Form 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 for fiscal year ended September 29, 1996; or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from_____________ to
______________.
Commission file number: 0-19797
WHOLE FOODS MARKET, INC.
(Exact name of registrant as specified in its charter)
Texas 74-1989366
(State of (IRS employment
incorporation) identification no.)
601 North Lamar Suite 300
Austin, Texas 78703
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
512-477-4455
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, no par value
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 Actof1934
during the preceding 12 months(or for such shorter period that the registrantwas
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
-- --
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant on November 30, 1996 was $354 million.
The number of shares of the registrant's common stock, no par value,
outstanding as of November 30, 1996 was 19,212,500.
The following document is incorporated by reference into the part of this
annual report on Form 10-K as indicated: Portions of the registrant's Definitive
Proxy Statement for the annual meeting of shareholders to be held on March 24,
1997 are incorporated into Part III to the extent indicated herein.
PART I
Item 1. Business
Whole Foods Market, Inc. (the "Company" or "Whole Foods") owns and operates
the country's largest chain of natural foods supermarkets, featuring food made
from natural ingredients free of unnecessary additives. The Company opened its
first store in Austin, Texas in 1980 and operated 68 stores in ten states as of
September 29, 1996. The Company's stores average approximately 23,000 square
feet and offer a broad selection of foods at competitive prices with an emphasis
on customer service. The Company has designed its stores to attract
quality-oriented consumers who are interested in health, nutrition, food safety
and preserving the environment. Product offerings include organically grown and
high-grade commercial produce; grocery products and environmentally safe
household items; meat, poultry and seafood free of growth hormones and
antibiotics; bulk foods, such as nuts, candies, dried fruit and whole
unprocessed grains and cereals; specialty gourmet foods such as beer, wine,
coffee and cheese; prepared foods, such as fresh bakery goods, soups, salads,
hot entrees and sandwiches; vitamins, body care products and cosmetics; and
miscellaneous items including books and magazines emphasizing health and
nutrition.
The Natural Foods Industry
Natural foods can be defined as foods which are minimally processed,
largely or completely free of artificial ingredients, preservatives and other
non-naturally occurring chemicals and in general are as near to their whole,
natural state as possible. According to The Natural Foods Merchandiser, a
leading trade publication for the industry, natural foods sales have grown at a
compound annual rate of approximately 17% over the last five years to
approximately $9.17 billion in 1995. This growth is being propelled by several
factors, including increasing consumer concern over the purity and safety of
food due to the presence of pesticide residues, artificial ingredients and other
chemicals; environmental concerns due to the degradation of water and soil
quality; and healthier eating patterns due to a better educated populace whose
median age is increasing each year. While organic and natural food products have
higher costs of production, the Company believes that due to changes in
demographics and buying habits a significant segment of the population now
attributes added value to high-quality natural food and accordingly is willing
to pay higher prices for such food items.
According to the June 1996 issue of The Natural Foods Merchandiser, there
were 6,600 natural/health food stores in 1995 in the United States, representing
$6.12 billion of the industry's sales in 1995. While natural and health food
stores have historically provided only a limited selection of products, the
natural foods supermarket-size formats provide a complete grocery shopping
alternative to conventional supermarkets. The Company believes that besides its
own stores there are less than 75 other natural foods stores larger than 10,000
square feet throughout the country. Whole Foods also believes that the growth of
larger supermarket-size natural foods stores has increased consumer awareness of
and demand for natural foods.
Strategy
In fiscal 1996, the Company had sales per gross square foot of $636, which
the Company believes is higher than most other traditional supermarket or food
retailers. The Company attributes these successful results to its ability to
differentiate itself from other retailers competing for consumers' food dollars
by tailoring its product mix, service standards and store environment to satisfy
the needs of the natural foods shopper and to appeal to the broader market of
quality-oriented consumers. The Company targets consumers aged 25 to 50 who are
better educated and more affluent than the populace as a whole.
Products
The Company offers its customers approximately 10,000 to 14,000 food and
non-food products. The broad product selection in the Whole Foods stores is
designed to meet the needs of natural foods shoppers as well as gourmet
customers. The Company has been able to expand the breadth of its product
offerings by monitoring the market for new products and by responding to
customer input. In addition, the Company is currently expanding a line of
private label products in order to further enhance its quality image and
customer loyalty.
Quality Standards
The Company's objective is to supply the highest quality natural foods to
its customers. The Company defines quality in terms of nutrition, freshness,
appearance and taste. The Company has the following product minimum quality
standards:
* We feature and prepare foods that are free of artificial sweeteners,
colors, flavors and preservatives.
* We actively seek out and support sources of organically grown foods.
* We feature seafood, poultry and meat that are free of added growth
hormones, antibiotics, nitrates or other chemicals.
* We feature grains and grain products that have not been bleached or
bromated.
* We sell only household and personal care products that have been proven
safe through non-animal testing methods.
* We do not sell food that has not been irradiated.
Store Operations
The Company has promoted a strong company culture featuring a team approach
to store operations which the Company believes is distinctly more empowering of
employees than that of the traditional supermarket. Each store employs between
65 and 277 people, organized into up to nine teams, each led by a team leader.
Each team is responsible for a different aspect of store operations, such as
produce; grocery; meat, poultry and seafood; prepared foods; bakery goods;
beer/wine/cheese; nutrition products (vitamins, herbs and body care); customer
service; and the front-end section which runs the customer check-out counters.
The store teams have significant authority over the store operations for which
they are responsible. For example, many teams make buying and pricing decisions
for the products sold in their area, subject to general guidelines established
by the Company. Teams take collective responsibility for hiring, achieving
operational goals and making group decisions which might impact team
performance.
The Company intends to create a company-wide consciousness of "shared fate"
by uniting the self-interest of the team members as closely as possible to the
self-interest of the customers and of the shareholders. One way the Company
reinforces this concept is through its two gainsharing bonus programs, one which
rewards team sales and labor productivity and the other which rewards team
profitability on such factors as achievement of targeted gross margins within a
stated range and the rate of inventory turnover. Another way the Company
reinforces the shared fate concept is by facilitating team member stock
ownership. All team members are eligible for stock option grants under the Team
Member Stock Option Plan either through seniority or promotion, and to purchase
stock through payroll deductions under the Team Member Stock Purchase Plan. By
making its team members stakeholders in the organization, the Company believes
it has lessened the potential for an adversarial relationship between management
and employees.
The Company believes that it helps to inspire its team members by providing
them with a greater sense of purpose and mission in their work. For many Team
Members, their job is an extension of their personal philosophy and lifestyle.
Team Members can feel they are contributing to the good of others by selling
pure and nutritious foods, by contributing to long-term sustainable agriculture
and by promoting a pesticide-free and healthier environment. Additionally, the
Company has a program which provides paid time off to Team Members for working
with qualified community service organizations.
Because of the Company's decentralized management structure, an effective
store team leader (store manager) is critical to the success of the store. Store
team leaders are paid a salary plus a bonus based on store profit contribution.
The store team leader works closely with the associate store team leader and
store merchandiser, as well as with all the team leaders, to operate the store
as efficiently and profitably as possible.
Purchasing and Distribution
Purchasing is generally decentralized to permit each store, within certain
parameters determined by the Company, to customize its product mix to better
meet the needs of its customers. Volume discounts are negotiated with major
vendors on both a national and a regional basis or by groups of stores in an
effort to achieve some economies of scale. Buyers generally purchase many of
their grocery products from regional wholesale suppliers while the remainder of
products are purchased directly from producers.
The stores purchase certain products directly from Company-owned regional
wholesalers, which pool the stores' purchasing power together to negotiate the
most favorable terms. With respect to bakery products and in certain regions
with respect to prepared foods, the Company has established separate kitchens or
commissaries to prepare such foods for distribution to stores within the region.
Store Description
Each of the stores are generally located in high-traffic shopping areas and
are either free-standing or in strip centers. The Company has no prototype
store. Each store's layout is customized to the actual size and configuration of
the particular location. The Company emphasizes strong visual presentations in
all key traffic areas of its stores. Merchandising displays are changed
frequently and often incorporate seasonal themes. The stores also sponsor a
variety of organized in-store activities, such as store tours, samplings, taste
fairs and other special events. To further a sense of community and interaction
with customers, the stores typically include sit-down eating areas, customer
comment boards and centrally located information booths. In addition, many
stores offer special services, such as home delivery.
Expansion Strategy
The expansion strategy of the Company is to open or acquire stores in
existing regions and in metropolitan areas where the Company believes it can
become a leading natural foods supermarket retailer. During fiscal year 1992,
the Company acquired two stores operating as Wellspring Grocery in North
Carolina, and the Company opened a new store in Mill Valley, California. In
fiscal 1993, the Company opened new stores in Raleigh, North Carolina; Chicago,
Illinois; San Antonio, Texas and Ann Arbor, Michigan and acquired 13 stores as
follows: In October 1992, the Company acquired all of the outstanding stock of
Bread & Circus, Inc. ("Bread & Circus"), the largest natural foods supermarket
retailer in the Northeast, then operating six natural foods supermarkets located
in Massachusetts and Rhode Island. The consideration for the stock consisted of
approximately $20.0 million in cash and 691,770 shares of common stock. In
September 1993, the Company acquired all of the outstanding stock of Mrs.
Gooch's Natural Food Markets, Inc. ("Mrs. Gooch's"), which owned and operated
seven natural foods supermarkets in the southern California area. The Company
issued 2,970,596 shares of its common stock in connection with the acquisition,
which was accounted for as a pooling of interests.
In fiscal 1994, the Company opened new stores in Houston, Texas; Cambridge,
Massachusetts; Los Gatos, California; Chicago, Illinois and Dallas, Texas.
In fiscal 1995, the Company closed its three existing stores in Austin and
replaced them with two larger, updated stores. Additionally, the Company opened
four new stores outside of Austin, one each in Plano, Texas; Boston,
Massachusetts; Tustin, California; and St. Paul, Minnesota. In February 1995,
the Company acquired substantially all assets and assumed certain liabilities of
Unicorn Village, Ltd. (Unicorn), a natural foods supermarket in Southern
Florida, in exchange for approximately $4.1 million in cash. Also in February
1995, the Company acquired the outstanding stock of Cana Foods, Inc. doing
business as Bread of Life, which operated two natural foods supermarkets in
Northern California, in exchange for approximately $5 million in cash.
In fiscal 1996, the Company opened new stores in Sherman Oaks, CA;
Washington, DC; Lakeview, IL; Arlington, VA; Madison, WI and San Francisco, CA.
In December 1995, the Company acquired the outstanding stock of Natural
Merchants Exchange, Inc. doing business as Oak Street Market, which operated a
natural foods market in Evanston, Illinois, in exchange for approximately
195,000 shares of newly issued Company stock. The acquisition was accounted for
using the pooling of interests method. In August 1996, the Company acquired all
of the outstanding stock of Fresh Fields Market, Inc., which operated twenty-two
natural foods supermarkets, in exchange for approximately 4,750,000 shares of
newly issued Company stock. The acquisition was accounted for using the pooling
of interests method. Subsequent to the acquisition, three stores have been
closed and two others are scheduled for relocation pursuant to a plan to close
or relocate duplicate stores as a result of the acquisition.
In fiscal 1997, the Company intends to open approximately five new stores
and relocate two existing stores.
In selecting store locations, the Company uses an internally-developed
model to analyze potential markets on such criteria as income levels, population
density and educational levels. Whole Foods believes that a metropolitan area
with population in excess of 200,000 is generally large enough to support a
Whole Foods Market. After the Company has selected a target site, it retains an
independent third party consultant to project sales. The Company intends to
cluster several stores in the larger metropolitan areas. Clustering stores
permits advantages such as increased purchasing power, specialized expertise in
all team areas, greater advancement opportunities for store staff and economies
of scale in promotion and advertising.
The Company typically opens a new store approximately one year after a
store site is selected and the lease is signed. The Company estimates that its
cash requirements to open a new store will range (depending on the size of the
new store, geographic location, degree of work performed by the landlord, and
complexity of site development issues) from $3 million to $12 million, excluding
new store inventory (approximately $400,000).
Marketing
The Company spends less on advertising than traditional supermarkets,
instead relying primarily on word-of-mouth recommendations from its customers.
The Company allocates about half of its marketing budget to region-wide programs
and the remainder to the individual store's marketing efforts. The stores spend
most of their own marketing budgets on store events such as taste fairs,
classes, store tours and product samplings. Each store also has a separate
budget for making contributions to a variety of philanthropic and community
activities, creating goodwill and maintaining a high profile in the community.
The Company presently contributes approximately 5% of its after tax profits in
the form of cash or products to not-for-profit organizations.
Competition
The Company's competitors currently include other natural foods
supermarkets, traditional and specialty supermarkets, other natural foods stores
and small specialty stores. Although the company has historically encountered
limited competition in its geographic markets with other stores operating in the
natural foods supermarket format, it has faced increased competition in recent
years from such stores, particularly in new markets, and expects to encounter
additional competition from such stores in its existing markets and in new
markets. When the Company faces such direct competition, there can be no
assurance that the Company will be able to compete effectively or that increased
competition will not adversely impact the Company's results of operations. In
addition, traditional and specialty supermarkets compete with the Company in one
or more product categories and may expand more aggressively in marketing a broad
range of natural foods and thereby compete more directly with the Company for
products, customers and locations. Some of the Company's competitors have been
in business longer or have greater financial or marketing resources than the
Company and may be able to devote greater resources to securing suitable
locations and to the sourcing, promotion and sale of their products.
Government Regulation
The stores are subject to various federal, state and local laws,
regulations and administrative practices affecting its business and must comply
with provisions regulating health and sanitation standards, food labeling, equal
employment, minimum wages and licensing for the sale of food and, in some
stores, alcoholic beverages. Difficulties or failures in obtaining or
maintaining required licenses or other required approvals could delay or prevent
the opening of new stores or adversely affect the operations of existing stores.
Employees
As of September 29, 1996, the Company employed approximately 9848 persons,
including approximately 8108 full-time and 1740 part-time employees. The Company
sponsors a partially self-insured health care benefits plan for participating
employees. The Company does not subscribe to any workers' compensation insurance
program with respect to its employees in Texas and instead maintains a reserve
for job-related injury claims. The employees of the Company are not represented
by a labor union or collective bargaining agreement. The Company stores in
Berkeley and Los Gatos, CA and in St. Paul, MN were subjected to informational
pickets by the local retail clerks' and butchers' unions for a period of
approximately ten to eighteen months after their opening. The Company store in
Madison, WI has been under an informational picket by the local retail union
from its opening through the time of this printing.
Trademarks
The names "Whole Foods Market," "Wellspring," "Bread & Circus," "Mrs.
Gooch's", "Unicorn Village Market", "Fresh Fields Market", "Good for You Foods"
and the Company's stylized logos are registered service marks of the Company.
Risk Factors
The Company wishes to caution readers that the following important factors,
among others, could cause the actual results of Whole Foods Market to differ
materially from those indicated by forward-looking statements made from time to
time in news releases, reports, proxy statements, registration statements and
other written communications, as well as oral forward-looking statements made
from time to time by representatives of the Company. Except for historical
information, the matters discussed in such oral and written communications are
forward looking statements that involve risks and uncertainties, including but
not limited to general business conditions, the timely and successful
development and opening of new stores, the impact of competition and other risks
detailed below.
Expansion Strategy. Whole Food's strategy is to expand through a
combination of new store openings and acquisitions of existing stores.
Successful implementation of this strategy is contingent on numerous conditions,
some of which are described below, and there can be no assurance that the
Company's expansion strategy can be successfully executed.
Continued growth of Whole Foods Market will depend to a significant degree
upon its ability to open or acquire new stores in existing and new markets and
to operate these stores on a successful basis. Further, the Company's expansion
strategy is dependent on finding suitable locations, and the Company faces
intense competition with other retailers for such sites. There can be no
assurance that the Company will be able to open or acquire new stores in a
timely manner and to operate them on a successful basis. In addition, there can
be no assurance that the Company can successfully hire and train new employees
and integrate such employees into the programs and policies of the Company or
adapt its distribution, management information and other operating systems to
the extent necessary to operate new or acquired stores in a successful and
profitable manner and adequately supply natural foods products to these stores
at competitive prices.
There can be no assurance that Whole Foods Market will continue to grow
through acquisitions. To the extent the Company further expands by acquiring
existing stores, there can be no assurance that Whole Foods Market can
successfully integrate such stores into its operations and support systems, and
that the operations of acquired stores will not be adversely affected as the
Company's decentralized approach to store operations is introduced to such
stores.
The acquisition of existing stores and the opening of new stores requires
significant amounts of capital. In the past, the Company's growth has been
funded primarily through proceeds from public offerings, bank debt, private
placements of debt, and internally generated cash flow. These and other sources
of capital may not be available to the Company in the future.
Quarterly Fluctuations. The Company's quarterly results of operations may
fluctuate significantly as the result of the timing of new store openings and
the range of operating results which may be generated from newly opened stores.
It is Whole Foods Markets policy to expense the pre-opening costs associated
with a new store opening during the quarter in which the store is opened.
Accordingly, quarter to quarter comparisons of results of operations have been
and will be materially impacted by the timing of new store openings. In
addition, the Company's quarterly operating results could be adversely affected
by losses from new stores, variations in the mix of product sales, price changes
in response to competitive factors, increases in merchandise costs and possible
supply shortages, as well as by the factors listed below in "Operating Results".
Competition. Whole Foods Market's competitors currently include other
natural foods stores, large and small traditional and specialty supermarkets and
grocery stores. These stores compete with the Company in one or more product
categories. In addition, traditional and specialty supermarkets are expanding
more aggressively in marketing a broad range of natural foods and thereby
competing directly with the Company for products, customers and locations. Some
of these potential competitors have been in business longer or have greater
financial or marketing resources than Whole Foods Market and may be able to
devote greater resources to the sourcing, promotion and sale of their products.
Increased competition may have an adverse effect on profitability as the result
of lower sales, lower gross profits, and/or greater operating costs such as
marketing.
Personnel Matters. Whole Foods Market is dependent upon a number of key
management and other personnel. The loss of the services of a significant number
of key personnel within a short period of time could have a material adverse
effect upon the Company. Whole Foods Market's continued success is also
dependent upon its ability to attract and retain qualified employees to meet the
Company's future needs. The Company faces intense competition for qualified
personnel, many of whom are subject to offers from competing employers, and
there can be no assurance that Whole Foods Market will be able to attract and
retain such personnel. Whole Foods Market does not currently maintain key person
insurance on any employee.
Integration of Fresh Fields' Operations. Whole Foods Market anticipates
reducing Fresh Fields' overhead expenses by adopting Whole Foods Market's
decentralized approach to store management. Whole Foods Market will also seek to
improve the operating profitability of the Fresh Fields stores through enhanced
purchasing power, improved utilization of distribution facilities and other
economies of scale resulting from the Merger. There can be no assurance that
Whole Foods Market will be able to achieve the economies of scale and other
operating enhancements it seeks in the Fresh Fields operations, or that these
economies of scale can be achieved in a period of time currently anticipated by
management.
The acquisition of Fresh Fields has materially increased the scope of the
Company's operations from 48 to 68 stores, after giving effect to the closing or
relocation of duplicate stores. The integration of the Fresh Fields operations
into the Whole Foods Market organization is a significant undertaking. While
Whole Foods Market has experience in acquiring and integrating other businesses
into Whole Foods Market's operations, Fresh Fields has a larger number of stores
and employees and substantially greater revenues than any of the companies
previously acquired by Whole Foods Market. In addition, the integration will be
implemented without the benefit of the Fresh Fields' executive management. There
can be no assurance that the operations of Fresh Fields' stores will not be
adversely affected by the introduction of the Company's team approach to store
operations or the response of customers to the changes in operations and
merchandising mix made by the Company. The integration of Fresh Fields into the
Company will require the dedication of management resources which may
temporarily detract from attention to the day-to-day business of the Company.
Conversion to Whole Foods Market Name. The change of the Fresh Fields
stores to the Whole Foods Market name might cause short term confusion among
customers and lead to a reduction in sales because of the loss of the goodwill
associated with the Fresh Fields' name. Acceptance by customers of the Whole
Foods Market brand may take longer and be more difficult or expensive than
management anticipates.
Legal Matters. From time to time Whole Foods Market is the subject of
various lawsuits arising in the ordinary course of business. Although not
currently anticipated by management, there is potential for the Company's
results to be materially impacted by legal and settlement expenses related to
such lawsuits.
Whole Foods Market is a non-subscriber to Worker's Compensation Insurance
in the State of Texas. There is some potential for the Company's results to be
materially impacted by medical, lost time and other costs associated with
on-the-job injuries.
The Company provides partially self-insured, voluntary employee benefits
plans which provide health care and other benefits to participating employees.
The plans are designed to provide specified levels of coverage, with excess
insurance coverage provided by a commercial insurer. There is some potential for
Whole Foods Market's results to be materially impacted by claims made in excess
of reserves therefore.
Informational Picketing. Certain of the Company's stores have been
subjected to informational picketing and negative publicity campaigns by members
of various local trade unions. These informational pickets and campaigns may
have the effect of lowering the sales volumes of new or existing stores.
Fresh Fields is not currently a party to any collective bargaining
agreement. Its stores have also been subject to informational picketing and
negative publicity campaigns by members of unions. Because of changes in Fresh
Fields' operations in connection with the Merger, there could be an increased
risk of efforts to organize employees by labor unions or by employees on their
own initiative. Unionization of any material portion of Fresh Fields employees
would adversely affect the operations of the business and could reduce the level
of profitability.
Operating Results. The Company's ability to meet expected results for any
period may be negatively impacted by many factors, as described above and
including, but not limited, to the following:
(i) reductions in sales caused by competitive issues, product availability,
weather and other factors; (ii) losses generated by new stores or higher than
expected pre-opening costs; (iii) higher than expected costs and expenses at
store, regional and national levels; (iv) lower than expected gross margins
resulting from the impact of competition or other factors; (v) higher than
expected interest expense due to higher than expected interest rates or
borrowings outstanding; and (vi) delays in new store openings.
Whole Foods Market's ability to increase same store sales during any period
will be directly impacted by competition, availability of product and other
factors which are often beyond the control of the Company.
Item 2. Properties
The Company owns the New Orleans store location. All other stores,
distribution centers and bakehouses are leased, with expiration dates ranging
from 1 to 21 years. The Company has options to renew most of its leases with
renewal periods ranging from 5 to 50 years.
In 1995, the Company developed a project in Austin, Texas which houses one
of the new Austin stores (named Sixth and Lamar), the new corporate
headquarters, and a bookstore. The underlying property is leased from a third
party under a ground lease which has a base term of twenty years with ten
options to renew for five years each. The Company has entered into a lease with
the bookstore which has a base term of twenty years with two options to renew
for five years each. Certain officers of the Company are also shareholders of
the bookstore, owning a combined 18.5% of the outstanding stock. The Company
believes that the terms of the lease between the Company and the bookstore are
on terms no less favorable to the Company than could have been negotiated with
an independently owned retailer. This is partially based on an appraisal of the
lease by an independent appraisal firm. The income from this lease is not
material to the operations of the Company.
Item 3. Legal Proceedings
From time to time, the Company is involved in lawsuits that the Company
considers to be in the normal course of its business which have not resulted in
any material losses to date.
Item 4. Submission of Matters to a Vote of Security Holders
On August 30, 1996, the Company held a Special Meeting of its Shareholders.
At the Special Meeting, the shareholders were asked to consider and act upon the
following:
Proposal (1) The merger and related Agreement and Plan of Merger pursuant to
which a wholly owned subsidiary of the Company merged into Fresh Fields Markets,
Inc. ("Fresh Fields") resulting in Fresh Fields becoming a wholly owned
subsidiary of the Company.
Proposal (2) The amendment to the Articles of Incorporation of Whole Foods
Market to increase the authorized number of shares of common stock of Whole
Foods Market from 30 million to 50 million shares; and Proposal (3) The
amendment to the 1992 Stock Option Plan for Team Members to increase the number
of shares of common stock of Whole Foods Market issuable upon exercise of stock
options under the Plan from 2million to 3million shares of common stock.
The following indicates the number of shares voted for and against the proposals
as well as abstentions.
Proposal Votes For Votes Against Votes Abstained
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(1) 9,224,929 16,012 52,436
(2) 11,928,194 104,988 51,885
(3) 6,775,221 2,378,993 139,163
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
The Company's Common Stock is traded on the NASDAQ National Market System
under the symbol "Whole Foods MarketI." The following sets forth the high and
low last reported sales prices for the Company's last two fiscal years.
Fiscal 1995
September 26, 1994 to January 1 $16.75 $ 9.50
January 16, 1995 to April 9, 1995 $14.13 $10.75
April 10, 1995 to July 2, 1995 $16.13 $11.50
July 3, 1995 to September 24, 1995 $15.75 $11.88
Fiscal 1996
September 25, 1995 to January 14, 1996 $15.00 $10.94
January 15, 1996 to April 7, 1996 $18.50 $13.75
April 8, 1996 to June 30, 1996 $28.50 $17.75
July 1, 1996 to September 29, 1996 $35.88 $24.00
The Company had approximately 987 record holders of its common stock as of
November 30, 1996.
The Company intends to retain any earnings for use in its business and
therefore does not anticipate paying any cash dividends in the foreseeable
future. The Company's present bank credit agreement restricts the payment of
cash dividends on common stock.
The Company sold the following unregistered securities in fiscal 1996:
(1) On May 16, 1996, the Company issued 7.29% Senior Notes due May 16,
2006 (the "Notes"). No underwriters were involved in the sale of
the Notes; therefore, no underwriting discounts or commissions
were paid. The Notes were issued to institutional investors. The
aggregate offering price was $40 million which was paid by the
investors in cash. Due to the limited number of offerees and the
financial sophistication of the offerees, the sale was made in
reliance on Section 4(2) of the Securities Act of 1933, as amended
(the "Securities Act").
(2) In December 1995, the Company issued 195,205 shares ("Shares") of
Common Stock in a merger between a subsidiary of the Company and
National Merchants Exchange, Inc. doing business as Oak Street
Market ("Oak Street"), which operated one natural foods grocery
store in Evanston, Illinois. No underwriters were involved in the
sale of the Shares; therefore, no underwriting discounts or
commissions were paid. This offering was made to the two former
shareholders of Oak Street. Due to the limited number of offerees
and the business relationship to the offerees, the sale was made
in reliance on Section 4(2) of the Securities Act.
Item 6. Selected Financial Data
Whole Foods Market, Inc. and Subsidiaries
Summary Financial Information In thousands, except per share and operating data
Sept 29 Sept 24 Sept 25 Sept 26 Sept 27
1996 1995 1994 1993 1992
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Consolidated Statements of Operations1
Sales $ 892,098 709,935 572,050 439,254 245,684
Cost of goods sold and occupancy costs 613,056 480,781 387,682 297,647 167,845
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Gross profit 279,042 229,154 184,368 141,607 77,839
Direct store expenses 217,048 183,655 144,383 113,690 61,207
General and administrative expenses 33,559 30,777 25,151 21,644 13,399
Pre-opening costs 3,964 4,029 3,387 4,985 1,087
Relocation costs 1,939 2,332 5,758 2,457 564
Non-recurring expenses 38,516 * 282 3,094 656
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Income (loss) from operations (15,984) 8,361 5,407 (4,263) 926
Net interest income (expense) (4,661) (1,941) 264 536 546
- -------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (20,645) 6,420 5,671 (3,727) 1,472
Provision (credit) for income taxes (3,411) 5,347 6,035 4,727 2,422
- -------------------------------------------------------------------------------------------------------
Net income (loss) $ (17,234) 1,073 (364) (8,454) (950)
=======================================================================================================
Net income (loss) per share $ (0.90) 0.06 (0.02) (0.50) (0.08)
=======================================================================================================
Shares/weighted average shares outstanding 19,179 18,924 18,340 17,018 12,418
=======================================================================================================
Operating Data
Number of stores at end of period 68 61 49 42 25
Store sales per square foot $ 636 625 639 597 599
Average weekly sales per store $ 253,555 238,776 243,520 217,116 202,629
Comparable store sales increase (2) 5.40% 6.19% 9.93% 11.56% 7.41%
Consolidated Balance Sheet Data (End of Year)
Working capital (deficiency) $ 4,887 (4,400) 18,080 11,344 36,957
Total assets 310,604 266,814 203,417 162,338 98,386
Long-term debt (including current maturities) 85,291 53,721 8,389 5,607 3,148
Shareholders' equity 146,447 152,633 152,045 123,540 75,736
1. The combined financial information and operating data for periods prior to
the acquisition of Fresh Fields is based on the respective historical
financial statements and other financial information of the Company and
Fresh Fields. For fiscal year 1996, Whole Foods Market financial
information as of and for the fiscal year ended September 29, 1996 has been
combined with Fresh Fields information as of and for the twelve months
ended September 30, 1996. For all other years presented, Whole Foods Market
financial information as of and for the fiscal years ended in September as
indicated above has been combined with Fresh Fields financial information
as of and for the fiscal years ended on the Saturday closest to December 31
of the same year.
2. For internal reporting purposes, the Company's fiscal year is comprised of
13 accounting periods generally consisting of four weeks each. Sales of a
store are deemed to be "comparable" commencing in the fifty-third full week
after the store was opened or acquired. The comparable store sales increase
for fiscal 1996 is based on comparable 53-week years.
Item 7. Management's Discussion & Analysis
Whole Foods Market, Inc. and Subsidiaries Management's Discussion & Analysis of
Financial Condition and Results of Operations
General
Whole Foods Market opened its first store in Texas in 1980 and has expanded its
operations to 68 stores as of September 29, 1996 both by opening new stores and
acquiring existing stores from third parties. The results of the Company's
operations have been and will continue to be materially affected by the timing
and number of new store openings. New stores may incur operating losses for the
first one or two years of operations. The Company's results of operations are
reported on a 52- or 53-week fiscal year ending on the last Sunday in September.
Fiscal year 1996 is a 53-week year. Fiscal years 1995 and 1994 are 52-week
years.
On August 30, 1996 the shareholders approved the pooling-of-interests merger
between Whole Foods Market and Fresh Fields Market, Inc., a 22 store chain of
natural foods markets located primarily on the East Coast and in the Chicago
area. The information contained herein has been restated to present the combined
results of operations for the years shown. For fiscal year 1996, Whole Foods
Market financial information as of and for the fiscal year ended September 29,
1996 has been combined with Fresh Fields information as of and for the twelve
months ended September 30, 1996. For all other years presented, Whole Foods
Market financial information as of and for the fiscal years ended the last
Sunday in September has been combined with Fresh Fields financial information as
of and for the fiscal years ended on the Saturday closest to December 31 of the
same year.
