period ending on April 5, 1997.
"INTEREST PAYMENT DATE" means (i) with respect to any Base Rate
Loan, each February 1, May 1, August 1 and November 1 of each year, commencing
on the first such date to occur after the Closing Date, and (ii) with respect to
any Eurodollar Rate Loan, the last day of each Interest Period applicable to
such Loan; provided that in the case of each Interest Period of longer than
--------
three months "Interest Payment Date" shall also include each date that is three
months after the commencement of such Interest Period.
"INTEREST PERIOD" has the meaning assigned to that term in
subsection 2.2B.
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<PAGE>
"INTEREST RATE AGREEMENT" means any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement or other similar
agreement or arrangement to which Company or any of its Subsidiaries is a party.
"INTEREST RATE DETERMINATION DATE" means, with respect to any
Interest Period, the second Business Day prior to the first day of such Interest
Period.
"INTEREST RATE EXCHANGERS" means Lenders or Affiliates of Lenders
parties to the Interest Rate Agreements permitted under subsection 7.4(iii).
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter, and any successor
statute.
"INVENTORY" means, with respect to any Person as of any date of
determination, all goods, merchandise and other personal property which are then
held by such Person for sale or lease, including raw materials and work in
process.
"INVESTMENT" means (i) any direct or indirect purchase or other
acquisition by Company or any of its Subsidiaries of, or of a beneficial
interest in, any Securities of any other Person (other than a Person that prior
to such purchase or acquisition was a wholly-owned Subsidiary of Company) or
(ii) any direct or indirect loan, advance (other than (x) advances to employees
for moving, entertainment and travel expenses, (y) loans to employees in
connection with purchase of a home upon relocation, (z) drawing accounts and
similar expenditures, in each case in the ordinary course of business) or
capital contribution by Company or any of its Subsidiaries to any other Person
(other than a wholly-owned Subsidiary of Company), including all indebtedness
and accounts receivable from that other Person that are not current assets or
did not arise from sales to that other Person in the ordinary course of
business. The amount of any Investment shall be the original cost of such
Investment plus the cost of all additions thereto, without any adjustments for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment.
"IP COLLATERAL" means, collectively, the Collateral under the
Trademark Security Agreements.
"ISSUING LENDER" means, with respect to any Letter of Credit, the
Lender which agrees or is otherwise obligated to issue such Letter of Credit,
determined as provided in subsection 3.1B(ii).
"JOINT VENTURE" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form; provided
--------
that in no event shall any corporate Subsidiary of any Person be considered to
be a Joint Venture to which such Person is a party.
25
<PAGE>
"LENDER" and "LENDERS" means the persons identified as "Lenders" and
listed on the signature pages of this Agreement, together with their successors
and permitted assigns pursuant to subsection 10.1, and the term "Lenders" shall
include Swing Line Lender unless the context otherwise requires; provided that
--------
the term "Lenders", when used in the context of a particular Commitment, shall
mean Lenders having that
Commitment.
"LETTER OF CREDIT" or "LETTERS OF CREDIT" means Commercial Letters
of Credit and Standby Letters of Credit issued or to be issued by Issuing
Lenders for the account of Company or any wholly-owned Subsidiary of Company
pursuant to subsection 3.1 and the Existing Letters of Credit.
"LETTER OF CREDIT USAGE" means, as at any date of determination, the
sum of (i) the maximum aggregate amount which is or at any time thereafter may
become available for drawing under all Letters of Credit then outstanding plus
----
(ii) the aggregate amount of all drawings under Letters of Credit honored by
Issuing Lenders and not theretofore reimbursed by Company (including any such
reimbursement out of the proceeds of Revolving Loans pursuant to subsection
3.3B).
"LIEN" means any lien, mortgage, pledge, assignment, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title reten tion agreement, any lease in the nature thereof, and any
agreement to give any security interest) and any option, trust or other
preferential arrangement having the practical effect of any of the foregoing.
"LOAN" or "LOANS" means one or more of the Term Loans, Revolving
Loans or Swing Line Loans or any combination thereof.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Subsidiary
Guaranty, the Collateral Documents, the Letters of Credit (and any applications
for, or reimbursement agreements or other documents or certificates executed by
Company in favor of an Issuing Lender relating to, the Letters of Credit) and
the Collateral Account Agreement.
"LOAN PARTY" means each of Company and any of Company's Subsidiaries
from time to time executing a Loan Document, and "LOAN PARTIES" means all such
Persons, collectively.
"MANAGEMENT AGREEMENT" means that certain Management Services
Agreement dated as of May 23, 1996 between Company and Yucaipa in the form
delivered to Agent prior to the execution of this Agreement and as it may be
amended from time to time thereafter to the extent permitted under subsection
7.15A.
"MARGIN DETERMINATION CERTIFICATE" means an Officers' Certificate of
Company delivered with the financial statements required pursuant to subsections
6.1(ii) or 6.1(iii) setting forth in reasonable detail the Interest Coverage
Ratio which is applicable as of
26
<PAGE>
the date on which such Officers' Certificate is delivered and the aggregate
principal amount of outstanding Term Loans as of the date which corresponds to
the date of determination of such Interest Coverage Ratio.
"MARGIN STOCK" has the meaning assigned to that term in Regulation U
of the Board of Governors of the Federal Reserve System as in effect from time
to time.
"MATERIAL ADVERSE EFFECT" means (i) a material adverse effect upon
the business, operations, properties, assets, condition (financial or otherwise)
or prospects of Company and its Subsidiaries, taken as a whole, or (ii) the
material impairment of the ability of any Loan Party to perform, or the
impairment of the ability of Agent or Lenders to enforce, the Obligations or any
of the Loan Documents.
"MERGER" means the merger of Merger Sub with and into Smitty's in
accordance with the terms of the Recapitalization and Merger Agreement, with
Smitty's being the surviving corporation in such Merger.
"MERGER SUB" means Cactus Acquisition, Inc., a Delaware corporation
and a wholly-owned Subsidiary of Company existing prior to the Merger.
"MORTGAGE" means any deed of trust, mortgage, security agreement and
fixture filing relating to any fee or leasehold interest of any Loan Party in
real property, which shall be substantially in the form of Exhibit XVIII annexed
-------------
hereto, in each case (i) with appropriate insertions and deletions based upon
the nature of the real property interest (i.e., fee or leasehold) to be
encumbered thereby and (ii) containing such schedules and including such
additional provisions and other deviations from such Exhibit as are satisfactory
to Agent and not inconsistent with the provisions of subsection 6.9 or as are
necessary to conform such Exhibit to applicable local law, and which shall be
dated the date of delivery thereof and made by such Loan Party as trustor or
mortgagor, as the case may be, in favor of Agent, as beneficiary or mortgagee,
delivered for the purpose of securing all Obligations hereunder, as the same may
be amended, supplemented or otherwise modified from time to time.
"MORTGAGED PROPERTY" has the meaning assigned to that term in
subsection 4.1I.
"MULTIEMPLOYER PLAN" means any Employee Benefit Plan which is a
"multiemployer plan" as defined in Section 3(37) of ERISA.
"NET ASSET SALE PROCEEDS" means, with respect to any Asset Sale,
Cash payments (including any Cash received by way of deferred payment pursuant
to, or by monetization of, a note receivable or otherwise, but only as and when
so received) received from such Asset Sale, net of any bona fide direct costs
incurred in connection with such Asset Sale, including without limitation (i)
income taxes reasonably estimated to be actually payable within two years of the
date of such Asset Sale as a result of any gain recognized in
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<PAGE>
connection with such Asset Sale and (ii) payment of the outstanding principal
amount of, premium or penalty, if any, and interest on any Indebtedness (other
than the Loans) that is secured by a Lien on the stock or assets in question and
that is required to be repaid under the terms thereof as a result of such Asset
Sale.
"NON-RECOURSE INDEBTEDNESS" means, as applied to any Person, all
Indebtedness of that Person secured by Liens on specified assets of that Person
under the terms of which (i) no recourse may be had against that or any other
Person for the payment of the principal of or interest or premium on such
Indebtedness or for any claim based thereon; provided that if such Person is an
--------
entity formed for the sole purpose of owning and/or developing one or more store
sites or other real property and owns no assets other than those subject to the
Lien by the lender of such Indebtedness and conducts no business other than
owning such asset, recourse may be had against such Person; and (ii) the
enforcement of all obligations relating to such Indebtedness is limited to
foreclosure or other actions with respect to such specified assets, in each case
other than customary exceptions for fraud, waste or environmental
indemnification.
"NOTE OFFERING MATERIALS" means the Registration Statement of
Company on Form S-3 (Registration No. 33-333-01601) filed with the Securities
and Exchange Commission on March 8, 1996, with exhibits thereto, as amended by
Amendment No. 1 thereto filed with the Securities and Exchange Commission on
April 17, 1996, with exhibits thereto; as amended by Amendment No. 2 thereto
filed with the Securities and Exchange Commission on April 26, 1996, with
exhibits thereto and as amended by Amendment No. 3 thereto filed with the
Securities and Exchange Commission on May 6, 1996, with exhibits thereto.
"NOTES" means one or more of the Tranche A Term Notes, Tranche B
Term Notes, Tranche C Term Notes, Tranche D Term Notes, Revolving Notes or Swing
Line Note or any combination thereof.
"NOTICE OF BORROWING" means a notice substantially in the form of
Exhibit I annexed hereto delivered by Company to Agent pursuant to subsection
- ---------
2.1B with respect to a proposed borrowing.
"NOTICE OF CONVERSION/CONTINUATION" means a notice substantially in
the form of Exhibit II annexed hereto delivered by Company to Agent pursuant to
----------
subsection 2.2D with respect to a proposed conversion or continuation of the
applicable basis for determining the interest rate with respect to the Loans
specified therein.
"NOTICE OF ISSUANCE OF LETTER OF CREDIT" means a notice
substantially in the form of Exhibit III annexed hereto delivered by Company to
-----------
Agent pursuant to subsection 3.1B(i) with respect to the proposed issuance of a
Letter of Credit.
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<PAGE>
"OBLIGATIONS" means all obligations of every nature of each Loan
Party from time to time owed to Agent, Lenders or any of them under the Loan
Documents, whether for principal, interest, reimbursement of amounts drawn under
Letters of Credit, fees, expenses, indemnification or otherwise.
"OFFICERS' CERTIFICATE" means, as applied to any corporation, a
certificate executed on behalf of such corporation by its chairman of the board
(if an officer) or its president or one of its executive or senior vice
presidents and by its chief financial officer or its treasurer; provided that
--------
every Officers' Certificate with respect to the compliance with a condition
precedent to the making of any Loans hereunder shall include (i) a statement
that the officer or officers making or giving such Officers' Certificate have
read such condition and any definitions or other provisions contained in this
Agreement relating thereto, (ii) a statement that, in the opinion of the
signers, they have made or have caused to be made such examination or
investigation as is necessary to enable them to express an informed opinion as
to whether or not such condition has been complied with, and (iii) a statement
as to whether, in the opinion of the signers, such condition has been complied
with; and provided further that any Officers' Certificate required pursuant to
-------- -------
subsection 2.4B(iii) may be executed by any one of the officers referred to in
this definition.
"OPERATING LEASE" means, as applied to any Person, any lease
(including, without limitation, leases that may be terminated by the lessee at
any time) of any property (whether real, personal or mixed) that is not a
Capital Lease other than any such lease under which that Person is the lessor.
"OWNER TRUSTEE" means State Street Bank & Trust Company, as owner
trustee under the Smith's Food & Drug Centers, Inc. 1994-A Pass Through Trusts.
"PBGC" means the Pension Benefit Guaranty Corporation or any
successor thereto.
"PENSION PLAN" means any Employee Benefit Plan, other than a
Multiemployer Plan, which is subject to Section 412 of the Internal Revenue Code
or Section 302 of ERISA.
"PERMITTED ENCUMBRANCES" means the following types of Liens
(excluding any such Lien imposed pursuant to Section 401(a)(29) or 412(n) of the
Internal Revenue Code or by ERISA):
(i) Liens for taxes, assessments or governmental charges or
claims the payment of which is not, at the time, required by subsection
6.3;
(ii) statutory Liens of landlords, statutory Liens of banks and
rights of set-off, statutory Liens of carriers, warehousemen, mechanics,
repairmen, workmen, materialmen and of growers on Inventory consisting of
agricultural products, and other Liens imposed by law, in each case
incurred in the ordinary course of business (a) for
29
<PAGE>
amounts not yet overdue or (b) for amounts that are overdue and that (in
the case of any such amounts overdue for a period in excess of 5 days)
are being contested in good faith by appropriate proceedings, so long as
(1) such reserves or other appropriate provisions, if any, as shall be
required by GAAP shall have been made for any such contested amounts, and
(2) in the case of a Lien with respect to any portion of the Collateral,
such contest proceedings conclusively operate to stay the sale of any
portion of the Collateral on account of such Lien;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, or to secure the performance of
tenders, statutory obligations, surety and appeal bonds, bids, leases,
government contracts, trade contracts, performance and return-of-money
bonds and other similar obligations (exclusive of obligations for the
payment of borrowed money), so long as no foreclosure, sale or similar
proceedings have been commenced with respect to any portion of the
Collateral on account thereof;
(iv) any attachment or judgment Lien not constituting an Event of
Default under subsection 8.8;
(v) licenses, concession agreements, leases or subleases entered
into with or granted to third parties in accordance with any applicable
terms of the Collateral Documents and not interfering in any material
respect with the ordinary conduct of the business of Company or any of
its Subsidiaries or resulting in a material diminution in the value of
any Collateral as security for the Obligations;
(vi) easements, rights-of-way, restrictions, encroachments, and
other minor defects or irregularities in title, in each case which do not
and will not interfere in any material respect with the ordinary conduct
of the business of Company or any of its Subsidiaries or result in a
material diminution in the value of any Collateral as security for the
Obligations;
(vii) any (a) interest or title of a lessor or sublessor (other
than any Loan Party) under any lease permitted by subsection 7.9, (b)
restriction or encumbrance that the interest or title of such lessor or
sublessor may be subject to (including without limitation ground leases
or other prior leases of the demised premises, mortgages, mechanics
liens, tax liens and easements), or (c) subordination of the interest of
the lessee or sublessee under such lease to any restriction or
encumbrance referred to in the preceding clause (b);
(viii) Liens arising from filing UCC financing statements relating
solely to leases permitted by this Agreement;
(ix) Liens in favor of customs and revenue authorities arising as
a matter of law to secure payment of customs duties in connection with
the importation of goods;
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<PAGE>
(x) any zoning or similar law or right reserved to or vested in
any governmental office or agency (including, without limitation, rights
granted under redevelopment or financial assistance agreements with
redevelopment agencies) to control or regulate the use of any real
property;
(xi) Liens securing obligations (other than obligations
representing Indebtedness for borrowed money) under operating, reciprocal
easement or similar agreements entered into in the ordinary course of
business of Company and its Subsidiaries; and
(xii) licenses of patents, trademarks and other intellectual
property rights granted by Company or any of its Subsidiaries in the
ordinary course of business and not interfering in any material respect
with the ordinary conduct of the business of Company or such Subsidiary.
"PERMITTED HOLDERS" means (i) Yucaipa or any entity controlled
thereby or any of the partners thereof, (ii) the Smith's Group or (iii) any of
the Permitted Transferees.
"PERMITTED TRANSFEREES" means, with respect to any Person, (i) any
Affiliate of such Person, (ii) the heirs, executors, administrators,
testamentary trustees, legatees or beneficiaries of any such Person or (iii) a
trust, the beneficiaries of which, or a corporation or partnership, the
stockholders or general or limited partners of which, include only such Person
or his or her spouse or lineal descendants, in each case to whom such Person has
transferred the beneficial ownership of any Securities of Company.
"PERSON" means and includes natural persons, corporations, limited
partnerships, general partnerships, limited liability companies, limited
liability partnerships, joint stock companies, Joint Ventures, associations,
companies, trusts, banks, trust companies, land trusts, business trusts or other
organizations, whether or not legal entities, and governments (whether federal,
state or local, domestic or foreign, and including political subdivisions
thereof) and agencies or other administrative or regulatory bodies thereof.
"PLEDGE AGREEMENT" means each Pledge Agreement executed and
delivered by Company and Subsidiaries of Company (other than the Inactive
Subsidiaries) on the Closing Date and to be executed and delivered by
Subsidiaries of Company from time to time in accordance with subsection 6.8,
each substantially in the form of Exhibit XIV annexed hereto, as such Pledge
-----------
Agreement may thereafter be amended, supplemented or otherwise modified from
time to time and "Pledge Agreements" means all such Pledge Agreements,
collectively.
"PLEDGED COLLATERAL" means, collectively, the "Pledged Collateral"
as defined in the Pledge Agreements.
"POTENTIAL EVENT OF DEFAULT" means a condition or event that, after
notice or lapse of time or both, would constitute an Event of Default.
31
<PAGE>
"PREFERRED STOCK" means the Redeemable Preferred Stock of Company.
"PRIME RATE" means the rate that Bankers announces from time to time
as its prime lending rate, as in effect from time to time. The Prime Rate is a
reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer. Bankers or any other Lender may make
commercial loans or other loans at rates of interest at, above or below the
Prime Rate.
"PRO RATA SHARE" means, on any date of determination, (i) with
respect to all payments, computations and other matters relating to a Type of
Term Loan Commitment or a Type of Term Loan of any Lender, the percentage
obtained by dividing (x) the Term Loan Exposure of such Type of that Lender on
--------
such date by (y) the aggregate Term Loan Exposure of such Type of all Lenders on
--
such date, (ii) with respect to all payments, computations and other matters
relating to the Revolving Loan Commitment or the Revolving Loans of any Lender
or any Letters of Credit issued or participations therein purchased by any
Lender or any participations in any Swing Line Loans purchased by any Lender,
the percentage obtained by dividing (x) the Revolving Loan Exposure of that
--------
Lender on such date by (y) the aggregate Revolving Loan Exposure of all Lenders
--
on such date, and (iii) for all other purposes with respect to each Lender, the
percentage obtained by dividing (x) the sum of the Term Loan Exposure of all
--------
Types of that Lender on such date plus the Revolving Loan Exposure of that
----
Lender on such date by (y) the sum of the aggregate Term Loan Exposure of all
--
Types of all Lenders on such date plus the aggregate Revolving Loan Exposure of
----
all Lenders on such date, in any such case as the applicable percentage may be
adjusted by assignments permitted pursuant to subsection 10.1. The initial Pro
Rata Share of each Lender for purposes of the preceding sentence is set forth
opposite the name of that Lender in Schedule 2.1 annexed hereto.
------------
"PROXY STATEMENT" means a proxy statement and form of proxy in
connection with the votes of the stockholders of Company with respect to (i) the
Recapitalization and Merger Agreement and the transactions contemplated thereby,
including the issuance of its Class B Common Stock to the existing shareholders
of Smitty's in connection with the Acquisition and the Equity Tender Offer, (ii)
Company's Amended and Restated Certificate of Incorporation, (iii) election of
the Board of Directors of Company and (iv) ratification of selection of
Company's independent auditors for 1996, together with any amendments thereof or
supplements thereto, in the form or forms mailed to Company's stockholders.
"PTO" means the United States Patent and Trademark Office or any
successor or substitute office in which filings are necessary or, in the opinion
of Agent, desirable in order to create or perfect Liens on any IP Collateral.
"PUBLIC OFFERING" means the issuance of up to $575,000,000 in
initial aggregate principal amount of Senior Subordinated Notes in a public
offering registered under the Securities Act and as described in the Prospectus
dated May __, 1996.
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<PAGE>
"REAL PROPERTY ASSET" means, at any time of determination, any
interest in land, buildings, improvements and fixtures attached thereto or used
in the operation thereof, then owned or leased (as lessee) by any Loan Party.
"RECAPITALIZATION AND MERGER AGREEMENT" means that certain
Recapitalization Agreement and Plan of Merger dated as of January 29, 1996 by
and among Company, Merger Sub, Smitty's and Yucaipa, as amended prior to the
Closing Date and in the form delivered to Agent and Lenders prior to their
execution of this Agreement.
"REDEEMABLE PREFERRED STOCK" means Series I Preferred Stock of
Company, par value $.01 per share, with the terms set forth in Company's
Articles of Incorporation in effect prior to the Closing Date.
"REFERENCE LENDERS" means Bankers and Chase.
"REFUNDED SWING LINE LOANS" has the meaning assigned to that term in
subsection 2.1A(vi).
"REGIONAL DIVISION" means each of the regional divisions designated
by the management of Company for internal reporting purposes consistent with
past practices of Company, and which in any event shall be captioned as (i)
Utah-Idaho, (ii) Phoenix, (iii) Tucson, (iv) Albuquerque and (v) Las Vegas.
"REGISTER" has the meaning assigned to that term in subsection 2.1D.
"REGISTRATION RIGHTS AGREEMENT" means that certain Registration
Rights Agreement dated as of May 23, 1996 by and among Company and holders of
Company's Common Stock named therein in the form delivered to Agent prior to the
execution of this Agreement and as it may be amended from time to time
thereafter to the extent permitted under subsection 7.15A.
"REGULATION D" means Regulation D of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"REIMBURSEMENT DATE" has the meaning assigned to that term in
subsection 3.3B.
"RELATED AGREEMENTS" means, collectively, the Recapitalization and
Merger Agreement, the Equity Tender Offer Materials, the Note Offering
Materials, the Proxy Statement, the Restated Certificate of Incorporation of
Company as filed with the Secretary of State of the State of Delaware on the
Closing Date, the Company Certificate of Designations, the Senior Subordinated
Note Indenture, the Registration Rights Agreement, the Smitty's Stockholders'
Agreement, the Standstill Agreement, the Management Agreement, the Yucaipa
33
<PAGE>
Warrant and Smith's Shareholder Agreement and all other agreements or
instruments delivered pursuant to or in connection with any of the foregoing.
"RELATED ASSETS" means any of the properties located in California
and leased by Company from Owner Trustee which properties are designated as
obsolete, uneconomic for use or surplus to Company's needs by Company and are
transferred to Company or a third party to effect the sale of such properties
pursuant to subsection 7.1(viii) or subsection 7.7(xi).
"RELATED FINANCING DOCUMENTS" means the Senior Subordinated Note
Indenture and all other agreements or instruments delivered pursuant to or in
connection with any of the foregoing, including any purchase agreements or
registration rights agreements.
"RELEASE" means any release, spill, emission, leaking, pumping,
pouring, injection, escaping, deposit, disposal, discharge, dispersal, dumping,
leaching or migration of Hazardous Materials into the indoor or outdoor
environment (including, without limitation, the abandonment or disposal of any
barrels, containers or other closed receptacles containing any Hazardous
Materials), or into or out of any Facility, including the movement of any
Hazardous Material through the air, soil, surface water, groundwater or
property.
"REPLACED LENDER" has the meaning assigned to such term in
subsection 2.9.
"REPLACEMENT LENDER" has the meaning assigned to such term in
subsection 2.9.
"REQUISITE CLASS LENDERS" means, at any time, (i) for the Class of
Lenders having Tranche A Term Loan Exposure and/or Revolving Loan Exposure,
Lenders having or holding at least 66 and 2/3% of the sum of the aggregate
Tranche A Term Loan Exposure of all Lenders plus the aggregate Revolving Loan
----
Exposure of all Lenders, and, (ii) for the Class of Lenders having Tranche B
Term Loan Exposure, Tranche C Term Loan Exposure and/or Tranche D Term Loan
Exposure, Lenders having or holding at least 66 and 2/3% of the sum of the
aggregate Tranche B Term Loan Exposure of all Lenders plus the aggregate Tranche
----
C Term Loan Exposure of all Lenders plus the aggregate Tranche D Term Loan
----
Exposure of all Lenders.
"REQUISITE LENDERS" means Lenders having or holding a majority of
the sum of the aggregate Tranche A Term Loan Exposure of all Tranche A Term
Lenders plus the aggregate Tranche B Term Loan Exposure of all Tranche B Term
----
Lenders plus the aggregate Tranche C Term Loan Exposure of all Tranche C Term
----
Lenders plus the aggregate Tranche D Term Loan Exposure of all Tranche D Term
----
Lenders plus the aggregate Revolving Loan Exposure of all Revolving Lenders.
----
"RESTRICTED JUNIOR PAYMENT" means (i) any dividend or other
distribution, direct or indirect, on account of any shares of any class of stock
of Company now or hereafter outstanding, except a dividend payable solely in
shares of that class of stock to the
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<PAGE>
holders of that class, (ii) any redemption, retirement, sinking fund or similar
payment, purchase or other acquisition for value, direct or indirect, of any
shares of any class of stock of Company now or hereafter outstanding, (iii) any
payment made to retire, or to obtain the surrender of, any outstanding warrants,
options or other rights to acquire shares of any class of stock of Company now
or hereafter outstanding, and (iv) any payment or prepayment of principal of,
premium, if any, or interest on, or redemption, purchase, retirement, defeasance
(including in-substance or legal defeasance), sinking fund or similar payment
with respect to, any Subordinated Indebtedness.
"RESTRUCTURING CHARGES" means, for any period which ends subsequent
to the Closing Date, the sum (without duplication) of (i) costs incurred by
Company and its Subsidiaries with respect to the integration of the operations
of Company and its Subsidiaries with the operations of Smitty's and its
Subsidiaries; provided that the aggregate amount of such cash and non-cash
--------
charges and costs that are excluded from Consolidated Net Income under clause
(v) of the definition thereof and that are included in Consolidated Net Worth
under clause (iii) of the definition thereof for all periods shall not exceed
$15,000,000; (ii) non-cash charges and costs reserved for as a result of
adjustments to recognize expenses incurred in connection with the Deferred
Compensation Agreements; provided that the aggregate amount of all such non-cash
--------
charges and costs that are excluded from Consolidated Net Income under clause
(v) of the definition thereof and that are included in Consolidated Net Worth
under clause (iii) of the definition thereof for all periods shall not exceed
$30,000,000; (iii) cash and non-cash severance charges relating to the
termination of employment of certain senior members of the management of Company
in connection with the Transactions; provided that the aggregate amount of all
--------
such cash severance charges that are excluded from Consolidated Net Income under
clause (v) of the definition thereof and that are included in Consolidated Net
Worth under clause (iii) of the definition thereof for all periods shall not
exceed $5,000,000 and the aggregate amount of all such cash and non-cash
severance charges that are so excluded from Consolidated Net Income or included
in Consolidated Net Worth shall not exceed $10,000,000; (iv) non-cash charges
representing additions to reserves for insurance liabilities required to be made
as a result of an actuarial review of Company's insurance liabilities in
connection with the Transactions; provided that the aggregate amount of such
--------
non-cash charges that are excluded from Consolidated Net Income under clause (v)
of the definition thereof and that are included in Consolidated Net Worth under
clause (iii) of the definition thereof for all periods shall not exceed
$5,000,000; and (v) cash and non-cash restructuring charges and/or non-cash FAS
121 charges incurred by Company and its Subsidiaries with respect to the write-
down or write-off of Excess California Land or California Stores subsequent to
the Closing Date, including the write-down or write-off of prior tax benefits
associated therewith; provided that the aggregate amount of cash charges that
--------
are excluded from Consolidated Net Income under clause (v) of the definition
thereof and that are included in Consolidated Net Worth under clause (iii) of
the definition thereof for all periods shall not exceed $65,000,000 and that
such cash charges relate to payments to be made during the twenty-year period
following the Closing Date.
35
<PAGE>
"SECURITY AGREEMENT" means each Security Agreement executed and
deivered by Company and Subsidiaries of Company (other than the Inactive
Subsidiaries) on the Closing Date and to be executed and delivered by
Subsidiaries of Company from time to time.
"REVOLVING LOAN COMMITMENT" means the commitment of a Lender to make
Revolving Loans to Company pursuant to subsection 2.1A(v), to issue and/or
purchase participations in Letters of Credit pursuant to Section 3 and to
purchase participations in Swing Line Loans pursuant to subsection 2.1A(vi), and
"REVOLVING LOAN COMMITMENTS" means such commitments of all Lenders in the
aggregate.
"REVOLVING LOAN COMMITMENT TERMINATION DATE" means August 31, 2002.
"REVOLVING LOAN EXPOSURE" means, with respect to any Lender as of
any date of determination (i) prior to the termination of the Revolving Loan
Commitments, that Lender's Revolving Loan Commitment and (ii) after the
termination of the Revolving Loan Commitments, the sum of (a) the aggregate
outstanding principal amount of the Revolving Loans of that Lender plus (b) in
----
the event that Lender is an Issuing Lender, the aggregate Letter of Credit Usage
in respect of all Letters of Credit issued by that Lender (in each case net of
any funded participations purchased by other Lenders in such Letters of Credit
or any unreimbursed drawings thereunder) plus (c) the aggregate amount of all
----
funded participations purchased by that Lender in any outstanding Letters of
Credit or any unreimbursed drawings under any Letters of Credit plus (d) in the
----
case of Swing Line Lender, the aggregate outstanding principal amount of all
Swing Line Loans (net of any funded participations therein purchased by other
Lenders) plus (e) the aggregate amount of all funded participations purchased by
----
that Lender in any outstanding Swing Line Loans.
"REVOLVING LOANS" means the Loans made by Lenders to Company
pursuant to subsection 2.1A(v).
"REVOLVING NOTES" means (i) the promissory notes of Company issued
pursuant to subsection 2.1E(v) on the Closing Date and (ii) any promissory notes
issued by Company pursuant to the last sentence of subsection 10.1B(i) in
connection with assignments of the Revolving Loan Commitments and Revolving
Loans of any Lenders, in each case substantially in the form of Exhibit V
---------
annexed hereto, as they may be amended, supplemented or otherwise modified from
time to time.
"SECURITIES" means any stock, shares, partnership interests, voting
trust certificates, certificates of interest or participation in any profit-
sharing agreement or arrangement, options, warrants, bonds, debentures, notes,
or other evidences of indebtedness, secured or unsecured, convertible,
subordinated or otherwise, or in general any instruments commonly known as
"securities" or any certificates of interest, shares or participations in
temporary or interim certificates for the purchase or acquisition of, or any
right to subscribe to, purchase or acquire, any of the foregoing.
"SECURITIES ACT" means the Securities Act of 1933, as amended from
time to time, and any successor statute.
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<PAGE>
"SECURITY AGREEMENT" means each Security Agreement executed and
delivered by Company and Subsidiaries of Company (other than the Inactive
Subsidiaries) on the Closing Date and to be executed and delivered by
Subsidiaries of Company from time to time in accordance with subsection 6.8,
each substantially in the form of Exhibit XV annexed hereto, as each such
----------
Security Agreement may thereafter be amended, supplemented or otherwise modified
from time to time and "Security Agreements" means all such Security Agreements,
collectively.
"SENIOR DEBT INDENTURES" means any or all of (i) the Existing
Smitty's Sinking Fund Bond Indenture and (ii) indentures pursuant to which the
mortgage notes listed on Schedule 7.1 annexed hereto were issued, as amended
------------
prior to the Closing Date and as such may be amended from time to time to the
extent permitted under subsection 7.15B.
"SENIOR INDEBTEDNESS" means any or all of the Existing Smitty's
Sinking Fund Bonds, the mortgage notes listed on Schedule 7.1 annexed hereto and
------------
Indebtedness permitted pursuant to subsection 7.1(viii).
"SENIOR SUBORDINATED NOTES" means up to $575,000,000 in initial
aggregate principal amount of ___% Senior Subordinated Notes due 2007 of Company
issued pursuant to the Senior Subordinated Note Indenture, as such notes may be
amended from time to time to the extent permitted under subsection 7.15B.
"SENIOR SUBORDINATED NOTE INDENTURE" means the indenture dated as of
May 23, 1996 between Company and ___________, pursuant to which the Senior
Subordinated Notes were issued, as such indenture may be amended from time to
time to the extent permitted under subsection 7.15B.
"SMITH'S GROUP" means Jeffrey P. Smith, Richard D. Smith, Fred L.
Smith, Ida Smith, The Dee Glen Smith Marital Trust I, Trust for the Children of
Jeffrey Paul Smith, Trust for the Children of Richard Dee Smith, and Trust for
the Children of Fred Lorenzo Smith.
"SMITH'S SHAREHOLDER AGREEMENT" means that certain Stockholders'
Agreement dated as of May 23, 1996 by and among Smitty's, Jeffrey P. Smith,
Richard D. Smith, Fred L. Smith, Ida Smith, the Dee Glenn Smith Marital Trust,
Trust for the Children of Jeffrey Paul Smith, Trust for the Children of Richard
Dee Smith, and Trust for the Children of Fred Lorenzo Smith, in the form
delivered to Agent prior to the execution of this Agreement and as it may be
amended from time to time thereafter to the extent permitted under subsection
7.15A.
"SMITTY'S" means Smitty's Supermarkets, Inc., a Delaware
corporation.
"SMITTY'S DEBT PURCHASE OFFERS" has the meaning assigned to such
term in the recitals to this Agreement.
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<PAGE>
"SMITTY'S EXISTING DEBT PREPAYMENTS" has the meaning assigned to
that term in the recitals to this Agreement.
"SMITTY'S PRINCIPAL STOCKHOLDERS" means, collectively, the
investment partnerships which own shares in Smitty's for which Yucaipa acts as
the general partner.
"SMITTY'S STOCKHOLDERS' AGREEMENT" means that certain Stockholders'
Agreement dated as of January 29, 1996 by and among Company, Smitty's Principal
Stockholders and other stockholders of Smitty's named therein, as amended prior
to the Closing Date, in the form delivered to Agent prior to the execution of
this Agreement and as it may thereafter be amended from time to time thereafter
to the extent permitted under subsection 7.15A.
"SOLVENT" means, with respect to any Person, that as of the date of
determination both (A) (i) the then fair saleable value of the property of such
Person is (y) greater than the total amount of liabilities (including contingent
liabilities) of such Person and (z) not less than the amount that will be
required to pay the probable liabilities on such Person's then existing debts as
they become absolute and matured considering all financing alternatives and
potential asset sales reasonably available to such Person; (ii) such Person's
capital is not unreasonably small in relation to its business or any
contemplated or undertaken transaction; and (iii) such Person does not intend to
incur, or believe (nor should it reasonably believe) that it will incur, debts
beyond its ability to pay such debts as they become due; and (B) such Person is
"solvent" within the meaning given that term and similar terms under applicable
laws relating to fraudulent transfers and conveyances. For purposes of this
definition, the amount of any contingent liability at any time shall be computed
as the amount that, in light of all of the facts and circumstances existing at
such time, represents the amount that can reasonably be expected to become an
actual or matured liability.
"STANDBY LETTER OF CREDIT" means any standby letter of credit or
similar instrument issued for the purpose of supporting (i) Indebtedness of
Company or any of its Subsidiaries in respect of industrial revenue or
development bonds or financings, (ii) workers' compensation liabilities of
Company or any of its Subsidiaries, (iii) the obligations of third party
insurers of Company or any of its Subsidiaries arising by virtue of the laws of
any jurisdiction requiring third party insurers, (iv) obligations with respect
to Capital Leases or Operating Leases of Company or any of its Subsidiaries, and
(v) performance, payment, deposit or surety obligations of Company or any of its
Subsidiaries, in any case if required by law or governmental rule or regulation
or in accordance with custom and practice in the industry; provided that Standby
--------
Letters of Credit may not be issued for the purpose of supporting trade payables
or any Indebtedness constituting "antecedent debt" (as that term is used in
Section 547 of the Bankruptcy Code).
"STANDSTILL AGREEMENT" means that certain Standstill Agreement dated
as of January 29, 1996 by and among Company, Yucaipa, the Smitty's Principal
Stockholders and certain stockholders of Company named therein, as amended prior
to the Closing Date in the
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form delivered to Agent prior to the execution of this Agreement and as it may
be amended from time to time thereafter to the extent permitted under subsection
7.15A.
"SUBORDINATED INDEBTEDNESS" means the Indebtedness of Company
evidenced by the Senior Subordinated Notes and any other Indebtedness of Company
subordinated in right of payment to the Obligations pursuant to documentation
containing maturities, amortization schedules, covenants, defaults, remedies,
subordination provisions and other material terms in form and substance
satisfactory to Agent and Requisite Lenders.
"SUBSIDIARY" means, with respect to any Person, any corporation,
partnership, limited liability company, association, joint venture or other
business entity of which more than 50% of the total voting power of shares of
stock or other ownership interests entitled (without regard to the occurrence of
any contingency) to vote in the election of the Person or Persons (whether
directors, managers, trustees or other Persons performing similar functions)
having the power to direct or cause the direction of the management and policies
thereof is at the time owned or controlled, directly or indirectly, by that
Person or one or more of the other Subsidiaries of that Person or a combination
thereof.
"SUBSIDIARY GUARANTOR" means any Subsidiary of Company that executes
and delivers a counterpart of the Subsidiary Guaranty on the Closing Date or
from time to time thereafter pursuant to subsection 6.8.
"SUBSIDIARY GUARANTY" means the Subsidiary Guaranty executed and
delivered by existing Subsidiaries of Company (other than the Inactive
Subsidiaries) on the Closing Date and to be executed and delivered by additional
Subsidiaries of Company from time to time thereafter in accordance with
subsection 6.8, substantially in the form of Exhibit XVII annexed hereto, as
------------
such Subsidiary Guaranty may hereafter be amended, supplemented or otherwise
modified from time to time.
"SUPPLEMENTAL COLLATERAL AGENT" has the meaning assigned to that
term in subsection 9.1D.
"SURPLUS LEASED PROPERTIES" means all of (i) the California Stores
in which Company owns a leasehold interest and (ii) the other Real Property
Assets in which Company or any of its Subsidiaries owns a leasehold interest and
in which Company and any of its Subsidiaries are not operating and are
identified as such on Schedule 5.20 annexed hereto.
-------------
"SURPLUS OWNED PROPERTIES" means all of (i) the California Stores
owned by Company, and (ii) the Real Property Assets owned by Company or any of
its Subsidiaries in which Company and any of its Subsidiaries are not operating
which are identified as such on Schedule 5.20 annexed hereto.
-------------
"SWING LINE LENDER" means Bankers, or any Person serving as a
successor Agent hereunder, in its capacity as Swing Line Lender hereunder.
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<PAGE>
"SWING LINE LOAN COMMITMENT" means the commitment of Swing Line
Lender to make Swing Line Loans to Company pursuant to subsection 2.1A(vi).
"SWING LINE LOANS" means the Loans made by Swing Line Lender to
Company pursuant to subsection 2.1A(vi).
"SWING LINE NOTE" means (i) the promissory note of Company issued
pursuant to subsection 2.1E(vi) on the Closing Date and (ii) any promissory note
issued by Company to any successor Agent and Swing Line Lender pursuant to the
last sentence of subsection 9.5B, in each case substantially in the form of
Exhibit VI annexed hereto, as it may be amended, supplemented or otherwise
- ----------
modified from time to time.
"SYNDICATION AGENT" has the meaning assigned to that term in the
introductions to this Agreement.
"TAX" or "TAXES" means any present or future tax, levy, impost,
duty, charge, fee, deduction or withholding of any nature and whatever called,
by whomsoever, on whomsoever and wherever imposed, levied, collected, withheld
or assessed; provided that "TAX ON THE OVERALL NET INCOME" of a Person shall be
--------
construed as a reference to a tax imposed by the jurisdiction in which that
Person is organized or in which that Person's principal office (and/or, in the
case of a Lender, its lending office) is located or in which that Person
(and/or, in the case of a Lender, its lending office) is deemed to be doing
business on all or part of the net income, profits or gains (whether worldwide,
or only insofar as such income, profits or gains are considered to arise in or
to relate to a particular jurisdiction, or otherwise) of that Person (and/or, in
the case of a Lender, its lending office).
"TERM LOAN COMMITMENT" or "TERM LOAN COMMITMENTS" means such
commitments of Lenders in the aggregate to make the Term Loans pursuant to
subsection 2.1A in the aggregate.
"TERM LOAN EXPOSURE" means, with respect to a Lender of a Type of
Term Loan as of any date of determination, (i) prior to the termination of all
of a Lender's Commitment with respect to the Term Loans of such Type, that
Lender's Term Loan Commitment of such Type (or any portion thereof that has not
been terminated) plus the outstanding principal amount of the Term Loan of such
----
Type of that Lender, and (ii) after the termination of all of a Lender's
Commitment with respect to the Term Loans of such Type, the outstanding
principal amount of the Term Loan of such Type of that Lender.
"TERM LOANS" means one or more of the Tranche A Term Loans, the
Tranche B Term Loans, the Tranche C Term Loans or the Tranche D Term Loans.
"TERM NOTES" means (i) the promissory notes of Company evidencing
the Term Loans of a Type of Term Loan issued pursuant to subsection 2.1E on the
Closing Date, and (ii) any promissory notes issued by Company pursuant to the
last sentence of subsection
40
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10.1B(i) in connection with assignments of the Term Loan Commitments of such
Type or of the Term Loans of such Type, in each case substantially in the form
of Exhibit IV-A annexed hereto in the case of Tranche A Term Loans (the
------------
"Tranche A Term Note"), Exhibit IV-B annexed hereto in the case of Tranche B
------------
Term Loans (the "Tranche B Term Note"), Exhibit IV-C annexed hereto in the case
------------
of Tranche C Term Loans (the "Tranche C Term Note") and Exhibit IV-D annexed
------------
hereto in the case of Tranche D Term Loans (the "Tranche D Term Note"), as they
may be amended, supplemented or otherwise modified from time to time.
"TITLE INSURANCE POLICIES" means (i) ALTA loan title insurance
policies with respect to the Real Property Assets subject to a Mortgage
identified as "major facilities" on Part IV of Schedule 4.1I annexed hereto; and
-------------
(ii) CLTA loan title insurance policies with respect to the other Real Property
Assets identified on Part IV of the Schedule 4.1I annexed hereto, in each case
issued by a title insurance company reasonably satisfactory to Agent, in the
amounts reasonably satisfactory to Agent with respect to each particular Real
Property Asset subject to a Mortgage, in each case, assuring Agent that the
applicable Mortgage creates a valid and enforceable first priority lien on the
respective Real Property Asset subject to such Mortgage, free and clear of all
defects and encumbrances except Permitted Encumbrances, which Title Insurance
Policies shall be in form and substance reasonably satisfactory to Agent and
shall include an endorsement for any matters that Agent may reasonably request
and for future advances under this Agreement, the Notes and the other Loan
Documents, and shall provide for affirmative insurance and such reinsurance as
Agent may request, all of the foregoing in form and substance reasonably
satisfactory to Agent.
"TOTAL UTILIZATION OF REVOLVING LOAN COMMITMENTS" means, as at any
date of determination, the sum of (i) the aggregate principal amount of all
outstanding Revolving Loans plus (ii) the aggregate principal amount of all
----
outstanding Swing Line Loans plus (iii) the Letter of Credit Usage.
----
"TRADEMARK SECURITY AGREEMENT" means each Trademark Security
Agreement executed and delivered by Company and Subsidiaries of Company (other
than the Inactive Subsidiaries) on the Closing Date and to be executed and
delivered by Subsidiaries of Company from time to time in accordance with
subsection 6.8, each substantially in the form of Exhibit XVI annexed hereto, as
-----------
such Trademark Security Agreement may thereafter be amended, supplemented or
otherwise modified from time to time and "Trademark Security Agreements" means
all such Trademark Security Agreements, collectively.
"TRANCHE A TERM LENDER" or "TRANCHE A TERM LENDERS" means the Lender
or Lenders having a Tranche A Term Loan Commitment or having a Tranche A Term
Loan outstanding.
"TRANCHE A TERM LOAN COMMITMENT" means the commitment of a Tranche A
Term Lender to make a Tranche A Term Loan to Company pursuant to subsection
2.1A(i), and "TRANCHE A TERM LOAN COMMITMENTS" means such commitments of all
Tranche A Term Lenders in the aggregate.
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"TRANCHE A TERM LOANS" means the Loans made by Tranche A Term
Lenders to Company pursuant to subsection 2.1A(i).
"TRANCHE B TERM LENDER" or "TRANCHE B TERM LENDERS" means the Lender
or Lenders having a Tranche B Term Loan Commitment or having a Tranche B Term
Loan outstanding.
"TRANCHE B TERM LOAN COMMITMENT" means the commitment of a Tranche B
Term Lender to make a Tranche B Term Loan to Company pursuant to subsection
2.1A(ii), and "TRANCHE B TERM LOAN COMMITMENTS" means such commitments of all
Tranche B Term Lenders in the aggregate.
"TRANCHE B TERM LOANS" means the Loans made by Tranche B Term
Lenders to Company pursuant to subsection 2.1A(ii).
"TRANCHE C TERM LENDER" or "TRANCHE C TERM LENDERS" means the Lender
or Lenders having a Tranche C Term Loan Commitment or having a Tranche C Term
Loan outstanding.
"TRANCHE C TERM LOAN COMMITMENT" means the commitment of a Tranche C
Term Lender to make a Tranche C Term Loan to Company pursuant to subsection
2.1A(iii), and "TRANCHE C TERM LOAN COMMITMENTS" means such commitments of all
Tranche C Term Lenders in the aggregate.
"TRANCHE C TERM LOANS" means the Loans made by Tranche C Term
Lenders to Company pursuant to subsection 2.1A(iii).
"TRANCHE D TERM LENDER" or "TRANCHE D TERM LENDERS" means the Lender
or Lenders having a Tranche D Term Loan Commitment or having a Tranche D Term
Loan outstanding.
"TRANCHE D TERM LOAN COMMITMENT" means the commitment of a Tranche D
Term Lender to make a Tranche D Term Loan to Company pursuant to subsection
2.1A(iv), and "TRANCHE D TERM LOAN COMMITMENTS" means such commitments of all
Tranche D Term Lenders in the aggregate.
"TRANCHE D TERM LOANS" means the Loans made by Tranche D Term
Lenders to Company pursuant to subsection 2.1A(iv).
"TRANSACTIONS" means the Acquisition, the Merger, the Equity Tender
Offer, the Company Existing Debt Prepayments, the Smitty's Existing Debt
Prepayments, the Public Offering and the transactions contemplated by the Loan
Documents and the Related Agreements.
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<PAGE>
"TRANSACTION COSTS" has the meaning assigned to that term in the
recitals to this Agreement.
"TRANSFER DATE" means the date on which Agent (or its Affiliate)
acquires that title previously held by Company (or its Affiliate) to any
Mortgaged Property or Covered Real Property, as the case may be, pursuant to
power of sale or judicial foreclosure of the lien of the Mortgage, or by receipt
of a deed in lieu of such foreclosure, and any and all redemption rights of
Company (or its Affiliate) have expired, unless within a period of ninety-one
(91) days after the date on which such title vests in Agent (or its Affiliate) a
bankruptcy or other insolvency proceeding is filed by or against Company (or its
Affiliate). If Company (or its Affiliate) should remain in or reacquire
possession of such Mortgaged Property or Covered Real Property, as the case may
be, after the Transfer Date, or if Company (or its Affiliate) should engage in
any Hazardous Materials Activity on or at such property after the Transfer Date,
the Transfer Date shall be deemed to be the date after which neither Company nor
any of its Affiliates is any longer in possession of such property and Company
and its Affiliates have ceased to engage in any Hazardous Materials Activity on
or at such property.
"TYPE" means a Term Loan, a Revolving Loan or a Swing Line Loan
(each of which is a "Type" of Loan) and with respect to a Term Loan, a Tranche A
Term Loan, a Tranche B Term Loan, a Tranche C Term Loan or a Tranche D Term Loan
(each of which is a "Type" of Term Loan).
"UCC" means the Uniform Commercial Code (or any similar or
equivalent legislation) as in effect in any applicable jurisdiction.
"YUCAIPA" means The Yucaipa Companies, a California general
partnership, or any successor thereto (i) which is an Affiliate of Ronald W.
Burkle, (ii) which has been established for the sole purpose of changing the
form of The Yucaipa Companies from that of a partnership to that of a limited
liability company or such other form acceptable to Arrangers in their sole
discretion and (iii) the form and structure of which has been approved by
Arrangers in their sole discretion.
"YUCAIPA INVESTORS" means Ronald W. Burkle, Yucaipa SSV Partners,
L.P., Yucaipa Smitty's Partners, L.P., Yucaipa Smitty's Partners II, L.P.,
Yucaipa Arizona Partners, L.P., The Yucaipa Companies and any other entity
formed after the Closing Date which is an Affiliate of Ronald W. Burkle.
"YUCAIPA WARRANT" has the meaning assigned to that term in the
recitals to this Agreement.
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1.2 ACCOUNTING TERMS; UTILIZATION OF GAAP FOR PURPOSES OF CALCULATIONS UNDER
------------------------------------------------------------------------
AGREEMENT.
---------
Except as otherwise expressly provided in this Agreement, all
accounting terms not otherwise defined herein shall have the meanings assigned
to them in conformity with GAAP. Financial statements and other information
required to be delivered by Company to Lenders pursuant to clauses (i), (ii) and
(iii) of subsection 6.1 shall be prepared in accordance with GAAP as in effect
at the time of such preparation (and delivered together with the reconciliation
statements provided for in subsection 6.1(v)). Calculations in connection with
the definitions, covenants and other provisions of this Agreement shall (i)
utilize accounting principles and policies in conformity with those used to
prepare the financial statements referred to in subsection 5.3, or (ii) if any
amendments to the provisions set forth in Sections 1, 6 or 7 are made pursuant
to negotiations conducted by operation of the following sentence, accounting
principles and policies in effect at the time of the effectiveness of such
amendments. Notwithstanding the foregoing, if any changes in accounting
principles from those used in the preparation of the financial statements
referred to in subsection 5.3 hereafter occasioned by the promulgation of rules,
regulations, pronouncements or opinions by or required by the Financial
Accounting Standards Board or the American Institute of Certified Public
Accountants (or successors thereto or agencies with similar functions) result in
a change in the method of calculation of financial covenants, standards or terms
found in Sections 1, 6 and 7 hereof, the parties hereto agree to enter into
negotiations in order to amend such provisions so as to equitably reflect such
changes with the desired result that the criteria for evaluating Company's
financial condition shall be the same after such changes as if such changes had
not been made. During the period of such negotiations, but in no event for a
period longer than 60 days, Company shall not be required to deliver the
additional financial statements required pursuant to subsection 6.1(v). After
the parties agree on amendments to the provisions of Sections 1, 6 and 7
necessitated by such changes, Company shall not be required to deliver the
additional financial statements required pursuant to subsection 6.1(v) with
respect to such changes.
1.3 OTHER DEFINITIONAL PROVISIONS AND RULES OF CONSTRUCTION.
-------------------------------------------------------
A. Any of the terms defined herein may, unless the context
otherwise requires, be used in the singular or the plural, depending on the
reference.
B. References to "Sections" and "subsections" shall be to Sections
and subsections, respectively, of this Agreement unless otherwise specifically
provided.
C. The use herein of the word "include" or "including", when
following any general statement, term or matter, shall not be construed to limit
such statement, term or matter to the specific items or matters set forth
immediately following such word or to similar items or matters, whether or not
nonlimiting language (such as "without limitation" or "but not limited to" or
words of similar import) is used with reference thereto, but rather shall be
44
<PAGE>
deemed to refer to all other items or matters that fall within the broadest
possible scope of such general statement, term or matter.
SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS AND LOANS
2.1 COMMITMENTS; MAKING OF LOANS; THE REGISTER; NOTES.
-------------------------------------------------
A. COMMITMENTS. Subject to the terms and conditions of this Agreement
and in reliance upon the representations and warranties of Company herein set
forth, each Lender hereby severally agrees to make the Loans described in
subsections 2.1A(i), 2.1A(ii), 2.1A(iii), 2.1A(iv) and 2.1A(v), as applicable,
and Swing Line Lender hereby agrees to make the Loans described in subsection
2.1A(vi).
(i) Tranche A Term Loans. Each Tranche A Term Lender severally
--------------------
agrees to lend to Company on the Closing Date an amount not exceeding its
Pro Rata Share of the aggregate amount of the Tranche A Term Loan
Commitments to be used for the purposes identified in the first sentence of
subsection 2.5A. The amount of each Tranche A Term Lender's Tranche A Term
Loan Commit ment is set forth opposite its name on Schedule 2.1 annexed
hereto and the aggregate amount of the Tranche A Term Loan Commitments is
$325,000,000; provided that the Tranche A Term Loan Commitments of Tranche
A Term Lenders be adjusted to give effect to any assignments of the Tranche
A Term Loan Commitments pursuant to subsection 10.1B. Each Tranche A Term
Lender's Tranche A Term Loan Commitment shall expire immediately and
without further action on the earlier of (x) the date on which the
Recapitalization and Merger Agreement is terminated in accordance with
Article 10 thereof and (y) June 30, 1996 if the initial Term Loans are not
made on or before that date. Company may make only one borrowing on the
Closing Date under the Tranche A Term Loan Commitments. Amounts borrowed
under this subsection 2.1A(i) and subsequently repaid or prepaid may not be
reborrowed.
(ii) Tranche B Term Loans. Each Tranche B Term Lender severally
--------------------
agrees to lend to Company on the Closing Date an amount not exceeding its
Pro Rata Share of the aggregate amount of the Tranche B Term Loan
Commitments to be used for the purposes identified in subsection 2.5A. The
amount of each Tranche B Term Lender's Tranche B Term Loan Commitment is
set forth opposite its name on Schedule 2.1 annexed hereto and the
------------
aggregate amount of the B Term Loan Commitments is $160,000,000; provided
--------
that the Tranche B Term Loan Commitments of Tranche B Term Lenders shall be
adjusted to give effect to any assignments of the Tranche B Term Loan
Commitments pursuant to subsection 10.1B. Each Tranche B Term Lender's
Tranche B Term Loan Commitment shall expire immediately and without further
action on the earlier of (x) the date on which the Recapitalization and
Merger Agreement is terminated in accordance with Article 10 thereof and
(y) June 30, 1996 if the initial Term Loans are not made on or before that
date. Company may make only
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one borrowing on the Closing Date under the Tranche B Term Loan
Commitments. Amounts borrowed under this subsection 2.1A(ii) and
subsequently repaid or prepaid may not be reborrowed.
(iii) Tranche C Term Loans. Each Tranche C Term Lender severally
--------------------
agrees to lend to Company on the Closing Date an amount not exceeding its
Pro Rata Share of the aggregate amount of the Tranche C Term Loan
Commitments to be used for the purposes identified in subsection 2.5A. The
amount of each Tranche C Term Lender's Tranche C Term Loan Commitment is
set forth opposite its name on Schedule 2.1 annexed hereto and the
------------
aggregate amount of the Tranche C Term Loan Commitments is $160,000,000;
provided that the Tranche C Term Loan Commitments of Tranche C Term Lenders
--------
shall be adjusted to give effect to any assignments of the Tranche C Term
Loan Commitments pursuant to subsection 10.1B. Each Tranche C Term Lender's
Tranche C Term Loan Commitment shall expire immediately and without further
action on the earlier of (x) the date on which the Recapitalization and
Merger Agreement is terminated in accordance with Article 10 thereof and
(y) June 30, 1996 if the initial Term Loans are not made on or before that
date. Company may make only one borrowing on the Closing Date under the
Tranche C Term Loan Commitments. Amounts borrowed under this subsection
2.1A(iii) and subsequently repaid or prepaid may not be reborrowed.
(iv) Tranche D Term Loans. Each Tranche D Term Lender severally
--------------------
agrees to lend to Company on the Closing Date an amount not exceeding its
Pro Rata Share of the aggregate amount of the Tranche D Term Loan
Commitments to be used for the purposes identified in subsection 2.5A. The
amount of each Tranche D Term Lender's Tranche D Term Loan Commitment is
set forth opposite its name on Schedule 2.1 annexed hereto and the
------------
aggregate amount of the Tranche D Term Loan Commitments is $160,000,000;
provided that the Tranche D Term Loan Commitments of Tranche D Term Lenders
--------
shall be adjusted to give effect to any assignments of the Tranche D Term
Loan Commitments pursuant to subsection 10.1B. Each Tranche D Term Lender's
Tranche D Term Loan Commitment shall expire immediately and without further
action on the earlier of (x) the date on which the Recapitalization and
Merger Agreement is terminated in accordance with Article 10 thereof and
(y) June 30, 1996 if the initial Term Loans are not made on or before that
date. Company may make only one borrowing on the Closing Date under the
Tranche D Term Loan Commitments. Amounts borrowed under this subsection
2.1A(iv) and subsequently repaid or prepaid may not be reborrowed.
(v) Revolving Loans. Each Revolving Lender severally agrees,
---------------
subject to the limitations set forth below with respect to the maximum
amount of Revolving Loans permitted to be outstanding from time to time, to
lend to Company from time to time during the period from the Closing Date
to but excluding the Revolving Loan Commitment Termination Date an
aggregate amount not exceeding its Pro Rata Share of the aggregate amount
of the Revolving Loan Commitments to be used for the pur-
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poses identified in subsection 2.5B. The original amount of each Revolving
Lender's Revolving Loan Commitment is set forth opposite its name on
Schedule 2.1 annexed hereto and the aggregate original amount of the
------------
Revolving Loan Commitments is $190,000,000; provided that the Revolving
--------
Loan Commitments of Revolving Lenders shall be adjusted to give effect to
any assignments of the Revolving Loan Commitments pursuant to subsection
10.1B; and provided further that the amount of the Revolving Loan
-------- -------
Commitments shall be reduced from time to time by the amount of any
reductions thereto made pursuant to subsections 2.4B(ii) and 2.4B(iii).
Each Revolving Lender's Revolving Loan Commitment shall expire on the
Revolving Loan Commitment Termination Date and all Revolving Loans and all
other amounts owed hereunder with respect to the Revolving Loans and the
Revolving Loan Commitments shall be paid in full no later than that date;
provided that each Revolving Lender's Revolving Loan Commitment shall
--------
expire immediately and without further action on the earlier of (x) the
date on which the Recapitalization and Merger Agreement is terminated in
accordance with Article 10 thereof and (y) June 30, 1996 if the initial
Term Loans are not made on or before that date. Amounts borrowed under this
subsection 2.1A(v) may be repaid and reborrowed to but excluding the
Revolving Loan Commitment Termination Date.
Anything contained in this Agreement to the contrary notwithstanding,
the Revolving Loans and the Revolving Loan Commitments shall be subject to
the following limitations in the amounts and during the periods indicated:
(a) in no event shall the Total Utilization of Revolving Loan
Commitments at any time exceed the Revolving Loan Commitments then in
effect; and
(b) for 30 consecutive days during the twelve-month period
immediately following the Closing Date and thereafter during each
twelve-month period that immediately follows Company's most recent
compliance with this subparagraph (b), the sum of (1) the aggregate
outstanding principal amount of all Revolving Loans plus (2) the
aggregate outstanding principal amount of all Swing Line Loans shall
not exceed $75,000,000.
(vi) Swing Line Loans. Swing Line Lender hereby agrees, subject
----------------
to the limitations set forth below with respect to the maximum amount of
Swing Line Loans permitted to be outstanding from time to time, to make a
portion of the Revolving Loan Commitments available to Company from time to
time during the period from the Closing Date to but excluding the Revolving
Loan Commitment Termination Date by making Swing Line Loans to Company in
an aggregate amount not exceeding the amount of the Swing Line Loan
Commitment to be used for the purposes identified in subsection 2.5B,
notwithstanding the fact that such Swing Line Loans, when aggregated with
Swing Line Lender's outstanding Revolving Loans and Swing Line Lender's Pro
Rata Share of the Letter of Credit Usage then in effect, may exceed
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Swing Line Lender's Revolving Loan Commitment. The original amount of the
Swing Line Loan Commitment is $30,000,000; provided that any reduction of
--------
the Revolving Loan Commitments made pursuant to subsection 2.4B(ii) or
2.4B(iii) which reduces the aggregate Revolving Loan Commitments to an
amount less than the then current amount of the Swing Line Loan Commitment
shall result in an automatic corresponding reduction of the Swing Line Loan
Commitment to the amount of the Revolving Loan Commitments, as so reduced,
without any further action on the part of Company, Agent or Swing Line
Lender. The Swing Line Loan Commitment shall expire on the Revolving Loan
Commitment Termination Date and all Swing Line Loans and all other amounts
owed hereunder with respect to the Swing Line Loans shall be paid in full
no later than that date; provided that the Swing Line Loan Commitment shall
--------
expire immediately and without further action on the earlier of (x) the
date on which the Recapitalization and Merger Agreement is terminated in
accordance with Article 10 thereof and (y) June 30, 1996 if the initial
Term Loans are not made on or before that date. Amounts borrowed under this
subsection 2.1A(vi) may be repaid and reborrowed to but excluding the
Revolving Loan Commitment Termination Date.
Anything contained in this Agreement to the contrary notwithstanding,
the Swing Line Loans and the Swing Line Loan Commitment shall be subject to
the following limitations in the amounts and during the periods indicated:
(a) in no event shall the Total Utilization of Revolving Loan
Commitments at any time exceed the Revolving Loan Commitments then in
effect; and
(b) for 30 consecutive days during the twelve-month period
immediately following the Closing Date and thereafter during each
twelve-month period that immediately follows Company's most recent
compliance with this subparagraph (b), the sum of (1) the aggregate
outstanding principal amount of all Revolving Loans plus (2) the
----
aggregate outstanding principal amount of all Swing Line Loans
shall not exceed $75,000,000.
With respect to any Swing Line Loans which have not been voluntarily
prepaid by Company pursuant to subsection 2.4B(i)(a), Swing Line Lender (i)
may, at any time in its sole and absolute discretion, and (ii) shall, at
least once every seven days, deliver to Agent (with a copy to Company), no
later than 1:00 P.M. (New York City time) on the first Business Day in
advance of the proposed Funding Date, a notice requesting Revolving Lenders
to make Revolving Loans that are Base Rate Loans on such Funding Date in an
amount equal to the amount of such Swing Line Loans (the "REFUNDED SWING
LINE LOANS") outstanding on the date such notice is given which Swing Line
Lender requests Revolving Lenders to prepay. Anything contained in this
Agreement to the contrary notwithstanding, (i) the proceeds of such
Revolving Loans made by Revolving Lenders other than Swing Line Lender
shall be immediately
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delivered by Agent to Swing Line Lender (and not to Company) and applied to
repay a corresponding portion of the Refunded Swing Line Loans and (ii) on
the day such Revolving Loans are made, Swing Line Lender's Pro Rata Share
of the Refunded Swing Line Loans shall be deemed to be paid with the
proceeds of a Revolving Loan made by Swing Line Lender, and such portion of
the Swing Line Loans deemed to be so paid shall no longer be outstanding as
Swing Line Loans and shall no longer be due under the Swing Line Note of
Swing Line Lender but shall instead constitute part of Swing Line Lender's
outstanding Revolving Loans and shall be due under the Revolving Note of
Swing Line Lender. Company hereby authorizes Agent and Swing Line Lender to
charge Company's accounts with Agent and Swing Line Lender (up to the
amount available in each such account) in order to immediately pay Swing
Line Lender the amount of the Refunded Swing Line Loans to the extent the
proceeds of such Revolving Loans made by Revolving Lenders, including the
Revolving Loan deemed to be made by Swing Line Lender, are not sufficient
to repay in full the Refunded Swing Line Loans. If any portion of any such
amount paid (or deemed to be paid) to Swing Line Lender should be recovered
by or on behalf of Company from Swing Line Lender in bankruptcy, by
assignment for the benefit of creditors or otherwise, the loss of the
amount so recovered shall be ratably shared among all Revolving Lenders in
the manner con templated by subsection 10.5.
Immediately upon funding of the Swing Line Loans by the Swing Line
Lender, each Revolving Lender shall be deemed to, and hereby agrees to,
have purchased a participation in such outstanding Swing Line Loans in an
amount equal to its Pro Rata Share of the unpaid amount of such Swing Line
Loans together with accrued interest thereon. Upon one Business Day's
notice from Swing Line Lender, each Revolving Lender shall deliver to Swing
Line Lender an amount equal to its respective participation in same day
funds at the Funding and Payment Office. In the event any Revolving Lender
fails to make available to Swing Line Lender the amount of such Revolving
Lender's participation as provided in this paragraph, Swing Line Lender
shall be entitled to recover such amount on demand from such Revolving
Lender together with interest thereon at the rate customarily used by Swing
Line Lender for the correction of errors among banks for three Business
Days and thereafter at the Base Rate. In the event Swing Line Lender
receives a payment of any amount in which other Revolving Lenders have
funded their purchase of a participation as provided in this paragraph,
Swing Line Lender shall promptly distribute to each such other Revolving
Lender its Pro Rata Share of such payment.
Anything contained herein to the contrary notwithstanding, each
Revolving Lender's obligation to make Revolving Loans for the purpose of
repaying any Refunded Swing Line Loans pursuant to the second preceding
paragraph and each Revolving Lender's obligation to fund a purchase of a
participation in any unpaid Swing Line Loans pursuant to the immediately
preceding paragraph shall be absolute and unconditional and shall not be
affected by any circumstance, includ ing without limitation (a) any set-
off, counterclaim, recoupment, defense or other right which such
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Revolving Lender may have against Swing Line Lender, Company or any other
Person for any reason whatsoever; (b) the occurrence or continuation of an
Event of Default or a Potential Event of Default; (c) any adverse change in
the business, operations, properties, assets, condition (financial or
otherwise) or prospects of Company or any of its Subsidiaries; (d) any
breach of this Agreement or any other Loan Document by any party thereto;
or (e) any other circumstance, happening or event whatsoever, whether or
not similar to any of the foregoing; provided that such obligations of each
--------
Revolving Lender are subject to the satisfaction of one of the following
(X) Swing Line Lender believed in good faith that all conditions under
Section 4 to the making of the applicable Swing Line Loans to be refunded
were satisfied at the time Swing Line Loans were made, (Y) the satisfaction
of any such condition not satisfied had been waived in accordance with
subsection 10.6 or (Z) such Revolving Lender had actual knowledge, by
receipt of any notices required to be delivered to Revolving Lenders
pursuant to subsection 6.1(ix) or otherwise, that any such condition had
not been satisfied and such Revolving Lender failed to notify Swing Line
Lender and Agent in writing that it had no obligation to make Revolving
Loans until such condition was satisfied (any such notice to be effective
as of the date of receipt thereof by Swing Line Lender and Agent).
B. BORROWING MECHANICS. Term Loans or Revolving Loans made on any
Funding Date (other than Revolving Loans made pursuant to a request by Swing
Line Lender pursuant to subsection 2.1A(vi) for the purpose of repaying any
Swing Line Loans or Revolving Loans made pursuant to subsection 3.3B for the
purpose of reimbursing any Issuing Lender for the amount of a drawing under a
Letter of Credit issued by it) that are made as (i) Eurodollar Rate Loans shall
be in an aggregate minimum amount of $5,000,000 and integral multiples of
$1,000,000 in excess of that amount or (ii) Base Rate Loans shall be in an
aggregate minimum amount of $2,000,000 and integral multiples of $500,000 in
excess of that amount. Swing Line Loans made on any Funding Date shall be in an
aggregate minimum amount of $500,000 and integral multiples of $250,000 in
excess of that amount. Whenever Company desires that Lenders make Term Loans or
Revolving Loans it shall deliver to Agent a Notice of Borrowing no later than
1:00 P.M. (New York City time) at least three Business Days in advance of the
proposed Funding Date (in the case of a Eurodollar Rate Loan) or at least one
Business Day in advance of the proposed Funding Date (in the case of a Base Rate
Loan). Whenever Company desires that Swing Line Lender make a Swing Line Loan,
it shall deliver to Agent a Notice of Borrowing no later than 1:00 P.M. (New
York City time) on the proposed Funding Date. The Notice of Borrowing shall
specify (i) the proposed Funding Date (which shall be a Business Day), (ii) the
amount and Type of Loans requested, (iii) in the case of Swing Line Loans and
any Loans made on the Closing Date, that such Loans shall be Base Rate Loans,
(iv) in the case of Term Loans and Revolving Loans, whether such Loans shall be
Base Rate Loans or Eurodollar Rate Loans, and (v) in the case of any Loans
requested to be made as Eurodollar Rate Loans, the initial Interest Period
requested therefor. Term Loans and Revolving Loans may be continued as or
converted into Base Rate Loans and Eurodollar Rate Loans in the manner provided
in subsection 2.2D. In lieu of delivering the above-described Notice of
Borrowing, Company may give Agent telephonic notice by the
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required time of any proposed borrowing under this subsection 2.1B; provided
--------
that such notice shall be promptly confirmed in writing by delivery of a Notice
of Borrowing to Agent on or before the applicable Funding Date.
Notwithstanding anything contained herein to the contrary, during
the period commencing on (and including) the Closing Date and ending on the
earlier of (i) the one-month anniversary of the date on which the first
Eurodollar Rate Loan is made under this Agreement and (ii) the date Agent sends
notice to Company indicating that Lenders' primary syndication has been
concluded, (a) Company may only request Base Rate Loans and Eurodollar Rate
Loans with an Interest Period of one month and (b) the last day of the Interest
Period applicable to any Eurodollar Rate Loan shall be the one-month anniversary
of the date on which the first Eurodollar Rate Loan is made under this
Agreement.
Neither Agent nor any Lender shall incur any liability to Company in
acting upon any telephonic notice referred to above that Agent believes in good
faith to have been given by a duly authorized officer or other person authorized
to borrow on behalf of Company or for otherwise acting in good faith under this
subsection 2.1B, and upon funding of Loans by Lenders in accordance with this
Agreement pursuant to any such telephonic notice Company shall have effected
Loans hereunder.
Company shall notify Agent prior to the funding of any Loans in the
event that any of the matters to which Company is required to certify in the
applicable Notice of Borrowing is no longer true and correct as of the
applicable Funding Date, and the acceptance by Company of the proceeds of any
Loans shall constitute a re-certification by Company, as of the applicable
Funding Date, as to the matters to which Company is required to certify in the
applicable Notice of Borrowing as modified pursuant to the notice provided for
in the first clause of this sentence (it being understood that the making of
such Loans by Lenders shall not in any way be construed as a waiver by Lenders
of any matter set forth in such notice).
Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a
Notice of Borrowing for a Eurodollar Rate Loan (or telephonic notice in lieu
thereof) shall be irrevocable on and after the related Interest Rate
Determination Date, and Company shall be bound to make a borrowing in accordance
therewith.
C. DISBURSEMENT OF FUNDS. All Term Loans and Revolving Loans under
this Agreement shall be made by Lenders simultaneously and proportionately to
their respective Pro Rata Shares of the Commitments for the particular Type of
Loans requested, it being understood that no Lender shall be responsible for any
default by any other Lender in that other Lender's obligation to make a Loan
requested hereunder nor shall the Commitment of any Lender to make the
particular Type of Loan requested be increased or decreased as a result of a
default by any other Lender in that other Lender's obligation to make a Loan
requested hereunder. Promptly after receipt by Agent of a Notice of Borrowing
pursuant to subsection 2.1B (or telephonic notice in lieu thereof), Agent shall
notify each Lender or Swing Line Lender, as the case may be, of the proposed
borrowing. Each Lender shall make
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the amount of its Loan available to Agent not later than 12:00 Noon (New York
City time) on the applicable Funding Date, and Swing Line Lender shall make the
amount of its Swing Line Loan available to Agent not later than 2:00 P.M.(New
York City time) on the applicable Funding Date, in each case in same day funds
in Dollars, at the Funding and Payment Office. Except as provided in subsection
2.1A(vi) or subsection 3.3B with respect to Revolving Loans used to repay
Refunded Swing Line Loans or to reimburse any Issuing Lender for the amount of a
drawing under a Letter of Credit issued by it, upon satisfaction or waiver of
the conditions precedent specified in subsections 4.1 (in the case of Loans made
on the Closing Date) and 4.2 (in the case of all Loans), Agent shall make the
proceeds of such Loans available to Company on the applicable Funding Date by
causing an amount of same day funds in Dollars equal to the proceeds of all such
Loans received by Agent from Lenders or Swing Line Lender, as the case may be,
to be credited to the account of Company at the Funding and Payment Office.
Unless Agent shall have been notified by any Lender prior to the
Funding Date for any Loans that such Lender does not intend to make available to
Agent the amount of such Lender's Loan requested on such Funding Date, Agent may
assume that such Lender has made such amount available to Agent on such Funding
Date and Agent may, in its sole discretion, but shall not be obligated to, make
available to Company a corresponding amount on such Funding Date. If such
corresponding amount is not in fact made available to Agent by such Lender,
Agent shall be entitled to recover such corresponding amount on demand from such
Lender together with interest thereon, for each day from such Funding Date until
the date such amount is paid to Agent, at the customary rate set by Agent for
the correction of errors among banks for three Business Days and thereafter at
the Base Rate. If such Lender does not pay such corresponding amount forthwith
upon Agent's demand therefor, Agent shall promptly notify Company and Company
shall immediately pay such corresponding amount to Agent together with interest
thereon, for each day from such Funding Date until the date such amount is paid
to Agent, at the rate payable under this Agreement for Base Rate Loans of the
applicable Type of Loans. Nothing in this subsection 2.1C shall be deemed to
relieve any Lender from its obligation to fulfill its Commitments hereunder or
to prejudice any rights that Company may have against any Lender as a result of
any default by such Lender hereunder.
D. THE REGISTER.
(i) Agent shall maintain, at its address referred to in
subsection 10.8, a register for the recordation of the names and
addresses of Lenders and the Commitments and Loans of each Lender from
time to time (the "REGISTER"). The Register shall be available for
inspection by Company or any Lender at any reasonable time and from time
to time upon reasonable prior notice.
(ii) Agent shall record in the Register the Tranche A Term Loan
Commitment, the Tranche B Term Loan Commitment, the Tranche C Term Loan
Commitment, the Tranche D Term Loan Commitment and the Revolving Loan
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Commitment and the Term Loans and Revolving Loans from time to time of
each Lender, the Swing Line Loan Commitment and the Swing Line Loans from
time to time of Swing Line Lender, and each repayment or prepayment in
respect of the principal amount of the Term Loans or Revolving Loans of
each Lender or the Swing Line Loans of Swing Line Lender. Any such
recordation shall be conclusive and binding on Company and each Lender,
absent manifest error; provided that failure to make any such
--------
recordation, or any error in such recordation, shall not affect any
Lender's Commitments or Company's Obligations in respect of the
applicable Loans.
(iii) Each Lender shall record on its internal records (including,
without limitation, the Notes held by such Lender) the amount of the Term
Loan and each Revolving Loan made by it and each payment in respect
thereof. Any such recordation shall be conclusive and binding on Company,
absent manifest error; provided that failure to make any such
--------
recordation, or any error in such recordation, shall not affect any
Lender's Commitments or Company's Obligations in respect of any
applicable Loans; and provided, further that in the event of any
-------- -------
inconsistency between the Register and any Lender's records, the
recordations in the Register shall govern, absent manifest error.
(iv) Company, Agent and Lenders shall deem and treat the Persons
listed as Lenders in the Register as the holders and owners of the
corresponding Commitments and Loans listed therein for all purposes
hereof, and no assignment or transfer of any such Commitment or Loan
shall be effective, in each case unless and until an Assignment Agreement
effecting the assignment or transfer thereof shall have been accepted by
Agent and recorded in the Register as provided in subsection 10.1B(ii).
Prior to such recordation, all amounts owed with respect to the
applicable Commitment or Loan shall be owed to the Lender listed in the
Register as the owner thereof, and any request, authority or consent of
any Person who, at the time of making such request or giving such
authority or consent, is listed in the Register as a Lender shall be
conclusive and binding on any subsequent holder, assignee or transferee
of the corresponding Commitments or Loans.
(v) Company hereby designates Bankers to serve as Company's
agent solely for purposes of maintaining the Register as provided in this
subsection 2.1D, and Company hereby agrees that, to the extent Bankers
serves in such capacity, Bankers and its officers, directors, employees,
agents and affiliates shall constitute Indemnitees for all purposes under
subsection 10.3.
E. NOTES. Company shall execute and deliver on the Closing Date (i) to
each Tranche A Term Lender (or to Agent for that Lender) a Tranche A Term Note
substan tially in the form of Exhibit IV-A annexed hereto to evidence that
------------
Lender's Tranche A Term Loan Commitment, in the principal amount of that
Lender's Tranche A Term Loan and that Lender's Tranche A Term Loan Commitment
and with other appropriate insertions, (ii) to each Tranche B Term Lender (or
Agent for that Lender) a Tranche B Term Note substantially
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in the form of Exhibit IV-B annexed hereto to evidence that Lender's Tranche B
------------
Term Loan, in the principal amount of that Lender's Tranche B Term Loan and with
other appropriate insertions, (iii) to each Tranche C Term Lender (or to Agent
for that Lender) a Tranche C Term Note substantially in the form of Exhibit IV-C
------------
annexed hereto to evidence that Lender's Tranche C Term Loan, in the principal
amount of that Lender's Tranche C Term Loan and with other appropriate
insertions, (iv) to each Tranche D Term Lender (or to Agent for that Lender) a
Tranche D Term Note substantially in the form of Exhibit IV-D annexed hereto to
------------
evidence that Lender's Tranche D Term Loan, in the principal amount of that
Lender's Tranche D Term Loan and with other appropriate insertions, (v) to each
Revolving Lender (or to Agent for that Lender) a Revolving Note substantially in
the form of Exhibit V annexed hereto to evidence that Lender's Revolving Loans,
---------
in the principal amount of that Lender's Revolving Loan Commitment and with
other appropriate insertions, and (vi) to Swing Line Lender a Swing Line Note
substantially in the form of Exhibit VI annexed hereto to evidence Swing Line
----------
Lender's Swing Line Loans, in the principal amount of the Swing Line Loan
Commitment and with other appropriate insertions.
