<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
_______________
<TABLE>
<S> <C>
For Fiscal Year Ended Commission File Number
June 25, 1994 33-31152
</TABLE>
FOOD 4 LESS SUPERMARKETS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 95-4222386
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
777 South Harbor Boulevard 90631
La Habra, California (Zip code)
(Address of principal executive offices)
</TABLE>
(714) 738-2000
(Registrant's telephone number, including area code)
Securities registered pursuant to
Section 12(b) of the Act: None
Securities registered pursuant to
Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report(s), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No .
----- -----
At September 23, 1994 there were 1,506,544 shares of Common Stock
outstanding. As of such date, none of the outstanding shares of Common Stock
were held by persons other than affiliates and employees of the registrant, and
there was no public market for the Common Stock.
<PAGE> 2
PART I
ITEM 1. BUSINESS
Food 4 Less Supermarkets, Inc. (the "Company") is a leading
supermarket operator with 258 stores located in Southern California, Northern
California and certain areas of the midwest. The Company is one of the largest
supermarket companies in the greater Los Angeles area (Los Angeles, Orange,
Riverside and San Bernardino counties) in terms of sales and the leading
supermarket company serving the high-growth, urban ethnic neighborhoods of the
city of Los Angeles. 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 a
major manufacturing facility, which includes bakery and creamery operations,
and a full-line warehouse and distribution facility servicing its Southern
California operations.
The Company 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 the Company's 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 the Company all of the outstanding capital stock of Falley's,
Inc. ("Falley's"), which owned the Company's Midwestern stores. The Company
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, the Company 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, the Company added ten warehouse format
stores (collectively the "Food Barn Stores") 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 June 25,
1994 (unless otherwise indicated, all references to numbers of stores and other
store data in this Annual Report on Form 10-K are as of June 25, 1994):
<TABLE>
<CAPTION>
Southern Northern
California California Midwestern Total
---------- ---------- ---------- -----
<S> <C> <C> <C> <C>
Alpha Beta 129 - - 129
Boys 24 - - 24
Viva 15 - - 15
Cala - 9 - 9
Bell - 10 - 10
Falley's - - 5 5
--- --- --- ---
Total Conventional 168 19 5 192
Food 4 Less 28 - 33 61
FoodsCo - 5 - 5
--- --- --- ---
Total Warehouse 28 5 33 66
--- --- --- ---
Total Stores 196 24 38 258
=== === === ===
</TABLE>
RECENT EVENTS
On September 14, 1994, the Company, its parent company, Food 4 Less
Holdings, Inc. ("Holdings"), and the parent company of Holdings, FFL, entered
into a definitive Agreement and Plan of Merger (the "Merger Agreement") with
Ralphs Supermarkets, Inc. ("Ralphs") and the stockholders of Ralphs (the
"Ralphs Merger"). Pursuant to the terms of the Merger Agreement, the Company
will, subject to certain terms and conditions being satisfied or waived, be
merged into Ralphs and Ralphs will become a wholly-owned subsidiary of
Holdings.
1
<PAGE> 3
Ralphs operates 168 stores in six Southern California counties. Ralphs had
reported sales of $2,730 million, operating income of $152.1 million and
earnings before income taxes of $30.3 million for its most recent fiscal year
ended January 30, 1994. Conditions to the consummation of the Ralphs Merger
include, among other things, receipt of regulatory approvals and other
necessary consents and the completion of financing for the transaction. The
purchase price for Ralphs is approximately $1.5 billion, including the
assumption of debt. The consideration payable to the stockholders of Ralphs
consists of $425 million in cash and $100 million initial principal amount of
13% Senior Subordinated Pay-in-Kind Debentures due 2006 to be issued by
Holdings. In addition, the Company will enter into an agreement with a
stockholder of Ralphs pursuant to which such stockholder will act as a
consultant to the Company with respect to certain real estate and general
commercial matters for a period of five years from the closing of the Ralphs
Merger in exchange for the payment of a consulting fee.
The Ralphs Merger will create the leading supermarket operator in
Southern California. The integration of the warehousing, distribution and
manufacturing functions are expected to provide efficiencies which should
create substantial savings to the merged company. In addition, buying
improvements associated with the purchasing volume of the combined companies
and consolidation of administrative functions should create further savings.
Upon consummation of the Ralphs Merger, the operations and activities of the
Company will be significantly impacted due to conversions of the Company's
existing Southern California conventional stores to either Ralphs or Food 4
Less warehouse stores as well as the consolidation of various operating
functions and departments. This consolidation may result in a restructuring
charge and, in conjunction with the Ralphs Merger, the Company intends to
determine if there is any impairment of the value of the Company's existing
assets and goodwill. The amount of the restructuring charge is not presently
determinable due to various factors, including uncertainties inherent in the
completion of the Ralphs Merger; however, the restructuring charge may be
material in relation to the stockholder's equity and financial position of the
Company at June 25, 1994. (See "Southern California Division -- Expansion and
Development" and "Item 7 -- Management Discussion and Analysis of Results of
Operations and Financial Conditions.")
SOUTHERN CALIFORNIA DIVISION
The Southern California Division operates 196 supermarkets in Los
Angeles, Orange and adjacent counties under the names "Alpha Beta," "Food 4
Less," "Boys," and "Viva." The Company's Southern California stores accounted
for 80% of the Company's sales for the fiscal year ended June 25, 1994.
Store Formats
The Company caters to the distinctive tastes and preferences of
consumers in each of the communities it serves, ranging from urban ethnic
communities of Los Angeles served by Boys, Viva and Food 4 Less to the more
suburban areas served by Alpha Beta and Food 4 Less. The Company implements
this strategy by selecting the merchandise, presentation, department size and
layout based on the demographics of a particular store location. This
community-oriented business strategy is illustrated by the Southern California
Division's principal supermarket formats:
Conventional Format Stores. The Company's conventional stores are
located throughout densely populated areas of Los Angeles, Orange, San
Bernardino and Riverside Counties, including both suburban and urban
neighborhoods under the names "Alpha Beta," "Boys," and "Viva." The Company's
merchandising strategy for conventional stores is tailored to the community
each store serves, but emphasizes customer service, quality of merchandise, and
a large variety of product offerings in modern store environments. The
conventional stores' extensive brand- name product selection is complemented by
a range of specialty service departments which include bakeries, delicatessens,
service meat counters, seafood departments and floral departments. The
conventional stores also emphasize competitive pricing and overall value.
The Company's urban stores are located in neighborhoods that have been
largely underserved by other national and regional supermarket chains. The
Company's stores began servicing these neighborhoods over 70 years ago, and the
Company is the leading supermarket operator in these areas. These stores
emphasize the sale of brand-name products at competitive prices, and in many
cases offer specialty grocery items and service departments that
2
<PAGE> 4
cater to the specific preferences in the community. Stores located in urban
areas provide useful services which are often not available in competitors'
stores, including a courtesy booth at which customers can cash payroll and
government checks, pay utility bills, and buy money orders, lottery tickets,
and bus passes.
The Company believes it is the leading operator of supermarkets
serving Hispanic communities in the Los Angeles area. Stores which are located
in areas with high concentrations of Hispanic consumers, who currently comprise
more than 38% of the total population of Los Angeles County, generally feature
larger produce and other perishables departments as well as particular meat,
grocery and ethnic packaged food products often preferred by many Hispanic
consumers. In addition, much of the signage and advertising for these stores
is in both Spanish and English. Management believes that its warehouse format
stores (as discussed below) as well as its conventional format stores benefit
from the Company's expertise in marketing to Hispanic consumers.
Warehouse Format Stores. The Company operates 28 stores in Southern
California which cater to 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
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. This 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. This
belief has been borne out by the overall success of the 163 Food 4 Less and
FoodsCo warehouse supermarkets operating in 20 states, including the 66 stores
owned and operated by the Company (28 of which are located in Southern
California). See "Licensing Operations." The Company plans to continue its
rapid growth of the Food 4 Less format by opening 11 new warehouse format
stores in fiscal 1995, including four stores in San Diego, a new market for the
Company. Moreover, the consummation of the Ralphs Merger could cause the
Company to accelerate substantially the planned growth of the Food 4 Less
format through the conversion of existing or acquired stores.
Advertising and Promotion
The Southern California Division tailors its advertising strategy to
the communities it serves, relying heavily on television, radio, major
newspapers and weekly advertising circulars. In addition, the Company's
advertising and promotion strategy for stores located in urban ethnic
neighborhoods, including Hispanic neighborhoods, highlights the merchandise
offered in each store by using ethnic radio and local neighborhood newspaper
advertising and by delivering weekly advertising circulars customized to
particular communities. This allows selected groups of stores to offer special
promotions on items that are of particular importance to local shoppers and to
be more responsive to local competition. Food 4 Less stores utilize print and
radio advertising which emphasizes Food 4 Less' overall low-price leadership,
rather than promoting special prices on individual items.
3
<PAGE> 5
Purchasing, Manufacturing and Distribution
In connection with the Alpha Beta Acquisition, the Company entered
into a long-term lease, with Alpha Beta's former parent corporation as lessor,
of Alpha Beta's centralized manufacturing, warehouse and office facility in La
Habra, California. The La Habra complex measures 1,378,083 total square feet
over 75 acres and, in addition to serving warehousing, distribution and office
functions, houses manufacturing operations which include a bakery and creamery.
The 316,000 square foot bakery manufactures a broad line of baked goods, and
the creamery processes and bottles milk, cream and other dairy products, fruit
juices and drinking water. Shipments from the La Habra facility are made
predominantly with the Company's own truck fleet and drivers, supported by an
on-site vehicle maintenance facility. See "Item 2 -- Properties."
Prior to its acquisition by the Company, the La Habra facility had
substantial excess capacity in many of its manufacturing and warehousing
functions. By combining Alpha Beta's volume requirements with those of Food 4
Less, Boys and Viva, the Company realized increased manufacturing and warehouse
efficiencies and buying improvements associated with increased volume.
Management believes that the Southern California Division's warehousing and
distribution operations offer a number of additional benefits related to the
foregoing. These benefits include: (i) rapid turnover at the Company's
warehouse permits its stores to offer consistently fresh, high-quality
products, (ii) due to frequent deliveries to its stores, the Company is able to
reduce in-store stockroom space, thereby increasing available selling space,
(iii) the Company's ability to warehouse merchandise enables it to take
advantage of additional buying opportunities on certain items.
Since the Alpha Beta Acquisition, the Company has entered into several
private label licensing arrangements which allow the Company to exclusively
utilize recognized brand names in connection with certain goods it manufactures
at its La Habra facility 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 and has established its own private label, "EQuality," for health and
beauty aid products. The Company actively promoted its private label products
during fiscal 1994 and management believes that the additional variety,
superior quality, and promotional program resulted in an overall increase in
private label sales and corresponding gross margin.
Combined shipments from the La Habra facility and the Company's other
Southern California warehouse facilities accounted for approximately 67% of the
Southern California Division's total purchases during fiscal 1994. Additional
purchases approximating 7% of the division's total during fiscal 1994 were made
through Certified Grocers of California, Ltd. ("Certified"), a food
distribution cooperative in which the Company is a member. In June 1991, as a
result of its increased warehouse capacity at the La Habra facility, the
Southern California Division terminated its then-existing supply contract with
Certified and is using its other warehouse facility located in Los Angeles for
distribution of certain products, including produce. The Company continues to
make purchases from Certified.
In April 1992, the Company formed a joint venture with a subsidiary of
Certified which operates a general merchandise warehouse in Fresno, California.
This warehouse services the Company's operations in Southern and Northern
California and enables the Company to realize greater efficiencies through
combined purchasing.
Store Operations and Retail Systems
The Southern California Division's store equipment and facilities are
generally in excellent condition and are large enough to serve additional
customers to the extent that the population of its marketing areas grows. The
Alpha Beta, Boys and Viva stores range in size from approximately 15,600 square
feet to 58,000 square feet and average approximately 27,600 square feet. The
Southern California Food 4 Less stores are generally larger and range in size
from approximately 31,000 square feet to 60,100 square feet, and average
approximately 47,800 square feet. The Company believes the Southern California
Division's central 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.
4
<PAGE> 6
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. The Company's Alpha
Beta stores currently offer an electronic funds transfer system which allows
customers to make purchases, obtain cash and obtain check approvals in
transactions linked to their bank accounts. The Company intends to make its
electronic funds transfer system available in all Southern California Division
stores. In addition, the Company's Alpha Beta stores now offer customers the
convenience of making purchases with credit cards.
Expansion and Development
The Company has undertaken an extensive program of store remodels,
conversions and additions since the Alpha Beta Acquisition which have resulted
in a substantially improved store base. As the Company has remodeled existing
stores, opened new larger stores and closed smaller marginally performing
stores, there has been a net reduction in store count but an increase in
average store size. During fiscal 1994, the Southern California Division spent
approximately $50.7 million on capital improvements. The Company plans to
continue to devote substantial resources during fiscal 1995 and thereafter to
this program.
The Company is able to continuously adjust its store mix in light of
changing demographic trends in local marketing areas. Since the Alpha Beta
Acquisition, the Company has converted 14 stores from conventional formats to
the warehouse format.
During fiscal 1994, the Company opened one new Food 4 Less store and
one new Alpha Beta store in Southern California, converted six stores from
conventional formats to the Food 4 Less format, and remodeled 15 stores,
including 11 Alpha Beta stores. From time to time, the Company closes or sells
marginal operating stores. During fiscal 1994, the Company closed 3 stores in
the Southern California Division.
The Company plans to expand the Southern California Division by
acquiring existing stores and constructing new ones. The Ralphs Merger, which
is subject to the receipt of regulatory approvals and other necessary consents
and financing of the transaction, would add up to 168 stores and more than
double the sales volume of the Southern California Division. The Company
intends to continue to focus its new store construction and store conversion
efforts during fiscal 1995 and future years on the Food 4 Less format,
including in urban areas, as Food 4 Less stores have 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 16 new stores during fiscal 1995 (including 11
Food 4 Less stores, of which four will be located in San Diego, a new market
for the Company), and additional stores in subsequent years. Moreover, the
consummation of the Ralphs Merger could cause the Company to accelerate
substantially the planned growth of the Food 4 Less format through the
conversion of existing or acquired stores. Remodeling activity during fiscal
1995 will be focused on the conventional formats, which comprise 168 of the
Company's 196 Southern California stores. All 12 of the planned remodels over
the next year will be conventional 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."
5
<PAGE> 7
The following table sets forth the development of the Company's
Southern California Division supermarkets since July 1989:
<TABLE>
<CAPTION>
53 Weeks 52 Weeks 52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended Ended
June 30, June 29, June 27, June 26, June 25,
1990 1991 1992 1993 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Number of stores:
Beginning 53 66 209 200 197
Built 7 4 2 8(c) 2
Acquired 7 142 - - -
Sold/Closed (1) (3) (11)(b) (11) (3)
-------- -------- ------- ------ ------
Ending 66 209 200 197 196
======= ======= ======= ====== ======
Remodeled or expanded(a) 14 16 31 31 21
Average square feet/store 34,000 28,700 29,900 30,200 30,500
Annual sales/selling square feet $588 $650 $559 $553 $505
</TABLE>
__________________
(a) Does not reflect remodels or expansions of stores prior to
their acquisition by the Company.
(b) Includes five stores which closed as a result of the April 1992
civil unrest in Los Angeles.
(c) Includes the reopening of one store which closed as a result of
the April 1992 civil unrest in Los Angeles.
NORTHERN CALIFORNIA DIVISION
The Northern California Division operates 19 conventional supermarkets
in the greater San Francisco Bay Area under the names "Cala" and "Bell," 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 are very difficult to replicate. Management also
believes that the Northern California Division's stores, which have operated in
the San Francisco Bay Area for over 25 years, have a reputation for offering
high quality service and merchandise.
Marketing Strategy
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. Its stores offer an extensive assortment of
nationally advertised name brand products. They also contain departments
dedicated to dry groceries, produce, meat, seafood, dairy products, wine and
liquor, and limited assortments of general merchandise and health and beauty
aids. Certain of the Bell stores, which are larger than the Division's other
conventional stores, also have a variety of service departments, including
in-store bakeries, delicatessens with fresh and prepared foods and fresh
seafood departments. These products and services generally carry higher
margins than traditional grocery products. The FoodsCo stores emphasize lowest
overall prices rather than promoting special prices on individual items.
Many of the Northern California Division's stores are located in urban
residential neighborhoods of the city of San Francisco that have a varying and
distinct ethnic character. Consequently, the Northern California Division
customizes the merchandise and service departments in each of those stores to
appeal to the tastes of local residents. The Northern California Division's
suburban stores are generally larger than its urban stores, and offer an
expanded selection of food and other merchandise, together with full service
delicatessen and bakery departments.
The Northern California Division's advertising and promotion strategy
highlights the reduced price specials offered in its stores. The Northern
California Division advertises in the major San Francisco newspapers and uses
local neighborhood newspaper advertising to alert customers to the values
offered in its stores. In addition, the Northern California Division delivers
weekly advertising circulars, each customized to particular stores, allowing it
to offer special promotions on items that are of particular importance to local
shoppers. The Northern California Division also uses limited radio
advertising.
6
<PAGE> 8
Store Operations and Retail Systems
The Northern California Division's conventional stores range in size
from approximately 8,900 square feet to 32,800 square feet, and average
approximately 19,400 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 37,900 square feet. The Northern 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.
Purchasing and Distribution
The Northern California Division purchases merchandise from a number
of suppliers; however, approximately 39% of its purchases are made through
Certified pursuant to two supply contracts. No vendor other than Certified
provides a material percentage of the goods or services purchased by the
Northern California Division.
The Northern California Division does not operate its own warehouse
facilities, relying instead on direct delivery to its stores by Certified and
other vendors. Frequent deliveries by Certified and by the suppliers of
produce and fresh meats enable the Northern California Division's stores to
maintain the quality of the fresh foods it offers while maximizing in-store
selling space. Since December 1989, the Southern California Division's
warehouse facilities have supplied a portion of the merchandise sold in the
Northern California Division stores.
Expansion and Development
In fiscal 1990, the Northern California Division initiated a
remodeling program to upgrade its stores and to increase profitability. The
Company remodeled 15 stores during the past five fiscal years, and opened five
new stores during the past four fiscal years. During fiscal 1994, the Company
opened one new warehouse store, converted three existing stores to the
warehouse format and remodeled one conventional format store. In addition, the
Company plans to open one additional warehouse format store and remodel two
conventional format stores during fiscal 1995. Management plans to further
expand the Northern California Division in the future by acquiring existing
stores and constructing new stores, including warehouse 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 rights to
use the "Food 4 Less" name in Northern California to Fleming Companies, Inc.
See "Licensing Operations" for further discussion of the amendment to the
Fleming license.
7
<PAGE> 9
The following table sets forth the development of the Company's
Northern California Division supermarkets since July 1989:
<TABLE>
<CAPTION>
53 Weeks 52 Weeks 52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended Ended
June 30, June 29, June 27, June 26, June 25,
1990 1991 1992 1993 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Number of stores:
Beginning 23 22 22 21 23
Built - 1 1 2 1
Acquired - - - - -
Sold/Closed (1) (1) (2) - -
-------- -------- -------- ------ ------
Ending 22 22 21 23 24
======= ======= ======= ======= ======
Remodeled or expanded 2 5 3 1 4
Average square feet/store 20,000 20,400 20,600 22,800 23,300
Annual sales/selling square feet $719 $726 $719 $712 $678
</TABLE>
MIDWESTERN DIVISION
The Midwestern Division operates 38 stores, of which 33, including the
Food Barn Stores, are warehouse format stores operated under the "Food 4 Less"
name, and five are conventional supermarkets operated under the "Falley's"
name. Of these 38 stores, 34 are located in Kansas and four are located in
Missouri. The Company's Food 4 Less stores offer national brand name grocery
products, fresh meat and produce, general merchandise and other items,
including health and beauty aids, at prices typically lower than those offered
by conventional supermarkets. Management believes the Food 4 Less warehouse
format stores are the low-price leaders in each of the markets in which they
compete.
Marketing Strategy
The Midwestern Division's Food 4 Less warehouse format supermarkets,
introduced in 1973, cater to consumers in the price-conscious segment of the
market by offering lower prices than conventional supermarkets. Such lower
prices are achieved through the labor efficiencies and lower overhead and
advertising costs associated with the warehouse format. See "Southern
California Division -- Store Formats -- Warehouse Format Stores" for more
information on the business strategy of Food 4 Less warehouse format
supermarkets.
Store Operations and Retail Systems
The store equipment and facilities of the Midwestern Division's stores
are generally in excellent condition. Its Food 4 Less warehouse format stores
range in size from approximately 8,800 square feet to 60,200 square feet and
average approximately 37,300 square feet. The Company's computer-based
merchandising systems permit quick and accurate accounting for customer
purchases, reduce the labor costs otherwise attributable to product pricing and
customer check-out and provide the Company's management with substantial
information which facilitates, among other things, purchasing and receiving,
inventory management, and management of accounts payable.
Purchasing and Distribution
The Midwestern Division's primary supplier is Associated Wholesale
Grocers ("AWG"), a member-owned wholesale grocery cooperative based in Kansas
City. The Midwestern Division purchases approximately 73% 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. No vendor other than AWG provides a material
percentage of the goods or services purchased by the Midwestern Division.
8
<PAGE> 10
The Midwestern Division produces approximately 50% of all case-ready
fresh meat items sold in its stores at its central meat plant located in
Topeka, Kansas. Management believes that the Company's meat plant provides it
with a competitive advantage in that it is able to ensure that its supermarkets
have a consistent supply of fresh, high quality meats.
Both Food 4 Less and Falley's stores receive frequent direct
deliveries from AWG, the Division's other vendors and its meat plant, which
enable the Midwestern Division's stores to stock fresh foods without operating
a central warehouse.
Expansion and Development
The Company intends to focus its Midwestern Division expansion
primarily on its Food 4 Less operations. While the Company expects to
construct new stores, it may also expand operations by purchasing existing Food
4 Less stores from unaffiliated licensees, or by acquiring existing
supermarkets and converting them to the Food 4 Less warehouse format.
During fiscal 1994, the Company acquired the Food Barn Stores now
operated as Food 4 Less warehouse stores. This acquisition increased the
Midwestern Division's Food 4 Less warehouse store count from 23 at June 26,
1993 to 33 at June 25, 1994. In addition, the Company remodeled three stores
(including one Food 4 Less warehouse store) during fiscal 1994.
During fiscal 1995, the Company plans to remodel or expand 11 Food 4
Less warehouse stores. Included in the remodel plans for fiscal 1995 are six
Food Barn Stores (two of which were in progress at June 25, 1994).
The following table sets forth the development of the Company's
Midwestern Division supermarkets since July 1989:
<TABLE>
<CAPTION>
53 Weeks 52 Weeks 52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended Ended
June 30, June 29, June 27, June 26, June 25,
1990 1991 1992 1993 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Number of stores:
Beginning 23 27 28 28 28
Built 1 1 1 - -
Acquired 3 - - - 10
Sold/Closed - - (1) - -
-------- -------- -------- -------- --------
Ending 27 28 28 28 38
======= ======= ======= ======= ========
Remodeled or expanded 2 5 - - 3
Average square feet/store 35,600 36,000 36,300 36,300 35,700
Annual sales/selling square feet $383 $372 $344 $342 $315
</TABLE>
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.
9
<PAGE> 11
The Southern California Division competes with several large national
and regional chains, principally Albertsons, Hughes, Lucky, Ralphs, Smith's,
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, Dillons and
Hypermarket USA, as well as independent and "alternative format" stores. The
Company positions its Food 4 Less warehouse format supermarkets as the overall
low-price leader in each marketing area in which they operate.
EMPLOYEES
The Company believes that its relationship with its employees is
excellent. At June 25, 1994, the Company had a total of 14,687 employees, as
shown in the table below.
