SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 28, 1996 Commission File Number 33-68958
Specialty Foods Acquisition Corporation
(Exact name of registrant as specified in its charter)
State of Delaware 75-2488183
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
9399 W. Higgins Road, Suite 800, Rosemont, IL 60018
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 685-1000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
The number of shares outstanding of the Registrant's common stock as of
November 11, 1996 was 63,484,491 shares.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands)
September 28, December 30,
1996 1995
-----------------------------
Assets (unaudited)
Current assets:
Cash $ 2,932 $ 18,229
Accounts receivable, net 51,342 54,987
Inventories 157,564 149,072
Other current assets 24,607 10,151
---------- ----------
Total current assets 236,445 232,439
Property, plant and equipment, net 341,365 369,430
Intangible assets, net 463,174 471,874
Other noncurrent assets 39,596 43,892
---------- ----------
Total assets $1,080,580 $1,117,635
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 4,158 $ 4,177
Accounts payable 170,439 148,550
Accrued expenses 103,457 120,586
---------- ----------
Total current liabilities 278,054 273,313
Long-term debt 1,166,260 1,139,556
Other noncurrent liabilities 57,834 57,828
---------- ----------
Total liabilities 1,502,148 1,470,697
---------- ----------
Stockholders' equity (421,568) (353,062)
---------- ----------
Total liabilities and stockholders'
equity $1,080,580 $1,117,635
========== ==========
See accompanying notes to financial statements.
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands, except per share data)
Three months ended Nine months ended
September 28, September 30, September 28, September 30,
1996 1995 1996 1995
----------------------------------------------------------
Net sales 530,804 505,606 1,509,877 1,470,550
Cost of sales 378,988 353,887 1,067,659 1,022,817
-------- -------- --------- ---------
Gross profit 151,816 151,719 442,218 447,733
Operating expenses:
Selling, general and
administrative expenses 131,498 123,374 399,907 369,630
Amortization of
intangibles 3,836 5,120 11,028 15,300
-------- -------- --------- ---------
Total operating
expenses 135,334 128,494 410,935 384,930
-------- -------- --------- ---------
Operating income 16,482 23,225 31,283 62,803
Other:
Interest expense 33,816 32,257 101,150 97,605
Other (income) expense,
net 2,715 133 (3,282) 3,661
-------- -------- --------- ---------
Loss before income taxes
and extraordinary item (20,049) (9,165) (66,585) (38,463)
Provision for income
taxes 956 1,355 1,988 2,604
-------- -------- --------- ---------
Loss before
extraordinary item (21,005) (10,520) (68,573) (41,067)
Extraordinary item - (15,956) - (18,279)
-------- -------- --------- ---------
Net loss $ ( 21,005) (26,476) (68,573) (59,346)
Loss per share:
Loss before extraordinary
item $ (.33) (.16) (1.08) (.64)
Extraordinary item - (.25) - (.28)
-------- -------- ---------- --------
Net loss $ (.33) (.41) (1.08) (.92)
Weighted average common
shares outstanding 63,485 64,482 63,692 64,309
See accompanying notes to financial statements.
SPECIALTY FOODS ACQUISITION CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Nine months ended
September 28, September 28,
1996 1995
--------------------------------
Cash flows from operating activties:
Net loss (68,573) (59,346)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization 46,827 49,710
Debt issuance cost amortization 4,551 5,969
Accretion of interest on debentures 28,292 25,206
Write-off of deferred debt financing costs - 18,279
Proceeds from sale of undivided interest
in accounts receivable 17,500 -
Changes in operating assets and
liabilities and other, net (35,317) (35,319)
--------- ---------
Net cash provided by (used in)
operating activities (6,720) 4,499
Cash flows from investing activities:
Capital expenditures (42,624) (24,710)
Proceeds from insurance claim 15,000 -
Proceeds from sale-leaseback of equipment 17,941 -
Divestiture of businesses 6,240 -
Acquisition of businesses - (12,429)
Other 841 2,776
--------- ---------
Net cash used in investing activities (2,602) (34,363)
Cash flows from financing activities:
Increase in revolving credit 2,400 25,650
Payments on long-term debt (2,090) (373,656)
Proceeds from long-term debt - 380,916
Other (6,285) (4,697)
--------- ---------
Net cash provided by (used in)
financing activities (5,975) 28,213
Decrease in cash (15,297) (1,651)
Cash at beginning of period 18,229 1,762
--------- ---------
Cash at end of period $ 2,932 $ 111
========= =========
See accompanying notes to financial statements.
NOTE 1 - Interim Financial Information
In the opinion of management, the accompanying unaudited interim condensed
financial information of Specialty Foods Acquisition Corporation ("SFAC")
and its subsidiaries (together with SFAC, the "Company") contains all
adjustments, consisting only of those of a recurring nature, necessary to
present fairly the Company's financial position and results of operations.
All significant intercompany accounts, transactions and profits have been
eliminated.
These financial statements are for interim periods and do not include all
information normally provided in annual financial statements, and should be
read in conjunction with the financial statements of the Company for the
year ended December 30, 1995 included in the annual report filed on Form 10-
K. The results of operations for interim periods are not necessarily
indicative of the results that may be expected for the full year.
Certain amounts included in the 1995 financial statements have been
reclassified to conform to the manner in which the 1996 financial
statements have been presented.
NOTE 2 - Inventories
The components of inventories are as follows:
September 28, December 30,
1996 1995
------------------------------
Raw materials and packaging $ 32,401 $ 28,447
Work in process 54,375 55,119
Finished goods 70,788 65,506
--------- ---------
$ 157,564 $ 149,072
Inventories are stated at the lower of cost or market. Cost is determined
principally by the first-in, first-out ("FIFO") method.
NOTE 3 - Product Grouping Information
All of the Company's operations fall within the food industry segment. Net
sales, gross profit and operating profit for the Company's major product
groupings are summarized below:
Three months ended September 28, 1996
-------------------------------------------------------------
Cheese and Other
Bakery Meat Specialty Food Corporate Total
Operations Operations Operations and Other Operations
---------- ---------- -------------- --------- ----------
Net sales $232,465 $259,406 $38,933 - $530,804
Gross profit $113,932 $ 24,430 $13,454 - $151,816
Operating profit $ 16,218 $ 1,512 $ 1,313 $(2,561) $ 16,482
Three months ended September 30, 1995
-------------------------------------------------------------
Cheese and Other
Bakery Meat Specialty Food Corporate Total
Operations Operations Operations and Other Operations
---------- ---------- -------------- --------- ----------
Net sales $233,529 $239,960 $32,117 - $505,606
Gross profit $110,834 $ 29,269 $11,616 - $151,719
Operating profit $ 13,273 $ 9,869 $ 1,861 $(1,778) $ 23,225
Nine months ended September 28, 1996
-------------------------------------------------------------
Cheese and Other
Bakery Meat Specialty Food Corporate Total
Operations Operations Operations and Other Operations
---------- ---------- -------------- --------- ----------
Net sales $675,983 $718,894 $115,000 - $1,509,877
Gross profit $324,409 $ 79,526 $ 38,283 - $ 442,218
Operating profit $ 27,404 $ 9,157 $ 4,243 $(9,521) $ 31,283
Nine months ended September 30, 1995
-------------------------------------------------------------
Cheese and Other
Bakery Meat Specialty Food Corporate Total
Operations Operations Operations and Other Operations
---------- ---------- -------------- --------- ----------
Net sales $671,215 $699,900 $99,435 - $1,470,550
Gross profit $323,851 $ 89,678 $34,204 - $ 447,733
Operating profit $ 35,277 $ 28,635 $ 4,735 $(5,844) $ 62,803
The Bakery Operation's products primarily consist of breads, buns, rolls,
sweet goods, cookies and sourdough French bread. These products are
distributed primarily through a Company-owned DSD system throughout the
Midwestern United States, California and the Pacific Northwest.
The Cheese and Meat Operation's products primarily consist of specialty
Italian cheeses, other European-style specialty cheeses, basic Italian
cheeses and pre-cooked meat products. The cheese products are sold
throughout the United States, through retail grocers, to foodservice
accounts and to industrial food processors. The meat products are sold
primarily to national and regional restaurant chains and to prepared-food
producers.
Products in the Other Specialty Food Operations grouping include pickles,
peppers and spices sold through retail grocers in the greater New York
metropolitan area and bagel chips distributed nationally through brokers
and distributors to grocery stores, gourmet shops and club stores. The
Company also operates 37 cafe shops located in the San Francisco Bay area,
San Diego and the greater Chicago area.
NOTE 4 - Stella Fire
On January 5, 1996, a Stella Foods, Inc. ("Stella") cheese manufacturing
plant located in Lena, Wisconsin was substantially destroyed by fire. The
plant, which was responsible for approximately 20% of Stella's production,
produced mozzarella and ricotta cheeses sold primarily under the Frigo
trademark. The Company has rebuilt the plant and expects to resume full
production in the 1996 fourth quarter.
The Company has comprehensive insurance which provides replacement cost
coverage for all property damage, as well as reimbursement for extra
expense and lost operating profit for the period until the plant is fully
operational.
As of September 28, 1996, the Company has recorded an insurance claim in
the amount of $53.7 million and has received $35.0 million from its
insurance carriers. In the Company's statement of cash flows for the nine-
month period ended September 28, 1996, the insurance proceeds which relate
to destroyed property ($15.0 million) have been classified with investing
activities, while the remainder of the proceeds have been classified with
operating activities. Additionally, the portion of the claim representing
coverage for the lost operating profit ($4.0 million) and the portion
representing the excess of replacement cost over book value of assets
destroyed and written off ($13.0 million), have been recorded as other
income in the statement of operations for the nine-month period ended
September 28, 1996. The Company expects settlement procedures with its
insurance carriers to continue through the first quarter of 1997.
In order to accelerate the collection of amounts due to the Company under
its insurance claim, on August 12, 1996, the Company sold $10.0 million of
the insurance receivable to Acadia Partners, L.P., Keystone, Inc., and Haas
Wheat Advisory Partners Incorporated, each of which is a stockholder or an
affiliate of a stockholder of SFAC. The net proceeds ($9.8 million) from
the sale have been classified with operating activities in the Company's
statement of cash flows.
NOTE 5 - Sale-Leaseback Transaction
On April 25, 1996 the Company entered into several agreements for the sale
and leaseback of approximately $17.9 million of production equipment at
four bakeries and two cheese plants. The leases are classified as
operating leases and, accordingly, the book value of the equipment was
removed from the balance sheet. Losses of $2.2 million realized on the
sale of equipment at two facilities were recognized immediately and
recorded in other expense while gains of $5.0 million realized on the
equipment sales at the other four facilities are being deferred and
amortized to income as rent expense adjustments over the 6 1/2-year lease
term.
NOTE 6 - Dispositions
On May 18, 1996, the Company sold its baking business in North Vancouver,
British Columbia for cash proceeds of $1.5 million. The assets sold
consisted primarily of accounts receivable, equipment and customer routes.
A loss of $4.5 million ($3.8 million after taxes), resulted from the
transaction and is recorded in other expense. The 1996 revenues of this
business through the date of sale approximated $9 million.
In a separate transaction, on August 2, 1996, the Company sold the building
and land associated with the above business for aggregate proceeds of $4.7
million, which approximated book value.
NOTE 7 - Accounts Receivable
On August 1, 1996, the maximum allowable amount of accounts receivable that
could be sold by the Company pursuant to its existing Pooling Agreement was
increased from $95 million to $115 million. The amount outstanding at any
date varies based upon the level of eligible receivables. As of September
28, 1996 and September 30, 1995, the consolidated accounts receivable
balance has been reduced by $112.5 million and $95.0 million, respectively,
due to the receivables sold.
NOTE 8 - Debt Covenants
In October 1996, the Company requested and received covenant relief from
its lenders in the form of an amendment to its third quarter covenants. In
connection with the amendment, the interest rate paid by the Company on its
outstanding indebtedness under the Credit Facilities was increased,
effective October 24, 1996, from LIBOR plus 2 1/2% to LIBOR plus 2 3/4%.
Based upon its current projections, the Company anticipates that additional
covenant relief will be requested for its fourth quarter 1996 covenants.
Management believes, based on discussions with the Company's lenders, that
it will be able to obtain the appropriate covenant relief, although there
can be no assurance that such relief will be granted.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Potential Sales of Businesses
In a press release dated June 6, 1996, the Company announced that it had
retained an investment bank to advise it in connection with the potential
sale of certain of its non-core businesses. The companies targeted for
potential sale are Mother's Cake & Cookie Co., Bloch & Guggenheimer, Inc.,
Burns & Ricker, Inc. and San Francisco French Bread Company. The Company
expects to complete its analysis of the potential divestitures by year-end.
The companies targeted for potential sale together accounted for less than
20 percent of the Company's revenues in 1995 and 1996.
Seasonality
The Company's businesses are moderately seasonal with higher sales and
operating profit generally occurring in the third and fourth quarters of
the year. This seasonality is due primarily to higher bread sales in the
summer months and higher cheese sales in the fall and winter months.
Commodity Ingredients
The Company is a significant purchaser of commodity ingredients,
particularly flour, milk and various meat products (primarily beef). These
commodities represent significant components of product costs in the
Company's Bakery, Cheese and Meat Operations. As a result, movement in the
price level of these commodities can have a significant impact on the
Company's production costs and, ultimately, its profitability.
The bulk of these commodities are purchased on the open market at current
rates. However, occasionally the Company makes advance purchases of these
products in order to lock in what is perceived to be favorable pricing and
to protect itself from market price fluctuations. This is particularly the
case with respect to the Company's purchases of flour for its Bakery
Operations.
The Company attempts to pass through increases in the costs of ingredients
to its customers where possible. The ability to do so is dependent
primarily upon competitive conditions in the geographies in which the
Company conducts business and upon consumer demand for products in
categories in which the Company competes. Generally, increases in
commodity costs adversely impact the Company. This is not the case,
however, as it relates to meat commodity costs. Due to the standard
formula pricing method used in the industry, lower meat costs negatively
impact the profitability of the Company's Meat Operations.
As further discussed below in "Results of Operations", sharp increases in
the price of milk have significantly decreased the profit and operating
cash flow of the Company's Cheese Operations for the three- and nine-month
period ended September 28, 1996. Although milk costs will continue to
exceed historical averages in the fourth quarter, a recent decline in the
price of milk, coupled with pricing actions taken by the Company, have
improved the fourth quarter profit outlook for the Cheese Operations.
Management continues to believe that the 1996 increase in the cost of milk
to record levels is temporary in nature and, consequently, management
expects the performance of its Cheese Operations to improve significantly
when the price of milk declines to levels originally forecasted for 1996.
In conjunction with the Company's annual planning process, which will be
completed in the fourth quarter of 1996, management will assess the impact
of increased milk costs and other variables on the longer term
profitability of its Cheese Operations and will record an adjustment to the
goodwill of such operations, if required.
Results of Operations
COMPARISON OF THIRD QUARTER 1996 TO THIRD QUARTER 1995
Consolidated net sales for the quarter ended September 28, 1996 increased
5% to $531 million compared to $506 million in 1995. Excluding the impact
of acquisitions and dispositions, net sales increased approximately $35
million or 7%.
Net sales of the Bakery Operations were essentially flat compared to 1995
as price increases were offset by the impact of the disposition of the
Company's Canadian Bakery operation in May, 1996. Net sales of the Cheese
and Meat Operations, consisting of Stella and H&M Food Systems Company,
Inc. (H&M), respectively, increased $19 million (8%) to $259 million. Net
sales increased at Stella by $16 million (9%) and by $3 million (5%) at
H&M. Stella's net increase in sales resulted primarily from price
increases of $24 million (13%), reflecting the significant increase in the
cost of milk in 1996, partially offset by the impact of a mix shift to
lower priced products and a slight decline in volume due to the fire at its
Lena, Wisconsin manufacturing plant in January, 1996. (See Note 4 in the
Notes to Financial Statements for further discussion regarding the fire and
its impacts.) Excluding the negative impact of the fire, volume increased
approximately 3%. The increase at H&M was primarily due to increased
volume and a mix shift to higher priced products. Net sales of the Other
Specialty Food Operations increased $7 million (21%) primarily due to
increased sales volume of pickles and peppers, the incremental sales
contribution from the New York Style Bagel Chip business, which was
acquired in September 1995, and the contribution from new store openings in
the Company's retail bakery operations.
The Company's gross profit margin decreased to 28.6% from 30.0% in 1995
primarily due to a significant increase in the cost of milk, the key
commodity ingredient in the Company's Cheese Operations, partially offset
by price increases and continuing manufacturing cost reductions.
Operating profit in the Bakery Operations increased 22% to $16.2 million
compared to $13.3 million in 1995. This increase was principally due to
strong results in the Company's core bread business as price increases more
than offset the increased cost of flour and other inflationary cost
increases.
Operating profit in the Cheese and Meat Operations decreased to $1.5
million compared to $9.9 million in 1995. Operating profit at Stella
decreased $8.8 million principally due to an unprecedented increase
(approximately 30%) in the cost of milk, increased SG&A expenses and volume
losses resulting from the fire, partially offset by price increases and
various manufacturing cost reductions. The Company has taken aggressive
pricing actions to pass on the increased cost of milk; however, customer
resistance to increased pricing, coupled with normal delays associated with
implementing price changes, particularly for cheese products sold in the
retail channel, have prevented Stella from offsetting the increased cost of
milk. SG&A expenses at Stella have increased approximately $4 million
principally due to increased marketing and promotion expenditures
associated with new product introductions and increased distribution costs
associated with Stella's initiative to improve its customer service
capabilities. Operating profit at H&M increased 29% as the negative
impacts of lower volume and lower commodity prices were more than offset by
a favorable mix shift to higher margin products, manufacturing cost
reductions and decreased amortization expense due to the 1995 goodwill
writedown.
Operating profit in the Other Specialty Food Operations decreased to $1.3
million from $1.9 million in 1995 due to a decrease in the earnings of the
Company's retail bakery operations due principally to start-up costs
associated with new store openings.
Interest expense in 1996 increased 5% to $33.8 million from $32.3 million
in 1995 principally due to the additional indebtedness that results from
the accretion of interest on the Company's Senior Debentures and
Subordinated Debentures.
The effective income tax rates in 1996 and 1995 differ from the Federal
statutory rate primarily due to the nondeductibility of the amortization of
certain intangible assets and tax benefits not currently recognizable for
financial statement purposes.
The extraordinary loss of $16.0 million in 1995 results from the write-off
of deferred financing costs associated with certain borrowings that were
repaid by the Company in the 1995 third quarter.
As a result of the above factors, net loss decreased to $21.0 million in
1996 from $26.5 million in 1995.
EBITDA
Because of the highly-leveraged status of the Company, earnings before
interest, taxes, depreciation, and amortization ("EBITDA") is an important
performance measure used by the Company and its stakeholders. The Company
believes that EBITDA provides additional information for determining its
ability to meet future debt service requirements. However, EBITDA is not a
defined term under generally accepted accounting principles ("GAAP") and is
not indicative of operating income or cash flow from operations as
determined under GAAP. The Company's EBITDA in 1996, which also includes
the portion of its insurance claim that relates to lost operating profit,
decreased to $32.6 million from $39.7 million in the same quarter of 1995
for the reasons described above.
NINE MONTHS ENDED SEPTEMBER 28, 1996 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1995
Consolidated net sales for the nine months ended September 28, 1996
increased 2.7% to $1.510 billion compared to $1.471 billion in 1995.
Acquisition and disposition activity had a negligible impact on the
comparability of consolidated net sales.
Net sales of the Bakery Operations increased $5 million (1%) to $676
million. This increase was primarily due to price increases, substantially
offset by the net impact of acquisition and disposition activity. Net sales
of the Cheese and Meat Operations, consisting of Stella and H&M,
respectively, increased $19 million (3%) to $719 million. Net sales
increased at Stella by $29 million (5%) and declined $10 million (7%) at H&M.
Stella's net increase in sales resulted primarily from price increases of
$51 million (9%), reflecting the significant increase in the cost of milk in
1996, partially offset by a 4% decline in volume which resulted primarily
from a fire at its Lena, Wisconsin manufacturing plant in January, 1996.
(See Note 4 in the Notes to Financial Statements for further discussion
regarding the fire and its impacts.) Excluding the negative impact of the
fire, volume increased 3%. The decline at H&M was primarily due to lower
commodity prices and lower volume, partially offset by a mix shift to higher
priced products. Net sales of the Other Specialty Food Operations increased
$16 million (16%) primarily due to increased sales volume of pickles and
peppers, the incremental sales contribution from the New York Style Bagel
Chip business, which was acquired in September, 1995, and the contribution
from new store openings in the Company's retail bakery operations.
The Company's gross profit margin decreased to 29.3% from 30.4% in 1995
primarily due to the significant increase in the cost of flour and milk,
the key commodity ingredients in the Company's Bakery and Cheese
Operations, respectively, partially offset by price increases and continued
manufacturing cost reductions.
Operating profit in the Bakery Operations decreased to $27.4 million
compared to $35.3 million in 1995. The decrease was principally due to the
significant increase in the cost of flour and increases in SG&A expenses,
partially offset by price increases and decreased amortization expense due
to the 1995 goodwill write down. The price of flour increased over 20%
compared to 1995 and increased cost of sales in the first nine months of
1996 by approximately $11 million versus the same period a year ago. SG&A
expenses in the Bakery Operations increased in 1996 principally due to
inflation and increases in marketing and promotion expenses primarily
related to the Company's cookie business.
Operating profit in the Cheese and Meat Operations decreased to $9.2
million compared to $28.6 million in 1995. Operating profit at Stella
decreased $20 million principally due to an unprecedented increase
(approximately 20%) in the cost of milk, increased SG&A expenses and volume
losses resulting from the fire, partially offset by price increases and
various manufacturing cost reductions. The Company has taken aggressive
pricing actions to pass on the increased cost of milk; however, customer
resistance to increased pricing, coupled with normal delays associated with
implementing price changes, particularly for cheese products sold in the
retail channel, have prevented Stella from offsetting the increased cost of
milk. SG&A expenses at Stella have increased principally due to increased
marketing and promotion expenditures associated with new product
introductions and increased distribution costs associated with Stella's
initiative to improve its customer service capabilities. Operating profit
at H&M increased 14% as the negative impacts of lower volume and lower
commodity prices were more than offset by a favorable mix shift to higher
margin products, manufacturing cost reductions and decreased amortization
expense due to the 1995 goodwill writedown.
Operating profit in the Other Specialty Foods Operations decreased to $4.2
million from $4.7 million in 1995 as solid profit growth in the pickles and
bagel chip businesses was more than offset by a decrease in earnings from
the Company's retail bakery operations principally due to start-up costs
associated with new store openings.
Corporate and other expenses increased in 1996 primarily due to termination
costs associated with the resignation of the Company's President and Chief
Executive Officer on January 12, 1996.