Development Activity
The following is a schedule of stores opened, relocated, closed and acquired
during fiscal years 1996, 1995 and 1994:
Store Name Location Date
- ---------- -------- ----
Woodway Houston, TX opened 10/93
Springfield Springfield, VA opened 10/93
Fresh Pond Cambridge, MA opened 12/93
Los Gatos Los Gatos, CA opened 4/94
Evanston Evanston, IL opened 5/94
Elston Chicago, IL opened 6/94 closed 9/96
Skillman Dallas, TX opened 7/94
River Forest River Forest, IL opened 9/94
Rockville Rockville, MD relocated 10/94
Plano Plano, TX opened 11/94
Symphony Cambridge, MA opened 1/95
Campbell Campbell, CA acquired 2/95
Cupertino Cupertino, CA acquired 2/95 relocated 8/96
Aventura Aventura, FL acquired 2/95
Greenwich Greenwich, CT opened 3/95
Wynnewood Wynnewood, NJ opened 4/95
Sixth and Gateway Austin, TX 3 stores relocated to 2 in April/May 95
St. Paul St. Paul, MN opened 5/95
Milburn Milburn, NJ opened 6/95
Montclair Montclair, NJ opened 6/95
Tustin Tustin, CA opened 7/95
Gaithersburg Gaithersburg, MD opened 9/95 closed 10/96
Reston Reston, VA opened 11/95
Oak Street Evanston, IL acquired 12/95 closed 9/96
Sherman Oaks West Sherman Oaks, CA opened 1/96
Tenley Washington, DC opened 1/96
Georgetown Washington, DC opened 1/96
Lakeview Lakeview, IL opened 2/96
Manhasset Munsey Park, NY opened 2/96
Arlington Arlington, VA opened 2/96
Durham Durham, NC relocated 2/96
Mt. Washington Baltimore, MD opened 5/96
Madison Madison, WI opened 6/96
West LA Los Angeles, CA relocated 7/96
Franklin San Francisco, CA opened 7/96
Whole Foods Market, Inc. and Subsidiaries
Managements Discussion & Analysis of Financial Condition and Results of
Operations
Results of Operations
The following table sets forth the statement of operations data of Whole Foods
Market expressed as a percentage of sales for the fiscal years indicated:
1996 1995 1994
- ------------------------------------------------------------------------------
Sales 100.0% 100.0% 100.0%
Cost of goods sold and occupancy costs 68.7 67.7 67.8
- ------------------------------------------------------------------------------
Gross profit 31.3 32.3 32.2
Direct store expenses 24.3 25.9 25.2
General and administrative expenses 3.8 4.3 4.4
Pre-opening costs 0.4 0.6 0.6
Relocation-related costs 0.2 0.3 1.0
Non-recurring expenses 4.3 * *
- ------------------------------------------------------------------------------
Income (loss) from operations (1.8) 1.2 1.0
Net interest income (expense) (0.5) (0.3) *
- ------------------------------------------------------------------------------
Income (loss) before income taxes (2.3) 0.9 1.0
Provision (credit) for income taxes (0.4) 0.8 1.1
- ------------------------------------------------------------------------------
Net income (loss) (1.9)% 0.1% (0.1)%
- ------------------------------------------------------------------------------
Figures may not add due to rounding
Sales
Sales for all years shown reflect increases due to new stores opened and
acquired, and due to comparable store sales increases of 5.40%, 6.19% and 9.93%
for fiscal years 1996, 1995 and 1994, respectively. Sales of a store are deemed
to be comparable commencing in the fifty-third full week after the store was
opened or acquired. Comparable store sales increases may be negatively impacted
by cannibalization from newly opened Whole Foods Market stores or competition
from other stores. Comparable store sales in Southern California in the latter
months of fiscal 1996 were negatively impacted by the name change from Mrs.
Gooch's to Whole Foods Market, and in fiscal 1994 by the January 1994 earthquake
which caused significant damage to the Los Angeles area. Comparable store sales
increases generally resulted from an increase in the number of customer
transactions and slightly higher average transaction amounts, reflecting an
increase in market share as the stores mature in a particular market. The
Company believes that these comparable store sales trends may not necessarily be
indicative of future results of operations.
Gross Profit
Gross profit consists of sales less cost of goods sold and occupancy costs, plus
contribution from non-retail operations. The Company's consolidated gross profit
in fiscal year 1996 decreased as a percentage of sales to 31.3% primarily due to
a price reduction strategy which negatively impacted gross profit in the Fresh
Fields stores as compared to the prior year. Gross profit in the Whole Foods
Market stores increased in fiscal 1996 as compared to fiscal 1995 by
approximately 50 basis points due to a decrease in cost of goods sold as a
percentage of sales and improved contribution from non-retail operations, offset
somewhat by an increase in occupancy costs as a percentage of sales. Gross
profit in fiscal 1995 increased slightly as a percentage of sales to 32.3% from
32.2% in fiscal 1994. In all years, gross profit margins were positively
affected by the improved margins as stores mature and by the increased
percentage of sales in certain regions and in departments such as prepared foods
where the Company achieves higher gross profits. Gross profit margins were
negatively impacted in fiscal 1994 by a decrease in the dollar and percentage
contribution from non-retail operations from 1993. Relative to other stores in a
region, gross profit margins tend to be lower for new stores and increase as
stores mature, reflecting increasing experience levels and operational
efficiencies of the store teams.
Whole Foods Market, Inc. and Subsidiaries
Management's Discussion & Analysis of Financial Condition and Results of
Operations
Direct Store Expenses
Direct store expenses in fiscal 1996 decreased as a percentage of sales to 24.3%
from 25.9% during fiscal 1995 and 25.2% during fiscal 1994. This 1996 decrease
was due to the impact of reductions in labor and other costs in the Fresh Fields
stores at the time of implementation of the above-mentioned price reduction
strategy. This decrease was offset by certain other factors, primarily new store
openings. Given the lower level of sales generated at new stores during the
initial period of operations of such stores, direct store expenses for new
stores as a percentage of sales are higher on average than those for mature
stores. Absent a significant factor such as labor reductions, the Company has
historically experienced increases in this percentage due to the growth of the
Company's operations in regions where the Company experiences higher operating
costs and to the increased percentage of sales in higher gross margin, more
labor intensive departments, and to higher direct expenses from new stores.
General and Administrative Expenses
General and administrative expenses (including amortization) in fiscal 1996
decreased as a percentage of sales to 3.8% from 4.3% in fiscal 1995 and 4.4% in
fiscal 1994. These decreases were generally due to increases in sales without
comparable increases in corporate staff, and in 1996 to reductions in the staff
of the Fresh Fields corporate office. Also, the Company made personnel
reductions and other changes which lowered certain costs in the Southern
California region in 1994 as a result of the acquisition and in 1996 as a result
of a restructuring in that region. Whole Foods Market has historically been able
to expand without a significant increase in general and administrative costs.
However, in certain circumstances the Company has increased the number of
administrative and support personnel at the regional and national levels in
connection with the implementation of new accounting and management information
systems and to support current and planned growth.
Pre-opening Costs
Whole Foods Market developed and opened nine new stores in 1996, ten new stores
in 1995 and seven new stores in 1994. Pre-opening costs in those three years
were $4.0 million, $4.0 million and $3.4 million, respectively. Pre-opening
costs consist primarily of labor costs, supplies and advertising expenses and
are generally incurred during the three-month period prior to the store opening.
Pre-opening costs are generally higher in locations which are some distance from
an existing base of operations due to higher training, travel and moving costs.
The Company expenses pre-opening costs in the quarter in which the store is
opened.
Relocation Costs
During fiscal 1996 the Company relocated stores in Cupertino, West Los Angeles
and Durham to new, larger locations and relocated the Fresh Fields corporate
office. In fiscal year 1995, the Company relocated its three Austin stores to
two new, larger stores and its corporate offices to the same facility as its new
downtown store. In fiscal year 1994, the Fresh Fields Rockville store was
relocated to a new, larger location. Relocation costs consist of losses on
dispositions of fixed assets and inventory, remaining lease payments on old
facilities and other miscellaneous relocation expenses.
Non-recurring Expenses
In fiscal year 1996 expenses including losses on the disposition of store
assets, remaining rent and lease termination costs have been recognized pursuant
to a plan initiated at the time of the Fresh Fields acquisition to close or
relocate duplicate stores. Specifically, the plan includes the following store
changes: (1) the Fresh Fields Elston store in the Chicago area was closed in
September 1996. The sales of the nearby Whole Foods Market Lincoln Park and
Lakeview stores increased as a result of the transfer of customers to those
stores, and the Company expects that the combined profits from those two stores
after the Elston closing will be greater in fiscal 1997 than the combined
profits would have been from the three stores if the Elston store had not been
closed; (2) the Whole Foods Market Oak Street store in the Chicago area was
closed in September 1996. The sales of the nearby Fresh Fields Evanston store
increased as a result of the transfer of customers to that store, and the
Company expects that the profits from the Evanston store in 1997 will be greater
than the combined profits from the Evanston and Oak Street stores if the Oak
Street store had not been closed; (3) the Fresh Fields Gaithersburg store in the
Washington DC area was closed in November 1996 just prior to the opening of the
Whole Foods Market Vienna store. The Company believes that the initial sales of
the Vienna store were positively impacted by the transfer of customers from the
Gaithersburg store, and that the profits from the Vienna store in 1997 will be
greater than the combined profits from the Vienna and Gaithersburg stores if the
Gaithersburg store had not been closed; and, (4) the Fresh Fields Evanston and
Naperville stores in the Chicago area will be relocated in 1997 to two nearby
Whole Foods Market stores which are currently under construction. The Company
believes that the two new stores will service a trade area which overlaps with
the current trade area of the two existing stores, and that the new stores will
experience greater sales and profits as a result of the closing of the two
existing stores.
Whole Foods Market, Inc. and Subsidiaries Management's
Discussion & Analysis of Financial Condition and Results of Operations
The five stores which have been or are expected to be closed or relocated had
combined sales and profits of approximately $53.4 million and $500,000,
respectively, in fiscal 1996. The Elston store was experiencing operating losses
prior to its closing, and the Gaithersburg store was operating at approximately
a breakeven level. The Evanston, Naperville and Oak Street stores were
profitable in fiscal 1996. The majority of Company Team Members in the
above-specified closed or relocated stores have been or will be transferred to
other stores in the Company.
Other components of the 1996 non-recurring expense include severance,
transaction expenses, duplicate system disposal costs and conforming accounting
adjustments associated with the acquisition of Fresh Fields, and severance and
other costs associated with the restructuring of the Southern California region.
Net Interest Expense/Income
From the time of the Whole Foods Market initial public offering in 1992 until
1995, new store development and acquisitions were financed primarily through
equity offerings and with funds generated from operations. In fiscal 1995, the
Company began drawing on its $75 million bank line of credit to fund expansion
needs which exceeded cash flow from operations. In 1996, the Company continued
to draw on that line of credit and refinanced a portion of the outstanding
balance with $40 million in newly issued senior notes. Interest expense related
to these borrowings was $4.7 million in fiscal 1996 and $1.9 million in fiscal
1995, net of capitalized interest associated with stores under development. Net
interest income in fiscal 1994 was $7,000.
Taxes
Fresh Fields incurred significant net operating losses from its inception until
the time of the acquisition by Whole Foods Market. However, for income tax
purposes the losses incurred by Fresh Fields prior to the date of the
acquisition cannot be used to offset the historical income earned by Whole Foods
Market. The income tax provision for fiscal periods prior to the merger is the
expense associated with Whole Foods Market's income before taxes. Certain merger
transaction costs that were expensed for book accounting and reporting purposes
in fiscal 1996 are not deductible for federal income tax purposes. As of
September 29, 1996, the Company has a tax net operating loss carryforward of
approximately $28 million which is available to offset certain future taxable
income. As of September 29, 1996, the Company does not consider it more likely
than not that the Fresh Fields net operating loss carryforwards will be utilized
in the near future since they are available only to offset taxable income of
Fresh Fields, and Fresh Fields has not generated taxable income in any year
since its inception. In addition, the use of the net operating loss
carryforwards in any one year is limited due to the application of certain tax
laws.
The Company's effective tax rate decreased slightly in 1995 to 39.4% from 41%
in fiscal 1994. The Company believes that its effective tax rate in 1997 will be
lower than the 1995 and 1994 tax rates.
Business Combinations
On August 30, 1996, the Company completed the acquisition of Fresh Fields
Market, Inc., which operated 22 natural foods supermarkets in exchange for
approximately 4.8 million shares of common stock, plus the assumption of
approximately 399,000 shares of outstanding options to purchase common stock.
The acquisition was accounted for using the pooling-of-interests method.
In December 1995, the Company completed the acquisition of Natural Merchants
Exchange, Inc. doing business as Oak Street Market which operated a natural
foods market in Evanston, Illinois, in exchange for approximately 195,000 shares
of common stock. The acquisition was accounted for using the
pooling-of-interests method. Due to the immateriality of Oak Street financial
statements to the Company's consolidated financial statements, financial
information for the periods prior to the combination has not been restated.
In February 1995, the Company acquired the outstanding stock of Cana Foods,
Inc., doing business as Bread of Life, which operated two natural foods
supermarkets in Northern California, in exchange for approximately $5 million in
cash. Also in February 1995, the Company acquired substantially all assets and
assumed certain liabilities of Unicorn Village, Ltd., a natural foods
supermarket in Southern Florida, in exchange for approximately $4.1 million in
cash.Both of these acquisitions were accounted for using the purchase method,
and the results of operations of the two entities have been consolidated with
the results of operations of the Company from the dates of acquisition.
Whole Foods Market, Inc. and Subsidiaries Management's Discussion & Analysis of
Financial Condition and Results of Operations
Quarterly Results
The first quarter consists of 16 weeks, the second and third quarters each
consist of 12 weeks and the fourth quarter consists of 12 or 13 weeks. Fiscal
year 1996 is a 53-week year so the fourth quarter consists of 13 weeks. Fiscal
year 1995 is a 52-week year and the fourth quarter consists of 12 weeks. Because
the first quarter is longer than the remaining quarters and contains both the
Thanksgiving and Christmas holidays, it typically represents a larger share of
the Company's annual sales from existing stores. Quarter-to-quarter comparisons
of results of operations are materially impacted by the number and timing of new
store openings for which related costs are deferred as incurred and expensed in
the quarter the store is opened. The Company believes that the historical
pattern of quarterly sales and income as a percentage of the annual total may
not be indicative of the pattern in future years. The following table sets forth
selected quarterly unaudited financial information for the 1996 and 1995 fiscal
years (in thousands, except per share data):
1st 2nd 3rd 4th
1996 Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------
Sales $ 244,986 203,912 213,402 229,798
Gross profit 76,205 65,829 68,256 68,752
Pre-opening costs 383 2,320 609 652
Non-recurring expenses o 1,984 o 36,532
Income (loss) from operations 3,429 3,259 7,827 (30,499)
Income (loss) before income taxes 2,563 2,399 6,956 (32,563)
Net income (loss) 41 1,517 4,663 (23,455)
Net income (loss) per share $ 0.00 0.08 0.23 (1.22)
Shares/weighted average shares outstanding 19,175 19,419 19,995 19,179
- -------------------------------------------------------------------------------------------------
1st 2nd 3rd 4th
1995 Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------
Sales $ 195,027 161,864 167,601 171,442
Gross profit 60,742 51,853 53,839 53,641
Pre-opening costs 900 488 1,326 868
Income (loss) from operations (2,866) 4,726 859 1,723
Income (loss) before income taxes (2,947) 4,617 572 1,080
Net income (loss) (4,539) 2,845 (156) (175)
Net income (loss) per share $ (0.24) 0.15 (0.01) (0.01)
Shares/weighted average shares outstanding 18,750 18,900 18,988 18,961
- -------------------------------------------------------------------------------------------------
Results for the fourth quarter of fiscal year 1996 include costs totaling
approximately $36.2 million (pre-tax) related to the acquisition of Fresh
Fields. Quarterly results for fiscal year 1995 combine Whole Foods Market
historical results for each fiscal quarter with Fresh Fields results restated to
those fiscal quarters and therefore do not total to fiscal year 1995 results in
the Consolidated Statements of Operations.
Whole Foods Market, Inc. and Subsidiaries
Management's Discussion & Analysis of Financial Condition and Results of
Operations
Liquidity and Capital Resources
At September 29, 1996, the Company's working capital was approximately $4.9
million and the ratio of current assets to current liabilities was 1.09 to 1.0.
Net cash flow from operating activities was approximately $26.5 million, $32.4
million and $21.3 million in fiscal 1996, 1995 and 1994, respectively.
In December 1994 Whole Foods Market entered into a bank credit agreement which
provides for a revolving line of credit of up to $75 million. The amounts
borrowed under this agreement are convertible into a four year term loan upon
the expiration of the revolving credit term on June 30, 1999.Principal payments
are to be made in quarterly installments beginning September 30, 1999. This
credit agreement contains certain restrictive covenants, including restrictions
upon the payment of dividends on common stock. The credit agreement also
contains certain affirmative covenants, including the maintenance of certain
financial ratios as defined in the agreement. All outstanding amounts borrowed
under this agreement bear interest at the Company's option of either a defined
base rate or the Eurodollar rate plus a premium. In May 1996 the Company
refinanced a portion of this debt with the issuance of $40 million of senior
unsecured notes, bearing interest at 7.29% and payable in seven equal annual
installments beginning May 16, 2000. The notes contain certain affirmative and
negative covenants, including maintenance of certain financial ratios. At
September 29, 1996 and September 24, 1995 approximately $44.1 million and $46.1
million, respectively, was drawn under the line of credit agreement. Net cash
flow from financing activities was approximately $37.7 million, $43.9 million
and $30.3 million in fiscal 1996, 1995 and 1994, respectively.
Whole Foods Market's principal capital requirements have been the funding of
the development or acquisition of new stores and, to a lesser extent, the
resultant increase in working capital requirements. The Company estimates that
cash requirements to open a new store will range from $3 million to $12 million
(after giving effect to any landlord construction allowance). This excludes new
store inventory of approximately $400,000, a substantial portion of which is
financed by the vendors of Whole Foods Market. In fiscal 1997, Whole Foods
Market plans to open approximately five new stores, relocate two existing stores
and will have under development stores that will open in fiscal 1998. The
Company will incur additional capital expenditures in fiscal 1997 in connection
with ongoing equipment upgrades and resets at its existing stores and continued
development of its management information systems. Net cash flow used by
investing activities was approximately $71.0 million, $89.7 million and $48.0
million in fiscal 1996, 1995 and 1994, respectively. The Company expects that
cash generated from operations and bank borrowings will be sufficient to fund
its planned store openings and other cash needs through the end of fiscal 1997,
absent any material cash acquisitions.
Adoption of Accounting Standards
The Financial Accounting Standards Board (FASB) has issued Statement of
Financial Accounting Standards no. 121 (Accounting for the Impairment of
Long-Lived Assets), which is effective for fiscal years beginning after December
15, 1995. The Company plans to adopt Statement no.121 in fiscal year 1997. The
Company does not anticipate any material impact on its financial statements as a
result of the adoption of Statement no. 121. The FASB also has issued Statement
of Financial Accounting Standards no. 123 (Accounting for Stock-Based
Compensation), which is effective for fiscal years beginning after December 15,
1995. The Company plans to adopt Statement no.123 in fiscal year 1997. The
Company has not determined the impact of and whether the fair value based method
of accounting for stock-based compensation will be adopted for purposes of
preparing its basic financial statements.
Disclaimer on Forward Looking Statements
Except for the historical information contained herein, the matters discussed in
this analysis are forward looking statements that involve risks and
uncertainties, including but not limited to general business conditions, the
timely development and opening of new stores, the impact of competition, and the
other risks detailed from time to time in the Company's SEC reports, including
the report on Form 10-K for the year ended September 29, 1996.
Item 8. Financial Statements and Supplementary Data
See Item 14 (a).
Item 9. Disagreements on Accounting and Financial Disclosure
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information included under the caption "Directors and Executive
Officers" in the Company's proxy statement for the annual meeting of
shareholders to be held on March 24, 1997, to be filed with the Commission on or
before January 27, 1997, is incorporated herein by reference.
Item 11. Executive Compensation
The information included under the caption "Directors and Executive
Officers--Executive Compensation" in the Company's proxy statement for the
annual meeting of shareholders to be held on March 24, 1997, to be filed with
the Commission on or before January 27, 1997, is incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information included under the caption "Beneficial Ownership of Common
Stock" in the Company's proxy statement for the annual meeting of shareholders
to be held on March 24, 1997, to be filed with the Commission on or before
January 27, 1997, is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The information included under the caption "Directors and Executive
Officers--Certain Transactions" in the Company's proxy statement for the annual
meeting of shareholders to be held on March 24, 1997, to be filed with the
Commission on or before January 27, 1997, is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) (1) and (2) Financial Statements and Schedules.
Reference is made to the listing on page F-1 of all financial
statements and schedules filed as a part of this report.
(b) Reports on Form 8-K
The registrant filed on August 30, 1996 a Form 8-K reporting
on the consummation of the merger agreement with Fresh Fields.
Financial statements were incorporated from Form S-4 (File No.
333-7719).
(c) (3) Exhibits
Reference is made to the Exhibit Index on page E-1 for a list
of all exhibits filed as a part of this report.
Whole Foods Market, Inc. and Subsidiaries
Index to Consolidated Financial Statements
Independent Auditors' Report
Consolidated Balance Sheets at September 29, 1996 and September 24, 1995
Consolidated Statements of Operations for the fiscal years ended September 29,
1996, September 24, 1995 and September 25, 1994
Consolidated Statements of Shareholders' Equity for the fiscal years ended
September 29, 1996, September 24, 1995 and September 25, 1994
Consolidated Statements of Cash Flows for the fiscal years ended September 29,
1996, September 24, 1995 and September 25, 1994
Notes to Consolidated Financial Statements
Whole Foods Market, Inc. and Subsidiaries
Independent Auditors' Report
The Board of Directors
Whole Foods Market, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Whole Foods
Market, Inc. and subsidiaries ("Company") as of September 29, 1996 and September
24, 1995 and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the fiscal years in the three-year period
ended September 29, 1996. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall consolidated financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Whole Foods Market,
Inc. and subsidiaries as of September 29, 1996 and September 24, 1995, and the
results of their operations and their cash flows for each of the fiscal years in
the three-year period ended September 29, 1996, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick, LLP
Austin, Texas
November 15, 1996
Whole Foods Market, Inc. and Subsidiaries
Consolidated Balance Sheets In thousands, except share data
September 29, 1996 and September 24, 1995
Assets
1996 1995
- --------------------------------------------------------------------------------------------------------
Current assets:
Cash and cash equivalents $ 1,720 8,597
Trade accounts receivable 4,706 2,986
Merchandise inventories 38,077 30,974
Prepaid expenses and other current assets 5,433 4,269
Deferred income taxes 11,692 1,637
- --------------------------------------------------------------------------------------------------------
Total current assets 61,628 48,463
- --------------------------------------------------------------------------------------------------------
Property and equipment, net of accumulated depreciation and amortization 197,178 165,888
Acquired leasehold rights, net of accumulated amortization 6,991 7,029
Excess of cost over net assets acquired, net of accumulated amortization 36,722 37,644
Other assets, net of accumulated amortization 8,085 7,790
- --------------------------------------------------------------------------------------------------------
$ 310,604 266,814
- --------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
1996 1995
- --------------------------------------------------------------------------------------------------------
Current liabilities:
Current installments of long-term debt and capital lease obligations $ 1,014 1,815
Trade accounts payable 22,756 17,106
Accrued payroll, bonus and employee benefits 9,983 13,992
Other accrued expenses 22,988 19,950
- --------------------------------------------------------------------------------------------------------
Total current liabilities 56,741 52,863
- --------------------------------------------------------------------------------------------------------
Long-term debt and capital lease obligations, less current installments 84,277 51,906
Deferred rent liability 5,607 4,725
Other long-term liabilities 10,819 542
Deferred income taxes 6,713 4,145
- --------------------------------------------------------------------------------------------------------
Total liabilities 164,157 114,181
- --------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, no par value, 50,000,000 shares authorized; 19,179,000 and
18,416,000 shares issued and outstanding in 1996 and 1995, respectively 170,122 162,869
Retained deficit (23,675) (10,236)
- --------------------------------------------------------------------------------------------------------
Total shareholders' equity 146,447 152,633
- --------------------------------------------------------------------------------------------------------
Commitments and contingencies
$ 310,604 266,814
- --------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Whole Foods Market, Inc. and Subsidiaries
Consolidated Statements of Operations In thousands, except per share data Fiscal
Years Ended September 29, 1996, September 24, 1995 and September 25, 1994
1996 1995 1994
- ---------------------------------------------------------------------------------------------
Sales $ 892,098 709,935 572,050
Cost of goods sold and occupancy costs 613,056 480,781 387,682
- ---------------------------------------------------------------------------------------------
Gross profit 279,042 229,154 184,368
- ---------------------------------------------------------------------------------------------
Direct store expenses 217,048 183,655 144,383
General and administrative expenses 33,559 30,777 25,151
Pre-opening costs 3,964 4,029 3,387
Relocation costs 1,939 2,332 5,758
Non-recurring expenses 38,516 o 282
- ---------------------------------------------------------------------------------------------
Income (loss) from operations (15,984) 8,361 5,407
- ---------------------------------------------------------------------------------------------
Other income (expense):
Interest expense (4,671) (2,368) (109)
Interest and other income 10 427 373
- ---------------------------------------------------------------------------------------------
Income (loss) before income taxes (20,645) 6,420 5,671
Provision (credit) for income taxes (3,411) 5,347 6,035
- ---------------------------------------------------------------------------------------------
Net income (loss) $ (17,234) 1,073 (364)
- ---------------------------------------------------------------------------------------------
Net income (loss) per common share $ (0.90) 0.06 (0.02)
Shares outstanding, 1996 and 1994, and
weighted average shares outstanding, 1995 19,179 18,924 18,356
- ---------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Whole Foods Market, Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity In thousands Fiscal Years Ended
September 29, 1996, September 24, 1995 and September 25, 1994
Retained Total
Shares Common Earnings Shareholders'
Issued Stock (Deficit) Equity
- -----------------------------------------------------------------------------------------------------
Balance at September 26, 1993, as previously reported 12,851 $65,160 10,305 75,465
Adjustments for 1996 pooling-of-interests combination 4,036 68,367 (21,232) 47,135
- -----------------------------------------------------------------------------------------------------
Balance at September 26, 1993, as restated 16,887 133,527 (10,927) 122,600
- -----------------------------------------------------------------------------------------------------
Issuance of common stock 1,277 27,578 o 27,578
Shares subject to expired put option 192 1,308 o 1,308
Accretion to price associated with
common shares subject to put option o o (18) (18)
Net loss o o (364) (364)
- -----------------------------------------------------------------------------------------------------
Balance at September 25, 1994 18,356 162,413 (11,309) 151,104
- -----------------------------------------------------------------------------------------------------
Issuance of common stock 60 456 o 456
Net income o o 1,073 1,073
- -----------------------------------------------------------------------------------------------------
Balance at September 24, 1995 18,416 162,869 (10,236) 152,633
- -----------------------------------------------------------------------------------------------------
Adjustment to conform fiscal year of pooled entity o o 3,491 3,491
Oak Street business combination 195 8 304 312
Issuance of common stock 568 6,187 o 6,187
Tax benefit related to exercise of employee stock options o 1,058 o 1,058
Net loss o o (17,234) (17,234)
- -----------------------------------------------------------------------------------------------------
Balance at September 29, 1996 19,179 $170,122 (23,675) 146,447
- -----------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Whole Foods Market, Inc. and Subsidiaries
Consolidated Statements of Cash Flows In thousands
Fiscal Years Ended September 29, 1996, September 24, 1995 and September 25, 1994
1996 1995 1994
- -----------------------------------------------------------------------------------------------------
Cash flow from operating activities
Net income (loss) $ (17,234) 1,073 (364)
Non-cash expenses included in net income:
Depreciation and amortization 25,525 20,023 15,142
Relocation and closing costs 194 1,106 5,554
Loss on disposal of fixed assets 1,163 615 o
Deferred income taxes (benefit) (6,427) 1,655 1,609
Change in LIFO reserve 746 516 432
Rent differential 882 397 117
Loss provision on disposal of fixed assets 12,477 o o
Loss provision on disposal of other assets 4,124 o o
Lease termination provisions 10,033 o o
Adjustment to conform fiscal year of pooled entity 3,491 o o
Other 267 (364) (7)
Net change in current assets and liabilities:
Trade accounts receivable (1,749) (829) (1,839)
Merchandise inventories (8,500) (7,588) (5,566)
Prepaid expenses and other current assets (2,014) 2,989 (1,760)
Trade accounts payable 5,513 2,240 4,865
Accrued payroll, bonus and employee benefits (4,010) 3,927 1,697
Other accrued expenses 1,970 6,673 1,415
- -----------------------------------------------------------------------------------------------------
Net cash flow from operating activities 26,451 32,433 21,295
- -----------------------------------------------------------------------------------------------------
Cash flow from investing activities
Acquisition of property and equipment (18,236) (39,251) (27,181)
Development costs of new store locations (50,288) (36,483) (16,788)
Proceeds from the sale of property and equipmento 383 o o
Acquired leasehold and licensing rights o (2,836) (4,001)
Payment for purchase of acquired entities, net of cash acquired o (8,947) o
Issuance of note receivable o (2,568) o
Other investing activities (2,480) o o
- -----------------------------------------------------------------------------------------------------
Net cash flow from investing activities (71,004) (89,702) (47,970)
- -----------------------------------------------------------------------------------------------------
(continued)
Whole Foods Market, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued) In thousands Fiscal Years
Ended September 29, 1996, September 24, 1995 and September 25, 1994
1996 1995 1994
Cash flow from financing activities
Net proceeds from long-term borrowings $ 80,000 45,509 9,000
Payments on long-term debt and capital lease obligations (48,511) (2,081) (6,314)
Issuance of stocks and warrants 6,187 456 27,578
- -----------------------------------------------------------------------------------------------------
Net cash flow from financing activities 37,676 43,884 30,264
- -----------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (6,877) (13,385) 3,589
Cash and cash equivalents at beginning of year 8,597 21,982 18,393
- -----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 1,720 8,597 21,982
- -----------------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information Interest and income taxes paid:
Interest $ 3,647 1,821 474
- -----------------------------------------------------------------------------------------------------
Federal and state income taxes $ 3,832 2,841 5,696
- -----------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Fiscal Years Ended September 29, 1996, September 24, 1995 and September 25, 1994
(1) Corporate Organization
The consolidated Financial statements include the accounts of Whole Foods
Market, Inc. and its wholly-owned subsidiaries ("Company"). All significant
intercompany accounts and transactions are eliminated upon consolidation. Where
appropriate, prior years' financial statements have been reclassified to conform
with the 1996 presentation.
(2) Summary of Significant Accounting Policies
Single industry segment
The Company engages in one line of business, the operation of natural food
supermarkets. As of September 29, 1996, the Company operated 68 stores, all of
which are located in the United States.
Definition of fiscal year
The Company reports its results of operations on a 52- or 53-week fiscal year
ending on the last Sunday in September. Fiscal year 1996 is a 53- week year.
Fiscal years 1995 and 1994 are 52-week years.
Cash equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid investments with an original maturity of 90 days or
less to be cash equivalents.
Inventories
Inventories, both retail and wholesale, are valued at the lower of cost or
market. Cost is principally determined by the last-in, first-out (LIFO) method.
The inventory of one subsidiary is determined by the first-in, first-out (FIFO)
method. The excess of estimated current costs over LIFO carrying value was
approximately $2,426,000 and $1,680,000 at September 29, 1996 and September 24,
1995, respectively.
Property and equipment
Property and equipment is stated at cost, net of accumulated depreciation and
amortization. Depreciation is provided over the estimated useful lives (5 to 15
years) using the straight-line method. Leasehold improvements are amortized on
the straight-line method over the shorter of the estimated useful lives of the
improvements or the terms of the related leases.
Pre-opening costs include hiring and training personnel, supplies and certain
occupancy and miscellaneous costs related to new store locations, and are
expensed in the quarter of store opening. Capitalized pre-opening costs related
to stores not yet open at September 29, 1996 totaled $658,000. There were no
significant capitalized pre-opening costs related to stores not yet open at
September 24, 1995. Costs related to a projected site determined to be
unsatisfactory and general site selection costs which cannot be identified with
a specific store location are charged to operations currently.
Other assets
Acquired leasehold rights are amortized as rent expense over the remaining lease
term at the date of acquisition using the straight-line method. Accumulated
amortization of acquired leasehold rights at September 29, 1996 and September
24, 1995 is $895,000 and $672,000, respectively. Excess of cost over net assets
acquired is amortized over 40 years using the straight-line method. Accumulated
amortization of excess of cost over net assets acquired at September 29, 1996
and September 24, 1995 is $4,689,000 and $3,547,000, respectively.