<TABLE>
<CAPTION>
Southern Northern
California California Midwestern Total
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Administrative 582 56 48 686
Warehouse, manufacturing and transportation 1,298 - 51 1,349
Stores 9,988 1,201 1,463 12,652
------ ----- ----- ------
Total 11,868 1,257 1,562 14,687
====== ===== ===== ======
</TABLE>
Of the Company's 14,687 total employees at June 25, 1994, 11,882 were
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>
UNION NUMBER OF EMPLOYEES COVERED DATE(S) OF EXPIRATION
- - ---------------------------------------- ------------------------------- ---------------------
<S> <C> <C>
UFCW 7,908 Southern California October 3, 1996
Division clerks and
meatcutters
Hospital and Service Employees 299 Southern California January 19, 1997
Division store porters
International Brotherhood of Teamsters 886 Southern California September 13, 1998
Division produce drivers
and warehousemen
UFCW 971 Northern California February 28, 1995
Division clerks and
meatcutters
UFCW 1,532 Southern California February 25, 1996
Division clerks and
meatcutters
Bakery and Confectionery Workers 192 Southern California July 8, 1995
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 1994, earnings
from licensing operations were approximately $270,000. 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 (the "Amendment") its licensing agreement
10
<PAGE> 12
with Fleming to give Fleming exclusive use of the Food 4 Less name in Northern
California and the Company exclusive use in Southern California. Fleming paid
the Company a fee of $1.9 million for 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 June 25,
1994, there were 158 Food 4 Less warehouse supermarkets in 20 states, including
the 61 stores owned or leased and operated by the Company. Of the remaining 97
stores, Fleming operates three under license, 67 are operated under sublicenses
from Fleming and 27 are operated by other licensees.
ITEM 2. PROPERTIES
At June 25, 1994 the Company operated 258 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 6(a) 190 5,974,000 30,500
Northern California - 24 559,000 23,300
Midwestern 2(b) 36 1,357,000 35,700
</TABLE>
______________________
(a) Includes one store located on real property subject to a ground
lease.
(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 27 years.
In addition to its supermarkets, the Company operates two warehouse
facilities. The largest of such facilities is the Company's central office,
manufacturing and warehouse complex in La Habra, California, which occupies
1,378,083 total square feet over 75 acres. The Company has entered into a
ten-year lease of the La Habra property (which may be extended for up to 25
years at the election of the Company) with American Food and Drug, Inc.
("AFDI"), a subsidiary of American Stores Company, and has an option to
purchase such property during the term of the lease, which was entered into at
the closing of the Alpha Beta Acquisition. Four of the Company's supermarkets
are also leased from AFDI under leases also entered into at the closing of the
Alpha Beta Acquisition.
In addition to the La Habra facility, the Company leases a 321,000
square foot warehouse in Los Angeles. This warehouse, which was formerly owned
by the Company, was the subject of a sale leaseback arrangement entered into by
the Company in August 1990. The Company uses this warehouse for distribution
of certain products, including produce. The Company has subleased a 127,000
square foot warehouse which was previously used by the Company prior to the
Alpha Beta Acquisition.
ITEM 3. 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 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.
11
<PAGE> 13
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
12
<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no public trading market for the Company's common stock, $.01
par value per share (the "Common Stock"). As of September 23, 1994, there was
one holder of record of the Common Stock.
The Company has never paid and does not expect in the foreseeable
future to pay any dividends on its Common Stock. The indentures governing the
Company's Senior Subordinated Notes due 2001 (the "Subordinated Notes") and its
Senior Notes due 2000 (the "Senior Notes") contain certain restrictions on the
payment of cash dividends with respect to the Company's Common Stock, and the
Company's bank credit facility prohibits all such payments.
13
<PAGE> 15
ITEM 6. SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA
THE COMPANY
The following table sets forth certain selected consolidated
historical financial data of the Company. The operating results of the Company
for the 52 weeks ended June 29, 1991 include the results of Alpha Beta from
June 17, 1991, the date of its acquisition by the Company. The operating and
balance sheet data of the Company set forth in the table below as of and for
the 52 weeks ended June 25, 1994, the 52 weeks ended June 26, 1993, the 52
weeks ended June 27, 1992, the 52 weeks ended June 29, 1991 and the 53 weeks
ended June 30, 1990 have been derived from the financial statements of the
Company audited by Arthur Andersen LLP, independent public accountants. The
following information should be read in conjunction with the historical
financial statements of the Company and related notes and "Item 7 --
Management's Discussion and Analysis of Results of Operations and Financial
Condition" included elsewhere herein.
<TABLE>
<CAPTION>
53 Weeks 52 Weeks 52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended Ended Ended
June 30, June 29, June 27, June 26, June 25,
1990 1991(a) 1992 1993 1994(g)
---------- ---------- ---------- ---------- ----------
(dollars in thousands, except store data)
<S> <C> <C> <C> <C> <C>
Operating Data:
Sales $1,318,171 $1,606,559 $2,913,493 $2,742,027 $2,585,160
Cost of sales (b) 992,627 1,203,717 2,156,503 2,033,366 1,896,294
---------- ---------- ---------- ---------- ----------
Gross profit (b) 325,544 402,842 756,990 708,661 688,866
Selling, general, administrative
and other expenses and
depreciation and amortization 284,890 357,507 717,294 670,730 621,948
---------- ---------- ---------- ---------- ----------
Operating income (b) 40,654 45,335 39,696 37,931 66,918
Interest expense 49,760 48,722 65,251 63,867 62,414
Provision for earthquake losses - - - - 4,504(e)
Provision for income taxes 986 2,505 3,441 1,427 2,700
---------- ---------- ---------- ---------- ----------
Loss before
extraordinary charges (10,092) (5,892) (28,996) (27,363) (2,700)
Extraordinary charges - 3,757 (c) 4,818 (d) - -
---------- ---------- ---------- ---------- ----------
Net loss $ (10,092) $ (9,649) $ (33,814) $ (27,363) $ (2,700)
========== ========== ========== ========== ==========
Non-Cash Charges:
Depreciation and amortization
of property and equipment $ 17,373 $ 20,399 $ 37,898 $ 37,426 $ 41,380
Amortization of goodwill and
other assets 8,423 11,453 16,979 20,214 15,703
Amortization of deferred
financing costs 4,085 5,177 6,304 4,901 5,472
Store Data:
Stores at end of period 115 259 249 248 258
Annual sales per
selling square foot $ 552 $ 584 $ 538 $ 533 $ 481
Balance Sheet Data
(end of period)(f):
Working capital (deficit) $ (40,527) $ 13,741 $ (66,254) $ (19,222) $ (54,882)
Total assets 574,741 979,958 998,451 957,840 980,080
Total long-term debt 350,456 540,759 509,829 522,440 495,942
Redeemable stock 5,101 - - - -
Stockholder's equity 20,643 84,557 50,771 72,863 69,021
</TABLE>
(See footnotes on following page)
14
<PAGE> 16
(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) Cost of sales has been principally determined using the last-in,
first-out ("LIFO") method. If cost of goods sold had been determined
using the first-in, first-out ("FIFO") method, gross profit and
operating income would have been greater by $1,999,000, $2,118,000,
$3,554,000, $4,441,000 and $699,000 for the 53 weeks ended June 30,
1990, and the 52 weeks ended June 29, 1991, June 27, 1992, June 26,
1993, and June 25, 1994, respectively.
(c) Represents an extraordinary charge of $3.8 million (net of related
income tax benefit of $2.5 million) relating to the refinancing of the
Company's former bank credit facility (the "Old Credit Agreement") and
the Company's Senior Subordinated Increasing Rate Notes due 1996 (the
"IRNs") in connection with the Alpha Beta Acquisition and the
write-off of related debt issuance costs.
(d) 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 financing costs as a result of the early
redemption of a portion of the Company's 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.
(e) 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 claims, was approximately $4.5 million.
(f) Balance sheet data as of June 30, 1990 relate to the Company and
includes the effect of the BHC Acquisition and the related
transactions, as well as the acquisitions of Bell and ABC. Balance
sheet data as of June 29, 1991, June 27, 1992, and June 26, 1993
relate to the Company and reflect the Alpha Beta Acquisition and the
financings and refinancings associated therewith. Balance sheet data
as of June 25, 1994 relate to the Company and reflect the Food Barn
Acquisition.
(g) Operating data for the 52 weeks ended June 25, 1994 include the
results of the Food Barn Stores, which were not material, from March
29, 1994, the date of the Food Barn Acquisition.
15
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS OF THE COMPANY
The following table sets forth the historical operating results of the
Company for the 52 weeks ended June 27, 1992, June 26, 1993, and June 25, 1994:
<TABLE>
<CAPTION>
52 Weeks Ended 52 Weeks Ended 52 Weeks Ended
June 27, 1992 June 26, 1993 June 25, 1994
---------------- ----------------- -----------------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Sales $2,913.5 100.0% $2,742.0 100.0% $2,585.2 100.0%
Gross profit 757.0 26.0 708.6 25.8 688.9 26.6
Selling, general, administrative
and other expenses 662.4 22.8 613.1 22.3 564.9 21.8
Depreciation and amortization 54.9 1.9 57.6 2.1 57.1 2.2
Operating income 39.7 1.3 37.9 1.4 66.9 2.6
Interest expense 65.3 2.2 63.9 2.3 62.4 2.4
Provision for earthquake losses 0.0 0.0 0.0 0.0 4.5 0.2
Provision for income taxes 3.4 0.1 1.4 0.1 2.7 0.1
Loss before extraordinary charges 29.0 -1.0 27.4 -1.0 2.7 -0.1
Extraordinary charges 4.8 0.2 0.0 0.0 0.0 0.0
Net loss 33.8 -1.2 27.4 -1.0 2.7 -0.1
</TABLE>
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% 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% decline in
comparable store sales. The decline in comparable store sales primarily
reflects (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 recent pricing and promotional
activity. This 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 25.8%
in the 52 weeks ended June 26, 1993 to 26.6% 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 resulting
from prices that are generally 5-12% below the prices in the Company's
conventional stores) 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 Expenses. Selling,
general, administrative and other expenses, excluding depreciation and
amortization ("SG&A") were $613.1 million and $564.9 million for the 52 weeks
ended June 26, 1993 and June 25, 1994, respectively. SG&A decreased as a
percent of sales from 22.3% to 21.8% for the same periods. The Company
experienced a reduction of workers' compensation and general liability
self-insurance costs of $18.2 million due to continued improvement in the cost
and frequency of claims. The improved experience was 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.
16
<PAGE> 18
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 are to receive 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 was $24.2 million, of which the Company recognized $8.1
million in fiscal 1994 and the remainder of which will be recognized as the
credits are taken in the future. 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.
Depreciation and Amortization. Depreciation and amortization
decreased $0.5 million from $57.6 million to $57.1 million for the 52 weeks
ended June 26, 1993 and June 25, 1994, respectively. Depreciation and
amortization decreased primarily as a result of a decrease in amortizable
assets, partially offset by an increase in depreciable assets resulting from
new stores and remodels completed during fiscal 1994.
Interest Expense. Interest expense (including amortization of
deferred financing costs) decreased $1.5 million from $63.9 million to $62.4
million for the 52 weeks ended June 26, 1993 and June 25, 1994, respectively.
The decrease in interest expense is due primarily to reduced borrowings under
the Revolving Credit Facility and the Bank Term Loan.
Provision for Earthquake Losses. 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 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 financial impact, net of insurance claims, 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.
COMPARISON OF THE COMPANY'S RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JUNE
26, 1993 WITH THE COMPANY'S RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JUNE
27, 1992.
Sales. Sales decreased $171.5 million or 5.9% from $2,913.5 million
in the 52 weeks ended June 27, 1992 to $2,742.0 million in the 52 weeks ended
June 26, 1993, primarily as a result of a 5.1% decline in comparable store
sales and a net reduction in the Company's total store count of one store at
June 26, 1993 compared to June 27, 1992. Management believes that the decline
in comparable store sales is attributable to (i) the weak economy in Southern
California, and, to a lesser extent, in the Company's other operating areas,
(ii) lower levels of price inflation in certain key food categories, and (iii)
increased competitive store openings in Southern California.
Gross Profit. Gross profit decreased as a percent of sales from 26.0%
in the 52 weeks ended June 27, 1992 to 25.8% in the 52 weeks ended June 26,
1993 primarily as a result of an increase in the number of Food 4 Less
warehouse stores (which have lower gross margins resulting from prices that are
generally 5-12% below the prices in the Company's conventional stores), from 34
stores in fiscal 1992 to 45 stores in fiscal 1993, and as a result of the fixed
cost component of gross profit as compared to a lower sales base, partially
offset by increases in relative margins allowed by competitive conditions,
improvements in the procurement function, and cost savings and operating
efficiencies associated with the Company's warehousing and manufacturing
facilities.
Selling, General, Administrative and Other Expenses. Selling,
general, administrative and other expenses, excluding depreciation and
amortization ("SG&A") were $662.4 million and $613.1 million for the 52 weeks
ended June 27, 1992 and June 26, 1993, respectively. SG&A decreased as a
percent of sales from 22.8% to 22.3% for the same periods as a result of tight
control of direct store expenses, primarily payroll costs, the impact in fiscal
1992 of a $12.8 million non-cash self-insurance adjustment to increase reserves
partially offset by market- wide
17
<PAGE> 19
contractual increases in union wages, increases in workers' compensation costs
in fiscal 1993 primarily associated with the new law which took effect in 1990,
and the fixed cost component of SG&A being compared to a lower sales base.
Depreciation and Amortization. Depreciation and amortization
increased $2.7 million from $54.9 million to $57.6 million for the 52 weeks
ended June 27, 1992 and June 26, 1993, respectively, due to the increase in
depreciable and amortizable assets principally resulting from new stores and
store remodels completed in fiscal 1992 and fiscal 1993.
Interest Expense. Interest expense (including amortization of
deferred financing costs) decreased $1.4 million from $65.3 million to $63.9
million for the 52 weeks ended June 27, 1992 and June 26, 1993, respectively.
The decrease in interest expense is due to the reduction of indebtedness as a
result of amortization payments combined with decreasing interest rates on the
Term Loan, partially offset by higher interest expense incurred in connection
with the 10.45% Senior Notes due 2000, which replaced lower cost debt under the
Credit Agreement.
Loss Before Extraordinary Charge. Primarily as a result of the
factors discussed above, the Company's loss before extraordinary charge
decreased from $29.0 million in fiscal 1992 to $27.4 million in fiscal 1993.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow from operations, amounts available under the Revolving
Credit Facility and leases are the Company's principal sources of liquidity.
The Company believes that these sources will be adequate to meet its
anticipated capital expenditures, working capital needs and debt service
requirements during fiscal 1995. There can be no assurance that the Company
will continue to generate cash flow from operations at current levels or that
it will be able to make future borrowings under the Revolving Credit Facility.
The Ralphs Merger, which is subject to, among other things, receipt of
regulatory approvals and other necessary consents and the completion of the
financing for the transaction, will require the issuance of significant
additional equity by FFL, the issuance of new debt securities by the Company
and Holdings and the incurrence of additional bank financing by the Company.
The equity issuance would be made to a group of investors led by Apollo
Advisors, L.P., which has committed to purchase up to $150 million in FFL
stock, and the bank financing would be made pursuant to a commitment by Bankers
Trust Company to provide up to $1,225 million in such financing. In connection
with the receipt of new financing, the Company and Holdings will also be
required to complete certain exchange offers, consent solicitations and/or
other transactions with the holders of the currently outstanding debt
securities. The Ralphs purchase price is approximately $1.5 billion, including
the assumption of debt. The consideration payable to the stockholders of
Ralphs consists of $425 million in cash and $100 million initial principal
amount of 13% Senior Subordinated Pay-in-Kind Debentures due 2006 to be issued
by Holdings. In addition, the Company will enter into an agreement with a
stockholder of Ralphs pursuant to which such stockholder will act as a
consultant to the Company with respect to certain real estate and general
commercial matters for a period of five years from the closing of the Ralphs
Merger in exchange for the payment of a consulting fee. (See "Item 1 --
Business -- Recent Events.")
During the 52-week period ended June 25,1994, the Company generated
approximately $87.8 million of cash from its operating activities compared to
$16.5 million used by operating activities for the 52 weeks ended June 26,
1993. The improvement is due primarily to changes in operating assets and
liabilities and an increase in operating income for the 52 weeks ended June 25,
1994 compared to the 52 weeks ended June 26, 1993. 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 June 25, 1994, this resulted in a working capital deficit of $54.9
million.
Cash used for investing activities was $55.8 million for the 52 weeks
ended June 25, 1994. Investing activities consisted primarily of capital
expenditures of $57.5 million, partially offset by $9.3 million of
sale/leaseback transactions, and $11.1 million of Food Barn Acquisition costs.
The capital expenditures, net of the
18
<PAGE> 20
proceeds from sale/leaseback transactions, and the Food Barn Acquisition costs
were financed from cash provided by operating activities.
The capital expenditures discussed above were made to build 12 new
stores (three of which have been completed) and remodel or convert 28 stores
(all of which have been completed). The Company currently anticipates that its
aggregate capital expenditures for fiscal 1995 will be approximately $59.3
million. Consistent with its past practices, the Company intends to finance
these capital expenditures primarily with cash provided by operations and
through leasing transactions. At June 25, 1994, the Company had approximately
$2.5 million of unused equipment leasing facilities. No assurance can be given
that sources of financing for capital expenditures will be available or
sufficient. However, the capital expenditure program has substantial
flexibility and is subject to revision based on various factors, including
business conditions, changing time constraints 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 warehouse format stores is an important component of its
operating strategy. In the long term, if these programs were substantially
reduced, management believes its operating businesses, and ultimately its cash
flow, would be adversely affected. The capital expenditures discussed above do
not include potential acquisitions, including the Ralphs Merger or related
store conversion costs, 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 used by financing activities was $24.2 million for the 52 weeks
ended June 25, 1994, which consisted primarily of an $11.4 million repayment of
the Term Loan and repayment of the $4.9 million of borrowings outstanding on
the Revolving Credit Facility at June 26, 1993. At September 20, 1994, there
were no borrowings outstanding under the $70 million Revolving Credit Facility,
and $48.1 million of standby letters of credit had been issued under the $55
million Letter of Credit Facility.
The Company is highly leveraged. At June 25, 1994, the Company's
total long-term indebtedness (including current maturities) and stockholder's
equity were $517.9 million and $69.0 million, respectively. For the 52 weeks
ended June 25, 1994, the ratio of earnings to fixed charges was 1.0.
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.
The Southern California Division competes with several large national
and regional chains, principally Albertsons, Hughes, Lucky, Ralphs, Smith's,
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, Dillons and
Hypermarket USA, as well as independent and "alternative format" stores. The
Company positions
19
<PAGE> 21
its Food 4 Less warehouse format supermarkets as the overall low-price leader
in each marketing area in which they operate.
SUBSIDIARY REGISTRANTS
Separate financial statements of the Company's subsidiaries
(collectively, the "Subsidiary Guarantors") are neither included herein nor
otherwise filed on Form 10-K because such Subsidiary Guarantors are jointly and
severally liable as guarantors of the Company's Senior Notes and Subordinated
Notes, and the aggregate assets, earnings and equity of the Subsidiary
Guarantors are substantially equivalent to the assets, earnings and equity of
the Company on a consolidated basis.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements and Schedules on page
31.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
20
<PAGE> 22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the
executive officers and directors of the Company. Directors serve until the
election and qualification of their successors.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Ronald W. Burkle* . . . . . . . . . . . 41 Director, Chairman of the Board and Chief Executive
Officer
George G. Golleher* . . . . . . . . . . 46 Director, President and Chief Operating Officer
Joe S. Burkle* . . . . . . . . . . . . . 71 Director and Executive Vice President
Greg Mays . . . . . . . . . . . . . . . 48 Executive Vice President - Finance/Administration and
Chief Financial Officer
Harley DeLano . . . . . . . . . . . . . 57 President - Cala Foods
Mark A. Resnik . . . . . . . . . . . . . 47 Director, Vice President and Secretary
</TABLE>
_____________
* Member of Executive Committee of Board of Directors.
Ronald W. Burkle has been a Director and the Chairman of the Board and
Chief Executive Officer of the Company since its inception in 1989. Mr. Burkle
co-founded Yucaipa in 1986 and has served as Director, President and Chief
Executive Officer of FFL since 1987. From 1986 to 1988, Mr. Burkle was
Chairman and Chief Executive Officer of Jurgensen's, a Southern California
gourmet food retailer. Before joining Jurgensen's, Mr. Burkle was a private
investor in Southern California. Mr. Burkle is the son of Joe S. Burkle.
Joe S. Burkle has been a Director and Executive Vice President of the
Company since its inception in 1989, and has been a Director and President of
Falley's since 1987. 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.
George G. Golleher has been a Director of the Company since its
inception in 1989 and has been President and Chief Operating Officer of the
Company since January 1990. Mr. Golleher joined the Company in 1984 as Vice
President - Finance, and from 1986 through 1989 he served as Senior Vice
President - Finance and Administration.
Greg Mays became Executive Vice President - Finance and
Administration, and Chief Financial Officer of the Company in December 1992.
From 1989 until 1991, Mr.Mays was Chief Financial Officer of Almac's and, from
1991 to December 1992, President and Chief Financial Officer of Almac's. From
April 1988 to June 1989, Mr.Mays was Chief Financial Officer of F4L Modesto and
Cala Foods, Inc. ("Cala Foods").
Mark A. Resnik, a Director and the Vice President and Secretary of the
Company since its inception in 1989, co-founded Yucaipa in 1986 and has been a
Director, Vice President and Secretary of FFL and Falley's since 1987. From
1986 until 1988, Mr. Resnik served as a Director, Vice President and Secretary
for Jurgensen's.
21
<PAGE> 23
From 1983 through 1986, Mr. Resnik served as a Director, Vice President,
Secretary and General Counsel of Stater Bros. Markets.
Harley DeLano is President of Cala Foods, Inc. and has been since
1990. Mr. DeLano was General Manger of ABC from 1980 to 1990.
The Company does not currently intend to 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. Holdings and
FFL are parties to an agreement with Mr. Golleher under which FFL will vote its
shares to cause his election to the board of directors of Holdings for so long
as he is the beneficial owner of stock in Holdings.
ITEM 11. EXECUTIVE COMPENSATION
The following Summary Compensation 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 annual salary and bonus exceeded $100,000 for services
rendered in all capacities to the Company and its subsidiaries for the fiscal
year ended June 25, 1994.
<TABLE>
<CAPTION>
Annual Compensation
Fiscal ------------------------ All Other
Name and Principal Position Year Salary Bonus Compensation(4)
- - --------------------------- ------ -------- -------- ---------------
<S> <C> <C> <C> <C>
Ronald W. Burkle(1) 1994 - - -
Chairman and 1993 - - -
Chief Executive Officer 1992 - - -
George G. Golleher 1994 $500,000 $500,000 $3,937
President 1993 $500,000 $500,000 -
1992 $500,000 $235,000 $5,300
Greg Mays(2) 1994 $250,000 $150,000 -
Executive Vice President - 1993 $108,000 $ 75,000 -
Finance/Administration and 1992 - - -
Chief Financial Officer
Harley DeLano 1994 $197,000 $ 50,000 $3,408
President - Cala Foods 1993 $185,000 $ 40,000 -
1992 $182,000 $ 50,000 $1,522
Joe Burkle(3) 1994 $196,000 $ 50,000 -
Executive Vice President 1993 $156,000 - -
1992 $156,000 - -
</TABLE>
- - ---------------------------
(1) Ronald W. Burkle and Mark A. Resnik, Vice President and Secretary,
provide services to the Company pursuant to a management agreement
between Yucaipa and the Company. See "Certain Transactions."
Pursuant to this management agreement, the Company paid Yucaipa and an
affiliate of Yucaipa $2.4 million in the fiscal year ended June 25,
1994 for the services of Messrs. Ronald Burkle and Resnik and other
Yucaipa personnel. Such payments to Yucaipa and its affiliate are not
reflected in the table set forth above.
(2) During fiscal 1993, Greg Mays became Executive Vice President -
Finance/Administration and Chief Financial Officer.
22
<PAGE> 24
(3) Mr. Joe Burkle provides services to Supermarkets pursuant to a
consulting agreement. See "Consulting and Employment Agreements."
(4) The amounts shown in this column represent annual payments by the
Company to the Employee Profit Sharing and Retirement Program of the
Company for the benefit of Mr. Golleher and Mr. DeLano.
CONSULTING AND EMPLOYMENT AGREEMENTS
The Company is a party to an employment agreement with George G.
Golleher, a Director and President of the Company. Mr. Golleher entered into
the employment agreement with a subsidiary of the Company in June 1989 in
connection with the BHC Acquisition. Such agreement, which was amended in
December 1990 and assumed by the Company in June 1991, provides for annual base
compensation of $350,000, plus employee benefits and an incentive bonus
calculated in accordance with a formula based on the Company's earnings. The
amended agreement has a five-year term, which is automatically renewed on
January 1 of each year for a five-year term unless ninety days' notice is given
by either party. Under such agreement, Mr. Golleher is obligated to serve as
an officer of the Company and, with certain exceptions, may not serve any
business enterprise other than the Company, or a parent or subsidiary of the
Company, without the written approval of the Board of Directors of the Company.