Interest expense in 1996 increased 4% to $101.2 million from $97.6 million
in 1995 principally due to the additional indebtedness that results from
the accretion of interest on the Company's Senior Debentures and
Subordinated Debentures.
Other (income) expense, net was $3.3 million income in 1996 compared to
expense of $3.7 million in 1995. The net other income in 1996 results
primarily from the Company's insurance recovery, partially offset by a loss
incurred in connection with the disposition of the Company's Canadian
bakery operations and a loss on the sale and leaseback of certain
equipment. These transactions are more fully described in the Notes to
Financial Statements.
The effective income tax rates in 1996 and 1995 differ from the Federal
statutory rate primarily due to the nondeductibility of the amortization of
certain intangible assets and tax benefits not currently recognizable for
financial statement purposes.
The extraordinary loss of $18.3 million in 1995 results from the write-off
of deferred financing costs associated with certain borrowings that were
repaid by the Company in the first and third quarters of 1995.
As a result of the above factors, net loss increased to $68.6 million in
1996 from $59.3 million in 1995.
EBITDA
Because of the highly-leveraged status of the Company, EBITDA is an
important performance measure used by the Company and its stakeholders.
The Company believes that EBITDA provides additional information for
determining its ability to meet future debt service requirements. However,
EBITDA is not a defined term under generally accepted accounting principles
("GAAP") and is not indicative of operating income or cash flow from
operations as determined under GAAP. The Company's EBITDA in 1996, which
also includes the portion of its insurance claim that relates to lost
operating profit, decreased to $82.1 million from $112.5 million in 1995
for the reasons described above.
Liquidity and Capital Resources
Net cash used in operating activities was $6.7 million in 1996 compared to
net cash provided by operating activities of $4.5 million in 1995. The
difference is principally due to lower operating profit in
1996 and a net increase in the Company's working capital accounts,
partially offset by the cash proceeds from the sale of additional accounts
receivable in the third quarter. The Company's Accrued Expenses account
typically decreases significantly at the end of the first and third quarter
of each year principally due to the semi-annual interest payments made in
February and August totaling $22.8 million on its 10 1/4% Senior Notes and
11 1/4% Senior Subordinated Notes. Through September 28, 1996, the operating
cash expenditures resulting from the Stella fire have been substantially
offset by proceeds received from the Company's insurance carriers and from
the August 12, 1996, sale of $10 million of the Company's insurance
receivable. (See Note 4 in the Notes to Financial Statements for further
discussion regarding the fire and its impacts.)
In connection with the acquisition of the Company in August, 1993, the
Company recorded certain liabilities for the expected cash cost to
consolidate facilities and streamline operations. These costs, which are
included in Accrued Expenses, consist of severance and related termination
benefits, lease terminations and other related costs. Cash expenditures
associated with these liabilities were $9.0 million and $12.0 million for
the nine months ended September 28, 1996 and September 30, 1995,
respectively.
Net cash used in investing activities was $2.6 million in 1996 compared to
$34.4 million in 1995. Investing activities in 1996 includes proceeds of
$15.0 million from the Stella fire insurance claim and $17.9 million from
the Company's second quarter sale-leaseback transaction involving equipment
at certain plants within its Bakery and Cheese Operations. Capital
expenditures were $42.6 million in 1996 and $24.7 million in 1995. The
increase in capital spending in 1996 is primarily due to spending required
to rebuild the Stella plant which was destroyed by fire. Excluding
spending for the plant rebuild, which will be funded by the Company's
insurance claim, capital expenditures in 1996 are expected to approximate
$35 million and will be funded from internal sources and from available
borrowing capacity under the Revolving Credit Facility. The planned level
of capital expenditures is needed primarily to maintain the Company's
existing level of operations and enhance its production efficiencies.
Net cash used in financing activities was $6.0 million in 1996 compared to
net cash provided by financing activities of $28.2 million in 1995. The
Revolving Credit Facility provides for borrowing of up to $125 million.
At September 28, 1996, $75 million was outstanding under the Revolving
Credit Facility and the Company had $24.1 million of outstanding letters of
credit. The letters of credit reduce the availability of the facility and,
as a result, $25.9 million was available for borrowing at September 28,
1996.
The consolidated indebtedness of the Company as of September 28, 1996 consisted
of $75 million under the Revolving Credit Facility, $174.5 million under the
Term Facility, $225 million in 10 1/4% Senior Notes due 2001, $200 million
in 11 1/4% Senior Subordinated Notes due 2003, $150 million in 11 1/8% Senior
Notes due 2002, $222 million of Senior Debentures due 2005, $107 million of
Subordinated Debentures due 2006, and $17 million of other indebtedness,
principally industrial development bonds.
With respect to the $174.5 million borrowed under the Term Facility, the
Company will be required to make principal payments of $.25 million, $.5
million, $.5 million, $.5 million, $86.5 million and $86.25 million in 1996,
1997, 1998, 1999, 2000, and 2001, respectively. Borrowings under the
Revolving Credit Facility will mature in April, 2001.
The $222 million of Senior Debentures and $107 million of Subordinated
Debentures are obligations of SFAC, a holding company which conducts business
through Specialty Foods Corporation (SFC) and SFC's subsidiaries and has no
operations of its own. The primary asset of SFAC is the common stock of SFC.
SFAC has no other cash flows other than from dividends and other distributions
from SFC. The right of SFAC to participate in any distribution of earnings
or assets of SFC and SFC's subsidiaries is subject to the prior claims of the
creditors of SFC and such subsidiaries. In addition, the agreements governing
the Term Facility and the Revolving Credit Facility and the indentures
governing the existing public debt of SFC (the Senior Notes and the Senior
Subordinated Notes) contain certain restrictive covenants, including, to the
detriment of the holders of the Senior Debentures and the Subordinated
Debentures, certain covenants that restrict or prohibit (with de minimis
exceptions) SFC's ability to pay dividends or make other distributions to
SFAC. Specifically, as a result of the Company's goodwill write-down in 1995,
SFC's ability to make distributions to SFAC under the indentures of the Senior
Notes and the Senior Subordinated Notes has been impaired and these indentures
will require modification before any such distribution to SFAC can be made.
Interest becomes payable on the Senior Debentures commencing in February, 2000
and the Subordinated Debentures commencing in February, 2002. Consequently,
all or a portion of the Senior Debentures and the Subordinated Debentures may
require refinancing prior to the maturity thereof.
In October 1996, the Company requested and received covenant relief from
its lenders in the form of an amendment to its third quarter covenants. In
connection with the amendment, the interest rate paid by the Company on its
outstanding indebtedness under the Credit Facilities was increased,
effective October 24, 1996, from LIBOR plus 2 1/2% to LIBOR plus 2 3/4%.
Based upon its current projections, the Company anticipates that additional
covenant relief will be requested for its fourth quarter covenants.
Management believes, based on discussions with the Company's lenders, that
it will be able to obtain the appropriate covenant relief, although there
can be no assurance that such relief will be granted.
The Company remains highly leveraged and, as a result, it operates under
liquidity constraints. As discussed in "Results of Operations", the
Company's consolidated operating profit and cash flows have declined in 1996.
Management expects the Company's performance to improve in the fourth quarter
and in fiscal 1997 as commodity pricing conditions improve. Management
believes that cash flows from improved operating results, available
borrowing capacity under the Revolving Credit Facility, asset dispositions,
and financing opportunities, such as the equipment sale and leaseback
transactions discussed in Note 5 to the Financial Statements and below, which
are available under the Company's debt agreements, provide sufficient
liquidity to enable the Company to meet its debt service obligations in the
short term, although there can be no assurances that cash flow will be
adequate to meet such obligations.
On October 7, 1996, the Company sold an additional $9.5 million of its
insurance receivable to certain stockholders and affiliates of stockholders of
SFAC. The net proceeds ($9.4 million) will be used to fund the continuing
expenditures associated with the rebuild of the destroyed plant.
The Company is currently in the process of executing an agreement with an
affiliate of certain stockholders of SFAC for the sale and leaseback of
up to $20.5 million of the Company's production equipment at two bakeries and
two cheese plants. As of November 11, 1996, $7.0 million of the aggregate
proceeds has been funded.
Special Note Regarding Forward-Looking Statements
Certain statements in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform
Act of 1995 (the "Reform Act"). Such forward-looking statements involve
known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors
include, among others, the impact of commodities (see "Commodity
Ingredients") and the Company's highly leveraged financial condition (see
"Liquidity and Capital Resources").
PART II - OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders
None.
Item 6: Exhibits and Reports on Form 8-K
(a) See Exhibit Index.
(b) The Company did not file a report on Form 8-K during the third quarter
of 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SPECIALTY FOODS ACQUISITION CORPORATION
(Registrant)
By: /s/ Paul J. Liska
Paul J. Liska
President and Chief Executive Officer
Date: November 11, 1996
EXHIBIT INDEX
Exhibit
Number Description of Document
10.67* Series 1996-1 Supplement to Pooling Agreement, dated as of August
1, 1996, among Specialty Foods Finance Corporation, Specialty
Foods Corporation as Master Servicer, and The Chase Manhattan
Bank, as Trustee.
10.68* Third Amendment to Term Loan Agreement, dated as of October 24,
1996, among SFC, certain of its subsidiaries, certain lenders and
The Chase Manhattan Bank (formerly Chemical Bank), as
Administrative Agent.
27* Financial Data Schedule
___________
*Filed Herewith.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> SEP-28-1996
<CASH> 2,932
<SECURITIES> 0
<RECEIVABLES> 54,125
<ALLOWANCES> 2,783
<INVENTORY> 157,564
<CURRENT-ASSETS> 236,445
<PP&E> 376,904
<DEPRECIATION> 35,538
<TOTAL-ASSETS> 1,080,580
<CURRENT-LIABILITIES> 278,054
<BONDS> 703,962
0
0
<COMMON> 646
<OTHER-SE> (422,214)
<TOTAL-LIABILITY-AND-EQUITY> 1,080,580
<SALES> 1,509,877
<TOTAL-REVENUES> 1,509,877
<CGS> 1,067,659
<TOTAL-COSTS> 399,907
<OTHER-EXPENSES> 7,746
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 101,150
<INCOME-PRETAX> (66,585)
<INCOME-TAX> 1,988
<INCOME-CONTINUING> (68,573)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (68,573)
<EPS-PRIMARY> (1.08)
<EPS-DILUTED> (1.08)
</TABLE>
SERIES 1996-1 SUPPLEMENT, dated as of August 1, 1996 (this
"Supplement"), among Specialty Foods Finance Corporation, a Delaware corporation
(the "Company"), Specialty Foods Corporation, a Delaware corporation, as master
servicer (the "Master Servicer"), and The Chase Manhattan Bank (as successor in
interest to Chemical Bank) ("Chase"), a New York banking corporation, in its
capacity as trustee (in such capacity, the "Trustee") under the Agreement (as
hereafter defined), and Chase, as initial purchaser (the "Initial VFC
Certificateholder") of the VFC Certificates issued hereunder.
W I T N E S S E T H :
WHEREAS, the Company, the Master Servicer and the Trustee entered
into a Pooling Agreement, dated as of November 16, 1994 (the "Agreement");
WHEREAS, the Agreement provides, among other things, that the Company,
the Master Servicer and the Trustee may at any time and from time to time enter
intosupplements to the Agreement for the purpose of authorizing the issuance on
behalf of the Trust by the Company for execution and redelivery to the Trustee
for authentication of one or more Series of Investor Certificates; and
WHEREAS, the Company, the Master Servicer, the Trustee and the
Initial VFC Certificateholder wish to supplement the Agreement as hereinafter
set forth;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and other good and valuable consideration, the receipt and
sufficiency of which are hereby expressly acknowledged, the parties hereto
agree as follows:
I
DEFINITIONS
I.1. Definitions. (a) The following words and phrases shall
have the following meanings with respect to Series 1996-1 and the definitions
of such terms are applicable to the singular as well as the plural form of such
terms and to the masculine as well as the feminine and neuter genders of such
terms:
"ABR" shall mean for any day, a rate per annum (rounded upwards, if
necessary, to the next 1/16 of 1%) equal to the greatest of (a) the Prime
Rate in effect on such day, (b) the Base CD Rate in effect on such day plus
1% and (c) the Federal Funds Effective Rate in effect on such day plus 1/2
of 1%. For purposes hereof: "Prime Rate" shall mean the rate of interest
per annum publicly announced from time to time by Chase as its prime rate
in effect at its principal office in New York City (the Prime Rate not
being intended to be the lowest rate of interest charged by Chase in
connection with extensions of credit to debtors); "Base CD Rate" shall
mean the sum of (a) the product of (i) the Three-Month Secondary CD Rate
and (ii) a fraction, the numerator of which is one and the denominator of
which is one minus the C/D Reserve Percentage and (b) the C/D Assessment
Rate; "Three-Month Secondary CD Rate" shall mean, for any day, the
secondary market rate for three-month certificates of deposit reported as
being in effect on such day (or, if such day shall not be a Business Day,
the next preceding Business Day) by the Board through the public
information telephone line of the Federal Reserve Bank of New York (which
rate, under the current practices of the Board, will be published in
Federal Reserve Statistical Release H.15(519) during the week following
such day), or, if such rate shall not be so reported on such day or such
next preceding Business Day, the average of the secondary market quotations
for three-month certificates of deposit of major money center banks in New
York City received at approximately 10:00 A.M., New York City time, on
such day (or, if such day shall not be a Business Day, on the next
preceding Business Day) by the Trustee from three New York City negotiable
certificate of deposit dealers of recognized standing selected by it;
and "Federal Funds Effective Rate" shall mean, for any day, the weighted
average of the rates on overnight federal funds transactions with members
of the Federal Reserve System arranged by federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve Bank
of New York, or, if such rate is not so published for any day which is a
Business Day, the average of the quotations for the day of such
transactions received by the Trustee from three federal funds brokers of
recognized standing selected by it. If for any reason the Trustee shall
have determined (which determination shall be conclusive absent manifest
error) that it is unable to ascertain the Base CD Rate or the Federal Funds
Effective Rate, or both, for any reason, including the inability or failure
of the Trustee to obtain sufficient quotations in accordance with the terms
thereof, the ABR shall be determined without regard to clause (b) or
(c), or both, of the first sentence of this definition, as appropriate,
until the circumstances giving rise to suchinability no longer exist.
Any change in the ABR due to a change in the Prime Rate, the Three-Month
Secondary CD Rate or the Federal Funds Effective Rate shall be effective
as of the opening of business on the effective day of such change
in the Prime Rate, the Three-Month Secondary CD Rate or the Federal
Funds Effective Rate, respectively.
"Accrued Expense Amount" shall mean, for each Business Day
during an Accrual Period, the sum of (i) the Daily Interest Deposit for
such Business Day, (ii) 1/10 of the Commitment Fee to be paid on the next
succeeding Distribution Date (up to but not exceeding the full amount
thereof) for each day since the preceding Business Day, (iii) 1/10 of
the portion of the Series 1996-1 Monthly Servicing Fee to be paid on the
next succeeding Distribution Date (up to but not exceeding the full
amount thereof) for each day since the preceding Business Day, (iv) 1/10
of the portion of the Surety Bond Fee to be paid on the next succeeding
Distribution Date (up to but not exceeding the full amount thereof) for
each day since the preceding Business Day, and (v) the Program Costs
for such Business Day.
"Acquiring VFC Certificateholder" shall have the meaning
assigned in subsection 9.9(c).
"Additional Interest" shall have the meaning assigned in
subsection 3B.4(b).
"Additional Seller Supplement" shall have the meaning assigned
in the Receivables Sale Agreement.
"Adjusted Invested Amount" shall mean, as of any date of
determination, (i) the Invested Amount on such date, minus (ii) the amount
on deposit in the Series 1996-1 Principal Collection Sub-subaccount on
such date.
"Aged Receivables Denominator" shall mean, with respect to
each Seller or Seller Group, as the case may be, the prior Settlement
Period which is set forth opposite such Seller or such Seller Group (and,
with respect to any Seller or Seller Group added after the Issuance Date,
the "Aged Receivables Denominator" set forth in the Additional Seller
Supplement for such Seller or such Seller Group):
Seller Aged Receivables Denominator
B&G Seller Group 3rd prior Settlement Period
Gai's Seller Group 3rd prior Settlement Period
H&M 3rd prior Settlement Period
Metz Seller Group 3rd prior Settlement Period
Mother's 4th prior Settlement Period
SFFB 3rd prior Settlement Period
Stella Seller Group 3rd prior Settlement Period
TBP 3rd prior Settlement Period.
"Aged Receivables Numerator" shall mean, with respect to
each Seller or Seller Group, as the case may be, the number of days past
due which is set forth opposite such Seller or such Seller Group (and,
with respect to any Seller or Seller Group added after the Issuance Date,
the "Aged Receivables Numerator" set forth in the Additional Seller
Supplement for such Seller or such Seller Group):
Seller Aged Receivables Numerator
B&G Seller Group 61-90 days
Gai's Seller Group 61-90 days
H&M 61-90 days
Metz Seller Group 61-90 days
Mother's 91-120 days
SFFB 61-90 days
Stella Seller Group 61-90 days
TBP 61-90 days.
"Aged Receivables Ratio" shall mean, as of the last day of
each Settlement Period, the percentage equivalent to a fraction, the
numerator of which shall be the sum of (a) the aggregate unpaid balance of
Receivables originated by each Seller or each Seller Group that were past
due by the number of days in the related Aged Receivables Numerator with
respect to such Seller or such Seller Group and (b) the aggregate amount
of Receivables of such Seller or Seller Group which were charged off as
uncollectible prior to the day which is, in the case of all Sellers other
than Mother's, 91 days after its original due date and, in the case of
Mother's, 121 days after its original due date, in each case, during the
Settlement Period, and the denominator of which shall be the aggregate
Principal Amount of Receivables originated by such Seller or such Seller
Group during the prior Settlement Period that is the related Aged
Receivables Denominator with respect to such Seller or such
Seller Group.
"Aggregate Commitment Amount" shall mean, with respect to
any date of determination, the aggregate amount of the Commitments of
all VFC Certificateholders on such date, as reduced on or prior to such
date pursuant to Section 2.7.
"Aggregate Dilution Reserve Ratio" shall mean, as of any
Settlement Date and continuing until the next Settlement Date, an amount
equal to (i) the sum of the products, with respect to each Seller or each
Seller Group, of the Dilution Reserve Ratio for such Seller or such Seller
Group at the last day of the Settlement Period immediately preceding such
earlier Settlement Date times the aggregate outstanding Principal Amount
of Eligible Receivables of such Seller or such Seller Group at such last
day divided by (ii) the aggregate outstanding Principal Amount of
Eligible Receivables of all Sellers at such last day.
"Aggregate Loss Reserve Ratio" shall mean, as of any
Settlement Date and continuing until the next Settlement
Date, an amount equal to (i) the sum of the products, with
respect to each Seller or each Seller Group, of the Loss Reserve Ratio
for such Seller or such Seller Group at the last day of the Settlement
Period immediately preceding such earlier Settlement Date times the
aggregate outstanding Principal Amount of Eligible Receivables of such
Seller or such Seller Group at such last day divided by (ii) the
aggregate outstanding Principal Amount of Eligible
Receivables of all Sellers at such last day.
"Agreement" shall mean the Pooling Agreement, dated as of
November 16, 1994, among the Company, the Master Servicer and the Trustee,
as amended, supplemented or otherwise modified from time to time.
"Allocated Receivables Amount" shall mean, on any date of
determination with respect to Series 1996-1, the lower of (i) the Target
Receivables Amount on such day and (ii) the Aggregate Receivables Amount
on such day times the percentage equivalent of a fraction the numerator of
which is the Adjusted Invested Amount on such day and the denominator of
which is the Aggregate Adjusted Invested Amount on such day.
Notwithstanding the foregoing, in the event that with respect to any
Settlement Period the Company has elected to exclude the Receivables
owing by any one Obligor (including Affiliates of such Obligor) for
purposes of calculating any of the Default Ratio, Delinquency Ratio
or Loss-to-Liquidation Ratio with respect to such Settlement
Period, all Receivables owing by such Obligor (including Affiliates of
such Obligor) shall for the next succeeding Settlement Period be
excluded from the Aggregate Receivables Amount.
"Amortization Period" shall mean the period following the
Revolving Period and ending on the earlier to occur of (i)
the date when the Invested Amount shall have been reduced to
zero and all accrued interest on the VFC Certificates shall
have been paid and all amounts owing to the Enhancement Provider under
the Insurance Agreement have been paid in full and (ii) the Series
Termination Date.
"Applicable Margin" shall mean, at any date of determination,
for each Eurodollar Tranche, .45%, and for the Floating Tranche, 0%.
"Article XI Costs" shall mean any amounts due pursuant to
Article XI.
"Available Commitment" shall mean, with respect to any
Business Day, the (i) Aggregate Commitment Amount on such Business Day
minus (ii) the Invested Amount on such Business Day.
"Available Funds" shall mean, at any time, funds then
available to the Company that are not otherwise needed to be
applied to the payment of any amounts pursuant to any Pooling and Servicing
Agreements.
"Available Pricing Amount" shall mean, on any Business Day,
the sum of (i) the Unallocated Balance plus (ii) the Increase, if any,
on such date.
"Avoidance Event" shall have the meaning specified in
subsection 3B.7(b)(iv).
"Avoided Payment" shall have the meaning specified in
subsection 3B.7(b)(iv).
"B&G Seller Group" shall mean the collective reference to
each of the following Sellers: B&G, B&R, DSD and Roseland.
"Base Monthly Interest Payment" shall mean, for any Accrual
Period, an amount equal to the Maximum Commitment Amount times ABR,
in each case as of the first day of such Accrual Period, multiplied by a
fraction the numerator of which is equal to the number of days in such
Accrual Period and the denominator of which is 365.
"Board" shall mean the Board of Governors of the Federal
Reserve System of the United States.
"Carrying Cost Reserve Ratio" shall mean, as of any
Settlement Date and continuing until the next Settlement
Date, an amount (expressed as a percentage) equal to (a) the
product of (i) the greater of (A) 2.00 times Days Sales Outstanding as
of such day and (B) 60 and (ii) the Discount Rate as of such day divided
by (b) 360.
"C/D Assessment Rate" for any day pertaining to a Floating
Tranche, the annual assessment rate in effect on such day
which is payable by a member of the Bank Insurance Fund maintained by the
Federal Deposit Insurance Corporation (the "FDIC") classified as
well-capitalized and within supervisory subgroup "B" (or a comparable
successor assessment risk classification) within the meaning of 12
C.F.R. 327.3(d) (or any successor provision) to the FDIC
(or any successor) for the FDIC's (or such successor's) insuring time
deposits at offices of such institution in the United States.
"C/D Reserve Percentage" for any day pertaining to a
Floating Tranche, that percentage (expressed as a decimal)
which is in effect on such day, as prescribed by the Board,
for determining the maximum reserve requirement for a Depositary
Institution (as defined in Regulation D of the Board) in respect of new
non-personal time deposits in Dollars having a maturity of 30 days
or more.
