<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 21, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
STATER BROS. HOLDINGS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5411 33-0350671
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
21700 BARTON ROAD
COLTON, CALIFORNIA 92324
(909) 783-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
JACK H. BROWN
STATER BROS. HOLDINGS INC.
21700 BARTON ROAD
COLTON, CALIFORNIA 92324
(909) 783-5000
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE OF PROCESS)
With a copy to:
ANDREW E. BOGEN, ESQ.
GIBSON, DUNN & CRUTCHER LLP
333 SOUTH GRAND AVENUE
LOS ANGELES, CALIFORNIA 90071
(213) 229-7000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER UNIT(1) PRICE(1) FEE
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<S> <C> <C> <C> <C>
9% Senior Subordinated
Notes Due 2004......... $100,000,000 100% $100,000,000 $30,303.03
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE>
CROSS REFERENCE SHEET
PURSUANT TO RULE 404(a)
<TABLE>
<CAPTION>
ITEM IN FORM S-4 CAPTION IN PROSPECTUS
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<C> <S> <C>
1. Forepart of Registration Statement
and Outside Front Cover Page of
Prospectus....................... Facing Page; Outside Front Cover Page
of Prospectus.
2. Inside Front and Outside Back
Cover Pages of Prospectus........ Inside Front and Outside Back Cover
Pages of Prospectus; Table of
Contents; Available Information.
3. Risk Factors, Ratio of Earnings to
Fixed Charges and Other
Information...................... Risk Factors; The Company; Business;
Selected Consolidated Financial Data.
4. Terms of the Transaction.......... Prospectus Summary; Risk Factors; The
Offer; The Company; Business;
Description of the New Notes; Certain
Federal Tax Consequences
5. Pro Forma Financial Information... Not applicable.
6. Material Contracts with the
Company Being Acquired........... Not applicable.
7. Additional Information Required
for Reoffering by Persons and
Parties Deemed to be
Underwriters..................... Not applicable.
8. Interests of Named Experts and
Counsel.......................... Not applicable.
9. Disclosure of Commission Position
on Indemnification for Securities
Act Liabilities.................. Not applicable.
10. Information with Respect to S-3
Registrants...................... Not applicable.
11. Incorporation of Certain
Information by Reference......... Not applicable.
12. Information with Respect to S-2 or
S-3 Registrants.................. Not applicable.
13. Incorporation of Certain
Information by Reference......... Not applicable.
14. Information with Respect to
Registrants Other than S-3 or S-2
Registrants...................... Prospectus Summary; The Company;
Capitalization; Selected Consolidated
Financial Data; Business;
Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Management; Certain
Relationships and Related
Transactions; Security Ownership of
Certain Beneficial Owners and
Management.
15. Information with Respect to S-3
Companies........................ Not applicable.
16. Information with Respect to S-2 or
S-3 Companies.................... Not applicable.
17. Information with Respect to
Companies Other Than S-3 or S-2
Companies........................ Not applicable.
18. Information if Proxies, Consents
or Authorizations are to be
Solicited........................ Not applicable.
19. Information if Proxies, Consents
or Authorizations are not to be
Solicited or in an Exchange
Offer............................ Management; Certain Relationships and
Related Transactions; Security
Ownership of Certain Beneficial
Owners and Management.
</TABLE>
<PAGE>
SUBJECT TO COMPLETION, DATED SEPTEMBER , 1997
STATER BROS. HOLDINGS INC.
LOGO OFFER FOR ALL OUTSTANDING
PRIVATELY PLACED 9% SENIOR SUBORDINATED NOTES DUE 2004
IN EXCHANGE FOR
9% SENIOR SUBORDINATED NOTES DUE 2004
THE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON , 1997, UNLESS EXTENDED.
Stater Bros. Holdings Inc. (the "Company"), a Delaware corporation, hereby
offers (the "Offer"), upon the terms and subject to the conditions set forth
herein and in the related Letter of Transmittal, to exchange up to $100 million
aggregate principal amount of 9% Senior Subordinated Notes Due 2004 (the "New
Notes") of the Company for a like amount of privately placed 9% Senior
Subordinated Notes Due 2004 (the "Old Notes") from the holders (the "Holders")
thereof.
The New Notes are being offered hereunder in order to satisfy the obligations
of the Company under a Registration Rights Agreement dated as of July 24, 1997
(the "Registration Rights Agreement") between the Company and BancAmerica
Securities, Inc. (the "Initial Purchaser"). The Offer is designed to provide to
Holders an opportunity to acquire New Notes which, unlike the Old Notes, are
expected to be freely transferable at all times, subject to state "blue sky"
law restrictions; provided that the Holder is not an "affiliate" of the Company
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act"), and represents that the New Notes are being acquired in the ordinary
course of such Holder's business and the Holder is not engaged in, and does not
intend to engage in, a distribution of the New Notes. With the exception of the
freely transferable nature of the New Notes, the New Notes are substantially
identical to the Old Notes. See "The Offer--Purpose of the Offer."
The Company will accept for exchange any and all validly tendered Old Notes
on or prior to 5:00 P.M., New York time, on , 1997, unless extended
(the "Expiration Date"). Tenders of Old Notes made pursuant to the Offer may
not be withdrawn. The Company will pay the expenses of the Offer.
The New Notes are general unsecured obligations of the Company, subordinated
in right of payment to the Company's $165,000,000 11% Senior Notes due 2001
(the "11% Senior Notes") and all other present and future Senior Indebtedness
(as defined) of the Company, including the Company's obligations under the
Revolving Credit Facility (as defined) and effectively subordinated to all
Indebtedness (as defined) and other obligations of the Subsidiaries. As of June
29, 1997, after giving effect to the issuance of the Old Notes and the
application of the net proceeds therefrom, the aggregate amount of outstanding
Indebtedness (excluding trade and construction payables) of the Company and its
Subsidiaries was $272.2 million, of which approximately $165.0 million
constituted Senior Indebtedness and $7.2 million constituted Indebtedness of
the Subsidiaries. See "Description of the 11% Senior Notes."
The New Notes will bear interest from and including the date of issuance of
the Old Notes. Accordingly, Holders who receive New Notes in exchange for Old
Notes will forego accrued but unpaid interest on their exchanged Old Notes for
the period from and including the date of issuance of the Old Notes to the date
of exchange, but will be entitled to such interest under the New Notes. See
"Description of the New Notes."
The Offer is not conditioned upon any minimum principal amount of Old Notes
being tendered for exchange. However, the Offer is subject to certain customary
conditions. See "The Offer." Old Notes may be tendered only in integral
multiples of $1,000.
FOR A DISCUSSION OF CERTAIN OTHER CONSIDERATIONS RELEVANT TO AN INVESTMENT IN
THE NEW NOTES, SEE "RISK FACTORS."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-----------
The date of this Prospectus is , 1997.
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.
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement relating to the New Notes offered
hereby (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act. This Prospectus does not
contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information, reference is hereby
made to the Registration Statement. Statements made in this Prospectus as to
the contents of any contract, agreement or other document referred to are not
necessarily complete. With respect to each such contract, agreement or other
document filed as an Exhibit to the Registration Statement, reference is made
to such exhibit for a more complete description thereof, and each such
statement shall be deemed qualified in its entirety by such reference. The
Registration Statement and the exhibits and schedules thereto may be inspected
without charge and copied at prescribed rates at the Public Reference Section
of the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the Commission's regional offices at 7 World Trade Center, Suite 1300,
New York, NY 10048 and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661.
The Company is required under the terms of the indenture governing the New
Notes and the Old Notes (the "Indenture") to file with the Commission and
furnish, without cost, to the Holders of New Notes and Old Notes the annual,
quarterly and other reports that the Company would be required to file with
the Commission pursuant to Section 13(a), 13(c) or 15(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), if the Company had
equity securities registered under the Exchange Act. Such information includes
annual reports containing consolidated financial statements and notes thereto,
together with an opinion thereon expressed by an independent public accounting
firm, management's discussion and analysis of financial condition and results
of operations, as well as quarterly reports containing unaudited consolidated
financial statements for the first three quarters of each calendar year. The
Company is also required to make such reports available to prospective
purchasers of the New Notes and the Old Notes, and to securities analysts and
broker-dealers upon their request. In addition, the Company has agreed to
furnish to holders of the Old Notes and prospective purchasers of the Old
Notes designated by the Initial Purchaser, upon their request, the information
required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act,
with respect to the Old Notes, until such time as the Company has either
exchanged the Old Notes for the New Notes or has registered the Old Notes for
resale under the Securities Act pursuant to a shelf registration statement and
such shelf registration statement has remained effective for a period of two
years.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
STATER BROS. HOLDINGS INC., 21700 BARTON ROAD, COLTON, CALIFORNIA 92324,
TELEPHONE NUMBER (909) 783-5000, ATTN: DENNIS BEAL. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY , 1997.
----------------
2
<PAGE>
Based on an interpretation by the staff of the Commission set forth in no-
action letters issued to third parties, the Company believes that New Notes
issued pursuant to the Offer in exchange for Old Notes may be offered for
resale, resold, and otherwise transferred by a holder thereof (other than, (i)
a broker-dealer who purchases such New Notes directly from the Company to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) a person that is an affiliate of the Company within the
meaning of Rule 405 under the Securities Act), without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that the holder is acquiring the New Notes in its ordinary course of
business and is not participating, and has no arrangement or understanding
with any person to participate, in the distribution of the New Notes and
provided, further that a broker-dealer who holds Old Notes that were acquired
for its own account as a result of market-making or other trading activities
may be deemed to be an "underwriter" within the meaning of the Securities Act
and must, therefore, deliver a prospectus meeting the requirements of the
Securities Act in connection with any resales of the New Notes received by the
broker-dealer in the Offer. If any other Holder is deemed to be an
"underwriter" within the meaning of the Securities Act or acquires New Notes
in the Offer for the purpose of distributing or participating in a
distribution of the New Notes, such holder must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
a secondary resale transaction, unless an exemption from registration is
otherwise available. Eligible Holders wishing to accept the Offer must
represent to the Company, as required by the Registration Rights Agreement,
that such conditions have been and will be met. See "The Offer--Purpose of the
Offer" and "The Offer--Resales of New Notes."
Each broker-dealer that receives New Notes for its own account pursuant to
the Offer (a "Participating Broker") must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus,
as it may be amended or supplemented from time to time, may be used by a
Participating Broker in connection with any resale of New Notes received in
exchange for Old Notes where such Old Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that for a period of 180 days from the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any Participating Broker
for use in connection with any such resale. In addition, until , 1997 (90
days from the date of this Prospectus), all dealers effecting transactions in
the New Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by any Participating Broker may be sold
from time to time in one or more transactions in the over-the-counter market,
in negotiated transactions, through the writing of options on the New Notes or
a combination of such methods of resale, at market prices prevailing at the
time of resale, at prices related to such prevailing market prices or
negotiated prices. Any such resale may be made directly to purchasers or to or
through brokers or dealers who may receive compensation in the form of
commissions or concessions from any such broker-dealer and/or the purchasers
of any such New Notes. Any Participating Broker that resells New Notes that
were received by it for its own account pursuant to the Offer and any broker
or dealer that participates in a distribution of such New Notes may be deemed
to be an "underwriter" within the meaning of the Securities Act and any profit
on any such resale of New Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal (defined below) states that by
acknowledging that it will deliver, and by delivering, a prospectus as
required, a Participating Broker will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of 180 days from the Expiration Date, the Company will send a
reasonable number of additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any Participating Broker that requests such
documents in the Letter of Transmittal. The Company will pay all the expenses
incident to the Offer (which shall not include the expenses of any holder in
connection with resales of the New Notes). The Company has agreed to indemnify
holders of the New Notes, including any Participating Broker, against certain
liabilities, including liabilities under the Securities Act.
3
<PAGE>
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the more
detailed information and Selected Consolidated Financial Data and consolidated
financial statements, including the notes thereto, appearing elsewhere in this
Prospectus (this "Prospectus"). As used herein, the "Company" or "Stater Bros."
refers to Stater Bros. Holdings Inc. and its wholly owned subsidiaries, Stater
Bros. Markets and Stater Bros. Development, Inc., unless the context otherwise
indicates.
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for forward-looking statements. Certain information contained in this
Prospectus (as well as information included in oral statements or other written
statements made or to be made by the Company) contains statements that are
forward-looking, such as statements relating to plans for future activities.
Such forward-looking information involves important risks and uncertainties
that could significantly affect results in the future and, accordingly, such
results may differ from those expressed in any forward-looking statements made
by or on behalf of the Company. In addition to the risks and uncertainties
discussed elsewhere herein, these risks and uncertainties include, but are not
limited to, those relating to domestic economic conditions, seasonal and
weather fluctuations, expansion and other activities of competitors, changes in
federal or state laws and the administration of such laws and the general
condition of the economy and its effect on the securities markets.
THE COMPANY
Stater Bros., founded in 1936, is a leading Southern California supermarket
chain, operating 110 stores located principally in the Inland Empire, one of
the fastest growing areas in the United States. The Company is recognized as a
low price leader in the Inland Empire and its supermarkets offer a high level
of customer service, a broad selection of brand-name merchandise, and quality
meats and produce. Stater Bros. supermarkets also offer specialty service
departments which include full service meat departments, bakeries and
delicatessens. Stater Bros., with sales of more than $1.7 billion for the
fiscal year ended September 29, 1996, is the largest supermarket chain in its
primary market area.
Approximately 80% of the Company's stores are located in the Inland Empire
region of Southern California. The Inland Empire is comprised primarily of
Riverside and San Bernardino counties, and also includes portions of Orange,
Kern and Los Angeles counties. Riverside and San Bernardino counties encompass
more than 29,000 square miles. Since 1980, this region has been one of the
fastest growing areas in the country. Between 1990 and 1996, the Riverside/San
Bernardino area increased in population by approximately 13%, reaching a
combined population of approximately three million people in 1996.
The Company believes that its 60 years of continuous operations in the Inland
Empire, its commitment to maintain "everyday low prices" and the involvement of
many members of its management in the communities it serves have contributed
significantly to the Company's leading market position. In order to increase
revenues and earnings, the Company has adopted an operating strategy to (i)
continue to maintain its "everyday low price" philosophy, (ii) offer its
customers quality products and breadth of selection combined with a high level
of customer service, and (iii) enhance margins through a variety of
merchandising strategies and cost control measures.
The Company has an experienced management team led by Jack H. Brown, its
Chairman, President and Chief Executive Officer, who has 45 years of experience
in the supermarket industry and has occupied his current position since 1981.
The five members of the Company's senior management team have an average of 38
years of experience in the supermarket industry and an average of 18 years with
Stater Bros.
Stater Bros. Holdings Inc. was incorporated under the laws of Delaware in May
1989. The principal executive offices of the Company are located at 21700
Barton Road, Colton, California 92324, and its telephone number is (909) 783-
5000.
4
<PAGE>
On July 24, 1997, in a private placement transaction, the Company issued and
sold $100,000,000 principal amount of the Old Notes. The Company is making the
Offer to satisfy its obligations under the Registration Rights Agreement, which
requires the Company to use its best efforts to effect the Offer. The Company
will not receive any additional proceeds from the offering of the New Notes.
SIGNIFICANT RECENT DEVELOPMENTS
In March 1994, the Company completed a recapitalization transaction (the
"1994 Recapitalization") which transferred effective voting control of the
Company to La Cadena Investments, a California general partnership ("La
Cadena"), reclassified the Company's outstanding equity, provided for certain
cash payments and distributions to Craig Corporation, a Delaware corporation
("Craig"), previously a common shareholder of the Company and the holder of
Series B Preferred Stock (as defined below), and provided the Company with an
option to acquire Craig's remaining equity interests in the Company. The 1994
Recapitalization was funded through an offering of $165.0 million of the 11%
Senior Notes which are listed and trade on the American Stock Exchange.
Since the 1994 Recapitalization, the Company has significantly improved its
financial performance. Sales have increased from $1.526 billion in fiscal year
1993 to $1.705 billion in fiscal year 1996, a compound annual growth rate of
approximately 3.8%; EBITDA has increased from $30.3 million in fiscal year 1993
to $60.0 million in fiscal year 1996, a compound annual growth rate of
approximately 25.5%; EBITDA as a percentage of sales has increased from 1.99%
in fiscal year 1993 to 3.52% in fiscal year 1996; and operating profit has
increased from $19.9 million in fiscal year 1993 to $47.3 million in fiscal
year 1996, a compound annual growth rate of approximately 33.5%.
On July 24, 1997, concurrently with the sale of the Old Notes, the Company
gave notice of exercise of its option to redeem all outstanding shares of the
Company's Series B Preferred Stock to Reading Australia PTY Limited
("Reading"), a majority owned indirect subsidiary of Craig. On July 31, 1997,
the Company also gave notice to terminate a five-year consulting agreement with
Craig (the "Consulting Agreement") that was entered into in connection with the
1994 Recapitalization. Annual fees payable to Craig under the Consulting
Agreement were $1.5 million per year. Such termination became effective as of
July 31, 1997.
The Company received on July 24, 1997 the net proceeds from the sale of the
Old Notes in the total sum of $97.1 million. The Company used or will use such
net proceeds as follows: (i) $69.4 million to redeem all outstanding shares of
its Series B Preferred Stock; (ii) approximately $4.6 million to pay accrued
and unpaid dividends on the Series B Preferred Stock to Reading; (iii) $2.0
million to pay a financial advisory fee to La Cadena; (iv) $5.7 million to pay
related fees and expenses; and (v) $15.4 million for general corporate
purposes, including capital expenditures. On August 4, 1997, the Company
deposited approximately $74.0 million into an Escrow account for the benefit of
Reading Australia PTY Limited, the amounts required to redeem the Series B
Preferred Stock and to pay accrued and unpaid dividends up to and including
August 4, 1997.
The Company and another Southern California supermarket company, Hughes
Markets, Inc. ("Hughes"), a subsidiary of Quality Food Centers, Inc., each owns
a 50% interest in Santee Dairies, Inc. ("Santee Inc.") which operates one of
the largest dairy plants in California and provides fluid milk products to the
Company, Hughes, and other customers in Southern California. Both Stater and
Hughes contributed their equity interests in Santee Dairies, Inc. to Santee
Dairies, LLC ("Santee LLC") on July 30, 1997. As used herein, "Santee" refers
to Santee LLC and Santee Inc., unless the context otherwise indicates. Santee
is currently in the process of constructing a new dairy plant in the City of
Industry, California, which is expected to be operational in March 1998. The
Company and Hughes have each entered into a requirements contract with Santee
by which they will agree to purchase specified minimum amounts of fluid milk
from Santee at prices and on terms sufficient to cover Santee's costs and to
enable Santee to comply with debt service and fixed charge coverage ratios
applicable to it under the terms of the $80 million note issuance of Santee for
the purpose of the construction of a new dairy plant in the City of Industry,
California (the "Santee Financing").
5
<PAGE>
The Company completed the solicitation of consents to amendments to the
indenture (the "Consent Solicitation") which governs the 11% Senior Notes (as
amended through the amendment under the Consent Solicitation, the "Senior Note
Indenture"). The covenants in the Senior Note Indenture were amended to permit
the sale and issuance of the Old Notes and to conform to the covenants in the
Old Notes, except as described herein. See "Description of the 11% Senior
Notes."
The Company anticipates that the issuance of the Old Notes, the redemption of
the Series B Preferred Stock and the adoption of the amendments to the Senior
Note Indenture will provide it with several benefits, including the following:
(i) the redemption of the Series B Preferred Stock with a portion of the
proceeds of the Old Notes will provide a lower stated rate and the
deductibility of interest expense for tax purposes, (ii) the termination of the
Craig Consulting Agreement initially will save the Company $1.5 million per
year, (iii) the issuance of the Old Notes will provide the Company with
additional capital for growth, and (iv) certain amendments to the Senior Note
Indenture pertaining to Santee will provide the Company with greater
flexibility to enhance and protect its investment in Santee. The transactions
described above provided approximately $15.4 million in additional cash to the
Company, and the Company believes that the changes in (i) and (ii) will
initially increase the Company's after-tax cash flow by approximately $3.4
million per year.
6
<PAGE>
THE EXCHANGE OFFER
Securities Offered.......... Up to $100,000,000 aggregate principal amount of
9% Senior Subordinated Notes Due 2004 (the "New
Notes").
The Offer................... The New Notes are being offered in exchange for a
like principal amount of the Company's privately
placed 9% Senior Subordinated Notes Due 2004 (the
"Old Notes"). Old Notes may be exchanged only in
integral multiples of $1,000. The issuance of the
New Notes is intended to satisfy the obligations
of the Company under the terms of the
Registration Rights Agreement. The New Notes will
be substantially identical to the Old Notes
except that the New Notes will be registered
under the Securities Act.
Tenders; Expiration; Date;
Withdrawal.................. The Offer shall expire at 5:00 P.M. New York City
time on , 1997 or such later date to
which it is extended by the Company (the
"Expiration Date"). Old Notes tendered pursuant
to the Offer and the Letter of Transmittal
delivered herewith may not be withdrawn.
Accrued Interest on the New
Notes....................... The New Notes will bear interest from and
including the date of issuance of the Old Notes.
Accordingly, holders who receive New Notes in
exchange for Old Notes will forego accrued but
unpaid interest on their exchanged Old Notes for
the period from and including the date of
issuance of the Old Notes to the date of
exchange, but will be entitled to such interest
under the New Notes.
Conditions of the Exchange
Offer....................... The Offer is subject to certain customary
conditions, any or all of which may be waived by
the Company. See "The Offer--Conditions to the
Offer."
Procedures for Tendering
Old Notes................... Each Holder wishing to accept the Offer must
complete and sign the Letter of Transmittal, in
accordance with the instructions contained
therein and submit the Letter of Transmittal to
the Exchange Agent identified below. See "The
Offer--Procedures for Tendering."
Guaranteed Delivery
Procedures.................. Holders of Old Notes who wish to tender their Old
Notes and whose Old Notes are not immediately
available or who cannot deliver their Old Notes
and Letter of Transmittal or any other documents
required by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date, must
tender their Old Notes according to the
guaranteed delivery procedures set forth in "The
Offer--Guaranteed Delivery Procedures."
Acceptance of Old Notes and
Delivery of New Notes...... The Company will accept for exchange any and all
Old Notes which are properly tendered in the
Offer prior to 5:00 P.M., New York City time, on
the Expiration Date. The New Notes issued
pursuant to the Offer will be delivered promptly
following the Expiration Date. See "The Offer--
Acceptance of Old Notes for Exchange; Delivery of
New Notes."
Certain Federal Income Tax
Consequences............... Exchanges of Old Notes for New Notes pursuant to
the Offer should be treated as a modification of
the Old Notes that does not constitute
7
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a material change in their terms for Federal
income tax purposes. Accordingly, the Holder
would not recognize any gain or loss, and his
basis in the New Note would be the same as his
basis in the Old Note. The Offer will result in
no federal income tax consequences to a
nonexchanging holder. See "Certain Federal Income
Tax Consequences."
Rights of Dissenting
Noteholders................. Holders of Old Notes do not have any appraisal or
dissenters' rights under the Delaware Corporation
Law in connection with the Offer.
Federal and State
Regulatory Requirements.... Other than compliance with state securities or
"blue sky" laws, there are no federal or state
regulatory requirements that must be met prior to
the consummation of the transaction.
Exchange Agent.............. First Trust of New York, c/o First Trust National
Association, Bondholder Services; telephone 1-
800-934-6802. See "The Offer--Exchange Agent."
RISK FACTORS
Prospective purchasers of New Notes offered hereby should consider the
information set forth under "Risk Factors," as well as the other information
set forth in this Prospectus.
TERMS OF THE NEW NOTES
Comparison with Old Notes... It is expected that the New Notes will be freely
transferable under the Securities Act by Holders
who are not affiliates of the Company, who
acquire the New Notes in the ordinary course of
business and who are not engaged in a
distribution of the New Notes, subject to any
restrictions on transfer imposed by state "blue
sky" laws and those described in "The Offer--
Resales of New Notes." The Holders of Old Notes
currently are entitled to certain registration
rights pursuant to the Registration Rights
Agreement. Consummation of the Offer will satisfy
the Company's obligations thereunder, and Holders
of Old Notes who do not exchange their Old Notes
for New Notes will no longer be entitled to any
registration rights and will not be able to
reoffer, resell or otherwise dispose of their Old
Notes, unless they are subsequently registered
under the Securities Act, which the Company will
have no obligation to do, or unless an exemption
from the registration requirements of the
Securities Act is available. See "The Offer --
Purpose of the Offer." The New Notes otherwise
will be substantially identical in all respects
to the Old Notes.
Holders of New Notes and Old Notes, together,
will have the voting and other rights described
herein.
Maturity Date............... July 1, 2004
Interest Rate............... 9% per annum
Interest Payment Dates...... January 1 and July 1, commencing January 1, 1998.
Change of Control........... In the event of a Change of Control (as defined),
the Company will be required, subject to certain
conditions, to make an offer to
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purchase all of the outstanding New Notes at a
purchase price equal to 101% of the aggregate
principal amount of the New Notes plus accrued
and unpaid interest thereon to the date of
purchase. The Company's ability to repurchase the
New Notes upon a Change of Control would likely
require additional financing and may be
restricted by future agreements regarding
Indebtedness (as defined) See "Description of the
New Notes--Change of Control."
Form of New Notes........... Except as provided below, the New Notes will be
in the form of a global note (the "Global Note"),
which will be deposited with, or on behalf of,
The Depository Trust Company, as depositary (the
"Depositary"), and registered in its name or in
the name of Cede & Co., the nominee of the
Depositary. Beneficial interests in the Global
Note representing the New Notes will be shown on,
and transfers thereof will be effected only
through, records maintained by the Depositary and
its participants. Notwithstanding the foregoing,
any purchaser that is not a "Qualified
Institutional Buyer" under Rule 144A under the
Securities Act, will receive the New Notes in
certificated form and will not be able to trade
such securities through the Depositary until the
New Notes are resold to a Qualified Institutional
Buyer. After the initial issuance of the Global
Note, New Notes in certificated form will be
issued in exchange for the Global Note as set
forth in the Indenture. See "Description of New
Notes--Form of New Notes."
Subordination............... The New Notes will be general unsecured
obligations of the Company, subordinated in right
of payment to the 11% Senior Notes and all other
present and future Senior Indebtedness of the
Company including the Company's obligations under
the Revolving Credit Facility and are effectively
subordinated to all Indebtedness and other
obligations of the Subsidiaries. As of June 29,
1997, after giving effect to the issuance and
sale of the Old Notes and the application of the
net proceeds therefrom, the aggregate amount of
outstanding Indebtedness (excluding trade and
construction payables) of the Company and its
Subsidiaries was $272.2 million, of which
approximately $165.0 million constituted Senior
Indebtedness and $7.2 million constituted
Indebtedness of the Subsidiaries. The Company has
no Indebtedness outstanding to which the New
Notes are senior, and the Company has no plans to
issue any such Indebtedness.
Certain Covenants........... The indenture pursuant to which the New Notes
will be issued (the "Indenture") will, among
other things, limit the ability of the Company
and its Subsidiaries other than Unrestricted
Subsidiaries to: incur additional indebtedness;
make certain restricted payments; make certain
investments; grant liens on assets; sell assets;
enter into transactions with Related Persons;
issue Capital Stock of Subsidiaries; and merge,
consolidate or transfer substantially all of
their assets.
For more complete information regarding the New
Notes, see "Description of the New Notes."
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RISK FACTORS
Prospective investors should consider, in addition to the information
contained in this Prospectus, including the Company's consolidated financial
statements and notes thereto, the following risk factors before making an
investment in the Notes.
LEVERAGE AND DEBT SERVICE
As a result of the redemption of the Series B Preferred Stock and the
issuance and sale of the Old Notes, the Company and its Subsidiaries are
highly leveraged. On a pro forma basis, giving effect to such transactions,
the Company would have had total indebtedness of $272.2 million and
stockholders' deficit of approximately $36.7 million as of June 29, 1997. The
indentures governing the Notes and the 11% Senior Notes as well as the
revolving credit facilities of the Company or any Subsidiary (or any
replacement facilities) (the "Revolving Credit Facility"), will contain
financial and other covenants that restrict, among other things, the ability
of the Company and its Subsidiaries to incur additional indebtedness, create
liens upon assets, pay dividends on or repurchase shares of capital stock, and
make certain loans, investments or guarantees. Such leverage and restrictions
may limit the Company's ability to respond to changing business and economic
conditions and to finance its future operations or capital needs, including
the Company's ability to achieve its plans to remodel and expand existing
supermarkets and open new supermarkets. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources" and "Description of the New Notes."
Required payments of principal and interest on the Company's long-term debt
are expected to be financed from cash flow from operations and debt
financings. The Company's future performance and ability to generate
sufficient cash to meet its obligations are subject to prevailing economic
conditions, competition and other factors, some of which are beyond the
control of the Company. There can be no assurance that cash flow from
operations will be sufficient to enable the Company to service its debt and
meet its other obligations.
GEOGRAPHIC CONCENTRATION AND THE INLAND EMPIRE ECONOMY
The Company's supermarkets are located principally in the Inland Empire of
Southern California. As a result of this geographic concentration, the
Company's growth and operations depend upon economic conditions in the Inland
Empire. Any adverse change in the local economy could have a material adverse
effect on the Company.
CHANGE OF CONTROL OFFERS
Upon a Change of Control (as defined), the Company is required under the
Indenture to make a Change of Control Offer (as defined) to purchase the Old
Notes and the New Notes (collectively, the "Notes") at a price equal to 101%
of the principal balance thereof, plus accrued and unpaid interest thereon, if
any. The 11% Senior Notes contain the same change of control provision as the
Old Notes. In the event that the Company were required to purchase outstanding
Notes and the 11% Senior Notes pursuant to a Change of Control Offer, the
Company would need to seek third-party financing to the extent it does not
have available funds to meet its purchase obligations. There can be no
assurance that the Company would be able to obtain such financing or, if
obtained, that it would be on favorable terms. See "Description of the New
Notes--Change of Control."
HOLDING COMPANY STRUCTURE; POTENTIAL CHANGE OF CONTROL OF SUBSIDIARY
The Company's ability to make required principal and interest payments with
respect to the Company's Indebtedness, including the Notes, depends upon the
earnings of its principal operating subsidiary, Stater Bros. Markets, and the
Company's ability to receive funds from Stater Bros. Markets through dividends
and other payments. Legal restrictions on the payment of dividends may impair
the ability of Stater Bros. Markets to make
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funds available to the Company for payments upon the Notes. In addition, the
Revolving Credit Facility of Stater Bros. Markets contains covenants
restricting its ability to pay dividends and make advances to the Company.
Stater Bros. Markets is not obligated or required to pay any amounts due
pursuant to the Notes or to make funds available therefor in the form of
dividends or advances to the Company. The Notes are effectively subordinated
to all existing and future liabilities and the outstanding shares of preferred
stock, if any, of Stater Bros. Markets and the Company's other Subsidiaries.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Liquidity and Capital Resources."
In 1983, in connection with the guaranty of certain Stater Bros. Markets
leases by a corporation that was later acquired by Texas Eastern Corporation
("Texas Eastern"), Stater Bros. Markets issued certain shares of its $11.00
Cumulative Preferred Stock ("Markets Preferred Stock"), ten shares of which
are still outstanding and held by Texas Eastern. In the event of a violation
of certain provisions of the Markets Preferred Stock, subject to the terms and
provisions of the Markets Preferred Stock, the holder(s) of such preferred
stock would have the right to elect all the directors of Stater Bros. Markets.
Those provisions, among other things, prohibit Stater Bros. Markets from (i)
merging with any person; (ii) breaching in any material respect any of its
obligations under any indebtedness for borrowed money; (iii) breaching in any
material respect any of its obligations under certain contracts or leases;
(iv) selling or encumbering all or substantially all of the property and
assets of the corporation; or (v) guaranteeing or becoming liable with respect
to certain indebtedness; in each case without the consent of the holder of the
Markets Preferred Stock, which consent may not be withheld unreasonably.
CERTAIN INSOLVENCY CONSIDERATIONS
Under applicable provisions of federal bankruptcy law and comparable
provisions of state fraudulent transfer law, if at the time the Company
incurred the Old Notes, the Company (a) (i) was insolvent or rendered
insolvent by reason of such incurrence, or (ii) was engaged in a business or
transaction for which its remaining assets constituted unreasonably small
capital, or (iii) intended to incur, or believed that it would incur, debts
beyond its ability to pay such debts as they mature or (iv) was a defendant in
an action for money damages, or had a judgment for money damages docketed
against it (if, in either case, after final judgment the judgment is
unsatisfied), and (b) received less than reasonably equivalent value or fair
consideration, then a court in a lawsuit by an unpaid creditor or
representative of creditors of the Company, such as a bankruptcy trustee or
the Company as a debtor-in-possession, could avoid the Company's obligations
under the Old Notes and/or the New Notes and direct the return to the Company
or to a fund for the benefit of its creditors of any payments of principal,
premium (if any), and interest made thereunder. Courts have held that certain
payments to stockholders from the proceeds of a debt financing do not
constitute reasonably equivalent value or fair consideration to the Company.
Moreover, regardless of the factors identified in the foregoing clauses (i)
through (iv), such court could avoid such obligations and direct such
repayment if it were to find that the obligations under the Old Notes and/or
the New Notes were incurred with an intent to hinder, delay, or defraud the
Company's creditors.
The measures of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any proceeding with respect to the
foregoing. Generally, however, the Company would be considered insolvent if
the sum of its debts, including contingent liabilities, were greater than the
fair saleable value of all of its assets at a fair valuation or if the present
fair saleable value of its assets were less than the amount that would be
required to pay its probable liability on its existing debts, including
contingent liabilities, as they become absolute and mature.
The Company believes that none of the factors identified in clauses (i)
through (iv) above were present when the Old Notes were issued. Based upon the
foregoing and upon its own analysis of all relevant facts, the Company
believes that the Notes would not be subject to avoidance under fraudulent
transfer laws. There can be no assurance, however, that a court would reach
the same conclusion.
COMPETITION
The Company operates in a highly competitive industry characterized by
narrow profit margins. Competitive factors include price, quality and variety
of products, customer service, store condition and store location. The
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number and type of competitors vary by location and include local, regional
and national grocery retailers as well as convenience stores, specialty food
stores, retail drug stores, national general merchandisers and discount
retailers, membership clubs and warehouse stores. The Company's primary
competitors include Lucky, Vons, Hughes, Albertson's, Ralphs, and a number of
independent supermarket operators. The Company monitors competitive activity
and management regularly reviews the Company's marketing and business strategy
and periodically adjusts them to adapt to changes in the Company's primary
trading area. The Company's cash flow from operations could be adversely
affected by certain product mix and pricing changes made in response to
competition from existing or new competitors. See "Business--Competition."
DEPENDENCE ON KEY PERSONNEL
The Company believes that its success is largely dependent upon the efforts
and experience of its senior management team led by its Chairman, President
and Chief Executive Officer, Jack H. Brown and certain key managers. The loss
of the services of Mr. Brown and key managers could have a material adverse
effect on the Company's cash flow from operations. Jack H. Brown has a
majority interest in and is the managing general partner of La Cadena
Investments, a general partnership which will be the Company's sole
stockholder upon redemption of the Series B Preferred Stock.
RISKS RELATED TO SANTEE
In connection with the construction by Santee of its new facility in the
City of Industry, the Company and Hughes each have entered into a requirements
contract (the "Product Purchase Agreement") with Santee. The Company's Product
Purchase Agreement requires the Company to purchase, and Santee to supply,
minimum requirements of products to be produced by the new dairy. The unit
price for products sold to the Company under the Product Purchase Agreement
reflects Santee's costs (both direct and indirect) of producing such products,
and is established at levels sufficient to enable Santee to comply with debt
service and fixed charge coverage ratios applicable to it under the Santee
Financing. The prices payable by the Company for milk and other fluid products
under the Company's Product Purchase Agreement are anticipated to be below the
prices which could otherwise be obtained for similar products. However, each
of Hughes and the Company is required to pay increased prices to the extent
necessary to reflect Santee's actual costs of production and maintain Santee's
debt service coverage ratio and fixed charge coverage ratio at or above levels
specified under the terms of the Santee Financing. Accordingly, prices payable
by the Company will be affected by Santee's success in recovering fixed costs
and overhead through sales to third parties unaffiliated with the Company or
Hughes, as well as Santee's ability to operate in accordance with projected
results of operations. As a result, there can be no assurance that the prices
paid by the Company to Santee will not increase, perhaps substantially, which
could have a material adverse effect on the Company.
The obligations of Santee under the Santee Financing are secured by, among
other things, all of the equity interests in Santee Inc., the rights of Santee
with respect to each Product Purchase Agreement, certain additional personal
property of Santee Inc., and substantially all of the real property relating
to the new dairy. The Santee Financing contains customary events of default,
in addition to events of default triggered by the acceleration of debt of
Hughes or certain Hughes affiliates, acceleration of debt of the Company, and
a default under certain provisions of the Product Purchase Agreements. Any
such default could result in increased prices for products and/or in the
acceleration of Santee's payment obligations under the Santee Financing and
the loss of the Company's investment in Santee. As a result, the availability
and price of fluid milk products to the Company, and the value of the
Company's investment in Santee, could be adversely affected by events
involving Hughes or its affiliates, over which the Company has no control.
There can be no assurance that the new dairy ultimately will be completed on
a timely basis or for the amount currently budgeted, that Santee will not
experience delays or difficulties in the completion of construction or the
commencement of operations at the new dairy or that the new dairy will perform
in accordance with expectations. Any such failure to so complete or perform
could materially adversely affect the Company. In
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addition, the Company and Hughes have covenanted to cause the completion of
the new dairy, as well as to provide additional funds to Santee to the extent
necessary to complete the new dairy; provided, however, that the Company's
obligations described in this sentence are subject in all respects to the
terms of the Senior Note Indenture. Also, the Company may need to make capital
investments in Santee generally to protect its investment. The Company may
need to seek third-party financing to the extent it does not have available
funds for such capital contributions and investments. There can be no
assurance, however, that the Company would be able to obtain such financing or
that, if available, it would be available on favorable terms. Additionally,
the Company is not permitted to make such investments in Santee under the
terms of the Bank Credit Agreement, unless such Agreement is amended.
Santee will be restricted by the terms of the Santee Financing from making
dividend payments on its capital stock which restriction could materially
adversely impact the Company's access to such investment amounts once made.
LABOR RELATIONS
Substantially all of the Company's employees are represented by either the
United Food & Commercial Workers International Union or International
Brotherhood of Teamsters. The Company's unionized employees are covered by
several collective bargaining agreements. Of the Company's major collective
bargaining agreements, the United Food & Commercial Workers International
Union contract, which covers the largest number of employees, was recently
renewed and expires in October 1999. The Company's collective bargaining
agreement with the International Brotherhood of Teamsters was renewed in
September 1994 and expires in September 1998. Management believes it has good
relations with its employees. While the Company believes that relations with
its employees are good, a prolonged labor dispute could have a material
adverse effect on the Company's cash flow from operations. Twelve employees
recently filed a lawsuit against the Company alleging racial discrimination in
the Company's employment practices. See "Business--Legal Proceedings."
SUBORDINATION
The Company conducts substantially all of its operations through its wholly
owned subsidiaries, Stater Bros. Markets and Stater Bros. Development, Inc.
The Company is dependent on the earnings and cash flow of its Subsidiaries to
meet its debt obligations, including its obligations with respect to the 11%
Senior Notes and the Notes. Because the assets of the Company's Subsidiaries
constitute all of the operating assets of the Company, and because the
Subsidiaries do not guaranty the payment of principal and interest on the
Notes, the Holders of the Notes will have no direct claim to the assets of the
Company's Subsidiaries, and, as a result, all existing and future obligations
(including debt, taxes, trade and construction payables) of the Company's
Subsidiaries must be paid in full before amounts, if any, would become
available for distribution to the Holders. As of June 29, 1997, after giving
effect to the issuance and sale of the Old Notes and application of the net
proceeds therefrom, the aggregate amount of outstanding Indebtedness
(excluding trade and construction payables) of the Company and its
Subsidiaries was $272.2 million, of which approximately $165.0 million
constituted Senior Indebtedness and $7.2 million constituted Indebtedness of
the Subsidiaries.
The Notes are subordinated to all existing and future Senior Indebtedness of
the Company. Except for limitations on the aggregate amount of consolidated
indebtedness that the Company may incur, the Indenture does not limit the
ability of the Company to incur additional Senior Indebtedness or transfer
assets to or among its Subsidiaries (other than Unrestricted Subsidiaries). In
the event of bankruptcy, liquidation or reorganization of the Company, the
assets of the Company will be available to make payments on the Old Notes
and/or the New Notes only after all Senior Indebtedness of the Company has
been paid in full, and there may not be sufficient assets remaining to pay
amounts due on the Old Notes and/or the New Notes. Under certain
circumstances, holders of the Senior Indebtedness of the Company may block
payments on the Old Notes and/or the New Notes. In addition, in the event of
any distribution or payment of the assets of the Company in any
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foreclosure, dissolution, winding-up, liquidation or reorganization, holders
of Senior Indebtedness will have a prior claim to the assets of the Company
and to the assets of its Subsidiaries which constitute their collateral, if
any.
In the event of a Change of Control, each Holder of the Old Notes and/or the
New Notes will have the right to require the Company to repurchase such
Holder's Senior Subordinated Notes at 101%, plus accrued interest. Such right
is subordinated to the rights of the holders of Senior Indebtedness and,
effectively, all indebtedness of the Company's Subsidiaries. These
requirements and subordination of the Notes will limit the ability of the
Company to repurchase the Notes. The Senior Note Indenture has change of
control provisions substantially similar to the Indenture's provisions. See
"Description of the New Notes--Change of Control."
ABSENCE OF ESTABLISHED PUBLIC MARKET
Although the Old Notes and the New Notes are eligible for trading in the
PORTAL market, and the New Notes are approved for listing on the American
Stock Exchange (subject to official notice of issuance), there currently is no
established trading market for the New Notes, and the Company has taken no
steps and does not intend to take steps to facilitate any public trading
market for the New Notes. Therefore, there can be no assurance that an active
public market for the New Notes will develop or, if developed, will continue
to exist. If a public trading market develops for the New Notes, future
trading prices of the New Notes will depend on many factors, including, among
other things, prevailing interest rates, the Company's results of operations
and the market for similar securities. Depending upon such factors, the New
Notes may trade at a discount from their principal amount.
FEDERAL INCOME TAX CONSESQUENCES
The exchange of Old Notes for New Notes pursuant to the Offer may be treated
as a taxable exchange for federal income tax purposes, possibly resulting in
the recognition of gain or additional interest income by the holder of such
notes or a change in the timing or character of income of the holder of such
notes. See "Certain Federal Income Tax Consequences."
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THE OFFER
PURPOSE OF THE OFFER
The Offer is designed to provide Holders of Old Notes with an opportunity to
acquire New Notes which, unlike the Old Notes, will be freely tradable at all
times, subject to any restrictions on transfer imposed by state "blue sky"
laws; provided that the Holder is not an affiliate of the Company within the
meaning of the Securities Act and represents that the New Notes are being
acquired in the ordinary course of such Holder's business and the Holder is
not engaged in, and does not intend to engage in, a distribution of the New
Notes. The outstanding Old Notes in the aggregate principal amount of $100
million were originally issued and sold on July 24, 1997 in order to provide
financing for, among other things, the redemption of the Series B Preferred
Stock, for the payment of accrued and unpaid dividends on the Series B
Preferred Stock to Reading Australia PTY Limited and a financial advisory fee
to La Cadena Investments and for working capital and general corporate
purposes. The original sale to the Initial Purchaser was not registered under
the Securities Act in reliance upon the exemption provided by Section 4(2) of
the Securities Act and the concurrent resale of the Old Notes to investors was
not registered under the Securities Act in reliance upon the exemption
provided by Rule 144A promulgated under the Securities Act. The Old Notes may
not be reoffered, resold, or transferred other than pursuant to a registration
statement filed pursuant to the Securities Act or unless an exemption from the
registration requirements of the Securities Act is available. Pursuant to Rule
144 promulgated under the Securities Act, Old Notes may generally be resold
commencing two years after the date of original issuance, in any amount and
otherwise without restriction by a Holder who is not, and has not been for the
preceding three months, an affiliate of the Company. The Old Notes are
eligible for trading in the Private Offerings, Resales and Trading through
Automated Linkages Market ("PORTAL"), and may be resold to certain Qualified
Institutional Buyers pursuant to Rule 144A promulgated under the Securities
Act. Certain other exemptions may also be available under other provisions of
the federal securities laws and the resale of the Old Notes.
In connection with the original sale of the Old Notes, the Company entered
into the Registration Rights Agreement, pursuant to which it agreed to file
with the Commission a registration statement covering the exchange by the
Company of New Notes for the Old Notes in a transaction designed to provide
Holders with identical New Notes that, with certain limitations, will be
freely tradable. The Registration Rights Agreement provides that the Company
must use its best efforts to file within 30 days and cause the filing to
become effective within 120 days of the date of the filing of a registration
statement with respect to the New Notes. In addition, under certain
circumstances the Company may be required to file a shelf registration
statement covering the Old Notes and to use its best efforts to cause such
registration statement to be declared effective. In the event that the Offer
is not filed by the 30th calendar day or is not declared effective by the
120th calendar day following the date of the filing of the registration
statement or in the event the Offer is not consummated within 30 days after
the registration statement with respect to the New Notes is declared effective
or the shelf registration, if required, is not declared effective prior to the
120th calendar day following the original issue of the Old Notes or if the
registration statement ceases to be effective at any time prior to the
consummation of the Offer, the interest rate borne by the Old Notes shall be
increased by one-half of one percent per annum following such 30-day or 120-
day period, as applicable. Such interest rate will be reduced to the original
rate upon satisfaction of the Company's obligations with respect to the Offer
or the shelf registration statement, as applicable.
The staff of the Commission has issued certain interpretive letters that
concluded, in circumstances similar to those contemplated by the Offer, that
new debt securities issued in a registered exchange for outstanding debt
securities, which new securities are intended to be substantially identical to
the securities for which they are exchanged, may be offered for resale, resold
and otherwise transferred by the holders thereof (other than any holder that
is an affiliate of the issuer or a broker-dealer) without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that the new securities are acquired in the ordinary course of such
holders' business and such holders have no arrangement with any person to
participate in the distribution of the new securities. See "The Offer--Resales
of New Notes." The Company has not requested or obtained an interpretive
letter from the Commission staff with respect to this Offer, and the Company
and the Holders are not entitled to rely on interpretive advice provided by
the staff to other persons, which advice was based on the facts and conditions
represented in such letters. However, the Offer is being conducted in a manner
intended to
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<PAGE>
be consistent with the facts and conditions represented in such letters. If
any Holder has any arrangement or understanding with respect to the
distribution of the New Notes to be acquired pursuant to the Offer, such
Holder (i) could not rely on the applicable interpretations of the staff of
the Commission and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. In addition, each broker-dealer that receives New Notes for its
own account in exchange for the Old Notes, where such Old Notes were acquired
by such broker-dealers as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such New Notes. See "Plan of Distribution." By
delivering the Letter of Transmittal, a Holder tendering Old Notes for
exchange will represent and warrant to the Company that the Holder is
acquiring the New Notes in the ordinary course of its business and that the
Holder is not engaged in, and does not intend to engage in, a distribution of
the New Notes. ANY HOLDER USING THE OFFER TO PARTICIPATE IN A DISTRIBUTION OF
THE NEW NOTES TO BE ACQUIRED IN THE OFFER MUST COMPLY WITH THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH
A SECONDARY RESALE TRANSACTION. HOLDERS WHO DO NOT EXCHANGE THEIR OLD NOTES
PURSUANT TO THIS OFFER WILL CONTINUE TO HOLD OLD NOTES THAT ARE SUBJECT TO
RESTRICTIONS ON TRANSFER.
It is expected that the New Notes will be freely transferable by the Holders
thereof, subject to the limitations described in the immediately preceding
paragraph and in "The Offer--Resales of New Notes." Sales of New Notes
acquired in the Offer by Holders who are "affiliates" of the Company within
the meaning of the Securities Act will be subject to certain limitations on
resale under Rule 144A of the Securities Act. Such persons will only be
entitled to sell New Notes in compliance with the volume limitations set forth
in Rule 144A, and sales of New Notes by affiliates will be subject to certain
Rule 144A requirements as to the manner of sale, notice and the availability
of current public information regarding the Company. The foregoing is a
summary only of Rule 144A as it may apply to affiliates of the Company. Any
such persons must consult their own legal counsel for advice as to any
restrictions that might apply to the resale of their New Notes.
The New Notes otherwise will be identical in all respects (including
interest rate, maturity, security and restrictive covenants) to the Old Notes
for which they may be exchanged pursuant to this Offer.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth herein and in the
accompanying Letter of Transmittal, the Company will exchange $1,000 principal
amount of New Notes for each $1,000 principal amount of its outstanding Old
Notes. New Notes will be issued only in integral multiples of $1,000 to each
tendering Holder of Old Notes whose Old Notes are accepted in the Offer.
The New Notes will bear interest from and including July 24, 1997.
Accordingly, Holders who receive New Notes in exchange for Old Notes will
forego accrued but unpaid interest on their exchanged Old Notes for the period
from and including July 24, 1997 to the date of exchange, but will be entitled
to such interest under the New Notes.
As of July 25, 1997, $100,000,000 aggregate principal amount of Old Notes
was outstanding. This Prospectus and the Letter of Transmittal are being sent
to all registered Holders. Tendering Holders will not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of Old Notes pursuant
to the Offer. The Company will pay all charges and expenses, other than
certain transfer taxes which may be imposed, in connection with the Offer. See
"The Offer--Payment of Expenses" below.
EXPIRATION DATE; EXTENSIONS; TERMINATION
The Offer will expire at 5:00 P.M., New York City time, on , 1997 (the
"Expiration Date"), subject to extension by the Company by notice to the
Exchange Agent as herein provided. The Company reserves
16
<PAGE>
the right to extend the Offer at its discretion, in which event the term
"Expiration Date" shall mean the time and date on which the Offer as so
extended shall expire. The Company shall notify the Exchange Agent of any
extension by oral or written notice and shall mail to the registered holders
of Old Notes an announcement thereof, each prior to 9:00 A.M., New York City
time, on the next business day after the previously scheduled Expiration Date.
The Company reserves the right to extend or terminate the Offer and not
accept for exchange any Old Notes if any of the events set forth below under
"The Offer--Conditions to the Offer" occur and are not waived by the Company,
by giving oral or written notice of such delay or termination to the Exchange
Agent. See "The Offer--Conditions to the Offer." The rights reserved by the
Company in this paragraph are in addition to the Company's rights set forth
below under the caption "The Offer--Conditions to the Offer."
PROCEDURES FOR TENDERING
The acceptance by Holders of the Offer pursuant to one of the procedures set
forth below will constitute an agreement between such Holder and the Company
in accordance with the terms and subject to the conditions set forth herein
and in the Letter of Transmittal.
To be tendered effectively, the Old Notes, together with the properly
completed Letter of Transmittal (or facsimile thereof), executed by the
registered Holder thereof, and any other documents required by the Letter of
Transmittal, must be received by the Exchange Agent at the address set forth
below prior to 5:00 P.M., New York City time, on the Expiration Date. LETTERS
OF TRANSMITTAL AND OLD NOTES SHOULD NOT BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal must be guaranteed unless the Old
Notes tendered pursuant thereto are tendered (i) by a registered Holder of Old
Notes who has not completed the box entitled "Special Issuance and Delivery
Instructions" on the Letter of Transmittal or (ii) for the account of any firm
that is a member of a registered national securities exchange or a member of
the National Association of Securities Dealers, Inc. (the "NASD") or a
commercial bank or trust company having an office in the United States (and
"Eligible Institution"). In the event that signatures on a Letter of
Transmittal are required to be guaranteed, such guarantee must be by an
Eligible Institution.
The method of delivery of Old Notes and other documents to the Exchange
Agent is at the election and risk of the Holder, but if delivery is by mail it
is suggested that the mailing be made sufficiently in advance of the
Expiration Date to permit delivery to the Exchange Agent before the Expiration
Date.
If the Letter of Transmittal is signed by a person other than a registered
Holder of any Old Note tendered therewith, such Old Note must be endorsed or
accompanied by appropriate bond powers, in either case signed exactly as the
name or names of the registered Holder or Holders appear on the Old Note(s).
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Company,
proper evidence satisfactory to the Company of their authority to so act must
be submitted.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of tendered Old Notes will be resolved by the Company,
whose determination will be final and binding. The Company reserves the
absolute right to reject any or all tenders that are not in proper form or the
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any irregularities or
conditions of tender as to particular Old Notes. The Company's interpretation
of the terms and conditions of the Offer (including the instructions in the
Letter of Transmittal) will be final and binding. Unless waived, any
irregularities in connection with tenders must be cured within such time as
the Company shall determine. Neither the Company nor the Exchange Agent shall
be under any duty to give notification of defects
17
<PAGE>
in such tenders or shall incur liabilities for failure to give such
notification. Tenders of Old Notes will not be deemed to have been made until
such irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the
irregularities have not been cured or waived will be returned by the Exchange
Agent to the tendering Holder, unless otherwise provided in the Letter of
Transmittal, as soon as practicable following the Expiration Date.
The Company's acceptance for payment of Old Notes tendered pursuant to the
Offer will constitute a binding agreement between the tendering person and the
Company upon the terms and subject to the conditions of the Offer.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and (i) whose Old Notes are not
immediately available, or (ii) who cannot deliver their Old Notes, the Letter
of Transmittal or any other required documents to the Exchange Agent prior to
the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder of the Old Notes, the
certificate number or numbers of such Old Notes and the principal amount of
Old Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within five (5) New York Stock Exchange trading days
after the Expiration Date, the Letter of Transmittal (or facsimile thereof)
together with the certificate(s) representing the Old Notes and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer and all other documents required by
the Letter of Transmittal are received by the Exchange Agent within five
(5) New York Stock Exchange trading days after the Expiration Date.
Upon request of the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
CONDITIONS TO THE OFFER
Notwithstanding any other provisions of the Offer, or any extension of the
Offer, the Company will not be required to issue New Notes in respect of any
properly tendered Old Notes not previously accepted, and may terminate the
Offer by oral or written notice to the Exchange Agent and the Holders, or, at
its option, modify or otherwise amend the Offer, if any material change occurs
that is likely to affect the Offer, including, but not limited to, the
following:
(a) there shall be instituted or threatened any action or proceeding before
any court or governmental agency challenging the Offer or otherwise
directly or indirectly relating to the Offer or otherwise affecting the
Company;
(b) there shall occur any development in any pending action or proceeding
that, in the sole judgment of the Company, would or might (i) have an
adverse effect on the business of the Company, (ii) prohibit, restrict or
delay consummation of the Offer, or (iii) impair the contemplated benefits
of the Offer;
(c) any statute, rule or regulation shall have been proposed or enacted, or
any action shall have been taken by any governmental authority which, in
the sole judgment of the Company, would or might (i) have an adverse effect
on the business of the Company, (ii) prohibit, restrict or delay
consummation of the Offer, or (iii) impair the contemplated benefits of the
Offer; or
18
<PAGE>
(d) there exists, in the sole judgment of the Company, any actual or
threatened legal impediment (including a default or prospective default
under an agreement, indenture or other instrument or obligation to which
the Company is a party or by which it is bound) to the consummation of the
transactions contemplated by the Offer.
The Company expressly reserves the right to terminate the Offer and not
accept for exchange any Old Notes upon the occurrence of any of the foregoing
conditions. In addition, the Company may amend the Offer at any time prior to
5:00 P.M., New York City time, on the Expiration Date if any of the conditions
set forth above occur. Moreover, regardless of whether any of such conditions
has occurred, the Company may amend the Offer in any manner which, in its good
faith judgment, is advantageous to the Holders.
The foregoing conditions are for the sole benefit of the Company and may be
waived by the Company, in whole or in part, in its sole discretion. Any
determination made by the Company concerning an event, development or
circumstance described or referred to above will be final and binding on all
parties.
If the Offer is terminated by the Company because (a) after conferring with
its counsel, the Company determines that the Commission is unlikely to declare
such Offer effective or (b) in good faith and in the exercise of its best
judgment with advice from counsel, the Company determines that (i) the
interests of the Holders would be adversely affected by the consummation of
the Offer, (ii) the New Notes would not be tradable without material
restrictions under the Securities Act or applicable Blue Sky or state
securities laws, (iii) BancAmerica Securities, Inc. so reasonably requests or
(iv) the offer is commenced and not consummated within 180 days after July 24,
1997 then the Company shall not be obligated under the Registration Rights
Agreement to consummate the Offer. If the Offer is terminated, the Company
will be required, pursuant to the Registration Rights Agreement, to file with
the Commission, and obtain the effectiveness of, a shelf registration
statement pursuant to which the Old Notes may be resold by Holders under the
Securities Act. If such shelf registration statement is not declared effective
by the Commission within 120 days of the original issuance of the Old Notes
then the Company will be obligated to pay to Holders the additional interest
described above under "The Offer--Purpose of the Offer".
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon the terms and subject to the conditions of the Offer, the Company will
accept all Old Notes validly tendered prior to 5:00 P.M., New York City time,
on the Expiration Date. The Company will deliver New Notes in exchange for Old
Notes promptly following the Expiration Date.
For purposes of the Offer, the Company shall be deemed to have accepted
validly tendered Old Notes when, as and if the Company has given oral or
written notice thereof to the Exchange Agent. The Exchange Agent will act as
agent for the tendering Holders for the purpose of receiving the New Notes.
Under no circumstances will interest be paid by the Company or the Exchange
Agent by reason of any delay in making such payment or delivery.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, any such unaccepted Old Notes will be returned, at the Company's
expense, to the tendering Holder thereof as promptly as practicable after the
expiration or termination of the Offer.
WITHDRAWAL RIGHTS
Tenders of Old Notes made pursuant to the Offer are irrevocable and may not
be withdrawn.
19
<PAGE>
EXCHANGE AGENT
First Trust of New York has been appointed as Exchange Agent for the Offer.
All correspondence in connection with the Offer and the Letter of Transmittal
should be addressed to the Exchange Agent as follows:
<TABLE>
<CAPTION>
BY REGISTERED, CERTIFIED OR
OVERNIGHT MAIL: BY HAND: BY FIRST CLASS MAIL: BY FACSIMILE:
- --------------- -------- -------------------- -------------
<S> <C> <C> <C>
c/o First Trust National Association c/o First Trust National Association c/o First Trust National Association (612) 244-1537
180 East Fifth Street180 East Fifth Street P. O. Box 64485 BY TELEPHONE:
-------------
St. Paul, MN 55101 St. Paul, MN 55101 St. Paul, MN 55164-9549 1-800-934-6802
Attn: Specialized Finance Attn: Bond Drop Window Bond Holder
Services
</TABLE>
Requests for additional copies of the Prospectus or the Letter of Transmittal
should be directed to the Exchange Agent or the Company.
PAYMENT OF EXPENSES
The Company will not make any payments to brokers, dealers or others for
soliciting acceptances of the Offer. The Company, however, will reimburse the
Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. The Company will also pay the cash expenses to be incurred in
connection with the Offer, which are estimated in the aggregate to be
approximately $ .
The Company has not retained any dealer-manager or similar agent in
connection with the Offer and will not make any payments to brokers, dealers or
others for soliciting acceptances of the Offer.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
which is the principal amount, as reflected in the Company's accounting records
on the date of the exchange. Accordingly, no gain or loss for accounting
purposes will be recognized. The expenses of the Offer will be capitalized for
accounting purposes.
RESALES OF NEW NOTES
With respect to resales of New Notes, based on certain interpretive letters
issued by the staff of the Commission to third parties, the Company believes
that a holder of New Notes (other than (i) a broker-dealer who purchases such
New Notes directly from the Company to resell pursuant to Rule 144A or any
other available exemption under the Securities Act or (ii) a person who is an
affiliate of the Company within the meaning of Rule 405 under the Securities
Act) who exchanged Old Notes for New Notes in the ordinary course of business
and who is not participating, does not intend to participate, and has no
arrangement or understanding with any person to participate, in the
distribution of the New Notes, will be allowed to resell the New Notes to the
public without further registration under the Securities Act and without
delivering to the purchasers of the New Notes a prospectus that satisfies the
requirements of the Securities Act, provided that a broker-dealer who holds Old
Notes that were acquired for its own account as a result of market making or
other trading activities may be deemed to be an "underwriter" within the
meaning of the Securities Act and must, therefore, deliver a prospectus meeting
the requirements of the Securities Act. If any other holder is deemed to be an
"underwriter" within the meaning of the Securities Act or acquires New Notes in
the Offer for the purpose of distributing or participating in a distribution of
the New Notes, such holder must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with a secondary
resale transaction, unless an exemption from registration is otherwise
available. The Company has agreed that for a period of 180 days from the
Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale.
20
<PAGE>
CAPITALIZATION
The table below sets forth the consolidated capitalization of the Company
(i) at June 29, 1997 and (ii) as adjusted to give effect to the issuance of
the Old Notes and the application of the net proceeds therefrom.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the
consolidated financial statements of the Company and the related notes
thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 29, 1997
---------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash...................................................... $ 39,830 $ 55,230
======== ========
Long-Term Debt:
Capitalized Lease Obligations........................... $ 6,042 $ 6,042
11% Senior Notes due 2001............................... 165,000 165,000
Senior Subordinated Notes due 2004...................... -- 100,000
-------- --------
Total Long-Term Debt.................................. 171,042 271,042
Preferred Stock:
10.5% Cumulative Series B Preferred Stock............... 69,365 --
Stockholders' Equity (Deficit):
Class A Common Stock.................................... 1 1
Additional Paid-in Capital.............................. 12,715 12,715
Retained (Deficit)...................................... (34,773) (49,423)
Less Option to acquire Stock............................ (14,650) --
-------- --------
Total Stockholders' Deficit........................... (36,707) (36,707)
-------- --------
Total Capitalization.................................. $203,700 $234,335
======== ========
</TABLE>
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following information is qualified in its entirety by the consolidated
financial statements of the Company. The following table sets forth selected
consolidated financial data and other information of the Company. The
"Statement of Earnings Data" and "Balance Sheet Data" (i) as of and for the 52
weeks ended September 27, 1992 and September 26, 1993 are derived from the
audited consolidated financial statements not included in this Prospectus,
(ii) as of and for the 52 weeks ended September 25, 1994 and September 24,
1995 and as of and for the 53 weeks ended September 29, 1996 are derived from
the audited consolidated financial statements of the Company contained
elsewhere in this Prospectus and (iii) as of and for the 39 weeks ended June
23, 1996 and June 29, 1997 are derived from the unaudited consolidated
financial statements of the Company contained elsewhere in this Prospectus.
The unaudited consolidated financial statements include all normal recurring
adjustments, management considers necessary for a fair presentation of the
consolidated financial data. The schedules of "Other Operating Data" and
"Store Data" are unaudited. The following selected consolidated financial data
should be read in conjunction with the Company's consolidated financial
statements and schedules and accompanying notes and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 39 WEEKS ENDED
---------------------------------------------------------- ----------------------
SEPT. 27, SEPT. 26, SEPT. 25, SEPT. 24, SEPT. 29, JUNE 23, JUNE 29,
1992(1) 1993 1994 1995 1996(2) 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AND STORE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS
DATA:
Sales................... $1,539,758 $1,526,002 $1,539,717 $1,579,895 $1,705,332 $1,244,312 $1,292,267
Cost of goods sold...... 1,201,067 1,195,399 1,199,794 1,227,355 1,315,726 959,246 997,032
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit............ 338,691 330,603 339,923 352,540 389,606 285,066 295,235
Operating expenses:
Selling, general and
administrative
expenses.............. 302,547 300,826 297,474 308,332 328,242 239,252 248,683
Depreciation and
amortization.......... 9,230 9,910 11,656 11,756 12,583 9,220 9,858
Consulting fees(3)..... 4,400 -- 830 1,500 1,525 1,125 1,125
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating
expenses............... 316,177 310,736 309,960 321,588 342,350 249,597 259,666
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating profit........ 22,514 19,867 29,963 30,952 47,256 35,469 35,569
Interest income......... 354 171 384 952 1,929 1,309 1,733
Interest expense........ (9,901) (10,292) (15,501) (20,076) (20,258) (14,943) (14,871)
Equity in earnings
(loss) from
unconsolidated
affiliate.............. 296 107 (592) (980) (1,624) (935) (1,123)
Other income (loss)--
net.................... 100 265 391 97 (172) (187) 96
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income
taxes, extraordinary
charge and cumulative
effect of a change in
accounting for income
taxes.................. 13,363 10,118 14,645 10,945 27,131 20,713 21,404
Income taxes............ 5,616 4,426 5,856 4,218 11,120 8,390 8,777
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before
extraordinary charge
and cumulative effect
of a change in
accounting for income
taxes.................. 7,747 5,692 8,789 6,727 16,011 12,323 12,627
Extraordinary
(charge)(4)............ (1,470) -- (8,036) -- -- -- --
Cumulative effect of a
change in accounting
for income taxes(5).... -- -- 372 -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income.............. 6,277 5,692 1,125 6,727 16,011 12,323 12,627
Preferred dividends..... 553 323 327 -- 4,111 2,155 5,448
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income available to
common stockholders.... $ 5,724 $ 5,369 $ 798 $ 6,727 $ 11,900 $ 10,168 $ 7,179
========== ========== ========== ========== ========== ========== ==========
Earnings per common
share before
extraordinary charge
and cumulative effect
of a change in
accounting for income
taxes.................. $ 71.94 $ 53.69 $ 84.62 $ 67.27 $ 165.28 $ 126.75 $ 143.58
Earnings per common
share.................. $ 57.24 $ 53.69 $ 7.98 $ 67.27 $ 165.28 $ 126.75 $ 143.58
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 39 WEEKS ENDED
------------------------------------------------------------- ------------------
SEPT. 27, SEPT. 26, SEPT. 25, SEPT. 24, SEPT. 29, JUNE 23, JUNE 29,
1992(1) 1993 1994 1995 1996(2) 1996 1997
---------- ---------- ---------- ---------- ---------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE, PERCENTAGES AND STORE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (END
OF PERIOD):
Working capital......... $ 25,947 $ 21,596 $ 41,422 $ 45,014 $ 63,473 $ 69,960 $ 72,761
Total assets............ 262,887 264,484 306,489 314,082 338,294 328,546 330,443
Long-term notes and
mortgages payable...... 89,750 87,576 165,000 165,000 165,000 165,000 165,000
Long-term capitalized
lease obligations...... 11,893 10,456 9,187 8,099 6,917 7,293 6,042
Other long-term
liabilities............ 13,014 15,736 15,765 13,772 12,858 15,600 13,467
Series A Preferred
Stock.................. 1,600 3,600 -- -- -- -- --
Series B Preferred
Stock.................. -- -- -- -- 69,365 69,365 69,365
Common stockholders'
equity................. 35,333 40,702 6,851 13,578 (43,887) (45,619) (36,707)
Dividends declared per
share:
Common Stock........... -- -- $ 400 -- -- -- --
Class A Common Stock... -- -- -- -- -- -- --
10.5% Series B
Preferred Stock....... -- -- -- -- $ 5.93 $ 3.11 $ 7.85
OTHER OPERATING DATA:
Sales increases
(decreases):
Total stores........... 1.7% (0.9%) 0.9% 2.6% 7.9% 5.7% 3.9%
Same stores (comparable
52 weeks)............. (2.0%) (1.9%) (0.7%) 1.2% 6.3% 6.1% 3.9%
EBITDA(6)............... $ 32,494 $ 30,320 $ 41,802 $ 42,777 $ 59,972 $ 44,876 $ 46,133
Capital expenditures.... $ 24,964 $ 17,178 $ 19,409 $ 13,178 $ 22,415 $ 13,658 $ 14,329
Gross profit as
percentage of sales.... 22.00% 21.66% 22.08% 22.31% 22.85% 22.91% 22.85%
Selling, general and
administrative
expenses as a
percentage of sales.... 19.65% 19.71% 19.32% 19.52% 19.25% 19.23% 19.24%
EBITDA as a percentage
of sales............... 2.11% 1.99% 2.71% 2.71% 3.52% 3.61% 3.57%
Ratio of earnings to
fixed charges(7)....... 1.47x 1.36x 1.47x 1.36x 1.53x 1.62x 1.38x
Ratio of earnings to
fixed charges as
adjusted(8)............ -- -- -- -- 1.46x -- 1.48x
STORE DATA:
Number of stores (at end
of period)............. 107 109 111 110 110 110 110
Average sales per store
(000s)................. $ 14,458 $ 14,130 $ 13,997 $ 14,298 $ 15,503 $ 11,312 $ 11,748
Average store size:
Total sq. ft........... 28,079 28,309 28,617 28,717 28,809 28,809 28,809
Selling sq. ft......... 20,323 20,484 20,708 20,773 20,845 20,845 20,845
Total sq. ft (at end of
period) (000s)......... 3,004 3,086 3,177 3,159 3,169 3,169 3,169
Total selling sq. ft.
(at end of fiscal year)
(000s)................. 2,175 2,233 2,299 2,285 2,293 2,293 2,293
Sales per average total
sq. ft................. $ 518 $ 501 $ 492 $ 499 $ 538 $ 393 $ 408
Sales per average
selling sq. ft......... $ 715 $ 692 $ 680 $ 689 $ 744 $ 543 $ 564
</TABLE>
- --------
(1) Certain amounts have been reclassified to conform to the current period
financial statement presentation.
(2) 53 week fiscal year.
(3) Consulting fees were paid pursuant to consulting agreements with La Cadena
and Craig in 1992 and Craig since 1994.
(4) Extraordinary charges in 1992 and 1994 represent the after-tax charge from
the early retirement of debt.
(5) The Company adopted SFAS No. 109 ("Accounting For Income Taxes") effective
at the beginning of fiscal 1994 as a cumulative effect of a change in
accounting principles.
(6) EBITDA represents income before income taxes, extraordinary charge and
cumulative effect of a change in accounting for income taxes, plus
interest expense, depreciation and amortization. EBITDA is not intended to
represent cash flow from operations as defined by GAAP and should not be
considered as an alternative to cash flow or as a measure of liquidity or
as an alternative to net earnings as indicative of operating performance.
EBITDA is included herein because management believes that certain
investors find it a useful tool for measuring the Company's ability to
service its debt.
(7) For the purpose of determining the ratio of earnings to fixed charges,
earnings consist of income before income taxes and the extraordinary
charge, amortization of previously capitalized interest and the
undistributed loss or earnings from less than 50% owned subsidiaries and
includes fixed charges. Fixed charges consist of interest expense whether
expensed or capitalized, amortization of deferred debt expense, preferred
stock dividends adjusted to represent pretax earnings requirements and
such portion of rental expenses as deemed by management to be
representative of the interest factor in the particular case.
(8) As adjusted to give pro forma effect to the issuance of the Senior
Subordinated Notes and the use of proceeds therefrom. See "Use of
Proceeds."
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain income statement components expressed
as a percent of sales for the 52-week fiscal years ended September 25, 1994,
September 24, 1995, and the 53-week fiscal year ended September 29, 1996 and
the thirty-nine weeks ended June 23, 1996 and June 29, 1997. Comparisons
between the 1994, 1995 and 1996 fiscal years are difficult due to the 1994
Recapitalization the Company entered into in March 1994 and the additional
week in the 1996 fiscal year.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED 39 WEEKS ENDED
----------------------------- -----------------
SEPT. 25, SEPT. 24, SEPT. 29, JUNE 23, JUNE 29,
1994 1995 1996 1996 1997
--------- --------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Sales......................... 100.00% 100.00% 100.00% 100.00% 100.00%
Gross profit.................. 22.08 22.31 22.85 22.91 22.85
Operating expenses:
Selling, general and
administrative expenses.... 19.32 19.52 19.25 19.23 19.24
Depreciation and
amortization............... .76 .74 .74 .74 .76
Consulting fees............. .05 .09 .09 .09 .09
Operating profit.............. 1.95 1.96 2.77 2.85 2.76
Interest income............... .03 .06 .11 .11 .13
Interest expense.............. (1.01) (1.27) (1.19) (1.20) (1.15)
Equity in earnings (loss) from
unconsolidated affiliate..... (.04) (.06) (.10) (.08) (.09)
Other income (loss)--net...... .02 -- -- (.02) .01
Income before income taxes,
cumulative effect of a change
in accounting for income
taxes and extraordinary loss. .95 .69 1.59 1.66 1.66
Net income.................... .07 .43 .94 .99 .98
</TABLE>
39 WEEKS ENDED JUNE 23, 1996 AND JUNE 29, 1997
Total sales for the 39 weeks ended June 29, 1997 increased 3.9% and amounted
to $1,292.3 million compared to $1,244.3 million for the comparable period in
1996. Same store sales increased 3.9% for the 39 week period. The Company
operated 110 supermarkets at June 29, 1997 and at June 23, 1996. The increase
in sales in the 39 week period of 1997 compared to the comparable period of
1996 is due to many factors, including favorable customer response to the
Company's 60th Anniversary Marketing Program, slight improvements in the
Southern California economy and favorable customer response to the Company's
1996 merchandising expansion and upgrading program. This included expanded
product offerings in the deli, bakery, frozen foods and dairy departments and
the continuing introduction of fresh cut flowers and prepackaged vegetables
into 83 of the Company's 110 supermarkets.
For the 39 week period of 1997, gross profits increased to $295.2 million or
22.85% of sales compared to $285.1 million or 22.91% of sales for the
comparable period of the prior year. The decrease in gross profits, as a
percent of sales, for the year-to-date period reflects the Company's
commitment to retain its existing customer base and to attract new customers
as the Southern California economy continues to improve and experiences
increases in population in the Company's primary trading areas, through its
marketing strategy of Every Day Low Prices.
For the 39 week period of 1997, selling, general and administrative expenses
amounted to $248.7 million or 19.24% of sales compared to $239.3 million or
19.23% of sales for the comparable period of the prior year. The increase in
selling, general and administrative expenses in the 39 week period of 1997
when compared to the comparable period of 1996 is partially due to the
incremental costs and expenses incurred to operate at the higher level of
sales. In addition, selling, general and administrative expenses in the 39
week period of 1997 included
24
<PAGE>
increases in rent expenses, net of reduction in depreciation expenses,
aggregating approximately $1.2 million as the result of the sale and leaseback
of five supermarkets in January 1996 and an additional four supermarkets in
October 1996. Selling, general and administrative expenses in the 39 week
period of 1996 were also affected by a suspension of employer contributions
(such trust was overfunded), aggregating $3.8 million, to a collective
bargaining benefits trust in the 39 week period of fiscal 1996.
In conjunction with the 1994 Recapitalization, the Company entered into a
five-year consulting and covenant not to compete agreement (the "Consulting
Agreement") with Craig Corporation ("Craig"). The Consulting Agreement
provided for a prepayment of $5.0 million, which is amortized to expense over
the five-year term of the covenant not to compete. Amortization of the prepaid
covenant not to compete amounted to $750,000 for the thirty-nine weeks ended
June 29, 1997 and June 23, 1996 and is included in depreciation and
amortization expense.
The Consulting Agreement also provided for annual consulting payments of
$1.5 million, paid quarterly in arrears. Consulting fees paid or accrued to
the benefit of Craig amounted to $1,125,000, for the thirty-nine weeks ended
June 29, 1997 and June 23, 1996, respectively. On July 31, 1997, the Company
gave notice to terminate the five-year Consulting Agreement with Craig.
Depreciation and amortization expenses amounted to $9.9 million for the 39
week period ended June 29, 1997 compared to $9.2 million for the comparable
period of the prior year as the result of capital expenditures completed after
the 39 week period of 1996. Depreciation and amortization include amortization
of a prepaid five-year covenant not to compete between the Company and Craig
which became effective as of March 8, 1994.
Operating profits increased to $35.6 million or 2.76% of sales for the 39
week period of 1997, from $35.5 million or 2.85% of sales for the comparable
period of the prior year.
Interest income and interest expense were at similar levels in the 39 week
periods of both years and included amortization of $885,000, from fees and
expenses incurred in connection with the 1994 Recapitalization. The equity in
net loss from unconsolidated affiliate in the two 39 week periods resulted
from increased rental costs related to a short term extension by Santee of its
lease for its existing facility, and increased depreciation by Santee to
reflect the anticipated salvage value of plant and equipment upon termination
of the lease.
Income before income taxes amounted to $21.4 million and $20.7 million
respectively, in the 39 week periods of 1997 and 1996. Net income for the 39
week periods of 1997 and 1996, amounted to $12.6 million and $12.3 million,
respectively.
FISCAL YEARS ENDED SEPTEMBER 25, 1994, SEPTEMBER 24, 1995 AND SEPTEMBER 29,
1996
Total sales amounted to $1.705 billion in 1996, compared to $1.580 billion
in 1995 and $1.540 billion in 1994. Same-store sales increased 6.3% in fiscal
1996 (52-week basis), and 1.2% in fiscal 1995 compared to a decrease of 0.7%
in fiscal 1994. The increase in same-store sales in fiscal 1996 compared to
fiscal year 1995 was due to many factors including decreases in competitor
store openings, slight improvements in the Southern California economy and
favorable customer response to the Company's 1996 merchandising expansion and
upgrading program.
Gross profits increased to $389.6 million or 22.85% of sales in 1996
compared to $352.5 million or 22.31% of sales in 1995 and $339.9 million or
22.08% of sales in 1994. The increase in gross profits, as a percentage of
sales in fiscal years 1996, 1995 and 1994 was due to increased efficiencies in
the Company's warehousing and transportation departments, the introduction of
higher gross margin products such as prepackaged gourmet vegetables and fresh
cut flowers and a decrease in competitive activity when compared to prior
years.
Operating expenses include selling, general and administrative expenses,
depreciation and amortization, and consulting fees. In fiscal 1996, selling,
general and administrative expenses amounted to $328.2 million or 19.25% of
sales compared to $308.3 million or 19.52% of sales for fiscal 1995 and $297.5
million or 19.32% of
25
<PAGE>
sales for fiscal 1994. During 1996, the increase in the absolute amount of
selling, general and administrative expenses was due to the additional week in
the 53-week 1996 fiscal year and the additional expenses required to operate
at the higher level of sales. However, due to the increase in sales in 1996,
the Company operated more efficiently and, as a percentage of sales, selling,
general and administrative expenses decreased, primarily due to efficiencies
in supermarket payroll expenses and the leverage effect increased sales had on
fixed expenses such as rents, depreciation and other supermarket occupancy
expenses. Selling, general and administrative expenses in 1995 reflect
reductions in expense categories such as workers' compensation and general
liability self-insurance expenses of $2.8 million, which was offset by
increases in direct labor, store supplies and advertising expenses. Additional
expenses were incurred in 1995 to operate the new stores opened in June and
August of fiscal 1994. Selling, general and administrative expenses for 1994
included certain non-recurring expenses including a $4.0 million standstill
fee paid in conjunction with the 1994 Recapitalization and a one-time payment
of $3.4 million to members of the Retail Clerks collective bargaining unit.
Such non-recurring expenses in 1994 were partially offset by a non-recurring
reduction in employer contributions to a collective bargaining unit health and
welfare benefits trust of $13.6 million. Consulting fees consisted of fees
paid under the Consulting Agreement, which will be terminated upon redemption
of the Series B Preferred Stock.
Depreciation and amortization expenses amounted to $12.6 million in 1996
compared to $11.8 million in 1995 and $11.7 million in 1994 and includes
amortization of $1.0 million in 1996 and 1995 and $558,000 in 1994 from a $5.0
million prepaid five-year covenant not to compete included in a Consulting
Agreement between the Company and Craig, which became effective March 8, 1994
as part of the 1994 Recapitalization.
Operating profits increased to $47.3 million or 2.77% of sales in 1996
compared to $31.0 million or 1.96% of sales in 1995 and $30.0 million or 1.95%
of sales in 1994.