2.2 INTEREST ON THE LOANS.
---------------------
A. RATE OF INTEREST. Subject to the provisions of subsections 2.6 and
2.7, each Term Loan and each Revolving Loan shall bear interest on the unpaid
principal amount thereof from the date made through maturity (whether by
acceleration or otherwise) at a rate determined by reference to the Base Rate or
the Adjusted Eurodollar Rate. Subject to the provisions of subsection 2.7, each
Swing Line Loan shall bear interest on the unpaid principal amount thereof from
the date made through maturity (whether by acceleration or otherwise) at a rate
determined by reference to the Base Rate. The applicable basis for determining
the rate of interest with respect to any Term Loan or any Revolving Loan shall
be selected by Company initially at the time a Notice of Borrowing is given with
respect to such Loan pursuant to subsection 2.1B, and the basis for determining
the interest rate with respect to any Term Loan or any Revolving Loan may be
changed from time to time pursuant to subsection 2.2D. If on any day a Term Loan
or Revolving Loan is outstanding with respect to which notice has not been
delivered to Agent in accordance with the terms of this Agreement specifying the
applicable basis for determining the rate of interest, then for that day that
Loan shall bear interest determined by reference to the Base Rate.
(i) Subject to the provisions of subsections 2.2E and 2.7, the
Tranche A Term Loans and the Revolving Loans shall bear interest through
maturity as follows:
(A) if a Base Rate Loan, then at the sum of the Base Rate
plus the Applicable Base Rate Margin; or
----
(B) if a Eurodollar Rate Loan, then at the sum of the
Adjusted Eurodollar Rate plus the Applicable Eurodollar Margin.
----
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Upon delivery of the Margin Determination Certificate by
Company to Agent pursuant to subsection 6.1(xix), the Applicable Base Rate
Margin and the Applicable Eurodollar Margin shall automatically be adjusted
in accordance with such Margin Determination Certificate, such adjustment
to become effective on the next succeeding Business Day following the
receipt by Agent of such Margin Determination Certificate; provided that if
--------
a Margin Determination Certificate is not delivered at the time required
pursuant to subsection 6.1(xviii), clause (iii) of the definitions of
"Applicable Base Rate Margin" and "Applicable Eurodollar Rate Margin", as
the case may be, shall be applicable from such time until delivery of a
succeeding Margin Determination Certificate; provided further that if a
-------- -------
Margin Determination Certificate erroneously indicates an applicable margin
more favorable to Company than should be afforded by the actual calculation
of the Interest Coverage Ratio, Company shall promptly pay additional
interest and letter of credit fees to correct for such error.
(ii) Subject to the provisions of subsections 2.2E and 2.7, the
Tranche B Term Loans shall bear interest through maturity as follows:
(A) if a Base Rate Loan, then at the sum of the Base Rate
plus 2.00% per annum; or
----
(B) if a Eurodollar Rate Loan, then at the sum of the
Adjusted Eurodollar Rate plus 3.25% per annum.
----
(iii) Subject to the provisions of subsections 2.2E and 2.7, the
Tranche C Term Loans shall bear interest through maturity as follows:
(A) if a Base Rate Loan, then at the sum of the Base Rate
plus 2.50% per annum; or
----
(B) if a Eurodollar Rate Loan, then at the sum of the
Adjusted Eurodollar Rate plus 3.75% per annum.
----
(iv) Subject to the provisions of subsections 2.2E and 2.7, the
Tranche D Term Loans shall bear interest through maturity as follows:
(A) if a Base Rate Loan, then at the sum of the Base Rate
plus 2.75% per annum; or
----
(B) if a Eurodollar Rate Loan, then at the sum of the
Adjusted Eurodollar Rate plus 4.00% per annum.
----
(v) Subject to the provisions of subsections 2.2E and 2.7, the
Swing Line Loans shall bear interest through maturity at the sum of the
Base Rate plus the Applicable Base Rate Margin minus the Commitment Fee
---- -----
Percentage.
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B. INTEREST PERIODS. In connection with each Eurodollar Rate Loan,
Company may, pursuant to the applicable Notice of Borrowing or Notice of
Conversion/Continuation, as the case may be, select an interest period (each an
"INTEREST PERIOD") to be applicable to such Loan, which Interest Period shall
be, at Company's option, either a one, two, three or six month period; provided
--------
that:
(i) the initial Interest Period for any Eurodollar Rate Loan
shall commence on the Funding Date in respect of such Loan, in the case
of a Loan initially made as a Eurodollar Rate Loan, or on the date
specified in the applicable Notice of Conversion/Continuation, in the
case of a Loan converted to a Eurodollar Rate Loan;
(ii) in the case of immediately successive Interest Periods
applicable to a Eurodollar Rate Loan continued as such pursuant to a
Notice of Conversion/Continuation, each successive Interest Period shall
commence on the day on which the next preceding Interest Period expires;
(iii) if an Interest Period would otherwise expire on a day that is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; provided that, if any Interest Period would
--------
otherwise expire on a day that is not a Business Day but is a day of the
month after which no further Business Day occurs in such month, such
Interest Period shall expire on the next preceding Business Day;
(iv) any Interest Period that begins on the last Business Day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest
Period) shall, subject to clause (v) of this subsection 2.2B, end on the
last Business Day of a calendar month;
(v) no Interest Period with respect to any portion of the Tranche
A Term Loans shall extend beyond August 31, 2002, no Interest Period with
respect to any portion of the Tranche B Term Loans shall extend beyond
November 30, 2003, no Interest Period with respect to any portion of the
Tranche C Term Loans shall extend beyond November 30, 2004, no Interest
Period with respect to any portion of the Tranche D Term Loans shall
extend beyond August 31, 2005, and no Interest Period with respect to any
portion of the Revolving Loans shall extend beyond the Revolving Loan
Commitment Termination Date;
(vi) no Interest Period with respect to any portion of any Type of
Term Loan shall extend beyond a date on which Company is required to make
a scheduled payment of principal of Term Loans of such Type unless the
sum of (a) the aggregate principal amount of Term Loans of such Type that
are Base Rate Loans plus (b) the aggregate principal amount of Term Loans
----
of such Type that are Eurodollar Rate Loans with Interest Periods
expiring on or before such date equals or exceeds the principal amount
required to be paid on Term Loans of such Type on such date;
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<PAGE>
(vii) there shall be no more than 20 Interest Periods outstanding
at any time (it being understood that Interest Periods for different
Types of Loans, whether or not such Interest Periods are for the same
period and end on the same day, constitute separate Interest Periods);
and
(viii) in the event Company fails to specify an Interest Period for
any Eurodollar Rate Loan in the applicable Notice of Borrowing or Notice
of Conversion/Continuation, Company shall be deemed to have selected an
Interest Period of one month.
C. INTEREST PAYMENTS. Subject to the provisions of subsection 2.2E,
interest on each Loan shall be payable in arrears on and to each Interest
Payment Date applicable to that Loan, upon any prepayment of that Loan (to the
extent accrued on the amount being prepaid) and at maturity (including final
maturity); provided that in the event any Swing Line Loans or any Revolving
--------
Loans that are Base Rate Loans are prepaid pursuant to subsection 2.4B(i),
interest accrued on such Swing Line Loans or Revolving Loans through the date of
such prepayment shall be payable on the next succeeding Interest Payment Date
applicable to Base Rate Loans (or, if earlier, at final maturity).
D. CONVERSION OR CONTINUATION. Subject to the provisions of subsection
2.6, Company shall have the option (i) to convert at any time all or any part of
its out standing Term Loans or Revolving Loans equal to $5,000,000 and integral
multiples of $1,000,000 in excess of that amount from Loans bearing interest at
a rate determined by reference to one basis to Loans bearing interest at a rate
determined by reference to an alternative basis or (ii) upon the expiration of
any Interest Period applicable to a Eurodollar Rate Loan, to continue all or any
portion of such Loan equal to $5,000,000 and integral multiples of $1,000,000 in
excess of that amount as a Eurodollar Rate Loan; provided, however, that a
--------- -------
Eurodollar Rate Loan may only be converted into a Base Rate Loan on the
expiration date of an Interest Period applicable thereto; provided further that
-------- -------
during the period commencing on (and including) the Closing Date and ending on
the earlier of (i) the one-month anniversary of the date on which the first
Eurodollar Rate Loan is made under this Agreement and (ii) the date Agent sends
a notice to Company indicating that Lenders' primary syndication has been
concluded, (a) no Loan may be made or continued as or converted into a
Eurodollar Rate Loan having an Interest Period of longer than one month and (b)
the last day of the Interest Period applicable to any Eurodollar Rate Loan shall
be the one-month anniversary of the date on which the first Eurodollar Rate Loan
is made under this Agreement; and provided still further that no Loan may be
-------- ----- -------
made as or converted into a Base Rate Loan during the period from December 24 of
any year to and including January 7 of the immediately succeeding year for the
purpose of investing in securities bearing interest at a rate determined by
reference to any other basis for the purpose of arbitrage or speculation.
Company shall deliver a Notice of Conversion/Continuation to Agent
no later than 1:00 P.M. (New York City time) at least one Business Day in
advance of the proposed conversion date (in the case of a conversion to a Base
Rate Loan) and at least three Business
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<PAGE>
Days in advance of the proposed conversion/continuation date (in the case of a
conversion to, or a continuation of, a Eurodollar Rate Loan). A Notice of
Conversion/Continuation shall specify (i) the proposed conversion/continuation
date (which shall be a Business Day), (ii) the amount and Type of the Loan to be
converted/continued, (iii) the nature of the proposed conversion/continuation,
(iv) in the case of a conversion to, or a continuation of, a Eurodollar Rate
Loan, the requested Interest Period, and (v) in the case of a conversion to, or
a continuation of, a Eurodollar Rate Loan, that no Potential Event of Default or
Event of Default has occurred and is continuing. In lieu of delivering the
above-described Notice of Conversion/Continuation, Company may give Agent
telephonic notice by the required time of any proposed conversion/continuation
under this subsection 2.2D; provided that such notice shall be promptly
--------
confirmed in writing by delivery of a Notice of Conversion/Continuation to Agent
on or before the proposed conversion/continuation date. Upon receipt of written
or telephonic notice of any proposed conversion/continuation under this
subsection 2.2D, Agent shall promptly transmit such notice by telefacsimile or
telephone to each Lender.
Neither Agent nor any Lender shall incur any liability to Company in
acting upon any telephonic notice referred to above that Agent believes in good
faith to have been given by a duly authorized officer or other person authorized
to act on behalf of Company or for otherwise acting in good faith under this
subsection 2.2D, and upon conversion or continuation of the applicable basis for
determining the interest rate with respect to any Loans in accordance with this
Agreement pursuant to any such telephonic notice Company shall have effected a
conversion or continuation, as the case may be, hereunder.
Except as otherwise provided in subsections 2.6B, 2.6C and 2.6G, a
Notice of Conversion/Continuation for conversion to, or continuation of, a
Eurodollar Rate Loan (or telephonic notice in lieu thereof) shall be irrevocable
on and after the related Interest Rate Determination Date, and Company shall be
bound to effect a conversion or continuation in accordance therewith.
E. DEFAULT RATE. Upon the occurrence and during the continuation of
any Event of Default, the outstanding principal amount of all Loans and, to the
extent permitted by applicable law, any interest payments thereon not paid when
due and any fees and other amounts then due and payable hereunder, shall
thereafter bear interest (including post-petition interest in any proceeding
under the Bankruptcy Code or other applicable bankruptcy laws) payable upon
demand at a rate that is 2% per annum in excess of the interest rate otherwise
payable under this Agreement with respect to the applicable Loans (or, in the
case of any such fees and other amounts, at a rate which is 2% per annum in
excess of the interest rate otherwise payable under this Agreement for Base Rate
Loans); provided that, in the case of Eurodollar Rate Loans, upon the expiration
--------
of the Interest Period in effect at the time any such increase in interest rate
is effective such Eurodollar Rate Loans shall thereupon become Base Rate Loans
and shall thereafter bear interest payable upon demand at a rate which is 2% per
annum in excess of the interest rate otherwise payable under this Agreement for
Base Rate Loans. Payment or acceptance of the increased rates of interest
provided for in this subsection 2.2E is not a permitted alternative to timely
payment and shall not constitute a
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<PAGE>
waiver of any Event of Default or otherwise prejudice or limit any rights or
remedies of Agent or any Lender.
F. COMPUTATION OF INTEREST. Interest on the Loans shall be computed on
the basis of a 360-day year, in each case for the actual number of days elapsed
in the period during which it accrues. In computing interest on any Loan, the
date of the making of such Loan or the first day of an Interest Period
applicable to such Loan or, with respect to a Base Rate Loan being converted
from a Eurodollar Rate Loan, the date of conversion of such Eurodollar Rate Loan
to such Base Rate Loan, as the case may be, shall be included, and the date of
payment of such Loan or the expiration date of an Interest Period applicable to
such Loan or, with respect to a Base Rate Loan being converted to a Eurodollar
Rate Loan, the date of conversion of such Base Rate Loan to such Eurodollar Rate
Loan, as the case may be, shall be excluded; provided that if a Loan is repaid
--------
on the same day on which it is made, one day's interest shall be paid on that
Loan.
2.3 FEES.
----
A. COMMITMENT FEES. Company agrees to pay to Agent, for distribution
to each Revolving Lender in proportion to that Revolving Lender's Pro Rata
Share, commitment fees for the period from and including the Closing Date to and
excluding the Revolving Loan Commitment Termination Date equal to the average of
the daily excess of the Revolving Loan Commitments over the aggregate principal
amount of outstanding Revolving Loans (but not any outstanding Swing Line Loans
or the Letter of Credit Usage) multiplied by the Commitment Fee Percentage, such
-------------
commitment fees to be calculated on the basis of a 360-day year and the actual
number of days elapsed and to be payable quarterly in arrears on February 1, May
1, August 1 and November 1 of each year, commencing on the first such date to
occur after the Closing Date, and on the Revolving Loan Commitment Termination
Date.
B. OTHER FEES. Company agrees to pay to Agent such other fees in the
amounts and at the times separately agreed upon between Company and Agent.
After receipt of such other fees from Company, Agent and Arrangers agree to pay
to each Lender such portion of such other fees in the amounts and at the times
as have been separately agreed upon in writing between Agent and such Lender.
2.4 REPAYMENTS, PREPAYMENTS AND REDUCTIONS IN REVOLVING LOAN COMMITMENTS;
---------------------------------------------------------------------
GENERAL PROVISIONS REGARDING PAYMENTS.
-------------------------------------
A. SCHEDULED PAYMENTS OF TERM LOANS.
(i) Scheduled Payments of Tranche A Term Loans. Company shall make
------------------------------------------
principal payments on the Tranche A Term Loans in installments on the dates
and in the amounts set forth below:
59
<PAGE>
<TABLE>
<CAPTION>
Scheduled Repayment
Date of Tranche A Term Loans
----- -----------------------
<S> <C>
February 1, 1997 $7,500,000
May 1, 1997 11,250,000
August 1, 1997 11,250,000
November 1, 1997 11,250,000
February 1, 1998 11,250,000
May 1, 1998 13,750,000
August 1, 1998 13,750,000
November 1, 1998 13,750,000
February 1, 1999 13,750,000
May 1, 1999 16,250,000
August 1, 1999 16,250,000
November 1, 1999 16,250,000
February 1, 2000 16,250,000
May 1, 2000 16,250,000
August 1, 2000 16,250,000
November 1, 2000 16,250,000
February 1, 2001 16,250,000
May 1, 2001 15,000,000
August 1, 2001 15,000,000
November 1, 2001 15,000,000
February 1, 2002 15,000,000
May 1, 2002 13,750,000
August 31, 2002 13,750,000
==========
$325,000,000
</TABLE>
; provided that the scheduled installments of principal of the Tranche A
--------
Term Loans set forth above shall be reduced in connection with any
voluntary or mandatory prepayments of the Term Loans in accordance with
subsection 2.4B(iv); and provided still further that the Tranche A Term
-------- ----- -------
Loans and all other amounts owed hereunder with respect to the Tranche A
Term Loans shall be paid in full no later than August 31, 2002, and the
final installment payable by Company in respect of the Tranche A Term
Loans on such date shall be in an amount, if such amount is different
from that specified above, sufficient to repay all amounts owing by
Company under this Agreement with respect to the Tranche A Term Loans.
60
<PAGE>
(ii) Scheduled Payments of Tranche B Term Loans. Company shall
------------------------------------------
make principal payments on the Tranche B Term Loans in installments in the
amount of $400,000 on each August 1, November 1, February 1 and May 1,
commencing on August 1, 1996 through and including May 1, 2002, and
thereafter on the dates and in the amounts set forth below:
<TABLE>
<CAPTION>
Scheduled Repayment
Date of Tranche B Term Loans
---- -----------------------
<S> <C>
August 1, 2002 $ 4,000,000
November 1, 2002 18,000,000
February 1, 2003 18,000,000
May 1, 2003 18,000,000
August 1, 2003 22,700,000
November 30, 2003 69,700,000
===========
$160,000,000
</TABLE>
; provided that the scheduled installments of principal of the Tranche B
--------
Term Loans set forth above shall be reduced in connection with any
voluntary or mandatory prepayments of the Term Loans in accordance with
subsection 2.4B(iv); and provided still further that the Tranche B Term
-------- ----- -------
Loans and all other amounts owed hereunder with respect to the Tranche B
Term Loans shall be paid in full no later than November 30, 2003, and the
final installment payable by Company in respect of the Tranche B Term Loans
on such date shall be in an amount, if such amount is different from that
specified above, sufficient to repay all amounts owing by Company under
this Agreement with respect to the Tranche B Term Loans.
(iii) Scheduled Payments of Tranche C Term Loans. Company shall
------------------------------------------
make principal payments on the Tranche C Term Loans in installments in the
amount of $400,000 on each August 1, November 1, February 1 and May 1,
commencing on August 1, 1996 through and including November 1, 2003, and
thereafter on the dates and in the amounts set forth below:
<TABLE>
<CAPTION>
Scheduled Repayment
Date of Tranche C Term Loans
---- -----------------------
<S> <C>
February 1, 2004 $25,000,000
May 1, 2004 25,000,000
August 1, 2004 25,000,000
November 30, 2004 73,000,000
===========
$160,000,000
</TABLE>
61
<PAGE>
; provided that the scheduled installments of principal of the Tranche C
--------
Term Loans set forth above shall be reduced in connection with any
voluntary or mandatory prepayments of the Term Loans in accordance with
subsection 2.4B(iv); and provided still further that the Tranche C Term
-------- ----- -------
Loans and all other amounts owed hereunder with respect to the Tranche C
Term Loans shall be paid in full no later than November 30, 2004 and the
final installment payable by Company in respect of the Tranche C Term
Loans on such date shall be in an amount, if such amount is different
from that specified above, sufficient to repay all amounts owing by
Company under this Agreement with respect to the Tranche C Term Loans.
(iv) Scheduled Payments of Tranche D Term Loans. Company shall
------------------------------------------
make principal payments on the Tranche D Term Loans in the installments
in the amount of $400,000 on each August 1, November 1, February 1 and
May 1, commencing on August 1, 1996 through and including November 1,
2004, and thereafter on the dates and in the amounts set forth below:
<TABLE>
<CAPTION>
Scheduled Repayment
Date of Tranche D Term Loans
---- -----------------------
<S> <C>
February 1, 2005 $29,000,000
May 1, 2005 32,000,000
August 31, 2005 85,400,000
===========
$160,000,000
</TABLE>
; provided that the scheduled installments of principal of the Tranche D
--------
Term Loans set forth above shall be reduced in connection with any
voluntary or mandatory prepayments of the Term Loans in accordance with
subsection 2.4B(iv); and provided still further that the Tranche D Term
-------- ----- -------
Loans and all other amounts owed hereunder with respect to the Tranche D
Term Loans shall be paid in full no later than August 31, 2005, and the
final installment payable by Company in respect of the Tranche D Term
Loans on such date shall be in an amount, if such amount is different
from that specified above, sufficient to repay all amounts owing by
Company under this Agreement with respect to the Tranche D Term Loans.
B. PREPAYMENTS AND UNSCHEDULED REDUCTIONS IN REVOLVING LOAN
COMMITMENTS.
(i) Voluntary Prepayments.
---------------------
(a) Company may, upon written or telephonic notice to Agent
on or prior to 12:00 Noon (New York City time) on the date of prepayment,
which notice, if telephonic, shall be promptly confirmed in writing, at
any time and from time to time prepay any Swing Line Loan on any Business
Day in whole or in part in an aggregate
62
<PAGE>
minimum amount of $500,000 and integral multiples of $250,000 in excess
of that amount. Company may, upon not less than one Business Day's prior
written or telephonic notice, in the case of Base Rate Loans, and three
Business Days' prior written or telephonic notice, in the case of
Eurodollar Rate Loans, in each case given to Agent by 12:00 Noon (New
York City time) on the date required and, if given by telephone, promptly
confirmed in writing to Agent (which original written or telephonic
notice Agent will promptly transmit by telefacsimile or telephone to each
Lender), at any time and from time to time prepay any Term Loans or
Revolving Loans on any Business Day in whole or in part in an aggregate
minimum amount of $5,000,000 and integral multiples of $1,000,000 in
excess of that amount for Eurodollar Rate Loans or an aggregate minimum
amount of $2,000,000 and integral multiples of $500,000 in excess of that
amount for Base Rate Loans; provided, however, that a Eurodollar Rate
-------- -------
Loan may only be prepaid on the expiration of the Interest Period
applicable thereto. Notice of prepayment having been given as aforesaid,
the principal amount of the Loans specified in such notice shall become
due and payable on the prepayment date specified therein. Any such
voluntary prepayment shall be applied as specified in subsection
2.4B(iv).
(b) In the event Company is entitled to replace a non-
consenting Lender pursuant to subsection 10.6B, Company shall have the
right, upon five Business Days' written notice to Agent (which notice
Agent shall promptly transmit to each of the Lenders), to prepay all
Loans, together with accrued and unpaid interest, fees and other amounts
owing to such Lender in accordance with subsection 10.6B so long as (1)
in the case of the prepayment of the Revolving Loans of any Lender
pursuant to this subsection 2.4B(i)(b), the Revolving Loan Commitment of
such Lender is terminated concurrently with such prepayment pursuant to
subsection 2.4B(ii)(b) (at which time Schedule 2.1 shall be deemed
------------
modified to reflect the changed Revolving Loan Commitments), and (2) in
the case of the prepayment of the Loans of any Lender, the consents
required by subsection 10.6B in connection with the prepayment pursuant
to this subsection 2.4B(i)(b) shall have been obtained, and at such time,
such Lender shall no longer constitute a "Lender" for purposes of this
Agreement, except with respect to indemnifications under this Agreement
(including, without limitation, subsections 2.6D, 2.7, 3.6, 10.2, 10.3
and 10.5), which shall survive as to such Lender
(ii) Voluntary Reductions of Commitments.
-----------------------------------
(a) Company may, upon not less than three Business Days'
prior written or telephonic notice confirmed in writing to Agent (which
original written or telephonic notice Agent will promptly transmit by
telefacsimile or telephone to each Lender), at any time and from time to
time terminate in whole or permanently reduce in part, without premium or
penalty, the Revolving Loan Commitments in an amount up to the amount by
which the Revolving Loan Commitments exceed the Total Utilization of
Revolving Loan Commitments at the time of such proposed termination or
reduction; provided that any such partial reduction of the Revolving Loan
--------
63
<PAGE>
Commitments shall be in an aggregate minimum amount of $2,000,000 and
integral multiples of $500,000 in excess of that amount. Company's notice
to Agent shall designate the date (which shall be a Business Day) of such
termination or reduction and the amount of any partial reduction, and
such termination or reduction of the Revolving Loan Commitments shall be
effective on the date specified in Company's notice and shall reduce the
Revolving Loan Commitment of each Lender proportionately to its Pro Rata
Share of such reduction.
(b) In the event Company is entitled to replace a non-
consenting Lender pursuant to subsection 10.6B, Company shall have the
right, upon five Business Days' written notice to Agent (which notice
Agent shall promptly transmit to each of the Lenders), to terminate the
entire Revolving Loan Commitment of such Lender, so long as (1) all
Loans, together with accrued and unpaid interest, fees and other amounts
owing to such Lender are repaid pursuant to subsection 2.4B(i)(b)
concurrently with the effectiveness of such termination (at which time
Schedule 2.1 shall be deemed modified to reflect such changed amounts)
------------
and (2) the consents required by subsection 10.6B in connection with the
prepayment pursuant to subsection 2.4B(i)(b) shall have been obtained,
and at such time, such Lender shall no longer constitute a "Lender" for
purposes of this Agreement, except with respect to indemnifications under
this Agreement (including, without limitation, subsections 2.6D, 2.7,
3.6, 10.2, 10.3 and 10.5), which shall survive as to such Lender.
(iii) Mandatory Prepayments and Mandatory Reductions of Revolving
-----------------------------------------------------------
Loan Commitments. The Loans shall be prepaid and/or the Revolving Loan
----------------
Commitments shall be permanently reduced in the amounts and under the
circumstances set forth below, all such prepayments and/or reductions to
be applied as set forth below or as more specifically provided in
subsection 2.4B(iv):
(a) Prepayments and Reductions from Net Asset Sale
----------------------------------------------
Proceeds. No later than the earliest to occur of (1) the third
--------
Business Day following the date of receipt by Company or any of its
Subsidiaries of any Net Asset Sale Proceeds in respect of any
California Asset Sale in an aggregate cumulative amount equal to or
exceeding $5,000,000; (2) the 180th day following the date of any
California Asset Sale the Net Asset Sale Proceeds of which have not
been applied to the prepayment of the Loans pursuant to the preceding
clause (1) or this clause (2); (3) the third Business Day following
the date of receipt by Company or any of its Subsidiaries of any Net
Asset Sale Proceeds in respect of any Asset Sale other than a
California Asset Sale in an aggregate cumulative amount equal to or
exceeding $5,000,000; (4) the 180th day following the date of any
Asset Sale other than a California Asset Sale the Net Asset Sale
Proceeds of which have not been applied to the prepayment of the Loans
pursuant to the preceding clause (3) or this clause (4); and (5) the
date of the occurrence of any Event of Default or Potential Event of
Default, Company shall prepay the Loans and/or the Revolving Loan
Commitments shall be
64
<PAGE>
permanently reduced in an amount equal to such Net Asset Sale
Proceeds; provided, however that so long as no Event of Default or
-------- -------
Potential Event of Default shall have occurred and be continuing, the
following Net Asset Sale Proceeds received by Company and its
Subsidiaries from and after the Closing Date need not be applied to
the mandatory prepayment of the Loans pursuant to this subsection
2.4B(iii)(a):
(i) other than (1) Net Asset Sale Proceeds from the sale of
a Related Asset, (2) Net Asset Sale Proceeds from California Asset
Sales not permitted to be retained by Company pursuant to subsection
2.4B(iii)(a)(vi) and (3) the first $33,800,000 in Net Asset Sale
Proceeds from California Asset Sales referred to in subsection
2.4B(iii)(a)(v), (A) Net Asset Sale Proceeds (including Net Asset Sale
Proceeds from California Asset Sales entitled to be retained by
Company pursuant to subsection 2.4B(iii)(a)(vi)) from the sale of a
store to the extent that such Net Asset Sale Proceeds are reinvested
in new stores or the construction or remodeling of stores within 270
days of such sale and (B) Net Asset Sale Proceeds from the sale of a
store to the extent that such Net Asset Sale Proceeds do not exceed
the Consolidated Capital Expenditures made to acquire or build a
replacement store in the general vicinity of the store sold within 270
days preceding the date of such sale, and, so long as the aggregate
amount of such Net Asset Sale Proceeds so excluded from the mandatory
prepayment provisions pursuant to subclauses (A) and (B) of this
clause (i) does not exceed $25,000,000 in any Fiscal Year; provided
--------
that for purposes of sub-clause (A) of this clause (i) any of the
assets listed on Schedule 2.4B annexed hereto shall be deemed to be
-------------
stores;
(ii) Net Asset Sale Proceeds from the sale and concurrent
lease-back of any store opened or acquired after the Closing Date or
any equipment acquired after the Closing Date, in each case within 180
days of the completion of such store or the acquisition of such
equipment, in each case to the extent and only to the extent of
Consolidated Capital Expenditures made with respect to such store or
such equipment; provided that such 180-day period shall be extended to
--------
a one-year period if during such 180-day period, Company gives written
notice to Agent that Company is planning to include such store or such
equipment in a sale leaseback transaction involving (x) such store and
one or more additional stores and such additional stores are not yet
opened or acquired and/or (y) such equipment and additional equipment
which has not yet been acquired; provided, further, that in no event
--------
shall there be more than 5 stores subject to a one-year period as a
result of their inclusion in such sale leaseback transaction at any
time;
65
<PAGE>
(iii) Net Asset Sale Proceeds from the sale of worn-out or
obsolete equipment, to the extent that such Net Asset Sale Proceeds
are reinvested in the same or similar equipment within 90 days of such
sale;
(iv) Net Asset Sale Proceeds from the occurrence of any
loss, damage or destruction of any stores or any other facilities of
Company or any of its Subsidiaries (including any assets located
therein) giving rise to insurance proceeds, to the extent that (A)
such Net Asset Sale Proceeds are required to be paid to a landlord and
cannot be paid to a mortgagee or other lender to Company or its
Subsidiaries in preference to payments to a landlord under leases
existing as of the Closing Date and which proceeds are in fact paid to
such landlord in accordance with the terms of such leases; (B) such
Net Asset Sale Proceeds are reinvested to repair or rebuild the assets
so lost, damaged or destroyed within the earlier of (1) 270 days of
receipt of such Net Asset Sale Proceeds and (2) 24 months of the
occurrence of such loss, damage or destruction; or (C) such Net Asset
Sale Proceeds do not exceed the expenditures made by Company or any of
its Subsidiaries within the earlier of (1) 270 days of receipt of such
Net Asset Sale Proceeds and (2) 24 months of the occurrence of such
loss, damage or destruction, to repair or rebuild the applicable
assets so lost, damaged or destroyed;
(v) Company shall apply the first $33,800,000 in Net Asset
Sale Proceeds from California Asset Sales other than Asset Sales of
Related Assets to the prepayment of the Loans pursuant to subsection
2.4B(iv)(b), or if at the time of receipt of such Net Asset Sale
Proceeds, no Revolving Loans or Swing Line Loans are outstanding,
Company may retain such Net Asset Sale Proceeds; and
(vi) after the application of the first $33,800,000 in Net
Asset Sale proceeds from California Asset Sales in accordance with
clause (v) above, at Company's option, Company may retain up to 50% of
the Net Asset Sale Proceeds from California Asset Sales other than
Asset Sales of Related Assets up to a maximum aggregate retained
amount of $25,000,000.
If, following the receipt by Company or any of its
Subsidiaries of Net Asset Sale Proceeds, Company is required to apply or
cause to be applied any portion of such Net Asset Sale Proceeds to prepay
any Indebtedness evidenced by any of the Related Financing Documents
pursuant to the applicable Related Financing Document, then,
notwithstanding anything contained in this subsection 2.4B(iii)(a),
Company shall prepay the Loans and/or reduce the Revolving Loan
Commitments in the order set forth in this
66
<PAGE>
subsection 2.4B(iii)(a) so as to eliminate any obligation to prepay such
Indebtedness.
(b) Prepayments and Reductions Due to Reversion of Surplus Assets
-------------------------------------------------------------
of Pension Plans. On the date of return to Company or any of its
----------------
Subsidiaries of any surplus assets of any pension plan of Company or any
of its Subsidiaries, Company shall prepay the Loans and/or the Revolving
Loan Commitments shall be permanently reduced in an amount (such amount
being the "NET PENSION PROCEEDS") equal to 100% of such returned surplus
assets net of transaction costs and expenses incurred in obtaining such
return, including incremental taxes payable as a result thereof.
(c) Prepayments and Reductions Due to Issuance of Debt Securities.
-------------------------------------------------------------
No later than the first Business Day following the date of receipt by
Company or any of its Subsidiaries of the Cash proceeds (any such
proceeds, net of underwriting discounts, similar placement fees and
commissions and other reasonable costs and expenses associated therewith,
being the "NET DEBT PROCEEDS") from the issuance of any debt Securities
of Company or any such Subsidiary (other than the issuance of
Indebtedness permitted pursuant to subsection 7.1 as in effect on the
Closing Date), Company shall prepay the Loans and/or the Revolving Loan
Commitments shall be permanently reduced in an amount equal to such Net
Debt Proceeds.
(d) Prepayments and Reductions Due to Issuance of Equity
----------------------------------------------------
Securities. No later than the first Business Day following the date of
----------
receipt by Company of the Cash proceeds (any such proceeds, net of under
writing discounts, similar placement fees and commissions and other
reasonable costs associated therewith, being the "NET EQUITY PROCEEDS")
from the issuance of any equity Securities of Company (other than the
issuance of Company's Class B Common Stock and the Yucaipa Warrant on the
Closing Date and other than issuances of equity to management employees
pursuant to agreements or stock option plans permitted under subsection
7.12) (without duplication), Company shall prepay the Loans and/or the
Revolving Loan Commitments shall be permanently reduced in an amount
equal to 50% of such Net Equity Proceeds.
(e) Prepayments and Reductions from Consolidated Excess Cash
--------------------------------------------------------
Flow. In the event that there shall be Consolidated Excess Cash Flow
----
for any Fiscal Year (or in the case of Fiscal Year 1996, during the
period commencing on the Closing Date and ending on (and including)
December 28, 1996), within 100 days after the last day of such Fiscal
Year, Company shall prepay the Loans and/or the Revolving Loan
Commitments shall be permanently reduced in an amount equal to 75% of
such Consolidated Excess Cash Flow.
67
<PAGE>
(f) Calculations of Net Proceeds Amounts; Additional
----------------------------------------------------
Prepayments and Reductions Based on Subsequent Calculations.
-----------------------------------------------------------
Concurrently with any prepayment of the Loans and/or reduction of
the Revolving Loan Commitments pursuant to subsections 2.4B(iii)(a)-
(e) or within three Business Days of the receipt of any Net Asset
Sale Proceeds under subsection 2.4B(iii)(a), Company shall deliver
to Agent an Officers' Certificate demonstrating (1) the calculation
of the amount (the "NET PROCEEDS AMOUNT") of the applicable Net
Asset Sale Proceeds, Net Pension Proceeds, Net Debt Proceeds or Net
Equity Proceeds (as such terms are defined in subsections
2.4B(iii)(b), (c) and (d), or the applicable Consolidated Excess
Cash Flow, as the case may be, that gave rise to such prepayment
and/or reduction; (2) with respect to the receipt of Net Asset Sale
Proceeds referred to in clauses (i)(A), (iii) and (iv) of subsection
2.4B(iii)(a), in reasonable detail, the intended application of such
Net Asset Sale Proceeds and the estimated costs of the reinvestment
referred to in such clauses; and (3) with respect to the receipt of
Net Asset Sale Proceeds referred to in clauses (i)(B), (ii) and (iv)
of subsection 2.4B(iii)(a), in reasonable detail the Consolidated
Capital Expenditures made by Company which accounts for the
exclusion of any such Net Asset Sale Proceeds from the mandatory
prepayment requirements of subsection 2.4B(iii)(a), such Officers'
Certificate, in the case of clauses (i) and (iii), may be amended at
any time and from time to time by Company during the 270-day or 90-
day period, as applicable, following receipt of such Net Asset Sale
Proceeds. In the event that Company shall subsequently determine
that the actual Net Proceeds Amount was greater than the amount set
forth in such Officers' Certificate or that, with respect to clauses
(i), (iii) and (iv) of subsection 2.4B(iii)(a), such Net Proceeds
Amount was not expended for the purposes specified in such Officers'
Certificate, as amended, within the time periods specified in such
clauses, Company shall promptly make an additional prepayment of the
Loans (and/or, if applicable, the Revolving Loan Commitments shall
be permanently reduced) in an amount equal to the amount of such
excess or unexpended portion, but only to the extent such amount has
not been previously applied as a mandatory prepayment under
subsection 2.4B(iii)(e), and Company shall concurrently therewith
deliver to Agent an Officers' Certificate demonstrating the
derivation of the additional Net Proceeds Amount resulting in such
excess or unexpended portion.
(g) Prepayments Due to Reductions or Restrictions of
------------------------------------------------
Revolving Loan Commitments. Company shall from time to time prepay
--------------------------
first the Swing Line Loans and second the Revolving Loans to the
-----
extent necessary (1) so that the Total Utilization of Revolving Loan
Commitments shall not at any time exceed the Revolving Loan
Commitments then in effect and (2) to give effect to the limitations
set forth in clause (b) of the second paragraph of subsection
2.1A(v) and clause (b) of the second paragraph of subsection
2.1A(vi). Any such mandatory prepayments shall be applied as
specified in subsection 2.4B(iv)
68
<PAGE>
and shall not reduce the amount of the Revolving Loan Commitments
then in effect.
(iv) Application of Prepayments.
--------------------------
(a) Application of Voluntary Prepayments by Type of Loans
-----------------------------------------------------
and Order of Maturity. Subject to the immediately succeeding
---------------------
sentence of this subsection 2.4B(iv)(a), any voluntary prepayments
pursuant to subsection 2.4B(i)(a) shall be applied to Term Loans,
Revolving Loans or Swing Line Loans as specified by Company in the
applicable notice of prepayment; provided that in the event Company
--------
fails to specify the Loans to which any such prepayment shall be
applied, such prepayment shall be applied first to repay outstanding
-----
Swing Line Loans to the full extent thereof, second to repay
------
outstanding Revolving Loans to the full extent thereof, and third to
-----
repay outstanding Term Loans to the full extent thereof. Any
voluntary prepayments of the Term Loans pursuant to subsection
2.4B(i)(a) shall be applied (x) to the Tranche A Term Loans, the
Tranche B Term Loans, the Tranche C Term Loans and the Tranche D
Loans on a pro rata basis and (y) to reduce the unpaid scheduled
--- ----
installments of principal of the Term Loans set forth in subsections
2.4A(i), 2.4A(ii), 2.4A(iii) and 2.4A(iv) on a pro rata basis or,
--- ----
at Company's option, in forward order of maturity for scheduled
installments of principal occurring within the six-month period
following the month in which such voluntary prepayments occur.
(b) Application of Mandatory Prepayments by Type of Loans.
-----------------------------------------------------
Any amount (the "APPLIED AMOUNT") required to be applied as a
mandatory prepayment of the Loans and/or a reduction of the
Revolving Loan Commitments pursuant to subsections 2.4B(iii)(a)-(f)
shall be applied first to prepay the Term Loans to the full extent
-----
thereof, second, to the extent of any remaining portion of the
------
Applied Amount, to prepay the Swing Line Loans to the full extent
thereof and to permanently reduce the Revolving Loan Commitments by
the amount of such prepayment, third, to the extent of any remaining
-----
portion of the Applied Amount, to prepay the Revolving Loans to the
full extent thereof and to further permanently reduce the Revolving
Loan Commitments by the amount of such prepayment, and fourth, to
the extent of any remaining portion of the Applied Amount, to
further permanently reduce the Revolving Loan Commitments to the
full extent thereof; provided however that the first $33,800,000 in
-------- -------
Net Asset Sale Proceeds from California Asset Sales referenced in
subsection 2.4B(iii)(a)(v) and the Net Asset Sale Proceeds from
California Asset Sales referenced in subsection 2.4B(iii)(a)(vi) and
so retained by Company shall be applied first to prepay Swing Line
-----
Loans to the full extent thereof without any permanent reduction of
the Revolving Loan Commitments, second to the extent of any
------
remaining portion of the Applied Amount, to prepay the Revolving
Loans to the full extent thereof without any
69
<PAGE>
permanent reduction of the Revolving Loan Commitments and third retained
-----
by Company if no Revolving Loans or Swing Line Loans are then
outstanding.
(c) Application of Mandatory Prepayments of Term Loans by Order of
--------------------------------------------------------------
Maturity. Any mandatory prepayments of the Term Loans pursuant to
--------
subsection 2.4B(iii) shall be applied (x) to the Tranche A Term Loans,
the Tranche B Term Loans, the Tranche C Term Loans and the Tranche D
Term Loans on a pro rata basis and (y) to reduce the unpaid scheduled
--- ----
installments of principal of the Term Loans set forth in subsections
2.4A(i), 2.4A(ii), 2.4A(iii) and 2.4A(iv) on a pro rata basis; provided
--- ---- --------
that, at Company's election, mandatory prepayments of the Tranche A
Term Loans made with Net Asset Sale Proceeds from California Asset
Sales other than Asset Sales of Related Assets in excess of the first
$33,800,000 received may be applied to reduce the unpaid scheduled
installments of principal of the Tranche A Term Loans in forward order
of maturity up to a maximum aggregate reduction for all such future
scheduled installments of $50,000,000 at any time; provided, further
-------- -------
that, in the case of Tranche B Term Loans, Tranche C Term Loans and
Tranche D Term Loans, upon receipt of any mandatory prepayments
pursuant to subsection 2.4B(iii) with respect to which Company has
given Agent written notification prior to such receipt that Company has
elected to give the Tranche B Term Lenders, the Tranche C Term Lenders
and the Tranche D Term Lenders the right to waive such Lenders' right
to receive such prepayment (the "WAIVABLE MANDATORY PREPAYMENT"), Agent
shall notify the Tranche B Term Lenders, the Tranche C Term Lenders and
the Tranche D Term Lenders of such receipt and the amount of the
prepayment to be applied to each such Lender's Term Loans; provided,
--------
still further that Company shall use its reasonable efforts to notify
----- -------
the Tranche B Term Lenders, the Tranche C Term Lenders and the Tranche
D Term Lenders of such Waivable Mandatory Prepayment three (3) Business
Days prior to the payment to Agent of such Waivable Mandatory Prepayments
(it being understood that Company shall have no liabilities for failing
to so notify such Lenders). In the event any such Tranche B Term Lender,
Tranche C Term Lender or Tranche D Term Lender desires to waive such
Lender's right to receive any such Waivable Mandatory Prepayment, such
Lender shall so advise Agent no later than the close of business on the
date of such notice from Agent. In the event that any such Lender waives
such Lender's right to any such Waivable Mandatory Prepayment, Agent
shall apply (i) 100% of amount so waived constituting Net Asset Sale
Proceeds received from the sale of any Excess California Land or
California Stores and (ii) 50% of any other amount so waived, to prepay
the Tranche A Term Loans. Agent shall return the remainder of the amount
so waived, if any, by such Lender to Company.
(d) Application of Prepayments to Base Rate Loans and Eurodollar
------------------------------------------------------------
Rate Loans. Considering Tranche A Term Loans, Tranche B Term Loans,
----------
Tranche C Term Loans, Tranche D Term Loans and Revolving Loans being
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prepaid separately, any prepayment thereof shall be applied first to
Base Rate Loans to the full extent thereof before applica tion to
Eurodollar Rate Loans, in each case in a manner which minimizes the
amount of any payments required to be made by Company pursuant to
subsection 2.6D.
C. GENERAL PROVISIONS REGARDING PAYMENTS.
(i) Manner and Time of Payment. All payments by Company of
--------------------------
principal, interest, fees and other Obligations hereunder, under the
Notes and under the other Loan Documents shall be made in Dollars in same
day funds, without defense, setoff or counterclaim, free of any
restriction or condition, and delivered to Agent not later than 1:00 P.M.
(New York City time) on the date due at the Funding and Payment Office
for the account of Lenders; funds received by Agent after that time on
such due date shall be deemed to have been paid by Company on the next
succeeding Business Day. Company hereby authorizes Agent to charge its
accounts with Agent in order to cause timely payment to be made to Agent
of all principal, interest, fees and expenses due hereunder (subject to
sufficient funds being available in its accounts for that purpose).
(ii) Application of Payments to Principal and Interest. Except
as provided in subsection 2.2C, all payments in respect of the principal
amount of any Loan shall include payment of accrued interest on the
principal amount being repaid or prepaid, and all such payments shall be
applied to the payment of interest before application to principal.
(iii) Apportionment of Payments. Aggregate principal and interest
-------------------------
payments in respect of Term Loans and Revolving Loans shall be
apportioned among all outstanding Loans to which such payments relate, in
each case proportionately to Lenders' respective Pro Rata Shares. Agent
shall promptly distribute to each Lender, at its primary address set
forth below its name on the appropriate signature page hereof or at such
other address as such Lender may request, its Pro Rata Share of all such
payments received by Agent and the commitment fees of such Lender when
received by Agent pursuant to subsection 2.3. Notwithstanding the
foregoing provisions of this subsection 2.4C(iii), if, pursuant to the
provisions of subsection 2.6C, any Notice of Conversion/Continuation is
withdrawn as to any Affected Lender or if any Affected Lender makes Base
Rate Loans in lieu of its Pro Rata Share of any Eurodollar Rate Loans,
Agent shall give effect thereto in apportioning payments received
thereafter.
(iv) Payments on Business Days. Whenever any payment to be made
-------------------------
hereunder shall be stated to be due on a day that is not a Business Day,
such payment shall be made on the next succeeding Business Day and such
extension of time shall be included in the computation of the payment of
interest hereunder or of the commitment fees hereunder, as the case may
be; provided, however, that if the day on which payment relating to a
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Eurodollar Rate Loan is due is not a Business Day but is
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a day of the month after which no further Business Day occurs in that
month, then the due date thereof shall be the next preceding Business
Day.
(v) Notation of Payment. Each Lender agrees that before disposing
-------------------
of any Note held by it, or any part thereof (other than by granting
participations therein), that Lender will make a notation thereon of all
Loans evidenced by that Note and all principal payments previously made
thereon and of the date to which interest thereon has been paid; provided
--------
that the failure to make (or any error in the making of) a notation of
any Loan made under such Note shall not limit or otherwise affect the
obligations of Company hereunder or under such Note with respect to any
Loan or any payments of principal or interest on such Note.
2.5 USE OF PROCEEDS.
---------------
A. TERM LOANS. The proceeds of the Term Loans, together with (i) the
proceeds of up to $13,200,000 of the initial Revolving Loans, (ii) not less than
$575,000,000 in aggregate gross proceeds from the issuance of the Senior
Subordinated Notes, and (iii) not less than $67,200,000 in net proceeds from the
sale of California Stores (as such amount may be reduced by application of such
proceeds to the permanent reduction of Company's existing Indebtedness), shall
be applied by Company to (i) purchase approximately 13,400,000 shares of its
Class A Common Stock and Class B Common Stock, representing 50% of shares of all
Class A Common Stock and Class B Common Stock outstanding (excluding shares of
Class B Common Stock issued or issuable in connection with the Acquisition but
including certain Existing Management Stock Options) pursuant to the Equity
Tender Offer for an aggregate purchase payment not exceeding $465,000,000, (ii)
to permanently repay Company's existing Indebtedness in an amount not exceeding
$668,600,000, (iii) to permanently repay Smitty's existing Indebtedness in an
amount not exceeding $102,900,000, (iv) redeem not less than approximately
3,000,000 shares of its Redeemable Preferred Stock for an aggregate redemption
payment not exceeding $1,000,000 and (v) to pay Transaction Costs not exceeding
$160,700,000.
B. REVOLVING LOANS; SWING LINE LOANS. The proceeds of the Revolving
Loans on the Closing Date shall be applied by Company as provided in subsection
2.5A. The proceeds of any other Revolving Loans and any Swing Line Loans shall
be applied by Company for working capital and general corporate purposes.
C. MARGIN REGULATIONS. No portion of the proceeds of any borrowing
under this Agreement shall be used by Company or any of its Subsidiaries in any
manner that might cause the borrowing or the application of such proceeds to
violate Regulation G, Regulation U, Regulation T or Regulation X of the Board of
Governors of the Federal Reserve System or any other regulation of such Board or
to violate the Exchange Act, in each case as in effect on the date or dates of
such borrowing and such use of proceeds.
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2.6 SPECIAL PROVISIONS GOVERNING EURODOLLAR RATE LOANS.
--------------------------------------------------
Notwithstanding any other provision of this Agreement to the
contrary, the following provisions shall govern with respect to Eurodollar Rate
Loans as to the matters covered:
A. DETERMINATION OF APPLICABLE INTEREST RATE. As soon as practicable
after 10:00 A.M. (New York City time) on each Interest Rate Determination Date,
Agent shall determine (which determination shall, absent manifest error, be
final, conclusive and binding upon all parties) the interest rate that shall
apply to the Eurodollar Rate Loans for which an interest rate is then being
determined for the applicable Interest Period and shall promptly give notice
thereof (in writing or by telephone confirmed in writing) to Company and each
Lender.
B. INABILITY TO DETERMINE APPLICABLE INTEREST RATE. In the event that
Agent shall have determined (which determination shall be final and conclusive
and binding upon all parties hereto), on any Interest Rate Determination Date
with respect to any Eurodollar Rate Loans, that by reason of circumstances
affecting the interbank Eurodollar market adequate and fair means do not exist
for ascertaining the interest rate applicable to such Loans on the basis
provided for in the definition of Adjusted Eurodollar Rate, Agent shall on such
date give notice (by telefacsimile or by telephone confirmed in writing) to
Company and each Lender of such determination, whereupon (i) no Loans may be
made as, or converted to, Eurodollar Rate Loans until such time as Agent
notifies Company and Lenders that the circumstances giving rise to such notice
no longer exist and (ii) any Notice of Borrowing or Notice of
Conversion/Continuation given by Company with respect to the Loans in respect of
which such determination was made shall be deemed to be rescinded by Company.
C. ILLEGALITY OR IMPRACTICABILITY OF EURODOLLAR RATE LOANS. In the
event that on any date any Lender shall have determined (which determination
shall be final and conclusive and binding upon all parties hereto but shall be
made only after consultation with Company and Agent) that the making,
maintaining or continuation of its Eurodollar Rate Loans (i) has become unlawful
as a result of compliance by such Lender in good faith with any law, treaty,
governmental rule, regulation, guideline or order (or would conflict with any
such treaty, governmental rule, regulation, guideline or order not having the
force of law even though the failure to comply therewith would not be unlawful)
or (ii) has become impracticable, or would cause such Lender material hardship,
as a result of contingencies occurring after the date of this Agreement which
materially and adversely affect the interbank Eurodollar market or the position
of such Lender in that market, then, and in any such event, such Lender shall be
an "AFFECTED LENDER" and it shall on that day give notice (by telefacsimile or
by telephone confirmed in writing) to Company and Agent of such determination
(which notice Agent shall promptly transmit to each other Lender). Thereafter
(a) the obligation of the Affected Lender to make Loans as, or to convert Loans
to, Eurodollar Rate Loans shall be suspended until such notice shall be
withdrawn by the Affected Lender, (b) to the extent such determination by the
Affected Lender relates to a Eurodollar Rate Loan then being requested by
Company
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pursuant to a Notice of Borrowing or a Notice of Conversion/Continuation, the
Affected Lender shall make such Loan as (or convert such Loan to, as the case
may be) a Base Rate Loan, (c) the Affected Lender's obligation to maintain its
outstanding Eurodollar Rate Loans (the "AFFECTED LOANS") shall be terminated at
the earlier to occur of the expiration of the Interest Period then in effect
with respect to the Affected Loans or when required by law, and (d) the Affected
Loans shall automatically convert into Base Rate Loans on the date of such
termination. Notwithstanding the foregoing, to the extent a determination by an
Affected Lender as described above relates to a Eurodollar Rate Loan then being
requested by Company pursuant to a Notice of Borrowing or a Notice of
Conversion/Continuation, Company shall have the option, subject to the
provisions of subsection 2.6D, to rescind such Notice of Borrowing or Notice of
Conversion/Continuation as to all Lenders by giving notice (by telefacsimile or
by telephone confirmed in writing) to Agent of such rescission on the date on
which the Affected Lender gives notice of its determination as described above
(which notice of rescission Agent shall promptly transmit to each other Lender).
Except as provided in the immediately preceding sentence, nothing in this
subsection 2.6C shall affect the obligation of any Lender other than an Affected
Lender to make or maintain Loans as, or to convert Loans to, Eurodollar Rate
Loans in accordance with the terms of this Agreement.
D. COMPENSATION FOR BREAKAGE OR NON-COMMENCEMENT OF INTEREST PERIODS.
Company shall compensate each Lender, upon written request by that Lender (which
request shall set forth in reasonable detail the basis for requesting such
amounts), for all reasonable losses, expenses and liabilities (including,
without limitation, any interest paid by that Lender to lenders of funds
borrowed by it to make or carry its Eurodollar Rate Loans and any loss, expense
or liability sustained by that Lender in connection with the liquidation or re-
employment of such funds) which that Lender will sustain or has sustained: (i)
if for any reason (other than a default by that Lender) a borrowing of any
Eurodollar Rate Loan does not occur on a date specified therefor in a Notice of
Borrowing or a telephonic request for borrowing, or a conversion to or
continuation of any Eurodollar Rate Loan does not occur on a date specified
therefor in a Notice of Conversion/Continuation or a telephonic request for
conversion or continuation, (ii) if any prepayment or other principal payment or
any conversion of any of its Eurodollar Rate Loans occurs on a date prior to the
last day of an Interest Period applicable to that Loan, (iii) if any prepayment
of any of its Eurodollar Rate Loans is not made on any date specified in a
notice of prepayment given by Company, or (iv) as a consequence of any other
default by Company in the repayment of its Eurodollar Rate Loans when required
by the terms of this Agreement.
E. BOOKING OF EURODOLLAR RATE LOANS. Any Lender may make, carry or
transfer Eurodollar Rate Loans at, to, or for the account of any of its branch
offices or the office of an Affiliate of that Lender.
F. ASSUMPTIONS CONCERNING FUNDING OF EURODOLLAR RATE LOANS.
Calculation of all amounts payable to a Lender under this subsection 2.6 and
under subsection 2.7A shall be made as though that Lender had actually funded
each of its relevant Eurodollar Rate Loans through the purchase of a Eurodollar
deposit bearing interest at the rate obtained pursuant to
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clause (i) of the definition of Adjusted Eurodollar Rate in an amount equal to
the amount of such Eurodollar Rate Loan and having a maturity comparable to the
relevant Interest Period and through the transfer of such Eurodollar deposit
from an offshore office of that Lender to a domestic office of that Lender in
the United States of America; provided, however, that each Lender may fund each
-------- -------
of its Eurodollar Rate Loans in any manner it sees fit and the foregoing
assumptions shall be utilized only for the purposes of calculating amounts
payable under this subsection 2.6 and under subsection 2.7A.
G. EURODOLLAR RATE LOANS AFTER DEFAULT. After the occurrence of and
during the continuation of a Potential Event of Default or an Event of Default,
(i) Company may not elect to have a Loan be made or maintained as, or converted
to, a Eurodollar Rate Loan after the expiration of any Interest Period then in
effect for that Loan and (ii) subject to the provisions of subsection 2.6D, any
Notice of Borrowing or Notice of Conversion/Continuation given by Company with
respect to a requested borrowing or conversion/continuation that has not yet
occurred shall be deemed to be rescinded by Company.
2.7 INCREASED COSTS; TAXES; CAPITAL ADEQUACY.
----------------------------------------
A. COMPENSATION FOR INCREASED COSTS AND TAXES. Subject to the
provisions of subsection 2.7B, in the event that any Lender shall determine
(which determination shall, absent manifest error, be final and conclusive and
binding upon all parties hereto) that any law, treaty or governmental rule,
regulation or order, or any change therein or in the interpretation,
administration or application thereof (including the introduction of any new
law, treaty or governmental rule, regulation or order), or any determination of
a court or governmental authority, in each case that becomes effective (other
than any change in such law, treaty or governmental rule, regulation or order
which was promulgated prior to the date hereof and which becomes effective in
accordance with its terms after the date hereof) after the date hereof, or
compliance by such Lender with any guideline, request or directive issued or
made after the date hereof by any central bank, the National Association of
Insurance Commissioners ("NAIC") or other governmental or quasi-governmental
authority (whether or not having the force of law):
(i) subjects such Lender (or its applicable lending office) to
any additional Tax (other than any Tax on the overall net income of such
Lender) with respect to this Agreement or any of its obligations
hereunder or any payments to such Lender (or its applicable lending
office) of principal, interest, fees or any other amount payable
hereunder;
(ii) imposes, modifies or holds applicable any reserve (including
without limitation any marginal, emergency, supplemental, special or
other reserve), special deposit, compulsory loan, FDIC insurance or
similar requirement against assets held by, or deposits or other
liabilities in or for the account of, or advances or loans by, or other
credit extended by, or any other acquisition of funds by, any office of
such
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Lender (other than any such reserve or other requirements with respect to
Eurodollar Rate Loans that are reflected in the definition of Adjusted
Eurodollar Rate); or
(iii) imposes any other condition (other than with respect to a
Tax matter) on or affecting such Lender (or its applicable lending
office) or its obligations hereunder or the interbank Eurodollar market;
and the result of any of the foregoing is to increase the cost to such Lender of
agreeing to make, making or maintaining Loans hereunder or to reduce any amount
received or receivable by such Lender (or its applicable lending office) with
respect thereto; then, in any such case, Company shall promptly pay to such
Lender, upon receipt of the statement referred to in the next sentence, such
additional amount or amounts (in the form of an increased rate of, or a
different method of calculating, interest or otherwise as such Lender in its
sole discretion shall determine) as may be necessary to compensate such Lender
for any such increased cost or reduction in amounts received or receivable
hereunder; provided that a Lender shall not be entitled to avail itself of the
--------
benefit of this subsection 2.7A to the extent that any such increased cost or
reduction in amounts was incurred more than one year prior to the time it gives
notice to Company (as provided in the next sentence) of the relevant
circumstance, unless such circumstance arose or became applicable
retrospectively, in which case such Lender shall not be limited to such one year
period so long as such Lender has given such notice to Company no later than one
year from the time such circumstance became applicable to such Lender. Such
Lender shall deliver to Company (with a copy to Agent) a written statement,
setting forth in reasonable detail the basis for calculating the additional
amounts owed to such Lender under this subsection 2.7A, which statement shall be
conclusive and binding upon all parties hereto absent manifest error.
B. WITHHOLDING OF TAXES.
(i) Payments to Be Free and Clear. Except as specifically
-----------------------------
provided to the contrary in paragraphs (ii) and (iii) below, all sums
payable by Company under this Agreement and the other Loan Documents
shall (except to the extent required by law) be paid free and clear of,
and without any deduction or withholding on account of, any Tax (other
than a Tax on the overall net income of any Lender) imposed, levied,
collected, withheld or assessed by or within the United States of America
or any political subdivision in or of the United States of America or any
other jurisdiction from or to which a payment is made by or on behalf of
Company or by any federation or organization of which the United States
of America or any such jurisdiction is a member at the time of payment.
(ii) Grossing-up of Payments. If Company or any other Person is
-----------------------
required by law to make any deduction or withholding on account of any
such Tax from any sum paid or payable by Company to Agent or any Lender
under any of the Loan Documents:
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(a) Company shall notify Agent of any such requirement or
any change in any such requirement as soon as Company becomes aware
of it;
(b) Company shall pay any such Tax before the date on
which penalties attach thereto, such payment to be made (if the
liability to pay is imposed on Company) for its own account or (if
that liability is imposed on Agent or such Lender, as the case may
be) on behalf of and in the name of Agent or such Lender;
(c) the sum payable by Company in respect of which the
relevant deduction, withholding or payment is required shall be
increased to the extent necessary to ensure that, after the making
of that deduction, withholding or payment, Agent or such Lender, as
the case may be, receives on the due date and retains (free from any
liability in respect of any such deduction, withholding or payment)
a net sum equal to what it would have received and so retained had
no such deduction, withholding or payment been required or made; and
(d) within 30 days after paying any sum from which it is
required by law to make any deduction or withholding, and within 30
days after the due date of payment of any Tax which it is required
by clause (b) above to pay, Company shall deliver to Agent evidence
satisfactory to the other affected parties of such deduction,
withholding or payment and of the remittance thereof to the relevant
taxing or other authority;
provided that no such additional amount shall be required to be paid to
--------
any Lender under clause (c) above except to the extent that any change
after the date hereof (in the case of each Lender listed on the signature
pages hereof) or after the date of the Assignment Agreement pursuant to
which such Lender became a Lender (in the case of each other Lender) in
any such requirement for a deduction, withholding or payment as is
mentioned therein shall result in an increase in the rate of such
deduction, withholding or payment from that in effect at the date of this
Agreement or at the date of such Assignment Agreement, as the case may
be, in respect of payments to such Lender.
(iii) Evidence of Exemption from U.S. Withholding Tax.
-----------------------------------------------
(a) Each Lender that is organized under the laws of any
jurisdiction other than the United States or any state or other
political subdivision thereof (for purposes of this subsection
2.7B(iii), a "NON-US LENDER") shall deliver to Agent for
transmission to Company, on or prior to the Closing Date (in the
case of each Lender listed on the signature pages hereof) or on or
prior to the date of the Assignment Agreement pursuant to which it
becomes a Lender (in the case of each other Lender), and at such
other times as may be necessary in the
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determination of Company or Agent (each in the reasonable exercise
of its discretion), (1) two original copies of Internal Revenue
Service Form 1001 or 4224 (or any successor forms), properly
completed and duly executed by such Lender, together with any other
certificate or statement of exemption required under the Internal
Revenue Code or the regulations issued thereunder to establish that
such Lender is not subject to deduction or withholding of United
States federal income tax with respect to any payments to such
Lender of principal, interest, fees or other amounts payable under
any of the Loan Documents or (2) if such Lender is not a "bank" or
other Person described in Section 881(c)(3) of the Internal Revenue
Code and cannot deliver either Internal Revenue Service Form 1001 or
4224 pursuant to clause (1) above, a Certificate re Non-Bank Status
together with two original copies of Internal Revenue Service
Form W-8 (or any successor form), properly completed and duly
executed by such Lender, together with any other certificate or
statement of exemption required under the Internal Revenue Code or
the regulations issued thereunder to establish that such Lender is
not subject to deduction or withholding of United States federal
income tax with respect to any payments to such Lender of interest
payable under any of the Loan Documents.
(b) Each Lender required to deliver any forms,
certificates or other evidence with respect to United States federal
income tax withholding matters pursuant to subsection 2.7B(iii)(a)
hereby agrees, from time to time after the initial delivery by such
Lender of such forms, certificates or other evidence, whenever a
lapse in time or change in circumstances renders such forms,
certificates or other evidence obsolete or inaccurate in any
material respect, that such Lender shall promptly (1) deliver to
Agent for transmission to Company two new original copies of
Internal Revenue Service Form 1001 or 4224, or a Certificate re Non-
Bank Status and two original copies of Internal Revenue Service Form
W-8, as the case may be, properly completed and duly executed by
such Lender, together with any other certificate or statement of
exemption required in order to confirm or establish that such Lender
is not subject to deduction or withholding of United States federal
income tax with respect to payments to such Lender under the Loan
Documents or (2) promptly notify Agent and Company of its inability
to deliver any such forms, certificates or other evidence.
(c) Company shall not be required to pay any additional
amount to any Non-US Lender under clause (c) of subsection 2.7B(ii)
if such Lender shall have failed to satisfy the requirements of
subsection 2.7B(iii) (a); provided that if such Lender shall have
--------
satisfied such requirements on the Closing Date (in the case of each
Lender listed on the signature pages hereof) or on the date of the
Assignment Agreement pursuant to which it became a Lender (in the
case of each other Lender), nothing in this subsection 2.7B(iii)(c)
shall relieve Company of its obligation to pay any additional
amounts pursuant to clause (c)
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of subsection 2.7B(ii) in the event that, as a result of any change
after the date of such satisfaction in any applicable law, treaty or
governmental rule, regulation or order, or any change after the date
of such satisfaction in the interpretation, administration or
application thereof, such Lender is no longer properly entitled to
deliver forms, certificates or other evidence at a subsequent date
establishing the fact that such Lender is not subject to withholding
as described in subsection 2.7B(iii)(a).
C. CAPITAL ADEQUACY ADJUSTMENT. If any Lender shall have determined
that the adoption, effectiveness, phase-in or applicability after the date
hereof of any law, rule or regulation (or any provision thereof) regarding
capital adequacy, or after the date hereof, any change therein or in the
interpretation or administration thereof by any governmental authority, central
bank, the NAIC or comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender (or its applicable lending
office) with any guideline, request or directive regarding capital adequacy
(whether or not having the force of law) of any such governmental authority,
central bank, the NAIC or comparable agency, has or would have the effect of
reducing the rate of return on the capital of such Lender or any corporation
controlling such Lender as a consequence of, or with reference to, such Lender's
Loans or Commitments or Letters of Credit or participations therein or other
obligations hereunder with respect to the Loans or the Letters of Credit to a
level below that which such Lender or such controlling corporation could have
achieved but for such adoption, effectiveness, phase-in, applicability, change
or compliance (taking into consideration the policies of such Lender or such
controlling corporation with regard to capital adequacy), then from time to
time, within five Business Days after receipt by Company from such Lender of the
statement referred to in the next sentence, Company shall pay to such Lender
such additional amount or amounts as will compensate such Lender or such
controlling corporation on an after-tax basis for such reduction; provided that
--------
a Lender shall not be entitled to avail itself of the benefit of this subsection
2.7C to the extent that any such reduction in return was incurred more than one
year prior to the time it gives notice to Company (as provided in the next
sentence) of the relevant circumstance, unless such circumstance arose or became
applicable retrospectively, in which case such Lender shall not be limited to
such one year period so long as such Lender has given such notice to Company no
later than one year from the time such circumstance became applicable to such
Lender. Such Lender shall deliver to Company (with a copy to Agent) a written
statement, setting forth in reasonable detail the basis of the calculation of
such additional amounts, which statement shall be conclusive and binding upon
all parties hereto absent manifest error.
2.8 OBLIGATION OF LENDERS AND ISSUING LENDERS TO MITIGATE.
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Each Lender and Issuing Lender agrees that, as promptly as
practicable after the officer of such Lender or Issuing Lender responsible for
administering the Loans or Letters of Credit of such Lender or Issuing Lender,
as the case may be, becomes aware of the occurrence of an event or the existence
of a condition that would cause such Lender to become an Affected Lender or that
would entitle such Lender or Issuing Lender to receive
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payments under subsection 2.7 or subsection 3.6, it will, to the extent not
inconsistent with the internal policies of such Lender or Issuing Lender and any
applicable legal or regulatory restrictions, use reasonable efforts (i) to make,
issue, fund or maintain the Commitments of such Lender or the affected Loans or
Letters of Credit of such Lender or Issuing Lender through another lending or
letter of credit office of such Lender or Issuing Lender, or (ii) take such
other measures as such Lender or Issuing Lender may deem reasonable, if as a
result thereof the circumstances which would cause such Lender to be an Affected
Lender would cease to exist or the additional amounts which would otherwise be
required to be paid to such Lender or Issuing Lender pursuant to subsection 2.7
or subsection 3.6 would be materially reduced and if, asdetermined by such
Lender or Issuing Lender in its sole discretion, the making, issuing, funding or
maintaining of such Commitments or Loans or Letters of Credit through such other
lending or letter of credit office or in accordance with such other measures, as
the case may be, would not otherwise materially adversely affect such
Commitments or Loans or Letters of Credit or the interests of such Lender or
Issuing Lender; provided that such Lender or Issuing Lender will not be
--------
obligated to utilize such other lending or letter of credit office pursuant to
this subsection 2.8 unless Company agrees to pay all incremental expenses
incurred by such Lender or Issuing Lender as a result of utilizing such other
lending or letter of credit office as described in clause (i) above. A
certificate as to the amount of any such expenses payable by Company pursuant to
this subsection 2.8 (setting forth in reasonable detail the basis for requesting
such amount) submitted by such Lender or Issuing Lender to Company (with a copy
to Agent) shall be conclusive absent manifest error.
2.9 REPLACEMENT OF LENDER.
---------------------
In the event that Company receives a notice pursuant to subsection
2.7A, 2.7C or 3.6 or in the event of a refusal by a Lender to consent to a
proposed change, waiver, discharge or termination with respect to this Agreement
which has been approved by the Requisite Lenders as provided in subsection 10.6,
Company shall have the right, if no Potential Event of Default or Event of
Default then exists, to replace such Lender (a "REPLACED LENDER") with one or
more Eligible Assignees (collectively, the "REPLACEMENT LENDER") acceptable to
Agent, provided that (i) at the time of any replacement pursuant to this
--------
subsection 2.9 the Replacement Lender shall enter into one or more Assignment
Agreements pursuant to subsection 10.1B (and with all fees payable pursuant to
such subsection 10.1B to be paid by the Replacement Lender) pursuant to which
the Replacement Lender shall acquire all of the outstanding Loans and
Commitments of, and in each case participations in Letters of Credit by, the
Replaced Lender and, in connection therewith, shall pay to (x) the Replaced
Lender in respect thereof an amount equal to the sum of (A) an amount equal to
the principal of, and all accrued interest on, all outstanding Loans of the
Replaced Lender, (B) an amount equal to all unpaid drawings with respect to
Letters of Credit that have been funded by (and not reimbursed to) such Replaced
Lender, together with all then unpaid interest with respect thereto at such time
and (C) an amount equal to all accrued, but theretofore unpaid, fees owing to
the Replaced Lender with respect thereto, (y) the appropriate Issuing Lender an
amount equal to such Replaced Lender's Pro Rata Share of any unpaid drawings
with respect to Letters of Credit (which at such time remains an unpaid
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drawing) issued by it to the extent such amount was not theretofore funded by
such Replaced Lender, and (z) Swing Line Lender an amount equal to such Replaced
Lender's Pro Rata Share of any Refunded Swing Line Loans to the extent such
amount was not theretofore funded by such Replaced Lender, and (ii) all
obligations (including without limitation all such amounts, if any, owing under
subsection 2.6D) of Company owing to the Replaced Lender (other than those
specifically described in clause (i) above in respect of which the assignment
purchase price has been, or is concurrently being, paid), shall be paid in full
to such Replaced Lender concurrently with such replacement. Upon the execution
of the respective Assignment Agreements, recordation of such assignment in the
Register by Agent pursuant to subsection 2.1D, the payment of amounts referred
to in clauses (i) and (ii) above and, if so requested by the Replacement Lender,
delivery to the Replacement Lender of the appropriate Note or Notes executed by
Company, the Replacement Lender shall become a Lender hereunder and the Replaced
Lender shall cease to constitute a Lender hereunder except with respect to
indemnification provisions under this Agreement which by the terms of this
Agreement survive the termination of this Agreement, which indemnification
provisions shall survive as to such Replaced Lender. Notwithstanding anything to
the contrary contained above, no Issuing Lender may be replaced hereunder at any
time while it has Letters of Credit outstanding hereunder unless arrangements
satisfactory to such Issuing Lender (including the furnishing of a Standby
Letter of Credit in form and substance, and issued by an issuer satisfactory to
such Issuing Lender or the furnishing of cash collateral in amounts and pursuant
to arrangements satisfactory to such Issuing Lender) have been made with respect
to such outstanding Letters of Credit.
SECTION 3. LETTERS OF CREDIT
3.1 ISSUANCE OF LETTERS OF CREDIT AND REVOLVING LENDERS' PURCHASE OF
----------------------------------------------------------------
PARTICIPATIONS THEREIN.
----------------------
A. LETTERS OF CREDIT. In addition to Company requesting that Revolving
Lenders make Revolving Loans pursuant to subsection 2.1A(v) and that Swing Line
Lender make Swing Line Loans pursuant to subsection 2.1A(vi), Company may
request, in accordance with the provisions of this subsection 3.1, from time to
time during the period from the Closing Date to but excluding the Revolving Loan
Commitment Termination Date, that one or more Revolving Lenders issue Letters of
Credit for the account of Company or any wholly-owned Subsidiary of Company for
the purposes specified in the definitions of Commercial Letters of Credit and
Standby Letters of Credit; provided, that if any such Letter of Credit is issued
--------
for the account of any such Subsidiary, Company shall execute jointly with such
Subsidiary all letter of credit documentation (including, without limitation,
letter of credit application) as may be required by the applicable Issuing
Lender. Subject to the terms and conditions of this Agreement and in reliance
upon the representations and warranties of Company herein set forth, any one or
more Revolving Lenders may, but (except as provided in subsection 3.1B(ii))
shall not be obligated to, issue such Letters of Credit in accordance with the
provisions of this subsection 3.1; provided that Company shall not request that
--------
any Revolving Lender issue (and no Revolving Lender shall issue):
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(i) any Letter of Credit if, after giving effect to such
issuance, the Total Utilization of Revolving Loan Commitments would
exceed the Revolving Loan Commitments then in effect;
(ii) any Letter of Credit if, after giving effect to such
issuance, the Letter of Credit Usage would exceed $75,000,000;
(iii) any Standby Letter of Credit having an expiration date later
than the earlier of (a) the date which is 30 days prior to the Revolving
Loan Commitment Termination Date and (b) the date which is one year from
the date of issuance of such Standby Letter of Credit; provided that the
--------
immediately preceding clause (b) shall not prevent any Issuing
Lender from agreeing that a Standby Letter of Credit will automatically
be extended for one or more successive periods not to exceed one year
each unless such Issuing Lender elects not to extend for any such
additional period; provided, further that such Issuing Lender shall
-------- -------
deliver a written notice to Agent setting forth the last day on which
such Issuing Lender may give notice that it will not extend such Standby
Letter of Credit (the "NOTIFICATION DATE" with respect to such Standby
Letter of Credit) at least ten Business Days prior to such Notification
Date; and provided, further that such Issuing Lender shall give notice
-------- -------
that it will not extend such Standby Letter of Credit if it has knowledge
that an Event of Default has occurred and is continuing on such
Notification Date, unless such Event of Default has been waived in
accordance with subsection 10.6;
(iv) any Commercial Letter of Credit having an expiration date
(a) later than the earlier of (X) the date which is 30 days prior to the
Revolving Loan Commitment Termination Date and (Y) the date which is 180
days from the date of issuance of such Commercial Letter of Credit or (b)
that is otherwise unacceptable to the applicable Issuing Lender in its
reasonable discretion; or
(v) any Letter of Credit denominated in a currency other than
Dollars.
B. MECHANICS OF ISSUANCE.
(i) Notice of Issuance. Whenever Company desires the issuance of
------------------
a Letter of Credit, it shall deliver to the proposed Issuing Lender (with
copy to Agent if Agent is not the proposed Issuing Lender) a Notice of
Issuance of Letter of Credit substantially in the form of Exhibit III
-----------
annexed hereto no later than 1:00 P.M. (New York City time) at least five
Business Days (or such shorter period as may be agreed to by the Issuing
Lender in any particular instance), in advance of the proposed date of
issuance. The Notice of Issuance of Letter of Credit shall specify (a)
the Revolving Lender requested to issue the Letter of Credit, (b) the
proposed date of issuance (which shall be a Business Day), (c) the face
amount of the Letter of Credit, (d) the expiration date of the Letter of
Credit, (e) the name and address of the beneficiary, (f) if such Letter
of Credit is proposed to be issued for the account of a wholly-owned
Subsidiary
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of Company, the name of such Subsidiary, and (g) the verbatim text of the
proposed Letter of Credit or the proposed terms and conditions thereof,
including a precise description of any documents to be presented by the
beneficiary which, if presented by the beneficiary prior to the
expiration date of the Letter of Credit, would require the Issuing Lender
to make payment under the Letter of Credit; provided that the Issuing
--------
Lender, in its reasonable discretion, may require changes in the text of
the proposed Letter of Credit or any such documents; and provided,
--------
further that no Letter of Credit shall require payment against
-------
a conforming draft to be made thereunder on the same business day (under
the laws of the jurisdiction in which the office of the Issuing Lender to
which such draft is required to be presented is located) that such draft
is presented if such presentation is made after 10:00 A.M. (in the time
zone of such office of the Issuing Lender) on such business day.
Company shall notify the applicable Issuing Lender (and
Agent, if Agent is not such Issuing Lender) prior to the issuance of any
Letter of Credit in the event that any of the matters to which Company is
required to certify in the applicable Notice of Issuance of Letter of
Credit is no longer true and correct as of the proposed date of issuance
of such Letter of Credit, and upon the issuance of any Letter of Credit
Company shall be deemed to have re-certified, as of the date of such
issuance, as to the matters to which Company is required to certify in
the applicable Notice of Issuance of Letter of Credit.
