<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 27, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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RALPHS GROCERY COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5411 95-4356030
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
SUBSIDIARY REGISTRANTS
ALPHA BETA COMPANY CALIFORNIA 95-1456805
BAY AREA WAREHOUSE STORES, INC. CALIFORNIA 93-1087199
BELL MARKETS, INC. CALIFORNIA 94-1569281
CALA CO. DELAWARE 95-4200005
CALA FOODS, INC. CALIFORNIA 94-1342664
CRAWFORD STORES, INC. CALIFORNIA 95-0657410
FALLEY'S, INC. KANSAS 48-0605992
FOOD 4 LESS OF CALIFORNIA, INC. CALIFORNIA 33-0293011
FOOD 4 LESS GM, INC. CALIFORNIA 95-4390407
FOOD 4 LESS MERCHANDISING, INC. CALIFORNIA 33-0483193
FOOD 4 LESS OF SOUTHERN CALIFORNIA, INC. DELAWARE 33-0483203
(EXACT NAME OF REGISTRANT AS (STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
SPECIFIED IN ITS CHARTER) OF IDENTIFICATION
INCORPORATION OR NUMBER)
ORGANIZATION)
</TABLE>
1100 WEST ARTESIA BOULEVARD
COMPTON, CALIFORNIA 90220
(310) 884-9000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JAN CHARLES GRAY, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
RALPHS GROCERY COMPANY
1100 WEST ARTESIA BOULEVARD
COMPTON, CALIFORNIA 90220
(310) 884-9000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPY TO:
THOMAS C. SADLER, ESQ.
LATHAM & WATKINS
633 WEST FIFTH STREET, SUITE 4000
LOS ANGELES, CALIFORNIA 90071
(213) 485-1234
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
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CALCULATION OF REGISTRATION FEE
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<S> <C> <C> <C> <C>
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PROPOSED
TITLE OF EACH PROPOSED AGGREGATE AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER NOTE(1) PRICE(1) FEE
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10.45% Senior Notes due 2004........... $100,000,000 100% $100,000,000 $34,483
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Subsidiary Guarantees of the 10.45%
Senior Notes due 2004................ -- -- -- (2)
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(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457.
(2) Pursuant to Rule 457(n), no separate registration fee is payable with
respect to the Subsidiary Guarantees.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
RALPHS GROCERY COMPANY
CROSS REFERENCE SHEET
PURSUANT TO RULE 404(A) AND ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF THE INFORMATION
REQUIRED BY PART I OF FORM S-4
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<C> <S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus................. Outside Front Cover Page; Cross
Reference Sheet; Inside Front Cover
Page
2. Inside Front and Outside Back Cover Pages of
Prospectus..................................... Inside Front Cover Page; Outside Back
Cover Page
3. Risk Factors, Ratio of Earnings to Fixed Charges
and Other Information.......................... Prospectus Summary; Risk Factors;
Selected Historical Financial Data of
the Company; Selected Historical
Financial Data of Ralphs
4. Terms of the Transaction......................... The Exchange Offer; Certain Federal
Income Tax Consequences; Description
of the Notes
5. Pro Forma Financial Information.................. Prospectus Summary; Unaudited Pro
Forma Combined Statement of
Operations
6. Material Contacts with the Company Being
Acquired....................................... Not Applicable
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to be
Underwriters................................... Not Applicable
8. Interests of Named Experts and Counsel........... Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................... Not Applicable
10. Information with Respect to S-3 Registrants...... Not Applicable
11. Incorporation of Certain Information by
Reference...................................... Not Applicable
12. Information with Respect to S-2 or S-3
Registrants.................................... Not Applicable
13. Incorporation of Certain Information by
Reference...................................... Not Applicable
14. Information with Respect to Registrants Other
Than S-3 or S-2 Registrants.................... Prospectus Summary; Capitalization;
Selected Historical Financial Data of
the Company; Selected Historical
Financial Data of Ralphs;
Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business; Management;
Certain Relationships and Related
Transactions; Description of the New
Credit Facility; Description of the
Notes; Financial Statements
15. Information with Respect to S-3 Companies........ Not Applicable
16. Information with Respect to S-2 or S-3
Companies...................................... Not Applicable
17. Information with Respect to Companies Other Than
S-2 or S-3 Companies........................... Not Applicable
18. Information if Proxies, Consents or
Authorizations are to be Solicited............. Not Applicable
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or in an
Exchange Offer................................. Management; The Exchange Offer;
Certain Relationships and Related
Transactions
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 27, 1996
PROSPECTUS
OFFER TO EXCHANGE
10.45% SENIOR NOTES DUE 2004
FOR ALL OUTSTANDING 10.45% SENIOR NOTES DUE 2004
OF
RALPHS GROCERY COMPANY
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON
, 1996 UNLESS EXTENDED.
Ralphs Grocery Company, a Delaware corporation (the "Company"), is hereby
offering (the "Exchange Offer"), upon the terms and subject to the conditions
set forth in this Prospectus and the accompanying Letter of Transmittal (the
"Letter of Transmittal"), to exchange $1,000 principal amount of its 10.45%
Senior Notes due 2004 (the "Exchange Notes"), which exchange has been registered
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to
a registration statement of which this Prospectus is a part (the "Registration
Statement"), for each $1,000 principal amount of its outstanding 10.45% Senior
Notes due 2004 (the "Private Notes"), of which $100,000,000 in aggregate
principal amount was issued on June 6, 1996 and is outstanding as of the date
hereof. The form and terms of the Exchange Notes are the same as the form and
terms of the Private Notes except that (i) the exchange will have been
registered under the Securities Act, and, therefore, the Exchange Notes will not
bear legends restricting the transfer thereof and (ii) holders of the Exchange
Notes will not be entitled to certain rights of holders of the Private Notes
under the Registration Rights Agreement (as defined herein), which rights will
terminate upon the consummation of the Exchange Offer. The Exchange Notes will
evidence the same indebtedness as the Private Notes (which they replace) and
will be entitled to the benefits of an indenture dated as of June 6, 1996
governing the Private Notes and the Exchange Notes (the "Indenture"). The
Private Notes and the Exchange Notes are sometimes referred to herein
collectively as the "Notes." See "The Exchange Offer" and "Description of the
Notes."
The Exchange Notes will bear interest at the same rate and on the same terms
as the Private Notes. Consequently, the Exchange Notes will bear interest at the
rate of 10.45% per annum and the interest thereon will be payable semi-annually
on June 15 and December 15 of each year, commencing December 15, 1996. The
Exchange Notes will bear interest from the date of the last interest payment on
the Private Notes (June 15, 1996). Holders whose Private Notes are accepted for
exchange will be deemed to have waived the right to receive any interest accrued
on the Private Notes.
The Exchange Notes will be redeemable, in whole or in part, at the option of
the Company, at any time on and after June 15, 2000 at the respective redemption
prices set forth herein, plus accrued and unpaid interest to the redemption
date. In addition, on or prior to June 15, 1998, the Company may, at its option,
use the net cash proceeds of one or more Public Equity Offerings (as defined) to
redeem up to an aggregate of 35% of the Notes originally issued at the
redemption prices set forth herein plus accrued and unpaid interest to the
redemption date. Upon a Change of Control (as defined) each holder of Exchange
Notes has the right to require the Company to repurchase such holder's Exchange
Notes at a price equal to 101% of their principal amount plus accrued and unpaid
interest to the date of repurchase. In addition, subject to certain conditions,
the Company will be obligated to make an offer to repurchase the Exchange Notes
at 100% of their principal amount, plus accrued and unpaid interest to the date
of repurchase, with the net cash proceeds of certain sales or other dispositions
of assets. The terms of the Exchange Notes will be substantially identical to
those of the Company's 10.45% Senior Notes due 2004 (the "1995 Senior Notes"),
which were issued in a registered offering on June 14, 1995 and of which $520.3
million aggregate principal amount is outstanding.
The Exchange Notes will be senior unsecured obligations of the Company and
will rank pari passu in right of payment with other senior unsecured
indebtedness of the Company. However, the Exchange Notes will be effectively
subordinated to all secured indebtedness of the Company and its subsidiaries,
including indebtedness under the New Credit Facility (as defined). See "Risk
Factors -- Corporate Structure; Effects of Asset Encumbrances." The Exchange
Notes will rank senior in right of payment to all subordinated indebtedness of
the Company. At April 21, 1996, pro forma for the offering of the Exchange Notes
and the application of proceeds therefrom, the Company and its subsidiaries
would have had outstanding $771.5 million aggregate principal amount of secured
indebtedness (not including obligations with respect to letters of credit issued
under the New Credit Facility, of which $88.2 million were outstanding as of
June 26, 1996), $619.6 million of senior unsecured indebtedness, and $671.2
million of subordinated indebtedness. The Exchange Notes will be unconditionally
guaranteed (the "Guarantees") on a senior unsecured basis by each of the
Company's wholly-owned subsidiaries (the "Subsidiary Guarantors").
The Company will accept for exchange any and all validly tendered Private
Notes not withdrawn prior to 5:00 p.m., New York City time, on , 1996,
unless the Exchange Offer is extended by the Company in its sole discretion (the
"Expiration Date"). Tenders of Private Notes may be withdrawn at any time prior
to the Expiration Date. Private Notes may be tendered only in integral multiples
of $1,000. The Exchange Offer is subject to certain customary conditions. See
"The Exchange Offer -- Conditions."
------------------------
SEE "RISK FACTORS" ON PAGE 18 FOR A DISCUSSION OF CERTAIN FACTORS THAT
INVESTORS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER AND AN
INVESTMENT IN THE EXCHANGE NOTES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is , 1996
<PAGE> 4
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes that the Exchange Notes issued pursuant to the
Exchange Offer in exchange for Private Notes may be offered for resale, resold
and otherwise transferred by a holder thereof (other than (i) a broker-dealer
who purchases such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii) a
person that is an affiliate of the Company within the meaning of Rule 405 under
the Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act; provided that the holder is acquiring
the Exchange Notes in the ordinary course of its business and is not
participating, and had no arrangement or understanding with any person to
participate, in the distribution of the Exchange Notes. Holders of Private Notes
wishing to accept the Exchange Offer must represent to the Company, as required
by the Registration Rights Agreement, that such conditions have been met. Each
broker-dealer that receives Exchange Notes for its own account in exchange for
Private Notes, where such Private Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities, must acknowledge
that it will deliver a prospectus in connection with any resale of such Exchange
Notes. The Company believes that none of the registered holders of the Private
Notes is an affiliate (as such term is defined in Rule 405 under the Securities
Act) of the Company.
Prior to the Exchange Offer, there has been no public market for the Notes.
The Company does not intend to list the Notes on any securities exchange or to
seek approval for quotation through any automated quotation system. There can be
no assurance that an active market for the Notes will develop. To the extent
that a market for the Notes does develop, the market value of the Notes will
depend on market conditions (such as yields on alternative investments), general
economic conditions, the Company's financial condition and certain other
factors. Such conditions might cause the Notes, to the extent that they are
traded, to trade at a significant discount from face value. See "Risk
Factors -- Absence of Public Market."
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Private Notes where such
Private Notes were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has indicated its intention
to make this Prospectus (as it may be amended or supplemented) available to any
broker-dealer for use in connection with any such resale for a period of 90 days
after the Expiration Date. See "Plan of Distribution."
The Company will not receive any proceeds from, and has agreed to bear the
expenses of, the Exchange Offer. No underwriter is being used in connection with
this Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF PRIVATE NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
No person is authorized in connection with the Exchange Offer to give any
information or to make any representation not contained in this Prospectus or
the accompanying Letter of Transmittal, and, if given or made, such information
or representation must not be relied upon as having been authorized by the
Company. Neither the delivery of this Prospectus or the accompanying Letter of
Transmittal, nor any exchange made hereunder shall under any circumstances
create any implication that the information contained herein is correct as of
any date subsequent to the date hereof.
Until , 1996 (90 days after the date of this Prospectus), all
dealers offering transactions in the Exchange Notes, whether or not
participating in the Exchange Offer, may be required to deliver a prospectus in
connection therewith. This is in addition to the obligation of dealers to
deliver a prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
2
<PAGE> 5
The Exchange Notes will be available initially only in book-entry form. The
Company expects that the Exchange Notes issued pursuant to the Exchange Offer
will be issued in the form of one or more fully registered global notes that
will be deposited with, or on behalf of, the Depository Trust Company ("DTC" or
the "Depositary") and registered in its name or in the name of Cede & Co., as
its nominee. Beneficial interests in the global note representing the Exchange
Notes will be shown on, and transfers thereof will be effected only through,
records maintained by the Depositary and its participants. After the initial
issuance of such global note, Exchange Notes in certificated form will be issued
in exchange for the global note only in accordance with the terms and conditions
set forth in the Indenture. See "Description of the Notes -- Book Entry."
3
<PAGE> 6
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the Financial Statements and notes thereto, appearing elsewhere in this
Prospectus. Unless the context otherwise requires, the terms "Food 4 Less" and
"Ralphs," as used herein, refer to Food 4 Less Supermarkets, Inc. ("Food 4
Less") and Ralphs Supermarkets, Inc. ("RSI") and their consolidated
subsidiaries, respectively, prior to the consummation of the merger between them
which occurred on June 14, 1995 (the "Merger"). The "Company" refers to Ralphs
Grocery Company as the surviving and renamed corporation following the
consummation of the Merger and includes, unless the context otherwise requires,
all of its consolidated subsidiaries. As used herein, "Southern California"
means Los Angeles, Orange, Ventura, San Bernardino, Riverside, San Diego, Kern
and Santa Barbara counties. Except as otherwise stated, references in this
Prospectus to numbers of stores are as of April 21, 1996. The statements
contained in this summary with respect to the Company's anticipated cost savings
and future operational strategies or results are forward-looking statements
which are inherently uncertain and subject to a number of factors that could
cause actual results to differ materially from the current estimates. See "Risk
Factors -- Ability to Achieve Anticipated Cost Savings."
THE COMPANY
The combination of Ralphs Grocery Company and Food 4 Less Supermarkets,
Inc. on June 14, 1995 created the largest food retailer in Southern California.
The Company operates 345 Southern California stores with an estimated 28% market
share in Los Angeles and Orange Counties. The Company operates the second
largest conventional supermarket chain in the region under the "Ralphs" name and
the largest warehouse supermarket chain under the "Food 4 Less" name. In
addition, the Company operates 26 conventional format stores and 36 warehouse
format stores in Northern California and the Midwest. Management believes the
Merger has provided the Company with the following benefits:
- - TWO LEADING COMPLEMENTARY FORMATS. The Company operates its conventional
supermarkets in Southern California under the "Ralphs" name and all of its
price impact warehouse format stores in Southern California under the "Food 4
Less" name. The Company operates 269 Ralphs conventional format stores and 76
Food 4 Less warehouse format stores in the region. The Ralphs stores emphasize
a broad selection of merchandise, high quality fresh produce, meat and seafood
and service departments, including bakery and delicatessen departments in most
stores. The Company's conventional stores also benefit from Ralphs' strong
private label program and its strengths in merchandising, store operations and
systems. Passing on format-related efficiencies, the price impact warehouse
format stores offer consumers the lowest overall prices while providing
product selections comparable to conventional supermarkets. Management
believes that the Food 4 Less warehouse format has demonstrated its appeal to
a wide range of demographic groups in Southern California and offers a
significant opportunity for future growth. The Company plans to open 16 new
Food 4 Less warehouse stores and 20 new Ralphs stores during fiscal years 1996
and 1997.
- - SUBSTANTIAL COST SAVINGS OPPORTUNITIES. At the time of the Merger, management
estimated that approximately $90 million of net annual cost savings (as
compared to the costs of Ralphs and Food 4 Less for the pro forma combined
fiscal year ended June 25, 1994) could be achieved by the end of the fourth
full year of combined operations following the Merger. Management also
estimated that approximately $117 million in Merger-related capital
expenditures and $50 million of other non-recurring costs would be required to
complete store conversions, integrate operations and expand warehouse
facilities over the same period. Although the Company has experienced delays
in the realization of certain of the cost savings anticipated at the time of
the Merger, the Company believes that the full amount of the $90 million in
estimated cost savings will still be realized within such time frame, as
described in further detail below. Moreover, since the Merger the Company has
invested approximately $70.1 million of the scheduled capital expenditures,
spent approximately $45.0 million of other non-recurring costs in integrating
its operations and expanding its warehouse facilities and has substantially
completed the extensive store conversion program which was undertaken pursuant
to the Merger. See "-- Post-Merger Events."
4
<PAGE> 7
The following anticipated savings are based on estimates and assumptions made by
the Company that are inherently uncertain, though considered reasonable by the
Company, and are subject to significant business, economic and competitive
uncertainties and contingencies, all of which are difficult to predict and many
of which are beyond the control of management. There can be no assurance that
such savings will be achieved. The sum of the components of the estimated annual
cost savings exceeds $90 million; however, management's estimate of $90 million
in net annual cost savings gives effect to an offsetting adjustment to reflect
its expectation that a portion of the savings will be reinvested in the
Company's operations. See "Risk Factors -- Ability to Achieve Anticipated Cost
Savings."
- -- REDUCED ADVERTISING EXPENSES. Consolidating the conventional format stores in
Southern California under the "Ralphs" name has eliminated most of the
separate advertising associated with Food 4 Less' prior Alpha Beta, Boys and
Viva formats. Since Ralphs' former advertising program covered the Southern
California region, the Company was able to advertise for all of its Southern
California stores under the existing Ralphs program. At the time of the
Merger, management estimated that annual advertising cost savings of
approximately $19 million, as compared to such costs for the pro forma
combined fiscal year ended June 25, 1994, could be achieved in the first full
year of combined operations following the Merger. On an annualized basis,
such cost savings have been achieved.
- -- REDUCED STORE OPERATIONS EXPENSE. Management plans to reduce store operations
costs as a result of both reduced labor and benefit costs and reduced
non-labor expenses. Store-level labor savings are expected to be achieved by
applying Ralphs' labor scheduling, computerized record keeping and other
advanced store systems to the Food 4 Less store base. In addition, management
believes that the adoption of Ralphs' store systems in non-labor areas, such
as energy management, safety programs and pooled supply purchasing, will
produce further annual cost savings. At the time of the Merger, management
estimated that annual store operations cost savings of approximately $21
million could be achieved by the fourth full year of combined operations
after certain required capital expenditures are made. Although the Company
has experienced higher-than-anticipated store operations expenses and delays
in realizing these cost savings, the Company continues to believe that such
cost savings will be achieved by the fourth full year of combined operations.
See "-- Post-Merger Events."
- -- INCREASED VOLUME PURCHASING EFFICIENCIES. The combined volume requirements
and leading market position of the Company have allowed the Company to obtain
improved terms from vendors, including suppliers of products carried on an
exclusive or promoted basis, and to convert some less-than-truckload shipping
quantities to full truckload quantities. At the time of the Merger,
management estimated that annual purchasing cost savings of approximately $19
million could be achieved by the second full year of combined operations. The
Company believes that the realization of such cost savings is substantially
on schedule.
- -- WAREHOUSING AND DISTRIBUTION EFFICIENCIES. Consolidating the Company's
warehousing and distribution operations into Ralphs' two primary facilities
located in Compton, California and the Glendale, California vicinity and the
modern distribution center located in Riverside, California (the "Riverside
Facility") which was subleased in December 1995 from Smith's Food & Drug
Centers, Inc. ("Smith's"), will result in lower outside storage,
transportation and labor costs. In addition, occupancy costs have been
reduced as a result of the closure of the Food 4 Less La Habra facility and
certain other facilities. At the time of the Merger, management estimated
that annual warehousing and distribution cost savings of approximately $16
million could be achieved by the third full year of combined operations after
certain capital expenditures on existing facilities were completed. In the
first year of combined operations, the Company experienced
higher-than-expected distribution expenses for the reasons discussed below.
See "-- Post-Merger Events." Moreover, the acquisition of the Riverside
Facility resulted in revisions to the Company's operating plan following the
Merger, necessitating some delay in the achievement of cost savings projected
for the first and second years of combined operations. However, management
believes that the Riverside Facility provides the Company with the
opportunity to obtain substantial additional efficiencies, and that the
annual cost savings of $16 million originally projected for the third year of
combined operations can still be achieved.
5
<PAGE> 8
- -- CONSOLIDATED MANUFACTURING. Ralphs and Food 4 Less operated manufacturing
facilities that produced similar products or had excess capacity. At the time
of the Merger, management believed that consolidating meat, bakery, dairy,
and other manufacturing and processing operations, and discontinuing external
purchases of certain goods that can be manufactured internally, should
achieve annual cost savings of approximately $10 million by the second full
year of combined operations. Due in part to plan revisions relating to the
acquisition of the Riverside Facility, which includes a creamery, management
believes that the realization of such level of cost savings will be deferred
to the third year of combined operations.
- -- CONSOLIDATED ADMINISTRATIVE FUNCTIONS. The Company has begun to achieve
savings from the elimination of redundant administrative staff, the
consolidation of management information systems and a decreased reliance on
certain outside services and consultants. At the time of the Merger,
management estimated that annual savings of approximately $15 million
associated with consolidating administrative functions should be achieved by
the second full year of combined operations. To date, the Company has
achieved annualized savings in administrative expense in excess of $15
million, and management believes that further savings in this area will be
obtained.
- - TECHNOLOGICALLY ADVANCED WAREHOUSING AND DISTRIBUTION. The Company utilizes
technologically advanced warehousing and distribution systems, which include
(i) the Riverside Facility, which is a one million square foot manufacturing
and distribution center consisting of a creamery and an integrated warehouse
for dry grocery, dairy/deli and frozen food storage, (ii) a 17 million cubic
foot high-rise automated storage and retrieval system warehouse in the
Glendale, California vicinity (the "ASRS") for non-perishable items and (iii)
a 5.4 million cubic foot perishable service center in Compton, California (the
"PSC") designed for processing, storing and distributing all perishable items.
These facilities will provide the Company with substantial operating benefits,
including: (i) enhanced turnover to further improve the freshness and quality
of in-store products, (ii) added opportunities in forward buying programs and
(iii) an increased percentage of inventory supplied by the Company's own
warehousing and distribution system. Management believes the utilization of
these facilities will enable the Company to meet the combined inventory
requirements of all stores with fewer employees and lower operating and
occupancy-related expenses.
- - STORE LOCATIONS. As a result of Ralphs' 123-year history and Alpha Beta
Company's ("Alpha Beta") 92-year history in Southern California, the Company
has valuable and well established store locations, many of which are in
densely populated metropolitan areas.
- - RECENTLY REMODELED AND NEW STORE BASE. The Company has a modern,
technologically advanced store base. During the five years ended January 28,
1996, on a combined basis, Ralphs and Food 4 Less opened 81 new stores and
remodeled 173 stores. Approximately 62.3% of the Company's stores have been
opened or remodeled during the last five years.
- - EXPERIENCED MANAGEMENT TEAM. The executive officers of the Company have
extensive experience in the supermarket industry. The Company's management
expertise combines the strengths of the former management teams of both Ralphs
and Food 4 Less, including strong store operations experience, a reputation
for quality and service, and demonstrated effectiveness in cost control and
the acquisition and integration of supermarket companies.
THE MERGER
On June 14, 1995, Food 4 Less Supermarkets, Inc. ("Food 4 Less") merged
into Ralphs Supermarkets, Inc. ("RSI") (the "RSI Merger"). Immediately following
the RSI Merger, Ralphs Grocery Company ("RGC"), which was a wholly-owned
subsidiary of RSI, merged with and into RSI (the "RGC Merger," and together with
the RSI Merger, the "Merger"), and RSI changed its name to Ralphs Grocery
Company. The Company is a wholly-owned subsidiary of Food 4 Less Holdings, Inc.
("Holdings"). The purchase price for RSI was approximately $1.5 billion,
including the assumption of debt. The consideration payable to the stockholders
of RSI consisted of $388.1 million in cash, $131.5 million principal amount of
13 5/8% Senior Subordinated Pay-In-Kind Debentures due 2007 (the "Seller
Debentures") issued by Holdings and
6
<PAGE> 9
$18.5 million initial accreted value of the 13 5/8% Senior Discount Debentures
due 2005 (the "New Discount Debentures") issued by Holdings.
POST-MERGER EVENTS
The Company has substantially completed its integration plan to convert and
rationalize the store formats of Ralphs and Food 4 Less. Since the Merger, the
Company has converted 111 former Alpha Beta, Boys and Viva stores to the Ralphs
format, converted 13 former Ralphs stores to the Food 4 Less warehouse store
format, and opened 21 new stores, including nine Southern California stores
acquired from Smith's which became available when Smith's withdrew from the
California market. The Company has sold or closed 56 stores as a result of
divestitures required by the State of California and other steps taken to
improve the average size and quality of its store base. As a result of the
closure and divestiture of smaller stores and the opening of larger stores, the
average square footage per store in Southern California has increased
approximately 9% from 36,100 square feet to 39,400 square feet.
Subsequent to the Merger, the Company experienced lower sales and higher
costs in certain areas of its operations than originally anticipated. The
shortfall in sales primarily resulted from achieving less benefit from the
Company's advertising program and experiencing greater competitive activity than
originally expected. Although the largest impact was experienced by the
Company's Alpha Beta, Boys and Viva stores which were converted to the Ralphs
format, the base Ralphs stores were also affected. In addition, the Company's
operating margins were affected by delays in the implementation of certain
buying and other programs to lower the cost of goods, excessive price markdowns
in stores undergoing conversion and a less advantageous than expected product
mix in certain stores.
The realization of cost savings has been delayed in certain areas. In
particular, store operating expenses were higher than anticipated, due primarily
to lower productivity and higher labor costs than originally anticipated. In
addition, the Company experienced higher than expected costs in introducing
Ralphs merchandising and service standards into the smaller conventional
supermarkets formerly operated by Food 4 Less. Also, as the Company's backstage
facilities were integrated, the Company experienced higher than expected
warehouse and distribution costs resulting from, among other things, higher than
expected inventory levels, delays in the transfer of distribution personnel from
Food 4 Less to Ralphs facilities, and other backstage operational
inefficiencies.
The Company is taking a number of specific steps to improve sales and
margins, eliminate the recurrence of unexpected integration-related costs and
fully realize opportunities for efficiencies afforded by the Merger, including
the following:
- - During the first quarter of fiscal 1996, the Company implemented the first
phase of a new marketing program designed to improve sales at its smaller
stores. The key component of this program involves streamlining and
remerchandising the product and service offerings currently in those stores
which the Company believes are more appropriately reserved for its larger
stores. The Company also intends to implement a revised marketing plan
designed to improve sales at its base Ralphs stores.
- - During the first quarter of fiscal 1996, the Company implemented a labor
productivity and cost reduction program. As part of this program, headcount
reductions of approximately 1,100 at the store level and 200 at the corporate
level have already been made. The earnings benefit of the foregoing reductions
will be realized during the remainder of 1996 and beyond.
- - In addition to the acquisition of the nine stores from Smith's, in December
1995 the Company subleased Smith's one million square foot distribution center
and creamery facility in Riverside, California. The facility allows the
Company to consolidate distribution operations into three modern, efficient
facilities located in Compton, Glendale and Riverside, California. The
elimination of six smaller and less efficient warehouse facilities will reduce
transportation between facilities, management overhead and outside storage
costs. Moreover, the consolidation will enable better inventory management,
which is expected to result in the reduction of inventory levels. The
Riverside Facility is also expected to reduce previously planned capital
expenditures. Although such acquisition has resulted in substantial revisions
to the Company's plan
7
<PAGE> 10
with respect to its storage, distribution and manufacturing functions, and
consequent delays in estimated cost savings, the Company expects that the
consolidation of such functions will be completed by the third quarter of
fiscal 1996, resulting in greatly strengthened and streamlined backstage
operations.
In March 1996 the Company amended the New Credit Facility to conform the
financial covenants therein to the Company's actual post-Merger results and
revised projections. Following the adoption of these amendments, the Company
believes that the covenant levels contained in the New Credit Facility are
consistent with anticipated operating results for fiscal 1996.
THE YUCAIPA COMPANIES
The Company is controlled by The Yucaipa Companies ("Yucaipa"), a private
investment group which specializes in the supermarket industry. Yucaipa has a
successful track record in acquiring, integrating and improving the cash flow of
supermarket companies. The other supermarket companies presently controlled or
managed by Yucaipa are Dominick's Finer Foods, Inc. and Smith's Food & Drug
Centers, Inc. Such companies, together with the Company, operate a total of
approximately 652 stores with aggregate sales of approximately $11 billion per
year.
8
<PAGE> 11
THE EXCHANGE OFFER
THE EXCHANGE OFFER......The Company is hereby offering to exchange $1,000
principal amount of Exchange Notes for each $1,000
principal amount of Private Notes that are properly
tendered and accepted. The Company will issue Exchange
Notes on or promptly after the Expiration Date. As of
the date hereof, there is $100,000,000 aggregate
principal amount of Private Notes outstanding. See "The
Exchange Offer."
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that the Exchange
Notes issued pursuant to the Exchange Offer in exchange
for Private Notes may be offered for resale, resold and
otherwise transferred by a holder thereof (other than
(i) a broker-dealer who purchases such Exchange Notes
directly from the Company to resell pursuant to Rule
144A or any other available exemption under the
Securities Act or (ii) a person that is an affiliate of
the Company within the meaning of Rule 405 under the
Securities Act), without compliance with the
registration and prospectus delivery provisions of the
Securities Act; provided that the holder is acquiring
Exchange Notes in the ordinary course of its business
and is not participating, and had no arrangement or
understanding with any person to participate, in the
distribution of the Exchange Notes. Each broker-dealer
that receives Exchange Notes for its own account in
exchange for Private Notes, where such Private Notes
were acquired by such broker-dealer as a result of
market-making activities or other trading activities,
must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. See
"The Exchange Offer -- Resale of the Exchange Notes."
REGISTRATION RIGHTS
AGREEMENT.............The Private Notes were sold by the Company on June 6,
1996 to BT Securities Corporation (the "Initial
Purchaser") pursuant to a Purchase Agreement, dated June
3, 1996, between the Company, the Subsidiary Guarantors
and the Initial Purchaser (the "Purchase Agreement").
Pursuant to the Purchase Agreement, the Company, the
Subsidiary Guarantors and the Initial Purchaser entered
into a Registration Rights Agreement, dated as of June
6, 1996 (the "Registration Rights Agreement"), which
grants the holders of the Private Notes certain exchange
and registration rights. The Exchange Offer is intended
to satisfy such rights, which will terminate upon the
consummation of the Exchange Offer. The holders of the
Exchange Notes will not be entitled to any exchange or
registration rights with respect to the Exchange Notes.
See "The Exchange Offer -- Termination of Certain
Rights."
EXPIRATION DATE.........The Exchange Offer will expire at 5:00 p.m., New York
City time, on , 1996, unless the Exchange Offer is
extended by the Company in its sole discretion, in which
case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
See "The Exchange Offer -- Expiration Date; Extensions;
Amendments."
ACCRUED INTEREST ON THE
EXCHANGE NOTES AND THE
PRIVATE NOTES.........The Exchange Notes will bear interest from the date of
the last interest payment on the Private Notes (June 15,
1996). Holders whose Private Notes are accepted for
exchange will be deemed to have waived the right to
receive any interest accrued on the Private Notes. See
"The Exchange Offer -- Interest on the Exchange Notes."
9
<PAGE> 12
CONDITIONS TO THE
EXCHANGE OFFER..........The Exchange Offer is subject to certain customary
conditions that may be waived by the Company. The
Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Private Notes being
tendered for exchange. See "The Exchange
Offer -- Conditions."
PROCEDURES FOR TENDERING
PRIVATE NOTES.........Each holder of Private Notes wishing to accept the
Exchange Offer must complete, sign and date the Letter
of Transmittal, or a facsimile thereof, in accordance
with the instructions contained herein and therein, and
mail or otherwise deliver such Letter of Transmittal, or
such facsimile, together with such Private Notes and any
other required documentation to Norwest Bank Minnesota,
National Association, as exchange agent (the "Exchange
Agent"), at the address set forth herein. By executing
the Letter of Transmittal, the holder will represent to
and agree with the Company that, among other things, (i)
the Exchange Notes to be acquired by such holder of
Private Notes in connection with the Exchange Offer are
being acquired by such holder in the ordinary course of
its business, (ii) such holder has no arrangement or
understanding with any person to participate in a
distribution of the Exchange Notes, (iii) that if such
holder is a broker-dealer registered under the Exchange
Act or is participating in the Exchange Offer for the
purposes of distributing the Exchange Notes, such holder
will comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with a secondary resale transaction of the
Exchange Notes acquired by such person and cannot rely
on the position of the staff of the Commission set forth
in no-action letters (see "The Exchange Offer -- Resale
of the Exchange Notes"), (iv) such holder understands
that a secondary resale transaction described in clause
(iii) above and any resales of Exchange Notes obtained
by such holder in exchange for Private Notes acquired by
such holder directly from the Company should be covered
by an effective registration statement containing the
selling securityholder information required by Item 507
or Item 508, as applicable, of Regulation S-K of the
Commission and (v) such holder is not an "affiliate," as
defined in Rule 405 under the Securities Act, of the
Company. If the holder is a broker-dealer that will
receive Exchange Notes for its own account in exchange
for Private Notes that were acquired as a result of
market-making activities or other trading activities,
such holder will be required to acknowledge in the
Letter of Transmittal that such holder will deliver a
prospectus in connection with any resale of such
Exchange Notes; however, by so acknowledging and by
delivering a prospectus, such holder will not be deemed
to admit that it is an "underwriter" within the meaning
of the Securities Act. See "The Exchange
Offer -- Procedures for Tendering."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.....Any beneficial owner whose Private Notes are registered
in the name of a broker, dealer, commercial bank, trust
company or other nominee and who wishes to tender such
Private Notes in the Exchange Offer should contact such
registered holder promptly and instruct such registered
holder to tender on such beneficial owner's behalf. If
such beneficial owner wishes to tender on such owner's
own behalf, such owner must, prior to completing and
executing the Letter of Transmittal and delivering such
owner's Private Notes, either make appropriate
arrangements to register ownership of the Private Notes
in such owner's name or obtain a properly completed bond
power from the registered holder. The transfer of
registered ownership may take considerable
10
<PAGE> 13
time and may not be able to be completed prior to the
Expiration Date. See "The Exchange Offer -- Procedures
for Tendering."
GUARANTEED DELIVERY
PROCEDURES............Holders of Private Notes who wish to tender their
Private Notes and whose Private Notes are not
immediately available or who cannot deliver their
Private Notes, the Letter of Transmittal or any other
documentation required by the Letter of Transmittal to
the Exchange Agent prior to the Expiration Date must
tender their Private Notes according to the guaranteed
delivery procedures set forth under "The Exchange
Offer -- Guaranteed Delivery Procedures."
ACCEPTANCE OF THE
PRIVATE NOTES AND
DELIVERY OF THE
EXCHANGE NOTES........Subject to the satisfaction or waiver of the conditions
to the Exchange Offer, the Company will accept for
exchange any and all Private Notes that are properly
tendered in the Exchange Offer prior to the Expiration
Date. The Exchange Notes issued pursuant to the Exchange
Offer will be delivered on the earliest practicable date
following the Expiration Date. See "The Exchange
Offer -- Terms of the Exchange Offer."
WITHDRAWAL RIGHTS.......Tenders of Private Notes may be withdrawn at any time
prior to the Expiration Date. See "The Exchange
Offer -- Withdrawal of Tenders."
CERTAIN FEDERAL INCOME
TAX CONSIDERATIONS....The exchange of Private Notes for Exchange Notes will be
treated as a "non-event" for federal income tax purposes
because the Exchange Notes will not be considered to
differ materially from the Private Notes. As a result,
no material federal income tax consequences will result
to holders exchanging Private Notes for Exchange Notes.
See "Certain Federal Income Tax Considerations."
EXCHANGE AGENT..........Norwest Bank Minnesota, National Association is serving
as the Exchange Agent in connection with the Exchange
Offer.
THE EXCHANGE NOTES
The Exchange Offer applies to $100,000,000 aggregate principal amount of
the Private Notes. The form and terms of the Exchange Notes are the same as the
form and terms of the Private Notes except that (i) the exchange will have been
registered under the Securities Act and, therefore, the Exchange Notes will not
bear legends restricting the transfer thereof and (ii) holders of the Exchange
Notes will not be entitled to certain rights of holders of the Private Notes
under the Registration Rights Agreement, which rights will terminate upon
consummation of the Exchange Offer. The Exchange Notes will evidence the same
indebtedness as the Private Notes (which they replace) and will be issued under,
and be entitled to the benefits of, the Indenture. For further information and
for definitions of certain capitalized terms used below, see "Description of the
Notes."
ISSUER..................Ralphs Grocery Company.
NOTES OFFERED...........$100,000,000 aggregate principal amount of 10.45% Senior
Notes due 2004. The terms of the Exchange Notes will be
substantially identical to those of the 1995 Senior
Notes. However, the Exchange Notes will be issued with
original issue discount.
MATURITY DATE...........June 15, 2004.
INTEREST RATE...........The Exchange Notes will bear interest at the rate of
10.45% per annum.
11
<PAGE> 14
INTEREST PAYMENT
DATES...................June 15 and December 15, commencing on December 15,
1996.
OPTIONAL REDEMPTION.....The Exchange Notes will be redeemable at the option of
the Company, in whole or in part, at any time on or
after June 15, 2000, at the following redemption prices
if redeemed during the twelve-month period commencing on
June 15 of the year set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
-------------------------------------------------------- ----------
<S> <C>
2000.................................................... 105.225%
2001.................................................... 103.483%
2002.................................................... 101.742%
2003 and thereafter..................................... 100.000%
</TABLE>
in each case plus accrued and unpaid interest to the
date of redemption.
In addition, on or prior to June 15, 1998, the Company
may, at its option, use the net cash proceeds from one
or more Public Equity Offerings to redeem up to an
aggregate of 35% of the principal amount of the Exchange
Notes originally issued, at a redemption price equal to
110.450% of the principal amount thereof if redeemed
during the 12 months commencing on June 15, 1995,
108.957% of the principal amount thereof if redeemed
during the 12 months commencing on June 15, 1996 and
107.464% of the principal amount thereof if redeemed
during the 12 months commencing on June 15, 1997, in
each case plus accrued and unpaid interest to the
redemption date.
RANKING.................The Exchange Notes will be senior unsecured obligations
of the Company and will rank pari passu in right of
payment with other senior unsecured indebtedness of the
Company. However, the Exchange Notes will be effectively
subordinated to all secured indebtedness of the Company
and its subsidiaries, including indebtedness under the
New Credit Facility. The Exchange Notes will rank senior
in right of payment to all subordinated indebtedness of
the Company. At April 21, 1996, pro forma for the
offering of the Private Notes (the "Offering") and the
application of proceeds therefrom, the Company and its
subsidiaries would have had outstanding $771.5 million
aggregate principal amount of secured indebtedness (not
including obligations with respect to letters of credit
issued under the New Credit Facility, of which $88.2
million were outstanding as of June 26, 1996), $619.6
million of senior unsecured indebtedness, and $671.2
million of subordinated indebtedness.
GUARANTEES..............Each Subsidiary Guarantor will unconditionally
guarantee, jointly and severally, the full and prompt
performance of the Company's obligations under the
indenture governing the Exchange Notes (the "Indenture")
and the Exchange Notes. The Guarantees will be senior
unsecured obligations of the Subsidiary Guarantors and
will rank pari passu in right of payment with other
senior unsecured indebtedness of the Subsidiary
Guarantors.
CHANGE OF CONTROL.......Upon a Change of Control (as defined), each holder of
the Exchange Notes has the right to require the Company
to repurchase such holder's Exchange Notes at a price
equal to 101% of the principal amount plus accrued and
unpaid interest to the date of repurchase.
CERTAIN COVENANTS.......The Indenture contains certain covenants, including, but
not limited to, covenants with respect to the following:
(i) limitation on restricted payments; (ii) limitation
on incurrences of additional indebtedness; (iii)
limitation on liens; (iv) limitation on asset sales; (v)
limitation on dividend and other payment restrictions
affecting subsidiaries; (vi) guarantees of certain
indebted-
12
<PAGE> 15
ness; (vii) limitation on transactions with affiliates;
(viii) limitation on mergers and certain other
transactions; and (ix) limitations on preferred stock of
subsidiaries.
RISK FACTORS............Holders of Private Notes should carefully consider the
specific factors set forth under "Risk Factors," as well
as other information and data included elsewhere in this
Prospectus.
13
<PAGE> 16
SUMMARY HISTORICAL FINANCIAL DATA OF THE COMPANY
The following table sets forth summary historical financial data of the
Company and its predecessor Food 4 Less as of and for the 52 weeks ended June
29, 1991, June 27, 1992, June 26, 1993 and June 25, 1994, the 31 weeks ended
January 29, 1995 and the 52 weeks ended January 28, 1996 which have been derived
from the financial statements of the Company and Food 4 Less audited by Arthur
Andersen LLP, independent public accountants. The summary historical financial
data of the Company presented below as of and for the 12 weeks ended April 23,
1995 and April 21, 1996 have been derived from unaudited financial statements of
the Company which, in the opinion of management, reflect all material
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of such data. The following information should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the historical consolidated financial statements
of the Company and related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
12 WEEKS
52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 31 WEEKS 52 WEEKS 12 WEEKS ENDED
ENDED ENDED ENDED ENDED ENDED ENDED ENDED APRIL
JUNE 29, JUNE 27, JUNE 26, JUNE 25, JANUARY 29, JANUARY 28, APRIL 21,
1991(A) 1992 1993 1994(B) 1995(C) 1996(D) 23, 1995 1996(D)
-------- -------- -------- -------- ----------- ----------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT STORE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales............... $1,606.6 $2,913.5 $2,742.0 $2,585.2 $1,556.5 $ 4,335.1 $ 623.6 $1,230.8
Gross profit(e)..... 265.7 520.8 484.2 469.3 262.4 849.1 107.2 248.6
Selling, general,
administrative and
other, net........ 213.1 469.7 434.9 388.8 222.4 785.6 91.4 217.3
Interest
expense(f)........ 50.1 70.2 69.7 68.3 42.2 178.8 16.9 56.1
Net loss(g)......... (9.6) (33.8) (27.4) (2.7) (11.5) (283.2) (2.8) (32.0)
Ratio of earnings to
fixed
charges(h)........ --(h) --(h) --(h) 1.0x --(h) --(h) --(h) --(h)
BALANCE SHEET DATA
(end of period)(i):
Working capital
surplus
(deficit)......... $ 13.7 $ (66.3) $ (19.2) $ (54.9) $ (74.8) $ (178.5) $ (80.4) $ (230.2)
Total assets........ 980.0 998.5 957.8 980.1 1,000.7 3,188.1 971.2 3,144.8
Total debt(j)....... 558.9 525.3 538.1 517.9 533.8 2,082.3 536.3 2,059.7
Stockholder's
equity............ 84.6 50.8 72.9 69.0 57.8 59.1 55.0 27.1
OTHER DATA:
Depreciation and
amortization(k)... $ 31.9 $ 54.9 $ 57.6 $ 57.1 $ 36.6 $ 125.3 $ 14.7 $ 36.7
Capital
expenditures...... 34.7 60.3 53.5 57.5 49.0 122.4 18.2 34.2
Stores open at end
of period......... 259 249 248 258 267 408 268 408
EBITDA (as
defined)(l)....... $ 80.7 $ 101.7 $ 103.8 $ 130.6 $ 76.9 $ 245.1 $ 30.1 $ 70.1
EBITDA margin(m).... 5.0% 3.5% 3.8% 5.1% 4.9% 5.7% 4.8% 5.7%
</TABLE>
- ---------------
(a) Operating data for the 52 weeks ended June 29, 1991 include the results of
Alpha Beta only from June 17, 1991, the date of its acquisition. Alpha
Beta's sales for the two weeks ended June 29, 1991 were $59.2 million.
(b) Operating data for the 52 weeks ended June 25, 1994 include the results of
10 Food Barn stores, which were not material, from March 29, 1994, the date
of the Food Barn acquisition.
(c) Food 4 Less Supermarkets changed its fiscal year end from the 52 or 53-week
period which ends on the last Saturday in June to the 52 or 53-week period
which ends on the Sunday closest to January 31, resulting in a 31-week
transition period.
(d) Operating data for the 52 weeks ended January 28, 1996 and the 12 weeks
ended April 21, 1996 reflect the acquisition of Ralphs on June 14, 1995.
(e) Cost of sales has been principally determined using the last-in, first-out
("LIFO") method of valuing inventory. If cost of sales had been determined
using the first-in, first-out ("FIFO") method, gross profit would have been
greater by $2.1 million, $3.6 million, $4.4 million, $0.7 million, $2.7
million, $2.2 million, $1.0 million and $1.3 million for the 52 weeks ended
June 29, 1991, June 27, 1992, June 26, 1993, and June 25, 1994, the 31 weeks
ended January 29, 1995, the 52 weeks ended January 28, 1996 and the 12 weeks
ended April 23, 1995 and April 21, 1996, respectively.
14
<PAGE> 17
(f) Interest expense includes non-cash charges related to the amortization of
deferred financing costs of $5.2 million for the 52 weeks ended June 29,
1991, $6.3 million for the 52 weeks ended June 27, 1992, $4.9 million for
the 52 weeks ended June 26, 1993, $5.5 million for the 52 weeks ended June
25, 1994, $3.4 million for the 31 weeks ended January 29, 1995, $8.2 million
for the 52 weeks ended January 28, 1996, $1.4 million for the 12 weeks ended
April 23, 1995 and $3.3 million for the 12 weeks ended April 21, 1996.
(g) Net loss includes a pre-tax provision for self insurance, which is
classified in cost of sales, selling, general and administrative expenses
and interest expense of $15.1 million, $51.1 million, $43.9 million, $25.7
million, $9.8 million, $32.6 million, $5.1 million and $10.6 million for the
52 weeks ended June 29, 1991, June 27, 1992, June 26, 1993, and June 25,
1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28,
1996, the 12 weeks ended April 23, 1995 and the 12 weeks ended April 21,
1996, respectively. Included in the 52 weeks ended June 25, 1994, the 31
weeks ended January 29, 1995, the 52 weeks ended January 28, 1996 and the 12
weeks ended April 21, 1996 are reduced employer contributions of $8.1
million, $14.3 million, $26.1 million and $1.0 million, respectively,
related to union health and welfare benefit plans.
(h) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of loss before provision for income taxes and extraordinary charges
plus fixed charges. "Fixed charges" consist of interest on all indebtedness,
amortization of deferred debt financing costs and one-third of rental
expense (the portion deemed representative of the interest factor). Earnings
were insufficient to cover fixed charges for the 52 weeks ended June 29,
1991, June 27, 1992 and June 26, 1993, the 31 weeks ended January 29, 1995,
the 52 weeks ended January 28, 1996, the 12 weeks ended April 23, 1995 and
the 12 weeks ended April 21, 1996, by approximately $3.4 million, $25.6
million, $25.9 million, $11.5 million, $259.6 million, $2.5 million and
$32.0 million, respectively. However, such earnings included non-cash
charges of $37.0 million for the 52 weeks ended June 29, 1991, $61.2 million
for the 52 weeks ended June 27, 1992, $62.5 million for the 52 weeks ended
June 26, 1993, $40.0 million for the 31 weeks ended January 29, 1995, $202.6
million for the 52 weeks ended January 28, 1996, $16.1 million for the 12
weeks ended April 23, 1995 and $40.0 million for the 12 weeks ended April
21, 1996, primarily consisting of depreciation and amortization and the
write-off of property and equipment associated with stores closed as a
result of the Merger, stores closed due to under-performance, stores closed
in connection with the acquisition of the nine stores from Smith's, and
warehouses to be closed as a result of the acquisition of the Riverside
Facility. In addition, earnings for the 52 weeks ended January 28, 1996 were
reduced by cash restructuring charges of $54.1 million.
(i) Balance sheet data as of June 29, 1991, June 27, 1992 and June 26, 1993
relate to Food 4 Less and reflect the Alpha Beta acquisition and the
financings and refinancings associated therewith. Balance sheet data as of
June 25, 1994, January 29, 1995 and April 23, 1995 relate to Food 4 Less and
reflect the acquisition of 10 Food Barn stores. Balance sheet data as of
January 28, 1996 and April 21, 1996 relate to the Company and reflect the
Merger and the financings associated therewith.
(j) Total debt includes long-term debt, current maturities of long-term debt and
capital lease obligations.
(k) For the 52 weeks ended June 29, 1991, June 27, 1992, June 26, 1993 and June
25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January
28, 1996, the 12 weeks ended April 23, 1995 and the 12 weeks ended April 21,
1996, depreciation and amortization includes amortization of goodwill of
$5.3 million, $7.8 million, $7.6 million, $7.7 million, $4.6 million, $21.8
million, $1.8 million and $7.2 million, respectively.
(l) "EBITDA (as defined)," as presented historically by the Company, represents
income before interest expense, depreciation and amortization expense, the
LIFO provision, provision for income taxes, provision for earthquake losses,
provision for restructuring, a one-time charge in the 1995 transition period
for Teamsters Union sick pay benefits, $75.0 million of one-time costs
incurred in connection with the Merger in fiscal year 1995 and $7.6 million
of one-time costs incurred in connection with the acquisition of the
Riverside Facility and nine former Smith's stores in the first quarter of
fiscal year 1996. EBITDA is a widely accepted financial indicator of a
company's ability to service debt. However, EBITDA should not be construed
as an alternative to operating income or to cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) and should not be construed as an indication of the Company's
operating performance or as a measure of liquidity. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(m) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
15
<PAGE> 18
SUMMARY HISTORICAL FINANCIAL DATA OF RALPHS
The following table sets forth summary historical financial data of RGC (as
the predecessor of RSI) as of and for the 53 weeks ended February 3, 1991 and
the 52 weeks ended February 2, 1992, and summary historical financial data of
RSI as of and for the 52 weeks ended January 31, 1993, January 30, 1994 and
January 29, 1995, which have been derived from the financial statements of RSI
and RGC audited by KPMG Peat Marwick LLP, independent certified public
accountants. The following information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical consolidated financial statements of RSI and RGC
and related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED ENDED
FEBRUARY 3, FEBRUARY 2, JANUARY 31, JANUARY 30, JANUARY 29,
1991 1992 1993 1994 1995
----------- ----------- ----------- ----------- -----------
(DOLLARS IN MILLIONS, EXCEPT STORE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales................................... $ 2,799.1 $ 2,889.2 $ 2,843.8 $ 2,730.2 $ 2,724.6
Gross profit............................ 573.7 614.0 626.6 636.5 623.6
Selling, general and administrative
expenses(a).......................... 438.0 459.2 470.0 471.0 467.0
Interest expense(b)..................... 128.5 130.2 125.6 108.8 112.7
Net earnings (loss)(c).................. (51.4) (41.2) (76.1) 138.4(i) 32.1
Ratio of earnings to fixed charges(d)... --(d) --(d) 1.02x 1.24x 1.24x
BALANCE SHEET DATA (end of period):
Working capital surplus (deficit)....... $ (93.9) $ (114.2) $ (122.0) $ (73.0) $ (119.5)
Total assets............................ 1,406.4 1,357.6 1,388.5 1,483.7 1,509.9
Total debt(e)........................... 986.1 941.9 1,029.8 998.9 1,018.5
Redeemable stock........................ 3.0 3.0 -- -- --
Stockholders' equity (deficit).......... (16.0) (57.2) (133.3) 5.1 27.2
OTHER DATA:
Depreciation and amortization(f)........ $ 75.2 $ 76.6 $ 76.9 $ 74.5 $ 76.0
Capital expenditures.................... 87.6 50.4 102.7 62.2 64.0
Stores open at end of period............ 150 158 159 165 173
EBITDA (as defined)(g).................. $ 207.0 $ 225.8 $ 227.3 $ 230.2 $ 230.2
EBITDA margin(h)........................ 7.4% 7.8% 8.0% 8.4% 8.4%
</TABLE>
- ---------------
(a) Includes provision for post retirement benefits other than pensions of $2.2
million, $2.6 million, $3.3 million, $3.4 million and $2.6 million for the
53 weeks ended February 3, 1991, the 52 weeks ended February 2, 1992,
January 31, 1993, January 30, 1994 and January 29, 1995, respectively.
(b) Interest expense includes non-cash charges related to the amortization of
deferred debt issuance costs of $4.1 million for the 53 weeks ended February
3, 1991, $5.0 million for the 52 weeks ended February 2, 1992, $5.5 million
for the 52 weeks ended January 31, 1993, $6.5 million for the 52 weeks ended
January 30, 1994 and $6.1 million for the 52 weeks ended January 29, 1995,
respectively.
(c) Net earnings (loss) includes expenses relating to provisions for Equity
Appreciation Rights and for tax indemnification payments to Federated,
extraordinary item relating to debt refinancing, loss on disposal of assets,
provisions for postretirement and pension benefits and provision for
earthquake losses. Net earnings (loss) includes a pre-tax provision for self
insurance, which is classified in cost of sales, selling, general and
administrative expenses and interest expense of $29.2 million, $31.2
million, $36.9 million, $36.3 million, and $20.0 million, for the 53 weeks
ended February 3, 1991, the 52 weeks ended February 2, 1992, the 52 weeks
ended January 31, 1993, the 52 weeks ended January 30, 1994 and the 52 weeks
ended January 29, 1995, respectively. Included in the 52 weeks ended January
30, 1994 and the 52 weeks ended January 29, 1995 are reduced employer
contributions of $11.8 million and $12.7 million, respectively, related to
union health and welfare benefit plans.
(d) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of earnings before income taxes, cumulative effect of change in
accounting principles, extraordinary item and fixed charges before
capitalized interest. "Fixed charges" consist of interest expense (including
amortization of self-insurance reserves discount), capitalized interest,
amortization of deferred debt issuance costs and one-third of rental expense
(the portion deemed representative of the interest factor). Earnings were
insufficient to
16
<PAGE> 19
cover fixed charges for the 53 weeks ended February 3, 1991 and the 52 weeks
ended February 2, 1992 by approximately $25.5 million and $27.7 million,
respectively.
(e) Total debt includes long-term debt, current maturities of long-term debt,
short-term debt and capital lease obligations.
(f) For the 53 weeks ended February 3, 1991, the 52 weeks ended February 2,
1992, January 31, 1993, January 30, 1994 and January 29, 1995, depreciation
and amortization includes amortization of the excess of cost over net assets
acquired of $11.0 million, $11.0 million, $11.0 million, $11.0 million and
$11.0 million, respectively.
(g) "EBITDA," as defined and presented historically by RGC, represents earnings
before interest expense, income tax expense (benefit), depreciation and
amortization expense, provisions for Equity Appreciation Rights, provision
for tax indemnification payments to Federated, provision for postretirement
benefits, the LIFO charge, extraordinary item relating to debt refinancing,
provision for legal settlement, provision for restructuring, provision for
earthquake losses, a one-time charge for Teamsters Union sick pay benefits,
transition expense and gains and losses on disposal of assets. EBITDA is a
widely accepted financial indicator of a company's ability to service debt.
However, EBITDA should not be construed as an alternative to operating
income or to cash flows from operating activities (as determined in
accordance with generally accepted accounting principles) and should not be
construed as an indication of Ralphs' operating performance or as a measure
of liquidity. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(h) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
(i) Includes recognition of $109.1 million of deferred income tax benefit and
$1.1 million current income tax expense for the 52 weeks ended January 30,
1994 (see Note 11 of Notes to Consolidated Financial Statements of Ralphs
Supermarkets, Inc.).
17
<PAGE> 20
RISK FACTORS
Holders of the Private Notes that are considering participation in the
Exchange Offer should carefully consider the following risk factors in addition
to the other information contained in this Prospectus.
LEVERAGE AND DEBT SERVICE
The Company is highly leveraged. At April 21, 1996, after giving effect to
the offering of the Private Notes (the "Offering") and the application of
proceeds therefrom, the Company's total indebtedness (including current
maturities) and stockholder's equity were $2,062.3 million and $25.0 million,
respectively, and the Company had an additional $158.3 million available to be
borrowed under the New Revolving Facility (as defined). In addition, as of
January 28, 1996, scheduled payments under operating leases of the Company and
its subsidiaries for the twelve months following such date were $143.5 million.
For the 52 weeks ended January 28, 1996, after giving pro forma effect to the
Merger and the related financings (and certain related assumptions) and the
Offering (and the application of proceeds therefrom), the Company's earnings
before fixed charges were inadequate to cover fixed charges by $289.1 million.
However, such earnings included non-cash charges of $236.1 million primarily
consisting of the write-off of property and equipment associated with stores
closed as a result of the Merger, stores closed due to under-performance, stores
closed in connection with the acquisition of the nine stores from Smith's,
warehouses to be closed as a result of the acquisition of the Riverside Facility
and depreciation and amortization. In addition, pro forma earnings for the 52
weeks ended January 28, 1996 were reduced by cash restructuring charges of $54.1
million. For the 12 weeks ended April 21, 1996, the Company's earnings before
fixed charges were inadequate to cover fixed charges by $32.0 million. However,
such earnings included non-cash charges of $40.0 million primarily consisting of
depreciation and amortization. Holdings will be required to make semi-annual
cash payments of interest on the New Discount Debentures and the Seller
Debentures commencing in June 2000 in the amount of approximately $61 million
per annum. The Indenture permits the Company (in the absence of a default or
event of default thereunder) to pay cash dividends to Holdings in an amount
sufficient to allow Holdings to pay interest on such Indebtedness when due. The
Company's ability to make scheduled payments of the principal of, or interest
on, or to refinance its Indebtedness (including the Notes) and to make scheduled
payments under its operating leases depends on its future performance, which to
a certain extent is subject to economic, financial, competitive and other
factors beyond its control.
Based upon the current level of operations, anticipated cost savings from
the Merger and future growth, the Company believes that its cash flow from
operations, together with available borrowings under the New Revolving Facility
and its other sources of liquidity (including leases), will be adequate to meet
its anticipated requirements for working capital, capital expenditures, interest
payments and scheduled principal payments over the next several years. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources." There can be no assurance,
however, that the Company's business will continue to generate cash flow at or
above current levels or that future cost savings and growth can be achieved. If
the Company is unable to generate sufficient cash flow from operations in the
future to service its debt and make necessary capital expenditures, or if its
future earnings growth is insufficient to amortize all required principal
payments out of internally generated funds, the Company may be required to
refinance all or a portion of its existing debt, sell assets or obtain
additional financing. There can be no assurance that any such refinancing or
asset sales would be possible or that any additional financing could be
obtained, particularly in view of the Company's high level of debt and the fact
that substantially all of its assets are pledged to secure the borrowings under
the New Credit Facility and other secured obligations.
The Company's high level of debt will have several important effects on its
future operations, including the following: (a) the Company will have
significant cash requirements to service debt, reducing funds available for
operations and future business opportunities and increasing the Company's
vulnerability to adverse general economic and industry conditions; (b) the
financial covenants and other restrictions contained in the New Credit Facility
and other agreements relating to the Company's indebtedness and in the Indenture
will require the Company to meet certain financial tests and will restrict its
ability to borrow additional funds, to dispose of assets or to pay cash
dividends; and (c) because of the Company's debt service requirements, funds
available for working capital, capital expenditures, acquisitions and general
corporate purposes, may be limited. The
18
<PAGE> 21
Company's leveraged position may increase its vulnerability to competitive
pressures. The Company's continued growth depends, in part, on its ability to
continue its expansion and store conversion efforts, and, therefore, its
inability to finance capital expenditures through borrowed funds could have a
material adverse effect on the Company's future operations. Moreover, any
default under the documents governing the indebtedness of the Company could have
a significant adverse effect on the market value of the Notes.
ABILITY TO ACHIEVE ANTICIPATED COST SAVINGS
Management of the Company has estimated that approximately $90 million of
annualized net cost savings (as compared to such costs for the pro forma
combined fiscal year ended June 25, 1994) can be achieved over a four year
period as a result of integrating the operations of Ralphs and Food 4 Less. See
"Summary -- Post-Merger Events" and "Business -- The Merger." The cost savings
estimates have been prepared solely by members of the management of the Company.
The estimates necessarily make numerous assumptions as to future sales levels
and other operating results, the availability of funds for capital expenditures
as well as general industry and business conditions and other matters, many of
which are beyond the control of the Company. Several of the cost savings
estimates are premised on the assumption that certain levels of efficiency
formerly maintained by either Food 4 Less or Ralphs can continue to be achieved
by the combined Company for all periods following the Merger. Other estimates
are based on a management consensus as to what levels of purchasing and similar
efficiencies should be achievable by an entity the size of the Company. The
estimates of potential cost savings contained in this Prospectus are forward
looking statements that are inherently uncertain. Except for savings already
realized, actual cost savings, if any, could differ materially from those
projected. All of these forward looking statements are based on estimates and
assumptions made by management of the Company, which although believed to be
reasonable, are inherently uncertain and difficult to predict; therefore, undue
reliance should not be placed upon such estimates. There can be no assurance
that the savings anticipated in these forward looking statements will be
achieved. The following important factors, among others, could cause the Company
not to achieve the cost savings contemplated herein (principally those set forth
in "Summary -- the Company" and "-- Post Merger Events") or otherwise cause the
Company's results of operations to be adversely affected in future periods: (i)
increased competitive pressures from existing competitors and new entrants,
including price-cutting strategies, store openings and remodels; (ii) further
unanticipated costs and difficulties related to the Merger and the integration
strategy; (iii) loss or retirement of key members of management or the
termination of the Company's Consulting Agreement with Yucaipa; (iv) inability
to negotiate more favorable terms with suppliers; (v) increases in interest
rates or the Company's cost of borrowing or a default under any material debt
agreements; (vi) inability to develop new stores in advantageous locations or to
successfully convert or remodel existing stores; (vii) prolonged labor
disruption; (viii) deterioration in general or regional economic conditions;
(ix) adverse state or federal legislation or regulation that increases the costs
of compliance, or adverse findings by a regulator with respect to existing
operations; (x) loss of customers or continuing sales weakness as a result of
the conversion of store formats; (xi) adverse determinations in connection with
pending or future litigations or other material claims against the Company;
(xii) inability to achieve future sales levels or other operating results that
support the cost savings; (xiii) the unavailability of funds for capital
expenditures; (xiv) increases in labor costs; (xv) inability to control
inventory levels; and (xvi) continuing operational inefficiencies in
distribution or other Company systems. Many of such factors are beyond the
control of the Company. In addition, there can be no assurance that unforeseen
costs and expenses or other factors will not offset the estimated cost savings
or other components or the Company's plan in whole or in part. It should be
noted that numerous unanticipated costs, and delays in the realization of
certain projected cost savings, have arisen since the Merger, as described above
under "Summary -- The Company" and "-- Post-Merger Events." There can be no
assurance that such costs and delays will not continue to be ongoing, or that
new or additional unforeseen costs or delays will arise either in connection
with the integration or the Company's operations or the ongoing conduct of its
business.
REGIONAL ECONOMIC CONDITIONS
A substantial percentage of the Company's business (representing
approximately 90% of sales) is conducted in Southern California. Southern
California began to experience a significant economic downturn
19
<PAGE> 22
in 1991 and has only recently begun a mild recovery. The economy in Southern
California has been affected by substantial job losses in the defense and
aerospace industries and other adverse economic trends. These adverse regional
economic conditions have resulted in declining sales levels in recent periods.
For the 52 weeks ended January 28, 1996, the Company experienced a 1.9% decline
in comparable store sales as compared to the comparable period in the prior year
(giving pro forma effect to the combined sales of Food 4 Less and Ralphs for the
period prior to the Merger). Excluding stores scheduled for divestiture or
closing, pro forma comparable store sales declined 1.2%. For the 52 weeks ended
June 25, 1994, and the 52 weeks ended January 29, 1995, Food 4 Less and Ralphs
experienced 6.9% and 3.7% declines, respectively, in comparable store sales as
compared with the corresponding period in the prior year. These declines
primarily reflected the weak economy in Southern California, lower levels of
price inflation in certain food product categories, and increased competitive
store openings in Southern California. Additionally, the decline during the 52
weeks ended January 28, 1996 reflected the impact of the Company's own new store
openings and conversions. The Company's comparable store sales declines have
begun to moderate in the recent fiscal year. For the 12 weeks ended April 21,
1996, the Company experienced a 0.7% decline in comparable store sales as
compared to the corresponding period in the prior year (pro forma for the
Merger). Although data indicate a mild recovery in the Southern California
economy and management believes that overall sales trends in Southern California
should improve along with the economy, there can be no assurance that
improvement will occur or that substantial future declines in same store sales
will not occur. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
COMPETITION
The supermarket industry is highly competitive and characterized by narrow
profit margins. The Company's competitors in each of its operating divisions
include national and regional supermarket chains, independent and specialty
grocers, drug and convenience stores, and the newer "alternative format" food
stores, including warehouse club stores, deep discount drug stores and "super
centers." Supermarket chains generally compete on the basis of location, quality
of products, service, price, product variety and store condition. The Company
regularly monitors its competitors' prices and adjusts its prices and marketing
strategy as management deems appropriate in light of existing conditions. Some
of the Company's competitors have greater financial resources than the Company
and could use these resources to take steps which could adversely affect the
Company's competitive position. See "Business -- Competition."
CORPORATE STRUCTURE; EFFECTS OF ASSET ENCUMBRANCES
A significant portion of the Company's operating income is generated by its
subsidiaries. As a result, the Company will rely on distributions or advances
from its subsidiaries to provide a portion of the funds necessary to meet its
debt service obligations, including the payment of principal and interest on the
Notes. Should the Company fail to satisfy any payment obligation under the
Notes, the holders would have a direct claim therefor against the Subsidiary
Guarantors pursuant to their Guarantees. However, the capital stock of, and
substantially all of the assets of, the Subsidiary Guarantors are pledged to
secure the obligations of the Company and such subsidiaries under the New Credit
Facility and other secured obligations. The Indenture limits, but does not
prohibit, the ability of the Company and its subsidiaries to incur additional
secured indebtedness. In the event of a default under the New Credit Facility
(or any other secured indebtedness), the lenders thereunder would be entitled to
a claim on the assets securing such indebtedness which is prior to any claim of
the holders of the Notes. Accordingly, there may be insufficient assets
remaining after payment of prior secured claims (including claims of lenders
under the New Credit Facility) to pay amounts due on the Notes.
In addition, if a court were to avoid the Guarantees under fraudulent
conveyance laws or other legal principles or, by the terms of such Guarantees,
the obligations thereunder were reduced as necessary to prevent such avoidance,
or the Guarantees were released, the claims of other creditors of the Subsidiary
Guarantors, including trade creditors, would to such extent have priority as to
the assets of such Subsidiary Guarantors over the claims of the holders of the
Notes. The Guarantees of the Notes by any Subsidiary Guarantor will be released
upon the sale of such Subsidiary Guarantor or upon the release by the lenders
20
<PAGE> 23
under the New Credit Facility of such Subsidiary Guarantor's Guarantee of the
Company's obligation under the New Credit Facility. The Indenture limits the
ability of the Company and its subsidiaries to incur additional indebtedness and
to enter into agreements that would restrict the ability of any subsidiary to
make distributions, loans or other payments to the Company. However, these
limitations are subject to certain exceptions. See "-- Fraudulent Conveyance
Risks" and "Description of the Notes."
CONTROL OF THE COMPANY
All of the Company's outstanding common stock is held by Holdings.
Affiliates of Yucaipa and Apollo Advisors, L.P. have beneficial ownership of
approximately 42.3% and 30.2%, respectively, of the outstanding capital stock of
Holdings. Pursuant to a stockholders' agreement (the "1995 Stockholders
Agreement") which was entered into by the 1995 Equity Investors (as defined
herein) and certain other stockholders and warrantholders of the Company,
Holdings and the Company have boards consisting of nine and ten members,
respectively, and (i) Yucaipa has the right to elect six directors to the board
of Holdings and seven directors to the board of the Company, (ii) Apollo has the
right to elect two directors to the board of each of Holdings and the Company
and (iii) the other 1995 Equity Investors have the right to elect one director
to the board of each of Holdings and the Company. Under the 1995 Stockholders
Agreement, unless and until Holdings has effected an initial public offering of
its equity securities meeting certain criteria, Holdings and its subsidiaries,
including the Company, may not take certain actions without the approval of the
Holdings directors which the 1995 Equity Investors are entitled to elect,
including but not limited to certain mergers, sale transactions, transactions
with affiliates, issuances of capital stock and payments of dividends on or
repurchases of capital stock. As a result of the ownership structure of the
Company and the contractual rights described above, the voting and management
control of the Company is highly concentrated. Yucaipa, acting with the consent
of the directors elected by the 1995 Equity Investors, has the ability to direct
the actions of the Company with respect to matters such as the payment of
dividends, material acquisitions and dispositions and other extraordinary
corporate transactions. Yucaipa is a party to a consulting agreement with the
Company, pursuant to which Yucaipa renders certain management and advisory
services to the Company, and receives fees for such services. Yucaipa also
received certain fees in connection with the consummation of the Merger,
including an advisory fee of $21.5 million, of which $17.5 million was paid
through the issuance of New Discount Debentures by Holdings. See "Certain
Relationships and Related Transactions," "Principal Stockholders" and
"Description of Capital Stock."
FRAUDULENT CONVEYANCE RISKS
Various fraudulent conveyance laws have been enacted for the protection of
creditors and may be utilized by a court to subordinate or avoid the Notes or
any Guarantee in favor of other existing or future creditors of the Company or a
Subsidiary Guarantor.
If a court in a lawsuit on behalf of any unpaid creditor of the Company or
a representative of the Company's creditors were to find that, at the time the
Company issued the Notes, the Company (x) intended to hinder, delay or defraud
any existing or future creditor or contemplated insolvency with a design to
prefer one or more creditors to the exclusion in whole or in part of others or
(y) did not receive fair consideration or reasonably equivalent value for
issuing such Notes and the Company (i) was insolvent, (ii) was rendered
insolvent by reason of such distribution, (iii) was engaged or about to engage
in a business or transaction for which its remaining assets constituted
unreasonably small capital to carry on its business, or (iv) intended to incur,
or believed that it would incur, debts beyond its ability to pay such debts as
they matured, such court could void such Notes and void such transactions.
Alternatively, in such event, claims of the holders of such Notes could be
subordinated to claims of the other creditors of the Company.
The Company's obligations under the Notes will be guaranteed by the
Subsidiary Guarantors. To the extent that a court were to find that (x) a
Guarantee was incurred by a Subsidiary Guarantor with intent to hinder, delay or
defraud any present or future creditor or the Subsidiary Guarantor contemplated
insolvency with a design to prefer one or more creditors to the exclusion in
whole or in part of others or (y) such Subsidiary Guarantor did not receive fair
consideration or reasonably equivalent value for issuing its Guarantee and such
Subsidiary Guarantor (i) was insolvent, (ii) was rendered insolvent by reason of
the
21
<PAGE> 24
issuance of such Guarantee, (iii) was engaged or about to engage in a business
or transaction for which the remaining assets of such Subsidiary Guarantor
constituted unreasonably small capital to carry on its business, or (iv)
intended to incur, or believed that it would incur, debts beyond its ability to
pay such debts as they matured, the court could void or subordinate such
Guarantee in favor of the Subsidiary Guarantor's creditors. Among other things,
a legal challenge of a Guarantee on fraudulent conveyance grounds may focus on
the benefits, if any, realized by the Subsidiary Guarantor as a result of the
issuance by the Company of the applicable Notes.
To the extent any Guarantees were avoided as a fraudulent conveyance or
held unenforceable for any other reason, holders of the Notes would cease to
have any claim in respect of such Subsidiary Guarantor and would be creditors
solely of the Company and any Subsidiary Guarantor whose Guarantee was not
avoided or held unenforceable. In such event, the claims of the holders of the
applicable Notes against the issuer of an invalid Guarantee would be subject to
the prior payment of all liabilities and preferred stock claims of such
Subsidiary Guarantor. There can be no assurance that, after providing for all
prior claims and preferred stock interests, if any, there would be sufficient
assets to satisfy the claims of the holders of the applicable Notes relating to
any voided portions of any of the Guarantees.
Based upon financial and other information currently available to it,
management of the Company believes that the Notes and the Guarantees are being
incurred for proper purposes and in good faith and that the Company and each
Subsidiary Guarantor (i) is solvent and will continue to be solvent after
issuing the Notes or its Guarantees, as the case may be, (ii) will have
sufficient capital for carrying on its business after such issuance, and (iii)
will be able to pay its debts as they mature. See "Management's Discussions and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
NET LOSSES
The Company reported net losses of $283.2 million for the 52 weeks ended
January 28, 1996 and $32.0 million for the 12 weeks ended April 21, 1996. After
giving pro forma effect to the Merger and the related financings (and certain
related assumptions) and the Offering, as though they had occurred at the
beginning of fiscal year 1995, the Company would have reported a net loss of
approximately $314.3 million for the 52 weeks ended January 28, 1996. Food 4
Less reported a net loss of $11.5 million for the 31 weeks ended January 29,
1995, $2.7 million for the 52 weeks ended June 25, 1994, $27.4 million for the
52 weeks ended June 26, 1993, $33.8 million for the 52 weeks ended June 27, 1992
and $9.6 million for the 52 weeks ended June 29, 1991. Ralphs has reported net
earnings of $32.1 million for the 52 weeks ended January 29, 1995, $138.4
million for the 52 weeks ended January 30, 1994, a net loss of $76.1 million for
the 52 weeks ended January 31, 1993, a net loss of $41.2 million for the 52
weeks ended February 2, 1992 and a net loss of $51.4 million for the 53 weeks
ended February 3, 1991. There can be no assurance that the Company will not
continue to report net losses in the future.
ABSENCE OF PUBLIC MARKET
The Private Notes have not been registered under the Securities Act and are
subject to significant restrictions on resale. The Exchange Notes constitute a
new issue of securities with no established trading market. The Company does not
intend to list the Exchange Notes on any national securities exchange or to seek
the admission thereof to trading in the National Association of Securities
Dealers Automated Quotation system. The Company has been advised by the Initial
Purchaser of the Notes in the Offering (the "Initial Purchaser") that it
presently intends to make a market in the Notes. However, the Initial Purchaser
is not obligated to do so and any market-making activities with respect to the
Notes may be discontinued at any time without notice. In addition, such market
making activity will be subject to the limits imposed by the Securities Act and
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and may be
limited during the Exchange Offer. If a trading market does not develop or is
not maintained, holders of the Notes may experience difficulty in reselling the
Notes or may be unable to sell them at all. If a market for the Notes develops,
any such market may be discontinued at any time. If a public trading market
develops for the Notes, future trading prices of the Notes will depend on many
factors, including, among other things, prevailing interest rates, the Company's
results of operations and the market for similar securities.
22
<PAGE> 25
FAILURE TO EXCHANGE PRIVATE NOTES
Exchange Notes will be issued in exchange for Private Notes only after
timely receipt by the Exchange Agent of such Private Notes, a properly completed
and duly executed Letter of Transmittal and all other required documentation.
Therefore, holders of Private Notes desiring to tender such Private Notes in
exchange for Exchange Notes should allow sufficient time to ensure timely
delivery. Neither the Exchange Agent nor the Company is under any duty to give
notification of defects or irregularities with respect to tenders of Private
Notes for exchange. Private Notes that are not tendered or are tendered but not
accepted will, following consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof. In addition, any
holder of Private Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Notes will be required to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Each broker-dealer that receives
Exchange Notes for its own account in exchange for Private Notes, where such
Private Notes were acquired by such broker-dealer as a result of market-making
activities or any other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. To
the extent that Private Notes are tendered and accepted in the Exchange Offer,
the trading market for untendered and tendered but unaccepted Private Notes
could be adversely affected due to the limited amount, or "float," of the
Private Notes that are expected to remain outstanding following the Exchange
Offer. Generally, a lower "float" of a security could result in less demand to
purchase such security and could, therefore, result in lower prices for such
security. For the same reason, to the extent that a large amount of Private
Notes are not tendered or are tendered and not accepted in the Exchange Offer,
the trading market for the Exchange Notes could be adversely affected. See "Plan
of Distribution" and "The Exchange Offer."
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Private Notes were sold by the Company on June 6, 1996 (the "Closing
Date") to the Initial Purchaser pursuant to the Purchase Agreement. The Initial
Purchaser subsequently sold the Private Notes to (i) "qualified institutional
buyers" ("QIBs"), as defined in Rule 144A under the Securities Act ("Rule
144A"), in reliance on Rule 144A and (ii) a limited number of institutional
"accredited investors" ("Accredited Institutions"), as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act. As a condition to the sale
of the Private Notes, the Company, the Subsidiary Guarantors and the Initial
Purchaser entered into the Registration Rights Agreement on June 6, 1996.
Pursuant to the Registration Rights Agreement, the Company agreed that, unless
the Exchange Offer is not permitted by applicable law or Commission policy, it
would (i) file with the Commission a Registration Statement under the Securities
Act with respect to the Exchange Notes within 30 days after the Closing Date,
(ii) use its best efforts to cause such Registration Statement to become
effective under the Securities Act within 150 days after the Closing Date and
(iii) use its best efforts to consummate the Exchange Offer prior to the 60th
day following the date on which the Registration Statement is declared
effective. A copy of the Registration Rights Agreement has been filed as an
exhibit to the Registration Statement. The Registration Statement is intended to
satisfy certain of the Company's obligations under the Registration Rights
Agreement and the Purchase Agreement.
RESALE OF THE EXCHANGE NOTES
With respect to the Exchange Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to third
parties, the Company believes that a holder (other than (i) a broker-dealer who
purchases such Exchange Notes directly from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) any
such holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) who exchanges Private Notes for Exchange Notes in the
ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement with any person to participate, in a
distribution of the Exchange Notes, will be allowed to resell Exchange Notes to
the public without further registration under the Securities Act and without
delivering to the purchasers of the Exchange Notes a prospectus that satisfies
the requirements of
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<PAGE> 26
Section 10 of the Securities Act. However, if any holder acquires Exchange Notes
in the Exchange Offer for the purpose of distributing or participating in the
distribution of the Exchange Notes or is a broker-dealer, such holder cannot
rely on the position of the staff of the Commission enumerated in certain
no-action letters issued to third parties and must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any resale transaction, unless an exemption from registration is otherwise
available. Each broker-dealer that receives Exchange Notes for its own account
in exchange for Private Notes, where such Private Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Exchange Notes. The Letter of Transmittal states that by
so acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of Exchange Notes
received in exchange for Private Notes where such Private Notes were acquired by
such broker-dealer as a result of market-making or other trading activities.
Pursuant to the Registration Rights Agreement, the Company and the Subsidiary
Guarantors have agreed to make this Prospectus, as it may be amended or
supplemented from time to time, available to broker-dealers and other persons,
if any, with similar prospectus delivery requirements for use in connection with
any resale for a period of 90 days after consummation of the Exchange Offer. See
"Plan of Distribution."
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Private
Notes validly tendered and not withdrawn prior to the Expiration Date. The
Company will issue $1,000 principal amount of Exchange Notes in exchange for
each $1,000 principal amount of outstanding Private Notes surrendered pursuant
to the Exchange Offer. Private Notes may be tendered only in integral multiples
of $1,000.
The form and terms of the Exchange Notes are the same as the form and terms
of the Private Notes except that (i) the exchange will be registered under the
Securities Act and, therefore, the Exchange Notes will not bear legends
restricting the transfer thereof and (ii) holders of the Exchange Notes will not
be entitled to any of the rights of holders of Private Notes under the
Registration Rights Agreement, which rights will terminate upon the consummation
of the Exchange Offer. The Exchange Notes will evidence the same indebtedness as
the Private Notes (which they replace) and will be issued under, and be entitled
to the benefits of, the Indenture, which also authorized the issuance of the
Private Notes, such that both series of Notes will be treated as a single class
of debt securities under the Indenture.
As of the date of this Prospectus, $100,000,000 in aggregate principal
amount of the Private Notes are outstanding and registered in the name of Cede &
Co., as nominee for DTC. Only a registered holder of the Private Notes (or such
holder's legal representative or attorney-in-fact) as reflected on the records
of the Trustee under the Indenture may participate in the Exchange Offer. There
will be no fixed record date for determining registered holders of the Private
Notes entitled to participate in the Exchange Offer.
Holders of the Private Notes do not have any appraisal or dissenters'
rights under the Indenture in connection with the Exchange Offer. The Company
intends to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the Securities
Act, the Securities Exchange Act of 1934, as amended (the "Exchange Act") and
the rules and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Private Notes
when, as and if the Company has given oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Private Notes for the purposes of receiving the Exchange Notes from the
Company.
Holders who tender Private Notes in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
Letter of Transmittal, transfer taxes with respect to the exchange of Private
Notes pursuant to the Exchange Offer. The Company will pay all charges and
24
<PAGE> 27
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
, 1996, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will (i) notify the
Exchange Agent of any extension by oral or written notice, (ii) mail to the
registered holders an announcement thereof and (iii) issue a press release or
other public announcement which shall include disclosure of the approximate
number of Private Notes deposited to date, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date. Without limiting the manner in which the Company may choose to make a
public announcement of any delay, extension, amendment or termination of the
Exchange Offer, the Company shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Private Notes, (ii) to extend the Exchange Offer or (iii) if any
conditions set forth below under "-- Conditions" shall not have been satisfied,
to terminate the Exchange Offer by giving oral or written notice of such delay,
extension or termination to the Exchange Agent. Any such delay in acceptance,
extension, termination or amendment will be followed as promptly as practicable
by oral or written notice thereof to the registered holders. If the Exchange
Offer is amended in a manner determined by the Company to constitute a material
change, the Company will promptly disclose such amendment by means of a
prospectus supplement that will be distributed to the registered holders, and
the Company will extend the Exchange Offer for a period of five to ten business
days, depending upon the significance of the amendment and the manner of
disclosure to the registered holders, if the Exchange Offer would otherwise
expire during such five to ten business day period.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at a rate equal to 10.45% per annum.
Interest on the Exchange Notes will be payable semi-annually on each June 15 and
December 15, commencing December 15, 1996. Holders of Exchange Notes will
receive interest on December 15, 1996 from the date of initial issuance of the
Exchange Notes, plus an amount equal to the accrued interest on the Private
Notes from the date of the last interest payment (June 15, 1996) to the date of
exchange thereof for Exchange Notes. Holders of Private Notes that are accepted
for exchange will be deemed to have waived the right to receive any interest
accrued on the Private Notes.
PROCEDURES FOR TENDERING
Only a registered holder of Private Notes may tender such Private Notes in
the Exchange Offer. To tender in the Exchange Offer, a holder of Private Notes
must complete, sign and date the Letter of Transmittal, or a facsimile thereof,
have the signatures thereon guaranteed if required by the Letter of Transmittal,
and mail or otherwise deliver such Letter of Transmittal or such facsimile to
the Exchange Agent at the address set forth below under "-- Exchange Agent" for
receipt prior to the Expiration Date. In addition, either (i) certificates for
such Private Notes must be received by the Exchange Agent along with the Letter
of Transmittal, (ii) a timely confirmation of a book-entry transfer (a
"Book-Entry Confirmation") of such Private Notes, if such procedure is
available, into the Exchange Agent's account at the Depositary pursuant to the
procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date or (iii) the holder must comply with
the guaranteed delivery procedures described below.
The tender by a holder that is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
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<PAGE> 28
THE METHOD OF DELIVERY OF PRIVATE NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR PRIVATE NOTES SHOULD BE
SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner(s) of the Private Notes whose Private Notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact the registered holder
promptly and instruct such registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Private Notes, either make appropriate
arrangements to register ownership of the Private Notes in such owner's name or
obtain a properly completed bond power from the registered holder. The transfer
of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "-- Withdrawal of Tenders"), as the case may be, must be guaranteed
by an Eligible Institution (as defined below) unless the Private Notes tendered
pursuant thereto are tendered (i) by a registered holder who has not completed
the box titled "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible Institution. In the event that signatures on
a Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be made by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act which is a member of one of
the recognized signature guarantee programs identified in the Letter of
Transmittal (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Private Notes listed therein, such Private Notes must
be endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Private
Notes.
If the Letter of Transmittal or any Private Notes or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and unless waived by the Company,
evidence satisfactory to the Company of their authority to so act must be
submitted with the Letter of Transmittal.
The Exchange Agent and the Depositary have confirmed that any financial
institution that is a participant in the Depositary's system may utilize the
Depositary's Automated Tender Offer Program to tender Private Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Private Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Private
Notes not properly tendered or any Private Notes the Company's acceptance of
which would, in the opinion of counsel for the Company, be unlawful. The Company
also reserves the right to waive any defects, irregularities or conditions of
tender as to particular Private Notes. The Company's interpretation of the terms
and conditions of the Exchange Offer (including the instructions in the Letter
of Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Private Notes must be
cured within such time as the Company shall determine. Although the Company
intends to notify holders of defects or irregularities with respect to tenders
of Private Notes, neither the Company, the Exchange Agent nor any other person
shall incur any liability for failure to give such notification. Tenders of
Private Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived.
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<PAGE> 29
While the Company has no present plan to acquire any Private Notes that are
not tendered in the Exchange Offer or to file a registration statement to permit
resales of any Private Notes that are not tendered pursuant to the Exchange
Offer, the Company reserves the right in its sole discretion to purchase or make
offers for any Private Notes that remain outstanding subsequent to the
Expiration Date or, as set forth below under "--Conditions," to terminate the
Exchange Offer and, to the extent permitted by applicable law, purchase Private
Notes in the open market, in privately negotiated transactions or otherwise. The
terms of any such purchases or offers could differ from the terms of the
Exchange Offer.
By tendering, each holder of Private Notes will represent to the Company
that, among other things, (i) Exchange Notes to be acquired by such holder of
Private Notes in connection with the Exchange Offer are being acquired by such
holder in the ordinary course of business of such holder, (ii) such holder has
no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, (iii) such holder acknowledges and agrees
that any person who is a broker-dealer registered under the Exchange Act or is
participating in the Exchange Offer for the purposes of distributing the
Exchange Notes must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction of the Exchange Notes acquired by such person and cannot rely on the
position of the staff of the Commission set forth in certain no-action letters,
(iv) such holder understands that a secondary resale transaction described in
clause (iii) above and any resales of Exchange Notes obtained by such holder in
exchange for Private Notes acquired by such holder directly from the Company
should be covered by an effective registration statement containing the selling
securityholder information required by Item 507 or Item 508, as applicable, of
Regulation S-K of the Commission and (v) such holder is not an "affiliate," as
defined in Rule 405 under the Securities Act, of the Company. If the holder is a
broker-dealer that will receive Exchange Notes for such holder's own account in
exchange for Private Notes that were acquired as a result of market-making
activities or other trading activities, such holder will be required to
acknowledge in the Letter of Transmittal that such holder will deliver a
prospectus in connection with any resale of such Exchange Notes; however, by so
acknowledging and by delivering a prospectus, such holder will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
RETURN OF PRIVATE NOTES
If any tendered Private Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Private Notes are withdrawn
or are submitted for a greater principal amount than the holders desire to
exchange, such unaccepted, withdrawn or non-exchanged Private Notes will be
returned without expense to the tendering holder thereof (or, in the case of
Private Notes tendered by book-entry transfer into the Exchange Agent's account
at the Depositary pursuant to the book-entry transfer procedures described
below, such Private Notes will be credited to an account maintained with the
Depositary) as promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Private Notes at the Depositary for purposes of the Exchange Offer within
two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depositary's systems may make
book-entry delivery of Private Notes by causing the Depositary to transfer such
Private Notes into the Exchange Agent's account at the Depositary in accordance
with the Depositary's procedures for transfer. However, although delivery of
Private Notes may be effected through book-entry transfer at the Depositary, the
Letter of Transmittal or facsimile thereof, with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received by the Exchange Agent at the address set forth below under
"-- Exchange Agent" on or prior to the Expiration Date or pursuant to the
guaranteed delivery procedures described below.
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<PAGE> 30
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Private Notes and (i) whose Private Notes
are not immediately available or (ii) who cannot deliver their Private Notes,
the Letter of Transmittal or any other required documents to the Exchange Agent
prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery) setting forth the name and
address of the holder, the certificate number(s) of such Private Notes and
the principal amount of Private Notes tendered, stating that the tender is
being made thereby and guaranteeing that, within five New York Stock
Exchange trading days after the Expiration Date, the Letter of Transmittal
(or a facsimile thereof), together with the certificate(s) representing the
Private Notes in proper form for transfer or a Book-Entry Confirmation, as
the case may be, and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) Such properly executed Letter of Transmittal (or facsimile
thereof), as well as the certificate(s) representing all tendered Private
Notes in proper form for transfer and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within five New
York Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Private Notes according to the
guaranteed delivery procedures set forth above.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Private Notes may be
withdrawn at any time prior to the Expiration Date.
To withdraw a tender of Private Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Private Notes to be withdrawn (the "Depositor"), (ii) identify the Private
Notes to be withdrawn (including the certificate number or numbers and principal
amount of such Private Notes) and (iii) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which such
Private Notes were tendered (including any required signature guarantees). All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company in its sole discretion, whose
determination shall be final and binding on all parties. Any Private Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the Private Notes so withdrawn are validly retendered. Properly withdrawn
Private Notes may be retendered by following one of the procedures described
above under "The Exchange Offer -- Procedures for Tendering" at any time prior
to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange the Exchange Notes for, any
Private Notes, and may terminate the Exchange Offer as provided herein before
the acceptance of such Private Notes, if the Exchange Offer violates applicable
law, rules or regulations or an applicable interpretation of the staff of the
Commission.
If the Company determines in its sole discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any Private
Notes and return all tendered Private Notes to the tendering holders, (ii)
extend the Exchange Offer and retain all Private Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of holders to
withdraw such Private Notes (see "-- Withdrawal of Tenders") or (iii) waive such
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Private Notes that have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement
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<PAGE> 31
that will be distributed to the registered holders of the Private Notes, and the
Company will extend the Exchange Offer for a period of five to ten business
days, depending upon the significance of the waiver and the manner of disclosure
to the registered holders, if the Exchange Offer would otherwise expire during
such five to ten business day period.
TERMINATION OF CERTAIN RIGHTS
All rights under the Registration Rights Agreement (including registration
rights) of holders of the Private Notes eligible to participate in the Exchange
Offer will terminate upon consummation of the Exchange Offer except with respect
to the Company's continuing obligations (i) to indemnify such holders (including
any broker-dealers) and certain parties related to such holders against certain
liabilities (including liabilities under the Securities Act), (ii) to provide,
upon the request of any holder of a transfer-restricted Private Note, the
information required by Rule 144A(d)(4) under the Securities Act in order to
permit resales of such Private Notes pursuant to Rule 144A, (iii) to use its
best efforts to keep the Registration Statement effective to the extent
necessary to ensure that it is available for resales of transfer-restricted
Private Notes by broker-dealers for a period of up to 90 days from the
Expiration Date and (iv) to provide copies of the latest version of the
Prospectus to broker-dealers upon their request for a period of up to 90 days
after the Expiration Date.
SHELF REGISTRATION
In the event that applicable interpretations of the staff of the Commission
do not permit the Company and the Subsidiary Guarantors to effect the Exchange
Offer, or if for any other reason the Exchange Offer is not consummated within
240 days after the Closing Date, or, under certain circumstances, if the Initial
Purchaser shall so request, each of the Company and the Subsidiary Guarantors,
jointly and severally, will at its cost, (a) as promptly as practicable, file a
shelf registration statement covering resales of the Notes (a "Shelf
Registration Statement"), (b) use its best efforts to cause such Shelf
Registration Statement to be declared effective under the Securities Act and (c)
use its best efforts to keep effective such Shelf Registration Statement until
the earlier of three years after the Closing Date and such time as all of the
applicable Notes have been sold thereunder. The Company will, in the event of
the filing of a Shelf Registration Statement, provide to each holder of the
Notes copies of the prospectus which is a part of such Shelf Registration
Statement, notify each such holder when such Shelf Registration Statement has
become effective and take certain other actions as are required to permit
unrestricted resales of the Notes (and the related guarantees). A holder that
sells its Notes pursuant to a Shelf Registration Statement generally will be
required to be named as a selling securityholder in the related prospectus and
to deliver a prospectus to purchasers, will be subject to certain of the civil
liability provisions under the Securities Act in connection with such sales and
will be bound by the provisions of the Registration Rights Agreement which are
applicable to such a holder (including certain indemnification obligations).
LIQUIDATED DAMAGES
If the Company and the Subsidiary Guarantors fail to fulfill their
obligations under the Registration Rights Agreement, then the Company shall pay,
as liquidated damages ("Liquidated Damages"), to the holders of the Notes as
follows:
(i) if the Registration Statement or Shelf Registration Statement is
not filed within 30 days following the Closing Date, Liquidated Damages
shall accrue at a rate of .50% per annum of the principal amount of the
Notes for the first 90 days commencing on the 31st day after the Closing
Date, such Liquidated Damages rate increasing by an additional .25% per
annum of the principal amount of the Notes at the beginning of each
subsequent 90-day period;
(ii) if the Registration Statement or Shelf Registration Statement is
not declared effective within 120 days following the date on which such
registration statement is required to be filed, then, commencing on the
121st day after the date on which such registration statement is required
to be filed, Liquidated Damages shall accrue at a rate of .50% per annum of
the principal amount of the Notes for the first 90 days immediately
following the 121st day after the date on which such registration statement
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<PAGE> 32
is required to be filed, such Liquidated Damages rate increasing by an
additional .25% per annum of the principal amount of the Notes at the
beginning of each subsequent 90-day period or;
(iii) if (A) the Company and the Subsidiary Guarantors have not
exchanged Notes validly tendered in accordance with the terms of the
Exchange Offer on or prior to 60 days after the date on which the
Registration Statement was declared effective or (B) if applicable, the
Shelf Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time prior to the
third anniversary of the Closing Date (unless all the Notes have been sold
thereunder), then Liquidated Damages shall accrue at a rate of .50% per
annum of the principal amount of the Notes for the first 90 days commencing
on (x) the 61st day after such effective date, in the case of (A) above, or
(y) the day such Shelf Registration Statement ceases to be effective in the
case of (B) above, such Liquidated Damages rate increasing by an additional
.25% per annum of the principal amount of the Notes at the beginning of
each subsequent 90-day period;
provided, however that the Liquidated Damages rate may not exceed in the
aggregate 1.0% per annum of the principal amount of the Notes; and provided,
further, that (1) upon the filing of the Registration Statement or Shelf
Registration Statement (in the case of clause (i) above), (2) upon the
effectiveness of the Registration Statement or Shelf Registration Statement (in
the case of clause (ii) above), or (3) upon the exchange of Exchange Notes for
all Private Notes tendered (in the case of clause (iii)(A) above), or upon the
effectiveness of the Shelf Registration Statement which had ceased to remain
effective (in the case of clause (iii)(B) above), Liquidated Damages as a result
of such clause (or the relevant subclause thereof), as the case may be, shall
cease to accrue.
Any amounts of Liquidated Damages due pursuant to clauses (i), (ii) or
(iii) above will be payable in cash, on the same original interest payment dates
as the Notes. The amount of Liquidated Damages will be determined by multiplying
the applicable Liquidated Damages rate by the principal amount of the Notes
multiplied by a fraction, the numerator of which is the number of days such
Liquidated Damages rate was applicable during such period (determined on the
basis of a 360-day year comprised of twelve 30-day months), and the denominator
of which is 360.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by, all the provisions of the Registration Rights Agreement, a copy
of which will be available upon request to the Company.
EXCHANGE AGENT
Norwest Bank Minnesota, National Association has been appointed as Exchange
Agent of the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
<TABLE>
<S> <C>
By Registered or Certified Mail: In Person:
Norwest Bank Minnesota, Northstar East Bldg.
National Association 608 2nd Ave S.
Corporate Trust Operations 12th Floor
P.O. Box 1517 Corporate Trust Ser.
Minneapolis, MN 55480-1517 Minneapolis, MN
By Hand or Overnight Courier: By Facsimile (for Eligible Institutions
Norwest Bank Minnesota, only):
National Association (612) 667-4927
Corporate Trust Operations
Norwest Center Confirm Receipt of Notice of
Sixth and Marquette Guaranteed Delivery by Telephone:
Minneapolis, MN 55479-0113 (612) 667-9764
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION VIA A
FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
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<PAGE> 33
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company and are estimated in the aggregate to be approximately
$100,000. Such expenses include registration fees, fees and expenses of the
Exchange Agent and the Trustee, accounting and legal fees and printing costs,
among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Private Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of the Private Notes pursuant to
the Exchange Offer, then the amount of any such transfer taxes (whether imposed
on the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
CONSEQUENCE OF FAILURES TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Private
Notes are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
The Private Notes that are not exchanged for the Exchange Notes pursuant to
the Exchange Offer will remain restricted securities. Accordingly, such Private
Notes may be resold only (i) to a person whom the seller reasonably believes is
a QIB in a transaction meeting the requirements of Rule 144A, (ii) in a
transaction meeting the requirements of Rule 144 under the Securities Act, (iii)
outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, (iv) in accordance with
another exemption from the registration requirements of the Securities Act (and
based upon an opinion of counsel if the Company so requests), (v) to the Company
or (vi) pursuant to an effective registration statement and, in each case, in
accordance with any applicable securities laws of any state of the United States
or any other applicable jurisdiction.
ACCOUNTING TREATMENT
For accounting purposes, the Company will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the Exchange Notes.
31
<PAGE> 34
THE MERGER AND THE FINANCING
On June 14, 1995, Food 4 Less merged into RSI. Immediately following the
RSI Merger, Ralphs Grocery Company, which was a wholly-owned subsidiary of RSI,
merged with and into RSI pursuant to the RGC Merger, and RSI changed its name to
Ralphs Grocery Company. The purchase price for RSI was approximately $1.5
billion, including the assumption of debt. The consideration payable to the
stockholders of RSI consisted of $388.1 million in cash, $131.5 million
principal amount of the Seller Debentures and $18.5 million initial accreted
value of the New Discount Debentures which were issued by Holdings.
The Merger was financed through the following principal transactions:
- Borrowings of $600 million aggregate principal amount pursuant to term
loans (the "New Term Loans") under a senior bank facility (the "New
Credit Facility") provided by a syndicate of banks led by Bankers Trust.
The New Credit Facility also provides for a $325 million revolving credit
facility (the "New Revolving Facility").
- The issuance by the Company of $350 million of 10.45% Senior Notes due
2004 (the "1995 Senior Notes") and $100 million of 11% Senior
Subordinated Notes due 2005 (the "1995 11% Senior Subordinated Notes").
- The issuance of preferred stock in a private placement by Holdings to a
group of investors (the "1995 Equity Investors") led by Apollo Advisors,
L.P. and Apollo Advisors II, L.P. (on behalf of one or more managed
entities) or their respective affiliates and designees ("Apollo") and
including affiliates of BT Securities Corporation ("BT Securities"), CS
First Boston Corporation ("CS First Boston") and Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") and other institutional
investors, yielding cash proceeds of $140 million pursuant to the 1995
Equity Investment. Concurrently with the 1995 Equity Investment, the 1995
Equity Investors purchased outstanding shares of Holdings capital stock
from a stockholder of Holdings for a purchase price of $57.8 million.
- The exchange by Food 4 Less of (a) $170.3 million aggregate principal
amount of the 10.45% Senior Notes due 2000 of Food 4 Less (the "1992
Senior Notes") for $170.3 million aggregate principal amount of the 1995
Senior Notes plus $5.00 in cash per $1,000 principal amount exchanged and
(b) $140.2 million aggregate principal amount of the 13.75% Senior
Subordinated Notes due 2001 of Food 4 Less (the "1991 Senior Subordinated
Notes") for $140.2 million aggregate principal amount of the 13.75%
Senior Subordinated Notes due 2005 of the Company (the "1995 13.75%
Senior Subordinated Notes") plus $20.00 in cash per $1,000 principal
amount exchanged, together with the solicitation of consents from the
holders of the 1992 Senior Notes and 1991 Senior Subordinated Notes to
certain amendments to the indentures governing such notes.
- The offers by Food 4 Less to (i) exchange up to $450 million aggregate
principal amount of the Old RGC Notes (as defined herein) for up to $450
million aggregate principal amount of the 1995 11% Senior Subordinated
Notes plus $20.00 in cash per $1,000 principal amount of Old RGC Notes
exchanged and (ii) purchase Old RGC Notes for $1,010.00 in cash per
$1,000 principal amount of Old RGC Notes accepted for purchase, together
with the solicitation of consents from holders of Old RGC Notes to
certain amendments to the indenture governing the Old RGC Notes.
- The placement by Holdings pursuant to the New Discount Debenture
Placement of $100 million initial accreted value of New Discount
Debentures to a partnership including Yucaipa, the selling stockholders
of Ralphs, an affiliate of George Soros, Apollo, and an affiliate of each
of BT Securities, CS First Boston and DLJ. The $100 million initial
accreted value of New Discount Debentures included (a) $18.5 million that
was issued to the RSI stockholders, (b) $17.5 million, $2.5 million and
$2.5 million that was issued to Yucaipa, BT Securities and Apollo,
respectively, in satisfaction of fees otherwise payable by the Company
and Holdings in connection with the Merger and the related financing and
(c) $59 million that was issued for cash to the partnership described
above. The $41 million initial accreted value of New Discount Debentures
issued to the RSI stockholders, Apollo, BT Securities and Yucaipa were
contributed to such partnership by the recipients thereof.
32
<PAGE> 35
- The assumption by the Company, pursuant to the Merger, of approximately
$162.9 million of other indebtedness of RGC and Food 4 Less.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange Private
Notes in like principal amount, the terms of which are identical to the Exchange
Notes. The Private Notes surrendered in exchange for Exchange Notes will not
result in any increase in the indebtedness of the Company.
33
<PAGE> 36
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
April 21, 1996, and as adjusted to give effect to the issuance of the Private
Notes and the application of the proceeds therefrom. The table should be read in
conjunction with the historical consolidated financial statements of the Company
and related notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AT APRIL 21, 1996
-----------------------------
ACTUAL AS ADJUSTED
------------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cash................................................................ $ 58.5 $ 58.5
======== ========
Short-term and current portion of long-term debt:
New Term Loans.................................................... $ 27.3 $ 4.6
Other indebtedness................................................ 11.7 11.7
Capital leases.................................................... 23.3 23.3
-------- --------
Total short-term and current portion of long-term debt.... $ 62.3 $ 39.6
======== ========
Long-term debt:
New Term Loans.................................................... $ 562.3 $ 540.6
New Revolving Facility(a)......................................... 110.0 62.4
1996 Senior Notes................................................. -- 94.6
1995 Senior Notes................................................. 520.3 520.3
1992 Senior Notes................................................. 4.7 4.7
Other senior indebtedness......................................... 2.7 2.7
Capital leases.................................................... 126.2 126.2
1995 11% Senior Subordinated Notes................................ 524.0 524.0
1995 13.75% Senior Subordinated Notes............................. 140.2 140.2
1991 Senior Subordinated Notes.................................... 7.0 7.0
-------- --------
Total long-term debt...................................... $ 1,997.4 $ 2,022.7
-------- --------
Stockholder's equity:
Common stock, $.01 par value...................................... -- --
Additional paid-in capital........................................ 466.8 466.8
Notes receivable(b)............................................... (0.6) (0.6)
Retained deficit.................................................. (439.1) (441.2)
-------- --------
Total stockholder's equity..................................... 27.1 25.0
-------- --------
Total capitalization...................................... $ 2,024.5 $ 2,047.7
======== ========
</TABLE>
- ---------------
(a) The New Revolving Facility provides for a $325 million line of credit which
is available for working capital requirements and general corporate
purposes. Up to $150 million of the New Revolving Facility may be used to
support letters of credit. The letters of credit will be used to cover
workers' compensation contingencies and for other purposes permitted under
the New Revolving Facility. As of June 26, 1996, letters of credit for
approximately $88.2 million had been issued under the New Revolving
Facility, primarily to satisfy the State of California's requirements
relating to workers' compensation self-insurance.
(b) Represents notes receivable from shareholders of Holdings with respect to
the purchase of Holdings' common stock.
34
<PAGE> 37
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
The following unaudited pro forma combined statement of operations of the
Company for the 52 weeks ended January 28, 1996 gives effect to the Merger and
the financing thereof (and certain related assumptions set forth below) and the
Offering (and the application of the proceeds therefrom) as if such transactions
occurred on January 30, 1995. Such pro forma information combines the results of
operations of the Company for the 52 weeks ended January 28, 1996 with the
results of operations of Ralphs for the period from January 30, 1995 to June 13,
1995 (unaudited).
The pro forma adjustments are based upon currently available information
and upon certain assumptions that management believes are reasonable. The Merger
was accounted for by the Company as a purchase of Ralphs by Food 4 Less and
Ralphs' assets and liabilities were recorded at their estimated fair market
values at the date of the Merger. The adjustments included in the unaudited pro
forma combined financial statements represent the Company's preliminary
determination of these adjustments based upon available information. There can
be no assurance that the actual adjustments will not differ significantly from
the pro forma adjustments reflected in the pro forma financial information.
The unaudited pro forma combined financial statements are not necessarily
indicative of either future results of operations or results that might have
been achieved if the foregoing transactions had been consummated as of the
indicated dates. The unaudited pro forma combined financial statements should be
read in conjunction with the historical consolidated financial statements of the
Company and Ralphs, together with the related notes thereto, included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
RALPHS COMPANY
(HISTORICAL) (HISTORICAL)
(UNAUDITED) (AUDITED)
JUNE 13, JANUARY 28, PRO FORMA PRO FORMA
1995 1996 ADJUSTMENTS COMBINED
----------- ----------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Sales........................................ $ 1,025.7 $ 4,335.1 $ $5,360.8
Cost of sales................................ 794.4 3,486.0 1.6(a) 4,282.0
--------- --------- ------- --------
Gross profit............................... 231.3 849.1 (1.6) 1,078.8
Selling, general, administrative and other,
net........................................ 179.1 785.6 3.1(a) 968.6
0.6(b)
0.2(c)
Amortization of goodwill..................... 4.1 21.8 4.9(d) 30.8
Provision for restructuring.................. 0.0 123.1 123.1
--------- --------- ------- --------
Operating income (loss).................... 48.1 (81.4) (10.4) (43.7)
Other expense
Interest expense........................... 38.9 170.5 26.7(e) 236.1
Amortization of debt issuance costs........ 2.1 8.2 (0.2)(e) 10.1
Gain on disposal of assets................... (0.3) (0.5) (0.8)
--------- --------- ------- --------
Earnings (loss) before income tax provision
and extraordinary charges............... 7.4 (259.6) (36.9) (289.1)
Income tax expense (benefit)................. 0.0 0.5 (0.5)(f) --
--------- --------- ------- --------
Earnings (loss) before extraordinary
charges................................. 7.4 (260.1) (36.4) (289.1)
Extraordinary charges........................ 0.0 23.1 2.1(g) 25.2
--------- --------- ------- --------
Net earnings (loss)........................ $ 7.4 $ (283.2) $ (38.5) $ (314.3)
========= ========= ======= ========
Ratio of earnings to fixed charges(h)...... 1.15x -- --
========= ========= ========
</TABLE>
35
<PAGE> 38
NOTES TO UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
(a) Represents the additional depreciation expense associated with the purchase
price allocation to property, plant and equipment of $160.0 million based
on the current estimate of fair market value. Property, plant and equipment
is being depreciated over an average useful life of 13 years. Depreciation
expense has been allocated among cost of sales and selling, general and
administrative expenses.
(b) Reflects additional Yucaipa management fees ($0.8 million) and the
elimination of an annual guarantee fee ($0.2 million) paid by Ralphs to
EJDC.
(c) Reflects increased compensation resulting from new employment agreements
with certain of the current executive officers of Ralphs.
(d) Reflects the amortization of goodwill acquired in the Merger ($9.0 million)
and elimination of Ralphs' historical amortization ($4.1 million).
Amortization has been calculated on the straight line basis over a period
of 40 years.
(e) The following table presents a reconciliation of pro forma interest expense
and amortization of deferred financing costs:
<TABLE>
<CAPTION>
52 WEEKS ENDED
JANUARY 28, 1996
---------------------
<S> <C>
(DOLLARS IN MILLIONS)
Historical interest expense......................................... $ 209.4
-------
Plus: Interest on borrowings under:
New Credit Facility............................................ 21.0
1996 Senior Notes.............................................. 11.0
1995 Senior Notes.............................................. 14.1
1995 Senior Subordinated Notes................................. 22.2
Less: Interest on borrowings associated with indebtedness retired
at the time of the Merger:
Old bank term loans:
Ralphs....................................................... (10.1)
Food 4 Less.................................................. (6.2)
Old RGC Notes.................................................. (16.9)
Other debt..................................................... (8.4)
-------
Pro forma adjustment.............................................. 26.7
-------
Pro forma interest expense.......................................... $ 236.1
=======
Historical amortization of debt issuance costs...................... $ 10.3
Plus:
Financing and exchange/consent fees............................ 3.8
Less:
Historical financing costs associated with indebtedness retired
at the time of the Merger:
Ralphs....................................................... (2.1)
Food 4 Less.................................................. (1.9)
-------
Pro forma adjustment.............................................. (0.2)
-------
Pro forma amortization of debt issuance costs....................... $ 10.1
=======
</TABLE>
(f) Represents the elimination of the historical Food 4 Less income tax
expense.
(g) Relates to the write-off of debt issuance costs associated with
indebtedness retired in connection with the Offering.
(h) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consist of earnings before income taxes, extraordinary charges
plus fixed charges. "Fixed charges" consist of interest on all
indebtedness, amortization of deferred debt issuance costs and one-third of
rental expense (the portion deemed representative of the interest factor).
The Company's pro forma earnings were inadequate to cover pro forma fixed
charges by approximately $289.1 million. However, such pro forma earnings
included non-cash charges of $236.1 million primarily consisting of the
write-off of property and equipment associated with stores closed as a
result of the Merger, stores closed in connection with the acquisition of
the nine stores from Smith's, warehouses to be closed as a result of the
acquisition of the Riverside Facility and depreciation and amortization. In
addition, pro forma earnings for the 52 weeks ended January 28, 1996 were
reduced by cash restructuring charges of $54.1 million.
36
<PAGE> 39
SELECTED HISTORICAL FINANCIAL DATA OF THE COMPANY
The following table sets forth certain selected consolidated historical
financial data of the Company and its predecessor Food 4 Less. The operating and
balance sheet data of the Company and Food 4 Less set forth in the table below
as of and for the 52 weeks ended June 29, 1991, June 27, 1992, June 26, 1993 and
June 25, 1994, the 31 weeks ended January 29, 1995 and the 52 weeks ended
January 28, 1996 have been derived from the financial statements of the Company
and Food 4 Less which have been audited by Arthur Andersen LLP, independent
public accountants. The summary historical financial data of the Company
presented below as of and for the 12 weeks ended April 23, 1995 and April 21,
1996 have been derived from unaudited financial statements of the Company which,
in the opinion of management, reflect all material adjustments, consisting of
only normal recurring adjustments, necessary for a fair presentation of such
data. The following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical consolidated financial statements of the Company and related
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
31 WEEKS 52 WEEKS 12 WEEKS
52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED ENDED 12 WEEKS
ENDED ENDED ENDED ENDED JANUARY JANUARY APRIL ENDED
JUNE 29, JUNE 27, JUNE 26, JUNE 25, 29, 28, 23, APRIL 21,
1991(A) 1992 1993 1994(B) 1995(C) 1996(D) 1995 1996(D)
---------- ---------- ---------- ---------- ---------- ---------- -------- ----------
(DOLLARS IN THOUSANDS, EXCEPT STORE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales....................... $1,606,559 $2,913,493 $2,742,027 $2,585,160 $1,556,522 $4,335,109 $623,598 $1,230,808
Cost of sales(e)............ 1,340,841 2,392,655 2,257,835 2,115,842 1,294,147 3,485,993 516,430 982,171
---------- ---------- ---------- ---------- ---------- ---------- -------- ----------
Gross profit(e)............. 265,718 520,838 484,192 469,318 262,375 849,116 107,168 248,637
Selling, general,
administrative and other,
net....................... 213,083 469,751 434,908 388,836 222,359 785,576 91,352 217,335
Amortization of goodwill.... 5,315 7,795 7,571 7,691 4,615 21,847 1,829 7,202
Restructuring charge........ -- -- -- -- 5,134(f) 123,083(g) -- --
---------- ---------- ---------- ---------- ---------- ---------- -------- ----------
Operating income
(loss)(e)................. 47,320 43,292 41,713 72,791 30,267 (81,390) 13,987 24,100
Interest expense(h)......... 50,084 70,211 69,732 68,250 42,222 178,774 16,916 56,084
Loss (gain) on disposal of
assets.................... 623 (1,364) (2,083) 37 (455) (547) (417) (3)
Provision for earthquake
losses.................... -- -- -- 4,504(i) -- -- -- --
Provision for income
taxes..................... 2,505 3,441 1,427 2,700 -- 500 300 --
---------- ---------- ---------- ---------- ---------- ---------- -------- ----------
Loss before extraordinary
charges................... (5,892) (28,996) (27,363) (2,700) (11,500) (260,117) (2,812) (31,981)
Extraordinary charges....... 3,757(j) 4,818(k) -- -- -- 23,128(l) -- --
---------- ---------- ---------- ---------- ---------- ---------- -------- ----------
Net loss(m)................. $ (9,649) $ (33,814) $ (27,363) $ (2,700) $ (11,500) $ (283,245) $ (2,812) $ (31,981)
========== ========== ========== ========== ========== ========== ======== ==========
Ratio of earnings to
fixed..................... --(n) -- (n) --(n) 1.0x --(n) --(n) --(n) --(n)
charges(n)
NON-CASH CHARGES:
Depreciation and
amortization of property
and equipment............. $ 20,399 $ 37,898 $ 37,426 $ 41,380 $ 25,966 $ 92,282 $ 10,010 $ 28,107
Amortization of goodwill and
other assets.............. 11,453 16,979 20,214 15,703 10,657 33,047 4,679 8,575
Amortization of deferred
financing costs........... 5,177 6,304 4,901 5,472 3,413 8,193 1,394 3,336
BALANCE SHEET DATA
(end of period)(o):
Working capital surplus
(deficit)................. $ 13,741 $ (66,254) $ (19,222) $ (54,882) $ (74,776) $ (178,456) $(80,399) $ (230,188)
Total assets................ 979,958 998,451 957,840 980,080 1,000,695 3,188,129 971,240 3,144,775
Total debt(p)............... 558,943 525,340 538,083 517,872 533,804 2,082,304 536,284 2,059,749
Stockholder's equity........ 84,557 50,771 72,863 69,021 57,803 59,119 55,001 27,138
OTHER DATA:
Depreciation and
amortization(q)........... $ 31,852 $ 54,877 $ 57,640 $ 57,083 $ 36,623 $ 125,329 $ 14,689 $ 36,682
Capital expenditures........ 34,652 60,263 53,467 57,741 49,023 122,355 18,238 34,222
Stores open at end of
period.................... 259 249 248 258 267 408 268 408
EBITDA (as defined)(r)...... $ 80,667 $ 101,723 $ 103,794 $ 130,573 $ 76,853 $ 245,146 $ 30,128 $ 70,118
EBITDA margin(s)............ 5.0% 3.5% 3.8% 5.1% 4.9% 5.7% 4.8% 5.7%
</TABLE>
37
<PAGE> 40
(a) Operating data for the 52 weeks ended June 29, 1991 include the results of
Alpha Beta from June 17, 1991, the date of its acquisition only. Alpha
Beta's sales for the two weeks ended June 29, 1991 were $59.2 million.
(b) Operating data for the 52 weeks ended June 25, 1994 include the results of
10 Food Barn stores, which were not material, from March 29, 1994, the date
of the Food Barn acquisition.
(c) Food 4 Less Supermarkets changed its fiscal year end from the 52 or 53-week
period which ends on the last Saturday in June to the 52 or 53-week period
which ends on the Sunday closest to January 31, resulting in a 31-week
transition period.
(d) Operating data for the 52 weeks ended January 28, 1996 and the 12 weeks
ended April 21, 1996 reflect the acquisition of Ralphs on June 14, 1995.
(e) Cost of sales has been principally determined using the last-in, first-out
("LIFO") method of valuing inventory. If cost of sales had been determined
using the first-in, first-out ("FIFO") method, gross profit and operating
income would have been greater by $2.1 million, $3.6 million, $4.4 million,
$0.7 million, $2.7 million, $2.2 million, $1.0 million and $1.3 million for
the 52 weeks ended June 29, 1991, June 27, 1992, June 26, 1993, and June 25,
1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28,
1996 and the 12 weeks ended April 23, 1995 and April 21, 1996, respectively.