Interest expense amounted to $20.3 million, $20.1 million and $15.5 million
for the 1996, 1995 and 1994 fiscal years, respectively. The increase in
interest expense in 1995, when compared to 1994, is due to additional debt
incurred in March 1994 to facilitate the 1994 Recapitalization. Such debt was
outstanding during all of fiscal 1995 and was outstanding since March 8, 1994
in fiscal 1994. Interest expense includes amortization of fees and expenses of
$1.2 million in 1996 and 1995 and $721,000 in 1994 incurred in connection with
the 1994 Recapitalization.
Income before income taxes and the cumulative effect of a change in
accounting for income taxes and extraordinary loss amounted to $27.1 million,
$10.9 million and $14.6 million for the 1996, 1995 and 1994 fiscal years,
respectively.
Income before the cumulative effect of a change in accounting for income
taxes and extraordinary item for the 1996, 1995 and 1994 fiscal years amounted
to $16.0 million, $6.7 million and $8.8 million, respectively.
Effective the beginning of fiscal 1994, the Company adopted Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" and
realized a gain of $372,000 from the cumulative effect of a change in
accounting for income taxes.
In connection with the 1994 Recapitalization, the Company entered into a
series of transactions that included the sale of the 11% Senior Notes, the
early retirement of the outstanding 9.8% Senior Notes due 2001 and certain
bank financings. The early retirement of debt resulted in an after-tax
extraordinary charge to earnings of $8.0 million in the Company's 1994 second
quarter.
Net income amounted to $16.0 million in 1996, $6.7 million in 1995 and $1.1
million in 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has funded its daily cash flow requirements through
funds provided by operations and through borrowings from short-term revolving
credit facilities. The Company's short-term bank credit
26
<PAGE>
agreement dated as of March 8, 1994 (as amended, the "Bank Credit Agreement")
consists of a revolving credit facility for working capital purposes of $15.0
million, all of which was available at June 29, 1997, and a $25.0 million
standby letter of credit facility, of which $15.5 million was available at
June 29, 1997, maintained pursuant to its worker's compensation and general
liability self-insurance requirements. The Bank Credit Agreement expires on
June 1, 1998. The Company expects to replace its Bank Credit Agreement with a
three year facility with terms and conditions comparable to or better than the
existing Bank Credit Agreement. There can be no assurances that the Company
will be able to replace such facility or, if it is able to do so, whether it
will receive favorable terms. The Company had no short term borrowings at the
end of fiscal years 1996, 1995, 1994 or at June 23, 1996 and June 29, 1997.
The average short term borrowings outstanding during fiscal years 1995 and
1994 was approximately $129,000 and $5.4 million, respectively. Weighted
average interest rates were 9.7% and 4.4% during fiscal years 1995 and 1994,
respectively. During 1996 and for the 39 weeks ended June 29, 1997, the
Company did not incur any short-term borrowings. Borrowings under the Bank
Credit Agreement are general unsecured obligations of Stater Bros. Markets and
are guaranteed by Stater Bros. Development, Inc. It was a condition to the
sale and issuance of the Old Notes that the Company received a necessary
consent of the lender and the Company did receive such consent.
Working capital and current ratios, respectively, amounted to $63.5 million
and 1.50:1 at fiscal year end 1996, $45.0 million and 1.40:1 at fiscal year
end 1995, $41.4 million and 1.38:1 at fiscal year end 1994, $72.8 million and
1.64:1 at June 29, 1997 and $70.0 million and 1.60:1 at June 23, 1996.
The net cash provided by operating activities for the 39 weeks ended June
29, 1997, amounted to $3.7 million and included reductions in accounts payable
and the deferred tax benefits arising from the October 1996 sale and leaseback
transaction. As of September 29, 1996, the Company had increased its inventory
and related accounts payable in anticipation of the implementation of the
Company's 60th Anniversary Marketing Program in the first quarter of fiscal
1997. Accordingly, as of June 29, 1997, the Company's investment in
inventories and related accounts payable are reflected at more traditional
balances. The increase in the deferred tax benefit of $2.1 million was due
primarily to the timing difference between tax and book requirements for
recognizing the gain and resulting tax liability from the October 1996 sale
and leaseback transaction. Net cash provided by operating activities amounted
to $27.9 million, $18.9 million and $18.6 million for fiscal years 1996, 1995
and 1994, respectively. Fluctuations in operating assets and liabilities are
not unusual in the supermarket industry. Net cash provided by operating
activities in 1994 included certain components of the 1994 Recapitalization
resulting in the changes of operating assets and liabilities. The increase in
other assets in 1994 included approximately $8.0 million of fees and expenses
incurred to issue debt and $5.0 million from the prepayment of a five-year
covenant not to compete required under the Consulting Agreement.
Net cash used by investing activities for the 39 weeks ended June 29, 1997,
amounted to $2.8 million compared to $5.0 million of net cash provided by
investing activities for the comparable period in fiscal 1996. The difference
in net cash provided by investing activities between the comparable periods is
due to the Company's capital expenditures during such periods, net of proceeds
from asset dispositions and additional investment in Santee Dairies. Capital
expenditures for the thirty-nine week periods amounted to $14.3 million in
1997 compared to $13.7 million in 1996.
During the 39 weeks ended June 29, 1997, the Company remodeled nine
supermarkets. Capital expenditures for fiscal 1997 were financed from cash
provided by the October 1996 sale and leaseback transaction. Capital
expenditures for fiscal 1997 are estimated to be approximately $25.0 million
and will include expenditures incurred to construct two new supermarkets which
are estimated to open in early fiscal 1998.
In October 1996, the Company completed a sale and leaseback transaction with
an unrelated third party for four of the Company's supermarkets. The net
proceeds from the sale of the four supermarkets amounted to approximately
$16.0 million, which approximated fair market value. The Company entered into
leases for the four supermarkets with initial terms of 20 years and with
options available to the Company which extend the lease terms up to an
additional 20 years. The Company believes the rents due under the leases
approximate fair market rents. The gains from the sale of the supermarkets
were approximately $2.5 million and will be deferred and amortized into income
over the initial term of the leases. As a result of the additional rent
expenses, due on
27
<PAGE>
the four supermarkets, net of reductions in depreciation expense, operating
expenses for the 52-week 1997 fiscal year will increase by approximately $1.1
million.
In November 1996 and for approximately $200,000, the Company increased its
ownership in Santee to 50%. Additionally, during the first quarter of fiscal
1997, the Company acquired approximately $4.8 million worth of preferred stock
of Santee. The Company converted such preferred stock of Santee to common
stock of Santee. Hughes retained a 50% ownership in Santee and acquired a like
amount of the preferred stock of Santee and converted such preferred stock to
common stock of Santee. Mr. Jack H. Brown, Chairman of the Board and Chief
Executive Officer of Stater Bros. Markets also serves as Chairman of the Board
and Chief Executive Officer of Santee Inc. Santee will, for the foreseeable
future, provide the Company's supermarkets with a supply of high quality fluid
milk and other dairy products.
Net cash used by investing activities for the 1996, 1995 and 1994 fiscal
years amounted to $3.8 million, $12.7 million and $14.4 million, respectively.
The difference in net cash used by investing activities between the comparable
periods in 1996, 1995 and 1994 is due to the Company's capital expenditures
during such periods, net of proceeds from asset dispositions.
Capital expenditures amounted to $22.4 million in 1996, $13.2 million in
1995 and $19.4 million in 1994. Capital expenditures for 1996 included costs
incurred to construct a replacement supermarket, to complete eight major
remodels and eight minor remodels and to acquire store equipment to support
the 1996 merchandising expansion and upgrade program. Capital expenditures in
fiscal 1995 included costs incurred to complete eight supermarket minor
remodels, to acquire and install technology and equipment required to
implement the Stater Express choice of payment system and to complete a
supermarket major remodel and expansion. Capital expenditures for 1994
included costs incurred to construct three supermarkets and to complete four
supermarket minor remodels. Capital expenditures in 1995 and 1994 were
financed primarily from cash provided by operating activities while capital
expenditures in 1996 were financed primarily by proceeds from the sale and
leaseback of five supermarkets.
In January 1996, the Company completed a sale and leaseback transaction with
an unrelated third party for five of the Company's supermarkets. Gross
proceeds from the sale of the five supermarkets amounted to approximately
$18.5 million, which approximated fair market value. The Company entered into
leases for the five supermarkets with initial terms of 20 years and with
options available to the Company which extend the lease terms up to an
additional 20 years. The Company believes the rents due in accordance with the
terms of the leases approximate fair market rents. The gains from the sale of
the supermarkets are deferred and will be amortized into income over the
initial term of the leases. As a result of the additional rent expenses paid
on the five supermarkets, net of reductions in depreciation expense, operating
expenses increased by approximately $900,000 in fiscal 1996.
During fiscal 1994, and in conjunction with the 1994 Recapitalization, the
Company paid Craig $4.0 million in the form of common stock held by the
Company for investment purposes in accordance with the terms of a certain
Standstill Agreement between the Company and Craig.
Net cash used by financing activities amounted to $6.3 million and $3.0
million for the 39 weeks in 1997 and 1996, respectively, and consisted of
payments on the Company's capitalized lease obligations and the accretion or
payment of dividends on the Company's Series B Preferred Stock. Such preferred
stock dividends are due quarterly and the requirement to make such dividend
payments on the Company's preferred stock commenced in March 1996.
At the request of the holder of the Series B Preferred Stock the Company has
deferred dividend payments on the Preferred Stock until approximately August
4, 1997. Accordingly, the Company deferred dividend payments on the Series B
Preferred Stock and as of June 29, 1997, $3.8 million has been accrued and
remains unpaid. On July 24, 1997, the Company gave notice of exercise of its
option to redeem all outstanding shares of the Company's Series B Preferred
Stock held by Reading Australia PTY Limited, a majority owned indirect
subsidiary of Craig.
28
<PAGE>
Net cash used in financing activities in fiscal years 1996 and 1995 amounted
to $5.2 million and $1.2 million, respectively. Net cash provided by financing
activities in fiscal year 1994 amounted to $15.6 million. Net cash used in
financing activities in fiscal years 1996 and 1995 reduced amounts due under
capitalized lease obligations by $1.1 million and $1.2 million, respectively.
Additionally, dividends paid or accrued for the Series B Preferred Stock
amounted to $4.1 million in 1996.
In March 1994, the Company completed the 1994 Recapitalization which
included proceeds from the sale of $165.0 million of 11% Senior Notes. Such
proceeds were used to fund the early retirement of $75.5 million of 9.8%
Senior Notes due 2001, the early retirement of secured financings of $12.2
million, the prepayment of $9.0 million of capital expenditure financing, the
prepayment premiums from the early retirement of debt of $12.9 million and the
redemption of $3.6 million of the Company's Series A Preferred Stock. In
addition, the 1994 debt offering proceeds were used to pay a dividend on the
Company's Common Stock of $20.0 million, and $14.7 million of the proceeds
were used to acquire an option to purchase the equity interest in the Company
held by Craig.
The Company is subject to certain covenants associated with the 11% Senior
Notes and covenants included in the Bank Credit Agreement. As of June 29,
1997, the Company was in compliance with all such covenants. However, there
can be no assurance that the Company will be able to achieve the expected
operating results or implement the capital expenditure strategy upon which
future compliance with such covenants is based.
The Company believes that cash flow from operations and proceeds from
borrowings, including lease financings, and funds available under the Bank
Credit Agreement will be adequate to meet the Company's currently identifiable
capital requirements.
LABOR RELATIONS
The Company and other major supermarket employers in Southern California
negotiated a four-year contract, beginning October 1995, with the United Food
and Commercial Workers Union. The Company's collective bargaining agreement
with the International Brotherhood of Teamsters was renewed for four years in
September 1994. Management believes it has good relations with its employees.
RECENT ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" (SFAS 121), which the
Company adopted at the beginning of fiscal year 1997. Management believes that
the adoption of SFAS 121 will not have a material adverse effect on the
Company's financial position or its results of operations for fiscal 1997.
INFLATION
The Company's performance has been moderately affected by inflation. In
recent years the impact of inflation on the operations of the Company has been
moderate. As inflation has increased expenses, the Company has recovered, to
the extent permitted by competition, the increase in expenses by increasing
prices over time. However, the economic environment in Southern California
continues to challenge the Company to become more cost efficient as its
ability to recover increases in expenses through price increases is
diminished. The future results of operations of the Company will depend upon
the ability of the Company to adapt to the current economic environment as
well as to the current competitive conditions.
29
<PAGE>
BUSINESS
GENERAL
Stater Bros., founded in 1936, is a leading Southern California supermarket
chain, operating 110 supermarkets located principally in the Inland Empire,
one of the fastest growing areas in the United States. The Company is
recognized as a low price leader in the Inland Empire and its supermarkets
offer a high level of customer service, broad selection of brand-name
merchandise, and quality meats and produce. Stater Bros. supermarkets also
offer specialty service departments which include full service meat
departments, bakeries, and delicatessens. Stater Bros., with sales of more
than $1.7 billion for the fiscal year ended September 29, 1996, is the largest
supermarket chain in its primary market area.
THE INLAND EMPIRE
Approximately 80% of the Company's stores are located in the Inland Empire
region of Southern California. The Inland Empire is comprised primarily of
Riverside and San Bernardino counties, and also includes portions of Orange,
Kern and Los Angeles counties. Riverside and San Bernardino counties encompass
more than 29,000 square miles. Since 1980, this region has been one of the
fastest growing areas in California in terms of new growth. Between 1990 and
1996, the Riverside/San Bernardino area increased in population by
approximately 13%, reaching a combined population of approximately 3 million
people in 1996. Several factors have contributed to the significant growth of
this area, including affordability of new housing and availability of land.
The average new housing prices in 1996 for San Bernardino and Riverside
counties were approximately $160,000 and $162,000, respectively, compared to
$256,000 and $260,000 in Los Angeles and Orange counties, respectively. As of
1996, the average income was approximately $30,300 in the Inland Empire
compared to $32,100 in Orange County. Management believes that its "every day
low price" ("EDLP") marketing strategy is optimally suited for the Inland
Empire demographics.
BUSINESS STRATEGY
The Company believes that 60 years of continuous service in the Inland
Empire, its commitment to everyday low prices and the involvement of members
of its management in community activities have contributed significantly to
Stater Bros.' leading market position. Management has developed an operating
strategy which it believes will foster continued growth in revenues and
earnings and help maintain market share in the Inland Empire. Specifically,
the strategy includes the following:
Everyday Low Prices. The Company uses the EDLP format, combined with an
aggressive advertising program, as an integral part of its strategy to provide
the best overall supermarket value in its market area. The Company from time
to time supplements its everyday low pricing with system-wide temporary price
reductions on selected food and non-food merchandise. The Company's
information systems and distribution network give management the flexibility
to respond to market conditions by rapidly adjusting its prices.
Quality and Breadth of Selection. A key factor in the Company's business
strategy is to provide its customers with a variety of quality brand-name
merchandise as well as alternative selections of high quality private label
and generic brands of merchandise. Stater Bros. carries an average of 35,000
items in each of its supermarkets and places particular emphasis on the
freshness and quality of its meat and produce, which management believes
contributes significantly to attracting customers to its supermarkets. The
Company is able to maintain consistently fresh and high quality meat and
produce because this merchandise is received and distributed through its
central distribution facility where the quality and freshness of the
merchandise are carefully controlled. Each supermarket features a full-service
meat department, where custom-cut meats, as well as prepackaged retail
selections of meat, are available. The Company's close proximity to the
Southern California produce growers and its strong relationships with produce
distributors help to ensure a reliable supply of high quality produce.
30
<PAGE>
Customer Service. The Company considers customer service and customer
confidence to be critical to the success of its business strategy. This
strategy, to provide courteous and efficient customer service through specific
programs and training, is a focus of the executive officers and is implemented
at all levels of employees. The Company maintains an intensive checker
training school to train prospective checkers and to provide a refresher
program for existing checkers. Store efficiencies are increased by employing
technological advances, such as computerized scanning check-out equipment in
each location and on-line communications between the Company's supermarkets
and the mainframe computer which is located in the main office. All of the
Company's supermarkets provide customers with purchase carry-out service and
have express check-out lanes for purchases of 10 items or less.
Centralized Warehousing and Distribution Operations. Management believes
that its centralized warehousing and distribution operations give the Company
a competitive advantage. The Company's centralized distribution facility is
located an average distance of approximately 30 miles from its supermarkets.
Most stores can be reached without using the most congested portions of the
Southern California freeway system. With a distribution facility located in
the Inland Empire, management believes that Stater Bros. has a shorter average
haul, in time and distance, than any of its major competitors.
STORE PROFILE AND LOCATIONS
The Company's existing supermarkets have well-established locations and low
overhead expenses, including fixed rent payments in most supermarkets. In
addition, the Company believes that its existing supermarkets are well-
maintained and generally require capital expenditures only for customary
maintenance. An average Stater Bros. supermarket is approximately 30,000
square feet, while newly constructed Stater Bros. supermarkets range from
approximately 35,300 to 40,600 square feet. Stater Bros. supermarkets
typically utilize approximately 72% of total square feet for retail selling
space. The Company operates its supermarkets with minimal back-room storage
space because of the close proximity of its distribution facility to its store
locations. Generally, all Stater Bros. supermarkets are similarly designed and
stocked thereby allowing Stater Bros. customers to find items easily in any of
the Company's supermarkets.
Substantially all of the Company's 110 supermarkets are located in
neighborhood shopping centers in well-populated residential areas. The Company
endeavors to locate its supermarkets in growing areas that will be convenient
to potential customers and will accommodate future supermarket expansion.
Management actively pursues the acquisition of sites for new supermarkets.
In an effort to determine sales potential, new supermarket sites are carefully
researched and analyzed by management for population shifts, zoning changes,
traffic patterns, nearby new construction and competitive locations. Stater
Bros. works with developers to attain the Company's criteria for potential
supermarket sites, and to insure adequate parking and a complementary co-
tenant mix.
The following table summarizes selected information and statistics relating
to the Company's 110 supermarkets as of June 29, 1997:
<TABLE>
<CAPTION>
NO. OF STORES TOTAL SQUARE FEET
------------------ --------------------------------------
UNDER 25,000- 30,001- 35,001- 40,001-
COUNTY TOTAL OWNED LEASED 25,000 30,000 35,000 40,000 45,000
------ ----- ----- ------ ------ ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
San Bernardino....... 45 8 37 6 17 7 12 3
Riverside............ 35 7 28 10 14 5 5 1
Orange............... 14 5 9 3 10 -- 1 --
Los Angeles.......... 14 2 12 3 10 -- 1 --
Kern................. 2 -- 2 -- -- 1 1 --
--- --- --- --- --- --- --- ---
Total.............. 110 22 88 22 51 13 20 4
=== === === === === === === ===
</TABLE>
31
<PAGE>
STORE EXPANSION AND REMODELING
The Company has historically focused its expansion in the Inland Empire.
Such expansion has been accomplished through improving and remodeling existing
stores and constructing new supermarkets rather than by acquiring other
supermarket operations. The number of supermarkets operated by the Company has
grown from 82 in September 1979 to 110 as of June 29, 1997. The Company
intends to continue to expand its existing supermarket operations by enlarging
and remodeling existing supermarkets and constructing new supermarkets. The
Company may also make selective acquisitions of existing supermarkets within
the Inland Empire, if such opportunities arise.
The Company monitors sales and profitability of its operations on a store-
by-store basis and enlarges, remodels or replaces stores in light of their
performance and management's assessment of their future potential.
Approximately 50% of the Company's supermarkets have been either newly
constructed or remodeled within the last five years. Minor remodels usually
include new fixtures, a change in decor, and the addition of one or more
specialty service departments such as a delicatessen or bakery. Major remodels
typically involve more extensive refurbishment of the store's interior and
often increase the retail selling space per store. Expansions entail
enlargement of the store building. The primary objectives of remodelings and
expansions are to improve the attractiveness of supermarkets, increase sales
of higher margin product categories and, where feasible, to increase selling
area. The Company conducts all of its new construction and remodeling through
its wholly-owned subsidiary, Stater Bros. Development, Inc., which serves as
the general contractor for all Company construction projects.
The following table sets forth certain statistical information with respect
to the Company's supermarket expansion and remodeling for the periods
indicated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 39 WEEKS ENDED
--------------------------------------------------------- ----------------------
SEPT. 27, SEPT. 26, SEPT. 25, SEPT. 24, SEPT. 29, JUNE 23, JUNE 29,
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Sales (000s)............ $1,539,758 $1,526,002 $1,539,717 $1,579,895 $1,705,332 $1,244,312 $1,292,267
Number of supermarkets:
Opened................ 4 2 3 -- 1 1 --
Replaced/closed....... (3) -- (1) (1) (1) (1) --
Total at end of year.. 107 109 111 110 110 110 110
Minor Remodel......... 10 10 4 8 8 6 9
Major
Remodel/Expansion.... -- -- -- 1 8 6 --
</TABLE>
The Company has started construction on two supermarkets which are expected
to open in fiscal 1998, both of which are located in the Company's primary
market area. Beyond 1998, the Company plans to open approximately three to
four new stores per year, based upon a number of factors, including customer
demand, market conditions, profitability, costs of opening, and availability
of financing for such new stores. The Company's plans with respect to major
and minor remodels, expansion and new construction are reviewed continually
and are revised, if appropriate, to take advantage of marketing opportunities.
The Company finances its new store construction primarily from cash provided
by operating activities and short-term borrowings under its credit facilities.
Long-term financing of new stores generally will be obtained through either
sale/leaseback transactions or secured long-term financings. However, no
assurances can be made as to the availability of such financings.
WAREHOUSE AND DISTRIBUTION FACILITIES
The Company's warehouse and distribution facilities and administrative
offices are located in Colton, California, and encompass approximately
1,017,000 square feet. The facilities include warehouses for grocery, produce
and deli products, meats and frozen products, health and beauty aids and
bakery merchandise. Management believes that its existing warehouse and
distribution facilities are adequate to meet its currently identified
expansion plans. Approximately 80% of the products offered for sale in the
Company's supermarkets
32
<PAGE>
are processed through the Company's warehouse and distribution facilities. The
Company's centralized distribution facility is managed by a Group Senior Vice
President with over 40 years of experience in the supermarket industry.
The Company's warehouse and distribution facilities are centrally located
and are an average distance of approximately 30 miles from its supermarkets.
Most supermarkets can be reached without using the most congested portions of
the Southern California freeway system.
The Company's transportation fleet consists of modern well-maintained
vehicles. As of September 29, 1996, the Company operated approximately 96
tractors and 273 trailers, approximately 31% of which were leased by the
Company. The Company also operates a repair terminal at the Colton
distribution facility.
OPERATIONS
The Company's supermarkets are well maintained, have sufficient off-street
parking and generally are open from 7:00 a.m. until 11:00 p.m., seven days a
week, including all holidays with the exception of Christmas Day. Because
Stater Bros. operates all its supermarkets under a single format, management
believes it is able to achieve certain operating economies.
Store Management. Each supermarket is managed by a store manager and an
assistant manager, each of whom receives a base salary and may receive a bonus
based on the individual supermarket's overall performance and management of
labor costs within the supermarket. The store manager and assistant manager
are supported by their store management staff who have the training and skills
necessary to provide proper customer service, operate the store and manage
personnel in each department. Additionally, the store manager is supported by
individual department managers for grocery, meat, produce, and where
applicable, bakeries and delicatessens. Store managers report to one of six
district managers, each of whom is responsible for an average of 18
supermarkets. District managers report to one of three Regional Vice
Presidents.
Purchasing and Marketing. The Company uses the EDLP format as an integral
part of its purchasing and marketing strategy to provide its customers with
the best overall supermarket value in its primary market areas. The Company
supplements its everyday low price structure with chain-wide temporary price
reductions on selected food and non-food merchandise. The geographic location
of the Company's supermarkets allows it to reach its target consumers through
a variety of media and the Company aggressively advertises its everyday low
prices through local and regional newspapers, direct mail and printed
circulars as well as advertisements on radio and television.
A key factor in the Company's business strategy is to provide its customers
with a variety of quality brand-name merchandise as well as alternative
selections of high-quality private label and generic brands of merchandise. To
meet the needs of customers, most supermarkets are stocked with approximately
35,000 items. The Company places particular emphasis on the freshness and
quality of its meat and produce merchandise and maintains high standards for
these perishables by processing and distributing the merchandise through its
perishable warehouses and distribution facilities.
Advertising and Promotion. The Company promotes sales through advertising in
local and regional newspapers, on television and radio, and through direct
mail programs and printed circulars. The geographic concentration of its
supermarkets allows the Company to reach its target consumers through a
variety of media in its primary market region. The Company believes it is the
largest supermarket chain print advertiser in local newspapers and circulars
in the Inland Empire. Stater Bros. advertising features high-demand and name
brand products at competitive prices and avoids the use of promotional
activities such as games, gimmicks or double coupons. The Company actively
promotes its EDLP strategy in its advertising and operations, and virtually
all buying discounts, promotion and slotting allowances it receives are passed
on to its customers through lower prices.
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<PAGE>
Management Information Systems. The Company's management information systems
and point-of-sale scanning technology reduce the labor costs attributable to
product pricing and customer check-out, and provide management with
information that facilitates purchasing, receiving and management of inventory
and accounts payable. The Company has point-of-sale scanning checkout
technology in all of its stores. All stores use electronic systems for
employee time and attendance records, inventory orderings, and labor
scheduling, which assists store management in developing a more efficient and
customer-sensitive work schedule.
During 1995, the Company completed the installation of the Stater Express
system in all of the Company's supermarkets. Stater Express is a combined
supermarket technology platform that includes enhanced systems for check
verification and acceptance and provides alternative pay choices such as most
nationally recognized financial institution debit and credit cards. Stater
Express also provides each supermarket with the technology required to print
in-store advertising signs and connects each supermarket to the Company's host
computer which provides certain efficiencies in data transfers between the
supermarkets and the Company's main office. The Company has an application
pending for a federal trademark for the name "Stater Express."
SANTEE DAIRIES, INC.
The Company and Hughes have jointly owned Santee since 1986; currently each
owns a 50% interest. Santee operates one of the largest dairy plants in
California and provides fluid milk products to the Company, Hughes, and other
customers in Southern California. Santee processes, packages and distributes
whole milk, low-fat and non-fat milk, as well as orange juice, fruit drinks
and certain cultured milk products under the Knudsen, Foremost and certain
store brand names. Santee is the exclusive licensee of the Knudsen trademark
from Kraft Foods, Inc. for fluid milk, juices and certain cultured milk
products in the Southern California market. In addition, Santee is the
exclusive licensee for Foremost Farms USA, Cooperative of the Foremost
trademark for fluid milk in Southern California. Santee also processes,
packages and distributes Hershey chocolate milk under license. In calendar
1996, Santee processed approximately 73 million gallons of fluid products,
including 54 million gallons of fluid milk. Total revenues for Santee in 1996
were $194.2 million, of which approximately 27% were from sales to the Company
and approximately 11% were from sales to Hughes. Santee also sells to
unaffiliated grocery supermarkets, independent food distributors, military
bases and food service providers in Southern California.
Santee's existing dairy plant was built in 1914 at its current location. Due
to the age of the plant, Santee has been required to make significant
expenditures for repairs and maintenance over the past several years. Despite
these investments, operating costs have continued to rise. In order to provide
a consistent source of milk to accommodate expected expansion, and in order to
contain costs, Santee is currently in the process of constructing a new dairy
plant in the City of Industry, California. The new facility, which is expected
to be operational by March 1998, will increase Santee's capacity to process
milk from approximately 250,000 to 350,000 gallons per day, with the ability
to expand capacity to approximately 500,000 gallons per day. The Company
expects that the new facility, when fully operational, will also lower
Santee's costs of producing fluid milk and other products. However, as with
any major construction and capital expenditure project, the realization of
these anticipated benefits is subject to a number of risks and uncertainties
and there can be no assurance that these benefits will be realized.
Construction costs of the new dairy are estimated to be approximately $101.5
million, including production equipment and capitalized interest and other
costs. However, there can be no assurance that the cost of the new dairy will
not exceed this amount. To provide the funds necessary to finance the
construction, Santee issued $80 million of senior secured notes (the "Santee
Notes") in a private placement.
Jack H. Brown also serves as Chairman and Chief Executive Officer of Santee.
STATER BROS. DEVELOPMENT, INC.
Stater Bros. Development, Inc. ("SBD") is a wholly owned subsidiary of
Stater Bros. Holdings Inc. and is primarily engaged in various aspects of
construction of the Company's supermarkets. SBD also provides
34
<PAGE>
management and/or maintenance services to certain shopping centers in which a
Stater Bros. supermarket is a tenant. SBD maintains the Company's 110
supermarkets and the common areas of 67 associated shopping centers in which
some of the Company's supermarkets are located, and acts as property manager
for 17 of such shopping centers. SBD and its predecessors have acted as
general contractor for major and minor remodels of existing stores and the
construction of new stores for more than 23 years. By employing SBD as a
general contractor, Stater Bros. can control the quality, scheduling and cost
of major construction projects. The Company believes that SBD generally can
efficiently complete major and minor remodels in a timely manner. SBD
typically completes construction of a new store in approximately 22 to 24
weeks from commencement of construction to store opening and a typical minor
remodel takes SBD approximately 17 days to complete.
PROPERTIES
The Company leases its warehouse and distribution facilities located in
Colton, California, and management believes that its warehouse and
distribution facilities are well maintained and are adequate to serve the
currently identified expansion plans of the Company. The following schedule
presents the Company's warehouse and distribution facilities by product
classification and the size of each such facility as of June 29, 1997.
<TABLE>
<CAPTION>
SQUARE
FACILITY FEET
-------- ---------
<S> <C>
Grocery......................................................... 416,000
Forward buy grocery............................................. 237,000
Produce/deli.................................................... 118,000
Meat/frozen..................................................... 116,000
Health and beauty aids.......................................... 35,000
Bakery.......................................................... 21,000
Support and office.............................................. 74,000
---------
Total......................................................... 1,017,000
=========
</TABLE>
As of June 29, 1997, the Company owned 22 of its supermarkets and leased the
remaining 88 supermarkets. Management believes that its supermarkets are well
maintained and adequately meet the expectations of its customers. Subsequent
to year end, in October 1996, the Company entered into a sale and leaseback
transaction with an unrelated third party for four of its supermarkets. Of the
four supermarkets included in the October 1996 sale and leaseback transaction,
three are located in San Bernardino County and one is located in Kern County.
See "Business--Store Profile and Locations."
EMPLOYEES
The Company has approximately 9,000 employees, approximately 500 of whom are
management and administrative employees and approximately 8,500 of whom are
hourly employees. Approximately 70% of the Company's employees work part-time.
Substantially all of the Company's hourly employees are members of either the
United Food & Commercial Workers International Union ("Retail Clerks and
Meatcutters") or the International Brotherhood of Teamsters ("Teamsters")
labor unions and are represented by several different collective bargaining
agreements. The Company's collective bargaining agreements with the Retail
Clerks and Meatcutters, which covers the largest number of employees, were
renewed in October 1995 and expire in October 1999. The Teamsters collective
bargaining agreement was renewed in September 1994 and expires in September
1998.
The Company values its employees and believes its relationship with them is
good and that employee loyalty and enthusiasm are key elements of its
operating performance.
COMPETITION
The Company operates in a highly competitive industry characterized by
narrow profit margins. Competitive factors include price, quality and variety
of products, customer service, and store location and condition. The
35
<PAGE>
Company believes that its competitive strengths include its specialty
services, everyday low prices, breadth of product selection, high product
quality, one-stop shopping convenience, attention to customer service,
convenient store locations and a long history of community involvement.
Given the wide assortment of products it offers, the Company competes with
various types of retailers, including local, regional and national supermarket
retailers, convenience stores, retail drug stores, national general
merchandisers and discount retailers, membership clubs and warehouse stores.
The Company's primary competitors include Lucky, Vons, Hughes, Albertson's,
Ralphs, and a number of independent supermarket operators.
LEGAL PROCEEDINGS
In the ordinary course of its business, the Company is party to various
legal actions which the Company believes are routine in nature and incidental
to the operation of the business of the Company and its subsidiaries. The
Company believes that the outcome of the proceedings to which the Company is
currently a party will not have a material adverse effect upon its operations
or its consolidated financial condition.
On May 2, 1993, the Company was named as a defendant along with all of the
other major supermarket chains located in the Los Angeles County area in a
class action complaint filed in the California Superior Court in Los Angeles,
California, alleging among other things that the milk pricing policies of each
of the defendants violate certain antitrust laws and regulations under
California law. In this class action lawsuit, Barela et al. v. Ralphs Grocery
Co. et al., plaintiffs seek unspecified damages. The principal allegations of
the complaint are that milk prices of the defendants operating in the Los
Angeles County area are higher than milk prices for the same products in the
San Francisco Bay area and that the prices for such products in Los Angeles
County are higher than the prices charged in Riverside and San Bernardino
counties. Because the Company does not conduct business in the San Francisco
Bay area and its prices for milk are generally consistent throughout all of
its supermarkets in the Los Angeles County area and in the Inland Empire
counties, the Company believes the claim is without merit with respect to the
Company and the Company intends to vigorously defend such litigation. The
Company believes that the ultimate outcome of this litigation will not have a
material adverse effect on the Company's operations or its consolidated
financial position.
On June 19, 1997, Stater Bros. Markets was named as a defendant in the case
of (Ufondu, et al. v. Stater Bros. Markets, et al.) filed in the Superior
Court of the State of California for the County of San Bernardino. The
complaint filed by twelve employees seeks unspecified damages alleging racial
discrimination in the Company's employment practices. The Company believes the
complaint is without merit and intends to vigorously defend the case. There
can be no assurances, however, as to the outcome of this case.
GOVERNMENT REGULATION
The Company is subject to regulation by a variety of governmental
authorities, including federal, state and local agencies that regulate the
distribution and sale of alcoholic beverages, tobacco products, milk and other
agricultural products and other food items and also regulate trade practices,
building standards, labor, health, safety and environmental matters.
36
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information with respect to the
current executive officers and directors of the Company, their ages and
principal occupations for at least the past five years. Directors of the
Company each serve for a term of one year, or until their successors are
elected. The officers serve at the discretion of the Board of Directors of the
Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Jack H. Brown................ 58 Chairman of the Board, Director, President and
Chief Executive Officer
H. Harrison Lightfoot........ 59 Group Senior Vice President--Retail Operations
A. Gayle Paden............... 60 Group Senior Vice President--Distribution
Donald I. Baker.............. 56 Group Senior Vice President--Administration
Dennis N. Beal............... 46 Vice President--Finance and Chief Financial
Officer
Bruce D. Varner.............. 60 Director and Secretary
James J. Cotter.............. 58 Director
Thomas W. Field, Jr.......... 63 Director
</TABLE>
BACKGROUND OF DIRECTORS AND EXECUTIVE OFFICERS
Jack H. Brown has been President and Chief Executive Officer of the Company
since June 1981 and Chairman of the Board since 1986. From September 1978 to
June 1981, Mr. Brown served as President of Pantry Food Markets, Inc. and
American Community Stores Corporation, Inc., both wholly owned subsidiaries of
Cullum Companies, Inc., a publicly held corporation. From 1972 to 1978, Mr.
Brown served as Corporate Vice President of Marsh Supermarkets, Inc., a
publicly held corporation. Mr. Brown has been employed in various capacities
in the supermarket industry for over 45 years. Mr. Brown has a majority
interest and is the managing general partner of La Cadena.
H. Harrison Lightfoot has been Group Senior Vice President-Retail Operations
of the Company since June 1986. Mr. Lightfoot has served the Company for 43
years in various capacities, including store manager, buyer, general
supervisor and Vice President. Mr. Lightfoot is a general partner in La
Cadena.
A. Gayle Paden joined the Company in 1986 as Group Senior Vice President-
Administration and since July 1996 has been Group Senior Vice President--
Distribution. Mr. Paden was previously with Lucky Stores for 35 years where he
served in various capacities, the most recent of which was President of the
Southern California Food Division.
Donald I. Baker joined the Company in November 1983 and has been Group
Senior Vice President-Administration since July 1996. He has served the
Company in various capacities prior to his present position. Prior to joining
the Company, Mr. Baker was employed by American Community Stores Corporation,
Inc., a subsidiary of Cullum Companies, Inc., a publicly held corporation,
from 1972 to 1983 in various capacities including Vice President of Retail
Operations, and was also employed by Kroger Company from 1966 to 1972.
Dennis N. Beal has been Vice President of Finance and Chief Financial
Officer of the Company since September 1992. Mr. Beal was Vice President and
Controller of American Stores Company from 1989 to 1992 and served in various
financial positions with American Stores Company since 1981. Mr. Beal, a
certified public accountant, was also a partner in the accounting firm of
Bushman, Daines, Rasmussen & Wisan and served in various capacities with that
firm from 1974 to 1981.
Bruce D. Varner has been a director of Stater Bros. Markets since September
1985 and director of Stater Bros. Holdings Inc. since May 1989. Since February
1997, Mr. Varner has been a partner in the law firm of Varner, Saleson &
Dobler LLP. From 1967 to February 1997, Mr. Varner was a partner with the law
firm of
37
<PAGE>
Gresham, Varner, Savage, Nolan & Tilden. Mr. Varner specializes in business
and corporate matters. Mr. Varner and the law firm of Varner, Saleson & Dobler
have performed legal services in the past for the Company and the Company
expects such services to continue in the future.
James J. Cotter has been a director of Stater Bros. Markets since March 1987
and director of Stater Bros. Holdings Inc. since May 1989. Mr. Cotter has been
Chairman of the Board of Craig since 1988 and a director since 1985. Mr.
Cotter has also been the Chairman of the Board of Reading Entertainment, Inc.
(the corporate successor to Reading Company) since 1991 and has served as a
director of that company since September 1990. Reading Entertainment, Inc.,
through its wholly owned subsidiary, Reading Australia PTY Limited is the sole
owner of the Company's Series B Preferred Stock. Craig Corporation together
with its wholly owned subsidiary owns approximately 77.4% of the outstanding
voting securities of Reading Entertainment, Inc. Mr. Cotter has been a
director and Chairman of the Board of Citadel Holding Corporation (which
Reading Entertainment, Inc., through its wholly owned subsidiaries, has
approximately 26% of the aggregate voting power) since 1991. From October 1991
to June 1992, Mr. Cotter also served as the acting Chairman and served as a
director of Citadel Holding Corporation's wholly-owned subsidiary, Fidelity
Federal Bank, and Mr. Cotter served as a director from February 1986 to May
1988 and from June 1991 to December 1993. Mr. Cotter is also a director and
Executive Vice President of Pacific Theatres, Inc., a wholly owned subsidiary
of Decurion Corporation.
Thomas W. Field, Jr., has been President of Field and Associates since 1989.
From 1984 to 1989, Mr. Field has served in various positions, including
Chairman of the Board, President and Chief Executive Officer, for McKesson
Corporation. Mr. Field has held various positions in the Supermarket Industry
for over 40 years and serves as a Director for several companies including,
Campbell Soup Company, Maxicare and Haelan Health Corp.
38
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of June 29, 1997, the number and
percentage of outstanding shares of Class A Common Stock and Series B
Preferred Stock beneficially owned by (a) each person known by the Company to
beneficially own more than 5% of such stock, (b) each director of the Company,
(c) named executive officers, and (d) all directors and executive officers of
the Company as a group:
<TABLE>
<CAPTION>
SHARES OF SHARES OF
CLASS A PERCENTAGE SERIES B PERCENTAGE OF
COMMON STOCK OF CLASS A PREFERRED STOCK SERIES B
NAME AND ADDRESS OF BENEFICIALLY COMMON STOCK BENEFICIALLY PREFERRED STOCK
BENEFICIAL OWNER OWNED OUTSTANDING OWNED OUTSTANDING
------------------- ------------ ------------ --------------- ---------------
<S> <C> <C> <C> <C>
La Cadena Investments
(1).................... 50,000 100% -- --
Reading Australia PTY
Limited (2)............ -- -- 693,650 100%
Reading Entertainment,
Inc. (2)............... -- -- 693,650 100%
Craig Corporation
(2)(4)................. -- -- 693,650 100%
Jack H. Brown (1)(3).... 50,000 100% -- --
H. Harrison Lightfoot
(1)(3)................. 50,000 100% -- --
Richard C. Moseley
(1)(3)................. 50,000 100% -- --
A. Gayle Paden (3)...... -- -- -- --
Donald I. Baker (3)..... -- -- -- --
Dennis N. Beal (3)...... -- -- -- --
James J. Cotter (2)(4).. -- -- 693,650 100%
Bruce D. Varner (3)..... -- -- -- --
Thomas W. Field, Jr.
(3).................... -- -- -- --
All directors and
executive officers as a
group
(8 persons)(1)(2)...... 50,000 100% 693,650 100%
</TABLE>
- --------
(1) The general partners of La Cadena Investments are Jack H. Brown, Richard
C. Moseley and H. Harrison Lightfoot. Mr. Brown has a majority interest
and is the managing general partner of La Cadena Investments and has the
power to vote the shares of the Company owned by La Cadena Investments,
except with respect to certain fundamental corporate changes of the
Company including the disposition of such shares. Accordingly, Messrs.
Brown, Moseley and Lightfoot may be deemed to have shared voting power or
shared investment power with respect to the shares owned by La Cadena
Investments, and such individuals therefore may be deemed to be the
beneficial owners thereof. The address of La Cadena Investments is
3750 University Avenue, Suite 610, Riverside, California 92501.
(2) All of the issued and outstanding stock of Reading Australia PTY Limited
is owned indirectly by Reading Entertainment, Inc. Craig Corporation owns
approximately 77.4% of the outstanding voting securities of Reading
Entertainment, Inc. and, accordingly, Craig Corporation may be deemed to
share beneficial ownership of shares of the Series B Preferred Stock owned
of record by Reading Australia PTY Limited. The address of Reading
Australia PTY Limited is 103 Springer Building, 3411 Silverside Road,
Wilmington, Delaware 19810. As of December 16, 1996, Mr. Cotter
beneficially owned securities representing slightly more than 50% of the
voting power of the equity securities of Craig Corporation. Accordingly,
Mr. Cotter may be deemed to have beneficial ownership with respect to the
shares owned of record by Reading Australia PTY Limited.
(3) The address of Messrs. Brown, Lightfoot, Moseley, Paden, Baker, Beal,
Varner and Field is c/o the Company at 21700 Barton Road, Colton,
California 92324.
(4) The address of Craig Corporation and Mr. Cotter is c/o Craig Corporation,
550 South Hope Street, Suite 1825, Los Angeles, California 90071.
39
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Bruce D. Varner and the law firm of Varner, Saleson & Dobler, of which
Mr. Varner is a partner, have performed legal services in the past for the
Company. The total cost of such legal services incurred by the Company during
fiscal 1996 was approximately $1.6 million. The Company believes that the
terms and costs of such legal services provided by Mr. Varner and Varner,
Saleson & Dobler were at least as fair to the Company as could have been
obtained from unaffiliated law firms. The Company expects such services to
continue in the future.
Prior to March 24, 1994, the Company's common stock was owned equally by La
Cadena and Craig. In March 1994, the Company completed the 1994
Recapitalization, which transferred effective voting control of the Company to
La Cadena, reclassified the Company's outstanding equity, provided for certain
cash payments and distributions to Craig and provided the Company with an
option to acquire Craig's remaining equity in the Company. The 1994
Recapitalization was funded through the offering of the 11% Senior Notes. The
following paragraphs describe the 1994 Recapitalization.
The Company amended its Certificate of Incorporation to provide for two
classes of common stock designated "Common Stock" and "Class A Common Stock,"
and two series of preferred stock designated "Series A Preferred Stock" and
"Series B Preferred Stock." The then existing shares of outstanding common
stock were classified as Common Stock, and holders of such stock were afforded
the right to exchange all such shares into a like number of shares of Class A
Common Stock. La Cadena exchanged its shares of Common Stock for shares of
Class A Common Stock and Craig initially retained its shares of Common Stock
(subject to the Company's right to convert such shares of Common Stock into
shares of Series B Preferred Stock, and subject to the Company's option to
acquire such shares of Common Stock, as described below). For a period of five
years following the 1994 Recapitalization, each share of Class A Common Stock
was entitled to 1.1 votes while each share of Common Stock was entitled to one
vote, thereby giving La Cadena approximately 52% and Craig approximately 48%
of the total voting power of the Company.
The Board of Directors of the Company declared a dividend of $400 per share
on the Common Stock, payable to holders of record at the close of business on
the day following the closing of the 1994 Recapitalization. As a result of the
amendment of the Company's Certificate of Incorporation and the exchange by La
Cadena of its shares of Common Stock for Class A Common Stock, the aggregate
amount of the dividend on the Common Stock amounted to $20.0 million, and the
entire dividend was paid to Craig.
Pursuant to the Option Agreement dated as of September 3, 1993 between the
Company and Craig, as amended (the "Option Agreement"), the Company was given
the right, at its option, for a period of two years from the 1994
Recapitalization, to convert the Common Stock into 693,650 shares of Series B
Preferred Stock. The Company exercised the option effective March 8, 1996.
The Series B Preferred Stock provided for dividends at the rate of 10.5% per
annum through September 2002, increasing to 12% per annum beginning October
2002 and by 100 basis points per year thereafter to a maximum rate of 15% per
annum.
The Option Agreement provided the Company an option to purchase all shares
of the Series B Preferred Stock held by Craig for a purchase price, in cash,
of $69.4 million, plus accrued and unpaid dividends. The Company paid Craig
$14.7 million in consideration of the grant of the option, which amount was
not credited toward the exercise price of the option.
On July 24, 1997, the Company gave notice of exercise of option to redeem
all outstanding shares of the Series B Preferred Stock to Reading. The Company
used a portion of the net proceeds from the issuance and sale of the Old Notes
to redeem the outstanding Series B Preferred Stock.
40
<PAGE>
Under the Option Agreement, holders of the Series B Preferred Stock were
entitled to certain registration rights. In addition, the Option Agreement
provided holders of the Series B Preferred Stock with the right to require the
redemption of all, but not less than all, the Series B Preferred Stock owned
by such holder in the event of certain changes of control of the Company or in
the event Jack H. Brown shall cease to be the Chief Executive Officer of the
Company, other than by reason of death, disability or retirement in accordance
with the Company's normal retirement policies.
The Company entered into a prepaid five year covenant not to compete and a
consulting agreement with Craig, pursuant to which the Company paid Craig $5.0
million at the closing of the 1994 Recapitalization. Additionally, the Company
had been paying an annual consulting fee of $1.5 million. The covenant not to
compete and consulting arrangements with Craig were unique, based upon the
confidential information available to Craig and its experience with, and
relationship to the Company. Accordingly, the Company had no basis to
determine whether comparable services could be obtained from unaffiliated
third parties on similar or more favorable terms. On July 31, 1997, the
Company gave notice to Craig to terminate the Consulting Agreement which
became effective July 31, 1997.
Pursuant to the Option Agreement, at the 1994 Recapitalization closing, the
Company purchased from Craig 72,000 shares of the Company's Series A Preferred
Stock, held by Craig, for a total purchase price of $1.8 million plus accrued
and unpaid dividends of approximately $306,000, and paid approximately $79,000
to Craig as payment of all unpaid interest owing to Craig on a shareholder
note. In addition, the Company purchased from La Cadena 72,000 shares of the
Company's Series A Preferred Stock, held by La Cadena, for a total purchase
price of $1.8 million, plus accrued and unpaid dividends of approximately
$306,000, and paid approximately $79,000 to La Cadena as payment of all unpaid
interest owing to La Cadena on a stockholder note. In September 1993, the
Company issued 40,000 shares of the Company's Series A Preferred Stock to each
of Craig and La Cadena in payment of all principal owing on such notes.
Pursuant to the Second Amended and Restated Stock Agreement dated as of
January 12, 1994 (the "Craig Stock Agreement"), among the Company, Craig, La
Cadena and James J. Cotter, in consideration for a standstill agreement by
Craig, the Company transferred to Craig 311,404 shares of Craig's common stock
owned by the Company at such time following the 1994 Recapitalization, as the
Company determined it was legally entitled to do so under applicable
California law governing distributions to shareholders. Such agreement
resulted in a pre-tax charge to earnings of $4.0 million in the second quarter
of fiscal 1994.
Pursuant to the Amendment to the Agreement of Stockholders of Stater Bros.
Holdings Inc. dated as of September 3, 1993, the Agreement of Stockholders of
Stater Bros. Holdings Inc. dated as of May 10, 1989 among the Company, La
Cadena, Craig and an affiliate of Craig (as amended, the "Stockholders
Agreement") was amended effective as of the 1994 Recapitalization closing to
provide that, among other things: (a) the Stockholders Agreement may be
terminated by any party upon exercise by the Company of its right to convert
the Common Stock into the Series B Preferred Stock as described above, and (b)
certain rights of the stockholders to purchase shares of Common Stock owned by
other stockholders would be suspended until after the expiration of the
Company's right to convert the Common Stock into the Series B Preferred Stock.
Under the Stockholders Agreement, the Company and the holders of the Class A
Common Stock and Common Stock were granted certain rights of first refusal
with respect to transfers of such stock. The Stockholders Agreement was
terminated effective October 15, 1996.
In connection with the 1994 Recapitalization, the Company utilized
approximately $88.9 million of the net proceeds from the 1994 offering to
redeem its 9.8% Senior Notes due 2001, including an estimated $13.4 million
(pre-tax) for a redemption premium associated with the early retirement of
such notes (including accrued interest thereon). In addition, the Company
utilized approximately $12.2 million of the net proceeds of the 1994 offering
to repay certain notes payable secured by real property, and approximately
$9.0 million of the net proceeds of the 1994 offering to repay outstanding
balances owing under the Company's existing capital expenditures credit
facility.
In June 1997, in connection with the Consent Solicitation, the Company
retained La Cadena to provide financial advisory services for a fee of $2.0
million.
41
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DESCRIPTION OF THE NEW NOTES
The New Notes will be issued under an indenture dated July 24, 1997 (the
"Indenture") between the Company and First Trust of New York, National
Association as trustee (the "Trustee"), a copy of which may be obtained from
the Initial Purchaser or the Company upon request. The terms of the New Notes
will include those stated in the Indenture and those made a part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended, as in
effect on the date of the Indenture (the "TIA"). The New Notes will be subject
to all such terms, and holders of the New Notes ("Holders") are referred to
the Indenture and the TIA for a statement of such terms. The following is a
summary of important terms of the New Notes and the Indenture. For more
complete information regarding the New Notes and the Indenture, reference is
made to the form of the New Notes and the Indenture, copies of which have been
filed as exhibits to the Registration Statement which this Prospectus is a
part and which are incorporated by reference herein. The definitions of
certain capitalized terms used in the following summary are set forth under
"Certain Definitions" below.
GENERAL
The New Notes will be general unsecured obligations of the Company, will
mature on July 1, 2004 (the "Maturity Date"), and will be limited to an
aggregate principal amount of $100.0 million. The New Notes will be issued in
denominations of $1,000 and integral multiples thereof in fully registered
form. The New Notes are exchangeable and transfers thereof will be registrable
without charge therefor, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge in connection
therewith.
The New Notes will accrue interest at the rate per annum shown on the cover
page of this Prospectus from the Issue Date or from the most recent interest
payment date to which interest has been paid or duly provided for, and accrued
and unpaid interest will be payable semi-annually on July 1 and January 1 of
each year beginning January 1, 1998. Interest will be paid to the Person in
whose name the New Note is registered at the close of business on the June 15
or December 15 immediately preceding the relevant interest payment date.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months and the actual number of days elapsed.
Initially, the Trustee will act as paying agent and registrar of the New
Notes. The Company may change any paying agent and registrar without notice to
Holders.
When issued, the New Notes will be a new issue of securities with no
established trading market. No assurance can be given as to the liquidity of
the trading market for the New Notes. See "Risk Factors--Absence of
Established Public Market."
OPTIONAL REDEMPTION
The New Notes will not be redeemable prior to July 1, 2000. Thereafter, the
New Notes will be redeemable, at the option of the Company, in whole or in
part, at the following redemption prices (expressed as percentages of the
principal amount), if redeemed during the 12-month period beginning July 1 of
the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2000........................................................... 104.50%
2001........................................................... 103.00%
2002........................................................... 101.50%
2003........................................................... 100.00%
</TABLE>
In addition, up to $35.0 million aggregate principal amount of the New Notes
will be redeemable at any time on or prior to July 1, 2000 at the option of
the Company from the net proceeds to the Company of one or more Equity
Offerings at a redemption price equal to 109% of the principal amount thereof,
together with
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accrued and unpaid interest, if any, to the redemption date, provided that not
less than $65.0 million aggregate principal amount of the New Notes remains
outstanding immediately after the occurrence of such redemption.
If less than all of the New Notes are to be redeemed, the Trustee shall
select the New Notes or portions thereof to be redeemed pro rata, by lot or by
any other method the Trustee shall deem fair and reasonable; provided,
however, that the New Notes will not be redeemed in amounts less than the
minimum authorized denomination of $1,000. Notice of redemption will be mailed
by first class mail not less than 30 days nor more than 60 days prior to the
scheduled redemption date to each holder of a New Note to be redeemed at its
registered address. On and after the registration date, interest will cease to
accrue on the New Notes or portions thereof called for redemption.
SUBORDINATION
The New Notes are subordinated in right of payment, as set forth in the
Indenture, to the prior payment in full of all existing and future Senior
Indebtedness. Except with respect to limitations on the aggregate amount of
consolidated Indebtedness that the Company may incur, the Indenture does not
limit the ability of the Company to incur additional Senior Indebtedness or
restrict the ability of the Company to transfer assets to and among its
Subsidiaries (other than Unrestricted Subsidiaries). In the event of
bankruptcy, liquidation or reorganization of the Company, the assets of the
Company will be available to make payments on the New Notes only after all
Senior Indebtedness has been paid in full and there may not be sufficient
assets remaining to pay amounts due on the New Notes.
Under certain circumstances, as described below, holders of Senior
Indebtedness may block payments on the New Notes. In addition, all of the
Company's operating assets are owned by Subsidiaries of the Company. Any
claims of the Holders against the assets of Subsidiaries would effectively be
subordinated to all existing and future indebtedness and other liabilities
(including trade and construction payables) of such Subsidiaries.
Upon any payment or distribution of cash, securities or other property to
creditors of the Company in a liquidation (total or partial), reorganization
or dissolution of the Company, whether voluntary or involuntary, or in a
bankruptcy, reorganization, insolvency, receivership, assignment for the
benefit of creditors, marshalling of assets of similar proceeding, the payment
of the principal of, interest on, or other distribution with respect to, the
New Notes will be subordinated in right of payment, as set forth in the
Indenture, to the prior payment in full of all Senior Indebtedness. In the
event that (i) any Designated Senior Indebtedness is not paid when due or (ii)
any other default on Designated Senior Indebtedness occurs and in the case of
this clause (ii) the maturity of such Designated Senior Indebtedness is
accelerated in accordance with its terms, no direct or indirect payment may be
made under the New Notes unless, in either case, (x) such default has been
cured or waived and any such acceleration has been rescinded or (y) such
Designated Senior Indebtedness has been paid in full. In addition, during the
continuance of any other event of default with respect to Designated Senior
Indebtedness that permits acceleration of the maturity thereof, no direct or
indirect payment may be made under the New Notes for a period of 180 days (the
"Payment Blockage Period") commencing on the earlier of (i) the date the
Trustee receives written notice of such default from a representative with
respect to, or the holders of a majority in principal amount of, any issue of
Designated Senior Indebtedness or (ii) if such event of default results from
the acceleration of the New Notes, the date of such acceleration. Not more
than one Payment Blockage Period may be commenced with respect to the New
Notes during any period of 360 consecutive days. In no event will a Payment
Blockage Period extend beyond 179 days from the date the payment upon or in
respect of the New Notes was due, and there must be 180 days in any 360-day
period in which no Payment Blockage Period is in effect as to the Company. For
all purposes of the paragraph, no default or 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
subsequent Payment Blockage Period by the representative or requisite holders
of such Designated Senior Indebtedness whether or not within a period of 360
consecutive days unless such default or event of default shall have been cured
or waived for a period of not less than 90 consecutive days. The failure to
make a payment pursuant to the New Notes because of the restrictions described
in this paragraph shall not be construed as
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preventing the occurrence of a Default and such restrictions shall not have
any effect on the right to accelerate the maturity of the New Notes.
As of June 29, 1997, after giving effect to the issuance and sale of the Old
Notes and the application of the net proceeds therefrom, the aggregate amount
of outstanding Indebtedness (excluding trade and construction payables) of the
Company and its Subsidiaries was $272.2 million, of which approximately $165.0
million constituted Senior Indebtedness and $7.2 million constituted
Indebtedness of the Subsidiaries. The Company has no indebtedness outstanding
to which the New Notes are senior, and the Company has no plans to issue any
such Indebtedness.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control (the date of each such occurrence
being the "Change of Control Date"), the Company will promptly notify the
Trustee and the Holders in writing of such occurrence and will make an offer
to purchase (the "Change of Control Offer"), on a business day (the "Change of
Control Payment Date") not later than 45 days following the date notification
of the Change of Control is first given, all New Notes then outstanding at a
purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest thereon, if any, to such Change of Control Payment Date
(subject to the right of Holders of record on the relevant Interest Record
Date to receive interest due on the relevant Interest Payment Date). Notice of
a Change of Control will be mailed by the Company to the Holders not more than
30 days after any Change of Control Date. The Change of Control Offer is
required to remain open for not less than 30 days, nor more than 45 days, and
until the close of business on any such Change of Control Payment Date.
Failure to make a Change of Control Offer as required will constitute an Event
of Default under the Indenture.
The 11% Senior Notes contain the same change of control provision as the New
Notes. As of June 29, 1997, after giving effect to the sale of the New Notes
offered hereby and application of the net proceeds therefrom, the Company
would not have had sufficient funds available to purchase all the outstanding
New Notes or the 11% Senior Notes pursuant to a Change of Control Offer. In
the event that the Company is required to purchase outstanding New Notes or
the 11% Senior Notes pursuant to a Change of Control Offer, the Company would
need to seek third-party financing to the extent it does not have available
funds to meet its purchase obligations. There can be no assurance that the
Company would be able to obtain such financing. Although after the sale of the
New Notes offered hereby and the application of the net proceeds therefrom,
the Company will not be subject to any other agreement regarding Indebtedness
that expressly prohibits the purchase of the New Notes pursuant to a Change of
Control Offer, it is possible that the Company may enter into an agreement in
the future that would prohibit such purchase.
If a Change of Control Offer is made, the Company will comply with all
tender offer rules under state and federal securities laws, including, but not
limited to, Section 14(e) under the Exchange Act and Rule 14e-1 thereunder, to
the extent applicable to such offer.
FORM OF NEW NOTES
Upon issuance, except as provided below, the New Notes will be represented
by a Global Note. The Global Note representing the New Notes will be deposited
with, or on behalf of, the Depositary and registered in the name of Cede & Co.
as nominee of the Depositary. If (i) the Depositary is at any time unwilling
or unable to continue as Depositary and a successor depositary is not
appointed by the Company within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of New
Notes in certificated form under the Indenture, then upon surrender of the
Global Note, New Notes in such form will be issued to each such person that
the Depositary and its nominee identify as a beneficial owner of the related
New Notes. In addition, subject to certain conditions, any person having a
beneficial interest in the Global Note may, upon request to the Trustee,
exchange such beneficial interest for New Notes in certificated form. Upon any
such issuance, the Trustee is required to register such New Notes in the name
of, and cause the same to be delivered to, such person or persons (or the
nominee of any thereof) in fully registered form. To the extent New Notes in
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definitive form are issued, such New Notes will be issued in denominations of
$1,000 and integral multiples thereof.
Upon the issuance of the Global Note, the Depositary will credit, on its
book-entry registration and transfer system, the respective principal amounts
of the New Notes represented by the Global Note to the accounts of
institutions that have accounts with the Depositary ("Participants").
Ownership of beneficial interests in the Global Note will be limited to
Participants or persons that may hold interests through Participants.
Ownership of beneficial interests in the Global Note will be shown on, and the
transfer of that ownership will be effected only through, records maintained
by the Depositary with respect to Participants' interests or by Participants
or by persons that hold through Participants with respect to beneficial
owners' interests. The laws of some states require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
ownership limits and such laws may impair the ability to transfer beneficial
interests in the Global Note.
Principal and interest payments on New Notes registered in the name of the
Depositary or its nominee will be made to the Depositary or its nominee, as
the case may be, as the registered owner of the Global Note representing such
New Notes. The Company expects that the Depositary, upon receipt of any
payment of principal or interest in respect of the Global Note, will
immediately credit Participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the Global Note as shown on the records of the Depositary. The Company also
expects that payments by Participants to owners of beneficial interests in the
Global Note held through such Participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers in bearer form or registered in "street name,"
and will be the responsibility of such Participants. None of the Company, the
Trustee, any paying agent or any registrar for the New Notes will have the
responsibility or liability for any aspect of the records relating to, or
payment made on account of, beneficial ownership interests in the Global Note
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The initial Depositary with respect to the New Notes will be The Depository
Trust Company, New York, New York ("DTC"). DTC has advised the Company that it
is a limited-purpose trust company organized under the laws of the State of
New York, a member of the Federal Reserve System, a "clearing corporation"
within the meaning of the Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
was created to hold securities of its Participants and to facilitate the
clearance and settlement of transactions among its Participants in such
securities through electronic book-entry changes in accounts of the
Participants, thereby eliminating the need for physical movement of securities
certificates. DTC's Participants include securities brokers and dealers,
banks, trust companies, clearing corporations and certain other organizations,
some of whom (and/or their representatives) own DTC. Access to DTC's book-
entry system is also available to others, such as banks, brokers, dealers and
trust companies that clear through or maintain a custodial relationship with a
Participant, either directly or indirectly. Persons who are not Participants
may beneficially own securities held by DTC only through Participants.
So long as the Depositary, or its nominee, is the holder of the Global Note,
the Depositary or its nominee, as the case may be, will be considered the sole
owner or holder of the New Notes represented by the Global Note for all
purposes under the Indenture and the Global Note. Except as set forth above,
owners of beneficial interests in the Global Note will not be entitled to have
New Notes represented by the Global Note registered in their names, will not
receive or be entitled to receive physical delivery of New Notes or the Global
Note and will not be considered the owners or holders thereof under the
Indenture or the Global Note. Accordingly, each person owning a beneficial
interest in the Global Note must rely on the procedures of the Depositary and,
if such person is not a Participant, on the procedures of the Participant
through which such person directly or indirectly owns its interest, to
exercise any rights of a holder under the Indenture or the Global Note.
DTC has informed the Company that under existing DTC policies and industry
practices, if the Company requests any action of holders of the New Notes, or
if any owner of a beneficial interest in the Global Note desires to give any
notice or take any action that a holder is entitled to give or take under the
Indenture or the
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Global Note, DTC would authorize and cooperate with each Participant to whose
account any portion of the New Notes represented by the Global Note is
credited on DTC's books and records to give such notice or take such notice.
Any person owning a beneficial interest in the Global Note who is not a
Participant must rely on any contractual arrangements such person has
directly, or indirectly through the person's immediate financial intermediary,
with a Participant to give such notice or take such action.
CERTAIN COVENANTS
The Indenture will contain, among others, the following covenants:
Limitation on Indebtedness
The Company will not, and will not permit any of its Subsidiaries (other
than any Unrestricted Subsidiary), directly or indirectly, to incur any
Indebtedness, provided that if no Default or Event of Default shall have
occurred and be continuing at the time or as a consequence of the incurrence
of such Indebtedness, the Company may incur Indebtedness if, on the date of
the incurrence of such Indebtedness after giving pro forma effect to the
incurrence of such Indebtedness, the Consolidated Fixed Charge Coverage Ratio
of the Company is at least 2.0 to 1.
The foregoing limitations shall not apply to: (i) Indebtedness under a
revolving credit facility or any replacement facility thereof, provided that
Indebtedness under such credit facility or any replacement facility, including
unused commitments, shall not at any time exceed $50.0 million in aggregate
outstanding principal amount; (ii) Indebtedness of the Company and its
Subsidiaries existing on the Issue Date; (iii) Indebtedness of the Company
represented by the 11% Senior Notes and the Notes; (iv) Indebtedness of the
Company and its Subsidiaries incurred in exchange for or the net proceeds of
which are used to extend, refinance, renew, replace, substitute or refund
("Refinance") Indebtedness referred to in clauses (i), (ii) and (iii) above
and (ix) below (the "Refinancing Indebtedness") plus any penalties, fees or
premiums incurred in connection therewith, provided that (A) the principal
amount of such Refinancing Indebtedness shall not exceed the principal amount
of the Indebtedness (including unused commitments) so Refinanced (the
"Existing Debt") as of the date of the proposed incurrence of the Refinancing
Indebtedness, (B) such Refinancing Indebtedness shall have an Average Life
equal to or greater than the Average Life of the Existing Debt, (C) if the
Existing Debt (including the Notes) being Refinanced is pari passu with or
subordinated to the Notes then such Refinancing Indebtedness shall be pari
passu with or at least as subordinated to, as the case may be, the Notes, (D)
the Refinancing Indebtedness has a stated maturity date no earlier than the
Existing Debt as of the date of such proposed Refinancing, and (E) if the
Existing Debt is Indebtedness solely of the Company, such Refinancing
Indebtedness will only be permitted if it is Indebtedness solely of the
Company; (v) Permitted Construction Indebtedness incurred after March 8, 1994
not to exceed $10.0 million in the aggregate at any time outstanding and
designated as Permitted Construction Indebtedness subject to this clause (v)
in an Officer's Certificate delivered to the Trustee; (vi) Indebtedness of the
Company to a Wholly Owned Subsidiary of the Company or by a Wholly Owned
Subsidiary of the Company to the Company or between Wholly Owned Subsidiaries
of the Company; (vii) Indebtedness under Interest Rate Protection Agreements
entered into in the ordinary course of business; (viii) Indebtedness arising
from agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from guarantees of letters of credit, surety bonds or
performance bonds securing any obligations of the Company pursuant to such
agreements, incurred or assumed in connection with the disposition of any
business, assets or Subsidiary of the Company, other than guarantees or
similar credit support by the Company of Indebtedness incurred by any Person
acquiring all or any portion of such business, assets or Subsidiary for the
purpose of financing such acquisition, provided that the maximum aggregate
liability in respect of all such Indebtedness described in this clause shall
not exceed the net proceeds actually received in connection with any such
disposition; (ix) Indebtedness to secure workers' compensation and other
insurance coverages, not to exceed the minimum amount required by the
Company's insurance carriers or applicable regulatory agencies and (x)
Indebtedness to La Cadena incurred by the Company in connection with a
Qualified La Cadena Investment; provided, however, that the repayment of
principal with respect to, and the payment of interest with respect to,
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any such Qualified La Cadena Investment constituting Indebtedness shall be
subject to the limitation on "Restricted Payments and Investments."
Limitation on Restricted Payments and Investments
The Company will not, and will not permit or cause any of the Subsidiaries
(other than any Unrestricted Subsidiary), directly or indirectly, to make any
Restricted Payment or Investment after the Issue Date unless, at the time of
such proposed Restricted Payment or Investment, and on a pro forma basis
immediately after giving effect thereto:
(A) no Default or Event of Default shall have occurred and be continuing
or shall occur as a consequence thereof; and
(B) the aggregate amount expended for all Restricted Payments and
Investments, without duplication, subsequent to June 30, 1997 would not
exceed the sum of:
(1) 50% of the aggregate Consolidated Net Income of the Company (or
if such Consolidated Net Income is a loss, minus 100% of such loss)
earned on a cumulative basis during the period beginning on June 30,
1997 and ending on the last date of the Company's fiscal quarter
immediately preceding such proposed Restricted Payment or Investment;
plus
(2) 100% of the aggregate Net Equity Proceeds received by the Company
from any Person (other than a Subsidiary) from the issuance and sale
subsequent to June 30, 1997 of Qualified Capital Stock (excluding (x)
any Qualified Capital Stock paid as a dividend on any Capital Stock of
the Company or of any Subsidiary or as interest on any Indebtedness of
the Company or of any Subsidiary, (y) the issuance of Qualified Capital
Stock upon the conversion of, or in exchange for, any Capital Stock of
the Company or of any Subsidiary and (z) any Qualified Capital Stock of
the Company with respect to which the purchase price thereof has been
financed directly or indirectly using funds (i) borrowed from the
Company or any Subsidiary, unless and until and to the extent such
borrowing is repaid, or (ii) contributed, extended, guaranteed or
advanced by the Company or any Subsidiary (including, without
limitation, in respect of any employee stock ownership or benefit
plan)); plus
(3) $5.0 million; and
(C) the Company shall be able to incur (assuming a market rate of
interest with respect thereto) at least $1.00 of additional Indebtedness
under the first paragraph of "Limitation on Indebtedness" above.
The foregoing provisions of this covenant will not prevent (a) payment of
any dividend within 60 days after the date of its declaration if at such date
of declaration the payment of such dividend would comply with the provisions
set forth above provided that such dividend will be deemed to have been paid
as of its date of declaration for the purposes of this covenant, (b) if no
Default or Event of Default shall have occurred and be continuing or would
occur as a consequence thereof, the purchase, redemption, retirement or
acquisition of any shares of Capital Stock of the Company or of any Subsidiary
or any Indebtedness of the Company that is pari passu with or subordinated to
the Notes solely with or out of the net cash proceeds of the substantially
concurrent sale (other than to a Subsidiary or by a Subsidiary to one of its
subsidiaries) of shares of Qualified Capital Stock of the Company or of a
Subsidiary and neither such purchase, redemption, retirement or acquisition
nor the proceeds of any such sale will be included in any computation made
under clause (B)(2) above, (c) payments pursuant to usual and customary
indemnification arrangements for directors and officers of the Company, any
Subsidiary, Santee LLC or Santee (d) payment to Craig of up to $69,365,000
plus accrued and unpaid dividends from the proceeds of the sale of the Old
Notes to repurchase the outstanding Series B Preferred Stock, (e) the making
of Permitted Investments, (f) the making of Investments in any Subsidiary
(other than an Unrestricted Subsidiary) (including any Person who becomes a
Subsidiary as a result of any Investment, other than an Unrestricted
Subsidiary) by the Company or by any other Subsidiary, provided that any
Indebtedness evidencing such Investment is not subordinated to any
Indebtedness or other obligation of such Subsidiary, (g) the making of
Investments in the Company by any Subsidiary, provided that any Indebtedness
evidencing such Investment is
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subordinated and junior to the Notes, (h) the making of Investments of the
type described in clauses (i) through (iii) of the second paragraph under
"Limitation on Sale of Assets", (i) the making of Investments in any Person,
provided that the consideration paid by the Company or a Subsidiary for such
Investment consists solely of Qualified Capital Stock, (j) payment to Texas
Eastern of dividends on the Markets Preferred Stock as in effect on the Issue
Date, (k) the making of Investments in Santee LLC of up to $25.0 million, (l)
the making of Investments in Santee LLC for the purpose of purchasing
additional limited liability company interests in Santee LLC with the proceeds
of a Qualified La Cadena Investment, (m) the payment to La Cadena of an amount
equal to the lesser of the amount of (i) the sum of (X) any Qualified
La Cadena Investment, plus (Y) an amount equal to a commercially reasonable
rate of interest on such Qualified La Cadena Investment to the extent that the
net proceeds received by Stater Bros. Markets from the sale or disposition of
that portion of Stater Bros. Markets' interest in Santee LLC which was
acquired with the proceeds from such Qualified La Cadena Investment exceeds
the original amount of the Qualified La Cadena Investment; and (ii) net
proceeds received by Stater Bros. Markets from the sale or disposition of that
portion of Stater Bros. Markets' interest in Santee LLC which was acquired
with the proceeds from such Qualified La Cadena Investment, and (n) the
payment of a financial advisory fee of up to $2.0 million to La Cadena
substantially contemporaneously with the effective date of the 1997 amendments
to the Senior Note Indenture; provided that in each such case of clauses (f)
through (j) above, no Default or Event of Default has occurred and is
continuing or would result therefrom. The amounts expended or received, as
applicable, pursuant to clause (a) will be included, and clauses (b) through
(n) will be excluded, in computing the amounts available for Restricted
Payments and Investments for purposes of the immediately preceding paragraph.
For purposes of this covenant a distribution to holders of the Company's
Capital Stock of (i) shares of Capital Stock of any Subsidiary or (ii) other
assets of the Company, without, in either case, the receipt of equivalent
consideration therefor shall be deemed to be the equivalent of a cash dividend
equal to the excess of the Fair Market Value of the shares or other assets
being so distributed at the time of such distribution over the consideration,
if any, received therefor.
Limitation on Sale of Assets
The Company will not, and will not permit any of its Subsidiaries (other
than any Unrestricted Subsidiary) to, consummate any Asset Sale (other than a
Qualified Santee LLC Interest Sale) unless (a) such Asset Sale is for at least
Fair Market Value and (b) at least 85% of the consideration therefrom received
by the Company or such Subsidiary is in the form of cash, provided that any
non-cash consideration that becomes Net Cash Proceeds will thereafter be
subject to the provisions of the next paragraph, provided, further, that any
sale by Stater Bros. Markets of its interest in Santee LLC pursuant to the
terms of the limited liability company agreement governing Santee LLC shall
not be deemed to be an Asset Sale for purposes of this covenant.
Upon the date of consummation of any Asset Sale which, taken individually or
together with all Asset Sales since the Issue Date, results in the receipt of
Net Cash Proceeds in excess of $5.0 million, such Net Cash Proceeds and all
Net Cash Proceeds from all Asset Sales consummated concurrently therewith or
consummated thereafter (such first consummation date and each such date
thereafter a "Consummation Date") shall be applied by the Company within 18
months of the relevant Consummation Date (or, in the event of a Qualified
Santee LLC Interest Sale, within 24 months of the relevant Consummation Date)
at its election to either: (i) investments in assets or businesses in the same
line of business as the Company or such Subsidiary; (ii) the repayment of any
Indebtedness that is secured by or incurred to construct such assets; (iii)
the repayment of Senior Indebtedness; or (iv) a combination of payment and
investment permitted by the foregoing clauses (i), (ii) and (iii). On the
earlier of the day after the 18 month period following a Consummation Date
(or, in the event of a Qualified Santee LLC Interest Sale, the day after the
24 month period following a Consummation Date) or such date as the Board of
Directors of the Company or of such Subsidiary determines (as evidenced by a
resolution of the Board of Directors) not to apply the Net Cash Proceeds
relating to such Consummation Date as set forth in clauses (i), (ii) and (iii)
of the preceding sentence (each, an "Asset Sale Offer Trigger Date"), such
aggregate amount of Net Cash Proceeds which has not been applied on or before
such Asset Sale Offer Trigger Date as
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permitted in clauses (i), (ii) and (iii) of the preceding sentence (each an
"Asset Sale Offer Amount") shall be applied by the Company or such Subsidiary
to make an offer to purchase (the "Asset Sale Offer") on a date (the "Asset
Sale Offer Payment Date") not less than 30 nor more than 60 days following the
applicable Asset Sale Offer Trigger Date, from all Holders on a pro rata
basis, that amount of Notes equal to the Asset Sale Offer Amount at a price
equal to 100% of the aggregate principal amount of the Notes to be
repurchased, plus accrued and unpaid interest thereon, if any, to the date of
repurchase. Notwithstanding the foregoing, if an Asset Sale Offer Amount is
less than $5.0 million the application of the Net Cash Proceeds constituting
such Asset Sale Offer Amount to an Asset Sale Offer may be deferred until such
time as such Asset Sale Offer Amount plus the aggregate amount of all Asset
Sale Offer Amounts arising subsequent to the Asset Sale Offer Trigger Date
relating to such initial Asset Sale Offer Amount from all Asset Sales by the
Company and its Subsidiaries aggregate at least $5.0 million at which time the
Company or said Subsidiary shall apply all Net Cash Proceeds constituting all
Asset Sale Offer Amounts that have been so deferred to make an Asset Sale
Offer (the first date the aggregate of all such deferred Asset Sale Offer
Amounts is equal to $5.0 million or more shall be deemed to be an "Asset Sale
Offer Trigger Date"). Pending application pursuant to an Asset Sale Offer, the
Company shall invest such Asset Sale Offer Amounts in Permitted Investments.
Each Asset Sale Offer will be mailed to the record Holders as shown on the
register of Holders within 10 days following the Asset Sale Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures
reasonably determined by the Company. Upon receiving notice of the Asset Sale
Offer, Holders may elect to tender their Notes in whole or in part in integral
multiples of $1,000 in exchange for cash. Tenders by Holders will be revocable
until 4 P.M., New York City time, on the Business Day immediately preceding
the Asset Sale Offer Payment Date. To the extent Holders properly tender the
New Notes in an amount exceeding the Asset Sale Offer Amount, the New Notes of
tendering Holders will be repurchased on a pro rata basis (based on amounts
tendered). An Asset Sale Offer shall remain open for a period of 20 Business
Days or such longer period as may be required by law. For purposes of this
covenant, the Company will not act as paying agent.
If an offer is made to repurchase the Notes pursuant to an Asset Sale Offer,
the Company will and will cause its Subsidiaries to comply with all tender
offer rules, including but not limited to, Section 14(e) under the Exchange
Act and Rule 14e-1 thereunder, to the extent applicable to such offer.
Limitation on Liens
The Company will not, and will not permit any of its Subsidiaries (other
than any Unrestricted Subsidiary) to, create, incur, assume or suffer to exist
any Liens securing Indebtedness, except for (a) any Liens which may be granted
to secure the Notes; (b) Liens securing Senior Indebtedness or Indebtedness
that is incurred pursuant to clause (i) of the second paragraph of "Limitation
on Indebtedness"; (c) Liens securing Indebtedness that is incurred in
accordance with the Indenture and that is pari passu with the Notes; provided
that the Notes are secured on an equal and ratable basis to such Liens;
(d) Liens securing Indebtedness incurred in accordance with the Indenture and
that is subordinated to the Notes; provided that the Notes are secured by
Liens ranking prior to such Liens; (e) Liens in respect of Refinancing
Indebtedness; provided that the terms of such Liens in respect of such
Refinancing Indebtedness are not less favorable to the Holders than terms of
the Liens securing the Existing Debt being Refinanced and do not extend to or
cover any property or assets of the Company or of any of the Subsidiaries not
securing such Existing Debt; (f) Liens in respect of Acquired Indebtedness
permitted to be incurred in accordance with the Indenture; provided that such
Liens in respect of such Acquired Indebtedness do not extend to or cover any
property or assets of the Company or any Subsidiary other than the property or
assets that secured the Acquired Indebtedness prior to the time such
Indebtedness became Acquired Indebtedness of the Company or such Subsidiary;
(g) Liens securing Indebtedness of the Company or a Subsidiary, which
Indebtedness shall not exceed $15.0 million; and (h) Permitted Liens.
Limitation on Payment Restrictions Affecting Subsidiaries
The Company will not, and will not permit any of its Subsidiaries (other
than any Unrestricted Subsidiary), directly or indirectly, to create or suffer
to exist or allow to become effective any encumbrance or restriction of
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any kind (i) on the ability of any Subsidiary (other than any Unrestricted
Subsidiary) to (a) pay dividends, in cash or otherwise, or make other payments
or distributions on its Capital Stock or any other equity interest or
participation in, or measured by, its profits, owned by the Company or any
Subsidiary or any of their respective subsidiaries, or make payments on any
Indebtedness owed to the Company or any Subsidiary or any of their respective
subsidiaries, (b) make loans or advances to the Company or any of its
Subsidiaries, (c) transfer any of their respective property to the Company or
any of its Subsidiaries or (ii) on the ability of the Company or any of its
Subsidiaries (other than any Unrestricted Subsidiary) to receive or retain any
such (x) dividends, payments or distributions, (y) loans or advances or (z)
transfer of property (any such restriction being referred to herein as a
"Payment Restriction"), except for such encumbrances or restrictions existing
under or by reason of (A) agreements in effect as of the Issue Date, (B)
applicable laws, (C) the Indenture or the Senior Note Indenture, (D) customary
provisions restricting subletting or assignment of any lease governing a
leasehold interest of the Company or any of the Subsidiaries, (E) Acquired
Indebtedness incurred in accordance with the Indenture, provided that such
encumbrance or restriction in respect of such Acquired Indebtedness is not
applicable to any Person, or the property of any Person, other than the
Person, or the property of the Person, so acquired whether or not such
Acquired Indebtedness was incurred in connection with or anticipation of such
acquisition, (F) the Revolving Credit Facility or (G) any agreement effecting
a renewal, refunding, refinancing or extension of Indebtedness referred to in
clause (A), (E) or (F) above, provided that the provisions contained in such
renewal, refunding, refinancing or extension relating to such encumbrance or
restriction are no more restrictive in any material respect than the
provisions contained in the agreement that is the subject thereof.