The carrying value of the excess cost over net assets acquired is evaluated
periodically in relation to such factors as the occurrence of a significant
event, the operating performance of each acquired subsidiary and the estimated
future undiscounted cash flows of the underlying business of each subsidiary.
Certain costs associated with the issuance of debt are capitalized and
amortized over the life of the related agreement using the straight-line method.
Included in other assets at September 29,1996 and September 24,1995 is a note
receivable of approximately $2,459,000 and $2,568,000, respectively. Accumulated
amortization of other assets at September 29, 1996 and September 24, 1995 is
$455,000 and $774,000, respectively.
(continued)
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(2) Summary of Significant Accounting Policies, continued
Income taxes
The Company uses the asset and liability approach which accounts for deferred
income taxes by applying statutory tax rates in effect at the balance sheet date
to differences between the book basis and the tax basis of assets and
liabilities. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The deferred tax assets and
liabilities are adjusted in income to reflect changes in tax laws or rates in
the period that includes the enactment date.
Net income (loss) per common and common equivalent share
Net income per common and common equivalent share are based on the weighted
average number of shares outstanding during the of the fiscal period. Net loss
per common share is based on the actual number of shares outstanding at the end
of the fiscal period. Common stock options (whether or not exercisable) are
common stock equivalents and have been included in the computation of primary
net income per common and common equivalent share when they are dilutive.
Options outstanding have been included in the computation of primary and fully
diluted net income per common and common equivalent share based on the number of
shares assumable upon exercise less the number of shares assumed to be
repurchased at the greater of the average or ending market price per share
determined on a quarterly basis. Fully diluted earnings per share are not
significantly different from primary earnings per share.
Net loss for calculation of primary and fully diluted earnings per share in
1994 was adjusted for the income effect of the accretion to exercise price
associated with common shares subject to put option.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the period reported. Actual results could differ
from those estimates. Estimates are used when accounting for depreciation and
amortization, employee benefit plans, taxes, restructuring reserves and
contingencies.
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(3) Business Combinations
Fresh Fields Markets, Inc.
On June 13, 1996 the Board of Directors of the Company approved the merger with
Fresh Fields Markets, Inc. (Fresh Fields), which operated natural foods
supermarkets in Washington D.C., Chicago, Philadelphia and New York, in exchange
for approximately 4,750,000 shares of the Company's common stock plus the
assumption of approximately 399,000 outstanding options to purchase common
stock. The merger was completed on August 30, 1996 and was accounted for using
the pooling-of-interests method.
Financial information for the periods prior to the business combination is
summarized below. The combined financial statement amounts are based on the
respective historical financial statements and the notes thereto. The combined
sales and net income (loss) summarized below combine the Company's historical
sales and net income (loss) for the fiscal years ended September 29,1996,
September 24, 1995 and September 25, 1994, with Fresh Fields historical sales
and net loss for the twelve months ended September 30, 1996, and the fiscal
years ended December 30, 1995 and December 31, 1994 (in thousands except per
share data).
1996 1995 1994
- --------------------------------------------------------------------------------
Sales
Whole Foods Market $ 622,246 496,374 401,685
Fresh Fields 269,852 213,561 170,365
- --------------------------------------------------------------------------------
Combined $ 892,098 709,935 572,050
- --------------------------------------------------------------------------------
Net income (loss)
Whole Foods Market $ (16,289) 8,220 8,639
Fresh Fields (945) (7,147) (9,003)
- --------------------------------------------------------------------------------
Combined $ (17,234) 1,073 (364)
- --------------------------------------------------------------------------------
Combined net income (loss) per share $ (0.90) 0.06 (0.02)
- --------------------------------------------------------------------------------
Statement of operations amounts for Fresh Fields which are included in both the
September 29, 1996 and September 24, 1995 columns in the accompanying
consolidated statements of operations and shareholders' equity are for the
three-month period ended December 30, 1995, which is summarized as follows (in
thousands):
- --------------------------------------------------------------------------------
Revenues $ 63,294
Expenses 59,803
- --------------------------------------------------------------------------------
Net income $ 3,491
- --------------------------------------------------------------------------------
Oak Street Market
In December 1995, the Company completed the acquisition of Natural Merchants
Exchange, Inc. doing business as Oak Street Market (Oak Street), which operated
a natural foods market in Evanston, Illinois, in exchange for approximately
195,000 shares of common stock. The acquisition was accounted for using the
pooling-of-interests method. Due to the immateriality of Oak Street financial
statements to the Company's consolidated financial statements, financial
information for the periods prior to the combination has not been restated. An
adjustment to decrease retained deficit by $304,000 has been recorded to include
results of Oak Street operations for the periods prior to the combination in
these financial statements. Revenue and results of operations of Oak Street for
the period from September 25, 1995 through the date of acquisition are not
material to the combined results.
(continued)
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(3) Business Combinations, continued
Cana Foods, Inc. and Unicorn Village, Ltd.
In February 1995, the Company acquired the outstanding stock of Cana Foods, Inc.
doing business as Bread of Life, which operated two natural foods supermarkets
in Northern California, in exchange for approximately $4,999,000 in cash. The
acquisition was accounted for using the purchase method and the excess of cost
over fair value of the assets acquired of approximately $4,393,000 was allocated
to goodwill, which is being amortized on a straight-line basis over 40 years.
Also in February 1995,the Company acquired substantially all assets and assumed
certain liabilities of Unicorn Village, Ltd. (Unicorn), a natural foods
supermarket in Southern Florida. Consideration for this acquisition was in the
form of cash of approximately $4,110,000 plus $125,000 a year for a five-year
noncompetition agreement. The acquisition was accounted for using the purchase
method, and the excess of cost over fair value of the assets acquired of
approximately $3,481,000 was allocated to goodwill, which is being amortized on
a straight-line basis over 40 years.
The fair values of Bread of Life's and Unicorn's assets and liabilities at the
date of acquisition are presented as follows (in thousands):
Bread of Life Unicorn
- -------------------------------------------------------------------------------------------------
Current assets $ 775 968
Property and equipment 623 478
Other assets * 19
Goodwill 4,393 3,481
Current liabilities (781) (804)
Other liabilities (11) (32)
- -------------------------------------------------------------------------------------------------
Net assets acquired $ 4,999 4,110
- -------------------------------------------------------------------------------------------------
Pro forma results of operations are not presented due to the immaterial effect
of the company acquired on consolidated results of operations.
(4) Non-recurring Expenses
Non-recurring expenses for fiscal year 1996 consist primarily of transaction and
other costs associated with the acquisition of Fresh Fields and with the
reorganization of the Southern California region, including severance costs and
expenses related to changing the names of the stores from Mrs. Gooch's to Whole
Foods Market, as follows (in thousands):
- -------------------------------------------------------------------------------------------------
Transaction-related costs and severance $ 8,577
Duplicate systems disposal costs and other transaction-related accounting adjustments 6,730
Store closing and relocation costs 20,907
Southern California reorganization costs 2,144
Other 158
- -------------------------------------------------------------------------------------------------
Total non-recurring expenses $ 38,516
- -------------------------------------------------------------------------------------------------
Expenses including losses on the disposition of store assets and lease
termination costs have been recognized pursuant to a plan initiated at the time
of the Fresh Fields acquisition to close or relocate duplicate stores. Fiscal
1996 revenue and net operating income for these stores totaled approximately
$53,395,000 and $513,000, respectively. At September 29, 1996, the final
disposition of store assets and the termination of operating leases at these
locations remain under the plan, which will be completed as soon as is
practicable after the related stores are closed or relocated. Liabilities
totaling approximately $10,033,000 for remaining rent and lease termination
costs have been recorded as part of store closing and relocation costs.
Non-recurring expenses for fiscal year 1994 include damages and other costs
associated with the Southern California earthquake in that year.
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(5) Quarterly Results (unaudited)
Quarterly results of entities acquired in purchase business combinations are
included from the respective dates of acquisition. For fiscal year 1996, the
first quarter is 16 weeks, the second and third quarters are each 12 weeks, and
the fourth quarter is 13 weeks. For fiscal year 1995, the first quarter is 16
weeks and the remaining quarters are each 12 weeks. Quarterly results for the
years ended September 29, 1996 and September 24, 1995 are as follows (in
thousands except per share data):
1st 2nd 3rd 4th
1996 Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------
Sales $ 244,986 203,912 213,402 229,798
Gross profit 76,205 65,829 68,256 68,752
Pre-opening costs 383 2,320 609 652
Non-recurring expenses * 1,984 * 36,532
Income (loss) from operations 3,429 3,259 7,827 (30,499)
Income (loss) before income taxes 2,563 2,399 6,956 (32,563)
Net income (loss) 41 1,517 4,663 (23,455)
Net income (loss) per share $ 0.00 0.08 0.23 (1.22)
Shares/weighted average shares outstanding 19,175 19,419 19,995 19,179
- -----------------------------------------------------------------------------------------------------
1st 2nd 3rd 4th
1995 Quarter Quarter Quarter Quarter
- -----------------------------------------------------------------------------------------------------
Sales $ 195,027 161,864 167,601 171,442
Gross profit 60,742 51,853 53,839 53,641
Pre-opening costs 900 488 1,326 868
Income (loss) from operations (2,866) 4,726 859 1,723
Income (loss) before income taxes (2,947) 4,617 572 1,080
Net income (loss) (4,539) 2,845 (156) (175)
Net income (loss) per share $ (0.24) 0.15 (0.01) (0.01)
Shares/weighted average shares outstanding 18,750 18,900 18,988 18,961
- -----------------------------------------------------------------------------------------------------
Results for the fourth quarter of fiscal year 1996 include costs totaling
approximately $36,200,000 (pre-tax) related to the acquisition of Fresh Fields.
Quarterly results for fiscal year 1995 combine Whole Foods Market historical
results for each fiscal quarter with Fresh Fields results restated to those
fiscal quarters and therefore do not total to fiscal year 1995 results in the
Consolidated Statements of Operations.
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(6) Property and Equipment
Balances of major classes of property and equipment are as follows (in
thousands):
1996 1995
- ----------------------------------------------------------------------------------------
Land and building $ 12,943 11,065
Fixtures and equipment 112,975 105,077
Leasehold improvements 121,712 82,568
Vehicles 462 775
Equipment under capital lease 1,891 2,512
Construction in progress 14,253 14,499
- ----------------------------------------------------------------------------------------
264,236 216,496
Less accumulated depreciation and amortization 67,058 50,608
- ----------------------------------------------------------------------------------------
$ 197,178 165,888
- ----------------------------------------------------------------------------------------
Depreciation and amortization expense related to property and equipment was
approximately $23,633,000, $18,112,000 and $13,589,000 for fiscal years 1996,
1995 and 1994, respectively.
Leasehold improvements and construction in progress include approximately
$1,183,000, $809,000 and $372,000 of interest capitalized during 1996, 1995 and
1994, respectively.
(7) Long-Term Debt
The Company has long-term debt and obligations under capital leases as follows
(in thousands):
1996 1995
- ----------------------------------------------------------------------------------------
Obligations under capital lease agreements for equipment,
due in monthly installments through 1998 $ 1,139 2,488
Notes payable to banks 44,100 51,100
Senior unsecured notes 40,000 *
Other notes payable 52 133
- ----------------------------------------------------------------------------------------
85,291 53,721
Less current installments 1,014 1,815
- ----------------------------------------------------------------------------------------
$ 84,277 51,906
- ----------------------------------------------------------------------------------------
The Company has entered into a bank credit agreement which provides for a
revolving line of credit of up to $75,000,000. The amounts borrowed under this
agreement are convertible into a four year term loan upon the expiration of the
revolving credit term on June 30, 1999. Principal payments are to be made in
quarterly installments beginning September 30, 1999. This credit agreement
contains certain restrictive covenants, including restrictions upon payment of
dividends on common stock. The credit agreement also contains certain
affirmative covenants including maintenance of certain financial ratios as
defined in the agreement. All outstanding amounts borrowed under this agreement
bear interest at the Company's option of either a defined base rate or the
Eurodollar rate plus a premium. Commitment fees ranging from 0.1875% to 0.25% of
the undrawn amount are payable under this agreement. At September 29, 1996 and
September 24, 1995, approximately $44,100,000 and $46,100,000, respectively, was
drawn under this agreement and the Company was in compliance with the debt
covenants.
In July 1995, Fresh Fields entered into a credit agreement with several banks
which provided for direct borrowings and the issuance of standby letters of
credit. A balance of $5,000,000 was outstanding under this credit agreement as
of September 24, 1995. The outstanding balance under this credit agreement was
paid off concurrent with the acquisition of Fresh Fields.
In May 1996,the Company issued $40,000,000 of senior unsecured notes payable
to refinance existing indebtedness. The notes bear interest at 7.29% and are
payable in seven equal installments beginning May 16, 2000. The notes contain
certain affirmative and negative covenants, including maintenance of certain
financial ratios as defined in the agreement. At September 29, 1996, the Company
was in compliance with the debt covenants.
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(8) Leases
The Company and its subsidiaries are committed under certain capital leases for
rental of equipment and certain operating leases for rental of facilities and
equipment. These leases expire or become subject to renewal at various dates
from 1996 to 2017. Rental expense charged to operations under operating leases
for the fiscal years ended 1996, 1995 and 1994 aggregated approximately
$24,644,000, $19,300,000 and $14,486,000, respectively.
Minimum rental commitments required by all noncancelable leases are
approximately as follows (in thousands):
Capital Operating
- --------------------------------------------------------------------------------
1997 $ 985 26,821
1998 148 28,399
1999 28 28,601
2000 * 28,724
2001 * 28,838
Future years * 263,409
- --------------------------------------------------------------------------------
1,161
Less amounts representing interest 22
- --------------------------------------------------------------------------------
1,139
Less current installments 965
- --------------------------------------------------------------------------------
$ 174
- --------------------------------------------------------------------------------
Minimum rentals for operating leases do not include certain amounts of
contingent rentals which may become due under the provisions of leases for
retail space. These agreements provide that minimum rentals may be increased
based on a percent of annual sales from the retail space. During 1996, 1995 and
1994, the Company paid contingent rentals of approximately $981,000, $587,000
and $367,000, respectively.
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(9) Income Taxes
Components of total income tax expense (benefit) are as follows (in thousands):
1996 1995 1994
- -------------------------------------------------------------------------------------------------
Current federal income tax $ 3,046 2,687 3,347
Current state income tax 925 1,005 1,079
- -------------------------------------------------------------------------------------------------
Total current tax 3,971 3,692 4,426
- -------------------------------------------------------------------------------------------------
Deferred federal income tax (7,085) 1,358 1,315
Deferred state income tax (297) 297 294
- -------------------------------------------------------------------------------------------------
Total deferred tax (7,382) 1,655 1,609
- -------------------------------------------------------------------------------------------------
Total income tax expense (benefit) $ (3,411) 5,347 6,035
- -------------------------------------------------------------------------------------------------
Actual income tax expense (benefit) differed from the amount computed by
applying statutory corporate income tax rates to income before taxes as follows
(in thousands):
1996 1995 1994
- -------------------------------------------------------------------------------------------------
Federal tax based on statutory rates $ (7,126) 2,183 1,928
Increase (reduction) in income taxes resulting from:
Net loss of pooled entity 768 2,465 3,102
Non-deductible merger transaction costs 1,682 * *
Non-deductible amortization of cost in
excess of net assets acquired 348 327 307
Other, net 609 (474) (207)
Deductible state income taxes (319) (457) (468)
- -------------------------------------------------------------------------------------------------
Total federal taxes (4,038) 4,044 4,662
State income taxes 627 1,303 1,373
- -------------------------------------------------------------------------------------------------
Total income tax expense (benefit) $ (3,411) 5,347 6,035
- -------------------------------------------------------------------------------------------------
(continued)
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(9) Income Taxes, continued
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities are as follows
(in thousands):
Deferred tax assets 1996 1995
- --------------------------------------------------------------------------------------------------
Compensated absences, principally due to Financial reporting accrual $ 990 1,853
Rent differential, principally due to Financial reporting pro-rata expense 838 968
Estimated buyout of capital leases not currently deductible for tax purposes 341 313
Estimate of difference between fair market value of store operating leases
and actual amounts paid 270 261
Capital leases treated as operating leases for tax purposes 49 250
Inventories, principally due to additional costs inventoried for tax
purposes pursuant to the Tax Reform Act of 1986 530 288
Reorganization costs not currently deductible 8,623 1,091
Alternative minimum tax credit 1,543 *
Acquired net operating loss carryforwards 10,765 11,060
Other 324 280
- --------------------------------------------------------------------------------------------------
Total gross deferred tax assets 24,273 16,364
Valuation allowance (10,765) (12,460)
- --------------------------------------------------------------------------------------------------
Total net deferred tax assets $ 13,508 3,904
- --------------------------------------------------------------------------------------------------
Deferred tax liabilities 1996 1995
- --------------------------------------------------------------------------------------------------
Financial basis of fixed assets in excess of tax basis $ (7,736) (5,765)
Capitalized acquisition costs expensed for tax purposes (580) (524)
Other (213) (123)
- --------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities (8,529) (6,412)
- --------------------------------------------------------------------------------------------------
Net deferred tax asset (liability) $ 4,979 (2,508)
- --------------------------------------------------------------------------------------------------
The Company has provided a full valuation allowance for the net operating loss
carryforwards acquired in the Fresh Fields business combination based upon
review of the historical performance of the acquired subsidiary and other tax
limitations. The valuation allowance decreased by approximately $1,695,000 in
1996 and increased by approximately $2,322,000 in 1995. Management believes it
is more likely than not that the Company will fully realize the remaining
deferred tax assets in the form of future tax deductions since the temporary
differences will reverse in the near future.
As of September 29, 1996, the Company has the following tax net operating loss
carryforwards available (in thousands):
Expiration
- --------------------------------------------------------------------------------
2006 $ 63
2007 3,702
2008 10,784
2009 8,678
2010 4,734
- --------------------------------------------------------------------------------
Total $ 27,961
- --------------------------------------------------------------------------------
Whole Foods Market, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
(10) Shareholders' Equity
The Company has stock option and incentive plans for the purchase of up to
4,367,000 shares of common stock by employees and directors. Options granted
under these plans are exercisable over seven to ten years from date of grant,
subject to a four to five year vesting schedule. During fiscal 1996, options
were exercised for the purchase of 558,000 shares at $0.90-27.02 per share.
During fiscal 1995, options were exercised for the purchase of 38,000 shares at
$1.20-15.31 per share. During fiscal year 1994, options were exercised for the
purchase of 138,000 shares at $1.20-11.07 per share.
A summary of options outstanding at September 29, 1996 follows (in thousands
except exercise price):
Total shares Total shares
stated in exercisable at
Fiscal Year Options Granted Options Granted Sept. 29, 1996 Exercise Price
- ------------------------------------------------------------------------------------------------
1987 45 45 $ 1.20
1988 20 20 2.50
1989 40 40 2.50
1991 177 177 3.13-3.40
1992 155 117 3.40-11.07
1993 450 231 8.75-22.51
1994 509 299 16.31-25.22
1995 531 207 0.90-27.02
1996 702 40 17.38-33.50
- ------------------------------------------------------------------------------------------------
2,629 1,176
- ------------------------------------------------------------------------------------------------
(11) Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, trade accounts receivable,
trade accounts payable, accrued payroll, bonus and employee benefits, and other
accrued expenses approximate fair value because of the short maturity of those
instruments. The carrying value of notes payable to bank approximates fair value
due to variable interest rates charged on these notes. The carrying value and
fair value of senior unsecured notes at September 29, 1996 is $40,000,000 and
approximately $39,340,000, respectively. The Company estimated the fair value of
senior unsecured notes by discounting the future cash flows at the rates
currently available to the Company for similar debt instruments of comparable
maturities.
(12) Commitments and Contingencies
The Company provides partially self-insured, voluntary employee benefits plans
which provide, among other benefits, health care benefits to participating
employees. The plans are designed to provide specified levels of coverage, with
excess insurance coverage provided by a commercial insurer. The Company's
exposure related to claims associated with unreported cases or underestimated
future costs associated with known cases for which the Company is partially
self-insured at September 29, 1996 has been estimated based on management's
review of claims outstanding at fiscal year end, claims reported subsequent to
fiscal year end and management's knowledge of the typical length of time from
date of occurrence to date of reported claim.
The Company is a non-subscriber to workers' compensation insurance in Texas.
Claims associated with unreported cases at September 29, 1996 are not considered
to be significant based on management's review of claims reported subsequent to
fiscal year end and management's knowledge of the typical length of time from
date of occurrence to date of reported claim. Due to the nature of job related
injury claims, the inherent difficulty in estimating the ultimate costs of fully
developed claims and because of the wide range of potential losses, the
Company's reserve estimate could be more or less than the amount ultimately paid
upon settlement of claims.
The Company is a party to certain legal proceedings arising in the ordinary
course of business. After consultation with counsel and a review of available
facts, management believes that damages, if any, arising from litigation will
not be material to the Company's Financial position or results of operations.
SIGNATURES
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 hereunto duly authorized.
WHOLE FOODS MARKET, INC.
Date: December 27, 1996 By: /s/ Glenda Flanagan
------------------------------------------
Glenda Flanagan, Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on December 27, 1996.
Name Title
---- -----
/s/ John Mackey
- ---------------
John Mackey Chairman of the Board, Chief Executive Officer and
Director (Principal Executive Officer)
/s/ Glenda Flanagan
- -------------------
Glenda Flanagan Chief Financial Officer (Principal Financial and
Accounting Officer)
/s/ Dr. Cristina G. Banks
- -------------------------
Dr. Cristina G. Banks Director
/s/ Dr. John B. Elstrott
- ------------------------
Dr. John B. Elstrott Director
/s/ Avram J. Goldberg
- ----------------------
Avram J. Goldberg Director
/s/ Linda A. Mason
- ------------------
Linda A. Mason Director
/s/ Dr. Ralph Z. Sorenson
- --------------------------
Dr. Ralph Z. Sorenson Director
/s/ James P. Sud
- ----------------
James P. Sud Director
INDEX TO EXHIBITS
- -----------------
Exhibits
--------
3.1 Restated Articles of Incorporation of the Registrant,as amended (2)
3.2 By-laws of the Registrant adopted May 23, 1995 (6)
10.1 1987 Stock Option and Incentive Plan for Employees (3)
10.2 1987 Stock Option Plan for Outside Directors (3)
10.3 1993 Team Member Stock Ownership Plan (1)
10.5 Form of Retention Agreement between the executive officers of the
Registrant and the Registrant (3)
10.6 Form of amendment to Retention Agreement (1)
10.7 Amended and Restated Loan Agreement, dated December 27, 1994,by
and among the Registrant, the subsidiaries of the Registrant and
Texas Commerce Bank National Association (6)
10.8 First Amendment dated May 16, 1996 to Amended And Restated Loan
Agreement, dated December 27, 1994, by and among Registrant, the
subsidiaries of the Registrant and Texas Commerce Bank National
Association (7)
10.9 1992 Stock Option Plan for Team Members, as amended (1)
10.10 1992 Stock Option Plan for Outside Directors (1)
10.11 1993 Team Member Stock Purchase Plan (1)
10.12 Second Amended and Restated 1991 Stock Incentive Plan of Fresh
Fields Markets, Inc. with amendments thereto (4)
10.13 1994 Director Stock Option Plan with amendments thereto (4)
10.14 Note Purchase Agreement, dated May 16, 1996, by and among the
registrant and the purchasers of $40 million of 7.29% Senior Notes
due May 16, 2006 (7)
23.1 Consent of KPMG Peat Marwick LLP (Set forth on Page S-1) (7)
27.1 Financial Data Schedule (7)
99.1 Proxy Statement for Annual Meeting of Shareholders to be held on
March 24, 1997 (5)
(1) Filed as an exhibit to Registration Statement on Form S-4 (No. 33-63824)
and incorporated herein by reference.
(2) Filed as an exhibit to Registration Statement on Form S-3 (No.33-69362)
and incorporated herein by reference.
(3) Filed as an exhibit to Registration Statement on Form S-1 (No. 33-44214)
and incorporated herein by reference.
(4) Filed as an exhibit to Registration Statement on Form S-8 (No. 33-11273)
and incorporated herein by reference.
(5) To be filed with the Commission on or before January 27, 1997 and
incorporated herein by reference.
(6) Filed as an exhibit to registrants Form 10-K for year ended September
24, 1995 and incorporated herein by reference.
(7) Filed herewith.
Exhibit 10.8
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT ("First Amendment"), dated as
of May 16, 1996, is made and entered into by and among WHOLE FOODS MARKET, INC.
(the "Company"), a Texas corporation, the banking institutions from time to time
a party to the Credit Agreement (as hereinafter defined), as amended by this
First Amendment (each, together with its successors and assigns, a "Bank" and
collectively, the "Banks"), and TEXAS COMMERCE BANK NATIONAL ASSOCIATION, as
agent for the Banks (in such capacity, together with its successors in such
capacity, the "Agent").
RECITALS:
WHEREAS, the Company, the Agent and certain Banks are parties to a
Credit Agreement dated as of December 27, 1994 (the "Credit Agreement"); and
WHEREAS, the Company, the Agent and the Banks have agreed, on the terms
and conditions herein set forth, that the Credit Agreement be amended in certain
respects.
AGREEMENTS:
NOW, THEREFORE, in consideration of the premises and the mutual
agreements, representations and warranties herein set forth, and for other good
and valuable consideration, the receipt and sufficiency which are hereby
acknowledged and confessed, the Company, the Agent and the Banks do hereby agree
as follows:
Section 1. General Definitions. Except as expressly modified by this
First Amendment, capitalized terms used herein which are defined in the Credit
Agreement shall have the same meanings when used herein.
Section 2. Amendments to Existing Definitions.
(a) The following definitions contained in Section 1 of the
Credit Agreement are hereby amended and restated in their entirety to
hereafter be and read as follows:
shall mean with respect to any Loan, on any day occurring on
or after (1) March 13 but prior to June 5 of the applicable
calendar year, the applicable per annum percentage
corresponding to the Leverage Ratio determined as of the end
of the immediately preceding first quarter of the Company's
fiscal year, (2) June 5 but prior to August 28 of the
applicable calendar year, the applicable per annum
percentage corresponding to the Leverage Ratio determined as
of the end of the immediately preceding second quarter of
the Company's fiscal year, (3) August 28 but prior to
November 18 of the applicable calendar year, the applicable
per annum percentage corresponding to the Leverage Ratio
determined as of the end of the immediately preceding third
quarter of the Company's fiscal year, and (4) November 18
but prior to March 13 of the applicable calendar year, the
applicable per annum percentage corresponding to the
Leverage Ratio determined as of the immediately preceding
fiscal year of the Company, as provided below:
a. on any day occurring prior to the Termination Date:
================================================================================
Per Annum Percentage Per Annum Percentage
for Eurodollar for Alternate
Leverage Ratio Rate Borrowings Base Rate Borrowings
================================================================================
Less than 1.00x 0.625% 0.000%
- --------------------------------------------------------------------------------
1.00x or greater, 0.750% 0.000%
but less than 2.00x
- --------------------------------------------------------------------------------
2.00x or greater 1.000% 0.000%
================================================================================
b. on the Termination Date until, but not including, the
second anniversary date of the Termination Date:
================================================================================
Per Annum Percentage Per Annum Percentage
for Eurodollar for Alternate
Leverage Ratio Rate Borrowings Base Rate Borrowings
================================================================================
Less than 1.00x 0.750% 0.000%
- --------------------------------------------------------------------------------
1.00x or greater, 0.875% 0.000%
but less than 2.00x
- --------------------------------------------------------------------------------
2.00x or greater 1.125% 0.000%
================================================================================
c. on the second anniversary date of the Termination Date
and at all times thereafter:
================================================================================
Per Annum Percentage Per Annum Percentage
for Eurodolla for Alternate
Leverage Ratio Rate Borrowings Base Rate Borrowings
================================================================================
Less than 1.00x 0.875% 0.125%
- --------------------------------------------------------------------------------
1.00x or greater, 1.000% 0.125%
but less than 2.00x
- --------------------------------------------------------------------------------
2.00x or greater 1.250% 0.125%
================================================================================
Funded Indebtedness shall mean (a) all Indebtedness
of the Company and its Subsidiaries on a consolidated basis
which by its terms matures more than one year after the
applicable date of calculation of Funded Indebtedness
(including without limitation, current maturities or scheduled
principal payments of Funded Indebtedness for the applicable
period for which Funded Indebtedness is being calculated), and
any Indebtedness of the Company and its Subsidiaries on a
consolidated basis maturing within one year from such date
which is renewable or extendable at the option of the obligor
to a date beyond one year from such date and (b) without
duplication, Capital Lease Obligations of the Company and its
Subsidiaries on a consolidated basis. All components of Funded
Indebtedness shall be determined in accordance with Generally
Accepted Accounting Principles, consistently applied.
shall mean the earlier of (a) June 30, 2003, and (b) the
date specified by the Agent pursuant to Section 7.1 hereof.
shall mean the earlier of (a) June 30, 1999, (b) the date
the Company terminates the Commitment pursuant to Section
2.2 hereof and (c) the date specified by the Agent pursuant
to Section 7.1 hereof.
(b) The definition for Fixed Charge Coverage Ratio contained in
Section 1 of the Credit Agreement is hereby amended and restated in its
entirety to hereafter be and read as follows:
Fixed Charge Coverage Ratio A shall mean as of any
day that the Fixed Charge Ratio A is being calculated, the
ratio of EBITDA less cash taxes to the sum of (a) scheduled
principal payments of Funded Indebtedness, (b) interest
expense and (c) Cash Capital Expenditures. All components of
the Fixed Charge Coverage Ratio A shall be computed for the
Rolling Four Quarters as of such day and determined for the
Company and its Subsidiaries on a consolidated basis in
accordance with Generally Accepted Accounting Principles,
consistently applied.
Section 3. New Definitions. The following additional definitions are hereby
added to Section 1 of the Credit Agreement to hereafter read as
follows:
Consolidated Net Worth shall mean, at any time, shareholder's
equity of the Company as set forth in the most recent consolidated
Annual Audited Financial Statements of the Company and its
Subsidiaries, determined in accordance with Generally Accepted
Accounting Principles, consistently applied.
EBIT shall mean for any period for which EBIT is calculated,
Net Income of the Company and its Subsidiaries on a consolidated basis
for such period plus (a) non-recurring, non-cash charges of the Company
and its Subsidiaries on a consolidated basis for such period, (b) taxes
of the Company and its Subsidiaries on a consolidated basis for such
period and (c) interest expense of the Company and its Subsidiaries on
a consolidated basis for such period. All components of EBIT shall be
determined in accordance with Generally Accepted Accounting Principles,
consistently applied.
Fixed Charge Coverage Ratio B shall mean as of any day that
the Fixed Charge Ratio B is being calculated, the ratio of (a) EBIT
plus Operating Lease Expense to (b) interest expense plus Operating
Lease Expense. All components of the Fixed Charge Coverage Ratio B
shall be computed for the Rolling Four Quarters as of such day and
determined for the Company and its Subsidiaries on a consolidated basis
in accordance with Generally Accepted Accounting Principles,
consistently applied.
Net Proceeds Amount shall mean, with respect to any Permitted
Asset Dispositions and Permitted Stock Dispositions by the Company
and/or any of its Subsidiaries, an amount equal to the difference
between (a) the aggregate consideration paid to or received by the
Company and/or any of its Subsidiaries in connection with such
Permitted Asset Dispositions and Permitted Stock Dispositions and (b)
all ordinary and reasonable out of pocket expenses actually incurred by
the Company and/or any of its Subsidiaries in connection with such
Permitted Asset Dispositions and Permitted Stock Dispositions.