The Company may terminate the employment agreement in the event of the death or
disability of Mr. Golleher, or with cause. In the event the Company terminates
the employment agreement without cause, it must continue to pay Mr. Golleher's
salary and benefits for the remainder of the original term of his agreement,
reduced by any remuneration received by him for other employment during such
period. Mr. Golleher may terminate his employment agreement in the event of a
change of control of the Company, in which case he is entitled to receive all
of the salary and benefits provided under the agreement for the remaining term
thereof, notwithstanding the termination of his employment.
The Company's consulting agreement with Mr. Joe Burkle, assigned to
the Company in connection with its acquisition of Falley's, 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 amended 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. Management believes that the terms of
the consulting agreement with Mr. Burkle are as favorable to the Company and
Falley's as those that could be obtained from an unaffiliated party.
The Company has entered into employment agreements with Greg Mays and
Harley DeLano, who are the Chief Financial Officer of the Company and the
President of Cala Foods, Inc., respectively, as of July 1, 1994. These
agreements provide for the employment of such officers for a one-year term
commencing on the date of a change of control of the Company, at a base salary
of not less than $250,000 and $200,000, respectively. Each agreement also
provides for the payment of an incentive bonus calculated in accordance with
Company policies, and a special bonus payable upon a change of control
(provided certain financial performance targets have been met), in the amounts
of $150,000 and $75,000, respectively. In addition, the Company has promised
to George Golleher a similar special bonus in a lump sum amount equal to the
base salary due to him under the remaining term of his employment agreement at
the time of a change of control. As a condition of the payment of such bonus,
Mr. Golleher's existing employment agreement would be cancelled, and he and the
Company would enter into a new agreement containing the terms to be mutually
agreed upon.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not have a board committee performing the functions
of a compensation committee. Ronald W. Burkle, Chief Executive Officer of the
Company, and George G. Golleher, President of the Company, made decisions with
regard to the Company's executive officer compensation for the fiscal year
1994.
23
<PAGE> 25
MANAGEMENT EQUITY OWNERSHIP
Certain employees of the Company (the "Management Stockholders")
collectively own 62,829 shares, or 4.5%, of Holdings' Common Stock. Such
shares, which include 15,828 shares owned by George G. Golleher, have been
issued from time to time pursuant to Holdings' Management Equity Program. In
addition, Ronald W. Burkle owns 71,992, or 5.2%, shares of Holdings' Common
Stock which he purchased from a former officer of the Company and which remain
subject to certain terms of the Management Equity Program.
Under the Management Equity Program, the Board of Directors of
Holdings from time to time offers Common Stock for sale to selected employees
at a price and for consideration (which may include a promissory note)
determined at the discretion of the Board. Management Stockholders who have
purchased shares are party to a Management Stockholders Agreement (the
"Stockholders Agreement") with Holdings, a Stockholder Voting Agreement and
Proxy, and such other documents as Holdings may require.
The Stockholders Agreement prohibits the transfer of any of the
Management Stockholder's Common Stock for a period of four years from the date
of its original issuance (although such date may, in the case of certain
Management Stockholders who were shareholders of BHC, relate back to the date
that shares were issued to them by BHC) other than transfers to certain family
members and heirs or pursuant to a registration statement. The Management
Stockholder's shares may be purchased by Holdings if, (a) prior to the fourth
anniversary of their issuance, the Management Stockholder's employment
terminates for any reason, or (b) after such fourth anniversary, the Management
Stockholder wishes to sell his/her Common Stock to a third party. The shares
vest over a three or four-year period for purposes of the repurchase price
determination, which results in a more favorable price for vested stock than
for unvested stock, but the shares do not vest in any other sense.
In the event of the death or permanent disability of the Management
Stockholder, each Management Stockholder has an irrevocable option for six
months to require Holdings to purchase all (or a portion) of his Common Stock
in the manner and on the terms set forth in the Stockholders Agreements;
provided, however, that the Management Stockholder may exercise such option in
the event of death or disability only to the extent that Holdings or the
Company has insurance, under which Holdings or the Company is the named
beneficiary, with respect to such event. Additionally, if shareholders holding
at least fifty percent (50%) of the issued and outstanding Common Stock of
Holdings agree to sell to a third party more than eighty percent (80%) of the
shares of common stock then held by them, then upon the demand of such selling
shareholders, each Management Shareholder must sell to such third party the
same percentage of his Common Stock as is proposed to be sold by the selling
shareholders.
Under the Stockholder Voting Agreement and Proxy, Ronald W. Burkle,
George G. Golleher and Yucaipa Capital Advisors, Inc. have sole voting control
over the shares of Common Stock of Holdings owned by the other Management
Stockholders until December 31, 2002 (unless extended by such Management
Stockholders).
Messrs. Burkle and Golleher have rights which vary in certain respects
from the rights of the other Management Stockholders under the Stockholders
Agreement. Among other differences, Messrs. Burkle and Golleher have (i)
rights to subscribe to offerings of additional shares of the Common Stock of
Holdings, (ii) "piggyback" registration rights in the event of a public
offering of Common Stock (if and to the extent permitted by Holdings'
underwriter) and (iii) "tag-along" rights to participate in certain sales of
Common Stock of Holdings. In addition, Mr. Golleher has the right to be
elected to the Board of Directors of Holdings so long as he beneficially owns
shares of Common Stock of Holdings.
The Stockholders Agreement terminates automatically, in the case of
Messrs. Burkle and Golleher, upon a change of control of Holdings or upon an
underwritten public offering of Holdings' Common Stock (subject to certain
exceptions). In the case of the other Management Stockholders, the
Stockholders Agreement terminates on the tenth anniversary of the original
share issuance.
As of June 25, 1994, there was outstanding $0.6 million principal
amount of notes receivable from certain Management Stockholders, representing
loans for the purchase of Holdings' Common Stock. The notes are due over
various periods, bear interest at the bank "prime" lending rate, and are
secured by such Common Stock.
24
<PAGE> 26
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All of the capital stock of the Company is owned by Holdings. The
following table sets forth certain information as to the number of shares of
the Common Stock of Holdings beneficially owned as of September 23, 1994 by
each shareholder known to the Company to own beneficially more than 5% of the
1,385,426 outstanding shares of Common Stock of Holdings by the Named Executive
Officers, by each director of the Company and by all executive officers and
directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE
NUMBER OF
OF SHARES OUTSTANDING
BENEFICIAL OWNER (1) OWNED SHARES
----------------- --------- ------------
<S> <C> <C>
Food 4 Less, Inc. 1,246,961 90.0%
3120 South Kansas Ave.,
Topeka, Kansas 66611 (2)(3)
Ronald W. Burkle (2)(4) 71,992 5.2%
George G. Golleher (2)(4) 15,828 1.1%
Greg Mays (4) 536 0.1%
Harley DeLano (4) 911 0.1%
--------- ----
All directors and executive officers
as a group (5 persons) (2)(4) 1,336,228 96.5%
========= ====
</TABLE>
______________________
(1) Except as otherwise indicated, each beneficial owner has the sole
power to vote, as applicable, and to dispose of all shares of Common
Stock owned by such beneficial owner.
(2) FFL is 37.0% owned by F4L Equity Partners, L.P., a California limited
partnership ("F4L Equity L.P.") in which FFL Partners, a California
general partnership, has a 79.7% limited partnership interest. FFL
and F4L Equity L.P. are parties to a Stockholders Agreement with the
1991 Equity Investors (the "1991 Stockholders Agreement") which gives
F4L Equity L.P. the right to elect a majority of the directors of FFL.
Ronald W. Burkle, Mark A. Resnik and Joe S. Burkle are general
partners in FFL Partners, and Ronald W. Burkle is managing general
partner. Ronald W. Burkle, Joe S. Burkle, George G. Golleher and Mark
A. Resnik are directors of FFL. Ronald W. Burkle, George G. Golleher
and Yucaipa Capital Advisors, Inc., a California corporation which is
an affiliate of Yucaipa, are general partners of F4L Equity L.P. and
may be deemed to be beneficial owners of the Holdings Common Stock
owned by FFL. Ronald W. Burkle and Mark A. Resnik are directors of,
and collectively own all of the outstanding capital stock of Yucaipa
Capital Advisors, Inc.
(3) Pursuant to the 1991 Stockholders Agreement, certain corporate actions
by FFL, including asset sales, require the consent of two of the three
outside directors whom the 1991 Investors are entitled to elect to the
FFL board of directors. Geosor Corporation, a New York corporation
controlled by Mr. George Soros, and certain other of the 1991 Equity
Investors associated with Mr. Soros (collectively, the "Soros
Investors"), may be deemed to be beneficial owners of Holdings Common
Stock to the extent that the Soros Investors share with F4L Equity
L.P. investment power with respect to the shares of Holdings Common
Stock owned by FFL.
25
<PAGE> 27
(4) Management shareholders of Holdings 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 50,645 shares of Common Stock currently owned by such
management shareholders until December 31, 2002 (unless extended by
such shareholders). 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 the
71,992 and 15,828 shares of Common Stock of Holdings they respectively
own.
26
<PAGE> 28
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Effective June 17, 1991, the Company has entered into an Amended and
Restated Consulting Agreement with Yucaipa for certain management and financial
services to be provided to the Company and its subsidiaries. The services of
Messrs. R. Burkle and Resnik, acting in their capacities as directors and
officers, 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 and Resnik are partners of
Yucaipa. The Amended and Restated Consulting Agreement provides for annual
management fees currently equal to $2 million plus an additional amount based
on the Company's performance. In addition, the Company may retain Yucaipa in
an advisory capacity in connection with acquisition or financing transactions,
in which case the Company will pay Yucaipa an advisory fee. The agreement has
a five-year term, which is automatically renewed on January 1 of each year 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, the Company paid Yucaipa a total of $2.4
million in management and advisory fees for the fiscal year ended June 25,
1994.
FFL files a consolidated federal income tax return, under which the
federal income tax liability of FFL and its subsidiaries (which since June 23,
1989 include the Company) is determined on a consolidated basis. FFL has
entered into 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 FFL and has taxable income, the Company will pay
to FFL 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 FFL and its other subsidiaries, FFL will credit to the Company the
amount of such reduction in the consolidated tax liability. These credits are
passed between FFL 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 FFL
and the Company of such state and local taxes.
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).
27
<PAGE> 29
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements and Schedules required to be filed hereunder are
indexed on page 31 hereof.
(b) No reports on Form 8-K were filed during the last quarter of the
Company's fiscal year ended June 25, 1994.
(c) Those Exhibits, and the Index thereto, required to be filed by Item
601 of Regulation S-K are attached hereto. Certain management
contracts and other compensation plans or arrangements required to be
filed are identified on the attached Index with an asterisk.
28
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
FOOD 4 LESS SUPERMARKETS, INC.
By /s/ MARK A. RESNIK
------------------------------------------
Mark A. Resnik
Vice President and Secretary
Date: September 23, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, this report has been signed below by the following persons on
behalf of the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Dat
- - --------- ----- ---
<S> <C> <C>
/s/ RONALD W. BURKLE Chief Executive Officer and September 23, 1994
- - ------------------------------------- Director (Principal Executive
Ronald W. Burkle Officer)
/s/ GREG MAYS Executive Vice President - September 23, 1994
- - ------------------------------------- Finance/Administration and
Greg Mays Chief Financial Officer
/s/ JOE S. BURKLE Director September 23, 1994
- - -------------------------------------
Joe S. Burkle
/s/ GEORGE G. GOLLEHER Director September 23, 1994
- - -------------------------------------
George G. Golleher
/s/ MARK A. RESNIK Director September 23, 1994
- - -------------------------------------
Mark A. Resnik
</TABLE>
29
<PAGE> 31
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT
TO SECTION 12 OF THE ACT.
No annual report or proxy material has been sent to security holders.
The Registrant will furnish copies of such report or proxy material if and when
such report or proxy material is sent to security holders.
30
<PAGE> 32
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND SCHEDULES
<TABLE>
<CAPTION>
Page
----
<S> <C>
FOOD 4 LESS SUPERMARKETS, INC.
- - ------------------------------
Report of Independent Public Accountants
Arthur Andersen LLP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Consolidated balance sheets as of June 26, 1993 and June 25, 1994 . . . . . . . . . . . . . . 33
Consolidated statements of operations for the 52 weeks ended
June 27, 1992, the 52 weeks ended June 26, 1993
and the 52 weeks ended June 25, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Consolidated statements of cash flows for the 52 weeks ended
June 27, 1992, the 52 weeks ended June 26, 1993
and the 52 weeks ended June 25, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Consolidated statements of stockholder's equity for the 52 weeks ended
June 27, 1992, the 52 weeks ended June 26, 1993
and the 52 weeks ended June 25, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Notes to consolidated financial statements . . . . . . . . . . . . . . . . . . . . . . . . . 39
FINANCIAL STATEMENT SCHEDULES
- - -----------------------------
Report of Independent Public Accountants
Arthur Andersen LLP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
II Amounts receivable from related parties and underwriters,
promoters, and employees other than related parties . . . . . . . . . . . . . . . . 54
V Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
VI Accumulated depreciation and amortization
of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
VIII Valuation and qualifying accounts . . . . . . . . . . . . . . . . . . . . . . . . . 57
</TABLE>
All other schedules have been omitted since the required information is not
applicable or is not present in amounts sufficient to require submission of the
schedule, or because the information required is included in the Consolidated
Financial Statements and related notes.
31
<PAGE> 33
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholder of Food 4 Less Supermarkets, Inc.:
We have audited the accompanying consolidated balance sheets of Food 4
Less Supermarkets, Inc. (a Delaware corporation) and subsidiaries (the Company)
as of June 26, 1993 and June 25, 1994, and the related consolidated statements
of operations, stockholder's equity and cash flows for the 52 weeks ended June
27, 1992, the 52 weeks ended June 26, 1993, and the 52 weeks ended June 25,
1994. 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 Food
4 Less Supermarkets, Inc. and subsidiaries as of June 26, 1993 and June 25,
1994, and the results of their operations and their cash flows for the 52 weeks
ended June 27, 1992, the 52 weeks ended June 26, 1993, and the 52 weeks ended
June 25, 1994 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
July 29, 1994 (except with respect
to the matter discussed in
Note 14, as to which the date is
September 14, 1994)
32
<PAGE> 34
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
June 26, June 25,
1993 1994
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 25,089 $ 32,996
Trade receivables, less allowances of $1,919
and $1,386 at June 26, 1993 and
June 25, 1994, respectively 22,048 25,039
Notes and other receivables 1,278 1,312
Inventories 191,467 212,892
Patronage receivables from suppliers 2,680 2,875
Prepaid expenses and other 6,011 6,323
-------- --------
Total current assets 248,573 281,437
INVESTMENTS IN AND NOTES RECEIVABLE
FROM SUPPLIER COOPERATIVES:
A.W.G. 6,693 6,718
Certified & Other 6,657 5,984
PROPERTY AND EQUIPMENT:
Land 23,912 23,488
Buildings 12,827 12,827
Leasehold improvements 81,049 97,673
Store equipment and fixtures 129,178 148,249
Transportation equipment 31,758 32,259
Construction in progress 757 12,641
Leased property under capital leases 77,553 78,222
Leasehold interests 93,863 93,464
-------- --------
450,897 498,823
Less: Accumulated depreciation and amortization 96,948 134,089
-------- --------
Net property and equipment 353,949 364,734
OTHER ASSETS:
Deferred financing costs, less accumulated amortization of
$11,611 and $17,083 at June 26, 1993 and June 25,
1994, respectively 33,778 28,536
Goodwill, less accumulated amortization of $26,254
and $33,945 at June 26, 1993 and June 25,
1994, respectively 280,895 267,884
Other, net 27,295 24,787
-------- --------
$957,840 $980,080
======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
33
<PAGE> 35
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
June 26, June 25,
1993 1994
-------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $140,468 $180,708
Accrued payroll and related liabilities 40,319 42,805
Accrued interest 5,293 5,474
Other accrued liabilities 40,467 53,910
Income taxes payable 2,053 2,000
Current portion of self-insurance liabilities 23,552 29,492
Current portion of long-term debt 12,778 18,314
Current portion of obligations under capital leases 2,865 3,616
-------- --------
Total current liabilities 267,795 336,319
LONG-TERM DEBT 335,576 310,944
OBLIGATIONS UNDER CAPITAL LEASES 41,864 39,998
SENIOR SUBORDINATED DEBT 145,000 145,000
DEFERRED INCOME TAXES 22,429 14,740
SELF-INSURANCE LIABILITIES AND OTHER 72,313 64,058
COMMITMENTS AND CONTINGENCIES - -
STOCKHOLDER'S EQUITY:
Cumulative convertible preferred stock, $.01 par value,
200,000 shares authorized and 50,000 shares issued at June 26, 1993 and
June 25, 1994 (aggregate liquidation value of $53.8 million
and $62.2 million at June 26, 1993 and June 25, 1994, respectively) 50,230 58,997
Common stock, $.01 par value, 1,600,000 shares authorized and
1,519,632 shares issued at June 26, 1993 and June 25, 1994) 15 15
Additional paid-in capital 107,650 107,650
Notes receivable from shareholders of parent (714) (586)
Retained deficit (83,119) (94,586)
-------- --------
74,062 71,490
Treasury stock: 13,249 shares and 16,732 shares of common stock at
June 26, 1993 and June 25, 1994, respectively (1,199) (2,469)
-------- --------
Total stockholder's equity 72,863 69,021
-------- --------
$957,840 $980,080
======== ========
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
34
<PAGE> 36
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
June 27, June 26, June 25,
1992 1993 1994
---------- ---------- ----------
<S> <C> <C> <C>
SALES $2,913,493 $2,742,027 $2,585,160
COST OF SALES (including purchases from related parties
of $277,812, $204,028 and $175,929 for the 52 weeks ended
June 27, 1992, June 26, 1993, and June 25, 1994,
respectively) 2,156,503 2,033,366 1,896,294
---------- ---------- ----------
GROSS PROFIT 756,990 708,661 688,866
SELLING, GENERAL, ADMINISTRATIVE AND OTHER, NET
excluding depreciation and amortization 662,417 613,090 564,865
DEPRECIATION AND AMORTIZATION OF PROPERTY
AND EQUIPMENT 37,898 37,426 41,380
AMORTIZATION OF GOODWILL AND OTHER ASSETS 16,979 20,214 15,703
---------- ---------- ----------
OPERATING INCOME 39,696 37,931 66,918
INTEREST EXPENSE:
Interest expense, excluding amortization of deferred financing costs 58,947 58,966 56,942
Amortization of deferred financing costs 6,304 4,901 5,472
---------- ---------- ----------
65,251 63,867 62,414
PROVISION FOR EARTHQUAKE LOSSES - - 4,504
---------- ---------- ----------
LOSS BEFORE PROVISION FOR INCOME TAXES
AND EXTRAORDINARY CHARGES (25,555) (25,936) -
PROVISION FOR INCOME TAXES 3,441 1,427 2,700
---------- ---------- ----------
LOSS BEFORE EXTRAORDINARY CHARGES (28,996) (27,363) (2,700)
EXTRAORDINARY CHARGES:
Loss on extinguishment of debt, net of income
tax benefit of $2,484 6,716 - -
Gain on partially depreciated assets replaced
by insurance companies, net of income tax
expense of $702 (1,898) - -
---------- ---------- ----------
NET LOSS $ (33,814) $ (27,363) $ (2,700)
========== ========== ==========
PREFERRED STOCK ACCRETION - 3,882 8,767
LOSS APPLICABLE TO COMMON SHARES $ (33,814) $ (31,245) $ (11,467)
========== ========== ==========
LOSS PER COMMON SHARE:
Loss before extraordinary charges $ (20.74) $ (21.52) $ (7.63)
Extraordinary charges (3.45) - -
---------- ---------- ----------
Net loss $ (24.19) $ (21.52) $ (7.63)
========== ========== ==========
Average Number of Common Shares Outstanding 1,397,939 1,452,184 1,503,828
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
35
<PAGE> 37
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
June 27, June 26, June 25,
1992 1993 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH PROVIDED (USED) BY OPERATING ACTIVITIES:
Cash received from customers $ 2,913,493 $ 2,742,027 $ 2,585,160
Cash paid to suppliers and employees (2,752,442) (2,711,779) (2,441,353)
Interest paid (56,234) (58,807) (56,762)
Income taxes (paid) refunded (4,665) 2,971 (247)
Interest received 1,266 993 903
Other, net 4,734 8,093 121
----------- ----------- -----------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 106,152 (16,502) 87,822
CASH PROVIDED (USED) BY INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 17,395 15,685 11,953
Payment for purchase of property and equipment (60,263) (53,467) (57,471)
Proceeds (payment) for sale (purchase) of other assets (4,754) (18) 813
Business acquisition costs, net of cash acquired (27,563) - (11,050)
Receivable received from seller of business acquired 12,259 - -
----------- ----------- -----------
NET CASH USED BY INVESTING ACTIVITIES (62,926) (37,800) (55,755)
CASH PROVIDED (USED) BY FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt 177,500 26,557 28
Net increase (decrease) in revolving loan (23,900) 4,900 (4,900)
Payments of long-term debt (184,389) (14,319) (14,224)
Proceeds from the issuance of preferred stock - 46,348 -
Proceeds from issuance of common stock, net 341 3,652 -
Purchase of treasury stock, net (313) (545) (1,192)
Payments of capital lease obligation (2,814) (2,840) (3,693)
Deferred financing costs and other (6,656) (8,839) (179)
----------- ----------- -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (40,231) 54,914 (24,160)
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,995 612 7,907
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 21,482 24,477 25,089
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 24,477 $ 25,089 $ 32,996
=========== =========== ===========
</TABLE>
36
<PAGE> 38
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
June 27, June 26, June 25,
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net loss $(33,814) $(27,363) $ (2,700)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 61,181 62,541 62,555
Extraordinary charge 4,818 - -
Loss (gain) on sale of assets (1,364) (4,613) 65
Equity loss (earnings) on investments in supplier cooperative 472 207 -
Change in assets and liabilities, net of effects from
acquisition of businesses:
Accounts and notes receivable (7,688) 17,145 (3,220)
Inventories 202 17,697 (17,125)
Prepaid expenses and other (2,834) (6,163) (5,717)
Accounts payable and accrued liabilities 71,369 (83,286) 55,301
Self-insurance liabilities 15,034 2,935 (3,790)
Deferred income taxes 2,033 4,004 2,506
Income taxes payable (3,257) 394 (53)
-------- -------- --------
Total adjustments 139,966 10,861 90,522
-------- -------- --------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES $106,152 $(16,502) $ 87,822
======== ======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Purchase of property and equipment
through issuance of capital lease obligation $ - $ - $ 2,575
======== ======== ========
Reduction of goodwill and deferred income taxes $ - $ - $ 9,896
======== ======== ========
Acquisition of businesses:
Fair value of assets acquired $ - $ - $ 11,241
Net cash paid in acquisition - - (11,050)
-------- -------- --------
Liabilities assumed $ - $ - $ 191
======== ======== ========
Final purchase price allocation for the
Alpha Beta Acquisition:
Property and equipment valuation adjustment $ 44,231 $ - $ -
======== ======== ========
Additional acquisition liabilities $ 14,305 $ - $ -
======== ======== ========
Deferred tax benefit $ 12,800 $ - $ -
======== ======== ========
Accretion of preferred stock $ - $ 3,882 $ 8,767
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
37
<PAGE> 39
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
----------------- ------------ --------------
Total
Number Number Number Share- Add'l Stock-
of of of holders' Paid-In Retained holder's
Share Amount Shares Amount Shares Amount Notes Capital (Deficit) Equity
------ -------- --------- ------ ------- -------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT
JUNE 29, 1991 - $ - 1,396,878 $14 (1,250) $ (125) $(930) $1084,557 $(18,060) $ 84,557
Net loss - - - - - - - - (33,814) (33,814)
Issuance of Common
Stock - - 1,636 - - - (190) 341 - 151
Purchase of Treasury
Stock - - - - (3,947) (463) 131 - - (332)
Sale of Treasury Stock - - - - 1,560 159 (50) - - 109
Payments of
Shareholders' Notes - - - - - - 100 - - 100
----- ------ --------- --- ------- ------- ----- ---------- -------- -------
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
Shareholders' 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
====== ======= ========= === ======= ======= ===== ========== ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
38
<PAGE> 40
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION AND ACQUISITIONS
Food 4 Less Supermarkets, Inc. (the "Company"), 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. Holdings is
a majority-owned subsidiary of Food 4 Less, Inc. ("FFL"). The Company
operates in three geographic areas: Southern California, Northern
California and certain areas of the Midwest. The Company has three
first-tier subsidiaries: Cala Co. ("Cala"), Falley's, Inc.