Limitation on Issuance and Sale of Capital Stock of Subsidiaries
The Company will not permit any Subsidiary (other than any Unrestricted
Subsidiary) to issue any shares of its Capital Stock to any Person other than
the Company or one or more of its Wholly Owned Subsidiaries (other than any
Unrestricted Subsidiary) nor will the Company permit any Person (other than
the Company or one or more of its Wholly Owned Subsidiaries) (other than any
Unrestricted Subsidiary) to own or hold any such Capital Stock, other than the
Markets Preferred Stock held by Texas Eastern Corporation as of the Issue
Date. The Company will not and will not permit any Subsidiary (other than any
Unrestricted Subsidiary) to transfer, sell or otherwise dispose of any Capital
Stock of any Subsidiary to any Person (other than to the Company or a Wholly
Owned Subsidiary that is not an Unrestricted Subsidiary) unless (i) such
transfer, sale or other disposition is of all the Capital Stock of such
Subsidiary owned by the Company or any Subsidiary and (ii) the Net Cash
Proceeds from such transfer, sale or other disposition are applied in
accordance with "Limitation on Sale of Assets."
Limitation on Transactions with Related Persons
The Company will not, nor will it permit any of its Subsidiaries (other than
any Unrestricted Subsidiary) to (a) sell, lease, transfer or otherwise dispose
of any of its property to, (b) purchase any property from, (c) make any
Investment in, or (d) enter into or amend any contract, agreement or
understanding with or for the benefit of, a Related Person of the Company or
any Subsidiary (other than the Company or any such Subsidiary (other than any
Unrestricted Subsidiary) in which no Related Person (other than the Company or
a Wholly Owned Subsidiary (other than any Unrestricted Subsidiary) of the
Company) owns, directly or indirectly, an equity interest) (each a "Related
Person Transaction"), other than Related Person Transactions that are on terms
(which terms are in writing) that are fair and reasonable to the Company or
the Subsidiary and that are no less favorable to the Company or such
Subsidiary than those that could be obtained in a comparable arm's length
transaction by the Company or such Subsidiary from an unrelated party as
determined reasonably and in good faith by the Board of Directors of the
Company; provided that if the Company or any Subsidiary enters into a Related
Person Transaction or series of Related Person Transactions involving or
having an aggregate value of more than $1.0 million such Related Person
Transaction shall, prior to the consummation thereof, have been approved by a
majority of the independent directors of the Company. The foregoing
restrictions shall not apply to (a) any transactions between Wholly Owned
Subsidiaries (other than any Unrestricted Subsidiaries) of the Company, or
between the Company and any Wholly Owned Subsidiary (other than any
Unrestricted Subsidiary) of the
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Company, if such transaction is not otherwise prohibited by the terms of the
Indenture, (b) any payments or purchases permitted by the "Limitation on
Restricted Payments and Investments" covenant, (c) any reasonable and
customary regular fees to directors of the Company, (d) any transactions
contemplated by the Santee Documents; provided that such transactions are not
otherwise prohibited by the Indenture and (e) payment of a financial advisory
fee of up to $2.0 million to La Cadena substantially contemporaneously with
the effective date of the 1997 amendments to the Senior Note Indenture.
Restriction on Layering Debt
The Company will not incur any Indebtedness that is subordinate or junior in
right of payment to Senior Indebtedness and senior in any respect in right of
payment to the Notes.
REPORTS
So long as any Note is outstanding, the Company will file with the
Commission and, within 15 days after such reports were due to be filed with
the Commission or would be due to be filed with the Commission if the Company
then had securities registered under the Exchange Act, file with the Trustee
and mail or cause the Trustee to mail to the Holders at their addresses as set
forth in the register of the New Notes, copies of the annual reports and of
the information, documents and other reports which the Company is required to
file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act
or that the Company would be required to file with the Commission if the
Company then had a class of securities registered under the Exchange Act. In
addition, the Company shall cause its annual report to stockholders and any
quarterly or other financial reports furnished to its stockholders generally
to be filed with the Trustee and mailed, no later than the date such materials
are mailed or made available to the Company's stockholders, to the Holders at
their addresses as set forth in the register of New Notes.
MERGER, CONSOLIDATION, ETC.
The Company will not, in a single transaction or series of related
transactions, consolidate or merge with or into, or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its assets
to, any Person or adopt a Plan of Liquidation unless: (i) either (1) the
Company shall be the surviving or continuing corporation or (2) the Person (if
other than the Company) formed by such consolidation or into which the Company
is merged or the Person that acquires by conveyance, transfer or lease the
properties and assets of the Company substantially as an entirety or in the
case of a Plan of Liquidation, the Person to which assets of the Company have
been transferred (x) shall be a corporation organized and validly existing
under the laws of the United States or any State thereof or the District of
Columbia and (y) shall expressly assume, by supplemental indenture (in form
and substance satisfactory to the Trustee), executed and delivered to the
Trustee, the due and punctual payment of the principal of, and premium, if
any, and interest on all of the Notes and the performance of every covenant of
the Notes and the Indenture on the part of the Company to be performed or
observed; (ii) immediately after giving effect to such transaction and the
assumption contemplated by clause (y) above (including giving effect to any
Indebtedness (including Acquired Indebtedness) incurred or anticipated to be
incurred in connection with or in respect of such transaction), the Company
(in the case of clause (1) of the foregoing clause (i)) or such Person (in the
case of clause (2) thereof) (a) shall have a Consolidated Net Worth
(immediately after the transaction but prior to any purchase accounting
adjustments relating to such transaction) equal to or greater than the
Consolidated Net Worth of the Company immediately prior to such transaction
and (b) shall be permitted to incur (assuming a market rate of interest with
respect thereto) at least $1.00 of additional Indebtedness under the first
paragraph of "Limitation on Indebtedness" above, provided that this clause
(ii) shall not apply if the purpose of such transaction is solely to change
the jurisdiction of incorporation of the Company; (iii) immediately before and
after giving effect to such transaction and the assumption contemplated by
clause (y) above (including giving effect to any Indebtedness (including
Acquired Indebtedness) incurred or anticipated to be incurred in connection
with or in respect of the transaction) no Default or Event of Default shall
have occurred or be continuing or shall occur as a consequence thereof;
(iv) the Company or such Person shall have
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delivered to the Trustee (A) an Officers' Certificate and an Opinion of
Counsel (which counsel shall not be in-house counsel of the Company), each
stating that such consolidation, merger, conveyance, transfer or lease or Plan
of Liquidation and, if a supplemental indenture is required in connection with
such transaction, such supplemental indenture, comply with this provision of
the Indenture and that all conditions precedent in the Indenture relating to
such transaction have been satisfied and (B) a certificate from the Company's
independent certified public accountants stating that the Company has made the
calculation required by clause (ii) above in accordance with the terms of the
Indenture; and (v) neither the Company nor such Person, as the case may be,
would thereupon become obligated with respect to any Indebtedness (including
Acquired Indebtedness), nor any of its property become subject to any lien,
unless the Company or such Person, as the case may be, could incur such
Indebtedness (including Acquired Indebtedness) or create such lien under the
Indenture (giving effect to such Person being bound by all the terms of the
Indenture).
EVENTS OF DEFAULT
The following are Events of Default under the Indenture:
a. default in the payment of principal of the Notes when due at maturity,
upon repurchase, upon acceleration or otherwise, including, without
limitation, failure of the Company to repurchase the Notes duly tendered
for purchase following a Change of Control or an Asset Sale Offer;
b. default in the payment of any installment of interest on the Notes
when due and continuance of such Default for more than 30 days;
c. the Company or any Subsidiary (other than any Unrestricted Subsidiary)
fails to observe, perform or comply with any of the provisions described
under "Change of Control," and "Merger, Consolidation, Etc." above;
d. default (other than a default set forth in clauses (a), (b) and (c)
above) in the performance, or breach, of any other covenant or warranty of
the Company in the Indenture or the Notes and failure to remedy such
default or breach within a period of 60 days after written notice from the
Trustee or the Holders of at least 25% in aggregate principal amount of the
then Notes;
e. failure to pay at maturity or default on any other Indebtedness,
whether outstanding on the Issue Date or thereafter, of the Company or any
Subsidiary (other than any Unrestricted Subsidiary) if either (x) such
default results from the failure to pay principal of, or premium, if any,
or interest on, such Indebtedness when due in excess of $5.0 million or (y)
as a result of such default, the maturity of such Indebtedness has been
accelerated prior to its scheduled maturity, and the principal amount of
such Indebtedness, together with the principal amount of any other such
Indebtedness which has not been paid at maturity or is in default, or the
maturity of which has been so accelerated, aggregates $5.0 million or more;
f. the entry by a court of one or more judgments or orders against the
Company or any Subsidiary or any of their respective properties in an
aggregate amount in excess of $2.0 million and that are not covered by
insurance underwritten by third parties, which judgments or orders have not
been vacated, discharged, satisfied or stayed pending appeal within 60 days
from the entry thereof; or
g. certain events of bankruptcy, insolvency, foreclosure or
reorganization involving the Company or any Subsidiary.
If an Event of Default (other than an Event of Default specified in clause
(g) above with respect to the Company) occurs and is continuing, then and in
every such case the Trustee or the Holders of not less than 25% in aggregate
principal amount of the then outstanding Notes may declare the unpaid
principal of and accrued and unpaid interest on, all the Notes then
outstanding to be due and payable, by a notice in writing to the Company (and
to the Trustee, if given by Holders) and upon such declaration such principal
amount, and accrued and unpaid interest will become immediately due and
payable, notwithstanding anything contained in the Indenture or the Notes to
the contrary. If an Event of Default specified in clause (g) above with
respect to the
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Company occurs, all unpaid principal of and accrued and unpaid interest on,
the Notes then outstanding will ipso facto become due and payable without any
declaration or other act on the part of the Trustee or any Holder.
At any time after declaration of acceleration with respect to the Notes has
been made and before a judgment or decree for payment of the money due has
been obtained by the Trustee or the Holders, where applicable, the Holders of
a majority in aggregate principal amount of the then outstanding Notes, by
written notice to the Company and the Trustee, may rescind and annul such
declaration and its consequences if (a) the Company has paid or deposited with
the Trustee a sum sufficient to pay (i) all overdue installments of interest
on all the Notes, (ii) the principal of any Notes that have become due
otherwise than by such declaration of acceleration and interest thereon at the
rate or rates prescribed therefor in the Notes, (iii) to the extent that
payment of such interest is lawful, interest on the defaulted interest at the
rate or rates prescribed therefor in the Senior Subordinated Notes, and (iv)
all money paid or advanced by the Trustee under the Indenture and the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agent and counsel and other advisors; and (b) all Defaults and Events of
Default, other than the non-payment of the principal of Notes that have become
due solely by such declaration of acceleration, have been cured or waived as
provided in the Indenture. No such rescission will affect any subsequent
Default or impair any right consequent thereon.
No Holder will have any right to institute any proceeding, judicial or
otherwise, with respect to the Indenture, or for the appointment of a receiver
or trustee or for any other remedy under the Indenture, unless (a) such Holder
has previously given notice to the Trustee of a continuing Event of Default,
(b) the Holders of not less than 25% in aggregate principal amount of the then
outstanding Notes have made written request to the Trustee to institute
proceedings in respect of such Event of Default in its own name as Trustee
under the Indenture, (c) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request, (d) the Trustee for 30 days after
its receipt of such notice, request and offer of indemnity has failed to
institute any such proceeding, and (e) no direction inconsistent with such
written request has been given to the Trustee during such 30-day period by the
Holders of a majority in principal amount of the outstanding Notes.
Each Holder will have the right, which is absolute and unconditional, to
receive payment of the principal of and interest on, such Note on the stated
maturity thereof and to institute suit for the enforcement of any such
payment, and such right may not be impaired without the consent of such
Holder.
The Holders of a majority in aggregate principal amount of the then
outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on such Trustee, provided that (a)
such direction is not in conflict with any rule of law or with the Indenture
and (b) the Trustee may take any other action it deems proper that is not
inconsistent with such direction.
The Company is required to give to the Trustee annually within 120 days
after the end of each fiscal year a statement regarding compliance with the
Indenture, and the Company is required upon becoming aware of any Default or
Event of Default, to deliver to the Trustee a statement specifying such
Default or Event of Default.
AMENDMENTS, MODIFICATIONS AND WAIVERS
The Indenture may be amended or modified or rights thereunder may be waived
with the consent of Holders of at least a majority of the principal amount of
Notes then outstanding, provided that, without the consent of each Holder
affected thereby, no such amendment, modification or waiver may:
a. reduce the percentage in outstanding aggregate principal amount of the
Notes the Holders of which must consent to an amendment, supplement or
waiver of any provision of the Indenture or the Notes;
b. reduce the rate of or change the time for payment of interest on any
Note;
c. reduce the aggregate principal amount outstanding of or change the
fixed maturity of any Note;
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d. waive a default in the payment of the principal of, premium, if any,
or interest on, or an offer to purchase required under the Indenture with
respect to, any Note (except a rescission of acceleration of the Notes and
a waiver of the payment default that resulted from such acceleration);
e. make the principal of or interest on any Note payable in money other
than that stated in the Note;
f. amend, change or modify the obligation of the Company to make and
consummate a Change of Control Offer in the event of a Change of Control or
to make and consummate the Asset Sale Offer with respect to any Asset Sale
or modify any of the provisions or definitions with respect thereto; or
g. modify any of the provisions relating to amendments or modifications
of the Indenture requiring the consent of Holders or relating to the waiver
of past Events of Default or certain covenants or waive any default in
payment in respect of the Notes or impair the right to institute suit for
the enforcement of payment of the Notes.
Notwithstanding the foregoing, from time to time, the Company, when
authorized by a resolution of its Board of Directors, and the Trustee may,
without the consent of the Holders of any outstanding Notes, amend, waive or
supplement the Indenture or the Notes for certain specified purposes,
including, among other things, (i) curing ambiguities, defects or
inconsistencies, (ii) complying with the requirements of the SEC in order to
effect or maintain the qualification of the Indenture under the TIA or (iii)
making any change that does not adversely affect the rights of any Holder;
provided, however, that in the case of a change pursuant to clauses (i) or
(iii) of this sentence, the Company has delivered to the Trustee an Opinion of
Counsel stating that such change does not adversely affect the rights of any
Holder.
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
The Indenture provides that the Company may discharge all of its obligations
in respect of the Notes, or certain of its obligations under "Certain
Covenants," if (i) all Notes previously authenticated and delivered have been
delivered to the Trustee for cancellation or the Company has paid or caused to
be paid all sums payable by it thereunder or (ii) the Company has irrevocably
deposited or caused to be deposited with the Trustee and conveyed all right,
title and interest for the benefit of the Holders of such Notes, under the
terms of an irrevocable trust agreement in form and substance satisfactory to
the Trustee, as trust funds solely for the benefit of the Holders for that
purpose, money and/or United States government obligations maturing as to
principal and interest in such amounts and at such times as are sufficient
without consideration of any reinvestment of such interest to pay principal,
premium, if any, and interest on such outstanding Notes at maturity to pay all
remaining Indebtedness on the Notes; provided, that among other things, the
Company will have delivered to the Trustee: (a) either (x) a ruling directed
to the Trustee from the Internal Revenue Service to the effect that the
Holders of the Notes will not recognize income, gain or loss for federal
income tax purposes as a result of the Company's exercise of its option under
the defeasance provision of the Indenture and will be subject to federal
income tax on the same amount and in the same manner and at the same times as
exercised or (y) an opinion of counsel to the same effect as the ruling
described in the foregoing clause (x) accompanied by a ruling to that effect
published by the Internal Revenue Service, unless there has been a change in
the applicable federal income tax law since the date of the Indenture such
that such a ruling is no longer required, (b) an opinion of counsel to the
effect that the Company's exercise of its option under this paragraph will not
result in any of the Company, the Trustee or the trust created by the
Company's deposit of funds pursuant to this provision becoming or being deemed
to be an "investment company" under the Investment Company Act of 1940, as
amended, and (c) an opinion of counsel to the effect that after the passage of
90 days following deposit, the trust funds will not be subject to Section 547
of the United States Bankruptcy Code; and provided, further, that no Event of
Default (and no event that, with the passing of time or the giving of notice,
or both, would constitute an Event of Default) shall have occurred and be
continuing on the date of such deposit. Certain obligations of the Company
under the Indenture and the Notes will remain in full force and effect until
all outstanding Notes have been paid in full.
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GOVERNING LAW
The Indenture will provide that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
THE TRUSTEE
The Indenture will provide that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the
Trustee will exercise such rights and powers as are vested in it by the
Indenture, and use the same degree of care and skill in their exercise as a
prudent person would exercise or use under the circumstances in the conduct of
such person's own affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to
obtain payments of claims in certain cases or to realize on certain property
received in respect of any such claim as security or otherwise. Subject to the
TIA, the Trustee will be permitted to engage in other transactions, provided
that if the Trustee acquires any conflicting interest as described in the TIA,
it must eliminate such conflict or resign.
The Indenture also provides that the Company shall indemnify the Trustee,
paying agent and registrar and their agents and advisors for certain claims
made against, or certain liabilities incurred by, them in connection with the
performance of the duties under the Indenture.
CERTAIN DEFINITIONS
"Acquired Indebtedness" of any specified Person means Indebtedness of any
other Person existing at the time such other Person merged with or into or
became a Subsidiary of such specified Person or assumed in connection with the
acquisition of assets from such other Person including, without limitation,
Indebtedness of such other Person incurred in connection with or in
anticipation of such other Person being merged with or into or becoming a
Subsidiary of such specified Person or such acquisition.
"Affiliate" means, when used with reference to the Company or another
Person, any Person directly or indirectly controlling, controlled by, or under
direct or indirect common control with, the Company or such other Person, as
the case may be, or any Person who beneficially owns, directly or indirectly,
5% or more of the equity interests of such Person or warrants, options or
other rights to acquire or hold more than 5% of any class of equity interests
of such Person. For the purposes of this definition, "control" when used with
respect to any specified Person means the power to direct or cause the
direction of management or policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative of the
foregoing.
"Asset Sale" means any sale, lease, transfer, exchange or other disposition
(or series of related sales, leases, transfers, exchanges or dispositions),
including, without limitation, dispositions pursuant to merger, consolidation
or sale and leaseback transactions, of (a) shares of Capital Stock of a
Subsidiary, whether by such Subsidiary or another Person or (b) any other
assets of the Company or any assets of the Subsidiaries outside the ordinary
course of business of the Company or such Subsidiary.
"Associate" of, or a person "associated" with, any person, means (i) any
trust or other estate in which such person has a substantial beneficial
interest or as to which such person serves as trustee or in a similar
fiduciary capacity and (ii) any relative or spouse of such person, or any
relative of such spouse, who has the same home as such person.
"Average Life" means, as of the date of determination, with respect to any
Indebtedness, the quotient obtained by dividing (a) the sum of the products of
(i) the number of years from such date to the date of each
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successive scheduled principal payment of such Indebtedness multiplied by (ii)
the amount of such principal payment by (b) the sum of all such principal
payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests (partnership or otherwise), participations, rights in, or other
equivalents (however designated and whether voting or non-voting) of, such
Person's capital stock, including each class of common or preferred stock of
such Person, whether outstanding on the Issue Date or issued after the Issue
Date, and any and all rights, warrants or options exchangeable for or
convertible into such capital stock or Capital Stock (but excluding any debt
security that is exchangeable for or convertible into such capital stock).
"Capitalized Lease Obligation" means obligations under a lease that are
required to be classified and accounted for as a capital lease obligation
under GAAP and, for purposes of the Indenture, the amount of such obligations
at any date shall be the capitalized amount of such obligations at such date,
determined in accordance with such principles.
"Change of Control" means the occurrence of one or more of the following
events (whether or not approved by the Board of Directors): (a) an event or
series of events by which any Person or other entity or group of Persons or
other entities acting in concert as determined in accordance with Section
13(d) of the Exchange Act (a "Group of Persons") (other than La Cadena)
together with its or their Affiliates and Associates shall, as a result of a
tender or exchange offer, open market purchases, privately negotiated
purchases, merger, consolidation or otherwise (i) be or become the beneficial
owner (within the meaning of Rule 13d-3 and Rule 13d-5 under the Exchange Act,
whether or not applicable, except that a Person shall be deemed to have
"beneficial ownership" of all securities that such Person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time) of 50% or more of the combined voting power of the then
outstanding Voting Stock of the Company, or (ii) have the ability to elect,
directly or indirectly, a majority of the members of the Board of Directors of
the Company or other equivalent governing body thereof, (b) the stockholders
of the Company shall approve any plan or proposal for the liquidation or
dissolution of the Company (whether or not otherwise in compliance with the
provisions of the Indenture), (c) a majority of the Board of Directors of the
Company consists of persons other than Continuing Directors or (d) the direct
or indirect sale, assignment, lease, exchange, disposition or other transfer,
in one transaction or a series of related transactions, of all or
substantially all of the property or assets of the Company to any Person or
Group of Persons together with any Affiliates thereof (whether or not
otherwise in compliance with the provisions of the Indenture).
"Consolidated EBITDA" for any person means for any period for which it is to
be determined the sum of, without duplication, the amounts for such period,
taken as a single accounting period, of (i) Consolidated Net Income; and (ii)
to the extent consolidated Net Income has been reduced thereby, (A)
Consolidated Tax Expense of such Person paid or accrued in accordance with
GAAP for such period; (B) Consolidated Interest Expense of such Person for
such period; and (C) depreciation, depletion and amortization expenses
(including, without limitation, amortization of capitalized debt issuance
costs) and other non-cash expenses (other than any non-cash expense which
requires the accrual of or a reserve for cash charges for any future period)
of such Person and its subsidiaries for such period, less the amount of
consolidated non-cash items increasing Consolidated Net Income for such
period, all as determined on a consolidated basis in conformity with GAAP
consistent with those applied in the preparation of the audited financial
statements of the Company and its Consolidated Subsidiaries.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of (a) the aggregate amount of Consolidated EBITDA of such
Person for the four full fiscal quarters ending on or immediately prior to the
date of the transaction (the "Transaction Date") giving rise to the need to
calculate the Consolidated Fixed Charge Coverage Ratio (such four full fiscal
quarter period being referred to herein as the "Four Quarter Period") to (b)
the aggregate Consolidated Fixed Charges of such Person for such Four Quarter
Period. For purposes of this definition, if the Transaction Date occurs prior
to the first anniversary of the Issue Date, Consolidated EBITDA and
Consolidated Fixed Charges shall be calculated, in the case of the Company,
after giving effect on a pro forma basis as if the issuance of the Old Notes
and the application of the net proceeds
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therefrom occurred on the first day of the Four Quarter Period. In addition to
and without limitation of the foregoing, for purposes of this definition,
Consolidated EBITDA and Consolidated Fixed Charges shall be calculated after
giving effect on a pro forma basis for the period of such calculation to (i)
the incurrence or retirement, as the case may be, of any Indebtedness
(including Acquired Indebtedness) of such Person or any of its subsidiaries
during the period commencing on the first day of the Four Quarter Period to
and including the Transaction Date (the "Reference Period"), including,
without limitation, the incurrence of the Indebtedness giving rise to the need
to make such calculation, as if such incurrence or retirement, as the case may
be, occurred on the first day of the Reference Period and (ii) the
Consolidated EBITDA during the Reference Period attributable to any acquired
or divested Person, business, property or asset, provided that with respect to
any such acquisition, only to the extent the EBITDA of such Person is
otherwise includable in the referent Person's Consolidated EBITDA, as if such
transaction occurred on the first day of the Reference Period. If the Person
for whom this ratio is being calculated or any of its subsidiaries directly or
indirectly guarantees Indebtedness of a third person, the preceding sentence
shall give effect to the incurrence of such guaranteed Indebtedness as if such
Person or any subsidiary of such Person had directly incurred or otherwise
assumed such guaranteed Indebtedness as of the first day of the Reference
Period. Furthermore, in calculating "Consolidated Fixed Charges" for purposes
of determining the denominator (but not the numerator) of this "Consolidated
Fixed Charge Coverage Ratio," (1) interest on Indebtedness determined on a
fluctuating basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per
annum equal to the rate of interest on such Indebtedness in effect on the
Transaction Date; (2) if interest on any Indebtedness actually incurred on the
Transaction Date may be optionally determined at an interest rate based upon a
factor of a prime or similar rate, a eurocurrency interbank offered rate or
other rates, then the interest rate in effect on the Transaction Date will be
deemed to have been in effect during the Four Quarter Period; and (3)
notwithstanding the foregoing, interest on Indebtedness determined on a
fluctuating basis, to the extent such interest is covered by agreements
relating to interest swap agreements, shall be deemed to accrue at the rate
per annum resulting after giving effect to the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum of, without duplication, the amounts for such period, taken as
a single accounting period, of (i) Consolidated Interest Expense; and (ii) the
aggregate amount of all dividends on Preferred Stock of such Person and its
Consolidated Subsidiaries, whether in cash or otherwise (except dividends
payable in shares of Qualified Capital Stock) declared or paid during such
period.
"Consolidated Interest Expense" means, with respect to any Person for any
period, the aggregate of the interest expense of such Person and its
Consolidated Subsidiaries for such period, on a consolidated basis, as
determined in accordance with GAAP, including all amortization of original
issue discount, the interest component of Capitalized Lease Obligations, net
cash costs under all Interest Rate Protection Agreements (including
amortization of fees), all capitalized interest, the interest portion of any
deferred payment obligations for such period and cash contributions to any
employee stock ownership plan to the extent such contributions are used by
such employee stock ownership plan to pay interest or fees to any Person
(other than the referent Person or one of its Wholly Owned Subsidiaries) in
connection with loans incurred by such employee stock ownership plan to
purchase capital stock of the referent Person, but net of any amortization of
any debt issuance costs.
"Consolidated Net Income" means, with respect to any Person for any period,
the consolidated net income (or deficit) of such Person and its Consolidated
Subsidiaries for such period, on a consolidated basis, as determined in
accordance with GAAP consistently applied, provided that the net income of any
other Person (other than a subsidiary) in which such Person or any subsidiary
of such Person has a joint interest with a third party (which interest does
not cause the net income of such other Person to be consolidated into the net
income of such Person in accordance with GAAP) shall be included only to the
extent of the lesser of (a) such net income that has been actually received by
such Person or such subsidiary in the form of cash dividends or similar cash
distributions or (b) the net income of such Person (which in no event shall be
less than zero), provided further that there shall be excluded (i)(x) the net
income (but not loss) of any subsidiary of such Person that is subject to
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any restriction or encumbrance on the ability of such subsidiary to make the
payment of dividends or other distributions to such Person to the extent of
such encumbrance or restriction and (y) the net income of any Person acquired
in a pooling of interests transaction accrued prior to the date it became a
subsidiary of such Person or is merged into or consolidated with such Person
or any subsidiary of such Person; (ii) any restoration to income of any
contingency reserve, except to the extent that provision for such reserve was
made out of Consolidated Net Income accrued at any time following the Issue
Date; (iii) any gain (but not loss), together with any related provisions for
taxes, realized upon the sale or other disposition (including, without
limitation, dispositions pursuant to sale and leaseback transactions) of any
property or assets that are not sold or otherwise disposed of in the ordinary
course of business and upon the sale or other disposition of any Capital Stock
of any subsidiary of such Person; (iv) any gain arising from the acquisition
of any securities, or the extinguishment, under GAAP, of any Indebtedness of
such Person; (v) any extraordinary gain (but not extraordinary loss) together
with any related provision for taxes on any such extraordinary gain and any
one time gains or losses (including, without limitation, those resulting from
litigation settlements and those related to the adoption of new accounting
standards), realized by the referent Person or any of its subsidiaries during
the period for which such determination is made; and (vi) in the case of a
successor to the Company by consolidation or merger or as a transferee of the
Company's assets (other than any calculation made under "Merger,
Consolidation, Etc." above), any earnings of the successor corporation prior
to such consolidation, merger or transfer of assets.
"Consolidated Net Worth" of a Person at any date means the Consolidated
Stockholders' Equity of such Person less (a) the amount of any gain resulting,
directly or indirectly, from the extinguishment, retirement or repurchase of
any Indebtedness of such Person or any of its subsidiaries, (b) any
revaluation or other write-ups subsequent to the Issue Date in the book value
of any asset owned by such Person or a Consolidated Subsidiary, (c) the book
value of all intangible assets (as determined in accordance with GAAP) of such
Person and its Consolidated Subsidiaries, (d) any amounts attributable to the
cost of treasury stock and the principal amount of any promissory notes
receivable from the sale of Capital Stock of such Person or of any of its
subsidiaries and (e) any gains from the sale of assets other than in the
ordinary course of business.
"Consolidated Stockholders' Equity" as of any date means with respect to any
Person the amount by which the assets of such Person and its Consolidated
Subsidiaries exceed (a) the total liabilities of such Person and its
Consolidated Subsidiaries, plus (b) any redeemable Preferred Stock (including
Disqualified Capital Stock) of such Person or any Preferred Stock of any
Consolidated Subsidiary of such Person issued to any Person other than such
Person or a Wholly Owned Subsidiary of such Person, in each case determined in
accordance with GAAP.
"Consolidated Subsidiary" of any Person means a Subsidiary which for
financial reporting purposes is or, in accordance with GAAP, should be,
accounted for by such Person as a consolidated subsidiary; provided, however,
that the Unrestricted Subsidiaries of any Person shall not be included as
Consolidated Subsidiaries of such Person for purposes of the Indenture,
regardless of whether such Unrestricted Subsidiaries are or, in accordance
with GAAP, should be, accounted for as consolidated subsidiaries provided,
further, that any Person that is not a Subsidiary (as such term is defined
herein) of a Person shall not be included as a Consolidated Subsidiary of such
Person for purposes of the Indenture, regardless of whether such Person is, or
in accordance with GAAP, should be, accounted for as a consolidated
subsidiary.
"Consolidated Tax Expense" means, with respect to any person for any period,
the aggregate of the U.S. Federal, state and local tax expense attributable to
taxes based on income and foreign income tax expenses of such Person and its
Consolidated Subsidiaries for such period (net of any income tax benefit),
determined in accordance with GAAP, other than taxes (either positive or
negative) attributable to extraordinary, unusual or nonrecurring gains or
losses, or taxes attributable to Asset Sales.
"Continuing Director" means at any date a member of the Board of Directors
of the Company who (i) was a member of the Board of Directors of the Company
on the Issue Date or (ii) was nominated for election or elected to the Board
of Directors of the Company with the affirmative vote of at least a majority
of the directors who were Continuing Directors at the time of such nomination
or election.
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"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default (as defined in the Indenture).
"Designated Senior Indebtedness" shall mean each issue of Senior
Indebtedness that (i) has an outstanding principal amount of at least
$25,000,000 (including the amount of all reimbursement obligations pursuant to
letters of credit thereunder and the maximum principal amount available to be
drawn thereunder), and (ii) has been designated as Designated Senior
Indebtedness pursuant to an Officers' Certificate of the Company received by
the Trustee.
"Disqualified Capital Stock" means any Capital Stock that, other than solely
at the option of the issuer thereof, by its terms (or by the terms of any
security into which it is convertible or exchangeable) is, or upon the
happening of an event or the passage of time would be, required to be redeemed
or repurchased, in whole or in part, or has, or upon the happening of an event
or the passage of time would have, a redemption or similar payment due on or
prior to the first anniversary of the Maturity Date, or is convertible into or
exchangeable for debt securities at the option of the holder thereof at any
time prior to the first anniversary of the Maturity Date.
"Equity Offering" means any public or private sale of equity securities
(excluding Disqualified Capital Stock) of the Company other than any private
sales to an Affiliate of the Company.
"Event of Default" has the meaning set forth under "Events of Default"
herein.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"11% Senior Notes" means the Company's $165,000,000 11% Senior Notes Due
2001.
"Fair Market Value" or "fair value" means, with respect to any asset or
property, the price which could be negotiated in an arm's-length, free market
transaction, for cash, between a willing seller and a willing and able buyer,
neither of whom is under undue pressure or compulsion to complete the
transaction.
In connection with any Asset Sale, compliance by the Company with clause (a)
of the first paragraph of "Limitation on Sale of Assets" shall be evidenced by
(i) an Officers' Certificate if the Net Cash Proceeds resulting from such
Asset Sale are less than or equal to $1.0 million (ii) subject to clause (iii)
below, a resolution of the Board of Directors, which shall be approved by at
least a majority of the independent directors of the Company, if the Net Cash
Proceeds resulting from such Asset Sale exceed $1.0 million or (iii) an
Officer's Certificate if such Asset Sale involves the sale of property in a
shopping center developed or held for resale by the Company or in connection
with a sale-leaseback transaction for a newly constructed or remodeled
supermarket and the Net Cash Proceeds resulting from such Asset Sale are less
than or equal to $10.0 million.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"guarantee" means, as applied to any obligation, (i) a guarantee (other than
by endorsement of negotiable instruments for collection in the ordinary course
of business), direct or indirect, in any manner, of any part or all of such
obligation and (ii) an agreement, direct or indirect, contingent or otherwise,
the practical or legal effect of which is to assure in any way the payment or
performance (or payment of damages in the event of a non-performance) of all
or any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange, in connection with
an acquisition or otherwise), assume, guarantee or otherwise become liable in
respect of such Indebtedness or other obligation or the recording, as required
pursuant to GAAP
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or otherwise, of any such Indebtedness or other obligation on the balance
sheet of such Person (and "incurrence," "incurred," "incurable" and
"incurring" shall have meanings correlative to the foregoing), provided that a
change in GAAP that results in an obligation of such Person that exists at
such time becoming Indebtedness shall not be deemed an incurrence of such
Indebtedness.
"Indebtedness" means, with respect to any Person, at any date, any of the
following, without duplication, (i) any liability, 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 a note, bond, debenture or similar instrument or letters of
credit (including a purchase money obligation) or (C) for the payment of money
relating to a Capitalized Lease Obligation or other obligation (whether issued
or assumed) relating to the deferred purchase price of property; (ii) all
conditional sale obligations and all obligations under any title retention
agreement (even if the rights and remedies of the seller under such agreement
in the event of default are limited to repossession or sale of such property),
but excluding trade accounts payable arising in the ordinary course of
business that are not overdue by 90 days or more or are being contested in
good faith by appropriate proceedings promptly instituted and diligently
conducted; (iii) all obligations for the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction entered
into the ordinary course of business; (iv) all Indebtedness of others secured
by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on any asset or property
(including, without limitation, leasehold interests and any other tangible or
intangible property) of such Person, whether or not such Indebtedness is
assumed by such Person or is not otherwise such Person's legal liability,
provided that if the Indebtedness so secured has not been assumed in full by
such Person or is otherwise not such Person's legal liability in full, the
amount of such Indebtedness for the purposes of this definition shall be
limited to the lesser of the amount of such Indebtedness secured by such Lien
or the Fair Market Value of the assets or property securing such Lien; (v) all
Indebtedness of others (including all dividends of other Persons the payment
of which is) guaranteed, directly or indirectly, by such Person or that is
otherwise its legal liability or which such Person has agreed to purchase or
repurchase or in respect of which such Person has agreed contingently to
supply or advance funds; (vi) all Preferred Stock issued by such Person and
its subsidiaries (other than Qualified Capital Stock) with the amount of
Indebtedness represented by such Preferred Stock being equal to the greater of
its voluntary or involuntary liquidation preference and its "maximum fixed
repurchase price," but excluding accrued dividends if any; and (vii) all
obligations under Interest Rate Protection Agreements. For purposes hereof,
the "maximum fixed repurchase price" of any Preferred Stock which does not
have a fixed repurchase price shall be calculated in accordance with the terms
of such Preferred Stock as if such Preferred Stock were purchased on any date
on which Indebtedness shall be required to be determined under the Indenture,
and if such price is based upon, or measured by, the Fair Market Value of such
Preferred Stock, such Fair Market Value shall be determined reasonably and in
good faith by the board of directors of the issuer of such Preferred Stock.
For the avoidance of doubt, the Santee Financing and the Santee Documents
shall be deemed not to constitute, nor to have given rise to, the incurrence
of any Indebtedness of the Company or any of its Subsidiaries.
"Interest Rate Protection Agreement" means any interest rate swap agreement,
interest rate cap agreement or other financial agreement designed to protect a
Person or any of its subsidiaries against fluctuations in interest rates.
"Investment" by any Person means any direct or indirect (i) loan, advance or
other extension of credit or capital contribution to (by means of transfers of
cash or other property to others or payments for property or services for the
account or use of others, or otherwise), (ii) purchase or acquisition of
Capital Stock, bonds, notes, debentures or other securities or evidences of
Indebtedness issued by, any other Person (whether by merger, consolidation,
amalgamation or otherwise and whether or not purchased directly from the
issuer of such securities or evidences of Indebtedness), (iii) guarantee or
assumption of the Indebtedness of any other Person and (iv) all other items
that would be classified as investments (including, without limitation,
purchases of assets outside the ordinary course of business) on a balance
sheet of such Person prepared in accordance with GAAP. Investments shall
exclude extensions of trade credit and advances to customers and suppliers to
the extent in the ordinary course of business and made in accordance with
customary industry practice. The amount of any
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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.
"Issue Date" means the date on which the Notes were originally issued under
the Indenture.
"Lien" means, with respect to any Person, any mortgage, pledge, lien,
encumbrance, charge or adverse claim affecting title or resulting in an
encumbrance against real or personal property of such Person, or a security
interest of any kind.
"Maturity Date" means July 1, 2004.
"Net Cash Proceeds" means, with respect to any Asset Sale of any Person,
cash proceeds received therefrom, in each case net of (a) all legal expenses
and all title and recording tax expenses, all commissions and other fees and
expenses directly related to such Asset Sale, (b) all Federal, state or local
taxes required to be accrued as a liability as a consequence of such Asset
Sale, and (c) all Indebtedness incurred in accordance with the Indenture that
is secured by such assets, in accordance with the terms of any Lien incurred
in accordance with the Indenture upon or with respect to such assets that must
by the terms of such Indebtedness and such Lien, or in order to obtain a
necessary consent to such Asset Sale or by applicable law, be repaid out of
the proceeds from such Asset Sale and which is actually so repaid in cash. For
purposes of this definition and "Certain Covenants--Limitation on Sale of
Assets" "cash" means U.S. dollars or such money as is freely and readily
convertible into U.S. dollars.
"Net Equity Proceeds" means (a) in the case of any sale by the Company of
Qualified Capital Stock, the aggregate net proceeds received by the Company,
after payment of expenses, commissions and the like incurred in connection
therewith, whether such proceeds are in cash or in other property (valued as
determined reasonably and in good faith by the Board of Directors of the
Company, as evidenced by a resolution approved by the Board of Directors, at
the Fair Market Value thereof at the time of receipt) and (b) in the case of
any exchange, exercise, conversion or surrender of any outstanding
Indebtedness of the Company or any Subsidiary for or into shares of Qualified
Capital Stock, the amount of such Indebtedness (or, if such Indebtedness was
issued at an amount less than the stated principal amount thereof, the accrued
amount thereof as determined in accordance with GAAP) as reflected in the
consolidated financial statements of the Company prepared in accordance with
GAAP as of the most recent date next preceding the date of such exchange,
exercise, conversion or surrender (plus any additional amount required to be
paid by the holder of such Indebtedness to the Company or to any Wholly Owned
Subsidiary of the Company upon such exchange, exercise, conversion or
surrender and less any and all payments made to the holders of such
Indebtedness, and all other expenses incurred by the Company in connection
therewith), in the case of each of clauses (a) and (b) to the extent
consummated after June 30, 1997.
"New Notes" means the Company's $100 million 9% Senior Subordinated Notes
due 2004.
"Permitted Construction Indebtedness" means Indebtedness of the Company or
any Wholly Owned Subsidiary representing the deferred purchase price, or the
net proceeds of which are used solely to finance the purchase price, cost of
construction, lease, or major remodeling or major refurbishment of any new or
existing supermarket (including any fixtures therein) operated or to be
operated by the Company or Stater Bros. Markets. For purposes hereof, "major
remodeling" or "major refurbishment" of a supermarket shall mean a remodeling
or refurbishment of a supermarket in a single transaction or a series of
related transactions involving aggregate expenditures equal to or greater than
$1.0 million per project site.
"Permitted Investments" means the following kinds of instruments if, in the
case of instruments referred to in clauses (a) through (d) below, on the date
of purchase or other acquisition of any such instrument by the Company or any
Subsidiary, the remaining term to maturity is not more than one year: (a)
readily marketable obligations issued or unconditionally guaranteed as to
principal and interest by the United States or by any agency or authority
controlled or supervised by and acting as an instrumentality of the United
States; (b) repurchase obligations for instruments of the type described in
clause (a) for which delivery of the instrument is made against payment; (c)
obligations (including, but not limited to, demand or time deposits, banker's
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acceptances and certificates of deposit) issued by a depository institution or
trust company incorporated or doing business under the laws of the United
States, any state thereof or the District of Columbia or a branch or
subsidiary of any such depository institution or trust company operating
outside the United States, provided that such depository institution or trust
company has, at the time of the Company's or such Subsidiary's investment
therein or contractual commitment providing for such investment, capital,
surplus or undivided profits (as of the date of such institution's most
recently published financial statements) in excess of $100.0 million;
(d) commercial paper issued by any corporation, if such commercial paper has,
at the time of the Company's or any Subsidiary's investment therein or
contractual commitment providing for such investment, credit ratings of A-1 by
Standard & Poor's Corporation and P-1 by Moody's Investors Service, Inc.; and
(e) money market, mutual or similar funds registered under the Investment
Company Act of 1940, as amended, having assets in excess of $100.0 million and
whose sole investments are comprised of securities of the type described in
clauses (a) through (d), above irrespective of whether such funds are
Affiliates of or otherwise associated with the Trustee.
"Permitted Liens" means (a) Liens existing on the Issue Date and renewals,
extensions and replacements thereof; provided that such renewals, extensions
or replacements shall not apply to any property or assets not previously
subject to such Liens or increase the principal amount of obligations secured
thereby, (b) Liens on deposits made in the ordinary course of business and (c)
Liens in favor of collecting banks having a right of setoff, revocation,
refund or chargeback with respect to money or instruments of the Company or
any Subsidiary on deposit with or in possession of such banks (d) Liens for
taxes not yet due or which are being contested in good faith by appropriate
proceedings, provided that adequate reserves with respect thereto are
maintained on the books of the Company or its Subsidiaries, as the case may
be, in conformity with GAAP, (e) carriers', warehousemen's, mechanics'
materialmen's, repairmen's or other like Liens arising in the ordinary course
of business and not overdue for a period of more than 90 days or which are
being contested in good faith by appropriate proceedings, (f) pledges or
deposits in connection with workers' compensation, unemployment insurance and
other social security legislation; (g) deposits to secure the performance of
bids, trade contracts (other than for borrowed money), leases, statutory
obligations, surety and appeal bonds, performance bonds and other obligations
of like nature incurred in the ordinary course of business, (h) easements,
rights-of-way, restrictions and other similar encumbrances incurred in the
ordinary course of business which, in the aggregate, are not substantial in
amount and which do not in any case materially detract from the value of the
property subject thereto or materially interfere with the ordinary course of
business of the Company or its Subsidiaries, as the case may be, and any
exceptions to title set forth in any title policies, (i) any attachment or
judgment Lien so long as the execution or other enforcement thereof is
effectively stayed, the claims secured thereby are being contested in good
faith by appropriate proceedings, adequate reserves have been established with
respect to such claims in accordance with GAAP and no Default or Event of
Default would result thereby, (j) any Liens relating solely to property leased
by the Company or any Subsidiary and arising solely out of the lease for such
property and (k) Liens on assets securing any Permitted Construction
Indebtedness incurred in accordance with the Indenture.
"Person" means any individual, corporation, partnership, joint venture,
trust, estate, limited liability company, unincorporated organization or
government or any agency or political subdivision thereof.
"Plan of Liquidation" means a plan (including by operation of law) that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously) (i) the sale,
lease, conveyance or other disposition of all or substantially all of the
assets of the Company otherwise than as an entirety or substantially as an
entirety and (ii) the distribution of all or substantially all of the proceeds
of such sale, lease, conveyance or other disposition and all or substantially
all of the remaining assets of the Company to holders of Capital Stock of the
Company.
"Preferred Stock" means, as applied to the Capital Stock of any Person, the
Capital Stock of such Person (other than the common stock of such Person) of
any class or classes (however designated) that ranks prior, as to the payment
of dividends or as to the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding-up of such Person, to shares
of Capital Stock of any other class of such Person.
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"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms of the Indenture, a calculation in accordance with
Article 11 of Regulation S-X under the Securities Act.
"Qualified Capital Stock" means, with respect to any Person, any Capital
Stock of such Person that is not Disqualified Capital Stock or convertible
into or exchangeable or exercisable for Disqualified Capital Stock.
"Qualified La Cadena Investment" means an Investment in the Company by La
Cadena for the purpose of providing funds to either the Company or Stater
Bros. Markets, as the case may be, to purchase additional limited liability
company interests in Santee LLC; provided, however, that if such an Investment
is made in the form of Indebtedness, then such Indebtedness shall be (a)
unsecured Indebtedness, and (b) Subordinated Indebtedness.
"Qualified Non-Recourse Indebtedness" means Indebtedness of any Person (i)
as to which neither the Company nor any of its Subsidiaries (other than any
Unrestricted Subsidiary) (a) provides credit support of any kind (including
any undertaking, agreement or instrument that would constitute Indebtedness),
(b) is directly or indirectly liable (as a guarantor or otherwise) or (c)
constitutes the lender; and (ii) no default with respect to which (including
any right that the holders thereof may have to take enforcement action against
such Person) would permit (upon notice, lapse of time or both) any holder of
any other Indebtedness of the Company or any of its Subsidiaries (other than
any Unrestricted Subsidiary) to declare a default on such other Indebtedness
or cause the payment thereof to be accelerated or payable prior to its stated
maturity; provided, however, that the Company or any Subsidiary may execute
and become obligated under the Santee Documents and perform its obligations
thereunder, and such execution, obligation and performance shall not
disqualify the Indebtedness of Santee or Santee LLC from constituting
Qualified Non-Recourse Indebtedness.
"Qualified Santee LLC Interest Sale" means a sale by Stater Bros. Markets of
its interest in Santee LLC.
"Related Person" means with respect to any Person (a) any Affiliate of such
Person, (b) any individual or other Person who directly or indirectly is the
registered or beneficial owner of 5% or more of any class of Capital Stock of
such Person or warrants, rights, options or other rights to acquire more than
5% of any class of Capital Stock of such Person, (c) any relative of such
individual by blood, marriage or adoption not more remote than first cousin
and (d) any officer or director of such Person.
"Restricted Payment" means (i) the declaration or payment of any dividend or
the making of any other distribution or other payment (whether in cash,
securities or other property or assets of the Company or of any Subsidiary) of
the Company's or any Subsidiary's Capital Stock, or to the holders of the
Company's or any Subsidiary's Capital Stock or to any Affiliate of the
Company, whether outstanding on the Issue Date or thereafter (other than
dividends or distributions payable solely in Qualified Capital Stock of the
Company, dividends or distributions declared or paid by any Subsidiary to the
Company); (ii) any purchase, redemption, retirement or other acquisition for
value of any Capital Stock of the Company or of any Subsidiary or of any
Affiliate of the Company, whether outstanding on the Issue Date or thereafter,
or any warrants, rights or options to purchase or acquire shares of the
Capital Stock of the Company or of any Subsidiary or of any Affiliate of the
Company, whether outstanding on the Issue Date or thereafter, held by any
Person other than the Company or one of its Wholly Owned Subsidiaries (other
than through the issuance in exchange therefor solely of Qualified Capital
Stock); (iii) the prepayment, acquisition, decrease or retirement prior to
maturity, scheduled repayment or scheduled sinking fund payment of any
Indebtedness of the Company that is subordinated (whether pursuant to its
terms, structurally or by operation of law) to the Notes or (iv) to incur,
create, assume or suffer to exist any guarantee of Indebtedness of, or make
any loan or advancement to, or other Investment in, any Related Person of the
Company (other than a Wholly Owned Subsidiary (other than an Unrestricted
Subsidiary)). The dollar amount of any non-cash dividend or distribution by
the Company or any Subsidiary on the Company's, any Subsidiary's or any of the
Company's Affiliate's Capital Stock shall be equal to the Fair Market Value of
such dividend or distribution at the time of such dividend or distribution.
Notwithstanding the foregoing, provided that no Default or Event of Default
shall have occurred and be continuing or would result as a consequence
thereof, the following shall not be or be deemed to be Restricted Payments:
(a) the repayment upon the consummation of an Asset Sale of any Indebtedness
of the Company permitted by the covenant "Limitation on
63
<PAGE>
Indebtedness" which is subordinated (whether pursuant to its terms or by
operation of law) to the Notes and which is secured by a Lien permitted by the
covenant "Limitation on Liens" to the extent that such Indebtedness is
required to be repaid in connection with such Asset Sale pursuant to the terms
of the instrument governing such Indebtedness and such Lien, provided that
concurrent or prior repayment of the Notes is provided for with the proceeds
of such Asset Sale if the Notes are secured by a Lien pari passu with or
senior to the Lien of such Indebtedness, or (b) the prepayment, acquisition,
retirement or decrease of Indebtedness of the Company that is subordinated
(whether pursuant to its terms or by operation of law) to the Notes that is
prepaid, acquired, decreased or retired by conversion into or in exchange for
Qualified Capital Stock.
"Revolving Credit Facility" means the Company's or any Subsidiary's
revolving credit facilities or any replacement facilities with respect
thereto.
"Santee" means Santee Dairies, Inc., a California corporation.
"Santee LLC" means Santee Dairies, LLC, a Delaware limited liability
company.
"Santee Documents" means that certain Product Purchase Agreement between
Stater Bros. Markets and Santee, that certain Owner Consent between Stater
Bros. Markets and the trustee pursuant to the trust agreement executed as part
of the Santee Financing, that certain Limited Liability Company Agreement
between Stater Bros. Markets, Hughes Markets, Inc., and Santee LLC, and all
documents effecting and ancillary to the Santee Financing.
"Santee Financing" means the issuance by Santee of up to $80,000,000 in
principal amount of notes with respect to the construction of a new dairy in
the City of Industry, California, and all transactions incident and ancillary
thereto.
"Santee Noteholders" mean the purchasers of notes with respect to the Santee
Financing.
"Senior Indebtedness" means (x) all obligations of the Company now or
hereafter existing to pay the principal of, and interest (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization to the extent a claim for post-filing interest is allowed in
such proceedings) on, any Indebtedness (other than Capitalized Lease
Obligations) of the Company, whether outstanding on the date of the Indenture
or thereafter created, incurred, assumed, guaranteed or in effect guaranteed
by the Company, (y) Indebtedness of the Company represented by Capitalized
Lease Obligations if the instrument creating or evidencing the same expressly
provides that such Indebtedness shall be senior in right of payment to the
Notes and (z) Indebtedness of the Company with respect to Interest Rate
Protection Agreements. Notwithstanding the foregoing, Senior Indebtedness
shall not include (a) any Indebtedness, if the instrument creating or
evidencing the same or the assumption or guarantee thereof expressly provides
that such Indebtedness shall not be senior in right of payment to the Notes,
(b) in the case of each Note, the other Notes, (c) Indebtedness of the Company
to, or guaranteed on behalf of, an Affiliate of the Company (other than to a
Subsidiary (other than an Unrestricted Subsidiary)), (d) Indebtedness to trade
creditors incurred or assumed in the ordinary course of business in connection
with obtaining goods, materials or services, (e) any liability for federal,
state, local or other taxes owed or owing by the Company, (f) Indebtedness
incurred in violation of the Indenture provisions summarized below under
"Limitation on Indebtedness," (g) any Indebtedness which is, by its express
terms, subordinated in right of payment to any other Indebtedness of the
Company and (h) Indebtedness represented by Disqualified Capital Stock.
"Subordinated Indebtedness" means any Indebtedness of the Company or any of
its Subsidiaries (whether outstanding on the date of the Indenture or
thereafter incurred) that (i) matures no earlier than the date that is one
year after the maturity date of the Notes and (ii) is subordinated with
respect to payment of principal and interest to the payment of principal and
interest on the Notes (whether upon a dissolution, liquidation, or
reorganization of the Company or any such Subsidiary, or otherwise).
64
<PAGE>
"subsidiary" of any Person means (a) a corporation a majority of whose
Voting Stock is at the time, 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 (b) any other Person (other than a corporation)
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 thereof, have (i) at least a majority ownership interest or (ii)
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.
"Unrestricted Subsidiary" means, to the extent such Persons become
Subsidiaries, (i) Santee LLC, (ii) Santee, and (iii) any subsidiary of an
Unrestricted Subsidiary; provided, however, that any Unrestricted Subsidiary
that incurs Indebtedness other than Qualified Non-Recourse Indebtedness shall
no longer be deemed an Unrestricted Subsidiary, for so long as such
Indebtedness not constituting Qualified Non-Recourse Indebtedness shall be
outstanding; provided further, that at such time as any Unrestricted
Subsidiary ceases to be an Unrestricted Subsidiary, all Indebtedness of such
Subsidiary shall be deemed to have been incurred by the Company and such
Subsidiary for the purposes hereof.
"Voting Stock" means, with respect to any Person, securities of any class or
classes of Capital Stock in such Person entitling the holders thereof (whether
at all times or only so long as no senior class of stock has voting power by
reason of any contingency) to vote in the election of members of the board of
directors or other governing body of such Person.
"Wholly Owned Subsidiary" means, with respect to any Person, any subsidiary
of such Person all the outstanding shares of Capital Stock (other than
directors' qualifying shares, if applicable) of which are owned directly by
such Person or another Wholly Owned Subsidiary of such Person, and with
respect to the Company, shall include Stater Bros. Markets so long as the
Company or any Wholly Owned Subsidiary of the Company owns all of the
outstanding shares of Capital Stock of Stater Bros. Markets, other than the
Markets Preferred Stock held by Texas Eastern on the Issue Date.
DESCRIPTION OF THE 11% SENIOR NOTES
The 11% Senior Notes were issued primarily to finance the cost of the 1994
Recapitalization, pursuant to the Senior Note Indenture. The Senior Note
Indenture contains covenants and agreements which are substantially identical
to those in the Indenture, except as described below. The 11% Senior Notes are
unsecured senior obligations of the Company and rank senior with respect to
payment in full of principal and interest to the Notes. Unlike the Notes which
contain certain limited optional redemption features, the 11% Senior Notes are
not redeemable prior to the maturity date. The 11% Senior Notes permit a
smaller revolving bank facility.
The 11% Senior Notes will mature on March 1, 2001 and are limited to an
aggregate principal amount of $165,000,000. The 11% Senior Notes accrue
interest at the rate per annum of 11% with interest payable on March 1 and
September 1 of each year.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Offer
The exchange of Old Notes for New Notes pursuant to the Offer will not
constitute a material modification of the terms of either the Old Notes or the
New Notes and, accordingly, such exchange will not constitute an exchange for
federal income tax purposes. Accordingly, such exchange will have no federal
income tax consequences to the Holders of the Old Notes, regardless of whether
such Holders participate in the Offer or not, and each Holder of New Notes
will continue to be required to include interest on such New Notes in its
gross income in accordance with such Holder's method of accounting for federal
income tax purposes. The Company intends, to the extent required, to take the
position described above.
65
<PAGE>
The preceding discussion of the material United States federal income tax
consequences of the Offer is based on the Internal Revenue Code of 1986, as
amended to the date hereof (the "Code"), existing and proposed Treasury
regulations, and judicial and administrative decisions, all of which are
subject to change at any time, possibly on a retroactive basis. This
discussion relates to Old Notes, and the New Notes received therefor, that are
held as "capital assets" within the meaning of Section 1221 of the Code by
persons who are citizens or residents of the United States. It does not
discuss state, local or foreign tax consequences, nor does it discuss tax
consequences to categories of Holders that are subject to special rules, such
as foreign persons, tax-exempt organizations, insurance companies, banks and
dealers in stocks and securities. Federal income tax consequences may vary
depending on the particular status of an investor. No rulings will be sought
from the Internal Revenue Service ("IRS") with respect to the federal income
tax consequences of the Offer.
THIS SECTION DOES NOT PURPORT TO DEAL WITH ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MIGHT BE RELEVANT TO AN INVESTOR'S DECISION TO PARTICIPATE IN
THE OFFER. EACH INVESTOR SHOULD CONSULT ITS OWN TAX ADVISOR CONCERNING THE
APPLICATION OF THE FEDERAL INCOME TAX LAWS AND OTHER TAX LAWS TO ITS
PARTICULAR SITUATION BEFORE DETERMINING WHETHER TO PARTICIPATE IN THE OFFER.
Backup Withholding
Under the Code, a Holder of a New Note may be subject, under certain
circumstances, to "backup withholding" at a 31~% rate with respect to payments
of interest thereon or the gross proceeds from the disposition thereof. This
withholding generally applies only if the Holder (i) fails to furnish his or
her social security number or other taxpayer identification number ("TIN")
within a reasonable time after request therefor, (ii) furnishes an incorrect
TIN, (iii) is notified by the IRS that he or she has failed to report properly
payments of interest and dividends and the IRS has notified the Company that
he or she is subject to backup withholding or (iv) fails, under certain
circumstances, to provide a certified statement, signed under penalty of
perjury, that the TIN provided is his or her correct number and that he or she
is not subject to backup withholding. Any amount withheld from a payment to a
Holder under the backup withholding rules is allowable as a credit against
such Holder's federal income tax liability, provided that the required
information is furnished to the IRS. Corporations and certain other entities
described in the Code and Treasury regulations are exempt from such
withholding if their exempt status is properly established.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with any resale of New Notes received in exchange for Old Notes where such Old
Notes were acquired as a result of market-making activities or other trading
activities. The Company has agreed that for a period of 180 days from the
Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale. In
addition, until , 1997 (90 days from the date of this Prospectus), all
dealers effecting transactions in the New Notes may be required to deliver a
prospectus.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer and/or the purchasers of any such New Notes. Any
broker-dealer that resells New Notes that were received by it for its own
account pursuant to the Offer and any broker or dealer
66
<PAGE>
that participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that by acknowledging that it
will deliver, and by delivering, a prospectus as required, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act.
For a period of 180 days from the Expiration Date, the Company will send a
reasonable number of additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such
documents in the Letter of Transmittal. The Company will pay all the expenses
incident to the Offer (which shall not include the expenses of any holder in
connection with resales of the New Notes). The Company has agreed to indemnify
holders of the Notes, including any broker-dealers participating in the Offer,
against certain liabilities, including liabilities under the Securities Act.
This Prospectus has been prepared for use in connection with the Offer and
may be used by BancAmerica Securities, Inc. in connection with the offers and
sales related to market-making transactions in the New Notes. BancAmerica
Securities, Inc. may act as a principal or an agent in such transactions. Such
sales will be made at prices related to prevailing market prices at the time
of sale. The Company will not receive any of the proceeds of such sales.
BancAmerica Securities, Inc. has no obligation to make a market in the New
Notes and may discontinue its market-making activities at any time without
notice, at its sole discretion.
LEGAL MATTERS
The validity of the New Notes offered hereby and certain other legal matters
will be passed upon for the Company by Gibson, Dunn & Crutcher LLP, Los
Angeles, California. Certain legal matters for the Company will be passed upon
by Varner, Saleson & Dobler LLP, Riverside, California. Bruce D. Varner, a
partner of Varner, Saleson & Dobler LLP, is a director of the Company.
EXPERTS
The consolidated financial statements of Stater Bros. Holdings Inc. and
Subsidiaries as of September 29, 1996, September 24, 1995 and September 25,
1994 and for each of the three fiscal years in the period ended September 29,
1996, appearing in this Prospectus and Registration Statement, 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.
67
<PAGE>
STATER BROS. HOLDINGS INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Report of Independent Auditors.......................................... F-2
Audited Financial Statements:
Consolidated Balance Sheets at September 25, 1994, September 24, 1995
and September 29, 1996............................................... F-3
Fiscal years ended September 25, 1994, September 24, 1995 and
September 29, 1996:
Consolidated Statements of Income..................................... F-4
Consolidated Statements of Cash Flows................................. F-5
Consolidated Statements of Stockholders' Equity....................... F-6
Notes to Audited Consolidated Financial Statements.................... F-7
Unaudited Consolidated Financial Statements:
Unaudited Consolidated Balance Sheets at September 29, 1996 and June
29, 1997............................................................. F-19
Unaudited Consolidated Income Statements for the 39 Weeks Ended June
23, 1996 and June 29, 1997........................................... F-20
Unaudited Consolidated Statements of Cash Flows for the 39 Weeks Ended
June 23, 1996 and June 29, 1997...................................... F-21
Notes to Unaudited Consolidated Financial Statements as of June 29,
1997................................................................. F-22
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of Stater Bros. Holdings Inc.
We have audited the accompanying consolidated balance sheets of Stater Bros.
Holdings Inc. and subsidiaries as of September 25, 1994, September 24, 1995
and September 29, 1996, and the related consolidated statements of income,
stockholders' equity, and cash flows for each of the 52-week periods then
ended for 1994 and 1995, and the 53-week period then ended for 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Stater Bros. Holdings Inc. and subsidiaries as of September 25, 1994,
September 24, 1995 and September 29, 1996, and the consolidated results of
their operations and their cash flows for each of the 52-week periods then
ended for 1994 and 1995, and the 53-week period then ended for 1996, in
conformity with generally accepted accounting principles.
Ernst & Young LLP
Riverside, California
November 25, 1996
F-2
<PAGE>
STATER BROS. HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
SEPTEMBER 25, SEPTEMBER 24, SEPTEMBER 29,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents.......... $ 21,289 $ 26,308 $ 45,279
Receivables........................ 16,503 15,877 19,009
Inventories........................ 103,655 107,146 117,372
Prepaid expenses................... 3,421 3,591 3,357
Deferred income taxes.............. 3,276 2,792 4,710
Properties held for sale........... 2,964 2,933 1,787
-------- -------- --------
Total current assets............. 151,108 158,647 191,514
Investment in unconsolidated
affiliate........................... 10,230 9,250 7,626
Property and equipment
Land............................... 20,678 20,653 18,688
Buildings and improvements......... 92,808 96,653 89,856
Store fixtures and equipment....... 61,208 68,338 78,570
Property subject to capital leases. 14,368 14,368 14,368
-------- -------- --------
189,062 200,012 201,482
Less accumulated depreciation and
amortization...................... 72,902 81,385 87,267
-------- -------- --------
116,160 118,627 114,215
Deferred income taxes................ 5,351 4,975 5,295
Deferred debt issuance costs, net.... 7,630 6,423 5,221
Lease guarantee escrow............... 4,446 5,584 6,701
Other assets......................... 11,564 10,576 7,722
-------- -------- --------
Total assets......................... $306,489 $314,082 $338,294
======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable................... $ 63,538 $ 67,604 $ 79,271
Accrued payroll and related
expenses.......................... 21,289 22,289 23,981
Other accrued liabilities.......... 23,704 22,653 23,607
Current portion of capital lease
obligations....................... 1,155 1,087 1,182
-------- -------- --------
Total current liabilities........ 109,686 113,633 128,041
Long-term debt, less current portion. 165,000 165,000 165,000
Capital lease obligations, less
current portion..................... 9,187 8,099 6,917
Long-term portion of self-insurance
reserves............................ 15,765 13,031 10,332
Other long-term liabilities.......... -- 741 2,526
10.5% Cumulative Series B Preferred
Stock:
(stated value $100 per share)
Authorized shares--693,650
Issued and outstanding shares--0 in
1994 and 1995, 693,650 in 1996..... -- -- 69,365
Stockholders' equity
Common Stock, $.01 par value:
Authorized shares--100,000
Issued and outstanding shares--
50,000 in 1994 and 1995, 0 in
1996............................ 1 1 --
Class A Common Stock, $.01 par
value:
Authorized shares--100,000
Issued and outstanding shares--
50,000 in 1994, 1995 and 1996... 1 1 1
Additional paid-in capital......... 12,715 12,715 12,715
Retained earnings.................. 8,784 15,511 (41,953)
Less option to acquire stock....... (14,650) (14,650) (14,650)
-------- -------- --------
Total stockholders' equity......... 6,851 13,578 (43,887)
-------- -------- --------
Total liabilities and stockholders'
equity.............................. $306,489 $314,082 $338,294
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
STATER BROS. HOLDINGS INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
52 WEEKS 53 WEEKS
--------------------------- -------------
SEPTEMBER 25, SEPTEMBER 24, SEPTEMBER 29,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Sales............................... $1,539,717 $1,579,895 $1,705,332
Cost of goods sold.................. 1,199,794 1,227,355 1,315,726
---------- ---------- ----------
Gross profit........................ 339,923 352,540 389,606
Operating expenses:
Selling, general and
administrative expenses.......... 297,474 308,332 328,242
Depreciation and amortization..... 11,656 11,756 12,583
Consulting fees................... 830 1,500 1,525
---------- ---------- ----------
Total operating expenses............ 309,960 321,588 342,350
---------- ---------- ----------
Operating profit.................... 29,963 30,952 47,256
Interest income..................... 384 952 1,929
Interest expense.................... (15,501) (20,076) (20,258)
Equity in (loss) from unconsolidated
affiliate.......................... (592) (980) (1,624)
Other income (expense)--net......... 391 97 (172)
---------- ---------- ----------
Income before income taxes and the
cumulative effect of a change in
accounting for income taxes and
extraordinary loss................. 14,645 10,945 27,131
Income taxes........................ 5,856 4,218 11,120
---------- ---------- ----------
Income before cumulative effect of a
change in accounting for income
taxes and extraordinary loss....... 8,789 6,727 16,011
Cumulative effect of a change in
accounting for income taxes........ 372 -- --
---------- ---------- ----------
Income before extraordinary loss.... 9,161 6,727 16,011
Extraordinary loss from early
extinguishment of debt ($13,856
less tax effect of $5,820)......... (8,036) -- --
---------- ---------- ----------
Net income.......................... 1,125 6,727 16,011
Less preferred dividends............ 327 -- 4,111
---------- ---------- ----------
Net income available to common
shareholders....................... $ 798 $ 6,727 $ 11,900
========== ========== ==========
Earnings per common share:
Before cumulative effect of a
change in accounting for income
taxes and extraordinary loss..... $ 84.62 $ 67.27 $ 165.28
Cumulative effect of a change in
accounting for income taxes...... 3.72 -- --
Extraordinary loss................ (80.36) -- --
---------- ---------- ----------
Earnings per common share........... $ 7.98 $ 67.27 $ 165.28
========== ========== ==========
Average common shares outstanding... 100,000 100,000 72,000
========== ========== ==========
Common shares outstanding at end of
year............................... 100,000 100,000 50,000
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
STATER BROS. HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------
52 WEEKS 53 WEEKS
--------------------------- -------------
SEPTEMBER 25, SEPTEMBER 24, SEPTEMBER 29,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income.......................... $ 1,125 $ 6,727 $ 16,011
Adjustments to reconcile net income
to net cash provided by operating
activities:
Cumulative effect of a change in
accounting for income taxes...... (372) -- --
Extraordinary loss related to
early extinguishment of debt..... 13,856 -- --
Depreciation and amortization..... 11,656 11,756 12,583
Deferred income taxes............. (1,303) 860 (2,238)
Loss (gain) on disposals of
assets........................... (391) (97) 172
Net undistributed loss in
unconsolidated affiliate......... 592 980 1,624
Changes in operating assets and
liabilities:
(Increase) decrease in
receivables...................... (197) 626 (3,132)
(Increase) decrease in
inventories...................... (4,281) (3,491) (10,226)
(Increase) decrease in prepaid
expenses......................... 210 (170) 234
(Increase) decrease in other
assets........................... (14,695) (359) 1,738
Increase (decrease) in accounts
payable.......................... 7,502 4,066 11,667
Increase (decrease) in accrued
liabilities and long-term portion
of self-insurance reserves....... 4,921 (2,044) (514)
-------- -------- --------
Net cash provided by operating
activities......................... 18,623 18,854 27,919
-------- -------- --------
FINANCING ACTIVITIES:
Proceeds from long-term debt........ 165,000 -- --
Payment on notes payable............ (9,000) -- --
Redemption of preferred stock....... (3,600) -- --
Premiums paid on early retirement of
debt............................... (12,893) -- --
Common stock exchanged for preferred
stock.............................. -- -- (69,365)
Preferred stock issued and exchanged
for common stock................... -- -- 69,365
Principal payments on long-term debt
and capital lease obligations...... (88,967) (1,156) (1,087)
Dividends paid on preferred stock... (327) -- (4,111)
Dividends paid on common stock...... (20,000) -- --
Option to acquire stock............. (14,650) -- --
-------- -------- --------
Net cash provided by (used in)
financing activities............... 15,563 (1,156) (5,198)
-------- -------- --------
INVESTING ACTIVITIES:
Purchase of property and equipment.. (19,409) (13,178) (22,415)
Proceeds from sale of property and
equipment and properties held for
sale............................... 964 499 18,665
Decrease in investment in stock..... 4,000 -- --
-------- -------- --------
Net cash (used in) investing
activities......................... (14,445) (12,679) (3,750)
-------- -------- --------
Net increase in cash and cash
equivalents........................ 19,741 5,019 18,971
Cash and cash equivalents at
beginning of period................ 1,548 21,289 26,308
-------- -------- --------
Cash and cash equivalents at end of
period............................. $ 21,289 $ 26,308 $ 45,279
======== ======== ========
Interest paid....................... $ 17,120 $ 19,537 $ 21,360
Income taxes paid................... $ 1,753 $ 4,633 $ 9,725
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
STATER BROS. HOLDINGS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS
SERIES A A ADDITIONAL OPTION TO
PREFERRED COMMON COMMON PAID-IN RETAINED ACQUIRE
STOCK STOCK STOCK CAPITAL EARNINGS STOCK
--------- ------ ------ ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances at September
26, 1993............... $ 3,600 $ 1 $ -- $12,715 $ 27,986 $ --
Preferred stock
redeemed............. (3,600) -- -- -- -- --
Common Stock exchanged
for Class A Common
Stock................ -- -- 1 -- -- --
Option to acquire
stock................ -- -- -- -- -- (14,650)
Net income for 52
weeks ended
September 25, 1994... -- -- -- -- 1,125 --
Preferred stock
dividends paid....... -- -- -- -- (327) --
Common stock dividends
paid................. -- -- -- -- (20,000) --
------- ----- ----- ------- -------- --------
Balances at September
25, 1994............... -- 1 1 12,715 8,784 (14,650)
Net income for 52
weeks ended
September 24, 1995... -- -- -- -- 6,727 --
------- ----- ----- ------- -------- --------
Balances at September
24, 1995............... -- 1 1 12,715 15,511 (14,650)
Conversion of Common
Stock for
Series B Preferred
Stock................ -- (1) -- -- (69,364) --
Net income for 53
weeks ended
September 29, 1996... -- -- -- -- 16,011 --
Preferred stock
dividends paid....... -- -- -- -- (4,111) --
------- ----- ----- ------- -------- --------
Balances at September
29, 1996............... $ -- $ -- $ 1 $12,715 $(41,953) $(14,650)
======= ===== ===== ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 1996
NOTE 1--THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES
Description of Business
Stater Bros. Holdings Inc. (the "Company") is engaged primarily in the
operation of retail supermarkets. As of September 29, 1996, the Company
operated 110 retail food supermarkets under the name "Stater Bros." The
Company's supermarkets are located principally in the "Inland Empire" area of
Southern California--San Bernardino, Riverside and the eastern portions of Los
Angeles, Orange and Kern counties. The Company and its predecessor companies
have operated retail grocery stores under the "Stater Bros." name in the
Inland Empire since 1936.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Stater Bros. Markets ("Markets") and Stater
Bros. Development, Inc. All significant inter-company transactions have been
eliminated in consolidation.
Fiscal Year
The Company's fiscal year ends on the last Sunday in September. The fiscal
years ended September 25, 1994 and September 24, 1995 were 52-week years and
the fiscal year ended September 29, 1996 was a 53-week year.
Cash and Cash Equivalents
Cash and cash equivalents are reflected at cost, which approximates their
fair value, and consist primarily of overnight repurchase agreements,
certificates of deposit and money market funds with maturities of less than
three months when purchased.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Receivables
Receivables represents amounts expected to be received during the next
operating cycle of the Company. The carrying amount reported in the balance
sheet for receivables approximates their fair value.
Properties Held for Sale
Properties expected to be sold within one year are classified as current
assets and are stated at the lower of cost or estimated net realizable value
and consist of land, buildings and equipment.
Deferred Debt Issuance Costs
Direct costs incurred as a result of financing transactions are capitalized
and amortized to interest expense over the terms of the applicable debt
agreements.
Self-insurance Reserves
The Company provides reserves, subject to certain retention levels, for
workers' compensation, general and automobile liability claims. Consulting
actuaries assist the Company in developing reserve estimates for its self-
insured liabilities. Such reserves are discounted using an 8% rate. The
Company is self-insured, subject to certain retention levels, for healthcare
costs of eligible non-bargaining unit employees. Such healthcare reserves are
not discounted.
F-7
<PAGE>
STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," (SFAS 121). The Company
will be required to adopt SFAS 121 in fiscal year 1997. The Company does not
expect that the adoption of SFAS 121 will have a material effect on its
financial position or its results of operations for the fiscal year ended in
September 1997.
Property and Equipment
Property and equipment are stated at cost and are depreciated or amortized,
principally on the straight-line method over the estimated useful lives of the
assets, and for capitalized leases over the initial lease term or the
estimated economic life of the asset.
The average economic lives are as follows:
<TABLE>
<CAPTION>
MOST
RANGE PREVALENT
------------- ---------
<S> <C> <C>
Buildings and improvements........................ 8-30 Years 25 Years
Store furniture and equipment..................... 3-10 Years 5 Years
Property subject to capital leases................ Life of Lease 25 Years
</TABLE>
Income Taxes
The Company provides for deferred income taxes as timing differences arise
between income and expenses recorded for financial and income tax reporting
purposes.
Cost of Goods Sold
Costs of goods sold include certain warehousing, transportation and
distribution costs.
Reclassifications
Certain amounts in the prior periods have been reclassified to conform to
the current period financial statement presentation.
Use of Estimates
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles requires management to make estimates and
assumptions that effect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NOTE 2--DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 25, SEPTEMBER 24, SEPTEMBER 29,
1994 1995 1996
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
11% senior notes payable, due
March 1, 2001................... $165,000 $165,000 $165,000
-------- -------- --------
Total long-term debt............. $165,000 $165,000 $165,000
======== ======== ========
</TABLE>
F-8
<PAGE>
STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
As of September 29, 1996, no principal payments were due in the next four
years and the Company's 11% Senior Notes are due on March 1, 2001. Interest is
payable semi-annually on September 1 and March 1.
Interest capitalized during fiscal years 1994, 1995 and 1996 amounted to
$437,000, $50,000 and $116,000, respectively. Interest expense incurred,
before the effect of capitalized interest, during 1994, 1995 and 1996 amounted
to $15,938,000, $20,126,000 and $20,374,000, respectively.
The Company did not have short-term borrowings outstanding at September 25,
1994, September 24, 1995 and September 29, 1996. The average daily amount of
short-term borrowings was $5,420,000 and $129,000 during 1994 and 1995,
respectively, and the Company did not incur any short-term borrowings during
1996. The weighted average interest rates were 4.40% and 9.68% for 1994 and
1995, respectively.
The Company is subject to certain covenants associated with its 11% Senior
Notes due 2001. As of September 29, 1996, the Company was in compliance with
all such covenants.
NOTE 3--UNCONSOLIDATED AFFILIATE
The Company owns 49.6% of Santee Dairies, Inc. ("Santee"), an operator of a
fluid milk processing plant located in Los Angeles, California, and is not the
controlling stockholder. Accordingly, the Company accounts for its investment
in Santee using the equity method of accounting and recognized losses of
$592,000, $980,000, and $1,624,000 for fiscal years 1994, 1995 and 1996
respectively. The Company is a significant customer of Santee which supplies
the Company with a substantial portion of its fluid milk and dairy products.
NOTE 4--BANK FACILITIES
Stater Bros. Markets and Bank of America National Trust and Savings
Association (the "Bank") have entered into a credit agreement (as amended)
whereby the Bank provides Stater Bros. Markets with a revolving operating line
of credit (the "Operating Facility") with a maximum availability of $15.0
million, which was available on September 29, 1996, and a revolving letter of
credit facility (the "LC Facility") with a maximum availability of $25.0
million, of which $11.3 million was available on September 29, 1996
(collectively, the "Bank Facilities"). The Bank Facilities will expire on June
1, 1998. Interest on the outstanding principal balance of the Operating
Facility is payable monthly at either the Bank's reference rate plus one
percent per annum or at a fixed rate of interest. Borrowings under the Bank
Facilities are unsecured general obligations of Stater Bros. Markets and are
guaranteed by Stater Bros. Development, Inc. The Bank Facilities contain
customary cross-default provisions with respect to the Company's 11% Senior
Notes due 2001.
The Bank Facilities also contain certain financial and other covenants
applicable to Stater Bros. Markets, including without limitation, requirements
to (i) maintain a minimum current ratio of at least 1.20:1; (ii) maintain
minimum tangible net worth plus debt subordinated to the Bank (as defined) of
at least $145.0 million; (iii) maintain a ratio of total liabilities to
tangible net worth plus debt subordinated to the Bank of not in excess of
1.30:1; (iv) maintain a minimum fixed charge coverage ratio (as defined) of at
least 1.10:1 for each consecutive four fiscal quarters beginning with the four
fiscal quarters ending on Stater Bros. Markets' 1996 fiscal year end; (v)
limit the sale of assets; (vi) prohibit additional indebtedness except for
normal trade credit and indebtedness secured only by real property constructed
or acquired within the prior twelve months; (vii) prohibit additional liens
except for liens for indebtedness secured by real property pursuant to clause
(v); (viii) prohibit the acquisition of other business entities; (ix) restrict
the payment of dividends (as discussed below); (x) prohibit changes of
ownership; (xi) prohibit the liquidation, consolidation or merger of the
business; and (xii) repay all advances outstanding under the Operating
Facility and not draw any new advances for at least
F-9
<PAGE>
STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5 calendar days each month. As of September 29, 1996, for purposes of the Bank
Facilities, Stater Bros. Markets was in compliance with all restrictive
covenants and had (i) a current ratio of 1.53:1, (ii) tangible net worth and
debt subordinated to the Bank of $195.4 million; (iii) a ratio of total
liabilities to tangible net worth and debt subordinated to the Bank of 0.73:1
and (iv) a fixed charge coverage ratio (as defined in the Bank Facilities) of
1.70:1. If for any reason Stater Bros. Markets is unable to comply with the
terms of the Bank Facilities, including the covenants contained therein, such
noncompliance would result in an event of default under the Bank Facilities,
and could result in acceleration of the payment of indebtedness then
outstanding under Bank Facilities or, in certain situations, the prohibition
of the payment of dividends or advances to the Company. In addition, no
amendment, waiver or supplement may be made to the Indenture without the prior
written consent of the Bank if such amendment, waiver or supplement adversely
affects the rights of the Bank as lender to Stater Bros. Markets.