(ii) Determination of Issuing Lender. Upon receipt by a proposed
Issuing Lender of a Notice of Issuance of Letter of Credit pursuant to
subsection 3.1B(i) requesting the issuance of a Letter of Credit, (a) in
the event Agent is the proposed Issuing Lender, (1) if Agent elects to
issue such Letter of Credit, Agent shall promptly so notify Company, and
Agent shall be the Issuing Lender with respect thereto and (2) if Agent,
in its sole discretion, elects not to issue such Letter of Credit, Agent
shall promptly so notify Company, whereupon Company may request any
Arranger or Co-Agent to issue such Letter of Credit by delivering to such
Arranger or such Co-Agent a copy of the applicable Notice of Issuance of
Letter of Credit and the Arranger or Co-Agent so requested to issue such
Letter of Credit shall promptly notify Company and Agent whether or not,
in its sole discretion, it has elected to issue such Letter of Credit,
and any such Arranger or Co-Agent which so elects to issue such Letter of
Credit shall be the Issuing Lender with respect thereto; provided that in
--------
the event that all Arrangers and all Co-Agents shall have declined
to issue such Letter of Credit, notwithstanding the prior election of
Agent not to issue such Letter of Credit, Agent shall be obligated to
issue such Letter of Credit and shall be the Issuing Lender with respect
thereto, notwithstanding the fact that the Letter of Credit Usage with
respect to such Letter of Credit and with respect to all other Letters of
Credit issued by Agent, when aggregated with Agent's outstanding
Revolving Loans and Swing Line Loans, may exceed Agent's Revolving Loan
Commitment then in effect; and (b) in the event any other Revolving
Lender is the proposed Issuing Lender, such Revolving Lender shall
promptly notify Company and Agent whether or not, in its sole discretion,
it has
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elected to issue such Letter of Credit, and (1) if such Revolving Lender
so elects to issue such Letter of Credit, it shall be the Issuing Lender
with respect thereto and (2) if such Revolving Lender fails to so
promptly notify Company and Agent or declines to issue such Letter of
Credit, Company may request Agent or another Revolving Lender to be the
Issuing Lender with respect to such Letter of Credit in accordance with
the provisions of this subsection 3.1B.
(iii) Issuance of Letter of Credit. Upon satisfaction or waiver
----------------------------
(in accordance with subsection 10.6) of the conditions set forth in
subsection 4.3, the Issuing Lender shall issue the requested Letter of
Credit in accordance with the Issuing Lender's standard operating
procedures.
(iv) Notification to Revolving Lenders. Upon the issuance of any
---------------------------------
Letter of Credit the applicable Issuing Lender shall promptly notify
Agent and each other Revolving Lender of such issuance, which notice
shall be accompanied by a copy of such Letter of Credit. Promptly after
receipt of such notice (or, if Agent is the Issuing Lender, together with
such notice), Agent shall notify each Revolving Lender of the amount of
such Revolving Lender's respective participation in such Letter of
Credit, determined in accordance with subsection 3.1C.
(v) Reports to Revolving Lenders. Within 15 days after the end
----------------------------
of each calendar quarter ending after the Closing Date, so long as any
Letter of Credit shall have been outstanding during such calendar
quarter, each Issuing Lender shall deliver to Agent, for distribution to
each other Revolving Lender, a report setting forth the daily maximum
amount available to be drawn under the Letters of Credit issued by such
Issuing Lender that were outstanding during such calendar quarter.
C. REVOLVING LENDERS' PURCHASE OF PARTICIPATIONS IN LETTERS OF CREDIT.
Immediately upon the issuance of each Letter of Credit, each Revolving Lender
shall be deemed to, and hereby agrees to, have irrevocably purchased from the
Issuing Lender a participation in such Letter of Credit and any drawings
thereunder in an amount equal to such Revolving Lender's Pro Rata Share of the
maximum amount which is or at any time may become available to be drawn
thereunder. Upon satisfaction of the conditions set forth in subsection 4.1,
the Existing Letters of Credit shall, effective as of the Closing Date, become
Letters of Credit under this Agreement to the same extent as if initially issued
hereunder and each Revolving Lender shall be deemed to have irrevocably
purchased from the Issuing Lender of such Existing Letters of Credit a
participation in such Letters of Credit and drawings thereunder in an amount
equal to such Revolving Lender's Pro Rata Share of the maximum amount which is
or at any time may become available to be drawn thereunder. All such Existing
Letters of Credit which become Letters of Credit under this Agreement shall be
fully secured by the Collateral commencing on the Closing Date to the same
extent as if initially issued hereunder on such date.
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3.2 LETTER OF CREDIT FEES.
---------------------
Company agrees to pay the following amounts with respect to Letters
of Credit:
(i) with respect to each Standby Letter of Credit, (a) to the
applicable Issuing Lender, a fronting fee equal to 0.25% per annum of the
daily maximum amount available to be drawn under such Standby Letter of
Credit, but in any event not less than $500 per year per Standby Letter
of Credit and (b) to Agent, a letter of credit fee equal to (x) the
Applicable Eurodollar Margin minus the Commitment Fee Percentage
-----
multiplied by (y) the daily maximum amount available to be drawn under
---------- --
such Standby Letter of Credit, in each case payable in arrears on and to
(but excluding) each February 1, May 1, August 1 and November 1 of each
year and computed on the basis of a 360-day year for the actual number of
days elapsed;
(ii) with respect to each Commercial Letter of Credit, (a) to the
applicable Issuing Lender, a fronting fee equal to 0.25% per annum of the
daily maximum amount available to be drawn under such Commercial Letter
of Credit, but in any event not less than $500 per year per Commercial
Letter of Credit and (b) to Agent, a letter of credit fee equal to (x)
the Applicable Eurodollar Margin minus the sum of (A) 1.0% per annum and
-----
(B) the Commitment Fee Percentage multiplied by (y) the daily maximum
---------- --
amount available to be drawn under such Commercial Letter of Credit, in
each case payable in arrears on and to (but excluding) each February 1,
May 1, August 1 and November 1 of each year and computed on the basis of
a 360-day year for the actual number of days elapsed; and
(iii) to the applicable Issuing Lender, with respect to the
issuance, amendment, assignment or transfer of each Letter of Credit and
each drawing made thereunder (without duplication of the fees payable
under clauses (i) and (ii) above), documentary and processing charges in
accordance with such Issuing Lender's standard schedule for such charges
in effect at the time of such issuance, amendment, assignment, transfer
or payment, as the case may be.
Promptly upon receipt by Agent of any amount described in clause (i)(b) or
(ii)(b) of this subsection 3.2, Agent shall distribute to each Revolving Lender
its Pro Rata Share of such amount. With respect to Existing Letters of Credit,
the fees described in clauses (i) and (ii) above shall accrue from and including
the Closing Date.
3.3 DRAWINGS AND REIMBURSEMENT OF AMOUNTS PAID UNDER LETTERS OF CREDIT.
------------------------------------------------------------------
A. RESPONSIBILITY OF ISSUING LENDER WITH RESPECT TO DRAWINGS. In
determining whether to honor any drawing under any Letter of Credit by the
beneficiary thereof, the Issuing Lender shall be responsible only to determine
that the documents and certificates required to be delivered under such Letter
of Credit have been delivered and that they comply on their face with the
requirements of such Letter of Credit.
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B. REIMBURSEMENT BY COMPANY OF AMOUNTS PAID UNDER LETTERS OF CREDIT.
In the event an Issuing Lender has determined to honor a drawing under a Letter
of Credit issued by it, such Issuing Lender shall immediately notify Company and
Agent, and Company shall reimburse such Issuing Lender on or before the date on
which such drawing is honored (the "REIMBURSEMENT DATE") in an amount in Dollars
and in same day funds equal to the amount of such drawing (whether or not
Company is the account party under such Letter of Credit); provided that,
--------
anything contained in this Agreement to the contrary notwithstanding, (i) unless
Company shall have notified Agent and such Issuing Lender prior to 12:00 Noon
(New York City time) on the date of such drawing that Company intends to
reimburse such Issuing Lender for the amount of such drawing with funds other
than the proceeds of Revolving Loans, Company shall be deemed to have given a
timely Notice of Borrowing (it being understood, however, that such deemed
Notice of Borrowing shall not be deemed to be a representation of Company that
the representations and warranties contained in the Loan Documents are true,
correct and complete in all material respects on and as of the date of such
deemed Notice of Borrowing) to Agent requesting Revolving Lenders to make
Revolving Loans that are Base Rate Loans on the Reimbursement Date in an amount
in Dollars equal to the amount of such drawing and (ii) subject to satisfaction
or waiver of the conditions specified in subsection 4.2B, Revolving Lenders
shall, on the Reimbursement Date, make Revolving Loans that are Base Rate Loans
in the amount of such drawing, the proceeds of which shall be applied directly
by Agent to reimburse such Issuing Lender for the amount of such drawing; and
provided, further that if for any reason proceeds of Revolving Loans are not
- -------- -------
received by such Issuing Lender on the Reimbursement Date in an amount equal to
the amount of such drawing, Company shall reimburse such Issuing Lender, on
demand, in an amount in same day funds equal to the excess of the amount of such
drawing over the aggregate amount of such Revolving Loans, if any, which are so
received. Nothing in this subsection 3.3B shall be deemed to relieve any
Revolving Lender from its obligation to make Revolving Loans on the terms and
conditions set forth in this Agreement, and Company shall retain any and all
rights it may have against any Revolving Lender resulting from the failure of
such Revolving Lender to make such Revolving Loans under this subsection 3.3B.
C. PAYMENT BY REVOLVING LENDERS OF UNREIMBURSED DRAWINGS UNDER LETTERS
OF CREDIT.
(i) Payment by Revolving Lenders. In the event that Company
----------------------------
shall fail for any reason to reimburse any Issuing Lender as provided in
subsection 3.3B in an amount equal to the amount of any drawing honored
by such Issuing Lender under a Letter of Credit issued by it, such
Issuing Lender shall promptly notify each other Revolving Lender of the
unreimbursed amount of such drawing and of such other Revolving Lender's
respective participation therein based on such Revolving Lender's Pro
Rata Share. Each Revolving Lender shall make available to such Issuing
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Lender an amount equal to its respective participation, in Dollars and in
same day funds, at the office of such Issuing Lender specified in such
notice, not later than 1:00 P.M. (New York City time) on the first
business day (under the laws of the jurisdiction in which such office of
such Issuing Lender is located) after the date notified by such Issuing
Lender. In the event that any Revolving Lender fails to make available to
such Issuing Lender on such business day the amount of such Revolving
Lender's participation in such Letter of Credit as provided in this
subsection 3.3C, such Issuing Lender shall be entitled to recover such
amount on demand from such Revolving Lender together with interest
thereon at the rate customarily used by such Issuing Lender for the
correction of errors among banks for three Business Days and thereafter
at the Base Rate. Nothing in this subsection 3.3C shall be deemed to
prejudice the right of any Revolving Lender to recover from any Issuing
Lender any amounts made available by such Revolving Lender to such
Issuing Lender pursuant to this subsection 3.3C in the event that it is
determined by the final judgment of a court of competent jurisdiction
that the payment with respect to a Letter of Credit by such Issuing
Lender in respect of which payment was made by such Revolving Lender
constituted gross negligence or willful misconduct on the part of such
Issuing Lender.
(ii) Distribution to Revolving Lenders of Reimbursements Received
------------------------------------------------------------
From Company. In the event any Issuing Lender shall have been reimbursed
------------
by other Revolving Lenders pursuant to subsection 3.3C(i) for all or any
portion of any drawing honored by such Issuing Lender under a Letter of
Credit issued by it, such Issuing Lender shall distribute to each other
Revolving Lender which has paid all amounts payable by it under
subsection 3.3C(i) with respect to such drawing such other Revolving
Lender's Pro Rata Share of all payments subsequently received by such
Issuing Lender from Company in reimbursement of such drawing when such
payments are received. Any such distribution shall be made to a Revolving
Lender at its primary address set forth below its name on the appropriate
signature page hereof or at such other address as such Revolving Lender
may request.
D. INTEREST ON AMOUNTS DRAWN UNDER LETTERS OF CREDIT.
(i) Payment of Interest by Company. Company agrees to pay to
------------------------------
each Issuing Lender, with respect to drawings made under any Letters of
Credit issued by it (whether or not Company is the account party
thereunder), interest on the amount paid by such Issuing Lender in
respect of each such drawing from the date of such drawing to but
excluding the date such amount is reimbursed by Company (including any
such reimbursement out of the proceeds of Revolving Loans pursuant to
subsection 3.3B) at a rate equal to (a) for the period from the date of
such drawing to but excluding the Reimbursement Date, the rate then in
effect under this Agreement with respect to Revolving Loans that are Base
Rate Loans and (b) thereafter, a rate which is 2% per annum in excess of
the rate of interest otherwise payable under this Agreement with respect
to Revolving Loans that are Base Rate Loans. Interest payable pursuant to
this subsection 3.3D(i) shall be computed on the basis of a 360-day year
for the actual number of days elapsed in the period during which it
accrues and shall be payable on demand or, if no demand is made, on the
date on which the related drawing under a Letter of Credit is reimbursed
in full.
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(ii) Distribution of Interest Payments by Issuing Lender.
---------------------------------------------------
Promptly upon receipt by any Issuing Lender of any payment of interest
pursuant to subsection 3.3D(i) with respect to a drawing under a Letter
of Credit issued by it, (a) such Issuing Lender shall distribute to each
other Revolving Lender, out of the interest received by such Issuing
Lender in respect of the period from the date of such drawing to but
excluding the date on which such Issuing Lender is reimbursed for the
amount of such drawing (including any such reimbursement out of the
proceeds of Revolving Loans pursuant to subsection 3.3B), the amount that
such other Revolving Lender would have been entitled to receive in
respect of the letter of credit fee that would have been payable in
respect of such Letter of Credit for such period pursuant to subsection
3.2 if no drawing had been made under such Letter of Credit, and (b) in
the event such Issuing Lender shall have been reimbursed by other
Revolving Lenders pursuant to subsection 3.3C(i) for all or any portion
of such drawing, such Issuing Lender shall distribute to each other
Revolving Lender which has paid all amounts payable by it under
subsection 3.3C(i) with respect to such drawing such other Revolving
Lender's Pro Rata Share of any interest received by such Issuing Lender
in respect of that portion of such drawing so reimbursed by other
Revolving Lenders for the period from the date on which such Issuing
Lender was so reimbursed by other Revolving Lenders to but excluding the
date on which such portion of such drawing is reimbursed by Company. Any
such distribution shall be made to a Revolving Lender at its primary
address set forth below its name on the appropriate signature page hereof
or at such other address as such Revolving Lender may request.
3.4 OBLIGATIONS ABSOLUTE.
--------------------
The obligation of Company to reimburse each Issuing Lender for
drawings made under the Letters of Credit issued by it (whether or not Company
is the account party thereunder) and to repay any Revolving Loans made by
Revolving Lenders pursuant to subsection 3.3B and the obligations of Revolving
Lenders under subsection 3.3C(i) shall be unconditional and irrevocable and
shall be paid strictly in accordance with the terms of this Agreement under all
circumstances including, without limitation, any of the following circumstances:
(i) any lack of validity or enforceability of any Letter of
Credit;
(ii) the existence of any claim, set-off, defense or other right
which Company, any Subsidiary that is an account party thereunder or any
Revolving Lender may have at any time against a beneficiary or any
transferee of any Letter of Credit (or any Persons for whom any such
transferee may be acting), any Issuing Lender or other Revolving Lender
or any other Person or, in the case of a Revolving Lender, against
Company or any Subsidiary that is an account party under a Letter of
Credit, whether in connection with this Agreement, the transactions
contemplated herein or any unrelated transaction (including any
underlying transaction between Company or one of
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its Subsidiaries and the beneficiary for which any Letter of Credit was
procured) other than the defense of payment in accordance with the terms
of this Agreement;
(iii) any draft, demand, certificate or other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) payment to the beneficiary of such Letter of Credit by the
applicable Issuing Lender under any Letter of Credit against presentation
of a draft, demand, certificate or other document which does not comply
with the terms of such Letter of Credit;
(v) any adverse change in the business, operations, properties,
assets, condition (financial or otherwise) or prospects of Company or any
of its Subsidiaries;
(vi) any breach of this Agreement or any other Loan Document by
any party thereto (other than a breach by the applicable Issuing Lender
relating to the Letter of Credit in question);
(vii) any other circumstance or happening whatsoever, whether or
not similar to any of the foregoing; or
(viii) the fact that an Event of Default or a Potential Event of
Default shall have occurred and be continuing;
provided, in each case, that payment by the applicable Issuing Lender under the
- --------
applicable Letter of Credit shall not have constituted gross negligence or
willful misconduct of such Issuing Lender under the circumstances in question
(as determined by a final judgment of a court of competent jurisdiction).
3.5 INDEMNIFICATION; NATURE OF ISSUING LENDERS' DUTIES.
--------------------------------------------------
A. INDEMNIFICATION. In addition to amounts payable as provided in
subsection 3.6, Company hereby agrees to protect, indemnify, pay and save
harmless each Issuing Lender from and against any and all claims, demands,
liabilities, damages, losses, costs, charges and expenses (including reasonable
fees, expenses and disbursements of counsel and of internal counsel) which such
Issuing Lender may incur or be subject to as a consequence, direct or indirect,
of (i) the issuance of any Letter of Credit by such Issuing Lender, other than
as a result of (a) the gross negligence or willful misconduct of such Issuing
Lender as determined by a final judgment of a court of competent jurisdiction or
(b) subject to the following clause (ii), the wrongful dishonor by such Issuing
Lender of a proper demand for payment made under any Letter of Credit issued by
it or (ii) the failure of such Issuing Lender to honor a drawing under any such
Letter of Credit as a result of any act or omission, whether rightful or
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wrongful, of any present or future de jure or de facto government or
governmental authority (all such acts or omissions herein called "GOVERNMENTAL
ACTS").
B. NATURE OF ISSUING LENDERS' DUTIES. As between Company and any
Issuing Lender, Company assumes all risks of the acts and omissions of, or
misuse of the Letters of Credit issued by such Issuing Lender, by the respective
beneficiaries of such Letters of Credit. In furtherance and not in limitation of
the foregoing, such Issuing Lender shall not be responsible for: (i) the form,
validity, sufficiency, accuracy, genuineness or legal effect of any document
submitted by any party in connection with the application for and issuance of
any such Letter of Credit, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged; (ii) the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign any such Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, which may prove to
be invalid or ineffective for any reason; (iii) failure of the beneficiary of
any such Letter of Credit to comply fully with any conditions required in order
to draw upon such Letter of Credit; (iv) errors, omissions, interruptions or
delays in transmission or delivery of any messages, by mail, cable, telegraph,
telex or otherwise, whether or not they are in cipher; (v) errors in
interpretation of technical terms; (vi) any loss or delay in the transmission or
otherwise of any document required in order to make a drawing under any such
Letter of Credit or of the proceeds thereof; (vii) the misapplication by the
beneficiary of any such Letter of Credit of the proceeds of any drawing under
such Letter of Credit; or (viii) any consequences arising from causes beyond the
control of such Issuing Lender, including without limitation any Govern mental
Acts, and none of the above shall affect or impair, or prevent the vesting of,
any of such Issuing Lender's rights or powers hereunder.
In furtherance and extension and not in limitation of the specific
provisions set forth in the first paragraph of this subsection 3.5B, any action
taken or omitted by any Issuing Lender under or in connection with the Letters
of Credit issued by it or any documents and certificates delivered thereunder,
if taken or omitted in good faith, shall not put such Issuing Lender under any
resulting liability to Company.
Notwithstanding anything to the contrary contained in this
subsection 3.5, Company shall retain any and all rights it may have against any
Issuing Lender for any liability directly attributable to the gross negligence
or willful misconduct of such Issuing Lender or to the wrongful dishonor by any
Issuing Lender of a proper demand for payment made under any Letter of Credit
issued by it, in each case, as determined by a final judgment of a court of
competent jurisdiction.
3.6 INCREASED COSTS AND TAXES RELATING TO LETTERS OF CREDIT.
-------------------------------------------------------
In the event that any Issuing Lender or any Revolving Lender shall
determine (which determination shall, absent manifest error, be final and
conclusive and binding upon all parties hereto) that any law, treaty or
governmental rule, regulation or order, or any change therein or in the
interpretation, administration or application thereof (including the
introduction
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of any new law, treaty or governmental rule, regulation or order), or any
determination of a court or governmental authority, in each case that becomes
effective after the date hereof (other than any change in such law, treaty or
governmental rule, regulation or order which was promulgated prior to the date
hereof and which becomes effective in accordance with its terms after the date
hereof), or compliance by any Issuing Lender or any Revolving Lender with any
guideline, request or directive issued or made after the date hereof by any
central bank or other governmental or quasi-governmental authority (whether or
not having the force of law):
(i) subjects such Issuing Lender or such Revolving Lender (or
its applicable lending or letter of credit office) to any additional Tax
(other than any Tax on the overall net income of such Issuing Lender or
Revolving Lender) with respect to the issuing or maintaining of any
Letters of Credit or the purchasing or maintaining of any participations
therein or any other obligations under this Section 3, whether directly
or by such being imposed on or suffered by any particular Issuing Lender;
(ii) imposes, modifies or holds applicable any reserve (including
without limitation any marginal, emergency, supplemental, special or
other reserve), special deposit, compulsory loan, FDIC insurance or
similar requirement in respect of any Letters of Credit issued by any
Issuing Lender or participations therein purchased by any Revolving
Lender; or
(iii) imposes any other condition (other than with respect to a
Tax matter) on or affecting such Issuing Lender or such Revolving Lender
(or its applicable lending or letter of credit office) regarding this
Section 3 or any Letter of Credit or any participation therein;
and the result of any of the foregoing is to increase the cost to such Issuing
Lender or such Revolving Lender of agreeing to issue, issuing or maintaining any
Letter of Credit or agreeing to purchase, purchasing or maintaining any
participation therein or to reduce any amount received or receivable by such
Issuing Lender or Revolving Lender (or its applicable lending or letter of
credit office) with respect thereto; then, in any case, Company shall promptly
pay to such Issuing Lender or Revolving Lender, upon receipt of the statement
referred to in the next sentence, such additional amount or amounts as may be
necessary to compensate such Issuing Lender or Revolving Lender for any such
increased cost or reduction in amounts received or receivable hereunder;
provided that a Revolving Lender shall not be entitled to avail itself of the
- --------
benefit of this subsection 3.6 to the extent that any such increased cost or
reduction in amounts was incurred more than one year prior to the time it gives
notice to Company (as provided in the next sentence) of the relevant
circumstance, unless such circumstance arose or became applicable
retrospectively, in which case such Revolving Lender shall not be limited to
such one year period so long as such Revolving Lender has given such notice to
Company no later than one year from the time such circumstance became applicable
to such Revolving Lender. Such Issuing Lender or Revolving Lender shall deliver
to Company a written statement, setting forth in reasonable detail the basis for
calculating the
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additional amounts owed to such Issuing Lender or Revolving Lender under this
subsection 3.6, which statement shall be conclusive and binding upon all parties
hereto absent manifest error.
SECTION 4. CONDITIONS TO LOANS AND LETTERS OF CREDIT
The obligations of Lenders to make Loans and the issuance of Letters
of Credit hereunder are subject to the satisfaction of the following conditions.
4.1 CONDITIONS TO TERM LOANS AND INITIAL REVOLVING LOANS AND SWING LINE
-------------------------------------------------------------------
LOANS.
- -----
The obligations of Lenders to make the Term Loans and any Revolving
Loans and Swing Line Loans to be made on the Closing Date are, in addition to
the conditions precedent specified in subsection 4.2, subject to prior or
concurrent satisfaction of the following conditions:
A. LOAN PARTY DOCUMENTS. On or before the Closing Date, Company shall,
and shall cause each other Loan Party to, deliver to Lenders (or to Agent for
Lenders with sufficient originally executed copies, where appropriate, for each
Lender and its counsel) the following with respect to Company or such Loan
Party, as the case may be, each, unless otherwise noted, dated the Closing Date:
(i) Certified copies of the Certificate or Articles of
Incorporation of such Person, together with a good standing certificate
from the Secretary of State of its jurisdiction of incorporation and each
other state in which such Person is qualified as a foreign corporation to
do business and, to the extent generally available, a certificate or
other evidence of good standing as to payment of any applicable franchise
or similar taxes from the appropriate taxing authority of each of such
jurisdictions, each dated a recent date prior to the Closing Date;
(ii) Copies of the Bylaws of such Person, certified as of the
Closing Date by such Person's corporate secretary or an assistant
secretary;
(iii) Resolutions of the Board of Directors of such Person
approving and authorizing the execution, delivery and performance of the
Loan Documents and Related Agreements to which it is a party, and to the
extent applicable, approving and authorizing the Transactions and all
transactions related thereto, including without limitation the retirement
of Company's Class A Common Stock and Class B Common Stock repurchased in
the Equity Tender Offer, in each case certified as of the Closing Date by
the corporate secretary or an assistant secretary of such Person as being
in full force and effect without modification or amendment;
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(iv) Signature and incumbency certificates of the officers of
such Person executing the Loan Documents to which it is a party;
(v) Executed originals of the Loan Documents to which such
Person is a party; and
(vi) Such other documents as Agent may reasonably request.
B. NO MATERIAL ADVERSE EFFECT. Except as set forth in Schedule 4.1B
-------------
annexed hereto, since December 30, 1995, no Material Adverse Effect (in the sole
opinion of Agent) shall have occurred; and since July 30, 1995, no event or
change shall have occurred that has caused or evidences, either in any case or
in the aggregate, a material adverse effect (in the sole opinion of Agent) upon
the business, operations, properties, assets, conditions (financial or
otherwise) or prospects of Smitty's and its Subsidiaries, taken as a whole.
C. CORPORATE AND CAPITAL STRUCTURE, OWNERSHIP, MANAGEMENT, ETC.
(i) Corporate Structure. The organizational structure of its
-------------------
Subsidiaries, both before and after giving effect to the Acquisition and
the Merger, shall be as set forth on Schedule 5.1 annexed hereto and be
------------
satisfactory to Agent, Arrangers and Lenders.
(ii) Capital Structure and Ownership. The capital structure and
-------------------------------
ownership of Company, both before and after giving effect to the
Acquisition and the Merger, shall be as described in the Note Offering
Materials and be satisfactory to Agent, Arrangers and Lenders.
(iii) Management; Employment Contracts. The management structure
--------------------------------
of Company after giving effect to the Acquisition and the Merger, shall
be as described in the Note Offering Materials and be satisfactory to
Agent, Arrangers and Requisite Lenders, and Agent shall have received
copies of, and shall be satisfied with the form and substance of, any and
all written employment contracts with senior management of Company.
D. DEBT AND EQUITY CAPITALIZATION OF COMPANY.
(i) Class A Common Stock, Class B Common Stock and Class C
------------------------------------------------------
Common Stock. On or prior to the Closing Date, Company shall have
------------
authorized the Class C Common Stock, and such amendments to its Class A
Common Stock, Class B Common Stock and Redeemable Preferred Stock as are
necessary or desirable to permit the consummation of the Transactions,
shall have obtained the requisite approval of its shareholders thereto,
and shall have filed its Restated Articles of Incorporation with the
Secretary of State of the State of Delaware effecting such authorizations
and amendments, in each case as more particularly described in the
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<PAGE>
Proxy Statement. The terms of such Company's Class A Common Stock, Class
B Common Stock, Class C Common Stock and Redeemable Preferred Stock, as
amended on or prior to the Closing Date, shall be satisfactory to Agent
and Arrangers and its Restated Articles of Incorporation, as filed with
the Secretary of the State of Delaware, shall have been delivered to
Agent.
(ii) Equity Holdings by Yucaipa. Upon the consummation of the
--------------------------
Transactions, (1) the shareholders of Smitty's prior to the Acquisition,
including Yucaipa, shall collectively own and control, directly or
indirectly, not less than 3,038,888 shares of Company's Class B Common
Stock, and (2) Company shall have issued, and The Yucaipa Companies shall
have received, the Yucaipa Warrant. On or prior to the Closing Date,
Company shall have delivered to Agent an Officers' Certificate in form
and substance satisfactory to Agent setting forth in reasonable detail
the percentage of the issued and outstanding shares of each series of
Company's Common Stock beneficially owned and controlled, directly or
indirectly, by Yucaipa and the Yucaipa Investors collectively on the
Closing Date.
(iii) Redemption of Redeemable Preferred Stock. On or prior to the
----------------------------------------
Closing Date, Company shall have redeemed approximately 3,000,000 shares
of its Redeemable Preferred Stock for an aggregate redemption payment not
exceeding $1,000,000 in accordance with the provisions of Company's
Restated Articles of Incorporation. Company shall have delivered an
Officer's Certificate setting forth the aggregate amount paid therefor.
(iv) Issuance of Class B Common Stock to Yucaipa; Consummation
---------------------------------------------------------
of the Equity Tender Offer; Amendments to Options. On or prior to the
-------------------------------------------------
Closing Date, (1) Company shall have obtained the requisite approval of
the holders of its Class A Common Stock and Class B Common Stock
regarding (A) the Recapitalization and Merger Agreement and the
transactions contemplated thereby, including the issuance of 3,038,888
shares of its Class B Common Stock to the existing shareholders of
Smitty's as consideration for all of the outstanding stock of Smitty's in
connection with the Acquisition, and (B) the Amended and Restated
Certification of Incorporation of Company, and (2) Company shall have
purchased approximately 13,400,000 shares of Class A Common Stock and
Class B Common Stock, which shall represent approximately 50% of shares
of all Class A Common Stock and Class B Common Stock outstanding
(excluding shares of Class B Common Stock issued or issuable in
connection with the Acquisition but including certain Existing Management
Stock Options) pursuant to the Equity Tender Offer for an aggregate
purchase amount not exceeding $465,000,000.
(v) Senior Subordinated Notes. On or prior to the Closing Date,
-------------------------
Company shall have issued the Senior Subordinated Notes and shall have
received $575,000,000 in gross proceeds therefrom. The terms and
conditions of the Senior Subordinated Notes shall be substantially as
described in the Note Offering Materials and shall be
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satisfactory to Agent, Arrangers and Requisite Lenders; provided that the
--------
Senior Subordinated Notes shall be unsecured and shall not mature or
provide for any scheduled principal payments prior to the tenth
anniversary of the Closing Date; provided, further that the negative
-------- -------
covenants and default provisions shall be less restrictive than those
contained in this Agreement. Company shall have delivered to Agent a
fully executed or conformed copy of the Senior Subordinated Note
Indenture.
E. RELATED AGREEMENTS.
(i) Approval of Related Agreements. Each of the Related
------------------------------
Agreements shall be satisfactory in form and substance to Agent and
Arrangers.
(ii) Related Agreements in Full Force and Effect. Agent shall
-------------------------------------------
have received a fully executed or conformed copy of each Related
Agreement and any documents executed in connection therewith, and each
Related Agreement shall be in full force and effect and no provision
thereof shall have been modified or waived in any respect determined by
Agent to be material, in each case without the consent of Agent.
F. MATTERS RELATING TO EXISTING INDEBTEDNESS OF COMPANY, SMITTY'S AND
THEIR RESPECTIVE SUBSIDIARIES.
(i) Termination of Existing Company Credit Lines and Related
--------------------------------------------------------
Liens; Existing Letters of Credit. On the Closing Date, Company and its
---------------------------------
Subsidiaries shall have (a) repaid in full all Indebtedness outstanding
under the Existing Company Credit Lines (the aggregate principal amount
of such Indebtedness not to exceed $10,000,000), (b) terminated any
commitments to lend or make other extensions of credit thereunder, (c)
delivered to Agent all documents or instruments necessary to release all
Liens securing Indebtedness or other obligations of Company and its
Subsidiaries thereunder, and (d) other than with respect to any Existing
Letters of Credit, made arrangements satisfactory to Agent with respect
to the cancellation of any letters of credit outstanding thereunder or
the issuance of Letters of Credit to support the obligations of Company
and its Subsidiaries with respect thereto.
(ii) Redemption or Repayment of Existing Mortgage Indebtedness
---------------------------------------------------------
and Existing Unsecured Senior Indebtedness. Company shall have (a) other
------------------------------------------
than with respect to up to approximately $2,700,000 in mortgage notes
listed on Schedule 7.1 annexed hereto, repaid in full all Indebtedness
------------
outstanding with respect to its existing mortgage Indebtedness (the
aggregate principal amount of such Indebtedness not to exceed
$248,600,000) and its existing unsecured senior Indebtedness (the
aggregate principal amount of such Indebtedness not to exceed
$410,000,000), in each case in accordance with the applicable indenture
or agreement and (b) made arrangements with the holders of such mortgage
Indebtedness and a title insurance company regarding the subsequent
delivery and recording of all such documents or instruments as are
necessary to release all Liens securing the Indebtedness or other
obligations of
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Company and its Subsidiaries thereunder, such arrangements to be
satisfactory in form and substance to Agent.
(iii) Termination of Existing Smitty's Credit Agreement and
-----------------------------------------------------
Related Liens; Existing Letters of Credit. On the Closing Date, Smitty's
-----------------------------------------
and its Subsidiaries shall have (a) repaid in full all Indebtedness
outstanding under the Existing Smitty's Credit Agreement (the aggregate
principal amount of such Indebtedness not to exceed $33,600,000), (b)
terminated any commitments to lend or make other extensions of credit
thereunder, (c) delivered to Agent all documents or instruments necessary
to release all Liens securing Indebtedness or other obligations of
Smitty's and its Subsidiaries thereunder, and (d) other than with respect
to any Existing Letters of Credit, made arrangements satisfactory to
Agent with respect to the cancellation of any letters of credit
outstanding thereunder or the issuance of Letters of Credit to support
the obligations of Smitty's and its Subsidiaries with respect thereto.
(iv) Redemption or Repayment of Existing Smitty's Subordinated
---------------------------------------------------------
Notes and Existing Smitty's Discount Debentures. Pursuant to the
-----------------------------------------------
Smitty's DebtPurchase Offers, (i) not less than [100%] of the Existing
Smitty's Subordinated Notes and the Existing Smitty's Discount Debentures
shall have been purchased (the aggregate principal or accreted amount of
which Indebtedness not to exceed approximately $50,000,000 and
$19,300,000, respectively) for an aggregate purchase price of $50,000,000
and $19,300,000, respectively, plus accrued and unpaid interest thereon,
and a premium and a consent payment as described in the Smitty's Debt
Purchase Offers, and (ii) Smitty's shall have obtained all such consents
and amendments to the Existing Smitty's Subordinated Note Indenture and
Existing Smitty's Discount Debenture Indenture as may be required to
permit the transactions described herein. The terms and conditions of
such purchases, consents and amendments shall be substantially as
described in the Smitty's Debt Purchase Offers and shall be satisfactory
to Agent, Arrangers and Requisite Lenders.
(v) Existing Indebtedness to Remain Outstanding. Agent shall
-------------------------------------------
have received an Officers' Certificate of Company stating that, after
giving effect to the transactions described in this subsection 4.1F, the
Indebtedness of Loan Parties (other than Indebtedness under the Loan
Documents and the Senior Subordinated Notes) shall consist of (a)
approximately $5,400,000 in aggregate principal amount of Existing
Company IRB's, (b) approximately $11,900,000 in aggregate principal
amount of Existing Smitty's Sinking Fund Bonds, (c) approximately
$2,700,000 in aggregate principal amount of mortgage notes set forth on
Schedule 7.1 annexed hereto and (d) Indebtedness in an aggregate amount
------------
not to exceed $31,600,000 in respect of Capital Leases described in Part
B of Schedule 7.1 annexed hereto. Company shall be in compliance with
------------
its obligations under the Existing Company IRB Indentures, the Existing
Smitty's Sinking Fund Bond Indenture, such mortgage notes and Capital
Leases and Company shall have delivered to Agent a fully executed or
conformed copy of each of the Existing Company IRB Indenture, the
Existing Smitty's Sinking
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Fund Indenture and the agreements or documents setting forth the terms
and conditions of such mortgage notes. The terms and conditions of all
such Indebtedness shall be in form and in substance satisfactory to
Arrangers.
G. NECESSARY GOVERNMENTAL AUTHORIZATIONS AND CONSENTS; EXPIRATION OF
WAITING PERIODS, ETC. Company shall have obtained all Governmental
Authorizations and all consents of other Persons, in each case that are
necessary or advisable in connection with the Transactions or the other
transactions contemplated by the Loan Documents and the Related Agreements, and
the continued operation of the business conducted by Company's and its
Subsidiaries in substantially the same manner as conducted prior to the
consummation of the Transactions, and each of the foregoing shall be in full
force and effect, in each case other than those the failure to obtain or
maintain which, either individually or in the aggregate, would not reasonably be
expected to have a Material Adverse Effect. All applicable waiting periods shall
have expired without any action being taken or threatened by any competent
authority which would restrain, prevent or otherwise impose adverse conditions
on any of the Transactions or the financing thereof. No action, request for
stay, petition for review or rehearing, reconsideration, or appeal with respect
to any of the foregoing shall be pending, and the time for any applicable agency
to take action to set aside its consent on its own motion shall have expired.
H. CONSUMMATION OF ACQUISITION AND MERGER.
(i) The Recapitalization and Merger Agreement shall be in full
force and effect and shall not have been modified or waived in any
material respect without the consent of Agent, Arrangers and Requisite
Lenders. All conditions to the Acquisition and the Merger set forth in
Article 9 of the Recapitalization and Merger Agreement shall have been
satisfied in all material respects or the fulfillment of any such
conditions shall have been waived with the consent of Agent and
Arrangers;
(ii) the Merger shall have become effective in accordance with
the terms of the Recapitalization and Merger Agreement and the laws of
the State of Delaware; the Certificate of Merger shall have been filed
with the Secretary of State of the State of Delaware on the Closing Date,
shall be in form and in substance satisfactory to Agent, shall be in full
force and effect and shall have been delivered to Agent;
(iii) The sole consideration paid to the holders of equity
interests in Smitty's in respect of such equity interests in connection
with the Acquisition shall be 3,038,888 shares of Company's Class B
Common Stock or such other consideration as shall be consented to by
Agent, Arrangers and Requisite Lenders;
(iv) Transaction Costs shall not exceed $160,700,000; and
(v) Agent shall have received an Officers' Certificate of
Company to the effect set forth in clauses (i)-(iv) above and stating
that Company will proceed to
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consummate the Acquisition and the Merger immediately upon the making of
the initial Loans.
I. DELIVERY OF MORTGAGES; TITLE INSURANCE POLICIES; APPRAISALS.
Schedule 4.1I annexed hereto shall set forth all Real Property Assets of Company
- -------------
or any of its Subsidiaries as of the Closing Date after giving effect to the
Mergers. Agent shall have received from Company and each of its Subsidiaries
having Real Property Assets (i) fully executed counterparts of Mortgages, which
Mortgage shall cover the fee interest and/or leasehold interest of Company or
such Subsidiary in each Real Property Asset designated as a "MORTGAGED PROPERTY"
on Schedule 4.1I annexed hereto (each a "MORTGAGED PROPERTY" and collectively
-------------
the "MORTGAGED PROPERTIES") (Mortgaged Properties shall include all Real
Property Assets except (1) Surplus Leased Properties (other than subleased
properties with annual net rental income to Company or its Subsidiaries in
excess of $100,000), (2) Real Property Assets subject to an existing mortgage
which is not required to be prepaid prior to the Closing Date pursuant to this
Agreement, (3) other leased properties where the consent of the lessor to
mortgage the same is required and such consent has not been obtained and (4)
Excluded Sites), together with evidence (which may be in the form of recording
instructions accepted by title insurers, which instructions may authorize the
title insurer to remove from the counterpart of the Mortgage being recorded any
exhibit pages rejected by the county recorder which, if not removed, would
prevent the recordation of such Mortgage counterpart) that counterparts of the
Mortgages have been or promptly will be recorded in all places to the extent
necessary or desirable, in the reasonable judgment of Agent, so as to
effectively create a valid and enforceable first priority lien (subject only to
Liens permitted pursuant to this Agreement, and subject, where applicable, to
the effect, if any, on lien priority of the absence of a recorded memorandum of
lease) on each Mortgaged Property in favor of Agent (or such other trustee as
may be required or desired under local law) for the benefit of Lenders; (ii) a
preliminary title report, title commitment or lot book guaranty obtained by
Company or such Subsidiary in respect of each Mortgaged Property as may be
required by Agent; (iii) an opinion of counsel (which counsel shall be
reasonably satisfactory to Agent) in such states as may be required by Agent and
in which each Mortgaged Property is located other than Wyoming and Idaho with
respect to the enforceability of the Mortgages recorded in such state and such
other matters as Agent may request, in form and substance satisfactory to Agent;
(iv) in the case of each real property leasehold interest of Company or such
Subsidiary constituting Mortgaged Property, such estoppel letters, consents and
waivers from the landlords on such real property as may be required by Agent,
which letters, consents, waivers and agreements shall be substantially in the
form of Exhibit XIX annexed hereto and in any event in form and substance
-----------
reasonably satisfactory to Agent; (v) Title Insurance Policies with respect to
the Mortgaged Properties designated on such Schedule 4.1I annexed hereto, in
-------------
amounts not less than the respective amounts designated on such Schedule 4.1I
-------------
with respect to any particular Mortgaged Property; (vi) information sufficient
for Agent to determine whether (1) any Mortgaged Property is in an area
designated by the Federal Emergency Management Agency as having special flood or
mud slide hazards (any Real Property Asset located within such an area being a
"FLOOD HAZARD PROPERTY") and (2) the community in which each Flood Hazard
Property is located is participating in the National
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Flood Insurance Program; (vii) if any Mortgaged Properties are Flood Hazard
Properties, Company's or such Subsidiary's written acknowledgment of receipt of
written notification from Agent (1) as to the existence of each such Flood
Hazard Property and (2) as to whether the community in which each such Flood
Hazard Property is located is participating in the National Flood Insurance
Program; (viii) appraisals of the Real Property Assets so designated on Schedule
--------
4.1I annexed hereto performed by certified real estate appraisers approved by
- ----
Agent, which appraisals shall be in form, scope and substance satisfactory to
Agent; and (ix) the evidence of insurance with respect to the Mortgaged
Properties required to be provided to Agent pursuant to the Mortgages, including
flood insurance with respect to each Mortgaged Property that is a Flood Hazard
Property located in a community which is participating in the National Flood
Insurance Program.
J. SECURITY INTERESTS IN PERSONAL AND MIXED PROPERTY. To the extent not
otherwise satisfied pursuant to subsection 4.1I, Agent shall have received
evidence satisfactory to it that Company and Subsidiary Guarantors shall have
taken or caused to be taken all such actions, executed and delivered or caused
to be executed and delivered all such agreements, documents and instruments, and
made or caused to be made all such filings and recordings (other than the filing
or recording of items described in clauses (iii), (iv) and (v) below) that may
be necessary or, in the opinion of Agent, desirable in order to create in favor
of Agent, for the benefit of Lenders, a valid and (upon such filing and
recording) perfected first priority security interest in the entire personal and
mixed property Collateral except for the prior security interest, if any,
granted to the holders of secured Indebtedness referred to in Section 7.1 with
respect to the personal property secured thereby. Such actions shall include,
without limitation, the following:
(i) Schedules to Collateral Documents. Delivery to Agent of
---------------------------------
accurate and complete schedules to all of the applicable Collateral
Documents.
(ii) Stock Certificates and Instruments. Delivery to Agent of (a)
----------------------------------
certificates (which certificates shall be accompanied by irrevocable
undated stock powers, duly endorsed in blank and otherwise satisfactory
in form and substance to Agent) representing all capital stock pledged
pursuant to the Pledge Agreements and (b) all promissory notes or other
instruments (duly endorsed, where appropriate, in a manner satisfactory
to Agent) evidencing any Collateral;
(iii) Lien Searches and UCC Termination Statements. Delivery to
--------------------------------------------
Agent of (a) the results of a recent search, by a Person satisfactory to
Agent, of all effective UCC financing statements and fixture filings and
all judgment and tax lien filings which may have been made with respect
to any personal or mixed property of any Loan Party, together with copies
of all such filings disclosed by such search, and (b) UCC termination
statements duly executed by all applicable Persons for filing in all
applicable jurisdictions as may be necessary to terminate any effective
UCC financing statements or fixture filings disclosed in such search
(other than any such financing
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statements or fixture filings in respect of Liens permitted to remain
outstanding pursuant to the terms of this Agreement).
(iv) UCC Financing Statements and Fixture Filings. Delivery to
--------------------------------------------
Agent of UCC financing statements and, where appropriate, fixture
filings, duly executed by each applicable Loan Party with respect to all
personal and mixed property Collateral of such Loan Party, for filing in
all jurisdictions as may be necessary or, in the opinion of Agent,
desirable to perfect the security interests created in such Collateral
pursuant to the Collateral Documents;
(v) PTO Cover Sheets, Etc. Delivery to Agent of all cover
---------------------
sheets or other documents or instruments required to be filed with the
PTO in order to create or perfect Liens in respect of any IP Collateral;
and
(vi) Opinions of Local Counsel. Delivery to Agent of an opinion
-------------------------
of counsel (which counsel shall be reasonably satisfactory to Agent)
under the laws of each jurisdiction other than Wyoming, Idaho and Texas
in which any Loan Party or any personal or mixed property Collateral is
located with respect to the creation and perfection of the security
interests in favor of Agent in such Collateral and such other matters
governed by the laws of such jurisdiction regarding such security
interests as Agent may reasonably request, in each case in form and
substance reasonably satisfactory to Agent.
K. ENVIRONMENTAL REPORTS. (i) Agent shall have received reports,
opinions and other information in form, scope and substance satisfactory to
Agent and (ii) Lenders shall have received summaries thereof in form, scope and
substance satisfactory to Requisite Lenders, in each case concerning the
Hazardous Materials liabilities of Company and Smitty's and their respective
Subsidiaries.
L. FINANCIAL STATEMENTS; PRO FORMA BALANCE SHEET. On or before the
Closing Date, Lenders shall have received from Company (i) audited financial
statements of Company and its Subsidiaries for Fiscal Years 1994 and 1995,
consisting of balance sheets and the related consolidated statements of income,
stockholders' equity and cash flows for such Fiscal Years, (ii) unaudited
financial statements of Company and its Subsidiaries as at March 30, 1996,
consisting of a balance sheet and the related consolidated statements of income,
stockholders' equity and cash flows for the three-month period ending on such
date, all in reasonable detail and certified by the chief financial officer of
Company that they fairly present the financial condition of Company and its
Subsidiaries as at the dates indicated and the results of their operations and
their cash flows for the periods indicated, subject to changes resulting from
audit and normal year-end adjustments, and (iii) pro forma consolidated balance
sheets of Company and its Subsidiaries as March 30, 1996, prepared in accordance
with GAAP and giving effect to the consummation of the Transactions, the related
financings and the other transactions contemplated by the Loan Documents and the
Related Agreements, which pro forma financial statements shall be in form and
substance satisfactory
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to Lenders. On or before the Closing Date, Lenders shall have received from
Company (i) audited financial statements of Smitty's and its Subsidiaries for
Fiscal Years 1994 and 1995, consisting of balance sheets and the related
consolidated statements of income, stockholders' equity and cash flows for such
Fiscal Years, and (ii) unaudited financial statements of Smitty's and its
Subsidiaries as at March 10, 1996, consisting of a balance sheet and the related
consolidated statements of income, stockholders' equity and cash flows for the
eight-month period ending on such date, all in reasonable detail and certified
by the chief financial officer of Smitty's prior to the Merger that they fairly
present the financial condition of Smitty's and its Subsidiaries as at the dates
indicated and the results of their operations and their cash flows for the
periods indicated, subject to changes resulting from audit and normal year-end
adjustments. Agent and Lenders shall have had an opportunity to discuss such
unaudited financial statements with the independent certified public accountants
for Company with the cost of such review being for the account of Company.
M. SOLVENCY ASSURANCES. On the Closing Date, Agent, Arrangers, and
Lenders shall have received (i) a letter from Houlihan Lokey Howard & Zukin,
dated the Closing Date and addressed to Agent, Arrangers and Lenders, in form
and substance satisfactory to Agent, Arrangers and Lenders and with appropriate
attachments, and (ii) a Financial Condition Certificate dated the Closing Date,
substantially in the form of Exhibit XII annexed hereto and with appropriate
-----------
attachments, in each case demonstrating that, after giving effect to the
consummation of the Transactions, the related financings and the other
transactions contemplated by the Loan Documents and the Related Agreements,
Company will be Solvent and that the consummation of the Equity Tender Offer
will not violate Section 160 of the Delaware General Corporations Law.
N. EVIDENCE OF INSURANCE. Agent shall have received a certificate from
Company's insurance broker or other evidence satisfactory to it that all
insurance required to be maintained pursuant to subsection 6.4 is in full force
and effect and that Agent on behalf of Lenders has been named as additional
insured and/or loss payee thereunder to the extent required under subsection
6.4.
O. OPINIONS OF COUNSEL TO LOAN PARTIES. Lenders and their respective
counsel shall have received (i) originally executed copies of one or more
favorable written opinions of Latham & Watkins, counsel for Loan Parties, in
form and substance reasonably satisfactory to Agent and its counsel, dated as of
the Closing Date and setting forth substantially the matters in the opinions
designated in Exhibit VIII annexed hereto and as to such other matters as Agent
------------
acting on behalf of Lenders may reasonably request and (ii) evidence
satisfactory to Agent that Company has requested such counsel to deliver such
opinions to Lenders.
P. OPINIONS OF AGENT'S COUNSEL. Lenders shall have received originally
executed copies of one or more favorable written opinions of O'Melveny & Myers,
counsel to Agent, dated as of the Closing Date, substantially in the form of
Exhibit IX annexed hereto and as to such other matters as Agent acting on behalf
- ----------
of Lenders may reasonably request.
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Q. OPINIONS OF COUNSEL DELIVERED UNDER RELATED AGREEMENTS. Agent and
its counsel shall have received copies of each of the opinions of counsel
delivered to any Loan Party under the Related Agreements, together with a letter
from each such counsel authorizing Lenders to rely upon such opinion to the same
extent as though it were addressed to Lenders.
R. AUDITOR'S LETTER. Agent shall have received an executed copy of the
Auditor's Letter as delivered by Company to its independent certified public
accountants.
S. FAIRNESS OPINION. Agent shall have received a copy of an executed
fairness opinion from Goldman, Sachs & Co. regarding the issuance by Company of
its Class B Common Stock in connection with the Acquisition, which letter shall
be in form and in substance satisfactory to Agent.
T. SCHEDULED CALIFORNIA DISPOSITIONS. On or prior to the Closing Date,
Company shall have received not less than $67,200,000 from the sale of its
California facilities other than the California Stores and the Excess California
Land. Company shall have delivered to Agent an Officers' Certificate, in form
and substance satisfactory to Agent, setting forth in reasonable detail the
aggregate amount of proceeds received by it with respect to each facility
disposed of on or prior to the Closing Date and the breakdown of such amounts
for each such facility.
U. FEES. Company shall have paid to Agent, for distribution (as
appropriate) to Agent and Lenders, the fees payable on the Closing Date referred
to in subsection 2.3.
V. REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF AGREEMENTS. Company
shall have delivered to Agent an Officers' Certificate, in form and substance
satisfactory to Agent, to the effect that the representations and warranties in
Section 5 hereof are true, correct and complete in all material respects on and
as of the Closing Date to the same extent as though made on and as of that date
(or, to the extent such representations and warranties specifically relate to an
earlier date, that such representations and warranties were true, correct and
complete in all material respects on and as of such earlier date) and that
Company shall have performed in all material respects all agreements and
satisfied all conditions which this Agreement provides shall be performed or
satisfied by it on or before the Closing Date except as otherwise disclosed to
and agreed to in writing by Agent and Requisite Lenders.
W. COMPLETION OF PROCEEDINGS. All corporate and other proceedings
taken or to be taken in connection with the transactions contemplated hereby and
by other Related Agreements and all documents incidental thereto not previously
found acceptable by Agent, acting on behalf of Lenders, and its counsel shall be
satisfactory in form and substance to Agent and such counsel, and Agent and such
counsel shall have received all such counterpart originals or certified copies
of such documents as Agent may reasonably request.
X. TRANSACTION COSTS. The Transaction Costs shall not exceed
$160,700,000.
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Each Lender hereby agrees that by its execution and delivery of its
signature page hereto and by the funding of its Loans to be made on the Closing
Date, such Lender approves of and consents to each of the matters set forth in
this subsection 4.1 which must be approved by, or which must be satisfactory to,
all or Requisite Lenders; provided that in the case of any agreement or document
--------
which must be approved by, or which must be satisfactory to, all or Requisite
Lenders, Agent or Company shall have delivered a copy of such agreement or
document in substantially the form in which executed or delivered to such Lender
on or prior to the Closing Date.
4.2 CONDITIONS TO ALL LOANS.
-----------------------
The obligations of each Lender to make Loans on each Funding Date
(other than any Funding Date relating to any Refunded Swing Line Loans) are
subject to the following further conditions precedent:
A. Agent shall have received before that Funding Date, in
accordance with the provisions of subsection 2.1B, an originally executed Notice
of Borrowing, in each case signed by the chief executive officer, the chief
financial officer or the treasurer of Company or by any executive officer of
Company designated by any of the above-described officers on behalf of Company
in a writing delivered to Agent.
B. As of that Funding Date:
(i) The representations and warranties contained herein and in
the other Loan Documents shall be true, correct and complete in all
material respects on and as of that Funding Date to the same extent as
though made on and as of that date, except to the extent such
representations and warranties specifically relate to an earlier date, in
which case such representations and warranties shall have been true,
correct and complete in all material respects on and as of such earlier
date;
(ii) No event shall have occurred and be continuing or would
result from the consummation of the borrowing contemplated by such Notice
of Borrowing that would constitute an Event of Default or a Potential
Event of Default;
(iii) Each Loan Party shall have performed in all material
respects all agreements and satisfied all conditions which this Agreement
provides shall be performed or satisfied by it on or before that Funding
Date;
(iv) No order, judgment or decree of any court, arbitrator or
governmental authority shall purport to enjoin or restrain any Lender
from making the Loans to be made by it on that Funding Date;
(v) The making of the Loans requested on such Funding Date shall
not violate any law including, without limitation, Regulation G,
Regulation T,
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Regulation U or Regulation X of the Board of Governors of the Federal
Reserve System; and
(vi) There shall not be pending or, to the knowledge of Company,
threatened, any action, suit, proceeding, governmental investigation or
arbitration against or affecting Company or any of its Subsidiaries or
any property of Company or any of its Subsidiaries that has not been
disclosed by Company in writing pursuant to subsection 5.6 or 6.1(x)
prior to the making of the last preceding Loans (or, in the case of the
initial Loans, prior to the execution of this Agreement), and there shall
have occurred no development not so disclosed in any such action, suit,
proceeding, governmental investigation or arbitration so disclosed, that,
in either event, in the opinion of Agent or of Requisite Lenders, could
reasonably be expected to have a Material Adverse Effect ; and no injunc
tion or other restraining order shall have been issued and no hearing to
cause an injunction or other restraining order to be issued shall be
pending or noticed with respect to any action, suit or proceeding seeking
to enjoin or otherwise prevent the consummation of, or to recover any
damages or obtain relief as a result of, the transactions contemplated by
this Agreement or the making of Loans hereunder.
4.3 CONDITIONS TO LETTERS OF CREDIT.
-------------------------------
The issuance of any Letter of Credit hereunder (whether or not the
applicable Issuing Lender is obligated to issue such Letter of Credit) is
subject to the following conditions precedent:
A. On or before the date of issuance of the initial Letter of Credit
pursuant to this Agreement, the initial Loans shall have been made.
B. On or before the date of issuance of such Letter of Credit, Agent
shall have received, in accordance with the provisions of subsection 3.1B(i), an
originally executed Notice of Issuance of Letter of Credit, in each case signed
by the chief executive officer, the chief financial officer or the treasurer of
Company or by any executive officer of Company designated by any of the above-
described officers on behalf of Company in a writing delivered to Agent,
together with all other information specified in subsection 3.1B(i) and such
other documents or information as the applicable Issuing Lender may reasonably
require in connection with the issuance of such Letter of Credit.
C. On the date of issuance of such Letter of Credit, all conditions
precedent described in subsection 4.2B shall be satisfied to the same extent as
if the issuance of such Letter of Credit were the making of a Loan and the date
of issuance of such Letter of Credit were a Funding Date.
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SECTION 5. COMPANY'S REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Agreement and to make
the Loans, to induce Issuing Lenders to issue Letters of Credit and to induce
other Lenders to purchase participations therein, Company represents and
warrants to each Lender, on the date of this Agreement, on each Funding Date and
on the date of issuance of each Letter of Credit, that, prior to and after
giving effect to the Merger, the following statements are true, correct and
complete:
5.1 ORGANIZATION, POWERS, QUALIFICATION, GOOD STANDING, BUSINESS AND
----------------------------------------------------------------
SUBSIDIARIES.
------------
A. ORGANIZATION AND POWERS. Each Loan Party is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation as specified in Schedule 5.1 annexed hereto. Each
------------
Loan Party has all requisite corporate power and authority to own and operate
its properties, to carry on its business as now conducted and as proposed to be
conducted, to enter into the Loan Documents and Related Agreements to which it
is a party and to carry out the transactions contemplated thereby.
B. QUALIFICATION AND GOOD STANDING. Each Loan Party is qualified to do
business and in good standing in every jurisdiction where its assets are located
and wherever necessary to carry out its business and operations, except in
jurisdictions where the failure to be so qualified or in good standing has not
had and will not have, either individually or in the aggregate for all such
jurisdictions, a Material Adverse Effect.
C. CONDUCT OF BUSINESS. Company and its Subsidiaries are engaged only
in the businesses permitted to be engaged in pursuant to subsection 7.14.
D. SUBSIDIARIES. All of the Subsidiaries of Company, prior to and
after the Merger, are identified in Schedule 5.1 annexed hereto, as said
------------
Schedule 5.1 may be supplemented from time to time pursuant to the provisions of
- ------------
subsection 6.1(xvii). The capital stock of each of the Subsidiaries of Company
identified in Schedule 5.1 annexed hereto is duly authorized, validly issued,
------------
fully paid and nonassessable and none of such capital stock constitutes Margin
Stock. Each of the Subsidiaries of Company identified in Schedule 5.1 annexed
------------
hereto is a corporation duly organized, validly existing and in good standing
under the laws of its respective jurisdiction of incorporation set forth
therein, has all requisite corporate power and authority to own and operate its
properties and to carry on its business as now conducted and as proposed to be
conducted, and is qualified to do business and in good standing in every
jurisdiction where its assets are located and wherever necessary to carry out
its business and operations, in each case except where failure to be so
qualified or in good standing or to have such corporate power and authority has
not had and will not have, either individually or in the aggregate for all such
failures, a Material Adverse Effect. Schedule 5.1 annexed hereto correctly sets
------------
forth the ownership interest of Company and each of its Subsidiaries in each of
the Subsidiaries of Company identified therein and whether any such Subsidiary
is an Inactive Subsidiary. The aggregate assets and annual revenues of all
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<PAGE>
Inactive Subsidiaries identified on Schedule 5.1 annexed hereto does not and
------------
will not exceed $3,000,000 and $3,000,000, respectively.
5.2 AUTHORIZATION OF BORROWING, ETC.
--------------------------------
A. AUTHORIZATION OF BORROWING. The execution, delivery and performance
of the Loan Documents and the Related Agreements have been duly authorized by
all necessary corporate action on the part of each Loan Party that is a party
thereto.
B. NO CONFLICT. The execution, delivery and performance by Loan
Parties of the Loan Documents and the Related Agreements to which they are
parties and the consummation of the transactions contemplated by the Loan
Documents and such Related Agreements do not and will not (i) violate any
provision of any law or any governmental rule or regulation applicable to
Company or any of its Subsidiaries, the Certificate or Articles of Incorporation
or Bylaws of Company or any of its Subsidiaries or any material order, judgment
or decree of any court or other agency of government binding on Company or any
of its Subsidiaries, (ii) conflict with, result in a breach of or constitute
(with due notice or lapse of time or both) a default under any material Con
tractual Obligation of Company or any of its Subsidiaries which could reasonably
be expected to result in a Material Adverse Effect, (iii) result in or require
the creation or imposition of any Lien upon any of the properties or assets of
Company or any of its Subsidiaries (other than any Liens created under any of
the Loan Documents in favor of Agent on behalf of Lenders), or (iv) require any
approval of stockholders or any approval or consent of any Person under any
Contractual Obligation of Company or any of its Subsidiaries, except for such
approvals or consents which will be obtained on or before the Closing Date and
disclosed in writing to Lenders or such approvals or consents the failure to
obtain could not reasonably be expected to result in a Material Adverse Effect.
C. GOVERNMENTAL CONSENTS. The execution, delivery and performance by
Loan Parties of the Loan Documents and the Related Agreements to which they are
parties and the consummation of the transactions contemplated by the Loan
Documents and such Related Agreements do not and will not require any
registration with, consent or approval of, or notice to, or other action to,
with or by, any federal, state or other governmental authority or regulatory
body, except for (i) filings and recordings required in connection with the
------
perfection of the security interests granted pursuant to the Loan Documents,
(ii) such registrations, consents, approvals, notices or other actions which
have been obtained on or before the Closing Date and are described on Schedule
--------
5.2C annexed hereto and (iii) notices or other actions required to be taken
- ----
after the Closing Date relating to operating licenses, which notices or other
actions will be given or taken as required in due course (or, in the case of any
Loan Document or other Related Agreement executed and delivered after the
Closing Date, on or before such date of execution and delivery) except for such
filings, recording, registrations, consents, approvals, notices or other actions
the failure to obtain or take could not, in the aggregate, reasonably be
expected to have a Material Adverse Effect.
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<PAGE>
D. BINDING OBLIGATION. Each of the Loan Documents and Related
Agreements has been duly executed and delivered by each Loan Party that is a
party thereto and is the legally valid and binding obligation of such Loan
Party, enforceable against such Loan Party in accordance with its respective
terms, except as may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws relating to or limiting creditors' rights generally
or by equitable principles relating to enforceability.
E. VALID ISSUANCE OF COMMON STOCK, PREFERRED STOCK, SENIOR SUBORDINATED
NOTES AND YUCAIPA WARRANT.
(i) Common Stock and Preferred Stock. The Preferred Stock is,
--------------------------------
and each class of Common Stock is, or when issued and delivered will be,
duly and validly issued, fully paid and nonassessable. No stockholder of
Company has or will have any preemptive rights to subscribe for any
additional equity Securities of Company. The issuance and sale of
Company's Common Stock and Preferred Stock, upon such issuance and sale,
will either (a) have been registered or qualified under applicable
federal and state securities laws or (b) be exempt therefrom.
(ii) Senior Subordinated Notes. Company has the corporate power
--------------------------
and authority to issue the Senior Subordinated Notes. The Senior
Subordinated Notes, when issued and paid for, will be the legally valid
and binding obligations of Company, enforceable against Company in
accordance with their respective terms, except as may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or limiting creditors' rights generally or by equitable
principles relating to enforceability. The subordination provisions of
the Senior Subordinated Notes will be enforceable against the holders
thereof and the Loans and all other monetary Obligations hereunder are
and will be within the definition of "Senior Indebtedness" included in
such provisions. Senior Subordinated Notes, when issued and sold, will
either (a) have been registered or qualified under applicable federal and
state securities laws or (b) be exempt therefrom.
5.3 FINANCIAL CONDITION.
-------------------
Company has heretofore delivered to Lenders, at Lenders' request,
the following financial statements and information: (i) the audited consolidated
balance sheets of Company and its Subsidiaries as at December 31, 1994 and
December 30, 1995 and the related consolidated statements of income,
stockholders' equity and cash flows of Company and its Subsidiaries for the
Fiscal Years then ended, (ii) the unaudited consolidated balance sheets of
Company and its Subsidiaries as at March 30, 1996 and the related unaudited
consolidated statements of income, stockholders' equity and cash flows of
Company and its Subsidiaries for the three months then ended, (iii) the audited
consolidated balance sheets of Smitty's and its Subsidiaries as at July 30, 1994
and July 30, 1995 and the related consolidated statements of income,
stockholders' equity and cash flows of Smitty's and its Subsidiaries for the
Fiscal Years then ended, and (iv) the unaudited consolidated balance sheets of
Smitty's and its
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Subsidiaries as at March 10, 1996 and the related unaudited consolidated
statements of income, stockholders' equity and cash flows of Company and its
Subsidiaries for the eight months then ended. All such statements were prepared
in conformity with GAAP and fairly present, in all material respects, the
financial position (on a consolidated basis) of the entities described in such
financial statements as at the respective dates thereof and the results of
operations and cash flows (on a consolidated basis) of the entities described
therein for each of the periods then ended, subject, in the case of any such
unaudited financial statements, to changes resulting from audit and normal year-
end adjustments. None of the Loan Parties (and will not following the funding of
the initial Loans) has any Contingent Obligation, contingent liability or
liability for taxes, long-term lease or unusual forward or long-term commitment
that is not reflected in the foregoing financial statements or the notes thereto
and which in any such case is material in relation to the business, operations,
properties, assets, condition (financial or otherwise) or prospects of the Loan
Parties taken as a whole, other than (i) the incurrence of the Obligations and
obligations under other Related Agreements, (ii) contingent obligations or
liabilities for taxes, long term leases or forward or long term commitments and
(iii) other items disclosed on Schedule 4.1B annexed hereto.
-------------
5.4 NO MATERIAL ADVERSE CHANGE; NO RESTRICTED JUNIOR PAYMENTS.
---------------------------------------------------------
As of the Closing Date, since July 30, 1995, no event or change has
occurred that has caused or evidences, either in any case or in the aggregate, a
material adverse effect upon the business, operations, properties, assets,
condition (financial or otherwise) or prospects of Smitty's and its
Subsidiaries, taken as a whole. Since December 30, 1995 and except as disclosed
on Schedule 4.1B annexed hereto, no event or change has occurred that has caused
-------------
or evidences, either in any case or in the aggre gate, a Material Adverse
Effect. Neither Company nor any of its Subsidiaries has directly or indirectly
declared, ordered, paid or made, or set apart any sum or property for, any
Restricted Junior Payment or agreed to do so except as permitted by subsection
7.5.
5.5 TITLE TO PROPERTIES; LIENS.
--------------------------
Each Loan Party has (i) good, sufficient and legal title, subject
only to Liens permitted under this Agreement and, with respect to Real Property
Assets acquired after the Closing Date by such Loan Party from a Person other
than a Loan Party, such defects in title as existed prior to such acquisition,
to (in the case of fee interests in real property), (ii) valid leasehold
interests, subject only to Liens permitted under this Agreement and, with
respect to Real Property Assets acquired after the Closing Date by such Loan
Party from a Person other than a Loan Party, such defects in title as existed
prior to such acquisition, in (in the case of leasehold interests in real or
personal property), or (iii) good title to (in the case of all other personal
property), all of its properties and assets reflected in the financial
statements referred to in subsection 5.3 or in the most recent financial
statements delivered pursuant to subsection 6.1, in each case except for assets
disposed of since the date of such financial statements in the ordinary course
of business or as otherwise permitted under subsection 7.7. Except as permitted
by this Agreement, all such properties and assets are free and clear of Liens.
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5.6 LITIGATION; ADVERSE FACTS.
-------------------------
There are no actions, suits, proceedings, arbitrations or
governmental investigations (whether or not purportedly on behalf of Company or
any of its Subsidiaries) at law or in equity, or before or by any federal,
state, municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign that are pending or, to the
knowledge of Company, threatened against or affecting Company or any of its
Subsidiaries or any property of Company or any of its Subsidiaries and that,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect. Neither Company nor any of its Subsidiaries (i) is in
violation of any applicable laws that, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect, or (ii) is
subject to or in default with respect to any final judgments, writs,
injunctions, decrees, rules or regulations of any court or any federal, state,
municipal or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, that, individually or in the aggregate,
could reasonably be expected to result in a Material Adverse Effect.
5.7 PAYMENT OF TAXES.
----------------
Except to the extent permitted by subsection 6.3, all material tax
returns and reports of Company and its Subsidiaries required to be filed by any
of them have been timely filed, and all material taxes, assessments, fees and
other governmental charges upon Company and its Subsidiaries and upon their
respective properties, assets, income, businesses and franchises which are due
and payable have been paid when due and payable. Company knows of no proposed
tax assessment against Company or any of its Subsidiaries which is not being
actively contested by Company or such Subsidiary in good faith and by
appropriate proceedings; provided that such reserves or other appropriate
--------
provisions, if any, as shall be required in conformity with GAAP shall have been
made or provided therefor.
5.8 PERFORMANCE OF AGREEMENTS; MATERIALLY ADVERSE AGREEMENTS; MATERIAL
------------------------------------------------------------------
CONTRACTS.
---------
A. Neither Company nor any of its Subsidiaries is in default in
the performance, observance or fulfillment of any of the material obligations,
covenants or conditions contained in any of its material Contractual
Obligations, and no condition exists that, with the giving of notice or the
lapse of time or both, would constitute such a default, except where the
consequences, direct or indirect, of such default or defaults, if any,
individually or in the aggregate, could not reasonably be expected to result in
a Material Adverse Effect.
B. Neither Company nor any of its Subsidaries is a party to or
is otherwise subject to any agreements or instruments the performance of which,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect, or any charter or other internal restrictions which,
individually or in the aggregate, could reasonably be expected to result in a
Material Adverse Effect.
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5.9 GOVERNMENTAL REGULATION.
-----------------------
Neither Company nor any of its Subsidiaries is subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act or the Investment Company Act of 1940 or under any other
federal or state statute or regulation which may limit its ability to incur
Indebtedness for borrowed money or which may otherwise render all or any portion
of the Obligations unenforceable.
5.10 SECURITIES ACTIVITIES.
---------------------
A. Neither Company nor any of its Subsidiaries is engaged
principally, or as one of its important activities, in the business of extending
credit for the purpose of purchasing or carrying any Margin Stock.
B. Following application of the proceeds of each Loan, not more
than 25% of the value of the assets (either of Company only or of Company and
its Subsidiaries on a consolidated basis) subject to the provisions of
subsection 7.2 or 7.7 or subject to any restriction contained in any agreement
or instrument, between Company and any Lender or any Affiliate of any Lender,
relating to Indebtedness and within the scope of subsection 8.2, will be Margin
Stock.
5.11 EMPLOYEE BENEFIT PLANS.
----------------------
A. Except with respect to the Deferred Compensation Agreements,
each of the Loan Parties and each of their respective ERISA Affiliates are in
material compliance with all applicable provisions and requirements of ERISA and
the regulations and published interpretations thereunder with respect to each
Employee Benefit Plan, and have performed all their material obligations under
each Employee Benefit Plan.
B. Except with respect to the Deferred Compensation Agreements,
no ERISA Events have occurred or are reasonably expected to occur which
individually or in the aggregate resulted in or might reasonably be expected to
result in a liability of any of the Loan Parties or any of their respective
ERISA Affiliates (unless no Loan Parties shall be jointly and severally liable
therefor) in excess of $3,000,000 during the term of this Agreement.
C. Except as disclosed on Schedule 5.11 annexed hereto and
-------------
except to the extent required under Section 4980B of the Internal Revenue Code,
no Employee Benefit Plan provides health or welfare benefits (through the
purchase of insurance or otherwise) for any retired or former employees of any
of the Loan Parties or any of their respective ERISA Affiliates (unless no Loan
Parties shall be jointly and severally liable therefor). Except with respect to
the Deferred Compensation Agreements, there are no material liabilities of any
Loan Party under any of the plans listed on Schedule 5.11 annexed hereto that
-------------
are not reflected in the consolidated financial statements of Company.
110
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D. As of the most recent valuation date for any Pension Plan,
the Amount of Unfunded Benefit Liabilities, individually or in the aggregate for
all Pension Plans (excluding for purposes of such computation (1) any Pension
Plan which has a negative Amount of Unfunded Benefit Liabilities and (2) any
Pension Plan for which neither Company nor any other Loan Party would have any
liability if the Pension Plan then terminated) does not exceed $6,000,000.
E. With respect to the Deferred Compensation Agreements, (i)
each of the Loan Parties and each of their respective ERISA Affiliates are in
compliance with all applicable provisions and requirements of ERISA and the
regulations and published interpretations thereunder and have performed all
obligations where the failure to do so would have a Material Adverse Effect,
(ii) no ERISA Events have occurred or are reasonably expected to occur which
individually or in the aggregate resulted in or might reasonably be expected to
result in a liability of any of the Loan Parties or any of their respective
ERISA Affiliates (unless no Loan Parties shall be jointly and severally liable
therefor) which would have a Material Adverse Effect and (iii) there are no
liabilities of any Loan Party that are not reflected in the consolidated
financial statements of Company which would have a Material Adverse Effect.
5.12 CERTAIN FEES.
------------
Except as disclosed in Schedule 5.12 annexed hereto, no material
-------------
broker's or finder's fee or commission will be payable with respect to this
Agreement or any of the transactions contemplated hereby, and Company hereby
indemnifies Lenders against, and agrees that it will hold Lenders harmless from,
any claim, demand or liability for any such broker's or finder's fees alleged to
have been incurred in connection herewith or therewith and any expenses
(including reasonable fees, expenses and disbursements of counsel) arising in
connection with any such claim, demand or liability.
5.13 ENVIRONMENTAL PROTECTION.
------------------------
A. Except as set forth in Schedule 5.13 annexed hereto:
-------------
(i) the operations of the Loan Parties (including, without
limitation, all operations and conditions at or in the Facilities) comply
in all material respects with all Environmental Laws;
(ii) each of the Loan Parties has obtained all Governmental
Authorizations under Environmental Laws necessary to their respective
operations, and all such Governmental Authorizations are in good
standing, and each of the Loan Parties is in compliance with all material
terms and conditions of such Governmental Authorizations;
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(iii) no Loan Party has received (a) any notice or claim to the
effect that it is or may be liable to any Person as a result of or in
connection with any Hazardous Materials except as would not reasonably be
expected to have a Material Adverse Effect or (b) any letter or request
for information under Section 104 of the Comprehensive Environmental
Response, Compensation, and Liability Act (42 U.S.C. (S) 9604) or
comparable state laws regarding any matter which could reasonably be
expected to result in a Material Adverse Effect, and, to the best of
Company's knowledge, none of the operations of any of the Loan Parties is
the subject of any federal or state investigation relating to or in
connection with any Hazardous Materials at any Facility or at any other
location;
(iv) none of the operations of any of the Loan Parties is subject
to any judicial or administrative proceeding alleging the violation of or
liability under any Environmental Laws which if adversely determined
could reasonably be expected to have a Material Adverse Effect;
(v) none of the Loan Parties or, to the best knowledge of
Company, any predecessor of the Loan Parties has filed any notice under
any Environmental Law indicating past or present treatment or Release of
Hazardous Materials at any Facility except as would not reasonably be
expected to have a Material Adverse Effect, and none of Loan Parties'
operations involves the generation, transportation, treatment, storage or
disposal of hazardous waste, as defined under 40 C.F.R. Parts 260-270 or
any state equivalent other than in compliance in all material respects
with all applicable Environmental Laws;
(vi) no Hazardous Materials exist on, under or about any Facility
in a manner that has a reasonable possibility of giving rise to an
Environmental Claim having a Material Adverse Effect, and no Loan Party
has filed any notice or report of a Release of any Hazardous Materials
that has a reasonable possibility of giving rise to an Environmental
Claim having a Material Adverse Effect;
(vii) none of the Loan Parties or, to the best knowledge of
Company, any of its predecessors has disposed of any Hazardous Materials
in a manner that has a reasonable possibility of giving rise to an
Environmental Claim having a Material Adverse Effect;
(viii) to the best knowledge of Company, no unpermitted underground
storage tanks or surface impoundments are on or at any Facility; and
(ix) no Lien in favor of any Person relating to or in connection
with any Environmental Claim has been filed or has been attached to any
Facility that has a reasonable possibility of having a Material Adverse
Effect.
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B. None of the Loan Parties or any of their respective
Facilities or operations are subject to any outstanding written order or
agreement with any governmental authority or private party relating to (a) any
Environmental Laws or (b) any Environmental Claims which could reasonably be
expected to result in a liability to Company or any of its Subsidiaries, after
giving effect to indemnification provisions upon which Company is reasonably
relying, in excess of $12,000,000 individually or in the aggregate.
C. None of the Loan Parties has any contingent liability in
connection with any Release of any Hazardous Materials by the Loan Parties which
could reasonably be expected to result in a liability to Company or any of its
Subsidiaries, after giving effect to indemnification provisions upon which
Company is reasonably relying, in excess of $12,000,000 individually or in the
aggregate.
D. Except as set forth in Schedule 5.13 annexed hereto, no
-------------
event or condition has occurred with respect to the Loan Parties relating to any
Environmental Laws or any Release of Hazardous Materials at any Facility or any
other location, which, individually, or in the aggregate, has had or could
reasonably be expected to have a Material Adverse Effect.
5.14 EMPLOYEE MATTERS.
----------------
There is no strike or work stoppage in existence or threatened
involving Company or any of its Subsidiaries that could reasonably be expected
to have a Material Adverse Effect.
5.15 SOLVENCY.
--------
Each Loan Party is and, upon the incurrence of any Obligations by
such Loan Party on any date on which this representation is made, will be,
Solvent.
5.16 MATTERS RELATING TO COLLATERAL.
------------------------------
A. CREATION, PERFECTION AND PRIORITY OF LIENS. The execution and
delivery of the Collateral Documents by Loan Parties, together with (i) the
actions taken on or prior to the date hereof pursuant to subsections 4.1I, 4.1J,
6.8 and 6.9 and (ii) the delivery to Agent of any Pledged Collateral not
delivered to Agent at the time of execution and delivery of the applicable
Collateral Document (all of which Pledged Collateral has been so delivered) are
effective to create in favor of Agent for the benefit of Lenders, as security
for the respective Secured Obligations (as defined in the applicable Collateral
Document in respect of any Collateral), a valid and perfected first priority
Lien on all of the Collateral, and all filings and other actions necessary or
desirable to perfect and maintain the perfection and first priority status of
such Liens have been duly made or taken and remain in full force and effect,
other than the filing of any UCC financing statements delivered to Agent for
filing (but not yet
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filed) and the periodic filing of UCC continuation statements in respect of UCC
financing statements filed by or on behalf of Agent.