("Falley's") and Food 4 Less of Southern California, Inc.
("F4L-SoCal"), formerly known as Breco Holding Company, Inc. ("BHC").
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.
Acquisition
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 $11,241,000 (including acquisition costs of
$180,000). The financial statements reflect the preliminary
allocation of the purchase price as the purchase price allocation has
not been finalized. 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 receiveable from AWG as security under
this supply agreement.
On June 17, 1991, the Company acquired all of the common stock
of Alpha Beta for $270,513,000 (including acquisition costs of
$41,477,000) in a transaction accounted for as a purchase.
In January 1990, the Company purchased certain operating
assets of ABC Market Corp. ("ABC") for $14,675,000, plus approximately
$1,000,000 in fees and expenses.
On June 30, 1989, the Company acquired Bell for approximately
$13,700,000, which includes $8,000,000 of notes and the assumption of
Bell's long-term debt. The transaction was accounted for as a
purchase. Certified Grocers of California, Ltd. ("Certified") has
guaranteed up to $4,000,000 of notes issued by the Company to the
seller in connection with the purchase and the performance of a lease.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
The Company is engaged primarily in the operation of retail
supermarkets.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. The
results of operations of Alpha Beta, F4L-SoCal (BHC), Bell, ABC and
the Food Barn Stores have been excluded from the consolidated
financial statements prior to their respective acquisition dates. The
excess of the purchase price over the fair value of the net assets
acquired is classified as goodwill. All intercompany transactions
have been eliminated in consolidation.
39
<PAGE> 41
Fiscal Years
The Company's fiscal year is the 52 or 53-week period which
ends on the last Saturday in June. Fiscal years 1994, 1993, and 1992
include 52 weeks.
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 $13,103,000 and $13,802,000 at June 26, 1993
and June 25, 1994, respectively, and gross profit and operating income
would have been greater by $3,554,000, $4,441,000 and $699,000 for the
52 weeks ended June 27, 1992, the 52 weeks ended June 26, 1993, and
the 52 weeks ended June 25, 1994, 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 Reserve
When a store is closed, the Company provides a reserve for the
net book value of any store assets, net of salvage value, and the net
present value of the remaining lease obligation, net of sublease
income.
Investments in Supplier Cooperative
The investment in Certified is accounted for on the cost
method. There are certain restrictions on the sale of this
investment.
Investment in Food 4 Less of Modesto, Inc.
During the 52 weeks ended June 26, 1993, the Company sold its
20% investment in Food 4 Less of Modesto, Inc. ("Modesto") for gross
proceeds of $4.5 million, which included a $1.5 million note
receivable, resulting in a gain of $2.5 million. The Company
previously accounted for this investment using the cost method.
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 Cost
Costs incurred in connection with the issuance of debt are
amortized over the term of the related debt using the effective
interest method.
40
<PAGE> 42
Goodwill and Covenants Not to Compete
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. Covenants
not to compete, which are included in Other Assets, are amortized on a
straight-line basis over the term of the covenant.
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 June 25, 1994, no impairment exists.
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. Previously, the Company used the SFAS 96 asset and
liability approach that gave no recognition to future events other
than the recovery of assets and settlement of liabilities at their
carrying amounts.
Under SFAS 109, the Company recognizes to a greater degree the
future tax benefits of expenses which have been recognized in the
financial statements.
The implementation of SFAS No. 109 did not have a material
effect on the accompanying consolidated financial statements.
Notes Receivable from Shareholders of Parent
Notes receivable from shareholders of parent represent loans
to employees of the Company for purchases of Holdings' stock. The
notes are due over various periods, bear interest at the prime rate,
and are secured by each shareholder's shares of common stock.
Self-Insurance
Certain of the Company's subsidiaries are self-insured for a
portion of workers' compensation, general liability and automobile
accident claims. The Company establishes reserves based on an
independent actuary's review of claims filed 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.
Provision for Earthquake Losses
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 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 financial
41
<PAGE> 43
impact, net of insurance claims, was approximately $4.5 million. At
June 25, 1994, the Company had received all expected insurance
proceeds related to this claim.
Extraordinary Items
For the 52 weeks June 27, 1992, the Company classified the
write-off of deferred financing costs associated with the early
extinguishment of debt as an extraordinary item. For the 52 weeks
ended June 27, 1992, the Company also classified the difference
between the net book value and replacement cost of property and
equipment destroyed during the April 1992 civil unrest in Los Angeles
and replaced by insurance companies as an extraordinary item.
Proceeds received from insurance companies for business interruption
related to the civil unrest are included as a component of selling,
general, administrative and other expenses.
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.
Reclassifications
Certain prior period amounts in the consolidated financial
statements have been reclassified to conform to the June 25, 1994
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, Food 4 Less Holdings, Inc. ("Holdings") in
exchange for gross proceeds of $50.0 million. The Preferred Stock is
convertible into common stock at the option of the holder based upon a
conversion price which results in a one-for-one exchange. The
Preferred Stock has a stated dividend rate of $152.50 per share, per
annum, and is anti-dilutive. The Company may pay dividends on or
before December 31, 1997 only by issuing additional shares of
Preferred Stock. The Company may redeem the Preferred Stock at any
time after December 31, 1997 for its liquidation value. At June 25,
1994, the Company had accrued approximately $12,649,000 for the
Preferred Stock dividends earned but not yet declared.
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. No cash interest is
payable on the Notes until June 15, 1998.
At the present time, Holdings has no other income or assets
other than its investment in the Company's Common and Preferred Stock
and intends to service the interest payments on the Holdings Notes
when they become payable in cash (in fiscal 1998) through dividends it
receives on the Company's capital stock.
42
<PAGE> 44
4. LONG-TERM DEBT AND SENIOR SUBORDINATED DEBT
The Company's long-term debt is summarized as follows:
<TABLE>
<CAPTION>
June 26, June 25,
1993 1994
------------ ------------
<S> <C> <C>
Bank Term Loan, principal due quarterly through
January 1999, with interest payable monthly
in arrears $148,478,000 $137,064,000
10.45 percent Senior Notes principal due 2000 with
interest payable semi-annually in arrears 175,000,000 175,000,000
Revolving Loan 4,900,000 -
10.625 percent first real estate mortgage due 1998,
$12,000 of principal plus interest payable
monthly secured by land and building with a net
book value of $2,122,000 1,558,000 1,521,000
9.2 to 9.25 percent notes payable, collateralized by
equipment, due September 1994, $67,000 of
principal plus interest payable monthly, plus
balloon payment of $992,000 1,772,000 1,103,000
10.8 percent notes payable, collateralized by
equipment, due September 1995, $72,000 of
principal plus interest payable monthly, plus
balloon payment of $1,004,000 2,447,000 1,819,000
10.0 percent secured promissory note,
collateralized by the stock of Bell, due 1996,
interest payable quarterly through June 1996 8,000,000 8,000,000
10.08 percent notes payable, collateralized by
equipment, due November 1996, $34,000 of
principal plus interest payable monthly, plus
balloon payment of $493,000 1,515,000 1,242,000
10.15 percent notes payable, collateralized by
equipment, due December 1996, $45,000 of
principal and interest payable monthly, plus
balloon payment of $640,000 1,994,000 1,675,000
10.0 percent real estate mortgage due 2000,
$8,000 of principal and interest payable
monthly 474,000 419,000
Other long-term debt 2,216,000 1,415,000
------------ ------------
348,354,000 329,258,000
Less--current portion 12,778,000 18,314,000
------------ ------------
$335,576,000 $310,944,000
============ ============
</TABLE>
In June 1991, the Company and certain of its subsidiaries
entered into a Credit Agreement (the "Credit Agreement") with certain
banks, comprised of a $315,000,000 Term Loan (the "Bank Term Loan")
facility, a $70,000,000 Revolving Loan (the "Revolving Loan") facility
and a $55,000,000 standby letter of credit facility (the "Letter of
Credit Facility"). At June 25, 1994, $137,064,000 was outstanding
under the Bank Term Loan, there were no borrowings outstanding under
the Revolving Loan and $48,131,000 of standby letters of credit had
been issued on behalf of the Company. A commitment fee of 1/2 of 1
percent is charged on the average daily unused portion of the
Revolving Loan and the Letter of Credit Facility; such commitment fees
are due quarterly in arrears. Interest on borrowings under the Bank
Term Loan is at the bank's Base Rate (as defined) plus 1.25 percent or
the Eurodollar Rate (as defined) plus 2.5 percent. At June 25, 1994,
the weighted average interest rate on the Bank Term Loan was 6.5
percent.
43
<PAGE> 45
In accordance with certain requirements of the Credit Agreement, the
Company purchased an interest rate cap for a principal amount of
approximately $91.4 million on the three-month Libor rate at 5.5%
which expires on January 3, 1995. Quarterly principal installments on
the Bank Term Loan continue to December 1998, with $15,580,000 payable
in fiscal year 1995, $21,245,000 payable in fiscal year 1996,
$22,661,000 payable in fiscal 1997, $40,489,000 payable in fiscal
1998, and $37,089,000 payable in fiscal 1999. Interest on borrowings
under the Revolving Loan is at the bank's Base Rate (as defined) plus
1.25 percent. At June 25, 1994, the interest rate on the Revolving
Loan was 8.5 percent. To the extent borrowings under the Revolving
Loan are not paid earlier, they are due in June 1996. The common
stock of F4L-SoCal, Falley's, Cala and certain of their direct and
indirect subsidiaries has been pledged as security under the Credit
Agreement.
In April 1992, the Company and its wholly-owned subsidiaries
issued $175,000,000 of 10.45 percent Senior Notes (the "Senior
Notes"). These notes are due in two equal sinking fund payments on
April 15, 1999 and 2000. They are general unsecured obligations of
the Company and rank senior in right of payment to all subordinated
indebtedness (as defined). The Senior Notes rank "pari passu" in
right of payment with all borrowings and other obligations of the
Company under its bank Credit Agreement; however, the obligations
under the Credit Agreement are secured by substantially all the assets
of the Company and its subsidiaries. The Senior Notes may be redeemed
beginning in 1996 at 104.5 percent, declining ratably to 100 percent
in 1999. The proceeds received, net of issuance costs, were used to
pay down borrowings under the Bank Term Loan. Deferred financing
costs related to the portion of the Bank Term Loan that was retired of
$6.7 million, net of related tax benefit of $2.5 million, are
classified as an extraordinary item in the Company's consolidated
statement of operations for the 52 weeks ended June 27, 1992.
Scheduled maturities of principal of Long-Term Debt at June
25, 1994 are as follows:
<TABLE>
<S> <C>
1995 $ 18,314,000
1996 23,384,000
1997 32,322,000
1998 40,701,000
1999 124,823,000
Later years 89,714,000
------------
$329,258,000
============
</TABLE>
The Company issued $145,000,000 principal amount of Senior
Subordinated Notes (the "Subordinated Notes") in connection with the
acquisition of Alpha Beta as described in Note 1. The Subordinated
Notes bear interest, payable semi-annually on June 15 and December 15,
at an annual rate of 13.75 percent. The Subordinated Notes are
subordinated to all Senior Indebtedness (as defined) of the Company,
and may be redeemed beginning in 1996 at a redemption price of 106
percent. The redemption price declines ratably to 100 percent in
2000.
The debt agreements, among other things, require the Company
to maintain minimum levels of net worth (as defined), to maintain
minimum levels of earnings (as defined), to maintain a hedge agreement
to provide interest rate protection, and to comply with certain ratios
related to interest expense (as defined), fixed charges (as defined),
working capital and indebtedness. In addition, the debt agreements
limit, among other things, additional borrowings, dividends on, and
redemption of, capital stock, capital expenditures, incurrence of
lease obligations, and the acquisition and disposition of assets. At
June 26, 1993 and June 25, 1994 the Company was in compliance with the
financial covenants of its debt agreements. At June 25, 1994,
dividends and certain other payments are restricted based on terms in
the debt agreements.
44
<PAGE> 46
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>
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
June 27, June 26, June 25,
1992 1993 1994
-------- -------- --------
<S> <C> <C> <C>
Minimum rents $46,706,000 $44,504,000 $49,788,000
Rents based on sales 7,656,000 5,917,000 3,806,000
</TABLE>
Following is a summary of future minimum lease payments under
operating leases at June 25, 1994:
<TABLE>
<S> <C>
1995 $ 52,542,000
1996 48,966,000
1997 45,325,000
1998 38,925,000
1999 34,423,000
Later years 269,332,000
------------
$489,513,000
============
</TABLE>
The Company has entered into lease agreements for new
supermarket sites which were not in operation at June 25, 1994.
Future minimum lease payments under such operating leases generally
begin when such supermarkets open and at June 25, 1994 are: 1995 -
$5,990,000; 1996 - $11,772,000; 1997 - $11,825,000; 1998 -
$11,810,000; 1999 - $11,819,000; later years - $218,480,000.
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 June
25, 1994 are as follows:
<TABLE>
<S> <C>
1995 $ 7,948,000
1996 7,521,000
1997 6,995,000
1998 6,374,000
1999 6,071,000
Later years 44,108,000
-----------
Total minimum lease payments 79,017,000
Less: amounts representing interest 35,403,000
-----------
Present value of minimum lease payments 43,614,000
Less: current portion 3,616,000
-----------
$39,998,000
===========
</TABLE>
Accumulated depreciation related to capital leases was
$20,356,000 and $24,041,000 at June 26, 1993 and June 25, 1994,
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.
45
<PAGE> 47
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>
<S> <C>
1995 $ -
1996 -
1997 795,000
1998 1,420,000
1999 1,520,000
Later years 2,983,000
----------
$6,718,000
==========
</TABLE>
7. INCOME TAXES
The provision (benefit) for income taxes consists of the
following:
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
June 27, June 26, June 25,
1992 1993 1994
---------- ---------- -----------
<S> <C> <C> <C>
Current:
Federal $2,507,000 $ - $ 3,251,000
State and other 934,000 82,000 712,000
---------- ---------- -----------
3,441,000 82,000 3,963,000
---------- ---------- -----------
Deferred:
Federal - 1,345,000 (70,000)
State and other - - (1,193,000)
---------- ---------- -----------
- 1,345,000 (1,263,000)
---------- ---------- -----------
$3,441,000 $1,427,000 $ 2,700,000
========== ========== ===========
</TABLE>
A reconciliation of the provision (benefit) for income taxes
to amounts computed at the federal statutory rates of 34% for fiscal
1992 and 1993 and 35% for fiscal 1994 is as follows:
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
June 27, June 26, June 25,
1992 1993 1994
----------- ----------- ----------
<S> <C> <C> <C>
Federal income taxes at statutory rate
on loss before provision for
income taxes and extraordinary charges $(8,689,000) $(8,818,000) $ -
State and other taxes, net of federal tax
benefit 934,000 82,000 (1,000)
Alternative minimum tax 2,507,000 - -
Effect of permanent differences resulting
primarily from amortization of goodwill 2,706,000 2,850,000 2,820,000
Accounting limitation (recognition)
of deferred tax benefit 5,983,000 7,313,000 (119,000)
----------- ----------- ----------
$ 3,441,000 $ 1,427,000 $2,700,000
=========== =========== ==========
</TABLE>
46
<PAGE> 48
The provision (benefit) for deferred taxes consists of the following:
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
June 27, June 26, June 25,
1992 1993 1994
------------ ----------- ------------
<S> <C> <C> <C>
Depreciation $ 6,282,000 $ 7,756,000 $ 2,536,000
Difference between book and tax basis
of assets sold 2,514,000 3,198,000 (4,223,000)
Deferred revenues and allowances (7,028,000) 40,000 (2,349,000)
Pre-opening costs 1,072,000 (512,000) 174,000
Accounts receivable reserves - (270,000) 249,000
Unicap (124,000) (5,000) (536,000)
Capital lease obligation (2,010,000) (1,385,000) 2,792,000
Self-insurance reserves (13,558,000) (4,082,000) (535,000)
Inventory shrink reserve (528,000) 777,000 (869,000)
LIFO 7,104,000 (554,000) (1,010,000)
Closed store reserve 964,000 1,092,000 440,000
Accrued expense - - (582,000)
Accrued payroll and related liabilities (2,656,000) 193,000 1,721,000
Damaged inventory reimbursement 1,195,000 - -
Acquisition costs 4,974,000 2,626,000 1,397,000
Sales tax reserves - (715,000) (418,000)
Deferred rent subsidy - (483,000) (624,000)
Net operating loss usage - - 5,782,000
Tax credits benefited - (1,392,000) (4,477,000)
Accounting limitation (recognition)
of deferred tax benefit 1,588,000 (4,591,000) (1,085,000)
Other, net 211,000 (348,000) 354,000
----------- ----------- -----------
$ - $ 1,345,000 $(1,263,000)
=========== =========== ===========
</TABLE>
47
<PAGE> 49
The significant components of the Company's deferred tax
assets (liabilities) are as follows:
<TABLE>
<CAPTION>
June 26, June 25,
1993 1994
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accrued payroll and related liabilities $ 4,064,000 $ 2,448,000
Other accrued liabilities 13,488,000 13,953,000
Property and equipment 9,674,000 2,997,000
Self-insurance liabilities 30,907,000 27,744,000
Loss carryforwards 27,863,000 20,675,000
Tax credit carryforwards 1,392,000 5,869,000
Other 1,223,000 580,000
----------- -----------
Gross deferred tax assets 88,611,000 74,266,000
Valuation allowance (45,008,000) (31,149,000)
----------- -----------
Net deferred tax assets $43,603,000 $43,117,000
----------- -----------
Deferred tax liabilities:
Inventories $(20,243,000) $(16,738,000)
Property and equipment (38,298,000) (30,516,000)
Obligations under capital leases (5,802,000) (8,733,000)
Other (1,689,000) (1,870,000)
------------ ------------
Gross deferred tax liability (66,032,000) (57,857,000)
------------ ------------
Net deferred tax liability $(22,429,000) $(14,740,000)
============ ============
</TABLE>
The Company recorded a valuation allowance to reserve a
portion of its gross deferred tax assets at June 26, 1993 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 June 25, 1994, approximately $8,864,000 of the valuation
allowance for deferred tax assets will reduce goodwill when the
allowance is no longer required.
At June 25, 1994, the Company has net operating loss
carryforwards for federal income tax purposes of $59,071,000, which
expire in 2007 through 2008. The Company has federal and state
Alternative Minimum Tax ("AMT") credit carryforwards of approximately
$4,090,000 which are available to reduce future regular taxes in
excess of AMT. Currently, there is no expiration date for these
credits.
FFL files a consolidated federal income tax return, under
which the federal income tax liability of FFL and its subsidiaries
(which since June 23, 1989 include the Company) is determined on a
consolidated basis. FFL has entered into 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 FFL and has taxable income, the Company will pay to FFL
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 FFL and its other subsidiaries, FFL will
credit to the Company the amount of such reduction in the consolidated
tax liability. These credits are passed between FFL 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 FFL and
the Company of such state and local taxes.
The Company currently has an Internal Revenue Service
examination in process covering its 1990 and 1991 fiscal years. The
Internal Revenue Service has not yet made any additional tax
assessments related to these years.
48
<PAGE> 50
8. RELATED PARTY TRANSACTIONS
The Company has a five-year consulting agreement with an
affiliated company effective June 17, 1991 for management, financing,
acquisition and other services. The agreement is automatically
renewed on January 1 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 $2 million plus an additional amount
based on the Company's performance and advisory fees for acquisition
and financing transactions.
Fees paid or accrued associated with management services were
$2,270,000 during the 52 weeks ended June 25, 1994, $2,000,000 during
the 52 weeks ended June 26, 1993, and $2,000,000 during the 52 weeks
ended June 27, 1992. Advisory fees paid or accrued were $170,000
during the 52 weeks ended June 25, 1994, $1,795,000 for the 52 weeks
ended June 26, 1993, and $116,000 for the 52 weeks ended June 27,
1992. Advisory fees paid or accrued for financing transactions are
capitalized and amortized over the term of the related financing. In
connection with the acquisitions of Alpha Beta, ABC and the Food Barn
Stores, the Company capitalized fees of $8,000,000, $500,000 and
$92,000, respectively, which were paid to this affiliated company for
acquisition services.
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 the Certified stock. Such gains are only
payable if Certified is purchased or dissolved, or if the Company
sells the shares to Certified within the period noted above.
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 $1,650,000.
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 June 25, 1994, the Company had
capitalized construction costs of $10,435,000 on total commitments of
$19,250,000.
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.
10. EMPLOYEE BENEFIT PLANS
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 under which the Company matches certain employee
contributions with cash or FFL stock (the "Falley's ESOP"). As part
of the original stock sale agreement between FFL and the Falley's
ESOP, which has been amended from time to time, an affiliate of the
Company has assumed the obligation to purchase any FFL shares as to
which terminated plan participants have exercised a put option under
the terms of Falley's ESOP. As part of that agreement, the Company
may, at its sole discretion, after
49
<PAGE> 51
providing a right of first refusal to the affiliate, purchase FFL
shares put under the provisions of the plan. During the year ended
June 25, 1994, the Company elected to purchase $1.0 million of FFL
shares as to which terminated plan participants had exercised their
put option. FFL shares purchased by the Company are classified as
treasury stock.
All other full-time employees of the Company who are not
members of a collective bargaining agreement are covered under a
separate 401(k) plan (the "Management Plan"). The Management Plan
provides for annual contributions which are determined at the
discretion of the Company. The Company contributions are allocated to
participants based on employee compensation and matching of certain
employee contributions. A portion of the Company contribution
allocated based on compensation is made in the form of stock or cash
for the purchase of stock.
Total charges against operations related to all employee
benefit plans sponsored by the Company and its subsidiaries were
$337,000, $284,000 and $699,000 for the 52 weeks ended June 27, 1992,
the 52 weeks ended June 26, 1993, and the 52 weeks ended June 25,
1994, respectively. No contributions were made with stock and no
stock was acquired by any plans in fiscal 1992, fiscal 1993 or fiscal
1994.
The Company contributes to multi-employer pension 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 June 25, 1994 is not available. The Company contributed $78.6
million, $69.4 million and $57.2 million to these plans for the 52
weeks ended June 27, 1992, June 26, 1993, and June 25, 1994,
respectively. Management is not aware of any plans to terminate such
plans.
The United Food and Commercial Workers health and welfare
plans were overfunded and those employers who contributed to the plans
are to receive a pro rata share of the excess reserves in these plans
through a reduction of current contributions. The Company's share of
the excess reserve was $24.2 million, of which $8.1 million was
recognized in the 52 weeks ended June 25, 1994, with the remainder to
be recognized in future periods as the credits are taken. Offsetting
the reduction in employer contributions was a $5.5 million union
contract ratification bonus and contractual wage increases.
11. COMMON STOCK
On December 31, 1992, concurrent with the sale of the
Preferred Stock, the Company sold 121,118 shares of common stock to
Holdings. Concurrently, the remaining shares of common stock of the
Company were exchanged for shares of Holdings common stock on a one
for one basis.
12. 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
50
<PAGE> 52
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 a non-current note 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 $175.0 million Senior Notes, the $145.0
million Subordinated Notes and the Bank Term Loan is based on quoted
market prices. 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 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>
June 25, 1994
-----------------------------
Carrying Fair
Amount Value
----------- ------------
<S> <C> <C>
Cash and cash equivalents $ 32,996,000 $ 32,996,000
Short-term notes and other receivables 4,187,000 4,187,000
Investments in and notes receivable from
supplier cooperatives 12,702,000 -
Long-term debt for which it is:
o Practicable to estimate fair values 457,064,000 472,779,000
o Not practicable 17,194,000 -
</TABLE>
13. OTHER INCOME, NET
The components of other income items included in SG&A are as
follows:
<TABLE>
<CAPTION>
52 Weeks 52 Weeks 52 Weeks
Ended Ended Ended
June 27, June 26, June 25,
1992 1993 1994
---------- ---------- ---------
<S> <C> <C> <C>
Interest income $1,266,000 $ 993,000 $ 903,000
Gain (loss) on sale of assets 1,364,000 2,083,000 (37,000)
Licensing fees 493,000 246,000 270,000
Other income (expense) 769,000 3,710,000 (177,000)
---------- ---------- ---------
$3,892,000 $7,032,000 $ 959,000
========== ========== =========
</TABLE>
14. SUBSEQUENT EVENT (UNAUDITED)
On September 14, 1994, the Company, Holdings, and FFL entered
into a definitive Agreement and Plan of Merger (the "Merger") with
Ralphs Supermarkets, Inc. ("Ralphs") and the stockholders of Ralphs.