The financial and operational covenants contained in the Bank Facilities
significantly limit Stater Bros. Markets' ability to pay dividends and make
loans or advances to the Company, the primary source of anticipated cash for
the Company, and could limit the Company's ability to respond to changing
business and economic conditions, and to finance future operations or capital
needs including the Company's ability to achieve its plans to remodel and
expand existing supermarkets and open new supermarkets.
NOTE 5--LEASES
The Company leases the majority of its retail stores, offices, warehouses
and distribution facilities. Certain leases provide for additional rents based
on sales. Primary lease terms range from 10 to 99 years and substantially all
leases provide for renewal options. A portion of the Company's lease
obligations are guaranteed by Petrolane Incorporated ("Petrolane") or its
successor (see Note 6). The leases guaranteed by Petrolane had initial terms
of 20 years and expire in the year 2003. Lease payments for the properties
subject to the Petrolane guarantees are approximately $10.0 million per year.
Under the terms of the agreement related to the Company's acquisition of
Stater Bros. Markets from Petrolane in 1983, as amended in 1985, Stater Bros.
Markets is required to make annual deposits into a lease guarantee escrow
account. The amount of each annual deposit is to be based on (a) a percentage
of sales of 20 supermarkets, as specified in the agreement, to the extent they
exceed a defined base; and (b) a percentage of rents adjusted for increases in
the Consumer Price Index for certain rental property, including the Company's
office and warehouse complex. The Company deposited $844,000, $861,000 and
$738,000 into the escrow account during fiscal years 1994, 1995 and 1996,
respectively.
Upon termination of the leases, or the termination of the Petrolane lease
guarantees, all amounts deposited into the lease guarantee escrow account,
plus interest thereon, less any amounts disbursed, will be returned to the
Company. At September 29, 1996, the lease guarantee escrow account had a
cumulative balance of $6,701,000, compared to $5,584,000 and $4,446,000 as of
September 24, 1995 and September 25, 1994, respectively.
Petrolane, or its successor, has the right to cause the escrow holder to
disburse funds from the amounts held in the lease guarantee escrow account for
any amounts which Petrolane or its successor may be required to pay as
guarantor of the lease obligations of Stater Bros. Markets.
F-10
<PAGE>
STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Following is a summary of future minimum lease payments as of September 29,
1996:
<TABLE>
<CAPTION>
OPERATING
CAPITAL LEASES
FISCAL YEAR LEASES MINIMUM PAYMENT
----------- ------- ---------------
(IN THOUSANDS)
<S> <C> <C>
1997............................................... $ 1,844 $ 19,071
1998............................................... 1,814 18,124
1999............................................... 1,760 17,966
2000............................................... 1,693 16,493
2001............................................... 1,397 15,002
Thereafter......................................... 2,022 69,996
------- --------
Total minimum lease payments....................... 10,530 $156,652
========
Less amounts representing interest................. 2,431
-------
Present value of minimum lease payments............ 8,099
Less current portion............................... 1,182
-------
Long-term portion.................................. $ 6,917
=======
</TABLE>
Rental expense and sublease income were as follows:
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS
--------------------------- -------------
SEPTEMBER 25, SEPTEMBER 24, SEPTEMBER 29,
1994 1995 1996
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Minimum rentals................. $19,708 $17,906 $19,267
Rentals based on sales.......... $ 4,432 $ 5,179 $ 5,072
Sublease income................. $ 1,066 $ 1,018 $ 1,186
</TABLE>
Aggregate sublease income to be received subsequent to September 29, 1996 is
approximately $3,753,000.
In January 1996, the Company completed a sale and leaseback transaction with
an unrelated third party for five of the Company's supermarkets. Gross
proceeds from the sale of the five supermarkets amounted to approximately
$18.5 million, which approximated fair market value. The Company entered into
leases for the five supermarkets with initial terms of 20 years and with
options available to the Company which extend the lease terms up to an
additional 20 years. The Company believes the rents due in accordance with the
terms of the leases approximate fair market rents. The gains from the sale of
the supermarkets are deferred and will be amortized into income over the
initial term of the leases. Rent expenses paid in fiscal 1996 for the five
supermarkets included in the January 1996 sale and leaseback transaction were
approximately $1.3 million. The future minimum rents due are $1.9 million in
1997, 1998, 1999, 2000, $2.1 million in 2001 and $30.2 million thereafter.
Such amounts are included in the table of future minimum lease payments above.
NOTE 6--PREFERRED STOCK
Stater Bros. Markets has issued and outstanding 10 shares of its $11.00
Cumulative Redeemable Preferred Stock due in 2003 for $1,000 plus accrued and
unpaid dividends. Dividends are accrued at the rate of $11.00 per share per
annum. The preferred stock was issued in conjunction with a guarantee of
Stater Bros. Markets lease obligations by Petrolane Incorporated or its
successors (see Note 5). For as long as shares of the $11.00 Cumulative
Redeemable Preferred Stock remain outstanding, Stater Bros. Markets is subject
to certain covenants. The most restrictive covenant limits the amount of
dividends that may be paid to amounts that may be legally paid under
applicable state laws. At September 29, 1996, accumulated earnings available
for dividend
F-11
<PAGE>
STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
distributions were approximately $182.7 million. In the event of non-
compliance by Stater Bros. Markets, the holders of the Stater Bros. Markets
preferred stock may elect the Board of Directors of Stater Bros. Markets. At
September 29, 1996, Stater Bros. Markets was in compliance with these
covenants.
Effective March 8, 1996, the Company converted the Company's 50,000 shares
of Common Stock held by Craig Corporation into 693,650 shares of the Company's
Series B Preferred Stock. The Series B Preferred Stock is redeemable by the
Company in whole but not in part for $69.4 million plus accrued and unpaid
dividends. The holders of the Series B Preferred Stock can, beginning in the
year 2009, cause the Company to redeem such Preferred Stock. Dividends on the
Preferred Stock are paid quarterly in arrears at the rate of 10.5% per annum
through September 2002, and beginning in October 2002, will increase to 12%
per annum and will increase by 100 basis points per year thereafter to a
maximum rate of 15% per annum. There are no preferred dividends in arrears.
NOTE 7--INCOME TAXES
The provision for income taxes consisted of the following:
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS
--------------------------- -------------
SEPTEMBER 25, SEPTEMBER 24, SEPTEMBER 29,
1994 1995 1996
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal....................... $ 5,493 $2,991 $ 8,116
State......................... 1,563 944 2,478
------- ------ -------
7,056 3,935 10,594
------- ------ -------
Deferred
Federal....................... (976) 213 488
State......................... (224) 70 38
------- ------ -------
(1,200) 283 526
------- ------ -------
Income tax expense.............. $ 5,856 $4,218 $11,120
======= ====== =======
</TABLE>
The current portion of Federal and State income taxes for fiscal year ended
September 25, 1994 does not include the tax benefits associated with the
extraordinary loss from the early extinguishment of debt. Such Federal and
State tax benefits in 1994 amounted to $4,850,000 and $970,000.
A reconciliation of the provision for income taxes to amounts computed at
the federal statutory rate is as follows:
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS
--------------------------- -------------
SEPTEMBER 25, SEPTEMBER 24, SEPTEMBER 29,
1994 1995 1996
------------- ------------- -------------
<S> <C> <C> <C>
Statutory federal income tax
rate.......................... 34.3 % 35.0 % 35.0 %
State franchise tax rate, net
of federal income tax benefit. 6.1 6.1 6.1
Other.......................... (.4) (2.6) (.1)
---- ---- ----
40.0 % 38.5 % 41.0 %
==== ==== ====
</TABLE>
F-12
<PAGE>
STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Deferred income taxes resulted from timing differences in recognizing
revenue and expense for tax and financial statement purposes. The sources of
these timing differences and the income tax (benefit) of each were as follows:
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS
--------------------------- -------------
SEPTEMBER 25, SEPTEMBER 24, SEPTEMBER 29,
1994 1995 1996
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Accrued liabilities............. $(1,057) $ 366 $ 364
California franchise tax........ 307 (258) (590)
Depreciation.................... (154) 542 (22)
Other, net...................... (296) (367) 774
------- ----- -----
$(1,200) $ 283 $ 526
======= ===== =====
</TABLE>
Components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS
--------------------------- -------------
SEPTEMBER 25, SEPTEMBER 24, SEPTEMBER 29,
1994 1995 1996
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
DEFERRED INCOME TAX ASSETS:
Property and equipment......... $ 2,117 $ 1,542 $ 1,403
Self-insurance reserves........ 5,727 4,313 4,533
Pension and vacation liabili-
ties.......................... 2,022 2,218 2,453
Inventories.................... 1,200 1,140 1,213
Other.......................... -- -- 408
------- ------- -------
Total deferred income tax
assets...................... 11,066 9,213 10,010
DEFERRED INCOME TAX LIABILI-
TIES:
Investment in unconsolidated
affiliate..................... (1,046) (630) (5)
Other.......................... (1,393) (816) --
------- ------- -------
Total deferred income tax
liabilities................. (2,439) (1,446) (5)
------- ------- -------
Net deferred income tax assets. $ 8,627 $ 7,767 $10,005
======= ======= =======
</TABLE>
Although there can be no assurances as to future taxable income of the
Company, the Company believes that its expectations of future taxable income,
when combined with the income taxes paid in prior years, will be adequate to
realize the deferred income tax assets.
The Company adopted Statement of Financial Accounting Standard No. 109
"Accounting for Income Taxes" (SFAS No. 109) effective at the beginning of
fiscal 1994. Adoption of this statement in fiscal 1994 resulted in a gain of
$372,000 from the cumulative effect of a change in accounting principle and a
corresponding increase to deferred income tax benefit of $372,000.
NOTE 8--RELATED PARTY TRANSACTIONS
Investment in Stock
During 1989, the Company acquired 311,404 shares of Common Stock of Craig
Corporation (the "Craig Common Stock") for $4.0 million. Craig Corporation
("Craig") was a holder of Common Stock of the Company. The Company had the
right to require Craig to purchase the Craig Common Stock for $4.0 million in
F-13
<PAGE>
STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
May 1994. In 1993, the Company entered into a series of separate agreements
(the "Recapitalization") with Craig (see Note 13). Upon the earlier of the
completion of the Recapitalization Transaction or March 31, 1994, subject to
applicable California law governing distributions to shareholders, the Company
was obligated to sell, transfer and assign the Common Stock of Craig to Craig
in exchange for Craig's agreement not to exercise its rights under, or be
entitled to certain benefits of the Agreement of Stockholders of Stater Bros.
Holdings Inc. dated as of May 10, 1989, as amended effective September 3, 1993
and to stand still during the time period from October 1, 1993 to the earlier
of the completion of the Recapitalization or March 31, 1994 in order to allow
the Company time to complete the Recapitalization. During fiscal 1994, the
Company transferred to Craig its investment in 311,404 shares of Common Stock
of Craig and recognized an expense of $4.0 million.
Consulting Agreements and Covenant Not to Compete
Since January 1, 1989, the Company has entered into various consulting
agreements (the "Agreements") with its stockholders, La Cadena Investments, a
California general partnership, and Craig, that required La Cadena and Craig
to provide consultation and advice to the Company in connection with general
business, financial, management consulting, real estate acquisition and
development, and product diversification matters (collectively the "Consulting
Services"). All fees payable under the Agreements were subject to and
subordinate to provisions of the Company's credit agreements. These consulting
agreements terminated in September 1993. Pursuant to a Consulting Agreement
dated as of September 3, 1993 (the "Consulting Agreement"), which became
effective on March 8, 1994, Craig will render consulting services to the
Company for a five-year period and Craig has agreed not to engage in any
business that competes with the Company in any of the five counties in which
the Company operates until the end of the five-year period of the Consulting
Agreement. In consideration for such consulting services, the Company will pay
Craig $1.5 million per year thereafter, payable quarterly during the term of
the Consulting Agreement. Expenses of $.8 million, $1.5 million and $1.5
million were incurred under the consulting agreement in 1994, 1995 and 1996,
respectively. Additionally, on March 8, 1994, the Company paid Craig $5.0
million which is amortized to earnings over the five-year term of the covenant
not to compete included in the Consulting Agreement.
NOTE 9--RETIREMENT PLANS
Pension Plan
The Company has a noncontributory defined benefit pension plan covering
substantially all non-union employees. The plan provides for benefits based on
an employee's compensation during the three years before retirement. The
Company's funding policy for this plan is to contribute annually at a rate
that is intended to provide sufficient assets to meet future benefit payment
requirements.
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS
--------------------------- -------------
SEPTEMBER 25, SEPTEMBER 24, SEPTEMBER 29,
1994 1995 1996
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost--benefits earned during
the period.......................... $ 653 $ 619 $ 752
Interest cost on projected benefit
obligation.......................... 762 862 1,000
Actual return on assets.............. 240 (735) (429)
Net amortization and deferral........ (808) 200 (181)
----- ----- ------
Net periodic pension cost............ $ 847 $ 946 $1,142
===== ===== ======
Assumptions used for accounting were:
Discount rate...................... 8.0% 8.0% 7.5%
Rate of increase in compensation
levels............................ 5.0% 5.0% 5.0%
Expected long-term rate of return
on assets......................... 9.0% 9.0% 9.0%
</TABLE>
F-14
<PAGE>
STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table sets forth the plan's funded status and amounts
recognized in the Company's balance sheet at:
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS
--------------------------- -------------
SEPTEMBER 25, SEPTEMBER 24, SEPTEMBER 29,
1994 1995 1996
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation......... $ 7,551 $ 9,400 $ 10,591
======== ======== ========
Accumulated benefit obligation.... $ 7,803 $ 9,717 $ 10,930
======== ======== ========
Projected benefit obligation...... $(10,845) $(13,484) $(14,991)
Plan assets at fair value,
primarily notes and bonds........ 6,821 8,138 9,028
-------- -------- --------
Projected benefit obligation in
excess of plan assets............ (4,024) (5,346) (5,963)
Unrecognized net loss............. 2,227 3,407 3,745
Unrecognized prior service cost... 29 (76) (71)
Unrecognized net obligations es-
tablished October 1, 1987........ 270 243 216
-------- -------- --------
Pension (liability) recognized in
the balance sheet................ $ (1,498) $ (1,772) $ (2,073)
======== ======== ========
</TABLE>
Expenses recognized for this retirement plan were $1,085,000, $967,000 and
$1,290,000 in 1994, 1995 and 1996, respectively.
Profit Sharing Plan
The Company has a noncontributory defined contribution profit sharing plan
covering substantially all non-union employees. Union employees may
participate if their collective bargaining agreement specifically provides for
their inclusion. The Company may contribute up to 7.5% of total compensation
paid or accrued during the year to each plan participant subject to
limitations imposed by the Internal Revenue Code. The Company recognized
expenses for this plan in the amount of $320,000, $357,000 and $347,000 in
1994, 1995 and 1996, respectively.
Multi-Employer Plans
The Company also contributes to multi-employer defined benefit retirement
plans in accordance with the provisions of the various labor agreements that
govern the plans. Contributions to these plans are generally based on the
number of hours worked. Information for these plans as to vested and non-
vested accumulated benefits and net assets available for benefits is not
available.
The Company's expense for these retirement and health and welfare plans
consisted of the following:
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS
--------------------------- -------------
SEPTEMBER 25, SEPTEMBER 24, SEPTEMBER 29,
1994 1995 1996
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Multi-Employer Pension
Plans.................. $ 7,234 $ 5,688 $ 7,376
Multi-Employer Health
and Welfare............ 20,901 36,320 36,632
------- ------- -------
Total Multi-Employer
Benefits............... $28,135 $42,008 $44,008
======= ======= =======
</TABLE>
In conjunction with a three-year collective bargaining agreement entered
into in 1993, the Company received a $13.6 million credit which was applied
against employer contributions to multi-employer health and
F-15
<PAGE>
STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
welfare benefit plans which was recovered monthly during fiscal 1994. The
Company received an additional $0.8 million credit applied against employer
contributions during fiscal 1995 and an additional $3.8 million in fiscal
1996.
NOTE 10--LABOR RELATIONS
The Company entered into a four-year collective bargaining agreement with
the retail clerks and meat cutters collective bargaining units in October 1995
and entered into a four-year collective bargaining agreement in September 1994
with the teamsters collective bargaining units.
NOTE 11--FAIR VALUE OF FINANCIAL 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 Cash Equivalents
The carrying amount approximates fair value because of the short-term
maturity of these instruments.
Receivables
The carrying amount approximates fair value because of the short-term
maturity of these instruments.
Long-Term Debt
The fair value of the 11% Senior Notes due 2001 is based on quoted market
prices. Market quotes for the fair value of the Company's capitalized lease
obligations are not available, and a reasonable estimate of the fair value
could not be made without incurring excessive costs.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 29,
1996
-----------------
CARRYING FAIR
AMOUNT VALUE
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents.............................. $ 45,279 $ 45,279
Receivables............................................ $ 19,009 $ 19,009
Long-term debt for which it is:
Practicable to estimate fair values.................. $165,000 $155,660
Not practicable...................................... $ 8,099 $ 8,099
</TABLE>
NOTE 12--LITIGATION MATTERS
In the ordinary course of its business, the Company is party to various
legal actions which the Company believes are incidental to the operation of
the business of the Company and its subsidiaries. The Company has recorded
reserves for loss contingencies based on the specific circumstances of each
case. Such reserves are recorded when the occurrence of loss is probable and
can be reasonably estimated. The Company believes that the outcome of such
legal proceedings to which the Company is currently a party will not have a
material adverse effect upon its results of operations or its consolidated
financial condition.
On May 2, 1993, the Company was named as a defendant along with all of the
other major supermarket chains located in the Los Angeles County area in a
class action complaint filed in the California Superior Court
F-16
<PAGE>
STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
in Los Angeles, California, alleging among other things that the milk pricing
policies of each of the defendants violate certain antitrust laws and
regulations under California law. In this class action lawsuit, Barela et al.
v. Ralphs Grocery Co. et al., plaintiffs seek unspecified damages. The
principal allegations of the complaint are that milk prices of the defendants
operating in the Los Angeles County area are higher than milk prices for the
same products in the San Francisco Bay area and that the prices for such
products in Los Angeles County are higher than the prices charged in Riverside
and San Bernardino counties. Because the Company does not conduct business in
the San Francisco Bay area and its prices for milk are generally consistent
throughout all of its supermarkets in the Los Angeles County area and
Riverside and San Bernardino counties, the Company believes the claim is
without merit with respect to the Company and the Company intends to
vigorously defend such litigation. The Company believes that the ultimate
outcome of this litigation will not have a material adverse effect on the
Company's results of operations or its consolidated financial condition.
NOTE 13--1994 RECAPITALIZATION
In March 1994, the Company completed a recapitalization transaction (the
"1994 Recapitalization") which transferred effective voting control of the
Company to La Cadena, reclassified the Company's outstanding equity, provided
for certain cash payments and distributions to Craig Corporation ("Craig"),
previously a common shareholder of the Company, and provided the Company with
an option to acquire Craig's remaining equity in Stater Bros. Holdings Inc.
The 1994 Recapitalization was funded through an offering of $165.0 million of
11% Senior Notes due 2001 (the "Initial Notes") under Rule 144A of the
Securities Act of 1933, as amended. Proceeds from the Initial Notes were used
to (a) repay $75.5 million of 9.8% Senior Notes, together with a prepayment
premium, (b) repay outstanding bank loans and mortgages of approximately $12.0
million, (c) repay an outstanding capital expenditure revolving credit
facility of $9.0 million, (d) fund a $5.0 million five-year consulting
agreement and covenant not to compete with Craig, (e) fund a payment of $14.7
million to purchase an option to acquire Craig's remaining interest in the
Company, (f) pay $20.0 million in dividends on the Company's Common Stock
(held by Craig) and (g) pay fees and expenses associated with the 1994
Recapitalization.
In August of 1994, all of the Initial Notes were exchanged for a like amount
of New Notes which are listed and trade on the American Stock Exchange.
Effective March 8, 1996, pursuant to options available to the Company
included in a certain Option Agreement (the "Option") entered into in March
1994, as part of the 1994 Recapitalization between the Company and Craig
Corporation, the Company exercised its right to convert all of the Common
Stock held by Craig Corporation into 693,650 shares of 10.5% Series B
Preferred Stock. The redemption value of the Series B Preferred Stock is $100
per share for an aggregate value of $69,365,000. Dividends on the Series B
Preferred Stock are paid quarterly in arrears.
The Option will remain in effect until March 2006 and will entitle the
Company to purchase all, but not less than all, such shares of Series B
Preferred Stock. With respect to the Series B Preferred Stock, the exercise
price of the Option will be $69.4 million.
Pursuant to the Option Agreement, holders of the Series B Preferred Stock
are entitled to certain registration rights. In addition, holders of Series B
Preferred Stock have the right to require the redemption of all, but not less
than all, the Series B Preferred Stock owned by such holder in the event of
certain changes of control of the Company or in the event Jack H. Brown shall
cease to be the Chief Executive Officer of the Company, other than by reason
of death, disability or retirement in accordance with the Company's normal
retirement policies.
NOTE 14--EXTRAORDINARY LOSS FROM EARLY EXTINGUISHMENT OF DEBT
In connection with the 1994 Recapitalization, in March 1994, the Company
redeemed its $75.5 million 9.8% Senior Notes due 2001 and retired
approximately $12.2 million of certain notes payable secured by real property,
F-17
<PAGE>
STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
and retired approximately $9.0 million of amounts due under the Company's then
existing capital expenditures credit facility. The Company paid a pre-tax
premium of $13.9 million in March 1994 due as a result of the early retirement
of such debt.
NOTE 15--SUBSEQUENT EVENT
In October 1996, the Company completed a sale and leaseback transaction with
an unrelated third party for four of the Company's supermarkets. The net
proceeds from the sale of the four supermarkets amounted to approximately
$16.0 million, which approximated fair market value. The Company entered into
leases for the four supermarkets with initial terms of 20 years and with
options available to the Company which extend the lease terms up to an
additional 20 years. The Company believes the rents due under the leases
approximate fair market rents. The gains from the sale of the supermarkets
were approximately $2.5 million and are deferred and will be amortized into
income over the initial term of the leases. The approximate future minimum
rents due for the four supermarkets are $1.6 million in 1997, $1.7 million in
1998, 1999, 2000, 2001 and $25.9 million thereafter.
NOTE 16--QUARTERLY RESULTS (UNAUDITED)
Quarterly results for fiscal 1994, 1995 and 1996 are as follows:
<TABLE>
<CAPTION>
INCOME BEFORE
CUMULATIVE
EFFECT OF
CHANGE IN CUMULATIVE
ACCOUNTING EFFECT OF
FOR INCOME CHANGE IN EXTRAORDINARY
TAXES AND ACCOUNTING LOSS, NET OF
GROSS EXTRAORDINARY FOR INCOME INCOME TAX NET
SALES PROFIT LOSS TAXES BENEFIT INCOME/(LOSS)
---------- -------- ------------- ---------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
FISCAL 1994 QUARTERS
13 weeks ended 12/26/93. $ 382,652 $ 83,171 $ 3,419 $372 $ -- $ 3,791
13 weeks ended 03/27/94. 385,765 86,451 2,066 -- (8,036) (5,970)
13 weeks ended 06/26/94. 384,360 84,647 1,913 -- -- 1,913
13 weeks ended 09/25/94. 386,940 85,654 1,391 -- -- 1,391
---------- -------- ------- ---- ------- -------
Total (52 weeks)...... $1,539,717 $339,923 $ 8,789 $372 $(8,036) $ 1,125
========== ======== ======= ==== ======= =======
FISCAL 1995 QUARTERS
13 weeks ended 12/25/94. $ 390,642 $ 86,685 $ 1,553 $-- $ -- $ 1,553
13 weeks ended 03/26/95. 390,574 86,195 1,600 -- -- 1,600
13 weeks ended 06/25/95. 396,072 89,984 2,162 -- -- 2,162
13 weeks ended 09/24/95. 402,607 89,676 1,412 -- -- 1,412
---------- -------- ------- ---- ------- -------
Total (52 weeks)...... $1,579,895 $352,540 $ 6,727 $-- $ -- $ 6,727
========== ======== ======= ==== ======= =======
FISCAL 1996 QUARTERS
13 weeks ended 12/24/95. $ 408,740 $ 92,261 $ 3,597 $-- $ -- $ 3,597
13 weeks ended 03/24/96. 406,223 93,548 4,341 -- -- 4,341
13 weeks ended 06/23/96. 429,349 99,257 4,385 -- -- 4,385
14 weeks ended 09/29/96. 461,020 104,540 3,688 -- -- 3,688
---------- -------- ------- ---- ------- -------
Total (53 weeks)...... $1,705,332 $389,606 $16,011 $-- $ -- $16,011
========== ======== ======= ==== ======= =======
</TABLE>
F-18
<PAGE>
STATER BROS. HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 29, JUNE 29,
ASSETS 1996 1997
------ ------------- --------
<S> <C> <C>
Current Assets
Cash and cash equivalents............................ $ 45,279 $ 39,830
Receivables.......................................... 19,009 19,410
Inventories.......................................... 117,372 115,739
Prepaid expenses..................................... 3,357 5,000
Deferred income taxes................................ 4,710 4,710
Properties held for sale............................. 1,787 1,348
-------- --------
Total current assets................................ 191,514 186,037
Investment in unconsolidated affiliate................. 7,626 11,503
Property and equipment
Land................................................. 18,688 16,418
Buildings and improvements........................... 89,856 84,009
Store fixtures and equipment......................... 78,570 84,678
Property subject to capital leases................... 14,368 14,368
-------- --------
201,482 199,473
Less accumulated depreciation and amortization....... 87,267 93,452
-------- --------
114,215 106,021
Deferred income taxes.................................. 5,295 7,381
Deferred debt issuance cost, net....................... 5,221 4,335
Lease guarantee escrow................................. 6,701 7,970
Other assets........................................... 7,722 7,196
-------- --------
Total assets........................................... $338,294 $330,443
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Current Liabilities
Accounts payable..................................... $ 79,271 $ 63,140
Accrued payroll and related expenses................. 23,981 23,597
Other accrued liabilities............................ 23,607 25,359
Current portion of capital lease obligations......... 1,182 1,180
-------- --------
Total current liabilities........................... 128,041 113,276
Long-term debt......................................... 165,000 165,000
Capital lease obligations, less current portion........ 6,917 6,042
Long-term portion of self-insurance reserves........... 10,332 9,475
Other long-term liabilities............................ 2,526 3,992
10.5% Cumulative Series B Preferred Stock:(stated value
$100 per share)
Authorized shares--693,650
Issued and outstanding shares--693,650............... 69,365 69,365
Stockholders' equity
Class A Common Stock, $.01 par value:
Authorized shares--100,000
Issued and outstanding shares--50,000................ 1 1
Additional paid-in capital........................... 12,715 12,715
Retained deficit..................................... (41,953) (34,773)
Less option to acquire stock......................... (14,650) (14,650)
-------- --------
Total stockholders' equity........................... (43,887) (36,707)
-------- --------
Total liabilities and stockholders' equity............. $338,294 $330,443
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-19
<PAGE>
STATER BROS. HOLDINGS INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AND SHARE AMOUNTS)
<TABLE>
<CAPTION>
39 WEEKS ENDED
----------------------
JUNE 23, JUNE 29,
1996 1997
---------- ----------
<S> <C> <C>
Sales.................................................. $1,244,312 $1,292,267
Cost of goods sold..................................... 959,246 997,032
---------- ----------
Gross profit........................................... 285,066 295,235
Operating expenses
Selling, general and administrative expenses......... 239,252 248,683
Depreciation and amortization........................ 9,220 9,858
Consulting fees...................................... 1,125 1,125
---------- ----------
Total operating expenses........................... 249,597 259,666
---------- ----------
Operating profit....................................... 35,469 35,569
Interest income........................................ 1,309 1,733
Interest expense....................................... (14,943) (14,871)
Equity in earnings (loss) from unconsolidated affili-
ate................................................... (935) (1,123)
Other income (loss)--net............................... (187) 96
---------- ----------
Income before income taxes............................. 20,713 21,404
Income taxes........................................... 8,390 8,777
---------- ----------
Net income............................................. $ 12,323 $ 12,627
Less preferred dividends............................... 2,155 5,448
---------- ----------
Earnings available to common shareholders.............. $ 10,168 $ 7,179
========== ==========
Earnings per common share.............................. $ 126.75 $ 143.58
========== ==========
Average common shares outstanding...................... 80,220 50,000
========== ==========
Shares outstanding at end of period.................... 50,000 50,000
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-20
<PAGE>
STATER BROS. HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
39 WEEKS ENDED
------------------
JUNE 23, JUNE 29,
1996 1997
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income................................................. $ 12,323 $ 12,627
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................ 9,220 9,858
Provision for deferred income taxes...................... 2 (2,086)
Gain (loss) on disposals of assets....................... 187 (96)
Net undistributed loss in investment in unconsolidated
affiliate............................................... 935 1,123
Changes in operating assets and liabilities:
(Increase) decrease in receivables..................... (2,584) (401)
(Increase) decrease in inventories..................... (1,642) 1,633
(Increase) decrease in prepaid expenses................ (581) (1,643)
(Increase) decrease in other assets.................... 1,167 (741)
Increase (decrease) in accounts payable................ (4,949) (16,131)
Increase (decrease) in accrued liabilities and long-
term portion of self-insurance reserves............... 7,463 (493)
-------- --------
Net cash (used by) provided by operating activities........ 21,541 3,650
-------- --------
INVESTING ACTIVITIES:
Investment in unconsolidated affiliate..................... -- (5,000)
Purchase of property and equipment......................... (13,658) (14,329)
Proceeds from sale of property and equipment and properties
held for sale............................................. 18,629 16,552
-------- --------
Net cash (used by) provided by investing activities........ 4,971 (2,777)
-------- --------
FINANCING ACTIVITIES:
Dividends paid or accrued on preferred stock............... (2,155) (5,448)
Redemption of common stock................................. (69,365) --
Issuance of preferred stock................................ 69,365 --
Principal payments on capital lease obligations............ (806) (874)
-------- --------
Net cash (used by) financing activities.................... (2,961) (6,322)
-------- --------
Net increase (decrease) in cash and cash equivalents....... 23,551 (5,449)
Cash and cash equivalents at beginning of period........... 26,308 45,279
-------- --------
Cash and cash equivalents at end of period................. $ 49,859 $ 39,830
======== ========
Interest paid.............................................. $ 9,938 $ 9,629
Income taxes paid.......................................... $ 7,175 $ 4,275
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
F-21
<PAGE>
STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 29, 1997
NOTE 1--BASIS OF PRESENTATION
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all normal recurring adjustments necessary to
present fairly the financial position of Stater Bros. Holdings Inc. (the
"Company") and its subsidiaries as of September 29, 1996 and June 29, 1997 and
the results of its operations and cash flows for the thirty-nine weeks ended
June 23, 1996 and June 29, 1997. These consolidated financial statements
should be read in conjunction with the audited financial statements and notes
thereto included in the Company's latest annual report filed on Form 10-K. The
operating results for the thirty-nine weeks ended June 29, 1997 are not
necessarily indicative of the results of operations for a full year.
NOTE 2--INCOME TAXES
The provision for income taxes for the thirty-nine weeks ended June 23, 1996
and June 29, 1997 consists of the following:
<TABLE>
<CAPTION>
39 WEEKS ENDED
-----------------
JUNE 23, JUNE 29,
1996 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Federal Income Taxes.................................... $7,198 $6,785
State Income Taxes...................................... 1,192 1,992
------ ------
$8,390 $8,777
====== ======
</TABLE>
NOTE 3--CONVERSION OF COMMON STOCK
Effective March 8, 1996, the Company converted the Company's 50,000 shares
of Common Stock held by Craig Corporation ("Craig") into 693,650 shares of the
Company's Series B Preferred Stock. The Series B Preferred Stock is redeemable
by the Company in whole but not in part for $69.4 million plus accrued and
unpaid dividends. On July 24, 1997, the Company gave notice of exercise of
option to redeem all outstanding shares of the Company's Series B Preferred
Stock for approximately $74.0 million, including accrued and unpaid dividends.
NOTE 4--UNCONSOLIDATED AFFILIATE
Prior to November 1996, and since 1986, Stater Bros. Markets, a wholly owned
subsidiary of the Company, owned 49.6% of Santee Dairies, Inc., ("Santee") an
operator of a fluid milk processing plant located in Los Angeles, California.
In November 1996 and for approximately $200,000, Stater Bros. Markets
increased its ownership in Santee to 50%, but is not the controlling
shareholder. Additionally, during the quarter ended December 29, 1996, Stater
Bros. Markets acquired Preferred Stock issued by Santee for an aggregate
amount of $4.8 million. Subsequently, Stater Bros. Markets exchanged the
Preferred Stock of Santee Dairies, Inc. for Common Stock of Santee Dairies,
Inc. It is not anticipated that Santee will issue dividends on either its
Preferred Stock or Common Stock in the foreseeable future. Santee is not a
significant subsidiary of Stater Bros. Markets or the Company, and
accordingly, the Company accounts for its investment in Santee Dairies Inc.
using the equity method of accounting. For the thirty-nine weeks year to date,
the Company recognized losses of $1,123,000 and $935,000 for 1997 and 1996,
respectively. On July 30, 1997, the Company exchanged its Common Stock in
Santee Dairies, Inc. for a 50% ownership in Santee LLC, at which time Santee
Dairies, Inc. became a wholly owned subsidiary of Santee LLC.
F-22
<PAGE>
STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
NOTE 5--CONSULTING AGREEMENT AND COVENANT NOT TO COMPETE
Pursuant to the Consulting Agreement dated as of September 3, 1993 (the
"Consulting Agreement"), effective and commencing March 8, 1994, Craig agreed
to render consulting services to the Company for a five-year period. In
consideration for such consulting services, the Company will pay Craig $1.5
million per year, payable quarterly during the term of the Consulting
Agreement. On July 31, 1997, the Company gave notice to terminate its
obligation under the Consulting Agreement. Additionally, in accordance with
the terms of the Consulting Agreement, Craig has agreed not to engage in any
business that competes with the Company in any of the five counties in which
the Company operates until the end of the five-year period of the Consulting
Agreement. The Company paid Craig $5.0 million on March 8, 1994 which is
amortized to earnings over the five-year term of the covenant not to compete
included in the Consulting Agreement.
NOTE 6--RECLASSIFICATIONS
Certain amounts in the prior periods have been reclassified to conform to
the current period financial statement presentation.
NOTE 7--USE OF ESTIMATES
The preparation of financial statements in conformity with Generally
Accepted Accounting Principles requires management to make estimates and
assumptions that effect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
NOTE 8--ADOPTION OF ACCOUNTING STANDARD
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of" (SFAS 121), which the
Company adopted at the beginning of fiscal year 1997. Management believes that
the adoption of SFAS 121 will not have a material adverse effect on the
Company's financial position or its results of operations for fiscal 1997.
NOTE 9--SUBSEQUENT EVENTS
In July 1997, the Company solicited and obtained the requisite consents from
the majority of the noteholders of the Company's 11% Senior Notes due 2001
which permitted the Company to amend the Indenture which governs its 11%
Senior Notes due 2001 to:
1) permit the Company to issue and sell up to $100 million aggregate
principal amount of its 9% Senior Subordinated Notes due 2004, and to
use a portion of the net proceeds from the issuance of such notes to
redeem all issued and outstanding shares of the Company's Series B
Preferred Stock, held by Reading Australia PTY Limited ("Reading"),
2) designate Santee LLC and Santee Dairies, Inc., to the extent such
entities ever become Subsidiaries of the Company, as Unrestricted
Subsidiaries (as defined) which would not be subject to certain
significant covenants of the 11% Senior Note Indenture,
3) permit the Company to make certain additional investments in Santee LLC
(including investments funded by La Cadena Investments, a California
general partnership which owns all of the issued and outstanding Common
Stock of the Company),
F-23
<PAGE>
STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(UNAUDITED)
4) permit the Company to repay under limited circumstances investments made
by La Cadena in the Company to enable it to increase its ownership
interest in Santee LLC, and
5) make certain other amendments to the 11% Senior Note Indenture.
On July 24, 1997, the Company completed an offering for $100 million of 9%
Senior Subordinated Notes due 2004 under Rule 144A of the Securities Act.
Proceeds from the offering were used or will be used to pay for consent
solicitation fees of approximately $5.0 million, fees and expenses related to
the offering of approximately $4.0 million, pay a financial advisory fee to La
Cadena of $2.0 million and to pay approximately $74.0 million to redeem all of
the outstanding shares of the Company's Series B Preferred Stock including
accrued and unpaid dividends.
On July 24, 1997, concurrently with the sale of the 9% Senior Subordinated
Notes due 2004, the Company gave notice of exercise of option to redeem all
outstanding shares of the Company's Series B Preferred Stock to Reading
Australia PTY Limited ("Reading") a majority owned indirect subsidiary of
Craig Corporation ("Craig"). On August 4, 1997, the Company deposited
approximately $74.0 million into an Escrow account for the benefit of Reading
Australia PTY Limited, the amounts required to redeem the Series B Preferred
Stock and to pay accrued and unpaid dividends up to and including August 4,
1997.
On July 31, 1997, the Company gave notice to terminate a five-year
consulting agreement with Craig that was entered into in connection with the
1994 Recapitalization. Annual fees payable to Craig under the Consulting
Agreement were $1.5 million per year.
F-24
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CON-
STITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SECURITIES TO WHICH IT RELATES. THIS PROSPECTUS DOES NOT CON-
STITUTE AN OFFER TO SELL, OR SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN
ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEI-
THER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
--------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 10
The Offer................................................................. 15
Capitalization............................................................ 21
Selected Consolidated Financial Data...................................... 22
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 24
Business.................................................................. 30
Management................................................................ 37
Security Ownership of Certain Beneficial Owners and Management............ 39
Certain Relationships and Related Transactions............................ 40
Description of the New Notes.............................................. 42
Description of the 11% Senior Notes....................................... 65
Certain Federal Income Tax Consequences................................... 65
Plan of Distribution...................................................... 66
Legal Matters............................................................. 67
Experts................................................................... 67
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO OF STATER BROS.]
STATER BROS. HOLDINGS INC.
$100,000,000
9% SENIOR SUBORDINATED NOTES
DUE 2004
--------------------
PROSPECTUS
--------------------
SEPTEMBER , 1997
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to Section 102(b)(7) of the General Corporation Law of the State of
Delaware (the "GCL"), the Certificate of Incorporation of the Company
eliminates the liability of the directors of the Company to the Company or its
stockholders, except for liabilities related to breach of the duty of loyalty,
actions not in good faith, and certain other liabilities. As permitted by
Section 145 of the GCL, Article V of the Bylaws of the Company provides for
the indemnification of all directors, officers, employees and agents against
expenses actually and reasonably incurred in connection with certain stated
proceedings and under certain stated conditions.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.1(1) Certificate of Incorporation of the Company
3.2(1) By-Laws of the Company
4.1 Indenture between the Company and First Trust of New York, as
Trustee, for $100,000,000 9% Senior Subordinated Notes due 2004,
dated as of July 24, 1997 (the "Indenture")**
4.2 First Supplemental Indenture between the Company and IBJ
Schroder Bank & Trust Company, as Trustee, for $165,000,000 11%
Senior Notes due 2001, dated as of July 22, 1997 (the "First
Supplemental Indenture")**
4.3 Form of Specimen Certificate evidencing Global Notes of the
Company issued pursuant to the Indenture**
4.4 Registration Rights Agreement among the Company and BancAmerica
Securities, Inc. dated July 24, 1997**
4.5 Form of Letter of Transmittal regarding the Offer for all
Outstanding Privately Placed 9% Senior Subordinated Notes due
2004 in Exchange for 9% Senior Subordinated Notes due 2004
(including Notice of Guaranteed Delivery)**
5.1 Opinion of Gibson, Dunn & Crutcher LLP regarding certain matters
in connection with the New Notes*
10.1(1) Reclassification Agreement dated September 3, 1993 by and among
the Company, Craig and La Cadena
10.2(1) Amendment to Reclassification Agreement, dated January 12, 1994,
by and among the Company, Craig and La Cadena
10.3(1) Agreement of Stockholders dated May 10, 1989 by and among the
Company, Craig and La Cadena
10.4(1) Amendment to Agreement of Stockholders dated September 3, 1993
by and among the Company, Craig, Craig Management, Inc. ("CMI")
and La Cadena
10.5(1) Option Agreement dated September 3, 1993 by and between the
Company and Craig
10.6(1) Amendment to Option Agreement dated January 12, 1994 by and
between the Company and Craig
10.7(1) Consulting Agreement dated September 3, 1993 by and between the
Company, Craig and CMI
10.8(1) Letter Agreement regarding Consulting Agreement, dated March 8,
1994, by and between the Company, Craig and CMI
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
10.9(1) Second Amended and Restated Stock Agreement dated January 12,
1994, by and among the Company, Craig, CMI, La Cadena and James
J. Cotter
10.10(1) Security Agreement dated March 8, 1994, by and between the
Company and Craig
10.11(1) Escrow Agreement dated March 8, 1994, by and between the
Company, Craig and the Bank of America Trust and Savings
Association
10.12(1) Credit Agreement dated March 8, 1994, by and between Stater
Bros. Markets and Bank of America Trust and Savings Association
10.13(1) Continuing Guaranty dated March 8, 1994 of Stater Bros.
Development, Inc. in favor of Bank of America Trust and Savings
Association
10.14(1) La Cadena Blocked Account Agreement dated March 8, 1994 by and
among Stater Bros. Markets, La Cadena and Bank of America
10.15(1) Subordination Agreement dated March 8, 1994 by and among the
Company, Stater Bros. Markets and Bank of America Trust and
Savings Association
10.16(1) Amended and Restated Sublease Agreement dated June 1, 1983
between Wren Leasing Corp., as Lessor, and Stater Bros. Markets,
as Lessee
10.17(1) Preferred Stock Agreement dated March 22, 1983 between Stater
Bros. Markets and Petrolane Incorporated
10.18(1) Escrow Agreement dated September 19, 1985 by and among Stater
Bros. Markets, Petrolane Incorporated and First Interstate Bank
of California
21(1) Subsidiaries of the Company
23.1 Consent of Ernst & Young**
23.2 Consent of Gibson, Dunn & Crutcher LLP (included in Exhibit
5.1)*
24 Power of Attorney (included on page II-4)**
25 Statement of Eligibility of Trustee (separately bound)**
</TABLE>
- --------
(1) Previously filed with the Securities and Exchange Commission as an exhibit
to the Registration Statement as originally filed on April 4, 1994.
* To be filed with an amendment to this Registration Statement.
** Filed herewith.
(b) Not Applicable.
(c) Not Applicable.
ITEM 22. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
II-2
<PAGE>
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That for the purpose of determining any liability under the
Securities Act, each post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF COLTON, STATE OF
CALIFORNIA, ON AUGUST 19, 1997.
Stater Bros. Holdings Inc.
/s/ Jack H. Brown
By: _________________________________
JACK H. BROWN
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY CONSTITUTES AND APPOINTS
BRUCE D. VARNER AS HIS TRUE AND LAWFUL ATTORNEY-IN-FACT AND AGENT, WITH FULL
POWER OF SUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND STEAD, IN ANY AND
ALL CAPACITIES, TO SIGN ANY OR ALL AMENDMENTS OR POST-EFFECTIVE AMENDMENTS TO
THIS REGISTRATION STATEMENT AND TO FILE THE SAME, WITH ALL EXHIBITS THERETO,
AND OTHER DOCUMENTS IN CONNECTION THEREWITH WITH THE SECURITIES AND EXCHANGE
COMMISSION, GRANTING UNTO SAID ATTORNEY-IN-FACT AND AGENT FULL POWER AND
AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND
NECESSARY TO BE DONE, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SUCH ATTORNEY-IN-
FACT OR AGENT, OR HIS SUBSTITUTE MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE
HEREOF.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THEIR
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Jack H. Brown Chairman of the August 19,
- ------------------------------------- Board, President 1997
JACK H. BROWN and Chief Executive
Officer
/s/ Bruce D. Varner Director and August 19,
- ------------------------------------- Secretary 1997
BRUCE D. VARNER
/s/ Dennis N. Beal Vice President-- August 19,
- ------------------------------------- Finance and Chief 1997
DENNIS N. BEAL Financial Officer
(Chief Accounting
Officer)
Director August ,
- ------------------------------------- 1997
JAMES J. COTTER
/s/ Thomas W. Field, Jr. Director August 19,
- ------------------------------------- 1997
THOMAS W. FIELD, JR.
II-4
<PAGE>
Exhibit 4.1
______________________________________
STATER BROS. HOLDINGS INC.,
as Issuer
and
FIRST TRUST OF NEW YORK,
NATIONAL ASSOCIATION
as Trustee
_____________________
INDENTURE
Dated as of July 24, 1997
_____________________
$100,000,000
9% SENIOR SUBORDINATED NOTES DUE 2004
______________________________________
<PAGE>
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Trust Indenture
Act Section Indenture Section
- --------------- -----------------
<S> <C>
310(a)(1)............................. 7.10
(a)(2)............................. 7.10
(a)(3)............................. N.A.
(a)(4)............................. N.A.
(b)................................ 7.08; 7.10; 10.02
(c)................................ N.A.
311(a)................................ 7.11
(b)................................ 7.11
(c)................................ N.A.
312(a)................................ 2.05
(b)................................ 10.03
(c)................................ 10.03
313(a)................................ 7.06
(b)(1)............................. N.A.
(b)(2)............................. 7.06
(c)................................ 7.06; 10.02
(d)................................ 7.06
314(a)................................ 4.01; 10.02
(b)................................ N.A.
(c)(1)............................. 10.04
(c)(2)............................. 10.04
(c)(3)............................. N.A.
(d)................................ N.A.
(e)................................ 10.05
(f)................................ N.A.
315(a)................................ 7.01(b)
(b)................................ 7.05; 10.02
(c)................................ 7.01(a)
(d)................................ 7.01(c)
(e)................................ 6.11
316(a)(last sentence)................. 2.09
(a)(1)(A).......................... 6.05
(a)(1)(B).......................... 6.04
(a)(2)............................. N.A.
(b)................................ 6.07
317(a)(1)............................. 6.08
(a)(2)............................. 6.09
(b)................................ 2.04
318(a)................................ 10.01
N.A. means not applicable.
- ---------------
</TABLE>
*This Cross-Reference Table is not part of the Indenture.
-i-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE............................................ 1
Section 1.01 Definitions....................................................... 1
Section 1.02 Other Definitions................................................. 17
Section 1.03 Incorporation by Reference of Trust Indenture Act................. 17
Section 1.04 Rules of Construction............................................. 18
ARTICLE 2
THE 1997 NOTES................................... 18
Section 2.01 Form and Dating................................................... 18
Section 2.02 Execution and Authentication...................................... 20
Section 2.03 Registrar; Paying Agent; Depositary; Global Note Custodian........ 20
Section 2.04 Paying Agent to Hold Money in Trust............................... 21
Section 2.05 Noteholder Lists.................................................. 21
Section 2.06 Transfer and Exchange............................................. 21
Section 2.07 Replacement Notes................................................. 26
Section 2.08 Outstanding 1997 Notes............................................ 26
Section 2.09 When Treasury Notes Disregarded................................... 26
Section 2.10 Temporary Notes................................................... 26
Section 2.11 Cancellation...................................................... 27
Section 2.12 Defaulted Interest................................................ 27
Section 2.13 CUSIP Number...................................................... 27
ARTICLE 3
REPURCHASE AND OPTIONAL REDEMPTION...................... 28
Section 3.01 Purchase Offers................................................... 28
Section 3.02 Notices to Trustee................................................ 30
Section 3.03 Selection of 1997 Notes to Be Redeemed............................ 30
Section 3.04 Notice of Redemption.............................................. 31
Section 3.05 Effect of Notice of Redemption.................................... 31
Section 3.06 Deposit of Redemption Price....................................... 32
Section 3.07 1997 Notes Redeemed in Part....................................... 32
ARTICLE 4
COVENANTS OF THE COMPANY............................ 32
Section 4.01 Payment of 1997 Notes............................................. 32
Section 4.02 SEC Reports....................................................... 32
Section 4.03 Compliance Certificate............................................ 33
Section 4.04 Maintenance of Office or Agency................................... 34
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 4.05 Limitations on Restricted Payments and Investments.................... 34
Section 4.06 Continued Existence................................................... 36
Section 4.07 Taxes................................................................. 36
Section 4.08 Maintenance of Properties............................................. 36
Section 4.09 Insurance............................................................. 36
Section 4.10 Investment Company Act................................................ 37
Section 4.11 Change of Control..................................................... 37
Section 4.12 Limitation on Indebtedness............................................ 37
Section 4.13 Limitations on Liens.................................................. 38
Section 4.14 Limitation on Payment Restrictions Affecting Subsidiaries............. 39
Section 4.15 Limitation on Issuance and Sale of Capital Stock of Subsidiaries...... 39
Section 4.16 Limitations on Transactions with Related Persons...................... 39
Section 4.17 Compliance With Laws.................................................. 40
Section 4.18 Stay, Extension and Usury Laws........................................ 40
Section 4.19 Limitation on Sales of................................................ 41
Section 4.20 Further Assurance to the Trustee...................................... 42
Section 4.21 Restriction on Layering Debt.......................................... 42
ARTICLE 5
SUCCESSORS....................................... 42
Section 5.01 Merger, Consolidation, Etc............................................ 42
Section 5.02 Successor Corporation Substituted..................................... 43
Section 5.03 Purchase Offer on Change of Control................................... 43
ARTICLE 6
DEFAULTS AND REMEDIES................................. 43
Section 6.01 Events of Default..................................................... 43
Section 6.02 Acceleration.......................................................... 45
Section 6.03 Other Remedies........................................................ 46
Section 6.04 Waiver of Past Defaults............................................... 46
Section 6.05 Control by Majority................................................... 46
Section 6.06 Limitation on Suits................................................... 47
Section 6.07 Rights of Holders to Receive Payment.................................. 47
Section 6.08 Collection Suit by Trustee............................................ 47
Section 6.09 Trustee May File Proofs of Claim...................................... 47
Section 6.10 Priorities............................................................ 47
Section 6.11 Undertaking for Costs................................................. 48
ARTICLE 7
TRUSTEE....................................... 48
Section 7.01 Duties of Trustee..................................................... 48
Section 7.02 Rights of Trustee..................................................... 49
Section 7.03 Individual Rights of Trustee.......................................... 50
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 7.04 Trustee's Disclaimer.............................................. 50
Section 7.05 Notice of Defaults................................................ 50
Section 7.06 Reports by Trustee to Holders..................................... 51
Section 7.07 Compensation and Indemnity........................................ 51
Section 7.08 Replacement of Trustee............................................ 52
Section 7.09 Successor Trustee by Merger, etc.................................. 53
Section 7.10 Eligibility; Disqualification..................................... 53
Section 7.11 Preferential Collection of Claims Against Company................. 53
ARTICLE 8
SATISFACTION AND DISCHARGE OF INDENTURE............. 53
Section 8.01 Termination of Company's Obligations.............................. 53
Section 8.02 Application of Trust Money........................................ 56
Section 8.03 Repayment to Company.............................................. 56
Section 8.04 Reinstatement..................................................... 56
Section 8.05 Indemnity for Government Obligations.............................. 56
ARTICLE 9
AMENDMENTS............................. 57
Section 9.01 Without Consent of Holders........................................ 57
Section 9.02 With Consent of Holders........................................... 57
Section 9.03 Compliance with Trust Indenture Act............................... 58
Section 9.04 Revocation and Effect of Consents................................. 59
Section 9.05 Notation on or Exchange of 1997 Notes............................. 59
Section 9.06 Trustee Protected................................................. 59
ARTICLE 10
SUBORDINATION........................... 60
Section 10.01 The 1997 Notes Subordinated to Senior Indebtedness................ 60
Section 10.02 Liquidation; Dissolution; Bankruptcy.............................. 60
Section 10.03 Default on Senior Indebtedness.................................... 61
Section 10.04 When Distribution Must Be Paid Over............................... 61
Section 10.05 Notice by Company................................................. 62
Section 10.06 Subrogation....................................................... 62
Section 10.07 Relative Rights................................................... 62
Section 10.08 Subordination May Not Be Impaired by Company...................... 63
Section 10.09 Distribution or Notice to Representatives......................... 63
Section 10.10 Rights of Trustee and Paying Agent................................ 63
Section 10.11 Trustee Entitled to Assume Payments Not Prohibited in Absence of
Notice............................................................ 63
Section 10.12 Application by Trustee of Monies Deposited With It................ 63
Section 10.13 Trustee's Compensation Not Prejudiced............................. 64
Section 10.14 Officers' Certificate............................................. 64
Section 10.15 Certain Payments.................................................. 64
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 10.16 Names of Representatives........................................... 64
Section 10.17 Article 10 Not To Prevent Events of Default or Limit Right To
Accelerate......................................................... 65
Section 10.18 Reliance by Holders of Senior Indebtedness on Subordination
Provisions......................................................... 65
Section 10.19 Proof of Claim..................................................... 65
Section 10.20 No Fiduciary Duty Created to Holders of Senior Indebtedness........ 65
ARTICLE 11
GENERAL PROVISIONS.................................. 65
Section 11.01 Trust Indenture Act Controls....................................... 65
Section 11.02 Notices............................................................ 66
Section 11.03 Communication by Holders with Other Holders........................ 66
Section 11.04 Certificate and Opinion as to Conditions Precedent................. 66
Section 11.05 Statements Required in Certificate or Opinion...................... 66
Section 11.06 Rules by Trustee and Agents........................................ 67
Section 11.07 Legal Holidays; Business Days...................................... 67
Section 11.08 No Recourse Against Others......................................... 67
Section 11.09 Counterparts....................................................... 68
Section 11.10 Other Provisions................................................... 68
Section 11.11 Governing Law...................................................... 68
Section 11.12 No Adverse Interpretation of Other Agreements...................... 68
Section 11.13 Successors......................................................... 68
Section 11.14 Severability....................................................... 68
Section 11.15 Table of Contents, Headings, Etc................................... 69
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
Exhibit A Form of Private Placement Note
Exhibit B Form of Exchange Note
Exhibit C Certificate to be Delivered Upon Exchange or Registration of Transfer
of Notes
Exhibit D Form of Legal Opinion on Transfer
</TABLE>
-iv-
<PAGE>
THIS INDENTURE, dated July 24, 1997 (the "Issue Date"), is entered
----------
into between Stater Bros. Holdings Inc., a Delaware corporation (the "Company"),
-------
and First Trust of New York, National Association, as trustee (the "Trustee").
-------
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the Holders of the Company's 9% Senior
Subordinated Notes due July 1, 2004 (the "Private Placement Notes") and the
-----------------------
Company's 9% Senior Subordinated Notes due July 1, 2004 to be issued in exchange
for the Private Placement Notes pursuant to the terms of the Registration Rights
Agreement (as hereinafter defined) (the "Exchange Notes" and, together with the
--------------
Private Placement Notes, the "1997 Notes").
----------
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01 Definitions.
-----------
"1994 Notes" means the Company's $165.0 million 11% Senior Notes
----------
due 2001.
"Accredited Investor" means an accredited investor as defined in
-------------------
the Securities Act, and the rules and regulations promulgated thereunder.
"Acquired Indebtedness" of any specified Person means Indebtedness
---------------------
of any other Person existing at the time such other Person merged with or into
or became a Subsidiary of such specified Person or assumed in connection with
the acquisition of assets from such other Person including, without limitation,
Indebtedness of such other Person incurred in connection with or in anticipation
of such other Person being merged with or into or becoming a Subsidiary of such
specified Person or such acquisition.
"Affiliate" means, when used with reference to any Person, any
---------
Person directly or indirectly controlling, controlled by, or under direct or
indirect common control with such Person or any Person who beneficially owns,
directly or indirectly, 5% or more of the equity interests of such Person or
warrants, options or other rights to acquire or hold more than 5% of the equity
interests of such Person. For the purposes of this definition, "control" when
used with respect to any specified Person means the power to direct or cause the
direction of management or policies of such Person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative of the
foregoing.
"Agent" means any Registrar, Paying Agent or Co-Registrar.
-----
"Applicable Law" means, with respect to a Person, all provisions
--------------
of the following applicable to such Person: (i) constitutions, treaties,
statutes, laws, rules, regulations and ordinances of any Governmental Authority;
(ii) Governmental Approvals; and (iii) orders, decisions, judgments, awards and
decrees of any Governmental Authority.
-1-
<PAGE>
"assets" means any tangible or intangible assets or rights or real,
------
personal or mixed properties of any Person.
"Asset Sale" means any sale, lease, transfer, exchange or other
----------
disposition (or series of related sales, leases, transfers, exchanges or
dispositions), including, without limitation, dispositions pursuant to merger,
consolidation or sale and leaseback transactions, of (i) shares of Capital Stock
of a Subsidiary, whether by such Subsidiary or another Person or (ii) any other
assets of the Company or any assets of the Subsidiaries outside the ordinary
course of business of the Company or such Subsidiary.
"Associate" of, or a Person "associated" with, any Person, means (i)
--------- ----------
any trust or other estate in which such Person has a substantial beneficial
interest or as to which such Person serves as trustee or in a similar fiduciary
capacity and (ii) any relative or spouse of such person, or any relative of such
spouse, who has the same home as such person.
"Average Life" means, as of the date of determination, with respect to
------------
any Indebtedness, the quotient obtained by dividing (a) the sum of the products
of (i) the number of years from such date to the date of each successive
scheduled principal payment of such Indebtedness multiplied by (ii) the amount
of such principal payment by (b) the sum of all such principal payments.
"Board of Directors" means the Board of Directors of the Company or
------------------
any authorized committee of the Board of Directors.
"Business Day" means any day other than a Saturday, Sunday or a Legal
------------
Holiday.
"Capital Stock" means, with respect to any Person, any and all shares,
-------------
interests (partnership or otherwise), participations, rights in, or other
equivalents (however designated and whether voting or non-voting) of, such
Person's capital stock, including each class of common or preferred stock of
such Person, whether outstanding on the Issue Date or issued after the Issue
Date, and any and all rights, warrants or options exchangeable for or
convertible into such capital stock (but excluding any debt security that is
exchangeable for or convertible into such capital stock).
"Capitalized Lease Obligation" means obligations under a lease that
----------------------------
are required to be classified and accounted for as a capital lease obligation
under GAAP and, the amount of such obligations at any date shall be the
capitalized amount of such obligations at such date, determined in accordance
with such principles.
"Cash" means U.S. dollars.
----
"Cash Equivalent" means (i) securities issued or directly and fully
---------------
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
--------
States of America is pledged in support of such securities), (ii) time deposits
and certificates of deposit and commercial paper issued by the parent
corporation of any domestic commercial bank of recognized standing having
capital and surplus in excess of $500 million, (iii) repurchase obligations with
a term of not more than 30 days for underlying securities of the types described
in clauses (i) and (ii) above, (iv) commercial paper issued by others rated at
--------------------
least
-2-
<PAGE>
A-2 or the equivalent thereof by Standard & Poor's Corporation or at least P-2
or the equivalent thereof by Moody's Investors Service, Inc. and in each case
maturing within one year after the date of acquisition and (v) investments in
funds substantially all of whose assets comprise securities of the type
described in clauses (i) and (ii) above.
"Change of Control" means the occurrence of one or more of the
-----------------
following events (whether or not approved by the Board of Directors): (a) an
event or series of events by which any Person or other entity or group of
Persons or other entities acting in concert as determined in accordance with
Section 13(d) of the Exchange Act (a "Group of Persons") (other than La Cadena)
----------------
together with its or their Affiliates and Associates shall, as a result of a
tender or exchange offer, open market purchases, privately negotiated purchases,
merger, consolidation or otherwise (i) be or become the beneficial owner (within
the meaning of Rule 13d-3 and Rule 13d-5 under the Exchange Act, whether or not
applicable, except that a Person shall be deemed to have "beneficial ownership"
of all securities that such Person has the right to acquire, whether such right
is exercisable immediately or only after the passage of time) of 50% or more of
the combined voting power of the then outstanding Voting Stock of the Company or
(ii) have the ability to elect, directly or indirectly, a majority of the
members of the Board of Directors of the Company or other equivalent governing
body thereof, (b) the stockholders of the Company shall approve any plan or
proposal for the liquidation or dissolution of the Company (whether or not
otherwise in compliance with the provisions of this Indenture and the 1997
Notes), (c) a majority of the Board of Directors of the Company consists of
persons other than Continuing Directors or (d) the direct or indirect sale,
assignment, lease, exchange, disposition or other transfer, in one transaction
or a series of related transactions, of all or substantially all of the property
or assets of the Company to any Person or Group of Persons together with any
Affiliates thereof (whether or not otherwise in compliance with the provisions
of this Indenture and the 1997 Notes).
"Common Stock" means the Company's common stock.
------------
"Company" means the party named as such above until a successor
-------
replaces it in accordance with Article 5 of this Indenture and thereafter means
each successor and each successor thereto replaced in accordance with Article 5
of this Indenture.
"Consolidated EBITDA" for any person means for any period for which it
-------------------
is to be determined the sum of, without duplication, the amounts for such
period, taken as a single accounting period, of (i) Consolidated Net Income and
(ii) to the extent Consolidated Net Income has been reduced thereby, (A)
Consolidated Tax Expense of such Person paid or accrued in accordance with GAAP
for such period, (B) Consolidated Interest Expense of such Person for such
period, and (C) depreciation, depletion and amortization expenses (including,
without limitation, amortization of capitalized debt issuance costs) and other
non-cash expenses (other than any non-cash expense which requires the accrual of
or a reserve for cash charges for any future period) of such Person and its
subsidiaries for such period, less the amount of consolidated non-cash items
increasing Consolidated Net Income for such period, all as determined on a
consolidated basis in conformity with GAAP consistent with those applied in the
preparation of the audited financial statements of the Company and its
Consolidated Subsidiaries.
-3-
<PAGE>
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
----------------------------------------
Person, the ratio of (a) the aggregate amount of Consolidated EBITDA of such
Person for the four full fiscal quarters ending on or immediately prior to the
date of the transaction (the "Transaction Date") giving rise to the need to
----------------
calculate the Consolidated Fixed Charge Coverage Ratio (such four full fiscal
quarter period being referred to herein as the "Four Quarter Period") to (b) the
-------------------
aggregate Consolidated Fixed Charges of such Person for such Four Quarter
Period. For purposes of this definition, if the Transaction Date occurs prior to
the first anniversary of the Issue Date, Consolidated EBITDA and Consolidated
Fixed Charges shall be calculated, in the case of the Company, after giving
effect on a pro forma basis as if the issuance of the 1997 Notes and the
---------
application of the net proceeds therefrom occurred on the first day of such Four
Quarter Period. In addition to and without limitation of the foregoing, for
purposes of this definition, Consolidated EBITDA and Consolidated Fixed Charges
shall be calculated after giving effect on a pro forma basis for the period of
---------
such calculation to (i) the incurrence or retirement, as the case may be, of any
Indebtedness (including Acquired Indebtedness) of such Person or any of its
subsidiaries during the period commencing on the first day of the Four Quarter
Period to and including the Transaction Date (the "Reference Period"),
----------------
including, without limitation, the incurrence of the Indebtedness giving rise to
the need to make such calculation, as if such incurrence or retirement, as the
case may be, occurred on the first day of the Reference Period and (ii) the
Consolidated EBITDA during the Reference Period attributable to any acquired or
divested Person, business, property or asset, provided that with respect to any
--------
such acquisition, only to the extent the EBITDA of such Person is otherwise
includable in the referent Person's Consolidated EBITDA, as if such transaction
occurred on the first day of the Reference Period. If the Person for whom this
ratio is being calculated or any of its subsidiaries directly or indirectly
guarantees Indebtedness of a third person, the preceding sentence shall give
effect to the incurrence of such guaranteed Indebtedness as if such Person or
any subsidiary of such Person had directly incurred or otherwise assumed such
guaranteed Indebtedness as of the first day of the Reference Period.
Furthermore, in calculating Consolidated Fixed Charges of this Consolidated
Fixed Charge Coverage Ratio, (1) interest on Indebtedness determined on a
fluctuating basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per annum
--- -----
equal to the rate of interest on such Indebtedness in effect on the Transaction
Date; (2) if interest on any Indebtedness actually incurred on the Transaction
Date may be optionally determined at an interest rate based upon a factor of a
prime or similar rate, a eurocurrency interbank offered rate or other rates,
then the interest rate in effect on the Transaction Date will be deemed to have
been in effect during the Four Quarter Period; and (3) notwithstanding the
foregoing, interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by agreements relating to Interest Rate
Protection Agreements, shall be deemed to accrue at the rate per annum resulting
--- -----
after giving effect to the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
--------------------------
period, the sum of, without duplication, the amounts for such period, taken as a
single accounting period, of (i) Consolidated Interest Expense and (ii) the
aggregate amount of all dividends on Preferred Stock of such Person and its
Consolidated Subsidiaries, whether in cash or otherwise (except dividends
payable in shares of Qualified Capital Stock) declared or paid during such
period.
"Consolidated Interest Expense" means, with respect to any Person for
-----------------------------
any period, the aggregate of the interest expense of such Person and its
Consolidated Subsidiaries for such period, on a consolidated basis, as
determined in accordance with GAAP, including all amortization of original
-4-
<PAGE>
issue discount, the interest component of Capitalized Lease Obligations, net
cash costs under all Interest Rate Protection Agreements (including amortization
of fees) all capitalized interest, the interest portion of any deferred payment
obligations for such period and cash contributions to any employee stock
ownership plan to the extent such contributions are used by such employee stock
ownership plan to pay interest or fees to any Person (other than the referent
Person or one of its Wholly Owned Subsidiaries) in connection with loans
incurred by such employee stock ownership plan to purchase capital stock of the
referent Person, but net of any amortization of any debt issuance costs.
"Consolidated Net Income" means, with respect to any Person for any
-----------------------
period, the consolidated net income (or deficit) of such Person and its
Consolidated Subsidiaries for such period, on a consolidated basis, as
determined in accordance with GAAP consistently applied, provided that the net
--------
income of any other Person (other than a subsidiary) in which such Person or any
subsidiary of such Person has a joint interest with a third party (which
interest does not cause the net income of such other Person to be consolidated
into the net income of such Person in accordance with GAAP) shall be included
only to the extent of the lesser of (a) such net income that has been actually
received by such Person or such subsidiary in the form of cash dividends or
similar cash distributions or (b) the net income of such Person (which in no
event shall be less than zero), provided further that there shall be excluded
----------------
(i)(x) the net income (but not loss) of any subsidiary of such Person that is
subject to any restriction or encumbrance on the ability of such subsidiary to
make the payment of dividends or other distributions to such Person to the
extent of such encumbrance or restriction and (y) the net income of any Person
acquired in a pooling of interests transaction accrued prior to the date it
became a subsidiary of such Person or is merged into or consolidated with such
Person or any subsidiary of such Person; (ii) any restoration to income of any
contingency reserve, except to the extent that provision for such reserve was
made out of Consolidated Net Income accrued at any time following the Issue
Date; (iii) any gain (but not loss), together with any related provisions for
taxes, realized upon the sale or other disposition (including, without
limitation, dispositions pursuant to sale and leaseback transactions) of any
property or assets which are not sold or otherwise disposed of in the ordinary
course of business and upon the sale or other disposition of any Capital Stock
of any subsidiary of such Person; (iv) any gain arising from the acquisition of
any securities, or the extinguishment, retirement or repurchase, as determined
in accordance with GAAP, of any Indebtedness of such Person; (v) any
extraordinary gain (but not extraordinary loss) together with any related
provision for taxes on any such extraordinary gain and any one time gains or
losses (including, without limitation, those resulting from litigation
settlements and those related to the adoption of accounting standards under
GAAP), realized by the referent Person or any of its subsidiaries during the
period for which such determination is made; and (vi) in the case of a successor
to the Company by consolidation or merger or as a transferee of the Company's
assets (other than any calculation made under Article 5 hereof), any earnings of
the successor corporation prior to such consolidation, merger or transfer of
assets.
"Consolidated Net Worth" of a Person at any date means the
----------------------
Consolidated Stockholders' Equity of such Person less (a) the amount of any gain
net of all applicable federal, state and local taxes resulting, directly or
indirectly, from the extinguishment, retirement or repurchase, as determined in
accordance with GAAP, of any Indebtedness of such Person or any of its
subsidiaries, (b) any revaluation or other write-ups subsequent to the Issue
Date in the book value of any asset owned by such Person or a Consolidated
Subsidiary, (c) the book value of all intangible assets (as determined in
accordance with GAAP) of such Person and its Consolidated Subsidiaries, (d) any
-5-
<PAGE>
amounts attributable to the cost of treasury stock and the principal amount of
any promissory notes receivable from the sale of Capital Stock of such Person or
of any of its subsidiaries and (e) any gains from the sale of assets other than
in the ordinary course of business.
"Consolidated Stockholders' Equity" as of any date means with respect
---------------------------------
to any Person the amount by which the assets of such Person and its Consolidated
Subsidiaries exceed (a) the total liabilities of such Person and its
Consolidated Subsidiaries, plus (b) any redeemable Preferred Stock (including
Disqualified Capital Stock) of such Person or any Preferred Stock of any
Consolidated Subsidiary of such Person issued to any Person other than such
Person or a Wholly Owned Subsidiary of such Person, in each case determined in
accordance with GAAP.
"Consolidated Subsidiary" of any Person means a Subsidiary which for
-----------------------
financial reporting purposes is or, in accordance with GAAP, should be,
accounted for by such Person as a consolidated subsidiary; provided however,
----------------
that the Unrestricted Subsidiaries of any Person shall not be included as
Consolidated Subsidiaries of such Person for purposes of this Indenture,
regardless of whether such Unrestricted Subsidiaries are or, in accordance with
GAAP, should be, accounted for as consolidated subsidiaries; provided further,
----------------
that any Person that is not a subsidiary of a Person shall not be included as a
Consolidated Subsidiary of such Person for purposes of the Indenture, regardless
of whether such Person is, or in accordance with GAAP, should be, accounted for
as a consolidated subsidiary.
"Consolidated Tax Expense" means, with respect to any Person for any
------------------------
period, the aggregate of the federal, state and local tax expense attributable
to taxes based on income and foreign income tax expenses of such Person and its
Consolidated Subsidiaries for such period (net of any income tax benefit),
determined in accordance with GAAP, other than taxes (whether liabilities or
benefits) attributable to extraordinary, unusual or nonrecurring gains or
losses, or taxes attributable to Asset Sales.
"Continuing Director" means at any date a member of the Board of
-------------------
Directors who (i) was a member of the Board of Directors on the Issue Date or
(ii) was nominated for election or elected to the Board of Directors with the
affirmative vote of at least a majority of the directors who were Continuing
Directors at the time of such nomination or election.
"Craig" means, collectively, Craig Corporation, a Delaware
-----
corporation, and its assigns, including Reading Australia PTY Limited, an
Australian corporation.
"Default" means any event that is, or after notice or passage of time
-------
or both would be, an Event of Default.
"Depositary" means, with respect to the 1997 Notes issuable or issued
----------
in whole or in part in global form, the Person specified in Section 2.03 hereof
------------
as the Depositary with respect to the 1997 Notes, and any successor thereto.
"Designated Senior Indebtedness" shall mean each issue of Senior
------------------------------
Indebtedness that (A) has an outstanding principal amount of at least $25.0
million (including the amount of all reimbursement obligations pursuant to
letters of credit thereunder and the maximum principal amount
-6-
<PAGE>
available to be drawn thereunder), and (B) has been designated as Designated
Senior Indebtedness pursuant to an Officers' Certificate of the Company received
by the Trustee.
"Disqualified Capital Stock" means any Capital Stock that, other than
--------------------------
solely at the option of the issuer thereof, by its terms (or by the terms of any
security into which it is convertible or exchangeable) is, or upon the happening
of an event or the passage of time would be, required to be redeemed or
repurchased, in whole or in part, or has, or upon the happening of an event or
the passage of time would have, a redemption or similar payment due on or prior
to the first anniversary of the Maturity Date, or is convertible into or
exchangeable for debt securities at the option of the holder thereof at any time
prior to the first anniversary of the Maturity Date.
"Equity Offering" means any public or private sale of equity
---------------
securities (excluding Disqualified Capital Stock) of the Company other than any
private sales to an Affiliate of the Company.
"Event of Default" has the meaning set forth in Section 6.01 hereof.
---------------- ------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Exchange Offer" means an offer to exchange Private Placement Notes
--------------
for Exchange Notes pursuant to the Registration Rights Agreement.
"Fair Market Value" or "fair value" means, with respect to any asset
----------------- ----------
or property, the price which could be negotiated in an arm's-length, free market
transaction, for cash, between a willing seller and a willing and able buyer,
neither of whom is under undue pressure or compulsion to complete the
transaction.
"GAAP" means generally accepted accounting principles set forth in the
----
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may have been approved by a significant segment of the
accounting profession of the United States, which are in effect as of the date
hereof.
"Global Note Custodian" means the Person specified in Section 2.03
--------------------- ------------
hereof as custodian with respect to the Global Notes, or any successor thereto.
"Governmental Authority" means any nation (including an Indian
----------------------
nation), any state or other political subdivision thereof and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, including any government authority,
agency, department, board, commission or instrumentality of the United States,
any State of the United States or any political subdivision thereof, and any
tribunal or arbitrator(s) of competent jurisdiction.
"guarantee" means, as applied to any obligation, (i) a guarantee
---------
(other than by endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in any manner, of any part or
all of such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical or legal effect of which is to assure in any way the
payment or
-7-
<PAGE>
performance (or payment of damages in the event of a non-performance) of all or
any part of such obligation, including, without limiting the foregoing, the
payment of amounts drawn down by letters of credit.
"Holder" or "Noteholder" means a person in whose name a 1997 Notes is
------ ----------
registered in the Registrar's books.
"incur" means, with respect to any Indebtedness or other obligation of
-----
any Person, to create, issue, incur (by conversion, exchange, in connection with
an acquisition or otherwise), assume, guarantee or otherwise become liable in
respect of such Indebtedness or other obligation 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," "incurable" and
"incurring" shall have meanings correlative to the foregoing), provided that a
--------
change in GAAP that results in an obligation of such Person that exists at such
time becoming Indebtedness shall not be deemed an incurrence of such
Indebtedness.
"Indebtedness" means, with respect to any Person, at any date, any of
------------
the following, without duplication, (i) any liability, 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 a note, bond, debenture or similar instrument or letters of credit
(including a purchase money obligation) or (C) for the payment of money relating
to a Capitalized Lease Obligation or other obligation (whether issued or
assumed) relating to the deferred purchase price of property; (ii) all
conditional sale obligations and all obligations under any title retention
agreement (even if the rights and remedies of the seller under such agreement in
the event of default are limited to repossession or sale of such property), but
excluding trade accounts payable arising in the ordinary course of business that
are not overdue by 90 days or more or are being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted; (iii) all
obligations for the reimbursement of any obligor on any letter of credit,
banker's acceptance or similar credit transaction entered into the ordinary
course of business; (iv) all Indebtedness of others secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien on any asset or property (including, without limitation,
leasehold interests and any other tangible or intangible property) of such
Person, whether or not such Indebtedness is assumed by such Person or is not
otherwise such Person's legal liability, provided that if the Indebtedness so
--------
secured has not been assumed in full by such Person or is otherwise not such
Person's legal liability in full, the amount of such Indebtedness for the
purposes of this definition shall be limited to the lesser of the amount of such
Indebtedness secured by such Lien or the Fair Market Value of the assets or
property securing such Lien; (v) all Indebtedness of others (including all
dividends of other Persons the payment of which is) guaranteed, directly or
indirectly, by such Person or that is otherwise its legal liability or which
such Person has agreed to purchase or repurchase or in respect of which such
Person has agreed contingently to supply or advance funds; (vi) all Preferred
Stock issued by such Person and its subsidiaries (other than Qualified Capital
Stock) with the amount of Indebtedness represented by such Preferred Stock being
equal to the greater of its voluntary or involuntary liquidation preference and
its "maximum fixed repurchase price", but excluding accrued dividends if any;
and (vii) all obligations under Interest Rate Protection Agreements. For
purposes hereof, the "maximum fixed repurchase price" of any Preferred Stock
which does not have a fixed repurchase price shall be calculated in accordance
with the terms of such Preferred Stock as if such Preferred Stock were
-8-
<PAGE>
purchased on any date on which Indebtedness shall be required to be determined
under this Indenture, and if such price is based upon, or measured by, the Fair
Market Value of such Preferred Stock, such Fair Market Value shall be determined
reasonably and in good faith by the board of directors of the issuer of such
Preferred Stock. For the avoidance of doubt, the Santee Financing and the Santee
Documents shall be deemed not to constitute, nor to have given rise to, the
incurrence of any Indebtedness of the Company or any of its Subsidiaries.
"Indenture" means this Indenture as amended or supplemented from time
---------
to time.
"Initial Purchaser" means BancAmerica Securities, Inc., as the initial
-----------------
purchaser of the Private Placement Notes pursuant to the Purchase Agreement,
dated as of the date hereof, between the Company and BancAmerica Securities,
Inc.
"Interest Payment Date" when used with respect to any of the 1997
---------------------
Notes means the stated maturity of an installment of interest specified in such
1997 Notes.
"Interest Rate Protection Agreement" means any interest rate swap
----------------------------------
agreement, interest rate cap agreement or other financial agreement designed to
protect a Person or any of its subsidiaries against fluctuations in interest
rates.
"Interest Record Date" when used with respect to any of the 1997 Notes
--------------------
means the date for determining the payee of an installment of interest specified
in such 1997 Notes.
"Investment" by any Person means any direct or indirect (i) loan,
----------
advance or other extension of credit or capital contribution to (by means of
transfers of cash or other property to others or payments for property or
services for the account or use of others, or otherwise), (ii) purchase or
acquisition of Capital Stock, bonds, notes, debentures or other securities or
evidences of Indebtedness issued by, any other Person (whether by merger,
consolidation, amalgamation or otherwise and whether or not purchased directly
from the issuer of such securities or evidences of Indebtedness), (iii)
guarantee or assumption of the Indebtedness of any other Person and (iv) all
other items that would be classified as investments (including, without
limitation, purchases of assets outside the ordinary course of business) on a
balance sheet of such Person prepared in accordance with GAAP. Investments
shall exclude extensions of trade credit and advances to customers and suppliers
to the extent in the ordinary course of business and made in accordance with
customary industry practice. 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.
"Issue Date" means the date on which the 1997 Notes were originally
----------
issued under this Indenture.
"La Cadena" means La Cadena Investments, a California general
---------
partnership.
"Legended Note" means any 1997 Note required to contain the legend set
-------------
forth in Section 2.06(h) hereof.
---------------
-9-
<PAGE>
"Lien" means, with respect to any Person, any mortgage, pledge, lien,
----
encumbrance, charge or adverse claim affecting title or resulting in an
encumbrance against real or personal property of such Person, or a security
interest of any kind.
"Markets Preferred Stock" means the $11.00 Cumulative Preferred Stock
-----------------------
issued by Stater Bros. Markets.
"Maturity Date" means July 1, 2004.
-------------
"Net Cash Proceeds" means, with respect to any Asset Sale of any
-----------------
Person, Cash and Cash Equivalents received therefrom, in each case net of (a)
all legal expenses and all title and recording tax expenses, all commissions and
other fees and expenses directly related to such Asset Sale, (b) all federal,
state or local taxes required to be accrued as a liability as a consequence of
such Asset Sale, and (c) all Indebtedness permitted under Section 4.12 that is
------------
secured by such assets, in accordance with the terms of any Lien permitted under
Section 4.13 upon or with respect to such assets that must by the terms of such
- ------------
Indebtedness and such Lien, or in order to obtain a necessary consent to such
Asset Sale or by applicable law, be repaid out of the proceeds from such Asset
Sale and which is actually so repaid in Cash.