(f) The Company converted 11 of its conventional supermarkets to warehouse
stores. During the 31 weeks ended January 29, 1995, the Company recorded a
non-cash restructuring charge for the write-off of property and equipment at
the 11 stores of $5.1 million.
(g) The Company recorded a $75.2 million restructuring charge associated with
the closing of 58 stores and one warehouse facility in the 52 weeks ended
January 28, 1996. Pursuant to the settlement agreement with the State of
California, 24 Food 4 Less stores (as well as 3 Ralphs stores) were required
to be divested and an additional 34 under-performing stores were closed. The
Company also recorded a $47.9 million restructuring charge associated with
the closing of 9 stores and one warehouse facility in the 52 weeks ended
January 28, 1996, in conjunction with the agreement with Smith's to lease
the Riverside warehouse facility and 9 stores.
(h) Interest expense includes non-cash charges related to the amortization of
deferred financing costs.
(i) On January 17, 1994, Southern California was struck by a major earthquake
which resulted in the temporary closing of 31 of the Company's stores. The
closures were caused primarily by loss of electricity, water, inventory, or
damage to the affected stores. All but one of the closed stores reopened
within a week of the earthquake. The final closed store reopened on March
24, 1994. The Company is insured, subject to deductibles, against earthquake
losses (including business interruption). The pre-tax charge to earnings,
net of insurance recoveries, was approximately $4.5 million.
(j) Represents an extraordinary charge of $3.8 million (net of related income
tax benefit of $2.5 million) relating to the refinancing of certain
indebtedness in connection with the Alpha Beta acquisition and the write-off
of related debt issuance costs.
(k) Represents an extraordinary net charge of $4.8 million reflecting the
write-off of $6.7 million (net of related income tax benefit of $2.5
million) of deferred debt issuance costs as a result of the early redemption
of a portion of Food 4 Less' bank term loan, partially offset by a $1.9
million extraordinary gain (net of a related income tax expense of $0.7
million) on the replacement of partially depreciated assets following the
civil unrest in Los Angeles.
(l) Represents an extraordinary charge of $23.1 million relating to the
refinancing of Food 4 Less' old credit facility, 10.45% Senior Notes due
2000 (the "1992 Senior Notes"), 13.75% Senior Subordinated Notes due 2001
(the "1991 Senior Subordinated Notes") and Holdings' 15.25% Senior Discount
Notes due 2004 in connection with the Merger and the write-off of their
related debt issuance costs.
(m) Net loss includes a pre-tax provision for self insurance, which is
classified in cost of sales, selling, general and administrative expenses,
and interest expense of $15.1 million, $51.1 million, $43.9 million, $25.7
million, $9.8 million, $32.6 million, $5.1 million and $10.6 million for the
52 weeks ended June 29, 1991, June 27, 1992, June 26, 1993, and June 25,
1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28,
1996, the 12 weeks ended April 23, 1995 and the 12 weeks ended April 21,
1996, respectively. Included in the 52 weeks ended June 25, 1994, the 31
weeks ended January 29, 1995, the 52 weeks ended January 28, 1996 and the 12
weeks ended April 21, 1996 are reduced employer contributions of $8.1
million, $14.3 million, $26.1 million and $1.0 million, respectively,
related to union health and welfare benefit plans.
(n) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of loss before provision for income taxes and extraordinary charges
plus fixed charges. "Fixed charges" consist of interest on all indebtedness,
amortization of deferred debt financing costs and one-third of rental
expense (the portion deemed representative of the interest factor). Earnings
were insufficient to cover fixed charges for the 52 weeks ended June 29,
1991, June 27, 1992 and June 26, 1993, the 31 weeks ended January 29, 1995,
the 52 weeks ended January 28, 1996, the 12 weeks ended April 23, 1995 and
the 12 weeks ended April 21, 1996, by approximately $3.4 million, $25.6
million, $25.9 million, $11.5 million, $259.6 million, $2.5 million and
$32.0 million, respectively. However, such earnings included non-cash
charges of $37.0 million for the 52 weeks ended June 29, 1991, $61.2 million
for the 52 weeks ended June 27, 1992, $62.5 million for the 52 weeks ended
June 26, 1993, $40.0 million for the 31 weeks ended January 29, 1995, $202.6
million for the 52 weeks ended January 28, 1996, $16.1 million for the 12
weeks ended April 23, 1995 and $40.0 million for the 12 weeks ended April
21, 1996, primarily consisting of depreciation and amortization and the
write-off of property and equipment associated with stores closed as a
result of the Merger, stores closed due to under-performance, stores closed
in connection with the acquisition of the nine stores from Smith's, and
warehouses to be closed as a result of the acquisition of the Riverside
Facility. In addition, earnings for the 52 weeks ended January 28, 1996 were
reduced by cash restructuring charges of $54.1 million.
(o) Balance sheet data as of June 29, 1991, June 27, 1992 and June 26, 1993
relate to Food 4 Less and reflect the Alpha Beta acquisition and the
financings and refinancings associated therewith. Balance sheet data as of
June 25, 1994, January 29, 1995 and April 23, 1995 relate to Food 4 Less and
reflect the acquisition of 10 Food Barn stores. Balance sheet data as of
January 28, 1996 and April 21, 1996 relate to the Company and reflect the
Merger and the financings associated therewith.
(p) Total debt includes long-term debt, current maturities of long-term debt and
capital lease obligations.
(q) Depreciation and amortization includes amortization of goodwill.
(r) "EBITDA (as defined)," as presented historically by the Company, represents
income before interest expense, depreciation and amortization expense, the
LIFO provision, provision for income taxes, provision for earthquake losses,
provision for restructuring, a
38
<PAGE> 41
one-time charge in the 1995 transition period for Teamsters Union sick pay
benefits, $75.0 million of one-time costs incurred in connection with the
Merger in fiscal year 1995 and $7.6 million of one-time costs incurred in
connection with the acquisition of the Riverside Facility and nine former
Smith's stores in the first quarter of fiscal year 1996. EBITDA is a widely
accepted financial indicator of a company's ability to service debt.
However, EBITDA should not be construed as an alternative to operating
income or to cash flows from operating activities (as determined in
accordance with generally accepted accounting principles) and should not be
construed as an indication of the Company's operating performance or as a
measure of liquidity. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(s) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
39
<PAGE> 42
SELECTED HISTORICAL FINANCIAL DATA OF RALPHS
The following table presents selected historical financial data of RGC (as
the predecessor of RSI) as of and for the 53 weeks ended February 3, 1991, and
the 52 weeks ended February 2, 1992, and summary historical financial data of
RSI for the 52 weeks ended January 31, 1993, January 30, 1994 and January 29,
1995, which have been derived from the financial statements of RSI and RGC
audited by KPMG Peat Marwick LLP, independent certified public accountants. The
following information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical consolidated financial statements of RSI and RGC and related
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED ENDED
FEBRUARY 3, FEBRUARY 2, JANUARY 31, JANUARY 30, JANUARY 29,
1991 1992 1993 1994 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS, EXCEPT STORE DATA)
OPERATING DATA:
Sales.............................................. $2,799.1 $2,889.2 $2,843.8 $2,730.2 $2,724.6
Cost of sales...................................... 2,225.4 2,275.2 2,217.2 2,093.7 2,101.0
-------- -------- -------- -------- --------
Gross profit....................................... 573.7 614.0 626.6 636.5 623.6
Selling, general and administrative expenses(a).... 438.0 459.2 470.0 471.0 467.0
Provision for equity appreciation rights........... 15.3 18.3 -- -- --
Amortization of excess of cost over net assets
acquired......................................... 11.0 11.0 11.0 11.0 11.0
Provisions for restructuring and tax indemnification
payments(b)........................................ -- 10.0 7.1 2.4 --
-------- -------- -------- -------- --------
Operating income................................... 109.4 115.5 138.5 152.1 145.6
Interest expense(c).............................. 128.5 130.2 125.6 108.8 112.7
Loss on disposal of assets and provisions for
legal settlement and earthquake losses(d)...... 6.4 13.0 10.1 12.9 0.8
Income tax expense (benefit)....................... 12.8 13.5 8.3 (108.0)(e) --
Cumulative effect of change in accounting for post-
retirement benefits other than pensions.......... (13.1) -- -- -- --
Extraordinary item-debt refinancing, net of tax
benefits......................................... -- -- (70.6) -- --
-------- -------- -------- -------- --------
Net earnings (loss)(f)............................. $ (51.4) $ (41.2) $ (76.1) $ 138.4 $ 32.1
======== ======== ======== ======== ========
Ratio of earnings to fixed charges(g).............. --(g) --(g) 1.02x 1.24x 1.24x
BALANCE SHEET DATA (end of period):
Working capital surplus (deficit).................. $ (93.9) $ (114.2) $ (122.0) $ (73.0) $ (119.5)
Total assets....................................... 1,406.4 1,357.6 1,388.5 1,483.7 1,509.9
Total debt(h)...................................... 986.1 941.9 1,029.8 998.9 1,018.5
Redeemable stock................................... 3.0 3.0 -- -- --
Stockholders' equity (deficit)..................... (16.0) (57.2) (133.3) 5.1 27.2
OTHER DATA:
Depreciation and amortization(i)................... $ 75.2 $ 76.6 $ 76.9 $ 74.5 $ 76.0
Capital expenditures............................... 87.6 50.4 102.7 62.2 64.0
Stores open at end of period....................... 150 158 159 165 173
EBITDA (as defined)(j)............................. $ 207.0 $ 225.8 $ 227.3 $ 230.2 $ 230.2
EBITDA margin(k)................................... 7.4% 7.8% 8.0% 8.4% 8.4%
</TABLE>
- ---------------
(a) Includes provision for post retirement benefits other than pensions of $2.2
million, $2.6 million, $3.3 million, $3.4 million and $2.6 million for the
53 weeks ended February 3, 1991, the 52 weeks ended February 2, 1992,
January 31, 1993, January 30, 1994 and January 29, 1995, respectively.
(b) Provisions for restructuring are charges for expenses relating to closing
of Ralphs central bakery operation. The charge reflected the complete
write-down of the bakery building, machinery and equipment, leaseholds,
related inventory and supplies, and providing severance pay to terminated
employees. These charges were $7.1 million and $2.4 million for the 52
weeks ended January 31, 1993 and the 52 weeks ended January 30, 1994,
respectively. Provision for tax indemnification payments to Federated were
$10.0 million for the 52 weeks ended February 2, 1992.
(c) Interest expense includes non-cash charges related to the amortization of
deferred debt issuance costs of $4.1 million for the 53 weeks ended
February 3, 1991, $5.0 million for the 52 weeks ended February 2, 1992,
$5.5 million for the 52 weeks ended
40
<PAGE> 43
January 31, 1993, $6.5 million for the 52 weeks ended January 30, 1994 and
$6.1 million for the 52 weeks ended January 29, 1995, respectively.
(d) Loss on disposal of assets was $6.4 million, $13.0 million, $2.6 million,
$1.9 million and $0.8 million for the 53 weeks ended February 3, 1991, the
52 weeks ended February 2, 1992, January 31, 1993, January 30, 1994 and
January 29, 1995, respectively. The 52 weeks ended February 2, 1992
includes approximately $12.2 million representing a reserve against losses
related to the closing of three stores. Provision for legal settlement was
$7.5 million for the 52 weeks ended January 31, 1993. Provision for
earthquake losses was $11.0 million for the 52 weeks ended January 30,
1994. This represents reserve for losses, net of anticipated insurance
recoveries, resulting from the January 17, 1994 Southern California
earthquake.
(e) Includes recognition of $109.1 million of deferred income tax benefit and
$1.1 million current income tax expense for Fiscal 1993 (see Note 11 of
Notes to Consolidated Financial Statements of Ralphs Supermarkets, Inc.).
(f) Net earnings (loss) includes a pre-tax provision for self insurance, which
is classified in cost of sales, selling, general and administrative
expenses and interest expense, of $29.2 million, $31.2 million, $36.9
million, $36.3 million, and $20.0 million, for the 53 weeks ended February
3, 1991, the 52 weeks ended February 2, 1992, the 52 weeks ended January
31, 1993, the 52 weeks ended January 30, 1994 and the 52 weeks ended
January 29, 1995, respectively. Included in the 52 weeks ended January 30,
1994 and the 52 weeks ended January 29, 1995 are reduced employer
contributions of $11.8 million and $12.7 million, respectively, related to
union health and welfare benefit plans.
(g) For purposes of computing the ratio of earnings to fixed charges,
"earnings" consist of earnings before income taxes, cumulative effect of
change in accounting principles, extraordinary items and fixed charges
before capitalized interest. "Fixed charges" consist of interest expense
(including amortization of self-insurance reserves discount), capitalized
interest, amortization of deferred debt issuance costs and one-third of
rental expense (the portion deemed representative of the interest factor).
Earnings were insufficient to cover fixed charges for the 53 weeks ended
February 3, 1991 and the 52 weeks ended February 2, 1992 by $25.5 million
and $27.7 million, respectively.
(h) Total debt includes long-term debt, current maturities of long-term debt,
short-term debt and capital lease obligations.
(i) For the 53 weeks ended February 3, 1991, the 52 weeks ended February 2,
1992, January 31, 1993, January 30, 1994 and January 29, 1995, depreciation
and amortization includes amortization of the excess of cost over net
assets acquired of $11.0 million, $11.0 million, $11.0 million, $11.0
million and $11.0 million, respectively.
(j) "EBITDA (as defined)" and presented historically by RGC, represents net
earnings before interest expense, income tax expense (benefit),
depreciation and amortization expense, provisions for Equity Appreciation
Rights, provision for tax indemnification payments to Federated, provision
for postretirement benefits, the LIFO charge, extraordinary item relating
to debt refinancing, provision for legal settlement, provision for
restructuring, provision for earthquake losses, a one-time charge for
Teamsters Union sick pay benefits, transition expense and gains and losses
on disposal of assets. EBITDA is a widely accepted financial indicator of a
company's ability to service debt. However, EBITDA should not be construed
as an alternative to operating income or to cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) and should not be construed as an indication of Ralphs'
operating performance or as a measure of liquidity. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(k) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
41
<PAGE> 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
On June 14, 1995, Food 4 Less completed its acquisition of RSI and its
wholly owned subsidiary, Ralphs Grocery Company ("RGC" and together with RSI,
"Ralphs"). The acquisition was effected through the merger of Food 4 Less with
and into RSI (the "RSI Merger"), followed by the merger of RGC with and into RSI
(the "RGC Merger" and, together with the RSI Merger, the "Merger"). The
surviving corporation in the Merger was renamed Ralphs Grocery Company (the
"Company"). Concurrently with the consummation of the Merger, the Company
received a significant equity investment from its parent, Food 4 Less Holdings,
Inc. ("Holdings") and refinanced a substantial portion of the existing
indebtedness of Food 4 Less and RGC. See "Liquidity and Capital Resources."
The Company's results of operations for the 52 weeks ended January 28, 1996
include 20 weeks of the operations of Food 4 Less prior to the Merger and 32
weeks of operations of the combined Company. Management believes that the
Company's results of operations for periods ending after the consummation of the
Merger are not directly comparable to its results of operations for periods
ending prior to such date. This lack of comparability as a result of the Merger
is attributable to several factors, including the size of the combined Company
(since the Merger approximately doubled Food 4 Less' annual sales volume), the
addition of 174 conventional stores to the Company's overall store mix and the
material changes in the Company's capital structure.
The Merger is being accounted for as a purchase of Ralphs by Food 4 Less.
As a result, all financial statements for periods subsequent to June 14, 1995,
the date the Merger was consummated, reflect Ralphs' net assets at their
estimated fair market values as of June 14, 1995. The purchase price in excess
of the fair market value of Ralphs' net assets was recorded as goodwill and is
being amortized over a 40-year period. The purchase price allocation reflected
in the Company's balance sheet at January 28, 1996 is based on management's
preliminary estimates. The actual purchase accounting adjustments, including
adjustments to loss contingency accruals, will be determined within one year
following the Merger and may vary from the preliminary estimates at January 28,
1996.
At January 28, 1996, the Company operated 277 conventional supermarkets and
68 Food 4 Less warehouse stores in Southern California. It also operated 63
stores in Northern California and certain areas of the Midwest. Following the
Merger, the Company converted Food 4 Less' Alpha Beta, Boys and Viva stores to
the Ralphs format and converted selected Ralphs stores to the Food 4 Less
warehouse format.
As of January 28, 1996, the Company's bakery, creamery and deli
manufacturing operations and the management of major corporate departments had
been consolidated. The full integration of the Company's administrative
departments is expected to be completed by June 1996. The previously planned
integration and consolidation of the Company's warehousing and distribution
facilities into three primary facilities will be delayed and modified as a
result of the agreement with Smith's to lease its Riverside, California
distribution and creamery facility. See "Southern California
Division -- Purchasing, Manufacturing and Distribution."
Following the consummation of the Merger, sales in the Company's Southern
California Division fell short of anticipated levels for the second half of
fiscal 1995. This shortfall resulted primarily from achieving less benefit from
the Company's advertising program and experiencing greater competitive activity
than originally expected. Although the largest impact was experienced by the
Company's Alpha Beta, Boys and Viva stores which were converted to the Ralphs
format, the base Ralphs stores were also affected. In addition, the Company's
operating margins were affected by delays in the implementation of certain
buying and other programs to lower the cost of goods, excessive price markdowns
in stores undergoing conversion and a less advantageous than expected product
mix in certain stores. Greater than anticipated transition expenses were also
experienced in integrating store operation and inventory distribution functions.
As a result of these various factors, in March 1996, the Company amended the New
Credit Facility to conform the financial covenants contained therein to the
Company's actual post-Merger results. Following the adoption of these
amendments,
42
<PAGE> 45
the Company believes that the covenant levels contained in the New Credit
Facility are consistent with anticipated operating results for fiscal 1996. See
"Summary -- The Company -- Post-Merger Events."
Food 4 Less changed its fiscal year end from the 52 or 53-week period which
ends on the last Saturday in June to the 52 or 53-week period which ends on the
Sunday closest to January 31, resulting in a 31-week transition period ended
January 29, 1995. References to fiscal year 1993, fiscal year 1994, the 1995
transition period and fiscal year 1995 are to the 52-week period ended June 26,
1993, the 52-week period ended June 25, 1994, the 31-week period ended January
29, 1995, and the 52-week period ending January 28, 1996, respectively. The
operating results for the 1995 transition period are not directly comparable to
those of fiscal 1993, fiscal 1994 or fiscal 1995, as these periods include 52
weeks of operations.
RESULTS OF OPERATIONS OF THE COMPANY
The following table sets forth the selected unaudited operating results of
the Company for the 12 weeks ended April 23, 1995 and April 21, 1996:
<TABLE>
<CAPTION>
12 WEEKS ENDED
---------------------------------------
APRIL 23, 1995 APRIL 21, 1996
---------------- ------------------
(DOLLARS IN MILLIONS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Sales.......................................................................... $623.6 100.0% $1,230.8 100.0%
Gross profit................................................................... 107.2 17.2 248.6 20.2
Selling, general, administrative and other, net................................ 91.4 14.7 217.3 17.7
Amortization of goodwill....................................................... 1.8 0.3 7.2 0.6
Operating income............................................................... 14.0 2.2 24.1 2.0
Interest expense............................................................... 16.9 2.7 56.1 4.6
Loss (gain) on disposal of assets.............................................. (0.4) (0.1) (0.0) (0.0)
Provision for income taxes..................................................... 0.3 0.0 -- --
Net loss....................................................................... (2.8) (0.4) (32.0) (2.6)
</TABLE>
COMPARISON OF THE COMPANY'S RESULTS OF OPERATIONS FOR THE 12 WEEKS ENDED APRIL
21, 1996 WITH THE COMPANY'S RESULTS OF OPERATIONS FOR THE 12 WEEKS ENDED APRIL
23, 1995.
Sales
Sales per week increased $50.6 million, or 97.3 percent, from $52.0 million
in the 12 weeks ended April 23, 1995 to $102.6 million in the 12 weeks ended
April 21, 1996. The increase in sales for the 12 weeks ended April 21, 1996 was
primarily attributable to the addition of 174 conventional supermarkets acquired
through the Merger. The sales increase was partially offset by a comparable
store sales decline of 0.7 percent for the 12 weeks ended April 21, 1996.
Excluding stores being divested or closed in connection with the Merger, and
excluding the impact from last year's Northern California labor dispute,
comparable store sales decreased 0.2 percent for the 12 weeks ended April 21,
1996. Management believes that the decline in comparable store sales is
partially attributable to additional competitive store openings and remodels in
Southern California, as well as the Company's own new store openings and
conversions. Management believes that, following the consummation of the Merger,
the decline in comparable store sales was also attributable to smaller than
anticipated benefits from the Company's advertising program and greater than
expected competitive pressure. Though the largest impact was experienced by the
Company's Alpha Beta, Boys and Viva stores which were converted to the Ralphs
format, the base Ralphs stores were also affected.
Gross Profit
Gross profit increased as a percentage of sales from 17.2 percent in the 12
weeks ended April 23, 1995 to 20.2 percent in the 12 weeks ended April 21, 1996.
The increase in gross profit margin was primarily attributable to the addition
of 174 conventional supermarkets which offset the effect of the Company's
warehouse stores (which have lower gross margins than the Company's conventional
supermarkets) on its overall gross margin for the period. Gross profit during
the 12 weeks ended April 21, 1996 was also negatively
43
<PAGE> 46
impacted by certain one-time costs associated with the integration of the
Company's operations. See "-- Operating Income" below.
Selling, General, Administrative and Other, Net
Selling, general, administrative and other expenses ("SG&A") were $91.4
million and $217.3 million for the 12 weeks ended April 23, 1995 and April 21,
1996, respectively. SG&A increased as a percentage of sales from 14.7 percent to
17.7 percent for the same periods. The increase in SG&A as a percentage of sales
was due primarily to the addition of 174 conventional supermarkets acquired
through the Merger. The additional conventional supermarkets offset the effect
of the Company's warehouse stores (which have lower SG&A than the Company's
conventional supermarkets) on its SG&A margin for the period. SG&A during the 12
weeks ended April 21, 1996 was also impacted by certain one-time costs
associated with the integration of the Company's operations. See "-- Operating
Income" below.
Operating Income
In addition to the factors discussed above, operating income for the 12
weeks ended April 21, 1996 was impacted by approximately $7.6 million for costs
associated with the consolidation of warehousing and distribution and other
continuing integration of the Company's operations. Management anticipates these
integration costs to continue during the second quarter of 1996 until the
consolidation plans are completed.
Interest Expense
Interest Expense (including amortization of deferred financing costs) was
$16.9 million and $56.1 million for the 12 weeks ended April 23, 1995 and April
21, 1996, respectively. The increase in interest expense was primarily due to
the increased indebtedness incurred in conjunction with the Merger. See
"Liquidity and Capital Resources."
Net Loss
Primarily as a result of the factors discussed above, the Company's net
loss increased from $2.8 million in the 12 weeks ended April 23, 1995 to $32.0
million in the 12 weeks ended April 21, 1996.
The following table sets forth the historical operating results of the
Company for the 52 weeks ended June 26, 1993 and June 25, 1994, the 31 weeks
ended January 29, 1995 and the 52 weeks ended January 28, 1996:
<TABLE>
<CAPTION>
FISCAL YEAR FISCAL YEAR 1995 FISCAL YEAR
1993 1994 TRANSITION PERIOD 1995
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
Sales................................. $2,742.0 100.0% $2,585.2 100.0% $1,556.5 100.0% $4,335.1 100.0%
Gross profit.......................... 484.2 17.7 469.3 18.1 262.4 16.9 849.1 19.6
Selling, general, administrative and
other, net.......................... 434.9 15.9 388.8 15.0 222.4 14.3 785.6 18.1
Amortization of goodwill.............. 7.6 0.3 7.7 0.3 4.6 0.3 21.8 0.5
Restructuring charge.................. 0.0 0.0 0.0 0.0 5.1 0.3 123.1 2.8
Operating income (loss)............... 41.7 1.5 72.8 2.8 30.3 1.9 (81.4) (1.9)
Interest expense...................... 69.8 2.5 68.3 2.6 42.2 2.7 178.8 4.1
Loss (gain) on disposal of assets..... (2.1) (0.1) 0.0 0.0 (0.5) (0.0) (0.5) (0.0)
Provision for earthquake losses....... 0.0 0.0 4.5 0.2 0.0 0.0 0.0 0.0
Provision for income taxes............ 1.4 0.1 2.7 0.1 0.0 0.0 0.5 0.0
Loss before extraordinary charge...... (27.4) (1.0) (2.7) (0.1) (11.5) (0.7) (260.1) (6.0)
Extraordinary charge.................. 0.0 0.0 0.0 0.0 0.0 0.0 23.1 0.5
Net loss.............................. (27.4) (1.0) (2.7) (0.1) (11.5) (0.7) (283.2) (6.5)
</TABLE>
44
<PAGE> 47
COMPARISON OF THE COMPANY'S RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED
JANUARY 28, 1996 WITH THE COMPANY'S RESULTS OF OPERATIONS FOR THE 31 WEEKS
ENDED JANUARY 29, 1995.
Sales
Sales per week increased $33.2 million, or 66.1 percent, from $50.2 million
in the 31 weeks ended January 29, 1995 to $83.4 million in the 52 weeks ended
January 28, 1996. The increase in sales was primarily attributable to the
addition of 174 conventional supermarkets acquired through the Merger. The sales
increase was partially offset by a pro forma comparable store sales (includes
the combined sales of Food 4 Less and RGC for the period prior to the Merger)
decline of 1.9 percent for the 52 weeks ended January 28, 1996 as compared to
the 52 weeks ended January 28, 1995. Excluding stores scheduled for divestiture
or closing, pro forma comparable store sales decreased 1.2 percent. Management
believes the decline in comparable store sales was primarily attributable to
additional competitive store openings and remodels in Southern California, as
well as the Company's own new store openings and conversions.
Gross Profit
Gross profit increased as a percentage of sales from 16.9 percent in the 31
weeks ended January 29, 1995 to 19.6 percent in the 52 weeks ended January 28,
1996. The increase in gross profit margin was primarily attributable to the
addition of 174 conventional supermarkets which diluted the effect of the
Company's warehouse stores (which have lower gross margins than the Company's
conventional supermarkets) on its overall gross margin for the period. Gross
profit was also impacted by certain one-time costs associated with the
integration of the Company's operations. See "Operating Income (Loss)."
Selling, General, Administrative and Other, Net
SG&A expenses were $222.4 million and $785.6 million for the 31 weeks ended
January 29, 1995 and the 52 weeks ended January 28, 1996, respectively. SG&A
increased as a percentage of sales from 14.3 percent to 18.1 percent for the
same periods. The increase in SG&A as a percentage of sales was due primarily to
the addition of 174 conventional supermarkets acquired through the Merger. The
additional conventional supermarkets diluted the effect of the Company's
warehouse stores (which have lower SG&A than the Company's conventional
supermarkets) on its SG&A margin for the period. The Company participates in
multi-employer health and welfare plans for its store employees who are members
of the United Food and Commercial Workers Union ("UFCW"). As part of the renewal
of the Southern California UFCW contract in October 1993, employers contributing
to UFCW health and welfare plans received a pro rata share of the excess
reserves in the plans through a reduction of current employer contributions. The
Company's share of the excess reserves recognized in fiscal 1995 was $26.1
million, which partially offset the increase in SG&A. SG&A was also impacted by
certain one-time costs associated with the integration of the Company's
operations. See "-- Operating Income (Loss)."
Restructuring Charge
During fiscal 1995, the Company recorded a $75.2 million charge associated
with the closure of 58 stores formerly owned by Food 4 Less and one former Food
4 Less warehouse facility. Twenty-four of these stores were required to be
closed pursuant to a settlement agreement with the State of California in
connection with the Merger. Three RGC stores were also required to be sold.
Thirty-four of the closed stores were under-performing stores formerly owned by
Food 4 Less. The $75.2 million restructuring charge consisted of write-downs of
property and equipment ($52.2 million) less estimated proceeds ($16.0 million);
reserve for closed stores and warehouse facility ($16.1 million); write-off of
the Alpha Beta trademark ($8.3 million); write-off of other assets ($8.0
million); lease termination expenses ($4.0 million); and miscellaneous expenses
($2.6 million). During fiscal year 1995, the Company utilized $34.7 million of
the reserve for restructuring costs ($50.0 million of costs partially offset by
$15.3 million of proceeds from the divestiture of stores). The charges consisted
of write-downs of property and equipment ($33.2 million); write-off of the Alpha
Beta trademark ($8.3 million); and expenditures associated with the closed
stores and the warehouse facility, write-off of other assets, lease termination
expenditures and miscellaneous expenditures ($8.5 million). Future lease
45
<PAGE> 48
payments of approximately $19.1 million will be offset against the remaining
reserve. Management believes that the remaining reserve is adequate to complete
the planned restructuring.
On December 29, 1995, the Company entered into an agreement with Smith's to
sublease its one million square foot distribution center and creamery facility
in Riverside, California for approximately 23 years, with renewal options
through 2043, at an annual rent of approximately $8.8 million. Concurrently with
such agreement, the Company also acquired certain operating assets and inventory
at that facility for a purchase price of approximately $20.2 million. In
addition, the Company also acquired nine of Smith's Southern California stores
which became available when Smith's withdrew from the California market. As a
result of the acquisition of the Riverside distribution center and creamery, the
Company closed its La Habra distribution center in the first quarter of fiscal
year 1996. Also, the Company closed nine of its stores which were near the
acquired former Smith's stores. During the fourth quarter of fiscal year 1995,
the Company recorded an additional $47.9 million restructuring charge to
recognize the cost of closing these facilities, consisting of write-downs of
property and equipment ($16.1 million), closure costs ($2.2 million), and lease
termination expenses ($29.6 million).
Operating Income (Loss)
In addition to the factors discussed above, operating income includes
charges of approximately $75 million for costs associated with the conversion of
stores and integration of the Company's operations. These costs related
primarily to (i) markdowns on clearance inventory at Food 4 Less' Alpha Beta,
Boys and Viva stores converted to the Ralphs format, (ii) an advertising
campaign announcing the Merger, and (iii) incremental labor cost associated with
the training of Company personnel following store conversions. In addition, the
Company has experienced higher than anticipated warehousing and distribution
costs since the Merger, primarily due to the delay in the planned consolidation
of the Company's distribution facilities resulting from the acquisition of the
Smith's Riverside distribution center. The Company has taken steps to reduce
these increased costs in future periods.
Interest Expense
Interest expense (including amortization of deferred financing costs) was
$42.2 million for the 31 weeks ended January 29, 1995 and $178.8 million for the
52 weeks ended January 28, 1996. The increase in interest expense was primarily
due to the increased indebtedness incurred in conjunction with the Merger. See
"Liquidity and Capital Resources."
Loss Before Extraordinary Charge
Primarily as a result of the factors discussed above, the Company's loss
before extraordinary charge increased from $11.5 million for the 1995 transition
period to $260.1 million for fiscal year 1995.
Extraordinary Charge
An extraordinary charge of $23.1 million was recorded during fiscal year
1995 relating to retirement of indebtedness of Food 4 Less in connection with
the Merger and the write-off of the related deferred financing costs.
COMPARISON OF THE COMPANY'S RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JUNE
25, 1994 WITH THE COMPANY'S RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JUNE
26, 1993.
Sales
Sales decreased $156.8 million or 5.7 percent from $2,742.0 million in the
52 weeks ended June 26, 1993 to $2,585.2 million in the 52 weeks ended June 25,
1994. The decrease in sales resulted primarily from a 6.9 percent decline in
comparable store sales. The decline in comparable store sales primarily
reflected (i) the weak economy in Southern California, (ii) lower levels of
price inflation in certain key food product categories, and (iii) competitive
factors, including new stores, remodeling and promotional activity. This
46
<PAGE> 49
decrease in sales was partially offset by sales from new and remodeled stores
opened or acquired during fiscal 1994.
Gross Profit
Gross profit increased as a percent of sales from 17.7 percent in the 52
weeks ended June 26, 1993 to 18.1 percent in the 52 weeks ended June 25, 1994.
The increase in gross profit margin was attributable to improvements in product
procurement and an increase in vendors' participation in the Company's
promotional costs. These improvements were partially offset by an increase in
the number of warehouse format stores (which have lower gross margins) from 45
at June 26, 1993 to 66 at June 25, 1994, and the effect of the fixed cost
component of gross profit as compared to a lower sales base.
Selling, General, Administrative and Other, Net
SG&A expenses were $434.9 million and $388.8 million for fiscal year 1993
and fiscal year 1994, respectively. SG&A decreased as a percent of sales from
15.9 percent to 15.0 percent for the same periods. The Company experienced a
reduction of workers' compensation and general liability self-insurance costs of
$18.2 million due primarily to cost control programs implemented by the Company,
including awards for stores with the best loss experience, specific achievable
goals for each store, and increased monitoring of third-party administrators,
and, to a lesser extent, a lower sales base which reduced the Company's
exposure. In addition, the Company maintained tight control of administrative
expenses and store level expenses, including payroll (due primarily to increased
productivity), advertising, and other controllable store expenses. Because the
Company's warehouse stores have lower SG&A than conventional stores, the
increase in the number of warehouse stores, from 45 at June 26, 1993 to 66 at
June 25, 1994, also contributed to decreased SG&A.
The Company recognized $8.1 million in fiscal 1994 for its share of the
excess UFCW health and welfare plan reserves. Offsetting the reduction in
employer contributions was a $5.5 million contract ratification bonus and
contractual wage increases.
The reduction in SG&A as a percentage of sales was partially offset by the
effect of the fixed cost component of SG&A as compared to a lower sales base.
Interest Expense
Interest expense (including amortization of deferred financing costs)
decreased $1.5 million from $69.8 million to $68.3 million for the 52 weeks
ended June 26, 1993 and June 25, 1994, respectively. The decrease in interest
expense was due primarily to reduced borrowings under the Company's revolving
and term loans.
Provision for Earthquake Losses
On January 17, 1994, Southern California was struck by a major earthquake
which resulted in the temporary closure of 31 of Food 4 Less' stores. The
closures were caused primarily by loss of electricity, water, inventory, or
structural damage. All but one of the closed stores reopened within a week of
the earthquake. The final closed store reopened on March 24, 1994. The Company
is insured against earthquake losses (including business interruption), subject
to certain deductibles. The pre-tax loss, net of insurance recoveries, was
approximately $4.5 million.
Net Loss
Primarily as a result of the factors discussed above, the Company's net
loss decreased from $27.4 million in fiscal 1993 to $2.7 million in fiscal 1994.
47
<PAGE> 50
RESULTS OF OPERATIONS OF RALPHS
The following table sets forth the historical operating results of Ralphs
for the 52 weeks ended January 31, 1993 ("Fiscal 1992"), January 30, 1994
("Fiscal 1993") and January 29, 1995 ("Fiscal 1994"):
<TABLE>
<CAPTION>
52 WEEKS ENDED
-----------------------------------------------------------
JANUARY 31, 1993 JANUARY 30, 1994 JANUARY 29, 1995
----------------- ----------------- -----------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Sales................................... $2,843.8 100.0% $2,730.2 100.0% $2,724.6 100.0%
Cost of sales........................... 2,217.2 78.0 2,093.7 76.7 2,101.0 77.1
Selling, general and administrative
expenses.............................. 470.0 16.5 471.0 17.2 467.0 17.2
Operating income(a)..................... 138.5 4.9 152.1 5.6 145.6 5.3
Net interest expense.................... 125.6 4.4 108.8 4.0 112.7 4.1
Provision for earthquake losses(b)...... -- -- 11.0 0.4 -- --
Income tax expense (benefit)............ 8.3 0.3 (108.0) (4.0) -- --
Extraordinary item...................... 70.6 2.5 -- -- -- --
Net earnings (loss)..................... $ (76.1) (2.7) $ 138.4 5.1 $ 32.1 1.2
</TABLE>
- ---------------
(a) Operating income reflects charges of $7.1 million in Fiscal 1992 and $2.4
million in Fiscal 1993, for expenses relating to closing of central bakery
operation. The charges reflected the complete write-down of the bakery
building, machinery and equipment, leaseholds, related inventory and
supplies, and providing severance pay to terminated employees.
(b) Represents reserve for losses, net of expected insurance recoveries,
resulting from the January 17, 1994 Southern California earthquake.
COMPARISON OF RALPHS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 29,
1995 WITH RALPHS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 30,
1994.
Sales
For the fifty-two weeks ended January 29, 1995, sales were $2,724.6
million, a decrease of $5.6 million or 0.2% from the fifty-two weeks ended
January 30, 1994. During Fiscal 1994, Ralphs opened ten new stores (four in Los
Angeles County, three in Orange County, one in San Diego County and two in
Riverside County), closed two stores (in conjunction with new stores opening in
the same areas), and completed five store remodels. Comparable store sales
decreased 3.7%, which included an increase of 0.3% for replacement store sales,
from $2,707.9 million in Fiscal 1993 to $2,606.4 million in Fiscal 1994. Ralphs
sales continued to be adversely affected by the continuing softness of the
economy in Southern California, continuing competitive new store and remodeling
activity and recent pricing and promotional changes by competitors. Ralphs
continued to take steps to mitigate the impact of the weak retailing environment
in its markets, which included continuing its own new store and remodeling
program and initiating the Ralphs Savings Plan in February 1994, a new marketing
campaign specifically designed to enhance customer value. See "Business --
Advertising and Promotion."
On January 17, 1994, an earthquake in Southern California caused
considerable damage in Los Angeles and surrounding areas. Several Ralphs
supermarkets suffered earthquake damage, with 54 stores closed on the morning of
January 17th. Thirty-four stores reopened within one day and an additional 17
stores reopened within three days. Three stores in the San Fernando Valley area
of Los Angeles suffered major structural damage. All three stores have since
reopened for business, with the last reopening on April 15, 1994. Management
believes that there was some negative impact on sales resulting from the
temporary disruption of business resulting from the earthquake. Ralphs is
partially insured for earthquake losses. The pre-tax financial impact, net of
expected insurance recoveries, is expected to be approximately $11.0 million and
Ralphs reserved for this loss in Fiscal 1993. The gross earthquake loss is
approximately $25.3 million and the expected insurance recovery is approximately
$14.3 million.
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<PAGE> 51
Cost of Sales
Cost of sales increased $7.3 million or 0.3% from $2,093.7 million in
Fiscal 1993 to $2,101.0 million in Fiscal 1994. As a percentage of sales, cost
of sales increased to 77.1% in Fiscal 1994 from 76.7% in Fiscal 1993. The
increase in cost of sales as a percentage of sales included a one-time charge
for Teamsters Union sick pay benefits pursuant to a new contract ratified in
August 1994 with the Teamsters. The total charge was $2.5 million, of which $2.1
million was included in cost of sales and $0.4 million in selling, general and
administrative expense. Increases in cost of sales were partially offset by
savings in warehousing and distribution costs, reductions in self-insurance
costs, pass-throughs of increased operating costs and increases in relative
margins where allowed by competitive conditions.
Warehousing and distribution cost savings were primarily attributable to
Ralphs' ASRS and PSC facilities along with the ongoing implementation of new
computer-controlled programs and labor standards that improved distribution
productivity. The ASRS facility can hold substantially more inventory and
requires fewer employees to operate than does a conventional warehouse of equal
size. This facility has reduced Ralphs' warehousing costs of non-perishable
items markedly, enabling it to take advantage of advance buying opportunities
and minimize "out-of-stocks." Ralphs engages in forward-buy purchases to take
advantage of special prices or to delay the impact of upcoming price increases
by purchasing and warehousing larger quantities of merchandise than immediately
required. The PSC facility has consolidated the operations of three existing
facilities and holds more inventory than the facilities it replaced, thereby
reducing Ralphs' warehouse distribution costs.
Over the last several years, Ralphs has been implementing modifications in
its workers compensation and general liability insurance programs. Ralphs
believes that these modifications have resulted in a significant reduction in
self-insurance costs for Fiscal 1994. Based on a review of the results of these
modifications by Ralphs and its actuaries, adjustments to the accruals for
self-insurance costs were made during Fiscal 1994 resulting in a reduction of
approximately $18.9 million. Of the total $18.9 million reduction in
self-insurance costs, $7.5 million is included in cost of sales and $11.4
million is included in selling, general and administrative expenses.
Selling, General and Administrative Expenses
SG&A expenses decreased $4.0 million or 0.8% from $471.0 million in Fiscal
1993 to $467.0 million in Fiscal 1994. As a percentage of sales, SG&A was 17.2%
in Fiscal 1993 and 17.2% in Fiscal 1994. The decrease in SG&A was primarily due
to a reduction in contributions to the United Food and Commercial Workers Union
("UFCW") health care benefit plans, due to an excess reserve in these plans, a
reduction in self-insurance costs, as discussed above, and the results of cost
savings programs instituted by Ralphs. Ralphs is continuing its expense
reduction program. The decrease in SG&A was partially offset by several factors
including increases in union wage rates, a one-time charge for Teamsters Union
sick pay benefits, as discussed above, transition expense relating to the Merger
($1.4 million) and increased rent expense resulting from new stores, including
fixture and equipment financing.
Ralphs participates in multi-employer pension plans and health and welfare
plans administered by various trustees for substantially all union employees.
Contributions to these plans are based upon negotiated contractual rates. In
both Fiscal 1992 and Fiscal 1993 the multi-employer pension plan was deemed to
be overfunded based upon the collective bargaining agreement then currently in
force. During Fiscal 1993 the agreement called for pension benefits which
resulted in additional required expense. The UFCW health and welfare benefit
plans were overfunded and those employers who contributed to these plans
received a pro rata share of excess reserve in these health care benefit plans
through a reduction in current maintenance payments. Ralphs' share of the excess
reserve was approximately $24.5 million of which $11.8 million was recognized in
Fiscal 1993 and the remainder, $12.7 million, was recognized in Fiscal 1994.
Since employers are required to make contributions to the benefit funds at
whatever level is necessary to maintain plan benefits, there can be no assurance
that plan maintenance payments will remain at current levels.
49
<PAGE> 52
Operating Income
Operating income in Fiscal 1994 decreased 4.3% to $145.6 million from
$152.1 million in Fiscal 1993. Operating margin, defined as operating income as
a percentage of sales, was 5.3% in Fiscal 1994 compared to 5.6% in Fiscal 1993.
EBITDA, defined as net earnings before interest expense, income tax expense
(benefit), depreciation and amortization expense, provision for postretirement
benefits, provision for LIFO expense, gain or loss on disposal of assets,
transition expense and a one-time charge for Teamsters Union sick pay benefits,
was 8.4% of sales or $230.2 million in Fiscal 1994 and 8.4% of sales or $230.2
million in Fiscal 1993.
Net Interest Expense
Net interest expense for Fiscal 1994 was $112.7 million versus $108.8
million for Fiscal 1993. Net interest expense increased primarily as a result of
increases in interest rates. Included as interest expense during Fiscal 1994 was
$97.4 million, representing interest expense on existing debt obligations,
capitalized leases and a swap agreement. Comparable interest expense for Fiscal
1993 was $92.8 million. Also included in net interest expense for Fiscal 1994
was $15.3 million representing certain other charges related to amortization of
debt issuance costs, self-insurance discounts, lease valuation reserves and
other miscellaneous charges (categorized by Ralphs as non-cash interest expense)
as compared to $16.0 million for Fiscal 1993. Investment income, which is
immaterial, has been offset against interest expense. The continuation of higher
interest rates subsequent to the end of Fiscal 1994 has continued to increase
interest expense and adversely affect Ralphs' net income.
Net Earnings
For Fiscal 1994, Ralphs reported net earnings of $32.1 million compared to
net earnings of $138.4 million for Fiscal 1993. The decrease in net earnings is
primarily the result of decreased operating income, higher interest expense due
to increased interest rates, the recognition of $109.1 million of deferred
income tax benefit in Fiscal 1993 partially offset by $11.0 million recorded for
earthquake losses in Fiscal 1993.
Other
In February 1994, the Board of Directors of Ralphs authorized a dividend of
$10.0 million to be paid to RSI, and the Board of Directors of RSI authorized
distribution of this dividend to its shareholders subject to certain restrictive
covenants in the instruments governing certain of Ralphs' indebtedness that
impose limitations on the declaration or payment of dividends. Ralphs' credit
agreement, entered into in 1992 (the "1992 Credit Agreement"), was amended to
allow for the payment of the dividend to RSI for distribution to RSI's
shareholders. The fee for the amendment was approximately $500,000, which was
included in interest expense for the period. The dividend was distributed to the
shareholders of RSI in the second quarter of Fiscal 1994.
COMPARISON OF RALPHS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 30,
1994 WITH RALPHS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 31,
1993.
Sales
Sales in Fiscal 1993 were $2,730.2 million, a decrease of $113.6 million or
4.0% compared to Fiscal 1992. During Fiscal 1993, Ralphs opened eight new
stores, four in Los Angeles County, two in Orange County and two in Riverside
County, and remodeled six stores. Two of the eight new stores replaced the two
stores closed during the fiscal year. Comparable store sales decreased 5.8%,
which included an increase of 0.6% for the replacement stores, from $2,823.4
million to $2,659.3 million in Fiscal 1993. Ralphs' sales continued to be
adversely affected by the significant recession in Southern California,
continuing competitive new store and remodelling activity and pricing and
promotional changes by competitors.
50
<PAGE> 53
Cost of Sales
Cost of sales decreased $123.5 million or 5.6% from $2,217.2 million in
Fiscal 1992 to $2,093.7 million in Fiscal 1993. As a percentage of sales, cost
of sales declined to 76.7% in Fiscal 1993 from 78.0% in Fiscal 1992. The
decrease in cost of sales as a percentage of sales was the result of savings in
warehousing and distribution costs, the pass-through of increased operating
costs and increases in relative margins where allowed by competitive conditions.
Selling, General and Administrative Expenses
SG&A increased $1.0 million or 0.2% from $470.0 million in Fiscal 1992 to
$471.0 million in Fiscal 1993. As a percentage of sales, SG&A increased from
16.5% in Fiscal 1992 to 17.2% in Fiscal 1993. The increase in SG&A as a
percentage of sales was the result of several factors including the soft sales
environment. Increases in expense were partially offset by cost savings programs
instituted by Ralphs.
Ralphs participates in multi-employer pension plans and health and welfare
plans administered by various trustees for substantially all union employees.
Contributions to these plans are based upon negotiated contractual rates. In
both Fiscal 1992 and Fiscal 1993 the UFCW multi-employer pension plan was deemed
to be overfunded based upon the collective bargaining agreement then currently
in force. During Fiscal 1993 the agreement called for pension benefits which
resulted in additional required expense. The UFCW health and welfare benefit
plans were overfunded and those employers who contributed to these plans are to
receive a pro rata share of the excess reserve in these health care benefit
plans through a reduction in current maintenance payments. Ralphs' share of the
excess reserve was approximately $24.5 million of which $11.8 million was
recognized in Fiscal 1993 and the remainder will be recognized in the fiscal
year ending January 29, 1995. The change in health and welfare plan expenses
resulted from the $11.8 million credit associated with the collective bargaining
agreement as well as a reduction in the current year plan expense due to the
overfunded status of the plan. Since employers are required to make
contributions to the benefit funds at whatever level is necessary to maintain
plan benefits, there can be no assurance that plan maintenance payments will
remain at current levels. Partially offsetting the reductions of health and
welfare maintenance payments was a $6.0 million contract ratification bonus paid
by Ralphs at the conclusion of contract negotiations with the UFCW in Fiscal
1993. The $6.0 million contract ratification payment was an item separate from
either of these plans.
Operating Income
Operating income in Fiscal 1993 increased to $152.1 million from $138.5
million in Fiscal 1992, a 9.8% increase. Operating margin increased in Fiscal
1993 to 5.6% from 4.9% in Fiscal 1992. This increase was primarily the result of
the aforementioned improvements in Ralphs' cost of sales percentage. EBITDA,
defined as net earnings before interest expense, income tax expense (benefit),
depreciation and amortization expenses, postretirement benefits, the LIFO
charge, extraordinary item relating to debt refinancing, provision for legal
settlement, provision for restructuring, provision for earthquake losses and
loss on disposal of assets, improved to $230.2 million or 8.4% of sales in
Fiscal 1993 from $227.3 million or 8.0% of sales in Fiscal 1992.
Net Interest Expense
Net interest expense for Fiscal 1993 was $108.8 million, compared to $125.6
million for Fiscal 1992. The reduction in net interest expense was attributable
to the refinancing and defeasance of Ralphs 14% Senior Subordinated Debentures
due 2000 (the "14% Debentures") with the proceeds from the issuance of the Old
RGC 9% Notes (as defined herein) as the final step in a recapitalization plan
initiated on July 30, 1992. Cash interest expense during Fiscal 1993 was $92.8
million compared to $105.5 million in Fiscal 1992. Also included in interest
expense for Fiscal 1993 was $16.0 million representing certain other charges
relating to amortization of debt issuance costs, self-insurance discount, lease
valuation reserves and other miscellaneous charges (categorized by Ralphs as
non-cash interest expense) as compared to $20.1 million for Fiscal 1992.
Investment income, which is immaterial, has been offset against interest
expense.
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<PAGE> 54
Earthquake Losses
Several Ralphs stores suffered earthquake damage from the January 17, 1994
earthquake in Southern California and 54 stores were completely shutdown on the
morning of January 17th. Management believes that there was some negative impact
on sales resulting from the temporary disruption of business resulting from the
earthquake. Ralphs is partially insured for earthquake losses. The pre-tax
financial impact, net of expected insurance recoveries, is expected to be
approximately $11.0 million and Ralphs reserved for this loss in Fiscal 1993.
The gross earthquake loss is approximately $25.3 million and the expected
insurance recovery is approximately $14.3 million.
Income Taxes
In Fiscal 1993, Ralphs recorded the incremental impact of The Omnibus
Budget Reconciliation Act of 1993 on net deductible temporary differences and
Ralphs increased its deferred income tax assets by a net amount of $109.1
million. Income tax expense (benefit) for Fiscal 1993 includes recognition of
$109.1 million of deferred income tax benefit and $1.1 million current income
tax expense for Fiscal 1993. See Note 11 of Notes to Ralphs Consolidated
Financial Statements.
Net Earnings
In Fiscal 1993, Ralphs reported net earnings of $138.4 million compared to
a net loss of $76.1 million for Fiscal 1992. This increase in net earnings was
primarily the result of Ralphs' recognition of $109.1 million of deferred income
tax benefit for Fiscal 1993 and the following items recorded in Fiscal 1992: (1)
an extraordinary charge, net of tax benefit, of $70.6 million relating to
Ralphs' recapitalization plan, (2) a provision of $7.1 million made for expenses
related to the closure of the central bakery operation (an additional charge of
$2.4 million was recorded in Fiscal 1993) and (3) a provision of $7.5 million
made for the maximum loss under a judgment rendered against Ralphs.
LIQUIDITY AND CAPITAL RESOURCES
The Company and Holdings utilized new financing proceeds of approximately
$525 million, which were paid to the former RSI stockholders, to consummate the
Merger. The new financing proceeds included the issuance of preferred stock by
Holdings to the 1995 Equity Investors for cash proceeds of approximately $140
million. In addition, the Company entered into the New Credit Facility pursuant
to which, upon the closing of the Merger, it incurred $600 million under the New
Term Loans and approximately $91.6 million of standby letters of credit under
the $325 million New Revolving Facility. The Company also issued $350 million
aggregate principal amount of new 10.45% Senior Notes due 2004 (the "1995 Senior
Notes") and $100 million aggregate principal amount of new 11% Senior
Subordinated Notes due 2005 (the "1995 11% Senior Subordinated Notes") pursuant
to public offerings (the "Public Offerings").
The proceeds from the New Credit Facility, Public Offerings and the 1995
Equity Investment and the issuance by Holdings of $59.0 million initial accreted
value of 13 5/8% Senior Discount Debentures due 2005 (the "New Discount
Debentures") for cash, $41.0 million in initial accreted value of additional New
Discount Debentures as consideration for the Merger and for associated fees and
$131.5 million aggregate principal amount of 13 5/8% Senior Subordinated
Pay-In-Kind Debentures due 2007 (the "Seller Debentures"), provided the sources
of financing required to consummate the Merger and to repay outstanding bank
debt of approximately $176.5 million at Food 4 Less and $228.9 million at RGC,
existing mortgage debt of $174.0 million (excluding prepayment fees) at RGC and
$84.4 million to the holders of the Senior Discount Notes due 2004 of Holdings
(the "Discount Notes") (excluding related fees). Proceeds from the New Credit
Facility and the Public Offerings also were used (i) to pay the cash portions of
Food 4 Less' exchange offers and consent solicitations with respect to the
10.25% Senior Subordinated Notes due 2002 of RGC (the "Old RGC 10.25% Notes"),
the 9% Senior Subordinated Notes due 2003 of RGC (the "Old RGC 9% Notes," and
together with the old RGC 10.25% Notes, the "Old RGC Notes") (collectively, the
"RGC Exchange Offers"), the 10.45% Senior Notes due 2000 of Food 4 Less (the
"1992 Senior Notes") and the 13.75% Senior Subordinated Notes due 2001 of Food 4
Less (the "1991 Senior Subordinated Notes") (collectively,
52
<PAGE> 55
the "F4L Exchange Offers," and together with the RGC Exchange Offers, the
"Exchange Offers"), as well as the Change of Control Offer (as defined below)
and accrued interest on all exchanged debt securities in the amount of $27.8
million, (ii) to pay $17.8 million to the holders of the RGC Equity Appreciation
Rights, (iii) to loan $5.0 million to an affiliate for the benefit of such
holders, (iv) to pay approximately $93.3 million of fees and expenses of the
Merger and the related financing, and (v) to pay $3.5 million to purchase shares
of common stock of Holdings from certain dissenting shareholders. In addition,
Holdings issued $22.5 million of its New Discount Debentures in consideration
for certain Merger-related services. The Company assumed certain existing
indebtedness of Food 4 Less and RGC in connection with the Exchange Offers,
pursuant to which (i) holders of the Old RGC Notes exchanged approximately
$424.0 million aggregate principal amount of Old RGC Notes for an equal
principal amount of 1995 11% Senior Subordinated Notes, (ii) holders of the 1992
Senior Notes exchanged approximately $170.3 million aggregate principal amount
of 1992 Senior Notes for an equal principal amount of 1995 Senior Notes, and
(iii) holders of the 1991 Senior Subordinated Notes exchanged approximately
$140.2 million aggregate principal amount of 1991 Senior Subordinated Notes for
an equal principal amount of new 13.75% Senior Subordinated Notes due 2005 (the
"1995 13.75% Senior Subordinated Notes"). In addition, pursuant to the terms of
the indentures governing the Old RGC Notes, the consummation of the Merger
required the Company to make an offer to purchase all of the outstanding Old RGC
Notes that were not exchanged in the RGC Offers (the "Change of Control Offer").
The Change of Control Offer resulted in the purchase of an additional $1.1
million of outstanding Old RGC Notes.
At April 21, 1996, there were borrowings of $110.0 million under the New
Revolving Facility and $104.3 million of letters of credit had been issued.
Under the terms of the New Credit Facility, the Company was required to repay
$1.6 million of the New Term Loans in fiscal 1995. The New Term Loans require
quarterly amortization payments (after giving effect to application of the
proceeds of the Offering) aggregating $2.3 million in fiscal year 1996, $39.2
million in fiscal year 1997 and increasing thereafter. The level of borrowings
under the Company's New Revolving Facility is dependent upon cash flows from
operations, the timing of disbursements, seasonal requirements and capital
expenditure activity. The Company is required to reduce loans outstanding under
the New Revolving Facility to $150.0 million for a period of not less than 30
consecutive days during the period between the first day of the fourth fiscal
quarter of 1996 and the last day of the first fiscal quarter of 1997. The
estimated net proceeds of the Offering were used to prepay $44.4 million in
borrowings under the New Term Loans, including $22.7 million in principal
installments due within the twelve months following the Offering, and to repay
$47.6 million in borrowings under the New Revolving Facility, without any
reduction in amounts available for future borrowing under the New Revolving
Facility. At April 21, 1996, pro forma for the Offering and the application of
proceeds therefrom, the Company had $158.3 million available for borrowing under
the New Revolving Facility.
On October 11, 1995, the Company entered into an interest rate collar which
effectively set interest rate limits on $300 million of the Company's bank term
debt. This interest rate collar, which was effective as of October 19, 1995,
limits the interest rate payable on $300 million of outstanding debt under the
New Credit Facility to a range of 4.5 percent to 8.0 percent for two years, thus
satisfying the interest rate protection requirements under the New Credit
Facility.
Cash flow from operations, amounts available under the New Revolving
Facility and lease financing are the Company's principal sources of liquidity.
The Company believes that these sources will be adequate to meet its anticipated
capital expenditure, working capital and debt service requirements during fiscal
1996.
During fiscal year 1995, cash used by operating activities was
approximately $16.8 million as compared to cash provided by operating activities
of approximately $17.6 million for the 1995 transition period. The decrease in
cash from operating activities is due to changes in operating assets and
liabilities in fiscal year 1995 and a decrease in operating income due primarily
to the impact of certain costs associated with the integration of the Company's
operations subsequent to the Merger. The Company's principal use of cash in its
operating activities is inventory purchases. The Company's high inventory
turnover allows it to finance a substantial portion of its inventory through
trade payables, thereby reducing its short-term borrowing needs. At January 28,
1996, this resulted in a working capital deficit of $178.5 million.
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<PAGE> 56
Cash used for investing activities was $405.4 million for fiscal year 1995.
Investing activities consisted primarily of $303.3 million of acquisition costs
associated with the Merger and capital expenditures of $122.4 million, partially
offset by $4.1 million of sale/leaseback transactions. The capital expenditures,
net of the proceeds from sale/leaseback transactions, were financed primarily
from cash provided by operating and financing activities.
The capital expenditures discussed above were made to (i) build 20 new
stores (11 of which have been completed), (ii) remodel 11 stores, (iii) convert
111 conventional format stores to the Ralphs banner in conjunction with the
Merger, and (iv) convert 13 Ralphs stores to the Food 4 Less warehouse format.
The Company also acquired three stores in Northern California during fiscal
1995. The Company currently anticipates that its aggregate capital expenditures
for fiscal 1996 will be approximately $105.0 million (or $95.0 million, net of
expected capital leases), of which approximately $96.0 million relate to ongoing
expenditures for new stores, equipment and maintenance (including a project to
repair earthquake damage at the Company's Glendale "picking" warehouse) and
approximately $9.0 million relate to Merger-related and other non-recurring
items. Consistent with past practices, the Company intends to finance these
capital expenditures primarily with cash provided by operations and through
leasing transactions. At April 26, 1996, the Company had approximately $18.0
million of unused equipment leasing facilities. No assurance can be given that
sources of financing for capital expenditures will be available or sufficient to
finance its anticipated capital expenditure requirements; however, management
believes the capital expenditure program has substantial flexibility and is
subject to revision based on various factors, including changes in business
conditions and cash flow requirements. Management believes that if the Company
were to substantially reduce or postpone these programs, there would be no
substantial impact on short-term operating profitability. However, management
also believes that the construction of new stores is an important component of
its future operating strategy. Consequently, management believes if these
programs were substantially reduced, future operating results, and ultimately
its cash flow, would be adversely affected.
The capital expenditures discussed above do not include potential
acquisitions which the Company could make to expand within its existing markets
or to enter other markets. The Company has grown through acquisitions in the
past and from time to time engages in discussions with potential sellers of
individual stores, groups of stores or other retail supermarket chains.
Cash provided by financing activities was $470.7 million for fiscal year
1995. Financing activities consisted primarily of the following; (i) proceeds
from issuance of new debt in the amount of $950.0 million including proceeds of
$600 million under the New Credit Facility, $350 million from the issuance of
1995 Senior Notes and $100 million from the issuance of 1995 11% Senior
Subordinated Notes, net of issuance costs of $100.0 million and (ii) proceeds
from cash capital contributions by Holdings of $12.1 million. These sources were
partially offset by principal payments on long-term debt of $576.7 million
including: $125.7 million to retire borrowings under the old credit agreement,
$228.9 million to extinguish the old RGC term loan; and $174.0 million to repay
certain real estate loans.
The Company is a wholly-owned subsidiary of Holdings. Holdings has
outstanding $100 million initial accreted value of New Discount Debentures and
$131.5 million principal amount of Seller Debentures outstanding. Holdings is a
holding company which has no assets other than the capital stock of the Company.
Holdings will be required to commence semi-annual cash payments of interest on
the New Discount Debentures and the Seller Debentures commencing December 15,
2000 in the amount of approximately $61 million per annum. Subject to the
limitations contained in its debt instruments, the Company intends to make
dividend payments to Holdings in amounts which are sufficient to permit Holdings
to service its cash interest requirements. The Company may pay other dividends
to Holdings in connection with certain employee stock repurchases and for
routine administrative expenses.
RSI and Food 4 Less had significant net operating loss carryforwards for
regular federal income tax purposes. As a result of the Merger, the Company's
ability to utilize such loss carryforwards in future periods is limited to
approximately $15.6 million per year with respect to Food 4 Less net operating
loss carryforwards and approximately $15.0 million per year with respect to
RSI's net operating loss carryforwards. Holdings files a consolidated federal
income tax return, under which the federal income tax liability of Holdings and
its subsidiaries is determined on a consolidated basis. Holdings is a party to a
federal income tax sharing
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<PAGE> 57
agreement with the Company and certain of its subsidiaries (the "Tax Sharing
Agreement"). The Tax Sharing Agreement provides that in any year in which the
Company is included in any consolidated tax liability of Holdings and has
taxable income, the Company will pay to Holdings the amount of the tax liability
that the Company would have had on such due date if it had been filing a
separate return. Conversely, if the Company generates losses or credits which
actually reduce the consolidated tax liability of Holdings and its other
subsidiaries, Holdings will credit to the Company the amount of such reduction
in the consolidated tax liability. These credits are passed between Holdings and
the Company in the form of cash payments. In the event any state and local
income taxes are determinable on a combined or consolidated basis, the Tax
Sharing Agreement provides for a similar allocation between Holdings and the
Company of such state and local taxes. See "Certain Relationships and Related
Transactions." The Company will continue to be a party to an indemnification
agreement with Federated Department Stores, Inc. and certain other parties.
Pursuant to the terms of such agreement, the Company made an annual tax payment
of $1.0 million in 1995 and will make an annual tax payment of $1.0 million in
1996, with the final tax payment of $5.0 million in 1997.
The Company is highly leveraged. At April 21, 1996, after giving effect to
the Offering and the application of proceeds therefrom, the Company's total
indebtedness (including current maturities) and stockholder's equity were
$2,062.3 million and $25.0 million, respectively, and the Company had an
additional $158.3 million available to be borrowed under the New Revolving
Facility. Based upon current levels of operations, anticipated cost savings from
the Merger and future growth, the Company believes that its cash flow from
operations, together with available borrowings under the New Revolving Facility
and its other sources of liquidity (including lease financing), will be adequate
to meet its anticipated requirements for working capital, capital expenditures,
interest payments and scheduled principal payments over the next several years.
There can be no assurance, however, that the Company's business will continue to
generate cash flow at or above current levels or that future cost savings and
growth can be achieved.
EFFECTS OF INFLATION AND COMPETITION
The Company's primary costs, inventory and labor, are affected by a number
of factors that are beyond its control, including availability and price of
merchandise, the competitive climate and general and regional economic
conditions. As is typical of the supermarket industry, the Company has generally
been able to maintain margins by adjusting its retail prices, but competitive
conditions may from time to time render it unable to do so while maintaining its
market share.
The supermarket industry is highly competitive and characterized by narrow
profit margins. The Company's competitors in each of its operating divisions
include national and regional supermarket chains, independent and specialty
grocers, drug and convenience stores, and the newer "alternative format" food
stores, including warehouse club stores, deep discount drug stores and "super
centers". Supermarket chains generally compete on the basis of location, quality
of products, service, price, product variety and store condition. The Company
regularly monitors its competitors' prices and adjusts its prices and marketing
strategy as management deems appropriate.
RECENT ACCOUNTING PRONOUNCEMENTS
In the first quarter of fiscal year 1996, the Company adopted Statement of
Financial Accounting Standard No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" (SFAS 121). The
adoption of SFAS 121 had no impact on the Company's financial position or on its
results of operations.
55
<PAGE> 58
BUSINESS
Ralphs Grocery Company (the "Company"), formerly known as Food 4 Less
Supermarkets, Inc. ("Food 4 Less"), a wholly-owned subsidiary of Food 4 Less
Holdings, Inc. ("Holdings"), is a retail supermarket company with a total of 408
stores which are located in Southern California (345), Northern California (27)
and certain areas of the Midwest (36). The Company is the largest supermarket
company in Southern California. The Company operates the second largest
conventional supermarket chain in the region under the "Ralphs" name and the
largest warehouse supermarket chain in the region under the "Food 4 Less" name.
The Company has achieved strong competitive positions in each of its marketing
areas by successfully tailoring its merchandising strategy to the particular
needs of the individual communities it serves. In addition, the Company is a
vertically integrated supermarket company with major manufacturing facilities,
including a bakery and creamery operations, and full-line warehouse and
distribution facilities servicing its Southern California operations.
On June 14, 1995, Holdings acquired all of the common stock of Ralphs
Supermarkets, Inc. ("RSI") in a transaction accounted for as a purchase by Food
4 Less. The consideration for the acquisition consisted of $388.1 million in
cash, $131.5 million principal amount of 13 5/8% Senior Subordinated Pay-In-Kind
Debentures due 2007 of Holdings (the "Seller Debentures") and $18.5 million
initial accreted value of 13 5/8% Senior Discount Debentures due 2005 of
Holdings (the "New Discount Debentures"). Food 4 Less, RSI and RSI's
wholly-owned subsidiary, Ralphs Grocery Company ("RGC"), combined through
mergers (the "Merger") in which RSI remained as the surviving entity and changed
its name to Ralphs Grocery Company.
Food 4 Less was organized by The Yucaipa Companies ("Yucaipa"), a private
investment group, in connection with the June 1989 acquisition of Breco Holding
Company, Inc. ("BHC"), which owned Boys, Viva, and Cala stores. Concurrently
with the acquisition of BHC (the "BHC Acquisition"), Food 4 Less, Inc. ("FFL"),
a corporation controlled by an affiliate of Yucaipa, contributed to Food 4 Less
all of the outstanding capital stock of Falley's, Inc. ("Falley's"), which owned
Food 4 Less' Midwestern stores and its Food 4 Less Southern California stores.
Food 4 Less added six stores to its Northern California Division by acquiring
Bell Markets, Inc. ("Bell") on June 30, 1989, and added seven stores to its
Southern California Division by acquiring certain operating assets of ABC Market
Corp. ("ABC") on January 15, 1990. On June 17, 1991, Food 4 Less acquired all of
the outstanding capital stock of Alpha Beta Company ("Alpha Beta"), which
operated 142 stores in seven Southern California counties (the "Alpha Beta
Acquisition"). On March 29, 1994, Food 4 Less added ten warehouse format stores
(formerly operated under the name "Food Barn") to its Midwestern Division which
it acquired from Associated Wholesale Grocers, Inc.
The Company operates both conventional and warehouse format stores under
various names. The following table sets forth by retail format the number of
stores operated by each of the Company's three divisions at January 28, 1996:
<TABLE>
<CAPTION>
SOUTHERN NORTHERN
CALIFORNIA CALIFORNIA MIDWESTERN TOTAL
---------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Ralphs.............................. 277 -- -- 277
Cala................................ -- 9 -- 9
Bell................................ -- 13 -- 13
Falley's............................ -- -- 5 5
--- -- -- ---
Total Conventional............. 277 22 5 304
Food 4 Less......................... 68 -- 31 99
FoodsCo............................. -- 5 -- 5
--- -- -- ---
Total Warehouse................ 68 5 31 104
--- -- -- ---
Total Stores................... 345 27 36 408
=== == == ===
</TABLE>
56
<PAGE> 59
SOUTHERN CALIFORNIA DIVISION
The Southern California Division operates 345 supermarkets in eight
counties under the names "Ralphs" and "Food 4 Less." The Company's Southern
California stores account for approximately 90 percent of the Company's sales.
The combination of RGC and Food 4 Less has created the largest food
retailer in Southern California. Since the Merger, the Company has consolidated
all of its stores in the region under its two leading complementary formats. The
Company operates the second largest conventional supermarket chain in the region
under the "Ralphs" name and the largest price impact warehouse supermarket chain
under the "Food 4 Less" name. Management believes the consolidation of its
formats in Southern California has improved the Company's ability to adapt its
stores' merchandising strategy to the local markets in which they operate while
achieving cost savings and other efficiencies.
Ralphs Conventional Format. The Company operates 277 Ralphs stores in
Southern California. All of the Company's conventional stores in the region use
the "Ralphs" name and are operated under a single format. Each store is
merchandised to appeal to the local community it serves and offers competitive
pricing with emphasis on overall value. Ralphs' substantial supermarket product
selection is a significant aspect of its marketing efforts: Ralphs stocks
between 20,000 and 30,000 merchandise items in its stores, including
approximately 2,800 private label products. Ralphs stores offer name-brand
grocery products; quality and freshness in its produce, meat, seafood,
delicatessen and bakery products; and broad selection in all departments. Most
Ralphs stores offer service delicatessen departments, on-premises bakery
facilities and seafood departments. Ralphs emphasizes store ambiance and
cleanliness, fast and friendly service, the convenience of debit and credit card
payment (including many in-store branch banks) and 24-hour operations in most
stores.
Food 4 Less Warehouse Format. The Company operates 68 stores in Southern
California which target the price-conscious segment of the market in both urban
and suburban areas under the name "Food 4 Less." Food 4 Less is a
warehouse-style, price impact store which is positioned to offer the lowest
overall prices in its marketing areas by passing on to the consumer savings
achieved through labor efficiencies and lower overhead and advertising costs
associated with the warehouse format, while providing the product selection and
variety associated with a conventional format. In-store operations are designed
to allow customers to perform certain labor-intensive services usually offered
in conventional supermarkets; for example, merchandise is presented on warehouse
style racks in full cartons, reducing labor intensive unpacking, and customers
bag their own groceries. Labor costs are also reduced because the stores
generally do not have labor-intensive service departments such as delicatessens,
bakeries and fresh seafood departments, although they do offer a complete line
of fresh meat, fish, produce and baked goods.
The Food 4 Less format generally consists of large facilities constructed
with high ceilings to accommodate warehouse racking with overhead pallet
storage. Wide aisles accommodate forklifts and, compared to conventional
supermarkets, a higher percentage of total store space is devoted to retail
selling because the top of the warehouse-style grocery racks on the sales floor
are used to store inventory, which reduces the need for large backroom storage.
The Food 4 Less warehouse format supermarkets have brightly painted walls and
inexpensive signage in lieu of more expensive graphics. In addition, a "Wall of
Values" located at the entrance of each store presents the customer with a
selection of specially priced merchandise. Management believes that there is a
significant segment of the market, encompassing a wide range of demographic
groups, which prefers to shop in a warehouse format supermarket because of its
lowest overall pricing. The Company plans to continue its rapid growth of the
Food 4 Less format by opening 10 new warehouse format stores in fiscal 1996,
seven of which were acquired from Smith's.
ADVERTISING AND PROMOTION
As a result of the consolidation of conventional format stores in Southern
California under the "Ralphs" name, the Company eliminated most of the separate
advertising associated with Food 4 Less' existing Alpha Beta, Boys and Viva
formats. Because Ralphs' current advertising program now covers the Southern
57
<PAGE> 60
California region, the Company will be able to expand the number of Ralphs
stores without significantly increasing advertising costs.
Ralphs' marketing strategy is to provide a combination of wide product
selection, quality and freshness of perishable products, competitive prices and
double coupons supporting Ralphs' advertising theme, "Everything You Need, Every
Time You Shop." The Ralphs Savings Plan, a marketing campaign designed to
enhance customer value, is comprised of six major components: Guaranteed Low
Prices ("GLPs"), Price Breakers, Big Buys, Multi-Buys, Ralphs Brand Products and
Double Coupons. GLPs guarantee low prices on certain high volume items that are
surveyed and updated every four weeks. Price Breakers are weekly advertised
items that offer significant savings. Big Buys are club size items at prices
competitive to club store prices and Multi-Buys offer Ralphs shoppers the
opportunity to purchase club store quantities of regular sized items at prices
competitive to club store prices. In conjunction with this campaign, Ralphs'
private label offering of approximately 2,800 products provides value to the
customer.
Ralphs stores promote sales through the use of product coupons, consisting
of manufacturers' coupons and Ralphs' own promotional coupons. Ralphs offers a
double coupon program in all stores with Ralphs matching the price reduction
offered by the manufacturer. Ralphs also generates store traffic through weekly
advertised specials, special sales promotions such as discounts on recreational
activities, seasonal and holiday promotions, increased private label selection,
club pack items and exclusive product offerings.
The Food 4 Less warehouse stores utilize print and radio advertising which
emphasizes Food 4 Less' low-price leadership, rather than promoting special
prices on individual items. The Food 4 Less warehouse stores also utilize weekly
advertising circulars, customized to local communities, which highlight the
merchandise offered in each store.
WAREHOUSING AND DISTRIBUTION
In March 1996, the Company commenced operations in a state-of-the-art
distribution and creamery facility located in Riverside, California which was
acquired from Smith's (the "Riverside Facility"). The technologically-advanced
90-acre complex is expected to improve the quality, service and productivity of
the Company's distribution and manufacturing operations. The Riverside Facility
has more than one million square feet of warehousing and manufacturing space
consisting of a 675,000 square foot dry grocery service center, 270,000 square
foot refrigerated and frozen food facility and a 115,000 square foot creamery
facility. The Riverside Facility sublease runs for approximately 23 years, with
renewal options through 2043, and provides for annual rent of approximately $8.8
million. The Company also acquired certain operating assets and inventory at the
Riverside Facility when it entered into the sublease for a purchase price of
approximately $20.2 million.
The acquisition of the Riverside Facility allows the Company to consolidate
distribution into three modern, efficient facilities located in Compton,
Glendale and Riverside, California. This consolidation is being accomplished by
closing the Company's La Habra warehouse, Carson warehouse, Long Beach Avenue
warehouse and the Slauson frozen food warehouse, as well as several other
outside frozen food, deli and general merchandise facilities. See "Management's
Discussion and Analysis of Financial Condition and Results of Operation." The
elimination of the smaller and less efficient warehouse facilities will reduce
transportation between facilities, management overhead and outside storage
costs. Moreover, the consolidation will enable better inventory management,
which is expected to result in the reduction of inventory levels. The Riverside
Facility is also expected to reduce previously planned capital expenditures. The
consolidation of the Company's distribution facilities is expected to be
completed by the third quarter of fiscal year 1996, resulting in greatly
strengthened and streamlined backstage operations.
The Riverside Facility also increases distribution capacity of the Company
by increasing storage capacity to 120,000 pallets and increasing the assortment
of items that are internally supported (increasing dry grocery from 10,000 to
14,000 SKUs and perishable and frozen items by 1,500 SKUs).
The Company also operates a 17 million cubic foot high-rise automated
storage and retrieval system ("ASRS") warehouse for non-perishable items, near
Glendale, California. The automated warehouse has a
58
<PAGE> 61
ground floor area of 170,000 square feet and capacity of approximately 50,000
pallets. Guided by computer software, ten-story high cranes move pallets from
the receiving dock to programmed locations in the ASRS warehouse while recording
the location and time of storage. Goods are retrieved and delivered by the
cranes to conveyors leading to an adjacent "picking" warehouse where individual
store orders are filled and shipped. The Company's Glendale "picking" warehouse
was damaged in the Northridge earthquake and is scheduled to undergo renovation
in the current fiscal year. Its operations will be transferred to the Riverside
Facility during the renovation period. The ASRS facility can hold substantially
more inventory and requires fewer employees to operate than a conventional
warehouse of equal size.
The Company's third major Southern California distribution center is its
5.4 million cubic foot facility in Compton, California designed to process and
store all perishable products (the "Perishables Service Center" or "PSC"). This
facility was constructed in 1992 and has enabled the Company to have the ability
to deliver perishable products to its stores on a daily basis, thereby improving
the freshness and quality of these products.
Combined shipments from the Company's Southern California warehouse
facilities accounted for approximately 75 percent of the Southern California
Division's total purchases during the 52 weeks ended January 28, 1996.
Additional purchases, consisting of mostly general merchandise, approximating 2
percent of the division's total during this same period, were made through
Certified Grocers of California, Ltd. ("Certified"), a food distribution
cooperative in which the Company is a member.
The Company is party to a joint venture with a subsidiary of Certified
which operates a general merchandise warehouse in Fresno, California. Management
is continuing to evaluate the role of such warehouse in the operation of the
combined Company.
MANUFACTURING
The Riverside Facility's creamery is the production point for all fluid
milk products bound for sale in the Company's Food 4 Less warehouse stores.
Bottled water, fruit juice and ice for the entire Company will also be processed
and packaged at the Riverside creamery. Milk bound for the Company's Ralphs
conventional stores, as well as all ice cream and ice cream products, will
continue to be processed at the Company's existing creamery in Compton,
California. The Compton facility also processes selected delicatessen items,
including packaged salads and cheese, and produces cultured products including
sour cream and yogurt.
In addition to the foregoing facilities, the Company will continue to
operate a 316,000 square foot bakery in La Habra, California to manufacture a
broad line of baked goods.
PRIVATE LABEL PROGRAM
Through its private label program, the Company offers a diverse array of
grocery and general merchandise items under its own brand names which include
"Ralphs," "Private Selection," "Perfect Choice," "Plain Wrap" and "Equality."
The Company has entered into several private label licensing arrangements which
allow it to utilize recognized brand names on an exclusive basis in connection
with certain goods it manufactures or purchases from others, including
"Carnation" and "Sunnyside Farms" (dairy products) and "Van de Kamps" (baked
goods). In addition, the Company has entered into an agreement to distribute
private label dry grocery and frozen products under the "Sunny Select" and
"Grocers Pride" labels. The Company's private label products provide quality
comparable to that of national brands at significantly lower prices, while the
Company's gross margins on private label products are generally higher than on
national brands. The Company believes that its private label program is one of
the most successful in the supermarket industry, and the Company intends to
continue the growth of its private label program in the future.
STORE OPERATIONS AND RETAIL SYSTEMS
The Southern California Division's store equipment and facilities are
generally in excellent condition. The Ralphs stores range in size from
approximately 15,600 square feet to 69,500 square feet and average approximately
35,300 square feet. The Southern California Food 4 Less stores are generally
larger and range
59
<PAGE> 62
in size from approximately 27,400 square feet to 84,300 square feet, and average
approximately 49,700 square feet. The Company believes the Southern California
Division's warehouse and distribution system and the design of its stores permit
the Company to decrease in-store stockroom space and thereby increase available
selling area.
The Southern California Division's management information systems and
optical scanning technology reduce the labor costs attributable to product
pricing and customer check-out, and provide the Company's management with
information that facilitates purchasing and receiving, inventory management,
warehouse reordering and management of accounts payable. All of the Company's
Southern California Division stores currently offer an electronic funds transfer
system which allows customers to make purchases, obtain cash or check approvals
in transactions linked to their bank accounts. In addition, the Company's stores
now offer customers the convenience of making purchases with major credit cards.
EXPANSION AND DEVELOPMENT
As a result of Ralphs' 123-year history and Alpha Beta's 92-year history in
Southern California, the Company has valuable and well-established store
locations, many of which are in densely populated metropolitan areas.
Additionally, the Company has a technologically advanced store base. During
fiscal 1995, the Company acquired 174 stores through the Merger, opened 6 new
Food 4 Less stores and 5 new Ralphs stores in Southern California, converted 124
stores from Alpha Beta, Boys and Viva formats to the Ralphs and Food 4 Less
formats, closed 44 stores and remodeled 11 stores.
The Company plans to expand the Southern California Division by opening new
stores as well as replacing older and smaller stores. The Company intends to
continue to focus its new store construction and store conversion efforts during
fiscal 1996 and future years on the Food 4 Less format, which has proven to have
a strong appeal to value conscious consumers across a wide range of demographic
groups. To this end, the Company plans to continue its store expansion program
in Southern California by opening 25 new stores during fiscal 1996 (including
the nine stores acquired from Smith's, seven of which will be Food 4 Less
stores), and additional stores in subsequent years. During fiscal year 1996, in
Southern California, the Company plans to remodel 21 conventional format stores
and 4 of the warehouse format stores. The Company's merger, expansion, remodel
and conversion efforts have required, and will continue to require, the funding
of significant capital expenditures. See Item 7 -- "Management's Discussion and
Analysis of Results of Operations and Financial Condition -- Liquidity and
Capital Resources."
Remodelings and openings, among other things, are subject to the
availability of developers' financing, agreements with developers and landlords,
local zoning regulations, construction schedules and other factors, including
costs, often beyond the Company's control. Accordingly, there can be no
assurance that the schedule will be met. Further, there is competition for new
store sites, and it is possible that this competition might adversely affect the
timing of its new store program. From time to time, the Company also closes or
sells marginal stores.
NORTHERN CALIFORNIA AND MIDWESTERN DIVISIONS
The Northern California Division of Food 4 Less operates 22 conventional
supermarkets in the greater San Francisco Bay area under the "Cala" and "Bell"
names, and five warehouse format stores under the "FoodsCo" name. Management
believes that the Northern California Division has excellent store locations in
the city of San Francisco that would be very difficult to replicate. The
Midwestern Division of Food 4 Less operates 36 stores, of which 31, including
ten former "Food Barn" stores which Food 4 Less acquired in March 1994, are
warehouse format stores operated under the "Food 4 Less" name, and five of which
are conventional supermarkets operated under the "Falley's" name. Of these 36
stores, 32 are located in Kansas and four are located in Missouri. Management
believes the Food 4 Less warehouse format stores are the low-price leaders in
each of the markets in which they compete. The Northern California Division's
conventional store strategy is to attract customers through its convenient
locations, broad product line and emphasis on quality and service, and its
advertising and promotion strategy highlights the reduced price specials offered
in its stores. In contrast, the Company's warehouse format stores, operated
under the Food 4 Less name in the
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<PAGE> 63
Midwestern Division and the FoodsCo name in the Northern California Division,
emphasize lowest overall prices rather than promoting special prices on
individual items. The Northern California Division's conventional stores range
in size from approximately 8,500 square feet to 32,500 square feet, and average
approximately 19,500 square feet. The Northern California Division's warehouse
stores range in size from approximately 30,000 square feet to 59,600 square
feet, and average approximately 41,800 square feet. The Midwestern Division's
warehouse format stores range in size from approximately 8,800 square feet to
60,200 square feet and average approximately 37,900 square feet.
The Northern California Division purchases merchandise from a number of
suppliers; however, approximately 36 percent of its purchases are made through
Certified Grocers of California, Ltd. ("Certified"), a food distribution
cooperative, pursuant to supply contracts. The Northern California Division does
not operate its own warehouse facilities, relying instead on direct delivery to
its stores by Certified and other vendors. Food 4 Less' Southern California
warehouse facilities supply a portion of the merchandise sold in the Northern
California Division stores.
The Midwestern Division's primary supplier is Associated Wholesale Grocers
("AWG"), a member-owned wholesale grocery cooperative based in Kansas City. The
Midwestern Division does not operate a central warehouse, but purchases
approximately 70 percent of the merchandise sold in its stores from AWG.
Management believes that, as AWG's largest single customer, the Midwestern
Division has significant buying power, allowing it to provide a broader product
line more economically than it could if it maintained its own full-line
warehouse. The Midwestern Division produces approximately 50 percent of all
case-ready fresh meat items sold in its stores at its central meat plant located
in Topeka, Kansas.
Since the beginning of fiscal 1991, the Northern California Division has
remodeled 13 stores, opened six new stores and, in fiscal 1995, acquired three
stores from Roger Wilco, now operated as Bell stores. The Northern California
Division Food 4 Less warehouse stores were renamed as FoodsCo warehouse stores
in fiscal 1994 following the sale by the Company of the exclusive rights to use
the "Food 4 Less" name in Northern California to Fleming Companies, Inc., which
previously held a non-exclusive license. See "Licensing Operations" for further
discussion of the amendment to the Fleming license.
The acquisition in March 1994 of ten warehouse stores formerly operated as
"Food Barn" stores increased the Midwestern Division's Food 4 Less warehouse
store count from 28 at June 26, 1993 to 38 at January 28, 1996. During the last
five fiscal years, the Midwestern Division has opened two new stores, acquired
ten stores, closed three stores and remodeled eight stores. While the Company
has no definitive plans to construct or acquire new stores in the Midwestern
Division in fiscal 1996, the Company intends to focus future expansion there on
its Food 4 Less operations.
COMPETITION
The supermarket industry is highly competitive and characterized by narrow
profit margins. The Company's competitors in each of its operating divisions
include national and regional supermarket chains, independent and specialty
grocers, drug and convenience stores, and the newer "alternative format" food
stores, including warehouse club stores, deep discount drug stores and "super
centers." Supermarket chains generally compete on the basis of location, quality
of products, service, price, product variety and store condition. The Company
regularly monitors its competitors' prices and adjusts its prices and marketing
strategy as management deems appropriate.
The Southern California Division competes with several large national and
regional chains, principally Albertsons, Hughes, Lucky, Stater Bros., and Vons,
and with smaller independent supermarkets and grocery stores as well as
warehouse clubs and other "alternative format" food stores. The Northern
California Division competes with large national and regional chains,
principally Lucky and Safeway, and with independent supermarket and grocery
store operators and other retailers, including "alternative format" stores. The
Midwestern Division's supermarkets compete with several national and regional
supermarket chains, principally Albertson's and Dillons, as well as independent
grocery and "alternative format" stores such as Hypermarket USA. The Company
positions its warehouse format supermarkets as the overall low-price leaders in
each marketing area in which they operate.
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<PAGE> 64
EMPLOYEES
The Company believes that its relationship with its employees is excellent.
At January 28, 1996, the Company had a total of 30,101 employees, as shown in
the table below.
<TABLE>
<CAPTION>
SOUTHERN NORTHERN
CALIFORNIA CALIFORNIA MIDWESTERN TOTAL
---------- ---------- ---------- ------
<S> <C> <C> <C> <C>
Administrative............................ 1,573 64 41 1,678
Warehouse, manufacturing and
transportation.......................... 3,318 -- 61 3,379
Stores.................................... 21,540 2,123 1,381 25,044
------ ----- ----- ------
Total........................... 26,431 2,187 1,483 30,101
====== ===== ===== ======
</TABLE>
Of the Company's 30,101 total employees at January 28, 1996, there were
26,369 employees covered by union contracts, principally with the United Food
and Commercial Workers Union (the "UFCW"). The table below sets forth
information regarding the Company's union contracts which cover more than 100
employees.
<TABLE>
<CAPTION>
DATE(S) OF
UNION NUMBER OF EMPLOYEES COVERED EXPIRATION
<S> <C> <C>
UFCW 15,737 Southern California October 3, 1999
Division clerks and meatcutters
Hospital and Service Employees 606 Southern California January 19, 1997
Division store porters
International Brotherhood of Teamsters 2,802 Southern California September 13, 1998
Division drivers and
warehousemen
UFCW 2,034 Northern California March 7, 1998
Division clerks and meatcutters
UFCW 3,708 Southern California February 26, 2000
Division clerks and meatcutters
Bakery and Confectionery Workers 219 Southern California February 9, 1997
Division bakers
</TABLE>
LICENSING OPERATIONS
The Company owns the "Food 4 Less" trademark and service mark and licenses
the "Food 4 Less" name for use by others. In fiscal 1995, earnings from
licensing operations were approximately $328,000. An exclusive license with the
right to sublicense the "Food 4 Less" name in all areas of the United States
except Arkansas, Iowa, Illinois, Minnesota, Nebraska, North Dakota, South
Dakota, Wisconsin, the upper peninsula of Michigan, certain portions of Kansas,
Missouri, and Tennessee has been granted to Fleming Companies, Inc. ("Fleming"),
a major food wholesaler and retailer. In August of 1993, the Company amended its
licensing agreement with Fleming to give Fleming exclusive use of the Food 4
Less name in Northern California and the Company exclusive use in Southern
California (the "Amendment"). With the exception of Northern California, and
subject to the Amendment and certain proximity restrictions, the Company retains
the right to open and operate its own "Food 4 Less" warehouse supermarkets
throughout the United States. As of January 28, 1996, there were 174 Food 4 Less
warehouse supermarkets in 15 states, including the 99 stores owned or leased and
operated by the Company. Of the remaining 75 stores, Fleming operates 15 under
license, 15 are operated under sublicenses from Fleming and 45 are operated by
other licensees.
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PROPERTIES
At January 28, 1996 the Company operated 408 supermarkets, as set forth in
the table below:
<TABLE>
<CAPTION>
NUMBER OF
SUPERMARKETS AVERAGE
---------------- TOTAL SQUARE FEET/
DIVISION OWNED LEASED SQUARE FEET FACILITY
------------------------------------------ ----- ------ ----------- ------------
<S> <C> <C> <C> <C>
Southern California....................... 60(a) 285 13,151,000 38,100
Northern California....................... -- 27 637,000 23,600
Midwestern................................ 2(b) 34 1,299,000 36,100
</TABLE>
- ---------------
(a) Includes fifteen stores located on real property subject to ground leases.
(b) Includes one store that is partially owned and partially leased.
Most of the Southern California Division's store locations are held
pursuant to long-term leases, many of which, in the opinion of management, have
below-market rental rates or other favorable lease terms. The average remaining
term (including all renewal options) of the Company's supermarket leases is
approximately 30 years.
In addition to the supermarkets, the Company operates three main warehouse
and distribution centers in Southern California. The newly acquired 90 acre
Riverside Facility has more than one million square feet of warehousing and
manufacturing space consisting of a creamery and several warehouses for dry
grocery, dairy/deli and frozen food storage. The Riverside Facility sublease
runs for approximately 23 years, with renewal options through 2043, and provides
for annual rent of approximately $8.8 million. The 170,000 square foot high-rise
automated storage and retrieval system warehouse ("ASRS") located in the Atwater
district of Los Angeles, near Glendale, California (which for ease of reference
is referred to throughout this Prospectus as the Glendale, California
warehouse), opened in 1987, handles non-perishable items, is ten stories high
and has a capacity of approximately 50,000 pallets. The Perishable Service
Center ("PSC") in Compton, opened in 1992, is a 5.4 million cubic foot facility
designed to process and store all perishable products.
The Company also has manufacturing operations located in Compton that
produce a variety of dairy and other products, including fluid milk, ice cream,
yogurt and bottled waters and juices, as well as packaged ice, cheese and salad
preparations. The bakery operation is located at the La Habra complex and
measures 316,000 square feet.
The Company's former central office, manufacturing and warehouse complex in
La Habra, California was leased for a term ending 2001. Due to the increase in
warehouse space, the La Habra distribution center and a number of smaller
warehouses used by the Company have become obsolete and it is expected that by
the third quarter of fiscal year 1996, the Company will have consolidated its
warehousing operations into the three main centers described above. The Company
has recorded a restructuring charge which includes a $29.6 million provision for
lease termination expenses in connection with the closure of the La Habra and
other warehouses (as well as certain other properties). See "Management's
Discussion and Analysis of Financial Condition and Results of Operation."
LEGAL PROCEEDINGS
In December 1992, three California state antitrust class action suits were
commenced in Los Angeles Superior Court against the Company and other major
supermarket chains located in Southern California, alleging that they conspired
to refrain from competing in the retail market for fluid milk and to fix the
retail price of fluid milk above competitive prices. Specifically, class actions
were commenced by Diane Barela and Neila Ross, Ron Moliare and Paul C. Pfeifle
on December 7, December 14 and December 23, 1992, respectively. Merits discovery
in these actions has been stayed pending discovery on class certification
issues. Most defendants in the actions, not including the Company, have reached
tentative settlement agreements, and certain of the settlements have been
approved by the trial court, subject to pending appeals. The Company is
continuing to actively defend itself in these class action suits.
63
<PAGE> 66
The Company is subject to regulation by a variety of governmental agencies,
including, but not limited to, the California Department of Alcoholic Beverage
Control, the California Department of Agriculture, the U.S. Food and Drug
Administration, the U.S. Department of Agriculture and state and local health
departments.
In addition, the Company or its subsidiaries are defendants in a number of
other cases currently in litigation or are the subject of potential claims
encountered in the normal course of business which are being vigorously
defended. In the opinion of management, the resolutions of these matters will
not have a material effect on the Company's financial position or results of
operations.
ENVIRONMENTAL MATTERS
In January 1991, the California Regional Water Quality Control Board for
the Los Angeles Region (the "Regional Board") requested that Ralphs conduct a
subsurface characterization of its ASRS warehouse property located near
Glendale. This request was part of an ongoing effort by the Regional Board, in
connection with the U.S. Environmental Protection Agency (the "EPA"), to
identify contributors to groundwater contamination in the San Fernando Valley.
Significant parts of the San Fernando Valley, including the area where the ASRS
grocery warehouse is located, have been designated federal Superfund sites
requiring response actions under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, because of regional
groundwater contamination. On June 18, 1991, the EPA made its own request for
information concerning Ralphs' grocery warehouse. Since that time, the Regional
Board has requested further investigation by Ralphs. Ralphs conducted the
requested investigations and reported the results to the Regional Board.
Approximately 25 companies have entered into a Consent Order (EPA Docket No.
94-11) with the EPA to investigate and design a remediation system for
contaminated groundwater beneath an area which includes the ASRS grocery
warehouse. The Company is not a party to the Consent Order, but is cooperating
with requests of the subject companies to allow installation of monitoring or
recovery wells on its property. On or about October 12, 1995, the EPA mailed a
Special Notice Letter to 44 parties, including the Company as owner and operator
of the Glendale property, naming them as potentially responsible parties
("PRPs"). The Company and other PRPs have agreed to enter into negotiations over
a consent decree with the EPA to implement a remedial design and reimburse
oversight costs. The PRPs have also agreed to an Alternative Dispute Resolution
Process to allocate the costs among themselves. Based upon available
information, management does not believe this matter will have a material
adverse effect on the Company's financial condition or results of operations.
The Company removed underground storage tanks and remediated soil
contamination at the Glendale warehouse property. In some instances, the
removals and the contamination were associated with grocery business operations;
in others, they were associated with prior property users. Although the
possibility of other contamination from prior operations or adjacent properties
exists at the grocery warehouse property, management does not believe that the
costs of remediating such contamination will be material to the Company.
Apart from the ASRS warehouse property, the Company has had environmental
assessments performed on most of its facilities, including warehouse and
distribution facilities. The Company believes that any responsive actions
required at the examined properties as a result of such assessments will not
have a material adverse effect on its financial condition or results of
operations.
At the time that Food 4 Less acquired Alpha Beta in 1991, it learned that
certain underground storage tanks located on the site of the La Habra facility
may have previously released hydrocarbons. In connection with the acquisition of
Alpha Beta, the seller (who is also the lessor of the La Habra facility) agreed
to retain responsibility, subject to certain limitations, for remediation of the
release.
The Company is subject to a variety of environmental laws, rules,
regulations and investigative or enforcement activities, as are other companies
in the same or similar business. The Company believes it is in substantial
compliance with such laws, rules and regulations. These laws, rules, regulations
and agency activities change from time to time, and such changes may affect the
ongoing business and operations of the Company.
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<PAGE> 67
MANAGEMENT
The following table sets forth certain information regarding the executive
officers and directors of the Company as of April 29, 1996. Directors serve
until the election and qualification of their successors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Byron E. Allumbaugh 64 Chairman and Director
George G. Golleher 48 Chief Executive Officer and Director
Alfred A. Marasca 54 President, Chief Operating Officer and Director
Joe S. Burkle 73 Chief Executive Officer -- Falley's and Director
Greg Mays 49 Executive Vice President -- Finance and
Administration and Chief Financial Officer
Harley DeLano 58 President -- Cala Foods
Tony Schnug 51 Group Senior Vice President -- Support
Operations
Jan Charles Gray 49 Senior Vice President, General Counsel and
Secretary
Robert Beyer 36 Director
Ronald W. Burkle 43 Director
Peter Copses 37 Director
Patrick L. Graham 46 Director
John Kissick 54 Director
Mark A. Resnik 48 Director
</TABLE>
Byron E. Allumbaugh has been Chairman of the Board since January 1996 and a
Director since June 1995. He was Chief Executive Officer from June 1995 to
January 1996. He was Chairman of the Board and Chief Executive Officer of RGC
from 1976 until the Merger. He also is a Director of the Ahmanson Company, El
Paso Natural Gas Company, Automobile Club of Southern California and Ultramar,
Inc.
George G. Golleher has been Chief Executive Officer since January 1996 and
a Director since June 1995. He was Vice Chairman from June 1995 to January 1996.
He was a Director of Food 4 Less from its inception in 1989 and was the
President and Chief Operating Officer of Food 4 Less from January 1990 until the
Merger. From 1986 through 1989, Mr. Golleher served as Senior Vice
President -- Finance and Administration of The Boys Markets, Inc. Mr. Golleher
has served as a Director of Dominick's Finer Foods, Inc., an affiliate of The
Yucaipa Companies, since March 1995.
Alfred A. Marasca has been President, Chief Operating Officer and a
Director since June 1995. He was President and Chief Operating Officer of RGC
from February 1994 until the Merger. He was President of RGC from 1993 to 1994,
Executive Vice President -- Retail from 1991 to 1993, and Executive Vice
President -- Marketing from 1985 to 1991.
Joe S. Burkle has been a Director since June 1995 and Chief Executive
Officer of Falley's, Inc. since 1987. He was a Director and Executive Vice
President of Food 4 Less from its inception in 1989 until the Merger. Mr. Burkle
began his career in the supermarket industry in 1946, and served as President
and Chief Executive Officer of Stater Bros. Markets, a Southern California
supermarket chain. Prior to 1987, Mr. Burkle was a private investor in Southern
California. Mr. Burkle is the father of Ronald W. Burkle.
Greg Mays has been Executive Vice President -- Finance & Administration and
Chief Financial Officer since September 1995. He was Executive Vice
President -- Finance & Administration from June 1995 to September 1995. He was
Executive Vice President -- Finance & Administration and Chief Financial Officer
of Food 4 Less and of Holdings from December 1992 until the Merger. From 1989 to
1991, Mr. Mays was Chief Financial Officer of Almac's, Inc. and, from 1991 to
December 1992, he was President and Chief Financial Officer of Almac's. From
April 1988 to June 1989, Mr. Mays was Chief Financial Officer of Food 4 Less of
Modesto, Inc. and Cala Foods, Inc.
65
<PAGE> 68
Harley DeLano has been President of Cala Foods, Inc. since 1990. Mr. DeLano
was General Manager of ABC from 1980 to 1990. He serves as a Director of
Certified Grocers.
Tony Schnug has been Group Senior Vice President -- Support Operations
since January 1996. He was Senior Vice President of Manufacturing and
Construction from June 1995 to January 1996. He was Senior Vice
President -- Corporate Operations of Food 4 Less from 1990 until the Merger.
Before joining Food 4 Less, he was Managing Director of SAGE, a wholly-owned
subsidiary of Ogilvy & Mather, and Vice President -- Management Information
Systems of The Vons Company.
Jan Charles Gray has been Senior Vice President, General Counsel and
Secretary since June 1995. He was Senior Vice President, General Counsel and
Secretary of RGC from 1988 until the Merger. He was Senior Vice President and
General Counsel of RGC from 1985 to 1988 and Vice President and General Counsel
from 1978 to 1985.
Robert Beyer has been a Director since June 1995. He has been a Group
Managing Director of Trust Company of the West ("TCW") since 1995. Mr. Beyer was
Co-Chief Executive Officer of Crescent Capital Corporation, a registered
investment advisor, from 1991 until its acquisition by TCW in 1995. From 1986 to
1991, Mr. Beyer was a member of the investment banking department of Drexel
Burnham Lambert, Incorporated. From 1983 to 1986, Mr. Beyer was a member of the
investment banking department of Bear, Stearns & Co., Inc.
Ronald W. Burkle has been a Director since June 1995. He was Chairman of
the Board from June 1995 to January 1996. Mr. Burkle was a Director, Chairman of
the Board and Chief Executive Officer of Food 4 Less from its inception in 1989
until the Merger. Mr. Burkle co-founded The Yucaipa Companies, Inc. in 1986 and
served as Director, Chairman of the Board, President and Chief Executive Officer
of FFL from 1987 and of Holdings from 1992 until the Merger, respectively. Mr.
Burkle has been Chairman of the Board of Dominick's Finer Foods, Inc. since
March 1995 and served as Chief Executive Officer from March 1995 until January
1996. Mr. Burkle also served as Chairman of the Board of Smitty's Supermarkets,
Inc. from June 1994 until its merger in May 1996 with Smith's Food & Drug
Center, Inc. ("Smith's"). Mr. Burkle now serves as a Director and the Chief
Executive Officer of Smith's. He has also served as a Director of Kaufman &
Broad Home Corporation, Inc. since March 1995. Mr. Burkle is the son of Joe S.
Burkle.
Peter Copses has been a Director since June 1995. He has been a Principal
since 1990 of Apollo Advisors, L.P. which, together with an affiliate, acts as
managing general partner of Apollo Investment Fund, L.P., AIF II, L.P. and
Apollo Investment Fund III, L.P., private securities investment funds, and of
Lion Advisors, L.P., which acts as financial advisor to and representative for
certain institutional investors with respect to securities investments. Mr.
Copses is a Director of Dominicks Finer Foods, Inc., Family Restaurants, Inc.,
Forum Group, Inc. and Zale Corporation.
Patrick L. Graham has been a Director since June 1995. He joined The
Yucaipa Companies as a general partner in January 1993. Prior to that time, he
was a Managing Director in the Corporate Finance Department of Libra
Investments, Inc. from 1992 to 1993 and Paine Webber, Inc. from 1990 to 1992.
From 1982 to 1990, he was a Managing Director of the Corporate Finance
Department of Drexel Burnham Lambert, Inc. and an Associate Director of the
Corporate Finance Department of Bear Stearns & Co., Inc. Mr. Graham served as a
Director of Smitty's Supermarkets, Inc. from June 1994 until May 1996 and of
Dominick's Finer Foods, Inc. since March 1995.
John Kissick has been a Director since June 1995. He is a principal of
Apollo Advisors, L.P. which, together with an affiliate, acts as managing
general partner of Apollo Investment Fund, L.P., AIF II, L.P. and Apollo
Investment Fund III, L.P., private securities investment funds, and of Lion
Advisors, L.P., which acts as financial advisor to and representative for
certain institutional investors with respect to securities investments. From
1990 to 1991, Mr. Kissick was a consultant with Kissick & Associates, a private
investment advisory firm. He serves as Director of Continental Graphics
Holdings, Inc., Converse, Inc., The Florsheim Shoe Company, Inc. and Furniture
Brands International, Inc.
Mark A. Resnik has been a Director since June 1995. He was a Director, Vice
President and Secretary of Food 4 Less from its inception in 1989 until the
Merger. He co-founded The Yucaipa Companies, Inc. in 1986
66
<PAGE> 69
and served as a Director, Vice President and Secretary of FFL from 1987 until
the Merger. Mr. Resnik has served as a Director of Smitty's Supermarkets, Inc.
from June 1994 until May 1996 and of Dominick's Finer Foods, Inc. since March
1995.
The Company does not currently pay any fees or remuneration to its
directors for service on the board or any board committee, but will reimburse
directors for their ordinary out-of-pocket expenses.
Messrs. R. Burkle, Allumbaugh, Golleher, J. Burkle, Beyer, Copses, Graham,
Kissick and Resnik are directors of Holdings.
67
<PAGE> 70
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation of
the Chief Executive Officer and the other four most highly compensated executive
officers of the Company (the "Named Executive Officers"), whose total salary and
bonus for the 52 weeks ended January 28, 1996 exceeded $100,000 for services
rendered in all capacities to the Company and its subsidiaries for the same time
period.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------------------------------------------------
TRANSITION NO. OF SHARES
PERIOD/FISCAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ENDED SALARY BONUS OPTIONS(6) COMPENSATION(7)
- ------------------------------ ---------------- -------- ---------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Byron E. Allumbaugh(1) January 28, 1996 $883,333 $ 547,692 820,227 $ 1,848
Chairman January 29, 1995(8) $ -- $ -- -- $ --
June 25, 1994 $ -- $ -- -- $ --
June 26, 1993 $ -- $ -- -- $ --
George G. Golleher(2) January 28, 1996 $503,205 $1,950,000(9) 200,000 $ 1,783
Chief Executive Officer January 29, 1995(8) $298,100 $ 300,000 -- $ 3,329
June 25, 1994 $500,000 $ 500,000 -- $ 3,937
June 26, 1993 $500,000 $ 500,000 -- --
Alfred A. Marasca(3) January 28, 1996 $466,667 $ 333,846 300,000 $ 3,000
President and January 29, 1995(8) $ -- $ -- -- $ --
Chief Operating Officer June 25, 1994 $ -- $ -- -- $ --
June 26, 1993 $ -- $ -- -- $ --
Greg Mays(4) January 28, 1996 $286,378 $ 355,000(9) -- $ 1,783
Executive Vice President -- January 29, 1995(8) $154,300 $ 85,000 -- $ 2,687
Finance/Administration and June 25, 1994 $250,000 $ 150,000 -- $ --
Chief Financial Officer June 26, 1993 $108,000 $ 75,000 -- $ --
Jan Charles Gray(5) January 28, 1996 $221,667 $ 147,901 204,940 $ 1,198
Senior Vice President,
General January 29, 1995(8) $ -- $ -- -- $ --
Counsel and Secretary June 25, 1994 $ -- $ -- -- $ --
June 26, 1993 $ -- $ -- -- $ --
</TABLE>
- ---------------
(1) During fiscal 1995, Byron E. Allumbaugh became Chairman.
(2) During fiscal 1995, George G. Golleher became Chief Executive Officer.
(3) During fiscal 1995, Alfred A. Marasca became President and Chief Operating
Officer.
(4) During fiscal 1995, Greg Mays became Executive Vice President - Finance &
Administration and Chief Financial Officer.
(5) During fiscal 1995, Jan Charles Gray became Senior Vice President, General
Counsel and Secretary.
(6) All options shown were granted in connection with the Merger. Of such
options, 220,227, 100,000 and 174,940 were granted to Messrs. Allumbaugh,
Marasca and Gray, respectively, in exchange for the cancellation of certain
payments to such individuals under RGC equity appreciation rights.
(7) The amounts shown in this column represent annual payments by the Company to
the Employee Profit Sharing and Retirement Program of the Company.
(8) Food 4 Less changed its fiscal year from the 52 or 53-week period which ends
on the last Saturday in June to the 52 to 53-week period which ends on the
Sunday closest to January 31, resulting in a 31-week transition period.
(9) Includes payment of a special bonus upon change of control, in connection
with the Merger, for George Golleher and Greg Mays in the amount of
$1,750,000 and $150,000, respectively.
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<PAGE> 71
The following table sets forth information concerning options granted in
fiscal 1995 to each of the Named Executive Officers pursuant to Holdings' 1995
Stock Option Plan. All options are exercisable for shares of Holdings' Common
Stock.
OPTION GRANTS IN FISCAL 1995
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL
RATES
INDIVIDUAL GRANTS OF STOCK PRICE
--------------------------------------------------------------- APPRECIATION
NO. OF % OF TOTAL OPTIONS EXERCISE OR FOR OPTION TERM
OPTIONS GRANTED TO EMPLOYEES BASE PRICE EXPIRATION ----------------------
GRANTED(1)(2) IN FISCAL YEAR ($/SH) DATE 5% ($) 10%($)
------------- -------------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Byron E. Allumbaugh... 820,227 34.1% 7.32 6/14/05 7,356,572 15,270,514
George G. Golleher.... 200,000 8.3% 10.00 6/14/05 1,257,789 3,187,484
Alfred A. Marasca..... 300,000 12.5% 6.67 6/14/05 2,885,684 5,780,227
Greg Mays............. -- -- -- -- -- --
Jan Charles Gray...... 189,940 7.9% 0.79 6/14/05 2,943,870 4,776,502
15,000 0.6% 10.00 6/14/05 94,334 239,061
</TABLE>
- ---------------
(1) All options shown were granted in connection with the Merger. Of such
options, 220,227, 100,000 and 174,940 were granted to Messrs. Allumbaugh,
Marasca and Gray, respectively, in exchange for the cancellation of certain
payments of such individuals under RGC equity appreciation rights.
(2) All options are immediately exercisable except for 15,000 options held by
Mr. Gray, which vest over a five-year period commencing June 14, 1996.
The following tables sets forth for each of the Named Executive Officers,
as to outstanding options at January 28, 1996, the number of unexercised options
and the aggregate unrealized appreciation on "in-the-money" unexercised options
held at such date. No options were exercised by any of the Named Executive
Officers during fiscal 1995.
1995 FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FISCAL YEAR END FISCAL YEAR END
NAME EXERCISABLE/UNEXERCISABLE (#) EXERCISABLE/UNEXERCISABLE ($)
- --------------------------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Byron E. Allumbaugh.......................... 820,227/0 2,198,208/0
George G. Golleher........................... 200,000/0 0/0
Alfred A. Marasca............................ 300,000/0 999,000/0
Greg Mays.................................... -- --
Jan Charles Gray............................. 189,940/15,000 1,749,347/0
</TABLE>
CONSULTING AND EMPLOYMENT AGREEMENTS
The employment agreement between the Company and Byron Allumbaugh provides
for a salary of $1 million for the first year following the Merger and $1.25
million for subsequent years. Mr. Allumbaugh is entitled to a bonus equal to his
salary in each year if certain prescribed earnings targets (the "Earnings
Targets") for the year are reached.
In connection with the consummation of the Merger, Food 4 Less' board of
directors authorized the payment of a special bonus to George Golleher in a lump
sum amount equal to the base salary due him under the remaining term of his then
existing employment agreement. As a condition of the payment of such bonus, Mr.
Golleher's existing employment agreement was cancelled, and he entered into a
new agreement which
69
<PAGE> 72
provides for an annual salary currently equal to $750,000 plus a bonus equal to
his salary in each year if the Earnings Targets are reached. Mr. Golleher's new
employment agreement continues in effect certain additional rights, including
the right to be elected to the Company's board of directors and the right to
require the Company to repurchase certain of his shares of New Holdings stock
upon his death, disability or termination without cause.
The employment agreement between the Company and Alfred Marasca provides
for a salary currently equal to $600,000 per annum and an annual bonus equal to
his salary if the Earnings Targets for the year are reached.
The employment agreement between the Company and Greg Mays provides for a
salary currently equal to $300,000 per annum and an annual bonus equal to 60
percent of his salary if the Earnings Targets for the year are reached. Mr. Mays
also received a special bonus of $150,000 in fiscal 1995 upon the change of
control in connection with the Merger.
The employment agreement between the Company and Jan Charles Gray provides
for a salary currently equal to $225,000 per annum and an annual bonus equal to
50 percent of his salary if the Earnings Targets for the year are reached.
The new employment agreements described above are for a term of three years
and provide generally that the Company may terminate the agreement for cause or
upon the failure of the employee to render services to the Company for a
specified period and the employee may terminate the agreement because of the
employee's disability. In addition, the employee's services may be suspended
upon notice by the Company and in such event the employee will continue to be
compensated by the Company during the remainder of the term of the agreement,
subject to certain offsets if the employee becomes engaged in another business.
The Company's consulting agreement with Mr. Joe Burkle provides for
compensation of $3,000 per week. Mr. Burkle provides the management and
consulting services of an executive vice president under the consulting
agreement. The agreement has a five-year term, which is automatically renewed on
January 1 of each year for a five-year term unless sixty days' notice is given
by either party; provided that if the Company terminates for reasons other than
for good cause, the payments due under the agreement continue for the balance of
the term.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not have a board committee performing the functions of a
compensation committee. Byron E. Allumbaugh, Chairman, and George G. Golleher,
Chief Executive Officer of the Company, together with Al Marasca, President, and
Greg Mays, Executive Vice President, made decisions with regard to the Company's
executive officer compensation for fiscal 1995.
RETIREMENT PLANS
Retirement Plan. The Ralphs Grocery Company Retirement Plan (the
"Retirement Plan") is a defined benefit pension plan for salaried and hourly
nonunion employees with at least one year of credited service (1,000 hours). The
Company makes annual contributions to the Retirement Plan in such amounts as are
actuarially required to fund the benefits payable to participants in accordance
with the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
Non-Qualified Retirement Plans. To allow the Company's retirement program
to provide benefits based upon a participant's total compensation and without
regard to other ERISA or tax code pension plan limitations, eligible executive
employees of the Company participate in the Ralphs Grocery Company Supplemental
Executive Retirement Plan (the "SERP") and the Ralphs Grocery Company Retirement
Supplement Plan (the "Supplement Plan"). The SERP and the Supplement Plan also
modify the benefit formula under the Retirement Plan in other respects. The
Company has purchased split dollar life insurance policies for participants
under the SERP. Under certain circumstances, the cash surrender value of certain
split dollar life insurance policies will offset the Company's obligations under
the SERP.
70
<PAGE> 73
The following table sets forth the combined estimated annual benefits
payable in the form of a (single) life annuity under the Retirement Plan, the
SERP and the Supplement Plan (unreduced by the cash surrender value of any life
insurance policies) to a participant in the above plans who is retiring at a
normal retirement date on January 1, 1996 for the specified final average
salaries and years of credited service.
<TABLE>
<CAPTION>
FINAL YEARS OF CREDITED SERVICE
AVERAGE ------------------------------------------------------------
SALARY 15 20 25 30 35
- --------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 100,000 $ 19,348 $ 25,798 $ 32,347 $ 38,697 $ 45,146
200,000 41,848 55,798 69,747 83,697 97,646
300,000 90,000 120,000 150,000 180,000 180,000
400,000 120,000 160,000 200,000 240,000 240,000
600,000 180,000 240,000 300,000 360,000 360,000
800,000 240,000 320,000 400,000 480,000 480,000
1,000,000 300,000 400,000 500,000 600,000 600,000
1,040,000 and above 312,000 416,000 520,000 624,000 624,000
</TABLE>
Messrs. Allumbaugh, Golleher, Marasca, Mays and Gray have completed 38, 11,
39, 8 and 32 years of credited service, respectively. Compensation covered by
the SERP and Supplement Plan includes both salary and bonus. The calculation of
retirement benefits generally is based on average compensation for the highest
three years of the ten years preceding retirement. The benefits earned by a
participant under the SERP and Supplement Plan are reduced by any benefits which
the participant has earned under the Retirement Plan and may be offset under
certain circumstances by the cash surrender value of life insurance policies
maintained by the Company pursuant to the insurance agreements entered into by
the Company and the executive. Benefits are not subject to any deduction for
social security offset.
71
<PAGE> 74
PRINCIPAL STOCKHOLDERS
The following table sets forth the ownership of Common Stock and Series A
Preferred Stock and Series B Preferred Stock of Holdings by each person who, to
the knowledge of Holdings, owns 5 percent or more of Holdings' outstanding
voting stock, by each person who is a director or Named Executive Officer of the
Company, and by all executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
COMMON SERIES A SERIES B
STOCK(1)(2) PREFERRED STOCK(1) PREFERRED STOCK(1)
---------------- ------------------- ------------------- PERCENTAGE PERCENTAGE
NUMBER NUMBER NUMBER OF TOTAL OF ALL
OF OF OF VOTING OUTSTANDING
BENEFICIAL OWNER(3) SHARES % SHARES % SHARES % POWER STOCK
- ------------------------------------ --------- ---- --------- ---- -------- ----- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Yucaipa and affiliates:
The Yucaipa Companies(4)(5)....... 17,795,939 63.1% -- -- -- -- 39.6% 37.1%
Ronald W. Burkle(4)(6)............ 2,046,392 10.1% -- -- -- -- 5.5% 5.1%
George G. Golleher(2)(6).......... 462,525 2.3% -- -- -- -- 1.3% 1.2%
10000 Santa Monica Blvd.
Los Angeles, CA 90067
---------- ---- ---------- ---- --------- ----- ---- ----
Total....................... 20,304,856 72.0% -- -- -- -- 45.2% 42.3%
Byron E. Allumbaugh(2)(7)........... 600,000 3.0% -- -- -- -- 1.6% 1.5%
Alfred A. Marasca(2)(7)............. 200,000 1.0% -- -- -- -- 0.5% 0.5%
Greg Mays(8)........................ -- -- -- -- -- -- -- --
Jan Charles Gray(7)................. -- -- -- -- -- -- -- --
Apollo Advisors, L.P.