Pursuant to the terms of the Merger Agreement, the Company will,
subject to certain terms and conditions being satisfied or waived, be
merged into Ralphs and Ralphs will become a wholly-owned subsidiary of
Holdings. Conditions to the consummation of the Merger include, among
other things,
51
<PAGE> 53
receipt of regulatory approvals and other necessary consents and the
completion of financing for the transaction. The purchase price for
Ralphs is approximately $1.5 billion, including the assumption of
debt.
Upon the effectiveness of the Merger, each outstanding share
of common stock, par value $1.00 per share, of Ralphs will be
converted into and become a right to receive (a) approximately $16.61
in cash and (b) approximately $3.91 principal amount of 13% Senior
Subordinated Pay-in Kind Debentures due 2006 issued by Holdings (the
"Debentures"). This represents an aggregate purchase price, payable
to the stockholders of Ralphs, of $425 million in cash and $100
million initial principal amount of Debentures. In addition, the
Company will enter into an agreement with a stockholder of Ralphs
pursuant to which such stockholder will act as a consultant to the
Company with respect to certain real estate and general commercial
matters for a period of five years from the closing of the Ralphs
Merger in exchange for the payment of a consulting fee.
The financing required to complete the Merger will include the
issuance of significant additional equity by FFL, the issuance of new
debt securities by the Company and Holdings and the incurrence of
additional bank financing by the Company. The equity issuance would
be made to a group of investors led by Apollo Advisors, L.P., which
has committed to purchase up to $150 million in FFL stock, and the
bank financing would be made pursuant to a commitment by Bankers Trust
Company to provide up to $1,225 million in such financing. In
connection with the receipt of new financing, the Company and Holdings
will also be required to complete certain exchange offers, consent
solicitations and or other transactions with the holders of their
currently outstanding debt securities.
As of July 17, 1994, Ralphs had outstanding indebtedness of
approximately $990 million. Ralphs had sales of $2,730 million,
operating income of $152.1 million and earnings before income taxes of
$30.3 million for its most recent fiscal year ended January 30, 1994.
Upon consummation of the Merger, the operations and activities
of the Company will be significantly impacted due to conversions of
the Company's existing Southern California conventional stores to
either Ralphs or Food 4 Less warehouse stores as well as the
consolidation of various operating functions and departments. This
consolidation may result in a restructuring charge and, in conjunction
with the Merger, the Company intends to determine if there is any
impairment of the value of the Company's existing assets and goodwill.
The amount of the restructuring charge is not presently determinable
due to various factors, including uncertainties inherent in the
completion of the Merger; however, the restructuring charge may be
material in relation to the stockholder's equity and financial
position of the Company at June 25, 1994.
52
<PAGE> 54
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholder of Food 4 Less Supermarkets, Inc.:
We have audited, in accordance with generally accepted auditing
standards, the consolidated balance sheets of Food 4 Less Supermarkets, Inc.
and subsidiaries as of June 26, 1993 and June 25, 1994, and the related
consolidated statements of operations, stockholder's equity and cash flows for
the 52 weeks ended June 27, 1992, the 52 weeks ended June 26, 1993, and the 52
weeks ended June 25, 1994 and have issued our report thereon dated July 29,
1994 (except with respect to the matter discussed in Note 14, as to which the
date is September 14, 1994). Our audits were made for the purpose of forming
an opinion on the basic financial statements taken as a whole. The schedules
listed on page 31 are the responsibility of the Company's management and are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic consolidated financial
statements. These schedules have been subjected to the auditing procedures
applied in the audits of the basic consolidated financial statements and, in
our opinion, fairly state 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
July 29, 1994 (except with
respect to the matter discussed in
Note 14, as to which the date is
September 14, 1994)
53
<PAGE> 55
FOOD 4 LESS SUPERMARKETS, INC.
SCHEDULE II - AMOUNTS RECEIVABLE FROM RELATED
PARTIES AND UNDERWRITERS, PROMOTERS, AND
EMPLOYEES OTHER THAN RELATED PARTIES
52 WEEKS ENDED JUNE 25, 1994, 52 WEEKS ENDED JUNE 26, 1993,
AND 52 WEEKS ENDED JUNE 27, 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT END
BALANCE AT OF PERIOD
BEGINNING AMOUNTS OTHER ------------------
OF PERIOD ADDITIONS COLLECTED CHANGES CURRENT NONCURRENT
--------- --------- --------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
52 weeks ended June 25, 1994
None $ - $ - $ - $ - $ - $ -
---- ---- ---- ---- ---- ----
$ - $ - $ - $ - $ - $ -
==== ==== ==== ==== ==== ====
52 weeks ended June 26, 1993
Spencer Deese $100 $ - $100 $ - $ - $ -
---- ---- ---- ---- ---- ----
$100 $ - $100 $ - $ - $ -
==== ==== ==== ==== ==== ====
52 weeks ended June 27, 1992
Spencer Deese $105 $ - $ 5 $ - $ - $100
---- ---- ---- ---- ---- ----
$105 $ - $ 5 $ - $ - $100
==== ==== ==== ==== ==== ====
</TABLE>
54
<PAGE> 56
FOOD 4 LESS SUPERMARKETS, INC.
SCHEDULE V - PROPERTY AND EQUIPMENT
52 WEEKS ENDED JUNE 25, 1994, 52 WEEKS ENDED JUNE 26, 1993,
AND 52 WEEKS ENDED JUNE 27, 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at
beginning of Other Balance at end
period Additions Retirements changes(a) of period
------------ --------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C>
52 weeks ended June 25, 1994:
Land $ 23,912 $ - $ 424 $ - $ 23,488
Buildings 12,827 - - - 12,827
Leasehold improvements 81,049 17,292 668 - 97,673
Store equipment & fixtures 129,178 27,324 11,643 3,390 148,249
Transportation equipment 31,758 971 470 - 32,259
Construction in progress 757 11,884 - - 12,641
Leased property under capital leases 77,553 2,575 1,906 - 78,222
Leasehold interests 93,863 - 399 - 93,464
-------- ------- ------- -------- --------
$450,897 $60,046 $15,510 $ 3,390 $498,823
======== ======= ======= ======== ========
52 weeks ended June 26, 1993:
Land $ 26,952 $ 652 $ 3,692 $ - $ 23,912
Buildings 12,568 207 126 178 12,827
Leasehold improvements 58,846 20,853 1,912 3,262 81,049
Store equipment & fixtures 104,473 24,956 2,328 2,077 129,178
Transportation equipment 29,415 2,531 188 - 31,758
Construction in progress 8,679 1,601 2,513 (7,010) 757
Leased property under capital leases 80,369 115 2,931 - 77,553
Leasehold interests 92,193 2,552 882 - 93,863
-------- ------- ------- -------- --------
$413,495 $53,467 $14,572 $ (1,493) $450,897
======== ======= ======= ======== ========
52 weeks ended June 27, 1992:
Land $ 26,952 $ - $ - $ - $ 26,952
Buildings 12,568 - - - 12,568
Leasehold improvements 41,730 19,592 2,476 - 58,846
Store equipment & fixtures 130,497 27,819 21,072 (32,771) 104,473
Transportation equipment 28,937 651 173 - 29,415
Construction in progress 1,947 12,201 5,469 - 8,679
Leased property under capital leases 80,399 - 30 - 80,369
Leasehold interests 100,710 - 357 (8,160) 92,193
-------- ------- ------- -------- --------
$423,740 $60,263 $29,577 $(40,931) $413,495
======== ======= ======= ======== ========
</TABLE>
_______________
(a) Consists of (1) the acquisition of Food Barn in March 1994, (2) final
Alpha Beta purchase price allocation adjustments, and (3) gains and
losses on involuntary conversion of assets.
55
<PAGE> 57
FOOD 4 LESS SUPERMARKETS, INC.
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION
OF PROPERTY AND EQUIPMENT
52 WEEKS ENDED JUNE 25, 1994, 52 WEEKS ENDED JUNE 26, 1993,
AND 52 WEEKS ENDED JUNE 27, 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Balance at
beginning of Other Balance at end
period Additions Retirements changes(a) of period
------------ --------- ----------- ---------- --------------
<S> <C> <C> <C> <C> <C>
52 weeks ended June 25, 1994:
Buildings $ 2,515 $ 441 $ - $ - $ 2,956
Leasehold improvements 25,050 7,097 185 - 31,962
Store equipment & fixtures 36,506 20,789 1,762 - 55,533
Transportation equipment 7,036 2,461 337 - 9,160
Leased property under capital leases 20,356 5,591 1,906 - 24,041
Leasehold interests 5,485 5,001 49 - 10,437
------- ------- ------- ------ --------
$96,948 $41,380 $ 4,239 $ - $134,089
======= ======= ======= ====== ========
52 weeks ended June 26, 1993:
Buildings $ 1,861 $ 682 $ 24 $ (4) $ 2,515
Leasehold improvements 15,534 9,692 15 (161) 25,050
Store equipment & fixtures 19,818 18,051 673 (690) 36,506
Transportation equipment 5,040 2,180 184 - 7,036
Leased property under capital leases 16,655 5,342 1,641 - 20,356
Leasehold interests 4,051 1,479 45 - 5,485
------- ------- ------- ------ --------
$62,959 $37,426 $ 2,582 $ (855) $ 96,948
======= ======= ======= ====== ========
52 weeks ended June 27, 1992:
Buildings $ 1,252 $ 688 $ 79 $ - $ 1,861
Leasehold improvements 7,800 8,649 915 - 15,534
Store equipment and fixtures 12,275 19,224 11,681 - 19,818
Transportation equipment 3,323 1,751 34 - 5,040
Leased property under capital lease 10,306 6,379 30 - 16,655
Leasehold interests 2,888 1,207 44 - 4,051
------- ------- ------- ------ --------
$37,844 $37,898 $12,783 $ - $ 62,959
======= ======= ======= ====== ========
</TABLE>
________________________
(a) Consists of gains and losses on involuntary conversion of assets.
56
<PAGE> 58
FOOD 4 LESS SUPERMARKETS, INC.
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
52 WEEKS ENDED JUNE 25, 1994, 52 WEEKS ENDED JUNE 26, 1993,
AND 52 WEEKS ENDED JUNE 27, 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Provisions
Balance at charged Balance
beginning to Other at end
of period expense Payments changes of period
---------- ---------- -------- ------- ---------
<S> <C> <C> <C> <C> <C>
Self-insurance liabilities
52 weeks ended June 25, 1994 $85,494 $25,716 $29,506 $ - $81,704
======= ======= ======= ====== =======
52 weeks ended June 26, 1993 $82,559 $43,905 $40,970 $ - $85,494
======= ======= ======= ====== =======
52 weeks ended June 27, 1992 $59,525 $51,100 $36,066 $8,000(a) $82,559
======= ======= ======= ====== =======
</TABLE>
_______________
(a) Reflects self-insurance reserve related to Alpha Beta resulting from
the acquisition of Alpha Beta.
57
<PAGE> 59
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- - ------ ----------- ----
<S> <C>
2.1 Agreement and Plan of Merger by and among Food 4 Less, Inc.,
Food 4 Less Holdings, Inc., the Company, Ralphs Supermarkets, Inc. and
the Stockholders of Ralphs Supermarkets, Inc. (incorporated by
reference to Exhibit 99 to the Company's Form 8-K dated September 14,
1994).
3.1 Certificate of Incorporation of the Company, as amended.
3.2 Bylaws of the Company, as amended (incorporated herein by reference to
Exhibit 3.2 to the Company's Registration Statement on Form S-1, No.
33-31152).
4.1 Senior Note Indenture dated as of April 15, 1992 by and among the
Company, the subsidiary guarantors identified therein and Norwest Bank
Minnesota, N.A., as trustee (incorporated herein by reference to
Exhibit 4.1 to the Company's Registration Statement on Form S-1, No.
33-46750).
4.1.1 First Supplemental Indenture dated as of July 24, 1992 by and among the
Company, Bay Area Warehouse Stores, Inc. and Norwest Bank Minnesota,
N.A., as trustee (incorporated herein by reference to Exhibit 4.1.1 to
the Company's Annual Report on Form 10-K for the fiscal year ended June
27, 1992.)
4.2 Senior Subordinated Note Indenture dated as of June 15, 1991 by and
among the Company, the subsidiary guarantors identified therein and
United States Trust Company of New York as trustee (incorporated herein
by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-K
for the fiscal year ended June 29, 1991).
4.2.1 First Supplemental Indenture dated as of April 8, 1992 by and among the
Company, Food 4 Less GM, Inc. and United States Trust Company of New
York, as trustee (incorporated herein by reference to Exhibit 4.2.1 to
the Company's Annual Report on Form 10-K for the fiscal year ended June
27, 1992.)
4.2.2 Second Supplemental Indenture dated as of May 18, 1992 by and among the
Company, the Subsidiary Guarantors and United States Trust Company of
New York, as trustee (incorporated herein by reference to Exhibit 4.2.2
to the Company's Annual Report on Form 10-K for the fiscal year ended
June 27, 1992.)
</TABLE>
E-1
<PAGE> 60
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- - ------ ----------- ----
<S> <C>
4.2.3 Third Supplemental Indenture dated as of July 24, 1992 by and among the
Company, Bay Area Warehouse Stores, Inc. and United States Trust
Company of New York, as trustee (incorporated herein by reference to
Exhibit 4.2.3 to the Company's Annual Report on Form 10-K for the
fiscal year ended June 27, 1992.)
4.3 Credit Agreement dated as of June 17, 1991 by and among the Company,
Alpha Beta Company, The Boys Markets, Inc., Cala Foods, Inc., Falley's,
Inc. and Food 4 Less Merchandising, Inc., as borrowers; Citicorp North
America, Inc., Bankers Trust Company and Manufacturers Hanover Trust
Company, as Co-Agents, Citicorp North America, Inc. as Administrative
Agent and the Initial Lenders and the Designated Issuers, all as
identified therein (incorporated herein by reference to Exhibit 4.4 to
the Company's Annual Report on Form 10-K for the fiscal year ended
June 29, 1991).
4.3.1 First Modification Agreement dated as of January 24, 1992 by and among
the Company, Alpha Beta Company, The Boys Markets, Inc., Cala Foods,
Inc., Falley's, Inc. and Food 4 Less Merchandising, Inc., as borrowers;
Citicorp North America, Inc., Bankers Trust Company and Manufacturers
Hanover Trust Company, as Co-Agents, Citicorp North America, Inc. as
Administrative Agent and the Required Lenders and the other Loan
Parties, all as identified therein (incorporated herein by reference to
Exhibit 4.5.1 to the Company's Annual Report on Form 10-K for the
fiscal year ended June 27, 1992.)
4.3.2 Second Modification Agreement dated as of April 13, 1992 by and among
the Company, Alpha Beta Company, Cala Foods, Inc., Falley's, Inc. and
Food 4 Less Merchandising, Inc., as borrowers; Citicorp North America,
Inc., Bankers Trust Company and Manufacturers Hanover Trust Company, as
Co-Agents, Citicorp North America, Inc. as Administrative Agent and the
Required Lenders and the other Loan Parties, all as identified therein
(incorporated herein by reference to Exhibit 4.5.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended June 27, 1992.)
4.3.3 Third Modification Agreement dated as of September 15, 1992 by and
among the Company, Alpha Beta Company, Cala Foods, Inc., Falley's, Inc.
and Food 4 Less Merchandising, Inc., as borrowers; Citicorp North
America, Inc., Bankers Trust Company and Manufacturers Hanover Trust
Company, as Co-Agents, Citicorp North America, Inc. as Administrative
Agent and the Required Lenders and the other Loan Parties, all as
identified therein (incorporated herein by reference to Exhibit 4.5.3
to the Company's Annual Report on Form 10-K for the fiscal year ended
June 27, 1992.)
4.3.4 Fourth Modification Agreement dated as of October 9, 1992 by and among
the Company, Alpha Beta Company, Cala Foods, Inc., Falley's, Inc. and
Food 4 Less Merchandising, Inc., as borrowers; Citicorp North America,
Inc., Bankers Trust Company and Manufacturers Hanover Trust Company, as
Co-Agents, Citicorp North America, Inc. as Administrative Agent and the
Required Lenders and the other Loan Parties, all as identified therein
(incorporated herein by reference to Exhibit 4.5.4 to the Company's
Annual Report on Form 10-K for the fiscal year ended June 27, 1992.)
</TABLE>
E-2
<PAGE> 61
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- - ------ ----------- ----
<S> <C>
4.3.5 Fifth Modification Agreement dated as of December 21, 1992 by and among
the Company, Alpha Beta Company, Cala Foods, Inc., Falley's, Inc. and
Food 4 Less Merchandising, Inc., as borrowers; Citicorp North America,
Inc., Bankers Trust Company and Chemical Bank (as successor in interest
to Manufacturers Hanover Trust Company), as Co-Agents, Citicorp North
America, Inc. as Administrative Agent and the Required Lenders and the
other Loan Parties, all as identified therein (incorporated herein by
reference to Exhibit 19.1 to the Company's Quarterly Report on Form 10-
Q for the quarter ended April 3, 1993).
4.4 Guaranty dated as of June 17, 1991 by the Company, Alpha Beta Company,
Bell Markets, Inc., The Boys Markets, Inc., Cala Co., Cala Foods, Inc.,
Falley's, Inc., Food 4 Less of California, Inc., Food 4 Less
Merchandising, Inc., and Food 4 Less of Southern California, Inc., in
favor of the Lender Parties identified therein and Citicorp North
America, Inc., as Administrative Agent for such Lender Parties
(incorporated herein by reference to Exhibit 4.5 to the Company's
Annual Report on Form 10-K for the fiscal year ended June 29, 1991).
9 Stockholder Voting Agreement and Proxy dated as of December 31, 1992 by
and among Ronald W. Burkle, George Golleher, Yucaipa Capital Advisors,
Inc. and the Management Shareholders of Food 4 Less Holdings, Inc.
(incorporated herein by reference to Exhibit 9 to Food 4 Less Holdings,
Inc.'s Registration Statement on Form S-4, No. 33-59214).
10.1 Lease dated as of June 17, 1991 by and between the Company and American
Food and Drug, Inc. relating to La Habra, California property
(incorporated herein by reference to Exhibit 10.4 to the Company's
Annual Report on Form 10-K for the fiscal year ended June 29, 1991).
10.2 Stockholders Agreement dated as of June 23, 1989 by and among the
Company, Food 4 Less, Inc. and Peter J. Sodini (incorporated herein by
reference to Exhibit 10.16 to the Company's Registration Statement on
Form S-1, No. 33-31152).
10.2.1 Amendment dated as of May 4, 1990 to Stockholders Agreement by and
among the Company, Food 4 Less, Inc. and Peter J. Sodini (incorporated
herein by reference to Exhibit 10.58 to the Company's Registration
Statement on Form S-1, No. 33-31152).
10.2.2 Letter Agreement dated as of June 27, 1990 by and among Peter J.
Sodini, The Boys Markets, Inc., the Company and certain affiliates,
officers, directors and employees of the Company (incorporated herein
by reference to Exhibit 10.39.1 to the Company's Annual Report on Form
10-K for the fiscal year ended June 30, 1990).
10.2.3 Assignment and Assumption Agreement dated as of August 22, 1990 by and
between Peter J. Sodini and Ronald W. Burkle with respect to
Stockholders Agreement by and among the Company, Food 4 Less, Inc. and
Peter J. Sodini (incorporated herein by reference to Exhibit 10.16.2 to
the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1990).
</TABLE>
E-3
<PAGE> 62
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- - ------ ----------- ----
<S> <C> <C> <C>
10.2.4 Amendment dated as of December 31, 1992 by and among Food 4 Less, Inc.,
Food 4 Less Holdings, Inc., Food 4 Less Supermarkets, Inc. and
Ronald W. Burkle to Stockholders Agreement by and among Food 4 Less
Supermarkets, Inc., Food 4 Less, Inc. and Peter J. Sodini (incorporated
herein by reference to Exhibit 10.6.2 to Food 4 Less Holdings, Inc.'s
Registration Statement on Form S-4, No. 33-59214).
10.3 Stockholders Agreement dated as of June 23, 1989 by and among the
Company, Food 4 Less, Inc. and George G. Golleher (incorporated herein
by reference to Exhibit 10.17 to the Company's Registration Statement
on Form S-1, No. 33-31152).
10.3.1 Amendment dated as of May 4, 1990 to Stockholders Agreement by and
among the Company, Food 4 Less, Inc. and George G. Golleher
(incorporated herein by reference to Exhibit 10.59 to the Company's
Registration Statement on Form S-1, No. 33-31152).
10.3.2 Amendment dated as of December 31, 1992 by and among Food 4 Less
Holdings, Inc., the Company, Food 4 Less, Inc. and George G. Golleher
to Stockholders Agreement by and among the Company, Food 4 Less, Inc.
and George G. Golleher (incorporated herein by reference to Exhibit
10.8.2 to Food 4 Less Holdings, Inc.'s Registration Statement on Form
S-4, No. 33-59214).
10.4 Letter Agreement dated as of September 14, 1994 by and among FFL
Partners, Food 4 Less, Inc., Food 4 Less Holdings, Inc., Food 4 Less
Supermarkets, Inc. and Falley's, Inc. relating to certain obligations
arising under the Falley's, Inc. Stock Ownership Plan and Trust, as
amended.
10.5 * Amended and Restated Consulting Agreement dated as of June 17, 1991 by
and among Yucaipa Management Company, The Yucaipa Companies and the
Company (incorporated herein by reference to Exhibit 10.16 to the
Company's Annual Report on Form 10-K for the fiscal year ended June 29,
1991).
10.6 * 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 the Company's Registration Statement on Form S-1, No. 33-
31152).
10.6.1 * 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 the Company's Annual Report
on Form 10-K for the fiscal year ended June 29, 1991).
10.7 * Employment Agreement dated as of June 24, 1989 by and between The Boys
Markets, Inc. and George G. Golleher (incorporated herein by reference
to Exhibit 10.40 to the Company's Registration Statement on Form S-1,
No. 33-31152).
</TABLE>
E-4
<PAGE> 63
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- - ------ ----------- ----
<S> <C> <C>
10.7.1 * First Amendment dated as of December 10, 1990 to Employment Agreement
by and between The Boys Markets, Inc. and George G. Golleher
(incorporated herein by reference to Exhibit 10.40.1 to the Company's
Amendment No. 1 to Post-Effective Amendment No. 1 to Registration
Statement on Form S-1, No. 33-31152).
10.7.2 * Second Amendment dated as of June 17, 1991 to Employment Agreement by
and among The Boys Markets, Inc., the Company and George G. Golleher
(incorporated herein by reference to Exhibit 10.19.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended June 29, 1991).
10.8 Amended and Restated Tax Sharing Agreement dated as of June 17, 1991 by
and among Food 4 Less, Inc., the Company and the subsidiaries of the
Company (incorporated herein by reference to Exhibit 10.20 to the
Company's Annual Report on Form 10-K for the fiscal year ended June 29,
1991).
10.9 * Employment Agreement dated as of July 1, 1994 between Food 4 Less
Supermarkets, Inc. and Harley DeLano.
10.10 * Employment Agreement dated as of July 1, 1994 between the Food 4 Less
Supermarkets, Inc. and Greg Mays.
12 Statement regarding computation of ratio of earnings to fixed charges.
21 Subsidiaries of Food 4 Less Supermarkets, Inc.
27 Financial Data Schedule.
</TABLE>
E-5
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
YUCAIPA HOLDING COMPANY
1. The name of this corporation is:
Yucaipa Holding Company
2. The address of its registered office in the State of Delaware is 229
South State Street in the City of Dover, County of Kent. The name of its
registered agent at such address is The Prentice-Hall Corporation System, Inc.