"Net Equity Proceeds" means (a) in the case of any sale by the Company
-------------------
of Qualified Capital Stock, the aggregate net proceeds received by the Company,
after payment of expenses, commissions and the like incurred in connection
therewith, whether such proceeds are in cash or in other property (valued as
determined reasonably and in good faith by the Board of Directors, as evidenced
by a resolution approved by the Board of Directors, at the Fair Market Value
thereof at the time of receipt) and (b) in the case of any exchange, exercise,
conversion or surrender of any outstanding Indebtedness of the Company or any
Subsidiary for or into shares of Qualified Capital Stock, the amount of such
Indebtedness (or, if such Indebtedness was issued at an amount less than the
stated principal amount thereof, the accrued amount thereof as determined in
accordance with GAAP) as reflected in the consolidated financial statements of
the Company prepared in accordance with GAAP as of the most recent date next
preceding the date of such exchange, exercise, conversion or surrender (plus any
additional amount required to be paid by the holder of such Indebtedness to the
Company or to any Wholly Owned Subsidiary of the Company upon such exchange,
exercise, conversion or surrender and less any and all payments made to the
holders of such Indebtedness, and all other expenses incurred by the Company in
connection therewith), in the case of each of clauses (a) and (b) to the extent
consummated after June 30, 1997.
"Obligations" means (i) the due and punctual payment of principal of
-----------
and premium, if any, and interest on the 1997 Notes when due, whether at
maturity, by acceleration, by redemption or otherwise and all other monetary
obligations of the Company under the Indenture and the 1997 Notes, and (ii) the
due and punctual performance of all other obligations of the Company under this
Indenture or the 1997 Notes.
"Officer" means Chairman of the Board, the Chief Executive Officer,
-------
the President, the Chief Financial Officer, the Chief Accounting Officer, any
Vice President, the Treasurer, the Secretary, any Assistant Treasurer or any
Assistant Secretary of the Company.
-10-
<PAGE>
"Officers' Certificate" means a certificate signed by two Officers,
---------------------
one of whom must be the Chairman of the Board, the President, the Treasurer or a
Vice-President of the Company.
"Opinion of Counsel" means a written opinion in form and substance,
------------------
and from legal counsel, reasonably acceptable to the recipient of such opinion,
which opinion may be subject to any necessary or customary qualifications,
exceptions, or limitations. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Participants" means those Persons designated as participants by the
------------
Depositary.
"Permitted Construction Indebtedness" means Indebtedness of the
-----------------------------------
Company or any Wholly Owned Subsidiary representing the deferred purchase price
of, or the net proceeds of which are used solely to finance the purchase price,
cost of construction, lease, or major remodeling or major refurbishment of, any
new or existing supermarket (including any fixtures therein) operated or to be
operated by the Company or Stater Bros. Markets. For purposes hereof, "major
remodeling" or "major refurbishment" of a supermarket shall mean a remodeling or
refurbishment of a supermarket in a single transaction or a series of related
transactions involving aggregate expenditures equal to or greater than $1.0
million per project site.
"Permitted Investments" means the following kinds of instruments if,
---------------------
in the case of instruments referred to in clauses (a) through (d) below, on the
date of purchase or other acquisition of any such instrument by the Company or
any Subsidiary, the remaining term to maturity is not more than one year: (a)
readily marketable obligations issued or unconditionally guaranteed as to
principal and interest by the United States or by any agency or authority
controlled or supervised by and acting as an instrumentality of the United
States; (b) repurchase obligations for instruments of the type described in
clause (a) for which delivery of the instrument is made against payment; (c)
obligations (including, but not limited to, demand or time deposits, banker's
acceptances and certifi cates of deposit) issued by a depository institution or
trust company incorporated or doing business under the laws of the United
States, any state thereof or the District of Columbia or a branch or subsidiary
of any such depository institution or trust company operating outside the United
States, provided that such depository institution or trust company has, at the
--------
time of the Company's or such Subsidiary's investment therein or contractual
commitment providing for such investment, capital, surplus or undivided profits
(as of the date of such institution's most recently published financial
statements) in excess of $100.0 million; (d) commercial paper issued by any
corporation, if such commercial paper has, at the time of the Company's or any
Subsidiary's investment therein or contractual commitment providing for such
investment, credit ratings of A-1 by Standard & Poor's Corporation and P-1 by
Moody's Investors Service, Inc.; and (e) money market, mutual or similar funds
registered under the Investment Company Act of 1940, as amended, having assets
in excess of $100.0 million and whose sole investments are comprised of
securities of the type described in clauses (a) through (d), above, irrespective
of whether such funds are Affiliates of or otherwise associated with the
Trustee.
"Permitted Liens" means (a) Liens existing on the Issue Date and
---------------
renewals, extensions and replacements thereof; provided, that such renewals,
extensions or replacements shall not apply to any property or assets not
previously subject to such Liens or increase the principal amount of obligations
secured thereby, (b) Liens on deposits made in the ordinary course of business,
(c) Liens in favor of collecting banks having a right of setoff, revocation,
refund or chargeback with respect to
-11-
<PAGE>
money or instruments of the Company or any Subsidiary on deposit with or in
possession of such banks, (d) Liens for taxes not yet due or which are being
contested in good faith by appropriate proceedings, provided that adequate
--------
reserves with respect thereto are maintained on the books of the Company or its
Subsidiaries, as the case may be, in conformity with GAAP, (e) carriers',
warehousemen's, mechanics' materialmen's, repairmen's or other like Liens
arising in the ordinary course of business and not overdue for a period of more
than 90 days or which are being contested in good faith by appropriate
proceedings, (f) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation, (g) deposits to
secure the performance of bids, trade contracts (other than for borrowed money),
leases, statutory obligations, surety and appeal bonds, performance bonds and
other obligations of like nature incurred in the ordinary course of business,
(h) easements, rights-of-way, restrictions and other similar encumbrances
incurred in the ordinary course of business which, in the aggregate, are not
substantial in amount and which do not in any case materially detract from the
value of the property subject thereto or materially interfere with the ordinary
course of business of the Company or its Subsidiaries, as the case may be, and
any exceptions to title set forth in any title policies, (i) any attachment or
judgment Lien so long as the execution or other enforcement thereof is
effectively stayed, the claims secured thereby are being contested in good faith
by appropriate proceedings, adequate reserves have been established with respect
to such claims in accordance with GAAP and no Default or Event of Default would
result thereby or occur as a consequence thereof, (j) any Liens relating solely
to property leased by the Company or any Subsidiary and arising solely out of
the lease for such property and (k) Liens on assets securing any Permitted
Construction Indebtedness permitted under Section 4.13.
------------
"Person" means any individual, corporation, partnership, joint
------
venture, trust, estate, limited liability company, unincorporated organization
or government or any agency or political subdivision thereof.
"Plan of Liquidation" means a plan (including by operation of law)
-------------------
that provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously) (i) the sale,
lease, conveyance or other disposition of all or substantially all of the assets
of the Company otherwise than as an entirety or substantially as an entirety and
(ii) the distribution of all or substantially all of the proceeds of such sale,
lease, conveyance or other disposition of all or substantially all of the
remaining assets of the Company to holders of Capital Stock of the Company.
"Preferred Stock" means, as applied to the Capital Stock of any
---------------
Person, the Capital Stock of such Person (other than the common stock of such
Person) of any class or classes (however designated) that ranks prior, as to the
payment of dividends or as to the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding-up of such Person, to shares of
Capital Stock of at least one other class of such Person.
"principal" of Indebtedness, including the 1997 Notes, means the
---------
principal of the security plus the premium, if any, on the security.
"Private Placement Notes" has the meaning ascribed thereto in the
-----------------------
preamble hereof.
-12-
<PAGE>
"pro forma" means, with respect to any calculation made or required to
--- -----
be made pursuant to the terms of this Indenture, a calculation in accordance
with Article 11 of Regulation S-X under the Securities Act.
"Qualified Capital Stock" means, with respect to any Person, any
-----------------------
Capital Stock of such Person that is not Disqualified Capital Stock or
convertible into or exchangeable or exercisable for Disqualified Capital Stock.
"Qualified La Cadena Investment" means an Investment in the Company by
------------------------------
La Cadena for the purpose of providing funds to either the Company or Stater
Bros. Markets, as the case may be, to purchase additional limited liability
company interests in Santee LLC, provided, however, that if such an Investment
-----------------
is made in the form of Indebtedness, then such Indebtedness shall be (a)
unsecured Indebtedness, and (b) Subordinated Indebtedness.
"Qualified Non-Recourse Indebtedness" means Indebtedness of any Person
-----------------------------------
(i) as to which neither the Company nor any of its Subsidiaries (other than any
Unrestricted Subsidiary) (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute Indebtedness), (b) is
directly or indirectly liable (as a guarantor or otherwise) or (c) constitutes
the lender; and (ii) no default with respect to which (including any right that
the holders thereof may have to take enforcement action against such Person)
would permit (upon notice, lapse of time or both) any holder of any other
Indebtedness of the Company or any of its Subsidiaries (other than any
Unrestricted Subsidiary) to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity; provided, however, that the Company or any Subsidiary may execute and
become obligated under the Santee Documents and perform their obligations
thereunder, and such execution, obligation and performance shall not disqualify
the Indebtedness of Santee or Santee LLC from constituting Qualified Non-
Recourse Indebtedness.
"Qualified Santee LLC Interest Sale" means a sale by Stater Bros.
----------------------------------
Markets of its interest in Santee LLC.
"Registration Rights Agreement" means the Exchange and Registration
-----------------------------
Rights Agreement, dated as of the date hereof, between the Company and the
Initial Purchaser.
"Related Person" means with respect to any Person (a) any Affiliate of
--------------
such Person, (b) any individual or other Person who directly or indirectly is
the registered or beneficial owner of 5% or more of any class of Capital Stock
of such Person or warrants, rights, options or other rights to acquire more than
5% of any class of Capital Stock of such Person, (c) any relative of such
individual by blood, marriage or adoption not more remote than first cousin and
(d) any officer or director of such Person.
"Representative" means the indenture trustee or other trustee, agent
--------------
or representative, if any, for an issue of Senior Indebtedness.
"Restricted Payment" means (i) the declaration or payment of any
------------------
dividend or the making of any other distribution or other payment (whether in
cash, securities or other property or assets of the Company or of any
Subsidiary) of the Company's or any Subsidiary's Capital Stock, or to the
holders of the Company's or any Subsidiary's Capital Stock, or
-13-
<PAGE>
to any Affiliate of the Company, whether outstanding on the Issue Date or
thereafter (other than dividends or distributions payable solely in Qualified
Capital Stock of the Company, dividends or distributions declared or paid by any
Subsidiary to the Company); (ii) any purchase, redemption, retirement or other
acquisition for value of any Capital Stock of the Company or of any Subsidiary
or of any Affiliate of the Company, whether outstanding on the Issue Date or
thereafter, or any warrants, rights or options to purchase or acquire shares of
the Capital Stock of the Company or of any Subsidiary or of any Affiliate of the
Company, whether outstanding on the Issue Date or thereafter, held by any Person
other than the Company or one of its Wholly Owned Subsidiaries (other than
through the issuance in exchange therefor solely of Qualified Capital Stock);
(iii) the prepayment, acquisition, decrease or retirement prior to maturity,
scheduled repayment or scheduled sinking fund payment of any Indebtedness of the
Company that is subordinated (whether pursuant to its terms, structurally or by
operation of law) to the 1997 Notes, or (iv) to incur, create, assume or suffer
to exist any guarantee of Indebtedness of, or make any loan or advancement to,
or other Investment in, any Related Person of the Company (other than a Wholly
Owned Subsidiary (other than an Unrestricted Subsidiary)). The dollar amount of
any non-cash dividend or distribution by the Company or any Subsidiary on the
Company's, any Subsidiary's or any of the Company's Affiliate's Capital Stock
shall be equal to the Fair Market Value of such dividend or distribution at the
time of such dividend or distribution. Notwithstanding the foregoing, provided
--------
that no Default or Event of Default shall have occurred and be continuing or
would result as a consequence thereof, the following shall not be or be deemed
to be Restricted Payments: (a) the repayment upon the consummation of an Asset
Sale of any Indebtedness of the Company permitted by Section 4.12 which is
------------
subordinated (whether pursuant to its terms or by operation of law) to the 1997
Notes and which is secured by a Lien permitted by Section 4.13 to the extent
------------
that such Indebtedness is required to be repaid in connection with such Asset
Sale pursuant to the terms of the instrument governing such Indebtedness and
such Lien, provided that concurrent or prior repayment of the 1997 Notes is
--------
provided for with the proceeds of such Asset Sale if the 1997 Notes are secured
by a Lien pari passu with or senior to the Lien of such Indebtedness, or (b) the
---- -----
prepayment, acquisition, retirement or decrease of Indebtedness of the Company
that is subordinated (whether pursuant to its terms or by operation of law) to
the 1997 Notes that is prepaid, acquired, decreased or retired by conversion
into or in exchange for Qualified Capital Stock.
"Revolving Credit Facility" means the Company's or any Subsidiary's
-------------------------
revolving credit facilities or any replacement facilities with respect thereto.
"Santee" means Santee Dairies, Inc., a California corporation.
------
"Santee Documents" means that certain Product Purchase Agreement
----------------
between Stater Bros. Markets and Santee, that certain Owner Consent between
Stater Bros. Markets and the trustee pursuant to the trust agreement executed as
part of the Santee Financing, that certain Limited Liability Company Agreement
between Stater Bros. Markets, Hughes Markets, Inc. and Santee LLC and all
documents effecting and ancillary to the Santee Financing.
"Santee Financing" means the issuance by Santee of up to $80.0 million
----------------
in principal amount of notes with respect to the construction of a new dairy in
the City of Industry, California, and all transactions incident and ancillary
thereto.
-14-
<PAGE>
"Santee LLC" means Santee Dairies, LLC, a Delaware limited liability
----------
company.
"Santee Noteholders" means the purchasers of notes with respect to the
------------------
Santee Financing.
"SEC" means the Securities and Exchange Commission.
---
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
successor statute.
"Senior Indebtedness" means (x) all obligations of the Company now or
-------------------
hereafter existing to pay the principal of, and interest (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization to the extent a claim for post-filing interest is allowed in such
proceedings) on, any Indebtedness (other than Capitalized Lease Obligations) of
the Company, whether outstanding on the date of this Indenture or thereafter
created, incurred, assumed, guaranteed or in effect guaranteed by the Company,
(y) Indebtedness of the Company represented by Capitalized Lease Obligations if
the instrument creating or evidencing the same expressly provides that such
Indebtedness shall be senior in right of payment to the 1997 Notes and (z)
Indebtedness of the Company with respect to Interest Rate Protection Agreements.
Notwithstanding the foregoing, Senior Indebtedness shall not include (a) any
Indebtedness, if the instrument creating or evidencing the same or the
assumption or guarantee thereof expressly provides that such Indebtedness shall
not be senior in right of payment to the 1997 Notes, (b) in the case of each
1997 Note, the other 1997 Notes, (c) Indebtedness of the Company to, or
guaranteed on behalf of, an Affiliate of the Company (other than to a Subsidiary
(other than an Unrestricted Subsidiary)), (d) Indebtedness to trade creditors
incurred or assumed in the ordinary course of business in connection with
obtaining goods, materials or services, (e) any liability for federal, state,
local or other taxes owed or owing by the Company, (f) Indebtedness incurred in
violation of Section 4.12, (g) any Indebtedness which is, by its express terms,
------------
subordinated in right of payment to any other Indebtedness of the Company and
(h) Indebtedness represented by Disqualified Capital Stock.
"Series B Preferred Stock" means the Series B Preferred Stock of the
------------------------
Company.
"Shelf Registration Statement" means a registration statement filed
----------------------------
with the Commission pursuant to the Securities Act and Rule 415 promulgated
thereunder in connection with the resale of 1997 Notes pursuant to the terms set
forth in the Registration Rights Agreement.
"Stater Bros. Markets" means Stater Bros. Markets, the Company's
--------------------
principal operating Subsidiary.
"Subordinated Indebtedness" means any Indebtedness of the Company or
-------------------------
any of its Subsidiaries (whether outstanding on the date of the Indenture or
thereafter incurred) that (i) matures no earlier than the date that is one year
after the maturity date of the Notes and (ii) is subordinated with respect to
payment of principal and interest to the payment of principal and interest on
the Notes (whether upon dissolution, liquidation, or reorganization of the
Company or any such Subsidiary, or otherwise).
-15-
<PAGE>
"subsidiary" of any Person means (a) a corporation a majority of whose
----------
Voting Stock is at the time, 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 (b) any other Person (other than a corporation)
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 thereof, have (i) at least a majority ownership interest or (ii)
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.
----------
"Texas Eastern" means Texas Eastern Corporation.
-------------
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code (S)(S)77aaa-
---
77bbbb) as in effect on the date of execution of this Indenture.
"Trust Officer" means the Chairman of the Board, the President or any
-------------
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Trustee" means the party named as such above until a successor
-------
replaces it in accordance with the applicable provisions of this Indenture and
thereafter means the successor.
"Unrestricted Subsidiary" means, to the extent such Persons become
-----------------------
Subsidiaries, (i) Santee LLC, (ii) Santee and (iii) any subsidiary of an
Unrestricted Subsidiary; provided however, that any Unrestricted Subsidiary that
----------------
incurs Indebtedness other than Qualified Non-Recourse Indebtedness shall no
longer be deemed an Unrestricted Subsidiary, for so long as such Indebtedness
not constituting Qualified Non-Recourse Indebtedness shall be outstanding;
provided further, that at such time as any Unrestricted Subsidiary ceases to be
- ----------------
an Unrestricted Subsidiary, all Indebtedness of such Subsidiary shall be deemed
to have been incurred by the Company and such Subsidiary for the purposes
hereof.
"Voting Stock" means, with respect to any Person, securities of any
------------
class or classes of Capital Stock in such Person entitling the holders thereof
(whether at all times or only so long as no senior class of stock has voting
power by reason of any contingency) to vote in the election of members of the
board of directors or other governing body of such Person.
"Wholly Owned Subsidiary" means, with respect to any Person, any
-----------------------
subsidiary of such Person all the outstanding shares of Capital Stock (other
than directors' qualifying shares, if applicable) of which are owned directly by
such Person, and with respect to the Company, shall include Stater Bros. Markets
so long as the Company or any Wholly Owned Subsidiary of the Company owns all of
the outstanding shares of Capital Stock of Stater Bros. Markets, other than the
Markets Preferred Stock held by Texas Eastern on the Issue Date.
-16-
<PAGE>
<TABLE>
<CAPTION>
Section 1.02 Other Definitions.
---------------------
Defined in
Term Section
- ---- ----------
<S> <C>
"Asset Sale Offer"............................. 4.19(b)
"Asset Sale Offer Amount"...................... 4.19(b)
"Asset Sale Offer Payment Date"................ 4.19(b)
"Asset Sale Offer Trigger Date"................ 4.19(b)
"Bankruptcy Law"............................... 6.01
"Certificated Notes"........................... 2.01
"Change of Control Date"....................... 4.11
"Change of Control Offer"...................... 4.11
"Change of Control Payment Date"............... 4.11
"Consummation Date"............................ 4.19(b)
"Co-Registrar"................................. 2.03
"covenant defeasance".......................... 8.01(c)
"Custodian".................................... 6.01
"Default Rate"................................. 6.02
"Event of Default"............................. 6.01
"Existing Debt"................................ 4.12(b)
"Global Note".................................. 2.01
"legal defeasance"............................. 8.01(b)
"Legal Holiday"................................ 11.07
"New York Office".............................. 2.03
"Non-Global Purchasers"........................ 2.01
"Notice of Default"............................ 6.01
"Offer Amount"................................. 3.01(f)(ii)
"Paying Agent"................................. 2.03
"Payment Restriction".......................... 4.14
"Payment Blockage Period"...................... 10.03
"Purchase Date"................................ 3.01(e)
"Purchase Offer"............................... 3.01(a)
"Purchase Price"............................... 3.01(f)
"Refinance".................................... 4.12(b)
"Refinancing Indebtedness"..................... 4.12(b)
"Registrar".................................... 2.03
"Regulation S"................................. 2.06(a)
"Related Person Transaction"................... 4.16
"Successor".................................... 5.02
"Trustee Office"............................... 2.03
"United States
Government Obligations"...................... 8.01
</TABLE>
Section 1.03 Incorporation by Reference of Trust Indenture Act.
-------------------------------------------------
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
-17-
<PAGE>
The following TIA terms used in this Indenture have the following
meanings:
"Commission" means the SEC;
"indenture securities" means the 1997 Notes;
"indenture security holder" means a Noteholder or Holder;
"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the Trustee; and
"obligor" on the 1997 Notes means the Company or any other obligor on
the 1997 Notes.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the TIA
have the meanings so assigned to them.
Section 1.04 Rules of Construction.
---------------------
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP as in effect at the date hereof;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and in the plural
include the singular; and
(5) the words "herein," "hereof" and "hereunder" and other words
of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
ARTICLE 2
THE 1997 NOTES
Section 2.01 Form and Dating.
---------------
The Private Placement Notes shall be substantially in the form set
forth in Exhibit A, and the Exchange Notes shall be substantially in the form
---------
set forth as Exhibit B, which exhibits are part of this Indenture, with such
---------
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture. The 1997 Notes may have notations,
legends or
-18-
<PAGE>
endorsements required by law, stock exchange rule or usage. The Company shall
approve the forms of the 1997 Notes and any notation, legend or endorsement on
them. Each 1997 Note shall be dated the date of its authentication. The
aggregate principal amount of the Private Placement Notes shall be no greater
than $100.0 million; if Exchange Notes are issued, the aggregate principal
amount of Private Placement Notes then outstanding shall be reduced by the
aggregate principal amount of Exchange Notes so issued.
Private Placement Notes sold to Qualified Institutional Buyers will be
initially issued in global form, substantially in the form of Exhibit A
---------
(including footnotes 1 and 2 thereto) and the Exchange Notes, if any, issued to
Qualified Institutional Buyers in exchange for Private Placement Notes will be
initially issued in global form, substantially in the form of Exhibit B
---------
(including footnotes 1 and 2 thereto) (each of Exhibit A and Exhibit B,
--------- ---------
including such footnotes, hereinafter referred to as a "Global Note", and with
-----------
any Private Placement Notes issued in exchange therefor, the "Global Notes").
------------
Each Global Note will represent such of the outstanding 1997 Notes as shall be
specified therein and will provide that it represents the aggregate amount of
outstanding 1997 Notes from time to time endorsed thereon and that the aggregate
amount of outstanding 1997 Notes represented thereby may from time to time be
reduced or increased, as appropriate, to reflect transfers, exchanges and
redemptions. Any endorsement of a Global Note to reflect the amount of any
increase or decrease in the amount of outstanding 1997 Notes represented thereby
shall be made by the Trustee or the Global Note Custodian, at the direction of
the Trustee, in accordance with instructions given by the Holder thereof.
Private Placement Notes (i) purchased by or transferred to foreign
purchasers or Accredited Investors who are not Qualified Institutional Buyers or
(ii) held by Qualified Institutional Buyers who elect to take physical delivery
of their certificates (collectively, the "Non-Global Purchasers") will be issued
---------------------
in the registered form of certificated Notes, substantially in the form of
Exhibit A (excluding footnotes 1 and 2 thereto) and Exchange Notes that are
- ---------
issued to Holders other than Qualified Institutional Buyers in exchange for
Private Placement Notes will initially be issued in the form of certificated
Notes, substantially in the form of Exhibit B (excluding footnotes 1 and 2
---------
thereto) (collectively, the "Certificated Notes"). Upon the transfer to a
Qualified Institutional Buyer of Certificated Notes initially issued to a Non-
Global Purchaser, such Certificated Notes will, unless the transferee requests
otherwise or the Global Note has previously been exchanged in whole for
Certificated Notes, be exchanged for an interest in the Global Note.
Payment of the principal of and premium, if any, and interest on any
Certificated Note shall be made to the Holder thereof.
Payment of the principal of and premium, if any, and interest on the
Global Note will be made to the Depositary or its nominee, as the case may be,
as the registered owner of the Global Note, for immediate credit to the holders
of beneficial interests therein through the accounts of the Participants.
The terms and provisions contained in the 1997 Notes shall constitute,
and are hereby expressly made, a part of this Indenture and, to the extent
applicable, the Company and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound thereby.
-19-
<PAGE>
Section 2.02 Execution and Authentication.
----------------------------
Two Officers shall sign the 1997 Notes for the Company by manual
or facsimile signature.
If an Officer whose signature is on a 1997 Note no longer holds
that office at the time the 1997 Note is authenticated, the 1997 Note shall
nevertheless be valid.
A 1997 Note shall not be valid until authenticated by the manual
signature of the Trustee. The signature shall be conclusive evidence that the
1997 Note has been authenticated under this Indenture.
Upon a written order of the Company signed by an Officer of the
Company, the Trustee shall authenticate 1997 Notes for original issue up to the
aggregate principal amount of $100.0 million. The aggregate principal amount of
1997 Notes outstanding at any time may not exceed that amount except as provided
in Section 2.07.
------------
The 1997 Notes shall be issuable only in registered form without
coupons and only in denominations of $1,000 or any integral multiple thereof.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate 1997 Notes. Unless limited by the terms of its
appointment, an authenticating agent may authenticate 1997 Notes whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same right as an Agent to deal with the Company or an Affiliate.
Section 2.03 Registrar; Paying Agent; Depositary; Global Note Custodian.
----------------------------------------------------------
The Company shall maintain or cause to be maintained in the City
of New York, State of New York (the "Trustee Office"), and, to the extent
--------------
required by Applicable Law, (including without limitation any regulation or rule
of a national securities exchange), in the Borough of Manhattan, The City of New
York (the "New York Office"), State of New York, and in such other locations as
---------------
it shall determine: (i) an office or agency where securities may be presented
for registration of transfer or for exchange ("Registrar"); and (ii) an office
---------
or agency where 1997 Notes may be presented for payment ("Paying Agent"). The
------------
Registrar shall keep a register of the 1997 Notes and of their transfer and
exchange. The Company may appoint one or more co-registrars (a "Co-Registrar"),
and one or more additional paying agents. The term Paying Agent includes any
additional paying agent. The Company may change any Paying Agent, Registrar or
Co-Registrar without prior notice to the Holders. The Company shall promptly
notify the Trustee in writing of the name and address of any Agent not a party
to this Indenture and shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or Co-Registrar not a party to this Indenture. The
agreement shall implement the provisions of this Indenture that relate to such
Agent. The Company or any of its subsidiaries may act as Paying Agent, Registrar
or Co-Registrar. If the Company fails to appoint or maintain another entity as
Registrar or Paying Agent, the Trustee shall act as such, and the Trustee shall
initially act as such and shall be entitled to appropriate compensation in
accordance with Section 7.07. The Trustee shall cause to be maintained the
------------
Trustee Office and the New York Office (to the extent required by Applicable
Law) as long as it acts as Registrar or Paying Agent.
-20-
<PAGE>
The Company initially appoints The Depository Trust Company to act
as Depositary with respect to the Global Notes and initially appoints First
Trust of New York, National Association, as custodian, to act as Global Note
Custodian with respect to the Global Notes.
Section 2.04 Paying Agent to Hold Money in Trust.
-----------------------------------
Not later than two Business Days prior to each due date for the
payment of the principal of and premium, if any, and interest on any of the 1997
Notes, the Company shall deposit with a Paying Agent available funds sufficient
to pay such principal and interest so becoming due to Holders. The Company
shall require each Paying Agent (other than the Trustee, who hereby so agrees),
to agree in writing that the Paying Agent will hold in trust for the benefit of
Noteholders or the Trustee all money held by the Paying Agent for the payment of
principal or interest on the 1997 Notes, and will promptly notify the Trustee in
writing of any delay or default by the Company in making any such payment.
While any such delay in payment or default continues, the Trustee may require a
Paying Agent to pay all money held by it to the Trustee. The Company at any
time may require a Paying Agent to pay all money held by it to the Trustee.
Upon payment over to the Trustee, the Paying Agent (if other than the Company or
a Subsidiary) shall have no further liability for such money. If the Company or
a Subsidiary acts as Paying Agent, it shall segregate and hold in a separate
trust fund for the benefit of the Noteholders all money held by it as Paying
Agent.
Section 2.05 Noteholder Lists.
----------------
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Noteholders. If the Trustee is not the Registrar, the Company shall furnish to
the Trustee on or at least five (5) Business Days before each interest payment
date and at such other times as the Trustee may request in writing a list in
such form and as of such date as the Trustee may reasonably require of the names
and addresses of Noteholders.
Section 2.06 Transfer and Exchange.
---------------------
(a) Transfer and Exchange of Certificated Notes. When Certificated
-------------------------------------------
Notes are presented to the Registrar or Co-Registrar with a request to register
the transfer of the Certificated Notes or to exchange such Certificated Notes
for an equal principal amount of Certificated Notes of other authorized
denominations, the Registrar or Co-Registrar shall register the transfer or make
the exchange as requested if its requirements for such transactions are met;
provided, however, that the Certificated Notes presented or surrendered for
- -------- -------
registration of transfer or exchange:
(i) shall be duly endorsed or accompanied by a written instruction
of transfer in form satisfactory to the Registrar or Co-Registrar, duly
executed by the Holder thereof or by such Holder's attorney, duly
authorized in writing; and
(ii) in the case of Legended Notes that are Certificated Notes,
shall be accompanied by the following additional information and documents,
as applicable:
(A) if such Legended Note is being delivered to the Registrar
or Co-Registrar by a Noteholder for registration in the name of such
Noteholder, without transfer, a certification from such Noteholder to
that effect (in substantially the form of Exhibit C hereto); or
---------
-21-
<PAGE>
(B) if such Legended Note is being transferred to a Qualified
Institutional Buyer in accordance with Rule 144A under the Securities
Act or pursuant to an exemption from registration in accordance with
Rule 144 or Rule 145 under the Securities Act or a transaction meeting
the requirements of Regulation S under the Securities Act ("Regulation
----------
S") or pursuant to an effective registration statement under the
-
Securities Act, a certification to that effect (in substantially the
form of Exhibit C hereto); or
---------
(C) if such Legended Note is being transferred in reliance on
another exemption from the registration requirements of the Securities
Act or in a transaction exempt from the registration requirements of
the Securities Act, a certification to that effect (in substantially
the form of Exhibit C hereto) and an Opinion of Counsel to the effect
---------
that such transfer does not require registration under the Securities
Act (in substantially the form of Exhibit D hereto).
---------
(b) Restrictions on Transfer of a Certificated Note for a Beneficial
----------------------------------------------------------------
Interest in a Global Note. A Certificated Note may not be exchanged for a
- -------------------------
beneficial interest in a Global Note except upon satisfaction of the
requirements set forth below. Upon receipt by the Trustee of a Certificated
Note, duly endorsed or accompanied by appropriate instruments of transfer, in
form satisfactory to the Trustee, together with:
(i) if such Certificated Note is a Legended Note, certification (in
substantially the form of Exhibit C hereto) that such Certificated Note is
---------
being transferred to a Qualified Institutional Buyer in accordance with
Rule 144A under the Securities Act or in a transaction meeting the
requirements of Regulation S; and
(ii) whether or not such Certificated Note is a Legended Note, written
instructions directing the Trustee to make, or to direct the Global Note
Custodian to make, an endorsement on the Global Notes to reflect an
increase in the aggregate principal amount of the 1997 Notes represented by
the Global Notes;
then the Trustee shall cancel such Certificated Note and cause, or direct the
Global Note Custodian to cause, in accordance with the standing instructions and
procedures existing between the Depositary and the Global Note Custodian, the
aggregate principal amount of 1997 Notes represented by the Global Notes to be
increased accordingly. If no Global Notes are then outstanding, the Company
shall issue and the Trustee shall authenticate a new Global Note in the
appropriate principal amount.
(c) Transfer and Exchange of Global Notes. The transfer and exchange of
-------------------------------------
Global Notes or beneficial interests therein shall be effected through the
Depositary, in accordance with this Indenture (including the restrictions on
transfer set forth herein) and the procedures of the Depositary therefor.
(d) Transfer and Exchange of a Beneficial Interest in a Global Note for a
---------------------------------------------------------------------
Certificated Note. Any Person having a beneficial interest in a Global Note may
- -----------------
upon request exchange such beneficial interest for a Certificated Note. Upon
receipt by the Trustee of written instructions including registration
instructions from the Depositary or its nominee on behalf of any Person having a
beneficial interest in a Global Note, and, in the case of a beneficial interest
in a Legended Note only, the following additional information and documents:
-22-
<PAGE>
(i) if such beneficial interest is being transferred to the Person
designated by the Depositary as being the beneficial owner, a certification
from such Person to that effect (in substantially the form of Exhibit C
---------
hereto);
(ii) if such beneficial interest is being transferred to a Qualified
Institutional Buyer in accordance with Rule 144A under the Securities Act
or pursuant to an exemption from registration in accordance with Rule 144
or Rule 145 or in a transaction meeting the requirements of Regulation S or
pursuant to an effective registration statement under the Securities Act, a
certification to that effect from the transferee or transferor (in
substantially the form of Exhibit C hereto); or
---------
(iii) if such beneficial interest is being transferred in reliance on
another exemption from the registration requirements of the Securities Act,
a certification to that effect from the transferee or transferor (in
substantially the form of Exhibit C hereto) and an Opinion of Counsel to
---------
the effect that such transfer does not require registration under the
Securities Act (in substantially the form of Exhibit D hereto);
---------
then the Trustee, or the Global Note Custodian at the direction of the Trustee,
will cause, in accordance with the standing instructions and procedures existing
between the Depositary and the Global Note Custodian, the aggregate principal
amount of the Global Note to be reduced and, following such reduction, the
Company will execute and the Trustee will authenticate and deliver a
Certificated Note to the transferee. Certificated Notes issued in exchange for
a beneficial interest in a Global Note pursuant to this Section 2.06(d) shall be
---------------
registered in such names and in such authorized denominations as the Depositary,
pursuant to instructions from its direct or indirect Participants or otherwise,
shall instruct the Trustee. The Trustee shall deliver such Certificated Notes to
the Persons in whose names such 1997 Notes are so registered.
(e) Restrictions on Transfer and Exchange of Global Notes. Notwithstanding
-----------------------------------------------------
any other provisions of this Indenture (other than the provisions set forth in
Section 2.06(f)), a Global Note may not be transferred as a whole except by the
- ---------------
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or by the Depositary or any
such nominee to a successor Depositary or a nominee of such successor
Depositary.
(f) Authentication of Certificated Notes in Absence of Depositary or at
-------------------------------------------------------------------
Company's Election. If at any time (i) the Depositary for a Global Note
- ------------------
notifies the Company that the Depositary is unwilling or unable to continue as
Depositary for the Global Note and a successor Depositary for the Global Note is
not appointed by the Company within 90 days after delivery of such notice, or
(ii) the Company, at its sole discretion, notifies the Trustee in writing that
it elects to cause the issuance of Certificated Notes under this Indenture, then
the Company will execute, and the Trustee, upon receipt of an Officers'
Certificate requesting the authentication and delivery of Certificated Notes,
and, if requested, an Opinion of Counsel, will authenticate and deliver
Certificated Notes, in an aggregate principal amount equal to the principal
amount of the Global Note, in exchange for such Global Note.
(g) Cancellation and/or Adjustment of Global Note. At such time as all
---------------------------------------------
beneficial interests in a Global Note have either been exchanged for
Certificated Notes, redeemed, converted, repurchased, or canceled or, with
respect to a Global Note that is a Private Placement Note, exchanged for
beneficial interests in Exchange Notes, such Global Note shall be returned to or
retained by and
-23-
<PAGE>
canceled by the Trustee. At any time prior to such cancellation, if any
beneficial interest in a Global Note is exchanged for Certificated Notes,
redeemed, converted, repurchased, canceled or, with respect to a Global Note
that is a Private Placement Note, exchanged for beneficial interests in Exchange
Notes, the aggregate principal amount of 1997 Notes represented by such Global
Note shall be reduced and an endorsement shall be made on such Global Note, by
the Trustee or the Global Note Custodian at the direction of the Trustee, to
reflect such reduction.
(h) Legends. Except as otherwise provided below, each certificate
-------
evidencing the Global Notes and the Certificated Notes (and all 1997 Notes
issued in exchange therefor or substitution thereof) shall bear a legend in
substantially the following form:
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN
A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITY
EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD, OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM. EACH PURCHASER OF
THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE
RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES
ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED
HEREBY AGREES FOR THE BENEFIT OF THE ISSUER THAT (A) SUCH SECURITY MAY BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (i)(a) TO A PERSON WHO THE
SELLER REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A
FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER
THE SECURITIES ACT, (d) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) or (7) OF THE SECURITIES ACT (AN
"INSTITUTIONAL ACCREDITED INVESTOR")) THAT, PRIOR TO SUCH TRANSFER,
FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS
AND AGREEMENTS (THE FORM OF WHICH CAN BE OBTAINED FROM THE TRUSTEE) AND, IF
SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE PRINCIPAL AMOUNT OF NOTES LESS
THAN $100,000, AN OPINION OF COUNSEL ACCEPTABLE TO THE ISSUER THAT SUCH
TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, OR (e) IN ACCORDANCE
WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT (AND BASED UPON AN OPINION OF COUNSEL IF THE ISSUER SO REQUESTS, (ii)
TO THE ISSUER OR (iii) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND,
IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE.
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<PAGE>
Upon any sale or transfer of a Legended Note (including any Legended Note
represented by a Global Note) that (i) satisfies the conditions set forth in
clauses (A)(c), (d) or (e) of the above legend, (ii) is effected pursuant to an
- --------------------------
effective registration statement under the Securities Act, (iii) consists of an
exchange of Private Placement Notes for Exchange Notes pursuant to the
Registration Rights Agreement or (iv) in connection with which the Trustee
receives an Opinion of Counsel to the effect that such 1997 Note will no longer
be subject to resale restrictions under federal and state securities laws, then
(A) in the case of any Legended Note that is a Certificated Note, the Registrar
or Co-Registrar shall permit the Holder thereof to exchange such Legended Note
for a Certificated Note that does not bear the legend set forth above and shall
rescind any restriction on the transfer of such 1997 Note, and (B) in the case
of a Legended Note represented by a Global Note, such 1997 Note shall no longer
be subject to the restrictions contained in the above legend (but still subject
to the provisions of Section 2.06(c) hereof); provided, however, that with
--------------- -------- -------
respect to any request for an exchange of a Legended Note for a Certificated
Note that does not bear the above legend, which request is made in reliance upon
clause (i) or (ii) above, the Holder thereof shall certify to that effect in
- ------------------
writing to the Registrar or Co-Registrar (such certification to be substantially
in the form of Exhibit C hereto).
---------
(i) Obligations with respect to Transfers and Exchanges of Certificated
-------------------------------------------------------------------
Notes.
- -----
(i) To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Certificated Notes
and Global Notes at the Registrar's or Co-Registrar's request.
(ii) No service charge shall be made to a Noteholder for any
registration of transfer or exchange, but the Company may require payment
of a sum sufficient to cover any transfer tax or similar governmental
charges payable in connection therewith (other than any such transfer taxes
or similar governmental charges payable upon exchange or transfer pursuant
to Sections 2.10, 3.01(d)(vii) and 9.05 hereof).
------------------------------------
(iii) The Registrar or Co-Registrar shall not be required to
register the transfer or exchange of any Certificated Note selected for
repurchase pursuant to a Purchase Offer in whole or in part, except the
unpurchased portion of any Certificated Note being repurchased in part.
(iv) All Certificated Notes and Global Notes issued upon any
registration of transfer or exchange of Certificated Notes or Global Notes
shall be the valid obligations of the Company, evidencing the same debt,
and entitled to the same benefits under this Indenture, as the Certificated
Notes or Global Notes surrendered upon such registration of transfer or
exchange.
(v) The Company shall not be required (A) to issue, register the
transfer of or exchange 1997 Notes during a period beginning at the opening
of business 15 days before the Purchase Date in connection with a Purchase
Offer under Section 3.01 and ending at the close of business on such
------------
Purchase Date, (B) to register the transfer or exchange of any 1997 Note
purchased in whole or in part, except the unpurchased portion of any 1997
Note being purchased in part, or (C) to register the transfer or exchange
of a 1997 Note between a record date and the next succeeding interest
payment date.
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<PAGE>
(vi) Prior to due presentment for registration of transfer of
any 1997 Note, the Trustee, any Agent and the Company shall deem and treat
the Person in whose name any 1997 Note is registered as the absolute owner
of such 1997 Note for the purpose of receiving payment of principal of and
premium, if any, and interest on such 1997 Note and for all other purposes
whatsoever, whether or not such 1997 Note is overdue, and neither the
Trustee, any Agent nor the Company shall be affected by notice to the
contrary.
Section 2.07 Replacement Notes.
-----------------
If any mutilated 1997 Note is surrendered to the Trustee or any
Holder claims, to the satisfaction of the Trustee and the Company, that any 1997
Note has been lost, destroyed or wrongfully taken, the Company shall issue and
the Trustee shall authenticate a replacement 1997 Note if the Trustee's
requirements are met. If required by the Trustee or the Company as a condition
of receiving a replacement 1997 Note, the Holder shall provide an indemnity bond
sufficient, in the judgment of both the Company and the Trustee, to fully
protect the Company, the Trustee, any Paying Agent and any authenticating agent
from any loss that any of them may suffer if such 1997 Note is replaced. The
Company shall be entitled to charge the holders of such 1997 Note for its
expenses in replacing any such 1997 Note.
Each replacement 1997 Note shall be an additional Obligation of
the Company.
Section 2.08 Outstanding 1997 Notes.
----------------------
The 1997 Notes outstanding at any time are all the 1997 Notes
properly authenticated by the Trustee except for those canceled by the Trustee,
those delivered to it for cancellation, and those described in this Section 2.08
------------
as not outstanding.
If a 1997 Note is replaced pursuant to Section 2.07 (other than a
------------
mutilated 1997 Note surrendered for replacement), it shall cease to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced 1997 Note is held by a bona fide purchaser. A mutilated 1997 Note
shall cease to be outstanding upon surrender of such 1997 Note and replacement
thereof pursuant to Section 2.07.
------------
If 1997 Notes are considered paid in full under Section 4.01, they
------------
cease to be outstanding and interest on them ceases to accrue.
Subject to Section 2.09, a 1997 Note does not cease to be
------------
outstanding because the Company or an Affiliate of the Company holds the 1997
Note.
Section 2.09 When Treasury Notes Disregarded.
-------------------------------
In determining whether the Holders of the required aggregate
principal amount of 1997 Notes have concurred in any direction, waiver or
consent, 1997 Notes owned by the Company or an Affiliate of the Company shall be
considered as though they are not outstanding, except that for the purposes of
determining whether the Trustee shall be protected in relying on any such
direction, waiver or consent, only 1997 Notes which the Trustee knows are so
owned shall be so disregarded.
Section 2.10 Temporary Notes.
---------------
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<PAGE>
Until Notes in certificated form are ready for delivery, the
Company may prepare and the Trustee shall authenticate temporary Notes.
Temporary Notes shall be substantially in the form of Notes in certificated form
but may have variations that the Company considers appropriate for temporary
Notes. Without unreasonable delay, the Company shall prepare and the Trustee
shall authenticate Notes in certificated form in exchange for temporary Notes.
Until such exchange, such temporary Notes shall be entitled to the same rights,
benefits and privileges as the Notes in certificated form.
Section 2.11 Cancellation.
------------
The Company at any time may deliver Notes to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Notes surrendered to them for registration of transfer, exchange, or payment.
The Trustee and no one else shall cancel all Notes surrendered for registration
of transfer, exchange, payment, replacement, or cancellation, shall dispose of
canceled Notes subject to record retention requirements of the Exchange Act, and
shall promptly provide the Company with a certificate executed by an authorized
signatory certifying such destruction. The Company may not issue new Notes to
replace Notes that it has paid or that have been delivered to the Trustee for
cancellation.
Section 2.12 Defaulted Interest.
------------------
If the Company fails to make a payment of interest on the 1997
Notes, it shall pay such defaulted interest plus, to the extent lawful, any
interest payable on the defaulted interest to the persons who are Noteholders on
a subsequent special record date in each case at the rate provided in the 1997
Notes and in Section 4.01. The Company shall set any such record date and
------------
payment date and shall so notify the Trustee in writing at least 18 Business
Days before such record date, unless the Trustee shall elect to set the record
date pursuant to Section 6.10 hereof. At least 15 Business Days before any such
------------
record date, the Company (or the Trustee, in the name of, upon written direction
by, and at the expense of, the Company) shall mail to Noteholders a notice that
states the record date, payment date, and amount of such interest to be paid on
account of each 1997 Note.
Section 2.13 CUSIP Number.
------------
The Company in issuing the 1997 Notes may use a CUSIP number, and
if so, such CUSIP number shall be included in notices of redemption or exchange
as a convenience to Holders; provided, however, that any such notice may state
-------- -------
that no representation is made as to the correctness or accuracy of the CUSIP
number printed in the notice or on the 1997 Notes and that reliance may be
placed only on the other identification numbers printed on the 1997 Notes. The
Company shall promptly notify the Trustee of any change in the CUSIP number.
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<PAGE>
ARTICLE 3
REPURCHASE AND OPTIONAL REDEMPTION
Section 3.01 Purchase Offers.
---------------
(a) In the event that, pursuant to Section 4.11 or 4.19 hereof, the
--------------------
Company shall commence an offer to purchase 1997 Notes (a "Purchase Offer"), the
--------------
Company shall follow the procedures in this Section 3.01.
------------
(b) Notice of a Change of Control Offer shall be sent to the Trustee
not more than 25 days after the Change in Control Date and to the Noteholders as
shown on the register of Holders and the Trustee not more than 30 days after the
Change in Control Date. The Change of Control Offer shall commence on the date
such notice is given and shall remain open for not less than 30 days and nor
more than 45 days, except to the extent that a longer period is required by
Applicable Law. Upon expiration of such Change in Control Offer, the Company
shall promptly purchase for Cash the 1997 Notes delivered for purchase at a
purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest thereon, if any.
(c) Notice of an Asset Sale Offer shall be sent to the Trustee within
five days after the Asset Sale Offer Trigger Date as shown on the register of
Holders and the Trustee in writing and pursuant to Section 3.01(f) and to the
---------------
Noteholders within 10 days following the Asset Sale Offer Trigger Date, and
shall comply with the procedures reasonably determined by the Company. An Asset
Sale Offer shall remain open for a period of 20 Business Days or such longer
period as may be required by Applicable Law. Upon expiration of such Asset Sale
Offer, the Company shall promptly purchase for Cash the 1997 Notes delivered for
purchase at a purchase price equal to 100% of the outstanding principal amount
thereof, plus accrued and unpaid interest thereon, if any. To the extent Holders
properly tender 1997 Notes in an amount exceeding the Asset Sale Offer Amount,
the Trustee shall select the 1997 Notes to be redeemed on a pro rata basis or by
lot, subject to compliance with the requirements of any national securities
exchange on which the 1997 Notes are then listed. Notwithstanding the foregoing,
if an Asset Sale Offer Amount is less than $5.0 million, the application of the
Net Cash Proceeds constituting such Asset Sale Offer Amount to an Asset Sale
Offer may be deferred until such time as such Asset Sale Offer Amount plus the
aggregate amount of all Asset Sale Offer Amounts arising subsequent to the Asset
Sale Offer Trigger Date relating to such initial Asset Sale Offer Amount from
all Asset Sales by the Company and its Subsidiaries aggregate at least $5.0
million at which time the Company or said Subsidiary shall apply all Net Cash
Proceeds constituting all Asset Sale Offer Amounts that have been so deferred to
make an Asset Sale Offer (the first date the aggregate of all such deferred
Asset Sale Offer Amounts is equal to $5.0 million or more shall be deemed to be
an Asset Sale Offer Trigger Date). Pending application to an Asset Sale Offer
the Company shall invest such Asset Sale Offer Amounts in Permitted Investments.
(d) Upon receiving notice of a Purchase Offer under this Section
-------
3.01, Holders may elect to tender their 1997 Notes in whole or in part in
- ----
integral multiples of $1,000 in exchange for Cash. Tenders by Holders will be
revocable until 4 P.M., New York City time, on the Business Day immediately
preceding the applicable payment date. For purposes of any Purchase Offer, the
Company will not act as paying agent.
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<PAGE>
(e) If the last day of the applicable Purchase Offer period (the
"Purchase Date") is on or after an interest payment record date and on or before
- --------------
the related interest payment date, any accrued interest will be paid to the
Person in whose name a 1997 Note is registered at the close of business on such
record date.
(f) The Company (with written notice to the Trustee) or the Trustee
(at the expense and written direction of the Company) shall send, by first class
mail, a notice to each of the Noteholders, which shall govern the terms of the
Purchase Offer and shall state:
(i) that the Purchase Offer is being made pursuant to this Section
-------
3.01 and, as applicable, Section 4.11 or 4.19 hereof and the length of the
---- --------------------
Change in Control Offer or Asset Sale Offer, as applicable;
(ii) the amount of 1997 Notes to be purchased pursuant to the
applicable Purchase Offer (the "Offer Amount"), the price at which the 1997
------------
Notes will be purchased pursuant to the applicable Purchase Offer (the
"Purchase Price") and the Purchase Date and (A) in the case of a Purchase
---------------
Offer made pursuant to Section 4.19 hereof, the amount of the remaining Net
------------
Cash Proceeds resulting from the Asset Sale, and (B) in the case of a
Purchase Offer made pursuant to Section 4.11 hereof, that all 1997 Notes
------------
tendered will be accepted for payment;
(iii) that any 1997 Note not tendered or accepted for payment will
continue to accrue interest;
(iv) that any 1997 Note accepted for payment pursuant to the Purchase
Offer shall cease to accrue interest after the Purchase Date;
(v) that Noteholders electing to have a 1997 Note purchased pursuant
to any Purchase Offer will be required to surrender the 1997 Note, with the
form entitled "Option of Noteholder to Elect Purchase" on the reverse of
the 1997 Note completed, to the Company, a depositary, if appointed by the
Company, or a Paying Agent at the address specified in the notice;
(vi) that Noteholders will be entitled to withdraw their election if
the Company, depositary or Paying Agent, as the case may be, receives, not
later than the expiration of the Change in Control Offer or Asset Sale
Offer, as applicable, or such longer period as may be required by
applicable law, a letter or a telegram, telex, facsimile transmission
(promptly followed by a letter) setting forth the name of the Noteholder,
the principal amount of the 1997 Note the Noteholder delivered for purchase
and a statement that such Noteholder is withdrawing such Noteholder's
election to have the 1997 Note purchased; and
(vii) that Noteholders whose 1997 Notes are purchased only in part
will be issued new 1997 Notes equal in principal amount to the unpurchased
portion of the 1997 Notes surrendered.
(g) At least one Business Day prior to the Purchase Date, the Company
shall irrevocably deposit with the Trustee or a Paying Agent in immediately
available funds an amount equal to the aggregate Purchase Price of the 1997
Notes to be purchased pursuant to the Purchase Offer, to be held for payment in
accordance with this Section 3.01; provided that such funds shall be
------------ --------
-29-
<PAGE>
invested in Permitted Investments for the benefit of the Company until the
Purchase Date. On the Purchase Date, the Company shall, to the extent lawful,
(i) accept for payment 1997 Notes or portions thereof validly tendered pursuant
to the Purchase Offer, up to the Offer Amount, (ii) deliver or cause the
Depositary or Paying Agent to deliver to the Trustee Notes so accepted and (iii)
deliver to the Trustee an Officers' Certificate stating such 1997 Note or
portions thereof have been accepted for payment by the Company in accordance
with the terms of this Section 3.01. The Paying Agent or the Trustee, as the
------------
case may be, shall promptly (but in any case not later than ten days after the
Purchase Date) mail or deliver to each tendering Noteholder an amount equal to
the Purchase Price of the 1997 Notes tendered by such Noteholder and accepted by
the Company for purchase, and the Trustee shall promptly authenticate and mail
or deliver to such Noteholders a new 1997 Note equal in principal amount to any
unpurchased portion of the 1997 Note surrendered. Any 1997 Notes not so accepted
shall be promptly mailed or delivered by or on behalf of the Company to the
Holder thereof. The Company shall publicly announce in a newspaper of general
circulation the results of the Purchase Offer on the Purchase Date.
(h) The Purchase Offer shall be made by the Company in compliance with
all tender offer rules, including but not limited to, Section 14(e) under the
Exchange Act and Rule 14e-1 thereunder, to the extent applicable to such offer,
and shall include all instructions and materials necessary to enable Noteholders
to tender their 1997 Note.
Section 3.02 Notices to Trustee.
------------------
If the Company elects to redeem the 1997 Notes pursuant to the
optional redemption provisions of paragraph 5 of the 1997 Notes, it shall notify
the Trustee in writing of the redemption date and the principal amount of the
1997 Notes to be redeemed at least 10 days prior to the date the notice required
pursuant to Section 3.04 was sent to Holders.
------------
The Company shall give each notice provided for in this Section not
less than 40 nor more than 70 days before the scheduled redemption date (unless
a shorter notice period shall be satisfactory to the Trustee); provided,
however, that the Trustee shall have no liability to any Holder if it deems such
shorter notice period satisfactory to it in its sole discretion and without
consideration of the benefit of any Holder.
Section 3.03 Selection of 1997 Notes to Be Redeemed.
--------------------------------------
Except as provided below, if less than all of the 1997 Notes are to be
redeemed, the Trustee shall select the 1997 Notes or portions thereof to be
redeemed on a pro rata basis or by lot among the Holders of the 1997 Notes in
accordance with a method the Trustee considers fair and appropriate (in such
manner as complies with applicable legal and stock exchange requirements, if
any).
The amount of 1997 Notes shall be calculated as the aggregate
principal amount of 1997 Notes originally issued under this Indenture less the
aggregate principal amount of any 1997 Notes previously redeemed or tendered
pursuant to Section 3.01. The Trustee shall make the selection not more than 60
------------
days and not less than 30 days before the redemption date from outstanding 1997
Notes not previously called for redemption or tendered pursuant to Section 3.01.
------------
-30-
<PAGE>
The Trustee shall promptly notify the Company of the 1997 Notes or
portions of 1997 Notes to be called for redemption. The Trustee may select for
redemption portions of the principal amount of 1997 Notes that have
denominations of $1,000 or larger. 1997 Notes and portions of them the Trustee
selects shall be in amounts of $1,000 or integral multiples of $1,000.
Provisions of this Indenture that apply to 1997 Notes called for redemption also
apply to portions of 1997 Notes called for redemption.
Section 3.04 Notice of Redemption.
--------------------
At least 30 days but not more than 60 days before a redemption date,
the Company shall mail by first class mail, postage prepaid a notice of
redemption to each Holder whose 1997 Notes are to be redeemed at its address of
record; provided that the Company shall notify the Trustee in writing of any
--------
such redemption date not less than 40 days prior to such redemption date.
The notice shall identify the 1997 Notes to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price;
(3) if any 1997 Notes are being redeemed in part, the portion of
the principal amount of such 1997 Note to be redeemed and that, after the
redemption date, upon surrender of such 1997 Note, a new 1997 Note or 1997
Notes in principal amount equal to the unredeemed portion will be issued;
(4) the name and address of the Paying Agent;
(5) that 1997 Notes called for redemption must be surrendered to
the Paying Agent to collect the redemption price plus accrued interest;
(6) that, unless the Company defaults in making the redemption
payment, interest on 1997 Notes called for redemption ceases to accrue on
and after the redemption date, and that if 1997 Notes are redeemed on or
after an interest record date but on or prior to the related interest
payment date, then any accrued and unpaid interest shall be paid to the
Person in whose name such 1997 Notes were registered at the close of
business on such record date; and
(7) the paragraph of the 1997 Notes pursuant to which the 1997
Notes called for redemption are being redeemed.
At the Company's written request, the Trustee shall give the notice of
redemption in the Company's name and at its expense.
Section 3.05 Effect of Notice of Redemption.
------------------------------
Once notice of redemption is mailed, 1997 Notes called for redemption
become due and payable on the redemption date at the price set forth in the 1997
Notes. Unless the Company defaults in making the redemption payment, on and
after the redemption date, interest shall cease to
-31-
<PAGE>
accrue on the 1997 Notes or the portions of 1997 Notes called for redemption. If
a 1997 Note is redeemed on or after an interest record date but on or prior to
the related interest payment date, then any accrued and unpaid interest shall be
paid to the person in whose name such 1997 Note was registered at the close of
business on such record date. If any 1997 Notes called for redemption shall not
be so paid upon surrender thereof for redemption, the principal (and premium, if
any) shall, until paid, bear interest from the redemption date at the rate borne
by the 1997 Notes.
Section 3.06 Deposit of Redemption Price.
---------------------------
No later than one Business Day prior to the redemption date, the
Company shall deposit with the Trustee or with the Paying Agent immediately
available funds sufficient to pay the redemption price of and accrued interest
on all 1997 Notes to be redeemed on that date; provided that such funds shall be
--------
invested for the benefit of the Company in Permitted Investments until the
redemption date. The Trustee or the Paying Agent shall promptly return to the
Company any money not required for that purpose.
Section 3.07 1997 Notes Redeemed in Part.
---------------------------
Upon surrender of a 1997 Note that is redeemed in part, the Company
shall issue and the Trustee shall authenticate for the Holder at the expense of
the Company a new 1997 Note equal in principal amount to the unredeemed portion
of the 1997 Note surrendered.
ARTICLE 4
COVENANTS OF THE COMPANY
Section 4.01 Payment of 1997 Notes.
---------------------
The Company shall pay the principal of and premium, if any, and
interest on the 1997 Notes on the dates and in the manner provided in this
Indenture and the 1997 Notes. Principal, premium and interest shall be
considered paid on the date due if the Trustee or Paying Agent (other than the
Company or a subsidiary) holds on that date money designated for and sufficient
to pay all principal, premium, if any, and interest then due. To the extent
lawful, the Company shall pay interest (including post-petition interest in any
proceeding under any Bankruptcy Law) on (i) overdue principal, at the rate borne
by the 1997 Notes, compounded semiannually, and (ii) overdue installments of
interest (without regard to any applicable grace period) at the Default Rate.
Notwithstanding the foregoing, at no time shall the maximum aggregate interest
rate borne by the 1997 Notes exceed the lesser of (a) the initial interest rate
payable on the 1997 Notes plus 2.50% per annum and (b) the maximum amount
--- -----
permitted under applicable usury laws. The interest rate borne by the 1997
Notes shall be reduced by the amount of any additional interest pursuant to
paragraph 1 of the 1997 Notes on and after the date, if any, on which the
Company satisfies its obligations with respect to the Exchange Offer and/or the
Shelf Registration Statement.
Section 4.02 SEC Reports.
-----------
(a) The Company shall deliver to the Trustee, and to the Holders,
within 15 days after it files them with the SEC, copies of the annual and
quarterly reports and of the information,
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<PAGE>
documents, and other reports (or copies of such portions of any of the foregoing
as the SEC may by rules and regulations prescribe) that the Company is required
to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act,
provided that the Company shall not be required to deliver to the Trustee more
- --------
than one set of any exhibits to any of the foregoing and the Trustee shall not
be required to deliver copies of any such exhibits to the Holders. The Company
shall timely comply with its reporting and filing obligations under the
applicable federal securities laws.
(b) To the extent that the Company is not subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company shall file
with the SEC and provide to the Trustee, and to the Holders, such annual and
quarterly reports and such information, documents and other reports (or copies
of such portions of any of the foregoing as the SEC may by rules and regulations
prescribe) as are specified in Sections 13 and 15(d) of the Exchange Act,
provided that the Company shall not be required to deliver to the Trustee more
- --------
than one set of any exhibits to any of the foregoing and the Trustee shall not
be required to deliver copies of any such exhibits to the Holders. The Company
shall also make such reports available to prospective purchasers of the 1997
Notes, securities analysts and broker-dealers upon their request. In addition,
the Company shall furnish to Holders of the 1997 Notes and prospective
purchasers of the 1997 Notes designated by the Initial Purchaser, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act until such time as the Company either exchanges Private
Placement Notes for a like principal amount of Exchange Notes or has registered
the 1997 Notes for resale under the Securities Act pursuant to the Shelf
Registration (as defined in the Registration Rights Agreement) and such Shelf
Registration has remained effective for a period of three years. Upon the
effectiveness of any registration statement called for by the Registration
Rights Agreement and thereafter so long as the 1997 Notes are outstanding, the
Company shall not file with the SEC a Form 15 or take any other action to
terminate the registration of the 1997 Notes under the Exchange Act or suspend
the Company's duty to file reports under Section 13 or 15(d) of the Exchange
Act.
(c) The Company also shall comply with the other provisions of TIA
(S)314(a).
Section 4.03 Compliance Certificate.
----------------------
(a) The Company shall deliver to the Trustee, within 120 days after
the end of each fiscal year of the Company, an Officers' Certificate stating
that a review of the activities of the Company and the Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has fully performed its
obligations under this Indenture, and further stating, as to each such Officer
signing such certificate, that to the best of his or her knowledge the Company
has kept, observed, performed and fulfilled each and every covenant contained in
this Indenture and is not in default in the performance or observance of any of
the terms and conditions hereof (or, if a Default or Event of Default shall have
occurred, describing all such Defaults or Events of Default of which he or she
may have knowledge and whatever action the Company is taking or plans to take to
cure all such Defaults or Events of Default).
(b) So long as not contrary to the then current recommendations of the
American Institute of Certified Public Accountants, at the time the Officers'
Certificate required by Section 4.03(a) is delivered, the Company shall cause to
---------------
be delivered to the Trustee a letter or statement of the Company's independent
accountants who shall have certified the financial statements of the Company for
its preceding fiscal year in connection with the annual report of the Company to
its stockholders for such year to the effect that, in making the examination
necessary for certification
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<PAGE>
of such financial statements, nothing came to their attention that caused them
to believe that the Company was not in compliance with any of the terms or
conditions contained in Sections 4.01, 4.05, 4.07, 4.12, 4.14, 4.15, 4.16 and
-----------------------------------------------------
4.19 and Article 5 of this Indenture, which Default remains uncured at the date
- ---- ---------
of such letter or statement or, if they shall have obtained knowledge of any
such uncured Default, specifying in such letter or statement such Default or
Defaults and the nature thereof, it being understood that such accountants shall
not be liable directly or indirectly for failure to obtain knowledge of any such
Default or Defaults and that their examination was not directed primarily toward
obtaining knowledge of such noncompliance.
(c) The Company shall, so long as any of the 1997 Notes are
outstanding, deliver to the Trustee forthwith upon any officer of the Company
becoming aware of (i) any Default, Event of Default or default in the
performance of any term or condition in this Indenture or (ii) any event of
default under any other Indebtedness as such term is used in Section 6.01(f), an
---------------
Officers' Certificate specifying such Default, Event of Default or default.
Section 4.04 Maintenance of Office or Agency.
-------------------------------
(a) The Company shall maintain or cause to be maintained the office
or agency required by Section 2.03. The Company shall give prompt written
------------
notice to the Trustee of the location, and any change in the location, of such
office and agency not maintained by or with the Trustee. If at any time the
Company shall fail to maintain any such required office or agency or shall fail
to furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the address of the Trustee set
forth in Section 10.10.
-------------
(b) The Company may also from time to time designate one or more
other offices or agencies where the 1997 Notes may be presented or surrendered
for any or all such purposes and may from time to time rescind such designation;
provided, however, that no such designation or rescission shall in any manner
- -------- -------
relieve the Company of its obligation to maintain or cause to be maintained an
office or agency in the City of New York for such purpose to the extent required
by any applicable law, regulation or rule. The Company will give prompt written
notice to the Trustee of such rescission or designation.
Section 4.05 Limitations on Restricted Payments and Investments.
--------------------------------------------------
(a) The Company will not, and will not permit or cause any of the
Subsidiaries (other than any Unrestricted Subsidiary), directly or indirectly,
to, make any Restricted Payment or Investment after the Issue Date unless, at
the time of such proposed Restricted Payment or Investment, and on a pro forma
--- -----
basis immediately after giving effect thereto:
(A) no Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof;
(B) the aggregate amount expended for all Restricted Payments and
Investments, without duplication, subsequent to June 30, 1997 would not
exceed the sum of:
(1) 50% of the aggregate Consolidated Net Income of the Company
(or if such Consolidated Net Income is a loss, minus 100% of such
loss) earned on a cumulative basis during the period beginning on June
30, 1997 and ending on the last
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<PAGE>
date of the Company's fiscal quarter immediately preceding such
proposed Restricted Payment or Investment; plus
(2) 100% of the aggregate Net Equity Proceeds received by the
Company from any Person (other than a Subsidiary) from the issuance
and sale subsequent to June 30, 1997 of Qualified Capital Stock
(excluding (x) any Qualified Capital Stock paid as a dividend on any
Capital Stock of the Company or of any Subsidiary or as interest on
any Indebtedness of the Company or of any Subsidiary, (y) the issuance
of Qualified Capital Stock upon the conversion of, or in exchange for,
any Capital Stock of the Company or of any Subsidiary and (z) any
Qualified Capital Stock of the Company with respect to which the
purchase price thereof has been financed directly or indirectly using
funds (i) borrowed from the Company or any Subsidiary, unless and
until and to the extent such borrowing is repaid, or (ii) contributed,
extended, guaranteed or advanced by the Company or any Subsidiary
(including, without limitation, in respect of any employee stock
ownership or benefit plan)); plus
(3) $5.0 million; and
(C) the Company shall be able to incur (assuming a market rate of
interest with respect thereto) at least $1.00 of additional Indebtedness
under Section 4.12(a).
---------------
(b) Section 4.05(a) shall not prevent (a) the payment of any dividend
---------------
within 60 days after the date of its declaration if at such date of declaration
the payment of such dividend would comply with the provisions set forth above,
provided that such dividend will be deemed to have been paid as of its date of
- --------
declaration for the purposes of this Section 4.05, (b) if no Default or Event of
------------
Default shall have occurred and be continuing or would occur as a consequence
thereof, the purchase, redemption, retirement or acquisition of any shares of
Capital Stock of the Company or of any Subsidiary or any Indebtedness of the
Company that is pari passu with or subordinated to the 1997 Notes solely with or
---- -----
out of the net cash proceeds of the substantially concurrent sale (other than to
a Subsidiary or by a Subsidiary to one of its subsidiaries) of shares of
Qualified Capital Stock of the Company or of a Subsidiary and neither such
purchase, redemption, retirement or acquisition nor the proceeds of any such
sale will be included in any computation made under clause (B)(2) above, (c)
payments pursuant to usual and customary indemnification arrangements for
directors and officers of the Company, any Subsidiary, Santee LLC or Santee, (d)
payment to Craig of up to $69,365,000 plus accrued and unpaid dividends from the
proceeds of the sale of the 1997 Notes to repurchase the outstanding Series B
Preferred Stock, (e) the making of Permitted Investments, (f) the making of
Investments in any Subsidiary (other than an Unrestricted Subsidiary) (including
any Person who becomes a Subsidiary as a result of any Investment, other than an
Unrestricted Subsidiary) by the Company or any other Subsidiary, provided that
--------
any Indebtedness evidencing such Investment is not subordinated to any
Indebtedness or other obligation of such Subsidiary, (g) the making of
Investments in the Company by any Subsidiary, provided that any Indebtedness
--------
evidencing such Investment is subordinated and junior to the 1997 Notes), (h)
the making of Investments of the type described in Section 4.19(b)(i), (ii) and
----------------------------
(iii), (i) the making of Investments in any Person, provided that the
- -----
consideration paid by the Company or a Subsidiary for such Investment consists
solely of Qualified Capital Stock, (j) payment to Texas Eastern of dividends on
the Markets Preferred Stock as in effect on the Issue Date, (k) the making of
Investments in Santee LLC of up to $25.0 million; (l) the making of Investments
in Santee LLC for the purpose of purchasing additional limited liability company
interests in Santee LLC with the proceeds of a Qualified La Cadena Investment,
(m) the payment to
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La Cadena of an amount equal to the lesser of the amount of (i) the sum of (X)
any Qualified La Cadena Investment, plus (Y) an amount equal to a commercially
----
reasonable rate of interest on such Qualified La Cadena Investment to the extent
that the net proceeds received by Stater Bros. Markets from the sale or
disposition of that portion of the State Bros. Markets' interest in Santee LLC
which was acquired with the proceeds from such Qualified La Cadena Investment
exceeds the original amount of the Qualified La Cadena Investment; and (ii) net
proceeds received by Stater Bros. Markets from the sale or disposition of that
portion of Stater Bros. Markets' interest in Santee LLC which was acquired with
the proceeds from such Qualified La Cadena Investment and (n) the payment of a
financial advisory fee of up to $2.0 million to La Cadena substantially
contemporaneously with the effective date of the 1997 amendments to the
indenture governing the 1994 Notes; provided that in each such case of clauses
--------
(f) through (j) above, no Default or Event of Default has occurred and is
continuing or would result therefrom. The amounts expended or received, as
applicable, pursuant to clause (a) will be included, and clauses (b) through (n)
will be excluded, in computing the amounts available for Restricted Payments and
Investments for purposes of the immediately preceding paragraph.
(c) For purposes of this Section 4.05, a distribution to holders of
------------
the Company's Capital Stock of (i) shares of Capital Stock of any Subsidiary or
(ii) other assets of the Company, without, in either case, the receipt of
equivalent consideration therefor shall be deemed to be the equivalent of a cash
dividend equal to the excess of the Fair Market Value of the shares or other
assets being so distributed at the time of such distribution over the
consideration, if any, received therefor.
Section 4.06 Continued Existence.
-------------------
Subject to Article 5, the Company shall do or cause to be done all
---------
things necessary to preserve and keep in full force and effect its existence as
a corporation and will refrain from taking any action that would cause its
existence as a corporation to cease, including without limitation any action
that would result in its liquidation, winding up or dissolution.
Section 4.07 Taxes.
-----
The Company shall, and shall cause each Subsidiary to, pay prior to
delinquency all taxes, assessments and governmental levies, except as contested
in good faith and by appropriate proceedings or where the failure to do so would
not have a material adverse effect on the Company and the Subsidiaries, taken as
a whole.
Section 4.08 Maintenance of Properties.
-------------------------
The Company shall, and shall cause each of the Subsidiaries to, take
reasonable action to maintain in appropriate condition each of its principal
properties that in the judgment of management is significant to the business
operations of the Company and the Subsidiaries, taken as a whole, and the loss
of which would have a material adverse effect on the financial condition of the
Company and the Subsidiaries, taken as a whole.
Section 4.09 Insurance.
---------
From and at all times after the Issue Date, the Company and its
Subsidiaries will have in effect customary insurance for general liabilities and
other risks on terms and in amounts as are
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<PAGE>
customarily carried by similar businesses and reasonably sufficient to avoid a
material adverse change in the financial condition or results of operation of
the Company and its Subsidiaries taken as a whole. The Company shall provide to
the Trustee a summary of all insurance coverage prepared by the Company's
insurance broker, which expressly states the expiration date for such coverage
and which shall appear as an exhibit to the Officer's Certificate delivered to
the Trustee pursuant to Section 4.03(a).
---------------
Section 4.10 Investment Company Act.
----------------------
Neither the Company nor any Subsidiary shall become an investment
company subject to registration under the Investment Company Act of 1940, as
amended.
Section 4.11 Change of Control.
-----------------
Upon the occurrence of a Change of Control (the date of each such
occurrence being the "Change of Control Date"), the Company will promptly notify
----------------------
the Trustee and the Holders in writing of such occurrence and will make an offer
to purchase (the "Change of Control Offer"), on a Business Day (the "Change of
----------------------- ---------
Control Payment Date") not later than 45 days following the date notification of
- --------------------
the Change of Control is first given to the Holders, all 1997 Notes then
outstanding at a purchase price equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest thereon, if any, to such Change of
Control Payment Date (subject to the right of Holders of record on the relevant
Interest Record Date to receive interest due on the relevant Interest Payment
Date). Notice of a Change of Control will be mailed by the Company to the
Trustee not more than 20 days after any Change of Control Date and to the
Holders not more than 30 days after any Change of Control Date. The Change of
Control Offer is required to remain open for not less than 30 days, nor more
than 45 days, and until the close of business on any such Change of Control
Payment Date. Failure to make, maintain or complete a Change of Control Offer as
required under the terms of this Indenture and the 1997 Notes will constitute an
Event of Default.
Section 4.12 Limitation on Indebtedness.
--------------------------
(a) The Company will not, and will not permit any of its Subsidiaries
(other than any Unrestricted Subsidiary), directly or indirectly, to incur any
Indebtedness, provided that if no Default or Event of Default shall have
--------
occurred and be continuing at the time or as a consequence of the incurrence of
such Indebtedness, the Company may incur Indebtedness if, on the date of the
incurrence of such Indebtedness after giving pro forma effect to the incurrence
--- -----
of such Indebtedness, the Consolidated Fixed Charge Coverage Ratio of the
Company is at least 2.0 to 1.
(b) The limitations set forth in Section 4.12(a) shall not apply to:
---------------
(i) Indebtedness under a revolving credit facility or any replacement facility
thereof, provided that Indebtedness under such credit facility or any
--------
replacement facility, including unused commitments, shall not at any time exceed
$50.0 million in aggregate outstanding principal amount; (ii) Indebtedness of
the Company and its Subsidiaries existing on the Issue Date; (iii) Indebtedness
of the Company represented by the 1994 Notes and the 1997 Notes; (iv)
Indebtedness of the Company and its Subsidiaries incurred in exchange for or the
net proceeds of which are used to extend, refinance, renew, replace, substitute
or refund ("Refinance") Indebtedness referred to in clauses (i), (ii) and (iii)
---------
above and (ix) below (the "Refinancing Indebtedness") plus any penalties, fees
------------------------
or premiums incurred in connection therewith, provided that (A) the principal
--------
amount of such Refinancing Indebtedness shall not exceed the principal
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<PAGE>
amount of the Indebtedness (including unused commitments) so Refinanced (the
"Existing Debt") as of the date of the proposed incurrence of the Refinancing
-------------
Indebtedness, (B) such Refinancing Indebtedness shall have an Average Life equal
to or greater than the Average Life of the Existing Debt, (C) if the Existing
Debt (including the 1997 Notes) being Refinanced is pari passu with or
---- -----
subordinated to the 1997 Notes then such Refinancing Indebtedness shall be pari
----
passu with or at least as subordinated to, as the case may be, the 1997 Notes,
- -----
(D) the Refinancing Indebtedness has a stated maturity date no earlier than the
Existing Debt as of the date of such proposed Refinancing and (E) if the
Existing Debt is Indebtedness solely of the Company, such Refinancing
Indebtedness will only be permitted if it is Indebtedness solely of the Company;
(v) Permitted Construction Indebtedness incurred after March 8, 1994 not to
exceed $10.0 million in the aggregate at any time outstanding and designated as
Permitted Construction Indebtedness subject to this clause (v) in an Officer's
Certificate delivered to the Trustee; (vi) Indebtedness of the Company to a
Wholly Owned Subsidiary of the Company or by a Wholly Owned Subsidiary of the
Company to the Company or between Wholly Owned Subsidiaries of the Company;
(vii) Indebtedness under Interest Rate Protection Agreements entered into in the
ordinary course of business; (viii) Indebtedness arising from agreements
providing for indemnification, adjustment of purchase price or similar
obligations, or from guarantees of letters of credit, surety bonds or
performance bonds securing any obligations of the Company pursuant to such
agreements, incurred or assumed in connection with the disposition of any
business, assets or Subsidiary of the Company, other than guarantees or similar
credit support by the Company of Indebtedness incurred by any Person acquiring
all or any portion of such business, assets or Subsidiary for the purpose of
financing such acquisition, provided that the maximum aggregate liability in
--------
respect of all such Indebtedness described in this clause shall not exceed the
net proceeds actually received in connection with any such disposition; and (ix)
Indebtedness to secure workers' compensation and other insurance coverages, not
to exceed the minimum amount required by the Company's insurance carriers or
other applicable regulatory agencies; and (x) Indebtedness to La Cadena incurred
by the Company in connection with a Qualified La Cadena Investment; provided,
however, that the repayment of principal with respect to, and the payment of
interest with respect to, any such Qualified La Cadena Investment constituting
Indebtedness shall be subject to Section 4.05 hereof.
------------
Section 4.13 Limitations on Liens.
--------------------
The Company will not, and will not permit any of its Subsidiaries
(other than any Unrestricted Subsidiary) to, create, incur, assume or suffer to
exist any Liens securing Indebtedness, except for (a) any Liens which may be
granted to secure the 1997 Notes; (b) Liens securing Senior Indebtedness or
Indebtedness that is incurred pursuant to clause (i) of Section 4.12(b); (c)
---------------
Liens securing Indebtedness that is incurred in accordance with this Indenture
and that is pari passu with the 1997 Notes; provided that the 1997 Notes are
---- ----- --------
secured on an equal and ratable basis to such Liens; (d) Liens securing
Indebtedness incurred in accordance with this Indenture and that is subordinated
to the 1997 Notes; provided that the 1997 Notes are secured by Liens ranking
--------
prior to such Liens; (e) Liens in respect of Refinancing Indebtedness; provided
--------
that the terms of such Liens in respect of such Refinancing Indebtedness are not
less favorable to the Holders than terms of the Liens securing the Existing Debt
being Refinanced and do not extend to or cover any property or assets of the
Company or of any of the Subsidiaries not securing such Existing Debt; (f) Liens
in respect of Acquired Indebtedness permitted to be incurred in accordance with
this Indenture; provided that such Liens in respect of such Acquired
--------
Indebtedness do not extend to or cover any property or assets of the Company or
any Subsidiary other than the property or assets that secured the Acquired
Indebtedness prior to the time such Indebtedness became Acquired Indebtedness of
the Company or such
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<PAGE>
Subsidiary; (g) Liens securing Indebtedness of the Company or a Subsidiary,
which Indebtedness shall not exceed $15.0 million; and (h) Permitted Liens.
Section 4.14 Limitation on Payment Restrictions Affecting Subsidiaries.
---------------------------------------------------------
The Company will not, and will not permit any of its Subsidiaries
(other than any Unrestricted Subsidiary), directly or indirectly, to create or
suffer to exist or allow to become effective any encumbrance or restriction of
any kind (i) on the ability of any Subsidiary (other than any Unrestricted
Subsidiary) to (a) pay dividends, in cash or otherwise, or make other payments
or distributions on its Capital Stock or any other equity interest or
participation in, or measured by, its profits, owned by the Company or any
Subsidiary or any of their respective subsidiaries, or make payments on any
Indebtedness owed to the Company or any Subsidiary or any of their respective
subsidiaries, (b) make loans or advances to the Company or any of its
Subsidiaries, (c) transfer any of their respective property to the Company or
any of its Subsidiaries or (ii) on the ability of the Company or any of its
Subsidiaries (other than an Unrestricted Subsidiary) to receive or retain any
such (x) dividends, payments or distributions, (y) loans or advances or (z)
transfer of property (any such restriction being referred to herein as a
"Payment Restriction"), except for such encumbrances or restrictions existing
- --------------------
under or by reason of (A) agreements in effect as of the Issue Date, (B)
applicable laws, (C) this Indenture or the indenture governing the 1994 Notes,
(D) customary provisions restricting subletting or assignment of any lease
governing a leasehold interest of the Company or any of the Subsidiaries, (E)
Acquired Indebtedness incurred in accordance with this Indenture, provided that
--------
such encumbrance or restriction in respect of such Acquired Indebtedness is not
applicable to any Person, or the property of any Person, other than the Person,
or the property of the Person, so acquired whether or not such Acquired
Indebtedness was incurred in connection with or anticipation of such
acquisition, (F) the Revolving Credit Facility or (G) any agreement effecting a
renewal, refunding, refinancing or extension of Indebtedness referred to in
clause (A), (E) or (F) above, provided that the provisions contained in such
--------
renewal, refunding, refinancing or extension relating to such encumbrance or
restriction are no more restrictive in any material respect than the provisions
contained in the agreement that is the subject thereof.