B. GOVERNMENTAL AUTHORIZATIONS. No authorization, approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for either (i) the pledge or grant by any Loan Party
of the Liens purported to be created in favor of Agent pursuant to any of the
Collateral Documents or (ii) the exercise by Agent of any rights or remedies in
respect of any Collateral (whether specifically granted or created pursuant to
any of the Collateral Documents or created or provided for by applicable law),
except for filings or recordings contemplated by subsection 5.16A except as may
be required, in connection with the disposition of any Pledged Collateral, by
laws generally affecting the offering and sale of securities and except for such
authorizations, approvals, other actions, notices or filings, the failure to
have which could not reasonably be expected to result in a Material Adverse
Effect.
C. MARGIN REGULATIONS. The pledge of the Pledged Collateral pursuant
to the Collateral Documents does not violate Regulation G, T, U or X of the
Board of Governors of the Federal Reserve System.
D. INFORMATION REGARDING COLLATERAL. All information supplied to Agent
by or on behalf of any Loan Party with respect to any of the Collateral (in each
case taken as a whole with respect to any particular Collateral) is accurate and
complete in all material respects.
5.17 RELATED AGREEMENTS.
------------------
A. DELIVERY OF RELATED AGREEMENTS. Company has delivered to
Lenders complete and correct copies of each Related Agreement and of all
exhibits and schedules thereto.
B. WARRANTIES IN RECAPITALIZATION AND MERGER AGREEMENT. Except
to the extent otherwise set forth herein or in the schedules hereto, each of the
representations and warranties given by Yucaipa, Company or Smitty's in the
Recapitalization and Merger Agreement is true and correct in all material
respects as of the date hereof (or as of any earlier date to which such
representation and warranty specifically relates) and will be true and correct
in all material respects as of the Closing Date (or as of such earlier date, as
the case may be), in each case subject to the qualifications set forth in the
schedules to the Recapitalization and Merger Agreement.
C. SURVIVAL. Notwithstanding anything in the Recapitalization
and Merger Agreement to the contrary, the representations and warranties of
Company set forth in subsections 5.17B shall, solely for purposes of this
Agreement, survive the Closing Date for the benefit of Lenders.
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5.18 PERMITS.
-------
Except as disclosed in Schedule 5.18 annexed hereto, each of Company
-------------
and its Subsidiaries, prior to and after giving effect to the Acquisition and
Merger, has such certificates permits, licenses, franchises, consents,
approvals, authorizations and clearances that are material to the condition
(financial or otherwise), business or operations of any of Company and its
Subsidiaries ("Permits") and is (and will be immediately after the consummation
of the Acquisition and the Merger) in compliance in all material respects with
all applicable laws as are necessary to own, lease or operate its properties and
to conduct its businesses in substantially the manner as presently conducted and
to be conducted immediately after the consummation of the Acquisition and
Merger, and all such Permits are valid and in full force and effect and will be
valid and in full force and effect immediately upon consummation of the
Acquisition and Merger. Each of Company and its Subsidiaries, prior to and
after giving effect to the Acquisition and Merger, is and will be in compliance
in all material respects with its obligations under such Permits and no event
has occurred that allows, or after notice or lapse of time would allow,
revocation or termination of such Permits, except for any such revocation or
termination which could not reasonably be expected to individually or in the
aggregate have a Material Adverse Effect.
5.19 DISCLOSURE.
----------
No representation or warranty of Company, Smitty's or any of its
Subsidiaries contained in any Loan Document or Related Agreement or in any other
document, certificate or written statement furnished to Lenders by or on behalf
of Company or any of its Subsidiaries for use in connection with the
transactions contem plated by this Agreement contains any untrue statement of a
material fact or omits to state a material fact (known to Company, in the case
of any document not furnished by it) necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances in
which the same were made. Any projections and pro forma financial information
contained in such materials are based upon good faith estimates and assumptions
believed by Company to be reasonable at the time made, it being recognized by
Lenders that such projections as to future events are not to be viewed as facts
and that actual results during the period or periods covered by any such
projections may differ from the projected results. There are no facts known (or
which should upon the reasonable exercise of diligence be known) to Company
(other than matters of a general economic nature) that, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse Effect
and that have not been disclosed herein or in such other documents, certificates
and statements furnished to Lenders for use in connection with the transactions
contemplated hereby.
5.20 REAL PROPERTY ASSETS.
--------------------
Schedule 4.1I sets forth all of the Real Property Assets of Company
-------------
or any of its Subsidiaries; Schedule 5.20A sets forth all of the Surplus Leased
--------------
Properties of Company or any of its Subsidiaries; Schedule 5.20B sets forth all
--------------
of the Surplus Owned Properties of
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Company or any of its Subsidiaries; Schedule 5.20C sets forth all of the Excess
--------------
California Land and the California Stores of Company or any of its Subsidiaries,
in each case as of the Closing Date after giving effect to the Merger.
SECTION 6. COMPANY'S AFFIRMATIVE COVENANTS
Company covenants and agrees that, so long as any of the Commitments
hereunder shall remain in effect and until payment in full of all of the Loans
and other Obligations and the cancellation or expiration of all Letters of
Credit, unless Requisite Lenders shall otherwise give prior written consent,
Company shall perform, and shall cause each of its Subsidiaries to perform, all
covenants in this Section 6.
6.1 FINANCIAL STATEMENTS AND OTHER REPORTS.
--------------------------------------
Company will maintain, and cause each of its Subsidiaries to
maintain, a system of accounting established and administered in accordance with
sound business practices to permit preparation of financial statements in
conformity with GAAP. Company will deliver to Agent and Lenders:
(i) Fiscal Period Financials: as soon as available and in any
------------------------
event within 30 days (or, in the case of the first Fiscal Period ending
after the Closing Date, 30 days after the end of the subsequent Fiscal
Period, or in the case of the last Fiscal Period in any Fiscal Quarter
(other than the last Fiscal Quarter in any Fiscal Year), 45 days, or in
the case of the last Fiscal Period in any Fiscal Year, 90 days) after the
end of each Fiscal Period ending after the Closing Date (a) the
consolidated balance sheet of Company and its Subsidiaries as at the end
of such Fiscal Period and the related consolidated statements of income
and cash flows of Company and its Subsidiaries for such Fiscal Period and
for the period from the beginning of the then current Fiscal Year to the
end of such Fiscal Period, setting forth in comparative form (1) other
than for the first 12 months after the Closing Date, the corresponding
figures for the consolidated balance sheet and the related consolidated
statement of income for the corresponding periods of the previous Fiscal
Year and (2) the corresponding figures for the consolidated balance sheet
and the related consolidated statement of income from the Financial Plan
for the current Fiscal Year, and (b) sales growth on a comparable store
basis for each Regional Division for such Fiscal Period and for the
period from the beginning of the then current Fiscal Year to the end of
such Fiscal Period, setting forth in comparative form the corresponding
figures from the Financial Plan for the current Fiscal Year, all in
reasonable detail and certified by the chief financial officer of Company
that they fairly present the financial condition of Company and its
Subsidiaries as at the dates indicated and the results of their
operations for the periods indicated, subject to changes resulting from
audit and normal year-end adjustments;
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(ii) Quarterly Financials: as soon as available and in any event
--------------------
within 45 days after the end of each of the first three Fiscal Quarters
of each Fiscal Year and within 90 days after the end of the fourth Fiscal
Quarter of each Fiscal Year, (a) the consolidated balance sheet of
Company and its Subsidiaries as at the end of such Fiscal Quarter and the
related consolidated statements of income and cash flows of Company and
its Subsidiaries for such Fiscal Quarter and for the period form the
beginning of the then current Fiscal Year to the end of such Fiscal
Quarter, setting forth in comparative form (1) other than for the first
12 months after the Closing Date, the corresponding figures for the
corresponding periods of the previous Fiscal Year and (2) the
corresponding figures from the Financial Plan for the current Fiscal
Year, and (b) net sales and sales growth on a comparable store basis for
each Regional Division for such Fiscal Quarter and for the period from
the beginning of the then current Fiscal Year to the end of such Fiscal
Quarter, setting forth in comparative form the corresponding figures from
the Financial Plan for the current Fiscal Year, all in reasonable detail
and certified by the chief financial officer of Company that they fairly
present the financial condition of Company and its Subsidiaries as at the
dates indicated and the results of their operations and their cash flows
for the periods indicated, subject to changes resulting from audit and
normal year-end adjustments;
(iii) Year-End Financials: as soon as available and in any event
-------------------
within 90 days after the end of each Fiscal Year (or, if an extension has
been obtained from the Securities and Exchange Commission for filing such
report after such 90th day, then on the date of delivery of such report
to the Securities and Exchange Commission and in any event within 105
days after the end of such Fiscal Year), (a) the consolidated balance
sheet of Company and its Subsidiaries as at the end of such Fiscal Year
and the related consolidated statements of income, stockholders' equity
and cash flows of Company and its Subsidiaries for such Fiscal Year,
setting forth in each case except for the first Fiscal Year ended after
the Closing Date in comparative form the corresponding figures for the
previous Fiscal Year, and the corresponding figures from the Financial
Plan for the Fiscal Year covered by such financial statements, all in
reasonable detail and certified by the chief financial officer of Company
that they fairly present the financial condition of Company and its
Subsidiaries as at the dates indicated and the results of their
operations and their cash flows for the periods indicated, and (b) in the
case of such consolidated financial statements, a report thereon of Ernst
& Young LLP or other independent certified public accountants of
recognized national standing selected by Company and satisfactory to
Agent, which report shall be unqualified, shall express no doubts about
the ability of Company and its Subsidiaries to continue as a going
concern, and shall state that such consolidated financial statements
fairly present the consolidated financial position of Company and its
Subsidiaries as at the dates indicated and the results of their
operations and their cash flows for the periods indicated in conformity
with GAAP applied on a basis consistent with prior years (except as
otherwise disclosed in such financial statements) and that the
examination by such accountants in connection with such consolidated
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financial statements has been made in accordance with generally accepted
auditing standards;
(iv) Officers' and Compliance Certificates: (a) together with
-------------------------------------
each delivery of financial statements of Company and its Subsidiaries
pursuant to subdivisions (ii) and (iii) above, (1) an Officers'
Certificate of Company stating that the signers have reviewed the terms
of this Agreement and have made, or caused to be made under their
supervision, a review in reasonable detail of the transactions and
condition of Company and its Subsidiaries during the accounting period
covered by such financial statements and that such review has not
disclosed the existence during or at the end of such accounting period,
and that the signers do not have knowledge of the existence as at the
date of such Officers' Certificate, of any condition or event that
constitutes an Event of Default or Potential Event of Default, or, if any
such condition or event existed or exists, specifying the nature and
period of existence thereof and what action Company has taken, is taking
and proposes to take with respect thereto; and (2) a Compliance
Certificate duly executed and duly completed in all respects; and (b)
within 100 days after the beginning of each Fiscal Year and in any event
on or prior to the date of any mandatory prepayments made pursuant to
subsection 2.4B(iii)(e) during such Fiscal Year, an Officers' Certificate
of Company setting forth the Consolidated Excess Cash Flow for the Fiscal
Year covered by such financial statements and demonstrating in reasonable
detail the derivation of such Consolidated Excess Cash Flow;
(v) Reconciliation Statements: if, as a result of any change in
-------------------------
accounting principles and policies from those used in the preparation of
the audited financial statements referred to in subsection 5.3, the
financial statements of Company and its Subsidiaries on a consolidated
basis or any Regional Division delivered pursuant to subdivisions (i),
(ii), (iii) or (xiii) of this subsection 6.1 will differ in any material
respect from the financial statements that would have been delivered
pursuant to such subdivisions had no such change in accounting principles
and policies been made, then, subject to subsection 1.2, (a) together
with the first delivery of financial statements pursuant to subdivision
(i), (ii), (iii) or (xiii) of this subsection 6.1 following such change,
financial statements of Company and its Subsidiaries on a consolidated
basis or, to the extent applicable, any Regional Division for the current
Fiscal Year to the effective date of such change, in each case prepared
on a pro forma basis as if such change had been in effect during such
periods, and (b) together with each delivery of financial statements
pursuant to subdivision (i), (ii), (iii) or (xiii) of this subsection 6.1
following such change, such financial statements prepared on a basis
consistent with the accounting principles and policies used in the
preparation of the financial statements delivered immediately prior to
such change;
(vi) Accountants' Certification: together with each delivery of
--------------------------
consolidated financial statements of Company and its Subsidiaries
pursuant to subdivision (iii) above, a written statement by the
independent certified public accountants giving the
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report thereon (a) stating whether, in connection with their audit
examination, any condition or event that constitutes an Event of Default
or Potential Event of Default that relates to accounting matters has come
to their attention and, if such a condition or event has come to their
attention, specifying the nature and period of existence thereof;
provided that such accountants shall not be liable by reason of any
--------
failure to obtain knowledge of any such Event of Default or Potential
Event of Default that would not be disclosed in the course of their audit
examination, and (b) stating that based on their audit examination
nothing has come to their attention that causes them to believe either or
both that the information contained in the certificates delivered
therewith pursuant to subdivision (iv) above is not correct;
(vii) Accountants' Reports: promptly upon receipt thereof (unless
--------------------
restricted by applicable professional standards), copies of all reports
(other than reports of a routine or ministerial nature which are not
material) submitted to Company by independent certified public
accountants in connection with each annual, interim or special audit of
the financial statements of Company and its Subsidiaries made by such
accountants, including, without limitation, any comment letter submitted
by such accountants to management in connection with their annual audit;
(viii) SEC Filings and Press Releases: promptly upon the sending or
------------------------------
filing thereof, copies of (a) all financial statements, reports, notices
and proxy statements sent or made available generally by Company to its
security holders, (b) all regular and periodic reports and all
registration statements (other than on Form S-8 or a similar form) and
prospectuses, if any, filed by Company or any of its Subsidiaries with
any securities exchange or with the Securities and Exchange Commission or
any governmental or private regulatory authority (other than reports of a
routine or ministerial nature which are not material), and (c) all press
releases and other statements made available generally by Company or any
of its Subsidiaries to the public concerning material developments in the
business of Company or any of its Subsidiaries;
(ix) Events of Default, etc.: promptly upon any officer of
-----------------------
Company obtaining knowledge (a) that a condition or event that
constitutes an Event of Default or Potential Event of Default has
occurred and is continuing, or becoming aware that any Lender has given
any notice (other than to Agent) or taken any other action with respect
to a claimed Event of Default or Potential Event of Default, (b) that any
Person has given any notice to Company or any of its Subsidiaries or
taken any other action with respect to a claimed default or event or
condition of the type referred to in subsection 8.2, (c) of any condition
or event that would be required to be disclosed in a current report filed
by Company with the Securities and Exchange Commission on Form 8-K (Items
1, 2, 4, 5 and 6 of such Form as in effect on the date hereof) or (d) of
the occurrence of any event or change that has caused or evidences,
either in any case or in the aggregate, a Material Adverse Effect, an
Officers' Certificate specifying the nature and period of existence of
such condition, event or change, or
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specifying the notice given or action taken by any such Person and the
nature of such claimed Event of Default, Potential Event of Default,
default, event or condition, and what action Company has taken, is taking
and proposes to take with respect thereto;
(x) Litigation or Other Proceedings: promptly upon any officer
-------------------------------
of Company obtaining knowledge of (X) the institution of, or non-
frivolous threat of, any action, suit, proceeding (whether
administrative, judicial or otherwise), governmental investigation or
arbitration against or affecting Company or any of its Subsidiaries or
any property of Company or any of its Subsidiaries (collectively,
"PROCEEDINGS") not previously disclosed in writing by Company to Lenders
or (Y) any material development in any Proceeding that, in any case:
(1) if adversely determined, has a reasonable possibility
of giving rise to a Material Adverse Effect; or
(2) seeks to enjoin or otherwise prevent the consummation
of, or to recover any damages or obtain relief as a result of, the
transactions to occur or which have occurred pursuant to the Loan
Documents or the Related Agreements;
written notice thereof together with such other information as may be
reasonably available to Company to enable Lenders and their counsel to
evaluate such matters;
(xi) ERISA Events: promptly upon becoming aware of the
------------
occurrence of or forthcoming occurrence of any ERISA Event, a written
notice specifying the nature thereof, what action Company, any of its
Subsidiaries or any of their respective ERISA Affiliates has taken, is
taking or proposes to take with respect thereto and, when known, any
action taken or threatened by the Internal Revenue Service, the
Department of Labor or the PBGC with respect thereto;
(xii) ERISA Notices: with reasonable promptness, copies of (a)
-------------
each Schedule B (Actuarial Information) to the annual report (Form 5500
Series) filed by Company, any of its Subsidiaries or any of their
respective ERISA Affiliates with the Internal Revenue Service with
respect to each Pension Plan; (b) all notices received by Company, any of
its Subsidiaries or any of their respective ERISA Affiliates from a
Multiemployer Plan sponsor concerning an ERISA Event; and (c) copies of
such other documents or governmental reports or filings relating to any
Employee Benefit Plan as Agent shall reasonably request;
(xiii) Financial Plans: as soon as practicable and in any event no
---------------
later than 30 days after the beginning of each Fiscal Year, a
consolidated plan and financial forecast for such Fiscal Year (the
"FINANCIAL PLAN" for such Fiscal Year) as customarily prepared by
Company, including without limitation (a) forecasted balance sheets and
forecasted statements of income and cash flows of Company and its
Subsidiaries on a
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consolidated basis and net sales growth on a comparable store basis for
each Regional Division for such Fiscal Year, together with an explanation
of the assumptions on which such forecasts are based, (b) forecasted
statements of income and cash flows of Company and its Subsidiaies on
aconsolidated basis for each Fiscal Period of such Fiscal Year, together
with an explanation of the assumptions on which such forecasts are based,
and (c) such other information and projections as any Lender may
reasonably request;
(xiv) Insurance: as soon as practicable and in any event by the
----------
last day of each Fiscal Year, an Officers' Certificate or other report,
in each case in form and substance satisfactory to Agent, outlining all
material insurance coverage maintained as of the date of such Officers'
Certificate or report by Company and its Subsidiaries and all material
insurance coverage planned to be maintained by Company and its
Subsidiaries in the immediately succeeding Fiscal Year;
(xv) Environmental Audits and Reports: as soon as practicable
--------------------------------
following receipt thereof, copies of all environmental audits and reports
(other than routine follow-up reports to matters previously disclosed to
Lenders), whether prepared by personnel of Company or any of its
Subsidiaries or by independent consultants, with respect to significant
environmental matters at any Facility or which relate to an Environmental
Claim which could reasonably be expected to result in a Material Adverse
Effect;
(xvi) Board of Directors: with reasonable promptness, written
------------------
notice of any change in the Board of Directors of Company;
(xvii) New Subsidiaries: promptly upon any Person becoming a
----------------
Subsidiary of Company, a written notice setting forth with respect to
such Person (a) the date on which such Person became a Subsidiary of
Company and (b) all of the data required to be set forth in Schedule 5.1
------------
annexed hereto with respect to all Subsidiaries of Company (it being
understood that such written notice shall be deemed to supplement
Schedule 5.1 annexed hereto for all purposes of this Agreement);
------------
(xviii) Margin Determination Certificate: concurrently with the
--------------------------------
delivery of the financial statements required under subsections 6.1(ii)
and 6.1(iii), Company shall deliver a Margin Determination Certificate;
(xix) Schedules to the Security Agreement: as soon as available
-----------------------------------
and in any event within 5 days after the end of each Fiscal Quarter,
Company and the Subsidiary Guarantors shall deliver to Agent a
supplement, if any, to Schedule 1(a), Schedule 1(b) and Schedule 1(h) to
------------- ------------- -------------
the Security Agreement and other statements and schedules required to be
furnished pursuant to the Security Agreement; and
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(xx) Other Information: with reasonable promptness, such other
-----------------
information and data with respect to Company or any of its Subsidiaries
as from time to time may be reasonably requested by any Lender.
6.2 CORPORATE EXISTENCE, ETC.
-------------------------
Except as permitted under subsection 7.7, Company will, and will
cause each of its Subsidiaries to, at all times preserve and keep in full force
and effect its corporate existence and all rights and franchises material to its
business; provided, however that neither Company nor any of its Subsidiaries
-------- -------
shall be required to preserve any such right or franchise if the Board of
Directors of Company or such Subsidiary shall determine that the preservation
thereof is no longer desirable in the conduct of the business of Company or such
Subsidiary, as the case may be, and if the loss thereof is not disadvantageous
in any material respect to Company and its Subsidiaries, taken as a whole, or
Lenders.
6.3 PAYMENT OF TAXES AND CLAIMS; TAX CONSOLIDATION.
----------------------------------------------
A. Company will, and will cause each of its Subsidiaries to, pay
all material taxes, assessments and other governmental charges imposed upon it
or any of its material properties or assets or in respect of any of its income,
businesses or franchises before any material penalty accrues thereon, and all
claims (including, without limitation, claims for labor, services, materials and
supplies) for sums that have become due and payable and that by law have or may
become a Lien upon any of its properties or assets, prior to the time when any
material penalty or fine shall be incurred with respect thereto; provided that
--------
no such charge or claim need be paid if it is being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted, so long as
such reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor.
B. Company will not, nor will it permit any of its Subsidiaries
to, file or consent to the filing of any consolidated income tax return with any
Person (other than Company or any of its Subsidiaries).
6.4 MAINTENANCE OF PROPERTIES; INSURANCE.
------------------------------------
A. Company will, and will cause its Subsidiaries to, maintain or
cause to be maintained in good repair, working order and condition, ordinary
wear and tear excepted, all material Collateral (without limiting any
obligations under the Collateral Documents) and all other material properties
used or useful in the business of Company and its Subsidiaries (including,
without limitation, Intellectual Property) and from time to time will make or
cause to be made all appropriate repairs, renewals and replacements thereof.
Company will maintain or cause to be maintained, with financially sound and
reputable insurance companies or associations or with self-insurance programs,
in each case to the extent consistent with prudent business practices and
customary in its industry, insurance with respect to its
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properties and business and the properties and businesses of its Subsidiaries
against loss or damage of the kinds (including, in any event, business
interruption insurance and, to the extent commercially reasonable, earthquake
insurance) and in the amounts customarily carried or maintained under similar
circumstances by corporations of established reputation engaged in similar
businesses and owning similar properties in the same general geographic areas in
which Company or any of its Subsidiaries operates. In addition, Company will
maintain or cause to be maintained flood insurance with respect to each Flood
Hazard Property (as defined in subsection 4.1I) included in the Collateral and
located in a community that participates in the National Flood Insurance
Program. All insurance relating to the Collateral shall comply with the
insurance provisions of the Collateral Documents.
B. In the event that Company or any of its Subsidiaries, in
connection with any casualty or casualties involving assets of Company or any of
its Subsidiaries, receives (a) proceeds of insurance (other than proceeds which
are required to be paid to a landlord and which cannot be paid to a mortgagee or
other lender to Company or its Subsidiaries in preference to payments to a
landlord under leases existing as of the Closing Date and which proceeds are in
fact paid to such landlord in accordance with the terms of such leases) in
excess of $5,000,000 in connection with any one casualty, or (b) aggregate
proceeds of insurance in excess of $15,000,000 from all such casualties (on a
cumulative basis, net of any proceeds already used to restore the assets
affected by such casualty or casualties or to make prepayments in accordance
with subsection 2.4B(iii)(a)), Company shall immediately pay all such insurance
proceeds (and not just such excess) over to Agent, and Agent shall hold such
proceeds in an interest bearing account. Agent shall (i) so long as no Event of
Default has occurred and is continuing, disburse all such insurance proceeds
(and any earnings on amounts held in such interest bearing account) held by it
to Company, in accordance with and subject to such customary terms, conditions
and procedures as Agent shall require, for the sole purpose of restoring or
replacing (or reimbursing Company or any of its Subsidiaries for restoration or
replacement costs previously expended and for costs expended in obtaining such
proceeds with respect to) the affected assets, or, (ii) at Company's option (or
if otherwise required by subsection 2.4B(iii)(a)), apply such proceeds and such
earnings for the purpose of making a prepayment in accordance with subsection
2.4. Company hereby authorizes Agent to make such prepayments with such
proceeds and such earnings. If an Event of Default has occurred and is
continuing, Agent may elect, in its sole and absolute discretion, (i) to apply
all or any portion of such insurance proceeds and such earnings to the
restoration of any of the Collateral, subject to conditions determined by Agent,
(ii) to disburse any such insurance proceeds and such earnings to Company for
the purposes set forth in the immediately preceding sentence, (iii) to hold such
insurance proceeds and such earnings as additional Collateral under the
Collateral Documents or (iv) to apply such insurance proceeds and such earnings
as provided for in the Loan Documents.
6.5 INSPECTION; LENDER MEETING.
--------------------------
Company shall, and shall cause each of its Subsidiaries to, permit
any authorized representatives designated by any Lender to visit and inspect any
of the properties
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of Company or any of its Subsidiaries, including its and their financial and
accounting records, and to make copies and take extracts therefrom, and to
discuss its and their affairs, finances and accounts with its and their officers
and independent public accountants (provided that representatives of Company or
any of its Subsidiaries may, if it so chooses, be present at or participate in
any such discussion), all upon reasonable notice and at such reasonable times
during normal business hours and as often as may be reasonably requested.
Without in any way limiting the foregoing, Company will, upon the request of
Agent or Requisite Lenders, participate in a meeting of Agent and Lenders once
during each Fiscal Year to be held at Company's corporate offices (or such other
location as may be agreed to by Company and Agent) at such time as may be agreed
to by Company and Agent.
6.6 COMPLIANCE WITH LAWS, ETC.
--------------------------
Company shall comply, and shall cause each of its Subsidiaries to
comply, with the requirements of all applicable laws, rules, regulations and
orders of any governmental authority, noncompliance with which could reasonably
be expected to cause, individually or in the aggregate, a Material Adverse
Effect.
6.7 ENVIRONMENTAL DISCLOSURE AND INSPECTION; REMEDIAL ACTION REGARDING
------------------------------------------------------------------
HAZARDOUS MATERIALS.
- -------------------
A. Company shall, and shall cause its Subsidiaries to, exercise
all due diligence in order to comply and cause (i) all tenants under any leases
or occupancy agreements affecting any portion of the Facilities and (ii) all
other Persons on or occupying such property, to comply with all Environmental
Laws.
B. Company agrees that Agent may, from time to time as Agent
deems reasonably necessary, retain, at Company's expense, an independent
professional consultant reasonably acceptable to Company to review any report
relating to Hazardous Materials prepared by or for Company or any of its
Subsidiaries and to conduct its own investigation of any Facility currently
owned, leased, operated or used by Company or any of its Subsidiaries, and
Company agrees to use its reasonable best efforts to obtain permission for
Agent's professional consultant to conduct its own investigation of any Facility
previously owned, leased, operated or used by Company or any of its
Subsidiaries. Company hereby grants (to the extent it is authorized to do so) to
Agent and its agents, employees, consultants and contractors the right to enter
into or on to the Facilities currently owned, leased, operated or used by
Company or any of its Subsidiaries to perform such tests on such property as are
reasonably necessary to conduct such a review and/or investigation. Any such
investigation of any Facility shall only be conducted, unless otherwise agreed
to by such Person and Agent, during normal business hours and, to the extent
reasonably practicable, shall be conducted so as not to interfere with the
ongoing operations at any such Facility or to cause any damage or loss to any
property at such Facility. Company and Agent hereby acknowledge and agree that
any report of any investigation conducted at the request of Agent pursuant to
this subsection 6.7B will be obtained and shall only be used by Agent and
Lenders for the purposes of
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Lenders' internal credit decisions, to monitor and police the Loans and to
protect Lenders' security interests, if any, created by the Loan Documents.
Agent agrees to deliver a copy of any such report to Company with the
understanding that Company acknowledges and agrees that (i) it will indemnify
and hold harmless Agent and each Lender from any costs, losses or liabilities
relating to Company's or any of its Subsidiary's use of or reliance on such
report, (ii) neither Agent nor any Lender makes any representation or warranty
with respect to such report, and (iii) by delivering such report to Company,
neither Agent nor any Lender is requiring or recommending the implementation of
any suggestions or recommendations contained in such report.
C. Company shall promptly advise Lenders in writing and in
reasonable detail of (i) any Release of any Hazardous Materials at any Facility
required to be reported to any federal, state or local governmental or
regulatory agency under any applicable Environmental Laws, (ii) any and all
written communications with any governmental authority or any adverse party with
respect to any Environmental Claims that have a reasonable possibility of giving
rise to a Material Adverse Effect or with respect to any Release of Hazardous
Materials at any Facility required to be reported to any federal, state or local
governmental or regulatory agency, (iii) any remedial action taken by Company or
any of its Subsidiaries or any other Person in response to (x) any Hazardous
Materials on, under or about any Facility, the existence of which has a
reasonable possibility of resulting in an Environmental Claim having a Material
Adverse Effect, or (y) any Environmental Claim that could reasonably be expected
to result in a Material Adverse Effect, (iv) Company's or any of its
Subsidiaries' discovery of any occurrence or condition on any real property
adjoining or in the vicinity of any Facility that could cause such Facility or
any part thereof to be subject to any material restrictions on the ownership,
occupancy, transferability or use thereof under any Environmental Laws, and (v)
any request for information from any governmental agency that suggests such
agency is investigating whether Company or any of its Subsidiaries may be
potentially responsible for a Release of Hazardous Materials.
D. Company shall promptly notify Lenders of (i) any proposed
acquisition of stock, assets, or property by Company or any of its Subsidiaries
that could reasonably be expected to expose Company or any of its Subsidiaries
to, or result in, Environmental Claims that could reasonably be expected to have
a Material Adverse Effect or that could reasonably be expected to have a
material adverse effect on any Governmental Authorization then held by Company
or any of its Subsidiaries and (ii) any proposed action to be taken by Company
or any of its Subsidiaries to commence manufacturing, industrial or other
operations that could reasonably be expected to subject Company or any of its
Subsidiaries to additional laws, rules or regulations which could reasonably be
expected to have a Material Adverse Effect, including, without limitation, laws,
rules and regulations requiring additional environmental permits or licenses.
E. Company shall, at its own expense, provide copies of such
documents or information as Agent may reasonably request in relation to any
matters disclosed pursuant to this subsection 6.7.
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F. Company shall promptly take, and shall cause its Subsidiaries
promptly to take, the appropriate remedial action as requested or approved by
the Governmental Authority having jurisdiction over the Facility at issue in
connection with the presence, storage, use, disposal, transportation or Release
of any Hazardous Materials on, under or about any Facility in order to comply
with all applicable Environmental Laws and Governmental Authorizations. In the
event Company or any of its Subsidiaries undertakes any remedial action with
respect to any Hazardous Materials on, under or about any Facility, Company or
such Subsidiary shall conduct and complete such remedial action in material
compliance with all applicable Environmental Laws, and in accordance with the
policies, orders and directives of all federal, state and local governmental
authorities except when, and only to the extent that, Company's or such
Subsidiary's liability for such presence, storage, use, disposal, transportation
or discharge of any Hazardous Materials is being contested in good faith by
Company or such Subsidiary.
6.8 EXECUTION OF SUBSIDIARY GUARANTY AND PERSONAL PROPERTY COLLATERAL
-----------------------------------------------------------------
DOCUMENTS BY FUTURE SUBSIDIARIES.
--------------------------------
A. EXECUTION OF SUBSIDIARY GUARANTY AND PERSONAL PROPERTY
COLLATERAL DOCUMENTS. In the event that any Person becomes a Subsidiary (other
than an Inactive Subsidiary) of Company after the date hereof, Company will
promptly notify Agent of that fact and cause such Subsidiary to execute and
deliver to Agent a counterpart of the Subsidiary Guaranty, a Pledge Agreement, a
Security Agreement, Mortgages and a Trademark Security Agreement and to take all
such further actions and execute all such further documents and instruments
(including without limitation actions, documents and instruments comparable to
those described in subsection 4.1J) as may be necessary or, in the opinion of
Agent, desirable to create in favor of Agent, for the benefit of Lenders, a
first-priority security interest (subject only to Liens permitted under this
Agreement) in all of the real, personal and mixed property assets of such
Subsidiary (other than with respect to Excluded Sites and other than any such
assets which are subject to Liens permitted under subsection 7.2A(iv) and other
Real Property Assets that such Subsidiary would not be obligated to pledge to
Agent pursuant to subsection 6.9 (it being understood and agreed that all of the
requirements of subsection 6.9 are applicable to the Real Property Assets of
such Subsidiary, with the date such Subsidiary became a Subsidiary of Company
being treated for purposes of subsection 6.9 as the date on which such
Subsidiary acquired all of its Real Property Assets)) and (ii) the parent of
such Subsidiary to execute and deliver to Agent a counterpart of the Pledge
Agreement or a Pledge Amendment to the Pledge Agreement previously executed by
such parent effecting the pledge by such parent to Agent of all of the capital
stock of, or any other equity interest in, such Subsidiary.
B. SUBSIDIARY CHARTER DOCUMENTS, LEGAL OPINIONS, ETC. Company
shall deliver to Agent, together with such Loan Documents, (i) certified copies
of such Subsidiary's Certificate or Articles of Incorporation, together with a
good standing certificate from the Secretary of State of the jurisdiction of its
incorporation, each to be dated a recent date prior to their delivery to Agent,
(ii) a copy of such Subsidiary's Bylaws, certified by its corporate
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secretary or an assistant secretary as of a recent date prior to their delivery
to Agent, (iii) a certificate executed by the secretary or an assistant
secretary of such Subsidiary as to (a) the fact that the attached resolutions of
the Board of Directors of such Subsidiary approving and authorizing the
execution, delivery and performance of such Loan Documents are in full force and
effect and have not been modified or amended and (b) the incumbency and
signatures of the officers of such Subsidiary executing such Loan Documents,
(iv) the certificate or certificates evidencing all of the capital stock of (or,
if certificated, any other equity interest in) such Subsidiary, and (v) if
requested by Agent, a favorable opinion of counsel to such Subsidiary, in form
and substance satisfactory to Agent and its counsel, as to (a) the due
organization and good standing of such Subsidiary, (b) the due authorization,
execution and delivery by such Subsidiary of such Loan Documents, (c) the
enforceability of such Loan Documents against such Subsidiary, (d) such other
matters (including without limitation matters relating to the creation and
perfection of Liens in any Collateral pursuant to such Loan Documents) as Agent
may reasonably request, all of the foregoing to be satisfactory in form and
substance to Agent and its counsel.
6.9 ADDITIONAL REAL PROPERTY.
------------------------
A. After the Closing Date, Company shall, and shall cause its
Subsidiaries to,
(I) with respect to each leasehold interest in Real Property Assets
hereafter acquired by Company or any of its Subsidiaries (in either case,
the "Lessee"), use its best efforts (which shall not be deemed to include
the payment of monetary consideration other than nominal monetary
consideration and out-of-pocket expenses incurred by any lessor in
connection with obtaining the items listed below, but shall include
efforts to include each of the items listed below in the terms of the
lease itself) to obtain and deliver to Agent as soon as practicable, and
if possible within four months after such acquisition, an agreement by
the landlord substantially in the form of Exhibit XIX annexed hereto and
-----------
in any event including the following:
(A) the agreement of the lessor (if required under the lease)
to the encumbrancing of such Lessee's leasehold interest under the
lease pursuant to a Mortgage and to the assignment of such leasehold
interest to Agent or its Affiliate following a default hereunder,
and if the lease allows the lessor to unreasonably withhold consent
to an assignment of the leasehold interest by Agent or its Affiliate
to a subsequent third party assignee, the agreement of the lessor
not to unreasonably withhold such consent,
(B) the lessor's waiver of all right, title and interest in
the Lessee's personal property and fixtures located on the leased
premises,
(C) a license from the lessor for Agent to enter upon the
leased premises to take possession of or sell such personal property
and fixtures or to exercise other remedies, whether or not the lease
has been terminated,
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(D) the lessor's agreement to give Agent written notice of any
default by the Lessee under the lease, and not to terminate the
lease unless Agent fails to cure the default within 30 days after
receiving written notice from such lessor, or within any longer cure
period set forth in the lease, and
(E) an original memorandum of the lease executed and
acknowledged by the lessor thereunder (or, in the case of an
existing leasehold interest which is of record and which is acquired
by the Lessee by assignment, a memorandum of or a recordable
duplicate original of such assignment, executed and acknowledged by
the assigning Lessee), in form sufficient to give constructive
notice (when recorded) of the Lessee's leasehold interest under the
lease to third-party purchasers and encumbrancers of the affected
real property and otherwise in form reasonably satisfactory to
Agent, together with evidence of its recordation in all places
necessary or desirable, in the reasonable judgment of Agent, to give
constructive notice of the Lessee's leasehold interest to third
parties, and
(II) with respect to each Real Property Asset in which Company or
such Subsidiary acquires fee title or a leasehold interest after the
Closing Date (in each case excluding any Real Property Asset which is,
but only so long as it remains, (A) an Excluded Site, or (B) a leasehold
interest as to which encumbrancing requires the consent of the lessor,
where Company and its Subsidiaries have been unable to obtain the
applicable lessor's consent thereto, or (C) an asset subject to a Lien
permitted under subsection 7.2A(iv), (such non-excluded Real Property
Assets being collectively referred to herein as the "COVERED REAL
PROPERTY"), as soon as practicable and in any event within one month
after the applicable Real Property Asset becomes Covered Real Property,
deliver:
(A) fully executed counterparts of a Mortgage, or an amendment
to a Mortgage, in form satisfactory to Agent, which Mortgage or
amendment shall encumber such Covered Real Property, together with
evidence that counterparts of such Mortgage or amendment have been
recorded in all places to the extent necessary or desirable, in the
reasonable judgment of Agent, so as to effectively create a valid
and enforceable first priority Lien (subject only to Permitted
Encumbrances) on such Covered Real Property in favor of Agent (or
such other trustee as may be required or desired under local law)
for the benefit of Lenders,
(B) if requested by Agent, a title report, title commitment or
other title search satisfactory to Agent obtained by such Person in
respect of such Covered Real Property,
(C) if requested by Agent, an opinion of counsel (which
counsel shall be reasonably satisfactory to Agent) in the state in
which such Covered Real
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Property is located with respect to the enforceability of the
Mortgages recorded in such state and such other matters as Agent may
request, in form and substance satisfactory to Agent,
(D) in the case of each such Covered Real Property consisting
of a leasehold interest, a copy of the lease (including all
amendments thereto), together with such estoppel letters, consents,
waivers and agreements from the lessor on such real property as were
obtained pursuant to clause (i) above,
(E) environmental audits prepared by professional consultants
mutually acceptable to Company and Agent, in form, scope and
substance satisfactory to Agent in its reasonable discretion,
(F) if Company or any of its Subsidiaries obtains an owner's
or lessee's policy of title insurance with respect to such Covered
Real Property, or if requested by Agent with respect to any other
Covered Real Property having an acquisition cost or value (as
estimated by Agent) in excess of $2,000,000, a Title Insurance
Policy, in an amount reasonably satisfactory to Agent, with respect
to Agent's lien thereon,
(G) information sufficient for Agent to determine whether (1)
any such Real Property Asset is Flood Hazard Property and (2) the
community in which each Flood Hazard Property is located is
participating in the National Flood Insurance Program,
(H) upon Company's or such Subsidiary's receipt of written
notification from Agent (1) as to the existence of each such Flood
Hazard Property and (2) as to whether the community in which each
such Flood Hazard Property is located is participating in the
National Flood Insurance Program, written acknowledgment of the
receipt of such notification, and
(I) the evidence of insurance with respect to such Real
Property Asset required to be provided to Agent pursuant to the
terms of the Mortgages, including flood insurance with respect to
each Flood Hazard Property located in a community that is
participating in the National Flood Insurance Program.
Company shall, and shall cause each of its Subsidiaries to, permit
any authorized representatives designated by Agent to visit and inspect any Real
Property Asset for the purpose of obtaining an appraisal of value, conducted by
consultants retained by Agent in compliance with all applicable banking
regulations.
B. Upon the first anniversary of the Closing Date, Company shall,
and shall cause its Subsidiaries to,
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with respect to (x) each Surplus Leased Property then leased by Company
or any of its Subsidiaries (in either case, the "Lessee") with a fair market
value of $1,000,000 or greater, and (y) if the aggregate fair market value of
all Surplus Leased Properties with a positive fair market value of less than
$1,000,000 exceeds $5,000,000, all such Surplus Leased Properties with a
positive fair market value, (i) use its best efforts (which shall not be deemed
to include the payment of monetary consideration other than nominal monetary
consideration and out-of-pocket expenses incurred by any lessor in connection
with obtaining the items listed below) to obtain and deliver to Agent as soon as
practicable, an agreement by the landlord substantially in the form of Exhibit
-------
XIX annexed hereto and in any event including the following:
- ---
(A) the agreement of the lessor (if required under the lease) to
the encumbrancing of such Lessee's leasehold interest under the lease
pursuant to a Mortgage and to the assignment of such leasehold interest
to Agent or its Affiliate following a default hereunder, and if the lease
allows the lessor to unreasonably withhold consent to an assignment of
the leasehold interest by Agent or its Affiliate to a subsequent third
party assignee, the agreement of the lessor not to unreasonably withhold
such consent,
(B) the lessor's waiver of all right, title and interest in the
Lessee's personal property and fixtures located on the leased premises,
(C) a license from the lessor for Agent to enter upon the leased
premises to take possession of or sell such personal property and
fixtures or to exercise other remedies, whether or not the lease has been
terminated,
(D) the lessor's agreement to give Agent written notice of any
default by the Lessee under the lease, and not to terminate the lease
unless Agent fails to cure the default within 30 days after receiving
written notice from such lessor, or within any longer cure period set
forth in the lease, and
(E) an original memorandum of the lease executed and acknowledged
by the lessor thereunder (or, in the case of an existing leasehold
interest which is of record and which is acquired by the Lessee by
assignment, a memorandum of or a recordable duplicate original of such
assignment, executed and acknowledged by the assigning Lessee), in form
sufficient to give constructive notice (when recorded) of the Lessee's
leasehold interest under the lease to third-party purchasers and
encumbrancers of the affected real property and otherwise in form
reasonably satisfactory to Agent, together with evidence of its
recordation in all places necessary or desirable, in the reasonable
judgment of Agent, to give constructive notice of the Lessee's leasehold
interest to third parties, and
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(II) except with respect to a leasehold interest as to which the consent
of a lesser is required, where Company and the Subsidiaries have been unable to
deliver the applicable consent thereto, deliver:
(A) fully executed counterparts of a Mortgage, or an amendment to
a Mortgage, in form satisfactory to Agent, which Mortgage or amendment
shall encumber such Surplus Leased Property, together with evidence that
counterparts of such Mortgage or amendment have been recorded in all
places to the extent necessary or desirable, in the reasonable judgment
of Agent, so as to effectively create a valid and enforceable first
priority Lien (subject only to Permitted Encumbrances) on such Surplus
Leased Property in favor of Agent (or such other trustee as may be
required or desired under local law) for the benefit of Lenders,
(B) if requested by Agent and if then in the possession or control
of Company, environmental audits prepared by professional consultants,
(C) information sufficient for Agent to determine whether (1) any
such Surplus Leased Property is Flood Hazard Property and (2) the
community in which each Flood Hazard Property is located is participating
in the National Flood Insurance Program,
(D) upon Company's or such Subsidiary's receipt of written
notification from Agent (1) as to the existence of each such Flood Hazard
Property and (2) as to whether the community in which each such Flood
Hazard Property is located is participating in the National Flood
Insurance Program, written acknowledgment of the receipt of such
notification, and
(E) the evidence of insurance with respect to such Real Property
Asset required to be provided to Agent pursuant to the terms of the
Mortgages, including flood insurance with respect to each Flood Hazard
Property located in a community that is participating in the National
Flood Insurance Program.
Upon the written request of Agent, Company shall, and shall cause each of
its Subsidiaries to, permit any authorized representatives designated by Agent
to visit and inspect any Real Property Asset for the purpose of obtaining an
appraisal of value, conducted by consultants retained by Agent in compliance
with all applicable banking regulations.
6.10 INTEREST RATE PROTECTION.
------------------------
Within 90 days of the Closing Date, Company shall obtain, and shall
thereafter cause to be maintained for a period of not less than two years after
the date Company first obtained such agreements, one or more Interest Rate
Agreements with respect to the Loans in
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an aggregate notional principal amount of not less than $260,000,000, each such
Interest Rate Agreement to be in form and substance satisfactory to Agent and
Arrangers.
SECTION 7. COMPANY'S NEGATIVE COVENANTS
Company covenants and agrees that, so long as any of the Commitments
hereunder shall remain in effect and until payment in full of all of the Loans
and other Obligations and the cancellation or expiration of all Letters of
Credit, unless Requisite Lenders shall otherwise give prior written consent,
Company shall perform, and shall cause each of its Subsidiaries to perform, all
covenants in this Section 7.
7.1 INDEBTEDNESS.
------------
Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create, incur, assume or guaranty, or otherwise become
or remain directly or indirectly liable with respect to, any Indebtedness,
except:
(i) Company may become and remain liable with respect to the
Obligations;
(ii) Company and its Subsidiaries may become and remain liable
with respect to Contingent Obligations permitted by subsection 7.4 and,
upon any matured obligations actually arising pursuant thereto, the
Indebtedness corresponding to the Contingent Obligations so
extinguished;
(iii) Company and its Subsidiaries may become and remain liable
with respect to Indebtedness in respect of Capital Leases; provided that
--------
such Capital Leases are permitted under the terms of subsection 7.9;
(iv) Company may become and remain liable with respect to
Indebtedness to any of its wholly-owned Subsidiaries, and any wholly-
owned Subsidiary of Company may become and remain liable with respect to
Indebtedness to Company or any other wholly-owned Subsidiary of Company;
provided that (a) all such intercompany Indebtedness shall be evidenced
--------
by promissory notes that are pledged to Agent pursuant to the terms of
the applicable Collateral Documents, (b) all such intercompany
Indebtedness owed by Company to any of its Subsidiaries or by any
Subsidiary to Company shall be subordinated in right of payment to the
payment in full of the Obligations pursuant to the terms of the
applicable promissory notes or an intercompany subordination agreement,
in each case approved by Agent, and (c) any payment by any Subsidiary of
Company under any guaranty of the Obligations shall result in a pro tanto
--- -----
reduction of the amount of any intercompany Indebtedness owed by such
Subsidiary to Company or to any of its Subsidiaries for whose benefit
such payment is made;
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(v) Company and its Subsidiaries, as applicable, may remain
liable with respect to each of the items of existing Indebtedness
described in Schedule 7.1 annexed hereto and any Indebtedness incurred to
------------
refinance such existing Indebtedness; provided that after giving effect
--------
to such refinancing Indebtedness and the repayment of the corresponding
existing Indebtedness with the proceeds thereof, (a) the aggregate
principal amount of the refinancing Indebtedness and the corresponding
existing Indebtedness so refinanced shall not be greater than the
outstanding principal amount of such existing Indebtedness immediately
prior to such refinancing, (b) the weighted average life to maturity of
such refinancing Indebtedness shall be no shorter than the existing
Indebtedness being refinanced and (c) such refinancing Indebtedness shall
not be secured by any additional property than that which secures the
existing Indebtedness being refinanced;
(vi) Company may become and remain liable with respect to
Indebtedness evidenced by the Senior Subordinated Notes in an aggregate
principal amount not to exceed $575,000,000;
(vii) Company and its Subsidiaries may become and remain liable
with respect to Indebtedness incurred to finance (or may assume
Indebtedness originally incurred to finance) (a) the purchase price of
equipment, fixtures and any other similar property or the remodeling or
other improvement costs of any facility of Company or any of its
Subsidiaries or (b) the purchase price of any Real Property Assets
consisting of fee interests in stores; provided that the aggregate
--------
principal amount of such Indebtedness when incurred (and, in the case of
assumed Indebtedness, when originally incurred) shall not be less than
80% or more than 100% of the fair market value of (i) the equipment,
fixtures and any other similar property acquired plus the reasonable
installation and delivery charges associated therewith or the remodeling
or other improvement costs relating to such facility or (ii) such Real
Property Assets, as applicable; provided further that (1) the aggregate
-------- -------
principal amount of all such Indebtedness incurred or assumed during any
Fiscal Year for purposes described in the first clause (a) of this
subsection 7.1(vii) shall not exceed $20,000,000 and (2) the aggregate
principal amount of all Indebtedness incurred to finance the purchase
price of any such Real Property Assets (together with assumed
Indebtedness originally incurred to finance the purchase price of any
such Real Property Assets) shall not exceed $10,000,000 at any time;
(viii) Company may become and remain liable with respect to
unsecured Indebtedness so long as each of the following conditions is
satisfied: (A) Company becomes liable with respect to such Indebtedness
concurrently with the termination of a lease of a Related Asset or the
transfer to Company of either (i) an unencumbered fee interest in a
Related Asset by the Owner Trustee or (ii) the proceeds realized by the
Owner Trustee or Company from the sale of a Related Asset (such proceeds,
the "Related Asset Proceeds"); (B) the principal amount of such
Indebtedness does not exceed the then outstanding amount of indebtedness
incurred by the Owner Trustee to
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acquire such Related Asset (the "Related Asset Notes"), the interest rate
on such Indebtedness does not exceed the interest rate on the Related
Asset Notes, the final stated maturity of, and interim amortization of,
such Indebtedness are on the dates and in the amounts required with
respect to the Related Asset Notes and the other terms and conditions
governing such Indebtedness are substantially the same as the terms and
conditions governing the Related Asset Notes, in each case as such rate,
final maturity date, amortization schedule and other terms and conditions
are in effect on the Closing Date; (C) if the Related Assets are
transferred to Company, Company closes an Asset Sale selling the Related
Assets so transferred not later than 90 days after such Related Assets
are transferred to Company; (D) the Net Asset Sale Proceeds of the Asset
Sale of the Related Assets or the Related Asset Proceeds, as the case may
be, are applied by Company to permanently reduce the outstanding
principal amount of Indebtedness of Company under this Agreement pursuant
to subsection 2.4B(iii)(a) within the third Business Day following the
date of receipt by Company of such Net Asset Sale Proceeds or Related
Asset Proceeds and without regard to any exclusions permitted pursuant to
clauses (i)-(vi) of the proviso therein contained; and (E) the
outstanding principal amount of the Indebtedness permitted pursuant to
this clause (viii) minus the sum of the Net Asset Sales Proceeds of all
-----
Asset Sales of Related Assets and all Related Asset Proceeds which have
been applied pursuant to the foregoing clause (D) shall not at any time
exceed $25,000,000;
(ix) Company and its Subsidiaries may become and remain liable
with respect to Indebtedness represented by Deferred Trade Payables in
an aggregate amount for all such Indebtedness not to exceed $5,000,000
at any time outstanding;
(x) Subsidiaries of Company acquired after the Closing Date, the
acquisition of which is permitted under this Agreement, may remain liable
with respect to Indebtedness existing immediately prior to the time any
such entity became a Subsidiary of Company in an aggregate amount for all
such Subsidiaries not to exceed $4,000,000 at any time outstanding;
provided that such Indebtedness is not incurred in contemplation of such
--------
acquisition; and
(xi) Company and its Subsidiaries may become and remain liable
with respect to other Indebtedness in an aggregate principal amount not
to exceed $10,000,000 at any time outstanding.
7.2 LIENS AND RELATED MATTERS.
-------------------------
A. PROHIBITION ON LIENS. Company shall not, and shall not
permit any of its Subsidiaries to, directly or indirectly, create, incur, assume
or permit to exist any Lien on or with respect to any property or asset of any
kind (including any document or instrument in respect of goods or accounts
receivable) of Company or any of its Subsidiaries, whether now owned or
hereafter acquired, or any income or profits therefrom, or file or permit the
filing of, or permit to remain in effect, any financing statement or other
similar notice of any Lien
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<PAGE>
with respect to any such property, asset, income or profits under the Uniform
Commercial Code of any State or under any similar recording or notice statute,
except:
(i) Permitted Encumbrances;
(ii) Liens granted pursuant to the Collateral Documents,
including Liens securing its obligations to one or more Interest Rate
Exchangers;
(iii) existing Liens described in Schedule 7.2 annexed hereto;
------------
(iv) Liens on (a) Real Property Assets consisting of fee
interests in stores or (b) equipment, fixtures and other similar property
of Company or any of its Subsidiaries, in each case securing Indebtedness
described in subsections 7.1(iii) and 7.1(vii); provided that such Liens
--------
shall extend only to the equipment, fixtures and other similar property
so financed and the proceeds thereof; provided, further, that with
-------- -------
respect to any such Lien described in clause (a) above, (1) no Event of
Default or Potential Event of Default shall have occurred and be
continuing at the time of incurrence or assumption of such Lien, (2) such
Lien is limited to such Real Property Assets (and equipment located in or
on such Real Property Assets), (3) the Indebtedness secured by such Lien
is Non-Recourse Indebtedness, and (4) the aggregate principal amount of
all Indebtedness secured by all such Liens shall not at any time exceed
$10,000,000;
(v) other Liens securing Indebtedness in an aggregate amount not
to exceed $5,000,000 at any time outstanding; provided that (a) any such
--------
Indebtedness shall be permitted under subsection 7.1 and (b) such Liens
shall not attach to any Collateral;
(vi) Liens securing Indebtedness permitted under subsection
7.1(x), which Liens are existing prior to the time the entity which
incurred such Indebtedness became a Subsidiary of Company; provided that
--------
such Liens were not incurred in connection with, or in contemplation of,
the acquisition of such Subsidiary and such Liens extend to or cover only
the property and assets of such entity which were covered by such Liens
and which were owned by such entity, in each case at the time such entity
became a Subsidiary of Company;
(vii) Liens in favor of third parties as consignors (or as
creditors of such consignors) in goods which are delivered to Company or
any of its Subsidiaries by such third parties on consignment in the
ordinary course of business, the value of which goods so held on
consignment shall at no time exceed $8,000,000 in the aggregate for
Company and its Subsidiaries; and
(viii) the replacement, extension or renewal of any Lien permitted
by this subsection 7.2A upon or in the same property subject to such Lien
and as security for the same obligations or any refinancings thereof;
provided that such Lien does not
--------
135
<PAGE>
extend to or cover any property other than the property covered by such
Lien immediately prior to such replacement, extension or renewal of such
Lien and the principal of the obligations secured thereby is not
increased.
B. EQUITABLE LIEN IN FAVOR OF LENDERS. If Company or any of its
Subsidiaries shall create or assume any Lien upon any of its properties or
assets, whether now owned or hereafter acquired, other than Liens excepted by
the provisions of subsection 7.2A, it shall make or cause to be made effective
provision whereby the Obligations will be secured by such Lien equally and
ratably with any and all other Indebtedness secured thereby as long as any such
Indebtedness shall be so secured; provided that, notwithstanding the foregoing,
--------
this covenant shall not be construed as a consent by Requisite Lenders to the
creation or assumption of any such Lien not permitted by the provisions of
subsection 7.2A.
C. NO FURTHER NEGATIVE PLEDGES. Except with respect to specific
property encumbered to secure payment of particular Indebtedness or to be sold
pursuant to an executed agreement with respect to an Asset Sale or as may be
provided for in the Senior Subordinated Note Indenture, neither Company nor any
of its Subsidiaries shall enter into any agreement prohibiting the creation or
assumption of any Lien upon any of its properties or assets, whether now owned
or hereafter acquired. The foregoing shall not prohibit the execution or
renewal of a store lease which by its terms prohibits the hypothecation of the
leasehold interest thereunder (but does not prohibit the incurrence
of liens on any property of Company and its Subsidiaries other than such
leasehold interest and equipment related thereto) if, despite the best efforts
of Company and its Subsidiaries in accordance with subsection 6.9, the lessor
will not agree to permit such hypothecation.
7.3 INVESTMENTS; JOINT VENTURES.
---------------------------
Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, make or own any Investment in any Person, including any
Joint Venture, except:
(i) Company and its Subsidiaries may make and own Investments in
Cash Equivalents;
(ii) Company and its Subsidiaries may continue to own the
Investments owned by them as of the Closing Date in any Subsidiaries of
Company and described on Schedule 5.1 annexed hereto as in effect on the
------------
Closing Date;
(iii) Company and its Subsidiaries may make intercompany loans to
the extent permitted under subsection 7.1(iv);
(iv) Company and its Subsidiaries may create or acquire new
Subsidiaries to the extent otherwise permitted under this Agreement;
provided that (a) any such new Subsidiary is wholly-owned by Company or
--------
one of its wholly-owned Subsidiaries and the provisions of subsections
6.8 and 6.9 have been complied with and (b) to the
136
<PAGE>
extent such creation or acquisition constitutes a Consolidated Capital
Expenditure, such Consolidated Capital Expenditure is permitted under
subsection 7.8;
(v) Company and its Subsidiaries may continue to own the
existing Investments owned by them and described in Schedule 7.3 annexed
------------
hereto;
(vi) Company or any of its Subsidiaries may, so long as no
Potential Event of Default or Event of Default has occurred and is
continuing or occurs as a result thereof, make Development Investments in
or to any Developer; provided that (a) no such Development Investment
--------
shall be permitted unless, at the time of the making of such Development
Investment, the Development Site and the store located or to be located
at the Development Site have been leased or irrevocably committed by the
Developer to be leased to Company or one of its Subsidiaries, (b) neither
Company nor any of its Subsidiaries may be or become a general partner of
any Developer or otherwise be liable in any manner for any Indebtedness
or any other obligations of any Developer (other than pursuant to
customary provisions contained in any lease pertaining to a Development
Site or a store leased to Company or one of its Subsidiaries) and (c) the
aggregate Development Investments, together with the maximum aggregate
liability, contingent or otherwise, of Company and its Subsidiaries in
respect of all Contingent Obligations under subsection 7.4(viii), shall
not exceed $30,000,000 at any time outstanding;
(vii) Company and its Subsidiaries may make and own Investments
received in connection with the bankruptcy of suppliers and customers or
received pursuant to a plan of reorganization of any supplier or
customer, in each case in settlement of delinquent obligations or
disputes with such suppliers or customers;
(viii) So long as no Event of Default or Potential Event of Default
shall have occurred and be continuing, Company or any of its Subsidiaries
may make loans to its employees for the purpose of purchasing Common
Stock of Company; provided that the aggregate amount of such loans shall
--------
not exceed $4,000,000 at any time outstanding;
(ix) Company and its Subsidiaries may accept promissory notes
received in consideration of, or the deferral of a portion of the sales
price accepted with respect to, any Asset Sale other than California
Asset Sales; provided that (a) the aggregate principal amount of such
--------
promissory notes and the deferred portion of such sales prices related to
all Asset Sales other than California Asset Sales shall not at any time
exceed $10,000,000 and (b) any such promissory notes so accepted shall be
pledged as security for the Obligations pursuant to the applicable
Collateral Document;
(x) Company or any of its Subsidiaries may, so long as no
Potential Event of Default or Event of Default has occurred and is
continuing or occurs as a result thereof, make California Development
Investments; provided that (a) neither Company
--------
137
<PAGE>
nor any of its Subsidiaries may be or become a general partner of any
Developer or otherwise be liable in any manner for any Indebtedness or
any other obligations of any Developer (other than pursuant to customary
provisions contained in any lease pertaining to a Development Site); (b)
the aggregate California Development Investments, together with the
maximum aggregate liability, contingent or otherwise, of Company and its
Subsidiaries in respect of all Contingent Obligations under subsection
7.4(ix), shall not exceed $30,000,000 at any time outstanding; (c)
California Development Investments may be made in cash only with respect
to Excess California Land or California Stores which are then subject to
an executed contract of sale or lease with a party not an Affiliate of
Company and the aggregate amount of all such cash California Development
Investments shall not exceed $15,000,000 at any time outstanding;
provided that up to $5,000,000 in California Development Investments may
--------
be made in cash with respect to Excess California Land or California
Stores which are not then subject to such an executed contract of sale or
lease;
(xi) Company and its Subsidiaries may accept promissory notes
received in consideration of, or the deferral of a portion of the sales
price accepted with respect to, any California Asset Sales; provided that
--------
the aggregate principal amount of such promissory notes and the deferred
portion of such sales prices related to California Asset Sales shall not
exceed (x) 25% of the aggregate sales prices related to California Asset
Sales until Company and its Subsidiaries have received the first
$33,800,000 in Net Asset Sale Proceeds from California Asset Sales, and
(y) 35% of the aggregate sales prices related to California Asset Sales
made after receipt by Company and its Subsidiaries of such $33,800,000;
and any such promissory notes so accepted shall be pledged as security
for the Obligations pursuant to the applicable Collateral Document;
(xii) Company and its Subsidiaries may make loans to redevelopment
agencies for business purposes in an aggregate amount not to exceed
$5,000,000 at any time outstanding;
(xiii) Company and its Subsidiaries may make and own Investments
(a) in suppliers in anticipation of becoming a customer of such suppliers
and in lieu of deposits, cash discounts or concessions and (b) in
connection with joint ventures with suppliers entered into in the
ordinary course of business; provided that the aggregate amount of all
--------
such Investments under clauses (a) and (b), together with the amount of
guarantees permitted under subsection 7.4(v), shall not exceed $5,000,000
at any time outstanding; and
(xiv) Company and its Subsidiaries may make and own other
Investments in an aggregate amount not to exceed at any time $5,000,000.
138
<PAGE>
7.4 CONTINGENT OBLIGATIONS.
----------------------
Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, create or become or remain liable with respect to any
Contingent Obligation, except:
(i) Subsidiaries of Company may become and remain liable with
respect to Contingent Obligations in respect of the Subsidiary Guaranty,
including Contingent Obligations thereunder for the benefit of Interest
Rate Exchangers;
(ii) Company and its Subsidiaries may become and remain liable
with respect to Contingent Obligations in respect of Letters of Credit;
(iii) Company may become and remain liable with respect to
Contingent Obligations under Hedge Agreements required under subsection
6.10 and under other Hedge Agreements with respect to Indebtedness, which
Hedge Agreements are in form and substance satisfactory to Agent;
(iv) Company and its Subsidiaries may become and remain liable
with respect to Contingent Obligations in respect of customary
indemnification and purchase price adjustment obligations incurred in
connection with Asset Sales or other sales of assets other than
guaranties of Indebtedness incurred by any Person acquiring all or any
portion of such assets for the purpose of financing such acquisition;
provided that the maximum assumable liability in respect of all such
--------
obligations shall at no time exceed the gross proceeds actually received
by Company and its Subsidiaries in connection with such Asset Sales and
other sales;
(v) Company and its Subsidiaries may become and remain liable
with respect to Contingent Obligations under guarantees in the ordinary
course of business of the obligations of suppliers, customers,
franchisees and licensees of Company and its Subsidiaries in an aggregate
amount which, together with the amount of Investments permitted under
subsection 7.3(xiii), shall not to exceed at any time $5,000,000;
(vi) Company may become and remain liable with respect to
Contingent Obligations under guarantees in respect of Operating Leases
and Capital Leases entered into by Company or any of its Subsidiaries
which are permitted under subsection 7.9;
(vii) Company and its Subsidiaries, as applicable, may remain
liable with respect to existing Contingent Obligations described in
Schedule 7.4 annexed hereto;
------------
(viii) Company and its Subsidiaries may, so long as no Potential
Event of Default or Event of Default has occurred and is continuing at
the time of becoming liable therefor or occurs as a result thereof,
become and remain liable with respect to Contingent Obligations that are
(x) guaranties of Development Investments described
139
<PAGE>
in clause (a) of the term "Development Investments" or (y) commitments by
Company or any of its Subsidiaries to make a Development Investment;
provided that, with respect to both clause (x) and clause (y) above, (1)
--------
no such Contingent Obligations shall be permitted unless, at the time of
becoming liable with respect to such Contingent Obligations, the
Development Site and the store located or to be located at the
Development Site have been leased or irrevocably committed by the
Developer to be leased to Company or one of its Subsidiaries, (2) neither
Company nor any of its Subsidiaries may be or become a general partner of
any Developer or otherwise be liable in any manner for any Indebtedness
or any other obligations of any Developer (other than pursuant to
customary provisions contained in any lease pertaining to a Development
Site or a store leased to Company or one of its Subsidiaries) and (3) the
maximum aggregate liability, contingent or otherwise, of Company and its
Subsidiaries in respect of all Contingent Obligations under this
subsection 7.4(viii), together with the aggregate Development
Investments under subsection 7.3(vi), shall not exceed $30,000,000 at any
time outstanding;
(ix) Company and its Subsidiaries may, so long as no Potential
Event of Default or Event of Default has occurred and is continuing at
the time of becoming liable therefor or occurs as a result thereof,
become and remain liable with respect to Contingent Obligations that are
(x) guaranties of California Development Investments described in clause
(a) of the term "California Development Investments" or (y) commitments
by Company or any of its Subsidiaries to make a California Development
Investment; provided that, with respect to both clauses (x) and (y)
--------
above, (1) no such Contingent Obligations shall be permitted unless, at
the time of becoming liable with respect to such Contingent Obligations,
neither Company nor any of its Subsidiaries may be or become a general
partner of any Developer or otherwise be liable in any manner for any
Indebtedness or any other obligations of any Developer (other than
pursuant to customary provisions contained in any lease pertaining to a
Development Site) and (2) the maximum aggregate liability, contingent or
otherwise, of Company and its Subsidiaries in respect of all Contingent
Obligations under this subsection 7.4(ix), together with the aggregate
California Development Investments under subsection 7.3(x), shall not
exceed $30,000,000 at any time outstanding;
(x) Subsidiaries of Company may become and remain liable with
respect to Contingent Obligations in respect of subordinated guaranties
in respect of the Senior Subordinated Notes in the form attached to, and
to the extent required to be made in accordance with the terms and
conditions of, the Senior Subordinated Note Indenture as in effect on the
Closing Date; and
(xi) Company and its Subsidiaries may become and remain liable
with respect to other Contingent Obligations; provided that the maximum
aggregate liability, contingent or otherwise, of Company and its
Subsidiaries in respect of all such Contingent Obligations shall at no
time exceed $7,000,000.
140
<PAGE>
7.5 RESTRICTED JUNIOR PAYMENTS; OTHER RESTRICTED PAYMENTS.
-----------------------------------------------------
A. Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart
any sum for any Restricted Junior Payment; provided that, so long as no Event of
--------
Default or Potential Event of Default shall have occurred and be continuing or
occurs as a result thereof: (i) on the Closing Date, Company may purchase for
cash up to approximately 13,400,000 shares in aggregate of Company's Class A
Common Stock and Class B Common Stock outstanding prior to the Closing Date
(including certain Existing Management Stock Options) for an aggregate price not
exceeding $465,000,000 pursuant to the Equity Tender Offer; (ii) on the Closing
Date, Company may redeem for cash up to approximately 3,000,000 shares of its
Redeemable Preferred Stock for an aggregate redemption price not exceeding
$1,000,000 pursuant to the Recapitalization and Merger Agreement; (iii) on the
Closing Date, Smitty's may redeem the Existing Smitty's Subordinated Notes for
an aggregate redemption price not exceeding $50,000,000, plus the payment of
accrued but unpaid interest thereon and premiums and consent payments with
respect thereto, as described in the Smitty's Debt Purchase Offers; (iv) Company
may redeem its Redeemable Preferred Stock at the times and in the amounts
required under its Restated Articles of Incorporation as in effect on the
Closing Date; (v) Company may make regularly scheduled payments of interest in
respect of the Senior Subordinated Notes in accordance with the terms of, and
only to the extent required by, and subject to the subordination provisions
contained in, the Senior Subordinated Note Indenture; and (vi) Company may make
regularly scheduled payments of interest in respect of Subordinated Indebtedness
(other than the Senior Subordinated Notes) in accordance with the terms of, and
only to the extent required by, and subject to the subordination provisions
contained in, the agreements, documents and indentures evidencing and/or
relating to such Subordinated Indebtedness. Neither Company nor any of its
Subsidiaries will directly or indirectly declare, order, pay or make, or set
apart any sum or property for, any Restricted Junior Payment or agree to do so
except as permitted by this subsection 7.5.
B. Company shall not, and shall not permit any of its
Subsidiaries to, directly or indirectly, declare, order, pay, make or set apart
any sum for any payment or prepayment of principal of, premium, if any, or
interest on, or redemption, purchase, retirement, defeasance (including in-
substance or legal defeasance), sinking fund or similar payment with respect to,
any Senior Indebtedness; provided that, so long as no Event of Default or
--------
Potential Event of Default shall have occurred and be continuing or occurs as a
result thereof, (i) Company may make payments of regularly scheduled interest in
respect of any Senior Indebtedness (other than Existing Smitty's Sinking Fund
Bonds) in accordance with the terms of and to the extent required by the
applicable Senior Debt Indenture and (ii) Saint Lawrence Holding Company may
make regularly scheduled interest and sinking fund payments in respect of any
Existing Smitty's Sinking Fund Bonds in accordance with the terms of and to the
extent required by the Existing Smitty's Sinking Fund Bond Indenture.
141
<PAGE>
7.6 FINANCIAL COVENANTS.
-------------------
A. MINIMUM FIXED CHARGE COVERAGE RATIO. Company shall not
permit the ratio of (i) the sum of Consolidated Adjusted EBITDA plus
Consolidated Rental Payments to (ii) Consolidated Fixed Charges (a) for the
Fiscal Quarter ending September 28, 1996, to be less than 1.20:1.00, (b) for the
two-Fiscal Quarter period ending December 28, 1996 to be less than 1.25:1.00,
(c) for the three-Fiscal Quarter period ending April 5, 1997, to be less than
1.25:1.00, and (d) thereafter, for any consecutive four-Fiscal Quarter period
ending as of the last day of any Fiscal Quarter set forth below to be less than
the correlative ratio indicated:
<TABLE>
<CAPTION>
MINIMUM FIXED
PERIOD CHARGE COVERAGE RATIO
--------------------------------- ---------------------
<S> <C>
Second Fiscal Quarter 1997 1.25:1.00
Third Fiscal Quarter 1997 1.20:1.00
Fourth Fiscal Quarter 1997 1.20:1.00
First Fiscal Quarter 1998 1.20:1.00
Second Fiscal Quarter 1998 1.20:1.00
Third Fiscal Quarter 1998 1.20:1.00
Fourth Fiscal Quarter 1998 1.25:1.00
First Fiscal Quarter 1999 1.25:1.00
Second Fiscal Quarter 1999 1.25:1.00
Third Fiscal Quarter 1999 1.25:1.00
Fourth Fiscal Quarter 1999 1.25:1.00
First Fiscal Quarter 2000 1.25:1.00
Second Fiscal Quarter 2000 1.25:1.00
Third Fiscal Quarter 2000 1.25:1.00
Fourth Fiscal Quarter 2000 1.25:1.00
First Fiscal Quarter 2001 1.30:1.00
Second Fiscal Quarter 2001 1.30:1.00
Third Fiscal Quarter 2001 1.30:1.00
Fourth Fiscal Quarter 2001 1.30:1.00
First Fiscal Quarter 2002 1.30:1.00
Second Fiscal Quarter 2002 1.30:1.00
Third Fiscal Quarter 2002 1.30:1.00
Fourth Fiscal Quarter 2002 1.30:1.00
</TABLE>
142
<PAGE>
<TABLE>
<S> <C>
First Fiscal Quarter 2003 1.35:1.00
Second Fiscal Quarter 2003 1.35:1.00
Third Fiscal Quarter 2003 1.35:1.00
Fourth Fiscal Quarter 2003 1.20:1.00
First Fiscal Quarter 2004 1.20:1.00
Second Fiscal Quarter 2004 1.20:1.00
Third Fiscal Quarter 2004 1.20:1.00
Fourth Fiscal Quarter 2004 1.20:1.00
First Fiscal Quarter 2005 1.20:1.00
Second Fiscal Quarter 2005 1.20:1.00
Third Fiscal Quarter 2005 1.20:1.00
</TABLE>
B. MAXIMUM LEVERAGE RATIO. Company shall not permit the ratio of
(i)(A) Consolidated Total Debt as of September 28, 1996, December 28, 1996, and
April 5, 1997, respectively, to (B) Consolidated Adjusted EBITDA multiplied by
-------------
(a) for the Fiscal Quarter ending September 28, 1996, 4.000, (b) for the two-
Fiscal Quarters ending December 28, 1996, 2.000 and (c) for the three-Fiscal
Quarters ending April 5, 1997, 1.325, (x) for the Fiscal Quarter ending
September 28, 1996, to exceed 7.1:1.00, (y) for the two-Fiscal Quarter period
ending December 28, 1996 to exceed 6.40:1.00 and (2) for the three-Fiscal
Quarter period ending April 5, 1997 to exceed 6.20:1.00, and (ii) (A)
Consolidated Total Debt as of the last day of any Fiscal Quarter set forth below
to (B) Consolidated Adjusted EBITDA for the four-Fiscal Quarter period ending on
such last day to exceed the correlative ratio indicated:
<TABLE>
<CAPTION>
PERIOD MAXIMUM LEVERAGE RATIO
--------------------------------- ---------------------------
<S> <C>
Second Fiscal Quarter 1997 5.90:1.00
Third Fiscal Quarter 1997 5.60:1.00
Fourth Fiscal Quarter 1997 5.50:1.00
First Fiscal Quarter 1998 5.40:1.00
Second Fiscal Quarter 1998 5.20:1.00
Third Fiscal Quarter 1998 5.10:1.00
Fourth Fiscal Quarter 1998 4.90:1.00
First Fiscal Quarter 1999 4.80:1.00
Second Fiscal Quarter 1999 4.70:1.00
Third Fiscal Quarter 1999 4.60:1.00
Fourth Fiscal Quarter 1999 4.50:1.00
</TABLE>
143
<PAGE>
<TABLE>
<S> <C>
First Fiscal Quarter 2000 4.40:1.00
Second Fiscal Quarter 2000 4.30:1.00
Third Fiscal Quarter 2000 4.20:1.00
Fourth Fiscal Quarter 2000 4.10:1.00
First Fiscal Quarter 2001 4.00:1.00
Second Fiscal Quarter 2001 3.90:1.00
Third Fiscal Quarter 2001 3.80:1.00
Fourth Fiscal Quarter 2001 3.70:1.00
First Fiscal Quarter 2002 3.60:1.00
Second Fiscal Quarter 2002 3.50:1.00
Third Fiscal Quarter 2002 3.40:1.00
Fourth Fiscal Quarter 2002 3.30:1.00
First Fiscal Quarter 2003 3.30:1.00
Second Fiscal Quarter 2003 3.20:1.00
Third Fiscal Quarter 2003 3.10:1.00
Fourth Fiscal Quarter 2003 2.80:1.00
First Fiscal Quarter 2004 2.80:1.00
Second Fiscal Quarter 2004 2.70:1.00
Third Fiscal Quarter 2004 2.50:1.00
Fourth Fiscal Quarter 2004 2.50:1.00
First Fiscal Quarter 2005 2.50:1.00
Second Fiscal Quarter 2005 2.50:1.00
Third Fiscal Quarter 2005 2.50:1.00
</TABLE>
C. MINIMUM CONSOLIDATED ADJUSTED EBITDA. Company shall not permit
Consolidated Adjusted EBITDA (a) for the Fiscal Quarter ending September 28,
1996, to be less than $51,900,000, (b) for the two-Fiscal Quarter period ending
December 28, 1996 to be less than $114,600,000, (c) for the three-Fiscal Quarter
period ending April 5, 1997, to be less than $177,700,000, and (d) thereafter,
for any consecutive four-Fiscal Quarter period ending as of the last day of any
Fiscal Quarter set forth below to be less than the correlative amount indicated:
<TABLE>
<CAPTION>
MINIMUM CONSOLIDATED
PERIOD ADJUSTED EBITDA
--------------------------------- -----------------------
<S> <C>
Second Fiscal Quarter 1997 $246,400,000
Third Fiscal Quarter 1997 257,500,000
Fourth Fiscal Quarter 1997 262,800,000
</TABLE>
144
<PAGE>
<TABLE>
<S> <C>
First Fiscal Quarter 1998 267,500,000
Second Fiscal Quarter 1998 275,000,000
Third Fiscal Quarter 1998 279,700,000
Fourth Fiscal Quarter 1998 283,600,000
First Fiscal Quarter 1999 286,200,000
Second Fiscal Quarter 1999 288,800,000
Third Fiscal Quarter 1999 291,700,000
Fourth Fiscal Quarter 1999 294,600,000
First Fiscal Quarter 2000 297,700,000
Second Fiscal Quarter 2000 300,600,000
Third Fiscal Quarter 2000 303,500,000
Fourth Fiscal Quarter 2000 304,500,000
First Fiscal Quarter 2001 305,500,000
Second Fiscal Quarter 2001 305,900,000
Third Fiscal Quarter 2001 308,400,000
Fourth Fiscal Quarter 2001 311,500,000
First Fiscal Quarter 2002 313,700,000
Second Fiscal Quarter 2002 316,700,000
Third Fiscal Quarter 2002 320,600,000
Fourth Fiscal Quarter 2002 324,000,000
First Fiscal Quarter 2003 327,000,000
Second Fiscal Quarter 2003 330,100,000
Third Fiscal Quarter 2003 333,200,000
Fourth Fiscal Quarter 2003 336,300,000
First Fiscal Quarter 2004 340,200,000
Second Fiscal Quarter 2004 343,800,000
Third Fiscal Quarter 2004 347,400,000
Fourth Fiscal Quarter 2004 351,200,000
First Fiscal Quarter 2005 354,000,000
Second Fiscal Quarter 2005 356,500,000
Third Fiscal Quarter 2005 359,000,000
</TABLE>
D. MINIMUM CONSOLIDATED NET WORTH. Company shall not permit
Consolidated Net Worth at any time during the period commencing on the day
immediately preceding
145
<PAGE>
the last day of such period set forth below to be less than the correlative
amount indicated below for such period set forth below:
<TABLE>
MINIMUM
PERIOD CONSOLIDATED NET WORTH
--------------------------------- ----------------------
<S> <C>
Third Fiscal Quarter 1996 ($115,300,000)
Fourth Fiscal Quarter 1996 (113,000,000)
First Fiscal Quarter 1997 (112,600,000)
Second Fiscal Quarter 1997 (110,800,000)
Third Fiscal Quarter 1997 (109,900,000)
Fourth Fiscal Quarter 1997 (103,800,000)
First Fiscal Quarter 1998 (97,800,000)
Second Fiscal Quarter 1998 (91,800,000)
Third Fiscal Quarter 1998 (85,800,000)
Fourth Fiscal Quarter 1998 (79,800,000)
First Fiscal Quarter 1999 (69,300,000)
Second Fiscal Quarter 1999 (58,800,000)
Third Fiscal Quarter 1999 (48,300,000)
Fourth Fiscal Quarter 1999 (37,800,000)
First Fiscal Quarter 2000 (23,700,000)
Second Fiscal Quarter 2000 (9,500,000)
Third Fiscal Quarter 2000 4,700,000
Fourth Fiscal Quarter 2000 18,900,000
First Fiscal Quarter 2001 34,400,000
Second Fiscal Quarter 2001 50,000,000
Third Fiscal Quarter 2001 65,500,000
Fourth Fiscal Quarter 2001 81,100,000
First Fiscal Quarter 2002 102,000,000
Second Fiscal Quarter 2002 122,900,000
Third Fiscal Quarter 2002 143,800,000
Fourth Fiscal Quarter 2002 164,800,000
First Fiscal Quarter 2003 188,800,000
Second Fiscal Quarter 2003 212,900,000
Third Fiscal Quarter 2003 237,000,000
Fourth Fiscal Quarter 2003 261,100,000
</TABLE>
146
<PAGE>
<TABLE>
<S> <C>
First Fiscal Quarter 2004 287,700,000
Second Fiscal Quarter 2004 314,400,000
Third Fiscal Quarter 2004 341,100,000
Fourth Fiscal Quarter 2004 367,800,000
First Fiscal Quarter 2005 385,000,000
Second Fiscal Quarter 2005 400,000,000
Third Fiscal Quarter 2005 450,000,000
</TABLE>
7.7 RESTRICTION ON FUNDAMENTAL CHANGES; ASSET SALES AND ACQUISITIONS.
----------------------------------------------------------------
Company shall not, and shall not permit any of its Subsidiaries to,
alter the corporate, capital or legal structure of Company or any of its
Subsidiaries, including the creation or acquisition of any Subsidiaries, or
enter into any transaction of merger or consolidation, or liquidate, wind-up or
dissolve itself (or suffer any liquidation or dissolution), or convey, sell,
lease or sub-lease (as lessor or sublessor), transfer or otherwise dispose of,
in one transaction or a series of transactions, all or any part of its business,
property or assets, whether now owned or hereafter acquired, or acquire by
purchase or otherwise all or a substantial portion of the business, property or
assets of, or stock or other evidence of beneficial ownership of, any Person or
any division or line of business of any Person, except:
(i) any wholly-owned Subsidiary of Company may be merged with or
into Company or any wholly-owned Subsidiary, or be liquidated, wound up
or dissolved, or all or any part of its business, property or assets may
be conveyed, sold, leased, transferred or otherwise disposed of, in one
transaction or a series of transactions, to Company or any wholly-owned
Subsidiary; provided that, in the case of such a merger or consolidation,
--------
Company or such wholly-owned Subsidiary shall be the continuing or
surviving corporation; and provided further that if any such transaction
--------
involves a Subsidiary Guarantor, the surviving corporation shall be
Company or a Subsidiary Guarantor;
(ii) Company and its Subsidiaries may make Consolidated Capital
Expenditures permitted under subsection 7.8 and Development Investments
(to the extent such Development Investments do not constitute
Consolidated Capital Expenditures) permitted under subsection 7.3(vi);
(iii) Company and its Subsidiaries may sell or otherwise dispose
of assets in transactions that do not constitute Asset Sales; provided
--------
that the consideration received for such assets shall be in an amount at
least equal to the fair market value thereof;
(iv) Company and its Subsidiaries may sell or otherwise dispose
of damaged, worn out or obsolete assets that are no longer necessary for
the proper conduct of their respective business for fair market value in
the ordinary course of business;
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<PAGE>
(v) Company and its Subsidiaries may sell grocery stores
(including equipment therein acquired after the date which precedes the
Closing Date by six months) opened or acquired after the date which
precedes the Closing Date by six months in connection with a concurrent
lease-back of such grocery stores (including such equipment) to the
extent such transactions are permitted under subsection 7.10;
(vi) Company and its Subsidiaries, as lessors or sublessors, may
lease or sublease any of their respective real or personal property in
the ordinary course of business;
(vii) Company may make California Asset Sales other than sales of
Related Assets; provided that the consideration received shall be in
--------
amount at least equal to the fair market value thereof and the proceeds
thereof shall be applied as required by subsection 2.4B(iii)(a); and
Company may make sales of Related Assets acquired pursuant to subsection
7.1(viii) or subsection 7.7(xi); provided that the consideration received
--------
shall be in an amount at least equal to the fair market value thereof and
the proceeds of the sale of the Related Asset shall be applied as
required by subsection 7.1(viii) or subsection 7.7(xi), as the case may
be;
(viii) Company and its Subsidiaries may make Asset Sales of stores
which are no longer useful to the business of Company and its
Subsidiaries; provided that the aggregate number of any stores sold
--------
pursuant to this clause (viii) shall not exceed five in any Fiscal Year
plus a number of stores equal to the difference between five and the
number of stores sold under this clause (viii) in the immediately
preceding Fiscal Year;
(ix) Company and its Subsidiaries may make Asset Sales of assets
having a fair market value not in excess of $5,000,000; provided that (x)
--------
the consideration received for such assets shall be in an amount at least
equal to the fair market value thereof and (y) the proceeds of such Asset
Sales shall be applied as required by subsection 2.4B(iii)(a);
(x) Company and its Subsidiaries may sell or otherwise dispose
of all or any portion of the manufacturing facilities, stores and related
personal property located at or used in connection with the operation of
such facilities and stores, in each case as listed on Schedule 7.7;
------------
provided that the consideration received shall be an amount at least
--------
equal to the fair market value thereof and the proceeds thereof shall be
applied as required by subsection 2.4B(iii)(a); and
(xi) Company may transfer a store to the Owner Trustee
concurrently with the receipt of an unencumbered fee interest in a
Related Asset so long as each of the following conditions is satisfied:
(A) the transfer is made in accordance with the terms of the
documentation governing the Related Assets as in effect on the Closing
Date or in accordance with terms which are approved by Arrangers; (B) the
fair market value of the store or stores transferred to the Owner Trustee
does not exceed the fair market
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<PAGE>
value of the Related Asset or Assets received by Company by more than
$100,000; (C) Company closes an Asset Sale selling such Related Asset not
later than 90 days after receipt of such Related Asset; and (D) the Net
Asset Sale Proceeds of the Asset Sale of the Related Asset are applied by
Company to permanently reduce the outstanding principal amount of
Indebtedness of Company under this Agreement pursuant to subsection
2.4B(iii)(a) within the third Business Day following the date of receipt
by Company of such Net Asset Sale Proceeds and without regard to any
exclusion permitted pursuant to clauses (i)-(vi) of the proviso therein
contained.