3. The nature of the business or purposes to be conducted or promoted is to
engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
4. The total number of shares of stock which the corporation shall have
authority to issue is one hundred thousand (100,000); and the par value of each
share shall be ($0.01).
5. The name and mailing address of the incorporator is:
Sabrina W. Muntz
LATHAM & WATKINS
555 South Flower Street
Los Angeles, California 90071
6. In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter or repeal the
bylaws of the corporation.
<PAGE> 2
7. Election of directors need not be by written ballot unless the bylaws of
the corporation shall so provide.
8. No director of this corporation shall be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of the law, (iii) under Section 174 of the General
Corporation Law of Delaware, or (iv) for any transaction from which the
director derived an improper personal benefit.
I, THE UNDERSIGNED, being the sole incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, herein declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 20th day of April, 1989.
/s/ SABRINA W. MUNTZ
---------------------------------
Sabrina W. Muntz
Incorporator
<PAGE> 3
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
YUCAIPA HOLDING COMPANY
YUCAIPA HOLDING COMPANY, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That, by written consent of the Board of Directors of said
corporation as of June 7, 1989, resolutions were duly adopted setting forth the
proposed amendments to the Certificate of Incorporation of said corporation.
The resolutions setting forth the proposed amendments are as follows:
RESOLVED, that Paragraph 1 of the Certificate of Incorporation of
this corporation be amended to read as follows:
"1. The name of this corporation is: Food 4 Less Supermarkets,
Inc."
RESOLVED, that Paragraph 4 of the Certificate of Incorporation of
this corporation be amended to read as follows:
"4. The total number of shares of stock which the corporation
shall have authority to issue is one million one hundred thousand
(1,100,000); and the par value of each share shall be ($0.01)."
SECOND: That said corporation has not received any payment or other
consideration for any of its stock.
THIRD: That the foregoing amendments to the Certificate of Incorporation
have been approved by the Board
<PAGE> 4
of Directors of this corporation by unanimous written consent,
pursuant to Section 241 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, YUCAIPA HOLDING COMPANY has caused this certificate to
be signed by its Chairman of the Board and attested by its Secretary as of the
7th day of June, 1989.
YUCAIPA HOLDING COMPANY
By: /s/ RONALD W. BURKLE
---------------------------
Ronald W. Burkle
Chief Executive Officer
ATTEST:
/s/ MARK A. RESNIK
- - -----------------------------
Mark A. Resnik, Secretary
<PAGE> 5
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
FOOD 4 LESS SUPERMARKETS, INC.
FOOD 4 LESS SUPERMARKETS, INC., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, DOES
HEREBY CERTIFY:
FIRST: That, by written consent of the Board of Directors of said
corporation as of June 19, 1989, a resolution was duly adopted setting
forth a proposed amendment to the Certificate of Incorporation of said
corporation. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that Paragraph 4 of the Certificate of Incorporation of
this corporation be amended to read as follows:
"4. The total number of authorized shares of the Corporation is
as follows:
1,100,000 shares of Common Stock, par value $.01 per share; and
899,606 shares of Preferred Stock, par value $.01 per share.
The Preferred Stock shall be subject to the following preferences, rights
and privileges:
A. Designation of Shares.
----------------------
The preferred shares shall be designated and known as the "$5.67
Convertible Preferred Stock" (hereinafter referred to as the "Preferred
Stock").
<PAGE> 6
B. Number of Shares.
-----------------
The number of shares constituting the Preferred Stock shall be 899,606
shares.
C. Cumulative, Non-Participating Cash Dividends.
---------------------------------------------
The holders of the outstanding Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors of the Corporation, out
of any assets at the time legally available therefor, dividends at the rate of
$.54 per share of the Preferred Stock per annum, and no more, payable in cash
on each anniversary of the original issuance of the Preferred Stock. Such
dividends shall accrue ratably throughout the Corporation's Fiscal Year whether
or not earned or declared. Such dividends shall be cumulative so that if such
dividends in respect of any previous annual dividend period and for the current
annual dividend period at said rate per share per annum shall not have been
paid on or declared and set apart for all shares of the Preferred Stock at the
time outstanding, the deficiency shall be fully paid on or declared and set
apart for such shares before the Corporation makes any Distribution (as
hereinafter defined) to holders of Common Stock. "Distribution" in this
Paragraph C means the transfer of cash or property without consideration,
whether by way of dividend or otherwise or the purchase or redemption of shares
of the Corporation for cash or property, including any such transfer, purchase,
or redemption by a subsidiary of the Corporation. The time of any Distribution
by way of dividend shall be the date of declaration thereof and the time of any
Distribution by purchase or redemption of shares shall be the day cash or
property is transferred by the Corporation, whether or not pursuant to a
contract of an earlier date; provided that where a negotiable debt security is
issued in exchange for shares the time of the Distribution is the date when the
Corporation acquires the shares in such exchange.
D. Liquidation Preferences.
------------------------
In the event of a voluntary or involuntary liquidation, dissolution, or
winding up of the Corporation, the holders of the Preferred Stock shall be
entitled to receive after payment of creditors, out of the assets of the
Corporation, whether such assets are capital or surplus of any nature, an
amount equal to $5.67 per share of Preferred Stock and a further amount equal
to any dividends accrued and unpaid thereon, as provided in Paragraph C hereof,
to the date that payment is made available to the holders of Preferred Stock
whether earned or declared or not, and no more, before any payment shall be
made or any assets distributed to the holders of Common Stock.
2
<PAGE> 7
If upon such liquidation, dissolution, or winding up, the assets thus
distributed among the holders of Preferred Stock shall be insufficient to
permit the payment to such holders of the full preferential amounts aforesaid,
then the entire assets of the Corporation to be distributed shall be
distributed ratably among the holders of Preferred Stock. In the event of any
such voluntary or involuntary liquidation, dissolution, or winding up of the
Corporation, subject to all of the preferential rights of the holders of
Preferred Stock on distribution or otherwise, the holders of Common Stock shall
be entitled to receive, ratably, all remaining assets of the Corporation.
A consolidation or merger of the Corporation with or into any other
corporation or corporations, or a sale of all or substantially all of the
assets of the Corporation, shall not be deemed to be a liquidation,
dissolution, or winding up with the meaning of this paragraph.
E. Voting Rights.
--------------
Except as otherwise provided by law, or by this Certificate of
Incorporation, the holders of shares of issued and outstanding Common Stock of
the Corporation shall have and possess the exclusive voting rights and powers.
However, upon the occurrence of any of the following events at any time
when any shares of the Preferred Stock are outstanding:
(i) two (2) or more annual dividend(s), whether consecutive or not, on
the Preferred Stock shall be in arrears for a period of six (6) months or
more, in whole or in part; or
(ii) the Corporation shall breach in any respect any of the provisions
of Paragraph H hereof;
THEN upon written notice from the holders of sixty-six and two-thirds percent
(66-2/3%) of the Preferred Stock to the Corporation, the holders of the
Preferred Stock shall be vested with voting rights entitling such holders to
elect two members of the Board of Directors. At such time as all conditions
which resulted in the holders of the Preferred Stock being entitled to elect
members of the Board of Directors are cured, the rights of the holders of the
Preferred Stock to elect members of the Board of Directors shall cease and the
voting rights of the holders of the Common Stock to elect all of the members of
the Board of Directors shall be immediately re-instated. Upon any subsequent
occurrence of the aforementioned events enumerated in (i) and (ii) above, the
holders of sixty-six and two-thirds percent (66-2/3%) of the Preferred Stock
and the holders of the Common Stock respectively shall have the same
3
<PAGE> 8
rights as are set forth herein, subject to renewal from time to time upon the
same terms and conditions.
At any time after the voting power to elect certain members of the Board
of Directors shall have become vested in the holders of the Preferred Stock as
provided in this Paragraph E, the President or Secretary of the Corporation
may, and upon the request of the record holders of at least sixty-six and
two-thirds percent (66-2/3%) of the shares of Preferred Stock then outstanding
addressed to the Secretary at the principal executive office of the Corporation
shall, call a special meeting of the holders of the Common Stock and of the
Prefered Stock for the election of directors, to be held at the place and upon
the notice provided in the By-Laws of the Corporation for the holding of annual
meetings, except that the notice for such meetings shall be not more than
fifteen (15) days. If such meeting shall not be so called within three (3) days
after personal service of the request, or within five (5) days after mailing of
the same by certified or registered mail within the United States of America,
then a person designated by the record holders of at least sixty-six and
two-thirds percent (66-2/3%) of the shares of Preferred Stock then outstanding
may call such meeting at the place and upon the notice above provided, and for
that purpose shall have access to the stock books of the Corporation. At any
meeting so called or at any annual meeting held while the holders of the
Preferred Stock have the voting power to elect certain members of the Board of
Directors, the holders of a majority of the then outstanding shares of both the
Common Stock and the Preferred Stock, present in person or by proxy, shall be
sufficient to constitute a quorum for the election of directors as herein
provided. The terms of office of all persons who are directors of the
Corporation at the time of such meeting shall terminate upon the election at
such meeting by the holders of the Preferred Stock and the Common Stock of a
number of directors they are respectively entitled to elect, and the persons so
elected as directors by the holders of each class of stock shall constitute the
duly elected directors of the Corporation.
F. Optional Redemption.
--------------------
The Corporation, at the option of the Board of Directors, may at any time
after the date of issuance of the Preferred Stock, redeem the whole or any part
of the outstanding Preferred Stock. The Redemption Price for such optional
redemption shall be:
$7.37 per share prior to May 22, 1990,
$7.94 per share after May 22, 1990, but prior to May 22, 1991,
4
<PAGE> 9
$8.50 per share after May 22, 1991, but prior to May 22, 1992,
$8.50, plus the product of $.047 and the number of months elapsed
since May 22, 1992, per share after May 22, 1992;
decreased by (i) an amount equal to the aggregate of all dividends
theretofore paid on the outstanding Preferred Stock of Food 4 Less, Inc., a
Delaware corporation, since the date of issuance of such Preferred Stock on May
22, 1987, and (ii) except with respect to any redemption after May 22, 1992, an
amount equal to the product of $.047 and the number of months until the next
May 22, such sum being hereinafter sometimes referred to as the "Redemption
Price." In case of the redemption of a part only of the outstanding Preferred
Stock, the Corporation shall designate pro rata or by lot the shares to be
--- ----
redeemed. Less than all of the Preferred Stock at any time outstanding may not
be redeemed until all dividends accrued and unpaid upon all shares of the
Preferred Stock outstanding shall have been paid for all past dividend period
on all the Preferred Stock then outstanding, other than the shares to be
redeemed, shall have been paid or declared and the full amount thereof set
apart for payment.
At least thirty (30) days' previous notice by mail, postage prepaid,
shall be given to the holders of record of the Preferred Stock to be redeemed,
such notice to be addressed to each such shareholder at the address of such
holder appearing on the books of the Corporation or given by such holder to the
Corporation for the purpose of notice, or if no such address appears or is so
given, at the place where the principal office of the Corporation is located.
Such notice shall state the date fixed for redemption, the Redemption Price,
and shall call upon such holder to surrender to the Corporation on said date at
the place designated in the notice such holder's certificate or certificates
representing the shares to be redeemed. On or after the date fixed for
redemption as stated in such notice, each holder of the Preferred Stock called
for redemption shall surrender the certificate evidencing such shares to the
Corporation at the place designated in such notice and shall thereupon be
entitled to receive payment of the Redemption Price. If less than all the
shares represented by any such surrendered certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares. If such notice
of redemption shall have been duly given, and if on the date fixed for
redemption funds necessary for the redemption shall be available therefor,
then, notwithstanding that the certificates evidencing any Preferred Stock so
called for redemption shall not have been surrendered, the dividends with
respect to shares so called for redemption shall forthwith after such date
cease and terminate, except only the right of the holders to receive the
Redemption Price
5
<PAGE> 10
without interest upon surrender of their certificates therefor.
If, on or prior to any date fixed for redemption of the Preferred Stock
the Corporation deposits, with any bank or trust company in the State of
Kansas, as a trust fund, a sum sufficient to redeem, on the date fixed for
redemption therefor, the shares called for redemption, with irrevocable
instructions and authority to the bank or trust company to give the notice of
redemption thereof (or to complete the giving of such notice if theretofore
commenced) and to pay, on or after the date fixed for redemption or prior
thereto, the Redemption Price of the shares to their respective holders upon
the surrender of their share certificates, then from and after the date of
deposit (although prior to the date fixed for redemption), the shares so called
shall be redeemed and dividends on those shares shall cease to accrue after the
date fixed for redemption. The deposit shall constitute full payment of the
shares to their holders and from and after the date of the deposit the shares
shall no longer be outstanding, and the holders thereof shall cease to be
shareholders with respect to such shares, and shall have no rights with respect
thereto except the right to receive from the bank or trust company payment of
the Redemption Price of the shares without interest, upon the surrender of
their certificates therefor. Any interest accrued on any funds so deposited
shall be the property of, and paid to, the Corporation. If the holders of the
Preferred Stock, so called for redemption shall not, at the end of seven years
from the date fixed for redemption thereof, have claimed any funds so
deposited, such bank or trust company shall thereafter be relieved of all
responsibility in respect thereof to such holders and such holders shall look
only to the Corporation for payment of the Redemption Price.
G. Conversion.
-----------
The holders of the Preferred Stock shall have conversion rights as follows:
1. The Preferred Stock shall be convertible at any time or from time
to time at the option of the respective holders of the shares of the
outstanding Preferred Stock at the office of the Corporation or any
transfer agent for such shares, into fully paid and nonassessable shares of
Common Stock (calculated to the nearest one-hundredth of a share, fractions
of less than one-hundredth of a share being disregarded) of the
Corporation, at the conversion price in effect at the time of conversion
determined as hereinafter provided, each share of Preferred Stock being
taken at $5.67 for the purpose of such conversion. The price at which
shares of Common Stock shall be deliverable upon conversion (herein called
the "Conversion Price") shall be initially
6
<PAGE> 11
one hundred nine dollars seventy five cents ($109.75) per share of Common
Stock. Such initial Conversion Price shall be subject to adjustment from
time to time in certain instances, as hereinafter provided. The
Corporation shall make no payment or adjustment on account of any
dividends accrued on the Preferred Stock surrendered for conversion.
2. Before any shares of Preferred Stock may be converted into Common
Stock at the option of the holder, the holder must surrender the
certificate or certificates for those shares, duly endorsed in blank or
accompanied by proper instruments of transfer, at the office of the
Corporation or of any transfer agent for the Preferred Stock, and shall
give written notice to the Corporation at such office that such holder
elects to convert the same and shall state in writing therein the name or
names in which such holder wishes the certificate or certificates for
Common Stock to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder of Preferred
Stock, or to such holder's nominee or nominees, certificates for the number
of full shares of Common Stock to which such holder shall be entitled, as
aforesaid, together with a script certificate or cash in lieu of any
fraction of a share as hereinafter provided. Such conversion shall be
deemed to have been made as of the date of such surrender of the Preferred
Stock to be converted, and the person or persons entitled to receive the
Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such Common Stock on said date.
3. If the Conversion Price in effect immediately prior to the close of
business on any date shall exceed by as much as ten cents ($.10) the amount
determined at the close of business on such date by dividing: (i) a sum
equal to (x) one hundred nine dollars seventy five cents ($109.75)
multiplied by the number of shares of Common Stock outstanding on the date
of issuance of the shares of Preferred Stock plus (y) the aggregate of the
amounts of all consideration received by the Corporation upon all issues of
shares of Common Stock after the date of issuance of the Preferred Stock,
by (ii) the total number of outstanding shares of Common Stock, then the
Conversion Price shall be reduced effective at the close of business on
such date, by the largest multiple of ten cents ($.10) contained in the
amount by which such Conversion Price shall exceed the amount so
determined.
For the purposes of this subparagraph 3, the following provisions
shall be applicable:
(a) If the Corporation shall issue or sell for cash shares of
Common Stock, or any shares or obligations convertible into or
exchangeable for shares of Common Stock, the consideration received by
the Corporation therefor shall
7
<PAGE> 12
be deemed to be the amount of cash received, before deducting
therefrom any commissions or expenses paid by the Corporation for any
underwriting of, or otherwise in connection with, the issue or sale
thereof. If the Corporation shall issue or sell such securities to an
underwriter without payment of any commission, the consideration
received by the Corporation therefor shall be deemed to be the full
amount at which such securities are initially offered by the
underwriter to the public, unless the difference between the price of
said securities, rights, or options to such underwriter and said
initial public offering price exceeds eight percent (8%) of said price
to the underwriter, in which event the consideration received by the
Corporation therefor shall be deemed to be said price to the
underwriter, plus eight percent (8%) of said price to the underwriter.
(b) If the Corporation shall issue (otherwise than upon conversion
or exchange of obligations or shares of stock of the Corporation)
additional shares of Common Stock for a consideration other than cash or
a consideration partly other than cash, the amount of the consideration
other than cash received by the Corporation for such shares shall be
deemed to be the value of such consideration as determined by the Board
of Directors.
(c) If the Corporation shall issue additional shares of Common
Stock, not exceeding in the aggregate 9.9 percent (9.9%) such shares as
constituted on the date of issuance of the Preferred Stock (subject to
adjustment in case of a subdivision or combination of such Common Stock
or of a dividend in such shares declared upon such Common Stock),
pursuant to stock or option plans for officers or employees of the
Corporation, for a consideration per share (whether cash, other than
cash, or partly other than cash) less than the Conversion Price in
effect immediately prior to the issuance thereof, the consideration per
share received by the Corporation for such share shall be deemed to be
the Conversion Price in effect immediately prior to the issuance
thereof.
(d) If the Corporation shall issue in any manner any rights to
subscribe for or to purchase Common Stock or any options for the
purchase of Common Stock (other than the issuance referred to in clause
(c) above) at a consideration per share (as computed below) less than
the Conversion Price in effect immediately prior to the date of the
offering of such rights or the granting of such options, as the case may
be, all Common Stock which the holders of such rights or options shall
be entitled to subscribe for or purchase pursuant to such rights or
options shall be deemed to be issued or sold as of the date of the
offering of such rights or the granting of such options, as the case may
be, and the minimum aggregate consideration named in such rights or
options for the Common Stock covered thereby, plus the
8
<PAGE> 13
consideration, if any, received by the Corporation for such
rights or options, shall be deemed to be the consideration actually
received by the Corporation (as of the date of the offering of such
rights or the granting of such options, as the case may be) for the
issuance of such shares.
(e) If the Corporation shall issue in any manner any obligations or
any shares of the Corporation (other than the Preferred Stock) that
shall be convertible into or exchangeable for Common Stock, at a
consideration per share (as computed below) less than the Conversion
Price in effect immediately prior to the date such obligations or shares
are issued, all Common Stock issuable upon the conversion or exchange of
such obligations or shares shall be deemed to be issued as of the date
such obligations or shares are issued, and the amount of the
consideration received by the Corporation for such additional shares of
Common Stock shall be deemed to be the total of (i) the amount of
consideration received by the Corporation upon the issuance of such
obligations or shares, as the case may be, plus (ii) the minimum
aggregate consideration, if any, other than such obligations or shares,
receivable by the Corporation upon such conversion or exchange, except
in adjustment of interest and dividends.
(f) The amount of the consideration received by the Corporation
upon the issuance of any rights or options referred to in clause (d)
above, or upon the issuance of any obligations or shares which are
convertible or exchangeable as described in clause (e) above, and the
amount of the consideration, if any, other than such obligations or
shares so convertible or exchangeable, receivable by the Corporation
upon the exercise, conversion, or exchange thereof shall be determined
in the same manner provided in clauses (a) and (b) above with respect
to the consideration received by the Corporation in case of the
issuance of additional Common Stock; provided, however, that if such
obligations or shares of stock so convertible or exchangeable are
issued in payment or satisfaction of any dividend upon any stock of the
Corporation other than Common Stock, the amount of the consideration
received by the Corporation upon the original issuance of such
obligations or shares so convertible or exchangeable shall be deemed to
be the value of such obligations or shares, as of the date of the
adoption of the resolution declaring such dividend, as determined by
the Board of Directors at or as of that date. On the expiration of any
rights or options referred to in clause (d), or the termination of any
right of conversion or exchange referred to in clause (e), the
Conversion Price then in effect shall forthwith be readjusted to such
Conversion Price as would have obtained had the adjustments made upon
the issuance of such option, right, or convertible or exchangeable
securities been made upon the basis of the delivery of only the number
of shares of Common Stock actually delivered upon the
9
<PAGE> 14
exercise of such rights or options or upon the conversion or exchange
of such securities.
(g) If the Corporation shall issue additional Common Stock as a
dividend, the aggregate number of shares of Common Stock issued in
payment of such dividend shall be deemed to have been issued and to be
outstanding on the day next succeeding the record date for the
determination of stockholders entitled to such dividend and shall be
deemed to have been issued without consideration.
(h) The number of shares of Common Stock at any time outstanding
shall include all Common Stock then owned or held by or for the account
of the Corporation and shares issuable in respect of script certificates
issued in lieu of fractions of shares of Common Stock.
(i) Each share of Common Stock issued upon conversion of Preferred
Stock shall be deemed to have been issued for a consideration equal to
the Conversion Price in effect at the time of such issuance.
(j) If the Corporation shall at any time subdivide or combine the
outstanding shares of Common Stock, or shall issue as a dividend or
dividends on Common Stock such number of shares of Common Stock as shall
equal or aggregate ten percent (10%) or more of the number of shares of
Common Stock outstanding at the close of business on the date of
issuance of the Preferred Stock or on the date of the next preceding
adjustment pursuant to the provisions of this subparagraph 3, the amount
of ten cents ($.10) referred to above in this subparagraph 3 (or the
amount to which such amount may have been previously adjusted pursuant
to the provisions of this clause (j), shall be proportionately decreased
in the case of subdivision or dividend payable in shares of Common Stock
or increased in the case of combination, effective at the close of
business on the date of such subdivision or combination or of the
declaration of such dividend.
(k) The term dividend, as used in this subparagraph 3, shall mean a
dividend or other distribution upon shares of the Corporation; and, in
the event of a declaration of a dividend by the Corporation without the
fixing of a record date for the determination of shareholders entitled
thereto, the date fixed by applicable law for the determination of the
shareholders entitled thereto shall be deemed to be the record date.
4. If the Corporation shall at any time subdivide the outstanding
shares of Common Stock or shall issue as a dividend on such number of
shares of Common Stock as shall equal one percent (1%) or more of the
number of shares of Common Stock outstanding immediately prior to the
issuance of such dividend, the Conversion Price in effect immediately
10
<PAGE> 15
prior to such subdivision or the issuance of such dividend shall be
proportionately decreased, and in case the Corporation shall at any time
combine the outstanding shares of Common Stock, the Conversion Price in
effect immediately prior to such combination shall be proportionately
increased, effective at the close of business on the date of such
subdivision, dividend or combination, as the case may be. For the purposes
of this subparagraph 4 the date of issuance of any such dividend shall be
determined in accordance with clause (k) of subparagraph 3.
5. No fractional shares of Common Stock shall be issued upon the
conversion of Preferred Stock. If any fractional interest in a share of
Common Stock would, except for the provisions of this subparagraph 5 be
deliverable upon the conversion of any Preferred Stock, the Corporation
shall, in lieu of delivering the fractional share therefor, adjust such
fractional interest by payment to the holder of such converted Preferred
Stock of an amount in cash equal (computed to the nearest cent) to the
book value of such fractional interest as of the end of the Corporation's
last fiscal year.
6. Whenever the Conversion Price is adjusted, as herein provided, the
Corporation shall forthwith maintain at its principal executive office and
file with the transfer agent, if any, for Preferred Stock, a statement,
signed by the Chairman of the Board, or the President, or a Vice President
of the Corporation and by its chief financial officer or an Assistant
Treasurer, showing in reasonable detail the facts requiring such adjustment
and the Conversion Price after such adjustment. Such transfer agent shall
be under no duty or responsibility with respect to any such statement
except to exhibit the same from time to time to any holder of Preferred
Stock desiring an inspection thereof.