Section 4.15 Limitation on Issuance and Sale of Capital Stock of Subsidiaries.
----------------------------------------------------------------
The Company will not permit any Subsidiary (other than any
Unrestricted Subsidiary) to issue any shares of its Capital Stock to any Person
other than the Company or one or more of its Wholly Owned Subsidiaries (other
than any Unrestricted Subsidiary) nor will the Company permit any Person (other
than the Company or one or more of its Wholly Owned Subsidiaries) (other than
any Unrestricted Subsidiary) to own or hold any such Capital Stock, other than
the Markets Preferred Stock held by Texas Eastern Corporation as of the Issue
Date. The Company will not and will not permit any Subsidiary (other than any
Unrestricted Subsidiary) to transfer, sell or otherwise dispose of any Capital
Stock of any Subsidiary to any Person (other than to the Company or a Wholly
Owned Subsidiary that is not an Unrestricted Subsidiary) unless (i) such
transfer, sale or other disposition is of all the Capital Stock of such
Subsidiary owned by the Company or any Subsidiary and (ii) the Net Cash Proceeds
from such transfer, sale or other disposition are applied in accordance with
Section 4.19.
- ------------
Section 4.16 Limitations on Transactions with Related Persons.
------------------------------------------------
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<PAGE>
The Company will not, nor will it permit any of its Subsidiaries
(other than an Unrestricted Subsidiary) to (a) sell, lease, transfer or
otherwise dispose of any of its property to, (b) purchase any property from, (c)
make any Investment in or (d) enter into or amend any contract, agreement or
understanding with or for the benefit of, a Related Person of the Company or any
Subsidiary (other than the Company or any such Subsidiary (other than any
Unrestricted Subsidiary) in which no Related Person (other than the Company or a
Wholly Owned Subsidiary (other than any Unrestricted Subsidiary) of the Company)
owns, directly or indirectly, an equity interest) (each a "Related Person
--------------
Transaction"), other than Related Person Transactions that are on terms (which
- -----------
terms are in writing) that are fair and reasonable to the Company or the
Subsidiary and that are no less favorable to the Company or such Subsidiary than
those that could be obtained in a comparable arm's length transaction by the
Company or such Subsidiary from an unrelated party as determined reasonably and
in good faith by the Board of Directors of the Company, provided that if the
--------
Company or any Subsidiary enters into a Related Person Transaction or series of
Related Person Transactions involving or having an aggregate value of more than
$1.0 million such Related Person Transaction shall, prior to the consummation
thereof, have been approved by a majority of the independent directors of the
Company. The restrictions of this Section 4.16 shall not apply to (a) any
------------
transactions between Wholly Owned Subsidiaries (other than any Unrestricted
Subsidiary) of the Company, or between the Company and any Wholly Owned
Subsidiary (other than any Unrestricted Subsidiary) of the Company, if such
transaction is not otherwise prohibited by this Indenture, (b) any payments or
purchases permitted by Section 4.05, (c) any reasonable and customary regular
------------
fees to directors of the Company, (d) any transactions contemplated by the
Santee Documents; provided that such transactions are not otherwise prohibited
--------
by this Indenture and (e) payment of a financial advisory fee of up to $2.0
million to La Cadena substantially contemporaneously with the effective date of
the 1997 amendments to the indenture governing the 1994 Notes.
Section 4.17 Compliance With Laws.
--------------------
The Company shall comply, and shall cause each of the Subsidiaries to
comply, in all material respects with all Applicable Laws except to the extent
any such Applicable Law is contested in good faith by appropriate proceedings
and adequate reserves have been established as required by GAAP.
Section 4.18 Stay, Extension and Usury Laws.
------------------------------
The Company covenants (to the extent that it may lawfully do so) that
it shall not, and shall cause the Subsidiaries not to, at any time insist upon,
plead, or in any manner whatsoever claim or take the benefit or advantage of,
any stay, extension or waiver law or any usury law or other law that would
prohibit or forgive the Company from paying all or any portion of the principal
of or premium, if any, or interest on the 1997 Notes as contemplated herein,
wherever in force, now or at any time hereafter in force, or that may materially
affect the covenants or the performance of this Indenture or the 1997 Notes in a
manner inconsistent with the provisions hereof or thereof and (to the extent
that it may lawfully do so) the Company hereby expressly waives all benefit or
advantage of any such law, and covenants that it shall not, and shall cause the
Subsidiaries not to, hinder, delay or impede the execution of any power granted
to the Trustee under this Indenture or the 1997 Notes, but will suffer and
permit the execution of every such power as though no such law existed.
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<PAGE>
Section 4.19 Limitation on Sales of Assets.
-----------------------------
(a) The Company will not, and will not permit any of its Subsidiaries
(other than any Unrestricted Subsidiary) to, consummate any Asset Sale (other
than a Qualified Santee LLC Interest Sale) unless (i) such Asset Sale is for at
least Fair Market Value and (ii) at least 85% of the consideration therefrom
received by the Company or such Subsidiary is in the form of Cash or Cash
Equivalents, provided that for purposes of this Section 4.19 Cash shall mean
-------- ------------
U.S. dollars or such money as is freely convertible into U.S. dollars, provided
--------
further that any non-Cash consideration that becomes Net Cash Proceeds will
- -------
thereafter be subject to the provisions of Section 4.19(b) and provided further
--------------- ----------------
that any sale by Stater Bros. Markets of its interest in Santee LLC pursuant to
the terms of the limited liability company agreement governing Santee LLC shall
not be deemed to be an Asset Sale for purposes of this Section 4.19. Compliance
------------
by the Company with clause (i) of the preceding sentence shall be evidenced by
(x) an Officers' Certificate if the Net Cash Proceeds resulting from such Asset
Sale are less than or equal to $1.0 million (y) subject to clause (z) below, a
resolution of the Board of Directors, which shall be approved by at least a
majority of the independent directors of the Company, if the Net Cash Proceeds
resulting from such Asset Sale exceed $1.0 million or (z) an Officer's
Certificate if such Asset Sale involves the sale of property in a shopping
center developed or held for resale by the Company or in connection with a sale-
leaseback transaction for a newly constructed or remodeled supermarket and the
Net Cash Proceeds resulting from such Asset Sale are less than or equal to $10.0
million.
(b) Upon the date of consummation of any Asset Sale which, taken
individually or together with all Asset Sales since the Issue Date, results in
the receipt of Net Cash Proceeds in excess of $5.0 million, such Net Cash
Proceeds and all Net Cash Proceeds from all Asset Sales consummated concurrently
therewith or consummated thereafter (such first consummation date and each such
date thereafter a "Consummation Date") shall be applied by the Company within 18
-----------------
months of the relevant Consummation Date (or, in the event of a Qualified Santee
LLC Interest Sale, within 24 months of the relevant Consummation Date) at its
election to either: (i) investments in assets or business in the same line of
business as the Company or such Subsidiary; (ii) the repayment of any
Indebtedness which is secured by or incurred to construct such assets; (iii) the
repayment of Senior Indebtedness; or (iv) a combination of payment and
investment permitted by the foregoing clauses (i), (ii) and (iii). On the
earlier of the day after the 18 month period following a Consummation Date (or
in the event of a Qualified Santee LLC Interest Sale, within 24 months of the
relevant Consummation Date) or such date as the Board of Directors of the
Company or of such Subsidiary determines (as evidenced by a resolution of the
Board of Directors) not to apply the Net Cash Proceeds relating to such
Consummation Date as set forth in clauses (i), (ii) and (iii) of the preceding
sentence (each, an "Asset Sale Offer Trigger Date"), such aggregate amount of
-----------------------------
Net Cash Proceeds which has not been applied on or before such Asset Sale Offer
Trigger Date as permitted in clauses (i), (ii) and (iii) of the preceding
sentence (each an "Asset Sale Offer Amount") shall be applied by the Company or
-----------------------
such Subsidiary to make an offer to purchase (the "Asset Sale Offer") on a date
----------------
(the "Asset Sale Offer Payment Date") not less than 30 nor more than 60 days
-----------------------------
following the applicable Asset Sale Offer Trigger Date, from all Holders on a
pro rata basis, that amount of 1997 Notes equal to the Asset Sale Offer Amount
at a price equal to 100% of the aggregate principal amount of the 1997 Notes to
be repurchased, plus accrued and unpaid interest thereon, if any, to the date of
repurchase. Notwithstanding the foregoing, if an Asset Sale Offer Amount is
less than $5.0 million the application of the Net Cash Proceeds constituting
such Asset Sale Offer Amount to an Asset Sale Offer may be deferred until such
time as such Asset Sale Offer Amount plus the aggregate amount of all Asset Sale
Offer Amounts arising subsequent to the Asset Sale Offer Trigger Date relating
to such initial Asset
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<PAGE>
Sale Offer Amount from all Asset Sales by the Company and its Subsidiaries
aggregate at least $5.0 million at which time the Company or said Subsidiary
shall apply all Net Cash Proceeds constituting all Asset Sale Offer Amounts that
have been so deferred to make an Asset Sale Offer (the first date the aggregate
of all such deferred Asset Sale Offer Amounts is equal to $5.0 million or more
shall be deemed to be an Asset Sale Offer Trigger Date). Pending application to
an Asset Sale Offer the Company shall invest such Asset Sale Offer Amounts in
Permitted Investments.
Section 4.20 Further Assurance to the Trustee.
--------------------------------
The Company shall, upon request of the Trustee, execute and deliver
such further instruments and do such further acts or provide such further
assurances as may reasonably be necessary or proper to carry out more
effectively the provisions of this Indenture and the 1997 Notes.
Section 4.21 Restriction on Layering Debt.
----------------------------
The Company shall not incur any Indebtedness that is subordinate or
junior in right of payment to Senior Indebtedness and senior in any respect in
right of payment to the 1997 Notes.
ARTICLE 5
SUCCESSORS
Section 5.01 Merger, Consolidation, Etc.
--------------------------
The Company will not, in a single transaction or series of related
transactions, consolidate or merge with or into, or sell, assign, transfer,
lease, convey or otherwise dispose of all or substantially all of its assets to,
any Person or adopt a Plan of Liquidation unless: (i) either (1) the Company
shall be the surviving or continuing corporation or (2) the Person (if other
than the Company) formed by such consolidation or into which the Company is
merged or the Person which acquires by conveyance, transfer or lease the
properties and assets of the Company substantially as an entirety or in the case
of a Plan of Liquidation, the Person to which assets of the Company have been
transferred (x) shall be a corporation organized and validly existing under the
laws of the United States or any State thereof or the District of Columbia and
(y) shall expressly assume, by supplemental indenture (in form and substance
satisfactory to the Trustee), executed and delivered to the Trustee, the due and
punctual payment of the principal of and premium, if any, and interest on all of
the 1997 Notes and the performance of every covenant of the 1997 Notes and this
Indenture on the part of the Company to be performed or observed; (ii)
immediately after giving effect to such transaction and the assumption
contemplated by clause (y) above (including giving effect to any Indebtedness
(including Acquired Indebtedness) incurred or anticipated to be incurred in
connection with or in respect of such transaction), the Company (in the case of
clause (1) of the foregoing clause (i)) or such Person (in the case of clause
(2) thereof) (a) shall have a Consolidated Net Worth (immediately after the
transaction but prior to any purchase accounting adjustments relating to such
transaction) equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction and (b) shall be permitted to incur
(assuming a market rate of interest with respect thereto) at least $1.00 of
additional Indebtedness under Section 4.12(a), provided that this clause (ii)
--------------- --------
shall not apply if the purpose of such transaction is solely to change the
jurisdiction of incorporation of the Company; (iii) immediately before and after
giving effect to such transaction and the assumption contemplated by clause (y)
above
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<PAGE>
(including giving effect to any Indebtedness (including Acquired Indebtedness)
incurred or anticipated to be incurred in connection with or in respect of the
transaction) no Default or Event of Default shall have occurred or be continuing
or shall occur as a consequence thereof; (iv) the Company or such Person shall
have delivered to the Trustee (A) an Officers' Certificate and an Opinion of
Counsel (which counsel shall not be in-house counsel of the Company), each
stating that such consolidation, merger, conveyance, transfer or lease or Plan
of Liquidation and, if a supplemental indenture is required in connection with
such transaction, such supplemental indenture, comply with this Section 5.01 and
------------
that all conditions precedent relating to such transaction have been satisfied
and (B) a certificate from the Company's independent certified public
accountants stating that the Company has made the calculation required by clause
(ii) above in accordance with this Section 5.01; and (v) neither the Company nor
------------
such Person, as the case may be, would thereupon become obligated with respect
to any Indebtedness (including Acquired Indebtedness), nor any of its property
become subject to any lien, unless the Company or such Person, as the case may
be, could incur such Indebtedness (including Acquired Indebtedness) or create
such lien under this Indenture (giving effect to such Person being bound by all
the terms of this Indenture).
Section 5.02 Successor Corporation Substituted.
---------------------------------
Upon any consolidation or merger, or any sale, lease, conveyance or
other disposition of all or substantially all of the assets of the Company in
accordance with Section 5.01, the Successor shall succeed to, and be substituted
------------
for, and may exercise every right and power of, the Company under this Indenture
with the same effect as if such Successor had been named as the Company herein;
provided, however, that the predecessor Company in the case of a sale, lease,
- -------- -------
conveyance or other disposition shall not be released from the obligation to pay
the principal of and premium, if any, and interest on the 1997 Notes in
accordance with the terms of the 1997 Notes and this Indenture.
Section 5.03 Purchase Offer on Change of Control.
-----------------------------------
This Article 5 shall not affect the obligations of the Company under
---------
Sections 4.11 and 4.19 hereof.
- ----------------------
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01 Events of Default.
-----------------
The following are "Events of Default":
-----------------
(a) default in the payment of principal of the 1997 Notes when due at
maturity, upon repurchase, upon acceleration or otherwise, including,
without limitation, failure of the Company to repurchase the 1997 Notes
duly tendered for purchase following a Change of Control Offer or an Asset
Sale Offer;
(b) default in the payment of any installment of interest on the 1997
Notes when due and continuance of such Default for more than 30 days;
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<PAGE>
(c) the Company or any Subsidiary (other than any Unrestricted
Subsidiary) fails to observe, perform or comply with any of the provisions
described under Sections 4.11 and 5.01.
----------------------
(d) default (other than a default set forth in clauses (a), (b) and
(c) above) in the performance, or breach, of any other covenant or warranty
of the Company in this Indenture or the 1997 Notes and failure to remedy
such default or breach within a period of 60 days after written notice from
the Trustee or the Holders of at least 25% in aggregate principal amount of
the then outstanding 1997 Notes;
(e) failure to pay at maturity or default on any other Indebtedness,
whether outstanding on the Issue Date or thereafter, of the Company or any
Subsidiary (other than any Unrestricted Subsidiary) if either (x) such
default results from the failure to pay principal of, or premium, if any,
or interest on, such Indebtedness when due in excess of $5.0 million or (y)
as a result of such default, the maturity of such Indebtedness has been
accelerated prior to its scheduled maturity, and the principal amount of
such Indebtedness, together with the principal amount of any other such
Indebtedness which has not been paid at maturity or is in default, or the
maturity of which has been so accelerated, aggregates $5.0 million or more;
(f) the entry by a court of one or more judgments or orders against
the Company or any Subsidiary or any of their respective properties in an
aggregate amount in excess of $2.0 million and that are not covered by
insurance underwritten by third parties, which judgments or orders have not
been vacated, discharged, satisfied or stayed pending appeal within 60 days
from the entry thereof; or
(g) (i) the Company or any Subsidiary pursuant to or within the
meaning of any Bankruptcy Law:
(A) commences a voluntary case for relief from its creditors,
(B) consents to the entry of an order for relief against it in an
involuntary case for relief from its creditors,
(C) consents to the appointment of a Custodian of it or for all
or substantially all of its property,
(D) makes a general assignment for the benefit of its creditors,
or
(E) admits in writing its inability generally to pay its debts as
the same become due; or
(ii) a court of competent jurisdiction enters a judgment, order
or decree under any Bankruptcy Law that:
(A) is for relief from its creditors in respect of the Company
or any Subsidiary in an involuntary case,
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<PAGE>
(B) appoints a Custodian of the Company or any Subsidiary or for
all or substantially all of its property, or
(C) orders the liquidation of the Company or any Subsidiary,
and the order or decree remains unstayed and in effect for 60 days;
The term "Bankruptcy Law" means title 11 of the United States Code or
--------------
any similar federal or state Law for the relief of debtors. The term
"Custodian" means any receiver, trustee, assignee, liquidator or similar
---------
official under any Bankruptcy Law.
The notice referred to in subsection (e) above must specify the
--------------
Default, demand that it be remedied and state that the notice is a "Notice of
---------
Default."
- -------
Section 6.02 Acceleration.
------------
(a) If an Event of Default (other than an Event of Default specified
in Section 6.01(g) above with respect to the Company) occurs and is continuing,
---------------
then and in every such case the Trustee or the Holders of not less than 25% in
aggregate principal amount of the then outstanding 1997 Notes may declare the
unpaid principal of and accrued and unpaid interest thereon, if any, on all the
1997 Notes then outstanding to be due and payable, by a notice in writing to the
Company (and to the Trustee, if given by Holders) and upon such declaration such
principal amount, and accrued and unpaid interest thereon, if any, will become
immediately due and payable, notwithstanding anything contained in this
Indenture or the 1997 Notes to the contrary. If an Event of Default specified
in Section 6.01(g) above with respect to the Company occurs, all unpaid
---------------
principal of and accrued and unpaid interest thereon, if any, the 1997 Notes
then outstanding will ipso facto become due and payable without any declaration
---- -----
or other act on the part of the Trustee or any Holder. The Holders of no less
than a majority in aggregate principal amount of 1997 Notes are authorized to
rescind such acceleration if all existing Events of Default have been cured or
waived except for an Event of Default with respect to the non-payment of the
principal of and premium, if any, and interest on the 1997 Notes that have
become due solely by such acceleration.
(b) Prior to the declaration of acceleration of the maturity of the
1997 Notes, the holders of a majority in aggregate principal amount of the 1997
Notes at the time outstanding may waive on behalf of all such holders any
default, except a default in the payment of principal of or interest on any 1997
Note not yet cured, or a default with respect to any covenant or provision that
cannot be modified or amended without the consent of the holder of each
outstanding 1997 Note affected.
(c) Upon an acceleration as provided in this Section 6.02, all
------------
amounts owed by the Company to the Trustee or Holders, including the aggregate
principal of, and all premium and accrued and unpaid interest thereon, if any,
the 1997 Notes and any and all expenses, fees, or other amounts owing under this
Indenture shall bear interest at the then applicable rate of interest payable on
the 1997 Notes plus 2% per annum (the "Default Rate") until such amounts have
--- ----- ------------
been paid or such acceleration has been rescinded pursuant to Section 6.02(a).
---------------
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<PAGE>
Section 6.03 Other Remedies.
--------------
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or premium, if any, or interest on the 1997 Notes or to
enforce the performance of any provision of the 1997 Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the 1997 Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Noteholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
Section 6.04 Waiver of Past Defaults.
-----------------------
At any time after declaration of acceleration with respect to the 1997
Notes has been made and before a judgment or decree for payment of the money due
has been obtained by the Trustee or the Holders, where applicable, the Holders
of a majority in aggregate principal amount of the then outstanding 1997 Notes,
by written notice to the Company and the Trustee, may rescind and annul such
declaration and its consequences if (a) the Company has paid or deposited with
the Trustee a sum sufficient to pay (i) all overdue installments of interest on
all the 1997 Notes, (ii) the principal of any 1997 Notes that have become due
otherwise than by such declaration of acceleration and interest thereon at the
rate or rates prescribed therefor in the 1997 Notes, (iii) to the extent that
payment of such interest is lawful, interest on the defaulted interest at the
rate or rates prescribed therefor in the 1997 Notes, and (iv) all money paid or
advanced by the Trustee under this Indenture and the reasonable compensation,
expenses, disbursements and advances of the Trustee, its agents, counsel and
other advisors and (b) all Defaults and Events of Default, other than the non-
payment of the principal of 1997 Notes that have become due solely by such
declaration of acceleration, have been cured or waived as provided in this
Indenture. No such rescission will affect any subsequent Default or impair any
right consequent thereon.
When a Default is waived, it is cured and stops continuing. No waiver
shall extend to any subsequent or other Default or impair any right consequent
thereto but any Event of Default arising from such Default shall be deemed to
have been cured for every purpose of this Indenture. This Section 6.04 shall be
------------
in lieu of TIA (S)316(a)(1)(B) and said TIA section is hereby expressly excluded
from this Indenture, as permitted by the TIA.
Section 6.05 Control by Majority.
-------------------
The Holders of a majority in aggregate principal amount of the then
outstanding 1997 Notes will have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on such Trustee, provided that (a) such
--------
direction is not in conflict with any rule of law or with this Indenture and (b)
the Trustee may take any other action it deems proper that is not inconsistent
with such direction. The Trustee may refuse to follow any direction that
conflicts with law or this Indenture, is unduly prejudicial to the rights of
other Noteholders, or would involve the Trustee in personal liability. This
Section 6.05 shall be in lieu of TIA (S)316(a)1(A) and said TIA section is
- ------------
hereby expressly excluded from this Indenture, as permitted by the TIA.
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<PAGE>
Section 6.06 Limitation on Suits.
-------------------
No Holder will have any right to institute any proceeding, judicial or
otherwise, with respect to this Indenture, or for the appointment of a receiver
or trustee or for any other remedy under this Indenture, unless (a) such Holder
has previously given written notice to the Trustee of a continuing Event of
Default, (b) the Holders of not less than 25% in aggregate principal amount of
the then outstanding 1997 Notes have made written request to the Trustee to
institute proceedings in respect of such Event of Default in its own name as
trustee under this Indenture, (c) such Holder or Holders have offered to the
Trustee an indemnity, adequate in the sole reasonable discretion of the Trustee,
against the costs, expenses and liabilities to be incurred in compliance with
such request, (d) the Trustee for 30 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such proceeding and
(e) no direction inconsistent with such written request has been given to the
Trustee during such 30-day period by the Holders of a majority in aggregate
principal amount of the outstanding 1997 Notes.
A Noteholder may not use this Indenture to prejudice the rights of
another Noteholder or to give or obtain a preference or priority over another
Noteholder.
Section 6.07 Rights of Holders to Receive Payment.
------------------------------------
Each Holder will have the right, which is absolute and unconditional,
to receive payment of the principal of and interest on, such 1997 Note on the
stated maturity thereof and to institute suit for the enforcement of any such
payment, and such right may not be impaired without the consent of such Holder.
Section 6.08 Collection Suit by Trustee.
--------------------------
If an Event of Default specified in Section 6.01(a) or (b) occurs and
----------------------
is continuing, the Trustee may recover judgment in its own name and as trustee
of an express trust against the Company for the whole amount of principal and
interest remaining unpaid on the 1997 Notes and interest on overdue principal
and, to the extent lawful, interest and such further amounts as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents, counsel and other advisors.
Section 6.09 Trustee May File Proofs of Claim.
--------------------------------
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee and the Noteholders allowed in any judicial proceedings relative to the
Company, its Subsidiaries, its creditors or its property. Nothing contained
herein shall be deemed to authorize the Trustee to authorize or consent to or
accept or adopt on behalf of any Noteholder any plan of reorganization,
arrangement, adjustment or composition affecting the 1997 Notes or the rights of
any Holder thereof, or to authorize the Trustee to vote in respect of the claim
of any Noteholder in any such proceeding.
Section 6.10 Priorities.
----------
If the Trustee collects any money pursuant to this Article 6, it shall
---------
pay out the money in the following order:
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<PAGE>
First: to the Trustee for amounts due under Section 7.07;
------------
Second: to Noteholders for amounts due and unpaid on the 1997 Notes for
principal and interest, ratably, without preference or priority
of any kind, according to the amounts due and payable on the 1997
Notes for principal and interest, respectively; and
Third: to the Company.
The Trustee may fix a record date and payment date for any payment or
distribution of property or securities to Noteholders in accordance with Section
-------
2.12 and may set a record date or payment date as necessary to effectuate its
- ----
obligations under this Indenture and the 1997 Notes.
Section 6.11 Undertaking for Costs.
---------------------
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
------------
pursuant to Section 6.07, or a suit by Holders of more than 10% in aggregate
------------
principal amount of the then outstanding 1997 Notes.
ARTICLE 7
TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this Indenture
and covenants and agrees to perform the same, as herein expressed.
Section 7.01 Duties of Trustee.
-----------------
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and powers vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent person
would exercise or use under the circumstances in the conduct of his or her own
affairs.
(b) Except during the continuance of an Event of Default:
(i) the Trustee need perform only those duties that are specifically
set forth in this Indenture and no others, and no implied covenants shall
be read into this Indenture against the Trustee; and
(ii) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this
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<PAGE>
Indenture. However, in the case of an Officer's Certificate or Opinion of
Counsel required to be furnished to the Trustee, the Trustee shall examine
the certificates and opinions to determine whether or not they conform on
their face to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(i) this paragraph does not limit the effect of paragraph (b) of
-------------
this Section;
(ii) the Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts; and
(iii) the Trustee shall not be liable with respect to any action
it takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
------------
Subparagraph (c)(iii) shall be in lieu of TIA (S)315(d)(3) and said TIA section
- ---------------------
is hereby expressly excluded from this Indenture, as permitted by the TIA.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section 7.01.
--------------------------- ------------
(e) The Trustee may refuse to perform any duty or exercise any right
or power unless it is provided with adequate funds or indemnity, adequate in the
sole reasonable discretion of the Trustee, against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company. Money held
in trust by the Trustee need not be segregated from other funds except to the
extent required by law.
Section 7.02 Rights of Trustee.
-----------------
(a) The Trustee may rely and shall be protected from acting or
refraining from acting based on any document believed by it to be genuine and to
have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting with respect to
any matter contemplated by this Indenture, it may require an Officers'
Certificate or an Opinion of Counsel, or both. The Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on such
Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through attorneys and agents and shall not be
responsible for the misconduct or negligence of any attorney or agent appointed
with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers.
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<PAGE>
(e) The Trustee may consult with counsel, and the advice of such
counsel or any Opinion of Counsel shall be full and complete authorization and
protection from liability irrespective of any action taken, suffered or omitted
by it hereunder in good faith and in reliance thereon.
(f) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall determine to
make such further inquiry or investigation, it shall be entitled to examine the
books, records and premises of the Company and its Subsidiaries, personally or
by agent or attorney.
(g) Except with respect to Section 4.01, the Trustee shall have no
------------
duty to inquire as to the performance of the Company's covenants in Article 3, 4
------------
and 5 hereof. In addition, the Trustee shall not be deemed to have knowledge of
- -----
any Default or Event of Default except (i) any Event of Default occurring
pursuant to Sections 6.01(a) (other than a failure of the Company to repurchase
----------------
the 1997 Notes duly tendered for purchase following a Change of Control Offer or
an Asset Sale Offer), Section 6.01(b) and Section 4.01, (ii) any Default or
--------------- ------------
Event of Default of which the Trustee shall have received written notification
or obtained actual knowledge.
(h) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers unless repayment of such funds shall reasonably be assured to
it or the Trustee is provided adequate indemnity in its sole reasonable
discretion.
Section 7.03 Individual Rights of Trustee.
----------------------------
The Trustee in its individual or any other capacity may become the
owner or pledgee of 1997 Notes and may otherwise deal with the Company or an
Affiliate with the same rights it would have if it were not Trustee. Any Agent
may do the same with like rights. However, the Trustee is subject to Sections
--------
7.10 and 7.11.
- -------------
Section 7.04 Trustee's Disclaimer.
--------------------
The Trustee shall not be responsible and makes no representation as to
the validity or adequacy of this Indenture or the 1997 Notes, it shall not be
accountable for any statement made by the Company or for the Company's use of
the proceeds from the 1997 Notes, and it shall not be responsible for any
statement in this Indenture or any statement in the 1997 Notes other than its
authentication.
Section 7.05 Notice of Defaults.
------------------
If a Default of Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to each Noteholder a notice of the
Default within 90 days after it occurs. Except in the case of a Default in any
payment due on any 1997 Note (including any failure to make any mandatory
redemption payment required hereunder), the Trustee may withhold the notice if
and so long as a committee of its Trust Officers in good faith determines that
withholding the notice is in the interests of Noteholders. The second sentence
of Section 7.05 shall be in lieu of the proviso
------------
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<PAGE>
to TIA (S)315(b) and said TIA section is hereby expressly excluded from this
Indenture, as permitted by the TIA.
Section 7.06 Reports by Trustee to Holders.
-----------------------------
Within 60 days after the reporting date stated in Section 10.10, the
-------------
Trustee shall mail to Noteholders, if required by TIA (S) 313(a), a brief report
dated as of such reporting date that complies with such (S)313(a). The Trustee
also shall comply with TIA (S)313(b)(2) and transmit by mail all reports as
required by TIA (S)313(c).
After this Indenture has been qualified under the TIA, a copy of each
report at the time of its mailing to Noteholders shall be filed with the SEC and
each stock exchange on which the 1997 Notes are listed. The Company shall
promptly notify the Trustee in writing when the 1997 Notes are listed on any
stock exchange.
Section 7.07 Compensation and Indemnity.
--------------------------
The Company shall pay to the Trustee, paying agents and registrars
from time to time reasonable compensation (as the Company and such parties may
agree) for their respective services hereunder. The Trustee's compensation
shall not be limited by any law on compensation of a trustee of an express
trust. The Company shall reimburse the Trustee upon request for all reasonable
out-of-pocket expenses incurred by it. Such expenses may include the reasonable
compensation and out-of-pocket fees and expenses of the Trustee's agents,
counsel and other advisors.
The Company shall indemnify the Trustee, paying agents and registrars,
and their respective agents, counsel and other advisors, and shall hold them
harmless against any claim or demand (including but not limited to attorney's
fees and expenses) made against or as incurred by them in connection with the
acceptance of this trust or the administration of this Indenture and their
respective duties hereunder, except as set forth in the next paragraph. The
Trustee shall notify the Company promptly of any claim for which it may seek
indemnity. However, failure of the Trustee to do so shall not relieve the
Company of its obligations hereunder. The Company shall defend the claim at its
own expense with counsel, who may be outside counsel to the Company but shall in
all events be reasonably satisfactory to the Trustee, and the Trustee shall
cooperate in the defense; provided, however, that the Trustee may, at its
-------- -------
option, retain its own separate counsel to defend such claim and the Company
shall pay the reasonable fees and expenses of such separate counsel. In
addition, if the Company does not so defend the Trustee or if at any time the
counsel so selected is ethically prohibited from representing the Trustee
(whether because of a conflict of interest or the provisions of the TIA), then
the Trustee may retain one separate counsel and the Company shall pay the
reasonable fees and expenses of such separate counsel. The indemnification
herein extends to any settlement, provided that the Company will not be liable
--------
for any settlement made without its consent, and provided further that such
----------------
consent will not be unreasonably withheld.
The Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee through negligence or bad faith of the
Trustee.
To secure the Company's payment obligations in this Section, the
Trustee and any such predecessor trustee shall have a lien prior to the 1997
Notes on all money or property held or
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<PAGE>
collected by the Trustee or the Holders, except that held in trust to pay
principal of and premium, if any, and interest on the 1997 Notes.
When the Trustee, or its agents, counsel or advisors, incurs fees or
expenses or renders services after an Event of Default specified in Section
-------
6.01(g) occurs, the fees, expenses and the compensation for the services are
- -------
intended to constitute expenses of administration under any Bankruptcy Law.
Section 7.08 Replacement of Trustee.
----------------------
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign by so notifying the Company. The Holders of a
majority in aggregate principal amount of the then outstanding 1997 Notes may
remove the Trustee by so notifying the removed Trustee and the Company and may
appoint a successor Trustee with the Company's consent. The Company may remove
the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
------------
(2) the Trustee is adjudged a bankrupt or an insolvent or an order for
relief is entered with respect to the Trustee under any Bankruptcy Law;
(3) a Custodian or public officer takes charge of the Trustee or its
property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in aggregate principal amount of the then outstanding 1997 Notes
may appoint a successor Trustee to replace the successor Trustee appointed by
the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in aggregate principal amount of the then outstanding
1997 Notes may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Noteholder may
------------
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective without
any further act, deed or conveyance, and the successor Trustee shall have all
the rights, powers and duties of the Trustee under this Indenture. The
successor Trustee shall mail a notice of its succession to Noteholders. The
retiring Trustee shall promptly transfer all property held
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<PAGE>
by it as Trustee to the successor Trustee. Notwithstanding the replacement of
the Trustee pursuant to this Section 7.08, the Company's obligations and the
------------
Trustee's rights under Section 7.07 hereof shall continue for the benefit of the
------------
retiring Trustee with respect to expenses and liabilities incurred by it prior
to such replacement.
Section 7.09 Successor Trustee by Merger, etc.
--------------------------------
Subject to Section 7.10, if the Trustee consolidates with, merges or
------------
converts into, or transfers all or substantially all of its corporate trust
business to, another corporation, the resulting, surviving or transferee
corporation without any further act shall be the successor Trustee. Such
succession shall also occur without any further act with respect to all agency
roles in which the Trustee then serves.
Section 7.10 Eligibility; Disqualification.
-----------------------------
This Indenture shall always have a Trustee who satisfies the
requirements of TIA (S)310(a)(1). The Trustee shall always have a combined
capital and surplus as stated in Section 10.10. The Trustee is subject to TIA
-------------
(S)310(b), including TIA (S)310(b)(9); provided, however, that there shall be
-------- -------
excluded from the operation of (S) 310(b)(1) any indenture or indentures under
which other securities are outstanding if the requirements of (S) 310(b)(1) are
met. If at any time the Trustee shall cease to be eligible in accordance with
the provisions of this Section, it shall resign immediately in the manner and
with the effect specified herein.
Section 7.11 Preferential Collection of Claims Against Company.
-------------------------------------------------
The Trustee shall comply with TIA (S)311(a), excluding any creditor
relationship set forth in TIA (S)311(b). A Trustee who has resigned or been
removed shall be subject to TIA (S)311(a) to the extent indicated therein.
ARTICLE 8
SATISFACTION AND DISCHARGE OF INDENTURE
Section 8.01 Termination of Company's Obligations.
------------------------------------
(a) This Indenture shall cease to be of further effect (except that
the Company's obligations under Section 7.07, 8.04, 8.05 and 9.06, and the
---------------------------------
Company's, Trustee's and Paying Agent's obligations under Section 8.03 shall
------------
survive) when all outstanding 1997 Notes theretofore authenticated and issued
have been delivered (other than destroyed, lost or stolen 1997 Notes that have
been replaced or paid) to the Trustee for cancellation or the Company has paid
all sums payable hereunder. In addition, the Company may elect to have either
Section 8.01(b) or 8.01(c) below be applied to the outstanding 1997 Notes upon
- --------------------------
compliance with the conditions set forth in Section 8.01(d).
---------------
(b) Upon the Company's exercise under Section 8.01(a) of the option
---------------
applicable to this Section 8.01(b), the Company shall be deemed to have been
---------------
released and discharged from its obligations with respect to the outstanding
1997 Notes on the date the conditions set forth below are
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<PAGE>
satisfied (hereinafter, "legal defeasance"). For this purpose, such legal
----------------
defeasance means that the Company shall be deemed to have paid and discharged
the entire Indebtedness represented by the outstanding 1997 Notes, which shall
thereafter be deemed to be "outstanding" only for the purposes of the Sections
-----------
of and matters under this Indenture referred to in (i) and (ii) below, and to
have satisfied all its other obligations under such 1997 Notes and this
Indenture insofar as such 1997 Notes are concerned (and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging the
same), except for the following which shall survive until otherwise terminated
or discharged hereunder: (i) the rights of Holders of outstanding 1997 Notes to
receive solely from the trust fund described in Section 8.01(d) below and as
---------------
more fully set forth therein, payments in respect of the principal of and
premium, if any, and interest on such 1997 Notes when such payments are due,
(ii) the Company's obligations with respect to such 1997 Notes under Sections
--------
2.06, 2.07 and 4.04, and, with respect to the Trustee, under Section 7.07 and
- ------------------- ----------------
9.06, (iii) the rights, powers, trusts, duties and immunities of the Trustee
- ----
hereunder and (iv) this Section 8.01. Subject to compliance with this Section
------------ -------
8.01, the Company may exercise its option under this Section 8.01(b)
- ---- ---------------
notwithstanding the prior exercise of its option under Section 8.01(c) below
---------------
with respect to the 1997 Notes.
(c) Upon the Company's exercise under Section 8.01(a) of the option
---------------
applicable to this Section 8.01(c), the Company shall be released and discharged
---------------
from its obligations under any covenant contained in Article 5 and in Sections
--------- --------
4.02, 4.04, 4.05, 4.07, 4.08, 4.09, 4.11 through 4.19 with respect to the
- -----------------------------------------------------
outstanding 1997 Notes on and after the date the conditions set forth below are
satisfied (hereinafter, "covenant defeasance"), and the 1997 Notes shall
-------------------
thereafter be deemed to be not "outstanding" for the purpose of any direction,
-----------
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder. For this purpose, such covenant
- ------------
defeasance means that, with respect to the outstanding 1997 Notes, the Company
may omit to comply with and shall have no liability in respect of any term,
condition or limitation set forth in any such covenant, whether directly or
indirectly, by reason of any reference elsewhere herein to any such covenant or
by reason of any reference in any such covenant to any other provision herein or
in any other document and such omission to comply shall not constitute a Default
or an Event of Default under Section 6.01, but, except as specified above, the
------------
remainder of this Indenture and such 1997 Notes shall be unaffected thereby.
(d) The following shall be the conditions to the application of either
Section 8.01(b) or Section 8.01(c) above to the outstanding 1997 Notes:
- --------------- ---------------
(i) the Company has irrevocably deposited in trust with the
Trustee or, at the option of the Trustee, with a trustee, satisfactory to
the Trustee and the Company, and conveyed all right, title, and interest
for the benefit of the Holders of such 1997 Notes, under the terms of an
irrevocable trust agreement in form and substance satisfactory to the
Trustee, as trust funds solely for the benefit of the Holders for that
purpose, Cash and/or United States Government Obligations maturing as to
principal and interest in such amounts and at such times as are sufficient
without consideration of any reinvestment of such interest to pay principal
of and premium, if any, and interest on such outstanding 1997 Notes to
maturity, and to pay all other sums payable by it hereunder and including
all amounts owing under Section 7.07; provided that (1) the trustee of the
------------ --------
irrevocable trust shall have been irrevocably instructed to pay such money
or the proceeds of such United States Government Obligations to the Trustee
and (2) the Trustee shall have been irrevocably instructed to apply such
money or
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<PAGE>
the proceeds of such United States Government Obligations to the payment of
said principal and interest with respect to the 1997 Notes;
(ii) the Company has delivered to the Trustee an Officers'
Certificate stating that (1) all conditions precedent provided for relating
to either the legal defeasance under Section 8.01(b) above or the covenant
---------------
defeasance under Section 8.01(c) above, as the case may be, have been
---------------
complied with and (2) if any other Indebtedness of the Company shall then
be outstanding or committed, such legal defeasance or covenant defeasance
will not violate the provisions of the agreements or instruments evidencing
such Indebtedness;
(iii) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit;
(iv) such legal defeasance or covenant defeasance shall not
result in a breach or violation of, or constitute a Default or Event of
Default under, this Indenture or any other agreement or instrument to which
the Company or any Subsidiary is a party or by which it is bound;
(v) in the case of an election under Section 8.01(b) above, the
---------------
Company shall have delivered to the Trustee an Opinion of Counsel from
counsel reasonably acceptable to the Trustee to the effect that (1) the
Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (2) since the date of this Indenture, there has
been a change in the applicable federal income tax law, in either case to
the effect that the Holders of the outstanding 1997 Notes will not
recognize income, gain or loss for federal income tax purposes as a result
of such legal defeasance and will be subject to federal income tax on the
same amount and in the same manner and at the same time as would have been
the case if such legal defeasance had not occurred; and
(vi) in the case of an election under Section 8.01(c) above, the
---------------
Company shall have delivered to the Trustee an Opinion of Counsel from
counsel reasonably acceptable to the Trustee to the effect that (1) the
Holders of the outstanding 1997 Notes will recognize income, gain or loss
for federal income tax on the same amount and in the same manner and at the
same time as would have been the case if such covenant defeasance had not
occurred or (2) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling to the foregoing effect.
(v) in the case of an election under either Section 8.01(b) or (c)
----------------------
above, the Company shall have delivered to the Trustee an Opinion of
Counsel from counsel reasonably acceptable to the Trustee to the effect
that (1) the Company's exercise of its option under Section 8.01(b) or (c),
----------------------
as applicable, will not result in any of the Company, the Trustee or the
trust created by the Company's deposit of funds pursuant to this provision
becoming or being deemed to be an "investment company" under the Investment
Company Act of 1940, as amended, and (2) after the passage of 90 days
following deposit, the trust funds will not be subject to Section 547 of
the United States Bankruptcy Code.
After such irrevocable deposit made pursuant to this Section 8.01 and
------------
satisfaction of the other conditions set forth herein, the Trustee upon written
request by the Company shall
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<PAGE>
acknowledge in writing the discharge of the Company's obligations under this
Indenture except for those surviving obligations specified above.
As used herein, "United States Government Obligations" means direct
------------------------------------
obligations of the United States of America for the payment of which the full
faith and credit of the United States of America is pledged. In order to have
money available on a payment date to pay principal or interest on the 1997
Notes, the United States Government Obligations shall be payable as to principal
or interest on or before such payment date in such amounts as will provide the
necessary money. United States Government Obligations shall not be callable at
the issuer's option.
Section 8.02 Application of Trust Money.
--------------------------
The Trustee shall hold in trust money or United States Government
Obligations deposited with it pursuant to Section 8.01. It shall apply the
------------
deposited money and the money from United States Government Obligations through
the Paying Agent and in accordance with this Indenture to the payment of
principal of and premium, if any, and interest on the 1997 Notes.
Section 8.03 Repayment to Company.
--------------------
Subject to Section 7.07 and to this Article 8, the Trustee and the
------------ ---------
Paying Agent shall promptly pay to the Company upon receipt of an Officer's
Certificate any excess money or securities held by them at any time.
The Trustee and the Paying Agent shall pay to the Company upon receipt
of an Officer's Certificate any money held by them for the payment of principal
or interest that remains unclaimed for two years after the date upon which such
payment shall have become due; provided, however, that the Company shall have
-------- -------
first caused notice of such payment to the Company to be mailed to each
Noteholder entitled thereto no less than 30 days prior to such payment. After
payment to the Company, Noteholders entitled to the money must look to the
Company for payment as general creditors unless an applicable abandoned property
law designates another Person.
Section 8.04 Reinstatement.
-------------
If the Trustee or Paying Agent is unable to apply any money in
accordance with Section 8.01 by reason of any order or judgment of any court or
------------
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Company's obligations under this Indenture and the 1997 Notes
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.01 until such time as the Trustee or Paying Agent is permitted to
- ------------
apply all such money in accordance with Section 8.02; provided, however, that if
------------ -------- -------
the Company makes any payment of interest on or principal of any 1997 Note
following the reinstatement of its obligations, the Company shall be subrogated
to the rights of the Holders of such 1997 Notes to receive such payment from the
money held by the Trustee or Paying Agent.
Section 8.05 Indemnity for Government Obligations.
------------------------------------
The Company shall pay and shall indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against United States Government
Obligations deposited with or
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<PAGE>
pursuant to Section 8.01 or the principal and interest received on such United
------------
States Governmental Obligations.
ARTICLE 9
AMENDMENTS
Section 9.01 Without Consent of Holders.
--------------------------
The Company, when authorized by a resolution of its Board of
Directors, and the Trustee may, without the consent of the Holders of any
outstanding 1997 Notes, amend, waive or supplement this Indenture or the Notes
for certain specified purposes, including, among other things:
(1) to cure any ambiguity, defect or inconsistency;
(2) to comply with Section 5.01;
------------
(3) to provide for uncertificated Notes in addition to certificated
Notes;
(4) to make any change that does not adversely affect the legal rights
hereunder of any Noteholder;
(5) to add to the covenants, conditions and restrictions of the
Company, for the benefit of the Noteholders, or to surrender any right or
power herein conferred upon the Company, or
(6) to modify, eliminate or add to the provisions of this Indenture to
such extent as shall be necessary to effect the qualification of this
Indenture under the TIA, or under any similar federal statute hereafter
enacted,
provided however, that in the case of a change pursuant to clauses (1) or (4) of
this sentence, the Company has delivered to the Trustee an Opinion of Counsel
stating that such change does not adversely affect the rights of any Holder.
Section 9.02 With Consent of Holders.
-----------------------
Subject to Section 6.07, the Company and the Trustee may amend this
------------
Indenture or the 1997 Notes with the written consent of the Holders of at least
a majority in aggregate principal amount of the then outstanding 1997 Notes.
Subject to Sections 6.02, 6.04 and 6.07, the Holders of a majority in
----------------------------
aggregate principal amount of the 1997 Notes then outstanding may also waive
compliance in a particular instance by the Company with any provision of this
Indenture or the 1997 Notes.
This Indenture may be amended or modified or rights thereunder may be
waived with the consent of Holders of at least a majority of the aggregate
principal amount of 1997 Notes then
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<PAGE>
outstanding provided that, without the consent of each Holder affected thereby,
--------
no such amendment, modification or waiver may:
a. reduce the percentage in outstanding aggregate principal amount of
1997 Notes the Holders of which must consent to an amendment, supplement or
waiver of any provision of this Indenture or the 1997 Notes;
b. reduce the rate of or change the time for payment of interest on
any 1997 Note;
c. reduce the aggregate principal amount outstanding of or change the
fixed maturity of any 1997 Note;
d. waive a default in the payment of the principal of, premium, if
any, or interest on, or an offer to purchase required under this Indenture
with respect to, any 1997 Note (except a rescission of acceleration of the
1997 Notes and a waiver of the payment default that resulted from such
acceleration);
e. make the principal of or interest on any 1997 Note payable in
money other than that stated in the 1997 Note;
f. amend, change or modify the obligation of the Company to make and
consummate a Change of Control Offer in the event of a Change of Control or
to make and consummate the Asset Sale Offer with respect to any Asset Sale
or modify any of the provisions or definitions with respect thereto; or
g. modify any of the provisions relating to amendments or
modifications of this Indenture requiring the consent of Holders or
relating to the waiver of past Events of Default or waive any default in
payment in respect of the 1997 Notes or impair the right to institute suit
for the enforcement of payment of the 1997 Notes.
To secure a consent of the Holders under this Section 9.02, it shall
------------
not be necessary for the Holders to approve the particular form of any proposed
amendment or waiver, but it shall be sufficient if such consent approves the
substance thereof. The calculation of holders so consenting shall be made
pursuant to Section 2.09 hereof.
------------
After an amendment or waiver under this Section 9.02 becomes
------------
effective, the Company shall mail to Noteholders and the Trustee a notice
describing the amendment or waiver, provided that failure to give the required
--------
notice shall not affect the validity and effect of such amendment or waiver.
Section 9.03 Compliance with Trust Indenture Act.
-----------------------------------
Every amendment to this Indenture or the 1997 Notes shall be set forth
in a supplemental indenture that complies with the TIA as then in effect.
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<PAGE>
Section 9.04 Revocation and Effect of Consents.
---------------------------------
Until the earlier of the time that an amendment or waiver becomes
effective or for a period of 90 days from the date the consent was given, a
consent to an amendment or waiver by a Holder of a 1997 Note is a continuing
consent by the Holder and every subsequent Holder of a 1997 Note or portion of a
1997 Note that evidences the same debt as the consenting Holder's Note, even if
notation of the consent is not made on any 1997 Note. Any such Holder or
subsequent Holder may, however, revoke its consent as to its 1997 Note or
portion of a 1997 Note if the Trustee receives notice of revocation before the
date on which the Trustee receives an Officers' Certificate certifying that the
Holders of the requisite principal amount of 1997 Notes have consented to the
amendment or waiver (or before such later date as may be required by law or
stock exchange rule).
The Trustee may, upon written direction of the Company, or as
otherwise required hereunder or by Applicable Law, fix a record date for the
purpose of determining the Holders entitled to consent to any amendment or
waiver. If a record date is fixed, then notwithstanding the provisions of the
immediately preceding paragraph, those Persons who were Holders at such record
date (or their duly designated proxies), and only those Persons, shall be
entitled to consent to such amendment or waiver or to revoke any consent
previously given, whether or not such Persons continue to be Holders after such
record date. No consent shall be valid or effective for more than 90 days after
such record date unless consents from Holders of the aggregate principal amount
of 1997 Notes required hereunder for such amendment or waiver to be effective
shall have also been given and not revoked within such 90-day period.
After an amendment or waiver becomes effective it shall bind every
Noteholder, unless it is of the type described in any of clauses (a) through (g)
-----------------------
of Section 9.02. In such case, the amendment or waiver shall bind each Holder
------------
of a 1997 Note who has consented to it.
Section 9.05 Notation on or Exchange of 1997 Notes.
-------------------------------------
If an amendment, supplement or waiver changes the terms of the 1997
Notes, the Trustee may require each Holder thereof to deliver its 1997 Notes to
the Trustee. The Trustee may place an appropriate notation about an amendment
or waiver on any 1997 Note thereafter authenticated. The Company in exchange
for all 1997 Notes may issue and the Trustee shall authenticate new 1997 Notes
that reflect the amendment or waiver. Failure to make the appropriate notation
or issue a new 1997 Note shall not affect the validity or effect of such
amendment or waiver.
Section 9.06 Trustee Protected.
-----------------
The Trustee shall sign all supplemental indentures and amendments
authorized pursuant to this Article 9, except that the Trustee need not sign any
---------
supplemental indenture that adversely affects its rights. The Trustee, subject
to Sections 7.01 and 7.02, shall be entitled to receive if requested, an
----------------------
indemnity satisfactory to it in its sole reasonable discretion and shall be
entitled to be fully protected in relying upon, an Opinion of Counsel stating
that any amendment, supplement or waiver is authorized or permitted by this
Indenture and that such supplemental indenture and this Indenture, as so amended
or supplemented, constitute the valid and binding obligations of the Company,
enforceable against it in accordance with their respective terms (subject to
customary and necessary exceptions) and all conditions precedent have been
complied with.
-59-
<PAGE>
ARTICLE 10
SUBORDINATION
Section 10.01 The 1997 Notes Subordinated to Senior Indebtedness.
--------------------------------------------------
The Company agrees, and each Holder by accepting a 1997 Note agrees,
that the Indebtedness evidenced by the 1997 Notes, including for all purposes of
this Article 10, all repurchase and redemption obligations with respect to the
----------
1997 Notes, is subordinated in right of payment, to the extent and in the manner
provided in this Article 10, to the prior payment in full of all existing and
----------
future Senior Indebtedness and that the subordination is for the benefit of and
enforceable by the holders of Senior Indebtedness, and authorizes and directs
the Trustee to take such action as may be required by such holders of Senior
Indebtedness to acknowledge or effectuate the subordination as provided in this
Article 10 and appoints the Trustee as attorney-in-fact for any and all such
purposes.
Only Indebtedness of the Company that is Senior Indebtedness shall
rank senior to the Notes in accordance with the provisions set forth in this
Indenture. This Article 10 shall remain in full force and effect as long as any
Senior Indebtedness is outstanding or any commitment to advance Senior
Indebtedness exists, assuming in the case of the Revolving Credit Facility that
all conditions precedent to any such advance could be satisfied.
Section 10.02 Liquidation; Dissolution; Bankruptcy.
------------------------------------
Upon any payment or distribution, whether of Cash, securities or other
property, to creditors of the Company in a liquidation (total or partial),
reorganization or dissolution of the Company, whether voluntary or involuntary,
or in a bankruptcy, reorganization, insolvency, receivership, assignment for the
benefit of creditors, marshalling of assets or similar proceeding relating to
the Company or its property:
(1) holders of Senior Indebtedness shall be entitled to receive
payment in full, in Cash or Cash equivalents, of such Senior Indebtedness
before Holders shall be entitled to receive any payment of principal of, or
interest on, or any other distribution with respect to, the 1997 Notes; and
(2) until the Senior Indebtedness is paid in full as provided in
clause (1) above, any distribution to which Holders would be entitled but
for this Article 10 shall be made to the holders of Senior Indebtedness as
their interests may appear;
in each case except that Holders may receive shares of stock and debt securities
that are subordinated to Senior Indebtedness to at least the same extent and
pursuant to the same or more stringent terms as are the 1997 Notes.
Upon any distribution of assets of the Company, referred to in this
Section 10.02, the Trustee and the Holders shall be entitled to rely upon any
- -------------
order or decree of a court of competent jurisdiction in which such bankruptcy,
reorganization, insolvency, receivership, assignment for the benefit of
creditors, marshalling of assets or similar proceedings are pending, or a
certificate of the liquidating trustee or agent or other such Person making any
distribution to the Trustee or to the Holders, for the purpose of ascertaining
the persons entitled to participate in such distribution, the holders of Senior
Indebtedness, the amount thereof or payable thereon, the amount or amounts paid
or
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<PAGE>
distributed thereon and all other facts pertinent thereto or to this Section
-------
10.02. The Trustee shall be entitled to rely on the delivery to it of a written
- -----
notice by a Person representing itself to be a holder of Senior Indebtedness or
a Representative, as the case may be, to establish that such notice has been
given by a holder of Senior Indebtedness or a Representative, as the case may
be. In the event that the Trustee determines, in good faith, that further
evidence is required with respect to the right of any Person, as a holder of
Senior Indebtedness, to participate in any payment or distribution pursuant to
this Section 10.02, the Trustee may request such Person to furnish evidence to
-------------
the reasonable satisfaction of the Trustee as to the amount of such Senior
Indebtedness held by such Person, as to the extent to which such Person is
entitled to participation in such payment or distribution and as to other facts
pertinent to the rights of such Person under this Section 10.02, and, if such
-------------
evidence is not furnished, the Trustee may defer any payment to such Person (or
to the Noteholder) pending judicial determination as to the right of such Person
to receive such payment.
Section 10.03 Default on Senior Indebtedness.
------------------------------
No direct or indirect payment by or on behalf of the Company under the
1997 Notes shall be made if (i) any Designated Senior Indebtedness is not paid
when due or (ii) any other default on Designated Senior Indebtedness occurs and
in the case of this clause (ii) the maturity of such Designated Senior
Indebtedness is accelerated in accordance with its terms, unless, in either
case, (x) the default has been cured or waived and any such acceleration has
been rescinded or (y) such Designated Senior Indebtedness has been paid in full;
provided, however, that the Company may make any such direct or indirect payment
under the 1997 Notes without regard to the foregoing if the Company and the
Trustee receive written notice approving such payment from the Representative of
such Designated Senior Indebtedness. In addition, during the continuance of any
other event of default with respect to Designated Senior Indebtedness pursuant
to which the maturity of such Designated Senior Indebtedness may be accelerated
immediately without further notice (except such notice as may be required to
effect such acceleration) or the expiration of any applicable grace periods,
upon the occurrence of (a) receipt by the Trustee of written notice from the
Representative with respect to, or the holders of at least a majority in
aggregate principal amount of, such Designated Senior Indebtedness then
outstanding or (b) if such event of default results from the acceleration of the
1997 Notes, the date of such acceleration, no direct or indirect payment may be
made by the Company upon or in respect of the 1997 Notes for a period (a
"Payment Blockage Period") commencing on the earlier of the date of receipt of
such notice by the Trustee or the date of such acceleration and ending 180 days
thereafter (unless such Payment Blockage Period shall be terminated by written
notice to the Trustee from such Representative or such holders). Not more than
one Payment Blockage Period in the aggregate may be commenced with respect to
the Notes during any period of 360 consecutive days, irrespective of the number
of defaults with respect to Senior Indebtedness during such period. In no event
will a Payment Blockage Period extend beyond 179 days from the date such payment
upon or in respect of the Notes was due, and there must be 180 days in any 360-
day period in which no Payment Blockage Period is in effect as to the Company.
For all purposes of this Section 10.03, no default or event of default that
-------------
existed or was continuing on the date of the commencement of the 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 subsequent Payment Blockage Period by the Representative or
requisite holders of such Designated Senior Indebtedness whether or not within a
period of 360 consecutive days unless such default or event of default shall
been cured or waived for a period of not less than 90 consecutive days.
Section 10.04 When Distribution Must Be Paid Over.
-----------------------------------
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<PAGE>
In the event that the Company shall make any payment to the Trustee
pursuant to the 1997 Notes at a time when such payment is prohibited by Section
-------
10.02 or 10.03, such payment shall be held by the Trustee, in trust for the
- ----- -----
benefit of, and shall be paid forthwith over and delivered to, the holders of
Senior Indebtedness (pro rata as to each of such holders on the basis of the
--- ----
respective amounts of Senior Indebtedness held by them) or their
Representatives, as their respective interests may appear, for application to
the payment of all Senior Indebtedness remaining unpaid to the extent necessary
to pay all Senior Indebtedness in full in accordance with its terms, after
giving effect to any concurrent payment or distribution to or for the holders of
Senior Indebtedness.
If a distribution is made to Holders that because of this Article 10
should not have been made to them, the Holders who receive the distribution
shall hold it in trust for holders of Senior Indebtedness and pay it over to
them as their interests may appear.
Section 10.05 Notice by Company.
-----------------
The Company shall promptly notify the Trustee and any Paying Agent by
an appropriate Officers' Certificate of the Company delivered to a Trust Officer
and the Paying Agent of any facts known to the Company that would cause a
payment under the 1997 Notes of principal of or interest on the 1997 Notes to
violate this Article 10, but failure to give such notice shall not affect the
subordination of the 1997 Notes to the Senior Indebtedness provided in this
Article 10.
Section 10.06 Subrogation.
-----------
After all Senior Indebtedness is paid in full and all commitments to
advance Senior Indebtedness have been terminated, and until the 1997 Notes are
paid in full pursuant to the 1997 Notes and this Indenture or otherwise, Holders
shall be subrogated to the rights of holders of Senior Indebtedness to receive
distributions applicable to Senior Indebtedness to the extent that distributions
otherwise payable to Holders have been applied to payment of Senior
Indebtedness. A distribution made under this Article 10 to holders of Senior
Indebtedness that otherwise would have been made to Holders is not, as between
the Company and the Holders, a payment by the Company on Senior Indebtedness.
Section 10.07 Relative Rights.
---------------
This Article 10 defines the relative rights of Holders and holders of
Senior Indebtedness. Nothing in this Indenture (but subject to the provisions
of paragraph 5 of the 1997 Notes) shall:
(1) impair, as between the Company and the Holders, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest on the 1997 Notes in accordance with their terms;
(2) affect the relative rights of Holders and creditors of the
Company other than such creditors as are holders of Senior Indebtedness;
(3) prevent the Trustee or any Holder from exercising its
available remedies upon a Default or Event of Default, subject to the
rights of holders of Senior Indebtedness to receive distributions otherwise
payable to Holders; or
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<PAGE>
(4) create or imply the existence of any commitment on the part
of the holders of Senior Indebtedness to extend credit to the Company,
other than as set forth in the terms governing such Senior Indebtedness.
Section 10.08 Subordination May Not Be Impaired by Company.
--------------------------------------------
No right of any present or future holder of Senior Indebtedness to
enforce the subordination of the Indebtedness evidenced by the 1997 Notes and
this Article 10 shall be impaired by any act or failure to act by the Company or
anyone in custody of its assets or property or by its failure to comply with
this Indenture.
Section 10.09 Distribution or Notice to Representatives.
-----------------------------------------
Whenever a distribution is to be made or a notice given to holders of
Senior Indebtedness, the distribution may be made and the notice given to their
Representatives, if any.
Section 10.10 Rights of Trustee and Paying Agent.
----------------------------------
Notwithstanding Section 10.02 or 10.03, the Trustee or any Paying
------------- -----
Agent may continue to make payments of principal of or interest on the 1997
Notes unless, in the case of the Trustee, a Trust Officer or, in the case of a
Paying Agent other than the Trustee, an officer of such Paying Agent, shall have
received, at least three Business Days prior to the date such payments are due
and payable, written notice of the occurrence of an event under Section 10.02 or
-------------
10.03 and that any payment under the 1997 Notes would violate this Article 10.
- -----
Only the Company or a Repre sentative with respect to or holders of at least a
majority in principal amount of an issue of Designated Senior Indebtedness may
give such notice. Nothing contained in this Section 10.10 shall limit the right
-------------
of any holder of Senior Indebtedness to recover payments as contemplated by
Section 10.04.
- -------------
The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights. The Trustee shall be entitled to all
the rights set forth in this Article 10 with respect to Senior Indebtedness
which may at any time be held by it, to the same extent as any other holder of
Senior Indebtedness; and nothing in Article 7 shall deprive the Trustee of any
---------
of its rights as such holder, except as otherwise provided by the TIA.
Section 10.11 Trustee Entitled to Assume Payments Not Prohibited in Absence of
----------------------------------------------------------------
Notice.
------
Notwithstanding any of the provisions of this Article 10 or any other
provision of this Indenture, unless a Trust Officer has received a written
notice pursuant to Section 10.10, the Trustee shall not at any time be charged
-------------
with knowledge of the existence of any facts that would prohibit the making of
any payment to or by the Trustee, and in the absence of such written notice the
Trustee may make such payment without liability or obligation to any holder of
Senior Indebtedness.
Section 10.12 Application by Trustee of Monies Deposited With It.
--------------------------------------------------
Nothing contained in this Article 10 or elsewhere in this Indenture,
or in the 1997 Notes, shall (i) affect the obligation of the Company to make, or
prevent the Company from making, at any time except as specified in Section
-------
10.02 or 10.03 to the extent provided therein, payments at
- ----- -----
-63-
<PAGE>
any time pursuant to the 1997 Notes, (ii) prevent the application by the Trustee
or any Paying Agent of any monies or the proceeds of any United States
Government Obligations received from the Company and held by the Trustee or such
Paying Agent in trust for the benefit of the Holders of 1997 Notes as to which
notice of redemption shall have been given, to the payment of or on account of
the principal of or interest on the 1997 Notes, if, at the time such notice was
given, a payment by the Company under the 1997 Notes would not have been
prohibited by the foregoing provisions of this Article 10 or (iii) prevent the
application by the Trustee or any Paying Agent of any monies or the proceeds of
any United States Government Obligations deposited with it by the Company under
Article 8 hereof to the payment of or on account of the principal of or interest
on the 1997 Notes, if, at the time of such deposit, a payment by the Company
under the Notes would not have been prohibited by the foregoing provisions of
this Article 10.
Section 10.13 Trustee's Compensation Not Prejudiced.
-------------------------------------
Nothing in this Article 10 shall apply to claims of, or payments to,
the Trustee pursuant to Section 7.07.
Section 10.14 Officers' Certificate.
---------------------
If there occurs any event referred to in Section 10.02, the Company
-------------
shall promptly give to the Trustee an Officers' Certificate (on which the
Trustee may conclusively rely) identifying all holders of Senior Indebtedness
and the principal amount of Senior Indebtedness then outstanding held by each
such holder and stating the reasons why such Officers' Certificate is being
delivered to the Trustee.
Section 10.15 Certain Payments.
----------------
Nothing in this Article 10 shall prevent or delay (i) the Company from
or in redeeming any 1997 Notes pursuant to paragraph 5 of the 1997 Notes or
otherwise purchasing any 1997 Notes or (ii) the receipt by the Holders of
payments of principal of and interest on the Notes as provided in Section 8.02.
------------
Section 10.16 Names of Representatives.
------------------------
The Company shall from time to time, upon request of the Trustee,
provide to the Trustee an Officers' Certificate setting forth the name and
address of each Representative of all outstanding Senior Indebtedness.
Section 10.17 Article 10 Not To Prevent Events of Default or Limit Right To
-------------------------------------------------------------
Accelerate.
----------
The failure to make a payment pursuant to the Notes by reason of any
provision in this Article 10 shall not be construed as preventing the occurrence
of a Default. Nothing in this Article 10 shall have any effect on the right of
the Holders or the Trustee to accelerate the maturity of the Notes.
-64-
<PAGE>
Section 10.18 Reliance by Holders of Senior Indebtedness on Subordination
-----------------------------------------------------------
Provisions.
----------
Each Holder by accepting a 1997 Note acknowledges and agrees that the
foregoing subordination provisions are, and are intended to be, an inducement
and a consideration to each holder of any Senior Indebtedness, whether such
Senior Indebtedness was created or acquired before or after the issuance of the
1997 Notes, to acquire and continue to hold, or to continue to hold, such Senior
Indebtedness and such holder of Senior Indebtedness shall be deemed conclusively
to have relied on such subordination provisions in acquiring and continuing to
hold, or in continuing to hold, such Senior Indebtedness. No provision in any
supplemental indenture that modifies this Article 10 in any manner adverse to
the holder of Senior Indebtedness shall be effective against the holders of
Senior Indebtedness who have not consented thereto in accordance with the
provisions of the documents governing such Senior Indebtedness.
Section 10.19 Proof of Claim.
--------------
In the event that the Company is subject to any proceeding under any
Bankruptcy Law and the Holders and the Trustee fail to file any proof of claim
permitted to be filed in such proceeding with respect to the 1997 Notes, then
any Representative of Senior Indebtedness may file such proof of claim no
earlier than the later of (i) the expiration of 15 days after such
Representative notifies the Trustee of its intention to do so and (ii) 30 days
preceding the last day permitted to file such claim.
Section 10.20 No Fiduciary Duty Created to Holders of Senior Indebtedness.
-----------------------------------------------------------
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and obligations
as are specifically set forth in this Article 10, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness, and, subject to the
provisions of Article 7, the Trustee shall not be liable to any holder of Senior
Indebtedness if it shall mistakenly pay over or deliver to Holders, the Company
or any other person, monies or assets to which any holder of Senior Indebtedness
shall be entitled by virtue of this Article 10 or otherwise.
ARTICLE 11
GENERAL PROVISIONS
Section 11.01 Trust Indenture Act Controls.
----------------------------
This Indenture, whether or not qualified under the TIA, shall be
subject to the terms and provisions if the TIA as if so qualified.
If any provision of this Indenture limits, qualifies, or conflicts
with another provision that is required to be included in this Indenture by the
TIA as in effect at the date hereof or, to the extent required by law, as
amended after the date hereof, the required provision shall control.
-65-
<PAGE>
Section 11.02 Notices.
-------
Any notice or communication by the Company or the Trustee to the other
is duly given if in writing and delivered in person or mailed by first-class
mail, nationally recognized overnight courier, telex or telecopier to the
other's address stated in Section 11.10. The Company or the Trustee by written
-------------
notice to the other may designate an additional or different address for
subsequent notices or communications.
Any notice or communication to a Noteholder shall be mailed by first-
class mail to its address shown on the register kept by the Registrar. Failure
to mail a notice or communication to a Noteholder or any defect in it shall not
affect its sufficiency with respect to other Noteholders.
If a notice or communication is given in the manner provided above
within the time prescribed, it is duly given, whether or not the addressee
receives it.
If the Company mails a notice or communication to Noteholders, it
shall mail a copy to the Trustee and each Agent at the same time.
All other notices or communications shall be in writing.
Section 11.03 Communication by Holders with Other Holders.
-------------------------------------------
Noteholders may communicate pursuant to TIA (S)312(b) with other
Noteholders with respect to their rights under this Indenture or the 1997 Notes.
The Company, the Trustee, the Registrar and anyone else shall have the
protection of TIA (S)312(c).
Section 11.04 Certificate and Opinion as to Conditions Precedent.
--------------------------------------------------
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate stating that, in the opinion of the
Company, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with; and
(3) where applicable, a certificate or opinion by an independent
certified public accountant satisfactory to the Trustee that complies with
TIA (S) 314(c).
Section 11.05 Statements Required in Certificate or Opinion.
---------------------------------------------
Each certificate or opinion of a Person with respect to compliance
with a condition or covenant provided for in this Indenture shall include:
(1) a statement that the Person making such certificate or opinion has
read such covenant or condition;
-66-
<PAGE>
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such Person, such Person has
made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition
has been complied with; and
(4) a statement as to whether or not, in the opinion of such Person,
such condition or covenant has been complied with; provided, however, that
-------- -------
with respect to matters of fact an Opinion of Counsel may rely on an
Officers' Certificate.
Section 11.06 Rules by Trustee and Agents.
---------------------------
The Trustee may make reasonable rules for action by or at a meeting of
Noteholders. The Registrar or Paying Agent may make reasonable rules and set
reasonable requirements for its functions.
Section 11.07 Legal Holidays; Business Days.
-----------------------------
A "Legal Holiday" is a day on which banking institutions in the City
-------------
of New York or the State of California are not required to be open. If a
payment date is a Legal Holiday at a place of payment, payment may be made at
that place on the next succeeding Business Day, and no interest shall accrue for
the intervening period.
Section 11.08 No Recourse Against Others.
--------------------------
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the 1997
Notes or this Indenture or for any claim based on, in respect of or by reason of
such obligations or their creation. Each Noteholder by accepting a 1997 Note
waives and releases all such liability. The waiver and release are part of the
consideration for the 1997 Notes. Each director, officer, employee and
stockholder is a third party beneficiary of this Section 11.08.
-------------
Section 11.09 Counterparts.
------------
This Indenture may be executed in any number of counterparts and by
the parties hereto in separate counterparts, each of which when so executed
shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
Section 11.10 Other Provisions.
----------------
The Company initially appoints the Trustee as Paying Agent, Registrar
and authenticating agent.
The first certificate pursuant to Section 4.03(a) shall be for the
---------------
fiscal year ending on September 25, 1994. The reporting date for Section 7.06
------------
is March 31 of each year. The first reporting date is March 31, 1995.
-67-
<PAGE>
The Trustee shall always have, or shall be a subsidiary of a bank or
bank holding company that has, a combined capital and surplus of at least $100.0
million as set forth in its most recent published annual report of condition
pursuant to applicable law.
The Company's address is:
Stater Bros. Holdings Inc.
21700 Barton Road
Colton, California 92324
Telecopier: (909) 783-5098
Attention: Chief Financial Officer
The Trustee's address is:
First Trust of New York, National Association
100 Wall Street, Suite 1600
New York, New York 10005
Attention: Corporate Trust Administration
Telecopier: (212) 809-5459
Section 11.11 Governing Law.
-------------
THE INTERNAL LAW OF THE STATE OF NEW YORK SHALL GOVERN THIS INDENTURE
AND THE 1997 NOTES, WITHOUT REGARD TO THE CONFLICTS OF LAWS PROVISIONS THEREOF
TO THE EXTENT THAT THE APPLICATION OF THE LAW OF ANOTHER JURISDICTION WOULD BE
REQUIRED THEREBY. IF ANY ACTION OR PROCEEDING SHALL BE BROUGHT BY A HOLDER OF
ANY OF THE 1997 NOTES OR BY THE TRUSTEE IN ORDER TO ENFORCE ANY RIGHT OR REMEDY
UNDER THIS INDENTURE OR UNDER THE 1997 NOTES, THE COMPANY HEREBY CONSENTS AND
WILL SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING
IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE CITY OF NEW YORK.
THE COMPANY HEREBY AGREES TO ACCEPT SERVICE OF PROCESS BY NOTICE GIVEN TO IT
PURSUANT TO THE PROVISIONS OF SECTION 11.02.
-------------
Section 11.12 No Adverse Interpretation of Other Agreements.
---------------------------------------------
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or a Subsidiary. Any such other indenture, loan
or debt agreement may not be used to interpret this Indenture.
Section 11.13 Successors.
----------
All agreements of the Company in this Indenture and the 1997 Notes
shall bind its successor. All agreements of the Trustee in this Indenture shall
bind its successor.
Section 11.14 Severability.
------------
-68-
<PAGE>
In case any provision in this Indenture or in the 1997 Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
Section 11.15 Table of Contents, Headings, Etc.
--------------------------------
The Table of Contents, Cross-Reference Table and headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part hereof and shall in no way
modify or restrict any of the terms or provisions hereof.
[signature page follows]
-69-
<PAGE>
The parties have caused this Indenture to be duly executed and
attested, all as of the date first above written, signifying their agreements
contained in this Indenture.
The Company:
-----------
STATER BROS. HOLDINGS INC.
By: /s/ Jack H. Brown
---------------------------------------
Jack H. Brown
Chairman, President and Chief Executive
Officer
Attest: /s/ Bruce D. Varner
---------------------------
Bruce D. Varner
Secretary
Trustee:
-------
FIRST TRUST OF NEW YORK,
NATIONAL ASSOCIATION
By: /s/ Carmela Ehret
-------------------------------
Carmela Ehret
Vice President
Attest: /s/ Kenneth M. Racioppo
-------------------------------
Name: Kenneth M. Racioppo
Title: Assistant Vice President
-70-
<PAGE>
EXHIBIT A
SEE REVERSE FOR TRANSFER RESTRICTIONS
STATER BROS. HOLDINGS INC.
9% SENIOR SUBORDINATED NOTE DUE JULY 1, 2004
$________________ Los Angeles, California
Note No. ________ July 24, 1997
Interest Payment Dates: July 1 and January 1
Record Dates: June 15 and December 15
FOR VALUE RECEIVED, the undersigned, Stater Bros. Holdings Inc., a
Delaware corporation (the "Company") hereby promises to pay to the holder
-------
hereof, or its registered assigns, the principal sum of ________________________
(or so much thereof as shall not have been prepaid) on July 1, 2004.
This is one of the Notes Dated: July 24, 1997 mentioned in the within-
mentioned Indenture.
FIRST TRUST OF NEW YORK, STATER BROS. HOLDINGS INC.
NATIONAL ASSOCIATION
as Trustee
By:________________________ By:________________________
Authorized Signatory Name:
Title:
By:________________________
Name:
Title:
A-1
<PAGE>
BACK OF NOTE
9% Senior Subordinated Note
Due July 1, 2004
Unless this certificate is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC") to Issuer or its agent
for registration of transfer, exchange or payment, and any certificate issued is
registered in the name of Cede & Co. or in such other name as is requested by an
authorized representative of DTC (and any payment is made to Cede & Co. or to
such other entity as is requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein./1/
"THE SECURITY EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION
EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE SECURITY EVIDENCED
HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF
THE SECURITY EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE
RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES
ACT PROVIDED BY RULE 144A THEREUNDER. THE HOLDER OF THE SECURITY EVIDENCED
HEREBY AGREES FOR THE BENEFIT OF THE ISSUER THAT (A) SUCH SECURITY MAY BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (i)(a) TO A PERSON WHO THE
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT) IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (b) IN A TRANSACTION MEETING THE REQUIREMENTS OF
RULE 144 UNDER THE SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A
FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER
THE SECURITIES ACT, (d) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF THE SECURITIES ACT) THAT,
PRIOR TO SUCH TRANSFER, FURNISHES THE TRUSTEE A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS (THE FORM OF WHICH CAN BE OBTAINED
FROM THE TRUSTEE) AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE
PRINCIPAL AMOUNT OF NOTES LESS THAN $100,000, AN OPINION OF COUNSEL
ACCEPTABLE TO THE ISSUER THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, OR (e) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION
OF COUNSEL IF THE ISSUER SO REQUESTS),
- -----------------------------
/1/ This is to be included only if the Note is in global form.
A-2
<PAGE>
(ii) TO THE ISSUER OR (iii) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY
STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER FROM IT OF THE SECURITY EVIDENCED HEREBY OF THE RESALE
RESTRICTIONS SET FORTH IN (A) ABOVE."
1. Interest. Stater Bros. Holdings Inc., a Delaware corporation (the
--------
"Company"), promises to pay interest on the principal amount of this Note at the
- --------
rate per annum shown above. The Company shall pay interest semiannually on July
--- -----
1 and January 1 of each year. 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 first date on which any Notes are issued. Interest will be computed on
the basis of a 360-day year of twelve 30-day months. If (i) a registration
statement under the Securities Act to exchange the Private Placement Notes for
the Exchange Notes (the "Exchange Offer") or Shelf Registration Statement has
--------------
not been filed by the date 30 days after the Issue date, or (ii) such Exchange
Offer or Shelf Registration Statement has not become effective by the date 120
days after the date such registration statement has been filed, or (iii) (A) the
Company has not exchanged Exchange Notes for all Private Placement Notes validly
tendered in accordance with the terms of the Exchange Offer on or prior to 30
days after the date on which the Exchange Offer was declared effective or (B)
the Exchange Offer Registration Statement ceases to be effective at any time
prior to the time that the Exchange Offer is consummated or (C) if applicable,
the Shelf Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time prior to the second
anniversary of its effective date (each such event referred to in Clauses (i)
through (iii), a "Registration Default"), then commencing on the first day
--------------------
following the occurrence of a Registration Default, additional interest
("Additional Interest") shall be accrued on the Notes over and above the accrued
- ---------------------
interest at a rate of 0.50% per annum; provided, however, that (1) upon the
--- ----- -------- -------
filing of the Exchange Offer Registration Statement or a Shelf Registration
Statement (in the case of (i) above), (2) upon the effectiveness of the Exchange
Offer Registration Statement or a Shelf Registration Statement (in the case of
(ii) above), or (3) upon the exchange of Exchange Notes for all Notes tendered
(in the case of (iii)(A) above), or upon the effectiveness of the Exchange Offer
Registration Statement which had ceased to remain effective (in the case of
(iii)(B) above), or upon the effectiveness of the Shelf Registration Statement
which had ceased to remain effective (in the case of (iii)(C) above), such
Registration Default shall be deemed cured and Additional Interest on the Notes
as a result of such clause (or the relevant subclause thereof), as the case may
be, shall cease to accrue.
Any amounts of Additional Interest due pursuant to clauses (i), (ii) or
(iii) above will be payable in Cash, on the same original interest payment dates
as the Notes. The amount of Additional Interest will be determined by
multiplying the applicable Additional Interest rate by the principal amount of
the Notes, multiplied by a fraction, the numerator of which is the number of
days such Additional Interest rate was applicable during such period (determined
on the basis of a 360-day year comprised of twelve 30-day months), and the
denominator of which is 360.
Notwithstanding the foregoing, at no time shall the maximum aggregate
interest rate borne by the Notes exceed the lesser of (a) the initial interest
rate payable on the Notes plus 2.50% per annum and (b) the maximum amount
--- -----
permitted under applicable usury laws. The interest rate borne by the
A-3
<PAGE>
Notes shall be reduced by the amount of any Additional Interest on and after the
date, if any, on which the Company satisfies its obligations with respect to the
Exchange Offer and/or the Shelf Registration Statement.
To the extent lawful, the Company shall pay interest on overdue
installments of interest at the Default Rate, as defined in Section 6.02(c) of
---------------
the Indenture.
2. Method of Payment. The Company shall pay interest on the Notes
-----------------
(except defaulted interest) to the persons who are registered holders of Notes
at the close of business on the record date for the next interest payment date
even though Notes are canceled after the record date and on or before the
interest payment date. Holders must surrender Notes to a Paying Agent to
collect principal payments and premium payments, if any. The Company shall pay
principal, premium, if any, and interest in money of the United States that at
the time of payment is legal tender for payment of public and private debts.
However, the Company may pay principal, premium, if any, and interest by check
payable in such money. It may mail an interest payment check to a Holder's
registered address.
3. Paying Agent and Registrar. First Trust of New York, National
--------------------------
Association, 100 Wall Street, Suite 1600, N.Y., N.Y. 10005 (the "Trustee") will
-------
act as the initial Paying Agent and Registrar. The Company may change the
Paying Agent, Registrar or Co-Registrar without prior notice without prior
notice to the Holders. The Company or any of its subsidiaries may act in any
such capacity.