Note Purchase Agreements shall have the meaning given to such
term in Section 6.1(l) hereof.
Operating Lease Expense shall mean for any period for which
Operating Lease Expense is calculated, the aggregate amount of fixed
and contingent rentals (exclusive of payments of Capital Lease
Obligations) payable by the Company and its Subsidiaries for such
period with respect to leases of Property. Operating Lease Expense
shall be determined for the Company and its Subsidiaries on a
consolidated basis in accordance with Generally Accepted Accounting
Principles, consistently applied.
Ratable Portion shall mean an amount equal to the product of
(a) the Net Proceeds Amount attributable to the applicable Permitted
Asset Dispositions and Permitted Stock Dispositions multiplied by (b) a
fraction, the numerator of which is the outstanding principal balance
of the Loans at such time and the denominator of which is the aggregate
principal amount of Funded Indebtedness (including without limitation,
the Notes) at such time of the Company and its Subsidiaries on a
consolidated basis.
Section 4. Commitment Termination and Reduction Amendments. The last
sentence of Section 2.2 of the Credit Agreement is hereby amended and restated
in its entirety to hereafter read as follows:
The Aggregate Commitment may be permanently terminated or reduced as
follows:
(a) The Company may, upon ten (10) Business Days' prior
written notice to the Agent, permanently terminate or reduce the
Aggregate Commitment in an amount of at least $5,000,000 or the amount
of the Aggregate Commitment at such time, whichever is less;
(b) Any prepayment of the Loans and Letter of Credit Advances
in accordance with the provisions of Section 2.3(c)(3) hereof shall
permanently and automatically reduce the Aggregate Commitment in an
amount equal to any such prepayment; and
(c) If the ten percent (10%) of Consolidated Net Worth
threshold discussed in Section 2.3(c) hereof shall be reached in any
fiscal year with respect to Permitted Asset Dispositions and Permitted
Stock Dispositions, the Banks may, with the unanimous written consent
of all of the Banks, unilaterally reduce the Aggregate Commitment by an
amount up to, but not in excess of, the difference between (1) the
aggregate consideration paid to or received by the Company and/or its
Subsidiaries with respect to Permitted Assets Dispositions and
Permitted Stock Dispositions in excess of such ten percent (10%) of
Consolidated Net Worth threshold and (2) the amount that the Aggregate
Commitment is permanently reduced in accordance with the provisions of
subparagraph (b) above (with the effective date of any such permanent
reduction of the Aggregate Commitment in accordance with this
subparagraph (c) being the date upon which all of the Banks have
provided the Company with written notice of such permanent reduction of
the Aggregate Commitment).
Section 5. Mandatory Prepayment Amendment. Section 2.3(b) of the Credit
Agreement is hereby amended and restated in its entirety to hereafter read as
follows:
(b) If the aggregate consideration paid to the Company and/or
any of its Subsidiaries from all Permitted Asset Dispositions and all
Permitted Stock Dispositions during any fiscal year exceeds $5,000,000,
but is less than or equal to ten percent (10%) of the Consolidated Net
Worth of the Company determined as of the end of the Company's
preceding fiscal year, within three (3) Business Days after the
consummation of the applicable Permitted Asset Dispositions or
Permitted Stock Dispositions, the Company shall make a prepayment
against the Loans and Letter of Credit Advances then outstanding in an
amount equal to the Net Proceeds Amount attributable to Permitted Asset
Dispositions and Permitted Stock Dispositions in excess of such
$5,000,000 threshold.
Section 6. Mandatory Prepayment Additions. New Sections 2.3(c), (d) and (e)
are hereby added to the Credit Agreement to hereafter read as follows:
(c) If the aggregate consideration paid to the Company and/or
any of its Subsidiaries from all Permitted Asset Dispositions and all
Permitted Stock Dispositions during any fiscal year exceeds ten percent
(10%) of the Consolidated Net Worth of the Company determined as of the
end of the Company's preceding fiscal year, the Company shall fully
comply with each of the following:
(1) within three (3) Business Days after the
consummation of Permitted Asset Dispositions and Permitted
Stock Dispositions in excess of the $5,000,000 threshold
described in subparagraph (b) above, but less than or equal to
such ten percent (10%) of Consolidated Net Worth threshold,
the Company shall make a prepayment against the Loans and
Letter of Credit Advances then outstanding in an amount equal
to the Net Proceeds Amount attributable to such Permitted
Asset Dispositions and Permitted Stock Dispositions;
(2) within six (6) months after the consummation of
Permitted Asset Dispositions and Permitted Stock Dispositions
in excess of the above-described ten percent (10%) of
Consolidated Net Worth threshold, the Company shall apply all
of the Net Proceeds Amount attributable to such Permitted
Asset Dispositions and Permitted Stock Dispositions as
required under Section 10.6 of the Note Purchase Agreements
(including without limitation, any prepayment of the Loans and
Letter of Credit Advances required pursuant to subparagraph
(3) below); and
(3) within the six (6) month period described in
subparagraph (2) above, the Company shall make a prepayment
against the Loans and the Letter of Credit Advances then
outstanding in an amount equal to the Ratable Portion for such
Loans and Letter of Credit Advances outstanding hereunder
(unless all of the Banks elect in writing to not require any
such prepayment against the Loans and Letter of Credit
Advances then outstanding).
(d) If the Net Proceeds Amount otherwise payable to the Agent
for the ratable benefit of the Banks pursuant to Sections 2.3(b) or (c)
above exceeds the amount of Loans and Letter of Credit Advances then
outstanding, any portion of such Net Proceeds Amount remaining after
the outstanding Loans and Letter of Credit Advances have been fully
paid shall be deposited with and held by the Agent for application
against Loans and Letter of Credit Advances, as the same are
subsequently outstanding under the terms of this Agreement.
(e) The Company shall have the right to extend for up to six
months any mandatory prepayment date provided for in Sections 2.3(b)
and (c) as necessary to avoid payment of any Consequential Loss, but
only for the applicable portion of any such prepayment that would
otherwise be applied to one or more Eurodollar Rate Borrowings then
outstanding as of the date that such prepayment is otherwise required
hereunder.
Section 7. Additional Fixed Charge Coverage Ratio. Section 5.3 of the
Credit Agreement is hereby amended and restated in its entirety to hereafter
read as follows:
5.3 Financial Tests. (a) Have at all times a CURRENT RATIO of
not less than 0.80 to 1.00; (b) have at all times a TANGIBLE NET WORTH
of not less than the Tangible Net Worth Floor plus the Tangible Net
Worth Floor Adjustment; (c) have at all times until, but not including,
the Termination Date, a DEBT COVERAGE RATIO of not less than 1.50 to
1.00; (d) have at all times on and after the Termination Date, a FIXED
CHARGE COVERAGE RATIO A of not less than 1.15 to 1.00; (e) have at all
times a FIXED CHARGE COVERAGE RATIO B of not less than 1.50 to 1.00;
and (f) have at all times a LEVERAGE RATIO of not more than 2.50 to
1.00.
Section 8. Negative Covenant Amendments. Section 6 of the Credit Agreement
shall be amended as follows:
(a) A new Section 6.1(l) is hereby added to the Credit
Agreement to hereafter read as follows:
(l) Indebtedness of the Company in an original
principal amount not to exceed $40,000,000 in the aggregate to
be privately placed with investors by Chase Securities Inc. in
accordance with the terms and conditions set forth in those
certain Note Purchase Agreements dated May 16, 1996, by and
between the Company and the various investors purchasing all
or any portion of such Indebtedness, together with guaranties
of such Indebtedness by any and all Subsidiaries of the
Company which are now or hereafter existing.
(b) The last sentence of Section 6.2 of the Credit Agreement
is hereby amended and restated in its entirety to hereafter read
as follows:
Provided, however, that, notwithstanding anything contained
above in this Section 6.2 to the contrary, in no event may the
Company or any Subsidiary of the Company (i) ever create or
suffer to exist any Lien upon any of the Stock of any of its
Subsidiaries, directly or indirectly, in favor of any Person
other than the Agent for the benefit of the Banks or (ii)
except for the equal and ratable lien provisions of Section
9.7 of the Note Purchase Agreements and the negative pledge
provisions of Section 10.3 of the Note Purchase Agreements,
create or suffer to exist any agreement, whether oral or in
writing, with any Person other than the Agent and the Banks
pursuant to this Section 6.2, which would or could prohibit
the Company or any of its Subsidiaries from creating or
permitting to exist any Lien in favor of the Agent or the
Banks for the benefit of all of the Banks for Indebtedness
from time to time arising under this Agreement.
(c) Section 6.3 of the Credit Agreement is hereby amended
and restated in its entirety to hereafter read as follows:
6.3 Contingent Obligations. Except for guaranties by
Subsidiaries of the Company which are otherwise permitted by
Section 6.1(l) hereof, create, incur, suffer or permit to
exist, directly or indirectly, any Contingent Obligations if
such Contingent Obligations would cause the sum of (a) the
aggregate amount of Contingent Obligations outstanding for the
Company and its Subsidiaries, and (b) the aggregate amount of
outstanding Indebtedness permitted by Section 6.1(k), on a
consolidated basis, to exceed $10,000,000 (it being agreed
that any Contingent Obligations of the Subsidiaries allowed by
Section 6.1(l) hereof shall not be included for purposes of
determining compliance with the other provisions of this
Section 6.3).
(d) Section 6.4(c) of the Credit Agreement is hereby amended
and restated in its entirety to hereafter read as follows:
(c) Sell, convey, lease or otherwise dispose of all
or any part of the assets (except for the sale of inventory in
the ordinary course of business) of the Company and/or its
Subsidiaries, or agree to take any such action, if such sale,
lease or conveyance of assets is not otherwise permitted for
the applicable fiscal year by Section 6.4(z) hereof.
(e) Section 6.4(f) of the Credit Agreement is hereby amended
and restated in its entirety to hereafter read as follows:
(f) Purchase or otherwise acquire, directly or
indirectly, in a single transaction or a series of related
transactions, all or substantially all of the assets of any
Person or such Person and its affiliates, or any shares of
Stock of, or similar interest in, any Person or such Person
and its Affiliates, if the total value of the cash
consideration (exclusive of stock, warrants, options and other
non-cash consideration) given or paid by the Company and its
Subsidiaries, (i) in connection with such acquisition alone is
in excess of $30,000,000 or (ii) in connection with such
acquisition and in connection with prior acquisitions during
the fiscal year of such acquisition exceeds $30,000,000 in the
aggregate.
(f) Section 6.6 is hereby deleted in its entirety and shall
no longer be of any force or effect.
(g) Section 6.12(a) is hereby amended and restated in its
entirety to hereafter read as follows:
(a) Redeem, retire or otherwise acquire, directly or
indirectly, any shares of its Stock if such redemption or
repurchase would cause the aggregate value of such Stock so
redeemed or repurchased, as shown on the consolidated
financial statements of the Company and its Subsidiaries to be
delivered pursuant to Sections 5.2(a) and (b) hereof, to ever
exceed $10,000,000.
(h) Section 6.13 is hereby amended and restated in its
entirety to hereafter read as follows:
6.13 Capital Expenditures. Make expenditures for
fixed or capital assets on a consolidated basis during any
fiscal year of the Company (beginning with its 1996 fiscal
year and continuing until and including the fiscal year ending
in the calendar year in which the Maturity Date occurs) in
excess of $65,000,000 in the aggregate (provided, that, in
calculating said amount for any applicable year (i) cash
expenditures for acquisitions otherwise permitted for the
applicable fiscal year by Section 6.4(f) hereof shall not be
included and (ii) expenditures for fixed or capital assets
made by Subsidiaries of the Company, which were acquired
during such fiscal year and accounted for as a pooling of
interest, shall not be included to the extent that such
expenditures were made prior to the time of acquisition).
Section 9. Modification of Addresses for Notices. Section 9.2 is hereby
modified to cause the "Address for Notices" referenced therein for each of the
Company, the Agent and the Banks to hereafter be the "Address for Notices"
specified below the name of the applicable entity on the signature pages of this
First Amendment.
Section 10. Subsequent Amendments Requiring Unanimous Consent of Banks.
In addition to those particular amendments, waivers or consents requiring the
unanimous written consent of each Bank in accordance with the provisions of
Section 9.11 of the Credit Agreement, no subsequent amendment, waiver or consent
with respect to the Credit Agreement, as hereby amended, shall do any of the
following unless such amendment, waiver or consent is consented to in writing
and signed by each Bank: (a) modify the requirement of unanimous written
approval by the Banks of any unilateral reduction by the Banks of the Aggregate
Commitment as provided for in Section 2.2 of the Credit Agreement; or (b) waive
or postpone any prepayment required by Section 2.3(c)(3) of the Credit
Agreement.
Section 11. Deletion of Requests for Extension. Section 9.19 of the
Credit Agreement is hereby deleted in its entirety and shall no longer be of any
force or effect. In connection therewith, the definitions for "Extension
Approval," "Extension Request" and "Extension Request Periods" contained in
Section 1 of the Credit Agreement, as well as the corresponding Exhibits I and J
attached to the Credit Agreement, are hereby deleted in their entirety and shall
no longer be of any force or effect.
Section 12. Representations and Warranties. The Company represents and
warrants to the Agent and the Banks that the representations and warranties
contained in Section 4 of the Credit Agreement and in all of the other Loan
Documents are true and correct in all material respects on and as of the
effective date hereof as though made on and as of such effective date. The
Company hereby certifies that no event has occurred and is continuing which
constitutes a Default or an Event of Default under the Credit Agreement or
which, upon the giving of notice or the lapse of time, or both, would constitute
a Default or an Event of Default. Additionally, the Company hereby represents
and warrants to the Agent and the Banks that the resolutions of the Board of
Directors of the Company and its Subsidiaries which are set out in the following
described Secretary's Certificates remain in full force and effect as of the
effective date hereof and have not been modified, amended, superseded or
revoked:
(a) That certain Secretary's Certificate dated December 21, 1994,
executed and delivered to the Agent by the Secretary of Whole Foods
Market, Inc. in connection with the Credit Agreement;
(b) That certain Secretary's Certificate dated December 21, 1994,
executed and delivered to the Agent by the Secretary of Bread &
Circus, Inc., Mrs. Gooch's Natural Foods Market, Inc., The Sourdough:
A European Bakery, Inc., Wellspring Grocery, Inc., Whole Foods Market
Beverage Corp., Whole Foods Company, Inc., Whole Foods Market
California, Inc. and Whole Foods Market Southwest, Inc. in connection
with the Credit Agreement;
(c) That certain Secretary's Certificate dated April 5, 1995,
executed and delivered to the Agent by the Secretary of Whole Foods
Market Southwest I, Inc. in connection with that certain Joinder
Agreement dated effective March 27, 1995, executed and delivered to
the Agent by Whole Foods Market Midwest, Inc., Whole Foods Market
Services, Inc., Whole Foods Market Southwest I, Inc., Whole Foods
Market Southwest Investments, Inc. and Whole Foods Market Southwest,
L.P.; and
(d) That certain Secretary's Certificate dated April 5, 1995,
executed and delivered to the Agent by the Secretary of Whole Foods
Market Midwest, Inc., Whole Foods Market Services, Inc., and Whole
Foods Market Southwest Investments, Inc., in connection with the
above-described Joinder Agreement.
Section 13. Limitations. The amendments set forth herein are limited
precisely as written and shall not be deemed to (a) be a consent to, or waiver
or modification of, any other term or condition of the Credit Agreement or any
of the other Loan Documents, or (b) except as expressly set forth herein,
prejudice any right or rights which the Banks may now have or may have in the
future under or in connection with the Credit Agreement, the Loan Documents or
any of the other documents referred to therein. Except as expressly modified
hereby or by express written amendments thereof, the terms and provisions of the
Credit Agreement, the Notes and any other Loan Documents or any other documents
or instruments executed in connection with any of the foregoing are and shall
remain in full force and effect. In the event of a conflict between this First
Amendment and any of the foregoing documents, the terms of this First Amendment
shall be controlling.
Section 14. Payment of Expenses. The Company agrees, whether or not the
transactions hereby contemplated shall be consummated, to reimburse and save the
Agent and each of the Banks harmless from and against liability for the payment
of all reasonable substantiated out-of-pocket costs and expenses arising in
connection with the preparation, execution, delivery, amendment, modification,
waiver and enforcement of, or the preservation of any rights under this First
Amendment, including, without limitation, the reasonable fees and expenses of
counsel for the Agent and other charges which may be payable in respect of, or
in respect of any modification of, the Credit Agreement and the other Loan
Documents. The provisions of this Section shall survive the termination of the
Credit Agreement and the repayment of the Loans.
Section 15. Descriptive Headings, etc. The descriptive headings of the
several Sections of this First Amendment are inserted for convenience only and
shall not be deemed to affect the meaning or construction of any of the
provisions hereof.
Section 16. Entire Agreement. This First Amendment and the documents
referred to herein represent the entire understanding of the parties hereto
regarding the subject matter hereof and supersede all prior and contemporaneous
oral and written agreements of the parties hereto with respect to the subject
matter hereof, including, without limitation, any commitment letters regarding
the transactions contemplated by this First Amendment.
Section 17. Counterparts. This First Amendment may be executed in any
number of counterparts and by different parties on separate counterparts and all
of such counterparts shall together constitute one and the same instrument.
Complete sets of counterparts shall be lodged with the Company and the Agent.
Section 18. References to Credit Agreement. As used in the Credit
Agreement (including all Exhibits thereto) and all other Loan Documents, on and
subsequent to the effective date hereof, the term "Agreement" shall mean the
Credit Agreement, as amended by this First Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be duly executed and delivered by their respective duly authorized offices as
of the date first above written.
NOTICE PURSUANT TO TEX. BUS. & COMM. CODE ss.26.02
THIS FIRST AMENDMENT AND ALL OTHER LOAN DOCUMENTS EXECUTED BY ANY OF
THE PARTIES BEFORE OR SUBSTANTIALLY CONTEMPORANEOUSLY WITH THE EXECUTION HEREOF
TOGETHER CONSTITUTE A WRITTEN CREDIT AGREEMENT AND REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
WHOLE FOODS MARKET, INC.
a Texas corporation
By:
Glenda Flanagan
Secretary
Address for Notices:
Whole Foods Market, Inc.
601 N. Lamar Blvd., Suite 300
Austin, Texas 78703-5413
Attention: Ms. Glenda Flanagan
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, individually
and as Agent
By:
Name:
Title:
Address for Notices:
Texas Commerce Bank National Association
700 Lavaca, 2nd Floor
Post Office Box 550
Austin, Texas 78789
Attention: Manager/Metropolitan Lending Group
With a copy to:
Texas Commerce Bank National Association
1111 Fannin, 9th Floor
Houston, Texas 77002
Attention: Manager/Loan Syndication Services
FIRST INTERSTATE BANK OF TEXAS, N.A.
By:
Name:
Title:
Address for Notices:
First Interstate Bank of Texas, N.A.
1000 Louisiana
Houston, Texas
Attention: Ms. Valerie Carlson
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
By:
Name:
Title:
Address for Notices:
First Union National Bank of North Carolina
301 South College Street, TW 10
Charlotte, North Carolina 28288
Attention: Mr. Al Spurgin
THE FIRST NATIONAL BANK OF BOSTON
By:
Name:
Title:
Address for Notices:
The First National Bank of Boston
115 Perimeter Center Place, N.E., Suite 500
Atlanta, Georgia 30346
Attention: Mr. Dennis Wilson
The undersigned Guarantors (a) acknowledge and consent to the execution
of the foregoing First Amendment, (b) confirm that the Guaranties previously
executed or joined in by each of the undersigned Guarantors apply and shall
continue to apply to all Indebtedness evidenced by or arising pursuant to the
Credit Agreement or any other Loan Documents, notwithstanding the execution and
delivery of this First Amendment by the Company, the Agent and each of the
Banks, and (c) acknowledge that without this consent and confirmation, the Banks
and the Agent would not agree to the modifications of the Credit Agreement which
are evidenced by the foregoing First Amendment.
WHOLE FOOD COMPANY, INC., a Louisiana corporation WHOLE FOODS MARKET CALIFORNIA,
INC., a California corporation WELLSPRING GROCERY, INC., a North Carolina
corporation BREAD & CIRCUS, INC., a Massachusetts corporation MRS. GOOCH'S
NATURAL FOOD MARKETS, INC., a California corporation Whole Foods Market BEVERAGE
CORP., a Texas corporation THE SOURDOUGH: A EUROPEAN BAKERY, INC., a Texas
corporation WHOLE FOODS MARKET MIDWEST, INC., a Delaware corporation WHOLE FOODS
MARKET SERVICES, INC., a Delaware corporation WHOLE FOODS MARKET SOUTHWEST
INVESTMENTS, INC., a Delaware corporation WHOLE FOODS MARKET SOUTHWEST I, INC.,
a Delaware corporation
By:
Glenda Flanagan
Secretary
WHOLE FOODS MARKET SOUTHWEST, L.P.,
a Texas limited partnership
By: Whole Foods Market Southwest I, Inc.,
a Delaware corporation
General Partner
By:
Glenda Flanagan
Secretary
Exhibit 10.14
WHOLE FOODS MARKET, INC.
601 N. Lamar
Suite 300
Austin, Texas 78703
7.29% Senior Notes due May 16, 2006
May 16, 1996
TO EACH OF THE PURCHASERS LISTED IN
THE ATTACHED SCHEDULE A:
Ladies and Gentlemen:
Whole Foods Market, Inc., a Texas corporation (as further
defined in Schedule B, the "Company"), agrees with you as follows:
. AUTHORIZATION OF NOTES.
The Company will authorize the issue and sale of $40,000,000
aggregate principal amount of its 7.29% Senior Notes due May 16, 2006 (the
"Notes", such term to include any such notes issued in substitution therefor
pursuant to Section 13 of this Agreement or the Other Agreements (as hereinafter
defined)). The Notes shall be substantially in the form set out in Exhibit 1,
with such changes therefrom, if any, as may be approved by you and the Company.
Certain capitalized terms used in this Agreement are defined in Schedule B;
references to a "Schedule" or an "Exhibit" are, unless otherwise specified, to a
Schedule or an Exhibit attached to this Agreement.
. SALE AND PURCHASE OF NOTES.
Subject to the terms and conditions of this Agreement, the
Company will issue and sell to you and you will purchase from the Company, at
the Closing provided for in Section 3, Notes in the principal amount specified
opposite your name in Schedule A at the purchase price of 100% of the principal
amount thereof. Contemporaneously with entering into this Agreement, the Company
is entering into separate Note Purchase Agreements (the "Other Agreements")
identical with this Agreement with each of the other purchasers named in
Schedule A (the "Other Pur chasers"), providing for the sale at such Closing to
each of the Other Purchasers of Notes in the principal amount specified opposite
its name in Schedule A. Your obligation hereunder and the obligations of the
Other Purchasers under the Other Agreements are several and not joint
obligations and you shall have no obligation under any Other Agreement and no
liability to any Person for the performance or non-performance by any Other
Purchaser thereunder.
. CLOSING.
The sale and purchase of the Notes to be purchased by you and
the Other Purchasers shall occur at the offices of Baker & Botts, L.L.P.,
Trammell Crow Center, 2001 Ross Avenue, Dallas, Texas 75201, at 10:00 a.m.,
Dallas time, at a closing (the "Closing") on May 16, 1996 or on such other
Business Day thereafter on or prior to May 16, 1996 as may be agreed upon by the
Company and you and the Other Purchasers. At the Closing the Company will
deliver to you the Notes to be purchased by you in the form of a single Note (or
such greater number of Notes in denominations of at least $100,000 as you may
request) dated the date of the Closing and registered in your name (or in the
name of your nominee), against delivery by you to the Company or its order of
immediately available funds in the amount of the purchase price therefor by wire
transfer of immediately available funds for the account of the Company to
account number 09917010802 at Texas Commerce Bank National Association, 700
Lavaca, Austin, Texas 78701, ABA number 113000609. If at the Closing the Company
shall fail to tender such Notes to you as provided above in this Section 3, or
any of the conditions specified in Section 4 shall not have been fulfilled to
your satisfaction, you shall, at your election, be relieved of all further
obligations under this Agreement, without thereby waiving any rights you may
have by reason of such failure or such nonfulfillment.
. CONDITIONS TO CLOSING.
Your obligation to purchase and pay for the Notes to be sold
to you at the Closing is subject to the fulfillment to your satisfaction, prior
to or at the Closing, of the following conditions:
.. Representations and Warranties.
The representations and warranties of the Company in this
Agreement and each Guarantor in the Guaranty shall be correct when made and at
the time of the Closing.
.. Performance; No Default.
The Company shall have performed and complied with all
agreements and conditions contained in this Agreement required to be performed
or complied with by it prior to or at the Closing and after giving effect to the
issue and sale of the Notes (and the application of the proceeds thereof as
contemplated by Schedule 5.14) no Default or Event of Default shall have
occurred and be continuing. Each Guarantor shall have performed and complied
with all agreements and conditions contained in the Guaranty to be performed or
complied with by it prior to or at the Closing. Neither the Company nor any
Subsidiary shall have entered into any transaction since the date of the
Memorandum that would have been prohibited by Sections 10.1, 10.3, 10.4, 10.5,
10.6, 10.7, 10.8, 10.10 or 10.11 hereof had such Sections applied since such
date.
.. Compliance Certificates.
() Officer's Certificate. The Company shall have delivered to you an
Officer's Certificate, dated the date of the Closing, certifying that the
conditions specified in Sections 4.1, 4.2 and 4.9 have been fulfilled.
() Secretary's Certificate. The Company and each Guarantor shall have
delivered to you a certificate of its Secretary or one of its Assistant
Secretaries certifying as to the resolutions attached thereto and other
corporate proceedings relating to the authorization, execution and delivery of
(i) the Notes and the Agreements and (ii) the Guaranty, respectively.
.. Opinions of Counsel.
You shall have received opinions in form and substance
satisfactory to you, dated the date of the Closing (a) from Crouch & Hallett,
L.L.P., counsel for the Company, covering the matters set forth in Exhibit
4.4(a) and covering such other matters incident to the transactions contemplated
hereby as you or your counsel may reasonably request (and the Company hereby
instructs its counsel to deliver such opinion to you) and (b) from Baker &
Botts, L.L.P., your special counsel in connection with such transactions,
substantially in the form set forth in Exhibit 4.4(b) and covering such other
matters incident to such transactions as you may reasonably request.
.. Purchase Permitted By Applicable Law, etc.
On the date of the Closing your purchase of Notes shall (i) be
permitted by the laws and regulations of each jurisdiction to which you are
subject, without recourse to provisions (such as Section 1405(a)(8) of the New
York Insurance Law) permitting limited investments by insurance companies
without restriction as to the character of the particular investment, (ii) not
violate any applicable law or regulation (including, without limitation,
Regulation G, T or X of the Board of Governors of the Federal Reserve System)
and (iii) not subject you to any tax, penalty or liability under or pursuant to
any applicable law or regulation, which law or regulation was not in effect on
the date hereof. If requested by you, you shall have received an Officer's
Certificate from the Company certifying as to such matters of fact as you may
reasonably specify to enable you to determine whether such purchase is so
permitted.
.. Sale of Other Notes.
Contemporaneously with the Closing the Company shall sell to
the Other Purchasers and the Other Purchasers shall purchase the Notes to be
purchased by them at the Closing as specified in Schedule A.
.. Payment of Special Counsel Fees.
Without limiting the provisions of Section 15.1, the Company
shall have paid on or before the Closing the fees, charges and disbursements of
your special counsel referred to in Section 4.4 to the extent reflected in a
statement of such counsel rendered to the Company at least one Business Day
prior to the Closing.
.. Private Placement Number.
A Private Placement number issued by Standard & Poor's CUSIP
Service Bureau (in cooperation with the Securities Valuation Office of the
National Association of Insurance Commissioners) shall have been obtained for
the Notes.
.. Changes in Corporate Structure.
Except as specified in Schedule 4.9, the Company shall not
have changed its jurisdiction of incorporation or been a party to any merger or
consolidation and shall not have succeeded to all or any substantial part of the
liabilities of any other entity, at any time following the date of the most
recent financial statements referred to in Schedule 5.5.
.. Guaranty and Contribution Agreement.
The Guarantors shall have delivered to you copies of the
Guaranty and the Contribution Agreement duly executed by each Guarantor and
dated the date hereof.
.. Proceedings and Documents.
All corporate and other proceedings in connection with the
transactions contemplated by this Agreement and all documents and instruments
incident to such transactions shall be satisfactory to you and your special
counsel, and you and your special counsel shall have received all such
counterpart originals or certified or other copies of such documents as you or
they may reasonably request.
.. Amendment of Credit Facility.
The existing Credit Facility under which Texas Commerce Bank
National Association serves as agent shall have been amended to permit the
transactions contemplated by this Agreement and the Other Agreements and to
permit the effective implementation of Section 10.6 and related provisions.
. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to you that:
.. Organization; Power and Authority.
The Company is a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation, and is
duly qualified as a foreign corporation and is in good standing in each
jurisdiction in which such qualification is required by law, other than those
jurisdictions as to which the failure to be so qualified or in good standing
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. The Company has the corporate power and authority to
own or hold under lease the properties it purports to own or hold under lease,
to transact the business it transacts and proposes to transact, to execute and
deliver this Agreement and the Other Agreements and the Notes and to perform the
provisions hereof and thereof.
.. Authorization, etc.
This Agreement and the Other Agreements and the Notes have
been duly authorized by all necessary corporate action on the part of the
Company, and this Agreement constitutes, and upon execution and delivery thereof
each Note will constitute, a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by (i) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (ii) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
The execution, delivery and performance by each Guarantor of the Guaranty and
the Contribution Agreement are within such Guarantor's corporate or partnership
powers and have been duly authorized by all necessary corporate or partnership
action.
.. Disclosure.
The Company, through its agent, Chase Securities Inc., has
delivered to you and each Other Purchaser a copy of a Confidential Information
Memorandum, dated March 1996 (the "Memorandum"), relating to the transactions
contemplated hereby. The Memorandum fairly describes, in all material respects,
the general nature of the business and principal properties of the Company and
its Subsidiaries. This Agreement, the Memorandum, the documents, certificates or
other writings delivered to you by or on behalf of the Company and the
Guarantors in connection with the transactions contemplated hereby and the
financial statements listed in Schedule 5.5, taken as a whole, do not contain
any untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading in light of the
circumstances under which they were made. Except as disclosed in the Memorandum
or as expressly described in Schedule 5.3, or in one of the documents,
certificates or other writings identified therein, or in the financial
statements listed in Schedule 5.5, since September 24, 1995, there has been no
change in the financial condition, operations, business, properties or prospects
of the Company or any Subsidiary except changes that individually or in the
aggregate could not reasonably be expected to have a Material Adverse Effect.
There is no fact known to the Company that could reasonably be expected to have
a Material Adverse Effect that has not been set forth herein or in the
Memorandum or in the other documents, certificates and other writings delivered
to you by or on behalf of the Company and the Guarantors specifically for use in
connection with the transactions contemplated hereby. The financial projections
contained in the Memorandum are reasonable based on assumptions contained
therein and the best information available to the Company.
.. Organization and Ownership of Shares of Subsidiaries; Affiliates.
(a) Schedule 5.4 contains (except as noted therein) complete
and correct lists (i) of the Company's Subsidiaries, showing, as to each
Subsidiary, the correct name thereof, the jurisdiction of its organization, and
the percentage of shares of each class of its Capital Stock owned by the Company
and each other Subsidiary, (ii) of the Company's Affiliates, other than
Subsidiaries, and (iii) of the Company's directors and senior officers.