Apollo Advisors II, L.P.(9)
2 Manhattanville Road
Purchase, NY 10577................ 1,285,165 6.4% 10,733,244 64.3% -- -- 32.7% 30.2%
BT Investment Partners, Inc.(10)
130 Liberty Street
New York, NY 10006................ 509,812 2.5% 900,000 5.4% 3,100,000 100.0% 3.8% 11.3%
Other 1995 equity investors as a
group(11)......................... 40,172 0.2% 5,000,000 30.0% -- -- 13.7% 12.6%
All directors and executive officers
as a group (14
persons)(2)(4)(5)(6)(7)........... 21,104,856 74.8% -- -- -- -- 47.0% 44.0%
</TABLE>
- ---------------
(1) Gives effect to the assumed exercise of outstanding warrants, held by
certain institutional investors, to acquire 2,008,874 shares of Holdings
common stock.
(2) Gives effect to the exercise of options held by Byron E. Allumbaugh, George
G. Golleher and Alfred A. Marasca under a management stock option plan,
covering 600,000, 200,000 and 200,000 shares, respectively. Does not give
effect to the exercise of additional options to purchase up to 2,000,00
shares of Holdings common stock which have been or may be granted under
such stock option plan.
(3) Except as otherwise indicated, each beneficial owner has the sole power to
vote, as applicable, and to dispose of all shares of Common Stock or Series
A Preferred Stock or Series B Preferred Stock owned by such beneficial
owner.
(4) Represents shares owned by The Yucaipa Companies, F4L Equity Partners,
L.P., FFL Partners, Yucaipa Capital Fund, Yucaipa F4L, LLC and Yucaipa/F4L
Partners. These entities are affiliated partnerships which are controlled,
directly or indirectly, by Ronald W. Burkle. The foregoing entities are
parties to a stockholders agreement with other Holdings investors which
gives to Yucaipa the right to elect a majority of the directors of
Holdings.
(5) Share amount and percentages shown for Yucaipa include a warrant to
purchase 8,000,000 shares of Holdings Common Stock held by Yucaipa. Such
warrant will become exercisable only upon the occurrence of an initial
public offering or certain sale transactions involving Holdings.
(6) Certain management stockholders who own in the aggregate 431,096 shares of
Common Stock have entered into a Stockholder Voting Agreement and Proxy
pursuant to which Ronald W. Burkle, George G. Golleher and Yucaipa Capital
Advisors, Inc. have sole voting control over the shares currently owned by
such management stockholders until June 14, 2005. The 431,096 shares have
been
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included, solely for purposes of the above table, in the share amounts
shown for Mr. Burkle but not for Mr. Golleher. Neither Messrs. Burkle and
Golleher nor Yucaipa Capital Advisors, Inc. have the power to dispose of,
or any other form of investment power with respect to such shares. Messrs.
Burkle and Golleher have sole voting and investment power with respect to
1,194,066 and 462,525 shares of Common Stock they respectively own
(including in the case of Mr. Golleher, 200,000 shares issuable upon the
exercise of options).
(7) Does not include additional options to purchase 220,227 shares, 100,000
shares and 174,940 shares of Holdings Common Stock held by Messrs.
Allumbaugh, Marasca and Gray, respectively, which options were issued at
the time of the Ralphs Merger in exchange for the cancellation of certain
payments due to such individuals under RGC equity appreciation rights.
(8) Mr. Mays owns 8,890 of the 431,096 shares of Common Stock which are subject
to the Stockholder Voting Agreement and Proxy described in note (6) above.
(9) Represents shares owned by one or more entities managed by or affiliated
with Apollo Advisors, L.P. or Apollo Advisors II, L.P. (collectively,
"Apollo"), together with certain affiliates or designees of Apollo.
(10) Represents shares owned by BT Investment Partners, Inc. ("BTIP"), Bankers
Trust New York Corporation and BT Securities Corporation. Bankers Trust New
York Corporation and BT Securities Corporation are affiliated with BTIP.
BTIP expressly disclaims beneficial ownership of all shares owned by
Bankers Trust New York Corporation and BT Securities Corporation.
(11) Includes certain institutional investors, other than Apollo and BTIP, which
purchased Series A Preferred Stock of Holdings in connection with the
Merger. Pursuant to the 1995 Stockholders Agreement, certain corporate
actions by Holdings and its subsidiaries require the consent of the
directors whom the 1995 equity investors, including Apollo and BTIP, are
entitled to elect to the Holdings Board of Directors. Such investors do not
affirm the existence of a "group" within the meaning of Rule 13d-5 under
the Exchange Act, and expressly disclaim beneficial ownership of all
Holdings shares except for those shares held of record by each such
investor or its nominees.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company is a party to a consulting agreement with Yucaipa which
provides for certain management and financial services to be performed by
Yucaipa for the benefit of the Company and its subsidiaries. The services of
Messrs. R. Burkle, Graham and Resnik, acting in their capacities as directors,
and the services of other Yucaipa personnel are provided to the Company pursuant
to this agreement. See "Item 10 -- Directors and Executive Officers of the
Registrant." Messrs. R. Burkle, Graham and Resnik are partners of Yucaipa. The
consulting agreement provides for an annual management fee payable by the
Company to Yucaipa in the amount of $4 million. In addition, the Company may
retain Yucaipa in an advisory capacity in connection with acquisition or sale
transactions, in which case the Company will pay Yucaipa an advisory fee, except
that the retention of Yucaipa in connection with a sale of the entire Company
would require approval by a majority of the disinterested directors. The
agreement has a five-year term, which is automatically renewed on each
anniversary of the Merger for a five-year term unless ninety days' notice is
given by either party. The agreement may be terminated at any time by the
Company, provided that Yucaipa will be entitled to full monthly payments under
the agreement for the remaining term thereof, unless the Company terminates for
cause pursuant to the terms of the agreement. Yucaipa may terminate the
agreement if the Company fails to make a payment due thereunder, or if there
occurs a change of control (as defined in the agreement) of the Company, and
upon any such termination Yucaipa will be entitled to full monthly payments for
the remaining term of the agreement. Pursuant to the agreement, Yucaipa earned a
total of $3.6 million in management fees for fiscal 1995.
Pursuant to the Yucaipa consulting agreement, upon closing of the RSI
Merger, Yucaipa received an advisory fee from Ralphs in the amount of $21.5
million, which was paid in cash and New Discount Debentures, plus reimbursement
of expenses in connection with the RSI Merger and the related transactions. Upon
closing of the RSI Merger, Yucaipa paid a cash fee of approximately $3.5 million
to Soros Fund
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Management in consideration for advisory services which Soros Fund Management
has rendered since 1991. Additionally, upon closing of the RSI Merger, Yucaipa
received a warrant to purchase 8,000,000 shares of Holdings common stock
exercisable under certain conditions. In consideration for its commitment to
purchase preferred stock as part of the 1995 Equity Investment, Apollo received
a fee of $5 million from Holdings upon closing of the RSI Merger, which fee was
paid in cash and notes.
In connection with the execution of the definitive Agreement and Plan of
Merger ("the Merger Agreement") between Food 4 Less, Holdings, FFL and RSI,
Yucaipa entered into the Put Agreement with the majority stockholder of RSI,
pursuant to which such RSI stockholder was entitled to put up to $10 million
aggregate principal amount of 13 5/8% Senior Subordinated Pay-in-Kind Debentures
due 2007 (the "Seller Debentures"), issued as part of the consideration for the
RSI Merger, to Yucaipa on the closing date of the Merger. The Yucaipa consulting
agreement provided that the Company reimburse Yucaipa for any loss and expenses
incurred by Yucaipa upon the resale of such Seller Debentures to any
unaffiliated third party. Pursuant to such agreement, the Company reimbursed an
affiliate of Yucaipa the amount of $3.5 million upon the closing of the Merger.
Holdings files a consolidated federal income tax return, under which the
federal income tax liability of Holdings and its subsidiaries is determined on a
consolidated basis. Holdings is a party to a federal income tax sharing
agreement with the Company and certain of its subsidiaries (the "Tax Sharing
Agreement"). The Tax Sharing Agreement provides that in any year in which the
Company is included in any consolidated tax liability of Holdings and has
taxable income, the Company will pay to Holdings the amount of the tax liability
that the Company would have had on such due date if it had been filing a
separate return. Conversely, if the Company generates losses or credits which
actually reduce the consolidated tax liability of Holdings and its other
subsidiaries, Holdings will credit to the Company the amount of such reduction
in the consolidated tax liability. These credits are passed between Holdings and
the Company in the form of cash payments. In the event any state and local
income taxes are determinable on a combined or consolidated basis, the Tax
Sharing Agreement provides for a similar allocation between Holdings and the
Company of such state and local taxes.
As part of the financing for the RSI Merger, New Holdings issued $100
million initial accreted value of 13 5/8% Senior Discount Debentures due 2005
(the "New Discount Debentures"), which was acquired by a partnership comprised
of an affiliate of Yucaipa and certain other investors. The $17.5 million
initial accreted value of New Discount Debentures contributed to the partnership
by the Yucaipa affiliate consists of New Discount Debentures issued in partial
payment of the Yucaipa consulting fee due upon closing of the RSI Merger, as
described above. New Holdings granted to the partnership certain registration
rights with respect to the New Discount Debentures, and paid substantially all
expenses of the partnership in connection with the resale of the New Discount
Debentures, including underwriting discounts and brokers' commissions (subject
to certain limitations).
On October 20, 1995, the holder of the New Discount Debentures sold all of
such New Discount Debentures at a price equal to 77 percent of the accreted
value thereof. The sale of the New Discount Debentures was effected by BT
Securities Corporation ("BT Securities"). BT Securities received a fee in the
amount of 2 percent ($2.1 million) of the aggregate accreted value of the New
Discount Debentures. Holdings reimbursed the selling holder for such fee and
other expenses of the sale as contemplated by a registration rights agreement
executed concurrently with the consummation of the Merger.
A contribution of $5 million was made to the partnership that purchased and
subsequently sold the New Discount Debentures, by an affiliate of the Company.
This affiliate borrowed the $5 million from the Company to fund its contribution
to the partnership. Holders of RGC equity appreciation rights ("EARs"),
including Messrs. Allumbaugh, Marasca and Gray, agreed to defer the receipt of
$5 million cash otherwise payable by RGC upon settlement of the EARs at the time
of the Merger, pending repayment of the $5 million loan made by the Company as
described above. When the New Discount Debentures were resold by the
partnership, and the proceeds from such resale distributed to the partners, all
of the approximately $2.1 million in total proceeds received by the affiliate
were applied to repayment of the loan, and the portion of the loan not repaid
was forgiven by the Company and the EAR holders.
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Management believes that the terms of the transactions described above are
or were fair to the Company and are or were on terms at least as favorable to
the Company as those which could be obtained from unaffiliated parties (assuming
that such transactions could be effected with such parties).
DESCRIPTION OF CAPITAL STOCK
Following is a description of the authorized and outstanding capital stock
of the Company and Holdings, including the terms of the 1995 Equity Investment
to which was made in Holdings in connection with the Merger.
THE COMPANY
The authorized capital stock of the Company consists of 1,600,000 shares of
Common Stock, $.01 par value per share, of which 1,513,938 shares are
outstanding. All of such outstanding shares are owned by Holdings. There is no
public trading market for the Common Stock of the Company. The indentures that
govern outstanding debt securities of the Company contain certain restrictions
on the payment of cash dividends with respect to the Company's Common Stock. In
addition, the New Credit Facility also restricts such payments. Subject to the
limitations contained in the New Credit Facility and such indentures, holders of
Common Stock of the Company are entitled to dividends when and as declared by
the Board of Directors from funds legally available therefor, and upon
liquidation, are entitled to share ratably in any distribution to holders of
Common Stock. All holders of Common Stock are entitled to one vote per share on
any matter coming before the stockholders for a vote.
HOLDINGS
The authorized capital stock of Holdings consists of 60,000,000 shares of
Common Stock, $.01 par value, 25,000,000 shares of Non-Voting Common Stock, $.01
par value, 25,000,000 shares of Series A Preferred Stock, $.01 par value, and
25,000,000 shares of Series B Preferred Stock, $.01 par value. Of such
authorized shares, (i) 17,207,882 shares of Common Stock, 16,683,244 shares of
Series A Preferred Stock and 3,100,000 shares of Series B Preferred Stock are
outstanding and held by approximately 100 holders of record, (ii) 2,008,874
shares of Common Stock are reserved for issuance upon the exercise of
outstanding warrants held by institutional investors, and (iii) 3,000,000 shares
of Common Stock are reserved for issuance upon the exercise of employee stock
options. An additional 8,000,000 shares of Common Stock are reserved for
issuance upon the exercise of a warrant issued to Yucaipa upon closing of the
Merger. See "-- Yucaipa Warrant" below.
There is no public trading market for the capital stock of Holdings.
Holdings does not expect in the foreseeable future to pay any dividends on its
capital stock. Holders of Common Stock of Holdings are entitled to dividends
when and as declared by the Board of Directors of Holdings from funds legally
available therefor, and upon liquidation, are entitled to share ratably in any
distribution to holders of Common Stock. All holders of Holdings Common Stock
are entitled to one vote per share on any matter coming before the stockholders
for a vote.
Upon issuance, the Series A Preferred Stock initially had an aggregate
liquidation preference of $166,832,440, or $10 per share, which accretes as
described below. The holders of the Series A Preferred Stock vote (on an
as-converted basis) together with the Common Stock as a single class on all
matters submitted for stockholder vote. Each share of Series A Preferred Stock
initially is convertible at the option of the holder thereof into a number of
shares of Holdings Common Stock equal to the liquidation preference of such
share of Series A Preferred Stock divided by $10. Upon consummation of an
initial public offering of Holdings equity securities which meets certain
criteria, the shares of Series A Preferred Stock will automatically convert into
shares of Common Stock of Holdings at the same rate as applicable to an optional
conversion.
Upon issuance, the Series B Preferred Stock initially had an aggregate
liquidation preference of $31,000,000, or $10 per share, which accretes as
described below. The holders of Series B Preferred Stock
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generally are not entitled to vote on any matters, except as required by the
Delaware General Corporation Law. Upon the occurrence of a change of control,
each share of Series B Preferred Stock initially will be convertible at the
option of the holder thereof into a number of shares of Holdings Common Stock or
Non-Voting Common Stock equal to the liquidation preference of such share of
Series B Preferred Stock divided by $10. Upon consummation of an initial public
offering of Holdings equity securities which meets certain criteria, shares of
Series B Preferred Stock will automatically convert into shares of Non-Voting
Common Stock of Holdings at the same rate as applicable to an optional
conversion.
The liquidation preference of the Series A Preferred Stock and the Series B
Preferred Stock initially accretes daily at the rate of 7% per annum, compounded
quarterly, until the later of the fifth anniversary of the date of issuance or
the date the Company first reports EBITDA (as defined) of at least $500 million
for any twelve-month period. Thereafter, the liquidation preference will remain
constant. The accretion rate of the liquidation preference will increase (a) by
2% per annum if the Company fails to report EBITDA of at least $400 million for
the four fiscal quarters ending closest to the third anniversary of the date of
issuance (or for the rolling four-quarter period ending on any of the three
subsequent quarter-ends), (b) by 2% per annum if the Company fails to report
EBITDA of at least $425 million for the four fiscal quarters ending closest to
the fourth anniversary of the date of issuance (or for the rolling four-quarter
period ending on any of the three subsequent quarter-ends) or (c) by 2% per
annum if the Company fails to report EBITDA of at least $450 million for the
four fiscal quarters ending closest to the fifth anniversary of the date of
issuance, in each case, such increase to take effect on the first day after the
last day of the fiscal quarter with respect to which such failure occurred;
provided that the accretion rate of the liquidation preference will not at any
time exceed 13% per annum. The accretion of the liquidation preference will
result in a proportional increase in the number of shares of common stock
issuable upon conversion of the Series A Preferred Stock and the Series B
Preferred Stock.
Shares of Series A Preferred Stock or Series B Preferred Stock may be
converted (subject to certain conditions) at the option of the holder into
shares of the other series. The holders of Series A Preferred Stock and Series B
Preferred Stock have no rights to any fixed dividends in respect thereof.
Subject to certain exceptions, Holdings is prohibited from declaring dividends
with respect to, or redeem, purchase or otherwise acquire, shares of its capital
stock without the consent of holders of a majority of the Series A Preferred
Stock. If dividends are declared on the Series A Preferred Stock or the Series B
Preferred Stock which are payable in voting securities of Holdings, Holdings
will make available to each holder of Series A Preferred Stock and Series B
Preferred Stock, at such holder's request, dividends consisting of non-voting
securities of Holdings which are otherwise identical to the voting securities
and which are convertible into or exchangeable for such voting securities upon a
change of control.
1995 STOCKHOLDERS AGREEMENT
Under the terms of the 1995 Stockholders Agreement (which was entered into
by Holdings, Yucaipa and its affiliates, the 1995 Equity Investors and other
stockholders), the 1995 Equity Investors holding Series A Preferred Stock are
entitled to nominate three directors to the Board of Directors of each of
Holdings and the Company (the "Series A Directors"), of which two directors are
nominees of Apollo and one director is a nominee of the other 1995 Equity
Investors holding Series A Preferred Stock. The 1995 Stockholders Agreement
gives to Yucaipa the right to nominate six directors of Holdings and seven
directors of the Company, and the boards of Holdings and the Company consist of
a total of nine and ten directors, respectively. The numbers of directors which
may be nominated by the foregoing stockholders will be reduced if such
stockholders cease to own certain specified percentages of their initial
holdings. Unless and until Holdings has effected an initial public offering of
its equity securities meeting certain criteria, Holdings and its subsidiaries
may not take certain actions without the approval of the Series A Directors,
including but not limited to certain mergers, sale transactions, transactions
with affiliates, issuances of capital stock and payments of dividends on or
repurchases of capital stock. In addition, under the 1995 Registration Rights
Agreement the 1995 Equity Investors have certain "demand" and "piggyback"
registration rights with respect to their Series A Preferred Stock and Series B
Preferred Stock, as well as the right under the 1995 Stockholders Agreement to
participate, on a pro rata basis, in sales by Yucaipa of the Holdings stock it
holds.
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In certain circumstances, Yucaipa will have the right to compel the
participation of the 1995 Equity Investors and other stockholders in sales of
all the outstanding shares of Holdings stock.
YUCAIPA WARRANT
Upon closing of the Merger, Holdings issued to Yucaipa a warrant to
purchase up to 8,000,000 shares of Holdings Common Stock. The initial exercise
price of such warrant is such that the warrant will have no value unless and
until the value of the shares representing Holdings' equity on the Closing Date
appreciates to $1.220 billion. Such warrant will be exercisable on a cashless
basis at the election of Yucaipa in the event Holdings completes an initial
public offering of equity securities meeting certain criteria, or in connection
with certain sale transactions involving Holdings, in either case effected on or
prior to the fifth anniversary of the Merger. The expiration date of such
warrant, and the deadline for such triggering transactions, may be extended from
the fifth to the seventh anniversary of the Merger if Holdings meets certain
financial performance goals prior to such fifth anniversary. The cashless
exercise provisions of such warrant allow the holder to exercise it without the
payment of cash consideration, provided that Holdings will withhold from the
shares otherwise issuable upon such exercise a number of shares having a fair
market value as of the exercise date equal to the exercise price.
DESCRIPTION OF THE NOTES
GENERAL
The Private Notes were issued under an indenture (the "Indenture") dated as
of June 6, 1996, by and among the Company, the Subsidiary Guarantors and Norwest
Bank Minnesota, National Association, as Trustee (the "Trustee"). The form and
terms of the Exchange Notes will be the same as the form and terms of the
Private Notes except that (i) the exchange will have been registered under the
Securities Act, and therefore the Exchange Notes will not bear legends
restricting the transfer thereof, and (ii) holders of the Exchange Notes will
not be entitled to certain rights of holders of the Private Notes under the
Registration Rights Agreement, which rights will terminate upon the consummation
of the Exchange Offer. The terms of the Notes are substantially identical to
those of the Company's 10.45% Senior Notes due 2004 (the "1995 Senior Notes"),
which were issued in a registered offering on June 14, 1995, and of which $520.3
million aggregate principal amount is outstanding. However, the Notes were
issued with original issue discount.
The following summary of certain provisions of the Notes and the Indenture
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, the Trust Indenture Act of 1939, as amended (the
"TIA"), and to all of the provisions of the Notes and the Indenture, including
the definitions of certain terms therein and those terms made a part of the
Indenture by reference to the TIA. The definitions of certain capitalized terms
used in the following summary are set forth below under "-- Certain
Definitions." A copy of the forms of the Indenture may be obtained from the
Company.
The Exchange Notes will be issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples thereof. Initially,
the Trustee will act as Paying Agent and Registrar for the Notes. The Notes may
be presented for registration or transfer and exchange at the offices of their
respective Registrar, which for the Notes initially will be the Trustee's
corporate trust office. The Company may change any Paying Agent and Registrar
without notice to holders of the Notes (the "Holders"). The Company will pay
principal (and premium, if any) on the Notes at the Trustee's corporate office
located in New York, New York. At the Company's option, interest may be paid at
the Trustee's corporate trust office or by check mailed to the registered
address of the relevant Holders.
As used below in this "Description of the Notes," the "Company" means
Ralphs Grocery Company, but not any of its subsidiaries.
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PRINCIPAL AND MATURITY OF AND INTEREST ON THE NOTES
The Notes are limited in aggregate principal amount to $100,000,000. The
Notes will mature on June 15, 2004. Interest on the Notes will accrue at the
rate of 10.45% per annum and will be payable semi-annually on each June 15 and
December 15, commencing on June 15, 1996, to the Holders of record on the
immediately preceding June 1 and December 1, provided that with respect to the
interest payment on June 15, 1996, the record date shall be the date of original
issuance. Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the date of
original issuance. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
OPTIONAL REDEMPTION OF THE NOTES
The Notes will be redeemable, at the option of the Company, in whole at any
time or in part from time to time, on and after June 15, 2000, at the following
redemption prices (expressed as percentages of the principal amount) if redeemed
during the twelve-month period commencing on June 15 of the year set forth
below, plus, in each case, accrued and unpaid interest to the date of
redemption:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
------------------------------------------ ----------
<S> <C>
2000...................................... 105.225%
2001...................................... 103.483%
2002...................................... 101.742%
2003 and thereafter....................... 100.000%
</TABLE>
In addition, on or prior to June 15, 1998, the Company may, at its option,
use the net cash proceeds of one or more Public Equity Offerings to redeem up to
an aggregate of 35% of the principal amount of the Notes originally issued, at a
redemption price equal to 108.957% of the principal amount thereof if redeemed
during the 12 months commencing on June 15, 1996 and 107.464% of the principal
amount thereof if redeemed during the 12 months commencing on June 15, 1997, in
each case plus accrued and unpaid interest, if any, to the redemption date. In
order to effect the foregoing redemption with the proceeds of a Public Equity
Offering, the Company shall send the redemption notice not later than 60 days
after the consummation of such Public Equity Offering.
NOTICES AND SELECTION
In the event of a redemption of less than all of the Notes, Notes will be
selected for redemption by the Trustee pro rata, by lot or by any other method
that such Trustee considers fair and appropriate and, if such Notes are listed
on any securities exchange, by a method that complies with the requirements of
such exchange; provided, however, that any redemption of the Notes pursuant to
the provisions relating to a Public Equity Offering shall be made on a pro rata
basis unless such method is otherwise legally prohibited. Notice of redemption
will be mailed at least 30 days but not more than 60 days before the redemption
date to each Holder of Notes to be redeemed at such Holder's registered address.
On and after the redemption date, interest will cease to accrue on Notes or
portions thereof called for redemption (unless the Company shall default in the
payment of the redemption price or accrued interest). Notes that are redeemed by
the Company or that are purchased by the Company pursuant to a Net Proceeds
Offer as described under "-- Certain Covenants -- Limitation on Asset Sales"
below or pursuant to a Change of Control Offer as described under "-- Change of
Control" below or that are otherwise acquired by the Company will be surrendered
to the Trustee for cancellation.
RANKING OF THE NOTES
The Notes rank senior in right of payment to all Subordinated Indebtedness
of the Company, including the 1995 11% Senior Subordinated Notes, the 1995
13.75% Senior Subordinated Notes, the Old RGC Notes and the 1991 Senior
Subordinated Notes. The Notes will rank pari passu in right of payment with all
unsubordinated Indebtedness and other liabilities of the Company, including
borrowings and other obligations of the Company and its Subsidiaries under the
Credit Agreement and the 1995 Senior Notes. The borrowings
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and obligations under the Credit Agreement (and the related guarantees) are
secured by substantially all of the assets of the Company and its Subsidiaries,
whereas the Notes are senior unsecured obligations of the Company and its
Subsidiaries. As of April 21, 1996, pro forma for the Offering and the
application of proceeds therefrom, the aggregate amount of secured indebtedness
of the Company and its Subsidiaries outstanding was approximately $771.5 million
(not including obligations with respect to letters of credit issued under the
New Credit Facility, of which $88.2 million were outstanding as of June 26,
1996). In addition, as of April 21, 1996, on the same pro forma basis, the
Company had $619.6 million of senior unsecured indebtedness, $671.2 million of
subordinated indebtedness, and $158.3 million available to be borrowed under the
Credit Agreement.
GUARANTEES
Each Subsidiary Guarantor unconditionally guarantees, jointly and
severally, the full and prompt performance of the Company's obligations under
the Notes and the Indenture (the "Guarantees"). The Guarantees are senior
unsecured obligations of the Subsidiary Guarantors and rank pari passu in right
of payment with other senior unsecured indebtedness of the Subsidiary
Guarantors.
Upon (i) the release by the lenders under the Term Loans, related documents
and future refinancings thereof of all guarantees of a Subsidiary Guarantor and
all Liens on the property and assets of such Subsidiary Guarantor relating to
such Indebtedness, or (ii) the sale or disposition (whether by merger, stock
purchase, asset sale or otherwise) of a Subsidiary Guarantor (or substantially
all of its assets) to an entity which is not a subsidiary of the Company, which
is otherwise in compliance with the Indenture, such Subsidiary Guarantor shall
be deemed released from all its obligations under its Guarantee; provided,
however, that any such termination shall occur only to the extent that all
obligations of such Subsidiary Guarantor under all of its guarantees of, and
under all of its pledges of assets or other security interests which secure,
such Indebtedness of the Company shall also terminate upon such release, sale or
transfer.
Each Subsidiary Guarantor may consolidate with or merge into or sell its
assets to the Company or another Subsidiary Guarantor without limitation. The
Indenture will further provide that a Subsidiary Guarantor may consolidate with
or merge into or sell its assets to a corporation other than the Company or
another Subsidiary Guarantor (whether or not affiliated with the Subsidiary
Guarantor, but subject to the provisions described in the immediately preceding
paragraph), provided that (a) if the surviving corporation is not the Subsidiary
Guarantor, the surviving corporation agrees to assume such Subsidiary
Guarantor's obligations under its Guarantee, and all its obligations under the
Indenture and (b) such transaction does not (i) violate any covenants set forth
in the Indenture or (ii) result in a Default or Event of Default under the
Indenture immediately thereafter that is continuing.
The obligations of each Subsidiary Guarantor under its Guarantee are
limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Subsidiary Guarantor (other than
liabilities of such Subsidiary Guarantor under Indebtedness which constitutes
Subordinated Indebtedness with respect to its Guarantee) and after giving effect
to any collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor under
its Guarantee, or pursuant to its contribution obligations under the Indenture,
result in the obligations of such Subsidiary Guarantor under such Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Subsidiary Guarantor that makes a payment or distribution under
a Guarantee shall be entitled to a contribution from each other Subsidiary
Guarantor in a pro rata amount based on the Adjusted Net Assets of each
Subsidiary Guarantor.
CHANGE OF CONTROL
The Indenture provides that, upon the occurrence of a Change of Control,
each Holder of Notes issued thereunder has the right to require the repurchase
of such Holder's Notes pursuant to the offer described below (the "Change of
Control Offer"), at a purchase price equal to 101% of the principal amount
thereof plus accrued and unpaid interest to the date of repurchase.
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The Indenture provides that within 30 days following the date upon which
the Change of Control occurred, the Company must send, by first class mail, a
notice to each Holder of Notes, with a copy to the Trustee, which notice shall
govern the terms of the Change of Control Offer. The Indenture requires that
notice of an event giving rise to a Change of Control shall be given on the same
date and in the same manner to all Holders. Such notice shall state, among other
things, the purchase date, which must be no earlier than 30 days nor later than
40 days from the date such notice is mailed, other than as may be required by
law (the "Change of Control Payment Date"). Holders electing to have a Note
purchased pursuant to a Change of Control Offer will be required to surrender
the Note, with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Note completed, to the Paying Agent at the address specified in
the notice prior to the close of business on the Business Day prior to the
Change of Control Payment Date. The Change of Control Offer is required to
remain open for at least 20 Business Days or such longer period as may be
required by law.
The Company must comply with Rule 14e-1 under the Exchange Act and any
other applicable provisions of the federal securities laws in connection with a
Change of Control Offer.
CERTAIN COVENANTS
Except as otherwise specified below, the Indenture contains, among other
things, the following covenants:
Limitation on Restricted Payments. The Indenture provides that the Company
shall not, and shall cause each of its Subsidiaries not to, directly or
indirectly, make any Restricted Payment if, at the time of such proposed
Restricted Payment, or after giving effect thereto, (a) a Default or an Event of
Default shall have occurred and be continuing, (b) the Company could not incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to
the covenant described under "-- Limitation on Incurrences of Additional
Indebtedness" below or (c) the aggregate amount expended for all Restricted
Payments, including such proposed Restricted Payment (the amount of any
Restricted Payment, if other than cash, to be the fair market value thereof at
the date of payment as determined in good faith by the Board of Directors of the
Company), subsequent to June 14, 1995, shall exceed the sum of (i) 50% of the
aggregate Consolidated Net Income (or if such aggregate Consolidated Net Income
is a loss, minus 100% of such loss) of the Company earned subsequent to June 14,
1995 and on or prior to the date of the proposed Restricted Payment (the
"Reference Date") plus (ii) 100% of the aggregate Net Proceeds received by the
Company from any person (other than a Subsidiary of the Company) from the
issuance and sale (including upon exchange or conversion for other securities of
the Company) subsequent to June 14, 1995 and on or prior to the Reference Date
of Qualified Capital Stock (excluding (A) Qualified Capital Stock paid as a
dividend on any Capital Stock or as interest on any Indebtedness and (B) any Net
Proceeds from issuances and sales financed directly or indirectly using funds
borrowed from the Company or any Subsidiary, until and to the extent such
borrowing is repaid), plus (iii) 100% of the aggregate net cash proceeds
received by the Company as capital contributions to the Company after the June
14, 1995, plus (iv) $25 million.
The Indenture provides that if no Default or Event of Default shall have
occurred and be continuing as a consequence thereof, the provisions set forth in
the immediately preceding paragraph will not prevent (1) the payment of any
dividend within 60 days after the date of its declaration if the dividend would
have been permitted on the date of declaration, (2) the acquisition of any
shares of Capital Stock of the Company or the repurchase, redemption or other
repayment of any Subordinated Indebtedness in exchange for or solely out of the
proceeds of the substantially concurrent sale (other than to a Subsidiary) of
shares of Qualified Capital Stock of the Company, (3) the repurchase, redemption
or other repayment of any Subordinated Indebtedness in exchange for or solely
out of the proceeds of the substantially concurrent sale (other than to a
Subsidiary) of Subordinated Indebtedness of the Company with an Average Life
equal to or greater than the then remaining Average Life of the Subordinated
Indebtedness repurchased, redeemed or repaid and (4) Permitted Payments;
provided, however, that the declaration of each dividend paid in accordance with
clause (1) above, each acquisition, repurchase, redemption or other repayment
made in accordance with, or of the type set forth in, clause (2) above, and each
payment described in clause (iii), (iv), (vii) and (viii) of the definition of
the term "Permitted Payments" shall each be counted for purposes of computing
amounts expended pursuant to subclause (c) in the immediately preceding
paragraph, and no amounts expended
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pursuant to clause (3) above or pursuant to clause (i), (ii), (v), (vi), (ix)
and (x) of the definition of the term "Permitted Payments" shall be so counted;
provided further that to the extent any payments made pursuant to clause (vii)
of the definition of the term "Permitted Payments" are deducted for purposes of
computing the Consolidated Net Income of the Company, such payments shall not be
counted for purposes of computing amounts expended as Restricted Payments
pursuant to subclause (c) in the immediately preceding paragraph.
Limitation on Incurrences of Additional Indebtedness. The Indenture
provides that the Company shall not, and shall not permit any of its
Subsidiaries, directly or indirectly, to incur, assume, guarantee, become
liable, contingently or otherwise, with respect to, or otherwise become
responsible for the payment of (collectively "incur") any Indebtedness other
than Permitted Indebtedness; provided, however, that if no Default with respect
to payment of principal of, or interest on, the Notes or Event of Default under
the Indenture shall have occurred and be continuing at the time or as a
consequence of the incurrence of any such Indebtedness, the Company may incur
Indebtedness if immediately before and immediately after giving effect to the
incurrence of such Indebtedness the Operating Coverage Ratio of the Company
would be greater than 2.0 to 1.0; provided, further, a Subsidiary may incur
Acquired Indebtedness to the extent such Indebtedness could have been incurred
by the Company pursuant to the immediately preceding proviso.
In addition, the Indenture provides that neither the Company nor any
Subsidiary Guarantor will, directly or indirectly, in any event incur any
Indebtedness that by its terms (or by the terms of any agreement governing such
Indebtedness) is subordinated to any other Indebtedness of the Company or such
Subsidiary Guarantor, as the case may be, unless such Indebtedness is also by
its terms (or by the terms of any agreement governing such Indebtedness) made
expressly subordinate to the Notes or the Guarantee of such Subsidiary
Guarantor, as the case may be, to the same extent and in the same manner as such
Indebtedness is subordinated pursuant to subordination provisions that are most
favorable to the holders of any other Indebtedness of the Company or such
Subsidiary Guarantor, as the case may be.
Limitation on Liens. The Indenture provides that the Company shall not and
shall not permit any Subsidiary to create, incur, assume or suffer to exist any
Liens upon any of their respective assets unless the Notes are equally and
ratably secured by the Liens covering such assets, except for (i) existing and
future Liens securing Indebtedness and other obligations of the Company and its
Subsidiaries under the Credit Agreement and related documents or any refinancing
or replacement thereof in whole or in part permitted under the Indenture, (ii)
Permitted Liens, (iii) Liens securing Acquired Indebtedness; provided that such
Liens (x) are not incurred in connection with, or in contemplation of the
acquisition of the property or assets acquired and (y) do not extend to or cover
any property or assets of the Company or any Subsidiary other than the property
or assets so acquired, (iv) Liens to secure Capitalized Lease Obligations and
certain other Indebtedness that is otherwise permitted under the Indenture;
provided that (A) any such Lien is created solely for the purpose of securing
such other Indebtedness representing, or incurred to finance, refinance or
refund, the cost (including sales and excise taxes, installation and delivery
charges and other direct costs of, and other direct expenses paid or charged in
connection with, the purchase (whether through stock or asset purchase, merger
or otherwise) or construction) or improvement of the property subject thereto
(whether real or personal, including fixtures and other equipment), (B) the
principal amount of the Indebtedness secured by such Lien does not exceed 100%
of such costs and (C) such Lien does not extend to or cover any other property
other than such item of property and any improvements on such item; (v) Liens
existing on the Issue Date; (vi) Liens in favor of the Trustee and any
substantially equivalent Lien granted to any trustee or similar institution
under any indenture for Indebtedness permitted to be incurred under the
Indenture; and (vii) any replacement, extension or renewal, in whole or in part,
of any Lien described in this or the foregoing clauses including in connection
with any refinancing of the Indebtedness, in whole or in part, secured by any
such Lien; provided that to the extent any such clause limits the amount secured
or the assets subject to such Liens, no extension or renewal shall increase the
amount or the assets subject to such Liens, except to the extent that the Liens
associated with such additional assets are otherwise permitted hereunder.
Limitation on Asset Sales. The Indenture provides that neither the Company
nor any of its Subsidiaries shall consummate an Asset Sale unless (a) the
Company or the applicable Subsidiary receives consideration at the time of such
Asset Sale at least equal to the fair market value of the assets sold and (b)
upon
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consummation of an Asset Sale, the Company will within 365 days of the receipt
of the proceeds therefrom, either: (i) apply or cause its Subsidiary to apply
the Net Cash Proceeds of any Asset Sale to (A) a Related Business Investment,
(B) an investment in properties and assets that replace the properties and
assets that are the subject of such Asset Sale or (C) an investment in
properties and assets that will be used in the business of the Company and its
Subsidiaries existing on the Issue Date or in businesses reasonably related
thereto; (ii) in the case of a sale of a store or stores, deem such Net Cash
Proceeds to have been applied to the extent of any capital expenditures made to
acquire or construct a replacement store in the general vicinity of the store
sold within 365 days preceding the date of the Asset Sale; (iii) apply or cause
to be applied such Net Cash Proceeds to the permanent repayment of Pari Passu
Indebtedness; provided, however, that the repayment of any revolving loan (under
the Credit Agreement or otherwise) shall result in a permanent reduction in the
commitment thereunder; (iv) use such Net Cash Proceeds to secure Letter of
Credit Obligations to the extent the related letters of credit have not been
drawn upon or returned undrawn; or (v) after such time as the accumulated Net
Cash Proceeds equals or exceeds $20 million, apply or cause to be applied such
Net Cash Proceeds to the purchase of Notes tendered to the Company for purchase
at a price equal to 100% of the principal amount thereof plus accrued interest
to the date of purchase pursuant to an offer to purchase made by the Company as
set forth below (a "Net Proceeds Offer"); provided, however, that the Company
shall have the right to exclude from the foregoing provisions Asset Sales
subsequent to the Issue Date, the proceeds of which are derived from the sale
and substantially concurrent lease-back of a supermarket and/or related assets
or equipment which are acquired or constructed by the Company or a Subsidiary
subsequent to the date that is six months prior to the Issue Date, provided that
such sale and substantially concurrent lease-back occurs within 270 days
following such acquisition or the completion of such construction, as the case
may be. Pending the utilization of any Net Cash Proceeds in the manner (and
within the time period) described above, the Company may use any such Net Cash
Proceeds to repay revolving loans (under the Credit Agreement or otherwise)
without a permanent reduction of the commitment thereunder.
Each Net Proceeds Offer will be mailed to the record Holders of Notes as
shown on the register of Holders of such Notes not less than 325 nor more than
365 days after the relevant Asset Sale, with a copy to the Trustee, shall
specify the purchase date (which shall be no earlier than 30 days nor later than
40 days from the date such notice is mailed) and shall otherwise comply with the
procedures set forth in the Indenture. Upon receiving notice of the Net Proceeds
Offer, Holders of Notes may elect to tender their Notes in whole or in part in
integral multiples of $1,000 in exchange for cash. To the extent Holders
properly tender Notes in an amount exceeding the Net Proceeds Offer, Notes of
tendering Holders will be repurchased on a pro rata basis (based on amounts
tendered). A Net Proceeds Offer shall remain open for a period of 20 Business
Days or such longer period as may be required by law.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Indenture provides that the Company shall not, and shall not
permit any Subsidiary to, directly or indirectly, create or suffer to exist, or
allow to become effective any consensual Payment Restriction with respect to any
of its Subsidiaries, except for (a) any such restrictions contained in (i) the
Credit Agreement and related documents as in effect on the Issue Date as any
such Payment Restriction may apply to any present or future Subsidiary, (ii) the
Indenture and any agreement in effect at or entered into on the Issue Date,
(iii) Indebtedness of a person existing at the time such person becomes a
Subsidiary (provided that (x) such Indebtedness is not incurred in connection
with, or in contemplation of, such person becoming a Subsidiary, (y) such
restriction is not applicable to any person, or the properties or assets of any
person, other than the person so acquired and (z) such Indebtedness is otherwise
permitted to be incurred pursuant to the provisions of the covenant described
under "-- Limitation on Incurrences of Additional Indebtedness" above), (iv)
secured Indebtedness otherwise permitted to be incurred pursuant to the
provisions of the covenants described under "-- Limitation on Incurrences of
Additional Indebtedness" and "-- Limitation on Liens" above that limit the right
of the debtor to dispose of the assets securing such Indebtedness; (b) customary
non-assignment provisions restricting subletting or assignment of any lease or
other agreement entered into by a Subsidiary;
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(c) customary net worth provisions contained in leases and other agreements
entered into by a Subsidiary in the ordinary course of business; (d) customary
restrictions with respect to a Subsidiary pursuant to an agreement that has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of such Subsidiary; (e) customary provisions in joint
venture agreements and other similar agreements; and (f) restrictions contained
in Indebtedness incurred to refinance, refund, extend or renew Indebtedness
referred to in clause (a) above; provided that the restrictions contained
therein are not materially more restrictive taken as a whole than those provided
for in such Indebtedness being refinanced, refunded, extended or renewed and (g)
Payment Restrictions contained in any other Indebtedness permitted to be
incurred subsequent to the Issue Date pursuant to the provisions of the covenant
described under "-- Limitation on Incurrences of Additional Indebtedness" above;
provided that any such Payment Restrictions are ordinary and customary with
respect to the type of Indebtedness being incurred (under the relevant
circumstances) and, in any event, no more restrictive than the most restrictive
Payment Restrictions in effect on the Issue Date.
Guarantees of Certain Indebtedness. The Indenture provides that the Company
shall not permit any of its Subsidiaries to (a) incur, guarantee or secure
through the granting of Liens the payment of any Indebtedness under the term
portion of the Credit Agreement or refinancings thereof or (b) pledge any
intercompany notes representing obligations of any of its Subsidiaries, to
secure the payment of any Indebtedness under the term portion of the Credit
Agreement or refinancings thereof, in each case unless (x) such Subsidiary, the
Company and the Trustee execute and deliver a supplemental indenture evidencing
such Subsidiary's Guarantee.
Limitation on Transactions with Affiliates. The Indenture provides that
neither the Company nor any of its Subsidiaries shall (i) sell, lease, transfer
or otherwise dispose of any of its properties or assets or issue securities
(other than equity securities which do not constitute Disqualified Capital
Stock) to, (ii) purchase any property, assets or securities (other than equity
securities which do not constitute Disqualified Capital Stock) from, (iii) make
any Investment in, or (iv) enter into or suffer to exist any contract or
agreement with or for the benefit of, an Affiliate or Significant Stockholder
(or any Affiliate of such Significant Stockholder) of the Company or any
Subsidiary (an "Affiliate Transaction"), other than (x) Affiliate Transactions
permitted under the following paragraph and (y) Affiliate Transactions in the
ordinary course of business, that are fair to the Company or such Subsidiary, as
the case may be, and on terms at least as favorable as might reasonably have
been obtainable at such time from an unaffiliated party; provided that (A) with
respect to Affiliate Transactions involving aggregate payments in excess of $1
million and less than $5 million, the Company or such Subsidiary, as the case
may be, shall have delivered an Officers' Certificate to the Trustee certifying
that such Affiliate Transaction complies with clause (y) above (other than the
requirement set forth in such clause (y) that such Affiliate Transaction be in
the ordinary course of business), (B) with respect to Affiliate Transactions
involving aggregate payments in excess of $5 million and less than $15 million,
the Company or such Subsidiary, as the case may be, shall have delivered an
Officers' Certificate to the Trustee certifying that such Affiliate Transaction
complies with clause (y) above (other than the requirement set forth in such
clause (y) that such Affiliate Transaction be in the ordinary course of
business) and that such Affiliate Transaction has received the approval of a
majority of the disinterested members of the Board of Directors of the Company
or the Subsidiary, as the case may be, or, in the absence of any such approval
by the disinterested members of the Board of Directors of the Company or the
Subsidiary, as the case may be, that an Independent Financial Advisor has
reasonably and in good faith determined that the financial terms of such
Affiliate Transaction are fair to the Company or such Subsidiary, as the case
may be, or that the terms of such Affiliate Transaction are at least as
favorable as might reasonably have been obtained at such time from an
unaffiliated party and that such Independent Financial Advisor has provided
written confirmation of such determination to the Board of Directors and (C)
with respect to Affiliate Transactions involving aggregate payments in excess of
$15 million, the Company or such Subsidiary, as the case may be, shall have
delivered to the Trustee, a written opinion from an Independent Financial
Advisor to the effect that the financial terms of such Affiliate Transaction are
fair to the Company or such Subsidiary, as the case may be, or that the terms of
such Affiliate Transaction are at least as favorable as those that might
reasonably have been obtained at the time from an unaffiliated party.
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The provisions of the foregoing paragraph shall not apply to (i) any
Permitted Payment, (ii) any Restricted Payment that is made in compliance with
the provisions of the covenant described under "-- Limitation on Restricted
Payments" above, (iii) reasonable and customary fees and compensation paid to,
and indemnity provided on behalf of, officers, directors, employees or
consultants of the Company or any Subsidiary, as determined by the Board of
Directors of the Company or any Subsidiary or the senior management thereof in
good faith, (iv) transactions exclusively between or among the Company and any
of its wholly-owned Subsidiaries or exclusively between or among such
wholly-owned Subsidiaries, provided such transactions are not otherwise
prohibited by the Indenture, (v) any agreement as in effect as of June 14, 1995
or any amendment thereto or any transaction contemplated thereby (including
pursuant to any amendment thereto) so long as any such amendment is not
disadvantageous to the Holders of the Notes in any material respect, (vi) the
existence of, or the performance by the Company or any of its Subsidiaries of
its obligations under the terms of, any stockholders agreement (including any
registration rights agreement or purchase agreement related thereto) to which it
(or Holdings) is a party as of June 14, 1995 and any similar agreements which it
(or Holdings) may enter into thereafter; provided, however, that the existence
of, or the performance by the Company or any Subsidiaries of obligations under
any future amendment to, any such existing agreement or under any similar
agreement entered into after June 14, 1995 shall only be permitted by this
clause (vi) to the extent that the terms of any such amendment or new agreement
are not otherwise disadvantageous to the Holders of the Notes in any material
respect, (vii) transactions permitted by, and complying with, the provisions of
the covenant described under "-- Limitation on Mergers and Certain Other
Transactions" below and (viii) transactions with suppliers or other purchases or
sales of goods or services, in each case in the ordinary course of business
(including, without limitation, pursuant to joint venture agreements) and
otherwise in compliance with the terms of the Indenture which are fair to the
Company, in the reasonable determination of the Board of Directors of the
Company or the senior management thereof, or are on terms at least as favorable
as might reasonably have been obtained at such time from an unaffiliated party.
Limitations on Preferred Stock of Subsidiaries. The Indenture provides that
the Company will not permit any of its Subsidiaries to issue any Preferred Stock
(other than to the Company or to a wholly-owned Subsidiary) or permit any person
(other than the Company or a wholly-owned Subsidiary) to own any Preferred Stock
of any Subsidiary.
Limitation on Mergers and Certain Other Transactions. The Indenture
provides that the Company, in a single transaction or through a series of
related transactions, shall not (i) consolidate with or merge with or into any
other person, or transfer (by lease, assignment, sale or otherwise) all or
substantially all of its properties and assets as an entirety or substantially
as an entirety to another person or group of affiliated persons or (ii) adopt a
Plan of Liquidation, unless, in either case, (1) either the Company shall be the
continuing person, or the person (if other than the Company) formed by such
consolidation or into which the Company is merged or to which all or
substantially all of the properties and assets of the Company as an entirety or
substantially as an entirety are transferred (or, in the case of a Plan of
Liquidation, any person to which assets are transferred) (the Company or such
other person being hereinafter referred to as the "Surviving Person") shall be a
corporation organized and validly existing under the laws of the United States,
any state thereof or the District of Columbia, and shall expressly assume, by an
indenture supplement, all the obligations of the Company under the Indenture and
the Notes; (2) immediately after and giving effect to such transaction and the
assumption contemplated by clause (1) above and the incurrence or anticipated
incurrence of any Indebtedness to be incurred in connection therewith, (A) the
Surviving Person shall have a Consolidated Net Worth equal to or greater than
the Consolidated Net Worth of the Company immediately preceding the transaction
and (B) the Surviving Person could incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the provisions of
the covenant described under "-- Limitation on Incurrences of Additional
Indebtedness" above; (3) immediately before and immediately after and giving
effect to such transaction and the assumption of the obligations as set forth in
clause (1) above and the incurrence or anticipated incurrence of any
Indebtedness to be incurred in connection therewith, no Default or Event of
Default shall have occurred and be continuing; and (4) each Subsidiary
Guarantor, unless it is the other party to the transaction, shall have by
supplemental indenture confirmed that its Guarantee of the obligations of the
Company under the Notes shall apply, without alteration or amendment as such
Guarantee
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applies on the date it was granted under the Indenture to the obligations of the
Company under the Indenture and the Notes to the obligations of the Company or
such Person, as the case may be, under the Indenture and the Notes, after the
consummation of such transaction.
The Indenture provides that upon any consolidation or merger or any
transfer of all or substantially all of the assets of the Company or any
adoption of a Plan of Liquidation by the Company in accordance with the
foregoing, the surviving person formed by such consolidation or into which the
Company is merged or to which such transfer is made (or, in the case of a Plan
of Liquidation, to which assets are transferred) shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the Indenture with the same effect as if such surviving person had been named as
the Company therein; provided, however, that solely for purposes of computing
amounts described in subclause (c) of the first paragraph of the covenant
described under "-- Limitation on Restricted Payments" above, any such surviving
person shall only be deemed to have succeeded to and be substituted for the
Company with respect to periods subsequent to the effective time of such merger,
consolidation or transfer of assets.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise) of all or substantially all of the properties and assets of one or
more Subsidiaries, the Capital Stock of which constitutes all or substantially
all of the properties and assets of the Company shall be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
EVENTS OF DEFAULT
The following events constitute "Events of Default" under the Indenture:
(i) failure to make any interest payment on the Notes when due and the
continuance of such default for a period of 30 days; (ii) failure to pay
principal of, or premium, if any, on the Notes when due, whether at maturity,
upon acceleration, redemption, required repurchase or otherwise; (iii) failure
to comply with any other agreement contained in the Notes or the Indenture, if
such failure continues unremedied for 30 days after written notice given by the
Trustee or the Holders of at least 25% in principal amount of the Notes then
outstanding (except in the case of a default with respect to the covenants
described under "-- Certain Covenants -- Limitation on Restricted Payments,"
"-- Certain Covenants -- Limitations on Asset Sales," "-- Change of Control,"
and "-- Certain Covenants -- Limitations on Mergers and Certain Other
Transactions," which shall constitute Events of Default with notice but without
passage of time); (iv) a default under any Indebtedness of the Company or its
Subsidiaries, whether such Indebtedness now exists or shall hereinafter be
created, if both (A) such default either (1) results from the failure to pay any
such Indebtedness at its stated final maturity or (2) relates to an obligation
other than the obligation to pay such Indebtedness at its stated final maturity
and results in the holder or holders of such Indebtedness causing such
Indebtedness to become due prior to its stated maturity and (B) the principal
amount of such Indebtedness, together with the principal amount of any other
such Indebtedness in default for failure to pay principal at stated final
maturity or the maturity of which has been so accelerated, aggregate $20 million
or more at any one time outstanding; (v) any final judgment or order for payment
of money in excess of $20 million shall be entered against the Company or any
Significant Subsidiary and shall not be discharged for a period of 60 days after
such judgment becomes final and nonappealable; (vi) either the Company or any
Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law:
(a) commences a voluntary case or proceeding; (b) consents to the entry of an
order for relief against it in an involuntary case or proceeding; (c) consents
to the appointment of a Custodian of it or for all or substantially all of its
property; or (d) makes a general assignment for the benefit of its creditors;
(vii) a court of competent jurisdiction enters an order or decree under any
Bankruptcy Law that: (a) is for relief against the Company or any Significant
Subsidiary, in an involuntary case or proceeding; (b) appoints a Custodian of
the Company or any Significant Subsidiary, or for all or any substantial part of
their respective properties; or (c) orders the liquidation of the Company or any
Significant Subsidiary, and in each case the order or decree remains unstayed
and in effect for 60 days; (viii) the lenders under the Credit Agreement shall
commence judicial proceedings to foreclose upon any material portion of the
assets of the Company and its Subsidiaries; or (ix) any of the Guarantees issued
under the Indenture shall be declared or adjudged invalid in a final judgment or
order issued by any court of governmental authority. In the event of a
declaration of acceleration because an Event of Default set forth in clause (iv)
above has occurred and is continuing, such declaration of
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acceleration shall be automatically rescinded and annulled if either (i) the
holders of the Indebtedness which is the subject of such Event of Default have
waived such failure to pay at maturity or have rescinded the acceleration in
respect of such Indebtedness within 90 days of such maturity or declaration of
acceleration, as the case may be, and no other Event of Default has occurred
during such 90-day period which has not been cured or waived, or (ii) such
Indebtedness shall have been discharged or the maturity thereof shall have been
extended such that it is not then due and payable, or the underlying default has
been cured (and any acceleration based thereon of such other Indebtedness has
been rescinded), within 90 days of such maturity or declaration of acceleration,
as the case may be.
If an Event of Default (other than an Event of Default resulting from
bankruptcy, insolvency, receivership or reorganization of the Company or a
Subsidiary Guarantor) occurs and is continuing under the Indenture, the Trustee
or the Holders of at least 25% in principal amount of the then outstanding Notes
may declare due and payable all unpaid principal and interest accrued and unpaid
on the then outstanding Notes by notice in writing to the Company, the
administrative agent under the Credit Agreement and the Trustee specifying the
respective Event of Default and that it is a "notice of acceleration" (the
"Acceleration Notice"), and the same (i) shall become immediately due and
payable or (ii) if there are any amounts outstanding under the Credit Agreement,
shall become due and payable upon the first to occur of an acceleration under
the Credit Agreement, or five business days after receipt by the Company and the
administrative agent under the Credit Agreement of such Acceleration Notice. If
an Event of Default resulting from certain events of bankruptcy, insolvency,
receivership or reorganization of the Company or a Subsidiary Guarantor that is
a Significant Subsidiary shall occur under the Indenture, all unpaid principal
of and accrued interest on all then outstanding Notes shall be immediately due
and payable without any declaration or other act on the part of the Trustee or
any of the Holders of such Notes. After a declaration of acceleration under the
Indenture, subject to certain conditions, the Holders of a majority in principal
amount of the then outstanding Notes, by notice to the Trustee, may rescind such
declaration if all existing Events of Default under the Indenture are remedied.
In certain cases the Holders of a majority in principal amount of outstanding
Notes may waive a past default under the Indenture and its consequences, except
a default in the payment of or interest on any of the Notes.
For a description of certain risks that Holders may bear in connection with
a Default under or acceleration of the Notes that precedes or results in the
filing of a bankruptcy case involving the Company, see "Risk Factors -- Original
Issue Discount Consequences."
The Indenture provides that if a Default or Event of Default occurs and is
continuing thereunder and if it is known to the Trustee, the Trustee shall mail
to each Holder of Notes notice of the Default or Event of Default within 90 days
after such Default or Event of Default occurs; provided, however, that, except
in the case of a Default or Event of Default in the payment of the principal of
or interest on any Notes, including the failure to make payment on a Change of
Control Payment Date pursuant to a Change of Control Offer or payment when due
pursuant to a Net Proceeds Offer the Trustee may withhold such notice if it in
good faith determines that withholding such notice is in the interest of the
Holders.
The Indenture provides that no Holder may pursue any remedy thereunder
unless the Trustee (i) shall have failed to act for a period of 60 days after
receiving written notice of a continuing Event of Default by such Holder and a
request to act by Holders of at least 25% in principal amount of Notes and (ii)
has received indemnification satisfactory to it; provided, however, that such
provision does not affect the right of any Holder to sue for enforcement of any
overdue payment of Notes.
The Indenture provides that two officers of the Company are required to
certify to the Trustee within 120 days after the end of each fiscal year of the
Company whether or not they know of any Default that occurred under the
Indenture during such fiscal year and, if applicable, describe such Default and
the status thereof.
DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, elect to have the
obligations of the Company discharged with respect to the outstanding Notes.
Such Legal Defeasance means that the Company shall be deemed to
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have paid and discharged the entire Indebtedness represented by the Notes except
for (i) the rights of Holders to receive payments in respect of the principal
of, premium, if any, and interest on Notes when such payments are due solely
from the funds held by the Trustee in the trust referred to below; (ii) the
Company's obligations to issue temporary Notes, register the transfer or
exchange of Notes, replace mutilated, destroyed, lost or stolen Notes and
maintain an office or agency for payments in respect of Notes and money for
security payments held in trust in respect of Notes, (iii) the rights, powers,
trusts, duties and immunities of the Trustee and the Company's obligations in
connection therewith; and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time elect to have the
obligations of the Company released with respect to certain covenants described
above under "-- Certain Covenants" ("Covenant Defeasance"), and thereafter any
omission to comply with such obligations shall not constitute a Default or Event
of Default.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must have irrevocably deposited with the Trustee, in trust, for the
benefit of the Holders, cash in U.S. dollars, U.S. Government Obligations (as
defined in the Indenture), or a combination thereof, in such amounts as will be
sufficient, in the opinion of a nationally recognized firm of independent public
accountants, to pay the principal of, premium, if any, and interest on the
outstanding Notes to redemption or maturity, provided that the Trustee shall
have been irrevocably instructed to apply such money or the proceeds of such
U.S. Government Obligations to said payments with respect to the Notes on the
maturity date or such redemption date, as the case may be; (ii) in the case of
Legal Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel stating that (A) the Company has received from, or there has been
published by, the Internal Revenue Service a ruling or (B) since the Issue Date,
there has been a change in the applicable federal income tax law, in either case
to the effect that, and based thereon such opinion of counsel shall confirm
that, the Holders of Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel stating that the Holders of Notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not occurred; (iv) no Default or Event of Default
shall have occurred and be continuing under the Indenture on the date of such
deposit or insofar as clauses (vi) and (vii) under the first paragraph under
"-- Events of Default" above are concerned, at any time in the period ending on
the 91st day after the date of deposit; (v) such Legal Defeasance or Covenant
Defeasance shall not cause the Trustee to have a conflicting interest with
respect to the Notes; (vi) such Legal Defeasance or Covenant Defeasance shall
not result in a breach or violation of, or constitute a default under, the
Indenture or any other material agreement or instrument to which the Company or
any Subsidiary Guarantor is a party or by which it is bound (and in that
connection, the Trustee shall have received a certificate from the Agent under
the Credit Agreement to that effect with respect to such Credit Agreement if
then in effect); (vii) the Company shall have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following the deposit
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (viii) the Company shall have delivered to the Trustee an Officer's
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of the Notes over other creditors of the Company or
any Subsidiary Guarantor or with the intent of defeating, hindering, delaying or
defrauding creditors of the Company, any Subsidiary Guarantor or others; and
(ix) the Company shall have delivered to the Trustee an officers' certificate
and an opinion of counsel, each stating that all conditions precedent provided
for relating to the Legal Defeasance or Covenant Defeasance have been complied
with.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect as
to all outstanding Notes when either (a) all such Notes theretofore
authenticated and delivered (except lost, stolen or destroyed Notes which have
been replaced or paid and Notes for whose payment money has theretofore been
deposited in trust and thereafter repaid to the Company) have been delivered to
the Trustee for cancellation; or (b)(i) all such
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Notes not theretofore delivered to the Trustee for cancellation have become due
and payable by reason of the making of a notice of redemption or otherwise and
the Company has irrevocably deposited or caused to be deposited with the Trustee
as trust funds in trust for the purpose an amount of money sufficient to pay and
discharge the entire indebtedness on such Notes not theretofore delivered to the
Trustee for cancellation for principal, premium, if any, and accrued interest to
the date of maturity or redemption; (ii) no Default or Event of Default shall
have occurred and be continuing on the date of such deposit or shall occur as a
result of such deposit and such deposit will not result in a breach or violation
of, or constitute a default under, any other instrument to which the Company is
a party or by which it is bound; (iii) the Company has paid all sums payable by
it under the Indenture; and (iv) the Company has delivered irrevocable
instructions to the Trustee to apply the deposited money toward the payment of
such Notes at maturity or the redemption date, as the case may be. In addition,
the Company must deliver an Officers' Certificate and an Opinion of Counsel to
the Trustee stating that all conditions precedent to satisfaction and discharge
have been complied with.
MODIFICATION OF THE INDENTURE
The Indenture and the Notes may be amended or supplemented (and compliance
with any provision thereof may be waived) by the Company, the Subsidiary
Guarantors, the Trustee and the Holders of not less than a majority in aggregate
principal amount of Notes then outstanding, except that (i) without the consent
of each Holder affected, no such amendment, supplement or waiver may (1) change
the principal amount of Notes the Holders of which must consent to an amendment,
supplement or waiver of any provision of the Indenture, the Notes or the
Guarantees, (2) reduce the rate or extend the time for payment of interest on
any Notes, (3) reduce the principal amount of any Notes, (4) change the Maturity
Date of any Notes or alter the redemption provisions in the Indenture or the
Notes in a manner adverse to any Holder, (5) make any changes in the provisions
concerning waivers of Defaults or Events of Default by Holders or the rights of
Holders to recover the principal of, interest on or redemption payment with
respect to any Notes, or (6) make the principal of, or interest on, any Notes
payable with anything or in any manner other than as provided for in the
Indenture, the Notes and the Guarantees, (ii) without the consent of Holders of
not less than 75% in aggregate principal amount of Notes then outstanding, no
such amendment, supplement or waiver may change the Change of Control Payment
Date or the purchase price in connection with any repurchase of Notes pursuant
to the covenant described under "-- Change of Control" above in a manner adverse
to any Holder or waive a Default or Event of Default resulting from a failure to
comply with the covenant described under "-- Change of Control" above and (iii)
without the consent of Holders of not less than two thirds in aggregate
principal amount of Notes then outstanding, no such amendment, supplement or
waiver may release any Subsidiary Guarantor from any of its obligations under
its Guarantee or the Indenture other than in accordance with the terms of such
Guarantee and the Indenture.
In addition, the Indenture, the Notes and the Guarantees may be amended by
the Company, the Subsidiary Guarantors and the Trustee (a) to cure any
ambiguity, defect or inconsistency therein; provided that such amendment or
supplement does not adversely affect the rights of any Holder thereof or (b) to
make any other change that does not adversely affect the rights of any Holder
thereunder in any material respect.
THE TRUSTEE
The Indenture provides that the Holders of a majority in principal amount
of the outstanding Notes may remove the Trustee thereunder and appoint a
successor trustee with the Company's consent, by so notifying the trustee to be
so removed and the Company. In addition, the Holders of a majority in principal
amount of the outstanding Notes have the right, subject to certain limitations,
to direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee under the Indenture or of exercising any trust or power
conferred on the Trustee.
The Indenture provides that, in case a Default or an Event of Default has
occurred and is continuing thereunder, the Trustee shall exercise such of the
rights and powers vested in it by the Indenture, and use the same degree of care
and skill in the exercise thereof, as a prudent person would exercise or use
under the circumstances in the conduct of such person's own affairs. Subject to
the latter provision, the Trustee is under no obligation to exercise any of its
rights or powers under the Indenture at the request, order or direction of
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any of the Holders of the Notes, unless they shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and liabilities
which may be incurred thereby. If the Company fails to pay such amounts of
principal of, premium, if any, or interest on, the Notes as shall have become
due and payable upon demand as specified in the Indenture, the Trustee, at the
request of the Holders of a majority in aggregate principal amount of Notes at
the time outstanding, and upon being offered such reasonable indemnity as it may
be required against the costs, expenses and liabilities incurred by it, except
as a result of its negligence or bad faith, shall institute any actions or
proceedings at law or in equity for the collection of the sums so due and
unpaid, and collect in the manner provided by law the monies adjudged or decreed
to be payable.
The Indenture contains limitations on the rights of the Trustee, should it
become a creditor of the Company, to obtain payment of claims in certain cases
or to be realized on certain property received by it in respect of any such
claims, securities or otherwise. The Trustee is permitted to engage in other
transactions; however, if the Trustee acquires any "conflicting interest," it
must eliminate such conflict or resign.
REPORTS
The Indenture provides that the Company will deliver to the Trustee
thereunder within 15 days after the filing of the same with the Commission,
copies of the quarterly and annual report and of the information, documents and
other reports, if any, which the Company is required to file with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act. The Indenture further
provides that, notwithstanding that the Company may not be subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company
will file with the Commission, to the extent permitted, and provide the Trustee
and Holders of the Notes with such annual reports and such information,
documents and other reports specified in Sections 13 and 15(d) of the Exchange
Act. The Company will also comply with the other provisions of TIA Section
314(a).
CERTAIN DEFINITIONS
"Acquired Indebtedness" means (i) with respect to any person that becomes a
Subsidiary of the Company (or is merged into the Company or any of its
Subsidiaries) after the Issue Date, Indebtedness of such person or any of its
Subsidiaries existing at the time such person becomes a Subsidiary of the
Company (or is merged into the Company or any of its Subsidiaries) and which was
not incurred in connection with, or in contemplation of, such person becoming a
Subsidiary of the Company (or being merged into the Company or any of its
Subsidiaries) and (ii) with respect to the Company or any of its Subsidiaries,
any Indebtedness assumed by the Company or any of its Subsidiaries in connection
with the acquisition of any assets from another person (other than the Company
or any of its Subsidiaries), and which was not incurred by such other person in
connection with, or in contemplation of, such acquisition.
"Adjusted Net Assets" means, with respect to the Guarantee of a Subsidiary
Guarantor at any date, the lesser of the amount by which (x) the fair value of
the property of such Subsidiary Guarantor exceeds the total amount of
liabilities, including, without limitation, contingent liabilities (after giving
effect to all other fixed and contingent liabilities incurred or assumed on such
date (other than liabilities of such Subsidiary Guarantor under Indebtedness
which constitutes Subordinated Indebtedness with respect to such Guarantee)),
but excluding liabilities under the Guarantee of such Subsidiary Guarantor, at
such date and (y) the present fair salable value of the assets of such
Subsidiary Guarantor at such date exceeds the amount that will be required to
pay the probable liability of such Subsidiary Guarantor on its debts (after
giving effect to all other fixed and contingent liabilities incurred or assumed
on such date (other than liabilities of such Subsidiary Guarantor under
Indebtedness which constitutes Subordinated Indebtedness with respect to such
Guarantee) and after giving effect to any collection from any Subsidiary of such
Subsidiary Guarantor in respect of the obligations of such Subsidiary under its
Guarantee), excluding debt in respect of the Guarantee of such Subsidiary
Guarantor, as they become absolute and matured.
"Affiliate" means, with respect to any person, any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" when used with respect to any person means the power to direct the
management and
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policies of such person, directly or indirectly, whether through the ownership
of voting securities, by contract or otherwise; and the terms "affiliated,"
"controlling" and "controlled" have meanings correlative to the foregoing. For
purposes of the Indenture, neither BT Securities Corporation nor any of its
Affiliates shall be deemed to be an Affiliate of the Company or any of its
Subsidiaries.
"Asset Sale" means, with respect to any person, any sale, transfer or other
disposition or series of sales, transfers or other dispositions (including,
without limitation, by merger or consolidation or by exchange of assets and
whether by operation of law or otherwise) made by such person or any of its
subsidiaries to any person other than such person or one of its wholly-owned
subsidiaries (or, in the case of a sale, transfer or other disposition by a
Subsidiary, to any person other than the Company or a directly or indirectly
wholly-owned Subsidiary) of any assets of such person or any of its subsidiaries
including, without limitation, assets consisting of any Capital Stock or other
securities held by such person or any of its subsidiaries, and any Capital Stock
issued by any subsidiary of such person, in each case, outside of the ordinary
course of business, excluding, however, any sale, transfer or other disposition,
or series of related sales, transfers or other dispositions (i) involving only
Excluded Assets, (ii) resulting in Net Proceeds to the Company and the
Subsidiaries of $500,000 or less, (iii) pursuant to any foreclosure of assets or
other remedy provided by applicable law to a creditor of the Company or any
Subsidiary with a Lien on such assets, which Lien is permitted under the
Indenture, provided that such foreclosure or other remedy is conducted in a
commercially reasonable manner or in accordance with any Bankruptcy Law, (iv)
involving only Cash Equivalents or inventory in the ordinary course of business
or obsolete equipment in the ordinary course of business consistent with past
practices of the Company; (v) involving only the lease or sub-lease of any real
or personal property in the ordinary course of business; or (vi) the proceeds of
such Asset Sale which are not applied as contemplated in "-- Certain
Covenants -- Limitation on Asset Sales" and which, together with all other such
Asset Sale proceeds, do not exceed $20 million.
"Average Life" means, as of any date of determination, with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
the number of years from the date of determination to the dates of each
successive scheduled principal payments of such debt security multiplied by the
amount of each such principal payment by (ii) the sum of all such principal
payments.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or
foreign law for the relief of debtors.
"Board of Directors" means, with respect to any person, the Board of
Directors of such person or of a subsidiary of such person or any duly
authorized committee of that Board.
"Board Resolution" means, with respect to any person, a duly adopted
resolution of the Board of Directors of such person.
"Capital Stock" means, with respect to any person, any and all shares,
interests, participation or other equivalents (however designated) of corporate
stock, including each class of common stock and preferred stock of such person.
"Capitalized Lease Obligation" means obligations under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP, and the amount of Indebtedness represented by such obligations shall be
the capitalized amount of such obligations determined in accordance with GAAP.
"Cash Equivalents" means (i) obligations issued or unconditionally
guaranteed by the United States of America or any agency thereof, or obligations
issued by any agency or instrumentality thereof and backed by the full faith and
credit of the United States of America, (ii) commercial paper rated the highest
grade by Moody's Investors Service, Inc. and Standard & Poor's Ratings Group and
maturing not more than one year from the date of creation thereof, (iii) time
deposits with, and certificates of deposit and banker's acceptances issued by,
any bank having capital surplus and undivided profits aggregating at least $500
million and maturing not more than one year from the date of creation thereof,
(iv) repurchase agreements that are secured by a perfected security interest in
an obligation described in clause (i) and are with any bank described in clause
(iii), (v) shares of any money market mutual fund that (a) has at least 95% of
its assets invested continuously in the types of investments referred to in
clauses (i) and (ii) above, (b) has net assets of not less than
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$500 million, and (c) has the highest rating obtainable from either Standard &
Poor's Ratings Group or Moody's Investors Service, Inc. and (vi) readily
marketable direct obligations issued by any state of the United States of
America or any political subdivision thereof having one of the two highest
rating categories obtainable from either Moody's Investors Service, Inc. or
Standard & Poor's Ratings Group.
"Change of Control" means the acquisition after the Issue Date, in one or
more transactions, of beneficial ownership (within the meaning of Rule 13d-3
under the Exchange Act) by (i) any person or entity (other than any Permitted
Holder) or (ii) any group of persons or entities (excluding any Permitted
Holders) who constitute a group (within the meaning of Section 13(d)(3) of the
Exchange Act), in either case, of any securities of Holdings or the Company such
that, as a result of such acquisition, such person, entity or group beneficially
owns (within the meaning of Rule 13d-3 under the Exchange Act), directly or
indirectly, 40% or more of the then outstanding voting securities entitled to
vote on a regular basis for a majority of the Board of Directors of the Company
(but only to the extent that such beneficial ownership is not shared with any
Permitted Holder who has the power to direct the vote thereof); provided,
however, that no such Change of Control shall be deemed to have occurred if (A)
the Permitted Holders beneficially own, in the aggregate, at such time, a
greater percentage of such voting securities than such other person, entity or
group or (B) at the time of such acquisition, the Permitted Holders (or any of
them) possess the ability (by contract or otherwise) to elect, or cause the
election, of a majority of the members of the Company's Board of Directors.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means, with respect to any person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of, such person's common stock, whether
outstanding at the Issue Date or issued after the Issue Date, and includes,
without limitation, all series and classes of such common stock.
"Consolidated Net Income" means, with respect to any person, for any
period, the aggregate of the net income (or loss) of such person and its
subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (a) the net income of any other person in which such
person or any of its subsidiaries has an interest (which interest does not cause
the net income of such other person to be consolidated with the net income of
such person and its subsidiaries in accordance with GAAP) shall be included only
to the extent of the amount of dividends or distributions actually paid to such
person or such subsidiary by such other person in such period; (b) the net
income of any subsidiary of such person that is subject to any Payment
Restriction shall be excluded to the extent such Payment Restriction actually
prevented the payment of an amount that otherwise could have been paid to, or
received by, such person or a subsidiary of such person not subject to any
Payment Restriction; and (c)(i) the net income (or loss) of any other person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition, (ii) all gains and losses realized on any Asset Sale, (iii)
all gains realized upon or in connection with or as a consequence of the
issuance of the Capital Stock of such person or any of its subsidiaries and any
gains on pension reversions received by such person or any of its subsidiaries,
(iv) all gains and losses realized on the purchase or other acquisition by such
person or any of its subsidiaries of any securities of such person or any of its
subsidiaries, (v) all gains and losses resulting from the cumulative effect of
any accounting change pursuant to the application of Accounting Principles Board
Opinion No. 20, as amended, (vi) all other extraordinary gains and losses, (vii)
(A) all non-cash charges, (B) up to $10 million of severance costs and (C) any
other restructuring reserves or charges (provided, however, that any cash
payments actually made with respect to the liabilities for which such
restructuring reserves or charges were created shall be deducted from
Consolidated Net Income in the period when made), in each case, incurred by the
Company or any of its Subsidiaries in connection with the Merger, including,
without limitation, the divestiture of the Excluded Assets, (viii) losses
incurred by the Company and its Subsidiaries resulting from earthquakes and (ix)
with respect to the Company, all deferred financing costs written off in
connection with the early extinguishment of any Indebtedness, shall each be
excluded; provided further that solely for the purpose of computing amounts
described in subclause (c) of the first paragraph of the covenant described
under "-- Limitation on Restricted Payments" above, "Consolidated Net Income" of
the Company for any period shall be reduced by the aggregate amount of dividends
paid by the Company or a Subsidiary to Holdings pursuant to clauses (v), (vi)
and (x) of the definition of "Permitted Payments" during such period.
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"Consolidated Net Worth" means, with respect to any person, the total
stockholders' equity (exclusive of any Disqualified Capital Stock) of such
person and its subsidiaries determined on a consolidated basis in accordance
with GAAP.
"Consulting Agreement" means that certain Consulting Agreement dated as of
June 14, 1995 and as in effect on the Issue Date, between the Company, Holdings
and The Yucaipa Companies (as such Consulting Agreement may be amended or
replaced, so long as any amounts paid under any amended or replacement agreement
do not exceed the amounts payable under such Consulting Agreement as in effect
on the Issue Date).
"Credit Agreement" means the Credit Agreement, dated as of June 14, 1995,
as amended and in effect on the Issue Date, by and among Food 4 Less as
borrower, certain of its subsidiaries, Holdings as guarantor, the Lenders
referred to therein and Bankers Trust Company, as administrative agent, as the
same may be amended, extended, renewed, restated, supplemented or otherwise
modified (in each case, in whole or in part, and without limitation as to
amount, terms, conditions, covenants and other provisions) from time to time,
and any agreement governing Indebtedness incurred to refund, replace or
refinance any borrowings and commitments then outstanding or permitted to be
outstanding under such Credit Agreement or any such prior agreement as the same
may be amended, extended, renewed, restated, supplemented or otherwise modified
(in each case, in whole or in part, and without limitation as to amount, terms,
conditions, covenants and other provisions). The term "Credit Agreement" shall
include all related or ancillary documents, including, without limitation, any
guarantee agreements and security documents. The Company shall promptly notify
the Trustee of any such refunding or refinancing of the Credit Agreement.
"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator
or similar official under any Bankruptcy Law.
"Discount Notes" means the 15.25% Senior Discount Notes due 2004 of
Holdings issued pursuant to the Discount Note Indenture, as the same may be
modified or amended from time to time and future refinancings thereof.
"Discount Note Indenture" means the indenture dated as of December 15, 1992
under which the 15.25% Senior Discount Notes due 2004 of Holdings were issued,
as the same may be modified and amended from time to time and refinancings
thereof.
"Disqualified Capital Stock" means, with respect to any person, any Capital
Stock of such person or its subsidiaries that, by its terms, by the terms of any
agreement related thereto or by the terms of any security, into which it is
convertible, puttable or exchangeable is, or upon the happening of any event or
the passage of time would be, required to be redeemed or repurchased by such
person or its subsidiaries, including at the option of the holder thereof, in
whole or in part, or has, or upon the happening of an event or passage of time
would have, a redemption or similar payment due, on or prior to the Maturity
Date of the Notes, or any other Capital Stock of such person or its subsidiaries
designated as Disqualified Capital Stock by such person at the time of issuance;
provided, however, that if such Capital Stock is either (i) redeemable or
repurchasable solely at the option of such person or (ii) issued to employees of
the Company or its Subsidiaries or to any plan for the benefit of such
employees, such Capital Stock shall not constitute Disqualified Capital Stock
unless so designated.
"EBDIT" means, with respect to any person, for any period, the Consolidated
Net Income of such person for such period, plus, in each case to the extent
deducted in computing Consolidated Net Income of such person for such period
(without duplication)(i) provisions for income taxes or similar charges
recognized by such person and its consolidated subsidiaries accrued during such
period, (ii) depreciation and amortization expense of such person and its
consolidated subsidiaries accrued during such period (but only to the extent not
included in Fixed Charges), (iii) Fixed Charges of such person and its
consolidated subsidiaries for such period, (iv) LIFO charges (credits) of such
person and its consolidated subsidiaries for such period, (v) the amount of any
restructuring reserve or charge recorded during such period in accordance with
GAAP, including any such reserve or charge related to the Merger, and (vi) any
other non-cash charges reducing Consolidated Net Income for such period
(excluding any such charge which requires an accrual of or a cash
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reserve for cash charges for any future period), less, without duplication, (i)
non-cash items increasing Consolidated Net Income of such person for such period
(excluding any such items which represent the reversal of any accrual of, or
cash reserve for, anticipated cash charges in any prior period) in each case
determined in accordance with GAAP and (ii) the amount of all cash payments made
by such person or its subsidiaries during such period to the extent that such
cash payment has been provided for in a restructuring reserve or charge referred
to in clause (v) above (and were not otherwise deducted in the computation of
Consolidated Net Income of such person for such period).
"Exchange Act" means the Securities Exchange Act of 1934, as amended and
the rules and regulations promulgated by the Commission thereunder.
"Excluded Assets" means assets of the Company or any Subsidiary required to
be disposed of by applicable regulatory authorities in connection with the
Merger.
"Existing Indebtedness" means the following indebtedness of the Company to
the extent outstanding on the Issue Date: (a) the 10.45% Senior Notes due 2004
issued pursuant to an indenture dated as of June 14, 1995; (b) the 10.45% Senior
Notes due 2000 issued pursuant to an indenture dated as of April 15, 1992; (c)
the 11% Senior Subordinated Notes due 2005 issued pursuant to an indenture dated
as of June 14, 1995; (d) the 9% Senior Subordinated Notes due 2003 issued
pursuant to an indenture dated as of March 30, 1993; (e) the 10 1/4% Senior
Subordinated Notes due 2002 issued pursuant to an indenture dated as of July 29,
1992; (f) the 13.75% Senior Subordinated Notes due 2005 issued pursuant to an
indenture dated as of June 14, 1995, and (g) the 13.75% Senior Subordinated
Notes due 2001 issued pursuant to an indenture dated as of June 15, 1991.
"Fixed Charges" means, with respect to any person, for any period, the
aggregate amount of (i) interest, whether expensed or capitalized, paid, accrued
or scheduled to be paid or accrued during such period (except to the extent
accrued in a prior period) in respect of all Indebtedness of such person and its
consolidated subsidiaries (including (a) original issue discount on any
Indebtedness (including (without duplication), in the case of the Company, any
original issue discount on the Notes but excluding amortization of debt issuance
costs) and (b) the interest portion of all deferred payment obligations,
calculated in accordance with the effective interest method, in each case to the
extent attributable to such period but excluding the amortization of debt
issuance costs), (ii) dividend requirements on Preferred Stock of such person
and its consolidated subsidiaries (whether in cash or otherwise (except
dividends payable in shares of Qualified Capital Stock)) declared or paid or
required to be declared or paid during such period (except to the extent accrued
in a prior period) and excluding items eliminated in consolidation and (iii)
dividends declared or paid or scheduled or required to be declared or paid to
Holdings which are permitted to be paid pursuant to clauses (v) and (vi) of the
definition of "Permitted Payments". For purposes of this definition, (a)
interest on a Capitalized Lease Obligation shall be deemed to accrue at an
interest rate reasonably determined by the Board of Directors of such person (as
evidenced by a Board Resolution) to be the rate of interest implicit in such
Capitalized Lease Obligation in accordance with GAAP, (b) interest on
Indebtedness that is determined on a fluctuating basis shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest of such
Indebtedness in effect on the date Fixed Charges are being calculated, (c)
interest on Indebtedness that may optionally be determined at an interest rate
based upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rate, shall be deemed to have been based upon the rate actually
chosen, or, if none, then based upon such optional rate chosen as the Company
may designate, and (d) Fixed Charges shall be increased or reduced by the net
cost (including amortization of discount) or benefit associated with Interest
Swap Obligations attributable to such period. For purposes of clauses (ii) and
(iii) above, dividend requirements shall be increased to an amount representing
the pre-tax earnings that would be required to cover such dividend requirements;
accordingly, the increased amount shall be equal to a fraction, the numerator of
which is the amount of such dividend requirements and the denominator of which
is one (1) minus the applicable actual combined federal, state, local and
foreign income tax rate of such person and its subsidiaries (expressed as a
decimal), on a consolidated basis, for the fiscal year immediately preceding the
date of the transaction giving rise to the need to calculate Fixed Charges.
"Food 4 Less" means Food 4 Less Supermarkets, Inc., a Delaware corporation,
and its successors, including, without limitation, the Company.
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"Foreign Exchange Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect
against fluctuations in currency values.
"GAAP" means generally accepted accounting principles as in effect in the
United States of America as of June 14, 1995.
"Holdings" means Food 4 Less Holdings, Inc., a Delaware corporation, and
its successors.
"Indebtedness" means with respect to any person, without duplication, (i)
all liabilities, contingent or otherwise, of such person (a) for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of such
person or only to a portion thereof), (b) evidenced by bonds, notes, debentures,
drafts accepted or similar instruments or letters of credit or representing the
balance deferred and unpaid of the purchase price of any property (other than
any such balance that represents an account payable or any other monetary
obligation to a trade creditor (whether or not an Affiliate) created, incurred,
assumed or guaranteed by such person in the ordinary course of business of such
person in connection with obtaining goods, materials or services and due within
twelve months (or such longer period for payment as is customarily extended by
such trade creditor) of the incurrence thereof, which account is not overdue by
more than 90 days, according to the original terms of sale, unless such account
payable is being contested in good faith), or (c) for the payment of money
relating to a Capitalized Lease Obligation; (ii) the maximum fixed repurchase
price of all Disqualified Capital Stock of such person; (iii) reimbursement
obligations of such person with respect to letters of credit; (iv) obligations
of such person with respect to Interest Swap Obligations and Foreign Exchange
Agreements; (v) all liabilities of others of the kind described in the preceding
clause (i), (ii), (iii) or (iv) that such person has guaranteed or that is
otherwise its legal liability; and (vi) all obligations of others secured by a
Lien to which any of the properties or assets (including, without limitation,
leasehold interests and any other tangible or intangible property rights) of
such person are subject, whether or not the obligations secured thereby shall
have been assumed by such person or shall otherwise be such person's legal
liability (provided that if the obligations so secured have not been assumed by
such person or are not otherwise such person's legal liability, such obligations
shall be deemed to be in an amount equal to the fair market value of such
properties or assets, as determined in good faith by the Board of Directors of
such person, which determination shall be evidenced by a Board Resolution). For
purposes of the preceding sentence, the "maximum fixed repurchase price" of any
Disqualified Capital Stock that does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Capital Stock as if
such Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to the Indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock (or any equity security for which it may be exchanged or
converted), such fair market value shall be determined in good faith by the
Board of Directors of such person, which determination shall be evidenced by a
Board Resolution. For purposes of the Indenture, Indebtedness incurred by any
person that is a general partnership (other than non-recourse Indebtedness)
shall be deemed to have been incurred by the general partners of such
partnership pro rata in accordance with their respective interests in the
liabilities of such partnership unless any such general partner shall, in the
reasonable determination of the Board of Directors of the Company, be unable to
satisfy its pro rata share of the liabilities of the partnership, in which case
the pro rata share of any Indebtedness attributable to such partner shall be
deemed to be incurred at such time by the remaining general partners on a pro
rata basis in accordance with their interests.
"Independent Financial Advisor" means a reputable accounting, appraisal or
nationally recognized investment banking or consulting firm that is, in the
reasonable judgment of the Board of Directors of the Company, qualified to
perform the tasks for which such firm has been engaged and disinterested and
independent with respect to the Company and its Affiliates.
"Interest Swap Obligation" means any obligation of any person pursuant to
any arrangement with any other person whereby, directly or indirectly, such
person is entitled to receive from time to time periodic payments calculated by
applying either a fixed or floating rate of interest on a stated notional amount
in exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount; provided that
the term "Interest Swap Obligation" shall also include interest rate exchange,
collar, cap, swap option or similar agreements providing interest rate
protection.
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"Investment" by any person in any other person means any investment by such
person in such other person, whether by share purchase, capital contribution,
loan, advance (other than reasonable loans and advances to employees for moving
and travel expenses, as salary advances or to permit the purchase of Qualified
Capital Stock of Holdings or any of its Subsidiaries and other similar customary
expenses incurred, in each case in the ordinary course of business consistent
with past practice) or similar credit extension constituting Indebtedness of
such other person, and any guarantee of Indebtedness of any other person.
"Issue Date" means the date of original issuance of the Notes under the
Indenture.
"Letter of Credit Obligations" means Indebtedness of the Company or any of
its Subsidiaries with respect to letters of credit issued pursuant to the Credit
Agreement, and for purposes of the definition of the term "Permitted
Indebtedness" above, the aggregate principal amount of Indebtedness outstanding
at any time with respect thereto, shall be deemed to consist of (a) the
aggregate maximum amount then available to be drawn under all such letters of
credit (the determination of such maximum amount to assume compliance with all
conditions for drawing), and (b) the aggregate amount that has then been paid
by, and not reimbursed to, the issuers under such letters of credit.
"Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property, or a security interest of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof, any option or
other agreement to sell which is intended to constitute or create a security
interest, mortgage, pledge or lien, and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction); provided that in no event shall an operating lease be
deemed to constitute a Lien under the Indenture.
"Maturity Date" means June 15, 2004.
"Merger" means (i) the merger of Food 4 Less Supermarkets, Inc. into Ralphs
Supermarkets, Inc. (with Ralphs Supermarkets, Inc. surviving such merger)
pursuant to the Merger Agreement and (ii) immediately following the merger
described in clause (i) of this definition, the merger of Ralphs Grocery Company
into Ralphs Supermarkets, Inc. (with Ralphs Supermarkets, Inc. surviving such
merger and changing its name to "Ralphs Grocery Company" in connection with such
merger).
"Merger Agreement" means the Agreement and Plan of Merger, dated September
14, 1994, by and among Holdings, Food 4 Less, Inc., Food 4 Less, RSI and the
stockholders of RSI, as such agreement was in effect on June 14, 1995.
"Net Cash Proceeds" means the Net Proceeds of any Asset Sale received in
the form of cash or Cash Equivalents.
"Net Proceeds" means (a) in the case of any Asset Sale or any issuance and
sale by any person of Qualified Capital Stock, the aggregate net proceeds
received by such person after payment of expenses, taxes, commissions and the
like incurred in connection therewith (and, in the case of any Asset Sale, net
of the amount of cash applied to repay Indebtedness secured by the asset
involved in such Asset Sale), whether such proceeds are in cash or in property
(valued at the fair market value thereof at the time of receipt as determined
with respect to any Asset Sale resulting in Net Proceeds in excess of $5 million
in good faith by the Board of Directors of such person, which determination
shall be evidenced by a Board Resolution) and (b) in the case of any conversion
or exchange of any outstanding Indebtedness or Disqualified Capital Stock of
such person for or into shares of Qualified Capital Stock of the Company, the
sum of (i) the fair market value of the proceeds received by the Company in
connection with the issuance of such Indebtedness or Disqualified Capital Stock
on the date of such issuance and (ii) any additional amount paid by the Holder
to the Company upon such conversion or exchange.
"New Discount Debenture Indenture" means the indenture dated as of June 14,
1995 under which the 13 5/8% Senior Discount Debentures due 2005 of Holdings
were issued, as the same may be modified and amended from time to time and
refinancings thereof.
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"New Discount Debentures" means the 13 5/8% Senior Discount Debentures due
2005 of Holdings issued pursuant to the New Discount Debenture Indenture, as the
same may be modified or amended from time to time and future refinancings
thereof.
"Operating Coverage Ratio" means, with respect to any person, the ratio of
(1) EBDIT of such person for the period (the "Pro Forma Period") consisting of
the most recent four full fiscal quarters for which financial information in
respect thereof is available immediately prior to the date of the transaction
giving rise to the need to calculate the Operating Coverage Ratio (the
"Transaction Date") to (2) the aggregate Fixed Charges of such person for the
fiscal quarter in which the Transaction Date occurs and the three fiscal
quarters immediately subsequent to such fiscal quarter (the "Forward Period")
reasonably anticipated by the Board of Directors of such person to become due
from time to time during such period. In addition to, but without duplication
of, the foregoing, for purposes of this definition, "EBDIT" shall be calculated
after giving effect (without duplication), on a pro forma basis for the Pro
Forma Period (but no longer), to (a) any Investment, during the period
commencing on the first day of the Pro Forma Period to and including the
Transaction Date (the "Reference Period"), in any other person that, as a result
of such Investment, becomes a subsidiary of such person, (b) the acquisition,
during the Reference Period (by merger, consolidation or purchase of stock or
assets) of any business or assets, which acquisition is not prohibited by the
Indenture, and (c) any sales or other dispositions of assets (other than sales
of inventory in the ordinary course of business) occurring during the Reference
Period, in each case as if such incurrence, Investment, repayment, acquisition
or asset sale had occurred on the first day of the Reference Period. In
addition, for purposes of this definition, "Fixed Charges" shall be calculated
after giving effect (without duplication), on a pro forma basis for the Forward
Period, to any Indebtedness incurred or repaid on or after the first day of the
Forward Period and prior to the Transaction Date. If such person or any of its
subsidiaries directly or indirectly guarantees any Indebtedness of a third
person, the Operating Coverage Ratio shall give effect to the incurrence of such
Indebtedness as if such person or subsidiary had directly incurred such
guaranteed Indebtedness.
"operating lease" means any lease the obligations under which do not
constitute Capitalized Lease Obligations.
"Pari Passu Indebtedness" means, with respect to the Company or any
Subsidiary Guarantor, Indebtedness of such person which ranks pari passu in
right of payment to the Notes (whether or not secured by any Lien) or the
Guarantee of such Subsidiary Guarantor, as the case may be.
"Payment Restriction" means, with respect to a subsidiary of any person,
any encumbrance, restriction or limitation, whether by operation of the terms of
its charter or by reason of any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation, on the ability of (i) such subsidiary
to (a) pay dividends or make other distributions on its Capital Stock or make
payments on any obligation, liability or Indebtedness owed to such person or any
other subsidiary of such person, (b) make loans or advances to such person or
any other subsidiary of such person or (c) transfer any of its properties or
assets to such person or any other subsidiary of such persons, or (ii) such
person or any other subsidiary of such person to receive or retain any such (a)
dividends, distributions or payments, (b) loans or advances or (c) transfer of
properties or assets.
"Permitted Holder" means (i) Food 4 Less Equity Partners, L.P. and The
Yucaipa Companies, or any entity controlled thereby or any of the partners
thereof, (ii) Apollo Advisors, L.P., Lion Advisors, L.P. or any entity
controlled thereby or any of the partners thereof, (iii) an employee benefit
plan of the Company, or any of its subsidiaries or any participant therein, (iv)
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company or any of its subsidiaries or (v) any Permitted Transferee of any
of the foregoing persons.
"Permitted Indebtedness" means (a) Indebtedness of the Company and its
Subsidiaries (and the Company and each Subsidiary (to the extent it is not an
obligor) may guarantee such Indebtedness) pursuant to (i) the Term Loans in an
aggregate principal amount at any time outstanding not to exceed $600 million
less the aggregate amount of all principal repayments thereunder pursuant to and
in accordance with the covenant described under "-- Certain
Covenants -- Limitation on Asset Sales" above subsequent to June 14, 1995, (ii)
the revolving credit facility under the Credit Agreement (including the Letter
of Credit
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Obligations) in an aggregate principal amount at any time outstanding not to
exceed $325 million, less all permanent reductions thereunder pursuant to and in
accordance with the covenant described under "-- Certain Covenants -- Limitation
on Asset Sales" above, and (iii) any Indebtedness incurred under the Credit
Agreement pursuant to and in compliance with (A) clause (m) of this definition
and (B) the covenant described above under the caption "-- Limitation on
Incurrence of Additional Indebtedness" above (other than Permitted Indebtedness
that is not incurred pursuant to clause (m) or this clause (a) of this
definition); (b) Indebtedness of the Company or a Subsidiary Guarantor owed to
and held by the Company or a Subsidiary Guarantor; (c) Indebtedness incurred by
the Company or any Subsidiary in connection with the purchase or improvement of
property (real or personal) or equipment or other capital expenditures in the
ordinary course of business (including for the purchase of assets or stock of
any retail grocery store or business) or consisting of Capitalized Lease
Obligations, provided that (i) at the time of the incurrence thereof, such
Indebtedness, together with any other Indebtedness incurred during the most
recently completed four fiscal quarter period in reliance upon this clause (c)
does not exceed, in the aggregate, 3% of net sales of the Company and its
Subsidiaries during the most recently completed four fiscal quarter period on a
consolidated basis and (ii) such Indebtedness, together with all then
outstanding Indebtedness incurred in reliance upon this clause (c) does not
exceed, in the aggregate, 3% of the aggregate net sales of the Company and its
Subsidiaries during the most recently completed twelve fiscal quarter period on
a consolidated basis (calculated on a pro forma basis if the date of incurrence
is prior to the end of the twelfth fiscal quarter following the Merger); (d)
Indebtedness incurred by the Company or any Subsidiary in connection with
capital expenditures in an aggregate principal amount not exceeding $150 million
(less the aggregate principal amount of any Indebtedness incurred by the Company
or any Subsidiary on or prior to the Issue Date in reliance on clause (d) of the
definition of "Permitted Indebtedness" under the indenture governing the 1995
Senior Notes), provided that such capital expenditures relate solely to the
integration of the operations of RSI, Food 4 Less and their respective
subsidiaries as described in this Prospectus; (e) Indebtedness of the Company
incurred under certain Foreign Exchange Agreements and Interest Swap
Obligations; (f) guarantees incurred in the ordinary course of business by the
Company or a Subsidiary of Indebtedness of any other person in aggregate not to
exceed $25 million at any time outstanding; (g) guarantees by the Company or a
Subsidiary Guarantor of Indebtedness incurred by a wholly-owned Subsidiary
Guarantor so long as the incurrence of such Indebtedness incurred by such
wholly-owned Subsidiary Guarantor is permitted under the terms of the Indenture;
(h) Refinancing Indebtedness; (i) Indebtedness for letters of credit relating to
workers' compensation claims and self-insurance or similar requirements in the
ordinary course of business; (j) Existing Indebtedness and other Indebtedness
outstanding on the Issue Date; (k) Indebtedness arising from guarantees of
Indebtedness of the Company or any Subsidiary or other agreements of the Company
or a Subsidiary providing for indemnification, adjustment of purchase price or
similar obligations, in each case, incurred or assumed in connection with the
disposition of any business, assets or Subsidiary, other than guarantees of
Indebtedness incurred by any person acquiring all or any portion of such
business, assets or Subsidiary for the purpose of financing such acquisition;
provided that the maximum aggregate liability in respect of all such
Indebtedness shall at no time exceed the gross proceeds actually received by the
Company and its Subsidiaries in connection with such disposition; (l)
obligations in respect of performance bonds and completion guarantees provided
by the Company or any Subsidiary in the ordinary course of business; and (m)
additional Indebtedness of the Company and the Subsidiary Guarantors in an
amount not to exceed $175 million at any time outstanding.
"Permitted Investment" by any person means (i) any Related Business
Investment, (ii) Investments in securities not constituting cash or Cash
Equivalents and received in connection with an Asset Sale made pursuant to the
provisions of the covenant described under "-- Certain Covenants -- Limitation
on Asset Sales" above or any other disposition of assets not constituting an
Asset Sale by reason of the $500,000 threshold contained in the definition
thereof, (iii) cash and Cash Equivalents, (iv) Investments existing on the Issue
Date, (v) Investments specifically permitted by and made in accordance with the
provisions of the covenant described under "-- Certain Covenants -- Limitation
on Transactions with Affiliates," (vi) Investments by Subsidiary Guarantors in
other Subsidiary Guarantors or the Company and Investments by the Company in a
Subsidiary Guarantor in the form of Indebtedness owed to the Company by such
Subsidiary Guarantor and Investments by Subsidiaries which are not Subsidiary
Guarantors in other
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Subsidiaries which are not Subsidiary Guarantors and (vii) additional
Investments in an aggregate amount not exceeding $15 million.
"Permitted Liens" shall mean (i) Liens for taxes, assessments and
governmental charges or claims not yet due or which are being contested in good
faith by appropriate proceedings promptly instituted and diligently conducted
and if a reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor; (ii) statutory Liens of
landlords and carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen or other like Liens arising in the ordinary course of business,
deposits made to obtain the release of such Liens, and with respect to amounts
not yet delinquent for a period of more than 60 days or being contested in good
faith by an appropriate process of law, and for which a reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been
made; (iii) Liens incurred or pledges or deposits made in the ordinary course of
business to secure obligations under workers' compensation, unemployment
insurance and other types of social security or similar legislation; (iv) Liens
incurred or deposits made to secure the performance of tenders, bids, leases,
statutory obligations, surety and appeal bonds, government contracts,
performance and return of money bonds and other obligations of a like nature
incurred in the ordinary course of business (exclusive of obligations for the
payment of borrowed money); (v) easements, rights-of-way, zoning or other
restrictions, minor defects or irregularities in title and other similar charges
or encumbrances not interfering in any material respect with the business of the
Company or any of its Subsidiaries incurred in the ordinary course of business;
(vi) Liens upon specific items of inventory or other goods and proceeds of any
person securing such person's obligations in respect of bankers' acceptances
issued or created for the account of such person to facilitate the purchase,
shipment or storage of such inventory or other goods in the ordinary course of
business; (vii) Liens securing reimbursement obligations with respect to letters
of credit which encumber documents and other property relating to such letters
of credit and the products and proceeds thereof; (viii) Liens in favor of
customs and revenue authorities arising as a matter of law to secure payment of
nondelinquent customs duties in connection with the importation of goods; (ix)
judgment and attachment Liens not giving rise to a Default or Event of Default;
(x) leases or subleases granted to others not interfering in any material
respect with the business of the Company or any Subsidiary; (xi) Liens
encumbering customary initial deposits and margin deposits, and other Liens
incurred in the ordinary course of business that are within the general
parameters customary in the industry, in each case securing Indebtedness under
Interest Swap Obligations and Foreign Exchange Agreements and forward contracts,
option futures contracts, futures options or similar agreements or arrangements
designed to protect the Company or any Subsidiary from fluctuations in the price
of commodities; (xii) Liens encumbering deposits made in the ordinary course of
business to secure nondelinquent obligations arising from statutory, regulatory,
contractual or warranty requirements of the Company or its Subsidiaries for
which a reserve or other appropriate provision, if any, as shall be required by
GAAP shall have been made; (xiii) Liens arising out of consignment or similar
arrangements for the sale of goods entered into by the Company or any Subsidiary
in the ordinary course of business in accordance with past practices; (xiv) any
interest or title of a lessor in the property subject to any lease, whether
characterized as capitalized or operating other than any such interest or title
resulting from or arising out of a default by the Company or any Subsidiary of
its obligations under such lease; (xv) Liens arising from filing UCC financing
statements for precautionary purposes in connection with true leases of personal
property that are otherwise permitted under the Indenture and under which the
Company or any Subsidiary is lessee; and (xvi) additional Liens securing
Indebtedness at any one time outstanding not exceeding the sum of (i) $25
million and (ii) 10% of the aggregate Consolidated Net Income of the Company
earned subsequent to June 14, 1995 and on or prior to such time.
"Permitted Payments" means (i) any payment by the Company or any
Subsidiary, or any dividend by the Company or any Subsidiary to Holdings the
proceeds of which are utilized by Holdings to make payments, to The Yucaipa
Companies or the principals or any Affiliates thereof for consulting,
management, investment banking or similar services, or for reimbursement of
losses, costs and expenses pursuant to the Consulting Agreement, (ii) any
payment by the Company or any Subsidiary pursuant to the Second Amended and
Restated Tax Sharing Agreement, dated as of June 14, 1995, by and among the
Company, all direct and indirect subsidiaries, and Holdings as such Tax Sharing
Agreement may be amended from time to time, so long as the payment thereunder by
the Company and its Subsidiaries shall not exceed the amount of taxes the
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Company would be required to pay if it were the filing person for all applicable
taxes, (iii) any payment by the Company or any Subsidiary pursuant to the
Transfer and Assumption Agreement, dated as of June 23, 1989, between Food 4
Less and Holdings, as in effect on the Issue Date, (iv) any payment by the
Company or any Subsidiary, or any dividend by the Company or any Subsidiary to
Holdings the proceeds of which are used by Holdings to make payments, (a) in
connection with repurchases of outstanding shares of the Company's or Holdings'
Common Stock following the death, disability or termination of employment of
management stockholders, and (b) of amounts required to be paid by Holdings, the
Company or any of its Subsidiaries to participants or former participants in
employee benefit plans upon termination of employment by such participants, as
provided in the documents related thereto, in an aggregate amount (for both
clauses (a) and (b)) not to exceed $10 million in any Yearly Period (provided
that any unused amounts may be carried over to any subsequent Yearly Period
subject to a maximum amount of $20 million in any Yearly Period), (v) from and
after June 30, 1998, payments of cash dividends or loans to Holdings in an
amount sufficient to enable Holdings to make payments of interest required to be
made in respect of the Discount Notes in an amount not to exceed the amount
payable thereunder in accordance with the terms thereof in effect on June 14,
1995, (vi) from and after June 15, 2000, payments of cash dividends to Holdings
in an amount sufficient to enable Holdings to make payments of interest required
to be made in respect of the Seller Debentures and the New Discount Debentures
in an amount not to exceed the amount payable thereunder in accordance with the
terms thereof in effect on June 14, 1995, (vii) dividends or other payments to
Holdings sufficient to enable Holdings to perform accounting, legal, corporate
reporting and administrative functions in the ordinary course of business or to
pay required fees and expenses in connection with the Merger and the
registration under applicable laws and regulations of its debt or equity
securities, (viii) dividends by the Company to Holdings of the Net Cash Proceeds
of an Asset Sale to the extent that (a) the Company or any of the Subsidiaries
is required pursuant to the Indenture to utilize such Net Cash Proceeds to repay
(or offer to repay) the Notes (and has complied with all such requirements), (b)
such Net Cash Proceeds are not required to be and have not been utilized to
repay outstanding Indebtedness of the Company or any of the Subsidiaries and (c)
Holdings is required pursuant to the documents governing any outstanding
Indebtedness of Holdings to utilize such Net Cash Proceeds to repay such
Indebtedness (it being understood that only the amounts not utilized as
described in clauses (a) and (b) of this clause (viii) shall be permitted to be
distributed to Holdings pursuant to this clause (viii)), (ix) the repurchase by
the Company of up to $10.0 million aggregate principal amount of Old RGC Notes,
at a repurchase price of 101% of the principal amount thereof plus accrued
interest to the repurchase date, pursuant to the "change of control purchase
offer" provisions set forth in section 1014 of the indentures governing the Old
RGC Notes as in effect on June 14, 1995, and (x) for so long as the sole
business activity of such partnership is to acquire, hold, sell, exchange,
transfer or otherwise dispose of all or any portion of the New Discount
Debentures and to manage its investment in the New Discount Debentures, any
payment by the Company or any Subsidiary, or any dividend or loan to Holdings,
the proceeds of which are utilized by Holdings to fund ongoing costs and
expenses of RGC Partners, L.P. pursuant to the Subscription Agreement and the
Registration Rights Agreement.
"Permitted Transferees" means, with respect to any person, (i) any
Affiliate of such person, (ii) the heirs, executors, administrators,
testamentary trustees, legatees or beneficiaries of any such person, (iii) a
trust, the beneficiaries of which, or a corporation or partnership, the
stockholders or general or limited partners of which, include only such person
or his or her spouse or lineal descendants, in each case to whom such person has
transferred the beneficial ownership of any securities of the Company, (iv) any
investment account whose investment managers and investment advisors consist
solely of such person and/or Permitted Transferees of such person and (v) any
investment fund or investment entity that is a subsidiary of such person or a
Permitted Transferee of such person.
"Plan of Liquidation" means, with respect to any person, a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and all
or substantially all of the remaining assets of such person to holders of
Capital Stock of such person.
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"Preferred Stock" means, with respect to any person, Capital Stock of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such person, over shares
of Capital Stock of any other class of such person.
"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms of the Indenture, a calculation in accordance with
Article 11 of Regulation S-X under the Securities Act of 1933, as amended, as
interpreted by the Company's chief financial officer or Board of Directors in
consultation with its independent certified public accountants.
"Public Equity Offering" means an underwritten public offering of Common
Stock of the Company or Holdings pursuant to a registration statement filed with
the Commission in accordance with the Securities Act which public equity
offering results in gross proceeds to the Company or Holdings, as the case may
be, of not less than $20 million; provided, however, that in the case of a
Public Equity Offering by Holdings, Holdings contributes to the capital of the
Company net cash proceeds in an amount sufficient to redeem Notes called for
redemption in accordance with the terms thereof.
"Qualified Capital Stock" means, with respect to any person, any Capital
Stock of such person that is not Disqualified Capital Stock.
"Refinancing Indebtedness" means, with respect to any person, Indebtedness
of such person issued in exchange for, or the proceeds from the issuance and
sale or disbursement of which are used to substantially concurrently repay,
redeem, refund, refinance, discharge or otherwise retire for value, in whole or
in part (collectively, "repay"), or constituting an amendment, modification or
supplement to, or a deferral or renewal of (collectively, an "amendment"), any
Indebtedness of such person existing on the Issue Date or Indebtedness (other
than Permitted Indebtedness, except Permitted Indebtedness incurred pursuant to
clauses (c), (d), (h) and (j) of the definition thereof) incurred in accordance
with the Indenture (a) in a principal amount (or, if such Refinancing
Indebtedness provides for an amount less than the principal amount thereof to be
due and payable upon the acceleration thereof, with an original issue price) not
in excess of (without duplication) (i) the principal amount or the original
issue price, as the case may be, of the Indebtedness so refinanced (or, if such
Refinancing Indebtedness refinances Indebtedness under a revolving credit
facility or other agreement providing a commitment for subsequent borrowings,
with a maximum commitment not to exceed the maximum commitment under such
revolving credit facility or other agreement) plus (ii) unpaid accrued interest
on such Indebtedness plus (iii) premiums, penalties, fees and expenses actually
incurred by such person in connection with the repayment or amendment thereof
and (b) with respect to Refinancing Indebtedness that repays or constitutes an
amendment to Subordinated Indebtedness, such Refinancing Indebtedness (x) shall
not have any fixed mandatory redemption or sinking fund requirement in an amount
greater than or at a time prior to the amounts and times specified in such
repaid or amended Subordinated Indebtedness, except to the extent that any such
requirement applies on a date after the Maturity Date of the Notes and (y) shall
contain subordination and default provisions no less favorable in any material
respect to Holders of the Notes than those contained in such repaid or amended
Subordinated Indebtedness.
"Registration Rights Agreement" means that certain Registration Rights
Agreement by and between RGC Partners, L.P., Holdings and Food 4 Less, as such
Registration Rights Agreement may be amended or replaced, so long as any amounts
paid by Holdings and the Company under any amended or replacement agreement do
not exceed the amounts payable by Holdings and the Company under such
Registration Rights Agreement as in effect on June 14, 1995.
"Related Business Investment" means (i) any Investment by a person in any
other person a majority of whose revenues are derived from the operation of one
or more retail grocery stores or supermarkets or any other line of business
engaged in by the Company or any of its Subsidiaries as of the Issue Date; (ii)
any Investment by such person in any cooperative or other supplier, including,
without limitation, any joint venture which is intended to supply any product or
service useful to the business of the Company and its Subsidiaries as it is
conducted as of the Issue Date and as such business may thereafter evolve or
change; and (iii) any
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capital expenditure or Investment, in each case reasonably related to the
business of the Company and its Subsidiaries as it is conducted as of the Issue
Date and as such business may thereafter evolve or change.
"Restricted Debt Prepayment" means any purchase, redemption, defeasance
(including, but not limited to, in substance or legal defeasance) or other
acquisition or retirement for value, directly or indirectly, by the Company or a
Subsidiary, prior to the scheduled maturity or prior to any scheduled repayment
of principal or sinking fund payment, as the case may be, in respect of
Subordinated Indebtedness.
"Restricted Payment" means any (i) Stock Payment, (ii) Investment (other
than a Permitted Investment) or (iii) Restricted Debt Prepayment.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Seller Debentures" means the 13 5/8% Senior Subordinated Pay-in-Kind
Debentures due 2007 of Holdings issued pursuant to the Seller Debenture
Indenture, including any additional 13 5/8% Senior Subordinated Pay-in-Kind
Debentures due 2007 issued as interest thereon, in each case, as such Seller
Debentures may be modified or amended from time to time and future refinancings
thereof.
"Seller Debenture Indenture" means the indenture between Holdings and
Norwest Minnesota, National Association, as trustee, dated as of June 14, 1995
under which the 13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 of
Holdings were issued, as the same may be modified and amended from time to time
and refinancings thereof.
"Significant Stockholder" means, with respect to any person, any other
person who is the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of more than 10% of any class of equity securities of such person
that are entitled to vote on a regular basis for the election of directors of
such person.
"Significant Subsidiary" means each subsidiary of the Company that is
either (a) a "significant subsidiary" as defined in Rule 1-02(v) of Regulation
S-X under the Securities Act of 1933, as amended, and the Exchange Act (as such
regulation is in effect on the Issue Date) or (b) material to the financial
condition or results of operations of the Company and its Subsidiaries taken as
a whole.
"Stock Payment" means, with respect to any person, (a) the declaration or
payment by such person, either in cash or in property, of any dividend on
(except, in the case of the Company, dividends payable solely in Qualified
Capital Stock of the Company), or the making by such person or any of its
subsidiaries of any other distribution in respect of, such person's Qualified
Capital Stock or any warrants, rights or options to purchase or acquire shares
of any class of such Capital Stock (other than exchangeable or convertible
Indebtedness of such person), or (b) the redemption, repurchase, retirement or
other acquisition for value by such person or any of its subsidiaries, directly
or indirectly, of such person's Qualified Capital Stock (and, in the case of a
Subsidiary, Qualified Capital Stock of the Company) or any warrants, rights or
options to purchase or acquire shares of any class of such Capital Stock (other
than exchangeable or convertible Indebtedness of such person), other than, in
the case of the Company, through the issuance in exchange therefor solely of
Qualified Capital Stock of the Company; provided, however, that in the case of a
Subsidiary, the term "Stock Payment" shall not include any such payment with
respect to its Capital Stock or warrants, rights or options to purchase or
acquire shares of any class of its Capital Stock that are owned solely by the
Company or a wholly-owned Subsidiary.
"Subscription Agreement" means that certain Subscription Agreement, between
RGC Partners, L.P., Holdings, Food 4 Less and the partnership investors listed
on Exhibit A thereto, as such Subscription Agreement may be amended or replaced,
so long as any amounts paid by Holdings and the Company under any amended or
replacement agreement do not exceed the amounts payable by Holdings and the
Company under such Subscription Agreement as in effect on June 14, 1995.
"Subordinated Indebtedness" means, with respect to the Company or any
Subsidiary Guarantor, Indebtedness of such person which is subordinated in right
of payment to the Notes or the Guarantee of such Subsidiary Guarantor, as the
case may be.
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<PAGE> 104
"subsidiary" of any person means (i) a corporation a majority of whose
Capital Stock with voting power, under ordinary circumstances, to elect
directors is, at the date of determination, directly or indirectly, owned by
such person, by one or more subsidiaries of such person or by such person and
one or more subsidiaries of such person or (ii) a partnership in which such
person or a subsidiary of such person is, at the date of determination, a
general partner of such partnership, but only if such person or its subsidiary
is entitled to receive more than fifty percent of the assets of such partnership
upon its dissolution, or (iii) any other person (other than a corporation or a
partnership) in which such person, a subsidiary of such person or such person
and one or more subsidiaries of such person, directly or indirectly, at the date
of determination, has (x) at least a majority ownership interest or (y) the
power to elect or direct the election of a majority of the directors or other
governing body of such person.
"Subsidiary" means any subsidiary of the Company.
"Subsidiary Guarantor" means (i) each of Alpha Beta Company, Bay Area
Warehouse Stores, Inc., Bell Markets, Inc., Cala Co., Cala Foods, Inc., Falley's
Inc., Food 4 Less of California, Inc., Food 4 Less Merchandising, Inc., Food 4
Less GM, Inc., Food 4 Less of Southern California, Inc., and Crawford Stores,
Inc., (ii) each of the Company's Subsidiaries which becomes a guarantor of the
Notes in compliance with the provisions set forth under "-- Certain
Covenants -- Guarantees of Certain Indebtedness," and (iii) each of the
Company's Subsidiaries executing a supplemental indenture in which such
Subsidiary agrees to be bound by the terms of the Indenture.
"Term Loans" means the term loan facility under the Credit Agreement and
any agreement governing Indebtedness incurred to refund, replace or refinance
any borrowings outstanding under such facility or under any prior refunding,
replacement or refinancing thereof (in each case, in whole or in part, and
without limitation as to amount, terms, conditions, covenants and other
provisions).
"Yearly Period" means each fiscal year of the Company.
"The Yucaipa Companies" means The Yucaipa Companies, a California general
partnership, or any successor thereto which is an affiliate of Ronald W. Burkle
or his Permitted Transferees and which has been established for the sole purpose
of changing the form of The Yucaipa Companies from that of a partnership to that
of a limited liability company or any other form of entity which is not
materially adverse to the rights of the Holders under the Indenture.
DESCRIPTION OF THE NEW CREDIT FACILITY
The following is a summary of the material terms and conditions of the New
Credit Facility. This summary does not purport to be a complete description of
the New Credit Facility and is subject to the detailed provisions of the loan
agreement (the "Loan Agreement") and various related documents entered into in
connection with the New Credit Facility. A copy of the Loan Agreement is
available upon request from the Company.
GENERAL
The New Credit Facility was entered into June 14, 1995 and provided for (i)
term loans in the aggregate amount of $600 million, comprised of a $275 million
tranche with a six year term (the "Tranche A Loan"), a $108.3 million tranche
with a seven year term (the "Tranche B Loan"), a $108.3 million tranche with an
eight year term (the "Tranche C Loan"), and a $108.4 million tranche with a nine
year term (the "Tranche D Loan"); and (ii) the $325 million New Revolving
Facility under which working capital loans may be made and commercial or letters
of credit in the maximum aggregate amount of up to $150 million may be issued,
under which approximately $88.2 million of letters of credit were outstanding as
of June 26, 1996. On June 6, 1996, after giving effect to the application of the
proceeds from the Offering, the outstanding principal amount of the Tranche A
Loan, Tranche B Loan, Tranche C Loan and Tranche D Loan was $243.8 million,
$99.6 million, $100.2 million and $100.4 million, respectively.
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<PAGE> 105
Proceeds of the New Term Loans and loans under the Revolving Credit
Facility, together with proceeds from the other debt and equity financing
transactions completed concurrently, were used to fund the cash requirements for
the acquisition of RSI, refinance existing indebtedness of Ralphs and Food 4
Less, and pay various fees, expenses and other costs associated with the Merger
and the related financing. The New Revolving Facility is used to provide for the
working capital requirements and general corporate purposes of the Company and
to issue commercial and standby letters of credit to support workers'
compensation contingencies and for other corporate purposes.