4. Indenture. The Company issued the Notes under an Indenture dated as
---------
of July 24, 1997 (the "Indenture") between the Company and the Trustee. The
---------
terms of the Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939, as amended (15
U.S. Code (S)(S)77aaa-77bbbb) as in effect on the date of the Indenture. The
Notes are subject to, and qualified by, all such terms, certain of which are
summarized hereon, and Noteholders are referred to the Indenture and such Act
for a statement of such terms. The Notes are obligations of the Company limited
to $100.0 million in aggregate principal amount. Capitalized terms not defined
below have the meaning given to them in the Indenture.
5. Optional Redemption. The Notes will not be redeemable prior to July
-------------------
1, 2000. Thereafter, the Notes will be redeemable, at the option of the Company,
in whole or in part, at the following redemption prices (expressed as
percentages of the principal amount), if redeemed during the 12-month period
beginning July 1 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2000........................ 104.50%
2001........................ 103.00%
2002........................ 101.50%
2003........................ 100.00%
</TABLE>
A-4
<PAGE>
In addition, up to $35.0 million aggregate principal amount of the Notes
will be redeemable at any time on or prior to July 1, 2000 at the option of the
Company from the net proceeds to the Company of one or more Equity Offerings at
a redemption price equal to 109% of the principal amount thereof, together with
accrued and unpaid interest, if any, to the redemption date, provided that not
less than $65.0 million in aggregate principal amount of the Notes remains
outstanding immediately after the occurrence of such redemption.
If less than all of the Notes are to be redeemed, the Trustee shall select
the Notes or portions thereof to be redeemed pro rata, by lot or by any other
method the Trustee shall deem fair and reasonable; provided, however, that the
Notes will not be redeemed in amounts less than the minimum authorized
denomination of $1,000. Notice of redemption will be mailed by first class mail
not less than 30 days nor more than 60 days prior to the scheduled redemption
date to each holder of a Note to be redeemed at its registered address. On and
after the registration date, interest will cease to accrue on the Notes or
portions thereof called for redemption.
6. Change of Control. Upon a Change of Control, the Company shall make a
-----------------
Purchase Offer to purchase all outstanding Notes at a price equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest thereon, if
any, to the date of purchase. To accept the Purchase Offer, the Holder hereof
must comply with the terms thereof, including surrendering this Note, with the
"Option of Holder to Elect Purchase" portion hereof completed, to the Company, a
depositary, if appointed by the Company, or a Paying Agent, at the address
specified in the notice of the Purchase Offer mailed to Holders as provided in
the Indenture, prior to termination of the Purchase Offer.
7. Repurchase Upon Sales of Assets. Upon the date of consummation of any
-------------------------------
Asset Sale which, taken individually or together with all Asset Sales since the
Issue Date, results in the receipt of Net Cash Proceeds in excess of $5.0
million, such Net Cash Proceeds and all Net Cash Proceeds from all Asset Sales
consummated concurrently therewith or consummated thereafter (such first
consummation date and each such date thereafter a "Consummation Date") shall be
-----------------
applied by the Company within 18 months of the relevant Consummation Date (or,
in the event of a Qualified Santee LLC Interest Sale, within 24 months of the
relevant Consummation Date) at its election to either: (i) investments in assets
or business in the same line of business as the Company or such Subsidiary; (ii)
the repayment of any Indebtedness which is secured by or incurred to construct
such assets; (iii) the repayment of Senior Indebtedness; or (iv) a combination
of payment and investment permitted by the foregoing clauses (i), (ii) and
(iii). On the earlier of the day after the 18 month period following a
Consummation Date (or, in the event of a Qualified Santee LLC Interest Sale, the
day after the 24 month period following a relevant Consummation Date) or such
date as the Board of Directors of the Company or of such Subsidiary determines
(as evidenced by a resolution approved by the Board of Directors) not to apply
the Net Cash Proceeds relating to such Consummation Date as set forth in clauses
(i), (ii) and (iii) of the preceding sentence (each, an "Asset Sale Offer
----------------
Trigger Date"), such aggregate amount of Net Cash Proceeds which has not been
- ------------
applied on or before such Asset Sale Offer Trigger Date as permitted in clauses
(i), (ii) and (iii) of the preceding sentence (each an "Asset Sale Offer
----------------
Amount") shall be applied by the Company or such Subsidiary to make an offer to
- ------
purchase (the "Asset Sale Offer") on a date (the "Asset Sale Offer Payment
---------------- ------------------------
Date") not less than 30 nor more than 60 days following the applicable Asset
- ----
Sale Offer Trigger Date, from all Holders on a pro rata basis, that amount of
Notes equal to the Asset Sale Offer Amount at a price equal to 100% of the
A-5
<PAGE>
aggregate principal amount of the Notes to be repurchased, plus accrued and
unpaid interest thereon, if any, to the date of repurchase. Notwithstanding the
foregoing, if an Asset Sale Offer Amount is less than $5.0 million the
application of the Net Cash Proceeds constituting such Asset Sale Offer Amount
to an Asset Sale Offer may be deferred until such time as such Asset Sale Offer
Amount plus the aggregate amount of all Asset Sale Offer Amounts arising
subsequent to the Asset Sale Offer Trigger Date relating to such initial Asset
Sale Offer Amount from all Asset Sales by the Company and its Subsidiaries
aggregate at least $5.0 million at which time the Company or said Subsidiary
shall apply all Net Cash Proceeds constituting all Asset Sale Offer Amounts that
have been so deferred to make an Asset Sale Offer (the first date the aggregate
of all such deferred Asset Sale Offer Amounts is equal to $5.0 million or more
shall be deemed to be an Asset Sale Offer Trigger Date). Pending application
pursuant to an Asset Sale Offer the Company shall invest such Asset Sale Offer
Amounts in Permitted Investments.
8. Subordination. The Notes are subordinated to Senior Indebtedness, as
-------------
defined in the Indenture. To the extent provided in the Indenture, Senior
Indebtedness must be paid before payments in respect of the Notes may be made
under the Notes and the Indenture. The Company agrees, and each Securityholder
by accepting a Note agrees, to the subordination provisions contained in the
Indenture and authorizes the Trustee to give them effect and appoints the
Trustee as attorney-in-fact for such purpose.
9. Denominations, Transfer, Exchange. The Notes sold to Qualified
---------------------------------
Institutional Buyers are initially issued in global form. The Global Note
represents such of the outstanding Notes as shall be specified therein or
endorsed thereon in accordance with the Indenture. The Notes that are not sold
to Qualified Institutional Buyers are initially issued in the form of
Certificated Notes. The Certificated Notes are in registered form without
coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. As a condition of transfer, the Registrar may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents
and to pay any taxes and fees required by law or permitted by the Indenture.
10. Persons Deemed Owners. The registered Holder of a Note may be treated
---------------------
as its owner for all purposes.
11. Amendments and Waivers. Subject to certain exceptions, the Indenture
----------------------
or the Notes may be amended with the consent of the Holders of at least a
majority in aggregate principal amount of the then outstanding Notes, and any
existing default may be waived with the consent of the Holders of a majority in
aggregate principal amount of the then outstanding Notes. Without the consent
of any Noteholder, the Indenture or the Notes may be amended (i) to cure any
ambiguity, defect or inconsistency; (ii) to comply with restrictions on mergers,
consolidations and certain asset dispositions; (iii) to provide for
uncertificated Notes in addition to certificated Notes; (iv) to make any change
that does not adversely affect the legal rights hereunder of any Noteholder; (v)
to add to the covenants, conditions and restrictions of the Company, for the
benefit of the Noteholders, or to surrender any right or power herein conferred
upon the Company, or (vi) to modify, eliminate or add to the provisions of this
Indenture to such extent as shall be necessary to effect the qualification of
this Indenture under the TIA, or under any similar federal statute hereafter
enacted.
A-6
<PAGE>
12. Defaults and Remedies. An Event of Default includes, in summary form:
---------------------
default for 30 days in payment of interest on the Notes; default in payment of
principal of and premium, if any, on the Notes; failure by the Company for 60
days after notice to it to comply with any of its other agreements in the
Indenture or the Notes; certain events of bankruptcy or insolvency; certain
final judgments which remain undischarged; certain events of default under other
Indebtedness of the Company or any of its Subsidiaries; failure to commence any
of the Purchase Offers described in paragraphs 6 or 7 of this Note by the time
-----------------
specified in the Indenture or to pay for Notes tendered pursuant thereto; and
failure by the Company to maintain its corporate existence or to comply with the
restrictions on changes of control, mergers, consolidations and certain asset
dispositions.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in aggregate principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately, except that in the case
of an Event of Default arising from certain events of bankruptcy or insolvency,
all outstanding Notes become due and payable without further action or notice.
Noteholders may not enforce the Indenture or the Notes except as provided in the
Indenture. The Trustee may require indemnity satisfactory to it before it
enforces the Indenture or the Notes. Subject to certain limitations, Holders of
a majority in aggregate principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Noteholders notice of any continuing default (except a default in
payment of principal or interest) if it determines that withholding notice is in
their interests. The Company must furnish an annual compliance certificate to
the Trustee.
13. Trustee Dealings with the Company. The Trustee under the Indenture,
---------------------------------
or any of its Affiliates, in their individual or any other capacities, may make
or continue loans to or guaranteed by, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if the Trustee were not Trustee.
14. No Recourse Against Others. A director, officer, employee or
--------------------------
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Notes or the Indenture or for any claim
based on, in respect of or by reason of such obligations or their creation.
Each Noteholder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the Notes.
15. Authentication. This Note shall not be valid until authenticated by
--------------
the manual signature of the Trustee or an authenticating agent.
16. Abbreviations. Customary abbreviations may be used in the name of a
-------------
Noteholder or an assignee, such as: TEN CO (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST Custodian), and U/G/M/A (= Uniform Gifts to
Minors Act).
The Company shall furnish to any Noteholder upon written request and
without charge a copy of the Indenture. Requests may be made to: CHIEF
FINANCIAL OFFICER, STATER BROS. HOLDINGS INC., 21700 Barton Road, Colton,
California 92324.
A-7
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below:
I or we assign and transfer this Note to:
_____________________________________________
(Assignee)
_____________________________________________
(Assignee's soc. sec. or tax I.D. no.)
_____________________________________________
(Assignee's name, address and zip code)
and irrevocably appoint:
_____________________________________________
as agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him or her.
Dated: _____________________
---------------------------------------------
(name as appears on the face of the Note)
By: ________________________________________
Signature guaranteed by: ___________________
A-8
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant to
Section 3.01, 4.11 or 4.19 of the Indenture and paragraph 5 or 6 of this Note,
- -------------------------- ----------------
check the box:
[_]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 3.01, 4.11 or 4.19 of the Indenture and paragraph 5
-------------------------- -----------
or 6 of this Note, state the amount:
- ----
$___________________________________
(in an integral multiple of $1,000)
Date:_ Your Signature:_____________________________
(Sign exactly as your name
appears on the other side of
this Note)
Signature Guarantee:
A-9
<PAGE>
SCHEDULE OF EXCHANGES OF CERTIFICATED SECURITIES/2/
The following exchanges of a part of this Global Note for Certificated Notes
have been made:
<TABLE>
<S> <C> <C> <C> <C>
Principal Amount Signature of
Amount of Amount of Increase of this Global Note authorized officer
Decrease in in Principal following such of Trustee or
Principal Amount Amount of this decreases (or Global Note
Date of Exchange of this Global Note Global Note increases) Custodian
</TABLE>
- --------------------------
/2/ This is to be included only if the Note is in global form.
A-10
<PAGE>
EXHIBIT B
FORM OF EXCHANGE NOTE
SEE REVERSE FOR TRANSFER RESTRICTIONS
STATER BROS. HOLDINGS INC.
9% SENIOR SUBORDINATED NOTE DUE JULY 1, 2004
$________________ Los Angeles, California
Note No. ________ July 24, 1997
Interest Payment Dates: July 1 and January 1
Record Dates: July 15 and December 15
FOR VALUE RECEIVED, the undersigned, Stater Bros. Holdings Inc., a
Delaware corporation (the "Company") hereby promises to pay to the holder
-------
hereof, or its registered assigns, the principal sum of ________________________
(or so much thereof as shall not have been prepaid) on July 1, 1994.
This is one of the Notes Dated: July 24, 1997 mentioned in the within-
mentioned Indenture.
FIRST TRUST OF NEW YORK, STATER BROS. HOLDINGS INC.
NATIONAL ASSOCIATION
as Trustee
By:________________________ By:________________________
Authorized Signatory Name:
Title:
By:________________________
Name:
Title:
B-1
<PAGE>
BACK OF NOTE
9% Senior Subordinated Note
Due July 1, 2004
Unless this certificate is presented by an authorized representative of The
Depository Trust Company, a New York corporation ("DTC") to Issuer or its agent
for registration of transfer, exchange or payment, and any certificate issued is
registered in the name of Cede & Co. or in such other name as is requested by an
authorized representative of DTC (and any payment is made to Cede & Co. or to
such other entity as is requested by an authorized representative of DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest
herein./1/
1. Interest. Stater Bros. Holdings Inc., a Delaware corporation (the
--------
"Company"), promises to pay interest on the principal amount of this Note at the
- --------
rate per annum shown above. The Company shall pay interest semiannually on July
--- -----
1 and January 1 of each year. 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 first date on which any Notes are issued. Interest will be computed on
the basis of a 360-day year of twelve 30-day months.
Notwithstanding the foregoing, at no time shall the maximum aggregate
interest rate borne by the Notes exceed the lesser of (a) the initial interest
rate payable on the Notes plus 2.50% per annum and (b) the maximum amount
--- -----
permitted under applicable usury laws.
To the extent lawful, the Company shall pay interest on overdue
installments of interest at the Default Rate, as defined in Section 6.02(c) of
---------------
the Indenture.
2. Method of Payment. The Company shall pay interest on the Notes
-----------------
(except defaulted interest) to the persons who are registered holders of Notes
at the close of business on the record date for the next interest payment date
even though Notes are canceled after the record date and on or before the
interest payment date. Holders must surrender Notes to a Paying Agent to
collect principal payments and premium payments, if any. The Company shall pay
principal, premium, if any, and interest in money of the United States that at
the time of payment is legal tender for payment of public and private debts.
However, the Company may pay principal, premium, if any, and interest by check
payable in such money. It may mail an interest payment check to a Holder's
registered address.
3. Paying Agent and Registrar. First Trust of New York, National
--------------------------
Association, 100 Wall Street, Suite 1600, N.Y., N.Y. 10005 (the "Trustee") will
-------
act as Paying Agent and Registrar. The Company may change the Paying Agent,
Registrar or Co-Registrar without prior notice without prior notice to the
Holders. The Company or any of its subsidiaries may act in any such capacity.
4. Indenture. The Company issued the Notes under an Indenture dated as
---------
of July 24, 1997 (the "Indenture") between the Company and the Trustee. The
---------
terms of the Notes include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code
(S)(S)77aaa-77bbbb) as in effect on the date of the Indenture. The Notes are
subject to, and qualified by, all such terms, certain of which are summarized
hereon, and Noteholders are referred to the
- ----------------------
/1/ This is to be included only if the Note is in global form.
B-2
<PAGE>
Indenture and such Act for a statement of such terms. The Notes are obligations
of the Company limited to $100.0 million in aggregate principal amount.
Capitalized terms not defined below have the meaning given to them in the
Indenture.
5. Optional Redemption. The Notes will not be redeemable prior to July 1,
-------------------
2000. Thereafter, the Notes will be redeemable, at the option of the Company, in
whole or in part, at the following redemption prices (expressed as percentages
of the principal amount), if redeemed during the 12-month period beginning July
1 of the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2000.............................. 104.50%
2001.............................. 103.00%
2002.............................. 101.50%
2003.............................. 100.00%
</TABLE>
In addition, up to $35.0 million aggregate principal amount of the Notes
will be redeemable at any time on or prior to July 1, 2000 at the option of the
Company from the net proceeds to the Company of one or more Equity Offerings at
a redemption price equal to 109% of the principal amount thereof, together with
accrued and unpaid interest, if any, to the redemption date, provided that not
less than $65.0 million in aggregate principal amount of the Notes remains
outstanding immediately after the occurrence of such redemption
If less than all of the Notes are to be redeemed, the Trustee shall select
the Notes or portions thereof to be redeemed pro rata, by lot or by any other
method the Trustee shall deem fair and reasonable; provided, however, that the
Notes will not be redeemed in amounts less than the minimum authorized
denomination of $1,000. Notice of redemption will be mailed by first class mail
not less than 30 days nor more than 60 days prior to the scheduled redemption
date to each holder of a Note to be redeemed at its registered address. On and
after the registration date, interest will cease to accrue on the Notes or
portions thereof called for redemption.
6. Change of Control. Upon a Change of Control, the Company shall make a
-----------------
Purchase Offer to purchase all outstanding Notes at a price equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest thereon, if
any, to the date of purchase. To accept the Purchase Offer, the Holder hereof
must comply with the terms thereof, including surrendering this Note, with the
"Option of Holder to Elect Purchase" portion hereof completed, to the Company, a
depositary, if appointed by the Company, or a Paying Agent, at the address
specified in the notice of the Purchase Offer mailed to Holders as provided in
the Indenture, prior to termination of the Purchase Offer.
7. Repurchase Upon Sales of Assets. Upon the date of consummation of any
-------------------------------
Asset Sale which, taken individually or together with all Asset Sales since the
Issue Date, results in the receipt of Net Cash Proceeds in excess of $5.0
million, such Net Cash Proceeds and all Net Cash Proceeds from all Asset Sales
consummated concurrently therewith or consummated thereafter (such first
consummation date and each such date thereafter a "Consummation Date") shall be
-----------------
applied by the Company within one year of the relevant Consummation Date (or, in
the event of a Qualified Santee LLC Interest Sale, within 24 months of the
relevant Consummation Date) at its election to either: (i) investments in assets
or business in the same line of business as the Company or such Subsidiary; (ii)
the repayment of any Indebtedness which is secured by or incurred to construct
such assets; (iii) the repayment of Senior Indebtedness; or (iv) a
B-3
<PAGE>
combination of payment and investment permitted by the foregoing clauses (i),
(ii) and (iii). On the earlier of the day after the 18 month period following a
Consummation Date (or, in the event of a Qualified Santee LLC Interest Sale, the
day after the 24 month period following a relevant Consummation Date) or such
date as the Board of Directors of the Company or of such Subsidiary determines
(as evidenced by a resolution approved by the Board of Directors) not to apply
the Net Cash Proceeds relating to such Consummation Date as set forth in clauses
(i), (ii) and (iii) of the preceding sentence (each, an "Asset Sale Offer
----------------
Trigger Date"), such aggregate amount of Net Cash Proceeds which has not been
- ------------
applied on or before such Asset Sale Offer Trigger Date as permitted in clauses
(i), (ii) and (iii) of the preceding sentence (each an "Asset Sale Offer
----------------
Amount") shall be applied by the Company or such Subsidiary to make an offer to
- ------
purchase (the "Asset Sale Offer") on a date (the "Asset Sale Offer Payment
---------------- ------------------------
Date") not less than 30 nor more than 60 days following the applicable Asset
- ----
Sale Offer Trigger Date, from all Holders on a pro rata basis, that amount of
Notes equal to the Asset Sale Offer Amount at a price equal to 100% of the
aggregate principal amount of the Notes to be repurchased, plus accrued and
unpaid interest thereon, if any, to the date of repurchase. Notwithstanding the
foregoing, if an Asset Sale Offer Amount is less than $5.0 million the
application of the Net Cash Proceeds constituting such Asset Sale Offer Amount
to an Asset Sale Offer may be deferred until such time as such Asset Sale Offer
Amount plus the aggregate amount of all Asset Sale Offer Amounts arising
subsequent to the Asset Sale Offer Trigger Date relating to such initial Asset
Sale Offer Amount from all Asset Sales by the Company and its Subsidiaries
aggregate at least $5.0 million at which time the Company or said Subsidiary
shall apply all Net Cash Proceeds constituting all Asset Sale Offer Amounts that
have been so deferred to make an Asset Sale Offer (the first date the aggregate
of all such deferred Asset Sale Offer Amounts is equal to $5.0 million or more
shall be deemed to be an Asset Sale Offer Trigger Date). Pending application
pursuant to an Asset Sale Offer the Company shall invest such Asset Sale Offer
Amounts in Permitted Investments.
8. Subordination. The Notes are subordinated to Senior Indebtedness, as
-------------
defined in the Indenture. To the extent provided in the Indenture, Senior
Indebtedness must be paid before payments in respect of the Notes may be made
under the Notes and the Indenture. The Company agrees, and each Securityholder
by accepting a Note agrees, to the subordination provisions contained in the
Indenture and authorizes the Trustee to give them effect and appoints the
Trustee as attorney-in-fact for such purpose.
9. Denominations, Transfer, Exchange. The Notes sold to Qualified
---------------------------------
Institutional Buyers are initially issued in global form. The Global Note
represents such of the outstanding Notes as shall be specified therein or
endorsed thereon in accordance with the Indenture. The Notes that are not sold
to Qualified Institutional Buyers are initially issued in the form of
Certificated Notes. The Certificated Notes are in registered form without
coupons in denominations of $1,000 and integral multiples of $1,000. The
transfer of Notes may be registered and Notes may be exchanged as provided in
the Indenture. As a condition of transfer, the Registrar may require a Holder,
among other things, to furnish appropriate endorsements and transfer documents
and to pay any taxes and fees required by law or permitted by the Indenture.
10. Persons Deemed Owners. The registered Holder of a Note may be treated
---------------------
as its owner for all purposes.
11. Amendments and Waivers. Subject to certain exceptions, the Indenture
----------------------
or the Notes may be amended with the consent of the Holders of at least a
majority in aggregate principal amount of the then outstanding Notes, and any
existing default may be waived with the consent of the Holders of a majority in
aggregate principal amount of the then outstanding Notes. Without the consent
of any Noteholder, the Indenture or the Notes may be amended (i) to cure any
ambiguity, defect or inconsistency; (ii) to comply with restrictions on mergers,
consolidations and certain asset dispositions; (iii) to provide for
uncertificated Notes in addition to certificated Notes; (iv) to make any change
that does not adversely
B-4
<PAGE>
affect the legal rights hereunder of any Noteholder; (v) to add to the
covenants, conditions and restrictions of the Company, for the benefit of the
Noteholders, or to surrender any right or power herein conferred upon the
Company, or (vi) to modify, eliminate or add to the provisions of this Indenture
to such extent as shall be necessary to effect the qualification of this
Indenture under the TIA, or under any similar federal statute hereafter enacted.
12. Defaults and Remedies. An Event of Default includes, in summary form:
---------------------
default for 30 days in payment of interest on the Notes; default in payment of
principal of and premium, if any, on the Notes; failure by the Company for 60
days after notice to it to comply with any of its other agreements in the
Indenture or the Notes; certain events of bankruptcy or insolvency; certain
final judgments which remain undischarged; certain events of default under other
Indebtedness of the Company or any of its Subsidiaries; failure to commence any
of the Purchase Offers described in paragraphs 6 or 7 of this Note by the time
-----------------
specified in the Indenture or to pay for Notes tendered pursuant thereto; and
failure by the Company to maintain its corporate existence or to comply with the
restrictions on changes of control, mergers, consolidations and certain asset
dispositions.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in aggregate principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately, except that in the case
of an Event of Default arising from certain events of bankruptcy or insolvency,
all outstanding Notes become due and payable without further action or notice.
Noteholders may not enforce the Indenture or the Notes except as provided in the
Indenture. The Trustee may require indemnity satisfactory to it before it
enforces the Indenture or the Notes. Subject to certain limitations, Holders of
a majority in aggregate principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Noteholders notice of any continuing default (except a default in
payment of principal or interest) if it determines that withholding notice is in
their interests. The Company must furnish an annual compliance certificate to
the Trustee.
13. Trustee Dealings with the Company. The Trustee under the Indenture,
---------------------------------
or any of its Affiliates, in their individual or any other capacities, may make
or continue loans to or guaranteed by, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if the Trustee were not Trustee.
14. No Recourse Against Others. A director, officer, employee or
--------------------------
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Notes or the Indenture or for any claim
based on, in respect of or by reason of such obligations or their creation.
Each Noteholder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the Notes.
15. Authentication. This Note shall not be valid until authenticated by
--------------
the manual signature of the Trustee or an authenticating agent.
16. Abbreviations. Customary abbreviations may be used in the name of a
-------------
Noteholder or an assignee, such as: TEN CO (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST Custodian), and U/G/M/A (= Uniform Gifts to
Minors Act).
The Company shall furnish to any Noteholder upon written request and
without charge a copy of the Indenture. Requests may be made to: CHIEF
FINANCIAL OFFICER, STATER BROS. HOLDINGS INC., 21700 Barton Road, Colton,
California 92324.
B-5
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below:
I or we assign and transfer this Note to:
_____________________________________________
(Assignee)
_____________________________________________
(Assignee's soc. sec. or tax I.D. no.)
_____________________________________________
(Assignee's name, address and zip code)
and irrevocably appoint:
_____________________________________________
as agent to transfer this Note on the books of the Company. The agent may
substitute another to act for him or her.
Dated: _____________________
---------------------------------------------
(name as appears on the face of the Note)
By: ________________________________________
Signature guaranteed by: ___________________
B-6
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant to
Section 3.01, 4.11 or 4.19 of the Indenture and paragraph 5 or 6 of this Note,
- -------------------------- ----------------
check the box:
[_]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 3.01, 4.11 or 4.19 of the Indenture and paragraph 5
-------------------------- -----------
or 6 of this Note, state the amount:
- ----
$___________________________________
(in an integral multiple of $1,000)
Date:_ Your Signature:_____________________________
(Sign exactly as your name
appears on the other side of
this Note)
Signature Guarantee:
B-7
<PAGE>
SCHEDULE OF EXCHANGES OF CERTIFICATED SECURITIES/2/
The following exchanges of a part of this Global Note for Certificated
Notes have been made:
<TABLE>
<S> <C> <C> <C> <C>
Principal Amount Signature of
Amount of Amount of of this Global authorized officer
Decrease in Increase in Note following of Trustee or
Principal Amount Principal Amount such decreases (or Global Note
Date of Exchange of this Global of this Global increases) Custodian
Note Note
</TABLE>
- -----------------------
/2/ This is to be included only if the Note is in global form.
B-8
<PAGE>
EXHIBIT C
CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION
OF TRANSFER OF NOTES
Re: Senior Subordinated Note due 2004 of Stater Bros. Holdings Inc.
This Certificate relates to $___________ principal amount of Notes held in
* _____________ book-entry or * ______________ certificated form by
________________ (the "Transferor").
----------
The Transferor*:
[_] has requested the Trustee by written order to deliver in exchange for
its beneficial interest in the Global Note held by the Depositary, a
Note or Notes in certificated, registered form of authorized
denominations and an aggregate principal amount equal to its
beneficial interest in such Global Note (or the portion thereof
indicated above); or
[_] has requested the Trustee by written order to exchange or register the
transfer of a Note or Notes.
In connection with such request and in respect of each such Note, the
Transferor does hereby certify as follows:
[_] Such Note is being acquired for its own account, without transfer.
[_] Such Note is being transferred to a qualified institutional buyer (as
defined in Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act")), in reliance on Rule 144A or in accordance with
--------------
Rule 145 or Regulation S under the Securities Act.
[_] Such Note is being transferred in accordance with Rule 144 under the
Securities Act, or pursuant to an effective registration statement
under the Securities Act.
[_] Such Note is being transferred in reliance on and in compliance with
an exemption from the registration requirements of the Securities Act,
other than Rule 144A, 144 or 145 or Regulation S under the Securities
Act. An opinion of counsel to the effect that such transfer does not
require registration under the Securities Act accompanies this
Certificate.
________________________________
Insert Name of Transferor
By: ____________________________
Dated:
_________________________
* Check applicable box
C-1
<PAGE>
EXHIBIT D
FORM OF LEGAL
OPINION ON TRANSFER
__________________, _____
_______________________
_______________________
_______________________
Re: 9% Senior Subordinated Notes Due July 1, 2004
of Stater Bros. Holdings Inc.
-------------------------------------------
Ladies and Gentlemen:
This opinion is being furnished to you in connection with the sale by
_________________ (the "Transferor") to __________________ (the "Purchaser") of
---------- ---------
$________ aggregate principal amount of 9% Senior Subordinated Notes due 2004 of
Stater Bros. Holdings Inc. (the "Notes").
-----
We have examined such documents and records as we have deemed appropriate.
In our examination of the foregoing, we have assumed the authenticity of all
documents, the genuineness of all signatures and the due authorization,
execution and delivery of the aforementioned by each of the parties thereto. We
have further assumed the accuracy of the representations contained in the
documents referred to above made by the parties executing such documents. We
have also assumed that the sale of the Notes to the Transferor was exempt from
the registration and prospectus delivery requirements of the Securities Act of
1933, as amended (the "Securities Act").
--------------
Based on the foregoing, we are of the opinion that the sale to the
Purchaser of the Notes does not require registration of such Notes under the
Securities Act.
Very truly yours,
D-1
<PAGE>
EXHIBIT 4.2
STATER BROS. HOLDINGS INC.
__________________
FIRST SUPPLEMENTAL INDENTURE
________________________
with respect to:
$165,000,000
11% Senior Notes Due 2001
Issued as of March 8, 1994
________________
IBJ SCHRODER BANK & TRUST COMPANY,
Trustee
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of July 22, 1997 (the "SUPPLEMENT")
between Stater Bros. Holdings Inc., a corporation duly organized and existing
under the laws of the State of Delaware (herein called the "COMPANY"), having
its principal office at 21700 Barton Road, Colton, California 92324, and IBJ
Schroder Bank & Trust Company, a New York banking corporation, as trustee
(herein called the "TRUSTEE"), for the Company's 11% Senior Notes Due 2001 (the
"SECURITIES").
The Company has heretofore executed and delivered to the Trustee an
Indenture, dated as of March 8, 1994 (the "INDENTURE"), under which the
Securities in the aggregate principal amount of $165,000,000 were issued and are
outstanding.
In accordance with Section 9.02 of the Indenture, the Company has obtained
the written consent of the Holders of a majority in principal amount of the
Securities to certain amendments to such Indenture. The Company is authorized
to enter into this Supplement by a Board Resolution and simultaneously herewith
the Trustee has received an Opinion of Counsel and an Officers' Certificate in
accordance with Section 10.04 of the Indenture stating that the execution of
this Supplement is permitted by the Indenture and all conditions precedent under
the Indenture relating to the execution of this Supplement have been complied
with.
NOW, THEREFORE, THIS FIRST SUPPLEMENTAL INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
SECTION 101. Section 1.01 of the Indenture is amended by adding the
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following definitions in alphabetical order:
- -------------------------------------------
A. "New Notes" means the Company's $100.0 million New Notes due 2004.
B. "Qualified La Cadena Investment" means an Investment in the Company
by La Cadena for the purpose of providing funds to either the Company or
Stater Bros. Markets, as the case may be, to purchase additional limited
liability company interests in Santee LLC, provided, however, that if such
-------- -------
investment is made in the form of Indebtedness, then such Indebtedness
shall be (a) unsecured Indebtedness, and (b) Subordinated Indebtedness.
C. "Qualified Non-Recourse Indebtedness" means Indebtedness of any Person
(i) as to which neither the Company nor any of its Subsidiaries (other than
any Unrestricted Subsidiary) (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise) or (c) constitutes the lender; and (ii) no default with respect
to which (including any right that the holders thereof may have to take
enforcement action against such Person) would permit (upon notice, lapse of
time or both) any holder of any other Indebtedness of the Company or any of
its Subsidiaries (other than any Unrestricted Subsidiary) to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or
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<PAGE>
payable prior to its stated maturity; provided, however, that the Company
-----------------
or any Subsidiary may execute and become obligated under the Santee
Documents and perform its obligations thereunder, and such execution,
obligation and performance shall not disqualify the Indebtedness of Santee
or Santee LLC from constituting Qualified Non-Recourse Indebtedness.
D. "Revolving Credit Facility" means the Company's or any Subsidiary's
revolving credit facilities or any replacement facilities with respect
thereto.
E. "Santee" means Santee Dairies, Inc., a California corporation.
F. "Santee LLC" means Santee Dairies, LLC, a Delaware limited liability
company.
G. "Santee Documents" means that certain Product Purchase Agreement
between Stater Bros. Markets and Santee, that certain Owner Consent between
Stater Bros. Markets and the trustee pursuant to the trust agreement
executed as part of the Santee Financing, that certain Limited Liability
Company Agreement between Stater Bros. Markets, Hughes Markets, Inc., and
Santee, LLC and all documents effecting and ancillary to the Santee
Financing.
H. "Santee Financing" means the issuance by Santee of up to $80.0 million
in principal amount of notes with respect to the construction of a new
dairy in the City of Industry, California, and all transactions incident
and ancillary thereto.
I. "Santee Noteholders" means the purchasers of notes with respect to the
Santee Financing.
J. "Subordinated Indebtedness" means any Indebtedness of the Company or
any of its Subsidiaries (whether outstanding on the date of the Indenture
or thereafter incurred) that (i) matures no earlier than the date that is
one year after the maturity date of the Notes and (ii) is subordinated with
respect to payment of principal and interest to the payment of principal
and interest on the Notes (whether upon dissolution, liquidation, or
reorganization of the Company or any such Subsidiary, or otherwise).
K. "Unrestricted Subsidiary" means, to the extent such Persons become
Subsidiaries, (i) Santee LLC, (ii) Santee, and (iii) any subsidiary of an
Unrestricted Subsidiary; provided, however, that any Unrestricted
-------- -------
Subsidiary that incurs Indebtedness other than Qualified Non-Recourse
Indebtedness shall no longer be deemed an Unrestricted Subsidiary, for so
long as such Indebtedness not constituting Qualified Non-Recourse
Indebtedness shall be outstanding; provided, further, that at such time as
-----------------
any Unrestricted Subsidiary ceases to be an Unrestricted Subsidiary, all
Indebtedness of such Subsidiary shall be deemed to have been incurred by
the Company and such Subsidiary for the purposes hereof.
SECTION 102. Section 1.01 of the Indenture is amended by deleting the
--------------------------------------------------------
definition of "Consolidated Stockholders' Equity" therefrom in its entirety and
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replacing such definition with the following:
- --------------------------------------------
"Consolidated Stockholders' Equity" as of any date means with respect
to any Person the amount by which the assets of such Person and its
Consolidated Subsidiaries exceed (a) the total liabilities of such Person
and its Consolidated Subsidiaries, plus (b) any redeemable Preferred Stock
(including Disqualified Capital Stock) of such Person or any Preferred
Stock of any Consolidated Subsidiary of such Person issued to any Person
other than such Person or
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<PAGE>
a Wholly Owned Subsidiary of such Person, in each case determined in
accordance with GAAP.
SECTION 103. Section 1.01 of the Indenture is amended by deleting the
--------------------------------------------------------
definition of "Consolidated Subsidiary" therefrom in its entirety and replacing
- -------------------------------------------------------------------------------
such definition with the following:
- ----------------------------------
"Consolidated Subsidiary" of any Person means a Subsidiary which for
financial reporting purposes is or, in accordance with GAAP, should be,
accounted for by such Person as a consolidated subsidiary; provided,
---------
however, that the Unrestricted Subsidiaries of any Person shall not be
-------
included as Consolidated Subsidiaries of such Person for purposes of this
Indenture, regardless of whether such Unrestricted Subsidiaries are or, in
accordance with GAAP, should be, accounted for as consolidated
subsidiaries; provided, further, that any Person that is not a subsidiary
-----------------
of a Person shall not be included as a Consolidated Subsidiary of such
Person for purposes of the Indenture, regardless of whether such Person is,
or in accordance with GAAP, should be, accounted for as a consolidated
subsidiary.
SECTION 104. Section 1.01 of the Indenture is amended by adding the
------------------------------------------------------
following sentence to the end of the definition of "Indebtedness" therein:
- -------------------------------------------------------------------------
"For the avoidance of doubt, the Santee Financing and the Santee
Documents shall be deemed not to constitute, nor to have given rise to, the
incurrence of any Indebtedness of the Company or any of its Subsidiaries."
SECTION 105. Section 1.01 of the Indenture is amended by deleting the
--------------------------------------------------------
definition of "Person" therefrom in its entirety and replacing such definition
- ------------------------------------------------------------------------------
with the following:
- ------------------
"Person" means any individual, corporation, partnership, joint
venture, trust, estate, limited liability company, unincorporated
organization or government or any agency or political subdivision thereof.
SECTION 106. Section 1.01 of the Indenture is amended by deleting the
--------------------------------------------------------
definition of "Restricted Payments" therefrom in its entirety and replacing such
- --------------------------------------------------------------------------------
definition with the following:
- -----------------------------
"Restricted Payment" means (i) the declaration or payment of any
dividend or the making of any other distribution or other payment (whether
in cash, securities or other property or assets of the Company or of any
Subsidiary) of the Company's or any Subsidiary's Capital Stock, or to the
holders of the Company's or any Subsidiary's Capital Stock or to any
Affiliate of the Company, whether outstanding on the Issue Date or
thereafter (other than dividends or distributions payable solely in
Qualified Capital Stock of the Company, dividends or distributions declared
or paid by any Subsidiary to the Company); (ii) any purchase, redemption,
retirement or other acquisition for value of any Capital Stock of the
Company or of any Subsidiary or of any Affiliate of the Company, whether
outstanding on the Issue Date or thereafter, or any warrants, rights or
options to purchase or acquire shares of the Capital Stock of the Company
or of any Subsidiary or of any Affiliate of the Company, whether
outstanding on the Issue Date or thereafter, held by any Person other than
the Company or one of its Wholly Owned Subsidiaries (other than through the
issuance in exchange therefor solely of Qualified Capital Stock); (iii) the
prepayment, acquisition, decrease or retirement prior to maturity,
scheduled repayment or scheduled sinking fund payment of any Indebtedness
of the Company that is subordinated (whether pursuant to its terms,
structurally or by operation of law) to the Notes or (iv) to incur, create,
assume or suffer to exist any guarantee of
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<PAGE>
Indebtedness of, or make any loan or advancement to, or other Investment
in, any Related Person of the Company (other than a Wholly Owned Subsidiary
(other than an Unrestricted Subsidiary)). The dollar amount of any non-cash
dividend or distribution by the Company or any Subsidiary on the Company's,
any Subsidiary's or any of the Company's Affiliate's Capital Stock shall be
equal to the Fair Market Value of such dividend or distribution at the time
of such dividend or distribution. Notwithstanding the foregoing, provided
--------
that no Default or Event of Default shall have occurred and be continuing
or would result as a consequence thereof, the following shall not be or be
deemed to be Restricted Payments: (a) the repayment upon the consummation
of an Asset Sale of any Indebtedness of the Company permitted by Section
-------
4.12 which is subordinated (whether pursuant to its terms or by operation
----
of law) to the Notes and which is secured by a Lien permitted by Section
-------
4.14 to the extent that such Indebtedness is required to be repaid in
----
connection with such Asset Sale pursuant to the terms of the instrument
governing such Indebtedness and such Lien, provided that concurrent or
--------
prior repayment of the Notes is provided for with the proceeds of such
Asset Sale if the Notes are secured by a Lien pari passu with or senior to
---- -----
the Lien of such Indebtedness, or (b) the prepayment, acquisition,
retirement or decrease of Indebtedness of the Company that is subordinated
(whether pursuant to its terms or by operation of law) to the Notes that is
prepaid, acquired, decreased or retired by conversion into or in exchange
for Qualified Capital Stock.
SECTION 107. Section 4.05 of the Indenture is amended by deleting such
---------------------------------------------------------
Section therefrom in its entirety and replacing such Section with the following:
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Section 4.05 Limitations on Restricted Payments and Investments.
------------ --------------------------------------------------
(a) The Company will not, and will not permit or cause any of the
Subsidiaries (other than any Unrestricted Subsidiary), directly or
indirectly, to, make any Restricted Payment or Investment after the Issue
Date unless, at the time of such proposed Restricted Payment or Investment,
and on a pro forma basis immediately after giving effect thereto:
--- -----
(A) no Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof;
(B) the aggregate amount expended for all Restricted Payments and
Investments subsequent to June 30, 1997 would not exceed the sum of:
(1) 50% of the aggregate Consolidated Net Income of the
Company (or if such Consolidated Net Income is a loss, minus 100%
of such loss) earned on a cumulative basis during the period
beginning on June 30, 1997 and ending on the last date of the
Company's fiscal quarter immediately preceding such proposed
Restricted Payment or Investment; plus
(2) 100% of the aggregate Net Equity Proceeds received by
the Company from any Person (other than a Subsidiary) from the
issuance and sale subsequent to June 30, 1997 of Qualified
Capital Stock (excluding (x) any Qualified Capital Stock paid as
a dividend on any Capital Stock of the Company or of any
Subsidiary or as interest on any Indebtedness of the Company or
of any Subsidiary, (y) the issuance of Qualified Capital Stock
upon the conversion of, or in exchange for, any Capital Stock of
the Company or of any Subsidiary and (z) any Qualified Capital
Stock of the Company with respect to which the purchase price
thereof has been financed directly or
-5-
<PAGE>
indirectly using funds (i) borrowed from the Company or any
Subsidiary, unless and until and to the extent such borrowing is
repaid, or (ii) contributed, extended, guaranteed or advanced by
the Company or any Subsidiary (including, without limitation, in
respect of any employee stock ownership or benefit plan)); plus
(3) $5.0 million; and
(C) the Company shall be able to incur (assuming a market rate of
interest with respect thereto) at least $1.00 of additional
Indebtedness under Section 4.12(a).
---------------
(b) Section 4.05(a) shall not prevent (a) the payment of any
---------------
dividend within 60 days after the date of its declaration if at such date
of declaration the payment of such dividend would comply with the
provisions set forth above, provided that such dividend will be deemed to
--------
have been paid as of its date of declaration for the purposes of this
Section 4.05, (b) if no Default or Event of Default shall have occurred and
------------
be continuing or would occur as a consequence thereof, the purchase,
redemption, retirement or acquisition of any shares of Capital Stock of the
Company or of any Subsidiary or any Indebtedness of the Company that is
pari passu with or subordinated to the Notes solely with or out of the net
---- -----
cash proceeds of the substantially concurrent sale (other than to a
Subsidiary or by a Subsidiary to one of its subsidiaries) of shares of
Qualified Capital Stock of the Company or of a Subsidiary and neither such
purchase, redemption, retirement or acquisition nor the proceeds of any
such sale will be included in any computation made under clause (B)(2)
above, (c) payments pursuant to usual and customary indemnification
arrangements for directors and officers of the Company, any Subsidiary,
Santee LLC or Santee, (d) payment to Craig of up to $69,365,000 plus
accrued and unpaid dividends from the proceeds of the sale of the New Notes
to repurchase the outstanding Series B Preferred Stock, (e) the making of
Permitted Investments, (f) the making of Investments in any Subsidiary
(other than any Unrestricted Subsidiary)(including any Person who becomes a
Subsidiary as a result of any Investment, other than any Unrestricted
Subsidiary) by the Company or any other Subsidiary, provided that any
--------
Indebtedness evidencing such Investment is not subordinated to any
Indebtedness or other obligation of such Subsidiary, (g) the making of
Investments in the Company by any Subsidiary provided that any Indebtedness
--------
evidencing such Investment is subordinated and junior to the Notes), (h)
the making of Investments of the type described in Section 4.20(b)(i), (ii)
and (iii), (i) the making of Investments in any Person, provided that the
--------
consideration paid by the Company or a Subsidiary for such Investment
consists solely of Qualified Capital Stock, (j) payment to Texas Eastern of
dividends on the Markets Preferred Stock as in effect on the Issue Date,
(k) the making of Investments in Santee, LLC of up to $25.0 million; (l)
the making of Investments in Santee, LLC for the purpose of purchasing
additional limited liability company interests in Santee LLC with the
proceeds of a Qualified La Cadena Investment, and (m) the payment to La
Cadena of an amount equal to the lesser of the amount of (i) the sum of (X)
any Qualified La Cadena Investment, plus (Y) an amount equal to a
commercially reasonable rate of interest on such Qualified La Cadena
Investment to the extent that the net proceeds received by Stater Bros.
Markets from the sale or disposition of that portion of Stater Bros.
Markets' interest in Santee LLC which was acquired with the proceeds from
such Qualified La Cadena Investment exceeds the original amount of the
Qualified La Cadena Investment; and (ii) net proceeds received by Stater
Bros. Markets from the sale or disposition of that portion of Stater Bros.
Markets' interest in Santee LLC which was acquired with the proceeds from
such Qualified La Cadena Investment and (n) the payment of a financial
advisory fee of up to $2.0 million to La Cadena substantially
contemporaneously with the effective date of the First Supplemental
Indenture to this Indenture; provided that in each such
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<PAGE>
case of clauses (f) through (j) above, no Default or Event of Default has
occurred and is continuing or would result therefrom. The amounts expended
or received, as applicable, pursuant to clause (a) will be included, and
clauses (b) through (n) will be excluded, in computing the amounts
available for Restricted Payments and Investments for purposes of the
immediately preceding paragraph.
(c) For purposes of this Section 4.05, a distribution to holders
------------
of the Company's Capital Stock of (i) shares of Capital Stock of any
Subsidiary or (ii) other assets of the Company, without, in either case,
the receipt of equivalent consideration therefor shall be deemed to be the
equivalent of a cash dividend equal to the excess of the Fair Market Value
of the shares or other assets being so distributed at the time of such
distribution over the consideration, if any, received therefor.
SECTION 108. Section 4.12 of the Indenture is amended by deleting the such
-------------------------------------------------------------
Section therefrom in its entirety and replacing such Section with the following:
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Section 4.12 Limitation on Indebtedness.
--------------------------
(a) The Company will not, and will not permit any of its Subsidiaries
(other than any Unrestricted Subsidiaries), directly or indirectly, to
incur any Indebtedness, provided that if no Default or Event of Default
--------
shall have occurred and be continuing at the time or as a consequence of
the incurrence of such Indebtedness, the Company may incur Indebtedness if,
on the date of the incurrence of such Indebtedness after giving pro forma
--- -----
effect to the incurrence of such Indebtedness, the Consolidated Fixed
Charge Coverage Ratio of the Company is at least 2.0 to 1.
(b) The limitations set forth in Section 4.12(a) shall not apply to:
---------------
(i) Indebtedness under a revolving credit facility or any replacement
facility thereof, provided that Indebtedness under such credit facility or
--------
any replacement facility, including unused commitments, shall not at any
time exceed the greater of (a) $15.0 million or (b) 15% of the Company's
Consolidated Inventory, in aggregate outstanding principal amount; (ii)
Indebtedness of the Company and its Subsidiaries existing on the Issue
Date; (iii) Indebtedness of the Company represented by the Notes and the
New Notes; (iv) Indebtedness of the Company and its Subsidiaries incurred
in exchange for or the net proceeds of which are used to extend, refinance,
renew, replace, substitute or refund ("Refinance") Indebtedness referred to
---------
in clauses (i), (ii) and (iii) above and (ix) below (the "Refinancing
-----------
Indebtedness") plus any penalties, fees or premiums incurred in connection
------------
therewith; provided that (A) the principal amount of such Refinancing
--------
Indebtedness shall not exceed the principal amount of the Indebtedness
(including unused commitments) so Refinanced (the "Existing Debt") as of
-------------
the date of the proposed incurrence of the Refinancing Indebtedness, (B)
such Refinancing Indebtedness shall have an Average Life equal to or
greater than the Average Life of the Existing Debt, (C) if the Existing
Debt (including the Notes) being Refinanced is pari passu with or
---- -----
subordinated to the Notes then such Refinancing Indebtedness shall be pari
----
passu with or at least as subordinated to, as the case may be, the Notes,
-----
(D) the Refinancing Indebtedness has a stated maturity date no earlier than
the Existing Debt as of the date of such proposed Refinancing and (E) if
the Existing Debt is Indebtedness solely of the Company, such Refinancing
Indebtedness will only be permitted if it is Indebtedness solely of the
Company; (v) Permitted Construction Indebtedness incurred after March 8,
1994 not to exceed $10.0 million in the aggregate at any time outstanding
and designated as Permitted Construction Indebtedness subject to this
clause (v) in an Officer's Certificate delivered to the Trustee; (vi)
Indebtedness of the Company to a Wholly Owned Subsidiary of the Company or
by a Wholly Owned Subsidiary of the
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<PAGE>
Company to the Company or between Wholly Owned Subsidiaries of the Company;
(vii) Indebtedness under Interest Rate Protection Agreements entered into
in the ordinary course of business; (viii) Indebtedness arising from
agreements providing for indemnification, adjustment of purchase price or
similar obligations, or from guarantees of letters of credit, surety bonds
or performance bonds securing any obligations of the Company pursuant to
such agreements, incurred or assumed in connection with the disposition of
any business, assets or Subsidiary of the Company, other than guarantees or
similar credit support by the Company of Indebtedness incurred by any
Person acquiring all or any portion of such business, assets or Subsidiary
for the purpose of financing such acquisition; provided that the maximum
--------
aggregate liability in respect of all such Indebtedness described in this
clause shall not exceed the net proceeds actually received in connection
with any such disposition; (ix) Indebtedness to secure workers'
compensation and other insurance coverages, not to exceed the minimum
amount required by the Company's insurance carriers or other applicable
regulatory agencies; and (x) Indebtedness to La Cadena incurred by the
Company in connection with a Qualified La Cadena Investment; provided,
---------
however, that the repayment of principal with respect to, and the payment
-------
of interest with respect to, any such Qualified La Cadena Investment
constituting Indebtedness shall be subject to Section 4.05.
SECTION 109. Section 4.13 of the Indenture is amended by deleting such
---------------------------------------------------------
Section therefrom in its entirety and replacing such Section with the following:
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[Intentionally Omitted]
SECTION 110. Section 4.14 of the Indenture is amended by deleting such
---------------------------------------------------------
Section therefrom in its entirety and replacing such Section with the following:
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Section 4.14 Limitations on Liens.
--------------------
The Company will not, and will not permit any of its Subsidiaries
(other than any Unrestricted Subsidiary) to, create, incur, assume or
suffer to exist any Liens securing Indebtedness, except for (a) any Liens
which may be granted to secure the Notes; (b) Liens securing Indebtedness
that is incurred pursuant to clause (i) of Section 4.12(b); (c) Liens
---------------
securing Indebtedness that is incurred in accordance with this Indenture
and that is pari passu with the Notes; provided that the Notes are secured
---- ----- --------
on an equal and ratable basis to such Liens; (d) Liens securing
Indebtedness incurred in accordance with this Indenture and that is
subordinated to the Notes; provided that the Notes are secured by Liens
--------
ranking prior to such Liens; (e) Liens in respect of Refinancing
Indebtedness; provided that the terms of such Liens in respect of such
--------
Refinancing Indebtedness are not less favorable to the Holders than terms
of the Liens securing the Existing Debt being Refinanced and do not extend
to or cover any property or assets of the Company or of any of the
Subsidiaries not securing such Existing Debt; (f) Liens in respect of
Acquired Indebtedness permitted to be incurred in accordance with this
Indenture; provided that such Liens in respect of such Acquired
--------
Indebtedness do not extend to or cover any property or assets of the
Company or any Subsidiary other than the property or assets that secured
the Acquired Indebtedness prior to the time such Indebtedness became
Acquired Indebtedness of the Company or such Subsidiary; (g) Liens securing
Indebtedness of the Company or a Subsidiary, which Indebtedness shall not
exceed $15.0 million; and (h) Permitted Liens.
SECTION 111. Section 4.15 of the Indenture is amended by deleting such
---------------------------------------------------------
Section therefrom in its entirety and replacing such Section with the following:
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<PAGE>
Section 4.15 Limitation on Payment Restrictions Affecting Subsidiaries.
---------------------------------------------------------
The Company will not, and will not permit any of its Subsidiaries
(other than any Unrestricted Subsidiary), directly or indirectly, to create
or suffer to exist or allow to become effective any encumbrance or
restriction of any kind (i) on the ability of any Subsidiary (other than
any Unrestricted Subsidiary) to (a) pay dividends, in cash or otherwise, or
make other payments or distributions on its Capital Stock or any other
equity interest or participation in, or measured by, its profits, owned by
the Company or any Subsidiary or any of their respective subsidiaries, or
make payments on any Indebtedness owed to the Company or any Subsidiary or
any of their respective subsidiaries, (b) make loans or advances to the
Company or any of its Subsidiaries, (c) transfer any of their respective
property to the Company or any of its Subsidiaries or (ii) on the ability
of the Company or any of its Subsidiaries (other than an Unrestricted
Subsidiary) to receive or retain any such (x) dividends, payments or
distributions, (y) loans or advances or (z) transfer of property (any such
restriction being referred to herein as a "Payment Restriction"), except
-------------------
for such encumbrances or restrictions existing under or by reason of (A)
agreements in effect as of the Issue Date, (B) applicable laws, (C) this
Indenture or the Indenture governing the New Notes, (D) customary
provisions restricting subletting or assignment of any lease governing a
leasehold interest of the Company or any of the Subsidiaries, (E) Acquired
Indebtedness incurred in accordance with this Indenture; provided that such
--------
encumbrance or restriction in respect of such Acquired Indebtedness is not
applicable to any Person, or the property of any Person, other than the
Person, or the property of the Person, so acquired whether or not such
Acquired Indebtedness was incurred in connection with or anticipation of
such acquisition, (F) the Revolving Credit Facility or (G) any agreement
effecting a renewal, refunding, refinancing or extension of Indebtedness
referred to in clause (A), (E) or (F) above; provided that the provisions
--------
contained in such renewal, refunding, refinancing or extension relating to
such encumbrance or restriction are no more restrictive in any material
respect than the provisions contained in the agreement that is the subject
thereof.
SECTION 112. Section 4.16 of the Indenture is amended by deleting such
---------------------------------------------------------
Section therefrom in its entirety and replacing such Section with the following:
- -------------------------------------------------------------------------------
Section 4.16 Limitation on Issuance and Sale of Capital Stock of
---------------------------------------------------
Subsidiaries.
------------
The Company will not permit any Subsidiary (other than any
Unrestricted Subsidiary) to issue any shares of its Capital Stock to any
Person other than the Company or one or more of its Wholly Owned
Subsidiaries (other than any Unrestricted Subsidiary) nor will the Company
permit any Person (other than the Company or one or more of its Wholly
Owned Subsidiaries (other than any Unrestricted Subsidiary) to own or hold
any such Capital Stock, other than the Markets Preferred Stock held by
Texas Eastern Corporation as of the Issue Date. The Company will not and
will not permit any Subsidiary (other than any Unrestricted Subsidiary) to
transfer, sell or otherwise dispose of any Capital Stock of any Subsidiary
to any Person (other than to the Company or a Wholly Owned Subsidiary that
is not an Unrestricted Subsidiary) unless (i) such transfer, sale or other
disposition is of all the Capital Stock of such Subsidiary owned by the
Company or any Subsidiary and (ii) the Net Cash Proceeds from such
transfer, sale or other disposition are applied in accordance with Section
-------
4.20.
----
SECTION 113. Section 4.17 of the Indenture is amended by deleting such
---------------------------------------------------------
Section therefrom in its entirety and replacing such Section with the following:
- -------------------------------------------------------------------------------
Section 4.17 Limitations on Transactions with Related Persons.
------------------------------------------------
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<PAGE>
The Company will not, nor will it permit any of its Subsidiaries (other
than an Unrestricted Subsidiary) to (a) sell, lease, transfer or otherwise
dispose of any of its property to, (b) purchase any property from, (c) make
any Investment in or (d) enter into or amend any contract, agreement or
understanding with or for the benefit of, a Related Person of the Company
or any Subsidiary (other than the Company or any such Subsidiary (other
than any Unrestricted Subsidiary) in which no Related Person (other than
the Company or a Wholly Owned Subsidiary (other than any Unrestricted
Subsidiary) of the Company) owns, directly or indirectly, an equity
interest) (each a "Related Person Transaction"), other than (i) Related
--------------------------
Person Transactions that are on terms (which terms are in writing) that are
fair and reasonable to the Company or the Subsidiary and that are no less
favorable to the Company or such Subsidiary than those that could be
obtained in a comparable arm's length transaction by the Company or such
Subsidiary from an unrelated party as determined reasonably and in good
faith by the Board of Directors of the Company; provided that if the
--------
Company or any Subsidiary enters into a Related Person Transaction or
series of Related Person Transactions involving or having an aggregate
value of more than $1.0 million such Related Person Transaction shall,
prior to the consummation thereof, have been approved by a majority of the
independent directors of the Company. The restrictions of this Section
-------
4.17 shall not apply to (a) any transactions between Wholly Owned
----
Subsidiaries (other than any Unrestricted Subsidiary) of the Company, or
between the Company and any Wholly Owned Subsidiary (other than any
Unrestricted Subsidiary) of the Company, if such transaction is not
otherwise prohibited by this Indenture, (b) any payments or purchases
permitted by Section 4.05, (c) any reasonable and customary regular fees to
------------
directors of the Company, (d) any transactions contemplated by the Santee
Documents; provided that such transactions are not otherwise prohibited by
--------
this Indenture and (e) payment of a financial advisory fee of up to $2.0
million to La Cadena substantially contemporaneously with the execution of
the First Supplemental Indenture to this Indenture.
ARTICLE TWO
SECTION 201. Effective Date of This Supplement.
---------------------------------
This Supplement shall be effective as of the date first written above, at
and after such time as the Company has delivered to the Trustee evidence of
consent from the Holders of at least a majority in principal amount of the
Securities under the Indenture then outstanding; provided that the consent
--------
payment (as provided for in the consent solicitation statement with respect to
this Supplement) has been made to each consenting Holder by the date that is 90
days after the execution of this Supplement.
SECTION 202. Indenture Ratified.
------------------
Except as hereby otherwise expressly provided, the Indenture is in all
respects ratified and confirmed, and all the terms, provisions and conditions
thereof shall be and remain in full force and effect.
SECTION 203. Counterparts.
------------
This Supplement may be executed in any number of counterparts, each of
which shall be an original, but such counterparts shall together constitute but
one and the same instrument.
SECTION 204. Trustee Not Responsible.
-----------------------
-10-
<PAGE>
The recitals contained herein shall be taken as the statements of the
Company and the Trustee assumes no responsibility for their correctness.
SECTION 205. Definitions and Terms.
---------------------
Unless otherwise defined herein, all initially capitalized terms used
herein shall have the meanings assigned to such terms in the Indenture.
SECTION 206. Supplemental Indenture is an Indenture.
--------------------------------------
This Supplement is an amendment to and implementation of the Indenture, and
the Indenture and this Supplement shall be read together from and after the
effectiveness of this Supplement.
SECTION 207. Governing Law.
-------------
This Supplement shall be governed by and construed in accordance with the
internal laws of the State of New York.
[Remainder of Page Intentionally Left Blank]
-11-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplement to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
STATER BROS. HOLDING INC.
BY: /s/ Jack H. Brown
-------------------------------
Name: Jack H. Brown
Title: Chairman, President & CEO
Attest: /s/ Bruce D. Varner
-------------------------
Name: Bruce D. Varner
Title: Secretary
IBJ SCHRODER BANK & TRUST COMPANY, AS TRUSTEE
By: /s/ Luis Perez
---------------------------------
Name: Luis Perez
Title: ASST. VICE PRESIDENT
Attest: /s/ Barbara McCluskey
-------------------------
Name: Barbara McCluskey
Title: Assistant Secretary
S-1
<PAGE>
EXHIBIT 4.3
REGISTERED [STATER BROTHERS LOGO] REGISTERED
---------- ----------
R- $
---------- ----------
SEE REVERSE FOR TRANSFER RESTRICTIONS
STATER BROS. HOLDINGS INC.
9% SENIOR SUBORDINATED NOTE DUE JULY 1, 2004
CUSIP
-----------
FOR VALUE RECEIVED, the undersigned, Stater Bros. Holdings Inc., a
Delaware corporation (the "Company") hereby promises to pay to
- --------------------------------------------------------------------------------
(or so much thereof as
or its registered assigns, shall not have been prepaid)
the principal sum of on JULY 1, 2004.
- --------------------------------------------------------------------------------
REGISTERED
Interest Payment Dates: July 1 and January 1
Record Dates: June 15 and December 15
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes mentioned in the within-mentioned Indenture.
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION
as Trustee
By:
---------------------------------------------
Authorized Signatory
Dated:
------------------------------------------
STATER BROS. HOLDINGS INC.
By: /s/ Jack H. Brown
-----------------
President
Attest: /s/ Bruce D. Varner
-------------------
Secretary
[SEAL OF STATER BROTHERS]
<PAGE>
STATER BROS. HOLDINGS INC.
9% SENIOR SUBORDINATED NOTE DUE JULY 1, 2004
1. Interest.
Stater Bros. Holdings Inc., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Note at the rate per
annum shown above. The Company shall pay interest semiannually on July 1 and
January 1 of each year. 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
first date on which any Notes are issued. Interest will be computed on the basis
of a 360-day year of twelve 30-day months.
Notwithstanding the foregoing, at no time shall the maximum aggregate
interest rate borne by the Notes exceed the lesser of (a) the initial interest
rate payable on the Notes plus 2.50% per annum and (b) the maximum amount
permitted under applicable usury laws.
To the extent lawful, the Company shall pay interest on overdue
installments of interest at the Default Rate, as defined in Section 6.02(c) of
the Indenture.
2. Method of Payment.
The Company shall pay interest on the Notes (except defaulted interest) to
the persons who are registered holders of Notes at the close of business on the
record date for the next interest payment date even though Notes are canceled
after the record date and on or before the interest payment date. Holders must
surrender Notes to a Paying Agent to collect principal payments and premium
payments, if any. The Company shall pay principal, premium, if any, and interest
in money of the United States that at the time of payment is legal tender for
payment of public and private debts. However, the Company may pay principal,
premium, if any, and interest by check payable in such money. It may mail an
interest payment check to a Holder's registered address.
3. Paying Agent and Registrar.
First Trust of New York, National Association, 180 East Fifth Street, St.
Paul, MN 55101 (the "Trustee") will act as the initial Paying Agent and
Registrar. The Company may change the Paying Agent, Registrar or Co-Registrar
without prior notice to the Holders. The Company or any of its subsidiaries may
act in any such capacity.
4. Indenture.
The Company issued the Notes under an Indenture dated as of July 24, 1997
(the "Indenture") between the Company and the Trustee. The terms of the Notes
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (15 U.S. Code
(S)(S)77aaa-77bbbb) as in effect on the date of the Indenture. The Notes are
subject to, and qualified by, all such terms, certain of which are summarized
hereon, and Noteholders are referred to the Indenture and such Act for a
statement of such terms. The Notes are obligations of the Company limited to
$100.0 million in aggregate principal amount. Capitalized terms not defined
below have the meaning given to them in the Indenture.
5. Optional Redemption.
The Notes will not be redeemable prior to July 1, 2000. Thereafter, the
Notes will be redeemable, at the option of the Company, in whole or in part, at
the following redemption prices (expressed as percentages of the principal
amount), if redeemed during the 12-month period beginning July 1 of the years
indicated below:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<S> <C>
2000...................... 104.50%
2001...................... 103.00%
2002...................... 101.50%
2003...................... 100.00%
</TABLE>
In addition, up to $35.0 million aggregate principal amount of the Notes
will be redeemable at any time on or prior to July 1, 2000 at the option of the
Company from the net proceeds to the Company of one or more Equity Offerings at
a redemption price equal to 109% of the principal amount thereof, together with
accrued and unpaid interest, if any, to the redemption date, provided that not
less than $65.0 million in aggregate principal amount of the Notes remains
outstanding immediately after the occurrence of such redemption.
If less than all of the Notes are to be redeemed, the Trustee shall select
the Notes or portions thereof to be redeemed pro rata, by lot or by any other
method the Trustee shall deem fair and reasonable; provided, however, that the
Notes will not be redeemed in amounts less than the minimum
<PAGE>
authorized denomination of $1,000. Notice of redemption will be mailed by first
class mail not less than 30 days nor more than 60 days prior to the scheduled
redemption date to each holder of a Note to be redeemed at its registered
address. On and after the registration date, interest will cease to accrue on
the Notes or portions thereof called for redemption.
6. Change of Control.
Upon a Change of Control, the Company shall make a Purchase Offer to
purchase all outstanding Notes at a price equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest thereon, if any, to
the date of purchase. To accept the Purchase Offer, the Holder hereof must
comply with the terms thereof, including surrendering this Note, with the
"Option of Holder to Elect Purchase" portion hereof completed, to the Company, a
depositary, if appointed by the Company, or a Paying Agent, at the address
specified in the notice of the Purchase Offer mailed to holders as provided in
the Indenture, prior to termination of the Purchase Offer.
7. Repurchase Upon Sales of Assets.
Upon the date of consummation of any Asset Sale which, taken individually
or together with all Asset Sales since the Issue Date, results in the receipt of
Net Cash Proceeds in excess of $5.0 million, such Net Cash Proceeds and all Net
Cash Proceeds from all Asset Sales consummated concurrently therewith or
consummated thereafter (such first consummation date and each such date
thereafter a "Consummation Date") shall be applied by the Company within 18
months of the relevant Consummation Date (or, in the event of a Qualified Santee
LLC Interest Sale, within 24 months of the relevant Consummation Date) at its
election to either: (i) investments in assets or business in the same line of
business as the Company or such Subsidiary; (ii) the repayment of any
Indebtedness which is secured by or incurred to construct such assets; (iii) the
repayment of Senior Indebtedness; or (iv) a combination of payment and
investment permitted by the foregoing clauses (i), (ii) and (iii). On the
earlier of the day after the 18 month period following a Consummation Date (or,
in the event of a Qualified Santee LLC Interest Sale, the day after the 24 month
period following a relevant Consummation Date) or such date as the Board of
Directors of the Company or of such Subsidiary determines (as evidenced by a
resolution approved by the Board of Directors) not to apply the Net Cash
Proceeds relating to such Consummation Date as set forth in clauses (i), (ii)
and (iii) of the preceding sentence (each, an "Asset Sale Offer Trigger Date"),
such aggregate amount of Net Cash Proceeds which has not be applied on or before
such Asset Sale Offer Trigger Date as permitted in clauses (i), (ii) and (iii)
of the preceding sentence (each an "Asset Sale Offer Amount") shall be applied
by the Company or such Subsidiary to make an offer to purchase (the "Asset Sale
Offer") on a date (the "Asset Sale Offer Payment Date") not less than 30 nor
more than 60 days following the applicable Asset Sale Offer Trigger Date, from
all Holders on a pro rata basis, that amount of Notes equal to the Asset Sale
Offer Amount at a price equal to 100% of the aggregate principal amount of the
Notes to be repurchased, plus accrued and unpaid interest thereon, if any, to
the date of repurchase. Notwithstanding the foregoing, if an Asset Sale Offer
Amount is less than $5.0 million the application of the Net Cash Proceeds
constituting such Asset Sale Offer Amount to an Asset Sale Offer may be deferred
until such time as such Asset Sale Offer Amount plus the aggregate amount of all
Asset Sale Offer Amounts arising subsequent to the Asset Sale Offer Trigger Date
relating to such initial Asset Sale Offer Amount from all Asset Sales by the
Company and its Subsidiaries aggregate at least $5.0 million at which time the
Company or said Subsidiary shall apply all Net Cash Proceeds constituting all
Asset Sale Offer Amounts that have been so deferred to make an Asset Sale Offer
(the first date the aggregate of all such deferred Asset Sale Offer Amounts is
equal to $5.0 million or more shall be deemed to be an Asset Sale Offer Trigger
Date). Pending application pursuant to an Asset Sale Offer the Company shall
invest such Asset Sale Offer Amounts in Permitted Investments.
8. Subordination.
The Notes are subordinated to Senior Indebtedness, as defined in the
Indenture. To the extent provided in the Indenture, Senior Indebtedness must be
paid before payments in respect of the Notes may be made under the Notes and the
Indenture. The Company agrees, and each Securityholder by accepting a Note
agrees, to the subordination provisions contained in the Indenture and
authorizes the Trustee to give them effect and appoints the Trustee as attorney-
in-fact for such purpose.
9. Denominations, Transfer, Exchange.
The Notes sold to Qualified Institutional Buyers are initially issued in
global form. The Global Note represents such of the outstanding Notes as shall
be specified therein or endorsed thereon in accordance with the Indenture. The
Notes that are not sold to qualified Institutional Buyers are initially issued
in the form of Certificated Notes. The Certificated Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,0000.
The transfer of Notes may be registered and Notes may be exchanged as provided
in the Indenture. As a condition of transfer, the Registrar may require a
Holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture.
10. Persons Deemed Owners.
The registered Holder of a Note may be treated as its owner for all
purposes.
11. Amendments and Waivers.
Subject to certain exceptions, the Indenture or the Notes may be amended
with the consent of the Holders of at least a majority in aggregate principal
amount of the then outstanding Notes, and any existing default may be waived
with the consent of the Holders of a majority in aggregate principal amount of
the then outstanding Notes. Without the consent of any Noteholder, the Indenture
or the Notes may be amended (i) to cure any ambiguity, defect or inconsistency;
(ii) to comply with restrictions on mergers, consolidations and certain asset
dispositions; (iii) to provide for uncertificated Notes in additional to
certificated Notes; (iv) to make any change that does not adversely affect the
legal rights hereunder of any Noteholder; (v) to add to the covenants,
conditions and restrictions of the Company, for the benefit of the Noteholders,
or to surrender any right or power herein conferred upon the Company, or (vi) to
modify, eliminate or add to the provisions of this Indenture to such extent as
shall be necessary to effect the qualification of this Indenture under the TIA,
or under any similar federal statute hereafter enacted.
12. Defaults and Remedies.
An Event of Default includes, in summary form: default for 30 days in
payment of interest on the Notes; default in payment of principal of and
premium, if any, on the Notes; failure by the Company for 60 days after notice
to it to comply with any of its other agreements in the Indenture or the Notes;
certain events of bankruptcy or insolvency; certain final judgments which remain
undischarged; certain events of default under other Indebtedness of the Company
or any of its Subsidiaries; failure to commence any of the Purchase Offers
described in paragraphs 6 or 7 of this Note by the time specified in the
Indenture or to pay for Notes tendered pursuant thereto; and failure by the
Company to maintain its corporate existence or to comply with the restrictions
on changes of control, mergers, consolidations and certain asset dispositions.
If an Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in aggregate principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately, except that in the case
of an Event of Default arising from certain events of bankruptcy or insolvency,
all outstanding Notes become due and payable without further action or notice.
Noteholders may not enforce the Indenture or the Notes except as provided in the
Indenture. The Trustee may require indemnity satisfactory to it before it
enforces the Indenture or the Notes. Subject to certain limitations, Holders of
a majority in aggregate principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Noteholders notice of any continuing default (except a default in
payment of principal or interest) if it determines that withholding notice is in
their interests. The Company must furnish an annual compliance certificate to
the Trustee.
13. Trustee Dealings with the Company.
The Trustee under the Indenture, or any of its Affiliates, in their
individual or any other capacities, may make or continue loans to or guaranteed
by, accept deposits from, and perform services for the Company or its
Affiliates, and may otherwise deal with the Company or its Affiliates, as if the
Trustee were not Trustee.
14. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the Company shall
not have any liability for any obligations of the Company under the Notes or the
Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Noteholder by accepting a Note waives and
releases all such liability. The waiver and release are part of the
consideration for the Notes.
15. Authentication.
This Note shall not be valid until authenticated by the manual signature of
the Trustee or an authenticating agent.
16. Abbreviations.
Customary abbreviations may be used in the name of a Noteholder or an
assignee, such as: TEN CO (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
The Company shall furnish to any Noteholder upon written request and
without charge a copy of the Indenture. Requests may be made to : CHIEF
FINANCIAL OFFICER, STATER BROS. HOLDINGS INC., 21700 Barton Road, Colton,
California 92324.
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below:
I or we assign and transfer this Note to:
- --------------------------------------------------------------------------------
(Assignee)
- --------------------------------------------------------------------------------
(Assignee's soc. sec. or tax I.D. no.)
- --------------------------------------------------------------------------------
(Assignee's name, address and zip code)
and irrevocably appoint as agent to transfer this Note on the books of the
Company. The agent may substitute another to act for him or her.
Dated: Signed:
------------------------------- ----------------------------------
(name as appears on the face of the Note)
By:
-----------------------------------------------------------------------------
Signature guaranteed by:
--------------------------------------------------------
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Note purchased by the Company pursuant to
Section 3.01, 4.11 or 4.19 of the Indenture and paragraph 5 or 6 of this Note,
check the box: [ ]
If you want to elect to have only part of this Note purchased by the Company
pursuant to Section 3.01, 4.11 or 4.19 of the Indenture and paragraph 5 or 6 of
this Note, state the amount:
$
----------------------------------------
(in an integral multiple of $1,000)
Dated: Your Signature:
----------------------------- ---------------------------
(Sign exactly as your name appears on the other side of this Note)
Signature Guaranteed by:
-------------------------------------------------------
SCHEDULE OF EXCHANGES OF CERTIFICATED SECURITIES/2/
The following exchanges of a part of this Global Note for Certificated
Notes have been made:
<TABLE>
<CAPTION>
Principal Amount Signature of
Amount of Amount of Increase in of this Global Note authorized officer of
Decrease in Principal Principal following Trustee
Amount of this Global Amount of this Global such decreases (or or Global Note
Date of Exchange Note Note increases) Custodian
---------------- ---------------------- --------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
---------------- ---------------------- --------------------- ------------------- --------------------
---------------- ---------------------- --------------------- ------------------- --------------------
---------------- ---------------------- --------------------- ------------------- --------------------
</TABLE>
/2/ This is to be included only if the Note is in global form.
<PAGE>
EXHIBIT 4.4
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "AGREEMENT") is dated as of July
24, 1997, by and between Stater Bros. Holdings Inc., a Delaware corporation (the
"COMPANY" ), and BancAmerica Securities, Inc. (the "INITIAL PURCHASER").
This Agreement is entered into in connection with the Purchase Agreement,
dated as of July 21, 1997, between the Company and the Initial Purchaser (the
"PURCHASE AGREEMENT") relating to the sale by the Company to the Initial
Purchaser of $100,000,000 aggregate principal amount of the Company's 9% Senior
Subordinated Notes due 2004 (the "NOTES"). In order to induce the Initial
Purchaser to enter into the Purchase Agreement, the Company has agreed to
provide the registration rights set forth in this Agreement for the equal
benefit of the Initial Purchaser and its respective direct and indirect
transferees. The execution and delivery of this Agreement is a condition to the
Initial Purchaser's obligation to purchase the Notes under the Purchase
Agreement.
The parties hereby agree as follows:
1. Definitions
-----------
As used in this Agreement, the following terms shall have the
following meanings:
Additional Interest: See Section 4.
-------------------
Advice: See Section 5.
------
Applicable Period: See Section 2.
-----------------
Closing Date: The Closing Date as defined in the
------------
Purchase Agreement.
Company: See the introductory paragraph to this Agreement.
-------
Effectiveness Date: The 120th day after the Filing Date.
------------------
Effectiveness Period: See Section 3.
--------------------
Event Date: See Section 4.
----------
Exchange Act: The Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations of the SEC promulgated thereunder.
Exchange Notes: See Section 2.
--------------
Exchange Offer: See Section 2.
--------------
-1-
<PAGE>
Exchange Registration Statement: See Section 2.
-------------------------------
Filing Date: The 30th day after the Closing Date.
-----------
Holder: Any holder of Registrable Notes.
------
Indenture: The Indenture, dated as of July 24, 1997, between the
---------
Company and First Trust of New York, National Association, as trustee, pursuant
to which the Notes are being issued, as amended or supplemented from time to
time in accordance with the terms thereof.
Initial Purchaser: See the introductory paragraph to this Agreement.
-----------------
Initial Shelf Registration: See Section 3.
--------------------------
NASD: See Section 5.
----
Notes: See the introductory paragraphs to this Agreement.
-----
Participating Broker-Dealer: See Section 2.
---------------------------
Person: An individual, trustee, corporation, partnership, joint stock
------
company, limited liability company, trust, unincorporated association, union,
business association, firm or other legal entity.
Private Exchange: See Section 2.
----------------
Private Exchange Notes: See Section 2.
----------------------
Prospectus: The prospectus included in any Registration Statement
----------
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, with respect to the terms of the offering of any portion
of the Registrable Notes covered by such Registration Statement, and all other
amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
Registrable Notes: The Notes upon original issuance of the Notes and
-----------------
at all times subsequent thereto and, if issued, the Private Exchange Notes,
until in the case of any such Notes or any such Private Exchange Notes, as the
case may be, (i) a Registration Statement covering such Notes or such Private
Exchange Notes has been declared effective by the SEC and such Notes or such
Private Exchange Notes, as the case may be, have been disposed of in accordance
with such effective Registration Statement, (ii) such Notes or such Private
Exchange Notes, as the case may be, are sold in compliance with Rule 144, or
(iii) such Notes or such Private Exchange Notes, as the case may be, cease to be
outstanding.
-2-
<PAGE>
Registration Statement: Any registration statement of the Company,
----------------------
including, but not limited to, the Exchange Registration Statement, that covers
any of the Registrable Notes pursuant to the provisions of this Agreement,
including the Prospectus, amendments and supplements to such registration
statement, including post-effective amendments, all exhibits, and all material
incorporated by reference or deemed to be incorporated by reference in such
registration statement.
Rule 144: Rule 144 under the Securities Act, as such Rule may be
--------
amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
Rule 144A: Rule 144A under the Securities Act, as such Rule may be
---------
amended from time to time, or any similar rule (other than Rule 144) or
regulation hereafter adopted by the SEC providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
Rule 415: Rule 415 under the Securities Act, as such Rule may be
--------
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.
SEC: The Securities and Exchange Commission.
---
Securities Act: The Securities Act of 1933, as amended, and the rules
--------------
and regulations of the SEC promulgated thereunder.
Shelf Notice: See Section 2.
------------
Shelf Registration: See Section 3.
------------------
Subsequent Shelf Registration: See Section 3.
-----------------------------
TIA: The Trust Indenture Act of 1939, as amended.
---
Trustee: The trustee under the Indenture and, if existent, the
-------
trustee under any indenture governing the Exchange Notes and Private Exchange
Notes (if any).
Underwritten registration or underwritten offering: A registration in
--------------------------------------------------
which securities of the Company are sold to an underwriter for reoffering to the
public.
2. Exchange Offer
--------------
(a) The Company agrees to use its best efforts, to file with the SEC
as soon as practicable after the Closing Date, but in no event later than the
Filing Date, an offer to exchange (the "EXCHANGE OFFER") any and all of the
Registrable Notes for a like aggregate principal amount of debt securities of
the Company, which are substantially identical to the Notes
-3-
<PAGE>
(the "EXCHANGE NOTES") (and which are entitled to the benefits of the Indenture
or a trust indenture which is identical to the Indenture (other than such
changes to the Indenture or any such identical trust indenture as are necessary
to comply with any requirements of the SEC to effect or maintain the
qualification thereof under the TIA) and which, in either case, has been
qualified under the TIA), except that the Exchange Notes shall have been
registered pursuant to an effective Registration Statement under the Securities
Act. The Exchange Offer will be registered under the Securities Act on the
appropriate form (the "EXCHANGE REGISTRATION STATEMENT") and will comply with
all applicable tender offer rules and regulations under the Exchange Act. The
Company agrees to use its best efforts to (x) cause the Exchange Registration
Statement to become effective under the Securities Act on or before the
Effectiveness Date; (y) keep the Exchange Offer open for at least 30 days (or
longer if required by applicable law) after the date that notice of the Exchange
Offer is mailed to Holders; and (z) consummate the Exchange Offer on or prior to
the 30th day following the date on which the Exchange Registration Statement is
declared effective. Each Holder who participates in the Exchange Offer will be
required to represent that any Exchange Notes received by it will be acquired in
the ordinary course of its business, that at the time of the consummation of the
Exchange Offer such Holder will have no arrangement or understanding with any
person to participate in the distribution (within the meaning of the Securities
Act) of the Exchange Notes, and that such Holder is not an affiliate of the
Company within the meaning of the Securities Act. Upon consummation of the
Exchange Offer in accordance with this Section 2, the provisions of this
Agreement shall continue to apply, mutatis mutandis, solely with respect to
------- --------
Registrable Notes that are Private Exchange Notes and Exchange Notes held by
Participating Broker-Dealers, and the Company shall have no further obligation
to register Registrable Notes (other than Private Exchange Notes) pursuant to
Section 3 of this Agreement.