(b) All of the outstanding shares of Capital Stock of each
Subsidiary shown in Schedule 5.4 as being owned by the Company and its
Subsidiaries have been validly issued, are fully paid and nonassessable and are
owned by the Company or another Subsidiary free and clear of any Lien (except as
otherwise disclosed in Schedule 5.4).
(c) Each Subsidiary identified in Schedule 5.4 is a
corporation or other legal entity duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, and is duly
qualified as a foreign corporation or other legal entity and is in good standing
in each jurisdiction in which such qualification is required by law, other than
those jurisdictions as to which the failure to be so qualified or in good
standing could not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect. Each such Subsidiary has the corporate or other
power and authority to own or hold under lease the properties it purports to own
or hold under lease and to transact the business it transacts and proposes to
transact.
(d) No Subsidiary is a party to, or otherwise subject to any
legal restriction or any agreement (other than this Agreement, the agreements
listed on Schedule 5.4 and customary limitations imposed by corporate or
partnership law statutes) restricting the ability of such Subsidiary to pay
dividends out of profits or make any other similar distributions of profits to
the Company or any of its Subsidiaries that owns outstanding shares of Capital
Stock of such Subsidiary.
.. Financial Statements.
The Company has delivered to each Purchaser copies of the
financial statements of the Company and its Subsidiaries listed on Schedule 5.5.
All of said financial statements (including in each case the related schedules
and notes) fairly present in all material respects the consolidated financial
position of the Company and its Subsidiaries as of the respective dates
specified in such Schedule and the consolidated results of their operations and
cash flows for the respective periods so specified and have been prepared in
accordance with GAAP consistently applied throughout the periods involved except
as set forth in the notes thereto (subject, in the case of any interim financial
statements, to normal year-end adjustments). Since September 24, 1995, there has
been no material adverse change in the consolidated financial condition or
results of operations or cash flows of the Company and its Subsidiaries.
.. Compliance with Laws, Other Instruments, etc.
The execution, delivery and performance by the Company of this
Agreement and the Notes and by each Guarantor of the Guaranty and the
Contribution Agreement will not (i) contra vene, result in any breach of, or
constitute a default under, or result in the creation of any Lien in respect of
any property of the Company or any Subsidiary under, any indenture, mortgage,
deed of trust, loan, purchase or credit agreement, lease, corporate charter or
by-laws, or any other agreement or instrument to which the Company or any
Subsidiary is bound or by which the Company or any Subsidiary or any of their
respective properties may be bound or affected, (ii) conflict with or result in
a breach of any of the terms, conditions or provisions of any order, judgment,
decree, or ruling of any court, arbitrator or Governmental Authority applicable
to the Company or any Subsidiary or (iii) violate any provision of any statute
or other rule or regulation of any Governmental Authority applicable to the
Company or any Subsidiary.
.. Governmental Authorizations, etc.
No consent, approval or authorization of, or registration,
filing or declaration with, any Governmental Authority is required in connection
with the execution, delivery or performance by the Company of this Agreement or
the Notes or by any Guarantor of the Guaranty and the Contribution Agreement.
.. Litigation; Observance of Agreements, Statutes and Orders.
(a) Except as disclosed in Schedule 5.8, there are no actions,
suits or proceedings pending or, to the knowledge of the Company, threatened
against or affecting the Company or any Subsidiary or any property of the
Company or any Subsidiary in any court or before any arbitrator of any kind or
before or by any Governmental Authority that, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect.
(b) Neither the Company nor any Subsidiary is in default under
(nor is there in existence any temporary or conditional waiver of any such
default relating to) any term of any agreement or instrument to which it is a
party or by which it is bound, or any order, judgment, decree or ruling of any
court, arbitrator or Governmental Authority or is in violation of any applicable
law, ordinance, rule or regulation (including without limitation Environmental
Laws) of any Governmental Authority, which default or violation, individually or
in the aggregate, could reasonably be expected to have a Material Adverse
Effect.
.. Taxes.
The Company and its Subsidiaries have filed all tax returns
that are required to have been filed in any jurisdiction, and have paid all
taxes shown to be due and payable on such returns and all other taxes and
assessments levied upon them or their properties, assets, income or franchises,
to the extent such taxes and assessments have become due and payable and before
they have become delinquent, except for any taxes and assessments (i) the amount
of which is not individually or in the aggregate Material or (ii) the amount,
applicability or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which the Company or a Subsidiary,
as the case may be, has established adequate reserves in accordance with GAAP.
The Company knows of no basis for any other tax or assessment that could
reasonably be expected to have a Material Adverse Effect. The charges, accruals
and reserves on the books of the Company and its Subsidiaries in respect of
Federal, state or other taxes for all fiscal periods are adequate in the
aggregate. The Federal income tax liabilities of the Company and its
Subsidiaries have been determined by the Internal Revenue Service and paid for
all fiscal years up to and including the fiscal year ended September 30, 1992.
.. Title to Property; Leases.
The Company and its Subsidiaries have good and sufficient
title to their respective properties that individually or in the aggregate are
Material, including all such properties reflected in the most recent audited
balance sheet referred to in Section 5.5 or purported to have been acquired by
the Company or any Subsidiary after said date (except as sold or otherwise
disposed of in the ordinary course of business), in each case free and clear of
Liens prohibited by this Agreement. All leases that individually or in the
aggregate are Material are valid and subsisting and are in full force and effect
in all material respects.
.. Licenses, Permits, etc.
Except as disclosed in Schedule 5.11,
(a) the Company and its Subsidiaries own or possess all
licenses, permits, franchises, authorizations, patents, copyrights,
service marks, trademarks and trade names, or rights thereto, that
individually or in the aggregate are Material, without known conflict
with the rights of others;
(b) to the best knowledge of the Company, no product of the
Company infringes any license, permit, franchise, authorization,
patent, copyright, service mark, trademark, trade name or other right
owned by any other Person in a manner which, individually or in the
aggregate, could reasonably be expected to result in a Material Adverse
Effect; and
(c) to the best knowledge of the Company, there is no Material
violation by any Person of any right of the Company or any of its
Subsidiaries with respect to any patent, copyright, service mark,
trademark, trade name or other right owned or used by the Company or
any of its Subsidiaries.
.. Compliance with ERISA.
() The Company and each ERISA Affiliate have operated and
administered each Plan in compliance with all applicable laws except for such
instances of noncompliance as have not resulted in and could not reasonably be
expected to result in a Material Adverse Effect. Neither the Company nor any
ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or
the penalty or excise tax provisions of the Code relating to employee benefit
plans (as defined in Section 3 of ERISA), and no event, transaction or condition
has occurred or exists that could reasonably be expected to result in the
incurrence of any such liability by the Company or any ERISA Affiliate, or in
the imposition of any Lien on any of the rights, properties or assets of the
Company or any ERISA Affiliate, in either case pursuant to Title I or IV of
ERISA or to such penalty or excise tax provisions or to Section 401(a)(29) or
412 of the Code, other than such liabilities or Liens as would not be
individually or in the aggregate Material.
() The present value of the aggregate benefit liabilities
under each of the Plans (other than Multiemployer Plans), determined as of the
end of such Plan's most recently ended plan year on the basis of the actuarial
assumptions specified for funding purposes in such Plan's most recent actuarial
valuation report, did not exceed the aggregate current value of the assets of
such Plan allocable to such benefit liabilities. The term "benefit liabilities"
has the meaning specified in sec tion 4001 of ERISA and the terms "current
value" and "present value" have the meaning specified in section 3 of ERISA.
() The Company and its ERISA Affiliates have not incurred
withdrawal liabilities (and are not subject to contingent withdrawal
liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer
Plans that individually or in the aggregate are Material.
() The expected postretirement benefit obligation (determined
as of the last day of the Company's most recently ended fiscal year in
accordance with Financial Accounting Standards Board Statement No. 106, without
regard to liabilities attributable to continuation coverage mandated by section
4980B of the Code) of the Company and its Subsidiaries is not Material.
() The execution and delivery of this Agreement and the
issuance and sale of the Notes hereunder will not involve any transaction that
is subject to the prohibitions of section 406 of ERISA or in connection with
which a tax could be imposed pursuant to section 4975(c)(1)(A)-(D) of the Code.
The representation by the Company in the first sentence of this Section 5.12(e)
is made in reliance upon and subject to the accuracy of your representation in
Section 6.2 as to the sources of the funds used to pay the purchase price of the
Notes to be purchased by you.
.. Private Offering by the Company.
Neither the Company nor anyone acting on its behalf has
offered the Notes or any similar securities for sale to, or solicited any offer
to buy any of the same from, or otherwise approached or negotiated in respect
thereof with, any person other than you, the Other Purchasers and not more than
20 other Institutional Investors, each of which has been offered the Notes at a
private sale for investment. Neither the Company nor anyone acting on its behalf
has taken, or will take, any action that would subject the issuance or sale of
the Notes to the registration requirements of Section 5 of the Securities Act.
.. Use of Proceeds; Margin Regulations.
The Company will apply the proceeds of the sale of the Notes
as set forth in Schedule 5.14. No part of the proceeds from the sale of the
Notes hereunder will be used, directly or indirectly, for the purpose of buying
or carrying any margin stock within the meaning of Regulation G of the Board of
Governors of the Federal Reserve System (12 CFR 207), or for the purpose of
buying or carrying or trading in any securities under such circumstances as to
involve the Company in a violation of Regulation X of said Board (12 CFR 224) or
to involve any broker or dealer in a violation of Regulation T of said Board (12
CFR 220). Margin stock does not constitute more than 5% of the value of the
consolidated assets of the Company and its Subsidiaries and the Company does not
have any present intention that margin stock will constitute more than 5% of the
value of such assets. As used in this Section, the terms "margin stock" and
"purpose of buying or carrying" shall have the meanings assigned to them in said
Regulation G.
.. Existing Indebtedness; Future Liens.
(a) Except as described therein, Schedule 5.15 sets forth a
complete and correct list of all outstanding Indebtedness of the Company and its
Subsidiaries as of April 7, 1996, since which date there has been no Material
change in the amounts, interest rates, sinking funds, installment payments or
maturities of the Indebtedness of the Company or its Subsidiaries. Neither the
Company nor any Subsidiary is in default and no waiver of default is currently
in effect, in the payment of any principal or interest on any Indebtedness of
the Company or such Subsidiary. Except in the case of Indebtedness that does not
exceed $100,000 in aggregate principal amount and that was created or incurred
by a Subsidiary prior to its becoming a Subsidiary and not in contemplation
thereof, no event or condition exists with respect to any Indebtedness of the
Company or any Subsidiary that would permit (or that with notice or the lapse of
time, or both, would permit) one or more Persons to cause such Indebtedness to
become due and payable before its stated maturity or before its regularly
scheduled dates of payment.
(b) Except as disclosed in Schedule 5.15, neither the Company
nor any Subsidiary has agreed or consented to cause or permit in the future
(upon the happening of a contingency or otherwise) any of its property, whether
now owned or hereafter acquired, to be subject to a Lien.
.. Foreign Assets Control Regulations, etc.
Neither the sale of the Notes by the Company hereunder nor its
use of the proceeds thereof will violate the Trading with the Enemy Act, as
amended, or any of the foreign assets control regulations of the United States
Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.
.. Status under Certain Statutes.
Neither the Company nor any Subsidiary is subject to
regulation under the Investment Company Act of 1940, as amended, the Public
Utility Holding Company Act of 1935, as amended, the Interstate Commerce Act, as
amended, or the Federal Power Act, as amended.
.. Environmental Matters.
Neither the Company nor any Subsidiary has knowledge of any
claim or has received any notice of any claim, and no proceeding has been
instituted raising any claim against the Company or any of its Subsidiaries or
any of their respective real properties now or formerly owned, leased or
operated by any of them or other assets, alleging any damage to the environment
or violation of any Environmental Laws, except, in each case, such as could not
reasonably be expected to result in a Material Adverse Effect. Except as
otherwise disclosed to you in writing,
(a) neither the Company nor any Subsidiary has
knowledge of any facts which would give rise to any claim,
public or private, of violation of Environmental Laws or
damage to the environment emanating from, occurring on or in
any way related to real properties now or formerly owned,
leased or operated by any of them or to other assets or
their use, except, in each case, such as could not
reasonably be expected to result in a Material Adverse
Effect;
(b) neither the Company nor any of its Subsidiaries has
stored any Hazardous Materials on real properties now or
formerly owned, leased or operated by any of them and has
not disposed of any Hazardous Materials in a manner contrary
to any Environmental Laws in each case in any manner that
could reasonably be expected to result in a Material Adverse
Effect; and
(c) all buildings on all real properties now owned,
leased or operated by the Company or any of its Subsidiaries
are in compliance with applicable Environmental Laws, except
where failure to comply could not reasonably be expected to
result in a Material Adverse Effect.
. REPRESENTATIONS OF THE PURCHASER.
.. Purchase for Investment.
You represent that you are purchasing the Notes for your own
account or for one or more separate accounts maintained by you or for the
account of one or more pension or trust funds and not with a view to the
distribution thereof, provided that the disposition of your or their property
shall at all times be within your or their control. You understand that the
Notes have not been registered under the Securities Act and may be resold only
if registered pursuant to the provisions of the Securities Act or if an
exemption from registration is available, except under circumstances where
neither such registration nor such an exemption is required by law, and that the
Company is not required to register the Notes.
.. Source of Funds.
You represent that at least one of the following statements is
an accurate representation as to each source of funds (a "Source") to be used by
you to pay the purchase price of the Notes to be purchased by you hereunder:
(a) if you are an insurance company, the Source does not
include assets allocated to any separate account maintained by you in
which any employee benefit plan (or its related trust) has any
interest, other than a separate account that is maintained solely in
connection with your fixed contractual obligations under which the
amounts payable, or credited, to such plan and to any participant or
beneficiary of such plan (including any annuitant) are not affected in
any manner by the investment performance of the separate account; or
(b) the Source is either (i) an insurance company pooled
separate account, within the meaning of Prohibited Transaction
Exemption ("PTE") 90-1 (issued January 29, 1990), or (ii) a bank
collective investment fund, within the meaning of the PTE 91-38 (issued
July 12, 1991) and, except as you have disclosed to the Company in
writing pursuant to this paragraph (b), no employee benefit plan or
group of plans maintained by the same employer or employee organization
beneficially owns more than 10% of all assets allocated to such pooled
separate account or collective investment fund; or
(c) the Source constitutes assets of an "investment fund"
(within the meaning of Part V of the QPAM Exemption) managed by a
"qualified professional asset manager" or "QPAM" (within the meaning of
Part V of the QPAM Exemption), no employee benefit plan's assets that
are included in such investment fund, when combined with the assets of
all other employee benefit plans established or maintained by the same
employer or by an affiliate (within the meaning of Section V(c)(1) of
the QPAM Exemption) of such employer or by the same employee
organization and managed by such QPAM, exceed 20% of the total client
assets managed by such QPAM, the conditions of Part I(c) and (g) of the
QPAM Exemption are satisfied, neither the QPAM nor a person controlling
or controlled by the QPAM (applying the definition of "control" in
Section V(e) of the QPAM Exemption) owns a 5% or more interest in the
Company and (i) the identity of such QPAM and (ii) the names of all
employee benefit plans whose assets are included in such investment
fund have been disclosed to the Company in writing pursuant to this
paragraph (c); or
(d) the Source is a governmental plan; or
(e) the Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee
benefit plans, each of which has been identified to the Company in
writing pursuant to this paragraph (e); or
(f) the Source does not include assets of any employee benefit
plan, other than a plan exempt from the coverage of ERISA.
As used in this Section 6.2, the terms "employee benefit plan", "governmental
plan", "party in interest" and "separate account" shall have the respective
meanings assigned to such terms in Section 3 of ERISA.
. INFORMATION AS TO COMPANY.
.. Financial and Business Information.
The Company shall deliver to each holder of Notes:
() Quarterly Statements -- within 45 days after the end of each
quarterly fiscal period in each fiscal year of the Company (other than
the last quarterly fiscal period of each such fiscal year), duplicate
copies of,
() a consolidated balance sheet of the Company and its
Subsidiaries as at the end of such quarter, and
() consolidated statements of income and cash flows of the
Company and its Subsidiaries, for such quarter and (in the case of the
second and third quarters) for the portion of the fiscal year ending
with such quarter,
setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal year, all in reasonable detail, prepared in
accordance with GAAP applicable to quarterly financial statements generally, and
certified by a Senior Financial Officer as fairly presenting, in all material
respects, the financial position of the companies being reported on and their
results of operations and cash flows, subject to changes resulting from year-end
adjustments, provided that delivery within the time period specified above of
copies of the Company's Quarterly Report on Form 10-Q prepared in compliance
with the requirements therefor and filed with the Securities and Exchange
Commission shall be deemed to satisfy the requirements of this Section 7.1(a) if
such Form contains the financial statements, either in condensed or complete
form, referred to in clauses (i) and (ii) above;
() Annual Statements -- within 90 days after the end of
each fiscal year of the Company, ------------------
duplicate copies of,
() a consolidated balance sheet of the Company and its
Subsidiaries, as at the end of such year, and
() consolidated statements of income, changes in
shareholders' equity and cash flows of the Company and its
Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail, prepared in accordance with GAAP, and
accompanied
(A) by an opinion thereon of independent certified
public accountants of recognized national standing, which
opinion shall state that such financial statements present
fairly, in all material respects, the financial position of
the companies being reported upon and their results of
operations and cash flows and have been prepared in conformity
with GAAP, and that the examination of such accountants in
connection with such financial statements has been made in
accordance with generally accepted auditing standards, and
that such audit provides a reasonable basis for such opinion
in the circumstances, and
(B) a certificate of such accountants stating that
they have reviewed this Agreement and stating further whether,
in making their audit, they have become aware of any condition
or event that then constitutes a Default or an Event of
Default, and, if they are aware that any such condition or
event then exists, specifying the nature and period of the
existence thereof (it being understood that such accountants
shall not be liable, directly or indirectly, for any failure
to obtain knowledge of any Default or Event of Default unless
such accountants should have obtained knowledge thereof in
making an audit in accordance with generally accepted auditing
standards or did not make such an audit),
provided that the delivery within the time period specified above of the
Company's Annual Report on Form 10-K for such fiscal year (together with the
Company's annual report to shareholders, if any, prepared pursuant to Rule 14a-3
under the Exchange Act) prepared in accordance with the requirements therefor
and filed with the Securities and Exchange Commission, together with the
accountant's certificate described in clause (B) above, shall be deemed to
satisfy the requirements of this Section 7.1(b) if such Form contains the
financial statements referred to in clauses (i) and (ii) above;
() SEC and Other Reports -- promptly upon their becoming
available, one copy of (i) each financial statement, report, notice or proxy
statement sent by the Company or any Subsidiary to public securities holders
generally, and (ii) each regular or periodic report, each registration statement
(without exhibits except as expressly requested by such holder), and each
prospectus and all amendments thereto filed by the Company or any Subsidiary
with the Securities and Exchange Commission and of all press releases and other
statements made available generally by the Company or any Subsidiary to the
public concerning developments that are Material;
() Notice of Default or Event of Default -- promptly, and in
any event within five days after a Responsible Officer becoming aware of the
existence of any Default or Event of Default or that any Person has given any
notice or taken any action with respect to a claimed default hereunder or that
any Person has given any notice or taken any action with respect to a claimed
default of the type referred to in Section 11(f), a written notice specifying
the nature and period of existence thereof and what action the Company is taking
or proposes to take with respect thereto;
() Notice of Material Litigation -- promptly, and in any event
within five days after a Responsible Officer becomes aware of any action, suit
or proceeding pending, threatened against or affecting the Company or any
Subsidiary or any property of the Company or any Subsidiary in any court or
before any arbitrator of any kind or before or by any Governmental Authority
that, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect, a written notice specifying the nature thereof and what
action the Company is taking or proposes to take with respect thereto;
() ERISA Matters -- promptly, and in any event within five days
after a Responsible Officer becoming aware of any of the following, a
written notice setting forth the nature thereof and the action, if
any, that the Company or an ERISA Affiliate proposes to take with
respect thereto:
() with respect to any Plan, any reportable event, as
defined in sec tion 4043(b) of ERISA and the regulations
thereunder, for which notice thereof has not been waived pursuant
to such regulations as in effect on the date hereof; or
() the taking by the PBGC of steps to institute, or the
threatening by the PBGC of the institution of, proceedings under
section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Plan, or the receipt by the
Company or any ERISA Affiliate of a notice from a Multiemployer
Plan that such action has been taken by the PBGC with respect to
such Multiemployer Plan; or
() any event, transaction or condition that could result in
the incurrence of any liability by the Company or any ERISA
Affiliate pursuant to Title I or IV of ERISA or the penalty or
excise tax provisions of the Code relating to employee benefit
plans, or in the imposition of any Lien on any of the rights,
properties or assets of the Company or any ERISA Affiliate
pursuant to Title I or IV of ERISA or such penalty or excise tax
provisions, if such liability or Lien, taken together with any
other such liabilities or Liens then existing, could reasonably
be expected to have a Material Adverse Effect;
() Notices from Governmental Authority -- promptly, and in any
event within 30 days of receipt thereof, copies of any notice to the Company or
any Subsidiary from any Federal or state Governmental Authority relating to any
order, ruling, statute or other law or regulation that could reasonably be
expected to have a Material Adverse Effect; and
(h) Requested Information -- with reasonable promptness, such
other data and information relating to the business, operations, affairs,
financial condition, assets or properties of the Company or any of its
Subsidiaries or relating to the ability of the Company to perform its
obligations hereunder and under the Notes as from time to time may be reasonably
requested by the holder of any Note.
.. Officer's Certificate.
Each set of financial statements delivered to a holder of
Notes pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied
by a certificate of a Senior Financial Officer setting forth:
() Covenant Compliance -- the information (including detailed
calculations) required in order to establish whether the Company was in
compliance with the requirements of Sections 10.3, 10.4, 10.6, 10.7, 10.8, 10.10
and 10.11 hereof, inclusive, during the quarterly or annual period covered by
the statements then being furnished (including with respect to each such
Section, where applicable, the calculations of the maximum or minimum amount,
ratio or percentage, as the case may be, permissible under the terms of such
Sections, and the calculation of the amount, ratio or percentage then in
existence); and
() Event of Default -- a statement that such officer has
reviewed the relevant terms hereof and has made, or caused to be made, under his
or her supervision, a review of the transactions and conditions of the Company
and its Subsidiaries from the beginning of the quarterly or annual period
covered by the statements then being furnished to the date of the certificate
and that such review shall not have disclosed the existence during such period
of any condition or event that constitutes a Default or an Event of Default or,
if any such condition or event existed or exists (including, without limitation,
any such event or condition resulting from the failure of the Company or any
Subsidiary to comply with any Environmental Law), specifying the nature and
period of existence thereof and what action the Company shall have taken or
proposes to take with respect thereto.
.. Inspection.
The Company shall permit the representatives of each holder of
Notes that is an Institutional Investor:
() No Default -- if no Default or Event of Default then
exists, at the expense of such holder and upon reasonable prior notice to the
Company, to visit the principal executive office of the Company, to discuss the
affairs, finances and accounts of the Company and its Subsidiaries with the
Company's officers, and (with the consent of the Company, which consent will not
be unreasonably withheld) its independent public accountants, and (with the
consent of the Company, which consent will not be unreasonably withheld) to
visit the other offices and properties of the Company and each Subsidiary, all
at such reasonable times and as often as may be reasonably requested in writing;
and
() Default -- if a Default or Event of Default then exists, at
the expense of the Company to visit and inspect any of the offices or properties
of the Company or any Subsidiary, to examine all their respective books of
account, records, reports and other papers, to make copies and extracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective officers and independent public accountants (and by this
provision the Company authorizes said accountants to discuss the affairs,
finances and accounts of the Company and its Subsidiaries), all at such times
and as often as may be requested.
. PREPAYMENT OF THE NOTES.
.. Required Prepayments.
On May 16, 2000 and on each May 16 thereafter to and including
May 16, 2005 the Company will prepay $5,714,285.71 principal amount (or such
lesser principal amount as shall then be outstanding) of the Notes at par and
without payment of the Make-Whole Amount or any premium, provided that upon any
partial prepayment of the Notes pursuant to Section 8.3 or any purchase of the
Notes permitted by Section 8.6 the principal amount of each required prepayment
of the Notes becoming due under this Section 8.1 on and after the date of such
prepayment or purchase shall be reduced in the same proportion as the aggregate
unpaid principal amount of the Notes is reduced as a result of such prepayment
or purchase and assuming compliance by the Company with the second sentence of
Section 8.7. The principal amount prepaid in the case of any partial prepayment
of the Notes pursuant to Section 8.2 shall be applied in inverse order to the
principal amounts to be prepaid under this Section 8.1 on and after the date of
such prepayment.
.. Optional Prepayments with Make-Whole Amount.
The Company may, at its option, upon notice as provided below,
prepay at any time all, or from time to time any part of, the Notes, in an
amount not less than 10% of the aggregate principal amount of the Notes then
outstanding in the case of a partial prepayment, at 100% of the principal amount
so prepaid, plus the Make-Whole Amount determined for the prepayment date with
respect to such principal amount. The Company will give each holder of Notes
written notice of each optional prepayment under this Section 8.2 not less than
15 days and not more than 60 days prior to the date fixed for such prepayment.
Each such notice shall specify such date, the aggregate principal amount of the
Notes to be prepaid on such date, the principal amount of each Note held by such
holder to be prepaid (determined in accordance with Section 8.4), and the
interest to be paid on the prepayment date with respect to such principal amount
being prepaid, and shall be accompanied by a certificate of a Senior Financial
Officer as to the estimated Make-Whole Amount due in connection with such
prepayment (calculated as if the date of such notice were the date of the
prepayment), setting forth the details of such computation. Two Business Days
prior to such prepayment, the Company shall deliver to each holder of Notes a
certificate of a Senior Financial Officer specifying the calculation of such
Make-Whole Amount as of the specified prepayment date.
.. Offer to Prepay Notes in the Event of a Debt Prepayment Application.
(a) Notice of Debt Prepayment Application. In the event of a Debt
Prepayment Application pursuant to Section 10.6, the Company shall offer to
prepay, in accordance with and subject to the definition of Debt Prepayment
Application, the Ratable Portion of each Note held by each holder on the date
specified in such offer, which date, whether or not extended pursuant to the
second sentence of Section 8.3(b), shall occur prior to the expiration of the
six-month period specified in Section 10.6 (as such date may be so extended, the
"Proposed Prepayment Date"). The Proposed Prepayment Date shall be not less than
30 days and not more than 60 days after the date of such offer (if the Proposed
Prepayment Date shall not be specified in such offer, the Proposed Prepayment
Date shall be the forty-fifth day after the date of such offer).
(b) Acceptance; Rejection. A holder of Notes may accept an offer to
prepay made pursuant to Section 8.3(a) by causing an irrevocable notice of such
acceptance substantially in the form of Exhibit 8.3(b) hereto to be delivered to
the Company, at the address provided by the Company pursuant to Section 18 (if
so provided), during the period commencing with the date of such offer by the
Company and ending 10 days prior to the Proposed Prepayment Date. If the offer
to prepay is accepted by any holder of Notes, 10 days prior to the Proposed
Prepayment Date the Company shall give written notice to each holder of Notes,
in which notice the Company shall (i) state the aggregate outstanding principal
amount of Notes in respect to which the offer has been accepted; and (ii) renew
the offer and extend by 10 days the period for acceptance by stating that any
holder of Notes may yet accept the offer, whether theretofore rejected or not,
by causing an irrevocable notice of such acceptance substantially in the form of
Exhibit 8.3(b) hereto to be delivered to the Company, at the address provided by
the Company pursuant to Section 18 (if so provided), at least three Business
Days prior to the Proposed Prepayment Date. Two Business Days prior to the
Proposed Prepayment Date, the Company shall deliver to each holder of Notes a
certificate of a Senior Financial Officer specifying the principal amount of
each Note that is to be prepaid (determined in accordance with the definition of
Ratable Portion) on the Proposed Prepayment Date and the interest due thereon
accrued to the Proposed Prepayment Date. A failure by any holder of Notes to
respond to an offer to prepay made pursuant to this Section 8.3 shall be deemed
to constitute a rejection of such offer by such holder.
(c) Prepayment. Prepayment of the Notes to be prepaid pursuant to this
Section 8.3 shall be at 100% of the principal amount of such Notes, together
with interest on such Notes accrued to the date of prepayment. The prepayment
shall be made on the Proposed Prepayment Date.
(d) Officer's Certificate. Each offer to prepay the Notes pursuant to
Section 8.3(a) or Section 8.3(b) shall be accompanied by an Officer's
Certificate of the Company, dated the date of such offer and specifying: (i) the
Proposed Prepayment Date; (ii) that such offer is made pursuant to Section
8.3(a) or Section 8.3(b), as the case may be; (iii) the aggregate principal
amount of all Notes, and the principal amount of each Note, offered to be
prepaid; (iv) the interest that would be due on each Note offered to prepaid,
accrued to the Proposed Prepayment Date; (v) that the conditions of this Section
8.3 have been fulfilled; and (vi) in reasonable detail, the respective natures,
dates and Gross Proceeds Amounts and Net Proceeds Amounts of the Asset Sales
giving rise to such offer of prepayment.
.. Allocation of Partial Prepayments.
In the case of each partial prepayment of the Notes, the
principal amount of the Notes to be prepaid shall be allocated among all of the
Notes at the time outstanding and then to be prepaid in proportion, as nearly as
practicable, to the respective unpaid principal amounts thereof not theretofore
called for prepayment.
.. Maturity; Surrender, etc.
In the case of each prepayment of Notes pursuant to this
Section 8, the principal amount of each Note to be prepaid shall mature and
become due and payable on the date fixed for such prepayment, together with
interest on such principal amount accrued to such date and the applicable
Make-Whole Amount, if any. From and after such date, unless the Company shall
fail to pay such principal amount when so due and payable, together with the
interest and Make-Whole Amount, if any, as aforesaid, interest on such principal
amount shall cease to accrue. Any Note paid or prepaid in full shall be
surrendered to the Company and canceled and shall not be reissued, and no Note
shall be issued in lieu of any prepaid principal amount of any Note.
.. Right to Put.
(a) Granting of Put. The Company hereby gives and grants to
the holder of each Note the option, right and privilege (such option, right and
privilege herein collectively referred to as the "Right to Put") to require the
Company, upon or after the occurrence of any Designated Event, to purchase from
such holder all Notes held by such holder on the terms and conditions
hereinafter set forth, and the Company agrees so to purchase from such holder,
for an amount equal to the aggregate outstanding principal amount of such Notes
and the accrued and unpaid interest thereon.
(b) Exercise of Put. Within 10 Business Days after any
Responsible Officer of the Company has knowledge of the occurrence of any
Designated Event, the Company shall give the holder of each Note written notice
thereof describing such Designated Event, and the facts and circumstances
surrounding the occurrence thereof, in reasonable detail. At any time prior to
60 days after any holder shall receive such notice, such holder may exercise its
Right to Put by delivering to the Company, at the address provided by the
Company pursuant to Section 18 (if so provided), an irrevocable notice of sale
substantially in the form of Exhibit 8.6(b) hereto (a "Notice of Sale");
provided, that the Company shall give the holder of each Note prompt written
notice of such Notice of Sale, whereupon the holder of each Note shall have
until the later of (x) the expiration of such sixty-day period or (y) 10 days
after its receipt of such notice from the Company to exercise its Right to Put
by delivering to the Company a Notice of Sale. If the holder of a Note shall
deliver a Notice of Sale pursuant to any provision of the preceding sentence,
the Company shall purchase the Notes then held by such holder on the date
specified in such notice (which shall be not less than 20 days after delivery of
such Notice of Sale), and such holder shall sell such Notes to the Company
without recourse, representation or warranty (other than as to such holder's
full right, title and interest to such Notes free of any adverse claim thereto),
at a price, payable in immediately available funds by wire transfer to the
account specified pursuant to Schedule A hereto or to such other account as may
be specified in such notice, equal to the aggregate outstanding principal amount
of the Notes of such holder and the accrued and unpaid interest thereon;
provided, that if more than one holder shall give a Notice of Sale in compliance
with the foregoing provisions of this Section 8.6(b), the Company shall purchase
the Notes held by all such holders on the same day, which shall be the latest
day specified in all such Notices of Sale but in no event more than 90 days
after the date of the Company's sending of notice of the occurrence of the
Designated Event giving rise thereto, and shall advise the holder of each Note
of such date and the aggregate principal amount of Notes to be purchased by the
Company. Each holder shall have the respective rights specified in this Section
8.6 with respect to each Designated Event that shall occur, regardless of any
act or omission to act with respect to any previous Designated Event.