7. If there shall occur any capital reorganization or any
reclassification of the capital stock of the Corporation, consolidation or
merger of the Corporation with or into another Corporation, or the
conveyance of all or substantially all of the assets of the Corporation to
another Corporation, each share of Preferred Stock shall thereafter be
convertible into the number of shares or other securities or property to
which a holder of the number of shares of Common Stock of the corporation
deliverable upon conversion of such Preferred Stock would have been
entitled upon such reorganization, reclassification, consolidation, merger
or conveyance; and, in any such case, appropriate adjustment (as determined
by the Board of Directors) shall be made in the application of the
provisions herein set forth with respect to the rights and interests
thereafter of the holders of the Preferred Stock, to the end that the
provisions set forth herein (including provisions with respect to changes
in and other adjustments of the Conversion Price) shall
11
<PAGE> 16
thereafter be applicable, as nearly as reasonably may be, in relation to
any shares or other property thereafter deliverable upon the conversion of
the Preferred Stock.
8. The Corporation shall at all times reserve and keep available, out
of its authorized but unissued shares of Common Stock solely for the
purpose of effecting the conversion of the Preferred Stock, the full number
of shares of Common Stock deliverable upon the conversion of all Preferred
Stock from time to time outstanding. The Corporation shall from time to
time, in accordance with the laws of the State of Delaware, increase the
authorized amount of its Common Stock if at any time the authorized number
of shares of Common Stock remaining unissued shall not be sufficient to
permit the conversion of all of the Preferred Stock at the time
outstanding.
9. The Corporation shall pay any and all issue and other taxes that
may be payable in respect of any issue or delivery of Common Stock on
conversion of Preferred Stock pursuant hereto. The Corporation shall not,
however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue and delivery of Common Stock in a name other
than that in which the Preferred Stock so converted was registered, and no
such issue or delivery shall be made unless and until the person requesting
such issue has paid to the Corporation the amount of any such tax, or has
established to the satisfaction of the Corporation that such tax has been
paid.
10. Whenever reference is made in these provisions to the issue or
sale of Common Stock, the term "Common Stock" shall include any stock of
any class of the Corporation other than Preferred Stock, with a fixed limit
on dividends and a fixed amount payable in the event of any voluntary or
involuntary liquidation, dissolution, or winding up of the Corporation.
11. All certificates evidencing Preferred Stock surrendered for
conversion shall be appropriately cancelled on the books of the
Corporation, and the shares so converted represented by such certificates
shall be restored to the status of authorized but unissued Preferred Stock
of the Corporation.
H. Protective Provisions.
----------------------
As long as any shares of the Preferred Stock are outstanding, the
Corporation shall not, without the prior written approval of the holders of
sixty-six and two-thirds percent (66-2/3%) of the outstanding shares of the
Preferred Stock:
12
<PAGE> 17
1. Amend or repeal any provision of or add any provision to, the
Corporation's Certificate of Incorporation if such action would alter or
change the rights, preferences, privileges or powers of, or the
restrictions provided for the benefit of, any shares of the Preferred Stock
so as to affect the Preferred Stock adversely; or
2. Increase the authorized number of shares of the Preferred Stock
over 899,606; or
3. Authorize or create shares of any class of stock having any
preference or priority as to dividends or assets superior to or on a parity
with any such preference or priority of the Preferred Stock, or reissue or
authorize the reissuance of any shares of the Preferred Stock which have
been redeemed, or authorize or create shares of any class or any bonds,
debentures, notes, or other obligations convertible into or exchangeable
for, or having optional rights to purchase, any shares of the Corporation
having any such preference or parity; or
4. Reclassify any shares of Common Stock or any other shares of stock
hereafter created junior to the Preferred Stock as to dividends or assets
into the Preferred Stock or into shares having any preference or priority
as to dividends or assets superior to or on a parity with that of the
Preferred Stock; or
5. Make any provision in the Corporation's Certificate of
Incorporation or By-Laws fixing special qualifications of persons who may
be holders of shares of the Preferred Stock or who may be directors of the
Corporation or any restrictions upon the right to transfer or hypothecate
shares of the Preferred Stock, except any provisions required by law; or
6. Directly or indirectly retire, redeem, purchase, otherwise
acquire, or permit any subsidiary to do any of the foregoing, any shares of
any capital stock of the Corporation ranking on a parity with or junior to
the Preferred Stock; or
7. Declare, pay or make, with respect to any shares of capital stock
of the Corporation ranking junior to the Preferred Stock on liquidation,
any dividend or distribution (except in shares of, or warrants or rights to
subscribe for or purchase shares of the Corporation)."
SECOND: That the foregoing amendment to the Certificate of
Incorporation has been approved by the
13
<PAGE> 18
Board of Directors of this corporation by unanimous written consent,
pursuant to Section 242 of the Delaware General Corporation Law.
THIRD: The foregoing amendment to the Certificate of
Incorporation of this corporation was approved by the sole stockholder of
the issued and outstanding shares of Common Stock of this corporation by
written consent pursuant to Section 242 of the Delaware General
Corporation Law.
14
<PAGE> 19
IN WITNESS WHEREOF, FOOD 4 LESS SUPERMARKETS, INC. has caused this
Certificate to be signed by its Chairman of the Board and attested by its
Secretary this 21st day of June, 1989.
FOOD 4 LESS SUPERMARKETS, INC.
By: /s/ RONALD W. BURKLE
----------------------------
Ronald W. Burkle,
Chairman of the Board
Attest:
/s/ MARK A. RESNIK
- - -----------------------------
Mark A. Resnik, Secretary
15
<PAGE> 20
CERTIFICATE OF CHANGE OF ADDRESS OF
REGISTERED OFFICE AND OF REGISTERED AGENT
PURSUANT TO SECTION 134 OF TITLE 8
OF THE DELAWARE CODE
TO: DEPARTMENT OF STATE
Division of Corporations
Townsend Building
Federal Street
Dover, Delaware 19903
Pursuant to the provisions of Section 134 of Title 8 of the Delaware Code,
the undersigned Agent for service of process, in order to change the address of
the registered office of the corporations for which it is registered agent,
hereby certifies that:
1. The name of the agent is The Prentice-Hall Corporation System, Inc.
2. The address of the old registered office was 229 South State
Street, Dover, Kent County, Delaware 19901.
3. The address to which the registered office is to be changed is 32
Loockerman Square, Suite L-100, Dover, Kent County, Delaware 19901. The new
address will be effective on October 27, 1989.
4. The names of the corporations represented by said agent are set
forth on the list annexed to this certificate and made a part hereof by
reference.
IN WITNESS WHEREOF, said agent has caused this certificate to be signed on
its behalf by its Vice President and Assistant Secretary this 10th day of
October 1989.
THE PRENTICE-HALL CORPORATION SYSTEM, INC.
/s/ ALAN E. SPIEWAK
------------------------------------------
Alan E. Spiewak, Vice President
ATTEST:
/s/ RICHARD L. KUSHAY
- - ------------------------
Richard L. Kushay,
Assistant Secretary
<PAGE> 21
STATE OF DELAWARE -- DIVISION OF CORPORATIONS
CHANGE OF ADDRESS FILING FOR
PRENTICE-HALL CORPORATION SYSTEM, INC. AS OF OCTOBER 27, 1989
DOMESTIC
<TABLE>
<S> <C> <C>
2193915 Lisa Newmann Enterprises, Inc. 04/19/1989 D DE
2193919 H-Sub 40, Inc. 04/19/1989 D DE
2193920 H-Sub 39, Inc. 04/19/1989 D DE
2193921 H-Sub 37, Inc. 04/19/1989 D DE
2193922 Excalibur Entertainment, Inc. 04/18/1989 D DE
2193923 H-Sub 38, Inc. 04/19/1989 D DE
2193924 H-Sub 35, Inc. 04/19/1989 D DE
2193926 H-Sub 36, Inc. 04/19/1989 D DE
2193928 H-Sub 34, Inc. 04/19/1989 D DE
2193932 H-Sub 33, Inc. 04/19/1989 D DE
2193936 Amarillo Chalet, Inc. 04/19/1989 D DE
2193938 H-Sub 32, Inc. 04/19/1989 D DE
2193978 Gem Industries Financial Corp. 04/19/1989 D DE
2193992 UAF Charter Sales Inc. 04/20/1989 D DE
2194005 Detroit Tool Group, Inc. 04/20/1989 D DE
2194006 Fusion U.S.A. Inc. 04/20/1989 D DE
2194008 Handmade Films, Inc. 04/20/1989 D DE
2194010 WSL Holdings Inc. 04/20/1989 D DE
2194013 Claire Broadcasting Corp. 04/20/1989 D DE
2194016 Energy Investment Advisors Corporation 04/20/1989 D DE
2194018 Molenco, Inc. 04/20/1989 D DE
2194020 25 Barclay Corp. 04/20/1989 D DE
2194022 Harris-SL Corp. 04/20/1989 D DE
2194024 APS Freehold, Inc. 04/20/1989 D DE
2194033 Sunrise Pontiac-GMC Truck, Inc. 04/20/1989 D DE
2194034 American Building Components Company, Inc. 04/20/1989 D DE
2194063 Emmi International Paris, Inc. 04/20/1989 D DE
2194065 Gold Creations, Inc. 04/20/1989 D DE
2194138 Herbco Enterprises, Inc. 04/21/1989 D DE
2194156 Food 4 Less Supermarkets, Inc. 04/21/1989 D DE
2194158 WI Holdings Corp. 04/21/1989 D DE
2194159 Transinvest Capital Corporation 04/21/1989 D DE
2194160 US Partners, Inc. 04/21/1989 D DE
2194161 Global Partners Investors Corp. 04/21/1989 D DE
2194164 Integron Corp. 04/21/1989 D DE
2194168 American Medical Investments, Inc. 04/21/1989 D DE
2194170 Franklin Polymers, Inc. 04/21/1989 D DE
2194172 Auction Television Network, Inc. 04/21/1989 D DE
2194175 Compu Trac Software, Inc. 04/21/1989 D DE
2194179 Oak Broadcasting, Inc. 04/21/1989 D DE
2194217 Macrotech Fluid Sealing, Inc. 04/21/1989 D DE
2194218 Deffuts Acquisition Corp. 04/21/1989 D DE
2194219 The Debt-For-Development Foundation 04/21/1989 D DE
2194230 Crowley Cellular Telecommunications Bloomington, Inc. 04/21/1989 D DE
2194232 Global Environmental Contractors Inc. 04/21/1989 D DE
2194235 Shasta Sweetner Corp. 04/21/1989 D DE
</TABLE>
<PAGE> 22
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
FOOD 4 LESS SUPERMARKETS, INC.
Food 4 Less Supermarkets, Inc., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That, by written consent of the Board of Directors of
the Corporation as of June 6, 1991, resolutions were duly adopted setting
forth a proposed amendment to the Certificate of Incorporation of the
Corporation, declaring said amendment to be advisable and directing the
officers of the Corporation to submit said amendment to the stockholders of
the Corporation for consideration thereof. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that the first sentence of Paragraph 4 of the
Certificate of Incorporation of the Corporation be amended to read
as follows:
"4. The total number of authorized shares of the
Corporation is as follows:
1,600,000 shares of Common Stock, par value $.01 per share; and
899,606 shares of Preferred Stock, par value $.01 per share.
SECOND: That, thereafter, the above amendment was duly adopted
by the written consent of the holder of a majority of the issued and
outstanding shares of capital stock of the Corporation in accordance with
Section 228 of the General Corporation Law of the State of Delaware. Prompt
written notice
<PAGE> 23
in accordance with Section 228 of the General Corporation Law of the State of
Delaware has been given to those stockholders of the Corporation who have not
consented in writing.
THIRD: That the above amendment was duly adopted in accordance
with the provisions of Section 242 of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, Food 4 Less Supermarkets, Inc. has caused
this certificate to be signed by Ronald W. Burkle, its President, and attested
by Mark A. Resnik, its Secretary, this 11th day of June, 1991.
FOOD 4 LESS SUPERMARKETS, INC.
By: /s/ Ronald W. Burkle
--------------------------
Ronald W. Burkle
President
ATTEST:
/s/ Mark A. Resnik
- - -------------------------
Mark A. Resnik
Secretary
2
<PAGE> 24
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
FOOD 4 LESS SUPERMARKETS, INC.
FOOD 4 LESS SUPERMARKETS, INC., a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That, by unanimous written consent of the Board of
Directors of said corporation as of December 23, 1992, a resolution was duly
adopted setting forth a proposed amendment to the Certificate of Incorporation
of said corporation. The resolution setting forth the proposed amendment is as
follows:
"RESOLVED, that Paragraph 4 of the Certificate of
Incorporation of this corporation be amended by deleting the whole of
Paragraph 4 thereof and replacing in lieu and instead thereof a new
paragraph 4 to read in its entirety as follows:
"4. The total number of authorized shares of the
Corporation is as follows:
1,600,000 shares of Common Stock, par value $.01 per share; and
200,000 shares of Preferred Stock, par value $.01 per share.
The Board of Directors is expressly authorized at any time,
and from time to time, to provide for the issuance of shares of preferred stock
in one or more series, with such voting powers, full or limited or without
voting powers, and with such powers, designations, preferences and relative,
participating, optional or other rights, and qualifications, limitations or
restrictions thereof, as shall be stated and expressed in the resolution or
resolutions providing for the issue thereof adopted by the Board of Directors,
and as are not stated and expressed in this Certificate of Incorporation, or
any amendment thereto, including (but without limiting the generality of the
foregoing) the following:
(i) the designation of and number of shares constituting such
series;
(ii) the dividend rate of such series, the conditions and dates
upon which such dividends shall be payable, the preference or
relation which such dividends shall bear to the dividends
payable on any other class or classes or on any other series
of any other class or classes of capital stock, and whether
such dividends shall be cumulative or noncumulative;
<PAGE> 25
(iii) whether the shares of such series shall be subject to
redemption by the Corporation, and, if made subject to such
redemption, the times, prices and other terms and conditions
of such redemption;
(iv) the terms and amounts of any sinking fund provided for the
purchase or redemption of the shares of such series;
(v) the extent, if any, to which the shares of such series shall
be convertible into or exchangeable for shares of any other
class or classes or of any other series of any class or
classes of capital stock of the Corporation, and, if provision
be made for conversion or exchange, the time, prices, rates,
adjustments, and other terms and conditions of such conversion
or exchange;
(vi) the extent, if any, to which the holders of the shares of such
series shall be entitled to vote as a class or otherwise with
respect to the election of directors or otherwise;
(vii) the restrictions, if any, on the issue or reissue of any
additional preferred stock; and
(viii) the rights of the holders of the shares of such series upon
the dissolution of, or upon the distribution of assets of, the
Corporation."
SECOND: That the foregoing amendment to the Certificate of
Incorporation was duly adopted by the Corporation with consent of the holders
of a majority of the issued and outstanding shares of capital stock of the
Corporation in accordance with Section 228 of the General Corporation Law of
the State of Delaware. Prompt written notice in accordance with Section 228 of
the General Corporation Law of the State of Delaware has been given to those
stockholders of the Corporation who have not consented in writing.
THIRD: That the foregoing amendment to the Certificate of
Incorporation was duly adopted in accordance with the provisions of Section 242
of the General Corporation Law of the State of Delaware.
FOURTH: This Certificate of Amendment shall become effective
at the close of business on the day of the filing hereof in the office of the
Secretary of State of the State of Delaware.
2
<PAGE> 26
IN WITNESS WHEREOF, Food 4 Less Supermarkets, Inc. has caused
this certificate to be signed by George G. Golleher, its President, and
attested by Mark A. Resnik, its Secretary, this 23rd day of December, 1992.
FOOD 4 LESS SUPERMARKETS, INC.
By: /s/ GEORGE G. GOLLEHER
-------------------------------------
George G. Golleher
President
ATTEST:
/s/ MARK A. RESNIK
- - -------------------------------
Mark A. Resnik, Secretary
3
<PAGE> 27
FOOD 4 LESS SUPERMARKETS, INC.
CERTIFICATE OF DESIGNATIONS
_______________________
Pursuant to Section 151
of the General Corporation Law of the State of Delaware
_______________________
Food 4 Less Supermarkets, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware, does by
its president and its secretary and under its corporate seal hereby certify
that pursuant to the provisions of Section 151 of the General Corporation Law
of the State of Delaware, its Board of Directors, by unanimous written consent
dated December 23, 1992, duly adopted the following resolution, establishing
the rights, preferences, privileges and restrictions of a series of preferred
stock of the corporation which resolution remains in full force and effect as
of the date hereof:
"WHEREAS, the Board of Directors of Food 4 Less Supermarkets,
Inc. (the "Corporation") is authorized, within the limitations and restrictions
stated in the Certificate of Incorporation, to fix by resolution or resolutions
the designation of each series of preferred stock and the powers, designations,
preferences and relative, participating, optional or other rights, if any, and
the qualifications, limitations or restrictions thereof, including, without
limiting the generality of the foregoing, such provisions as may be desired
concerning voting, redemption, dividends, dissolution or the distribution of
assets, conversion or exchange, and such other subjects or matters as may be
fixed by resolution or resolutions of the Board of Directors under the General
Corporation Law of the State of Delaware; and
WHEREAS, it is the desire of the Board of Directors of the
Corporation, pursuant to its authority as aforesaid, to authorize and fix the
terms of a series of preferred stock and the number of shares constituting such
series;
NOW, THEREFORE, BE IT RESOLVED, that pursuant to Paragraph 4
of the Certificate of Incorporation, there is hereby authorized such series of
preferred stock on the terms and with the provisions herein set forth:
<PAGE> 28
1. Designation.
The series of preferred stock authorized hereby shall be
designated as the "Series A Preferred Stock" (the "Series A Preferred Stock").
The number of shares constituting such series shall be 120,000. The par value
of the Series A Preferred Stock shall be $.01 per share.
2. Rank.
The Series A Preferred Stock shall, with respect to dividend
rights and rights on liquidation, winding up and dissolution, rank prior to all
classes of common stock of the Corporation, and any other series of preferred
stock subsequently established by the Board of Directors which ranks junior to
the Series A Preferred Stock (collectively, the "Junior Securities"). All
equity securities of the Corporation with which the Series A Preferred Stock
rank on a parity are collectively referred to as the "Parity Securities" and
all equity securities of the Corporation to which the Series A Preferred Stock
ranks junior, whether with respect to dividends or upon liquidation,
dissolution, winding-up or otherwise, are collectively referred to as the
"Senior Securities." The Series A Preferred Stock will be subject to the
issuance of Junior Securities, Parity Securities and Senior Securities
although, as of the date hereof, the Certificate of Incorporation does not
authorize any classes of capital stock other than the Common Stock and the
Preferred Stock and there are no other outstanding series of preferred stock
other than the Series A Preferred Stock.
3. Voting Rights.
Except as otherwise required by law or set forth in the
Certificate of Incorporation, each share of Series A Preferred Stock shall be
entitled to one (1) vote, and the Common Stock and the Series A Preferred Stock
shall vote together as one class, on any matter presented to the stockholders
for their vote or approval, including the election of directors.
4. Liquidation Preferences.
(a) In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, before any
payment or distribution of the assets of the Corporation (whether capital or
surplus) shall be made to or set apart for the holders of the Common Stock upon
liquidation, dissolution or winding up, the holders of the Series A Preferred
Stock shall be entitled to receive, after payment of creditors, an amount equal
to $1,000 per share of Series A Preferred Stock (the "Liquidation Preference
Amount"). In the event of any such voluntary or involuntary liquidation,
dissolution, or winding up of the Corporation, subject to all of the
preferential rights of
2
<PAGE> 29
the holders of the Series A Preferred Stock on distribution or otherwise, the
holders of the Common Stock shall be entitled to receive, ratably, all
remaining assets of the Corporation.
(b) If upon any such liquidation, dissolution, or winding
up of the Corporation, the remaining assets of the Corporation available for
distribution to its stockholders shall be insufficient to pay the holders of
the Series A Preferred Stock the Liquidation Preference Amount to which such
holders shall be entitled, the holders of the Series A Preferred Stock shall
share ratably in any distribution of the remaining assets and funds of the
Corporation in proportion to the respective amounts which would otherwise be
payable in respect of the shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in full.
(c) Neither the voluntary sale, conveyance, exchange or
transfer of all or substantially all of the property or assets of the
Corporation, nor the consolidation or merger of the Corporation with one or
more other corporations shall be deemed a liquidation, dissolution, or winding
up, voluntary or involuntary, within the meaning of this paragraph.
5. Dividends.
(a) The holders of the shares of Series A Preferred Stock
will be entitled to receive, when, as and if declared by the Board of
Directors, out of funds legally available for the payment of dividends,
dividends at a rate of $152.50 per share per annum. Dividends will be
cumulative and will accrue from the date of issuance of the Series A Preferred
Stock and be payable, if declared by the Board of Directors, on such date as
the Board of Directors shall determine (the "Dividend Payment Date").
Dividends, whether or not declared, will cumulate, without interest, until
declared and paid, which declaration and payment may be for all or part of the
then accumulated dividends. Dividends will be computed on the basis of a
360-day year comprised of twelve 30-day months. Each such dividend shall be
payable to holders of record as they appear on the stock books of the
Corporation on such record dates, not less than ten (10) nor more than sixty
(60) days preceding the Dividend Payment Date, as shall be fixed by the Board
of Directors. Accrued and unpaid dividends, if any, shall not bear interest.
Dividends shall cease to accrue in respect of shares of Series A Preferred
Stock on the date of their redemption or repurchase by the Corporation.
(b) The Corporation may pay dividends on any Dividend
Payment Date occurring on or before December 31, 1997 by issuing additional
shares of Series A Preferred Stock valued at $1,000 per share. In no event
shall any dividend hereunder be payable in cash prior to December 31, 1997.
3
<PAGE> 30
(c) In no event shall the Corporation pay any dividends
on the Series A Preferred Stock if such dividend would result in a Default or
Event of Default under the Corporation's Credit Agreement dated as of June 17,
1991, as amended (the "Credit Agreement") or under the indentures governing the
Corporation's 10.45% Senior Notes due 2000 and the 13-3/4% Senior Subordinated
Notes due 2001 (the "Indentures").
(d) All dividends paid with respect to shares of the
Preferred Stock shall be paid pro rata to the holders entitled thereto.
(e) During such time as any shares of the Series A
Preferred Stock are outstanding, the Corporation shall not declare, pay or set
apart for payment any dividend on any of the Junior Securities unless full
cumulative dividends shall have been paid or set apart for such payment on the
Series A Preferred Stock. If full dividends are not so paid, the Series A
Preferred Stock shall share dividends pro rata with the Parity Securities.
6. Optional Redemption.
The Corporation, at the option of the Board of Directors, may
at any time after December 31, 1997, redeem the whole or any part of the
outstanding shares of Series A Preferred Stock. The redemption price for each
share of Series A Preferred Stock shall be 100% of the Liquidation Preference
Amount for each share of Series A Preferred Stock. In no event shall the
Corporation pay any dividends on the Series A Preferred Stock if such dividend
would result in a Default or Event of Default under the Corporation's Credit
Agreement or the Indentures.
7. Conversion.
The Series A Preferred Stock shall be convertible at any time
or from time to time at the option of the holders thereof into fully paid and
nonassessable shares of Common Stock of the Corporation (calculated to the
nearest one-hundredth of a share, fractions of less than one-hundredth of a
share being disregarded), at a conversion ratio of one share of Series A
Preferred Stock for one share of Common Stock, provided that at the time such
conversion is sought Food 4 Less Holdings, Inc. owns 100% of the outstanding
Common Stock of the Corporation."
4
<PAGE> 31
IN WITNESS WHEREOF, Food 4 Less Supermarkets, Inc. has caused
this certificate to be signed by George G. Golleher, its President, and
attested by Mark A. Resnik, its Secretary, this 23rd day of December, 1992, and
its corporate seal to be hereunto affixed.
FOOD 4 LESS SUPERMARKETS, INC.
?Corporate Seal#
By: /s/ GEORGE G. GOLLEHER
-------------------------------------
George G. Golleher
President
ATTEST:
/s/ MARK A. RESNIK
- - -------------------------------
Mark A. Resnik, Secretary
5
<PAGE> 1
EXHIBIT 10.4
FFL PARTNERS
10000 Santa Monica Boulevard
Fifth Floor
Los Angeles, CA 90067
September 14, 1994
Food 4 Less, Inc.
Food 4 Less Holdings, Inc.
Food 4 Less Supermarkets, Inc.
Falley's, Inc.
777 South Harbor Boulevard
La Habra, CA 90613
Gentlemen:
As you are aware, under Section 10.7 of the Falley's Inc.
Employee Stock Ownership Plan and Trust, as amended (the "ESOP"), ESOP
participants have certain put rights against Falley's, Inc. ("Falley's") with
respect to shares of the common stock, par value $.01, of Food 4 Less, Inc.