7.8 CONSOLIDATED CAPITAL EXPENDITURES.
---------------------------------
Company shall not, and shall not permit its Subsidiaries to, make or
incur Consolidated Capital Expenditures, in any Fiscal Year indicated below, in
an aggregate amount in excess of the corresponding amount (the "MAXIMUM
CONSOLIDATED CAPITAL EXPENDITURES AMOUNT") set forth below opposite such Fiscal
Year; provided that the Maximum Consolidated Capital Expenditures Amount for any
--------
Fiscal Year shall be increased (i) by an amount equal to the excess, if any (but
in no event more than 25% of the Maximum Consolidated Capital Expenditures
Amount for Fiscal Year 1996 as set forth in the table below and 15% of the
Maximum Consolidated Capital Expenditures Amount for the immediately preceding
Fiscal Year as set forth in the table below for each Fiscal Year thereafter) of
the Maximum Consolidated Capital Expenditures Amount for the immediately
preceding Fiscal Year (as adjusted in accordance with this proviso) over the
actual amount of Consolidated Capital Expenditures for such previous Fiscal
Year, (ii) by an amount up to, but in no event greater than, 10% of the Maximum
Consolidated Capital Expenditures Amount for the immediately following Fiscal
Year, as set forth in the table below, which amount described in this clause
(ii) shall reduce the Maximum Consolidated Capital Expenditures Amount for the
immediately following Fiscal Year and (iii) by an amount equal to (but in no
event greater than $25,000,000 for any Fiscal Year) the aggregate amount of Net
Asset Sale Proceeds (other than insurance proceeds, condemnation awards,
indemnity payments and Net Asset Sale Proceeds applied in accordance with
subsection 2.4B(iii)(a)(v)) received by Company and its Subsidiaries during such
Fiscal Year to the extent such proceeds have been reinvested in new stores or
the construction or remodeling of stores of Company and its Subsidiaries within
270 days of receipt in accordance with subsection 2.4B(iii)(a)(i)(A); provided,
--------
however that the amount which may be added to the Maximum Consolidated Capital
- -------
Expenditures Amount pursuant to clauses (i) and (ii) of the immediately
preceding proviso shall not exceed 40% of the Maximum Consolidated Capital
Expenditures Amount for Fiscal Year 1997 and 15% of the Maximum Consolidated
Capital Expenditures Amount for each Fiscal Year thereafter as set forth in the
table below:
149
<PAGE>
<TABLE>
<CAPTION>
MAXIMUM CONSOLIDATED
FISCAL YEAR CAPITAL EXPENDITURES
--------------------------------- ----------------------
<S> <C>
Closing Date to
1996 Fiscal Year End $76,300,000
Fiscal Year 1997 64,100,000
Fiscal Year 1998 63,700,000
Fiscal Year 1999 63,300,000
Fiscal Year 2000 67,100,000
Fiscal Year 2001 73,100,000
Fiscal Year 2002 74,700,000
Fiscal Year 2003 76,200,000
Fiscal Year 2004 78,200,000
January 2, 2005 to
August 31, 2005 55,000,000
</TABLE>
7.9 RESTRICTION ON LEASES.
---------------------
Company shall not, and shall not permit any of its Subsidiaries to,
become liable in any way, whether directly or by assignment or as a guarantor or
other surety, for the obligations of the lessee under any lease, whether an
Operating Lease or a Capital Lease (other than intercompany leases between
Company and its wholly-owned Subsidiaries), unless, immediately after giving
effect to the incurrence of liability with respect to such lease, all amounts
paid or payable under all Capital Leases and Operating Leases (net of sublease
income) at the time in effect during the then current Fiscal Year shall not
exceed the corresponding amount set forth below opposite such Fiscal Year:
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<PAGE>
<TABLE>
<CAPTION>
MAXIMUM
PERIOD LEASE PAYMENTS
--------------------------------- -----------------------
<S> <C>
Closing Date to
1996 Fiscal Year End $30,600,000
Fiscal Year 1997 71,500,000
Fiscal Year 1998 80,400,000
Fiscal Year 1999 89,300,000
Fiscal Year 2000 98,900,000
Fiscal Year 2001 113,900,000
Fiscal Year 2002 125,100,000
Fiscal Year 2003 134,800,000
Fiscal Year 2004 149,300,000
January 2, 2005 to
August 31, 2005 105,000,000
</TABLE>
7.10 SALES AND LEASE-BACKS.
---------------------
Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, become or remain liable as lessee or as a guarantor or
other surety with respect to any lease, whether an Operating Lease or a Capital
Lease, of any property (whether real, personal or mixed), whether now owned or
hereafter acquired, (i) which Company or any of its Subsidiaries has sold or
transferred or is to sell or transfer to any other Person (other than Company or
any of its Subsidiaries) or (ii) which Company or any of its Subsidiaries
intends to use for substantially the same purpose as any other property which
has been or is to be sold or transferred by Company or any of its Subsidiaries
to any Person (other than Company or any of its Subsidiaries) in connection with
such lease; provided that Company and its Subsidiaries may become and remain
--------
liable as lessee, guarantor or other surety with respect to any such lease if
and to the extent that Company or any of its Subsidiaries would be permitted to
enter into, and remain liable under, such lease under subsection 7.9.
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<PAGE>
7.11 SALE OR DISCOUNT OF RECEIVABLES.
-------------------------------
Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, sell with recourse, or discount or otherwise sell for
less than the face value thereof, any of its notes or accounts receivable.
7.12 TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES.
---------------------------------------------
Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, enter into or permit to exist any transaction
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with any Affiliate of Company, on
terms that are less favorable to Company or that Subsidiary, as the case may be,
than those that might be obtained at the time from Persons who are not such an
Affiliate; provided that the foregoing restriction shall not apply to (i) any
--------
transaction between Company and any of its wholly-owned Subsidiaries or between
any of its wholly-owned Subsidiaries; (ii) reasonable and customary fees paid to
members of the Boards of Directors of Company and its Subsidiaries; (iii)
issuances of stock, payments of bonuses and other transactions pursuant to
employment or compensation agreements, stock option agreements, indemnification
agreements, severance agreements and other arrangements, in each case as in
effect as of the Closing Date and unamended, and substantially similar
agreements as may hereafter become effective, in each case with officers or
directors who are Affiliates of Company or any of its Subsidiaries; (iv) payment
of consulting and other fees and expenses and the reimbursement of losses,
costs and expenses under the Management Agreement, as amended in accordance with
subsection 7.15A, and in form and substance satisfactory to Agent; (v) the
payment of fees and expenses to Yucaipa or its affiliates and designees and
other holders of capital stock of Smitty's in connection with the Acquisition,
in each case in amounts that are satisfactory to Agent; (vi) payments by Company
and its Subsidiaries pursuant to tax sharing agreements in effect from time to
time among Company and its Subsidiaries; or (vii) the issuance by Company of
common stock to Yucaipa pursuant to Yucaipa's exercise of the Yucaipa Warrant.
7.13 DISPOSAL OF SUBSIDIARY STOCK; RESTRICTIONS ON SUBSIDIARIES.
----------------------------------------------------------
A. Except for any sale of 100% of the capital stock or other
equity Securities of any of its Subsidiaries in compliance with the provisions
of subsection 7.7(i) and except pursuant to the Collateral Documents, Company
shall not and shall not permit any of its Subsidiaries to directly or indirectly
sell, assign, pledge or otherwise encumber or dispose of any shares of capital
stock or other equity Securities of any of its Subsidiaries, except to qualify
directors if required by applicable law, or in the case of Company's
Subsidiaries, to Company or to a wholly-owned Subsidiary of Company.
B. Except as provided herein or in any of the other Loan
Documents, the Senior Subordinated Note Indenture and in any other document
evidencing Indebtedness in existence on the Closing Date or any permitted
refinancing thereof as permitted under
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<PAGE>
subsection 7.1(v) (only so long as the agreements governing such refinancing
shall not contain covenants that are more restrictive than the covenants
contained in the indentures or documents so refinanced), Company will not, and
will not permit any of its Subsidiaries to, create or otherwise cause or suffer
to exist or become effective any consensual encumbrance or restriction of any
kind on the ability of any such Subsidiary to (i) pay dividends or make any
other distributions on any of such Subsidiary's capital stock owned by Company
or any other Subsidiary of Company, (ii) repay or prepay any Indebtedness owed
by such Subsidiary to Company or any other Subsidiary of Company, (iii) make
loans or advances to Company or any other Subsidiary of Company, or (iv)
transfer any of its property or assets to Company or any other Subsidiary of
Company.
7.14 CONDUCT OF BUSINESS.
-------------------
From and after the Closing Date, Company shall not, and shall not
permit any of its Subsidiaries to, engage in any business other than (i) the
businesses engaged in by Company and its Subsidiaries on the Closing Date and
similar or related businesses and (ii) such other lines of business as may be
consented to by Requisite Lenders.
7.15 AMENDMENTS OR WAIVERS OF CERTAIN RELATED AGREEMENTS; AMENDMENTS OF
------------------------------------------------------------------
DOCUMENTS RELATING TO SUBORDINATED INDEBTEDNESS; DESIGNATION OF
----------------------------------------------------------------
"DESIGNATED SENIOR INDEBTEDNESS".
--------------------------------
A. AMENDMENTS OR WAIVERS OF CERTAIN RELATED AGREEMENTS.
Company shall not, and shall not permit any of its Subsidiaries to, amend, waive
any of its rights under, or otherwise change the terms of any of the Related
Agreement (other than the Related Financing Documents) in each case as in effect
on the Closing Date, without the prior written consent of the Requisite Lenders,
if such amendment, waiver or change would increase materially the obligations of
Company or any of its Subsidiaries or confer additional rights on any other
party to any such agreement which would be adverse to Company or any of its
Subsidiaries.
B. AMENDMENTS OF DOCUMENTS RELATING TO SENIOR INDEBTEDNESS AND
SUBORDINATED INDEBTEDNESS. Company shall not, and shall not permit any of its
Subsidiaries to, amend or otherwise change the terms of any of the Senior
Indebtedness, the Senior Subordinated Notes, the Senior Debt Indentures or the
Senior Subordinated Note Indenture (collectively, "RESTRICTED AGREEMENTS"), or
make any payment consistent with an amendment thereof or change thereto, if the
effect of such amendment or change is to increase the interest rate on any such
Restricted Agreements, change any dates upon which payments of principal or
interest are due thereon, change any of the covenants with respect thereto in a
manner which is more restrictive to Company or any of its Subsidiaries, change
any event of default or condition to an event of default with respect thereto,
change the redemption, prepayment or defeasance provisions thereof,
change the subordination provisions (if any) thereof (or of any guaranty
thereof), or change any collateral therefor (other than to release such
collateral), or if the effect of such amendment or change, together with all
other
153
<PAGE>
amendments or changes made, is to increase the obligations of the obligor
thereunder or to confer any additional rights on the holders of any such
Restricted Agreements (or a trustee or other representative on their behalf)
which would be adverse to any Loan Party or Lenders.
C. DESIGNATION OF "DESIGNATED SENIOR INDEBTEDNESS". Company
shall not designate any Indebtedness as "Designated Senior Indebtedness" (as
defined in the Senior Subordinated Note Indenture) for purposes of the Senior
Subordinated Note Indenture without the prior written consent of Requisite
Lenders.
7.16 FISCAL YEAR
-----------
Company shall not change its Fiscal Year-end from the Saturday
closest to December 31.
SECTION 8. EVENTS OF DEFAULT
If any of the following conditions or events ("Events of Default")
shall occur:
8.1 FAILURE TO MAKE PAYMENTS WHEN DUE.
---------------------------------
Failure by Company to pay any installment of principal of any Loan
when due, whether at stated maturity, by acceleration, by notice of voluntary
prepayment, by mandatory prepayment or otherwise; failure by Company to pay when
due any amount payable to an Issuing Lender in reimbursement of any drawing
under a Letter of Credit; or failure by Company to pay any interest on any Loan
or any fee or any other amount due under this Agreement within five days after
the date due; or
8.2 DEFAULT IN OTHER AGREEMENTS.
---------------------------
(i) Failure of Company or any of its Subsidiaries to pay when
due (a) any principal of or interest on any Indebtedness (other than
Indebtedness referred to in subsection 8.1) in an individual principal amount of
$5,000,000 or more or any items of Indebtedness with an aggregate principal
amount of $10,000,000 or more or (b) any Contingent Obligation in an individual
principal amount of $5,000,000 or more or any Contingent Obligations with an
aggregate principal amount of $10,000,000 or more, in each case beyond the end
of any grace period provided therefor; or (ii) breach or default by Company or
any of its Subsidiaries with respect to any other material term of (a) any
evidence of any Indebtedness in an individual principal amount of $5,000,000 or
more or any items of Indebtedness with an aggregate principal amount of
$10,000,000 or more or any Contingent Obligation in an individual principal
amount of $5,000,000 or more or any Contingent Obligations with an aggregate
principal amount of $10,000,000 or more or (b) any loan agreement, mortgage,
indenture or other agreement relating to such Indebtedness or Contingent
Obligation(s), if the effect of such breach or default is to cause, or to permit
the
154
<PAGE>
holder or holders of that Indebtedness or Contingent Obligation(s) (or a trustee
on behalf of such holder or holders) to cause, that Indebtedness or Contingent
Obligation(s) to become or be declared due and payable prior to its stated
maturity or the stated maturity of any underlying obligation, as the case may be
(upon the giving or receiving of notice, lapse of time, both, or otherwise); or
8.3 BREACH OF CERTAIN COVENANTS.
---------------------------
Failure of Company to perform or comply with any term or condition
contained in subsection 2.5 or 6.2 or Section 7 of this Agreement; or
8.4 BREACH OF WARRANTY.
------------------
Any representation, warranty, certification or other statement made
by any Loan Party in any Loan Document or in any statement or certificate at any
time given by any Loan Party in writing pursuant hereto or thereto or in
connection herewith or therewith shall be false in any material respect on the
date as of which made; or
8.5 OTHER DEFAULTS UNDER LOAN DOCUMENTS.
-----------------------------------
Any Loan Party shall default in the performance of or compliance
with any term contained in this Agreement or any of the other Loan Documents,
other than any such term referred to in any other subsection of this Section 8,
and such default shall not have been remedied or waived within 30 days after the
receipt by Company of notice from Agent or any Lender of such default; or
8.6 INVOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
-----------------------------------------------------
(i) A court having jurisdiction in the premises shall enter a
decree or order for relief in respect of Company or any of its Subsidiaries
(other than an Inactive Subsidiary whose financial condition does not adversely
affect any other Loan Party) in an involuntary case under the Bankruptcy Code or
under any other applicable bankruptcy, insolvency or similar law now or
hereafter in effect, which decree or order is not stayed; or any other similar
relief shall be granted under any applicable federal or state law; or (ii) an
involuntary case shall be commenced against Company or any of its Subsidiaries
(other than an Inactive Subsidiary) under the Bankruptcy Code or under any other
applicable bankruptcy, insolvency or similar law now or hereafter in effect; or
a decree or order of a court having jurisdiction in the premises for the
appointment of a receiver, liquidator, sequestrator, trustee, custodian or other
officer having similar powers over Company or any of its Subsidiaries (other
than an Inactive Subsidiary), or over all or a substantial part of its property,
shall have been entered; or there shall have occurred the involuntary
appointment of an interim receiver, trustee or other custodian of Company or any
of its Subsidiaries (other than an Inactive Subsidiary) for all or a substantial
part of its property; or a warrant of attachment, execution or similar process
shall have been issued against any substantial part of the property of Company
or any
155
<PAGE>
of its Subsidiaries (other than an Inactive Subsidiary), and any such event
described in this clause (ii) shall continue for 60 days unless dismissed,
bonded or discharged; or
8.7 VOLUNTARY BANKRUPTCY; APPOINTMENT OF RECEIVER, ETC.
---------------------------------------------------
(i) Company or any of its Subsidiaries shall have an order for
relief entered with respect to it or commence a voluntary case under the
Bankruptcy Code or under any other applicable bankruptcy, insolvency or similar
law now or hereafter in effect, or shall consent to the entry of an order for
relief in an involuntary case, or to the conversion of an involuntary case to a
voluntary case, under any such law, or shall consent to the appointment of or
taking possession by a receiver, trustee or other custodian for all or a
substantial part of its property; or Company or any of its Subsidiaries shall
make any assignment for the benefit of creditors; or (ii) Company or any of its
Subsidiaries shall be unable, or shall fail generally, or shall admit in writing
its inability, to pay its debts as such debts become due; or the Board of
Directors of Company or any of its Subsidiaries (or any committee thereof) shall
adopt any resolution or otherwise authorize any action to approve any of the
actions referred to in clause (i) above or this clause (ii); or
8.8 JUDGMENTS AND ATTACHMENTS.
-------------------------
Any money judgment, writ or warrant of attachment or similar process
involving (i) in any individual case an amount in excess of $5,000,000 or (ii)
in the aggregate at any time an amount in excess of $10,000,000 (in either case
not adequately covered by insurance as to which a solvent and unaffiliated
insurance company has acknowledged coverage) shall be entered or filed against
Company or any of its Subsidiaries or any of their respective assets and shall
remain undischarged, unvacated, unbonded or unstayed for a period of 60 days (or
in any event later than five days prior to the date of any proposed sale
thereunder); or
8.9 DISSOLUTION.
-----------
Any order, judgment or decree shall be entered against Company or
any of its Subsidiaries decreeing the dissolution or split up of such Person and
such order shall remain undischarged or unstayed for a period in excess of 30
days; or
8.10 EMPLOYEE BENEFIT PLANS.
----------------------
There shall occur one or more ERISA Events which individually or in
the aggregate results in or could reasonably be expected to result in liability
of any of the Loan Parties or any of their respective ERISA Affiliates (unless
no Loan Party shall be jointly and severally liable therefor) in excess of
$5,000,000 during the term of this Agreement; or there shall exist an Amount of
Unfunded Benefit Liabilities individually or in the aggregate for all Pension
Plans (excluding for purposes of such computation (1) any Pension Plan which has
a negative Amount of Unfunded Benefit Liabilities and (2) any Pension Plan for
each neither
156
<PAGE>
Company nor any other Loan Party would have liability if the Pension Plan were
terminated) which exceeds $10,000,000; or
8.11 CHANGE IN CONTROL.
-----------------
A Change of Control shall have occurred; or
8.12 INVALIDITY OF SUBSIDIARY GUARANTY.
---------------------------------
Upon execution and delivery thereof, the Subsidiary Guaranty for any
reason, other than the satisfaction in full of all Obligations, ceases to be in
full force and effect (other than in accordance with its terms) or is declared
to be null and void, or any Loan Party denies that it has any further liability,
including without limitation with respect to future advances by Lenders, under
any Loan Document to which it is a party, or gives notice to such effect; or
8.13 FAILURE OF SECURITY.
-------------------
Any Collateral Document shall, at any time, cease to be in full
force and effect (other than by reason of a release of Collateral in accordance
with the terms thereof) or shall be declared null and void, or the validity or
enforceability thereof shall be contested by any Loan Party, or Agent shall not
have or cease to have a valid and perfected first priority security interest in
any significant part of the Collateral (other than as a direct result of a
breach by Agent of any obligation imposed on Agent under the Collateral
Documents); or
8.14 FAILURE TO CONSUMMATE THE TRANSACTIONS.
--------------------------------------
Any of the Transactions and related transactions contemplated hereby
(i) shall not be consummated in accordance with the Loan Documents and the
Related Agreements prior to or concurrently with or immediately after the making
of the initial Loans (and in any event on the Closing Date), or (ii) shall be
unwound, reversed or otherwise rescinded or modified in whole or in part for any
reason; or
8.15 ACTION UNDER RELATED FINANCING DOCUMENTS.
----------------------------------------
Any holder of any Indebtedness evidenced by the Related Financing
Documents shall file an action seeking the rescission thereof or damages or
injunctive relief relating thereto; or any event shall occur which, under the
terms of any Related Financing Documents, shall require Company or any of its
Subsidiaries to purchase, redeem or otherwise acquire or offer to purchase,
redeem or otherwise acquire all or any portion of any Indebtedness evidenced by
the Related Financing Documents; or Company or any of its Subsidiaries shall for
any other reason purchase, redeem or otherwise acquire or offer to purchase,
redeem or otherwise acquire, or make any other payments in respect of, all or
any portion of any Indebtedness evidenced by the Related Financing Documents,
except to the extent expressly permitted by subsection 7.5:
157
<PAGE>
THEN (i) upon the occurrence of any Event of Default described in subsection 8.6
or 8.7, each of (a) the unpaid principal amount of and accrued interest on the
Loans, (b) an amount equal to the maximum amount that may at any time be drawn
under all Letters of Credit then outstanding (whether or not any beneficiary
under any such Letter of Credit shall have presented, or shall be entitled at
such time to present, the drafts or other documents or certificates required to
draw under such Letter of Credit), and (c) all other Obligations shall
automatically become immediately due and payable, without presentment, demand,
protest or other requirements of any kind, all of which are hereby expressly
waived by Company, and the obligation of each Lender to make any Loan (including
the obligation of Swing Line Lender to make any Swing Line Loans), the
obligation of Agent to issue any Letter of Credit and the right of any Lender to
issue any Letter of Credit hereunder shall thereupon terminate, and (ii) upon
the occurrence and during the continuation of any other Event of Default, Agent
shall, upon the written request or with the written consent of Requisite
Lenders, by written notice to Company, declare all or any portion of the amounts
described in clauses (a) through (c) above to be, and the same shall forthwith
become, immediately due and payable, and the obligation of each Lender to make
any Loan (including the obligation of Swing Line Lender to make any Swing Line
Loans), the obligation of Agent to issue any Letter of Credit and the right of
any Lender to issue any Letter of Credit hereunder shall thereupon terminate;
provided that the foregoing shall not affect in any way the obligations of
- --------
Revolving Lenders to purchase participations in Letters of Credit as provided in
subsection 3.3C or the obligations of Lenders to purchase participations in any
unpaid Swing Line Loans as provided in subsection 2.1A(vi).
Any amounts described in clause (b) above, when received by Agent,
shall be held by Agent pursuant to the terms of the Collateral Account Agreement
and shall be applied as therein provided.
Notwithstanding anything contained in the second preceding
paragraph, if at any time within 60 days after an acceleration of the Loans
pursuant to such paragraph Company shall pay all arrears of interest and all
payments on account of principal which shall have become due otherwise than as a
result of such acceleration (with interest on principal and, to the extent
permitted by law, on overdue interest, at the rates specified in this Agreement)
and all Events of Default and Potential Events of Default (other than non-
payment of the principal of and accrued interest on the Loans, in each case
which is due and payable solely by virtue of acceleration) shall be remedied or
waived pursuant to subsection 10.6, then Requisite Lenders, by written notice to
Company, may at their option rescind and annul such acceleration and its
consequences; but such action shall not affect any subsequent Event of Default
or Potential Event of Default or impair any right consequent thereon. The
provisions of this paragraph are intended merely to bind Lenders to a decision
which may be made at the election of Requisite Lenders and are not intended to
benefit Company and do not grant Company the right to require Lenders to rescind
or annul any acceleration hereunder, even if the conditions set forth herein are
met.
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SECTION 9. AGENT
9.1 APPOINTMENT.
-----------
A. APPOINTMENT OF AGENT. Each Lender hereby appoints, and each
Interest Rate Exchanger, by its acceptance of the benefits of this Agreement and
the other Loan Documents, shall be deemed to have appointed, Bankers as Agent
hereunder and under the other Loan Documents and each Lender hereby authorizes,
and each Interest Rate Exchanger, by its acceptance of the benefits of this
Agreement and the other Loan Documents, shall be deemed to have authorized,
Agent to act as its agent in accordance with the terms of this Agreement and the
other Loan Documents, and each Interest Rate Exchanger is considered to be a
"lender" for purposes of this Section 9. Each Lender hereby appoints Bankers and
Chase as Arrangers hereunder. Agent agrees to act upon the express conditions
contained in this Agreement and the other Loan Documents, as applicable. The
provisions of this Section 9 are solely for the benefit of Agent, Arrangers,
Co-Agents and Lenders and no Loan Party shall have any rights as a third party
beneficiary of any of the provisions thereof. In performing its functions and
duties under this Agreement, and other than as expressly provided for in
subsection 2.1D(v), Agent shall act solely as an agent of Lenders and does not
assume and shall not be deemed to have assumed any obligation towards or
relationship of agency or trust with or for any Loan Party. Each Lender named as
an Arranger hereunder shall have no duties or responsibilities under this
Agreement or any other Loan Document to any Person, other than as a Lender
hereunder and thereunder.
B. APPOINTMENT OF SUPPLEMENTAL COLLATERAL AGENTS. It is the purpose of
this Agreement and the other Loan Documents that there shall be no violation of
any law of any jurisdiction denying or restricting the right of banking
corporations or associations to transact business as agent or trustee in such
jurisdiction. It is recognized that in case of litigation under this Agreement
or any of the other Loan Documents, and in particular in case of the enforcement
of any of the Loan Documents, or in case Agent deems that by reason of any
present or future law of any jurisdiction it may not exercise any of the rights,
powers or remedies granted herein or in any of the other Loan Documents or take
any other action which may be desirable or necessary in connection therewith, it
may be necessary that Agent appoint an additional individual or institution as a
separate trustee, co-trustee, collateral agent or collateral co-agent (any such
additional individual or institution being referred to herein individually as a
"SUPPLEMENTAL COLLATERAL AGENT" and collectively as "SUPPLEMENTAL COLLATERAL
AGENTS").
In the event that Agent appoints a Supplemental Collateral Agent
with respect to any Collateral, (i) each and every right, power, privilege or
duty expressed or intended by this Agreement or any of the other Loan Documents
to be exercised by or vested in or conveyed to Agent with respect to such
Collateral shall be exercisable by and vest in such Supplemental Collateral
Agent to the extent, and only to the extent, necessary to enable such
Supplemental Collateral Agent to exercise such rights, powers and privileges
with respect to such Collateral and to perform such duties with respect to such
Collateral, and every covenant
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and obligation contained in the Loan Documents and necessary to the exercise or
performance thereof by such Supplemental Collateral Agent shall run to and be
enforceable by either Agent or such Supplemental Collateral Agent, and (ii) the
provisions of this Section 9 and of subsections 10.2 and 10.3 that refer to
Agent shall inure to the benefit of such Supplemental Collateral Agent and all
references therein to Agent shall be deemed to be references to Agent and/or
such Supplemental Collateral Agent, as the context may require.
Should any instrument in writing from Company or any other Loan
Party be required by any Supplemental Collateral Agent so appointed by Agent for
more fully and certainly vesting in and confirming to him or it such rights,
powers, privileges and duties, Company shall, or shall cause such Loan Party to,
execute, acknowledge and deliver any and all such instruments promptly upon
request by Agent. In case any Supplemental Collateral Agent, or a successor
thereto, shall die, become incapable of acting, resign or be removed, all the
rights, powers, privileges and duties of such Supplemental Collateral Agent, to
the extent permitted by law, shall vest in and be exercised by Agent until the
appointment of a new Supplemental Collateral Agent.
9.2 POWERS AND DUTIES; GENERAL IMMUNITY.
-----------------------------------
A. POWERS; DUTIES SPECIFIED. Each Lender irrevocably authorizes Agent
to take such action on such Lender's behalf and to exercise such powers, rights
and remedies hereunder and under the other Loan Documents as are specifically
delegated or granted to Agent by the terms hereof and thereof, together with
such powers, rights and remedies as are reasonably incidental thereto. Agent
shall have only those duties and responsibilities that are expressly specified
in this Agreement and the other Loan Documents. Agent may exercise such powers,
rights and remedies and perform such duties by or through its agents or
employees. Agent shall not have, by reason of this Agreement or any of the other
Loan Documents, a fiduciary relationship in respect of any Lender; and nothing
in this Agreement or any of the other Loan Documents, expressed or implied, is
intended to or shall be so construed as to impose upon Agent any obligations in
respect of this Agreement or any of the other Loan Documents except as expressly
set forth herein or therein.
B. NO RESPONSIBILITY FOR CERTAIN MATTERS. Agent shall not be
responsible to any Lender for the execution, effectiveness, genuineness,
validity, enforceability, collectibility or sufficiency of this Agreement or any
other Loan Document or for any representations, warranties, recitals or
statements made herein or therein or made in any written or oral statements or
in any financial or other statements, instruments, reports or certificates or
any other documents furnished or made by Agent to Lenders or by or on behalf of
Company to Agent or any Lender in connection with the Loan Documents and the
transactions contemplated thereby or for the financial condition or business
affairs of Company or any other Person liable for the payment of any
Obligations, nor shall Agent be required to ascertain or inquire as to the
performance or observance of any of the terms, conditions, provisions, covenants
or agreements contained in any of the Loan Documents or as to the use of the
proceeds of the Loans or the use of the Letters of Credit or as to the existence
or
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possible existence of any Event of Default or Potential Event of Default.
Anything contained in this Agreement to the contrary notwithstanding, Agent
shall not have any liability arising from confirmations of the amount of
outstanding Loans or the Letter of Credit Usage or the component amounts
thereof.
C. EXCULPATORY PROVISIONS. Neither Agent nor any of its officers,
directors, employees or agents shall be liable to Lenders for any action taken
or omitted by Agent under or in connection with any of the Loan Documents except
to the extent caused by Agent's gross negligence or willful misconduct. Agent
shall be entitled to refrain from any act or the taking of any action (including
the failure to take an action) in connection with this Agreement or any of the
other Loan Documents or from the exercise of any power, discretion or authority
vested in it hereunder or thereunder unless and until Agent shall have received
instructions in respect thereof from Requisite Lenders (or such other Lenders as
may be required to give such instructions under subsection 10.6) and, upon
receipt of such instructions from Requisite Lenders (or such other Lenders, as
the case may be), Agent shall be entitled to act or (where so instructed)
refrain from acting, or to exercise such power, discretion or authority, in
accordance with such instructions. Without prejudice to the generality of the
foregoing, (i) Agent shall be entitled to rely, and shall be fully protected in
relying, upon any communication, instrument or document believed by it to be
genuine and correct and to have been signed or sent by the proper person or
persons, and shall be entitled to rely and shall be protected in relying on
opinions and judgments of attorneys (who may be attorneys for Company and its
Subsid iaries), accountants, experts and other professional advisors selected by
it; and (ii) no Lender shall have any right of action whatsoever against Agent
as a result of Agent acting or (where so instructed) refraining from acting
under this Agreement or any of the other Loan Documents in accordance with the
instructions of Requisite Lenders (or such other Lenders as may be required to
give such instructions under subsection 10.6).
D. AGENT ENTITLED TO ACT AS LENDER. The agency hereby created shall in
no way impair or affect any of the rights and powers of, or impose any duties or
obligations upon, Agent in its individual capacity as a Lender hereunder. With
respect to its par ticipation in the Loans and the Letters of Credit, Agent
shall have the same rights and powers hereunder as any other Lender and may
exercise the same as though it were not performing the duties and functions
delegated to it hereunder, and the term "Lender" or "Lenders" or any similar
term shall, unless the context clearly otherwise indicates, include Agent in its
individual capacity. Agent and its Affiliates may accept deposits from, lend
money to and generally engage in any kind of banking, trust, financial advisory
or other business with Company or any of its Affiliates as if it were not
performing the duties specified herein, and may accept fees and other
consideration from Company for services in connection with this Agreement and
otherwise without having to account for the same to Lenders.
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9.3 REPRESENTATIONS AND WARRANTIES; NO RESPONSIBILITY FOR APPRAISAL OF CREDIT
-------------------------------------------------------------------------
WORTHINESS.
----------
Each Lender represents and warrants that it has made its own
independent investigation of the financial condition and affairs of Company and
its Subsidiaries in connection with the making of the Loans and the issuance of
Letters of Credit hereunder and that it has made and shall continue to make its
own appraisal of the creditworthiness of Company and its Subsidiaries. Agent
shall not have any duty or responsibility, either initially or on a continuing
basis, to make any such investigation or any such appraisal on behalf of Lenders
or to provide any Lender with any credit or other information with respect
thereto, whether coming into its possession before the making of the Loans or at
any time or times thereafter, and Agent shall not have any responsibility with
respect to the accuracy of or the completeness of any information provided to
Lenders.
9.4 RIGHT TO INDEMNITY.
------------------
Each Lender, in proportion to its Pro Rata Share, severally agrees
to indemnify Agent, to the extent that Agent shall not have been reimbursed by
Company, for and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses (including, without
limitation, counsel fees and disbursements) or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against Agent
in exercising its powers, rights and remedies or performing its duties hereunder
or under the other Loan Documents or otherwise in its capacity as Agent in any
way relating to or arising out of this Agreement or the other Loan Documents;
provided that no Lender shall be liable for any portion of such liabilities,
- --------
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from Agent's gross negligence or willful
misconduct. If any indemnity furnished to Agent for any purpose shall, in the
opinion of Agent, be insufficient or become impaired, Agent may call for
additional indemnity and cease, or not commence, to do the acts indemnified
against until such additional indemnity is furnished.
9.5 SUCCESSOR AGENT AND SWING LINE LENDER.
-------------------------------------
A. SUCCESSOR AGENT. Agent may resign at any time by giving 30
days' prior written notice thereof to Lenders and Company, and Agent may be
removed at any time with or without cause by an instrument or concurrent
instruments in writing delivered to Company and Agent and signed by Requisite
Lenders. Upon any such notice of resignation or any such removal, Requisite
Lenders shall have the right, upon five Business Days' notice to Company, to
appoint a successor Agent. Upon the acceptance of any appointment as Agent
hereunder by a successor Agent, that successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring or removed Agent and the retiring or removed Agent shall be discharged
from its duties and obligations under this Agreement. After any retiring or
removed Agent's resignation or removal
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hereunder as Agent, the provisions of this Section 9 shall inure to its benefit
as to any actions taken or omitted to be taken by it while it was Agent under
this Agreement.
B. SUCCESSOR SWING LINE LENDER. Any resignation or removal of
Agent pursuant to subsection 9.5A shall also constitute the resignation or
removal of Agent or its successor as Swing Line Lender, and any successor Agent
appointed pursuant to subsection 9.5A shall, upon its acceptance of such
appointment, become the successor Swing Line Lender for all purposes hereunder.
In such event (i) Company shall prepay any outstanding Swing Line Loans made by
the retiring or removed Agent in its capacity as Swing Line Lender, (ii) upon
such prepayment, the retiring or removed Agent and Swing Line Lender shall
surrender the Swing Line Note held by it to Company for cancellation, and (iii)
Company shall issue a new Swing Line Note to the successor Agent and Swing Line
Lender substantially in the form of Exhibit VI annexed hereto, in the principal
----------
amount of the Swing Line Loan Commitment then in effect and with other
appropriate insertions.
9.6 COLLATERAL DOCUMENTS AND SUBSIDIARY GUARANTY.
--------------------------------------------
Each Lender hereby further authorizes Agent, on behalf of and for
the benefit of Lenders, to enter into each Collateral Document as secured party
and to be the agent for and representative of Lenders under the Subsidiary
Guaranty, and each Lender agrees to be bound by the terms of each Collateral
Document and the Subsidiary Guaranty; provided that Agent shall not (i) enter
--------
into or consent to any material amendment, modification, termination or waiver
of any provision contained in any Collateral Document or the Subsidiary Guaranty
or (ii) release any Collateral (except as otherwise expressly permitted or
required pursuant to the terms of this Agreement or the applicable Collateral
Document), in each case without the prior consent of Requisite Lenders (or, if
required pursuant to subsection 10.6, all Lenders); provided further, however,
-------- ------- -------
that, without further written consent or authorization from Lenders, Agent may
execute any documents or instruments necessary to (a) release any Lien
encumbering any item of Collateral that is the subject of a sale or other
disposition of assets permitted by this Agreement or to which Requisite Lenders
have otherwise consented or (b) release any Subsidiary Guarantor from the
Subsidiary Guaranty if all of the capital stock of such Subsidiary Guarantor is
sold to any Person (other than an Affiliate of Company) pursuant to a sale or
other disposition permitted hereunder or to which Requisite Lenders have
otherwise consented. Anything contained in any of the Loan Documents to the
contrary notwithstanding, Company, Agent and each Lender hereby agree that (X)
no Lender shall have any right individually to realize upon any of the
Collateral under any Collateral Document or to enforce the Subsidiary Guaranty,
it being understood and agreed that all powers, rights and remedies under the
Collateral Documents and the Subsidiary Guaranty may be exercised solely by
Agent for the benefit of Lenders in accordance with the terms thereof, and (Y)
in the event of a foreclosure by Agent on any of the Collateral pursuant to a
public or private sale, Agent or any Lender may be the purchaser of any or all
of such Collateral at any such sale and Agent, as agent for and representative
of Lenders (but not any Lender or Lenders in its or their respective individual
capacities unless Requisite Lenders shall otherwise agree in writing) shall be
entitled, for the purpose of bidding and making settlement or
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payment of the purchase price for all or any portion of the Collateral sold at
any such public sale, to use and apply any of the Obligations as a credit on
account of the purchase price for any collateral payable by Agent at such sale.
SECTION 10. MISCELLANEOUS
10.1 ASSIGNMENTS AND PARTICIPATIONS IN LOANS AND LETTERS OF CREDIT.
-------------------------------------------------------------
A. GENERAL. Subject to subsection 10.1B, each Lender shall have the
right at any time to (i) sell, assign or transfer to any Eligible Assignee, or
(ii) sell participations to any Person in, all or any part of its Commitments or
any Loan or Loans made by it or its Letters of Credit or participations therein
or any other interest herein or in any other Obligations owed to it; provided
--------
that no such sale, assignment, transfer or participation shall, without the
consent of Company, require Company to file a registration statement with the
Securities and Exchange Commission or apply to qualify such sale, assignment,
transfer or participation under the securities laws of any state; provided,
--------
further that no such sale, assignment or transfer described in clause (i) above
- -------
shall be effective unless and until an Assignment Agreement effecting such sale,
assignment or transfer shall have been accepted by Agent and recorded in the
Register as provided in subsection 10.1B(ii); provided, further that no such
-------- -------
sale, assignment, transfer or participation of any Letter of Credit or any
participation therein may be made separately from a sale, assignment, transfer
or participation of a corresponding interest in the Revolving Loan Commitment
and the Revolving Loans of the Lender effecting such sale, assignment, transfer
or participation; and provided, further that, anything contained herein to the
-------- -------
contrary notwithstanding, the Swing Line Loan Commitment and the Swing Line
Loans of Swing Line Lender may not be sold, assigned or transferred as described
in clause (i) above to any Person other than a successor Agent and Swing Line
Lender to the extent contemplated by subsection 9.5. Except as otherwise
provided in this subsection 10.1, no Lender shall, as between Company and such
Lender, be relieved of any of its obligations hereunder as a result of any sale,
assignment or transfer of, or any granting of participations in, all or any part
of its Commitments or the Loans, the Letters of Credit or participations
therein, or the other Obligations owed to such Lender.
B. ASSIGNMENTS.
(i) Amounts and Terms of Assignments. Each Commitment, Loan,
--------------------------------
Letter of Credit or participation in any Letter of Credit or in any Swing
Line Loan, or other Obligation may (a) be assigned in any amount to
another Lender, or to an Affiliate of the assigning Lender or another
Lender, with the giving of notice to Company and Agent or (b) be assigned
in an aggregate amount of not less than $5,000,000 (or such lesser amount
as shall constitute the aggregate amount of the Commitments, Loans,
Letters of Credit and participations in any Letter of Credit or in any
Swing Line Loan, and other Obligations of the assigning Lender) to any
other Eligible Assignee, with the consent of Company and Agent (which
consent of Company and Agent shall not be
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unreasonably withheld or delayed). To the extent of any such assignment
in accordance with either clause (a) or (b) above, the assigning Lender
shall be relieved of its obligations with respect to its Commitments,
Loans, Letters of Credit or participations therein, or other Obligations
or the portion thereof so assigned. The parties to each such assignment
shall execute and deliver to Agent, for its acceptance and recording in
the Register, an Assignment Agreement, together with a processing and
recordation fee of, in the case of assignments to a Lender or an
Affiliate of Lender, $1,500 and, in the case of assignments to any other
Eligible Assignee, $3,500 and such forms, certificates or other evidence,
if any, with respect to United States federal income tax withholding
matters as the assignee under such Assignment Agreement may be required
to deliver to Agent pursuant to subsection 2.7B(iii)(a). Upon such
execution, delivery, acceptance and recordation, from and after the
effective date specified in such Assignment Agreement, (y) the assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such
Assignment Agreement, shall have the rights and obligations of a Lender
hereunder and (z) the assigning Lender thereunder shall, to the extent
that rights and obligations hereunder have been assigned by it pursuant
to such Assignment Agreement, relinquish its rights (other than any
rights which survive the termination of this Agreement under subsection
10.9B) and be released from its obligations under this Agreement (and, in
the case of an Assignment Agreement covering all or the remaining portion
of an assigning Lender's rights and obligations under this Agreement,
such Lender shall cease to be a party hereto); provided that, anything
--------
contained in any of the Loan Documents to the contrary notwithstanding,
if such Lender is the Issuing Lender with respect to any outstanding
Letters of Credit such Lender shall continue to have all rights and
obligations of an Issuing Lender with respect to such Letters of Credit
until the cancellation or expiration of such Letters of Credit and the
reimbursement of any amounts drawn thereunder). The Commitments hereunder
shall be modified to reflect the Commitment of such assignee and any
remaining Commitment of such assigning Lender and, if any such assignment
occurs after the issuance of the Notes hereunder, the assigning Lender
shall, upon the effectiveness of such assignment or as promptly
thereafter as practicable, surrender its applicable Notes to Agent for
cancellation, and thereupon new Notes shall be issued to the assignee and
to the assigning Lender, substantially in the form of Exhibit IV-A,
------------
Exhibit IV-B, Exhibit IV-C, Exhibit IV-D or Exhibit V annexed hereto, as
------------ ------------ ------------ ---------
the case may be, with appropriate insertions, to reflect the new
Commitments and/or outstanding Term Loans, as the case may be, of the
assignee and/or the assigning Lender.
(ii) Acceptance by Agent; Recordation in Register. Upon its
--------------------------------------------
receipt of an Assignment Agreement executed by an assigning Lender and an
assignee representing that it is an Eligible Assignee, together with the
processing and recordation fee referred to in subsection 10.1B(i) and any
forms, certificates or other evidence with respect to United States
federal income tax withholding matters that such assignee may be required
to deliver to Agent pursuant to subsection 2.7B(iii)(a), Agent shall, if
Agent
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and Company have consented to the assignment evidenced thereby (in each
case to the extent such consent is required pursuant to subsection
10.1B(i)), (a) accept such Assignment Agreement by executing a
counterpart thereof as provided therein (which acceptance shall evidence
any required consent of Agent to such assignment), (b) record the
information contained therein in the Register, and (c) give prompt notice
thereof to Company. Agent shall maintain a copy of each Assignment
Agreement delivered to and accepted by it as provided in this subsection
10.1B(ii).
C. PARTICIPATIONS. The holder of any participation, other than an
Affiliate of the Lender granting such participation, shall not be entitled to
require such Lender to take or omit to take any action hereunder except action
directly affecting (i) the extension of the scheduled final maturity date of any
portion of the principal amount of or the postponement of the date of payment of
interest on any Loan allocated to such participation (it being understood that
changes in interim amortization amounts are not extensions of scheduled final
maturity dates), or the extension of the stated expiration date beyond the
Revolving Loan Commitment Termination Date of any Letter of Credit allocated to
such participation, or (ii) a reduction of the principal amount of or the rate
of interest payable on any Loan allocated to such participation (other than any
waiver of any increase in the interest rate applicable to the Loans pursuant to
subsection 2.2E), and all amounts payable by Company hereunder (including
without limitation amounts payable to such Lender pursuant to subsections 2.6D,
2.7 and 3.6) shall be determined as if such Lender had not sold such
participation. Company and each Lender hereby acknowledge and agree that, solely
for purposes of subsections 10.4 and 10.5, (a) any participation will give rise
to a direct obligation of Company to the participant and (b) the participant
shall be considered to be a "Lender".
D. ASSIGNMENTS TO FEDERAL RESERVE BANKS. In addition to the
assignments and participations permitted under the foregoing provisions of this
subsection 10.1, any Lender may assign and pledge all or any portion of its
Loans, the other Obligations owed to such Lender, and its Notes to any Federal
Reserve Bank as collateral security pursuant to Regulation A of the Board of
Governors of the Federal Reserve System and any operating circular issued by
such Federal Reserve Bank; provided that (i) no Lender shall, as between Company
--------
and such Lender, be relieved of any of its obligations hereunder as a result of
any such assignment and pledge and (ii) in no event shall such Federal Reserve
Bank be considered to be a "Lender" or be entitled to require the assigning
Lender to take or omit to take any action hereunder.
E. INFORMATION. Each Lender may furnish any information concerning
Company and its Subsidiaries in the possession of that Lender from time to time
to assignees and participants (including prospective assignees and
participants), subject to subsection 10.19.
F. REPRESENTATIONS OF LENDERS. Each Lender listed on the signature
pages hereof hereby represents and warrants (i) that it is an Eligible Assignee
described in clause (A) of the definition thereof; (ii) that it has experience
and expertise in the making of loans such as the Loans; and (iii) that it will
make its Loans for its own account in the ordinary course of
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its business and without a view to distribution of such Loans within the meaning
of the Securities Act or the Exchange Act or other federal securities laws (it
being understood that, subject to the provisions of this subsection 10.1, the
disposition of such Loans or any interests therein shall at all times remain
within its exclusive control). Each Lender that becomes a party hereto pursuant
to an Assignment Agreement shall be deemed to agree that the representations and
warranties of such Lender contained in Section 2(c) of such Assignment Agreement
are incorporated herein by this reference.
10.2 EXPENSES.
--------
Whether or not the transactions contemplated hereby shall be
consummated, Company agrees to pay promptly (i) all the actual and reasonable
costs and expenses of the Arrangers incurred in preparation of the Loan
Documents and any consents, amendments, waivers or other modifications thereto;
(ii) all the costs of furnishing all opinions by counsel for Company (including
without limitation any opinions requested by Lenders as to any legal matters
arising hereunder) and of Company's performance of and compliance with all
agreements and conditions on its part to be performed or complied with under
this Agreement and the other Loan Documents including, without limitation, with
respect to confirming compliance with environmental and insurance requirements;
(iii) the reasonable fees, expenses and disbursements of counsel to Agent
(including internal counsel) in connection with the negotiation, preparation,
execution and administration of the Loan Documents and any consents, amendments,
waivers or other modifications thereto and any other documents or matters
requested by Company; (iv) all the reasonable costs and expenses of creating and
perfecting Liens in favor of Agent on behalf of Lenders pursuant to any
Collateral Document, including without limitation filing and recording fees,
expenses and taxes, stamp or documentary taxes, search fees, title insurance
premiums, and reasonable fees, expenses and disbursements of counsel to Agent
and of counsel providing any opinions that Agent or Requisite Lenders may
reasonably request in respect of the Collateral Documents or the Liens created
pursuant thereto; (v) all the reasonable costs and expenses (including without
limitation the reasonable fees, expenses and disbursements of any auditors,
accountants or appraisers and any environmental or other consultants, advisors
and agents employed or retained by Agent or its counsel) of obtaining and
reviewing any appraisals provided for under subsection 6.9, any environmental
audits or reports provided for under subsection 6.9; (vi) all other actual and
reasonable costs and expenses incurred by Arrangers in connection with the
syndication of the Commitments and the negotiation, preparation and execution of
the Loan Documents and any consents, amendments, waivers or other modifications
thereto and the transactions contemplated thereby; and (vii) after the
occurrence of an Event of Default, all reasonable costs and expenses, including
reasonable attorneys' fees (including internal counsel) and costs of settlement,
incurred by Agent and Lenders in enforcing any Obligations of or in collecting
any payments due from any Loan Party hereunder or under the other Loan Documents
by reason of such Event of Default (including, without limitation, in connection
with the sale of, collection from, or other realization upon any of the
Collateral or the enforcement of the Subsidiary Guaranty) or in connection with
any refinancing or
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restructuring of the credit arrangements provided under this Agreement in the
nature of a "work-out" or pursuant to any insolvency or bankruptcy proceedings.
10.3 INDEMNITY.
---------
In addition to the payment of expenses pursuant to subsection 10.2,
whether or not the transactions contemplated hereby shall be consummated,
Company agrees to defend (subject to Indemnitees' selection of counsel),
indemnify, pay and hold harmless Agent and Lenders, and the officers, directors,
employees, agents and affiliates of Agent and Lenders (collectively called the
"INDEMNITEES"), from and against any and all Indemnified Liabilities (as
hereinafter defined); provided that Company shall not have any obligation to any
--------
Indemnitee hereunder with respect to any Indemnified Liabilities to the extent
such Indemnified Liabilities arise solely from the gross negligence or willful
misconduct of that Indemnitee as determined by a final judgment of a court of
competent jurisdiction.
As used herein, "INDEMNIFIED LIABILITIES" means, collectively, any
and all liabilities, obligations, losses, damages (including natural resource
damages), penalties, actions, judgments, suits, claims (including Environmental
Claims), costs (including the costs of any investigation, study, sampling,
testing, abatement, cleanup, removal, remediation or other response action
necessary to remove, remediate, clean up or abate any Hazardous Materials
Activity), expenses and disbursements of any kind or nature whatsoever
(including the reasonable fees and disbursements of counsel for Indemnitees in
connection with any investigative, administrative or judicial proceeding
commenced or threatened by any Person, whether or not any such Indemnitee shall
be designated as a party or a potential party thereto, and any fees or expenses
incurred by Indemnitees in enforcing this indemnity), whether direct, indirect
or consequential and whether based on any federal, state or foreign laws,
statutes, rules or regulations (including securities and commercial laws,
statutes, rules or regulations and Environmental Laws), on common law or
equitable cause or on contract or otherwise, that may be imposed on, incurred
by, or asserted against any such Indemnitee, in any manner relating to or
arising out of (i) this Agreement or the other Loan Documents or the Related
Agreements or the transactions contemplated hereby or thereby (including
Lenders' agreement to make the Loans hereunder or the use or intended use of the
proceeds thereof or the issuance of Letters of Credit hereunder or the use or
intended use of any thereof, or any enforcement of any of the Loan Documents
(including any sale of, collection from, or other realization upon any of the
Collateral or the enforcement of the Subsidiary Guaranty), (ii) the statements
contained in the commitment letter delivered by any Lender to Company with
respect thereto, or (iii) any Environmental Claim or any Hazardous Materials
Activity relating to or arising from, directly or indirectly, any past or
present activity, operation, land ownership, or practice of Company or any of
its Subsidiaries and in any event including without limitation the Environmental
Losses.
Without limiting the generality of the foregoing, the rights of each
Indemnitee under this subsection 10.3 relating to any Environmental Losses shall
be in addition to any other rights and remedies of such Indemnitee against
Company or its Affiliates under any
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other document or instrument now or hereafter executed by Company or its
Affiliates, or at law or in equity (including, without limitation, any right of
reimbursement or contribution pursuant to CERCLA or other similar Environmental
Laws), and shall not in any way be deemed a waiver of any of such rights.
Company agrees that it shall have no right of contribution (including, without
limitation, any right of contribution under CERCLA or other similar
Environmental Laws) or subrogation against any other Loan Party, unless and
until all obligations of Company have been satisfied.
To the extent that the undertakings to defend, indemnify, pay and
hold harmless set forth in this subsection 10.3 may be unenforceable in whole or
in part because they are violative of any law or public policy, Company shall
contribute the maximum portion that it is permitted to pay and satisfy under
applicable law to the payment and satisfaction of all Indemnified Liabilities
incurred by Indemnitees or any of them.
10.4 SET-OFF.
-------
In addition to any rights now or hereafter granted under applicable
law and not by way of limitation of any such rights, upon the occurrence of any
Event of Default each Lender is hereby authorized by Company at any time or from
time to time, without notice to Company or to any other Person, any such notice
being hereby expressly waived, to set off and to appropriate and to apply any
and all deposits (general or special, including, but not limited to,
Indebtedness evidenced by certificates of deposit, whether matured or unmatured,
but not including trust accounts) and any other Indebtedness at any time held or
owing by that Lender to or for the credit or the account of Company against and
on account of the obligations and liabilities of Company to that Lender under
this Agreement, the Letters of Credit and participations therein and the other
Loan Documents, including, but not limited to, all claims of any nature or
description arising out of or connected with this Agreement, the Letters of
Credit and participations therein or any other Loan Document, irrespective of
whether or not (i) that Lender shall have made any demand hereunder or (ii) the
principal of or the interest on the Loans or any amounts in respect of the
Letters of Credit or any other amounts due hereunder shall have become due and
payable pursuant to Section 8 and although said obligations and liabilities, or
any of them, may be contingent or unmatured.
10.5 RATABLE SHARING.
---------------
Lenders hereby agree among themselves that if any of them shall,
whether by voluntary payment (other than a voluntary prepayment of Loans made
and applied in accordance with the terms of this Agreement), by realization upon
security, through the exercise of any right of set-off or banker's lien, by
counterclaim or cross action or by the enforcement of any right under the Loan
Documents or otherwise, or as adequate protection of a deposit treated as cash
collateral under the Bankruptcy Code, receive payment or reduction of a
proportion of the aggregate amount of principal, interest, amounts payable in
respect of Letters of Credit, fees and other amounts then due and owing to that
Lender hereunder or under the other Loan Documents (collectively, the "AGGREGATE
AMOUNTS DUE"
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to such Lender) which is greater than the proportion received by any other
Lender in respect of the Aggregate Amounts Due to such other Lender, then the
Lender receiving such proportionately greater payment shall (i) notify Agent and
each other Lender of the receipt of such payment and (ii) apply a portion of
such payment to purchase participations (which it shall be deemed to have
purchased from each seller of a participation simultaneously upon the receipt by
such seller of its portion of such payment) in the Aggregate Amounts Due to the
other Lenders so that all such recoveries of Aggregate Amounts Due shall be
shared by all Lenders in proportion to the Aggregate Amounts Due to them;
provided that if all or part of such proportionately greater payment
- --------
received by such purchasing Lender is thereafter recovered from such Lender upon
the bankruptcy or reorganization of Company or otherwise, those purchases shall
be rescinded and the purchase prices paid for such participations shall be
returned to such purchasing Lender ratably to the extent of such recovery, but
without interest. Company expressly consents to the foregoing arrangement and
agrees that any holder of a participation so purchased may exercise any and all
rights of banker's lien, set-off or counterclaim with respect to any and all
monies owing by Company to that holder with respect thereto as fully as if that
holder were owed the amount of the participation held by that holder.
10.6 AMENDMENTS AND WAIVERS.
----------------------
A. No amendment, modification, termination or waiver of any
provision of this Agreement or of the Notes, or consent to any departure by
Company therefrom, shall in any event be effective without the written
concurrence of Requisite Lenders; provided that no such amendment, modification,
termination, waiver or consent shall, without the consent of each Lender (with
Obligations directly affected in the case of the following clause (i)): (i)
extend the scheduled final maturity of any Loan or Note, or extend the stated
expiration date of any Letter of Credit beyond the Revolving Loan Commitment
Termination Date, or reduce the rate (other than any waiver of any increase in
the interest rate applicable to any of the Loans pursuant to subsection 2.2E) or
fees or extend the time of payment of interest or fees thereon, or reduce the
principal amount thereof, (ii) release all or substantially all of the
Collateral or all or substantially all of the Subsidiary Guarantors from the
Subsidiary Guaranty except as expressly provided in the Loan Documents, (iii)
amend, modify, terminate or waive any provision of this subsection 10.6, (iv)
reduce the percentage specified in the definition of Requisite Lenders (it being
understood that, with the consent of the Requisite Lenders, additional
extensions of credit pursuant to this Agreement may be included in the
determination of the Requisite Lenders on substantially the same basis as the
extensions of Term Loans and Revolving Loan Commitments are included on the
Closing Date) or (v) consent to the assignment or transfer by Company of any of
its rights and obligations under this Agreement; provided further that no such
amendment, modification, termination or waiver shall (1) increase the
Commitments of any Lender over the amount thereof then in effect without the
consent of such Lender (it being understood that amendments, modifications or
waivers of conditions precedent, covenants, Potential Events of Default or
Events of Default or of a mandatory reduction in the Commitments shall not
constitute an increase of the Commitment of any Lender, and that an increase in
the available portion of any
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Commitment of any Lender shall not constitute an increase in the Commitment of
such Lender); (2) without the consent of the Swing Line Lender, amend, modify,
terminate or waive any provision of subsection 2.1A(vi) or any other provision
of this Agreement relating to the Swing Line Loan Commitment or the Swing Line
Loans; (3) without the consent of the Requisite Class Lenders of each Class
which is being allocated a lesser prepayment, repayment or commitment reduction
as a result of the actions described below (or without the consent of the
Requisite Class Lenders of each Class in the case of an amendment to the
definition of Requisite Class Lenders), amend the definition of Requisite Class
Lenders or alter the required application of any prepayments or repayments (or
commitment reduction), as between the Classes pursuant to subsection 2.4B(iv)
(although the Requisite Lenders may waive, in whole or in part, any such
prepayment, repayment or commitment reduction so long as the application, as
between the Classes, of any such prepayment, repayment or commitment reduction
which is still required to be made is not altered); (4) without the consent of
Requisite Class Lenders of the respective Class, waive or reduce any scheduled
prepayment set forth in subsections 2.4A (i)-(iv) of such affected Class; (5) no
amendment, modification, termination or waiver relating to the obligations of
Revolving Lenders relating to the purchase of participations in Letters of
Credit shall be effective without the written concurrence of each Issuing Lender
having a Letter of Credit then outstanding or which has not been reimbursed for
a drawing under a Letter of Credit issued by Agent and of Agent; or (6) without
the consent of Agent, amend, modify, terminate or waive any provision of Section
9 as the same applies to Agent or of any other provision of this Agreement as
the same applies to the rights or obligations of Agent.
B. If, in connection with any proposed amendment, modification,
termination or waiver to any of the provisions of this Agreement or the Notes as
contemplated by clauses (i) through (v) of the first proviso of subsection
10.6A, the consent of the Requisite Lenders is obtained but the consent of one
or more of such other Lenders whose consent is required is not obtained, then
Company shall have the right, so long as all non-consenting Lenders whose
individual consent is required are treated as described in either clause (i) or
(ii) below, to either (i) replace each such non-consenting Lender or Lenders
with one or more Replacement Lenders pursuant to subsection 2.9 so long as at
the time of such replacement, each such Replacement Lender consents to the
proposed amendment, modification, termination or waiver, or (ii) terminate such
non-consenting Lender's Commitments and repay in full its outstanding Loans in
accordance with subsections 2.4B(i)(b) and 2.4B(ii)(b); provided that unless the
--------
Commitments that are terminated and the Loans that are repaid pursuant to the
preceding clause (ii) are immediately replaced in full at such time through the
addition of new Lenders or the increase of the Commitments and/or outstanding
Loans of existing Lenders (who in each case must specifically consent thereto),
then in the case of any action pursuant to the preceding clause (ii), the
Requisite Lenders (determined before giving effect to the proposed action) shall
specifically consent thereto; provided further that Company shall not have the
-------- -------
right to terminate such non-consenting Lender's Commitment and repay in full its
outstanding Loans pursuant to clause (ii) of this subsection 10.6B if,
immediately after the termination of such Lender's Revolving Loan Commitment in
accordance with subsection 2.4B(ii)(b), the Revolving Loan Exposure of all
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Lenders would exceed the Revolving Loan Commitments of all Lenders; provided
--------
still further that Company shall not have the right to replace a Lender solely
- ----- -------
as a result of the exercise of such Lender's rights (and the withholding of any
required consent by such Lender) pursuant to the second proviso to subsection
10.6A.
C. Agent may, but shall have no obligation to, with the
concurrence of any Lender, execute amendments, modifications, waivers or
consents on behalf of that Lender. Any waiver or consent shall be effective only
in the specific instance and for the specific purpose for which it was given. No
notice to or demand on Company in any case shall entitle Company to any other or
further notice or demand in similar or other circumstances. Any amendment,
modification, termination, waiver or consent effected in accordance with this
subsection 10.6 shall be binding upon each Lender at the time outstanding, each
future Lender and, if signed by Company, on Company.
10.7 INDEPENDENCE OF COVENANTS.
-------------------------
All covenants hereunder shall be given independent effect so that if
a particular action or condition is not permitted by any of such covenants, the
fact that it would be permitted by an exception to, or would otherwise be within
the limitations of, another covenant shall not avoid the occurrence of an Event
of Default or Potential Event of Default if such action is taken or condition
exists.
10.8 NOTICES.
-------
Unless otherwise specifically provided herein, any notice or other
communication herein required or permitted to be given shall be in writing and
may be personally served, telexed or sent by telefacsimile or United States mail
or courier service and shall be deemed to have been given when delivered in
person or by courier service, upon receipt of telefacsimile or telex, or three
Business Days after depositing it in the United States mail with postage prepaid
and properly addressed; provided that notices to Agent shall not be effective
--------
until received. For the purposes hereof, the address of each party hereto shall
be as set forth under such party's name on the signature pages hereof or (i) as
to Company and Agent, such other address as shall be designated by such Person
in a written notice delivered to the other parties hereto and (ii) as to each
other party, such other address as shall be designated by such party in a
written notice delivered to Agent.
10.9 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
------------------------------------------------------
A. All representations, warranties and agreements made herein
shall survive the execution and delivery of this Agreement and the making of the
Loans and the issuance of the Letters of Credit hereunder.
B. Notwithstanding anything in this Agreement or implied by law
to the contrary, the agreements of Company set forth in subsections 2.6D, 2.7,
3.5A, 3.6, 10.2, 10.3
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<PAGE>
and 10.4 and the agreements of Lenders set forth in subsections 9.2C, 9.4 and
10.5 shall survive the payment of the Loans, the cancellation or expiration of
the Letters of Credit and the reimbursement of any amounts drawn thereunder, and
the termination of this Agreement. Without limiting the generality of the
immediately preceding sentence, Company's obligations relating to any
Environmental Losses under subsection 10.3 shall survive the sale or other
transfer of subject Mortgaged Property or Covered Real Property, as the case may
be, by Company (or its Affiliate) prior to the Transfer Date.
10.10 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.
-----------------------------------------------------
No failure or delay on the part of Agent or any Lender in the
exercise of any power, right or privilege hereunder or under any other Loan
Document shall impair such power, right or privilege or be construed to be a
waiver of any default or acquiescence therein, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other power, right or privilege. All rights and
remedies existing under this Agreement and the other Loan Documents are
cumulative to, and not exclusive of, any rights or remedies otherwise available.
10.11 MARSHALLING; PAYMENTS SET ASIDE.
-------------------------------
Neither Agent nor any Lender shall be under any obligation to
marshal any assets in favor of Company or any other party or against or in
payment of any or all of the Obligations. To the extent that Company makes a
payment or payments to Agent or Lenders (or to Agent for the benefit of
Lenders), or Agent or Lenders enforce any security interests or exercise their
rights of setoff, and such payment or payments or the proceeds of such
enforcement or setoff or any part thereof are subsequently invalidated, declared
to be fraudulent or preferential, set aside and/or required to be repaid to a
trustee, receiver or any other party under any bankruptcy law, any other state
or federal law, common law or any equitable cause, then, to the extent of such
recovery, the obligation or part thereof originally intended to be satisfied,
and all Liens, rights and remedies therefor or related thereto, shall be revived
and continued in full force and effect as if such payment or payments had not
been made or such enforcement or setoff had not occurred.
10.12 SEVERABILITY.
------------
In case any provision in or obligation under this Agreement or the
Notes shall be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obliga tion in any other jurisdiction,
shall not in any way be affected or impaired thereby.
10.13 OBLIGATIONS SEVERAL; INDEPENDENT NATURE OF LENDERS' RIGHTS.
----------------------------------------------------------
The obligations of Lenders hereunder are several and no Lender shall
be responsible for the obligations or Commitments of any other Lender hereunder.
Nothing
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<PAGE>
contained herein or in any other Loan Document, and no action taken by Lenders
pursuant hereto or thereto, shall be deemed to constitute Lenders as a
partnership, an association, a joint venture or any other kind of entity. The
amounts payable at any time hereunder to each Lender shall be a separate and
independent debt, and each Lender shall be entitled to protect and enforce its
rights arising out of this Agreement and it shall not be necessary for any other
Lender to be joined as an additional party in any proceeding for such purpose.
10.14 HEADINGS.
--------
Section and subsection headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose or be given any substantive effect.
10.15 APPLICABLE LAW.
--------------
THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK
(INCLUDING WITHOUT LIMITATION SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF
THE STATE OF NEW YORK), WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
10.16 SUCCESSORS AND ASSIGNS.
----------------------
This Agreement shall be binding upon the parties hereto and their
respective successors and assigns and shall inure to the benefit of the parties
hereto and the successors and assigns of Lenders (it being understood that
Lenders' rights of assignment are subject to subsection 10.1). Neither
Company's rights or obligations hereunder nor any interest therein may be
assigned or delegated by Company without the prior written consent of all
Lenders.
10.17 CONSENT TO JURISDICTION AND SERVICE OF PROCESS.
----------------------------------------------
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST COMPANY ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR ANY OBLIGATIONS
THEREUNDER, MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE STATE, COUNTY AND CITY OF NEW YORK. BY EXECUTING AND
DELIVERING THIS AGREEMENT, COMPANY, FOR ITSELF AND IN CONNECTION WITH ITS
PROPERTIES, IRREVOCABLY
(I) ACCEPTS GENERALLY AND UNCONDITIONALLY THE NONEXCLUSIVE
JURISDICTION AND VENUE OF SUCH COURTS;
(II) WAIVES ANY DEFENSE OF FORUM NON CONVENIENS;
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<PAGE>
(III) AGREES THAT SERVICE OF ALL PROCESS IN ANY SUCH PROCEEDING IN
ANY SUCH COURT MAY BE MADE BY REGISTERED OR CERTIFIED MAIL, RETURN
RECEIPT REQUESTED, TO COMPANY AT ITS ADDRESS PROVIDED IN ACCORDANCE WITH
SUBSECTION 10.8;
(IV) AGREES THAT SERVICE AS PROVIDED IN CLAUSE (III) ABOVE IS
SUFFICIENT TO CONFER PERSONAL JURISDICTION OVER COMPANY IN ANY SUCH
PROCEEDING IN ANY SUCH COURT, AND OTHERWISE CONSTITUTES EFFECTIVE AND
BINDING SERVICE IN EVERY RESPECT;
(V) AGREES THAT LENDERS RETAIN THE RIGHT TO SERVE PROCESS IN ANY
OTHER MANNER PERMITTED BY LAW OR TO BRING PROCEEDINGS AGAINST COMPANY IN
THE COURTS OF ANY OTHER JURISDICTION; AND
(VI) AGREES THAT THE PROVISIONS OF THIS SUBSECTION 10.17 RELATING
TO JURISDICTION AND VENUE SHALL BE BINDING AND ENFORCEABLE TO THE FULLEST
EXTENT PERMISSIBLE UNDER NEW YORK GENERAL OBLIGATIONS LAW SECTION 5-1402
OR OTHERWISE.
10.18 WAIVER OF JURY TRIAL.
--------------------
EACH OF THE PARTIES TO THIS AGREEMENT HEREBY AGREES TO WAIVE ITS
RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR
ARISING OUT OF THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY DEALINGS
BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION OR THE
LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of this
waiver is intended to be all-encompassing of any and all disputes that may be
filed in any court and that relate to the subject matter of this transaction,
including without limitation contract claims, tort claims, breach of duty claims
and all other common law and statutory claims. Each party hereto acknowledges
that this waiver is a material inducement to enter into a business relationship,
that each has already relied on this waiver in entering into this Agreement, and
that each will continue to rely on this waiver in their related future dealings.
Each party hereto further warrants and represents that it has reviewed this
waiver with its legal counsel and that it knowingly and voluntarily waives its
jury trial rights following consultation with legal counsel. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING
(OTHER THAN BY A MUTUAL WRITTEN WAIVER SPECIFICALLY REFERRING TO THIS SUBSECTION
10.18 AND EXECUTED BY EACH OF THE PARTIES HERETO), AND THIS WAIVER SHALL APPLY
TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY
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OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOANS MADE HEREUNDER. In the event
of litigation, this Agreement may be filed as a written consent to a trial by
the court.
10.19 CONFIDENTIALITY.
---------------
Each Lender shall hold all non-public information obtained pursuant
to the requirements of or in connection with this Agreement which has been
identified as confidential by Company in accordance with such Lender's customary
procedures for handling confidential information of this nature and in
accordance with safe and sound banking practices, it being understood and agreed
by Company that in any event a Lender may make disclosures to Affiliates of such
Lender or disclosures reasonably required by any bona fide assignee, transferee
or participant in connection with the contemplated assignment or transfer by
such Lender of any Loans or any participations therein or disclosures required
or requested by any governmental agency or representative thereof or the NAIC
or pursuant to legal process; provided that, unless specifically prohibited by
--------
applicable law or court order, each Lender shall notify Company of any request
by any governmental agency or representative thereof (other than any such
request in connection with any examination of the financial condition of such
Lender by such governmental agency) for disclosure of any such non-public
information prior to disclosure of such information; and provided, further that
-------- -------
in no event shall any Lender be obligated or required to return any materials
furnished by Company or any of its Subsidiaries.