.. Purchase of Notes.
The Company will not and will not permit any Affiliate to
purchase, redeem, prepay or otherwise acquire, directly or indirectly, any of
the outstanding Notes except upon the payment or prepayment of the Notes in
accordance with the terms of this Agreement and the Notes. The Company will
promptly cancel all Notes acquired by it or any Affiliate pursuant to any
payment, prepayment or purchase of Notes pursuant to any provision of this
Agreement and no Notes may be issued in substitution or exchange for any such
Notes.
.. Make-Whole Amount.
The term "Make-Whole Amount" means, with respect to any Note,
an amount equal to the excess, if any, of the Discounted Value of the Remaining
Scheduled Payments with respect to the Called Principal of such Note over the
amount of such Called Principal, provided that the Make-Whole Amount may in no
event be less than zero. For the purposes of determining the Make-Whole Amount,
the following terms have the following meanings:
"Called Principal" means, with respect to any Note, the
principal of such Note that is to be prepaid pursuant to Section 8.2 or
has become or is declared to be immediately due and payable pursuant to
Section 12.1, as the context requires.
"Discounted Value" means, with respect to the Called Principal
of any Note, the amount obtained by discounting all Remaining Scheduled
Payments with respect to such Called Principal from their respective
scheduled due dates to the Settlement Date with respect to such Called
Principal, in accordance with accepted financial practice and at a
discount factor (applied on the same periodic basis as that on which
interest on the Notes is payable) equal to the Reinvestment Yield with
respect to such Called Principal.
"Reinvestment Yield" means, with respect to the Called
Principal of any Note, 0.50% over the yield to maturity implied by (i)
the yields reported, as of 10:00 A.M. (New York City time) on the
second Business Day preceding the Settlement Date with respect to such
Called Principal, on the display designated as "Page 500" on the
Telerate Access Service (or such other display as may replace Page 500
on Telerate Access Service) for actively traded U.S. Treasury
securities having a maturity equal to the Remaining Average Life of
such Called Principal as of such Settlement Date, or (ii) if such
yields are not reported as of such time or available through
interpolation as described below as of such time, the Treasury Constant
Maturity Series Yields reported, for the latest day for which such
yields have been so reported as of the second Business Day preceding
the Settlement Date with respect to such Called Principal, in Federal
Reserve Statistical Release H.15 (519) (or any comparable successor
publication) for actively traded U.S. Treasury securities having a
constant maturity equal to the Remaining Average Life of such Called
Principal as of such Settlement Date. Such implied yield in clause (i)
or clause (ii) will be determined, (a) if necessary, by (x) converting
U.S. Treasury bill quotations to bond-equivalent yields in accordance
with accepted financial practice and (y) interpolating linearly between
(1) the actively traded U.S. Treasury security with the maturity
closest to and greater than the Remaining Average Life and (2) the
actively traded U.S. Treasury security with the maturity closest to and
less than the Remaining Average Life and (b) by converting all such
implied yields to a quarterly payment basis in accordance with accepted
financial practice.
"Remaining Average Life" means, with respect to any Called
Principal, the number of years (calculated to the nearest one-twelfth
year) obtained by dividing (i) such Called Principal into (ii) the sum
of the products obtained by multiplying (a) the principal component of
each Remaining Scheduled Payment with respect to such Called Principal
by (b) the number of years (calculated to the nearest one-twelfth year)
that will elapse between the Settlement Date with respect to such
Called Principal and the scheduled due date of such Remaining Scheduled
Payment.
"Remaining Scheduled Payments" means, with respect to the
Called Principal of any Note, all payments of such Called Principal and
interest thereon that would be due after the Settlement Date with
respect to such Called Principal if no payment of such Called Principal
were made prior to its scheduled due date, provided that if such
Settlement Date is not a date on which interest payments are due to be
made under the terms of the Notes, then the amount of the next
succeeding scheduled interest payment will be reduced by the amount of
interest accrued to such Settlement Date and required to be paid on
such Settlement Date pursuant to Section 8.2 or 12.1.
"Settlement Date" means, with respect to the Called Principal
of any Note, the date on which such Called Principal is to be prepaid
pursuant to Section 8.2 or has become or is declared to be immediately
due and payable pursuant to Section 12.1, as the context requires.
. AFFIRMATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding:
.. Compliance with Law.
The Company will and will cause each of its Subsidiaries to
comply with all laws, ordinances or governmental rules or regulations to which
each of them is subject, including, without limitation, Environmental Laws, and
will obtain and maintain in effect all licenses, certificates, permits,
franchises and other governmental authorizations necessary to the ownership of
their respective properties or to the conduct of their respective businesses, in
each case to the extent necessary to ensure that non-compliance with such laws,
ordinances or governmental rules or regulations or failures to obtain or
maintain in effect such licenses, certificates, permits, franchises and other
governmental authorizations could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
.. Insurance.
The Company will and will cause each of its Subsidiaries to
maintain, with financially sound and reputable insurers, insurance with respect
to their respective properties and businesses against such casualties and
contingencies, of such types, on such terms and in such amounts (including
deductibles, co-insurance and self-insurance, if adequate reserves are
maintained with respect thereto) as is customary in the case of entities of
established reputations engaged in the same or a similar business and similarly
situated.
.. Maintenance of Properties.
The Company will and will cause each of its Subsidiaries to
maintain and keep, or cause to be maintained and kept, their respective
properties in good repair, working order and condition (other than ordinary wear
and tear), so that the business carried on in connection therewith may be
properly conducted at all times, provided that this Section shall not prevent
the Company or any Subsidiary from discontinuing the operation and the
maintenance of any of its properties if such discontinuance is desirable in the
conduct of its business and the Company has concluded that such discontinuance
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
.. Payment of Taxes and Claims.
The Company will and will cause each of its Subsidiaries to
file all tax returns required to be filed in any jurisdiction and to pay and
discharge all taxes shown to be due and payable on such returns and all other
taxes, assessments, governmental charges, or levies imposed on them or any of
their properties, assets, income or franchises, to the extent such taxes and
assessments have become due and payable and before they have become delinquent
and all claims for which sums have become due and payable that have or might
become a Lien on properties or assets of the Company or any Subsidiary, provided
that neither the Company nor any Subsidiary need pay any such tax or assessment
or claims if (i) the amount, applicability or validity thereof is contested by
the Company or such Subsidiary on a timely basis in good faith and in
appropriate proceedings, and the Company or a Subsidiary has established
adequate reserves therefor in accordance with GAAP on the books of the Company
or such Subsidiary or (ii) the nonpayment of all such claims and expenses in the
aggregate could not reasonably be expected to have a Material Adverse Effect.
The Company will and will cause each of its Subsidiaries to
pay all claims and expenses for labor and materials, provided that neither the
Company nor any Subsidiary need pay any such claims and expenses if (i) the
amount or validity thereof is contested by the Company or such Subsidiary on a
timely basis in good faith and in appropriate proceedings, and the Company or a
Subsidiary has established adequate reserves therefor in accordance with GAAP on
the books of the Company or such Subsidiary or (ii) the nonpayment of all such
claims and expenses in the aggregate could not reasonably be expected to have a
Material Adverse Effect.
.. Corporate Existence, etc.
Subject to Section 10.2, the Company will at all times
preserve and keep in full force and effect its corporate existence. Subject to
Section 10.6, the Company will at all times preserve and keep in full force and
effect the corporate existence of each of its Subsidiaries (unless merged into
the Company or a Subsidiary) and all rights and franchises of the Company and
its Subsidiaries unless, in the good faith judgment of the Company, the
termination of or failure to preserve and keep in full force and effect such
corporate existence (in the case of a Subsidiary but not the Company), right or
franchise could not, individually or in the aggregate, have a Material Adverse
Effect.
.. ERISA Compliance.
The Company will, and will cause each ERISA Affiliate to, at
all times:
(i) with respect to each Plan, make timely payments of
contributions required to meet the minimum funding standard set forth in ERISA
or the Code with respect thereto and, with respect to any Multiemployer Plan,
make timely payment of contributions required to be paid thereto as provided by
Section 515 of ERISA, and
(ii) comply with all other provisions of ERISA,
except for such failures to make contributions and failures to comply as would
not have a Material Adverse Effect.
.. Covenant to Secure Notes Equally.
If the Company or any Subsidiary shall create or assume any
Lien upon any of its property or assets, whether now owned or hereafter
acquired, other than Liens permitted by Section 10.3 (unless prior written
consent to the creation and assumption thereof shall have been obtained pursuant
to this Agreement), the Company will make or cause to be made effective
provision whereby the Notes will be secured by such Lien equally and ratably
with any and all other Indebtedness so long as such Indebtedness shall be so
secured pursuant to such agreements and instruments as shall be approved by the
Required Holder(s), and the Company will cause to be delivered to the holder of
each Note an opinion of independent counsel to the effect that such agreements
and instruments are enforceable in accordance with their terms.
.. Covenant to Provide Additional Guarantees.
If the Company or a Subsidiary creates or acquires a new
Subsidiary, the Company will promptly cause such new Subsidiary to execute a
Joinder Agreement.
. NEGATIVE COVENANTS.
The Company covenants that so long as any of the Notes are
outstanding:
.. Transactions with Affiliates.
The Company will not and will not permit any Subsidiary to
enter into directly or indirectly any transaction or Material group of related
transactions (including without limitation the purchase, lease, sale or exchange
of properties of any kind or the rendering of any service) with any Affiliate
(other than the Company or another Subsidiary), except in the ordinary course
and pursuant to the reasonable requirements of the Company's or such
Subsidiary's business and upon fair and reasonable terms no less favorable to
the Company or such Subsidiary than would be obtainable in a comparable
arm's-length transaction with a Person not an Affiliate.
.. Merger, Consolidation, etc.
The Company will not consolidate with or merge with any other
Person or convey, transfer or lease substantially all of its assets in a single
transaction or series of transactions to any Person unless:
() the successor formed by such consolidation or the survivor of
such merger or the Person that acquires by conveyance, transfer or
lease substantially all of the assets of the Company as an entirety,
as the case may be, shall be a solvent entity organized and existing
under the laws of the United States or any State thereof (including
the District of Columbia), and, if the Company is not such entity, (i)
such entity shall have executed and delivered to each holder of any
Notes its assumption of the due and punctual performance and
observance of each covenant and condition of this Agreement, the Other
Agreements and the Notes and (ii) shall have caused to be delivered to
each holder of any Notes an opinion of independent counsel reasonably
satisfactory to the Required Holder(s) to the effect that all
agreements or instruments effecting such assumption are enforceable in
accordance with their terms and comply with the terms hereof;
() immediately after giving effect to such transaction, no
Default or Event of De fault shall have occurred and be continuing;
and
() immediately after giving effect to such transaction, the
successor formed by such consolidation or the survivor of such merger
or the Person that acquired by conveyance, transfer or lease all or
substantially all of the assets of the Company as an entirety, as the
case may be, would be able to incur at least $1 of additional
Consolidated Funded Indebtedness under Sections 10.3(d) and 10.8.
No such conveyance, transfer or lease of all or substantially all of the assets
of the Company shall have the effect of releasing the Company or any successor
entity that shall theretofore have become such in the manner prescribed in this
Section 10.2 from its liability under this Agreement or the Notes.
.. Liens.
The Company will not and will not permit any Subsidiary to
directly or indirectly create, incur, assume or permit to exist (upon the
happening of a contingency or otherwise) any Lien on or with respect to any
property or asset (including, without limitation, any document or instrument in
respect of goods or accounts receivable) of the Company or any such Subsidiary,
whether now owned or held or hereafter acquired, or any income or profits
therefrom or assign or otherwise convey any right to receive income or profits,
except:
(a) Liens existing on the date of this Agreement and securing the
Indebtedness of the Company and its Subsidiaries referred to in
Schedule 5.15;
(b) Liens incidental to the conduct of business or the ownership
of properties of the Company and its Subsidiaries (including Liens in
connection with worker's compensation, unemployment insurance and
other like laws, warehousemen's and attorney's liens and statutory
landlord's liens) and Liens to secure the performance of bids, tenders
or trade contracts, or to secure statutory obligations, property taxes
and assessments or governmental charges, surety or appeal bonds or
other Liens of like general nature which are incurred in the ordinary
course of business and not in connection with the borrowing of money
and which do not in any event materially impair the value or use of
the property encumbered thereby in the operation of the business of
the Company and its Subsidiaries; provided in each case, that the
obligation secured is not overdue or, if overdue, is being contested
in good faith by appropriate actions or proceedings;
(c) any Lien created to secure all or any part of the purchase
price, or to secure Indebtedness incurred or assumed to pay all or any
part of the purchase price, of tangible property acquired by the
Company or a Subsidiary after the date of the Closing, provided that
(i) any such Lien shall extend solely to the item or
items of such property so acquired and, if required by the
terms of the instrument originally creating such Lien, other
property which is an improvement to or is acquired for
specific use in connection with such acquired property or
which is real property being improved by such acquired
property,
(ii) the principal amount of the Indebtedness secured
by any such Lien (A) shall at no time exceed the cost to the
Company or such Subsidiary of the property so acquired and (B)
at the time of the creation of such Lien shall not exceed the
Fair Market Value (as determined in good faith by the board of
directors of the Company) of such property at the time of such
acquisition,
(iii) the aggregate principal amount of all
Indebtedness referred to in clause (ii) above at no time shall
exceed 10% of Consolidated Net Worth, and
(iv) any such Lien shall be created contemporaneously
with, or within ninety (90) days after, the acquisition of
such property; and
(d) Liens, other than those described in the foregoing clauses
(a) - (c), securing Indebtedness of the Company or any Subsidiary, provided that
the sum, without duplication, of all such secured Indebtedness and all
Indebtedness subject to Section 10.8 does not exceed at any time 10% of
Consolidated Net Worth.
.. Fixed Charges Coverage Ratio.
The Company will not at any time permit the Fixed Charges
Coverage Ratio to be less than 1.50 to 1.
.. Line of Business.
The Company will not and will not permit any Subsidiary to
engage to any Material extent in any business other than the operation of
natural foods supermarkets and the related distribution and wholesale of natural
foods products.
.. Sale of Assets.
Except as permitted under Section 10.2, the Company will not
and will not permit any Subsidiary to make any Asset Sale (a) if a Default or an
Event of Default exists or would exist immediately after giving effect thereto
or (b) if the Gross Proceeds Amount from such Asset Sale plus the Gross Proceeds
Amounts from all other Asset Sales during the then current fiscal year would
exceed 10% of Consolidated Net Worth determined as of the end of the preceding
fiscal year. If all or any portion of the Net Proceeds Amount of any Asset Sale
is applied to one or more Debt Prepayment Applications or Property Reinvestment
Applications within six months after such Asset Sale, then solely for purposes
of determining compliance with clause (b) of the preceding sentence as of any
date, the portion of the Gross Proceeds Amount of such Asset Sale that bears the
same proportionate relationship to the entire Gross Proceeds Amount thereof as
the portion of the Net Proceeds Amount of such Asset Sale so applied bears to
the entire Net Proceeds Amount thereof shall not be taken into account. In the
event of an Asset Sale in the form of a sale of all the Capital Stock of a
Subsidiary or a merger of a Subsidiary in which the survivor is not the Company
or a Subsidiary, the Subsidiary shall be released from its obligations under the
Guaranty and the Contribution Agreement provided that (x) no Default or Event of
Default then exists and all guaranties of such Guarantor under any Credit
Facility are simultaneously released and (y) the Company shall have delivered to
the holder of each Note an Officer's Certificate to both such effects.
.. Limitation on Indebtedness.
The Company will not at any time permit Consolidated Funded
Indebtedness to exceed 50% of Consolidated Total Capitalization.
.. Limitation on Subsidiary Indebtedness.
The Company will not at any time permit the amount of Funded
Indebtedness of its Subsidiaries (excluding (i) Funded Indebtedness outstanding
at the date of the Closing and set forth on Schedule 5.15 hereto, (ii) Funded
Indebtedness of a Subsidiary owed to the Company or a Wholly-Owned Subsidiary,
and (iii) Funded Indebtedness evidenced by the Guaranty and by guaranties of the
Funded Indebtedness of the Company under Credit Facilities) plus, without
duplication, the amount of Indebtedness secured by Liens permitted by clause (d)
of Section 10.3 to exceed 10% of Consolidated Net Worth.
The Company agrees that if, for any reason whatsoever, any
Subsidiary now or hereafter owes any Indebtedness, directly or indirectly, to
the Company, all such Indebtedness, together with all interest thereon and fees
and other charges in connection therewith, and all Liens securing any such
Indebtedness, shall at all times be second, subordinate and inferior in right of
payment, in lien priority and in all other respects to the obligations of such
Subsidiary in respect of the Guaranty, the fulfillment of such Subsidiary's
obligations thereunder or under this Agreement and the Other Agreements, and the
Liens, if any, from time to time securing the Notes and the other obligations
under this Agreement and the Other Agreements.
10.9. Limitation on Certain Restrictive Agreements.
The Company will not and will not permit any Subsidiary to
enter into or, except in the case of contractual obligations (but not renewals,
extensions, modifications or replacements thereof) of a Subsidiary that are
entered into prior to its becoming a Subsidiary and not in contemplation
thereof, suffer to exist any contractual obligation, other than this Agreement
and the Other Agreements, which in any way restricts the ability of any
Subsidiary to (i) make any Distributions or other payments (including, without
limitation, (a) repayments of loans and advances and (b) all payments described
in the parenthetical phrases in the definition of "Distribution" in Schedule B
hereto) to the Company or to the Subsidiary or Subsidiaries that own the Capital
Stock of such Subsidiary, (ii) transfer any of its property or assets to the
Company or to such Subsidiary or Subsidiaries or (iii) guarantee the obligations
of the Company arising under this Agreement.
10.10. Restricted Payments.
The Company will not and will not permit any Subsidiary to
declare or make, or incur any liability to declare or make, any Restricted
Payment unless immediately after giving effect to such action:
(a) the aggregate amount of Restricted Payments of the Company
and its Subsidiaries declared or made during the period commencing on
January 15, 1996, and ending on the date such Restricted Payment is
declared or made, inclusive, would not exceed the sum of
(i) $10,000,000; plus
(ii) 50% (or minus 100% in case of a deficit) of aggregate
Consolidated Net Income for the period commencing January 15,
1996 and ending on the last day of the fiscal quarter immediately
preceding such Restricted Payment; plus
(iii) the aggregate amount of Net Proceeds of Common Stock
for such period; (b) no Default or Event of Default shall have
occurred and be continuing; and
(c) the Company would be able to incur at least $1 of
additional Consolidated Funded Indebtedness under Sections 10.3(d) and
10.8.
10.11. Restricted Investments.
The Company will not and will not permit any Subsidiary to
make or incur any liability to make any Restricted Investment unless immediately
after giving effect to such action the aggregate amount of all Restricted
Investments of the Company and its Subsidiaries would not exceed 10% of
Consolidated Net Worth.
. EVENTS OF DEFAULT.
An "Event of Default" shall exist if any of the following
conditions or events shall occur and be continuing:
() the Company defaults in the payment of any principal or
Make-Whole Amount, if any, on any Note when the same becomes due
and payable, whether at maturity or at a date fixed for
prepayment or by declaration or as a result of the exercise of a
Right to Put or otherwise; or
() the Company defaults in the payment of any interest on
any Note for more than five Business Days after the same becomes
due and payable; or
() the Company defaults in the performance of or compliance
with any term contained in Sections 10.2 through 10.4 and
Sections 10.6 through 10.11; or
() the Company defaults in the performance of or compliance
with any term contained herein (other than those referred to in
paragraphs (a), (b) and (c) of this Section 11) and such default
is not remedied within 30 days after the earlier of (i) a
Responsible Officer obtaining actual knowledge of such default
and (ii) the Company receiving written notice of such default
from any holder of a Note (any such written notice to be
identified as a "notice of default" and to refer specifically to
this paragraph (d) of Section 11); or
() any representation or warranty made in writing by or on
behalf of the Company or any Guarantor or by any officer of the
Company or any Guarantor in this Agreement or in any writing
furnished in connection with the transactions contemplated
hereby, including, without limitation, the Guaranty, proves to
have been false or incorrect in any material respect on the date
as of which made; or () (i) the Company or any Subsidiary is in
default (as principal or as guarantor or other surety) in the
payment of any principal of or premium or make-whole amount or
interest on any Indebtedness that is outstanding in an aggregate
principal amount of at least $1,000,000 beyond any period of
grace provided with respect thereto, or (ii) the Company or any
Subsidiary is in default in the performance of or compliance with
any term of any evidence of any Indebtedness in an aggregate
outstanding principal amount of at least $1,000,000 or of any
mortgage, indenture or other agreement relating thereto or any
other condition exists, and as a consequence of such default or
condition such Indebtedness has become, or has been declared (or
one or more Persons are entitled to declare such Indebtedness to
be), due and payable before its stated maturity or before its
regularly scheduled dates of payment, or (iii) as a consequence
of the occurrence or continuation of any event or condition
(other than the passage of time or the right of the holder of
Indebtedness to convert such Indebtedness into equity interests),
(x) the Company or any Subsidiary has become obligated to
purchase or repay Indebtedness before its regular maturity or
before its regularly scheduled dates of payment in an aggregate
outstanding principal amount of at least $1,000,000, or (y) one
or more Persons have the right to require the Company or any
Subsidiary so to purchase or repay such Indebtedness; or
() the Company or any Subsidiary (i) is generally not
paying, or admits in writing its inability to pay, its debts as
they become due, (ii) files, or consents by answer or otherwise
to the filing against it of, a petition for relief or
reorganization or arrangement or any other petition in
bankruptcy, for liquidation or to take advantage of any
bankruptcy, insolvency, reorganization, moratorium or other
similar law of any jurisdiction, (iii) makes an assignment for
the benefit of its creditors, (iv) consents to the appointment of
a custodian, receiver, trustee or other officer with similar
powers with respect to it or with respect to any substantial part
of its property, (v) is adjudicated as insolvent or to be
liquidated, or (vi) takes corporate action for the purpose of any
of the foregoing; or
() a court or governmental authority of competent
jurisdiction enters an order appointing, without consent by the
Company or any of its Subsidiaries, a custodian, receiver,
trustee or other officer with similar powers with respect to it
or with respect to any substantial part of its property, or
constituting an order for relief or approving a petition for
relief or reorganization or any other petition in bankruptcy or
for liquidation or to take advantage of any bankruptcy or
insolvency law of any jurisdiction, or ordering the dissolution,
winding-up or liquidation of the Company or any of its
Subsidiaries, or any such petition shall be filed against the
Company or any of its Subsidiaries and such petition shall not be
dismissed within 60 days; or
() a final judgment or judgments for the payment of money
aggregating in excess of $5,000,000 are rendered against one or
more of the Company and its Subsidiaries and which judgments are
not, within 30 days after entry thereof, bonded, discharged or
stayed pending appeal, or are not discharged within 30 days after
the expiration of such stay;
() the Guaranty, the Contribution Agreement or any Joinder
Agreement shall cease, for any reason, to be in full force and
effect, or the Company or any Guarantor shall so assert; or
() if (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof
or a waiver of such standards or extension of any amortization
period is sought or granted under section 412 of the Code, (ii) a
notice of intent to terminate any Plan shall have been or is
reasonably expected to be filed with the PBGC or the PBGC shall
have instituted proceedings under ERISA section 4042 to terminate
or appoint a trustee to administer any Plan or the PBGC shall
have notified the Company or any ERISA Affiliate that a Plan may
become a subject of any such proceedings, (iii) the aggregate
"amount of unfunded benefit liabilities" (within the meaning of
section 4001(a)(18) of ERISA) under all Plans, determined in
accordance with Title IV of ERISA, shall exceed $1,000,000, (iv)
the Company or any ERISA Affiliate shall have incurred or is
reasonably expected to incur any liability pursuant to Title I or
IV of ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans, (v) the Company or any ERISA
Affiliate withdraws from any Multiemployer Plan, or (vi) the
Company or any Subsidiary establishes or amends any employee
welfare benefit plan that provides post-employment welfare
benefits in a manner that would increase the liability of the
Company or any Subsidiary thereunder; and any such event or
events described in clauses (i) through (vi) above, either
individually or together with any other such event or events,
could reasonably be expected to have a Material Adverse Effect.
As used in Section 11(k), the terms "employee benefit plan" and "employee
welfare benefit plan" shall have the respective meanings assigned to such terms
in Section 3 of ERISA.
. REMEDIES ON DEFAULT, ETC.
.. Acceleration.
(a) If an Event of Default with respect to the Company
described in paragraph (g) or (h) of Section 11 (other than an Event of Default
described in clause (i) of paragraph (g) or described in clause (vi) of
paragraph (g) by virtue of the fact that such clause encompasses clause (i) of
paragraph (g)) has occurred, all the Notes then outstanding shall automatically
become immediately due and payable.
(b) If any other Event of Default has occurred and is
continuing, the Required Holder(s) may at any time at its or their option, by
notice or notices to the Company, declare all the Notes then outstanding to be
immediately due and payable.
(c) If any Event of Default described in paragraph (a) or (b)
of Section 11 has occurred and is continuing, any holder or holders of Notes at
the time outstanding affected by such Event of Default may at any time, at its
or their option, by notice or notices to the Company, declare all the Notes held
by it or them to be immediately due and payable.
Upon any Notes becoming due and payable under this Section
12.1, whether automatically or by declaration, such Notes will forthwith mature
and the entire unpaid principal amount of such Notes, plus (x) all accrued and
unpaid interest thereon and (y) the Make-Whole Amount determined in respect of
such principal amount (to the full extent permitted by applicable law), shall
all be immediately due and payable, in each and every case without presentment,
demand, protest, notice of intent to accelerate or further notice, all of which
are hereby waived. The Company acknowledges, and the parties hereto agree, that
each holder of a Note has the right to maintain its investment in the Notes free
from repayment by the Company (except as herein specifically provided for) and
that the provision for payment of a Make-Whole Amount by the Company in the
event that the Notes are prepaid or are accelerated as a result of an Event of
Default, is intended to provide compensation for the deprivation of such right
under such circumstances.
.. Other Remedies.
If any Default or Event of Default has occurred and is
continuing, and irrespective of whether any Notes have become or have been
declared immediately due and payable under Section 12.1, the holder of any Note
at the time outstanding may proceed to protect and enforce the rights of such
holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or in any
Note, or for an injunction against a violation of any of the terms hereof or
thereof, or in aid of the exercise of any power granted hereby or thereby or by
law or otherwise.
.. Rescission.
At any time after any Notes have been declared due and payable
pursuant to clause (b) or (c) of Section 12.1, the holders of not less than 51%
in principal amount of the Notes then outstanding, by written notice to the
Company, may rescind and annul any such declaration and its consequences if (a)
the Company has paid all overdue interest on the Notes, all principal of and
Make-Whole Amount, if any, on any Notes that are due and payable and are unpaid
other than by reason of such declaration, and all interest on such overdue
principal and Make-Whole Amount, if any, and (to the extent permitted by
applicable law) any overdue interest in respect of the Notes, at the Default
Rate, (b) all Events of Default and Defaults, other than non-payment of amounts
that have become due solely by reason of such declaration, have been cured or
have been waived pursuant to Section 17, and (c) no judgment or decree has been
entered for the payment of any monies due pursuant hereto or to the Notes. No
rescission and annulment under this Section 12.3 will extend to or affect any
subsequent Event of Default or Default or impair any right consequent thereon.
.. No Waivers or Election of Remedies, Expenses, etc.
No course of dealing and no delay on the part of any holder of
any Note in exercising any right, power or remedy shall operate as a waiver
thereof or otherwise prejudice such holder's rights, powers or remedies. No
right, power or remedy conferred by this Agreement or by any Note upon any
holder thereof shall be exclusive of any other right, power or remedy referred
to herein or therein or now or hereafter available at law, in equity, by statute
or otherwise. Without limiting the obligations of the Company under Section 15,
the Company will pay to the holder of each Note on demand such further amount as
shall be sufficient to cover all costs and expenses of such holder incurred in
any enforcement or collection under this Section 12, including, without
limitation, reasonable attorneys' fees, expenses and disbursements.
. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
.. Registration of Notes.
The Company shall keep at its principal executive office a
register for the registration and registration of transfers of Notes. The name
and address of each holder of one or more Notes, each transfer thereof and the
name and address of each transferee of one or more Notes shall be registered in
such register. Prior to due presentment for registration of transfer, the Person
in whose name any Note shall be registered shall be deemed and treated as the
owner and holder thereof for all purposes hereof, and the Company shall not be
affected by any notice or knowledge to the contrary. The Company shall give to
any holder of a Note that is an Institutional Investor promptly upon request
therefor, a complete and correct copy of the names and addresses of all
registered holders of Notes.
.. Transfer and Exchange of Notes.
Upon surrender of any Note at the principal executive office
of the Company for registration of transfer or exchange (and in the case of a
surrender for registration of transfer, duly endorsed or accompanied by a
written instrument of transfer duly executed by the registered holder of such
Note or his attorney duly authorized in writing and accompanied by the address
for notices of each transferee of such Note or part thereof), the Company shall
execute and deliver, at the Company's expense (except as provided below), one or
more new Notes (as requested by the holder thereof) in exchange therefor, in an
aggregate principal amount equal to the unpaid principal amount of the
surrendered Note. Each such new Note shall be payable to such Person as such
holder may request and shall be substantially in the form of Exhibit 1. Each
such new Note shall be dated and bear interest from the date to which interest
shall have been paid on the surrendered Note or dated the date of the
surrendered Note if no interest shall have been paid thereon. The Company may
require payment of a sum sufficient to cover any stamp tax or governmental
charge imposed in respect of any such transfer of Notes. Notes shall not be
transferred in denominations of less than $100,000, provided that if necessary
to enable the registration of transfer by a holder of its entire holding of
Notes, one Note may be in a denomination of less than $100,000. Any transferee,
by its acceptance of a Note registered in its name (or the name of its nominee),
shall be deemed to have made the representation set forth in Section 6.2.
.. Replacement of Notes.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of any Note (which evidence shall be, in the case of an Institutional
Investor, notice from such Institutional Investor of such ownership and such
loss, theft, destruction or mutilation), and
() in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (provided that if the holder of
such Note is, or is a nominee for, an original Purchaser or
another holder of a Note with a minimum net worth of at least
$25,000,000, such Person's own unsecured agreement of indemnity
shall be deemed to be satisfactory), or
() in the case of mutilation, upon surrender and
cancellation thereof,
the Company at its own expense shall execute and deliver, in lieu thereof, a new
Note, dated and bearing interest from the date to which interest shall have been
paid on such lost, stolen, destroyed or mutilated Note or dated the date of such
lost, stolen, destroyed or mutilated Note if no interest shall have been paid
thereon.
. PAYMENTS ON NOTES.
.. Place of Payment.