INTEREST RATE; FEES
Borrowings under (i) the New Revolving Facility and the Tranche A Loan bear
interest at a rate equal to the Base Rate (as defined in the Loan Agreement)
plus 1.50% per annum or the reserve adjusted Euro-Dollar Rate (as defined in the
Loan Agreement) plus 2.75% per annum; (ii) the Tranche B Loan bear interest at
the Base Rate plus 2.00% per annum or the reserve adjusted Euro-Dollar Rate plus
3.25% per annum; (iii) the Tranche C Loan bear interest at the Base Rate plus
2.50% per annum or the reserve adjusted Euro-Dollar Rate plus 3.75% per annum;
and (iv) the Tranche D Loan bear interest at the Base Rate plus 2.75% per annum
or the reserve adjusted Euro-Dollar Rate plus 4.00% per annum, in each case as
selected by the Company. Applicable interest rates on Tranche A Loan and the New
Revolving Facility and the fees payable under the New Revolving Facility on
letters of credit, will be reduced by up to 0.50% per annum after the New Term
Loans have been reduced by certain amounts and if the Company meets certain
financial tests. Up to $30 million of the New Revolving Facility is available as
a swingline facility and loans outstanding under the swingline facility bear
interest at the Base Rate plus 1.00% per annum (subject to adjustment as
described in the preceding sentence). After the occurrence of a default under
the New Credit Facility, interest will accrue at the rate equal to the rate on
loans bearing interest at the rate determined by reference to the Base Rate plus
an additional 2.00% per annum. The Company pays the issuing bank a fee of 0.25%
on each standby letter of credit and each commercial letter of credit and pays
the lenders under the New Credit Facility a fee equal to the margin on
Eurodollar Rate loans under the Revolving Credit Facility (the "Eurodollar
Margin") for standby letters of credit and a fee equal to the Eurodollar Margin
minus 1% for commercial letters of credit. Each of these fees is calculated
based on the amount available to be drawn under a letter of credit. In addition,
the Company will pay a commitment fee of 0.50% per annum on the unused portions
of the New Revolving Facility and for purposes of calculating this fee, loans
under the swingline facility shall not be deemed to be outstanding. The New
Credit Facility required the Company to enter into hedging agreements to limit
its exposure to increases in interest rates for a period of not less than two
years in an aggregate notional amount of not less than $300 million. The New
Credit Facility may be prepaid in whole or in part without premium or penalty.
AMORTIZATION; PREPAYMENTS
The Tranche A Loan will mature on June 14, 2001 and will be subject to
amortization, commencing on September 15, 1996 on a quarterly basis in aggregate
annual amounts (after giving effect to application of proceeds of the Offering)
of $9.5 million in the second year, $53.2 million in the third year, $56.8
million in the fourth year, $60.4 million in the fifth year, and $63.9 million
in the sixth year. The Tranche B Loan will mature on June 14, 2002 and will be
subject to amortization on a quarterly basis in aggregate annual amounts (after
giving effect to application of proceeds of the Offering) of $1.0 million for
the first six years and $94.3 million in the seventh year. The Tranche C Loan
will mature on June 14, 2003 and will be subject to amortization on a quarterly
basis in aggregate annual amounts (after giving effect to application of
proceeds of the Offering) of $1.0 million for the first seven years and $93.9
million in the eighth year. The Tranche D Loan will mature on June 14, 2004 and
will be subject to amortization on a quarterly basis in aggregate annual amounts
(after giving effect to application of proceeds of the Offering) of $1.0 million
for the first eight years and $93.0 million in the ninth year. The New Revolving
Facility will mature on June 14, 2001. The Company is required to reduce loans
outstanding under the New Revolving Facility to (i) $150 million for a period of
not less than 30 consecutive days during the period from the fourth Fiscal
Quarter in Fiscal Year 1996 to the first Fiscal Quarter in Fiscal Year 1997,
(ii) to $110 million for a period of not less than 30 consecutive days during
the period from the fourth Fiscal Quarter in Fiscal Year 1997 to the first
Fiscal Quarter in Fiscal Year
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<PAGE> 106
1998 and (iii) to $75 million for a period not less than 30 consecutive days
during each subsequent 12-month period. The Company is required to make certain
prepayments, subject to certain exceptions, on the New Credit Facility with 75%
(100% for Fiscal Years 1995, 1996 and 1997) of Consolidated Excess Cash Flow (as
defined in the Loan Agreement) and with the proceeds from certain asset sales,
issuances of debt and equity securities and any pension plan reversion. Such
prepayments will be allocated pro rata between the Tranche A Loans, Tranche B
Loans, Tranche C Loans and the Tranche D Loans and to scheduled amortization
payments of the Tranche A Loans, Tranche B Loans, Tranche C Loans, and Tranche D
Loans pro rata. Mandatory prepayments on the Tranche B Loans, the Tranche C
Loans and the Tranche D Loans will be used to make an offer to repay such Loans
and to the extent not accepted 50% of such amount will be applied to reduce
Tranche A Loans on a pro rata basis and the remaining 50% may be retained by the
Company.
GUARANTEES AND COLLATERAL
Holdings and all active subsidiaries of the Company (including the
Subsidiary Guarantors) have guaranteed the Company's obligations under the New
Credit Facility. The Company's obligations and the guarantees of its
subsidiaries are secured by substantially all personal property of the Company
and its subsidiaries, including a pledge of the stock of all subsidiaries of the
Company (with the exception of the stock of Bell Markets, Inc., which has been
pledged to secure notes payable to the former owners thereof, so long and only
so long as such stock is subject to the liens of such former owners). Holdings'
guarantee is secured by a pledge of the stock of the Company. The Company's
obligations also are secured by first priority liens on certain unencumbered
real property fee interests of the Company and its subsidiaries and the Company
and its subsidiaries will use their reasonable economic efforts to provide the
lenders with a first priority lien on certain unencumbered leasehold interests
of the Company and its subsidiaries.
COVENANTS
The obligation of the lenders under the New Credit Facility to advance
funds is subject to the satisfaction of certain conditions customary in
agreements of this type. In addition, the Company is subject to certain
customary affirmative and negative covenants contained in the New Credit
Facility, including, without limitation, covenants that restrict, subject to
specified exceptions, (i) the incurrence of additional indebtedness and other
obligations, (ii) a merger or acquisition, (iii) asset sales, (iv) the granting
of liens, (v) prepayment or repurchase of other indebtedness, (vi) engaging in
transactions with affiliates, or (vii) cash capital expenditures. Certain of
these covenants are more restrictive than those in favor of holders of the Notes
as described herein and as set forth in the Indenture. In addition, the New
Credit Facility requires that the Company maintain certain specified financial
covenants, including a minimum fixed charge coverage, a minimum EBITDA, a
maximum ratio of total debt to EBITDA and a minimum net worth.
EVENTS OF DEFAULT
The New Credit Facility also provides for customary events of default. The
occurrence of any of such events of default could result in acceleration of the
Company's obligations under the New Credit Facility and foreclosure on the
collateral securing such obligations, which could have material adverse results
to holders of the Notes.
DESCRIPTION OF OTHER COMPANY INDEBTEDNESS
The 1995 Senior Notes. The 1995 Senior Notes were issued upon consummation
of the Merger in an aggregate principal amount of $520.3 million. The 1995
Senior Notes are senior unsecured obligations of the Company and are guaranteed
on a senior basis by the Company's wholly-owned subsidiaries. The 1995 Senior
Notes rank senior in right of payment to all subordinated indebtedness of the
Company, including the 1995 11% Senior Subordinated Notes, the Old RGC Notes,
the 1995 13.75% Senior Subordinated Notes and the 1991 Senior Subordinated
Notes. However, the 1995 Senior Notes are effectively subordinated to all
secured indebtedness of the Company and its subsidiaries, including indebtedness
under the New Credit Facility. The 1995 Senior Notes bear interest at the rate
of 10.45% per annum, payable on each June 15 and December 15.
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<PAGE> 107
The 1995 Senior Notes will mature on June 15, 2004. The terms of the Notes were
designed to mirror the terms of the 1995 Senior Notes. Accordingly, the
indenture governing the 1995 Senior Notes contains terms, covenants and
conditions which are substantially identical in all material respects to the
terms contained in the Indenture governing the Notes. For further information
regarding those terms, see "Description of the Notes."
A portion of the 1995 Senior Notes were issued in exchange for 1992 Senior
Notes outstanding at the time of the Merger. A total of $4.7 million aggregate
principal amount of 1992 Senior Notes that were not exchanged at the time of the
Merger remain outstanding. The 1992 Senior Notes mature on April 15, 2000. In
connection with the Merger, the indenture governing the 1992 Senior Notes was
amended to eliminate substantially all of the restrictive covenants contained
therein.
The 1995 11% Senior Subordinated Notes. The 1995 11% Senior Subordinated
Notes were issued upon consummation of the Merger in an aggregate principal
amount of $524.0 million. The 1995 11% Senior Subordinated Notes are
subordinated to the prior payment when due of all Senior Indebtedness (as
defined in the indenture (the "1995 11% Senior Subordinated Note Indenture")
governing the 1995 11% Senior Subordinated Notes) and are guaranteed on a senior
subordinated basis by the Company's wholly-owned subsidiaries. The 1995 11%
Senior Subordinated Notes bear interest at a rate of 11% per annum, payable on
each June 15 and December 15. The 1995 11% Senior Subordinated Notes will mature
on June 15, 2005. On or after June 15, 2000, the 1995 11% Senior Subordinated
Notes may be redeemed in whole at any time or in part from time to time, at the
option of the Company, at a redemption price equal to the applicable percentage
of the principal amount thereof set forth below, plus accrued and unpaid
interest to the redemption date, if redeemed during the 12 months commencing on
June 15 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---------------------------------------------------------- ----------
<S> <C>
2000...................................................... 104.125 %
2001...................................................... 102.750 %
2002...................................................... 101.375 %
2003 and thereafter....................................... 100.000 %
</TABLE>
In addition, on or prior to June 15, 1998 the Company may, at its option,
use the net cash proceeds from one or more Public Equity Offerings to redeem up
to an aggregate of 35% of the principal amount of the 1995 11% Senior
Subordinated Notes originally issued, at a redemption price equal to 111% of the
principal amount thereof if redeemed during the 12 months commencing on June 15,
1995, 109.625% of the principal amount thereof if redeemed during the 12 months
commencing on June 15, 1996 and 108.25% of the principal amount thereof if
redeemed during the 12 months commencing on June 15, 1997, in each case plus
accrued and unpaid interest, if any, to the redemption date.
The 1995 11% Senior Subordinated Note Indenture provides that if a Change
of Control (as defined therein) occurs, each holder will have the right to
require the Company to repurchase such holder's 1995 11% Senior Subordinated
Notes pursuant to a Change of Control Offer (as defined therein) at 101% of the
principal amount thereof plus accrued interest, if any, to the date of
repurchase.
The 1995 11% Senior Subordinated Note Indenture contains certain covenants,
including, but not limited to, covenants with respect to the following matters:
(i) limitation on dividends and other restricted payments; (ii) limitation on
incurrences of additional indebtedness; (iii) limitation on liens; (iv)
limitation on asset sales; (v) limitation on dividend and other payment
restrictions affecting subsidiaries; (vi) limitation on transactions with
affiliates; (vii) limitation on preferred stock of subsidiaries; (viii)
limitation on mergers and certain other transactions; (ix) limitation on other
senior subordinated indebtedness; and (x) limitation on guarantees of certain
indebtedness.
A portion of the 1995 11% Senior Subordinated Notes were issued in exchange
for Old RGC Notes outstanding at the time of the Merger. A total of $2.1 million
aggregate principal amount of Old RGC 10 1/4% Notes, and $0.1 million aggregate
principal amount of Old RGC 9% Notes, that were not exchanged at the time of the
Merger remain outstanding. The Old RGC 10 1/4% Notes mature on July 15, 2002 and
the Old
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<PAGE> 108
RGC 9% Notes mature on April 1, 2003. The Old RGC Notes, like the 1995 11%
Senior Subordinated Notes, are subordinated to the prior payment when due of the
Senior Indebtedness of the Company. In connection with the Merger, the
indentures governing the Old RGC Notes were amended to eliminate substantially
all of the restrictive covenants contained therein.
The 1995 13.75% Senior Subordinated Notes. The 1995 13.75% Senior
Subordinated Notes were issued upon consummation of the Merger in an aggregate
principal amount of $140.2 million. The 1995 13.75% Senior Subordinated Notes
are subordinated to the prior payment when due of all Senior Indebtedness (as
defined in the indenture (the "1995 13.75% Senior Subordinated Note Indenture")
governing the 1995 13.75% Senior Subordinated Notes) and are guaranteed on a
senior subordinated basis by the Company's wholly-owned subsidiaries. The 1995
13.75% Senior Subordinated Notes bear interest at a rate of 13.75% per annum,
payable on each June 15 and December 15. The 1995 13.75% Senior Subordinated
Notes will mature on June 15, 2005. On or after June 15, 1996, the 1995 13.75%
Senior Subordinated Notes may be redeemed in whole at any time or in part from
time to time, at the option of the Company, at a redemption price equal to the
applicable percentage of the principal amount thereof set below, plus accrued
and unpaid interest to the redemption date, if redeemed during the 12 months
commencing on June 15 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
------ ----------
<S> <C>
1996...................................... 106.111%
1997...................................... 104.583%
1998...................................... 103.056%
1999...................................... 101.528%
</TABLE>
and thereafter at 100% of the principal amount thereof, plus accrued and unpaid
interest to the redemption date.
Upon a Change of Control (as defined), each holder of the 1995 13.75%
Senior Subordinated Notes has the right to require the Company to repurchase
such holder's 1995 13.75% Senior Subordinated Notes at a price equal to 101% of
their principal amount, plus accrued interest, if any, to the date of
repurchase.
The 1995 13.75% Senior Subordinated Notes are subject to certain covenants
as provided in the 1995 13.75% Senior Subordinated Note Indenture. These
covenants impose certain limitations on the ability of the Company to, among
other things, incur indebtedness, pay dividends or make certain other restricted
payments, enter into certain transactions with affiliates, merge or consolidate
with any other person, or sell, lease, transfer or otherwise dispose of
substantially all of the properties or assets of the Company.
The 1995 13.75% Senior Subordinated Notes were issued in exchange for 1991
Senior Subordinated Notes outstanding at the time of the Merger. A total of $4.8
million aggregate principal amount of 1991 Senior Subordinated Notes that were
not exchanged at the time of the Merger remain outstanding. The 1991 Senior
Subordinated Notes mature on June 15, 2001. The 1991 Senior Subordinated Notes,
like the 1995 13.75% Senior Subordinated Notes, are subordinated to the prior
payment when due of the Senior Indebtedness of the Company. In connection with
the Merger, the indenture governing the 1991 Senior Subordinated Notes was
amended to eliminate substantially all of the restrictive covenants contained
therein.
DESCRIPTION OF HOLDINGS' INDEBTEDNESS
The New Discount Debentures. The New Discount Debentures were issued upon
consummation of the Merger. The New Discount Debentures will have an aggregate
principal amount of $193,363,570 at maturity and will mature on June 15, 2005.
The New Discount Debentures are senior unsecured obligations of Holdings and
rank senior in right of payment to all subordinated indebtedness of Holdings,
including the Seller Debentures. Until June 15, 2000, no interest will accrue on
the New Discount Debentures, but the Accreted Value (as defined in the indenture
governing the New Discount Debentures (the "New Debenture Indenture")) will
accrete at a rate of 13 5/8% (representing the amortization of the original
issue discount) from the date of original issuance until June 15, 2000, on a
semi-annual bond equivalent basis using a 360 day year comprised of twelve
30-day months, such that the Accreted Value shall be equal to the full principal
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<PAGE> 109
amount of the New Discount Debentures on June 15, 2000. The initial Accreted
Value per $1,000 principal amount of New Discount Debentures was $519.92
(representing the original purchase price). Beginning on June 15, 2000, cash
interest on the New Discount Debentures will accrue at a rate of 13 5/8% per
annum and will be payable semi-annually in arrears on each June 15 and December
15 of each year, commencing December 15, 2000, to the holders of record on the
immediately preceding June 1 and December 1.
On or after June 15, 2000, the New Discount Debentures may be redeemed, at
the option of Holdings, in whole at any time or in part from time to time, at a
redemption price equal to the applicable percentage of the principal amount
thereof set forth below, plus accrued and unpaid interest, to the redemption
date, if redeemed during the twelve-month period commencing on June 15 in the
years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
------------------------------------- ----------------
<S> <C>
2000................................. 106.8125%
2001................................. 105.1094%
2002................................. 103.4063%
2003................................. 101.7031%
2004 and thereafter.................. 100.0000%
</TABLE>
Notwithstanding the foregoing, prior to June 15, 1998, Holdings may use the
net proceeds of a Public Equity Offering (as defined in the New Debenture
Indenture) of Holdings or the Company to redeem up to 35% of the New Discount
Debentures at a redemption price equal to 110% of the Accreted Value thereof on
the date of redemption.
In the event of a Change of Control (as defined in the New Debenture
Indenture), each holder has the right to require the repurchase of such holder's
New Discount Debentures at a purchase price equal to 101% of the Accreted Value
thereof on the Change of Control Payment Date (as defined in the New Debenture
Indenture) (if such date is prior to June 15, 2000) or 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the Change of
Control Payment Date (if such date is on or after June 15, 2000).
The New Debenture Indenture contains covenants that, among other things,
limit the ability of Holdings to enter into certain mergers or consolidations or
incur certain liens or of Holdings or its subsidiaries to incur additional
indebtedness, pay dividends or make certain other Restricted Payments (as
defined in the New Debenture Indenture), or engage in certain transactions with
affiliates. Under certain circumstances, Holdings will be required to make an
offer to purchase New Discount Debentures at a price equal to 100% of the
Accreted Value thereof on the date of purchase, if such date is prior to June
15, 2000 or 100% of the principal amount thereof, plus accrued interest to the
date of purchase, if such date is on or after June 15, 2000, with the proceeds
of certain Asset Sales (as defined in the New Debenture Indenture). The New
Debenture Indenture contains certain customary events of defaults, which include
the failure to pay interest and principal, the failure to comply with certain
covenants in the New Discount Debentures or the New Debenture Indenture, a
default under certain indebtedness, the imposition of certain final judgments or
warrants of attachment and certain events occurring under bankruptcy laws.
Pursuant to the terms of a registration rights agreement entered into by
Holdings, Holdings filed a shelf registration statement with the Commission with
respect to the New Discount Debentures, and paid the expenses related thereto.
Pursuant to such registration statement, the initial holder of the New Discount
Debentures sold its entire interest in the New Discount Debentures.
The Seller Debentures. The Seller Debentures were issued to the
stockholders of RSI upon consummation of the Merger. The Seller Debentures were
issued in an aggregate principal amount of $131.5 million and will mature on
June 15, 2007. The Seller Debentures are general unsecured obligations of
Holdings and are subordinated to the prior payment when due of all Senior
Indebtedness (as defined in the indenture governing the Seller Debentures (the
"Debenture Indenture")), including the New Discount Debentures. The Seller
Debentures bear interest at a rate equal to 13 5/8% per annum, payable
semi-annually in arrears on each interest payment date. Holdings has the option,
in its sole discretion, to issue additional securities ("Secondary Securities")
in lieu of a cash payment of any or all of the interest due for the period prior
to the interest payment date five years after the date of issuance of the Seller
Debentures.
107
<PAGE> 110
On or after June 15, 2000, the Seller Debentures may be redeemed, at the
option of Holdings, in whole at any time or in part from time to time, at a
redemption price equal to the applicable percentage of the principal amount
thereof set forth below, plus accrued and unpaid interest, if any, to the
redemption date, if redeemed during the twelve-month period commencing on June
15 in the years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
------------------------------------- ----------------
<S> <C>
2000................................. 106.8125%
2001................................. 105.1094%
2002................................. 103.4063%
2003................................. 101.7031%
2004 and thereafter.................. 100.0000%
</TABLE>
Notwithstanding the foregoing, prior to June 15, 1998, Holdings may use the
net proceeds of an Initial Public Offering (as defined in the Debenture
Indenture) of Holdings or Food 4 Less to redeem up to 35% of the Seller
Debentures at a redemption price equal to 110% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the date of redemption.
In the event of a Change of Control (as defined in the Debenture
Indenture), each holder has the right to require the repurchase of such holder's
Seller Debentures at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest, if any, to the date of purchase.
The Debenture Indenture contains certain covenants that, among other
things, limit the ability of Holdings to enter into certain mergers or
consolidations or incur certain liens or of Holdings or its subsidiaries to
incur additional indebtedness, pay dividends or make certain other Restricted
Payments (as defined in the Debenture Indenture), or engage in certain
transactions with affiliates. Under certain circumstances, Holdings will be
required to make an offer to purchase Seller Debentures at a price equal to 100%
of the principal amount thereof, plus accrued and unpaid interest, if any, to
the repurchase date with the proceeds of certain Asset Sales (as defined in the
Debenture Indenture). The Debenture Indenture contains certain customary events
of default, which will include the failure to pay interest and principal, the
failure to comply with certain covenants in the Seller Debentures or the
Debenture Indenture, a default under certain indebtedness, the imposition of
certain final judgments or warrants of attachment and certain events occurring
under bankruptcy laws.
Pursuant to the terms of a registration rights agreement executed
concurrently with the closing of the Merger, Holdings has filed a shelf
registration statement with the Commission with respect to the Seller
Debentures. Holdings is obligated to use its best efforts to cause such shelf
registration statement to remain effective for up to three years, and pay the
expenses related thereto. If Holdings fails to comply with its obligations to
keep such shelf registration statement effective, Holdings will be obligated to
pay certain liquidated damages.
BOOK ENTRY; DELIVERY AND FORM
Except as described in the next paragraph, the Notes (and the related
guarantees) initially will be represented by a single, permanent global
certificate in definitive, fully registered form (the "Global Note"). The Global
Note will be deposited on the Issue Date with, or on behalf of, The Depository
Trust Company, New York, New York ("DTC") and registered in the name of a
nominee of DTC.
Notes (i) originally purchased by or transferred to "foreign purchasers" or
(ii) held by qualified institutional buyers or Accredited Investors who are not
QIBs who elect to take physical delivery of their certificates instead of
holding their interests through the Global Note (and which are thus ineligible
to trade through DTC) (collectively referred to herein as the "Non-Global
Purchasers") will be issued in registered form (the "Certificated Security").
Upon the transfer to a QIB of any Certificated Security initially issued to a
Non-Global Purchaser, such Certificated Security will, unless the transferee
requests otherwise or the Global Note has previously been exchanged in whole for
Certificated Securities, be exchanged for an interest in the Global Note.
108
<PAGE> 111
The Global Note. The Company expects that pursuant to procedures
established by DTC (i) upon the issuance of the Global Note, DTC or its
custodian will credit, on its internal system, the principal amount of Notes of
the individual beneficial interests represented by such Global Note to the
respective accounts of persons who have accounts with such depositary and (ii)
ownership of beneficial interests in the Global Note will be shown on, and the
transfer of such ownership will be effected only through, records maintained by
DTC or its nominee (with respect to interests of participants) and the records
of participants (with respect to interests of persons other than participants).
Such accounts initially will be designated by or on behalf of the Initial
Purchaser and ownership of beneficial interests in the Global Note will be
limited to persons who have accounts with DTC ("participants") or persons who
hold interests through participants. QIBs may hold their interests in the Global
Note directly through DTC if they are participants in such system, or indirectly
through organizations which are participants in such system.
So long as DTC, or its nominee, is the registered owner or holder of the
Notes, DTC or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by such Global Note for all purposes
under the Indenture. No beneficial owner of an interest in the Global Note will
be able to transfer that interest except in accordance with DTC's procedures, in
addition to those provided for under the Indenture with respect to the Notes.
Payments of the principal of, premium (if any), interest and Liquidated
Damages (if any) on, the Global Note will be made to DTC or its nominee, as the
case may be, as the registered owner thereof. None of the Company, the Trustee
or any Paying Agent will have any responsibility or liability for any aspect of
the records relating to or payments made on account of beneficial ownership
interests in the Global Note or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interest.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal, premium, if any, interest or Liquidated Damages, if any, in respect
of the Global Note, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of the Global Note as shown on the records of DTC or its nominee. The Company
also expects that payments by participants to owners of beneficial interests in
the Global Note held through such participants will be governed by standing
instructions and customary practice, as is now the case with securities held for
the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
through DTC's same-day funds system in accordance with DTC rules and will be
settled in same day funds. If a holder requires physical delivery of a
Certificated Security for any reason, including to sell Notes to persons in
states which require physical delivery of the Notes, or to pledge such
securities, such holder must transfer its interest in the Global Note, in
accordance with the normal procedures of DTC and with the procedures set forth
in the Indenture.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interests in the Global Note are credited and only in respect of
such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the Indenture, DTC will exchange the Global Note
for Certificated Securities, which it will distribute to its participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of
certificates. Participants include securities brokers and dealers, banks, trust
companies and clearing corporations and certain other organizations. Indirect
access to the DTC system is available to others such as banks, brokers, dealers
and trust companies that clear through or maintain a custodial relationship with
a participant, either directly or indirectly ("indirect participants").
109
<PAGE> 112
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of interests in the Global Note among participants of DTC, it is under
no obligation to perform such procedures, and such procedures may be
discontinued at any time. Neither the Company nor the Trustee will have any
responsibility for the performance by DTC or its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Certificated Securities. If DTC is at any time unwilling or unable to
continue as a depositary for the Global Note and a successor depositary is not
appointed by the Company within 90 days, Certificated Securities will be issued
in exchange for the Global Note.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Latham & Watkins, counsel to the Company, the following
discussion describes the material federal income tax consequences expected to
result to holders whose Private Notes are exchanged for Exchange Notes in the
Exchange Offer. Such opinion is based upon current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury regulations,
judicial authority and administrative rulings and practice. There can be no
assurance that the Internal Revenue Service (the "Service") will not take a
contrary view, and no ruling from the Service has been or will be sought with
respect to the Exchange Offer. Legislative, judicial or administrative changes
or interpretations may be forthcoming that could alter or modify the statements
and conclusions set forth herein. Any such changes or interpretations may or may
not be retroactive and could affect the tax consequences to holders. Certain
holders (including insurance companies, tax-exempt organizations, financial
institutions, broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States) may be subject to special rules not
discussed below. EACH HOLDER OF PRIVATE NOTES SHOULD CONSULT ITS OWN TAX ADVISOR
AS TO THE PARTICULAR TAX CONSEQUENCES OF EXCHANGING PRIVATE NOTES FOR EXCHANGE
NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN
LAWS.
The exchange of Private Notes for Exchange Notes will be treated as a
"non-event" for federal income tax purposes because the Exchange Notes will not
be considered to differ materially in kind or extent from the Private Notes. As
a result, no material federal income tax consequences will result to holders
exchanging Private Notes for Exchange Notes.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with the resales of Exchange Notes received in
exchange for Private Notes where such Private Notes were acquired as a result of
market-making activities or other trading activities. The Company has agreed
that for a period of up to 90 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer that
requests such document in the Letter of Transmittal for use in connection with
any such resale.
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers or any other persons. Exchange Notes received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Exchange Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
Exchange Notes. Any broker-dealer that resells Exchange Notes that were received
by it for its own account pursuant to the Exchange Offer and any broker or
dealer that participates in a distribution of such Exchange Notes may be deemed
to be an "underwriter" within the meaning of the
110
<PAGE> 113
Securities Act and any profit on any such resale of Exchange Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The Company has agreed to pay all expenses incident to the Company's
performance of, or compliance with, the Registration Rights Agreement and will
indemnify the holders of Private Notes (including any broker-dealers), and
certain parties related to such holders, against certain liabilities, including
liabilities under the Securities Act.
LEGAL MATTERS
Certain legal matters with respect to the Exchange Notes offered hereby
will be passed upon for the Company by Latham & Watkins, Los Angeles,
California.
EXPERTS
The consolidated financial statements of Ralphs Grocery Company (formerly
Food 4 Less Supermarkets, Inc.) as of January 28, 1996, January 29, 1995 and
June 25, 1994 and for the 52 week period ended January 28, 1996, the 31 week
period ended January 29, 1995 and the 52 week periods ended June 25, 1994 and
June 26, 1993, included in this Prospectus, have been audited by Arthur Andersen
LLP, independent public accountants, as stated in their report appearing herein.
The consolidated financial statements and schedule of Ralphs Supermarkets,
Inc. as of January 29, 1995 and January 30, 1994, and for each of the years in
the three-year period ended January 29, 1995, have been included herein and in
the Registration Statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act with respect to the Exchange Notes offered hereby.
As permitted by the rules and regulations of the Commission, this Prospectus
omits certain information, exhibits and undertakings contained in the
Registration Statement. For further information with respect to the Company and
the Exchange Notes offered hereby, reference is made to the Registration
Statement, including the exhibits thereto and the financial statements, notes
and schedules filed as a part thereof. The Registration Statement (and the
exhibits and schedules thereto), as well as the periodic reports and other
information filed by the Company with the Commission, may be inspected and
copied at the Public Reference Section of the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional
offices of the Commission located at Room 1400, 75 Park Place, New York, New
York 10007 and Suite 1400, Northwestern Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661-2511. Copies of such materials may be obtained from the
Public Reference Section of the Commission, Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and its public reference facilities
in New York, New York and Chicago, Illinois at the prescribed rates. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance reference is made to
the copy of such contract or document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference.
The Company is subject to the periodic reporting and other information
requirements of the Exchange Act. The Company has agreed that, whether or not it
is required to do so by the rules and regulations of the Commission, for so long
as any of the Notes remain outstanding, it will furnish to the holders of the
Notes and, following consummation of the Exchange Offer and to the extent
permitted by applicable law or regulations, file with the Commission (i) all
quarterly and annual financial information that would be required
111
<PAGE> 114
to be contained in a filing with the Commission on Forms 10-Q and 10-K if the
Company were required to file such Forms, including for each a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual consolidated financial statements only, a report
thereon by the Company's independent auditors and (ii) all reports that would be
required to be filed with the Commission on Form 8-K if the Company were
required to file such reports. The Company will also furnish such other reports
as it may determine or as may be required by law.
The principal address of the Company is 1100 West Artesia Boulevard,
Compton, California 90220 and the Company's telephone number is (310) 884-9000.
112
<PAGE> 115
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
RALPHS GROCERY COMPANY (FORMERLY FOOD 4 LESS SUPERMARKETS, INC.):
Report of Independent Public Accountants (Arthur Andersen LLP)........................ F-2
Consolidated balance sheets as of June 25, 1994, January 29, 1995, January 28, 1996
and
April 21, 1996 (unaudited).......................................................... F-3
Consolidated statements of operations for the 52 weeks ended June 26, 1993 and June
25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996,
the 12 weeks ended April 23, 1995 (unaudited) and the 12 weeks ended April 21, 1996
(unaudited)......................................................................... F-5
Consolidated statements of cash flows for the 52 weeks ended June 26, 1993 and June
25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28, 1996,
the 12 weeks ended April 23, 1995 (unaudited) and the 12 weeks ended April 21, 1996
(unaudited)......................................................................... F-6
Consolidated statements of stockholder's equity for the 52 weeks ended June 26, 1993
and
June 25, 1994, the 31 weeks ended January 29, 1995, the 52 weeks ended January 28,
1996
and the 12 weeks ended April 21, 1995............................................... F-7
Notes to consolidated financial statements............................................ F-8
RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY):
Independent Auditors' Report (KPMG Peat Marwick LLP).................................. F-29
Consolidated balance sheets at January 30, 1994 and January 29, 1995.................. F-30
Consolidated statements of operations for the years ended January 31, 1993, January
30, 1994 and January 29, 1995....................................................... F-31
Consolidated statements of cash flows for the years ended January 31, 1993, January
30, 1994 and January 29, 1995....................................................... F-32
Consolidated statements of stockholders' equity for the years ended January 31, 1993,
January 30, 1994 and January 29, 1995............................................... F-33
Notes to consolidated financial statements............................................ F-34
</TABLE>
F-1
<PAGE> 116
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholder of Ralphs Grocery Company:
We have audited the accompanying consolidated balance sheets of Ralphs
Grocery Company (a Delaware corporation) (formerly Food 4 Less Supermarkets,
Inc. -- See Note 1 in the accompanying Notes to Consolidated Financial
Statements) and subsidiaries (the Company) as of June 25, 1994, January 29, 1995
and January 28, 1996, and the related consolidated statements of operations,
stockholder's equity and cash flows for the 52 weeks ended June 26, 1993 and
June 25, 1994, the 31 weeks ended January 29, 1995, and the 52 weeks ended
January 28, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ralphs
Grocery Company and subsidiaries as of June 25, 1994, January 29, 1995 and
January 28, 1996, and the results of their operations and their cash flows for
the 52 weeks ended June 26, 1993 and June 25, 1994, the 31 weeks ended January
29, 1995, and the 52 weeks ended January 28, 1996 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
April 19, 1996
F-2
<PAGE> 117
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JUNE 25, JANUARY 29, JANUARY 28, APRIL 21,
1994 1995 1996 1996
-------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents...................... $ 32,996 $ 19,560 $ 67,983 $ 58,542
Trade receivables, less allowances of $1,386,
$1,192, $1,954 and $1,574 at June 25, 1994,
January 29, 1995, January 28, 1996 and April
21, 1996, respectively...................... 25,039 23,377 60,948 65,597
Notes and other receivables.................... 1,312 3,985 6,452 4,689
Inventories.................................... 212,892 224,686 502,669 483,380
Patronage receivables from suppliers........... 2,875 5,173 4,557 1,535
Prepaid expenses and other..................... 6,323 13,051 34,855 31,990
-------- ---------- ---------- ----------
Total current assets................... 281,437 289,832 677,464 645,733
INVESTMENTS IN AND NOTES RECEIVABLE FROM SUPPLIER
COOPERATIVES:
Associated Wholesale Grocers................... 6,718 6,718 7,288 7,020
Certified Grocers of California and Other...... 5,984 5,686 4,926 4,926
PROPERTY AND EQUIPMENT:
Land........................................... 23,488 23,488 183,125 183,125
Buildings...................................... 12,827 24,172 196,551 196,691
Leasehold improvements......................... 97,673 110,020 251,856 252,211
Equipment and fixtures......................... 180,508 190,016 441,760 459,883
Construction in progress....................... 12,641 8,042 61,296 57,204
Leased property under capital leases........... 78,222 82,526 189,061 189,702
Leasehold interests............................ 93,464 96,556 114,475 109,992
-------- ---------- ---------- ----------
498,823 534,820 1,438,124 1,448,808
Less: Accumulated depreciation and
amortization................................ 134,089 154,382 226,451 242,198
-------- ---------- ---------- ----------
Net property and equipment..................... 364,734 380,438 1,211,673 1,206,610
OTHER ASSETS:
Deferred financing costs, less accumulated
amortization of $17,083, $20,496, $6,964 and
$10,300 at June 25, 1994, January 29, 1995,
January 28, 1996 and April 21, 1996,
respectively................................ 28,536 25,469 94,100 94,336
Goodwill, less accumulated amortization of
$33,945, $38,560, $60,407 and $67,609 at
June 25, 1994, January 29, 1995, January 28,
1996 and April 21, 1996, respectively....... 267,884 263,112 1,173,445 1,166,243
Other, net..................................... 24,787 29,440 19,233 19,907
-------- ---------- ---------- ----------
$980,080 $ 1,000,695 $ 3,188,129 $ 3,144,775
======== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 118
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
JUNE 25, JANUARY 29, JANUARY 28, APRIL 21,
1994 1995 1996 1996
-------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable............................... $180,708 $ 190,455 $ 385,500 $ 372,731
Accrued payroll and related liabilities........ 42,805 42,007 94,011 93,627
Accrued interest............................... 5,474 10,730 23,870 56,022
Other accrued liabilities...................... 53,910 65,279 276,162 268,664
Income taxes payable........................... 2,000 293 596 596
Current portion of self-insurance
liabilities................................. 29,492 28,616 21,785 22,004
Current portion of senior debt................. 18,314 22,263 31,735 38,979
Current portion of obligations under capital
leases...................................... 3,616 4,965 22,261 23,298
-------- ---------- ---------- ----------
Total current liabilities.............. 336,319 364,608 855,920 875,921
SENIOR DEBT, net of current portion.............. 310,944 320,901 1,226,302 1,200,035
OBLIGATIONS UNDER CAPITAL LEASES................. 39,998 40,675 130,784 126,215
SENIOR SUBORDINATED DEBT......................... 145,000 145,000 671,222 671,222
DEFERRED INCOME TAXES............................ 14,740 17,534 17,988 17,988
SELF-INSURANCE LIABILITIES....................... 52,212 44,123 127,200 129,856
LEASE VALUATION RESERVE.......................... -- -- 25,182 24,273
OTHER NON-CURRENT LIABILITIES.................... 11,846 10,051 74,412 72,127
COMMITMENTS AND CONTINGENCIES.................... -- -- -- --
STOCKHOLDER'S EQUITY:
Cumulative convertible preferred stock, $.01
par value, 200,000 shares authorized and
50,000 shares issued at June 25, 1994 and
January 29, 1995(aggregate liquidation value
of $62.2 million and $67.9 million at June
25, 1994 and January 29, 1995, respectively)
and no shares authorized or issued at
January 28, 1996 or April 21, 1996.......... 58,997 65,136 -- --
Common stock, $.01 par value, 5,000,000 shares
authorized: 1,519,632 shares, 1,519,632
shares, 1,513,938 shares and 1,513,938
shares issued at June 25, 1994, January 29,
1995, January 28, 1996 and April 21, 1996,
respectively................................ 15 15 15 15
Additional capital............................. 107,650 107,650 466,783 466,783
Notes receivable from stockholders of parent... (586) (702) (602) (602)
Retained deficit............................... (94,586) (112,225) (407,077) (439,058)
-------- ---------- ---------- ----------
71,490 59,874 59,119 27,138
Treasury stock: 16,732 shares, 12,345 shares,
no shares and no shares of common stock at
June 25, 1994, January 29, 1995, January 28,
1996 and April 21, 1996, respectively....... (2,469) (2,071) -- --
-------- ---------- ---------- ----------
Total stockholder's equity............. 69,021 57,803 59,119 27,138
-------- ---------- ---------- ----------
$980,080 $ 1,000,695 $ 3,188,129 $ 3,144,775
======== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE> 119
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 31 WEEKS 52 WEEKS 12 WEEKS 12 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 26, JUNE 25, JANUARY 29, JANUARY 28, APRIL 23, APRIL 21,
1993 1994 1995 1996 1995 1996
---------- ---------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
SALES......................................... $2,742,027 $2,585,160 $ 1,556,522 $ 4,335,109 $ 623,598 $1,230,808
COST OF SALES (including purchases from
related parties of $204,028, $175,929,
$104,407, $141,432, $41,770 and $25,789 for
the 52 weeks ended June 26, 1993 and June
25, 1994, the 31 weeks ended January 29,
1995, the 52 weeks ended January 28, 1996,
the 12 weeks ended April 23, 1995 and the 12
weeks ended April 21, 1996, respectively)... 2,257,835 2,115,842 1,294,147 3,485,993 516,430 982,171
---------- ---------- ---------- ---------- ---------- ----------
GROSS PROFIT.................................. 484,192 469,318 262,375 849,116 107,168 248,637
SELLING, GENERAL, ADMINISTRATIVE AND OTHER,
NET......................................... 434,908 388,836 222,359 785,576 91,352 217,335
AMORTIZATION OF GOODWILL...................... 7,571 7,691 4,615 21,847 1,829 7,202
RESTRUCTURING CHARGE.......................... -- -- 5,134 123,083 -- --
---------- ---------- ---------- ---------- ---------- ----------
OPERATING INCOME (LOSS)....................... 41,713 72,791 30,267 (81,390) 13,987 24,100
INTEREST EXPENSE:
Interest expense, excluding amortization of
deferred financing costs.................. 64,831 62,778 38,809 170,581 15,522 52,748
Amortization of deferred financing costs.... 4,901 5,472 3,413 8,193 1,394 3,336
---------- ---------- ---------- ---------- ---------- ----------
69,732 68,250 42,222 178,774 16,916 56,084
LOSS (GAIN) ON DISPOSAL OF ASSETS............. (2,083) 37 (455) (547) (417 ) (3 )
PROVISION FOR EARTHQUAKE LOSSES............... -- 4,504 -- -- -- --
---------- ---------- ---------- ---------- ---------- ----------
LOSS BEFORE PROVISION FOR INCOME TAXES AND
EXTRAORDINARY CHARGE........................ (25,936) -- (11,500) (259,617) (2,512 ) (31,981 )
PROVISION FOR INCOME TAXES.................... 1,427 2,700 -- 500 300 --
---------- ---------- ---------- ---------- ---------- ----------
LOSS BEFORE EXTRAORDINARY CHARGE.............. (27,363) (2,700) (11,500) (260,117) (2,812 ) (31,981 )
EXTRAORDINARY CHARGE.......................... -- -- -- 23,128 -- --
---------- ---------- ---------- ---------- ---------- ----------
NET LOSS...................................... $ (27,363) $ (2,700) $ (11,500) $ (283,245) $ (2,812 ) $ (31,981 )
========== ========== ========== ========== ========== ==========
PREFERRED STOCK ACCRETION..................... 3,882 8,767 6,139 3,960 2,376 --
LOSS APPLICABLE TO COMMON SHARES.............. $ (31,245) $ (11,467) $ (17,639) $ (287,205) $ (5,188 ) $ (31,981 )
========== ========== ========== ========== ========== ==========
LOSS PER COMMON SHARE:
Loss before extraordinary charge............ $ (21.52) $ (7.63) $ (11.72) $ (174.72) $ (3.44 ) $ (21.12 )
Extraordinary charge........................ -- -- -- (15.30) -- --
---------- ---------- ---------- ---------- ---------- ----------
Net loss.................................... $ (21.52) $ (7.63) $ (11.72) $ (190.02) $ (3.44 ) $ (21.12 )
========== ========== ========== ========== ========== ==========
Average Number of Common Shares
Outstanding............................... 1,452,184 1,503,828 1,504,425 1,511,453 1,507,287 1,513,938
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 120
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 31 WEEKS 52 WEEKS 12 WEEKS 12 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 26, JUNE 25, JANUARY 29, JANUARY 28, APRIL 23, APRIL 21,
1993 1994 1995 1996 1995 1996
----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Cash received from customers................. $ 2,742,027 $ 2,585,160 $ 1,556,522 $ 4,335,109 $ 623,598 $1,230,808
Cash paid to suppliers and employees......... (2,711,779) (2,441,353) (1,507,523) (4,197,875) (595,468) (1,156,304 )
Interest paid................................ (58,807) (56,762) (33,553) (157,441) (18,031) (20,596 )
Income taxes refunded (paid)................. 2,971 (247) 1,087 256 (5) --
Interest received............................ 993 903 867 2,562 133 541
Other, net................................... 8,093 121 221 547 299 3
----------- ----------- ----------- ----------- --------- -----------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES................................... (16,502) 87,822 17,621 (16,842) 10,526 54,452
CASH PROVIDED (USED) BY INVESTING ACTIVITIES:
Proceeds from sale of property and
equipment.................................. 15,685 11,953 7,199 21,373 5,301 31
Payment for purchase of property and
equipment.................................. (53,467) (57,471) (49,023) (122,355) (18,238) (34,222 )
Payment of acquisition costs, net of cash
acquired................................... -- (11,050) -- (303,301) -- --
Other, net................................... (18) 813 (797) (1,120) (2,694) (973 )
----------- ----------- ----------- ----------- --------- -----------
NET CASH USED BY INVESTING ACTIVITIES......... (37,800) (55,755) (42,621) (405,403) (15,631) (35,164 )
CASH PROVIDED (USED) BY FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt..... 26,557 28 -- 1,050,000 -- --
Net increase (decrease) in revolving loan.... 4,900 (4,900) 27,300 100,100 8,000 (17,400 )
Payments of long-term debt................... (14,319) (14,224) (13,394) (576,727) (4,623) (1,623 )
Proceeds from issuance of preferred stock.... 46,348 -- -- -- -- --
Proceeds from issuance of common stock,
net........................................ 3,652 -- 269 -- -- --
Purchase of treasury stock, net.............. (545) (1,192) (57) -- -- --
Payments of capital lease obligation......... (2,840) (3,693) (2,278) (15,314) (925) (6,134 )
Capital contribution from parent............. -- -- -- 12,108 -- --
Dividends.................................... -- -- -- (7,647) -- --
Deferred financing costs and other, net...... (8,839) (179) (276) (91,852) 17 (3,572 )
----------- ----------- ----------- ----------- --------- -----------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES................................... 54,914 (24,160) 11,564 470,668 2,469 (28,729 )
----------- ----------- ----------- ----------- --------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................. 612 7,907 (13,436) 48,423 (2,636) (9,441 )
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD....................................... 24,477 25,089 32,996 19,560 19,560 67,983
----------- ----------- ----------- ----------- --------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.... $ 25,089 $ 32,996 $ 19,560 $ 67,983 $ 16,924 $ 58,542
=========== =========== =========== =========== ========= ===========
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED (USED) BY OPERATING ACTIVITIES:
Net loss..................................... $ (27,363) $ (2,700) $ (11,500) $ (283,245) $ (2,812) $ (31,981 )
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization................ 62,541 62,555 40,036 133,522 16,083 40,018
Restructuring charge......................... -- -- 5,134 123,083 -- --
Extraordinary charge......................... -- -- -- 23,128 -- --
Loss (gain) on sale of assets................ (4,613) 65 (455) (547) (417) (3 )
Change in assets and liabilities, net of
effects
from acquisition of businesses:
Accounts and notes receivable.............. 17,145 (3,220) (3,398) (74) 9,474 136
Inventories................................ 17,697 (17,125) (11,794) 762 15,838 19,289
Prepaid expenses and other................. (5,956) (5,717) (11,239) (18,291) 1,493 500
Accounts payable and accrued liabilities... (83,286) 55,301 18,715 3,327 (27,775) 23,618
Self-insurance liabilities................. 2,935 (3,790) (8,965) 737 (1,653) 2,875
Deferred income taxes...................... 4,004 2,506 2,794 454 -- --
Income taxes payable....................... 394 (53) (1,707) 302 295 --
----------- ----------- ----------- ----------- --------- -----------
Total adjustments............................ 10,861 90,522 29,121 266,403 13,338 86,433
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES................................... $ (16,502) $ 87,822 $ 17,621 $ (16,842) $ 10,526 $ 54,452
=========== =========== =========== =========== ========= ===========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Purchase of property and equipment through
issuance of capital lease obligation....... $ -- $ 2,575 $ 4,304 $ 24,008 $ -- $ --
=========== =========== =========== =========== ========= ===========
Reduction of goodwill and deferred income
taxes...................................... $ -- $ 9,896 $ -- $ -- $ -- $ --
=========== =========== =========== =========== ========= ===========
Acquisition of stores in fiscal year 1994 and
RSI
in fiscal year 1995
Fair value of assets acquired, including
goodwill................................. $ -- $ 11,241 $ -- $ 2,098,220 $ -- $ --
Net cash paid in acquisition............... -- (11,050) -- (303,301) -- --
Capital contribution from parent........... -- -- -- (262,000) -- --
----------- ----------- ----------- ----------- --------- -----------
Liabilities assumed........................ $ -- $ 191 $ -- $ 1,532,919 $ -- $ --
=========== =========== =========== =========== ========= ===========
Accretion of preferred stock................. $ 3,882 $ 8,767 $ 6,139 $ 3,960 $ 2,376 $ --
=========== =========== =========== =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 121
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK TREASURY STOCK
------------------ ------------------ -----------------
NUMBER NUMBER NUMBER STOCK- ADD'L STOCK-
OF OF OF HOLDERS' PAID-IN RETAINED HOLDER'S
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT NOTES CAPITAL DEFICIT EQUITY
------- -------- --------- ------ ------- ------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT JUNE 27,
1992................. -- $ -- 1,398,514 $ 14 (3,637) $ (429) $ (939) $103,999 $ (51,874) $ 50,771
Net loss............. -- -- -- -- -- -- -- -- (27,363) (27,363)
Issuance of Common
Stock.............. -- -- 121,118 1 -- -- -- 3,651 -- 3,652
Purchase of Treasury
Stock.............. -- -- -- -- (9,612) (770) 225 -- -- (545)
Issuance of
Cumulative
Convertible
Preferred Stock.... 50,000 46,348 -- -- -- -- -- -- -- 46,348
Accretion of
Preferred Stock.... -- 3,882 -- -- -- -- -- -- (3,882) --
------- -------- --------- --- ------- ------- ----- --------- --------- ---------
BALANCES AT JUNE 26,
1993................. 50,000 50,230 1,519,632 15 (13,249) (1,199) (714) 107,650 (83,119) 72,863
Net loss............. -- -- -- -- -- -- -- -- (2,700) (2,700)
Purchase of Treasury
Stock.............. -- -- -- -- (3,483) (1,270) 78 -- -- (1,192)
Payments of
Stockholders'
Notes.............. -- -- -- -- -- -- 50 -- -- 50
Accretion of
Preferred Stock.... -- 8,767 -- -- -- -- -- -- (8,767) --
------- -------- --------- --- ------- ------- ----- --------- --------- ---------
BALANCES AT JUNE 25,
1994................. 50,000 58,997 1,519,632 15 (16,732) (2,469) (586) 107,650 (94,586) 69,021
Net loss............. -- -- -- -- -- -- -- -- (11,500) (11,500)
Issuance of Treasury
Stock.............. -- -- -- -- 5,504 460 (191) -- -- 269
Purchase of Treasury
Stock.............. -- -- -- -- (1,117) (62) 5 -- -- (57)
Payments of
Stockholders'
Notes.............. -- -- -- -- -- -- 70 -- -- 70
Accretion of
Preferred Stock.... -- 6,139 -- -- -- -- -- -- (6,139) --
------- -------- --------- --- ------- ------- ----- --------- --------- ---------
BALANCES AT JANUARY 29,
1995................. 50,000 65,136 1,519,632 15 (12,345) (2,071) (702) 107,650 (112,225) 57,803
Net Loss............. -- -- -- -- -- -- -- -- (283,245) (283,245)
Payments of
Stockholders'
Notes.............. -- -- -- -- -- -- 100 -- -- 100
Accretion of
Preferred Stock.... -- 3,960 -- -- -- -- -- -- (3,960) --
Cancellation of
Preferred Stock.... (50,000) (69,096) -- -- -- -- -- 69,096 -- --
Cancellation of F4LSI
Common Stock held
as Treasury
Stock.............. -- -- (5,694) -- 5,694 955 -- (955) -- --
Cancellation of F4L
Holdings Common
Stock held as
Treasury Stock..... -- -- -- -- 6,651 1,116 -- (1,116) -- --
Dividend paid to F4L
Holdings, Inc...... -- -- -- -- -- -- -- -- (7,647) (7,647)
Capital Contribution
by F4L Holdings,
Inc................ -- -- -- -- -- -- -- 282,108 -- 282,108
Issuance of Stock
Options............ -- -- -- -- -- -- -- 10,000 -- 10,000
------- -------- --------- --- ------- ------- ----- --------- --------- ---------
BALANCES AT JANUARY 28,
1996................. -- $ -- 1,513,938 $ 15 -- $ -- $ (602) $466,783 $(407,077) $ 59,119
======= ======== ========= === ======= ======= ===== ========= ========= =========
Net loss
(unaudited)........ -- -- -- -- -- -- -- -- (31,981) (31,981)
------- -------- --------- --- ------- ------- ----- --------- --------- ---------
BALANCES AT APRIL 21,
1996 (UNAUDITED)..... -- $ -- 1,513,938 $ 15 -- $ -- $ (602) $466,783 $(439,058) $ 27,138
======= ======== ========= === ======= ======= ===== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE> 122
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND ACQUISITIONS
Ralphs Grocery Company (the "Company"), formerly known as Food 4 Less
Supermarkets, Inc. ("Food 4 Less"), a wholly-owned subsidiary of Food 4 Less
Holdings, Inc. ("Holdings"), is a multiple format supermarket operator that
tailors its retail strategy to the particular needs of the individual
communities it serves. The Company operates in three geographic areas: Southern
California, Northern California and certain areas of the Midwest. The Company
has four first-tier subsidiaries: Cala Co. ("Cala"), Falley's, Inc.
("Falley's"), Food 4 Less of Southern California, Inc. ("F4L-SoCal"), formerly
known as Breco Holding Company, Inc. ("BHC") and Crawford Stores, Inc. Cala
Foods, Inc. ("Cala Foods") and Bell Markets, Inc. ("Bell") are subsidiaries of
Cala, and Alpha Beta Company ("Alpha Beta") is a subsidiary of F4L-SoCal.
Ralphs Merger
On June 14, 1995, Food 4 Less, Food 4 Less Holdings, Inc., a California
corporation ("Old Holdings"), and Food 4 Less, Inc. ("FFL") (which owned a
majority of the stock of Old Holdings) completed a definitive agreement and plan
of merger (the "Merger Agreement") with Ralphs Supermarkets, Inc. ("RSI") and
the stockholders of RSI. Pursuant to the terms of the Merger Agreement, as
amended, the Company was merged with and into RSI (the "RSI Merger").
Immediately following the RSI Merger, pre-Merger Ralphs Grocery Company ("RGC"),
which was a wholly-owned subsidiary of RSI, merged with and into RSI (the "RGC
Merger," and together with the RSI Merger, the "Merger"), and RSI changed its
name to Ralphs Grocery Company (the "Company"). Prior to the Merger, FFL merged
with and into Old Holdings, which was the surviving corporation (the "FFL
Merger"). Immediately following the FFL Merger, Old Holdings changed its
jurisdiction of incorporation by merging into a newly-formed, wholly-owned
subsidiary ("Holdings"), incorporated in Delaware (the "Reincorporation
Merger"). As a result of the Merger, the FFL Merger and the Reincorporation
Merger, the Company became a wholly-owned subsidiary of Holdings.
The purchase price for the outstanding capital stock of RSI was $538.1
million; the Company paid $288.1 million in cash, Holdings paid $100.0 million
in cash, and Holdings issued $131.5 million of its Seller Debentures and $18.5
million of its New Discount Debentures as consideration for the purchase. The
Company also paid fees associated with the acquisition of $47.8 million
(including a prepayment premium on outstanding mortgage debt of RGC of $19.7
million), which was offset by RGC's cash on hand at the Merger date of $32.6
million.
The proceeds from the New Credit Facility, the 1995 Senior Notes and the
1995 11% Senior Subordinated Notes (all as defined below) provided the sources
of financing required to pay the Company's portion of the purchase price and to
repay outstanding bank debt of Food 4 Less and RGC of $176.5 million and $228.9
million, respectively, and to repay existing mortgage debt of $174.0 million of
RGC. In addition, the Company exchanged certain of its newly issued senior notes
and senior subordinated notes for outstanding indebtedness of RGC and Food 4
Less. Proceeds from the New Credit Facility also were used to pay certain
exchange and consent solicitation fees associated with the above transactions,
and to pay accrued interest on all exchanged debt securities in the amount of
$27.8 million, to pay $17.8 million to the holders of the RGC Equity
Appreciation Rights and to loan $5.0 million to an affiliate for the benefit of
such holders, to pay approximately $93.3 million of fees and expenses of the
Merger and the related financing and to pay $3.5 million to purchase shares of
common stock of Old Holdings from certain dissenting shareholders. In addition,
Holdings issued $22.5 million of its New Discount Debentures in consideration
for certain Merger-related services.
In connection with the closure of two former RGC warehouse facilities and
nine former RGC stores (including three stores which were part of an antitrust
settlement agreement with the State of California), the Company recorded a
reserve of $24.9 million in the purchase price allocation. This reserve includes
lease
F-8
<PAGE> 123
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
termination costs, write-off of the property and equipment at these locations
and closure costs. These closures are expected to be completed by June 1996.
Also, a reserve of $12.0 million was recorded for administrative cost reductions
mainly associated with duplicative personnel.
The following unaudited pro forma information for the 52 weeks ended
January 29, 1995 and the 52 weeks ended January 28, 1996 presents the results of
the Company's operations, adjusted to reflect interest expense and depreciation
and amortization, as though the Merger had been completed on January 31, 1994.
The unaudited pro forma information for the 12 weeks ended April 23, 1995 is
presented as though the Merger was completed on January 30, 1995 (dollars in
thousands, except per share amounts):
<TABLE>
<CAPTION>
FOR THE
------------------------------------------
52 WEEKS 52 WEEKS 12 WEEKS
ENDED ENDED ENDED
JANUARY 29, JANUARY 28, APRIL 23,
1995 1996 1995
----------- ----------- ----------
<S> <C> <C> <C>
Sales.......................................... $ 5,301,411 $ 5,360,800 $1,261,101
Restructuring charge........................... (128,217) -- (75,187)
Loss before extraordinary charge............... (228,624) (93,244) (119,642)
Net loss....................................... (251,752) (93,244) (142,770)
Loss per share:
Loss before extraordinary charge............. (151.01) (61.59) (79.03)
Net loss..................................... (166.29) (61.59) (94.30)
</TABLE>
Incremental costs of $74.8 million associated with the integration of RGC
into the Company, including advertising the conversion of Food 4 Less stores to
the Ralphs format, combining the Food 4 Less and RGC warehousing and
distribution functions and markdowns recorded at converted stores and stores
closed, were recorded in the actual statement of operations for fiscal year 1995
and are recorded in the pro forma 52 weeks ended January 29, 1995 only. The
unaudited pro forma results of operations are not necessarily indicative of the
actual results of operations that would have occurred had the purchases actually
been made on January 31, 1994, or of the results which may occur in the future.
The accompanying consolidated financial statements include the preliminary
allocation of the RGC purchase price. Certain appraisals and other analyses
needed to determine the fair market value of RGC's net assets as of the Merger
date are not yet completed. The final purchase price allocation will be
completed by June 1996.
On March 29, 1994, the Company purchased certain operating assets formerly
owned by Food Barn Stores, Inc. (the "Food Barn Stores") from Associated
Wholesale Grocers, Inc. ("AWG") (the "Food Barn Acquisition") for $11.2 million.
The effect of the acquisition was not material to the Company's financial
position and results of operations. Falley's has agreed to purchase merchandise
(as defined) for the Food Barn Stores from AWG through March 24, 2001. Falley's
has pledged its patronage dividends and notes receivable from AWG as security
under this supply agreement.
On June 17, 1991, the Company acquired all of the common stock of Alpha
Beta for $270.5 million in a transaction accounted for as a purchase.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. The results of operations of
pre-Merger Ralphs Grocery Company and all previous acquisitions have been
excluded from the consolidated financial statements for periods prior to their
respective acquisition dates. All intercompany transactions have been eliminated
in consolidation.
F-9
<PAGE> 124
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Fiscal Years
Food 4 Less, together with its subsidiaries, changed its fiscal year end
from the 52 or 53-week period which ends on the last Saturday in June to the 52
or 53-week period which ends on the Sunday closest to January 31, resulting in a
31-week transition period ended January 29, 1995. As a result of the fiscal year
end change, the 52-week period ended June 26, 1993 is referred to as fiscal year
1993, the 52-week period ended June 25, 1994 is referred to as fiscal year 1994,
the 31-week period ended January 29, 1995 is referred to as the 1995 transition
period and the 52-week period ended January 28, 1996 is referred to as fiscal
year 1995. In addition, information presented below concerning subsequent fiscal
years starts with fiscal year 1996, which will cover the 53 weeks ended February
2, 1997 and will proceed sequentially forward.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three months or
less to be cash equivalents.
Inventories
Inventories, which consist of grocery products, are stated at the lower of
cost or market. Cost has been principally determined using the last-in,
first-out ("LIFO") method. If inventories had been valued using the first-in,
first-out ("FIFO") method, inventories would have been higher by $13.8 million,
$16.5 million, $18.7 million and $20.0 million (unaudited) at June 25, 1994,
January 29, 1995, January 28, 1996 and April 21, 1996, respectively, and gross
profit and operating income would have been greater by $4.4 million, $0.7
million, $2.7 million, $2.2 million, $1.0 million (unaudited) and $1.3 million
(unaudited) for fiscal year 1993, fiscal year 1994, the 1995 transition period,
fiscal year 1995, the first quarter of fiscal year 1995 and the first quarter of
fiscal year 1996, respectively.
Pre-opening Costs
The costs associated with opening new stores are deferred and amortized
over one year following the opening of each new store.
Closed Store Reserves
When a store is closed, the Company provides a reserve for the net book
value of its property and equipment, net of salvage value, and the net present
value of the remaining lease obligation, net of sublease income. For fiscal year
1993, fiscal year 1994, the 1995 transition period and fiscal year 1995 (which
includes activity due to the Merger), utilization of this reserve was $2.4
million, $1.1 million, $0.6 million and $23.0 million, respectively.
Investments in Supplier Cooperatives
The investment in Certified is accounted for on the cost method. There are
certain restrictions on the sale of this investment.
F-10
<PAGE> 125
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Property and Equipment
Property and equipment are stated at cost and are depreciated principally
using the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements........................... 5-40 years
Equipment and fixtures............................... 3-10 years
Property under capital leases and leasehold
interests.......................................... 3-45 years (lease term)
</TABLE>
Deferred Financing Costs
Costs incurred in connection with the issuance of debt are amortized over
the term of the related debt using the effective interest method.
Goodwill
The excess of the purchase price over the fair value of the net assets of
businesses acquired is amortized on a straight-line basis over 40 years
beginning at the date of acquisition. Current and undiscounted future operating
cash flows are compared to current and undiscounted future goodwill amortization
to determine if an impairment of goodwill has occurred and is continuing. As of
January 28, 1996, no impairment existed.
Income Taxes
On June 27, 1993, the Company prospectively adopted Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes". SFAS 109
is an asset and liability approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns. In
estimating future tax consequences, SFAS 109 generally considers all expected
future events other than enactments of changes in the tax law or rates.
The implementation of SFAS 109 did not have a material effect on the
accompanying consolidated financial statements.
Notes Receivable from Stockholders of Parent
Notes receivable from stockholders of parent represent loans to employees
of the Company for purchases of Holdings' common stock. The notes are due over
various periods, bear interest at the prime rate, and are secured by each
stockholder's shares of Holdings' common stock.
Self-Insurance
The Company is self-insured for a portion of its workers' compensation,
general liability and automobile accident claims. The Company establishes
reserves based on an independent actuary's valuation of open claims reported and
an estimate of claims incurred but not yet filed.
Discounts and Promotional Allowances
Promotional allowances and vendor discounts are recorded as a reduction of
cost of sales in the accompanying consolidated statements of operations.
Allowance proceeds received in advance are deferred and recognized over the
period earned.
F-11
<PAGE> 126
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Provision for Earthquake Losses
On January 17, 1994, Southern California was struck by a major earthquake
which resulted in the temporary closure of 31 of the Company's stores. The
closures were caused primarily by loss of electricity, water, or inventory, or
structural damage. All but one of the closed stores reopened within a week of
the earthquake. The final closed store reopened on March 24, 1994. The Company
is insured against earthquake losses (including business interruption), subject
to certain deductibles. The pre-tax loss, net of insurance recoveries, was
approximately $4.5 million.
Extraordinary Items
For the 52 weeks ended January 28, 1996, the Company recorded an
extraordinary charge relating to the refinancing of Food 4 Less' Old Credit
Facility, 10.45% Senior Notes due 2000 (the "1992 Senior Notes"), 13.75% Senior
Subordinated Notes due 2001 (the "1991 Senior Subordinated Notes"), the
repayment of Holdings' 15.25% Senior Discount Notes due 2004 in connection with
the Merger and the write-off of their related debt issuance costs.
Loss Per Common Share
Loss per common share is computed based on the weighted average number of
shares outstanding during the applicable period. Fully diluted loss per share
has been omitted as it is anti-dilutive for all periods presented.
Use of Estimates in Preparation of Financial Statements
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 the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of" (SFAS 121) and Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
(SFAS 123). The Company will be required to adopt SFAS 121 and SFAS 123 in
fiscal year 1996. The Company does not expect that the adoption of SFAS 121 or
SFAS 123 will have a material effect on its financial position or its results of
operations in fiscal year 1996.
Reclassifications
Certain prior period amounts in the consolidated financial statements have
been reclassified to conform to the fiscal year 1995 presentation.
(3) PREFERRED STOCK
On December 31, 1992, the Company issued 50,000 shares of $.01 par value
Series A cumulative convertible preferred stock (the "Preferred Stock") with a
liquidation value of $1,000 per share and 121,118 shares of its $.01 par value
common stock (the "Common Stock") to its parent company, Holdings, in exchange
for gross proceeds of $50.0 million. The Preferred Stock had a stated dividend
rate of $152.50 per
F-12
<PAGE> 127
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
share, per annum. In order to finance the purchase of the Preferred and Common
Stock from the Company, Holdings issued $103.6 million aggregate principal
amount of 15.25% Senior Discount Notes due 2004 (the "Holdings Notes") and
121,118 Common Stock Purchase Warrants (the "Warrants") for gross proceeds of
$50.0 million.
In connection with the Merger, the Preferred Stock was cancelled. The
accreted amount of the Preferred Stock at the date of the Merger was contributed
to the Company's capital and is reflected in the accompanying 1995 Consolidated
Statement of Stockholder's Equity as a component of additional paid-in capital.
Also, at the time of the Merger, Holdings repaid its borrowings under the
Holdings Notes.
(4) SENIOR DEBT AND SENIOR SUBORDINATED DEBT
The Company's senior debt is summarized as follows:
<TABLE>
<CAPTION>
AS OF
--------------------------------------------
JUNE 25, JANUARY 29, JANUARY 28,
1994 1995 1996
------------ ------------ --------------
<S> <C> <C> <C>
New Term Loans..................................... $ -- $ -- $ 590,426,000
Old Term Loan...................................... 137,064,000 125,732,000 --
10.45% Senior Notes, principal due 2004 with
interest payable semi-annually in arrears........ -- -- 520,326,000
10.45% Senior Notes, principal due 2000 with
interest payable semi-annually in arrears........ 175,000,000 175,000,000 4,674,000
New Revolving Facility............................. -- -- 127,400,000
Old Revolving Loan................................. -- 27,300,000 --
10.0% secured promissory note, collateralized by
the stock of Bell, due June 1996, interest
payable quarterly................................ 8,000,000 8,000,000 8,000,000
Other senior debt.................................. 9,194,000 7,132,000 7,211,000
------------ ------------ --------------
329,258,000 343,164,000 1,258,037,000
Less -- current portion............................ 18,314,000 22,263,000 31,735,000
------------ ------------ --------------
$310,944,000 $320,901,000 $1,226,302,000
============ ============ ==============
</TABLE>
Senior Debt
As part of the Merger financing, the Company entered into a new bank credit
agreement (the "New Credit Facility") comprised of a $600.0 million term loan
facility (the "New Term Loans") and a revolving credit facility of $325.0
million (the "New Revolving Facility") under which working capital loans may be
made and commercial or standby letters of credit in the maximum aggregate amount
of up to $150.0 million may be issued.
At January 28, 1996, $590.4 million was outstanding under the New Term
Loans, $127.4 million was outstanding under the New Revolving Facility, and
$92.7 million of standby letters of credit had been issued on behalf of the
Company. A commitment fee of one-half of one percent per annum is charged on the
average daily unused portion of the New Revolving Facility; such commitment fees
are due quarterly in arrears. Interest on borrowings under the New Term Loans is
due quarterly in arrears and is at the bank's Base Rate (as defined) plus a
margin ranging from 1.50 percent to 2.75 percent or the Adjusted Eurodollar Rate
(as defined) plus a margin ranging from 2.75 percent to 4.00 percent. At January
28, 1996, the weighted average interest rate on the New Term Loans was 9.19
percent. Interest on borrowings under the New Revolving Facility is at the
bank's Base Rate (as defined) plus a margin of 1.50 percent or the Adjusted
Eurodollar Rate
F-13
<PAGE> 128
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(as defined) plus a margin of 2.75 percent; at January 28, 1996, the interest
rate on the New Revolving Facility was 9.05 percent.
On October 11, 1995, the Company entered into an interest rate collar
agreement with the New Credit Facility Administrative Agent which effectively
set interest rate limits on $300.0 million of the Company's New Term Loans. This
interest rate collar, which was effective as of October 19, 1995, limits the
interest rate fluctuation of the Adjusted Eurodollar Rate (as defined) to a
range between 4.5 percent and 8.0 percent for two years. This agreement
satisfies the interest rate protection requirements under the New Credit
Facility.
Quarterly principal installments on the New Term Loans continue to December
2003, with amounts payable in each year as follows: $19.3 million in fiscal
1996, $46.0 million in fiscal 1997, $58.5 million in fiscal 1998, $62.0 million
in fiscal 1999, $65.6 million in fiscal 2000, and $339.0 million thereafter. The
principal installments can be accelerated if the Company receives proceeds on
the sale of certain of its assets in the future. To the extent that borrowings
under the New Revolving Facility are not paid earlier, they are due in December
2003. The common stock of the Company and certain of its direct and indirect
subsidiaries has been pledged as security under the New Credit Facility.
The Company issued $350.0 million of 10.45% Senior Notes due 2004 (the
"1995 Senior Notes") and exchanged $170.3 million principal amount of 1995
Senior Notes for an equal amount of the 10.45% F4L Senior Notes due 2000 (the
"1992 Senior Notes") (together with the 1995 Senior Notes, the "Senior Notes"),
leaving an outstanding balance of $4.7 million of the 1992 Senior Notes. The
1992 Senior Notes are due in two equal sinking fund payments on April 15, 1999
and 2000. The Senior Notes are senior unsecured obligations of the Company and
rank "pari passu" in right of payment with other senior unsecured indebtedness
of the Company. However, the Senior Notes are effectively subordinated to all
secured indebtedness of the Company and its subsidiaries, including indebtedness
under the New Credit Facility. Interest on the 1995 Senior Notes is payable
semiannually in arrears on each June 15 and December 15. Interest on the 1992
Senior Notes is payable semiannually in arrears on each April 15 and October 15.
The 1995 Senior Notes may be redeemed, at the option of the Company, in
whole at any time or in part from time to time, beginning in fiscal 2000, at a
redemption price of 105.225 percent. The redemption price declines ratably to
100 percent in fiscal 2003. In addition, on or prior to June 15, 1998, the
Company may, at its option, use the net cash proceeds of one or more public
equity offerings to redeem up to an aggregate of 35 percent of the principal
amount of the 1995 Senior Notes originally issued, at a redemption price equal
to 110.450 percent, 108.957 percent, and 107.464 percent of the principal amount
thereof if redeemed during the 12 months commencing on June 15, 1995, June 15,
1996, and June 15, 1997, respectively, in each case plus accrued and unpaid
interest, if any, to the redemption date. The 1992 Senior Notes may be redeemed
beginning in fiscal year 1996 at 104.48 percent, declining ratably to 100
percent in fiscal year 1999.
Scheduled maturities of principal of senior debt at January 28, 1996 are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------------------
<S> <C>
1996................................. $ 31,735,000
1997................................. 46,246,000
1998................................. 58,739,000
1999................................. 62,280,000
2000................................. 65,805,000
Later years.......................... 993,232,000
--------------
$1,258,037,000
==============
</TABLE>
F-14
<PAGE> 129
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Senior Subordinated Debt
Concurrent with the Merger, the Company issued $100.0 million of 11% Senior
Subordinated Notes due 2005 (the "1995 11% Senior Subordinated Notes") and (i)
exchanged $142.2 million principal amount of the RGC 9% Senior Subordinated
Notes due 2003 (the "Old RGC 9% Notes") and $281.8 million principal amount of
the RGC 10.25% Senior Subordinated Notes due 2002 (the "Old RGC 10.25% Notes,"
and together with the Old RGC 9% Notes, the "Old RGC Notes") for an equal amount
of 1995 11% Senior Subordinated Notes, (ii) purchased $7.5 million principal
amount of Old RGC 9% Notes and $15.2 million principal amount of Old RGC 10.25%
Notes in conjunction with the offers, and (iii) subsequently purchased $0.1
million principal amount of Old RGC 9% Notes and $1.0 million principal amount
of Old RGC 10.25% Notes subject to the change of control provision, leaving an
outstanding balance of $0.1 million on the Old RGC 9% Notes and an outstanding
balance of $2.1 million on the Old RGC 10.25% Notes. The 1995 11% Senior
Subordinated Notes are senior subordinated unsecured obligations of the Company
and are subordinated in right of payment to all senior indebtedness, including
the Company's obligations under the New Credit Facility and the Senior Notes.
Interest on the 1995 11% Senior Subordinated Notes is payable semiannually in
arrears on each June 15 and December 15.
The 1995 11% Senior Subordinated Notes may be redeemed at the option of the
Company, in whole at any time or in part from time to time, beginning in fiscal
year 2000, at an initial redemption price of 105.5 percent. The redemption price
declines ratably to 100 percent in fiscal year 2003. In addition, on or prior to
June 15, 1998, the Company may, at its option, use the net cash proceeds of one
or more public equity offerings to redeem up to an aggregate of 35 percent of
the principal amount of the 1995 11% Senior Subordinated Notes originally
issued, at a redemption price equal to 111 percent, 109.429 percent, and 107.857
percent of the principal amount thereof if redeemed during the 12 months
commencing on June 15, 1995, June 15, 1996, and June 15, 1997, respectively, in
each case plus accrued and unpaid interest, if any, to the redemption date.
The Company exchanged $140.2 million 13.75% Senior Subordinated Notes due
2005 (the "1995 13.75% Senior Subordinated Notes") for an equal amount of 13.75%
Senior Subordinated Notes due 2001 (the "1991 Senior Subordinated Notes," and
together with the 1995 13.75% Senior Subordinated Notes, the "13.75% Senior
Subordinated Notes") of the Company, leaving an outstanding balance of $4.8
million of the 1991 Senior Subordinated Notes. The 13.75% Senior Subordinated
Notes are senior subordinated unsecured obligations of the Company and are
subordinated in right of payment to all senior indebtedness, including the
Company's obligations under the New Credit Facility and the Senior Notes.
Interest on the 13.75% Senior Subordinated Notes is payable semiannually in
arrears on each June 15 and December 15 commencing on December 15, 1995. The
1995 13.75% Senior Subordinated Notes may be redeemed beginning in fiscal year
1996 at a redemption price of 106.111 percent. The redemption price declines
ratably to 100 percent in fiscal year 2000.
Financial Covenants
The New Credit Facility, among other things, requires the Company to
maintain minimum levels of net worth (as defined), to maintain minimum levels of
earnings, to maintain a hedge agreement to provide interest rate protection, and
to comply with certain ratios related to fixed charges and indebtedness. During
fiscal 1995, certain financial covenants and other terms of the New Credit
Facility were amended to, among other things, provide for the acquisition of
Smith's Food and Drug Centers, Inc. ("Smith's") Riverside distribution and
creamery facility, the acquisition of certain operating assets and inventory at
that facility, the acquisition of nine of the Smith's Southern California stores
and the closure of up to nine stores in conjunction with these acquisitions. In
addition, the New Credit Facility and the indentures governing the Company's
debt securities limit, among other things, additional borrowings, dividends on,
and redemption of, capital stock and the
F-15
<PAGE> 130
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
acquisition and the disposition of assets. At January 28, 1996, the Company was
in compliance with the financial covenants of its debt agreements. At January
28, 1996, dividends and certain other payments are restricted based on terms in
the debt agreements.
(5) LEASES
The Company's operations are conducted primarily in leased properties.
Substantially all leases contain renewal options. Rental expense under operating
leases was as follows:
<TABLE>
<CAPTION>
FOR THE
-----------------------------------------------------------
52 WEEKS 52 WEEKS 31 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED
JUNE 26, JUNE 25, JANUARY 29, JANUARY 28,
1993 1994 1995 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Minimum rents......... $44,504,000 $49,788,000 $33,458,000 $97,752,000
Rents based on
sales............... 5,917,000 3,806,000 1,999,000 3,439,000
</TABLE>
Following is a summary of future minimum lease payments under operating
leases at January 28, 1996:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
1996................................. $ 123,705,000
1997................................. 116,285,000
1998................................. 105,502,000
1999................................. 102,714,000
2000................................. 98,506,000
Later years.......................... 772,372,000
---------------
$1,319,084,000
===============
</TABLE>
The Company has entered into lease agreements for new supermarket sites and
one warehouse facility which were not in operation at January 28, 1996. Future
minimum lease payments under such operating leases generally begin when such
facilities open and at January 28, 1996 are: 1996 -- $19.8 million; 1997 --
$35.2 million; 1998 -- $35.2 million; 1999 -- $35.3 million; 2000 -- $35.3
million; later years -- $561.0 million.
F-16
<PAGE> 131
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Certain leases qualify as capital leases under the criteria established in
Statement of Financial Accounting Standards No. 13, "Accounting for Leases", and
are classified on the consolidated balance sheets as leased property under
capital leases. Future minimum lease payments for the property under capital
leases at January 28, 1996 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
1996................................................... $ 37,373,000
1997................................................... 34,820,000
1998................................................... 28,818,000
1999................................................... 22,644,000
2000................................................... 17,353,000
Later years............................................ 123,686,000
------------
Total minimum lease payments................. 264,694,000
Less: amounts representing interest.................... 111,649,000
------------
Present value of minimum lease payments................ 153,045,000
Less: current portion.................................. 22,261,000
------------
$130,784,000
============
</TABLE>
Accumulated depreciation related to assets financed under capital leases
was $24.0 million, $27.6 million and $42.7 million at June 25, 1994, January 29,
1995 and January 28, 1996, respectively.
The Company is leasing a distribution facility and four store locations
from the previous owner of Alpha Beta. The agreement contains a purchase option
for the land, buildings and improvements and equipment at a price that equals or
exceeds the estimated fair market value throughout the term of the lease.
(6) INVESTMENT IN A.W.G.
The investment in Associated Wholesale Grocers ("A.W.G.") consists
principally of the cooperative's six percent interest-bearing seven and
eight-year patronage certificates received in payment of certain rebates.
Following is a summary of future maturities based upon current redemption terms:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
1996..................................... $ --
1997..................................... 1,060,000
1998..................................... 1,520,000
1999..................................... 1,504,000
2000..................................... 1,478,000
Later years.............................. 1,726,000
----------
$7,288,000
==========
</TABLE>
F-17
<PAGE> 132
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 31 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED
JUNE 26, JUNE 25, JANUARY 29, JANUARY 28,
1993 1994 1995 1996
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Current:
Federal............................................... $ -- $ 3,251,000 $(2,894,000) $ --
State and other....................................... 82,000 712,000 100,000 46,000
---------- ----------- ----------- ---------
82,000 3,963,000 (2,794,000) 46,000
---------- ----------- ----------- ---------
Deferred:
Federal............................................... 1,345,000 (70,000) 2,794,000 --
State and other....................................... -- (1,193,000) -- 454,000
---------- ----------- ----------- ---------
1,345,000 (1,263,000) 2,794,000 454,000
---------- ----------- ----------- ---------
$1,427,000 $ 2,700,000 $ -- $ 500,000
========== =========== =========== =========
</TABLE>
A reconciliation of the provision (benefit) for income taxes to amounts
computed at the federal statutory rates of 34 percent for fiscal 1993 and 35
percent for fiscal 1994, the 1995 transition period and fiscal 1995 is as
follows:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 31 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED
JUNE 26, JUNE 25, JANUARY 29, JANUARY 28,
1993 1994 1995 1996
----------- ---------- ----------- ------------
<S> <C> <C> <C> <C>
Federal income taxes at statutory rate on loss
before provision for income taxes and
extraordinary charges.......................... $(8,818,000) $ -- $(4,025,000) $(98,959,000)
State and other taxes, net of federal tax
benefit........................................ 82,000 (1,000) 65,000 (16,794,000)
Alternative minimum tax.......................... -- -- -- --
Effect of permanent differences resulting
primarily from amortization of goodwill and
debt costs..................................... 2,850,000 2,820,000 1,701,000 (1,665,000)
Tax credits and other............................ -- -- -- 3,769,000
Accounting limitation (recognition) of deferred
tax benefit.................................... 7,313,000 (119,000) 2,259,000 114,149,000
---------- ---------- ---------- ------------
$1,427,000 $2,700,000 $ -- $ 500,000
========== ========== ========== ============
</TABLE>
F-18
<PAGE> 133
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The provision (benefit) for deferred taxes consists of the following:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 31 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED
JUNE 26, JUNE 25, JANUARY 29, JANUARY 28,
1993 1994 1995 1996
---------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Depreciation.......................................... $7,756,000 $ 2,536,000 $(1,513,000) $ (461,000)
Difference between book and tax basis of assets
sold................................................ 3,198,000 (4,223,000) 2,505,000 --
Deferred revenues and allowances...................... 40,000 (2,349,000) 707,000 --
Inventory............................................. -- -- -- (8,479,000)
Pre-opening costs..................................... (512,000) 174,000 784,000 --
Accounts receivable reserves.......................... (270,000) 249,000 80,000 --
Unicap................................................ (5,000) (536,000) (755,000) --
Capital lease obligation.............................. (1,385,000) 2,792,000 527,000 (502,000)
Self-insurance reserves............................... (4,082,000) (535,000) 5,523,000 2,104,000
Inventory shrink reserve.............................. 777,000 (869,000) (569,000) --
LIFO.................................................. (554,000) (1,010,000) (1,303,000) --
Closed store reserve.................................. 1,092,000 440,000 176,000 --
Accrued expense....................................... -- (582,000) 350,000 (26,304,000)
Accrued payroll and related liabilities............... 193,000 1,721,000 (3,879,000) (6,206,000)
Acquisition costs..................................... 2,626,000 1,397,000 (5,444,000) --
Tax intangibles....................................... -- -- -- 6,234,000
Sales tax reserves.................................... (715,000) (418,000) 433,000 --
State taxes........................................... -- -- -- (20,639,000)
Deferred rent subsidy................................. (483,000) (624,000) (29,000) --
Net operating losses.................................. -- -- -- (61,219,000)
Net operating loss usage.............................. -- 5,782,000 (6,963,000) --
Tax credits........................................... -- -- -- 3,601,000
Tax credits benefited................................. (1,392,000) (4,477,000) 1,711,000 --
Accounting limitation (recognition) of deferred tax
benefit............................................. (4,591,000) (1,085,000) 10,494,000 114,149,000
Other, net............................................ (348,000) 354,000 (41,000) (1,824,000)
----------- ----------- ----------- ------------
$1,345,000 $(1,263,000) $ 2,794,000 $ 454,000
=========== =========== =========== ============
</TABLE>
F-19
<PAGE> 134
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The significant components of the Company's deferred tax assets
(liabilities) are as follows:
<TABLE>
<CAPTION>
JUNE 25, JANUARY 29, JANUARY 28,
1994 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
Deferred tax assets:
Accrued payroll and related liabilities....... $ 2,448,000 $ 6,248,000 $ 27,579,000
Other accrued liabilities..................... 13,953,000 12,080,000 71,954,000
Obligations under capital leases.............. -- -- 37,584,000
Property and equipment........................ 2,997,000 -- --
Self-insurance liabilities.................... 27,744,000 25,204,000 49,773,000
Loss carryforwards............................ 20,675,000 27,638,000 154,202,000
Tax credit carryforwards...................... 5,869,000 4,157,000 913,000
State taxes................................... -- -- 30,210,000
Other......................................... 580,000 570,000 18,026,000
------------ ------------ -------------
Gross deferred tax assets.................. 74,266,000 75,897,000 390,241,000
Valuation allowance........................... (31,149,000) (41,643,000) (285,506,000)
------------ ------------ -------------
Net deferred tax assets.................... $ 43,117,000 $ 34,254,000 $ 104,735,000
------------ ------------ -------------
Deferred tax liabilities:
Inventories................................... $(16,738,000) $(11,690,000) $ (9,762,000)
Property and equipment........................ (30,516,000) (28,527,000) (106,116,000)
Obligations under capital leases.............. (8,733,000) (9,261,000) --
Tax intangibles............................... -- -- (6,234,000)
Other......................................... (1,870,000) (2,310,000) (611,000)
------------ ------------ -------------
Gross deferred tax liability............... (57,857,000) (51,788,000) (122,723,000)
------------ ------------ -------------
Net deferred tax liability................. $(14,740,000) $(17,534,000) $ (17,988,000)
============ ============ =============
</TABLE>
The Company recorded a valuation allowance to reserve a portion of its
gross deferred tax assets at January 28, 1996 due primarily to financial and tax
losses in recent years. Under SFAS 109, this valuation allowance will be
adjusted in future periods as appropriate. However, the timing and extent of
such future adjustments to the allowance cannot be determined at this time.
At January 28, 1996, approximately $139.0 million of the valuation
allowance for deferred tax assets will reduce goodwill when the allowance is no
longer required.
At January 28, 1996, the Company has net operating loss carryforwards for
federal income tax purposes of $440.6 million, which expire from 2007 through
2011. The Company has federal Alternative Minimum Tax ("AMT") credit
carryforwards of approximately $0.9 million which are available to reduce future
regular taxes in excess of AMT. Currently, there is no expiration date for these
credits.
A portion of the loss carryforwards described above are subject to the
provisions of the Tax Reform Act of 1986, specifically Internal Revenue Code
Section 382. The law limits the use of net operating loss carryforwards when
changes of ownership of more than 50 percent occur during a three-year testing
period. Due to the merger, the ownership of Food 4 Less and RSI changed in
excess of 50 percent. As a result, the Company's utilization of approximately
$78.0 million of Food 4 Less' and $187.0 million of RSI's federal net operating
losses will be subject to an annual usage limitation. The Company's annual
limitations under Section 382 for Food 4 Less' and RSI's net operating losses
are approximately $15.6 million and $15.0 million, respectively. Furthermore,
all of the Company's pre-Merger RSI net operating losses and a portion of the
Company's Ralphs post-Merger losses will reduce goodwill when utilized in future
federal income tax returns.
F-20
<PAGE> 135
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Holdings files a consolidated federal income tax return, under which the
federal income tax liability of Holdings and its subsidiaries is determined on a
consolidated basis. Holdings is a party to a federal income tax sharing
agreement with the Company and certain of its subsidiaries (the "Tax Sharing
Agreement"). The Tax Sharing Agreement provides that in any year in which the
Company is included in any consolidated tax liability of Holdings and has
taxable income, the Company will pay to Holdings the amount of the tax liability
that the Company would have had on such due date if it had been filing a
separate return. Conversely, if the Company generates losses or credits which
actually reduce the consolidated tax liability of Holdings and its other
subsidiaries, Holdings will credit to the Company the amount of such reduction
in the consolidated tax liability. These credits are passed between Holdings and
the Company in the form of cash payments. In the event any state and local
income taxes are determinable on a combined or consolidated basis, the Tax
Sharing Agreement provides for a similar allocation between Holdings and the
Company of such state and local taxes.
The Company currently has an Internal Revenue Service examination in
process covering the years 1990 through 1993. Management believes that any
required adjustment to the Company's tax liabilities will not have a material
adverse impact on its financial position or results of operations.
(8) RELATED PARTY TRANSACTIONS
The Company has a five-year consulting agreement with an affiliated company
effective June 14, 1995 for management, financing, acquisition and other
services. The agreement is automatically renewed on June 14 of each year for the
five-year term unless ninety (90) days' notice is given by either party. The
contract provides for annual management fees equal to $4 million plus advisory
fees for certain acquisition transactions, if the affiliated company is retained
by the Company.
Management services expenses were $2.0 million during fiscal year 1993,
$2.3 million during fiscal year 1994, $1.2 million during the 1995 transition
period and $3.6 million during fiscal year 1995. Advisory fees were $1.8 million
during fiscal year 1993, $0.2 million during fiscal year 1994 and $21.5 million
during fiscal year 1995. There were no such advisory fees for the 1995
transition period. Advisory fees for financing transactions are capitalized and
amortized over the term of the related financing.
(9) COMMITMENTS AND CONTINGENCIES
The Company is contingently liable to former stockholders of certain
predecessors for any prorated gains which may be realized within ten years of
the acquisition of the respective companies resulting from the sale of certain
Certified stock. Such gains are only payable if Certified is purchased or
dissolved, or if the Company sells such Certified Stock within the period noted
above.
In connection with the bankruptcy reorganization of Federated Department
Stores, Inc. ("Federated") and its affiliates, Federated agreed to pay certain
potential tax liabilities relating to RGC as a member of the affiliated group of
companies comprising Federated and its subsidiaries. In consideration thereof,
RSI and RGC agreed to pay Federated a total of $10 million, payable $1 million
on each of February 3, 1992, 1993, 1994, 1995 and 1996 and $5 million on
February 3, 1997. In the event Federated is required to pay certain tax
liabilities, RSI and RGC agreed to reimburse Federated up to an additional $10
million, subject to certain adjustments. Pursuant to the terms of the Merger,
the $5 million payment and the potential $10 million payment will be paid in
cash.
The Company is a partner in a supplier partnership, in which it is
contingently liable for the partnership's long-term debt. The Company's portion
of such debt is approximately $1,505,000.
F-21
<PAGE> 136
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has entered into lease agreements with the developers of
several new sites in which the Company has agreed to provide construction
financing. At January 28, 1996, the Company had capitalized construction costs
of $20.4 million on total commitments of $24.0 million.
In December 1992, three California state antitrust class action suits were
commenced in Los Angeles Superior Court against the Company and other major
supermarket chains located in Southern California, alleging that they conspired
to refrain from competing in and to fix the price of fluid milk above
competitive prices. Specifically, class actions were commenced by Diane Barela
and Neila Ross, Ron Moliare and Paul C. Pfeifle on December 7, December 14 and
December 23, 1992, respectively. To date, the Court has yet to certify any of
these classes, while a demurrer to the complaints was denied. The Company will
vigorously defend itself in these class action suits.
In addition, the Company or its subsidiaries are defendants in a number of
other cases currently in litigation or potential claims encountered in the
normal course of business which are being vigorously defended. In the opinion of
management, the resolutions of these matters will not have a material effect on
the Company's financial position or results of operations.
The Company self-insures its workers' compensation and general liability.
For fiscal year 1993, fiscal year 1994, the 1995 transition period and fiscal
year 1995, the self-insurance loss provisions were $38.0 million, $19.9 million,
$6.3 million and $32.6 million, respectively. During fiscal year 1993 and fiscal
year 1994, the Company discounted its self-insurance liability using a 7.0
percent discount rate. In the 1995 transition period, the Company changed the
discount rate to 7.5 percent. In fiscal 1995, the Company changed the discount
rate to 7.0 percent. Management believes that this rate approximates the time
value of money over the anticipated payout period (approximately 10 years) for
essentially risk-free investments.
The Company's historical self-insurance liability at the end of the three
most recent fiscal years and the 1995 transition period is as follows:
<TABLE>
<CAPTION>
AS OF
--------------------------------------------------------
JUNE 26, JUNE 25, JANUARY 29, JANUARY 28,
1993 1994 1995 1996
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Self-insurance liability......... $100,773,000 $90,898,000 $ 84,286,000 $161,391,000
Less: Discount................... (15,279,000) (9,194,000) (11,547,000) (12,406,000)
------------ ----------- ------------ ------------
Net self-insurance liability..... $ 85,494,000 $81,704,000 $ 72,739,000 $148,985,000
============ =========== ============ ============
</TABLE>
The Company expects that cash payments for claims will aggregate
approximately $21.8 million, $35.4 million, $31.6 million, $21.5 million and
$13.1 million for the fiscal year 1996, the fiscal year 1997, the fiscal year
1998, the fiscal year 1999 and the fiscal year 2000, respectively.
Environmental Matters
In January 1991, the California Regional Water Quality Control Board for
the Los Angeles Region (the "Regional Board") requested that RGC conduct a
subsurface characterization of its Glendale warehouse property located in the
Atwater District of Los Angeles. This request was part of an ongoing effort by
the Regional Board, in connection with the U.S. Environmental Protection Agency
(the "EPA"), to identify contributors to groundwater contamination in the San
Fernando Valley. Significant parts of the San Fernando Valley, including the
area where RGC's grocery warehouse is located, have been designated federal
Superfund sites requiring response actions under the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended, because of
regional groundwater contamination. On June 18, 1991, the EPA made its own
request for information concerning RGC's grocery warehouse. Since that time, the
Regional Board has requested further investigation by RGC. RGC conducted the
requested investigations and
F-22
<PAGE> 137
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
reported the results to the Regional Board. Approximately 25 companies have
entered into a Consent Order (EPA Docket No. 94-11) with the EPA to investigate
and design a remediation system for contaminated groundwater beneath an area
which includes RGC's grocery warehouse. RGC is not a party to the Consent Order,
but is cooperating with requests of the subject companies to allow installation
of monitoring or recovery wells on RGC's property. On or about October 12, 1995,
the EPA mailed a Special Notice Letter to 44 parties, including Ralphs as owner
and operator of the Glendale property, naming them as potentially responsible
parties ("PRPs"). Ralphs and other PRPs have agreed to enter into negotiations
over a consent decree with the EPA to implement a remedial design and reimburse
oversight costs. The PRPs have also agreed to an Alternative Dispute Resolution
Process to allocate the costs among themselves. Based upon available
information, management does not believe this matter will have a material
adverse effect on the Company's financial condition or results of operations.
RGC removed underground storage tanks and remediated soil contamination at
the grocery warehouse property. In some instances, the removals and the
contamination were associated with grocery business operations; in others, they
were associated with prior property users. Although the possibility of other
contamination from prior operations or adjacent properties exists at the grocery
warehouse property, management does not believe that the costs of remediating
such contamination will be material to the Company.
Apart from the grocery warehouse property, RGC had environmental
assessments performed on most of its facilities, including warehouse and
distribution facilities. The Company believes that any responsive actions
required at the examined properties as a result of such assessments will not
have a material adverse effect on its financial condition or results of
operations.
At the time Food 4 Less acquired Alpha Beta in 1991, it learned that
certain underground storage tanks located on the site of the La Habra facility
may have previously released hydrocarbons. In connection with the acquisition of
Alpha Beta, the seller (who is also the lessor of the La Habra facility) agreed
to retain responsibility, subject to certain limitations, for remediation of the
release.
The Company is subject to a variety of environmental laws, rules,
regulations and investigative or enforcement activities, as are other companies
in the same or similar business. The Company believes it is in substantial
compliance with such laws, rules and regulations. These laws, rules, regulations
and agency activities change from time to time, and such changes may affect the
ongoing business and operations of the Company.
(10) EMPLOYEE BENEFIT PLANS
As a result of the Merger, the Company adopted certain employee benefit
plans previously sponsored by RGC. These employee benefit plans include the
Ralphs Grocery Company Retirement Plan (the "Pension Plan"), the Ralphs Grocery
Company Supplemental Executive Retirement Plan (the "SERP"), and the Ralphs
Grocery Company Retirement Supplement Plan (the "Retirement Supplement Plan").
Pension Plan
The Pension Plan covers substantially all employees not already covered by
collective bargaining agreements with at least one year of credited service
(defined at 1,000 hours). Employees who were employed by Food 4 Less and who are
otherwise eligible to participate in the Pension Plan became eligible to
participate in fiscal year 1995. The Company's policy is to fund pension costs
at or above the minimum annual requirement.
F-23
<PAGE> 138
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SERP
The SERP covers certain key officers of the Company. The Company has
purchased split dollar life insurance policies for participants under this plan.
Under certain circumstances, the cash surrender value of certain split dollar
life insurance policies will offset the Company's obligations under the SERP.
Retirement Supplement Plan
The Retirement Supplement Plan is a non-qualified retirement plan designed
to provide eligible participants with benefits based on earnings over the
indexed amount of $150,000.
The following actuarially determined components were included in the net
expense for the above plans for fiscal year 1995 (dollars in thousands):
<TABLE>
<S> <C>
Service cost............................... $ 2,841
Interest cost on projected benefit
obligation............................... 2,543
Actual return on assets.................... (3,223)
Net amortization and deferral.............. 1,365
-------
Net pension expense...................... $ 3,526
=======
</TABLE>
The funded status of the Pension Plan (based on December 1995 asset values)
is as follows:
<TABLE>
<CAPTION>
AS OF
JANUARY 28,
1996
----------------------
(DOLLARS IN THOUSANDS)
<S> <C>
Assets Exceed Accumulated Benefits:
Actuarial present value of benefit obligations:
Vested benefit obligation....................... $ 42,446
Accumulated benefit obligation.................. 43,256
Projected benefit obligation.................... 63,913
Plan assets at fair value....................... 44,552
--------
Projected benefit obligation in excess of Plan.... (19,361)
Assets Unrecognized net loss...................... 4,136
Unrecognized prior service cost................... 1,100
--------
Accrued pension cost............................ $(14,125)
========
</TABLE>
F-24
<PAGE> 139
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The funded status of the SERP and Retirement Supplement Plan (based on
December 1995 asset values) is as follows:
<TABLE>
<CAPTION>
AS OF
JANUARY 28,
1996
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
Assets Exceed Accumulated Benefits:
Actuarial present value of benefit obligations:
Vested benefit obligation....................... $ (4,863)
Accumulated benefit obligation.................. (4,908)
Projected benefit obligation.................... (11,778)
Plan assets at fair value....................... --
--------
Projected benefit obligation in excess of Plan.... (11,778)
Assets Unrecognized net loss...................... 544
Unrecognized prior service cost................... 1,846
--------
Accrued pension cost............................ $ (9,388)
========
</TABLE>
The discount rate used for fiscal year 1995 was 7.5 percent. A long-term
rate of return on assets of 9.0 percent was also used in the actuarial
valuation.
The pension plan assets consist primarily of common stocks, bonds, debt
securities, and a money market fund. Plan benefits are based primarily on years
of service and on average compensation during the last years of employment.
Employee Stock Ownership Plans
The Company implemented Statement of Position No. 93-6 (the "SOP"),
"Employer Accounting for Employee Stock Ownership Plans," effective June 26,
1994. The implementation of the SOP did not have a material effect on the
accompanying consolidated financial statements.
The Company and its subsidiaries sponsor several defined contribution
benefit plans. The full-time employees of Falley's who are not members of a
collective bargaining agreement are covered under a 401(k) plan, a portion of
which is invested in Holdings stock (the "Falley's ESOP"). As is required
pursuant to IRS and ERISA requirements, any participant who receives stock from
the Falley's ESOP has the right to put that stock to Falley's or an affiliate of
Falley's. However, as part of the original stock sale agreement among the then
stockholders of Falley's, FFL and the Falley's ESOP, which has been amended from
time to time, a partnership which owns stock of Holdings entered into an
agreement with Falley's and Holdings to assume the obligation to purchase any
Holdings shares as to which terminated plan participants exercise a put option
under the terms of Falley's ESOP. As a result, neither Falley's nor the Company
is required to make cash payments to redeem the shares. As part of that
agreement, the Company may elect, after providing a right of first refusal to
the partnership, to purchase Holdings shares put under the provisions of the
plan. However, the partnership's obligation to purchase such Holdings shares is
unconditional, and any repurchase of shares by the Company is at the Company's
sole election. During fiscal year 1995, the Company did not purchase any of the
Holdings shares. As of November 3, 1995, the fair value of the shares allocated
which are subject to repurchase obligation by the partnership referred to above
was approximately $14.6 million.
In addition, the Company also sponsors two ESOPs for employees of the
Company who are members of certain collective bargaining agreements (the "Union
ESOPs"). The Union ESOPs provide for annual contributions based on hours worked
at a rate specified by the terms of the collective bargaining agreements.
F-25
<PAGE> 140
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company contributions are made in the form of Holdings stock or cash for the
purchase of Holdings stock and are to be allocated to participants based on
hours worked. During fiscal year 1995 and the 1995 transition period, the
Company recorded a charge against operations of approximately $0.8 million and
$0.3 million, respectively, for benefits under the Union ESOPs. There were no
shares issued to the Union ESOPs or to the Company's profit sharing plan at
January 28, 1996.
Defined Contribution Plan
The Company sponsors the Ralphs Grocery Company Savings Plan
Plus -- Primary, the Ralphs Grocery Savings Plan Plus -- Basic and the Food 4
Less Supermarkets, Inc. Profit Sharing and Retirement Plan (collectively
referred to as the "401(k) Plan") covering substantially all employees who are
not covered by collective bargaining agreements and who have at least one year
of credited service (defined at 1,000 hours). The 401(k) Plan provides for both
pre-tax and after-tax contributions by participating employees. With certain
limitations, participants may elect to contribute on a pre-tax basis to the
401(k) Plan. The Company has committed to match a minimum of 20 percent of an
employee's contribution to the 401(k) Plan that does not exceed 5 percent of the
employee's compensation. Expenses under the 401(k) Plan for fiscal years 1993,
1994 and 1995 were $0.3 million, $0.7 million and $0.7 million, respectively.
Multi-Employer Benefit Plans
The Company contributes to multi-employer benefit plans administered by
various trustees. Contributions to these plans are based upon negotiated wage
contracts. These plans may be deemed to be defined benefit plans. Information
related to accumulated plan benefits and plan net assets as they may be
allocated to the Company at January 28, 1996 is not available. The Company
contributed $69.4 million, $57.2 million, $21.6 million and $102.1 million to
these plans for fiscal year 1993, fiscal year 1994, the 1995 transition period
and fiscal year 1995, respectively. Management is not aware of any plans to
terminate such plans.
The United Food and Commercial Workers health and welfare plans were
over-funded and those employers who contributed to the plans received a pro rata
share of the excess reserves in the plans through reduction of current
contributions. The Company's share of the excess reserve was $24.2 million, of
which $8.1 million, $14.3 million and $1.8 million was recognized in fiscal year
1994, the 1995 transition period, and fiscal year 1995, respectively. Offsetting
the reduction in employer contributions was a $5.5 million union contract
ratification bonus and contractual wage increases in the 1995 transition period.
Post-Retirement Medical Benefit Plan
The Company adopted a postretirement medical benefit plan ("Postretirement
Medical Plan"), previously sponsored by RGC, which covers substantially all
employees who are not members of a collective bargaining agreement and who
retire under certain age and service requirements. The Postretirement Medical
Plan provides outpatient, inpatient and various other covered services. Such
benefits are funded from the Company's general assets. The calendar 1995 year
deductible is $1,000 per individual, indexed to the Medical Consumer Price
Index.
The net periodic cost of the Postretirement Medical Plan include the
following components for fiscal year 1995 (dollars in thousands):
<TABLE>
<S> <C>
Service cost................................................. $ 468
Interest cost................................................ 561
Return on plan assets........................................ --
Net amortization and deferral................................ (116)
-----
Net postretirement benefit cost.................... $ 913
=====
</TABLE>
F-26
<PAGE> 141
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The funded status of the postretirement benefit plan is as follows (dollars
in thousands):
<TABLE>
<S> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................. $ 2,208
Fully eligible plan participants.......................... 1,483
Other active plan participants............................ 10,862
Plan assets at fair value................................. --
--------
Accumulated postretirement obligations in
excess of plan assets................................... (14,553)
Unrecognized loss......................................... 562
Unrecognized prior service cost........................... (3,246)
--------
Accrued postretirement benefit obligation................. $(17,237)
========
</TABLE>
Service cost was calculated using a medical cost trend of 10.5 percent and
a decreasing medical cost trend rate of 14 percent and 8 percent for 1993 and
1994, respectively. A medical cost trend rate of 13 percent was used for fiscal
year 1995, and a decreasing rate of 12 percent and 6 percent for future years.
The discount rate was 7.5 percent for the Company expense for the fiscal year.
The long-term rate of return of plan assets is not applicable, as the plan is
not funded.
The effect of a one percent increase in the medical cost trend would
increase the fiscal 1995 service and interest cost to 26 percent. The
accumulated postretirement benefit obligation at January 28, 1996 would also
increase by 30 percent.
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
Cash and Cash Equivalents
The carrying amount approximates fair value as a result of the short
maturity of these instruments.
Short-Term Notes and Other Receivables
The carrying amount approximates fair value as a result of the short
maturity of these instruments.
Investments In and Notes Receivable From Supplier Cooperatives
The Company maintains a non-current deposit with Certified in the form of
Class B shares of Certified. Certified is not obligated in any fiscal year to
redeem more than a prescribed number of the Class B shares issued. Therefore, it
is not practicable to estimate the fair value of this investment.
The Company maintains non-current notes receivable from A.W.G. There are no
quoted market prices for this investment and a reasonable estimate could not be
made without incurring excessive costs. Additional information pertinent to the
value of this investment is provided in Note 6.
Long-Term Debt
The fair value of the Senior Notes, the 1995 11% Senior Subordinated Notes
and the 13.75% Senior Subordinated Notes is based on quoted market prices. The
New Term Loans and the New Revolving Facility are estimated to be recorded at
the fair value of the debt. Market quotes for the fair value of the remainder of
the Company's debt are not available, and a reasonable estimate of the fair
value could not be made without
F-27
<PAGE> 142
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
incurring excessive costs. Additional information pertinent to the value of the
unquoted debt is provided in Note 4.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
AS OF
JANUARY 28, 1996
-------------------------------
CARRYING FAIR
AMOUNT VALUE
------------- -------------
<S> <C> <C>
Cash and cash equivalents...................... $ 67,983,000 $ 67,983,000
Short-term notes and other receivables......... 6,452,000 6,452,000
Investments in and notes receivable from
supplier cooperatives (not practicable)...... 12,214,000 --
Long-term debt for which it is:
- Practicable to estimate fair values........ 1,902,341,000 1,878,648,000
- Not practicable............................ 26,918,000 --
</TABLE>
(12) RESTRUCTURING CHARGE
During fiscal 1995, the Company recorded a $75.2 million charge associated
with the closure of 58 former Food 4 Less stores and one former Food 4 Less
warehouse facility. Twenty-four of these stores were required to be closed
pursuant to a settlement agreement with the State of California in connection
with the Merger. Three RGC stores were also required to be sold. Thirty-four of
the closed stores were under-performing former Food 4 Less stores. The $75.2
million restructuring charge consisted of write-downs of property and equipment
($52.2 million) less estimated proceeds ($16.0 million); reserve for closed
stores and warehouse facility ($16.1 million); write-off of the Alpha Beta
trademark ($8.3 million); write-off of other assets ($8.0 million); lease
termination expenses ($4.0 million); and miscellaneous expenses ($2.6 million).
During fiscal year 1995, the Company utilized $34.7 million of the reserve for
restructuring costs ($50.0 million of costs partially offset by $15.3 million of
proceeds from the divestiture of stores). The charges consisted of write-downs
of property and equipment ($33.2 million); write-off of the Alpha Beta trademark
($8.3 million); and expenditures associated with the closed stores and the
warehouse facility, write-off of other assets, lease termination expenditures
and miscellaneous expenditures ($8.5 million). Future lease payments of
approximately $19.1 million will be offset against the remaining reserve. During
the first quarter of fiscal year 1996, the Company utilized $5.5 million of the
reserve for restructuring costs. The charges consisted of write-downs of
property and equipment of $4.8 million (unaudited) and expenditures associated
with the closed stores and the warehouse facility of $0.7 million (unaudited).
Management believes that the remaining reserve is adequate to complete the
planned restructuring.
On December 29, 1995, the Company consummated an agreement with Smith's to
sublease its one million square foot distribution center and creamery facility
in Riverside, California for approximately 23 years, with renewal options
through 2043, and to acquire certain operating assets and inventory at that
facility. In addition, the Company also acquired nine of Smith's Southern
California stores which became available when Smith's withdrew from the
California market. As a result of the acquisition of the Riverside distribution
center and creamery, the Company closed its La Habra distribution center in the
first quarter of fiscal year 1996. Also, the Company closed nine of its stores
which were near the acquired former Smith's stores. During the fourth quarter of
fiscal year 1995, the Company recorded a $47.9 million restructuring charge to
recognize the cost of closing these facilities, consisting of write-downs of
property and equipment ($16.1 million), closure costs ($2.2 million), and lease
termination expenses ($29.6 million). During the first quarter of fiscal year
1996, the Company utilized $9.9 million of this restructuring reserve,
consisting of write-downs of property and equipment of $6.8 million (unaudited),
closure costs of $2.1 million (unaudited), and lease termination expenditures of
$1.0 million (unaudited).
F-28
<PAGE> 143
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Ralphs Supermarkets, Inc.:
We have audited the consolidated balance sheets of Ralphs Supermarkets,
Inc. and subsidiary as of January 30, 1994 and January 29, 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year ended January 31, 1993, the year ended January 30, 1994 and the year
ended January 29, 1995. 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 consolidated 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
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 Ralphs
Supermarkets, Inc. and subsidiary as of January 30, 1994 and January 29, 1995,
and the results of their operations and their cash flows for each of the years
in the three-year period ended January 29, 1995, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Los Angeles, California
March 9, 1995
F-29
<PAGE> 144
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents......................................... $ 55,080 $ 35,125
Accounts receivable............................................... 30,420 43,597
Inventories....................................................... 202,354 221,388
Prepaid expenses and other current assets......................... 18,111 19,793
---------- ----------
Total current assets...................................... 305,965 319,903
Property, plant and equipment, net.................................. 601,897 624,724
Excess of cost over net assets acquired, net........................ 376,414 365,418
Beneficial lease rights, net........................................ 55,553 49,164
Deferred debt issuance costs, net................................... 26,583 23,011
Deferred income taxes............................................... 109,125 112,491
Other assets........................................................ 8,113 15,203
---------- ----------
Total assets.............................................. $ 1,483,650 $ 1,509,914
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt.............................. $ 70,975 $ 83,989
Short-term debt................................................... -- 51,500
Bank overdrafts................................................... 37,716 45,669
Accounts payable.................................................. 138,554 130,889
Accrued expenses.................................................. 101,543 99,804
Current portion of self-insurance reserves........................ 30,138 27,552
---------- ----------
Total current liabilities................................. 378,926 439,403
Long-term debt.................................................... 927,909 883,020
Self-insurance reserves........................................... 49,872 44,954
Lease valuation reserve........................................... 32,575 28,957
Other non-current liabilities..................................... 89,299 86,393
---------- ----------
Total liabilities......................................... 1,478,581 1,482,727
---------- ----------
Stockholder's equity:
Common stock, $.01 par value per share Authorized 50,000,000
shares; issued and outstanding, 25,587,280 shares at January
30, 1994 and January 29, 1995.................................. 256 256
Additional paid-in capital........................................ 175,292 175,292
Accumulated deficit............................................... (170,479) (148,361)
---------- ----------
Total stockholders' equity................................ 5,069 27,187
---------- ----------
Commitments and contingencies (See Notes 2 and 8)...................
Total liabilities and stockholders' equity (deficit)...... $ 1,483,650 $ 1,509,914
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
F-30
<PAGE> 145
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, 1993 JANUARY 30, 1994 JANUARY 29, 1995
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Sales............................ $2,843,816 100.0% $2,730,157 100.0% $2,724,604 100.0%
Cost of sales.................... 2,217,197 78.0 2,093,727 76.7 2,101,033 77.1
---------- ----- ---------- ----- ---------- -----
Gross profit................... 626,619 22.0 636,430 23.3 623,571 22.9
Selling, general and
administrative expenses..... 470,012 16.5 471,000 17.2 467,022 17.2
Amortization of excess cost
over net assets acquired.... 10,997 0.4 10,996 0.4 10,996 0.4
Provision for restructuring.... 7,100 0.2 2,374 0.1 -- --
---------- ----- ---------- ----- ---------- -----
Operating income............... 138,510 4.9 152,060 5.6 145,553 5.3
Other expenses:
Interest, expense, net......... 125,611 4.4 108,755 4.0 112,651 4.1
Loss on disposal of assets..... 2,607 0.1 1,940 0.1 784 0.0
Provision for legal
settlement.................. 7,500 0.3 -- -- -- --
---------- ----- ---------- ----- ---------- -----
Provision for earthquake
losses...................... -- -- 11,048 0.4 -- --
---------- ----- ---------- ----- ---------- -----
Earnings before income taxes and
extraordinary item............. 2,792 0.1 30,317 1.1 32,118 1.2
Income tax expense (benefit)..... 8,346 0.3 (108,049) (4.0) -- --
---------- ----- ---------- ----- ---------- -----
Earnings (loss) before
extraordinary item............. (5,554) (0.2) 138,366 5.1 32,118 1.2
Extraordinary item-debt
refinancing, net of tax benefit
$4,173......................... (70,538) (2.5) -- -- -- --
---------- ----- ---------- ----- ---------- -----
Net earnings (loss).............. $ (76,092) (2.7)% $ 138,366 5.1% $ 32,118 1.2%
========== ===== ========== ===== ========== =====
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE> 146
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 30, JANUARY 29,
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)....................................... $ (76,092) $ 138,366 $ 32,118
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization.......................... 76,873 74,452 76,043
Amortization of discounts an deferred debt issuance
costs................................................ 20,978 9,768 9,032
LIFO charge (credit)................................... 1,115 (2,054) 2,085
Loss on sale of assets................................. 6,841 4,314 784
Provision for post-retirement benefits................. 3,275 3,370 2,555
Provision for legal settlement......................... 7,500 -- --
Other changes in assets and liabilities:
Accounts receivable....................................... 6,376 326 (13,177)
Inventories at replacement cost........................... (13,682) 6,724 (21,120)
Prepaid expenses and other current assets................. 3,703 (1,658) (1,682)
Other assets.............................................. (616) 4,449 (7,287)
Interest payable.......................................... (13,393) (4,822) (2,419)
Accounts payable and accrued liabilities.................. 23,054 (1,622) (1,047)
Income taxes payable...................................... (527) (1,480) (2,906)
Deferred tax asset........................................ -- (109,125) (3,366)
Business interruption credit.............................. -- (581) --
Earthquake losses......................................... -- (11,048) --
Self insurance reserves................................... 8,456 7,031 (7,503)
Other liabilities......................................... (170) (12,407) (6,692)
--------- --------- ---------
Cash provided by operating activities..................... 53,691 104,003 55,418
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures...................................... (102,697) (62,181) (64,018)
Proceeds from sale of property, plant and equipment....... 219 16,700 13,257
--------- --------- ---------
Cash used in investing activities......................... (102,478) (45,481) (50,761)
--------- --------- ---------
Cash flows from financing activities:
Net borrowings under lines of credit...................... 2,100 (31,100) 51,500
Redemption of preferred stock............................. (3,000) -- --
Capitalized financing and acquisition costs............... (22,426) (5,108) (2,496)
Increase (decrease) in bank overdrafts.................... (8,865) 655 7,952
Proceeds from issuance of long-term debt.................. 668,269 150,000 --
Dividends paid............................................ -- -- (10,000)
Principal payments on long-term debt...................... (577,902) (164,081) (71,568)
--------- --------- ---------
Cash provided by (used in) financing activities........... 58,176 (49,634) (24,612)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents........ 9,389 8,888 (19,955)
Cash and cash equivalents at beginning of period............ 36,803 46,192 55,080
--------- --------- ---------
Cash and cash equivalents at end of period.................. $ 46,192 $ 55,080 $ 35,125
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-32
<PAGE> 147
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
RALPHS RALPHS
SUPERMARKETS, INC. GROCERY COMPANY
-------------------- -------------------- ADDITIONAL
OUTSTANDING COMMON OUTSTANDING COMMON PAID-IN- ACCUMULATED
SHARES STOCK SHARES STOCK CAPITAL DEFICIT TOTAL
----------- ------ ----------- ------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT FEBRUARY 2,
1992....................... -- $ -- 100 $-- $ 175,548 $(232,753) $ (57,205)
Capitalization of Ralphs
Supermarkets, Inc........ 25,587,280 256 (100) -- (256) -- --
Net Loss................... -- -- -- -- -- (76,092) (76,092)
---------- ---- ---- --- --------- --------- ---------
BALANCES AT JANUARY 31,
1993....................... 25,587,280 256 -- -- 175,292 (308,845) (133,297)
Net earnings............... -- -- -- -- -- 138,366 138,366
---------- ---- ---- --- --------- --------- ---------
BALANCES AT JANUARY 30,
1994....................... 25,587,280 256 -- -- 175,292 (170,479) 5,069
Net earnings............... -- -- -- -- -- 32,118 32,118
Dividends Paid............. -- -- -- -- -- (10,000) (10,000)
---------- ---- ---- --- --------- --------- ---------
BALANCES AT JANUARY 29,
1995....................... 25,587,280 $256 -- $-- $ 175,292 $(148,361) $ 27,187
========== ==== ==== === ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-33
<PAGE> 148
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION
At February 2, 1992, Ralphs Grocery Company was an indirect wholly owned
subsidiary of Federated Stores, Inc. ("Federated"). Two wholly owned
subsidiaries of Federated, Federated Holdings III, Inc. ("Holdings III") and
Allied Stores Corporation ("Allied") directly owned the common stock of Ralphs
Grocery Company approximately 84% and 16% respectively. In January 1990 Holdings
III and Allied, and certain other subsidiaries of Federated, each filed
petitions for relief under Chapter 11, Title 11 of the United States Code
("Chapter 11"). In March 1990, Federated filed a petition for relief under
Chapter 11. Pursuant to the plans of reorganization for Federated and certain of
its subsidiaries, Ralphs Supermarkets, Inc. was formed to hold the outstanding
shares of common stock of Ralphs Grocery Company. On February 3, 1992, Holdings
III and Allied contributed their shares of Ralphs Grocery Company to Ralphs
Supermarkets, Inc. in exchange for the issuance by Ralphs Supermarkets, Inc. of
Ralphs Supermarkets, Inc. shares in the same proportion in Ralphs Grocery
Company shares were owned ("Internal Reorganization"). For financial reporting
purposes, this transaction was recorded at predecessor cost. For Federal tax
purposes, a new basis was established at Ralphs Supermarket, Inc. as more fully
described in Note 11.