10.20 COUNTERPARTS; EFFECTIVENESS.
---------------------------
This Agreement and any amendments, waivers, consents or supplements
hereto or in connection herewith may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed an original, but all such counterparts
together shall constitute but one and the same instrument; signature pages may
be detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are physically attached to the same
document. This Agreement shall become effective upon the execution of a
counterpart hereof by each of the parties hereto and receipt by Company and
Agent of written or telephonic notification of such execution and authorization
of delivery thereof.
[Remainder of page intentionally left blank]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
COMPANY:
SMITH'S FOOD & DRUG CENTERS, INC.
By: _______________________________________
Title: _______________________________________
Notice Address:
_______________________________________
_______________________________________
_______________________________________
_______________________________________
LENDERS:
BANKERS TRUST COMPANY,
individually and as Agent and Arranger
By: _______________________________________
Title: _______________________________________
Notice Address:
_______________________________________
_______________________________________
_______________________________________
_______________________________________
S-1
<PAGE>
THE CHASE MANHATTAN BANK, N.A.,
individually and as Arranger
By: _______________________________________
Title: _______________________________________
Notice Address:
_______________________________________
_______________________________________
_______________________________________
_______________________________________
CHASE SECURITIES, INC.,
as Syndication Agent
By: _______________________________________
Title: _______________________________________
Notice Address:
_______________________________________
_______________________________________
_______________________________________
_______________________________________
S-2
<PAGE>
______________________________
Individually and as Co-Agent
By: _______________________________________
Title: _______________________________________
Notice Address:
_______________________________________
_______________________________________
_______________________________________
_______________________________________
______________________________
Individually and as Co-Agent
By: _______________________________________
Title: _______________________________________
Notice Address:
_______________________________________
_______________________________________
_______________________________________
_______________________________________
______________________________
Individually and as Co-Agent
By: _______________________________________
Title: _______________________________________
Notice Address:
_______________________________________
_______________________________________
_______________________________________
_______________________________________
S-3
<PAGE>
SCHEDULE 5.1
SUBSIDIARIES OF COMPANY
<PAGE>
SCHEDULE 2.1
LENDERS' COMMITMENTS AND PRO RATA SHARES
<PAGE>
EXHIBIT 10.2
AMENDED AND RESTATED
--------------------
STANDSTILL AGREEMENT
THIS STANDSTILL AGREEMENT, dated as of January 29, 1996 (this
"Agreement"), among Smith's Food & Drug Centers, Inc., a Delaware corporation
- ----------
(the "Company"), The Yucaipa Companies, a California general partnership
-------
("Yucaipa"), Yucaipa SSV Partners, L.P., a California limited partnership,
- ---------
Yucaipa Smitty's Partners, L.P., a California limited partnership, Yucaipa
Smitty's Partners II, L.P., a California limited partnership, Yucaipa Arizona
Partners, L.P., a California limited partnership, (collectively with Yucaipa and
its affiliates who are required to become parties hereto pursuant to Section
7.2, the "Yucaipa Group"), Jeffrey P. Smith, Richard D. Smith, Fred L. Smith,
-------------
Ida Smith, The Dee Glenn Smith Marital Trust I, Trust for the Children of
-
Jeffrey Paul Smith, Trust for the Children of Richard Dee Smith, and Trust for
the Children of Fred Lorenzo Smith (collectively, with their affiliates who are
required to become parties hereto pursuant to Section 7.2, the "Smith Group").
-----------
WHEREAS, the Company, Cactus Acquisition, Inc. ("Acquisition"),
-----------
Smitty's Supermarkets, Inc. ("Smitty's") and Yucaipa have entered into a
--------
Recapitalization Agreement and Plan of Merger dated as of January 29, 1996 (the
"Recapitalization Agreement");
--------------------------
WHEREAS, the respective Boards of Directors of the Company,
Acquisition and Smitty's have approved the merger of Acquisition with and into
Smitty's (the "Merger") upon the terms and conditions contained in the
------
Recapitalization Agreement;
WHEREAS, as consideration in the Merger, members of the Yucaipa Group
and the other stockholders of Smitty's will receive shares of the Company's
Class B Common Stock, par value $.01 per share (collectively with the Company's
Class A Common Stock, par value $.01 per share, and any new class of common
stock of the Company created and outstanding, "Company Common Stock");
--------------------
WHEREAS, as part of the Recapitalization, the Company and Yucaipa will
enter into a Management Services Agreement, in the form attached to the
Recapitalization Agreement (the "Management Agreement"), pursuant to which
--------------------
Yucaipa will undertake and perform various management services in respect of the
Company's operations, subject to the terms and conditions contained in such
agreement; and
WHEREAS, the parties hereto each believe that it is desirable to
establish certain provisions with respect to the shares of the Company Common
Stock to be issued in connection with the transactions contemplated by the
Recapitalization Agreement and all additional shares of Company Common Stock
which may be acquired by, or which are currently held by, the parties hereto
other than the Company.
NOW, THEREFORE, in consideration of the mutual covenants and premises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. DEFINITIONS. Capitalized terms used herein without
-----------
definition shall have the meanings given to such terms in the Recapitalization
Agreement. In addition, as used in this Agreement, the following terms shall
have the following meanings:
1
<PAGE>
"affiliate" of any person shall mean any person directly or indirectly
---------
controlling or controlled by such person or under common control with such
person. For purposes of this Agreement, members of the Yucaipa Group or the
Smith Group, on the one hand, and the Company, on the other, shall not be deemed
to be affiliates of each other.
"associate" shall mean any person having a business, financial or
---------
familial relationship that might reasonably be expected to affect the
individual's judgment with respect to matters in which a member of the Yucaipa
Group or its affiliates might be interested. The term "associated" shall have a
----------
correlative meaning.
"beneficial ownership", "person" and "group" shall have the respective
-------------------- ------ -----
meanings ascribed to such terms pursuant to Regulation 13D-G adopted by the SEC
under the Exchange Act, as in effect on the date hereof.
"Combined Voting Power" shall mean, at any measurement date, the total
---------------------
number of votes which could have been cast in an election of directors of the
Company had a meeting of the stockholders of the Company been duly held based
upon a record date as of the measurement date if all Company Voting Securities
then outstanding and entitled to vote at such meeting were present and voted to
the fullest extent possible at such meeting.
"Company Voting Securities" shall mean, collectively, Company Common
-------------------------
Stock, any preferred stock of the Company that is entitled to vote generally for
the election of directors, any other class or series of Company securities that
is entitled to vote generally for the election of directors and any other
securities, warrants or options or rights of any nature (whether or not issued
by the Company) that are convertible into, exchangeable for, or exercisable for
the purchase of, or otherwise give the holder thereof any rights in respect of,
Company Common Stock, or any other class or series of Company securities that
is entitled to vote generally for the election of directors; provided, however,
that "Company Voting Securities" shall not include any shares of Class C Common
Stock of the Company to the extent the holder thereof is not entitled to convert
such shares into Class B Common Stock pursuant to the Company's certificate of
incorporation.
"Disinterested Directors" shall mean directors of the Company who (i)
-----------------------
are not employees or officers of the Company, (ii) are not serving as designees
of the Yucaipa Group pursuant to Section 3.10 hereof, and (iii) are not
associates of Yucaipa or its affiliates.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, and the rules and regulations promulgated thereunder.
"13D/G Group" shall mean two or more persons acting together for the
-----------
purpose of acquiring, holding, voting or disposing of Company Voting Securities,
which persons would be required under the Exchange Act to file a statement on
Schedule 13D or 13G with the SEC as a "person" within the meaning of Section
13(d)(3) of the Exchange Act if such persons beneficially owned sufficient
securities to require such a filing under the Exchange Act.
SECTION 2. REPRESENTATIONS AND WARRANTIES.
------------------------------
2.1. The Yucaipa Group represents and warrants to the Company as
follows:
2
<PAGE>
(a) Yucaipa is a validly existing general partnership under the
laws of California and has the full legal right, power and authority to enter
into this Agreement and perform its obligations hereunder.
(b) Each member of the Yucaipa Group (other than Yucaipa) is a
validly existing limited partnership under the laws of California and has the
full legal right, power and authority to enter into this Agreement and perform
its respective obligations hereunder.
(c) This Agreement has been duly authorized, executed and
delivered by each member of the Yucaipa Group and constitutes the legally valid
and binding agreement of each such member, enforceable against it in accordance
with the terms hereof.
(d) Neither the execution and delivery of this Agreement by each
member of the Yucaipa Group nor the performance of its respective obligations
hereunder will conflict with or result in a breach of or constitute a default
under any law, rule, regulation, judgment, order or decree of any court,
arbitrator or governmental agency or instrumentality, or of any agreement or
instrument to which any member of the Yucaipa Group is bound or affected or of
any organization documents of each such member.
(e) Except for not more than 20 shares of Class B Common Stock of
the Company, as of the date hereof, no shares of Company Common Stock are, and
as of the date on which the Offer is consummated, no shares of Company Common
Stock will be, beneficially owned by any member of the Yucaipa Group, except for
those shares of Company Common Stock acquired pursuant to the Recapitalization
Agreement or the other agreements contemplated thereby.
(f) Other than the Recapitalization Agreement and the other
agreements contemplated thereby, neither Yucaipa nor any of its affiliates has
any agreement, arrangement or understanding with any other person or group who
is not a member of the Yucaipa Group or its affiliates with respect to
acquiring, holding, voting or disposing of Company Voting Securities.
2.2. The Company represents and warrants to the Yucaipa Group as
follows:
(a) The Company is a validly existing corporation under the laws
of the jurisdiction of its organization and has the corporate power and
authority to enter into this Agreement and perform its obligations hereunder.
(b) This Agreement has been duly authorized, executed and
delivered by the Company and constitutes the legally valid and binding agreement
of the Company, enforceable against the Company in accordance with the terms
hereof.
(c) Neither the execution and delivery of this Agreement nor the
performance of its obligations hereunder will conflict with or result in a
breach of or constitute a default under, any law, rule, regulation, judgment,
order or decree of any court, arbitrator or governmental agency or
instrumentality, or of any agreement or instrument to which the Company is bound
or affected or of any charter documents of the Company.
2.3. The Smith Group represents and warrants to the Yucaipa Group and
the Company as follows:
3
<PAGE>
(a) Each member of the Smith Group is a holder of record of
shares of Company Common Stock and entitled to vote such shares for the election
of directors of the Company.
(b) Each member of the Smith Group that is a natural person has
the capacity and legal power, and each member of the Smith Group that is a trust
is validly organized and has the requisite organizational power and authority,
to enter into this Agreement and perform its respective obligations hereunder.
(c) This Agreement has been duly authorized (as applicable),
executed and delivered by each member of the Smith Group and constitutes the
legally valid and binding agreement of each such member, enforceable against it
in accordance with the terms hereof.
(d) Neither the execution and delivery of this Agreement nor the
performance of any obligations hereunder will conflict with or result in a
breach of or constitute a default under, any law, rule, regulation, judgment,
order or decree of any court, arbitrator or governmental agency or
instrumentality, or any agreement or instrument to which any member of the Smith
Group is bound or affected or any organizational documents of any Smith Group
member that is a trust or other organization.
SECTION 3. COVENANTS WITH RESPECT TO THE COMPANY VOTING SECURITIES
-------------------------------------------------------
AND OTHER MATTERS.
- -----------------
3.1. Acquisition of Company Voting Securities.
----------------------------------------
(a) Except as specifically set forth in the Recapitalization
Agreement, until the later of the expiration, termination or withdrawal of the
Offer, the termination of the Recapitalization Agreement or the Merger Closing
Date (as defined in the Recapitalization Agreement), no member of the Yucaipa
Group or any of their respective affiliates shall, directly or indirectly,
acquire, offer to acquire, agree to acquire, become the beneficial owner of or
obtain any rights in respect of any Company Voting Securities, by purchase or
otherwise, or take any action in furtherance thereof.
(b) Subject to Section 3.2, no member of the Yucaipa Group shall,
prior to January 29, 2006, directly or indirectly acquire, offer to acquire,
agree to acquire, become the beneficial owner of or obtain any rights in respect
of any Company Voting Securities, by purchase or otherwise, or take any action
in furtherance thereof, if the effect of such acquisition, agreement or other
action would be (either immediately or upon consummation of any such
acquisition, agreement or other action, or upon the expiration of any period of
time provided in any such acquisition, agreement or other action) to increase
the aggregate beneficial ownership of Company Voting Securities by the Yucaipa
Group and its affiliates to such number of Company Voting Securities that (X)
---
represents or possesses greater than 20.0% of the Combined Voting Power of
Company Voting Securities, OR (Y) REPRESENTS GREATER THAN 25% OF THE TOTAL
-----------------------------------------------
NUMBER OF COMPANY VOTING SECURITIES OUTSTANDING, without the approval of a
- ------------------------------------------------
majority of the Company's Disinterested Directors. Notwithstanding the
foregoing maximum percentage limitation, (A) no member of the Yucaipa Group
shall be obligated to dispose of any Company Voting Securities beneficially
owned in violation of such maximum percentage limitation if, and solely to the
extent that, its beneficial ownership is or will be increased solely as a result
of a repurchase, redemption or other acquisition of any Company Voting
Securities by the Company or any of its subsidiaries, and (B) the foregoing
shall not prohibit any purchase of Company Voting Securities by any member of
the Yucaipa Group or its affiliates directly from the Company (including
pursuant to the exercise of rights,
4
<PAGE>
oversubscription rights or standby purchase obligations in connection with
rights offerings by the Company), provided such purchase is approved by a
majority of the Disinterested Directors.
3.2. Takeover Proposals by the Yucaipa Group. No member of the
---------------------------------------
Yucaipa Group shall submit a proposal to acquire a majority of the Combined
Voting Power of Company Voting Securities (a "Change of Control Proposal") to
--------------------------
any person unless such Change of Control Proposal (or the submission thereof to
any such person) is approved by a majority of the Disinterested Directors and
the following conditions are satisfied:
(a) A Change of Control Proposal shall contemplate either (i) a
tender offer for all outstanding Company Common Stock not owned by the Yucaipa
Group and must be conditioned upon a majority of such Common Stock not owned by
the Yucaipa Group being tendered, or (ii) a merger transaction conditioned upon
the holders of a majority of Combined Voting Power of the Company not owned by
the Yucaipa Group present, in person or by proxy, voting in favor of such
transaction. In the case of either (i) or (ii), the same consideration must be
offered to all Company stockholders.
(b) A special committee of the Board of Directors of the Company
shall be created consisting of all of the Independent Directors (the "Special
-------
Committee").
- ---------
(c) The Special Committee shall retain a nationally recognized
investment banking firm to advise the Special Committee with respect to the
fairness of the Change of Control Proposal to the stockholders of the Company.
(d) The Change of Control Proposal must be approved by the
Special Committee, which shall not give its approval unless it has received an
opinion from such investment banking firm that the Change of Control Proposal is
fair to the stockholders of the Company other than the Yucaipa Group.
Unless all of the foregoing conditions have been satisfied, the Change of
Control Proposal shall not be presented to the Company's stockholders (including
by way of a tender offer, merger proposal or other Change of Control Proposal
that is conditioned on satisfaction of this Section 3.2).
3.3. Disposition of the Company Voting Securities and Other Related
--------------------------------------------------------------
Matters.
- -------
(a) Without the prior approval of a majority of the Disinterested
Directors, no member of the Yucaipa Group shall, directly or indirectly, sell,
transfer any beneficial interest in, pledge, hypothecate or otherwise dispose of
any Company Voting Security or any shares of Company Common Stock to be acquired
from the Company pursuant to the Warrant Agreement, other than to another member
of the Yucaipa Group or their respective affiliates who agree to become bound by
the terms of this Agreement:
(i) in a transaction or series of related transactions that
would result in a transfer to any person or group of greater than 3.0%
of the Combined Voting Power, except in response to certain tender or
exchange offers as permitted by Section 3.3(b); and
(ii) in a transaction or series of related transactions that
would result in a transfer to any person or group that, to the
knowledge of the Yucaipa Group at the time of such transaction, upon
consummation of such sale, transfer or disposition, would,
5
<PAGE>
directly or indirectly, have beneficial ownership of or the right to
acquire beneficial ownership of such number of Company Voting
Securities that represent greater than 5.0% of the Combined Voting
Power, except in response to certain tender or exchange offers as
permitted by Section 3.3(b).
The Yucaipa Group members shall request all purchasers of Company Common Stock
(or rights, options or warrants to purchase any such shares) from them in
negotiated transactions, and all underwriters, placement agents or brokers
("Agents") for any public offerings or open market transactions involving
- --------
Company Common Stock (or rights, options or warrants to purchase any such
shares), to represent and warrant that the requirements of this Section 3.3(a)
have been satisfied with respect to such transactions, such representations by
Agents to be qualified to the best of such Agents' knowledge.
(b) Notwithstanding Section 3.3(a), on and after the eleventh
business day after commencement of a tender or exchange offer made by a person
who is not an affiliate of any member of the Yucaipa Group for outstanding
Company Voting Securities, any member of the Yucaipa Group may tender or
exchange any Company Voting Securities beneficially owned by it pursuant to such
offer if such offer shall have been approved by a majority of the Disinterested
Directors.
(c) Proposed transfers of Company Voting Securities by members of
the Yucaipa Group that are not in compliance with this Section shall be of no
force or effect.
3.4. Proxy Solicitations, etc. Except as may be permitted by this
------------------------
Section 3, no member of the Yucaipa Group shall solicit proxies, assist any
other person in any way, directly or indirectly, in the solicitation of proxies,
become a "participant" in a "solicitation," or assist any "participant" in a
"solicitation" (as such terms are defined in Rule 14a-1 of Regulation 14A under
the Exchange Act) in opposition to the recommendation of a majority of the Board
of Directors, or submit any proposal for the vote of stockholders of the
Company, or recommend or request or induce or attempt to induce any other person
to take any such actions, or seek to advise, encourage or influence any other
person with respect to the voting of Company Voting Securities, in each case
without the prior approval of a majority of the Disinterested Directors.
3.5. No Voting Trusts, Pooling Agreements, or Formation of "Groups".
--------------------------------------------------------------
Without the prior approval of a majority of the Disinterested Directors, no
member of the Yucaipa Group shall form, join in or in any other way participate
in any partnership, pooling agreement, syndicate, voting trust or other "group",
including a 13D/G Group, other than the Yucaipa Group, with respect to Company
Voting Securities, or enter into any agreement (other than this Agreement, the
Recapitalization Agreement or the other agreements contemplated thereby) or
arrangement or otherwise act in concert with any other person or group, for the
purpose of acquiring, holding, voting or disposing of Company Voting Securities.
3.6. Affiliate Transactions. No member of the Yucaipa Group, or any
----------------------
affiliate of any such member, shall engage in any transaction with the Company
without the prior approval of a majority of the Disinterested Directors;
provided that the foregoing provision shall not apply to (i) any transactions as
set forth in the Recapitalization Agreement or the Management Services
Agreement, Registration Rights Agreement or Warrant Agreement (each as defined
in the Recapitalization Agreement), (ii) transactions contemplated by any other
agreement as in effect on the date hereof or any amendment thereto, or (iii)
transactions regarding the purchase or sale of goods or services, in each case,
in the ordinary course of business (including, without limitation, pursuant to
joint venture agreements) which are fair to the Company pursuant to guidelines
set forth by of the Board of Directors of the Company and approved by a majority
of the Disinterested Directors.
6
<PAGE>
3.7. No Solicitation of Bidders. No member of the Yucaipa Group
--------------------------
shall directly or indirectly assist, solicit, encourage or induce any person to
bid for or acquire outstanding Company Voting Securities in excess of 5.0% of
the Combined Voting Power of Company Voting Securities, except in connection
with customary investor relations activities provided pursuant to the Management
Agreement.
3.8. Non-Circumvention. No member of the Yucaipa Group or any
-----------------
affiliate or associate of any such member shall take any action, alone or in
concert with any other person or group, to seek control of the Company or
otherwise seek to circumvent the limitations of the provisions of this Section 3
of this Agreement without the approval of a majority of the Disinterested
Directors. Without limiting the generality of the foregoing, no member of the
Yucaipa Group shall, without the approval of a majority of the Disinterested
Directors, (i) present to the Company or to any third party any proposal that
can reasonably be expected to result in a change of control of the Company or in
any increase beyond the percentage specified in Section 3.1 in the Combined
Voting Power of Company Voting Securities beneficially owned in the aggregate by
the Yucaipa Group, (ii) publicly suggest or announce its willingness or desire
to engage in a transaction or group of transactions or have another person
engage in a transaction or group of transactions that would result in a change
of control of the Company or in any increase beyond the percentage specified in
Section 3.1 in the Combined Voting Power of Company Voting Securities
beneficially owned in the aggregate by the Yucaipa Group, (iii) initiate,
request, induce or attempt to induce or give encouragement to any other person
to initiate any proposal that can reasonably be expected to result in a change
of control of the Company or in any increase beyond the percentage specified in
Section 3.1 in the Combined Voting Power of Company Voting Securities
beneficially owned in the aggregate by the Yucaipa Group, or (iv) publicly
request, suggest or announce its desire to amend or obtain a waiver of any
provision of this Agreement.
3.9. Confidential Material.
---------------------
(a) Definitions. For purposes of this Section:
-----------
(i) The term "Confidential Material" means all information,
---------------------
whether oral, written or otherwise (including any information furnished prior to
the execution of this Agreement), furnished or otherwise disclosed by the
Company to any member of the Yucaipa Group or any of the Representatives (as
defined below), and all notes, reports, analyses, compilations, studies and
other materials prepared by the Yucaipa Group or any of the Representatives (in
whatever form maintained, whether documentary, computer storage or otherwise)
containing or based upon, in whole or in part, any such information. The term
"Confidential Material" does not include information which is or becomes
generally available to the public other than as a result of a disclosure by any
member of the Yucaipa Group or any of the Representatives (as defined below) or
becomes available to any member of the Yucaipa Group or any of the
Representatives on a non-confidential basis from any source that is not known by
such member of the Yucaipa Group or such Representative to be bound by an
obligation of confidentiality to the Company.
(ii) The term "Representatives" shall mean any and all
---------------
partners, directors, officers, employees, agents, prospective financing sources,
affiliates or representatives (including representatives of advisors) of any
member of the Yucaipa Group who needs to know such information for the purpose
of analyzing, structuring, financing, documenting or otherwise facilitating the
transactions contemplated by this Agreement or the carrying out of the duties of
Yucaipa pursuant to the Recapitalization Agreement or the Management Agreement.
7
<PAGE>
(b) Each member of the Yucaipa Group and each of the
Representatives shall preserve the confidentiality of the Confidential Material
and shall not disclose any of the Confidential Material in any manner
whatsoever; provided, however, that (i) any member of the Yucaipa Group may make
any disclosure of such information to which the Company gives its prior written
consent, (ii) the Yucaipa or its Representatives may make disclosures of such
information within the scope of their authority under the Management Agreement,
and (iii) any of such information may be disclosed to the Representatives who
need to know, and who are informed of the confidential nature of the
Confidential Material and of the terms of this Section and who agree to keep
such information confidential. In any event, the Yucaipa Group shall inform each
of its Representatives which have, or will have, access to any or all of the
Confidential Material, of the existence and content of this Agreement and will
take all reasonable action necessary to cause such Representatives to observe
the confidentiality requirements of this Agreement. In any event, each member of
the Yucaipa Group shall be responsible for any breach of this Agreement by any
of its Representatives.
(c) If any member of the Yucaipa Group or any of the
Representatives are requested or required (by oral questions, interrogatories,
requests for information or documents, subpoena, civil investigative demand, any
informal or formal investigation by any government or governmental agency or
authority or otherwise) to disclose any Confidential Material or such person's
opinion, judgment, view or recommendation concerning the Company as developed
from the Confidential Material, the Yucaipa Group agrees (i) to immediately
notify the Company in writing of the existence, terms and circumstances
surrounding such a request, (ii) to consult with the Company on the advisability
of taking legally available steps to resist or narrow such request and shall
exercise its best efforts to obtain reliable assurance that confidential
treatment required hereby will be accorded such Confidential Material, and (iii)
if disclosure of such information is required, to furnish only that portion of
the Confidential Material which in the opinion of counsel to the Yucaipa Group
the Yucaipa Group is legally compelled to disclose, and to cooperate with any
action by the Company to obtain an appropriate protective order or other
reliable assurance that confidential treatment will be accorded the Confidential
Material.
(d) Yucaipa hereby acknowledges on behalf of itself and all
members of the Yucaipa Group (and agrees to advise the Representatives and
members of the Yucaipa Group who are informed in accordance with the terms of
this Section as to the matters which are the subject of this Section), that the
United States securities laws prohibit any person who has received from an
issuer material, non-public information, including certain information that may
be part of the Confidential Material, while such information is non-public, from
purchasing or selling securities of such issuer or from communicating such
information to any other person under circumstances in which it is reasonably
foreseeable that such person is likely to purchase or sell such securities.
3.10. Voting of Company Voting Securities and Other Related Matters.
-------------------------------------------------------------
(a) Each member of the Yucaipa Group and the Smith Group that is
a holder of record of Company Voting Securities shall be present, and each
member of the Yucaipa Group and the Smith Group that is a beneficial owner of
Company Voting Securities shall cause the holder of record to be present, in
person or by proxy, at all meetings of the stockholders of the Company so that
all Company Voting Securities owned of record or beneficially by the Yucaipa
Group or the Smith Group, as the case may be counted for the purpose of
determining the presence of a quorum at such meetings.
(b) Subject to the provisions of the certificate of incorporation
and bylaws of the Company and the approval of the Company's stockholders, as
long as the members of the Yucaipa
8
<PAGE>
Group and their respective affiliates beneficially own at least 8.0% of the
outstanding shares of Company Common Stock, the Yucaipa Group shall have the
right to designate two directors of the Company, and as long as the members of
the Yucaipa Group and their respective affiliates beneficially own, in the
aggregate, at least 5.0% of the outstanding shares of Company Common Stock, the
Yucaipa Group shall have the right to designate one director of the Company;
provided that no individual who is an officer, director, partner or principal
stockholder of any Significant Competitor (as defined in the Management
Agreement) of the Company or any of its subsidiaries shall serve as a director;
provided, however, that at any time when the Yucaipa Group and its affiliates
shall no longer beneficially own at least 5.0% of the outstanding shares of
Company Common Stock, the Yucaipa Group shall not have the right to designate
any directors of the Company, the Yucaipa Group's rights under this Section 3.10
shall terminate, and the Yucaipa Group shall cause its designees to resign
forthwith such that no designee of the Yucaipa Group remains on the board of
directors of the Company.
(c) Subject to the provisions of the certificate of incorporation
and bylaws of the Company and the approval of the Company's stockholders, as
long as the members of the Smith Group and their respective affiliates
beneficially own at least 8.0% of the outstanding shares of Company Common
Stock, the Smith Group shall have the right to designate two directors of the
Company, and as long as the members of the Smith Group and their respective
affiliates beneficially own, in the aggregate, at least 5.0% of the outstanding
shares of Company Common Stock of the Company, the Smith Group shall have the
right to one director of the Company; provided that no individual who is an
officer, director, partner or principal stockholder of any Significant
Competitor of the Company or any of its subsidiaries (other than members of the
Smith Group) shall serve as a director; provided, however, that at any time when
the Smith Group and its affiliates shall no longer beneficially own at least
5.0% of the Company Common Stock, the Smith Group shall not have the right to
designate any directors of the Company, the Smith Group's rights under this
Section 3.10 shall terminate, and the Smith Group shall cause its designees to
resign forthwith such that no designee of the Smith Group remains on the board
of directors of the Company.
(d) The Company agrees to use its best efforts, to cause to be
elected to the Company's Board of Directors two nominees of Yucaipa (subject to
Section 3.10(b) above), two nominees of the Smith Group (subject to Section
3.10(c) above), one member of the senior management of the Company and two
"independent directors" (as required by the rules of the New York Stock
Exchange, Inc.); provided that once elected by the stockholders of the Company,
such "independent directors" shall be Disinterested Directors for purposes of
this Agreement unless such directors subsequently take some action which would
have prevented them from meeting the definition of Disinterested Director at the
date of their election.
(e) Each member of the Yucaipa Group shall, at any annual or
special meeting of the shareholders at which directors of the Company are to be
elected or in connection with a solicitation of consents through which directors
of the Company are to be selected, to vote (or give a written consent with
respect to) all of their Company Voting Securities in favor of the election to
the Board of Directors of the Company of the persons designated by the Smith
Group pursuant to this Section 3.10. Each member of the Yucaipa Group shall, and
shall use its best efforts to cause the directors of the Company then in office
(other than the directors designated by the Smith Group) to, not take any action
in furtherance of or seeking to cause an increase or decrease in the number of
directors of the Company from seven directors, the removal of any directors
(other than directors nominated by the Yucaipa Group) or an increase or decrease
in the number of independent directors.
9
<PAGE>
(f) Each member of the Smith Group shall, at any annual or
special meeting of the shareholders at which directors of the Company are to be
elected, or in connection with a solicitation of consents through which
directors of the Company are to be selected, to vote (or give a written consent
with respect to) all of their Company Voting Securities in favor of the election
to the board of directors of the Company of the persons designated by the
Yucaipa Group pursuant to this Section 3.10. Each member of the Smith Group
shall, and shall use its best efforts to cause the directors of the Company then
in office (other than the directors designated by the Yucaipa Group) to, not
take any action in furtherance of or seeking to cause an increase or reduction
in the number of directors of the Company from seven directors, the removal of
any directors (other than directors nominated by the Smith Group) or an increase
or decrease in the number of independent directors.
(g) The Company shall take all necessary or appropriate action to
assist in the nomination and election as directors of those persons designated
by the Yucaipa Group or the Smith Group as are entitled to election to the board
of directors of the Company pursuant to the provisions of this Section 3.10.
Each of the Yucaipa Group and the Smith Group shall cause its respective
designees on the board of directors of the Company to take all necessary or
appropriate action to assist in the nomination and election as directors of such
other nominees as may be necessary to fill any vacancies on the board of
directors.
(h) The provisions of this Section 3.10 shall be terminated in
the event that the Recapitalization is terminated pursuant to Section 10.2 of
the Recapitalization Agreement.
3.11. Waiver of Requirements.
----------------------
(a) Notwithstanding anything in this Section 3 to the contrary,
any of the terms of Sections 3.1 through 3.10 may be waived, in whole or in part
and as to particular transactions or matters or as to one or more members of the
Yucaipa Group, if (a) in the case of a waiver of an obligation of a member of
the Yucaipa Group, a majority of the Disinterested Directors shall have approved
such waiver in accordance with applicable law, or (b) in the case of a waiver of
an obligation of the Company provided for the benefit of a member of the Yucaipa
Group, such member of the Yucaipa Group shall have consented in writing to such
waiver.
(b) Notwithstanding anything in this Section 3 to the contrary,
any of the terms of Sections 3.1 through 3.10 may be waived, in whole or in part
and as to particular transactions or matters or as to one or more members of the
Smith Group, if (a) in the case of a waiver of an obligation of a member of the
Smith Group, a majority of the Disinterested Directors shall have approved such
waiver in accordance with applicable law, or (b) in the case of a waiver of an
obligation of the Company provided for the benefit of a member of the Smith
Group, such member of the Smith Group shall have consented in writing to such
waiver.
3.12. Termination of Restrictions. The restrictions on disposition
---------------------------
contained in Section 3.3 shall terminate upon, and shall not apply to, any of
the following events:
(a) the Company with the approval of a majority of the
Disinterested Directors shall enter into and consummate an agreement with any
person or group providing for an offer to be made to purchase shares of Company
Common Stock or all or substantially all of the assets of the Company, or a
majority of the whole Board of Directors, approves or recommends acceptance of
such offer; or
10
<PAGE>
(b) the Company shall enter into and consummate an agreement
calling for the merger or consolidation of the Company with or into any other
corporation in which (i) the Company's outstanding capital stock shall be
converted into cash or other property, (ii) a majority of the outstanding voting
stock of the surviving corporation immediately following such merger or
consolidation will not be owned by persons who were stockholders of the Company
immediately before the merger or consolidation and (iii) notice of a meeting of
shareholders of the Company called to consider such agreement shall be given.
SECTION 4. TERM OF AGREEMENT; CERTAIN PROVISIONS REGARDING
-----------------------------------------------
TERMINATION.
- -----------
Unless this Agreement specifically provides for earlier termination
with respect to any particular right or obligation, this Agreement shall
terminate if the Yucaipa Group and its affiliates shall, at any time (in
compliance with this Agreement), sell or otherwise dispose of or cease to own
any Company Voting Securities so that the Yucaipa Group and its affiliates
beneficially own, in the aggregate, Company Voting Securities representing less
than 2.0% of all shares of Company Common Stock.
SECTION 5. LEGEND AND STOP TRANSFER ORDER.
------------------------------
To assist in effectuating the provisions of this Agreement, each
member of the Yucaipa Group hereby consents (i) to the placement within 10
business days after any Company Voting Securities become subject to the
provisions of this Agreement, of the following legend on all certificates
representing ownership of Company Voting Securities owned of record or
beneficially by any member of the Yucaipa Group, until such shares are sold,
transferred or disposed in a manner permitted hereby to a person who is not then
a member of the Yucaipa Group:
The shares represented by this certificate are subject to the
provisions of a Standstill Agreement by and among the Company and
certain stockholders of the Company, and may not be sold, transferred,
pledged, hypothecated or otherwise disposed of except in accordance
therewith. Copies of said Standstill Agreement are on file at the
office of the Corporate Secretary of the Company.
and (ii) to the entry of stop transfer orders with the transfer agent or agents
of Company Voting Securities against the transfer by such member of Company
Voting Securities except in compliance with the requirements of this Agreement.
The Company agrees to remove promptly all legends and stop transfer orders with
respect to the transfer of Company Voting Securities being made to a person who
is not then a member of the Yucaipa Group in compliance with the provisions of
this Agreement.
SECTION 6. REMEDIES.
--------
Each respective member of the Yucaipa Group, the Smith Group and the
Company acknowledge and agree that (i) the provisions of this Agreement are
reasonable and necessary to protect the proper and legitimate interests of the
parties hereto, and (ii) the parties would be irreparably damaged in the event
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed that
the parties shall be entitled to preliminary and permanent injunctive relief to
prevent breaches of the provisions of this Agreement by the other parties
without the necessity of proving actual damages or of posting any bond, and to
enforce specifically the terms and provisions hereof and thereof in any court of
the United States or any
11
<PAGE>
state thereof having jurisdiction, which rights shall be cumulative and in
addition to any other remedy to which the parties may be entitled hereunder or
at law or equity.
SECTION 7. GENERAL PROVISIONS.
------------------
7.1. Choice of Law. This Agreement shall be construed, interpreted
-------------
and the rights of the parties determined in accordance with the laws of the
State of Delaware without reference to the choice of laws provisions thereof.
7.2. Additional Parties; Joint and Several Obligations. All of the
-------------------------------------------------
obligations of the Yucaipa Group and its members hereunder shall be joint and
several, and all of the obligations of the Smith Group and its members hereunder
shall be joint and several. Each affiliate of a member of the Yucaipa Group or
the Smith Group that shall become or have the right to become the beneficial
owner, within the meaning and scope of Section 3 hereof, of Company Voting
Securities shall, promptly upon becoming such owner or holder, execute and
deliver to the Company a joinder agreement, agreeing to be legally bound by this
Agreement as an original signatory as a member of the Yucaipa Group or the Smith
Group, as applicable; provided that failure to execute such agreement shall not
excuse such person's non-compliance with any provision of this Agreement. No
member of the Yucaipa Group shall transfer Company Voting Securities to any of
its affiliates not already a party hereto unless the transferee shall agree to
be bound by this Agreement in the manner specified above in this Section 7.2.
No member of the Smith Group shall transfer shares of Series I Preferred Stock
to any person not already a party hereto unless the transferee shall agree to be
bound by this Agreement in the manner specified above in this Section 7.2.
7.3. Smith Group Representative. The members of the Smith Group
--------------------------
hereby appoint Jeffrey P. Smith as their designated representative to act on
behalf of the Smith Group as a whole for all purposes under the Agreement and
any party hereto may rely on such designation for written notices from the
members of the Smith Group holding a majority of all the shares of common stock
of the Company.
7.4. Notices. All notices, consents, requests, instructions,
-------
approvals and other communications provided for herein and all legal process in
regard hereto shall be in writing and shall be decreed to be validly given, made
or served when delivered personally, transmitted by telex or telecopier, or
deposited in the U.S. mail, postage prepaid, for delivery by express, registered
or certified mail, or delivered to a recognized overnight courier service,
addressed as follows:
If to the Company:
Smith's Food & Drug Centers, Inc.
1550 S. Redwood Road
Salt Lake City, Utah 84107
Attn: General Counsel
Fax Number: (801) 974-1676
12
<PAGE>
If to Yucaipa or any member of the Yucaipa Group:
The Yucaipa Companies
10000 Santa Monica Boulevard, Fifth Floor
Los Angeles, California 90067
Attn: Mark A. Resnik
Fax Number: (310) 789-7201
With a copy to:
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Attn: Thomas C. Sadler, Esq.
Fax Number: (213) 891-8763
If to any member of the Smith Group:
Jeffrey P. Smith
C/O SMITH'S FOOD & DRUG CENTERS, INC.
-------------------------------------
1550 S. REDWOOD ROAD
--------------------
SALT LAKE CITY, UTAH 84104
--------------------------
FAX: (801) 974-1662
--------------------
With a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attn: Robert L. Friedman, Esq.
Fax Number: (212) 455-2502
or to such other address as may be specified in a notice given pursuant to this
Section. All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; when
answered back if telexed; when receipt acknowledged, if telecopied; and the next
business day after timely delivery to the courier, if sent by overnight air
courier guaranteeing next day delivery. The parties may change the address to
which notices are to be given by giving five days' prior notice of such change
in accordance herewith.
7.5. Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provisions, covenants and
restrictions shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. The parties hereto agree that they will use
their best efforts at all times to support and defend this Agreement.
7.6. Enforcement of Agreement. The approval of a majority of the
------------------------
Board of Directors or a majority of the Disinterested Directors shall be all
that is required for the Company to seek to enforce the terms of this Agreement.
13
<PAGE>
7.7. Amendments; Waivers. Any provision of this Agreement may be
-------------------
amended or waived if, and only if, such amendment or waiver is in writing and
signed by each party hereto; provided that no such amendment or waiver by the
Company shall be effective without the approval of a majority of the
Disinterested Directors. No failure or delay by any party hereto in exercising
any right, power or privilege hereunder shall operate as a waiver thereof nor
shall any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. The
rights and remedies herein provided shall be cumulative and not exclusive of any
rights or remedies provided by law.
7.8. Descriptive Headings. Descriptive headings are for convenience
--------------------
only and shall not control or affect the meaning or construction of any
provision of this Agreement. Reference in this Agreement to Sections are to
Sections of this Agreement. All pronouns and any variations thereof refer to
the masculine, feminine or neuter, singular or plural, as the identity of the
applicable person or persons may require.
7.9. Entire Agreement; Amendment. This Agreement and the other
---------------------------
instruments and agreements referred to herein embody the entire agreement of the
parties hereto with respect to the subject matter hereof and supersede all prior
agreements with respect thereto.
7.10. Counterparts. This Agreement shall become binding when one or
------------
more counterparts hereof, individually or taken together, bears the signatures
of each of the parties hereto. This Agreement may be executed in any number of
counterparts, each of which shall be an original as against the party whose
signature appears thereon, or on whose behalf such counterpart is executed, but
all of which taken together shall be one and the same agreement.
7.11. No Partnership. No partnership, joint venture or joint
--------------
undertaking is intended to be, or is, formed between the parties hereto or any
of them by reason of this Agreement or the transactions contemplated herein.
7.12. Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of and be enforceable by the successors and assigns of
the parties hereto. All of the terms, covenants and agreements contained in
this Agreement are solely for the benefit of the parties hereto, and their
respective successors and assigns, and no other parties (including, without
limitation, any other stockholder or creditor of the Company, or any director,
officer or employee of the Company) are intended to be benefitted by, or
entitled to enforce, this Agreement.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto intending to be legally bound
have duly executed this Agreement, all as of the day and year first above
written.
SMITH'S FOOD & DRUG CENTERS, INC.
By:/S/ JEFFREY P. SMITH
--------------------
Name: Jeffrey P. Smith
Title: Chairman and Chief Executive Officer
THE YUCAIPA COMPANIES
By:/S/ MARK A. RESNIK
------------------
Name: Mark A. Resnik
Title: General Partner
YUCAIPA SSV PARTNERS, L.P.
By: The Yucaipa Companies
Its General Partner
By:/S/ MARK A. RESNIK
------------------
Name: Mark A. Resnik
Title: General Partner
YUCAIPA SMITTY'S PARTNERS, L.P.
By: The Yucaipa Companies
Its General Partner
By:/S/ MARK A. RESNIK
------------------
Name: Mark A. Resnik
Title: General Partner
S-1
<PAGE>
YUCAIPA SMITTY'S PARTNERS II, L.P.
By: The Yucaipa Companies
Its General Partner
By:/S/ MARK A. RESNIK
------------------
Name: Mark A. Resnik
Title: General Partner
YUCAIPA ARIZONA PARTNERS, L.P.
By: The Yucaipa Companies
Its General Partner
By:/S/ MARK A. RESNIK
------------------
Name: Mark A. Resnik
Title: General Partner
/S/ JEFFREY P. SMITH
--------------------
JEFFREY P. SMITH
/S/ RICHARD D. SMITH
--------------------
RICHARD D. SMITH
/S/ FRED L. SMITH
-----------------
FRED L. SMITH
/S/ IDA SMITH
-------------
IDA SMITH
S-2
<PAGE>
THE DEE GLENN SMITH MARITAL TRUST I
-
By:/S/ JEFFREY P. SMITH
--------------------
Name: Jeffrey P. Smith
Title: Trustee
TRUST FOR THE CHILDREN OF JEFFREY PAUL SMITH
By:/S/ JEFFREY P. SMITH
--------------------
Name: Jeffrey P. Smith
Title: Trustee
TRUST FOR THE CHILDREN OF RICHARD DEE SMITH
By:/S/ RICHARD D. SMITH
--------------------
Name: Richard D. Smith
Title: Trustee
TRUST FOR THE CHILDREN OF FRED LORENZO SMITH
By:/S/ FRED L. SMITH
-----------------
Name: Fred L. Smith
Title: Trustee
S-3
<PAGE>
EXHIBIT 10.4
SMITTY'S STOCKHOLDER AGREEMENT
THIS STOCKHOLDER AGREEMENT (this "Agreement") is entered into as of
---------
_____________________ __, 1996, among SMITH'S FOOD & DRUG CENTERS, INC., a
- ------------------------
Delaware corporation (the "Company"), CACTUS ACQUISITION, INC., a Delaware
-------
corporation AND WHOLLY-OWNED SUBSIDIARY OF THE COMPANY ("Acquisition"), and the
------------------------------------------ -----------
undersigned stockholders (individually, a "Stockholder" and, collectively, the
-----------
"Stockholders") of Smitty's Supermarkets, Inc., a Delaware corporation
- -------------
("Smitty's").
- ---------- -
WHEREAS, THE COMPANY, ACQUISITION, SMITTY'S AND THE YUCAIPA
-----------------------------------------------------------
COMPANIES ("YUCAIPA") ARE parties to a Recapitalization Agreement and Plan of
- -------------------------
Merger dated as of January 29, 1996 (the "Recapitalization Agreement"),
--------------------------
providing for the merger of Acquisition with and into Smitty's pursuant to the
terms and conditions of the Recapitalization Agreement (the "Merger") and
------
setting forth certain representations, warranties, covenants and agreements
which each of the parties thereto is making thereby in connection with the
Merger; and
WHEREAS, the Recapitalization Agreement contemplates that certain
stockholders of Smitty's will agree to vote their shares of Smitty's Common
Stock (as hereinafter defined) in favor of the Merger and to take no action
inconsistent with the Recapitalization Agreement; and
WHEREAS, to comply with the Recapitalization Agreement and to induce
the Company to proceed to consummate the Merger, such Stockholders have agreed
to commit to vote all shares of Smitty's Common Stock held by each such
Stockholder in favor of the Merger and to take no action inconsistent with the
Merger;
NOW, THEREFORE, in consideration of the covenants herein contemplated,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. REPRESENTATIONS OF STOCKHOLDERS. Each undersigned Stockholder
represents that it (i) is the holder and beneficial owner of that number of
shares of Class A or Class B Common Stock of the Company (collectively, the
"Smitty's Common Stock") set forth under its signature below, (ii) has full
- ----------------------
power and authority to make, enter into and carry out the terms of this
Agreement, and (iii) is not a party to or bound by any contract, commitment,
agreement, understanding arrangement or restriction of any kind with respect to
which the execution of this Agreement, or the consummation by such Stockholder
of the transactions contemplated hereby will constitute a violation, or cause a
default or a conflict.
2. AGREEMENT TO VOTE SHARES. Each undersigned Stockholder shall vote
its shares of Smitty's Common Stock and any New Shares (as defined in Section 6
below), and shall cause any holder of record of its shares of Smitty's Common
Stock or New Shares to vote, in favor of approval of the Merger and, to the
extent required, the other transactions contemplated by the Recapitalization
Agreement at every meeting of the stockholders of Smitty's called for such
purpose (and every adjournment thereof) or by written action without a meeting
or otherwise.
3. NO-SHOP. Each undersigned Stockholder agrees that it shall not,
directly or indirectly, through any officer, director, partner, agent or
representative or otherwise, (i) solicit, initiate or encourage submission of
proposals or offers from any person other than the Company or Acquisition
1
<PAGE>
relating to any acquisition or purchase of all or any material portion of the
assets of, or any equity interest in, or any merger, consolidation or business
combination with, Smitty's or any of its subsidiaries, or (ii) participate in
any discussions or negotiations regarding, or furnish any person other than the
Company, Acquisition, or their officers, directors or agents any information
with respect to, or otherwise cooperate with, assist in, or participate in, or
facilitate or encourage any effort by any person other than the Company or
Acquisition to do any of the foregoing.
4. NO ACTIONS INCONSISTENT WITH RECAPITALIZATION AGREEMENT. Each
undersigned Stockholder agrees to take no action inconsistent with the
Recapitalization Agreement or that would prevent any condition precedent to the
Merger from being satisfied at or prior to the Effective Time of the Merger.
5. TRANSFER AND ENCUMBRANCE. Each undersigned Stockholder agrees not
to transfer, sell, offer, pledge, or otherwise dispose of or reduce his or her
right relative to or encumber any of its shares of Company Common Stock or New
Shares without the prior written consent of the Company and Smitty's.
6. ADDITIONAL PURCHASES. Each undersigned Stockholder agrees that
any New Shares acquired or purchased by it shall be subject to the terms of this
Agreement. For purposes of this Agreement, the term "New Shares" shall mean any
----------
shares of Smitty's Common Stock that each Stockholder purchases, otherwise
acquires beneficial ownership of or acquires the right to vote or share in the
voting of, after the execution of this Agreement, including, without limitation,
through the exercise of any options, warrants or other rights to purchase
Smitty's Common Stock.
7. SPECIFIC PERFORMANCE. Each party hereto acknowledges that (a) it
will be impossible to measure in money the damage to the Company and Acquisition
if a Stockholder fails to comply with any of the obligations imposed by this
Agreement, (b) every such obligation is material, and (c) in the event of any
such failure, the Company and Acquisition will not have an adequate remedy at
law or damages and, accordingly, each party hereto agrees that injunctive relief
or other equitable remedy, in addition to remedies at law or damages, is an
appropriate remedy for any such failure.
8. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns and shall not be assignable without the written consent of the other
parties hereto.
9. ENTIRE AGREEMENT. This Agreement supersedes all prior agreements,
written or oral, among the parties hereto with respect to the subject matter
hereof and, together with the Recapitalization Agreement and any other agreement
to be executed by each undersigned party pursuant to the Recapitalization
Agreement, contains the entire agreement among the parties with respect to the
subject matter hereof. This Agreement may not be amended, supplemented or
modified and no provisions hereof may be modified or waived, except expressly by
an instrument in writing signed by all the parties hereto. No waiver of any
provisions hereof by any party shall be deemed a waiver by any such party, and
no such waiver shall be deemed a continuing waiver of any provision hereof by
such party.
10. STOCKHOLDERS' REPRESENTATIVE. YUCAIPA IS HEREBY APPOINTED AS THE
- -----------------------------------------------------------------
"STOCKHOLDERS' REPRESENTATIVE" ON BEHALF OF EACH UNDERSIGNED STOCKHOLDER AND
- ----------------------------------------------------------------------------
IRREVOCABLY CONSTITUTED AND APPOINTED AS SUCH STOCKHOLDER'S ATTORNEY-IN-FACT, TO
- --------------------------------------------------------------------------------
ACT IN SUCH STOCKHOLDER'S NAME, PLACE AND STEAD IN ANY WAY IN WHICH SUCH
- ------------------------------------------------------------------------
STOCKHOLDER COULD DO ANY OR ALL OF THE FOLLOWING: (I) TO
- ---------------------------------------------------------
2
<PAGE>
SUPERVISE THE CLOSINGS (AS DEFINED IN THE RECAPITALIZATION AGREEMENT) AND
- -------------------------------------------------------------------------
DETERMINE WHETHER THE CONDITIONS TO THE CLOSINGS HAVE BEEN SATISFIED AND WAIVE
- ------------------------------------------------------------------------------
ANY CONDITIONS WHICH, IN ITS SOLE DISCRETION, IT DEEMS APPROPRIATE TO FACILITATE
- --------------------------------------------------------------------------------
THE CLOSINGS; (II) TO TAKE ANY AND ALL ACTIONS THAT MAY BE NECESSARY OR
- -----------------------------------------------------------------------
DESIRABLE IN CONNECTION WITH THE RECAPITALIZATION AGREEMENT; (III) TO EXECUTE
- -----------------------------------------------------------------------------
AND DELIVER IN ITS CAPACITY AS STOCKHOLDERS' REPRESENTATIVE ANY AND ALL NOTICES,
- --------------------------------------------------------------------------------
DOCUMENTS OR CERTIFICATES TO BE EXECUTED BY THE STOCKHOLDERS' REPRESENTATIVE IN
- -------------------------------------------------------------------------------
ACCORDANCE WITH THE RECAPITALIZATION AGREEMENT AND THE OTHER TRANSACTION
- ------------------------------------------------------------------------
DOCUMENTS (AS DEFINED IN THE RECAPITALIZATION AGREEMENT); (IV) DELIVER AT THE
- -----------------------------------------------------------------------------
MERGER CLOSING STOCK POWERS AND ANY OTHER REQUIRED INSTRUMENTS OF TRANSFER TO BE
- --------------------------------------------------------------------------------
EXECUTED BY THE SMITTY'S STOCKHOLDERS, INCLUDING A LETTER OF TRANSMITTAL, AND TO
- --------------------------------------------------------------------------------
ACCEPT CERTIFICATE OR CERTIFICATES IN THE NAME OF EACH SMITTY'S STOCKHOLDER
- ---------------------------------------------------------------------------
MERGER CONSIDERATION AS SET FORTH IN SECTION 3.1(C) OF THE RECAPITALIZATION
- ---------------------------------------------------------------------------
AGREEMENT; (V) TAKE ALL OTHER ACTIONS AND DO OTHER THINGS PROVIDED IN OR
- ------------------------------------------------------------------------
CONTEMPLATED BY THE RECAPITALIZATION AGREEMENT AS TO BE TAKEN OR PERFORMED BY
- -----------------------------------------------------------------------------
THE STOCKHOLDERS' REPRESENTATIVE. THIS POWER OF ATTORNEY SHALL BE COUPLED WITH
- -------------------------------------------------------------------------------
AN INTEREST AND IRREVOCABLE AND SHALL SURVIVE, AND SHALL NOT BE AFFECTED BY, THE
- --------------------------------------------------------------------------------
SUBSEQUENT DEATH, DISABILITY OR INCOMPETENCE, OR LIQUIDATION OR DISSOLUTION, AS
- -------------------------------------------------------------------------------
APPLICABLE OF ANY STOCKHOLDER.
- ------------------------------
11. MISCELLANEOUS.
--
a. This Agreement shall be deemed a contract made under, and for
all purposes shall be construed in accordance with, the laws of the State of
Delaware.
b. If any provisions of this Agreement or the application of
such provisions to any person or circumstances shall be held invalid by a court
of competent jurisdiction, the remainder of the provision held invalid and the
application of such provision to persons or circumstances, other than the party
as to which it is held invalid, shall not be affected.
c. This Agreement may be executed in one or more counterparts,
each of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
d. This Agreement shall terminate upon the earlier to occur of
the termination of the Recapitalization Agreement pursuant to Section 10.1
thereof or the consummation of the Merger.
e. All Section headings herein are for convenience of reference
only and are not part of this Agreement and no construction or reference shall
be derived therefrom.
f. Words used in this Agreement, regardless of the number and
gender specifically used, shall be deemed and construed to include any other
number, singular or plural, and any other gender, masculine, feminine or neuter,
as the context requires.
g. Capitalized terms used herein without definition shall have
the meanings ascribed to such terms in the Recapitalization Agreement.
(SIGNATURE PAGE FOLLOWS)
------------------------
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first written above.
SMITH'S FOOD & DRUG CENTERS, INC.
By:/S/ JEFFREY P. SMITH
-----------------------------------------
Name: Jeffrey P. Smith
Title: Chairman, President and
Chief Executive Officer
CACTUS ACQUISITION, INC.
By:/S/ JEFFREY P. SMITH
-----------------------------------------
Name: Jeffrey P. Smith
Title: President and Chief Executive
Officer
STOCKHOLDER:
YUCAIPA SSV PARTNERS, L.P.
By: The Yucaipa Companies
Its: General Partner
By:/S/ MARK A. RESNIK
-----------------------------------------
Name: Mark A. Resnik
Title: General Partner
Address: 10000 Santa Monica Boulevard
Fifth Floor
Los Angeles, California 90067
Shares of Smitty's Common Stock
Beneficially Owned:
Class Number of Shares
----- ----------------
A 378,872
-------------------------------------
B 0
-------------------------------------
Options or Warrants to Purchase the
Following Number of Shares of Smitty's
Common Stock Beneficially Owned:
0
--------------------------------------------
4
<PAGE>
YUCAIPA SMITTY'S PARTNERS, L.P.
By: The Yucaipa Companies
Its: General Partner
By:/S/ MARK A. RESNIK
-----------------------------------------
Name: Mark A. Resnik
Title: General Partner
Address: 10000 Santa Monica Boulevard
Fifth Floor
Los Angeles, California 90067
Shares of Smitty's Common Stock
Beneficially Owned:
Class Number of Shares
----- ----------------
A 99,829.803
-------------------------------------
B 0
-------------------------------------
Options or Warrants to Purchase the
Following Number of Shares of Smitty's
Common Stock Beneficially Owned:
0
--------------------------------------------
YUCAIPA SMITTY'S PARTNERS II, L.P.
By: The Yucaipa Companies
Its: General Partner
By:/S/ MARK A. RESNIK
-----------------------------------------
Name: Mark A. Resnik
Title: General Partner
Address: 10000 Santa Monica Boulevard
Fifth Floor
Los Angeles, California 90067
5
<PAGE>
Shares of Smitty's Common Stock
Beneficially Owned:
Class Number of Shares
----- ----------------
A 45,419
-------------------------------------
B 0
-------------------------------------
Options or Warrants to Purchase the
Following Number of Shares of Smitty's
Common Stock Beneficially Owned:
0
--------------------------------------------
YUCAIPA ARIZONA PARTNERS, L.P.
By: The Yucaipa Companies
Its: General Partner
By:/S/ MARK A. RESNIK
-----------------------------------------
Name: Mark A. Resnik
Title: General Partner
Address: 10000 Santa Monica Boulevard
Fifth Floor
Los Angeles, California 90067
Shares of Smitty's Common Stock
Beneficially Owned:
Class Number of Shares
----- ----------------
A 181,662
-------------------------------------
B 0
-------------------------------------
Options or Warrants to Purchase the
Following Number of Shares of Smitty's
Common Stock Beneficially Owned:
0
--------------------------------------------
6
<PAGE>
STOCKHOLDER:
--------------------------------------------
(NAME OF STOCKHOLDER)
---------------------
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
Address:
--------------------------------------------
--------------------------------------------
--------------------------------------------
Shares of Smitty's Common Stock
Beneficially Owned:
Class Number of Shares
----- ----------------
A
-------------------------------------
B
-------------------------------------
Options or Warrants to Purchase the
Following Number of Shares of Smitty's
Common Stock Beneficially Owned:
--------------------------------------------
7
<PAGE>
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
The formula for the computation is as follows:
Ratio of Earnings to Fixed Charges = (net income + income taxes + fixed
charges)/(fixed charges)
Fixed Charges = (interest expense + amortization of deferred financing
costs, and one-third of rental expense (the portion of annual
rental expense deemed by the Company to be representative of
the interest factor))
SUPPORTING DATA OF THE CALCULATION
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
SMITH'S FOR
CALIFORNIA PRO FORMA
1991 1992 1993 1994 1995 DIVESTITURE COMBINED
FOR FISCAL YEAR: -------- -------- -------- -------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net income (loss)....... $ 45,097 $ 53,650 $ 45,820 $ 48,781 $(40,512) $ 50,500 $ 3,800
Add:
Income taxes.......... 28,300 34,400 34,300 31,300 (29,300) 33,900 5,550
Fixed Charges:
Interest expense.... 30,319 36,130 44,627 53,715 60,024 60,000 141,700
Debt financing
amortization....... 509 344 344 509 454 400 10,200
1/3 Rental expense.. 5,564 6,372 6,607 13,382 15,565 6,000 8,433
-------- -------- -------- -------- -------- -------- --------
Total fixed charges. 36,392 42,846 51,578 67,606 76,043 66,400 160,333
-------- -------- -------- -------- -------- -------- --------
Earnings plus fixed
charges................ $109,789 $130,896 $131,698 $147,687 $ 6,231 $150,800 $169,633
======== ======== ======== ======== ======== ======== ========
Ratio of earnings to
fixed charges.......... 3.02 3.06 2.55 2.18 -- 2.27 1.06
======== ======== ======== ======== ======== ======== ========
<CAPTION>
PRO FORMA
13 WEEKS ENDED SMITH'S
------------------ FOR
APRIL 1, MARCH 30, CALIFORNIA PRO FORMA
1995 1996 DIVESTITURE COMBINED
FOR QUARTERLY PERIOD: -------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net income (loss).................................. $ 9,479 $ (1,178) $ 13,700 $ 2,700
Add:
Income taxes..................................... 6,300 (800) 8,700 1,600
Fixed Charges:
Interest expense............................... 15,077 14,545 14,500 35,200
Debt financing amortization.................... 100 100 100 2,500
1/3 Rental expense............................. 3,893 2,418 1,400 1,700
-------- -------- -------- --------
Total fixed charges............................ 19,070 17,063 16,000 39,400
-------- -------- -------- --------
Earnings plus fixed charges........................ $ 34,849 $ 15,085 $ 38,400 $ 43,700
======== ======== ======== ========
Ratio of earnings to fixed charges................. 1.83 -- 2.40 1.11
======== ======== ======== ========
</TABLE>
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
Smith's Beverage of Wyoming, Inc., a Wyoming corporation.
Western Property Investment Group, Inc., a California corporation.
Treasure Valley Land Company, L.C., an Idaho limited liability company.
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-3 (File
No. 333-01601) of our report dated October 3, 1995, except for Note 18 for
which the date is January 29, 1996, on our audits of the financial statements
of Smitty's Supermarkets, Inc. and subsidiaries and the Predecessor. We also
consent to the reference to our firm under the captions "Selected Historical
Financial Data of Smitty's" and "Experts."
COOPERS & LYBRAND L.L.P.
Phoenix, Arizona
May 13, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF ERNST & YOUNG, LLP INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and in
headnotes and to the use of our report dated January 29, 1996, in Amendment
No. 4 to the Registration Statement (Form S-3, No. 333-01601) and related
Prospectus of Smith's Food & Drug Centers, Inc. dated May 14, 1996.
ERNST & YOUNG LLP
Salt Lake City, Utah
May 10, 1996
<PAGE>
EXHIBIT 25.1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM T-1
----------
STATEMENT OF ELIGIBILITY AND QUALIFICATION 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)
FLEET NATIONAL BANK OF CONNECTICUT
---------------------------------------------------------
(Exact name of trustee as specified in its charter)
<TABLE>
<S> <C>
Not applicable 06-0850628
- ------------------------------- -----------------------------
(State of incorporation (I.R.S. Employer
if not a national bank) Identification No.)
777 Main Street, Hartford, Connecticut 06115
- ---------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Patricia Beaudry, 777 Main Street, Hartford, CT 860-728-2065
--------------------------------------------------------------
(Name, address and telephone number of agent for service)
Smith's Food & Drug Centers, Inc.
---------------------------------------------------
(Exact name of obligor as specified in its charter)
<TABLE>
<S> <C>
Delaware 87-0258768
- ------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1550 South Redwood Road
Salt Lake City, Utah 84104
- ---------------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Senior Subordinated Notes due 2007
------------------------------------------------------------------
(Title of the indenture securities)
<PAGE>
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,
The Comptroller of the Currency,
Washington, D.C.
Federal Reserve Bank of Boston
Boston, Massachusetts
Federal Deposit Insurance Corporation
Washington, D.C.
(b) Whether it is authorized to exercise
corporate trust powers:
The trustee is so authorized.
Item 2. Affiliations with obligor and underwriter. If the obligor or
any underwriter for the obligor is an affiliate of the trustee,
describe each such affiliation.
None with respect to the trustee.
Item 16. List of exhibits.
List below all exhibits filed as a part of this statement of
eligibility and qualification.
(1) A copy of the Articles of Association of the trustee as
now in effect.
(2) A copy of the Certificate of Authority of the trustee
to do business.
(3) A copy of the Certification of Fiduciary Powers of the
trustee.
(4) A copy of the By-Laws of the trustee as now in effect.
(5) Consent of the trustee required by Section 321 (b) of the
Act.
(6) A copy of the latest Consolidated Reports of Condition
and Income of the trustee published pursuant to law or the
requirements of its supervising or examining authority.
In as much as this Form T-1 is filed prior to the ascertainment by the trustee
of all facts on which to base answers to Item 2, the answers to said Items are
based upon imcomplete information. Said Items may, however, be considered
correct unless amended by an amendment to this Form T-1.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939,
the trustee, Fleet National Bank of Connecticut, a national banking
association organized and existing under the laws of the United States, has
duly caused this statement of eligibility and qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of
Hartford, and State of Connecticut, on the 9th day of June, 1995.
FLEET NATIONAL BANK OF CONNECTICUT,
AS TRUSTEE
By: /s/ Michael M. Hopkins
-------------------------
Its Vice President
<PAGE>
EXHIBIT 1
ARTICLES OF ASSOCIATION
FLEET NATIONAL BANK OF CONNECTICUT
FIRST. The title of this Association, which shall carry on the business of
banking under the laws of the United States, shall be "Shawmut Bank
Connecticut, National Association".
SECOND. The main office of the Association shall be in Hartford, County of
Hartford, State of Connecticut. The general business of the Association shall
be conducted at its main office and its branches.
THIRD. The board of directors of this Association shall consist of not less
than five (5) nor more than twenty-five (25) shareholders, the exact number of
directors within such minimum and maximum limits to be fixed and determined
from time to time by resolution of a majority of the full board of directors or
by resolution of the shareholders at any annual or special meeting thereof.
Unless otherwise provided by the laws of the United States, any vacancy in the
board of directors for any reason, including an increase in the number thereof,
may be filled by action of the board of directors.
FOURTH. The annual meeting of the shareholders for the election of directors
and the transaction of whatever other business may be brought before said
meeting shall be held at the main office or such other place as the board of
directors may designate, on the day of each year specified therefore in the
bylaws, but if no election is held on that day, it may be held on any
subsequent day according to the provisions of law; and all elections shall be
held according to such lawful regulations as may be prescribed by the board of
directors.
FIFTH. The authorized amount of capital stock of this Association shall be
eight million five hundred thousand (8,500,000) shares of which three milliion
five hundred thousand (3,500,000) shares shall be common stock with a
par value of six and 25/100 dollars ($6.25) each, and of which five million
(5,000,000) shares without par value shall be preferred stock. The capital
stock may be increased or decreased from time to time, in accordance with
the provisions of the laws of the United States.
No holder of shares of the capital stock of any class of the corporation shall
have any pre-emptive or preferential right of subscription to any shares of any
class of stock of the Association, whether now or hereafter authorized, or to
any obligations convertible into stock of the Association, issued or sold, nor
any right of subscription to any thereof other than such, if any, as the board
of directors, in its discretion, may from time to time determine and at such
price as the board of directors may from time to time fix.
<PAGE>
The board of directors of the Association is authorized, subject to limitations
prescribed by law and the provisions of this Article, to provide for the
issuance from time to time in one or more series of any number of the preferred
shares, and to establish the number of shares be included in each series, and
to fix the designation, relative rights, preferences, qualifications and
limitations of the shares of each such series. The authority of the board of
directors with respect to each series shall include, but not be limited to,
determination of the following:
a. The number of shares constituting that series and the distinctive
designation of that series;
b. The dividend rate on the shares of that series, whether dividends shall be
cumulative, and, if so, from which dates or dates, and whether they shall be
payable in preference to, or in anther relation to, the dividends payable to
any other class or classes or series of stock;
c. Whether that series shall have voting rights, in addition to the voting
rights provided by law, and, if so, the terms of such voting rights;
d. Whether that series shall have conversion or exchange privileges, and,
if so, the terms and conditions of such conversion or exchange, including
provision for the adjustment of the conversion or exchange rate in such
events as the board of directors shall determine;
e. Whether or not the shares of that series shall be redeemable, and, if so,
the terms and conditions of such redemption, including the manner of
selecting shares for redemption if less than all shares are to be redeemed,
the date or dates upon or after which they shall be redeemable, and the
amount per share payable in case of redemption, which amount may vary under
different conditions and at different redemption dates;
f. Whether that series shall be entitled to the benefit of a sinking fund to
be applied to the purchase or redemption of shares of that series, and, if
so, the terms and amounts of such sinking fund;
g. The right of the shares of that series to the benefit of conditions and
restrictions upon the creation of indebtedness of the Association or any
subsidiary, upon the issue of any additional stock (including additional
shares of such series or of any other series) and upon the payment of
dividends or the making of other distributions on, and the purchase,
redemption or other acquisition by the Association or any subsidiary of
any outstanding stock of the Association;
h. The right shares of that series in the event of voluntary or involuntary
liquidation, dissolution or winding up of the Association and whether such
rights shall be in preference to, or in another relation to, the comparable
rights of any other class or classes or series of stock; and
i. Any other relative, participating, optional or other special rights,
qualifications, limitations or restrictions of that series.
Shares of any series of preferred stock which have been redeemed (whether
through the operation of a sinking fund or otherwise) or which, if convertible
or exchangeable, have been converted into or exchanged for shares of stock of
any other class or classes shall have the status of authorized and unissued
shares of preferred stock of the same series and may be reissued as a part of
the series of which they were originally a part or may be reclassified and
reissued as part of a new series of preferred stock to be created by resloution
or resolutions of the board of directors or as part of any other series or
preferred stock, all subject to the conditions and the restrictions adopted by
the board of directors providing for the issue of any series of prefeffed
stock and by the provisions of any applicable law.
Subject to the provisions of any applicable law, or except as otherwise
provided by the resolution or resolutions providing for the issue of any series
of preferred stock, the holders of outstanding shares of common stock shall
exclusively possess voting power for the election of directors and for all
purposes, each holder of record of shares of common stock being entitled to one
vote for each share of common stock standing in his name on the books of the
Association.
Except as otherwise provided by the resolution or resolutions for the issue
of any series of preferred stock, after payment shall have been made to the
holders of preferred stock of the full amount of dividends to which they shall
be entitled pursuant to the resolution or resolutions providing for the issue
of any other series of preferred stock, the holders of common stock shall be
entitled, to the exclusion of the holders of preferred stock of any and all
series, to receive such dividends as from time to time may be declared by the
board of directors.
Except as otherwise provided by the resolution or resolutions for the issue
of any series of preferred stock, in the event of any liquidation, dissolution
or winding up of the Association, whether voluntary or involuntary, after
payment shall have been made to the holders of preferred stock of the full
amount to which they shall be entitled pursuant to the resolution or
resolutions providing for the issue of any series of preferred stock the
holders of common stock shall be entitled, to the exclusion of the holders of
preferred stock of any and all series, to share, ratable according to the
number of shares of common stock held by them, in all remaining assets of the
Association available for distribution to its shareholders.
The number of authorized shares of any class may be increased or decreased by
the affirmative vote of the holders of a majority of the stock of the
Association entitled to vote.
<PAGE>
SIXTH. The board of directors shall appoint one of its members president of
this Association, who shall be chairman of the board, unless the board appoints
another director to be the chairman. The board of directors shall have the
power to appoint one or more vice presidents; and to appoint a secretary and
such other officers and employees as may be required to transact the business
of this Association.
The board of directors shall have the power to define the duties of the
officers and employees of the Association; to fix the salaries to be paid to
them; to dismiss them; to require bonds from them and to fix the penalty
thereof; to regulate the manner in which any increase of the capital of the
Association shall be made; to manage and administer the business and affairs of
the Association; to make all bylaws that it may be lawful for them to make; and
generally to do and perform all acts that it may be legal for a board of
directors to do and perform.
SEVENTH. The board of directors shall have the power to change the location of
the main office to any other place within the limits of the City of Hartford,
Connecticut, without the approval of the shareholders but subject to the
approval of the Comptroller of the Currency; and shall have the power to
establish or change the location of any branch or branches of the Association
to any other location, without the approval of the shareholders but subject to
the approval of the Comptroller of the Currency.
EIGHTH. The corporate existence of this Association shall continue until
terminated in accordance with the laws of the United States.
NINTH. The board of directors of this Association, or any three or more
shareholders owning, in the aggregate, not less than ten percent (10%) of the
stock of this Association, may call a special meeting of shareholders at any
time. Unless otherwise provided by the laws of the United States, a notice of
the time, place and purpose of every annual and special meeting of the
shareholders shall be given by first class mail, postage prepaid, mailed at
least ten (10) days prior to the date of such meeting to each shareholder of
record at his address as shown upon the books of this Association.
TENTH. (A) Right to Indemnification. Each person who was or is made a party
or is threatened to be made a party to any threatened, pending or completed
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative (hereinafter a "proceeding"), by reason of the fact that he or
she is or was a director, officer or employee of the Association or is or was
serving at the request of the Association as a director, officer employee or
agent of another corporation of a partnership, joint venture, limited liability
company, trust, or other enterprise, including service with respect to an
empolyee benefit plan, shall be indemnified and held harmless by the
Association to the fullest extent authorized by the law of the state in which
the Association's ultimate parent company is incorporated, except as provided
in subsection (b). The aforesaid indemnity shall protect the indemnified
person against all expense, liability and loss (including attorney's fees,
judgements, fines ERISA excise taxes or penalties, and amounts paid in
settlement) reasonably incurred by such person in connection with such a
proceeding. 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, but shall only cover such person's
period of service with the Association. The Association may, by action of its
Board of Directors, grant rights to indemnification to agents of the
Association and to any director, officer, employee or agent of any of its
subsidiaries with the same scope and effect as the foregoing indemnification
of directors and officers.
(b) Restrictions on Indemnification. Notwithstanding the foregoing, (i) no
person shall be indemnified hereunder by the Association against expenses,
penalties, or other payments incurred in an administrative proceeding or action
instituted by a federal bank regulatory agency which proceeding or action
results in a final order assessing civil money penalties against that person,
requiring affirmative action by that person in the form of payments to the
Association, or removing or prohibiting that person from service with the
Association, and any advancement of expenses to that person in that proceeding
must be repaid; and (ii) no person shall be indemnified hereunder by the
Association and no advancement of expenses shall be made to any person
hereunder to the extent such indemnification or advancement of expenses would
violate or conflict with any applicable federal statute now or hereafter in
force or any applicable final regulation or interpretation now or hereafter
adopted by the Office of the Comptroller of the Currency ("OCC") or the Federal
Deposit Insurance Corporation ("FDIC"). The Association shall comply with any
requirements imposed on it by any such statue or regulation in connection with
any indemnification or advancement of expenses hereunder by the
Association. With respect to proceedings to enforce a claimant's rights to
indemnification, the Association shall indemnify any such claimant in
connection with such a proceeding only as provided in subsection (d) hereof.
(c) Advancement of Expenses. The conditional right to indemnification
conferred in this section shall be a contract right and shall include the
right to be paid by the Association the reasonable expenses (including
attorney's fees) incurred in defending a proceeding in advance of its final
disposition (an "advancement of expenses"); provided, however, that an
advancement of expenses shall be made only upon (i) delivery to the Association
of a binding written undertaking by or on behalf of the person receiving the
advancement to repay all amounts so advanced if it is ultimately determined
that such person is not entitled to be indemnified in such proceeding,
including if such proceeding results in a final order assessing civil money
penalties against that person, requiring affirmative action by that person
in the form of payments to the Association, or removing or prohibiting that
person from service with the Association, and (ii) compliance with any other
actions or determinations required by applicable law, regulation or OCC or FDIC
interpretation to be taken or made by the Board of Directors of the Association
or other persons prior to an advancement of expenses. The Association shall
cease advancing expenses at any time its Board of Directors believes that any
of the prerequisites for advancement of expenses are no longer being met.
(d) Right of Claimant to Bring Suit. If a claim under subsection (a) of the
section is not paid in full by the Association within thirty (30) days after
written claim has been received by the Association the claimant may at any time
thereafter bring suit against the Association to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a
suit brought by the Association to recover an advancement of expenses pursuant
to the terms of an undertaking, the claimant shall be entitled to be paid also
the expense of prosecuting or defending such claim. It shall be a defense to
any such action brought by the claimant to enforce a right to indemnification
hereunder (other than an action brought to enforce a claim for an advancement
of expenses where the required undertaking, if any, has been tendered to the
Association) that the claimant has not met any applicable standard for
indemnification under the law of the state in which the Association's ultimate
parent company is incorporated. In any suit brought by the Association to
recover an advancement of expenses pursuant to the terms of an undertaking, the
Association shall be entitled to recover such expenses upon a final
adjudication that the claimant has not met any applicable standard for
indemnification standard for indemnification under the law of the state in which
the Association's ultimate parent company is incorporated.
(e) Non-Exclusivity of Rights. The rights to indemnification and the
advancement of expenses conferred in this section shall not be exclusive of any
other right which any person may have or hereafter acquired under any statute,
agreement, vote of stockholders or disinterested directors or otherwise.
(f) Insurance. The Association may purchase, maintain, and make payment or
reimbursement for reasonable premiums on, insurance to protect itself and any
director, officer, employee or agent of the Association or another corporation,
partnership, joint venture, trust or other enterprise against any expense,
liability or loss, whether or not the Association would have the power to
indemnify such person against such expense, liability or loss under the law of
the state in which the Association's ultimate parent company is incorporated;
provided however, that such insurance shall explicitly exclude insurance
coverage for a final order of a federal bank regulatory agency assessing civil
money penalties against an Association director, officer, employee or agent.
ELEVENTH. These articles of association may be amended at any regular or
special meeting of the shareholders by the affirmative vote of the holders of a
majority of the stock of this Association, unless the vote of the holders of
greater amount of stock is required by law, and in that case by the vote of the
holders of such greater amount. The notice of any shareholders' meeting at
which an amendment to the articles of association of this Association is to be
considered shall be given as hereinabove set forth.
I hereby certify that the articles of association of this Association, in their
entirety, are listed above in items first through eleventh.
Secretary/Assistant Secretary
- --------------------------------------------------
Dated at , as of .
--------------------------------------- --------------------
Revision of January 11, 1993
<PAGE>
EXHIBIT 2
[LOGO]
- --------------------------------------------------------------------------------
COMPTROLLER OF THE CURRENCY
ADMINISTRATOR OF NATIONAL BANKS
- --------------------------------------------------------------------------------
Washington, D.C. 20219
CERTIFICATE
I, Eugene A. Ludwig, Comptroller of the Currency, do hereby certify
that:
(1) The Comptroller of the Currency, pursuant to Revised Statutes
324, et seq., as amended, 12 U.S.C. 1, et seq., as amended, has possession,
custody and control of all records pertaining to the chartering, regulation and
supervision of all National Banking Associations.
(2) "Fleet National Bank of Connecticut", Hartford, Connecticut,
(Charter No. 1338), is a National Banking Association formed under the
laws of the United States and is authorized thereunder to transact the
business of banking on the date of this Certificate.
IN TESTIMONY WHEREOF, I have hereunto
subscribed my name and caused my seal of
office to be affixed to these presents at
the Treasury Department, in the City of
Washington and District of Columbia, this
28th day of December, 1995.
/s/ EUGENE A. LUDWIG
----------------------------------
Comptroller of the Currency
<PAGE>
EXHIBIT 3
[LOGO]
- --------------------------------------------------------------------------------
COMPTROLLER OF THE CURRENCY
ADMINISTRATOR OF NATIONAL BANKS
- --------------------------------------------------------------------------------
Washington, D.C. 20219
Certification of Fiduciary Powers
I, Eugene A. Ludwig, Comptroller of the Currency, do hereby certify
the records in this Office evidence "Fleet National Bank of Connecticut",
Hartford, Connecticut, (Charter No. 1338), was granted, under the hand
and seal of the Comptroller, the right to act in all fiduciary capacities
authorized under the provisions of The Act of Congress approved
September 28, 1962, 76 Stat. 668, 12 U.S.C. 92a. I further certify the
authority so granted remains in full force and effect.