Subject to Section 14.2, payments of principal, Make-Whole
Amount, if any, and interest becoming due and payable on the Notes shall be made
in New York, New York at the principal office of The Chase Manhattan Bank N.A.
in such jurisdiction. The Company may at any time, by notice to each holder of a
Note, change the place of payment of the Notes so long as such place of payment
shall be either the principal office of the Company in such jurisdiction or the
principal office of a bank or trust company in such jurisdiction.
.. Home Office Payment.
So long as you or your nominee shall be the holder of any
Note, and notwithstanding anything contained in Section 14.1 or in such Note to
the contrary, the Company will pay all sums becoming due on such Note for
principal, Make-Whole Amount, if any, and interest by the method and at the
address specified for such purpose below your name in Schedule A, or by such
other method or at such other address as you shall have from time to time
specified to the Company in writing for such purpose, without the presentation
or surrender of such Note or the making of any notation thereon, except that
upon written request of the Company made concurrently with or reasonably
promptly after payment or prepayment in full of any Note, you shall surrender
such Note for cancellation, reasonably promptly after any such request, to the
Company at its principal executive office or at the place of payment most
recently designated by the Company pursuant to Section 14.1. Prior to any sale
or other disposition of any Note held by you or your nominee you will, at your
election, either endorse thereon the amount of principal paid thereon and the
last date to which interest has been paid thereon or surrender such Note to the
Company in exchange for a new Note or Notes pursuant to Section 13.2. The
Company will afford the benefits of this Section 14.2 to any Institutional
Investor that is the direct or indirect transferee of any Note purchased by you
under this Agreement and that has made the same agreement relating to such Note
as you have made in this Section 14.2.
. EXPENSES, ETC.
.. Transaction Expenses.
Whether or not the transactions contemplated hereby are
consummated, the Company will pay all costs and expenses (including reasonable
attorneys' fees of a special counsel and, if reasonably required, local or other
counsel) incurred by you and each Other Purchaser or holder of a Note in
connection with such transactions and in connection with any amendments, waivers
or consents under or in respect of this Agreement, the Notes, the Guaranty, the
Contribution Agreement or any Joinder Agreement (whether or not such amendment,
waiver or consent becomes effective), including, without limitation: (a) the
costs and expenses incurred in enforcing or defending (or determining whether or
how to enforce or defend) any rights under this Agreement, the Notes, the
Guaranty, the Contribution Agreement or any Joinder Agreement in responding to
any subpoena or other legal process or informal investigative demand issued in
connection with this Agreement, the Notes, the Guaranty, the Contribution
Agreement or any Joinder Agreement, or by reason of being a holder of any Note,
and (b) the costs and expenses, including financial advisors' fees, incurred in
connection with the insolvency or bankruptcy of the Company or any Subsidiary or
in connection with any work-out or restructuring of the transactions
contemplated hereby, by the Notes and by the Guaranty, the Contribution
Agreement and the Joinder Agreements. The Company will pay, and will save you
and each other holder of a Note harmless from, all claims in respect of any
fees, costs or expenses if any, of brokers and finders (other than those
retained by you).
.. Survival.
The obligations of the Company under this Section 15 will
survive the payment or transfer of any Note, the enforcement, amendment or
waiver of any provision of this Agreement, the Notes, the Guaranty, the
Contribution Agreement or any Joinder Agreement, and the termination thereof.
. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein shall
survive the execution and delivery of this Agreement and the Notes, the purchase
or transfer by you of any Note or portion thereof or interest therein and the
payment of any Note, and may be relied upon by any subsequent holder of a Note,
regardless of any investigation made at any time by or on behalf of you or any
other holder of a Note. All statements contained in any certificate or other
instrument delivered by or on behalf of the Company or any Guarantor pursuant to
this Agreement or the Guaranty shall be deemed representations and warranties of
the Company under this Agreement or of such Guarantor under its Guaranty, as the
case may be. Subject to the preceding sentence, this Agreement, the Notes, the
Guaranty, the Contribution Agreement and the Joinder Agreements embody the
entire agreement and understanding between you and the Company and supersede all
prior agreements and understandings relating to the subject matter hereof.
. AMENDMENT AND WAIVER.
.. Requirements.
This Agreement, the Notes, the Guaranty, the Contribution
Agreement and the Joinder Agreement may be amended, and the observance of any
term hereof or of the Notes, the Guaranty, the Contribution Agreement or any
Joinder Agreement may be waived (either retroactively or prospectively), with
(and only with) the written consent of the Company or the Guarantors, as the
case may be, and the Required Holders, except that (a) no amendment or waiver of
any of the provisions of Section 1, 2, 3, 4, 5, 6 or 21 hereof, or any defined
term (as it is used therein), will be effective as to you unless consented to by
you in writing, and (b) no such amendment or waiver may, without the written
consent of the holder of each Note at the time outstanding affected thereby, (i)
subject to the provisions of Section 12 relating to acceleration or rescission,
change the amount or time of any prepayment or payment of principal of, or
reduce the rate or change the time of payment or method of computation of
interest or of the Make-Whole Amount on, the Notes, (ii) change the percentage
of the principal amount of the Notes the holders of which are required to
consent to any such amendment or waiver, (iii) amend any of Sections 8, 11(a),
11(b), 12, 17 or 20, (iv) except as provided in the final sentence of Section
10.6, release any Guarantor from the Guaranty, the Contribution Agreement or any
Joinder Agreement or (v) amend the definition of "Designated Event" or any
constituent definitions thereof.
.. Solicitation of Holders of Notes.
() Solicitation. The Company will provide each holder of the
Notes (irrespective of the amount of Notes then owned by it) with sufficient
information, sufficiently far in advance of the date a decision is required, to
enable such holder to make an informed and considered decision with respect to
any proposed amendment, waiver or consent in respect of any of the provisions
hereof or of the Notes, the Guaranty, the Contribution Agreement or any Joinder
Agreement. The Company will deliver executed or true and correct copies of each
amendment, waiver or consent effected pursuant to the provisions of this Section
17 to each holder of outstanding Notes promptly following the date on which it
is executed and delivered by, or receives the consent or approval of, the
requisite holders of Notes.
() Payment. The Company and the Guarantors will not directly
or indirectly pay or cause to be paid any remuneration, whether by way of
supplemental or additional interest, fee or otherwise, or grant any security, to
any holder of Notes as consideration for or as an inducement to the entering
into by any holder of Notes or any waiver or amendment of any of the terms and
provisions hereof or of the Notes, the Guaranty, the Contribution Agreement or
any Joinder Agreement unless such remuneration is concurrently paid, or security
is concurrently granted, on the same terms, ratably to each holder of Notes then
outstanding even if such holder did not consent to such waiver or amendment.
.. Binding Effect, etc.
Any amendment or waiver consented to as provided in this
Section 17 applies equally to all holders of Notes and is binding upon them and
upon each future holder of any Note and upon the Company and the Guarantors
without regard to whether such Note has been marked to indicate such amendment
or waiver. No such amendment or waiver will extend to or affect any obligation,
covenant, agreement, Default or Event of Default not expressly amended or waived
or impair any right consequent thereon. No course of dealing between the Company
or any Guarantor and the holder of any Note nor any delay in exercising any
rights hereunder or under any Note shall operate as a waiver of any rights of
any holder of such Note. As used herein, the term "this Agreement" and
references thereto shall mean this Agreement as it may from time to time be
amended or supplemented.
.. Notes held by Company, etc.
Solely for the purpose of determining whether the holders of
the requisite percentage of the aggregate principal amount of Notes then
outstanding approved or consented to any amendment, waiver or consent to be
given under this Agreement or the Notes, or have directed the taking of any
action provided herein or in the Notes to be taken upon the direction of the
holders of a specified percentage of the aggregate principal amount of Notes
then outstanding, Notes directly or indirectly owned by the Company or any of
its Affiliates shall be deemed not to be outstanding.
. NOTICES.
All notices and communications provided for hereunder shall be
in writing and sent (a) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return receipt
requested (postage prepaid), or (c) by a recognized overnight delivery service
(with charges prepaid). Any such notice must be sent:
() if to you or your nominee, to you or it at the address
specified for such communications in Schedule A, or at such other
address as you or it shall have specified to the Company in
writing,
() if to any other holder of any Note, to such holder at
such address as such other holder shall have specified to the
Company in writing, or
() if to the Company or any Guarantor, to the Company at its
address set forth at the beginning hereof to the attention of
Chief Financial Officer, or at such other address as the Company
shall have specified to the holder of each Note in writing.
Notices under this Section 18 will be deemed given only when actually received.
. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including,
without limitation, (a) consents, waivers and modifications that may hereafter
be executed, (b) documents received by you at the Closing (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to you, may be reproduced by you by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and you may destroy any original document so reproduced. The
Company agrees and stipulates that, to the extent permitted by applicable law,
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by you in the regular
course of business) and any enlargement, facsimile or further reproduction of
such reproduction shall likewise be admissible in evidence. This Section 19
shall not prohibit the Company or any other holder of Notes from contesting any
such reproduction to the same extent that it could contest the original, or from
introducing evidence to demonstrate the inaccuracy of any such reproduction.
. CONFIDENTIAL INFORMATION.
For the purposes of this Section 20, "Confidential
Information" means information delivered to you by or on behalf of the Company
or any Subsidiary in connection with the transactions contemplated by or
otherwise pursuant to this Agreement that is proprietary in nature and that was
clearly marked or labeled or otherwise adequately identified when received by
you as being confidential information of the Company or such Subsidiary,
provided that such term does not include information that (a) was publicly known
or otherwise known to you prior to the time of such disclosure, (b) subsequently
becomes publicly known through no act or omission by you or any person acting on
your behalf, (c) otherwise becomes known to you other than through disclosure by
the Company or any Subsidiary or (d) constitutes financial statements delivered
to you under Section 7.1 that are otherwise publicly available. You will
maintain the confidentiality of such Confidential Information in accordance with
procedures adopted by you in good faith to protect confidential information of
third parties delivered to you, provided that you may deliver or disclose
Confidential Information to (i) your directors, officers, employees, agents,
attorneys and affiliates (to the extent such disclosure reasonably relates to
the administration of the investment represented by your Notes), (ii) your
financial advisors and other professional advisors who agree to hold
confidential the Confidential Information substantially in accordance with the
terms of this Section 20, (iii) any other holder of any Note, (iv) any
Institutional Investor to which you sell or offer to sell such Note or any part
thereof or any participation therein (if such Person has agreed in writing prior
to its receipt of such Confidential Information to be bound by the provisions of
this Section 20), (v) any Person from which you offer to purchase any security
of the Company (if such Person has agreed in writing prior to its receipt of
such Confidential Information to be bound by the provisions of this Section 20),
(vi) any federal or state regulatory authority having jurisdiction over you,
(vii) the National Association of Insurance Commissioners or any similar
organization, or any nationally recognized rating agency that requires access to
information about your investment portfolio or (viii) any other Person to which
such delivery or disclosure may be necessary or appropriate (w) to effect
compliance with any law, rule, regulation or order applicable to you, (x) in
response to any subpoena or other legal process, (y) in connection with any
litigation to which you are a party or (z) if an Event of Default has occurred
and is continuing, to the extent you may reasonably determine such delivery and
disclosure to be necessary or appropriate in the enforcement or for the
protection of the rights and remedies under your Notes and this Agreement. Each
holder of a Note, by its acceptance of a Note, will be deemed to have agreed to
be bound by and to be entitled to the benefits of this Section 20 as though it
were a party to this Agreement. On reasonable request by the Company in
connection with the delivery to any holder of a Note of information required to
be delivered to such holder under this Agreement or requested by such holder
(other than a holder that is a party to this Agreement or its nominee), such
holder will enter into an agreement with the Company embodying the provisions of
this Section 20.
. SUBSTITUTION OF PURCHASER.
You shall have the right to substitute any one of your
Affiliates as the purchaser of the Notes that you have agreed to purchase
hereunder, by written notice to the Company, which notice shall be signed by
both you and such Affiliate, shall contain such Affiliate's agreement to be
bound by this Agreement and shall contain a confirmation by such Affiliate of
the accuracy with respect to it of the representations set forth in Section 6.
Upon receipt of such notice, wherever the word "you" is used in this Agreement
(other than in this Section 21), such word shall be deemed to refer to such
Affiliate in lieu of you. In the event that such Affiliate is so substituted as
a purchaser hereunder and such Affiliate thereafter transfers to you all of the
Notes then held by such Affiliate, upon receipt by the Company of notice of such
transfer, wherever the word "you" is used in this Agreement (other than in this
Section 21), such word shall no longer be deemed to refer to such Affiliate, but
shall refer to you, and you shall have all the rights of an original holder of
the Notes under this Agreement.
. MISCELLANEOUS.
.. Successors and Assigns.
All covenants and other agreements contained in this Agreement
by or on behalf of any of the parties hereto bind and inure to the benefit of
their respective successors and assigns (including, without limitation, any
subsequent holder of a Note) whether so expressed or not.
.. Payments Due on Non-Business Days.
Anything in this Agreement or the Notes to the contrary
notwithstanding, any payment of principal of or Make-Whole Amount or interest on
any Note that is due on a date other than a Business Day shall be made on the
next succeeding Business Day without including the additional days elapsed in
the computation of the interest payable on such next succeeding Business Day.
.. Severability.
Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.
.. Construction.
Each covenant contained herein shall be construed (absent
express provision to the contrary) as being independent of each other covenant
contained herein, so that compliance with any one covenant shall not (absent
such an express contrary provision) be deemed to excuse compliance with any
other covenant. Where any provision herein refers to action to be taken by any
Person, or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.
.. Counterparts.
This Agreement may be executed in any number of counterparts,
each of which shall be an original but all of which together shall constitute
one instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.
.. Governing Law.
This Agreement shall be construed and enforced in accordance
with, and the rights of the parties shall be governed by, the law of the State
of New York.
* * * * *
If you are in agreement with the foregoing, please sign the
form of agreement on the accompanying counterpart of this Agreement and return
it to the Company, whereupon the foregoing shall become a binding agreement
between you and the Company.
Very truly yours,
WHOLE FOODS MARKET, INC.
By: /s/ Glenda Flanagan
Name: Glenda Flanagan
Title: Vice President
The foregoing is hereby
agreed to as of the
date thereof.
AMERICAN GENERAL LIFE INSURANCE COMPANY
INDEPENDENT LIFE AND ACCIDENT INSURANCE COMPANY
By: /s/ Michael L. McEachern
Name: Michael L. McEachern
Title: Investment Officer
METROPOLITAN LIFE INSURANCE COMPANY
By: /s/ Robert B. Bodett
Name: Robert B. Bodett
Title: Assistant Vice President
GWL PROPERTIES, INC.
By: /s/ J.E. Cahan
Name: J.E. Cahan
Title: Secretary
By: /s/ James F. Lavan
Name: James F. Lavan
Title: Vice President, Finance
SCHEDULE A
INFORMATION RELATING TO PURCHASERS
Principal Amount of
Name of Purchaser Notes to be Purchased
AMERICAN GENERAL LIFE INSURANCE COMPANY $14,000,000
(1) All payments by wire transfer of immediately available funds, with
sufficient information (including PPN #, interest rate, maturity date,
interest amount, principal amount and premium amount, if applicable) to
identify the source and application of such funds, to:
ABA#011000028
State Street Bank and Trust Company
Boston, MA 02101
Re: American General Life Insurance
Company
AC-0125-880-5
OBI=PPN # and description of payment
Fund Number PA 40
(2) Payment notices to:
American General Life Insurance Company and PA
40
% State Street Bank and Trust Company
Insurance Services Custody (AH2)
1776 Heritage Dr.
North Quincy, MA 02171
Facsimile Number: (617) 985-4923
(3) Duplicate payment notices and all other
correspondences to:
American General Life Insurance Company
c/o American General Corporation
Attn: Investment Research Department,
A37-01
P.O. Box 3247
Houston, Texas 77253-3247
Overnight Mail Address:
2929 Allen Parkway
Houston, TX 77019-2155
Facsimile Number: (713) 831-1366
Tax I.D. Number: 25-0598210
Principal Amount of
Name of Purchaser Notes to be Purchased
INDEPENDENT LIFE AND ACCIDENT $3,000,000
INSURANCE COMPANY
(1) All payments to be wire transfer of immediately available funds, with
sufficient information (including PPN #, interest rate, maturity date,
interest amount, principal amount and premium amount, if applicable) to
identify the source and application of such funds, to:
ABA#011000028
State Street Bank and Trust Company
Boston, MA 02101
Re: Independent Life and Accident Insurance
Company
AC-34817924
OBI=PPN # and description of payment
Fund Number PA 88
(2) Payment notices to:
Independent Life and Accident Insurance Company
% State Street Bank and Trust
Company
Insurance Services Custody (AH2)
1776 Heritage Dr.
North Quincy, MA 02171
Facsimile Number: (617) 985-4923
(3) Duplicate payment notices and all other correspondences to:
Independent Life and Accident Insurance Company
c/o American General Corporation
Attn: Investment Research Department,
A37-01
P.O. Box 3247
Houston, Texas 77253-3247
Overnight Mail Address:
2929 Allen Parkway
Houston, TX 77019-2155
Facsimile Number: (713) 831-1366
Tax I.D. Number: 59-0302660
Principal Amount of
Name of Purchaser Notes to be Purchased
METROPOLITAN LIFE INSURANCE COMPANY $14,000,000
(1) All payments by wire transfer of immediately
available funds to:
The Chase Manhattan Bank, N.A.
33 East 23rd Street
New York, New York 10010
ABA No. 021000021
Account No. 002-2-410591
with sufficient information to identify the source
and application of such funds (including the PPN of
the Notes)
(2) All notices of payments and written confirmation of
such wire transfer:
Metropolitan Life Insurance Company
One Madison Avenue
New York, NY 10010
Attention: Treasurer
with a copy to:
Metropolitan Life Insurance Company
One Lincoln Center, Suite 800
Oakbrook Terrace, IL 60181
Attention: Vice President
Tel: 708/916-2565
(3) All other communications:
Metropolitan Life Insurance Company
One Lincoln Center, Suite 800
Oakbrook Terrace, IL 60181
Attention: Vice President
Tel: 708/916-2565
Tax I.D. No. 13-5581829
Principal Amount of
Name of Purchaser Notes to be Purchased $9,000,000
GWL PROPERTIES, INC.
GWL Properties Inc.
8515 East Orchard Road
3rd Floor, Tower 2
Englewood, Colorado 80111
Tax I.D. #84-1096239
Payments of Principal and Interest
Wire Instructions:
ABA # 091-000-019 NW MPLS/TRUST CLEARING
ACCT # 08-40-245 ATTN: Acct # 12368900
Special Instructions: 1) security description (PPN#),
2) allocation of payment between principal and interest, and
3) confirmation of principal balance.
Notice of Such Payments
Norwest Bank Minnesota, N.A.
733 Marquette Ave., Investors Bldg., 5th Floor
Minneapolis, Minnesota 55479-0047
Attn: Income Collections
Notice for Other Communications/Financial Statements, Trustee Reports, etc.
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
3rd Floor, Tower 2
Englewood, Colorado 80111
Attention: U.S. Private Placements
Telecopier: (303) 689-6193
DEFINED TERMS
As used herein, the following terms have the respective
meanings set forth below or set forth in the Section hereof following such term:
"Affiliate" means, at any time, and with respect to any
Person, (a) any other Person that at such time directly or indirectly through
one or more intermediaries Controls, or is Controlled by, or is under common
Control with, such first Person, (b) any other Person that at such time directly
or indirectly through one or more intermediaries is the beneficial owner of 10%
or more of any class of Voting Stock of such first Person and (c) any other
Person of which 10% or more of any class of Voting Stock is owned beneficially
at such time, directly or indirectly through one or more intermediaries, by such
first Person. As used in this definition, "Control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise. Unless the context otherwise clearly
requires, any reference to an "Affiliate" is a reference to an Affiliate of the
Company.
"Asset Sale" means any conveyance, transfer, lease or other
disposition (including, without limitation, by means of a Sale-Leaseback
Transaction or by way of merger or consolidation) (collectively, for purposes of
this definition, a "transfer"), directly or indirectly, in one or a series of
related transactions, of (a) any Capital Stock of any Subsidiary (including,
without limitation, the issuance thereof by such Subsidiary to any Person other
than the Company or a Wholly-Owned Subsidiary); (b) all or substantially all of
the properties of any division or line of business of the Company or any
Subsidiary; or (c) any other properties (other than (i) transfers of cash or
cash equivalents, (ii) any sale of inventory in the ordinary course of business,
(iii) any transfer of properties that is made in compliance with the provisions
of Section 10.2 hereof, (iv) any transfer of properties of any Subsidiary to the
Company or a Wholly-Owned Subsidiary, or (v) sales of damaged, worn-out or
obsolete equipment that, in the Company's reasonable judgment, are either no
longer used or no longer useful in the business of the Company or its
Subsidiaries).
"Business Day" means (a) for the purposes of Section 8.8 only,
any day other than a Saturday, a Sunday or a day on which commercial banks in
New York City are required or authorized to be closed, and (b) for the purposes
of any other provision of this Agreement, any day other than a Saturday, a
Sunday or a day on which commercial banks in New York City or Austin, Texas are
required or authorized to be closed.
"Capital Lease" means, at any time, a lease with respect to
which the lessee is required concurrently to recognize the acquisition of an
asset and the incurrence of a liability in accordance with GAAP.
"Capital Stock" of any Person means any and all shares,
interests, participations or other equivalents in the equity interest (however
designated) in such Person and any rights (other than debt securities
convertible into an equity interest), warrants or options to acquire an equity
interest in such Person.
"Capitalized Lease Obligation" means the amount of the
obligation of the Company or any Subsidiary as the lessee under any Capital
Lease which would, in accordance with GAAP, appear as a liability on the
consolidated balance sheet of the Company.
"Closing" is defined in Section 3.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, and the rules and regulations promulgated thereunder from
time to time.
"Company" means Whole Foods Market, Inc., a Texas corporation,
until a Person becomes a successor in a transaction permitted by Section 10.2,
and thereafter shall mean any such successor Person.
"Confidential Information" is defined in Section 20.
"Consolidated Current Indebtedness" means Current Indebtedness
of the Company and its Subsidiaries, all as determined on a consolidated basis
in accordance with GAAP.
"Consolidated EBIRT" means, for any fiscal period, (i) the sum
of (a) Consolidated Net Income for such period, plus (b) to the extent deducted
in determining Consolidated Net Income, Fixed Charges and Taxes for such period.
"Consolidated Funded Indebtedness" means all Funded
Indebtedness of the Company and its Subsidiaries plus the Included Amount (if
any), all as determined on a consolidated basis in accordance with GAAP except
insofar as the concept and calculation of the Included Amount deviate from GAAP.
"Consolidated Net Income" means, for any period, the net
income of the Company and its Subsidiaries, as determined in accordance with
GAAP and as set forth in the Company's consolidated statement of income for such
period, provided that there shall be excluded (i) nonrecurring gains and losses
(net of any tax effect), (ii) any net loss, or any undistributed net income, of
any Subsidiary that is not consolidated with the Company in accordance with GAAP
for financial accounting purposes,, (iii) the net income or loss of any Person
accrued prior to the date it becomes a Subsidiary or is merged into or
consolidated with the Company or a Subsidiary, and the net income (or loss) of
any Person, substantially all of the assets of which have been acquired in any
manner, realized by such other Person prior to the date of such acquisition,
(iv) the gain or loss (net of any tax effect) resulting from the sale of any
capital asset, and (v) the non-cash gain or loss (net of any tax effect) during
such period from (i) any one-time change in accounting principles in accordance
with GAAP and (ii) any prior period adjustments resulting from any one-time
change in accounting principles in accordance with GAAP.
"Consolidated Net Worth" means, at any time, shareholder's equity
of the Company as set forth in its consolidated balance sheet,
determined in accordance with GAAP.
"Consolidated Total Capitalization" means, at any time,
Consolidated Net Worth plus Consolidated Funded Indebtedness.
"Contribution Agreement" means that certain Contribution
Agreement in substantially the form of Exhibit 2A hereto, as the same
may be amended, supplemented or joined in pursuant to a Joinder
Agreement, from time to time.
"Credit Facility" means that certain Credit Agreement among the
Company, the financial institutions signatory thereto and Texas
Commerce Bank National Association, as Agent for such financial
institutions dated as of December 27, 1994, as amended, and any other
revolving credit or similar credit facility providing the Company with
the right to obtain loans or other extensions of credit from time to
time.
"Current Indebtedness" of any Person means any Indebtedness other
than Funded Indebtedness of such Person.
"Debt Prepayment Application" means, with respect to any Asset
Sale, the application by the Company or its Subsidiaries of cash in an amount
equal to all or a portion of the Net Proceeds Amount with respect to such Asset
Sale to prepay Consolidated Funded Indebtedness selected by the Company (other
than (a) Subordinated Debt and (b) Consolidated Funded Indebtedness under any
Credit Facility except to the extent that in connection with such payment of
Indebtedness the availability of credit under such Credit Facility is
permanently reduced by an amount not less than the amount of the Net Proceeds
Amount so applied); provided that in the course of making such application the
Company shall offer to prepay each outstanding Note in accordance with Section
8.3 in the principal amount which equals the Ratable Portion for such Note. If
the holders of the Notes fail to accept the offer of prepayment as aforesaid in
respect of all or any portion of the aggregate Ratable Portions of the Notes,
the Company shall not be deemed to have paid Consolidated Funded Indebtedness in
the aggregate amount which has not been accepted for prepayment and the Company
shall not be relieved of its obligations under Section 10.6 to apply, within the
six-month period therein specified, such aggregate amount (a) to another Debt
Prepayment Application (which shall be determined only for such purpose without
giving effect to the proviso in the preceding sentence, and which may include,
without limitation, a prepayment pursuant to Section 8.2 if the Company so
elects or if it fails or is unable to make another Debt Prepayment Application
or a Property Reinvestment Application), in which event the Company may (but
shall not be obligated to) again offer to prepay, ratably as aforesaid, each
outstanding Note in accordance with Section 8.3, or (b) to a Property
Reinvestment Application. "Ratable Portion" for any Note at any time means an
amount equal to the lesser of (1) the outstanding principal amount of such Note
at such time, and (2) the product of (x) the Net Proceeds Amount being applied
pursuant to the first sentence of this definition to the prepayment of
Consolidated Funded Indebtedness multiplied by (y) a fraction the numerator of
which is the outstanding principal amount of such Note and the denominator of
which is the aggregate principal amount of Consolidated Funded Indebtedness
(including, without limitation, the Notes) at such time, which product,
following the expiration of the period contemplated by the first sentence of
Section 8.3(b), shall for all purposes be divided by the quotient of (xx) the
aggregate principal amount of the Notes in respect of which the holders thereof
have accepted (either during such period or during the period contemplated by
the second sentence of Section 8.3(b)) the offer of the Company to prepay in
accordance with Section 8.3 divided by (yy) the aggregate principal amount of
all Notes at the time outstanding.
"Default" means an event or condition the occurrence or existence
of which would, with the lapse of time or the giving of notice or
both, become an Event of Default.
"Default Rate" means that rate of interest that is the greater
(determined on a daily basis) of (i) 2% per annum above the rate of
interest stated in clause (a) of the first paragraph of the Notes or
(ii) 2% over the rate of interest publicly announced by Texas Commerce
Bank National Association in Houston, Texas as its "base" or "prime"
rate.
"Designated Event" means the occurrence of any one or more of the
following after the Closing:
(i) the direct or indirect acquisition by any person (as such
term is used in Section 13(d) and Section 14(d)(2) of the Exchange
Act), or related persons constituting a group (as such term is used in
Rule 13d-5 under the Exchange Act), of (a) beneficial ownership of
issued and outstanding shares of Voting Stock of the Company the result
of which acquisition is that such person or such group possesses in
excess of 50% of the combined voting power of all then issued and
outstanding Voting Stock of the Company or (b) within any period of 365
consecutive days, all or substantially all of the assets of the
Company; or
(ii) following the election or removal of directors, a
majority of the Company's Board of Directors consists of individuals
who were not members of the Company's Board of Directors two years
before such election or removal, unless the election of each director
who was not a director at the beginning of such two-year period has
been approved in advance by directors representing at least a majority
of the directors then in office who were directors at the beginning of
the two-year period.
"Distribution" means, in respect of the Company or any Subsidiary:
(a) dividends or other distributions or payments in respect
of its Capital Stock (except (i) in the case of the Company,
dividends or other distributions of its common stock or warrants,
rights or other options to purchase its common stock, and (ii) in
the case of a Subsidiary, dividends or other distributions or
payments in respect of its Capital Stock to the Company or a
Wholly-Owned Subsidiary); and
(b) the redemption or acquisition of its Capital Stock or of
warrants, rights or other options to purchase its Capital Stock
(except (i) in the case of the Company, when solely in exchange
for shares of its common stock or warrants, rights or other
options to purchase its common stock, and (ii) in the case of a
Subsidiary, redemptions or acquisitions from the Company or a
Wholly-Owned Subsidiary).
"Environmental Laws" means any and all Federal, state, local,
and foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and the rules and regulations promulgated
thereunder from time to time in effect.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under section 414 of the Code.
"Event of Default" is defined in Section 11.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Fair Market Value" means, at any time with respect to any
property of any kind or character, the sale value of such property that would be
realized in an arm's-length sale at such time between an informed and willing
buyer and an informed and willing seller, under no compulsion to buy or sell,
respectively.
"Fixed Charges" means, with respect to any period, the sum of
(a) Interest Charges for such period and (b) Lease Rentals for such period.
"Fixed Charges Coverage Ratio" means, at any time, the ratio
of (a) Consolidated EBIRT for the period of four consecutive fiscal quarters
ending on, or most recently ended prior to, such time to (b) Fixed Charges for
such period.
"Funded Indebtedness" of any Person means any Indebtedness
which by its terms or by the terms of any instrument or agreement relating
thereto matures, or which is otherwise payable or unpaid, more than one year
from, or is directly or indirectly renewable or extendible at the option of the
debtor to a date more than one year (including an option of the debtor under a
revolving credit or similar agreement obligating the lender or lenders to extend
credit over a period of more than one year) from, the date of the creation
thereof, including all payments in respect thereof that are due within one year
from the date of determination thereof.
"GAAP" means generally accepted accounting principles as in
effect from time to time in the United States of America.
"Governmental Authority" means
(a) the government of
(i) the United States of America or any State or other
political subdivi sion thereof, or
(ii) any jurisdiction in which the Company or any Subsidiary
conducts all or any part of its business, or which
asserts jurisdiction over any properties of the Company
or any Subsidiary, or
(b) any entity exercising executive, legislative, judicial,
regulatory or adminis trative functions of, or pertaining to, any
such government.
"Gross Proceeds Amount" means, with respect to any Asset Sale
by any Person, the aggregate amount of the consideration (valued at the Fair
Market Value of such consideration at the time of the consummation of such Asset
Sale) payable to such Person in respect of such Asset Sale.
"Guarantee" shall mean, with respect of any Person, any obligation of such
Person guaranteeing or intended to guarantee any Indebtedness or other
obligation (the "primary obligation") of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, any obligation of such Person, whether or not contingent, (a) to
purchase any such primary obligation or any property constituting direct or
indirect security therefor, (b) to advance or supply funds (i) for the purchase
or payment of any such primary obligation or (ii) to maintain working capital or
equity capital of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (c) to purchase property, Securities or
services primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such primary
obligation or (d) otherwise primarily to assure or hold harmless the owner of
any such primary obligation against loss in respect thereof; provided, that
notwithstanding the foregoing, the term Guarantee shall not include endorsements
of instruments for deposit or collection in the ordinary course of business. The
amount of any Guarantee of any Person shall be the amount of the primary
obligation or such lesser amount to which the maximum exposure of such Person
shall have been specifically limited.