Under the plans of reorganization for Federated, Holdings III and certain
other subsidiaries of Federated (the "FSI Plan"), all Ralphs Supermarkets, Inc.
shares of common stock held by Holdings III were to be distributed to certain
creditors of Federated and Holdings III, including The Edward J. DeBartolo
Corporation ("EJDC"), Bank of Montreal ("BMO"), Banque Paribas ("BP") and Camdev
Properties Inc. ("Camdev"), and Federated. The FSI Plan was confirmed by the
Bankruptcy Court in January 1992 and was consummated on February 3, 1992. Under
the plan of reorganization of Allied and certain affiliates including Federated
Department Stores, Inc. (the "Allied-Federated Plan"), a portion of Allied's
Holding Company shares were to be distributed to BMO and BP. The
Allied-Federated Plan was confirmed by the Bankruptcy Court in January 1992 and
was consummated shortly after the FSI Plan.
Thus, following consummation of both the FSI Plan and the Allied-Federated
Plan and the transfer on July 19, 1993 of the shares of common stock in Ralphs
Supermarkets, Inc. held by Federated Stores, Inc. to Camdev, the approximate
ownership of Ralphs Supermarkets, Inc. is as follows:
<TABLE>
<CAPTION>
APPROXIMATE PERCENT
OWNERSHIP OF RALPHS
SUPERMARKETS, INC.
COMMON STOCK
AS OF JULY 19, 1993
---------------------
<S> <C>
EJDC...................................................... 60.4%
BMO....................................................... 10.1%
BP........................................................ 10.1%
Camdev.................................................... 12.8%
Federated Department Stores, Inc. (as
successor by merger to Allied).......................... 6.6%
</TABLE>
Pursuant to certain agreements entered into contemporaneously with the
effectiveness of the FSI Plan and the Allied-Federated Plan, certain income tax
liabilities of Ralphs Grocery Company, Federated, Allied, Federated Department
Stores, Inc. and other affiliates have been settled with the Internal Revenue
Service. In addition, Ralphs Grocery Company and certain affiliates including
Federated Department Stores, Inc., Allied and Federated (the "Affiliated Group")
entered into an agreement (the "Tax Indemnity Agreement") pursuant to which
Federated Department Stores, Inc. agreed to pay certain tax liabilities, if any,
relating to Ralphs Grocery Company being a member of the Affiliated Group. The
Tax Indemnity Agreement provides a formula to determine the amount of additional
tax liabilities through February 3, 1992 that Ralphs Grocery
F-34
<PAGE> 149
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Company would be obligated to pay the Affiliated Group. However, such additional
liability, if any, is limited to $10 million subject to certain adjustments.
Under the Tax Indemnity agreement, both Ralphs Supermarkets, Inc. and
Ralphs Grocery Company have agreed to pay Federated Department Stores, Inc. $1
million annually for each of five years starting on February 3, 1992, and an
additional $5 million on February 3, 1997. These total payments of $10 million
have been recorded in the consolidated financial statements at February 2, 1992.
The five $1 million installments are to be paid by Ralphs Grocery Company and
the $5 million is the joint obligation of both Ralphs Supermarkets, Inc. and
Ralphs Grocery Company. Also, in the event Federated Department Stores, Inc. is
required to pay certain tax liabilities on behalf of Ralphs Grocery Company,
both Ralphs Supermarkets, Inc. and Ralphs Grocery Company have agreed to
reimburse Federated Department Stores, Inc. up to an additional $10 million,
subject to certain adjustments. This additional obligation is the joint and
several obligation of both Ralphs Supermarkets, Inc. and Ralphs Grocery Company.
The $5 million payment and the potential $10 million payment may be paid, at the
option of both Ralphs Supermarkets, Inc. and Ralphs Grocery Company, in cash or
newly issued Ralphs Supermarkets, Inc. Common Stock.
In connection with the consummation of the FSI Plan and the
Allied-Federated Plan, Ralphs Grocery Company and certain parties entered into
an agreement (the "Comprehensive Settlement Agreement") pursuant to which the
parties thereto, among other things, agreed to deliver releases to the various
parties to the Comprehensive Settlement Agreement as well as certain additional
parties. Under the Comprehensive Settlement Agreement, Ralphs Grocery Company
received general releases from Allied, Federated, Federated Department Stores,
Inc. and certain other affiliates which released it from any and all claims
which could have been asserted by the parties thereto prior to the effective
dates of FSI Plan and the Allied-Federated Plan other than for claims arising
under the Comprehensive Settlement Agreement, the FSI Plan, the Allied-Federated
Plan and the Tax Indemnity Agreement.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
These consolidated financial statements present the statements of financial
position of Ralphs Supermarkets, Inc. and subsidiary as of January 31, 1993,
January 30, 1994 and January 29, 1995 and the results of their operations and
their cash flows for the three years then ended. Ralphs Grocery Company is
deemed to be the predecessor entity of Ralphs Supermarkets, Inc. For purposes of
these consolidated financial statements Ralphs Supermarkets, Inc. and Ralphs
Grocery Company will be collectively referred to as "Ralphs".
(b) Reporting Period
Ralphs' fiscal year ends on the Sunday closest to January 31. Fiscal
year-ends are as follows:
January 31, 1993 (Fiscal 1992)
January 30, 1994 (Fiscal 1993)
January 29, 1995 (Fiscal 1994)
(c) Cash and Cash Equivalents
For purposes of the statements of cash flows, Ralphs considers all highly
liquid debt instruments with original maturities of three months or less to be
cash equivalents.
F-35
<PAGE> 150
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(d) Inventories
Inventories are stated at the lower cost or market. Cost is determined
primarily using the last-in, first-out (LIFO) method. The replacement cost of
inventories exceeded the LIFO inventory cost by $15.5 million and $17.6 million
at January 30, 1994 and January 29, 1995, respectively.
(e) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Property and equipment
held under capital leases are stated at the present value of the minimum lease
payments at the inception of the lease.
Depreciation of plant and equipment is calculated using the straight-line
method over the estimated useful lives of assets. Plant and equipment held under
capital leases and leasehold improvements are amortized using the straightline
method over the shorter of the lease term or the estimated useful life of the
asset. Useful lives range from 10 to 40 years for buildings and improvements and
3 to 20 years for fixtures and equipment.
Interest is capitalized in connection with the construction of major
facilities. The capitalized interest is recorded as part of the asset to which
it relates and is amortized over the asset's estimated useful life. Interest
cost capitalized during fiscal 1992, 1993 and 1994 was $1.074 million, $.740
million and $.324 million, respectively.
(f) Deferred Debt Issuance Costs
Direct costs incurred as a result of financing transactions are capitalized
and amortized over the terms of the applicable debt agreements using the
effective interest method.
(g) Pre-opening Costs
Pre-opening costs of new stores are deferred and expensed at the time the
store opens. If a new store is ultimately not opened, the costs are expensed
directly to selling, general and administrative expense at the time it is
determined that the store will not be opened.
(h) Self Insurance Reserves
Ralphs is self-insured for a portion of workers' compensation, general
liability and automobile accident claims. Ralphs establishes reserve provisions
based on an independent actuary's review of claims filed and an estimate of
claims incurred but not yet filed.
(i) Excess of Cost Over Net Assets Acquired
The excess of cost over net assets acquired, resulting from the May 3, 1988
acquisition of Ralphs is being amortized using the straight-line method over 40
years. Ralphs assesses the recoverability of this intangible asset by
determining whether the amortization of the asset balance over its remaining
life can be recovered through projected undiscounted operating income (including
interest, depreciation and all amortization expense except amortization of
excess of cost over net assets acquired) over the remaining amortization period
of the excess of cost over net assets acquired. The amount of excess of cost
over net assets acquired impairment, if any, is measured based on projected
discounted future results using a discount rate reflecting Ralphs' average cost
of funds. Accumulated amortization aggregated $63.4 million and $74.4 million at
January 30, 1994 and January 29, 1995, respectively.
F-36
<PAGE> 151
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(j) Acquired Leases
Beneficial lease rights and lease valuation reserves are recorded as the
net present value of the differences between contractual rents under existing
lease agreements and fair value of entering such lease agreements as of the May
3, 1988 acquisition of Ralphs. All beneficial lease rights and lease valuation
reserves arose solely as a result of the May 3, 1988 acquisition. Adjustments to
the carrying value of these assets would typically occur only through additional
business combinations or in the event of early lease termination. Beneficial
lease rights are amortized using the straight-line method over the terms of the
leases. Lease valuation reserves are amortized using the interest method over
the terms of the leases.
(k) Discounts and Promotional Allowances
Promotional allowances and vendor discounts are recorded as a reduction of
cost of sales in the accompanying statements of operations. Allowance proceeds
received in advance are deferred and recognized over the period earned.
(l) Income Taxes
Through February 2, 1992, Ralphs operated under a tax-sharing agreement
with Federated and was included in the consolidated Federal tax returns of
Federated. Through January 28, 1990, Ralphs was included in the combined state
tax returns of Federated; however, Ralphs filed separate state tax returns
subsequent to January 28, 1990. Under the tax-sharing agreement, tax-sharing
payments were made to Federated based on the amount that Ralphs would be liable
for had Ralphs filed separate tax returns, taking into account applicable
carryback and carryforward provision of the tax laws.
Subsequent to February 2, 1992, Ralphs is responsible for filing tax
returns with the Internal Revenue Service and state taxing authorities. Prior to
February 3, 1992 Ralphs paid alternative minimum tax to Federated under its tax
sharing agreement. As a result of the Internal Reorganization, Ralphs will not
be entitled to offset its future Federal regular tax liability with the payments
made to Federated.
Effective for the fiscal year ended February 2, 1992, Ralphs adopted
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes." At the date of adoption such change had no impact on the
consolidated financial results.
(m) Reclassification
Certain amounts in the accompanying financial statements have been
reclassified to conform to the current year's presentation.
(n) Consolidation Policy
The consolidated financial statements include the accounts of Ralphs
Supermarkets, Inc., and its wholly owned subsidiary, Ralphs Grocery Company, and
its wholly owned subsidiary, collectively referred to as the Company. All
material intercompany balances and transactions are eliminated in consolidation.
(o) Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
(i) Cash and short-term investments: The carrying amount approximates
fair value because of the short maturity of those instruments.
F-37
<PAGE> 152
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ii) Long-term debt: The fair value of Ralphs' long-term debt is
estimated based on the quoted market prices for the same or similar issues
or on the current rates offered to Ralphs for debt of the same remaining
maturities.
(iii) Interest Rate Swap Agreements: The fair value of interest rate
swap agreements is the estimated amount that Ralphs would receive or pay to
terminate the swap agreements at the reporting date, taking into account
current interest rates and the current credit-worthiness of the swap
counterparties.
(p) Advertising
The Company expenses the production costs of advertising the first time the
advertising takes place. Advertising expense was $17.5 million, $16.4 million
and $18.2 million in fiscal 1992, 1993 and 1994, respectively.
(q) Transaction Costs
In connection with the proposed merger, Ralphs has capitalized in other
assets approximately $2.3 million of transaction costs, principally attorney and
accounting fees. Upon completion of the merger these amounts will be
reclassified to excess of cost of net assets acquired and amortized accordingly.
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows:
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Land................................................ $ 159,904 $ 161,725
Buildings and improvements.......................... 191,179 199,133
Leasehold improvements.............................. 161,341 170,430
Fixtures and equipment.............................. 354,626 372,077
Capital leases...................................... 86,964 124,861
--------- ----------
954,014 1,028,226
Less: Accumulated depreciation...................... (312,746) (354,539)
Less: Accumulated capital lease amortization........ (39,371) (48,963)
--------- ----------
Property, plant and equipment, net.................. $ 601,897 $ 624,724
========= ==========
</TABLE>
(4) ACCRUED EXPENSES
Accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accrued wages......................................... $ 34,763 $43,766
Taxes other than income tax........................... 11,084 10,055
Interest.............................................. 11,090 8,670
Other................................................. 44,606 37,313
-------- -------
$101,543 $99,804
======== =======
</TABLE>
F-38
<PAGE> 153
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(5) LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
First mortgage notes payable in monthly installments,
commencing June 1, 1994 of $1.6 million including
interest at an effective rate of 9.651%; interest
only payable monthly prior to June 1, 1994. Final
payment due June 1, 1999. Secured by land and
buildings with a net book value of $188.8 million... $ 178,013 $ 176,634
Notes payable in varying monthly installments
including interest ranging from 11.5% to 18.96%.
Final payment due through November 30, 1996. Secured
by equipment with a net book value of $28.5
million............................................. 9,721 6,291
Capitalized lease obligations at interest rates
ranging from 7.25% to 14% maturing at various dates
through 2019
(note 6)............................................ 61,150 89,084
Note payable to bank.................................. 300,000 245,000
Initial Notes and Exchange Notes, 9% due 2003......... 150,000 150,000
Senior Subordinated Debentures, 10 1/4%, due 2002..... 300,000 300,000
-------- --------
Total long-term debt.................................. 998,884 967,009
Less curent maturities................................ (70,975) (83,989)
-------- --------
Long-term debt........................................ $ 927,909 $ 883,020
======== ========
</TABLE>
During the third quarter of 1992, the Company implemented a
recapitalization plan (the "Recapitalization Plan") which was completed during
the first quarter of 1993 by the Company's offering of $150.0 million aggregate
principal amount of its 9% Senior Subordinated notes due 2003 (the "Initial
Notes") in private placement under the Securities Act of 1933, as amended (the
"Securities Act"). The proceeds of the Initial Notes were used to (i) purchase
for cancellation of $60.0 million aggregate principal amount of the Company's
14% Senior Subordinated Debentures due 2000 (the "14% Subordinated Debentures")
from a noteholder who had made an unsolicited offer to sell such 14%
Subordinated Debentures, (ii) defease the remaining $38.1 million aggregate
principal amount of the 14% Subordinated Debentures, (iii) prepay $36.1 million
of borrowings under the Company's $350.0 million 1992 term loan facility entered
into as part of the Recapitalization Plan and (iv) pay fees and expenses
associated with such transactions and for other purposes. As part of a
registration rights agreement entered into with the initial purchasers of the
Initial Notes, the Company agreed to offer to exchange up to $150.0 million
aggregate principal amount of the Exchange Notes for all of the outstanding
Initial Notes (the "Exchange Offer"). The terms of the Exchange Notes are
substantially identical (including principal amount, interest rate and maturity)
in all respects to the terms of the Initial Notes except that the Exchange Notes
are freely transferable by the holders thereof (with certain exceptions) and are
not subject to any covenant upon the Company regarding registration under the
Securities Act. On June 24, 1993, the Company completed the Exchange Offer
exchanging $149.7 million aggregate principal amount of Exchange Notes for
Initial Notes ($.3 million of Initial Notes remain outstanding).
The note payable to bank and working capital line, under the 1992 Credit
Agreement, are secured by first priority liens on Ralphs' inventory and
receivables, servicemarks and registered trademarks, equipment (other than
equipment located at facilities subject to existing liens in favor of equipment
financiers) and after-acquired real property interests and all existing real
property interests (other than those that are subject to prior encumbrances) and
bears interest at the rates, as selected by Ralphs as follows: (i) 1 3/4% over
the prime
F-39
<PAGE> 154
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
rate, or (ii) 2 3/4% over the Eurodollar Rate. Interest calculated pursuant to
(i) above is payable quarterly, otherwise interest is payable quarterly or at
the selected borrowings option maturity. During the 52 weeks ended January 29,
1995, interest rates under these borrowings ranged from 5.9375% to 10.25%.
Ralphs is required to pay an annual administrative fee of $300,000 pursuant to
the 1992 Credit Agreement as well as a commitment fee of 0.5% on the average
daily amounts available for borrowing under the $120.0 million working capital
credit line.
The 1992 Credit Agreement, which includes a $350.0 million term loan and
$120.0 million working capital credit line, also supports up to $60.0 million of
letters of credit which reduce the available borrowings on the credit line. The
1992 Credit Agreement is subject to quarterly principal payment requirements,
which commenced on March 31, 1993, with payment in full on June 30, 1998. As of
January 29, 1995, $52.4 million of letters of credit and $51.5 million in
borrowings were outstanding, with $16.1 million available under the working
capital credit line.
In the fourth quarter of Fiscal 1992, Ralphs entered into an interest rate
cap agreement with an effective date of November 6, 1992 and a three-year
maturity. The interest rate cap agreement hedges the interest rate in excess of
6.5% LIBOR on $105.0 million principal amount against increases in short-term
rates. This agreement satisfies interest rate protection requirements under the
1992 Credit Agreement. In addition to the interest rate cap agreement, Ralphs
entered into an interest rate swap agreement on $150.0 million notional
principal amount. Under the interest rate swap agreement, Ralphs is required to
pay interest based on LIBOR at the end of each six month calculation period and
Ralphs will receive interest payments based on LIBOR at the beginning of each
six month calculation period. This interest rate swap agreement has a three-year
term expiring November 6, 1995. Ralphs is exposed to credit loss in the event of
nonperformance by the other party to the interest rate swap agreement. However,
Ralphs does not anticipate nonperformance by the counterpart.
The following details the impact of the hedging activity on the weighted
average interest rate for each of the last three fiscal years.
<TABLE>
<CAPTION>
WITH HEDGE WITHOUT HEDGE
---------- -------------
<S> <C> <C>
1992........................................ 10.52% 10.22%
1993........................................ 8.96% 8.96%
1994........................................ 9.37% 9.18%
</TABLE>
The Initial Notes and Exchange Notes are unsecured obligations of Ralphs
subordinated in right of payment to amounts due on the aforementioned senior
debt. Interest at 9% is payable each April 1 and October 1 through April 1,
2003, when the notes mature.
The 10 1/4% Senior Subordinated Debentures are unsecured obligations of
Ralphs subordinated in right of payment to amounts due on the senior debt.
Interest at 10 1/4% is payable each January 15 and July 15 through July 15,
2002, when the debentures mature.
The aforementioned debt agreements contain various restrictive covenants
pertaining to net worth levels, limitations on additional indebtedness and
capital expenditures, financial ratios and dividends. The 1992 Credit Agreement
requires Ralphs to reduce its working capital credit line to zero for 30
consecutive days annually. The current annual period extends from July 1 to June
30. The Company has not yet complied with this annual covenant. The Company
intends to either satisfy this covenant by June 30, 1995 or seek to obtain the
necessary waiver from its lenders, if such event of non-compliance ultimately
occurs but there is no assurance that such waiver will be granted, or, if
granted, will be on terms acceptable to the Company. At January 29, 1995, Ralphs
is in compliance with all its 1992 Credit Agreement restrictive covenants. The
Company currently anticipates that it may be out of compliance with certain
other maintenance covenants at the end of the second quarter of 1995. The
Company intends to seek the necessary waivers from its lenders
F-40
<PAGE> 155
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
should these events of non-compliance ultimately occur, but there is no
assurance that such waivers will be granted, or, if granted, will be on terms
acceptable to the Company.
The aggregate maturities on long-term debt for each of the five years
subsequent to fiscal 1994 are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN THOUSANDS)
----------------------
<S> <C>
1995............................... $ 83,989
1996............................... 86,792
1997............................... 84,771
1998............................... 53,605
1999............................... 175,400
2000 and thereafter................ 482,452
--------
$967,009
========
</TABLE>
The estimated fair value of each class of financial instruments (where
practical), all held for non-trading purposes, is as follows in (000s):
<TABLE>
<S> <C>
Long-term debt............................ $953,883
Interest rate swap agreement.............. $ 1,252
Interest rate cap agreement............... $ (366)
</TABLE>
(6) LEASES
Ralphs has leases for retail store facilities, warehouses and manufacturing
plants for periods up to 30 years. Generally, the lease agreements include
renewal options for five years each. Under most leases, Ralphs is responsible
for property taxes, insurance, maintenance and expense related to the lease
property. Certain store leases require excess rentals based on a percentage of
sales at that location. Certain equipment is leased by Ralphs under agreements
ranging from 3 to 15 years. The agreements usually do not include renewal option
provisions.
Minimum rental payments due under capital leases and operating leases
subsequent to fiscal 1994 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES TOTAL
-------- --------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1995................................................... $ 21,640 $ 61,324 $ 82,964
1996................................................... 19,093 60,847 79,940
1997................................................... 18,288 58,182 76,470
1998................................................... 15,901 53,321 69,222
1999................................................... 11,784 52,839 64,623
2000 and thereafter.................................... 53,959 373,021 426,980
-------- -------- --------
Total minimum lease payments........................... $140,665 $ 659,534 $800,199
======== ========
Less amounts representing interest..................... (51,581)
--------
Present value of net minimum lease payments............ 89,084
Less current portion of lease obligations.............. (13,151)
--------
Long-term capital lease obligations.................... $ 75,933
========
</TABLE>
F-41
<PAGE> 156
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Total rent expense is summarized as follows:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JANUARY 31, JANUARY 30, JANUARY 29,
1993 1994 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Capital Leases
Contingent rental................................... $ 2,443 $ 2,241 $ 2,256
Rentals from subleases.............................. (2,144) (2,048) (1,734)
Operating Leases
Minimum rentals..................................... 49,001 54,965 55,906
Contingent rentals.................................. 5,058 3,645 3,763
Rentals from subleases.............................. (1,123) (1,150) (1,791)
-------- -------- --------
$ 53,235 $ 57,653 $ 58,400
======== ======== ========
</TABLE>
(7) SELF-INSURANCE
Ralphs is a qualified self-insurer in the State of California for worker's
compensation and for automobile liability. For fiscal 1992, 1993 and 1994 self
insurance loss provisions amounted to (in thousands) $25,950, $30,323 and
$14,003, respectively. Ralphs discounts self-insurance liabilities using an 8%
discount rate for all years presented. Management believes that this rate
approximates the time value of money over the anticipated payout period
(approximately 8 years) for essentially risk free investments.
Based on a review of modifications in its workers compensation and general
liability insurance programs, Ralphs adjusted its self-insurance costs during
Fiscal 1994, resulting in a reduction in the loss provision in Fiscal 1994 of
approximately $18.9 million.
Ralphs' historical self-insurance liability for the previous two fiscal
years is as follows:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS
ENDED ENDED
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Self-insurance liability........................................ $ 97,864 $ 87,830
Less: Discount.................................................. (17,854) (15,324)
-------- --------
Net self-insurance liability.................................... $ 80,010 $ 72,506
======== ========
</TABLE>
The Company expects that cash payments for claims over the next five years
will aggregate approximately $28 million in fiscal year 1995, $19 million in
fiscal year 1996, $13 million in fiscal year 1997, $8 million in fiscal year
1998 and $7 million in fiscal year 1999.
(8) COMMITMENTS AND CONTINGENCIES
In December 1992, three California state antitrust class action suits were
commenced in Los Angeles Superior Court against Ralphs and other major
supermarket chains located in Southern California, alleging that they conspired
to refrain from competing in the retail market for fluid milk and to fix the
retail price of fluid milk above competitive prices. Specifically, class actions
were commenced by Diane Barela and Neila Ross, Ron Moliare and Paul C. Pfeifle
on December 7, December 14, and December 23, 1992, respectively. The Court has
yet to certify any of these classes. A demurrer to the complaints was denied.
Notwithstanding that it believes there is no merit to these cases, Ralphs had
reached an agreement in principle to settle them.
F-42
<PAGE> 157
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
However, no settlement agreement has been signed. The Company does not
believe that the resolution of these cases will have a material adverse effect
on its future financial condition. Any settlement would be subject to court
approval.
On March 25, 1991, George A. Koteen Associates, Inc. ("Koteen Associates")
commenced an action in San Diego Superior Court alleging that Ralphs breached an
alleged utility rate consulting agreement. In December 1992, a jury returned a
verdict of approximately $4.9 million in favor of Koteen Associates and in March
1993, attorney's fees and certain other costs were awarded to the plaintiff.
Ralphs has appealed the judgment and fully reserved in Fiscal 1992 against an
adverse ruling by the appellate courts.
In April 1994, Ralphs was served with a complaint filed by over 240 former
employees at Ralphs' bakery in the Atwater district of Los Angeles (the "Bakery
Plaintiffs"). The action was commenced in the United States District Court for
the Central District of California, and, among other claims, the Bakery
Plaintiffs alleged that Ralphs breached its collective bargaining agreement and
violated the Workers Adjustment Retraining Notification Act (the "WARN Act")
when it downsized and subsequently closed the bakery. In their complaint, the
Bakery Plaintiffs are seeking damages for lost wages and benefits as well as
punitive damages. The Bakery Plaintiffs also named Ralphs and two of its
management employees in fraud, conspiracy and emotional distress causes of
action. In addition, the Bakery Plaintiffs sued their union local for breach of
its duty of fair representation and other alleged misconduct, including fraud
and conspiracy. The defendants have answered the complaint and discovery is
ongoing. Trial is set for February, 1996, and Ralphs is vigorously defending
this suit. Management believes, based on its assessment of the facts, that the
resolution of this case will not have a material effect on the Company's
financial position or results of operations.
In addition, Ralphs is a defendant in a number of other cases currently in
litigation or potential claims encountered in the normal course of business
which are being vigorously defended. In the opinion of management, the
resolutions of these matters will not have a material effect on Ralphs'
financial position or results of operations.
Environmental Matters
In January 1991, the California Regional Water Quality Control Board for
the Los Angeles Region (the "Regional Board") requested that Ralphs conduct a
subsurface characterization of Ralphs' Atwater property. This request was part
of an ongoing effort by the Regional Board, in connection with the U.S.
Environmental Protection Agency (the "EPA"), to identify contributors to
groundwater contamination in the San Fernando Valley. Significant parts of the
San Fernando Valley, including the area where Ralphs' Atwater property is
located, have been designated federal Superfund sites requiring response actions
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, because of regional groundwater contamination. On June 18,
1991, the EPA made its own request for information concerning the Atwater
property. Since that time, the Regional Board has requested further
investigation by Ralphs. Ralphs has conducted the requested investigations and
has reported the results to the Regional Board. Approximately 25 companies have
entered into a Consent Order (EPA Docket No. 94-11) with the EPA to investigate
and design a remediation system for contaminated groundwater beneath an area
which includes the Atwater property. Ralphs is not a party to the Consent Order,
but is cooperating with requests of the subject companies to allow installation
of monitoring or recovery wells on Ralphs' property. Based upon available
information, management does not believe this matter will have a material
adverse effect on the Company's financial condition or results of operations.
Ralphs has removed underground storage tanks and remediated soil
contamination at the Atwater property. In some instances the removals and the
contamination were associated with grocery business operations, in others they
were associated with prior property users. Although the possibility of other
F-43
<PAGE> 158
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
contamination from prior operations or adjacent properties exists at the Atwater
property, management does not believe that the costs of remediating such
contamination will be material to the Company.
Apart from the Atwater property, the Company has recently had environmental
assessments performed on a significant portion of its facilities, including
warehouse and distribution facilities. The Company believes that any responsive
actions required at the examined properties as a result of such assessments will
not have a material adverse effect on its financial condition or results of
operations.
Ralphs has incurred approximately $4.5 million in non-recurring capital
expenditures for conversion of refrigerants during 1994. Other than these
expenditures, Ralphs has not incurred material capital expenditures for
environmental controls during the previous three years, nor does management
anticipate incurring such expenditures during the current fiscal year or the
succeeding fiscal year.
Ralphs is subject to a variety of environmental laws, rules, regulations
and investigative or enforcement activities, as are other companies in the same
or similar business. The Company believes it is in substantial compliance with
such laws, rules and regulations. These laws, rules, regulations and agency
activities change from time to time, and such changes may affect the ongoing
business and operations of the Company.
(9) REDEEMABLE PREFERRED STOCK
Ralphs' non-voting preferred stock consisted of 10,000,000 shares of
authorized $.01 par value preferred stock. At February 3, 1991 and February 2,
1992, 170,000 shares of Class A Preferred Stock and 130,000 shares of Class B
Preferred Stock were issued and outstanding. All of the outstanding shares of
preferred stock were redeemed by Ralphs during February 1992 at their initial
issuance price of $3.0 million.
(10) EQUITY APPRECIATION RIGHTS PLANS
Effective August 26, 1988, Ralphs adopted an Equity Appreciation Plan
("1988 Plan"), whereby certain officers received equity rights representing, in
aggregate, the right to receive 15% of the increase in the appraised value (as
defined in the 1988 Plan) of the Ralphs' equity over an initial value of $120.0
million. The 1988 Plan was amended in January 1992 by agreement among Ralphs and
the Equity Rights holders ("Amended Plan"). Ralphs accrued for the increase in
equity appreciation rights over the contractually defined vesting period (fully
accrued in fiscal 1991), based upon the maximum allowable contractual amount
which approximated ending appraised value.
Under the Amended Plan, all outstanding Equity Rights vested in full are no
longer subject to forfeiture by the holders, except in the event a holder's
employment is terminated for cause within the meaning of the Amended Plan. The
appraised value of Ralphs' equity is to be determined as of May 1 each year by
an investment banking company engaged for this purpose utilizing the methodology
specified in the Amended Plan (which is unchanged from that specified in the
1988 Plan); however, under the Amended Plan the appraised value of Ralphs'
equity for purposes of the plan may not be less than $400.0 million nor exceed
$517.0 million. The amount of equity rights redeemable at any given time is
defined in each holders' separate agreement. On exercise of an equity right, the
holder will be entitled to receive a pro rata percentage of any such increase in
appraised value. In addition, the Amended Plan provides for the possible
additional further payment to the holder of each exercised Equity Right of an
amount equal to the "Deferred Value" of such Equity Right as defined in the
Amended Plan. Ralphs did not incur any expense under the Equity Appreciation
Rights Plan in fiscal 1992, fiscal 1993 and fiscal 1994.
F-44
<PAGE> 159
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The amount of Equity Rights redeemable for each of the four years
subsequent to fiscal 1994 are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
-----------
<S> <C>
1995...................................... $ 6,669
1996...................................... 12,389
1997...................................... 3,636
1998...................................... 10,150
-------
$32,844
=======
</TABLE>
(11) INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JANUARY JANUARY JANUARY
31, 30, 29,
1993 1994 1995
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal......................................... $4,173 $ (2,424) $ 713
State........................................... -- 3,500 2,653
------ --------- -------
$4,173 $ 1,076 $ (3,366)
------ --------- -------
Deferred:
Federal......................................... $ -- $ (109,125) $ (3,366)
State........................................... $ -- $ -- $ --
------ --------- -------
$ -- $ (109,125) $ (3,366)
------ --------- -------
Total income tax expense (benefit).............. $4,173 $ (108,049) $ --
====== ========= =======
</TABLE>
Income tax expense (benefit) has been classified in the accompanying
statements of operations as follows:
<TABLE>
<CAPTION>
1992 1993 1994
------- --------- --------
<S> <C> <C> <C>
Earnings before extraordinary items.............. $ 8,346 $(108,049) $ --
Extraordinary item............................... (4,173) -- --
------ -------- --------
Net tax expense (benefit)........................ $ 4,173 $(108,049) $ --
====== ======== ========
</TABLE>
F-45
<PAGE> 160
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The differences between income tax expense and income taxes computed using
the top marginal U.S. Federal income tax rate of 34% for fiscal 1992 and of 35%
for fiscal 1993 and fiscal 1994 applied to earnings (loss) before income taxes
(including, in fiscal 1992, the extraordinary loss of $74.8 million) were as
follows:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JANUARY JANUARY JANUARY
31, 30, 29,
1993 1994 1995
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Amount of expected expense (benefit) computed using
the statutory Federal rate.......................... $(24,450) $ 10,611 $ 11,241
Utilization of financial operating loss............. -- (10,611) (11,241)
Amortization of excess cost over net assets
acquired......................................... 3,356 -- --
State income taxes, net of Federal income tax
benefit.......................................... -- 3,500 2,653
Accounting limitation (recognition) of deferred tax
benefit.......................................... 20,041 (109,125) (3,366)
Alternative minimum tax............................. 4,173 625 --
Other, net.......................................... 1,053 (3,049) 713
-------- --------- ------
Total income tax expense (benefit)............... $ 4,173 $ (108,049) $ --
======== ========= ======
</TABLE>
Ralphs' deferred tax assets, recorded under SFAS 109, were comprised of the
following:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS
ENDED ENDED
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deductible intangible assets................................. $ 56,000 $ 43,000
Net operating loss carryforward and tax credit............... 40,125 55,000
Self insurance accrual....................................... 43,000 25,000
Software basis difference and amortization................... -- --
Fees collected in advance.................................... -- 2,600
Property, plant and equipment basis difference and
depreciation............................................... 21,000 16,000
Equity appreciation rights................................... 16,000 11,000
Favorable lease basis differences............................ 16,000 16,000
State deferred taxes......................................... 17,000 19,000
Other........................................................ 40,000 51,103
--------- ---------
249,125 238,703
Less valuation allowance................................... (140,000) (126,212)
--------- ---------
Total................................................... $ 109,125 $ 112,491
========= =========
</TABLE>
On October 15, 1992, Ralphs filed an election with the Internal Revenue
Service under Section 338(h)(10). Under this Section, Ralphs is required to
restate, for Federal tax purposes, its assets and liabilities to fair market
value as of February 3, 1992. The effect of this transaction is to record a new
Federal tax basis to reflect a change of control for Federal tax purposes
resulting from the Internal Reorganization. No change of control for financial
reporting purposes was affected.
In August, 1993, The Omnibus Budget Reconciliation Act of 1993 (the "Act")
was enacted. The Act increased the Federal income tax rate from 34 to 35 percent
for filers whose taxable income exceeded $10.0 million. In the current year, the
effect of the Federal income tax rate change was to increase the net
F-46
<PAGE> 161
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
deferred tax assets. In addition, the Act also provided for the deductibility of
certain intangibles, including costs in excess gross assets acquired.
The Act has significantly impacted the aggregate deferred tax asset
position of Ralphs at January 29, 1995. Ralphs elected to retroactively apply
certain provisions of the Act related to the February 3, 1992 change of control
for Federal tax purposes. As such, approximately $610.7 million in excess of
cost over net assets acquired became fully deductible for Federal tax purposes.
This amount is deductible over 15 years. This excess in the tax basis over the
financial statement basis of excess of cost over net assets acquired aggregated
$123.0 million at January 29, 1995.
During the year ended January 30, 1994, Ralphs recorded the incremental
impact of the Act on deductible temporary differences and increased its deferred
income tax assets by a net amount of $109.1 million. The decision to reduce the
valuation allowance was based upon several factors. Specific among them, was the
Company's completion of its restructuring plan which effectively reduced
estimated interest expense by approximately $9.0 as compared to the year ended
January 31, 1993. In addition, the January 31, 1993 operating results were
negatively effected by several charges including provisions for restructuring,
legal settlements and a loss on retirement of debt all aggregating approximately
$90 million on a pre-tax basis.
Although there can be no assurance as to future taxable income, the Company
believes that, based upon the above mentioned events, as well as the Company's
expectation of future taxable income, it is more likely than not that the
recorded deferred tax asset will be realized. In order to realize the net
deferred tax asset currently recorded, Ralphs will need to generate sufficient
future taxable income, assuming current tax rates, of approximately $320.0
million.
At January 29, 1995, the Company has Federal net operating loss (NOL)
carryforwards of approximately $162.0 million and Federal and state Alternative
Minimum Tax Credit carryforwards of approximately $2.1 million which can be used
to offset Federal taxable income and regular taxes payable, respectively. The
NOL carryforwards begin expiring in 2008.
During the past three fiscal years, the Company has generated Federal
taxable losses of approximately $162.0 million versus financial pre-tax earnings
of approximately $65.2 million for the same periods. These differences result
principally from excess tax versus financial amortization on certain intangible
assets (excess of cost over net assets acquired), as well as several other
originating temporary differences.
(12) EMPLOYEE BENEFIT PLANS
Ralphs has a defined benefit pension plan covering substantially all
employees not already covered by collective bargaining agreements with at least
one year of credit service (defined at 1,000 hours). Ralphs' policy is to fund
pension costs at or above the minimum annual requirement.
On February 23, 1990, the Company adopted a Supplemental Executive
Retirement Plan covering certain key officers of Ralphs. The Company has
purchased split dollar life insurance policies for participants under this plan.
Under certain circumstances, the cash surrender value of certain split dollar
life insurance policies will offset Ralphs obligations under the Supplemental
Executive Retirement Plan.
During the second quarter of 1994, the Company approved and adopted a new
non-qualified retirement plan, the Ralphs Grocery Company Retirement
Supplemental Plan ("Retirement Supplement Plan") effective January 1, 1994 and
amended the existing Supplemental Executive Retirement Plan effective April 9,
1994. These changes to the retirement plans were made pursuant to the enactment
of the 1993 Omnibus Budget Reconciliation Act.
F-47
<PAGE> 162
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
At January 29, 1995, the Company recorded a $4.0 million additional minimum
liability in offsetting intangible asset to reflect the changes in the new and
amended plans.
Under the provisions of the Retirement Supplement Plan, participants are
entitled to receive benefits based on earnings over the indexed amount of
$150,000.
The following actuarially determined components were included in the net
pension expense:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JANUARY 31, JANUARY 30, JANUARY 29,
1993 1994 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost...................................... $ 2,076 $ 2,228 $ 2,901
Interest cost on projected benefit obligation..... 2,471 2,838 3,821
Actual return on assets........................... (2,794) (2,695) (1,447)
Net amortization and deferral..................... 237 (46) (1,100)
------- ------- -------
Net pension expense.......................... $ 1,990 $ 2,325 $ 4,175
======= ======= =======
</TABLE>
The funded status of Ralphs' pension plan, (based on December 31, 1993 and
1994 asset values), is as follows:
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Assets Exceed Accumulated Benefits:
Actuarial present value of benefit obligations:
Vested benefit obligation................................... $29,659 $31,621
Accumulated benefit obligation.............................. 29,950 31,856
Projected benefit obligation................................ 42,690 45,246
Plan assets at fair value................................... 32,968 38,179
------- -------
Projected benefit obligation in excess of Plan Assets......... (9,722) (7,067)
Unrecognized net gain......................................... 4,567 3,611
Unrecognized prior service cost............................... (1,778) (1,659)
Unrecognized net asset........................................ -- --
------- -------
Accured pension cost..................................... $(6,933) $(5,115)
======= =======
Accumulated Benefits Exceed Assets:
Actuarial present value of benefit obligations:
Vested benefit obligation................................... 2,982
Accumulated benefit obligation.............................. 2,982
Projected benefit obligation................................ 7,102
Plan assets at fair value................................... --
-------
Projected benefit obligation in excess of Plan Assets......... (7,102)
Unrecognized net gain......................................... (229)
Unrecognized prior service cost............................... 8,354
Adjustment required to recognized minimum liability........... (4,005)
-------
Accrued pension cost..................................... $(2,982)
=======
</TABLE>
F-48
<PAGE> 163
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The accrued pension cost for accumulated benefits that exceeded assets at
January 30, 1994 was immaterial to the consolidated financial statements.
Service costs for fiscal 1992 and 1993 were calculated using a discount
rate of 8.5% and a rate of increase in future compensation levels of 6%. The
1994 discount rate and the rate of increase in future compensation levels were
reduced to 7.75% and 5.0%, respectively, to reflect the decline in interest
rates in 1994. The discount rate will be increased to 8.25% in 1995 in order to
reflect the increase in the current long-term interest rate. A long-term rate of
return on assets of 9% was used for fiscal 1992, 1993 and 1994.
The pension plan assets consist primarily of common stocks, bonds, debt
securities, and a money market fund. Plan benefits are based primarily on years
of service and on average compensation during the last years of employment.
Ralphs participates in multi-employer pension plans and health and welfare
plans administered by various trustees for substantially all union employees.
Contributions to these plans are based upon negotiated contractual rates. In
both Fiscal 1992 and Fiscal 1993 the multi-employer pension plan was deemed to
be overfunded based upon the collective bargaining agreement then currently in
force. During Fiscal 1993 the agreement called for pension benefits which
resulted in additional required expense. The UFCW health and welfare benefit
plans were overfunded and those employers who contributed to these plans
received a prorata share of excess reserve in these health care benefit plans
through a reduction in current maintenance payments. Ralphs' share of the excess
reserve was approximately $24.5 million of which $11.8 million was recognized in
Fiscal 1993 and the remainder, $12.7 million, was recognized in Fiscal 1994.
Since employers are required to make contributions to the benefit funds at
whatever level is necessary to maintain plan benefits, there can be no assurance
that plan maintenance payments will remain at current levels.
The expense related to these plans is summarized as follows:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JANUARY 31, JANUARY 30, JANUARY 29,
1993 1994 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Multi-employer pension plans...................... $ 7,973 $17,687 $ 8,897
======= ======= =======
Multi-employer health and welfare................. $71,183 $45,235 $66,351
======= ======= =======
</TABLE>
Ralphs maintains the Ralphs Grocery Company Savings Plan Plus -- Prime and
the Ralphs Grocery Savings Plan Plus -- Basic (collectively referred to as the
"401(k) Plan") covering substantially all employees who are not covered by
collective bargaining agreements and who have at least one year of credited
service (defined at 1,000 hours). The 401(k) Plan provided for both pre-tax and
after-tax contributions by participating employees. With certain limitations,
participants may elect to contribute from 1% to 12% of their annual compensation
on a pre-tax basis to the Plan. Ralphs has committed to match a minimum of 20%
of an employee's contribution to the 401(k) Plan that do not exceed 5% of the
employee's compensation. Expenses under the 401(k) Plan for fiscal 1992, 1993
and 1994 were $407,961, $431,774 and $446,826, respectively.
Ralphs has an executive incentive compensation plan which covers
approximately 39 key employees. Benefits to participants are earned based on a
percentage of base compensation upon attainment of a targeted formula of
earnings. Expense under this plan for fiscal 1992, 1993 and 1994 was $2.5
million, $2.6 million and $2.4 million, respectively. Ralphs has also adopted an
incentive plan for certain members of management. Benefits to participants are
earned based on a percentage of base compensation upon attainment of a targeted
formula of earnings. Expense under this plan for fiscal 1992, 1993 and 1994 was
$2.8 million, $3.0 million and $3.1 million, respectively.
F-49
<PAGE> 164
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The aforementioned incentive plans may be cancelled by the Board of
Directors at any time.
Ralphs sponsors a postretirement medical benefit plan (Postretirement
Medical Plan) covering substantially all employees who are not members of a
collective bargaining agreement and who retire under certain age and service
requirements.
The Postretirement Medical Plan is a traditional type medical plan
providing outpatient, inpatient and various other covered services. Such
benefits are funded from Ralphs' general assets. The calendar year deductible is
$1,270 per individual, indexed to the Medical Consumer Price Index.
The net periodic cost of the Postretirement Medical Plan includes the
following components:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JANUARY 31, JANUARY 30, JANUARY 29,
1993 1994 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost...................................... $ 1,908 $ 1,767 $ 1,396
Interest cost..................................... 1,367 1,603 1,387
Return on plan assets............................. -- -- --
Net amortization and deferment.................... -- -- (228)
------ ------ -------
Net postretirement benefit cost................. $ 3,275 $ 3,370 $ 2,555
====== ====== =======
</TABLE>
The funded status of the postretirement benefit plan is as follows:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS
ENDED ENDED
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees...................................................... $ 1,237 $ 1,303
Fully eligible plan participants.............................. 357 1,499
Other active plan participants................................ 16,062 10,289
Plan assets at fair value..................................... -- --
Funded status................................................. (17,656) (13,091)
-------- --------
Plan assets in excess of projected obligations................ -- --
Unrecognized gain (loss)...................................... 6,302 13,676
Unrecognized prior service cost............................... -- (358)
-------- --------
Accrued postretirement benefit obligation..................... $ (23,958) $ (26,409)
======== ========
</TABLE>
Service cost was calculated using a medical cost trend of 10.5% for fiscal
1992. Service cost was calculated using a medical cost trend of 10.5% and a
decreasing medical cost trend rate of 14%-8% for 1993 and 1994 respectively. The
discount rate for 1993 was 8.5% and was reduced to 7.75% in 1994 to reflect the
decline in interest rates in 1994. In 1995, the discount rate will increase to
8.25% in order to reflect the increase in the current long-term interest rate.
The long-term rate of return of plan assets is not applicable as the plan is not
funded.
The effect of a one-percent increase in the medical cost trend would
increase the fiscal 1994 service and interest cost to 18%. The accumulated
postretirement benefit obligation at January 29, 1995 would also increase by
27%.
F-50
<PAGE> 165
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(13) QUARTERLY RESULTS (UNAUDITED)
Quarterly results for fiscal 1993 and 1994 are as follows:
<TABLE>
<CAPTION>
GROSS OPERATING INCOME NET
SALES PROFIT INCOME TAXES EARNINGS
-------- ------ --------- ------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
FY 1993 Quarters
12 weeks ended 04/25/93................. $ 632.4 $142.4 $ 31.4 $ 1.0 $ 3.9
12 weeks ended 07/18/93................. 629.0 145.2 36.8 (1.0) 12.9
12 weeks ended 10/10/93................. 612.8 141.5 31.7 -- 7.0
16 weeks ended 01/30/94................. 856.0 207.4 52.2 (108.0) 114.6
-------- ------ ------ ------- ------
Total................................ $2,730.2 $636.5 $ 152.1 $(108.0) $138.4
======== ====== ====== ======= ======
FY 1994 Quarters
12 weeks ended 04/24/94................. $ 616.0 $141.7 $ 34.1 $ -- $ 8.4
12 weeks ended 07/17/94................. 625.0 142.9 32.9 -- 7.2
12 weeks ended 10/09/94................. 615.4 138.8 30.8 -- 4.3
16 weeks ended 01/29/95................. 868.2 200.2 47.8 -- 12.2
-------- ------ ------ ------- ------
Total................................ $2,724.6 $623.6 $ 145.6 $ -- $ 32.1
======== ====== ====== ======= ======
</TABLE>
(14) SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JANUARY 31, JANUARY 30, JANUARY 29,
1993 1994 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Supplemental cash flow disclosures:
Interest paid, net of amounts capitalized....... $ 118,391 $93,738 $99,067
Income taxes paid............................... $ 7,169 $ 2,423 $ 6,270
Capital lease assets and obligations assumed.... $ -- $15,395 $41,131
</TABLE>
(15) STOCK OPTION PLAN
On February 3, 1992, 3,162,235 options for Common Stock of the Company were
granted under the Ralphs Non-qualified Stock Option Plan. All options were
vested, but not exercisable, on the date of the grant. Options granted to
certain officers become exercisable at the rate of 20% on each September 30 of
calendar years 1992 through 1996. Options granted to other officers become
exercisable as to 10% of the grant on each of September 30, 1992 and 1993, 15%
on each of September 30, 1994 through September 30, 1997, and 20% on September
20, 1998.
F-51
<PAGE> 166
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes the Ralphs Non-qualified Stock Option Plan.
<TABLE>
<CAPTION>
NUMBER OF PRICE
OPTIONS RANGE
--------- ------
<S> <C> <C>
Options Outstanding at January 30, 1994:
Beginning of year............................................. 3,162,235 $20.21
Granted....................................................... -- --
Exercised..................................................... -- --
Cancelled..................................................... -- --
Expired....................................................... -- --
End of year................................................ 3,162,235 $20.21
--------- ------
Exercisable at end of year...................................... 811,760 --
--------- ------
Available for grant at end of year.............................. -- --
--------- ------
Options Outstanding at January 29, 1995:
Beginning of year............................................. 3,162,235 $20.21
Granted....................................................... -- --
Exercisable................................................... -- --
Cancelled..................................................... -- --
Expired....................................................... -- --
End of year................................................ 3,162,235 $20.21
--------- ------
Exercisable at end of year...................................... 1,330,924 --
--------- ------
Available for grant at end of year.............................. -- --
--------- ------
</TABLE>
The option price for outstanding options at January 29, 1995 assumes a
grant date fair market value of Common Stock of the Company equal to $20.21 per
share, which represents the high end of a range of estimated values of the
Common Stock of the Company on February 3, 1992, the date of the grant.
(16) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The methods and assumptions used to estimate the fair value of each class
of financial instruments for which it is practicable to estimate that value is
discussed in Note 2.
The estimated fair value of each class of financial instruments (where
practical), all held for non-trading purposes, is as follows in (000s):
<TABLE>
<CAPTION>
JANUARY 30, 1994 JANUARY 29, 1995
----------------------- ---------------------
CARRYING CARRYING FAIR
AMOUNT FAIR VALUE AMOUNT VALUE
-------- ---------- -------- --------
<S> <C> <C> <C> <C>
Long term debt........................ $998,884 $1,014,634 $967,009 $953,883
Interest rate swap agreements......... n/a 1,153 n/a 1,252
Interest rate cap agreements.......... n/a (19) n/a (366)
</TABLE>
In the fourth quarter of Fiscal 1992, Ralphs entered into an interest rate
cap agreement with an effective date of November 6, 1992 and a three year
maturity. The interest rate cap agreement hedges the interest rate in excess of
6.5% LIBOR on $105.0 million principal amount against increases in short-term
rates. This agreement satisfies interest rate protection requirements under the
1992 Credit Agreement. In addition to the interest rate cap agreement, Ralphs
entered into an interest rate swap agreement on $150.0 million notional
principal amount. Under the interest rate swap agreement, Ralphs is required to
pay interest based on LIBOR
F-52
<PAGE> 167
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
at the end of each six month calculation period and Ralphs will receive interest
payments based on LIBOR at the beginning of each six month calculation period.
This interest rate swap agreement has a three-year term expiring November 6,
1995. Ralphs is exposed to credit loss in the event of nonperformance by the
other party to the interest rate swap agreement. However, Ralphs does not
anticipate nonperformance by the counterpart.
The following details the impact of the hedging activity on the weighted
average rate for each of the last three fiscal years.
<TABLE>
<CAPTION>
WITH HEDGE WITHOUT HEDGE
---------- -------------
<S> <C> <C>
1992........................................................ 10.52% 10.22%
1993........................................................ 8.96% 8.96%
1994........................................................ 9.37% 9.18%
</TABLE>
(17) THE MERGER (UNAUDITED)
On September 14, 1994, Food 4 Less Supermarkets, Inc. ("Food 4 Less"), Food
4 Less Holdings, Inc. ("Holdings"), and the parent company of Holdings, Food 4
Less, Inc. ("FFL"), entered into a definitive Agreement and Plan of Merger (as
amended from time to time, the "Merger Agreement") with Ralphs Supermarkets,
Inc. (the "Holding Company") and its stockholders. Pursuant to the terms of the
Merger Agreement, Food 4 Less will be merged with and into Holding Company (the
"RSI Merger") and Holding Company will continue as the surviving corporation.
Food 4 Less is a multiple format supermarket operator that operates in three
geographic areas: Southern California, Northern California and certain areas of
the Midwest.
Immediately following the RSI Merger, Ralphs Grocery Company ("RGC"), which
is currently a wholly-owned subsidiary of Holding Company, will merge with and
into Holding Company (the "RGC Merger," and together with the RSI Merger, the
"Merger"), and Holding Company will change its name to Ralphs Grocery Company
(the "New Company"). Prior to the Merger, FFL will merge with and into Holdings,
which will be the surviving corporation (the "FFL Merger"). Immediately
following the FFL Merger, Holdings will change its jurisdiction of incorporation
by merging with a newly-formed, wholly-owned subsidiary ("Holdings"),
incorporated in Delaware (the "Reincorporation Merger"). As a result of the
Merger, the FFL Merger and the Reincorporation Merger, the New Company will
become a wholly-owned subsidiary of Holdings. Agreement has been reached with
each of the California Attorney General and the Federal Trade Commission for
approval of the Merger. Food 4 Less and Ralphs have agreed in a settlement
agreement with the Attorney General to divest 27 specific stores in Southern
California. Under the agreement, the Company must divest 14 stores by June 30,
1995, and the balance of 13 stores by December 31, 1995.
In order to consummate the Merger, Food 4 Less has made an Offer to
Exchange and Offer to Purchase and Solicit Consents with respect to the holders
of the 9% Senior Subordinated Notes (the "Old RGC 9% Notes") due April 1, 2003
of RGC and the 10 1/4% Senior Subordinated Notes due July 15, 2002 of RGC (the
"Old RGC 10 1/4% Notes," and together with the Old RGC 9% Notes, the "Old RGC
Notes") (i) to exchange (as so amended and restated, the "Exchange Offers") such
Old RGC Notes for New Senior Subordinated Notes due 2005 (the "Notes") plus a
cash payment of $20.00 in cash for each $1,000 principal amount of Old RGC Notes
tendered for exchange or (ii) to purchase (the "Cash Offers," and together with
the Exchange Offers, the "Offers") Old RGC Notes for $1,010 in cash per $1,000
principal amount of Old RGC Notes accepted for purchase, in each case, plus
accrued and unpaid interest to the date of exchange of purchase. The Offers are
subject to the terms and conditions set forth in an Amended and Restated
Prospectus and Solicitation Statement, filed by Food 4 Less with the Securities
and Exchange Commission and which is subject to further change (the
"Prospectus"), including: (1) satisfaction of a minimum tender amount (i.e., at
least a majority of the aggregate principal amount of the outstanding Old RGC
Notes being validly tendered
F-53
<PAGE> 168
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
for exchange for Notes and not withdrawn pursuant to the Offers prior to the
date of expiration); (2) the receipt of the requisite consents to certain
amendments to the indentures (the "Indentures") under which the Old RGC Notes
were issued (i.e., consents from holders of Old RGC Notes representing at least
a majority in aggregate principal amount of each issue of Old RGC Notes held by
persons other than Ralphs and its affiliates) on or prior to the date of
expiration; (3) the satisfaction or waiver, in Food 4 Less' sole discretion, of
all conditions precedent to the Merger; (4) the prior or contemporaneous
consummation of other exchange offers, consent solicitations and public
offerings contemplated by the Prospectus; and (5) the prior or contemporaneous
consummation of the bank financing and the equity investment described in the
Prospectus. As a result of the RSI Merger and the RGC Merger, the Notes and any
outstanding Old RGC Notes not tendered in the Offers will be the obligations of
the New Company.
Conditions to the consummation of the RSI Merger include the receipt of
necessary consents and the completion of financing of the transaction. The
purchase price for Holding Company is approximately $1.5 billion, including the
assumption or repayment of debt. The consideration payable to the stockholders
of Holding Company consists of $375 million in cash, $131.5 million principal
amount of 13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 to be
issued to the selling shareholders of Holding Company (the "Seller Debentures")
by Holdings and $18.5 million initial accreted value of 13 5/8% Senior Discount
Debentures due 2005 (the "New Discount Debentures"). Holdings will use $100
million of the cash received from a new equity investment (the "1995 Equity
Investment"), together with the Seller Debentures and the New Discount
Debentures, to acquire approximately 48% of the capital stock of Holding Company
immediately prior to consummation of the RSI Merger. Holdings will then
contribute the $250 million of purchased shares of Holding Company stock to Food
4 Less, and pursuant to the RSI Merger the remaining shares of Holding Company
stock will be acquired for $275 million in cash.
Standard & Poor's has publicly announced that, upon consummation of the
Merger, it intends to assign a new rating to the Old RGC Notes. Such new rating
assignment, if implemented, would constitute a Rating Decline pursuant to the
Indentures. The consummation of the Merger and the resulting change in
composition of the Board of Directors of RGC, together with the anticipated
Rating Decline, would constitute a Change of Control Triggering Event under the
Indentures. Although RGC does not anticipate that there will be a significant
amount of Old RGC Notes outstanding following consummation of the Exchange
Offers, upon such a Change of Control Triggering Event, the New Company would be
obligated to make the Change of Control Offer following the Merger for all
outstanding Old RGC Notes at 101% of the principal amount thereof plus accrued
and unpaid interest to the date of repurchase.
Due to the increased size, dual format strategy and integration related
costs, after giving effect to or in connection with the Merger, RGC believes
that its future operating results will not be directly comparable to the
historical operating results of RGC. Upon consummation of the Merger, the
operations and activities of RGC will be significantly impacted due to
conversions of some existing stores to Food 4 Less warehouse stores as well as
the consolidation of various operating functions and departments. This
consolidation is expected to result in a restructuring charge for the New
Company. The restructuring charge may be material in relation to the
stockholders' equity and financial position of RGC and the New Company.
Following the consummation of the Merger, the New Company will be highly
leveraged.
F-54
<PAGE> 169
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASER. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THOSE TO WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL,
OR THE SOLICITATION OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 4
Risk Factors.......................... 18
The Exchange Offer.................... 23
The Merger and the Financing.......... 32
Use of Proceeds....................... 33
Capitalization........................ 34
Unaudited Pro Forma Combined Statement
of Operations....................... 35
Selected Historical Financial Data of
the Company......................... 37
Selected Historical Financial Data of
Ralphs.............................. 40
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 42
Business.............................. 56
Management............................ 65
Executive Compensation................ 68
Principal Stockholders................ 72
Certain Relationships and Related
Transactions........................ 73
Description of Capital Stock.......... 75
Description of the Notes.............. 77
Description of the New Credit
Facility............................ 102
Description of Other Company
Indebtedness........................ 104
Description of Holdings'
Indebtedness........................ 106
Book Entry; Delivery and Form......... 108
Certain Federal Income Tax
Considerations...................... 110
Plan of Distribution.................. 110
Legal Matters......................... 111
Experts............................... 111
Available Information................. 111
Index to Financial Statements......... F-1
------------------------
UNTIL , 1996, ALL DEALERS
EFFECTING TRANSACTIONS IN THE EXCHANGE
NOTES, WHETHER OR NOT PARTICIPATING IN THE
EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A
PROSPECTUS.
- --------------------------------------------
- --------------------------------------------
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
--------------------
PROSPECTUS
--------------------
$100,000,000
RALPHS GROCERY COMPANY
10.45% SENIOR NOTES DUE 2004
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 170
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Ralphs Grocery Company and its subsidiaries Cala Co. and Food 4 Less of
Southern California, Inc., are Delaware corporations and their Certificates of
Incorporation and Bylaws provide for indemnification of their officers and
directors to the fullest extent permitted by law. Section 102(b)(7) of the
Delaware General Corporation Law (the "DGCL") eliminates the liability of a
corporation's directors to a corporation or its stockholders, except for
liabilities related to breach of duty of loyalty, actions not in good faith, and
certain other liabilities.
Section 145 of the DGCL provides for the indemnification by a Delaware
corporation of its directors, officers, employees and agents in connection with
actions, suits or proceedings brought against them by a third party or in the
right of the corporation, by reason of the fact that they were or are such
directors, officers, employees or agents, against liabilities and expenses
incurred in any such action, suit or proceeding.
Alpha Beta Company, Bay Area Warehouse Stores, Inc., Bell Markets, Inc.,
Cala Foods, Inc., Crawford Stores, Inc., Food 4 Less of California, Inc., Food 4
Less GM, Inc. and Food 4 Less Merchandising, Inc. are California corporations
and their Certificates of Incorporation and Bylaws provide for indemnification
of their officers and directors to the fullest extent permitted by law. Section
204(10) of the California General Corporation Law (the "CGCL") eliminates the
liability of a corporation's directors for monetary damages to the fullest
extent permissible under California law. Pursuant to Section 204(11) of the
CGCL, a California corporation may indemnify Agents (as defined in Section 317
of the CGCL), subject only to the applicable limits set forth in Section 204 of
the CGCL with respect to actions for breach of duty to the corporation and its
shareholders.
As permitted by Section 317 of the CGCL, indemnification may be provided by
a California corporation of its Agents (as defined in Section 317 of the CGCL),
to the maximum extent permitted by the CGCL, in connection with any proceeding
arising by reason of the fact that such person is or was such a director or
officer, against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in any such proceeding.
Falley's, Inc. is a Kansas corporation and its Bylaws provide for
indemnification of its officers and directors to the fullest extent permitted by
law. Section 17-6305(a) of the Kansas General Corporation Code (the "KGCC")
provides for the indemnification by a Kansas corporation of its directors,
officers, employees and agents in connection with actions, suits or proceedings
brought against them by a third party or in the right of the corporation, by
reason of the fact that they were or are such directors, officers, employees or
agents, against liabilities and expenses incurred in any such action, suit or
proceeding.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
A list of exhibits filed with this Registration Statement on Form S-4 is
set forth in the Index to Exhibits on page E-1, and is incorporated herein by
reference.
(b) Financial Statement Schedules:
(i) Ralphs Grocery Company
Schedule II -- Valuation and Qualifying Accounts
(ii) Ralphs Supermarkets, Inc.
Schedule II -- Valuation and Qualifying Accounts
SCHEDULES OMITTED
Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the information required by
such omitted schedules is set forth in the financial statements or the notes
thereto.
II-1
<PAGE> 171
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrants hereby undertake that insofar as
indemnification for liabilities arising under the Securities Act of 1933, as
amended (the "Act"), may be permitted to directors, officers and controlling
persons of the Registrants pursuant to the foregoing provisions, or otherwise,
the Registrants have been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim of
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or the registrant in the successful defense of
any action, suit paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into this prospectus pursuant to
Item 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement; (i) to
include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933; (ii) to reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement;
(2) That, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-2
<PAGE> 172
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Angeles, State of
California, on June 27, 1996.
RALPHS GROCERY COMPANY
By: /s/ JAN CHARLES GRAY
-----------------------------------
Jan Charles Gray
Senior Vice President,
General Counsel and Secretary
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Ronald
W. Burkle, George G. Golleher and Jan Charles Gray, his true and lawful attorney
and agent, each acting alone, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same, with all exhibits thereto
and all other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney and agent, each acting alone,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done, as fully to all intents and purposes as he
might or could do in person, thereby ratifying and confirming that said attorney
and agent, each acting alone, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GEORGE G. GOLLEHER Chief Executive Officer and June 27, 1996
- --------------------------------------------- Director (Principal
George G. Golleher Executive Officer)
/s/ GREG MAYS Executive Vice President -- June 27, 1996
- --------------------------------------------- Finance/Administrative and
Greg Mays Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ BYRON E. ALLUMBAUGH Director and Chairman of the June 27, 1996
- --------------------------------------------- Board
Byron E. Allumbaugh
Director June , 1996
- ---------------------------------------------
Robert Beyer
/s/ JOE S. BURKLE Director June 27, 1996
- ---------------------------------------------
Joe S. Burkle
/s/ RONALD W. BURKLE Director June 27, 1996
- ---------------------------------------------
Ronald W. Burkle
/s/ PETER COPSES Director June 27, 1996
- ---------------------------------------------
peter Copses
</TABLE>
II-3
<PAGE> 173
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ PATRICK L. GRAHAM Director June 27, 1996
- ---------------------------------------------
Patrick L. Graham
/s/ JOHN KISSICK Director June 27, 1996
- ---------------------------------------------
John Kissick
/s/ ALFRED A. MARASCA Director June 27, 1996
- ---------------------------------------------
Alfred A. Marasca
/s/ MARK A. RESNIK Director June 27, 1996
- ---------------------------------------------
Mark A. Resnik
</TABLE>
II-4
<PAGE> 174
SIGNATURES
(continued)
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Angeles, State of
California, on June 27, 1996.
BAY AREA WAREHOUSE STORES, INC.
BELL MARKETS, INC.
CALA CO.
CALA FOODS, INC.
FOOD 4 LESS OF CALIFORNIA, INC.
FOOD 4 LESS GM, INC.
FOOD 4 LESS MERCHANDISING, INC.
FOOD 4 LESS OF SOUTHERN CALIFORNIA,
INC.
BY: /s/ JAN CHARLES GRAY
------------------------------------
Jan Charles Gray
Senior Vice President,
General Counsel and Secretary
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Ronald
W. Burkle, George G. Golleher and Jan Charles Gray, his true and lawful attorney
and agent, each acting alone, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same, with all exhibits thereto
and all other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney and agent, each acting alone,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done, as fully to all intents and purposes as he
might or could do in person, thereby ratifying and confirming that said attorney
and agent, each acting alone, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ GEORGE G. GOLLEHER Chief Executive Officer and June 27, 1996
- --------------------------------------------- Director (Principal
George G. Golleher Executive Officer) of each
Registrant
/s/ GREG MAYS Executive Vice President -- June 27, 1996
- --------------------------------------------- Finance/Administration and
Greg Mays Chief Financial Officer
(Principal Financial and
Accounting Officer) of each
Registrant
/s/ RONALD W. BURKLE Director and Chairman of the June 27, 1996
- --------------------------------------------- Board of each Registrant
Ronald W. Burkle
</TABLE>
II-5
<PAGE> 175
SIGNATURES
(continued)
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Angeles, State of
California, on June 27, 1996.
CRAWFORD STORES, INC.
By: /s/ JAN CHARLES GRAY
-----------------------------------
Jan Charles Gray
Senior Vice President,
General Counsel and Secretary
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Ronald
W. Burkle, George G. Golleher and Jan Charles Gray, his true and lawful attorney
and agent, each acting alone, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same, with all exhibits thereto
and all other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney and agent, each acting alone,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done, as fully to all intents and purposes as he
might or could do in person, thereby ratifying and confirming that said attorney
and agent, each acting alone, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ BYRON E. ALLUMBAUGH Chief Executive Officer and June 27, 1996
- --------------------------------------------- Director (Principal
Byron E. Allumbaugh Executive Officer)
/s/ ALFRED A. MARASCA President, Chief Operating June 27, 1996
- --------------------------------------------- Officer and Director
Alfred A. Marasca (Principal Financial and
Accounting Officer)
/s/ JAN CHARLES GRAY Director June 27, 1996
- ---------------------------------------------
Jan Charles Gray
</TABLE>
II-6
<PAGE> 176
SIGNATURES
(continued)
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Angeles, State of
California, on June 27, 1996.
ALPHA BETA COMPANY
By: /s/ JAN CHARLES GRAY
-----------------------------------
Jan Charles Gray
Senior Vice President,
General Counsel and Secretary
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Ronald
W. Burkle, George G. Golleher and Jan Charles Gray, his true and lawful attorney
and agent, each acting alone, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same, with all exhibits thereto
and all other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney and agent, each acting alone,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done, as fully to all intents and purposes as he
might or could do in person, thereby ratifying and confirming that said attorney
and agent, each acting alone, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RONALD W. BURKLE Chairman of the Board, Chief June 27, 1996
- --------------------------------------------- Executive Officer and
Ronald W. Burkle Director (Principal
Executive Officer)
/s/ GREG MAYS Executive Vice President -- June 27, 1996
- --------------------------------------------- Finance/Administration and
Greg Mays Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ GEORGE G. GOLLEHER Director June 27, 1996
- ---------------------------------------------
George G. Golleher
</TABLE>
II-7
<PAGE> 177
SIGNATURES
(continued)
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Angeles, State of
California, on June 27, 1996.
FALLEY'S, INC.
By: /s/ JAN CHARLES GRAY
-----------------------------------
Jan Charles Gray
Senior Vice President,
General Counsel and Secretary
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Ronald
W. Burkle, George G. Golleher and Jan Charles Gray, his true and lawful attorney
and agent, each acting alone, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same, with all exhibits thereto
and all other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney and agent, each acting alone,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done, as fully to all intents and purposes as he
might or could do in person, thereby ratifying and confirming that said attorney
and agent, each acting alone, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOE S. BURKLE Chief Executive Officer June 27, 1996
- --------------------------------------------- (Principal Executive
Joe S. Burkle Officer)
/s/ GREG MAYS Executive Vice President -- June 27, 1996
- --------------------------------------------- Finance/Administration and
Greg Mays Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ RONALD W. BURKLE Director and Chairman of the June 27, 1996
- --------------------------------------------- Board
Ronald W. Burkle
/s/ GEORGE G. GOLLEHER Director June 27, 1996
- ---------------------------------------------
George G. Golleher
</TABLE>
II-8
<PAGE> 178
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholder of Ralphs Grocery Company:
We have audited, in accordance with generally accepted auditing standards,
the consolidated balance sheets of Ralphs Grocery Company (formerly Food 4 Less
Supermarkets, Inc. -- See Note 1 in the accompanying Notes to Consolidated
Financial Statements) and subsidiaries as of June 25, 1994, January 29, 1995 and
January 28, 1996, and the related consolidated statements of operations,
stockholder's equity and cash flows for the 52 weeks ended June 26, 1993 and
June 25, 1994, the 31 weeks ended January 29, 1995 and the 52 weeks ended
January 28, 1996, and have issued our report thereon dated April 19, 1996. Our
audits were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule on page S-2 is the responsibility of
the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Los Angeles, California
April 19, 1996
S-1
<PAGE> 179
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
52 WEEKS ENDED JANUARY 28, 1996, 31 WEEKS ENDED JANUARY 29, 1995,
52 WEEKS ENDED JUNE 25, 1994, AND 52 WEEKS ENDED JUNE 26, 1993
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PROVISIONS CHARGED
BALANCE AT CHARGED TO BALANCE
BEGINNING TO INTEREST OTHER AT END
OF PERIOD EXPENSE EXPENSE(A) PAYMENTS CHANGES(B) OF PERIOD
---------- ---------- ---------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Self-insurance liabilities
52 weeks ended January 28, 1996... $ 72,739 $ 32,603 $ 10,287 $42,153 $ 75,509 $ 148,985
======= ======= ======= ======= ======= ========
31 weeks ended January 29, 1995... $ 81,704 $ 6,304 $ 3,453 $18,722 $ -- $ 72,739
======= ======= ======= ======= ======= ========
52 weeks ended June 25, 1994...... $ 85,494 $ 19,880 $ 5,836 $29,506 $ -- $ 81,704
======= ======= ======= ======= ======= ========
52 weeks ended June 26, 1993...... $ 82,559 $ 38,040 $ 5,865 $40,970 $ -- $ 85,494
======= ======= ======= ======= ======= ========
</TABLE>
- ---------------
(a) Amortization of discount on self-insurance reserves charged to interest
expense.
(b) Reflects self-insurance reserve of Ralphs Grocery Company which was acquired
on June 14, 1995.
S-2
<PAGE> 180
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Ralphs Grocery Company:
The audits referred to in our report dated March 9, 1995, included the financial
statement schedule as of January 29, 1995, and for each of the years in the
three-year period ended January 29, 1995, included in the registration
statement. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the headings "Selected Historical Financial Data of Ralphs", "Summary
of Historical Financial Data of Ralphs" and "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Los Angeles, California
June 26, 1996
S-3
<PAGE> 181
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
52 WEEKS ENDED JANUARY 29, 1995, 52 WEEKS ENDED JANUARY 30, 1994
AND 52 WEEKS ENDED JANUARY 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE CHARGED TO BALANCE
BEGINNING COSTS AND CHARGED TO DEDUCTIONS AT END
OF PERIOD EXPENSES OTHER ACCOUNTS(B) (PAYMENTS) OF PERIOD
--------- ---------- ----------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
JANUARY 29, 1995:
Self-Insurance Reserves(a)............. $80,010 $ 14,003 $ 5,976 $(27,483) $ 72,506
Store Closure Reserves................. 9,514 $ -- $ -- $ (764) $ 8,750
JANUARY 30, 1994:
Self-Insurance Reserves(a)............. $72,979 $ 30,323 $ 5,953 $(29,245) $ 80,010
Store Closure Reserves................. $10,277 $ -- $ -- $ (763) $ 9,514
JANUARY 31, 1993:
Self-Insurance Reserves(a)............. $64,523 $ 25,950 $10,902 $(28,396) $ 72,979
Store Closure Reserves................. $14,244 $ 1,838 $ -- $ (5,805) $ 10,277
</TABLE>
- ---------------
(a) Includes short-term portion.
(b) Amortization of discount on self-insurance reserves to interest expense.
S-4
<PAGE> 182
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- ------ ------------------------------------------------------------------------ ------------
<S> <C> <C>
3.1 Restated Certificate of Incorporation, as amended, of Ralphs Grocery
Company (incorporated herein by reference to Exhibit 3.1 of Ralph's
Grocery Company's Quarterly Report on Form 10-Q for the quarter ended
July 16, 1995)..........................................................
3.2 Restated Bylaws of Ralphs Grocery Company (formerly known as Ralphs
Supermarkets, Inc.).....................................................
4.1.1 Credit Agreement dated as of June 14, 1995 by and among Food 4 Less
Holdings, Inc., Food 4 Less Supermarkets, Inc., the Lenders, Co-Agents,
and Co-Arrangers named therein and Bankers Trust Company (incorporated
herein by reference to Exhibit 4.1 of Food 4 Less Holdings, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended July 16, 1995)......
4.1.2 First Amendment to Credit Agreement dated as of August 18, 1995 among
Food 4 Less Holdings, Inc., Ralphs Grocery Company and the financial
institutions listed on the signature pages thereto (incorporated herein
by reference to Exhibit 4.1.2 of Ralphs Grocery Company's Annual Report
on Form 10-K for the fiscal year ended January 28, 1996)................
4.1.3 Second Amendment to Credit Agreement dated as of December 11, 1995 among
Food 4 Less Holdings, Inc., Ralphs Grocery Company and the financial
institutions listed on the signature pages thereto (incorporated herein
by reference to Exhibit 4.1.3 of Ralphs Grocery Company's Annual Report
on Form 10-K for the fiscal year ended January 28, 1996)................
4.1.4 Third Amendment, Consent and Waiver to Credit Agreement dated as of
March 8, 1996 among Food 4 Less Holdings, Inc., Ralphs Grocery Company
and the financial institutions listed on the signature pages thereto
(incorporated herein by reference to Exhibit 4.1.4 of Ralphs Grocery
Company's Annual Report on Form 10-K for the fiscal year ended January
28, 1996)...............................................................
4.2.1 Indenture for the 10.45% Senior Notes due 2004, dated as of June 1,
1995, by and among Food 4 Less Supermarkets, Inc., the subsidiary
guarantors identified therein and Norwest Bank Minnesota, National
Association, as trustee (incorporated herein by reference to Exhibit
4.4.1 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for
the quarter ended July 16, 1995)........................................
4.2.2 First Supplemental Indenture for the 10.45% Senior Notes due 2004, dated
as of June 14, 1995, by and among Ralphs Grocery Company (as successor
by merger to Food 4 Less Supermarkets, Inc.), the subsidiary guarantors
identified therein, Crawford Stores, Inc. and Norwest Bank Minnesota,
National Association, trustee (incorporated herein by reference to
Exhibit 4.4.2 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form
10-Q for the quarter ended July 16, 1995)...............................
4.3.1 Indenture for the 13.75% Senior Subordinated Notes due 2005, dated as of
June 1, 1995, by and among Food 4 Less Supermarkets, Inc., the
subsidiary guarantors identified herein and United States Trust Company
of New York, as trustee (incorporated herein by reference to Exhibit
4.5.1 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for
the quarter ended July 16, 1995)........................................
4.3.2 First Supplemental Indenture for the 13.75% Senior Subordinated Notes
due 2005, dated as of June 14, 1995, by and among Ralphs Grocery Company
(as successor by merger to Food 4 Less Supermarkets, Inc.), the
subsidiary guarantors identified therein, Crawford Stores, Inc. and
United States Trust Company of New York, as trustee (incorporated herein
by reference to Exhibit 4.5.2 of Food 4 Less Holdings, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended July 16, 1995)................
</TABLE>
E-1
<PAGE> 183
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- ------ ------------------------------------------------------------------------ ------------
<S> <C> <C>
4.4.1 Indenture for the 11% Senior Subordinated Notes due 2005, dated as of
June 1, 1995, by and among Food 4 Less Supermarkets, Inc., the
subsidiary guarantors identified therein and United States Trust Company
of New York, as trustee (incorporated herein by reference to Exhibit
4.6.1 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for
the quarter ended July 16, 1995)........................................
4.4.2 First Supplemental Indenture for the 11% Senior Subordinated Notes due
2005, dated as of June 14, 1995, by and among Ralphs Grocery Company (as
successor by merger to Food 4 Less Supermarkets, Inc.), the subsidiary
guarantors identified therein, Crawford Stores, Inc. and United States
Trust Company of New York, as trustee (incorporated herein by reference
to Exhibit 4.6.2 of Food 4 Less Holdings, Inc.'s Quarterly Report on
Form 10-Q for the quarter ended July 16, 1995)..........................
4.5.1 Indenture for the 10 1/4% Senior Subordinated Notes due 2002, dated as
of July 29, 1992, by and between Ralphs Grocery Company and United
States Trust Company of New York, as trustee (incorporated herein by
reference to Exhibit 4.3 of Ralphs Grocery Company's Quarterly Report on
Form 10-Q for the quarter ended July 19, 1992)..........................
4.5.2 First Supplemental Indenture for the 10 1/4% Senior Subordinated Notes
due 2002, dated as of May 30, 1995, by and between Ralphs Grocery
Company and United States Trust Company of New York, as trustee
(incorporated herein by reference to Exhibit 4.1 of Ralphs Grocery
Company's Quarterly Report on Form 10-Q for the quarter ended April 23,
1995)...................................................................
4.5.3 Second Supplemental Indenture for the 10 1/4% Senior Subordinated Notes
due 2002, dated as of June 14, 1995, by and between Ralphs Grocery
Company (as successor) and United States Trust Company of New York, as
Trustee (incorporated herein by reference to Exhibit 4.7.3 of Food 4
Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter
ended July 16, 1995)....................................................
4.6.1 Indenture for the 9% Senior Subordinated Notes due 2003, dated as of
March 30, 1993, by and between Ralphs Grocery Company and United States
Trust Company of New York, as trustee (incorporated herein by reference
to Exhibit 4.1 of Ralphs Grocery Company's Registration Statement on
Form S-4, No. 33-61812).................................................
4.6.2 First Supplemental Indenture for the 9% Senior Subordinated Notes due
2003, dated as of June 23, 1993, by and between Ralphs Grocery Company
and United States Trust Company of New York, as trustee (incorporated
herein by reference to Exhibit 4.2 of Ralphs Grocery Company's
Registration Statement on Form S-4, No. 33-61812).......................
4.6.3 Second Supplemental Indenture for the 9% Senior Subordinated Notes due
2003, dated as of May 30, 1995, by and between Ralphs Grocery Company
and United States Trust Company of New York, as trustee (incorporated
herein by reference to Exhibit 4.2 of Ralphs Grocery Company's Quarterly
Report on Form 10-Q, for the quarter ended April 23, 1995)..............
4.6.4 Third Supplemental Indenture for the 9% Senior Subordinated Notes due
2003, dated as of June 14, 1995, by and between Ralphs Grocery Company
(as successor) and United States Trust Company of New York, as trustee
(incorporated herein by reference to Exhibit 4.8.4 of Food 4 Less
Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
July 16, 1995)..........................................................
4.7.1 Senior Note Indenture, dated as of April 15, 1992, by and among Food 4
Less Supermarkets, Inc., the subsidiary guarantors identified therein
and Norwest Bank Minnesota, National Association, as trustee
(incorporated herein by reference to Exhibit 4.1 to Food 4 Less
Supermarkets, Inc.'s Registration Statement on Form S-1, No.
33-46750)...............................................................
</TABLE>
E-2
<PAGE> 184
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- ------ ------------------------------------------------------------------------ ------------
<S> <C> <C>
4.7.2 First Supplemental Indenture, dated as of July 24, 1992, by and among
Food 4 Less Supermarkets, Inc., the subsidiary guarantors identified
therein and Norwest Bank Minnesota, National Association, as trustee
(incorporated herein by reference to Exhibit 4.1.1 to Food 4 Less
Supermarkets, Inc.'s Annual Report on Form 10-K for the fiscal year
ended June 27, 1992)....................................................
4.7.3 Second Supplemental Indenture for the 10.45% Senior Notes due 2000,
dated as of June 14, 1995, by and among Food 4 Less Supermarkets, Inc.,
the subsidiary guarantors identified therein and Norwest Bank Minnesota,
National Association, as trustee (incorporated herein by reference to
Exhibit 4.9.3 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form
10-Q for the quarter ended July 16, 1995)...............................
4.7.4 Third Supplemental Indenture for the 10.45% Senior Notes due 2000, dated
as of June 14, 1995, by and among Ralphs Grocery Company (as successor
by merger to Food 4 Less Supermarkets, Inc.), the subsidiary guarantors
identified therein and Norwest Bank Minnesota, National Association, as
trustee (incorporated herein by reference to Exhibit 4.9.4 of Food 4
Less Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter year
ended July 16, 1995)....................................................
4.8.1 Senior Subordinated Note Indenture dated as of June 15, 1991 by and
among Food 4 Less Supermarkets, Inc., the subsidiary guarantors
identified therein and United States Trust Company of New York, as
trustee (incorporated herein by reference to Exhibit 4.1 to Food 4 Less
Supermarkets, Inc.'s Annual Report on Form 10-K for the fiscal year
ended June 29, 1991)....................................................
4.8.2 First Supplemental Indenture dated as of April 8, 1992 by and among Food
4 Less Supermarkets, Inc., the subsidiary guarantors identified therein
and United States Trust Company of New York, as trustee (incorporated
herein by reference to Exhibit 4.2.1 to Food 4 Less Supermarkets, Inc.'s
Annual Report on Form 10-K for the fiscal year ended June 27, 1992).....
4.8.3 Second Supplemental Indenture, dated as of May 18, 1992 by and among
Food 4 Less Supermarkets, Inc., the subsidiary guarantors identified
therein and United States Trust Company of New York, as trustee
(incorporated herein by reference to Exhibit 4.2.2 to Food 4 Less
Supermarkets, Inc.'s Annual Report on Form 10-K for the fiscal year
ended June 27, 1992)....................................................
4.8.4 Third Supplemental Indenture, dated as of July 24, 1992 by and among
Food 4 Less Supermarkets, Inc., the subsidiary guarantors identified
therein and United States Trust Company of New York, as trustee
(incorporated herein by reference to Exhibit 4.2.3 to Food 4 Less
Supermarkets, Inc.'s Annual Report on Form 10-K for the fiscal year
ended June 27, 1992)....................................................
4.8.5 Fourth Supplemental Indenture for the 13.75% Senior Subordinated Notes
due 2001, dated as of May 30, 1995, by and among Food 4 Less
Supermarkets, Inc., the subsidiary guarantors identified therein and
United States Trust Company of New York, as trustee (incorporated herein
by reference to Exhibit 4.10.5 of Food 4 Less Holdings, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended July 16, 1995)................
4.8.6 Fifth Supplemental Indenture for the 13.75% Senior Subordinated Notes
due 2001, dated as of June 14, 1995, by and among Ralphs Grocery Company
(as successor by merger to Food 4 Less Supermarkets, Inc.), the
subsidiary guarantors identified therein and United States Trust Company
of New York as trustee (incorporated herein by reference to Exhibit
4.10.6 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for
the quarter ended July 16, 1995)........................................
4.9 Indenture for the 10.45% Senior Notes due 2004, dated as of June 6,
1996, by and among Ralphs Grocery Company, the subsidiary guarantors
identified therein and Norwest Bank Minnesota, National Association, as
trustee.................................................................
</TABLE>
E-3
<PAGE> 185
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- ------ ------------------------------------------------------------------------ ------------
<S> <C> <C>
5.1 Opinion of Latham & Watkins regarding the validity of the Exchange Notes
and the guarantees of the Subsidiary Guarantors, including consent......
5.2 Opinion of Irwin Clutter Severson & Hinkel regarding the guarantee of
Falley's Inc............................................................
8 Opinion of Latham & Watkins regarding certain federal income tax
matters, including consent..............................................
10.1 Second Amended and Restated Tax Sharing Agreement dated as of June 14,
1995 by and among Food 4 Less Holdings, Inc., Ralphs Grocery Company and
the subsidiaries of Ralphs Grocery Company (incorporated herein by
reference to Exhibit 10.1 of Food 4 Less Holdings, Inc.'s Quarterly
Report on Form 10-Q for the quarter ended July 16, 1995)................
10.2 Stockholders Agreement of Food 4 Less Holdings, Inc. dated as of June
14, 1995 by and among Food 4 Less Holdings, Inc., Ralphs Grocery Company
and the investors listed on the signature pages thereto (incorporated
herein by reference to Exhibit 10.2 of Food for Less Holdings, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended July 16, 1995)......
10.3 Consulting Agreement dated as of June 14, 1995 by and among The Yucaipa
Companies, Food 4 Less Holdings, Inc. and Ralphs Grocery Company
(incorporated herein by reference to Exhibit 10.4 of Food 4 Less
Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
July 16, 1995)..........................................................
10.4 Employment Agreement dated as of June 14, 1995 between Food Less
Holdings, Inc., Ralphs Grocery Company and George G. Golleher
(incorporated herein by reference to Exhibit 10.11 of Food 4 Less
Holdings, Inc.'s Quarterly Report on Form 10-Q for the quarter ended
July 16, 1995)..........................................................
10.5 Employment Agreement dated as of June 14, 1995 between Ralphs Grocery
Company and Byron E. Allumbaugh (incorporated herein by reference to
Exhibit 10.8 of Ralphs Grocery Company's Quarterly Report on Form 10-Q
for the quarter ended July 16, 1995)....................................
10.6 Employment Agreement dated as of June 14, 1995 between Ralphs Grocery
Company and Alfred A. Marasca (incorporated herein by reference to
Exhibit 10.9 of Ralphs Grocery Company's Quarterly Report on Form 10-Q
for the quarter ended July 16, 1995)....................................
10.7 Employment Agreement dated as of June 14, 1995 between Ralphs Grocery
Company and Greg Mays (incorporated herein by reference to Exhibit 10.10
of Ralphs Grocery Company's Quarterly Report on Form 10-Q for the
quarter ended July 16, 1995)............................................
10.8 Employment Agreement dated as of June 14, 1995 between Ralphs Grocery
Company and Harley DeLano (incorporated herein by reference to Exhibit
10.8 of Ralphs Grocery Company's Annual Report on Form 10-K for the
fiscal year ended January 28, 1996).....................................
10.9 Employment Agreement dated as of June 14, 1995 between Ralphs Grocery
Company and Jan Charles Gray (incorporated herein by reference to
Exhibit 10.12 of Ralphs Grocery Company's Quarterly Report on Form 10-Q
for the quarter ended July 16, 1995)....................................
10.10 Employment Agreement dated as of June 14, 1995 between Ralphs Grocery
Company and Tony Schnug (incorporated herein by reference to Exhibit
10.10 of Ralphs Grocery Company's Annual Report on Form 10-K for the
fiscal year ended January 28, 1996).....................................
</TABLE>
E-4
<PAGE> 186
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- ------ ------------------------------------------------------------------------ ------------
<S> <C> <C>
10.11 Management Stockholders Agreement dated as of June 14, 1995 between Food
4 Less Holdings, Inc. and the management employees listed on the
signature pages thereto (incorporated herein by reference to Exhibit
10.12 of Food 4 Less Holdings, Inc.'s Quarterly Report on Form 10-Q for
the quarter ended July 16, 1995)........................................
10.12 Consulting Agreement dated as of June 27, 1988 by and between Falley's,
Inc. and Joe S. Burkle (incorporated herein by reference to Exhibit
10.38 to Food 4 Less Supermarkets, Inc.'s Registration Statement on Form
S-1, No. 33-31152)......................................................
10.13 Letter Agreement dated as of December 10, 1990 amending Consulting
Agreement by and between Falley's, Inc. and Joe S. Burkle (incorporated
herein by reference to Exhibit 10.17.1 to Food 4 Less Supermarkets,
Inc.'s Annual Report on Form 10-K for the fiscal year ended June 29,
1991)...................................................................
10.14 Distribution Center Transfer Agreement, dated as of November 1, 1995, by
and between Smith's Food & Drug Centers, Inc., a Delaware corporation,
and Ralphs Grocery Company, relating to the Riverside, California
property (incorporated herein by reference to Exhibit 10.1 to Ralphs
Grocery's Company's Quarterly Report on Form 10-Q for the quarter ended
October 8, 1995)........................................................
10.15.1 Ralphs Grocery Company Retirement Supplement Plan, effective as of
January 1, 1994 (incorporated herein by reference to Exhibit 10.15.1 of
Ralphs Grocery Company's Annual Report on Form 10-K for the fiscal year
ended January 28, 1996).................................................
10.15.2 Amendment to the Retirement Supplement Plan, effective as of January 1,
1995 (incorporated herein by reference to Exhibit 10.15.2 of Ralphs
Grocery Company's Annual Report on Form 10-K for the fiscal year ended
January 28, 1996).......................................................
10.15.3 Second Amendment to the Retirement Supplement Plan, effective as of June
14, 1995, by and between Ralphs Grocery Company and Ralphs Grocery
Company Retirement Supplement Plan (incorporated herein by reference to
Exhibit 10.15.3 of Ralphs Grocery Company's Annual Report on Form 10-K
for the fiscal year ended January 28, 1996).............................
10.16.1 Ralphs Grocery Company Supplemental Executive Retirement Plan, amended
and restated as of April 9,1994 (incorporated herein by reference to
Exhibit 10.16.1 of Ralphs Grocery Company's Annual Report on Form 10-K
for the fiscal year ended January 28, 1996).............................
10.16.2 Amendment to the Amended and Restated Supplemental Executive Retirement
Plan, effective as of January 1, 1995 (incorporated herein by reference
to Exhibit 10.16.2 of Ralphs Grocery Company's Annual Report on Form
10-K for the fiscal year ended January 28, 1996)........................
10.16.3 Second Amendment to the Supplemental Executive Retirement Plan, dated as
of June 14, 1995, by and between Ralphs Grocery Company and Ralphs
Grocery Company Supplemental Executive Retirement Plan (incorporated
herein by reference to Exhibit 10.16.3 of Ralphs Grocery Company's
Annual Report on Form 10-K for the fiscal year ended January 28,
1996)...................................................................
10.16.4 Third Amendment to the Ralphs Grocery Company Supplemental Executive
Plan, effective as of July 1, 1995 (incorporated herein by reference to
Exhibit 10.16.4 of Ralphs Grocery Company's Annual Report on Form 10-K
for the fiscal year ended January 28, 1996).............................
10.17 Purchase Agreement, dated as of June 3, 1996, by and among Ralphs
Grocery Company, the Subsidiary Guarantors and BT Securities
Corporation.............................................................
10.18 Registration Rights Agreement, dated as of June 6, 1996, by and among
Ralphs Grocery Company, the Subsidiary Guarantors and BT Securities.....
12 Computation of Ratio of Earnings to Fixed Charges.......................
</TABLE>
E-5
<PAGE> 187
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGES
- ------ ------------------------------------------------------------------------ ------------
<S> <C> <C>
21 Subsidiaries (incorporated herein by reference to Exhibit 21 of Ralphs
Grocery Company's Annual Report on Form 10-K for the fiscal year ended
January 28, 1996).......................................................
23.1 Consent of Arthur Andersen LLP, independent public accountants..........
23.2 Consent of KPMG Peat Marwick LLP, independent certified public
accountants.............................................................
23.3 Consent of Latham & Watkins (included in the opinion filed as Exhibit
5.1 to the Registration Statement)......................................
23.4 Consent of Irwin, Clutter & Severson (included in the opinion filed as
Exhibit 5.2 to the Registration Statement)..............................
24.1 Power of Attorney of Directors and Officers of Ralphs Grocery Company
(included in the signature pages in Part II of the Registration
Statement)..............................................................
24.2 Power of Attorney of Directors and Officers of Crawford Stores, Inc.
(included in the signature pages in Part II of the Registration
Statement)..............................................................
24.3 Power of Attorney of Directors and Officers of Alpha Beta Company
(included in the signature pages in Part II of the Registration
Statement)..............................................................
24.4 Power of Attorney of Directors and Officers of Falley's, Inc. (included
in the signature pages in Part II of the Registration Statement)........
25 Statement of Eligibility and Qualification on Form T-1 of Norwest Bank
Minnesota, National Association, as Trustee, under the Indenture*.......
99.1 Letter of Transmittal with respect to the Exchange Offer*...............
99.2 Notice of Guaranteed Delivery with respect to the Exchange Offer*.......
99.3 Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9*....................................................
</TABLE>
- ---------------
* To be filed by amendment.
E-6
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BYLAWS
OF
RALPHS SUPERMARKETS, INC.
(a Delaware corporation)
(adopted April 28, 1992)
ARTICLE I
OFFICES
SECTION 1.1 Registered Office. The registered office of the
Corporation in the State of Delaware shall be 1209 Orange Street, City of
Wilmington, County of New Castle and The Corporation Trust Company shall be the
resident agent of this Corporation in charge thereof.
SECTION 1.2 Other Offices. The Corporation may also have offices at
other places, either within or without the State of Delaware, as the Board of
Directors may from time to time determine or as the business of the Corporation
may require.
ARTICLE II
STOCKHOLDERS
SECTION 2.1 Annual Meetings. The annual meeting of stockholders for
the election of directors and for the transaction of such other business as may
properly come before the meeting shall be held at such place (within or without
the State of Delaware), on such date and at such time as the Board of Directors
shall each year fix and designate in the notice of such meeting, which date
shall be within thirteen (13) months of the last annual meeting of
stockholders. At the annual meeting no business may be transacted and no
corporate action may be taken other than that stated in the notice of meeting.
<PAGE> 2
SECTION 2.2 Notice of Meetings. Except as otherwise expressly
required by law, notice of the date, time and place of each meeting of the
stockholders shall be given not less than 10 nor more than 60 calendar days
before the date of the meeting to each stockholder entitled to vote at such
meeting by personal delivery or by mailing such notice, postage prepaid,
directed to each stockholder at the address thereof as it appears on the
records of the Corporation. Every such notice shall state the place, date and
hour of the meeting and the purpose or purposes for which the meeting is
called. Except as provided in the immediately succeeding sentence or as
otherwise expressly required by law, notice of any adjourned meeting of the
stockholders need not be given if the time and place thereof are announced at
the meeting at which the adjournment is taken. If the adjournment is for more
than 30 calendar days, or if after the adjournment a new record date is fixed
for the adjourned meeting, notice of the adjourned meeting shall be given to
each stockholder entitled to vote at such adjourned meeting in the manner set
forth in the first and second sentences of this Section 2.2 of this Article II.
A written waiver of notice, signed by a stockholder entitled to such
notice, whether signed before or after the time stated therein, shall be deemed
equivalent to notice. Attendance of a stockholder in person or by proxy at a
stockholders' meeting shall constitute a waiver of notice to such stockholder
of such meeting, except when such stockholder attends the meeting for the
express purpose of objecting at the beginning of the meeting to the transaction
of any business because the meeting is not lawfully called or convened.
SECTION 2.3 List of Stockholders. It shall be the duty of the
Secretary (or such other officer that the Secretary shall appoint) to prepare
and make, at least 10 calendar days before every meeting of the stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 calendar days prior
to the meeting either at a place specified in the notice of the meeting within
the city where the meeting is to be held, or, if not so specified, at the place
where the meeting is to be held. Such list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
SECTION 2.4 Quorum. At each meeting of the stockholders, except as
otherwise expressly required by law or
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<PAGE> 3
the Certificate of Incorporation, a stockholders holding a majority of the
shares of stock of the Corporation issued, outstanding and entitled to be voted
at the meeting, shall be present in person or by proxy to constitute a quorum
for the transaction of business.
SECTION 2.5 Adjournment. In the absence of a quorum at any meeting of
stockholders or any adjournment or adjournments thereof, such meeting may
adjourn from time to time, without notice other than by announcement at such
meeting, by a majority vote of the stockholders present or represented by proxy
and entitled to vote at such meeting until a quorum shall attend. Any meeting
at which a quorum is present may also be adjourned in like manner and for such
time or upon such call as may be determined by a majority vote of the
stockholders present or represented by proxy and entitled to vote. At any
adjourned meeting at which a quorum shall be present, any business may be
transacted and any corporate action may be taken which might have been
transacted at the meeting as originally called.
SECTION 2.6 Conduct of Meeting. At each meeting of the stockholders,
one of the following shall act as chairman of such meeting and preside thereat,
in the following order or precedence:
(a) the Chairman of the Board of Directors;
(b) if there is no Chairman of the Board of Directors or if the
Chairman of the Board of Directors shall be absent from such meeting, the
President;
(c) if the Chairman of the Board of Directors and the President shall
be absent from such meeting, the Secretary; or
(d) if the Chairman of the Board of Directors, the President and the
Secretary shall be absent from such meeting, any other officer of the
Corporation designated by the Board of Directors or the Executive Committee
to act as chairman of such meeting and to preside thereat.
SECTION 2.7 Voting. Each holder of voting stock of the Corporation
shall, at each meeting of the stockholders, be entitled to one vote in person or
by proxy for each share of stock of the Corporation held by him and registered
in his name on the books of the Corporation on the date fixed pursuant to the
provisions of Section 4 of Article VIII of these Bylaws as the record date for
the determination of stockholders who shall be entitled to receive notice of
and to vote at such meeting.
-3-
<PAGE> 4
Shares of the voting stock of the Corporation belonging to the Corporation
shall neither be entitled to vote nor be counted for quorum purposes. Any vote
of stock of the Corporation may be given at any meeting of the stockholders by
the stockholders entitled to vote thereon either in person or by proxy
appointed by an instrument in writing delivered to the Secretary of the
Corporation or the secretary of the meeting. The attendance at any meeting of
a stockholder who may theretofore have given a proxy shall not have the effect
of revoking the same unless he shall in writing so notify the secretary of the
meeting prior to the voting of the proxy. At all meetings of the stockholders
at which a quorum is present, all matters, except as otherwise provided by law
or in these Bylaws, shall be decided by the vote of majority or the votes cast
by stockholders present in person or by proxy and entitled to vote thereat.
Except as otherwise expressly required by law, the vote at any meeting of the
stockholders on any question need not be by ballot, unless so directed by the
chairman of the meeting. On a vote by ballot, each ballot shall be signed by
the stockholder voting, or by his proxy, if applicable, and shall state the
number of shares voted.
SECTION 2.8 Action by Written Consent. Except as otherwise provided by
law or by the Certificate of Incorporation, any action required or permitted to
be taken at any meeting of the stockholders of the Corporation may be taken
without a meeting, without prior notice and without a vote if a consent or
consents in writing, setting forth the action so taken, shall be signed by the
holders of issued and outstanding stock of the Corporation having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares of stock of the Corporation entitled to
vote thereon were present and voted.
ARTICLE III
BOARD OF DIRECTORS
SECTION 3.1 General Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors.
SECTION 3.2 Number of Term of Office. The Board of Directors shall
consist of 11 directors and the number of directors constituting the Board of
Directors may be increased or decreased from time to time by resolution adopted
by a majority of the entire Board of Directors. Directors need not be
stockholders of the Corporation or citizens or residence of the United States
of America. The directors shall be divided
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<PAGE> 5
into these classes, designated Class A, Class B, and Class C, respectively, with
the term of office of the initial Class A directors to expire at the 1992 annual
meeting of stockholders, the term of office of the initial Class B directors to
expire at the 1993 annual meeting of stockholders, and the term of office of the
initial Class C directors to expire at the 1994 annual meeting of stockholders.
At each annual meeting of stockholders following the initial classification and
election directors elected to succeed those directors whose terms expire shall
be elected for a term of office to expire at the third succeeding annual meeting
of stockholders after their election. Each director shall hold office until the
annual meeting of the stockholders at which his term expires and his successor
is duly elected and qualified, or until his earlier death, resignation or
removal in the manner provide herein. Directors shall be allocated as evenly as
possible among the three classes of directors and, to the extent an equal
allocation is not possible, a director shall first be added to Class C and then
to Class A.
SECTION 3.3 Election. The directors shall be elected by the
stockholders at the annual meeting of stockholders or any special meeting called
for that purpose.
SECTION 3.4 Resignation, Removal and Vacancies. Any director may
resign at any time by giving written notice of his resignation to the Chairman
of the Board, the President or the Secretary of the Corporation. Any such
resignation shall take effect at the time specified therein, or, if the time
when it shall become effective shall not be specified therein, then it shall
take effect when accepted by the Board of Directors. Except as aforesaid, the
acceptance of such resignation shall not be necessary to make it effective.
A director, or the entire Board of Directors, may be removed at any time
by the affirmative vote of the holders of a majority of the outstanding shares
entitled to vote generally at an election of directors, but such removal may be
only for cause.
Subject to the superseding provisions set forth in Section 12.2 hereof,
any vacancy occurring on the Board for any reason may be filled by a majority of
the directors then in office, though than a quorum, or by a sole remaining
director. In the case of any increase in the number of directors on the Board
of Directors, the additional directors may be elected by the directors then in
office before such increase. The director elected to fill any such vacancy
shall hold office for the unexpired term in respect of which such vacancy
occurred and until his successor is elected and qualifies or until his earlier
resignation or removal.
-5-
<PAGE> 6
SECTION 3.5 Meeting. (a) Annual Meetings. As soon as practicable
after each annual meeting of stockholders, the Board of Directors shall hold an
annual meeting for the transaction of any business, provided a quorum of
directors is present.
(b) Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times and places as the Board of Directors
shall from time to time determine.
(c) Special Meetings. Special meetings of the Board of
Directors shall be held whenever called by the Chairman of the Board of
Directors, the President or a majority of the directors at the time in office.
Any and all business may be transacted at a special meeting that may be
transacted at a regular meeting of the Board of Directors.
(d) Place of Meeting. The Board of Directors may hold its
meetings at such place or places within or without the State of Delaware as the
Board of Directors may from time to time by resolution determine or as shall be
designated in the respective notices or waivers of notice thereof.
(e) Notice of Meetings. Notices of regular meetings of the
Board of Directors or of any adjourned meetings need not be given and notices
of annual meetings shall not be required if the annual meeting is held
immediately after the annual meeting of stockholders.
Notices of special meetings of the Board, or of any meeting of any
committee of the Board that has not been fixed in advance as to time and place
by such committee, shall be mailed by the Secretary to each director or member
of such committee, addressed to him at his residence or usual place of
business, at least five calendar days before the day on which such meeting is
to be held, or shall be sent to him by telegraph, telecopy, cable or other form
of recorded communication to be delivered personally or by telephone not later
than two calendar days before the day on which such meeting is to be held. Such
notice shall include the time and place of such meeting. Notice of any such
meeting need not be given to any director or member of any committee, however,
if waived by him in writing or by telegraph, cable or other form of recorded
communication, whether before or after such meeting shall be held, or if he
shall be present at such meeting.
(f) Quorum and Manner of Acting. Except as otherwise provided by law,
the Certificate of Incorporation or these Bylaws, a majority of the total
number of directors shall be present in person at any meeting of the Board of
Directors in
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<PAGE> 7
order to constitute a quorum for the transaction of business at such meeting. In
each case the vote of a majority of those directors present at any such meeting
at which a quorum is present shall be necessary for the passage of any
resolution or any act of the Board of Directors, except or otherwise expressly
required by law or these Bylaws. In the absence of a quorum for any such
meeting, a majority of the directors present at such meeting may adjourn such
meeting from time to time until a quorum shall be present.
(g) Action by Communication Equipment. The directors, or the members
of any committee of the Board of Directors, may participate in a meeting of the
Board of Directors, or of such committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation shall constitute
presence in person at such meeting.
(h) Action by Consent. Any action required or permitted to be taken
at any meeting of the Board of Directors, or of any committee thereof, may be
taken without a meeting if all members of the Board of Directors or committee,
as the case may be, consent thereto in writing and such writing is filed with
the minutes of the proceedings of the Board of Directors or such committee.
(i) Organization. At each meeting of the Board of Directors, one of
the following shall act as chairman of the meeting and preside thereat, in the
following order of precedence: (a) the Chairman of the Board of Directors; (b)
the President; (c) the Secretary; or (d) any director chosen by a majority of
the directors present thereat. The Secretary or, if he shall be presiding over
the meeting in accordance with the provisions of this Section 3.5 or in case of
his absence, any person designated by the Secretary shall act as secretary of
such meeting and keep the minutes thereof.
SECTION 3.6 Compensation. Directors, as such, shall not receive any
stated salary for their services, but by resolution of the Board of Directors
may receive compensation for their services and expenses incurred in performing
the functions of director and member of any committee of the Board of
Directors. Nothing herein contained shall be construed so as to preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor.
-7-
<PAGE> 8
ARTICLE IV
COMMITTEES
SECTION 4.1 Executive Committee. (a) Designation and Membership. The
Board of Directors may, by resolution passed by a majority of the entire Board
of Directors, designate an Executive Committee consisting of such number of
directors, not less than two, as the Board of Directors shall appoint.
Vacancies occurring on the Executive Committee for any reason may be filled by
the Board of Directors at any time. Any member of the Executive Committee
shall be subject to removal, with or without cause, at any time by the Board
of Directors or by a majority in voting interest of the stockholders for
cause. Any person ceasing to be a member of the Board of Directors shall ipso
facto cease to be a member of the Executive Committee.
(b) Functions and Powers. The Executive Committee, subject to any
limitations prescribed by the Board of Directors and except as otherwise set
forth in these By-laws or in the General Corporation Law of the State of
Delaware, shall possess and may exercise, during the intervals between meetings
of the Board of Directors, all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers that may
require it. The Executive Committee shall not have the power and authority to
declare dividends, to authorize the issuance of stock of the Corporation or to
adopt a certificate of ownership and merger pursuant to Section 253 of the
General Corporation Law of the State of Delaware unless such power and
authority shall be expressly delegated to it by a resolution passed by a
majority of the entire Board of Directors. At each meeting of the Board of
Directors, the Executive Committee shall make a report of all action taken by
it since its last report to the Board of Directors.
(c) Meetings, Quorum and Manner of Acting. The Executive Committee
shall meet annually immediately after the annual meeting of the Board of
Directors if necessary to elect officers not elected by the Board of Directors
and shall meet at such other times and as often as may be deemed necessary and
expedient and at such places as shall be determined by the Executive
Committee. A majority of the Executive Committee shall constitute a quorum,
and the vote of a majority of those members of the Executive Committee present
at any meeting thereof at which a quorum is present shall be necessary for the
passage of any resolution or act of the Executive Committee. The Board of
Directors may designate a chairman for the
-8-
<PAGE> 9
Executive Committee, who shall preside at meetings thereof, and a vice
chairman, who shall preside at such meetings in the absence of the chairman.
SECTION 4.2 Audit Committee.
(a) Membership. The Corporation shall have an Audit Committee,
consisting of at least three (3) directors. Vacancies occurring on the Audit
Committee for any reason may be filled by the Board of Directors at any time.
Any member of the Audit Committee shall be subject to removal, with or without
cause, at any time by the Board of Directors or by a majority in voting
interest of the stockholders for cause. Any person ceasing to be a member of
the Board of Directors shall ipso facto cease to be a member of the Audit
Committee.
(b) Functions and Powers. The Audit Committee shall oversee the audit
process and provide assistance to the Board of Directors in fulfilling its
responsibilities relating to the corporate accounting and reporting practices.
The Audit Committee shall: recommend the firm to be employed as the
Corporation's independent auditor, and review and approve the discharge of any
such firm; review, in consultation with the independent auditor, the results of
each external audit of the Corporation, the report of the audit, any related
management letter, and management's responses to recommendations made by the
independent auditor in connection with the audit; review, in consultation with
the independent auditor and management (i) the Corporation's annual financial
statements (ii) any certification, report, opinion or review rendered by the
independent auditor in connection with those financial statements and (iii) any
disputes between management and the independent auditor that arose in
connection with the preparation of those financial statements; review, before
or after publication, the Corporation's financial statements; consider, in
consultation with the independent auditor, the scope and plan of forthcoming
external audits; consider, in consultation with the independent auditor, the
adequacy of the Corporation's internal accounting controls; consider, when
presented by the independent auditor or otherwise, material questions of choice
with respect to the choice of appropriate accounting principles and practices
to be used in the preparation of the Corporation's financial statements; have
the power to inquire into any financial matters in addition to those set forth
above, preview the Corporation's compliance with the rules and regulations of
the Securities and Exchange Commission; and perform such other functions as may
be assigned to it by law, the Corporation's certificate of incorporation or by
the Board of Directors.
-9-
<PAGE> 10
The Chairman and/or the President and/or the Secretary of the
Corporation shall provide or arrange to provide such information, date and
services as the Audit Committee may request. The Audit Committee shall conduct
interviews or discussions as it deems appropriate with personnel of the
Corporation, and/or others whose views would be considered helpful to the Audit
Committee.
(c) Meetings Quorum and Manner of Acting. The Audit Committee shall
hold a minimum of two regular meetings per year, once prior to the commencement
of the fiscal year-end audit to discuss and approve the scope of the audit, and
once following the completion of the audit to review the results of the audit
and at such other times and as often as may be deemed necessary and expedient
and at such places as shall be determined by the Audit Committee. A majority of
the Audit Committee shall constitute a quorum, and the vote of a majority of
those members of the Audit Committee present at any meeting thereof at which a
quorum is present shall be necessary for the passage of any resolution or act
of the Audit Committee.
SECTION 4.3 Other Committees. The Board of Directors may, by
resolution passed by a majority of the entire Board of Directors, designate
other committees of the Board of Directors, each such committee to consist of
two or more directors and to have such duties and functions as shall be
provided in such resolution. The Board of Directors shall have the power to
change the members of any such committee at any time, to fill vacancies and to
discharge any such committee, either with or without cause, at any time.
ARTICLE V
OFFICERS
SECTION 5.1 Election, Appointment and Term of Office. The officers of
the Corporation shall be a Chairman of the Board of Directors, who shall also
be the Chief Executive Officer, a President, such number of Vice Chairmen of
the Board of Directors and Vice Presidents (including any Executive, Senior,
First and/or Group Vice Presidents) as the Board of Directors may determine
from time to time, a General Counsel, a Secretary, a Chief Financial Officer, a
Treasurer, Assistant Vice Presidents, Assistant Treasurers and Assistant
Secretaries, as the Board of Directors may determine from time to time. Any two
or more offices may be held by the same person. Officers need not be
stockholders of the Corporation or citizens or residents of the United States of
America. The Chairman of the Board of Directors, any Vice Chairman of the
-10-
<PAGE> 11
Board of Directors and the President shall be elected by the Board of Directors
at its annual meeting, and all other officers may be elected by the Board of
Directors or Executive Committee, and each such officer shall hold office until
the next annual meeting of the Board of Directors or the Executive Committee,
as the case may be, and until his successor it elected or until his earlier
death or until his earlier resignation or removal in the manner hereinafter
provided. Each such officer shall have such authority and shall perform such
duties as may be provided herein or as the Board of Directors or Executive
Committee may prescribe.
If additional officers are elected or appointed during the year, each of
them shall hold office until the next annual meeting of the Board of Directors
or Executive Committee at which officers are regularly elected or appointed and
until his successor is elected or appointed or until his earlier death or until
his earlier resignation or removal in the manner hereinafter provided.
SECTION 5.2 Resignation, Removal and Vacancies. Any officer may
resign at any time by giving written notice to the President or the Secretary
of the Corporation, and such resignation shall take effect at the time
specified therein or, if the time when it shall become effective shall not be
specified therein, then it shall take effect when accepted by action of the
Board or Executive Committee. Except as aforesaid, the acceptance of such
resignation shall not be necessary to make it effective.
All officers and agents elected or appointed by the Board of Directors
or Executive Committee shall be subject to removal at any time by the Board of
Directors or the Executive Committee, as the case may be, with or without cause.
A vacancy in any office may be filled for the unexpired portion of the
term in the same manner as provided for election or appointment to such office.
SECTION 5.3 Duties and Functions. (a) Chairman of the Board. The
Chairman of the Board of Directors, who shall be a member thereof, shall
preside at all meetings of the Board of Directors and of the stockholders at
which he shall be present and shall perform such other duties and exercise such
powers as may from time to time be prescribed by the Board of Directors or the
Executive Committee. Unless the Board of Directors shall appoint another
officer to be the Chief Executive Officer of the Corporation, the Chairman of
the Board of Directors shall be the Chief Executive Officer of the Corporation,
shall have the authority to sign, in the name and on behalf of the
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<PAGE> 12
Corporation, agreements, documents and instruments in connection with the
business of the Corporation and agreements, documents and instruments to which
the seal of the Corporation is affixed, shall perform such duties and exercise
such powers as are incident to the office of chief executive and shall perform
such other duties and exercise such powers as may from time to time be
prescribed by the Board of Directors or the Executive Committee.
(b) Vice Chairman of the Board. Each Vice Chairman of the Board of
Directors shall be a member thereof, shall have the authority to sign, in the
name and on behalf of the Corporation, agreements, documents and instruments in
connection with the business of the Corporation and agreements, documents and
instruments to which the seal of the Corporation is affixed and shall have such
powers and duties as may from time to time be prescribed by the Board of
Directors or the Executive Committee.
(c) President. The President shall be a member of the Board of
Directors and shall perform such duties and exercise such powers as are incident
to the office of president, shall have the authority to sign, in the name and on
behalf of the Corporation, agreements, documents and instruments in connection
with the business of the corporation and agreements, documents and instruments
to which the seal of the Corporation is affixed and shall perform such other
duties and exercise such other powers as may from time to time be prescribed by
the Board of Directors or the Executive Committee.
(d) General Counsel. The General Counsel shall have supervision of all
legal matters of the Corporation. The General Counsel shall have responsibility
for the presentation and review of all contracts, agreements, real estate
documentation, all financing matters having to do with the Corporation and all
other agreements and documents entered into by the Corporation. In addition, he
shall be responsible for all litigation matters of the Corporation, government
agency compliance programs and all interaction with all government agencies. In
this regard, he shall have responsibility for all securities filings and
reporting and interface on securities and other matters with the accounting firm
employed by the Corporation on legal related matters. Further, the General
Counsel shall review all marketing programs and activities, including, but not
limited to advertising, labeling, trademarks and copyrights to insure legal
compliance. The General Counsel shall, in addition, have responsibility for
such matters concerning the Corporation as may be designated by the Board of
Directors, Executive Committee or Chairman.
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<PAGE> 13
(e) Secretary. The Secretary shall keep the records of all meetings of
the stockholders and of the Board of Directors and committees of the Board of
Directors. The Secretary shall have the primary authority to sign, and/or to
empower, as the Secretary may deem necessary or advisable, any other officer of
the Corporation to sign in the name and on behalf of the Corporation, any and
all agreements, documents and other instruments in connection with the business
of the Corporation. He shall affix the seal of the Corporation to all
instruments requiring the corporate seal when the same shall have been signed on
behalf of the Corporation by a duly authorized officer. The Secretary shall
also be the custodian of all contracts, deeds, documents and all other indicia
of title to properties owned by the Corporation and of its other corporate
records and in general shall perform all duties and have all process incident to
the office of Secretary. To such extent as the Board of Directors or Executive
Committee shall deem proper, the duties of Secretary may be performed by one or
more assistants, to be appointed by the Board of Directors or Executive
Committee.
(f) Chief Financial Officer or Treasurer. The Chief Financial Officer
or Treasurer shall have charge and custody of, and be responsible for, all funds
and securities of the Corporation and shall deposit all such funds to the credit
of the Corporation in such banks, trust companies or other depositories as shall
be delected in accordance with the provisions of these Bylaws; he shall disburse
the funds of the Corporation as may be ordered by the Board of Directors or the
Executive committee, making proper vouchers for such disbursements, and shall
render to the Chairman, the Board of Directors or the Executive Committee,
whenever the Chairman, the Board of Directors or the Executive Committee may
require; and, in general, he shall perform all the duties incident to the office
of Chief Financial Officer or Treasurer and such other duties as from time to
time may be assigned to him by the Board of Directors, the Executive Committee
or the Chairman.
(g) Vice Presidents. Each Executive Vice President, Senior Vice
President, Group Vice President and Vice President shall perform such duties and
exercise such powers as are incident to the office to which they are appointed.