"Certificate Rate" shall mean, as of any date of
determination, the average (weighted based on the respective
outstanding amounts of the Floating Tranche and each Eurodollar Tranche)
of the ABR in effect on such day and the Eurodollar Rates in effect on
such day plus, in each case, the Applicable Margin.
"Change in Control" shall mean the occurrence of any of:
(i) any Change in Control under the Term Loan Agreement (as
such term is defined therein on the Issuance Date); (ii) except upon
the exercise by the administrative agent under the Term Loan Agreement
of any of its remedies in accordance with the terms of the SFC Pledge
Agreement (as in effect on the Issuance Date), the Company shall at any
time not be directly wholly-owned by Specialty Foods Corporation; or
(iii) except as permitted pursuant to subsection 9.14 of the
Receivables Sale Agreement, any Seller shall at any time not be
wholly-owned, either directly or indirectly, by Specialty Foods
Corporation.
"Commitment" shall mean, as to any VFC Certificateholder,
its obligation to maintain and, subject to certain conditions, increase,
the amount of its share of the Invested Amount, in an aggregate amount not
to exceed at any one time outstanding the amount set forth opposite such
VFC Certificateholder's name on Schedule 1 under the caption "Commitment",
as such amount may be reduced from time to time as provided herein.
"Commitment Fee" shall have the meaning assigned in
subsection 2.8(b).
"Commitment Percentage" shall mean, as to any VFC
Certificateholder and as of any date, the percentage equivalent of a
fraction, the numerator of which is such VFC Certificateholder's
Commitment as of such date and the denominator of which is the Aggregate
Commitment Amount as of such date.
"Commitment Reduction" shall have the meaning assigned in
subsection 2.7(a).
"Commitment Termination Date" shall mean the earlier of (a)
the date on which the Amortization Period commences and (b) the date
the Commitments are terminated in whole pursuant to Section 2.7.
"Commitment Transfer Supplement" shall have the meaning
assigned in subsection 9.9(c).
"Control Party" shall mean, with respect to any event, (i)
the Enhancement Provider, or (ii) if a Surety Default has occurred and is
continuing, then "Control Party" shall mean the holders of VFC Certificates
representing Fractional Undivided Interests aggregating more than 50% of
theInvested Amount adversely affected by such event (or the Trustee
acting on behalf of such holders).
"Cure Period Trigger Date" shall mean, with respect to any
of the representations, warranties and covenants of the Company, any
Servicing Party or any Seller, as the case may be, that are contained in
the subsection of the applicable Transaction Document which is cross
referenced in Schedule 3 under the heading of "Applicable Subsection or
Event", the breach or violation of which would result (i) in the case of
a breach or violation by the Company, in a Potential Early Amortization
or a purchase obligation of the Company pursuant to Section 2.5 or 2.6 of
the Agreement, (ii) in the case of any Servicing Party, a Potential
Servicer Default or (iii) in the case of any Seller, a Potential Purchase
Termination Event (as defined in the Receivables Sale Agreement), the
date occurring the number of days specified for the applicable subsection
in Schedule 3 under the heading "Cure Period Trigger Date" following the
occurrence of such breach or violation (or if the number of days so
specified is zero, the date of such breach or violation). The foregoing
provisions shall apply to such breaches and violations notwithstanding any
other grace period or cure provisions stated to apply thereto under the
applicable Transaction Documents. The Company shall, and the Control
Party may, give prompt written notice of each occurrence of a Cure Period
Trigger Date to the Trustee (and the Enhancement Provider if given by the
Control Party).
"Daily Interest Deposit" shall mean, for any Business Day,
an amount equal to (i) the amount of accrued and unpaid Daily Interest
Expense in respect of such day plus (ii) the aggregate amount of all
previously accrued and unpaid Daily Interest Expense plus (iii) the
aggregate amount of all accrued and unpaid Additional Interest.
"Daily Interest Expense" shall mean, for any day in any
Accrual Period, an amount equal to 1/10 of the Base Monthly
Interest Payment for such Accrual Period (up to but not exceeding the full
amount thereof); provided, that, if, during such Accrual Period, (i) ABR
has increased since the first day of such Accrual Period and (ii) the
actual amount of interest on the VFC Certificates for such Accrual Period
exceeds or will exceed the Base Monthly Interest Payment for such Accrual
Period, "Daily Interest Expense" for such day shall include an additional
amount equal to the amount by which the actual amount of interest on the
VFC Certificates for such Accrual Period exceeds or will exceed the Base
Monthly Interest Payment for such Accrual Period.
"Daily Report" shall mean a report prepared by the Master
Servicer on each Business Day for the period specified therein, in
substantially the form of Exhibit E.
"Days Sales Outstanding" shall mean, as of any Settlement
Date and continuing until the next Settlement Date, the number of days
equal to the product of (a) 91 and (b) the amount obtained by dividing
(i) the difference between (A) the aggregate Principal Amount of
Receivables and (B) the aggregate bad debt reserve of the Sellers, in
each case as at the last day of the Settlement Period immediately
preceding such earlier Settlement Date, by (ii) aggregate net sales of
the Sellers for the three Settlement Periods immediately preceding such
earlier Settlement Date.
"Decrease" shall have the meaning assigned in Section 2.6.
"Default Ratio" shall mean, as of the last Business Day
of any Settlement Period and continuing until the last day
of the next Settlement Period, a ratio (expressed as a percentage)
equal to (a) the aggregate outstanding Principal Amount of all Defaulted
Receivables on the last day of such earlier Settlement Period over (b)
the aggregate outstanding Principal Amount of all Receivables on such
last day; provided, however, to the extent that 2% or more of the
Default Ratio at the end of any Settlement Period is attributable to
Receivables owing by any Obligor (including Affiliates of such Obligor),
then, upon the election of the Company (such election to be made
separately in respect of each Settlement Period), the Default Ratio shall
be recalculated to exclude all Receivables of any one such Obligor
(including Affiliates of such Obligor) that would otherwise have been
included in such calculation.
"Delinquency Ratio" shall mean, as of the last Business Day
of any Settlement Period and continuing until the last day
of the next Settlement Period, a ratio (expressed as a percentage) equal
to (a) the aggregate outstanding Principal Amount of all Delinquent
Receivables on the last day of such earlier Settlement Period over (b)
the aggregate outstanding Principal Amount of all Receivables on such
last day; provided, however, to the extent that 2% or more of the
Delinquency Ratio at the end of any Settlement Period is attributable to
Receivables owing by any Obligor (including Affiliates of such Obligor),
then, upon the election of the Company (such election to be made
separately in respect of each Settlement Period), the Delinquency Ratio
shall be recalculated to exclude all Receivables of any one such
Obligor (including Affiliates of such Obligor) that would otherwise
have been included in such calculation.
"Dilution Horizon Factor" with respect to each Seller or
each Seller Group, as the case may be, shall mean, the factor set forth
opposite such Seller or such Seller Group (and, with respect to any Seller
or Seller Group added after the Issuance Date, the "Dilution Horizon
Factor" set forth in the Additional Seller Supplement for such Seller or
such Seller Group):
Seller Dilution Horizon Factor
B&G Seller Group one
Gai's Seller Group .1
H&M one
Metz Seller Group .1
Mother's 1.5
SFFB .1
Stella Seller Group 1.5
TBP .5;
provided that (i) in the case of H&M, the Dilution Horizon
Factor in respect of all Receivables for which Foodmaker, Inc. is the
Obligor shall be .25, (ii) in the case of Gai's Seller Group, Metz Seller
Group, SFSB and TBP, the Dilution Horizon Factor in respect of Dilution
Adjustments for Receivables originated by such Seller or such Seller Group,
as the case may be, which are made for reasons other than stales shall
be one and (iii) in the case of Mother's, the Dilution Horizon Factor in
respect of Dilution Adjustments for Receivables originated by Mother's
with payment terms of 2% 10 or Net 30 days shall be one.
"Dilution Ratio" with respect to each Seller or each Seller
Group, shall mean, as of the last day of each Settlement Period, an amount
(expressed as a percentage) equal to the aggregate amount of Dilution
Adjustments in respect of such Seller or such Seller Group made during
such Settlement Period divided by the aggregate Principal Amount of
Receivables which were originated by such Seller or such Seller Group
during such Settlement Period.
"Dilution Reserve Ratio" with respect to each Seller or
each Seller Group, shall mean, as of any Settlement Date and continuing
until the next Settlement Date, an amount (expressed as a percentage)
which is calculated as follows:
DRR = [(c * d) + [(e-d) * (e/d)]] * f
Where:
DRR = Dilution Reserve Ratio;
c = the Ratings Multiple;
d = the average of the Dilution Ratio with
respect to such Seller or such Seller Group during
the period of twelve consecutive Settlement
Periods ending prior to such Settlement Date;
e = the highest Dilution Ratio with respect
to such Seller or such Seller Group for any
Settlement Period during the period of twelve
consecutive Settlement Periods ending prior to
such Settlement Date; and
f = the quotient of (i) the product of (A)
the aggregate Principal Amount of Receivables
which were originated by such Seller or such
Seller Group during the preceding Settlement
Period and (B) the Dilution Horizon Factor with
respect to such Seller or such Seller Group and
(ii) the difference between (A) the aggregate
outstanding Principal Amount of all Receivables
and (B) the aggregate outstanding Principal Amount
of all Delinquent Receivables and Defaulted
Receivables, in each case, originated by such
Seller or such Seller Group as of the last day of
the Settlement Period preceding such earlier
Settlement Date;
provided that, in the case of any Seller or Seller Group for which two
separate Dilution Horizon Factors are designated in respect of such Seller
or Seller Group, the Dilution Reserve Ratio shall be calculated as set
forth above, except that two separate ratios shall be calculated (each
based upon the applicable Dilution Horizon Factor, and the Receivables
related to such Dilution Horizon Factor, for such Seller or Seller Group)
and the actual Dilution Reserve Ratio for such Seller or Seller Group will
be equal to the sum of the two ratios so calculated.
"Discount Rate" shall mean, as of any date of determination,
ABR as of such date times 1.15.
"Distribution Date" shall mean each Settlement Date.
"Early Amortization Event" shall have the meaning assigned
in Section 5.1 of this Supplement and Section 7.1 of the Agreement.
"Effective Date" shall have the meaning assigned in Section 8.1.
"Enhancement Provider" shall mean, with respect to Series
1996-1, Capital Markets Assurance Corporation, a New York stock insurance
company, or any successor thereto.
"Eurocurrency Reserve Requirements" shall mean, for any day
as applied to a Eurodollar Tranche, the aggregate (without duplication)
of the rates (expressed as a decimal) of reserve requirements in effect on
such day (including, without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board or other
Governmental Authority having jurisdiction with respect thereto) dealing
with reserve requirements prescribed for eurocurrency funding (currently
referred to as "Eurocurrency Liabilities" in Regulation D of such Board)
maintained by a member bank of such System.
"Eurodollar Base Rate" shall mean, with respect to each day
during each Eurodollar Period pertaining to a Eurodollar Tranche, the rate
per annum equal to the average (rounded upward to the nearest 1/16th of
1%) at which Chase is offered Dollar deposits at or about 10:00 A.M.,
New York City time, two Business Days prior to the beginning of such
Eurodollar Period in the interbank eurodollar market where the eurodollar
and foreign currency and exchange operations in respect of its Eurodollar
Tranches are then being conducted for delivery on the first day of such
Eurodollar Period for the number of days comprised therein and in an
amount comparable to the amount of its Eurodollar Tranche to
be outstanding during such Eurodollar Period.
"Eurodollar Period" shall mean, with respect to any Eurodollar
Tranche:
(a) initially, the period commencing on
the Issuance Date or conversion date, as the case may
be, with respect to such Eurodollar Tranche and ending
one, two or three months thereafter, as selected by the
Company in its notice of issuance or notice of
conversion, as the case may be, given with respect
thereto; and
(b) thereafter, each period commencing
on the last day of the next preceding Eurodollar Period
applicable to such Eurodollar Tranche and ending one,
two or three months thereafter, as selected by the
Company by irrevocable notice to the Trustee not less
than three Business Days prior to the last day of the
then current Eurodollar Period with respect thereto;
provided that, all of the foregoing provisions relating to Eurodollar
Periods are subject to the following:
(1) if any Eurodollar Period would otherwise end
on a day that is not a Business Day, such Eurodollar
Period shall be extended to the next succeeding
Business Day unless the result of such extension would
be to carry such Eurodollar Period into another
calendar month in which event such Eurodollar Period
shall end on the immediately preceding Business Day;
(2) any Eurodollar Period that would otherwise
extend beyond the Revolving Period shall end on the
last day of the Revolving Period; and
(3) any Eurodollar Period that begins on the last
Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the
calendar month at the end of such Eurodollar Period)
shall end on the last Business Day of a calendar month.
"Eurodollar Rate" shall mean, with respect to each day
during each Eurodollar Period pertaining to a Eurodollar Tranche, a rate
per annum determined for such day in accordance with the following formula
(rounded upward to the nearest 1/100th of 1%):
Eurodollar Base Rate
----------------------------------------
1.00 - Eurocurrency Reserve Requirements
"Eurodollar Tranche" shall mean a portion of the Invested
Amount for which the Series 1996-1 Monthly Interest is calculated by
reference to a Eurodollar Rate determined by reference to a particular
Eurodollar Period.
"Final Order" shall have the meaning specified in subsection
3B.7(b)(iv).
"Floating Tranche" shall mean that portion of the Invested
Amount not allocated to a Eurodollar Tranche for which the Series 1996-1
Monthly Interest is calculated by reference to the ABR.
"Gai's Seller Group" shall mean the collective reference to each
of the following Sellers: Gai's and Langendorf.
"Increase" shall have the meaning assigned in subsection 2.5(a).
"Increase Amount" shall have the meaning assigned in subsection
2.5(a).
"Increase Date" shall have the meaning assigned in subsection
2.5(a).
"Initial Invested Amount" shall mean $10,000,000.
"Initial VFC Certificateholder" shall have the meaning
specified in the recitals hereto.
"Initial Subordinated Certificate Amount" shall mean the
Subordinated Certificate Amount on the Issuance Date.
"Insurance Agreement" shall mean the Insurance and Reimbursement
Agreement dated as of the date hereof among the Enhancement Provider, the
Company, the Master Servicer and the Trustee, as the same may be amended,
supplemented or otherwise modified from time to time.
"Interest Shortfall" shall have the meaning assigned in
subsection 3B.4(b).
"Invested Amount" shall mean, with respect to any date of
determination, an amount equal to the Initial Invested Amount, plus the
amount of all Increases by the VFC Certificateholders in the Invested
Amount pursuant to Section 2.5 made on or prior to such day, minus the
amount of all distributions to the VFC Certificateholders pursuant
to Section 2.6 on or prior to such day.
"Invested Percentage" shall mean, with respect to any
Business Day (i) during the Revolving Period, the percentage equivalent
of a fraction, the numerator of which is the Allocated Receivables Amount
as of the end of the preceding Business Day and the denominator of which
is the Aggregate Receivables Amount as of the end of the preceding
Business Day and (ii) during the Amortization Period, the percentage
equivalent of a fraction, the numerator of which is the Allocated
Receivables Amount as of the end of the last Business Day of the
Revolving Period and the denominator of which is the greater of (A) the
Aggregate Receivables Amount as of the end of the preceding Business Day
and (B) the sum of the numerators used to calculate the Invested
Percentage for all Series of Investor Certificates outstanding on the
Business Day for which such percentage is determined.
"Issuance Date" shall mean August 1, 1996.
"Loss Horizon Period" with respect to each Seller or each
Seller Group, as the case may be, shall mean the number of Settlement
Periods set forth opposite such Seller or such Seller Group (and, with
respect to any Seller or Seller Group added after the Issuance Date, the
"Loss Horizon Period" set forth in the Additional Seller Supplement for
such Seller or such Seller Group):
Seller Loss Horizon Period
B&G Seller Group 3 Settlement Periods
Gai's Seller Group 3 Settlement Periods
H&M 3 Settlement Periods
Metz Seller Group 3 Settlement Periods
Mother's 4 Settlement Periods
SFFB 3 Settlement Periods
Stella Seller Group 3 Settlement Periods
TBP 3 Settlement Periods.
"Loss Reserve Ratio" with respect to each Seller or each
Seller Group, as the case may be, shall mean, as of any Settlement
Date and continuing until the next Settlement Date, an amount
(expressed as a percentage) which is calculated as follows:
LRR = [(a * b)/c] * d
where:
LRR = Loss Reserve Ratio;
a = the sum of the aggregate Principal
Amount of Receivables originated by such Seller or
such Seller Group during the most recent Loss
Horizon Period with respect to such Seller or such
Seller Group preceding such date;
b = the greater of (i) the highest three-
month rolling average of the Aged Receivables
Ratio with respect to such Seller or such Seller
Group that occurred during the period of twelve
consecutive Settlement Periods preceding such
earlier Settlement Date and (ii) the Aged
Receivables Ratio with respect to such Seller or
such Seller Group as of the last day of the
Settlement Period preceding such earlier
Settlement Date;
c = the difference between (i) the aggregate
outstanding Principal Amount of all Receivables
and (ii) the aggregate outstanding Principal
Amount of all Delinquent Receivables and Defaulted
Receivables, in each case, originated by such
Seller or such Seller Group as of the last day of
the Settlement Period preceding such earlier
Settlement Date; and
d = the Ratings Multiple;
provided that if the sum of the Loss Reserve Ratio with respect to a
Seller or Seller Group plus the Dilution Reserve Ratio with respect to
such Seller or Seller Group shall exceed 100%, the Loss Reserve Ratio
with respect to such Seller or Seller Group shall be the percentage which
is equal to 100% minus the Dilution Reserve Ratio with respect
to such Seller or Seller Group.
"Loss-to-Liquidation Ratio" shall mean, as of the last
Business Day of any Settlement Period and continuing until
the last day of the next Settlement Period, a ratio (expressed as a
percentage) equal to (a) the difference, if any, between (i) the sum of
(A) the aggregate reduction in the outstanding Principal Amount of all
Receivables as a result of Charge-Offs and (B) the aggregate Principal
Amount of Receivables (other than Charge-Offs) that became more than 90
days past due, in each case, during the immediately preceding twelve
Settlement Periods and (ii) the aggregate amount of Recoveries during such
twelve Settlement Periods over (b) the aggregate amount of Collections
during such twelve Settlement Periods; provided, however, to the extent
that 2% or more of the Loss-to-Liquidation Ratio at the end of any
Settlement Period is attributable to Receivables owing by any Obligor
(including Affiliates of such Obligor), then, upon the election of the
Company (which election shall be made separately in respect of each
Settlement Period), the Loss-to-Liquidation Ratio shall be recalculated
for such Settlement Period to exclude all Receivables of any one such
Obligor (including any Affiliates of such Obligor) that would otherwise
have been included in such calculation.
"Majority VFC Certificateholders" shall mean, on any day,
VFC Certificateholders having, in the aggregate, more than
50% of the Invested Amount.
"Maximum Commitment Amount" shall mean $20,000,000.
"Metz Seller Group" shall mean the collective reference to
each of the following Sellers: Metz and Metz Delaware.
"Net Worth" shall mean, at a particular date with respect to
the Company, all amounts which would, in conformity with GAAP, be
included under shareholder's equity on a balance sheet of the Company.
"Non-Excluded Taxes" shall have the meaning assigned in
subsection 11.3(a).
"Optional Repurchase Percentage" shall mean 10% of the
maximum Invested Amount at any time during the Revolving Period.
"Optional Termination Date" shall have the meaning assigned in
subsection 2.6(d).
"Optional Termination Notice" shall have the meaning assigned in
subsection 2.6(d).
"Participants" shall have the meaning assigned in subsection
9.9(b).
"Principal/Interest Surety Bond" shall mean the surety bond
issued by the Enhancement Provider pursuant to the Insurance Agreement.
"Program Costs" shall mean, for any Business Day, the sum of
(a) all expenses, indemnities and other amounts due and payable to the VFC
Certificateholders under the Agreement or this Supplement (excluding,
however, the principal of and interest on the VFC Certificates, any
Commitment Fee, Surety Bond Fees and Trustee's Fees and any Article XI
Costs incurred hereunder) and (b) the product of (i) all unpaid fees and
expenses due and payable to counsel to, and independent auditors of, the
Company (other than fees and expenses payable on or in connection with the
closing of the issuance of any Investor Certificates) and any corporate
income or franchise taxes due and payable by the Company, in each case on
such Business Day, and (ii) the Invested Percentage (expressed as a
decimal) on such Business Day; provided, however, with respect to the
Program Costs to be included in the Accrued Expense Amount for such
Business Day, the Program Costs to be so included shall not exceed
$75,000 in the aggregate in any fiscal year of the Master Servicer.
"Rating Agency" shall mean the collective references to Standard
& Poors and Moody's.
"Ratings Multiple" shall mean 1.5.
"Record Date" shall mean, with respect to any Settlement Date, the
last Business Day of the immediately preceding Settlement Period.
"Required Reserves" shall mean, as of any date of determination,
an amount equal to the sum of (a) the product of (i) the Adjusted Invested
Amount on such day and (ii) the sum of (A) the Aggregate Loss Reserve
Ratio, (B) the Aggregate Dilution Reserve Ratio and (C) the Carrying Cost
Reserve Ratio, (b) the product of (i) the face amount of the Receivables
in the Trust on such day, (ii) the Adjusted Invested Amount divided by the
Aggregate Adjusted Invested Amount and (iii) the Servicing Reserve Ratio,
(c) the amount of any Accrued Expense Amount in respect of which sufficient
Aggregate Daily Collections have not been transferred to the Series 1996-1
Non-Principal Collection Sub-account and (d) the aggregate amount of fees
(other than the Servicing Fee, but including the Trustee's fees, the
Commitment Fee and the Surety Bond Fees) accrued with respect to Series
1996-1 during the Settlement Period immediately preceding such date
of determination.
"Required Reserves Ratio" shall mean, as of any date of
determination, the quotient of (a) Required Reserves on such day and
(b) the Adjusted Invested Amount on such day.
"Required Subordinated Percentage" shall mean, as of any date of
determination, the greater of (a) 15% and (b) the Required Reserves Ratio
as of such day; provided that, during any period during which the Revolving
Credit Lenders (or the administrative agent under the Revolving Credit
Agreement on their behalf) have given notice to the Revolving Credit
Borrowers that the Revolving Credit Lenders are refusing to lend to such
Borrowers under the Revolving Credit Agreement, then the Enhancement
Provider may, in its sole discretion, require the Required Subordinated
Percentage to equal the sum of (i) the Required Subordinated Percentage
computed as described above and (ii) 8%.
"Revolving Period" shall mean the period commencing on the
Issuance Date and terminating on the earliest to occur of (i) the close
of business on the date on which an Early Amortization Event occurs, (ii)
the Optional Termination Date and (iii) the Scheduled Termination Date.