"Guarantor" means each of Whole Foods Market Services, Inc., a Delaware
corporation, Whole Foods Market Southwest I, Inc., a Delaware corporation, Whole
Foods Market Southwest Investments, Inc., a Delaware corporation, Whole Foods
Market California, Inc., a California corporation, Whole Foods Market Midwest,
Inc., a Delaware corporation, Wellspring Grocery, Inc., a North Carolina
corporation, Bread & Circus, Inc., a Massachusetts corporation, Mrs. Gooch's
Natural Food Markets, Inc., a California corporation, Whole Foods Market
Southwest, L.P., a Texas limited partnership, Whole Food Company, Inc., a
Louisiana corporation, The Sourdough: A European Bakery, Inc., a Texas
corporation, Whole Foods Market Beverage Corp., a Texas corporation, and each
other Subsidiary of the Company created or acquired by the Company after the
Closing.
"Guaranty" means each guaranty of a Guarantor in substantially
the form of Exhibit 2 hereto, as the same may be amended, supplemented or joined
in pursuant to a Joinder Agreement, from time to time.
"Hazardous Material" means any and all pollutants, toxic or
hazardous wastes or any other substances that might pose a hazard to health or
safety, the removal of which may be required or the generation, manufacture,
refining, production, processing, treatment, storage, handling, transportation,
transfer, use, disposal, release, discharge, spillage, seepage, or filtration of
which is or shall be restricted, prohibited or penalized by any applicable law
(including, without limitation, asbestos, urea formaldehyde foam insulation and
polycholorinated biphenyls).
"holder" means, with respect to any Note, the Person in whose
name such Note is registered in the register maintained by the Company pursuant
to Section 13.1.
"Included Amount" means, at any time, (i) the maximum amount
of Consolidated Current Indebtedness outstanding on any day during the Low
Period in the Look-Back Period most recently ended prior to such time or (ii)
such greater amount of Consolidated Current Indebtedness relating to the Low
Period during any previous Look-Back Period if Consolidated Current Indebtedness
has not been reduced to zero for a period of at least 45 consecutive days since
the amount described in this clause (ii) was included in Consolidated Funded
Indebtedness as the Included Amount.
"Indebtedness" with respect to any Person means, at any time,
without duplication, (a) indebtedness for borrowed money or for the deferred
purchase price of property or services purchased, (b) all indebtedness of others
for borrowed money or for the deferred purchase price of property or services
secured by a Lien on any property owned by such Person, whether or not such
indebtedness has been assumed by such Person, (c) Capitalized Lease Obligations,
(d) all obligations payable out of the proceeds of production from property of
such Person, whether or not the obligation secured thereby shall have been
assumed by such Person, and (e) Guarantees of such Person.
Indebtedness of any Person shall include all obligations of such Person of the
character described in clauses (a) through (e) to the extent such Person (or, in
the case of obligations described in clauses (b) and (e), another Person)
remains legally liable in respect thereof notwithstanding that any such
obligation is deemed to be extinguished under GAAP.
"Institutional Investor" means (a) any original purchaser of a
Note, (b) any holder of a Note holding more than 5% of the aggregate principal
amount of the Notes then outstanding, and (c) any bank, trust company, savings
and loan association or other financial institution, any pension plan, any
investment company, any insurance company, any broker or dealer, or any other
similar financial institution or entity, regardless of legal form.
"Interest Charges" means, with respect to any period, the sum
(without duplication) of the following (in each case, eliminating all offsetting
debits and credits between the Company and its Subsidiaries and all other items
required to be eliminated in the course of the preparation of consolidated
financial statements of the Company and its Subsidiaries in accordance with
GAAP); (a) all interest in respect of Indebtedness of the Company and its
Subsidiaries (including imputed interest on Capital Lease Obligations) deducted
in determining Consolidated Net Income for such period, and (b) all debt
discount and expense amortized or required to be amortized in the determination
of Consolidated Net Income for such period.
"Investment" means any investment, made in cash or by delivery
of property, by the Company or any of its Subsidiaries in any Person, whether by
acquisition of stock, indebtedness or other obligation or Security, or by loan,
guaranty, advance, capital contribution or otherwise.
"Joinder Agreement" means a Joinder Agreement in substantially
the form of Exhibit 9.8 hereto, as the same may be amended or supplemented from
time to time, pursuant to which a Subsidiary created or acquired by the Company
after the Closing joins in the execution and delivery of the Guaranty and the
Contribution Agreement.
"Lease Rentals" means, with respect to any period, the sum of
the minimum amount of rental and other obligations required to be paid during
such period by the Company or any Subsidiary on a consolidated basis as lessee
under all leases of real or personal property (other than Capital Leases),
excluding any amounts required to be paid by the lessee (whether or not therein
designated as rental or additional rental) which are on account of maintenance
and repairs, insurance, taxes, assessments, water rates and similar charges, and
including any amounts required to be paid by the lessee which are based on
profits, revenues or sales realized by the lessee from the leased property or
otherwise based on the performance of the lessee.
"Lien" means, with respect to any Person, any mortgage, lien,
pledge, charge, security interest or other encumbrance, or any interest or title
of any vendor, lessor, lender or other secured party to or of such Person under
any conditional sale or other title retention agreement or Capital Lease, upon
or with respect to any property or asset of such Person (including in the case
of stock, stockholder agreements, voting trust agreements and all similar
arrangements).
"Look-Back Period" means, at any time, the period of 12
consecutive fiscal months most recently ended.
"Low Period" means, as to any Look-Back Period, the period of 45
consecutive days during such Look-Back Period during which
Consolidated Current Indebtedness was at its lowest level on a daily
average basis.
"Make-Whole Amount" is defined in Section 8.8.
"Material" means material in relation to the business,
operations, affairs, financial condition, assets, properties, or
prospects of the Company and its Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on (a)
the business, operations, affairs, financial condition, assets or
properties of the Company and its Subsidiaries taken as a whole, or
(b) the ability of the Company to perform its obligations under this
Agreement, any Other Agreement or any Note, or (c) the validity or
enforceability of this Agreement, any Other Agreement, any Note, the
Guaranty, the Contribution Agreement or any Joinder Agreement.
"Memorandum" is defined in Section 5.3.
"Multiemployer Plan" means any Plan that is a "multiemployer
plan" (as such term is defined in section 4001(a)(3) of ERISA).
"Net Proceeds Amount" means, with respect to any Asset Sale by
any Person, an amount equal to the difference of
(a) the Gross Proceeds Amount, minus
(b) all ordinary and reasonable out-of-pocket expenses
actually incurred by such Person in connection with such Asset
Sale.
"Net Proceeds of Common Stock" means, with respect to any
period, cash proceeds (net of all costs and out-of-pocket
expenses in connection therewith, including, without limitation,
placement, underwriting and brokerage fees and expenses),
received by the Company during such period, from the sale of its
common stock, including in such net proceeds:
(a) the net amount paid upon issuance and exercise
during such period of any right to acquire any common stock,
or paid during such period to convert a convertible debt
Security to common stock (but excluding any amount paid to the
Company upon issuance of such convertible debt Security); and
(b) any amount paid to the Company upon issuance of
any convertible debt Security issued after January 14, 1996
and thereafter converted to common stock during such period.
"Notes" is defined in Section 1.
"Officer's Certificate" means a certificate of a Senior
Financial Officer or of any other officer of the Company or Subsidiary, as the
case may be, whose responsibilities extend to the subject matter of such
certificate.
"Other Agreements" is defined in Section 2.
"Other Purchasers" is defined in Section 2.
"PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA or any successor thereto.
"Person" means an individual, partnership, corporation,
limited liability company, association, trust, joint venture, unincorporated
organization, or a government or agency or political subdivision thereof.
"Plan" means an "employee benefit plan" (as defined in section
3(3) of ERISA) that is or, within the preceding five years, has been established
or maintained, or to which contributions are or, within the preceding five
years, have been made or required to be made, by the Company or any ERISA
Affiliate or with respect to which the Company or any ERISA Affiliate may have
any liability.
"property" or "properties" means, unless otherwise
specifically limited, real or personal property of any kind, tangible or
intangible, choate or inchoate.
"Property Reinvestment Application" means, with respect to any
Asset Sale, the application of all or a portion of the Net Proceeds Amount with
respect to such Asset Sale to the acquisition by the Company or any Subsidiary
of operating assets of the Company or any Subsidiary to be used in the business
of such Person.
"Proposed Prepayment Date" is defined in Section 8.3(a).
"QPAM Exemption" means Prohibited Transaction Class
Exemption 84-14 issued by the United States Department of Labor.
"Required Holders" means, at any time, the holders of at least
51% in principal amount of the Notes at the time outstanding (exclusive of Notes
then owned by the Company or any of its Affiliates).
"Responsible Officer" means any Senior Financial Officer and
any other officer of the Company with responsibility for the administration of
the relevant portion of this agreement.
"Restricted Investments" means all Investments except the
following:
(a) Investments in one or more Subsidiaries or any Person
that concurrently with such Investment becomes a
Subsidiary;
(b) Investments existing on the date of the Closing and
disclosed in Schedule 10.11;
(c) Investments by Subsidiaries in the form of guaranties
of the Notes and obligations of the Company under
Credit Facilities;
(d) Investments in United States Governmental Securities,
provided that such obligations mature within 365 days
from the date of acquisition thereof;
(e) Investments in certificates of deposit or banker's
acceptances issued by an Acceptable Bank, provided that
such obligations mature within 365 days from the date
of acquisition thereof;
(f) Investments in commercial paper given the highest
rating by S&P or Moody's and maturing not more than 270
days from the date of creation thereof;
(g) Investments in Repurchase Agreements; and
(h) Investments in tax-exempt obligations of any state of
the United States of America, or any municipality of
any such state, in each case rated "AA" or better by
S&P, "Aa2" or better by Moody's or an equivalent rating
by any other credit rating agency of recognized
national standing, provided that such obligations
mature within 365 days from the date of acquisition
thereof.
As used in this definition of "Restricted Investments":
"Acceptable Bank" means any bank or trust company (i)
which is organized under the laws of the United States of
America or any State thereof, (ii) which has capital, surplus
and undivided profits aggregating at least $500,000,000, and
(iii) whose long-term unsecured debt obligations (or the
long-term unsecured debt obligations of the bank holding
company owning all of the capital stock of such bank or trust
company) shall have been given a rating of "A" or better by
S&P or "A2" or better by Moody's.
"Acceptable Broker-Dealer" means any Person other
than a natural person (i) which is registered as a broker or
dealer pursuant to the Exchange Act and (ii) whose long-term
unsecured debt obligations shall have been given a rating of
"A" or better by S&P or "A2" or better by Moody's.
"Moody's" means Moody's Investors Services, Inc.
"Repurchase Agreement" means any written agreement
(a) that provides for (i) the transfer of
one or more United States Governmental Securities in
an aggregate principal amount at least equal to the
amount of the Transfer Price (defined below) to the
Company or any of its Subsidiaries from an Acceptable
Bank or an Acceptable Broker-Dealer against a
transfer of funds (the "Transfer Price") by the
Company or such Subsidiary to such Acceptable Bank or
Acceptable Broker-Dealer, and (ii) a simultaneous
agreement by the Company or such Subsidiary, in
connection with such transfer of funds, to transfer
to such Acceptable Bank or Acceptable Broker-Dealer
the same or substantially similar United States
Governmental Securities for a price not less than the
Transfer Price plus a reasonable return thereon at a
date certain not later than 31 days after such
transfer of funds;
(b) in respect of which the Company or such
Subsidiary shall have the right, whether by contract
or pursuant to applicable law, to liquidate such
agreement upon the occurrence of any default
thereunder; and
(c) in connection with which the Company or
such Subsidiary, or an agent thereof, shall have
taken all action required by applicable law or
regulations to perfect a first priority Lien in such
United States Governmental Securities.
Ratable Portion" is defined within the definition of Debt
Prepayment Application.
"S&P" means Standard & Poor's Ratings Group, a
division of McGraw Hill, Inc.
"United States Governmental Security" means any
direct obligation of, or obligation guaranteed by, the United
States of America, or any agency controlled or supervised by
or acting as an instrumentality of the United States of
America pursuant to authority granted by the Congress of the
United States of America, so long as such obligation or
guarantee shall have the benefit of the full faith and credit
of the United States of America which shall have been pledged
pursuant to authority granted by the Congress of the United
States of America.
"Restricted Payment" means
(a) any Distribution in respect of the Company or any
Subsidiary, including, without limitation, any Distribution
resulting in the acquisition by the Company of Securities
which would constitute treasury stock, and
(b) any payment, repayment, redemption, retirement,
repurchase or other acquisition, direct or indirect, by the
Company or any Subsidiary of, on account of, or in respect of,
the principal of any Subordinated Debt (or any installment
thereof) prior to the regularly scheduled maturity date
thereof (as in effect on the date such Subordinated Debt was
originally incurred).
For purposes of this Agreement, the amount of any Restricted
Payment made in property shall be the greater of (x) the Fair Market Value of
such property (as determined in good faith by the board of directors (or
equivalent governing body) of the Person making such Restricted Payment) and (y)
the net book value thereof on the books of such Person, in each case determined
as of the date on which such Restricted Payment is made.
"Right to Put" has the meaning set forth in Section 8.6(a).
"Sale-Leaseback Transaction" means, with respect to any
Person, any direct or indirect arrangement pursuant to which properties are sold
or transferred by such Person or a Subsidiary of such Person and are thereafter
leased back from the purchaser or transferee thereof by such Person or one of
its Subsidiaries.
"Security" has the meaning set forth in section 2(1) of the
Securities Act.
"Securities Act" means the Securities Act of 1933, as amended
from time to time.
"Senior Financial Officer" means, as to any Person, the chief
financial officer, principal accounting officer, treasurer or comptroller of
such Person.
"Subordinated Debt" means any Indebtedness that is in any
manner subordinated in right of payment or security in any respect to
Indebtedness evidenced by the Notes.
"Subsidiary" means, as to any Person, any corporation,
association or other business entity in which such Person or one or more of its
Subsidiaries or such Person and one or more of its Subsidiaries owns a majority
of the Voting Stock. Unless the context otherwise clearly requires, any
reference to a "Subsidiary" is a reference to a Subsidiary of the Company.
"Taxes" means, for any period, the sum of all provisions for
U.S. Federal, state and foreign income taxes of the Company and its
Subsidiaries, all as determined on a consolidated basis in accordance with GAAP.
"Voting Stock" means, with respect to any Person, any shares
of Capital Stock of such Person the holders of which are entitled under ordinary
circumstances to vote for the election of directors or similar governing body of
such Person (irrespective of whether at the time Capital Stock of any other
class or classes shall have or might have voting power by reason of the
happening of any contingency).
"Wholly-Owned Subsidiary" means, at any time, any Subsidiary
one hundred percent (100%) of all of the Capital Stock (except directors'
qualifying shares) of which is owned by any one or more of the Company and the
Company's other Wholly-Owned Subsidiaries at such time.
SCHEDULE A
[FORM OF NOTE]
WHOLE FOODS MARKET, INC.
7.29% SENIOR NOTE DUE May 16, 2006
No. [_____] [Date]
$[_______] PPN 966837 A* 7
FOR VALUE RECEIVED, the undersigned, WHOLE FOODS MARKET, INC.
(herein called the "Company"), a corporation organized and existing under the
laws of the State of Texas, hereby promises to pay to [ ], or registered
assigns, the principal sum of [ ] DOLLARS on May 16, 2006, with interest
(computed on the basis of a 360-day year of twelve 30-day months) (a) on the
unpaid balance thereof at the rate of 7.29% per annum from the date hereof,
payable quarterly in arrears, on the sixteenth day of February, May, August and
November in each year, commencing with the sixteenth day of February, May,
August or November next succeeding the date hereof, until the principal hereof
shall have become due and payable, and (b) to the extent permitted by law on any
overdue payment (including any overdue prepayment) of principal, any overdue
payment of interest and any overdue payment of any Make-Whole Amount (as defined
in the Note Purchase Agreements referred to below), payable quarterly in arrears
as aforesaid (or, at the option of the registered holder hereof, on demand), at
a rate per annum from time to time equal to the greater of (i) 9.29% or (ii)
2.00% over the rate of interest publicly announced by The Chase Manhattan Bank,
N.A. from time to time in New York, New York as its "base" or "prime" rate.
Payments of principal of, interest on and any Make-Whole
Amount with respect to this Note are to be made in lawful money of the United
States of America at the principal office of The Chase Manhattan Bank, N.A. in
New York, New York or at such other place as the Company shall have designated
by written notice to the holder of this Note as provided in the Note Purchase
Agreements referred to below.
This Note is one of a series of Senior Notes (herein called
the "Notes") issued pursuant to separate Note Purchase Agreements, dated May 16,
1996 (as from time to time amended, the "Note Purchase Agreements"; the
capitalized terms used but not defined herein being used with the respective
meanings specified in the Note Purchase Agreements), between the Company and the
respective Purchasers named therein and is entitled to the benefits thereof.
Each holder of this Note will be deemed, by its acceptance hereof, (i) to have
agreed to the confidentiality provisions set forth in Section 20 of the Note
Purchase Agreements and (ii) to have made the representation set forth in
Section 6.2 of the Note Purchase Agreements.
This Note and the holder hereof are entitled, equally and
ratably with the holders of all other Notes guaranteed by each Guarantor
pursuant to a certain Master Guaranty of even date with the Note Purchase
Agreements executed by the Subsidiaries of the Company, to all benefits provided
thereby or referred to therein, and reference is made to such Master Guaranty
for a statement of such benefits.
This Note is a registered Note and, as provided in the Note
Purchase Agreements, upon surrender of this Note for registration of transfer,
duly endorsed, or accompanied by a written instrument of transfer duly executed,
by the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the purpose of receiving payment and
for all other purposes, and the Company will not be affected by any notice to
the contrary.
The Company will make required prepayments of principal on the
dates and in the amounts specified in the Note Purchase Agreements. This Note is
also subject to optional prepayment, in whole or from time to time in part, at
the times and on the terms specified in the Note Purchase Agreements and to a
Right to Put on the terms specified in the Note Purchase Agreements.
If an Event of Default, as defined in the Note Purchase
Agreements, occurs and is continuing, the principal of this Note may be declared
or otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreements.
The Company and any and all endorsers, guarantors and sureties
severally waive grace, demand, presentment for payment, notice of dishonor or
default, notice of intent to accelerate, notice of acceleration (to the extent
set forth in the Note Purchase Agreements), protest and diligence in collecting.
Should any indebtedness represented by this Note be collected
at law or in equity, or in bankruptcy or other proceedings, or should this Note
be placed in the hands of attorneys for collection, the Company agrees to pay,
in addition to the principal, Make-Whole Amount, if any, and interest due and
payable hereon, all costs of collecting or attempting to collect this Note,
including reasonable attorneys' fees and expenses (including those incurred in
connection with any appeal).
This Note shall be construed and enforced in accordance with,
and the rights of the parties shall be governed by, the law of the State of New
York.
WHOLE FOODS MARKET, INC.
By
[Title]
SCHEDULE A
FORM OF OPINION OF COUNSEL
FOR THE COMPANY
Matters To Be Covered In
Opinion of Counsel For The Company
1. Each of the Company and the Guarantors being duly incorporated, validly
existing and in good standing, the Company having requisite corporate power
and authority to issue and sell the Notes and to execute, deliver and
perform its obligations under this Agreement and the Other Agreements, and
the Guarantors having requisite corporate or partnership power and
authority to execute, deliver and perform their obligations under the
Guaranty and the Contribution Agreement.
2. Each of the Company and the Guarantors being duly qualified and in good
standing as a foreign corporation in appropriate jurisdictions.
3. Due authorization and execution of this Agreement, the Other Agreements,
the Notes, the Guaranty and the Contribution Agreement and such documents
being legal, valid, binding and enforceable.
4. No conflicts with charter documents, laws or other agreements.
5. All consents required to issue and sell the Notes and to execute,
deliver and perform the this Agreement, the Other Agreements, the Guaranty
and the Contribution Agreement having been obtained.
6. No litigation questioning validity of this Agreement, the Other
Agreements, the Notes, the Guaranty or the Contribution Agreement or in
which, in the event of an adverse outcome, there is a reasonable likelihood
of a Material Adverse Effect.
7. The Notes not requiring registration under the Securities Act of 1933,
as amended; no need to qualify an indenture under the Trust Indenture Act
of 1939, as amended.
8. No violation of Regulations G, T or X of the Federal Reserve Board.
9. Company not an "investment company", or a company "controlled" by an
"investment company", under the Investment Company Act of 1940, as amended.
10. Texas state courts and federal courts applying Texas conflict of laws
principles giving effect to the choice of law provisions contained in this
Agreement, the Other Agreements, the Notes, the Guaranty and the
Contribution Agreement.
EXHIBIT 4.4(b)
FORM OF OPINION OF SPECIAL COUNSEL
TO THE PURCHASERS
Matters To Be Covered In
Opinion of Special Counsel To the Purchasers
1. Each of the Company and the Guarantors being duly incorporated, validly
existing and in good standing, the Company having requisite corporate power
and authority to issue and sell the Notes and to execute, deliver and
perform its obligations under this Agreement and the Other Agreements, and
the Guarantors having requisite corporate or partnership power and
authority to execute, deliver and perform their obligations under the
Guaranty and the Contribution Agreement.
2. Due authorization and execution of this Agreement, the Other Agreements,
the Notes, the Guaranty and the Contribution Agreement and such documents
being legal, valid, binding and enforceable.
3. No conflicts with charter documents or bylaws.
4. The Notes not requiring registration under the Securities Act of 1933,
as amended; no need to qualify an indenture under the Trust Indenture Act
of 1939, as amended.
5. The opinion of counsel to the Company being satisfactory in form and
scope and the purchasers of the Notes being justified in relying thereon.
Exhibit 8.3(b)
FORM OF ACCEPTANCE OF RATABLE PREPAYMENT OFFER
Whole Foods Market, Inc.
601 N. Lamar
Suite 300
Austin, Texas 78703
Attention: Chief Financial Officer
Ladies and Gentlemen:
Reference is made to the separate Note Purchase Agreements,
dated May 16, 1996 (the "Note Agreements", the capitalized terms herein being
used herein as therein defined), between Whole Foods Market, Inc. (the
"Company") and each of American General Life Insurance Company, Independent Life
and Accident Insurance Company, Metropolitan Life Insurance Company and GWL
Properties, Inc. which provide, among other things, for the issuance and sale by
the Company of its 7.29% Senior Notes due May 16, 2006, in the aggregate
principal amount of $40,000,000. In accordance with Section 8.3(b) of the Note
Agreements, the undersigned hereby accepts the offer of the Company to prepay at
par the Ratable Portion of all Notes held by the undersigned. The undersigned
recognizes that its Ratable Portion may increase in amount automatically,
pursuant to the definition of Ratable Portion provided in the Note Agreements,
if the holder or holders of other Notes do not accept the Company's offer to
prepay.
Please transfer in immediately available funds, on the
Proposed Prepayment Date specified pursuant to Section 8.3(a) of the Note
Agreements, the Ratable Portion of the outstanding principal amount of Notes
held by the undersigned and accrued and unpaid interest thereon with respect to
the foregoing acceptance of the Company's offer to prepay.
Date:
[NAME OF HOLDER OF NOTES]
By:
Name:
Title:
EXHIBIT 8.6(b)
FORM OF NOTICE OF SALE
Whole Foods Market, Inc.
601 N. Lamar
Suite 300
Austin, Texas 78703
Attention: Chief Financial Officer
Ladies and Gentlemen:
Reference is made to the separate Note Purchase Agreements,
dated May 16, 1996 (the "Note Agreements", the capitalized terms herein being
used herein as therein defined), between Whole Foods Market, Inc. (the
"Company") and each of American General Life Insurance Company, Independent Life
and Accident Insurance Company, Metropolitan Life Insurance Company and GWL
Properties, Inc. which provide, among other things, for the issuance and sale by
the Company of its 7.29% Senior Notes due May 16, 2006, in the aggregate
principal amount of $40,000,000. In accordance with Section 8.6 of the Note
Agreements, the undersigned hereby irrevocably exercises its Right to Put with
respect to all Notes held by it.
Please transfer in immediately available funds, on
____________________ [not less than 20 days after delivery of this Notice of
Sale], the outstanding principal amount of the Notes held by the undersigned and
accrued and unpaid interest thereon with respect to the foregoing exercise of
the undersigned's Right to Put.
Date:
[NAME OF HOLDER OF NOTES]
By:
Name:
Title:
EXHIBIT 2
FORM OF GUARANTY
[TO COME]
TABLE OF CONTENTS
Section Page
1. AUTHORIZATION OF NOTES - 1 -
2. SALE AND PURCHASE OF NOTES - 1 -
3. CLOSING - 2 -
4. CONDITIONS TO CLOSING - 2 -
4.1. Representations and Warranties - 2 -
4.2. Performance; No Default - 2 -
4.3. Compliance Certificates - 3 -
4.4. Opinions of Counsel - 3 -
4.5. Purchase Permitted By Applicable Law, etc. - 3 -
4.6. Sale of Other Notes - 3 -
4.7. Payment of Special Counsel Fees - 4 -
4.8. Private Placement Number - 4 -
4.9. Changes in Corporate Structure - 4 -
4.10. Guaranty and Contribution Agreement - 4 -
4.11. Proceedings and Documents - 4 -
4.12. Amendment of Credit Facility - 4 -
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY - 4 -
5.1. Organization; Power and Authority - 5 -
5.2. Authorization, etc. - 5 -
5.3. Disclosure - 5 -
5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates - 6 -
5.5. Financial Statements - 6 -
5.6. Compliance with Laws, Other Instruments, etc. - 7 -
5.7. Governmental Authorizations, etc. - 7 -
5.8. Litigation; Observance of Agreements, Statutes and Orders - 7 -
5.9. Taxes - 8 -
5.10. Title to Property; Leases - 8 -
5.11. Licenses, Permits, etc - 8 -
5.12. Compliance with ERISA - 9 -
5.13. Private Offering by the Company - 10 -
5.14. Use of Proceeds; Margin Regulations - 10 -
5.15. Existing Indebtedness; Future Liens - 10 -
5.16. Foreign Assets Control Regulations, etc. - 11 -
5.17. Status under Certain Statutes - 11 -
5.18. Environmental Matters - 11 -
6. REPRESENTATIONS OF THE PURCHASER - 12 -
6.1. Purchase for Investment - 12 -
6.2. Source of Funds - 12 -
7. INFORMATION AS TO COMPANY - 13 -
7.1. Financial and Business Information - 13 -
7.2. Officer's Certificate - 16 -
7.3. Inspection - 17 -
8. PREPAYMENT OF THE NOTES - 17 -
8.1. Required Prepayments - 17 -
8.2. Optional Prepayments with Make-Whole Amount - 17 -
8.3. Offer to Prepay Notes in the Event of a
Debt Prepayment Application - 18 -
8.4. Allocation of Partial Prepayments - 19 -
8.5. Maturity; Surrender, etc. - 19 -
8.6. Right to Put. - 19 -
8.7. Purchase of Notes - 20 -
8.8. Make-Whole Amount - 21 -
9. AFFIRMATIVE COVENANTS - 22 -
9.1. Compliance with Law - 22 -
9.2. Insurance - 22 -
9.3. Maintenance of Properties - 23 -
9.4. Payment of Taxes and Claims - 23 -
9.5. Corporate Existence, etc. - 23 -
9.6. ERISA Compliance. - 24 -
9.7. Covenant to Secure Notes Equally. - 24 -
9.8. Covenant to Provide Additional Guarantees. - 24 -
10. NEGATIVE COVENANTS - 24 -
10.1. Transactions with Affiliates - 24 -
10.2. Merger, Consolidation, etc - 25 -
10.3. Liens - 25 -
10.4. Fixed Charges Coverage Ratio. - 27 -
10.5. Line of Business. - 27 -
10.6. Sale of Assets. - 27 -
10.7. Limitation on Indebtedness. - 27 -
10.8. Limitation on Subsidiary Indebtedness. - 27 -
10.9. Limitation on Certain Restrictive Agreements. - 28 -
10.10. Restricted Payments. - 28 -
10.11. Restricted Investments. - 29 -
11. EVENTS OF DEFAULT - 29 -
12. REMEDIES ON DEFAULT, ETC. - 31 -
12.1. Acceleration - 31 -
12.2. Other Remedies - 32 -
12.3. Rescission - 32 -
12.4. No Waivers or Election of Remedies, Expenses, etc. - 33 -
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES - 33 -
13.1. Registration of Notes - 33 -
13.2. Transfer and Exchange of Notes - 33 -
13.3. Replacement of Notes - 34 -
14. PAYMENTS ON NOTES - 34 -
14.1. Place of Payment - 34 -
14.2. Home Office Payment - 34 -
15. EXPENSES, ETC - 35 -
15.1. Transaction Expenses - 35 -
15.2. Survival - 35 -
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
ENTIRE AGREEMENT - 36 -
17. AMENDMENT AND WAIVER - 36 -
17.1. Requirements - 36 -
17.2. Solicitation of Holders of Notes - 36 -
17.3. Binding Effect, etc. - 37 -
17.4. Notes held by Company, etc. - 37 -
18. NOTICES - 37 -
19. REPRODUCTION OF DOCUMENTS - 38 -
20. CONFIDENTIAL INFORMATION - 38 -
21. SUBSTITUTION OF PURCHASER - 39 -
22. MISCELLANEOUS - 40 -
22.1. Successors and Assigns - 40 -
22.2. Payments Due on Non-Business Days - 40 -
22.3. Severability - 40 -
22.4. Construction - 40 -
22.5. Counterparts - 40 -
22.6. Governing Law - 41 -
SCHEDULE A -- Information Relating to Purchasers
SCHEDULE B -- Defined Terms
SCHEDULE 4.9 -- Changes in Corporate Structure
SCHEDULE 5.3 -- Disclosure Materials
SCHEDULE 5.4 -- Subsidiaries of the Company and
Ownership of Subsidiary Stock
SCHEDULE 5.5 -- Financial Statements
SCHEDULE 5.8 -- Certain Litigation
SCHEDULE 5.11 -- Patents, etc.
SCHEDULE 5.14 -- Use of Proceeds
SCHEDULE 5.15 -- Existing Indebtedness and Liens
SCHEDULE 10.11 -- Existing Investments
EXHIBIT 1 -- Form of 7.29% Senior Note due May 16, 2006
EXHIBIT 2 -- Form of Guaranty
EXHIBIT 2A -- Form of Contribution Agreement
EXHIBIT 4.4(a) -- Form of Opinion of Counsel for the
Company
EXHIBIT 4.4(b) -- Form of Opinion of Special Counsel
for the Purchasers
EXHIBIT 8.3(B) -- Form of Acceptance of Ratable Prepayment Offer
EXHIBIT 8.6(b) -- Form of Notice of Sale
EXHIBIT 9.8 -- Form of Joinder Agreement
WHOLE FOODS MARKET, INC.
$40,000,000
7.29% Senior Notes due May 16, 2006
NOTE PURCHASE AGREEMENT
Dated May 16, 1996
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Whole Foods Market, Inc.:
We consent to incorporation by reference in the registration statements (No.
333-11271 and No. 333-11273) on Form S-8, the registration statement (No.
333-7719) on Form S-4, and the registration statement (No. 333-968) on Form
S-3 of Whole Foods Market, Inc. of our report dated November 15, 1996,
relating to the consolidated balance sheets of Whole Foods Market, Inc. and
subsidiaries as of September 29, 1996 and September 24, 1995, and the related
consolidated statements of operations, shareholders' equity and cash flows
for each of the fiscal years in the three fiscal-year period ended September
29, 1996, which report appears in the September 29, 1996 annual report on
Form 10-K of Whole Foods Market, Inc.
KPMG Peat Marwick, LLP
Austin, Texas
December 20, 1996
S-1