Each Vice President shall have the authority to sign, when such authority has
been delegated in writing by the Chairman of the Board of Directors or the
Secretary, in the name and on behalf of the Corporation, agreements, documents
and instruments in connection with the business of the Corporation and
agreements, documents and instruments to which the seal of the Corporation is
affixed, shall perform such duties and exercise such powers as are incident to
the office of Executive Vice President,
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<PAGE> 14
Senior Vice President, Group Vice President and Vice President and shall have
such powers and duties as shall be prescribed by the Board of Directors or the
Executive Committee.
ARTICLE VI
CONTRACTS, CHECKS, DRAFTS,
BANK ACCOUNTS, PROXIES, ETC.
SECTION 6.1 Execution of Documents. The Chairman of the Board of
Directors, the President, the Secretary or any other corporate policy as
approved by the Board of Directors, shall have power to execute and deliver
deeds, leases, contracts, mortgages, bonds, debentures, checks, drafts and other
orders for the payment of money and other documents for and in the name of the
Corporation, and such power may be delegated (including power to redelegate) by
written instrument to other officers, employees or agents of the Corporation.
SECTION 6.2 Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
or otherwise in accordance with corporate policy as approved by the Board of
Directors.
SECTION 6.3 Proxies in Respect of Stock or Other Securities of Other
Corporations. The Chairman or the Secretary or any other officer of the
Corporation designated by the Board of Directors shall have the authority (a) to
appoint from time to time an agent or agents of the Corporation to exercise in
the name and on behalf of the Corporation the powers and rights which the
Corporation may have as the holder of stock or other securities in any other
corporation, (b) to vote or consent in respect of such stock or securities and
(c) to execute or cause to be executed in the name and on behalf of the
Corporation and under its corporate seal, or otherwise, such written proxies,
powers of attorney or other instruments as he may deem necessary or proper in
order that the Corporation may exercise such powers and rights. The Chairman or
the Secretary or any such designated officer may instruct any person or persons
appointed as aforesaid as to the manner of exercising such powers and rights.
ARTICLE VII
BOOKS AND RECORDS
The books and records of the Corporation may be kept at such places
within or without the State of Delaware as the Board of Directors may from time
to time determine.
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<PAGE> 15
ARTICLE VIII
SHARES AND THEIR TRANSFER; FIXING RECORD DATE
SECTION 8.1 Certificate for Stock. Certificates of capital stock of
the Corporation shall be in such form as shall be approved by the Board of
Directors. Every owner of stock of the Corporation shall be entitled to have a
certificate certifying the number of shares owned by him in the Corporation and
designating the class of stock to which such shares belong, which shall
otherwise be in such form as the Board of Directors shall prescribe. Each such
certificate shall be signed by, or in the name of the Corporation by, the
Chairman of the Board of Directors or the President or any Vice President and
the Secretary or Treasurer of the Corporation or any other authorized officer.
In case any officer who has signed or whose facsimile signature has been placed
upon certificate shall have ceased to be such officer before such certificate
is issued, it may nevertheless be issued by the Corporation with the same
effect as if he were such officer at the date of issue.
SECTION 8.2 Record. A record shall be kept of the name of the person,
firm or corporation owning the stock represented by each certificate for stock
of the Corporation issued, the number of shares represented by each such
certificate and the date thereof, and, in the case of cancellation, the date of
cancellation. Except as otherwise expressly required by law, the person in
whose name shares of stock stand on the books of the Corporation shall be
deemed the owner thereof for all purposes as regards the Corporation. The
shares of stock of the Corporation shall be transferable on the books of the
Corporation by the holders thereof in person, or by their duly authorized
attorneys or legal representatives, on surrender and cancellation of
certificates for a like number of shares, accompanied by an assignment or power
of transfer endorsed thereon or attached thereto, duly executed, and with such
proof of the authenticity of the signature as the Corporation or its agents may
reasonably require. A record shall be made of each transfer.
The Board of Directors may make other and further rules and regulations
concerning the transfer and registration of certificates of stock and may
appoint a transfer agent or registrar or both and may require all certificates
of stock to bear the signature of either or both.
SECTION 8.3 Lost, Stolen, Destroyed or Mutilated Certificates. The
holder of any stock of the Corporation shall immediately notify the Corporation
of any loss, theft, destruction or mutilation of the certificate therefor. The
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Corporation may issue a new certificate for stock in the place of any
certificate theretofore issued by it and alleged to have been lost, stolen,
destroyed or mutilated, and the Board of Directors or the Chairman, the
President, the Secretary or any other authorized officer may, in its or his
discretion, require the owner of the lost, stolen, mutilated or destroyed
certificate or his legal representatives to give the Corporation a bond in such
sum, limited or unlimited, in such form and with such surety or sureties as the
Board of Directors shall in its discretion determine, to indemnify the
Corporation against any claim that may be made against it on account of the
alleged loss, theft, mutilation or destruction of any such certificate or the
issuance of any such new certificate.
SECTION 8.4 Fixing Date for Determination of Stockholders of Record.
(a) In order that the Corporation may determine the stockholders entitled to
notice of or vote of any meeting of stockholders of any adjournment thereof,
the Board of Directors may fix a record date, which shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors, and which shall not be more than 60 nor less than 10 calendar days
before the date of such meeting. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on
the day next preceding the day on which notice is given, or, if notice is
waived, at the close of business on the day next preceding the day on which the
meeting is held. A determination of stockholders of record entitled to notice
of or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; providing, however, that the Board of Directors may fix a new
record date for the adjourned meeting.
(b) In order that the Corporation may determine the
stockholders entitled to consent to corporate action in writing without a
meeting, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is
adopted by the Board of Directors and which date shall not be more than 10
calendar days after the date upon which the resolution fixing the record date
is adopted by the Board of Directors. If no record date has been fixed by the
Board of Directors, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is otherwise required, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the Corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or an
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<PAGE> 17
officer or agent of the Corporation having custody of the book in which
proceedings or meetings of stockholders are recorded. Delivery made to the
registered office of the Corporation shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the Board of Directors and prior action by the Board of Directors is required,
the record date for determining stockholders entitled to consent to corporate
action in writing without a meeting shall be at the close of business on the day
on which the Board of Directors adopts the resolution taking such prior action.
(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than 60 calendar days prior to
such action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
ARTICLE IX
SEAL
The corporate seal shall be in such form as approved from time to time
by the Board of Directors. The Corporate seal may be used by causing it or a
facsimile thereof to be impressed, affixed, reproduced or otherwise.
ARTICLE X
FISCAL YEAR
The fiscal year of the Corporation shall end on the date that is the
Sunday nearest to January 31 in each year, or on such other date as the Board of
Directors of Directors shall determine.
ARTICLE XI
INDEMNIFICATION
SECTION 11.1 Right to Indemnification. The Corporation shall to the
fullest extent permitted by applicable
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law as then in effect indemnify any person (the "Indemnitee") who is or was
involved in any manner (including, without limitation, as a party or a witness)
or is threatened to be made so involved in any threatened, pending or completed
investigation, claim, action, suit or proceeding, whether civil, criminal,
administrative or investigative (including, without limitation, any action, suit
or proceeding by or in the right of the Corporation to procure a judgment in its
favor) (a "Proceeding") by reason of the fact that he is or was a director,
officer, employee or agent of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise (including,
without limitation, any employee benefit plan) against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such Proceeding. Such
indemnification shall be a contract right and shall include the right to receive
payment in advance of any expenses incurred by the Indemnitee in connection with
such Proceeding, consistent with the provisions of applicable law as then in
effect.
SECTION 11.2 Insurance, Contracts and Funding. The Corporation may
purchase and maintain insurance to protect itself and any person entitled to
indemnification under this Article XI against any expenses, judgments, fines and
amounts paid in settlement as specified in this Article XI, to the fullest
extent permitted by applicable law as then in effect. The Corporation may enter
into contracts with any person entitled to indemnification under this Article XI
and may create a trust fund, grant a security interest or use other means
(including, without limitation, letter of credit) to ensure the payment of such
amounts as may be necessary to effect indemnification as provided in this
Article XI.
SECTION 11.3 Indemnification; Not Exclusive Right. The right of
indemnification provided in this Article XI shall not be exclusive of any other
rights to which those seeking indemnification may otherwise be entitled, and the
provisions of this Article XI shall inure to the benefit of the heirs and legal
representatives of any person entitled to indemnity under this Article XI and
shall be applicable to Proceedings commenced or continuing after the adoption of
this Article XI, whether arising from acts or omission occurring before or after
such adoption.
SECTION 11.4 Advancement of Expenses. In furtherance, but not in
limitation of the foregoing provisions, all reasonable expenses incurred by or
on behalf of the Indemnitee in connection with any Proceeding shall be advanced
to the
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<PAGE> 19
Indemnitee by the Corporation within 20 calendar days after the receipt by the
Corporation of a statement or statements from the Indemnitee requesting such
advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the expenses incurred by the Indemnitee and, if required by law at the
time of such advance, shall include or be accompanied by an undertaking by or
on behalf of the Indemnitee to repay the amounts advanced if it should
ultimately be determined that the Indemnitee is not entitled to be indemnified
against such expenses pursuant to this Article XI.
SECTION 11.5 Settlement of Claims. The Corporation shall not be
liable to indemnify any person otherwise entitled to indemnification under this
Article XI: (a) for any amounts paid in settlement of any action or claim
effected without the Corporation's written consent, which consent shall not be
unreasonably withheld; or (b) for any judicial award if the Corporation was not
given a reasonable and timely opportunity, at its expense, to participate in
the defense of such action.
SECTION 11.6 No Duplication of Payments. The Corporation shall not be
liable under this Article XI to make any payment in connection with any claim
made against any person entitled to indemnification hereunder to the extent such
person has otherwise actually received payment (under any insurance policy,
agreement, vote, or otherwise) of the amounts otherwise indemnifiable hereunder.
SECTION 11.7 Effects of Amendments. Neither the amendment or repeal
of, nor the adoption of a provision inconsistent with, any provision of this
Article XI (including, without limitation, this Section 11.7 shall adversely
affect the rights of any director or officer under this Article XI with respect
to any Proceeding commenced or threatened prior to such amendment, repeal or
adoption of an inconsistent provision.
SECTION 11.8 Severability. If any provision or provisions of this
Article XI shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Article XI (including, without limitation, all portions of
any paragraph of this Article XI containing any such provision held to be
invalid, illegal or unenforceable) shall not in any way be affected or impaired
thereby, and (b) to the fullest extent possible, the provisions of this
Article XI (including, without limitation, all portions of any paragraph of
this Article XI containing any such provision held to be invalid, illegal or
unenforceable) shall be construed so
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<PAGE> 20
as to give effect to the intent manifested by the provision held invalid,
illegal or enforceable.
ARTICLE XII
SUPERSEDING PROVISIONS
SECTION 12.1 Effective Date and Duration. Notwithstanding any
provision to the contrary contained in these Bylaws, commencing on the
effective date (the "Effective Date") of the Third Amended Joint Plan of
Reorganization for Federated Stores, Inc., et al, as modified and as confirmed
by the United States Bankruptcy Court, Southern District of Ohio, Western
Division on January 10, 1992, the provisions of this Article XII shall
supersede and replace any conflicting provision contained in these Bylaws until
the earliest to occur of:
(i) the date on which (a) no one of the Holders other than The Edward
J. DeBartolo Corporation ("EJDC") holds voting securities of the
Corporation which are entitled to 4% or more of the votes of all
such voting securities entitled to vote in the election of the
directors of the Corporation, and (b) the aggregate number of
shares of the Corporation's Common Stock owned by the Holders other
than EJDC represents less than 15% of the total number of votes of
all voting securities entitled to vote in the election of the
directors of the Corporation; and
(ii) the seventh anniversary of the Effective Date.
SECTION 12.2 Board of Directors. Notwithstanding the provisions of
Section 3.2 of Article III hereof, at all times during which these superseding
provisions are in effect:
(a) At least two members of the Board of Directors of the
Corporation (the "Unaffiliated Directors") shall be unaffiliated with EJDC or
any of its affiliates, the Corporation (other than such members' affiliation
with the Corporation as directors), or any of the Corporation's subsidiaries;
and
(b) The number of members constituting the Board of Directors
may be increased only by resolution approved by 100% of the Board of Directors.
SECTION 12.3 Audit Committee. At all times during which this Article
XII is in effect, at least a majority of the members of the Audit Committee
shall be Unaffiliated Directors, except as may otherwise be required by the
applicable rules or
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regulations of any securities exchange or quotation system upon which the
capital stock of the Corporation is traded or authorized for trading.
SECTION 12.4 Amendments. At all times during which this Article XII
is in effect, these Amended and Restated Bylaws may not be amended, altered,
changed or repealed except by the approval of the holders of at least 75% of
the issued and outstanding voting stock of the Corporation.
SECTION 12.5 Definitions. For purposes of this Article XII, all
capitalized terms, unless otherwise defined herein, shall have the meanings
ascribed to them in that certain Registration Rights and Corporate Governance
Agreement (a copy of which is attached hereto as Exhibit A) dated as of
February 3, 1992 by and among the Corporation, Ralphs, Allied Stores
Corporation, a Delaware corporation, Bank of Montreal, Banque Paribas, EJDC,
Camdev Properties Inc., an Ontario corporation, and Federated Stores, Inc., a
Delaware corporation.
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Exhibit 4.9
RALPHS GROCERY COMPANY
AND
SUBSIDIARY GUARANTORS
AND
NORWEST BANK MINNESOTA, National Association,
TRUSTEE
_________________
INDENTURE
Dated as of June 6, 1996
________________
$100,000,000
10.45% Senior Notes
due 2004
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section_
<S> <C>
310(a)(1)........................................... 7.10
(a)(2).......................................... 7.10
(a)(3).......................................... N.A.
(a)(4).......................................... N.A.
(a)(5).......................................... 7.10; 7.11
(b)............................................. 7.08; 7.10;
11.02
(c)............................................. N.A.
311(a).............................................. 7.11
(b)............................................. 7.11
(c)............................................. N.A.
312(a).............................................. 2.05
(b)............................................. 11.03
(c)............................................. 11.03
313(a).............................................. 7.06
(b)(1).......................................... N.A.
(b)(2).......................................... 7.06
(c)............................................. 7.06; 11.02
(d)............................................. 7.06
314(a).............................................. 4.07; 4.09;
11.02
(b)............................................. N.A.
(c)(1).......................................... 7.02; 11.04
(c)(2).......................................... 7.02; 11.04
(c)(3).......................................... N.A.
(d)............................................. N.A.
(e)............................................. 11.05
(f)............................................. N.A.
315(a).............................................. 7.01(b)
(b)............................................. 7.05; 11.02
(c)............................................. 7.01(a)
(d)............................................. 7.01(c)
(e)............................................. 6.11
316(a)(last sentence)............................... 2.09
(a)(1)(A)....................................... 6.05
(a)(1)(B)....................................... 6.04
(a)(2).......................................... N.A.
(b)............................................. 6.07
317(a)(1)........................................... 6.08
(a)(2).......................................... 6.09
(b)............................................. 2.04
318(a).............................................. 11.01
(c)............................................. 11.01
- ----------------------
</TABLE>
N.A. means Not Applicable
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
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<PAGE> 3
TABLE OF CONTENTS
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Section 1.01 Definitions..................................... 1
Section 1.02 Incorporation by Reference of TIA............... 31
Section 1.03 Rules of Construction........................... 32
ARTICLE TWO
THE SECURITIES
Section 2.01 Form and Dating................................. 32
Section 2.02 Execution and Authentication.................... 33
Section 2.03 Registrar and Paying Agent...................... 34
Section 2.04 Paying Agent To Hold Assets in
Trust........................................ 35
Section 2.05 Securityholder Lists............................ 36
Section 2.06 Transfer and Exchange........................... 36
Section 2.07 Replacement Securities.......................... 37
Section 2.08 Outstanding Securities.......................... 37
Section 2.09 Treasury Securities............................. 38
Section 2.10 Temporary Securities............................ 38
Section 2.11 Cancellation.................................... 38
Section 2.12 Defaulted Interest.............................. 39
Section 2.13 CUSIP Number.................................... 39
Section 2.14 Book-Entry Provisions for Global
Note......................................... 39
Section 2.15 Special Transfer Provisions..................... 41
ARTICLE THREE
REDEMPTION
Section 3.01 Notices to Trustee.............................. 43
Section 3.02 Selection of Securities To Be
Redeemed..................................... 43
Section 3.03 Notice of Redemption............................ 44
Section 3.04 Effect of Notice of Redemption.................. 45
Section 3.05 Deposit of Redemption Price..................... 45
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 3.06 Securities Redeemed in Part..................... 46
ARTICLE FOUR
COVENANTS
Section 4.01 Payment of Securities........................... 46
Section 4.02 Maintenance of Office or Agency................. 46
Section 4.03 Limitation on Restricted Payments............... 47
Section 4.04 Corporate Existence............................. 48
Section 4.05 Payment of Taxes and Other Claims............... 49
Section 4.06 Maintenance of Properties and
Insurance.................................... 49
Section 4.07 Compliance Certificate; Notice of
Default...................................... 50
Section 4.08 Compliance with Laws............................ 51
Section 4.09 SEC Reports..................................... 51
Section 4.10 Waiver of Stay, Extension or Usury
Laws......................................... 52
Section 4.11 Limitation on Transactions with
Affiliates................................... 52
Section 4.12 Limitation on Incurrences of
Additional Indebtedness...................... 54
Section 4.13 Limitation on Dividends and Other
Payment Restrictions Affecting
Subsidiaries................................. 55
Section 4.14 Limitation on Liens............................. 56
Section 4.15 Limitation on Change of Control................. 57
Section 4.16 Limitation on Asset Sales....................... 59
Section 4.17 Guarantees of Certain Indebtedness.............. 63
Section 4.18 Limitation on Preferred Stock of
Subsidiaries................................. 63
ARTICLE FIVE
SUCCESSOR CORPORATION
Section 5.01 Limitation on Mergers and Certain
Other Transactions........................... 63
Section 5.02 Successor Corporation Substituted............... 65
</TABLE>
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ARTICLE SIX
DEFAULT AND REMEDIES
<TABLE>
<S> <C> <C>
Section 6.01 Events of Default............................... 65
Section 6.02 Acceleration.................................... 67
Section 6.03 Other Remedies.................................. 69
Section 6.04 Waiver of Past Defaults......................... 69
Section 6.05 Control by Majority............................. 69
Section 6.06 Limitation on Suits............................. 70
Section 6.07 Rights of Holders To Receive
Payment...................................... 70
Section 6.08 Collection Suit by Trustee...................... 70
Section 6.09 Trustee May File Proofs of Claim................ 71
Section 6.10 Priorities...................................... 71
Section 6.11 Right and Remedies Cumulative................... 72
Section 6.12 Delay or Omission Not Waiver.................... 72
Section 6.13 Undertaking for Costs........................... 72
ARTICLE SEVEN
TRUSTEE
Section 7.01 Duties of Trustee............................... 73
Section 7.02 Rights of Trustee............................... 74
Section 7.03 Individual Rights of Trustee.................... 75
Section 7.04 Trustee's Disclaimer............................ 75
Section 7.05 Notice of Default............................... 75
Section 7.06 Reports by Trustee to Holders................... 76
Section 7.07 Compensation and Indemnity...................... 76
Section 7.08 Replacement of Trustee.......................... 77
Section 7.09 Successor Trustee by Merger, Etc................ 78
Section 7.10 Eligibility; Disqualification................... 78
Section 7.11 Preferential Collection of Claims
Against Company.............................. 79
ARTICLE EIGHT
SATISFACTION AND DISCHARGE OF INDENTURE
Section 8.01 Termination of the Company's
Obligations.................................. 79
Section 8.02 Legal Defeasance and Covenant
Defeasance................................... 81
Section 8.03 Application of Trust Money...................... 85
Section 8.04 Repayment to Company or Subsidiary
Guarantors................................... 85
</TABLE>
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<PAGE> 6
<TABLE>
<S> <C> <C>
Section 8.05 Reinstatement................................... 86
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 9.01 Without Consent of Holders...................... 87
Section 9.02 With Consent of Holders......................... 87
Section 9.03 Compliance with TIA............................. 89
Section 9.04 Revocation and Effect of Consents............... 89
Section 9.05 Notation on or Exchange of
Securities................................... 90
Section 9.06 Trustee To Sign Amendments, Etc................. 90
ARTICLE TEN
GUARANTEE
Section 10.01 Unconditional Guarantee......................... 91
Section 10.02 Severability.................................... 92
Section 10.03 Release of a Subsidiary Guarantor............... 92
Section 10.04 Limitation of Subsidiary
Guarantor's Liability........................ 93
Section 10.05 Subsidiary Guarantors May
Consolidate, etc., on Certain
Terms........................................ 93
Section 10.06 Contribution.................................... 94
Section 10.07 Waiver of Subrogation........................... 95
Section 10.08 Execution of Guarantee.......................... 96
Section 10.09 Waiver of Stay, Extension or Usury
Laws......................................... 96
ARTICLE ELEVEN
MISCELLANEOUS
Section 11.01 TIA Controls.................................... 97
Section 11.02 Notices......................................... 97
Section 11.03 Communications by Holders with
Other Holders................................ 98
Section 11.04 Certificate and Opinion as to
Conditions Precedent......................... 98
Section 11.05 Statements Required in Certificate
or Opinion................................... 99
Section 11.06 Rules by Trustee, Paying Agent,
Registrar.................................... 99
</TABLE>
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<PAGE> 7
<TABLE>
<S> <C>
Section 11.07 Legal Holidays.................................. 99
Section 11.08 Governing Law................................... 100
Section 11.09 No Adverse Interpretation of Other
Agreements................................... 100
Section 11.10 No Recourse Against Others...................... 100
Section 11.11 Successors...................................... 100
Section 11.12 Duplicate Originals............................. 100
Section 11.13 Severability.................................... 101
Section 11.14 No Violation.................................... 101
Signatures....................................................... S-1
Exhibit A - Form of Note with Guarantee
Exhibit B - Form of Legend for Global Notes
Exhibit C - Form of Certificate To Be Delivered
in Connection with Transfers to Non-
QIB Accredited Investors
Exhibit D - Form of Certificate To Be Delivered
in Connection with Transfers Pursuant
to Regulation S
</TABLE>
Note: This Table of Contents shall not, for any purpose, be deemed to be part
of the Indenture.
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<PAGE> 8
INDENTURE dated as of June 6, 1996, among RALPHS GROCERY COMPANY, a
Delaware corporation (the "Company"), the SUBSIDIARY GUARANTORS, and NORWEST
BANK MINNESOTA, National Association, as Trustee.
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Company's
10.45% Senior Notes due 2004:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"Acquired Indebtedness" means (i) with respect to any person that
becomes a Subsidiary of the Company (or is merged into the Company or any of
its Subsidiaries) after the Issue Date, Indebtedness of such person or any of
its Subsidiaries existing at the time such person becomes a Subsidiary of the
Company (or is merged into the Company or any of its Subsidiaries) and which
was not incurred in connection with, or in contemplation of, such person
becoming a Subsidiary of the Company (or being merged into the Company or any
of its Subsidiaries) and (ii) with respect to the Company or any of its
Subsidiaries, any Indebtedness assumed by the Company or any of its
Subsidiaries in connection with the acquisition of any assets from another
person (other than the Company or any of its Subsidiaries), and which was not
incurred by such other person in connection with, or in contemplation of, such
acquisition.
"Adjusted Net Assets" shall have the meaning provided in Section
10.06.
"Affiliate" means, with respect to any person, any other person
directly or indirectly controlling or controlled by or under direct or indirect
common control with such specified person. For the purposes of this
definition, "control" when used with respect to any person means the power to
direct the management and policies of such person, directly or indirectly,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing. Notwithstanding the foregoing,
<PAGE> 9
the term "Affiliate," with respect to the Company and its Subsidiaries, shall
not include BT Securities Corporation or any of its Affiliates.
"Affiliate Transaction" shall have the meaning provided in Section
4.11.
"Agent" means any Registrar, Paying Agent or co- Registrar.
"Agent Members" has the meaning provided in Section 2.14.
"Apollo Advisors, L.P." means Apollo Advisors, L.P., a Delaware
limited partnership.
"Asset Sale" means, with respect to any person, any sale, transfer
or other disposition or series of sales, transfers or other dispositions
(including, without limitation, by merger or consolidation or by exchange of
assets and whether by operation of law or otherwise) made by such person or any
of its subsidiaries to any person other than such person or one of its wholly
owned subsidiaries (or, in the case of a sale, transfer or other disposition by
a Subsidiary, to any person other than the Company or a directly or indirectly
wholly owned Subsidiary) of any assets of such person or any of its
subsidiaries including, without limitation, assets consisting of any Capital
Stock or other securities held by such person or any of its subsidiaries, and
any Capital Stock issued by any subsidiary of such person, in each case,
outside of the ordinary course of business, excluding, however, any sale,
transfer or other disposition, or series of related sales, transfers or other
dispositions (i) involving only Excluded Assets, (ii) resulting in Net Proceeds
to the Company and the Subsidiaries of $500,000 or less, (iii) pursuant to any
foreclosure of assets or other remedy provided by applicable law to a creditor
of the Company or any Subsidiary with a Lien on such assets, which Lien is
permitted under this Indenture, provided that such foreclosure or other remedy
is conducted in a commercially reasonable manner or in accordance with any
Bankruptcy Law, (iv) involving only Cash Equivalents or inventory in the
ordinary course of business or obsolete equipment in the ordinary course of
business consistent with past practices of the Company, (v) involving only the
lease or sub-lease of any real or personal property in the ordinary course of
business or (vi) the proceeds of such Asset Sale which are not applied as
contemplated in Section 4.16 and which together with all other such Asset Sale
Proceeds do not exceed $20 million.
<PAGE> 10
"Average Life" means, as of the date of determination, with respect
to any debt security, the quotient obtained by dividing (i) the sum of the
products of the number of years from the date of determination to the dates of
each successive scheduled principal payments of such debt security multiplied
by the amount of each such principal payment by (ii) the sum of all such
principal payments.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal,
state or foreign law for the relief of debtors.
"Board of Directors" means, with respect to any person, the Board
of Directors of such person or of a subsidiary of such person or any duly
authorized committee of the Board of Directors.
"Board Resolution" means, with respect to any person, a duly
adopted resolution of the Board of Directors of such person.
"Business Day" means a day that is not a Legal Holiday.
"Capital Stock" means, with respect to any person, any and all
shares, interests, participation or other equivalents (however designated) of
corporate stock, including each class of common stock and preferred stock of
such person.
"Capitalized Lease Obligation" means obligations under a lease that
is required to be capitalized for financial reporting purposes in accordance
with GAAP, and the amount of Indebtedness represented by such obligations shall
be the capitalized amount of such obligations determined in accordance with
GAAP.
"Cash Equivalents" means (i) obligations issued or unconditionally
guaranteed by the United States of America or any agency thereof, or
obligations issued by any agency or instrumentality thereof and backed by the
full faith and credit of the United States of America, (ii) commercial paper
rated the highest grade by Moody's Investors Service, Inc. and Standard &
Poor's Ratings Group and maturing not more than one year from the date of
creation thereof, (iii) time deposits with, and certificates of deposit and
banker's acceptances issued by, any bank having capital surplus and undivided
profits aggregating at least $500 million and maturing not more than one year
from the date of creation thereof, (iv) repurchase agreements that are secured
by a perfected security interest in an obligation described in clause (i) and
<PAGE> 11
are with any bank described in clause (iii), (v) shares of any money market
mutual fund that (a) has at least 95% of its assets invested continuously in
the types of investments referred to in clauses (i) and (ii) above, (b) has net
assets of not less than $500 million, and (c) has the highest rating obtainable
from either Standard & Poor's Ratings Group or Moody's Investors Service, Inc.
and (vi) readily marketable direct obligations issued by any state of the
United States of America or any political subdivision thereof having one of the
two highest rating categories obtainable from either Moody's Investors Service,
Inc. or Standard & Poor's Ratings Group.
"Change of Control" means the acquisition after the Issue Date, in
one or more transactions, of beneficial ownership (within the meaning of Rule
13d-3 under the Exchange Act) by (i) any person or entity (other than any
Permitted Holder) or (ii) any group of persons or entities (excluding any
Permitted Holders) who constitute a group (within the meaning of Section
13(d)(3) of the Exchange Act), in either case, of any securities of Holdings or
the Company such that, as a result of such acquisition, such person, entity or
group beneficially owns (within the meaning of Rule 13d-3 under the Exchange
Act), directly or indirectly, 40% or more of the then outstanding voting
securities entitled to vote on a regular basis for a majority of the Board of
Directors of the Company (but only to the extent that such beneficial ownership
is not shared with any Permitted Holder who has the power to direct the vote
thereof); provided, however, that no such Change of Control shall be deemed to
have occurred if (A) the Permitted Holders beneficially own, in the aggregate,
at such time, a greater percentage of such voting securities than such other
person, entity or group or (B) at the time of such acquisition, the Permitted
Holders (or any of them) possess the ability (by contract or otherwise) to
elect, or cause the election, of a majority of the members of the Company's
Board of Directors.
"Change of Control Date" shall have the meaning provided in Section
4.15.
"Change of Control Offer" shall have the meaning provided in
Section 4.15.
"Change of Control Payment Date" shall have the meaning provided in
Section 4.15.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means, with respect to any person, any and all
shares, interests or other participations in, and other
<PAGE> 12
equivalents (however designated and whether voting or nonvoting) of, such
person's common stock, whether outstanding at the Issue Date or issued after
the Issue Date, and includes, without limitation, all series and classes of
such common stock.
"Company" means the party named as such in this Indenture until a
successor replaces it pursuant to this Indenture and thereafter means such
successor.
"Consolidated Net Income," means, with respect to any person, for
any period, the aggregate of the net income (or loss) of such person and its
subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (a) the net income of any other person in which such
person or any of its subsidiaries has an interest (which interest does not
cause the net income of such other person to be consolidated with the net
income of such person and its subsidiaries in accordance with GAAP) shall be
included only to the extent of the amount of dividends or distributions
actually paid to such person or such subsidiary by such other person in such
period; (b) the net income of any subsidiary of such person that is subject to
any Payment Restriction shall be excluded to the extent such Payment
Restriction actually prevented the payment of an amount that otherwise could
have been paid to, or received by, such person or a subsidiary of such person
not subject to any Payment Restriction; and (c)(i) the net income (or loss) of
any other person acquired in a pooling of interests transaction for any period
prior to the date of such acquisition, (ii) all gains and losses realized on
any Asset Sale, (iii) all gains realized upon or in connection with or as a
consequence of the issuance of the Capital Stock of such person or any of its
subsidiaries and any gains on pension reversions received by such person or any
of its subsidiaries, (iv) all gains and losses realized on the purchase or
other acquisition by such person or any of its subsidiaries of any securities
of such person or any of its subsidiaries, (v) all gains and losses resulting
from the cumulative effect of any accounting change pursuant to the application
of Accounting Principles Board Opinion No. 20, as amended, (vi) all other
extraordinary gains and losses, (vii) (A) all non-cash charges, (B) up to $10
million of severance costs and (C) any other restructuring reserves or charges
(provided, however, that any cash payments actually made with respect to the
liabilities for which such restructuring reserves or charges were created shall
be deducted from Consolidated Net Income in the period when made), in each
case, incurred by the Company or any of its Subsidiaries in connection with the
Merger, including, without limitation, the divestiture of the Excluded Assets,
(viii) losses incurred by
<PAGE> 13
the Company and its Subsidiaries resulting from earthquakes and (ix) with
respect to the Company, all deferred financing costs written off in connection
with the early extinguishment of any Indebtedness, shall each be excluded;
provided further that solely for the purpose of computing amounts described in
subclause (c) of the first paragraph of Section 4.03, "Consolidated Net Income"
of the Company for any period shall be reduced by the aggregate amount of
dividends paid by the Company or a Subsidiary to Holdings pursuant to clauses
(v), (vi) and (x) of the definition of "Permitted Payments" during such period.
"Consolidated Net Worth" means, with respect to any person, the
total stockholders' equity (exclusive of any Disqualified Capital Stock) of
such person and its subsidiaries determined on a consolidated basis in
accordance with GAAP.
"Consulting Agreement" means that certain Consulting Agreement
dated as of June 14, 1995 and as in effect on the Issue Date, between the
Company, Holdings and The Yucaipa Companies (as such Consulting Agreement may
be amended or replaced, so long as any amounts paid under any amended or
replacement agreement do not exceed the amounts payable under such Consulting
Agreement as in effect on the Issue Date).
"Credit Agent" means, at any time, the then-acting Administrative
Agent as defined in and under the Credit Agreement, which initially shall be
Bankers Trust Company. The Company shall promptly notify the Trustee of any
change in the Credit Agent.
"Credit Agreement" means the Credit Agreement, dated as of June 14,
1995, as amended and in effect on the Issue Date, by and among Food 4 Less, as
borrower, certain of its subsidiaries, Holdings, as guarantor, the Lenders
referred to therein and Bankers Trust Company, as administrative agent, as the
same may be amended, extended, renewed, restated, supplemented or otherwise
modified (in each case, in whole or in part, and without limitation as to
amount, terms, conditions, covenants and other provisions) from time to time,
and any agreement governing Indebtedness incurred to refund, replace or
refinance any borrowings and commitments then outstanding or permitted to be
outstanding under such Credit Agreement or any such prior agreement as the same
may be amended, extended, renewed, restated, supplemented or otherwise modified
(in each case, in whole or in part, and without limitation as to amount, terms,
conditions, covenants and other provisions). The term "Credit Agreement" shall
include all related or ancillary documents, including, without limitation, any
guarantee agreements and security documents. The Company
<PAGE> 14
shall promptly notify the Trustee of any such refunding or refinancing of the
Credit Agreement.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means any event which is, or after notice or passage of
time or both would be, an Event of Default.
"Depository" means the Depository Trust Company, its nominees and
successors.
"Discount Notes" means the 15.25% Senior Discount Notes due 2004 of
Holdings issued pursuant to the Discount Note Indenture, as the same may be
modified or amended from time to time and future refinancings thereof to the
extent such refinancings are permitted under this Indenture.
"Discount Note Indenture" means the indenture dated as of December
15, 1992 under which the 15.25% Senior Discount Notes due 2004 of Holdings were
issued, as the same may be modified or amended from time to time and future
refinancings thereof to the extent such refinancings are permitted under this
Indenture.
"Disqualified Capital Stock" means, with respect to any person, any
Capital Stock of such person or its subsidiaries that, by its terms, by the
terms of any agreement related thereto or by the terms of any security into
which it is convertible, puttable or exchangeable is, or upon the happening of
an event or the passage of time would be, required to be redeemed or
repurchased by such person or its subsidiaries, including at the option of the
holder thereof, in whole or in part, or has, or upon the happening of an event
or passage of time would have, a redemption or similar payment due, on or prior
to the Maturity Date of the Securities or any other Capital Stock of such
person or its subsidiaries designated as Disqualified Capital Stock by such
person at the time of issuance; provided, however, that if such Capital Stock
is either (i) redeemable or repurchasable solely at the option of such person
or (ii) issued to employees of the Company or its Subsidiaries or to any plan
for the benefit of such employees, such Capital Stock shall not constitute
Disqualified Capital Stock unless so designated.
"EBDIT" means, with respect to any person, for any period, the
Consolidated Net Income of such person for such period, plus, in each case to
the extent deducted in computing Consolidated Net Income of such person for
such period (without
<PAGE> 15
duplication) (i) provisions for income taxes or similar charges recognized by
such person and its consolidated subsidiaries accrued during such period, (ii)
depreciation and amortization expense of such person and its consolidated
subsidiaries accrued during such period (but only to the extent not included in
Fixed Charges), (iii) Fixed Charges of such person and its consolidated
subsidiaries for such period, (iv) LIFO charges (credits) of such person and
its consolidated subsidiaries for such period, (v) the amount of any
restructuring reserve or charge recorded during such period in accordance with
GAAP, including any such reserve or charge related to the Merger, and (vi) any
other non-cash charges reducing Consolidated Net Income for such period
(excluding any such charge which requires an accrual of or a cash reserve for
cash charges for any future period), less, without duplication, (i) non-cash
items increasing Consolidated Net Income of such person for such period
(excluding any such items which represent the reversal of any accrual of, or
cash reserve for, anticipated cash charges in any prior period) in each case
determined in accordance with GAAP and (ii) the amount of all cash payments
made by such person or its subsidiaries during such period to the extent that
such cash payment has been provided for in a restructuring reserve or charge
referred to in clause (v) above (and was not otherwise deducted in the
computation of Consolidated Net Income of such person for such period).
"Event of Default" shall have the meaning provided in Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the Commission
thereunder.
"Exchange Offer" has the meaning assigned to such term in the Note
Registration Rights Agreement, dated as of June 6, 1996, by and among the
Company and BT Securities Corp. as Initial Purchaser (the "Note Registration
Rights Agreement").
"Excluded Assets" means assets of the Company or any Subsidiary
required to be disposed of by applicable regulatory authorities in connection
with the Merger.
"Existing Indebtedness" means the following indebtedness of the
Company to the extent outstanding on the Issue Date; (a) the 10.45% Senior
Notes due 2004 issued pursuant to an indenture dated as of June 1, 1995; (b)
the 10.45% Senior Notes due 2000 issued pursuant to an indenture dated as of
April 15, 1992; (c) the 11% Senior Subordinated Notes due 2005 issued pursuant
to an indenture dated as of June
<PAGE> 16
1, 1995; (d) the 9% Senior Subordinated Notes due 2003 issued pursuant to an
indenture dated as of March 30, 1993; (e) the 10<% Senior Subordinated Notes
due 2002 issued pursuant to an indenture dated as of July 29, 1992; (f) the
13.75% Senior Subordinated Notes due 2005 issued pursuant to an indenture dated
as of June 1, 1995, and (g) the 13.75% Senior Subordinated Notes due 2001
issued pursuant to an indenture dated as of June 15, 1991.
"Fixed Charges" means, with respect to any person, for any period,
the aggregate amount of (i) interest, whether expensed or capitalized, paid,
accrued or scheduled to be paid or accrued during such period (except to the
extent accrued in a prior period) in respect of all Indebtedness of such person
and its consolidated subsidiaries (including (a) original issue discount on any
Indebtedness (including, (without duplication) in the case of the Company, any
original issue discount on the Securities but excluding amortization of debt
issuance costs) and (b) the interest portion of all deferred payment
obligations, calculated in accordance with the effective interest method, in
each case to the extent attributable to such period but excluding the
amortization of debt issuance costs), (ii) dividend requirements on Preferred
Stock of such person and its consolidated subsidiaries (whether in cash or
otherwise (except dividends payable in shares of Qualified Capital Stock))
declared or paid or required to be declared or paid during such period (except
to the extent accrued in a prior period) and excluding items eliminated in
consolidation and (iii) dividends declared or paid or scheduled or required to
be declared or paid to Holdings which are permitted to be paid pursuant to
clauses (v) and (vi) of the definition of "Permitted Payments." For purposes
of this definition, (a) interest on a Capitalized Lease Obligation shall be
deemed to accrue at an interest rate reasonably determined by the Board of
Directors of such person (as evidenced by a Board Resolution) to be the rate of
interest implicit in such Capitalized Lease Obligation in accordance with GAAP,
(b) interest on Indebtedness that is determined on a fluctuating basis shall be
deemed to have accrued at a fixed rate per annum equal to the rate of interest
of such Indebtedness in effect on the date Fixed Charges are being calculated,
(c) interest on Indebtedness that may optionally be determined at an interest
rate based upon a factor of a prime or similar rate, a eurocurrency interbank
offered rate, or other rate, shall be deemed to have been based upon the rate
actually chosen, or, if none, then based upon such optional rate chosen as the
Company may designate, and (d) Fixed Charges shall be increased or reduced by
the net cost (including amortization of discount) or benefit associated with
Interest Swap Obligations attributable to such period. For purposes of
<PAGE> 17
clause (ii) above, dividend requirements shall be increased to an amount
representing the pre-tax earnings that would be required to cover such dividend
requirements; accordingly, the increased amount shall be equal to a fraction,
the numerator of which is the amount of such dividend requirements and the
denominator of which is one (1) minus the applicable actual combined federal,
state, local and foreign income tax rate of such person and its subsidiaries
(expressed as a decimal), on a consolidated basis, for the fiscal year
immediately preceding the date of the transaction giving rise to the need to
calculate Fixed Charges.
"Food 4 Less" means Food 4 Less Supermarkets, Inc., a Delaware
corporation, and its successors, including, without limitation, the Company.
"Foreign Exchange Agreement" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect against fluctuations in currency values.
"Forward Period" shall have the meaning provided in the definition
of "Operating Coverage Ratio" contained in this Section 1.01.
"GAAP" means generally accepted accounting principles as in effect
in the United States of America as of June 14, 1995.
"Global Note" has the meaning provided in Section 2.01.
"Guarantee" means the guarantee of each Subsidiary Guarantor set
forth in Article Ten and any additional guarantee of the Securities executed by
any Subsidiary of the Company.
"Holder" or "Securityholder" means the person in whose name a
Security is registered on the Registrar's books.
"Holdings" means Food 4 Less Holdings, Inc., a Delaware
corporation, and its successors.
"Indebtedness" means with respect to any person, without
duplication, (i) all liabilities, contingent or otherwise, of such person (a)
for borrowed money (whether or not the recourse of the lender is to the whole
of the assets of such person or only to a portion thereof), (b) evidenced by
bonds, notes, debentures, drafts accepted or similar instruments or letters of
credit or representing the balance deferred and unpaid of the purchase price of
any property
<PAGE> 18
(other than any such balance that represents an account payable or any other
monetary obligation to a trade creditor (whether or not an Affiliate) created,
incurred, assumed or guaranteed by such person in the ordinary course of
business of such person in connection with obtaining goods, materials or
services and due within twelve months (or such longer period for payment as is
customarily extended by such trade creditor) of the incurrence thereof, which
account is not overdue by more than 90 days, according to the original terms of
sale, unless such account payable is being contested in good faith), or (c) for
the payment of money relating to a Capitalized Lease Obligation; (ii) the
maximum fixed repurchase price of all Disqualified Capital Stock of such
person; (iii) reimbursement obligations of such person with respect to letters
of credit; (iv) obligations of such person with respect to Interest Swap
Obligations and Foreign Exchange Agreements; (v) all liabilities of others of
the kind described in the preceding clause (i), (ii), (iii) or (iv) that such
person has guaranteed or that is otherwise its legal liability; and (vi) all
obligations of others secured by a Lien to which any of the properties or
assets (including, without limitation, leasehold interests and any other
tangible or intangible property rights) of such person are subject, whether or
not the obligations secured thereby shall have been assumed by such person or
shall otherwise be such person's legal liability (provided that if the
obligations so secured have not been assumed by such person or are not
otherwise such person's legal liability, such obligations shall be deemed to be
in an amount equal to the fair market value of such properties or assets, as
determined in good faith by the Board of Directors of such person, which
determination shall be evidenced by a Board Resolution). For purposes of the
preceding sentence, the "maximum fixed repurchase price" of any Disqualified
Capital Stock that does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to this Indenture, and if such
price is based upon, or measured by, the fair market value of such Disqualified
Capital Stock (or any equity security for which it may be exchanged or
converted), such fair market value shall be determined in good faith by the
Board of Directors of such person, which determination shall be evidenced by a
Board Resolution. For purposes of this Indenture, Indebtedness incurred by any
person that is a general partnership (other than non-recourse Indebtedness)
shall be deemed to have been incurred by the general partners of such
partnership pro rata in accordance with their respective interests in the
liabilities of such partnership unless any such general partner shall, in the
reasonable determination of the Board of Directors of the
<PAGE> 19
Company, be unable to satisfy its pro rata share of the liabilities of the
partnership, in which case the pro rata share of any Indebtedness attributable
to such partner shall be deemed to be incurred at such time by the remaining
general partners on a pro rata basis in accordance with their interests.
"Indenture" means this Indenture, as amended or supplemented from
time to time in accordance with the terms hereof.
"Independent Financial Advisor" means a reputable accounting,
appraisal or nationally recognized investment banking or consulting firm that
is, in the reasonable judgment of the Board of Directors of the Company,
qualified to perform the tasks for which such firm has been engaged and
disinterested and independent with respect to the Company and its Affiliates.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act.
"Interest Payment Date" means the stated maturity of an installment
of interest on the Securities.
"Interest Swap Obligation" means any obligation of any person
pursuant to any arrangement with any other person whereby, directly or
indirectly, such person is entitled to receive from time to time periodic
payments calculated by applying either a fixed or floating rate of interest on
a stated notional amount in exchange for periodic payments made by such person
calculated by applying a fixed or floating rate of interest on the same
notional amount; provided that the term "Interest Swap Obligation" shall also
include interest rate exchange, collar, cap, swap option or similar agreements
providing interest rate protection.
"Investment" by any person in any other person means any investment
by such person in such other person, whether by share purchase, capital
contribution, loan, advance (other than reasonable loans and advances to
employees for moving and travel expenses, as salary advances, or to permit the
purchase of Qualified Capital Stock of Holdings or any of its Subsidiaries and
other similar customary expenses incurred, in each case in the ordinary course
of business consistent with past practice) or similar credit extension
constituting Indebtedness of such other person, and any guarantee of
Indebtedness of any other person.
<PAGE> 20
"Issue Date" means the date of original issuance of the Securities
under this Indenture.
"Legal Holiday" shall have the meaning provided in Section 11.07.
"Letter of Credit Obligations" means Indebtedness of the Company or
any of its Subsidiaries with respect to letters of credit issued pursuant to
the Credit Agreement, and for purposes of the definition of the term "Permitted
Indebtedness," the aggregate principal amount of Indebtedness outstanding at
any time with respect thereto shall be deemed to consist of (a) the aggregate
maximum amount then available to be drawn under all such letters of credit (the
determination of such maximum amount to assume compliance with all conditions
for drawing), and (b) the aggregate amount that has then been paid by, and not
reimbursed to, the issuers under such letters of credit.
"Lien" means any mortgage, pledge, lien, encumbrance, charge or
adverse claim affecting title or resulting in an encumbrance against real or
personal property, or a security interest of any kind (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, any option or other agreement to sell which is intended to constitute
or create a security interest, mortgage, pledge or lien, and any filing of or
agreement to give any financing statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction); provided that in no event shall an
operating lease be deemed to constitute a Lien under this Indenture.
"Maturity Date" means June 15, 2004.
"Merger" means (i) the merger of Food 4 Less into RSI (with RSI
surviving such merger) pursuant to the Merger Agreement and (ii) immediately
following the merger described in clause (i) of this definition, the merger of
Ralphs Grocery Company into RSI (with RSI surviving such merger and changing
its name to "Ralphs Grocery Company" in connection with such merger).
"Merger Agreement" means the Agreement and Plan of Merger, dated
September 14, 1994, by and among Holdings, Food 4 Less, Inc., Food 4 Less, RSI
and the stockholders of RSI, as such agreement was in effect on June 14, 1995.
"Net Cash Proceeds" means the Net Proceeds of any Asset Sale
received in the form of cash or Cash Equivalents.
<PAGE> 21
"Net Proceeds" means (a) in the case of any Asset Sale or any
issuance and sale by any person of Qualified Capital Stock, the aggregate net
proceeds received by such person after payment of expenses, taxes, commissions
and the like incurred in connection therewith (and, in the case of any Asset
Sale, net of the amount of cash applied to repay Indebtedness secured by the
asset involved in such Asset Sale), whether such proceeds are in cash or in
property (valued at the fair market value thereof at the time of receipt, as
determined with respect to any Asset Sale resulting in Net Proceeds in excess
of $5 million in good faith by the Board of Directors of such person, which
determination shall be evidenced by a Board Resolution) and (b) in the case of
any conversion or exchange of any outstanding Indebtedness or Disqualified
Capital Stock of such person for or into shares of Qualified Capital Stock of
the Company, the sum of (i) the fair market value of the proceeds received by
the Company in connection with the issuance of such Indebtedness or
Disqualified Capital Stock on the date of such issuance and (ii) any additional
amount paid by the holder to the Company upon such conversion or exchange.
"New Discount Debenture Indenture" means the indenture dated as of
June 1, 1995 under which the 13 5/8% Senior Discount Debentures due 2005 of
Holdings were issued, as the same may be modified and amended from time to time
and refinancings thereof to the extent such refinancings are permitted under
this Indenture.
"New Discount Debentures" means the 13 5/8% Senior Discount
Debentures due 2005 of Holdings issued pursuant to the New Discount Debenture
Indenture, as the same may be modified and amended from time to time and future
refinancings thereof to the extent such refinancings are permitted under this
Indenture.
"New F4L Senior Subordinated Notes" means the 13.75% senior
subordinated notes due 2005 issued pursuant to the Senior Subordinated Note
Indenture dated as of June 1, 1995 that are issued in exchange for Old F4L
Senior Subordinated Notes.
"1995 Senior Note Indenture" means the indenture dated as of June
1, 1995 under which $520,326,000 of 10.45% Senior Notes due 2004 were issued,
as the same may be modified and amended from time to time and refinancings
thereof to the extent such refinancings are permitted under this Indenture.
"Non-U.S. Person" means a Person who is not a U.S. person, as
defined in Regulation S.
<PAGE> 22
"Note Registration Rights Agreement" has the meaning provided in
the definition of "Exchange Offer."
"Officer" means, with respect to any person, the Chairman of the
Board, the President, any Vice President, the Chief Financial Officer, the
Controller, or the Secretary of such person.
"Officers' Certificate" means, with respect to any person, a
certificate signed by two Officers or by an Officer and either an Assistant
Treasurer or an Assistant Secretary of such person and otherwise complying with
the requirements of Sections 11.04 and 11.05.
"Offshore Physical Notes" has the meaning provided in Section 2.01.
"Old F4L Senior Subordinated Notes" means the 13.75% senior
subordinated notes due 2001 issued pursuant to an indenture dated as of June
15, 1991.
"Old RGC Indentures" means the indentures between Ralphs Grocery
Company, as issuer, and United States Trust Company of New York, as trustee,
pursuant to which the Old RGC Notes were issued.
"Old RGC Notes" means the 9% Senior Subordinated Notes due 2003 of
Ralphs Grocery Company and the 10 <% Senior Subordinated Notes due 2002 of
Ralphs Grocery Company.
"Operating Coverage Ratio" means, with respect to any person, the
ratio of (1) EBDIT of such person for the period (the "Pro Forma Period")
consisting of the most recent four full fiscal quarters for which financial
information in respect thereof is available immediately prior to the date of
the transaction giving rise to the need to calculate the Operating Coverage
Ratio (the "Transaction Date") to (2) the aggregate Fixed Charges of such
person for the fiscal quarter in which the Transaction Date occurs and the
three fiscal quarters immediately subsequent to such fiscal quarter (the
"Forward Period") reasonably anticipated by the Board of Directors of such
person to become due from time to time during such period. In addition to, but
without duplication of, the foregoing, for purposes of this definition, "EBDIT"
shall be calculated after giving effect (without duplication), on a pro forma
basis for the Pro Forma Period (but no longer), to (a) any Investment, during
the period commencing on the first day of the Pro Forma Period to and including
the Transaction Date (the "Reference Period"), in any other person that, as a
result of such Investment, becomes a subsidiary of such person, (b) the
<PAGE> 23
acquisition, during the Reference Period (by merger, consolidation or purchase
of stock or assets) of any business or assets, which acquisition is not
prohibited by this Indenture, and (c) any sales or other dispositions of assets
(other than sales of inventory in the ordinary course of business) occurring
during the Reference Period, in each case as if such incurrence, Investment,
repayment, acquisition or asset sale had occurred on the first day of the
Reference Period. In addition, for purposes of this definition, "Fixed
Charges" shall be calculated after giving effect (without duplication), on a
pro forma basis for the Forward Period, to any Indebtedness incurred or repaid
on or after the first day of the Forward Period and prior to the Transaction
Date. If such person or any of its subsidiaries directly or indirectly
guarantees any Indebtedness of a third person, the Operating Coverage Ratio
shall give effect to the incurrence of such Indebtedness as if such person or
subsidiary had directly incurred such guaranteed Indebtedness.
"operating lease" means any lease the obligations under which do
not constitute Capitalized Lease Obligations.
"Opinion of Counsel" means a written opinion from legal counsel who
is reasonably acceptable to the Trustee complying with the requirements of
Sections 11.04 and 11.05. Unless otherwise required by the Trustee, the legal
counsel may be an employee of or counsel to the Company or the Trustee.
"Pari Passu Indebtedness" means, with respect to the Company or any
Subsidiary Guarantor, Indebtedness of such person which ranks pari passu in
right of payment to the Securities or the Guarantee of such Subsidiary
Guarantor, as the case may be (in each case, whether or not secured by any
Lien).
"Paying Agent" shall have the meaning provided in Section 2.03,
except that, for the purposes of Articles Three and Eight and Sections 4.15 and
4.16, the Paying Agent shall not be the Company or an Affiliate of the Company.
"Payment Restriction" means, with respect to a subsidiary of any
person, any encumbrance, restriction or limitation, whether by operation of the
terms of its charter or by reason of any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation, on the ability of (i)
such subsidiary to (a) pay dividends or make other distributions on its Capital
Stock or make payments on any obligation, liability or Indebtedness owed to
such person or any other subsidiary of such person, (b) make loans or advances
to such person or any other subsidiary of such person, or
<PAGE> 24
(c) transfer any of its properties or assets to such person or any other
subsidiary of such person, or (ii) such person or any other subsidiary of such
person to receive or retain any such (a) dividends, distributions or payments,
(b) loans or advances, or (c) transfer of properties or assets.
"Permitted Holder" means (i) Food 4 Less Equity Partners, L.P., The
Yucaipa Companies or any entity controlled thereby or any of the partners
thereof, (ii) Apollo Advisors, L.P., Lion Advisors, L.P. or any entity
controlled thereby or any of the partners thereof, (iii) an employee benefit
plan of the Company, or any of its subsidiaries or any participant therein,
(iv) a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any of its subsidiaries or (v) any Permitted Transferee
of any of the foregoing persons.
"Permitted Indebtedness" means (a) Indebtedness of the Company and
its Subsidiaries (and the Company and each Subsidiary (to the extent it is not
an obligor) may guarantee such Indebtedness) pursuant to (i) the Term Loans in
an aggregate principal amount at any time outstanding not to exceed $600
million less the aggregate amount of all principal repayments thereunder
pursuant to and in accordance with the requirements of Section 4.16 subsequent
to June 14, 1995, (ii) the revolving credit facility under the Credit Agreement
(including the Letter of Credit Obligations) in an aggregate principal amount
at any time outstanding not to exceed $325 million, less all permanent
reductions thereunder pursuant to and in accordance with the requirements of
Section 4.16, and (iii) any Indebtedness incurred under the Credit Agreement
pursuant to and in accordance with (A) clause (m) of this definition and (B)
Section 4.12 (other than Permitted Indebtedness that is not incurred pursuant
to clause (m) or this clause (a) of this definition); (b) Indebtedness of the
Company or a Subsidiary Guarantor owed to and held by the Company or a
Subsidiary Guarantor; (c) Indebtedness incurred by the Company or any
Subsidiary in connection with the purchase or improvement of property (real or
personal) or equipment or other capital expenditures in the ordinary course of
business (including for the purchase of assets or stock of any retail grocery
store or business) or consisting of Capitalized Lease Obligations, provided
that (i) at the time of the incurrence thereof, such Indebtedness, together
with any other Indebtedness incurred during the most recently completed four
fiscal quarter period in reliance upon this clause (c) does not exceed, in the
aggregate, 3% of net sales of the Company and its Subsidiaries during the most
recently completed four fiscal quarter period on a consolidated basis
(calculated on a pro forma basis if the date of incurrence is prior to the end
of
<PAGE> 25
the fourth fiscal quarter following the Merger) and (ii) such Indebtedness,
together with all then outstanding Indebtedness incurred in reliance upon this
clause (c) does not exceed, in the aggregate, 3% of the aggregate net sales of
the Company and its Subsidiaries during the most recently completed twelve
fiscal quarter period on a consolidated basis (calculated on a pro forma basis
if the date of incurrence is prior to the end of the twelfth fiscal quarter
following the Merger); (d) Indebtedness incurred by the Company or any
Subsidiary in connection with capital expenditures in an aggregate principal
amount not exceeding $150 million (less the aggregate principal amount of any
Indebtedness incurred by the Company or any Subsidiary on or prior to the Issue
Date in reliance on clause (d) of the definition of "Permitted Indebtedness"
under the 1995 Senior Note Indenture), provided that such capital expenditures
relate solely to the integration of the operations of RSI, Food 4 Less and
their respective subsidiaries as described in the Offering Memorandum of the
Company relating to the Securities dated June 3, 1996; (e) Indebtedness of the
Company or any Subsidiary incurred under Foreign Exchange Agreements and
Interest Swap Obligations entered into with respect to Indebtedness otherwise
permitted to be outstanding pursuant to Section 4.12 or this definition of
Permitted Indebtedness in a notional amount not exceeding the aggregate
principal amount of such Indebtedness; (f) guarantees incurred in the ordinary
course of business by the Company or a Subsidiary of Indebtedness of any other
person in the aggregate not to exceed $25 million at any time outstanding; (g)
guarantees by the Company or a Subsidiary Guarantor of Indebtedness incurred by
a wholly-owned Subsidiary Guarantor so long as the incurrence of such
Indebtedness incurred by such wholly-owned Subsidiary Guarantor is permitted
under the terms of this Indenture; (h) Refinancing Indebtedness; (i)
Indebtedness for letters of credit relating to workers' compensation claims and
self-insurance or similar requirements in the ordinary course of business; (j)
Existing Indebtedness and other Indebtedness outstanding on the Issue Date; (k)
Indebtedness arising from guarantees of Indebtedness of the Company or any
Subsidiary or other agreements of the Company or a Subsidiary providing for
indemnification, adjustment of purchase price or similar obligations, in each
case, incurred or assumed in connection with the disposition of any business,
assets or Subsidiary, other than guarantees of Indebtedness incurred by any
person acquiring all or any portion of such business, assets or Subsidiary for
the purpose of financing such acquisition; provided that the maximum aggregate
liability in respect of all such Indebtedness shall at no time exceed the gross
proceeds actually received by the Company and its Subsidiaries in connection
with such disposition; (l) obligations in respect of performance bonds and
completion
<PAGE> 26
guarantees provided by the Company or any Subsidiary in the ordinary course of
business; and (m) additional Indebtedness of the Company and the Subsidiary
Guarantors in an amount not to exceed $175 million at any time outstanding.
"Permitted Investment" by any person means (i) any Related Business
Investment, (ii) Investments in securities not constituting cash or Cash
Equivalents and received in connection with an Asset Sale made pursuant to
Section 4.16 or any other disposition of assets not constituting an Asset Sale
by reason of the $500,000 threshold contained in the definition thereof, (iii)
cash and Cash Equivalents, (iv) Investments existing on the Issue Date, (v)
Investments specifically permitted by and made in accordance with Section 4.11,
(vi) Investments by Subsidiary Guarantors in other Subsidiary Guarantors or the
Company and Investments by the Company in a Subsidiary Guarantor in the form of
Indebtedness owed to the Company by such Subsidiary Guarantor and Investments
by Subsidiaries which are not Subsidiary Guarantors in other Subsidiaries which
are not Subsidiary Guarantors and (vii) additional Investments in an aggregate
amount not exceeding $15 million.
"Permitted Liens" means (i) Liens for taxes, assessments and
governmental charges or claims not yet due or which are being contested in good
faith by appropriate proceedings promptly instituted and diligently conducted
and if a reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made thereof; (ii) statutory Liens of
landlords and carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen, or other like Liens arising in the ordinary course of business,
deposits made to obtain the release of such Liens, and with respect to amounts
not yet delinquent for a period of more than 60 days or being contested in good
faith by appropriate process of law, and for which a reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been
made; (iii) Liens incurred or pledges or deposits made in the ordinary course
of business to secure obligations under workers' compensation, unemployment
insurance and other types of social security or similar legislation; (iv) Liens
incurred or deposits made to secure the performance of tenders, bids, leases,
statutory obligations, surety and appeal bonds, government contracts,
performance and return of money bonds and other obligations of a like nature
incurred in the ordinary course of business (exclusive of obligations for the
payment of borrowed money); (v) easements, rights-of-way, zoning or other
restrictions, minor defects or irregularities in title and other similar
charges or encumbrances not interfering in any material respect with the
business of the Company or any of its Subsidiaries
<PAGE> 27
incurred in the ordinary course of business; (vi) Liens upon specific items of
inventory or other goods and proceeds of any person securing such person's
obligations in respect of bankers' acceptances issued or created for the
account of such person to facilitate the purchase, shipment or storage of such
inventory or other goods in the ordinary course of business; (vii) Liens
securing reimbursement obligations with respect to letters of credit which
encumber documents and other property relating to such letters of credit and
the products and proceeds thereof; (viii) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payment of nondelinquent
customs duties in connection with the importation of goods; (ix) judgment and
attachment Liens not giving rise to a Default or Event of Default; (x) leases
or subleases granted to others not interfering in any material respect with the
business of the Company or any Subsidiary; (xi) Liens encumbering customary
initial deposits and margin deposits, and other Liens incurred in the ordinary
course of business that are within the general parameters customary in the
industry, in each case securing Indebtedness under Interest Swap Obligations
and Foreign Exchange Agreements and forward contracts, option futures
contracts, futures options or similar agreements or arrangements designed to
protect the Company or any Subsidiary from fluctuations in the price of
commodities; (xii) Liens encumbering deposits made in the ordinary course of
business to secure nondelinquent obligations arising from statutory,
regulatory, contractual or warranty requirements of the Company or its
Subsidiaries for which a reserve or other appropriate provision, if any, as
shall be required by GAAP shall have been made; (xiii) Liens arising out of
consignment or similar arrangements for the sale of goods entered into by the
Company or any Subsidiary in the ordinary course of business in accordance with
past practices; (xiv) any interest or title of a lessor in the property subject
to any lease, whether characterized as capitalized or operating other than any
such interest or title resulting from or arising out of a default by the
Company or any Subsidiary of its obligations under such lease; (xv) Liens
arising from filing UCC financing statements for precautionary purposes in
connection with true leases of personal property that are otherwise permitted
under this Indenture and under which the Company or any Subsidiary is lessee;
and (xvi) additional Liens securing Indebtedness in an aggregate principal
amount at any one time outstanding not exceeding the sum of (i) $25 million and
(ii) 10% of the aggregate Consolidated Net Income of the Company earned
subsequent to June 14, 1995 and on or prior to such time.
"Permitted Payments" means (i) any payment by the Company or any
Subsidiary, or any dividend by the Company or any Subsidiary to Holdings the
proceeds of which are utilized
<PAGE> 28
by Holdings to make payments, to The Yucaipa Companies or the principals or any
Affiliates thereof for consulting, management, investment banking or similar
services, or for reimbursement of losses, costs and expenses pursuant to the
Consulting Agreement, (ii) any payment by the Company or any Subsidiary
pursuant to the Second Amended and Restated Tax Sharing Agreement, dated as of
June 14, 1995, by and among the Company, all direct and indirect Subsidiaries
and Holdings, as such Tax Sharing Agreement may be amended from time to time,
so long as the payment thereunder by the Company and its Subsidiaries shall not
exceed the amount of taxes the Company would be required to pay if it were the
filing person for all applicable taxes, (iii) any payment by the Company or any
Subsidiary pursuant to the Transfer and Assumption Agreement, dated as of June
23, 1989, between Food 4 Less and Holdings, as in effect on the Issue Date,
(iv) any payment by the Company or any Subsidiary, or any dividend by the
Company or any Subsidiary to Holdings the proceeds of which are used by
Holdings to make payments, (a) in connection with repurchases of outstanding
shares of the Company's or Holdings' Common Stock following the death,
disability or termination of employment of management stockholders, and (b) of
amounts required to be paid by Holdings, the Company or any of its Subsidiaries
to participants or former participants in employee benefit plans upon
termination of employment by such participants, as provided in the documents
related thereto, in an aggregate amount (for both clauses (a) and (b)) not to
exceed $10 million in any Yearly Period (provided that any unused amounts may
be carried over to any subsequent Yearly Period subject to a maximum amount of
$20 million in any Yearly Period), (v) from and after June 30, 1998, payments
of cash dividends or loans to Holdings in an amount sufficient to enable
Holdings to make payments of interest required to be made in respect of the
Discount Notes in an amount not to exceed the amount payable thereunder in
accordance with the terms thereof in effect on June 14, 1995, (vi) from and
after June 15, 2000, payments of cash dividends to Holdings in an amount
sufficient to enable Holdings to make payments of interest required to be made
in respect of the Seller Debentures and the New Discount Debentures in an
amount not to exceed the amount payable thereunder in accordance with the terms
thereof in effect on June 14, 1995, (vii) dividends or other payments to
Holdings sufficient to enable Holdings to perform accounting, legal, corporate
reporting and administrative functions in the ordinary course of business or to
pay required fees and expenses in connection with the Merger and the
registration under applicable laws and regulations of its debt or equity
securities, (viii) dividends by the Company to Holdings of the Net Cash
Proceeds of an Asset Sale to the extent that (a) the Company or any of the
Subsidiaries is
<PAGE> 29
required pursuant to this Indenture to utilize such Net Cash Proceeds to repay
(or offer to repay) the Securities (and has complied with all such
requirements), (b) such Net Cash Proceeds are not required to be and have not
been utilized to repay outstanding Indebtedness of the Company or any of the
Subsidiaries and (c) Holdings is required pursuant to the documents governing
any outstanding Indebtedness of Holdings to utilize such Net Cash Proceeds to
repay such Indebtedness (it being understood that only the amounts not utilized
as described in clauses (a) and (b) of this clause (viii) shall be permitted to
be distributed to Holdings pursuant to this clause (viii)), (ix) the repurchase
by the Company of up to $10 million aggregate principal amount of Old RGC
Notes, at a repurchase price of 101% of the principal amount thereof plus
accrued interest to the repurchase date, pursuant to the "change of control
purchase offer" provisions set forth in section 1014 of the Old RGC Indentures
as in effect on June 14, 1995, and (x) for so long as the sole business
activity of such partnership is to acquire, hold, sell, exchange, transfer or
otherwise dispose of all or any portion of the New Discount Debentures and to
manage its investment in the New Discount Debentures, any payment by the
Company or any Subsidiary, or any dividend or loan to Holdings, the proceeds of
which are utilized by Holdings to fund ongoing costs and expenses of RGC
Partners, L.P. pursuant to the Subscription Agreement and the Registration
Rights Agreement.
"Permitted Transferees" means, with respect to any person, (i) any
Affiliate of such person, (ii) the heirs, executors, administrators,
testamentary trustees, legatees or beneficiaries of any such person, (iii) a
trust, the beneficiaries of which, or a corporation or partnership, the
stockholders or general or limited partners of which, include only such person
or his or her spouse or lineal descendants, in each case to whom such person
has transferred the beneficial ownership of any securities of the Company, (iv)
any investment account whose investment managers and investment advisors
consist solely of such person and/or Permitted Transferees of such person and
(v) any investment fund or investment entity that is a subsidiary of such
person or a Permitted Transferee of such person.
"person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof.
"Physical Notes" has the meaning provided in Section 2.01.
<PAGE> 30
"Plan of Liquidation" means, with respect to any person, a plan
that provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and
all or substantially all of the remaining assets of such person to holders of
Capital Stock of such person.
"Preferred Stock" means, with respect to any person, Capital Stock
of any class or classes (however designated) which is preferred as to the
payment of dividends or distributions, or as to the distribution of assets upon
any voluntary or involuntary liquidation or dissolution of such person, over
shares of Capital Stock of any other class of such person.
"principal" of any Indebtedness (including the Securities) means
the principal of such Indebtedness plus the premium, if any, on such
Indebtedness.
"Private Placement Legend" means the legend initially set forth on
the Securities in the form set forth in Exhibit A.
"pro forma" means, with respect to any calculation made or required
to be made pursuant to the terms of this Indenture, a calculation in accordance
with Article 11 of Regulation S-X under the Securities Act of 1933, as amended,
as interpreted by the Company's chief financial officer or Board of Directors
in consultation with its independent certified public accountants.
"Public Equity Offering" means an underwritten public offering of
Common Stock of the Company or Holdings pursuant to a registration statement
filed with the Commission in accordance with the Securities Act which public
equity offering results in gross proceeds to the Company or Holdings, as the
case may be, of not less than $20,000,000; provided, however, that in the case
of a Public Equity Offering by Holdings, Holdings contributes to the capital of
the Company net cash proceeds in an amount sufficient to redeem the Securities
called for redemption in accordance with the terms thereof.
"Qualified Institutional Buyer" or "QIB" shall have the meaning
specified in Rule 144A under the Securities Act.
<PAGE> 31
"Qualified Capital Stock" means, with respect to any person, any
Capital Stock of such person that is not Disqualified Capital Stock.
"Ralphs Grocery Company" means Ralphs Grocery Company, Inc., a
Delaware corporation, and its successors.
"Record Date" means the Record Dates specified in the Securities;
provided that if any such date is a Legal Holiday, the Record Date shall be the
first day immediately preceding such specified day that is not a Legal Holiday.
"Redemption Date," when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to this Indenture
and Paragraph 5 of the Securities annexed hereto as Exhibit A.
"Redemption Price," when used with respect to any Security to be
redeemed, means the price fixed for such redemption pursuant to this Indenture
and Paragraph 5 of the Securities annexed hereto as Exhibit A.
"Reference Date" shall have the meaning provided in Section 4.03.
"Reference Period" shall have the meaning provided in the
definition of "Operating Coverage Ratio" contained in this Section 1.01.
"Refinancing Indebtedness" means, with respect to any person,
Indebtedness of such person issued in exchange for, or the proceeds from the
issuance and sale or disbursement of which are used to substantially
concurrently repay, redeem, refund, refinance, discharge or otherwise retire
for value, in whole or in part (collectively, "repay"), or constituting an
amendment, modification or supplement to, or a deferral or renewal of
(collectively, an "amendment"), any Indebtedness of such person existing on the
Issue Date or Indebtedness (other than Permitted Indebtedness, except Permitted
Indebtedness incurred pursuant to clauses (c), (d), (h) and (j) of the
definition thereof) incurred in accordance with this Indenture (a) in a
principal amount (or, if such Refinancing Indebtedness provides for an amount
less than the principal amount thereof to be due and payable upon the
acceleration thereof, with an original issue price) not in excess of (without
duplication) (i) the principal amount or the original issue price, as the case
may be, of the Indebtedness so refinanced (or, if such Refinancing Indebtedness
refinances Indebtedness under a revolving credit facility or other agreement
providing a commitment for subsequent borrowings, with a maximum commitment
<PAGE> 32
not to exceed the maximum commitment under such revolving credit facility or
other agreement) plus (ii) unpaid accrued interest on such Indebtedness plus
(iii) premiums, penalties, fees and expenses actually incurred by such person
in connection with the repayment or amendment thereof and (b) with respect to
Refinancing Indebtedness that repays or constitutes an amendment to
Subordinated Indebtedness, such Refinancing Indebtedness (x) shall not have any
fixed mandatory redemption or sinking fund requirement in an amount greater
than or at a time prior to the amounts and times specified in such repaid or
amended Subordinated Indebtedness, except to the extent that any such
requirement applies on a date after the Maturity Date and (y) shall contain
subordination and default provisions no less favorable in any material respect
to Holders than those contained in such repaid or amended Subordinated
Indebtedness.
"Registrar" shall have the meaning provided in Section 2.03.
"Registration Rights Agreement" means that certain Registration
Rights Agreement by and between RGC Partners, L.P., Holdings and Food 4 Less,
as such Registration Rights Agreement may be amended or replaced, so long as
any amounts paid by Holdings and the Company under any amended or replacement
agreement do not exceed the amounts payable by Holdings and the Company under
such Registration Rights Agreement as in effect on June 14, 1995.
"Regulation S" means Regulation S under the Securities Act.
"Related Business Investment" means (i) any Investment by a person
in any other person a majority of whose revenues are derived from the operation
of one or more retail grocery stores or supermarkets or any other line of
business engaged in by the Company or any of its Subsidiaries as of the Issue
Date; (ii) any Investment by such person in any cooperative or other supplier,
including, without limitation, any joint venture which is intended to supply
any product or service useful to the business of the Company and its
Subsidiaries as it is conducted as of the Issue Date and as such business may
thereafter evolve or change; and (iii) any capital expenditure or Investment,
in each case reasonably related to the business of the Company and its
Subsidiaries as it is conducted as of the Issue Date and as such business may
thereafter evolve or change.
"Representative" means the indenture trustee or other trustee,
agent or representative for any Senior Indebtedness; provided that in no event
shall United States Trust Company of
<PAGE> 33
New York, in its capacities as Trustee, Registrar, co-Registrar or Paying
Agent, serve as Representative.
"Restricted Debt Prepayment" means any purchase, redemption,
defeasance (including, but not limited to, in- substance or legal defeasance)
or other acquisition or retirement for value, directly or indirectly, by the
Company or a Subsidiary, prior to the scheduled maturity or prior to any
scheduled repayment of principal or sinking fund payment, as the case may be,
in respect of Subordinated Indebtedness.
"Restricted Payment" means any (i) Stock Payment, (ii) Investment
(other than a Permitted Investment) or (iii) Restricted Debt Prepayment.
"Restricted Security" has the meaning assigned to such term in Rule
144(a)(3) under the Securities Act; provided that the Trustee shall be entitled
to request and conclusively rely on an Opinion of Counsel with respect to
whether any Security constitutes a Restricted Security.
"Rule 144A" means Rule 144A under the Securities Act.
"RSI" means Ralphs Supermarkets Inc., a Delaware corporation.
"Securities" means the Company's 10.45% Senior Notes due 2004, as
amended or supplemented from time to time in accordance with the terms hereof,
that are issued pursuant to this Indenture (including the Exchange Notes and
the Private Exchange Notes (in each case, as defined in the Note Registration
Rights Agreement)).
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"Seller Debentures" means the 13 5/8% Senior Subordinated
Pay-in-Kind Debentures due 2007 of Holdings issued pursuant to the Seller
Debenture Indenture, including any additional 13 5/8% Senior Subordinated
Pay-in-Kind Debentures due 2007 issued as interest thereon, in each case, as
such Seller Debentures may be modified or amended from time to time and future
refinancings thereof to the extent such refinancings are permitted under this
Indenture.
"Seller Debenture Indenture" means the indenture between Holdings
and Norwest Bank, Minnesota, National Association, as trustee, dated as of June
1, 1995 under which the 13 5/8% Senior Subordinated Pay-in-Kind Debentures due
2007
<PAGE> 34
of Holdings were issued, as the same may be modified and amended from time to
time and refinancings thereof to the extent such refinancings are permitted
under this Indenture.
"Senior Subordinated Note Indentures" means, together, (i) the
indenture dated as of June 1, 1995 between the Company, the Subsidiary
Guarantors and United States Trust Company of New York, as trustee, pursuant to
which the Company issued $524,055,000 of 11% Senior Subordinated Notes due
2005, and (ii) the indenture dated as of June 1, 1995 between the Company, the
Subsidiary Guarantors and United States Trust Company of New York, as trustee,
pursuant to which the Company issued $140,184,000 of 13.75% Senior Subordinated
Notes due 2005.
"Significant Stockholder" means, with respect to any person, any
other person who is the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) of more than 10% of any class of equity securities of
such person that are entitled to vote on a regular basis for the election of
directors of such person.
"Significant Subsidiary" means each subsidiary of the Company that
is either (a) a "significant subsidiary" as defined in Rule 1-02(v) of
Regulation S-X under the Securities Act and the Exchange Act (as such
regulation is in effect on the Issue Date) or (b) material to the financial
condition or results of operations of the Company and its Subsidiaries taken as
a whole.
"Stock Payment" means, with respect to any person, (a) the
declaration or payment by such person, either in cash or in property, of any
dividend on (except, in the case of the Company, dividends payable solely in
Qualified Capital Stock of the Company), or the making by such person or any of
its subsidiaries of any other distribution in respect of, such person's
Qualified Capital Stock or any warrants, rights or options to purchase or
acquire shares of any class of such Capital Stock (other than exchangeable or
convertible Indebtedness of such person), or (b) the redemption, repurchase,
retirement or other acquisition for value by such person or any of its
subsidiaries, directly or indirectly, of such person's Qualified Capital Stock
(and, in the case of a Subsidiary, Qualified Capital Stock of the Company) or
any warrants, rights or options to purchase or acquire shares of any class of
such Capital Stock (other than exchangeable or convertible Indebtedness of such
person), other than, in the case of the Company, through the issuance in
exchange therefor solely of Qualified Capital Stock of the Company; provided,
however, that in the case of a Subsidiary, the term "Stock
<PAGE> 35
Payment" shall not include any such payment with respect to its Capital Stock
or warrants, rights or options to purchase or acquire shares of any class of
its Capital Stock that are owned solely by the Company or a wholly owned
Subsidiary.
"Subordinated Indebtedness" means, with respect to the Company or
any Subsidiary Guarantor, Indebtedness of such person which is subordinated in
right of payment to the Securities or the Guarantee of such Subsidiary
Guarantor, as the case may be.
"Subscription Agreement" means that certain Subscription Agreement,
between RGC Partners, L.P., Holdings, Food 4 Less and the partnership investors
listed on Exhibit A thereto, as such Subscription Agreement may be amended or
replaced, so long as any amounts paid by Holdings and the Company under any
amended or replacement agreement do not exceed the amounts payable by Holdings
and the Company under such Subscription Agreement as in effect on June 14,
1995.
"subsidiary" of any person means (i) a corporation a majority of
whose Capital Stock with voting power, under ordinary circumstances, to elect
directors is, at the date of determination, directly or indirectly, owned by
such person, by one or more subsidiaries of such person or by such person and
one or more subsidiaries of such person or (ii) a partnership in which such
person or a subsidiary of such person is, at the date of determination, a
general partner of such partnership, but only if such person or its subsidiary
is entitled to receive more than fifty percent of the assets of such
partnership upon its dissolution, or (iii) any other person (other than a
corporation or a partnership) in which such person, a subsidiary of such person
or such person and one or more subsidiaries of such person, directly or
indirectly, at the date of determination, has (x) at least a majority ownership
interest or (y) the power to elect or direct the election of a majority of the
directors or other governing body of such person.
"Subsidiary" means any subsidiary of the Company.
"Subsidiary Guarantor" means (i) each of Alpha Beta Company, Bay
Area Warehouse Stores, Inc., Bell Markets, Inc., Cala Co., Cala Foods, Inc.,
Falley's Inc., Food 4 Less of California, Inc., Food 4 Less Merchandising,
Inc., Food 4 Less GM, Inc., Food 4 Less of Southern California, Inc., and
Crawford Stores, Inc., (ii) each of the Company's Subsidiaries which becomes a
guarantor of the Securities in compliance with the provisions set forth in
Section 4.17, and (iii) each of the Company's Subsidiaries executing a
supplemental indenture in
<PAGE> 36
which such Subsidiary agrees to be bound by the terms of this Indenture.
"Term Loans" means the term loan facility under the Credit
Agreement and any agreement governing Indebtedness incurred to refund, replace
or refinance any borrowings outstanding under such facility or under any prior
refunding, replacement or refinancing thereof (in each case, in whole or in
part, and without limitation as to amount, terms conditions, covenants and
other provisions).
"The Yucaipa Companies" means The Yucaipa Companies, a California
general partnership, or any successor thereto which is an affiliate of Ronald
W. Burkle or his Permitted Transferees and which has been established for the
sole purpose of changing the form of The Yucaipa Companies from that of a
partnership to that of a limited liability company or any other form of entity
which is not materially adverse to the rights of the Holders under this
Indenture.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code {{
77aaa-77bbbb), as amended, as in effect on the date this Indenture is qualified
under the TIA, except as otherwise provided in Section 9.03.
"Transaction Date" shall have the meaning provided in the
definition of "Operating Coverage Ratio" contained in this Section 1.01.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Trust Officer" means any officer of the Trustee assigned by the
Trustee to administer its corporate trust matters.
"U.S. Government Obligations" shall have the meaning provided in
Section 8.02.
"U.S. Legal Tender" means such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts.
"U.S. Physical Notes" has the meaning provided in Section 2.01.
"Yearly Period" means each fiscal year of the Company.
<PAGE> 37
SECTION 1.02. Incorporation by Reference of TIA.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in, and made a part of, this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Holder or a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company, any
Subsidiary Guarantor, or any other obligor on the Securities or the Guarantees.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them therein.
SECTION 1.03. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) provisions apply to successive events and transactions; and
(6) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or
other subdivision.
<PAGE> 38
ARTICLE TWO
THE SECURITIES
SECTION 2.01. Form and Dating.
The Securities, the notation thereon relating to the Guarantee and
the Trustee's certificate of authentication shall be substantially in the form
of Exhibit A. The Securities may have notations, legends or endorsements
required by law, stock exchange rule or usage. The Company and the Trustee
shall approve the form of the Securities and any notation, legend or
endorsement on them. Each Security shall be dated the date of its
authentication.
The terms and provisions contained in the Securities and the
Guarantee shall constitute, and are hereby expressly made, a part of this
Indenture and, to the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
Securities offered and sold in reliance on Rule 144A shall be
issued initially in the form of one or more permanent global Securities in
registered form, substantially in the form set forth in Exhibit A (the "Global
Note"), deposited with the Trustee, as custodian for the Depository, and shall
bear the legend set forth in Exhibit B, duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The aggregate principal
amount of the Global Note may from time to time be increased or decreased by
adjustments made on the records of the Trustee, as custodian for the
Depository, as hereinafter provided.
Securities offered and sold in offshore transactions in reliance on
Regulation S shall be issued in the form of permanent certificated Securities
in registered form in substantially the form set forth in Exhibit A (the
"Offshore Physical Notes"). Securities offered and sold in reliance on any
other exemption from registration under the Securities Act other than as
described in the preceding paragraph shall be issued, and Securities offered
and sold in reliance on Rule 144A may be issued, in the form of permanent
certificated Securities in registered form, in substantially the form set forth
in Exhibit A (the "U.S. Physical Notes"). The Offshore Physical Notes and the
U.S. Physical Notes are sometimes collectively herein referred to as the
"Physical Notes."
<PAGE> 39
SECTION 2.02. Execution and Authentication.
Two Officers, or an Officer and an Assistant Secretary, shall sign,
or one Officer shall sign and one Officer or an Assistant Secretary (each of
whom shall, in each case, have been duly authorized by all requisite corporate
actions) shall attest to, the Securities for the Company by manual or facsimile
signature. Each Subsidiary Guarantor shall execute the Guarantee in the manner
set forth in Section 10.08.
If an Officer whose signature is on a Security was an Officer at
the time of such execution but no longer holds that office at the time the
Trustee authenticates the Security, the Security shall be valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee shall authenticate Securities for original issue in the
aggregate principal amount of up to $100,000,000 upon a written order of the
Company in the form of an Officers' Certificate. The Trustee may authenticate
Securities of a separate series for issuance in connection with an Exchange
Offer upon written order in the form of an Officers Certificate. The Officers'
Certificate shall specify the amount of Securities to be authenticated, the
names of the Persons in which such Securities shall be registered and the date
on which the Securities are to be authenticated, and shall further specify the
amount of such Securities to be issued as the Global Note, Offshore Physical
Notes or U.S. Physical Notes. The aggregate principal amount of Securities
outstanding at any time may not exceed $100,000,000, except as provided in
Section 2.07. Upon the written order of the Company in the form of an
Officers' Certificate, the Trustee shall authenticate Securities in
substitution of Securities originally issued to reflect any name change of the
Company.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate Securities. Unless otherwise
provided in the appointment, an authenticating agent may authenticate
Securities whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company
and Affiliates of the Company.
<PAGE> 40
The Securities shall be issuable only in registered form without
coupons in denominations of $1,000 and integral multiples thereof.
SECTION 2.03. Registrar and Paying Agent.
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York, where (a) Secu- rities may be presented or
surrendered for registration of transfer or for exchange ("Registrar"), (b)
Securities may be presented or surrendered for payment ("Paying Agent") and (c)
notices and demands to or upon the Company in respect of the Securities and
this Indenture may be served. The Company may also from time to time designate
one or more other offices or agencies where the Securities may be presented or
surrendered for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall
in any manner relieve the Company of its obligation to maintain an office or
agency in the Borough of Manhattan, The City of New York, for such purposes.
The Company may act as its own Registrar or Paying Agent except that for the
purposes of Articles Three and Eight and Sections 4.15 and 4.16, neither the
Company nor any Affiliate of the Company shall act as Paying Agent. The
Registrar shall keep a register of the Securities and of their transfer and
exchange. The Company, upon notice to the Trustee, may have one or more
co-Registrars and one or more additional paying agents reasonably acceptable to
the Trustee. The term "Paying Agent" includes any additional paying agent.
The Company initially appoints the Trustee as Registrar and Paying Agent until
such time as the Trustee has resigned or a successor has been appointed.
The Company shall enter into an appropriate agency agreement with
any Agent not a party to this Indenture, which agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall
notify the Trustee, in advance, of the name and address of any such Agent. If
the Company fails to maintain a Registrar or Paying Agent, the Trustee shall
act as such.
SECTION 2.04. Paying Agent To Hold Assets in Trust.
The Company shall require each Paying Agent other than the Trustee
to agree in writing that each Paying Agent shall hold in trust for the benefit
of Holders or the Trustee all assets held by the Paying Agent for the payment
of principal of, or interest on, the Securities (whether such assets have been
distributed to it by the Company or any other obligor on the Securities), and
shall notify the Trustee of any
<PAGE> 41
Default by the Company (or any other obligor on the Securities) in making any
such payment. If the Company or a Subsidiary acts as Paying Agent, it shall
segregate such assets and hold them as a separate trust fund. The Company at
any time may require a Paying Agent to distribute all assets held by it to the
Trustee and account for any assets disbursed and the Trustee may at any time
during the continuance of any payment Default, upon written request to a Paying
Agent, require such Paying Agent to distribute all assets held by it to the
Trustee and to account for any assets distributed. Upon distribution to the
Trustee of all assets that shall have been delivered by the Company to the
Paying Agent, the Paying Agent shall have no further liability for such assets.
SECTION 2.05. Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, the Company shall furnish to the
Trustee on or before each Interest Payment Date and at such other times as the
Trustee may request in writing a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Holders, which
list may be conclusively relied upon by the Trustee.
SECTION 2.06. Transfer and Exchange.
Subject to the provisions of Sections 2.15 and 2.16, when
Securities are presented to the Registrar or a co- Registrar with a request to
register the transfer of such Securities or to exchange such Securities for an
equal principal amount of Securities of other authorized denominations, the
Registrar or co-Registrar shall register the transfer or make the exchange as
requested if its requirements for such transaction are met; provided, however,
that the Securities surrendered for registration of transfer or exchange shall
be duly endorsed or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Registrar or co-Registrar, duly executed by
the Holder thereof or his attorney duly authorized in writing. To permit
registrations of transfers and exchanges, the Company shall execute and the
Trustee shall authenticate Securities at the Registrar's or co-Registrar's
request. No service charge shall be made for any registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
transfer tax or similar governmental charge payable in connection therewith
(other than any such transfer taxes or similar governmental charge payable upon
exchanges or transfers pursuant to Sections 2.02, 2.07, 2.10, 3.06, 4.15, 4.16
or
<PAGE> 42
9.05). The Registrar or co-Registrar shall not be required to register the
transfer of or exchange of any Security (i) during a period beginning at the
opening of business 15 days before the mailing of a notice of redemption of
Securities and ending at the close of business on the day of such mailing and
(ii) selected for redemption in whole or in part pursuant to Article Three,
except the unredeemed portion of any Security being redeemed in part.
Any Holder of the Global Note shall, by acceptance of such Global
Note, agree that transfers of beneficial interests in such Global Notes may be
effected only through a book entry system maintained by the Holder of such
Global Note (or its agent), and that ownership of a beneficial interest in the
Security shall be required to be reflected in a book entry.
SECTION 2.07. Replacement Securities.
If a mutilated Security is surrendered to the Trustee or if the
Holder of a Security claims that the Security has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate a
replacement Security if the Trustee's requirements are met. If required by the
Trustee or the Company, such Holder must provide an indemnity bond or other
indemnity, sufficient in the judgment of both the Company and the Trustee, to
protect the Company, the Trustee or any Agent from any loss which any of them
may suffer if a Security is replaced. The Company may charge such Holder for
its reasonable, out-of-pocket expenses in replacing a Security, including
reasonable fees and expenses of counsel.
Every replacement Security is an additional obligation of the
Company.
SECTION 2.08. Outstanding Securities.
Securities outstanding at any time are all the Securities that have
been authenticated by the Trustee except those cancelled by it, those delivered
to it for cancellation and those described in this Section as not outstanding.
A Security does not cease to be outstanding because the Company, the Subsidiary
Guarantors or any of their respective Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.07 (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be
outstanding
<PAGE> 43
upon surrender of such Security and replacement thereof pursuant to Section
2.07.
If on a Redemption Date or the Maturity Date the Paying Agent
(other than the Company or a Subsidiary) holds U.S. Legal Tender or U.S.
Government Obligations sufficient to pay all of the principal and interest due
on the Securities payable on that date, then on and after that date such
Securities cease to be outstanding and interest on them ceases to accrue.
SECTION 2.09. Treasury Securities.
In determining whether the Holders of the required principal amount
of Securities have concurred in any direction, waiver or consent, Securities
owned by the Company, the Subsidiary Guarantors or any of their respective
Affiliates shall be disregarded, except that, for the purposes of determining
whether the Trustee shall be protected in relying on any such direction, waiver
or consent, only Securities that the Trustee knows or has reason to know are so
owned shall be disregarded.
SECTION 2.10. Temporary Securities.
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of definitive Securities but may
have variations that the Company considers appropriate for temporary
Securities. Without unreasonable delay, the Company shall prepare and the
Trustee shall authenticate definitive Securities in exchange for temporary
Securities.
SECTION 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent
(other than the Company or a Subsidiary), and no one else, shall cancel and, at
the written direction of the Company, shall dispose of all Securities
surrendered for transfer, exchange, payment or cancellation. Subject to
Section 2.07, the Company may not issue new Securities to replace Securities
that it has paid or delivered to the Trustee for cancellation. If the Company
or any Subsidiary Guarantor shall acquire any of the Securities, such
acquisition shall not operate as a redemption or satisfaction of the
Indebtedness represented by
<PAGE> 44
such Securities unless and until the same are surrendered to the Trustee for
cancellation pursuant to this Section 2.11.
SECTION 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the Securities,
it shall, unless the Trustee fixes another record date pursuant to Section
6.10, pay the defaulted interest, plus (to the extent lawful) any interest
payable on the defaulted interest, to the persons who are Holders on a
subsequent special record date, which date shall be the fifteenth day next
preceding the date fixed by the Company for the payment of defaulted interest
or the next succeeding Business Day if such date is not a Business Day. At
least 15 days before the subsequent special record date, the Company shall mail
to each Holder, with a copy to the Trustee, a notice that states the subsequent
special record date, the payment date and the amount of defaulted interest, and
interest payable on such defaulted interest, if any, to be paid.
SECTION 2.13. CUSIP Number.
The Company in issuing the Securities may use a "CUSIP" number, and
if so, the Trustee shall use the CUSIP number in notices of redemption or
exchange as a convenience to Holders; provided that any such notice may state
that no representation is made as to the correctness or accuracy of the CUSIP
number printed in the notice or on the Securities, and that reliance may be
placed only on the other identification numbers printed on the Securities.
SECTION 2.14. Book-Entry Provisions for
Global Note._____________
(a) The Global Note initially shall (i) be registered in the name
of the Depository or the nominee of such Depository, (ii) be delivered to the
Trustee as custodian for such Depository and (iii) bear legends as set forth in
Exhibit B.
Members of, or participants in, the Depository ("Agent Members")
shall have no rights under this Indenture with respect to any Global Note held
on their behalf by the Depository, or the Trustee as its custodian, or under
the Global Note, and the Depository may be treated by the Company, the Trustee
and any agent of the Company or the Trustee as the absolute owner of the Global
Note for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or
the Trustee from giving effect to any written certification, proxy or other
<PAGE> 45
authorization furnished by the Depository or impair, as between the Depository
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a holder of any Security.
(b) Transfers of the Global Note shall be limited to transfers in
whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in the Global Note may be transferred
or exchanged for Physical Notes in accordance with the rules and procedures of
the Depository and the provisions of Section 2.15. In addition, Physical Notes
shall be transferred to all beneficial owners in exchange for their beneficial
interests in the Global Note if (i) the Depository notifies the Company that it
is unwilling or unable to continue as Depository for the Global Note and a
successor depositary is not appointed by the Company within 90 days of such
notice or (ii) an Event of Default has occurred and is continuing and the
Registrar has received a request from the Depository to issue Physical Notes.
(c) In connection with any transfer or exchange of a portion of
the beneficial interest in the Global Note to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more Physical Notes are to be
issued) reflect on its books and records the date and a decrease in the
principal amount of the Global Note in an amount equal to the principal amount
of the beneficial interest in the Global Note to be transferred, and the
Company shall execute, and the Trustee shall authenticate and deliver, one or
more Physical Notes of like tenor and amount.
(d) In connection with the transfer of the entire Global Note to
beneficial owners pursuant to paragraph (b), the Global Note shall be deemed to
be surrendered to the Trustee for cancellation, and the Company shall execute,
and the Trustee shall authenticate and deliver, to each beneficial owner
identified by the Depository in exchange for its beneficial interest in the
Global Note an equal aggregate principal amount of Physical Notes of authorized
denominations.
(e) Any Physical Note constituting a Restricted Security
delivered in exchange for an interest in the Global Note pursuant to paragraph
(b) or (c) shall, except as otherwise provided by paragraphs (a)(i)(x) and (c)
of Section 2.15, bear the legend regarding transfer restrictions applicable to
the Physical Notes set forth in Exhibit A.
(f) The Holder of the Global Note may grant proxies and otherwise
authorize any person, including Agent Members and
<PAGE> 46
persons that may hold interests through Agent Members, to take any action which
a Holder is entitled to take under this Indenture or the Securities.
SECTION 2.15. Special Transfer Provisions.
(a) Transfers to Non-QIB Institutional Accredited Investors and
Non-U.S. Persons. The following provisions shall apply with respect to the
registration of any proposed transfer of a Security constituting a Restricted
Security to any Institutional Accredited Investor which is not a QIB or to any
Non-U.S. Person:
(i) the Registrar shall register the transfer of any Security
constituting a Restricted Security, whether or not such Security bears
the Private Placement Legend, if (x) the requested transfer is after June
6, 1999 and the transferor certifies that the Restricted Security was not
acquired from the Company or Affiliate of the Company less than three
years prior to the date of the proposed transfer or (y) (1) in the case
of a transfer to an Institutional Accredited Investor which is not a QIB
(excluding Non-U.S. Persons), the proposed transferee has delivered to
the Registrar a certificate substantially in the form of Exhibit C hereto
or (2) in the case of a transfer to a Non-U.S. Person, the proposed
transferor has delivered to the Registrar a certificate substantially in
the form of Exhibit D hereto; and
(ii) if the proposed transferor is an Agent Member holding a
beneficial interest in the Global Note, upon receipt by the Registrar of
(x) the certificate, if any, required by paragraph (i) above and (y)
instructions given in accordance with the Depository's and the
Registrar's procedures,
whereupon (a) the Registrar shall reflect on its books and records the date and
(if the transfer does not involve a transfer of outstanding Physical Notes) a
decrease in the principal amount of the Global Note in an amount equal to the
principal amount of the beneficial interest in the Global Note to be
transferred, and (b) the Company shall execute and the Trustee shall
authenticate and deliver one or more Physical Notes of like tenor and amount.
(b) Transfers to QIBs. The following provisions shall apply with
respect to the registration of any proposed transfer of a Security constituting
a Restricted Security to a QIB (excluding transfers to Non-U.S. Persons):
<PAGE> 47
(i) the Registrar shall register the transfer if such transfer is
being made by a proposed transferor who has checked the box provided for
on the form of Security stating, or has otherwise advised the Company and
the Registrar in writing, that the sale has been made in compliance with
the provisions of Rule 144A to a transferee who has signed the
certification provided for on the form of Security stating, or has
otherwise advised the Company and the Registrar in writing, that it is
purchasing the Security for its own account or an account with respect to
which it exercises sole investment discretion and that it and any such
account is a QIB within the meaning of Rule 144A, and is aware that the
sale to it is being made in reliance on Rule 144A and acknowledges that
it has received such information regarding the Company as it has
requested pursuant to Rule 144A or has determined not to request such
information and that it is aware that the transferor is relying upon its
foregoing representations in order to claim the exemption from
registration provided by Rule 144A; and
(ii) if the proposed transferee is an Agent Member, and the
Securities to be transferred consist of Physical Notes which after
transfer are to be evidenced by an interest in the Global Note, upon
receipt by the Registrar of instructions given in accordance with the
Depository's and the Registrar's procedures, the Registrar shall reflect
on its books and records the date and an increase in the principal amount
of the Global Note in an amount equal to the principal amount of the
Physical Notes to be transferred, and the Trustee shall cancel the
Physical Notes so transferred.
(c) Private Placement Legend. Upon the registration of transfer,
exchange or replacement of Securities not bearing the Private Placement Legend,
the Registrar shall deliver Securities that do not bear the Private Placement
Legend. Upon the registration of transfer, exchange or replacement of
Securities bearing the Private Placement Legend, the Registrar shall deliver
only Securities that bear the Private Placement Legend unless (i) the
circumstance contemplated by paragraph (a)(i)(x) of this Section 2.15 exist or
(ii) there is delivered to the Registrar an Opinion of Counsel reasonably
satisfactory to the Company and the Trustee to the effect that neither such
legend nor the related restrictions on transfer are required in order to
maintain compliance with the provisions of the Securities Act.
(d) General. By its acceptance of any Security bearing the
Private Placement Legend, each Holder of such a
<PAGE> 48
Security acknowledges the restrictions on transfer of such Security set forth
in this Indenture and in the Private Placement Legend and agrees that it will
transfer such Security only as provided in this Indenture.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.14 or this Section 2.15
for a period of three years. The Company shall have the right to inspect and
make copies of all such letters, notices or other written communications at any
reasonable time upon the giving of reasonable written notice to the Registrar.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.
If the Company elects to redeem Securities pursuant to Paragraph 5
of the Securities, it shall notify the Trustee, with a copy to the Credit
Agent, of the Redemption Date and the principal amount of Securities to be
redeemed and whether it wants the Trustee to give notice of redemption to the
Holders at least 30 days (unless a shorter notice shall be satisfactory to the
Trustee) but not more than 60 days before the Redemption Date. In order to
effect a redemption pursuant to Paragraph 5 of the Securities with the proceeds
of a Public Equity Offering, the Company shall send the redemption notice not
later than 60 days after the consummation of such Public Equity Offering. Any
such notice may be cancelled at any time prior to notice of such redemption
being mailed to any Holder and shall thereby be void and of no effect.
SECTION 3.02. Selection of Securities To Be Redeemed.
If fewer than all of the Securities are to be redeemed, the Trustee
shall select the Securities to be redeemed pro rata by lot or by any other
method that the Trustee considers fair and appropriate and, if such Securities
are listed on any securities exchange, by a method that complies with the
requirements of such exchange; provided, however, that any redemption pursuant
to Paragraph 5 of the Securities with the proceeds of a Public Equity Offering
shall be made on a pro rata basis unless such method is otherwise legally
prohibited.
The Trustee shall make the selection from the Securities
outstanding and not previously called for redemption
<PAGE> 49
and shall promptly notify the Company in writing of the Securities selected for
redemption and, in the case of any Security selected for partial redemption,
the principal amount thereof to be redeemed. Securities in denominations of
$1,000 may be redeemed only in whole. The Trustee may select for redemption
portions (equal to $1,000 or integral multiples thereof) of the principal
amount of Securities that have denominations larger than $1,000. Provisions of
this Indenture that apply to Securities called for redemption also apply to
portions of Securities called for redemption.
SECTION 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption
Date, the Company shall mail a notice of redemption by first class mail to each
Holder whose Securities are to be redeemed at such Holder's registered address,
with a copy to the Trustee and the Credit Agent. In order to effect a
redemption pursuant to Paragraph 5 of the Securities with the proceeds of a
Public Equity Offering, the Company shall send the redemption notice not later
than 60 days after the consummation of such Public Equity Offering. At the
Company's request, the Trustee shall give the notice of redemption in the
Company's name and at the Company's expense. Each notice for redemption shall
identify the Securities to be redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to
the Paying Agent to collect the Redemption Price;
(5) that, unless the Company defaults in making the redemption
payment interest on Securities called for redemption ceases to accrue on
and after the Redemption Date, and the only remaining right of the
Holders of such Securities is to receive payment of the Redemption Price
upon surrender to the Paying Agent of the Securities redeemed;
(6) if any Security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that, after the
Redemption Date, and upon surrender of such Security, a new Security or
Securities
<PAGE> 50
in aggregate principal amount equal to the unredeemed portion thereof
will be issued; and
(7) if fewer than all the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as the aggregate principal amount of Securities to be
redeemed and the aggregate principal amount of Securities to be
outstanding after such partial redemption.
SECTION 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section
3.03, Securities called for redemption become due and payable on the Redemption
Date and at the Redemption Price. Upon surrender to the Trustee or Paying
Agent, such Securities called for redemption shall be paid at the Redemption
Price. Securities that are redeemed by the Company or that are purchased by
the Company pursuant to a Net Proceeds Offer as described in Section 4.16 or
pursuant to a Change of Control Offer as described in Section 4.15 or that are
otherwise acquired by the Company will be surrendered to the Trustee for
cancellation.
SECTION 3.05. Deposit of Redemption Price.
On or before the Redemption Date, the Company shall deposit with
the Paying Agent U.S. Legal Tender sufficient to pay the Redemption Price of
all Securities to be redeemed on that date (other than Securities or portions
thereof called for redemption on that date which have been delivered by the
Company to the Trustee for cancellation). The Paying Agent shall promptly
return to the Company any U.S. Legal Tender so deposited which is not required
for that purpose upon the written request of the Company, except with respect
to monies owed as obligations to the Trustee pursuant to Article Seven hereof.
If the Company complies with the preceding paragraph then, unless
the Company defaults in the payment of such Redemption Price, interest on the
Securities to be redeemed will cease to accrue on and after the applicable
Redemption Date, whether or not such Securities are presented for payment.
SECTION 3.06. Securities Redeemed in Part.
Upon surrender of a Security that is to be redeemed in part, the
Trustee shall authenticate for the Holder a new Security or Securities equal in
principal amount to the unredeemed portion of the Security surrendered.
<PAGE> 51
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Securities.
The Company shall pay the principal of and interest on the
Securities on the dates and in the manner provided in the Securities. An
installment of principal of or interest on the Securities shall be considered
paid on the date it is due if the Trustee or Paying Agent (other than the
Company or a Subsidiary) holds on that date U.S. Legal Tender designated for
and sufficient to pay the installment.
The Company shall pay interest on overdue principal at the rate
borne by the Securities and it shall pay interest on overdue installments of
interest at the same rate, to the extent lawful.
SECTION 4.02. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, The City of
New York, the office or agency required under Section 2.03 hereof. The Company
shall give prior notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the address of the Trustee set forth in
Section 11.02.
SECTION 4.03. Limitation on Restricted Payments.
The Company shall not, and shall cause each of its Subsidiaries not
to, directly or indirectly, make any Restricted Payment if, at the time of such
proposed Restricted Payment, or after giving effect thereto, (a) a Default or
an Event of Default shall have occurred and be continuing, (b) the Company
could not incur $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to Section 4.12 or (c) the aggregate amount expended for
all Restricted Payments, including such proposed Restricted Payment (the amount
of any Restricted Payment, if other than cash, to be the fair market value
thereof at the date of payment, as determined in good faith by the Board of
Directors of the Company), subsequent to June 14, 1995, shall exceed the sum of
(i) 50% of the aggregate Consolidated Net Income (or if such aggregate
Consolidated Net Income is a loss, minus 100% of such loss) of the Company
<PAGE> 52
earned subsequent to June 14, 1995 and on or prior to the date of the proposed
Restricted Payment (the "Reference Date"), plus (ii) 100% of the aggregate Net
Proceeds received by the Company from any person (other than a Subsidiary of
the Company) from the issuance and sale (including upon exchange or conversion
for other securities of the Company) subsequent to June 14, 1995 and on or
prior to the Reference Date of Qualified Capital Stock (excluding (A) Qualified
Capital Stock paid as a dividend on any Capital Stock or as interest on any
Indebtedness and (B) any Net Proceeds from issuances and sales financed
directly or indirectly using funds borrowed from the Company or any Subsidiary,
until and to the extent such borrowing is repaid), plus (iii) 100% of the
aggregate net cash proceeds received by the Company as capital contributions to
the Company after June 14, 1995, plus (iv) $25 million.
Notwithstanding the foregoing, if no Default or Event of Default
shall have occurred and be continuing as a consequence thereof, the provisions
set forth in the immediately preceding paragraph will not prevent (1) the
payment of any dividend within 60 days after the date of its declaration if the
dividend would have been permitted on the date of declaration, (2) the
acquisition of any shares of Capital Stock of the Company or the repurchase,
redemption or other repayment of any Subordinated Indebtedness in exchange for
or solely out of the proceeds of the substantially concurrent sale (other than
to a Subsidiary) of shares of Qualified Capital Stock of the Company, (3) the
repurchase, redemption or other repayment of any Subordinated Indebtedness in
exchange for or solely out of the proceeds of the substantially concurrent sale
(other than to a Subsidiary) of Subordinated Indebtedness of the Company with
an Average Life equal to or greater than the then remaining Average Life of the
Subordinated Indebtedness repurchased, redeemed or repaid and (4) Permitted
Payments; provided, however, that the declaration of each dividend paid in
accordance with clause (1) above, each acquisition, repurchase, redemption or
other repayment made in accordance with, or of the type set forth in, clause
(2) above, and each payment described in clause (iii), (iv), (vii), and (viii)
of the definition of the term "Permitted Payments" shall each be counted for
purposes of computing amounts expended pursuant to subclause (c) in the
immediately preceding paragraph, and no amounts expended pursuant to clause (3)
above or pursuant to clauses (i), (ii), (v), (vi), (ix) and (x) of the
definition of the term "Permitted Payments" shall be so counted; provided
further that to the extent any payments made pursuant to clause (vii) of the
definition of the term "Permitted Payments" are deducted for purposes of
computing the Consolidated Net Income of the Company, such payments shall not
be counted for purposes of computing amounts expended as
<PAGE> 53
Restricted Payments pursuant to subclause (c) in the immediately preceding
paragraph.
Prior to making any Restricted Payment under the first paragraph of
this Section 4.03, the Company shall deliver to the Trustee an Officers'
Certificate setting forth the computation by which the amount available for
Restricted Payments pursuant to such paragraph was determined. The Trustee
shall have no duty or responsibility to determine the accuracy or correctness
of this computation and shall be fully protected in relying on such Officers'
Certificate.
SECTION 4.04. Corporate Existence.
Except as otherwise permitted by Article Five, the Company shall do
or cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence and the corporate or other existence of each of
its Significant Subsidiaries in accordance with the respective organizational
documents of each such Significant Subsidiary and the rights (charter and
statutory) and franchises of the Company and each such Significant Subsidiary;
provided, however, that the Company shall not be required to preserve, with
respect to itself, any right or franchise, and with respect to any of its
Significant Subsidiaries, any such existence, right or franchise, if the Board
of Directors of the Company or such Significant Subsidiary, as the case may be,
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company or any such Significant Subsidiary.
SECTION 4.05. Payment of Taxes and Other Claims.
The Company shall pay or discharge or cause to be paid or
discharged, before the same shall become delinquent, (i) all taxes, assessments
and governmental charges (including withholding taxes and any penalties,
interest and additions to taxes) levied or imposed upon it or any of its
Subsidiaries or properties of it or any of its Subsidiaries and (ii) all lawful
claims for labor, materials and supplies that, if unpaid, might by law become a
Lien upon the property of it or any of its Subsidiaries; provided, however,
that the Company shall not be required to pay or discharge or cause to be paid
or discharged any such tax, assessment, charge or claim if either (a) the
amount, applicability or validity thereof is being contested in good faith by
appropriate proceedings and an adequate reserve has been established therefor
to the extent required by GAAP or (b) the failure to make such payment or
effect such discharge (together with all other such failures) would not have a
material adverse effect on the financial condition or results
<PAGE> 54
or operations of the Company and its Subsidiaries taken as a whole.
SECTION 4.06. Maintenance of Properties and Insurance.
(a) The Company shall cause all properties used or useful to the
conduct of its business or the business of any of its Subsidiaries to be
maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and shall cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in its
judgment may be necessary, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times unless the
failure to so maintain such properties (together with all other such failures)
would not have a material adverse effect on the financial condition or results
of operations of the Company and its Subsidiaries taken as a whole; provided,
however, that nothing in this Section 4.06 shall prevent the Company or any
Subsidiary from discontinuing the operation or maintenance of any of such
properties, or disposing of any of them, if such discontinuance or disposal is
either (i) in the ordinary course of business, (ii) in the good faith judgment
of the Board of Directors of the Company or the Subsidiary concerned, or of the
senior officers of the Company or such Subsidiary, as the case may be,
desirable in the conduct of the business of the Company or such Subsidiary, as
the case may be, or (iii) is otherwise permitted by this Indenture.
(b) The Company shall provide or cause to be provided, for itself
and each of its Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds that, in the reasonable, good faith opinion
of the Company are adequate and appropriate for the conduct of the business of
the Company and such Subsidiaries in a prudent manner, with reputable insurers
or with the government of the United States of America or an agency or
instrumentality thereof, in such amounts, with such deductibles, and by such
methods as shall be either (i) consistent with past practices of the Company or
the applicable Subsidiary or (ii) customary, in the reasonable, good faith
opinion of the Company, for corporations similarly situated in the industry,
unless the failure to provide such insurance (together with all other such
failures) would not have a material adverse effect on the financial condition
or results of operations of the Company and its Subsidiaries, taken as a whole.
<PAGE> 55
SECTION 4.07. Compliance Certificate; Notice of Default.
(a) The Company shall deliver to the Trustee within 120 days
after the end of the Company's fiscal year an Officers' Certificate stating
that a review of its activities and the activities of its Subsidiaries during
the preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether it has kept, observed, performed
and fulfilled its obligations under this Indenture and further stating, as to
each such Officer signing such certificate, that to the best of his knowledge
the Company during such preceding fiscal year has kept, observed, performed and
fulfilled each and every such covenant and no event of default in respect of
any payment obligation under the Credit Agreement, Default or Event of Default
occurred during such year or, if such signers do know of such an event of
default, Default or Event of Default, the certificate shall describe the event
of default, Default or Event of Default and its status with particularity. The
Officers' Certificate shall also notify the Trustee should the Company elect to
change the manner in which it fixes its fiscal year end.
(b) So long as not contrary to the then current recommendations
of the American Institute of Certified Public Accountants, the Company shall
deliver to the Trustee within 120 days after the end of each fiscal year a
written statement by the Company's independent certified public accountants
stating (A) that their audit examination has included a review of the terms of
this Indenture and the Securities as they relate to accounting matters, and (B)
whether, in connection with their audit examination, any Default has come to
their attention and if such a Default has come to their attention, specifying
the nature and period of existence thereof.
(c) The Company shall deliver to the Trustee, forthwith upon
becoming aware, and in any event within 5 days after the occurrence, of (i) any
Default or Event of Default in the performance of any covenant, agreement or
condition contained in this Indenture; (ii) any event of default in respect of
any payment obligation under the Credit Agreement or any event of default under
any other bond, debenture, note, or other evidence of Indebtedness of the
Company or any of its Subsidiaries, or under any mortgage, indenture or other
instrument if such event of default related to Indebtedness at any time in an
aggregate principal amount exceeding $20 million, an Officers' Certificate
specifying with particularity such event.
<PAGE> 56
SECTION 4.08. Compliance with Laws.
The Company shall comply, and shall cause each of its Subsidiaries
to comply, with all applicable statutes, rules, regulations, orders and
restrictions of the United States of America, all states and municipalities
thereof, and of any governmental department, commission, board, regulatory
authority, bureau, agency and instrumentality of the foregoing, in respect of
the conduct of their respective businesses and the ownership of their
respective properties, except such as are being contested in good faith and by
appropriate proceedings and except for such noncompliances as would not in the
aggregate have a material adverse effect on the financial condition or results
of operations of the Company and its Subsidiaries taken as a whole.
SECTION 4.09. SEC Reports.
The Company will deliver to the Trustee within 15 days after the
filing of the same with the Commission, copies of the quarterly and annual
report and of the information documents and other reports, if any, which the
Company is required to file with the Commission pursuant to Section 13 or 15(d)
of the Securities Exchange Act. Notwithstanding that the Company may not be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company will file with the Commission, to the extent permitted, and
provide the Trustee and Holders of Securities with such annual reports and such
information, documents and other reports specified in Section 13 and 15(d) of
the Exchange Act. The Company will also comply with the other provisions of
TIA Section 314(a).
The Company shall provide to any Holder any information reasonably
requested by such Holder concerning the Company (including financial
statements) necessary in order to permit such Holder to sell or transfer
securities in compliance with Rule 144A under the Securities Act.
SECTION 4.10. Waiver of Stay, Extension or Usury Laws.
The Company covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or any
usury law or other law that would prohibit or forgive the Company from paying
all or any portion of the principal of or interest on the Securities as
contemplated herein, wherever enacted, now or at any time hereafter in force,
or which may affect the covenants or the performance of this Indenture; and (to
the extent that it may lawfully do so) the Company hereby expressly
<PAGE> 57
waives all benefit or advantage of any such law, and covenants that it will not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as though
no such law had been enacted.
SECTION 4.11. Limitation on Transactions with Affiliates.
(a) Neither the Company nor any of its Subsidiaries shall (i)
sell, lease, transfer or otherwise dispose of any of its properties or assets,
or issue securities (other than equity securities which do not constitute
Disqualified Capital Stock) to, (ii) purchase any property, assets or
securities (other than equity securities which do not constitute Disqualified
Capital Stock) from, (iii) make any Investment in, or (iv) enter into or suffer
to exist any contract or agreement with or for the benefit of, an Affiliate or
Significant Stockholder (or any Affiliate of such Significant Stockholder) of
the Company or any Subsidiary (an "Affiliate Transaction"), other than (x)
Affiliate Transactions permitted under Section 4.11(b) and (y) Affiliate
Transactions in the ordinary course of business that are fair to the Company or
such Subsidiary, as the case may be, and on terms at least as favorable as
might reasonably have been obtainable at such time from an unaffiliated party;
provided that (A) with respect to Affiliate Transactions involving aggregate
payments in excess of $1 million and less than $5 million, the Company or such
Subsidiary, as the case may be, shall have delivered an Officers' Certificate
to the Trustee certifying that such transaction or series of transactions
complies with clause (y) above (other than the requirements set forth in such
clause (y) that such Affiliate Transaction be in the ordinary course of
business), (B) with respect to Affiliate Transactions involving aggregate
payments in excess of $5 million and less than $15 million, the Company or such
Subsidiary, as the case may be, shall have delivered an Officers' Certificate
to the Trustee certifying that such Affiliate Transaction complies with clause
(y) above (other than the requirements set forth in such clause (y) that such
Affiliate Transaction be in the ordinary course of business) and that such
Affiliate Transaction has received the approval of a majority of the
disinterested members of the Board of Directors of the Company or the
Subsidiary, as the case may be, or in the absence of any such approval by the
disinterested members of the Board of Directors of the Company or the
Subsidiary, as the case may be, that an Independent Financial Advisor has
reasonably and in good faith determined that the financial terms of such
Affiliate Transaction are fair to the Company or such Subsidiary, as the case
may be, or that the terms of such Affiliate Transaction are at least as
favorable as might reasonably have been obtained at such time
<PAGE> 58
from an unaffiliated party and that such Independent Financial Advisor has
provided written confirmation of such determination to the Board of Directors
and (C) with respect to Affiliate Transactions involving aggregate payments in
excess of $15 million, the Company or such Subsidiary, as the case may be,
shall have delivered to the Trustee a written opinion from an Independent
Financial Advisor to the effect that the financial terms of such Affiliate
Transaction are fair to the Company or such Subsidiary, as the case may be, or
that the terms of such Affiliate Transaction are at least as favorable as those
that might reasonably have been obtained at the time from an unaffiliated
party.