"Scheduled Termination Date" shall mean the earliest of (a)
December 1, 1996, (b) the issuance date, if any, with respect to a new
series of Investor Certificates issued by the Trust and the Company after
the Issuance Date and (c) the date on which the commitments of the
Revolving Credit Lenders under the Revolving Credit Agreement shall have
been terminated, unless, at or prior to such date, SFC replaces the
Revolving Credit Agreement with a replacement agreement providing SFC with
working capital which in the reasonable opinion of the Control Party would
be sufficient to operate SFC's businesses at such date.
"Seller Group" shall mean any of B&G Seller Group, Gai's
Seller Group Metz Seller Group or Stella Seller Group, as the context
requires, provided that the Company may, with the consent of the Control
Party, from time to time add one or more new Seller Groups, or change the
Sellers in any existing Seller Group, so long as, concurrently with such
addition or change, the Company provides new or changed definitions for
the Aged Receivables Denominator, the Aged Receivables Numerator, the
Dilution Horizon Factor and the Loss Horizon Period with respect to such
added or changed Seller Groups (and such definitions will be deemed to be
automatically amended to the extent of such additions or changes).
"Series 1994-1 Supplement" shall mean the Series 1994-1
Supplement, dated as of November 16, 1994, among the Company, the Master
Servicer and the Trustee, as amended, supplemented or otherwise modified
from time to time.
"Series 1996-1" shall mean the Series 1996-1, the Principal
Terms of which are set forth in this Supplement.
"Series 1996-1 Accrued Interest Sub-subaccount" shall have
the meaning assigned in subsection 3B.2(a).
"Series 1996-1 Certificateholders' Interest" shall have the
meaning assigned in subsection 2.2(a).
"Series 1996-1 Collection Subaccount" shall have the meaning
assigned in subsection 3B.2(a).
"Series 1996-1 Monthly Interest" shall have the meaning assigned
in subsection 3B.4(a).
"Series 1996-1 Monthly Principal Payment" shall have the meaning
assigned in Section 3B.5.
"Series 1996-1 Monthly Servicing Fee" shall have the meaning
assigned in subsection 6.1.
"Series 1996-1 Non-Principal Collection Sub-subaccount"
shall have the meaning assigned in subsection 3B.2(a).
"Series 1996-1 Principal Collection Sub-subaccount" shall
have the meaning assigned in subsection 3B.2(a).
"Series Termination Date" shall mean one Business Day after
the Distribution Date following the Surety Draw Date, provided that, so
long as no Surety Default shall have occurred and is outstanding on such
date, the Series Termination Date shall be any Business Day occurring
after such Distribution Date and prior to the Trust Termination Date, as
selected by the Enhancement Provider upon ten days' prior written notice
to the Trustee.
"Servicing Reserve Ratio" shall mean, as of any Settlement
Date and continuing until the next Settlement Date, an amount (expressed
as a percentage) equal to (a) the product of (i) 1% and (ii) the greater
of (A) 2.0 times Days Sales Outstanding as of such day and (B) 60 divided
by (b) 360.
"Stella Seller Group" shall mean the collective reference to
each of the following Sellers: Stella and Stella East.
"Subordinated Certificate" shall mean the Subordinated Company
Certificate, Series 1996-1, executed by the Company and authenticated by
the Trustee, substantially in the form of Exhibit B.
"Subordinated Certificate Amount" shall mean, for any date
of determination, an amount equal to the Allocated Receivables Amount on
such date minus the Adjusted Invested Amount on such date.
"Subordinated Certificate Increase Amount" shall have the
meaning assigned in subsection 2.5(a).
"Subordinated Certificate Reduction Amount" shall have the
meaning assigned in subsection 2.6(b).
"Subordinated Interest" shall have the meaning specified in
subsection 2.2(b).
"Surety Bond Fees" shall have the meaning specified in the
Insurance Agreement.
"Surety Default" shall mean any of the following events (notice
of each of which (other than the event in clause (a) below) shall be
promptly given by the Enhancement Provider to the Trustee, the Master
Servicer and the Company):
(a) the Enhancement Provider fails to pay when, as and in the
amounts required, any amount payable under the Principal/Interest
Surety Bond and such failure continues unremedied for two Business
Days;
(b) default is made by the Enhancement Provider in the payment
when due of any amount due under any other surety bond or financial
guarantee insurance policy issued by the Enhancement Provider in
support of any obligation rated by S&P, Moody's or any other
nationally or internationally recognized rating agency and such
default shall continue unremedied for ten calendar days; provided
that, for the purposes of this clause (b), default shall not include
any failure to make payment under a surety bond or other financial
guarantee insurance policy on the basis that all conditions to and
defenses against payment have not been duly satisfied or waived and
with respect to which the obligation to make payment is being
contested in good faith by appropriate proceedings which shall not
be limited to legal proceedings;
(c) (i) the Superintendent of Insurance of the
State of New York (or any Person succeeding to the duties of such
Superintendent) shall apply for an order (A) pursuant to Section 7402
of the New York Insurance Law (or any successor provisions thereto),
directing him to rehabilitate the Enhancement Provider, (B)
pursuant to Section 7404 of the New York Insurance Law (or any
successor provision thereto), directing him to liquidate the business
of the Enhancement Provider or (C) pursuant to Section 7416 of the
New York Insurance Law (or any successor provision thereto),
dissolving the corporate existence of the Enhancement Provider and
such application shall not be dismissed or withdrawn during a period
of 60 consecutive days or a court of competent jurisdiction enters an
order granting the relief sought; (ii) the above-referenced
Superintendent of Insurance (or any successor) shall determine that
the Enhancement Provider is insolvent within the meaning of Section
1309 of the New York Insurance Law; (iii) the Enhancement Provider
shall commence a voluntary case or other proceeding seeking
rehabilitation, liquidation, reorganization or other relief with
respect to itself or its debts under any bankruptcy, insolvency or
other similar law now or hereafter in effect or seeking the
appointment or a trustee, receiver, liquidator, custodian or other
similar official of it or any substantial part of its property, or
shall consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general assignment
for the benefit of creditors; or (iv) an involuntary case or other
proceeding shall be commenced against the Enhancement Provider seeking
rehabilitation, liquidation, reorganization or other relief with
respect to it or its debts under a bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official
of it or any substantial part of its property, such case of proceeding
is not dismissed or otherwise terminated within a period of 60
consecutive days or a court of competent jurisdiction enters an
order granting the relief sought in such case or proceeding; or
(d) a court of competent jurisdiction shall have determined
in a final order that the Principal/Interest Surety Bond is no longer
in full force and effect.
"Surety Draw Date" shall mean, the date which is the
earlier of (i) 180 days after the expected end of the Amortization Period
(as defined below) and (ii) the date which is 270 days after the
commencement of the Amortization Period. The "expected end of the
Amortization Period" shall be the date, following the commencement of the
Amortization Period, which is the number of days after such commencement
date equal to 1.5 times Days Sales Outstanding (as of such
commencement date).
"Surety Purchase Demand" shall have the meaning specified in
subsection 3B.7(b)(iii).
"Target Receivables Amount" shall mean, on any date of
determination, the product of (a) a fraction the numerator of which is
one and the denominator of which is one minus the Required Subordinated
Percentage (expressed as a decimal) and (b) the Adjusted Invested Amount
on such day.
"Transfer Issuance Date" shall mean the date on which a
Commitment Transfer Supplement becomes effective pursuant to
the terms of such Commitment Transfer Supplement.
"Transferee" shall have the meaning assigned in
subsection 9.9(f).
"Trust Accounts" shall have the meaning assigned in
subsection 3B.2(a).
"Unallocated Balance" shall mean, as of any Business
Day, the sum of (i) the portion of the Invested Amount for which interest
is then being calculated by reference to the ABR, and (ii) the portion
of the Invested Amount allocated to any Eurodollar Tranche that expires
on such Business Day.
"VFC Certificate" shall mean a VFC Certificate, Series 1996- 1,
executed by the Company and authenticated by or on behalf of the Trustee,
substantially in the form of Exhibit A.
"VFC Certificateholder" shall mean each holder of a VFC
Certificate.
"Waiver Percentage" shall mean 50%.
(a) In the event that any term or provision contained herein
shall conflict with or be inconsistent with any term or provision contained in
the Agreement, the terms and provisions of this Supplement shall govern. All
capitalized terms not otherwise defined herein are defined in the Agreement.
All Article, Section or subsection references herein shall mean Article,
Section or subsections of the Supplement, except as otherwise provided herein.
Unless otherwise stated herein, as the context otherwise requires or if such
term is otherwise defined in the Agreement, each capitalized term used or
defined herein shall relate only to the Series 1996-1 and no other Series of
Investor Certificates issued by the Trust.
II
DESIGNATION OF CERTIFICATES; PURCHASE AND SALE
OF THE VFC Certificates
II.1. Designation. The Certificates created and authorized
pursuant to the Agreement and this Supplement shall be divided into two classes,
which shall be designated respectively as (i) the "VFC Certificates, Series
1996-1" and (ii) the "Subordinated Company Certificate, Series 1996-1". The
VFC Certificates shall initially be issued in the form of one typewritten
Definitive Certificate, to be delivered to the Initial VFC Certificateholder
in accordance with Section 2.4.
II.2. The Series 1996-1 Certificates. (a) The VFC Certificates
shall represent fractional undivided interests in the Trust, consisting of the
right to receive the Invested Percentage (expressed as a decimal) of (i)
Collections received with respect to the Receivables and (ii) all other funds on
deposit in the Collection Account and in any subaccount thereof (the "Series
1996-1 Certificateholders' Interest").
(a) The Subordinated Certificate shall represent a fractional
undivided interest in the Trust, consisting of the right to receive Collections
with respect to the Receivables allocated to the Series 1996-1
Certificateholders' Interest and not required to be distributed to or for the
benefit of the VFC Certificateholders (the "Subordinated Interest"). The
Exchangeable Company Certificate and any other Series of Investor Certificates
outstanding shall represent the ownership interest in the remainder of the
Trust not allocated pursuant hereto to the Series 1996-1 Certificateholders'
Interest or the Subordinated Interest.
(b) The VFC Certificates and the Subordinated Certificate shall be
issued in registered form in substantially the forms of Exhibits A and B,
respectively, and shall, upon issue, be executed and delivered by the Company
to the Trustee for authentication and redelivery as provided in Section 2.4
hereof and Section 5.2 of the Agreement.
II.3. Purchases of Interests in the VFC Certificates. (a) Initial
Purchase. Subject to the terms and conditions of this Supplement, (i) the
Initial VFC Certificateholder hereby agrees (A) to purchase on the Issuance
Date the VFC Certificates in an amount equal to the Initial Invested Amount and
(B) to maintain its VFC Certificates, subject to increase or decrease during the
Revolving Period, in accordance with the provisions of this Supplement and (ii)
the Company hereby agrees (A) to purchase from the Trust on the Issuance Date
the Subordinated Certificate in an amount equal to the Initial Subordinated
Certificate Amount and (B) to maintain such interest in the Subordinated
Certificate, subject to increase or decrease during the Revolving Period, in
accordance with the provisions of this Supplement. Payments by the Initial VFC
Certificateholder in respect of the VFC Certificate shall be made in
immediately available funds on the Issuance Date to the Trustee for payment to
the Company.
(a) Subsequent Purchases. Subject to the terms and conditions of
this Supplement, each Acquiring VFC Certificateholder hereby severally agrees
to maintain its VFC Certificate, subject to increase or decrease during the
Revolving Period, in accordance with the provisions of this Supplement.
(b) Maximum Series 1996-1 Invested Amount. Notwithstanding anything
to the contrary contained in this Supplement, at no time shall any VFC
Certificateholder's Commitment Percentage of the Invested Amount exceed such
VFC Certificateholder's Commitment at such time.
II.4. Delivery. On the Issuance Date, the Company shall
sign on behalf of the Trust and shall direct in writing pursuant to Section
5.2 of the Agreement the Trustee to duly authenticate, and the Trustee, upon
receiving such direction, shall so authenticate (i) the VFC Certificates (and
deliver such VFC Certificates to the Initial VFC Certificateholder in accordance
with such written directions) and (ii) a Subordinated Certificate (and
deliver such Subordinated Certificate to the Company as holder thereof in
accordance with such written directions). The VFC Certificates shall be issued
in minimum denominations of $1,000,000 and in integral multiples of $100,000
in excess thereof. The Trustee shall mark on its books the actual Invested
Amount and Subordinated Certificate Amount outstanding on any date of
determination, which, absent manifest error, shall constitute prima facie
evidence of the outstanding Invested Amount and Subordinated Certificate
Amount from time to time.
SECTION II.6. Procedure for Initial Issuance and for Increasing
the Series 1996-1 Invested Amount. II(f) Subject to subsection 2.5(b), on
any Business Day prior to the Commitment Termination Date, each VFC
Certificateholder agrees that the Invested Amount may be increased (an
"Increase") by increasing the amount of each VFC Certificateholder's Commitment
Percentage of the Invested Amount, up to an amount not exceeding each VFC
Certificateholder's Commitment, upon the request of the Master Servicer or the
Company on behalf of the Trust (each date on which an increase in the Invested
Amount occurs hereunder being herein referred to as the "Increase Date"
applicable to such Increase); provided, however, that the Master Servicer or the
Company, as the case may be, shall have given the Trustee irrevocable written
notice (effective upon receipt), substantially in the form of Exhibit G hereto,
of such request no later than (i) if the Initial Invested Amount or Increase
Amount is to be priced solely with reference to the ABR, on or prior to
1:00 p.m., New York City time, on the Issuance Date or such Increase Date, as
the case may be, or (ii) if all or a portion of the Initial Invested Amount or
Increase Amount is to be allocated to a Eurodollar Tranche, 1:00 p.m., New York
City time, three Business Days prior to the Issuance Date or such Increase Date,
as the case may be; provided, further, that the provisions of this subsection
shall not restrict the allocations of Collections pursuant to Article III.
Such notice shall state (w) the Issuance Date or the Increase Date, as the case
may be; (x) the Initial Invested Amount or the proposed amount of such Increase
(the "Increase Amount"), as the case may be; (y) what portions thereof will be
allocated to a Eurodollar Tranche and the Floating Tranche; and (z) if any
portions thereof are to be allocated to a Eurodollar Tranche, the length of the
Eurodollar Period with respect thereto. No VFC Certificateholder shall be
obligated to fund any such Increase, unless concurrently with any such Increase
in the Invested Amount, the Subordinated Certificate Amount shall be increased
by an amount (the "Subordinated Certificate Increase Amount") such that after
giving effect to such increase, the Adjusted Invested Amount plus
the Subordinated Certificate Amount would equal or exceed the Allocated
Receivables Amount.
(a) The Initial VFC Certificateholder shall not be required to
make the initial purchase of VFC Certificates on the Issuance Date and no
VFC Certificateholder shall be required to fund an Increase in the Invested
Amount on any Increase Date hereunder unless:
(i) the related aggregate initial purchase amount or
Increase Amount is equal to (A) in the case of a Floating
Tranche, $100,000 or an integral multiple of $100,000 in excess
thereof and (B) in the case of a Eurodollar Tranche, $500,000 or
an integral multiple of $500,000 in excess thereof;
(ii) after giving effect to the initial purchase amount or
Increase Amount, (A) the Invested Amount would not exceed the
Maximum Commitment Amount on the Issuance Date or such Increase
Date, as the case may be, and (B) the Allocated Receivables
Amount would equal or exceed the Target Receivables Amount on the
Issuance Date or such Increase Date, as the case may be; and
(iii) no Early Amortization Event or Potential Early
Amortization Event shall have occurred and be continuing.
(b) After receipt by the Trustee of the notice required by
subsection 2.5(a) from the Master Servicer or the Company on behalf of the
Trust, the Trustee shall, so long as the conditions set forth in subsections
2.5(a) and (b) are satisfied, promptly provide telephonic notice to each VFC
Certificateholder, at the telephone number(s) furnished in writing on or prior
to the date such VFC Certificateholder acquires a VFC Certificate, of the
Increase Date and of the portion of the Increase Amount allocable
to such VFC Certificateholder (which shall equal such VFC Certificateholder's
Commitment Percentage of the Increase Amount). Subject to the prior
satisfaction of the conditions in subsection 2.5(b), each VFC
Certificateholder agrees to pay in immediately available funds such VFC
Certificateholder's Commitment Percentage of each Increase Amount on the related
Increase Date to the Trustee for deposit to the Series 1996-1 Collection
Subaccount. The Trustee shall have no obligation with respect to the
collection of any funds from VFC Certificateholders other than making telephone
calls in the manner contemplated above.
II.6. Procedure for Decreasing the Invested Amount; Optional
Termination. (a) On any Business Day during the Revolving Period or the
Amortization Period (except for Distribution Dates during the Amortization
Period (which shall be governed by subsection 3B.6(c))), upon the written
request of the Master Servicer or the Company on behalf of the Trust, the
portion of the Invested Amount not allocated to a Eurodollar Tranche may be
reduced (a "Decrease") by the pro rata distribution to the VFC
Certificateholders in accordance with their Commitment Percentages of some or
all of the funds on deposit in the Series 1996-1 Principal Collection
Sub-subaccount on such day (including, without limitation, from funds deposited
in such account in connection with the issuance of any additional
Investor Certificates); provided that the Master Servicer or the Company shall
have given the Trustee and the Enhancement Provider irrevocable written notice
(effective upon receipt), prior to 1:00 p.m., New York City time, on the
Business Day of such Decrease and which notice shall state the amount of such
Decrease; provided, further, that such Decrease shall be in an amount equal to
$100,000 and integral multiples of $100,000 in excess thereof; provided,
further, however, that no prepayment of any Eurodollar Tranche prior to the
termination of a Eurodollar Period may occur unless, concurrently with such
prepayment, the Company shall have paid to the VFC Certificateholders any
amounts due and payable pursuant to Section 11.4.
(a) Simultaneously with any such Decrease during the Revolving
Period, the Subordinated Certificate Amount shall be reduced by an amount
(the "Subordinated Certificate Reduction Amount") such that after giving effect
to such Decrease, the Allocated Receivables Amount is not less than the Targeted
Receivables Amount. During the Revolving Period, after the distribution
described in subsection (a) above has been made, and the Subordinated
Certificate Amount shall have been reduced by the Subordinated Certificate
Reduction Amount, a distribution shall be made to the holder of the Subordinated
Certificate out of remaining funds on deposit in the Series 1996-1 Principal
Collection Sub-subaccount in an amount equal to the lesser of (x) the
Subordinated Certificate Reduction Amount and (y) the amount of such remaining
funds on deposit in the Series 1996-1 Principal Collection Sub-subaccount.
(b) Any reduction in the Invested Amount on any Business Day
shall be allocated first to reduce the Available Pricing Amount.
(c) On any Business Day to occur prior to the occurrence of
the Scheduled Termination Date or an Early Amortization Event, the Company
shall have the right to deliver an irrevocable notice (an "Optional Termination
Notice") to the Trustee, each VFC Certificateholder, the Enhancement Provider
and the Master Servicer in which the Company declares that the Revolving Period
shall terminate on the date (the "Optional Termination Date") set forth in
such notice (which date, in any event, shall not be less than 10 days from the
date on which such notice is delivered). From and after the Optional
Termination Date, the Amortization Period in respect of the Series 1996-1
shall commence for all purposes under this Supplement and the other Transaction
Documents. The Trustee shall give prompt written notice of its receipt of an
Optional Termination Notice to the VFC Certificateholders.
II.7. Reductions of the Commitments. (a) On any Business
Day during the Revolving Period, the Company, on behalf of the Trust, may,
upon three Business Days' prior written notice (effective upon receipt) reduce
or terminate the Commitments (a "Commitment Reduction") in an aggregate amount
equal to $5,000,000 or a whole multiple of $1,000,000 in excess thereof;
provided that no such termination or reduction shall be permitted if, after
giving effect thereto and to any reduction in the Invested Amount on such date,
the Invested Amount would exceed the Aggregate Commitment Amount then in
effect. Each VFC Certificateholder's Commitment shall be reduced by such VFC
Certificateholder's Commitment Percentage of the amount of such Commitment
Reduction.
(a) Once reduced, the Commitments may not be subsequently
reinstated. Upon effectiveness of any such reduction, the Trustee (as
directed by the Master Servicer) shall prepare a revised Schedule 1 to reflect
the reduced Commitment of each VFC Certificateholder and Schedule 1 of this
Supplement shall be deemed to be superseded by such revised Schedule 1 with no
further action of any party required. The Trustee shall distribute such
revised Schedule 1 to the Company, the Servicer, the Enhancement Provider and
each VFC Certificateholder.
II.8. Interest; Commitment Fee. (a) Interest shall be payable on
the VFC Certificates on each Distribution Date pursuant to subsection 3B.6(a).
II(a) The Trustee (acting at the direction of the Master
Servicer) shall allocate from funds available in the Series 1996-1 Accrued
Interest Sub-subaccount and the Series 1996-1 Non-Principal Collection
Sub-subaccount, for the pro rata account of the VFC Certificateholders in
accordance with their Commitment Percentages, on each Distribution Date, a
commitment fee with respect to each Accrual Period or portion thereof ending on
such date (the "Commitment Fee") during the Revolving Period at a rate
equal to .10% per annum of the average daily Commitment during such Accrual
Period. The Commitment Fee shall be payable (i) monthly in arrears on each
Distribution Date and (ii) on the Commitment Termination Date. To the extent
that funds on deposit in the Series 1996-1 Accrued Interest Sub-subaccount and
the Series 1996-1 Non-Principal Collection Sub-subaccount at any such
date are insufficient to pay the Commitment Fee due on such date, the Trustee
shall so notify the Company and the Company shall immediately pay the Trustee
the amount of any such deficiency; provided that any payments made by the
Company pursuant to this subsection shall be made solely from funds available
to the Company which are not otherwise needed to be applied to the payment of
any amounts pursuant to any Pooling and Servicing Agreements, shall be
non-recourse other than with respect to funds necessary to make such payment,
and shall not constitute a claim against the Company to the extent that
insufficient funds exist to make such payment.
(b) Calculations of per annum rates and fees under this
Supplement shall be made on the basis of a 365-day year with respect to
Commitment Fees, other fees, and, except with respect to Eurodollar Tranches,
interest rates. Each determination of the Eurodollar Rate by the Trustee shall
be conclusive and binding upon each of the parties hereto in the absence of
manifest error.
III
ARTICLE III OF THE AGREEMENT
Any provision of Article III of the Agreement which distributes
Collections to the Company on the basis of the Company's Percentage shall
continue to apply irrespective of the issuance of the VFC Certificates.
Section 3.1 of the Agreement shall be read in its entirety as provided in the
Agreement. Article III of the Agreement (except for Section 3.1 thereof and any
portion thereof relating to another Series) shall read in its entirety as
follows and shall be exclusively applicable to the VFC Certificates and the
Subordinated Certificate:
SECTION 3B.2. Establishment of Trust Accounts.