IN TESTIMONY WHEREOF, I have hereunto
subscribed my name and caused my seal of
Office of the Comptroller of the Currency
to be affixed to these presents at the
Treasury Department, in the City of
Washington and District of Columbia, this
28th day of December, 1995.
/s/ EUGENE A. LUDWIG
----------------------------------
Comptroller of the Currency
489
<PAGE>
EXHIBIT 4
AMENDED AND RESTATED BY-LAWS OF
FLEET NATIONAL BANK OF CONNECTICUT
ARTICLE I
MEETINGS OF SHAREHOLDERS
Section 1. Annual Meeting. The regular annual meeting of the shareholders for
the election of Directors and the transaction of any other business that may
properly come before the meeting shall be held at the Main Office of the
Association, or such other place as the Board of Directors may designate, on
the fourth Thursday of April in each year at 1:15 o'clock in the afternoon
unless some other hour of such day is fixed by the Board of Directors.
If, from any cause, an election of Directors is not made on such day, the Board
of Directors shall order the election to be held on some subsequent day, of
of which special notice shall be given in accordance with the provisions of
law, and of these bylaws.
Section 2. Special Meetings. Special meetings of the shareholders may be called
at any time by the Board of Directors, the President, or any shareholders
owning not less than twenty-five percent (25%) of the stock of the Association.
Section 3. Notice of Meetings of Shareholders. Except as otherwise provided
by law, notice of the time and place of annual or special meetings of the share
holders shall be mailed, postage prepaid, at least ten (10) days before the
date of the meeting to each shareholder of record entitled to vote thereat at
his address as shown upon the books of the Association; but any failure to mail
such notice to any shareholder or any irregularity therein, shall not affect
the validity of such meeting or of any of the proceedings therat. Notice of a
special meeting shall also state the purpose of the meeting.
Section 4. Quorum; Adjourned Meetings. Unless otherwise provided by law, a
quorum for the transaction of business at every meeting of the shareholders
shall consist of not less than two-fifths (2/5) of the outstanding capital
stock represented in person or by proxy; less than such quorum may adjourn the
meeting to a future time. No notice need be given of an adjourned annual or
special meeting of the shareholders if the adjournment be to a definite place
and time.
Section 5. Votes and Proxies. At every meeting of the shareholders, each
share of the capital stock shall be entitled to one vote except as otherwise
provided by law. A majority of the votes cast shall decide every question
or matter submitted to the shareholder at any meeting, unless otherwise
provided by law or by the Articles of Association or these By-laws. Share-
holders may vote by proxies duly authorized in writing and filed with the
Cahsier, but no officer, clerk, teller or bookeeper of the Association may act
as a proxy.
<PAGE>
Section 6. Nominations to Board of Directors. At any meeting of shareholders
held for the election of Directors, nominations for election to the Board of
Directors may be made, subject to the provisions of this section, by any share-
holder of record of any outstanding class of stock of the Association entitled
to vote for the election of Directors. No person other than those whose names
are stated as proposed nominees in the proxy statement accompanying the notice
of the meeting may be nominated as such meeting unless a shareholder shall have
given to the President of the Association and to the Comptroller of the
Currency, Washington, DC written notice of intention to nominate such other
person mailed by certified mail or delivered not less than fourteen (14) days
nor or more than fifty (50) days prior to the meeting of shareholders at which
such nomination is to be made; provided, however, that if less than twenty-one
(21) days' notice of such meeting is given to shareholders, such notice of
intention to nominate shall be mailed by certified mail or delivered to said
President and said Comptroller on or before the seventh day following the day
on which the notice of such meeting was mailed. Such notice of intention to
nominate shall contain the following information to the extent known to the
notifying shareholder: (a) the name and address of each proposed nominee; (b)
the principal occupation of each proposed nominee; (c) the total number of
shares of capital stock of the Association that will be voted for each proposed
nominee; (d) the name and residence address of the notifying shareholder; and
the number of shares of capital stock of the Association owned by the
notifying shareholder. In the event such notice is given, the proposed nominee
may be nominated either by the shareholder giving such notice or by any other
shareholder present at the meeting at which such nomination is to be made.
Such notice may contain the names or more than one proposed nominee, and if
more than one is named, any one or more of those named may be nominated.
Section 7. Action Taken Without a Shareholder Meeting. Any action requiring
shareholder approval or consent may be taken without a meeting and without
notice of such meetings by written consent of the shareholders.
ARTICLE II
DIRECTORS
Section 1. Number. The Board of Directors shall consist of such number of
shareholders, not less than five (5) nor more than twenty-five (25), as from
time to time shall be determined by a majority of the votes to which all of its
shareholders are at the time entitled, or by the Board of Directors as
hereinafter provided.
Section 2. Mandatory Retirement for Directors. No person shall be elected a
director who has attained the age of 68 and no person shall continue to serve
as a director after the date of the first meeting of the stockholders of the
Association held on or after the date on which such person attains the age of
68; provided, however, that any director serving on the Board as of December
15, 1995 who has attanined the age of 65 on or prior to such date shall be
permitted to continue to serve as a director until the date of the first
meeting of the stockholders of the Association held on or after the date on
which such person attains the age of 70.
-2-
<PAGE>
Section 3. General Powers. The Board of Directors shall exercise all the
coporate powers of the Association, except as expressly limited by law, and
shall have the control, management, direction and dispositon of all its
property and affairs.
Section 4. Annual Meeting. Immediately following a meeting of shareholders
held for the election of Directors, the Cashier shall notify the directors-
elect who may be present of their election and they shall then hold a meeting
at the Main Office of the Association, or such other place as the Board of
Directors may designate, for the purpose of taking their oaths, organizing the
new Board, electing officers and transacting any other business that may come
before such meeting.
Section 5. Regular Meeting. Regular meetings of the Board of Directors shall
be held without notice at the Main Office of the Association, or such other
place as the Board of Directors may designate, at such dates and times as the
Board shall determine. If the day designated for a regular meeting falls on a
legal holiday, the meeting shall be held on the next business day.
Section 6. Special Meetings. A special meeting of the Board of Directors may
be called at anytime upon the written request of the Chairman of the Board, the
President, or of two Directors, stating the purpose of the meeting. Notice of
the time and place shall be given not later than the day before the date of the
meeting, by mailing a notice to each Director at his last known address, by
delivering such notice to him personally, or by telephoning.
Section 7. Quorum; Votes. A majority of the Board of Directors at the time
holding office shall constitute a quorum for the transaction of all business,
except when otherwise provided by law, but less than a quorum may adjourn
a meeting from time to time and the meeting may be held, as adjourned, without
further notice. If a quorum is present when a vote is taken, the affirmative
vote of a majority of Directors present is the act of the Board of Directors.
Section 8. Action by Directors Without a Meeting. Any action requiring
Director approval or consent may be taken without a meeting and without notice
of such meeting by written consent of all the Directors.
Section 9. Telephonic Participation in Directors' Meetings. A Director or
member of a Committee of the Board of Directors may participate in a meeting of
the Board or of such Committee may participate in a meeting of the Board or of
such Committee by means of a conference telephone or similar communications
equipment enabling all Directors participating in the meeting to hear one
another, and participation in such meeting shall constitute presence in person
at such a meeting.
Section 10. Vacancies. Vacancies in the Board of Directors may be filled by
the remaining members of the Board at any regular or special meeting of the
Board.
Section 11. Interim Appointments. The Board of Directors shall, if the share-
holders at any meeting for the election of Directors have determined a number
of Directors less than twenty-five (25), have the power, by affirmative vote of
the majority of all the Directors, to increase such number of Directors to not
more than twenty-five (25) and to elect Directors to fill the resulting
vacancies and to serve until the next annual meeting of shareholders or the
next election of Directors; provided, however, that the number of Directors
shall not be so increased by more than two (2) if the number last determined
by shareholders was fifteen (15) or less, or increased by more than four (4) if
the number last determined by shareholders was sixteen (16) or more.
Section 12. Fees. The Board of Directors shall fix the amount and direct the
payment of fees which shall be paid to each Director for attendance at any
meeting of the Board of Directors or of any Committees of the Board.
ARTICLE III
COMMITTEES OF THE BOARD
Section 1. Executive Committee. The board of directors shall appoint from its
members an Executive Committee which shall consist of such number of persons as
the Board of Directors shall determine; the Chairman of the Board and the
President shall be members ex-officio of the Executive Committee with full
voting power. The Chairman of the Board or the President may from time to time
appoint from the Board of Directors as temporary additional members of the
Executive Committee with full voting powers not more than two members to serve
for such periods as the Chairman of the Board or the President may determine.
The Board of Directors shall designate a member of the Executive Committee to
serve as Chairman thereof. A meeting of the Executive Committee may be called
at any time upon the written request of the Chairman of the Board, the President
or the Chairman of the Executive Committee, stating the purpose of the meeting.
Not less than twenty four hours' notice of said meeting shall be given to each
member the Committee personally, by telephoning, or by mail. The Chairman of
the Executive Committee of or, in his absence, a member of the Committee
chosen by a majority of the members present shall preside at meetings of the
Executive Committee.
-3-
<PAGE>
The Executive Committee shall possess and may exercise all the powers of the
Board when the Board is not in session except such as the Board, only, by law,
is authorized to exercise; it shall keep minutes of its acts and proceedings
and cause same to be presented and reported at every regular meeting and at any
special meeting of the Board including specifically, all its actions relating
to loans and discounts. All acts done and powers and authority conferred by
the Executive Committee, from time to time, within the scope of its authority,
shall be deemed to be, and may be certified as being, the acts of and under the
authority of the Board.
Section 2. Risk Management Committee. The Board shall appoint from its
members a Risk Management Committee which shall consist of such number as the
Board shall determine. The Board shall designate a member of the Risk
Management Committee to serve as Chairman thereof. It shall be the duty of the
Risk Management Committee to (a) serve as the channel of communication with
management and the Board of Directors of Fleet Financial Group, Inc. to assure
that formal processes supported by management information systems are in place
for the identification, evaluation and management of significant risks inherent
in or associated with lending activities, the loan portfolio, asset-liability
management, the investment portfolio, trust and investment advisory activities,
the sale of nondeposit investment products and new products and services and
such additional activities or functions as the Board may determine from time to
time; (b) assure the formulation and adoption of policies approved by the Risk
Management Committee or Board governing lending activities, management of the
loan portfolio, the maintenance of an adequate allowance for loan and lease
losses, asset-liability management, the investment portfolio, the retail sale of
non-deposit investment products, new products and services and such additional
activities or functions as the Board may determine from time to time (c) assure
that a comprehensive independent loan review program is in place for the early
detection of problem loans and review significant reports of the loan review
department, management's responses to those reports and the risk attributed to
unresolved issues; (d) subject to control of the Board, exercise general
supervision over trust activities, the investment of trust funds, the
disposition of trust investments and the acceptance of new trusts and the terms
of such acceptance, and (e) perform such additional duties and exercise such
additional powers of the Board may determine from time to time.
Section 3. Audit Committee. The Board shall appoint from its memebers and
Audit Committee which shall consist of such number as the Board shall determine
no one of whom shall be an active officer or employee of the Association or
Fleet Financial Group, Inc. or any of its affiliates. In addition, members of
the Audit Committee must not (i) have served as an officer or employee of the
Association or any of its affiliates at any time during the year prior to their
appointment; or (ii) own, control, or have owned or controlled at any time
during the year prior to appointment, ten percent (10%) or more of any
outstanding class of voting securities of the Association. At least two (2)
members of the Audit Committee must have significant executive, professional,
educational or regulatory experience in financial, auditing, accounting,
or banking matters. No member of the Audit Commitee may have significant
direct or indirect credit or other relationships with the Association, the
termination of which would materially adversely affect the Association's
financial condition or results of operations.
The Board shall designate a member of the Audit Committee to serve as Chairman
thereof. It shall be the duty of the Audit Committee to (a) cause a continuous
audit and examination to be made on its behalf into the affairs of the
Association and to review the results of such examination; (b) review
significant reports of the internal auditing department, management's responses
to those reports and the risk attributed to unresolved issues; (c) review the
basis for the reports issued under Section 112 of The Federal Deposit Insurance
Corporation Improvement Act of 1991; (d) consider, in consultation with the
independent auditor and an internal auditing executive, the adequacy of the
Association's internal controls,including the resolution of identified material
weakness and reportable conditions; (e) review regulatory communications
received from any federal or state agency with supervisory jurisdiction or
other examining authority and monitor any needed corrective action by
management; (f) ensure that a formal system of internal controls is in place
for maintaining compliance with laws and regulations; (g) cause an audit of the
Trust Department at least once during each calendar year and within 15 months
of the last such audit or, in liew thereof, adopt a continuous audit system and
report to the Board each calendar year and within 15 months of the previous
report on the performance of such audit function; and (h) perform such
additional duties and exercise such additional powers of the Board as the Board
may determine from time to time.
The Audit Committee may consult with internal counsel and retain its own
outside counsel without approval (prior or otherwise) from the Board or
management and obligate the Association to pay the fees of such counsel.
-4-
<PAGE>
Section 4. Community Affairs Committee. The Board shall appoint from its
members a Community Affairs Committee which shall consist of such number as the
Board shall determine. The Board shall designate a member of the Community
Affairs Committee to serve as Chairman thereof. It shall be the duty of the
Commmunity Affairs Committee to (a) oversee compliance by the Association with
the Community Reinvestment Act of 1977, as amended, and the regulations
promulgated thereunder; and (b) perform such additional duties and exercise such
additional powers of the Board as the Board may determine from time to time.
Section 5. Regular Meetings. Except for the Executive Committee which shall
meet on an ad hoc basis as set forth in Section 1 of this Article, regular
meetings of the Committees of the Board of Directors shall be held, without
notice, at such time and place as the Committee or the Board of Directors may
appoint and as often as the business of the Association may require.
Section 6. Special Meetings. A Special Meeting of any of the Committees of
the Board of Directors may be called upon the written request of the Chairman
of the Board or the President, or of any two members of the respective
Committee, stating the purpose of the meeting. Not less than twenty-four
hours' notice of such special meeting shall be given to each member of the
Committee personally, by telephoning, or by mail.
Section 7. Emergency Meetings. An Emergency Meeting of any of the Committees
of the Board of Directors may be called at the request of the Chairman of the
Board or the President, who shall state that an emergency exists, upon not
less than one hour's notice to each member of the Committee personally or by
telephoning.
Section 8. Action Taken Without a Committee Meeting. Any Committee of the
Board of Directors may take action without a meeting and without notice of such
meeting by resolution assented to in writing by all members of such Committee.
Section 9. Quorum. A majority of a Committee fo the Board of Directors shall
constitute a quorum for the transaction of any business at any meeting of such
Committee. If a quorum is not available, the Chairman of the Board or the
President shall have power to make temporary appointments to a Committee of-
members of the Board of Directors, to act in the place instead of members who
temporarily cannot attend any such meeting; provided, however, that any
temporary appointment to the Audit Committee must meet the requirements for
members of that Committee set forth in Section 3 of this Article.
Section 10. Record. The committes of the Board of Directors hall keeep a
record of their respective meetings and proceedings which shall be presented
at the regular meeting of the Board of Directors held in the calendar month
next following the meetings of the Committees. If there is no regular Board
of Directors meeting held in the calendar month next following the meeting of
a Committee, then such Committee's records shall be presented at the next
regular Board of Directors meeting held in a month subsequent to such Committee
meeting.
Section 11. Changes and Vacancies. The Board of Directors shall have power
to change the members of any Committee at any time and to fill vacancies on any
Committee; provided, however, that any newly appointed member of the Audit
Committee must meet the requirements for members of that Committee set forth in
Section 3 of this Article.
Section 12. Other Committees. The Board of Directors may appoint, from time
to time, other committees of one or more persons, for such purposes and with
such powers as the Board may determine.
ARTICLE IV
WAIVER OF NOTICE OF MEETINGS
Section 1. Waiver. Whenever notice is required to be given to any shareholder
Director, or member of a Committee of the Board of Directors, such notice may
be waived in writing either before or after such meeting by any shareholder,
Director or Committee member respectively, as the case may be, who may be
entitled to such notice; and such notice will be deemed to be waived by
attendance at any such meeting.
-5-
<PAGE>
ARTICLE V
OFFICERS AND AGENTS
Section 1. Officers. The Board shall appoint a Chairman of the Board and a
President, and shall have the power to appoint one or more Executive Vice
Presidents, one or more Senior Vice Presidents, one or more Vice Presidents, a
Cashier, a Secretary, and Auditor, a Controller, one or more Trust Officers and
such other officers as are deemed necessary or desirable for the proper
transaction of business of the Association. The Chairman of the Board and the
President shall be appointed from members of the Board of Directors. Any two
or more offices, except those of President and Cashier, or Secretary, may be
held by the same person. The Board may, from time to time, by resolution
passed by a majority of the entire Board, designate one or more officers of the
Association or of an affiliate or of Fleet Financial Group, Inc. with power to
appoint one or more Vice Presidents and such other officers of the Association
below the level of Vice President as the officer or officers designated in such
resolution deem necessary or desirable for the proper transaction of the
business of the Association.
Section 2. Chairman of the Board. The chairman of the Board shall preside at
all meetings of the Board of Directors. Subject to definition by the Board of
Directors, he shall have general executive powers and such specific powers and
duties as from time to time may be conferred upon or assigned to him by the
Board of Directors.
Section 3. President. The president shall preside at all meetings of the
Board of Directors if there be no Chairman or if the Chairman be absent.
Subject to definition by the Board of Directors, he shall have general
executive powers and such specific powers and duties as from time to time may
be conferred upon or assigned to him by the Board of Directors.
-6-
<PAGE>
Section 4. Cashier and Secretary. The Cashier shall be the Secretary of the
Board and of the Executive Committee, and shall keep accurate minutes of their
meetings and of all meetings of the shareholders. He shall attend to the
giving of all notices required by these By-laws. He shall be custodian of the
corporate seal, records, documents and papers of the Association. He shall
have such powers and perform such duties as pertain by law or regulation to the
office of Cashier, or as are imposed by these By-laws, or as may be delegated
to him from time to time by the Board of Directors, the Chairman of the Board
or the President.
Section 5. Auditor. The Auditor shall be the chief auditing officer of the
Association. He shall continuously examine the affairs of the Association and
from time to time shall report to the Board of Directors. He shall have such
powers and perform such duties as are conferred upon, or assigned to him by
these By-laws, or as may be delegated to him from time to time by the Board
of Directors.
Section 6. Officers Seriatim. The Board of Directors shall designate from
time to time not less than two officers who shall in the absence or disability
of the Chairman or President or both, succeed seriatim to the duties and
responsibilities of the Chairman and President respectively.
Section 7. Clerks and Agents. The Board of Directors may appoint, from time
to time, such clerks, agents and employees as it may deem advisable for the
prompt and orderly transaction of the business of the Association, define
their duties, fix the salaries to be paid them and dismiss them. Subject to
the authority of the Board of Directors, the Chairman of the Board or the
President, or any other officer of the Association authorized by either of them
may appoint and dismiss all or any clerks, agents and employees and prescribe
their duties and the conditions of their employment, and from time to time
fix their compensation.
Section 8. Tenure. The Chairman of the Board of Directors and the President
shall, except in the case of death, resignation, retirement or disqualification
under these By-laws, or unless removed by the affirmative vote of at least two-
thirds of all of the members of the Board of Directors, hold office for the
term of one year or until their respective successors are appointed. Either
of such officers appointed to fill a vacancy occurring in an unexpired term
shall serve for such unexpired term of such vacancy. All other officers,
clerks, agents, attorneys-in-fact and employees of the Association shall hold
office during the pleasure of the Board of Directors or of the officer or
committee appointing them respectively.
ARTICLE VI
TRUST DEPARTMENT
Section 1. General Powers and Duties. All fiduciary powers of the Association
shall be exercised through the Trust Department, subject to such regulations as
the Comptroller of the Currency shall from time to time establish. The Trust
Department shall be to placed under the management and immediate supervision
of an officer or officers appointed by the Board of Directors. The duties of
all officers of the Trust Department shall be to cause the policies and
instructions of the Board and the Risk Management Committee with respect to the
trusts under their supervision to be carried out, and to supervise the due
performance of the trusts and agencies entrusted to the Association and under
their supervision, in accordance with law and in accordance with the terms of
such trusts and agencies.
-7-
<PAGE>
ARTICLE VII
BRANCH OFFICES
Section 1. Establishment. The Board of Directors shall have full power to
establish, to discontinue, or, from time to time, to change the location of any
branch office, subject to such limitations as may be provided by law.
Section 2. Supervision and Control. Subject to the general supervision and
control of the Board of Directors, the affairs of branch offices shall be
under the immediate supervision and control of the President or of such other
officer or officers, employee or employees, or other individuals as the Board
of Directors may from time to time determine, with such powers and duties as
the Board of Directors may confer upon or assign to him or them.
ARTICLE VIII
SIGNATURE POWERS
Section 1. Authorization. The power of officers, empolyees, agents and
attorneys to sign on behalf of and to affix the seal of the Association shall
be prescribed by the Board of Directors or by the Executive Committee or by
both; provided that the President is authorized to restrict such power of any
officer, employee, agent or attorney to the business of a specific department
or departments, or to a specific branch office or branch offices. Facsimile
signatures may be authorized.
-8-
<PAGE>
ARTICLE IX
STOCK CERTIFICATES AND TRANSFERS
Section 1. Stock Records. The Trust Department shall have custody of the
stock certificate books and stock ledgers of the Association, and shall make
all transfers of stock, issue certificates thereof and disburse dividends
declared thereon.
Section 2. Form of Certificate. Every shareholder shall be entitled to a
certificate conforming to the requirements of law and otherwise in such form
as the Board of Directors may approve. The certificates shall state on the
face thereof that the stock is transferable only on the books of the
Association and shall be signed by such officers as may be prescribed from time
to tiem by the Board of Directors or Executive Committee. Facsimile signatures
may be authorized.
Section 3. Transfers of Stock. Transfers of stock shall be made only on the
books of the Association by the holder in person, or by attorney duly
authorized in writing, upon surrender of the certificate therefor properly
endorsed, or upon the surrender of such certificate accompanied by a properly
executed written assignment of the same, or a written power of attorney to
sell, assign or transfer the same or the shares represented thereby.
Section 4. Lost Certificate. The Board of Directors or Executive Committee
may order a new certificate to be issued in place of a certificate lost or
destroyed, upon proof of such loss or destruction and upon tender to the
Association by the shareholder, of a bond in such amount and with or without
surety, as may be ordered, indemnifying the Association against all liability,
loss, cost and damage by reason of such loss or destruction and the issuance
of a new certificate.
Section 5. Closing Transfer Books. The Board of Directors may close the
transfer books for a period not exceeding thirty days preceding any regular
or special meeting of the shareholders, or the day designated for the payment
of a dividend or the allotment of rights. In lieu of closing the transfer
books the Board of Directors may fix a day and hour not more than thirty days
prior to the day of holding any meeting of the shareholders, or the day
designated for the payment of a dividend, or the day designated for the
allotment of rights, or the day when any change of conversion or exchange of
capital stock is to go into effect, as the day as of which shareholders entitled
to notice of and to vote at such meetings or entitled to such dividend or to
such allotment of rights or to exercise the rights in respect of any such
change, conversion or exchange of capital stock, shall be determined, and only
such shareholders as shall be shareholders of record on the day and hour
so fixed shall be entitled to notice of and to vote at such meeting or to
receive payment of such dividend or to receive such allotment of rights or to
exercise such rights, as the case may be.
ARTICLE X
THE CORPORATE SEAL
Section 1. Seal. The following is an impression of the seal of the
Association adopted by the Board of Directors.
ARTICLE XI
BUSINESS HOURS
Section 1. Business Hours. The main office of this Association and each
branch office thereof shall be open for business each day, except Saturdays,
Sundays and days recognized by the laws of the State of Rhode Island as legal
holidays, for such hours as the President, or such other officer as the Board
of Directors shall from time to time designate, may determine as to each
office to conform to local custom and convenience, provided that any one or
more of the main and branch offices or certain departments thereof may be open
for such hours as the President, or such other officer as the Board of
Directors shall from time to time designate, may determine as to each office or
department on any legal holiday on which work is not prohibited by law, and
provided further that any one or more of the main and branch offices or certain
departments thereof may be ordered closed or open on any day for such hours as
to each office or department as the President, or such other officer as the
Board of Directors shall from time to time designate, subject to applicable
laws and regulations, may determine when such action may be required by reason
of disaster or other emergency condition.
ARTICLE IX
CHANGES IN BY-LAWS
Section 1. Amendments. These By-laws may be amended upon vote of a majority
of the entire Board of Directors at any meeting of the Board, provided ten (10)
day's notice of the proposed amendment has been given to each member of the
Board of Directors. No amendment may be made unless the By-law, as amended, is
consistent with the requirements of law and of the Articles of Association.
These By-laws may also be amended by the Association's shareholders.
A true copy
Attest:
Secretary/Assistant Secretary
- ---------------------------------------
Dated at , as of .
--------------------------------------- ----------------------
Revision of January 11, 1993
-9-
<PAGE>
EXHIBIT 5
CONSENT OF THE TRUSTEE
REQUIRED BY SECTION 321(b)
OF THE TRUST INDENTURE ACT OF 1939
The undersigned, as Trustee under the Indenture to be entered into between
Smith's Food & Drug Centers, Inc. and Fleet National Bank of Connecticut,
as Trustee, does hereby consent that, pursuant to Section 321(b) of the Trust
Indenture Act of 1939, reports of examinations with respect to the undersigned
by Federal, State, Territorial or District authorities may be furnished by such
authorities to the Securities and Exchange Commission upon request therefor.
FLEET NATIONAL BANK OF CONNECTICUT,
as Trustee
By /s/ Michael M. Hopkins
-------------------------------
Its: Vice President
Dated: March 8, 1996
<PAGE>
EXHIBIT 6
<TABLE>
<S> <C>
Board of Governors of the Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance Corporation
OMB Number: 3064-0052
Office of the Comptroller of the Currency
OMB Number: 1557-0081
FEDERAL FINANCIAL INSTITUTIONS EXAMINATION COUNCIL Expires March 31, 1996
- -----------------------------------------------------------------------------------------------------------------------------
Please refer to page i, / 1 /
[LOGO] Table of Contents, for
the required disclosure
of estimated burden.
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
CONSOLIDATED REPORTS OF CONDITION AND INCOME FOR
A BANK WITH DOMESTIC AND FOREIGN OFFICES--FFIEC 031
(951231)
REPORT AT THE CLOSE OF BUSINESS DECEMBER 31, 1995 -----------
(RCRI 9999)
This report is required by law: 12 U.S.C. Section 324 (State member banks);
12 U.S.C. Section 1817 (State nonmember banks); and 12 U.S.C. Section 161
(National banks).
This report form is to be filed by banks with branches and consolidation
subsidiaries in U.S. territories and possessions, Edge or Agreement
subsidiaries, foreign branches, consolidated foreign subsidiaries, or
International Banking Facilities.
- --------------------------------------------------------------------------------
NOTE: The Reports of Condition and Income must be signed by an authorized
officer and the Report of Condition must be attested to by not less than two
directors (trustees) for State nonmember banks and three directors for State
member and National banks.
-----------------------------------------------------------------------------
Name and Title of Officer Authorized to Sign Report
of the named bank do hereby declare that these Reports of Condition and
Income (including the supporting schedules) have been prepared in conformance
with the instructions issued by the appropriate Federal regulatory authority
and are true to the best of my knowledge and belief.
/s/ GIRO DEROSA
- --------------------------------------------------------------------------------
Signature of Officer Authorized to Sign Report
January 25, 1996
- --------------------------------------------------------------------------------
Date of Signature
The Reports of Condition and Income are to be prepared in accordance with
Federal regulatory authority instructions. NOTE: These instructions may in
some cases differ from generally accepted accounting principles.
We, the undersigned directors (trustees), attest to the correctness of this
Report of Condition (including the supporting schedules) and declare that it has
been examined by us and to the best of our knowledge and belief has been
prepared in conformance with the instructions issued by the appropriate Federal
regulatory authority and is true and correct.
/s/ GUNNAR S. OVERSTROM
- --------------------------------------------------------------------------------
Director (Trustee)
/s/ JOEL B. ALVORD
- --------------------------------------------------------------------------------
Director (Trustee)
/s/ DAVID L. EYLES
- --------------------------------------------------------------------------------
Director (Trustee)
- --------------------------------------------------------------------------------
<PAGE>
FOR BANKS SUBMITTING HARD COPY REPORT FORMS:
STATE MEMBER BANKS: Return the original and one copy to the appropriate Federal
Feserve District Bank.
STATE NONMEMBER BANKS: Return the original only in the special return address
envelope provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Crofton, MD 21114.
NATIONAL BANKS: Return the original only in the special return address envelope
provided. If express mail is used in lieu of the special return address
envelope, return the original only to the FDIC, c/o Quality Data Systems, 2127
Espey Court, Crofton, MD 21114.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C>
___
FDIC Certificate Number | 1 | 0 | 5 | 8 | 2 | |
______________________ CALL NO. 190 31 12-31-95
(RCRI 9050)
CERT: 02499 10582 STBK 09-0590
FLEET NATIONAL BANK OF CONNECTICUT
777 MAIN STREET
HARTFORD, CT 06115
| |
___ ___
<FN>
Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of the Comptroller of the Currency
</TABLE>
<PAGE>
FFIEC 031
Page i
/2/
Consolidated Reports of Condition and Income for
A Bank With Domestic and Foreign Offices
________________________________________________________________________________
TABLE OF CONTENTS
SIGNATURE PAGE Cover
REPORT OF INCOME
Schedule RI--Income Statement...........................................RI-1,2,3
Schedule RI-A--Changes in Equity Capital....................................RI-3
Schedule RI-B--Charge-offs and Recoveries and
Changes in Allowance for Loan and Lease
Losses..................................................................RI-4,5
Schedule RI-C--Applicable Income Taxes by
Taxing Authority..........................................................RI-5
Schedule RI-D--Income from
International Operations..................................................RI-6
Schedule RI-E--Explanations...............................................RI-7,8
REPORT OF CONDITION
Schedule RC--Balance Sheet................................................RC-1,2
Schedule RC-A--Cash and Balances Due
From Depository Institutions..............................................RC-3
Schedule RC-B--Securities.................................................RC-4,5
Schedule RC-C--Loans and Lease Financing
Receivables:
Part I. Loans and Leases..............................................RC-6,7
Part II. Loans to Small Businesses and
Small Farms (included in the forms for
June 30 only).....................................................RC-7a,7b
Schedule RC-D--Trading Assets and Liabilities
(to be completed only by selected banks)..................................RC-8
Schedule RC-E--Deposit Liabilities.......................................RC-9,10
Schedule RC-F--Only Assets.................................................RC-11
Schedule RC-G--Other Liabilities...........................................RC-11
Schedule RC-H--Selected Balance Sheet Items for
Domestic Offices.........................................................RC-12
Schedule RC-I--Selected Assets and Liabilities
of IBF's.................................................................RC-13
Schedule RC-K--Quarterly Averages..........................................RC-13
Schedule RC-L--Off-Balance Sheet Items..................................RC-14,15
Schedule RC-M--Memoranda................................................RC-16,17
Schedule RC-N--Past Due and Nonaccrual Loans,
Leases, and Other Assets..............................................RC-18,19
Schedule RC-O--Other Data for Deposit
Insurance Assessments.................................................RC-20,21
Schedule RC-R--Risk-Based Captial.......................................RC-22,23
Optional Narrative Statement Concerning the
Amounts Reported in the Reports of
Conditions and Income....................................................RC-24
Special Report (TO BE COMPLETED BY ALL BANKS)
Schedule RC-J--Repricing Opportunities (sent only to
and to be completed only by savings banks)
<PAGE>
DISCLOSURE OF ESTIMATED BURDEN
The estimated average burden associated with this information collection is
30.7 hours per respondent and is estimated to vary from 15 to 200 hours per
response, depending on individual circumstances. Burden estimates include the
time for reviewing instructions, gathering and maintaining data in the required
form, and completing the information collection, but exclude the time for
compiling and maintaining business records in the normal course of a
respondent's activities. Comments concerning the accuracy of this burden
estimate and suggestions for reducing this burden should be directed to the
Office of Information and Regulatory Affairs. Office of Management and Budget,
Washington, D.C. 20503, and to one of the following:
Secretary
Board of Governors of the Federal Reserve System
Washington, D.C. 20551
Legislative and Regulatory Analysis Division
Office of the Comptroller of the Currency
Washington, D.C. 20219
Assistant Executive Secretary
Federal Deposit Insurance Corporation
Washington, D.C. 20429
For information or assistance, national and state nonmember banks should
contact the FDIC's Call Reports Analysis Unit, 550 17th Street, NW, Washington,
D.C. 20429, toll free on (800)688-FDIC (3342), Monday through Friday between
8:00 a.m. and 5:00 p.m., Eastern time. State member banks should contact their
Federal Reserve District Bank.
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-1
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT
Address: 777 MAIN STREET
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
Consolidated Report of Income
for the period January 1, 1995 - December 31, 1995
All Report of Income schedules are to be reported on a calendar year-to-date basis in thousands of dollars.
file
Schedule RI--Income Statement ________
| 1480 |
|________|
_______________________________________________________________________________________________ ___________|________|
<S> <C> <C>
1. Interest income: | ////////////////// |
a. Interest and fee income on loans: | ////////////////// |
(1) In domestic offices: | ////////////////// |
(a) Loans secured by real estate ................................................... | 4011 382,429 | 1.a.(1)(a)
(b) Loans to depository institutions ............................................... | 4019 732 | 1.a.(1)(b)
(c) Loans to finance agricultural production and other loans to farmers ............ | 4024 309 | 1.a.(1)(c)
(d) Commercial and industrial loans ................................................ | 4012 466,509 | 1.a.(1)(d)
(e) Acceptances of other banks ..................................................... | 4026 70 | 1.a.(1)(e)
(f) Loans to individuals for household, family, and other personal expenditures: | ////////////////// |
(1) Credit cards and related plans ............................................. | 4054 813 | 1.a.(1)(f)(1)
(2) Other ...................................................................... | 4055 52,452 | 1.a.(1)(f)(2)
(g) Loans to foreign governments and official institutions.......................... | 4056 0 | 1.a.(1)(g)
(h) Obligations (other than securities and leases) of states and political | ////////////////// |
subdivisions in the U.S.: | ////////////////// |
(1) Taxable obligations ........................................................ | 4503 240 | 1.a.(1)(h)(1)
(2) Tax-exempt obligations ..................................................... | 4504 2,486 | 1.a.(1)(h)(2)
(i) All other loans in domestic offices ............................................ | 4058 59,226 | 1.a.(1)(i)
(2) In foreign offices, Edge and Agreement subsidiaries, and IBFs ...................... | 4059 0 | 1.a.(2)
b. Income from lease financing receivables: | ////////////////// |
(1) Taxable leases ..................................................................... | 4505 1,015 | 1.b.(1)
(2) Tax-exempt leases .................................................................. | 4307 0 | 1.b.(2)
c. Interest income on balances due from depository institutions:(1) | ////////////////// |
(1) In domestic offices ................................................................ | 4105 7 | 1.c.(1)
(2) In foreign offices, Edge and Agreement subsidiaries, and IBFs ...................... | 4106 4,751 | 1.c.(2)
d. Interest and dividend income on securities: | ////////////////// |
(1) U.S. Treasury securities and U.S. Government agency and corporation obligations .... | 4027 187,576 | 1.d.(1)
(2) Securities issued by states and political subdivisions in the U.S.: | ////////////////// |
(a) Taxable securities ............................................................. | 4506 0 | 1.d.(2)(a)
(b) Tax-exempt securities .......................................................... | 4507 3 | 1.d.(2)(b)
(3) Other domestic debt securities ..................................................... | 3657 78,170 | 1.d.(3)
(4) Foreign debt securities ............................................................ | 3658 223 | 1.d.(4)
(5) Equity securities (including investments in mutual funds) .......................... | 3659 6,646 | 1.d.(5)
e. Interest income from assets held in trading accounts ................................... | 4069 0 | 1.e.
______________________
<FN>
____________
(1) Includes interest income on time certificates of deposit not held for trading.
</TABLE>
3
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-2
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RI--Continued
________________
Dollar Amounts in Thousands | Year-to-date |
___________________________________________________________________________________ ______________
<S> <C> <C>
1. Interest income (continued) | RIAD Bil Mil Thou |
f. Interest income on 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 IBFs .................... | 4020 11,399 | 1.f.
g. Total interest income (sum of items 1.a through 1.f) ................ | 4107 1,255,056 | 1.g.
2. Interest expense: | ////////////////// |
a. Interest on deposits: | ////////////////// |
(1) Interest on deposits in domestic offices: | ////////////////// |
(a) Transaction accounts (NOW accounts, ATS accounts, and | ////////////////// |
telephone and preauthorized transfer accounts) .............. | 4508 8,111 | 2.a.(1)(a)
(b) Nontransaction accounts: | ////////////////// |
(1) Money market deposit accounts (MMDAs) ................... | 4509 25,029 | 2.a.(1)(b)(1)
(2) Other savings deposits .................................. | 4511 49,772 | 2.a.(1)(b)(2)
(3) Time certificates of deposit of $100,000 or more ........ | 4174 102,210 | 2.a.(1)(b)(3)
(4) All other time deposits ................................. | 4512 120,235 | 2.a.(1)(b)(4)
(2) Interest on deposits in foreign offices, Edge and Agreement | ////////////////// |
subsidiaries, and IBFs .......................................... | 4172 38,926 | 2.a.(2)
b. Expense of 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 .................... | 4180 213,972 | 2.b.
c. Interest on demand notes issued to the U.S. Treasury, trading | ////////////////// |
liabilities, and other money borrowed ............................... | 4185 134,947 | 2.c.
d. Interest on mortgage indebtedness and obligations under | ////////////////// |
capitalized leases .................................................. | 4072 833 | 2.d.
e. Interest on subordinated notes and debentures ....................... | 4200 19,159 | 2.e.
f. Total interest expense (sum of items 2.a through 2.e) ............... | 4073 713,194 | 2.f.
___________________________
3. Net interest income (item 1.g minus 2.f) ............................... | ////////////////// | RIAD 4074 | 541,862 | 3.
___________________________
4. Provisions: | ////////////////// |
___________________________
a. Provision for loan and lease losses ................................. | ////////////////// | RIAD 4230 | 5,258 | 4.a.
b. Provision for allocated transfer risk ............................... | ////////////////// | RIAD 4243 | 0 | 4.b.
___________________________
5. Noninterest income: | ////////////////// |
a. Income from fiduciary activities .................................... | 4070 84,978 | 5.a.
b. Service charges on deposit accounts in domestic offices ............. | 4080 65,848 | 5.b.
c. Trading gains (losses) and fees from foreign exchange transactions .. | 4075 1,436 | 5.c.
d. Other foreign transaction gains (losses) ............................ | 4076 0 | 5.d.
e. Other gains (losses) and fees from trading assets and liabilities ... | 4077 1,422 | 5.e.
f. Other noninterest income: | ////////////////// |
(1) Other fee income ................................................ | 5407 59,418 | 5.f.(1)
(2) All other noninterest income* ................................... | 5408 54,976 | 5.f.(2)
___________________________
g. Total noninterest income (sum of items 5.a through 5.f) ............. | ////////////////// | RIAD 4079 | 268,078 | 5.g.
6. a. Realized gains (losses) on held-to-maturity securities .............. | ////////////////// | RIAD 3521 | (6) | 6.a.
b. Realized gains (losses) on available-for-sale securities ............ | ////////////////// | RIAD 3196 | 300 | 6.b.
| ////////////////// |___________________________
7. Noninterest expense: | ////////////////// |
a. Salaries and employee benefits ...................................... | 4135 277,219 | 7.a.
b. Expenses of premises and fixed assets (net of rental income) | ////////////////// |
(excluding salaries and employee benefits and mortgage interest) .... | 4217 88,758 | 7.b.
c. Other noninterest expense* .......................................... | 4092 390,919 | 7.c.
___________________________
d. Total noninterest expense (sum of items 7.a through 7.c) ............ | ////////////////// | RIAD 4093 | 756,896 | 7.d.
___________________________
8. Income (loss) before income taxes and extraordinary items and other | ////////////////// |
___________________________
adjustments (item 3 plus or minus items 4.a, 4.b, 5.g, 6.a, 6.b, and 7.d)| ////////////////// | RIAD 4301 | 48,080 | 8.
9. Applicable income taxes (on item 8) .................................... | ////////////////// | RIAD 4302 | 20,832 | 9.
___________________________
10. Income (loss) before extraordinary items and other adjustments | ////////////////// |
___________________________
(item 8 minus 9) ....................................................... | ////////////////// | RIAD 4300 | 27,248 | 10.
_________________________________________________
<FN>
____________
*Describe on Schedule RI-E--Explanations.
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-3
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RI--Continued
________________
| Year-to-date |
______ ______________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
___________________________________________________________________________________ ______________
<S> <C> <C>
11. Extraordinary items and other adjustments: | ////////////////// |
a. Extraordinary items and other adjustments, gross of income taxes* . | 4310 0 | 11.a.
b. Applicable income taxes (on item 11.a)* ........................... | 4315 0 | 11.b.
c. Extraordinary items and other adjustments, net of income taxes | ////////////////// |
___________________________
(item 11.a minus 11.b) ............................................ | ////////////////// | RIAD 4320 | 0 | 11.c.
12. Net income (loss) (sum of items 10 and 11.c) ......................... | ////////////////// | RIAD 4340 | 27,248 | 12.
_________________________________________________
</TABLE>
<TABLE>
<CAPTION> __________
______|__I481__|
Memoranda | Year-to-date |
______ ______________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
______________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Interest expense incurred to carry tax-exempt securities, loans, and leases acquired after | ////////////////// |
August 7, 1986, that is not deductible for federal income tax purposes .......................... | 4513 0 | M.1.
2. Income from the sale and servicing of mutual funds and annuities in domestic offices | ////////////////// |
(included in Schedule RI, item 8) ............................................................... | 8431 0 | M.2.
3. Estimated foreign tax credit included in applicable income taxes, items 9 and 11.b above ........ | 4309 0 | M.3.
4. To be completed only by banks with $1 billion or more in total assets: | ////////////////// |
Taxable equivalent adjustment to "Income (loss) before income taxes and extraordinary | ////////////////// |
items and other adjustments" (item 8 above) ..................................................... | 1244 1,837 | M.4.
5. Number of full-time equivalent employees on payroll at end of current period (round to | //// Number |
nearest whole number) ........................................................................... | 4150 5,002 | M.5.
6. Not applicable | ////////////////// |
7. If the reporting bank has restated its balance sheet as a result of applying push down | //// MM DD YY |
accounting this calendar year, report the date of the bank's acquisition ........................ | 9106 00/00/00 | M.7.
8. Trading revenue (from cash instruments and off-balance sheet derivative instruments) | ////////////////// |
(included in schedule RI, items 5.c and 5.e): | //// Bil Mil Thou |
a. Interest rate esposures ...................................................................... | 8757 1,442 | M.8.a.
b. Foreign exchange exposures ................................................................... | 8758 1,416 | M.8.b.
c. Equity security and index exposures .......................................................... | 8759 0 | M.8.c.
d. Commodity and other exposures ................................................................ | 8760 0 | M.8.d.
9. Impact on income of off-balance sheet derivatives held for purposes other than trading: | ////////////////// |
a. Net increase (decrease) to interest income.....................................................| 8761 (13,220)| M.9.a.
b. Net (increase) decrease to interest expense ...................................................| 8762 (6,842)| M.9.b.
c. Other (noninterest) allocations ...............................................................| 8763 0 | M.9.c.
</TABLE>
____________
*Describe on Schedule RI-E--Explanations.
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-4
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RI-A--Changes in Equity Capital
Indicate decreases and losses in parentheses. _________
| I483 |
_____________________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
______________________________________________________________________________________________________|____________________|
<S> <C> <C>
1. Total equity capital originally reported in the December 31, 1994, Reports of Condition | ////////////////// |
and Income ...................................................................................... | 3215 1,236,358 | 1.
2. Equity capital adjustments from amended Reports of Income, net* ................................. | 3216 0 | 2.
3. Amended balance end of previous calendar year (sum of items 1 and 2) ............................ | 3217 1,236,358 | 3.
4. Net income (loss) (must equal Schedule RI, item 12) ............................................. | 4340 27,248 | 4.
5. Sale, conversion, acquisition, or retirement of capital stock, net .............................. | 4346 125,000 | 5.
6. Changes incident to business combinations, net .................................................. | 4356 0 | 6.
7. LESS: Cash dividends declared on preferred stock ................................................ | 4470 11,330 | 7.
8. LESS: Cash dividends declared on common stock ................................................... | 4460 97,000 | 8.
9. Cumulative effect of changes in accounting principles from prior years* (see instructions | ////////////////// |
for this schedule) .............................................................................. | 4411 0 | 9.
10. Corrections of material accounting errors from prior years* (see instructions for this schedule) | 4412 0 | 10.
11. Change in net unrealized holding gains (losses) on available-for-sale securities ................ | 8433 32,197 | 11.
12. Foreign currency translation adjustments ........................................................ | 4414 0 | 12.
13. Other transactions with parent holding company* (not included in items 5, 7, or 8 above) ........ | 4415 30,000 | 13.
14. Total equity capital end of current period (sum of items 3 through 13) (must equal Schedule RC, | ////////////////// |
item 28) ........................................................................................ | 3210 1,342,473 | 14.
______________________
<FN>
____________
*Describe on Schedule RI-E--Explanations.
</TABLE>
<TABLE>
<CAPTION>
Schedule RI-B--Charge-offs and Recoveries and Changes
in Allowance for Loan and Lease Losses
Part I. Charge-offs and Recoveries on Loans and Leases
Part I excludes charge-offs and recoveries through
the allocated transfer risk reserve.
__________
| I486 |
_________________________________ ________
| (Column A) | (Column B) |
| Charge-offs | Recoveries |
____________________ ____________________
| Calendar year-to-date |
_________________________________________
Dollar Amounts in Thousands | RIAD Bil Mil Thou | RIAD Bil Mil Thou |
______________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
1. Loans secured by real estate: | ////////////////// | ////////////////// |
a. To U.S. addressees (domicile) ......................................... | 4651 73,797 | 4661 17,780 | 1.a.
b. To non-U.S. addressees (domicile) ..................................... | 4652 0 | 4662 0 | 1.b.
2. Loans to depository institutions and acceptances of other banks: | ////////////////// | ////////////////// |
a. To U.S. banks and other U.S. depository institutions .................. | 4653 0 | 4663 0 | 2.a.
b. To foreign banks ...................................................... | 4654 0 | 4664 0 | 2.b.
3. Loans to finance agricultural production and other loans to farmers ...... | 4655 73 | 4665 97 | 3.
4. Commercial and industrial loans: | ////////////////// | ////////////////// |
a. To U.S. addressees (domicile) ......................................... | 4645 11,164 | 4617 5,987 | 4.a.
b. To non-U.S. addressees (domicile) ..................................... | 4646 0 | 4618 0 | 4.b.
5. Loans to individuals for household, family, and other personal | ////////////////// | ////////////////// |
expenditures: | ////////////////// | ////////////////// |
a. Credit cards and related plans ........................................ | 4656 1,137 | 4666 412 | 5.a.
b. Other (includes single payment, installment, and all student loans) ... | 4657 3,932 | 4667 2,290 | 5.b.
6. Loans to foreign governments and official institutions ................... | 4643 0 | 4627 0 | 6.
7. All other loans .......................................................... | 4644 1,131 | 4628 269 | 7.
8. Lease financing receivables: | ////////////////// | ////////////////// |
a. Of U.S. addressees (domicile) ......................................... | 4658 0 | 4668 0 | 8.a.
b. Of non-U.S. addressees (domicile) ..................................... | 4659 0 | 4669 0 | 8.b.
9. Total (sum of items 1 through 8) ......................................... | 4635 91,234 | 4605 26,835 | 9.
___________________________________________
</TABLE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-5
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RI-B--Continued
Part I. Continued
Memoranda
_________________________________ ________
| (Column A) | (Column B) |
| Charge-offs | Recoveries |
____________________ ____________________
| Calendar year-to-date |
_________________________________________
Dollar Amounts in Thousands | RIAD Bil Mil Thou | RIAD Bil Mil Thou |
______________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
1-3. Not applicable | ////////////////// | ////////////////// |
4. Loans to finance commercial real estate, construction, and land | ////////////////// | ////////////////// |
development activities (not secured by real estate) included in | ////////////////// | ////////////////// |
Schedule RI-B, part I, items 4 and 7, above .............................. | 5409 1,891 | 5410 1,411 | M.4.
5. Loans secured by real estate in domestic offices (included in | ////////////////// | ////////////////// |
Schedule RI-B, part I, item1, above): | ////////////////// | ////////////////// |
a. Construction and land development ..................................... | 3582 6,020 | 3583 2,428 | M.5.a.
b. Secured by farmLand ................................................... | 3584 104 | 3585 5 | M.5.b.
c. Secured by 1-4 family residential properties: | ////////////////// | ////////////////// |
(1) Revolving, open-end loans secured by 1-4 family residential | ////////////////// | ////////////////// |
properties and extended under lines of credit ..................... | 5411 1,696 | 5412 65 | M.5.c.(1)
(2) All other loans secured by 1-4 family residential properties ...... | 5413 19,988 | 5414 4,864 | M.5.c.(2)
d. Secured by multifamily (5 or more) residential properties ............. | 3588 5,613 | 3589 1,633 | M.5.d.
e. Secured by nonfarm nonresidential properties .......................... | 3590 40,376 | 3591 8,785 | M.5.e.
|_________________________________________|
Part II. Changes in Allowance for Loan and Lease Losses
_____________________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
___________________________________________________________________________________________________ ____________________
1. Balance originally reported in the December 31, 1994, Reports of Condition and Income ......... | 3124 283,800 | 1.
2. Recoveries (must equal part I, item 9, column B above) ........................................ | 4605 26,835 | 2.
3. LESS: Charge-offs (must equal part I, item 9, column A above) ................................. | 4635 91,234 | 3.
4. Provision for loan and lease losses (must equal Schedule RI, item 4.a)......................... | 4230 5,258 | 4.
5. Adjustments* (see instructions for this schedule) ................................ ............ | 4815 42,284 | 5.
6. Balance end of current period (sum of items 1 through 5) (must equal Schedule RC, | ////////////////// |
item 4.b) ..................................................................................... | 3123 266,943 | 6.
|____________________|
____________
*Describe on Schedule RI-E--Explanations.
Schedule RI-C--Applicable Income Taxes by Taxing Authority
Schedule RI-C is to be reported with the December Report of Income.
| I489 |
____________ ________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
___________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Federal ....................................................................................... | 4780 17,383 | 1.
2. State and local................................................................................ | 4790 3,449 | 2.
3. Foreign ....................................................................................... | 4795 0 | 3.
4. Total (sum of items 1 through 3) (must equal sum of Schedule RI, items 9 and 11.b) ............ | 4770 20,832 | 4.
____________________________| |
5. Deferred portion of item 4 ........................................ | RIAD 4772 | (69,592)| ////////////////// | 5.
__________________________________________________
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-6
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RI-D--Income from International Operations
For all banks with foreign offices, Edge or Agreement subsidiaries, or IBFs where international operations
account for more than 10 percent of total revenues, total assets, or net income.
Part I. Estimated Income from International Operations
__________
| I492 |
______ ________
| Year-to-date |
______ ______________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
_________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Interest income and expense booked at foreign offices, Edge and Agreement subsidiaries, | ////////////////// |
and IBFs: | ////////////////// |
a. Interest income booked ................................................................... | 4837 N/A | 1.a.
b. Interest expense booked .................................................................. | 4838 N/A | 1.b.
c. Net interest income booked at foreign offices, Edge and Agreement subsidiaries, and IBFs | ////////////////// |
(item 1.a minus 1.b) ..................................................................... | 4839 N/A | 1.c.
2. Adjustments for booking location of international operations: | ////////////////// |
a. Net interest income attributable to international operations booked at domestic offices .. | 4840 N/A | 2.a.
b. Net interest income attributable to domestic business booked at foreign offices .......... | 4841 N/A | 2.b.
c. Net booking location adjustment (item 2.a minus 2.b) ..................................... | 4842 N/A | 2.c.
3. Noninterest income and expense attributable to international operations: | ////////////////// |
a. Noninterest income attributable to international operations .............................. | 4097 N/A | 3.a.
b. Provision for loan and lease losses attributable to international operations ............. | 4235 N/A | 3.b.
c. Other noninterest expense attributable to international operations ....................... | 4239 N/A | 3.c.
d. Net noninterest income (expense) attributable to international operations (item 3.a | ////////////////// |
minus 3.b and 3.c) ....................................................................... | 4843 N/A | 3.d.
4. Estimated pretax income attributable to international operations before capital allocation | ////////////////// |
adjustment (sum of items 1.c, 2.c, and 3.d) ................................................. | 4844 N/A | 4.
5. Adjustment to pretax income for internal allocations to international operations to reflect | ////////////////// |
the effects of equity capital on overall bank funding costs ................................. | 4845 N/A | 5.
6. Estimated pretax income attributable to international operations after capital allocation | ////////////////// |
adjustment (sum of items 4 and 5) ........................................................... | 4846 N/A | 6.
7. Income taxes attributable to income from international operations as estimated in item 6 .... | 4797 N/A | 7.
8. Estimated net income attributable to international operations (item 6 minus 7) .............. | 4341 N/A | 8.
______________________
<CAPTION>
Memoranda ______________________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
_________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Intracompany interest income included in item 1.a above ..................................... | 4847 N/A | M.1.
2. Intracompany interest expense included in item 1.b above .................................... | 4848 N/A | M.2.
______________________
</TABLE>
<TABLE>
<CAPTION>
Part II. Supplementary Details on Income from International Operations Required
by the Departments of Commerce and Treasury for Purposes of the U.S.
International Accounts and the U.S. National Income and Product Accounts
________________
| Year-to-date |
______ ______________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
_________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Interest income booked at IBFs .............................................................. | 4849 N/A | 1.
2. Interest expense booked at IBFs ............................................................. | 4850 N/A | 2.
3. Noninterest income attributable to international operations booked at domestic offices | ////////////////// |
(excluding IBFs): | ////////////////// |
a. Gains (losses) and extraordinary items ................................................... | 5491 N/A | 3.a.
b. Fees and other noninterest income ........................................................ | 5492 N/A | 3.b.
4. Provision for loan and lease losses attributable to international operations booked at | ////////////////// |
domestic offices (excluding IBFs) ........................................................... | 4852 N/A | 4.
5. Other noninterest expense attributable to international operations booked at domestic offices | ////////////////// |
(excluding IBFs) ............................................................................ | 4853 N/A | 5.
______________________
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-7
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RI-E--Explanations
Schedule RI-E is to be completed each quarter on a calendar year-to-date basis.
Detail all adjustments in Schedules RI-A and RI-B, all extraordinary items and other adjustments in Schedule RI, and all
significant items of other noninterest income and other noninterest expense in Schedule RI. (See instructions for details.)
__________
| I495 |
______ ________
| Year-to-date |
______ ______________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. All other noninterest income (from Schedule RI, item 5.f.(2)) | ////////////////// |
Report amounts that exceed 10% of Schedule RI, item 5.f.(2): | ////////////////// |
a. Net gains on other real estate owned ..................................................... | 5415 0 | 1.a.
b. Net gains on sales of loans .............................................................. | 5416 0 | 1.b.
c. Net gains on sales of premises and fixed assets .......................................... | 5417 0 | 1.c.
Itemize and describe the three largest other amounts that exceed 10% of | ////////////////// |
Schedule RI, item 5.f.(2): | ////////////////// |
_____________
d. | TEXT 4461 |______________________________________________________________________________| 4461 33,165 | 1.d.
___________ REIMBURSEMENT FROM AFFILIATES
e. | TEXT 4462 |______________________________________________________________________________| 4462 | 1.e.
___________
f. | TEXT 4463 |______________________________________________________________________________| 4463 | 1.f.
_____________
2. Other noninterest expense (from Schedule RI, item 7.c): | ////////////////// |
a. Amortization expense of intangible assets ................................................ | 4531 23,094 | 2.a.
Report amounts that exceed 10% of Schedule RI, item 7.c: | ////////////////// |
b. Net losses on other real estate owned .................................................... | 5418 0 | 2.b.
c. Net losses on sales of loans ............................................................. | 5419 0 | 2.c.
d. Net losses on sales of premises and fixed assets ......................................... | 5420 0 | 2.d.
Itemize and describe the three largest other amounts that exceed 10% of | ////////////////// |
Schedule RI, item 7.c: | ////////////////// |
_____________
e. | TEXT 4464 |______________________________________________________________________________| 4464 166,229 | 2.e.
___________ MERGER & RESTRUCTURING CHARGES
f. | TEXT 4467 |______________________________________________________________________________| 4467 | 2.f.
___________
g. | TEXT 4468 |______________________________________________________________________________| 4468 | 2.g.
_____________
3. Extraordinary items and other adjustments (from Schedule RI, item 11.a) and | ////////////////// |
applicable income tax effect (from Schedule RI, item 11.b) (itemize and describe | ////////////////// |
all extraordinary items and other adjustments): | ////////////////// |
_____________
a. (1) | TEXT 4469 |__________________________________________________________________________| 4469 | 3.a.(1)
_____________
(2) Applicable income tax effect | RIAD 4486 | | ////////////////// | 3.a.(2)
_____________ ____________________________
b. (1) | TEXT 4487 |__________________________________________________________________________| 4487 | 3.b.(1)
_____________
(2) Applicable income tax effect | RIAD 4488 | | ////////////////// | 3.b.(2)
_____________ ____________________________
c. (1) | TEXT 4489 |__________________________________________________________________________| 4489 | 3.c.(1)
_____________
(2) Applicable income tax effect | RIAD 4491 | | ////////////////// | 3.c.(2)
____________________________
4. Equity capital adjustments from amended Reports of Income (from Schedule RI-A, | ////////////////// |
item 2) (itemize and describe all adjustments): | ////////////////// |
_____________
a. | TEXT 4492 |______________________________________________________________________________| 4492 | 4.a.
___________
b. | TEXT 4493 |______________________________________________________________________________| 4493 | 4.b.
_____________
5. Cumulative effect of changes in accounting principles from prior years (from | ////////////////// |
Schedule RI-A, item 9) (itemize and describe all changes in accounting principles): | ////////////////// |
_____________
a. | TEXT 4494 |______________________________________________________________________________| 4494 | 5.a.
___________
b. | TEXT 4495 |______________________________________________________________________________| 4495 | 5.b.
_____________
6. Corrections of material accounting errors from prior years (from Schedule RI-A, | ////////////////// |
item 10) (itemize and describe all corrections): | ////////////////// |
_____________
a. | TEXT 4496 |______________________________________________________________________________| 4496 | 6.a.
___________
b. | TEXT 4497 |______________________________________________________________________________| 4497 | 6.b.
_____________
______________________
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RI-8
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RI-E--Continued
________________
| Year-to-date |
______ ______________
Dollar Amounts in Thousands | RIAD Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
7. Other transactions with parent holding company (from Schedule RI-A, item 13) | ////////////////// |
(itemize and describe all such transactions): | ////////////////// |
_____________ CAPITAL CONTRIBUTION FROM THE PARENT COMPANY
a. | TEXT 4498 |______________________________________________________________________________| 4498 30,000 | 7.a.
___________
b. | TEXT 4499 |______________________________________________________________________________| 4499 | 7.b.
_____________
8. Adjustments to allowance for loan and lease losses (from Schedule RI-B, part II, | ////////////////// |
item 5) (itemize and describe all adjustments): | ////////////////// |
_____________
a. | TEXT 4521 | ADJUSTMENT DUE TO BARCLAY'S ACQUISITION
|______________________________________________________________________________| 4521 41,743 | 8.a.
_____________ SCC TRANSFER
b. | TEXT 4522 |______________________________________________________________________________| 4522 541 | 8.b.
_____________
____________________
9. Other explanations (the space below is provided for the bank to briefly describe, | I498 | I499 |
______________________
at its option, any other significant items affecting the Report of Income):
___
No comment |X| (RIAD 4769)
___
Other explanations (please type or print clearly):
(TEXT 4769)
</TABLE>
10
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-1
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Consolidated Report of Condition for Insured Commercial
and State-Chartered Savings Banks for December 31, 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
__________
| C400 |
____________ ________
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
ASSETS | ////////////////// |
1. Cash and balances due from depository institutions (from Schedule RC-A): | ////////////////// |
a. Noninterest-bearing balances and currency and coin(1) ................................... | 0081 1,363,000 | 1.a.
b. Interest-bearing balances(2) ............................................................ | 0071 50,200 | 1.b.
2. Securities: | ////////////////// |
a. Held-to-maturity securities (from Schedule RC-B, column A) .............................. | 1754 3,197 | 2.a.
b. Available-for-sale securities (from Schedule RC-B, column D) ............................ | 1773 4,048,366 | 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 IBFs: | ////////////////// |
a. Federal funds sold ...................................................................... | 0276 205,800 | 3.a.
b. Securities purchased under agreements to resell ......................................... | 0277 0 | 3.b.
4. Loans and lease financing receivables: ____________________________| ////////////////// |
a. Loans and leases, net of unearned income (from Schedule RC-C) | RCFD 2122 | 11,528,458 | ////////////////// | 4.a.
b. LESS: Allowance for loan and lease losses ................... | RCFD 3123 | 266,943 | ////////////////// | 4.b.
c. LESS: Allocated transfer risk reserve ....................... | RCFD 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 11,261,515 | 4.d.
5. Trading assets (from schedule RC-D )........................................................ | 3545 840 | 5.
6. Premises and fixed assets (including capitalized leases) ................................... | 2145 163,677 | 6.
7. Other real estate owned (from Schedule RC-M) ............................................... | 2150 684 | 7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) ... | 2130 0 | 8.
9. Customers' liability to this bank on acceptances outstanding ............................... | 2155 7,330 | 9.
10. Intangible assets (from Schedule RC-M) ..................................................... | 2143 310,314 | 10.
11. Other assets (from Schedule RC-F) .......................................................... | 2160 714,575 | 11.
12. Total assets (sum of items 1 through 11) ................................................... | 2170 18,129,498 | 12.
______________________
<FN>
____________
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-2
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC--Continued
___________________________
Dollar Amounts in Thousands | ///////// Bil Mil Thou |
_______________________________________________________________________________________________ _________________________
<S> <C> <C>
LIABILITIES | /////////////////////// |
13. Deposits: | /////////////////////// |
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, part I) ..... | RCON 2200 10,797,121 | 13.a.
____________________________
(1) Noninterest-bearing(1) ................................ | RCON 6631 3,401,997 | /////////////////////// | 13.a.(1)
(2) Interest-bearing ...................................... | RCON 6636 7,395,124 | /////////////////////// | 13.a.(2)
____________________________
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RC-E, | /////////////////////// |
part II) .............................................................................. | RCFN 2200 431,872 | 13.b.
____________________________
(1) Noninterest-bearing ................................... | RCFN 6631 0 | /////////////////////// | 13.b.(1)
(2) Interest-bearing ...................................... | RCFN 6636 431,872 | /////////////////////// | 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: | /////////////////////// |
a. Federal funds purchased ............................................................... | RCFD 0278 2,699,716 | 14.a.
b. Securities sold under agreements to repurchase ........................................ | RCFD 0279 40,059 | 14.b.
15. a. Demand notes issued to the U.S. Treasury .............................................. | RCON 2840 304,843 | 15.a.
b. Trading liabilities (from Schedule RC-D) .............................................. | RCFD 3548 814 | 15.b.
16. Other borrowed money: | /////////////////////// |
a. With original maturity of one year or less ............................................ | RCFD 2332 1,557,198 | 16.a.
b. With original maturity of more than one year .......................................... | RCFD 2333 131,588 | 16.b.
17. Mortgage indebtedness and obligations under capitalized leases ........................... | RCFD 2910 9,173 | 17.
18. Bank's liability on acceptances executed and outstanding ................................. | RCFD 2920 7,330 | 18.
19. Subordinated notes and debentures ........................................................ | RCFD 3200 440,000 | 19.
20. Other liabilities (from Schedule RC-G) ................................................... | RCFD 2930 367,311 | 20.
21. Total liabilities (sum of items 13 through 20) ........................................... | RCFD 2948 16,787,025 | 21.
| /////////////////////// |
22. Limited-life preferred stock and related surplus ......................................... | RCFD 3282 0 | 22.
EQUITY CAPITAL | /////////////////////// |
23. Perpetual preferred stock and related surplus ............................................ | RCFD 3838 125,000 | 23.
24. Common stock ............................................................................. | RCFD 3230 19,487 | 24.
25. Surplus (exclude all surplus related to preferred stock).................................. | RCFD 3839 955,984 | 25.
26. a. Undivided profits and capital reserves ................................................ | RCFD 3632 238,795 | 26.a.
b. Net unrealized holding gains (losses) on available-for-sale securities ................ | RCFD 8434 3,207 | 26.b.
27. Cumulative foreign currency translation adjustments ...................................... | RCFD 3284 0 | 27.
28. Total equity capital (sum of items 23 through 27) ........................................ | RCFD 3210 1,342,473 | 28.
29. Total liabilities, limited-life preferred stock, and equity capital (sum of items 21, 22, | /////////////////////// |
and 28) .................................................................................. | RCFD 3300 18,129,498 | 29.
___________________________
</TABLE>
<TABLE>
<CAPTION>
Memorandum
To be reported only with the March Report of Condition.
1. Indicate in the box at the right the number of the statement below that best describes the Number
most comprehensive level of auditing work performed for the bank by independent external __________________
auditors as of any date during 1994 ............................................................... | RCFD 6724 N/A | M.1.
__________________
<S> <C>
1 = Independent audit of the bank conducted in accordance 4 = Directors' 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 accounting firm which 6 = Compilation of the bank's financial statements by external
submits a report on the consolidated holding company auditors
(but not on the bank separately) 7 = Other audit procedures (excluding tax preparation work)
3 = Directors' examination of the bank conducted in 8 = No external audit work
accordance with generally accepted auditing standards
by a certified public accounting firm (may be required by
state chartering authority)
<FN>
____________
(1) Includes total demand deposits and noninterest-bearing time and savings deposits.
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-3
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-A--Cash and Balances Due From Depository Institutions
Exclude assets held for trading.
__________
| C405 |
_________________________________ ________
| (Column A) | (Column B) |
| Consolidated | Domestic |
| Bank | Offices |
____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCON Bil Mil Thou |
_____________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
1. Cash items in process of collection, unposted debits, and currency and | ////////////////// | ////////////////// |
coin .................................................................... | 0022 257,049 | ////////////////// | 1.
a. Cash items in process of collection and unposted debits .............. | ////////////////// | 0020 56,466 | 1.a.
b. Currency and coin .................................................... | ////////////////// | 0080 200,583 | 1.b.
2. Balances due from depository institutions in the U.S. ................... | ////////////////// | 0082 722,819 | 2.
a. U.S. branches and agencies of foreign banks (including their IBFs) ... | 0083 0 | ////////////////// | 2.a.
b. Other commercial banks in the U.S. and other depository institutions | ////////////////// | ////////////////// |
in the U.S. (including their IBFs) ................................... | 0085 722,819 | ////////////////// | 2.b.
3. Balances due from banks in foreign countries and foreign central banks .. | ////////////////// | 0070 51,241 | 3.
a. Foreign branches of other U.S. banks ................................. | 0073 0 | ////////////////// | 3.a.
b. Other banks in foreign countries and foreign central banks ........... | 0074 51,241 | ////////////////// | 3.b.
4. Balances due from Federal Reserve Banks ................................. | 0090 382,091 | 0090 382,091 | 4.
5. Total (sum of items 1 through 4) (total of column A must equal | ////////////////// | ////////////////// |
Schedule RC, sum of items 1.a and 1.b) .................................. | 0010 1,413,200 | 0010 1,413,200 | 5.
___________________________________________
<CAPTION>
______________________
Memorandum Dollar Amounts in Thousands | RCON Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Noninterest-bearing balances due from commercial banks in the U.S. (included in item 2, | ////////////////// |
column B above) .............................................................................. | 0050 722,619 | M.1.
______________________
</TABLE>
Schedule RC-B--Securities
Exclude assets held in trading accounts.
<TABLE>
_______
| C410 |
___________________________________________________________________________ ________
| Held-to-maturity | Available-for-sale |
_________________________________________ _________________________________________
| (Column A) | (Column B) | (Column C) | (Column D) |
| Amortized Cost | Fair Value | Amortized Cost | Fair Value(1) |
____________________ ____________________ ____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________ ____________________ ____________________ ____________________ ____________________
<S> <C> <C> <C> <C> <C>
1. U.S. Treasury securities ......... | 0211 250 | 0213 250 | 1286 994,774 | 1287 987,179 | 1.
2. U.S. Government agency | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
and corporation obligations | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
(exclude mortgage-backed | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
securities): | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
a. Issued by U.S. Govern- | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
ment agencies(2) .............. | 1289 0 | 1290 0 | 1291 0 | 1293 0 | 2.a.
b. Issued by U.S. | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
Government-sponsored | ////////////////// | ////////////////// | ////////////////// | ////////////////// |
agencies(3) ................... | 1294 0 | 1295 0 | 1297 335,490 | 1298 335,336 | 2.b.
_____________________________________________________________________________________
<FN>
_____________
(1) Includes equity securities without readily determinable fair values at historical cost in item 6.c, column D.
(2) Includes Small Business Administration "Guaranteed Loan Pool Certificates," U.S. Maritime Administration obligations, and
Export-Import Bank participation certificates.
(3) Includes obligations (other than mortgage-backed securities) issued by the Farm Credit System, the Federal Home
Loan Bank System, the Federal Home Loan Mortgage Corporation, the Federal National Mortgage Association, the Financing
Corporation, Resolution Funding Corporation, the Student Loan Marketing Association, and the Tennessee Valley Authority.
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-5
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-B--Continued
_____________________________________________________________________________________
| Held-to-maturity | Available-for-sale |
_________________________________________ _________________________________________
| (Column A) | (Column B) | (Column C) | (Column D) |
| Amortized Cost | Fair Value | Amortized Cost | Fair Value(1) |
____________________ ____________________ ____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
____________________________________ ____________________ ____________________ ____________________ ____________________
<S> <C> <C> <C> <C>
3. Securities issued by states | ////////////////// |/ //////////////// | ////////////////// | ///////////////// |
and political subdivisions | ////////////////// |////////////////// | ////////////////// | ///////////////// |
in the U.S.: | ////////////////// |////////////////// | ////////////////// | ////////// ////// |
a. General obligations ......... | 1676 0 |1677 0 | 1678 0 | 1679 0 | 3.a.
b. Revenue obligations ......... | 1681 47 |1686 52 | 1690 0 | 1691 0 | 3.b.
c. Industrial development ...... | ////////////////// |////////////////// | ////////////////// | ///////////////// |
and similiar obligations ........| 1694 0 |1695 0 | 1696 0 | 1697 0 | 3.c.
4. Mortgage-backed: | ////////////////// |////////////////// | ////////////////// | ///////////////// |
securities (MBS): | ////////////////// |////////////////// | ////////////////// | ///////////////// |
a. Pass-through securities: | ////////////////// |////////////////// | ////////////////// | ///////////////// |
(1) Guaranteed by | ////////////////// |////////////////// | ////////////////// | ///////////////// |
GNMA ....................... | 1698 0 |1699 0 | 1701 917 | 1702 917 | 4.a.(1)
(2) Issued by FNMA | ////////////////// |////////////////// | ////////////////// | ///////////////// |
and FHLMC ................. | 1703 0 |1705 0 | 1706 1,459,829 | 1707 1,468,551 | 4.a.(2)
(3) Other pass-through | ////////////////// |////////////////// | ///////////////////| ///////////////// |
secruities ................. | 1709 0 |1710 0 | 1711 4,961 | 1713 5,044 | 4.a.(3)
b. Other mortgage-backed | ////////////////// |////////////////// | ////////////////// | ///////////////// |
securities (include CMO's, | ////////////////// |////////////////// | ////////////////// | ///////////////// |
REMICs, and stripped | ////////////////// |////////////////// | ////////////////// | ///////////////// |
MBS): | ////////////////// |////////////////// | ////////////////// | ///////////////// |
(1) Issued or guaranteed | ////////////////// |////////////////// | ////////////////// | ///////////////// |
by FNMA, FHLMC, | ////////////////// |////////////////// | ////////////////// | ///////////////// |
or GNMA ............... | 1714 0 |1715 0 | 1716 83,871 | 1717 85,311 | 4.b.(1)
(2) Collateralized | ////////////////// |////////////////// | ////////////////// | ///////////////// |
by MBS issued or | ////////////////// |////////////////// | ////////////////// | ///////////////// |
guaranteed by FNMA | ////////////////// |////////////////// | ////////////////// | ///////////////// |
FHLMC, or GNMA ........ | 1718 0 |1719 0 | 1731 0 | 1732 0 | 4.b.(2)
(3) All other mortgage- | ////////////////// |////////////////// | ////////////////// | //////////////// |
backed securities ..... | 1733 0 |1734 0 | 1735 320,670 | 1736 318,092 | 4.b.(3)
5. Other debt securities: | ////////////////// |////////////////// | ////////////////// | ///////////////// |
a. Other domestic debt | ////////////////// |////////////////// | ////////////////// | ///////////////// |
securities | 1737 0 |1738 0 | 1739 717,383 | 1741 723,027 | 5.a.
b. Foreign debt | ////////////////// |////////////////// | ////////////////// | ///////////////// |
securities ................. | 1742 2,900 |1743 2,900 | 1744 0 | 1746 0 | 5.b.
6. Equity securities: | ////////////////// |////////////////// | ////////////////// | ///////////////// |
a. Investments in mutual | ////////////////// |////////////////// | ////////////////// | ///////////////// |
funds ...................... | ////////////////// |////////////////// | 1747 8,471 | 1748 8,471 | 6.a.
b. Other equity securities | ////////////////// |////////////////// | ////////////////// | ///////////////// |
with readily determin- | ////////////////// |////////////////// | ////////////////// | ///////////////// |
able fair values ........... | ////////////////// |////////////////// | 1749 0 | 1751 0 | 6.b.
c. All other equity | ////////////////// |////////////////// | ////////////////// | ///////////////// |
securities (1) ............. | ////////////////// |////////////////// | 1752 116,438 | 1753 116,438 | 6.c.
7. Total (sum of items 1 | ////////////////// |////////////////// | ////////////////// | ///////////////// |
through 6) (total of | ////////////////// |////////////////// | ////////////////// | ///////////////// |
column A must equal | ////////////////// |////////////////// | ////////////////// | ///////////////// |
Schedule RC, item 2.a) | ////////////////// |////////////////// | ////////////////// | ///////////////// |
(total of column D must | ////////////////// |////////////////// | ////////////////// | ///////////////// |
equal Schedule RC, | ////////////////// |////////////////// | ////////////////// | ///////////////// |
item 2.b) ..................... | 1754 3,197 | 1771 3,202 | 1772 4,042,804 | 1773 4,048,366 | 7.
____________ |__________________________________________________________________________________|
1) Includes equity securities without readily determinable fair values at historical cost in item 6.c, column D.
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-5
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-B--Continued
<CAPTION>
___________
Memoranda | C412 |
___________ _________
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Pledged securities(2) ......................................................................... | 0416 2,835,053 | M.1.
2. Maturity and repricing data for debt securities(2)(3)(4) (excluding those in nonaccrual status):| ////////////////// |
a. Fixed rate debt securities with a remaining maturity of: | ////////////////// |
(1) Three months or less ................................................................... | 0343 341,085 | M.2.a.(1)
(2) Over three months through 12 months .................................................... | 0344 145,034 | M.2.a.(2)
(3) Over one year through five years ....................................................... | 0345 2,473,872 | M.2.a.(3)
(4) Over five years ........................................................................ | 0346 785,951 | M.2.a.(4)
(5) Total fixed rate debt securities (sum of Memorandum items 2.a.(1) through 2.a.(4)) ..... | 0347 3,745,942 | M.2.a.(5)
b. Floating rate debt securities with a repricing frequency of: | ////////////////// |
(1) Quarterly or more frequently ........................................................... | 4544 177,962 | M.2.b.(1)
(2) Annually or more frequently, but less frequently than quarterly ........................ | 4545 2,750 | M.2.b.(2)
(3) Every five years or more frequently, but less frequently than annually ................. | 4551 0 | M.2.b.(3)
(4) Less frequently than every five years .................................................. | 4552 0 | M.2.b.(4)
(5) Total floating rate debt securities (sum of Memorandum items 2.b.(1) through 2.b.(4)) .. | 4553 180,712 | M.2.b.(5)
c. Total debt securities (sum of Memorandum items 2.a.(5) and 2.b.(5)) (must equal total debt | ////////////////// |
securities from Schedule RC-B, sum of items 1 through 5, columns A and D, minus nonaccrual | ////////////////// |
debt securities included in Schedule RC-N, item 9, column C) ............................... | 0393 3,926,654 | M.2.c.