(b) The Company shall include within the Prospectus contained in the
Exchange Registration Statement a section entitled "Plan of Distribution,"
reasonably acceptable to the Initial Purchaser, which shall contain a summary
statement of the positions taken or policies made by the Staff of the SEC with
respect to the potential "underwriter" status of any broker-dealer that is the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange
Notes received by such broker-dealer in the Exchange Offer (a "PARTICIPATING
BROKER-DEALER"), whether such positions or policies have been publicly
disseminated by the Staff of the SEC or such positions or policies, in the
judgment of the Initial Purchaser, represent the prevailing views of the Staff
of the SEC. Such "Plan of Distribution" section shall also allow the use of the
prospectus by all persons subject to the prospectus delivery requirements of the
Securities Act, including all Participating Broker-Dealers, and include a
statement describing the means by which Participating Broker-Dealers may resell
the Exchange Notes.
The Company shall use its best efforts to keep the Exchange
Registration Statement effective and to amend and supplement the Prospectus
contained therein, in order to permit such Prospectus to be lawfully delivered
by all persons subject to the prospectus delivery requirements of the Securities
Act for such period of time as such persons must comply with such requirements
in order to resell the Exchange Notes, provided that such period shall not
--------
exceed 180 days (or such longer period if extended pursuant to the last
paragraph of Section 5) (the "APPLICABLE PERIOD").
-4-
<PAGE>
If, prior to the commencement or consummation of the Exchange Offer,
the Initial Purchaser holds any Notes acquired by it and having the status as an
unsold allotment in the initial distribution, the Company, upon the request of
the Initial Purchaser, shall issue and deliver to the Initial Purchaser, in
exchange (the "PRIVATE EXCHANGE") for such Notes held by the Initial Purchaser,
a like principal amount of debt securities of the Company that are identical to
the Exchange Notes (the "PRIVATE EXCHANGE NOTES") (and which are issued pursuant
to the same indenture as the Exchange Notes). The Private Exchange Notes shall
bear the same CUSIP number as the Exchange Notes. Interest on the Exchange
Notes and Private Exchange Notes will accrue from the last interest payment date
on which interest was paid to the Initial Purchaser on the Notes surrendered in
exchange therefor or, if no interest has been paid on the Notes, from the date
of original issue.
In connection with the Exchange Offer, the Company shall:
(1) mail to each Holder a copy of the prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(2) utilize the services of a Depositary for the Exchange Offer with
an address in the Borough of Manhattan, The City of New York; and
(3) permit Holders to withdraw tendered Notes at any time prior to the
close of business, New York time, on the last business day on which the
Exchange Offer shall remain open.
As soon as practicable after the close of the Exchange Offer or the
Private Exchange, as the case may be, the Company shall:
(i) accept for exchange all Notes tendered and not validly withdrawn
pursuant to the Exchange Offer or the Private Exchange;
(ii) deliver to the Trustee for cancellation all Notes so accepted
for exchange; and
(iii) cause the Trustee to authenticate and deliver promptly to each
Holder of Notes, Exchange Notes or Private Exchange Notes, as the case may
be, equal in principal amount to the Notes of such Holder so accepted for
exchange.
The Exchange Notes and the Private Exchange Notes may be issued under
(A) the Indenture or (B) an indenture substantially identical to the Indenture,
which in either event will provide that the Exchange Notes will not be subject
to the transfer restrictions set forth in the Indenture and that the Exchange
Notes, the Private Exchange Notes and the Notes will vote and consent together
on all matters as one class and that neither the Exchange Notes, the Private
Exchange Notes nor the Notes will have the right to vote or consent as a
separate class on any matter.
-5-
<PAGE>
(c) If (1) prior to the consummation of the Exchange Offer, the
Company or Holders of at least a majority in aggregate principal amount of the
Registrable Notes reasonably determine in good faith that (i) the Exchange Notes
would not, upon receipt, be tradeable by such Holders which are not affiliates
of the Company without restriction under the Securities Act and without
restrictions under applicable blue sky or state securities laws, (ii) the
interests of the Holders under this Agreement would be adversely affected by the
consummation of the Exchange Offer or (iii) after conferring with counsel, the
SEC is unlikely to permit the consummation of the Exchange Offer prior to the
Effectiveness Date, (2) subsequent to the consummation of the Private Exchange,
the Initial Purchaser so reasonably requests or (3) the Exchange Offer is
commenced and not consummated within 180 days after the Closing Date for any
reason, then the Company shall promptly deliver to the Holders and the Trustee
written notice thereof (the "SHELF NOTICE") and shall file an Initial Shelf
Registration pursuant to Section 3. Following the delivery of a Shelf Notice to
the Holders of Registrable Notes (in the circumstances contemplated by clauses
(1) and (3) of the preceding sentence), the Company shall not have any further
obligation to conduct the Exchange Offer or the Private Exchange under this
Section 2.
3. Shelf Registration
------------------
If a Shelf Notice is delivered as contemplated by Section 2(c), then:
(a) Initial Shelf Registration. The Company shall carefully prepare
--------------------------
and file with the SEC a Registration Statement for an offering to be made on a
continuous basis pursuant to Rule 415 covering all of the Registrable Notes (the
"INITIAL SHELF REGISTRATION"). If the Company shall have not yet filed an
Exchange Offer, the Company shall use its best efforts to file with the SEC the
Initial Shelf Registration on or prior to the Filing Date. Otherwise, the
Company shall use its best efforts to file with the SEC the Initial Shelf
Registration within 20 days of the delivery of the Shelf Notice. The Initial
Shelf Registration shall be on Form S-3 or another appropriate form permitting
registration of such Registrable Notes for resale by such holders in the manner
or manners designated by them (including, without limitation, one or more
underwritten offerings). The Company shall not permit any securities other than
the Registrable Notes to be included in the Initial Shelf Registration or any
Subsequent Shelf Registration. No Holder of Registrable Notes may include any
of its Registrable Notes in any Shelf Registration pursuant to this Agreement
unless and until such Holder furnishes to the Company in writing, within 15
business days after receipt of a request therefor, such information as the
Company may reasonably request for use in connection with any Shelf Registration
or Prospectus or preliminary prospectus included therein. No Holder of
Registrable Notes shall be entitled to Additional Interest pursuant to Section 4
hereof unless and until such Holder shall have used its best efforts to provide
all such reasonably requested information. Each Holder as to which any Shelf
Registration is being effected agrees to furnish promptly to the Company all
information to be disclosed in order to make the information previously
furnished to the Company by such Holder not materially misleading. The Company
shall use its best efforts to cause the Initial Shelf Registration to be
declared effective under the Securities Act on or prior to the Effectiveness
Date and to keep the Initial Shelf Registration continuously effective under the
Securities Act until the date which is 24 months from the Effectiveness Date
(subject to extension pursuant to the last paragraph of Section 5 hereof) (the
"EFFECTIVENESS PERIOD"), or such shorter period ending when (i) all Registrable
Notes covered by the Initial Shelf Registration have been sold in the manner set
forth and as contemplated in the Initial Shelf Registration, (ii) a Subsequent
Shelf
-6-
<PAGE>
Registration covering all of the Registrable Notes has been declared effective
under the Securities Act or (iii) during any period in which all Registrable
Notes may be sold pursuant to Rule 144(k) under the Securities Act.
(b) Subsequent Shelf Registrations. If the Initial Shelf
------------------------------
Registration or any Subsequent Shelf Registration ceases to be effective for any
reason at any time during the Effec tiveness Period (other than because of the
sale of all of the securities registered thereunder), the Company shall use its
best efforts to obtain the prompt withdrawal of any order suspending the
effectiveness thereof, and in any event shall within 45 days of such cessation
of effectiveness amend the Shelf Registration in a manner reasonably expected to
obtain the withdrawal of the order suspending the effectiveness thereof, or file
an additional Registration Statement pursuant to Rule 415 covering all of the
Registrable Notes (a "SUBSEQUENT SHELF REGISTRATION"). If a Subsequent Shelf
Registration is filed, the Company shall use its best efforts to cause the
Subsequent Shelf Registration to be declared effective as soon as practicable
after such filing and to keep such Registration Statement continuously effective
for a period equal to the number of days in the Effectiveness Period less the
aggregate number of days during which the Initial Shelf Registration or any
Subsequent Shelf Registration was previously continuously effective. As used
herein the term "SHELF REGISTRATION" means the Initial Shelf Registration and
any Subsequent Shelf Registration.
(c) Supplements and Amendments. The Company shall promptly
--------------------------
supplement and amend the Shelf Registration if required by the rules,
regulations or instructions applicable to the registration form used for such
Shelf Registration, if required by the Securities Act, or if requested by the
holders a majority in aggregate principal amount of the Registrable Notes
covered by such Registration Statement or by any underwriter of such Registrable
Notes.
4. Additional Interest
-------------------
(a) The Company and the Initial Purchaser agree that the Holders of
Registrable Notes will suffer damages if the Company fails to fulfill its
obligations under Section 2 or Section 3 hereof and that it would not be
feasible to ascertain the extent of such damages with precision. Accordingly,
the Company agrees to pay additional interest on the Notes ("ADDITIONAL
INTEREST") under the circumstances and to the extent set forth below:
(i) if the Exchange Registration Statement or the Initial Shelf
Registration has not been filed on or prior to the Filing Date, then
commencing on the day after the Filing Date, Additional Interest shall be
accrued on the Notes over and above the accrued interest at a rate of .50%
per annum;
(ii) if an Exchange Registration Statement or the Initial Shelf
Registration is filed on or prior to the Filing Date and is not declared
effective on or prior to the Effectiveness Date, then commencing on the day
after the Effectiveness Date, Additional Interest shall be accrued on the
Notes over and above the accrued interest at a rate of .50% per annum; and
(iii) if (A) the Company has not exchanged Exchange Notes for all
Notes validly tendered in accordance with the terms of the Exchange Offer
on or prior to 30 days after
-7-
<PAGE>
the date on which the Exchange Registration Statement was declared
effective or (B) the Exchange Registration Statement ceases to be effective
at any time prior to the time that the Exchange Offer is consummated or (C)
the Initial Shelf Registration or any Subsequent Shelf Registration has
been declared effective and such Shelf Registration ceases to be effective
at any time during the Effectiveness Period or (D) a notice under Section
5(c)(v) hereof is effective or required to be effective at a time when the
aggregate number of days for which all such notices issued or required to
be issued pursuant to Section 5(c)(v) have been or were required to be, in
effect exceeds 60 days, whether or not consecutive, then Additional
Interest shall be accrued on the Notes over and above the accrued interest
at a rate of 50% per annum immediately following (w) the 31st day after
such effective date, in the case of (A) above, or (x) the day the Exchange
Registration Statement ceases to be effective in the case of (B) above, (y)
the day such Shelf Registration ceases to be effective in the case of (C)
above or (z) the date on which the 60-day limit is exceeded in the case of
(D) above;
provided, however, that the Additional Interest rate on the Notes may not exceed
- -------- -------
.50% per annum and, accordingly, the maximum interest rate on the Notes may not
exceed the initial rate of interest on the Notes plus 2.50%; and provided,
---- --------
further, that (1) upon the filing of the Exchange Registration Statement or the
- -------
Initial Shelf Registration (in the case of (i) above), (2) upon the
effectiveness of the Exchange Registration Statement or a Shelf Registration (in
the case of (ii) above), or (3) upon the exchange of Exchange Notes for all
Notes tendered (in the case of (iii)(A) above), or upon the effectiveness of the
Exchange Registration Statement which had ceased to remain effective (in the
case of (iii)(B) above), or upon the effectiveness of the Shelf Registration
which had ceased to remain effective (in the case of (iii)(C) above) or, on the
date on which a notice is issued, or required to be issued, pursuant to Section
5(c)(v) is no longer effective or required to be effective (in the case of
(iii)(D) above), Additional Interest on the Notes as a result of such clause
(i), (ii) or (iii) (or the relevant subclause thereof), as the case may be,
shall cease to accrue.
(b) The Company shall notify the Trustee within one business day
after each and every date on which an event occurs in respect of which
Additional Interest is required to be paid (an "EVENT DATE"). Additional
Interest shall be paid by depositing with the Trustee, in trust, for the benefit
of the Holders thereof, on or before the applicable semi-annual interest payment
date, immediately available funds in sums sufficient to pay the Additional
Interest then due to Holders of Notes with respect to which the Trustee serves.
The Additional Interest due shall be payable on each interest payment date to
the record Holder of Notes entitled to receive the interest payment to be paid
on such date as set forth in the Indenture. Each obligation to pay Additional
Interest shall be deemed to accrue on the applicable Event Date. The amount of
Additional Interest will be determined by multiplying the applicable Additional
Interest rate by the principal amount of the Notes, multiplied by a fraction,
----------
the numerator of which is the number of days such Additional Interest rate was
applicable during such period (determined on the basis of a 360-day year
comprised of twelve 30-day months), and the denominator of which is 360.
5. Registration Procedures
-----------------------
In connection with the registration of any Registrable Notes or
Private Exchange Notes pursuant to Sections 2 or 3 hereof, the Company shall
effect such registrations to permit
-8-
<PAGE>
the sale of such Registrable Notes or Private Exchange Notes in accordance with
the intended method or methods of disposition thereof, and pursuant thereto the
Company shall:
(a) Prepare and file with the SEC, as soon as practicable after the
date hereof but in any event prior to the Filing Date, a Registration Statement
or Registration Statements as prescribed by Section 2 or 3, and to use its best
efforts to cause each such Registration Statement to become effective and remain
effective as provided herein, provided that, if (1) such filing is pursuant to
--------
Section 3, or (2) a Prospectus contained in an Exchange Registration Statement
filed pursuant to Section 2 is required to be delivered under the Securities Act
by any Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, before filing any Registration Statement or Prospectus or any
amendments or supplements thereto, the Company shall, if requested, furnish to
and afford the Holders of the Registrable Notes and each such Participating
Broker-Dealer (the "SELLING HOLDERS"), as the case may be, covered by such
Registration Statement, one special counsel for the Selling Holders (the
"HOLDERS COUNSEL") and the managing underwriters, if any, a reasonable
opportunity to review copies of all such documents (including copies of any
documents to be incorporated by reference therein and all exhibits thereto)
proposed to be filed (at least 5 business days prior to such filing). The
Company shall not file any Registration Statement or Prospectus or any
amendments or supplements thereto in respect of which the Holders must be
afforded an opportunity to review prior to the filing of such document, if the
Holders of a majority in aggregate principal amount of the Registrable Notes
covered by such Registration Statement, or such Participating Broker-Dealer, as
the case may be, the Holders Counsel, or the managing underwriters, if any,
shall reasonably object.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration or Exchange Registration Statement, as the
case may be, as may be necessary to keep such Registration Statement
continuously effective for the Effectiveness Period or the Applicable Period, as
the case may be; cause the related Prospectus to be supplemented by any required
Prospectus supplement, and as so supplemented to be filed pursuant to Rule 424
(or any similar provisions then in force) under the Securities Act; and comply
with the provisions of the Securities Act, the Exchange Act and the rules and
regulations of the SEC promulgated thereunder applicable to it with respect to
the disposition of all securities covered by such Registration Statement as so
amended or in such Prospectus as so supplemented and with respect to the
subsequent resale of any securities being sold by a Participating Broker-Dealer
covered by any such Prospectus; the Company shall be deemed not to have used its
best efforts to keep a Registration Statement effective during the Applicable
Period if it voluntarily takes any action that would result in selling Holders
of the Registrable Notes covered thereby or Participating Broker-Dealers seeking
to sell Exchange Notes not being able to sell such Registrable Notes or such
Exchange Notes during that period unless such action is required by applicable
law.
(c) If (1) a Shelf Registration is filed pursuant to Section 3, or
(2) a Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, notify the selling Holders of Registrable Notes, or each such
Participating Broker-Dealer, as the case may be, the Holders Counsel and the
managing underwriters, if any, promptly (but in any event within two business
days), and confirm such notice
-9-
<PAGE>
in writing, (i) when a Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to a Registration Statement or any
post-effective amendment, when the same has become effective (including in such
notice a written statement that any Holder may, upon request, obtain, without
charge, one conformed copy of such Registration Statement or post-effective
amendment including financial statements and schedules, documents incorporated
or deemed to be incorporated by reference and exhibits), (ii) of the issuance by
the SEC of any stop order suspending the effectiveness of a Registration
Statement or of any order preventing or suspending the use of any preliminary
prospectus or the initiation of any proceedings for that purpose, (iii) if at
any time when a prospectus is required by the Securities Act to be delivered in
connection with sales of the Registrable Notes the representations and
warranties of the Company contained in any agreement (including any underwriting
agreement) contemplated by Section 5(n) below cease to be true and correct, (iv)
of the receipt by the Company of any notification with respect to the suspension
of the qualification or exemption from qualification of a Registration Statement
or any of the Registrable Notes or the Exchange Notes to be sold by any
Participating Broker-Dealer for offer or sale in any jurisdiction, or the
initiation or threatening of any proceeding for such purpose, (v) of the
happening of any event or any information becoming known that makes any
statement made in such Registration Statement or related Prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in such
Registration Statement, Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading, and that in the case of
the Prospectus, it will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, and (vi) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.
(d) If (1) a Shelf Registration is filed pursuant to Section 3, or
(2) a Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, use its best efforts to prevent the issuance of any order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of a Prospectus or suspending the qualification
(or exemption from qualification) of any of the Registrable Notes or the
Exchange Notes to be sold by any Participating Broker-Dealer, for sale in any
jurisdiction, and, if any such order is issued, to use its best efforts to
obtain the withdrawal of any such order at the earliest possible moment.
(e) If a Shelf Registration is filed pursuant to Section 3 and if
requested by the managing underwriters, if any, or the Holders of a majority in
aggregate principal amount of the Registrable Notes being sold in connection
with an underwritten offering, (i) promptly incorporate in a prospectus
supplement or post-effective amendment such information as the managing
underwriters, if any, or such Holders or counsel reasonably request to be
included therein, (ii) make all required filings of such prospectus supplement
or such post-effective amendment as soon as practicable after the Company has
received notification of the matters to be incorporated in such prospectus
supplement or post-effective amendment, and (iii) supplement or make amendments
to such Registration Statement.
-10-
<PAGE>
(f) If (1) a Shelf Registration is filed pursuant to Section 3, or
(2) a Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, furnish to each selling Holder of Registrable Notes and to
each such Participating Broker-Dealer who so requests and to the Holders Counsel
and each managing underwriter, if any, without charge, one conformed copy of the
Registration Statement or Registration Statements and each post-effective
amendment thereto, including financial statements and schedules, and, if
requested, all documents incorporated or deemed to be incorporated therein by
reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3, or
(2) a Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, deliver to each selling Holder of Registrable Notes, or each
such Participating Broker-Dealer, as the case may be, their counsel, and the
underwriters, if any, without charge, as many copies of the Prospectus or
Prospectuses (including each form of preliminary prospectus) and each amendment
or supplement thereto and any documents incorporated by reference therein as
such Persons may reasonably request; and, subject to the last paragraph of this
Section 5, the Company hereby consents to the use of such Prospectus and each
amendment or supplement thereto by each of the selling Holders of Registrable
Notes or each such Participating Broker-Dealer, as the case may be, and the
underwriters or agents, if any, and dealers (if any), in connection with the
offering and sale of the Registrable Notes covered by or the sale by
Participating Broker-Dealers of the Exchange Notes pursuant to such Prospectus
and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Notes or any delivery
of a Prospectus contained in the Exchange Registration Statement by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, to use its best efforts to register or qualify, and to
cooperate with the selling Holders of Registrable Notes or each such
Participating Broker-Dealer, as the case may be, the underwriters, if any, and
their respective counsel in connection with the registration or qualification
(or exemption from such registration or qualification) of such Registrable Notes
for offer and sale under the securities or Blue Sky laws of such jurisdictions
within the United States as any selling Holder, Participating Broker-Dealer, or
the managing underwriters reasonably request in writing as are reasonably
necessary to permit the offer and sale of such Notes in such jurisdictions,
provided that where Exchange Notes held by Participating Broker-Dealers or
- --------
Registrable Notes are offered other than through an underwritten offering, the
Company agrees to cause its counsel to perform Blue Sky investigations and file
registrations and qualifications required to be filed pursuant to this Section
5(h); keep each such registration or qualification (or exemption therefrom)
effective during the period such Registration Statement is required to be kept
effective and do any and all other acts or things reasonably necessary or
advisable to enable the disposition in such jurisdictions of the Exchange Notes
held by Participating Broker-Dealers or the Registrable Notes covered by the
applicable Registration Statement, provided that the Company shall not be
--------
required to (A) qualify generally to do business in any jurisdiction where it is
not then so qualified, (B) take any action that would subject it to general
service of process in any such jurisdiction where it is not then so subject or
(C) subject itself to taxation in excess of a nominal dollar amount in any such
jurisdiction.
-11-
<PAGE>
(i) If a Shelf Registration is filed pursuant to Section 3, cooperate
with the selling Holders of Registrable Notes and the managing underwriters, if
any, to facilitate the timely preparation and delivery of certificates
representing Registrable Notes to be sold, which certificates shall not bear any
restrictive legends and shall be in a form eligible for deposit with The
Depository Trust Company; and enable such Registrable Notes to be in such
denominations and registered in such names as the managing underwriters, if any,
or Holders may reasonably request.
(j) Use its best efforts to cause the Registrable Notes covered by
the Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the seller or
sellers thereof or the underwriters, if any, to consummate the disposition of
such Registrable Notes, except as may be required solely as a consequence of the
nature of such selling Holder's business, in which case the Company will
cooperate in all reasonable respects with the filing of such Registration
Statement and the granting of such approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3, or
(2) a Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, upon the occurrence of any event contemplated by paragraph
5(c)(v) or 5(c)(vi) above, as promptly as practicable prepare and (subject to
Section 5(a) above) file with the SEC, at the expense of the Company, a
supplement or post-effective amendment to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable Notes being
sold thereunder or to the purchasers of the Exchange Notes to whom such
Prospectus will be delivered by a Participating Broker-Dealer any such
Prospectus will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(l) Use its best efforts to cause the Registrable Notes covered by a
Registration Statement or the Exchange Notes, as the case may be, to be rated
with the appropriate rating agencies, if so requested by the Holders of a
majority in aggregate principal amount of Registrable Notes covered by such
Registration Statement or the Exchange Notes, as the case may be, or the
managing underwriters, if any.
(m) Prior to the effective date of the first Registration Statement
relating to the Registrable Notes, (i) provide the Trustee with printed
certificates for the Registrable Notes in a form eligible for deposit with The
Depository Trust Company and (ii) provide a CUSIP number for the Registrable
Notes.
(n) In the event of an underwritten offering of Registrable Notes
pursuant to a Shelf Registration, enter into an underwriting agreement as is
customary in underwritten offerings and take all such other actions as are
reasonably requested by the managing underwriters in order to expedite or
facilitate the registration or the disposition of such Registrable Notes, and in
such connection, (i) make such representations and warranties to the
underwriters, with respect to the
-12-
<PAGE>
business of the Company and its subsidiaries and the Registration Statement,
Prospectus and documents, if any, incorporated or deemed to be incorporated by
reference therein, in each case, as are customarily made by issuers to
underwriters in underwritten offerings, and confirm the same if and when
requested; (ii) obtain opinions of counsel to the Company and updates thereof in
form and substance reasonably satisfactory to the managing underwriters,
addressed to the underwriters covering the matters customarily covered in
opinions requested in underwritten offerings and such other matters as may be
reasonably requested by underwriters; (iii) obtain "cold comfort" letters and
updates thereof in form and substance reasonably satisfactory to the managing
underwriters from the independent certified public accountants of the Company
(and, if necessary, any other independent certified public accountants of any
subsidiary of the Company or of any business acquired by the Company for which
financial statements and financial data are, or are required to be, included in
the Registration Statement), addressed to each of the underwriters, such letters
to be in customary form and covering matters of the type customarily covered in
"cold comfort" letters in connection with underwritten offerings and such other
matters as reasonably requested by underwriters; and (iv) if an underwriting
agreement is entered into, the same shall contain indemnification provisions and
procedures no less favorable than those set forth in Section 7 hereof (or such
other provisions and procedures acceptable to Holders of a majority in aggregate
principal amount of Registrable Notes covered by such Registration Statement and
the managing underwriters or agents) with respect to all parties to be
indemnified pursuant to said Section. The above shall be done at each closing
under such underwriting agreement, or as and to the extent required thereunder.
(o) If (1) a Shelf Registration is filed pursuant to Section 3, or
(2) a Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, make available for inspection by any selling Holder of such
Registrable Notes being sold, or each such Participating Broker-Dealer, as the
case may be, any underwriter participating in any such disposition of
Registrable Notes, if any, and any attorney, accountant or other agent retained
by any such selling holder or each such Participating Broker-Dealer, as the case
may be, or underwriter (collectively, the "INSPECTORS"), at the offices where
normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents and properties of the issuers and their
respective subsidiaries (collectively, the "RECORDS") as shall be reasonably
necessary to enable them to exercise any applicable due diligence
responsibilities, and cause the officers, directors and employees of the Company
and its subsidiaries to supply all information in each case reasonably requested
by any such Inspector in connection with such Registration Statement. Records
which the Company determines, in good faith, to be confidential and any Records
which it notifies the Inspectors are confidential shall not be disclosed by the
Inspectors unless (i) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in such Registration Statement, (ii) the
release of such Records is ordered pursuant to a subpoena or other order from a
court of competent jurisdiction or (iii) the information in such Records has
been made generally available to the public. Each selling Holder of such
Registrable Notes and each such Participating Broker-Dealer will be required to
agree that information obtained by it as a result of such inspections shall be
deemed confidential and shall not be used by it as the basis for any market
transactions in the securities of the Company unless and until such is made
generally available to the public. Each selling Holder of such Registrable
Notes and each such Participating Broker-Dealer will be required to further
agree that it will, upon learning that disclosure of such Records is sought in a
court of competent
-13-
<PAGE>
jurisdiction, give notice to the Company and allow the Company to undertake
appropriate action to prevent disclosure of the Records deemed confidential at
their expense.
(p) Provide an indenture trustee for the Registrable Notes or the
Exchange Notes, as the case may be, and cause the Indenture or the trust
indenture provided for in Section 2(a), as the case may be, to be qualified
under the TIA not later than the effective date of the Exchange Offer or the
first Registration Statement relating to the Registrable Notes; and in
connection therewith, cooperate with the trustee under any such indenture and
the holders of the Registrable Notes, to effect such changes to such indenture
as may be required for such indenture to be so qualified in accordance with the
terms of the TIA; and execute, and use its best efforts to cause such trustee to
execute, all documents as may be required to effect such changes, and all other
forms and documents required to be filed with the SEC to enable such indenture
to be so qualified in a timely manner.
(q) Comply with all applicable rules and regulations of the SEC and
make generally available to its securityholders earnings statements satisfying
the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder
(or any similar rule promulgated under the Securities Act) no later than 45 days
after the end of any 12-month period (or 90 days after the end of any 12-month
period if such period is a fiscal year) (i) commencing at the end of any fiscal
quarter in which Registrable Notes are sold to underwriters in a firm commitment
or best efforts underwritten offering and (ii) if not sold to underwriters in
such an offering, commencing on the first day of the first fiscal quarter of the
Company after the effective date of a Registration Statement, which statements
shall cover said 12-month periods.
(r) Upon consummation of an Exchange Offer or a Private Exchange,
obtain an opinion of counsel to the Company addressed to the Trustee for the
benefit of all Holders of Registrable Notes participating in the Exchange Offer
or the Private Exchange, as the case may be, and which includes an opinion that
(i) the Company has duly authorized, executed and delivered the Exchange Notes
and Private Exchange Notes and the related indenture, and (ii) each of the
Exchange Notes or the Private Exchange Notes, as the case may be, and related
indenture constitute a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its respective terms (with
customary exceptions).
(s) If an Exchange Offer or a Private Exchange is to be consummated,
upon delivery of the Registrable Notes by Holders to the Company (or to such
other Person as directed by the issuers) in exchange for the Exchange Notes or
the Private Exchange Notes, as the case may be, the Company shall mark, or cause
to be marked, on such Registrable Notes that such Registrable Notes are being
cancelled in exchange for the Exchange Notes or the Private Exchange Notes, as
the case may be; in no event shall such Registrable Notes be marked as paid or
otherwise satisfied.
(t) Cooperate with each seller of Registrable Notes covered by any
Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Notes and their respective counsel in connection
with any filings required to be made with the National Association of Securities
Dealers, Inc. (the "NASD").
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<PAGE>
(u) Use its best efforts to take all other steps necessary to effect
the registration of the Registrable Notes covered by a Registration Statement
contemplated hereby.
The Company may require each seller of Registrable Notes or Participating
Broker-Dealer as to which any registration is being effected to furnish to the
Company such information regarding such seller or Participating Broker-Dealer
and the distribution of such Registrable Notes or Exchange Notes to be sold by
such Participating Broker-Dealer, as the case may be, as the Company may, from
time to time, reasonably request including, without limitation, a written
representation to the Company (which may be contained in the letter of
transmittal contemplated by the Exchange Registration Statement or Shelf
Registration, as applicable) stating that (A) it is not an affiliate of the
Company, (B) the amount of Registrable Notes held by such Holder prior to the
Exchange Offer, (C) the amount of Registrable Notes owned by such Holder to be
exchanged in the Exchange Offer and representing that such Holder is not engaged
in, and does not intend to engage in, and has no arrangement or understanding
with any Person to participate in, a distribution of the Exchange Notes to be
issued and (D) it is acquiring the Exchange Notes in its ordinary course of
business. The Company may exclude from such registration the Registrable Notes
of any seller or Participating Broker-Dealer who unreasonably fails to furnish
such information within a reasonable time after receiving such request.
Each Holder of Registrable Notes and each Participating Broker-Dealer
agrees by acquisition of such Registrable Notes or Exchange Notes to be sold by
such Participating Broker-Dealer, as the case may be, that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi), such Holder will forthwith
discontinue disposition of such Registrable Notes covered by such Registration
Statement or Prospectus or Exchange Notes to be sold by such Participating
Broker-Dealer, as the case may be, until such holder's receipt of the copies of
the supplemented or amended Prospectus contemplated by Section 5(k), or until it
is advised in writing (the "ADVICE") by the Company that the use of the
applicable Prospectus may be resumed, and has received copies of any amendments
or supplements thereto. In the event the Company shall give any such notice,
each of the Effectiveness Period and the Applicable Period shall be extended by
the number of days during such periods from and including the date of the giving
of such notice to and including the date when each seller of Registrable Notes
covered by such Registration Statement or Exchange Notes to be sold by such
Participating Broker-Dealer, as the case may be, shall have received (x) the
copies of the supplemented or amended Prospectus contemplated by Section 5(k) or
(y) the Advice.
6. Registration Expenses
---------------------
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company shall be borne by the Company,
whether or not the Exchange Offer or a Shelf Registration is filed or becomes
effective, including, without limitation, (i) all registration and filing fees
(including, without limitation, (A) fees with respect to filings required to be
made with the NASD in connection with an underwritten offering and (B) fees and
expenses of compliance with state securities or Blue Sky laws (including,
without limitation, reasonable fees and disbursements of its counsel in
connection with Blue Sky qualifications of the Registrable Notes or Exchange
Notes and determination of the eligibility of the Registrable Notes or Exchange
Notes for investment under the laws of such jurisdictions (x) where the holders
of
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<PAGE>
Registrable Notes are located, in the case of the Exchange Notes, or (y) as
provided in Section 5(h), in the case of Registrable Notes or Exchange Notes to
be sold by a Participating Broker-Dealer during the Applicable Period)), (ii)
printing expenses (including, without limitation, expenses of printing
certificates for Registrable Notes or Exchange Notes in a form eligible for
deposit with The Depository Trust Company and of printing prospectuses if the
printing of prospectuses is requested by the managing underwriters, if any, or,
in respect of Registrable Notes or Exchange Notes to be sold by any
Participating Broker-Dealer during the Applicable Period, by the Holders of a
majority in aggregate principal amount of the Registrable Notes included in any
Registration Statement or Notes, as the case may be), (iii) messenger, telephone
and delivery expenses, (iv) fees and disbursements of counsel for the Company
and fees and disbursements of the Holders Counsel (subject to the provisions of
Section 6(b)), (v) fees and all independent certified public accountants
referred to in Section 5(n)(iii) (including, without limitation, the expenses of
any special audit and "cold comfort" letters required by or incident to such
performance), (vi) the fees and expenses of any "qualified independent
underwriter" or other independent appraiser participating in an offering
pursuant to the rules and regulations of the NASD, (vii) rating agency fees,
(viii) Securities Act liability insurance, if the Company desires such
insurance, (ix) fees and expenses of all other Persons retained by the Company,
(x) internal expenses of the Company (including, without limitation, all
salaries and expenses of officers and employees of the Company performing legal
or accounting duties), (xi) the expense of any annual audit, (xii) the fees and
expenses incurred in connection with the listing of the securities to be
registered on any securities exchange and (xiii) the expenses relating to
printing, word processing and distributing all Registration Statements,
underwriting agreements, securities sales agreements, indentures and any other
documents necessary in order to comply with this Agreement.
(b) In connection with any Shelf Registration hereunder, the Company
shall reimburse the Holders of the Registrable Notes being registered in such
registration for the fees and disbursements of the Holders Counsel (in addition
to appropriate local counsel) chosen by the Holders of a majority in aggregate
principal amount of the Registrable Notes to be included in such Registration
Statement and other out-of-pocket expenses of the Holders of Registrable Notes
incurred in connection with the registration of the Registrable Notes.
7. Indemnification
---------------
(a) The Company will indemnify and hold harmless each Holder of
Registrable Notes and each Participating Broker-Dealer selling Exchange Notes
during the Applicable Period, the directors, officers, employees and agents of
each person, and each person, if any, who controls any such person within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act
(each a "PARTICIPANT") from and against any and all losses, claims, liabilities,
expenses and damages (including any and all investigative, legal and other
expenses reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted), to which
they, or any of them, may become subject under the Securities Act, the Exchange
Act or other Federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, liabilities, expenses or damages
arise out of or are based on any untrue statement or alleged untrue statement of
a material fact contained in any Registration Statement or Prospectus or any
amendment or supplement thereto or any preliminary prospectus or the omission or
alleged omission to state in such document a material fact required to be stated
in it or necessary to make the statements in it not misleading, provided
-16-
<PAGE>
that a Participant will not be entitled to any such indemnification hereunder to
the extent that such loss, claim, liability, expense or damage arises from and
is based on an untrue statement or omission or alleged untrue statement or
omission made in reliance on and in conformity with information relating to such
Participant furnished in writing to the Company by such Participant expressly
for inclusion therein or in the case of a Participating Broker-Dealer, if the
person asserting any such loss, claim, liability, expense or damage purchased
the Exchange Notes from such Participating Broker-Dealer but was not sent or
given a copy of the Prospectus at or prior to the written confirmation of the
sale of Exchange Notes to such person.
(b) Each Participant will indemnify and hold harmless the Company,
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act, each director of the
Company and each officer of the Company to the same extent as the foregoing
indemnity from the Company to each Participant, but only insofar as losses,
claims, liabilities, expenses or damages arise out of or are based on any untrue
statement or omission or alleged untrue statement or omission made in reliance
on and in conformity with information relating to such Participant furnished in
writing to the Company by such Participant expressly for use in any Registration
Statement or Prospectus or any amendment or supplement thereto or any
preliminary prospectus. The liability of any Participant under this paragraph
shall in no event exceed the proceeds received by such Participant from sales of
Registrable Notes giving rise to such obligations.
(c) Any party that proposes to assert the right to be indemnified
under this Section 7 will, promptly after receipt of notice of commencement of
any action against such party in respect of which a claim is to be made against
an indemnifying party or parties under this Section 7, notify each such
indemnifying party of the commencement of such action, enclosing a copy of all
papers served, but the omission so to notify such indemnifying party will not
relieve it from any liability that it may have to any indemnified party under
the foregoing provisions of this Section 7 unless, and only to the extent that,
such omission results in the forfeiture of substantive rights or defenses by the
indemnifying party. If any such action is brought against any indemnified party
and it notifies the indemnifying party of its commencement, the indemnifying
party will be entitled to participate in and, to the extent that it elects by
delivering written notice to the indemnified party promptly after receiving
notice of the commencement of the action from the indemnified party, jointly
with any other indemnifying party similarly notified, to assume the defense of
the action, with counsel satisfactory to the indemnified party, and after notice
from the indemnifying party to the indemnified party of its election to assume
the defense, the indemnifying party will not be liable to the indemnified party
for any legal or other expenses except as provided below and except for the
reasonable costs of investigation subsequently incurred by the indemnified party
in connection with the defense. The indemnified party will have the right to
employ its own counsel in any such action, but the fees, expenses and other
charges of such counsel will be at the expense of such indemnified party unless
(1) the employ ment of counsel by the indemnified party has been authorized in
writing by the indemnifying party, (2) the indemnified party has reasonably
concluded (based on advice of counsel) that there may be legal defenses
available to it or other indemnified parties that are different from or in
addition to those available to the indemnifying party, (3) a conflict or
potential conflict exists (based on advice of counsel to the indemnified party)
between the indemnified party and the indemnifying party (in which case the
indemnifying party will not have the right to direct the defense of such action
on behalf of the indemnified party) or (4) the indemnifying party has not
-17-
<PAGE>
in fact employed counsel to assume the defense of such action within a
reasonable time after receiving notice of the commencement of the action, in
each of which cases the reasonable fees, disbursements and other charges of
counsel will be at the expense of the indemnifying party or parties. It is
understood that the indemnifying party or parties shall not, in connection with
any proceeding or related proceedings in the same jurisdiction, be liable for
the reasonable fees, disbursements and other charges of more than one separate
firm admitted to practice in such jurisdiction at any one time for all such
indemnified party or parties. All such fees, disbursements and other charges
will be reimbursed by the indemnifying party promptly as they are incurred. An
indemnifying party will not be liable for any settlement of any action or claim
effected without its written consent (which consent will not be unreasonably
withheld).
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in the foregoing
paragraphs of this Section 7 is applicable in accordance with its terms but for
any reason is held to be unavailable from the Company or any Participant, the
Company and each Participant will contribute to the total losses, claims,
liabilities, expenses and damages (including any investigative, legal and other
expenses reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claim asserted, but after
deducting any contribution received by the Company from persons other than a
Participant, such as persons who control the Company within the meaning of the
Securities Act, officers of the Company and directors of the Company, who also
may be liable for contribution) to which the Company and each Participant may be
subject in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and each Participant on the other. The
relative benefits received by the Company on the one hand and each PARTICIPANT
on the other shall be deemed to be equal to (i) with respect to the Company, the
total net proceeds from the initial offering (before deducting expenses)
received by the Company, (ii) with respect to the initial purchaser in such
offering, the total purchase discount and commissions, (iii) with respect to any
other Holder of Registrable Notes, the value of receiving such Notes and (iv)
with respect to any underwriter, the total underwriting discounts and
commissions with respect to such underwriting, in each case of clauses (i), (ii)
or (iv), as set forth on the cover page of the applicable offering memorandum or
prospectus. If, but only if, the allocation provided by the foregoing sentence
is not permitted by applicable law, the allocation of contribution shall be made
in such proportion as is appropriate to reflect not only the relative benefits
referred to in the foregoing sentence but also the relative fault of the Company
on the one hand and each Participant on the other, with respect to the
statements or omissions which resulted in such loss, claim, liability, expense
or damage, or action in respect thereof, as well as any other relevant equitable
considerations with respect to such offering. Such relative fault shall be
determined by reference to whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company or a Participant, the intent of the
parties and their relative knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company and each Participant
shall agree that it would not be just and equitable if contributions pursuant to
this Section 7(d) were to be determined by pro rata allocation or by any other
method of allocation which does not take into account the equitable
considerations referred to herein. The amount paid or payable by an indemnified
party as a result of the loss, claim, liability, expense or damage, or action in
respect thereof, referred to above in this Section 7(d) shall be deemed to
include, for purpose of this Section 7(d), any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Not-
-18-
<PAGE>
withstanding the provisions of this Section 7(d), a Participant shall not be
required to contribute any amount in excess of the amount by which proceeds
received by such Participant from sales of Registrable Notes exceeds the amount
of any damages that such Participant has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission, and no person found guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) will be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation. For
purposes of this Section 7(d), any person who controls a party to this Agreement
within the meaning of the Securities Act will have the same rights to
contribution as that party, and each officer of the Company will have the same
rights to contribution as the Company, subject in each case to the provisions
hereof. Any party entitled to contribution, promptly after receipt of notice of
commencement of any action against such party in respect of which a claim for
contribution may be made under this Section 7(d), will notify any such party or
parties from whom contribution may be sought, but the omission so to notify will
not relieve the party or parties from whom contribution may be sought from any
other obligation it or they may have under this Section 7(d). No party will be
liable for contribution with respect to any action or claim settled without its
written consent (which consent will not be unreasonably withheld).
(e) The indemnity and contribution agreements contained in this
Section 7 will be in addition to any liability which the indemnifying persons
may otherwise have to the indemnified persons referred to above.
8. Rules 144 and 144A
------------------
The Company covenants that it will file the reports required to be filed by
it under the Securities Act and the Exchange Act and the rules and regulations
adopted by the SEC thereunder in a timely manner and, if at any time the Company
is not required to file such reports, it will, upon the request of any Holder of
Registrable Notes, make publicly available other information so long as
necessary to permit sales pursuant to Rule 144 and Rule 144A under the
Securities Act. The Company further covenants that it will take such further
action as any Holder of Registrable Notes may reasonably request, all to the
extent required from time to time to enable such holder to sell Registrable
Notes without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144 and Rule 144A under the Securities Act, as
such Rules may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the SEC.
9. Underwritten Registrations
--------------------------
If any of the Registrable Notes covered by any Shelf Registration are to be
sold in an underwritten offering, the investment banker or investment bankers
and manager or managers that will manage the offering will be selected by the
Holders of a majority in aggregate principal amount of such Registrable Notes
included in such offering and reasonably acceptable to the Company.
No Holder of Registrable Notes may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to
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<PAGE>
approve such arrangements and (b) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
10. Miscellaneous
-------------
(a) Remedies. In the event of a breach by the Company of any of its
--------
obligations under this Agreement, each Holder of Registrable Notes, in addition
to being entitled to exercise all rights provided herein, in the Indenture or,
in the case of the Initial Purchaser, in the Purchase Agreement or granted by
law, including recovery of damages, will be entitled to specific performance of
its rights under this Agreement. The Company agrees that monetary damages would
not be adequate compensation for any loss incurred by reason of a breach by it
of any of the provisions of this Agreement and hereby further agrees that, in
the event of any action for specific performance in respect of such breach, it
shall waive the defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. The Company has not, as of the date
--------------------------
hereof, and the Company shall not, after the date of this Agreement, enter into
any agreement with respect to any of its securities that is inconsistent with
the rights granted to the Holders of Registrable Notes in this Agreement or
otherwise conflicts with the provisions hereof. The Company has not entered or
will not enter into any agreement with respect to any of its securities which
will grant to any Person piggy-back rights with respect to a Registration
Statement.
(c) Adjustments Affecting Registrable Notes. The Company shall not,
---------------------------------------
directly or indirectly, take any action with respect to the Registrable Notes as
a class that would adversely affect the ability of the Holders of Registrable
Notes to include such Registrable Notes in a registration undertaken pursuant to
this Agreement.
(d) Amendments and Waivers. The provisions of this Agreement,
----------------------
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of Holders
of at least a majority of the then outstanding aggregate principal amount of
Registrable Notes. Notwithstanding the foregoing, a waiver or consent to depart
from the provisions hereof with respect to a matter that relates exclusively to
the rights of Holders of Registrable Notes whose securities are being sold
pursuant to a Registration Statement and that does not directly or indirectly
affect, impair, limit or compromise the rights of other Holders of Registrable
Notes may be given by Holders of at least a majority in aggregate principal
amount of the Registrable Notes being sold by such Holders pursuant to such
Registration Statement, provided that the provisions of this sentence may not be
--------
amended, modified or supplemented except in accordance with the provisions of
the immediately preceding sentence.
(e) Notices. All notices and other communications (including without
-------
limitation any notices or other communications to the Trustee) provided for or
permitted hereunder shall be made in writing by hand-delivery, registered first-
class mail, next-day air courier or telecopier:
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<PAGE>
(i) if to a Holder of Registrable Notes, at the most current address
given by the Trustee to the Company; and
(ii) if to the Company, at:
Stater Bros. Holdings Inc.
21700 Barton Road
Colton, California 92324
Telecopy No.: (909) 783-5098
Attention: Chief Executive Officer
with copies to:
Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071-3197
Telecopy No.: (213) 229-7520
Attention: Andrew E. Bogen, Esq.
and
Varner, Saleson, & Dobler
3750 University Avenue
Suite 600
Riverside, California 92501
Telecopy No.: (909) 274-7777
Attention: Bruce D. Varner, Esq.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days after
being deposited in the postage prepaid, if mailed; one business day after being
timely delivered to a next-day air courier; and when receipt is acknowledged by
the addressee, if telecopied.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the trustee under the
Indenture at the address specified in such Indenture.
(f) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and assigns of each of the parties,
including without limitation and without the need for an express assignment,
subsequent Holders of Registrable Notes; provided, that, with respect to the
indemnity and contribution agreements in Section 7, each Holder of Registrable
Notes subsequent to the Initial Purchasers shall be bound by the terms thereof
if (i) such Holder elects to include Registrable Notes in a Shelf Registration
and (ii) such Holder is advised expressly by the Company of the provisions
contained in Section 7 and that such Holder's election to include Registrable
Notes in a Shelf Registration shall be deemed such Holder's agreement to be
bound by such provisions.
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<PAGE>
(g) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(j) Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(k) Entire Agreement. This Agreement, together with the Purchase
----------------
Agreement and the Indenture, is intended by the parties as a final expression of
their agreement, and is intended to be a complete and exclusive statement of the
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and therein.
(l) Notes Held by the Company or Its Affiliates. Whenever the consent
-------------------------------------------
or approval of Holders of a specified percentage of Registrable Notes is
required hereunder, Registrable Notes held by the Company or its affiliates (as
such term is defined in Rule 405 under the Securities Act) shall not be counted
in determining whether such consent or approval was given by the Holders of such
required percentage.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
STATER BROS. HOLDINGS INC.
By:/s/ Jack H. Brown
--------------------------------
Jack H. Brown
Chairman of the Board, President
and Chief Executive Officer
By:/s/ Bruce D. Varner
--------------------------------
Bruce D. Varner
Secretary
BANCAMERICA SECURITIES, INC.
By:/s/ Bruce R. Thompson
---------------------------------
Bruce R. Thompson
Managing Director
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<PAGE>
EXHIBIT 4.5
LETTER OF TRANSMITTAL
Offer for all Outstanding
Privately Placed 9% Senior Subordinated Notes Due 2004
in Exchange for
9% Senior Subordinated Notes Due 2004
of
STATER BROS. HOLDINGS INC.
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON _______________, 1997, UNLESS EXTENDED
The Exchange Agent will be First Trust of New York, whose mailing address,
facsimile number and telephone number are as follows:
<TABLE>
<S> <C> <C>
By Hand: By Registered, By First Class Mail:
c/o First Trust National Association Certified or Overnight Mail: c/o First Trust National Association
Bond Drop Window c/o First Trust P.O. Box 64485
180 East Fifth Street, Fourth Floor National Association St. Paul, MN 55164-9549
St. Paul, MN 55101 Attn: Specialized Finance
180 East Fifth Street
St. Paul, MN 55101
</TABLE>
By Facsimile: By Telephone:
(612) 244-1537 1-800-934-6802
Bondholder Services
DESCRIPTION OF SECURITIES TENDERED
<TABLE>
<S> <C> <C>
Name and address of registered Principal
holder as it appears on the Certificate number(s) Amount of
Privately Placed 9% Senior Subordinated of Old Notes Old Notes
Notes Due 2004 ("Old Notes") transmitted transmitted
- --------------------------------------- --------------------- -----------
- --------------------------------------- --------------------- -----------
- --------------------------------------- --------------------- -----------
- --------------------------------------- --------------------- -----------
- --------------------------------------- --------------------- -----------
</TABLE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW. PLEASE READ THE
ACCOMPANYING INSTRUCTIONS CAREFULLY.
<PAGE>
Ladies and Gentlemen:
1. The undersigned hereby agrees to exchange the aggregate principal
amount of Privately Placed 9% Senior Subordinated Notes Due 2004 (the "Old
Notes") for a like principal amount of 9% Senior Subordinated Notes Due 2004
(the "New Notes") of the Company, upon the terms and subject to the conditions
contained in the Registration Statement on Form S-4 filed by Stater Bros.
Holdings Inc., a Delaware corporation, with the Securities and Exchange
Commission (the "Registration Statement") and the accompanying Prospectus dated
_______, 1997 included therein (the "Prospectus"), receipt of each of which is
hereby acknowledged.
2. The undersigned hereby acknowledges and agrees that the New Notes will
bear interest from and including the original date of issuance of the Old Notes.
Accordingly, the undersigned will forego accrued but unpaid interest on his, her
or its Old Notes that are exchanged for New Notes from and including the
original date of issuance of the Old Notes, but will receive such interest under
the New Notes.
3. The undersigned hereby represents and warrants that it has full
authority to tender the Old Notes described above. The undersigned will, upon
request, execute and deliver any additional documents deemed by the Company to
be necessary or desirable to complete the exchange of the Old Notes.
4. The undersigned understands that the tender of the Old Notes pursuant
to all of the procedures set forth in the Prospectus will constitute an
agreement between the undersigned and the Company as to the terms and conditions
set forth in the Prospectus.
5. The undersigned hereby represents and warrants that the undersigned is
acquiring the New Notes in the ordinary course of the business of the
undersigned and that the undersigned is not engaged in, and does not intend to
engage in, a distribution of the New Notes.
6. If the undersigned is a broker-dealer, (i) it hereby represents and
warrants that it acquired the Old Notes for its own account as a result of
market-making activities or other trading activities, and (ii) it hereby
acknowledges that it will deliver a prospectus meeting the requirements of the
Securities Act of 1933, as amended (the "Securities Act") in connection with any
resale of the New Notes received hereby. The acknowledgment contained in the
foregoing sentence shall not be deemed an admission that the undersigned is an
"underwriter" within the meaning of the Securities Act.
7. Any obligation of the undersigned hereunder shall be binding upon the
successors, assigns, executors, administrators, trustees in bankruptcy and legal
and personal representatives of the undersigned.
2
<PAGE>
SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS
(SEE INSTRUCTION 1)
To be completed ONLY IF the New Notes are to be sent to someone other than
the undersigned or to the undersigned at an address other than that provided
above.
Issue to:
Name
------------------------------------
(Please Print)
Address
--------------------------------
--------------------------------
--------------------------------
(Include Zip Code)
Mail to:
Name
------------------------------------
(Please Print)
Address
--------------------------------
--------------------------------
--------------------------------
(Include Zip Code)
3
<PAGE>
SIGNATURE
---------------------------------------
(Name of Registered Holder)
By:
--------------------------------------
Name:
Title:
Date:
------------------------------------
(Must be signed by registered holder exactly as name appears on Old Notes. If
signature is by trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, please set forth full title. See Instruction 3.)
Address:
---------------------------------
---------------------------------
Telephone No.
----------------------------
Taxpayer Identification No.:
----------------------------
Signature Guaranteed By:
--------------------------------
(See Instruction 1)
Title:
Name of Institution:
Address:
Date:
PLEASE READ THE INSTRUCTIONS BELOW, WHICH
FORM A PART OF THIS LETTER OF TRANSMITTAL.
4
<PAGE>
INSTRUCTIONS
1. GUARANTEE OF SIGNATURES. Signatures on this Letter of Transmittal
must be guaranteed by a firm that is a member of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc. or by a commercial bank or trust company having an office in the United
States which is a member of a recognized Medallion Signature Program approved by
the Securities Transfer Association, Inc. (an "Eligible Institution") unless (i)
the "Special Issuance and Delivery Instructions" above have not been completed
or (ii) the Old Notes described above are tendered for the account of an
Eligible Institution.
2. DELIVERY OF LETTER OF TRANSMITTAL AND OLD NOTES. The Old Notes,
together with a properly completed and duly executed Letter of Transmittal (or a
facsimile thereof), should be mailed or delivered to the Exchange Agent at the
address set forth above.
The method of delivery of Old Notes and other documents is at THE ELECTION
AND RISK OF THEIR RESPECTIVE HOLDER. IF DELIVERY IS BY MAIL, REGISTERED MAIL
(WITH RETURN RECEIPT), PROPERLY INSURED, IS SUGGESTED.
3. GUARANTEED DELIVERY PROCEDURES. Registered holders who wish to tender
their Old Notes and (i) whose Old Notes are not immediately available, or (ii)
who cannot deliver their Old Notes, the Letter of Transmittal or any other
required documents to the Exchange Agent prior to the Expiration Date, may
effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the registered holder of the Old
Notes, the certificate number or numbers of such Old Note(s) and the
principal amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that, within five New York Stock Exchange
trading days after the Expiration Date, the Letter of Transmittal (or
facsimile thereof) together with the certificate(s) representing the Old
Notes and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent; and
(c) Such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old Notes in proper form for transfer and all other documents required by
the Letter of Transmittal are received by the Exchange Agent within five
New York Stock Exchange trading days after the Expiration Date.
Upon request of the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to registered holders who wish to tender their Old Notes according to the
guaranteed delivery procedures set forth above.
4. SIGNATURES ON LETTER OF TRANSMITTAL, BOND POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by a person other than a registered holder
of any Old Notes, such Old Notes must be endorsed or accompanied by appropriate
bond powers, in either case signed exactly as the name or names of the
registered holder or holders appear on the Old Notes.
If this Letter of Transmittal or any Old Notes or bond power is signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or
5
<PAGE>
representative capacity, such person should so indicate when signing, and,
unless waived by the Company, proper evidence satisfactory to the Company of
their authority to so act must be submitted.
5. EXCHANGE OF OLD NOTES ONLY. Only the above-described Old Notes may be
exchanged for New Notes pursuant to the Offer.
6. MISCELLANEOUS. All questions as to the validity, form, eligibility
(including time of receipt), acceptance and withdrawal of tendered Old Notes
will be resolved by the Company, whose determination will be final and binding.
The Company reserves the absolute right to reject any or all tenders that are
not in proper form or the acceptance of which would, in the opinion of counsel
for the Company, be unlawful. The Company also reserves the right to waive any
irregularities or conditions of tender as to particular Old Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in this Letter of Transmittal) will be final and
binding. Unless waived, any irregularities in connection with tenders or
consents must be cured within such time as the Company shall determine. Neither
the Company nor the Exchange Agent shall be under any duty to give notification
of defects in such tenders or shall incur liabilities for failure to give such
notification. Tenders of Old Notes will not be deemed to have been made until
such irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the irregularities
have not been cured or waived will be returned by the Exchange Agent to the
tendering holder thereof.
IMPORTANT TAX INFORMATION
Under current Federal income tax law, a Holder of an Old Note ("Old
Noteholder") whose tendered Old Notes are accepted for payment generally is
required to provide the Exchange Agent (as agent for the payer) with his or her
correct taxpayer identification number ("TIN") on Substitute Form W-9 below. If
such Old Noteholder is an individual, the TIN is his or her social security
number. If the Exchange Agent is not provided with the correct TIN, the Old
Noteholder may be subject to a $50 penalty imposed by the Internal Revenue
Service. In addition, payments that are made to such Old Noteholders with
respect to New Notes exchanged pursuant to the Offer may be subject to backup
withholding.
Certain Old Noteholders (including, among others, all corporations and
certain foreign individuals) may not be subject to these backup withholding and
reporting requirements. Exempt Old Noteholders should indicate their exempt
status on Substitute Form W-9. In order for a foreign individual to qualify as
an exempt recipient, that Old Noteholder must submit a properly completed
Internal Revenue Service Form W-8, signed under penalties of perjury, attesting
to his or her exempt status. Such statements can be obtained from the Exchange
Agent. See the enclosed Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9 for additional instructions.
If backup withholding applies, the Exchange Agent is required to withhold
31 percent of any such payments made to the Old Noteholder. Backup withholding
is not an additional tax. Rather, the federal income tax liability of persons
subject to backup withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a refund may be obtained.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to an Old
Noteholder with respect to Old Notes exchanged pursuant to the Offer, each Old
Noteholder is required to notify the Exchange Agent of his, her or its correct
TIN by completing the Substitute Form W-9 below certifying the TIN provided on
such form is correct (or that such Old Noteholder is awaiting a TIN) and that
(1) the Old Noteholder has not been notified by the Internal Revenue Service
that he, she or it is subject to backup withholding as a result of a failure to
report all interest or dividends or (2) the Internal Revenue Service has
notified the Old Noteholder that he, she or it is no longer subject to backup
withholding.
6
<PAGE>
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The Old Noteholder is required to give the Exchange Agent the social
security number or employer identification number of the record owner of the Old
Notes. If the Old Notes are in more than one name or are not in the name of the
actual owner, consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional guidelines on which
number to report.
PAYER'S NAME: FIRST TRUST OF NEW YORK, AS AGENT
<TABLE>
<CAPTION>
<S> <C> <C>
SUBSTITUTE FORM W-9 PART 1 -- PLEASE PROVIDE YOUR Social Security Number
TIN IN THE BOX AT RIGHT AND or
CERTIFY BY SIGNING AND DATING Employer Identification Number:
BELOW ______________
- ----------------------------------------------------------------------------------------------------------------
DEPARTMENT OF THE TREASURY PART 2 -- Certification -- Under penalties of perjury, I certify that:
INTERNAL REVENUE SERVICE
(1) The number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me) and
PAYER'S REQUEST FOR TAXPAYER (2) I am not subject to backup withholding because: (a) I am exempt from
IDENTIFICATION NUMBER "TIN" backup withholding, or (b) I have not been notified by the Internal
Revenue Service (the "IRS") that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to backup withholding.
Certification Instructions -- You must cross out Item (2) above if you have
been notified by the IRS that you are currently subject to backup withholding
because of under-reporting interest or dividends on your tax return. However,
if after being notified by the IRS that you were subject to backup withholding
you received another notification from the IRS that you are no longer subject to
backup withholding, do not cross out such Item (2).
---------------------------------------------------------------------------------
SIGNATURE:_____________________ PART 3
Awaiting
DATE: ___________ TIN [ ]
</TABLE>
- -------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31
PERCENT OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER, PLEASE REVIEW
THE ENCLOSED "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS.
7
<PAGE>
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF SUBSTITUTE FORM W-9
- -------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAX IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office, or (b) I intend to
mail or deliver an application in the near future. I understand that if I do
not provide a taxpayer identification number within sixty (60) days, 31 percent
of all reportable payments made to me thereafter will be withheld until I
provide a number.
- ------------------------- ------------------------------------------
Signature Date
- --------------------------------------------------------------------------------
8
<PAGE>
NOTICE OF GUARANTEED DELIVERY
for
Offer for All Outstanding
Privately Placed 9% Senior Subordinated Notes Due 2004
in Exchange for
9% Senior Notes Due 2004
of
STATER BROS. HOLDINGS INC.
Registered holders of privately placed 9% Senior Subordinated Notes Due
2004 (the "Old Notes") who wish to tender their Old Notes in exchange for a like
principal amount of 9% Senior Subordinated Notes Due 2004 (the "New Notes") and
whose Old Notes are not immediately available or who cannot deliver their Old
Notes and Letter of Transmittal or any other documents required by the Letter of
Transmittal to First Trust of New York (the "Exchange Agent") prior to the
Expiration Date, must use this Notice of Guaranteed Delivery or one
substantially equivalent hereto. This Notice of Guaranteed Delivery may be
delivered by hand or sent by facsimile transmission or mail to the Exchange
Agent. See "THE OFFER - Procedures for Tendering" in the Prospectus.
THE EXCHANGE AGENT FOR THE OFFER IS
FIRST TRUST OF NEW YORK
<TABLE>
<S> <C> <C>
BY HAND: BY REGISTERED, BY FIRST CLASS MAIL:
c/o FIRST TRUST NATIONAL CERTIFIED OR c/o FIRST TRUST
ASSOCIATION OVERNIGHT MAIL: NATIONAL ASSOCIATION
BOND DROP WINDOW c/o FIRST TRUST P.O. BOX 64485
180 EAST FIFTH STREET, NATIONAL ASSOCIATION ST. PAUL, MN 55164-9549
FOURTH FLOOR ATTN: SPECIALIZED
ST. PAUL, MN 55101 FINANCE
180 EAST FIFTH STREET
ST. PAUL, MN 55101
BY FACSIMILE: BY TELEPHONE:
(612) 244-1537 (612) 1-800-934-6802
BONDHOLDER SERVICES
</TABLE>
Delivery of this Notice of Guaranteed Delivery to an address other than as
set forth above or transmission of instructions via a facsimile transmission to
a number other than as set forth above will not constitute a valid delivery.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. if a signature on a Letter of Transmittal is required to be
guaranteed by an eligible institution under the instructions thereto, such
signature guarantee must appear in the applicable space provided on the Letter
of Transmittal for Guarantee of Signatures.
1
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders the principal amount of Old Notes indicated
below, upon the terms and subject to the conditions contained in the
Registration Statement on Form S-4 filed by Stater Bros. Holdings Inc., a
Delaware corporation, with the Securities and Exchange Commission (the
"Registration Statement") and the accompanying Prospectus dated ___________,
1997 included therein (the "Prospectus"), receipt of each of which is hereby
acknowledged.
DESCRIPTION OF SECURITIES TENDERED
<TABLE>
<S> <C> <C>
Name and address of registered
holder as it appears on the Certificate number(s) Principal Amount
Privately Placed 9% Senior Subordinated of Old Notes of Old Notes
Notes Due 2004 transmitted transmitted
("Old Notes")
- --------------------------------------- -------------------- -----------------
- --------------------------------------- -------------------- -----------------
- --------------------------------------- -------------------- -----------------
- --------------------------------------- -------------------- -----------------
- --------------------------------------- -------------------- -----------------
</TABLE>
2
<PAGE>
THE FOLLOWING GUARANTEE MUST BE COMPLETED
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm that is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or a commercial bank or trust company having an office, branch,
agency or correspondent in the United States, which is a member of a recognized
Medallion Signature Program approved by the Securities Transfer Association,
Inc., hereby guarantees to deliver to the Exchange Agent at one of its addresses
set forth above, the Old Notes, together with a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, and any other documents required by the Letter of
Transmittal within five New York Stock Exchange, Inc. trading days after the
date of execution of this Notice of Guaranteed Delivery.
Name of Firm:
--------------------- ---------------------------------
(Authorized Signature)
Address: Title:
-------------------------- -------------------------
- ----------------------------------
(Zip Code) Name:
-------------------------
(Please type or print)
Area Code and Telephone Number: Date:
-------------------------
- -------------------------------
NOTE: DO NOT SEND OLD NOTES WITH THIS NOTICE OF GUARANTEED DELIVERY. OLD
NOTES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL.
3
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated November 25, 1996, in the Registration Statement (Form
S-4 No. 33-xxxxx) and related Prospectus of Stater Bros. Holdings Inc. for the
registration of $100,000,000 Senior Subordinated Notes due 2004.
ERNST & YOUNG LLP
Riverside, California
August 15, 1997
<PAGE>
EXHIBIT 25
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
-----------------------
FORM T - 1
STATEMENT OF ELIGIBILITY UNDER THE TRUST
INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
----------------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305 (b) (2) _________
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
13-3781471
(I. R. S. Employer
Identification No.)
100 Wall Street, New York, NY 10005
(Address of principal executive offices) (Zip Code)
--------------------------
FOR INFORMATION, CONTACT:
Dennis Calabrese, President
First Trust of New York, National Association
100 Wall Street, 16th Floor
New York, NY 10005
Telephone: (212) 361-2506
--------------------------
(Exact name of obligor as specified in its charter)
Delaware 33-0350671
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
Stater Bros. Holdings Inc.
21700 Barton Road
Colton, California 92324
(Address of principal executive offices) (Zip Code)
---------------------------
DEBT 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.
Name Address
---- -------
Comptroller of the Currency Washington, D. C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. AFFILIATIONS WITH THE OBLIGOR.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
<PAGE>
Item 16. LIST OF EXHIBITS.
Exhibit 1. Articles of Association of First Trust of New York,
National Association, incorporated herein by reference to
Exhibit 1 of Form T-1, Registration No. 33-83774.
Exhibit 2. Certificate of Authority to Commence Business for First
Trust of New York, National Association, incorporated
herein by reference to Exhibit 2 of Form T-1, Registration
No. 33-83774.
Exhibit 3. Authorization of the Trustee to exercise corporate trust
powers for First Trust of New York, National Association,
incorporated herein by reference to Exhibit 3 of Form T-1,
Registration No. 33-83774.
Exhibit 4. By-Laws of First Trust of New York, National Association.
Exhibit 5. Not applicable.
Exhibit 6. Consent of First Trust of New York, National Association,
required by Section 321(b) of the Act, incorporated herein
by reference to Exhibit 6 of Form T-1, Registration No.
33-83774.
Exhibit 7. Report of Condition of First Trust of New York, National
Association, as of the close of business on June 30, 1997,
published pursuant to law or the requirements of its
supervising or examining authority.
Exhibit 8. Not applicable.
Exhibit 9. Not applicable.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, First Trust of New York, National Association, a national
banking association organized and existing under the laws of the United States,
has duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in The City of New York, and State
of New York, on the 15th day of August, 1997.
FIRST TRUST OF NEW YORK,
NATIONAL ASSOCIATION
By: /s/ Carmela Ehret
-----------------
Carmela Ehret
Vice President
<PAGE>
Exhibit 7
---------
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION
STATEMENT OF FINANCIAL CONDITION
AS OF 6/30/97
($000'S)
<TABLE>
<CAPTION>
6/30/97
--------
<S> <C>
ASSETS
Cash and Due From Depository Institutions $ 35,121
Federal Reserve Stock 3,490
Fixed Assets 802
Intangible Assets 77,269
Other Assets 5,921
--------
TOTAL ASSETS $122,603
========
LIABILITIES
Other Liabilities 7,037
--------
TOTAL LIABILITIES 703
EQUITY
Common and Preferred Stock 1,000
Surplus 120,932
Undivided Profits (6,367)
--------
TOTAL EQUITY CAPITAL 115,565
TOTAL LIABILITIES AND EQUITY CAPITAL $122,603
========
</TABLE>
=========================================================================
To the best of the undersigned's determination, as of this date the above
financial information is true and correct.
First Trust of New York, National Association
By: /s/ Carmela Ehret
-----------------
Vice President
Date: August 15, 1997
<PAGE>
FIRST TRUST OF NEW YORK,
NATIONAL ASSOCIATION
BYLAWS
------
ARTICLE I
---------
Meetings of Shareholders
------------------------
Section 1.1. Annual Meeting. The annual meeting of the shareholders, for
--------------
the election of directors and the transaction of other business, shall be held
at a time and place as the Chairman or President may designate. Notice of such
meeting shall be given at least ten days prior to the date thereof, to each
shareholder of the Association. If, for any reason, an election of directors is
not made on the designated day, the election shall be held on some subsequent
day, as soon thereafter as practicable, with prior notice thereof.
Section 1.2. Special Meetings. Except as otherwise specially provided by
----------------
law, special meetings of the shareholders may be called for any purpose, at any
time by a majority of the board of directors, or by any shareholder or group of
shareholders owning at least ten percent of the outstanding stock. Every such
special meeting, unless otherwise provided by law, shall be called upon not less
than ten days prior notice stating the purpose of the meeting.
Section 1.3. Nominations for Directors. Nominations for election to the
-------------------------
board of directors may be made by the board of directors or by any shareholder.
Section 1.4. Proxies. Shareholders may vote at any meeting of the
-------
shareholders by proxies duly authorized in writing. Proxies shall be valid only
for one meeting and any adjournments of such meeting and shall be filed with the
records of the meeting.
Section 1.5. Quorum. A majority of the outstanding capital stock,
------
represented in person or by proxy, shall constitute a quorum at any meeting of
shareholders, unless otherwise provided by law. A majority of the votes cast
shall decide every question or matter submitted to the shareholders at any
meeting, unless otherwise provided by law or by the Articles of Association.
-1-
<PAGE>
ARTICLE II
----------
Directors
---------
Section 2.1. Board of Directors. The board of directors (hereinafter
------------------
referred to as the "board"), shall have power to manage and administer the
business and affairs of the Association. All authorized corporate powers of the
Association shall be vested in and may be exercised by the board.
Section 2.2. Powers. In addition to the foregoing, the board of directors
------
shall have and may exercise all of the powers granted to or conferred upon it by
the Articles of Association, the Bylaws and by law.
Section 2.3. Number. The board shall consist of a number of members to be
------
fixed and determined from time to time by resolution of the board or the
shareholders at any meeting thereof, in accordance with the Articles of
Association.
Section 2.4. Organization Meeting. The newly elected board shall meet for
--------------------
the purpose of organizing the new board and electing and appointing such
officers of the Association as may be appropriate. Such meeting shall be held on
the day of the election or as soon thereafter as practicable, and, in any event,
within thirty days thereafter. If, at the time fixed for such meeting, there
shall not be a quorum present, the directors present may adjourn the meeting
until a quorum is obtained.
Section 2.5. Regular Meetings. The regular meetings of the board shall be
----------------
held, without notice, as the Chairman or President may designate and deem
suitable.
Section 2.6. Special Meetings. Special meetings of the board may be called
----------------
by the Chairman or the President of the Association, or at the request of two or
more directors. Each member of the board shall be given notice stating the time
and place of each such meeting.
Section 2.7. Quorum. A majority of the directors shall constitute a quorum
------
at any meeting, except when otherwise provided by law; but fewer may adjourn any
meeting. Unless otherwise provided, once a quorum is established, any act by a
majority of those constituting the quorum shall be the act of the board.
Section 2.8. Vacancies. When any vacancy occurs among the directors, the
---------
remaining members of the board may appoint a director to fill such vacancy at
any regular meeting of the board, or at a special meeting called for that
purpose.
-2-
<PAGE>
ARTICLE III
-----------
Committees
----------
Section 3.1. Advisory Board of Directors. The board may appoint persons,
---------------------------
who need not be directors, to serve as advisory directors on an advisory board
of directors established with respect to the business affairs of either this
Association alone or the business affairs of a group of affiliated organizations
of which this Association is one. Advisory directors, shall have such powers and
duties as may be determined by the board, provided, that the board's
responsibility for the business and affairs of this Association shall in no
respect be delegated or diminished.
Section 3.2. Audit Committee. The board shall appoint an Audit Committee
---------------
which shall consist of at least two Directors of the Association or of an
affiliate of the Association. If legally permissible, the Board may determine
to name itself as the Audit Committee. The Audit Committee shall direct and
review audits of the Association's fiduciary activities.
The members of the Audit Committee shall be appointed each year and shall
continue to act until their successors are named. The Audit Committee shall have
power to adopt its own rules and procedures and to do those things which in the
judgment of such Committee are necessary or helpful with respect to the exercise
of its functions or the satisfaction of its responsibilities.
Section 3.3. Executive Committee. The board may appoint an Executive
-------------------
Committee which shall consist of at least three directors and which shall have,
and may exercise, all the powers of the board between meetings of the board or
otherwise when the board is not meeting.
Section 3.4. Other Committees. The board may appoint, from time to time,
----------------
committees of one or more persons who need not be directors, for such purposes
and with such powers as the board may determine. In addition, either the
Chairman or the President may appoint, from time to time, committees of one or
more officers, employees, agents or other persons, for such purposes and with
such powers as either the Chairman or the President deems appropriate and
proper.
Whether appointed by the board, the Chairman, or the President, any such
Committee shall at all times be subject to the direction and control of the
board.
Section 3.5. Meetings. Minutes and Rules. An advisory board of directors
---------------------------
and/or committee shall meet as necessary in consideration of the purpose of the
advisory board of directors or committee, and shall maintain minutes in
sufficient detail to indicate actions taken or recommendations made; unless
required by the members, discussions,
-3-
<PAGE>
votes or other specific details need not be reported. An advisory board of
directors or a committee may, in consideration of its purpose, adopt its own
rules for the exercise of any of its functions or authority.
ARTICLE IV
----------
Officers and Employees
----------------------
Section 4.1. Chairman of the Board. The board may appoint one of its
---------------------
members to be Chairman of the board to serve at the pleasure of the board. The
Chairman shall supervise the carrying out of the policies adopted or approved by
the board; shall have general executive powers, as well as the specific powers
conferred by these Bylaws; shall also have and may exercise such powers and
duties as from time to time may be conferred upon or assigned by the board.
Section 4.2. President. The board may appoint one of its members to be
---------
President of the Association. In the absence of the Chairman, the President
shall preside at any meeting of the board . The President shall have general
executive powers, and shall have and may exercise any and all other powers and
duties pertaining by law, regulation or practice, to the Office of President, or
imposed by these Bylaws. The President shall also have and may exercise such
powers and duties as from time to time may be conferred or assigned by the
Board.
Section 4.3. Vice President. The board may appoint one or more Vice
--------------
Presidents who shall have such powers and duties as may be assigned by the board
and to perform the duties of the President on those occasions when the President
is absent, including presiding at any meeting of the board in the absence of
both the Chairman and President.
Section 4.4. Secretary. The board shall appoint a Secretary, or other
---------
designated officer who shall be Secretary of the board and of the Association,
and shall keep accurate minutes of all meetings. The Secretary shall attend to
the giving of all notices required by these Bylaws to be given; shall be
custodian of the corporate seal, records, document and papers of the
Association; shall provide for the keeping of proper records of all transactions
of the Association; shall have and may exercise any and all other powers and
duties pertaining by law, regulation or practice, to the Secretary, or imposed
by these Bylaws; and shall also perform such other duties as may be assigned
from time to time, by the Board .
Section 4.5. Other Officers. The board may appoint, and may authorize the
--------------
Chairman or the President to appoint, any officer as from time to time may
appear to the board, the Chairman or the President to be required or desirable
to transact the business of the Association. Such officers shall exercise such
powers and perform such duties as pertain to their several offices, or as may be
conferred upon or assigned to them by these Bylaws, the board, the Chairman or
the President.
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Section 4.6. Tenure of Office. The Chairman or the President and all other
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officers shall hold office for the current year for which the board was elected,
unless they shall resign, become disqualified, or be removed. Any vacancy
occurring in the Office of Chairman or President shall be filled promptly by the
board.
Any officer elected by the board or appointed by the Chairman or the
President may be removed at any time, with or without cause, by the affirmative
vote of a majority of the board or, if such officer was appointed by the
Chairman or the President, by the Chairman or the President, respectively.
ARTICLE V
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Stock
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Section 5.1. Shares of stock shall be transferable on the books of the
Association, and a transfer book shall be kept in which all transfers of stock
shall be recorded. Every person becoming a shareholder by such transfer shall,
in proportion to such person's shares, succeed to all rights of the prior holder
of such shares. Each certificate of stock shall recite on its face that the
stock represented thereby is transferable only upon the books of the Association
properly endorsed.
ARTICLE VI
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Corporate Seal
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Section 6.1. The Chairman, the President, the Secretary, any Assistant
Secretary or other officer designated by the board, the Chairman, or the
President, shall have authority to affix the corporate seal to any document
requiring such seal, and to attest the same. Such seal shall be substantially
in the following form:
ARTICLE VII
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Miscellaneous Provisions
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Section 7.1. Execution of Instruments. All agreements, checks, drafts,
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orders, indentures, notes, mortgages, deeds, conveyances, transfers,
endorsements, assignments, certificates, declarations, receipts, discharges,
releases, satisfactions, settlements, petitions, schedules, accounts,
affidavits, bonds, undertakings, guarantees, proxies and other instruments or
documents may be signed, countersigned, executed, acknowledged, endorsed,
verified, delivered or accepted on behalf of the Association, whether in a
fiduciary capacity or otherwise, by any officer of the Association, or such
employee or agent as may be designated from time to time by the board by
resolution, or by the Chairman or the President by written instrument, which
resolution or instrument shall be certified as in effect by the Secretary or an
Assistant Secretary of the
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Association. The provisions of this section are supplementary to any other
provision of the Articles of Association or Bylaws.
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Section 7.2. Records. The Articles of Association, the Bylaws and the
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proceedings of all meetings of the shareholders, the board, and standing
committees of the board, shall be recorded in appropriate minute books provided
for the purpose. The minutes or each meeting shall be signed by the Secretary,
or other officer appointed to act as Secretary of the meeting.
Section 7.3. Trust Files. There shall be maintained in the Association
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files all fiduciary records necessary to assure that its fiduciary
responsibilities have been properly undertaken and discharged.
Section 7.4. Trust Investments. Funds held in a fiduciary capacity shall
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be invested according to the instrument establishing the fiduciary relationship
and according to law. Where such instrument does not specify the character and
class of investments to be made and does not vest in the Association a
discretion in the matter, funds held pursuant to such instrument shall be
invested in investments in which corporate fiduciaries may invest under law.
Section 7.5. Notice. Whenever notice is required by the Articles of
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Association, the Bylaws or law, such notice shall be by mail, postage prepaid,
telegram, in person, or by any other means by which such notice can reasonably
be expected to be received, using the address of the person to receive such
notice, or such other personal data, as may appear on the records of the
Association. Prior notice shall be proper if given not more than 30 days nor
less than 10 days prior to the event for which notice is given.
ARTICLE VIII
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Indemnification
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Section 8.1. The association shall indemnify to the full extent permitted
by, and in the manner permissible under, the Articles of Association and the
laws of the United States of America, as applicable and as amended from time to
time, any person made, or threatened to be made, a party to any action, suit or
proceeding, whether criminal, civil, administrative or investigative, by reason
of the fact that such person is or was a director, advisory director, officer or
employee of the Association, or any predecessor of the Association, or served
any other enterprise as a director or officer at the request of the Association
or any predecessor of the Association.
Section 8.2. The board in its discretion may, on behalf of the
Association, indemnify any person, other than a director, advisory director,
officer or employee, made a party to any action, suit or proceeding by reason of
the fact that such person is or was an agent of the Association or any
predecessor of the Association serving in such capacity at the request of the
Association or any predecessor of the Association.
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ARTICLE IX
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Bylaws: Interpretation and Amendment
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Section 9.1. These Bylaws shall be interpreted in accordance with and
subject to appropriate provisions of law, and may be amended, altered or
repealed, at any regular or special meeting of the board.
Section 9.2. A copy of the Bylaws, with all amendments, shall at all times
be kept in a convenient place at the main office of the Association, and shall
be open for inspection to all shareholders during Association hours.
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I, Carmela Ehret, hereby certify that: (i) I am a duly constituted
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Assistant Secretary of FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION (the
"Association") and (ii) the foregoing bylaws are the bylaws of the Association,
and all of them are now lawfully in force and effect.
I have hereunto affixed my official signature and the seal of the
Association, in the City of New York, on the 15th day of August, 1997.
By: /S/ Carmela Ehret
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Name: Carmela Ehret
Title: Assistant Secretary
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