(a) The Trustee shall cause to be established and maintained in the name of
the Trustee, on behalf of the Trust, (i) for the benefit of the VFC
Certificateholders and for the benefit, subject to the prior interest of the
VFC Certificateholders, of the holder of the Subordinated Certificate, a
subaccount of the Collection Account (the "Series 1996-1 Collection
Subaccount"), which subaccount is the Series Collection Subaccount with
respect to Series 1996-1, bearing a designation clearly indicating that
the funds deposited therein are held for the benefit of the VFC
Certificateholders and for the benefit, subject to the prior interest of the
VFC Certificateholders, of the holder of the Subordinated Certificate; (ii) for
the benefit of the VFC Certificateholders and for the benefit, subject to the
prior interest of the VFC Certificateholders, of the holder of the
Subordinated Certificate, two subaccounts of the Series 1996-1 Collection
Subaccount: the Series 1996-1 Principal Collection Sub-subaccount and the
Series 1996-1 Non-Principal Collection Sub-subaccount (respectively, the "Series
1996-1 Principal Collection Sub-subaccount" and the "Series 1996-1 Non-Principal
Collection Sub-subaccount"), each bearing a designation clearly indicating
that the funds deposited therein are held for the benefit of the VFC
Certificateholders and for the benefit, subject to the prior interest of the
VFC Certificateholders, of the holder of the Subordinated Certificate; and
(iii) for the benefit of the VFC Certificateholders, a subaccount of the Series
1996-1 Non-Principal Collection Sub-subaccount (the "Series 1996-1 Accrued
Interest Sub-subaccount"; all accounts established pursuant to this subsection
3B.2(a) and listed on Schedule 2, collectively, the "Trust Accounts"). The
Trustee shall possess all right, title and interest in all funds from time to
time on deposit in, and all Eligible Investments credited to, the Trust
Accounts and in all proceeds thereof. The Trust Accounts shall be under the
sole dominion and control of the Trustee for the exclusive benefit of the VFC
Certificateholders and to the extent applicable, subject to the prior interest
of the VFC Certificateholders, to the holder of the Subordinated Certificate.
(b) All Eligible Investments in the Trust Accounts
shall be held by the Trustee for the exclusive benefit of the VFC
Certificateholders and, subject to the prior interest of the VFC
Certificateholders, of the holder of the Subordinated Certificate; provided,
however, that funds on deposit in a Trust Account which is a Sub-subaccount of
the Collection Account may, at the direction of the Master Servicer, be
invested together with funds held in other Sub-subaccounts of the Collection
Account. After giving effect to any distribution to the Company
pursuant to subsection 3B.3(c), amounts on deposit and available for
investment in the Series 1996-1 Principal Collection Sub-subaccount shall
be invested by the Trustee at the written direction of the Company in Eligible
Investments that mature, or that are payable or redeemable upon demand of the
holder thereof, (i) in the case of any such investment made during the
Revolving Period, on or prior to the next Business Day and (ii) in the case
of any such investment made during the Amortization Period, on or prior to the
subsequent Determination Date. Amounts on deposit and available for investment
in the Series 1996-1 Non-Principal Collection Sub-subaccount and the Series
1996-1 Accrued Interest Sub-subaccount shall be invested by the Trustee at the
written direction of the Company in Eligible Investments that mature, or
that are payable or redeemable upon demand of the holder thereof, on or prior
to the subsequent Determination Date. As of the Determination Date, all
interest and other investment earnings (net of losses and investment expenses)
on funds deposited in the Series 1996-1 Accrued Interest Sub-subaccount shall
be deposited in the Series 1996-1 Non-Principal Collection Sub-subaccount.
All interest and investment earnings (net of losses and investment expenses) on
funds deposited in the Series 1996-1 Principal Collection Sub-subaccount shall
be deposited in the Series 1996-1 Non-Principal Collection Sub-subaccount.
The Trustee shall not in any way be held liable by reason of any insufficiency
in any Trust Account for Series 1996-1 held by the Trustee resulting from any
investment loss on any Eligible Investment included therein (except to the
extent that the Trustee is the obligor and has defaulted thereon or except to
the extent such insufficiency occurred as a result of the Trustee's
gross negligence or willful misconduct).
(a) The portion of Aggregate Daily Collections allocated to
the VFC Certificateholders pursuant to Article III of the Agreement shall be
allocated and distributed as set forth in this Article III.
(b) (i) On each Business Day, an amount equal to the Accrued Expense
Amount for such day shall be transferred from the Series 1996-1 Collection
Subaccount to the Series 1996-1 Non-Principal Collection Sub-subaccount.
(ii) If, on any Business Day during the Revolving Period, the
Enhancement Provider has provided the Trustee with written notice that
the Enhancement Provider has not been reimbursed pursuant to the Insurance
Agreement for any interest payments made under the Principal/Interest
Surety Bond, an amount equal to the lesser of (A) the remaining
amount on deposit in the Series 1996-1 Collection Subaccount on such day
and (B) the amount of such reimbursement then due to the Enhancement
Provider for interest payments made under the Principal/Interest Surety
Bond plus accrued and unpaid interest thereon at the rate stated in respect
thereof in the Insurance Agreement shall be transferred from the Series
1996-1 Collection Subaccount and paid to the Enhancement Provider.
(iii) Following the transfers pursuant to clauses (i) and (ii)
above, any remaining funds on deposit in the Series 1996-1 Collection
Subaccount shall be transferred to the Series 1996-1 Principal
Collection Sub-subaccount.
(c) (i) On each Business Day during the Revolving Period
(including Distribution Dates), amounts on deposit in the Series 1996-1
Principal Collection Sub-subaccount shall be distributed by the Trustee to
the Company (but only to the extent that the Trustee has received a Daily
Report which reflects the receipt of the Collections on deposit therein);
provided that such distribution shall be made only to the extent that, after
giving effect to such distribution, the Target Receivables Amount would not
exceed the Allocated Receivables Amount as indicated in the Daily Report;
provided further that if the Company (or the Master Servicer, on behalf of
the Company) shall have given the Trustee irrevocable written notice in
accordance with subsection 2.6(a) the Company or the Master Servicer may
instruct the Trustee in writing (specifying the related amount) to withdraw
all or a portion of such amounts on deposit in the Series 1996-1
Principal Collection Sub-subaccount and apply such withdrawn amounts
(together with, to the extent that the Company so directs the Trustee, any
amounts which the Company is otherwise entitled to receive as a result of its
ownership of Investor Certificates issued pursuant to the Series 1994-1
Supplement) toward the reduction of the Invested Amount and the Subordinated
Certificate Amount in accordance with Section 2.6; and provided further that
such distribution shall not, in any event, be made if a Cure Period Trigger
Date has occurred and is continuing (and the breach or violation giving rise
to such Cure Period Trigger Date has not been cured or waived as of such date).
Amounts distributed to the Company hereunder shall be deemed to be paid
first from Collections received directly by any Servicing Party
and second from Collections received in the Lockboxes.
(i) On each Business Day during an Amortization Period
(including Distribution Dates), funds deposited in the Series
1996-1 Principal Collection Sub-subaccount shall be invested in
Eligible Investments that mature on or prior to the next
Determination Date. No amounts on deposit in the Series 1996-1
Principal Collection Sub-subaccount shall be distributed by the
Trustee to the Company during an Amortization Period.
(d) On each Business Day an amount equal to the Daily Interest
Deposit for such day shall be transferred from the Series 1996-1 Non-Principal
Collection Sub-subaccount to the Series 1996-1 Accrued Interest Sub-subaccount.
(e) The allocations to be made pursuant to this Section 3B.3
are subject to the provisions of Sections 2.6, 7.2 and 9.1 of the Agreement.
SECTION 3B.4. Determination of Interest.
(a) The amount of interest distributable with respect to the VFC
Certificates ("Series 1996-1 Monthly Interest") on each Distribution Date shall
be the aggregate amount (calculated for each day during the related Accrual
Period) of (i) the product of (A) the portion of the Invested Amount allocable
to the Floating Tranche on such day divided by 365 and (B) ABR plus the
Applicable Margin in effect on such day, and (ii) the product of (A) the
portion of the Invested Amount allocable to Eurodollar Tranches on such day
divided by 360 and (B) the weighted average Eurodollar Rate plus the Applicable
Margin on such day in effect with respect thereto. Following any change in the
amount of any Eurodollar Tranche or Floating Tranche during an Accrual Period,
the Series 1996-1 Monthly Interest shall be calculated with respect to such
changed amount for the number of days in the Accrual Period during which
such changed amount is outstanding.
(b) On each Distribution Date, the Master Servicer shall determine
the excess, if any (the "Interest Shortfall"), of (i) the Series 1996-1 Monthly
Interest for the related Accrual Period over (ii) the amount which will be
available to be distributed to the VFC Certificateholders on such Distribution
Date in respect thereof pursuant to this Supplement. If the Interest Shortfall
with respect to any Distribution Date is greater than zero, an additional
amount ("Additional Interest") equal to the product, for such Accrual Period
(or portion thereof) until such Interest Shortfall is repaid, of (A) the ABR
plus 2%, (B) such Interest Shortfall (or the portion thereof which has not been
paid to the VFC Certificateholders) and (C) the actual number of days in such
Accrual Period divided by 360, shall be payable as provided
herein with respect to the VFC Certificates on each Distribution Date
following such Distribution Date to and including, the Distribution Date on
which such Interest Shortfall is paid in full to the VFC Certificateholders.
(c) On any Business Day, the Company may, subject to
subsection 3B.4(e), elect to allocate all or any portion of the Available
Pricing Amount to one or more Eurodollar Tranches with Eurodollar Periods
commencing on such Business Day by giving the Trustee irrevocable written or
telephonic (confirmed in writing) notice thereof, which notice must be received
by the Trustee prior to 1:00 p.m., New York City time, three Business Days
prior to such Business Day. Such notice shall specify (i) the applicable
Business Day, (ii) the Eurodollar Period for each Eurodollar Tranche to which
a portion of the Available Pricing Amount is to be allocated and (iii) the
portion of the Available Pricing Amount being allocated to each such
Eurodollar Tranche. Promptly upon receipt of each such notice the Trustee
shall notify each VFC Certificateholder of the contents thereof. If
the Trustee shall not have received timely notice as aforesaid
with respect to all or any portion of the Available Pricing Amount, the
Series 1996-1 Monthly Interest on such amount shall be calculated by
reference to the ABR.
(d) Any reduction in the Invested Amount on any Business
Day shall be allocated in the following order of priority:
First, to reduce the Unallocated Balance, as appropriate; and
Second, to reduce the portion of the Invested Amount allocated to
Eurodollar Tranches in such order as the Company may select
in order to minimize costs payable pursuant to Section 11.4.
(e) Notwithstanding anything to the contrary contained in this
Section 3B.4, (i) the portion of the Invested Amount allocable to
each Eurodollar Tranche must be in an amount equal to $500,000 or
an integral multiple of $500,000 in excess thereof; (ii) no more than five
Eurodollar Tranches shall be outstanding at any one time; (iii) after the
occurrence and during the continuance of any Early Amortization Event, the
Company may not elect to allocate any portion of the Available Pricing Amount
to a Eurodollar Tranche; and (iv) after the end of the Revolving
Period, the Company may not select any Eurodollar Period that exceeds one
month or that does not end on or prior to the next succeeding Distribution
Date.
SECTION 3B.5. Determination of Series 1996-1 Monthly Principal.
(a) Payments of Series 1996-1 Principal. The amount (the "Series
1996-1 Monthly Principal Payment") distributable from the Series 1996-1
Principal Collection Sub-subaccount on each Distribution Date during the
Amortization Period shall be equal to the amount on deposit in such account
on such Distribution Date; provided, however, that the Series 1996-1 Monthly
Principal Payment on any Distribution Date shall not exceed the Invested Amount
on such Distribution Date. Further, on any other Business Day during the
Amortization Period, funds may be distributed from the Series 1996-1 Principal
Collection Sub-subaccount to the VFC Certificateholders in accordance with
Section 2.6.
SECTION 3B.6. Applications.
(a) The Master Servicer shall cause the Trustee to distribute, on
each Distribution Date, from amounts on deposit in the Series 1996-1 Accrued
Interest Sub-subaccount (including any amounts deposited therein pursuant to
subsection 3B.7(b)(i)), an amount equal to the Series 1996-1 Monthly Interest
payable on such Distribution Date, plus the amount of any Series 1996-1
Monthly Interest previously due but not distributed to the VFC
Certificateholders on a prior Distribution Date, plus the amount of any
Additional Interest for such Distribution Date and any Additional Interest
previously duebut not distributed to the VFC Certificateholders on a prior
Distribution Date, to the VFC Certificateholders. Any remaining amount on
deposit in the Series 1996-1 Accrued Interest Sub-subaccount not used to make
the foregoing payment shall be deposited into the Series 1996-1 Non-Principal
Collection Sub-subaccount for application pursuant to subsection 3B.6(b).
(b) On each Distribution Date, the Master Servicer shall cause
the Trustee to apply funds on deposit in the Series 1996-1 Non-Principal
Collection Sub-subaccount (after taking into consideration the distribution
to the VFC Certificateholders from the Series 1996-1 Non-Principal Collection
Sub-subaccount pursuant to subsection 3B.6(a)) in the following order of
priority to the extent funds are available:
(i) an amount equal to the Series 1996-1 Monthly Servicing
Fee for the related Accrual Period shall be withdrawn from
the Series 1996-1 Non-Principal Collection Sub-subaccount by
the Trustee and paid to the Master Servicer (or to the
Trustee, if on such date the Trustee is then acting as
Master Servicer in order to liquidate the Receivables and
the Related Property);
(ii) an amount equal to the Surety Bond Fee for the related
Accrual Period shall be withdrawn from the Series 1996-1 Non-
Principal Collection Sub-subaccount by the Trustee and paid
to the Enhancement Provider, provided that, if the
Enhancement Provider shall have failed to make a payment in
respect of a principal or interest drawing under the
Principal/Interest Surety Bond and such failure shall be
continuing after the stated date on which such payment was
to be made, the Enhancement Provider shall not receive such
Surety Bond Fee (which shall be held in the Series 1996-1
Non-Principal Collection Sub-subaccount) until such payment
is made; and
(iii) an amount equal to the Commitment Fee for the related
Accrual Period shall be withdrawn from the Series 1996-1 Non-
Principal Collection Sub-subaccount by the Trustee and paid
to the VFC Certificateholders;
(iv) an amount equal to any Program Costs (subject to the
limitation contained in the proviso to the definition of
Program Costs) due and payable shall be withdrawn from the
Series 1996-1 Non-Principal Collection Sub-subaccount by the
Trustee and paid to the Persons owed such amounts.
Any remaining amount on deposit in the Series 1996-1 Non-Principal Collection
Sub-subaccount not allocated pursuant to clauses (i) through (iv) above shall
be paid to the holder of the Subordinated Certificate.
(c) During an Amortization Period, the Master Servicer shall
cause the Trustee to apply, on each Distribution Date, amounts on
deposit in the Series 1996-1 Principal Collection Sub-subaccount (including
any amounts deposited therein pursuant to subsection 3B.7(b)(ii)) in the
following order of priority:
(i) an amount equal to the Series 1996-1 Monthly Principal
Payment for such Distribution Date shall be distributed from
the Series 1996-1 Principal Collection Sub-subaccount to the
VFC Certificateholders;
(ii) if, following the repayment in full of the Invested
Amount, the Enhancement Provider has not been reimbursed
pursuant to the Insurance Agreement for principal and
interest payments made under the Principal/Interest Surety
Bond, an amount equal to the lesser of (A) the remaining
amount on deposit in the Series 1996-1 Principal Collection
Sub-subaccount on such day and (B) the amount of such
reimbursement then due to the Enhancement Provider for
principal payments made under the Principal/Interest Surety
Bond plus accrued and unpaid interest thereon at the rate
stated in respect thereof in the Insurance Agreement shall
be transferred from the Series 1996-1 Principal Collection
Sub-subaccount and paid to the Enhancement Provider;
(iii) if, following the repayment in full of the Invested
Amount and the repayment in full of all amounts owing to the
Enhancement Provider pursuant to the Insurance Agreement,
any amounts are owed to the Trustee or any other Person, on
account of its expenses incurred in respect of the
performance of its responsibilities as Master Servicer for
the liquidation of the Receivables and the Related Property,
such amounts shall be transferred from the Series 1996-1
Principal Collection Sub-subaccount and paid to the Trustee
or such other Person; and
(iv) following the repayment of all of the amounts set
forth in clauses (i), (ii) and (iii) above, the remaining
amount on deposit in the Series 1996-1 Principal Collection
Sub-subaccount on such Distribution Date, if any, shall be
distributed to the holder of the Subordinated Certificate.
SECTION 3B.7. The Principal/Interest Surety Bond.
(a) Issuance of Principal/Interest Surety Bond. On or prior to
the Issuance Date, the Enhancement Provider shall have issued the
Principal/Interest Surety Bond in favor of the Trustee for the benefit of
the holders of the VFC Certificates.
(b) Draws on the Principal/Interest Surety Bond.
(i) If, on any Determination Date, the amount on deposit in the
Series 1996-1 Accrued Interest Sub-subaccount (and available to
be distributed) is less than the Series 1996-1 Monthly Interest
that is due and payable on the related Distribution Date, then
the Trustee by delivering a notice to the Enhancement Provider
pursuant to the Principal/Interest Surety Bond shall, not later
than 2:00 p.m., New York City time, on such Determination Date,
demand payment under the Principal/Interest Surety Bond in an
amount equal to such insufficiency in accordance with the
Principal/Interest Surety Bond. The Enhancement Provider shall
pay or cause to be paid such amount to the Trustee for deposit,
on the related Distribution Date, to the Series 1996-1 Accrued
Interest Sub-subaccount in accordance with the Principal/Interest
Surety Bond. In the event that such amount shall be paid by the
Enhancement Provider after such Distribution Date, the Trustee
shall pay such amount promptly following receipt thereof, to the
extent necessary to complete payment of the Series 1996-1 Monthly
Interest to have been made on such Distribution Date plus any
interest in respect thereof, to the VFC Certificateholders as
their respective interests then appear, and deposit the remainder
in the Series 1996-1 Accrued Interest Sub-subaccount.
(ii) If, on any Determination Date to occur on or after the
Surety Draw Date, the outstanding Invested Amount is greater than
zero, then the Trustee by delivering a notice to the Enhancement
Provider pursuant to the Principal/Interest Surety Bond shall,
not later than 2:00 p.m., New York City time, on such
Determination Date, demand payment under the Principal/Interest
Surety Bond in an amount equal to such Invested Amount in
accordance with the Principal/Interest Surety Bond. The
Enhancement Provider shall pay or cause to be paid such amount to
the Trustee for payment, on the related Distribution Date, to the
VFC Certificateholders as their respective interests then appear.
In the event that such amount shall be paid by the Enhancement
Provider after such Distribution Date, the Trustee shall pay such
amount promptly following receipt thereof, to the extent
necessary to complete payment of the Invested Amount, to the VFC
Certificateholders as their respective interests then appear, and
deposit the remainder in the Series 1996-1 Principal Collection
Sub-subaccount.
(iii) If, on any Determination Date to occur during the
Amortization Period, the Enhancement Provider elects to purchase
(a "Surety Purchase Demand") all of the then outstanding VFC
Certificates in accordance with the provisions set forth in
Section 2.7 of the Insurance Agreement, then the Enhancement
Provider shall so purchase the VFC Certificates for an amount
equal to the Invested Amount and all accrued and unpaid interest
thereon as of such date. The Enhancement Provider shall pay or
cause to be paid such amount to the Trustee for payment to the
VFC Certificateholders as their respective interests then appear
in accordance with the Insurance Agreement on the related
Distribution Date.
(iv) If the payment of any amount which is guaranteed
pursuant to the Principal/Interest Surety Bond is voided (an
"Avoidance Event") under any applicable Insolvency Proceeding (as
defined in the Principal/Investor Surety Bond), and, as a result
of such an Avoidance Event, any VFC Certificateholder is required
to return such voided payment, or any portion of such voided
payment (an "Avoided Payment"), upon payment by such VFC
Certificateholder of such Avoided Payment and receipt by the
Trustee on behalf of such VFC Certificateholder of (A) a
certified copy of a final order of a court exercising
jurisdiction in such Insolvency Proceeding to the effect that
such VFC Certificateholder is required to return any such payment
or portion thereof during the term of the Principal/Interest
Surety Bond because such payment was voided under applicable law,
with respect to which order the appeal period has expired without
an appeal having been filed (the "Final Order"), and (B) an
assignment, substantially in the form attached as Exhibit B to
the Principal/Interest Surety Bond, properly completed and
executed by such VFC Certificateholder irrevocably assigning to
the Enhancement Provider all rights and claims of such VFC
Certificateholder relating to or arising under such Avoided
Payment, then the Trustee shall deliver to the Enhancement
Provider a Notice for Payment in the form of Exhibit A to the
Principal/Interest Surety Bond appropriately completed and
executed by the Trustee.
(c) Following any payment by the Enhancement Provider pursuant
to this subsection 3B.7 and the application of such payment in
accordance with the terms hereof, the Enhancement Provider shall
be subrogated to the rights of the VFC Certificateholders under
the Pooling and Servicing Agreements, to the extent of any
payments made by the Enhancement Provider to such VFC
Certificateholders pursuant to the Principal/Interest Surety
Bond; provided, however, that the Enhancement Provider shall not
be entitled to be subrogated to any of the rights of the VFC
Certificateholders under the Pooling and Servicing Agreements
until the VFC Certificateholders have received payment of all
Series 1996-1 Monthly Interest and repayment in full of the
Invested Amount. Nothing in this subsection 3B.7(c) shall affect
in any way the rights of the Enhancement Provider to receive
distributions from the Trust Accounts pursuant to the express
provisions of this Article III.
(d) Each Series 1996-1 Certificateholder by accepting any Series
1996-1 Certificate shall be deemed to acknowledge and agree to the
terms of Section 2.7 of the Insurance Agreement and to agree that it will,
if so requested by the Enhancement Provider, transfer its Series 1996-1
Certificates to the Enhancement Provider as contemplated in such Section 2.7.
IV
DISTRIBUTIONS AND REPORTS
Article IV of the Agreement (except for any portion thereof
relating to another Series) shall read in its entirety as follows
and shall be exclusively applicable to the VFC Certificates:
(a) On each Distribution Date, the Trustee shall distribute to
each VFC Certificateholder an amount equal to the product of (i) the amount
to be distributed to the VFC Certificateholders pursuant to Article III and
(ii) such VFC Certificateholder's Commitment Percentage.
(b) All allocations and distributions hereunder by the Trustee
shall be in accordance with and based solely upon the Daily Reports and
the Monthly Settlement Statement and subject to Section 3.1(h) of the
Agreement.
SECTION 4B.2. Statements and Notices.
