00 Ahold ANNUAL REPORT 2002 37
BOARD GOVERNANCE HIGHLIGHTS OPERATING REVIEW FINANCIAL INVESTOR REL AT IONS
- On June 12, 2001, a USD 30 million loan, bearing interest per annum at LIBOR plus a margin of 1.25%, initially
maturing on December 14, 2002, subject to one two-year extension, and secured by a pledge of 122 DAIH shares
owned by VRH; and
- On May 23, 2002, a USD 24 million loan (the "May 2002 Loan"), bearing interest per annum at LIBOR plus a margin
of 1.0%, initially maturing on May 23, 2005, subject to prepayment under certain circumstances, and secured by a
pledge of 302 DAIH shares owned by VRH.
A portion of the proceeds of the Secured Bank Loans was used to finance VRH's share of capital investments in DAIH.
At the time of each Secured Bank Loan, we agreed with the relevant Lender that, if an event of default occurred in respect
of that Secured Bank Loan, we would purchase or cause one of our designated affiliates to purchase from VRH the DAIH
shares pledged in connection therewith at a specified price of USD 260,000 per share in the case of all of the Secured
Bank Loans (except the May 2002 Loan for which USD 82,500 per share was the specified price). It was agreed that the
proceeds would be paid by us or our designated affiliate to the relevant Lender under the related Secured Bank Loan for
amounts owed by VRH to that Lender thereunder.
On March 5, 2002, we made a USD 5 million unsecured loan to VRH (the "USD 5 Million Loan").
No accrual was made in our fiscal 2000 financial statements for the contingent liabilities relating to the foregoing
arrangements that existed at the time since the likelihood that VRH would default on the VRH Loans was considered by
us to be remote at the time. Shortly after the end of fiscal 2001, there were indications that VRH and the Velox group
were facing financial difficulties as a result of the deteriorating political and economic situation in Argentina. Based on
an evaluation of the positive and negative evidence available to assess the likelihood of a default of VRH under the
VRH Loans as of April 9, 2002 (the date of the filing of our fiscal 2001 annual report on Form 20-F), we concluded at
the time that it was reasonably possible but not probable that VRH would default. The negative evidence included:
- The deterioration of the Argentine economy in the latter half of fiscal 2001, followed by the enactment of certain
economic policies in Argentina in fiscal 2002, including a policy under which certain debts denominated in US dollars
within the banking sector were redenominated as Argentine Peso loans on a one-to-one mandatory conversion basis. We
believe this policy especially affected the Peirano family, whose holdings included Argentine banking assets; and
- Communications from a member of the Peirano family and from VRH management in fiscal 2002 indicating the
existence of liquidity problems.
The positive evidence included:
- Indications that certain financial institutions were providing support to the Peirano family; and
- Confirmations received from a member of the Peirano family indicating an ability and intent to avoid default and remain
a long-term partner in DAIH.
On balance, we believed that while it was reasonably possible, it was not probable, as of the date of release of our fiscal
2001 financial statements, that VRH would default on its loans. Accordingly, no accrual was recorded in our fiscal 2001
financial statements.
Our management believes that the effects of the new redenomination law enacted in Argentina, the subsequent
devaluation of the Argentine Peso, and subsequent actions taken by national banking regulators with respect to the Velox
group banks, all of which happened in fiscal 2002, are the primary events that may have ultimately led to VRH's default.
Since a large portion of the Velox group's holdings comprised banks in Argentina and Uruguay, these events are believed to
have significantly affected not only the Velox group's bank in Argentina, but also its bank in Uruguay. Therefore, we believe
that, even in the event that we were to have concluded that VRH's default was probable at the date of the issuance of our
financial statements on April 9, 2002, the loss would not have been recorded in fiscal 2001, because these conditions
did not exist at December 30, 2001, but rather arose subsequent to that date.
On July 16, 2002, we received a default notice from one of the Lenders, which subsequently triggered defaults under
all of the VRH Loans. Subsequently, each of the Lenders exercised its right to require that we (or a designated affiliate)
purchase DAIH shares pledged to secure VRH's obligations under the relevant Secured Bank Loan. In accordance with
our agreements with the Lenders, in July and August 2002, Ahold Latin America, as the affiliate designated by us,