(b) The provisions of Section 4.11(a) shall not apply to (i) any
Permitted Payment, (ii) any Restricted Payment that is made in compliance with
the provisions of Section 4.03, (iii) reasonable and customary fees and
compensation paid to, and indemnity provided on behalf of, officers, directors,
employees or consultants of the Company or any Subsidiary, as determined by the
Board of Directors of the Company or any Subsidiary or the senior management
thereof in good faith, (iv) transactions exclusively between or among the
Company and any of its wholly-owned Subsidiaries or exclusively between or
among such wholly-owned Subsidiaries, provided such transactions are not
otherwise prohibited by this Indenture, (v) any agreement as in effect as of
June 14, 1995 or any amendment thereto or any transaction contemplated thereby
(including pursuant to any amendment thereto) so long as any such amendment is
not disadvantageous to the Securityholders in any material respect, (vi) the
existence of, or the performance by the Company or any of its Subsidiaries of
its obligations under the terms of, any stockholder agreement (including any
registration rights agreement or purchase agreement related thereto) to which
it (or Holdings) is a party as of June 14, 1995 and any similar agreements
which it (or Holdings) may enter into thereafter; provided, however, that the
existence of, or the performance by the Company or any Subsidiaries of
obligations under any future amendment to, any such existing agreement or under
any similar agreement entered into after June 14, 1995 shall only be permitted
by this clause (vi) to the extent that the terms of any such amendment or new
agreement are not otherwise disadvantageous to the Securityholders in any
material respect, (vii) transactions permitted by, and complying with, the
provisions of Section 5.01 and (viii) transactions with suppliers or other
purchases or sales of goods or services, in each case in the ordinary course of
business (including, without limitation, pursuant to joint venture agreements)
and otherwise in compliance with the terms of this Indenture which are fair to
the Company, in the reasonable determination of the Board of
<PAGE> 59
Directors of the Company or the senior management thereof, or are on terms at
least as favorable as might reasonably have been obtained at such time from an
unaffiliated party.
SECTION 4.12. Limitation on Incurrences of
Additional Indebtedness.
The Company shall not, and shall not permit any of its
Subsidiaries, directly or indirectly, to incur, assume, guarantee, become
liable, contingently or otherwise, with respect to, or otherwise become
responsible for the payment of (collectively "incur") any Indebtedness other
than Permitted Indebtedness; provided, however, that if no Default with respect
to payment of principal of, or interest on, the Securities or Event of Default
under this Indenture shall have occurred and be continuing at the time of or as
a consequence of the incurrence of any such Indebtedness, the Company may incur
Indebtedness if immediately before and immediately after giving effect to the
incurrence of such Indebtedness the Operating Coverage Ratio of the Company
would be greater than 2.0 to 1.0; provided further a Subsidiary may incur
Acquired Indebtedness to the extent such Indebtedness could have been incurred
by the Company pursuant to the immediately preceding proviso. Notwithstanding
the foregoing the Company and the Subsidiaries may incur Indebtedness
represented by the Securities and the Guarantees.
In addition, neither the Company nor any Subsidiary Guarantor will,
directly or indirectly, in any event incur any Indebtedness that by its terms
(or by the terms of any agreement governing such Indebtedness) is subordinated
to any other Indebtedness of the Company or such Subsidiary Guarantor, as the
case may be, unless such Indebtedness is also by its terms (or by the terms of
any agreement governing such Indebtedness) made expressly subordinate to the
Securities or the Guarantee of such Subsidiary Guarantor, as the case may be,
to the same extent and in the same manner as such Indebtedness is subordinated
pursuant to subordination provisions that are most favorable to the holders of
any other Indebtedness of the Company or such Subsidiary Guarantor, as the case
may be.
SECTION 4.13. Limitation on Dividends and Other Payment
Restrictions Affecting Subsidiaries._____
The Company shall not, and shall not permit any Subsidiary to,
directly or indirectly, create or suffer to exist, or allow to become effective
any consensual Payment Restriction with respect to any of its Subsidiaries,
except for (a) any such restrictions contained in (i) the Credit Agreement in
effect on the Issue Date, as any such Payment Restriction
<PAGE> 60
may apply to any present or future Subsidiary, (ii) this Indenture and any
agreement in effect at or entered into on the Issue Date, (iii) Indebtedness of
a person existing at the time such person becomes a Subsidiary (provided that
(x) such Indebtedness is not incurred in connection with, or in contemplation
of, such person becoming a Subsidiary, (y) such restriction is not applicable
to any person, or the properties or assets of any person, other than the person
so acquired and (z) such Indebtedness is otherwise permitted to be incurred
pursuant to Section 4.12), (iv) secured Indebtedness otherwise permitted to be
incurred pursuant to Sections 4.12 and 4.14 that limit the right of the debtor
to dispose of the assets securing such Indebtedness; (b) customary
non-assignment provisions restricting subletting or assignment of any lease or
other agreement entered into by a Subsidiary; (c) customary net worth
provisions contained in leases and other agreements entered into by a
Subsidiary in the ordinary course of business; (d) customary restrictions with
respect to a Subsidiary pursuant to an agreement that has been entered into for
the sale or disposition of all or substantially all of the Capital Stock or
assets of such Subsidiary; (e) customary provisions in joint venture agreements
and other similar agreements; (f) restrictions contained in Indebtedness
incurred to refinance, refund, extend or renew Indebtedness referred to in
clause (a) above; provided that the restrictions contained therein are not
materially more restrictive taken as a whole than those provided for in such
Indebtedness being refinanced, refunded, extended or renewed and (g) Payment
Restrictions contained in any other Indebtedness permitted to be incurred
subsequent to the Issue Date pursuant to the provisions of Section 4.12;
provided that any such Payment Restrictions are ordinary and customary with
respect to the type of Indebtedness being incurred (under the relevant
circumstances) and, in any event, no more restrictive than the most restrictive
Payment Restrictions in effect on the Issue Date.
SECTION 4.14. Limitation on Liens.
The Company shall not and shall not permit any Subsidiary to
create, incur, assume or suffer to exist any Liens upon any of their respective
assets unless the Securities are equally and ratably secured by the Liens
covering such assets, except for (i) existing and future Liens securing
Indebtedness and other obligations of the Company and its Subsidiaries under
the Credit Agreement and related documents or any refinancing or replacement
thereof in whole or in part permitted under this Indenture, (ii) Permitted
Liens, (iii) Liens securing Acquired Indebtedness, provided that such Liens (x)
are not incurred in connection with, or in contemplation of, the acquisition of
the property or assets
<PAGE> 61
acquired and (y) do not extend to or cover any property or assets of the
Company or any Subsidiary other than the property or assets so acquired, (iv)
Liens to secure Capitalized Lease Obligations and certain other Indebtedness
that is otherwise permitted under this Indenture, provided that (A) any such
Lien is created solely for the purpose of securing such other Indebtedness
representing, or incurred to finance, refinance or refund, the cost (including
sales and excise taxes, installation and delivery charges and other direct
costs of, and other direct expenses paid or charged in connection therewith) of
the purchase (whether through stock or asset purchase, merger or otherwise) or
construction or improvement of the property subject thereto (whether real or
personal, including fixtures and other equipment), (B) the principal amount of
the Indebtedness secured by such Lien does not exceed 100% of such costs and
(C) such Lien does not extend to or cover any other property other than such
item of property and any improvements on such item, (v) Liens existing on the
Issue Date (after giving effect to the Merger), (vi) Liens in favor of the
Trustee under this Indenture and any substantially equivalent Lien granted to
any trustee or similar institution under any indenture for Indebtedness
permitted to be incurred under this Indenture, and (vii) any replacement,
extension or renewal, in whole or in part, of any Lien described in this or the
foregoing clauses including in connection with any refinancing of the
Indebtedness, in whole or in part, secured by any such Lien; provided that to
the extent any such clause limits the amount secured or the assets subject to
such Liens, no replacement, extension or renewal shall increase the amount or
the assets subject to such Liens, except to the extent that the Liens
associated with such additional assets are otherwise permitted hereunder.
SECTION 4.15. Limitation on Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder shall
have the right to require the repurchase of such Holder's Securities pursuant
to the offer described in paragraph (b), below (the "Change of Control Offer"),
at a purchase price equal to 101% of the principal amount thereof plus accrued
and unpaid interest to the date of repurchase.
The Company shall purchase all Securities tendered into a Change of
Control Offer before it shall redeem or otherwise purchase any Subordinated
Indebtedness which the Company is required to redeem or purchase in connection
with a Change of Control.
(b) Within 30 days following the date upon which the Change of
Control occurred (the "Change of Control Date"), the
<PAGE> 62
Company must send, by first class mail, a notice to each Holder of Securities,
with a copy to the Trustee, which notice shall govern the terms of the Change
of Control Offer. The notice to the Holders shall contain all instructions and
materials necessary to enable such Holders to tender Securities pursuant to the
Change of Control Offer. The Company shall give notice of an event giving rise
to a Change of Control on the same date and in the same manner to all Holders
of Securities. Such notice shall state:
(1) that the Change of Control Offer is being made pursuant to
this Section 4.15 and that all Securities tendered will be accepted for
payment;
(2) the purchase price (including the amount of accrued interest)
and the purchase date (which shall be no earlier than 30 days nor later
than 40 days from the date such notice is mailed, other than as may be
required by law) (the "Change of Control Payment Date"); provided,
however, that the Change of Control Payment Date for the Securities shall
be one Business Day prior to the Change of Control Payment Date with
respect to the Change of Control Payment Date under the Senior
Subordinated Note Indentures with respect to such Change of Control;
(3) that any Security not tendered will continue to accrue
interest if interest is then accruing;
(4) that, unless the Company defaults in making payment therefor,
any Security accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest after the Change of Control Payment Date;
(5) that Holders electing to have a Security purchased pursuant
to a Change of Control Offer will be required to surrender the Security,
with the form entitled "Option of Holder to Elect Purchase" on the
reverse of the Security completed, to the Paying Agent at the address
specified in the notice prior to the close of business on the Business
Day prior to the Change of Control Payment Date;
(6) that Holders will be entitled to withdraw their election if
the Paying Agent receives, not later than two Business Days prior to the
Change of Control Payment Date, a telegram, telex, facsimile transmission
or letter setting forth the name of the Holder, the principal amount of
the Securities the Holder delivered for purchase and a statement that
such Holder is withdrawing his election to have such Security purchased;
<PAGE> 63
(7) that Holders whose Securities are purchased only in part will
be issued new Securities equal in principal amount to the unpurchased
portions of the Securities surrendered; provided that each Security
purchased and each Security issued shall be in an original principal
amount of $1,000 or integral multiples thereof;
(8) that each Change of Control Offer is required to remain open
for at least 20 Business Days or such longer period as may be required by
law and until 12:00 Midnight New York City time on the applicable Change
of Control Payment Date; and
(9) the circumstances and relevant facts regarding such Change of
Control.
On or before the Change of Control Payment Date, the Company shall
(i) accept for payment Securities or portions thereof tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent U.S. Legal Tender
sufficient to pay the purchase price of all Securities so tendered and (iii)
deliver to the Trustee Securities so accepted together with an Officers'
Certificate stating the Securities or portions thereof being purchased by the
Company. The Paying Agent shall promptly mail to the Holders of Securities so
accepted payment in an amount equal to the purchase price (and the Trustee
shall promptly authenticate and mail to such Holders new Securities equal in
principal amount to any unpurchased portion of the Securities surrendered
provided that each such new Security shall be in the principal amount of $1,000
or integral multiples thereof). The Company will publicly announce the results
of the Change of Control Offer on or as soon as practicable after the Change of
Control Payment Date. For purposes of this Section 4.15, the Trustee shall act
as the Paying Agent.
The Company shall comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to
the extent such laws and regulations are applicable in connection with the
repurchase of Securities pursuant to a Change of Control Offer. To the extent
the provisions of any securities laws or regulations conflict with the
provisions under this Section 4.15, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section 4.15 by virtue thereof.
<PAGE> 64
SECTION 4.16. Limitation on Asset Sales.
Neither the Company nor any of its Subsidiaries shall consummate an
Asset Sale unless (a) the Company or the applicable Subsidiary receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold and (b) upon consummation of an Asset Sale, the
Company will within 365 days of the receipt of the proceeds therefrom, either:
(i) apply or cause its Subsidiary to apply the Net Cash Proceeds of any Asset
Sale to (A) a Related Business Investment, (B) an investment in properties and
assets that replace the properties and assets that are the subject of such
Asset Sale or (C) an investment in properties and assets that will be used in
the business of the Company and its Subsidiaries existing on the Issue Date or
in a business reasonably related thereto; (ii) in the case of a sale of a store
or stores, deem such Net Cash Proceeds to have been applied to the extent of
any capital expenditures made to acquire or construct a replacement store in
the general vicinity of the store sold within 365 days preceding the date of
the Asset Sale; (iii) apply or cause to be applied such Net Cash Proceeds to
the permanent repayment of Pari Passu Indebtedness; provided, however, that the
repayment of any revolving loan (under the Credit Agreement or otherwise) shall
result in a permanent reduction in the commitment thereunder; (iv) use such Net
Cash Proceeds to secure Letter of Credit Obligations to the extent related
letters of credit have not been drawn upon or returned undrawn; or (v) after
such time as the accumulated Net Cash Proceeds equal or exceed $20 million,
apply or cause to be applied such Net Cash Proceeds to the purchase of
Securities tendered to the Company for purchase at a price equal to 100% of the
principal amount thereof plus accrued interest thereon to the date of purchase
pursuant to an offer to purchase made by the Company as set forth below (a "Net
Proceeds Offer"); provided, however, that the Company shall have the right to
exclude from the foregoing provisions Asset Sales subsequent to the Issue Date,
the proceeds of which are derived from the sale and substantially concurrent
lease- back of a supermarket and/or related assets or equipment which are
acquired or constructed by the Company or a Subsidiary subsequent to the date
that is six months prior to the Issue Date, provided that such sale and
substantially concurrent lease-back occurs within 270 days following such
acquisition or the completion of such construction, as the case may be.
Pending the utilization of any Net Cash Proceeds in the manner (and within the
time period) described above, the Company may use any such Net Cash Proceeds to
repay revolving loans (under the Credit Agreement or otherwise) without a
permanent reduction of the commitment thereunder.
<PAGE> 65
Notice of a Net Proceeds Offer pursuant to this Section 4.16 will
be mailed to record Holders of Securities as shown on the register of Holders
not less than 325 days nor more than 365 days after the relevant Asset Sale,
with a copy to the Trustee. The notice shall contain all instructions and
materials necessary to enable such Holders to tender Securities pursuant to the
Net Proceeds Offer and shall state the following terms:
(1) that the Net Proceeds Offer is being made pursuant to Section
4.16 and that all Securities tendered will be accepted for payment,
provided, however, that if the aggregate principal amount of Securities
tendered in a Net Proceeds Offer plus accrued interest at the expiration
of such offer exceeds the aggregate amount of the Net Proceeds Offer, the
Company shall select the Securities to be purchased on a pro rata basis
(based on amounts tendered) (with such adjustments as may be deemed
appropriate by the Company so that only Securities in denominations of
$1,000 or multiples thereof shall be purchased);
(2) the purchase price (including the amount of accrued interest)
and the purchase date (which shall be no earlier than 30 days nor later
than 40 days from the date such notice is mailed, other than as may be
required by law) (the "Proceeds Purchase Date");
(3) that any Security not tendered will continue to accrue
interest if interest is then accruing;
(4) that, unless the Company defaults in making payment therefor,
any Security accepted for payment pursuant to the Net Proceeds Offer
shall cease to accrue interest after the Proceeds Purchase Date;
(5) that Holders electing to have a Security purchased pursuant
to a Net Proceeds Offer will be required to surrender the Security, with
the form entitled "Option of Holder to Elect Purchase" on the reverse of
the Security completed, to the Paying Agent at the address specified in
the notice prior to the close of business on the Business Day prior to
the Proceeds Purchase Date;
(6) that Holders will be entitled to withdraw their election if
the Paying Agent receives, not later than two Business Days prior to the
Proceeds Purchase Date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of the
Securities the Holder delivered for purchase and a
<PAGE> 66
statement that such Holder is withdrawing his election to have such
Security purchased;
(7) that Holders whose Securities were purchased only in part
will be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered; provided that each
Security purchased and each new Security issued shall be in an original
principal amount of $1,000 or integral multiples thereof; and
(8) that the Net Proceeds Offer shall remain open for a period of
20 Business Days or such longer period as may be required by law.
On or before the Proceeds Purchase Date, the Company shall (i)
accept for payment Securities or portions thereof tendered pursuant to the Net
Proceeds Offer which are to be purchased in accordance with item (b)(1) above,
(ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay the
purchase price of all Securities to be purchased and (iii) deliver to the
Trustee Securities so accepted together with an Officers' Certificate stating
the Securities or portions thereof being purchased by the Company. The Paying
Agent shall promptly mail to the Holders of Securities so accepted payment in
an amount equal to the purchase price (and the Trustee shall promptly
authenticate and mail or deliver to such Holders a new Security equal in
principal amount to any unpurchased portion of the Security surrendered
provided that each such new Security shall be in the principal amount of $1,000
or integral multiples thereof). The Company will publicly announce the results
of the Net Proceeds Offer on or as soon as practicable after the Proceeds
Purchase Date. For purposes of this Section 4.16, the Trustee shall act as the
Paying Agent.
Any amounts remaining after the purchase of Securities pursuant to
a Net Proceeds Offer shall be returned by the Trustee to the Company.
The Company shall comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to
the extent such laws and regulations are applicable in connection with the
purchase of Securities pursuant to a Net Proceeds Offer. To the extent the
provisions of any securities laws or regulations conflict with the provisions
under this Section 4.16, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this Section 4.16 by virtue thereof.
<PAGE> 67
SECTION 4.17. Guarantees of Certain Indebtedness.
The Company will not permit any of its Subsidiaries to (a) incur,
guarantee or secure through the granting of Liens the payment of any
Indebtedness under the term portion of the Credit Agreement or refinancings
thereof or (b) pledge any intercompany notes representing obligations of any of
its Subsidiaries, to secure the payment of any Indebtedness under the term
portion of the Credit Agreement or refinancings thereof, in each case unless
such Subsidiary, the Company and the Trustee execute and deliver a supplemental
indenture evidencing such Subsidiary's Guarantee.
SECTION 4.18. Limitation on Preferred Stock of Subsidiaries.
The Company will not permit any of its Subsidiaries to issue any
Preferred Stock (other than to the Company or to a wholly-owned Subsidiary) or
permit any person (other than the Company or a wholly-owned Subsidiary) to own
any Preferred Stock of any Subsidiary.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Limitations on Mergers and Certain Other
Transactions.
(a) The Company shall not in a single transaction or through a
series of related transactions, (i) consolidate with or merge with or into any
other person, or transfer (by lease, assignment, sale or otherwise) all or
substantially all of its properties and assets as an entirety or substantially
as an entirety to another person or group of affiliated persons or (ii) adopt a
Plan of Liquidation, unless, in either case:
(1) either the Company shall be the continuing person, or the
person (if other than the Company) formed by such consolidation or into
which the Company is merged or to which all or substantially all of the
properties and assets of the Company as an entirety or substantially as
an entirety are transferred (or, in the case of a Plan of Liquidation,
any person to which assets are transferred) (the Company or such other
person being hereinafter referred to as the "Surviving Person") shall be
a corporation organized and validly existing under the laws of the United
States, any State thereof or the District of Columbia, and shall
expressly assume, by an indenture
<PAGE> 68
supplement, all the obligations of the Company under the Securities and
this Indenture;
(2) immediately after and giving effect to such transaction and
the assumption contemplated by clause (1) above and the incurrence or
anticipated incurrence of any Indebtedness to be incurred in connection
therewith, (A) the Surviving Person shall have a Consolidated Net Worth
equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction and (B) the Surviving Person could
incur at least $1 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to Section 4.12;
(3) immediately before and immediately after and giving effect to
such transaction and the assumption of the obligations as set forth in
clause (1) above and the incurrence or anticipated incurrence of any
Indebtedness to be incurred in connection therewith, no Default or Event
of Default shall have occurred and be continuing; and
(4) each Subsidiary Guarantor, unless it is the other party to
the transaction, shall have by supplemental indenture confirmed that its
Guarantee of the obligations of the Company under the Securities and this
Indenture shall apply, without alteration or amendment as such Guarantee
applies on the date it was granted under this Indenture to the
obligations of the Company under this Indenture and the Securities to the
obligations of the Company or such Person as the case may be, under this
Indenture and the Securities, after consummation of such transaction.
(b) Notwithstanding the foregoing, the consummation of the Merger
on the Issue Date need only comply with clauses (1) and (3) of the foregoing
paragraph.
(c) For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties and assets of one
or more direct or indirect Subsidiaries, the Capital Stock of which constitutes
all or substantially all of the properties and assets of the Company shall be
deemed to be the transfer of all or substantially all of the properties and
assets of the Company.
<PAGE> 69
SECTION 5.02 Successor Corporation Substituted.
Upon any consolidation or merger, or any transfer of all or
substantially all of the assets of the Company or any adoption of a Plan of
Liquidation by the Company in accordance with Section 5.01, the Surviving
Person formed by such consolidation or into which the Company is merged or to
which such transfer is made (or in the case of a Plan of Liquidation, to which
assets are transferred) shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such Surviving Person had been named as the Company herein;
provided, however, that solely for purposes of computing amounts described in
subclause (c) of the first paragraph of Section 4.03, any such Surviving Person
shall only be deemed to have succeeded to and be substituted for the Company
with respect to periods subsequent to the effective time of such merger,
consolidation or transfer of assets. When a successor corporation assumes all
of the obligations of the Company hereunder and under the Securities and agrees
to be bound hereby and thereby, the predecessor shall be released from such
obligations.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.
An "Event of Default" occurs if:
(i) the Company defaults in the payment of interest on any
Securities when the same becomes due and payable and the Default
continues for a period of 30 days;
(ii) the Company defaults in the payment of the principal of, or
premium, if any, on the Securities when due whether at maturity, upon
acceleration, redemption, required repurchase or otherwise;
(iii) the Company fails to comply with any of its agreements
contained in the Securities or this Indenture (other than a default
specified in clause (i) or (ii) above), if such failure continues for the
period and after the notice specified below;
(iv) there shall be a default under any Indebtedness of the Company
or any of its Subsidiaries, whether such
<PAGE> 70
Indebtedness now exists or shall hereafter be created, if both (A) such
default either (1) results from the failure to pay any such Indebtedness
at its stated final maturity or (2) relates to an obligation other than
the obligation to pay such Indebtedness at its stated final maturity and
results in the holder or holders of such Indebtedness causing such
Indebtedness to become due prior to its stated final maturity and (B) the
principal amount of such Indebtedness, together with the principal amount
of any other such Indebtedness in default for failure to pay principal at
stated final maturity or the maturity of which has been so accelerated,
aggregates $20 million or more at any one time outstanding;
(v) one or more judgments, orders or decrees of any court or
regulatory or administrative agency of competent jurisdiction for the
payment of money in excess of $20 million, either individually or in the
aggregate, shall be entered against the Company or any Subsidiary of the
Company or any of their respective properties and shall not be discharged
and there shall have been a period of 60 days after the date on which any
period for appeal has expired and during which a stay of enforcement of
such judgment, order or decree shall not be in effect;
(vi) either the Company or any Significant Subsidiary pursuant to
or within the meaning of any Bankruptcy Law: (a) commences a voluntary
case or proceeding; (b) consents to the entry of a Bankruptcy Order for
relief against it in an involuntary case or proceeding or the
commencement of any case or proceeding against it; (c) consents to the
appointment of a custodian of it or for substantially all of its
property; or (d) makes a general assignment for the benefit of its
creditors;
(vii) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that: (a) is for relief against the Company or
any Significant Subsidiary, in an involuntary case or proceeding; (b)
appoints a custodian of the Company or any Significant Subsidiary, or for
all or any substantial part of their respective properties; or (c) orders
the liquidation of the Company or any Significant Subsidiary and in each
case the order or decree remains unstayed and in effect for 60 days;
(viii) the lenders under the Credit Agreement shall commence judicial
proceedings to foreclose upon any material portion of the assets of the
Company and its Subsidiaries or shall have exercised any right under
<PAGE> 71
applicable law or applicable security documents to take ownership of any
such assets in lieu of foreclosure; or
(ix) any of the Guarantees shall be declared or adjudged invalid in
a final judgment or order issued by any court or governmental authority.
A Default under clause (iii) above (other than in the case of any
Default under Section 4.03, 4.15, 4.16 or 5.01, which Defaults shall be Events
of Default with the notice specified in this paragraph but without the passage
of time specified in this paragraph) is not an Event of Default until the
Trustee notifies the Company, or the Holders of at least 25% in principal
amount of the outstanding Securities notify the Company and the Trustee of the
Default, and the Company does not cure the Default within 30 days after receipt
of the notice. The notice must specify the Default, demand that it be remedied
and state that the notice is a "Notice of Default." Such notice shall be given
by the Trustee if so requested by the Holders of at least 25% in principal
amount of the Securities then outstanding. When a Default is cured, it ceases.
SECTION 6.02. Acceleration.
(a) If an Event of Default (other than an Event of Default
specified in Section 6.01(vi) or (vii) with respect to the Company or a
Subsidiary Guarantor) occurs and is continuing, the Trustee or the Holders of
at least 25% in principal amount of the then outstanding Securities may, and
the Trustee upon the request of the Holders of not less than 25% in aggregate
principal amount of the then outstanding Securities shall, declare due and
payable all unpaid principal and interest accrued and unpaid on the then
outstanding Securities by written notice to the Company (and, if any
Indebtedness is outstanding under the Credit Agreement or the Credit Agreement
is otherwise in effect, to the Credit Agent) and the Trustee specifying the
respective Event of Default and that it is a "notice of acceleration" (the
"Acceleration Notice"), and the same (i) shall become immediately due and
payable or (ii) if there are any amounts outstanding under the Credit
Agreement, shall become due and payable upon the first to occur of an
acceleration under the Credit Agreement, or five business days after receipt by
the Company and the Credit Agent of such Acceleration Notice. If an Event of
Default specified in Section 6.01(vi) or (vii) occurs with respect to the
Company or a Subsidiary Guarantor that is a Significant Subsidiary, all unpaid
principal of and accrued interest on all then outstanding Securities shall be
immediately due and payable without any declaration or other act on the part of
the Trustee
<PAGE> 72
or any of the Holders. Upon payment of such principal amount, interest, and
premium, if any, all of the Company's obligations under the Securities and this
Indenture, other than obligations under Section 7.07, shall terminate. After a
declaration of acceleration, the Holders of a majority in principal amount of
the Securities then outstanding, by notice to the Trustee, may rescind an
acceleration and its consequences if (i) all existing Events of Default, other
than the non-payment of the principal of the Securities which has become due
solely by such declaration of acceleration, have been cured or waived, (ii) to
the extent the payment of such interest is lawful, interest on overdue
installments of interest and overdue principal, which has become due otherwise
than by such declaration of acceleration, has been paid, (iii) the rescission
would not conflict with any judgment or decree of a court of competent
jurisdiction and (iv) the Company has paid or deposited with the Trustee a sum
sufficient to pay all sums paid or advanced by the Trustee under this Indenture
and the compensation, expenses, disbursements and advances of the Trustee, its
agents and counsel.
(b) In the event of a declaration of acceleration under this
Indenture because an Event of Default set forth in Section 6.01(iv) has
occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if either (i) the holders of the
Indebtedness which is the subject of such Event of Default have waived such
failure to pay at maturity or have rescinded the acceleration in respect of
such Indebtedness within 90 days of such maturity or declaration of
acceleration, as the case may be, and no other Event of Default has occurred
during such 90-day period which has not been cured or waived, or (ii) such
Indebtedness shall have been discharged or the maturity thereof shall have been
extended such that it is not then due and payable, or the underlying default
has been cured (and any acceleration based thereon of such other Indebtedness
has been rescinded), within 90 days of such maturity or declaration of
acceleration, as the case may be.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Securities or does not produce any of them in the proceeding. A
delay or omission by the Trustee or
<PAGE> 73
any Securityholder in exercising any right or remedy accruing upon an Event of
Default shall not impair the right or remedy or constitute a waiver of or
acquiescence in the Event of Default. No remedy is exclusive of any other
remedy. All available remedies are cumulative to the extent permitted by law.
SECTION 6.04. Waiver of Past Defaults.
Subject to Sections 6.07 and 9.02, the Holders of a majority in
principal amount of the outstanding Securities by notice to the Trustee may
waive an existing Default or Event of Default and its consequences, except a
Default in the payment of principal of or interest on any Security as specified
in clauses (i) and (ii) of Section 6.01. When a Default or Event of Default is
waived, it is cured and ceases.
SECTION 6.05. Control by Majority.
Subject to Section 2.09, the Holders of a majority in principal
amount of the outstanding Securities may direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or exercising
any trust or power conferred on it, including, without limitation, any remedies
provided for in Section 6.03. Subject to Section 7.01, however, the Trustee
may refuse to follow any direction that conflicts with any law or this
Indenture, that the Trustee determines may be unduly prejudicial to the rights
of another Securityholder, or that may involve the Trustee in personal
liability; provided that the Trustee may take any other action deemed proper by
the Trustee which is not inconsistent with such direction.
SECTION 6.06. Limitation on Suits.
A Securityholder may not pursue any remedy with respect to this
Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(2) the Holder or Holders of at least 25% in principal amount of
the outstanding Securities make a written request to the Trustee to
pursue the remedy;
(3) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense to be
incurred in compliance with such request;
<PAGE> 74
(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of indemnity; and
(5) during such 60-day period the Holder or Holders of a majority
in principal amount of the outstanding Securities do not give the Trustee
a direction which, in the opinion of the Trustee, is inconsistent with
the request.
A Securityholder may not use this Indenture to prejudice the rights
of another Securityholder or to obtain a preference or priority over such other
Securityholder.
SECTION 6.07. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of and interest on a Security, on or
after the respective due dates expressed in such Security, or to bring suit for
the enforcement of any such payment on or after such respective dates, shall
not be impaired or affected without the consent of the Holder.
SECTION 6.08. Collection Suit by Trustee.
If an Event of Default in payment of principal or interest
specified in clause (i) or (ii) of Section 6.01 occurs and is continuing, the
Trustee may recover judgment in its own name and as trustee of an express trust
against the Company or any other obligor on the Securities for the whole amount
of principal and accrued interest remaining unpaid, together with interest on
overdue principal and, to the extent that payment of such interest is lawful,
interest on overdue installments of interest, in each case at the rate per
annum borne by the Securities and such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
SECTION 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Securityholders allowed in any judicial proceedings relating to the Company or
any other obligor upon the Securities, any of their respective creditors or any
of their respective property and shall be
<PAGE> 75
entitled and empowered to collect and receive any monies or other property
payable or deliverable on any such claims and to distribute the same, and any
Custodian in any such judicial proceedings is hereby authorized by each
Securityholder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the
Securityholders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agent
and counsel, and any other amounts due the Trustee under Section 7.07. Nothing
herein contained shall be deemed to authorize the Trustee to authorize or
consent to or accept or adopt on behalf of any Securityholder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Securityholder in any such proceeding.
SECTION 6.10. Priorities.
If the Trustee collects any money pursuant to this Article Six, it
shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: to Holders for interest accrued on the Securities,
ratably, without preference or priority of any kind, according to the
amounts due and payable on the Securities for interest;
Third: to Holders for principal amounts due and unpaid on the
Securities, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Securities for principal;
and
Fourth: to the Company or the Subsidiary Guarantors, as their
respective interests may appear.
The Trustee, upon prior notice to the Company, may fix a record
date and payment date for any payment to Securityholders pursuant to this
Section 6.10.
SECTION 6.11. Rights and Remedies Cumulative.
No right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or
<PAGE> 76
hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent
the concurrent assertion or employment of any other appropriate right or
remedy.
SECTION 6.12. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any
Security to exercise any right or remedy accruing upon any Event of Default
shall impair any such right or remedy or constitute a waiver of any such Event
of Default or an acquiescence therein. Every right and remedy given by this
Article Six or by law to the Trustee or to the Holders may be exercised from
time to time, and as often as may be deemed expedient, by the Trustee or by the
Holders, as the case may be.
SECTION 6.13. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.13 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07, or a suit by a Holder or Holders of more than 10% in
principal amount of the outstanding Securities.
ARTICLE SEVEN
TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this
Indenture and covenants and agrees to perform the same, as herein expressed.
SECTION 7.01. Duties of Trustee.
(a) If a Default or an Event of Default of which the Trustee is
aware has occurred and is continuing, the Trustee shall exercise such of the
rights and powers vested in it by this Indenture and use the same degree of
care and skill in its
<PAGE> 77
exercise thereof as a prudent person would exercise or use under the
circumstances in the conduct of his own affairs.
(b) Except during the continuance of a Default or an Event of
Default:
(1) The Trustee need undertake to perform only those duties as are
specifically set forth in this Indenture and no covenants or obligations
shall be implied in this Indenture against the Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this
Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements of
this Indenture.
(c) The Trustee shall have no liability except for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section 7.01.
(2) The Trustee shall not be liable for any error of judgment made
in good faith by a Trust Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(e) Every provision of this Indenture that in any way relates to
the Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section
7.01.
<PAGE> 78
(f) The Trustee shall not be liable for interest on any assets
received by it. Assets held in trust by the Trustee need not be segregated
from other assets except to the extent required by law.
SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely on and shall be protected in acting or
refraining from acting upon any document believed by it to be genuine and
to have been signed or presented by the proper person. The Trustee need
not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
consult with counsel and may require in addition to written direction
from the Company an Officers' Certificate or an Opinion of Counsel, which
shall conform to Sections 11.04 and 11.05. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance
on such certificate or opinion.
(c) The Trustee may act through its attorneys and agents and
shall not be responsible for the misconduct or negligence of any attorney
or agent appointed with due care.
(d) The Trustee shall not be liable for any action that it takes
or omits to take in good faith which it believes to be authorized or
within its rights or powers.
(e) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, notice, request, direction, consent, order, bond,
debenture, or other paper or document, but the Trustee, in its
discretion, may make such further inquiry or investigation into such
facts or matters as it may see fit.
(f) The Trustee shall be under no obligation to exercise any of
the rights or powers vested in it by this Indenture at the request, order
or direction of any of the Holders pursuant to the provisions of this
Indenture, unless such Holders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which may be incurred therein or thereby.
<PAGE> 79
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company, its
Subsidiaries, or their respective Affiliates with the same rights it would have
if it were not Trustee. Any Agent may do the same with like rights. However,
the Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy
of this Indenture or the Securities, it shall not be accountable for the
Company's use of the proceeds from the Securities, and it shall not be
responsible for any statement in the Securities other than the Trustee's
certificate of authentication.
SECTION 7.05. Notice of Default.
If a Default or an Event of Default occurs and is continuing and if
it is known to the Trustee, the Trustee shall mail to each Holder of Securities
notice of the Default or Event of Default within 90 days after such Default or
Event of Default occurs or if such Default or Event of Default is known to the
Trustee during such 90-day period, promptly after such Default or Event of
Default becomes known to the Trustee; provided, however, that, except in the
case of a Default or Event of Default in the payment of the principal of or
interest on any Security, including the failure to make payment on a Change of
Control Payment Date pursuant to a Change of Control Offer or payment when due
pursuant to a Net Proceeds Offer the Trustee may withhold such notice if it in
good faith determines that withholding such notice is in the interest of the
Holders.
SECTION 7.06. Reports by Trustee to Holders.
Within 60 days after each May 15 beginning with the May 15
following the date of this Indenture, the Trustee shall, to the extent that any
of the events described in TIA { 313(a) occurred within the previous twelve
months, but not otherwise, mail to each Securityholder a brief report dated as
of such May 15 that complies with TIA { 313(a). The Trustee also shall comply
with TIA {{ 313(b) and 313(c).
A copy of each report at the time of its mailing to Securityholders
shall be mailed to the Company and filed with the Commission and each stock
exchange, if any, on which the Securities are listed.
<PAGE> 80
The Company shall notify the Trustee if the Securities become
listed on any stock exchange.
SECTION 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation for its services. The Trustee's compensation shall not be limited
by any law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable disbursements, expenses
and advances incurred or made by it. Such expenses shall include the
reasonable compensation, disbursements and expenses of the Trustee's agents and
counsel.
The Company shall indemnify the Trustee for, and hold it harmless
against, any loss or liability incurred by it except for such actions to the
extent caused by any negligence or bad faith on its part, arising out of or in
connection with the administration of this trust and its rights or duties
hereunder. The Trustee shall notify the Company promptly of any claim asserted
against the Trustee for which it may seek indemnity. The Company shall defend
the claim and the Trustee shall cooperate in the defense. The Trustee may have
separate counsel and the Company shall pay the reasonable fees and expenses of
such counsel; provided that the Company will not be required to pay such fees
and expenses if it assumes the Trustee's defense and there is no conflict of
interest between the Company and the Trustee in connection with such defense as
reasonably determined by the Trustee. The Company need not pay for any
settlement made without its written consent. The Company need not reimburse
any expense or indemnify against any loss or liability to the extent incurred
by the Trustee through its negligence, bad faith or willful misconduct.
To secure the Company's payment obligations in this Section 7.07,
the Trustee shall have a lien prior to the Securities on all assets held or
collected by the Trustee, in its capacity as Trustee, except assets held in
trust to pay principal of or interest on particular Securities.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 6.01(vi) or (vii) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
SECTION 7.08. Replacement of Trustee.
The Trustee may resign by so notifying the Company. The Holders of
a majority in principal amount of the
<PAGE> 81
outstanding Securities may remove the Trustee and appoint a successor trustee
with the Company's consent, by so notifying the Company and the Trustee. The
Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or other public officer takes charge of the
Trustee or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall notify each Holder of such
event and shall promptly appoint a successor Trustee. Within one year after
the successor Trustee takes office, the Holders of a majority in principal
amount of the Securities may appoint a successor Trustee to replace the
successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after
that, the retiring Trustee shall transfer all property held by it as Trustee to
the successor Trustee, subject to the lien provided in Section 7.07, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. A successor Trustee shall mail notice of its succession
to each Securityholder.
If a successor Trustee does not take office within 60 days after
the retiring Trustee resigns or is removed, the retiring Trustee, the Company
or the Holders of at least 10% in principal amount of the outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any
Securityholder may petition any court of competent jurisdiction for the removal
of the Trustee and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under
<PAGE> 82
Section 7.07 shall continue for the benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirement of TIA {{ 310(a)(1) and 310(a)(5). The Trustee shall have a
combined capital and surplus of at least $100,000,000 as set forth in its most
recent published annual report of condition. The Trustee shall comply with TIA
{ 310(b); provided, however, that there shall be excluded from the operation of
TIA { 310(b)(1) any indenture or indentures under which other securities, or
certificates of interest or participation in other securities, of the Company
are outstanding, if the requirements for such exclusion set forth in TIA {
310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against
Company._________________________________
The Trustee shall comply with TIA { 311(a), excluding any creditor
relationship listed in TIA { 311(b). A Trustee who has resigned or been
removed shall be subject to TIA { 311(a) to the extent indicated.
ARTICLE EIGHT
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 8.01. Termination of the Company's
Obligations.________________
The Company may terminate its obligations under the Securities and
this Indenture, and the obligations of any Subsidiary Guarantor shall
terminate, except those obligations referred to in the penultimate paragraph of
this Section 8.01, if all Securities previously authenticated and delivered
(other than destroyed, lost or stolen Securities which have been replaced or
paid or Securities for whose payment money has
<PAGE> 83
theretofore been deposited with the Trustee or the Paying Agent in trust or
segregated and held in trust by the Company and thereafter repaid to the
Company, as provided in Section 8.04) have been delivered to the Trustee for
cancellation and the Company has paid all sums payable by it hereunder, or if:
(1) either (i) pursuant to Article Three, the Company shall have
given notice to the Trustee and mailed a notice of redemption to each
Holder of the redemption of all of the Securities under arrangements
satisfactory to the Trustee for the giving of such notice or (ii) all
Securities have otherwise become due and payable hereunder;
(2) the Company shall have irrevocably deposited or caused to be
deposited with the Trustee or a trustee satisfactory to the Trustee,
under the terms of an irrevocable trust agreement in form and substance
satisfactory to the Trustee, as trust funds in trust solely for the
benefit of the Holders for that purpose, money in such amount as is
sufficient without consideration of reinvestment of such interest, to pay
principal of, premium, if any, and interest on the outstanding Securities
to maturity or redemption; provided that the Trustee shall have been
irrevocably instructed to apply such money to the payment of said
principal, premium, if any, and interest with respect to the Securities;
(3) no Default or Event of Default with respect to this Indenture
or the Securities shall have occurred and be continuing on the date of
such deposit or shall occur as a result of such deposit and such deposit
will not result in a breach or violation of, or constitute a default
under, any other instrument to which the Company is a party or by which
it is bound;
(4) the Company shall have paid all other sums payable by it
hereunder; and
(5) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent providing for the termination of the Company's and any
Subsidiary Guarantor's obligation under the Securities and this Indenture
have been complied with. Such Opinion of Counsel shall also state that
such satisfaction and discharge does not result in a default under the
Credit Agreement (if then in effect) or any other agreement or
<PAGE> 84
instrument then known to such counsel that binds or affects the Company.
Notwithstanding the foregoing paragraph, the Company's obligations
in Sections 2.05, 2.06, 2.07, 2.08, 4.01, 4.02 and 7.07 and any Subsidiary
Guarantor's obligations in respect thereof shall survive until the Securities
are no longer outstanding pursuant to the last paragraph of Section 2.08.
After the Securities are no longer outstanding, the Company's obligations in
Sections 7.07, 8.04 and 8.05 and any Subsidiary Guarantor's obligations in
respect thereof shall survive.
After such delivery or irrevocable deposit the Trustee upon request
shall acknowledge in writing the discharge of the Company's and any Subsidiary
Guarantor's obligations under the Securities and this Indenture except for
those surviving obligations specified above.
SECTION 8.02. Legal Defeasance and Covenant
Defeasance.__________________
(a) The Company may, at its option by Board Resolution of the
Board of Directors of the Company, at any time, with respect to the Securities,
elect to have either paragraph (b) or paragraph (c) below be applied to the
outstanding Securities upon compliance with the conditions set forth in
paragraph (d).
(b) Upon the Company's exercise under paragraph (a) of the option
applicable to this paragraph (b), the Company and any Subsidiary Guarantor
shall be deemed to have been released and discharged from its obligations with
respect to the outstanding Securities on the date the conditions set forth
below are satisfied (hereinafter, "legal defeasance"). For this purpose, such
legal defeasance means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by the outstanding Securities,
which shall thereafter be deemed to be "outstanding" only for the purposes of
paragraph (e) below and the other Sections of and matters under this Indenture
referred to in (i) and (ii) below, and to have satisfied all its other
obligations under such Securities and this Indenture insofar as such Securities
are concerned (and the Trustee, at the expense of the Company, shall execute
proper instruments acknowledging the same) except for the following which shall
survive until otherwise terminated or discharged hereunder: (i) the rights of
Holders of outstanding Securities to receive solely from the funds held by the
Trustee in the trust fund described in paragraph (d) below and as more fully
set forth in such paragraph, payments
<PAGE> 85
in respect of the principal of, premium, if any, and interest on such
Securities when such payments are due, (ii) the Company's obligations with
respect to such Securities under Sections 2.06, 2.07 and 4.02, and, with
respect to the Trustee, under Section 7.07 and any Subsidiary Guarantor's
obligations in respect thereof, (iii) the rights, powers, trusts, duties and
immunities of the Trustee hereunder and (iv) this Section 8.02 and Section
8.05. Subject to compliance with this Section 8.02, the Company may exercise
its option under this paragraph (b) notwithstanding the prior exercise of its
option under paragraph (c) below with respect to the Securities.
(c) Upon the Company's exercise under paragraph (a) of the option
applicable to this paragraph (c), the Company shall be released and discharged
from its obligations under any covenant contained in Article five and in
Sections 4.03, 4.05 through 4.09 and 4.11 through 4.18 with respect to the
outstanding Securities on and after the date the conditions set forth below are
satisfied (hereinafter, "covenant defeasance"), and the Securities shall
thereafter be deemed to be not "outstanding" for the purpose of any direction,
waiver, consent or declaration or act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"outstanding" for all other purposes hereunder. For this purpose, such
covenant defeasance means that, with respect to the outstanding Securities, the
Company and any Subsidiary Guarantor may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
covenant, whether directly or indirectly, by reason of any reference elsewhere
herein to any such covenant or by reason of any reference in any such covenant
to any other provision herein or in any other document and such omission to
comply shall not constitute a Default or an Event of Default under Section
6.01(iii), but, except as specified above, the remainder of this Indenture and
such Securities shall be unaffected thereby.
(d) The following shall be the conditions to application of
either paragraph (b) or paragraph (c) above to the outstanding Securities:
(i) the Company shall irrevocably have deposited or caused to be
deposited with the Trustee (or another trustee satisfying the
requirements of Section 7.10 who shall agree to comply with the
provisions of this Section 8.02 applicable to it) as trust funds in trust
for the purpose of making the following payments, specifically pledged as
security for, and dedicated solely to, the benefit of the Holders of such
Securities, (x) money in an amount or (y) direct non-callable obligations
of, or non-
<PAGE> 86
callable obligations guaranteed by, the United States of America for the
payment of which guarantee or obligation the full faith and credit of the
United States is pledged ("U.S. Government Obligations") maturing as to
principal, premium, if any, and interest in such amounts of money and at
such times as are sufficient without consideration of any reinvestment of
such interest, to pay principal of and interest on the outstanding
Securities not later than one day before the due date of any payment, or
(z) a combination thereof, sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay and discharge and
which shall be applied by the Trustee (or other qualifying trustee) to
pay and discharge principal of, premium, if any, and interest on the
outstanding Securities on the Maturity Date or otherwise in accordance
with the terms of this Indenture and of such Securities; provided,
however, that the Trustee (or other qualifying trustee) shall have
received an irrevocable written order from the Company instructing the
Trustee (or other qualifying trustee) to apply such money or the proceeds
of such U.S. Government Obligations to said payments with respect to the
Securities;
(ii) no Default or Event of Default or event which with notice or
lapse of time or both would become a Default or an Event of Default with
respect to the Securities shall have occurred and be continuing on the
date of such deposit or, insofar as Section 6.01(vi) or (vii) is
concerned, at any time during the period ending on the 91st day after the
date of such deposit (it being understood that this condition shall not
be deemed satisfied until the expiration of such period);
(iii) such legal defeasance or covenant defeasance shall not cause
the Trustee to have a conflicting interest with respect to any Securities
of the Company or any Subsidiary Guarantor;
(iv) such legal defeasance or covenant defeasance shall not result
in a breach or violation of, or constitute a Default or Event of Default
under, this Indenture or any other material agreement or instrument to
which the Company or any Subsidiary Guarantor is a party or by which it
is bound (and in that connection, the Trustee shall have received a
certificate from the Credit Agent to that effect with respect to such
Credit Agreement if then in effect);
<PAGE> 87
(v) in the case of an election under paragraph (b) above, the
Company shall have delivered to the Trustee an Opinion of Counsel stating
that (x) the Company has received from, or there has been published by,
the Internal Revenue Service a ruling or (y) since the Issue Date, there
has been a change in the applicable Federal income tax law, in either
case to the effect that, and based thereon such opinion shall confirm
that, the Holders of the outstanding Securities will not recognize
income, gain or loss for Federal income tax purposes as a result of such
legal defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such legal defeasance had not occurred;
(vi) in the case of an election under paragraph (c) above, the
Company shall have delivered to the Trustee an Opinion of Counsel to the
effect that the Holders of the outstanding Securities will not recognize
income, gain or loss for Federal income tax purposes as a result of such
covenant defeasance and will be subject to Federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such covenant defeasance had not occurred;
(vii) in the case of an election under either paragraph (b) or (c)
above, an Opinion of Counsel to the effect that, after the 91st day
following the deposit, the trust funds will not be subject to the effect
of any applicable Bankruptcy Law;
(viii) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to either the legal defeasance under
paragraph (b) above or the covenant defeasance under paragraph (c) above,
as the case may be, have been complied with; and
(ix) the Company shall have delivered to the Trustee an Officer's
Certificate stating that the deposit was not made by the Company with the
intent of preferring the Holders of the Securities over other creditors
of the Company or any Subsidiary Guarantor or with the intent of
defeating, hindering, delaying or defrauding creditors of the Company,
any Subsidiary Guarantor or others.
(e) All money and U.S. Government Obligations (including the
proceeds thereof) deposited with the Trustee (or other qualifying trustee,
collectively for purposes of this
<PAGE> 88
paragraph (e), the "Trustee") pursuant to paragraph (d) above in respect of the
outstanding Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent (other than the Company or
any Affiliate of the Company), to the Holders of such Securities of all sums
due and to become due thereon in respect of principal, premium and interest,
but such money need not be segregated from other funds except to the extent
required by law.
The Company shall pay and indemnify the Trustee against any tax,
fee or other charge imposed on or assessed against the U.S. Government
Obligations deposited pursuant to paragraph (d) above or the principal,
premium, if any, and interest received in respect thereof other than any such
tax, fee or other charge which by law is for the account of the Holders of the
outstanding Securities. The Company's obligations to pay and indemnify the
Trustee as set forth in this paragraph shall survive the termination of this
Indenture and the Securities.
Anything in this Section 8.02 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon the request,
in writing, by the Company any money or U.S. Government Obligations held by it
as provided in paragraph (d) above which, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, are in excess of the amount
thereof which would then be required to be deposited to effect an equivalent
legal defeasance or covenant defeasance.
SECTION 8.03. Application of Trust Money.
The Trustee shall hold in trust money or U.S. Government
Obligations deposited with it pursuant to Sections 8.01 and 8.02, and shall
apply the deposited money and the money from U.S. Government Obligations in
accordance with this Indenture to the payment of principal of, premium, if any,
and interest on the Securities.
SECTION 8.04. Repayment to Company or Subsidiary
Guarantors._______________________
Subject to Sections 7.07, 8.01 and 8.02, the Trustee shall promptly
pay to the Company, or if deposited with the Trustee by any Subsidiary
Guarantor, to such Guarantor, upon receipt by the Trustee of an Officers'
Certificate, any excess money, determined in accordance with Section 8.02, held
by it
<PAGE> 89
at any time. The Trustee and the Paying Agent shall pay to the Company or any
Subsidiary Guarantor, as the case may be, upon receipt by the Trustee or the
Paying Agent, as the case may be, of an Officers' Certificate, any money held
by it for the payment of principal, premium, if any, or interest that remains
unclaimed for two years after payment to the Holders is required; provided,
however, that the Trustee and the Paying Agent before being required to make
any payment may, but need not, at the expense of the Company cause to be
published once in a newspaper of general circulation in The City of New York or
mail to each Holder entitled to such money notice that such money remains
unclaimed and that after a date specified therein, which shall be at least 30
days from the date of such publication or mailing, any unclaimed balance of
such money then remaining will be repaid to the Company. After payment to the
Company or any Subsidiary Guarantor, as the case may be, Securityholders
entitled to money must look solely to the Company for payment as general
creditors unless an applicable abandoned property law designates another
person, and all liability of the Trustee or Paying Agent with respect to such
money shall thereupon cease.
SECTION 8.05. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with this Indenture by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application,
then and only then the Company's and each Subsidiary Guarantor's, if any,
obligations under this Indenture and the Securities shall be revived and
reinstated as though no deposit had been made pursuant to this Indenture until
such time as the Trustee is permitted to apply all such money or U.S.
Government Obligations in accordance with this Indenture; provided, however,
that if the Company or the Subsidiary Guarantors, as the case may be, has made
any payment of principal of, premium, if any, or interest on any Securities
because of the reinstatement of its obligations, the Company or the Subsidiary
Guarantors, as the case may be, shall be, subrogated to the rights of the
holders of such Securities to receive such payment from the money or U.S.
Government Obligations held by the Trustee or Paying Agent.
<PAGE> 90
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders.
The Company and the Subsidiary Guarantors, when authorized by a
Board Resolution, and the Trustee, together, may amend or supplement this
Indenture or the Securities without notice to or consent of any Securityholder:
(1) to cure any ambiguity, defect or inconsistency; provided that
such amendment or supplement does not adversely affect the rights of any
Holder;
(2) to comply with Article Five and Section 10.05;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities;
(4) to make any other change that does not adversely affect the
rights of any Securityholder in any material respect; or
(5) to comply with any requirements of the Commission in
connection with the qualification of this Indenture under the TIA;
provided that the Company has delivered to the Trustee an Opinion of Counsel
stating that such amendment or supplement complies with the provisions of this
Section 9.01.
SECTION 9.02. With Consent of Holders.
Subject to Section 6.07, the Company and each Subsidiary Guarantor,
when authorized by a Board Resolution, and the Trustee, together with the
written consent of the Holder or Holders of at least a majority in aggregate
principal amount of the outstanding Securities, may amend or supplement, or
waive compliance with any provision of, this Indenture, the Securities or any
Guarantee without notice to any other Securityholders; provided that without
the consent of Holders of not less than two thirds in aggregate principal
amount of Securities then outstanding, no such amendment, supplement or waiver
may release any Subsidiary Guarantor from any of its obligations under its
Guarantee or this Indenture other than in accordance with the terms of such
Guarantee and this Indenture; provided, further, that without the consent of
Holders of not less than 75% in aggregate principal amount of the Securities
<PAGE> 91
then outstanding, no such amendment, supplement or waiver may change the Change
of Control Payment Date or the purchase price in connection with any repurchase
of Securities pursuant to Section 5.15 in a manner adverse to any Holder or
waive a Default or Event of Default resulting from a failure to comply with
Section 4.15. Without the consent of each Securityholder affected, however, no
amendment, supplement or waiver, including a waiver pursuant to Section 6.04,
may:
(1) change the principal amount of Securities whose Holders must
consent to an amendment, supplement or waiver of any provision of this
Indenture, the Securities or the Guarantees;
(2) reduce the rate or extend the time for payment of interest on
any Security;
(3) reduce the principal amount of any Security;
(4) change the Maturity Date of any Security or alter the
redemption provisions in this Indenture or the Securities in a manner
adverse to any Holder;
(5) make any changes in the provisions concerning waivers of
Defaults or Events of Default by Holders of the Securities or the rights
of Holders to recover the principal of, interest on, or redemption
payment with respect to, any Security;
(6) make any changes in Section 6.04, 6.07 or this Section 9.02;
or
(7) make the principal of, or the interest on any Security
payable with anything or in any manner other than as provided for in this
Indenture, the Securities and the Guarantees as in effect on the date
hereof.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, the Company shall mail to the Holders affected thereby a notice
briefly describing the amendment, supplement or waiver. Any failure of the
Company to mail such notice, or any defect therein, shall not, however, in any
way impair or affect the validity of any such supplemental indenture.
<PAGE> 92
In connection with any amendment, supplement or waiver under this
Article Nine, the Company may, but shall not be obligated to, offer to any
Holder who consents to such amendment, supplement or waiver, or to all Holders,
consideration for such Holder's consent to such amendment, supplement or
waiver.
SECTION 9.03. Compliance with TIA.
From the date on which the Indenture is qualified under the TIA,
every amendment, waiver or supplement of this Indenture or the Securities shall
comply with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents.
Until an amendment, waiver or supplement becomes effective, a
consent to it by a Holder is a continuing consent by the Holder and every
subsequent Holder of a Security or portion of a Security that evidences the
same debt as the consenting Holder's Security, even if notation of the consent
is not made on any Security. However, any such Holder or subsequent Holder may
revoke the consent as to his Security or portion of his Security by notice to
the Trustee or the Company received before the date on which the Trustee
receives an Officers' Certificate certifying that the Holders of the requisite
principal amount of Securities have consented (and not theretofore revoked such
consent) to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to consent to any
amendment, supplement or waiver, which record date shall be at least 30 days
prior to the first solicitation of such consent. If a record date is fixed,
then notwithstanding the last sentence of the immediately preceding paragraph,
those persons who were Holders at such record date (or their duly designated
proxies), and only those persons, shall be entitled to revoke any consent
previously given, whether or not such persons continue to be Holders after such
record date. No such consent shall be valid or effective for more than 90 days
after such record date.
After an amendment, supplement or waiver becomes effective, it
shall bind every Securityholder, unless it makes a change described in any of
clauses (1) through (7) of Section 9.02, in which case, the amendment,
supplement or waiver shall bind only each Holder of a Security who has
consented to it and every subsequent Holder of a Security or portion of a
Security that evidences the same debt as the consenting Holder's
<PAGE> 93
Security; provided that any such waiver shall not impair or affect the right of
any Holder to receive payment of principal of and interest on a Security, on or
after the respective due dates expressed in such Security, or to bring suit for
the enforcement of any such payment on or after such respective dates without
the consent of such Holder.
SECTION 9.05. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a
Security, the Trustee may require the Holder of the Security to deliver it to
the Trustee. The Trustee may place an appropriate notation on the Security
about the changed terms and return it to the Holder. Alternatively, if the
Company or the Trustee so determines, the Company in exchange for the Security
shall issue and the Trustee shall authenticate a new Security that reflects the
changed terms.
SECTION 9.06. Trustee To Sign Amendments, Etc.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article Nine; provided that the Trustee may, but
shall not be obligated to, execute any such amendment, supplement or waiver
which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
any amendment, supplement or waiver authorized pursuant to this Article Nine is
authorized or permitted by this Indenture.
ARTICLE TEN
GUARANTEE
SECTION 10.01. Unconditional Guarantee.
Each Subsidiary Guarantor hereby unconditionally, jointly and
severally, guarantees (such guarantee to be referred to herein as the
"Guarantee") to each Holder of a Security authenticated and delivered by the
Trustee and to the Trustee and its successors and assigns, the Securities or
the obligations of the Company hereunder or thereunder, that: (i) the
principal of and interest on the Securities will be promptly paid in full when
due, subject to any applicable grace period, whether at maturity, by
acceleration or otherwise and interest on the overdue principal, if any, and
interest on any interest, to the extent lawful, of the Securities and all other
<PAGE> 94
obligations of the Company to the Holders or the Trustee hereunder or
thereunder will be promptly paid in full or performed, all in accordance with
the terms hereof and thereof; and (ii) in case of any extension of time of
payment or renewal of any Securities or of any such other obligations, the same
will be promptly paid in full when due or performed in accordance with the
terms of the extension or renewal, subject to any applicable grace period,
whether at stated maturity, by acceleration or otherwise, subject, however, in
the case of clauses (i) and (ii) above, to the limitations set forth in Section
10.04. Each Subsidiary Guarantor hereby agrees that its obligations hereunder
shall be unconditional, irrespective of the validity, regularity or
enforceability of the Securities or this Indenture, the absence of any action
to enforce the same, any waiver or consent by any Holder of the Securities with
respect to any provisions hereof or thereof, the recovery of any judgment
against the Company, any action to enforce the same or any other circumstance
which might otherwise constitute a legal or equitable discharge or defense of a
guarantor. Each Subsidiary Guarantor hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against the
Company, protest, notice and all demands whatsoever and covenants that this
Guarantee will not be discharged except by complete performance of the
obligations contained in the Securities, this Indenture and in this Guarantee.
If any Securityholder or the Trustee is required by any court or otherwise to
return to the Company, any Subsidiary Guarantor, or any custodian, trustee,
liquidator or other similar official acting in relation to the Company or any
Subsidiary Guarantor, any amount paid by the Company or any Subsidiary
Guarantor to the Trustee or such Securityholder, this Guarantee, to the extent
theretofore discharged, shall be reinstated in full force and effect. Each
Subsidiary Guarantor further agrees that, as between each Subsidiary Guarantor,
on the one hand, and the Holders and the Trustee, on the other hand, (x) the
maturity of the obligations guaranteed hereby may be accelerated as provided in
Article Six for the purposes of this Guarantee, notwithstanding any stay,
injunction or other prohibition preventing such acceleration in respect of the
obligations guaranteed hereby, and (y) in the event of any acceleration of such
obligations as provided in Article Six, such obligations (whether or not due
and payable) shall forthwith become due and payable by each Subsidiary
Guarantor for the purpose of this Guarantee.
SECTION 10.02. Severability.
In case any provision of this Guarantee shall be invalid, illegal
or unenforceable, the validity, legality, and
<PAGE> 95
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 10.03. Release of a Subsidiary Guarantor.
Upon (i) the release by the lenders under the Term Loans, related
documents and future refinancings thereof of all guarantees of a Subsidiary
Guarantor and all Liens on the property and assets of such Subsidiary Guarantor
relating to such Indebtedness, or (ii) the sale or disposition (whether by
merger, stock purchase, asset sale or otherwise) of a Subsidiary Guarantor (or
all or substantially all its assets) to an entity which is not a Subsidiary of
the Company and which sale or disposition is otherwise in compliance with the
terms of this Indenture, such Subsidiary Guarantor shall be deemed released
from all obligations under this Article Ten without any further action required
on the part of the Trustee or any Holder; provided, however, that any such
termination shall occur only to the extent that all obligations of such
Subsidiary Guarantor under all of its guarantees of, and under all of its
pledges of assets or other security interests which secure, such Indebtedness
of the Company shall also terminate upon such release, sale or transfer.
The Trustee shall deliver an appropriate instrument evidencing such
release upon receipt of a request by the Company accompanied by an Officers'
Certificate certifying as to the compliance with this Section 10.03. Any
Subsidiary Guarantor not so released remains liable for the full amount of
principal of and interest on the Securities as provided in this Article Ten.
SECTION 10.04. Limitation of Subsidiary Guarantor's Liability.
Each Subsidiary Guarantor and by its acceptance hereof each Holder
hereby confirms that it is the intention of all such parties that the guarantee
by such Subsidiary Guarantor pursuant to its Guarantee not constitute a
fraudulent transfer or conveyance for purposes of the Bankruptcy Law, the
Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any
similar Federal or state law. To effectuate the foregoing intention, the
Holders and such Subsidiary Guarantor hereby irrevocably agree that the
obligations of such Subsidiary Guarantor under the Guarantee shall be limited
to the maximum amount as will, after giving effect to all other contingent and
fixed liabilities of such Subsidiary Guarantor and after giving effect to any
collections from or payments made by or on behalf of any other Subsidiary
Guarantor in respect of the obligations of such other Subsidiary Guarantor
under its Guarantee or pursuant to Section
<PAGE> 96
11.06, result in the obligations of such Subsidiary Guarantor under the
Guarantee not constituting such fraudulent transfer or conveyance.
SECTION 10.05. Subsidiary Guarantors May Consolidate,
etc., on Certain Terms.
(a) Nothing contained in this Indenture or in any of the
Securities shall prevent any consolidation or merger of a Subsidiary Guarantor
with or into the Company or another Subsidiary Guarantor or shall prevent any
sale or conveyance of the property of a Subsidiary Guarantor as an entirety or
substantially as an entirety, to the Company or another Subsidiary Guarantor.
Upon any such consolidation, merger, sale or conveyance, the Guarantee given by
such Subsidiary Guarantor shall no longer have any force or effect.
(b) Except as set forth in Article Four and Article Five hereof,
nothing contained in this Indenture or in any of the Securities shall prevent
any consolidation or merger of a Subsidiary Guarantor with or into a
corporation or corporations other than the Company or another Subsidiary
Guarantor (whether or not affiliated with the Subsidiary Guarantor); provided,
however, that, subject to Sections 10.03 and 10.05(a), (i) such transaction
does not violate any covenants set forth in this Indenture and immediately
after such transaction, and giving effect thereto, no Default or Event of
Default shall have occurred as a result of such transaction and be continuing,
and (ii) upon any such consolidation, merger, sale or conveyance, the
Subsidiary Guarantee set forth in this Article Ten, and the due and punctual
performance and observance of all of the covenants and conditions of this
Indenture to be performed by such Subsidiary Guarantor, shall be expressly
assumed (in the event that the Subsidiary Guarantor is not the surviving
corporation in the merger), by supplemental indenture satisfactory in form to
the Trustee, executed and delivered to the Trustee, by the corporation formed
by such consolidation, or into which the Subsidiary Guarantor shall have
merged, or by the corporation that shall have acquired such property. In the
case of any such consolidation, merger, sale or conveyance and upon the
assumption by the successor corporation, by supplemental indenture executed and
delivered to the Trustee and satisfactory in form to the Trustee of the due and
punctual performance of all of the covenants and conditions of this Indenture
to be performed by the Subsidiary Guarantor, such successor corporation shall
succeed to and be substituted for the Subsidiary Guarantor with the same effect
as if it had been named herein as a Subsidiary Guarantor; provided, however,
that solely for purposes of computing amounts described in subclause (c) of the
first paragraph of Section 4.03, any such successor
<PAGE> 97
corporation shall only be deemed to have succeeded to and be substituted for
any Subsidiary Guarantor with respect to periods subsequent to the effective
time of such merger, consolidation or transfer of assets.
SECTION 10.06. Contribution.
In order to provide for just and equitable contribution among the
Subsidiary Guarantors, the Subsidiary Guarantors agree, inter se, that in the
event any payment or distribution is made by any Subsidiary Guarantor (a
"Funding Guarantor") under the Guarantee, such Funding Guarantor shall be
entitled to a contribution from all other Subsidiary Guarantors in a pro rata
amount based on the Adjusted Net Assets of each Subsidiary Guarantor (including
the Funding Guarantor) for all payments, damages and expenses incurred by that
Funding Guarantor in discharging the Company's obligations with respect to the
Securities or any other Subsidiary Guarantor's obligations with respect to the
Guarantee. "Adjusted Net Assets" of such Subsidiary Guarantor at any date
shall mean the lesser of the amount by which (x) the fair value of the property
of such Subsidiary Guarantor exceeds the total amount of liabilities,
including, without limitation, contingent liabilities (after giving effect to
all other fixed and contingent liabilities incurred or assumed on such date
(other than liabilities of such Subsidiary Guarantor under Indebtedness which
constitutes Subordinated Indebtedness with respect to such Guarantee)), but
excluding liabilities under the Guarantee of such Subsidiary Guarantor, at such
date and (y) the present fair salable value of the assets of such Subsidiary
Guarantor at such date exceeds the amount that will be required to pay the
probable liability of such Subsidiary Guarantor on its debts (after giving
effect to all other fixed and contingent liabilities incurred or assumed on
such date (other than liabilities of such Subsidiary Guarantor under
Indebtedness which constitutes Subordinated Indebtedness with respect to such
Guarantee) and after giving effect to any collection from any Subsidiary of
such Subsidiary Guarantor in respect of the obligations of such Subsidiary
under the Guarantee), excluding debt in respect of the Guarantee of such
Subsidiary Guarantor, as they become absolute and matured.
SECTION 10.07. Waiver of Subrogation.
Each Subsidiary Guarantor hereby irrevocably waives any claim or
other rights which it may now or hereafter acquire against the Company that
arise from the existence, payment, performance or enforcement of such
Subsidiary Guarantor's obligations under the Guarantee and this Indenture,
including, without limitation, any right of subrogation, reimbursement,
<PAGE> 98
exoneration, indemnification, and any right to participate in any claim or
remedy of any Holder of Securities against the Company, whether or not such
claim, remedy or right arises in equity, or under contract, statute or common
law, including, without limitation, the right to take or receive from the
Company, directly or indirectly, in cash or other property or by set-off or in
any other manner, payment or security on account of such claim or other rights.
If any amount shall be paid to any Subsidiary Guarantor in violation of the
preceding sentence and the Securities shall not have been paid in full, such
amount shall have been deemed to have been paid to such Subsidiary Guarantor
for the benefit of, and held in trust for the benefit of, the Holders of the
Securities, and shall forthwith be paid to the Trustee for the benefit of such
Holders to be credited and applied upon the Securities, whether matured or
unmatured, in accordance with the terms of this Indenture. Each Subsidiary
Guarantor acknowledges that it will receive direct and indirect benefits from
the financing arrangements contemplated by this Indenture and that the waiver
set forth in this Section 10.07 is knowingly made in contemplation of such
benefits.
SECTION 10.08. Execution of Guarantee.
To evidence their guarantee to the Securityholders set forth in
this Article Ten, the Subsidiary Guarantors hereby agree to execute the
Guarantee in substantially the form included in Exhibit A, which shall be
endorsed on each Security ordered to be authenticated and delivered by the
Trustee. Each Subsidiary Guarantor hereby agrees that its Guarantee set forth
in this Article Ten shall remain in full force and effect notwithstanding any
failure to endorse on each Security a notation of such Guarantee. Each such
Guarantee shall be signed on behalf of each Subsidiary Guarantor by two
Officers, or an Officer and an Assistant Secretary or one Officer shall sign
and one Officer or an Assistant Secretary (each of whom shall, in each case,
have been duly authorized by all requisite corporate actions) shall attest to
such Guarantee prior to the authentication of the Security on which it is
endorsed, and the delivery of such Security by the Trustee, after the
authentication thereof hereunder, shall constitute due delivery of such
Guarantee on behalf of such Subsidiary Guarantor. Such signatures upon the
Guarantee may be by manual or facsimile signature of such officers and may be
imprinted or otherwise reproduced on the Guarantee, and in case any such
officer who shall have signed the Guarantee shall cease to be such officer
before the Security on which such Guarantee is endorsed shall have been
authenticated and delivered by the Trustee or disposed of by the Company, such
Security nevertheless may be authenticated and delivered or disposed of as
though the person
<PAGE> 99
who signed the Guarantee had not ceased to be such officer of the Subsidiary
Guarantor.
SECTION 10.09. Waiver of Stay, Extension or Usury Laws.
Each Subsidiary Guarantor covenants (to the extent that it may
lawfully do so) that it will not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law that would prohibit or forgive each
such Subsidiary Guarantor from performing its Guarantee as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may affect
the covenants or the performance of this Indenture; and (to the extent that it
may lawfully do so) each such Subsidiary Guarantor hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01. TIA Controls.
If any provision of this Indenture limits, qualifies, or conflicts
with the duties imposed by operation of Section 3.18(c) of the TIA, the imposed
duties shall control.
SECTION 11.02. Notices.
Any notices or other communications required or permitted hereunder
shall be in writing, and shall be sufficiently given if made by hand delivery,
by telex, by telecopier or registered or certified mail, postage prepaid,
return receipt requested, addressed as follows:
if to the Company or any Subsidiary Guarantor:
c/o The Yucaipa Companies
10000 Santa Monica Boulevard
Fifth Floor
Los Angeles, California 90067
Attention: Mark A. Resnik
<PAGE> 100
if to the Trustee:
Norwest Bank Minnesota, National Association
Sixth and Marquette
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Division
if to the Credit Agent:
Bankers Trust Company
130 Liberty Street, 14th Floor
New York, New York 10006
Attention: Mary Jo Jolly
with a copy to:
Bankers Trust Company
300 S. Grand Avenue, 41st Floor
Los Angeles, CA 90071
Attention: Eric S. Swanson
Each of the Company, the Trustee, the Subsidiary Guarantors and the
Credit Agent by written notice to each other such person may designate
additional or different addresses for notices to such person. Any notice or
communication to the Company, the Trustee, the Subsidiary Guarantors and the
Credit Agent shall be deemed to have been given or made as of the date so
delivered if personally delivered; when answered back, if telexed; when receipt
is acknowledged, if telecopied; and five (5) calendar days after mailing if
sent by registered or certified mail, postage prepaid (except that a notice of
change of address shall not be deemed to have been given until actually
received by the addressee).
Any notice or communication mailed to a Security- holder shall be
mailed to him by first class mail or other equivalent means at his address as
it appears on the registration books of the Registrar and shall be sufficiently
given to him if so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or
any defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 11.03. Communications by Holders with Other Holders.
Securityholders may communicate pursuant to TIA { 312(b) with other
Securityholders with respect to their
<PAGE> 101
rights under this Indenture or the Securities. The Company, the Subsidiary
Guarantors, the Trustee, the Registrar and any other person shall have the
protection of TIA { 312(c).
SECTION 11.04. Certificate and Opinion as to Conditions
Precedent.______________________________
Upon any request or application by the Company to the Trustee to
take any action under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
SECTION 11.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture, other than the Officers'
Certificate required by Section 4.07, shall include:
(1) a statement that the person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made
such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of each such
person, such condition or covenant has been complied with; provided,
however, that with respect to matters of fact an Opinion of Counsel may
rely on an Officers' Certificate or certificates of public officials.
<PAGE> 102
SECTION 11.06. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules for action by or at a meeting
of Securityholders. The Paying Agent or Registrar may make reasonable rules
for its functions.
SECTION 11.07. Legal Holidays.
A "Legal Holiday" used with respect to a particular place of
payment is a Saturday, a Sunday or a day on which banking institutions in New
York, New York, Los Angeles, California or at such place of payment are not
required to be open. If a payment date is a Legal Holiday at such place,
payment may be made at such place on the next succeeding day that is not a
Legal Holiday, and no interest shall accrue for the intervening period.
SECTION 11.08. Governing Law.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. Each of the parties hereto agrees to submit to
the jurisdiction of the courts of the State of New York in any action or
proceeding arising out of or relating to this Indenture.
SECTION 11.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan
or debt agreement of any of the Company or any of its Subsidiaries. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
SECTION 11.10. No Recourse Against Others.
A director, officer, employee, stockholder or incorporator, as
such, of the Company shall not have any liability for any obligations of the
Company under the Securities or the Indenture or for any claim based on, in
respect of or by reason of such obligations or their creations. Each
Securityholder by accepting a Security waives and releases all such liability.
Such waiver and release are part of the consideration for the issuance of the
Securities.
SECTION 11.11. Successors.
All agreements of the Company and each Subsidiary Guarantor in this
Indenture and the Securities shall bind their
<PAGE> 103
respective successors. All agreements of the Trustee in this Indenture shall
bind its successor.
SECTION 11.12. Duplicate Originals.
All parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together shall represent the
same agreement.
SECTION 11.13. Severability.
In case any one or more of the provisions in this Indenture or in
the Securities shall be held invalid, illegal or unenforceable, in any respect
for any reason, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions shall not in any way be
affected or impaired thereby, it being intended that all of the provisions
hereof shall be enforceable to the full extent permitted by law.
SECTION 11.14. No Violation.
Notwithstanding the provisions of this Indenture, in no event shall
any transaction, agreement, payment or other event to be consummated, entered
into or made in connection with the Merger or any financing thereof be
considered a violation of any provision of this Indenture or constitute a
Change of Control hereunder.
<PAGE> 104
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture
to be duly executed and attested all as of the date first written above.
RALPHS GROCERY COMPANY
By:
Name: Jan Charles Gray
Title: Senior Vice President,
General Counsel and
Secretary
Attest: ___________________
SUBSIDIARY GUARANTORS:
ALPHA BETA COMPANY
BAY AREA WAREHOUSE STORES, INC.
BELL MARKETS, INC.
CALA CO.
CALA FOODS, INC.
CRAWFORD STORES, INC.
FALLEY'S, INC.
FOOD 4 LESS OF CALIFORNIA, INC.
FOOD 4 LESS GM, INC.
FOOD 4 LESS MERCHANDISING, INC.
FOOD 4 LESS OF SOUTHERN
CALIFORNIA, INC.
By:
Name: Jan Charles Gray
Title: Senior Vice President,
General Counsel and
Secretary
(for each of the above-
listed Subsidiary Guarantors)
Attest: _____________________
(for each of the
above-listed
Subsidiary Guarantors)
<PAGE> 105
NORWEST BANK MINNESOTA,
National Association,
as Trustee
By:
Name:
Title:
<PAGE> 106
EXHIBIT A
[FORM OF NOTE]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE
UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS
SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A)
IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE ACT)
OR (B) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE 501 (A)(1), (2), (3)
OR (7) UNDER THE ACT) (AN "ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON
AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE TRANSACTION, (2) AGREES THAT IT
WILL NOT WITHIN THREE YEARS AFTER THE ORIGINAL ISSUANCE OF THE SECURITY RESELL
OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO THE ISSUER OR ANY SUBSIDIARY
THEREOF, (B) INSIDE THE UNITED STATES TO A QUALIFIED INSTITUTIONAL BUYER IN
COMPLIANCE WITH RULE 144A UNDER THE ACT, (C) INSIDE THE UNITED STATES TO AN
ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED
ON ITS BEHALF BY A U.S. BROKER- DEALER) TO THE TRUSTEE OR TRANSFER AGENT A
SIGNED LETTER CONTAINING CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE
RESTRICTIONS ON TRANSFER OF THIS SECURITY (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM THE TRUSTEE OR TRANSFER AGENT FOR THIS SECURITY), (D) OUTSIDE THE
UNITED STATES IN AN OFFSHORE TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE
ACT, (E) PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
THE ACT (IF AVAILABLE), OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS
SECURITY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND.
IN CONNECTION WITH ANY TRANSFER OF THIS SECURITY WITHIN THREE YEARS AFTER THE
ORIGINAL ISSUANCE OF THIS SECURITY, IF THE PROPOSED TRANSFEREE IS AN ACCREDITED
INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE OR
TRANSFER AGENT AND THE ISSUER SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER
INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH
TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE ACT. AS USED HEREIN, THE
TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE
MEANING GIVEN TO \ THEM BY REGULATION S UNDER THE ACT.
A-1
<PAGE> 107
FOR PURPOSES OF SECTIONS 1272, 1273 AND 1275 OF THE INTERNAL
REVENUE CODE OF 1986, AS AMENDED, AND THE RULES AND REGULATIONS THEREUNDER, AS
OF THE ISSUE DATE, THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT;
FOR EACH $1,000 PRINCIPAL AMOUNT OF THIS SECURITY, (1) THE ISSUE PRICE IS
$946.25; (2) THE AMOUNT OF ORIGINAL ISSUE DISCOUNT IS $53.75; (3) THE ISSUE
DATE IS JUNE 6, 1996; (4) THE YIELD TO MATURITY (COMPOUNDED SEMI-ANNUALLY) IS
11 1/2%.
A-2
<PAGE> 108
RALPHS GROCERY COMPANY
10.45% Senior Note
due 2004
No. $
RALPHS GROCERY COMPANY, a Delaware corporation (the "Company",
which term includes any successor corporation), for value received promises to
pay to
or registered assigns, the principal sum of Dollars, on June 15, 2004.
Interest Payment Dates: June 15 and December 15 commencing on June
15, 1996.
Record Dates: June 1 and December 1 provided that with respect to
the interest payment on June 15, 1996, the Record Date shall be the Issue Date.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
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<PAGE> 109
IN WITNESS WHEREOF, the Company has caused this Security to be
signed manually or by facsimile by its duly authorized officers.
Dated:
RALPHS GROCERY COMPANY
By:
Name: Jan Charles Gray
Title: Executive Vice President
and Chief Financial Officer
By:
Name: Grey Mays
Title: Senior Vice President,
General Counsel and
Secretary
A-4
<PAGE> 110
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Securities described in the within-mentioned
Indenture.
NORWEST BANK MINNESOTA,
National Association,
as Trustee
By
Authorized Signatory
A-5
<PAGE> 111
RALPHS GROCERY COMPANY
10.45% Senior Note
due 2004
1. Interest.
RALPHS GROCERY COMPANY, a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Security at the rate
per annum shown above. The Company will pay interest semi-annually on each
June 15 and December 15 of each year (the "Interest Payment Date"), commencing
June 15, 1996 to the Holders of record on the immediately preceding June 1 and
December 1; provided that the interest payment on June 15, 1996 shall be paid
to the Holders of record on the Issue Date. Interest on the Securities will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from date of original issuance. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
The Company shall pay interest on overdue principal and interest on
overdue installments of interest, to the extent lawful, at a rate equal to the
rate of interest otherwise payable on the Securities.
2. Method of Payment.
The Company shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of
business on the Record Date immediately preceding the Interest Payment Date
even if the Securities are cancelled on registration of transfer or
registration of exchange after such Record Date. Holders must surrender
Securities to a Paying Agent to collect principal payments. The Company shall
pay principal and interest in money of the United States that at the time of
payment is legal tender for payment of public and private debts ("U.S. Legal
Tender"). However, the Company may pay principal and interest by wire transfer
of Federal funds, or interest by its check payable in such U.S. Legal Tender.
The Company may deliver any such interest payment to the Paying Agent or to a
Holder at the Holder's registered address. Notwithstanding the foregoing, the
Company shall pay or cause to be paid all amounts payable with respect to
non-DTC eligible Securities by wire transfer of Federal funds to the account of
the Holders of such Securities.
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<PAGE> 112
3. Paying Agent and Registrar.
Initially, Norwest Bank Minnesota, National Association (the
"Trustee") will act as Paying Agent and Registrar. The Company may change any
Paying Agent, Registrar or co-Registrar without notice to the Holders. The
Company or any of its Subsidiaries may, subject to certain exceptions, act as
Paying Agent, Registrar or co-Registrar.
4. Indenture and Guarantees.
The Company issued the Securities under an Indenture, dated as of
June 1, 1995 (the "Indenture"), among the Company, the Subsidiary Guarantors
and the Trustee. Capitalized terms herein are used as defined in the Indenture
unless otherwise defined herein. The terms of the Securities include those
stated in the Indenture and those made part of the Indenture by reference to
the Trust Indenture Act of 1939 (15 U.S. Code {{ 77aaa-77bbbb) (the "TIA"), as
in effect on the date of the Indenture until such time as the Indenture is
qualified under the TIA, and thereafter as in effect on the date on which the
Indenture is qualified under the TIA. Notwithstanding anything to the contrary
herein, the Securities are subject to all such terms, and Holders of Securities
are referred to the Indenture and said Act for a statement of them. The
Securities are general unsecured obligations of the Company limited in
aggregate principal amount to $100,000,000. Payment on each Security is
guaranteed on a senior basis, jointly and severally, by the Subsidiary
Guarantors pursuant to Article Ten of the Indenture.
5. Optional Redemption.
On or after June 15, 2000 the Securities may be redeemed in whole
at any time or in part from time to time, at the option of the Company, at a
redemption price equal to the applicable percentage of the principal amount
thereof set forth below, together with accrued and unpaid interest to the
Redemption Date, if redeemed during the 12 months commencing on June 15 in the
years set forth below:
<TABLE>
<CAPTION>
Year Percentage
<S> <C>
2000 ...................... 105.225%
2001 ...................... 103.483%
2002 ...................... 101.742%
2003 and thereafter ....... 100.000%
</TABLE>
A-7
<PAGE> 113
In addition, on or prior to June 15, 1998, the Company may, at its
option, use the net cash proceeds of one or more Public Equity Offerings to
redeem up to an aggregate of 35% of the principal amount of the Securities
originally issued, at a redemption price equal to 110.450% of the principal
amount thereof if redeemed during the period commencing on the Issue Date and
ending on June 14, 1995, 108.957% of the principal amount thereof if redeemed
during the 12 months commencing on June 15, 1996 and 107.464% of the principal
amount thereof if redeemed during the 12 months commencing on June 15, 1997, in
each case plus accrued and unpaid interest, if any, to the redemption date.
6. Notice of Redemption.
Notice of redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each Holder of Securities to be
redeemed at such Holder's registered address. In order to effect a redemption
with the proceeds of a Public Equity Offering, the Company shall send the
redemption notice not later than 60 days after the consummation of such Public
Equity Offering. Securities in denominations larger than $1,000 may be
redeemed in part.
Except as set forth in the Indenture, from and after any Redemption
Date, if monies for the redemption of the Securities called for redemption
shall have been deposited with the Paying Agent for redemption on such
Redemption Date, then, unless the Company defaults in the payment of such
Redemption Price, the Securities called for redemption will cease to bear
interest and the only right of the Holders of such Securities will be to
receive payment of the Redemption Price.
7. Change of Control Offer.
Upon the occurrence of a Change of Control, each Holder shall have
the right to require the repurchase of such Holder's Securities pursuant to a
Change of Control Offer at a purchase price equal to 101% of the principal
amount thereof plus accrued interest, if any, to the date of purchase.
8. Limitation on Asset Sales.
Under certain circumstances the Company is required to apply the
net proceeds from Asset Sales to the repayment of Pari Passu Indebtedness, to
make Related Business Investments, an investment in properties and assets that
replace the properties and assets that are the subject of such Asset Sale, an
investment in properties and assets that will be used in the
A-8
<PAGE> 114
business of the Company and its Subsidiaries existing on the Issue Date or in a
business reasonably related thereto or to purchase in a Net Proceeds Offer (at
a price equal to 100% of the aggregate principal amount thereof, plus accrued
interest to the date of purchase) such aggregate principal amount of Securities
which, when added to the accrued interest thereon, shall be equal to the net
proceeds required to be applied thereto.
9. Denominations; Transfer; Exchange.
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption.
10. Persons Deemed Owners.
The registered Holder of a Security shall be treated as the owner
of it for all purposes.
11. Unclaimed Money.
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee and the Paying Agents will pay the money back to the
Company at its request. After that, all liability of the Trustee and such
Paying Agents with respect to such money shall cease.
12. Discharge Prior to Redemption or Maturity.
If the Company at any time deposits with the Trustee U.S. Legal
Tender or U.S. Government Obligations sufficient to pay the principal of and
interest on the Securities to redemption or maturity and complies with the
other provisions of the Indenture relating thereto, the Company will be
discharged from certain provisions of the Indenture and the Securities
(including the financial covenants, but excluding its obligation to pay the
principal of and interest on the Securities).
A-9
<PAGE> 115
13. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture, the Securities and
the Guarantees may be amended or supplemented with the written consent of the
Holders of at least a majority in aggregate principal amount of the Securities
then outstanding, and any existing Default or Event of Default or compliance
with any provision may be waived with the consent of the Holders of a majority
in aggregate principal amount of the Securities then outstanding. Without
notice to or consent of any Holder, the parties thereto may amend or supplement
the Indenture or the Securities to, among other things, cure any ambiguity,
defect or inconsistency, provide for uncertificated Securities in addition to
or in place of certificated Securities, comply with Article Five or Section
10.05 of the Indenture, or comply with any requirements of the SEC in
connection with the qualification of the Indenture under the TIA, or make any
other change that does not adversely affect the rights of any Holder of a
Security.
14. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of the
Company and its Subsidiaries to, among other things, incur additional
Indebtedness or Liens, make payments in respect of its Capital Stock and merge
or consolidate with any other person and sell, lease, transfer or otherwise
dispose of substantially all of its properties or assets. The limitations are
subject to a number of important qualifications and exceptions. The Company
must annually report to the Trustee on compliance with such limitations.
15. Successors.
When a successor assumes all the obligations of its predecessor
under the Securities and the Indenture, the predecessor will be released from
those obligations.
16. Defaults and Remedies.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of
Securities may not enforce the Indenture or the Securities except as provided
in the Indenture. The Trustee may require indemnity satisfactory to it before
it enforces the Indenture or the Securities. Subject to certain limitations,
Holders of
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<PAGE> 116
a majority in aggregate principal amount of the Securities then outstanding may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of Securities notice of any continuing Default or Event
of Default (except a Default in payment of principal or interest) if it
determines that withholding notice is in their interest.
17. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company, its Subsidiaries or their respective Affiliates as if it were
not the Trustee.
18. No Recourse Against Others.
No stockholder, director, officer, employee or incorporator, as
such, of the Company shall have any liability for any obligation of the Company
under the Securities or the Indenture or for any claim based on, in respect of
or by reason of, such obligations or their creation. Each Holder of a Security
by accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities.
19. Authentication.
This Security shall not be valid until the Trustee or
authenticating agent manually signs the certificate of authentication on this
Security.
20. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
21. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, the Company will cause CUSIP
numbers to be printed on the Securities immediately prior to the qualification
of the Indenture under the TIA as a convenience to the Holders of the
Securities. No representation is made as to the accuracy of
A-11
<PAGE> 117
such numbers as printed on the Securities and reliance may be placed only on
the other identification numbers printed hereon.
The Company will furnish to any Holder of a Security upon written
request and without charge a copy of the Indenture. Requests may be made to:
Ralphs Grocery Company, Inc., c/o The Yucaipa Companies, 10000 Santa Monica
Boulevard, Fifth Floor, Los Angeles, California 90067, Attn: Mark Resnik.
A-12
<PAGE> 118
[FORM OF NOTATION ON NOTE RELATING TO GUARANTEE]
GUARANTEE
The Subsidiary Guarantors (as defined in the Indenture (the
"Indenture") referred to in the Security upon which this notation is endorsed
and each hereinafter referred to as a "Subsidiary Guarantor," which term
includes any successor person under the Indenture) have unconditionally
guaranteed on a senior unsecured basis (such guarantee by each Subsidiary
Guarantor being referred to herein as the "Guarantee") (i) the due and punctual
payment of the principal of and interest on the Securities, whether at
maturity, by acceleration or otherwise, the due and punctual payment of
interest on the overdue principal and interest, if any, on the Securities, to
the extent lawful, and the due and punctual performance of all other
obligations of the Company to the Holders or the Trustee all in accordance with
the terms set forth in Article Ten of the Indenture and (ii) in case of any
extension of time of payment or renewal of any Securities or any of such other
obligations, that the same will be promptly paid in full when due or performed
in accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise.
The obligations of each Subsidiary Guarantor to the Holders of
Securities and to the Trustee pursuant to the Guarantee and the Indenture are
expressly set forth and are senior unsecured obligations of each such
Subsidiary Guarantor, to the extent and in the manner provided, in Article Ten
of the Indenture, and reference is hereby made to such Indenture for the
precise terms of the Guarantee therein made.
No stockholder, officer, director or incorporator, as such, past,
present or future, of any Subsidiary Guarantor shall have any liability under
the Guarantee by reason of his or its status as such stockholder, officer,
director or incorporator.
A-13
<PAGE> 119
The Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication on the Securities upon which the
Guarantee is noted shall have been executed by the Trustee under the Indenture
by the manual signature of one of its authorized officers.
SUBSIDIARY GUARANTORS:
CALA CO.
CALA FOODS, INC.
CRAWFORD STORES, INC.
BELL MARKETS, INC.
FOOD 4 LESS OF SOUTHERN
CALIFORNIA, INC.
ALPHA BETA COMPANY
FOOD 4 LESS OF CALIFORNIA, INC.
FALLEY'S, INC.
FOOD 4 LESS MERCHANDISING, INC.
BAY AREA WAREHOUSE STORES, INC.
FOOD 4 LESS GM, INC.
By:
Name: Greg Mays
(for each of the above-listed
Subsidiary Guarantors)
By:
Name: Jan Charles Gray
(for each of the above-listed
Subsidiary Guarantors)
A-14
<PAGE> 120
[FORM OF ASSIGNMENT]
To assign this Security fill in the form below:
I or we assign and transfer this Security to
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type assignee's name, address and zip code)
Please insert Social Security or other
identifying number of assignee
- ------------------------------------------
and irrevocably appoint _______________________ agent to transfer this Security
on the books of the Company. The agent may substitute another to act for him.
Dated:_______________ Signature:____________________________
- -------------------------------------------------------------------------------
(Sign exactly as your name appears on
the face of this Security)
Signature Guarantee:__________________________________________
In connection with any transfer of this Security occurring prior to
the date which is the earlier of (i) the date of the declaration by the SEC of
the effectiveness of a registration statement under the Securities Act of 1933,
as amended (the "Securities Act"), covering resales of this Security (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) June 6, 1999, the undersigned confirms that it has not
utilized any general solicitation or general advertising in connection with the
transfer and that this Security is being transferred:
A-15
<PAGE> 121
[Check One]
<TABLE>
<S> <C> <C>
(1) __ to the Company or a subsidiary thereof; or
(2) __ pursuant to and in compliance with Rule 144A under
the Securities Act; or
(3) __ to an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) that has furnished to the Trustee a
signed letter containing certain representations and
agreements (the form of which letter can be obtained
from the Trustee); or
(4) __ outside the United states to a "foreign person" in
compliance with Rule 904 of Regulation S under the
Securities Act; or
(5) __ pursuant to the exemption from registration provided
by Rule 144 under the Securities Act; or
(6) __ pursuant to an effective registration statement under
the Securities Act; or
(7) __ pursuant to another available exemption from the
registration requirements of the Securities Act.
</TABLE>
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Securities evidenced by this certificate in the name of any person other
than the registered Holder thereof; provided that if box (3), (4), (5) or (7)
is checked, the Company or the Trustee may require, prior to registering any
such transfer of the Securities, in its sole discretion, such legal opinions,
certifications (including an investment letter in the case of box (3) or (4))
and other information as the Trustee or the Company has reasonably requested to
confirm that such transfer is being made pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities
Act.
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<PAGE> 122
If none of the foregoing boxes is checked, the Trustee or Registrar shall not
be obligated to register this Security in the name of any person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.15 of the Indenture shall have
been satisfied.
Dated: __________________ Signed: ____________________________
(Sign exactly as name
appears on the other side
of this Security)
Signature Guarantee:
TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is relying
upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated: __________________ ____________________________
NOTICE: To be executed by
an executive officer
A-17
<PAGE> 123
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.15 or Section 4.16 of the Indenture, as the case may be,
check the appropriate box below: Section 4.15 [ ] Section 4.16 [ ]
If you want to elect to have only part of this Security purchased
by the Company pursuant to Section 4.15 or Section 4.16 of the Indenture, as
the case may be, state the amount you want to be purchased:
$
Date:__________ Signature:____________________________
(Sign exactly as your name
appears on the face of
this Security)
Signature Guarantee:______________________________________
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<PAGE> 124
EXHIBIT B
FORM OF LEGEND FOR GLOBAL NOTES
Any Global Note authenticated and delivered hereunder shall bear a
legend (which would be in addition to any other legends required in the case of
a Restricted Security) in substantially the following form:
THIS SECURITY IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR
A NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS NOTE IS NOT
EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED
IN THE INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER
OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE
DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER
NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED
CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION
("DTC"), TO ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE,
OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE
& CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO SUCH
OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO.,
HAS AN INTEREST HEREIN.
B-1
<PAGE> 125
EXHIBIT C
Form of Certificate To Be
Delivered in Connection with
Transfers to Non-QIB Accredited Investors
___________, ____
Norwest Bank Minnesota,
National Association
Sixth and Marquette
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Division
Re: Ralphs Grocery Company (the
"Company") 10.45% Senior
Notes due 2004 (the "Notes")
Ladies and Gentlemen:
In connection with our proposed purchase of $_______ aggregate
principal amount of the Notes, we confirm that:
1. We have received a copy of the Offering Memorandum (the
"Offering Memorandum"), dated June 3, 1996, relating to the Notes and
such other information as we deem necessary in order to make our
investment decision. We acknowledge that we have read and agreed to the
matters stated on pages (1)-(3) of the Offering Memorandum and in the
section entitled "Transfer Restrictions" of the Offering Memorandum,
including the restrictions on duplication and circulation of the Offering
Memorandum.
2. We understand that any subsequent transfer of the Notes is
subject to certain restrictions and conditions set forth in the Indenture
dated as of June 6, 1996 relating to the Notes (the "Indenture") and the
undersigned agrees to be bound by, and not to resell, pledge or otherwise
transfer the Notes except in compliance with, such restrictions and
conditions and the Securities Act of 1933, as amended (the "Securities
Act").
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<PAGE> 126
3. We understand that the offer and sale of the Notes have not
been registered under the Securities Act, and that the Notes may not be
offered or sold within the United States or to, or for the account or
benefit of, U.S. persons except as permitted in the following sentence.
We agree, on our own behalf and on behalf of any accounts for which we
are acting as hereinafter stated, that if we should sell or otherwise
transfer any Notes we will do so only (i) to the Company or any
subsidiary thereof, (ii) inside the United States in accordance with Rule
144A under the Securities Act to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act), (iii) inside the United
States to an institutional "accredited investor" (as defined below) that,
prior to such transfer, furnishes (or has furnished on its behalf by a
U.S. broker-dealer) to you a signed letter containing certain
representatives and agreements relating to the restrictions on transfer
of the Notes, substantially in the form of this letter, (iv) outside the
United States in accordance with Rule 904 of Regulation S under the
Securities Act, (v) pursuant to the exemption from registration provided
by Rule 144 under the Securities Act (if available), or (vi) pursuant to
an effective registration statement under the Securities Act, and we
further agree to provide to any person purchasing any of the Notes from
us a notice advising such purchaser that resales of the Notes are
restricted as stated herein.
4. We are not acquiring the Notes for or on behalf of, and will
not transfer the Notes to, any pension or welfare plan (as defined in
Section 3 of the Employee Retirement Income Security Act of 1974), except
as permitted in the section entitled "Transfer Restrictions" of the
Offering Memorandum.
5. We understand that, on any proposed resale of any Notes, we
will be required to furnish to you and the Company such certification,
legal opinions and other information as you and the Company may
reasonably require to confirm that the proposed sale complies with the
foregoing restrictions. We further understand that the Notes purchased
by us will bear a legend to the foregoing effect.
6. We are an institutional "accredited investor" (as defined in
Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act)
and have such knowledge and experience in financial and business matters
as to be capable of evaluating the merits and risks of our
C-2
<PAGE> 127
investment in the Notes, and we and any accounts for which we are acting
are each able to bear the economic risk of our or their investment, as
the case may be.
7. We are acquiring the Notes purchased by us for our own
account or for one or more accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole investment
discretion.
You, the Company and the Initial Purchaser (as defined in the
Offering Memorandum) are entitled to rely upon this letter and are irrevocably
authorized to produce this letter or a copy hereof to any interested party in
any administrative or legal proceedings or official inquiry with respect to the
matters covered hereby.
Very truly yours,
[Name of Transferee]
By:
Authorized Signature
C-3
<PAGE> 128
EXHIBIT D
Form of Certificate To Be Delivered
in Connection with Transfers
______Pursuant to Regulation S_____
______________, ____
Norwest Bank Minnesota,
National Association
Sixth and Marquette
Minneapolis, Minnesota 55479-0069
Attention: Corporate Trust Division
Re: Ralphs Grocery Company (the
"Company") 10.45% Senior
Notes due 2004 (the "Notes")
Ladies and Gentlemen:
In connection with our proposed sale of $___________ aggregate
principal amount of the Notes, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the U.S. Securities Act
of 1933, as amended (the "Securities Act"), and, accordingly, we represent
that:
(1) the offer of the Notes was not made to a person in the United
States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on
our behalf reasonably believed that the transferee was outside the United
States, or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor
any person acting on our behalf knows that the transaction has been pre-
arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United
States in contravention of the requirements of Rule 903(b) or Rule 904(b)
of Regulation S, as applicable;
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<PAGE> 129
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer restrictions
applicable to the Notes.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate
have the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
Authorized Signature
D-2
<PAGE> 1
EXHIBIT 5.1
LATHAM & WATKINS
ATTORNEYS AT LAW
633 WEST FIFTH STREET, SUITE 4000
LOS ANGELES, CALIFORNIA 90071-2007
________, 1996
Ralphs Grocery Company
1100 West Artesia Boulevard
Compton, California 90220
Re: RALPHS GROCERY COMPANY
REGISTRATION STATEMENT ON FORM S-4 (FILE NO. 333-______)
Ladies and Gentlemen:
At your request, we have examined the Registration Statement on Form
S-4 (the "Registration Statement") referenced above, which you have filed with
the Securities and Exchange Commission in connection with the registration
under the Securities Act of 1933, as amended, of $100,000,000 principal amount
of 10.45% Senior Notes due 2004 (the "Exchange Notes"), to be offered and
issued by Ralphs Grocery Company (the "Company"), together with guarantees of
the Exchange Notes (the "Guarantees") by Alpha Beta Company, Bay Area Warehouse
Stores, Inc., Bell Markets, Inc., Cala Co., Cala Foods, Inc., Crawford Stores,
Inc., Food 4 Less of California, Inc., Food 4 Less GM, Inc., Food 4 Less
Merchandising, Inc. and Food 4 Less of Southern California, Inc.
(collectively, the "Guarantors").
We have examined such matters of fact and questions of law as we have
considered appropriate for purposes of this opinion. We have examined, among
other things, the terms of the Exchange Notes, the Guarantees and the Indenture
pursuant to which the Exchange Notes and Guarantees are to be issued. In our
examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, and the conformity
to authentic original documents of all documents submitted to us as copies.
We are opining herein as to the effect on the subject transaction only
of the federal laws of the United States, the internal laws of the State of New
York and the General Corporation Law of the State of Delaware, and we express
no opinion with respect to the applicability thereto, or the effect thereon, of
any other laws.
Based upon the foregoing, we are of the opinion that, upon issuance
thereof in the manner described in the Registration Statement, the Exchange
Notes will be legally valid and binding obligations of the Company and the
Guarantees will be legally valid and binding obligations of the Guarantors, in
each case except as may be limited by the effect of bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting the rights or remedies of creditors; the effect of
general principles of equity, whether enforcement is considered in a
proceeding in equity or at law, and the discretion of the court before which
any proceeding therefor may be brought;
<PAGE> 2
LATHAM & WATKINS
Ralphs Grocery Company
________, 1996
Page 2
and the unenforceability under certain circumstances under law or court
decisions of provisions providing for the indemnification of or contribution to
a party with respect to a liability where such indemnification or contribution
is contrary to public policy.
We consent to your filing this opinion as an exhibit to the
Registration Statement.
Very truly yours,
<PAGE> 1
EXHIBIT 5.2
IRWIN CLUTTER SEVERSON & HINKEL
2201 S.W. 29TH STREET
P.O. BOX 5514
TOPEKA, KANSAS 66605-0514
___________, 1996
Falley's, Inc.
3120 South Kansas Ave.
Topeka, Kansas 66611
Re: RALPHS GROCERY COMPANY
REGISTRATION STATEMENT ON FORM S-4 (FILE NO. 333-______)
--------------------------------------------------------
Gentlemen:
At your request, we have examined the Registration Statement on Form
S-4 (File No. 333-______) (the "Registration Statement") of Ralphs Grocery
Company ("Ralphs") and the Subsidiary Guarantors (as defined therein), including
Falley's, Inc. ("Falley's"), filed with the Securities and Exchange Commission
in connection with the registration under the Securities Act of 1933, as
amended, of the guarantee (the "Guarantee") by Falley's, and the other
Subsidiary Guarantors, of $100 million principal amount of 10.45% Senior Notes
due 2004 to be issued in exchange for the issued and outstanding 10.45% Senior
Notes due 2004 of Ralphs Grocery Company.
We have examined such matters of fact and questions of law as we have
considered appropriate for purposes of this opinion. We have examined, among
other things, the terms of the Guarantee and the indenture pursuant to which the
Guarantee is to be issued. In our examination, we have assumed the genuineness
of all signatures, the authenticity of all documents submitted to us as
originals, and the conformity to authentic original documents of all documents
submitted to us as copies.
We are opining herein as to the effect on the subject transaction only
of the internal laws of the State of Kansas, and we express no opinion with
respect to the applicability thereto, or the effect thereon, of any other laws.
<PAGE> 2
Falley's, Inc.
__________, 1996
Page 2
Based upon the foregoing, we are of the opinion that, upon issuance
thereof in the manner described in the Registration Statement, the Guarantee
will be a legally valid and binding obligation of Falley's, except as may be
limited by the effect of bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to or affecting the
rights or remedies of creditors; the effect of general principles of equity,
whether enforcement is considered in a proceeding in equity or at law, and the
discretion of the court before which any proceeding therefor may be brought;
and the unenforceability under certain circumstances under law or court
decisions of provisions providing for the indemnification of or contribution to
a party with respect to a liability where such indemnification or contribution
is contrary to public policy.
We consent to your filing this opinion as an exhibit to the
Registration Statement.
Very truly yours,
IRWIN CLUTTER SEVERSON & HINKEL
<PAGE> 1
EXHIBIT 8
LATHAM & WATKINS
ATTORNEYS AT LAW
633 WEST FIFTH STREET, SUITE 4000
LOS ANGELES, CALIFORNIA 90071-2007
__________, 1996
Ralphs Grocery Company
1100 West Artesia Boulevard
Compton, California 90220
Re: RALPHS GROCERY COMPANY
REGISTRATION STATEMENT ON FORM S-4 (FILE NO. 333-__________)
Ladies and Gentlemen:
You have requested our opinion concerning the material federal income
tax consequences of the exchange of 10.45% Senior Notes due 2004 of Ralphs
Grocery Company (the "Company") which have been registered under the Securities
Act of 1933, as amended, for outstanding 10.45% Senior Notes due 2004 of the
Company, in connection with the Registration Statement on Form S-4 filed
herewith (the "Registration Statement").
The facts, as we understand them, and upon which with your permission
we rely in rendering the opinion expressed herein, are set forth in the
Registration Statement. Based on such facts, it is our opinion that the
material federal income tax consequences are accurately set forth under the
heading "Certain Federal Income Tax Considerations" in the Registration
Statement. No opinion is expressed as to any matter not discussed therein.
This opinion is based on various statutory provisions, regulations
promulgated thereunder and interpretations thereof by the Internal Revenue
Service and the courts having jurisdiction over such matters, all of which are
subject to change either prospectively or retroactively. Also, any variation
or difference in the facts from those set forth in the Registration Statement
may affect the conclusion stated herein.
This opinion is rendered to you solely for use in connection with the
Registration Statement. We consent to your filing this opinion as an exhibit
to the Registration Statement and to the reference to our firm under the
headings "Certain Federal Income Tax Considerations" and "Legal Matters."
Very truly yours,
<PAGE> 1
Exhibit 10.17
RALPHS GROCERY COMPANY
$100,000,000 10.45% Senior Notes due 2004
PURCHASE AGREEMENT
June 3, 1996
BT Securities Corporation
One Bankers Trust Plaza
New York, New York 10005
Ladies and Gentlemen:
Ralphs Grocery Company, a Delaware corporation (the "Company"),
together with each of Alpha Beta Company, Bay Area Warehouse Stores, Inc., Bell
Markets, Inc., Cala Co., Cala Foods, Inc., Falley's Inc., Food 4 Less of
California, Inc., Food 4 Less Merchandising, Inc., Food 4 Less of Southern
California, Inc., Food 4 Less GM, Inc., and Crawford Stores, Inc. as guarantors
(collectively, the "Subsidiary Guarantors", and together with the Company, the
"Issuers"), hereby confirm that agreement with you (the "Initial Purchaser"),
as set forth below:
1. The Securities. Subject to the terms and conditions herein
contained, the Company proposes to issue and sell to the Initial Purchaser
$100,000,000 aggregate principal amount of its Senior Notes, which will be part
of the same issue as the 10.45% Senior Notes due 2004 (the "Notes"). The Notes
will be unconditionally guaranteed (the "Guarantees") on a joint and several
basis, by the Subsidiary Guarantors. The Notes and the Guarantees are
hereinafter referred to collectively as the "Securities". The Notes are to be
issued under an indenture (the "Indenture") to be dated June 6, 1996, by and
among the Company, the Subsidiary Guarantors and Norwest Bank Minnesota,
National Association, as trustee (the "Trustee").
The Notes will be offered and sold to the Initial Purchaser without
such offers and sales being registered under the Securities Act of 1933, as
amended (the "Act"), in reliance on exemptions therefrom.
<PAGE> 2
In connection with the sale of the Notes, the Company has prepared
a preliminary offering memorandum dated May 31, 1996 (the "Preliminary
Memorandum"), and a final offering memorandum dated June 3, 1996 (the "Final
Memorandum"; the Preliminary Memorandum and the Final Memorandum each herein
being referred to as a "Memorandum") setting forth or including a description
of the terms of the Notes, the terms of the offering of the Notes, a
description of the Company and its subsidiaries and any material developments
relating to the Company and its subsidiaries occurring after the date of the
most recent historical financial statements included therein.
The Company and the Subsidiary Guarantors understand that the
Initial Purchaser proposes to make an offering of the Notes only on the terms
and in the manner set forth in the Memorandum and Section 8 hereof as soon as
the Initial Purchaser deems advisable after this Agreement has been executed
and delivered, to persons in the United States whom the Initial Purchaser
reasonably believes to be qualified institutional buyers ("QIBs") as defined in
Rule 144A under the Act, as such rule may be amended from time to time ("Rule
144A"), in transactions under Rule 144A, and to a limited number of
institutional "accredited investors" ("Accredited Investors"), as defined in
Rule 501(a)(1), (2), (3) and (7) under Regulation D of the Act in private sales
exempt from registration under the Act, and outside the United States to
certain persons in reliance on Regulation S under the Act.
The Initial Purchaser and its direct and indirect transferees of
the Notes will be entitled to the benefits of the Registration Rights
Agreement, substantially in the form attached hereto as Exhibit A (the
"Registration Rights Agreement"), pursuant to which the Issuers have agreed,
among other things, to file (i) a registration statement (the "Registration
Statement") with the Securities and Exchange Commission (the "Commission")
registering the Notes or the Exchange Notes (as defined in the Registration
Rights Agreement) under the Act or (ii) a shelf registration statement pursuant
to Rule 415 under the Act relating to the resale of the Notes by holders
thereof or, if applicable, relating to the resale of Private Exchange Notes (as
defined in the Registration Rights Agreement) by the Initial Purchaser pursuant
to an exchange of the Notes for Private Exchange Notes.
2. Representations and Warranties.
(a) Each Issuer jointly and severally represents and warrants to
and agrees with the Initial Purchaser that:
<PAGE> 3
(i) Neither the Preliminary Memorandum as of the date thereof nor
the Final Memorandum nor any amendment or supplement thereto as of the
date thereof and at all times subsequent thereto up to the Closing Date
(as defined in Section 3 below) contained or contains any untrue
statement of a material fact or omitted or omits to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this Section 2(a) do not
apply to statements or omissions made in reliance upon and in conformity
with information relating to the Initial Purchaser furnished to the
Company in writing by the Initial Purchaser expressly for use in the
Preliminary Memorandum, the Final Memorandum or any amendment or
supplement thereto.
(ii) Each of the Issuers has all the necessary corporate power and
authority to execute and deliver this Agreement, to perform its
obligations hereunder and to consummate the transactions contemplated
hereby and by the Final Memorandum (or, if the Final Memorandum is not in
existence, the most recent Preliminary Memorandum). Each of the Issuers
has taken all necessary corporate action to authorize the issuance of the
Securities.
(iii) Each of the Issuers is duly incorporated and validly existing
in good standing as a corporation under the laws of its jurisdiction of
incorporation, with all requisite corporate power and authority to own or
lease its properties and conduct its businesses as now conducted as
described in the Final Memorandum (or, if the Final Memorandum is not in
existence, the most recent Preliminary Memorandum), and each of the
Issuers is duly qualified to do business as a foreign corporation in good
standing in all other jurisdictions where the ownership or leasing of its
properties or the conduct of its businesses requires such qualification,
except where the failure to be so qualified would not have (x) a material
adverse effect on the business, condition (financial or other) or results
of operations of the Issuers taken as a whole; or (y) an adverse effect
on the ability of any Issuer to perform any of its material obligations
under this Agreement, the Indenture or the Securities (a "Material
Adverse Effect"); the Company has in all material respects, the
authorized, issued and outstanding capitalization set forth in the Final
Memorandum (or, if the Final Memorandum is not in existence, the most
recent Preliminary Memorandum); the only direct or indirect subsidiaries
of the Company are the Subsidiary Guarantors;
<PAGE> 4
except as aforesaid, none of the Issuers owns, directly or indirectly,
any of the capital stock or other equity securities of any other person,
except that Alpha Beta Company has an investment in Certified Grocers of
California, Inc. ("Certified"), one of the Company's suppliers, and in
Adams/Vermont Renaissance Plaza, Ltd., a California limited partnership,
and Food 4 Less GM has an interest in a joint venture with Certified; the
outstanding shares of capital stock of each of the Issuers have been duly
authorized and validly issued, are fully paid and nonassessable and were
not issued in violation of any preemptive or similar rights granted by
such person; and except as described in the Final Memorandum and except
as to any Indebtedness to be repaid on the Closing Date (or, if the Final
Memorandum is not in existence the most recent Preliminary Memorandum),
all of the outstanding shares of capital stock of each of the Subsidiary
Guarantors are owned beneficially by the Company free and clear of all
liens, encumbrances, security interests, mortgages, pledges, charges or
claims. No holders of securities or any of the Issuers are entitled to
have such securities registered under the Registration Statement.
(iv) The Securities, the Exchange Securities and the Private
Exchange Securities have been duly and validly authorized by the Issuers
for issuance and conform in all material respects to the description
thereof in the Final Memorandum (or, if the Final Memorandum is not in
existence, the most recent Preliminary Memorandum). The Securities, the
Exchange Securities and the Private Exchange Securities when executed by
the Issuers and authenticated by the Trustee in accordance with the
provisions of the Indenture, and, in the case of the Securities,
delivered to and paid for by the Initial Purchaser in accordance with the
terms hereof, will have been duly executed, issued and delivered and will
constitute valid and legally binding obligations of the Issuers entitled
to the benefits of the Indenture and enforceable against the Issuers in
accordance with their terms, except that the enforcement thereof may be
subject to (i) bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to creditors'
rights generally, (ii) general principles of equity and the discretion of
the court before which any proceeding therefor may be brought (regardless
of whether such enforcement is considered in a proceeding in equity or at
law), (iii) the unenforceability, under certain circumstances, of
provisions imposing penalties, forfeitures, late payment charges or an
increase in interest rate upon delinquency in payment or the
<PAGE> 5
occurrence of a default, and (iv) the unenforceability of any provision
requiring the payment of attorneys' fees, except to the extent that a
court determines such fees to be reasonable. The Issuers have all
requisite corporate power and authority to execute, deliver and perform
their respective obligations under the Indenture and the Guarantees to
issue and deliver the Securities to the Initial Purchaser as provided
herein and to issue the Exchange Securities and the Private Exchange
Securities as provided in the Registration Rights Agreement. The
Indenture has been duly authorized and, when executed and delivered by
the Issuers (assuming the due authorization, execution and delivery
thereof by the Trustee), will constitute a valid and legally binding
agreement of each of the Issuers enforceable against each of them in
accordance with its terms, except that the enforcement thereof may be
subject to (v) bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other laws now or hereafter in effect relating
to creditors' rights generally, including, without limitation, the effect
on the Guarantees of Section 548 of the Bankruptcy Code and comparable
provisions of state law, (w) general principles of equity and the
discretion of the court before which any proceeding therefor may be
brought (regardless of whether such enforcement is considered in a
proceeding in equity or at law), (x) the unenforceability, under certain
circumstances, of provisions imposing penalties, forfeitures, late
payment charges or an increase in interest rate upon delinquency in
payment or the occurrence of a default, (y) the unenforceability of any
provision requiring the payment of attorneys' fees, except to the extent
that a court determines such fees to be reasonable and (z) the
unenforceability of the provisions contained in the Indenture relating to
the waiver of (A) stay, extension or usury laws and (B) subrogation
rights or other rights and defences of the Subsidiary Guarantors. The
Indenture meets the requirement for qualification under the Trust
Indenture Act.
(v) The Guarantees endorsed on the Securities have been, and the
guarantees endorsed on the Exchange Notes and the Private Exchange Notes
will be, duly authorized and, when executed and delivered, will, upon the
execution, authentication and delivery of the Securities, Exchange
Securities and the Private Exchange Securities and, in the case of the
Securities, payment therefor, be valid and binding obligations of each
Subsidiary Guarantor enforceable against such Subsidiary Guarantor in
accordance with their respective terms, except that the
<PAGE> 6
enforcement thereof may be subject to (v) bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws
now or hereafter in effect relating to creditors' rights generally,
including, without limitation, the effect on such guarantees of Section
548 of the Bankruptcy Code and comparable provisions of state law, (w)
general principles of equity and the discretion of the court before which
any proceeding therefor may be brought (regardless of whether such
enforcement is considered in a proceeding in equity or at law), (x) the
unenforceability, under certain circumstances, of provisions imposing
penalties, forfeitures, late payment charges or an increase in interest
rate upon delinquency in payment or the occurrence of a default, (y) the
unenforceability of any provision requiring the payment of attorneys'
fees, except to the extent that a court determines such fees to be
reasonable and (z) the unenforceability of the provisions contained in
the Indentures relating to the waiver of (A) stay, extension or usury
laws and (B) subrogation rights or other rights and defences of the
Subsidiary Guarantors.