(a)(i) Monthly Settlement Statements. On each Determination Date,
the Master Servicer shall deliver to the Enhancement Provider, the Trustee
and each Rating Agency a Monthly Settlement Statement setting
forth, among other things, the Loss Reserve Ratio, the Dilution
Reserve Ratio, the Carrying Cost Reserve Ratio and the Servicing Reserve
Ratio, each as recalculated for the next succeeding Settlement Period.
(ii) Termination of Sellers. The Master Servicer shall promptly
notify each Rating Agency, concurrently with its notification of
the Trustee and the Enhancement Provider, of the termination of
any Seller pursuant to Section 9.14 of the Receivables Sale
Agreement.
(b) Annual Certificateholders' Tax Statement. On or before
April 1 of each calendar year (or such earlier date as required
by applicable law), beginning with calendar year 1997, the
Company on behalf of the Trustee shall furnish, or cause to be
furnished, to each Person who at any time during the preceding
calendar year was a VFC Certificateholder, a statement prepared
by the Company containing the aggregate amount distributed to such
Person for such calendar year or the applicable portion thereof during which
such Person was a VFC Certificateholder, together with such other information
as is required to be provided by an issuer of indebtedness under the Internal
Revenue Code and such other customary information as the Trustee or the
Company deems necessary or desirable to enable the VFC
Certificateholders to prepare their tax returns. Such obligation
of the Company shall be deemed to have been satisfied to the extent
that substantially comparable information shall have been provided by the
Trustee pursuant to any requirements of the Internal Revenue Code as from
time to time in effect.
(c) Early Amortization Period Notices. Promptly after the
receipt by a Responsible Officer of the Trustee of notice of the
occurrence of an Early Amortization Event with respect to Series 1996-1,
the Trustee shall give notice (which notice shall in any event be given (by
telephone or otherwise) not later than the second Business Day after such
receipt) of such occurrence to (i) the Enhancement Provider and each Rating
Agency and (ii) each VFC Certificateholder.
(d) Surety Default Notices. Promptly after the receipt by a
Responsible Officer of the Trustee of notice of the occurrence of
a Surety Default, the Trustee shall give notice of such occurrence to each
VFC Certificateholder and each Rating Agency.
(e) Principal Payment Notices. During the Amortization Period,
on each date which is three Business Days prior to a Distribution
Date, the Trustee shall deliver to each VFC Certificateholder a notice by
fax, followed by a hard copy delivered by overnight carrier, setting forth
the amount on deposit and available for distribution in the Series 1996-1
Principal Collection Sub-subaccount as of the opening of business on such date.
(f) Forwarding of Other Notices and Documents. The Trustee
shall promptly (but in any event within two Business Days following receipt
thereof) forward to each VFC Certificateholder copies of the following
documents and/or notices upon receipt thereof by a Responsible Officer of the
Trustee:
(i) Financial Statements of Company. All financial statements
delivered by the Company pursuant to subsection 2.7(a) of the
Agreement.
(ii) Early Amortization, Insolvency and Lien Notices. Any
notice delivered by the Company pursuant to subsection 2.7(g) or
7.2(a) of the Agreement or any notice delivered by the Master
Servicer pursuant to subsection 7.1 of the Agreement.
(iii) Daily Reports. Upon request by a VFC
Certificateholder, Daily Reports delivered by the Master Servicer
pursuant to Section 4.2(a) of the Servicing Agreement.
(iv) Monthly Settlement Statements; Quarterly Master Servicer
Certificates. All Monthly Settlement Statements and certificates
delivered by the Master Servicer pursuant to Sections 4.3 and 4.4
of the Servicing Agreement.
(v) Accountants' Letters. All letters delivered by the Master
Servicer's independent public accountants pursuant to Section 4.5
of the Servicing Agreement.
(vi) SEC Filings by Master Servicer. All filings with the
Securities and Exchange Commission delivered by the Master
Servicer pursuant to Section 4.14(d) of the Servicing Agreement.
Section 4B.3. Notices. Notices required to be given to the VFC
Certificateholders hereunder will be given by first class mail to
the address of such holders as they appear in the Certificate Register (or,
if expressly required herein, by telephonic notice via a telephone or telecopy
number provided by each VFC Certificateholder to the Trustee).
V
ADDITIONAL EARLY AMORTIZATION EVENTS
V.1. Additional Early Amortization Events. If any one of the
events specified in Section 7.1 of the Agreement (after any grace
periods or consents applicable thereto) or any one of the following events
shall occur during the Revolving Period with respect to the VFC Certificates:
(a) failure on the part of the Company to make any payment
(i) in respect of principal owing on any VFC Certificates within
one Business Day of the date such principal is due, (ii) in
respect of interest or Commitment Fees owing on any VFC
Certificates within two Business Days of the date such interest
is due or (iii) in respect of any other amounts owing by the
Company under any Pooling and Servicing Agreement or the
Insurance Agreement to or for the benefit of the VFC
Certificateholders or the Enhancement Provider within five
Business Days of the date such other amount is due;
(b) failure on the part of the Company duly to observe or
perform in any material respect any covenants or agreements of
the Company set forth in any Pooling and Servicing Agreement or
the Insurance Agreement which has a material adverse effect on
the Enhancement Provider or the VFC Certificateholders (which
determination shall be made without regard to whether any
Enhancement is then available from any Enhancement Provider)
which continues unremedied for 30 days from the earlier of (i)
the date upon which a Responsible Officer of the Company obtains
knowledge of such failure or (ii) the date on which written
notice of such failure, requiring the same to be remedied, shall
have been given to the Company by the Trustee, or the Company and
the Trustee by the Control Party;
(c) any representation or warranty made by the Company in any
Pooling and Servicing Agreement to or for the benefit of the VFC
Certificateholders or the Enhancement Provider or in the
Insurance Agreement (i) shall prove to have been incorrect in any
material respect when made or when delivered which continues to
be incorrect for a period of 30 days after the day on which
notice of such failure, requiring the same to be remedied, shall
have been given by the Trustee to the Company (or the Control
Party to the Company and the Trustee) and (ii) as a result of
such incorrectness, the interests of the VFC Certificateholders
(without giving effect to the availability of any Enhancement) or
the Enhancement Provider are materially and adversely affected;
provided, however, that an Early Amortization Event with respect
to Series 1996-1 shall not be deemed to have occurred under this
paragraph if the incorrectness of such representation or warranty
gives rise to an obligation to repurchase the related Receivables
and the Company has repurchased the related Receivable or all
such Receivables, if applicable, in accordance with the
provisions of the Pooling Agreement within five Business Days of
when the Company was obligated to do so;
(d) the Allocated Receivables Amount shall be less than the
Target Receivables Amount for a period of five consecutive days;
(e) a Purchase Termination Event (as defined in the
Receivables Sales Agreement) which allows the Company to cease
purchasing Receivables from all Sellers thereunder shall have
occurred and be continuing under the Receivables Sale Agreement;
(f) as at the end of any Settlement Period, the Loss-to-
Liquidation Ratio shall exceed 4.5%;
(g) as at the end of any Settlement Period, the Delinquency
Ratio shall exceed 5.0%;
(h) as at the end of any Settlement Period, the Default Ratio
shall exceed 6.0%;
(i) for any Settlement Period, Days Sales Outstanding shall be
more than 40 days;
(j) as at the last date of any fiscal quarter of the Company,
Net Worth shall be less than an amount equal to 10% of the
Invested Amount as of such date;
(k) a Servicer Default with respect to the Master Servicer or
any Significant Servicer shall have occurred and be continuing or
at any time a Servicer Default with respect to three or more
Servicers shall have occurred and be continuing;
(l) a Change in Control shall have occurred;
(m) the Trust shall for any reason cease to have a valid and
perfected first priority undivided ownership or security interest
in the Trust Assets (subject to any Permitted Liens);
(n) any of the Pooling Agreement, the Servicing Agreement,
this Supplement or the Receivables Sale Agreement shall cease,
for any reason, to be in full force and effect, or the Company
shall so assert in writing;
(o) the "Commitments" under (and as defined in) the Revolving
Credit Agreement of the Revolving Credit Lenders thereunder shall
have been terminated by the Revolving Credit Lenders prior to
their stated term or such Revolving Credit Lenders shall have
refused to make any extensions of credit under the Revolving
Credit Agreement for a period of 150 consecutive days following
notice of such refusal delivered to the borrowers thereunder; or
(p) (i) any of Specialty Foods Corporation or the Sellers
shall default in the payment of principal of or interest on any
indebtedness in an aggregate amount, with respect to such Person,
at any one time equal to or exceeding $10,000,000, which default
continues unremedied and unwaived for a period in excess of 60
days, or (ii) indebtedness of SFC or any Seller becomes due prior
to its stated maturity in an aggregate amount, with respect to
such Person, equal to or exceeding $10,000,000;
then, in the case of any event described in the subsections above, after the
applicable grace period, if any, set forth in such subsections the Control
Party, by notice then given in writing to the Company, the Master Servicer and
the Trustee, may declare that an early amortization event (an "Early
Amortization Event") has occurred as of the date of such notice with respect
to Series 1996-1.
VI
SERVICING FEE
VI.1. Servicing Compensation. A monthly servicing fee (the
"Series 1996-1 Monthly Servicing Fee") shall be payable to the
Master Servicer, on behalf of the Servicing Parties, on each Distribution
Date for the Accrual Period then ending, in an amount equal to the product of
(a) the Servicing Fee and (b) a fraction the numerator of which is the daily
average Adjusted Invested Amount for such Accrual Period and the denominator of
which is the daily average of the Aggregate Adjusted Invested Amount for such
Accrual Period; provided, however, that if an Early Amortization Period has
commenced and Specialty Foods Corporation is acting as Master Servicer, the
Series 1996-1 Monthly Servicing Fee shall be deferred until all amounts due
under the VFC Certificates have been paid in full. The Series 1996-1 Monthly
Servicing Fee is the Monthly Servicing Fee, referred to in Section 2.5 of the
Servicing Agreement, which is allocable to Series 1996-1.
VII
COVENANTS, REPRESENTATIONS AND WARRANTIES
VII.1. Representations and Warranties of the Company and the
Master Servicer. The Company and the Master Servicer hereby represent and
warrant to the Enhancement Provider, the Trustee and each of the VFC
Certificateholders that each and all of their respective representations
and warranties contained in each Pooling and Servicing Agreement is true and
correct in all material respects as of the date hereof.
VII.2. Covenants of the Company. The Company hereby agrees that:
(a) it shall observe each and all of its respective covenants
(both affirmative and negative) contained in each Pooling and
Servicing Agreement in all material respects;
(b) it shall not terminate the Agreement unless in strict
compliance with the terms of the Agreement;
(c) it shall not change in any material respect the terms
or provisions of the Policies so as to adversely affect the
general quality of the Receivables without the prior written
consent of the Control Party;
(d) it shall not make any change or modification (or permit
any change or modification to be made) in any material respect to
the Policies, except (i) if such changes or modifications are
necessary under any Requirement of Law or (ii) if such changes or
modifications are consented to by the Enhancement Provider.
VII.3. Covenants of the Master Servicer. The Master
Servicer hereby agrees that: (a) it shall observe each and all of its
covenants (both affirmative and negative) contained in each Pooling and
Servicing Agreement in all material respects; and (b) it shall deliver to each
VFC Certificateholder which is an Eligible Certificateholder by 11:00 A.M.
(New York City time) on the Determination Date prior to each Settlement Date a
Monthly Settlement Statement.
VII.4. Additional Supplements. (a) The Company and the
Master Servicer each hereby agrees that, so long as the Enhancement Provider
is the Control Party in respect of the Series 1996-1, no additional Supplement
shall be issued under the Agreement unless the Control Party shall have
consented to the form and substance of the Principal Terms contained in such
Supplement, which consent shall not be unreasonably withheld (it
being understood that it is not unreasonable if the Control Party
withholds such consent because it determines in its sole discretion that
its rights would be diminished or otherwise adversely affected under any of
the Transaction Documents as a result of the issuance of such Supplement).
(a) In addition to the approval required pursuant to
subsection 7.4(a), the Company and the Master Servicer each hereby agrees
that, so long as the Initial VFC Certificateholder continues to be a VFC
Certificateholder, no additional Supplement shall be issued under the Agreement
unless the Initial VFC Certificateholder, shall have consented to the form and
substance of the Principal Terms contained in such Supplement, which
consent shall not be unreasonably withheld (it being understood
that it is not unreasonable if the Initial VFC Certificateholder
withholds such consent because it determines in its sole discretion that its
rights would be diminished or otherwise adversely affected under any of the
Transaction Documents as a result of the issuance of such Supplement).
VII.5. Representations and Warranties of the Initial VFC
Certificateholder. The Initial VFC Certificateholder represents, warrants
and covenants to the Company, as of the Issuance Date, that:
(a) it acknowledges that the VFC Certificates have not been
and will not be registered under the Securities Act and are being
offered and sold to the Initial VFC Certificateholder in reliance
upon the exemption provided in Section 4(2) of the Securities
Act, and have not and will not be registered or qualified under
the securities or "blue sky" laws of any jurisdiction, and may
not be resold or otherwise transferred unless so registered or
qualified or unless any exemption from such requirements is
available;
(b) it is purchasing the VFC Certificates in the ordinary
course of its business and for investment only solely for its own
account or accounts for which it exercises sole investment
discretion and not as nominee or agent for any other Person and
not with a view to, or for offer or sale in connection with, any
distribution thereof (within the meaning of the Securities Act)
that would be in violation of the securities laws of the United
States of America or any state thereof;
(c) it is an institutional investor that is an "Accredited
Investor" (as defined under Rule 501(a)(1), (2), (3) or (7), of
the Securities Act) or, if the VFC Certificates are to be
purchased for one or more institutional accounts ("investor
accounts") for which it is acting as a fiduciary or agent, each
such investor account is an institutional investor that is an
Accredited Investor;
(d) it invests in or has such knowledge and experience in
business and financial matters and with respect to investments in
securities so as to enable it to understand and evaluate the
risks of such investments and form an investment decision with
respect thereto and is able to bear the risk of such investment
for an indefinite period and to afford a complete loss thereof;
(e) it has been afforded access to information (including
the financial condition) about the Company, the Servicing Parties
and the Sellers to enable it to evaluate its investment in the
VFC Certificates and acknowledges that it has been afforded the
opportunity (i) to ask such questions as it has deemed necessary
of, and to receive answers from, representatives of the Company,
the Servicing Parties and the Sellers concerning the terms and
conditions of the offering of the VFC Certificates and the merits
and risks of investing in the VFC Certificates, (ii) to obtain
such additional information which the Company possesses or can
acquire without unreasonable effort or expense that is necessary
to verify the accuracy and completeness of the Information and
(iii) to review the filings of the Master Servicer with the
Securities and Exchange Commission and all of the public
disclosure of the Master Servicer; and
(f) it acknowledges that the expressed intent of the
Company is that the VFC Certificates are being issued only in
transactions not involving any public offering within the meaning
of the Securities Act and that the VFC Certificates will bear a
legend substantially as set forth in the form of the VFC
Certificates included in this Supplement and will be subject to
certain limitations on transfer and exchange specified in the
Agreement, this Supplement and the other Transaction Documents.
VIII
CONDITIONS PRECEDENT
VIII.1. Conditions Precedent to Effectiveness of Supplement.
This Supplement will become effective on the date (the "Effective
Date") on which the following conditions precedent have been satisfied:
(a) Documents. The Initial VFC Certificateholder shall have
received an original copy, each executed and delivered in form
and substance satisfactory to the Initial VFC Certificateholder,
of (i) this Supplement executed by a duly authorized officer of
each of the Company, the Master Servicer, the Trustee and the
Initial VFC Certificateholder, and (ii) the other Transaction
Documents (including the Insurance Agreement and the
Principal/Interest Surety Bond) duly executed by the parties
thereto.
(b) Officer's Certificate. The Initial VFC
Certificateholder shall have received from each of the Company
and SFC an Officer's Certificate, dated the Issuance Date,
certifying that (i) in the case of the Company, the
representations and warranties of the Company contained or
incorporated in this Supplement and in the other Transaction
Documents to which it is a party are true and correct on and as
of such date (unless made as of a prior date, in which case the
representation or warranty was true as of such prior date) and
(ii) the Company or SFC, as the case may be, has complied with
all agreements and satisfied all conditions on its part required
to be performed or satisfied hereunder and under the Pooling
Agreement and the other Transaction Documents at or prior to such
date.
(c) Secretary's Certificate. The Initial VFC
Certificateholder shall have received from each of the Company
and SFC a certificate from the Secretary or an Assistant
Secretary of the Company and SFC, respectively, dated the
Issuance Date, certifying that (i) the execution, delivery and
performance by the Company and SFC, as applicable, of each
Transaction Document to which it is a party and any other
documents executed by or on behalf of the Company and SFC, as
applicable, in connection with the transactions contemplated
thereby have been duly authorized (and attaching such resolutions
as Exhibit A thereto), (ii) incumbency of the person or persons
executing and delivering each such document on behalf of the
Company and SFC, as applicable, and (iii) such other information
with respect to SFC, the Company and the Sellers as the Initial
VFC Certificateholder may reasonably request in order to
establish the corporate existence and good standing of each
thereof, the proper taking of all appropriate corporate
proceedings in connection with the transactions contemplated
hereby and the compliance with the conditions set forth herein.
(d) Legal Opinions. The Initial VFC Certificateholder shall
have received the following legal opinions:
(i) an opinion from Paul, Weiss, Rifkind,
Wharton & Garrison, special counsel to the Company and
SFC, dated the Issuance Date and addressed to the
Initial VFC Certificateholder and the Trustee, as to
certain corporate, security interest and tax matters
involving the Company, SFC and the transactions
contemplated by this Supplement (in substantially the
form delivered by such counsel in connection with the
issuance of the Series 1994-1 Investor Certificates);
(ii) an opinion from John E. Kelly, Esq.,
corporate counsel of the Company and SFC, dated the
Issuance Date and addressed to the Initial VFC
Certificateholder and the Trustee, as to certain
corporate matters involving the Company and SFC and the
transactions contemplated by this Supplement (in
substantially the form delivered by such counsel in
connection with the issuance of the Series 1994-1
Investor Certificates);
(iii) an opinion from Akin, Gump, Strauss,
Hauer & Feld, special Texas counsel to the Company and
SFC, dated the Issuance Date and addressed to the
Initial VFC Certificateholder and the Trustee, as to
certain security interest and tax matters (in
substantially the form delivered by such counsel in
connection with the issuance of the Series 1994-1
Investor Certificates); and
(iv) an opinion from the general counsel or
associate general counsel to the Enhancement Provider,
dated the Issuance Date and addressed to the Initial
VFC Certificateholder and the Trustee, as to certain
corporate matters (in substantially the form delivered
by such counsel in connection with the issuance of the
Series 1994-1 Investor Certificates).
(e) Pooling Agreement Conditions. The Trustee shall have
received, with copies for the Initial VFC Certificateholder, each
of the items required to be delivered pursuant to subsection
5.10(b) of the Agreement, including without limitation a Tax
Opinion, a General Opinion and the required written confirmation
from each Rating Agency.
IX
MISCELLANEOUS
IX.1. Ratification of Agreement. As supplemented by this
Supplement, the Agreement is in all respects ratified and confirmed and the
Agreement as so supplemented by this Supplementshall be read, taken and
construed as one and the same instrument.
IX.2. Governing Law. THIS SUPPLEMENT SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK, AND THE
OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HEREUNDER SHALL
BE DETERMINED IN ACCORDANCE WITH SUCH LAW.
IX.3. Further Assurances. Each of the Company and the
Trustee agrees, from time to time, to do and perform any and all
acts and to execute any and all further instruments required or reasonably
requested by the Control Party more fully to effect the purposes of this
Supplement and the sale of the VFC Certificates hereunder, including,
without limitation, in the case of the Company, the execution of any financing
statements or continuation statements relating to the Receivables and the
other Trust Assets for filing under the provisions of the UCC of any
applicable jurisdiction.
IX.4. No Waiver; Cumulative Remedies. No failure to
exercise and no delay in exercising, on the part of the Enhancement Provider,
the Trustee or any VFC Certificateholder, any right, remedy, power or
privilege hereunder, shall operate as a waiver thereof; nor shall any single
or partial exercise of any right, remedy, power or privilege hereunder preclude
any other or further exercise thereof or the exercise of any other right,
remedy, power or privilege. The rights, remedies, powers and
privileges herein provided are cumulative and not exhaustive of
any rights, remedies, powers and privileges provided by law.
IX.5. Amendments. This Supplement may only be amended,
supplemented or otherwise modified from time to time if such amendment,
supplement or modification is effected in accordance with the provisions of
Section 10.1 of the Agreement. The Master Servicer shall give each VFC
Certificateholder notice of any proposed amendment to this Supplement or to
the Agreement on or before the later of (a) the date that is 10 days prior
thereto and (b) the date of any initial notice thereof is provided to the
Enhancement Provider.
IX.6. Notices. All notices, requests and demands to or
upon any party hereto to be effective shall be given in the manner set forth
(i) in the case of the Company, the Master Servicer and the Trustee, in
Section 10.5 of the Agreement and (ii) in the case of the Initial VFC
Certificateholder and the Enhancement Provider, at their respective addresses
set forth below:
The Initial VFC
Certificateholder: The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Attention: Roger Parker
Telecopy: (212) 270-1789
The Enhancement
Provider: Capital Markets Assurance Corporation
885 Third Avenue
New York, New York 10022
Attention: Head of Exposure Management
Telecopy: (212) 755-5462
Any notice required or permitted to be mailed to a VFC
Certificateholder shall be given as provided in Section 4B.3.
IX.7. Counterparts. This Supplement may be executed in any
number of counterparts and by the different 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.
IX.8. Enhancement Provider. The Enhancement Provider shall
have rights under the Agreement, the Servicing Agreement and this
Supplement (including the right to withhold consents) only (a) if either
(i) the Enhancement Provider is then providing Enhancement for Series 1996-1
or (ii) the Enhancement Provider is owed any amounts in respect of the
Principal/Interest Surety Bond and (b) no Surety Default has occurred and is
continuing.
IX.9. Successors and Assigns. (a) This Supplement shall
be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the Company may
not assign or transfer any of its rights under this Supplement without the
prior written consent of the VFC Certificateholders.
(a) Any VFC Certificateholder may, upon the satisfaction of
all applicable requirements under Section 5.3 of the Agreement,
in the ordinary course of its business and in accordance with
applicable law, at any time sell to one or more financial institutions
("Participants") participations in its VFC Certificate and its rights hereunder
pursuant to documentation in form and substance satisfactory to such VFC
Certificateholder and the Participant. In the event of any such sale by a VFC
Certificateholder to a Participant, such VFC Certificateholder's
obligations under this Supplement shall remain unchanged and such VFC
Certificateholder shall remain solely responsible for the performance thereof.
The Company agrees that each VFC Certificateholder is entitled, in its own
name, to enforce for the benefit of, or as agent for, any Participant any and
all rights, claims and interest of such Participant in respect of the
Trust and the Company's obligations under this Supplement.