3. Not applicable | ////////////////// |
4. Held-to-maturity debt securities restructured and in compliance with modified terms (included | ////////////////// |
in Schedule RC-B, items 3 through 5, column A, above) ......................................... | 5365 0 | M.4.
5. Not applicable | ////////////////// |
6. Floating rate debt securities with a remaining maturity of one year or less(2)(5) (to be | ////////////////// |
completed by all banks ........................................................................ | 5519 0 | M.6.
7. Amortized cost of held-to-maturity securities sold or transferred to available-for-sale or | ////////////////// |
trading securities during the calendar year-to-date (report the amortized cost at date of sale. | ////////////////// |
or transfer ................................................................................... | 1778 3,221,535 | m.7.
8. High-Risk mortgage securities (included in the held-to-maturity and available-for-sale | ////////////////// |
accounts in Schedule RC-B, item 4.b): | ////////////////// |
a. Amortized cost ............................................................................. | 8780 0 | M.8.a.
b. Fair Value ................................................................................. | 8781 0 | M.8.b.
9. Structured notes (included in the held-to-maturity and available-for-sale accounts in | ////////////////// |
Schedule RC-B, items.2, 3, and 5): | ////////////////// |
a. Amortized cost ............................................................................. | 8782 0 | M.9.a.
b. Fair Value ................................................................................. | 8783 0 | M.9.b.
----------------------
____________
(2) Includes held-to-maturity securities at amortized cost and available-for-sale securities at fair value.
(3) Exclude equity securities, e.g., investments in mutual funds, Federal Reserve stock, common stock, and preferred stock.
(4) Memorandum item 2 is not applicable to savings banks that must complete supplemental Schedule RC-J.
(5) For commercial banks, the debt securities included in Memorandum item 6 will also have been reported in Memorandum item
2.b. above. For savings bank, the debt securities included in Memorandum item 6 will also have been reported in supplemental
Schedule. RC-J, part I, item 4. Savings banks should note that available-for-sale cash debt securities are reported at fair
value in Memorandum item 6 and at amortized cost in Schedule RC-J.
15
</TABLE>
<PAGE>
City, State Zip: HARTFORD, CT 06115
<TABLE>
<CAPTION>
Schedule RC-C--Loans and Lease Financing Receivables
Part I. Loans and Leases
Do not deduct the allowance for loan and lease losses from amounts __________
reported in this schedule. Report total loans and leases, net of unearned _________________________________| C415 |
income. Exclude assets held for trading. | (Column A) | (Column B) |
| Consolidated | Domestic |
| Bank | Offices |
____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCON Bil Mil Thou |
_____________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
1. Loans secured by real estate ........................................... | 1410 4,366,800 | ////////////////// | 1.
a. Construction and land development ................................... | ////////////////// | 1415 57,923 | 1.a.
b. Secured by farmland (including farm residential and other | ////////////////// | ////////////////// |
improvements) ....................................................... | ////////////////// | 1420 584 | 1.b.
c. Secured by 1-4 family residential properties: | ////////////////// | ////////////////// |
(1) Revolving, open-end loans secured by 1-4 family residential | ////////////////// | ////////////////// |
properties and extended under lines of credit ................... | ////////////////// | 1797 380,335 | 1.c.(1)
(2) All other loans secured by 1-4 family residential properties: | ////////////////// | ////////////////// |
(a) Secured by first liens ...................................... | ////////////////// | 5367 2,632,460 | 1.c.(2)(a)
(b) Secured by junior liens ..................................... | ////////////////// | 5368 212,499 | 1.c.(2)(b)
d. Secured by multifamily (5 or more) residential properties ........... | ////////////////// | 1460 63,227 | 1.d.
e. Secured by nonfarm nonresidential properties ........................ | ////////////////// | 1480 1,019,772 | 1.e.
2. Loans to depository institutions: | ////////////////// | ////////////////// |
a. To commercial banks in the U.S. ..................................... | ////////////////// | 1505 8,656 | 2.a.
(1) To U.S. branches and agencies of foreign banks .................. | 1506 0 | ////////////////// | 2.a.(1)
(2) To other commercial banks in the U.S. ........................... | 1507 8,656 | ////////////////// | 2.a.(2)
b. To other depository institutions in the U.S. ........................ | 1517 0 | 1517 0 | 2.b.
c. To banks in foreign countries ....................................... | ////////////////// | 1510 0 | 2.c.
(1) To foreign branches of other U.S. banks ......................... | 1513 0 | ////////////////// | 2.c.(1)
(2) To other banks in foreign countries ............................. | 1516 0 | ////////////////// | 2.c.(2)
3. Loans to finance agricultural production and other loans to farmers .... | 1590 962 | 1590 962 | 3.
4. Commercial and industrial loans: | ////////////////// | ////////////////// |
a. To U.S. addressees (domicile) ....................................... | 1763 5,421,227 | 1763 5,421,227 | 4.a.
b. To non-U.S. addressees (domicile) ................................... | 1764 0 | 1764 0 | 4.b.
5. Acceptances of other banks: | ////////////////// | ////////////////// |
a. Of U.S. banks ....................................................... | 1756 1,096 | 1756 1,096| 5.a.
b. Of foreign banks .................................................... | 1757 0 | 1757 0 | 5.b.
6. Loans to individuals for household, family, and other personal | ////////////////// | ////////////////// |
expenditures (i.e., consumer loans) (includes purchased paper) ......... | ////////////////// | 1975 572,541 | 6.
a. Credit cards and related plans (includes check credit and other | ////////////////// | ////////////////// |
revolving credit plans) ............................................. | 2008 31,493 | ////////////////// | 6.a.
b. Other (includes single payment, installment, and all student loans) . | 2011 541,048 | ////////////////// | 6.b.
7. Loans to foreign governments and official institutions (including | ////////////////// | ////////////////// |
foreign central banks) ................................................. | 2081 0 | 2081 0 | 7.
8. Obligations (other than securities and leases) of states and political | ////////////////// | ////////////////// |
subdivisions in the U.S. (includes nonrated industrial development | ////////////////// | ////////////////// |
obligations) ........................................................... | 2107 34,682 | 2107 34,682 | 8.
9. Other loans ............................................................ | 1563 1,134,145 | ////////////////// | 9.
a. Loans for purchasing or carrying securities (secured and unsecured) . | ////////////////// | 1545 43,527 | 9.a.
b. All other loans (exclude consumer loans) ............................ | ////////////////// | 1564 1,090,618 | 9.b.
10. Lease financing receivables (net of unearned income) ................... | ////////////////// | 2165 7,046 | 10.
a. Of U.S. addressees (domicile) ....................................... | 2182 7,046 | ////////////////// | 10.a.
b. Of non-U.S. addressees (domicile) ................................... | 2183 0 | ////////////////// | 10.b.
11. LESS: Any unearned income on loans reflected in items 1-9 above ........ | 2123 18,697 | 2123 18,697 | 11.
12. Total loans and leases, net of unearned income (sum of items 1 through | ////////////////// | ////////////////// |
10 minus item 11) (total of column A must equal Schedule RC, item 4.a) . | 2122 11,528,458 | 2122 11,528,458 | 12.
___________________________________________
</TABLE>
16
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590
Address: 777 MAIN STREET
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-C--Continued
Part I. Continued
___________________________________________
| (Column A) | (Column B) |
| Consolidated | Domestic |
Memoranda | Bank | Offices |
____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCON Bil Mil Thou |
_____________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
1. Commercial paper included in Schedule RC-C, part I, above .............. | 1496 0 | 1496 0 | M.1.
2. Loans and leases restructured and in compliance with modified terms | ////////////////// | ////////////////// |
(included in Schedule RC-C, part I, above and not reported as past due | ////////////////// | ////////////////// |
or nonaccrual in Schedule RC-N, Memorandum item 1): | ////////////////// | ////////////////// |
a. Loans secured by real estate: | ////////////////// | ////////////////// |
(1) To U.S. addressees (domicile) ................................... | 1687 34,952 | M.2.a.(1)
(2) To non-U.S. addressees (domicile) ............................... | 1689 0 | M.2.a.(2)
b. All other loans and all lease financing receivables (exclude loans | ////////////////// |
to individuals for household, family, and other personal expenditures)| 8691 0 | M.2.b.
c. Commercial and industrial loans to and lease financing receivables | ////////////////// |
of non-U.S. addressees (domicile) included in Memorandum item 2.b | ////////////////// |
above ............................................................... | 8692 0 | M.2.c.
3. Maturity and repricing data for loans and leases(1) (excluding those | ////////////////// |
in nonaccrual status): | ////////////////// |
a. Fixed rate loans and leases with a remaining maturity of: | ////////////////// |
(1) Three months or less ............................................ | 0348 627,991 | M.3.a.(1)
(2) Over three months through 12 months ............................. | 0349 91,775 | M.3.a.(2)
(3) Over one year through five years ................................ | 0356 883,482 | M.3.a.(3)
(4) Over five years ................................................. | 0357 1,974,606 | M.3.a.(4)
(5) Total fixed rate loans and leases (sum of | ////////////////// |
Memorandum items 3.a.(1) through 3.a.(4)) ....................... | 0358 3,577,854 | M.3.a.(5)
b. Floating rate loans with a repricing frequency of: | ////////////////// |
(1) Quarterly or more frequently .................................... | 4554 3,811,759 | M.3.b.(1)
(2) Annually or more frequently, but less frequently than quarterly . | 4555 809,284 | M.3.b.(2)
(3) Every five years or more frequently, but less frequently than | ////////////////// |
annually ........................................................ | 4561 3,175,427 | M.3.b.(3)
(4) Less frequently than every five years ........................... | 4564 107,097 | M.3.b.(4)
(5) Total floating rate loans (sum of Memorandum items 3.b.(1) | ////////////////// |
through 3.b.(4)) ................................................ | 4567 7,903,567 | M.3.b.(5)
c. Total loans and leases (sum of Memorandum items 3.a.(5) and 3.b.(5)) | ////////////////// |
(must equal the sum of total loans and leases, net, from | ////////////////// |
Schedule RC-C, part I, item 12, plus unearned income from | ////////////////// |
Schedule RC-C, part I, item 11, minus total nonaccrual loans and | ////////////////// |
leases from Schedule RC-N, sum of items 1 through 8, column C) ...... | 1479 11,481,421 | M.3.c.
4. Loans to finance commercial real estate, construction, and land | ////////////////// |
development activities (not secured by real estate) included in | ////////////////// |
Schedule RC-C, part I, items 4 and 9, column A, page RC-6(2) ........... | 2746 54,772 | M.4.
5. Loans and leases held for sale (included in Schedule RC-C, part I, | ////////////////// |
above .................................................................. | 5369 0 | M.5.
6. Adjustable rate closed-end loans secured by first liens on 1-4 family | ////////////////// |_____________________
residential properties (included in Schedule RC-C, part I, item | ////////////////// | RCON Bil Mil Thou |
| ////////////////// |____________________
1.c.(2)(a), column B, page RC-6) ....................................... | ////////////////// | 5370 918,495 | M.6.
___________________________________________
<FN>
_____________________________
(1) Memorandum item 3 is not applicable to savings banks that must complete supplememtal Schedule RC-J.
(2) Exclude loans secured by real estate that are included in Schedule RC-C, part I, item 1, column A.
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-7
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
_________
17 | C420 |
__________________________________________________________________________________________________ _______________|________|
<S> <C> <C>
ASSETS | /////////////////////// |
1. U.S. Treasury securities in domestic offices ................................................ | RCON 3531 0 | 1.
2. U.S. Government agency and corporation obligations in domestic offices (exclude mortgage- | /////////////////////// |
backed securities) .......................................................................... | RCON 3532 0 | 2.
3. Securities issued by states and political subdivisions in the U.S. in domestic offices ...... | RCON 3533 0 | 3.
4. Mortgage-backed securities (MBS) in domestic offices ........................................ | /////////////////////// |
a. Pass-through securities issued or guaranteed by FNMA, FHLMC, or GNMA ..................... | RCON 3534 0 | 4.a.
b. Other mortgage-backed securities issued or guaranteed by FNMA, FHLMC, or GNMA | /////////////////////// |
(include CMOs, REMICs, and stripped MBS) ................................................. | RCON 3535 0 | 4.b.
c. All other mortgage-backed securities ......................................................| RCON 3536 0 | 4.c.
5. Other debt securities in domestic offices ................................................... | RCON 3537 0 | 5.
6. Certificates of deposit in domestic offices ................................................. | RCON 3538 0 | 6.
7. Commercial paper in domestic offices ........................................................ | RCON 3539 0 | 7.
8. Bankers acceptances in domestic offices ..................................................... | RCON 3540 0 | 8.
9. Other trading assets in domestic offices .................................................... | RCON 3541 0 | 9.
10. Trading assets in foreign offices ........................................................... | RCFN 3542 0 | 10.
11. Revaluation gains on interest rate, foreign exchange rate, and other commodity and equity | /////////////////////// |
contracts: | /////////////////////// |
a. In domestic offices ...................................................................... | RCON 3543 840 | 11.a.
b. In foreign offices ....................................................................... | RCFN 3544 0 | 11.b.
12. Total trading assets (sum of items 1 through 11) (must equal Schedule RC, item 5) ........... | RCFD 3545 840 | 12.
<CAPTION>
___________________________
___________________________
| ///////// Bil Mil Thou |
LIABILITIES _________________________
<S> <C> <C>
13. Liability for short positions ............................................................... | RCFD 3546 0 | 13.
14. Revaluation losses on interest rate, foreign exchange rate, and other commodity and equity | /////////////////////// |
contracts ................................................................................... | RCFD 3547 814 | 14.
15. Total trading liabilities (sum of items 13 and 14) (must equal Schedule RC, item 15.b) ...... | RCFD 3548 814 | 15.
___________________________
</TABLE>
18
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-9
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-E--Deposit Liabilities
Part I. Deposits in Domestic Offices
__________
| C425 |
______________________________________________________ ________
| | Nontransaction |
| Transaction Accounts | Accounts |
_________________________________________ ____________________
| (Column A) | (Column B) | (Column C) |
| Total transaction | Memo: Total | Total |
| accounts (including| demand deposits | nontransaction |
| total demand | (included in | accounts |
| deposits) | column A) | (including MMDAs) |
____________________ ____________________ ____________________
Dollar Amounts in Thousands | RCON Bil Mil Thou | RCON Bil Mil Thou | RCON Bil Mil Thou |
__________________________________________________________ ____________________ ____________________ ____________________
<S> <C> <C> <C> <C>
Deposits of: | ////////////////// | ////////////////// | ////////////////// |
1. Individuals, partnerships, and corporations .......... | 2201 2,628,372 | 2240 2,505,998 | 2346 7,107,737 | 1.
2. U.S. Government ...................................... | 2202 53,678 | 2280 53,432 | 2520 120 | 2.
3. States and political subdivisions in the U.S. ........ | 2203 163,019 | 2290 132,660 | 2530 133,788 | 3.
4. Commercial banks in the U.S. ......................... | 2206 554,474 | 2310 554,474 | ////////////////// | 4.
a. U.S. branches and agencies of foreign banks ....... | ////////////////// | ////////////////// | 2347 0 | 4.a.
b. Other commercial banks in the U.S. ................ | ////////////////// | ////////////////// | 2348 500 | 4.b.
5. Other depository institutions in the U.S. ............ | 2207 101,483 | 2312 101,483 | 2349 0 | 5.
6. Banks in foreign countries ........................... | 2213 1,730 | 2320 1,730 | ////////////////// | 6.
a. Foreign branches of other U.S. banks .............. | ////////////////// | ////////////////// | 2367 0 | 6.a.
b. Other banks in foreign countries .................. | ////////////////// | ////////////////// | 2373 0 | 6.b.
7. Foreign governments and official institutions | ////////////////// | ////////////////// | ////////////////// |
(including foreign central banks) .................... | 2216 1,023 | 2300 1,023 | 2377 0 | 7.
8. Certified and official checks ........................ | 2330 51,197 | 2330 51,197 | ////////////////// | 8.
9. Total (sum of items 1 through 8) (sum of | ////////////////// | ////////////////// | ////////////////// |
columns A and C must equal Schedule RC, | ////////////////// | ////////////////// | ////////////////// |
item 13.a) ........................................... | 2215 3,554,976 | 2210 3,401,997 | 2385 7,242,145 | 9.
________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
______________________
Memoranda Dollar Amounts in Thousands | RCON Bil Mil Thou |
____________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Selected components of total deposits (i.e., sum of item 9, columns A and C): | ////////////////// |
a. Total Individual Retirement Accounts (IRAs) and Keogh Plan accounts ......................... | 6835 888,500 | M.1.a.
b. Total brokered deposits ..................................................................... | 2365 1,195,257 | M.1.b.
c. Fully insured brokered deposits (included in Memorandum item 1.b above): | ////////////////// |
(1) Issued in denominations of less than $100,000 ........................................... | 2343 0 | M.1.c.(1)
(2) Issued either in denominations of $100,000 or in denominations greater than $100,000 | ////////////////// |
and participated out by the broker in shares of $100,000 or less ........................ | 2344 1,195,257 | M.1.c.(2)
d. Total deposits denominated in foreign currencies ............................................ | 3776 0 | M.1.d.
e. Preferred deposits (uninsured deposits of states and political subdivisions in the U.S. | ////////////////// |
reported in item 3 above which are secured or collateralized as required under state law) ... | 5590 226,852 | M.1.e.
2. Components of total nontransaction accounts (sum of Memoranda items 2.a through 2.d must | ////////////////// |
equal item 9, column C above): | ////////////////// |
a. Savings deposits: | ////////////////// |
(1) Money market deposit accounts (MMDAs) ................................................... | 6810 1,491,520 | M.2.a.(1)
(2) Other savings deposits (excludes MMDAs) ................................................. | 0352 1,862,085 | M.2.a.(2)
b. Total time deposits of less than $100,000 ................................................... | 6648 2,386,133 | M.2.b.
c. Time certificates of deposit of $100,000 or more ............................................ | 6645 1,502,407 | M.2.c.
d. Open-account time deposits of $100,000 or more .............................................. | 6646 0 | M.2.d.
3. All NOW accounts (included in column A above) .................................................. | 2398 152,979 | M.3.
______________________
</TABLE>
19
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-10
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-E--Continued
Part I. Continued
Memoranda (continued)
_________________________________________________________________________________________________________________________________
| Deposit Totals for FDIC Insurance Assessments ______________________ |
| Dollar Amounts in Thousands | RCON Bil Mil Thou | |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
| 4. Total deposits in domestic offices (sum of item 9, column A and item 9, column C) |/////////////////// | |
| (must equal Schedule RC, item 13.a) ......................................................... | 2200 10,797,121 | M.4. |
| | ////////////////// | |
| a. Total demand deposits (must equal item 9, column B) ...................................... | 2210 3,401,997 | M.4.a.|
| b. Total time and savings deposits(1) (must equal item 9, column A plus item 9, column C | ////////////////// | |
| minus item 9, column B) .................................................................. | 2350 7,395,124 | M.4.b.|
______________________
<FN>
| ____________ |
| (1) For FDIC insurance assessment purposes, "total time and savings deposits" consists of nontransaction accounts and all |
| transaction accounts other than demand deposits. |
_________________________________________________________________________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
______________________
Dollar Amounts in Thousands | RCON Bil Mil Thou |
___________________________________________________________________________________________________ ____________________
<S> <C> <C>
5. Time deposits of less than $100,000 and open-account time deposits of $100,000 or more | ////////////////// |
(included in Memorandum items 2.b and 2.d above) with a remaining maturity or repricing | ////////////////// |
frequency of:(1) | ////////////////// |
a. Three months or less ....................................................................... | 0359 326,126 | M.5.a.
b. Over three months through 12 months (but not over 12 months) ............................... | 3644 1,116,701 | M.5.b.
6. Maturity and repricing data for time certificates of deposit of $100,000 or more:(1) | ////////////////// |
a. Fixed rate time certificates of deposit of $100,000 or more with a remaining maturity of: | ////////////////// |
(1) Three months or less ................................................................... | 2761 377,758 | M.6.a.(1)
(2) Over three months through 12 months .................................................... | 2762 268,933 | M.6.a.(2)
(3) Over one year through five years ....................................................... | 2763 852,593 | M.6.a.(3)
(4) Over five years ........................................................................ | 2765 3,123 | M.6.a.(4)
(5) Total fixed rate time certificates of deposit of $100,000 or more (sum of | ////////////////// |
Memorandum items 6.a.(1) through 6.a.(4)) .............................................. | 2767 1,502,407 | M.6.a.(5)
b. Floating rate time certificates of deposit of $100,000 or more with a repricing frequency of:| ////////////////// |
(1) Quarterly or more frequently ........................................................... | 4568 0 | M.6.b.(1)
(2) Annually or more frequently, but less frequently than quarterly ........................ | 4569 0 | M.6.b.(2)
(3) Every five years or more frequently, but less frequently than annually ................. | 4571 0 | M.6.b.(3)
(4) Less frequently than every five years .................................................. | 4572 0 | M.6.b.(4)
(5) Total floating rate time certificates of deposit of $100,000 or more (sum of | ////////////////// |
Memorandum items 6.b.(1) through 6.b.(4)) .............................................. | 4573 0 | M.6.b.(5)
c. Total time certificates of deposit of $100,000 or more (sum of Memorandum items 6.a.(5) | ////////////////// |
and 6.b.(5)) (must equal Memorandum item 2.c. above) ....................................... | 6645 1,502,407 | M.6.c.
______________________
<FN>
_____________
(1) Memorandum items 5 and 6 are not applicable to savings banks that must complete supplemental Schedule RC-J.
</TABLE>
20
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-11
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-E--Continued
Part II. Deposits in Foreign Offices (including Edge and
Agreement subsidiaries and IBFs)
______________________
Dollar Amounts in Thousands | RCFN Bil Mil Thou |
___________________________________________________________________________________________________ ____________________
<S> <C> <C>
Deposits of: | ////////////////// |
1. Individuals, partnerships, and corporations ................................................... | 2621 401,872 | 1.
2. U.S. banks (including IBFs and foreign branches of U.S. banks) ................................ | 2623 30,000 | 2.
3. Foreign banks (including U.S. branches and | ////////////////// |
agencies of foreign banks, including their IBFs) .............................................. | 2625 0 | 3.
4. Foreign governments and official institutions (including foreign central banks) ............... | 2650 0 | 4.
5. Certified and official checks ................................................................. | 2330 0 | 5.
6. All other deposits ............................................................................ | 2668 0 | 6.
7. Total (sum of items 1 through 6) (must equal Schedule RC, item 13.b) .......................... | 2200 431,872 | 7.
______________________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-F--Other Assets
__________
| C430 |
_________________ ________
Dollar Amounts in Thousands | ////////// Bil Mil Thou |
__________________________________________________________________________________________________ _________________________
<S> <C> <C>
1. Income earned, not collected on loans ........................................................ | RCFD 2164 56,906 | 1.
2. Net deferred tax assets(1) ................................................................... | RCFD 2148 158,056 | 2.
3. Excess residential mortgage servicing fees receivable ........................................ | RCFD 5371 18,275 | 3.
4. Other (itemize amounts that exceed 25% of this item) ......................................... | RCFD 2168 481,338 | 4.
_____________ ___________________________
a. | TEXT 3549 |____________________________________________________| RCFD 3549 | | /////////////////////// | 4.a.
___________
b. | TEXT 3550 |____________________________________________________| RCFD 3550 | | /////////////////////// | 4.b.
___________
c. | TEXT 3551 |____________________________________________________| RCFD 3551 | | /////////////////////// | 4.c.
_____________
___________________________
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 11) ........................... | RCFD 2160 714,575 | 5.
___________________________
<CAPTION>
Memorandum ___________________________
Dollar Amounts in Thousands | ////////// Bil Mil Thou |
__________________________________________________________________________________________________ _________________________
<S> <C> <C>
1. Deferred tax assets disallowed for regulatory capital purposes ............................... | RCFD 5610 0 | M.1.
___________________________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-G--Other Liabilities
__________
| C435 |
_________________ ________
Dollar Amounts in Thousands | ////////// Bil Mil Thou |
__________________________________________________________________________________________________ _________________________
<S> <C> <C>
1. a. Interest accrued and unpaid on deposits in domestic offices(2) ............................ | RCON 3645 44,239 | 1.a.
b. Other expenses accrued and unpaid (includes accrued income taxes payable) ................. | RCFD 3646 300,519 | 1.b.
2. Net deferred tax liabilities(1) .............................................................. | RCFD 3049 0 | 2.
3. Minority interest in consolidated subsidiaries ............................................... | RCFD 3000 0 | 3.
4. Other (itemize amounts that exceed 25% of this item) ......................................... | RCFD 2938 22,553 | 4.
_____________ ___________________________
a. | TEXT 3552 |____________________________________________________| RCFD 3552 | | /////////////////////// | 4.a.
___________
b. | TEXT 3553 |____________________________________________________| RCFD 3553 | | /////////////////////// | 4.b.
___________
c. | TEXT 3554 |____________________________________________________| RCFD 3554 | | /////////////////////// | 4.c.
_____________
___________________________
5. Total (sum of items 1 through 4) (must equal Schedule RC, item 20) ........................... | RCFD 2930 367,311 | 5.
___________________________
<FN>
____________
(1) See discussion of deferred income taxes in Glossary entry on "income taxes."
(2) For savings banks, include "dividends" accrued and unpaid on deposits.
</TABLE>
21
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-12
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-H--Selected Balance Sheet Items for Domestic Offices
__________
| C440 |
____________ ________
| Domestic Offices |
____________________
Dollar Amounts in Thousands | RCON Bil Mil Thou |
_____________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Customers' liability to this bank on acceptances outstanding .................................... | 2155 7,330 | 1.
2. Bank's liability on acceptances executed and outstanding ........................................ | 2920 7,330 | 2.
3. Federal funds sold and securities purchased under agreements to resell .......................... | 1350 205,800 | 3.
4. Federal funds purchased and securities sold under agreements to repurchase ...................... | 2800 2,739,775 | 4.
5. Other borrowed money ............................................................................ | 3190 1,688,786 | 5.
EITHER | ////////////////// |
6. Net due from own foreign offices, Edge and Agreement subsidiaries, and IBFs ..................... | 2163 N/A | 6.
OR | ////////////////// |
7. Net due to own foreign offices, Edge and Agreement subsidiaries, and IBFs ....................... | 2941 381,872 | 7.
8. Total assets (excludes net due from foreign offices, Edge and Agreement subsidiaries, and IBFs) . | 2192 18,079,498 | 8.
9. Total liabilities (excludes net due to foreign offices, Edge and Agreement subsidiaries, and IBFs)| 3129 16,355,152 | 9.
______________________
</TABLE>
<TABLE>
<CAPTION>
Items 10-17 include held-to-maturity and available-for-sale securities in domestic offices. ______________________
| RCON Bil Mil Thou |
____________________
<S> <C> <C>
10. U.S. Treasury securities ....................................................................... | 1779 987,429 | 10.
11. U.S. Government agency and corporation obligations (exclude mortgage-backed | ////////////////// |
securities) .................................................................................... | 1785 335,336 | 11.
12. Securities issued by states and political subdivisions in the U.S. ............................. | 1786 47 | 12.
13. Mortgage-backed securities (MBS): | ////////////////// |
a. Pass-through securities: | ////////////////// |
(1) Issued or guaranteed by FNMA, FHLMC, or GNMA ............................................ | 1787 1,469,468 | 13.a.(1)
(2) Other pass-through securities ........................................................... | 1869 5,044 | 13.a.(2)
b. Other mortgage-backed securities (include CMOs, REMICs, and stripped MBS): | ////////////////// |
(1) Issued or guaranteed by FNMA, FHLMC, or GNMA ............................................ | 1877 85,311 | 13.b.(1)
(2) Other pass-through securities ........................................................... | 2253 318,092 | 13.b.(2)
14. Other domestic debt securities ................................................................. | 3159 723,027 | 14.
15. Foreign debt securities ........................................................................ | 3160 2,900 | 15.
16. Equity securities: | ////////////////// |
a. Investments in mutual funds ................................................................. | 3161 8,471 | 16.a.
b. Other equity securities with readily determinable fair values ............................... | 3162 0 | 16.b.
c. All other equity securities ................................................................. | 3169 116,438 | 16.c.
17. Total held-to-maturity and available-for-sale securities (sum of items 10 through 16) .......... | 3170 4,051,563 | 17.
______________________
</TABLE>
<TABLE>
<CAPTION>
Memorandum (to be completed only by banks with IBFs and other "foreign" offices)
______________________
Dollar Amounts in Thousands | RCON Bil Mil Thou |
_____________________________________________________________________________________________________ ____________________
<S> <C> <C>
EITHER | ////////////////// |
1. Net due from the IBF of the domestic offices of the reporting bank .............................. | 3051 N/A | M.1.
OR | ////////////////// |
2. Net due to the IBF of the domestic offices of the reporting bank ................................ | 3059 N/A | M.2.
______________________
</TABLE>
22
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-13
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-I--Selected Assets and Liabilities of IBFs
To be completed only by banks with IBFs and other "foreign" offices. __________
| C445 |
____________ ________
Dollar Amounts in Thousands | RCFN Bil Mil Thou |
_____________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Total IBF assets of the consolidated bank (component of Schedule RC, item 12) .................. | 2133 N/A | 1.
2. Total IBF loans and lease financing receivables (component of Schedule RC-C, part I, item 12, | ////////////////// |
column A) ...................................................................................... | 2076 N/A | 2.
3. IBF commercial and industrial loans (component of Schedule RC-C, part I, item 4, column A) ..... | 2077 N/A | 3.
4. Total IBF liabilities (component of Schedule RC, item 21) ...................................... | 2898 N/A | 4.
5. IBF deposit liabilities due to banks, including other IBFs (component of Schedule RC-E, | ////////////////// |
part II, items 2 and 3) ........................................................................ | 2379 N/A | 5.
6. Other IBF deposit liabilities (component of Schedule RC-E, part II, items 1, 4, 5, and 6) ...... | 2381 N/A | 6.
______________________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-K--Quarterly Averages (1)
__________
| C455 |
_________________ ________
Dollar Amounts in Thousands | ///////// Bil Mil Thou |
_______________________________________________________________________________________________ _________________________
<S> <C> <C>
ASSETS | /////////////////////// |
1. Interest-bearing balances due from depository institutions ............................... | RCFD 3381 16,087 | 1.
2. U.S. Treasury securities and U.S. Government agency and corporation obligations(2) ....... | RCFD 3382 2,872,045 | 2.
3. Securities issued by states and political subdivisions in the U.S.(2) .................... | RCFD 3383 49 | 3.
4. a. Other debt securities(2) .............................................................. | RCFD 3647 1,101,314 | 4.a.
b. Equity securities(3) (includes investments in mutual funds and Federal Reserve stock) . | RCFD 3648 117,774 | 4.b.
5. 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 IBFs ...................... | RCFD 3365 160,423 | 5.
6. Loans: | /////////////////////// |
a. Loans in domestic offices: | /////////////////////// |
(1) Total loans ....................................................................... | RCON 3360 11,541,536 | 6.a.(1)
(2) Loans secured by real estate ...................................................... | RCON 3385 4,433,576 | 6.a.(2)
(3) Loans to finance agricultural production and other loans to farmers ............... | RCON 3386 2,734 | 6.a.(3)
(4) Commercial and industrial loans ................................................... | RCON 3387 5,556,473 | 6.a.(4)
(5) Loans to individuals for household, family, and other personal expenditures ....... | RCON 3388 600,686 | 6.a.(5)
| /////////////////////// |
b. Total loans in foreign offices, Edge and Agreement subsidiaries, and IBFs ............. | RCFN 3360 0 | 6.b.
7. Trading assets ........................................................................... | RCFD 3401 5,753 | 7.
8. Lease financing receivables (net of unearned income) ..................................... | RCFD 3484 8,921 | 8.
9. Total assets (4) ......................................................................... | RCFD 3368 17,423,900 | 9.
LIABILITIES | /////////////////////// |
10. Interest-bearing transaction accounts in domestic offices (NOW accounts, ATS accounts, | /////////////////////// |
and telephone and preauthorized transfer accounts) (exclude demand deposits) ............. | RCON 3485 167,144 | 10.
11. Nontransaction accounts in domestic offices: | /////////////////////// |
a. Money market deposit accounts (MMDAs) ................................................. | RCON 3486 1,426,084 | 11.a.
b. Other savings deposits ................................................................ | RCON 3487 1,882,740 | 11.b.
c. Time certificates of deposit of $100,000 or more ...................................... | RCON 3345 1,601,542 | 11.c.
d. All other time deposits ............................................................... | RCON 3469 2,363,615 | 11.d.
12. Interest-bearing deposits in foreign offices, Edge and Agreement subsidiaries, and IBFs .. | RCFN 3404 451,941 | 12.
13. 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 3353 3,225,979 | 13.
14. Other borrowed money ..................................................................... | RCFD 3355 1,839,039 | 14.
___________________________
<FN>
_____________
(1) For all items, banks have the option of reporting either (1) an average of daily figures for the quarter, or
(2) an average of weekly figures (i.e., the Wednesday of each week of the quarter).
(2) Quarterly averages for all debt securities should be based on amortized cost.
(3) Quarterly averages for all equity securities should be based on historical cost.
(4) The quarterly average for total assets should reflect all debt securities (not held for trading) at amortized
cost, equity securities with readily determinable fair values at the lower of cost or fair value, and equity
securities without readily determinable fair values at historical cost.
</TABLE>
23
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-4
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-L--Off-Balance Sheet Items
Please read carefully the instructions for the preparation of Schedule RC-L. Some of the amounts
reported in Schedule RC-L are regarded as volume indicators and not necessarily as measures of risk. __________
| C460 |
____________ ________
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
____________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Unused commitments: | ////////////////// |
a. Revolving, open-end lines secured by 1-4 family residential properties, e.g., home | ////////////////// |
equity lines ............................................................................... | 3814 454,277| 1.a.
b. Credit card lines .......................................................................... | 3815 0 | 1.b.
c. Commercial real estate, construction, and land development: | ////////////////// |
(1) Commitments to fund loans secured by real estate ....................................... | 3816 55,329 | 1.c.(1)
(2) Commitments to fund loans not secured by real estate ................................... | 6550 17,337 | 1.c.(2)
d. Securities underwriting .................................................................... | 3817 0 | 1.d.
e. Other unused commitments ................................................................... | 3818 6,446,592 | 1.e.
2. Financial standby letters of credit and foreign office guarantees ............................. | 3819 1,024,104 | 2.
___________________________
a. Amount of financial standby letters of credit conveyed to others | RCFD 3820 | 1,074 | ////////////////// | 2.a.
___________________________
3. Performance standby letters of credit and foreign office guarantees ........................... | 3821 121,267 | 3.
a. Amount of performance standby letters of credit conveyed to | ////////////////// |
___________________________
others .......................................................... | RCFD 3822 | 0 | ////////////////// | 3.a.
___________________________
4. Commercial and similar letters of credit ...................................................... | 3411 38,963 | 4.
5. Participations in acceptances (as described in the instructions) conveyed to others by | ////////////////// |
the reporting bank ............................................................................ | 3428 0 | 5.
6. Participations in acceptances (as described in the instructions) acquired by the reporting | ////////////////// |
(nonaccepting) bank ........................................................................... | 3429 0 | 6.
7. Securities borrowed ........................................................................... | 3432 0 | 7.
8. Securities lent (including customers' securities lent where the customer is indemnified | ////////////////// |
against loss by the reporting bank) ........................................................... | 3433 0 | 8.
9. Mortgages transferred (i.e., sold or swapped) with recourse that have been treated as sold | ////////////////// |
for Call Report purposes: | ////////////////// |
a. FNMA and FHLMC residential mortgage loan pools: | ////////////////// |
(1) Outstanding principal balance of mortgages transferred as of the report date ........... | 3650 62,825 | 9.a.(1)
(2) Amount of recourse exposure on these mortgages as of the report date ................... | 3651 56,528 | 9.a.(2)
b. Private (nongovernment-issued or -guaranteed) residential mortgage loan pools: | ////////////////// |
(1) Outstanding principal balance of mortgages transferred as of the report date ........... | 3652 0 | 9.b.(1)
(2) Amount of recourse exposure on these mortgages as of the report date ................... | 3653 0 | 9.b.(2)
c. Farmer Mac agricultural mortgage loan pools: | ////////////////// |
(1) Outstanding principal balance of mortgages transferred as of the report date ........... | 3654 0 | 9.c.(1)
(2) Amount of recourse exposure on these mortgages as of the report date ................... | 3655 0 | 9.c.(2)
10. When-issued securities: | ////////////////// |
a. Gross commitments to purchase .............................................................. | 3434 0 | 10.a.
b. Gross commitments to sell .................................................................. | 3435 0 | 10.b.
11. Spot foreign exchange contracts ............................................................... | 8765 0 | 11.
12. All other off-balance sheet liabilities (exclude off-balance sheet derivatives ) (itemize and | ////////////////// |
describe each component of this item over 25% of Schedule RC, item 28, "Total equity capital") | 3430 0 | 12.
a. | TEXT 3555 |______________________________________________________| RCFD 3555 | | ////////////////// | 12.a.
b. | TEXT 3556 |______________________________________________________| RCFD 3556 | | ////////////////// | 12.b.
___________
c. | TEXT 3557 |______________________________________________________| RCFD 3557 | | ////////////////// | 12.c.
_____________
d. | TEXT 3558 |______________________________________________________| RCFD 3558 | | ////////////////// | 12.d.
_____________
13. All other off-balance sheet assets (exclude off-balance sheet derivatives) (itemize and | ////////////////// |
describe each component of this item over 25% of Schedule RC,item 28,"Total equity capital" | 5591 0 | 13.
_____________ __________________________
a. | TEXT 5592 |______________________________________________________| RCFD 5592 | | ////////////////// | 13.a.
___________
b. | TEXT 5593 |______________________________________________________| RCFD 5593 | | ////////////////// | 13.b.
___________
c. | TEXT 5594 |______________________________________________________| RCFD 5594 | | ////////////////// | 13.c.
_____________
d. | TEXT 5595 |______________________________________________________| RCFD 5595 | | ////////////////// | 13.d.
_____________
________________________________________________
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-15
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
Schedule RC-L -- Continued
_____________
| C461 |
_________________________________________ ____________________________|___________|
| (Column A) | (Column B) | (Column C) | (Column D) |
| Interest Rate | Foreign Exchange | Equity Derivative | Commodity and other|
| Contracts | Contracts | Contracts | Contracts |
|___________________|____________________|____________________|____________________|
Dollar Amounts in Thousands |Tril Bil Mil Thou | Tril Bil Mil Thou | Tril Bil Mil Thou | Tril Bil Mil Thou |
______________________________________________________________________________________________________________________|
<S> <C> <C> <C> <C> <C>
| Off-balance Sheet Derivatives | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
| Position Indicators | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
___________________________________| ///////////////// | ////////////////// | ////////////////// | ////////////////// |
14. Gross amounts (e.g., notional | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
amounts) (for each column, sum of | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
items 14.a through 14.e must equal| ///////////////// | ////////////////// | ////////////////// | ////////////////// |
sum of items 15, 16.a, and 16.b): |___________________|____________________|___________________ |____________________|
a. Future contracts .............. | 0 | 0 | 0 | 0 | 14.a.
| RCFD 8693 | RCFD 8694 | RCFD 8695 | RCFD 8696 |
b. Forward contracts ............. | 60,000 | 0 | 0 | 0 | 14.b.
| RCFD 8697 | RCFD 8698 | RCFD 8699 | RCFD 8700 |
c. Exchange-traded option contracts| ///////////////// | ////////////////// | ////////////////// | ////////////////// |
(1) Written options .......... | 0 | 0 | 0 | 0 | 14.c.(1)
| RCFD 8701 | RCFD 8702 0 | RCFD 8703 | RCFD 8704 |
(2) Purchased options ........ | 0 | 0 | 0 | 0 | 14.c.(2)
| RCFD 8705 | RCFD 8706 | RCFD 8707 | RCFD 8708 |
d. Over-the-counter option contracts: | //////////////////| ///////////////// | ///////////////// | //////////////// |
(1) Written options .......... | 70,250 | 0 | 0 | 0 | 14.d.(1)
| RCFD 8709 | RCFD 8710 | RCFD 8711 | RCFD 8712 |
(2) Purchased options ........ | 370,250 | 0 | 0 | 0 | 14.d.(2)
| RCFD 8713 | RCFD 8714 | RCFD 8715 | RCFD 8716 |
e. Swaps ............................ | 3,537,871 | 0 | 0 | 0 | 14.e.
| RCFD 3450 | RCFD 3826 | RCFD 8719 | RCFD 8720 |
15. Total gross notional amount of | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
derivative contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
trading ......................... | 191,500 | 0 | 0 | 0 | 15.
| RCFD A126 | RFD A127 | RCFD 8723 | RCFD 8724 |
16. Total gross notional amount of | ///////////////// | //////////////// | ///////////////// | ////////////////// |
derivative contracts held for | ///////////////// | ///////////////// | ///////////////// | ////////////////// |
purposes other than trading: | ///////////////// | ///////////////// | ///////////////// | ////////////////// |
a. Contracts marked to market ... | 0 | 0 | 0 | 0 | 16.a.
| RCFD 8725 | RCFD 8726 | RCF 8727 | RCFD 8728 |
b. Contracts not marked to market | 3,846,871 | 0 | 0 | 0 | 16.b.
| RCF 8729 | RCFD 8730 | RFD 8731 | RCFD 8732 |
___________________________________________________________________________________|
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-15
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
Schedule RC-L -- Continued
<CAPTION>
_________________________________________ _________________________________________
| (Column A) | (Column B) | (Column C) | (Column D) |
| Interest Rate | Foreign Exchange | Equity Derivative | Commodity and other|
| Contracts | Contracts | Contracts | Contracts |
|___________________|____________________|____________________|____________________|
Dollar Amounts in thousands |RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________________________________________________________________________________________|
<S> <C> <C> <C> <C> <C>
| Off-balance Sheet Derivatives | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
| Position Indicators | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
___________________________________| ///////////////// | ////////////////// | ////////////////// | ////////////////// |
| ///////////////// | ////////////////// | ////////////////// | ////////////////// |
17. Gross fair values of | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
derivative contracts: | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
a. Contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
trading: | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
(1) Gross positive | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value ................... | 8733 840 | 8734 0 | 8735 0 | 8736 0 | 17.a.(1)
(2) Gross negative | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value ................... | 8737 814 | 8738 0 | 8739 0 | 8740 0 | 17.a.(2)
b. Contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
purposes other than | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
trading that are marked | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
to market: | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
(1) Gross positive | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value ................... | 8741 0 | 8742 0 | 8743 0 | 8744 0 | 17.b.(1)
(2) Gross negative | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value ................... | 8745 0 | 8746 0 | 8747 0 | 8748 0 | 17.b.(2)
c. Contracts held for | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
purposes other than | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
trading that are not | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
marked to market: | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
(1) Gross positive | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value .................. | 8749 4,117 | 8750 0 | 8751 0 | 8752 0 | 17.c.(1)
(2) Gross negative | ///////////////// | ////////////////// | ////////////////// | ////////////////// |
fair value ................... | 8753 51,811 | 8754 0 | 8755 0 | 8756 0 | 17.c.(2)
|__________________________________________________________________________________|
______________________
Memoranda Dollar Amounts in Thousands | RCFD Bil Mil Thou |
_________________________________________________________________________________________________________________________
1. -2. Not applicable | ////////////////// |
3. Unused commitments with an original maturity exceeding one year that are reported in | ////////////////// |
Schedule RC-L, items 1.a through 1.e, above (report only the unused portions of commitments | ////////////////// |
that are fee paid or otherwise legally binding) ................................................ | 3833 4,666,515 | M.3.
a. Participations in commitments with an original maturity | ////////////////// |
exceeding one year conveyed to others ................................|RCFD 3834 | 77,235 | ////////////////// | M.3.a.
________________________
4. To be completed only by banks with $1 billion or more in total assets: | ////////////////// |
Standby letters of credit and foreign office guarantees (both financial and performance) issued | ////////////////// |
to non-U.S. addresses (domicile) included in Schedule RC-L, items 2 and 3, above ............... | 3377 419,235 | M.4.
5. To be completed for the September report only: | ////////////////// |
Installment loans to individuals for household, family, and other personal expenditures that | ////////////////// |
have been securitized and sold without recourse (with servicing retained), amounts outstanding | ////////////////// |
by type of loan: | ////////////////// |
a. Loans to purchase private passenger automobiles ............................................. | 2741 N/A | M.5.a.
b. Credit cards and related plans .............................................................. | 2742 N/A | M.5.b.
c. All other consumer installment credit (Including mobile home loans) ......................... | 2743 N/A | M.5.c.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-17
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9| _____________
| C465 |
_________|___________|
Schedule RC-M--Memoranda | |
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
______________________________________________________________________________________________________|____________________|
<S> <C> <C>
1. Extensions of credit by the reporting bank to its executive officers, directors, principal | ////////////////// |
shareholders, and their related interests as of the report date: | ////////////////// |
a. Aggregate amount of all extensions of credit to all executive officers, directors, principal |
shareholders and their related interests ..................................................... | 6164 6,676 | 1.a.
b. Number of executive officers, directors, and principal shareholders to whom the amount of all | ////////////////// |
extensions of credit by the reporting bank (Including extensions of credit to | ////////////////// |
related interests) equals or exceeds the lesser of $500,000 or 5 percent Number | ////////////////// |
___________________________| ////////////////// |
of total capital as defined for this purpose in agency regulations. | RCFD 6165 | 4 | ////////////////// |
___________________________| ////////////////// | 1.b.
2. Federal funds sold and securities purchased under agreements to resell with U.S. branches | ////////////////// |
and agencies of foreign banks(1) (included in Schedule RC, items 3.a and 3.b) .................... | 3405 0 | 2.
3. Not applicable. | ////////////////// |
4. Outstanding principal balance of 1-4 family residential mortgage loans serviced for others | ////////////////// |
(include both retained servicing and purchased servicing): | ////////////////// |
a. Mortgages serviced under a GNMA contract ...................................................... | 5500 21,759 | 4.a.
b. Mortgages serviced under a FHLMC contract: | ////////////////// |
(1) Serviced with recourse to servicer ........................................................ | 5501 12,023 | 4.b.(1)
(2) Serviced without recourse to servicer ..................................................... | 5502 1,173,885 | 4.b.(2)
c. Mortgages serviced under a FNMA contract: | ////////////////// |
(1) Serviced under a regular option contract .................................................. | 5503 50,802 | 4.c.(1)
(2) Serviced under a special option contract .................................................. | 5504 1,913,154 | 4.c.(2)
d. Mortgages serviced under other servicing contracts ............................................ | 5505 3,879,382 | 4.d.
5. To be completed only by banks with $1 billion or more in total assets: | ////////////////// |
Customers' liability to this bank on acceptances outstanding (sum of items 5.a and 5.b must | ////////////////// |
equal Schedule RC, item 9): | ////////////////// |
a. U.S. addressees (domicile) .................................................................... | 2103 7,330 | 5.a.
b. Non-U.S. addressees (domicile) ................................................................ | 2104 0 | 5.b.
6. Intangible assets: | ////////////////// |
a. Mortgage servicing rights ..................................................................... | 3164 26,116 | 6.a.
b. Other identifiable intangible assets: | ////////////////// |
(1) Purchased credit card relationships ....................................................... | 5506 0 | 6.b.(1)
(2) All other identifiable intangible assets .................................................. | 5507 3,834 | 6.b.(2)
c. Goodwill ...................................................................................... | 3163 280,364 | 6.c.
d. Total (sum of items 6.a through 6.c) (must equal Schedule RC, item 10) ........................ | 2143 310,314 | 6.d.
e. Amount of intangible assets (included in item 6.b.(2) above) that have been grandfathered or | ////////////////// |
are otherwise qualifying for regulatory capital purposes ...................................... | 6442 0 | 6.e.
7. Mandatory convertible debt, net of common or perpetual preferred stock dedicated to | ////////////////// |
redeem the debt ...................................................................................| 3295 0 | 7.
______________________
- ------------
(1) Do not report federal funds sold and securities purchased under agreements to resell with other
commercial banks in the U.S. in this item.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Legal Title of Bank: FLEET NATINAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-18
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
Schedule RC-M--Continued ________________________
Dollar Amounts in Thousands | Bil Mil Thou|
_____________________________________________________________________________________________ |_______________________|
<S> <C> C>
8. a. Other real estate owned: | /////////////////////// |
(1) Direct and indirect investments in real estate ventures ......................... | RCFD 5372 0 | 8.a.(1)
(2) All other real estate owned: | /////////////////////// |
(a) Construction and land development in domestic offices ....................... | RCON 5508 0 | 8.a.(2)(a)
(b) Farmland in domestic offices ................................................ | RCON 5509 0 | 8.a.(2)(b)
(c) 1-4 family residential properties in domestic offices ....................... | RCON 5510 517 | 8.a.(2)(c)
(d) Multifamily (5 or more) residential properties in domestic offices .......... | RCON 5511 0 | 8.a.(2)(d)
(e) Nonfarm nonresidential properties in domestic offices ....................... | RCON 5512 167 | 8.a.(2)(e)
(f) In foreign offices .......................................................... | RCFN 5513 0 | 8.a.(2)(f)
(3) Total (sum of items 8.a.(1) and 8.a.(2)) (must equal Schedule RC, item 7) ....... | RCFD 2150 684 | 8.a.(3)
b. Investments in unconsolidated subsidiaries and associated companies: | /////////////////////// |
(1) Direct and indirect investments in real estate ventures ......................... | RCFD 5374 0 | 8.b.(1)
(2) All other investments in unconsolidated subsidiaries and associated companies ... | RCFD 5375 0 | 8.b.(2)
(3) Total (sum of items 8.b.(1) and 8.b.(2)) (must equal Schedule RC, item 8) ....... | RCFD 2130 0 | 8.b.(3)
c. Total assets of unconsolidated subsidiaries and associated companies ................ | RCFD 5376 0 | 8.c.
9. Noncumulative perpetual preferred stock and related surplus included in Schedule RC, | /////////////////////// |
item 23, "Perpetual preferred stock and related surplus" ............................... | RCFD 3778 0 | 9.
10. Mutual fund and annuity sales in domestic offices during the quarter (include | /////////////////////// |
proprietary, private label, and third party products): | /////////////////////// |
a. Money market funds .................................................................. | RCON 6441 0 | 10.a.
b. Equity securities funds ............................................................. | RCON 8427 0 | 10.b.
c. Debt securities funds ............................................................... | RCON 8428 0 | 10.c.
d. Other mutual funds .................................................................. | RCON 8429 0 | 10.d.
e. Annuities ........................................................................... | RCON 8430 0 | 10.e.
f. Sales of proprietary mutual funds and annuities (included in itmes 10.a through | /////////////////////// |
10.e. above) ........................................................................... | RCON 8784 0 | 10.f.
_________________________
</TABLE>
<TABLE>
<CAPTION>
_________________________________________________________________________________________________________________________________
| |
______________________
|Memorandum Dollar Amounts in Thousands | RCFD Bil Mil Thou | |
_________________________________________________________________________________________________ ____________________
<S> <C> <C>
|1. Interbank holdings of capital instruments (to be completed for the December report only): | ////////////////// | |
| a. Reciprocal holdings of banking organizations' capital instruments ........................ | 3836 0 | M.1.a. |
| b. Nonreciprocal holdings of banking organizations' capital instruments ..................... | 3837 0 | M.1.b. |
______________________
| |
_________________________________________________________________________________________________________________________________
</TABLE>
28
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-19
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-N--Past Due and Nonaccrual Loans, Leases,
and Other Assets
The FFIEC regards the information reported in __________
all of Memorandum item 1, in items 1 through 10, | C470 |
column A, and in Memorandum items 2 through 4, ______________________________________________________ ________
column A, as confidential. | (Column A) | (Column B) | (Column C) |
| Past due | Past due 90 | Nonaccrual |
| 30 through 89 | days or more | |
| days and still | and still | |
| accruing | accruing | |
____________________ ____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________________________ ____________________ ____________________ ____________________
<S> <C> <C> <C> <C>
1. Loans secured by real estate: | ////////////////// | ////////////////// | ////////////////// |
a. To U.S. addressees (domicile) ................ | 1245 74,980 | 1246 18,839 | 1247 36,031 | 1.a.
b. To non-U.S. addressees (domicile) ............ | 1248 0 | 1249 0 | 1250 0 | 1.b.
2. Loans to depository institutions and | ////////////////// | ////////////////// | ////////////////// |
acceptances of other banks: | ////////////////// | ////////////////// | ////////////////// |
a. To U.S. banks and other U.S. depository | ////////////////// | ////////////////// | ////////////////// |
institutions ................................. | 5377 0 | 5378 0 | 5379 0 | 2.a.
b. To foreign banks ............................. | 5380 0 | 5381 0 | 5382 0 | 2.b.
3. Loans to finance agricultural production and | ////////////////// | ////////////////// | ////////////////// |
other loans to farmers .......................... | 1594 17 | 1597 0 | 1583 2 | 3.
4. Commercial and industrial loans: | ////////////////// | ////////////////// | ////////////////// |
a. To U.S. addressees (domicile) ................ | 1251 16,064 | 1252 1,062 | 1253 26,685 | 4.a.
b. To non-U.S. addressees (domicile) ............ | 1254 0 | 1255 0 | 1256 0 | 4.b.
5. Loans to individuals for household, family, and | ////////////////// | ////////////////// | ////////////////// |
other personal expenditures: | ////////////////// | ////////////////// | ///////////////// |
a. Credit cards and related plans ............... | 5383 592 | 5384 162 | 5385 149 | 5.a.
b. Other (includes single payment, installment, | ////////////////// | ////////////////// | ////////////////// |
and all student loans) ....................... | 5386 17,822 | 5387 1,880 | 5388 1,749 | 5.b.
6. Loans to foreign governments and official | ////////////////// | ////////////////// | ////////////////// |
institutions .................................... | 5389 0 | 5390 0 | 5391 0 | 6.
7. All other loans ................................. | 5459 4,902 | 5460 435 | 5461 1,118 | 7.
8. Lease financing receivables: | ////////////////// | ////////////////// | ////////////////// |
a. Of U.S. addressees (domicile) ................ | 1257 57 | 1258 0 | 1259 0 | 8.a.
b. Of non-U.S. addressees (domicile) ............ | 1271 0 | 1272 0 | 1791 0 | 8.b.
9. Debt securities and other assets (exclude other | ////////////////// | ////////////////// | ////////////////// |
real estate owned and other repossessed assets) . | 3505 0 | 3506 0 | 3507 0 | 9.
________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
Amounts reported in items 1 through 8 above include guaranteed and unguaranteed portions of past due and nonaccrual loans and
leases. Report in item 10 below certain guaranteed loans and leases that have already been included in the amounts reported in
items 1 through 8.
________________________________________________________________
10. Loans and leases reported in items 1 | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
____________________ ____________________ ____________________
<S> <C> <C> <C> <C>
through 8 above which are wholly or partially | ////////////////// | ////////////////// | ////////////////// |
guaranteed by the U.S. Government ............... | 5612 1,479 | 5613 321 | 5614 251 | 10.
a. Guaranteed portion of loans and leases | ////////////////// | ////////////////// | ////////////////// |
included in item 10 above .................... | 5615 1,252 | 5616 248 | 5617 225 | 10.a.
________________________________________________________________
</TABLE>
29
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-20
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-N--Continued
__________
| C473 |
______________________________________________________ ________
| (Column A) | (Column B) | (Column C) |
| Past due | Past due 90 | Nonaccrual |
| 30 through 89 | days or more | |
| days and still | and still | |
Memoranda | accruing | accruing | |
____________________ ____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________________________ ____________________ ____________________ ____________________
<S> <C> <C> <C> <C>
1. Restructured loans and leases included in | ////////////////// | /////////////////// | ///////////////// |
Schedule RC-N, items 1 through 8, above (and not | ////////////////// | /////////////////// | ///////////////// |
reported in Schedule RC-C, part I, Memorandum | ////////////////// | /////////////////// | ///////////////// |
item 2) ......................................... | 1658 0 | 1659 0 | 1661 1,578 | M.1.
2. Loans to finance commercial real estate, | ////////////////// | /////////////////// | ///////////////// |
construction, and land development activities | ////////////////// | /////////////////// | ///////////////// |
(not secured by real estate) included in | ////////////////// | /////////////////// | ///////////////// |
Schedule RC-N, items 4 and 7, above ............. | 6558 4,511 | 6559 0 | 6560 1,403 | M.2.
|____________________|____________________ |___________________
3. Loans secured by real estate in domestic offices | RCON Bil Mil Thou | RCON Bil Mil Thou | RCON Bil Mil Thou|
|___________________ |____________________ ____________________
(included in Schedule RC-N, item 1, above): | ////////////////// | ////////////////// | ////////////////// |
a. Construction and land development ............ | 2759 2,261 | 2769 268 | 3492 378 | M.3.a.
b. Secured by farmland .......................... | 3493 0 | 3494 0 | 3495 139 | M.3.b.
c. Secured by 1-4 family residential properties: | ////////////////// | ////////////////// | ////////////////// |
(1) Revolving, open-end loans secured by | ////////////////// | ////////////////// | ////////////////// |
1-4 family residential properties and | ////////////////// | ////////////////// | ////////////////// |
extended under lines of credit ........... | 5398 4,446 | 5399 2,091 | 5400 2,628 | M.3.c.(1)
(2) All other loans secured by 1-4 family | ////////////////// | ////////////////// | ////////////////// |
residential properties ................... | 5401 39,576 | 5402 12,419 | 5403 10,421 | M.3.c.(2)
d. Secured by multifamily (5 or more) | ////////////////// | ////////////////// | ////////////////// |
residential properties ....................... | 3499 1,336 | 3500 175 | 3501 520 | M.3.d.
e. Secured by nonfarm nonresidential properties . | 3502 27,361 | 3503 3,886 | 3504 21,945 | M.3.e.
________________________________________________________________
</TABLE>
<TABLE>
<CAPTION>
___________________________________________
| (Column A) | (Column B) |
| Past due 30 | Past due 90 |
| through 89 days | days or more |
____________________ ____________________
| RCFD Bil Mil Thou | RCFD Bil Mil Thou |
____________________ ____________________
<S> <C> <C> <C>
4. Interest rate, foreign exchange rate, and other | ////////////////// | ////////////////// |
commodity and equity contracts: | ////////////////// | ////////////////// |
a. Book value of amounts carried as assets ...... | 3522 0 | 3528 0 | M.4.a.
b. Replacement cost of contracts with a | ////////////////// | ////////////////// |
positive replacement cost .................... | 3529 0 | 3530 0 | M.4.b.
___________________________________________
</TABLE>
30
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-21
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION> ______________________
Schedule RC-O--Other Data for Deposit Insurance Assessments | C475 |
|____________________|
Dollar Amounts in Thousands | RCON Bil Mil Thou |
___________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Unposted debits (see instructions): | ////////////////// |
a. Actual amount of all unposted debits ...................................................... | 0030 N/A | 1.a.
OR | ////////////////// |
b. Separate amount of unposted debits: | ////////////////// |
(1) Actual amount of unposted debits to demand deposits ................................... | 0031 0 | 1.b.(1)
(2) Actual amount of unposted debits to time and savings deposits(1) ...................... | 0032 0 | 1.b.(2)
2. Unposted credits (see instructions): | ////////////////// |
a. Actual amount of all unposted credits ..................................................... | 3510 N/A | 2.a.
OR | ////////////////// |
b. Separate amount of unposted credits: | ////////////////// |
(1) Actual amount of unposted credits to demand deposits .................................. | 3512 182,201 | 2.b.(1)
(2) Actual amount of unposted credits to time and savings deposits(1) ..................... | 3514 0 | 2.b.(2)
3. Uninvested trust funds (cash) held in bank's own trust department (not included in total | ////////////////// |
deposits in domestic offices) ................................................................ | 3520 0 | 3.
4. Deposits of consolidated subsidiaries in domestic offices and in insured branches in | ////////////////// |
Puerto Rico and U.S. territories and possessions (not included in total deposits): | ////////////////// |
a. Demand deposits of consolidated subsidiaries .............................................. | 2211 8,343 | 4.a.
b. Time and savings deposits(1) of consolidated subsidiaries ................................. | 2351 0 | 4.b.
c. Interest accrued and unpaid on deposits of consolidated subsidiaries ...................... | 5514 0 | 4.c.
5. Deposits in insured branches in Puerto Rico and U.S. territories and possessions: | ////////////////// |
a. Demand deposits in insured branches (included in Schedule RC-E, Part II) .................. | 2229 0 | 5.a.
b. Time and savings deposits(1) in insured branches (included in Schedule RC-E, Part II) ..... | 2383 0 | 5.b.
c. Interest accrued and unpaid on deposits in insured branches | ////////////////// |
(included in Schedule RC-G, item 1.b) ..................................................... | 5515 0 | 5.c.
______________________
______________________
Item 6 is not applicable to state nonmember banks that have not been authorized by the | ////////////////// |
Federal Reserve to act as pass-through correspondents. | ////////////////// |
6. Reserve balances actually passed through to the Federal Reserve by the reporting bank on | ////////////////// |
behalf of its respondent depository institutions that are also reflected as deposit liabilities| ////////////////// |
of the reporting bank: | ////////////////// |
a. Amount reflected in demand deposits (included in Schedule RC-E, Part I, | ////////////////// |
Memorandum item 4.a) ...................................................................... | 2314 0 | 6.a.
b. Amount reflected in time and savings deposits(1) (included in Schedule RC-E, Part I, | ////////////////// |
Memorandum item 4.b) ...................................................................... | 2315 0 | 6.b.
7. Unamortized premiums and discounts on time and savings deposits:(1) | ////////////////// |
a. Unamortized premiums ...................................................................... | 5516 0 | 7.a.
b. Unamortized discounts ..................................................................... | 5517 0 | 7.b.
______________________
_______________________________________________________________________________________________________________________________
| |
|8. To be completed by banks with "Oakar deposits." |
______________________
| Total "Adjusted Attributable Deposits" of all institutions acquired under Section 5(d)(3) of | ////////////////// | |
| the Federal Deposit Insurance Act (from most recent FDIC Oakar Transaction Worksheet(s)) .... | 5518 292,130 | 8. |
______________________
| |
_______________________________________________________________________________________________________________________________
______________________
9. Deposits in lifeline accounts ................................................................ | 5596 ///////////// | 9.
10. Benefit-responsive "Depository Institution Investment Contracts" (included in total | ////////////////// |
deposits in domestic offices) ................................................................ | 8432 0 | 10.
______________________
<FN>
______________
(1) For FDIC insurance assessment purposes, "time and savings deposits" consists of nontransaction
accounts and all transaction accounts other than demand deposits.
</TABLE>
31
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-22
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-O--Continued
Dollar Amounts in Thousands | RCON Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
<S> <C> <C>
1. Adjustments to demand deposits in domestic offices reported in Schedule RC-E for | ////////////////// |
certain reciprocal demand balances: | ////////////////// |
a. Amount by which demand deposits would be reduced if reciprocal demand balances | ////////////////// |
between the reporting bank and savings associations were reported on a net basis | ////////////////// |
rather than a gross basis in Schedule RC-E .................................................. | 8785 0 | 11.a.
b. Amount by which demand deposits would be increased if reciprocal demand balances | ////////////////// |
between the reporting bank and U.S. branches and agencies of foreign banks were | ////////////////// |
reported on a gross basis rather than a net basis in Schedule RC-E .......................... | A181 0 | 11.b.
c. Amount by which demand deposits would be reduced if cash items in process of | ////////////////// |
collections were included in the calculation of net reciprocal demand balances between | ////////////////// |
the reporting bank and the domestic offices of U.S. banks and savings associations | ////////////////// |
in Schedule RC-E ............................................................................ | A182 2,235 | 11.c.
____________________
Memoranda (to be completed each quarter except as noted) Dollar Amounts in Thousands | RCON Bil Mil Thou |
________________________________________________________________________________________________|____________________|
1. Total deposits in domestic offices of the bank (sum of Memorandum items 1.a. (1) and | ////////////////// |
1.b.(1) must equal Schedule RC, item 13.a): | ////////////////// |
a. Deposits accounts of $100,000 or less: | ////////////////// |
(1) amount of deposit accounts of $100,000 or less .................................... | 2702 6,065,796 | M.1.a.(1)
(2) Number of deposit accounts of $100,000 or less (to be Number | ////////////////// |
completed for the June report only) ..........................|RCON 3779________N/A | ////////////////// | M.1.a.(2)
b. Deposit accounts of more than $100,000: | ////////////////// |
(1) Amount of deposit accounts of more than $100,000 .................................. | 2710 4,731,325 | M.1.b.(1)
Number | ////////////////// |
(2) Number of deposit accounts of more than $100,000 .............|RCON 2722______7,493 | ////////////////// | M.1.b.(2)
2. Estimated amount of uninsured deposits in domestic offices of the bank:
a. An estimate of your bank's uninsured deposits can be determined by mutiplying the
number of deposit accounts of more than $100,000 reported in Memorandum item 1.b.(2)
above by $100,000 and subtracting the result from the amount of deposit accounts of
more than $100,000 reported in Memorandum item 1.b.(1) above.
Indicate in the appropriate box at the right whether your bank has a method or
procedure for determining a better estimate of uninsured deposits that the ____________YES_______NO__
estimated described above ............................................................... |RCON 6861| |///| x | M.2.a.
____________________
b. If the box marked YES has been checked, report the estimate of uninsured deposits |RCON Bil Mil Thou|
determined by using your bank's method or procedure .................................... | 5597 N/A | M.2.b.
<S>
_____________________________________________________________________________________________________________________________
| C477 |
Person to whom questions about the Reports of Condition and Income should be directed: __________
PAMELA S. FLYNN, VICE PRESIDENT (401) 278-5194
___________________________________________________________________________________ ______________________________________
Name and Title (TEXT 8901) Area code and phone number (TEXT 8902)
</TABLE>
32
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590 FFIEC 031
Address: 777 MAIN STREET Page RC-23
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-R--Risk-Based Capital
This schedule must be completed by all banks as follows: Banks that reported total assets of $1 billion or more in Schedule RC,
item 12, for June 30, 1994, must complete items 2 through 9 and Memorandum item 1 and 2. Banks with assets of less than
$1 billion must complete items 1 and 2 below or Schedule RC-R in its entirety, depending on their response to item 1 below.
<S> <C>
1. Test for determining the extent to which Schedule RC-R must be completed. To be completed
____________
only by banks with total assets of less than $1 billion. Indicate in the appropriate | C480 |
_____|__________|
box at the right whether the bank has total capital greater than or equal to eight percent | YES NO |
____________ _______________
of adjusted total assets ............................................................... | RCFD 6056 | |////| | 1.
_____________________________
For purposes of this test, adjusted total assets equals total assets less cash, U.S. Treasuries, U.S. Government
agency obligations, and 80 percent of U.S. Government-sponsored agency obligations plus the allowance for loan
and lease losses and selected off-balance sheet items as reported on Schedule RC-L (see instructions).
If the box marked YES has been checked, then the bank only has to complete items 2 below. If the box marked
NO has been checked, the bank must complete the remainder of this schedule.
A NO response to item 1 does not necessarily mean that the bank's actual risk-based capital ratio is less than eight
percent or that the bank is not in compliance with the risk-based capital guidelines.
</TABLE>
<TABLE>
<CAPTION>
___________________________________________
| (Column A) | (Column B) |
|Subordinated Debt(1)| Other |
| and Intermediate | Limited- |
Item 2 is to be completed by all banks. | Term Preferred | Life Capital |
| Stock | Instruments |
____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
2. Subordinated debt(1) and other limited-life capital instruments (original | ////////////////// | ////////////////// |
weighted average maturity of at least five years) with a remaining | ////////////////// | ////////////////// |
maturity of: | ////////////////// | ////////////////// |
a. One year or less ...................................................... | 3780 0 | 3786 0 | 2.a.
b. Over one year through two years ....................................... | 3781 0 | 3787 0 | 2.b.
c. Over two years through three years .................................... | 3782 0 | 3788 0 | 2.c.
d. Over three years through four years ................................... | 3783 0 | 3789 0 | 2.d.
e. Over four years through five years .................................... | 3784 0 | 3790 0 | 2.e.
f. Over five years ....................................................... | 3785 440,000 | 3791 0 | 2.f.
___________________________________________
3. Not applicable
___________________________________________
| (Column A) | (Column B) |
Items 4-9 and Memorandum item 1 and 2 are to be completed | Assets | Credit Equiv- |
by banks that answered NO to item 1 above and | Recorded | alent Amount |
by banks with total assets of $1 billion or more. | on the | of Off-Balance |
| Balance Sheet | Sheet Items(2) |
____________________ ____________________
4. Assets and credit equivalent amounts of off-balance sheet items assigned | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
____________________ ____________________
<S> <C> <C> <C>
to the Zero percent risk category: | ////////////////// | ////////////////// |
a. Assets recorded on the balance sheet: | ////////////////// | ////////////////// |
(1) Securities issued by, other claims on, and claims unconditionally | ////////////////// | ////////////////// |
guaranteed by, the U.S. Government and its agencies and other | ////////////////// | ////////////////// |
OECD central governments .......................................... | 3794 995,941 | ////////////////// | 4.a.(1)
(2) All other ......................................................... | 3795 615,688 | ////////////////// | 4.a.(2)
b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3796 0 | 4.b.
___________________________________________
<FN>
______________
(1) Exclude mandatory convertible debt reported in Schedule RC-M, item 7.
(2) Do not report in column B the risk-weighted amount of assets reported in column A.
</TABLE>
33
<PAGE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590
Address: 777 MAIN STREET
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
___________
</TABLE>
<TABLE>
<CAPTION>
Schedule RC-R--Continued
___________________________________________
| (Column A) | (Column B) |
| Assets | Credit Equiv- |
| Recorded | alent Amount |
| on the | of Off-Balance |
| Balance Sheet | Sheet Items(1) |
____________________ ____________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
______________________________________________________________________________ ____________________ ____________________
<S> <C> <C> <C>
5. Assets and credit equivalent amounts of off-balance sheet items | ////////////////// | ////////////////// |
assigned to the 20 percent risk category: | ////////////////// | ////////////////// |
a. Assets recorded on the balance sheet: | ////////////////// | ////////////////// |
(1) Claims conditionally guaranteed by the U.S. Government and its | ////////////////// | ////////////////// |
agencies and other OECD central governments ....................... | 3798 21,803 | ////////////////// | 5.a.(1)
(2) Claims collateralized by securities issued by the U.S. Govern- | ////////////////// | ////////////////// |
ment and its agencies and other OECD central governments; by | ////////////////// | ////////////////// |
securities issued by U.S. Government-sponsored agencies; and | ////////////////// | ////////////////// |
by cash on deposit ................................................ | 3799 0 | ////////////////// | 5.a.(2)
(3) All other ......................................................... | 3800 2,925,314 | ////////////////// | 5.a.(3)
b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3801 50,397 | 5.b.
6. Assets and credit equivalent amounts of off-balance sheet items | ////////////////// | ////////////////// |
assigned to the 50 percent risk category: | ////////////////// | ////////////////// |
a. Assets recorded on the balance sheet .................................. | 3802 2,913,084 | ////////////////// | 6.a.
b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3803 62,727 | 6.b.
7. Assets and credit equivalent amounts of off-balance sheet items | ////////////////// | ////////////////// |
assigned to the 100 percent risk category: | ////////////////// | ////////////////// |
a. Assets recorded on the balance sheet .................................. | 3804 10,920,564 | ////////////////// | 7.a.
b. Credit equivalent amount of off-balance sheet items ................... | ////////////////// | 3805 3,386,096 | 7.b.
8. On-balance sheet asset values excluded from the calculation of the | ////////////////// | ////////////////// |
risk-based capital ratio(2) .............................................. | 3806 4,047 | ////////////////// | 8.
9. Total assets recorded on the balance sheet (sum of | ////////////////// | ////////////////// |
items 4.a, 5.a, 6.a, 7.a, and 8, column A)(must equal Schedule RC, | ////////////////// | ////////////////// |
item 12 plus items 4.b and 4.c) .......................................... | 3807 18,396,441 | ////////////////// | 9.
___________________________________________
Memoranda
______________________
Dollar Amounts in Thousands | RCFD Bil Mil Thou |
__________________________________________________________________________________________________ ____________________
1.Current credit exposure across all off-balance sheet derivative contracts covered by the | ///////////////// |
risked-based capital standards ...................................................................| 8764 4,957| M.1.
|___________________|
________________________________________________________________
| With a remaining maturity of |
|______________________________________________________________|
| (Column A) | (Column B) | (Column C) |
| | | |
| One year or less | Over one year | Over five years |
| | through five years | |
|______________________________________________________________|
| RCFD Bil Mil Thou | RCFD Bil Mil Thou | RCFD Bil Mil Thou |
|____Tril____________|_____Tril___________|____Tril____________|
2. Notional principal amounts of <C> <C> <C> <C>
a. Interest rate contracts ................. | 3809 1,233,650 | 8766 2,389,471 | 8767 0 | M.2.a.
b. Foreign exchange contracts .............. | 3812 0 | 8769 0 | 8770 0 | M.2.b.
c. Gold contracts .......................... | 8771 0 | 8772 0 | 8773 0 | M.2.c.
d. Other precious metals contracts ......... | 8774 0 | 8775 0 | 8776 0 | M.2.d.
e. Other commodity contracts ............... | 8777 0 | 8778 0 | 8779 0 | M.2.e.
f. Equity derivative contracts ............. | A000 0 | A001 0 | A002 0 | M.2.f.
|______________________________________________________________|
_________________
1) Do not report in column B the risk-weighted amount of assets reported in column A.
2) Include the difference between the fair value and the amortized cost of available-for-sale securities in item 8 and report
the amortized cost of these securities in items 4 through 7 above. Item 8 also includes on-balance sheet asset values (or
portions thereof) of off-balance sheet interest rate, foreign exchange rate, and commodity contracts and those contracts (e.g.,
futures contracts) not subject to risk-based capital. Exclude from item 8 margin accounts and accrued receivables as well as
any portion of the allowance for loan and lease losses in excess of the amount that may be included in Tier 2 capital.
3) Exclude foreign exchange contracts with an original maturity of 14 days or less and all futures contracts.
</TABLE>
<TABLE>
<S> <C>
Legal Title of Bank: FLEET NATIONAL BANK OF CONNECTICUT Call Date: 12/31/95 ST-BK: 09-0590
Address: 777 MAIN STREET
City, State Zip: HARTFORD, CT 06115
FDIC Certificate No.: |0|2|4|9|9|
THIS PAGE IS TO BE COMPLETED BY ALL BANKS
- -------------------------------------------------------------------------------------------------------------------------------
| OMB No. For OCC: 1557-0081
Name and address of Bank | OMB No. For FDIC: 3064-0052
| OMB No. For Federal Reserve: 7100-0036
| Expiration Date: 3/31/96
|
PLACE LABEL HERE |
| SPECIAL REPORT
| (Dollar Amounts in Thousands)
|
|___________________________________________________________________
| CLOSE OF BUSINESS| FDIC Certificate Number | |
| DATE | | C-700 |
| 12/31/95 | |0|2|4|9|9 | |
__________________________________________________________________________________________________________________________________
LOANS TO EXECUTIVE OFFICERS (Complete as of each Call Report Date)
- ----------------------------------------------------------------------------------------------------------------------------------
The following information is required by Public Laws 90-44 and 102-242, but does not constitute a part of the Report of Condition.
With each Report of Condition, these Laws require all banks to furnish a report of all loans or other extensions of credit to
their executive officers made since the date of the previous Report of Condition. Data regarding individual loans or other
extensions of credit are not required. If no such loans or other extensions of credit were made during the period, insert "none"
against subitem (a). (Exclude the first $15,000 of indebtedness of each executive officer under bank credit card plan.) See
Sections 215.2 and 215.3 of Title 12 of the Code of Federal Regulations (Federal Reserve Board Regulation 0) for the definitions
of "executive officer" and "extension of credit," respectively. Exclude loans and other extensions of credit to directors and
principal shareholders who are not executive officers.
________________________________________________________________________________________________________________________________
a. Number of loans made to executive officers since the previous Call Report date ...................| RCFD 3561| 0 a.
b. Total dollar amount of above loans (in thousands of dollars) .....................................| RCFD 3652| 0 b.
c. Range of interest charged on above loans
(example: 9 3/4% = 9.75) ........................................|RCFD 7701| 0.00 | % to | RCFD 7702 | 0.00 | % c.
________________________________________________________________________________________________________________________________
________________________________________________________________________________________________________________________________
SIGNATURE OF TITLE OF OFFICER AUTHORIZED TO SIGN REPORT | DATE (Month, Day, Year)
|
|
________________________________________________________________________________________________________________________________
NAME AND TITLE OF PERSON TO WHOM INQUIRIES MAY BE DIRECTED (TEXT 8903) | AREA CODE/PHONE NUMBER/EXTENSION
| (TEXT 8904)
|
ROBERT P. DUFF VICE PRESIDENT | (203) 986-2474
|
________________________________________________________________________________________________________________________________
FDIC 8040/53 (6-95)
</TABLE>
35
<TABLE> <S> <C>
<PAGE>
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<S> <C>
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3,311
0
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