("F4L") which may be distributed from the ESOP. Under Section 6.6 of that
certain Stock Purchase Agreement dated July 22, 1988, we undertook on a
contingent basis to purchase F4L shares upon exercise of such put rights in the
event that F4L or Falley's were prohibited by the terms of their charter or
debt instruments from purchasing such shares.
Currently, there are no such prohibitions on the ability of
F4L or Falley's to purchase F4L shares. However, at your request, we have
agreed to waive the conditions precedent to the effectiveness of our obligation
to purchase F4L shares. Accordingly, we agree that, in the event that the put
option contemplated by Section 10.7 of the ESOP is exercised, we will fulfill
the obligations of F4L or Falley's, as the case may be, to purchase F4L shares
in a manner that complies with Section 10.7 of the ESOP and Section 409(h) of
the Internal Revenue Code of 1986, as amended (the "Code"), without regard to
the existence or non-existence of any prohibitions in the charter documents or
debt instruments of F4L or Falley's with respect to the purchase of such
shares. Our obligation hereunder shall be extinguished to the extent of the
exercise by the ESOP trustee of the right of the ESOP trust to repurchase any
F4L shares as contemplated by Section 10.7 of the ESOP.
In consideration of the extension by us of the undertaking set
forth in the foregoing paragraph, F4L and each of its subsidiaries which are
signatories to this letter agree that, in the event that the put option
contemplated by Section 10.7 of the ESOP is exercised, and whether or not there
exist any restrictions on the ability of such parties to fulfill their purchase
obligation under the put, such parties will give to us a right of first refusal
to purchase F4L shares which are the subject of such put exercise. Our right
of first refusal to purchase F4L shares will be on the same terms and
conditions as contemplated by the put option, and any purchase by us of such
shares will be made in a manner that complies with Section 10.7 of the ESOP and
Section 409(h) of the Code.
We shall have the right, in our sole discretion, to designate
another person or entity to purchase any F4L shares in accordance with the
terms of this letter, or otherwise to assign or to delegate
<PAGE> 2
to another person or entity our rights and obligations hereunder. No such
designation, assignment or delegation shall in anyway diminish or release us
from our obligations hereunder.
This letter is intended to amend the aforementioned provisions
of the Stock Purchase Agreement dated May 22, 1988, with such amendment to have
retroactive effect to the original date of the Stock Purchase Agreement.
Please indicate your confirmation of the foregoing agreement
by signing this letter, or a counterpart thereof, in the space provided
therefor below.
FFL PARTNERS
By: /s/ Mark A. Resnik
----------------------------
Name: Mark A. Resnik
Title: General Partner
Accepted and agreed to this
14 day of September, 1994:
FOOD 4 LESS, INC.
By: /s/ Mark A. Resnik
------------------------------
Name: Mark A. Resnik
Title: Vice President
FOOD 4 LESS HOLDINGS, INC.
By: /s/ Mark A. Resnik
------------------------------
Name: Mark A. Resnik
Title: Vice President
FOOD 4 LESS SUPERMARKETS, INC.
By: /s/ Mark A. Resnik
------------------------------
Name: Mark A. Resnik
Title: Vice President
FALLEY'S, INC.
By: /s/ Mark A. Resnik
------------------------------
Name: Mark A. Resnik
Title: Assistant Secretary
<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and
entered into as of July 1, 1994 by and between Food 4 Less Supermarkets, Inc.,
a Delaware corporation ("Employer") and Harley Delano ("Employee").
In consideration of the mutual covenants and conditions
contained herein, the parties agree as follows:
1. Term. Employer agrees to employ Employee and
Employee agrees to serve Employer, in accordance with the terms of this
Agreement, for a term of one (1) year (the "Term") beginning on the date on
which a Change of Control (as hereafter defined) of Employer occurs, if and
only if Employee is otherwise employed by Employer on the date such Change of
Control occurs and provided that such Change of Control occurs within one year
of the date hereof.
2. Salary. Employer shall pay Employee a base salary
for the Term in an amount equal to the amount of Employee's base salary with
Employer as of the commencement of the Term, payable in equal bi-weekly
installments, less state and federal income tax withholdings and other normal
employee deductions; provided, however, such base salary shall be not less than
$200,000.
3. Incentive Bonus.
(a) Regular Bonus. Employee shall be entitled to
an incentive bonus to be paid at such times as the Board shall determine and to
be based upon Employee's performance during the Term. Such incentive bonus
shall be calculated in accordance with the bonus program of Employer in effect
on the date the Term commences.
(b) Special Bonus. Subject to the conditions set
forth below, Employee shall have earned and Employer shall pay to Employee,
upon a Change of Control (provided Employee is otherwise employed by Employer
on such date), a special bonus in the amount of $75,000 in addition to all
other bonuses which may be earned by Employee under any other bonus program
established by Employer from time to time. Such special bonus if earned shall
be payable 30 days following the date on which the Change of Control occurs.
The special bonus shall only be earned by Employee if Employer has attained or
exceeded its EBITDA budget for the then current fiscal year of Employer and the
same store sales of Employer for such fiscal year shall be a negative five per
cent or better. EBITDA and same store sales shall be measured on a fiscal year
to date basis as of the date of the most recently ended accounting period of
Employer prior to the occurrence of the Change of Control; provided, however,
for purposes of calculating same store sales the first accounting period of the
fiscal year (ending July 24, 1994) shall be
<PAGE> 2
excluded.
4. Benefits.
(a) Fringe Benefits. Commencing on the date the
Term commences, Employee shall be entitled to all rights and benefits for which
he is otherwise eligible under any generally instituted insurance plans and
benefit plans of Employer.
(b) Expenses. During the Term, to the extent such
expenditures meet the requirements and the policies of Employer, Employer shall
reimburse Employee promptly for all reasonable travel, entertainment, parking,
business meeting and similar expenditures in pursuance and furtherance of
Employer's business.
5. Termination.
(a) Termination Due to Death or Resignation.
Employee's employment hereunder shall be terminated and, except as provided
below in this Section 5, all of his rights to receive salary, unearned bonuses,
and other benefits shall terminate upon the occurrence of (i) Employee's death,
(ii) Employee's resignation; or (iii) Employee's termination for cause.
(b) Termination Due to Disability. Employee's
employment hereunder and all of his rights to receive salary and other benefits
hereunder, may be terminated by Employer in the event that Employee has been
unable to perform substantially all of his duties under this Agreement for a
period of 90 days.
(c) Termination Without Cause. Subject to
compliance with the provisions of Section 5(d) of this Agreement, Employer
shall have the right to terminate Employee's employment under this Agreement
without cause at any time during the Term.
(d) Payments Upon Termination Without Cause. In the
event that Employee is terminated by Employer during the Term without cause
pursuant to Section 5(c) hereof following a Change of Control, Employee shall
be entitled to receive (i) payment of the greater of (x) the salary as provided
by Section 2 hereof for the period remaining in the Term at the time of such
termination, or (y) the amount otherwise payable to Employee under Employer's
severance policy then in effect, (ii) any and all benefits provided pursuant to
Section 4(a) for the remainder of the Term and (iii) any incentive bonus
provided by Section 3 which is earned in accordance with the incentive bonus
program of Employer and this agreement during the period prior to such
termination.
<PAGE> 3
6. Change of Control. The occurrence of any of the
following events shall constitute a Change of Control of Employer: (a) the
acquisition after the date hereof, in one or more transactions, of beneficial
ownership (within the meaning of Rule 13d-3(a)(1) under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) by any person or entity (other
than Employee) or any group of persons or entities (excluding Employee) who
constitute a group (within the meaning of Section 13(d)(3) of the Exchange Act)
of any securities such that as a result of such acquisition such person or
entity or group beneficially owns (within the meaning of Rule 13d-3(a)(1) under
the Exchange Act) directly or indirectly 51% or more of Employer's then
outstanding voting securities entitled to vote on a regular basis for a
majority of the Board of Directors of Employer; or (b) the sale of all or
substantially all of the assets of Employer (including without limitation, by
way of merger, consolidation, lease or transfer) in a transaction where
Employer or the beneficial owners (within the meaning of Rule 13d-3(a)(1) under
the Exchange Act) of common stock of Employer do not receive (i) voting
securities representing a majority of the voting power entitled to vote on a
regular basis for the Board of Directors of the acquiring entity or of an
affiliate which controls the acquiring entity, or (ii) securities representing
a majority of the equity interest in the acquiring entity or of an affiliate
which controls the acquiring entity, if other than a corporation; provided,
however, that the provisions of this Section 6 shall not apply to any transfer,
sale or disposition of shares of common stock to any person or persons who are
affiliates of F4L Supermarkets on the date hereof; or (c) the acquisition by
Employer or an affiliate of Employer of the stock or assets of a supermarket
chain which operates more than 100 stores in Southern California, or any other
combination of Employer or an affiliate of Employer with such a supermarket
chain.
7. Confidentiality. Employee acknowledges that, by
reason of his employment with Employer, he will learn or has learned trade
secrets and will obtain or has obtained other confidential information
concerning the business and policies of Employer and its subsidiaries.
Employee agrees that he will not divulge or otherwise disclose, directly or
indirectly, any such trade secrets or other confidential information concerning
the business or policies of Employer or any of its subsidiaries which he may
learn as a result of his employment during the Term or may have learned prior
thereto, except to the extent such information is lawfully obtainable from
public sources or such use or disclosure is (i) necessary to the performance of
this Agreement and in furtherance of Employer's best interests, (ii) required
by applicable laws, or (iii) authorized by Employer. The provisions of this
Section 7 shall survive the expiration, suspension, or termination, for any
reason, of this Agreement.
8. Miscellaneous.
<PAGE> 4
(a) Succession. This Agreement shall inure to the
benefit of and shall be binding upon Employer, its successors and assigns. The
obligations and duties of Employee hereunder shall be personal and not
assignable.
(b) Notices. Unless otherwise provided herein, any
notice, request, instruction or other document to be given hereunder by any
party to the others shall be in writing and delivered in person or by courier,
telegraphed, telexed or by facsimile transmission or mailed by certified mail,
postage prepaid, return receipt requested (such mailed notice to be effective
on the date of such receipt is acknowledged), as follows:
If to the Employee: At the last address on the records of
Employer.
If to the Employer: Food 4 Less Supermarkets, Inc.
777 South Harbor Boulevard
La Habra, California 90631
Attention: George Golleher, President
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
(c) Entire Agreement. This Agreement contains the
entire agreement of the parties relating to the subject matter hereof, and it
replaces and supersedes any prior agreements between the parties relating to
said subject matter.
(d) Waiver; Amendment. No provision hereof may be
waived except by a written agreement signed by the waiving party. The waiver
of any term or of any condition of this Agreement shall not be deemed to
constitute the waiver of any other term or condition. This Agreement may be
amended only by a written agreement signed by the parties hereto.
(e) Arbitration. Any disputes or controversies
arising under this Agreement shall be settled by arbitration in accordance with
the rules of the American Arbitration Association. The determination and
findings of such arbitrators shall be final and binding on all parties and may
be enforced, if necessary, in the courts of the State of California Code of
Civil Procedure, Section 1287.4.
(f) Remedies of Employer. Employee acknowledges
that the services he is obligated to render under the provisions of this
Agreement are of a special, unique, unusual, extraordinary and intellectual
character, which gives this Agreement peculiar value to Employer. The loss of
these services cannot be reasonably or adequately compensated in damages in
action at law and it would be difficult (if not impossible) to replace such
services. By reason thereof, Employee agrees and consents that if he violates
any of the material provisions of
<PAGE> 5
this Agreement, including, without limitation, Section 7 hereof, Employer, in
addition to any other rights and remedies available under this Agreement or
under applicable law, shall be entitled to seek injunctive relief, from a
tribunal of competent jurisdiction, restraining Employee from committing or
continuing any violation of this Agreement. The provisions of this Section
8(f) shall survive the termination of this Agreement for any reason.
(g) Severability. If this Agreement shall for any
reason be or become unenforceable by any party, this Agreement shall thereupon
terminate and become unenforceable by the other party as well. In all other
respects, if any provision of this Agreement is held invalid or unenforceable,
the remainder of this Agreement shall nevertheless remain in full force and
effect and, if any provision is held invalid or unenforceable with respect to
particular circumstances, it shall nevertheless remain in full force and effect
in all other circumstances.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
FOOD 4 LESS SUPERMARKETS, INC. EMPLOYEE
By: /s/ RONALD W. BURKLE /s/ HARLEY DELANO
----------------------- ----------------------
Ronald W. Burkle Harley Delano
Chief Executive Officer
By: /s/ GEORGE G. GOLLEHER
------------------------
George G. Golleher
President
<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and
entered into as of July 1, 1994 by and between Food 4 Less Supermarkets, Inc.,
a Delaware corporation ("Employer") and Greg Mays ("Employee").
In consideration of the mutual covenants and conditions
contained herein, the parties agree as follows:
1. Term. Employer agrees to employ Employee and
Employee agrees to serve Employer, in accordance with the terms of this
Agreement, for a term of one (1) year (the "Term") beginning on the date on
which a Change of Control (as hereafter defined) of Employer occurs, if and
only if Employee is otherwise employed by Employer on the date such Change of
Control occurs and provided that such Change of Control occurs within one year
of the date hereof.
2. Salary. Employer shall pay Employee a base salary
for the Term in an amount equal to the amount of Employee's base salary with
Employer as of the commencement of the Term, payable in equal bi-weekly
installments, less state and federal income tax withholdings and other normal
employee deductions; provided, however, such base salary shall be not less than
$250,000.
3. Incentive Bonus.
(a) Regular Bonus. Employee shall be entitled to
an incentive bonus to be paid at such times as the Board shall determine and to
be based upon Employee's performance during the Term. Such incentive bonus
shall be calculated in accordance with the bonus program of Employer in effect
on the date the Term commences.
(b) Special Bonus. Subject to the conditions set
forth below, Employee shall have earned and Employer shall pay to Employee,
upon a Change of Control (provided Employee is otherwise employed by Employer
on such date), a special bonus in the amount of $150,000 in addition to all
other bonuses which may be earned by Employee under any other bonus program
established by Employer from time to time. Such special bonus if earned shall
be payable 30 days following the date on which the Change of Control occurs.
The special bonus shall only be earned by Employee if Employer has attained or
exceeded its EBITDA budget for the then current fiscal year of Employer and the
same store sales of Employer for such fiscal year shall be a negative five per
cent or better. EBITDA and same store sales shall be measured on a fiscal year
to date basis as of the date of the most recently ended accounting period of
Employer prior to the occurrence of the Change of Control; provided, however,
for purposes of calculating same store sales the first accounting period of the
fiscal year (ending July 24, 1994) shall be
<PAGE> 2
excluded.
4. Benefits.
(a) Fringe Benefits. Commencing on the date the
Term commences, Employee shall be entitled to all rights and benefits for which
he is otherwise eligible under any generally instituted insurance plans and
benefit plans of Employer.
(b) Expenses. During the Term, to the extent such
expenditures meet the requirements and the policies of Employer, Employer shall
reimburse Employee promptly for all reasonable travel, entertainment, parking,
business meeting and similar expenditures in pursuance and furtherance of
Employer's business.
5. Termination.
(a) Termination Due to Death or Resignation.
Employee's employment hereunder shall be terminated and, except as provided
below in this Section 5, all of his rights to receive salary, unearned bonuses,
and other benefits shall terminate upon the occurrence of (i) Employee's death,
(ii) Employee's resignation; or (iii) Employee's termination for cause.
(b) Termination Due to Disability. Employee's
employment hereunder and all of his rights to receive salary and other benefits
hereunder, may be terminated by Employer in the event that Employee has been
unable to perform substantially all of his duties under this Agreement for a
period of 90 days.
(c) Termination Without Cause. Subject to
compliance with the provisions of Section 5(d) of this Agreement, Employer
shall have the right to terminate Employee's employment under this Agreement
without cause at any time during the Term.
(d) Payments Upon Termination Without Cause. In the
event that Employee is terminated by Employer during the Term without cause
pursuant to Section 5(c) hereof following a Change of Control, Employee shall
be entitled to receive (i) payment of the greater of (x) the salary as provided
by Section 2 hereof for the period remaining in the Term at the time of such
termination, or (y) the amount otherwise payable to Employee under Employer's
severance policy then in effect, (ii) any and all benefits provided pursuant to
Section 4(a) for the remainder of the Term and (iii) any incentive bonus
provided by Section 3 which is earned in accordance with the incentive bonus
program of Employer and this agreement during the period prior to such
termination.
<PAGE> 3
6. Change of Control. The occurrence of any of the following
events shall constitute a Change of Control of Employer: (a) the acquisition
after the date hereof, in one or more transactions, of beneficial ownership
(within the meaning of Rule 13d-3(a)(1) under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) by any person or entity (other than
employee) or any group of persons or entities (excluding Employee) who
constitute a group (within the meaning of Section 13(d)(3) of the Exchange Act)
of any securities such that as a result of such acquisition such person or
entity or group beneficially owns (within the meaning of Rule 13d-3(a)(1) under
the Exchange Act) directly or indirectly 51% or more of Employer's then
outstanding voting securities entitled to vote on a regular basis for a
majority of the Board of Directors of Employer; or (b) the sale of all or
substantially all of the assets of Employer (including without limitation, by
way of merger, consolidation, lease or transfer) in a transaction where
Employer or the beneficial owners (within the meaning of Rule 13d-3(a)(1) under
the Exchange Act) of common stock of Employer do not receive (i) voting
securities representing a majority of the voting power entitled to vote on a
regular basis for the Board of Directors of the acquiring entity or of an
affiliate which controls the acquiring entity, or (ii) securities representing
a majority of the equity interest in the acquiring entity or of an affiliate
which controls the acquiring entity, if other than a corporation; provided,
however, that the provisions of this Section 6 shall not apply to any
transfer, sale or disposition of shares of common stock to any person or
persons who are affiliates of F4L Supermarkets on the date hereof; or (c) the
acquisition by Employer or an affiliate of Employer of the stock or assets of a
supermarket chain which operates more than 100 stores in Southern California,
or any other combination of Employer or an affiliate of Employer with such a
supermarket chain.
7. Confidentiality. Employee acknowledges that, by reason of his
employment with Employer, he will learn or has learned trade secrets and will
obtain or has obtained other confidential information concerning the business
and policies of Employer and its subsidiaries. Employee agrees that he will
not divulge or otherwise disclose, directly or indirectly, any such trade
secrets or other confidential information concerning the business or policies
of Employer or any of its subsidiaries which he may learn as a result of his
employment during the Term or may have learned prior thereto, except to the
extent such information is lawfully obtainable from public sources or such use
or disclosure is (i) necessary to the performance of this Agreement and in
furtherance of Employer's best interests, (ii) required by applicable laws, or
(iii) authorized by Employer. The provisions of this Section 7 shall survive
the expiration, suspension, or termination, for any reason, of this Agreement.
8. Miscellaneous.
<PAGE> 4
(a) Succession. This Agreement shall inure to the
benefit of and shall be binding upon Employer, its successors and assigns. The
obligations and duties of Employee hereunder shall be personal and not
assignable.
(b) Notices. Unless otherwise provided herein, any
notice, request, instruction or other document to be given hereunder by any
party to the others shall be in writing and delivered in person or by courier,
telegraphed, telexed or by facsimile transmission or mailed by certified mail,
postage prepaid, return receipt requested (such mailed notice to be effective
on the date of such receipt is acknowledged), as follows:
If to the Employee: At the last address on the records of
Employer.
If to the Employer: Food 4 Less Supermarkets, Inc.
777 South Harbor Boulevard
La Habra, California 90631
Attention: George Golleher, President
or to such other place and with such other copies as either party may designate
as to itself by written notice to the others.
(c) Entire Agreement. This Agreement contains the
entire agreement of the parties relating to the subject matter hereof, and it
replaces and supersedes any prior agreements between the parties relating to
said subject matter.
(d) Waiver; Amendment. No provision hereof may be
waived except by a written agreement signed by the waiving party. The waiver
of any term or of any condition of this Agreement shall not be deemed to
constitute the waiver of any other term or condition. This Agreement may be
amended only by a written agreement signed by the parties hereto.
(e) Arbitration. Any disputes or controversies
arising under this Agreement shall be settled by arbitration in accordance with
the rules of the American Arbitration Association. The determination and
findings of such arbitrators shall be final and binding on all parties and may
be enforced, if necessary, in the courts of the State of California Code of
Civil Procedure, Section 1287.4.
(f) Remedies of Employer. Employee acknowledges
that the services he is obligated to render under the provisions of this
Agreement are of a special, unique, unusual, extraordinary and intellectual
character, which gives this Agreement peculiar value to Employer. The loss of
these services cannot be reasonably or adequately compensated in damages in
action at law and it would be difficult (if not impossible) to replace such
services. By reason thereof, Employee agrees and consents that if he violates
any of the material provisions of
<PAGE> 5
this Agreement, including, without limitation, Section 7 hereof, Employer, in
addition to any other rights and remedies available under this Agreement or
under applicable law, shall be entitled to seek injunctive relief, from a
tribunal of competent jurisdiction, restraining Employee from committing or
continuing any violation of this Agreement. The provisions of this Section
8(f) shall survive the termination of this Agreement for any reason.
(g) Severability. If this Agreement shall for any
reason be or become unenforceable by any party, this Agreement shall thereupon
terminate and become unenforceable by the other party as well. In all other
respects, if any provision of this Agreement is held invalid or unenforceable,
the remainder of this Agreement shall nevertheless remain in full force and
effect and, if any provision is held invalid or unenforceable with respect to
particular circumstances, it shall nevertheless remain in full force and effect
in all other circumstances.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
FOOD 4 LESS SUPERMARKETS, INC. EMPLOYEE
By: /s/ RONALD W. BURKLE /s/ GREG MAYS
------------------------ ---------------------
Ronald W. Burkle Greg Mays
Chief Executive Officer
By: /s/ GEORGE G. GOLLEHER
-------------------------
George G. Golleher
President
<PAGE> 1
EXHIBIT 12
FOOD 4 LESS SUPERMARKETS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
52 Weeks Ended
June 25, 1994
----------------------
Fixed
Earnings Charges
-------- -------
<S> <C> <C>
Income (loss) before provision for income taxes,
minority interest and extraordinary charge $ - $ -
Add Fixed Charges:
Interest expense, including amortization of
debt discount and deferred financing costs 62,414 62,414
Interest factor in rent expense(1) 16,596 16,596
------- -------
$79,010 $79,010
======= =======
Ratio of earnings to fixed charges 1.0
=======
</TABLE>
________________________
(1) Calculated as one-third of minimum rent expense (see note 5 in the
audited financial statements.)
<TABLE>
<CAPTION>
1994
-------
<S> <C>
Minimum rent $49,788
/ 3
-------
Interest factor $16,596
=======
</TABLE>
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF FOOD 4 LESS SUPERMARKETS, INC.
Alpha Beta Company, a California corporation
Bay Area Warehouse Stores, Inc., a California corporation
Bell Markets, Inc., a California corporation
Cala Co., a Delaware corporation
Cala Foods, Inc., a California corporation
Falley's, Inc., a Kansas corporation
Food 4 Less GM, Inc., a California corporation
Food 4 Less of Califoria, Inc., a California corporation
Food 4 Less Merchandising, Inc., a California corporation
Food 4 Less of Southern California, Inc., a Delaware corporation
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-25-1994
<PERIOD-START> JUN-27-1993
<PERIOD-END> JUN-25-1994
<CASH> 32,996
<SECURITIES> 0
<RECEIVABLES> 27,737
<ALLOWANCES> (1,386)
<INVENTORY> 212,892
<CURRENT-ASSETS> 281,437
<PP&E> 498,823
<DEPRECIATION> (134,089)
<TOTAL-ASSETS> 980,080
<CURRENT-LIABILITIES> 336,319
<BONDS> 495,942
<COMMON> 107,665
0
58,997
<OTHER-SE> (97,641)
<TOTAL-LIABILITY-AND-EQUITY> 980,080
<SALES> 2,585,106
<TOTAL-REVENUES> 2,585,106
<CGS> 1,896,294
<TOTAL-COSTS> 1,896,294
<OTHER-EXPENSES> 622,398
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62,414
<INCOME-PRETAX> 0
<INCOME-TAX> 2,700
<INCOME-CONTINUING> (2,700)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,700)
<EPS-PRIMARY> (7.63)
<EPS-DILUTED> (7.63)
</TABLE>