(b) Any VFC Certificateholder may, upon satisfaction of all
applicable requirements under Section 5.3 of the Agreement and in
the ordinary course of its business and in accordance with applicable law,
at any time sell all or any part of its rights and obligations under this
Supplement and the VFC Certificate to (i) its Affiliates or to any other VFC
Certificateholder and, (ii) upon prior written notice to the Trustee, one or
more financial institutions (an "Acquiring VFC Certificateholder"), in
each case pursuant to a commitment transfer supplement,substantially in the
form of Exhibit D (the "Commitment Transfer Supplement"), executed by such
Acquiring VFC Certificateholder, such assigning VFC Certificateholder and the
Trustee (and, in the case of an Acquiring VFC Certificateholder that is not
prior to such assignment a VFC Certificateholder or an Affiliate thereof,
by the Company and the Master Servicer), and delivered to the
Trustee for its acceptance and recording in the Certificate
Register. Notwithstanding the foregoing, no VFC Certificateholder shall so
sell its rights hereunder without the prior written consent of the Company,
which consent will not be unreasonably withheld. Upon such execution,
delivery, acceptance and recording, from and after the Transfer Issuance Date
determined pursuant to such Commitment Transfer Supplement, (x) the Acquiring
VFC Certificateholder thereunder shall be a party hereto and, to the
extent provided in such Commitment Transfer Supplement, have the rights
and obligations of a VFC Certificateholder hereunder with a Commitment as
set forth therein and (y) the transferor VFC Certificateholder thereunder
shall, to the extent provided in such Commitment Transfer Supplement, be
released from its obligations under this Supplement. Such Commitment Transfer
Supplement shall be deemed to amend this Supplement (including the Schedules
attached hereto) to the extent, and only to the extent, necessary to
reflect the addition of such Acquiring VFC Certificateholder as a
"VFC Certificateholder" and the resulting adjustment of Commitment Percentages
arising from the purchase by such Acquiring VFC Certificateholder of all or
a portion of the rights and obligations of such transferor VFC
Certificateholder under this Supplement and the VFC Certificates.
(c) The Trustee shall maintain at its address referred to
in Section 9.6 a copy of each Commitment Transfer Supplement delivered to it.
(d) Upon its receipt of a Commitment Transfer Supplement
executed by a transferor VFC Certificateholder and an Acquiring
VFC Certificateholder (and, in the case of a Transferee that is
not prior to such assignment a VFC Certificateholder or an Affiliate
thereof, by the Company and the Master Servicer), the Trustee shall
(i) promptly accept such Commitment Transfer Supplement and (ii) on the
Transfer Issuance Date determined pursuant thereto record the information
contained therein in the Certificate Register and give notice of such
acceptance and recordation to the VFC Certificateholders, the Master Servicer
and the Company.
(e) The Company and the Master Servicer each authorizes
each VFC Certificateholder to disclose to any Participant or
Acquiring VFC Certificateholder (each, a "Transferee") and any
prospective Transferee any and all financial information in such
VFC Certificateholder's possession concerning the Company, any Servicing
Party, any Seller or the Receivables which has been delivered to such VFC
Certificateholder by the Company or the Master Servicer pursuant to this
Supplement or which has been delivered to such VFC Certificateholder by or on
behalf of the Company in connection with such VFC Certificateholder's credit
evaluation of the Company, any Servicing Party, any Seller, the Trust and
the Trust Assets prior to becoming a party to this Supplement; provided,
however, if any such information is of a confidential nature, then the
Transferee or prospective Transferee shall agree to be bound by the terms and
conditions of the confidentiality provision contained in Section 10.20 of the
Agreement.
(f) If, pursuant to this subsection, any interest in this
Supplement or the VFC Certificates is transferred to any Transferee which is
organized under the laws of any jurisdiction other than the United States or
any State thereof, the transferor VFC Certificateholder shall cause such
Transferee, concurrently with the effectiveness of such transfer, (i) to
represent to the transferor VFC Certificateholder (for the benefit of the
transferor VFC Certificateholder, the Trustee, the Company and the Master
Servicer) that under applicable law and treaties no taxes will be required to
be withheld by the Trustee, the Company, the Master Servicer or the transferor
VFC Certificateholder with respect to any payments to be made to such
Transferee in respect of the VFC Certificates, (ii) to furnish to the
transferor VFC Certificateholder (and, in the case of any Acquiring VFC
Certificateholder not registered in the Certificate Register, the Trustee and
the Company) either U.S. Internal Revenue Service Form 4224 or U.S. Internal
Revenue Service Form 1001 (wherein such Transferee claims entitlement to
complete exemption from U.S. federal withholding tax on all interest
payments hereunder) and (iii) to agree (for the benefit of the transferor VFC
Certificateholder, the Trustee, the Company and the Master Servicer) to provide
the transferor VFC Certificateholder (and, in the case of any Acquiring VFC
Certificateholder not registered in the Certificate Register, the
Trustee, the Company and the Master Servicer) a new Form 4224 or Form 1001
upon the expiration or obsolescence of any previously delivered form and
comparable statements in accordance with applicable U.S. laws and regulations
and amendments duly executed and completed by such Transferee, and to comply
from time to time with all applicable U.S. laws and regulations with regard
to such withholding tax exemption.
(g) Notwithstanding any other provisions herein, no transfer or
assignment of any interests or obligations of any VFC Certificateholder
hereunder or any grant of participations therein shall be permitted if such
transfer, assignment or grant would result in a prohibited transaction under
Section 4975 of the Internal Revenue Code or Section 406 of ERISA or cause
the Trust Assets to be regarded as plan assets pursuant to 29 C.F.R.
2510.3-101, or require the Company or any Seller to file a registration
statement with the Securities and Exchange Commission or to qualify the VFC
Certificates under the "blue sky" laws of any state.
IX.10. No Bankruptcy Petition. Each VFC Certificateholder
hereby covenants and agrees that, prior to the date which is one
year and one day after the later of (i) the last day of the Amortization
Period and (ii) the last day of the amortization period of any other
Outstanding Series, it will not institute against, or join any other Person
in instituting against, the Company any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceedings, or other similar proceedings under
any federal or state bankruptcy or similar law.
IX.11. Costs and Expenses. The Company agrees to pay all
reasonable out-of-pocket costs and expenses of the Trustee and the VFC
Certificateholders (including, without limitation, reasonable fees and
disbursements of their attorneys) in connection with (i) the preparation,
execution and delivery of this Supplement, the Agreement and the other
Transaction Documents and amendments or waivers of any such documents and
(ii) the enforcement by the Trustee and the VFC Certificateholders of the
obligations and liabilities of the Company and the Master Servicer under the
Agreement, this Supplement or any related document; provided that any payments
made by the Company pursuant to this subsection shall be made solely from
Available Funds shall be non-recourse other than with respect to Available
Funds necessary to make such payment, and shall not constitute a claim against
the Company to the extent that insufficient Available Funds exist to make such
payment.
X
FINAL DISTRIBUTIONS
X.1. Certain Distributions. (a) Not later than 2:00 p.m., New
York City time, on the Distribution Date following the date on
which the proceeds are deposited into the Series 1996-1 Non-Principal
Collection Sub-subaccount and the Series 1996-1 Principal Collection
Sub-subaccount pursuant to subsection 7.2(b) of the Agreement, the Trustee
shall distribute such amounts pursuant to Article III.
(a) Notwithstanding anything to the contrary in this
Supplement or the Agreement, any distribution made pursuant to
this Section shall be deemed to be a final distribution pursuant
to Section 9.3 of the Agreement with respect to the VFC
Certificates.
XI
CHANGE IN CIRCUMSTANCES
XI.1. Illegality. Notwithstanding any other provision
herein, if, after the Issuance Date, the adoption of or any change in any
Requirement of Law or in the interpretation or administration thereof shall
make it unlawful for any VFC Certificateholder to make or maintain its portion
of the VFC Certificateholders' Interest in any Eurodollar Tranche and such
VFC Certificateholder shall notify the Trustee and the Company, then the
portion of each Eurodollar Tranche applicable to such VFC Certificateholder
shall thereafter be calculated by reference to the ABR. If any such change in
the method of calculating interest occurs on a day which is not the last day
of the Eurodollar Period with respect to any Eurodollar Tranche, the
Company shall pay to the Trustee for the account of such VFC
Certificateholder the amounts, if any, as may be required
pursuant to Section 11.4.
XI.2. Requirements of Law. (a) Notwithstanding any other
provision herein, if after the Issuance Date the adoption of or any change
in any Requirement of Law or in the interpretation or application thereof or
compliance by any VFC Certificateholder with any request or directive (whether
or not having the force of law) from any central bank or other Governmental
Authority made subsequent to the date hereof:
(i) shall subject any VFC Certificateholder to any tax of any
kind whatsoever with respect to the Transaction Documents or
change the basis of taxation of payments to any VFC
Certificateholder in respect thereof (except for Non-Excluded
Taxes covered by Section 11.3 and changes in the rate of taxes on
the overall net income of such VFC Certificateholder); and
(ii) shall impose, modify or deem applicable any reserve,
special deposit, compulsory loan or similar requirement against
assets held by, deposits or other liabilities in or for the
account of, advances, loans or other extensions of credit by, or
any other acquisition of funds by, any office of such VFC
Certificateholder which is not otherwise included in the
determination of the Eurodollar Rate;
and the result of any of the foregoing is to increase the cost to
such VFC Certificateholder by an amount which such VFC Certificateholder
deems to be material, of making, converting into, continuing or maintaining
Eurodollar Tranches or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, the Company will pay to such VFC
Certificateholder upon demand such additional amount or amounts as will
compensate such VFC Certificateholder for such additional costs incurred or
reduced amount receivable.
(b) If any VFC Certificateholder shall have reasonably
determined after the Issuance Date that the adoption of or any change in
any Requirement of Law regarding capital adequacy or in the interpretation
or application thereof or compliance by such VFC Certificateholder or any
corporation controlling such VFC Certificateholder with any request or
directive regarding capital adequacy (whether or not having the force of law)
from any Governmental Authority made subsequent to the date hereof shall
have the effect of reducing the rate of return on such VFC
Certificateholder's or such corporation's capital as a consequence of its
obligations hereunder to a level below that which such VFC Certificateholder
or such corporation could have achieved but for such adoption, change or
compliance (taking into consideration such VFC Certificateholder's or such
corporation's policies with respect to capital adequacy) by an amount
reasonably deemed by such VFC Certificateholder to be material, then from time
to time, the Company shall promptly pay to such VFC Certificateholder such
additional amount or amounts as will compensate such VFC Certificateholder
for such reduction.
(c) If any VFC Certificateholder becomes entitled to claim
any additional amounts pursuant to subsection (a) or (b) above, it shall
promptly notify the Company (with a copy to the Trustee) of the event by
reason of which it has become so entitled. A certificate as to any additional
amounts payable pursuant to this subsection submitted by such VFC
Certificateholder to the Company (with a copy to the Trustee) shall be
conclusive in the absence of manifest error. The agreements in this Section
shall survive the termination of this Supplement and the Agreement and the
payment of all amounts payable hereunder.
XI.3. Taxes. (a) All payments made by the Company under
this Supplement shall be made free and clear of, and without deduction or
withholding for or on account of, any present or future income, stamp or
other taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, now or hereafter imposed, levied, collected, withheld or
assessed by any Governmental Authority, excluding net income taxes
and franchise taxes (imposed in lieu of net income taxes) imposed on any VFC
Certificateholder as a result of a present or former connection between
such VFC Certificateholder and the jurisdiction of the Governmental Authority
imposing such tax or any political subdivision or taxing authority thereof or
therein (other than any such connection arising solely from such VFC
Certificateholder having executed, delivered or performed its
obligations or received a payment under, or enforced, this Supplement).
If any such non-excluded taxes, levies, imposts, duties, charges, fees
deductions or withholdings ("Non-Excluded Taxes") are required to be withheld
from any amounts payable to any VFC Certificateholder hereunder, the amounts
so payable to such VFC Certificateholder shall be increased to the extent
necessary to yield to such VFC Certificateholder (after payment
of all Non-Excluded Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Supplement,
provided, however, that the Company shall not be required to increase any
such amounts payable to any VFC Certificateholder that is not organized under
the laws of the United States of America or a state thereof if such VFC
Certificateholder fails to comply with the requirements of paragraph (b)
of this subsection. Whenever any Non-Excluded Taxes are payable by the
Company as promptly as possible thereafter the Company shall send to the
Trustee for the account of such VFC Certificateholder, as the case may be, a
certified copy of an original official receipt received by the Company
showing payment thereof. If the Company fails to pay any Non-Excluded Taxes
when due to the appropriate taxing authority or fails to remit to the Trustee
the required receipts or other required documentary evidence, the Company shall
indemnify the VFC Certificateholders for any incremental taxes, interest or
penalties that may become payable by any VFC Certificateholder as a result of
any such failure. The agreements in this subsection shall survive the
termination of this Supplement and the payment of the Loans and all other
amounts payable hereunder.
(a) Each VFC Certificateholder that is not incorporated under
the laws of the United States of America or a state thereof
shall:
(i) deliver to the Company and the Trustee (A) two duly
completed copies of United States Internal Revenue Service
Form 1001 or 4224, or successor applicable form, as the case may
be, and (B) an Internal Revenue Service Form W-8 or W-9, or
successor applicable form, as the case may be;
(ii) deliver to the Company and the Trustee two further
copies of any such form or certification on or before the date that
any such form or certification expires or becomes obsolete and after
the occurrence of any event requiring a change in the most recent
form previously delivered by it to the Company; and
(iii) obtain such extensions of time for filing and complete
such forms or certifications as may reasonably be requested by
the Company;
unless in any such case an event (including, without limitation, any change
in treaty, law or regulation) has occurred prior to the date on which any
such delivery would otherwise be required which renders all such forms
inapplicable or which would prevent such VFC Certificateholder from duly
completing and delivering any such form with respect to it and such VFC
Certificateholder so advises the Company and the Trustee. Each VFC
Certificateholder so incorporated shall certify at the time it first becomes
a VFC Certificateholder, and thereafter to the extent provided by law, (i) in
the case of a Form 1001 or 4224, that it is entitled to receive payments under
this Agreement without deduction or withholding of any United States federal
income taxes and (ii) in the case of a Form W-8 or W-9, that it is entitled
to an exemption from United States backup withholding tax. Each Person
that shall become a VFC Certificateholder or a Participant pursuant to
subsection 9.9 shall, upon the effectiveness of the related transfer, be
required to provide all of the forms and statements required pursuant to this
subsection, provided that in the case of a Participant such Participant shall
furnish all such required forms and statements to the VFC
Certificateholder from which the related participation shall have
been purchased.
XI.4. Indemnity. The Company agrees to indemnify each VFC
Certificateholder and to hold each VFC Certificateholder harmless from any
loss or expense which such VFC Certificateholder may sustain or incur as a
consequence of (a) default by the Company in making a borrowing of,
conversion into or continuation of a Eurodollar Tranche after the Company
has given irrevocable notice requesting the same in accordance with the
provisions of this Supplement, or (b) default by the Company in making any
prepayment in connection with a Decrease after the Company has given
irrevocable notice thereof in accordance with the provisions of Section 2.6
of this Supplement or (c) the making of a prepayment of a Eurodollar Tranche
prior to the termination of the Eurodollar Period for such Eurodollar Tranche.
Such indemnification may include an amount equal to the excess, if
any, of (i) the amount of interest which would have accrued on the amount so
prepaid or not so borrowed, converted or continued, for the period from the
date of such prepayment or of such failure to borrow, convert or continue to
the last day of the Eurodollar Period (or in the case of a failure to borrow,
convert or continue, the Eurodollar Period that would have commenced on
the date of such prepayment or of such failure) in each case at the
applicable rate of interest for such Eurodollar Tranche provided for herein
(excluding, however, the Applicable Margin included therein, if any) over
(ii) the amount of interest (as reasonably determined by such VFC
Certificateholder) which would have accrued to such VFC Certificateholder on
such amount by placing such amount on deposit for a comparable period with
leading banks in the interbank eurodollar market. This covenant shall
survive the termination of this Supplement and the payment of all amounts
payable hereunder. A certificate as to any additional amounts payable
pursuant to the foregoing sentence submitted by any VFC Certificateholder to
the Company and the Master Servicer shall be conclusive absent manifest error.
XI.5. Payment Limitation. Notwithstanding anything contained
herein to the contrary, the obligations of the Company under this Article XI
shall be made solely from Available Funds shall be non-recourse other than with
respect to Available Fundsnecessary to make such payment, and shall not
constitute a claim against the Company to the extent that insufficient
Available Funds exist to make such payment.
IN WITNESS WHEREOF, the parties hereto have caused this Series 1996-1
Supplement to be duly executed by their respective officers as of the day
and year first above written.
SPECIALTY FOODS FINANCE
CORPORATION, as Company
By:______________________
Name:
Title:
SPECIALTY FOODS CORPORATION
as Master Servicer
By:______________________
Name:
Title:
THE CHASE MANHATTAN BANK,
as Initial VFC Certificateholder
By:_____________________
Name:
Title:
THE CHASE MANHATTAN BANK, as
Trustee
By:______________________
Name:
Title:
Schedule 1
Commitments
Name of VFC Certificateholder Commitment
The Chase Manhattan Bank $20,000,000
Totals $20,000,000
Schedule 2
Trust Accounts
The Collection Account has been established by and at The Chase
Manhattan Bank, account number 507864468.
The Collection Account is for the account of The Chase Manhattan
Bank, as trustee for the SFC Master Trust.
Schedule 3
Cure Period
Trigger Date Applicable Subsection or event
------------ ------------------------------
30 days Pooling Agreement: Subsections 2.3(a),
(b), (d), (e), (f) (first sentence), (g) and (h)
10 days Pooling Agreement: Subsection 2.3(i)
0 days Pooling Agreement: Subsections 2.3(e)
and (f) (second sentence)
10 days Pooling Agreement: Subsection 2.4(a)
5 days Pooling Agreement: Subsections 2.4(b)
and (c)
30 days Pooling Agreement: Subsections 2.7(a),
(b) (first sentence), (d), (i)
10 days Pooling Agreement: Subsection 2.7(c)
5 days Pooling Agreement: Subsections 2.7(b)
(second two sentences), (f), (g) and (h)
10 days Pooling Agreement: Section 2.8 (all
subsections thereunder)
30 days Servicing Agreement: Sections 3.1, 3.2,
3.4, 3.5, 3.6 (first sentence)
10 days Servicing Agreement: Sections 3.3, 3.8, 3.9
5 days Servicing Agreement: Section 3.7
0 days Servicing Agreement: Section 3.6
(second sentence)
30 days Servicing Agreement: Sections 4.4, 4.5,
4.13, 5.1, 5.2
10 days Servicing Agreement: Sections 4.6, 4.7,
4.9, 4.12
5 days Servicing Agreement: Sections 4.2(b),
4.3, 4.8, 4.10, 4.11, 4.14, 5.3, 5.4
1 day Servicing Agreement: Section 4.2(a)
0 days Servicing Agreement: Section 4.1
30 days Receivables Sale Agreement: Subsections
4.1(a), (b), (d), (e), (f) (first sentence),
(g), (h), (j) and (k)
10 days Receivables Sale Agreement: Subsections
4.1(i), (l), (m), (n) and (o)
0 days Receivables Sale Agreement: Subsections
4.1(c) and (f) (second sentence)
10 days Receivables Sale Agreement: Subsection
4.2(a)
5 days Receivables Sale Agreement: Subsections
4.2(b) and (c)
30 days Receivables Sale Agreement: Sections
5.1, 5.2, 5.3, 5.4, 5.8 and 5.13
10 days Receivables Sale Agreement: Sections
5.5, 5.6, 5.7, 5.11 and 5.12
1 day Receivables Sale Agreement: Sections
5.9, 5.10 and 5.14
10 days Receivables Sale Agreement: Sections
6.4, 6.5, 6.6, 6.7, 6.8, 6.9 and 6.10
5 days Receivables Sale Agreement: Sections
6.1, 6.2 and 6.3
30 days Insurance Agreement: Section 3.1 (all
subsections except (c) and (g))
10 days Insurance Agreement: Subsection 3.1(g)
0 days Insurance Agreement: Subsection 3.1(c)
10 days Insurance Agreement: Section 4.1 (all
subsections except (c))
5 days Insurance Agreement: Subsection 4.1(c)
5 days Occurrence of a Master Servicer
Consolidation Event
SPECIALTY FOODS FINANCE CORPORATION,
SPECIALTY FOODS CORPORATION,
as Master Servicer,
THE CHASE MANHATTAN BANK,
as Initial VFC Certificateholder
and
THE CHASE MANHATTAN BANK,
as Trustee
SERIES 1996-1 SUPPLEMENT
Dated as of August 1, 1996
to
POOLING AGREEMENT
Dated as of November 16, 1994
SFC MASTER TRUST
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS 1
SECTION 1.1. Definitions 1
ARTICLE II
DESIGNATION OF CERTIFICATES; PURCHASE AND SALE
OF THE VFC Certificates 22
SECTION 2.1. Designation 22
SECTION 2.2. The Series 1996-1 Certificates 22
SECTION 2.3. Purchases of Interests in the VFC
Certificates 23
SECTION 2.4. Delivery 23
SECTION 2.5. Procedure for Initial Issuance and for
Increasing the Series 1996-1 Invested Amount 24
SECTION 2.6. Procedure for Decreasing the
Invested Amount; Optional Termination 25
SECTION 2.7. Reductions of the Commitments 26
SECTION 2.8. Interest; Commitment Fee 27
ARTICLE III
ARTICLE III OF THE AGREEMENT 28
SECTION 3B.2. Establishment of Trust Accounts. 28
SECTION 3B.3. Daily Allocations. 29
SECTION 3B.4. Determination of Interest 31
SECTION 3B.5. Determination of Series 1996-1
Monthly Principal 32
SECTION 3B.6. Applications 32
SECTION 3B.7. The Principal/Interest Surety Bond. 34
ARTICLE IV
DISTRIBUTIONS AND REPORTS 37
SECTION 4B.1. Distributions 37
SECTION 4B.2. Statements and Notices 37
Section 4B.3. Notices 39
ARTICLE V
ADDITIONAL EARLY AMORTIZATION EVENTS 39
SECTION 5.1. Additional Early Amortization Events 39
ARTICLE VI
SERVICING FEE 41
SECTION 6.1. Servicing Compensation 41
ARTICLE VII
COVENANTS, REPRESENTATIONS AND WARRANTIES 42
SECTION 7.1. Representations and Warranties of
the Company and the Master Servicer 42
SECTION 7.2. Covenants of the Company 42
SECTION 7.3. Covenants of the Master Servicer 42
SECTION 7.4. Additional Supplements 42
SECTION 7.5.Representations and Warranties of the
Initial VFC Certificateholder 43
ARTICLE VIII
CONDITIONS PRECEDENT 44
SECTION 8.1. Conditions Precedent to
Effectiveness of Supplement 44
ARTICLE IX
MISCELLANEOUS 46
SECTION 9.1. Ratification of Agreement 46
SECTION 9.2. Governing Law 46
SECTION 9.3. Further Assurances 46
SECTION 9.4. No Waiver; Cumulative Remedies 47
SECTION 9.5. Amendments 47
SECTION 9.6. Notices 47
SECTION 9.7. Counterparts 47
SECTION 9.8. Enhancement Provider 48
SECTION 9.9. Successors and Assigns 48
SECTION 9.10. No Bankruptcy Petition 50
SECTION 9.11. Costs and Expenses 51
ARTICLE X
FINAL DISTRIBUTIONS 51
SECTION 10.1. Certain Distributions 51
ARTICLE XI
CHANGE IN CIRCUMSTANCES 51
SECTION 11.1. Illegality 51
SECTION 11.2. Requirements of Law 52
SECTION 11.3. Taxes 53
SECTION 11.4. Indemnity 54
SECTION 11.5. Payment Limitation 55
EXHIBITS
Exhibit A Form of VFC Certificate, Series 1996-1
Exhibit B Form of Subordinated Company Certificate,
Series 1996-1
Exhibit C [Reserved]
Exhibit D Form of Commitment Transfer Supplement
Exhibit E Form of Daily Report
Exhibit F Form of Monthly Settlement Statement
Exhibit G Form of Notice of Increase
SCHEDULES
Schedule 1 Commitments
Schedule 2 Trust Accounts
Schedule 3 Cure Period Trigger Dates
EXECUTION COPY
THIRD AMENDMENT, dated as of October 24, 1996 (this "Amendment"),to:
(a) the Term Loan Agreement, dated as of July 17, 1995, as
amended (the "Existing Term Loan Agreement" and, as amended hereby
and as from time to time further amended, supplemented or otherwise
modified, the "Term Loan Agreement") among SPECIALTY FOODS CORPORATION,
a Delaware corporation (the "Term Loan Borrower"), the several banks and
other financial institutions from time to time parties thereto
(the "Term Loan Lenders"), and THE CHASE MANHATTAN BANK (formerly,
Chemical Bank), a New York banking corporation, as administrative agent
for the Term Loan Lenders (the "Administrative Agent"); and
(b) the Revolving Credit Agreement dated as of August 16, 1993
and amended and restated as of July 17, 1995, as amended (the "Existing
Revolving Credit Agreement" and, as amended hereby and as from time
to time further amended, supplemented or otherwise modified, the
"Revolving Credit Agreement"), among each of the subsidiaries of
SPECIALTY FOODS CORPORATION signatory thereto (collectively, the
"Revolving Credit Borrowers"), the several banks and other financial
institutions from time to time parties thereto (collectively, the
"Revolving Credit Lenders") and the Administrative Agent.