(vi) This Agreement has been duly authorized, executed and
delivered by each of the Issuers and, assuming the due authorization,
execution and delivery hereof by the Initial Purchaser, constitutes the
valid and legally binding obligation of the Issuers enforceable against
the Issuers in accordance with its terms, except that the enforcement
hereof may be subject to (v) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally, (w) general principles of equity and the
discretion of the court before which any proceeding therefor may be
brought (regardless of whether such enforcement is considered in a
proceeding in equity or at law), (x) the unenforceability, under certain
circumstances, of provisions imposing penalties, forfeitures, late
payment charges or an increase in interest rate upon delinquency in
payment or the occurrence of a default, (y) the unenforceability of any
provision requiring the payment of attorneys' fees, except to the extent
that a court determines such fees to be reasonable and (z) the
unenforceability under certain circumstances under law or court decisions
of provisions for the indemnification of or contribution to a party with
respect to a liability where such indemnification or contribution is
contrary to public policy (clauses (v) through (z) above are referred to
collectively herein as, the "Enforceability Limitations"). Except as
described in
<PAGE> 7
the Final Memorandum (or, if the Final Memorandum is not in existence,
the most recent Preliminary Memorandum), no consent, approval,
authorization or order of any court or governmental agency or body is
required for the performance of this Agreement, the Securities, the
Guarantees, the Exchange Securities, the Private Exchange Securities or
the Indenture by any of the Issuers (to the extent each such person is a
party thereto) or the consummation by any Issuer of any of the
transactions contemplated hereby or thereby or by the Final Memorandum
(or, if the Final Memorandum is not in existence, the most recent
Preliminary Memorandum), except such as have been obtained and such as
may be required under the Act, the Trust Indenture Act or state
securities or "Blue Sky" laws or where the failure to obtain such
consent, approval, authorization or order would not have a Material
Adverse Effect. None of the Issuers is (i) in violation of its
certificate of incorporation or bylaws, (ii) in violation of any statute,
judgment, decree, order, rule or regulation applicable to any of the
Issuers which violation would have a Material Adverse Effect, or (iii) in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage,
deed of trust, loan agreement, note, lease, license, franchise agreement,
permit, certificate or other agreement or instrument to which any of the
Issuers is subject, which default would have a Material Adverse Effect.
The execution, delivery and performance by the Issuers of this
Agreement, the Securities, the Guarantees, the Exchange Securities, the
Private Exchange Securities or the Indenture (to the extent each such
person is a party thereto), and the consummation by each of the Issuers
of the transactions contemplated hereby, thereby and by the Final
Memorandum (or, if the Final Memorandum is not in existence, the most
recent Preliminary Memorandum) will not conflict with or constitute or
result in a breach or violation by any of the Issuers of any of (x) the
terms or provisions of, or constitute a default by any of the Issuers
under, any indenture, mortgage, deed of trust, loan agreement, note,
lease, license, franchise agreement, or other agreement or instrument to
which any such person is a party or to which any of them or their
respective properties is subject, which conflict, breach, violation or
default would have a Material Adverse Effect, (y) the certificate of
incorporation or bylaws of any such person, or (z) any statute, judgment,
decree, order, rule or regulation (excluding state securities and "Blue
Sky" laws) of any court or governmental agency or other body
<PAGE> 8
applicable to any such person, or any of their respective properties,
which conflict, breach, violation or default would have a Material
Adverse Effect.
(vii) (x) Immediately after the consummation of the issuance of the
Securities and the consummation of the other transactions contemplated by
the Final Memorandum (or, if the Final Memorandum is not in existence,
the most recent Preliminary Memorandum), the fair value and present fair
saleable value of the assets of each Issuer will exceed the sum of its
stated liabilities and identified contingent liabilities; and (y) after
giving effect to the issuance of the Securities and the consummation of
the other transactions contemplated by the Final Memorandum (or, if the
Final Memorandum is not in existence, the most recent Preliminary
Memorandum), none of the Issuers is (a) left with unreasonably small
capital with which to carry on its business as it is proposed to be
conducted, (b) unable to pay its debts (contingent or otherwise) as they
mature or (c) insolvent.
(viii) Each of the Issuers has all requisite corporate power and
authority to execute, deliver and perform its obligations under the
Registration Rights Agreement. The Registration Rights Agreement has
been duly and validly authorized and, when executed and delivered by the
Issuers will constitute a valid and legally binding agreement of each of
the Issuers enforceable against each of the Issuers in accordance with
its terms, except that the enforcement thereof may be subject to the
Enforceability Limitations.
(ix) The Company has delivered to the Initial Purchaser a true and
correct copy of the New Credit Facility (as defined in the Memorandum)
together with all related documents, instruments and agreements and all
schedules, exhibits, appendices and attachments thereto except as
described in the Final Memorandum (or if the Final Memorandum is not yet
in existence the most recent Preliminary Memorandum); there will have
been no material amendments, alterations, modifications or waivers of any
of the provisions of the New Credit Facility since its date of execution,
other than the first, second and third amendments thereto, the limited
waiver thereunder dated January 28, 1996 and certain releases of
collateral thereunder in connection with equipment sale-leaseback
transactions; there exists as of the date hereof and will exist on the
Closing Date, after giving effect to the issuance of the Securities and
the consummation of the other transactions contemplated by the Final
Memorandum
<PAGE> 9
(or if the Final Memorandum is not yet in existence, the most recent
Preliminary Memorandum) no event or condition which would constitute a
default or an event of default or other violation or breach of the New
Credit Agreement.
(x) Except as disclosed in the Final Memorandum (or, if the Final
Memorandum is not in existence, the most recent Preliminary Memorandum),
and except as would not individually or in the aggregate have a Material
Adverse Effect (w) each of the Issuers is in compliance with all
applicable Environmental Laws (as defined below), (x) each of the Issuers
has all permits, authorizations and approvals required under any
applicable Environmental Laws and is in compliance with their
requirements, (y) there are no pending, or to the best knowledge of any
of the Issuers threatened, Environmental Claims (as defined below)
against any of the Issuers and (z) each of the Issuers does not have
knowledge of any circumstances with respect to any of their respective
properties or operations that could reasonably be anticipated to form the
basis of an Environmental Claim against any of the Issuers or any of
their respective properties or operations and the business operations
relating thereto that could reasonably be expected to have a Material
Adverse Effect. For purposes of this Agreement, the following terms
shall have the following meanings: "Environmental Law" means, with
respect to any person, any federal, state, local or municipal statute,
law, rule, regulation, ordinance, code and any published judicial or
administrative interpretation thereof including any judicial or
administrative order, consent decree or judgment binding on such person
or any of its subsidiaries, relating to the environment, health, safety
or any chemical, material or substance, exposure to which is prohibited,
limited or regulated by any such governmental authority. "Environmental
Claims" means any and all administrative, regulatory or judicial actions,
suits, demands, demand letters, claims, liens, notices of noncompliance
or violation, investigations or proceedings relating in any way to any
Environmental Law.
(xi) The audited consolidated financial statements of the Company
included in the Final Memorandum (or, if the Final Memorandum is not in
existence, the most recent Preliminary Memorandum) present fairly the
consolidated financial position, results of operations and cash flows of
the Company at the dates and for the periods to which they relate, and
have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis, except as otherwise stated
therein, and
<PAGE> 10
the unaudited consolidated financial statements of the Company and the
related notes included in the Final Memorandum (or, if the Final
Memorandum is not in existence, the most recent Preliminary Memorandum)
present fairly the consolidated financial position, results of operations
and cash flows of the Company at the dates and for the periods to which
they relate, subject to year-end audit adjustments, and have been
prepared in accordance with generally accepted accounting principles
applied on a consistent basis, except as otherwise stated therein.
The pro forma financial statements and other pro forma financial
information (including the notes thereto) included in the Final
Memorandum (or, if the Final Memorandum is not in existence, the most
recent Preliminary Memorandum) have been prepared in accordance with
applicable requirements of Regulation S-X promulgated under the
Securities and Exchange Act of 1934, as amended (the "Exchange Act") and
have been properly computed on the bases described therein. The
assumptions used in the preparation of the pro forma financial statements
and other pro forma financial information included in the Final
Memorandum (or, if the Final Memorandum is not in existence, the most
recent Preliminary Memorandum) are reasonable and the adjustments used
therein are appropriate to give effect to the transactions or
circumstances referred to therein.
Each of Arthur Andersen LLP and KPMG Peat Marwick, which has
audited certain of such financial statements as set forth in their
reports included in the Final Memorandum (or, if the Final Memorandum is
not in existence, the most recent Preliminary Memorandum) is an
independent public accounting firm as within the meaning of the Act. The
statistical and market-related data (including, without limitation, the
estimated cost savings information) included in the Final Memorandum (or,
if the Final Memorandum is not in existence, the most recent Preliminary
Memorandum) are based on or derived from sources which the Issuers
believe to be reliable and accurate.
(xii) Except as described in the Final Memorandum (or, if the Final
Memorandum is not in existence, the most recent Preliminary Memorandum)
there is not pending or, to the knowledge of any of the Issuers,
threatened, any action, suit, proceeding, inquiry or investigation to
which any Issuer, or to which the property of any Issuer is subject,
before or brought by any court or governmental
<PAGE> 11
agency or body, which would if adversely determined have a Material
Adverse Effect.
(xiii) Each of the Issuers has (a) good and marketable title to all
the real properties and other material assets (personal, tangible,
intangible or mixed) owned by it, or purported to be owned by it, and, as
of the Closing Date, such title will be free and clear of all liens,
except for liens which would be permitted under the Indenture and (b)
peaceful and undisturbed possession under all leases to which it is a
party as lessee or sublessee, except for such defects in title or lack of
possession that, in the aggregate, could not reasonably be expected to
have a Material Adverse Effect. Each of the Issuers operates all
material real and personal property leased by it under valid and
enforceable leases and has performed in all material respects the
obligations required to be performed by it with respect to each such
lease, except for such leases and obligations which, in the aggregate,
could not reasonably be expected to have a Material Adverse Effect. As
to leases with respect to which any Issuer is the lessor, the lessees and
other parties under such leases are in compliance with all terms and
conditions thereunder and such leases are in full force and effect except
for any failures to comply or remain in full force and effect which could
not reasonably be expected to have a Material Adverse Effect. All
tangible assets and properties of each Issuer are in good working order
(subject to ordinary wear and tear) and are adequate for the uses to
which they are being put or would be put in the ordinary course of
business except for such assets and properties as are not material in the
aggregate to the business, condition (financial or otherwise) or results
of operations of the Issuers taken as a whole.
(xiv) The Issuers own, or are licensed under, and have the rights to
use, all trademarks and trade names (collectively, "Intellectual
Property") used in, or necessary for the conduct of, their businesses as
currently conducted, and the consummation of the transactions
contemplated hereby and by the Final Memorandum (or, if the Final
Memorandum is not in existence, the most recent Preliminary Memorandum)
will not alter or impair any such rights, except for such alterations or
impairments as could not reasonably be expected to have a Material
Adverse Effect. To the best knowledge of the Issuers no claims have been
asserted by any person to the use of any such Intellectual Property or
challenging or questioning the validity or effectiveness of any license
or agreement related thereto, except for
<PAGE> 12
such claims as could not reasonably be expected to have a Material
Adverse Effect. To the best knowledge of the Issuers, there is no valid
basis for any such claim and the use of such Intellectual Property by the
Issuers does not infringe on the rights of any person. Each of the
Issuers has obtained all licenses, permits, franchises and other
governmental authorizations, the lack of which would have a Material
Adverse Effect.
(xv) Subsequent to the respective dates as of which information is
given in the Final Memorandum (or, if the Final Memorandum is not in
existence, the most recent Preliminary Memorandum) and except as
described therein or contemplated thereby, (x) none of the Issuers has
incurred any material liabilities or obligations, direct or contingent,
or entered into any material transactions, not in the ordinary course of
business and (y) none of the Issuers has purchased any of its respective
outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on their respective capital stock or
otherwise.
(xvi) All taxes, assessments, fees and other charges (including,
without limitation, withholding taxes, penalties, and interest) due or
claimed to be due from any of the Issuers that are due and payable have
been paid, other than those being contested in good faith or those
currently payable without penalty or interest and for which an adequate
reserve or accrual has been established in accordance with generally
accepted accounting principles, and except where the failure so to pay is
not reasonably likely to have, singly or in the aggregate, a Material
Adverse Effect. The Issuers know of no actual or proposed additional tax
assessments for any fiscal period against the Issuers that, singly or in
the aggregate, is reasonably likely to have a Material Adverse Effect.
(xvii) None of the Issuers, or any agent acting on behalf of any of
them has taken or will take any action that might cause this Agreement,
the issuance or sale of the Securities or the issuance of the Guarantees
to violate Regulation G, T, U or X of the Board of Governors of the
Federal Reserve System as in effect on the Closing Date.
(xviii) None of the Issuers is now, nor after giving effect to the
issuance of the Securities or the consummation of the other transactions
contemplated by the Final Memorandum (or, if the Final Memorandum is not
in existence, the most recent Preliminary Memorandum) will
<PAGE> 13
any Issuer be, an "investment company" or a company "controlled by" an
"investment company" within the meaning of the Investment Company Act of
1940, as amended.
(xix) Except as stated in the Final Memorandum (or, if the Final
Memorandum is not in existence, the most recent Preliminary Memorandum)
none of the Issuers knows of any outstanding claims for services, either
in the nature of a finder's fee, financial advisory fee, origination fee
or similar fee, with respect to the transactions contemplated hereby.
(xx) Except as stated in the Final Memorandum (or, if the Final
Memorandum is not in existence, the most recent Preliminary Memorandum)
none of the Issuers nor, to the best of the Issuers' knowledge, any of
the Issuers' respective directors, officers or controlling persons has
taken, directly or indirectly, any action designed, or which might
reasonably be expected, to cause or result, under the Act or otherwise,
in, or which has constituted, stablization or manipulation of the price
of any security of the Issuers to facilitate the issuance of the
Securities.
(xxi) None of the Company, the Subsidiary Guarantors or any of their
respective Affiliates (as defined in Rule 501(b) of Regulation D under
the Act) directly, or through any agent, (i) sold, offered for sale,
solicited offers to buy or otherwise negotiated in repsect of, any
"security" (as defined in the Act) which is or could be integrated with
the sale of the Securities in a manner that would require the
registration under the Act of the Securities or (ii) assuming the
accuracy of the representations and warranties of the Initial Purchaser
in Section 8 hereof, engaged in any form of general solicitation or
general advertising (as those terms are used in Regulation D under the
Act) in connection with the offering of the Securities or in any manner
involving a public offering within the meaning of Section 4(2) of the
Act. Assuming (i) the accuracy of the representations and warranties of
the Initial Purchaser in Section 8 hereof, (ii) the due performance by
the Initial Purchaser of the covenants and agreements set forth in
Section 8 hereof, and (iii) compliance by the Initial Purchaser with the
transfer restrictions described under the caption "Transfer Restrictions"
in the Memorandum, it is not necessary in connection with the offer, sale
and deliver of the Securities to the Initial Purchaser in the manner
contemplated by this Agreement to register any of the
<PAGE> 14
Securities under the Act or to qualify the Indenture under the Trust
Indenture Act of 1939, as amended (the "TIA").
(xxii) No securities of any Issuer are of the same class (within the
meaning of Rule 144A under the Act) as the Securities and listed on a
national securities exchange registered under Section 6 of the Exchange
Act, or quoted in a U.S. automated inter-dealter quotation system.
(xxiii) The Issuers have not (a) "incurred," as such term is used in
the Existing Indentures (as defined below), any "Indebtedness" pursuant
to, or in reliance on, the last clause of the definition of "Permitted
Indebtedness," (b) "made," as such term is used in the Existing
Indentures, any "Investments" pursuant to, or in reliance on, the last
clause of the definition of "Permitted Investments" or (c) "created,
incurred, assumed or suffered to exist," as such terms are used in the
Existing Indentures, any "Liens" pursuant to, or in reliance on, the last
full clause of the definition of "Permitted Liens". For purposes of the
preceding sentence, Existing Indentures shall mean, collectively, (i) the
13.75% Senior Subordinated Notes Indenture and the 11% Senior
Subordinated Notes Indenture, each dated as of June 1, 1995 by and
between the Issuers and United States Trust Company of New York, as
trustee and (ii) the 10.45% Senior Notes Indenture dated as of June 1,
1995 by and between the Issuers and Norwest Bank Minnesota, National
Association, as trustee. Capitalized terms in quotes used in this clause
(xxiii) shall have the meanings ascribed to such terms in the applicable
Existing Indenture.
Any certificate signed by any officer of any Issuer and delivered
pursuant to this Agreement or in connection with the payment of the purchase
price and delivery of the Securities shall be deemed a representation and
warranty by the Issuers to the Initial Purchaser as to the matters covered
thereby, and shall not be deemed a representation by such officer as an
individual.
3. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties, agreements
and covenants herein contained and subject to the terms and conditions herein
set forth, the Issuers agree to issue and sell to the Initial Purchaser, and
the Initial Purchaser agrees to purchase from the Issuers, at 92.375% of their
principal amount, the Securities. One or more certificates in definitive form
for the Securities that the
<PAGE> 15
Initial Purchaser has agreed to purchase hereunder, and in such denomination or
denominations and registered in such name or names as the Initial Purchaser
requests upon notice to the Issuers at least 48 hours prior to the Closing
Date, shall be delivered by or on behalf of the Company, against payment by or
on behalf of the Initial Purchaser of the purchase price therefor by wire
transfer or check of immediately available funds to the account of the Company.
Such delivery of and payment for the Securities shall be made at the offices of
Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005, at 10:00
A.M., New York time, on June 6, 1996, or at such other place, time or date as
the Initial Purchaser and the Issuers may agree upon, such time and date of
delivery against payment being herein referred to as the "Closing Date." The
Issuers will make such certificate or certificates for the Securities available
for checking and packaging by the Initial Purchaser at the offices in New York,
New York of BT Securities Corporation at least 24 hours prior to the Closing
Date.
(b) The obligation of the Company and the Subsidiary Guarantors
to issue and sell the Securities hereunder shall be subject to the condition
that the Agent and the Requisite Lenders (as defined in the New Credit
Facility) shall have approved the terms thereof in accordance with the Third
Amendment, Consent and Waiver dated as of March 8, 1996 under the New Credit
Facility.
4. Offering by the Initial Purchaser. The Initial Purchaser
proposes to make an offering of the Securities at the price and upon the terms
set forth in the Final Memorandum, as soon as practicable after this Agreement
is entered into and as in the judgment of the Initial Purchaser is advisable.
5. Certain Covenants. Each Issuer jointly and severally
covenants and agrees with the Initial Purchaser that:
(i) The Issuers will not amend or supplement the Final Memorandum
or any amendment or supplement thereto of which the Initial Purchaser
shall not previously have been advised and furnished a copy for a
reasonable period of time prior to the proposed amendment or supplement
and as to which the Initial Purchaser shall not have given its consent
(which consent shall not be unreasonably withheld). The Issuers will
promptly, upon the reasonable request of the Initial Purchaser or counsel
for the Initial Purchaser, make any amendments or supplements to the
Preliminary Memorandum or the Final Memorandum that may be necessary in
connection with the resale of the Securities by the Initial Purchaser for
such Memorandum not to contain any untrue statement of a material fact or
<PAGE> 16
omission of a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading or
to comply with applicable laws, rules or regulations.
(ii) Each Issuer will cooperate with the Initial Purchaser in
arranging for the qualification of the Securities for offering and sale
under the securities or "Blue Sky" laws of such jurisdictions as the
Initial Purchaser may designate and will continue such qualifications in
effect for as long as may be necessary to complete the resale of the
Securities by the Initial Purchaser; provided, however, that in
connection therewith no Issuer shall be required to qualify as a foreign
corporation or to execute a general consent to service of process in any
jurisdiction or, except at the expense of the Initial Purchaser, to keep
any state qualification effective after one year.
(iii) If, at any time prior to the completion of the initial resale
by the Initial Purchaser of the Securities, any event shall occur as a
result of which it is necessary, in the opinion of counsel for the
Initial Purchaser, to amend or supplement the Final Memorandum in order
to make the Final Memorandum not misleading in light of the circumstances
existing at the time it is delivered to a purchaser, or if for any other
reason it shall be necessary to amend or supplement the Final Memorandum
in order to comply with applicable law, the Issuers shall (subject to
Section 5(i)) forthwith amend or supplement the Final Memorandum (in form
and substance reasonable satisfactorily to counsel for the Initial
Purchaser and in compliance with applicable law) so that, as so amended
or supplemented, the Final Memorandum will not include an untrue
statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in light of the circumstances
existing at the time it is delivered to a purchaser, not misleading and
will comply with applicable law, and the Issuers will furnish to the
Initial Purchaser a reasonable number of copies of such amendment or
supplement.
(iv) The Issuers will, without charge, provide to the Initial
Purchaser and to counsel for the Initial Purchaser as many copies of the
Preliminary Memorandum or the Final Memorandum or any amendment or
supplement thereto as the Initial Purchaser may reasonably request.
(v) For so long as any of the Securities remain outstanding, the
Company will furnish to the Initial
<PAGE> 17
Purchaser copies of all reports and other communications (financial or
otherwise) furnished by the Company to the Trustee or to the holders of
the Securities and, as soon as available, copies of any reports or
financial statements furnished to or filed by the Company with the
Commission or any national securities exchange on which any class of
securities of the Company may be listed.
(vi) Neither the Company nor any of its Affiliates will sell, offer
for sale or solicit offers to buy or otherwise negotiate in respect of
any "security" (as defined in the Act) which could be integrated with the
sale of the Securities in a manner which would require the registration
under the Act of the Securities.
(vii) The Company will not and will not permit any of its
subsidiaries to, engage in any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Act) in
connection with the offering of the Securities or in any manner involving
a public offering within the meaning of Section 4(2) of the Act.
(viii) For so long as any of the Securities remain outstanding, the
Company will make available at its expense, upon request, to any holder
of Securities and any prospective purchasers thereof the information
specified in Rule 144A(d)(4) under the Act, unless the Company is then
subject to Section 13 or 15(d) of the Exchange Act.
(ix) The Company will use its best efforts to (i) permit the
Securities to be designated PORTAL securities in accordance with the
rules and regulations adopted by the NASD relating to trading in the
Private Offerings, Resales and Trading through Automated Linkages market
(the "Portal Market") and (ii) permit the Securities to be eligible for
clearance and settlement through The Depository Trust Company.
(x) The Company will apply the net proceeds from the sale of the
Securities as set forth under "Use of Proceeds" in the Final Memorandum.
(xi) Prior to the Closing Date, the Issuers will furnish to the
Initial Purchaser, as soon as they have been prepared by or are available
to the Issuers, a copy of any unaudited interim consolidated financial
statements of the Company and its subsidiaries, for any period subsequent
to the period covered by the most recent financial statements appearing
in the Final Memorandum.
<PAGE> 18
6. Expenses. The Issuers jointly and severally agree to pay all
costs and expenses incident to the performance of their respective obligations
under this Agreement, whether or not the transactions contemplated herein are
consummated or this Agreement is terminated pursuant to Section 11 hereof,
including all costs and expenses incident to (i) the printing, word processing
or other production of documents with respect to such transactions, including
any costs of printing the Preliminary Memorandum and the Final Memorandum and
any amendment or supplement thereto, and any "Blue Sky" memoranda, (ii) all
arrangements relating to the delivery to the Initial Purchaser of copies of the
foregoing documents, (iii) the fees and disbursements of the counsel, the
accountants and any other experts or advisors retained by any Issuer, (iv) the
preparation, issuance and delivery to the Initial Purchaser of any certificates
evidencing the Securities and the Guarantees, including trustees' fees, (v) the
qualification of the Securities under state securities and "Blue Sky" laws,
including filing fees and reasonable fees and disbursements of counsel for the
Initial Purchaser relating thereto, (vi) expenses of the Issuers in connection
with any meetings with prospective investors in the Securities, (viii) fees and
expenses of the Trustee including fees and expenses of its counsel, (ix) all
expenses and listing fees incurred in connection with the application for
quotation of the Securities on the PORTAL Market, and (x) any fees charged by
investment rating agencies for the rating of the Securities. Notwithstanding
any of the foregoing, the Company will not be responsible for any of the fees
and expenses of the Initial Purchaser (including, without limitation, fees and
disbursements of counsel for the Initial Purchaser) incurred in connection with
the transactions contemplated hereby.
7. Conditions of the Initial Purchaser's Obligations. The
obligation of the Initial Purchaser to purchase and pay for the Securities are
subject to the accuracy of the representations and warranties contained herein,
to the performance by each Issuer of its covenants and agreements hereunder and
to the following additional conditions:
(i) The Initial Purchaser shall have received opinions in form and
substance satisfactory to the Initial Purchaser, dated the Closing Date,
of (a) Latham & Watkins, special counsel for the Issuers, substantially
in the form of Exhibit B hereto and (b) Irwin, Clutter & Severson,
special Kansas counsel to the Issuers, substantially in the form of
Exhibit C hereto.
(ii) The Initial Purchaser shall have received an opinion, dated
the Closing Date, of Cahill Gordon &
<PAGE> 19
Reindel, counsel for the Initial Purchaser, with respect to the
sufficiency of certain corporate proceedings and other legal matters
relating to this Agreement, and such other related matters as the Initial
Purchaser may require. In rendering such opinion, Cahill Gordon &
Reindel shall have received and may rely upon such certificates and other
documents and information as they may reasonably request to pass upon
such matters. In addition, in rendering their opinion, Cahill Gordon &
Reindel may state that their opinion is limited to matters of New York,
Delaware corporate and federal law.
(iii) The Initial Purchaser shall have received, from Arthur
Andersen LLP, independent public accountants for the Issuers, letters
dated, respectively, the date hereof and the Closing Date, in form and
substance satisfactory to the Initial Purchaser and Cahill Gordon &
Reindel, counsel for the Initial Purchaser.
(iv) The Initial Purchaser shall have received from KPMG Peat
Marwick, independent public accountants for RSI and RGC, letters dated,
respectively, the date hereof and the Closing Date, in form and substance
satisfactory to the Initial Purchaser and Cahill Gordon & Reindel,
counsel for the Initial Purchaser.
(v) The representations and warranties of each Issuer contained in
this Agreement shall be true and correct in all material respects on and
as of the Closing Date (other than to the extent any such representation
or warranty is expressly made as to a certain date); each Issuer shall
have complied with all agreements and satisfied all conditions on its
part to be performed or satisfied hereunder at or prior to the Closing
Date; and subsequent to the date of the most recent financial statements
in the Final Memorandum, there shall have been no material adverse change
in the business, condition (financial or other) or results of operations
of the Company and its subsidiaries taken as a whole (a "Material Adverse
Change"), or any development involving a prospective Material Adverse
Change, except as set forth in, or contemplated by, the Final Memorandum.
(vi) Neither the issuance and sale of the Securities pursuant to
this Agreement nor any of the other transactions contemplated by the
Final Memorandum shall be enjoined (temporarily or permanently) and no
restraining order or other injunctive order shall have been issued or any
action, suit or proceeding shall have been commenced with respect to this
Agreement or any of the transactions
<PAGE> 20
contemplated by the Final Memorandum, before any court or governmental
authority.
(vii) The Initial Purchaser shall have received a certificate, dated
the Closing Date, of the Vice Chairman, President or any Vice President
(and with respect to (B) below, the Chief or Principal Financial Officer)
of the Company to the effect that:
(A) The representations and warranties of each Issuer in
this Agreement are true and correct in all material respects as if made on and
as of the Closing Date, and each Issuer has performed all covenants and
agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to the Closing Date after giving effect to the
transactions contemplated hereby and the Final Memorandum;
(B) Subsequent to the respective dates as of which
information is given in the the Final Memorandum, there has not
been any Material Adverse Change;
(C) Neither the sale of the Securities by the Issuers nor
any of the other transactions contemplated hereby or by the Final
Memorandum has been enjoined (temporarily or permanently); and
(D) The Issuers have complied in all material respects with
all agreements and covenants in the New Credit Facility and
performed in all material respects all conditions to borrowing
specified therein.
(viii) On the Closing Date, the Initial Purchaser shall have received
the Registration Rights Agreement executed by the Issuers and such
agreement shall be in full force and effect at all times from and after
the Closing Date.
(ix) The Agent and the Requisite Lenders shall have approved the
sale and issuance of the Securities in accordance with the Third
Amendment, Consent and Waiver dated as of March 8, 1996 under the New
Credit Facility.
On or before the Closing Date, the Initial Purchaser and counsel
for the Initial Purchaser shall have received such further documents, opinions,
certificates and schedules or instruments relating to the business, corporate,
legal and financial affairs of the Issuers as they shall have heretofore
reasonably requested from the Issuers.
<PAGE> 21
All such opinions, certificates, letters, schedules, documents or
instruments delivered pursuant to this Agreement will comply with the
provisions hereof only if they are reasonably satisfactory in all material
respects to the Initial Purchaser and counsel for the Initial Purchaser. The
Issuers shall furnish to the Initial Purchaser such conformed copies of such
opinions, certificates, letters, schedules, documents and instruments in such
quantities as the Initial Purchaser shall reasonably request.
8. Offering of Securities; Restrictions on Transfer. The
Initial Purchaser represents and warrants that it is a QIB. The Initial
Purchaser agrees with the Issuers that (i) it has not and will not solicit
offers for, or offer or sell, the Securities by any form of general
solicitation or general advertising (as those terms are used in Regulation D
under the Act) or in any manner involving a public offering within the meaning
of Section 4(2) of the Act; and (ii) it has and will solicit offers for the
Securities only from, and will offer the Securities only to (A) in the case of
offers inside the United States (x) persons whom the Initial Purchaser
reasonably believes to be QIBs or, if any such person is buying for one or more
institutional accounts for which such person is acting as fiduciary or agent,
only when such person has represented to the Initial Purchaser that each such
account is a QIB, to whom notice has been given that such sale or delivery is
being made in reliance on Rule 144A, and, in each case, in transactions under
Rule 144A or (y) a limited number of other institutional investors reasonably
believed by the Initial Purchaser to be Accredited Investors that, prior to
their purchase of the Securities, deliver to the Initial Purchaser a letter
containing the representations and agreements set forth in Annex A to the Final
Memorandum and (B) in the case of offers outside the United States, to persons
other than U.S. persons ("foreign purchasers," which term shall include
dealers or other professional fiduciaries in the United States acting on a
discretionary basis for foreign beneficial owners (other than an estate or
trust)); provided, however, that, in the case of this clause (B), in purchasing
such Securities such persons are deemed to have represented and agreed as
provided under the caption "Transfer Restrictions" contained in the Final
Memorandum.
9. Indemnification and Contribution. (a) Each Issuer jointly
and severally agrees to indemnify and hold harmless the Initial Purchaser, and
each person, if any, who controls the Initial Purchaser within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, against any losses,
claims, damages or liabilities, joint or several, to which such Initial
Purchaser or such controlling
<PAGE> 22
person may become subject under the Act, the Exchange Act or otherwise, insofar
as any such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of any
material fact contained in (A) any Memorandum or any amendment or
supplement thereto or (B) any application or other document, or any
amendment or supplement thereto, executed by any Issuer or based upon
written information furnished by or on behalf of any Issuer filed in any
jurisdiction in order to qualify the Securities under the securities or
"Blue Sky" laws thereof or filed with any securities association or
securities exchange (each an "Application") or
(ii) the omission or alleged omission to state, in any Memorandum
or any amendment or supplement thereto, or any Application, a material
fact required to be stated therein or necessary to make the statements
therein not misleading,
and will reimburse, as incurred, the Initial Purchaser and each such
controlling person for any legal or other expenses reasonably incurred by the
Initial Purchaser or such controlling person in connection with investigating,
defending against or appearing as a third-party witness in connection with any
such loss, claim, damage, liability or action; provided, however, that none of
the Issuers will be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any untrue statement
or alleged untrue statement or omission or alleged omission made in any
Memorandum or any amendment or supplement thereto, or any Application in
reliance upon and in conformity with written information furnished to any
Issuer by the Initial Purchaser specifically for use therein; and provided,
further, that neither the Company nor the Subsidiary Guarantors will be liable
to the Initial Purchaser or any person controlling the Initial Purchaser with
respect to any such untrue statement or omission made in the Preliminary
Memorandum that is corrected in the Offering Memorandum (or any amendment or
supplement thereto) if the person asserting any such loss, claim, damage or
liability purchased Securities from the Initial Purchasers in reliance upon the
Preliminary Memorandum but was not sent or given a copy of the Offering
Memorandum (as amended or supplemented) at or prior to the written confirmation
of the sale of such Notes to such person, unless such failure to deliver the
Offering Memorandum (as amended or supplemented) was a result of noncompliance
by the Company or the Subsidiary Guarantors with Section 5(iv) of this
Agreement. This
<PAGE> 23
indemnity agreement will be in addition to any liability that any Issuer may
otherwise have to the indemnified parties. None of the Issuers will, without
the prior written consent of the Initial Purchaser, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim,
action, suit or proceeding in respect of which indemnification from the Initial
Purchaser may be sought hereunder (whether or not the Initial Purchaser or any
person who controls the Initial Purchaser within the meaning of Section 15 of
the Act or Section 20 of the Exchange Act is a party to such claim, action,
suit or proceeding), unless such settlement, compromise or consent includes an
unconditional release of the Initial Purchaser and each such controlling person
from all liability arising out of such claim, action, suit or proceeding.
(b) The Initial Purchaser will indemnify and hold harmless each
Issuer, their respective directors, their respective officers and each person,
if any, who controls any Issuer within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act against any losses, claims, damages or
liabilities to which any Issuer or any such director, officer or controlling
person may become subject under the Act, the Exchange Act, or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in any Memorandum or any
amendment or supplement thereto, or any Application or (ii) the omission or the
alleged omission to state therein a material fact required to be stated in any
Memorandum or any amendment or supplement thereto, or any Application, or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to any Issuer by the Initial
Purchaser specifically for use therein; and, subject to the limitation set
forth immediately preceding this clause, will reimburse, as incurred, any legal
or other expenses reasonably incurred by any Issuer or any such director,
officer or controlling person in connection with investigating or defending
against or appearing as a third- party witness in connection with any such
loss, claim, damage, liability or action in respect thereof. This indemnity
agreement will be in addition to any liability that the Initial Purchaser may
otherwise have to the indemnified parties. The Initial Purchaser will not,
without the prior written consent of the Company and any affected Subsidiary
Guarantor settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification from the Company or any
<PAGE> 24
affected Subsidiary Guarantor may be sought hereunder (whether or not the
Company or any such affected Subsidiary Guarantor or any person who controls
the Company or any such affected Subsidiary Guarantor within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act is a party to such
claim, action, suit or proceeding), unless such settlement, compromise or
consent includes an unconditional release of the Company or any such affected
Subsidiary Guarantor and each such controlling person from all liability
arising out of such claim, action, suit or proceeding.
(c) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under this Section 9, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section 9. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel satisfactory to
such indemnified party; provided, however, that if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be one or more
legal defenses available to it and/or other indemnified parties that are
different from or additional to those available to the indemnifying party, then
the indemnifying party shall not have the right to direct the defense of such
action on behalf of such indemnified party or parties and such indemnified
party or parties shall have the right to select separate counsel to defend such
action on behalf of such indemnified party or parties. After notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof and approval by such indemnified party of counsel appointed to
defend such action, the indemnifying party will not be liable to such
indemnified party under this Section 9 for any legal or other expenses, other
than reasonable costs of investigation, subsequently incurred by such
indemnified party in connection with the defense thereof, unless (i) the
indemnified party shall have employed separate counsel in accordance with the
proviso to the immediately preceding sentence (it being understood, however,
that in connection with such action the indemnifying party shall not be liable
for the expenses of more than one separate counsel (in addition to local
counsel) in any one action or separate but substantially similar actions in the
same
<PAGE> 25
jurisdiction arising out of the same general allegations or circumstances,
designated by the Initial Purchaser in the case of paragraph (a) of this
Section 9 or the Issuers in the case of paragraph (b) of this Section 9,
representing the indemnified parties under such paragraph (a) or paragraph (b),
as the case may be, who are parties to such action or actions) or (ii) the
indemnifying party has authorized the employment of counsel for the indemnified
party at the expense of the indemnifying party. After such notice from the
indemnifying party to such indemnified party, the indemnifying party will not
be liable for the costs and expenses of any settlement of such action effected
by such indemnified party without the consent of the indemnifying party, unless
such indemnified party waived its rights under this Section 9, in which case
the indemnified party may effect such a settlement without such consent.
(d) In circumstances in which the indemnity agreement provided for
in the preceding paragraphs of this Section 9 is unavailable or insufficient to
hold harmless an indemnified party in respect of any losses, claims, damages or
liabilities (or actions in respect thereof), each indemnifying party, in order
to provide for just and equitable contribution, shall contribute to the amount
paid or payable by such indemnified party as a result of such losses, claims,
damages or liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect (i) the relative benefits received by the indemnifying
party or parties on the one hand and the indemnified party on the other from
the offering of the Securities or (ii) if the allocation provided by the
foregoing clause (i) is not permitted by applicable law, not only such relative
benefits but also the relative fault of the indemnifying party or parties on
the one hand and the indemnified party on the other in connection with the
statements or omissions or alleged statements or omissions that resulted in
such losses, claims, damages or liabilities (or actions in respect thereof).
The relative benefits received by the Issuers on the one hand and the Initial
Purchaser on the other shall be deemed to be in the same proportion as the
total proceeds from the offering (before deducting expenses other than
discounts and commissions) received by the Company bear to the total discounts
and commissions received by the Initial Purchaser. The relative fault of the
parties shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company or the Subsidiary Guarantors on the one hand, or the Initial
Purchaser on the other, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such
<PAGE> 26
statement or omission, and any other equitable considerations appropriate in
the circumstances. Each Issuer and the Initial Purchaser agree that it would
not be equitable if the amount of such contribution were determined by pro rata
or per capita allocation (even if the Issuers on the one hand and the Initial
Purchaser on the other hand were treated as one entity for such purpose) or by
any other method of allocation that does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d).
Notwithstanding any other provision of this paragraph (d), the Initial
Purchaser shall not be obligated to make contributions hereunder that in the
aggregate exceed the total discounts and commissions received by the Initial
Purchaser under this Agreement, less the aggregate amount of any damages that
the Initial Purchaser has otherwise been required to pay by reason of the
untrue or alleged untrue statements or the omissions or alleged omissions to
state a material fact, and no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this paragraph (d), each person, if any,
who controls the Initial Purchaser within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act shall have the same rights to contribution as
the Initial Purchaser, and each director of each Issuer, each officer of each
Issuer and each person, if any, who controls any Issuer within the meaning of
Section 15 of the Act of Section 20 of the Exchange Act, shall have the same
rights to contribution as each such Issuer.
10. Survival Clause. The respective representations, warranties,
agreements, covenants, indemnities and other statements of each Issuer, their
respective officers and the Initial Purchaser set forth in this Agreement or
made by or on behalf of them, respectively, pursuant to this Agreement shall
remain in full force and effect, regardless of (i) any investigation made by or
on behalf of any Issuer, any of their respective officers or directors, the
Initial Purchaser or any controlling person referred to in Section 9 hereof and
(ii) delivery of and payment for the Securities, and shall be binding upon and
shall inure to the benefit of, any successors, assigns, heirs, personal
representatives of the Issuers, the Initial Purchaser, RSI and indemnified
parties referred to in Section 9 hereof. The respective agreements, covenants,
indemnities and other statements set forth in Sections 6 and 9 hereof shall
remain in full force and effect, regardless of any termination or cancellation
of this Agreement.
11. Termination. (a) This Agreement may be terminated in the
sole discretion of the Initial Purchaser by
<PAGE> 27
notice to the Issuers given prior to the Closing Date in the event that any
Issuer shall have failed, refused or been unable to perform all obligations and
satisfy all conditions on their respective part to be performed or satisfied
hereunder at or prior thereto or, if at or prior to the Closing Date:
(i) Any Issuer shall have sustained any loss or interference with
respect to its businesses or properties from fire, flood, hurricane,
earthquake, accident or other calamity, whether or not covered by
insurance, or from any labor dispute or any legal or governmental
proceeding, which loss or interference has had or has a Material Adverse
Effect or there shall have been any Material Adverse Change, or any
development involving a prospective Material Adverse Change (including
without limitation a change in management or control of any Issuer),
except as described in or contemplated by the Final Memorandum (exclusive
of any amendment or supplement thereto);
(ii) trading in securities generally on the New York or American
Stock Exchange shall have been suspended or minimum or maximum prices
shall have been established on any such exchange;
(iii) a banking moratorium shall have been declared by New York or
United States authorities; or
(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or (c) any material change in the financial
markets of the United States which, in the sole judgment of the Initial
Purchaser, makes it impracticable or inadvisable to proceed with the
offering or the delivery of the Securities as contemplated by the Final
Memorandum, as amended as of the date hereof.
(b) Termination of this Agreement pursuant to this Section 11
shall be without liability of any party to any other party except as provided
in Section 10 hereof.
12. Notices. All communications hereunder shall be in writing
and, if sent to the Initial Purchaser, shall be mailed or delivered or
telecopied and confirmed in writing to the Initial Purchaser c/o BT Securities
Corporation, One Bankers Trust Plaza, New York, New York 10005, Attention:
Gerald McConnell, and with a copy to Cahill Gordon & Reindel, 80 Pine Street,
New York, New York 10005, Attention: William M. Hartnett, Esq. If sent to any
Issuer, shall be mailed,
<PAGE> 28
delivered or telegraphed and confirmed in writing to Ralphs Grocery Company,
1100 West Artesia Blvd., Compton, California 90220, Attention: Jan Charles
Gray, Esq., Senior Vice President, General Counsel and Secretary, with a copy
to Latham & Watkins, 633 West Fifth Street, Suite 4000, Los Angeles, California
90071, Attention: Thomas C. Sadler, Esq.
13. Successors. This Agreement shall inure to the benefit of and
be binding upon the Initial Purchaser, each Issuer and their respective
successors and legal representatives, and nothing expressed or mentioned in
this Agreement is intended or shall be construed to give any other person any
legal or equitable right, remedy or claim under or in respect of this
Agreement, or any provisions herein contained; this Agreement and all
conditions and provisions hereof being intended to be and being for the sole
and exclusive benefit of such persons and for the benefit of no other person
except that (i) the indemnities of each Issuer contained in Section 9 of this
Agreement shall also be for the benefit of any person or persons who control
the Initial Purchaser within the meaning of Section 15 of the Act or Section 20
of the Exchange Act and (ii) the indemnities of the Initial Purchaser contained
in Section 9 of this Agreement shall also be for the benefit of the directors
of each Issuer, their respective officers and any person or persons who control
any Issuer within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act. No purchaser of Securities from the Initial Purchaser will be
deemed a successor because of such purchase.
14. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAW.
15. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE> 29
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement among each of the
Issuers and the Initial Purchaser.
Very truly yours,
RALPHS GROCERY COMPANY
By:
Name: Jan Charles Gray
Title: Senior Vice President
General Counsel &
Secretary
ALPHA BETA COMPANY,
BAY AREA WAREHOUSE STORES, INC.
BELL MARKETS, INC.,
CALA CO.,
CALA FOODS, INC.,
FALLEY'S, INC.,
FOOD 4 LESS OF CALIFORNIA, INC.,
FOOD 4 LESS MERCHANDISING, INC.,
FOOD 4 LESS OF SOUTHERN
CALIFORNIA, INC.,
FOOD 4 LESS GM, INC.
CRAWFORD STORES, INC.
as Subsidiary Guarantors
By:
Name: Jan Charles Gray
Title: Senior Vice President
General Counsel &
Secretary
<PAGE> 30
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
BT SECURITIES CORPORATION
By: _____________________________
Name: Gerald McConnell
Title: Vice President
<PAGE> 31
Exhibit B
Form of Opinion of Latham & Watkins
1. Each of Ralphs Grocery Company (the "Company") and the
Subsidiary Guarantors (other than Falley's ) (collectively, the "Corporations")
has been duly incorporated and is validly existing and in good standing under
the laws of its state of incorporation with corporate power and authority to
own or lease its properties and to conduct its business as now conducted as
described in the Final Memorandum.
2. Each of the Company, Cala Co. and Food 4 Less of Southern
California, Inc. is duly qualified to do business as a foreign corporation in
California and is in good standing in California.
3. The Company or a subsidiary or subsidiaries of the Company
own of record in the aggregate 100% of the capital stock of each corporation
that is a Subsidiary Guarantor (other than Falley's) and all such capital stock
has been duly authorized and validly issued and is fully paid and
nonassessable.
4. Each of the Corporations has full corporate power and
authority to execute, deliver and perform each of its obligations under the
Purchase Agreement, the Indenture, the Notes, the Exchange Notes, the Private
Exchange Notes and the Guarantees and to issue the Notes, the Exchange Notes,
the Private Exchange Notes and the Guarantees to be issued by it pursuant to
the Indenture.
5. Except as set forth in the Final Memorandum, to the best of
such counsel's knowledge, no holder of securities of the Corporations is
entitled to have such securities registered under a registration statement
filed by the Company pursuant to the Registration Rights Agreement.
6. To the best of our knowledge, there is no action, suit,
proceeding or investigation pending or threatened against or affecting any of
the Corporations or any of their respective properties or assets in any court
or before any governmental authority or arbitration board or tribunal that
seeks to restrain, enjoin, prevent the consummation of or otherwise challenge
the Purchase Agreement, the Registration Rights Agreement, the Indenture or the
issuance, sale and delivery of the Notes or the Guarantees.
<PAGE> 32
7. The Indenture has been duly authorized, executed and
delivered by the Corporations and (assuming due authorization, execution and
delivery by the Trustee) is the legally valid and binding agreement of the
Corporations, enforceable against the Corporations in accordance with its
terms; the Indenture meets the requirements for qualification under the Trust
Indenture Act of 1939, as amended.
8. The Notes have been duly authorized by the Company for
issuance and, when executed and authenticated in accordance with the terms of
the Indenture and delivered to and paid for by the Initial Purchaser in
accordance with the terms of the Purchase Agreement, will be legally valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms.
9. The Exchange Notes and the Private Exchange Notes have been
duly and validly authorized by the Company and when the Exchange Notes and the
Private Exchange Notes have been duly executed and delivered by the Company in
accordance with the terms of the Registration Rights Agreement and the
Indenture (assuming the due authorization, execution and delivery of the
Indenture by the Trustee and due authentication and delivery of the Exchange
Notes and the Private Exchange Notes by the Trustee in accordance with the
Indenture), will constitute the valid and legally binding obligations of the
Company, entitled to the benefits of the Indenture, and enforceable against the
Company in accordance with their terms.
10. Each of the Purchase Agreement and the Registration Rights
Agreement has been duly authorized, executed and delivered by the Corporations;
the execution and delivery of the Purchase Agreement, the Registration Rights
Agreement, the Indenture, the Notes and the Guarantees by the Corporations, to
the extent each is a party thereto, and the issuance and sale of the Notes
pursuant to the Purchase Agreement and the making of the Guarantees pursuant to
the Indenture will not result in the violation by any Corporation of its
certificate or articles of incorporation or bylaws or any federal, New York,
California, or Delaware General Corporation Law statute, rule or regulation
known to us to be applicable to the Corporations (other than federal or state
securities laws, which are specifically addressed elsewhere herein) or in the
breach of or a default by any Corporation under any of the material agreements
or court orders specifically directed to the Corporations (which material
agreements have been identified to us by an officer of such person as material
to such person), which conflict, violation, breach or default would have a
material adverse effect on the Company and the Subsidiary Guarantors, taken as
a whole.
<PAGE> 33
11. The Company and the Subsidiary Guarantors have all requisite
corporate power and authority to execute, deliver and perform their obligations
under the Registration Rights Agreement; the Registration Rights Agreement has
been duly and validly authorized, executed and delivered by the Company and the
Subsidiary Guarantors and (assuming due authorization, execution and delivery
thereof by the Initial Purchaser) constitutes the valid and legally binding
agreement of the Company and the Subsidiary Guarantors and is enforceable
against the Company and the Subsidiary Guarantors and in accordance with its
terms.
12. To the best of our knowledge, no consent, approval,
authorization or order of, or filing with, any federal, New York, California,
or Delaware court or governmental agency or body is required for the issuance
and sale of the Notes by the Company pursuant to the Purchase Agreement and the
making of the Guarantees by the respective Subsidiary Guarantors (other than
Falley's) pursuant to the Indenture, except such as may be required under state
securities laws in connection with the purchase and distribution of such Notes
and Guarantees by the Initial Purchaser.
13. We call your attention to the fact that the Purchase
Agreement, the Registration Rights Agreement, the Indenture, the Notes and the
Guarantees select the internal laws of the State of New York as the governing
law. It is our opinion that a New York State court or a federal court sitting
in New York will honor the parties' choice of the internal laws of the State of
New York as the law applicable to such documents.
14. The statements set forth in the Offering Memorandum under the
caption "Description of Notes", insofar as they purport to summarize certain
provisions of the Notes and the Indenture, provide fair summaries thereof and
are accurate in all material respects.
15. No registration under the Act of the Notes is required in
connection with the sale of the Notes to the Initial Purchaser as contemplated
by this Agreement and the Final Memorandum or in connection with the initial
resale of the Notes by the Initial Purchaser in accordance with Section 8 of
this Agreement, and prior to the commencement of the Exchange Offer (as defined
in the Registration Rights Agreement) or the effectiveness of the Shelf
Registration Statement (as defined in the Registration Rights Agreement), the
Indenture is not required to be qualified under the TIA, in each case assuming
(i) that the Initial Purchaser and the purchasers who buy such Notes in the
initial resale thereof are qualified institutional
<PAGE> 34
buyers as defined in Rule 144A promulgated under the Act ("QIBs") or, in the
case of purchasers who buy Notes in the initial resale, are a limited number of
accredited investors as defined in Rule 501(a)(1), (2), (3) or (7) promulgated
under the Act ("Accredited Investors"), (ii) the accuracy of the Initial
Purchaser's representations in Section 8 and those of the Corporations
contained in this Agreement regarding the absence of a general solicitation in
connection with the sale of such Notes to the Initial Purchaser and the initial
resale thereof, (iii) the due performance by the Initial Purchaser of the
agreements set forth in Section 8 hereof (iv) compliance by the Initial
Purchaser with the transfer restrictions described under the caption "Transfer
Restrictions" in the Memorandum and (v) the accuracy of the representations
made by each Accredited Investor who purchases Notes in the initial resale as
set forth in the Memorandum.
16. In addition, we have participated in conferences with
officers and other representatives of the Company and the Subsidiary
Guarantors, representatives of the independent public accountants for the
Company and the Subsidiary Guarantors and your representatives, at which the
contents of the Memorandum and related matters were discussed and, although we
are not passing upon, and do not assume any responsibility for, the accuracy,
completeness or fairness of the statements contained in the Memorandum and have
not made any independent check or verification thereof, during the course of
such participation (relying as to materiality to a large extent upon the
statements of officers and other representatives of the Company and the
Subsidiary Guarantors), no facts came to our attention that caused us to
believe that the Memorandum, at the date thereof or at the Closing Date,
contained an untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading; it
being understood that we express no belief with respect to the financial
statements, schedules and other financial and statistical data included in the
Final Memorandum.
<PAGE> 35
Exhibit C
Form of Opinion of Irwin, Clutter & Severson
(1) Falley's is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Kansas, and has the
requisite corporate power and authority to own, lease and operate its
properties and to conduct its business as now conducted.
(2) The authorized capital stock of Falley's is 1,000 shares of
common stock, ten cents par value. As of the date herein, 1,000 shares of such
common stock are issued and outstanding, all of which are owned of record by
the Company. All such outstanding shares of stock have been duly authorized
and validly issued and are fully paid and nonassessable.
(3) Falley's has full corporate power and authority to execute,
deliver and perform its obligations under the Purchase Agreement, the
Registration Rights Agreement, the Indenture and the Guarantees pursuant
thereto.
(4) Each of the Purchase Agreement, the Registration Rights
Agreement, the Indenture and the Guarantees has been duly authorized by all
necessary corporate action, executed and delivered by Falley's.
(5) The execution and delivery of the Purchase Agreement, the
Registration Rights Agreement, the Indenture and the issuance of the Guarantees
by Falley's pursuant to the Indenture will not result in the violation of any
Kansas statute, rule or regulation (other than state securities laws) known to
us to be applicable to Falley's, which violation would have a material adverse
effect on the Company and the Subsidiary Guarantors, taken as a whole. To the
best of our knowledge, no consent, approval, authorization or order of, or
filing with, any Kansas court or governmental agency or body is required for
the making of the Guarantees by Falley's pursuant to the Indenture, except such
as may be required under state securities laws.
<PAGE> 1
EXHIBIT 10.18
REGISTRATION RIGHTS AGREEMENT
Dated as of June 6, 1996
by and among
RALPHS GROCERY COMPANY,
THE GUARANTORS
named herein
and
BT SECURITIES CORPORATION
as Initial Purchaser
$100,000,000
10.45% SENIOR NOTES DUE 2004
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Definitions................................................. 1
2. Exchange Offer.............................................. 5
3. Shelf Registration.......................................... 9
4. Liquidated Damages.......................................... 10
5. Registration Procedures..................................... 12
6. Registration Expenses....................................... 22
7. Indemnification............................................. 24
8. Rules 144 and 144A.......................................... 28
9. Underwritten Registrations.................................. 28
10. Miscellaneous............................................... 28
(a) Remedies.............................................. 28
(b) No Inconsistent Agreements............................ 29
(c) Adjustments Affecting Registrable
Notes............................................... 29
(d) Amendments and Waivers................................ 29
(e) Notices............................................... 30
(f) Successors and Assigns................................ 31
(g) Counterparts.......................................... 31
(h) Headings.............................................. 31
(i) Governing Law......................................... 32
(j) Severability.......................................... 32
(k) Notes Held by an Issuer
or Its Affiliates................................... 32
(l) Third Party Beneficiaries............................. 32
(m) Joint and Several Obligations......................... 32
(n) Entire Agreement...................................... 32
</TABLE>
-i-
<PAGE> 3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is made and
entered into as of June 6, 1996, by and among Ralphs Grocery Company, a
Delaware corporation (the "Company"), Alpha Beta Company, Bay Area Warehouse
Stores, Inc., Bell Markets, Inc., Cala Co., Cala Foods, Inc., Falley's Inc.,
Food 4 Less of California, Inc., Food 4 Less Merchandising, Inc., Food 4 Less
GM, Inc., Food 4 Less of Southern California, Inc. and Crawford Stores, Inc.
(collectively, the "Guarantors") and BT Securities Corporation (the "Initial
Purchaser").
This Agreement is entered into in connection with the Purchase
Agreement, dated June 3, 1996, by and among the Company, the Guarantors and the
Initial Purchaser (the "Purchase Agreement") relating to the sale by the
Company to the Initial Purchaser of $100,000,000 aggregate principal amount of
the Company's 10.45% Senior Notes due 2004 (the "Notes"). In order to induce
the Initial Purchaser to enter into the Purchase Agreement, the Company and the
Guarantors have agreed to provide the registration rights set forth in this
Agreement for the benefit of the holders of Registrable Notes (as defined),
including, without limitation, the Initial Purchaser. The execution and
delivery of this Agreement is a condition to the Initial Purchaser's obligation
to purchase the Notes under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have the
following meanings:
Advice: See the last paragraph of Section 5.
Agreement: See the first introductory paragraph to this Agreement.
Applicable Period: See Section 2(b).
Business Day: A day that is not a Saturday, a Sunday, or a day on
which banking institutions in New York, New York are required to be closed.
Closing Date: The Closing Date as defined in the Purchase
Agreement.
<PAGE> 4
Company: See the first introductory paragraph to this Agreement.
Effectiveness Date: The 120th day after the Filing Date.
Effectiveness Period: See Section 3(a).
Event Date: See Section 4(b).
Exchange Act: The Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC promulgated thereunder.
Exchange Notes: See Section 2(a).
Exchange Offer: See Section 2(a).
Exchange Registration Statement: See Section 2(a).
Filing Date: The 30th day after the Issue Date.
Holder: Any registered holder of Registrable Notes.
Indemnified Person: See Section 7(c).
Indemnifying Person: See Section 7(c).
Indenture: The Indenture, dated as of [ ], 1996, by and
among the Company, the Guarantors and Norwest Bank Minnesota, N.A., as trustee,
pursuant to which the Notes are being issued, as amended or supplemented from
time to time in accordance with the terms thereof.
Initial Purchaser: See the first introductory paragraph to this
Agreement.
Initial Shelf Registration: See Section 3(a).
Inspectors: See Section 5(o).
Issue Date: The date on which the original Notes were sold to the
Initial Purchaser pursuant to the Purchase Agreement.
Issuers: The Company and the Guarantors.
Liquidated Damages: See Section 4(a).
<PAGE> 5
NASD: National Association of Securities Dealers, Inc.
Notes: See the second introductory paragraph to this Agreement.
Participant: See Section 7(a).
Participating Broker-Dealer: See Section 2(b).
Person: An individual, trustee, corporation, partnership, limited
liability company, joint stock company, trust, unincorporated association,
union, business association, firm or other legal entity.
Private Exchange: See Section 2(b).
Private Exchange Notes: See Section 2(b).
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, with respect to the terms of the offering of any portion
of the Registrable Notes covered by such Registration Statement, and all other
amendments and supplements to the Prospectus, including post- effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
Purchase Agreement: See the second introductory paragraph to this
Agreement.
Records: See Section 5(o).
Registrable Notes: Each Note upon original issuance thereof and at
all times subsequent thereto, each Exchange Note as to which Section 2(c)(iv)
hereof is applicable upon original issuance thereof and at all times subsequent
thereto and each Private Exchange Note upon original issuance thereof and at
all times subsequent thereto, until, in the case of any such Note, Exchange
Note or Private Exchange Note, as the case may be, the earliest to occur of (i)
a Registration Statement (other than, with respect to any Exchange Note as to
which Section 2(c)(iv) hereof is applicable) covering such Note, Exchange Note
or Private Exchange Note, as the case may be, has been declared effective by
the SEC and such Note, Exchange Note or Private
<PAGE> 6
Exchange Note, as the case may be, has been disposed of in accordance with such
effective Registration Statement, (ii) such Note, Exchange Note or Private
Exchange Note, as the case may be, is sold in compliance with Rule 144, (iii)
in the case of any Note, such Note has been exchanged pursuant to the Exchange
Offer for an Exchange Note or Exchange Notes which may be resold without
restriction under federal securities laws, or (iv) such Note, Exchange Note or
Private Exchange Note, as the case may be, ceases to be outstanding for
purposes of the Indenture.
Registration Statement: Any registration statement of the Company,
including, but not limited to, the Exchange Registration Statement, that covers
any of the Registrable Notes pursuant to the provisions of this Agreement,
including the Prospectus, amendments and supplements to such registration
statement, including post-effective amendments, all exhibits, and all material
incorporated by reference or deemed to be incorporated by reference in such
registration statement.
Rule 144: Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities
being free of the registration and prospectus delivery requirements of the
Securities Act.
Rule 144A: Rule 144A under the Securities Act, as such Rule may be
amended from time to time, or any similar rule (other than Rule 144) or
regulation hereafter adopted by the SEC.
Rule 415: Rule 415 under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
Shelf Notice: See Section 2(c).
Shelf Registration: See Section 3(b).
Subsequent Shelf Registration: See Section 3(b).
<PAGE> 7
TIA: The Trust Indenture Act of 1939, as amended.
Trustee: The trustee under the Indenture and, if existent, the
trustee under any indenture governing the Exchange Notes and Private Exchange
Notes (if any).
Underwritten registration or underwritten offering: A registration
in which securities of the Company are sold to an underwriter for reoffering to
the public.
2. Exchange Offer
(a) Each of the Issuers agrees to file with the SEC no later than
the Filing Date, an offer to exchange (the "Exchange Offer") any and all of the
Registrable Notes (other than Private Exchange Notes, if any) for a like
aggregate principal amount of debt securities of the Company, guaranteed by the
Guarantors, which are identical in all material respects to the Notes (the
"Exchange Notes") (and which are entitled to the benefits of the Indenture or a
trust indenture which is identical in all material respects to the Indenture
(other than such changes to the Indenture or any such identical trust indenture
as are necessary to comply with any requirements of the SEC to effect or
maintain the qualification thereof under the TIA) and which, in either case,
has been qualified under the TIA), except that the Exchange Notes shall have
been registered pursuant to an effective Registration Statement under the
Securities Act and shall contain no restrictive legend thereon. The Exchange
Offer shall be registered under the Securities Act on the appropriate form (the
"Exchange Registration Statement") and shall comply with all applicable tender
offer rules and regulations under the Exchange Act. Each of the Issuers agrees
to use its best efforts to (x) cause the Exchange Registration Statement to be
declared effective under the Securities Act on or before the Effectiveness
Date; (y) keep the Exchange Offer open for at least 20 Business Days (or longer
if required by applicable law) after the date that notice of the Exchange Offer
is first mailed to Holders; and (z) consummate the Exchange Offer on or prior
to the 60th day following the date on which the Exchange Registration Statement
is declared effective. If after such Exchange Registration Statement is
initially declared effective by the SEC, the Exchange Offer or the issuance of
the Exchange Notes thereunder is interfered with by any stop order, injunction
or other order or requirement of the SEC or any other governmental agency or
court, such Exchange Registration Statement shall be deemed not to have become
effective for purposes of this Agreement. Each Holder who participates in the
Exchange Offer will be required to represent that any Exchange Notes received
by it will be acquired in the ordinary course of its business, that at the
<PAGE> 8
time of the consummation of the Exchange Offer such Holder will have no
arrangement or understanding with any Person to participate in the distribution
of the Exchange Notes, that such Holder is not an affiliate of any of the
Issuers within the meaning of the Securities Act, and any additional
representations that in the written opinion of counsel to the Issuers are
necessary under then-existing interpretations of the SEC in order for the
Exchange Registration Statement to be declared effective. Upon consummation of
the Exchange Offer in accordance with this Section 2, the provisions of this
Agreement shall continue to apply, mutatis mutandis, solely with respect to
Registrable Notes that are Private Exchange Notes and Exchange Notes held by
Participating Broker-Dealers, and the Issuers shall have no further obligation
to register Registrable Notes (other than Private Exchange Notes and other than
in respect of any Exchange Notes as to which clause 2(c)(iv) hereof applies)
pursuant to Section 3 of this Agreement.
(b) The Issuers shall include within the Prospectus contained in
the Exchange Registration Statement a section entitled "Plan of Distribution,"
reasonably acceptable to the Initial Purchaser, which shall contain a summary
statement of the positions taken or policies made by the Staff of the SEC with
respect to the potential "underwriter" status of any broker-dealer that is the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange
Notes received by such broker-dealer in the Exchange Offer (a "Participating
Broker-Dealer"), whether such positions or policies have been publicly
disseminated by the Staff of the SEC or such positions or policies, in the
judgment of the Initial Purchaser, represent the prevailing views of the Staff
of the SEC. Such "Plan of Distribution" section shall also allow, to the
extent permitted by applicable policies and regulations of the SEC, the use of
the Prospectus by all Persons subject to the prospectus delivery requirements
of the Securities Act, including, to the extent so permitted, all Participating
Broker-Dealers, and include a statement describing the manner in which
Participating Broker-Dealers may resell the Exchange Notes.
Each of the Issuers shall use its best efforts to keep the Exchange
Registration Statement effective and to amend and supplement the Prospectus
contained therein, in order to permit such Prospectus to be lawfully delivered
by all Persons subject to the prospectus delivery requirements of the
Securities Act for such period of time as such Persons must comply with such
requirements in connection with offers and sales of the Exchange Notes,
provided that such period shall not exceed 180 days after the Exchange
Registration Statement
<PAGE> 9
is declared effective (or such longer period if extended pursuant to the last
paragraph of Section 5.) (the "Applicable Period").
If, upon consummation of the Exchange Offer, the Initial Purchaser
holds any Notes acquired by it and having the status of an unsold allotment in
the initial distribution, the Issuers upon the request of any such Initial
Purchaser shall, simultaneously with the delivery of the Exchange Notes in the
Exchange Offer, issue and deliver to the Initial Purchaser, in exchange (the
"Private Exchange") for the Notes held by the Initial Purchaser, a like
principal amount of debt securities of the Company that are identical in all
material respects to the Exchange Notes except for the existence of
restrictions on transfer thereof under the Securities Act and securities laws
of the several states of the U.S. (the "Private Exchange Notes") (and which are
issued pursuant to the same indenture as the Exchange Notes). The Private
Exchange Notes shall bear the same CUSIP number as the Exchange Notes.
Interest on the Exchange Notes and Private Exchange Notes will accrue from the
last interest payment date on which interest was paid on the Notes surrendered
in exchange therefor or, if no interest has been paid on the Notes, from the
Issue Date.
In connection with the Exchange Offer, the Issuers shall:
(1) mail to each Holder a copy of the Prospectus forming part of
the Exchange Registration Statement, together with an appropriate letter
of transmittal and related documents;
(2) utilize the services of a depositary for the Exchange Offer
with an address in the Borough of Manhattan, The City of New York, which
may be the Trustee or an affiliate thereof;
(3) permit Holders to withdraw tendered Registrable Notes at any
time prior to the close of business, New York time, on the last business
day on which the Exchange Offer shall remain open; and
(4) otherwise comply in all material respects with all applicable
laws.
As soon as practicable after the close of the Exchange Offer or the
Private Exchange, as the case may be, the Issuers shall:
<PAGE> 10
(1) accept for exchange all Registrable Notes validly tendered and
not validly withdrawn pursuant to the Exchange Offer or the Private
Exchange;
(2) deliver to the Trustee for cancellation all Registrable Notes
so accepted for exchange; and
(3) cause the Trustee to authenticate and deliver promptly to each
Holder tendering such Registrable Notes, Exchange Notes or Private
Exchange Notes, as the case may be, equal in principal amount to the
Notes of such Holder so accepted for exchange.
The Exchange Notes and the Private Exchange Notes may be issued
under (i) the Indenture or (ii) an indenture identical in all material respects
to the Indenture, which in either event will provide that the Exchange Notes
will not be subject to the transfer restrictions set forth in the Indenture and
that the Exchange Notes, the Private Exchange Notes and the Notes, if any, will
vote and consent together on all matters as one class and that none of the
Exchange Notes, the Private Exchange Notes or the Notes, if any, will have the
right to vote or consent as a separate class on any matter.
(c) If, (i) because of any change in law or in currently
prevailing interpretations of the staff of the SEC, the Company is not
permitted to effect an Exchange Offer, (ii) the Exchange Offer is not
consummated within 240 days of the Issue Date, (iii) any holder of Private
Exchange Notes so requests in writing to the Company or (iv) in the case of any
Holder that participates in the Exchange Offer (and tenders its Registrable
Notes prior to the expiration thereof), such Holder does not receive Exchange
Notes on the date of the exchange that may be sold without restriction under
federal securities laws (other than due solely to the status of such Holder as
an affiliate of any of the Issuers within the meaning of the Securities Act)
and so notifies the Company within 30 days following the consummation of the
Exchange Offer (and providing a reasonable basis for its conclusions), in the
case of each of clauses (i)-(iv), then the Issuers shall promptly deliver to
the Holders and the Trustee written notice thereof (the "Shelf Notice") and
shall file a Shelf Registration pursuant to Section 3.
3. Shelf Registration
If a Shelf Notice is delivered as contemplated by Section 2(c),
then:
<PAGE> 11
(a) Shelf Registration. The Issuers shall as promptly as
reasonably practicable file with the SEC a Registration Statement for an
offering to be made on a continuous basis pursuant to Rule 415 covering all of
the Registrable Notes (the "Initial Shelf Registration"). If the Issuers shall
not have yet filed the Exchange Registration Statement, each of the Issuers
shall use its best efforts to file with the SEC the Initial Shelf Registration
on or prior to the Filing Date and shall use its best efforts to cause such
Initial Shelf Registration to be declared effective under the Securities Act on
or prior to the Effectiveness Date. Otherwise, each of the Issuers shall use
its best efforts to file with the SEC the Initial Shelf Registration within 30
days of the delivery of the Shelf Notice and shall use its best efforts to
cause such Shelf Registration to be declared effective under the Securities Act
as promptly as practicable thereafter. The Initial Shelf Registration shall be
on Form S-1 or another appropriate form permitting registration of such
Registrable Notes for resale by Holders in the manner or manners designated by
them (including, without limitation, one or more underwritten offerings). No
Issuers shall permit any securities other than the Registrable Notes to be
included in any Shelf Registration. Each of the Issuers shall use its best
efforts to keep the Initial Shelf Registration continuously effective under the
Securities Act until the date which is 36 months from the Issue Date (or, if
Rule 144(k) under the Securities Act is amended to permit unlimited resales by
non-affiliates within a lesser period, such lesser period) (subject to
extension pursuant to the last paragraph of Section 5 hereof) or such shorter
period ending when (i) all Registrable Notes covered by the Initial Shelf
Registration have been sold in the manner set forth and as contemplated in the
Initial Shelf Registration or (ii) a Subsequent Shelf Registration covering all
of the Registrable Notes has been declared effective under the Securities Act
(the "Effectiveness Period").
(b) Subsequent Shelf Registrations. If the Initial Shelf
Registration or any Subsequent Shelf Registration ceases to be effective for
any reason at any time during the Effectiveness Period (other than because of
the sale of all of the securities registered thereunder), each of the Issuers
shall use its best efforts to obtain the prompt withdrawal of any order
suspending the effectiveness thereof, and in any event shall within 30 days of
such cessation of effectiveness amend the Shelf Registration in a manner to
obtain the withdrawal of the order suspending the effectiveness thereof, or
file an additional "shelf" Registration Statement pursuant to Rule 415 covering
all of the Registrable Notes (a "Subsequent Shelf Registration"). If a
Subsequent Shelf
<PAGE> 12
Registration is filed, each of the Issuers shall use its best efforts to cause
the Subsequent Shelf Registration to be declared effective as soon as
practicable after such filing and to keep such Subsequent Shelf Registration
continuously effective for a period equal to the number of days in the
Effectiveness Period less the aggregate number of days during which the Initial
Shelf Registration or any Subsequent Shelf Registrations was previously
continuously effective. As used herein the term "Shelf Registration" means the
Initial Shelf Registration and any Subsequent Shelf Registration.
(c) Supplements and Amendments. The Issuers shall promptly
supplement and amend any Shelf Registration if required by the rules,
regulations or instructions applicable to the registration form used for such
Shelf Registration, if required by the Securities Act, or if reasonably
requested by the Holders of a majority in aggregate principal amount of the
Registrable Notes covered by such Shelf Registration or by any underwriter of
such Registrable Notes.
4. Liquidated Damages
(a) The Issuers and the Initial Purchaser agree that the Holders
of Registrable Notes will suffer damages if the Issuers fail to fulfill their
obligations under Section 2 or Section 3 hereof and that it would not be
feasible to ascertain the extent of such damages with precision. Accordingly,
the Issuers agree to pay liquidated damages ("Liquidated Damages") to holders
of the Registrable Notes under the circumstances and to the extent set forth
below (each of which shall be given independent effect):
(i) if neither the Exchange Registration Statement nor the Initial
Shelf Registration has been filed on or prior to the Filing Date, then
commencing on the day after the Filing Date, Liquidated Damages shall
accrue on the Registrable Notes at a rate of 0.50% per annum of the
principal amount of the Registrable Notes for the first 90 days
immediately following the Filing Date, such Liquidated Damages increasing
by an additional 0.25% per annum of the principal amount of the
Registrable Notes at the beginning of each subsequent 90-day period;
(ii) if neither the Exchange Registration Statement nor the Initial
Shelf Registration is declared effective on or prior to the Effectiveness
Date applicable thereto, then commencing on the day after such
Effectiveness Date, Liquidated Damages shall accrue on the Registrable
Notes at a rate of 0.50% per annum of the principal amount of the
Registrable Notes for the first 90 days immediately
<PAGE> 13
following the day after the Effectiveness Date, such Liquidated Damages
rate increasing by an additional 0.25% per annum of the principal amount
of the Registration Notes at the beginning of each subsequent 90-day
period; and
(iii) if (A) the Company has not exchanged Exchange Notes for all
Notes validly tendered in accordance with the terms of the Exchange Offer
on or prior to 60 days after the date on which the Exchange Registration
Statement was declared effective or (B) if applicable, a Shelf
Registration has been declared effective and such Shelf Registration
ceases to be effective at any time during the Effectiveness Period, then
Liquidated Damages shall accrue on the Registrable Notes at a rate of
0.50% per annum of the principal amount of the Registrable Notes for the
first 90 days commencing on the (x) 61st day after such effective date in
the case of (A) above or (y) the day such Shelf Registration ceases to be
effective in the case of (B) above, such Liquidated Damages increasing by
an additional 0.25% per annum of the principal amount of the Registrable
Notes at the beginning of each such subsequent 90-day period;
provided, however, that Liquidated Damages on the Registrable Notes may not
exceed in the aggregate 1.0% per annum of the principal amount of the
Registrable Notes; provided further that (1) upon the filing of the Exchange
Registration Statement or the Initial Shelf Registration (in the case of (i)
above), (2) upon the effectiveness of the Exchange Registration Statement or
the Initial Shelf Registration, as the case may be (in the case of (ii) above),
or (3) upon the exchange of Exchange Notes for all Registrable Notes tendered
(in the case of (iii)(A) above) or upon the effectiveness of a Shelf
Registration which had ceased to remain effective (in the case of (iii)(B)
above), Liquidated Damages on any Registrable Notes then accruing Liquidated
Damages as a result of such clause (or the relevant subclause thereof), as the
case may be, shall cease to accrue.
(b) The Company shall notify the Trustee within one business day
after each and every date on which an event occurs in respect of which
Liquidated Damages are required to be paid (an "Event Date"). Any Liquidated
Damages due pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section 4 will be
payable in cash semi-annually on each regular interest payment date specified
in the Indenture (to the Holders of Registrable Notes of record on the regular
record date therefor (as specified in the Indenture) immediately preceding such
dates), commencing with the first such regular interest payment date occurring
<PAGE> 14
after any such Liquidated Damages commence to accrue. The amount of Liquidated
Damages will be determined by multiplying the applicable Liquidated Damages
rate by the principal amount of the Notes subject thereto, multiplied by a
fraction, the numerator of which is the number of days such Liquidated Damages
rate was applicable during such period (determined on the basis of a 360-day
year comprised of twelve 30-day months), and the denominator of which is 360.
5. Registration Procedures
In connection with the filing of any Registration Statement
pursuant to Sections 2 or 3 hereof, the Issuers shall effect such registrations
to permit the sale of such securities covered thereby in accordance with the
intended method or methods of disposition thereof, and pursuant thereto and in
connection with any Registration Statement filed by the Issuers hereunder, each
of the Issuers shall:
(a) Prepare and file with the SEC prior to the Filing Date, the
Exchange Registration Statement or if the Exchange Registration Statement is
not filed or is unavailable, a Shelf Registration as prescribed by Section 2 or
3, and use its best efforts to cause each such Registration Statement to become
effective and remain effective as provided herein; provided that, if (1) a
Shelf Registration is filed pursuant to Section 3, or (2) a Prospectus
contained in an Exchange Registration Statement filed pursuant to Section 2 is
required to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period and
has advised the Company that it is a Participating Broker-Dealer, before filing
any Registration Statement or Prospectus or any amendments or supplements
thereto, the Issuers shall, if requested, furnish to and afford the Holders of
the Registrable Notes to be registered pursuant to such Shelf Registration or
each such Participating Broker-Dealer, as the case may be, covered by such
Registration Statement, their counsel and the managing underwriters, if any, a
reasonable opportunity to review copies of all such documents (including copies
of any documents to be incorporated by reference therein and all exhibits
thereto) proposed to be filed (in each case at least five business days prior
to such filing). The Issuers shall not file any such Registration Statement or
Prospectus or any amendments or supplements thereto if the Holders of a
majority in aggregate principal amount of the Registrable Notes covered by such
Registration Statement, or any such Participating Broker-Dealer, as the case
may be, their counsel, or the managing underwriters, if any, shall reasonably
object.
<PAGE> 15
(b) Prepare and file with the SEC such amendments and
post-effective amendments to each Shelf Registration or Exchange Registration
Statement, as the case may be, as may be necessary to keep such Registration
Statement continuously effective for the Effectiveness Period or the Applicable
Period, as the case may be; cause the related Prospectus to be supplemented by
any Prospectus supplement required by applicable law, and as so supplemented to
be filed pursuant to Rule 424 (or any similar provisions then in force) under
the Securities Act; and comply with the provisions of the Securities Act and
the Exchange Act applicable to it with respect to the disposition of all
securities covered by such Registration Statement as so amended or in such
Prospectus as so supplemented and with respect to the subsequent resale of any
securities being sold by a Participating Broker-Dealer covered by any such
Prospectus. The Issuers shall be deemed not to have used their best efforts to
keep a Registration Statement effective during the Applicable Period if any of
them voluntarily takes any action that would result in selling Holders of the
Registrable Notes covered thereby or Participating Broker-Dealers seeking to
sell Exchange Notes not being able to sell such Registrable Notes or such
Exchange Notes during that period unless such action is required by applicable
law, rule or regulation or unless each of the Issuers complies with this
Agreement, including, without limitation, the provisions of paragraph 5(k)
hereof and the last paragraph of Section 5.
(c) If (1) a Shelf Registration is filed pursuant to Section 3,
or (2) a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 is required to be delivered under the Securities Act by
any Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period from whom the Company has received written notice that it
will be a Participating Broker-Dealer, notify the selling Holders of
Registrable Notes, and each such Participating Broker-Dealer, their counsel and
the managing underwriters, if any, promptly (but in any event within two
business days), and confirm such notice in writing, (i) when a Prospectus or
any Prospectus supplement or post-effective amendment has been filed, and, with
respect to a Registration Statement or any post-effective amendment, when the
same has become effective (including in such notice a written statement that
any Holder may, upon request, obtain, without charge, one conformed copy of
such Registration Statement or post-effective amendment including financial
statements and schedules, documents incorporated or deemed to be incorporated
by reference and exhibits), (ii) of the issuance by the SEC of any stop order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of
<PAGE> 16
any preliminary prospectus or the initiation of any proceedings for that
purpose, (iii) if at any time when a prospectus is required by the Securities
Act to be delivered in connection with sales of the Registrable Notes the
representations and warranties of any Issuer contained in any agreement
(including any underwriting agreement) contemplated by Section 5(n) hereof
cease to be true and correct in any material respect, (iv) of the receipt by
any Issuer of any notification with respect to the suspension of the
qualification or exemption from qualification of a Registration Statement or
any of the Registrable Notes or the Exchange Notes to be sold by any
Participating Broker-Dealer for offer or sale in any jurisdiction, or the
initiation or threatening of any proceeding for such purpose, (v) of the
happening of any event, the existence of any condition or any information
becoming known that makes any statement made in such Registration Statement or
related Prospectus or any document incorporated or deemed to be incorporated
therein by reference untrue in any material respect or that requires the making
of any changes in, or amendments or supplements to, such Registration
Statement, Prospectus or documents so that, in the case of the Registration
Statement, it will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading, and that in the case of the Prospectus,
it will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and (vi) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.
(d) If (1) a Shelf Registration is filed pursuant to Section 3,
or (2) a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 is required to be delivered under the Securities Act by
any Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, use its best efforts to prevent the issuance of any order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of a Prospectus or suspending the
qualification (or exemption from qualification) of any of the Registrable Notes
or the Exchange Notes to be sold by any Participating Broker-Dealer, for sale
in any jurisdiction, and, if any such order is issued, to use its best efforts
to obtain the withdrawal of any such order at the earliest possible date.
(e) If a Shelf Registration is filed pursuant to Section 3 and if
requested by the managing underwriters, if
<PAGE> 17
any, or the Holders of a majority in aggregate principal amount of the
Registrable Notes being sold in connection with an underwritten offering, (i)
as promptly as practicable incorporate in a prospectus supplement or
post-effective amendment such information or revisions to information therein
relating to such Underwriters or selling Holders as the managing underwriters,
if any, or such Holders or their counsel reasonably request to be included or
made therein, (ii) make all required filings of such prospectus supplement or
such post-effective amendment as soon as practicable after the Company has
received notification of the matters to be incorporated in such prospectus
supplement or post-effective amendment, and (iii) supplement or make amendments
to such Registration Statement.
(f) If (1) a Shelf Registration is filed pursuant to Section 3,
or (2) a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 is required to be delivered under the Securities Act by
any Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, furnish to each selling Holder of Registrable Notes and to
each such Participating Broker-Dealer who so requests and to counsel and each
managing underwriter, if any, without charge, one conformed copy of the
Registration Statement or Registration Statements and each post-effective
amendment thereto, including financial statements and schedules, and, if
requested, all documents incorporated or deemed to be incorporated therein by
reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3,
or (2) a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 is required to be delivered under the Securities Act by
any Participating Broker-Dealer, deliver to each selling Holder of Registrable
Notes or each such Participating Broker-Dealer, as the case may be, their
respective counsel, and the underwriters, if any, without charge, as many
copies of the Prospectus or Prospectuses (including each form of preliminary
prospectus) and each amendment or supplement thereto and any documents
incorporated by reference therein as such Persons may reasonably request; and,
subject to the last paragraph of this Section 5, the Issuers hereby consent to
the use of such Prospectus and each amendment or supplement thereto by each of
the selling Holders of Registrable Notes and each Participating Broker-Dealer,
and the underwriters or agents, if any, and dealers (if any), in connection
with the offering and sale of the Registrable Notes covered by, or the sale by
Participating Broker-Dealers of the Exchange Notes pursuant to, such Prospectus
and any amendment or supplement thereto.
<PAGE> 18
(h) Prior to any public offering of Registrable Notes or any
delivery of a Prospectus contained in the Exchange Registration Statement by
any Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, use its best efforts to register or qualify, and cooperate
with the selling Holders of Registrable Notes and each such Participating
Broker-Dealer, the underwriters, if any, and their respective counsel in
connection with the registration or qualification (or exemption from such
registration or qualification) of such Registrable Notes or Exchange Notes, as
the case may be, for offer and sale under the securities or Blue Sky laws of
such jurisdictions within the United States as any selling Holder,
Participating Broker-Dealer, or the managing underwriter or underwriters, if
any, reasonably request in writing; provided that where Exchange Notes held by
Participating Broker-Dealers or Registrable Notes are offered pursuant to an
underwritten offering, counsel to the underwriters shall, at the cost and
expense of the Issuers, perform the Blue Sky investigations and file
registrations and qualifications required to be filed pursuant to this Section
5(h); keep each such registration or qualification (or exemption therefrom)
effective during the period such Registration Statement is required to be kept
effective and do any and all other acts or things reasonably necessary or
advisable to enable the disposition in such jurisdictions of the Exchange Notes
by Participating Broker-Dealers or the Registrable Notes covered by the
applicable Registration Statement; provided that no Issuer shall be required to
(A) qualify generally to do business in any jurisdiction where it is not then
so qualified, (B) take any action that would subject it to general service of
process in any such jurisdiction where it is not then so subject or (C) subject
itself to taxation in excess of a nominal dollar amount in any such
jurisdiction where it is not then so subject.
(i) If a Shelf Registration is filed pursuant to Section 3,
cooperate with the selling Holders of Registrable Notes, any Participating
Broker-Dealer and the managing underwriter or underwriters, if any, to
facilitate the timely preparation and delivery of certificates representing
Registrable Notes to be sold, which certificates shall not bear any restrictive
legends and shall be in a form eligible for deposit with The Depository Trust
Company; and enable such Registrable Notes to be in such denominations and
registered in such names as the managing underwriter or underwriters, if any,
or Holders may reasonably request.
(j) Use its best efforts to cause the Registrable Notes covered
by the Registration Statement to be registered with or approved by such
governmental agencies or authorities
<PAGE> 19
as may be necessary to enable the seller or sellers thereof or the
underwriters, if any, to consummate the disposition of such Registrable Notes,
except as may be required solely as a consequence of the nature of such selling
holder's business, in which case the Issuers will cooperate in all reasonable
respects with the filing of such Registration Statement and the granting of
such approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3,
or (2) a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 is required to be delivered under the Securities Act by
any Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, upon the occurrence of any event contemplated by paragraph
5(c)(v) or 5(c)(vi) hereof, as promptly as practicable prepare and (subject to
Section 5(a) hereof) file with the SEC, at the Issuers' sole expense, a
supplement or post-effective amendment to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable Notes being
sold thereunder or to the purchasers of the Exchange Notes to whom such
Prospectus will be delivered by a Participating Broker-Dealer, any such
Prospectus will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(l) Use its best efforts to cause the Registrable Notes covered
by a Registration Statement to be rated with the appropriate rating agencies,
if so requested by the Holders of a majority in aggregate principal amount of
Registrable Notes covered by such Registration Statement or the managing
underwriter or underwriters, if any.
(m) Prior to the effective date of the first Registration
Statement relating to the Registrable Notes, (i) provide the Trustee with
printed certificates for the Registrable Notes in a form eligible for deposit
with The Depository Trust Company and (ii) provide a CUSIP number for the
Registrable Notes.
(n) In connection with an underwritten offering of Registrable
Notes pursuant to a Shelf Registration, enter into an underwriting agreement as
is customary in underwritten offerings of debt securities similar to the Notes
and take all such other actions as are reasonably requested by the managing
underwriter or underwriters in order to expedite or facilitate
<PAGE> 20
the registration or the disposition of such Registrable Notes and, in such
connection, (i) make such representations and warranties to the underwriters,
with respect to the business of the Issuers and their subsidiaries and the
Registration Statement, Prospectus and documents, if any, incorporated or
deemed to be incorporated by reference therein, in each case, as are
customarily made by issuers to underwriters in underwritten offerings of debt
securities similar to the Notes, and confirm the same in writing if and when
requested; (ii) obtain the opinion of counsel to the Issuers and updates
thereof in form and substance reasonably satisfactory to the managing
underwriter or underwriters, addressed to the underwriters covering the matters
customarily covered in opinions requested in underwritten offerings of debt
securities similar to the Notes and such other matters as may be reasonably
requested by underwriters; (iii) obtain "cold comfort" letters and updates
thereof in form and substance reasonably satisfactory to the managing
underwriter or underwriters from the independent certified public accountants
of the Issuers (and, if necessary, any other independent certified public
accountants of any subsidiary of the Issuers or of any business acquired by any
of the Issuers for which financial statements and financial data are, or are
required to be, included in the Registration Statement), addressed to each of
the underwriters, such letters to be in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
underwritten offerings of debt securities similar to the Notes and such other
matters as reasonably requested by the managing underwriter or underwriters;
and (iv) if an underwriting agreement is entered into, the same shall contain
indemnification provisions and procedures no less favorable than those set
forth in Section 7 hereof (or such other provisions and procedures acceptable
to Holders of a majority in aggregate principal amount of Registrable Notes
covered by such Registration Statement and the managing underwriter or
underwriters or agents) with respect to all parties to be indemnified pursuant
to said Section. The above shall be done at each closing under such
underwriting agreement, or as and to the extent required thereunder.
(o) If (1) a Shelf Registration is filed pursuant to Section 3,
or (2) a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 is required to be delivered under the Securities Act by
any Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, make available for inspection by any selling Holder of such
Registrable Notes being sold, and each Participating Broker-Dealer, any
underwriter participating in any such disposition of Registrable Notes, if any,
and any
<PAGE> 21
attorney, accountant or other agent retained by any such selling Holder, each
Participating Broker-Dealer, as the case may be, or underwriter (collectively,
the "Inspectors"), at the offices where normally kept, during reasonable
business hours, all financial and other records, pertinent corporate documents
and properties of any of the Issuers and their subsidiaries (collectively, the
"Records") as shall be reasonably necessary to enable them to exercise any
applicable due diligence responsibilities, and cause the officers, directors
and employees of each Issuer and its subsidiaries to supply all information
reasonably requested by any such Inspector in connection with such Registration
Statement. Records which an Issuer determines, in good faith, to be
confidential and any Records which it notifies the Inspectors are confidential
shall not be disclosed by the Inspectors unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in such
Registration Statement, (ii) the release of such Records is ordered pursuant to
a subpoena or other order from a court of competent jurisdiction, (iii) the
information in such Records has been made generally available to the public
other than as a result of a disclosure or failure to safeguard by such
Inspector or (iv) disclosure of such information is, in the opinion of counsel
for any Inspector, necessary or advisable in connection with any action, claim,
suit or proceeding, directly or indirectly, involving or potentially involving
such Inspector and arising out of, based upon, related to, or involving this
Agreement, or any transactions contemplated hereby or arising hereunder. Each
selling Holder of such Registrable Notes and each Participating Broker-Dealer
will be required to agree that information obtained by it as a result of such
inspections shall be deemed confidential and shall not be used by it as the
basis for any market transactions in the securities of any Issuer unless and
until such is made generally available to the public. Each Inspector, each
selling Holder of such Registrable Notes and each Participating Broker-Dealer
will be required to further agree that it will, upon learning that disclosure
of such Records is sought in a court of competent jurisdiction or is deemed
necessary or advisable pursuant to clauses (ii) or (iv) of the previous
sentence or otherwise, give notice to the Company and allow the Company to
undertake appropriate action to obtain a protective order or otherwise prevent
disclosure of the Records deemed confidential at its expense.
(p) Provide an indenture trustee for the Registrable Notes or the
Exchange Notes, as the case may be, and cause the Indenture or the trust
indenture provided for in Section 2(a), as the case may be, to be qualified
under the TIA not later than the effective date of the Exchange Offer or the
first Registration Statement relating to the Registrable Notes; and
<PAGE> 22
in connection therewith, cooperate with the trustee under any such indenture
and the Holders of the Registrable Notes, to effect such changes to such
indenture as may be required for such indenture to be so qualified in
accordance with the terms of the TIA; and execute, and use its best efforts to
cause such trustee to execute, all documents as may be required to effect such
changes, and all other forms and documents required to be filed with the SEC to
enable such indenture to be so qualified in a timely manner.
(q) Comply with all applicable rules and regulations of the SEC
and make generally available to its securityholders earnings statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder (or any similar rule promulgated under the Securities Act) no later
than 45 days after the end of any 12-month period (or 90 days after the end of
any 12-month period if such period is a fiscal year) (i) commencing at the end
of any fiscal quarter in which Registrable Notes are sold to underwriters in a
firm commitment or best efforts underwritten offering and (ii) if not sold to
underwriters in such an offering, commencing on the first day of the first
fiscal quarter of the Company after the effective date of a Registration
Statement, which statements shall cover said 12-month periods.
(r) Upon consummation of the Exchange Offer or a Private
Exchange, obtain an opinion of counsel to the Issuers, in a form customary for
underwritten transactions, addressed to the Trustee for the benefit of all
Holders of Registrable Notes participating in the Exchange Offer or the Private
Exchange, as the case may be, that the Exchange Notes or the Private Exchange
Notes, as the case may be, and the related indenture constitute legally valid
and binding obligations of the Issuers, enforceable against each Issuer in
accordance with their respective terms.
(s) If the Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Registrable Notes by Holders to the Issuers
(or to such other Person as directed by the Issuers) in exchange for the
Exchange Notes or the Private Exchange Notes, as the case may be, the Issuers
shall mark, or caused to be marked, on such Registrable Notes that such
Registrable Notes are being cancelled in exchange for the Exchange Notes or the
Private Exchange Notes, as the case may be; in no event shall such Registrable
Notes be marked as paid or otherwise satisfied.
(t) Cooperate with each seller of Registrable Notes covered by
any Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Notes
<PAGE> 23
and their respective counsel in connection with any filings required to be made
with the NASD.
(u) Use its reasonable best efforts to take all other steps
reasonably necessary to effect the registration of the Registrable Notes
covered by a Registration Statement contemplated hereby.
The Issuers may require each seller of Registrable Notes as to
which any registration is being effected to furnish to the Issuers such
information regarding such seller and the distribution of such Registrable
Notes as the Issuers may, from time to time, reasonably request. The Issuers
may exclude from such registration the Registrable Notes of any seller who
fails to furnish such information within a reasonable time after receiving such
request. Each seller as to which any Shelf Registration Statement is being
effected agrees to furnish promptly to the Issuers all information required to
be disclosed in order to make the information previously furnished to the
Issuers by such seller not materially misleading.
Each Holder of Registrable Notes and each Participating
Broker-Dealer agrees by acquisition of such Registrable Notes or Exchange Notes
to be sold by such Participating Broker-Dealer, as the case may be, that, upon
receipt of any notice from the Company of the happening of any event of the
kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi), such Holder
will forthwith discontinue disposition of such Registrable Notes covered by
such Registration Statement or Prospectus or Exchange Notes to be sold by such
Holder or Participating Broker-Dealer, as the case may be, and, in each case,
dissemination of such Prospectus until such Holder's or Participating
Broker-Dealer's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 5(k), or until it is advised in writing (the "Advice")
by the Company that the use of the applicable Prospectus may be resumed, and
has received copies of any amendments or supplements thereto. In the event the
Company shall give any such notice, each of the Effectiveness Period and the
Applicable Period shall be extended by the number of days during such periods
from and including the date of the giving of such notice to and including the
date when each seller of Registrable Notes covered by such Registration
Statement or Exchange Notes to be sold by such Participating Broker-Dealer, as
the case may be, shall have received (x) the copies of the supplemented or
amended Prospectus contemplated by Section 5(k) or (y) the Advice.
<PAGE> 24
6. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Issuers shall be borne by the Issuers
whether or not the Exchange Offer or a Shelf Registration is filed or becomes
effective, including, without limitation, (i) all registration and filing fees
(including, without limitation, (A) fees with respect to filings required to be
made with the NASD in connection with an underwritten offering and (B) fees and
expenses of compliance with state securities or Blue Sky laws (including,
without limitation, reasonable fees and disbursements of counsel in connection
with Blue Sky qualifications of the Registrable Notes or Exchange Notes and
determination of the eligibility of the Registrable Notes or Exchange Notes for
investment under the laws of such jurisdictions (x) where the holders of
Registrable Notes are located, in the case of the Exchange Notes, or (y) as
provided in Section 5(h) hereof, in the case of Registrable Notes or Exchange
Notes to be sold by a Participating Broker-Dealer during the Applicable
Period)), (ii) printing expenses, including, without limitation, expenses of
printing certificates for Registrable Notes or Exchange Notes in a form
eligible for deposit with The Depository Trust Company and of printing
prospectuses if the printing of prospectuses is requested by the managing
underwriter or underwriters, if any, or by the Holders of a majority in
aggregate principal amount of the Registrable Notes included in any
Registration Statement or by any Participating Broker- Dealer, as the case may
be, (iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Issuers and fees and disbursements of special
counsel for the sellers of Registrable Notes (subject to the provisions of
Section 6(b)), (v) fees and disbursements of all independent certified public
accountants referred to in Section 5(n)(iii) (including, without limitation,
the expenses of any special audit and "cold comfort" letters required by or
incident to such performance), (vi) rating agency fees, (vii) Securities Act
liability insurance, if the Issuers desire such insurance, (viii) fees and
expenses of all other Persons retained by the Issuers, (ix) internal expenses
of the Issuers (including, without limitation, all salaries and expenses of
officers and employees of any Issuers performing legal or accounting duties),
(x) the expense of any annual or special audit, (xi) the fees and expenses
incurred in connection with the listing of the securities to be registered on
any securities exchange, (xii) the fees and disbursements of underwriters, if
any, customarily paid by issuers or sellers of securities (but not including
any underwriting discounts or commissions or transfer taxes, if any,
attributable to the sale of the Registrable Notes which discounts, commissions
or taxes shall
<PAGE> 25
be paid by Holders of such Registrable Notes) and (xiii) the expenses relating
to printing, word processing and distributing all Registration Statements,
underwriting agreements, securities sales agreements, indentures and any other
documents necessary in order to comply with this Agreement.
(b) In connection with any Shelf Registration hereunder, the
Issuers, jointly and severally, shall reimburse the Holders of the Registrable
Notes being registered in such registration for the fees and disbursements of
not more than one counsel (in addition to appropriate local counsel) chosen by
the Holders of a majority in aggregate principal amount of the Registrable
Notes to be included in such Registration Statement.
7. Indemnification
(a) Each of the Issuers agrees, jointly and severally, to
indemnify and hold harmless each Holder of Registrable Notes and each
Participating Broker-Dealer, the officers and directors of each such Person,
and each Person, if any, who controls any such Person within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act
(each, a "Participant"), from and against any and all losses, claims, damages
and liabilities (including, without limitation, the reasonable legal fees and
other reasonable expenses actually incurred in connection with any suit, action
or proceeding or any claim asserted) caused by, arising out of or based upon
any untrue statement or alleged untrue statement of a material fact contained
in any Registration Statement or Prospectus (as amended or supplemented if any
Issuer shall have furnished any amendments or supplements thereto) or caused
by, arising out of or based upon any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, except insofar as such losses, claims, damages or liabilities
are caused by any untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with information relating to
any Participant furnished to any Issuer in writing by or on behalf of such
Participant expressly for use therein; provided, however, that the Issuers
shall not be liable if such untrue statement or omission or alleged untrue
statement or omission was contained or made in (A) any preliminary prospectus
and corrected in the Prospectus or any amendment or supplement thereto and the
Prospectus does not contain any other untrue statement or omission or alleged
untrue statement or omission of a material fact that was the subject matter of
the related proceeding and any such loss, liability, claim, damage or expense
suffered or
<PAGE> 26
incurred by the Participants resulted from any action, claim or suit by any
Person who purchased Registrable Notes or Exchange Notes which are the subject
thereof from such Participant and it is established in the related proceeding
that such Participant failed to deliver or provide a copy of the Prospectus (as
amended or supplemented) to such Person with or prior to the confirmation of
the sale of such Registrable Notes or Exchange Notes sold to such Person if
required by applicable law, unless such failure to deliver or provide a copy of
the Prospectus (as amended or supplemented) was a result of noncompliance by
any Issuer with Section 5 of this Agreement or (B)(i) any preliminary
prospectus or Prospectus, as the case may be, (or an amendment or supplement
thereto) which is the subject of a notice delivered by the Issuers pursuant to,
and in accordance with Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi), and
(ii) any such losses arise out of the breach by such Indemnified Person of the
obligations of such Indemnified Person contained in the last paragraph of
Section 5, unless the Issuers fail to deliver a supplemented or amended
prospectus as contemplated by Section 5(k).
(b) Each Participant will be required to agree, severally and not
jointly, to indemnify and hold harmless the Issuers, their respective directors
and officers and each Person who controls any Issuer within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act to the same
extent as the foregoing indemnity from the Issuers to each Participant, but
only with reference to information relating to such Participant furnished to
any Issuer in writing by such Participant expressly for use in any Registration
Statement or Prospectus, any amendment or supplement thereto, or any
preliminary prospectus. The liability of any Participant under this paragraph
shall in no event exceed the proceeds received by such Participant from sales
of Registrable Notes or Exchange Notes giving rise to such obligations.
(c) If any suit, action, proceeding (including any governmental
or regulatory investigation), claim or demand shall be brought or asserted
against any Person in respect of which indemnity may be sought pursuant to
either of the two preceding paragraphs, such Person (the "Indemnified Person")
shall promptly notify the Person against whom such indemnity may be sought (the
"Indemnifying Person") in writing, and the Indemnifying Person, upon request of
the Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may reasonably designate in such proceeding and shall pay
the reasonable fees and expenses incurred by such counsel related to such
proceeding; provided, however, that the failure to so notify the Indemnifying
Person shall not relieve
<PAGE> 27
it of any obligation or liability which it may have hereunder or otherwise,
except to the extent the Indemnifying Person is actually damaged by such
failure. In any such proceeding, any Indemnified Person shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be
at the expense of such Indemnified Person unless (i) the Indemnifying Person
and the Indemnified Person shall have mutually agreed in writing to the
contrary, (ii) the Indemnifying Person has failed within a reasonable time to
retain counsel reasonably satisfactory to the Indemnified Person or (iii) the
named parties in any such proceeding (including any impleaded parties) include
both the Indemnifying Person and the Indemnified Person and representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that, unless
there is a conflict among Indemnified Persons, the Indemnifying Person shall
not, in connection with any proceeding or related proceeding in the same
jurisdiction, be liable for the fees and expenses of more than one separate
firm (in addition to any local counsel) for all Indemnified Persons, and that
all such fees and expenses shall be reimbursed as they are incurred. Any such
separate firm for the Participants and such control Persons of Participants
shall be designated in writing by Participants who sold a majority in interest
of Registrable Notes sold by all such Participants and any such separate firm
for the Issuers, their respective directors, officers and such control Persons
of the Issuers shall be designated in writing by the Company. The Indemnifying
Person shall not be liable for any settlement of any proceeding effected
without its written consent, but if settled with such consent or if there is a
final non-appealable judgment for the plaintiff, the Indemnifying Person agrees
to indemnify any Indemnified Person from and against any loss or liability by
reason of such settlement or judgment. No Indemnifying Person shall, without
the prior written consent of the Indemnified Person, effect any settlement of
any pending or threatened proceeding in respect of which any Indemnified Person
is or could have been a party and indemnity could have been sought hereunder by
such Indemnified Person, unless such settlement (A) includes an unconditional
release of such Indemnified Person, in form and substance satisfactory to such
Indemnified Person, from all liability on claims that are the subject matter of
such proceeding and (B) does not include any statement as to an admission of
fault, culpability or failure to act by or on behalf of an Indemnified Person.
(d) If the indemnification provided for in the first and second
paragraphs of this Section 7 is unavailable to, or insufficient to hold
harmless, an Indemnified Person in respect of any losses, claims, damages or
liabilities referred to
<PAGE> 28
therein, then each Indemnifying Person under such paragraphs, in lieu of
indemnifying such Indemnified Person thereunder and in order to provide for
just and equitable contribution, shall contribute to the amount paid or payable
by such Indemnified Person as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative fault
of the Indemnifying Person or Persons on the one hand and the Indemnified
Person or Persons on the other in connection with the statements or omissions
(or alleged statements or omissions) that resulted in such losses, claims,
damages or liabilities (or actions in respect thereof) as well as any other
relevant equitable considerations. The relative fault of the parties shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Issuers on the one
hand or by the Participants or such other Indemnified Person, as the case may
be, on the other, the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission
and any other equitable considerations appropriate under the circumstances.
(e) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
(even if the Participants were treated as one entity for such purpose) or by
any other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Person as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding paragraph
shall be deemed to include, subject to the limitations set forth above, any
reasonable legal or other expenses actually incurred by such Indemnified Person
in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Notes or
Exchange Notes, as the case may be, exceeds the amount of any damages that such
Participant has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No Person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation.
(f) The indemnity and contribution agreements contained in this
Section 7 will be in addition to any
<PAGE> 29
liability which the Indemnifying Persons may otherwise have to the Indemnified
Persons referred to above.
8. Rules 144 and 144A
Each of the Issuers covenants that it will file the reports
required to be filed by it under the Securities Act and the Exchange Act and
the rules and regulations adopted by the SEC thereunder in a timely manner and,
if at any time it is not required to file such reports, it will, upon the
request of any Holder of Registrable Notes, make publicly available other
information so long as necessary to permit sales pursuant to Rule 144 and Rule
144A under the Securities Act. Each of the Issuers further covenants, for so
long as any Registrable Notes remain outstanding, to make available to any
Holder or beneficial owner of Registrable Notes in connection with any sale
thereof and any prospective purchaser of such Registrable Notes from such
Holder or beneficial owner, the information required by Rule 144A(d)(4) under
the Securities Act in order to permit resales of such Registrable Notes
pursuant to Rule 144A.
9. Underwritten Registrations
If any of the Registrable Notes covered by any Shelf Registration
are to be sold in an underwritten offering, the investment banker or investment
bankers and manager or managers that will manage the offering will be selected
by the Holders of a majority in aggregate principal amount of such Registrable
Notes included in such offering and reasonably acceptable to the Issuers.
No Holder of Registrable Notes may participate in any underwritten
registation hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
10. Miscellaneous
(a) Remedies. In the event of a breach by any Issuer of any of
its obligations under this Agreement, each Holder of Registrable Notes and each
Participating Broker- Dealer holding Exchange Notes, in addition to being
entitled to exercise all rights provided herein, in the Indenture or, in the
case of the Initial Purchaser, in the Purchase Agreement,
<PAGE> 30
or granted by law, including recovery of damages, will be entitled to specific
performance of its rights under this Agreement. Each Issuer agrees that
monetary damages would not be adequate compensation for any loss incurred by
reason of a breach by it of any of the provisions of this Agreement and hereby
further agrees that, in the event of any action for specific performance in
respect of such breach, it shall waive the defense that a remedy at law would
be adequate.
(b) No Inconsistent Agreements. None of the Issuers has entered,
as of the date hereof, and none of the Issuers shall enter, after the date of
this Agreement, into any agreement with respect to any of its securities that
is inconsistent with the rights granted to the Holders of Registrable Notes in
this Agreement or otherwise conflicts with the provisions hereof. None of the
Issuers has entered or will enter into any agreement with respect to any of its
securities which will grant to any Person piggy-back rights with respect to a
Registration Statement.
(c) Adjustments Affecting Registrable Notes. None of the Issuers
shall, directly or indirectly, take any action with respect to the Registrable
Notes as a class that would adversely affect the ability of the Holders of
Registrable Notes to include such Registrable Notes in a registration
undertaken pursuant to this Agreement.
(d) Amendments and Waivers. The provisions of this Agreement may
not be amended, modified or supplemented, and waivers or consents to departures
from the provisions hereof may not be given, otherwise than with the prior
written consent of (A) the Holders of not less than a majority in aggregate
principal amount of the then outstanding Registrable Notes and (B) in
circumstances that would adversely affect Participating Broker-Dealers, the
Participating Broker-Dealers holding not less than a majority in aggregate
principal amount of the Exchange Notes held by all Participating
Broker-Dealers; provided, however, that Section 7 and this Section 10(d) may
not be amended, modified or supplemented without the prior written consent of
each Holder and each Participating Broker- Dealer (including any person who was
a Holder or Participating Broker-Dealer of Registrable Notes or Exchange Notes,
as the case may be, disposed of pursuant to any Registration Statement).
Notwithstanding the foregoing, a waiver or consent to depart from the
provisions hereof with respect to a matter that relates exclusively to the
rights of Holders of Registrable Notes whose securities are being tendered
pursuant to the Exchange Offer or sold pursuant to a Registration Statement and
that does not directly or indirectly affect, impair, limit or compromise the
rights of other Holders of
<PAGE> 31
Registrable Notes may be given by Holders of at least a majority in aggregate
principal amount of the Registrable Notes being tendered or being sold by such
Holders pursuant to such Registration Statement.
(e) Notices. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or telecopier:
1. if to a Holder of Registrable Notes or any Participating
Broker-Dealer, at the most current address of such Holder or
Participating Broker-Dealer, as the case may be, set forth on the records
of the registrar under the Indenture, with a copy in like manner to the
Initial Purchaser as follows:
BT SECURITIES CORPORATION
Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Facsimile No.: (212) 250-7200
Attention: Corporate Finance
Department
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Facsimile No.: (212) 269-5420
Attention: William M. Hartnett, Esq.
2. if to the Initial Purchaser, at the address specified in
Section 10(e)(1);
3. if to the Company, as follows:
Ralphs Grocery Company
1100 West Artesia Boulevard
Compton, California 90220
Facsimile No.: (310) 884-2610
Attention: Jan Charles Gray, Esq.
<PAGE> 32
with copies to:
Latham & Watkins
633 West Fifth Street
Suite 4000
Los Angeles, California 90071
Facsimile: (213) 891-8763
Attention: Thomas C. Sadler, Esq.
All such notices and communications shall be deemed to have been
duly given: when delivered by hand, if personally delivered; five business
days after being deposited in the mail, postage prepaid, if mailed; one
business day after being timely delivered to a next-day air courier
guaranteeing overnight delivery; and when receipt is acknowledged by the
addressee, if telecopied.
Copies of all such notices, demands or other communications shall
be concurrently delivered by the Person giving the same to the Trustee under
the Indenture at the address specified in such Indenture.
(f) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of each of the
parties hereto and the Holders.
(g) Counterparts. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience
of reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(j) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, illegal, void or
<PAGE> 33
unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall
in no way be affected, impaired or invalidated, and the parties hereto shall
use their best efforts to find and employ an alternative means to achieve the
same or substantially the same result as that contemplated by such term,
provision, covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such that may
be hereafter declared invalid, illegal, void or unenforceable.
(k) Notes Held by an Issuer or Its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable Notes
is required hereunder, Registrable Notes held by an Issuer or its affiliates
(as such term is defined in Rule 405 under the Securities Act) shall not be
counted in determining whether such consent or approval was given by the
Holders of such required percentage.
(l) Third Party Beneficiaries. Holders of Registrable Notes and
Participating Broker-Dealers are intended third party beneficiaries of this
Agreement and this Agreement may be enforced by such Persons.
(m) Joint and Several Obligations. Unless otherwise stated
herein, each of the obligations of the Issuers under this Agreement shall be
joint and several obligations of each of them.
(n) Entire Agreement. This Agreement, together with the Purchase
Agreement and the Indenture, is intended by the parties as a final and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and therein and any and all
prior oral or written agreements, representations, or warranties, contracts,
understandings, correspondence, conversations and memoranda between the Initial
Purchasers on the one hand and the Company on the other, or between or among
any agents, representatives, parents, subsidiaries, affiliates, predecessors in
interest or successors in interest with respect to the subject matter hereof
and thereof are merged herein and replaced hereby.
<PAGE> 34
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
RALPHS GROCERY COMPANY
By:
Name: Jan Charles Gray
Title: Senior Vice President
General Counsel &
Secretary
ALPHA BETA COMPANY,
BAY AREA WAREHOUSE STORES, INC.
BELL MARKETS, INC.,
CALA CO.,
CALA FOODS, INC.,
FALLEY'S, INC.,
FOOD 4 LESS OF CALIFORNIA, INC.,
FOOD 4 LESS MERCHANDISING, INC.,
FOOD 4 LESS OF SOUTHERN
CALIFORNIA, INC.,
FOOD 4 LESS GM, INC.
CRAWFORD STORES, INC.
as Subsidiary Guarantors
By:
Name: Jan Charles Gray
Title: Senior Vice President
General Counsel &
Secretary
BT SECURITIES CORPORATION
By:
Name: Gerald McConnell
Title: Vice President
<PAGE> 1
EXHIBIT 12
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED 31 WEEKS ENDED
JUNE 29, 1991 JUNE 27, 1992 JUNE 26, 1993 JUNE 25, 1994 JANUARY 29, 1995
----------------- ------------------ ------------------ ------------------ ------------------
FIXED FIXED FIXED FIXED FIXED
EARNINGS CHARGES EARNINGS CHARGES EARNINGS CHARGES EARNINGS CHARGES EARNINGS CHARGES
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before
provision for income
taxes and extraordinary
charges . . . . . . . . . $(3,387) $ -- $(25,555) $ -- $(25,936) $ -- $ -- $ -- $(11,500) $ --
Add: Fixed charges:
Interest expense including
amortization of deferred
financing costs . . . . . 50,084 50,084 70,211 70,211 69,732 69,732 68,250 68,250 42,222 42,222
Interest factor in rent
expense(1) . . . . . . . 6,523 6,523 15,569 15,569 14,835 14,835 16,596 16,596 11,153 11,153
------- ------- -------- ------- -------- ------- ------- ------- -------- -------
$53,220 $56,607 $ 60,225 $85,780 $ 58,631 $84,567 $84,846 $84,846 $ 41,875 $53,375
======= ======= ======== ======= ======== ======= ======= ======= ======== =======
Ratio of earnings to fixed
charges . . . . . . . . . -- -- -- 1.0 --
======= ======== ======== ======= ========
Deficiency of earnings to
cover fixed charges . . . $ 3,387 $ 25,555 $ 25,936 $ -- $ 11,500
======= ======== ======== ======= ========
- ------------------
(1) Calculated as one-third of minimum rent expense:
</TABLE>
<TABLE>
<CAPTION>
52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED 31 WEEKS ENDED
JUNE 29, 1991 JUNE 27, 1992 JUNE 26, 1993 JUNE 25, 1994 JANUARY 29, 1995
-------------- -------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
Minimum rent . . . . . . . . . $19,570 $46,706 $44,504 $49,788 $33,458
Interest factor . . . . . . . /3 /3 /3 /3 /3
------- ------- ------- ------- -------
$ 6,523 $15,569 $14,835 $16,596 $11,153
======= ======= ======= ======= =======
</TABLE>
<PAGE> 2
RALPHS GROCERY COMPANY
(FORMERLY FOOD 4 LESS SUPERMARKETS, INC.)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<Caption)
PRO FORMA
52 WEEKS ENDED 12 WEEKS ENDED 12 WEEKS ENDED 52 WEEKS ENDED
JANUARY 28, 1996 APRIL 23, 1995 APRIL 21, 1996 JANUARY 28, 1996
--------------------- ------------------ ------------------- ---------------------
FIXED FIXED FIXED FIXED
EARNINGS CHARGES EARNINGS CHARGES EARNINGS CHARGES EARNINGS CHARGES
--------- -------- -------- ------- -------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before provision
for income taxes and extra-
ordinary charges............. $(259,617) $ -- $(2,512) $ -- $(31,981) $ -- $(289,100) $ --
Add Fixed charges:
Interest expense including
amortization of deferred
financing costs.............. 178,774 178,774 16,916 16,916 56,084 56,084 246,200 246,200
Interest factor in rent
expense(1)................... 32,584 32,584 5,484 5,484 9,873 9,873 32,584 32,584
--------- -------- ------- ------- -------- ------- --------- --------
$ (48,259) $211,358 $19,888 $22,400 $ 33,976 $65,957 $ (10,316) $278,784
========= ======== ======= ======= ======== ======= ========= ========
Ratio of earnings to fixed
charges..................... -- -- -- --
========= ======= ======== =========
Deficiency of earnings to
cover fixed charges......... $ 259,617 $ 2,512 $ 31,981 $ 289,100
========= ======= ======== =========
- ------------------------------
(1) Calculated as one-third of minimum rent expense:
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
52 WEEKS ENDED 12 WEEKS ENDED 12 WEEKS ENDED 52 WEEKS ENDED
JANUARY 28, 1996 APRIL 23, 1995 APRIL 21, 1996 JANUARY 28, 1996
---------------- -------------- -------------- ----------------
<S> <C> <C> <C> <C>
Minimum rent.................. $97,752 $16,451 $29,620 $97,752
Interest factor............... /3 /3 /3 /3
------- ------- ------- -------
$32,584 $ 5,484 $ 9,873 $32,584
======= ======= ======= =======
</TABLE>
<PAGE> 3
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(a)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 20 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED
FEBRUARY 3, FEBRUARY 2, JANUARY 31, JANUARY 30, JANUARY 29, JUNE 13,
1991 1992 1993 1994 1995 1995
----------- ----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Earnings (loss) before income
taxes, cumulative effect of
change in accounting and
extraordinary item . . . . . . $(25,529) $(27,734) $ 2,792 $ 30,317 $ 32,118 $ 7,400
Add:
Portion of rents
representative of the
interest factor . . . . . . 12,936 15,135 17,745 19,218 19,467 7,987
Capitalized interest . . . . 915 510 1,074 740 325 32
Interest expense . . . . . . 128,477 130,206 125,611 108,755 112,651 41,000
-------- -------- -------- -------- -------- -------
Earnings as adjusted . . . . $116,799 $118,117 $147,222 $159,030 $164,561 $56,419
======== ======== ======== ======== ======== =======
Fixed charges:
Interest expense . . . . . . . 128,477 130,206 125,611 108,755 112,651 41,000
Capitalized interest . . . . . 915 510 1,074 740 325 32
Portion of rents
representative of the
interest factor . . . . . . 12,936 15,135 17,745 19,218 19,467 7,987
-------- -------- -------- -------- -------- -------
Total fixed charges . . . . . $142,328 $145,851 $144,430 $128,713 $132,443 $49,019
======== ======== ======== ======== ======== =======
Ratio of earnings to
fixed charges . . . . . . . . -- (b) -- (b) 1.02 1.24 1.24 1.15
======== ======== ======== ======== ======== =======
- ---------------
(a) The ratio of earnings to fixed charges has been computed based upon net earnings (loss) before income taxes, cumulative effect
of change in accounting, extraordinary item and fixed charges. Fixed charges consist of interest expense (including
amortization of self-insurance reserves discount), capitalized interest, amortization of debt discount and expense and
one-third of rental expense (the proportion deemed representative of the interest factor).
(b) Earnings before income taxes and fixed charges were insufficient to cover fixed charges for the periods ended February 3, 1991
and February 2, 1992 by $25,529 and $27,734, respectively.
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Los Angeles, California
June 26, 1996
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC AUDITORS
The Board of Directors
Ralphs Grocery Company:
The audits referred to in our report dated March 9, 1995, included the
related financial statement schedule as of January 29, 1995, and for each of the
years in the three-year period ended January 29, 1995, included in the
registration statement. This financial statement schedule is the responsibility
of the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We consent to the use of our reports included herein and to the reference
to our firm under the headings "Selected Historical Financial Data of Ralphs,"
"Summary of Historical Financial Data of Ralphs" and "Experts" in the
prospectus.
KPMG PEAT MARWICK LLP
Los Angeles, California
June 26, 1996
