- on June 9, 2000, a USD 28 loan, bearing interest per annum at LIBOR plus a margin of 100 basis points, maturing
on June 9, 2001, subject to extensions for additional one-year terms, and secured by a pledge of 117 shares of DAIH
owned by VRH;
- on June 12, 2001, a USD 30 loan, bearing interest per annum at LIBOR plus a margin of 125 basis points, maturing on
December 14, 2002, subject to one two-year extension, and secured by a pledge of 122 shares of DAIH owned by VRH;
and
- on May 23, 2002, a USD 24 loan (the "May 2002 Loan"), bearing interest per annum at LIBOR plus a margin of 100
basis points, maturing on May 23, 2005, subject to prepayment under certain circumstances, and secured by a pledge
of 302 shares of DAIH 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, Ahold agreed with the relevant Lender that, if an event of default occurred in respect
of that Secured Bank Loan, Ahold would purchase or cause one of its designated affiliates to purchase from VRH the DAIH
shares pledged in connection therewith at a specified price: USD 260,000 per share in the case of all of the Secured
Bank Loans except for the May 2002 loan, and USD 82,500 per share in the case of the May 2002 Loan. It was agreed
that the proceeds would be paid by Ahold or its designated affiliate to the relevant Lender under the related Secured Bank
Loan for amounts owed by VRH to that Lender there under.
On March 5, 2002, Ahold provided a USD 5 unsecured loan to VRH (the "USD 5 Loan").
No accrual was made in Ahold's fiscal 2000 financial statements for the contingent liabilities relating to the foregoing
arrangements since the likelihood that VRH would default was considered 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 as of April 9, 2002, the date of the filing of Ahold's fiscal 2001
annual report on Form 20-F, Ahold concluded at the time that it was reasonably possible but not probable that VRH would
default. The negative evidence included:
a) the deterioration of the Argentine economy in the latter half of 2001, followed by the enactment of certain economic
policies in Argentina in 2002, including a policy under which certain debts denominated in US dollars within the
banking sector were adjusted to fix the loans as peso loans on a one-to-one mandatory conversion basis. The Company
believes this policy especially affected the Peirano family, whose holdings included Argentine banking assets.
b) communications from a member of the Peirano family and from VRH management in 2002 indicating the existence of
liquidity problems.
The positive evidence included:
- indications that certain financial institutions were providing support to the Peirano family.
- 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 the balance, the Company believed that while it was reasonably possible, it was not probable as of the date of release
of its 2001 financial statements, that VRH would default on its loans. Accordingly, no accrual was recorded in Ahold's
fiscal 2001 financial statements.
The Company's management believes that the effects of a new 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 2002, are the primary events that may have ultimately led to Velox'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, the Company believes that
even in the event that it were to have concluded that Velox's default was probable at the date of the issuance of the
Company's financial statements on April 9, 2002, the loss would not have been recorded in 2001, because conditions did
not exist at the date of the balance sheet being reported on, but rather arose subsequent to that date.
On July 16, 2002, Ahold received a default notice from one of the Lenders, which then triggered defaults under all of the
Secured Bank Loans and the Note Sale Agreement. Subsequently, each of the Lenders exercised its right to require that
Ahold purchase shares of DAIH pledged to secure VRH's obligations under the relevant Secured Bank Loan. In accordance
with Ahold's agreements with the Lenders, in July and August 2002, Ahold Latin America, Inc., as the affiliate designated
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