W I T N E S S E T H :
WHEREAS, the Term Loan Borrower, the Administrative Agent and
the Term Loan Lenders wish to amend certain terms of the Existing
Term Loan Agreement in the manner provided for herein; and
WHEREAS, the Revolving Credit Borrowers, the Administrative Agent
and the Revolving Credit Lenders wish to amend certain terms of the Existing
Revolving Credit Agreement in the manner provided for herein;
NOW THEREFORE, in consideration of the premises contained herein,
the parties hereto agree as follows:
SECTION I. Definitions.
1. Defined Terms. Unless otherwise defined in this Amendment,
terms which are defined in the Existing Term Loan Agreement and Existing
Revolving Credit Agreement and used herein are so used as so defined.
Unless otherwise indicated, all Section, subsection and Schedule references
are to the Existing Term Loan Agreement.
SECTION II. Amendment of Certain Terms in Existing Term Loan Agreement.
1. Amendments to Subsection 1.1. (a) The definition of the term
"Applicable Margin" contained in subsection 1.1 of the Existing Term
Loan Agreement is hereby amended to read in its entirety as follows:
"'Applicable Margin': for each Type of Term Loan, (a) until
the Third Amendment Effective Date, the rate per annum set forth
under the relevant column heading below:
ABR Loans Eurodollar Loans
1-1/2% 2-1/2%
and (b) from and including the Third Amendment Effective Date,
the rate per annum set forth under the relevant column heading below:
ABR Loans Eurodollar Loans
1-3/4% 2-3/4%
(b) Subsection 1.1 of the Existing Term Loan Agreement is hereby
amended by adding thereto the following definitions, each in its proper
alphabetical order:
"'Collateral Investment Account': as defined in the
Collateral Investment Agreement."
"'Collateral Investment Agreement': a Collateral Investment
Agreement executed and delivered by the Term Loan Borrower and
the Administrative Agent in connection with the Third Amendment,
in form and substance satisfactory to the Administrative Agent,
pursuant to which (a) the Term Loan Borrower shall, on any
date after the Third Amendment Effective Date on which (i) the
Term Loan Borrower receives Net Proceeds from Asset Sales and
(ii) there are no Revolving Credit Loans or Swing Line Loans
outstanding under the Revolving Credit Agreement, deposit such
Net Proceeds (or the portion thereof remaining after any use
thereof to prepay Revolving Credit Loans, Swing Line Loans and Term
Loans) in the Collateral Investment Account for investment and
reinvestment in Cash Equivalents as provided therein, (b) the Term
Loan Borrower shall grant a security interest in the cash and
investments and reinvestments from time to time in the Collateral
Investment Account to the Administrative Agent for the ratable
benefit of the Term Loan Lenders and the Revolving Credit Lenders
and (c) the Term Loan Borrower shall be permitted withdrawals from the
Collateral Investment Account in order to prepay the Term Loans or,
to the extent required by subsection 2.10(b) of the Revolving Credit
Agreement, to prepay the Revolving Credit Loans and Swing Line Loans
and reduce the Revolving Credit Commitments and, except when a Default
or Event of Default shall have occurred and be continuing or when the
Available Revolving Credit Commitments shall be greater than
$10,000,000, for Permitted Third Amendment Purposes and for other
general corporate purposes permitted under this Agreement. "
"'Third Amendment': the Third Amendment, dated as of
October 24, 1996, to this Agreement and the Revolving Credit Agreement."
"'Third Amendment Effective Date': as defined in the Third
Amendment."
"'Permitted Third Amendment Purposes': as defined in the
Third Amendment."
2. Amendment of Subsection 6.1(a) (Consolidated Total
Indebtedness to Consolidated EBITDA). The Administrative Agent and the
Term Loan Lenders hereby amend the entry under the column entitled, "Ratio"
in subsection 6.1(a) of the Existing Term Loan Agreement corresponding
to the 3rd Fiscal Quarter in Fiscal Year 1996 to be 6.65.
3. Amendment of Subsection 6.1(b) (Interest Coverage). The
Administrative Agent and the Term Loan Lenders hereby amend the entry under
the column entitled, "Ratio" in subsection 6.1(b) of the Existing Term Loan
Agreement corresponding to the 3rd Fiscal Quarter in Fiscal Year 1996 to
be 1.25.
4. Amendment of Subsection 6.1(c) (Fixed Charge Coverage).
The Administrative Agent and the Term Loan Lenders hereby amend the entry
under the column entitled, "Fixed Charge Coverage Ratio" in subsection
6.1(c) of the Existing Term Loan Agreement corresponding to the 3rd Fiscal
Quarter in Fiscal Year 1996 to be 0.80.
SECTION III. Amendments to Existing Revolving Credit Agreement.
1. Amendment to Subsection 1.1. (a) The definition of the term
"Applicable Margin" contained in subsection 1.1 of the Existing Revolving
Credit Agreement is hereby amended to read in its entirety as follows:
"'Applicable Margin': (a) for each Type of Revolving Credit
Loan and Swing Loan, until the Third Amendment Effective Date,
the rate per annum set forth under the relevant column heading below:
ABR Loans Eurodollar Loans
Revolving Credit 1-1/2% 2-1/2%
Loan
Swing Line Loan 1-1/2% N/A
(b) from and including the Third Amendment Effective Date, the rate
per annum set forth under the relevant column heading below:
ABR Loans Eurodollar Loans
Revolving Credit 1-3/4% 2-3/4%
Loan
Swing Line Loan 1-3/4% N/A
2. Amendments to Term Loan Agreement. In accordance with
subsection 9.1 of the Existing Term Loan Agreement and subsection 9.1 of
the Existing Revolving Credit Agreement, each of the Revolving Credit
Borrowers and the Lenders parties to this Amendment consents and agrees to
the amendment of terms of the Term Loan Agreement pursuant to this Amendment,
and each of the Revolving Credit Borrowers agrees to comply with the provisions
of Section 6 of the Revolving Credit Agreement, with the references therein
to the Term Loan Agreement being deemed to be references to the Term Loan
Agreement as amended hereby.
SECTION IV. Asset Sales.
In order to induce the Lenders to enter into this Third Amendment
and by the execution and delivery of the Third Amendment, the Term Loan
Borrower hereby agrees that:
(a) Upon the receipt after the Third Amendment Effective Date
by the Term Loan Borrower or any of its Subsidiaries of any Asset Sale
Proceeds under and as permitted by subsection 6.6(e) of the Term Loan
Agreement, to the extent that the Term Loan Borrower does not elect to
immediately use such Net Proceeds to repay the Term Loans as provided in
subsection 2.6 of the Term Loan Agreement or, to the extent required by
subsection 2.10(b) of the Revolving Credit Agreement, to prepay the
Revolving Credit Loans and to reduce the Revolving Credit Commitments:
(i) the Term Loan Borrower shall use such Net Proceeds,
or cause such Net Proceeds to be used, whenever there are Revolving
Credit Loans or Swing Line Loans outstanding under the Revolving
Credit Agreement, to immediately make optional prepayments thereof,
with the Available Revolving Credit Commitments being created by
such prepayments to be available for purposes permitted under the
Revolving Credit Agreement and the Term Loan Agreement; and
(ii) the Term Loan Borrower shall use such Net Proceeds,
whenever there are no Revolving Credit Loans or Swing Line Loans
outstanding under the Revolving Credit Agreement to make a deposit
of such Net Proceeds in the Collateral Investment Account, for
subsequent use thereof upon withdrawal therefrom, for the
Permitted Third Amendment Purposes or to prepay the Term Loans or,
to the extent required by subsection 2.10(b) of the Revolving
Credit Agreement, to prepay the Revolving Credit Loans and to
reduce the Revolving Credit Commitments or for other general
corporate purposes permitted by the Term Loan Agreement or the
Revolving Credit Agreement, except when a Default or Event of
Default shall have occurred and be continuing or the Available
Revolving Credit Commitments shall be greater than $10,000,000.
(b) Except with the consent of the Required Lenders, the
Term Loan Borrower shall not use the Net Cash Proceeds of any Asset
Sale received after the Third Amendment Effective Date to consummate
one or more Acquisitions or to make Capital Expenditures or invest in
other long-term assets of the Operating Subsidiaries as provided for
in subsection 6.6(e) of the Term Loan Agreement that are not permitted
to be made under the first sentence of subsection 6.8 of the Existing
Term Loan Agreement, provided that, if and to the extent that the
aggregate Net Proceeds of all Asset Sales received after the Third
Amendment Effective Date are within one of the categories specified
below, the portion of such aggregate Net Proceeds set forth in Column I
opposite such category may be used for Capital Expenditures permitted
only by reason of the last sentence of subsection 6.8 of the Existing
Term Loan Agreement ("Incremental Capital Expenditures") or for
Acquisitions, with the amount of such portion which may be used for
Acquisitions being limited to the amount set forth in Column II opposite
such category (such permitted Incremental Capital Expenditures and
Acquisitions, the "Permitted Third Amendment Purposes"):
Column I Column II
Category of Aggregate Net Cash Proceeds
from Assets Sales received after the Incremental Capital Acquisition
Third Amendment Effective Date Expenditures Sublimit
More than $250,000,000 $40,000,000 $15,000,000
More than $150,000,000 but Less than $30,000,000 $10,000,000
or Equal to $250,000,000
More than $75,000,000 but Less than $20,000,000 $10,000,000
or Equal to $150,000,000
Less than or Equal to $75,000,000 $10,000,000 $0
(c) Failure by the Term Loan Borrower to comply with any of the
provisions of this Section IV shall constitute an Event of Default under
the Revolving Credit Agreement and the Term Loan Agreement.
SECTION V. Miscellaneous Provisions.
1. Consent to Amendment. Each Lender executing and delivering this
Amendment hereby consents to the agreements and amendments provided for herein.
2. Conditions Precedent. (a) This Amendment shall, become effective
on and as of the date first written above (the "Third Amendment Effective
Date"), provided that each of the conditions precedent set forth below shall
have been waived by or fulfilled to the satisfaction of the Administrative
Agent on or prior to such date:
(i) Amendment. The Administrative Agent shall have received
counterparts of this Amendment, duly executed by the Term Loan Borrower, the
Revolving Credit Borrowers and the Administrative Agent, and consented to by
the requisite Lenders under the Term Loan Agreement and the Revolving Credit
Agreement.
(ii) Amendment Documents. The Administrative Agent shall have
received each of the following (together with this Amendment, the "Amendment
Documents"):
a) Consents to Security Documents and Guarantees. A Consent,
with a counterpart for each Lender, in form and substance reasonably
satisfactory to the Administrative Agent, from each party to any
Security Document acknowledging and consenting to the execution,
delivery and performance of this Amendment and the transactions
contemplated hereby, in each case, executed and delivered by a duly
authorized officer of such party; and
b) Collateral Investment Agreement. The Collateral Investment
Agreement, in form and substance satisfactory to the Administrative
Agent duly executed and delivered by the Term Loan Borrower.
(iii) Corporate Proceedings of the Term Loan Borrower. The
Administrative Agent shall have received a copy of the resolutions, in
form and substance reasonably satisfactory to the Administrative Agent,
of the Board of Directors of the Term Loan Borrower authorizing or
confirming the execution, delivery and performance of the Amendment
Documents to which it is a party certified by the Secretary or an Assistant
Secretary of the Term Loan Borrower as of the Third Amendment Effective
Date and each such certificate shall state that the resolutions thereby
certified have not been amended, modified, revoked or rescinded as of
the date of such certificate.
(iv) No Default or Event of Default. On and as of the Third
Amendment Effective Date and after giving effect to this Amendment, no
Default or Event of Default shall have occurred and be continuing except
to the extent and only to the extent waived herein.
(v) Representations and Warranties. The representations and
warranties made by the Term Loan Borrower in the Term Loan Agreement after
giving effect to this Amendment and the transactions contemplated hereby
shall be true and correct in all material respects on and as of the Third
Amendment Effective Date as if made on such date, except where such
representations and warranties relate to an earlier date in which case such
representations and warranties shall be true and correct in all material
respects as of such earlier date and except to the extent and only to the
extent waived herein; provided that all references to the Term Loan
Agreement in such representations and warranties shall be and are deemed
to mean this Amendment as well as the Term Loan Agreement as amended
hereby.
(vi) Certificate. The Administrative Agent shall have received a
Certificate of a Responsible Officer of the Term Loan Borrower certifying
the matters referred to in paragraphs (iv) and (v) above.
(vii) Other. The Administrative Agent shall have received copies
of opinions, certificates, or agreements as shall reasonably be requested
by the Administrative Agent or the Required Lenders.
3. Continuing Effect; No Other Amendments. Except as expressly
amended hereby, all of the terms and provisions of the Term Loan Agreement
and the Revolving Credit Agreement are and shall remain in full force and
effect.
4. Expenses. The Term Loan Borrower and the Revolving Credit
Borrowers agree to reimburse the Administrative Agent for all its reasonable
costs and out-of-pocket expenses incurred in connection with the preparation
and delivery of this Amendment, including, without limitation, the reasonable
fees and disbursements of counsel to such Administrative Agent.
5. Counterparts. This Amendment may be executed in any number
of counterparts by the parties hereto, each of which counterparts when so
executed shall be an original, but all counterparts taken together shall
constitute one and the same instrument.
6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
* * *
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be executed and delivered by their respective duly authorized officers as
of the date first above written.
SPECIALTY FOODS CORPORATION,
as Term Loan Borrower
BY:
Name:
Title:
B & G - DSD HOLDINGS, INC.,
as Revolving Credit Borrower
BY:
Name:
Title:
BELSEA HOLDINGS INC.,
as Revolving Credit Borrower
BY:
Name:
Title:
BURNS & RICKER, INC.,
as Revolving Credit Borrower
BY:
Name:
Title:
H & M FOOD SYSTEMS COMPANY, INC.,
as Revolving Credit Borrower
BY:
Name:
Title:
METZ HOLDINGS, INC., as Revolving
Credit Borrower
BY:
Name:
Title:
MOTHER'S CAKE AND COOKIE CO.,
as Revolving Credit Borrower
BY:
Name:
Title:
SFFB HOLDINGS, INC.,
as Revolving Credit Borrower
BY:
Name:
Title:
STELLA HOLDINGS, INC., formerly
known as Stella Foods, Inc., as
Revolving Credit Borrower
BY:
Name:
Title:
THE BAGEL PLACE, INC., as
Revolving Credit Borrower
BY:
Name:
Title:
THE CHASE MANHATTAN BANK (formerly,
Chemical Bank), as Administrative
Agent and as a Lender
BY:
Name:
Title:
CONSENTED TO:
ABN AMRO Bank N.V.
By: ABN AMRO North America, Inc.,
as agent
BY:
Name:
Title:
BY:
Name:
Title:
BANK OF AMERICA ILLINOIS
BY:
Name:
Title:
THE BANK OF NEW YORK
BY:
Name:
Title:
BANQUE FRANCAISE DU COMMERCE
EXTERIEUR
BY:
Name:
Title:
BY:
Name:
Title:
BANQUE PARIBAS
BY:
Name:
Title:
BY:
Name:
Title:
CAISSE NATIONALE DE CREDIT AGRICOLE
BY:
Name:
Title:
CERES FINANCE LTD
By: Chancellor Senior Secured
Management, Inc. as Financial Manager
BY:
Name:
Title:
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE
BY:
Name:
Title:
BY:
Name:
Title:
FIRST INTERSTATE BANK OF TEXAS, N.A.
BY:
Name:
Title:
THE FIRST NATIONAL BANK OF BOSTON
BY:
Name:
Title:
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Management,
L.P., as Investment Advisor
BY:
Name:
Title:
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
BY:
Name:
Title:
NATIONSBANK OF TEXAS N.A.
BY:
Name:
Title:
COOPERATIVE CENTRALE RAIFFISEN -
BOERENLEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH
BY:
Name:
Title:
BY:
Name:
Title:
SENIOR HIGH INCOME PORTFOLIO, INC.
BY:
Name:
Title:
SOCIETE GENERALE, SOUTHWEST
AGENCY
BY:
Name:
Title:
STRATA FUNDING LTD.
By: Chancellor Senior Secured
Management, Inc. as Financial Manager
BY:
Name:
Title:
WELLS FARGO BANK, N.A.
BY:
Name:
Title:
SENIOR DEBT PORTFOLIO
By: Boston Management and Research
as Investment Advisor
BY:
Name:
Title:
ACKNOWLEDGMENT AND CONSENT
ACKNOWLEDGMENT AND CONSENT, dated as of October 24, 1996, to Third
Amendment, dated as of October 24, 1996 (the "Amendment") to: (a) the Term Loan
Agreement, dated as of July 17, 1995, (as may have been amended, supplemented,
waived or otherwise modified prior to the date hereof, the "Existing Term Loan
Agreement" and, as amended hereby and as from time to time further amended,
supplemented or otherwise modified, the "Term Loan Agreement") among SPECIALTY
FOODS CORPORATION, a Delaware corporation (the "Term Loan Borrower"), the
several banks and other financial institutions from time to time parties
thereto (the "Term Loan Lenders"), and CHEMICAL BANK, a New York banking
corporation, as administrative agent (the "Administrative Agent"); and (b) the
Revolving Credit Agreement dated as of August 16, 1993 and amended and restated
as of July 17, 1995 (as amended and restated and as the same may have been
further amended, supplemented, waived or otherwise modified prior to the date
hereof, the "Existing Revolving Credit Agreement" and, as amended hereby and
as from time to time further amended, supplemented or otherwise modified, the
"Revolving Credit Agreement"), among each of the subsidiaries of SPECIALTY
FOODS CORPORATION signatory thereto (collectively, the "Revolving Credit
Borrowers"), the several banks and other financial institutions from time
to time parties thereto (collectively, the "Revolving Credit Lenders") and
the Administrative Agent.
W I T N E S S E T H :
WHEREAS, the Amendment provides that the Administrative Agent shall
have received, with a counterpart for each Term Loan Lender, a Consent, in form
and substance reasonably satisfactory to the Administrative Agent, of each
party to any Security Document acknowledging and consenting to the execution,
delivery and performance of the Amendment and the transactions contemplated
thereby, in each case, executed and delivered by a duly authorized officer of
such party;
NOW, THEREFORE, the undersigned hereby agree as follows:
1. The undersigned hereby acknowledge and consent to the execution,
delivery and performance of the Amendment and the transactions
contemplated thereby.
2. Terms defined in the Existing Term Loan Agreement, the Existing
Revolving Credit Agreement and the Amendment shall have their defined
meanings when used herein.
IN WITNESS WHEREOF, the undersigned have caused this Supplement
to be executed and delivered by a duly authorized officer on the date first
above written.
MBC Holdings, Inc.
Metz Holdings, Inc.
Metz Baking Company, an Iowa corp.
Metz Baking Company, a Delaware corp.
The Bagel Place, Inc.
BGH Holdings, Inc.
B&G-DSD Holdings, Inc.
B&G Foods, Inc.
Roseland Manufacturing, Inc.
Bloch & Guggenheimer, Inc.
BRH Holdings, Inc.
Burns & Ricker, Inc.
MCC-DSD Holdings, Inc.
Mother's Cake & Cookie Co.
HMFS Holdings, Inc.
H&M Food Systems Company, Inc.
WFB Holdings, Inc.
Pacific Coast Baking Co., Inc.
Belsea Holdings, Inc.
Gai's Seattle French Baking Company
Langendorf Baking Co. of Seattle, Inc.
General Bagels Corporation
Oregon French Baking Corporation
Seattle English Muffin Company
SFFB Holdings, Inc.
San Francisco French Bread Company
Andre-Boudin Bakeries, Inc.
Fisherman's Wharf Sourdough French Bread
Bakeries, Inc.
Boudin International, Inc.
Laura Todd of America
Steve's Drayage, Inc.
San Francisco Sourdough Bakeries, Inc.
Larraburu Bakery
Parisian Bakeries, Inc.
San Francisco Baking Cultures
San Francisco Sourdough Company
San Francisco Bay Area Equipment and Supply
Stella Holdings, Inc.
Stella Foods East, Inc.
Stella Foods, Inc.
Stella Cheese Company, Inc.
GWI Holdings, Inc.
GWI, Inc.
By:
Name:
Title:
Accepted as of the date first
above written:
SPECIALTY FOODS CORPORATION
By:
Name:
Title:
