<PAGE> 1
Filed pursuant to
Rule 424(b)(3)
(Registration Statement
File No. 33-56445)
PROSPECTUS AND SOLICITATION STATEMENT
FOOD 4 LESS SUPERMARKETS, INC.
TO BE COMBINED THROUGH MERGER WITH
[FOOD 4 LESS [RALPHS
LOGO] RALPHS GROCERY COMPANY LOGO]
OFFERS TO EXCHANGE
UP TO
$450,000,000 OF ITS SENIOR SUBORDINATED NOTES DUE MARCH 1, 2005
FOR THE
9% SENIOR SUBORDINATED NOTES DUE APRIL 1, 2003
AND THE
10 1/4% SENIOR SUBORDINATED NOTES DUE JULY 15, 2002
OF
RALPHS GROCERY COMPANY
AND SOLICITATION OF CONSENTS
------------------------
Food 4 Less Supermarkets, Inc. ("Food 4 Less") hereby offers, upon the
terms and subject to the conditions set forth in this Prospectus and
Solicitation Statement and in the accompanying Consent and Letter of Transmittal
(the "Letter of Transmittal"), to holders of the 9% Senior Subordinated Notes
due April 1, 2003 of Ralphs Grocery Company ("RGC") (the "Old RGC 9% Notes") and
the 10 1/4% Senior Subordinated Notes due July 15, 2002 of RGC (the "Old RGC
10 1/4% Notes," and together with the Old RGC 9% Notes, the "Old RGC Notes") to
exchange (the "Exchange Offers") such Old RGC Notes for new Senior Subordinated
Notes due 2005 (the "New Notes") plus a cash payment (the "Exchange Payment"),
as more fully described below.
<TABLE>
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FOR EACH $1,000 THE TENDERING HOLDER
PRINCIPAL AMOUNT OF: WILL RECEIVE:
- -------------------- -------------------------------------------------------------------------
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Old RGC 9% $1,000 principal amount of New Notes and $10.00 in cash, plus accrued and
Notes unpaid interest to the date of exchange.
Old RGC 10 1/4% $1,000 principal amount of New Notes and $10.00 in cash, plus accrued and
Notes unpaid interest to the date of exchange.
</TABLE>
Concurrently with the Exchange Offers and the other financing transactions
described herein, Food 4 Less is offering up to $400 million principal amount of
New F4L Senior Notes (as defined) pursuant to a public offering (the "Public
Offering") registered under the Securities Act of 1933, as amended (the
"Securities Act"). The Public Offering is expected to price ten business days
preceding the Expiration Date (as defined). The New Notes offered pursuant to
the Exchange Offers will bear interest at a fixed rate per annum equal to the
greater of (a) 11.50% and (b) the Applicable Treasury Rate (as defined) plus 425
basis points (4.25 percentage points); provided, however, that in no event will
the New Notes bear interest at a rate per annum that is less than the interest
rate on the New F4L Senior Notes offered pursuant to the Public Offering plus 50
basis points (0.50 percentage points).
THE EXCHANGE OFFERS AND THE SOLICITATION WILL EXPIRE AT 12:00 MIDNIGHT, NEW
YORK CITY TIME, ON FEBRUARY 22, 1995, UNLESS EXTENDED (THE "EXPIRATION DATE").
CONSENTS MAY BE REVOKED AND TENDERS MAY BE WITHDRAWN AT ANY TIME UNTIL THE LATER
OF (A) SUCH TIME AS THE REQUISITE CONSENTS (AS DEFINED) WITH RESPECT TO THE
APPLICABLE ISSUE OF OLD RGC NOTES HAVE BEEN RECEIVED AND THE SUPPLEMENTAL
INDENTURE (AS DEFINED) FOR SUCH ISSUE HAS BEEN EXECUTED AND (B) 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON FEBRUARY 22, 1995. FOOD 4 LESS EXPECTS TO EXTEND THE
EXPIRATION DATE TO A DATE THAT IS TEN BUSINESS DAYS FOLLOWING THE PRICING OF THE
PUBLIC OFFERING.
------------------------
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED
IN EVALUATING THE EXCHANGE OFFERS AND THE SOLICITATION.
------------------------
The Dealer Managers for the Exchange Offers and the Solicitation are:
BT SECURITIES CORPORATION
CS FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
------------------------
The date of this Prospectus and Solicitation Statement is January 25, 1995
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(cover page continued)
The Exchange Offers and the Solicitation (as defined) are part of the
financing required to consummate the proposed merger (the "RSI Merger") of Food
4 Less with and into Ralphs Supermarkets, Inc. ("RSI"). Immediately following
the RSI Merger, RGC, a wholly-owned subsidiary of RSI, will merge with and into
RSI (the "RGC Merger," and together with the RSI Merger, the "Merger") and RSI
will change its name to Ralphs Grocery Company ("Ralphs Grocery Company" or the
"Company"). As a result of the Merger, the New Notes and any Old RGC Notes not
exchanged in the Exchange Offers will be the obligations of the Company.
Concurrently with the Exchange Offers, Food 4 Less is soliciting (the
"Solicitation") consents ("Consents") from holders of each of the Old RGC 9%
Notes (the "Old RGC 9% Noteholders") and the Old RGC 10 1/4% Notes (the "Old RGC
10 1/4% Noteholders," and together with the Old RGC 9% Noteholders, the "Old RGC
Noteholders") representing at least a majority in aggregate principal amount of
each of the outstanding Old RGC 9% Notes and the Old RGC 10 1/4% Notes held by
persons other than RGC and its affiliates (the "Requisite Consents") to certain
amendments described herein (the "Proposed Amendments") to the indentures under
which the Old RGC Notes were issued (collectively, the "Old RGC Indentures"). As
of January 1, 1995, there was issued and outstanding $150 million aggregate
principal amount of the Old RGC 9% Notes and $300 million aggregate principal
amount of the Old RGC 10 1/4% Notes. HOLDERS OF OLD RGC NOTES WHO DESIRE TO
ACCEPT THE APPLICABLE EXCHANGE OFFER MUST CONSENT TO THE PROPOSED AMENDMENTS.
The Proposed Amendments will only become operative upon consummation of the
Exchange Offers. The primary purpose of the Proposed Amendments is to permit the
Merger and to eliminate substantially all of the restrictive covenants in the
Old RGC Indentures.
Interest on the New Notes will be payable semi-annually on each March 1 and
September 1 commencing on September 1, 1995, at the rate set forth above. The
New Notes will mature on March 1, 2005. The New Notes will be redeemable, in
whole or in part, at the option of the Company, at any time after March 1, 2000,
at the redemption prices set forth herein, plus accrued and unpaid interest to
the redemption date. In addition, on or prior to March 1, 1998, the Company may,
at its option, use the net cash proceeds of one or more Public Equity Offerings
(as defined) to redeem up to an aggregate of 35% of the principal amount of the
New Notes originally issued, at a redemption price equal to 111.5% of the
principal amount thereof if redeemed during the 12 months commencing on March 1,
1995, 110.0625% of the principal amount thereof if redeemed during the 12 months
commencing on March 1, 1996 and 108.625% of the principal amount thereof if
redeemed during the 12 months commencing on March 1, 1997, in each case plus
accrued and unpaid interest to the redemption date. Upon a Change in Control (as
defined), each holder of New Notes has the right to require the Company to
repurchase such holder's New Notes at a price equal to 101% of their principal
amount, plus accrued and unpaid interest to the date of repurchase. In addition,
subject to certain conditions, the Company will be obligated to make an offer to
repurchase the New Notes at 100% of their principal amount, plus accrued and
unpaid interest to the date of repurchase, with the net cash proceeds of certain
sales or other dispositions of assets. See "Description of the New Notes."
The New Notes will be senior subordinated unsecured obligations of the
Company and will be subordinated in right of payment to all Senior Indebtedness
(as defined) of the Company, including the Company's obligations under the New
Credit Facility and the F4L Senior Notes (each as defined). The New Notes will
be unconditionally guaranteed (the "Guarantees") on a senior subordinated basis
by each of the Company's wholly-owned subsidiaries (the "Subsidiary
Guarantors"). At the time the New Notes are issued, the Subsidiary Guarantors
will be Alpha Beta Company, Bay Area Warehouse Stores, Inc., Bell Markets, Inc.,
Cala Co., Cala Foods, Inc., Falley's Inc., Food 4 Less of California, Inc., Food
4 Less GM, Inc., Food 4 Less Merchandising, Inc. and Food 4 Less of Southern
California, Inc. The Guarantees will be released upon the occurrence of certain
events. See "Description of the New Notes -- Guarantees." At September 17, 1994,
on a pro forma basis after giving effect to the Merger and the Financing (and
certain related assumptions), the aggregate outstanding amount of Senior
Indebtedness (as defined) of the Company (excluding Company guarantees of
certain Guarantor Senior Indebtedness (as defined)) would have been
approximately $1,554.8 million and the aggregate outstanding amount of Guarantor
Senior Indebtedness of the Subsidiary
ii
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Guarantors (excluding guarantees by Subsidiary Guarantors of certain Senior
Indebtedness of the Company) would have been approximately $16.0 million and the
Company would have had $218.2 million available to be borrowed under the New
Revolving Facility (as defined).
Tendering holders will receive accrued and unpaid interest on Old RGC Notes
accepted for exchange up to, but not including, the date of such exchange.
Interest on the New Notes will accrue from, and including, the date of such
exchange, which will be the date of issuance of the New Notes.
If Food 4 Less shall decide to decrease the amount of Old RGC Notes being
sought in either Exchange Offer or to increase or decrease the consideration
offered to the Old RGC Noteholders, and if, at the time that notice of such
increase or decrease is first published, sent or given to Old RGC Noteholders in
the manner specified in this Prospectus and Solicitation Statement, such
Exchange Offer is scheduled to expire at any time earlier than the expiration of
a period ending on the tenth Business Day from and including the date that such
notice is first so published, sent or given such Exchange Offer will be extended
for such purposes until the expiration of such period of ten Business Days. As
used in this Prospectus and Solicitation Statement, "Business Day" has the
meaning set forth in Rule 14d-1 (and applicable to Regulation 14E) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
In addition to the Exchange Offers and the Solicitation, (i) Food 4 Less is
(A) offering up to $400 million principal amount of new Senior Notes due 2004
(the "New F4L Senior Notes") pursuant to the Public Offering, (B) offering to
holders of its 10.45% Senior Notes due 2000 (the "Old F4L Senior Notes") to
exchange such Old F4L Senior Notes for additional New F4L Senior Notes (which
will be part of the same issue as the New F4L Senior Notes offered pursuant to
the Public Offering) plus $5.00 in cash for each $1,000 principal amount of Old
F4L Senior Notes exchanged and to holders of its 13.75% Senior Subordinated
Notes due 2001 (the "Old F4L Senior Subordinated Notes," and together with the
Old F4L Senior Notes, the "Old F4L Notes") to exchange such Old F4L Senior
Subordinated Notes for new 13.75% Senior Subordinated Notes due 2005 (the "New
F4L Senior Subordinated Notes," and together with the New F4L Senior Notes, the
"New F4L Notes") plus $20.00 in cash for each $1,000 principal amount of Old F4L
Senior Subordinated Notes exchanged and (C) soliciting consents from holders of
the Old F4L Notes to certain amendments to the indentures (collectively, the
"Old F4L Indentures"), under which the Old F4L Notes were issued (such
transactions being referred to herein collectively as the "F4L Exchange Offers")
and (ii) Food 4 Less Holdings, Inc. ("Holdings"), which currently owns 100% of
the outstanding stock of Food 4 Less, is soliciting consents from holders of its
15.25% Senior Discount Notes due 2004 (the "Holdings Discount Notes") to certain
amendments to the indenture (the "Holdings Discount Note Indenture"), under
which the Holdings Discount Notes were issued, with respect to which Holdings
will make a cash consent payment of $20.00 for each $1,000 principal amount of
Holdings Discount Notes for which a consent is properly delivered and accepted
(such transaction being referred to herein as the "Holdings Consent
Solicitation"). Prior to the Merger, Holdings' parent corporation, Food 4 Less,
Inc. ("FFL"), will merge with and into Holdings which will be the surviving
corporation (the "FFL Merger"). Immediately following the FFL Merger, Holdings
will change its jurisdiction of incorporation by merging into a newly-formed,
wholly-owned subsidiary incorporated in Delaware ("New Holdings"). See "The
Merger and the Financing," "Description of Holding Company Indebtedness" and
"The F4L Exchange Offers and the Public Offering." The F4L Exchange Offers, the
Public Offering and the Holdings Consent Solicitation are sometimes hereinafter
referred to as the "Other Debt Financing Transactions." The New F4L Senior Notes
and any Old F4L Senior Notes not exchanged in the F4L Exchange Offers are
collectively referred to herein as the "F4L Senior Notes." The New F4L Senior
Subordinated Notes and any Old F4L Senior Subordinated Notes not exchanged in
the F4L Exchange Offers are collectively referred to herein as the "F4L Senior
Subordinated Notes."
Concurrently with the consummation of the Exchange Offers and the Other
Debt Financing Transactions, Food 4 Less and RGC intend to obtain new senior
financing (the "Bank Financing") pursuant to a senior facility of up to $1,075
million (the "New Credit Facility") and to obtain $150 million in cash equity
financing (the "New Equity Investment"). In addition, New Holdings will issue as
part of the consideration for the RSI Merger $100 million principal amount of
13% Senior Subordinated Pay-In-Kind Debentures due 2007 (the "Seller
Debentures"). See "The Merger and the Financing."
iii
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(cover page continued)
Notwithstanding any other provision of the Exchange Offers or the
Solicitation, the obligation of Food 4 Less to accept for exchange any validly
tendered Old RGC Note is conditioned upon, among other things, the satisfaction
or waiver of certain conditions, including (i) at least 80% of the aggregate
principal amount of the outstanding Old RGC Notes being validly tendered and not
withdrawn pursuant to the Exchange Offers prior to the Expiration Date (the
"Minimum Tender"), (ii) the receipt of the Requisite Consents with respect to
each of the Old RGC 9% Notes and the Old RGC 10 1/4% Notes on or prior to the
Expiration Date, (iii) the satisfaction or waiver, in Food 4 Less' sole
discretion, of all conditions precedent to the RSI Merger, (iv) the prior or
contemporaneous successful completion of the Other Debt Financing Transactions
(including the Public Offering), and (v) the prior or contemporaneous
consummation of the Bank Financing and the New Equity Investment. There can be
no assurance that such conditions will be satisfied or waived. For additional
information regarding other conditions to the consummation of the Exchange
Offers, see "The Exchange Offers and Solicitation -- Conditions."
Standard & Poor's Ratings Group ("Standard & Poor's") has publicly
announced that, upon consummation of the Merger, it intends to assign a new
rating to the Old RGC Notes. Such new rating assignment, if implemented, would
constitute a Rating Decline (as defined) under the Old RGC Indentures. The
consummation of the Merger (which is conditioned upon, among other things,
successful consummation of the Other Debt Financing Transactions and the Bank
Financing, which itself is conditioned upon the receipt of the Minimum Tender)
and the resulting change in composition of the Board of Directors of RGC,
together with the anticipated Rating Decline would constitute a Change of
Control Triggering Event (as defined) under the Old RGC Indentures. Upon such a
Change of Control Triggering Event, the Company would be obligated to make a
change of control purchase offer following the consummation of the Merger for
all outstanding Old RGC Notes at 101% of the principal amount thereof ($90.9
million, assuming $90 million of Old RGC Notes are outstanding following the
Merger) plus accrued and unpaid interest to the date of repurchase (the "Change
of Control Offer"). The Merger will not constitute a change of control under the
Old F4L Indentures and no change of control purchase offer will be made with
respect to the Old F4L Notes.
Although it has no obligation to do so, the Company reserves the right in
the future to seek to acquire Old RGC Notes not tendered in the Exchange Offers
or the Change of Control Offer by means of open market purchases, privately
negotiated acquisitions, subsequent exchange or tender offers, redemptions or
otherwise, at prices or on terms which may be higher or lower or more or less
favorable than those in the Exchange Offers or the Change of Control Offer.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS AND SOLICITATION STATEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE EXCHANGE OFFERS ARE NOT BEING MADE TO, AND NO CONSENTS ARE BEING
SOLICITED FROM, HOLDERS OF OLD RGC NOTES IN ANY JURISDICTION IN WHICH
SUCH EXCHANGE OFFERS OR THE ISSUANCE OF ANY SECURITY UPON
ACCEPTANCE OF TENDERS WOULD NOT BE IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
Investors in the New Notes in California will be able to transfer their New
Notes in California only to institutional investors (as defined under applicable
California securities laws, and subject to any conditions set forth therein) or
pursuant to another exemption under California securities laws. Such Investors
will be able to transfer their New Notes to persons outside California, provided
the transaction is effected through a broker-dealer registered in California and
complies with the securities laws of the state in which the New Notes will be
offered and sold.
The New Notes have not been registered under the securities laws of all
states. In certain jurisdictions in which the New Notes have been registered,
permits and orders issued in connection with such registrations
iv
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(cover page continued)
typically expire after a period of time and the securities may not be offered
and sold by certain holders without registration under the securities laws of
such jurisdictions unless an exemption is available under such securities laws.
Any Old RGC Noteholder desiring to accept the applicable Exchange Offer
should either (i) complete and sign the Letter of Transmittal or facsimile
thereof, have his signature thereon guaranteed and forward the Letter of
Transmittal with the certificate(s) evidencing his Old RGC Notes and any other
required documents to the Exchange Agent (as defined), (ii) comply with the
guaranteed delivery procedures, (iii) tender such Old RGC Notes pursuant to the
procedure for book-entry transfer or (iv) request his broker, dealer, commercial
bank, trust company or other nominee to effect the transaction for him, in each
case on or prior to the Expiration Date. Old RGC Noteholders having Old RGC
Notes registered in the name of a broker, dealer, commercial bank, trust company
or other nominee must contact such person if they desire to tender such Old RGC
Notes. HOLDERS OF OLD RGC NOTES WHO DESIRE TO ACCEPT THE APPLICABLE EXCHANGE
OFFER MUST CONSENT TO THE PROPOSED AMENDMENTS. A HOLDER OF OLD RGC NOTES WHO
DESIRES TO TENDER INTO THE APPLICABLE EXCHANGE OFFER WITH RESPECT TO ANY OLD RGC
9% NOTES OR OLD RGC 10 1/4% NOTES MUST TENDER ALL OF SUCH HOLDERS' OLD RGC 9%
NOTES OR OLD RGC 10 1/4% NOTES, AS THE CASE MAY BE. See "The Exchange Offers and
Solicitation -- Procedures for Tendering and Consenting."
Questions and requests for assistance or for additional copies of this
Prospectus and Solicitation Statement or the accompanying Letter of Transmittal
or any other required documents may be directed to the Dealer Managers or the
Information Agent at the addresses and telephone numbers set forth on the back
cover hereof.
This Prospectus and Solicitation Statement, together with the accompanying
Letter of Transmittal, is being sent to holders of the Old RGC Notes who are
registered holders as of January 20, 1995.
v
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AVAILABLE INFORMATION
Food 4 Less has filed a Registration Statement on Form S-4 (the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") under the Securities Act with respect to the New Notes. Each of
Food 4 Less and RGC is subject to the reporting and other informational
requirements of the Exchange Act, and the rules and regulations promulgated
thereunder, and in accordance therewith files reports and other information with
the Commission. Such reports and other information filed by Food 4 Less or RGC
with the Commission can be inspected without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the following Regional Offices of the Commission:
New York Regional Office, 7 World Trade Center, 13th Floor, New York, New York
10048; and Chicago Regional Office, Suite 1400, Northwestern Atrium Center, 500
West Madison Street, Chicago, Illinois 60661. Copies of such materials can also
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates.
In addition, whether or not it is required to do so by the rules and
regulations of the Commission, the Company will be obligated under the indenture
governing the New Notes (the "New Note Indenture") to file with the Commission
(i) all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's independent certified public accountants and (ii) all reports
that would be required to be filed with the Commission on Form 8-K. The Company
intends to furnish to each holder of New Notes, upon their request, annual
reports containing audited financial statements and quarterly reports containing
unaudited financial information for the first three quarters of each fiscal
year. Any such request should be directed to Jan Charles Gray, Senior
Vice-President, General Counsel and Secretary of Ralphs Grocery Company at 1100
West Artesia Boulevard, Compton, California 90220, telephone number (310)
884-4000.
This Prospectus and Solicitation Statement summarizes the contents and
terms of documents not included herewith. These documents are available upon
request from, as applicable, Food 4 Less at 777 South Harbor Blvd., La Habra,
California 90631, telephone number (714) 738-2000 Attn: Robert P. Bermingham,
Esq., Vice President and General Counsel; RGC at 1100 West Artesia Blvd.,
Compton, California 90220, telephone number (310) 884-4000 Attn: Jan Charles
Gray, Esq., Senior Vice-President, General Counsel and Secretary; or D.F. King &
Co., Inc. at the address and telephone number set forth on the back cover
hereof. In order to ensure timely delivery of the documents, any request for
such documents should be made at least five business days prior to the
Expiration Date.
vi
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TABLE OF CONTENTS
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PAGE
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AVAILABLE INFORMATION................................................................. vi
SUMMARY............................................................................... 1
COMPARISON OF OLD RGC NOTES AND NEW NOTES............................................. 9
RISK FACTORS.......................................................................... 19
THE MERGER AND THE FINANCING.......................................................... 25
PRO FORMA CAPITALIZATION.............................................................. 28
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS..................................... 29
SELECTED HISTORICAL FINANCIAL DATA OF RALPHS.......................................... 37
SELECTED HISTORICAL FINANCIAL DATA OF FOOD 4 LESS..................................... 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 41
BUSINESS.............................................................................. 56
MANAGEMENT............................................................................ 70
EXECUTIVE COMPENSATION................................................................ 72
PRINCIPAL STOCKHOLDERS................................................................ 78
DESCRIPTION OF CAPITAL STOCK.......................................................... 79
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................ 82
THE EXCHANGE OFFERS AND SOLICITATION.................................................. 84
DESCRIPTION OF THE NEW NOTES.......................................................... 99
MARKET PRICES OF THE OLD RGC NOTES.................................................... 126
THE PROPOSED AMENDMENTS............................................................... 126
THE F4L EXCHANGE OFFERS AND THE PUBLIC OFFERING....................................... 127
DESCRIPTION OF THE NEW CREDIT FACILITY................................................ 131
DESCRIPTION OF HOLDING COMPANY INDEBTEDNESS........................................... 133
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS............................................. 136
LEGAL MATTERS......................................................................... 140
EXPERTS............................................................................... 141
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
COMPARISON OF OLD RGC NOTES AND NEW NOTES............................................. A-1
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vii
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SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the Financial Statements and notes thereto, appearing elsewhere in this
Prospectus and Solicitation Statement. Unless the context otherwise requires,
the terms "Food 4 Less" and "Ralphs," as used herein, refer to Food 4 Less and
RSI and their consolidated subsidiaries, respectively, prior to the consummation
of the Merger. The "Company" refers to Ralphs Grocery Company as the surviving
and renamed corporation following the consummation of the Merger and includes,
unless the context otherwise requires, all of its consolidated subsidiaries. As
used herein, "Southern California" means Los Angeles, Orange, Ventura, San
Bernardino, Riverside and San Diego counties. Except as otherwise stated,
references in this Prospectus and Solicitation Statement to numbers of stores
prior to the consummation of the Merger are as of October 1, 1994. References to
the "pro forma" number of stores to be operated by the Company following the
consummation of the Merger are based on October 1, 1994 totals, but give effect
to certain anticipated store conversions, divestitures and closings.
THE COMPANY
The combination of Ralphs Grocery Company and Food 4 Less Supermarkets,
Inc. will create the largest food retailer in Southern California. Pro forma for
the Merger, the Company will operate approximately 332 Southern California
stores with an estimated 26% market share among the area's supermarkets. The
Company will operate the second largest conventional supermarket chain in the
region under the "Ralphs" name and the largest warehouse supermarket chain under
the "Food 4 Less" name. In addition, the Company will operate approximately 24
conventional format stores and 39 warehouse format stores in Northern California
and the Midwest. Management believes that by the end of the fourth full year of
combined operations, approximately $90 million in net annual cost savings will
be achieved as a result of the Merger. Pro forma for the Merger, the Company
would have had sales of approximately $5.1 billion, operating income of $183
million and EBITDA (as defined) of $343 million for the 52 weeks ended June 25,
1994. Management believes the Merger will enhance the growth and profitability
of Ralphs and Food 4 Less by providing the Company with the following benefits:
- - TWO LEADING COMPLEMENTARY FORMATS. The Company will operate its conventional
supermarkets in Southern California under the "Ralphs" name and all of its
price impact warehouse format stores in Southern California under the "Food 4
Less" name. Pro forma for the Merger and certain planned store conversions,
the Company will operate 264 Ralphs conventional format stores and 68 Food 4
Less warehouse format stores in the region. The Ralphs stores will continue to
emphasize a broad selection of merchandise, high quality fresh produce, meat
and seafood and service departments, including bakery and delicatessen
departments in most stores. The Company's conventional stores will also
benefit from Ralphs' strong private label program and its strengths in
merchandising, store operations and systems. Passing on format-related
efficiencies, the price impact warehouse format stores will continue to offer
consumers the lowest overall prices while providing product selections
comparable to conventional supermarkets. Management believes the Food 4 Less
warehouse format has demonstrated its appeal to a wide range of demographic
groups in Southern California and offers a significant opportunity for future
growth. The Company plans to open nine new Food 4 Less warehouse stores and 21
new Ralphs stores over the next two years.
- - SUBSTANTIAL COST SAVINGS OPPORTUNITIES. Management believes that approximately
$90 million of net annual cost savings will be achieved by the end of the
fourth full year of combined operations. It is also anticipated that
approximately $117 million in Merger-related capital expenditures and $50
million of other non-recurring costs will be required to complete store
conversions, integrate operations and expand warehouse facilities over the
same period. Although a portion of the anticipated cost savings is premised
upon the completion of such capital expenditures, management believes that
over 70% of the cost savings could be achieved without making any
Merger-related capital expenditures.
The following anticipated savings are based on estimates and assumptions
made by the Company that are inherently uncertain, though considered reasonable
by the Company, and are subject to significant business,
1
<PAGE> 9
economic and competitive uncertainties and contingencies, all of which are
difficult to predict and many of which are beyond the control of management.
There can be no assurance that such savings will be achieved. The sum of the
components of the estimated annual cost savings exceeds $90 million; however,
management has made an offsetting adjustment to reflect its expectation that a
portion of the savings will be reinvested in the Company's operations. See "Risk
Factors -- Ability to Achieve Anticipated Cost Savings."
-- REDUCED ADVERTISING EXPENSES. Consolidating the conventional format stores
in Southern California under the "Ralphs" name will eliminate the separate
advertising associated with Food 4 Less' existing Alpha Beta, Boys and Viva
formats. Since Ralphs' current advertising program covers the Southern
California region, the Company will be able to advertise for all of its
Southern California stores under the existing Ralphs program. Management
estimates that annual advertising cost savings of approximately $28 million
will be achieved in the first full year of combined operations.
-- REDUCED STORE OPERATIONS EXPENSE. Management expects to reduce store
operations costs as a result of both reduced labor and benefit costs and
reduced non-labor expenses. Store-level labor savings will be achieved when
Ralphs' labor scheduling, computerized record keeping and other advanced
store systems are applied to the Food 4 Less store base. In addition,
management believes that the adoption of Ralphs' store systems in non-labor
areas, such as energy management, safety programs and pooled supply
purchasing, will produce further annual cost savings. Management estimates
that annual store operations cost savings of approximately $21 million will
be achieved by the fourth full year of combined operations after certain
required capital expenditures are made.
-- INCREASED VOLUME PURCHASING EFFICIENCIES. The combined volume requirements
and leading market position of the Company should generally allow the
Company to obtain improved terms from vendors, including suppliers of
products carried on an exclusive or promoted basis, and to convert some
less-than-truckload shipping quantities to full truckload quantities.
Management estimates that annual purchasing cost savings of approximately
$19 million will be achieved by the second full year of combined
operations.
-- WAREHOUSING AND DISTRIBUTION EFFICIENCIES. Consolidating the Company's
warehousing and distribution operations into Ralphs' two primary facilities
located in Compton, California and in the Atwater district of Los Angeles
and Food 4 Less' primary facility located in La Habra, California will
result in lower outside storage, transportation and labor costs. In
addition, occupancy costs will be reduced as a result of the closure of
certain existing facilities. Management estimates that annual warehousing
and distribution cost savings of approximately $16 million will be achieved
by the third full year of combined operations after certain capital
expenditures on existing facilities are completed.
-- CONSOLIDATED MANUFACTURING. Ralphs and Food 4 Less operate manufacturing
facilities that produce similar products or have excess capacity.
Management believes that consolidating meat, bakery, dairy, and other
manufacturing and processing operations, and discontinuing external
purchases of certain goods that can be manufactured internally, will
achieve annual cost savings of approximately $11 million by the second full
year of combined operations.
-- CONSOLIDATED ADMINISTRATIVE FUNCTIONS. The Company expects to achieve
savings from the elimination of redundant administrative staff, the
consolidation of management information systems and a decreased reliance on
certain outside services and consultants. Management estimates that annual
savings of approximately $15 million associated with consolidating
administrative functions will be achieved by the second full year of
combined operations.
- - TECHNOLOGICALLY ADVANCED WAREHOUSING AND DISTRIBUTION. The Company will
utilize Ralphs' technologically advanced warehousing and distribution
systems, which include a 17 million cubic foot high-rise automated storage
and retrieval system warehouse (the "ASRS") for non-perishable items and a
5.4 million cubic foot perishable service center (the "PSC") designed for
processing, storing and distributing all perishable items. These facilities
will provide the Company with substantial operating benefits, including: (i)
enhanced turnover to further improve the freshness and quality of in-store
products, (ii) reduced in-store storage space to increase available selling
space, (iii) added opportunities in forward
2
<PAGE> 10
buying programs and (iv) an increased percentage of inventory supplied by the
Company's own warehousing and distribution system. Management believes the
utilization of these facilities and Food 4 Less' La Habra warehouse will
enable the Company to meet the combined inventory requirements of all stores
with fewer employees and lower operating and occupancy-related expenses.
- - STORE LOCATIONS. As a result of Ralphs' 122-year history and Alpha Beta
Company's ("Alpha Beta") 91-year history in Southern California, the Company
will have valuable and well established store locations, many of which are in
densely populated metropolitan areas.
- - RECENTLY REMODELED AND NEW STORE BASE. The Company will have a modern,
technologically advanced store base. During the five years ended June 25,
1994, on a combined basis, Ralphs and Food 4 Less opened 74 new stores and
remodeled 211 stores. Approximately 84% of the Company's stores have been
opened or remodeled during the last five years.
- - EXPERIENCED MANAGEMENT TEAM. The executive officers of the Company have
extensive experience in the supermarket industry. The strength of Ralphs
management expertise is evidenced by Ralphs' reputation for quality and
service, technologically advanced systems, strong store operations and high
historical EBITDA margins. The Food 4 Less management team will provide
valuable experience in operating warehouse supermarkets and in effectively
integrating companies into a combined operation. Following the acquisition of
Alpha Beta in 1991, Food 4 Less management successfully integrated Alpha Beta
with its existing Southern California operations and (within three years)
achieved annual cost savings in excess of $40 million (compared to a
pre-acquisition estimate of approximately $33 million).
THE YUCAIPA COMPANIES
Food 4 Less was organized in 1989 by its sponsor, The Yucaipa Companies
("Yucaipa"), a private investment group which specializes in the supermarket
industry. Yucaipa has a successful track record in acquiring, integrating and
improving the cash flow of supermarket companies. Since 1986, Yucaipa and its
affiliated companies have completed ten acquisition transactions, including five
acquisitions by Food 4 Less and its subsidiaries. Following completion of the
Merger, Yucaipa and its affiliates will control the Board of Directors of New
Holdings and the Company.
THE MERGER AND THE FINANCING
On September 14, 1994, Food 4 Less Supermarkets, Inc. ("Food 4 Less"), Food
4 Less Holdings, Inc. ("Holdings"), and the parent company of Holdings, Food 4
Less, Inc. ("FFL"), entered into a definitive Agreement and Plan of Merger (the
"Merger Agreement") with Ralphs Supermarkets, Inc. ("RSI") and its stockholders.
Pursuant to the terms of the Merger Agreement, Food 4 Less will be merged with
and into RSI (the "RSI Merger"). Immediately following the RSI Merger, RGC,
which is currently a wholly-owned subsidiary of RSI, will merge with and into
RSI (the "RGC Merger," and together with the RSI Merger, the "Merger"), and RSI
will change its name to Ralphs Grocery Company ("Ralphs Grocery Company" or the
"Company"). Prior to the Merger, FFL will merge with and into Holdings, which
will be the surviving corporation (the "FFL Merger"). Immediately following the
FFL Merger, Holdings will change its jurisdiction of incorporation by merging
into a newly-formed, wholly-owned subsidiary ("New Holdings"), incorporated in
Delaware (the "Reincorporation Merger"). As a result of the Merger, the FFL
Merger and the Reincorporation Merger the Company will become a wholly-owned
subsidiary of New Holdings. See "-- Corporate Structure." As a result of the RSI
Merger and the RGC Merger, the New Notes and any outstanding Old RGC Notes not
tendered in the Exchange Offers will be the obligations of the Company.
Conditions to the consummation of the RSI Merger include the receipt of
regulatory approvals and other necessary consents and the completion of
financing. The purchase price for RSI is approximately $1.5 billion, including
the assumption of debt. The consideration payable to the stockholders of RSI
consists of $425 million in cash and $100 million principal amount of the Seller
Debentures to be issued by New Holdings. New Holdings will use $150 million of
cash received from the New Equity Investment, together with $100 million
principal amount of the Seller Debentures, to acquire approximately 48% of the
capital
3
<PAGE> 11
stock of RSI immediately prior to consummation of the RSI Merger. New Holdings
will then contribute the $250 million of purchased shares of RSI stock to Food 4
Less, and pursuant to the RSI Merger the remaining shares of RSI stock will be
acquired for $275 million in cash.
As currently contemplated, the Merger will be financed through the
following transactions (collectively, the "Financing"):
- Borrowings of up to $750 million aggregate principal amount of the New
Term Loans (as defined) under the New Credit Facility to be provided by
a syndicate of banks led by Bankers Trust Company ("Bankers Trust"). The
New Credit Facility will also provide for a $325 million revolving
credit facility (the "New Revolving Facility"), $18.4 million of which
is anticipated to be drawn at closing.
- The issuance of up to $400 million of New F4L Senior Notes pursuant to
the Public Offering.
- The issuance of preferred stock in a private placement by New Holdings
to a group of investors (the "New Equity Investors") led by Apollo
Advisors, L.P. (on behalf of one or more managed entities) or its
affiliates and designees ("Apollo") and including affiliates of BT
Securities Corporation ("BT Securities"), CS First Boston Corporation
("CS First Boston") and Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") and other institutional investors, yielding cash
proceeds of $150 million pursuant to the New Equity Investment.
Concurrently with the New Equity Investment, the New Equity Investors
will purchase outstanding shares of New Holdings capital stock from a
stockholder of New Holdings for a purchase price of $57.8 million. See
"Description of Capital Stock -- New Equity Investment."
- The exchange by Food 4 Less pursuant to the F4L Exchange Offers of (a)
up to $175 million aggregate principal amount of the Old F4L Senior
Notes for up to $175 million aggregate principal amount of New F4L
Senior Notes plus $5.00 in cash per $1,000 principal amount exchanged
and (b) up to $145 million aggregate principal amount of the Old F4L
Senior Subordinated Notes for up to $145 million aggregate principal
amount of the New F4L Senior Subordinated Notes plus $20.00 in cash per
$1,000 principal amount exchanged, together with the solicitation of
consents from the holders of the Old F4L Notes to certain amendments to
the Old F4L Indentures. It is a condition to the F4L Exchange Offers
that at least 80% of the outstanding principal amount of the Old F4L
Notes are exchanged pursuant to the F4L Exchange Offers.
- The Exchange Offers made hereunder to holders of Old RGC Notes to tender
for exchange such Old RGC Notes, together with the solicitation of
consents from such holders to the Proposed Amendments to the Old RGC
Indentures.
- The purchase by New Holdings of approximately 48% of the outstanding
common stock of RSI for an aggregate consideration of $250 million,
consisting of the proceeds of the New Equity Investment and $100 million
principal amount of the Seller Debentures, followed by the contribution
of such common stock of RSI to Food 4 Less. Pursuant to the RSI Merger,
the remaining shares of RSI stock will be acquired for $275 million in
cash.
- The assumption by the Company, pursuant to the Merger, of approximately
$160.2 million of other indebtedness of RGC and Food 4 Less.
- The solicitation of certain consents pursuant to the Holdings Consent
Solicitation from the holders of the Holdings Discount Notes to certain
amendments to the Holdings Discount Note Indenture.
4
<PAGE> 12
The following table illustrates the sources and uses of funds to consummate
the Merger, assuming the transaction occurs as of March 1, 1995. This
presentation assumes that $360 million principal amount of Old RGC Notes is
tendered into the Exchange Offers and $256 million principal amount of Old F4L
Notes is tendered into the F4L Exchange Offers, in each case representing 80% of
the outstanding aggregate principal amount of such securities. The presentation
also assumes that the remaining $90 million of Old RGC Notes not tendered into
the Exchange Offers are repurchased after the Closing Date pursuant to the
Change of Control Offer. Although management believes such assumptions are
reasonable under the circumstances, actual sources and uses may differ from
those set forth below depending upon the outcome of the Exchange Offers and the
F4L Exchange Offers.
For additional information regarding the Financing, see "The Merger and the
Financing."
SOURCES AND USES
(in millions)
<TABLE>
<CAPTION>
CASH SOURCES CASH USES
- --------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
New Term Loans(a)................ $ 750.0 Purchase RSI Common Stock(g)....... $ 425.9
New Revolving Facility(b)........ 18.4 Purchase Old RGC Notes(h).......... 90.9
New F4L Senior Notes(c).......... 400.0 Repay Ralphs 1992 Credit
New Equity Investment(d)......... 150.0 Agreement........................ 291.0
-------- Repay F4L Credit Agreement......... 165.7
Pay Accrued Interest(i)............ 20.7
Pay EAR Liability(j)............... 22.8
Repay Mortgage Indebtedness(k)..... 186.7
Fees and Expenses(l)............... 114.7
--------
Total Cash Sources........ $1,318.4 Total Cash Uses............. $1,318.4
======== ========
</TABLE>
<TABLE>
<CAPTION>
NON-CASH SOURCES NON-CASH USES
- --------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
New F4L Senior Notes(e).......... $ 140.0 Old F4L Senior Notes Exchanged..... $ 140.0
Assumed Old F4L Senior Notes..... 35.0 Assumed Old F4L Senior Notes....... 35.0
New F4L Senior Subordinated Old F4L Senior Subordinated Notes
Notes......................... 116.0 Exchanged....................... 116.0
Assumed Old F4L Senior Assumed Old F4L Senior Subordinated
Subordinated Notes............ 29.0 Notes........................... 29.0
New Notes........................ 360.0 Old RGC Notes Exchanged............ 360.0
Assumed Capital Leases and Other Assumed Capital Leases and Other
Debt.......................... 160.2 Debt............................ 160.2
Seller Debentures(f)............. 100.0 Purchase RSI Common Stock(f)....... 100.0
-------- --------
Total Non-Cash Sources.... $ 940.2 Total Non-Cash Uses......... $ 940.2
======== ========
</TABLE>
- ---------------
(a) Food 4 Less has accepted a commitment letter from Bankers Trust pursuant to
which Bankers Trust has agreed, subject to certain conditions, to provide
the Company up to a maximum aggregate amount of $1,075 million of financing
under the New Credit Facility. It is anticipated that the New Credit
Facility will be syndicated to a number of financial institutions for whom
Bankers Trust will act as agent. The New Credit Facility will provide for
(i) term loans in the aggregate amount of up to $750 million, comprised of
a $375 million tranche with a six year term (the "Tranche A Loan"), a $125
million tranche with a seven year term (the "Tranche B Loan"), a $125
million tranche with an eight year term (the "Tranche C Loan"), and a $125
million tranche with a nine year term (the "Tranche D Loan," and, together
with the Tranche A Loan, Tranche B Loan and Tranche C Loan, the "New Term
Loans"); and (ii) a $325 million revolving credit facility (the "New
Revolving Facility"). The New Term Loans and the New Revolving Facility are
referred to collectively as the "New Credit Facility." See "Description of
the New Credit Facility."
(b) The New Revolving Facility will provide for a $325 million line of credit
which will be available for working capital requirements and general
corporate purposes. Up to $150 million of the New Revolving Facility may be
used to support standby letters of credit. The letters of credit will be
used to cover workers' compensation contingencies and for other purposes
permitted under the New Revolving Facility. The Company anticipates that
letters of credit for approximately $101 million will be issued under the
New Revolving Facility at closing, in replacement of existing letters of
credit, primarily to satisfy the State of California's requirements
relating to workers compensation self-insurance.
(c) Represents New F4L Senior Notes issued pursuant to the Public Offering. If
Food 4 Less receives tenders in excess of the Minimum Tender in the
Exchange Offers, Food 4 Less may elect to decrease the amount of New F4L
Senior Notes being offered pursuant to the Public Offering.
(d) Does not include the $10 million equity contribution by Ralphs management.
See note (j) below. Concurrently with the New Equity Investment, certain
existing stockholders of New Holdings (formerly stockholders of FFL),
including affiliates of George Soros, will sell outstanding shares of New
Holdings stock to CLH Supermarket Corp. ("CLH"), a corporation owned by
certain Yucaipa partners, which in turn will sell such shares to the New
Equity
5
<PAGE> 13
Investors for an aggregate purchase price of $57.8 million (which
represents the same price per share as will be paid in the New Equity
Investment). In connection with the New Equity Investment, the New Equity
Investors will contribute the common stock so acquired to New Holdings in
consideration for newly-issued preferred shares. See "Description of
Capital Stock -- New Equity Investment."
(e) Represents New F4L Senior Notes issued pursuant to the F4L Exchange Offers,
which will be part of the same issue as the New F4L Senior Notes issued
pursuant to the Public Offering.
(f) In connection with the RSI Merger, New Holdings will issue $100 million
principal amount of the Seller Debentures as part of the purchase price for
the RSI common stock, up to $10 million of which may be put to Yucaipa on
the closing date of the Merger at a purchase price equal to their principal
amount pursuant to the Put Agreement (as defined). In addition, Yucaipa
will be reimbursed by the Company for (i) any losses incurred upon the
resale of the $10 million principal amount of Seller Debentures which may
be put to it pursuant to the Put Agreement and (ii) its expenses in
connection with the Merger and the related transactions. See "The Merger
and the Financing" and "Description of Holding Company Indebtedness -- The
Seller Debentures."
(g) Includes $425 million to be paid in cash to stockholders of RSI and $0.9
million to be paid in cash to holders of RSI management stock options. See
"Executive Compensation -- New Management Stock Option Plan and Management
Investment."
(h) Represents the purchase of Old RGC Notes tendered pursuant to the Change of
Control Offer which will occur up to 90 days following the Merger. A
portion of the proceeds of the Public Offering will be available to fund
the purchase of Old RGC Notes pursuant to the Change of Control Offer. To
the extent that any such Old RGC Notes are not tendered pursuant to the
Change of Control Offer, any excess proceeds from the Public Offering will
be used to repay borrowings under the New Credit Facility.
(i) Represents accrued interest payable on all debt securities assumed to be
tendered in the Exchange Offers and the F4L Exchange Offers.
(j) Represents payments to Ralphs management with respect to the cancellation
of outstanding equity appreciation rights (the "EARs" or "Equity
Appreciation Rights") in connection with the Merger. Ralphs management will
receive New Holdings stock options in exchange for the cancellation of the
remaining EAR liability of $10 million. See "Executive
Compensation -- Equity Appreciation Rights Plan."
(k) Represents the repayment of outstanding mortgage indebtedness of Ralphs in
the principal amount of $174.4 million, plus the estimated amount of the
prepayment fees payable with respect thereto.
(l) Includes an advisory fee of $24 million to be paid to Yucaipa upon the
closing of the Merger. See "Certain Relationships and Related
Transactions -- Food 4 Less."
6
<PAGE> 14
CORPORATE STRUCTURE
The following tables illustrate (i) the corporate structures of Food 4 Less
and Ralphs immediately prior to the RSI Merger, the RGC Merger, the
Reincorporation Merger and the FFL Merger and (ii) the corporate structure of
the Company and its parent, New Holdings, and the anticipated outstanding
indebtedness of the Company and New Holdings, immediately after such mergers.
Pursuant to the terms of the Merger Agreement, Food 4 Less will merge with and
into RSI and RSI will be the surviving corporation in the RSI Merger.
Immediately following the RSI Merger, RGC will merge with and into RSI and RSI
will be the surviving corporation in the RGC Merger and will change its name to
Ralphs Grocery Company. Prior to these transactions, FFL will merge with and
into Holdings, and Holdings (which will be the surviving corporation) will
reincorporate in Delaware as New Holdings.
BEFORE MERGER
[SEE EDGAR APPENDIX]
7
<PAGE> 15
AFTER MERGER, FFL MERGER AND REINCORPORATION MERGER
[SEE EDGAR APPENDIX]
8
<PAGE> 16
COMPARISON OF OLD RGC NOTES AND NEW NOTES
The following is a brief comparison of the principal features of the Old
RGC Notes and the New Notes. The terms of the New Notes differ from the current
(unamended) terms of the Old RGC Notes in certain significant respects including
those described below. The summary comparisons set forth below do not purport to
be complete and are qualified in their entirety by reference to "Description of
the New Notes" and the "Comparison of Old RGC Notes and New Notes" which is set
forth in Appendix A hereto, and the related definitions contained therein.
<TABLE>
<CAPTION>
OLD RGC NOTES NEW NOTES
--------------------------------------------------- ---------------------------------------------------
<S> <C> <C>
Issuer RGC. The Company, as successor by merger to RGC.
Principal
Amount
Outstanding Old RGC 9% Notes: Up to $450 million.
As of November 1, 1994, $150 million.
Old RGC 10 1/4% Notes:
As of November 1, 1994, $300 million.
Interest Rate Old RGC 9% Notes: Concurrently with the Exchange Offers and the other
bear interest at the rate of 9% per annum. financing transactions described herein, Food 4
Less is offering up to $400 million principal
Old RGC 10 1/4% Notes: amount of New F4L Senior Notes pursuant to the
bear interest at the rate of 10 1/4% per annum. Public Offering. The Public Offering is expected to
price ten business days preceding the Expiration
Date. The New Notes offered pursuant to the
Exchange Offers will bear interest at a fixed rate
per annum equal to the greater of (a) 11.50% and
(b) the Applicable Treasury Rate plus 425 basis
points (4.25 percentage points); provided, however,
that in no event will the New Notes bear interest
at a rate per annum that is less than the interest
rate on the New F4L Senior Notes offered pursuant
to the Public Offering plus 50 basis points (0.50
percentage points).
Interest
Payment
Dates Old RGC 9% Notes: March 1 and September 1, commencing on September 1,
April 1 and October 1. 1995.
Old RGC 10 1/4% Notes:
January 15 and July 15.
Final
Maturity Date Old RGC 9% Notes: March 1, 2005.
April 1, 2003.
Old RGC 10 1/4% Notes:
July 15, 2002.
Optional
Redemption Old RGC 9% Notes: The New Notes will be redeemable at the option of
The Old RGC 9% Notes are subject to redemption in the Company, in whole or in part, at any time on or
whole or in part, at the option of RGC, at any after March 1, 2000, at the following redemption
time on or after April 1, 2000, at 100% of the prices if redeemed during the twelve-month period
principal amount thereof plus accrued and unpaid beginning March 1, of the years indicated below:
interest to the redemption date.
2000 .....................................104.3125%
Old RGC 10 1/4% Notes: 2001 .....................................102.8750%
The Old RGC 10 1/4% Notes are subject to redemption 2002 .....................................101.4375%
in whole or in part, at the option of RGC, at any 2003 and thereafter.......................100.0000%
time on or after July 15, 1997, at the following
redemption prices if redeemed during the in each case plus accrued and unpaid interest to
twelve-month period beginning July 15, 1997 of the the redemption date. In the event that the interest
years indicated below: rate on the New Notes is greater than 11.50%, the
above redemption prices will be correspondingly
1997 ......................................105.0% adjusted.
1998 ......................................102.5%
1999 and thereafter.........................100.0% In addition, on or prior to March 1, 1998, the
Company may, at its option, use the net cash from
in each case plus accrued and unpaid interest to one or more Public Equity Offerings to redeem up to
the redemption date. an aggregate of 35% of the principal amount of the
New Notes originally issued, at a redemption price
equal to 111.5% of the principal amount thereof if
redeemed during the 12 months commencing on March
1, 1995, 110.0625% of the principal amount thereof
if redeemed during the 12 months commencing on
March 1, 1996 and 108.625% of the principal amount
thereof if redeemed during the 12 months commencing
on March 1, 1997, in each case plus accrued and
unpaid interest, to the redemption date.
</TABLE>
9
<PAGE> 17
<TABLE>
<CAPTION>
OLD RGC NOTES NEW NOTES
--------------------------------------------------- ---------------------------------------------------
<S> <C> <C>
Guarantees None. The New Notes will be guaranteed on a senior
subordinated basis by the Subsidiary Guarantors.
The Guarantees will be general unsecured
obligations of the Subsidiary Guarantors, and will
be released upon the occurrence of certain events.
See "Description of the New Notes -- Guarantees."
Ranking Subordinated to all Senior Indebtedness (as defined The New Notes will be senior subordinated unsecured
in the Old RGC Indentures) of RGC which, as of obligations of the Company and will be subordinated
October 9, 1994, was approximately $540 million. in right of payment to all Senior Indebtedness of
the Company, including the Company's obligations
under the New Credit Facility and the indebtedness
under the F4L Senior Notes. At September 17, 1994,
on a pro forma basis after giving effect to the
Merger and the Financing (and certain related
assumptions), the aggregate outstanding amount of
Senior Indebtedness of the Company (excluding
Company guarantees of certain Guarantor Senior
Indebtedness) would have been approximately
$1,554.8 million and the aggregate outstanding
amount of Guarantor Senior Indebtedness of the
Subsidiary Guarantors (excluding guarantees by
Subsidiary Guarantors of certain Senior
Indebtedness of the Company) would have been
approximately $16.0 million and the Company would
have had $218.2 million available to be borrowed
under the New Revolving Facility.
Change of
Control If a Change of Control Triggering Event (the The New Note Indenture will provide that if a
occurrence of both a Change of Control and a Rating Change of Control (as defined) occurs, each holder
Decline (both as defined)) occurs, each holder of will have the right to require the Company to
Old RGC Notes will have the right to require RGC to repurchase such holder's New Notes pursuant to a
repurchase such holder's Old RGC Notes at 101% of Change of Control Offer (as defined) at 101% of the
the principal amount thereof, plus accrued and principal amount thereof plus accrued and unpaid
unpaid interest to the date of repurchase. See interest to the date of repurchase.
"Appendix A -- Comparison of Old RGC Notes and New
Notes -- Change of Control." Standard & Poor's has The New Note Indenture will further provide that,
publicly announced that, upon consummation of the prior to making the Change of Control Offer, the
Merger, it intends to assign a new rating to the Company shall purchase all F4L Senior Notes (or
Old RGC Notes. Such new rating assignment, if permitted refinancings thereof) required to be
implemented, would constitute a Rating Decline purchased by reason of such Change of Control and
under the Old RGC Indentures. The consummation of either repay in full and terminate all commitments
the Merger (which is conditioned upon, among other under, or obtain requisite consents under, the New
things, successful consummation of the Other Debt Credit Facility (or any refinancings thereof).
Financing Transactions and the Bank Financing,
which itself is conditioned upon the receipt of the
Minimum Tender) and the resulting change in
composition of the Board of Directors of RGC,
together with the anticipated and the resulting
Rating Decline would constitute a Change of Control
Triggering Event under the Old RGC Indentures. Upon
such a Change of Control Triggering Event the
Company would be obligated to make the Change of
Control Offer following the Merger for all
outstanding Old RGC Notes at 101% of the principal
amount thereof ($90.9 million, assuming $90 million
of Old RGC Notes are outstanding following the
Merger) plus accrued and unpaid interest to the
date of repurchase.
Certain
Covenants The Old RGC Indentures contain certain covenants, The New Note Indenture will contain certain
including, but not limited to, covenants with covenants, including, but not limited to, covenants
respect to the following matters: (i) limitation on with respect to the following matters: (i)
incurrence of additional indebtedness; (ii) limitation on incurrence of additional
limitation on dividends and other restricted indebtedness; (ii) limitation on dividend and other
payments; (iii) limitation on transactions with restricted payments; (iii) limitation on
affiliates; (iv) limitation on liens securing transactions with affiliates; (iv) limitation on
subordinated indebtedness; (v) limitation on other liens; (v) limitation on other senior subordinated
senior subordinated indebtedness; (vi) limitation indebtedness; (vi) limitation on preferred stock of
on preferred stock of subsidiaries; (vii) subsidiaries; (vii) limitation on dividend and
limitation on dividend and other payment other payment restrictions affecting subsidiaries;
restrictions affecting subsidiaries; and (viii) (viii) limitation on mergers and certain other
limitation on mergers and sales of assets. transactions; (ix) limitation on asset sales; and
(x) limitation on guarantees of certain
indebtedness.
</TABLE>
10
<PAGE> 18
PURPOSE OF THE EXCHANGE OFFERS AND CONSENT SOLICITATION
The Exchange Offers and the Solicitation, together with the other financing
and solicitation transactions described under "The Merger and the Financing,"
are part of the transactions required to consummate the merger of Food 4 Less
with and into RSI. Immediately following the RSI Merger, RGC, a wholly-owned
subsidiary of RSI, will merge with and into RSI and RSI will change its name to
Ralphs Grocery Company.
As a result of the Merger, the New Notes and any Old RGC Notes not tendered
for exchange pursuant to the Exchange Offers, the F4L Senior Notes, the F4L
Senior Subordinated Notes and the indebtedness incurred pursuant to the New
Credit Facility will become the obligations of the Company. In connection with
the consummation of the Merger, Food 4 Less is making the Exchange Offers and
the F4L Exchange Offers to (i) extend the maturities of the existing debt
securities of Food 4 Less and RGC by exchanging such securities for new
longer-term securities and (ii) establish uniform covenants in the New F4L Notes
and the New Notes in order to simplify the capital structure of the Company. The
Exchange Offers afford Old RGC Noteholders an opportunity to elect to
participate in the long-term capitalization of the Company.
Food 4 Less is also seeking Consents to the Proposed Amendments in the
Solicitation. The primary purpose of the Proposed Amendments is to permit the
consummation of the Merger and to eliminate substantially all of the restrictive
covenants in the Old RGC Indentures. See "The Proposed Amendments." If adopted
by holders of a majority in aggregate principal amount of each of the
outstanding Old RGC 9% Notes and the outstanding Old RGC 10 1/4% Notes, the
Proposed Amendments will become effective immediately prior to the consummation
of the Merger, upon Food 4 Less' acceptance of properly tendered Old RGC Notes
for exchange pursuant to the Exchange Offers.
THE EXCHANGE OFFERS AND SOLICITATION
The Exchange Offers........ Food 4 Less is offering (A) to holders of the Old
RGC 9% Notes to exchange for each $1,000 principal
amount of Old RGC 9% Notes exchanged, $1,000
principal amount of New Notes plus $10.00 in cash
and (B) to holders of the Old RGC 10 1/4% Notes to
exchange for each $1,000 principal amount of Old
RGC 10 1/4% Notes exchanged, $1,000 principal
amount of New Notes plus $10.00 in cash, in each
case plus accrued and unpaid interest to the date
of exchange. Each Exchange Offer constitutes a
separate offer by Food 4 Less. See "The Exchange
Offers and Solicitation -- Terms of the Exchange
Offers." Holders of the Old RGC Notes may choose to
participate in the applicable Exchange Offer by
completing the appropriate boxes on the Letter of
Transmittal. See "The Exchange Offers and
Solicitation -- Procedures for Tendering and
Consenting."
Accrued Interest on the Old
RGC Notes................ Tendering holders will receive accrued interest on
Old RGC Notes accepted for exchange up to, but not
including, the date of such exchange. Interest on
the New Notes will accrue from, and including, the
date of such exchange, which shall be the date of
issuance of the New Notes. Accrued interest on
tendered Old RGC Notes will be paid in cash to such
tendering holders promptly after consummation of
the Exchange Offers. See "The Exchange Offers and
Solicitation -- Acceptance of Old RGC Notes for
Exchange; Delivery of New Notes and Payment of the
Exchange Payment."
The Solicitation........... Concurrently with the Exchange Offers, Food 4 Less
is soliciting Consents from each of the Old RGC 9%
Noteholders and the Old RGC 10 1/4% Noteholders
representing at least a majority in aggregate
principal amount of each of the outstanding Old RGC
9% Notes and Old RGC
11
<PAGE> 19
10 1/4% Notes held by persons other than Food 4
Less and its affiliates to the Proposed Amendments
to the Old RGC Indentures. See "The Proposed
Amendments." HOLDERS OF OLD RGC NOTES WHO DESIRE TO
ACCEPT THE APPLICABLE EXCHANGE OFFER MUST CONSENT
TO THE PROPOSED AMENDMENTS. HOLDERS DO NOT HAVE THE
OPTION TO CONSENT TO THE PROPOSED AMENDMENTS
WITHOUT TENDERING INTO THE APPLICABLE EXCHANGE
OFFER. See "The Exchange Offers and
Solicitation -- Procedures for Tendering and
Consenting."
The Company and each of the Old Trustees (as
defined) will execute the Supplemental Indentures
(as defined) implementing the Proposed Amendments
to the Old RGC Indentures after certification to
each of the Old Trustees that Food 4 Less has
received the Requisite Consents. The Proposed
Amendments will only become operative upon
consummation of the Exchange Offers. If the
Proposed Amendments become operative, the
non-tendering holders of Old RGC Notes will be
bound thereby regardless of whether they consented
to the Proposed Amendments. All references herein
to the Exchange Offers shall be deemed to include
the Solicitation.
As of January 1, 1995, there was issued and
outstanding $150 million aggregate principal amount
of Old RGC 9% Notes and $300 million aggregate
principal amount of Old RGC 10 1/4% Notes. See "The
Exchange Offers and Solicitation -- The Consent
Solicitation."
Expiration Date............ Each Exchange Offer and the Solicitation will
expire at 12:00 Midnight, New York City time, on
February 22, 1995, unless extended by Food 4 Less.
Food 4 Less reserves the right to extend either
Exchange Offer or the Solicitation at its
discretion, in which event the term "Expiration
Date" shall mean the latest time and date at which
such Exchange Offer or the Solicitation, as the
case may be, as so extended by Food 4 Less, shall
expire. Food 4 Less expects to extend the
Expiration Date to a date that is ten Business Days
following the pricing of the Public Offering. See
"The Exchange Offers and Solicitation -- Expiration
Date; Extensions; Termination; Amendments."
Withdrawal Rights and
Revocation of Consents... Tenders of Old RGC Notes pursuant to an Exchange
Offer may be withdrawn and Consents may be revoked
at any time until the later of (a) such time as the
Requisite Consents with respect to the applicable
issue of Old RGC Notes have been received and the
Supplemental Indenture for such issue has been
executed and (b) 12:00 Midnight, New York City
time, on February 22, 1995. Thereafter, such
tenders may be withdrawn and Consents may be
revoked if the Exchange Offer with respect to such
Old RGC Notes is terminated without any Old RGC
Notes being accepted for exchange thereunder. Any
valid revocation of Consents will automatically
constitute a withdrawal of the Old RGC Notes to
which such Consents relate. See "The Exchange
Offers and Solicitation -- Withdrawal of Tenders
and Revocation of Consents."
Conditions................. Notwithstanding any other provision of the Exchange
Offers or the Solicitation, the obligation of Food
4 Less to accept for exchange any validly tendered
Old RGC Note is conditioned upon, among other
things, the satisfaction or waiver of certain
conditions, including (i) satisfaction of the
Minimum Tender (i.e., at least 80% of the
12
<PAGE> 20
aggregate principal amount of the outstanding Old
RGC Notes being validly tendered and not withdrawn
pursuant to the Exchange Offers prior to the
Expiration Date), (ii) the receipt of the Requisite
Consents (i.e., Consents from Old RGC Noteholders
representing at least a majority in aggregate
principal amount of each of the outstanding Old RGC
9% Notes and Old RGC 10 1/4% Notes held by persons
other than RGC and its affiliates) on or prior to
the Expiration Date, (iii) satisfaction or waiver,
in Food 4 Less' sole discretion, of all conditions
precedent to the RSI Merger, (iv) the prior or
contemporaneous successful completion of the Other
Debt Financing Transactions (including the Public
Offering) and (v) the prior or contemporaneous
consummation of the Bank Financing and the New
Equity Investment. In addition, consummation of
each Exchange Offer is subject to the consummation
of the other Exchange Offer. There can be no
assurance that such conditions will be satisfied or
waived. Food 4 Less reserves the right to waive
certain of the conditions to either Exchange Offer
and, subject to certain limitations, to extend,
terminate, cancel or otherwise modify or amend
either Exchange Offer in any respect. See "The
Exchange Offers and Solicitation -- Conditions."
Procedures for Tendering
and Consenting............. Any Old RGC Noteholder desiring to accept the
applicable Exchange Offer should either (i)
complete and sign the Letter of Transmittal or
facsimile thereof, have his signature thereon
guaranteed and forward the Letter of Transmittal,
together with the certificate(s) evidencing his Old
RGC Notes and any other required documents, to the
Exchange Agent, (ii) comply with the guaranteed
delivery procedures described under the heading
"The Exchange Offers and Solicitation -- Guaranteed
Delivery Procedure," (iii) tender such Old RGC
Notes pursuant to the procedure for book-entry
transfer or (iv) request his broker, dealer,
commercial bank, trust company or other nominee to
effect the transaction for him, in each case prior
to the Expiration Date. Old RGC Noteholders having
Old RGC Notes registered in the name of a broker,
dealer, commercial bank, trust company or other
nominee must contact such person if such holder
desires to tender such Old RGC Notes. HOLDERS OF
OLD RGC NOTES WHO DESIRE TO ACCEPT THE APPLICABLE
EXCHANGE OFFER MUST CONSENT TO THE PROPOSED
AMENDMENTS. A HOLDER OF OLD RGC NOTES WHO DESIRES
TO TENDER INTO THE APPLICABLE EXCHANGE OFFER WITH
RESPECT TO ANY OLD RGC 9% NOTES OR OLD RGC 10 1/4%
NOTES MUST TENDER ALL OF SUCH HOLDERS' OLD RGC 9%
NOTES OR OLD RGC 10 1/4% NOTES, AS THE CASE MAY BE.
See "The Exchange Offers and
Solicitation -- Procedures for Tendering and
Consenting."
Delivery of New Notes and
Payment of the
Exchange Payment......... Upon satisfaction or waiver of the conditions to
each of the Exchange Offers, Food 4 Less will
accept all Old RGC Notes which are properly
tendered and not withdrawn, and promptly following
such acceptance, the Company will issue, or cause
to be issued, the New Notes and will pay, or cause
to be paid, the Exchange Payment in accordance with
the instructions of the tendering Old RGC
Noteholder. See "The Exchange
13
<PAGE> 21
Offers and Solicitation -- Acceptance of Old RGC
Notes for Exchange; Delivery of New Notes and
Payment of the Exchange Payment."
Certain Consequences to
Non-Tendering Old RGC
Noteholders.............. Consummation of the Exchange Offers and the
effectiveness of the Proposed Amendments may have
adverse consequences to non-tendering Old RGC
Noteholders, including that non-tendering holders
of Old RGC Notes will no longer be entitled to the
benefit of certain of the restrictive covenants
currently contained in the Old RGC Indentures and
that the reduced amount of outstanding Old RGC
Notes as a result of the Exchange Offers may
adversely affect the trading market, liquidity and
market price of the Old RGC Notes. If the Requisite
Consents are received and accepted, the Proposed
Amendments will be binding on all non-tendering Old
RGC Noteholders. See "Risk Factors -- Potential
Adverse Effects of the Exchange Offers and the
Solicitation on Holders of Untendered Old RGC
Notes" and "-- Effect of the Proposed Amendments on
Holders That Do Not Exchange."
No Appraisal Rights........ No appraisal rights are available to holders of Old
RGC Notes in connection with the Exchange Offers.
Certain Federal Income Tax
Considerations........... Holders of Old RGC Notes who exchange Old RGC Notes
for New Notes and cash should recognize gain, but
not loss, for federal income tax purposes equal to
the lesser of (i) the amount of cash received
(other than that portion, if any, attributable to
accrued but unpaid interest on the Old RGC Notes)
or (ii) the amount of any gain realized on the
exchange of Old RGC Notes for New Notes and cash.
See "Certain Federal Income Tax Considerations."
Risk Factors............... See "Risk Factors" for a discussion of certain
factors that should be considered in evaluating the
Exchange Offers and the Solicitation.
Dealer Managers............ BT Securities Corporation ("BT Securities"), CS
First Boston Corporation ("CS First Boston") and
Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ") are serving as Dealer Managers in
connection with the Exchange Offers and the
Solicitation. Their telephone numbers are (212)
775-4300, (212) 909-2873 and (212) 504-4753,
respectively.
Exchange Agent............. Bankers Trust, an affiliate of BT Securities, is
serving as Exchange Agent in connection with the
Exchange Offers and the Solicitation. Its telephone
number is (212) 250-6270.
Information Agent.......... D.F. King & Co., Inc. is serving as Information
Agent in connection with the Exchange Offers and
the Solicitation. Requests for additional copies of
this Prospectus and Solicitation Statement, the
Letter of Transmittal and any other required
documents should be directed to the Information
Agent or any Dealer Manager at one of its addresses
set forth on the back cover of this Prospectus and
Solicitation Statement. The telephone number of the
Information Agent is (800) 669-5550.
14
<PAGE> 22
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth summary unaudited pro forma combined
financial data for the 52 weeks ended June 25, 1994 and for the 12 weeks ended
September 17, 1994, after giving effect to the Merger and the Financing (and
certain related assumptions), as if such transactions had occurred on June 27,
1993, with respect to the pro forma operating and other data, and as of
September 17, 1994, with respect to the pro forma balance sheet data. Such pro
forma information combines the results of operations of Food 4 Less for the 52
weeks ended June 25, 1994 and the results of operations and balance sheet data
as of and for the 12 weeks ended September 17, 1994, with the results of
operations of Ralphs for the 52 weeks ended July 17, 1994 and the results of
operations and balance sheet data as of and for the 12 weeks ended October 9,
1994, respectively. See "The Merger and the Financing." The pro forma financial
data set forth below is not necessarily indicative of the results that actually
would have been achieved had such transactions been consummated as of the dates
indicated, or that may be achieved in the future. The following pro forma
financial data should be read in conjunction with the "Unaudited Pro Forma
Combined Financial Statements," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the historical consolidated
financial statements of Food 4 Less and Ralphs and related notes thereto,
included elsewhere in this Prospectus and Solicitation Statement.
<TABLE>
<CAPTION>
52 WEEKS ENDED 12 WEEKS ENDED
JUNE 25, 1994 SEPTEMBER 17, 1994
---------------------- ------------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
OPERATING DATA:
Sales.................................................... $5,053.5 $1,160.8
Gross profit............................................. 1,048.2 231.6
Selling, general and administrative expenses............. 829.9 187.6
Interest expense:
Cash.................................................. 224.6 53.3
Non-cash.............................................. 15.2 3.3
Amortization of debt issuance costs................... 11.7 2.7
---------- ----------
Total interest expense................................... 251.5 59.3
Net earnings (loss)(a)................................... (85.8) (23.2)
Ratio of earnings to fixed charges(b).................... -- --
BALANCE SHEET DATA (END OF PERIOD):
Working capital (deficit)........................................................ $ (5.7)
Total assets..................................................................... 3,055.1
Total debt....................................................................... 1,971.7
Stockholder's equity............................................................. 249.2
OTHER DATA:
Depreciation and amortization............................ $ 151.0 $ 34.9
Capital expenditures(c).................................. 123.2 36.3
Stores open at end of period(d).......................... -- 395
EBITDA (as defined)(a)(e)(f)............................. $ 342.5 $ 79.5
EBITDA margin(g)......................................... 6.8% 6.9%
</TABLE>
- ---------------
(a) The summary unaudited pro forma combined financial data and the results of
operations and EBITDA (as defined) for the 52 weeks ended June 25, 1994 and
the 12 weeks ended September 17, 1994 do not include certain one-time
non-recurring costs related to (i) severance payments under certain
employment contracts with Food 4 Less management totaling $1.4 million that
are subject to change of control provisions and the achievement of earnings
and sales targets, (ii) costs related to the integration of the Company's
operations, which are estimated to be $50.0 million over a three-year
period, (iii) $1.8 million in costs related to the cancellation of an
employment agreement, and (iv) other costs related to warehouse closures,
which costs are not presently determinable.
(b) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of earnings before income taxes, cumulative effect of change in
accounting principles, extraordinary items and fixed charges before
capitalized interest. "Fixed charges" consist of interest expense (including
amortization of self-insurance reserves discount), capitalized interest,
amortization of deferred debt issuance costs and one-third of rental expense
(the portion deemed representative of the interest factor). The Company's
pro forma earnings were insufficient to cover pro forma fixed charges by
approximately $85.8 million and $23.2 million for the 52 weeks ended
15
<PAGE> 23
June 25, 1994 and the 12 weeks ended September 17, 1994, respectively.
However, such pro forma earnings included non-cash charges of $182.9 million
and $41.8 million, respectively, primarily consisting of depreciation and
amortization.
(c) Does not include Merger-related capital expenditures of $61.0 million and
$10.0 million for the 52 weeks ended June 25, 1994 and the 12 weeks ended
September 17, 1994, respectively.
(d) The pro forma number of stores is based on October 1, 1994 totals, but gives
effect to the closing or divestiture of 32 stores (29 Food 4 Less
conventional supermarkets or warehouse stores and 3 Ralphs stores) in
connection with the Merger and the closure of 2 additional Food 4 Less
stores.
(e) "EBITDA", as defined and presented historically by RGC, represents net
earnings before interest expense, income tax expense (benefit), depreciation
and amortization expense, provision for Equity Appreciation Rights,
provision for tax indemnification payments to Federated Department Stores,
Inc. ("Federated"), provision for postretirement benefits, the LIFO charge,
extraordinary item relating to debt refinancing, provision for legal
settlement, provision for restructuring, provision for earthquake losses, a
one-time charge for Teamsters Union sick pay benefits and gains and losses
on disposal of assets. EBITDA is a widely accepted financial indicator of a
company's ability to service debt. However, EBITDA should not be construed
as an alternative to operating income or to cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) and should not be construed as an indication of the Company's
operating performance or as a measure of liquidity. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(f) Pro forma EBITDA does not give any effect to $90 million of anticipated net
annual cost savings which management believes are achievable by the end of
the fourth full year of combined operations. It is anticipated that
approximately $117 million in Merger-related capital expenditures and $50
million of other non-recurring costs will be required to complete store
conversions, integrate operations and expand warehouse facilities over the
same period. Although a portion of the anticipated cost savings is premised
upon the completion of such capital expenditures, management believes that
over 70% of the cost savings could be achieved without making any
Merger-related capital expenditures. As shown below, the sum of the
components of the estimated annual cost savings exceeds $90 million;
however, management has made an offsetting adjustment to reflect its
expectation that a portion of the savings will be reinvested in the
Company's operations. These anticipated savings are based on estimates and
assumptions made by the Company that are inherently uncertain, though
considered reasonable by the Company, and are subject to significant
business, economic and competitive uncertainties and contingencies, all of
which are difficult to predict and many of which are beyond the control of
management. As a result, there can be no assurance that such savings will be
achieved. See "Business -- The Merger" and "Risk Factors -- Ability to
Achieve Anticipated Cost Savings." The components of the estimated cost
savings are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Pro forma EBITDA for the 52 weeks ended June 25, 1994........................ $ 342.5
Estimated net annual cost savings:
Reduced advertising expenses............................................... 28.0
Reduced store operations expense........................................... 21.0
Increased volume purchasing efficiencies................................... 19.0
Warehousing and distribution efficiencies.................................. 16.0
Consolidated manufacturing................................................. 11.0
Consolidated administrative functions...................................... 15.0
Less: Annual reinvestment of cost savings.................................. (20.0)
-------
Total estimated net annual cost savings...................................... $ 90.0
-------
Sum of EBITDA and full amount of estimated annual cost savings to be realized
over four years............................................................ $ 432.5
=======
</TABLE>
(g) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
16
<PAGE> 24
SUMMARY HISTORICAL FINANCIAL DATA OF RALPHS
The following table sets forth summary historical financial data of RGC (as
the predecessor of RSI) as of and for the 52 weeks ended January 28, 1990, the
53 weeks ended February 3, 1991 and the 52 weeks ended February 2, 1992, and
summary historical financial data of RSI as of and for the 52 weeks ended
January 31, 1993 and January 30, 1994, which have been derived from the
financial statements of RSI and RGC audited by KPMG Peat Marwick LLP,
independent certified public accountants. The summary historical financial data
of RSI presented below as of and for the 36 weeks ended October 10, 1993 and
October 9, 1994 have been derived from unaudited interim financial statements of
RSI which, in the opinion of management, reflect all material adjustments,
consisting of only normal recurring adjustments, necessary for a fair
presentation of such data. The following information should be read in
conjunction with the Unaudited Pro Forma Combined Financial Statements,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical consolidated financial statements of RSI and RGC
and related notes thereto included elsewhere in this Prospectus and Solicitation
Statement.
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 36 WEEKS 36 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
JANUARY 28, FEBRUARY 3, FEBRUARY 2, JANUARY 31, JANUARY 30, OCTOBER 10, OCTOBER 9,
1990 1991 1992 1993 1994 1993 1994
----------- ----------- ----------- ----------- ----------- ----------- ----------
(DOLLARS IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales........................ $2,556.1 $2,799.1 $2,889.2 $2,843.8 $2,730.2 $1,874.2 $1,856.3
Gross profit................. 505.0 573.7 614.0 626.6 636.5 429.1 423.3
Selling, general and
administrative
expenses(a)................ 391.0 438.0 459.2 470.0 471.0 321.5 317.8
Interest expense(b).......... 130.9 128.5 130.2 125.6 108.8 75.7 77.2
Net earnings (loss)(c)....... (69.7) (51.4) (41.2) (76.1) 138.4(i) 23.7 19.9
Ratio of earnings to fixed
charges(d)................. --(d) --(d) --(d) 1.02x 1.24x 1.27x 1.22x
BALANCE SHEET DATA (end of
period):
Working capital surplus
(deficit).................. $ (46.5) $ (93.9) $ (114.2) $ (122.0) $ (73.0) $ (87.5) $ (118.3)
Total assets................. 1,404.8 1,406.4 1,357.6 1,388.5 1,483.7 1,363.9 1,491.4
Total debt(e)................ 991.0 986.1 941.9 1,029.8 998.9 990.4 1,000.6
Redeemable stock............. 3.0 3.0 3.0 -- -- -- --
Stockholders' equity
(deficit).................. 35.4 (16.0) (57.2) (133.3) 5.1 (109.5) 15.0
OTHER DATA:
Depreciation and
amortization(f)............ $ 81.6 $ 75.2 $ 76.6 $ 76.9 $ 74.5 $ 51.7 $ 51.9
Capital expenditures......... 103.5 87.6 50.4 102.7 62.2 46.8 44.5
Stores open at end of
period..................... 142 150 158 159 165 163 168
EBITDA (as defined)(g)....... $ 188.8 $ 207.0 $ 225.8 $ 227.3 $ 230.2 $ 155.9 $ 156.1
EBITDA margin(h)............. 7.4% 7.4% 7.8% 8.0% 8.4% 8.3% 8.4%
</TABLE>
- ---------------
(a) Includes provision for post retirement benefits other than pensions of $2.2
million, $2.6 million, $3.3 million, $3.4 million, $2.1 million and $1.8
million for the 53 weeks ended February 3, 1991, the 52 weeks ended February
2, 1992, January 31, 1993 and January 30, 1994 and the 36 weeks ended
October 10, 1993 and October 9, 1994, respectively.
(b) Interest expense includes non-cash charges related to the amortization of
deferred debt issuance costs of $4.1 million for the 52 weeks ended January
28, 1990, $4.1 million for the 53 weeks ended February 3, 1991, $5.0 million
for the 52 weeks ended February 2, 1992, $5.5 million for the 52 weeks ended
January 31, 1993, $6.5 million for the 52 weeks ended January 30, 1994 and
$4.5 and $4.3 for the 36 weeks ended October 10, 1993 and October 9, 1994,
respectively.
(c) Net earnings (loss) includes expenses relating to provisions for Equity
Appreciation Rights and for tax indemnification payments to Federated,
extraordinary item relating to debt refinancing, loss on disposal of assets,
provisions for postretirement and pension benefits and provision for
earthquake losses.
(d) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of earnings before income taxes, cumulative effect of change in
accounting principles, extraordinary item and fixed charges before
capitalized interest. "Fixed charges" consist of interest expense (including
amortization of self-insurance reserves discount), capitalized interest,
amortization of deferred debt issuance costs and one-third of rental expense
(the portion deemed representative of the interest factor). Earnings were
insufficient to cover fixed charges for the 52 weeks ended January 28, 1990,
the 53 weeks ended February 3, 1991 and the 52 weeks ended February 2, 1992
by approximately $57.7 million, $25.5 million and $27.7 million,
respectively.
(e) Total debt includes long-term debt, current maturities of long-term debt,
short-term debt and capital lease obligations.
(f) For the 52 weeks ended January 28, 1990, the 53 weeks ended February 3,
1991, the 52 weeks ended February 2, 1992, January 31, 1993 and January 30,
1994 and the 36 weeks ended October 10, 1993 and October 9, 1994,
depreciation and amortization includes amortization of the excess of cost
over net assets acquired of $11.7 million, $11.0 million, $11.0 million,
$11.0 million, $11.0 million, $7.6 million and $7.6 million, respectively.
(g) "EBITDA", as defined and presented historically by RGC, represents earnings
before interest expense, income tax expense (benefit), depreciation and
amortization expense, provisions for Equity Appreciation Rights, provision
for tax indemnification payments to Federated, provision for postretirement
benefits, the LIFO charge, extraordinary item relating to debt refinancing,
provision for legal settlement, provision for restructuring, provision for
earthquake losses, a one-time charge for Teamsters Union sick pay benefits
and loss on disposal of assets. EBITDA is a widely accepted financial
indicator of a company's ability to service debt. However, EBITDA should not
be construed as an alternative to operating income or to cash flows from
operating activities (as determined in accordance with generally accepted
accounting principles) and should not be construed as an indication of
Ralphs' operating performance or as a measure of liquidity. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(h) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
(i) Includes recognition of $109.1 million of deferred income tax benefit and
$1.1 million current income tax expense for Fiscal 1993 (see Note 11 of
Notes to Consolidated Financial Statements of Ralphs Supermarkets, Inc.).
17
<PAGE> 25
SUMMARY HISTORICAL FINANCIAL DATA OF FOOD 4 LESS
The following table sets forth summary historical financial data of Food 4
Less as of and 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 which have been derived
from the financial statements of Food 4 Less audited by Arthur Andersen LLP,
independent public accountants. The summary historical financial data of Food 4
Less presented below as of and for the 12 weeks ended September 18, 1993 and
September 17, 1994 have been derived from unaudited interim financial statements
of Food 4 Less which, in the opinion of management, reflect all material
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of such data. The following information should be read in
conjunction with the Unaudited Pro Forma Combined Financial Statements,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical consolidated financial statements of Food 4 Less
and related notes thereto included elsewhere in this Prospectus and Solicitation
Statement.
<TABLE>
<CAPTION>
53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 12 WEEKS 12 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30, JUNE 29, JUNE 27, JUNE 26, JUNE 25, SEPTEMBER 18, SEPTEMBER 17,
1990 1991(A) 1992 1993 1994(B) 1993 1994
-------- -------- -------- -------- -------- ------------- -------------
(DOLLARS IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales................................... $1,318.2 $1,606.6 $2,913.5 $2,742.0 $2,585.2 $616.6 $598.7
Gross profit............................ 204.8 265.7 520.8 484.2 469.3 112.4 103.0
Selling, general, administrative and
other expenses........................ 157.8 213.1 469.7 434.9 388.8 95.7 88.1
Interest expense(c)..................... 50.8 50.1 70.2 69.8 68.3 15.7 16.0
Net loss................................ (10.1) (9.6) (33.8) (27.4) (2.7) (1.1) (3.3)
Ratio of earnings to fixed charges(d)... --(d) --(d) --(d) --(d) 1.0x --(d) --(d)
BALANCE SHEET DATA (end of period)(e):
Working capital surplus (deficit)....... $ (40.5) $ 13.7 $ (66.3) $ (19.2) $ (54.9) $(18.6) $(58.1)
Total assets............................ 574.7 980.0 998.5 957.8 980.1 967.3 978.5
Total debt(f)........................... 360.7 558.9 525.3 538.1 517.9 530.6 518.8
Redeemable stock........................ 5.1 -- -- -- -- -- --
Stockholder's equity.................... 20.6 84.6 50.8 72.9 69.0 71.6 65.7
OTHER DATA:
Depreciation and amortization(g)........ $ 25.8 $ 31.9 $ 54.9 $ 57.6 $ 57.1 $ 13.1 $ 13.0
Capital expenditures.................... 36.4 34.7 60.3 53.5 57.5 6.6 16.8
Stores open at end of period............ 115 259 249 248 258 248 261
EBITDA (as defined)(h).................. $ 69.5 $ 80.7 $ 103.1 $ 105.9 $ 130.5 $ 29.0 $ 29.7
EBITDA margin(i)........................ 5.3% 5.0% 3.5% 3.9% 5.0% 4.7% 5.0%
</TABLE>
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(a) Operating data for the 52 weeks ended June 29, 1991 include the results of
Alpha Beta only from June 17, 1991, the date of its acquisition. Alpha
Beta's sales for the two weeks ended June 29, 1991 were $59.2 million.
(b) Operating data for the 52 weeks ended June 25, 1994 include the results of
the Food Barn stores, which were not material, from March 29, 1994, the date
of the Food Barn acquisition.
(c) Interest expense includes non-cash charges related to the amortization of
deferred financing costs of $4.1 million for the 53 weeks ended June 30,
1990, $5.2 million for the 52 weeks ended June 29, 1991, $6.3 million for
the 52 weeks ended June 27, 1992, $4.9 million for the 52 weeks ended June
26, 1993, $5.5 million for the 52 weeks ended June 25, 1994, $1.2 million
for the 12 weeks ended September 18, 1993 and $1.3 million for the 12 weeks
ended September 17, 1994.
(d) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of loss before provision for income taxes and extraordinary charges
plus fixed charges. "Fixed charges" consist of interest on all indebtedness,
amortization of deferred debt financing costs and one-third of rental
expense (the portion deemed representative of the interest factor). Earnings
were insufficient to cover fixed charges for the 53 weeks ended June 30,
1990, the 52 weeks ended June 29, 1991, June 27, 1992 and June 26, 1993 and
the 12 weeks ended September 18, 1993 and September 17, 1994, by
approximately $9.1 million, $3.4 million, $25.6 million, $25.9 million, $0.8
million and $2.4 million respectively. However, such earnings included
non-cash charges of $29.9 million for the 53 weeks ended June 30, 1990,
$37.0 million for the 52 weeks ended June 29, 1991, $61.2 million for the 52
weeks ended June 27, 1992, $62.5 million for the 52 weeks ended June 26,
1993, $14.3 million for the 12 weeks ended September 18, 1993 and $14.3
million for the 12 weeks ended September 17, 1994, primarily consisting of
depreciation and amortization.
(e) Balance sheet data as of June 30, 1990 relate to Food 4 Less and include the
effect of the acquisition of Breco Holding Company (the "BHC Acquisition"),
as well as the acquisitions of Bell Markets, Inc. and certain assets of ABC
Market Corp. Balance sheet data as of June 29, 1991, June 27, 1992, June 26,
1993 and September 18, 1993 relate to Food 4 Less and reflect the Alpha Beta
acquisition and the financings and refinancings associated therewith.
Balance sheet data as of June 25, 1994 and September 17, 1994 relate to Food
4 Less and reflect the acquisition of the Food Barn stores.
(f) Total debt includes long-term debt, current maturities of long-term debt and
capital lease obligations.
(g) For the 53 weeks ended June 30, 1990, the 52 weeks ended June 29, 1991, June
27, 1992, June 26, 1993 and June 25, 1994, and for the 12 weeks ended
September 18, 1993 and September 17, 1994, depreciation and amortization
includes amortization of excess of cost over net assets acquired of $5.3
million, $5.3 million, $7.8 million, $7.6 million, $7.7 million, $1.8
million and $1.8 million, respectively.
(h) "EBITDA," as defined and presented historically by Food 4 Less, represents
income before interest expense, depreciation and amortization expense, the
LIFO provision, provision for income taxes, provision for earthquake losses
and a one-time charge for Teamsters Union sick pay benefits. EBITDA is a
widely accepted financial indicator of a company's ability to service debt.
However, EBITDA should not be construed as an alternative to operating
income or to cash flows from operating activities (as determined in
accordance with generally accepted accounting principles) and should not be
construed as an indication of Food 4 Less' operating performance or as a
measure of liquidity. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(i) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
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<PAGE> 26
RISK FACTORS
Before deciding whether to participate in the applicable Exchange Offer and
the Solicitation, each holder of Old RGC Notes should carefully consider the
following factors, in addition to the other matters described in this Prospectus
and Solicitation Statement.
LEVERAGE AND DEBT SERVICE
Following the consummation of the Merger and the Financing, the Company
will be highly leveraged. At September 17, 1994, pro forma for the Merger and
the Financing (and certain related assumptions), the Company's total
indebtedness (including current maturities) and stockholder's equity would have
been $1,971.7 million and $249.2 million, respectively, and the Company would
have had an additional $218.2 million available to be borrowed under the New
Revolving Facility. In addition, as of September 17, 1994, after giving effect
to the Merger and the Financing, scheduled payments under operating leases of
the Company and its subsidiaries for the twelve months following the Merger
would have been $111.6 million. On the same pro forma basis, for the 52 weeks
ended June 25, 1994 and the 12 weeks ended September 17, 1994, the Company's
earnings before fixed charges would have been inadequate to cover fixed charges
by $85.8 million and $23.2 million, respectively. However, such earnings include
non-cash charges of $182.9 million and $41.8 million, respectively, primarily
consisting of depreciation and amortization. At September 17, 1994, after giving
effect to the Merger, the FFL Merger, the Financing and the Reincorporation
Merger (and certain related assumptions), New Holdings would have had (i) $61.4
million in accreted value of Indebtedness outstanding under the Holdings
Discount Notes, which will accrete to $103.6 million aggregate principal amount
on December 15, 1997 and (ii) $100 million principal amount of Indebtedness
outstanding under the Seller Debentures which, through payment of interest
thereon with additional Seller Debentures, will increase to $187.7 million
aggregate principal amount over a five-year period. The New Notes Indenture
permits the Company (in the absence of a default or event of default thereunder)
to pay cash dividends to New Holdings in an amount sufficient to allow New
Holdings to pay interest on such Indebtedness when due. The Company's ability to
make scheduled payments of the principal of, or interest on, or to refinance its
Indebtedness (including the New Notes) and to make scheduled payments under its
operating leases depends on its future performance, which to a certain extent is
subject to economic, financial, competitive and other factors beyond its
control.
The pro forma financial information presented in this Prospectus and
Solicitation Statement is based on, among other things, the assumption that the
interest rate borne by the New F4L Senior Notes and the New Notes will be the
minimum interest rates specified herein of 11% and 11.50%, respectively. In the
event that the formula for establishing the interest rate on the New F4L Senior
Notes and the New Notes results in interest rates that are higher than the
respective specified minimum assumed interest rates, the Company's interest
expense and deficiency of earnings to fixed charges would increase over the
amounts reflected in such pro forma financial information. For a description of
the effects on the pro forma financial information of varying acceptance levels
in the Exchange Offers and the F4L Exchange Offers and of varying interest
rates, see note (l) to the Notes to Unaudited Pro Forma Combined Statement of
Operations.
Based upon the current level of operations and anticipated cost savings,
the Company believes that its cash flow from operations, together with
borrowings under the New Revolving Facility and its other sources of liquidity
(including leases), will be adequate to meet its anticipated requirements for
working capital, capital expenditures, interest payments and scheduled principal
payments over the next several years. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources." There can be no assurance, however, that the Company's business will
continue to generate cash flow at or above current levels or that anticipated
cost savings can be fully achieved. If the Company is unable to generate
sufficient cash flow from operations in the future to service its debt and make
necessary capital expenditures, or if its future earnings growth is insufficient
to amortize all required principal payments out of internally generated funds,
the Company may be required to refinance all or a portion of its existing debt,
sell assets or obtain additional financing. There can be no assurance that any
such refinancing or asset sales would be possible or that any additional
financing could be obtained, particularly in view of the Company's high level
19
<PAGE> 27
of debt following the Merger and the fact that substantially all of its assets
will be pledged to secure the borrowings under the New Credit Facility and other
secured obligations.
The Company's high level of debt will have several important effects on its
future operations, including the following: (a) the Company will have
significant cash requirements to service debt, reducing funds available for
operations and future business opportunities and increasing the Company's
vulnerability to adverse general economic and industry conditions; (b) the
financial covenants and other restrictions contained in the New Credit Facility
and other agreements relating to the Company's senior indebtedness and in the
New Notes Indenture will require the Company to meet certain financial tests and
will restrict its ability to borrow additional funds, to dispose of assets or to
pay cash dividends; and (c) because of the Company's debt service requirements,
funds available for working capital, capital expenditures, acquisitions and
general corporate purposes, may be limited. The Company's leveraged position may
increase its vulnerability to competitive pressures. The Company's continued
growth depends, in part, on its ability to continue its expansion and store
conversion efforts, and, therefore, its inability to finance capital
expenditures through borrowed funds could have a material adverse effect on the
Company's future operations. Moreover, any default under the documents governing
the indebtedness of the Company could have a significant adverse effect on the
market value of the New Notes.
ABILITY TO ACHIEVE ANTICIPATED COST SAVINGS
Management of the Company has estimated that approximately $90 million of
annualized net cost savings can be achieved over a four year period as a result
of integrating the operations of Ralphs and Food 4 Less. See "Business -- The
Merger." The cost savings estimates have been prepared solely by members of the
management of each company. The estimates necessarily make numerous assumptions
as to future sales levels and other operating results, the availability of funds
for capital expenditures as well as general industry and business conditions and
other matters, many of which are beyond the control of the Company. Several of
the cost savings estimates are premised on the assumption that certain levels of
efficiency presently maintained by either Food 4 Less or Ralphs can be achieved
by the combined Company following the Merger. Other estimates are based on a
management consensus as to what levels of purchasing and similar efficiencies
should be achievable by an entity the size of the Company. Certain of the
estimates relating to the consolidation of warehousing and distribution
facilities assume the completion of certain capital expenditures to expand the
capacity of the continuing facilities. It is anticipated that $117 million in
Merger-related capital expenditures and $50 million of other non-recurring costs
will be required to complete store conversions, integrate operations and expand
warehouse facilities over the four year period following the Merger, without
which the estimated cost savings may not be fully achievable. Management expects
that the non-recurring integration costs will effectively offset any cost
savings in the first year following the Merger. Because the assumptions
underlying the cost savings estimates are numerous and detailed, management
believes that it would be impractical to specify all such assumptions in this
Prospectus and Consent Solicitation. However, management also believes that all
such assumptions are reasonable in light of existing business conditions and
prospects. Investors are cautioned that the actual cost savings realized by the
Company may vary considerably from the estimates contained herein and that undue
reliance should not be placed upon such estimates. There also can be no
assurance that unforeseen costs and expenses or other factors will not offset
the projected cost savings in whole or in part.
REGIONAL ECONOMIC CONDITIONS
Following the consummation of the Merger, a substantial percentage of the
Company's business (representing approximately 90% of pro forma sales) will be
conducted in Southern California. Southern California began to experience a
significant economic downturn in 1991 and has only recently begun a mild
recovery. The economy in Southern California has been affected by substantial
job losses in the defense and aerospace industries and other adverse economic
trends. These adverse regional economic conditions have resulted in declining
sales levels at Ralphs and Food 4 Less in recent periods. For the 52 weeks ended
June 25, 1994, and the 52 weeks ended January 30, 1994, Food 4 Less and Ralphs
experienced 6.9% and 5.8% declines, respectively, in comparable store sales as
compared with the comparable period in the prior year, primarily reflecting the
weak economy in Southern California, lower levels of price inflation in certain
food product categories, and increased competitive store openings in Southern
California. For the 12 weeks ended
20
<PAGE> 28
September 17, 1994 and the 36 weeks ended October 9, 1994, Food 4 Less and
Ralphs experienced 5.8% and 3.8% declines, respectively, in comparable store
sales. Although the declines in comparable store sales have begun to moderate in
recent months, and management believes that sales trends will continue to be
favorable, there can be no assurance that this trend will continue or that
substantial future declines in same store sales will not occur. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
COMPETITION
The supermarket industry is highly competitive and characterized by narrow
profit margins. The Company's competitors in each of its operating divisions
include national and regional supermarket chains, independent and specialty
grocers, drug and convenience stores, and the newer "alternative format" food
stores, including warehouse club stores, deep discount drug stores and "super
centers." Supermarket chains generally compete on the basis of location, quality
of products, service, price, product variety and store condition. The Company
regularly monitors its competitors' prices and adjusts its prices and marketing
strategy as management deems appropriate in light of existing conditions. Some
of the Company's competitors have greater financial resources than the Company
and could use these resources to take steps which could adversely affect the
Company's competitive position. See "Business -- Competition."
CORPORATE STRUCTURE; EFFECTS OF ASSET ENCUMBRANCES
Following the consummation of the Merger, a significant portion of the
Company's operating income will be generated by its subsidiaries. As a result,
the Company will rely on distributions or advances from its subsidiaries to
provide a portion of the funds necessary to meet its debt service obligations,
including the payment of principal and interest on the New Note. Should the
Company fail to satisfy any payment obligation under the New Notes, the holders
would have a direct claim therefor against the Subsidiary Guarantors pursuant to
their Guarantees (as defined). However, the capital stock of, and substantially
all of the assets of, the Subsidiary Guarantors will be pledged to secure the
obligations of the Company and such subsidiaries under the New Credit Facility
and other secured obligations. The New Note Indenture will limit, but not
prohibit, the ability of the Company and its subsidiaries to incur additional
secured indebtedness. In the event of a default under the New Credit Facility
(or any other secured indebtedness), the lenders thereunder would be entitled to
a claim on the assets securing such indebtedness which is prior to any claim of
the holders of the New Notes. Accordingly, there may be insufficient assets
remaining after payment of prior secured claims (including claims of lenders
under the New Credit Facility) to pay amounts due on the New Notes.
In addition, if a court were to avoid the Guarantees under fraudulent
conveyance laws or other legal principles or, by the terms of such Guarantees,
the obligations thereunder were reduced as necessary to prevent such avoidance,
or the Guarantees were released, the claims of other creditors of the Subsidiary
Guarantors, including trade creditors, would to such extent have priority as to
the assets of such Subsidiary Guarantors over the claims of the holders of the
New Notes. The Guarantees of the New Notes by any Subsidiary Guarantor will be
released upon the sale of such Subsidiary Guarantor or upon the release by the
lenders under the New Credit Facility of such Subsidiary Guarantor's Guarantee
of the Company's obligation under the New Credit Facility. The New Note
Indenture limits the ability of the Company and its subsidiaries to incur
additional indebtedness and to enter into agreements that would restrict the
ability of any subsidiary to make distributions, loans or other payments to the
Company. However, these limitations are subject to certain exceptions. See
"--Fraudulent Conveyance Risks" and "Description of the New Notes."
CONTROL OF THE COMPANY
Following completion of the Merger, the FFL Merger and the Reincorporation
Merger, all of the Company's outstanding common stock will be held by New
Holdings. Pro forma for the Merger and certain related events, affiliates of
Yucaipa and Apollo will have beneficial ownership of approximately 37.1% and
33.1%, respectively, of the outstanding capital stock of New Holdings. Pursuant
to a new stockholders' agreement (the "1995 Stockholders Agreement") which will
be entered into by the New Equity Investors and certain current FFL stockholders
and Holdings warrantholders, upon completion of the Merger, New Holdings and the
Company will have boards consisting of nine and ten members, respectively, and
21
<PAGE> 29
(i) Yucaipa will have the right to elect six directors to the board of New
Holdings and seven directors to the board of the Company, (ii) Apollo will have
the right to elect two directors to the board of each of New Holdings and the
Company, and (iii) the other New Equity Investors will have the right to elect
one director to the board of each of New Holdings and the Company. Under the
1995 Stockholders Agreement, unless and until New Holdings has effected an
initial public offering of its equity securities meeting certain criteria, New
Holdings and its subsidiaries, including the Company, may not take certain
actions without the approval of at least two of the three New Holdings directors
which the New Equity Investors are entitled to elect, including but not limited
to certain mergers, sale transactions, transactions with affiliates, issuances
of capital stock and payments of dividends on or repurchases of capital stock.
As a result of the ownership structure of the Company and the contractual rights
described above, the voting and management control of the Company is highly
concentrated. Yucaipa, acting with the consent of Apollo, has the ability to
direct the actions of the Company with respect to matters such as the payment of
dividends, material acquisitions and dispositions and other extraordinary
corporate transactions. Yucaipa will be a party to a consulting agreement with
the Company, pursuant to which Yucaipa will render certain management and
advisory services to the Company, and will receive fees for such services.
Yucaipa will also receive certain fees in connection with the consummation of
the Merger, including a $24 million advisory fee payable upon the closing of the
Merger. In addition, as a result of the Merger, certain officers and former
officers of Ralphs will redeem EARs for $22.8 million in cash and will cancel
certain options to purchase common stock of RSI for $880,000. An additional $10
million of EARs, however, will be reinvested in New Holdings by such officers
and former officers. Yucaipa also will be reimbursed for (i) any losses incurred
upon the resale of the $10 million principal amount of Seller Debentures which
may be put to it pursuant to the Put Agreement and (ii) its expenses in
connection with the Merger and the related transactions. In addition, on the
Closing Date the Company and EJDC will enter into a Consulting Agreement,
pursuant to which EJDC 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 Date in exchange for the payment of a one-time consulting fee
of $9 million. See "Certain Relationships and Related Transactions," "Principal
Stockholders" and "Description of Capital Stock."
SUBORDINATION OF THE NEW NOTES
The payment of principal, premium, if any, and interest on, and any other
amounts owing in respect of, the New Notes will be subordinated to the prior
payment in full of all existing and future Senior Indebtedness, including
indebtedness under the New Credit Facility and the F4L Senior Notes. Each
Subsidiary Guarantor's Guarantee will also be subordinated in right of payment
to Senior Indebtedness of the Subsidiary Guarantors ("Guarantor Senior
Indebtedness"). Guarantor Senior Indebtedness will include all existing and
future indebtedness not expressly subordinated to other indebtedness, including
indebtedness represented by the Guarantee of such Subsidiary Guarantor under the
New Credit Facility and the F4L Senior Notes. As of September 17, 1994, on a pro
forma basis, after giving effect to the Merger and the Financing (and certain
related assumptions), the aggregate outstanding amount of Senior Indebtedness of
the Company (excluding Company Guarantees of certain Guarantor Senior
Indebtedness) would have been approximately $1,554.8 million and the aggregate
outstanding amount of Guarantor Senior Indebtedness of the Subsidiary Guarantors
(excluding Guarantees by Subsidiary Guarantors of certain Senior Indebtedness of
the Company) would have been approximately $16.0 million and the Company would
have had $218.2 million available to be borrowed under the New Revolving
Facility. The New Note Indenture will limit, but not prohibit, the issuance by
the Subsidiary Guarantors of additional indebtedness which is Guarantor Senior
Indebtedness. See "Description of the New Notes -- Guarantees." In the event of
the bankruptcy, liquidation, dissolution, reorganization or other winding up of
the Company, the assets of the Company will be available to pay obligations on
the New Notes only after all Senior Indebtedness has been paid in full, and
there may not be sufficient assets remaining to pay amounts due on any or all of
the New Notes. In addition, under certain circumstances, the Company may not pay
principal of, premium, if any, or interest on, or any other amounts owing in
respect of, the New Notes, or purchase, redeem or otherwise retire the New
Notes, if a payment default or a non-payment default exists with respect to
certain Senior Indebtedness and, in the case of a non-payment default, a payment
blockage notice has been received by the New Note Trustee (as defined). See
"Description of the New Notes -- Subordination."
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<PAGE> 30
FRAUDULENT CONVEYANCE RISKS
Various fraudulent conveyance laws have been enacted for the protection of
creditors and may be utilized by a court to subordinate or avoid the New Notes
or any Guarantee in favor of other existing or future creditors of the Company
or a Subsidiary Guarantor.
If a court in a lawsuit on behalf of any unpaid creditor of the Company or
a representative of the Company's creditors were to find that, at the time the
Company issued the New Notes, the Company (x) intended to hinder, delay or
defraud any existing or future creditor or contemplated insolvency with a design
to prefer one or more creditors to the exclusion in whole or in part of others
or (y) did not receive fair consideration or reasonably equivalent value for
issuing the New Notes and the Company (i) was insolvent, (ii) was rendered
insolvent by reason of such distribution, (iii) was engaged or about to engage
in a business or transaction for which its remaining assets constituted
unreasonably small capital to carry on its business, or (iv) intended to incur,
or believed that it would incur, debts beyond its ability to pay such debts as
they matured, such court could void the New Notes and void such transactions.
Alternatively, in such event, claims of the holders of the New Notes could be
subordinated to claims of the other creditors of the Company.
The Company's obligations under the New Notes will be guaranteed by the
Subsidiary Guarantors. To the extent that a court were to find that (x) a
Guarantee was incurred by a Subsidiary Guarantor with intent to hinder, delay or
defraud any present or future creditor or the Subsidiary Guarantor contemplated
insolvency with a design to prefer one or more creditors to the exclusion in
whole or in part of others or (y) such Subsidiary Guarantor did not receive fair
consideration or reasonably equivalent value for issuing its Guarantee and such
Subsidiary Guarantor (i) was solvent, (ii) was rendered insolvent by reason of
the issuance of such Guarantee, (iii) was engaged or about to engage in a
business or transaction for which the remaining assets of such Subsidiary
Guarantor constituted unreasonably small capital to carry on its business, or
(iv) intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they matured, the court could void or subordinate
such Guarantee in favor of the Subsidiary Guarantor's creditors. Among other
things, a legal challenge of a Guarantee on fraudulent conveyance grounds may
focus on the benefits, if any, realized by the Subsidiary Guarantor as a result
of the issuance by the Company of the New Notes.
To the extent any Guarantees were avoided as a fraudulent conveyance or
held unenforceable for any other reason, holders of the New Notes would cease to
have any claim in respect of such Subsidiary Guarantor and would be creditors
solely of the Company and any Subsidiary Guarantor whose Guarantee was not
avoided or held unenforceable. In such event, the claims of the holders of the
New Notes against the issuer of an invalid Guarantee would be subject to the
prior payment of all liabilities and preferred stock claims of such Subsidiary
Guarantor. There can be no assurance that, after providing for all prior claims
and preferred stock interests, if any, there would be sufficient assets to
satisfy the claims of the holders of the New Notes relating to any voided
portions of any of the Guarantees.
Based upon financial and other information currently available to it,
management of the Company believes that the New Notes and the Guarantees are
being incurred for proper purposes and in good faith and that each of the
Company and each Subsidiary Guarantor (i) is solvent and will continue to be
solvent after issuing the New Notes or its Guarantees, as the case may be, (ii)
will have sufficient capital for carrying on its business after such issuance,
and (iii) will be able to pay its debts as they mature. See "Management's
Discussions and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
ABSENCE OF ESTABLISHED MARKET FOR THE NEW NOTES
There is no established market for the New Notes and there can be no
assurance as to the liquidity of any markets that may develop for the New Notes,
the ability of holders of the New Notes to sell their New Notes, or the price at
which holders would be able to sell their New Notes. Future trading prices of
the New Notes will depend on many factors, including, among other things,
prevailing interest rates, the Company's operating results and the market for
similar securities. The Dealer Managers have advised the Company that they
23
<PAGE> 31
currently intend to make a market in the New Notes. However, the Dealer Managers
are not obligated to do so and any market making may be discontinued at any time
without notice.
POTENTIAL ADVERSE EFFECTS OF THE EXCHANGE OFFERS AND THE SOLICITATION ON HOLDERS
OF UNTENDERED OLD RGC NOTES
There currently is a limited trading market for the Old RGC Notes, which
from time to time trade in the over-the-counter market. See "Market Prices of
the Old RGC Notes." To the extent that Old RGC Notes are tendered and accepted
for exchange in the Exchange Offers the trading market for the remaining Old RGC
Notes may become even more limited. A debt security with a smaller outstanding
principal amount available for trading (a smaller "float") may command a lower
price than would a comparable debt security with a greater float. Therefore, the
market price for the Old RGC Notes not exchanged may be adversely affected to
the extent that the principal amount of the Old RGC Notes tendered pursuant to
the Exchange Offers reduces the float. The reduced float may also tend to make
the trading price more volatile. Holders of unexchanged Old RGC Notes may
attempt to obtain quotations for the Old RGC Notes from their brokers; however,
there can be no assurance that any trading market will exist for the Old RGC
Notes following consummation of the Exchange Offers. The extent of the public
market for the Old RGC Notes following consummation of the Exchange Offers will
depend upon, among other things, the remaining outstanding principal amount of
the Old RGC Notes after the Exchange Offers, the number of holders remaining at
such time and the interest in maintaining a market in the Old RGC Notes on the
part of securities firms.
EFFECT OF THE PROPOSED AMENDMENTS ON HOLDERS THAT DO NOT EXCHANGE
If the Exchange Offers are consummated and the Proposed Amendments become
operative, holders of Old RGC Notes that are not exchanged pursuant to the
Exchange Offers for any reason will no longer be entitled to the benefits of
certain of the restrictive covenants contained in the Old RGC Indentures after
they have been modified by the Proposed Amendments. The modification of the
restrictive covenants would permit the Company to take actions that could
increase the credit risks with respect to the Company faced by such holders or
that could otherwise be adverse to the interest of such holders. See "The
Proposed Amendments."
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<PAGE> 32
THE MERGER AND THE FINANCING
On September 14, 1994, Food 4 Less and its parent company, Holdings, and
FFL, entered into the Merger Agreement with RSI and the stockholders of RSI.
Pursuant to the terms of the Merger Agreement, Food 4 Less will, subject to
certain conditions being satisfied or waived, be merged with and into RSI
pursuant to the RSI Merger. Immediately following the RSI Merger, RGC, which is
currently a wholly-owned subsidiary of RSI, will merge with and into RSI
pursuant to the RGC Merger, and RSI will change its name to Ralphs Grocery
Company. Prior to the Merger, FFL will merge with and into Holdings, which will
be the surviving corporation in the FFL Merger. Immediately following the FFL
Merger, Holdings will change its jurisdiction of incorporation by merging into a
newly-formed, wholly-owned subsidiary, New Holdings, incorporated in Delaware,
pursuant to the Reincorporation Merger. As a result of the Merger, the FFL
Merger and the Reincorporation Merger the Company will become a wholly-owned
subsidiary of New Holdings. Upon consummation of the RSI Merger and the RGC
Merger, the New Notes and any outstanding Old RGC Notes not tendered into the
Exchange Offers will be the obligations of the Company. Conditions to the
consummation of the RSI Merger include the receipt of regulatory approvals and
other necessary consents and the completion of financing. The purchase price for
RSI is approximately $1.5 billion, including the assumption of debt. The
consideration payable to the stockholders of RSI consists of $425 million in
cash and $100 million principal amount of the Seller Debentures to be issued by
New Holdings. New Holdings will use $150 million of cash received from the New
Equity Investment, together with $100 million principal amount of the Seller
Debentures, to acquire approximately 48% of the capital stock of RSI immediately
prior to consummation of the RSI Merger. New Holdings will then contribute the
$250 million of purchased shares of RSI stock to Food 4 Less, and pursuant to
the RSI Merger the remaining shares of RSI stock will be acquired for $275
million in cash. Pursuant to an agreement (the "Put Agreement") entered into in
connection with the execution of the Merger Agreement, the Edward J. DeBartolo
Corporation, an Ohio corporation ("EJDC"), which currently owns approximately
60.3% of the outstanding common stock of RSI, will have the right to put to
Yucaipa, which controls Food 4 Less, on the closing date of the Merger (the
"Closing Date"), up to $10 million aggregate principal amount of Seller
Debentures acquired by EJDC in connection with the Merger, at a purchase price
equal to their principal amount. Yucaipa also will be reimbursed for (i) any
losses incurred upon the resale of the $10 million principal amount of Seller
Debentures which may be put to it pursuant to the Put Agreement and (ii) its
expenses in connection with the Merger and the related transactions. In
addition, on the Closing Date the Company and EJDC will enter into a Consulting
Agreement, pursuant to which EJDC 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 Date in exchange for the payment of a consulting fee
of $9 million. The Merger Agreement, as amended, provides that, in the event
that the Merger closes after March 15, 1995, Food 4 Less will pay the
stockholders of RSI interest on the aggregate purchase price of $525 million at
a rate equal to the prime rate plus 1%. The Merger Agreement may be terminated
by the parties if the Merger has not been consummated on or prior to March 31,
1995.
As currently contemplated, the Merger will be financed through the
following transactions:
- Borrowings of up to $750 million aggregate principal amount pursuant to
the New Term Loans under the New Credit Facility to be provided by a
syndicate of banks led by Bankers Trust. The New Credit Facility will
also provide for the $325 million New Revolving Facility, $18.4 million
of which is anticipated to be drawn at closing.
- The issuance of up to $400 million of New F4L Senior Notes pursuant to
the Public Offering.
- The issuance of preferred stock in a private placement by New Holdings
to a group of investors led by Apollo and including affiliates of BT
Securities, CS First Boston and DLJ and other institutional investors,
yielding cash proceeds of $150 million pursuant to the New Equity
Investment. Concurrently with the New Equity Investment, the New Equity
Investors will purchase outstanding shares of New Holdings capital stock
from a stockholder of New Holdings for a purchase price of $57.8
million. See "Description of Capital Stock -- New Equity Investment."
- The exchange by Food 4 Less pursuant to the F4L Exchange Offers of (a)
up to $175 million aggregate principal amount of the Old F4L Senior
Notes for up to $175 million aggregate principal amount of the New F4L
Senior Notes plus $5.00 in cash per $1,000 principal amount exchanged
and
25
<PAGE> 33
(b) up to $145 million aggregate principal amount of the Old F4L Senior
Subordinated Notes for up to $145 million aggregate principal amount of
the New F4L Senior Subordinated Notes plus $20.00 in cash per $1,000
principal amount exchanged, together with the solicitation of consents
from the holders of the Old F4L Notes to certain amendments to the Old
F4L Indentures. It is a condition to the F4L Exchange Offers that at
least 80% of the outstanding principal amount of the Old F4L Notes are
exchanged pursuant to the F4L Exchange Offers.
- The Exchange Offers made hereunder to holders of Old RGC Notes to tender
for exchange such Old RGC Notes, together with the solicitation of
consents from such holders to the Proposed Amendments to the Old RGC
Indentures.
- The purchase by New Holdings of approximately 48% of the outstanding
common stock of RSI for an aggregate consideration of $250 million,
consisting of the proceeds of the New Equity Investment and $100 million
principal amount of the Seller Debentures, followed by the contribution
of such common stock of RSI to Food 4 Less. Pursuant to the RSI Merger
the remaining shares of RSI stock will be acquired for $275 million in
cash.
- The assumption by the Company, pursuant to the Merger, of approximately
$160.2 million of other indebtedness of RGC and Food 4 Less.
- The solicitation of certain consents pursuant to the Holdings Consent
Solicitation from the holders of the Holdings Discount Notes to certain
amendments to the Holdings Discount Note Indenture.
The following table illustrates the sources and uses of funds to consummate
the Merger, assuming the transaction occurs as of March 1, 1995. This
presentation assumes that $360 million principal amount of Old RGC Notes is
tendered into the Exchange Offers and $256 million principal amount of Old F4L
Notes is tendered into the F4L Exchange Offers, in each case representing 80% of
the outstanding aggregate principal amount of such securities. The presentation
also assumes that the remaining $90 million of Old RGC Notes not tendered into
the Exchange Offers are repurchased after the Closing Date pursuant to the
Change of Control Offer. Although management believes such assumptions are
reasonable under the circumstances, actual sources and uses may differ from
those set forth below depending upon the outcome of the Exchange Offers and the
F4L Exchange Offers.
SOURCES AND USES
(in millions)
<TABLE>
<S> <C> <C> <C>
CASH SOURCES CASH USES
- --------------------------------------------- ---------------------------------------------
New Term Loans(a).................. $ 750.0 Purchase RSI Common Stock(g)....... $ 425.9
New Revolving Facility(b).......... 18.4 Purchase Old RGC Notes(h).......... 90.9
Repay Ralphs 1992 Credit
New F4L Senior Notes(c)............ 400.0 Agreement.......................... 291.0
New Equity Investment(d)........... 150.0 Repay F4L Credit Agreement......... 165.7
-------- Pay Accrued Interest(i)............ 20.7
Pay EAR Liability(j)............... 22.8
Repay Mortgage Indebtedness(k)..... 186.7
Fees and Expenses(l)............... 114.7
--------
Total Cash Sources............ $1,318.4 Total Cash Uses............... $1,318.4
======== ========
NON-CASH SOURCES NON-CASH USES
- --------------------------------------------- ---------------------------------------------
New F4L Senior Notes(e)............ $ 140.0 Old F4L Senior Notes Exchanged..... $ 140.0
Assumed Old F4L Senior Notes....... 35.0 Assumed Old F4L Senior Notes....... 35.0
New F4L Senior Subordinated Old F4L Senior Subordinated Notes
Notes............................ 116.0 Exchanged........................ 116.0
Assumed Old F4L Senior Subordinated Assumed Old F4L Senior Subordinated
Notes............................ 29.0 Notes............................ 29.0
New Notes.......................... 360.0 Old RGC Notes Exchanged............ 360.0
Assumed Capital Leases and Other Assumed Capital Leases and Other
Debt............................. 160.2 Debt............................... 160.2
Seller Debentures(f)............... 100.0 Purchase RSI Common Stock(f)....... 100.0
-------- --------
Total Non-Cash Sources........ $ 940.2 Total Non-Cash Uses........... $ 940.2
======== ========
</TABLE>
26
<PAGE> 34
- ---------------
(a) Food 4 Less has accepted a commitment letter from Bankers Trust pursuant to
which Bankers Trust has agreed, subject to certain conditions, to provide
the Company up to a maximum aggregate amount of $1,075 million of financing
under the New Credit Facility. It is anticipated that the New Credit
Facility will be syndicated to a number of financial institutions for whom
Bankers Trust will act as agent. The New Credit Facility will provide for
(i) the New Term Loans in the aggregate amount of up to $750 million,
comprised of the $375 million Tranche A Loan, the $125 million Tranche B
Loan, the $125 million Tranche C Loan, and the $125 million Tranche D Loan,
and (ii) the $325 million New Revolving Facility. See "Description of the
New Credit Facility."
(b) The New Revolving Facility will provide for a $325 million line of credit
which will be available for working capital requirements and general
corporate purposes. Up to $150 million of the New Revolving Facility may be
used to support standby letters of credit. The letters of credit will be
used to cover workers' compensation contingencies and for other purposes
permitted under the New Revolving Facility. The Company anticipates that
letters of credit for approximately $101 million will be issued under the
New Revolving Facility at closing, in replacement of existing letters of
credit, primarily to satisfy the State of California's requirements relating
to workers compensation self-insurance.
(c) Represents New F4L Senior Notes issued pursuant to the Public Offering. If
Food 4 Less receives tenders in excess of the Minimum Tender in the Exchange
Offers, Food 4 Less may elect to decrease the amount of New F4L Senior Notes
being offered pursuant to the Public Offering.
(d) Does not include the $10 million equity contribution by Ralphs management.
See note (j) below. Concurrently with the New Equity Investment, certain
existing stockholders of New Holdings (formerly stockholders of FFL),
including affiliates of George Soros, will sell outstanding shares of New
Holdings stock to CLH, which in turn will sell such shares to the New Equity
Investors for an aggregate purchase price of $57.8 million (which represents
the same price per share as will be paid in the New Equity Investment). In
connection with the New Equity Investment, the New Equity Investors will
contribute the common stock so acquired to New Holdings in consideration for
newly-issued preferred shares. See "Description of Capital Stock -- New
Equity Investment."
(e) Represents New F4L Senior Notes issued pursuant to the F4L Exchange Offers,
which will be part of the same issue as the New F4L Senior Notes issued
pursuant to the Public Offering.
(f) In connection with the RSI Merger, New Holdings will issue $100 million
principal amount of the Seller Debentures as part of the purchase price for
the RSI common stock, up to $10 million of which may be put to Yucaipa on
the Closing Date of the Merger at a purchase price equal to their principal
amount pursuant to the Put Agreement. In addition, Yucaipa will be
reimbursed by the Company for (i) any losses incurred upon the resale of the
$10 million principal amount of Seller Debentures which may be put to it
pursuant to the Put Agreement and (ii) its expenses in connection with the
Merger and the related transactions. See "Certain Relationships and Related
Transactions -- Food 4 Less."
(g) Includes $425 million to be paid in cash to stockholders of RSI and $0.9
million to be paid in cash to holders of RSI management stock options. See
"Executive Compensation -- New Management Stock Option Plan and Management
Investment."
(h) Represents the purchase of Old RGC Notes tendered pursuant to the Change of
Control Offer which will occur up to 90 days following the Merger. A portion
of the proceeds of the Public Offering will be available to fund the
purchase of Old RGC Notes pursuant to the Change of Control Offer. To the
extent that any such Old RGC Notes are not tendered pursuant to the Change
of Control Offer, any excess proceeds from the Public Offering will be used
to repay borrowings under the New Credit Facility.
(i) Represents accrued interest payable on all debt securities assumed to be
tendered in the Exchange Offers and the F4L Exchange Offers.
(j) Represents payments to Ralphs management with respect to the cancellation of
outstanding EARs in connection with the Merger. Ralphs management will
receive new New Holdings stock options in exchange for the cancellation of
the remaining EAR liability of $10 million. See "Executive
Compensation -- Equity Appreciation Rights Plan."
(k) Represents the repayment of outstanding mortgage indebtedness of Ralphs in
the principal amount of $174.4 million, plus the estimated amount of the
prepayment fees payable with respect thereto.
(l) Includes an advisory fee of $24 million to be paid to Yucaipa upon the
closing of the Merger. See "Certain Relationships and Related
Transactions -- Food 4 Less."
For additional information, see "Description of the New Credit Facility," "The
F4L Exchange Offers and the Public Offering" and "Description of Holding Company
Indebtedness."
27
<PAGE> 35
PRO FORMA CAPITALIZATION
The following table sets forth the pro forma combined capitalization of the
Company as of September 17, 1994, adjusted to give effect to the Merger and the
Financing (and certain related assumptions) and the application of the proceeds
therefrom. This presentation assumes that $360 million principal amount of Old
RGC Notes is tendered into the Exchange Offers, and $256 million principal
amount of Old F4L Notes is tendered into the F4L Exchange Offer. The
presentation also assumes that the remaining $90 million of Old RGC Notes not
tendered into the Exchange Offers are repurchased after the Closing Date
pursuant to the Change of Control Offer. The table should be read in conjunction
with the Unaudited Pro Forma Combined Financial Statements and the historical
consolidated financial statements of Ralphs and Food 4 Less and related notes
thereto included elsewhere in this Prospectus and Solicitation Statement.
<TABLE>
<CAPTION>
PRO FORMA
CAPITALIZATION
---------------
(IN MILLIONS)
<S> <C>
Cash............................................................................ $ 62.7
=========
Short-term and current portion of long-term debt:
New Term Loans................................................................ $ 3.8
Other indebtedness............................................................ 21.5
---------
Total short-term and current portion of long-term debt................ $ 25.3
=========
Long-term debt:
New Term Loans(a)............................................................. $ 746.2
New Revolving Facility(b)..................................................... 5.8
Other indebtedness............................................................ 114.4
New F4L Senior Notes(c)....................................................... 540.0
Old F4L Senior Notes.......................................................... 35.0
New Notes(d).................................................................. 360.0
New F4L Senior Subordinated Notes............................................. 116.0
Old F4L Senior Subordinated Notes............................................. 29.0
---------
Total long-term debt.................................................. 1,946.4
---------
Stockholder's equity:
Common stock, $.01 par value.................................................. 0.0
Additional paid-in capital.................................................... 424.1
Notes receivable(e)........................................................... (0.6)
Retained deficit.............................................................. (171.8)
Treasury stock................................................................ (2.5)
---------
Total stockholder's equity................................................. 249.2
---------
Total capitalization.................................................. $ 2,195.6
=========
</TABLE>
- ---------------
(a) Food 4 Less has accepted a commitment letter from Bankers Trust pursuant to
which Bankers Trust has agreed, subject to certain conditions, to provide
the Company up to a maximum aggregate amount of $1,075 million of financing
under the New Credit Facility. It is anticipated that the New Credit
Facility will be syndicated to a number of financial institutions for whom
Bankers Trust will act as agent. The New Credit Facility will provide for
(i) the New Term Loans in the aggregate amount of up to $750 million,
comprised of the $375 million Tranche A Loan, the $125 million Tranche B
Loan, the $125 million Tranche C Loan and the $125 million Tranche D Loan,
and (ii) the $325 million New Revolving Facility. See "Description of the
New Credit Facility."
(b) The New Revolving Facility will provide for a $325 million line of credit
which will be available for working capital requirements and general
corporate purposes. Up to $150 million of the New Revolving Facility may be
used to support standby letters of credit. The letters of credit will be
used to cover workers' compensation contingencies and for other purposes
permitted under the New Revolving Facility. The Company anticipates that
letters of credit for approximately $101 million will be issued under the
New Revolving Facility at closing, in replacement of existing letters of
credit, primarily to satisfy the State of California's requirements relating
to workers' compensation self-insurance.
(c) Includes New F4L Senior Notes issued pursuant to both the Public Offering
and the F4L Exchange Offers.
(d) In accordance with the terms of the Old RGC Indentures, holders of Old RGC
Notes not exchanged for New Notes pursuant to the Exchange Offers will be
entitled to have such Old RGC Notes repurchased by the Company pursuant to
the Change of Control Offer which will occur up to 90 days following the
closing of the Merger. A portion of the proceeds of the Public Offering will
be available to fund the purchase of Old RGC Notes pursuant to the Change of
Control Offer. To the extent that any such Old RGC Notes are not tendered
pursuant to the Change of Control Offer, any excess proceeds from the Public
Offering will be used to repay borrowings under the New Credit Facility.
(e) Represents notes receivable from shareholders of Holdings with respect to
the purchase of Holdings' common stock. See "Executive Compensation -- Food
4 Less Stock Plan."
28
<PAGE> 36
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements of the
Company for the 52 weeks ended June 25, 1994 and as of and for the 12 weeks
ended September 17, 1994, give effect to the Merger and the Financing (and
certain related assumptions set forth below) and the application of the proceeds
therefrom as if such transactions occurred on June 27, 1993, with respect to the
pro forma operating and other data, and as of September 17, 1994, with respect
to the pro forma balance sheet data. Such pro forma information combines the
results of operations of Food 4 Less for the 52 weeks ended June 25, 1994 and
the results of operations and balance sheet data as of and for the 12 weeks
ended September 17, 1994, with the results of operations of Ralphs for the 52
weeks ended July 17, 1994 and the results of operations and balance sheet data
as of and for the 12 weeks ended October 9, 1994, respectively. For information
regarding the Merger and the Financing, see "The Merger and the Financing."
The pro forma adjustments are based upon the assumption that all conditions
to the consummation of the Exchange Offers are satisfied, including the
following: (i) $360 million aggregate principal amount of Old RGC Notes are
tendered into the Exchange Offers and (ii) $256 million aggregate principal
amount of Old F4L Notes are tendered into the F4L Exchange Offers. The
presentation also assumes that the remaining $90 million of Old RGC Notes not
tendered into the Exchange Offers are repurchased following the Closing Date
pursuant to the Change of Control Offer and that $400 million principal amount
of New F4L Senior Notes are issued pursuant to the Public Offering. In addition,
the unaudited pro forma combined financial statements have been prepared based
upon the assumption that upon consummation of the Merger, the Company will
divest or close 32 stores.
The pro forma adjustments are based upon currently available information
and upon certain assumptions that management believes are reasonable. The Merger
will be accounted for by the Company as a purchase of Ralphs by Food 4 Less and
Ralphs' assets and liabilities will be recorded at their estimated fair market
values at the date of the Merger. The adjustments included in the unaudited pro
forma combined financial statements represent the Company's preliminary
determination of these adjustments based upon available information. There can
be no assurance that the actual adjustments will not differ significantly from
the pro forma adjustments reflected in the pro forma financial information.
The unaudited pro forma combined financial statements are not necessarily
indicative of either future results of operations or results that might have
been achieved if the foregoing transactions had been consummated as of the
indicated dates. The unaudited pro forma combined financial statements should be
read in conjunction with the historical consolidated financial statements of
Food 4 Less and Ralphs, together with the related notes thereto, included
elsewhere in this Prospectus and Solicitation Statement.
29
<PAGE> 37
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
52 WEEKS ENDED
--------------------------
RALPHS FOOD 4 LESS
(HISTORICAL) (HISTORICAL)
(UNAUDITED) (AUDITED)
JULY 17, JUNE 25, PRO FORMA PRO FORMA
1994 1994 ADJUSTMENTS COMBINED
----------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Sales........................................... $ 2,709.7 $2,585.2 $(241.4)(a) $5,053.5
Cost of sales................................... 2,076.3 2,115.9 (194.7)(a) 4,005.3
4.2 (b)
2.8 (c)
0.8 (d)
----------- ------------ ----------- ---------
Gross profit............................... 633.4 469.3 (54.5) 1,048.2
Selling, general and administrative expenses.... 465.9 388.8 (36.4)(a) 829.9
8.1 (b)
1.4 (d)
1.6 (e)
0.5 (f)
Amortization of excess cost over net assets
acquired...................................... 11.0 7.7 11.0 (g) 29.7
Provision for restructuring..................... 2.4 0.0 -- 2.4
Provision for postretirement benefits........... 3.2 0.0 -- 3.2
----------- ------------ ----------- ---------
Operating income........................... 150.9 72.8 (40.7) 183.0
Other expenses:
Interest expense -- cash(l)................... 93.2 57.0 74.4 (h) 224.6
Interest expense -- non-cash(l)............... 9.4 5.8 -- 15.2
Amortization of debt issuance costs(l)........ 6.4 5.5 (0.2)(h) 11.7
Loss on disposal of assets.................... 1.8 -- -- 1.8
Provision for earthquake loss................. 11.0 4.5 -- 15.5
----------- ------------ ----------- ---------
Earnings (loss) before income tax
provision................................ 29.1 (0.0) (114.9) (85.8)
Income tax expense (benefit).................... (108.0) 2.7 105.3 (i) --
----------- ------------ ----------- ---------
Net earnings (loss)(o)..................... $ 137.1 $ (2.7) $(220.2) $ (85.8)
========= ========= ========= ========
Preferred stock accretion....................... -- 8.8 (8.8)(j) --
Earnings (loss) applicable to common
shares................................... $ 137.1 $ (11.5) $(211.4) $ (85.8)
========= ========= ========= ========
Ratio of earnings to fixed charges(k)(l)... 1.2x 1.0x --
========= ========= ========
Other Data:
EBITDA (as defined)(m)(p)..................... $ 228.1 $ 130.5 $ (16.1)(n) $ 342.5
EBITDA margin(o).............................. 8.4% 5.0% 6.8%
</TABLE>
See Notes to Unaudited Pro Forma Combined Statement of Operations.
30
<PAGE> 38
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS -- CONTINUED
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
12 WEEKS ENDED
---------------------------
RALPHS FOOD 4 LESS
(HISTORICAL) (HISTORICAL)
(UNAUDITED) (UNAUDITED)
OCTOBER 9, SEPTEMBER 17, PRO FORMA PRO FORMA
1994 1994 ADJUSTMENTS COMBINED
----------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Sales.......................................... $615.4 $598.7 $(53.3)(a) $1,160.8
Cost of sales.................................. 476.6 495.7 (44.4)(a) 929.2
1.0 (b)
0.0 (c)
0.3 (d)
------ ------ ------ --------
Gross profit.............................. 138.8 103.0 (10.2) 231.6
Selling, general and administrative expenses... 104.8 88.1 (8.2)(a) 187.6
1.9 (b)
0.5 (d)
0.4 (e)
0.1 (f)
Amortization of excess cost over net assets
acquired..................................... 2.6 1.8 2.6 (g) 7.0
Provision for restructuring.................... 0.0 0.0 -- 0.0
Provision for postretirement benefits.......... 0.6 0.0 -- 0.6
------ ------ ------ --------
Operating income.......................... 30.8 13.1 (7.5) 36.4
Other expenses:
Interest expense -- cash(l).................. 22.3 13.4 17.6 (h) 53.3
Interest expense -- non-cash(l).............. 2.0 1.3 -- 3.3
Amortization of debt issuance costs(l)....... 1.4 1.3 0.0 (h) 2.7
Loss (gain) on disposal of assets............ 0.8 (0.5) -- 0.3
Provision for earthquake loss................ 0.0 0.0 -- 0.0
------ ------ ------ --------
Earnings (loss) before income tax
provision............................... 4.3 (2.4) (25.1) (23.2)
Income tax expense (benefit)................... 0.0 0.9 (0.9)(i) 0.0
------ ------ ------ --------
Net earnings (loss)(o).................... $ 4.3 $ (3.3) $(24.2) $ (23.2)
====== ====== ====== ========
Preferred stock accretion...................... -- 2.4 (2.4)(j) --
Earnings (loss) applicable to common
shares.................................. $ 4.3 $ (5.7) $(21.8) $ (23.2)
====== ====== ====== ========
Ratio of earnings to fixed
charges(k)(l)........................... 1.1x -- --
====== ====== ========
Other Data:
EBITDA (as defined)(m)(p).................... $ 52.0 $ 29.7 $ (2.2)(n) $ 79.5
EBITDA margin(o)............................. 8.5% 5.0% 6.9%
</TABLE>
See Notes to Unaudited Pro Forma Combined Statement of Operations.
31
<PAGE> 39
NOTES TO UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
(a) Reflects the anticipated closing or divestiture of 32 stores. Does not give
effect to the closure of 2 Food 4 Less stores open at October 1, 1994 which
were closed subsequent to September 17, 1994. Food 4 Less has determined
that there is no impairment of existing goodwill related to the store
closures based on its projection of future undiscounted cash flows.
(b) Represents the additional depreciation expense associated with the purchase
price allocation to property, plant and equipment of $160.0 million based on
the current estimate of fair market value. Property, plant and equipment is
being depreciated over an average useful life of 13 years. Depreciation
expense has been allocated among cost of sales and selling, general and
administrative expenses.
(c) Reflects the elimination of Ralphs historical LIFO provision.
(d) Reflects depreciation expense associated with approximately $36.8 million of
additional fixed assets required for the conversion of 23 Ralphs stores to
the Food 4 Less warehouse format and 122 Alpha Beta, Boys and Viva stores to
the Ralphs format.
(e) Reflects additional Yucaipa management fees ($2.0 million for the 52 weeks
ended June 25, 1994 and $0.5 million for the 12 weeks ended September 17,
1994) and the elimination of an annual guarantee fee ($0.4 million for the
52 weeks ended June 25, 1994 and $0.1 million for the 12 weeks ended
September 17, 1994) paid by Ralphs to EJDC.
(f) Reflects increased compensation resulting from new employment agreements
with certain of the current executive officers of Ralphs.
(g) Reflects the amortization of the excess of cost over net assets acquired in
the Merger ($22.0 million for the 52 weeks ended June 25, 1994 and $5.1
million for the 12 weeks ended September 17, 1994) and elimination of
Ralphs' historical amortization ($11.0 million for the 52 weeks ended June
25, 1994 and $2.5 million for the 12 weeks ended September 17, 1994).
Amortization has been calculated on the straight line basis over a period of
40 years.
(h) The following table presents a reconciliation of pro forma interest expense
and amortization of deferred financing costs:
<TABLE>
<CAPTION>
52 WEEKS 12 WEEKS
ENDED ENDED
JUNE 25, 1994 SEPTEMBER 17, 1994
------------- ------------------
<S> <C> <C>
Historical interest expense -- cash........................................ $150.2 $ 35.7
------ ------
Plus: Interest on borrowings under:
New Credit Facility.................................................... 74.6 16.3
New F4L Senior Notes................................................... 44.0 10.1
New Notes.............................................................. 41.4 9.5
Other bank fees........................................................ 3.5 0.8
Other debt............................................................. 4.2 2.7
Less: Interest on borrowings under:
Old bank term loans:
Ralphs............................................................... (21.3) (5.4)
Food 4 Less.......................................................... (11.5) (2.5)
Old RGC Notes.......................................................... (43.9) (10.1)
Other debt............................................................. (16.6) (3.8)
------ ------
Pro forma adjustment..................................................... 74.4 17.6
------ ------
Pro forma interest expense -- cash......................................... $224.6 $ 53.3
====== ======
Historical amortization of debt issuance costs............................. $ 11.9 $ 2.7
Plus:
Financing and exchange/consent fees.................................... 8.8 2.0
Other fees and expenses................................................ 2.4 0.6
Less:
Historical Financing Costs:
Ralphs................................................................. (6.1) (1.4)
Food 4 Less............................................................ (5.3) (1.2)
------ ------
Pro forma adjustment..................................................... (0.2) 0.0
------ ------
Pro forma amortization of debt issuance costs.............................. $ 11.7 $ 2.7
====== ======
</TABLE>
(i) Represents the elimination of the historical income tax benefit of Ralphs
($108.0 million for the 52 weeks ended June 25, 1994) and Food 4 Less
income tax expense ($2.7 million for the 52 weeks ended June 25, 1994 and
$0.9 million for the 12 weeks ended September 17, 1994) given expected pro
forma losses. The Company's ability to recognize income tax benefits may be
limited in accordance with Financial Accounting Standard No. 109
"Accounting for Income Taxes." As such, no income tax benefit has been
reflected in these pro forma financial statements. See "Certain Federal
Income Tax Considerations."
(j) Reflects cancellation of cumulative convertible preferred stock of Food 4
Less held by Holdings.
32
<PAGE> 40
(k) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of earnings before income taxes, cumulative effect of change in
accounting principles, extraordinary item and fixed charges before
capitalized interest. "Fixed charges" consist of interest expense (including
amortization of self-insurance reserves discount), capitalized interest,
amortization of deferred debt issuance costs and one-third of rental expense
(the portion deemed representative of the interest factor). The Company's
pro forma earnings were inadequate to cover pro forma fixed charges for the
52 weeks ended June 25, 1994 and for the 12 weeks ended September 17, 1994
by approximately $85.8 million and $23.2 million, respectively. However,
such pro forma earnings included non-cash charges of $182.9 million for the
52 weeks ended June 25, 1994 and $41.8 million for the 12 weeks ended
September 17, 1994, primarily consisting of depreciation and amortization.
(l) Supplemental Pro Forma Adjustments:
The table below shows the variations that would occur in the pro forma cash
and non-cash interest expense, the amortization of debt issuance costs and
the amount of the deficiency of earnings to fixed charges at different
participation levels in the Exchange Offers and the F4L Exchange Offers.
The table also indicates the changes in the foregoing items (at each
participation level) that would result from each 25 basis point increase in
the interest rate on the New F4L Senior Notes over the assumed rate of 11%
(and the corresponding 25 basis point increase in the interest rate on the
New Notes over the assumed rate of 11.50%).
<TABLE>
<CAPTION>
52 WEEK PERIOD 12 WEEK PERIOD
--------------------------------- ---------------------------------
PARTICIPATION LEVEL(1) PARTICIPATION LEVEL(1)
--------------------------------- ---------------------------------
80% 85% 90% 95% 80% 85% 90% 95%
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest expense -- cash........................ $224.6 $224.6 $224.5 $224.4 $ 53.3 $ 53.1 $ 52.8 $ 52.6
Interest expense -- non-cash.................... 15.2 15.2 15.2 15.2 3.3 3.3 3.3 3.3
Amortization of debt issuance costs............. 11.7 11.6 11.6 11.5 2.7 2.7 2.7 2.7
Deficiency of earnings to fixed charges(2)...... 85.8 85.7 85.6 85.4 23.2 23.0 22.7 22.5
EFFECT OF EACH 25 BASIS POINT INCREASE IN THE
INTEREST RATE ON THE NEW F4L SENIOR NOTES AND
NEW NOTES
ADDITIONAL INTEREST EXPENSE -- CASH............. $ 2.3 $ 2.3 $ 2.3 $ 2.3 $ 0.5 $ 0.5 $ 0.5 $ 0.5
ADDITIONAL INTEREST EXPENSE -- NON-CASH......... -- -- -- -- -- -- -- --
ADDITIONAL AMORTIZATION OF DEBT ISSUANCE
COSTS......................................... -- -- -- -- -- -- -- --
ADDITIONAL DEFICIENCY OF EARNINGS TO FIXED
CHARGES(2).................................... 2.3 2.3 2.3 2.3 0.5 0.5 0.5 0.5
</TABLE>
- ---------------
(1) If Food 4 Less receives tenders in excess of the 80% Minimum Tender in
the Exchange Offers, Food 4 Less may elect to decrease the amount of New
F4L Senior Notes being offered pursuant to the Public Offering.
(2) "Earnings" consist of earnings before income taxes, cumulative effect of
change in accounting principles, extraordinary item and fixed charges
before capitalized interest. "Fixed charges" consist of interest expense
(including amortization of self-insurance reserves discount),
capitalized interest, amortization of deferred debt issuance costs and
one-third of rental expense (the portion deemed representative of the
interest factor).
(m) "EBITDA," as defined and presented historically by RGC, represents net
earnings before interest expense, income tax expense (benefit), depreciation
and amortization expense, post-retirement benefits, the LIFO charge,
provision for restructuring, provision for earthquake losses, a one-time
charge for Teamsters Union sick pay benefits, and gains and losses on
disposal of assets. EBITDA is a widely accepted financial indicator of a
company's ability to service debt. However, EBITDA should not be construed
as an alternative to operating income or to cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) and should not be construed as an indication of the Company's
operating performance or as a measure of liquidity. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(n) Reflects primarily EBITDA (as defined) associated with closed or divested
stores and the adjustments referred to in notes (e) and (f) above.
(o) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
(p) The unaudited pro forma results of operations and EBITDA for the 52 weeks
ended June 25, 1994 and the 12 weeks ended September 17, 1994 do not include
certain one-time non-recurring costs related to (i) severance payments under
certain employment contracts with Food 4 Less management totalling $1.4
million that are subject to change of control provisions and the achievement
of earnings and sales targets, (ii) costs related to the integration of the
Company's operations which are estimated to be $50.0 million over a
three-year period, (iii) $1.8 million in costs related to the cancellation
of an employment agreement, or (iv) other costs related to warehouse
closures, which costs are not presently determinable.
33
<PAGE> 41
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
FOOD 4 LESS
RALPHS (HISTORICAL)
(HISTORICAL) (UNAUDITED)
(UNAUDITED) SEPTEMBER 17, PRO FORMA
OCTOBER 9, 1994 1994 ADJUSTMENTS PRO FORMA
--------------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 33.3 $ 29.4 $ 0.0(a) $ 62.7
Accounts receivable...................... 45.2 25.4 -- 70.6
Inventories.............................. 217.2 210.6 39.9(b) 467.7
Prepaid expense and other current
assets................................ 18.3 13.4 -- 31.7
--------- -------- -------- --------
Total current assets............. 314.0 278.8 39.9 632.7
Investments................................ 0.0 12.7 12.7
Property, plant and equipment.............. 611.6 370.0 160.0(c) 1,111.7
(27.9)(d)
(2.0)(e)
Excess of cost over net assets acquired,
net...................................... 368.8 266.1 511.6(f) 1,146.5
Beneficial lease rights.................... 50.7 0.0 -- 50.7
Deferred debt issuance costs, net.......... 22.7 27.2 76.2(g) 80.0
(46.1)(h)
Deferred income taxes...................... 113.6 0.0 (113.6)(i) 0.0
Other assets............................... 10.0 23.7 (12.9)(d) 20.8
--------- -------- -------- --------
Total assets..................... $ 1,491.4 $ 978.5 $ 585.2 $3,055.1
========= ======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt..... $ 79.9 $ 23.2 $ (77.8)(j) $ 25.3
Short-term debt.......................... 37.4 0.0 (37.4)(k) 0.0
Accounts payable......................... 177.5 176.1 -- 353.6
Accrued expenses......................... 109.3 108.1 (22.1)(l) 201.8
4.7(d)
1.8(m)
Current portion of self-insurance
reserves.............................. 28.2 29.5 -- 57.7
--------- -------- -------- --------
Total current liabilities........ 432.3 336.9 (130.8) 638.4
Long-term debt............................. 883.4 495.7 567.3(n) 1,946.4
Self-insurance reserves.................... 46.0 65.5 -- 111.5
Deferred income taxes...................... 0.0 14.7 -- 14.7
Lease valuation reserve.................... 30.1 0.0 -- 30.1
Other non-current liabilities.............. 84.6 0.0 (33.8)(o) 64.8
11.0(p)
3.0(e)
--------- -------- -------- --------
Total liabilities................ 1,476.4 912.8 416.7 2,805.9
--------- -------- -------- --------
Stockholders' equity:
Preferred Stock.......................... 0.0 61.4 (61.4)(q) 0.0
Common Stock............................. 0.3 0.0 (0.3)(t) 0.0
Additional paid-in capital............... 175.2 107.7 61.4(q) 424.1
10.0(o)
145.0(r)
100.0(s)
(175.2)(t)
Notes receivable from shareholders of
parent................................ 0.0 (0.6) -- (0.6)
Accumulated deficit...................... (160.5) (100.3) (24.2)(u) (171.8)
160.5(t)
(45.5)(d)
(1.8)(m)
Treasury stock........................... 0.0 (2.5) -- (2.5)
--------- -------- -------- --------
Total stockholder's equity(v).... 15.0 65.7 168.5 249.2
--------- -------- -------- --------
Total liabilities and
stockholder's equity........... $ 1,491.4 $ 978.5 $ 585.2 $3,055.1
========= ======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Combined Balance Sheet.
34
<PAGE> 42
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(a) Reflects gross proceeds received from (i) the New Term Loans, (ii) the New
Revolving Facility, (iii) the New Equity Investment and (iv) the Public
Offering used to retire certain debt and liabilities and to pay financing
costs and other related fees as set forth in the following table:
<TABLE>
<S> <C>
New Term Loans............................................................................ $ 750.0
New Revolving Facility.................................................................... 5.8
New F4L Senior Notes...................................................................... 400.0
New Equity Investment..................................................................... 150.0
Purchase RSI Common Stock................................................................. (425.9)
Repay Ralphs 1992 Credit Agreement........................................................ (296.2)
Repay F4L Credit Agreement................................................................ (140.3)
Purchase Old RGC Notes.................................................................... (90.9)
Pay EAR liability......................................................................... (23.8)
Repay other Ralphs debt................................................................... (191.9)
Accrued Interest.......................................................................... (22.1)
Fees and Expenses......................................................................... (114.7)
-------
Pro forma adjustment.............................................................. $ 0.0
=======
</TABLE>
(b) Reflects the elimination of Ralphs historical LIFO reserve ($17.4 million)
and the write-up of merchandise inventory ($22.5 million); both to reflect
current estimated selling prices less cost of disposal and a reasonable
profit allowance for the selling effort of the acquiring company.
(c) Reflects the estimated write-up to fair value of Ralphs property, plant and
equipment as of the date of the Merger.
(d) Reflects estimated restructuring charge associated with closing 29 Food 4
Less conventional supermarkets or warehouse stores and converting 16 Food 4
Less conventional supermarkets to warehouse stores. Pursuant to the
settlement agreement with the State of California, 24 Food 4 Less stores (as
well as 3 Ralphs stores) must be closed by December 31, 1995. See
"Business -- California Settlement Agreement." Although not required
pursuant to such settlement agreement, an additional 5 under-performing
stores selected by the Company also are scheduled to be closed by December
31, 1995. The restructuring charge consists of write-downs of property,
plant and equipment ($27.9 million), write-off of the Alpha Beta trademark
($8.6 million), write-off of other assets ($4.3 million), lease termination
expenses ($3.1 million), and miscellaneous expense accruals ($1.6 million).
The expected cash payments to be made in connection with the restructuring
charge total $7.1 million. It is expected that such cash payments will be
made by December 31, 1995. The estimated restructuring charge will be
recorded as an expense once the Merger is completed. No additional expenses
are expected to be incurred in future periods in connection with these
closings. Food 4 Less has determined that there is no impairment of existing
goodwill related to the store closures based on its projections of future
undiscounted cash flows.
(e) Reflects the anticipated closing of 3 Ralphs stores.
(f) Reflects the excess of costs over the fair value of the net assets of Ralphs
acquired in connection with the Merger ($880.4 million) and the elimination
of Ralphs historical excess of costs over the fair value of the net assets
acquired ($368.8 million). The purchase price and preliminary calculation of
the excess of cost over the net book value of assets acquired is as follows:
<TABLE>
<S> <C>
Purchase price:
Purchase of outstanding common equity................................................... $ 525.9
Fees and expenses....................................................................... 54.1
-------
Total purchase price.................................................................... $ 580.0
-------
Purchase price is financed by:
Seller Debentures....................................................................... $ 100.0
New Equity Investment................................................................... 150.0
New borrowings.......................................................................... 330.0
-------
$ 580.0
=======
Preliminary calculation of purchase price allocated to assets and liabilities based on
management's estimate of fair values as of October 9, 1994:
Cash.................................................................................... $ 33.3
Receivables............................................................................. 45.2
Inventories............................................................................. 257.1
Other current assets.................................................................... 18.3
Property, fixtures and equipment........................................................ 771.6
Beneficial lease rights................................................................. 50.7
Goodwill................................................................................ 880.4
Other assets............................................................................ 10.7
Current liabilities..................................................................... (432.3)
Obligations under capital leases........................................................ (58.1)
Long-term debt.......................................................................... (825.3)
Other non-current liabilities........................................................... (171.6)
-------
$ 580.0
=======
</TABLE>
35
<PAGE> 43
<TABLE>
<S> <C> <C>
Pro forma book value of historical assets acquired:
Historical net book value at October 9, 1994....................................... $ 15.0
Less book value of historical assets with no value at the acquisition date:
Historical deferred tax asset.................................................... 113.6
Historical goodwill.............................................................. 368.8
Historical deferred debt costs................................................... 21.9 (504.3)
----- --------
Negative pro forma book value of net assets acquired............................. 489.3
--------
Excess of purchase price to be allocated........................................... $1,069.3
========
Excess allocated to:
Inventories........................................................................ $ 39.9
Property, fixtures and equipment................................................... 160.0
Goodwill........................................................................... 880.4
Other non-current liabilities...................................................... (11.0)
--------
$1,069.3
========
</TABLE>
(g) Reflects the debt issuance costs associated with the New Credit Facility
($26.9 million), the Exchange Offers ($4.5 million), the F4L Exchange Offers
($3.2 million), the Holdings Consent Solicitation ($0.5 million), Exchange
Offers cash payments ($3.6 million), F4L Exchange Offers cash payments ($5.2
million), the Holdings Consent Solicitation cash payments ($3.1 million),
the New F4L Senior Notes ($12.0 million) and other financing costs ($17.2
million). These amounts have been capitalized as deferred financing costs.
(h) Reflects the elimination of deferred debt issuance costs associated with the
Ralphs 1992 Credit Agreement (as defined) ($7.4 million), the F4L Credit
Agreement (as defined) ($10.4 million), the Old RGC Notes ($10.8 million)
and the Old F4L Notes ($13.8 million) and other indebtedness of RGC and Food
4 Less ($3.7 million) to be repaid in connection with the Merger.
(i) Reflects the elimination of Ralphs deferred tax asset associated with
changes in the financial reporting basis of assets. The combined Company may
be required to record a valuation allowance on all or some deferred tax
assets in compliance with Financial Accounting Standard No. 109 "Accounting
for Income Taxes." This determination may be based, in part, on historical
or expected earnings. For purposes of these pro forma financial statements
it has been assumed that all deferred net tax assets have been fully
reserved.
(j) Reflects the repayment and cancellation of the current maturities of Ralphs
1992 Credit Agreement ($62.5 million), the F4L Credit Agreement ($17.0
million), certain other Ralphs debt ($2.1 million) and the recording of the
current maturities of the New Credit Facility ($3.8 million).
(k) Reflects the repayment of Ralphs' old revolving credit facility.
(l) Reflects the payment of accrued interest on the Ralphs 1992 Credit Agreement
($2.3 million), the F4L Credit Agreement ($0.5 million), the Old RGC Notes
($7.4 million), the Old F4L Notes ($10.8 million) and other indebtedness of
RGC and Food 4 Less ($1.1 million) to be repaid in connection with the
Merger.
(m) Represents the liability to an executive under his employment contract due
to a change of control provision.
(n) Reflects the repayment and cancellation of the Ralphs 1992 Credit Agreement
and the F4L Credit Agreement and the repayment of certain other Ralphs debt,
and records borrowings under the New Credit Facility as set forth in the
table below:
<TABLE>
<S> <C>
New Term Loans............................................................................ $ 746.2
New Revolving Facility.................................................................... 5.8
New F4L Senior Notes...................................................................... 400.0
Repay Ralphs 1992 Credit Agreement........................................................ (196.3)
Repay F4L Credit Agreement................................................................ (123.3)
Purchase Old RGC Notes.................................................................... (90.0)
Repay other Ralphs debt................................................................... (175.1)
-------
Net pro forma adjustment.......................................................... $ 567.3
=======
</TABLE>
(o) Reflects the payment of a portion of the Ralphs EAR liability ($23.8
million) and the issuance of new New Holdings stock options in consideration
of the cancellation of the remaining Ralphs EAR liability ($10.0 million).
See "Executive Compensation -- Equity Appreciation Rights Plan." No future
compensation expense will be recorded as the cancellation of certain EAR
liabilities ($10.0 million) in consideration for the issuance of New
Holdings stock options is deemed to reflect fair value.
(p) Reflects a reserve for Ralphs unfunded defined benefit pension plans,
determined as the difference between the projected benefit obligation of the
plans as compared to the fair value of plan assets, less amounts previously
accrued.
(q) Reflects cancellation of cumulative convertible preferred stock of Food 4
Less held by Holdings.
(r) Reflects the contribution by New Holdings of RSI stock acquired with the
cash proceeds of the New Equity Investment of $150.0 million offset by $5.0
million in related commitment fees.
(s) Reflects the contribution by New Holdings of RSI stock acquired through the
issuance of $100.0 million aggregate principal amount of the Seller
Debentures.
(t) Reflects the elimination of Ralphs historical equity.
(u) Represents the write-off of the historical deferred debt issuance costs of
Food 4 Less related to its refinanced debt.
(v) The unaudited pro forma combined balance sheet as of September 17, 1994 does
not include certain one-time non-recurring costs related to (i) severance
payments under certain employment contracts with Food 4 Less management
totaling $1.4 million that are subject to change of control provisions and
the achievement of earnings and sales targets, (ii) costs related to the
integration of the Company's operations which are estimated to be $50.0
million (includes an estimated $12.0 million related to termination and
severance costs) over a three-year period, (iii) other costs related to
warehouse closures, which costs are not presently determinable, or (iv) any
contingent liability to reimburse Yucaipa in the event it incurs a loss on
the resale of $10 million principal amount of Seller Debentures.
36
<PAGE> 44
SELECTED HISTORICAL FINANCIAL DATA OF RALPHS
The following table presents selected historical financial data of RGC (as
the predecessor of RSI) as of and for the 52 weeks ended January 28, 1990, the
53 weeks ended February 3, 1991, and the 52 weeks ended February 2, 1992, and
summary historical financial data of RSI for the 52 weeks ended January 31, 1993
and January 30, 1994, which have been derived from the financial statements of
RSI and RGC audited by KPMG Peat Marwick LLP, independent certified public
accountants. The selected historical financial data of RSI presented below as of
and for the 36 weeks ended October 10, 1993 and October 9, 1994 have been
derived from unaudited interim financial statements of RSI which, in the opinion
of management, reflect all material adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of such data. The
following information should be read in conjunction with the Unaudited Pro Forma
Combined Financial Statements, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the historical financial
statements of RSI and RGC and related notes thereto included elsewhere in this
Prospectus and Solicitation Statement.
<TABLE>
<CAPTION>
52 WEEKS 53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 36 WEEKS 36 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
JANUARY 28, FEBRUARY 3, FEBRUARY 2, JANUARY 31, JANUARY 30, OCTOBER 10, OCTOBER 9,
1990 1991 1992 1993 1994 1993 1994
----------- ----------- ----------- ----------- ----------- ----------- ----------
(DOLLARS IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales............................ $2,556.1 $2,799.1 $2,889.2 $2,843.8 $2,730.2 $1,874.2 $1,856.3
Cost of sales.................... 2,051.1 2,225.4 2,275.2 2,217.2 2,093.7 1,445.2 1,433.0
-------- -------- -------- -------- -------- -------- --------
Gross profit..................... 505.0 573.7 614.0 626.6 636.5 429.0 423.3
Selling, general and
administrative expenses(a)..... 391.0 438.0 459.2 470.0 471.0 321.5 317.8
Provision for equity appreciation
rights......................... 26.0 15.3 18.3 -- -- -- --
Amortization of excess of cost
over net assets acquired....... 11.7 11.0 11.0 11.0 11.0 7.6 7.6
Provisions for restructuring and
tax indemnification
payments(b).................... -- -- 10.0 7.1 2.4 -- --
-------- -------- -------- -------- -------- -------- --------
Operating income................. 76.3 109.4 115.5 138.5 152.1 99.9 97.9
Interest expense(c).............. 130.9 128.5 130.2 125.6 108.8 75.7 77.2
Loss on disposal of assets and
provisions for legal settlement
and earthquake losses(d)....... 3.1 6.4 13.0 10.1 12.9 0.4 0.8
Income tax expense (benefit)..... 12.0 12.8 13.5 8.3 (108.0)(e) -- --
Cumulative effect of change in
accounting for postretirement
benefits other than pensions... -- (13.1) -- -- -- -- --
Extraordinary item-debt
refinancing, net of tax
benefits....................... -- -- -- (70.6) -- -- --
-------- -------- -------- -------- -------- -------- --------
Net earnings (loss).............. $ (69.7) $ (51.4) $ (41.2) $ (76.1) $ 138.4 $ 23.8 $ 19.9
======== ======== ======== ======== ======== ======== ========
Ratio of earnings to fixed
charges(f)..................... --(f) --(f) --(f) 1.02x 1.24x 1.27x 1.22x
BALANCE SHEET DATA (end of period):
Working capital surplus
(deficit)...................... $ (46.5) $ (93.9) $ (114.2) $ (122.0) $ (73.0) $ (87.5) $ (118.3)
Total assets..................... 1,404.8 1,406.4 1,357.6 1,388.5 1,483.7 1,363.9 1,491.4
Total debt(g).................... 991.0 986.1 941.9 1,029.8 998.9 990.4 1,000.6
Redeemable stock................. 3.0 3.0 3.0 -- -- -- --
Stockholders' equity (deficit)... 35.4 (16.0) (57.2) (133.3) 5.1 (109.5) 15.0
OTHER DATA:
Depreciation and
amortization(h)................ $ 81.6 $ 75.2 $ 76.6 $ 76.9 $ 74.5 $ 51.7 $ 51.9
Capital expenditures............. 103.5 87.6 50.4 102.7 62.2 46.8 44.5
Stores open at end of period..... 142 150 158 159 165 163 168
EBITDA (as defined)(i)........... $ 188.8 $ 207.0 $ 225.8 $ 227.3 $ 230.2 $ 155.9 $ 156.1
EBITDA margin(j)................. 7.4% 7.4% 7.8% 8.0% 8.4% 8.3% 8.4%
</TABLE>
- ---------------
(a) Includes provision for post retirement benefits other than pensions of $2.2
million, $2.6 million, $3.3 million, $3.4 million, $2.1 million and $1.8
million for the 53 weeks ended February 3, 1991, the 52 weeks ended February
2, 1992, January 31, 1993 and January 30, 1994 and the 36 weeks ended
October 10, 1993 and October 9, 1994, respectively.
(b) Provisions for restructuring are charges for expenses relating to closing of
Ralphs central bakery operation. The charge reflected the complete
write-down of the bakery building, machinery and equipment, leaseholds,
related inventory and supplies, and providing severance pay to terminated
employees. These charges were $7.1 million and $2.4 million for the 52 weeks
ended January 31, 1993 and the 52 weeks ended January 30, 1994,
respectively. Provision for tax indemnification payments to Federated were
$10.0 million for the 52 weeks ended February 2, 1992.
(c) Net earnings (loss) includes non-cash charges related to the amortization of
deferred debt issuance costs of $4.1 million for the 52 weeks ended January
28, 1990, $4.1 million for the 53 weeks ended February 3, 1991, $5.0 million
for the 52 weeks ended February 2, 1992, $5.5 million for the 52 weeks ended
January 31, 1993, $6.5 million for the 52 weeks ended January 30, 1994 and
$4.5 and $4.3 for the 36 weeks ended October 10, 1993 and October 9, 1994,
respectively.
37
<PAGE> 45
(d) Loss on disposal of assets was $3.1 million, $6.4 million, $13.0 million,
$2.6 million, $1.9 million, $0.4 million and $0.8 million for the 52 weeks
ended January 28, 1990, the 53 weeks ended February 3, 1991, the 52 weeks
ended February 2, 1992, January 31, 1993, and January 30, 1994 and the 36
weeks ended October 10, 1993 and October 9, 1994, respectively. The 52 weeks
ended February 2, 1992 includes approximately $12.2 million representing a
reserve against losses related to the closing of three stores. Provision for
legal settlement was $7.5 million for the 52 weeks ended January 31, 1993.
Provision for earthquake losses was $11.0 million for the 52 weeks ended
January 30, 1994. This represents reserve for losses, net of anticipated
insurance recoveries, resulting from the January 17, 1994 Southern
California earthquake.
(e) Includes recognition of $109.1 million of deferred income tax benefit and
$1.1 million current income tax expense for Fiscal 1993 (see Note 11 of
Notes to Consolidated Financial Statements of Ralphs Supermarkets, Inc.).
(f) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of earnings before income taxes, cumulative effect of change in
accounting principles, extraordinary items and fixed charges before
capitalized interest. "Fixed charges" consist of interest expense (including
amortization of self-insurance reserves discount), capitalized interest,
amortization of deferred debt issuance costs and one-third of rental expense
(the portion deemed representative of the interest factor). Earnings were
insufficient to cover fixed charges for the 52 weeks ended January 28, 1990,
the 53 weeks ended February 3, 1991 and the 52 weeks ended February 2, 1992
by $57.7 million, $25.5 million and $27.7 million, respectively.
(g) Total debt includes long-term debt, current maturities of long-term debt,
short-term debt and capital lease obligations.
(h) For the 52 weeks ended January 28, 1990, the 53 weeks ended February 3,
1991, the 52 weeks ended February 2, 1992, January 31, 1993, and January 30,
1994 and the 36 weeks ended October 10, 1993 and October 9, 1994,
depreciation and amortization includes amortization of the excess of cost
over net assets acquired of $11.7 million, $11.0 million, $11.0 million,
$11.0 million, $11.0 million, $7.6 million and $7.6 million, respectively.
(i) "EBITDA", as defined and presented historically by RGC, represents net
earnings before interest expense, income tax expense (benefit), depreciation
and amortization expense, provisions for Equity Appreciation Rights,
provision for tax indemnification payments to Federated, provision for
postretirement benefits, the LIFO charge, extraordinary item relating to
debt refinancing, provision for legal settlement, provision for
restructuring, provision for earthquake losses, a one-time charge for
Teamsters Union sick pay benefits and loss on disposal of assets. EBITDA is
a widely accepted financial indicator of a company's ability to service
debt. However, EBITDA should not be construed as an alternative to operating
income or to cash flows from operating activities (as determined in
accordance with generally accepted accounting principles) and should not be
construed as an indication of Ralphs' operating performance or as a measure
of liquidity. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(j) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
38
<PAGE> 46
SELECTED HISTORICAL FINANCIAL DATA OF FOOD 4 LESS
The following table presents selected historical financial data of Food 4
Less as of and 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 which have been derived
from the financial statements of Food 4 Less audited by Arthur Andersen LLP,
independent public accountants. The summary historical financial data of Food 4
Less presented below as of and for the 12 weeks ended September 18, 1993 and
September 17, 1994 have been derived from unaudited interim financial statements
of Food 4 Less which, in the opinion of management, reflect all material
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of such data. The following information should be read in
conjunction with the Unaudited Pro Forma Financial Statements, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical financial statements of Food 4 Less and related notes thereto
included elsewhere in this Prospectus and Solicitation Statement.
<TABLE>
<CAPTION>
53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 12 WEEKS 12 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30, JUNE 29, JUNE 27, JUNE 26, JUNE 25, SEPTEMBER 18, SEPTEMBER 1,
1990 1991(A) 1992 1993 1994(B) 1993 1994
-------- -------- -------- -------- -------- ------------- ------------
(DOLLARS IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales................................. $1,318.2 $1,606.6 $2,913.5 $2,742.0 $2,585.2 $ 616.6 $598.7
Cost of sales......................... 1,113.4 1,340.9 2,392.7 2,257.8 2,115.9 504.2 495.7
-------- -------- -------- -------- -------- ------- ------
Gross profit.......................... 204.8 265.7 520.8 484.2 469.3 112.4 103.0
Selling, general, administrative and
other expenses...................... 157.8 213.1 469.7 434.9 388.8 95.7 88.1
Amortization of excess cost over net
assets acquired..................... 5.3 5.3 7.8 7.6 7.7 1.8 1.8
-------- -------- -------- -------- -------- ------- ------
Operating income...................... 41.7 47.3 43.3 41.7 72.8 14.9 13.1
Interest expense(c)................... 50.8 50.1 70.2 69.8 68.3 15.7 16.0
Loss (gain) on disposal of assets..... -- 0.6 (1.3) (2.1) -- -- (0.5)
Provision for earthquake losses....... -- -- -- -- 4.5 -- --
Provision for income taxes............ 1.0 2.5 3.4 1.4 2.7 0.3 0.9
Extraordinary charge.................. -- 3.7(d) 4.8(e) -- -- -- --
-------- -------- -------- -------- -------- ------- ------
Net loss.............................. $ (10.1) $ (9.6) $ (33.8) $ (27.4) $ (2.7) $ (1.1) $ (3.3)
======== ======== ======== ======== ======== ======= ======
Ratio of earnings to fixed
charges(f).......................... --(f) --(f) --(f) --(f) 1.0x --(f) --(f)
BALANCE SHEET DATA (end of period)(g):
Working capital surplus (deficit)..... $ (40.5) $ 13.7 $ (66.3) $ (19.2) $ (54.9) $ (18.6) $(58.1)
Total assets.......................... 574.7 980.0 998.5 957.8 980.1 967.3 978.5
Total debt(h)......................... 360.7 558.9 525.3 538.1 517.9 530.6 518.8
Redeemable stock...................... 5.1 -- -- -- -- -- --
Stockholder's equity.................. 20.6 84.6 50.8 72.9 69.0 71.6 65.7
OTHER DATA:
Depreciation and amortization(i)...... $ 25.8 $ 31.9 $ 54.9 $ 57.6 $ 57.1 $ 13.1 $ 13.0
Capital expenditures.................. 36.4 34.7 60.3 53.5 57.5 6.6 16.8
Stores open at end of period.......... 115 259 249 248 258 248 261
EBITDA (as defined)(j)................ $ 69.5 $ 80.7 $ 103.1 $ 105.9 $ 130.5 $ 29.0 $ 29.7
EBITDA margin(k)...................... 5.3% 5.0% 3.5% 3.9% 5.0% 4.7% 5.0%
</TABLE>
- ---------------
(a) Operating data for the 52 weeks ended June 29, 1991 include the results of
Alpha Beta only from June 17, 1991, the date of its acquisition. Alpha
Beta's sales for the two weeks ended June 29, 1991 were $59.2 million.
(b) Operating data for the 52 weeks ended June 25, 1994 include the results of
the Food Barn stores, which were not material, from March 29, 1994, the date
of the acquisition of the Food Barn stores.
(c) Interest expense includes non-cash charges related to the amortization of
deferred financing costs of $4.1 million for the 53 weeks ended June 30,
1990, $5.2 million for the 52 weeks ended June 29, 1991, $6.3 million for
the 52 weeks ended June 27, 1992, $4.9 million for the 52 weeks ended June
26, 1993, $5.5 million for the 52 weeks ended June 25, 1994, $1.2 million
for the 12 weeks ended September 18, 1993 and $1.3 million for the 12 weeks
ended September 17, 1994.
(d) Represents an extraordinary charge of $3.7 million (net of related income
tax benefit of $2.5 million) relating to the refinancing of certain
indebtedness in connection with the Alpha Beta acquisition and the write-off
of related debt issuance costs.
(e) Represents an extraordinary net charge of $4.8 million reflecting the
write-off of $6.7 million (net of related income tax benefit of $2.5
million) of deferred debt issuance costs as a result of the early redemption
of a portion of Food 4 Less' term loan facility under the F4L Credit
Agreement, 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.
(f) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of loss before provision for income taxes and extraordinary charges,
plus fixed charges. "Fixed charges" consist of interest on all indebtedness,
amortization of deferred debt issuance costs and one-third of rental expense
(the
39
<PAGE> 47
portion deemed representative of the interest factor). Earnings were
insufficient to cover fixed charges for the 53 weeks ended June 30, 1990,
the 52 weeks ended June 29, 1991, June 27, 1992 and June 26, 1993 and the 12
weeks ended September 18, 1993 and September 17, 1994 by approximately $9.1
million, $3.4 million, $25.6 million, $25.9 million, $0.8 million and $2.4
million, respectively. However, such earnings included non-cash charges of
$29.9 million for the 53 weeks ended June 30, 1990, $37.0 million for the 52
weeks ended June 29, 1991, $61.2 million for the 52 weeks ended June 27,
1992 and $62.5 million for the 52 weeks ended June 26, 1993, $14.3 million
for the 12 weeks ended September 18, 1993 and $14.3 million for the 12 weeks
ended September 17, 1994, primarily consisting of depreciation and
amortization.
(g) Balance sheet data as of June 30, 1990 relate to Food 4 Less and include the
effect of the BHC Acquisition, as well as the acquisitions of Bell Markets,
Inc. and certain assets of ABC Market Corp. Balance sheet data as of June
29, 1991, June 27, 1992, June 26, 1993 and September 18, 1993 relate to Food
4 Less and reflect the Alpha Beta acquisition and the financings and
refinancings associated therewith. Balance sheet data as of June 25, 1994
and September 17, 1994 relate to Food 4 Less and reflect the acquisition of
the Food Barn stores.
(h) Total debt includes long-term debt, current maturities of long-term debt and
capital lease obligations.
(i) For the 53 weeks ended June 30, 1990, the 52 weeks ended June 29, 1991, June
27, 1992, June 26, 1993 and June 25, 1994, and the 12 weeks ended September
18, 1993 and September 17, 1994, depreciation and amortization includes
amortization of excess of cost over net assets acquired of $5.3 million,
$5.3 million, $7.8 million, $7.6 million, $7.7 million, $1.8 million and
$1.8 million, respectively.
(j) "EBITDA", as defined and presented historically by Food 4 Less, represents
net income before interest expense, depreciation and amortization expense,
the LIFO provision, provision for incomes taxes, provision for earthquake
losses and the one-time adjustment to the Teamsters Union sick pay accrual.
EBITDA is a widely accepted financial indicator of a company's ability to
service debt. However, EBITDA should not be construed as an alternative to
operating income or to cash flows from operating activities (as determined
in accordance with generally accepted accounting principles) and should not
be construed as an indication of Food 4 Less' operating performance or as a
measure of liquidity. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(k) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
40
<PAGE> 48
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The combination of Ralphs and Food 4 Less will create the largest
supermarket operator in Southern California with an estimated 264 conventional
format Ralphs stores and an estimated 68 price-impact Food 4 Less warehouse
format stores. The Company will operate an additional 63 stores in Northern
California and certain areas of the Midwest. Management believes that the
Company's dual format strategy will appeal to a broad range of Southern
California consumers and enable the Company to significantly enhance its overall
competitive position. In addition, the Company expects to achieve cost savings
and incremental profitability through the integration of advertising,
administration, purchasing, distribution, manufacturing and other operations.
Due to its increased size, dual format strategy and integration related costs,
the Company believes that its future operating results may not be directly
comparable to the historical operating results of either Ralphs or Food 4 Less.
Certain factors which are expected to affect the future operating results of the
Company (or their comparability to prior periods) are discussed below.
Regional Economic Conditions. In recent periods Ralphs and Food 4 Less have
each been affected by the adverse economic conditions that have existed in
Southern California since approximately 1991. These conditions were exacerbated
by the substantial layoffs in the defense and aerospace industries and by the
civil unrest in Los Angeles in April, 1992. In addition, management estimates
that approximately eight million square feet of supermarket selling space has
been added in Southern California over the past five years. As a result of these
factors and general deflationary pressures in certain food product categories,
Ralphs and Food 4 Less have each experienced declining comparable store sales in
recent periods. Over the last three fiscal years, Food 4 Less' and Ralphs' total
sales declined by 11.3% and 5.5%, respectively. Despite these adverse sales
trends, however, each company has improved its profitability over the same
period as discussed in greater detail below. In addition, comparable store sales
declines have begun to moderate in recent periods, which is consistent with data
indicating a mild recovery in the Southern California economy. Management
believes that its dual format strategy and anticipated cost savings will leave
it well positioned to take advantage of improvements in the regional economy and
growing population and to compete effectively in the Southern California
marketplace. See "Risk Factors -- Regional Economic Conditions."
Integration Costs and Restructuring Charges. The two principal components
of the Company's integration strategy will be (i) the conversion of up to 122 of
Food 4 Less' conventional stores (primarily Alpha Beta stores) to the Ralphs
name and format and the conversion of 16 other Food 4 Less conventional stores
(Boys and Viva) and 23 Ralphs stores to the Food 4 Less price impact warehouse
format; and (ii) the achievement of substantial cost savings through the
consolidation of warehousing, manufacturing and distribution operations and the
elimination of certain other duplicative overhead costs. Management has
estimated that approximately $90 million of net annual cost savings are
achievable by the end of the fourth year of combined operations. Although a
portion of the anticipated cost savings is premised upon the completion of such
capital expenditures, management believes that over 70% of the cost savings
could be achieved without making any Merger-related capital expenditures. See
"Business -- The Merger" and "Risk Factors -- Ability to Achieve Anticipated
Cost Savings." Management believes that approximately $117 million in
Merger-related capital expenditures and $50 million of other non-recurring costs
will be required to complete store conversions, integrate operations and expand
warehouse facilities over this four-year period. Management expects that the
non-recurring integration costs will effectively offset any cost savings in the
first year following the Merger. See "-- Liquidity and Capital Resources." In
addition, management anticipates that certain non-recurring costs associated
with the integration of operations will be recorded as a restructuring charge.
The charge will cover costs associated with the writedown of property and
equipment and related reserves associated with the conversion of certain Food 4
Less conventional supermarkets to warehouse stores and the closure of certain
Food 4 Less conventional stores as well as the write-off of the Alpha Beta
trademark. On December 14, 1994, Food 4 Less and Ralphs entered into a
Settlement Agreement (the "Settlement Agreement") with the State of California.
See "Business -- California Settlement Agreement." Under the Settlement
Agreement, the Company must divest a total of 27 stores (24 Food 4 Less
conventional supermarkets or warehouse stores and
41
<PAGE> 49
3 Ralphs stores). In addition, although not required pursuant to the Settlement
Agreement, an additional 5 under-performing stores selected by the Company are
scheduled to be closed following the Merger. It is anticipated that such
closures and store conversions will be substantially completed by December 31,
1995. The estimated restructuring charge aggregating $45.5 million for the 24
Food 4 Less stores to be divested under the Settlement Agreement, the planned
closures (5 Food 4 Less stores) and the conversion of 16 Food 4 Less
conventional stores to warehouse format stores reflects (i) the writedown of
property, plant and equipment ($27.9 million), (ii) the write off of the Alpha
Beta trademark ($8.6 million), (iii) the write-off of other assets ($4.3
million), (iv) lease termination expense ($3.1 million), and (v) miscellaneous
expense accruals ($1.6 million). The expected cash payments to be made in
connection with the restructuring charge will total $7.1 million. It is expected
that such cash payments will be made by December 31, 1995. As a result of the
completion of 11 of the 16 planned Food 4 Less conventional store conversions
during the second quarter of the current fiscal year, Food 4 Less will record a
portion of the anticipated restructuring charge (presently estimated to be
between $5 million and $7 million) in its results of operations for the second
quarter (which ended on January 7, 1995). Food 4 Less has determined that there
is no impairment of existing goodwill related to the store closures based on its
projections of future undiscounted cash flows. The remaining estimated
restructuring charge will be recorded as an expense once the Merger is
completed. The divestiture of the 3 Ralphs stores pursuant to the Settlement
Agreement will be reflected in the allocation of the purchase price, and
therefore will not give rise to any restructuring charge.
Store Mix. Approximately 28% of the Company's total anticipated number of
stores following the Merger are expected to be warehouse format stores. Because
these stores offer prices that are generally 5-12% below those in Food 4 Less'
conventional stores, they produce lower gross profit margins than an average
conventional supermarket. As a result, the Company's consolidated gross margin
following the Merger is expected to decline from the levels historically
reported by Ralphs. In addition, if the percentage of warehouse stores in the
overall store mix increases following the Merger, as expected, the Company's
consolidated gross margins should also be expected to decline slightly over
time. Because of the reduced SG&A (as defined) costs associated with the
warehouse format stores, management believes that overall profitability of the
warehouse stores is comparable to that of conventional stores.
Purchase Accounting. The Merger will be accounted for as a purchase of
Ralphs by Food 4 Less. As a result, the assets and liabilities of Ralphs will be
recorded at their estimated fair market values on the date the Merger is
consummated. The purchase price in excess of the fair market value of Ralphs'
assets will be recorded as goodwill and amortized over a forty year period. The
purchase price allocation reflected in the pro forma statements is based on
management's preliminary estimates. The actual purchase accounting adjustments
will be determined following the Merger and may vary from the amounts reflected
in the Unaudited Pro Forma Financial Data included elsewhere herein.
Fiscal Year and Restatement of Food 4 Less Financial Statements. Following
the Merger, the Company will adopt Ralphs' fiscal year end for financial
reporting purposes. Ralphs' fiscal year ends on the Sunday closest to January
31. In connection with the preparation of this Prospectus and Solicitation
Statement, Food 4 Less elected to restate its historical financial statements to
conform to Ralphs' classification of certain expenses. The changes primarily
involved the reclassification of certain labor, occupancy and utility costs
associated with product deliveries as cost of goods sold, which were previously
classified as selling, general, administrative and other expense, net. In
addition, depreciation expense, which had been reported separately by Food 4
Less with the amortization of goodwill, was classified as cost of goods sold or
selling, general, administrative and other expense, net, as appropriate. The
amounts aggregated $236.2 million, $224.5 million, $219.5 million and $50.9
million (unaudited) for the fiscal years ended June 27, 1992, June 26, 1993,
June 25, 1994 and the 12 weeks ended September 18, 1993. Food 4 Less has also
classified a portion of its self-insurance costs as interest expense that was
previously recorded in selling, general, administrative and other expense, net.
These self-insurance amounts were reclassified to more completely segregate the
interest component of self-insurance costs arising from discounting long-term
obligations. The amounts reclassified aggregated $5.0 million, $5.9 million,
$5.8 million and $1.4 million (unaudited) for the fiscal years ended June 27,
1992, June 26, 1993, June 25, 1994 and the 12 weeks September 18, 1993. All
historical financial
42
<PAGE> 50
information for Food 4 Less included in this Prospectus and Solicitation
Statement reflects these reclassifications. See Note 15 of Notes to Food 4 Less
Consolidated Financial Statements.
RESULTS OF OPERATIONS OF RALPHS
The following table sets forth the historical operating results of Ralphs
for the 52 weeks ended February 2, 1992 ("Fiscal 1991"), January 31, 1993
("Fiscal 1992") and January 30, 1994 ("Fiscal 1993") and for the 36 weeks ended
October 10, 1993 and October 9, 1994:
<TABLE>
<CAPTION>
52 WEEKS ENDED 36 WEEKS ENDED
-------------------------------------------------------- ------------------------------------
FEBRUARY 2, JANUARY 31, JANUARY 30, OCTOBER 10, OCTOBER 9,
1992 1993 1994 1993 1994
---------------- ---------------- ---------------- ---------------- ----------------
(IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales.......................... $2,889.2 100.0% $2,843.8 100.0% $2,730.2 100.0% $1,874.2 100.0% $1,856.3 100.0%
Cost of sales.................. 2,275.2 78.8 2,217.2 78.0 2,093.7 76.7 1,445.2 77.1 1,433.0 77.2
Selling, general and
administrative expenses...... 456.6 15.8 466.7 16.4 467.6 17.1 319.4 17.1 316.0 17.0
Operating income(a)............ 115.5 4.0 138.5 4.9 152.1 5.6 99.9 5.3 97.9 5.3
Net interest expense........... 130.2 4.5 125.6 4.4 108.8 4.0 75.7 4.0 77.2 4.2
Provision for earthquake
losses(b).................... -- -- -- -- 11.0 0.4 -- -- -- --
Income tax expense (benefit)... 13.5 0.4 8.3 0.3 (108.0) (4.0) -- -- -- --
Extraordinary item............. -- -- 70.6 2.5 -- -- -- -- -- --
Net earnings (loss)............ (41.2) (1.4) (76.1) (2.7) 138.4 5.1 23.8 1.3 19.9 1.1
</TABLE>
- ---------------
(a) Operating income reflects charges of $7.1 million in Fiscal 1992 and $2.4
million in Fiscal 1993, for expenses relating to closing of central bakery
operation. The charges reflected the complete write-down of the bakery
building, machinery and equipment, leaseholds, related inventory and
supplies, and providing severance pay to terminated employees.
(b) Represents reserve for losses, net of expected insurance recoveries,
resulting from the January 17, 1994 Southern California earthquake.
COMPARISON OF RALPHS' RESULTS OF OPERATIONS FOR THE 36 WEEKS ENDED OCTOBER 9,
1994 WITH RALPHS' RESULTS OF OPERATIONS FOR THE 36 WEEKS ENDED OCTOBER 10, 1993.
Sales
For the thirty-six weeks ended October 9, 1994, sales were $1,856.3
million, a decrease of $17.9 million or 1.0% from the thirty-six weeks ended
October 10, 1993. During the first three quarters of the fiscal year ending
January 29, 1995 ("Fiscal 1994"), Ralphs opened five new stores (three in Los
Angeles County, one in San Diego County and one in Riverside County), closed two
stores (in conjunction with new stores opening in the same areas), and completed
three store remodels. Comparable store sales decreased 3.8%, which included an
increase of 0.3% for replacement store sales, from $1,855.0 million in the first
three quarters of Fiscal 1993 to $1,784.4 million in the first three quarters of
Fiscal 1994. Ralphs sales continued to be adversely affected by the continuing
softness of the economy in Southern California, continuing competitive new store
and remodeling activity and recent pricing and promotional changes by
competitors. Ralphs continued to take steps to mitigate the impact of the weak
retailing environment in its markets, which included continuing its own new
store and remodeling program and initiating the Ralphs Savings Plan in February
1994, a new marketing campaign specifically designed to enhance customer value.
See "Business -- Advertising and Promotion."
On January 17, 1994, an earthquake in Southern California caused
considerable damage in Los Angeles and surrounding areas. Several Ralphs
supermarkets suffered earthquake damage, with 54 stores closed on the morning of
January 17th. Thirty-four stores reopened within one day and an additional 17
stores reopened within three days. Three stores in the San Fernando Valley area
of Los Angeles suffered major structural damage. All three stores have since
reopened for business, with the last reopening on April 15, 1994. Management
believes that there was some negative impact on sales resulting from the
temporary disruption of business resulting from the earthquake. Ralphs is
partially insured for earthquake losses. The pre-tax financial impact, net of
expected insurance recoveries, is expected to be approximately $11.0 million and
Ralphs
43
<PAGE> 51
reserved for this loss in Fiscal 1993. The gross earthquake loss is
approximately $25.3 million and the expected insurance recovery is approximately
$14.3 million.
Cost of Sales
Cost of sales decreased $12.2 million or 0.8% from $1,445.2 million in the
first three quarters of Fiscal 1993 to $1,433.0 million in the first three
quarters of Fiscal 1994. As a percentage of sales, cost of sales increased to
77.2% in the first three quarters of Fiscal 1994 from 77.1% in the first three
quarters of Fiscal 1993. The increase in cost of sales as a percentage of sales
included a one-time charge for Teamsters Union sick pay benefits pursuant to a
new contract ratified in August 1994 with the Teamsters. The total charge was
$2.5 million, of which $2.1 million was included in cost of sales and $0.4
million in selling, general and administrative expense. Increases in cost of
sales were partially offset by savings in warehousing and distribution costs,
reductions in self-insurance costs, pass-throughs of increased operating costs
and increases in relative margins where allowed by competitive conditions.
Warehousing and distribution cost savings were primarily attributable to
Ralphs' ASRS and PSC facilities. The ASRS facility can hold substantially more
inventory and requires fewer employees to operate than does a conventional
warehouse of equal size. This facility has reduced Ralphs' warehousing costs of
non-perishable items markedly, enabling it to take advantage of advance buying
opportunities and minimize "out-of-stocks." Ralphs engages in forward-buy
purchases to take advantage of special prices or to delay the impact of upcoming
price increases by purchasing and warehousing larger quantities of merchandise
than immediately required. The PSC facility has consolidated the operations of
three existing facilities and holds more inventory than the facilities it
replaced, thereby reducing Ralphs' warehouse distribution costs.
Over the last several years, Ralphs has been implementing modifications in
its workers compensation and general liability insurance programs. Ralphs
believes that these modifications have resulted in a significant reduction in
self-insurance costs for Fiscal 1994. Based on a review of the results of these
modifications by Ralphs and its actuaries, adjustments to the accruals for
self-insurance costs were made during the second and third quarters of Fiscal
1994 resulting in reductions of approximately $7.8 million and $3.9 million,
respectively. Of the total $11.7 million reduction in self-insurance costs, $4.3
million is included in cost of sales and $7.4 million is included in selling,
general and administrative expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") decreased $3.4
million or 1.1% from $319.4 million in the first three quarters of Fiscal 1993
to $316.0 million in the first three quarters of Fiscal 1994. As a percentage of
sales, SG&A decreased from 17.1% in the first three quarters of Fiscal 1993 to
17.0% in the first three quarters of Fiscal 1994. The decrease in SG&A was
primarily due to a reduction in contributions to the United Food and Commercial
Workers Union ("UFCW") health care benefit plans, due to an excess reserve in
these plans, a reduction in self-insurance costs, as discussed above, and the
results of cost savings programs instituted by Ralphs. Ralphs is continuing its
expense reduction program. The decrease in SG&A was partially offset by several
factors including increases in union wage rates, a one-time charge for Teamsters
Union sick pay benefits and increased rent expense resulting from new stores,
including fixture and equipment financing.
Ralphs participates in multi-employer pension plans and health and welfare
plans administered by various trustees for substantially all union employees.
Contributions to these plans are based upon negotiated contractual rates. In
both Fiscal 1992 and Fiscal 1993 the multi-employer pension plan was deemed to
be overfunded based upon the collective bargaining agreement then currently in
force. During Fiscal 1993 the agreement called for pension benefits which
resulted in additional required expense. The UFCW health and welfare benefit
plans were overfunded and those employers who contributed to these plans are to
receive a pro rata share of the excess reserve in these health care benefit
plans through a reduction in current maintenance payments. Ralphs' share of the
excess reserve was approximately $24.5 million of which $11.8 million was
recognized in Fiscal 1993 and the remainder will be recognized in Fiscal 1994.
In the first three quarters of Fiscal 1994 $8.7 million of the excess reserve
was recognized. Since employers are required to make
44
<PAGE> 52
contributions to the benefit funds at whatever level is necessary to maintain
plan benefits, there can be no assurance that plan maintenance payments will
remain at current levels.
Operating Income
Operating income in the first three quarters of Fiscal 1994 decreased 2.0%
to $97.9 million from $99.9 million in the first three quarters of Fiscal 1993.
Operating margin, defined as operating income as a percentage of sales, remained
at 5.3% in the first three quarters of Fiscal 1994 and Fiscal 1993. EBITDA,
defined as net earnings before interest expense, income tax expense (benefit),
depreciation and amortization expense, provision for post-retirement benefits,
gain or loss on disposal of assets and a one-time charge for Teamsters Union
sick pay benefits, was 8.4% of sales or $156.1 million in the first three
quarters of Fiscal 1994 and 8.3% of sales or $155.9 million in the first three
quarters of Fiscal 1993.
Net Interest Expense
Net interest expense for the first three quarters of Fiscal 1994 was $77.2
million versus $75.7 million for the first three quarters of Fiscal 1993. Net
interest expense increased primarily as a result of increases in interest rates.
Included as interest expense during the first three quarters of Fiscal 1994 was
$66.5 million, representing interest expense on existing debt obligations,
capitalized leases and a swap agreement. Comparable interest expense for the
first three quarters of Fiscal 1993 was $64.6 million. Also included in net
interest expense for the first three quarters of Fiscal 1994 was $10.7 million
representing certain other charges related to amortization of debt issuance
costs, self-insurance discounts, lease valuation reserves and other
miscellaneous charges (categorized by Ralphs as non-cash interest expense) as
compared to $11.1 million for the first three quarters of Fiscal 1993.
Investment income, which is immaterial, has been offset against interest
expense. The continuation of higher interest rates subsequent to the end of the
third quarter has continued to increase interest expense and adversely affect
Ralphs' net income.
Net Earnings
For the first three quarters of Fiscal 1994, Ralphs reported net earnings
of $19.9 million compared to net earnings of $23.8 million for the first three
quarters of Fiscal 1993. The decrease in net earnings is primarily the result of
decreased operating income and higher interest expense due to increased interest
rates.
Other
In February 1994, the Board of Directors of RGC authorized a dividend of
$10.0 million to be paid to RSI, and the Board of Directors of RSI authorized
distribution of this dividend to its shareholders subject to certain restrictive
covenants in the instruments governing certain of RGC's indebtedness that impose
limitations on the declaration or payment of dividends. RGC's credit agreement,
entered into in 1992 (the "1992 Credit Agreement"), was amended to allow for the
payment of the dividend to RSI for distribution to RSI's shareholders. The fee
for the amendment was approximately $500,000, which was included in interest
expense for the period. The dividend was distributed to the shareholders of RSI
in the second quarter of Fiscal 1994.
COMPARISON OF RALPHS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 30,
1994 WITH RALPHS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 31, 1993.
Sales
Sales in Fiscal 1993 were $2,730.2 million, a decrease of $113.6 million or
4.0% compared to Fiscal 1992. During Fiscal 1993, Ralphs opened eight new
stores, four in Los Angeles County, two in Orange County and two in Riverside
County, and remodeled six stores. Two of the eight new stores replaced the two
stores closed during the fiscal year. Comparable store sales decreased 5.8%,
which included an increase of 0.6% for the replacement stores, from $2,823.4
million to $2,659.3 million in Fiscal 1993. Ralphs' sales continued to be
45
<PAGE> 53
adversely affected by the significant recession in Southern California,
continuing competitive new store and remodelling activity and pricing and
promotional changes by competitors.
Cost of Sales
Cost of sales decreased $123.5 million or 5.6% from $2,217.2 million in
Fiscal 1992 to $2,093.7 million in Fiscal 1993. As a percentage of sales, cost
of sales declined to 76.7% in Fiscal 1993 from 78.0% in Fiscal 1992. The
decrease in cost of sales as a percentage of sales was the result of savings in
warehousing and distribution costs, the pass-through of increased operating
costs and increases in relative margins where allowed by competitive conditions.
Selling, General and Administrative Expenses
SG&A increased $0.9 million or 0.2% from $466.7 million in Fiscal 1992 to
$467.6 million in Fiscal 1993. As a percentage of sales, SG&A increased from
16.4% in Fiscal 1992 to 17.1% in Fiscal 1993. The increase in SG&A as a
percentage of sales was the result of several factors including the soft sales
environment. Increases in expense were partially offset by cost savings programs
instituted by Ralphs.
Ralphs participates in multi-employer pension plans and health and welfare
plans administered by various trustees for substantially all union employees.
Contributions to these plans are based upon negotiated contractual rates. In
both Fiscal 1992 and Fiscal 1993 the UFCW multi-employer pension plan was deemed
to be overfunded based upon the collective bargaining agreement then currently
in force. During Fiscal 1993 the agreement called for pension benefits which
resulted in additional required expense. The UFCW health and welfare benefit
plans were overfunded and those employers who contributed to these plans are to
receive a pro rata share of the excess reserve in these health care benefit
plans through a reduction in current maintenance payments. Ralphs' share of the
excess reserve was approximately $24.5 million of which $11.8 million was
recognized in Fiscal 1993 and the remainder will be recognized in the fiscal
year ending January 29, 1995. The change in health and welfare plan expenses
resulted from the $11.8 million credit associated with the collective bargaining
agreement as well as a reduction in the current year plan expense due to the
overfunded status of the plan. Since employers are required to make
contributions to the benefit funds at whatever level is necessary to maintain
plan benefits, there can be no assurance that plan maintenance payments will
remain at current levels. Partially offsetting the reductions of health and
welfare maintenance payments was a $6.0 million contract ratification bonus paid
by Ralphs at the conclusion of contract negotiations with the UFCW in Fiscal
1993. The $6.0 million contract ratification payment was an item separate from
either of these plans.
Operating Income
Operating income in Fiscal 1993 increased to $152.1 million from $138.5
million in Fiscal 1992, a 9.8% increase. Operating margin increased in Fiscal
1993 to 5.6% from 4.9% in Fiscal 1992. This increase was primarily the result of
the aforementioned improvements in Ralphs' cost of sales percentage. EBITDA,
defined as net earnings before interest expense, income tax expense (benefit),
depreciation and amortization expenses, post-retirement benefits, the LIFO
charge, extraordinary item relating to debt refinancing, provision for legal
settlement, provision for restructuring, provision for earthquake losses and
loss on disposal of assets, improved to $230.2 million or 8.4% of sales in
Fiscal 1993 from $227.3 million or 8.0% of sales in Fiscal 1992.
Net Interest Expense
Net interest expense for Fiscal 1993 was $108.8 million, compared to $125.6
million for Fiscal 1992. The reduction in net interest expense was attributable
to the refinancing and defeasance of Ralphs 14% Senior Subordinated Debentures
due 2000 (the "14% Debentures") with the proceeds from the issuance of the Old
RGC 9% Notes as the final step in a recapitalization plan initiated on July 30,
1992. Cash interest expense during Fiscal 1993 was $92.8 million compared to
$105.5 million in Fiscal 1992. Also included in interest expense for Fiscal 1993
was $16.0 million representing certain other charges relating to amortization of
debt issuance costs, self-insurance discount, lease valuation reserves and other
miscellaneous charges (categorized
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<PAGE> 54
by Ralphs as non-cash interest expense) as compared to $20.1 million for Fiscal
1992. Investment income, which is immaterial, has been offset against interest
expense.
Earthquake Losses
Several Ralphs stores suffered earthquake damage from the January 17, 1994
earthquake in Southern California and 54 stores were completely shutdown on the
morning of January 17th. Management believes that there was some negative impact
on sales resulting from the temporary disruption of business resulting from the
earthquake. Ralphs is partially insured for earthquake losses. The pre-tax
financial impact, net of expected insurance recoveries, is expected to be
approximately $11.0 million and Ralphs reserved for this loss in Fiscal 1993.
The gross earthquake loss is approximately $25.3 million and the expected
insurance recovery is approximately $14.3 million.
Income Taxes
In Fiscal 1993, Ralphs recorded the incremental impact of The Omnibus
Budget Reconciliation Act of 1993 on net deductible temporary differences and
Ralphs increased its deferred income tax assets by a net amount of $109.1
million. Income tax expense (benefit) for Fiscal 1993 includes recognition of
$109.1 million of deferred income tax benefit and $1.1 million current income
tax expense for Fiscal 1993. See Note 11 of Notes to Ralphs Consolidated
Financial Statements.
Net Earnings
In Fiscal 1993, Ralphs reported net earnings of $138.4 million compared to
a net loss of $76.1 million for Fiscal 1992. This increase in net earnings was
primarily the result of Ralphs' recognition of $109.1 million of deferred income
tax benefit for Fiscal 1993 and the following items recorded in Fiscal 1992: (1)
an extraordinary charge, net of tax benefit, of $70.6 million relating to
Ralphs' recapitalization plan, (2) a provision of $7.1 million made for expenses
related to the closure of the central bakery operation (an additional charge of
$2.4 million was recorded in Fiscal 1993) and (3) a provision of $7.5 million
made for the maximum loss under a judgment rendered against Ralphs.
COMPARISON OF RALPHS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 31,
1993 WITH RALPHS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED FEBRUARY 2, 1992.
Sales
Fiscal 1992 sales were $2,843.8 million, a decrease of $45.4 million or
1.6% compared to Fiscal 1991. During Fiscal 1992, Ralphs opened six new stores,
three in Los Angeles County, one in Riverside County, one in San Bernardino
County and one in San Diego County, closed five stores and remodeled 23 stores.
Comparable stores sales decreased 3.5%, which included an increase of 0.6% for
replacement stores, from $2,859.4 million to $2,759.1 million in Fiscal 1992.
Cost of Sales
Cost of sales decreased $58.0 million or 2.5% from $2,275.2 million in
Fiscal 1991 to $2,217.2 million in Fiscal 1992. As a percentage of sales, cost
of sales declined to 78.0% in Fiscal 1992 from 78.8% in Fiscal 1991. The
decrease in cost of sales as a percentage of sales was the result of the
pass-through of increased operating costs, an increase in the mix of above
average gross margin products and increases in relative margins where allowed by
competitive conditions.
The Company believes that through achieving cost savings and applying
effective pricing policies, both cost and gross margins can be improved.
However, given the highly competitive nature of the Southern California grocery
market, such cost and gross margin improvements cannot be assured.
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<PAGE> 55
Selling, General and Administrative Expenses
SG&A increased $10.1 million or 2.2% from $456.6 million in Fiscal 1991 to
$466.7 million in Fiscal 1992. As a percentage of sales, SG&A increased from
15.8% in Fiscal 1991 to 16.4% in Fiscal 1992. The increase in SG&A as a percent
of sales was the result of several factors including the continuing soft sales
environment. Other factors impacting SG&A during Fiscal 1992 were increases in
union wage rates. These expense increases were partially offset by significant
cost savings programs instituted by Ralphs. These programs were intensified in
the third quarter of Fiscal 1992 due to the prolonged period of soft sales
experienced in Southern California.
Operating Income
Operating income in Fiscal 1992 increased to $138.5 million from $115.5
million in Fiscal 1991, a 19.9% increase. Operating margin increased in Fiscal
1992 to 4.9% from 4.0% in Fiscal 1991. This increase was primarily the result of
the aforementioned improvements in Ralphs' cost of sales percentage and the
vesting of then outstanding rights under Ralphs' 1988 Equity Appreciation Rights
Plan. EBITDA, defined as net earnings before interest expense, income tax
expense (benefit), depreciation and amortization expense, provision for Equity
Appreciation Rights, provision for tax indemnification payments to Federated,
provision for post-retirement benefits, the LIFO charge, extraordinary item
relating to debt refinancing, provision for legal settlement, provision for
restructuring and gains and losses on disposal of assets, improved to $227.3
million or 8.0% of sales in Fiscal 1992 from $225.8 million or 7.8% of sales in
Fiscal 1991.
Net Interest Expense
Net interest expense for Fiscal 1992 was $125.6 million, including an
adjustment of $2.3 million related to additional interest on self-insurance,
compared to $130.2 million for Fiscal 1991. On July 30, 1992 Ralphs initiated
its recapitalization plan, which was designed to reduce interest expense and
improve financial flexibility. The first part of the recapitalization plan
consisted of a tender offer for its 14% Debentures (of which $301.9 million were
tendered), the issuance of $300 million Old RGC 10 1/4% Notes, and the new
$470.0 million 1992 Credit Agreement. The 1992 Credit Agreement replaced the
1988 credit agreements (the "1988 Credit Agreements"), which were paid in full,
including termination of existing interest rate swap agreements. Included as
interest expenses during Fiscal 1992 was $105.5 million of cash interest as
compared to $115.8 million for Fiscal 1991. Also included in interest expense
for Fiscal 1992 was $20.1 million representing certain other charges relating to
amortization of debt issuance costs, self-insurance discount, lease valuation
reserves and other miscellaneous charges (categorized by Ralphs as non-cash
interest expense) as compared to $14.4 million for Fiscal 1991. Investment
income, which is immaterial, has been offset against interest expenses.
Recapitalization Charges
In Fiscal 1992 Ralphs incurred a non-recurring after-tax charge of $70.6
million (net of a tax benefit of $4.2 million) in connection with the retirement
of $400.0 million aggregate principal amount of the 14% Debentures and the
write-off of deferred financing costs related to the $400.0 million principal
amount of the 14% Debentures and the 1988 Credit Agreements, charges incurred to
terminate interest rate swap agreements and costs related to a prospective
equity offering. Incurrence of the non-recurring charge resulted in a
substantial reduction in income taxes payable in Fiscal 1992.
Net Loss
In Fiscal 1992, Ralphs reported a net loss of $76.1 million compared to a
loss of $41.2 million for Fiscal 1991. This increase in the loss was primarily
the result of the consummation of the recapitalization plan, which resulted in
an extraordinary charge, net of a tax benefit, of $70.6 million. In addition, a
provision of $7.1 million was made for expenses related to the closing of the
central bakery operation and a provision of $7.5 million was made for the
maximum loss under a judgment rendered against Ralphs in December 1992.
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<PAGE> 56
RESULTS OF OPERATIONS OF FOOD 4 LESS
The following table sets forth the historical operating results of Food 4
Less for the 52 weeks ended June 27, 1992 ("Fiscal 1992"), June 26, 1993
("Fiscal 1993") and June 25, 1994 ("Fiscal 1994"), and for the 12 weeks ended
September 18, 1993 and September 17, 1994:
<TABLE>
<CAPTION>
52 WEEKS ENDED 12 WEEKS ENDED
---------------------------------------------------------- -------------------------------------
JUNE 27, JUNE 26, JUNE 25, SEPTEMBER 18, SEPTEMBER 17,
1992 1993 1994 1993 1994
---------------- ---------------- ---------------- ---------------- ----------------
(IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales...................... $2,913.5 100.0% $2,742.0 100.0% $2,585.2 100.0% $616.6 100.0% $598.7 100.0%
Gross profit............... 520.8 17.9 484.2 17.7 469.3 18.1 112.4 18.2 103.0 17.2
Selling, general,
administrative and other,
net...................... 469.7 16.1 434.9 15.9 388.8 15.0 95.7 15.5 88.1 14.7
Amortization of excess
costs over net assets
acquired................. 7.8 0.3 7.6 0.3 7.7 0.3 1.8 0.3 1.8 0.3
Operating income........... 43.3 1.5 41.7 1.5 72.8 2.8 14.9 2.4 13.1 2.2
Interest expense........... 70.2 2.4 69.8 2.5 68.3 2.6 15.7 2.6 16.0 2.7
Loss (gain) on disposal of
assets .................. (1.3) -- (2.1) (0.1) -- -- -- -- (0.5) (0.1)
Provision for earthquake
losses................... -- -- -- -- 4.5 0.2 -- -- -- --
Provision for income
taxes.................... 3.4 0.1 1.4 0.1 2.7 0.1 0.3 -- 0.9 0.2
Loss before extraordinary
charge................... (29.0) (1.0) (27.4) (1.0) (2.7) (0.1) (1.1) (0.2) (3.3) (0.6)
Extraordinary charges...... 4.8 0.2 -- -- -- -- -- -- -- --
Net loss................... (33.8) (1.2) (27.4) (1.0) (2.7) (0.1) (1.1) (0.2) (3.3) (0.6)
</TABLE>
COMPARISON OF FOOD 4 LESS' RESULTS OF OPERATIONS FOR THE 12 WEEKS ENDED
SEPTEMBER 17, 1994 WITH FOOD 4 LESS' RESULTS OF OPERATIONS FOR THE 12 WEEKS
ENDED SEPTEMBER 18, 1993
Sales
Sales decreased $17.9 million, or 2.9%, from $616.6 million in the 12 weeks
ended September 18, 1993, to $598.7 million in the 12 weeks ended September 17,
1994, primarily as a result of a 5.8% decline in comparable store sales
partially offset by sales from 18 new stores opened since September 18, 1993.
Management believes that the decline in comparable store sales is attributable
to the continuing softness of the economy in Southern California and, to a
lesser extent, in Food 4 Less' other operating areas, and increased competitive
store openings and remodels in Southern California.
Gross Profit
Gross profit decreased as a percentage of sales from 18.2% in the 12 weeks
ended September 18, 1993, to 17.2% in the 12 weeks ended September 17, 1994. The
decrease in gross profit margin resulted primarily from pricing and promotional
activities related to Food 4 Less' "Total Value Pricing" program, 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 Food 4 Less'
conventional stores) from 46 at September 18, 1993, to 69 at September 17, 1994,
and the effect of the fixed cost component of gross profit as compared to a
lower sales base. The decrease in gross profit was partially offset by
improvements in product procurement and an increase in vendors' participation in
Food 4 Less' promotional costs.
Selling, General, Administrative and Other Expenses, Net
Selling, general, administrative and other expenses ("SG&A") were $95.7
million and $88.1 million for the 12 weeks ended September 18, 1993 and
September 17, 1994, respectively. SG&A decreased as a percentage of sales from
15.5% to 14.7% for the same periods. Food 4 Less experienced a reduction of
workers' compensation and general liability self-insurance costs of $3.5 million
due to continued improvement in the cost and frequency of claims. The improved
experience was due primarily to cost control programs implemented by Food 4
Less, 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
49
<PAGE> 57
sales base which reduced Food 4 Less' exposure. In addition, Food 4 Less
maintained tight control of administrative expenses and store level expenses,
including advertising, payroll (due primarily to increased productivity), and
other controllable store expenses. Because Food 4 Less' warehouse stores have
lower SG&A than conventional stores, the increase in the number of warehouse
stores, from 46 at September 18, 1993, to 69 at September 17, 1994, also
contributed to decreased SG&A as a percentage of sales. 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.
Food 4 Less participates in multi-employer health and welfare plans for its
store employees who are members of the 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.
Food 4 Less' share of the excess reserves was $24.2 million, of which Food 4
Less recognized $8.1 million in Fiscal 1994 and $4.7 million in the 12 weeks
ended September 17, 1994. The remainder of the excess reserves will be
recognized as the credits are taken in the future.
On August 28, 1994, the Teamsters and Food 4 Less ratified a new contract
which, among other things, provided for the vesting of sick pay benefits
resulting in a one-time charge of $2.1 million.
Interest Expense
Interest expense (including amortization of deferred financing costs)
increased $0.3 million from $15.7 million to $16.0 million for the 12 weeks
ended September 18, 1993 and September 17, 1994, respectively. The increase in
interest expense was due primarily to increasing interest rates on the revolving
credit facility and the term loan portions of the Old F4L Credit Agreement.
These increases were partially offset by the reduction of indebtedness under
such term loan and such revolving credit facility as a result of amortization
payments. As a result of the higher capital expenditures subsequent to the end
of its first quarter, Food 4 Less has increased its borrowing under the Old F4L
Credit Agreement, which, coupled with increased rates, has increased its
interest expense and net loss during such period.
Net Loss
Primarily as a result of the factors discussed above, Food 4 Less' net loss
increased from $1.1 million in the 12 weeks ended September 18, 1993, to $3.3
million in the 12 weeks ended September 17, 1994.
COMPARISON OF FOOD 4 LESS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JUNE 25,
1994 WITH FOOD 4 LESS' 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 Fiscal 1993
to $2,585.2 million in Fiscal 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 continuing softness of the 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 13 stores opened or acquired during Fiscal 1994.
Gross Profit
Gross profit increased as a percent of sales from 17.7% in Fiscal 1993 to
18.1% in Fiscal 1994. The increase in gross profit margin was attributable to
improvements in product procurement and an increase in vendors' participation in
Food 4 Less' 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 Food
4 Less' 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.
50
<PAGE> 58
Selling, General, Administrative and Other Expenses, Net
SG&A was $434.9 million and $388.8 million in Fiscal 1993 and Fiscal 1994,
respectively. SG&A decreased as a percent of sales from 15.9% to 15.0% for the
same periods. Food 4 Less experienced a reduction of 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 Food 4 Less, 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 Food 4 Less' exposure. In addition, Food 4 Less maintained tight control
of administrative expenses and store level expenses, including payroll (due
primarily to increased productivity), advertising, and other controllable store
expenses. Because Food 4 Less' 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 as a
percentage of sales. 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.
Food 4 Less participates in multi-employer health and welfare plans for its
store employees who are members of the 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.
Food 4 Less' share of the excess reserves was $24.2 million, of which Food 4
Less 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.
Interest Expense
Interest expense (including amortization of deferred financing costs)
decreased $1.5 million from $69.8 million to $68.3 million for Fiscal 1993 and
Fiscal 1994, respectively. The decrease in interest expense is due primarily to
reduced borrowings under Food 4 Less' credit agreement dated as of June 17,
1991, as amended (the "F4L Credit Agreement").
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 Food 4 Less' stores. The
closures were caused primarily by loss of electricity, water, inventory, or
structural damage. All but one of the closed stores reopened within a week of
the earthquake. The final closed store reopened on March 24, 1994. Food 4 Less
is insured against earthquake losses (including business interruption), subject
to certain deductibles. The pre-tax financial impact, net of expected insurance
recovery, was approximately $4.5 million.
Net Loss
Primarily as a result of the factors discussed above, Food 4 Less' net loss
decreased from $27.4 million in Fiscal 1993 to $2.7 million in Fiscal 1994.
COMPARISON OF FOOD 4 LESS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JUNE 26,
1993 WITH FOOD 4 LESS' 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 Fiscal 1992
to $2,742.0 million in Fiscal 1993, primarily as a result of a 5.1% decline in
comparable store sales and a net reduction in Food 4 Less' total store count of
one store at June 26, 1993 compared to June 27, 1992. Management believes that
the decline in comparable store sales was attributable to (i) the weak economy
in Southern California, and, to a lesser extent, in Food 4 Less' other operating
areas, (ii) lower levels of price inflation in certain key food categories, and
(iii) increased competitive store openings in Southern California.
51
<PAGE> 59
Gross Profit
Gross profit decreased as a percent of sales from 17.9% in Fiscal 1992 to
17.7% in Fiscal 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 Food 4 Less' 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 being 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 Food 4 Less' warehousing and
manufacturing facilities.
Selling, General, Administrative and Other Expenses, Net
SG&A was $469.7 million and $434.9 million in Fiscal 1992 and Fiscal 1993,
respectively. SG&A decreased as a percent of sales from 16.1% to 15.9% for the
same periods as a result of tight control of direct store expenses, primarily
payroll costs, the impact in Fiscal 1992 of the $12.8 million non-cash
self-insurance reserve adjustment partially offset by market-wide contractual
increases in union wages, current year increases in workers' compensation costs
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.
Interest Expense
Interest expense (including amortization of deferred financing fees) was
$70.2 million for Fiscal 1992 and $69.8 million for Fiscal 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 under the F4L Credit Agreement, partially offset by higher interest
expense incurred in connection with the Old F4L Senior Notes which replaced
lower cost debt under the F4L Credit Agreement.
Loss Before Extraordinary Charge
Primarily as a result of the factors discussed above, Food 4 Less' loss
before extraordinary charge decreased from $29.0 million in Fiscal 1992 to $27.4
million in Fiscal 1993. Food 4 Less recorded a net extraordinary charge of $4.8
million in Fiscal 1992, reflecting the write-off of certain deferred financing
costs which were partially offset by a gain on the replacement of partially
depreciated assets following the civil unrest in Los Angeles.
LIQUIDITY AND CAPITAL RESOURCES
In order to consummate the Merger, Holdings and Food 4 Less expect to
utilize total new financing proceeds in the amount of approximately $1.3
billion. Pursuant to the New Equity Investment, New Holdings (as the successor
to Holdings) will issue capital stock for total cash proceeds of approximately
$150 million (excluding a $5.0 million commitment fee). In addition, Food 4 Less
will enter into the New Credit Facility pursuant to which it will have available
up to $750 million of New Term Loans, all of which is anticipated to be drawn at
the Closing Date and will have available a $325 million New Revolving Facility
of which $18.4 million is anticipated to be drawn at the Closing Date. Food 4
Less will also issue up to $400 million principal amount of New F4L Senior Notes
pursuant to the Public Offering. The proceeds from the New Credit Facility and
the Public Offering, together with the $150 million proceeds of the New Equity
Investment and $100 million principal amount of the Seller Debentures, will
provide the sources of financing required to consummate the Merger and to repay
existing bank debt of approximately $165.7 million at Food 4 Less and $291.0
million at Ralphs and existing mortgage debt of $174.4 million (excluding
prepayment fees) at Ralphs. Proceeds from the New Term Loans and the Public
Offering will also be used to pay the cash portion of the Exchange Offers, the
F4L Exchange Offers and the Holdings Consent Solicitation, as well as the Change
of Control Offer, and accrued interest on all exchanged debt securities in the
amount of $20.7 million (as of March 1, 1995), to pay $22.8 million to the
holders of Ralphs Equity Appreciation Rights and to pay up to $115.6 million of
fees and expenses of the Merger and the Financing. The Company will also assume
certain existing indebtedness of Food 4 Less and Ralphs. Pursuant to the
Exchange Offers described hereunder and the F4L Exchange Offers, Food 4 Less
will seek the exchange of at least 80% of the Old RGC
52
<PAGE> 60
Notes for New Notes and the exchange of at least 80% of the Old F4L Notes for
New F4L Notes. The primary purpose of the Exchange Offers described hereunder
and the F4L Exchange Offers is to refinance Food 4 Less' and RGC's existing
public debt securities with longer term public debt securities, to obtain all
necessary consents to consummate the Merger and to eliminate substantially all
of the restrictive covenants in the Old RGC Indentures and Old F4L Indentures.
After the Merger the Company's principal sources of liquidity are expected
to be cash flow from operations, borrowings under the New Revolving Facility and
capital and operating leases. It is anticipated that the Company's principal
uses of liquidity will be to provide working capital, finance capital
expenditures, including the costs associated with the integration of Food 4 Less
and Ralphs, and to meet debt service requirements.
The New Revolving Facility will be a $325 million line of credit which will
be available for working capital requirements and general corporate purposes. Up
to $150 million of the New Revolving Facility may be used to support standby
letters of credit. The letters of credit will be used to cover workers'
compensation contingencies and for other purposes permitted under the New Credit
Facility. The Company anticipates that letters of credit for approximately $101
million will be drawn under the New Revolving Facility at closing, in
replacement of existing letters of credit, primarily to satisfy the State of
California's requirements relating to workers compensation self-insurance. The
New Revolving Facility will be non-amortizing and will have a six-year term. The
Company will be required to reduce loans outstanding under the New Revolving
Facility to $75 million for a period of not less than 30 consecutive days during
each consecutive 12-month period. Assuming that the Merger closes on March 1,
1995, giving effect to currently anticipated borrowings and letter of credit
issuances, the Company's remaining borrowing availability under the New
Revolving Facility would have been approximately $205.6 million. Pursuant to the
New Credit Facility, the New Term Loans will be issued in four tranches: (i)
Tranche A, in the amount of $375 million, will have a six-year term; (ii)
Tranche B, in the amount of $125 million, will have a seven-year term; (iii)
Tranche C, in the amount of $125 million, will have an eight-year term; and,
(iv) Tranche D, in the amount of $125 million, will have a nine-year term. The
New Term Loans will require quarterly amortization payments aggregating $3.8
million in the first year, $48.8 million in the second year and increasing
thereafter. The New Credit Facility will be guaranteed by New Holdings and each
of the Company's subsidiaries and secured by liens on substantially all of the
unencumbered assets of the Company and its subsidiaries and by a pledge of New
Holdings' stock in the Company. The New Credit Facility will contain financial
covenants which are expected to require, among other things, the maintenance of
specified levels of cash flow and stockholder's equity. See "Description of the
New Credit Facility."
Standard & Poor's has publicly announced that, upon consummation of the
Merger, it intends to assign a new rating to the Old RGC Notes. Such new rating
assignment, if implemented, would constitute a Rating Decline under the Old RGC
Indentures. The consummation of the Merger (which is conditioned on, among other
things, successful consummation of the Other Debt Financing Transactions and the
Bank Financing, which itself is conditioned upon the receipt of the Minimum
Tender) and the resulting change in composition of the Board of Directors of
RGC, together with the anticipated Rating Decline would constitute a Change of
Control Triggering Event under the Old RGC Indentures. Upon such a Change of
Control Triggering Event the Company would be obligated to make the Change of
Control Offer following the Merger for all outstanding Old RGC Notes at 101% of
the principal amount thereof ($90.9 million, assuming $90 million of Old RGC
Notes are outstanding following the Merger) plus accrued and unpaid interest to
the date of repurchase. A portion of the proceeds from the Public Offering will
be available to fund the purchase of Old RGC Notes tendered pursuant to the
Change of Control Offer.
Management anticipates that significant capital expenditures will be
required following the Merger in connection with the integration of Ralphs and
Food 4 Less. In order to implement the Company's store format strategy, up to
122 conventional stores currently operated by Food 4 Less will be converted to
the Ralphs format and 16 conventional stores (primarily Boys and Viva) and 23
Ralphs will be converted to the Food 4 Less warehouse format. An additional 18
Ralphs and Food 4 Less warehouse stores are scheduled to be opened during
calendar 1995. Other anticipated Merger-related capital expenditures are
expected to include the expansion of Ralphs' ASRS and PSC facilities in order to
support the additional volume of the Food 4
53
<PAGE> 61
Less stores. It is estimated that the gross capital expenditures to be made by
the Company in the first fiscal year following the closing will be approximately
$159 million (or $110 million net of expected capital leases), of which
approximately $98.0 million relate to ongoing expenditures for new stores,
equipment and maintenance and approximately $61.0 million relate to store
conversions and other Merger-related and non-recurring items. An additional $33
million of Merger-related and non-recurring capital expenditure items (or $22
million net of expected capital leases) are anticipated to be incurred in the
second year following the consummation of the Merger. Management expects that
these expenditures will be financed primarily through cash flow from operations
and capital leases.
Ralphs cash flow from operating activities was $43.5 million for the 36
weeks ended October 9, 1994 and $104.0 million for Fiscal 1993. Food 4 Less
generated approximately $87.8 million of cash from operating activities during
the 52-week period ended June 25, 1994 and $9.5 million of cash from operating
activities during the 12 weeks ended September 17, 1994 (as compared to $29.1
million during the 12 weeks ended September 18, 1993). The decrease in cash from
operating activities is due primarily to changes in operating assets and
liabilities. The Company anticipates that one of the principal uses of cash in
its operating activities will be inventory purchases. However, supermarket
operators typically require small amounts of working capital since inventory is
generally sold prior to the time that payments to suppliers are due. This
reduces the need for short-term borrowings and allows cash from operations to be
used for non-current purposes such as financing capital expenditures and other
investing activities. Consistent with this pattern, Ralphs and Food 4 Less had
working capital deficits of $118.3 million and $58.1 million at October 9, 1994
and September 17, 1994, respectively.
Ralphs cash used in investing activities was $45.5 million during Fiscal
1993 and $38.2 million during the thirty-six weeks ended October 9, 1994. These
amounts reflected increased capital expenditures related to store remodels and
new store openings (including store acquisitions) and, to a lesser extent,
expansion of other warehousing, distribution and manufacturing facilities and
equipment, including data processing and computer systems. For the 52 weeks
ended June 25, 1994, Food 4 Less' cash used in investing activities was $55.8
million. 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 costs in connection with the acquisition of ten former
"Food Barn" stores. For the 12 weeks ended September 17, 1994, Food 4 Less' cash
used in investing activities was $14.0 million. Investing activities consisted
primarily of capital expenditures of $16.8 million, partially offset by $2.1
million of sale/leaseback transactions. The capital expenditures, net of the
proceeds from sale/leaseback transactions, and the Food Barn acquisition costs
were financed with cash provided by operating activities. Food 4 Less' capital
expenditures in the current fiscal year include the costs associated with the
conversion of 16 of its conventional format stores to the Food 4 Less warehouse
format. See "Business -- The Merger -- Two Leading Complimentary Formats." In
order to complete these conversions prior to the consummation of the Merger as
contemplated, Food 4 Less accelerated its budgeted capital expenditures for the
year. In January, 1995, Food 4 Less entered into an amendment to its credit
facility to accommodate the revised capital expenditure program.
Ralphs and FFL have significant net operating loss carryforwards for
regular federal income tax purposes. As a result of the Merger and the New
Equity Investment, the Company's ability to utilize such loss carryforwards in
future periods will be limited to approximately $15.6 million per year with
respect to FFL net operating loss carryforwards and approximately $15.0 million
per year with respect to Ralphs' net operating loss carryforwards. The Company
does not expect the Merger to materially adversely affect any of its other tax
assets. The Company will be a party to a tax sharing agreement with New Holdings
and the subsidiaries of the Company. Pursuant to the tax sharing agreement,
payments by the Company will not exceed the amount it would be required to pay
if its consolidated liability was calculated on a separate company basis. See
"Certain Relationships and Related Transactions." The Company will continue to
be a party to an indemnification agreement with Federated and certain other
parties. See Note 1 of Notes to Consolidated Financial Statements of Ralphs
Supermarkets, Inc. Pursuant to the terms of such agreement, Ralphs will make
annual tax payments of $1.0 million in 1995 and 1996 and a final tax payment of
$5.0 million in 1997.
Following the Merger, the Company will be a wholly-owned subsidiary of New
Holdings. New Holdings will have outstanding $103.6 million aggregate principal
amount of the Holdings Discount Notes (with an
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<PAGE> 62
accreted value of $61.4 million) as of September 17, 1994 and following the
Merger, New Holdings will have an additional $100.0 million principal amount of
the Seller Debentures outstanding. New Holdings is a holding company which will
have no assets other than the capital stock of the Company. New Holdings will be
required to commence semi-annual cash payments of interest on the Holdings
Discount Notes on June 15, 1998 in the amount of approximately $15.8 million per
annum. New Holdings will also be required to commence semi-annual cash payments
of interest on the Seller Debentures commencing five years from their date of
issuance in the amount of $24.4 million per annum. Subject to the limitations
contained in its debt instruments, the Company intends to make dividend payments
to New Holdings in amounts which are sufficient to permit New Holdings to
service its cash interest requirements. The Company may pay other dividends to
New Holdings in connection with certain employee stock repurchases and for
routine administrative expenses.
Following the consummation of the Merger and the Financing, the Company
will be highly leveraged. Based upon current levels of operations and
anticipated cost savings and future growth, the Company believes that its cash
flow from operations, together with available borrowings under the New Revolving
Facility and its other sources of liquidity (including leases), will be adequate
to meet its anticipated requirements for working capital, capital expenditures,
integration costs and interest payments. There can be no assurance, however,
that the Company's business will continue to generate cash flow at or above
current levels or that future costs savings and growth can be achieved. See
"Risk Factors -- Leverage and Debt Service."
Interest Rate Protection Agreements
Ralphs and Food 4 Less currently are parties to certain interest rate
protection agreements required under the terms of their existing bank
indebtedness. In connection with the New Credit Facility, these interest rate
protection agreements will be replaced by a new agreement which will be
finalized prior to the closing of the Merger. The Company will be exposed to
credit loss in the event of nonperformance by the counterparty to the interest
rate protection agreement. However, the Company does not anticipate
nonperformance by such counterparty.
The following details the impact of Ralphs' hedging activity on its
weighted average interest rate for each of the last three fiscal years of
Ralphs:
<TABLE>
<CAPTION>
WITH WITHOUT
HEDGE HEDGE
-------- --------
<S> <C> <C>
1991............................................ 11.87% 11.52%
1992............................................ 10.52% 10.22%
1993............................................ 8.96% 8.96%
</TABLE>
The following details the impact of Food 4 Less' hedging activity on its
weighted average interest rate for each of the last three fiscal years of Food 4
Less:
<TABLE>
<CAPTION>
WITH WITHOUT
HEDGE HEDGE
-------- --------
<S> <C> <C>
1992............................................ 10.28% 10.25%
1993............................................ 10.07% 10.03%
1994............................................ 10.10% 10.09%
</TABLE>
Effects of Inflation
The Company's primary costs, inventory and labor, are affected by a number
of factors that are beyond its control, including inflation, availability and
price of merchandise, the competitive climate and general and regional economic
conditions. As is typical of the supermarket industry, Ralphs and Food 4 Less
have generally been able to maintain margins by adjusting their retail prices,
but competitive conditions may from time to time render the Company unable to do
so while maintaining its market share.
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<PAGE> 63
BUSINESS
THE MERGER
The combination of Ralphs Grocery Company and Food 4 Less Supermarkets,
Inc. will create the largest food retailer in Southern California. Pro forma for
the Merger, the Company will operate approximately 332 Southern California
stores with an estimated 26% market share among the area's supermarkets. The
Company will operate the second largest conventional supermarket chain in the
region under the "Ralphs" name and the largest warehouse supermarket chain in
the region under the "Food 4 Less" name. In addition, the Company will operate
approximately 24 conventional format stores and 39 warehouse format stores in
Northern California and the Midwest. On a pro forma basis giving effect to the
Merger, the Company would have had sales, operating income and EBITDA (as
defined) of approximately $5.1 billion, $183 million and $343 million,
respectively, for the twelve months ending June 25, 1994.
TWO LEADING COMPLEMENTARY FORMATS
In Southern California the Company plans to convert up to 122 conventional
stores currently operated by Food 4 Less to the "Ralphs" name and format and 39
Ralphs and Food 4 Less conventional stores to the "Food 4 Less" name and
warehouse format. As a result, and pro forma for the Merger, Ralphs will be the
region's second largest conventional format supermarket chain, with 264 stores
and Food 4 Less will be the region's largest warehouse format supermarket chain
with 68 stores. The Ralphs stores will continue to emphasize a broad selection
of merchandise, high quality fresh produce, meat and seafood and service
departments, including bakery and delicatessen departments in most stores. The
Company's conventional stores will also benefit from Ralphs' strong private
label program and its strengths in merchandising, store operations and systems.
Passing on format-related efficiencies, the Company's price impact warehouse
format stores will continue to offer consumers the lowest overall prices while
still providing product selections comparable to conventional supermarkets.
Management believes the Food 4 Less warehouse format has demonstrated its appeal
to a wide range of demographic groups in Southern California and offers a
significant opportunity for future growth. The Company plans to open nine new
Food 4 Less warehouse stores and 21 new Ralphs stores over the next two years.
Management believes the consolidation of its formats will improve the
Company's ability to adapt its stores' merchandising strategy to the local
markets in which they operate while achieving cost savings and other
efficiencies. These conversions will be effected in three phases which the
Company believes will be completed within the first 18 months of combined
operation.
Phase 1. Food 4 Less is currently in the process of converting 16 of its
conventional format stores operated under the names "Viva," "Alpha Beta" and
"Boys" into Food 4 Less warehouse format supermarkets. These conversions have
already begun at the rate of two stores per week. Management expects that each
such conversion will take up to eight weeks to complete and may require the
store to be closed for up to two weeks during such period. Management believes
that these Phase 1 conversions, which were planned independently, will be
completed prior to the consummation of the Merger at a cost of approximately $1
million per store.
Phase 2. Following the Merger, the Company plans to begin converting up to
122 conventional format stores currently operated by Food 4 Less under the names
"Viva," "Alpha Beta" and "Boys" into Ralphs conventional format stores. It is
anticipated that these conversions will be completed at the rate of
approximately 10 stores per week. Management expects that the Company will be
able to substantially complete each conversion without closing the store.
Management believes that these Phase 2 conversions will be completed within the
first 12-16 weeks of the Company's combined operation at a cost of approximately
$75,000 per store.
Phase 3. Following the Merger, the Company also plans to convert 23
conventional Ralphs format stores into Food 4 Less warehouse format stores.
Management expects that each such conversion will take up to eight weeks and may
require the store to be closed for up to two weeks during such period.
Management believes that these Phase 3 conversions will be completed within the
first 18 months of the Company's combined operation at a cost of approximately
$1 million per store.
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<PAGE> 64
The following table summarizes the store formats to be operated by the
Company in Southern California both before and after giving effect to the
conversion program:
<TABLE>
<CAPTION>
PRO FORMA NUMBER OF
ACTUAL STORES(1)
---------- -------------------------
OCTOBER 1, PRIOR TO FOLLOWING
STORE FORMATS 1994 CONVERSION CONVERSION
--------------- ---------- ---------- ----------
<S> <C> <C> <C>
Ralphs Conventional............................... 168 165 264
Food 4 Less Warehouse............................. 30 29 68
Alpha Beta Conventional........................... 129 105 0
Viva Conventional................................. 15 13 0
Boys Conventional................................. 24 20 0
--- --- ---
Total........................................... 366 332 332
</TABLE>
- ---------------
(1) Pro forma store numbers give effect to the anticipated Merger-related
divestiture or closing of 32 stores open at October 1, 1994 and the closure
of two additional Food 4 Less conventional stores.
Ralphs Conventional Format. Following completion of the store conversions
described above, and pro forma for the Merger, the Company will operate 264
Ralphs stores in Southern California. Management believes these conversions will
enhance Ralphs' market position and competitive advantages. Converted stores
will benefit from Ralphs strengths in merchandising, store operations, systems
and technology. Although all Ralphs stores use the Ralphs name and are operated
under a single format, each store is merchandised to appeal to the local
community it serves. Ralphs' substantial supermarket product selection is a
significant aspect of its marketing efforts: Ralphs stocks between 20,000 and
30,000 merchandise items in its stores, including approximately 2,800 private
label products, representing 17.3% of sales (excluding meat, service
delicatessen and produce items) during Fiscal 1993. Ralphs stores offer
name-brand grocery products; quality and freshness in its produce, meat,
seafood, delicatessen and bakery products; and broad selection in all
departments. Most existing Ralphs stores offer service delicatessen departments,
on-premises bakery facilities and seafood departments. Ralphs emphasizes store
ambiance and cleanliness, fast and friendly service, the convenience of debit
and credit card payment (including in-store branch banks) and 24-hour operations
in most stores.
Food 4 Less' 168 conventional supermarkets, currently operated under the
names "Alpha Beta," "Boys" and "Viva," are located throughout densely populated
areas of Los Angeles and surrounding counties, including both suburban and urban
neighborhoods. Food 4 Less' merchandising strategy for conventional stores has
been tailored to the community each store services, but has emphasized customer
service, quality of merchandise, and a large variety of product offerings in
modern store environments. Of Food 4 Less' 168 conventional supermarkets, up to
122 are intended to be converted to the "Ralphs" name and format, 16 will be
converted to the "Food 4 Less" warehouse format and the remainder are expected
to be closed or sold.
Food 4 Less Warehouse Format. Following completion of the store conversions
described above, and pro forma for the Merger, the Company will operate 68 Food
4 Less warehouse stores in Southern California. The conversions will
substantially accelerate the growth of the Food 4 Less format and will enhance
the Company's position as the largest operator of warehouse supermarkets in
Southern California. In addition to the conversions, the Company plans to
continue its rapid growth of the Food 4 Less format by opening nine new
warehouse format stores over the next two years, including five stores in San
Diego, a new market for Food 4 Less. Management believes the expansion of
warehouse format stores will create efficiencies in warehousing, distribution,
and administrative functions.
Food 4 Less' warehouse format stores target the price-conscious segment of
the market, encompassing a wide range of demographic groups in both urban and
suburban areas. Food 4 Less attempts to offer the lowest overall prices in its
marketing areas by passing savings on to the consumer while providing the
product selection associated with a conventional format. Savings are achieved
through labor efficiencies and lower overhead and advertising costs associated
with the warehouse 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 since the stores generally do
57
<PAGE> 65
not have 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. Additionally, labor rates are generally lower than in
conventional supermarkets.
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 sales floors 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.
SUBSTANTIAL COST SAVINGS OPPORTUNITIES
Management believes that approximately $90 million of net annual cost
savings will be achieved by the end of the fourth full year of combined
operations. It is also anticipated that approximately $117 million in
Merger-related capital expenditures and $50 million of other non-recurring costs
will be required to complete store conversions, integrate operations and expand
warehouse facilities over the same period. Although a portion of the anticipated
cost savings is premised upon the completion of such capital expenditures,
management believes that over 70% of the cost savings could be achieved without
making any Merger-related capital expenditures. The following anticipated
savings are based on estimates and assumptions made by the Company that are
inherently uncertain, though considered reasonable by the Company, and are
subject to significant business, economic and competitive uncertainties and
contingencies, all of which are difficult to predict and many of which are
beyond the control of management. There can be no assurance that such savings
will be achieved. The sum of the components of the estimated cost savings
exceeds $90 million; however, management has made an offsetting adjustment to
reflect its expectation that a portion of the savings will be reinvested in the
Company's operations. See "Risk Factors -- Ability to Achieve Anticipated Cost
Savings."
Reduced Advertising Expenses. As a result of the consolidation of
conventional format stores in Southern California under the "Ralphs" name, the
Company will eliminate advertising associated with Food 4 Less' existing Alpha
Beta, Boys and Viva formats. Because Ralphs' current advertising program now
covers the Southern California region, the Company will be able to expand the
number of Ralphs stores without significantly increasing advertising costs.
Management estimates that annual advertising cost savings of approximately $28
million will be achieved in the first full year of combined operations.
Reduced Store Operations Expense. Management expects to reduce store
operations costs as a result of both reduced labor and benefit costs and reduced
non-labor expenses. Projected labor and benefit cost savings are based primarily
on Ralphs' labor scheduling system, which has reduced Ralphs' labor costs
relative to those of Food 4 Less. Other labor savings will result from the
reduction of certain high-cost labor as a result of changed manufacturing,
warehouse and distribution practices, and productivity enhancements resulting
from the installation of Ralphs store level systems.
Non-labor expense reductions are based primarily on the installation of
Ralphs' computerized energy management equipment in Food 4 Less stores which
will require significant capital expenditures. The expense savings associated
with the use of this equipment is based on Ralphs' historical experience. Other
significant non-labor expense reductions are projected to come from improved
safety programs, increased cardboard baling revenues, changes to guard and
shoplift agent programs and a reduction in supply and packaging costs. Total
labor and non-labor operational savings estimated at approximately $21 million
annually are anticipated to be achieved by the fourth full year of combined
operation.
Increased Volume Purchasing Efficiencies. Management has identified
approximately $19 million of cost savings it believes can be achieved as a
result of purchasing efficiencies. These efficiencies consist primarily of (i)
savings from increased discounts and allowances as a result of the combined
volume of the two companies; (ii) an improvement in the terms of vendor
contracts for products carried in the Company's stores on an exclusive or
promoted basis; and (iii) savings from the conversion of some
less-than-truckload shipping
58
<PAGE> 66
quantities to full truckload quantities. These savings are anticipated to be
achieved by the second full year of combined operation.
Warehousing and Distribution Efficiencies. The consolidation of the
Company's warehousing and distribution facilities into Ralphs' two primary
facilities located in Compton, California and in the Atwater district of Los
Angeles and Food 4 Less' primary facility located in La Habra, California will
result in lower outside storage, transportation and labor costs. The Company
plans facility additions at one Ralphs facility to accommodate the additional
volume as a result of such consolidation. Management anticipates improvements in
the areas of automation, inventory management and handling, delivering,
scheduling and route optimization and worker safety. In addition, the Company
plans to close two existing facilities, which will result in lower occupancy
expenses. Management believes that annual savings of approximately $16 million
associated with warehousing and distribution will be achieved, before giving
effect to capital expenditures in connection with facilities expansions and
facility closing costs. Such savings are expected to be achieved by the third
full year of combined operations.
Consolidated Manufacturing. Ralphs and Food 4 Less operate manufacturing
facilities that produce similar products or have excess capacity. Through the
consolidation of meat, bakery, dairy and other manufacturing and processing
operations, and the discontinuance of external purchases of certain goods that
can be manufactured internally, management believes that annual cost savings of
approximately $11 million can be achieved. In each instance, management has
identified the facilities best suited to the needs of the combined company and
has estimated the expense savings associated with each consolidation. The
combined company will utilize a 316,000 square foot bakery and a 25,722 square
foot milk processing plant, located at Food 4 Less' La Habra facility, and a
28,000 square foot milk processing plant, a 9,000 square foot ice cream
processing plant, and a 23,000 square foot delicatessen kitchen located at
Ralphs' Compton facility. Previously, Ralphs purchased bakery products
externally and Food 4 Less purchased ice cream and delicatessen items
externally. Management also plans to utilize Ralphs' third party meat
processors, which have historically provided Ralphs with a full line of
prefabricated and retail cuts of beef, to produce meat for Food 4 Less stores.
Management anticipates that manufacturing expense savings will be achieved by
the second full year of combined operation.
Consolidated Administrative Functions. The Company expects to achieve
savings from the elimination of redundant administrative staff, the
consolidation of management information systems and a decreased reliance on
certain outside services and consultants. To reduce headcount, the Company plans
to target several functions for consolidation, including accounting, marketing,
management information systems, and administration and human resources. The
Company plans to eliminate a data processing center, which is anticipated to
result in savings in the areas of equipment, software, headcount and outside
programmer fees. The Company also plans to eliminate the use of third party
administrators to handle workers compensation and general liability claims.
Management estimates that annual savings of approximately $15 million associated
with consolidating administrative functions will be achieved by the second full
year of combined operation.
EXPERIENCED MANAGEMENT TEAM
The executive officers of the Company have extensive experience in the
supermarket industry. The strength of Ralphs management expertise is evidenced
by Ralphs' reputation for quality and service, its technologically advanced
systems, strong store operations and high historical EBITDA margins. The Food 4
Less management team will provide valuable experience in operating warehouse
supermarkets and in effectively integrating companies into a combined operation.
Following the acquisition of Alpha Beta in 1991, Food 4 Less management
successfully integrated Alpha Beta with its existing Southern California
operations and (within three years) achieved annual cost savings in excess of
$40 million (compared to a pre-acquisition estimate of approximately $33
million). See "Management."
WAREHOUSING AND DISTRIBUTION
The combined Company will utilize Ralphs' technologically advanced
warehousing and distribution systems, which include a 17 million cubic foot
high-rise automated storage and retrieval system warehouse
59
<PAGE> 67
(the "ASRS") for non-perishable items and a 5.4 million cubic foot perishable
service center (the "PSC") designed for processing, storing and distributing all
perishable items. These facilities and the Food 4 Less La Habra warehouse will
provide the Company with substantial operating benefits, including: (i) enhanced
turnover to further improve the freshness and quality of in-store products, (ii)
additional opportunities in forward buying programs and (iii) an increase in the
percentage of inventory supplied by the Company's own warehousing and
distribution system. Management believes the consolidation of these operations
will enable the Company to meet the combined inventory requirements of all
stores with fewer employees and lower operating and occupancy-related expenses.
In November 1987, Ralphs opened the 17 million cubic foot highrise ASRS
warehouse for non-perishable items in the Atwater district of Los Angeles, at a
cost of approximately $50 million. This facility significantly increased
capacity and improved the efficiency of Ralphs' warehouse operations. The
automated warehouse has a ground floor area of 170,000 square feet and capacity
of approximately 50,000 pallets. Guided by computer software, ten-story high
cranes move pallets from the receiving dock to programmed locations in the ASRS
warehouse while recording the location and time of storage. Goods are retrieved
and delivered by the cranes to conveyors leading to an adjacent "picking"
warehouse where individual store orders are filled and shipped. The Company
plans to utilize existing unused capacity to accommodate additional volume
resulting from the consolidation. The ASRS facility can hold substantially more
inventory and requires fewer employees to operate than a conventional warehouse
of equal size. This facility has reduced Ralphs' warehousing costs of
non-perishable items markedly, enabling it to take advantage of advance buying
opportunities and minimize "out-of-stocks." The Company plans to close two
existing Ralphs warehouse facilities in Los Angeles and Carson, California, each
of which is currently operated on a short-term lease, pending expansion of
Ralphs' ASRS warehouse.
In mid-1992, Ralphs opened the 5.4 million cubic foot PSC facility in
Compton, California, designed to process and store all perishable products. This
facility cost approximately $35 million and has provided Ralphs with the ability
to deliver perishable products to its stores on a daily basis, thereby improving
the freshness and quality of these products. The facility contains an energy
efficient refrigeration system and a computer system designed to document the
location and anticipated delivery time of all inventory. The PSC has
consolidated the operations of three existing facilities and holds more
inventory than the facilities it replaced, thereby reducing Ralphs' warehouse
distribution costs. The Company also plans to expand the PSC facility to
accommodate additional volume resulting from the consolidation.
Food 4 Less currently operates a centralized manufacturing, warehouse and
office facility in La Habra, California which it leases from Alpha Beta's former
parent corporation. The La Habra facility 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 La Habra facility is operated pursuant to a long-term lease which expires in
2001. The La Habra facility is expected to be used as an additional distribution
and warehouse facility.
Most Ralphs stores and Food 4 Less Southern California stores are located
within approximately a one-hour drive from Ralphs' distribution and warehousing
facilities. This geographical concentration, combined with Ralphs' efficient
order system, shortens the lead time between the placement of a merchandise
order and its receipt.
Food 4 Less is party to a joint venture with a subsidiary of Certified
Grocers of California, Ltd. which operates a general merchandise warehouse in
Fresno, California. Management is evaluating the role of such warehouse in the
operation of the combined Company.
MANUFACTURING
Ralphs' manufacturing operations produce a variety of dairy and other
products, including fluid milk, ice cream, yogurt and bottled waters and juices
as well as packaged ice, cheese and salad preparations. Ralphs contracts with
meat processors to provide a full line of prefabricated and retail cuts of beef.
Ralphs ceased its bakery operations during the second quarter of Fiscal 1993 at
its 102,000 square foot facility in Los Angeles.
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<PAGE> 68
Food 4 Less' La Habra facility includes a full-line bakery as well as a creamery
and certain other manufacturing operations.
The following table sets forth information concerning the principal
manufacturing and processing facilities expected to be owned and operated by the
Company:
<TABLE>
<CAPTION>
FACILITY SQUARE FEET LOCATION
----------------------------------------------- ----------- ----------
<S> <C> <C>
Milk processing................................ 28,000 Compton
Ice cream processing........................... 9,000 Compton
Delicatessen kitchen........................... 23,000 Compton
Bakery......................................... 316,000 La Habra
Milk processing................................ 25,722 La Habra
</TABLE>
Management believes that Ralphs' manufacturing facilities and the La Habra
bakery can accommodate the volume requirements of the Company, after planned
expenditures of approximately $3.0 million over the next year.
PRIVATE LABEL PROGRAM
Through its private label program, Ralphs offers approximately 2,800 items
under the "Ralphs," "Private Selection," "Perfect Choice" and "Plain Wrap" brand
names. These products provide quality comparable to that of national brands at
prices 20-30% lower. Gross margins on private label goods are generally higher
than on national brands. Management believes its private label program is one of
the most successful programs in the supermarket industry, representing 17.3% of
sales (excluding meats, service delicatessen and produce items) during the
twelve months ended July 17, 1994. This figure has grown in the past few years,
and management intends to continue the growth of its private label program in
the future.
Food 4 Less has entered into several private label licensing arrangements
which allow it to exclusively utilize recognized brand names in connection with
certain goods it manufactures or purchases from others, including "Carnation"
and "Sunnyside Farms" (dairy products) and "Van de Kamps" (baked goods). In
addition, Food 4 Less 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. Food 4 Less 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 margins. It is expected that the
Company will continue the Carnation, Van de Kamps and certain of its other
licensing agreements following the Merger.
EXPANSION AND DEVELOPMENT
As a result of Ralphs' 122-year history and Alpha Beta's 91-year history in
Southern California, the Company will have valuable and well established store
locations, many of which are in densely populated metropolitan areas.
Additionally, the Company will have a technologically advanced store base.
During the five years ended June 25, 1994, on a combined basis, Ralphs and Food
4 Less opened 74 new stores and remodeled 211 stores. Approximately 84% of the
Company's stores have been opened or remodeled in the last five years.
The Company plans to expand the Southern California Division by acquiring
existing stores and constructing new ones. The Company intends to continue to
focus its new store construction and store conversion efforts during calendar
1995 and future years primarily within existing marketing areas. Such efforts
will encompass both of the Company's store formats, namely Food 4 Less and
Ralphs. To this end, the Company plans to continue its store expansion program
in Southern California by opening 17 new stores during calendar 1995 (including
three Food 4 Less stores which will be located in San Diego, a new market for
Food 4 Less), and additional stores in subsequent years. Moreover, in connection
with the Merger, the Company plans to convert approximately 16 conventional
stores currently managed by Food 4 Less and approximately 23 stores currently
managed by RGC to the "Food 4 Less" name and warehouse format, as Food 4 Less
stores have proven to have a strong appeal to value-conscious consumers across a
wide range of
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demographic groups. See "-- The Merger -- Two Leading Complementary Formats."
Remodeling activity in Southern California will be focused on the conventional
format stores, including 13 planned major remodels of such stores during
calendar 1995. The Company's expansion, remodel and conversion efforts have
required, and will continue to require, the funding of significant capital
expenditures. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Liquidity and Capital Resources."
During the last five fiscal years, Ralphs has opened 46 new stores and
remodeled 87 stores at a cost of approximately $283.6 million. A majority of
these new and remodeled stores offer expanded produce and European-style seafood
departments, service delicatessens, fresh bakeries and a broad selection of
general merchandise. With enhanced decor reflecting contemporary interior
design, these stores are designed to provide a quality shopping experience. At
the end of Fiscal 1993, 133 of Ralphs' 165 total stores were newly built or
remodeled within the past five fiscal years. While Ralphs has sold or closed 15
stores during the last five fiscal years, the number of Ralphs' stores has
increased from 142 stores at January 28, 1990 to 165 stores at January 30, 1994.
During the last five fiscal years, in Southern California Food 4 Less has
acquired or opened 172 stores (which includes 142 stores acquired in connection
with the acquisition of Alpha Beta) and remodeled 113 stores. Since its
acquisition of Alpha Beta in 1991, Food 4 Less has undertaken an extensive
program of store remodels, conversions and additions, which have resulted in a
substantially improved store base. During Fiscal 1994, Food 4 Less spent
approximately $50.7 million on capital improvements in Southern California.
Additionally, since the Alpha Beta acquisition, Food 4 Less has converted 11
Southern California stores from conventional formats to the warehouse format. As
Food 4 Less has remodeled existing stores, opened new larger stores and closed
smaller, marginally performing stores, there has been a net reduction in store
count, from 209 stores to 196 stores from the year ended June 29, 1991 ("Fiscal
1991") to the end of Fiscal 1994, but an increase in average store size. The
average square feet per store has increased from 28,700 at the end of Fiscal
1991 to 30,500 at the end of Fiscal 1994. During the last five fiscal years, 29
stores have been closed or sold (including five stores which closed as a result
of the April 1992 civil unrest in Los Angeles).
The Company will select most new store sites from developers' proposals
after such proposals have been researched and analyzed by the Company's
personnel. Each site will be monitored for population shifts, zoning changes,
traffic patterns, and nearby new construction and competitors' stores in an
effort to determine sales potential. The Company will actively participate with
developers in order to attain the Company's objectives for the site, including
adequate parking and complementary co-tenant mix. Remodeling involves enhancing
a store's decor through fixture replacement, upgrading of service departments
and improvements to lighting systems. In order to minimize the disruptive effect
on sales, most stores will be kept open during the remodeling period. The
primary objectives of remodeling will be to improve the attractiveness of
stores, increase sales of higher margin product categories and to increase
selling area where feasible.
Remodelings and openings, among other things, are subject to the
availability of developers' financing, agreements with developers and landlords,
local zoning regulations, construction schedules and other factors, including
costs, often beyond the Company's control. Accordingly, there can be no
assurance that the schedule will be met. Further, the Company expects increasing
competition for new store sites, and it is possible that this competition might
adversely affect the timing of its new store opening program.
ADVERTISING AND PROMOTION
Ralphs' marketing strategy is to provide a combination of wide product
selection, quality and freshness of perishable products, competitive prices and
double coupons supporting Ralphs' advertising theme "Everything You Need. Every
Time You Shop." In February 1994, Ralphs launched the Ralphs Savings Plan, a new
marketing campaign designed to enhance customer value. The Ralphs Savings Plan
is comprised of six major components: Guaranteed Low Prices ("GLPs"), Price
Breakers, Big Buys, Multi-Buys, Ralphs Brand Products and Double Coupons. GLPs
guarantee low prices on certain high volume items that are surveyed and updated
every four weeks. Price Breakers are weekly advertised items that offer
significant savings. Big Buys are club size items at prices competitive to club
store prices and Multi-Buys offer Ralphs shoppers the opportunity to purchase
club store quantities of regular sized items at prices competitive to club store
prices.
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In conjunction with this new campaign Ralphs' private label offering of
approximately 2,800 products provides value to the customer. In the second
quarter of 1994, Ralphs began more aggressively promoting perishables through
weekly ad features and lower prices. In addition, Ralphs increased the number of
storewide GLPs. Further, a mailer program was intensified to highlight the
perishable pricing and increased GLPs.
Ralphs stores promote sales through the use of product coupons, consisting
of manufacturers' coupons and Ralphs' own promotional coupons. Ralphs offers a
double coupon program in all stores with Ralphs matching the price reduction
offered by the manufacturer. Ralphs also generates store traffic through weekly
advertised specials, special sales promotions such as discounts on recreational
activities, seasonal and holiday promotions, increased private label selection,
club pack items and exclusive product offerings. Current advertising by Ralphs
has substantially the same market coverage as Food 4 Less and it is expected
that following the Merger duplicative advertising can be eliminated.
The Food 4 Less warehouse stores utilize print and radio advertising which
emphasizes Food 4 Less' low-price leadership, rather than promoting special
prices on individual items. The Food 4 Less warehouse stores also utilize weekly
advertising circulars, customized to local communities, which highlight the
merchandise offered in each store.
INFORMATION SYSTEMS AND TECHNOLOGY
Ralphs' management utilizes technology and industrial engineering methods
to enhance operating efficiency. Every checkout lane in every Ralphs store has a
point of sale terminal. Information from these terminals is utilized to allocate
shelf space, select merchandise based on the buying patterns of each store,
reduce out-of-stocks and increase efficiency at the checkstand and in the
warehouses. Industrial engineering methods are used to schedule labor thereby
improving productivity at the store level and in warehousing and distribution
operations.
Ralphs was the first supermarket chain in the western United States to
adopt scanning in all of its stores and has upgraded this equipment through the
purchase of IBM 4680 point-of-sale computers. All Ralphs stores use laser
scanning equipment, operating through an integrated computer system, to scan the
Universal Product Code, which provides prices and descriptions for most
products.
Ralphs has a Uniform Communications Standard purchase order system that
electronically links Ralphs to major suppliers via computer. This system has
enabled the automated processing of purchase orders which management believes
reduces the lead time required for product purchases. In Fiscal 1994, Ralphs
completed installation of an industry standard, direct store delivery receiving
system for goods delivered directly by vendors. This system allows the receipt
of each order to be recorded electronically, thereby confirming product retail
price and purchase authorization. This system has reduced the incidence of
billing errors and unauthorized deliveries.
Industrial engineering standards have been established for all major work
functions in Ralphs stores, ranging from stocking to checkout. Performance of
each major department in each store is measured weekly against these standards.
Similar measurements are made in Ralphs' distribution, warehouse and
manufacturing operations. Ralphs believes that its application of qualitative
methods to the operation of the business has given it a competitive advantage
and has better enabled management to run its business efficiently and to control
costs.
The Company plans to convert the Food 4 Less management information systems
to the Ralphs management information systems. Ralphs stores that will be
converted to the Food 4 Less format will continue to use the Ralphs programs.
NORTHERN CALIFORNIA AND MIDWESTERN DIVISIONS
The Northern California Division of Food 4 Less operates 19 conventional
supermarkets in the greater San Francisco Bay Area under the names "Cala" and
"Bell," and six warehouse format stores under the "Foods Co." name. Management
believes that the Northern California Division has excellent store locations in
the city of San Francisco that are very difficult to replicate. The Midwestern
Division of Food 4 Less
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operates 38 stores, of which 33, including ten former "Food Barn" stores which
Food 4 Less acquired in March 1994, are warehouse format stores operated under
the "Food 4 Less" name, and five of which are conventional supermarkets operated
under the "Falley's" name. Of these 38 stores, 34 are located in Kansas and four
are located in Missouri. Management believes the Food 4 Less warehouse format
stores are the low-price leaders in each of the markets in which they compete.
The Northern California Division's conventional store strategy is to attract
customers through its convenient locations, broad product line and emphasis on
quality and service and its advertising and promotion strategy highlights the
reduced price specials offered in its stores. In contrast, the Company's
warehouse format stores, operated under the Food 4 Less name in the Midwestern
Division and the Foods Co. name in the Northern California Division, emphasize
lowest overall prices rather than promoting special prices on individual items.
The Northern California Division's conventional stores range in size from
approximately 8,900 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 Midwestern Division's 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 Northern California Division purchases merchandise from a number of
suppliers; however, approximately 40% of its purchases are made through
Certified Grocers of California, Ltd. ("Certified"), a food distribution
cooperative, pursuant to supply contracts. The Northern California Division does
not operate its own warehouse facilities, relying instead on direct delivery to
its stores by Certified and other vendors. Food 4 Less' Southern California
warehouse facilities supply a portion of the merchandise sold in the Northern
California Division stores, and it is expected that, following completion of the
Merger, the Company's Southern California warehouses will continue to do so.
The Midwestern Division's primary supplier is Associated Wholesale Grocers
("AWG"), a member-owned wholesale grocery cooperative based in Kansas City. The
Midwestern Division does not operate a central warehouse, but purchases
approximately 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. 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.
In fiscal 1990, the Northern California Division initiated a remodeling
program to upgrade its stores and to increase profitability. Food 4 Less
remodeled 15 stores during the past five fiscal years, and opened five new
stores during the past four fiscal years. During fiscal 1994, Food 4 Less opened
one new warehouse store, converted three existing stores to the warehouse format
and remodeled one conventional format store. The Company has closed 4 stores
during the past five fiscal years and increased its number of stores from 22 at
the end of the fiscal year ended June 30, 1990 to 24 at the end of the fiscal
year ended June 25, 1994. The average square feet per store has increased from
20,000 at the end of fiscal 1990 to 23,300 at the end of fiscal 1994. 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 "Foods Co." in
fiscal 1994 following the sale by Food 4 Less of exclusive rights to use the
"Food 4 Less" name in Northern California to Fleming Companies, Inc. See
"Licensing Operations."
The Company intends to focus its Midwestern Division expansion primarily on
its Food 4 Less operations. While Food 4 Less 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. The acquisition in March 1994 of ten
warehouse stores formerly operated as "Food Barn" stores increased the
Midwestern Division's Food 4 Less warehouse store count from 23 at June 26, 1993
to 33 at June 25, 1994. During the last five fiscal years, the Midwestern
Division has opened 3 new stores, acquired 13 stores, closed one store and
remodeled 10 stores.
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COMPETITION
The supermarket industry is highly competitive and characterized by narrow
profit margins. The Company's competitors in each of its operating divisions
include national and regional supermarket chains, independent and specialty
grocers, drug and convenience stores, and the newer "alternative format" food
stores, including warehouse club stores, deep discount drug stores and "super
centers." Supermarket chains generally compete on the basis of location, quality
of products, service, price, product variety and store condition. The Company
regularly monitors its competitors' prices and adjusts its prices and marketing
strategy as management deems appropriate in light of existing conditions. Some
of the Company's competitors have greater financial resources than the Company
and could use these resources to take steps which could adversely affect the
Company's competitive position.
The Southern California stores compete with several large national and
regional chains, principally Albertsons, Hughes, Lucky, 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 Albertsons and Dillons, as well as independent
and "alternative format" stores such as Hypermarket USA. Food 4 Less positions
its Food 4 Less warehouse format supermarkets as the overall low-price leader in
each marketing area in which they operate. In addition, management believes that
Ralphs is a leading competitor in many of its marketing areas, based on its
strong customer franchise, desirable store locations, technology and efficient
distribution systems.
EMPLOYEES
RALPHS
At July 17, 1994, Ralphs had 6,052 full-time and 8,755 part-time employees
as follows:
<TABLE>
<CAPTION>
EMPLOYEE TYPE UNION NON-UNION TOTAL
--------------------------------------------- ------ --------- ------
<S> <C> <C> <C>
Hourly....................................... 13,487 250 13,737
Salaried..................................... -- 1,070 1,070
------ ----- ------
Total employees.................... 13,487 1,320 14,807
</TABLE>
Of Ralphs' 14,807 total employees at July 17, 1994, 13,487 were covered by
union contracts principally with the UFCW. The table below sets forth
information regarding Ralphs' union contracts which cover more than 100
employees.
<TABLE>
<CAPTION>
UNION NUMBER OF EMPLOYEES COVERED DATE OF EXPIRATION
- ---------------------------------- -------------------------------- -------------------
<S> <C> <C>
UFCW 10,506 clerks and meatcutters October 6, 1996
International Brotherhood of 1,607 drivers and warehousemen September 13, 1998
Teamsters
Hotel Employees and Restaurant
Employees 906 September 10, 1995
Hospital and Service Employees 323 Los Angeles January 19, 1997
66 San Diego April 20, 1997
</TABLE>
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FOOD 4 LESS
At June 25, 1994, Food 4 Less had a total of 5,728 full-time and 8,959
part-time employees as follows:
<TABLE>
<CAPTION>
EMPLOYEE TYPE UNION NON-UNION TOTAL
----------------------------------------------- ------ --------- ------
<S> <C> <C> <C>
Hourly......................................... 11,882 1,907 13,789
Salaried....................................... -- 898 898
------ ----- ------
Total employees...................... 11,882 2,805 14,687
</TABLE>
Of Food 4 Less' 14,687 total employees at June 25, 1994, 11,882 were
covered by union contracts, principally with UFCW. The table below sets forth
information regarding Food 4 Less' union contracts which cover more than 100
employees.
<TABLE>
<CAPTION>
NUMBER OF DATE OF
UNION EMPLOYEES COVERED EXPIRATION
- ---------------------------------------------- -------------------------- ---------------------
<S> <C> <C>
UFCW.......................................... 7,908 Southern California October 6, 1996
clerks and meatcutters
Hospital and Service Employees................ 299 Southern California January 19, 1997
store porters
International Brotherhood of Teamsters........ 886 Southern California September 13, 1998
produce drivers
and warehousemen
UFCW.......................................... 971 Northern California February 28, 1995(a)
clerks and meatcutters
UFCW.......................................... 1,532 Southern California February 25, 1996
clerks and meatcutters
Bakery and Confectionery Workers.............. 192 Southern California July 8, 1995
bakers
</TABLE>
- ---------------
(a) Certain of such employees are covered by contracts expiring on March 4, 1995
or June 2, 1996.
Pursuant to their collective bargaining agreements, both Ralphs and Food 4
Less contribute to various union-sponsored, multi-employer pension plans.
The terms of most collective bargaining agreements that cover employees of
conventional stores operated by Food 4 Less are substantially identical to the
terms of the corresponding collective bargaining agreements of Ralphs. The terms
of each company's collective bargaining agreements generally will remain in
effect following the Merger, although it is expected that, as a result of
current negotiations, Ralphs' collective bargaining agreements will apply to all
Company stores converted to the Ralphs name and format, and the collective
bargaining agreements that cover employees of Food 4 Less warehouse format
stores will apply to all Company stores converted to the Food 4 Less name and
warehouse format.
Management believes that both Ralphs and Food 4 Less have good relations
with their employees.
LICENSING OPERATIONS
Food 4 Less 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, Food 4 Less amended
(the "Amendment") its licensing agreement with Fleming to give Fleming exclusive
use of the Food 4 Less name in Northern California and Food 4 Less exclusive use
in Southern California. Fleming paid Food 4 Less a fee of $1.9 million for the
Amendment. With the exception of Northern California, and subject to the
Amendment and certain proximity restrictions, Food 4 Less 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
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Food 4 Less. Of the remaining 97 stores, Fleming operates three under license,
67 are operated under sublicenses from Fleming and 27 are operated by other
licensees.
PROPERTIES
At October 1, 1994, Ralphs and Food 4 Less operated a total of 429 stores,
as set forth in the table below:
<TABLE>
<CAPTION>
NUMBER OF
SUPERMARKETS
-------------- TOTAL SELLING
OWNED LEASED SQUARE FEET SQUARE FEET
----- ------ ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Southern California..................... 49 317(a) 12,929 9,174
Northern California..................... -- 25 610 424
Midwestern.............................. 2(b) 36 1,357 1,025
-- --- ------ ------
Total......................... 51 378(c) 14,896 10,623
=== === ====== ======
</TABLE>
- ---------------
(a) Includes 17 stores located on real property subject to a ground lease.
(b) Includes one store that is partially owned and partially leased.
(c) The average remaining term (including renewal options) of Ralphs' and Food 4
Less' supermarket leases is 27 years.
The number of Ralphs and Food 4 Less stores by size classification as of October
1, 1994 is as follows:
<TABLE>
<CAPTION>
AVERAGE GROSS SQUARE FEET AVERAGE SELLING SQUARE FEET NUMBER OF STORES
TOTAL SQUARE --------------------------- --------------------------- -----------------------------------
FEET RALPHS FOOD 4 LESS RALPHS FOOD 4 LESS RALPHS FOOD 4 LESS TOTAL
- ---------------- ----------- ----------- ----------- ----------- --------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
8,800 - 15,599 -- 13,175 -- 9,478 -- 8 8
15,600 - 25,000 21,867 21,740 16,709 14,880 3 92 95
25,001 - 30,000 27,926 26,966 19,725 18,633 15 37 52
30,001 - 35,000 32,993 32,574 24,204 23,247 31 51 82
35,001 - 40,000 37,254 36,804 27,053 26,272 32 27 59
40,001 - 45,000 43,264 42,329 31,422 30,038 59 12 71
45,001 - 50,000 46,356 48,037 33,185 34,572 15 11 26
50,001 - 84,280 68,400 55,056 48,466 37,814 13 23 36
</TABLE>
At October 1, 1994, the Company also operated 20 distribution, warehouse
and administrative facilities and five manufacturing and processing facilities,
14 of which are owned and 11 of which are leased. Certain of the facilities are
expected to be sold, closed or subleased following completion of the Merger. See
"-- Warehousing and Distribution."
Ralphs' distribution and warehouse facilities include the 17 million cubic
foot ASRS warehouse for nonperishable items that Ralphs opened in November 1987
and the 5.4 million cubic foot PSC facility for the processing and storage of
perishable products opened in mid-1992. Food 4 Less operates two warehouse
facilities: The largest of such facilities is Food 4 Less' central office,
manufacturing and warehouse complex in La Habra, California, which occupies
approximately 1.4 million total square feet over 75 acres. Food 4 Less has
entered into a lease of the La Habra property which expires in 2001 (and which
may be extended for up to 15 years at the election of Food 4 Less), with
American Food and Drug, Inc. ("AFDI"), a subsidiary of American Stores Company,
and has an option to purchase such property. Rent on the La Habra property was
$6.3 million in Fiscal 1994. Four of Food 4 Less' supermarkets are also leased
from AFDI. In addition to the La Habra facility, Food 4 Less leases a 321,000
square foot warehouse in Los Angeles. This warehouse, which was formerly owned
by Food 4 Less, was the subject of a sale leaseback arrangement entered into by
Food 4 Less in August 1990. For information regarding the Company's plan to
consolidate its warehouse facilities following completion of the Merger, see
"-- The Merger -- Substantial Cost Savings Opportunities -- Warehousing and
Distribution Efficiencies."
LEGAL PROCEEDINGS
In December 1992, three California state antitrust class action suits were
commenced in Los Angeles Superior Court against RGC and Food 4 Less and other
major supermarket chains located in Southern California, alleging that they
conspired to refrain from competing in the retail market for fluid milk and to
fix the retail price of fluid milk above competitive prices. Specifically, class
actions were commenced by Diane
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Barela and Neila Ross, Ron Moliare and Paul C. Pfeifle on December 7, December
14, and December 23, 1992, respectively. The Court has yet to certify any of
these classes. A demurrer to the complaints was denied. RGC had reached an
agreement in principle to settle these cases, however no settlement agreement
was signed. Food 4 Less is continuing to actively defend these suits and Ralphs
has elected to defer any further settlement discussions until after the
consummation of the Merger. The Company does not believe that the resolution of
these cases will have a material adverse effect on its future financial
condition. Any settlement would be subject to court approval.
On March 25, 1991, George A. Koteen Associates, Inc. ("Koteen Associates")
commenced an action in San Diego Superior Court alleging that RGC breached an
alleged utility rate consulting agreement. In December 1992, a jury returned a
verdict of approximately $4.9 million in favor of Koteen Associates and in March
1993, attorney's fees and certain other costs were awarded to the plaintiff. RGC
has appealed the judgment and fully reserved in Fiscal 1992 against an adverse
judgment.
In April 1994, RGC was served with a complaint filed by over 240 former
employees at Ralphs' bakery in the Atwater district of Los Angeles (the "Bakery
Plaintiffs"). The action was commenced in the United States District Court for
the Central District of California, and, among other claims, the Bakery
Plaintiffs alleged that RGC breached its collective bargaining agreement and
violated the Workers Adjustment Retraining Notification Act (the "WARN Act")
when it downsized and subsequently closed the bakery. In their complaint, the
Bakery Plaintiffs are seeking damages for lost wages and benefits as well as
punitive damages. The Bakery Plaintiffs also named RGC and two of its management
employees in fraud, conspiracy and emotional distress causes of action. In
addition, the Bakery Plaintiffs sued their union local for breach of its duty of
fair representation and other alleged misconduct, including fraud and
conspiracy. The defendants have answered the complaint and discovery is ongoing.
Trial is set for February, 1996, and RGC is vigorously defending this suit.
Management believes, based upon its assessment of the facts, that the resolution
of this case will not have a material effect on the Company's financial position
or results of operations.
In addition, Food 4 Less and Ralphs 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
Food 4 Less' or Ralphs' financial position or results of operations.
CALIFORNIA SETTLEMENT AGREEMENT
On December 14, 1994, Food 4 Less and Ralphs entered into a Settlement
Agreement (the "Settlement Agreement") with the State of California to settle
potential antitrust and unfair competition claims the State of California
asserted against Ralphs and Food 4 Less relating to the effects of the Merger on
supermarket competition in Southern California (the "State Claims"). Without
admitting any liability in connection with the State Claims, Food 4 Less and
Ralphs agreed in the Settlement Agreement to divest 27 specific stores in
Southern California. Under the Settlement Agreement, the Company must divest 14
stores by June 30, 1995, and the balance of 13 stores by December 31, 1995. The
Company also agreed not to acquire new stores from third parties in the six
Southern California areas specified in the Settlement Agreement for five years
following the date of the Settlement Agreement. If the Company fails to divest
the required stores by the two dates set forth in the Settlement Agreement, the
Company has agreed not to object to the appointment of a trustee to effect the
required sales. The Settlement Agreement also requires the Company to pay the
reasonable fees and costs of attorneys and experts of the State of California
associated with its review.
GOVERNMENT REGULATION
Ralphs and Food 4 Less are subject to regulation by a variety of
governmental agencies, including, but not limited to, the California Department
of Alcoholic Beverage Control, the California Department of Agriculture, the
U.S. Food and Drug Administration, the U.S. Department of Agriculture and state
and local health departments. In addition, the Merger and the New Equity
Investment are subject to the review of the Federal Trade Commission and may not
be consummated prior to the expiration of the applicable waiting period imposed
by the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
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<PAGE> 76
ENVIRONMENTAL MATTERS
In January 1991, the California Regional Water Quality Control Board for
the Los Angeles Region (the "Regional Board") requested that Ralphs conduct a
subsurface characterization of Ralphs' Atwater property. This request was part
of an ongoing effort by the Regional Board, in connection with the U.S.
Environmental Protection Agency (the "EPA"), to identify contributors to
groundwater contamination in the San Fernando Valley. Significant parts of the
San Fernando Valley, including the area where Ralphs' Atwater property is
located, have been designated federal Superfund sites requiring response actions
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, because of regional groundwater contamination. On June 18,
1991, the EPA made its own request for information concerning the Atwater
property. Since that time, the Regional Board has requested further
investigations by Ralphs. Ralphs has conducted the requested investigations and
has reported the results to the Regional Board. Approximately 25 companies have
entered into a Consent Order (EPA Docket No. 94-11) with the EPA to investigate
and design a remediation system for contaminated groundwater beneath an area
which includes the Atwater property. Ralphs is not a party to that Consent
Order, but is cooperating with requests of the subject companies to allow
installation of monitoring or recovery wells on Ralphs' property. Based upon
available information, management does not believe this matter will have a
material adverse effect on the Company's financial condition or results of
operations.
Ralphs has removed several underground storage tanks and remediated soil
contamination at the Atwater property. Although the possibility of other
localized contamination from prior operations or adjacent properties exists at
the Atwater property, management does not believe that the costs of remediating
such contamination will be material to the Company.
Apart from the Atwater property, the Company has recently had environmental
assessments performed on a significant portion of Ralphs' facilities and Food 4
Less' facilities, including warehouse and distribution facilities. The Company
believes that any responsive actions required at the examined properties as a
result of such assessments will not have a material adverse effect on its
financial condition or results of operations.
Ralphs has incurred approximately $4.5 million in non-recurring capital
expenditures for the mandated conversion of refrigerants during 1994. Food 4
Less may incur some additional capital expenditures for such conversion. Other
than these expenditures, neither Ralphs nor Food 4 Less has incurred material
capital expenditures for environmental controls during the previous three years,
nor does management anticipate incurring such expenditures during the current
fiscal year or the succeeding fiscal year.
At the time that Food 4 Less acquired Alpha Beta in 1991, it learned that
certain underground storage tanks located on the site of the La Habra facility
may have released hydrocarbons. In connection with the acquisition of Alpha Beta
the seller (who is also the lessor of the La Habra facility) agreed to retain
responsibility, subject to certain limitations, for remediation of the release.
Ralphs and Food 4 Less are subject to a variety of environmental laws,
rules, regulations and investigative or enforcement activities, as are other
companies in the same or similar business. The Company believes it is in
substantial compliance with such laws, rules and regulations. These laws, rules,
regulations and agency activities change from time to time, and such changes may
affect the ongoing business and operations of the Company.
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<PAGE> 77
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the persons
who are expected to serve as the executive officers and directors of the Company
and New Holdings following the consummation of the Merger, the FFL Merger and
the Reincorporation Merger.
<TABLE>
<CAPTION>
YEARS OF SUPERMARKET
INDUSTRY SERVICE
----------------------------
NAME AGE POSITION MANAGERIAL POSITIONS TOTAL
- ------------------------- --- ----------------------------------- -------------------- -----
<S> <C> <C> <C> <C>
Ronald W. Burkle 42 Director and Chairman of the Board 19 24
of New Holdings and the Company
Byron E. Allumbaugh 63 Director and Chief Executive 36 36
Officer of New Holdings and the
Company
George G. Golleher 46 Director and Vice Chairman of New 21 21
Holdings and the Company
Alfred A. Marasca 53 Director of the Company and 29 37
President and Chief Operating
Officer of New Holdings and the
Company
Joe S. Burkle 71 Director and Executive Vice 44 48
President of New Holdings and the
Company
Greg Mays 48 Executive Vice President of New 21 21
Holdings and the Company
Terry Peets 50 Executive Vice President of New 17 17
Holdings and the Company
Jan Charles Gray 47 Senior Vice President, General 19 31
Counsel and Secretary of New
Holdings and the Company
Alan J. Reed 48 Senior Vice President and Chief 21 21
Financial Officer of New Holdings
and the Company
Patrick L. Graham 45 Director of New Holdings and the -- --
Company
Mark A. Resnik 47 Director of New Holdings and the -- --
Company
</TABLE>
Ronald W. Burkle has been a Director and the Chairman of the Board and
Chief Executive Officer of Food 4 Less since its inception in 1989. Mr. Burkle
co-founded Yucaipa in 1986 and has served as Director, Chairman of the Board,
President and Chief Executive Officer of FFL since 1987 and of Holdings since
1992. 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.
Byron E. Allumbaugh has been Chairman of the Board and Chief Executive
Officer of Ralphs since 1976 and a Director since 1988. He also is a Director of
the H.F. Ahmanson Company, El Paso Natural Gas Company and Ultramar, Inc.
George G. Golleher has been a Director of Food 4 Less since its inception
in 1989 and has been the President and Chief Operating Officer of Food 4 Less
since January 1990. From 1986 through 1989 Mr. Golleher served as Senior Vice
President, Finance and Administration, of The Boys Markets, Inc. Prior to
joining The Boys Markets, Inc. in 1984, Mr. Golleher served as Vice President
and Chief Financial Officer of Mayfair Markets, Inc. from 1983 to 1984.
Alfred A. Marasca has been President, Chief Operating Officer and a
Director of Ralphs since February 1994 and he was President from February 1993
to February 1994, Executive Vice President, Retail from 1991 until 1993 and
Executive Vice President, Marketing from 1985 to 1991.
Joe S. Burkle has been a Director and Executive Vice President of Food 4
Less since its inception in 1989 and has been Chief Executive Officer of
Falley's, Inc. since 1987. Mr. Burkle began his career in the
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<PAGE> 78
supermarket industry in 1946, and served as President and Chief Executive
Officer of Stater Bros. Markets, a Southern California supermarket chain. Prior
to 1987, Mr. Burkle was a private investor in Southern California. Mr. Burkle is
the father of Ronald W. Burkle.
Greg Mays has been Executive Vice President -- Finance and Administration,
and Chief Financial Officer of Food 4 Less and of Holdings since December 1992.
From 1989 until 1991, Mr. Mays was Chief Financial Officer of Almac's, Inc. 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 Food 4
Less of Modesto, Inc. and Cala Foods, Inc.
Terry Peets has been Executive Vice President of Ralphs since February
1994. He was Senior Vice President, Marketing from 1991 to February 1994, Senior
Vice President, Merchandising from 1990 to 1991, Group Vice President,
Merchandising from 1988 to 1990 and Group Vice President, Store Operations from
1987 to 1988.
Jan Charles Gray has been Senior Vice President, General Counsel and
Secretary of Ralphs since 1988. He was Senior Vice President and General Counsel
from 1985 to 1988 and Vice President and General Counsel from 1978 to 1985.
Alan J. Reed has been Senior Vice President and Chief Financial Officer of
Ralphs since 1988. He was Senior Vice President, Finance from 1985 to 1988 and
Vice President, Finance from 1983 to 1985.
Patrick L. Graham joined Yucaipa as a general partner in January 1993.
Prior to that time he was a Managing Director in the corporate finance
department of Libra Investments, Inc. from 1992 to 1993 and PaineWebber Inc.
from 1990 to 1992. From 1982 to 1990, he was a Managing Director of the
corporate finance department of Drexel Burnham Lambert Incorporated and an
Associate Director in the corporate finance department of Bear Stearns & Co.,
Inc.
Mark A. Resnik has been a Director and the Vice President and Secretary of
Food 4 Less since its inception in 1989, co-founded Yucaipa in 1986 and has been
a Director, Vice President and Secretary of FFL since 1987. From 1986 until
1988, Mr. Resnik served as a Director, Vice President and Secretary for
Jurgensen's. From 1983 through 1986, Mr. Resnik served as a Director, Vice
President and General Counsel of Stater Bros. Markets.
In addition to the directors named above, two members will be nominated to
the Board of Directors of each of the Company and New Holdings by Apollo, and
one member will be nominated to the Board of Directors of each of the Company
and New Holdings by the other New Equity Investors, pursuant to the terms of the
1995 Stockholders Agreement. See "Description of Capital Stock -- 1995
Stockholders Agreement."
All directors of the Company will hold office until the election and
qualification of their successors. Executive officers of the Company will be
chosen by the Board of Directors and will serve at its discretion. It is
anticipated that the Company will not pay any fees or remuneration to its
directors for service on the board or any board committee, but that the Company
will reimburse directors for their ordinary out-of-pocket expenses incurred in
connection with attending meetings of the Board of Directors.
71
<PAGE> 79
EXECUTIVE COMPENSATION
EMPLOYMENT AGREEMENTS
Concurrently with the consummation of the Merger, the Company will enter
into employment agreements with certain of the current executive officers of
Ralphs and Food 4 Less. It is expected that Byron E. Allumbaugh, George G.
Golleher, Alfred A. Marasca, as well as other executive officers of the Company,
will enter into three-year employment contracts with the Company and that the
existing employment contracts, if any, of such officers will be cancelled.
New Allumbaugh Agreement. The employment agreement between the Company and
Byron Allumbaugh, 63, is expected to provide for a salary of $1 million for the
first year and $1.25 million for the second year. If Mr. Allumbaugh continues as
the Chief Executive Officer during the third year following the Merger, he would
be entitled to a salary of $2 million and if he is employed in another capacity
then he would be entitled to a salary of $1.25 million for the third year. Mr.
Allumbaugh will be entitled to a bonus equal to his salary in each year if
certain prescribed earnings targets (the "Earnings Targets") for the year are
reached. If the Company completes an initial public offering of capital stock
during the first two years of Mr. Allumbaugh's employment, Mr. Allumbaugh will
remain Chief Executive Officer for one year after the public offering. If the
public offering is anticipated to occur during the third year of Mr.
Allumbaugh's employment agreement, Mr. Allumbaugh will resign as Chief Executive
Officer six months prior to the intended date of the public offering but will
continue to be employed at the lesser compensation level provided in his
employment agreement until its termination.
New Golleher Agreement. Food 4 Less is currently a party to a five-year
employment agreement with George G. Golleher providing for annual base
compensation of $350,000, plus employee benefits and an incentive bonus
calculated in accordance with a formula based on Food 4 Less' earnings. Under
the employment agreement, Mr. Golleher may terminate his employment agreement in
the event of a change of control of Food 4 Less, 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. In
connection with the consummation of the Merger, Food 4 Less board of directors
has authorized the payment of a special bonus to George Golleher in a lump sum
amount equal to the base salary due him under the remaining term of his
employment agreement. As a condition of the payment of such bonus, Mr.
Golleher's existing employment agreement will be cancelled, and he will enter
into a new agreement containing terms to be mutually agreed upon between Food 4
Less and Mr. Golleher. The new employment agreement is expected to provide for
an annual salary of $500,000 plus a bonus equal to his salary in each year if
the Earnings Targets are reached.
New Marasca Agreement. The employment agreement between the Company and
Alfred Marasca is expected to provide for a salary of $500,000 per annum and an
annual bonus equal to his salary if the Earnings Targets for the year are
reached.
General Provisions of the New Employment Agreements. The new employment
agreements are expected to provide generally that the Company may terminate the
agreement for cause or upon the failure of the employee to render services to
the Company for a continuous period to be agreed upon by the Company and the
employee because of the employee's disability. In addition, the employee's
services may be suspended upon notice by the Company and in such event the
employee will continue to be compensated by the Company during the remainder of
the term of the agreement subject to certain offsets if the employee becomes
engaged in another business.
Existing Food 4 Less Employment Agreements. Food 4 Less entered into
employment agreements with 24 officers providing for their employment for a
one-year term commencing on the date of a change of control of Food 4 Less.
These agreements provide for the payment of an incentive bonus calculated in
accordance with Food 4 Less policies, and certain of the agreements provide for
the payment of a special bonus payable upon a change of control (provided
certain financial performance targets have been met). These agreements will
become effective upon the consummation of the Merger. Greg Mays, who will be an
Executive Vice President of the Company, will be entitled to receive a base
salary of not less than $250,000 and a special bonus of $150,000 (provided
certain financial performance targets have been met). It is anticipated that
some,
72
<PAGE> 80
but not all, of these employment agreements will be replaced by new employment
agreements with the Company.
Joe Burkle Consulting Agreement. Food 4 Less has a consulting agreement
with Joe S. Burkle providing for compensation of $3,000 per week, pursuant to
which Mr. Burkle provides the management and consulting services of an executive
vice president. The agreement has a five-year term, which is automatically
renewed on January 1 of each year for a five-year term unless sixty days' notice
is given by either party; provided that if Food 4 Less terminates his employment
for reasons other than for good cause, the payments due under the agreement
continue for the balance of the term. It is expected that the Company will
assume Mr. Burkle's consulting agreement upon the consummation of the Merger.
EQUITY APPRECIATION RIGHTS PLAN
RGC has 1,500,000 EARs outstanding that were granted under the RGC 1988
Equity Appreciation Rights Plan, as amended (the "EAR Plan"). The outstanding
EARs are held by 36 officers and former officers of Ralphs, including Byron
Allumbaugh, Alfred Marasca, Alan Reed, Jan Charles Gray and Terry Peets. All
outstanding EARs are vested in full and not subject to forfeiture by the
holders, except in the event a holder's employment is terminated for cause
within the meaning of the EAR Plan. The outstanding EARs represent the right to
receive, in the aggregate, 15% of the increase of the appraised value of RGC's
equity at the time of exercise over a base value of $120 million. Concurrently
with the consummation of the Merger, the outstanding EARs will be redeemed for
$22.8 million in cash. An additional $10 million of EAR payments that would
otherwise be payable upon consummation of the Merger will be cancelled in
exchange for the issuance of the Reinvestment Options (as defined). No future
compensation expense will be recorded as the cancellation of certain EAR
liabilities ($10.0 million) in consideration for the Reinvestment Options is
deemed by management to reflect fair and equal value. See "-- New Management
Stock Option Plan and Management Investment" and "Description of Capital
Stock -- New Equity Investment." The price to redeem the EARs is based on a $517
million valuation (the maximum valuation possible under the EAR Plan) of RGC's
equity.
NEW MANAGEMENT STOCK OPTION PLAN AND MANAGEMENT INVESTMENT
Upon the consummation of the Merger, certain members of Ralphs' management
and Food 4 Less' management will be entitled to receive options to purchase
common stock of New Holdings (the "New Options"). The New Options will have a
term of ten years and the exercise price with respect to each New Option will be
$10 per share, which is equal to the price paid by the New Equity Investors for
the New Equity Investment. The New Options will represent 7.5% of the total
equity of New Holdings, and will be allocated as follows: New Options
representing 1.5%, 0.5% and 0.5% of the total equity of New Holdings will be
granted to Byron Allumbaugh, George Golleher and Alfred Marasca, respectively
(the "Tier One Options"). The Tier One Options will be fully vested upon
issuance and will be immediately exercisable. New Options for an additional 2.5%
of the total equity of New Holdings will be granted to certain other management
employees of the Company (the "Tier Two Options"). Fifty percent (50%) of the
Tier Two Options granted to each holder will vest immediately upon issuance and
10% will vest each year thereafter. In addition, New Options representing an
aggregate of 2.5% of the total equity of New Holdings will be issued to holders
of EARs in exchange for the cancellation of $10 million of the EAR payments
which would otherwise be payable upon consummation of the Merger (the
"Reinvestment Options"). The value of the EAR payments cancelled will be
credited against the exercise price for each Reinvestment Option. The
Reinvestment Options will be fully vested upon issuance and will be immediately
exercisable.
Certain of Ralphs' officers, including Messrs. Allumbaugh, Marasca, Reed,
Gray and Peets, currently hold options to purchase common stock of RSI. These
options will be cancelled for cash payments aggregating $880,000 in connection
with the Merger.
Each holder of New Options (collectively, the "Management Shareholders")
will also execute a management shareholder agreement with New Holdings
(collectively, the "Management Shareholder Agreements"). The Management
Shareholder Agreements will generally provide New Holdings with a right
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<PAGE> 81
of first refusal in the event of proposed sales of New Holdings stock acquired
by the Management Shareholders upon the exercise of New Options and an option,
exercisable following any termination for cause of a Management Shareholder's
employment or if the Management Shareholder commences employment with a
competitor, to repurchase at Fair Market Value (as defined in the Management
Shareholder Agreements) any New Holdings stock acquired by such Management
Shareholder upon the exercise of New Options. Each Management Shareholder
Agreement will contain certain rights of the Management Shareholders to
participate in sales by Yucaipa of New Holdings stock and certain obligations of
the Management Shareholders to sell their New Holdings stock in the case of a
sale for cash of all outstanding New Holdings stock. Finally, the Management
Shareholders will be required to vote their New Holdings stock to elect to the
New Holdings Board of Directors the directors nominated by Yucaipa, Apollo and
the other New Equity Investors under New Holdings' 1995 Stockholders Agreement.
See "Description of Capital Stock -- 1995 Stockholders Agreement." The
Management Shareholders Agreements, and all rights and obligations of the
Management Shareholders thereunder described above, will terminate upon an
initial public offering of New Holdings common stock meeting certain criteria.
SUMMARY COMPENSATION TABLE -- RALPHS
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 Ralphs who are expected to serve as executive
officers of the Company, whose total annual salary and bonus exceeded $100,000
for the year ended January 30, 1994.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
-------------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS/SARS(#) COMPENSATION($)(1)
- --------------------------- ----- -------- -------- ------------------- ------------------
<S> <C> <C> <C> <C> <C>
Byron E. Allumbaugh, 1993 645,000 387,000 N/A 38,575
Chairman and 1992 620,000 372,000 587,753 31,886
Chief Executive Officer 1991 580,000 348,000 N/A N/A
Alfred A. Marasca, 1993 340,000 204,000 N/A 18,177
President 1992 296,260 148,125 308,812 11,485
1991 280,500 140,000 N/A N/A
Alan J. Reed, 1993 222,500 111,250 N/A 12,904
Senior Vice President, 1992 211,250 105,625 154,406 9,569
Finance and 1991 196,260 98,125 N/A N/A
Chief Financial Officer
Jan Charles Gray, 1993 207,500 103,750 N/A 13,584
Senior Vice President, 1992 196,250 98,125 154,406 13,593
General Counsel and 1991 181,250 90,625 N/A N/A
Secretary
Terry Peets, 1993 192,500 96,250 N/A 10,337
Senior Vice President, 1992 182,500 91,250 154,406 10,237
Marketing 1991 171,250 85,625 N/A N/A
</TABLE>
- ---------------
(1) Represents (i) insurance premiums and the dollar value of the remainder of
premiums paid under the Senior Executive Supplemental Benefit Plan and (ii)
RGC's contributions under the Ralphs Thrift Incentive Plan. The respective
amounts paid for Messrs. Allumbaugh, Marasca, Reed, Gray and Peets are as
follows: (A) insurance premiums: $18,500, $8,890, $6,662, $7,250 and $4,210;
(B) dollar value of the remainder of premiums: $18,500, $6,600, $4,025,
$4,500 and $4,210; (C) incentive plan contributions: $1,575, $2,687, $2,217,
$1,834 and $1,917.
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<PAGE> 82
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1994 AND FISCAL YEAR-END OPTION/SAR
VALUES -- RALPHS
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES FISCAL YEAR-END(#) FISCAL YEAR-END($)
ACQUIRED --------------------- --------------------
ON EXERCISE VALUE EXERCISABLE/ EXERCISABLE/
NAME (#)(1) REALIZED($) UNEXERCISABLE(2) UNEXERCISABLE(3)(4)
- ------------------------------- ----------- ----------- --------------------- --------------------
<S> <C> <C> <C> <C>
Byron E. Allumbaugh............ 70,000 1,961,646 235,102/ 0/
562,651 5,884,935
Alfred A. Marasca.............. 9,000 252,212 61,762/ 0/
319,050 2,017,692
Alan J. Reed................... 7,000 196,165 30,882/ 0/
179,524 1,569,316
Jan Charles Gray............... 5,000 140,118 30,882/ 0/
163,524 1,120,939
Terry Peets.................... 5,000 140,118 30,882/ 0/
163,524 1,120,939
</TABLE>
- ---------------
(1) Represents EARs exercised under the EAR Plan.
(2) Each number represents the aggregate number of options and EARs outstanding,
as currently exercisable/unexercisable. Options and EARs were granted under
different plans, not in tandem. All EARs are free standing.
(3) Represents value of EARs, based on a value of $28.0235 per EAR at the time
of exercise. Outstanding options are not currently in-the-money, based on
current estimates of the fair market value of the Common Stock.
(4) A portion of the EARs will be redeemed in connection with the Merger and the
remaining EARs will be cancelled in exchange for the issuance of the
Reinvestment Options by New Holdings, based upon their maximum possible
valuation of $39.70 per EAR (or $517 for the total equity of RGC). For
purposes of such redemptions and cancellations, the value of outstanding
EARs held by Messrs. Allumbaugh, Marasca, Reed, Gray and Peets is expected
to equal approximately $8.0 million, $2.7 million, $2.1 million, $1.7
million and $1.5 million, respectively.
RALPHS' RETIREMENT PLANS
Retirement Plan. The Ralphs Grocery Company Retirement Plan (the
"Retirement Plan") is a defined benefit pension plan for salaried and hourly
nonunion employees with at least one year of credited service (1,000 hours).
Ralphs makes annual contributions to the Retirement Plan in such amounts as are
actuarially required to fund the benefits payable to participants in accordance
with the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
Supplemental Executive Retirement Plan. To allow Ralphs' retirement program
to provide benefits based upon a participant's total compensation and without
regard to other ERISA or tax code pension plan limitations, eligible executive
employees of Ralphs participate in the Ralphs Grocery Company Supplemental
Executive Retirement Plan and, after December 31, 1993, the Ralphs Grocery
Company Retirement Supplement Plan (collectively, the "Supplemental Plan"). The
Supplemental Plan also modifies the benefit formula under the Retirement Plan in
other respects. Benefits provided under the Supplemental Plan were improved
effective April 9, 1994.
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<PAGE> 83
The following table sets forth the combined estimated annual benefits
payable in the form of a (single) life annuity under both the Retirement Plan
and the Supplemental Plan (unreduced by the cash surrender value of any life
insurance policies) to a participant in both plans who is retiring at a normal
retirement date of January 1, 1994 for the specified final average salaries and
years of credited service.
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
------------------------------------------------------------
FINAL AVERAGE SALARY 15 20 25 30 35
- -------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 100,000 $ 19,484 $ 25,978 $ 32,473 $ 38,967 $ 45,462
200,000 41,984 55,978 69,973 83,967 97,962
300,000 84,763 113,017 141,271 169,526 169,526
400,000 114,763 153,017 191,271 229,526 229,526
600,000 174,763 233,017 291,271 349,526 349,526
800,000 234,763 313,017 391,271 469,526 469,526
1,000,000 294,763 393,017 491,271 589,526 589,526
1,200,000 354,763 473,017 591,271 709,526 709,526
</TABLE>
Messrs. Allumbaugh, Marasca, Reed, Gray and Peets have completed 36, 37,
21, 31 and 17 years of credited service, respectively. Compensation covered by
the Supplemental Plan includes both salary and bonus. The calculation of
retirement benefits generally is based on average compensation for the highest
three years of the ten years preceding retirement. The benefits earned by a
participant under the Supplemental Plan are reduced by any benefits which the
participant has earned under the Retirement Plan and may be offset under certain
circumstances by the cash surrender value of life insurance policies maintained
by Ralphs pursuant to the split dollar life insurance agreements entered into by
Ralphs and the executive. Benefits are not subject to any deduction for social
security offset.
It is currently anticipated, although there can be no assurance, that
Ralphs and Food 4 Less salaried employees will participate in the Retirement
Plan and other existing Ralphs benefit plans following the Merger. These plans
are currently being evaluated to determine the feasibility of such
participation.
SUMMARY COMPENSATION TABLE -- FOOD 4 LESS
The following Summary Compensation Table sets forth information concerning
the compensation of the Chief Executive Officer and the other three most highly
compensated executive officers of Food 4 Less who are expected to serve as
executive officers of the Company, whose total annual salary and bonus exceeded
$100,000 for services rendered in all capacities to Food 4 Less and its
subsidiaries for Fiscal 1994.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION(4)($)
- ---------------------------------------------- ---- --------- -------- ------------------
<S> <C> <C> <C> <C>
Ronald W. Burkle, Chairman and................ 1994 -- -- --
Chief Executive Officer(1) 1993 -- -- --
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, Executive Vice-President........... 1994 250,000 150,000 --
Finance/Administration and 1993 108,000 75,000 --
Chief Financial Officer(2) 1992 -- -- --
Joe Burkle,................................... 1994 196,000 50,000 --
Executive Vice President(3) 1993 156,000 -- --
1992 156,000 -- --
</TABLE>
- ---------------
(1) Ronald W. Burkle and Mark A. Resnik, Vice President and Secretary of Food 4
Less, provide services to Food 4 Less pursuant to a management agreement
between Yucaipa and Food 4 Less. See "Certain Relationships and Related
Transactions." Pursuant to this management agreement, Food 4 Less 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.
(3) Mr. Joe Burkle provides services to Food 4 Less pursuant to a consulting
agreement. See " -- Employment Agreements."
(4) The amounts shown in this column represent annual payments by Food 4 Less to
the Employee Profit Sharing and Retirement Program of Food 4 Less for the
benefit of Mr. Golleher.
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<PAGE> 84
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION -- FOOD 4 LESS
Food 4 Less does not have a board committee performing the functions of a
compensation committee. Ronald W. Burkle, Chief Executive Officer of Food 4
Less, and George G. Golleher, President of Food 4 Less, made decisions with
regard to Food 4 Less' executive officer compensation for Fiscal 1994.
FOOD 4 LESS STOCK PLAN
As of June 25, 1994, certain employees of Food 4 Less (the "Management
Stockholders") collectively owned approximately 4.5%, of Holdings' outstanding
common stock which they acquired under the management stock plan of Food 4 Less.
Pursuant to this plan, the Board of Directors of Holdings from time to time has
offered common stock of Holdings 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 (the "Voting Agreement"), 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. In the event of the death or permanent disability of the Management
Stockholder, each Management Stockholder has an irrevocable option for one year
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 Agreement; provided,
however, that the Management Stockholder may exercise such option in the event
of death or disability only to the extent that Holdings or Food 4 Less has
insurance, under which Holdings or Food 4 Less 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 stockholders, each
Management Stockholder must sell to such third party the same percentage of his
common stock as is proposed to be sold by the selling stockholders.
Under the Voting Agreement, Ronald W. Burkle, George G. Golleher and
Yucaipa Capital Advisors, Inc. have sole voting control over the shares of
common stock owned by the other Management Stockholders until December 31, 2001
(unless extended by such Management Stockholders). Messrs. Burkle and Golleher
also 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 July 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.
Pursuant to the Reincorporation Merger, New Holdings will succeed to the
rights and obligations of Holdings under the Food 4 Less stock plan. It is
expected that following the Merger, equity issuances to management will cease to
be made under the Food 4 Less stock plan and instead will be made under the New
Holdings option plan. See "-- New Management Stock Option Plan and Management
Investment."
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<PAGE> 85
PRINCIPAL STOCKHOLDERS
The information in the following table gives effect to (i) the Merger and
the Financing and (ii) the FFL Merger and the Reincorporation Merger. The
information in the following table assumes that the outstanding stock options of
RSI have been cancelled, that certain new stock options of New Holdings have
been granted to management and that certain warrants to purchase New Holdings
Common Stock have been issued to institutional investors who currently hold
warrants to purchase common stock of Holdings. Based on such assumption and
giving effect to the foregoing events, the following table sets forth the
ownership of Common Stock and Series A Preferred Stock and Series B Preferred
Stock of New Holdings by each person who to the knowledge of Food 4 Less will
own 5% or more of New Holdings' outstanding voting stock, by each person who
will be a director or named executive officer of the Company, and by all
executive officers and directors of the Company as a group. Share amounts and
percentage ownership information set forth for the Series A Preferred Stock and
Series B Preferred Stock are subject to change pending finalization of the
Financing.
<TABLE>
<CAPTION>
SERIES A SERIES B
COMMON PREFERRED PREFERRED
STOCK(1)(2) STOCK(1) STOCK(1)
------------------ ----------------- ----------------- PERCENTAGE PERCENTAGE
NUMBER NUMBER NUMBER OF TOTAL OF ALL
OF OF OF VOTING OUTSTANDING
BENEFICIAL OWNER(3) SHARES % SHARES % SHARES % POWER STOCK
- ---------------------------- ---------- ----- ---------- ---- --------- ---- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Yucaipa and affiliates:
The Yucaipa
Companies(4)(5)......... 14,567,622 57.8% -- -- -- -- 34.0% 31.7%
Ronald W. Burkle(4)(6).... 2,046,392 10.1% -- -- -- -- 5.4% 5.0%
George G. Golleher
(2)(6).................. 462,525 2.3% -- -- -- -- 1.2% 1.1%
10000 Santa Monica
Boulevard, Los Angeles,
California 90067
---------- ----- ----- -----
Total................. 17,076,539 67.7% -- -- -- -- 39.8% 37.1%
Byron E. Allumbaugh(2)...... 600,000 3.0% -- -- -- -- 1.6% 1.5%
Alfred A. Marasca(2)........ 200,000 1.0% -- -- -- -- 0.5% 0.5%
Greg Mays(7)................ -- -- -- -- -- -- -- --
Apollo Advisors, L.P.(8)
2 Manhattanville Road
Purchase, NY 10577........ 1,285,165 6.4% 12,283,244 69.5% -- -- 35.8% 33.1%
BT Investment Partners,
Inc.(9)
130 Liberty Street
New York, NY 10006........ 509,812 2.5% 900,000 5.1% 3,100,000 100% 3.7% 11.0%
Other New Equity Investors
as a group(10)............ 4,500,000 25.4% -- -- 11.9% 11.0%
All directors and executive
officers as a group (15
persons)(2)(4)(5)(6)...... 17,876,539 70.9% -- -- -- -- 41.7% 38.9%
</TABLE>
- ---------------
(1) Gives effect to (i) a stock split to be effected with respect to the
outstanding common stock of Holdings prior to the Merger, (ii) the
conversion (in connection with the FFL Merger) of the outstanding common
stock of FFL into newly-issued common stock of Holdings in an amount which
will preserve the proportionate ownership interests of FFL's stockholders,
and of the equity holders of Holdings, in the combined Company, (iii) the
conversion (in connection with the Reincorporation Merger) of the
outstanding common stock, and warrants to acquire common stock, of Holdings
into New Holdings common stock and warrants, (iv) the issuance by New
Holdings of 17,683,244 shares of Series A Preferred Stock and 3,100,000
shares of Series B Preferred Stock in connection with the New Equity
Investment and the concurrent exchange of outstanding shares of common
stock acquired by the New Equity Investors from an existing stockholder and
(v) the assumed exercise of the outstanding warrants to acquire New
Holdings common stock issued to the former Holdings warrantholders in
connection with the Reincorporation Merger.
(2) Gives effect to the exercise of Tier One Options to be issued to Byron E.
Allumbaugh, George G. Golleher and Alfred A. Marasca under a new management
stock option plan to be adopted prior to completion of the Merger, covering
600,000, 200,000 and 200,000 shares, respectively. Does not give effect to
the exercise of (a) Tier Two Options to purchase up to 1,000,000 shares of
New Holdings common stock to be issued at the discretion of the Board of
Directors to certain management employees of the Company, under such stock
option plan, concurrently with or following completion of the Merger or (b)
Reinvestment Options to purchase up to 1,000,000 shares of New Holdings
common stock to be issued to holders of EARs in exchange for the
cancellation of $10 million of the EAR payments which would otherwise be
payable upon consummation of the Merger. See "Executive Compensation -- New
Management Stock Option Plan and Management Investment."
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<PAGE> 86
(3) Except as otherwise indicated, each beneficial owner has the sole power to
vote, as applicable, and to dispose of all shares of Common Stock or Series
A Preferred Stock or Series B Preferred Stock owned by such beneficial
owner.
(4) Represents shares owned by The Yucaipa Companies, F4L Equity Partners,
L.P., FFL Partners, Yucaipa Capital Fund and Yucaipa/F4L Partners. These
entities are affiliated partnerships which are controlled, directly or
indirectly, by Ronald W. Burkle. Following completion of the Merger, the
foregoing entities will be parties to a stockholders agreement with other
New Holdings investors which will give to Yucaipa the right to elect a
majority of the directors of New Holdings. See "Description of Capital
Stock -- 1995 Stockholders Agreement."
(5) Share amount and percentages shown for Yucaipa include a warrant to
purchase 5,000,000 shares of New Holdings Common Stock, exercisable at
$31.25 per share, to be issued to Yucaipa concurrently with the completion
of the Merger and the Financing. See "Description of Capital
Stock -- Yucaipa Warrant."
(6) Certain management stockholders who own in the aggregate 852,326 shares of
Common Stock (pro forma for the events and assumptions described above)
have entered into a Stockholder Voting Agreement and Proxy pursuant to
which Ronald W. Burkle, George G. Golleher and Yucaipa Capital Advisors,
Inc. have sole voting control over the shares currently owned by such
management stockholders until December 31, 2002 (unless extended by such
stockholders). See "Executive Compensation -- Food 4 Less Stock Plan." The
852,326 shares have been included, solely for purposes of the above table,
in the share amounts shown for Mr. Burkle but not for Mr. Golleher. Neither
Messrs. Burkle and Golleher nor Yucaipa Capital Advisors, Inc. have the
power to dispose of, or any other form of investment power with respect to,
such shares. Messrs. Burkle and Golleher have sole voting and investment
power with respect to 1,194,066 and 462,525 shares of Common Stock they
respectively own (including, in the case of Mr. Golleher, 200,000 shares
issuable upon the exercise of Tier One Options).
(7) Mr. Mays owns 8,890 of the 852,326 shares of Common Stock which are subject
to the Stockholder Voting Agreement and Proxy described in note (6) above.
(8) Represents shares owned by one or more entities managed by or affiliated
with Apollo Advisors, L.P., together with certain affiliates or designees
of Apollo.
(9) Represents shares owned by BT Investment Partners, Inc. ("BTIP"), Bankers
Trust New York Corporation and BT Securities Corporation. Bankers Trust New
York Corporation and BT Securities Corporation are affiliated with BTIP.
BTIP expressly disclaims beneficial ownership of all shares owned by
Bankers Trust New York Corporation and BT Securities Corporation.
(10) Includes certain institutional investors, other than Apollo and BTIP, which
will purchase Series A Preferred Stock of New Holdings in connection with
the Financing. Pursuant to the 1995 Stockholders Agreement, certain
corporate actions by New Holdings and its subsidiaries will require the
consent of a majority of the directors whom the New Equity Investors,
including Apollo and BTIP, are entitled to elect to the New Holdings Board
of Directors. See "Description of Capital Stock -- 1995 Stockholders
Agreement." Such investors do not affirm the existence of a "group" within
the meaning of Rule 13d-5 under the Exchange Act, and expressly disclaim
beneficial ownership of all New Holdings shares except for those shares
held of record by each such investor or its nominees.
DESCRIPTION OF CAPITAL STOCK
Following is a description of the capital stock of the Company and New
Holdings to be authorized and outstanding upon completion of the Merger, the FFL
Merger and the Reincorporation Merger, including the terms of the New Equity
Investment to be made in New Holdings in connection with the closing of the
Merger.
THE COMPANY
Upon completion of the Merger, the authorized capital stock of the Company
will consist of 1,600,000 shares of common stock, $.01 par value per share, of
which 1,513,938 shares will be outstanding. All of such outstanding shares will
be owned by New Holdings. There will be no public trading market for the common
stock of the Company. The indentures that will govern outstanding debt
securities of the Company will contain certain restrictions on the payment of
cash dividends with respect to the Company's common stock. In addition, it is
expected that the New Credit Facility will also restrict such payments. Subject
to the limitations contained in the New Credit Facility and such indentures,
holders of common stock of the Company will be entitled to dividends when and as
declared by the Board of Directors from funds legally available therefor, and
upon liquidation, will be entitled to share ratably in any distribution to
holders of common stock. All holders of common stock will be entitled to one
vote per share on any matter coming before the stockholders for a vote.
NEW HOLDINGS
Following completion of the FFL Merger, the Reincorporation Merger, the
Merger and the New Equity Investment, (i) the authorized capital stock of New
Holdings will consist of 60,000,000 shares of common stock, $.01 par value,
25,000,000 shares of Series A Preferred Stock, $.01 par value, and 25,000,000
shares of
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<PAGE> 87
Series B Preferred Stock, $.01 par value, (ii) 17,207,882 shares of common
stock, 17,683,244 shares of Series A Preferred Stock and 3,100,000 shares of
Series B Preferred Stock will be outstanding and held by approximately 100
holders of record, (iii) 2,008,874 shares of common stock will be reserved for
issuance upon the exercise of outstanding warrants held by institutional
investors, and (iv) 3,000,000 shares of common stock will be reserved for
issuance upon the exercise of the New Options. See "Executive Compensation --
New Management Stock Option Plan and Management Investment." An additional
5,000,000 shares of common stock will be reserved for issuance upon the exercise
of an outstanding warrant to be issued upon closing of the Merger to an
affiliate of Yucaipa. See "Yucaipa Warrant" below.
There is no public trading market for the capital stock of New Holdings,
nor will any such market exist following completion of the Merger. New Holdings
does not expect in the foreseeable future to pay any dividends on its capital
stock. Holders of common stock of New Holdings are entitled to dividends when
and as declared by the Board of Directors of New Holdings from funds legally
available therefor, and upon liquidation, are entitled to share ratably in any
distribution to holders of common stock. All holders of New Holdings common
stock are entitled to one vote per share on any matter coming before the
stockholders for a vote.
The Series A Preferred Stock initially will have an aggregate liquidation
preference of $176,832,440, or $10 per share, which will accrete at the rate of
7.5% per annum until the fifth anniversary of the date of issuance, and
thereafter will remain constant. The accretion of the liquidation preference
will not affect the conversion ratio of the Series A Preferred Stock or
otherwise have any effect on the economic interest of the preferred stockholders
other than in the event New Holdings is liquidated or dissolved. Aside from
priority in respect of liquidation, the holders of the Series A Preferred Stock
will have in all respects the same rights, including with respect to voting and
dividends, as the holders of New Holdings common stock have, and will vote
together with the common stock as a single class on all matters submitted for
stockholder vote. Each share of Series A Preferred Stock initially will be
convertible at the option of the holder thereof into one share of New Holdings
common stock. Upon consummation of an initial public offering of New Holdings
equity securities which meets certain criteria, each share of Series A Preferred
Stock will automatically convert into one share of common stock of New Holdings.
The Series B Preferred Stock initially will have an aggregate liquidation
preference of $31,000,000, or $10 per share, which will accrete at the rate of
7.5% per annum until the fifth anniversary of the date of issuance, and
thereafter will remain constant. The accretion of the liquidation preference
will not affect the conversion ratio of the Series B Preferred Stock or
otherwise have any effect on the economic interest of the preferred stockholders
other than in the event New Holdings is liquidated or dissolved. The holders of
Series B Preferred Stock generally will not be entitled to vote on any matters,
except as required by the Delaware General Corporation Law. Each share of Series
B Preferred Stock initially will be convertible at the option of the holder
thereof into one share of New Holdings common stock upon the occurrence of a
Change of Control (as defined in the New Notes Indentures). See "Description of
the New Notes." Upon consummation of an initial public offering of New Holdings
equity securities which meets certain criteria, each share of Series B Preferred
Stock will automatically convert into one share of common stock of New Holdings.
The initial aggregate liquidation preference of the Series A Preferred
Stock and the Series B Preferred Stock may increase from the amounts set forth
above depending on whether New Holdings determines to increase the number of
shares it may sell pursuant to the New Equity Investment, and depending on
whether certain existing equity holders of FFL and holdings exercise preemptive
rights to participate in the New Equity Investment.
Upon any transfer or sale of shares of either Series A Preferred Stock or
Series B Preferred Stock, such shares may be converted (subject to certain
conditions) at the option of the holder into shares of the other series. Each
share of Series A Preferred Stock and Series B Preferred Stock will have
identical rights with respect to dividends and distributions, provided that if
dividends are declared which are payable in voting securities of New Holdings,
New Holdings will make available to each holder of Series A Preferred Stock and
Series B Preferred Stock, at such holder's request, dividends consisting of
non-voting securities of New Holdings which are otherwise identical to the
voting securities and which are convertible into or exchangeable
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<PAGE> 88
for such voting securities on the same terms as those by which the Series B
Preferred Stock is convertible into New Holdings common stock.
NEW EQUITY INVESTMENT
Concurrently with the issuance of the New Notes and the closing of the
Merger, certain existing stockholders of New Holdings, including affiliates of
George Soros, will sell 5,783,244 outstanding shares of common stock of New
Holdings to CLH, which in turn will sell such shares to the New Equity Investors
for an aggregate purchase price of $57.8 million. New Holdings will then issue
17,683,244 shares of Series A Preferred Stock and 3,100,000 shares of Series B
Preferred Stock in a private placement to a group of investors led by Apollo and
including affiliates of BT Securities, CS First Boston and DLJ and other
institutional investors (the "New Equity Investors") for an aggregate
consideration of $150 million plus the contribution to New Holdings of the
shares of common stock purchased from CLH in the secondary sale transaction. The
shares of Series A Preferred Stock and Series B Preferred Stock acquired by the
New Equity Investors will represent approximately 43% in the aggregate of the
fully diluted common equity of New Holdings. See "Principal Stockholders."
The $150 million cash proceeds from the issuance of Series A Preferred
Stock and Series B Preferred Stock will be applied by New Holdings as set forth
under "The Merger and the Financing."
Food 4 Less has accepted a commitment letter (the "Equity Commitment") from
Apollo pursuant to which Apollo has agreed (subject to certain conditions) to
purchase up to $150 million of the Series A Preferred Stock to be offered by New
Holdings as part of the New Equity Investment. In consideration of its Equity
Commitment, Apollo will receive a fee of $5 million from the Company upon the
closing of the Merger. The Company anticipates that the remainder of the Series
A Preferred Stock and Series B Preferred Stock so offered will be purchased by
affiliates of lenders and other financial institutions which have provided
financing to the Company, including BTIP, which is an affiliate of Bankers
Trust, by affiliates of CS First Boston and DLJ and by certain other investors.
The amounts of New Holdings stock expected to be held by Apollo, affiliates of
Bankers Trust and all other holders of 5% or more of New Holdings' outstanding
stock following completion of the Merger and the Financing are set forth above
under "Principal Stockholders."
1995 STOCKHOLDERS AGREEMENT
Under the terms of the 1995 Stockholders Agreement (which is expected to be
entered into by New Holdings, Yucaipa and its affiliates, the New Equity
Investors and other stockholders), the New Equity Investors will be entitled to
nominate three directors to the Board of Directors of each of New Holdings and
the Company (the "Series A Directors"), of which two directors will be nominees
of Apollo and one director will be a nominee of the other New Equity Investors.
The 1995 Stockholders Agreement will give to Yucaipa the right to nominate six
directors of New Holdings and seven directors of the Company, and the boards of
New Holdings and the Company will consist of a total of nine and ten directors,
respectively. The numbers of directors which may be nominated by the foregoing
stockholders will be reduced if such stockholders cease to own certain specified
percentages of their initial holdings. Unless and until New Holdings has
effected an initial public offering of its equity securities meeting certain
criteria, New Holdings and its subsidiaries may not take certain actions without
the approval of a majority of the Series A Directors, including but not limited
to certain mergers, sale transactions, transactions with affiliates, issuances
of capital stock and payments of dividends on or repurchases of capital stock.
In addition, the New Equity Investors will have certain "demand" and "piggyback"
registration rights with respect to their Series A Preferred Stock and Series B
Preferred Stock, as well as the right to participate, on a pro rata basis, in
sales by Yucaipa of the New Holdings stock it holds. In certain circumstances,
Yucaipa will have the right to compel the participation of the New Equity
Investors and other stockholders in sales of all the outstanding shares of New
Holdings stock.
The Company intends to seek the agreement of the current stockholders of
FFL and warrantholders of Holdings to become party to the 1995 Stockholders
Agreement, which would grant to such holders certain rights thereunder in
replacement of two existing stockholders agreements among FFL and its
stockholders entered into in 1987 and 1991, respectively and an agreement among
Holdings and its warrantholders executed in 1992.
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<PAGE> 89
YUCAIPA WARRANT
Upon closing of the Merger, New Holdings has agreed to issue to Yucaipa a
warrant to purchase up to 5,000,000 shares of New Holdings Common Stock. The
initial exercise price of such warrant will be $31.25 per share. Such warrant
will be exercisable on a cashless basis at the election of Yucaipa in the event
New Holdings completes an initial public offering of equity securities meeting
certain criteria, or in connection with certain sale transactions involving New
Holdings, in either case effected on or prior to the fifth anniversary of the
closing. The expiration date of such warrant, and the deadline for such
triggering transactions, may be extended from the fifth to the seventh
anniversary of the Closing Date if New Holdings meets certain financial
performance goals prior to such fifth anniversary. The cashless exercise
provisions of such warrant allow the holder to exercise it without the payment
of cash consideration, provided that New Holdings will withhold from the shares
otherwise issuable upon exercise thereof a number of shares having a fair market
value as of the exercise date equal to the exercise price.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RALPHS
In connection with the acquisition of a majority of RSI's common stock in
February 1992, EJDC agreed to guarantee RGC's obligations as a self-insurer of
worker's compensation liabilities in the State of California (the "EJDC
Guaranty"). In consideration of the EJDC Guaranty, RGC unconditionally agreed to
reimburse EJDC for any payments made under the EJDC Guaranty and for the cost of
insurance up to $200,000 to cover liabilities incurred pursuant to the EJDC
Guaranty. Further, RGC agreed to pay EJDC a guarantee fee of $33,500 for each
month the EJDC Guaranty was in effect ($402,000 was paid in Fiscal 1993).
Concurrently with the completion of the Merger, the EJDC Guaranty will be
terminated, and RGC will cease to pay any guarantee fee to EJDC or to reimburse
it for the cost of insurance. However, RGC will continue to be obligated to
reimburse EJDC for any payments which EJDC could in the future be required to
make under the EJDC Guaranty in respect of prior claims. Moreover, FFL has
undertaken for the benefit of EJDC to maintain, until the fifth anniversary of
the closing of the Merger, bank letters of credit, insurance or other security
for the workers' compensation claims for which EJDC could have liability under
the EJDC Guaranty.
In connection with the bankruptcy reorganization of Federated and its
affiliates, Federated agreed to pay certain potential tax liabilities relating
to RGC as a member of the affiliated group of companies comprising Federated and
its subsidiaries. In consideration thereof, RSI and RGC agreed to pay Federated
a total of $10 million, payable $1 million on each of February 3, 1992, 1993,
1994, 1995 and 1996 and $5 million on February 3, 1997. The five $1 million
installments are to be paid by RGC and the $5 million payment is the joint
obligation of RSI and RGC. In the event Federated is required to pay certain tax
liabilities, RSI and RGC have agreed to reimburse Federated up to an additional
$10 million, subject to certain adjustments. This additional obligation, if any,
is the joint and several obligation of RSI and RGC. Pursuant to the terms of the
Merger Agreement, the $5 million payment and the potential $10 million payment
will be paid in cash. See Note 1 of Notes to Ralphs Consolidated Financial
Statements.
In addition, EJDC and the other current holders of Common Stock of RSI are
parties to an agreement providing for various aspects of corporate governance
(the "Ralphs Registration Rights and Governance Agreement") relating to Ralphs.
Pursuant to the Ralphs Registration Rights and Governance Agreement, RGC is
obligated to provide RSI, by dividend, pursuant to a services agreement or
otherwise, with funds sufficient to enable RSI to perform its duties as the
holding company of RGC's stock and to perform its obligations set forth in the
Ralphs Registration Rights and Governance Agreement. The Ralphs Registration
Rights and Governance Agreement will be cancelled concurrently with the closing
of the Merger.
FOOD 4 LESS
Yucaipa provides certain management and financial services to Food 4 Less
and its subsidiaries pursuant to a consulting agreement. The services of Ronald
Burkle, Mark Resnik and Patrick Graham, acting in their capacities as directors
and officers, and the services of other Yucaipa personnel are provided to Food 4
Less pursuant to this agreement. All of such individuals are partners of
Yucaipa. Yucaipa's consulting agreement
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provides for annual management fees currently equal to $2 million plus an
additional amount based on Food 4 Less' performance. Upon completion of the
Merger, the consulting agreement will be amended to provide for an annual
management fee payable by the Company to Yucaipa in the amount of $4 million,
with no additional amounts payable based on performance. In addition, the
Company may retain Yucaipa in an advisory capacity in connection with certain
acquisitions or sale 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 remainder of the five-year period commencing on the closing of the Merger.
Pursuant to the agreement, Food 4 Less paid Yucaipa a total of $2.4 million,
$3.8 million and $2 million in management and advisory fees for the fiscal years
ended June 25, 1994, June 26, 1993 and June 27, 1992 respectively.
The Yucaipa consulting agreement also provides that upon closing of the
Merger, Yucaipa will be entitled to receive an advisory fee from the Company in
the amount of $24 million, plus reimbursement of expenses in connection with the
Merger and the related transactions. At the option of Yucaipa, up to $5 million
of such fee may be paid in the form of common stock of New Holdings. See
"Description of Capital Stock." In consideration of its commitment to purchase
Series A Preferred Stock of New Holdings, Apollo will receive a fee of $5
million from the Company upon the closing of the Merger. See "Description of
Capital Stock -- New Equity Investment." In addition, upon closing of the
Merger, Yucaipa anticipates that it will pay a fee of approximately $3.5 million
to Soros Fund Management in consideration of advisory services which Soros Fund
Management has rendered since 1991. The Company has no responsibility for such
payment by Yucaipa.
In connection with the execution of the Merger Agreement, Yucaipa entered
into the Put Agreement with EJDC, pursuant to which EJDC will be entitled to put
up to $10 million aggregate principal amount of Seller Debentures to Yucaipa on
the Closing Date. The Yucaipa consulting agreement will provide that the Company
will reimburse Yucaipa for any loss and expenses incurred by Yucaipa upon the
resale of such Seller Debentures to any unaffiliated third party. Yucaipa has
advised the Company that it intends to resell the Seller Debentures on the
Closing Date or as soon thereafter as practicable. The agreement will also
require Yucaipa to contribute any profit realized upon the resale of such Seller
Debentures within such period to the capital of the Company.
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
includes Food 4 Less) is determined on a consolidated basis. FFL has entered
into a federal income tax sharing agreement with Food 4 Less and certain of its
subsidiaries (the "Tax Sharing Agreement"). The Tax Sharing Agreement provides
that in any year in which Food 4 Less is included in any consolidated tax
liability of FFL and has taxable income, Food 4 Less will pay to FFL the amount
of the tax liability that Food 4 Less would have had on such due date if it had
been filing a separate return. Conversely, if Food 4 Less generates losses or
credits which actually reduce the consolidated tax liability of FFL and its
other subsidiaries, FFL will credit to Food 4 Less the amount of such reduction
in the consolidated tax liability. 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 Food 4 Less of such state and
local taxes. By operation of the FFL Merger and the Reincorporation Merger, New
Holdings will succeed to the rights and obligations of FFL under the Tax Sharing
Agreement.
Management believes that the terms of the transactions described above are
or were fair to Food 4 Less and are or were on terms at least as favorable to
Food 4 Less as those which could be obtained from unaffiliated parties (assuming
that such transactions could be effected with such parties).
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THE EXCHANGE OFFERS AND SOLICITATION
BACKGROUND AND PURPOSES OF THE EXCHANGE OFFERS AND SOLICITATION
The Exchange Offers and the Solicitation, together with the other financing
and solicitation transactions described under "The Merger and the Financing,"
are part of the transactions required to consummate the merger of Food 4 Less
with and into RSI. Immediately following the RSI Merger, RGC, a wholly-owned
subsidiary of RSI, will merge into RSI and RSI will change its name to Ralphs
Grocery Company.
As a result of the Merger, the New Notes and any Old RGC Notes not tendered
for exchange pursuant to the Exchange Offers, the F4L Senior Notes, the F4L
Senior Subordinated Notes and the indebtedness incurred pursuant to the New
Credit Facility will be the obligations of the Company. In connection with the
consummation of the Merger, Food 4 Less is making the Exchange Offers and the
F4L Exchange Offers to (i) extend the maturities of the existing long-term debt
securities of Food 4 Less and RGC by exchanging such securities for new
longer-term securities and (ii) establish uniform covenants in the New Notes and
the New F4L Notes in order to simplify the capital structure of the Company. The
Exchange Offers afford Old RGC Noteholders an opportunity to elect to
participate in the long-term capitalization of the Company.
Food 4 Less is also seeking Consents to the Proposed Amendments in the
Solicitation. The primary purpose of the Proposed Amendments is to permit the
consummation of the Merger and to eliminate substantially all of the restrictive
covenants in the Old RGC Indentures. See "The Proposed Amendments." If adopted
by the holders of a majority in aggregate principal amount of each of the
outstanding Old RGC 9% Notes and Old RGC 10 1/4% Notes, the Proposed Amendments
will become effective immediately prior to the consummation of the Merger, upon
Food 4 Less' acceptance of properly tendered Old RGC Notes for exchange pursuant
to the Exchange Offers.
TERMS OF THE EXCHANGE OFFERS
Upon the terms and subject to the conditions set forth herein and in the
accompanying applicable Letter of Transmittal, Food 4 Less is hereby offering
(A) to holders of the Old RGC 9% Notes to exchange for each $1,000 principal
amount of Old RGC 9% Notes exchanged, $1,000 principal amount of New Senior
Subordinated Notes plus $10.00 in cash and (B) to holders of the Old RGC 10 1/4%
Notes to exchange for each $1,000 principal amount of Old RGC 10 1/4% Notes
exchanged, $1,000 principal amount of New Senior Subordinated Notes plus $10.00
in cash, in each case plus accrued and unpaid interest to the date of exchange.
The offers by Food 4 Less to exchange Old RGC 9% Notes and Old RGC 10 1/4%
Notes are referred to herein as the "9% Exchange Offer" and the "10 1/4%
Exchange Offer," respectively, and are referred to herein individually as the
applicable "Exchange Offer," as the case may be, and collectively as the
"Exchange Offers." Each Exchange Offer constitutes a separate exchange offer by
Food 4 Less. Food 4 Less reserves the right to extend, delay, accept, amend or
terminate either Exchange Offer and any extension, delay, acceptance, amendment,
termination or expiration of an Exchange Offer shall apply only to such Exchange
Offer to which such extension, delay, acceptance, amendment, termination or
expiration relates. Satisfaction of the conditions to the Exchange Offers shall
be determined separately with respect to each Exchange Offer. Consummation of
each of the Exchange Offers is subject to consummation of the other Exchange
Offer. All references herein to the Exchange Offers shall be deemed to include
the Solicitation.
Noteholders who wish to tender their Old RGC Notes pursuant to the
applicable Exchange Offer and consent to the Proposed Amendments must complete
the Letter of Transmittal and the table therein entitled "Description of Old RGC
Notes." Nominees or other record holders of Old RGC Notes that hold Old RGC
Notes for more than one beneficial owner are entitled to make multiple elections
pursuant to the Letter of Transmittal that reflect the election of each of the
beneficial owners for whom they are exchanging Old RGC Notes. In order to make
such multiple elections, nominees or other record holders should properly
complete the table under the box entitled "Election on Behalf of Multiple
Beneficial Owners." See "-- Procedures for Tendering and Consenting."
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Holders of Old RGC Notes who desire to tender Old RGC Notes in an Exchange
Offer will be required to consent to the Proposed Amendments. See "-- The
Consent Solicitation," "-- Conditions," "The Proposed Amendments" and
"Comparison of Old RGC Notes and New Notes" set forth in Appendix A hereto. THE
TENDER OF OLD RGC NOTES BY THE HOLDER THEREOF PURSUANT TO THE APPLICABLE
EXCHANGE OFFER WILL CONSTITUTE THE CONSENT OF SUCH TENDERING HOLDER TO THE
PROPOSED AMENDMENTS WITH RESPECT TO SUCH OLD RGC NOTES.
Old RGC Notes may be tendered and will be accepted for exchange only in
denominations of $1,000 principal amount and integral multiples thereof. Holders
must tender all of their Old RGC 9% Notes or Old RGC 10 1/4% Notes, as the case
may be, if any are tendered pursuant to the applicable Exchange Offer. Food 4
Less shall be deemed to have accepted validly tendered Old RGC Notes in the
Exchange Offers and validly delivered Consents in the Solicitation when, as and
if Food 4 Less has given oral or written notice thereof to the Exchange Agent.
The Exchange Agent will act as agent for the tendering holders of Old RGC Notes
for the purposes of receiving the New Notes and the Exchange Payment from the
Company. In the event Food 4 Less increases the consideration offered for the
Old RGC Notes in the Exchange Offers, such increased consideration will be paid
with regard to all Old RGC Notes accepted in the Exchange Offers, including
those accepted before the announcement of such increase. The New Notes will be
delivered (and payments in cash of accrued and unpaid interest thereon and the
Exchange Payment will be made) in exchange for Old RGC Notes accepted in the
Exchange Offers promptly after acceptance on the applicable Expiration Date.
As of January 1, 1995, (i) $150 million aggregate principal amount of the
Old RGC 9% Notes was outstanding and (ii) $300 million aggregate principal
amount of the Old RGC 10 1/4% Notes was outstanding.
Concurrently with the Exchange Offers and the Solicitation, Food 4 Less is
offering up to $400 million principal amount of New F4L Senior Notes pursuant to
the Public Offering. The Public Offering is expected to price ten Business Days
preceding the Expiration Date. CONSUMMATION OF EACH EXCHANGE OFFER IS
CONDITIONED ON, AMONG OTHER THINGS, THE CONSUMMATION OF THE PUBLIC OFFERING.
There can be no assurance that such condition or the other conditions to the
Exchange Offers will be satisfied. See "--Conditions." As a result of the
Merger, the New Notes will become the obligations of the Company.
Although it has no obligation to do so, the Company reserves the right in
the future to seek to acquire Old RGC Notes not tendered in the Exchange Offers
or the Change of Control Offer by means of open market purchases, privately
negotiated acquisitions, subsequent exchange or tender offers, redemptions or
otherwise, at prices or on terms which may be higher or lower or more or less
favorable than those in the Exchange Offers or the Change of Control Offer. The
terms of any such purchases or offers could differ from the terms of the
Exchange Offers or the Change of Control Offer.
Holders of Old RGC Notes who tender in the Exchange Offers will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Consent and Letter of Transmittal, transfer taxes with respect to the
exchange of Old RGC Notes pursuant to the Exchange Offers. Food 4 Less will pay
all charges and expenses, other than certain applicable taxes, in connection
with the Exchange Offers. See "-- Fees and Expenses."
No appraisal rights are available to Old RGC Noteholders in connection with
the Exchange Offers.
THE CONSENT SOLICITATION
Concurrently with the Exchange Offers, Food 4 Less is soliciting Consents
in the Solicitation from holders of each of the Old RGC 9% Notes and the Old RGC
10 1/4% Notes with respect to the Proposed Amendments to the Old RGC Indentures.
See "Description of the Old RGC Notes and Proposed Amendments." The Exchange
Offers are subject to, among other things, the condition that the Requisite
Consents (i.e., Consents of holders representing at least a majority in
aggregate principal amount of each of the outstanding Old RGC 9% Notes and Old
RGC 10 1/4% Notes held by persons other than RGC and its affiliates) shall have
been received and not revoked on or prior to the Expiration Date. HOLDERS OF OLD
RGC NOTES WHO DESIRE TO ACCEPT THE APPLICABLE EXCHANGE OFFER MUST CON-
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SENT TO THE PROPOSED AMENDMENTS. The Proposed Amendments will only become
operative upon consummation of the Exchange Offers. The primary purpose of the
Proposed Amendments is to permit the Merger and to eliminate substantially all
of the restrictive covenants in the Old RGC Indentures.
The Proposed Amendments for each of the Old RGC 9% Notes and the Old RGC
10 1/4% Notes require the consent of holders of at least a majority in aggregate
principal amount of each of the Old RGC 9% Notes and the Old RGC 10 1/4% Notes,
in each case not owned by RGC or its affiliates. In addition, in order for any
of the Proposed Amendments to become effective, a Supplemental Indenture
amending each of the Old RGC Note Indentures must be executed by the Company and
the applicable Old Trustee. See "The Proposed Amendments" and "Comparison of Old
RGC Notes and New Notes" set forth in Appendix A hereto.
Upon receipt of the Requisite Consents from holders of Old RGC 9% Notes or
holders of Old RGC 10 1/4% Notes, Food 4 Less will certify in writing to the Old
RGC 9% Note Trustee or the Old RGC 10 1/4% Note Trustee (together, the "Old
Trustees"), as the case may be, that the Requisite Consents to the adoption of
the Proposed Amendments have been received with respect to such issue of Old RGC
Notes. Upon receipt of such certification, all Consents to the Proposed
Amendments theretofore received with respect to such issue of Old RGC Notes will
be irrevocable. Except as set forth under "-- Guaranteed Delivery Procedure,"
Consents from tendering holders of Old RGC Notes will not be counted towards
determining whether Food 4 Less has received the Requisite Consents unless Food
4 Less is prepared to accept the tender of Old RGC Notes to which such Consents
relate. In addition, Consents with respect to any Old RGC Notes will not be
counted if the tender of such holders' Old RGC Notes is defective, unless Food 4
Less waives such defect. After receipt by the Old RGC 9% Note Trustee or the Old
RGC 10 1/4% Note Trustee of, among other things, certification by Food 4 Less
that the Requisite Consents with respect to the Old RGC 9% Notes or the Old RGC
10 1/4% Notes, as the case may be, have been received, Food 4 Less and the
applicable Old Trustee will execute a supplemental indenture to evidence the
adoption of the Proposed Amendments relating to the applicable indenture under
which such Old RGC Notes were issued (each a "Supplemental Indenture"). Upon the
acceptance by Food 4 Less of the Requisite Consents from holders of Old RGC 9%
Notes or Old RGC 10 1/4% Notes and the execution of the applicable Supplemental
Indenture, such Supplemental Indenture will immediately become effective.
Although the Proposed Amendments relating to an issue of Old RGC Notes will
become effective upon certification that the Requisite Consents from holders of
the applicable Old RGC Notes have been received, such Proposed Amendments will
not be operative until Food 4 Less has accepted for purchase or exchange all Old
RGC Notes validly tendered and not withdrawn. The Company will not be obligated
to issue the New Notes and pay the Exchange Payment pursuant to the Exchange
Offers unless, among other things, the Requisite Consents to the adoption of the
Proposed Amendments have been received from both the Old RGC 9% Noteholders and
the Old RGC 10 1/4% Noteholders. See " -- Conditions."
If the Proposed Amendments become effective, (i) the Exchange Agent, as
soon as practicable, will transmit a copy of the applicable Supplemental
Indenture to all registered holders of Old RGC Notes which remain outstanding,
and (ii) non-tendering holders will hold their Old RGC Notes under the
applicable Old RGC Note Indenture as amended by the Proposed Amendments, whether
or not that holder consented to the Proposed Amendments. Consents given by
holders of Old RGC Notes tendered but rejected by Food 4 Less pursuant to an
Exchange Offer will not be counted for the purpose of determining whether the
Requisite Consents have been obtained.
Only a registered holder of Old RGC Notes (the "Registered Holder") can
effectively deliver a Consent to the Proposed Amendments. Pursuant to the terms
of the Old RGC Indentures, subsequent transfers of Old RGC Notes on the
applicable security register for such Old RGC Notes will not have the effect of
revoking any Consent theretofore given by the Registered Holder of such Old RGC
Notes, and such Consents will remain valid unless revoked by the transferee
holder in accordance with the procedures described under the heading
"-- Withdrawal of Tenders and Revocation of Consents."
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EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
Each Exchange Offer and the Solicitation will expire at 12:00 Midnight, New
York City time, on February 22, 1995 (the "Expiration Date"), unless extended by
Food 4 Less. Food 4 Less reserves the right to extend either Exchange Offer or
the Solicitation, at its discretion, in which event the term "Expiration Date"
shall mean the latest time and date at which such Exchange Offer or the
Solicitation, as the case may be, as so extended by Food 4 Less, shall expire.
Food 4 Less expects to extend the Expiration Date to a date that is ten Business
Days following the pricing of the Public Offering. Food 4 Less shall notify the
Exchange Agent of any extension by oral or written notice and shall make a
public announcement thereof, each prior to 9:00 a.m., New York City time, on the
next Business Day after the previously scheduled Expiration Date. Such
announcement may state that Food 4 Less is extending such Exchange Offer or the
Solicitation, as the case may be, for a specified period or on a daily basis.
Food 4 Less also expressly reserves the right, at any time or from time to
time, to extend the period of time during which an Exchange Offer or the
Solicitation, as the case may be, is open. There can be no assurance that Food 4
Less will exercise its right to extend either Exchange Offer or the
Solicitation. During any extension of an Exchange Offer, all Old RGC Notes
previously tendered pursuant thereto and not withdrawn will remain subject to
such Exchange Offer and may be accepted for exchange by Food 4 Less at the
expiration of such Exchange Offer, subject to the right, if any, of a tendering
holder to withdraw its Old RGC Notes. See "-- Withdrawal of Tenders and
Revocation of Consents."
Each of the Company and Food 4 Less, as the case may be, also expressly
reserves the right, subject to applicable law and the terms of the Exchange
Offers and to the extent not inconsistent with the terms of the Merger, the
Other Debt Financing Transactions, the Bank Financing or the New Equity
Investment, (i) to delay the acceptance for exchange and payment of any Old RGC
Notes or, regardless of whether such Old RGC Notes were theretofore accepted for
exchange and payment, to delay the exchange of and payment for any Old RGC Notes
pursuant to an Exchange Offer and to terminate such Exchange Offer and not
accept for exchange and payment any Old RGC Notes not theretofore accepted for
exchange and paid for, upon the failure of any of the conditions to such
Exchange Offer specified herein to be satisfied, by giving oral or written
notice of such delay or termination to the Exchange Agent and (ii) at any time,
or from time to time, to amend either of the Exchange Offers in any respect.
Except as otherwise provided herein, withdrawal rights with respect to Old RGC
Notes tendered pursuant to an Exchange Offer will not be extended or reinstated
as a result of an extension or amendment of such Exchange Offer. See
"-- Withdrawal of Tenders and Revocation of Consents." The reservation by Food 4
Less of the right to delay acceptance for exchange and payment of Old RGC Notes
is subject to the provisions of Rule 14e-1(c) under the Exchange Act, which
requires that Food 4 Less (or the Company as successor by Merger) pay the
consideration offered or return the Old RGC Notes deposited by or on behalf of
holders thereof promptly after the termination or withdrawal of an Exchange
Offer.
Any extension, delay, termination or amendment of either Exchange Offer
will be followed as promptly as practicable by a public announcement thereof.
Without limiting the manner in which Food 4 Less may choose to make a public
announcement of any extension, delay, termination or amendment of an Exchange
Offer, Food 4 Less shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by issuing a release to the
Dow Jones News Service, except in the case of an announcement of an extension of
an Exchange Offer, in which case Food 4 Less shall have no obligation to
publish, advertise or otherwise communicate such announcement other than by
issuing a notice of such extension by press release or other public
announcement, which notice shall be issued no later than 9:00 a.m., New York
City time, on the next Business Day after the previously scheduled Expiration
Date.
If Food 4 Less shall decide to decrease the amount of Old RGC Notes being
sought in either Exchange Offer, or to increase or decrease the consideration
offered to holders of Old RGC Notes, and if, at the time that notice of such
increase or decrease is first published, sent or given to holders of Old RGC
Notes in the manner specified above, such Exchange Offer is scheduled to expire
at any time earlier than the expiration of a period ending on the tenth Business
Day, from and including the date that such notice is first so published, sent or
given, then such Exchange Offer will be extended for such purposes until the
expiration of such period
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of ten Business Days. As used in this Prospectus and Solicitation Statement,
"Business Day" has the meaning set forth in Rule 14d-1 (and applicable to
Regulation 14E) under the Exchange Act.
If Food 4 Less makes a material change in the terms of either of the
Exchange Offers or the information concerning either of the Exchange Offers, or
waives any condition to either of the Exchange Offers that results in a material
change to the circumstances of such Exchange Offer, then Food 4 Less will
disseminate additional exchange offer materials to the extent required under the
Exchange Act and will extend such Exchange Offer to the extent required in order
to permit holders of Old RGC Notes adequate time to consider such materials. The
minimum period during which a tender offer must remain open following material
changes in the terms of the offer or information concerning the offer, other
than a change in price or percentage of securities sought, will depend upon the
specific facts and circumstances, including the relative materiality of the
terms or information.
CONDITIONS
Food 4 Less will not be required to accept any Old RGC Notes for exchange,
and may terminate or amend the 9% Exchange Offer or the 10 1/4% Exchange Offer
as provided herein, before the acceptance of any Old RGC Notes, if either of the
Exchange Offers have not been consummated. In addition, notwithstanding any
other provision of the Exchange Offers or the Solicitation, Food 4 Less shall
not be required to accept any Old RGC Notes for exchange or accept any Consents,
and may terminate, extend or amend either Exchange Offer or the Solicitation and
may postpone, subject to Rule 14e-1 under the Exchange Act, the acceptance of
Old RGC Notes so tendered and Consents so delivered, whether or not any other
Old RGC Notes or Consents have theretofore been accepted for exchange pursuant
to the applicable Exchange Offer, if, on or prior to the Expiration Date, any of
the following conditions exist:
(i) the Minimum Tender shall not have been validly tendered for
exchange (or shall have been withdrawn);
(ii) the Requisite Consents shall not have been validly delivered (or
shall have been revoked);
(iii) all conditions precedent to the Merger shall not have been
satisfied or waived, in Food 4 Less' sole discretion;
(iv) any of the Other Debt Financing Transactions (including the
Public Offering) shall not have been consummated;
(v) either the Bank Financing or the New Equity Investment shall not
have been consummated;
(vi) either of the Supplemental Indentures containing the Proposed
Amendments shall not have been executed;
(vii) there shall have been any action taken or threatened, or any
statute, rule, regulation, judgment, order, stay, decree or injunction
proposed, sought, promulgated, enacted, entered, enforced or deemed
applicable to either Exchange Offer by or before any local, state, federal
or foreign government or governmental regulatory or administrative agency
or authority or by any court or tribunal, domestic or foreign, which (a)
challenges or seeks to restrain or prohibit the making or consummation of
either Exchange Offer or the exchange of Old RGC Notes pursuant to the
Exchange Offers, (b) in the sole judgment of Food 4 Less, might directly or
indirectly prohibit, prevent, restrict or delay consummation of either
Exchange Offer or otherwise relates in any manner to either Exchange Offer,
(c) seeks to make illegal the acceptance of Old RGC Notes for purchase or
exchange pursuant to either Exchange Offer, (d) makes the Solicitation
illegal, (e) might, in the sole judgment of Food 4 Less, adversely affect
the financing of either Exchange Offer, the Merger, the Other Debt
Financing Transactions, the New Credit Facility or the New Equity
Investment or the transactions contemplated thereby, or (f) in the sole
judgment of Food 4 Less, could materially adversely affect the business,
condition (financial or otherwise), income, operations, properties, assets,
liabilities or prospects of Food 4 Less (or the Company, after giving
effect to the Merger) and its subsidiaries, taken as a whole, or materially
impair the contemplated benefits of the Exchange Offers and the
Solicitation to Food 4 Less (or the Company, after giving effect to the
Merger);
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(viii) there shall have occurred or be likely to occur any event
affecting the business or financial affairs of Food 4 Less (or the Company,
after giving effect to the Merger) that, in the sole judgment of Food 4
Less, (a) would or might prohibit, prevent, restrict or delay consummation
of either Exchange Offer, (b) will, or is reasonably likely to, materially
impair the contemplated benefits to Food 4 Less (or the Company, after
giving effect to the Merger) of the Exchange Offers and the Solicitation or
otherwise result in the consummation of either Exchange Offer not being in
the best interests of Food 4 Less or (c) might be material to holders of
Old RGC Notes in deciding whether to accept either Exchange Offer or the
Solicitation;
(ix) there shall have occurred: (a) any general suspension of trading
in, or limitation on prices for, securities on the New York Stock Exchange
or in the over-the-counter market (whether or not mandatory); (b) any
significant adverse change in the price of either of the Old RGC 9% Notes
or the Old RGC 10 1/4% Notes; (c) a material impairment in the trading
market for debt securities generally; (d) a declaration of a banking
moratorium or any suspension of payments in respect of banks by federal or
state authorities in the United States (whether or not mandatory); (e) a
declaration of a national emergency or commencement of a war, armed
hostilities or other national or international crisis directly or
indirectly involving the United States; (f) any limitation (whether or not
mandatory) by any governmental or regulatory authority on, or any other
event that in the sole judgment of Food 4 Less might affect, the nature or
extension of credit by banks or other financial institutions; (g) any
significant change in United States currency exchange rates or a suspension
of, or limitation on, the markets therefor (whether or not mandatory); (h)
any significant adverse change in United States securities or financial
markets; or (i) in the case of any of the foregoing existing at the time of
the commencement of the Exchange Offers, in the sole judgment of Food 4
Less, a material acceleration, escalation or worsening thereof;
(x) either of the Old Trustees shall have objected in any respect to,
or taken any action that could, in the sole judgment of Food 4 Less,
adversely affect the consummation of either Exchange Offer or the
Solicitation or Food 4 Less's ability to obtain the Consents or to effect
any of the Proposed Amendments, or shall have taken any action that
challenges the validity or effectiveness of the procedures used by Food 4
Less in soliciting the Consents (including the form thereof) or in the
making of either Exchange Offer or the acceptance of or exchange for any of
the Old RGC Notes; or
(xi) the Registration Statement has not been declared effective or a
stop order has been issued in connection therewith.
The foregoing conditions are for the sole benefit of Food 4 Less and may be
asserted by Food 4 Less in its sole discretion regardless of the circumstances
giving rise to any such condition (including any action or inaction by Food 4
Less) and may be waived by Food 4 Less, in whole or in part, at any time and
from time to time in its sole discretion. If any of the foregoing events shall
have occurred, Food 4 Less may, subject to applicable law, (i) terminate the
applicable Exchange Offer or the Solicitation and return all Old RGC Notes
tendered pursuant to such Exchange Offer or the Solicitation to the tendering
holders, (ii) extend the applicable Exchange Offer or the Solicitation and
retain all tendered Old RGC Notes until the extended Expiration Date, (iii)
amend the terms of the applicable Exchange Offer or the Solicitation or modify
the consideration to be paid by Food 4 Less (or the Company as successor by
merger) pursuant to such Exchange Offer or the Solicitation or (iv) waive the
unsatisfied condition or conditions with respect to such Exchange Offer or the
Solicitation and accept all validly tendered Old RGC Notes. See "-- Expiration
Date; Extensions; Termination; Amendments" and "-- Procedures for Tendering and
Consenting." The failure by Food 4 Less at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right and each such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time. Any determination by Food 4 Less concerning the events
described in this section shall be final and binding upon all persons.
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PROCEDURES FOR TENDERING AND CONSENTING
The tender by a holder of Old RGC Notes pursuant to one of the procedures
set forth below will constitute an agreement between such holder and Food 4 Less
in accordance with the terms and subject to the conditions set forth herein and
in the Letter of Transmittal.
Old RGC Notes may be tendered and will be accepted for exchange only in
denominations of $1,000 principal amount and integral multiples thereof. To be
tendered effectively pursuant to the Exchange Offers, (i) the properly completed
Letter of Transmittal, including a valid and unrevoked Consent (or facsimile(s)
thereof), duly executed by the registered holder thereof with any required
signature guarantee(s), together with the certificates for tendered Old RGC
Notes in proper form for transfer, or any book-entry transfer into the Exchange
Agent's account at DTC, MSTC or PDTC (each as defined) of Old RGC Notes tendered
electronically, and any other documents required by the Letter of Transmittal,
must be received by the Exchange Agent at one of its addresses set forth below
prior to 12:00 Midnight, New York City time, on the Expiration Date, or (ii) the
tendering holder must comply with the guaranteed delivery procedures set forth
under the heading "--Guaranteed Delivery Procedure."
THE WHITE CONSENT AND LETTER OF TRANSMITTAL SHALL BE USED TO TENDER ALL OLD
RGC NOTES.
LETTERS OF TRANSMITTAL AND OLD RGC NOTES SHOULD BE SENT TO THE EXCHANGE
AGENT AND NOT TO FOOD 4 LESS, RGC OR THE DEALER MANAGERS NOR TO THE APPLICABLE
TRUSTEE UNDER THE INDENTURE RELATING TO THE OLD RGC 9% NOTES OR THE OLD RGC
10 1/4% NOTES.
A HOLDER OF OLD RGC NOTES WHO DESIRES TO TENDER INTO THE APPLICABLE
EXCHANGE OFFER WITH RESPECT TO ANY OLD RGC 9% NOTES OR OLD RGC 10 1/4% NOTES
MUST TENDER ALL OF SUCH HOLDERS' OLD RGC 9% NOTES OR OLD RGC 10 1/4% NOTES, AS
THE CASE MAY BE.
Holders of Old RGC Notes will not be able to validly tender in the Exchange
Offers unless they consent to the Proposed Amendments. Tendering holders who
sign the Letter of Transmittal shall be deemed to have consented to the Proposed
Amendments.
All signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old RGC Notes tendered or withdrawn, as the case may be, pursuant
thereto are tendered (i) by a registered holder of Old RGC Notes (which term,
for purposes of the Letter of Transmittal, shall include any participant in DTC,
MSTC or PDTC whose name appears on a security position listing as the owner of
Old RGC Notes) who has not completed the box entitled "Special Issuance and
Payment Instructions" or "Special Delivery Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution. If Old RGC Notes
are registered in the name of a person other than the signer of a Letter of
Transmittal or a notice of withdrawal, as the case may be, or if payment is to
be made or certificates for unexchanged Old RGC Notes are to be issued or
returned to a person other than the registered holder, then the Old RGC Notes
must be endorsed by the registered holder, or be accompanied by a written
instrument or instruments of transfer or exchange in form satisfactory to Food 4
Less duly executed by the registered holder, with such signatures guaranteed by
an Eligible Institution. In the event that signatures on a Letter of Transmittal
(or other document) are required to be guaranteed, such guarantee must be by a
firm that is a member of a registered national securities exchange or a member
of the National Association of Securities Dealers, Inc. (the "NASD") or by a
commercial bank or trust company having an office in the United States (each of
the foregoing being an "Eligible Institution").
THE METHOD OF DELIVERY OF OLD RGC NOTES AND OTHER DOCUMENTS TO THE EXCHANGE
AGENT IS AT THE ELECTION AND RISK OF THE HOLDER, AND EXCEPT AS OTHERWISE
PROVIDED PURSUANT TO "-- GUARANTEED DELIVERY," DELIVERY WILL BE DEEMED MADE WHEN
ACTUALLY RECEIVED BY THE EXCHANGE AGENT. Instead of effecting delivery by mail
it is recommended that tendering Old RGC Noteholders use an overnight or hand
delivery service. If such delivery is by mail, it is recommended that holders
use registered mail, properly
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insured, with return receipt requested. In all cases, sufficient time should be
allowed to ensure delivery to the Exchange Agent prior to 12:00 Midnight, New
York City time, on the Expiration Date.
Tendering holders should indicate in the applicable box in the Letter of
Transmittal the name and address to which payments (including accrued and unpaid
interest in cash on the Old RGC Notes and the Exchange Payment), certificates
evidencing New Notes and/or certificates evidencing Old RGC Notes for amounts
not accepted for tender (each, as appropriate) are to be issued or sent, if
different from the name and address of the person signing the Letter of
Transmittal. In the case of issuance or payment in a different name, the
employer identification or social security number of the person named must also
be indicated and a substitute Form W-9 for such recipient must be completed. If
no such instructions are given, such payments (including accrued and unpaid
interest in cash on the Old RGC Notes and the Exchange Payment), New Notes or
Old RGC Notes not accepted for tender, as the case may be, will be made or
returned, as the case may be, to the registered holder of Old RGC Notes
tendered. Holders of Old RGC Notes who are not registered holders of, and who
seek to tender, Old RGC Notes should (i) obtain a properly completed Letter of
Transmittal for such Old RGC Notes from the registered holder with signatures
guaranteed by an Eligible Institution and obtain and include with such Letter of
Transmittal Old RGC Notes properly endorsed for transfer by the registered
holder thereof or accompanied by a written instrument or instruments of transfer
or exchange from the registered holder with signatures on the endorsement or
written instrument or instruments of transfer or exchange guaranteed by an
Eligible Institution or (ii) effect a record transfer of such Old RGC Notes and
comply with the requirements applicable to registered holders for tendering Old
RGC Notes prior to 12:00 Midnight, New York City time, on the Expiration Date.
Any Old RGC Notes properly tendered prior to 12:00 Midnight, New York City time,
on the Expiration Date accompanied by a properly completed Letter of Transmittal
for such Old RGC Notes will be transferred of record by the registrar either
prior to or as of the Expiration Date at the discretion of Food 4 Less. Food 4
Less has no obligation to transfer any Old RGC Notes from the name of the
registered holder thereof if Food 4 Less does not accept for exchange and
payment any of such Old RGC Notes.
Issuance of New Notes and the payment of the Exchange Payment in exchange
for Old RGC Notes will be made only against deposit of the tendered Old RGC
Notes.
Under the federal income tax laws, the Exchange Agent will be required to
withhold and will remit to the United States Treasury 31% of the amount of any
cash payments made to certain holders of Old RGC Notes pursuant to the Exchange
Offers and the Solicitation, and 31% of the interest payments due to certain
holders of New Notes. In order to avoid such backup withholding, each tendering
holder of Old RGC Notes electing to exchange Old RGC Notes pursuant to an
Exchange Offer, and, if applicable, each other payee, must provide the Exchange
Agent with such holder's or payee's correct taxpayer identification number and
certify that such holder or payee is not subject to such backup withholding by
completing the Substitute Form W-9 accompanying the Letter of Transmittal. In
general, if a holder or payee is an individual, the taxpayer identification
number is the Social Security number of such individual. If the Exchange Agent
is not provided with the correct taxpayer identification number, the holder or
payee may be subject to a $50 penalty imposed by the Internal Revenue Service.
Certain holders or payees (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order to satisfy the Exchange Agent that a foreign individual
qualifies as an exempt recipient, such holder or payee must submit a statement,
signed under penalties of perjury, attesting to that individual's exempt status.
Such statements can be obtained from the Exchange Agent. For further information
concerning backup withholding and instructions for completing the Substitute
Form W-9 (including how to obtain a taxpayer identification number if you do not
have one and how to complete the Substitute Form W-9 if Old RGC Notes are held
in more than one name), consult the enclosed Guidelines for Certification of
Taxpayer Identification Number on Substitute Form W-9.
Failure to complete the Substitute Form W-9 will not, by itself, cause Old
RGC Notes tendered pursuant to the Exchange Offers to be deemed invalidly
tendered, but may require the Exchange Agent to withhold 31% of the amount of
any payments made. Backup withholding is not an additional federal income tax.
Rather, the federal income tax liability of a person subject to backup
withholding will be reduced by the
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amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained provided that the required information is furnished to
the Internal Revenue Service.
All questions as to the form of all documents and the validity (including
the time of receipt), eligibility, acceptance and withdrawal of tendered Old RGC
Notes will be determined by Food 4 Less, in its sole discretion, which
determination shall be final and binding. Food 4 Less expressly reserves the
absolute right to reject any and all tenders not in proper form and to determine
whether the acceptance of or payment by it for such tenders would be unlawful.
Food 4 Less also reserves the absolute right, subject to applicable law, to
waive or amend any of the conditions to either Exchange Offer or the
Solicitation or to waive any defect or irregularity in the tender of any of the
Old RGC Notes. None of Food 4 Less, the Company, the Exchange Agent, the
Information Agent or any other person will be under any duty to give
notification of any defects or irregularities in tenders or will incur any
liability for failure to give any such notification. No tender of Old RGC Notes
will be deemed to have been validly made until all defects and irregularities
with respect to such Old RGC Notes have been cured or waived. Any Old RGC Notes
received by the Exchange Agent that are not properly tendered and as to which
irregularities have not been cured or waived will be returned by the Exchange
Agent to the appropriate tendering holder as soon as practicable. Food 4 Less'
interpretation of the terms and conditions of the Exchange Offers and the
Solicitation (including the Letter of Transmittal and the Instructions thereto)
will be final and binding on all parties.
The Exchange Agent will seek to establish accounts with respect to the Old
RGC Notes at The Depository Trust Company ("DTC"), the Midwest Securities
Transfer Company ("MSTC"), and the Philadelphia Depository Trust Company ("PDTC"
and, together with DTC and MSTC, collectively referred to herein as the
"Book-Entry Transfer Facilities") for the purpose of the Exchange Offers within
two New York Stock Exchange Inc. ("NYSE") trading days. Any financial
institution that is a participant in any of the Book-Entry Transfer Facilities'
systems may make book-entry delivery of Old RGC Notes by causing DTC, MSTC or
PDTC to transfer such Old RGC Notes into the Exchange Agent's account in
accordance with such Book-Entry Transfer Facility's procedure for such transfer.
However, although delivery of Old RGC Notes may be effected through book-entry
transfer into the Exchange Agent's account at DTC, MSTC or PDTC, the Letter of
Transmittal (or facsimile thereof), together with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to, and received or confirmed by, the Exchange Agent at one of its addresses set
forth on the back cover of this Prospectus and Solicitation Statement prior to
12:00 Midnight, New York City time, on the Expiration Date, except as otherwise
provided below under the heading "Guarantee Delivery Procedure." Old RGC Notes
will not be deemed surrendered for exchange until such documents are received by
the Exchange Agent and delivery of such documents to a Book-Entry Transfer
Facility will not constitute valid delivery to the Exchange Agent. FOOD 4 LESS
UNDERSTANDS THAT THE BOOK-ENTRY TRANSFER FACILITIES WILL MAKE ARRANGEMENTS FOR
EXECUTION OF LETTERS OF TRANSMITTAL TO ACCOMMODATE BENEFICIAL OWNERS THAT DESIRE
TO TENDER OLD RGC NOTES IN THE EXCHANGE OFFERS. HOWEVER, FOOD 4 LESS UNDERSTANDS
THAT THE BOOK-ENTRY TRANSFER FACILITIES WILL NOT ARRANGE FOR THE EXECUTION OF
LETTERS OF TRANSMITTAL WITH RESPECT TO THE SOLICITATION, UNLESS THE OLD RGC
NOTES ARE ALSO TENDERED IN THE EXCHANGE OFFERS. HOLDERS MAY CONTACT THE EXCHANGE
AGENT AT ANY OF THE ADDRESSES SET FORTH ON THE BACK COVER PAGE HEREOF FOR
INFORMATION REGARDING WITHDRAWAL OF OLD RGC NOTES FROM A BOOK-ENTRY TRANSFER
FACILITY.
GUARANTEED DELIVERY PROCEDURE
If a registered holder of Old RGC Notes desires to tender such Old RGC
Notes and consent to the Proposed Amendments, and the Old RGC Notes are not
immediately available, or if time will not permit such holder's Old RGC Notes or
any other required documents to be delivered to the Exchange Agent prior to
12:00 Midnight, New York City time, on the Expiration Date, then such Old RGC
Notes may nevertheless be tendered for exchange and Consents may be effected if
all of the following guaranteed delivery procedure conditions are met:
(i) the tender for exchange and Consent is made by or through an
Eligible Institution;
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(ii) prior to 12:00 Midnight, New York City time, on the Expiration
Date, the Exchange Agent receives from such Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery (by telegram,
telex, facsimile transmission, mail or hand delivery) substantially in the
form provided by Food 4 Less, that contains a signature guaranteed by an
Eligible Institution in the form set forth in such Notice of Guaranteed
Delivery, unless such tender is for the account of an Eligible Institution
(in which case no signature guarantee shall be required), and sets forth
the name and address of the holder of Old RGC Notes and the principal
amount of Old RGC Notes tendered for exchange, states that the tender is
being made thereby and guarantees that, within five NYSE trading days after
the date of execution of the Notice of Guaranteed Delivery, the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed,
together with the Old RGC Notes and any required signature guarantees and
any other documents required by such Letter of Transmittal, will be
deposited by the Eligible Institution with the Exchange Agent; and
(iii) all tendered Old RGC Notes, or a confirmation of a book-entry
transfer of such Old RGC Notes into the Exchange Agent's applicable account
at a Book-Entry Transfer Facility as described above, as well as the Letter
of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees, and all other documents
required by such Letter of Transmittal, shall be received by the Exchange
Agent within five NYSE trading days after the date of execution of the
Notice of Guaranteed Delivery.
THE ORANGE NOTICE OF GUARANTEED DELIVERY SHALL BE USED IN CONNECTION WITH
TENDERS OF ALL OLD RGC NOTES.
Notwithstanding any other provision hereof, the exchange for Old RGC Notes
pursuant to an Exchange Offer will in all cases be made only after timely
receipt by the Exchange Agent of certificates for such Old RGC Notes and the
Letter of Transmittal (or facsimile thereof) in respect thereof, properly
completed and duly executed, together with any required signature guarantees and
any other documents required by such Letter of Transmittal.
ACCEPTANCE OF OLD RGC NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES AND
PAYMENT OF THE EXCHANGE PAYMENT
Upon the terms and subject to the conditions of the Exchange Offers and the
Solicitation, Food 4 Less will accept all Old RGC Notes validly tendered prior
to 12:00 Midnight, New York City time, on the Expiration Date and not properly
withdrawn. The acceptance for exchange of Old RGC Notes validly tendered and not
validly withdrawn and the delivery of New Notes and the payment of the Exchange
Payment (and any accrued and unpaid interest on the Old RGC Notes) will be made
as promptly as practicable after the Expiration Date. Subject to rules
promulgated pursuant to the Exchange Act, Food 4 Less, expressly reserves the
right to delay acceptance of any of the Old RGC Notes or to terminate either of
the Exchange Offers or the Solicitation and not accept for exchange and payment
any Old RGC Notes not theretofore accepted if any of the conditions set forth
under the heading "-- Conditions" shall not have been satisfied or waived by
Food 4 Less. The Company will deliver New Notes and make payments in cash
(including accrued and unpaid interest on the Old RGC Notes and the Exchange
Payment) in exchange for Old RGC Notes pursuant to the Exchange Offers promptly
following acceptance of the Old RGC Notes. In all cases, exchange for Old RGC
Notes accepted for exchange pursuant to the applicable Exchange Offer will be
made only after timely receipt by the Exchange Agent of Old RGC Notes (or
confirmation of book-entry transfer thereof) and a properly completed and
validly executed Letter of Transmittal (or a manually signed facsimile thereof)
and any other documents required thereby.
New Notes will be issued in denominations of $1,000 principal amount and
integral multiples thereof.
For purposes of the Exchange Offers and the Solicitation, Food 4 Less shall
be deemed to have accepted validly tendered and not properly withdrawn Old RGC
Notes when, as and if Food 4 Less gives oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Old RGC Notes for the purposes of receiving cash and New Notes from the
Company and transmitting the cash
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and New Notes to the tendering holders. Under no circumstances will any
additional amount be paid by Food 4 Less, the Company, or the Exchange Agent by
reason of any delay in making such payment or delivery.
All questions as to the validity, form, eligibility (including the time of
receipt), acceptance and withdrawal of tendered Old RGC Notes will be resolved
by Food 4 Less, whose determination will be final and binding. Food 4 Less
reserves the absolute right to reject any or all tenders that are not in proper
form or the acceptance of which would, in the opinion of counsel for Food 4
Less, be unlawful. Food 4 Less also reserves the right to waive any
irregularities or conditions of tender as to particular Old RGC Notes. Food 4
Less' interpretation of the terms and conditions of the Exchange Offers and the
Solicitation (including the instructions in the Letter of Transmittal) will be
final and binding. Unless waived, any irregularities or defects in connection
with tenders of Old RGC Notes must be cured within such time as Food 4 Less
determines. Neither Food 4 Less, the Company nor the Exchange Agent shall be
under any duty to give notification of irregularities or defects in such tenders
or shall incur any liability for failure to give such notification. Tenders of
Old RGC Notes will not be deemed to have been made until such irregularities
have been cured or waived.
If, for any reason whatsoever, acceptance for exchange of any Old RGC Notes
tendered pursuant to the Exchange Offers is delayed, or Food 4 Less is unable to
accept or exchange Old RGC Notes tendered pursuant to the Exchange Offers, then,
without prejudice to Food 4 Less' and the Company's rights set forth herein, the
Exchange Agent may nevertheless, on behalf of Food 4 Less and subject to rules
promulgated pursuant to the Exchange Act, retain tendered Old RGC Notes, and
such Old RGC Notes may not be withdrawn except to the extent that the tendering
holder of such Old RGC Notes is entitled to withdrawal rights as described
herein. See "-- Withdrawal of Tenders and Revocation of Consents."
If any tendered Old RGC Notes are not accepted for exchange because of an
invalid tender, the occurrence or non-occurrence of certain other events set
forth herein or otherwise, then such unaccepted Old RGC Notes will be returned,
at Food 4 Less' expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date or the termination of the applicable
Exchange Offer therefor.
No alternative, conditional or contingent tenders will be accepted. A
tendering holder, by execution of a Letter of Transmittal, or facsimile thereof,
waives all rights to receive notice of acceptance of such holder's Old RGC Notes
for purchase or exchange.
WITHDRAWAL OF TENDERS AND REVOCATION OF CONSENTS
Tenders of Old RGC Notes pursuant to an Exchange Offer may be withdrawn and
Consents may be revoked at any time until the "Consent Date" which shall be the
later of (a) such time as the Requisite Consents (Consents of holders
representing at least a majority in aggregate principal amount of the
outstanding Old RGC 9% Notes or Old RGC 10 1/4% Notes, as the case may be, held
by persons other than RGC and its affiliates) have been delivered by Food 4 Less
to the applicable Old Trustee and the Supplemental Indenture for such issue has
been executed and (b) 12:00 Midnight, New York City time, on February 22, 1995.
Thereafter, such tenders may be withdrawn and Consents may be revoked if the
Exchange Offer with respect to such issue of Old RGC Notes is terminated without
any Old RGC Notes being accepted for exchange thereunder. Tendering holders will
receive in cash accrued and unpaid interest on Old RGC Notes accepted for
exchange up to, but not including, the date of such exchange. Interest on the
New Notes will accrue from, and including, the date of such exchange, which will
be the date of issuance of the New Notes.
A different Consent Date may be established with respect to the Old RGC 9%
Notes and the Old RGC 10 1/4% Notes. The withdrawal of Old RGC Notes prior to
the time set forth above in accordance with the procedures set forth hereunder
will effect a revocation of the related Consent. Any valid revocation of
Consents will automatically render the prior tender of the Old RGC Notes to
which such Consents relate defective and Food 4 Less will have the right, which
it may waive, to reject such tender as invalid and ineffective.
Any holder of Old RGC Notes who has tendered Old RGC Notes or who succeeds
to the record ownership of Old RGC Notes in respect of which such tenders or
Consents previously have been given may
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withdraw such Old RGC Notes or revoke such Consents prior to the applicable
Consent Date by delivery of a written notice of withdrawal or revocation,
subject to the limitations described herein. To be effective, a written
telegraphic, telex or facsimile transmission (or delivered by hand or by mail)
notice of withdrawal of a tender or revocation of a Consent must (i) be timely
received by the Exchange Agent at one of its addresses set forth on the back
cover hereof or prior to the applicable time provided herein with respect to the
applicable class of Old RGC Notes, (ii) specify the name of the person having
tendered the Old RGC Notes to be withdrawn or as to which Consents are revoked,
the principal amount of such Old RGC Notes to be withdrawn and, if certificates
for Old RGC Notes have been tendered, the name of the registered holder(s) of
such Old RGC Notes as set forth in such certificates, if different from that of
the person who tendered such Old RGC Notes, (iii) identify the Old RGC Notes to
be withdrawn or to which the notice of revocation relates and (iv)(a) be signed
by the holder in the same manner as the original signature on the Letter of
Transmittal or Notice of Guaranteed Delivery (as the case may be) by which such
Old RGC Notes were tendered (including any required signature guarantees) or (b)
be accompanied by evidence satisfactory to Food 4 Less and the Exchange Agent
that the holder withdrawing such tender or revoking such Consents has succeeded
to beneficial ownership of such Old RGC Notes. If certificates representing Old
RGC Notes to be withdrawn or Consents to be revoked have been delivered or
otherwise identified to the Exchange Agent, then the name of the registered
holder and the serial numbers of the particular certificate evidencing the Old
RGC Notes to be withdrawn or Consents to be revoked and a signed notice of
withdrawal with signatures guaranteed by an Eligible Institution, except in the
case of Old RGC Notes tendered by an Eligible Institution (in which case no
signature guarantee shall be required), must also be so furnished to the
Exchange Agent as aforesaid prior to the physical release of the certificates
for the withdrawn Old RGC Notes. If Old RGC Notes have been tendered or if
Consents have been delivered pursuant to the procedures for book-entry transfer
as set forth herein, any notice of withdrawal or revocation of Consent must also
specify the name and number of the account at the appropriate Book-Entry
Transfer Facility to be credited with the withdrawn Old RGC Notes. Food 4 Less
reserves the right to contest the validity of any revocation. A purported notice
of revocation which is not received by the Exchange Agent in a timely fashion
will not be effective to revoke a Consent previously given.
Any permitted withdrawals of tenders of Old RGC Notes and revocation of
Consents may not be rescinded, and any Old RGC Notes properly withdrawn will
thereafter be deemed not validly tendered and any Consents revoked will be
deemed not validly delivered for purposes of either Exchange Offer; provided,
however, that withdrawn Old RGC Notes may be retendered and revoked Consents may
be redelivered by again following one of the appropriate procedures described
herein at any time prior to 12:00 Midnight, New York City time, on the
Expiration Date.
If Food 4 Less extends an Exchange Offer, is delayed in its acceptance for
exchange of Old RGC Notes or is unable to exchange Old RGC Notes pursuant to
either Exchange Offer, for any reason, then, without prejudice to Food 4 Less'
rights under such Exchange Offer, the Exchange Agent may, subject to applicable
law, retain tendered Old RGC Notes on behalf of Food 4 Less, and such Old RGC
Notes may not be withdrawn (subject to Rule 14e-1 under the Exchange Act, which
requires that Food 4 Less or the Company, as the case may be, deliver the
consideration offered or return the Old RGC Notes deposited by or on behalf of
the Old RGC Noteholders promptly after the termination or withdrawal of an
Exchange Offer), except to the extent that tendering holders are entitled to
withdrawal rights as described herein.
All questions as to the validity, form and eligibility (including the time
of receipt) of notices of withdrawal or revocations of Consents will be
determined by Food 4 Less, whose determination will be final and binding on all
parties. None of Food 4 Less, the Exchange Agent, the Dealer Managers or any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or revocation of Consent or incur any
liability for failure to give any such notification.
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LOST OR MISSING CERTIFICATES
If a holder of Old RGC Notes desires to tender an Old RGC Note pursuant to
an Exchange Offer, but the Old RGC Note has been mutilated, lost, stolen or
destroyed, such holder should write to or telephone the Old Trustee under the
Old RGC Notes Indentures, at the address listed below, concerning the procedures
for obtaining replacement certificates for such Old RGC Notes, arranging for
indemnification or any other matter that requires handling by such Old Trustee:
Old Trustee: United States Trust Company of New York
114 West 47th Street
New York, New York 10036-1532
Attention: Corporate Trust Department
(212) 852-1000
DEALER MANAGERS
Subject to the terms and conditions set forth in the Dealer Manager
Agreement (the "Dealer Manager Agreement") dated January 25, 1995, among FFL,
Food 4 Less, Holdings and the Subsidiary Guarantors, (together, the "Issuers")
and BT Securities, CS First Boston and DLJ as dealer managers and solicitation
agents (the "Dealer Managers"), the Issuers have engaged BT Securities, CS First
Boston and DLJ to act as Dealer Managers in connection with the Exchange Offers,
the Solicitation, the F4L Exchange Offer and the Holdings Consent Solicitation.
The Issuers will pay the Dealer Managers, as compensation for their services as
Dealer Managers, a fee equal to (i) 1.0% of the aggregate principal amount of
Old RGC Notes accepted for exchange in the Exchange Offers; (ii) 1.0% of the
aggregate principal amount of Old F4L Notes accepted for exchange in the F4L
Exchange Offers and (iii) 0.5% of the aggregate principal amount of Old F4L
Notes, Old RGC Notes and Holdings Discount Notes in respect of which a Consent
is accepted in the Solicitation, the F4L Exchange Offers and the Holdings
Consent Solicitation (other than Old RGC Notes and Old F4L Notes accepted in the
F4L Exchange Offers and the Exchange Offers). In addition, the Issuers have
agreed to reimburse each of the Dealer Managers for all of its respective
reasonable out-of-pocket expenses, including the reasonable fees and reasonable
expenses of their legal counsel, incurred in connection with the Exchange
Offers, the Solicitation, the F4L Exchange Offers and the Holdings Consent
Solicitation. The Issuers have agreed to indemnify each of the Dealer Managers
against certain liabilities in connection with the Exchange Offers,
Solicitation, the F4L Exchange Offer and the Holdings Consent Solicitation
including liabilities under the federal securities laws, and will contribute to
payments the Dealer Managers may be required to make in respect thereof.
Bankers Trust, an affiliate of BT Securities has been a co-agent and a
lender under the existing credit agreements of each of RGC and Food 4 Less and
will be administrative agent and a lender under the New Credit Facility. See
"Description of the New Credit Facility." DLJ has provided financial advisory
services to Food 4 Less in connection with the Merger and will receive customary
fees for such services. The Dealer Managers will also serve as underwriters for
the Public Offering and will receive customary fees in connection with such
services.
In addition, affiliates of the Dealer Managers are investing in the capital
stock of New Holdings pursuant to the New Equity Investment. After giving effect
to the Merger, BTIP will own in the aggregate approximately 900,000 shares of
Series A Preferred Stock and approximately 3,100,000 shares of Series B
Preferred Stock, affiliates of CS First Boston will own approximately 1,000,000
shares of Series A Preferred Stock and affiliates of DLJ will own approximately
1,000,000 shares of Series A Preferred Stock. Affiliates of BTIP additionally
own 509,812 shares of FFL Common Stock which they had previously acquired and
which will be converted to New Holdings capital stock following the FFL Merger
and the Reincorporation Merger. See "Principal Stockholders" and "Description of
Capital Stock."
Each of BT Securities, CS First Boston and DLJ has from time to time
provided investment banking and financial advisory services to one or more of
Food 4 Less, Holdings and RGC and/or their respective affiliates and may
continue to do so in the future. BT Securities, CS First Boston and DLJ have
received customary fees for such services.
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No fees or commission have been or will be paid to any broker, dealer or
other person, other than the Dealer Managers, in connection with the Exchange
Offers, the Solicitation, the F4L Exchange Offers and the Holdings Consent
Solicitation.
EXCHANGE AGENT
Bankers Trust has been appointed as Exchange Agent for the Exchange Offers
and the Solicitation. Questions and requests for assistance, and all
correspondence in connection with the Exchange Offers or the Solicitation, or
requests for additional Letters of Transmittal and any other required documents,
may be directed to the Exchange Agent at one of its addresses and telephone
numbers set forth on the back cover of this Prospectus and Solicitation
Statement.
INFORMATION AGENT
D. F. King & Co., Inc. is serving as Information Agent in connection with
the Exchange Offers and the Solicitation. The Information Agent will assist with
the mailing of this Prospectus and Solicitation Statement and related materials
to holders of Old RGC Notes, respond to inquiries of and provide information to
holders of Old RGC Notes in connection with the Exchange Offers and the
Solicitation and provide other similar advisory services as Food 4 Less may
request from time to time. Requests for additional copies of this Prospectus and
Solicitation Statement, Letters of Transmittal and any other required documents
should be directed to the Dealer Managers or to the Information Agent at one of
its addresses and telephone numbers set forth on the back cover page of this
Prospectus and Solicitation Statement.
FEES AND EXPENSES
In addition to the fees and expenses payable to the Dealer Managers, Food 4
Less will pay the Exchange Agent and the Information Agent reasonable and
customary fees for their services (and will reimburse them for their reasonable
out-of-pocket expenses in connection therewith), will pay the reasonable
expenses of holders in delivering their Old RGC Notes to the Exchange Agent and
will pay brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of this
Prospectus and Solicitation Statement and related documents to the beneficial
owners of the Old RGC Notes and in handling or forwarding tenders for exchange
and payment. In addition, Food 4 Less will indemnify the Exchange Agent and the
Information Agent against certain liabilities in connection with their services,
including liabilities under the federal securities laws.
Food 4 Less will pay all transfer taxes, if any, applicable to the exchange
of Old RGC Notes pursuant to the Exchange Offers. If, however, New Notes or Old
RGC Notes for principal amounts not accepted for tender, or both, are to be
delivered to, or are to be registered or issued in the name of, any person other
than the registered holder of the Old RGC Notes, or if tendered Old RGC Notes
are to be registered in the name of any person other than the person signing the
Letter of Transmittal, or if a transfer tax is imposed for any reason other than
the exchange of Old RGC Notes pursuant to an Exchange Offer, then the amount of
any such transfer tax (whether imposed on the registered holder or any other
person) will be payable by the tendering holder. If satisfactory evidence of
payment of such tax or exemption therefrom is not submitted, then the amount of
such transfer tax will be deducted from the Exchange Payment otherwise payable
to such tendering holder. Any remaining amount will be billed directly to such
tendering holder.
The total cash expenditures for printing, accounting and legal fees and the
fees and expenses of the Exchange Agent, the Information Agent and the trustees
under the old and new indentures to be incurred by Food 4 Less in connection
with the Exchange Offers, the F4L Exchange Offers and the Holdings Consent
Solicitation are estimated to be approximately $7 million.
MISCELLANEOUS
The Exchange Offers are not subject to Section 13(e) of, or Rules 13e-3 or
13e-4 or Regulation 14D promulgated under, the Exchange Act. The Exchange Offers
are being made in compliance with Regulation 14E under the Exchange Act.
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Other than with respect to the Exchange Agent, the Information Agent and
the Dealer Managers, neither Food 4 Less nor any of its affiliates has engaged,
or made any arrangements for, and has no contract, arrangement or understanding
with, any broker, dealer, agent or other person regarding the exchange of Old
RGC Notes hereunder, and no person has been authorized by Food 4 Less or any of
its affiliates to provide any information or to make any representations in
connection with the Exchange Offers and the Solicitation, other than those
expressly set forth in this Prospectus and Solicitation Statement, and, if so
provided or made, such other information or representations must not be relied
upon as having been authorized by Food 4 Less or any of its affiliates. The
delivery of this Prospectus and Solicitation Statement shall not, under any
circumstances, create any implication that the information set forth herein is
correct as of any time subsequent to the date hereof.
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DESCRIPTION OF THE NEW NOTES
GENERAL
The New Notes will be issued under an Indenture (the "New Note Indenture")
to be dated as of March 1, 1995, by and among the Company, the Subsidiary
Guarantors and United States Trust Company of New York, as Trustee (the "New
Note Trustee").
The following summary of certain provisions of the New Notes and the New
Note Indenture does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the Trust Indenture Act of 1939, as
amended (the "TIA"), and to all of the provisions of the New Notes and the New
Note Indenture, including the definitions of certain terms therein and those
terms made a part of the New Note Indenture by reference to the TIA. The
definitions of certain capitalized terms used in the following summary are set
forth below under "-- Certain Definitions." A copy of the form of the New Note
Indenture may be obtained from the Company.
The New Notes will be issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples thereof. Initially,
the New Note Trustee will act as Paying Agent and Registrar for the New Notes.
The New Notes may be presented for registration or transfer and exchange at the
offices of the Registrar, which initially will be the New Note Trustee's
corporate trust office. The Company may change any Paying Agent and Registrar
without notice to holders of the New Notes (the "Holders"). The Company will pay
principal (and premium, if any) on the New Notes at the New Note Trustee's
corporate office located in New York, New York. At the Company's option,
interest may be paid at the New Note Trustee's corporate trust office or by
check mailed to the registered address of the relevant Holders.
As used below in this "Description of the New Notes," the "Company" means
Ralphs Supermarkets, Inc. as survivor of the Merger (and renamed Ralphs Grocery
Company), but not any of its subsidiaries.
PRINCIPAL, MATURITY AND INTEREST
The New Notes are limited in aggregate principal amount to $450 million and
will mature on March 1, 2005. Concurrently with the Exchange Offers and the
other financing transactions described herein, Food 4 Less is offering up to
$400 million principal amount of New F4L Senior Notes in the Public Offering.
The Public Offering is expected to price five business days preceding the
Expiration Date. The New Notes offered pursuant to the Exchange Offers will bear
interest at a fixed rate per annum equal to the greater of (a) 11.50% and (b)
the Applicable Treasury Rate (as hereinafter defined) plus 425 basis points
(4.25 percentage points); provided, however, that in no event will the New Notes
bear interest at a rate per annum that is less than the interest rate on the New
F4L Senior Notes offered in the Public Offering plus 50 basis points (0.50
percentage points). The "Applicable Treasury Rate" means the yield to maturity
at the time of computation of United States Treasury securities with a constant
maturity (as compiled by, and published in, the most recent Federal Reserve
Statistical Release H.15 (519)) most nearly equal to the average life to stated
maturity of the New Notes; provided, that if the average life to stated maturity
of the New Notes is not equal to the constant maturity of the United States
Treasury security for which a weekly average yield is given, the Treasury Rate
shall be obtained by linear interpolation (calculated to the nearest one-twelfth
of the year) from the weekly average yields of the United States Treasury
securities for which such yields are given. Interest on the New Notes will be
payable semi-annually on each March 1 and September 1, commencing on September
1, 1995, to the Holders of record on the immediately preceding February 15 and
August 15, respectively. Interest on the New Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date of issuance. Interest will be computed on the basis of a 360-day
year comprised of twelve 30-day months.
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OPTIONAL REDEMPTION
The New Notes will be redeemable, at the option of the Company, in whole at
any time or in part, from time to time, on and after March 1, 2000 at the
following redemption prices (expressed as percentages of the principal amount)
if redeemed during the twelve-month period commencing on March 1 of the year set
forth below, plus, in each case, accrued and unpaid interest thereon to the date
of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
------------------------------------------ ----------
<S> <C>
2000...................................... 104.3125%
2001...................................... 102.8750%
2002...................................... 101.4375%
2003 and thereafter....................... 100.0000%
</TABLE>
In the event the interest rate on the New Notes is greater than 11.50%, the
above redemption prices will be correspondingly adjusted.
In addition, on or prior to March 1, 1998, the Company may, at its option,
use the net cash proceeds of one or more Public Equity Offerings to redeem up to
an aggregate of 35% of the principal amount of the New Notes originally issued,
at a redemption price equal to 111.5% of the principal amount thereof if
redeemed during the 12 months commencing on March 1, 1995, 110.0625% of the
principal amount thereof if redeemed during the 12 months commencing on March 1,
1996 and 108.625% of the principal amount thereof if redeemed during the 12
months commencing on March 1, 1997, in each case plus accrued and unpaid
interest, if any, to the redemption date. In order to effect the foregoing
redemption with the proceeds of a Public Equity Offering, the Company shall send
the redemption notice not later than 60 days after the consummation of such
Public Equity Offering.
The documents evidencing Senior Indebtedness will restrict the Company's
ability to optionally redeem New Notes.
NOTICES AND SELECTION
In the event of a redemption of less than all of the New Notes, such New
Notes will be selected for redemption by the New Note Trustee pro rata, by lot
or by any other method that the New Note Trustee considers fair and appropriate
and, if such New Notes are listed on any securities exchange, by a method that
complies with the requirements of such exchange; provided, however, that any
redemption pursuant to the provisions relating to a Public Equity Offering shall
be made on a pro rata basis. Notice of redemption will be mailed at least 30
days but not more than 60 days before the redemption date to each Holder of New
Notes to be redeemed at such Holder's registered address. On and after the
redemption date, interest will cease to accrue on New Notes or portions thereof
called for redemption (unless the Company shall default in the payment of the
redemption price or accrued interest). New Notes that are redeemed by the
Company or that are purchased by the Company pursuant to a Net Proceeds Offer as
described under "-- Certain Covenants -- Limitation on Asset Sales" below or
pursuant to a Change of Control Offer as described under "-- Change of Control"
below or that are otherwise acquired by the Company will be surrendered to the
New Note Trustee for cancellation.
SUBORDINATION
The payment of the principal of, premium, if any, and interest on the New
Notes will be subordinated in right of payment, as set forth in the New Note
Indenture, to the prior payment in full in cash or Cash Equivalents of all
Senior Indebtedness, whether outstanding on the Issue Date or thereafter
incurred, including, with respect to Designated Senior Indebtedness, any
interest accruing subsequent to a bankruptcy or other similar proceeding whether
or not such interest is an allowed claim enforceable against the Company in a
bankruptcy case under Title 11 of the United States Code.
Upon any distribution of assets of the Company of any kind or character,
whether in cash, property or securities upon any dissolution, winding up, total
or partial liquidation or reorganization of the Company
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(including, without limitation, in bankruptcy, insolvency, or receivership
proceedings or upon any assignment for the benefit of creditors or any other
marshalling of the Company's assets and liabilities), the holders of Senior
Indebtedness shall first be entitled to receive payment in full in cash or Cash
Equivalents of all amounts payable under Senior Indebtedness (including, with
respect to Designated Senior Indebtedness, any interest accruing after the
commencement of any such proceeding at the rate specified in the applicable
Senior Indebtedness whether or not interest is an allowed claim enforceable
against the Company in any such proceeding) before the Holders will be entitled
to receive any payment with respect to the New Notes (excluding Permitted
Subordinated Reorganization Securities), and until all Obligations with respect
to Senior Indebtedness are paid in full in cash or Cash Equivalents, any
distribution to which the Holders would be entitled (excluding Permitted
Subordinated Reorganization Securities) shall be made to the holders of Senior
Indebtedness.
No direct or indirect payment (other than payments previously made pursuant
to the provision described under "-- Defeasance" below) by or on behalf of the
Company of principal of, premium, if any, or interest on the New Notes whether
pursuant to the terms of the New Notes or upon acceleration or otherwise shall
be made if, at the time of such payment, there exists a default in the payment
of all or any portion of principal of, premium, if any, or interest on any
Designated Senior Indebtedness or any other Senior Indebtedness which, at the
time of determination, is equal to or greater than $50 million in aggregate
principal amount ("Significant Senior Indebtedness") (and the New Note Trustee
has received written notice thereof), and such default shall not have been cured
or waived by or on behalf of the holders of such Designated Senior Indebtedness
or Significant Senior Indebtedness, as the case may be, or shall have ceased to
exist, until such default shall have been cured or waived or shall have ceased
to exist or such Designated Senior Indebtedness or Significant Senior
Indebtedness, as the case may be, shall have been discharged or paid in full,
after which the Company shall resume making any and all required payments in
respect of the New Notes, including any missed payments.
In addition, during the continuance of any other event of default with
respect to any Designated Senior Indebtedness pursuant to which the maturity
thereof may be accelerated, upon the earliest to occur of (a) receipt by the New
Note Trustee of written notice from the holders of a majority of the outstanding
principal amount of the Designated Senior Indebtedness or their representative,
or (b) if such event of default results from the acceleration of the New Notes,
the date of such acceleration, no such payment (other than payments previously
made pursuant to the provisions described under "-- Defeasance" below) may be
made by the Company upon or in respect of the New Notes for a period ("Payment
Blockage Period") commencing on the earlier of the date of receipt of such
notice or the date of such acceleration and ending 179 days thereafter (unless
(x) such Payment Blockage Period shall be terminated by written notice to the
New Note Trustee from the holders of a majority of the outstanding principal
amount of such Designated Senior Indebtedness or their representative who
delivered such notice or (y) such default is cured or waived or ceases to exist
or such Designated Senior Indebtedness is discharged or paid in full), after
which the Company shall resume making any and all required payments in respect
of the New Notes, including any missed payments. Notwithstanding anything herein
to the contrary, in no event will a Payment Blockage Period extend beyond 179
days from the date on which such Payment Blockage Period was commenced. No more
than one Payment Blockage Period may be commenced with respect to the New Notes
during any period of 365 consecutive days. No event of default which existed or
was continuing on the date of the commencement of any Payment Blockage Period
with respect to the Designated Senior Indebtedness initiating such Payment
Blockage Period shall be, or be made, the basis for the commencement of a second
Payment Blockage Period by the holders of such Designated Senior Indebtedness or
their representative whether or not within a period of 365 consecutive days
unless such event of default shall have been cured or waived for a period of not
less than 90 consecutive days.
If the Company fails to make any payment on the New Notes when due or
within any applicable grace period, whether or not on account of the payment
blockage provision referred to above, such failure would constitute an Event of
Default under the New Note Indenture and would enable the Holders of New Notes
to accelerate the maturity thereof. See "-- Events of Default."
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<PAGE> 109
By reason of such subordination, in the event of the insolvency of the
Company, Holders of the New Notes may recover less, ratably, than holders of
Senior Indebtedness.
As of September 17, 1994, on a pro forma basis after giving effect to the
Merger, the aggregate principal amount of Senior Indebtedness outstanding
(excluding Company guarantees of certain Guarantor Senior Indebtedness) would
have been approximately $1,554.8 million, the aggregate principal amount of
Guarantor Senior Indebtedness of the Subsidiary Guarantors (excluding guarantees
by Subsidiary Guarantors of certain Senior Indebtedness of the Company) would
have been approximately $16.0 million, and the Company would have had $218.2
million available to be borrowed under the New Revolving Facility.
GUARANTEES
Each Subsidiary Guarantor will unconditionally guarantee, jointly and
severally, the Company's obligations under the New Notes on a senior
subordinated unsecured basis (the "Guarantees"). The Indebtedness represented by
each Guarantee (including the payment of principal of, premium, if any, and
interest on the New Notes) will be subordinated on the same basis to Guarantor
Senior Indebtedness as the New Notes are subordinated to Senior Indebtedness.
See "-- Subordination".
Upon (i) the release by the lenders under the Term Loans, related documents
and future refinancings thereof of all guarantees of a Subsidiary Guarantor and
all Liens on the property and assets of such Subsidiary Guarantor relating to
such Indebtedness, or (ii) the sale or disposition (whether by merger, stock
purchase, asset sale or otherwise) of a Subsidiary Guarantor (or substantially
all of its assets) to an entity which is not a subsidiary of the Company, which
is otherwise in compliance with the New Note Indenture, such Subsidiary
Guarantor shall be deemed released from all its obligations under its Guarantee;
provided, however, that any such termination shall occur only to the extent that
all obligations of such Subsidiary Guarantor under all of its guarantees of, and
under all of its pledges of assets or other security interests which secure,
such Indebtedness of the Company shall also terminate upon such release, sale or
transfer.
Each Subsidiary Guarantor may consolidate with or merge into or sell its
assets to the Company or another Subsidiary Guarantor without limitation. The
New Note Indenture will further provide that a Subsidiary Guarantor may
consolidate with or merge into or sell its assets to a corporation other than
the Company or another Subsidiary Guarantor (whether or not affiliated with the
Subsidiary Guarantor, but subject to the provisions described in the immediately
preceding paragraph), provided that (a) if the surviving corporation is not the
Subsidiary Guarantor, the surviving corporation agrees to assume such Subsidiary
Guarantor's obligations under its Guarantee and all its obligations under the
New Note Indenture and (b) such transaction does not (i) violate any covenants
set forth in the New Note Indenture or (ii) result in a Default or Event of
Default under the New Note Indenture immediately thereafter that is continuing.
The obligations of each Subsidiary Guarantor under its Guarantee are
limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Subsidiary Guarantor (other than
liabilities of such Subsidiary Guarantor under Subordinated Indebtedness) and
after giving effect to any collections from or payments made by or on behalf of
any other Subsidiary Guarantor in respect of the obligations of such other
Subsidiary Guarantor under its Guarantee or pursuant to its contribution
obligations under the New Note Indenture, result in the obligations of such
Subsidiary Guarantor under its Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law. Each Subsidiary
Guarantor that makes a payment or distribution under a Guarantee shall be
entitled to a contribution from each other Subsidiary Guarantor in a pro rata
amount based on the Adjusted Net Assets of each Subsidiary Guarantor.
CHANGE OF CONTROL
The New Note Indenture will provide that, upon the occurrence of a Change
of Control, each Holder will have the right to require the repurchase of such
Holder's New Notes pursuant to the offer described below (the "Change of Control
Offer"), at a purchase price equal to 101% of the principal amount thereof plus
accrued and unpaid interest to the date of repurchase.
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<PAGE> 110
The New Note Indenture will provide that within 30 days following the date
upon which the Change of Control occurred, the Company must send, by first class
mail, a notice to each Holder of New Notes, with a copy to the New Note Trustee,
which notice shall govern the terms of the Change of Control Offer. The New Note
Indenture shall require that notice of an event giving rise to a Change of
Control shall be given on the same date and in the same manner to all Holders.
Such notice shall state, among other things, the purchase date, which must be no
earlier than 30 days nor later than 40 days from the date such notice is mailed,
other than as may be required by law (the "Change of Control Payment Date").
Holders electing to have a New Note purchased pursuant to a Change of Control
Offer will be required to surrender the New Note, with the form entitled "Option
of Holder to Elect Purchase" on the reverse of the New Note completed, to the
Paying Agent at the address specified in the notice prior to the close of
business on the Business Day prior to the Change of Control Payment Date. Each
Change of Control Offer is required to remain open for at least 20 Business Days
and until 12:00 midnight New York City time on the applicable Change of Control
Payment Date.
The New Note Indenture will further provide that, notwithstanding the
foregoing, prior to the mailing of the notice of a Change of Control Offer
referred to above, within 30 days following any Change of Control the Company
shall either (a) repay in full and terminate all commitments under Indebtedness
under the Credit Agreement to the extent the terms thereof require repayment
upon a Change of Control (or offer to repay in full and terminate all
commitments under all such Indebtedness under the Credit Agreement and repay the
Indebtedness owed to each lender which has accepted such offer), or (b) obtain
the requisite consents under the Credit Agreement, the terms of which require
repayment upon a Change of Control, to permit the repurchase of the New Notes as
provided above. The Company shall first comply with the covenant in the
immediately preceding sentence before it shall be required to repurchase New
Notes pursuant to the provisions described above. The Company's failure to
comply with the covenants described in this paragraph shall constitute an Event
of Default under the New Note Indenture.
In addition, the New Note Indenture will provide that prior to purchasing
New Notes tendered in a Change of Control Offer, the Company shall purchase all
Senior F4L Notes (or permitted refinancings thereof) which it is required to
purchase by reason of such Change of Control pursuant to the provisions of the
indenture under which such Notes are issued, as in effect on the Issue Date (the
"Senior F4L Note Indenture").
The Company must comply with Rule 14e-1 under the Exchange Act and any
other applicable provisions of the federal securities laws in connection with a
Change of Control Offer.
CERTAIN COVENANTS
The New Note Indenture will contain, among other things, the following
covenants:
Limitation on Restricted Payments. The New Note Indenture will provide that
the Company shall not, and shall cause each of its Subsidiaries not to, directly
or indirectly, make any Restricted Payment if, at the time of such proposed
Restricted Payment, or after giving effect thereto, (a) a Default or an Event of
Default shall have occurred and be continuing, (b) the Company could not incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to
the covenant described under "-- Limitation on Incurrences of Additional
Indebtedness" below or (c) the aggregate amount expended for all Restricted
Payments, including such proposed Restricted Payment (the amount of any
Restricted Payment, if other than cash, to be the fair market value thereof at
the date of payment as determined in good faith by the Board of Directors of the
Company), subsequent to the Issue Date, shall exceed the sum of (i) 50% of the
aggregate Consolidated Net Income (or if such aggregate Consolidated Net Income
is a loss, minus 100% of such loss) of the Company earned subsequent to the
Issue Date and on or prior to the date of the proposed Restricted Payment (the
"Reference Date") plus (ii) 100% of the aggregate Net Proceeds received by the
Company from any person (other than a Subsidiary of the Company) from the
issuance and sale (including upon exchange or conversion for other securities of
the Company) subsequent to the Issue Date and on or prior to the Reference Date
of Qualified Capital Stock (excluding (A) Qualified Capital Stock paid as a
dividend on any Capital Stock or as interest on any Indebtedness and (B) any Net
Proceeds from issuances and sales financed directly
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or indirectly using funds borrowed from the Company or any Subsidiary, until and
to the extent such borrowing is repaid), plus (iii) 100% of the aggregate net
cash proceeds received by the Company as capital contributions to the Company
after the Issue Date, plus (iv) $25 million.
The New Note Indenture will provide that if no Default or Event of Default
shall have occurred and be continuing as a consequence thereof, the provisions
set forth in the immediately preceding paragraph will not prevent (1) the
payment of any dividend within 60 days after the date of its declaration if the
dividend would have been permitted on the date of declaration, (2) the
acquisition of any shares of Capital Stock of the Company or the repurchase,
redemption or other repayment of any Subordinated Indebtedness in exchange for
or solely out of the proceeds of the substantially concurrent sale (other than
to a Subsidiary) of shares of Qualified Capital Stock of the Company, (3) the
repurchase, redemption or other repayment of any Subordinated Indebtedness in
exchange for or solely out of the proceeds of the substantially concurrent sale
(other than to a Subsidiary) of Subordinated Indebtedness of the Company with an
Average Life equal to or greater than the then remaining Average Life of the
Subordinated Indebtedness repurchased, redeemed or repaid, and (4) Permitted
Payments; provided, however, that the declaration of each dividend paid in
accordance with clause (1) above, each acquisition, repurchase, redemption or
other repayment made in accordance with, or of the type set forth in, clause (2)
above, and each payment described in clause (iii), (iv), (v), (vi), (vii) and
(ix) of the definition of the term "Permitted Payments" shall each be counted
for purposes of computing amounts expended pursuant to subclause (c) in the
immediately preceding paragraph, and no amounts expended pursuant to clause (3)
above or pursuant to clause (i), (ii) or (viii) of the definition of the term
"Permitted Payments" shall be so counted; provided further that to the extent
any payments made pursuant to clause (vii) of the definition of the term
"Permitted Payment" are deducted for purposes of computing the Consolidated Net
Income of the Company, such payments shall not be counted for purposes of
computing amounts expended as Restricted Payments pursuant to subclause (c) in
the immediately preceding paragraph.
Limitation on Incurrences of Additional Indebtedness. The New Note
Indenture will provide that the Company shall not, and shall not permit any of
its Subsidiaries, directly or indirectly, to incur, assume, guarantee, become
liable, contingently or otherwise, with respect to, or otherwise become
responsible for the payment of (collectively "incur") any Indebtedness other
than Permitted Indebtedness; provided, however, that if no Default with respect
to payment of principal of, or interest on, the New Notes or Event of Default
shall have occurred and be continuing at the time or as a consequence of the
incurrence of any such Indebtedness, the Company or any Subsidiary Guarantor may
incur Indebtedness if immediately before and immediately after giving effect to
the incurrence of such Indebtedness the Operating Coverage Ratio of the Company
would be greater than 2.0 to 1.0; provided further a Subsidiary may incur
Acquired Indebtedness to the extent such Indebtedness could have been incurred
by the Company pursuant to the immediately preceding proviso.
Limitation on Liens. The New Note Indenture will provide that the Company
shall not and shall not permit any Subsidiary to create, incur, assume or suffer
to exist any Liens upon any of their respective assets unless the New Notes are
equally and ratably secured by the Liens covering such assets, except for (i)
Liens on assets of the Company securing Senior Indebtedness and Liens on assets
of a Subsidiary Guarantor which, at the time of incurrence, secure Guarantor
Senior Indebtedness, (ii) existing and future Liens securing Indebtedness and
other obligations of the Company and its Subsidiaries under the Credit Agreement
and related documents or any refinancing or replacement thereof in whole or in
part permitted under the New Note Indenture, (iii) Permitted Liens, (iv) Liens
securing Acquired Indebtedness; provided that such Liens (x) are not incurred in
connection with, or in contemplation of the acquisition of the property or
assets acquired and (y) do not extend to or cover any property or assets of the
Company or any Subsidiary other than the property or assets so acquired, (v)
Liens to secure Capitalized Lease Obligations and certain other Indebtedness
that is otherwise permitted under the New Note Indenture; provided that (A) any
such Lien is created solely for the purpose of securing such other Indebtedness
representing, or incurred to finance, refinance or refund, the cost (including
sales and excise taxes, installation and delivery charges and other direct costs
of, and other direct expenses paid or charged in connection with, the purchase
(whether through stock or asset purchase, merger or otherwise) or construction)
or improvement of the property subject thereto (whether real or personal,
including fixtures and other equipment), (B) the principal amount of the
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<PAGE> 112
Indebtedness secured by such Lien does not exceed 100% of such costs and (C)
such Lien does not extend to or cover any other property other than such item of
property and any improvements on such item; (vi) Liens existing on the Issue
Date (after giving effect to the Merger); (vii) Liens in favor of the New Note
Trustee under the New Note Indenture and any substantially equivalent Lien
granted to any trustee or similar institution under any indenture for
Indebtedness permitted by the terms of the New Note Indenture; and (viii) any
replacement, extension or renewal, in whole or in part, of any Lien described in
this or the foregoing clauses including in connection with any refinancing of
the Indebtedness, in whole or in part, secured by any such Lien provided that to
the extent any such clause limits the amount secured or the assets subject to
such Liens, no extension or renewal shall increase the amount or the assets
subject to such Liens, except to the extent that the Liens associated with such
additional assets are otherwise permitted hereunder.
Limitation on Asset Sales. The New Note Indenture will provide that neither
the Company nor any of its Subsidiaries shall consummate an Asset Sale unless
(a) the Company or the applicable Subsidiary receives consideration at the time
of such Asset Sale at least equal to the fair market value of the assets sold
and (b) upon consummation of an Asset Sale, the Company will within 365 days of
the receipt of the proceeds therefrom, either: (i) apply or cause its Subsidiary
to apply the Net Cash Proceeds of any Asset Sale to (1) a Related Business
Investment, (2) an investment in properties and assets that replace the
properties and assets that are the subject of such Asset Sale or (3) an
investment in properties and assets that will be used in the business of the
Company and its Subsidiaries existing on the Issue Date or in a business
reasonably related thereto; (ii) apply or cause to be applied such Net Cash
Proceeds to the permanent repayment of Pari Passu Indebtedness or Senior
Indebtedness; provided, however, that the repayment of any revolving loan (under
the Credit Agreement or otherwise) shall result in a permanent reduction in the
commitment thereunder; (iii) use such Net Cash Proceeds to secure Letter of
Credit Obligations to the extent the related letters of credit have not been
drawn upon or returned undrawn; or (iv) after such time as the accumulated Net
Cash Proceeds equals or exceeds $20 million, apply or cause to be applied such
Net Cash Proceeds to the purchase of Notes tendered to the Company for purchase
at a price equal to 100% of the principal amount thereof plus accrued interest
thereon to the date of purchase pursuant to an offer to purchase made by the
Company as set forth below (a "Net Proceeds Offer"); provided, however, that the
Company shall have the right to exclude from the foregoing provisions Asset
Sales subsequent to the Issue Date, (x) the proceeds of which are derived from
the sale and substantially concurrent lease-back of a supermarket and/or related
assets which are acquired or constructed by the Company or a Subsidiary
subsequent to the Issue Date, provided that such sale and substantially
concurrent lease-back occurs within 180 days following such acquisition or the
completion of such construction, as the case may be, and (y) the proceeds of
which in the aggregate do not exceed $20 million; provided further that pending
the utilization of any Net Cash Proceeds in the manner (and within the time
period) described above, the Company may use any such Net Cash Proceeds to repay
revolving loans (under the Credit Agreement or otherwise) without a permanent
reduction of the Commitment thereunder.
Each Net Proceeds Offer will be mailed to record Holders of New Notes as
shown on the register of Holders not less than 325 nor more than 365 days after
the relevant Asset Sale, with a copy to the New Note Trustee, shall specify the
purchase date (which shall be no earlier than 30 days nor later than 40 days
from the date such notice is mailed) and shall otherwise comply with the
procedures set forth in the New Note Indenture. Upon receiving notice of the Net
Proceeds Offer, Holders may elect to tender their New Notes in whole or in part
in integral multiples of $1,000 in exchange for cash. To the extent Holders
properly tender New Notes in an amount exceeding the Net Proceeds Offer, New
Notes of tendering Holders will be repurchased on a pro rata basis (based on
amounts tendered).
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of New Notes pursuant to a Net Proceeds Offer.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The New Note Indenture will provide that the Company shall not,
and shall not permit any Subsidiary to, directly or indirectly, create or suffer
to exist, or allow to become effective any consensual Payment Restriction with
respect to any of its Subsidiaries, except for (a) any such restrictions
contained in (i) the Credit Agreement and related documents as in effect on the
Issue Date, as any such payment restriction may apply to any present
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or future Subsidiary, (ii) the New Note Indenture and any agreement in effect at
or entered into on the Issue Date, (iii) Indebtedness of a person existing at
the time such person becomes a Subsidiary (provided that (x) such Indebtedness
is not incurred in connection with, or in contemplation of, such person becoming
a Subsidiary, (y) such restriction is not applicable to any person, or the
properties or assets of any person, other than the person so acquired and (z)
such Indebtedness is otherwise permitted to be incurred pursuant to the
provisions of the covenant described under "-- Limitation on Incurrences of
Additional Indebtedness" above), (iv) secured Indebtedness otherwise permitted
to be incurred pursuant to the provisions of the covenants described under
"-- Limitation on Incurrences of Additional Indebtedness" and "-- Limitation on
Liens" above that limit the right of the debtor to dispose of the assets
securing such Indebtedness; (b) customary non-assignment provisions restricting
subletting or assignment of any lease or other agreement entered into by a
Subsidiary; (c) customary net worth provisions contained in leases and other
agreements entered into by a Subsidiary in the ordinary course of business; (d)
customary restrictions with respect to a Subsidiary pursuant to an agreement
that has been entered into for the sale or disposition of all or substantially
all of the Capital Stock or assets of such Subsidiary; (e) customary provisions
in joint venture agreements and other similar agreements; and (f) restrictions
contained in Indebtedness incurred to refinance, refund, extend or renew
Indebtedness referred to in clause (a) above; provided that the restrictions
contained therein are not materially more restrictive taken as a whole than
those provided for in such Indebtedness being refinanced, refunded, extended or
renewed and (g) Payment Restrictions contained in any other Indebtedness
permitted to be incurred subsequent to the Issue Date pursuant to the provisions
of the covenant described under "-- Limitation on Incurrences of Additional
Indebtedness" above; provided that any such Payment Restrictions are ordinary
and customary with respect to the type of Indebtedness being incurred (under the
relevant circumstances) and, in any event, no more restrictive than the most
restrictive Payment Restrictions in effect on the Issue Date.
Guarantees of Certain Indebtedness. The New Note Indenture will provide
that the Company shall not permit any of its Subsidiaries to (a) incur,
guarantee or secure through the granting of Liens the payment of any
Indebtedness under the term portion of the Credit Agreement or refinancings
thereof or (b) pledge any intercompany notes representing obligations of any of
its Subsidiaries, to secure the payment of any Indebtedness under the term
portion of the Credit Agreement or refinancings thereof, in each case unless
such Subsidiary, the Company and the New Note Trustee execute and deliver a
supplemental indenture evidencing such Subsidiary's Guarantee.
Limitation on Transactions with Affiliates. The New Note Indenture will
provide that neither the Company nor any of its Subsidiaries shall (i) sell,
lease, transfer or otherwise dispose of any of its properties or assets or issue
securities (other than equity securities which do not constitute Disqualified
Capital Stock) to, (ii) purchase any property, assets or securities from, (iii)
make any Investment in, or (iv) enter into or suffer to exist any contract or
agreement with or for the benefit of, an Affiliate or Significant Stockholder
(or any Affiliate of such Significant Stockholder) of the Company or any
Subsidiary (an "Affiliate Transaction"), other than (x) Affiliate Transactions
permitted under the following paragraph and (y) Affiliate Transactions in the
ordinary course of business, that are fair to the Company or such Subsidiary, as
the case may be, and on terms at least as favorable as might reasonably have
been obtainable at such time from an unaffiliated party; provided that (A) with
respect to Affiliate Transactions involving aggregate payments in excess of $1
million and less than $5 million, the Company or such Subsidiary, as the case
may be, shall have delivered an Officers' Certificate to the Trustee certifying
that such transaction or series of transactions complies with clause (y) above,
(B) with respect to Affiliate Transactions involving aggregate payments in
excess of $5 million and less than $15 million, the Company or such Subsidiary,
as the case may be, shall have delivered an Officers' Certificate to the Trustee
certifying that such Affiliate Transaction complies with clause (y) above and
that such Affiliate Transaction has received the approval of a majority of the
disinterested members of the Board of Directors of the Company or the
Subsidiary, as the case may be, or, in the absence of any such approval by the
disinterested members of the Board of Directors of the Company or the
Subsidiary, as the case may be, that an Independent Financial Advisor has
reasonably and in good faith determined that the financial terms of such
Affiliate Transaction are fair to the Company or such Subsidiary, as the case
may be, or that the terms of such Affiliate Transaction are at least as
favorable as might reasonably have been obtained at such time from an
unaffiliated party and that such Independent Financial Advisor has provided
written confirmation of such
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determination to the Board of Directors and (C) with respect to Affiliate
Transactions involving aggregate payments in excess of $15 million, the Company
or such Subsidiary, as the case may be, shall have delivered to the New Note
Trustee, a written opinion from an Independent Financial Advisor to the effect
that the financial terms of such Affiliate Transaction are fair to the Company
or such Subsidiary, as the case may be, or that the terms of such Affiliate
Transaction are at least as favorable as those that might reasonably have been
obtained at the time from an unaffiliated party.
The provisions of the foregoing paragraph shall not apply to (i) any
Permitted Payment, (ii) any Restricted Payment that is made in compliance with
the provisions of the covenant described under "-- Limitation on Restricted
Payments" above, (iii) reasonable and customary fees and compensation paid to,
and indemnity provided on behalf of, officers, directors, employees or
consultants of the Company or any Subsidiary, as determined by the Board of
Directors of the Company or any Subsidiary or the senior management thereof in
good faith, (iv) transactions exclusively between or among the Company and any
of its wholly-owned Subsidiaries or exclusively between or among such
wholly-owned Subsidiaries, provided such transactions are not otherwise
prohibited by the New Note Indenture, (v) any agreement as in effect as of the
Issue Date or any amendment thereto or any transaction contemplated thereby
(including pursuant to any amendment thereto) so long as any such amendment is
not disadvantageous to the Holders of the New Notes in any material respect,
(vi) the existence of, or the performance by the Company or any of its
Subsidiaries of its obligations under the terms of, any stockholder agreement
(including any registration rights agreement or purchase agreement related
thereto) to which it (or New Holdings) is a party as of the Issue Date and any
similar agreements which it (or New Holdings) may enter into thereafter;
provided, however, that the existence of, or the performance by the Company or
any Subsidiaries of obligations under any future amendment to, any such existing
agreement or under any similar agreement entered into after the Issue Date shall
only be permitted by this clause (vi) to the extent that the terms of any such
amendment or new agreement are not otherwise disadvantageous to the Holders of
the New Notes in any material respect, (vii) transactions permitted by, and
complying with, the provisions of the covenant described under "-- Limitation on
Mergers and Certain Other Transactions" below, and (viii) purchases or sales of
goods or services or other transactions with suppliers, in each case, in the
ordinary course of business (including, without limitation, pursuant to joint
venture agreements) and otherwise in compliance with the terms of the New Note
Indenture which are fair to the Company, in the reasonable determination of the
Board of Directors, or are on terms at least as favorable as might reasonably
have been obtained at such time from an unaffiliated party.
Limitations on Preferred Stock of Subsidiaries. The New Note Indenture will
provide that the Company will not permit any of its Subsidiaries to issue any
Preferred Stock (other than to the Company or to a wholly-owned Subsidiary) or
permit any person (other than the Company or a wholly-owned Subsidiary) to own
any Preferred Stock of any Subsidiary.
Limitation on Mergers and Certain Other Transactions. The New Note
Indenture will provide that the Company, in a single transaction or through a
series of related transactions, shall not (i) consolidate with or merge with or
into any other person, or transfer (by lease, assignment, sale or otherwise) all
or substantially all of its properties and assets as an entirety or
substantially as an entirety to another person or group of affiliated persons or
(ii) adopt a Plan of Liquidation, unless, in either case, (1) either the Company
shall be the continuing person, or the person (if other than the Company) formed
by such consolidation or into which the Company is merged or to which all or
substantially all of the properties and assets of the Company as an entirety or
substantially as an entirety are transferred (or, in the case of a Plan of
Liquidation, any person to which assets are transferred) (the Company or such
other person being hereinafter referred to as the "Surviving Person") shall be a
corporation organized and validly existing under the laws of the United States,
any state thereof or the District of Columbia, and shall expressly assume, by an
indenture supplement, all the obligations of the Company under the New Note
Indenture and the New Notes; (2) immediately after and giving effect to such
transaction and the assumption contemplated by clause (1) above and the
incurrence or anticipated incurrence of any Indebtedness to be incurred in
connection therewith, (A) the Surviving Person shall have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction and (B) the Surviving Person could incur
at least $1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to the provisions of the covenant described under
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"-- Limitation on Incurrences of Additional Indebtedness" above; (3) immediately
before and immediately after and giving effect to such transaction and the
assumption of the obligations as set forth in clause (1) above and the
incurrence or anticipated incurrence of any Indebtedness to be incurred in
connection therewith, no Default or Event of Default shall have occurred and be
continuing; and (4) each Subsidiary Guarantor, unless it is the other party to
the transaction, shall have by supplemental indenture confirmed that its
Guarantee of the obligations of the Company under the New Notes and the New Note
Indenture shall apply, without alteration or amendment as such Guarantee applies
on the date it was granted under the New Note Indenture to the obligations of
the Company under the New Note Indenture and the New Notes to the obligations of
the Company or such Person, as the case may be, under the New Note Indenture and
the New Notes, after the consummation of such transaction.
Notwithstanding the foregoing, the consummation of the Merger on the Issue
Date need only comply with clauses (1) and (3) of the foregoing paragraph.
The New Note Indenture will provide that upon any consolidation or merger
or any transfer of all or substantially all of the assets of the Company or any
adoption of a Plan of Liquidation by the Company in accordance with the
foregoing, the surviving person formed by such consolidation or into which the
Company is merged or to which such transfer is made (or, in the case of a Plan
of Liquidation, to which assets are transferred) shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the New Note Indenture with the same effect as if such surviving person had been
named as the Company herein; provided, however, that solely for purposes of
computing amounts described in subclause (c) of the first paragraph of the
covenant described under "-- Limitation on Restricted Payments" above, any such
surviving person shall only be deemed to have succeeded to and be substituted
for the Company with respect to periods subsequent to the effective time of such
merger, consolidation or transfer of assets.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise) of all or substantially all of the properties and assets of one or
more direct or indirect Subsidiaries, the Capital Stock of which constitutes all
or substantially all of the properties and assets of the Company shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
Limitation on Other Senior Subordinated Indebtedness. The New Note
Indenture will provide that neither the Company nor any Subsidiary Guarantor
will, directly or indirectly, incur any Indebtedness (including Acquired
Indebtedness) that is subordinate in right of payment to any Indebtedness of the
Company or such Subsidiary Guarantor, as the case may be, unless such
Indebtedness is either (a) pari passu in right of payment with the New Notes or
the Guarantee of such Subsidiary Guarantor, as the case may be, or (b)
subordinate in right of payment to the New Notes or the Guarantee of such
Subsidiary Guarantor, as the case may be, in the same manner and at least to the
same extent as the New Notes are subordinate to Senior Indebtedness or as such
Guarantee is subordinated to Senior Guarantor Indebtedness of such Subsidiary
Guarantor, as the case may be.
EVENTS OF DEFAULT
The following events constitute "Events of Default" under the New Note
Indenture: (i) failure to make any interest payment on the New Notes when due
and the continuance of such default for a period of 30 days; (ii) failure to pay
principal of, or premium, if any, on the New Notes when due, whether at
maturity, upon acceleration, redemption, required repurchase or otherwise; (iii)
failure to comply with any other agreement contained in the New Notes or the New
Note Indenture, if such failure continues unremedied for 30 days after written
notice given by the New Note Trustee or the Holders of at least 25% in principal
amount of the New Notes then outstanding (except in the case of a default with
respect to the covenants described under "-- Certain Covenants -- Limitation on
Restricted Payments," "-- Certain Covenants -- Limitations on Asset Sales,"
"-- Change of Control," and "-- Certain Covenants -- Limitations on Mergers and
Certain Other Transactions," which shall constitute Events of Default with
notice but without passage of time); (iv) a default under any Indebtedness of
the Company or its Subsidiaries, whether such Indebtedness now exists or shall
hereinafter be created, if both (A) such default either (1) results from the
failure to pay any such Indebtedness at its stated final maturity or (2) relates
to an obligation other than the obligation to pay such
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Indebtedness at its stated final maturity and results in the holder or holders
of such Indebtedness causing such Indebtedness to become due prior to its stated
maturity and (B) the principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness in default for failure to pay
principal at stated final maturity or the maturity of which has been so
accelerated, aggregate $20 million or more at any one time outstanding; (v) any
final judgment or order for payment of money in excess of $20 million shall be
entered against the Company or any Significant Subsidiary and shall not be
discharged for a period of 60 days after such judgment becomes final and
nonappealable; (vi) either the Company or any Significant Subsidiary pursuant to
or within the meaning of any Bankruptcy Law: (a) commences a voluntary case or
proceeding; (b) consents to the entry of an order for relief against it in an
involuntary case or proceeding; (c) consents to the appointment of a Custodian
of it or for all or substantially all of its property; or (d) makes a general
assignment for the benefit of its creditors; (vii) a court of competent
jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is for
relief against the Company or any Significant Subsidiary, in an involuntary case
or proceeding; (b) appoints a Custodian of the Company or any Significant
Subsidiary, or for all or any substantial part of their respective properties;
or (c) orders the liquidation of the Company or any Significant Subsidiary, and
in each case the order or decree remains unstayed and in effect for 60 days;
(viii) the lenders under the Credit Agreement shall commence judicial
proceedings to foreclose upon any material portion of the assets of the Company
and its Subsidiaries; or (ix) any of the Guarantees shall be declared or
adjudged invalid in a final judgment or order issued by any court of
governmental authority. In the event of a declaration of acceleration because an
Event of Default set forth in clause (iv) above has occurred and is continuing,
such declaration of acceleration shall be automatically rescinded and annulled
if either (i) the holders of the Indebtedness which is the subject of such Event
of Default have waived such failure to pay at maturity or have rescinded the
acceleration in respect of such Indebtedness within 90 days of such maturity or
declaration of acceleration, as the case may be, and no other Event of Default
has occurred during such 90-day period which has not been cured or waived, or
(ii) such Indebtedness shall have been discharged or the maturity thereof shall
have been extended such that it is not then due and payable, or the underlying
default has been cured, within 90 days of such maturity or declaration of
acceleration, as the case may be.
If an Event of Default (other than an Event of Default resulting from
bankruptcy, insolvency, receivership or reorganization of the Company or a
Subsidiary Guarantor) occurs and is continuing, the New Note Trustee or the
Holders of at least 25% in principal amount of the then outstanding New Notes
may declare due and payable all unpaid principal and interest accrued and unpaid
on the then outstanding New Notes by notice in writing to the Company and the
New Note Trustee specifying the respective Event of Default and that it is a
"notice of acceleration" (the "Acceleration Notice"), and the same (i) shall
become immediately due and payable or (ii) if there are any amounts outstanding
under the Credit Agreement, shall become due and payable upon the first to occur
of an acceleration under the Credit Agreement, or five business days after
receipt by the Company and the administrative agent under the Credit Agreement
of such Acceleration Notice. If an Event of Default resulting from certain
events of bankruptcy, insolvency, receivership or reorganization of the Company
or a Subsidiary Guarantor shall occur, all unpaid principal of and accrued
interest on all then outstanding New Notes shall be immediately due and payable
without any declaration or other act on the part of the New Note Trustee or any
of the Holders. After a declaration of acceleration, subject to certain
conditions, the Holders of a majority in principal amount of the then
outstanding New Notes, by notice to the New Note Trustee, may rescind such
declaration if all existing Events of Default are remedied. In certain cases the
Holders of a majority in principal amount of outstanding New Notes may waive a
past default under the New Note Indenture and its consequences, except a default
in the payment of or interest on any of the New Notes.
The New Note Indenture provides that if a Default or Event of Default
occurs and is continuing and if it is known to the New Note Trustee, the New
Note Trustee shall mail to each Holder of New Notes notice of the Default or
Event of Default within 90 days after such Default or Event of Default occurs;
provided, however, that, except in the case of a Default or Event of Default in
the payment of the principal of or interest on any New Note, including the
failure to make payment on a Change of Control Payment Date pursuant to a Change
of Control Offer or payment when due pursuant to a Net Proceeds Offer the New
Note Trustee may withhold such notice if it in good faith determines that
withholding such notice is in the interest of the Holders.
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The New Note Indenture provides that no Holder of New Notes may pursue any
remedy thereunder unless the New Note Trustee (i) shall have failed to act for a
period of 60 days after receiving written notice of a continuing Event of
Default by such Holder and a request to act by Holders of at least 25% in
principal amount of New Notes and (ii) has received indemnification satisfactory
to it; provided, however, that such provision does not affect the right of any
Holder to sue for enforcement of any overdue payment of New Notes.
The New Note Indenture provides that two officers of the Company are
required to certify to the New Note Trustee within 120 days after the end of
each fiscal year of the Company whether or not they know of any Default that
occurred during such fiscal year and, if applicable, describe such Default and
the status thereof.
DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, elect to have the
obligations of the Company discharged with respect to the outstanding New Notes.
Such Legal Defeasance means that the Company shall be deemed to have paid and
discharged the entire Indebtedness represented by the outstanding New Notes
except for (i) the rights of Holders of outstanding New Notes to receive
payments in respect of the principal of, premium, if any, and interest on such
New Notes when such payments are due; (ii) the Company's obligations to issue
temporary New Notes, register the transfer or exchange of New Notes, replace
mutilated, destroyed, lost or stolen New Notes and maintain an office or agency
for payments in respect of the New Notes and money for security payments held in
trust in respect of the New Notes; (iii) the rights, powers, trusts, duties and
immunities of the New Note Trustee and the Company's obligations in connection
therewith; and (iv) the Legal Defeasance provisions of the New Note Indenture.
In addition, the Company may, at its option and at any time elect to have the
obligations of the Company released with respect to certain covenants described
above under "-- Certain Covenants" ("Covenant Defeasance"), and thereafter any
omission to comply with such obligations shall not constitute a Default or Event
of Default with respect to the New Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance with
respect to the New Notes, (i) the Company must have irrevocably deposited with
the New Note Trustee, in trust, for the benefit of the Holders of the New Notes,
cash in U.S. dollars, U.S. Government Obligations (as defined in the New Note
Indenture), or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on the outstanding New
Notes to redemption or maturity provided that the New Note Trustee shall have
been irrevocably instructed to apply such money or the proceeds of such U.S.
Government Obligations to said payments with respect to the New Notes on the
Maturity Date or such redemption date, as the case may be; (ii) in the case of
Legal Defeasance, the Company shall have delivered to the New Note Trustee an
opinion of counsel stating that (A) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (B) since the Issue
Date, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders of New Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the New Note Trustee an opinion of counsel stating that the Holders
of New Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred; (iv) no
Default or Event of Default shall have occurred and be continuing on the date of
such deposit or insofar as clauses (vi) and (vii) under the first paragraph
under "-- Events of Default" above are concerned, at any time in the period
ending on the 91st day after the date of deposit; (v) such Legal Defeasance or
Covenant Defeasance shall not result in a breach or violation of, or constitute
a default under, the New Note Indenture or any other material agreement or
instrument to which the Company or any Subsidiary Guarantor is a party or by
which it is bound (and in that connection, the New Note Trustee shall have
received a certificate from the Agent under the Credit Agreement to that effect
with respect to such
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Credit Agreement if then in effect); (vi) the Company shall have delivered to
the New Note Trustee an opinion of counsel to the effect that (A) the trust
funds will not be subject to any rights of holders of Senior Indebtedness or
Guarantor Senior Indebtedness, including, without limitation, those arising
under the New Note Indenture, after the 91st day following the deposit and (B)
after the 91st day following the deposit the trust funds will not be subject to
the effect of any applicable bankruptcy, insolvency, reorganization or similar
laws affecting creditors' rights generally; (vii) the Company shall have
delivered to the New Note Trustee an Officer's Certificate stating that the
deposit was not made by the Company with the intent of preferring the Holders of
the New Notes over other creditors of the Company or any Subsidiary Guarantor or
with the intent of defeating, hindering, delaying or defrauding creditors of the
Company, any Subsidiary Guarantor or others; and (viii) the Company shall have
delivered to the New Note Trustee an officers' certificate and an opinion of
counsel, each stating that all conditions precedent provided for relating to the
Legal Defeasance or Covenant Defeasance, have been complied with.
SATISFACTION AND DISCHARGE
The New Note Indenture will be discharged and will cease to be of further
effect as to all outstanding New Notes when either (a) all New Notes theretofore
authenticated and delivered (except lost, stolen or destroyed New Notes which
have been replaced or paid and New Notes for whose payment money has theretofore
been deposited in trust and thereafter repaid to the Company) have been
delivered to the New Note Trustee for cancellation; or (b)(i) all New Notes not
theretofore delivered to the New Note Trustee for cancellation have become due
and payable by reason of the making of a notice of redemption or otherwise and
the Company has irrevocably deposited or caused to be deposited with the New
Note Trustee as trust funds in trust for the purpose an amount of money
sufficient to pay and discharge the entire indebtedness on the New Notes not
theretofore delivered to the New Note Trustee for cancellation for principal,
premium, if any, and accrued interest to the date of maturity or redemption;
(ii) the Company has paid all sums payable by it under the New Note Indenture;
and (iii) the Company has delivered irrevocable instructions to the New Note
Trustee to apply the deposited money toward the payment of the New Notes at
maturity or the redemption date, as the case may be. In addition, the Company
must deliver an Officers' Certificate and an Opinion of Counsel to the New Note
Trustee stating that all conditions precedent to satisfaction and discharge have
been complied with.
MODIFICATION OF THE NEW NOTE INDENTURE
The New Note Indenture and the New Notes may be amended or supplemented
(and compliance with any provision thereof may be waived) by the Company, the
Subsidiary Guarantors, the New Note Trustee and the Holders of not less than a
majority in aggregate principal amount of New Notes then outstanding, except
that (i) without the consent of each Holder of New Notes affected, no such
amendment, supplement or waiver may (1) change the principal amount of the New
Notes the Holders of which must consent to an amendment, supplement or waiver of
any provision of the New Note Indenture, the New Notes or the Guarantees, (2)
reduce the rate or extend the time for payment of interest on any New Notes, (3)
reduce the principal amount of any New Notes, (4) change the Maturity Date of
any New Notes or the Change of Control Payment Date or alter the redemption
provisions in the New Note Indenture or the New Notes or the purchase price in
connection with any repurchase of New Notes pursuant to the covenant described
under "-- Change of Control" above in a manner adverse to any Holder, (5) make
any changes in the provisions concerning waivers of Defaults or Events of
Default by Holders or the rights of Holders to recover the principal of,
interest on or redemption payment with respect to any New Notes, (6) make the
principal of, or interest on, any New Notes payable with anything or in any
manner other than as provided for in the New Note Indenture, the New Notes and
the Guarantees, (7) waive a Default or Event of Default resulting from a failure
to comply with the covenant described under "-- Change of Control" above or (8)
modify the subordination provisions of the New Note Indenture (including the
related definitions) so as to adversely affect the ranking of any New Note or
Guarantee and (ii) without the consent of Holders of not less than two thirds in
aggregate principal amount of New Notes then outstanding, no such amendment,
supplement or waiver may release any Subsidiary Guarantor from any of its
obligations under its Guarantee or the New Note Indenture other than in
accordance with the terms of such Guarantee and the New Note Indenture.
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In addition, the New Note Indenture and the New Notes and the related
Guarantees may be amended by the Company, the Subsidiary Guarantors and the New
Note Trustee (a) to cure any ambiguity, defect or ambiguity therein; provided
that such amendment or supplement does not adversely affect the rights of any
Holder thereof or (b) to make any other change that does not adversely affect
the rights of any Holder thereunder in any material respect.
THE NEW NOTE TRUSTEE
The New Note Indenture will provide that the Holders of a majority in
principal amount of the outstanding New Notes may remove the New Note Trustee
and appoint a successor trustee with the Company's consent, by so notifying the
trustee to be so removed and the Company. In addition, the Holders of a majority
in principal amount of the outstanding New Notes have the right, subject to
certain limitations, to direct the time, method and place of conducting any
proceeding for any remedy available to the New Note Trustee or of exercising any
trust or power conferred on the New Note Trustee.
The New Note Indenture will provide that, in case a Default or an Event of
Default has occurred and is continuing, the New Note Trustee shall exercise such
of the rights and powers vested in it by the New Note Indenture, and use the
same degree of care and skill in the exercise thereof, as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs. Subject to the latter provision, the New Note Trustee is under no
obligation to exercise any of its rights or powers under the New Note Indenture
at the request, order or direction of any of the Holders of the New Notes,
unless they shall have offered to the New Note Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
thereby. If the Company fails to pay such amounts of principal of, premium, if
any, or interest on, the New Notes as shall have become due and payable upon
demand as specified in the New Note Indenture, the New Note Trustee, at the
request of the Holders of a majority in aggregate principal amount of New Notes
at the time outstanding, and upon being offered such reasonable indemnity as it
may be required against the costs, expenses and liabilities incurred by it,
except as a result of its negligence or bad faith, shall institute any actions
or proceedings at law or in equity for the collection of the sums so due and
unpaid, and collect in the manner provided by law the monies adjudged or decreed
to be payable.
The New Note Indenture contains limitations on the rights of the New Note
Trustee, should it become a creditor of the Company, to obtain payment of claims
in certain cases or to be realized on certain property received by it in respect
of any such claims, securities or otherwise. The New Note Trustee is permitted
to engage in other transactions; however, if the New Note Trustee acquires any
"conflicting interest," it must eliminate such conflict or resign.
REPORTS
The New Note Indenture will provide that the Company will deliver to the
New Note Trustee within 15 days after the filing of the same with the
Commission, copies of the quarterly and annual report and of the information,
documents and other reports, if any, which the Company is required to file with
the Commission pursuant to Section 13 or 15(d) of the Exchange Act. The New Note
Indenture will further provide that, notwithstanding that the Company may not be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company will file with the Commission, to the extent permitted, and
provide the New Note Trustee and Holders of the New Notes with such annual
reports and such information, documents and other reports specified in Sections
13 and 15(d) of the Exchange Act. The Company will also comply with the other
provisions of TIA sec. 314(a).
CERTAIN DEFINITIONS
"Acquired Indebtedness" means (i) with respect to any person that becomes a
Subsidiary of the Company (or is merged into the Company or any of its
Subsidiaries) after the Issue Date, Indebtedness of, such person or any of its
Subsidiaries existing at the time such person becomes a Subsidiary of the
Company (or is merged into the Company or any of its Subsidiaries) and which was
not incurred in connection with, or in contemplation of, such person becoming a
Subsidiary of the Company (or being merged into the Company
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or any of its Subsidiaries) and (ii) with respect to the Company or any of its
Subsidiaries, any Indebtedness assumed by the Company or any of its Subsidiaries
in connection with the acquisition of any assets from another person (other than
the Company or any of its Subsidiaries), and which was not incurred by such
other person in connection with, or in contemplation of, such acquisition.
"Adjusted Net Assets" means, with respect to a Subsidiary Guarantor at any
date, the lesser of the amount by which (x) the fair value of the property of
such Subsidiary Guarantor exceeds the total amount of liabilities, including,
without limitation, contingent liabilities (after giving effect to all other
fixed and contingent liabilities incurred or assumed on such date (other than
liabilities of such Subsidiary Guarantor under Subordinated Indebtedness)), but
excluding liabilities under the Guarantee of such Subsidiary Guarantor at such
date and (y) the present fair salable value of the assets of such Subsidiary
Guarantor at such date exceeds the amount that will be required to pay the
probable liability of such Subsidiary Guarantor on its debts (after giving
effect to all other fixed and contingent liabilities incurred or assumed on such
date) and after giving effect to any collection from any Subsidiary of such
Subsidiary Guarantor in respect of the obligations of such Subsidiary under its
Guarantee), excluding debt in respect of the Guarantee of such Subsidiary
Guarantor as they become absolute and matured.
"Affiliate" means, with respect to any person, any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" when used with respect to any person means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"affiliated," "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of the New Note Indenture, neither BT Securities
Corporation nor any of its Affiliates shall be deemed to be an Affiliate of the
Company or any of its Subsidiaries.
"Asset Sale" means, with respect to any person, any sale, transfer or other
disposition or series of sales, transfers or other dispositions (including,
without limitation, by merger or consolidation or by exchange of assets and
whether by operation of law or otherwise) made by such person or any of its
subsidiaries to any person other than such person or one of its wholly-owned
subsidiaries (or, in the case of a sale, transfer or other disposition by a
Subsidiary, to any person other than the Company or a directly or indirectly
wholly-owned Subsidiary) of any assets of such person or any of its subsidiaries
including, without limitation, assets consisting of any Capital Stock or other
securities held by such person or any of its subsidiaries, and any Capital Stock
issued by any subsidiary of such person, in each case, outside of the ordinary
course of business, excluding, however, any sale, transfer or other disposition,
or series of related sales, transfers or other dispositions (i) involving any
Excluded Assets, (ii) resulting in Net Proceeds to the Company and the
Subsidiaries of $500,000 or less or (iii) pursuant to any foreclosure of assets
or other remedy provided by applicable law to a creditor of the Company with a
Lien on such assets, which Lien is permitted under the New Note Indenture,
provided that such foreclosure or other remedy is conducted in a commercially
reasonable manner or in accordance with any Bankruptcy Law.
"Average Life" means, as of any date of determination, with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
the number of years from the date of determination to the dates of each
successive scheduled principal payments of such debt security multiplied by the
amount of such principal payment by (ii) the sum of all such principal payments.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or
foreign law for the relief of debtors.
"Board Resolution" means a duly adopted resolution of the Board of
Directors of the Company.
"Capital Stock" means, with respect to any person, any and all shares,
interests, participation or other equivalents (however designated) of corporate
stock, including each class of common stock and preferred stock of such person.
"Capitalized Lease Obligation" means obligations under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP, and the amount of Indebtedness represented by such obligations shall be
the capitalized amount of such obligations determined in accordance with GAAP.
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"Cash Equivalents" means (i) obligations issued or unconditionally
guaranteed by the United States of America or any agency thereof, or obligations
issued by any agency or instrumentality thereof and backed by the full faith and
credit of the United States of America, (ii) commercial paper rated the highest
grade by Moody's Investors Service, Inc. and Standard & Poor's Ratings Group and
maturing not more than one year from the date of creation thereof, (iii) time
deposits with, and certificates of deposit and banker's acceptances issued by,
any bank having capital surplus and undivided profits aggregating at least $500
million and maturing not more than one year from the date of creation thereof,
(iv) repurchase agreements that are secured by a perfected security interest in
an obligation described in clause (i) and are with any bank described in clause
(iii) and (v) readily marketable direct obligations issued by any state of the
United States of America or any political subdivision thereof having one of the
two highest rating categories obtainable from either Moody's Investors Service,
Inc. or Standard & Poor's Ratings Group.
"Change of Control" means the acquisition after the Issue Date, in one or
more transactions, of beneficial ownership (within the meaning of Rule 13d-3
under the Exchange Act) by (i) any person or entity (other than any Permitted
Holder) or (ii) any group of persons or entities (excluding any Permitted
Holders) who constitute a group (within the meaning of Section 13(d)(3) of the
Exchange Act), in either case, of any securities of New Holdings or the Company
such that, as a result of such acquisition, such person, entity or group
beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act),
directly or indirectly, 40% or more of the then outstanding voting securities
entitled to vote on a regular basis for a majority of the Board of Directors of
the Company (but only to the extent that such beneficial ownership is not shared
with any Permitted Holder who has the power to direct the vote thereof);
provided, however, that no such Change of Control shall be deemed to have
occurred if (A) the Permitted Holders beneficially own, in the aggregate, at
such time, a greater percentage of such voting securities than such other
person, entity or group or (B) at the time of such acquisition, the Permitted
Holders (or any of them) possess the ability (by contract or otherwise) to
elect, or cause the election, of a majority of the members of the Company's
Board of Directors.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means, with respect to any person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of, such person's common stock, whether
outstanding at the Issue Date or issued after the Issue Date, and includes,
without limitation, all series and classes of such common stock.
"Consolidated Net Income," means, with respect to any person, for any
period, the aggregate of the net income (or loss) of such person and its
subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (a) the net income of any other person in which such
person or any of its subsidiaries has an interest (which interest does not cause
the net income of such other person to be consolidated with the net income of
such person and its subsidiaries in accordance with GAAP) shall be included only
to the extent of the amount of dividends or distributions actually paid to such
person or such subsidiary by such other person in such period; (b) the net
income of any subsidiary of such person that is subject to any Payment
Restriction shall be excluded to the extent such Payment Restriction actually
prevented the payment of an amount that otherwise could have been paid to, or
received by, such person or a subsidiary of such person not subject to any
Payment Restriction; and (c)(i) the net income (or loss) of any other person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition, (ii) all gains and losses realized on any Asset Sale, (iii)
all gains realized upon or in connection with or as a consequence of the
issuance of the Capital Stock of such person or any of its subsidiaries and any
gains on pension reversions received by such person or any of its subsidiaries,
(iv) all gains and losses realized on the purchase or other acquisition by such
person or any of its subsidiaries of any securities of such person or any of its
subsidiaries, (v) all gains and losses resulting from the cumulative effect of
any accounting change pursuant to the application of Accounting Principles Board
Opinion No. 20, as amended, (vi) all other extraordinary gains and losses, (vii)
(A) all non-cash charges, (B) up to $10 million of severance costs and (C) any
other restructuring reserves or charges (provided, however, that any cash
payments actually made with respect to the liabilities for which such
restructuring reserves or charges were created shall be deducted from
Consolidated Net Income in the period when made), in each case, incurred by the
Company or any of its Subsidiaries in connection with the Merger, including,
without limitation, the divestiture of the Excluded
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Assets, (viii) losses incurred by the Company and its Subsidiaries resulting
from earthquakes and (ix) with respect to the Company, all deferred financing
costs written off in connection with the early extinguishment of any
Indebtedness, shall each be excluded.
"Consolidated Net Worth" means, with respect to any person, the total
stockholders' equity (exclusive of any Disqualified Capital Stock) of such
person and its subsidiaries determined on a consolidated basis in accordance
with GAAP.
"Credit Agreement" means the Credit Agreement, dated as of the Issue Date,
by and among Food 4 Less, certain of its subsidiaries, the Lenders referred to
therein and Bankers Trust Company, as administrative agent, as the same may be
amended, extended, renewed, restated, supplemented or otherwise modified (in
each case, in whole or in part, and without limitation as to amount, terms,
conditions, covenants and other provisions) from time to time, and any agreement
governing Indebtedness incurred to refund, replace or refinance any borrowings
and commitments then outstanding or permitted to be outstanding under such
Credit Agreement or any such prior agreement as the same may be amended,
extended, renewed, restated, supplemented or otherwise modified (in each case,
in whole or in part, and without limitation as to amount, terms, conditions,
covenants and other provisions). The term "Credit Agreement" shall include all
related or ancillary documents, including, without limitation, any guarantee
agreements and security documents. The Company shall promptly notify the New
Note Trustee of any such refunding or refinancing of the Credit Agreement.
"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator
or similar official under any Bankruptcy Law.
"Designated Senior Indebtedness" means (i) in the event any Indebtedness is
outstanding under the Credit Agreement, all Senior Indebtedness under the Credit
Agreement and (ii) if no Indebtedness is outstanding under the Credit Agreement,
any other issue of Senior Indebtedness which (a) at the time of the
determination is equal to or greater than $50 million in aggregate principal
amount and (b) is specifically designated in the instrument evidencing such
Senior Indebtedness as "Designated Senior Indebtedness" by the Company. For
purposes of this definition, the term "Credit Agreement" shall not include any
agreement governing Indebtedness incurred to refund, replace or refinance
borrowings or commitments under the Credit Agreement other than any such
agreements incurred to refund, replace or refinance the entirety of the
borrowings and commitments then outstanding or permitted to be outstanding
thereunder.
"Disqualified Capital Stock" means, with respect to any Capital Stock of
such person or its subsidiaries that, by its terms, by the terms of any
agreement related thereto or by the terms of any security, into which it is
convertible, puttable or exchangeable is, or upon the happening of any event or
the passage of time would be, required to be redeemed or repurchased by such
person or its subsidiaries, including at the option of the holder thereof, in
whole or in part, or has, or upon the happening of an event or passage of time
would have, a redemption or similar payment due, on or prior to the Maturity
Date or any other Capital Stock of such person or its subsidiaries designated as
Disqualified Capital Stock by such person at the time of issuance; provided,
however, that if such Capital Stock is either (i) redeemable or repurchaseable
solely at the option of such person or (ii) issued to employees of the Company
or its Subsidiaries or to any plan for the benefit of such employees, such
Capital Stock shall not constitute Disqualified Capital Stock unless so
designated.
"EBDIT" means, with respect to any person, for any period, the Consolidated
Net Income of such person for such period, plus, in each case to the extent
deducted in computing Consolidated Net Income of such person for such period
(without duplication) (i) provisions for income taxes or similar charges
recognized by such person and its consolidated subsidiaries accrued during such
period, (ii) depreciation and amortization expense of such person and its
consolidated subsidiaries accrued during such period (but only to the extent not
included in Fixed Charges), (iii) Fixed Charges of such person and its
consolidated subsidiaries for such period, (iv) LIFO charges (credit) of such
person and its consolidated subsidiaries for such period, (v) the amount of any
restructuring reserve or charge recorded during such period in accordance with
GAAP, including any such reserve or charge related to the Merger, and (vi) any
other non-cash charges reducing Consolidated Net Income for such period
(excluding any such charge which requires an accrual of or a cash reserve for
cash charges for any future period), less, without duplication, (i) non-cash
items increasing
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Consolidated Net Income of such person for such period in each case determined
in accordance with GAAP and (ii) the amount of all cash payments made by such
person or its subsidiaries during such period to the extent that such cash
payment has been provided for in a restructuring reserve or charge referred to
in clause (v) above (and was not otherwise deducted in the computation of
Consolidated Net Income of such person for such period).
"Exchange Act" means the Securities Exchange Act of 1934, as amended and
the rules and regulations promulgated by the Commission promulgated thereunder.
"Excluded Assets" means assets of the Company required to be disposed of by
applicable regulatory authorities in connection with the Merger.
"Fixed Charges" means, with respect to any person, for any period, the
aggregate amount of (i) interest, whether expensed or capitalized, paid, accrued
or scheduled to be paid or accrued during such period (except to the extent
accrued in a prior period) in respect of all Indebtedness of such person and its
consolidated subsidiaries (including (a) original issue discount on any
Indebtedness (including (without duplication), in the case of the Company, any
original issue discount on the applicable New Notes but excluding amortization
of debt issuance costs and (b) the interest portion of all deferred payment
obligations, calculated in accordance with the effective interest method, in
each case to the extent attributable to such period, but excluding the
amortization of debt issuance costs) and (ii) dividend requirements on Capital
Stock of such person and its consolidated subsidiaries (whether in cash or
otherwise (except dividends payable in shares of Qualified Capital Stock) paid,
accrued or scheduled to be paid or accrued during such period (except to the
extent accrued in a prior period) and excluding items eliminated in
consolidation. For purposes of this definition, (a) interest on a Capitalized
Lease Obligation shall be deemed to accrue at an interest rate reasonably
determined by the Board of Directors of such person (as evidenced by a Board
Resolution) to be the rate of interest implicit in such Capitalized Lease
Obligation in accordance with GAAP, (b) interest on Indebtedness that is
determined on a fluctuating basis shall be deemed to have accrued at a fixed
rate per annum equal to the rate of interest of such Indebtedness in effect on
the date Fixed Charges are being calculated, (c) interest on Indebtedness that
may optionally be determined at an interest rate based upon a factor of a prime
or similar rate, a eurocurrency interbank offered rate, or other rate, shall be
deemed to have been based upon the rate actually chosen, or, if none, then based
upon such optional rate chosen as the Company may designate, and (d) Fixed
Charges shall be increased or reduced by the net cost (including amortization of
discount) or benefit associated with Interest Swap Obligations attributable to
such period. For purposes of clause (ii) above, dividend requirements shall be
increased to an amount representing the pretax earnings that would be required
to cover such dividend requirements; accordingly, the increased amount shall be
equal to a fraction, the numerator of which is the amount of such dividend
requirements and the denominator of which is one (1) minus the applicable actual
combined federal, state, local and foreign income tax rate of such person and
its subsidiaries (expressed as a decimal), on a consolidated basis, for the
fiscal year immediately preceding the date of the transaction giving rise to the
need to calculate Fixed Charges.
"FFL" means Food 4 Less, Inc., a Delaware corporation, and its successors,
including, without limitation, Holdings following the FFL Merger and New
Holdings following the Reincorporation Merger.
"FFL Merger" means the merger, prior to the Merger and the Reincorporation
Merger, of FFL and Holdings.
"Food 4 Less" means Food 4 Less Supermarkets, Inc., a Delaware corporation,
and its successors, including without limitation Ralphs Supermarkets, Inc. (to
be renamed Ralphs Grocery Company) following the Merger.
"Foreign Exchange Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect
against fluctuations in currency values.
"Guarantor Senior Indebtedness" means, with respect to any Subsidiary
Guarantor, the principal of, premium, if any, and interest on any Indebtedness
of such Subsidiary Guarantor, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides
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that such Indebtedness shall not be senior in right of payment to the Guarantee
of such Subsidiary Guarantor. Without limiting the generality of the foregoing,
"Guarantor Senior Indebtedness" shall include the principal of, premium, if any,
and interest on all obligations of every nature of such Subsidiary Guarantor
from time to time owed to the lenders under the Credit Agreement including,
without limitation, the Letter of Credit Obligations and principal of and
interest on, and all fees, indemnities and expenses payable under the Credit
Agreement. Notwithstanding the foregoing, "Guarantor Senior Indebtedness" shall
not include (a) Indebtedness evidenced by the Guarantee of such Subsidiary
Guarantor, (b) Indebtedness that is expressly subordinate or junior in right of
payment to any Indebtedness of such Subsidiary Guarantor, (c) Indebtedness
which, when incurred and without respect to any election under Section 1111(b)
of Title 11, United States Code, is without recourse to such Subsidiary
Guarantor, (d) Indebtedness which is represented by Disqualified Capital Stock,
(e) obligations for goods, materials or services purchased in the ordinary
course of business or obligations consisting of trade payables, (f) Indebtedness
of or amounts owed by such Subsidiary Guarantor for compensation to employees or
for services rendered to such Subsidiary Guarantor, (g) any liability for
federal, state, local or other taxes owed or owing by such Subsidiary Guarantor,
(h) Indebtedness of such Subsidiary Guarantor representing a guarantee of
Subordinated Indebtedness or Pari Passu Indebtedness of the Company or any other
Subsidiary Guarantor, (i) Indebtedness of such Subsidiary Guarantor to a
Subsidiary of the Company and (j) that portion of any Indebtedness which is
incurred by such Subsidiary Guarantor in violation of the New Note Indenture.
"Holdings" means Food 4 Less Holdings, Inc., a California corporation, and
its successors including, without limitation, New Holdings following the
Reincorporation Merger.
"Holdings Discount Notes" means the 15.25% Senior Discount Notes due 2004
of Holdings, as the same may be modified or amended from time to time and
refinancings thereof.
"Indebtedness" means with respect to any person, without duplication, (i)
all liabilities, contingent or otherwise, of such person (a) for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of such
person or only to a portion thereof), (b) evidenced by bonds, notes, debentures,
drafts accepted or similar instruments or letters of credit or representing the
balance deferred and unpaid of the purchase price of any property (other than
any such balance that represents an account payable or any other monetary
obligation to a trade creditor (whether or not an Affiliate) created, incurred,
assumed or guaranteed by such person in the ordinary course of business of such
person in connection with obtaining goods, materials or services and due within
twelve months (or such longer period for payment as is customarily extended by
such trade creditor) of the incurrence thereof, which account is not overdue by
more than 90 days, according to the original terms of sale, unless such account
payable is being contested in good faith), or (c) for the payment of money
relating to a Capitalized Lease Obligation; (ii) the maximum fixed repurchase
price of all Disqualified Capital Stock of such person; (iii) reimbursement
obligations of such person with respect to letters of credit; (iv) obligations
of such person with respect to Interest Swap Obligations and Foreign Exchange
Agreements; (v) all liabilities of others of the kind described in the preceding
clause (i), (ii), (iii) or (iv) that such person has guaranteed or that is
otherwise its legal liability; and (vi) all obligations of others secured by a
Lien to which any of the properties or assets (including, without limitation,
leasehold interests and any other tangible or intangible property rights) of
such person are subject, whether or not the obligations secured thereby shall
have been assumed by such person or shall otherwise be such person's legal
liability (provided that if the obligations so secured have not been assumed by
such person or are not otherwise such person's legal liability, such obligations
shall be deemed to be in an amount equal to the fair market value of such
properties or assets, as determined in good faith by the Board of Directors of
such person, which determination shall be evidenced by a Board Resolution). For
purposes of the preceding sentence, the "maximum fixed repurchase price" of any
Disqualified Capital Stock that does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Capital Stock as if
such Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to this Indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock (or any equity security for which it may be exchanged or
converted), such fair market value shall be determined in good faith by the
Board of Directors of such person, which determination shall be evidenced by a
Board Resolution. For purposes of the New Note Indenture, Indebtedness incurred
by any person that is a general partnership (other than non-recourse
Indebtedness)
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shall be deemed to have been incurred by the general partners of such
partnership pro rata in accordance with their respective interests in the
liabilities of such partnership unless any such general partner shall, in the
reasonable determination of the Board of Directors of the Company, be unable to
satisfy its pro rata share of the liabilities of the partnership, in which case
the pro rata share of any Indebtedness attributable to such partner shall be
deemed to be incurred at such time by the remaining general partners on a pro
rata basis in accordance with their interests.
"Independent Financial Advisor" means a reputable accounting, appraisal or
nationally recognized investment banking firm that is, in the reasonable
judgment of the Board of Directors of the Company, qualified to perform the
tasks for which such firm has been engaged hereunder and disinterested and
independent with respect to the Company and its Affiliates.
"Interest Swap Obligation" means any obligation of any person pursuant to
any arrangement with any other person whereby, directly or indirectly, such
person is entitled to receive from time to time periodic payments calculated by
applying either a fixed or floating rate of interest on a stated notional amount
in exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount; provided that
the term "Interest Swap Obligation" shall also include interest rate exchange,
collar, cap, swap option or similar agreements providing interest rate
protection.
"Investment" by any person in any other person means any investment by such
person in such other person, whether by a purchase of assets, in any transaction
or series of related transactions, individually or in the aggregate, in an
amount greater than $5 million, share purchase, capital contribution, loan,
advance (other than reasonable loans and advances to employees for moving and
travel expenses, as salary advances or to permit the purchase of Qualified
Capital Stock of the Company and other similar customary expenses incurred, in
each case in the ordinary course of business consistent with past practice) or
similar credit extension constituting Indebtedness of such other person, and any
guarantee of Indebtedness of any other person.
"Issue Date" means the date of original issuance of the New Notes under the
New Note Indenture.
"Letter of Credit Obligations" means Indebtedness of the Company or any of
its Subsidiaries with respect to letters of credit issued pursuant to the Credit
Agreement, and for purposes of the definition of the term "Permitted
Indebtedness" above, the aggregate principal amount of Indebtedness outstanding
at any time with respect thereto, shall be deemed to consist of (a) the
aggregate maximum amount then available to be drawn under all such letters of
credit (the determination of such maximum amount to assume compliance with all
conditions for drawing), and (b) the aggregate amount that has then been paid
by, and not reimbursed to, the issuers under such letters of credit.
"Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property, or a security interest of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof, any option or
other agreement to sell which is intended to constitute or create a security
interest, mortgage, pledge or lien, and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction); provided that in no event shall an operating lease be
deemed to constitute a Lien under the New Note Indenture.
"Maturity Date" means March 1, 2005.
"Merger" means (i) the merger of Food 4 Less Supermarkets, Inc. into Ralph
Supermarkets, Inc. (with Ralph Supermarkets, Inc. surviving such merger)
pursuant to the Merger Agreement and (ii) immediately following the merger
described in clause (i) of this definition, the merger of Ralphs Grocery Company
into Ralphs Supermarket, Inc. (with Ralphs Supermarket, Inc. surviving such
merger and changing its name to "Ralphs Grocery Company" in connection with such
merger).
"Merger Agreement" means the Agreement and Plan of Merger, dated September
14, 1994, by and among Holdings, FFL, Food 4 Less, RSI and the stockholders of
RSI, as such agreement is amended and is in effect on the Issue Date.
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"Net Cash Proceeds" means the Net Proceeds of any Asset Sale received in
the form of cash or Cash Equivalents.
"Net Proceeds" means (a) in the case of any Asset Sale or any issuance and
sale by any person of Qualified Capital Stock, the aggregate net proceeds
received by such person after payment of expenses, taxes, commissions and the
like incurred in connection therewith (and, in the case of any Asset Sale, net
of the amount of cash applied to repay Indebtedness secured by the asset
involved in such Asset Sale), whether such proceeds are in cash or in property
(valued at the fair market value thereof at the time of receipt as determined
with respect to any Asset Sale resulting in Net Proceeds in excess of $5 million
in good faith by the Board of Directors of such person, which determination
shall be evidenced by a Board of Resolution) and (b) in the case of any
conversion or exchange of any outstanding Indebtedness or Disqualified Capital
Stock of such person for or into shares of Qualified Capital Stock of the
Company, the sum of (i) the fair market value of the proceeds received by the
Company in connection with the issuance of such Indebtedness or Disqualified
Capital Stock on the date of such issuance and (ii) any additional amount paid
by the Holder to the Company upon such conversion or exchange.
"New Holdings" means Food 4 Less Holdings, Inc., a Delaware corporation,
and its successors.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Operating Coverage Ratio" means, with respect to any person, the ratio of
(1) EBDIT of such person for the period (the "Pro Forma Period") consisting of
the most recent four full fiscal quarters for which financial information in
respect thereof is available immediately prior to the date of the transaction
giving rise to the need to calculate the Operating Coverage Ratio (the
"Transaction Date") to (2) the aggregate Fixed Charges of such person for the
fiscal quarter in which the Transaction Date occurs and the three fiscal
quarters immediately subsequent to such fiscal quarter (the "Forward Period")
reasonably anticipated by the Board of Directors of such person to become due
from time to time during such period. For purposes of this definition, if the
Transaction Date occurs prior to the first anniversary of the Merger, "EBDIT"
for the Pro Forma Period shall be calculated, in the case of the Company, after
giving effect on a pro forma basis to the Merger as if it had occurred on the
first day of the Pro Forma Period. In addition to, but without duplication of,
the foregoing, for purposes of this definition, "EBDIT" shall be calculated
after giving effect (without duplication), on a pro forma basis for the Pro
Forma Period (but no longer), to (a) any Investment, during the period
commencing on the first day of the Pro Forma Period to and including the
Transaction Date (the "Reference Period"), in any other person that, as a result
of such Investment, becomes a subsidiary of such person, (b) the acquisition,
during the Reference Period (by merger, consolidation or purchase of stock or
assets) of any business or assets, which acquisition is not prohibited by the
Indenture, and (c) any sales or other dispositions of assets (other than sales
of inventory in the ordinary course of business) occurring during the Reference
Period, in each case as if such incurrence, Investment, repayment, acquisition
or asset sale had occurred on the first day of the Reference Period. In
addition, for purposes of this definition, "Fixed Charges" shall be calculated
after giving effect (without duplication), on a pro forma basis for the Forward
Period, to any Indebtedness incurred or repaid on or after the first day of the
Forward Period and prior to the Transaction Date. If such person or any of its
subsidiaries directly or indirectly guarantees any Indebtedness of a third
person, the Operating Coverage Ratio shall give effect to the incurrence of such
Indebtedness as if such person or subsidiary had directly incurred such
guaranteed Indebtedness.
"operating lease" means any lease the obligations under which do not
constitute Capitalized Lease Obligations.
"Pari Passu Indebtedness" means, with respect to the Company or any
Subsidiary Guarantor, Indebtedness of such person which ranks pari passu in
right of payment to the New Notes or the Guarantee of such Subsidiary Guarantor,
as the case may be.
"Payment Restriction" means, with respect to a subsidiary of any person,
any encumbrance, restriction or limitation, whether by operation of the terms of
its charter or by reason of any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation, on the ability of (i) such subsidiary
to
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(a) pay dividends or make other distributions on its Capital Stock or make
payments on any obligation, liability or Indebtedness owed to such person or any
other subsidiary of such person, (b) make loans or advances to such person or
any other subsidiary of such person or (c) transfer any of its properties or
assets to such person or any other subsidiary of such persons, or (ii) such
person or any other subsidiary of such person to receive or retain any such (a)
dividends, distributions or payments, (b) loans or advances or (c) transfer of
properties or assets.
"Permitted Holder" means (i) Food 4 Less Equity Partners, L.P., and The
Yucaipa Companies, or entity controlled thereby or any of the partners thereof
(ii) Apollo Advisors, L.P., Lion Advisors, L.P. or any entity controlled thereby
or any of the partners thereof, (iii) an employee benefit plan of the Company,
or any participant therein or any of its subsidiaries, (iv) a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or
any of its subsidiaries or (v) any Permitted Transferee of any of the foregoing
persons.
"Permitted Indebtedness" means (a) Indebtedness of the Company and its
Subsidiaries pursuant to (i) the Term Loans in an aggregate principal amount at
any time outstanding not to exceed $750 million, less the aggregate amount of
all principal repayments thereunder pursuant to and in accordance with the
covenant described under "-- Certain Covenants -- Limitation on Asset Sales"
above subsequent to the Issue Date, and (ii) the revolving credit facility under
the Credit Agreement (and the Company and each Subsidiary (to the extent it is
not an obligor) may guarantee such Indebtedness) in an aggregate principal
amount at any time outstanding not to exceed $325 million, less all permanent
reductions thereunder pursuant to and in accordance with the covenant described
under "-- Certain Covenants -- Limitation on Asset Sales" above, (b)
Indebtedness of the Company or a Subsidiary Guarantor owed to and held by the
Company or a Subsidiary Guarantor; (c) Indebtedness incurred by the Company or
any Subsidiary in connection with the purchase or improvement of property (real
or personal) or equipment or other capital expenditures in the ordinary course
of business (including for the purchase of assets or stock of any retail grocery
store or business) or consisting of Capitalized Lease Obligations, provided that
(i) at the time of the incurrence thereof, such Indebtedness, together with any
other Indebtedness incurred during the most recently completed four fiscal
quarter period in reliance upon this clause (c) does not exceed, in the
aggregate, 3% of net sales of the Company and its Subsidiaries during the most
recently completed four fiscal quarter period on a consolidated basis
(calculated on a pro forma basis if the date of incurrence is prior to the first
anniversary of the Merger) and (ii) such Indebtedness, together with all then
outstanding Indebtedness incurred in reliance upon this clause (c) does not
exceed, in the aggregate, 3% of the aggregate net sales of the Company and its
Subsidiaries during the most recently completed twelve fiscal quarter period on
a consolidated basis (calculated on a pro forma basis if the date of incurrence
is prior to the third anniversary of the Merger); (d) Indebtedness incurred by
the Company or any Subsidiary in connection with capital expenditures in an
aggregate principal amount not exceeding $150 million, provided that such
capital expenditures relate solely to the integration of the operations of RSI,
Food 4 Less and their respective subsidiaries as described in this Prospectus
and Solicitation Statement; (e) Indebtedness of the Company incurred under
certain Foreign Exchange Agreements and Interest Swap Obligations; (f)
guarantees incurred in the ordinary course of business, by the Company or a
Subsidiary, of Indebtedness of any other person in aggregate not to exceed $25
million at any time outstanding; (g) guarantees by the Company or a Subsidiary
Guarantor of Indebtedness incurred by a wholly-owned Subsidiary Guarantor so
long as the incurrence of such Indebtedness incurred by such wholly-owned
Subsidiary Guarantor is permitted under the terms of the New Note Indenture; (h)
Refinancing Indebtedness; (i) Indebtedness for letters of credit relating to
workers' compensation claims and self-insurance or similar requirements in the
ordinary course of business; (j) other Indebtedness outstanding on the Issue
Date (after giving effect to the Merger); (k) Indebtedness arising from
guarantees of Indebtedness of the Company or any Subsidiary or other agreements
of the Company or a Subsidiary providing for indemnification, adjustment of
purchase price or similar obligations, in each case, incurred or assumed in
connection with the disposition of any business, assets or Subsidiary, other
than guarantees of Indebtedness incurred by any person acquiring all or any
portion of such business, assets or Subsidiary for the purpose of financing such
acquisition; provided that the maximum assumable liability in respect of all
such Indebtedness shall at no time exceed the gross proceeds actually received
by the Company and its Subsidiaries in connection with such disposition; (l)
obligations in respect of performance bonds and
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completion guarantees provided by the Company or any Subsidiary in the ordinary
course of business; and (m) additional Indebtedness of the Company and the
Subsidiary Guarantors in an amount not to exceed $200 million at any time
outstanding.
"Permitted Investment" by any person means (i) any Related Business
Investment, (ii) Investments in securities not constituting cash or Cash
Equivalents and received in connection with an Asset Sale made pursuant to the
provisions of the covenant described under "-- Certain Covenants -- Limitation
on Asset Sales" above or any other disposition of assets not constituting an
Asset Sale by reason of the $500,000 threshold contained in the definition
thereof, (iii) cash and Cash Equivalents, (iv) Investments existing on the Issue
Date, (v) Investments specifically permitted by and made in accordance with the
provisions of the covenant described under "-- Certain Covenants -- Limitation
on Transactions with Affiliates", (vi) Investments by Subsidiary Guarantors in
other Subsidiary Guarantors and Investments by Subsidiaries which are not
Subsidiary Guarantors in other Subsidiaries which are not Subsidiary Guarantors
and (vii) additional Investments in an aggregate amount not exceeding $5
million.
"Permitted Liens" shall mean (i) Liens for taxes, assessments and
governmental charges or claims not yet due or which are being contested in good
faith by appropriate proceedings promptly instituted and diligently conducted
and if a reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor; (ii) statutory Liens of
landlords and carriers, warehouseman, mechanics, suppliers, materialmen,
repairmen or other like Liens arising in the ordinary course of business,
deposits made to obtain the release of such Liens, and with respect to amounts
not yet delinquent for a period of more than 60 days or being contested in good
faith by an appropriate process of law, and for which a reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been
made; (iii) Liens incurred or pledges or deposits made in the ordinary course of
business to secure obligations under workers' compensation, unemployment
insurance and other types of social security or similar legislation; (iv) Liens
incurred or deposits made to secure the performance of tenders, bids, leases,
statutory obligations, surety and appeal bonds, government contracts,
performance and return of money bonds and other obligations of a like nature
incurred in the ordinary course of business (exclusive of obligations for the
payment of borrowed money); (v) easements, rights-of-way, zoning or other
restrictions, minor defects or irregularities in title and other similar charges
or encumbrances not interfering in any material respect with the business of the
Company or any of its Subsidiaries incurred in the ordinary course of business;
(vi) Liens upon specific items of inventory or other goods and proceeds of any
person securing such person's obligations in respect of bankers' acceptances
issued or created for the account of such person to facilitate the purchase,
shipment or storage of such inventory or other goods in the ordinary course of
business; (vii) Liens securing reimbursement obligations with respect to letters
of credit which encumber documents and other property relating to such letters
of credit and the products and proceeds thereof; (viii) Liens in favor of
customs and revenue authorities arising as a matter of law to secure payment of
nondelinquent customs duties in connection with the importation of goods; (ix)
judgment and attachment Liens not giving rise to a Default or Event of Default;
(x) leases or subleases granted to others not interfering in any material
respect with the business of the Company or any Subsidiary; (xi) Liens
encumbering customary initial deposits and margin deposits, and other Liens
incurred in the ordinary course of business that are within the general
parameters customary in the industry, in each case securing Indebtedness under
Interest Swap Obligations and Foreign Exchange Agreements and forward contracts,
option futures contracts, futures options or similar agreements or arrangements
designed to protect the Company or any Subsidiary from fluctuations in the price
of commodities; (xii) Liens encumbering deposits made in the ordinary course of
business to secure nondelinquent obligations arising from statutory, regulatory,
contractual or warranty requirements of the Company or its Subsidiaries for
which a reserve or other appropriate provision, if any, as shall be required by
GAAP shall have been made; (xiii) Liens arising out of consignment or similar
arrangements for the sale of goods entered into by the Company or any Subsidiary
in the ordinary course of business in accordance with past practices; (xiv) any
interest or title of a lessor in the property subject to any lease, whether
characterized as capitalized or operating other than any such interest or title
resulting from or arising out of a default by the Company or any Subsidiary of
its obligations under such lease; (xv) Liens arising from filing UCC financing
statements for precautionary purposes in connection with true leases of personal
property that are otherwise permitted under the applicable Indenture and under
which the Company or any Subsidiary is lessee; (xvi) Liens on assets of
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the Company securing Indebtedness which would constitute Senior Indebtedness but
for the provisions of clause (c) in the third sentence of the definition of
Senior Indebtedness and Liens on assets of a Subsidiary Guarantor securing
Indebtedness which would constitute Guarantor Senior Indebtedness but for the
provisions of clause (c) in the third sentence of the definition of Guarantor
Senior Indebtedness; and (xvii) additional Liens securing Indebtedness at any
one time outstanding not exceeding the sum of (i) $25 million and (ii) 10% of
the aggregate Consolidated Net Income of the Company earned subsequent to the
Issue Date and on or prior to such time.
"Permitted Payments" means (i) any payment by the Company or any Subsidiary
to The Yucaipa Companies or the principals or any Affiliates thereof for
consulting, management, investment banking or similar advisory services pursuant
to that certain Consulting Agreement, dated as of the Issue Date, between Food 4
Less, New Holdings and The Yucaipa Companies, (as such Consulting Agreement may
be amended or replaced, so long as any amounts paid under any amended or
replacement agreement do not exceed the amounts payable under such Consulting
Agreement as in effect on the Issue Date) (ii) any payment by the Company or any
Subsidiary pursuant to the Amended and Restated Tax Sharing Agreement, dated as
of June 17, 1991, between Food 4 Less and certain Subsidiaries, as such Tax
Sharing Agreement may be amended from time to time, so long as the payment
thereunder by the Company and its Subsidiaries shall not exceed the amount of
taxes the Company would be required to pay if it were the filing person for all
applicable taxes, (iii) any payment by the Company or any Subsidiary pursuant to
the Transfer and Assumption Agreement, dated as of June 23, 1989, between Food 4
Less and Holdings, as in effect on the Issue Date, (iv) any payment by the
Company or any Subsidiary (a) in connection with repurchases of outstanding
shares of the Company's or New Holdings' Common Stock following the death,
disability or termination of employment of management stockholders, and (b) of
amounts required to be paid by New Holdings, the Company or any of its
Subsidiaries to participants in employee benefit plans upon termination of
employment by such participants, as provided in the documents related thereto,
in an aggregate amount (for both clauses (a) and (b)) not to exceed $10 million
in any Yearly Period (provided that any unused amounts may be carried over to
any subsequent Yearly Period subject to a maximum amount of $20 million in any
Yearly Period), (v) from and after June 30, 1998, payments of cash dividends to
New Holdings in an amount sufficient to enable New Holdings to make payments of
interest required to be made in respect of the Holdings Discount Notes in
accordance with the terms thereof in effect on the Issue Date, (vi) from and
after March 1, 2000, payments of cash dividends to New Holdings in an amount
sufficient to enable New Holdings to make payments of interest required to be
made in respect of the Seller Debentures in accordance with the terms thereof in
effect on the Issue Date, (vii) dividends or other payments to New Holdings
sufficient to enable New Holdings to perform accounting, legal, corporate
reporting and administrative functions in the ordinary course of business or to
pay required fees and expenses in connection with the Merger, the FFL Merger,
the Reincorporation Merger and the registration under applicable laws and
regulations of its debt or equity securities, (viii) dividends or other
distributions by the Company to New Holdings on the Issue Date of shares of New
Holdings common stock owned by the Company, (ix) dividends by the Company to New
Holdings of the Net Cash Proceeds of an Asset Sale to the extent that (w)
neither the Company nor any of the Subsidiaries is required, or may be required,
pursuant to the documents governing any outstanding Indebtedness of the Company
or any of the Subsidiaries to utilize such Net Cash Proceeds to repay (or offer
to repay) such Indebtedness, (x) such Net Cash Proceeds have not been utilized
to repay outstanding Indebtedness of the Company or any of the Subsidiaries and
(y) New Holdings is required pursuant to the documents governing any outstanding
Indebtedness of New Holdings to utilize such Net Cash Proceeds to repay (or
offer to repay) such Indebtedness.
"Permitted Subordinated Reorganization Securities" means securities of the
Company issued in a plan of reorganization in a case under the Bankruptcy Law
relating to the Company which constitutes either (y) Capital Stock (other than
Disqualified Capital Stock with the reference to "Maturity Date" in the
definition of such term modified to relate to the final stated maturity of any
debt securities issued in such plan of reorganization to the holders of
Designated Senior Indebtedness ("Senior Reorganization Securities")) and (z)
debt securities of the Company which are (i) unsecured, (ii) have no scheduled
mandatory amortization thereon prior to the final stated maturity of the Senior
Reorganization Securities and (iii) are
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subordinated in right of payment to the Senior Reorganization Securities to at
least the same extent as the Securities are subordinated to Designated Senior
Indebtedness.
"Permitted Transferees" means, with respect to any person, (i) any
Affiliate of such person, (ii) the heirs, executors, administrators,
testamentary trustees, legatees or beneficiaries of any such person, (iii) a
trust, the beneficiaries of which, or a corporation or partnership, the
stockholders or general or limited partners of which, include only such person
or his or her spouse or lineal descendants, in each case to whom such person has
transferred the beneficial ownership of any securities of the Company, (iv) any
investment account whose investment managers and investment advisors consist
solely of such person and/or Permitted Transferees of such person and (v) any
investment fund or investment entity that is a subsidiary of such person or a
Permitted Transferee of such person.
"Plan of Liquidation" means, with respect to any person, a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and all
or substantially all of the remaining assets of such person to holders of
Capital Stock of such person.
"Preferred Stock" means, with respect to any person, Capital Stock of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such person, over shares
of Capital Stock of any other class of such person.
"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms of the New Note Indenture, a calculation in
accordance with Article 11 of Regulation S-X under the Securities Act of 1933,
as amended, as interpreted by the Company's chief financial officer or Board of
Directors in consultation with its independent certified public accountants.
"Public Equity Offering" means an underwritten public offering of Common
Stock of the Company or New Holdings pursuant to a registration statement filed
with the Commission in accordance with the Securities Act which public equity
offering results in gross proceeds to the Company or New Holdings, as the case
may be, of not less than $20,000,000; provided, however, that in the case of a
Public Equity Offering by New Holdings, New Holdings contributes to the capital
of the Company net cash proceeds in an amount sufficient to redeem New Notes
called for redemption in accordance with the terms thereof.
"Qualified Capital Stock" means, with respect to any person, any Capital
Stock of such person that is not Disqualified Capital Stock.
"Refinancing Indebtedness" means, with respect to any person, Indebtedness
of such person issued in exchange for, or the proceeds from the issuance and
sale or disbursement of which are used to substantially concurrently repay,
redeem, refund, refinance, discharge or otherwise retire for value, in whole or
in part (collectively, "repay"), or constituting an amendment, modification or
supplement to, or a deferral or renewal of (collectively, an "amendment"), any
Indebtedness of such person existing on the Issue Date or Indebtedness (other
than Permitted Indebtedness, except Permitted Indebtedness incurred pursuant to
clauses (c), (d), (h) and (j), of the definition thereof) incurred in accordance
with the New Note Indenture (a) in a principal amount (or, if such Refinancing
Indebtedness provides for an amount less than the principal amount thereof to be
due and payable upon the acceleration thereof, with an original issue price) not
in excess of (without duplication) (i) the principal amount or the original
issue price, as the case may be, of the Indebtedness so refinanced (or, if such
Refinancing Indebtedness refinances Indebtedness under a revolving credit
facility or other agreement providing a commitment for subsequent borrowings,
with a maximum commitment not to exceed the maximum commitment under such
revolving credit facility or other agreement) plus (ii) unpaid accrued interest
on such Indebtedness plus (iii) premiums, penalties, fees and expenses actually
incurred by such person in connection with the repayment or amendment thereof
and (b) with respect to Refinancing Indebtedness that repays or constitutes an
amendment to Subordinated Indebtedness, such Refinancing Indebtedness (x) shall
not have any fixed mandatory redemption or sinking fund requirement in an amount
greater than or at a time prior to the amounts and times specified in such
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repaid or amended Subordinated Indebtedness, except to the extent that any such
requirement applies on a date after the Maturity Date and (y) shall contain
subordination and default provisions no less favorable in any material respect
to Holders than those contained in such repaid or amended Subordinated
Indebtedness.
"Reincorporation Merger" means the merger, prior to the Merger, of Holdings
with and into New Holdings.
"Related Business Investment" means (i) any Investment by a person in any
other person a majority of whose revenues are derived from the operation of one
or more retail grocery stores or supermarkets or any other line of business
engaged in by the Company or any of its Subsidiaries as of the Issue Date; (ii)
any Investment by such person in any cooperative or other supplier, including,
without limitation, any joint venture which is intended to supply any product or
service useful to the business of the Company and its Subsidiaries as it is
conducted as of the Issue Date and as such business may thereafter evolve or
change; and (iii) any capital expenditure or Investment (without regard to the
$5 million threshold in the definition thereof), in each case reasonably related
to the business of the Company and its Subsidiaries as it is conducted as of the
Issue Date and as such business may thereafter evolve or change.
"Restricted Debt Prepayment" means any purchase, redemption, defeasance
(including, but not limited to, in substance or legal defeasance) or other
acquisition or retirement for value, directly or indirectly, by the Company or a
Subsidiary, prior to the scheduled maturity or prior to any scheduled repayment
of principal or sinking fund payment, as the case may be, in respect of
Subordinated Indebtedness.
"Restricted Payment" means any (i) Stock Payment, (ii) Investment (other
than a Permitted Investment) or (iii) Restricted Debt Prepayment.
"Securities Act" means the Securities Act of 1933, as amended and the rules
and regulations of the Commission promulgated thereunder.
"Seller Debentures" means the 13% Senior Subordinated Pay-in-Kind
Debentures of New Holdings, as the same may be modified or amended from time to
time and future refinancings thereof.
"Senior F4L Notes" means (i) the Senior Notes due 2004 of the Company to be
issued on the Merger Date and (ii) the 10.45% Senior Notes due 2000 of Food 4
Less to be assumed by the Company following the Merger.
"Senior Indebtedness" means the principal of, premium, if any, and interest
on any Indebtedness of the Company, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the New Notes. Without limiting the
generality of the foregoing, "Senior Indebtedness" shall include (x) the
principal of, premium, if any, and interest on all obligations of every nature
of the Company from time to time owed to the lenders under the Credit Agreement,
including, without limitation, the Letter of Credit Obligations and principal of
and interest on, and all fees, indemnities, and expenses payable under the
Credit Agreement, and (y) interest accruing thereon subsequent to the occurrence
of any Event of Default specified in clause (vi) or (vii) under "-- Events of
Default" relating to the Company, whether or not the claim for such interest is
allowed under any applicable Bankruptcy Code. Notwithstanding the foregoing,
"Senior Indebtedness" shall not include (a) Indebtedness evidenced by the New
Notes, (b) Indebtedness that is expressly subordinate or junior in right of
payment to any Indebtedness of the Company, (c) Indebtedness which, when
incurred and without respect to any election under Section 1111(b) of Title 11,
United States Code, is without recourse to the Company, (d) Indebtedness which
is represented by Disqualified Capital Stock, (e) obligations for goods,
materials or services purchased in the ordinary course of business or
obligations consisting of trade payables, (f) Indebtedness of or amounts owed by
the Company for compensation to employees or for services rendered to the
Company, (g) any liability for federal, state, local or other taxes owed or
owing by the Company, (h) Indebtedness of the Company to a Subsidiary of the
Company, and (i) that portion of any Indebtedness which is incurred by the
Company in violation of the New Note Indenture.
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"Significant Stockholder" means, with respect to any person, any other
person who is the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of more than 10% of any class of equity securities of such person
that are entitled to vote on a regular basis for the election of directors of
such person.
"Significant Subsidiary" means each subsidiary of the Company that is
either (a) a "significant subsidiary" as defined in Rule 1-02(v) of Regulation
S-X under the Securities Act of 1933, as amended, and the Exchange Act (as such
regulation is in effect on the date hereof) or (b) material to the financial
condition or results of operations of the Company and its Subsidiaries taken as
a whole.
"Stock Payment" means, with respect to any person, (a) the declaration or
payment by such person, either in cash or in property, of any dividend on
(except, in the case of the Company, dividends payable solely in Qualified
Capital Stock of the Company), or the making by such person or any of its
subsidiaries of any other distribution in respect of, such person's Qualified
Capital Stock or any warrants, rights or options to purchase or acquire shares
of any class of such Capital Stock (other than exchangeable or convertible
Indebtedness of such person), or (b) the redemption, repurchase, retirement or
other acquisition for value by such person or any of its subsidiaries, directly
or indirectly, of such person's Qualified Capital Stock (and, in the case of a
Subsidiary, Qualified Capital Stock of the Company) or any warrants, rights or
options to purchase or acquire shares of any class of such Capital Stock (other
than exchangeable or convertible Indebtedness of such person), other than, in
the case of the Company, through the issuance in exchange therefor solely of
Qualified Capital Stock of the Company; provided, however, that in the case of a
Subsidiary, the term "Stock Payment" shall not include any such payment with
respect to its Capital Stock or warrants, rights or options to purchase or
acquire shares of any class of its Capital Stock that are owned solely by the
Company or a wholly-owned Subsidiary.
"Subordinated Indebtedness" means, with respect to the Company or any
Subsidiary Guarantor Indebtedness of such person which is subordinated in right
of payment to the New Notes or the Guarantee of such Subsidiary Guarantor, as
the case may be.
"subsidiary" of any person means (i) a corporation a majority of whose
Capital Stock with voting power, under ordinary circumstances, to elect
directors is, at the date of determination, directly or indirectly, owned by
such person, by one or more subsidiaries of such person or by such person and
one or more subsidiaries of such person or (ii) a partnership in which such
person or a subsidiary of such person is, at the date of determination, a
general partner of such partnership, but only if such person or its subsidiary
is entitled to receive more than fifty percent of the assets of such partnership
upon its dissolution, or (iii) any other person (other than a corporation or a
partnership) in which such person, a subsidiary of such person or such person
and one or more subsidiaries of such person, directly or indirectly, at the date
of determination, has (x) at least a majority ownership interest or (y) the
power to elect or direct the election of a majority of the directors or other
governing body of such person.
"Subsidiary" means any subsidiary of the Company.
"Subsidiary Guarantor" means (i) each of Alpha Beta Company, Bay Area
Warehouse Stores, Inc., Bell Markets, Inc., Cala Co., Cala Foods, Inc., Falley's
Inc., Food 4 Less of California, Inc., Food 4 Less Merchandising, Inc., Food 4
Less GM, Inc. and Food 4 Less of Southern California, Inc., (ii) upon
consummation of the Merger, Crawford Stores, Inc., (iii) each of the Company's
Subsidiaries which becomes a guarantor of the New Notes in compliance with the
provisions set forth under "-- Certain Covenants -- Guarantees of Certain
Indebtedness," and (iv) each of the Company's Subsidiaries executing a
supplemental indenture in which such Subsidiary agrees to be bound by the terms
of the New Note Indenture.
"Term Loans" means the term loan facility under the Credit Agreement and
any agreement governing Indebtedness incurred to refund, replace or refinance
any borrowings outstanding under such facility or under any prior refunding,
replacement or refinancing thereof (in each case, in whole or in part, and
without limitation as to amount, terms, conditions, covenants and other
provisions).
"The Yucaipa Companies" means The Yucaipa Companies, a California general
partnership.
"Yearly Period" means each fiscal year of the Company; provided that the
first Yearly Period shall begin on the Issue Date and shall end on January 28,
1996.
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MARKET PRICES OF THE OLD RGC NOTES
In general, there has been limited trading of the Old RGC Notes and such
trading has taken place primarily in the over-the-counter market. Prices and
trading volumes of the Old RGC Notes in the over-the-counter market are not
reported and can be difficult to monitor. Quotations for securities that are not
widely traded, such as the Old RGC Notes, may differ from actual trading prices
and should be viewed as approximations. Holders of Old RGC Notes are urged to
contact their brokers with respect to current information regarding the Old RGC
Notes that they hold.
THE PROPOSED AMENDMENTS
The 10 1/4% Senior Subordinated Notes due 2002 of RGC were issued under an
indenture dated as of July 29, 1992 (the "Old RGC 10 1/4% Indenture") between
RGC and United States Trust Company of New York, as trustee (the "Old RGC Note
Trustee"). The 9% Senior Subordinated Notes due 2003 of RGC were issued under an
indenture dated as of March 30, 1993 between RGC and the Old RGC Note Trustee
(the "Old RGC 9% Indenture," and, together with the Old RGC 10 1/4% Indenture,
the "Old RGC Indentures"). The terms of the Old RGC 9% Indenture and the Old RGC
10 1/4% Indenture are substantially identical and are described in the
"Comparison of Old RGC Notes and New Notes" set forth in Appendix A hereto.
In connection with the consummation of the Merger, Food 4 Less is
soliciting Consents from the Old RGC Noteholders to the Proposed Amendments and
is making the Exchange Offers to (i) extend the maturities of the existing
long-term debt securities of RGC and Food 4 Less by exchanging such securities
for new longer-term securities and (ii) establish uniform covenants in the New
Notes and the New F4L Notes in order to simplify the capital structure of the
Company. The primary purpose of the Proposed Amendments is to permit the Merger
and to eliminate substantially all of the restrictive covenants in the Old RGC
Indentures. Upon receipt of the Requisite Consents, a supplemental indenture to
each of the Old RGC 9% Indenture and the Old RGC 10 1/4% Indenture will be
executed between RGC and the Old RGC Note Trustee (the "RGC Supplemental
Indentures"). Following the consummation of the Merger, the obligations of RGC
under the Old RGC Indentures and the RGC Supplemental Indenture will be assumed
by the Company. The Proposed Amendments would make the following changes to the
Old RGC Indentures:
1. Eliminate the covenant entitled "Limitation on Indebtedness".
2. Eliminate the covenant entitled "Limitation on Restricted Payments".
3. Eliminate the covenant entitled "Limitation on Transactions with
Affiliates".
4. Eliminate the covenant entitled "Limitation on Liens Securing
Subordinated Indebtedness".
5. Eliminate the covenant entitled "Restrictions on Preferred Stock of
Subsidiaries".
6. Eliminate the covenant entitled "Limitation on Dividends and Other
Payment Restrictions Affecting Subsidiaries".
7. Amend the provisions regarding when RGC may consolidate or merge, which
limits the ability of RGC to consolidate or merge with, or sell all or
substantially all of its assets to, any other person or entity unless certain
conditions are satisfied, to eliminate the subsection thereof which requires
that immediately after any such merger, consolidation or asset sale on a pro
forma basis RGC or the surviving entity, as the case may be, has a Consolidated
Interest Coverage Ratio (as defined) for its four most recently completed fiscal
quarters of at least 1.8 to 1.0.
8. The definitions relating solely to such eliminated covenants will be
eliminated.
The RGC Supplemental Indentures will provide that the New Credit Facility
constitutes a refinancing of the 1992 Credit Facility.
The remaining sections of the Old RGC Indentures will not be changed by the
Proposed Amendments.
Copies of the Old RGC Indentures and the form of the RGC Supplemental
Indentures are available from Food 4 Less upon request. For a description of the
covenants being amended or eliminated, see "Comparison of Old RGC Notes and New
Notes" set forth in Appendix A.
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THE F4L EXCHANGE OFFERS AND THE PUBLIC OFFERING
Concurrently with the Exchange Offers, Food 4 Less is (A) offering up to
$400 million principal amount of New F4L Senior Notes pursuant to the Public
Offering, (B) offering to holders of its Old F4L Senior Notes and its Old F4L
Senior Subordinated Notes the opportunity to (i) exchange such Old F4L Senior
Notes for New F4L Senior Notes (which will be part of the same issue as the New
F4L Senior Notes issued pursuant to the Public Offering) plus $5.00 in cash for
each $1,000 principal amount of Old F4L Senior Notes exchanged and (ii) exchange
such Old F4L Senior Subordinated Notes for New F4L Senior Subordinated Notes,
plus $20.00 in cash for each $1,000 principal amount of Old F4L Senior
Subordinated Notes exchanged and (C) soliciting consents from holders of the Old
F4L Notes to certain amendments to the Old F4L Indentures. The consummation of
the Public Offering, the F4L Exchange Offers and the Exchange Offers will occur
simultaneously. It is a condition to the consummation of the Public Offering
that the Exchange Offers and the F4L Exchange Offers be successfully
consummated. See "-- The New F4L Senior Notes" for a description of the
securities to be offered pursuant to the Public Offering and to tendering
holders of Old F4L Senior Notes.
The obligation of Food 4 Less to accept for exchange any validly tendered
Old F4L Note is conditioned upon, among other things, the satisfaction or waiver
of certain conditions, including (i) satisfaction of a minimum tender amount
(i.e., at least 80% of the aggregate principal amount of the outstanding Old F4L
Notes being validly tendered and not withdrawn pursuant to the F4L Exchange
Offers prior to the date of expiration); (ii) the receipt of the requisite
consents to certain amendments to the indentures governing the Old F4L Notes
(i.e., consents from Old F4L Noteholders representing at least a majority in
aggregate principal amount of each issue of Old F4L Notes held by persons other
than Food 4 Less and its affiliates) on or prior to the date of expiration;
(iii) the satisfaction or waiver, in Food 4 Less' sole discretion, of all
conditions precedent to the Merger; (iv) the prior or contemporaneous
consummation of the Public Offering, the Holdings Consent Solicitation, the
Exchange Offers and the Solicitation with respect to the Old RGC Notes described
herein; and (v) the prior or contemporaneous consummation of the Bank Financing
and the New Equity Investment.
Noteholders participating in the F4L Exchange Offers will be required to
consent to certain amendments to the indentures governing the Old F4L Notes.
Such proposed amendments will modify certain terms of such indentures to permit
the Merger and will eliminate substantially all of the restrictive covenants in
the Old F4L Indentures.
The Old F4L Senior Subordinated Notes. The Old F4L Senior Subordinated
Notes were issued in June 1991, are limited in aggregate principal amount to
$145 million and will mature on June 15, 2001. The Old F4L Senior Subordinated
Notes are unsecured general obligations of Food 4 Less, are subordinated to the
prior payment when due of all Senior Indebtedness (as defined in the indenture
(the "Old F4L Senior Subordinated Note Indenture") governing the Old F4L Senior
Subordinated Notes) and are guaranteed on a senior subordinated basis by Food 4
Less' wholly-owned subsidiaries.
The Old F4L Senior Subordinated Notes bear interest at a rate equal to
13.75% per annum and interest is payable semi-annually on June 15 and December
15 of each year. On or after June 15, 1996, the Old F4L Senior Subordinated
Notes may be redeemed in whole or from time to time in part, at the option of
Food 4 Less, at a redemption price equal to the applicable percentage of the
principal amount thereof set forth below, together with accrued interest to the
redemption date, if redeemed during the 12 months commencing on June 15 in the
years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
------ ----------------
<S> <C>
1996................................. 106.111%
1997................................. 104.583%
1998................................. 103.056%
1999................................. 101.528%
</TABLE>
and thereafter at 100% of the principal amount thereof, plus accrued and unpaid
interest to the redemption date.
127
<PAGE> 135
In the event of a Change of Control (as defined in the Old F4L Senior
Subordinated Note Indenture), the Old F4L Senior Subordinated Notes may be
redeemed on or after June 15, 1994 and prior to June 15, 1996, at the option of
Food 4 Less, at a redemption price equal to the applicable percentage of the
principal amount thereof set forth below, plus accrued and unpaid interest to
the redemption date, if redeemed during the 12 months commencing on June 15 in
the years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
------ ----------------
<S> <C>
1994................................. 109.167%
1995................................. 107.639%
</TABLE>
Food 4 Less is required to make a mandatory sinking fund payment on June
15, 2000, sufficient to retire 50% of the Old F4L Senior Subordinated Notes, at
a redemption price equal to 100% of the principal amount thereof, together with
accrued interest to the redemption date. Food 4 Less may, at its option, receive
credit against such sinking fund payment for 100% of the principal amount of any
Old F4L Senior Subordinated Notes previously acquired by Food 4 Less in the open
market and surrendered to the Trustee under the Old F4L Senior Subordinated Note
Indenture for cancellation or redeemed at the option of Food 4 Less and which
were not previously used as a credit against any other required payment pursuant
to the Old F4L Senior Subordinated Note Indenture. Food 4 Less intends to credit
exchanges of Old F4L Senior Subordinated Notes accepted pursuant to the F4L
Exchange Offers against its sinking fund obligations.
The Old F4L Senior Subordinated Notes are subject to certain covenants as
provided in the Old F4L Senior Subordinated Note Indenture. These covenants
impose certain limitations on the ability of Food 4 Less to, among other things,
incur indebtedness, pay dividends or make certain other restricted payments,
enter into certain transactions with affiliates, merge or consolidate with any
other person, or sell, lease, transfer or otherwise dispose of substantially all
of the properties or assets of Food 4 Less. In addition, upon the occurrence of
a Change of Control, each holder has the right to require the repurchase of such
holder's Old F4L Senior Subordinated Notes at a purchase price equal to 101% of
the principal amount thereof plus accrued interest, if any, to the date of
purchase. The Old F4L Senior Subordinated Note Indenture also requires Food 4
Less to offer to repurchase a specified portion of the Old F4L Senior
Subordinated Notes if its net worth does not equal or exceed a specified minimum
net worth at the end of any two consecutive fiscal quarters.
Under the Old F4L Senior Subordinated Note Indenture, certain events
constitute an event of default, including (i) the failure to make any principal
and interest payment on the Old F4L Senior Subordinated Notes when due; (ii) the
failure to comply with any other agreement contained in the Old F4L Senior
Subordinated Note Indenture or the Old F4L Senior Subordinated Notes; (iii) a
default under certain indebtedness; (iv) certain final judgments or orders for
payments of money; and (v) certain events occurring under bankruptcy laws.
Upon the consummation of the F4L Exchange Offers, a supplemental indenture
to the Old F4L Senior Subordinated Note Indenture will become effective,
reflecting the proposed amendments to the Old F4L Senior Subordinated Note
Indenture. Such supplemental indenture will eliminate substantially all of the
restrictive covenants in the Old F4L Senior Subordinated Note Indenture,
including covenants with respect to maintenance of net worth, the limitation on
restricted payments, limitation on incurrences of additional indebtedness,
limitation on liens, limitation on disposition of assets, limitation on payment
restrictions affecting subsidiaries, limitation on transactions with affiliates,
limitation on change of control and the covenant requiring additional subsidiary
guarantees under certain circumstances. In addition, such supplemental indenture
will modify the covenant which limits the ability of Food 4 Less to consolidate
or merge with, or sell all or substantially all of its assets to, any other
person or entity unless certain conditions are satisfied by eliminating the
subsections thereof which require that immediately after giving effect to such
transaction and the incurrence of any indebtedness in connection therewith, Food
4 Less or the surviving entity, as the case may be, has a Net Worth (as defined)
or Operating Coverage Ratio (as defined) that meets the standards set forth
therein.
128
<PAGE> 136
The New F4L Senior Subordinated Notes. The New F4L Senior Subordinated
Notes will be issued upon consummation of the F4L Exchange Offers to tendering
holders of Old F4L Senior Subordinated Notes.
The New F4L Senior Subordinated Notes will bear interest at a rate of
13.75% per annum and interest is payable on March 1 and September 1, beginning
September 1, 1995. The New F4L Senior Subordinated Notes will mature on March 1,
2005. On or after June 15, 1996, the New F4L Senior Subordinated Notes may be
redeemed in whole at any time or in part from time to time, at the option of the
Company, at a redemption price equal to the applicable percentage of the
principal amount thereof set below, plus accrued and unpaid interest to the
redemption date, if redeemed during the 12 months commencing on June 15 of the
years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
1996................................. 106.111%
1997................................. 104.583%
1998................................. 103.056%
1999................................. 101.528%
</TABLE>
and thereafter at 100% of the principal amount thereof, plus accrued and unpaid
interest to the redemption date.
Upon a Change of Control (as defined), each holder of the New F4L Senior
Subordinated Notes has the right to require the Company to repurchase such
holder's New F4L Senior Subordinated Notes at a price equal to 101% of their
principal amount, plus accrued interest, if any, to the date of repurchase.
The aggregate principal amount of Old F4L Senior Subordinated Notes and New
F4L Senior Subordinated Notes will be limited to $145 million at any one time
outstanding. The covenants in the indenture governing the New F4L Senior
Subordinated Notes will be substantially similar to the covenants in the New
Notes Indenture.
The Old F4L Senior Notes. The Old F4L Senior Notes were issued in April
1992, are limited in aggregate principal amount to $175 million and will mature
on April 15, 2000. The Old F4L Senior Notes are unsecured general obligations of
Food 4 Less and are guaranteed on a senior basis by Food 4 Less' wholly-owned
subsidiaries.
The Old F4L Senior Notes bear interest at a rate equal to 10.45% per annum
and interest is payable semi-annually on April 15 and October 15 of each year.
The Old F4L Senior Notes are redeemable, at the option of Food 4 Less, in whole
at any time or in part from time to time, on and after April 15, 1996 at the
following redemption prices (expressed as percentages of the principal amount)
if redeemed during the twelve-month period commencing on April 15 of the year
set forth below, plus, in each case, accrued and unpaid interest to the date of
redemption:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
1996................................. 104.48%
1997................................. 102.99%
1998................................. 101.49%
1999 and thereafter.................. 100.00%
</TABLE>
In the event of a Change of Control (as defined in the indenture (the "Old
F4L Senior Note Indenture") governing the Old F4L Senior Notes), each holder has
the right to require the repurchase of such holder's Old F4L Senior Notes at a
purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest to the date of repurchase.
Food 4 Less is required to make a mandatory sinking fund payment of $87.5
million on April 15, 1999, sufficient to retire 50% of the Old F4L Senior Notes
originally issued, at a redemption price equal to 100% of the principal amount
thereof, together with accrued interest to the date of redemption. Food 4 Less
may, at its option, receive credit against such sinking fund payment for 100% of
the principal amount of any Old F4L Senior Note previously acquired by Food 4
Less and surrendered to the Trustee under the Old F4L Senior
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<PAGE> 137
Note Indenture for cancellation or redeemed at the option of Food 4 Less and
which, in each case, were not previously used for or as a credit against any
other required payment pursuant to the Old F4L Senior Note Indenture. Food 4
Less intends to credit exchanges of Old F4L Senior Notes accepted pursuant to
the F4L Exchange Offers against its sinking fund obligations.
The Old F4L Senior Notes are subject to certain covenants as provided in
the Old F4L Senior Note Indenture. These covenants impose certain limitations on
the ability of Food 4 Less to, among other things, incur indebtedness, pay
dividends or make certain other restricted payments, enter into certain
transactions with affiliates, incur liens, guarantee indebtedness or merge or
consolidate with any other person, or sell, lease, transfer or otherwise dispose
of substantially all of the properties or assets of Food 4 Less. The Old F4L
Senior Note Indenture also requires Food 4 Less to offer to repurchase a
specified portion of the Old F4L Senior Notes if its net worth does not equal or
exceed a specified minimum net worth at the end of any two consecutive fiscal
quarters.
Under the Old F4L Senior Note Indenture, certain events constitute an event
of default. These events are as follows: (i) the failure to make any principal
and interest payment on the Old F4L Senior Notes when due; (ii) the failure to
comply with any other agreement contained in the Old F4L Senior Note Indenture
or the Old F4L Senior Notes; (iii) a default under certain indebtedness; (iv)
certain final judgments or orders for payments of money; and (v) certain events
occurring under bankruptcy laws.
Upon consummation of the F4L Exchange Offers, a supplemental indenture to
the Old F4L Senior Note Indenture will become effective, reflecting the proposed
amendments to the Old F4L Senior Note Indenture. Such supplemental indenture
will eliminate substantially all of the restrictive covenants in the Old F4L
Senior Note Indenture, including covenants with respect to the maintenance of
net worth, the limitation on change of control, the limitation on restricted
payments, the limitation on incurrences of additional indebtedness, the
limitation on liens, the limitation on disposition of assets, the limitation on
payment restrictions affecting subsidiaries and the limitation on transactions
with affiliates and the covenant requiring additional subsidiary guarantees
under certain circumstances. In addition, the supplemental indenture will modify
the covenant which limits the ability of Food 4 Less to consolidate or merge
with, or sell all or substantially all of its assets to, any other person or
entity unless certain conditions are satisfied, to eliminate the subsections
thereof which require that immediately after giving effect to such transaction
and the incurrence of any indebtedness in connection therewith, Food 4 Less or
the surviving entity, as the case may be, has a Net Worth (as defined) or
Operating Coverage Ratio (as defined) that meets the standards set forth
therein.
The New F4L Senior Notes. The New F4L Senior Notes will be issued upon
consummation of the F4L Exchange Offers to tendering holders of Old F4L Senior
Notes.
The New F4L Senior Notes will bear interest at a fixed rate per annum equal
to the greater of (a) 11% and (b) the F4L Applicable Treasury Rate (as defined)
plus 375 basis points (3.75 percentage points); provided, however, that in any
event the New F4L Senior Notes will bear interest at a rate per annum no less
than the rate established upon the pricing of the New F4L Senior Notes offered
in the Public Offering. The "F4L Applicable Treasury Rate" means the yield to
maturity at the time of computation of United States Treasury securities with a
constant maturity (as compiled by, and published in, the most recent Federal
Reserve Statistical Release H.15 (519)) most nearly equal to the average life to
stated maturity of the New F4L Senior Notes; provided that if the average life
to stated maturity of the New F4L Senior Notes is not equal to the constant
maturity of the United States Treasury security for which a weekly average yield
is given, the F4L Applicable Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of the year) from the
weekly average yields of the United States Treasury securities for which such
yields are given. The New F4L Senior Notes will mature on March 1, 2004. On or
after March 1, 2000, the New F4L Senior Notes may be redeemed in whole at any
time or in part from time to time, at the option of the Company, at a redemption
price equal to the applicable percentage of the principal amount thereof set
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<PAGE> 138
forth below, plus accrued and unpaid interest to the redemption date, if
redeemed during the 12 months commencing on March 1 of the years set forth
below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
------------------------------------- ----------------
<S> <C>
2000................................. 104.125%
2001................................. 102.750%
2002................................. 101.375%
2003 and thereafter.................. 100.000%
</TABLE>
In the event that the interest rate on the New F4L Senior Notes is greater than
11%, the above redemption prices will be correspondingly adjusted.
In addition, on or prior to March 1, 1998, the Company may, at its option,
use the net cash proceeds of one or more Public Equity Offerings to redeem up to
an aggregate of 35% of the New F4L Senior Notes originally issued, at a
redemption price equal to 111% of the principal amount thereof if redeemed
during the 12 months commencing on March 1, 1995, 109.625% of the principal
amount thereof if redeemed during the 12 months commencing on March 1, 1996 and
108.25% of the principal amount thereof if redeemed during the 12 months
commencing on March 1, 1997, in each case plus accrued and unpaid interest to
the redemption date.
Upon a Change of Control (as defined), each holder of the New F4L Senior
Notes has the right to require the Company to repurchase such holder's New F4L
Senior Notes at a price equal to 101% of their principal amount, plus accrued
interest, if any, to the date of repurchase.
The aggregate principal amount of Old F4L Senior Notes and New F4L Senior
Notes will be limited to $575 million at any one time outstanding.
The Public Offering. Concurrently with the Exchange Offers, Food 4 Less is
offering up to $400 million of New F4L Senior Notes pursuant to the Public
Offering. The New F4L Senior Notes offered pursuant to the Public Offering will
be part of the same issue as the New F4L Senior Notes issued pursuant to the F4L
Exchange Offers. The consummation of the Public Offering and the F4L Exchange
Offers will occur simultaneously. It is a condition to the consummation of the
Public Offering that the F4L Exchange Offers and the RGC Exchange Offers be
successfully consummated. Certain proceeds of the Public Offering are expected
to be used to fund the Change of Control Offer. See "The Merger and the
Financing -- Sources and Uses."
DESCRIPTION OF THE NEW CREDIT FACILITY
In connection with the Merger, Food 4 Less will enter into the New Credit
Facility with a syndicate of financial institutions for whom Bankers Trust will
act as agent. All of Food 4 Less' obligations under the New Credit Facility will
be assumed by the Company immediately following the Merger. Food 4 Less has
accepted a commitment letter (the "Commitment Letter") from Bankers Trust
pursuant to which Bankers Trust has agreed, subject to certain conditions, to
provide the Company up to a maximum aggregate amount of $1,075.0 million of
financing under the New Credit Facility. The following is a summary of the
anticipated material terms and conditions of the New Credit Facility. This
summary does not purport to be a complete description of the New Credit Facility
and is subject to the detailed provisions of the loan agreement (the "Loan
Agreement") and various related documents to be entered into in connection with
the New Credit Facility. A draft copy of the Loan Agreement will be available
upon request from Food 4 Less.
GENERAL
The New Credit Facility will provide for (i) term loans in the aggregate
amount of $750 million, comprised of the $375 million Tranche A Loan, the $125
million Tranche B Loan, the $125 million Tranche C Loan, and the $125 million
Tranche D Loan; and (ii) the $325 million New Revolving Facility under which
working capital loans may be made and commercial or standby letters of credit in
the maximum aggregate
131
<PAGE> 139
amount of up to $150 million may be issued, under which approximately $101
million of letters of credit are expected to be issued upon the closing of the
Merger.
Proceeds of the New Term Loans, together with proceeds from the New Equity
Investment and the Public Offering, will be used to fund the cash requirements
for the acquisition of RSI, refinance existing bank indebtedness of Ralphs and
Food 4 Less, purchase Old RGC 9% Notes and Old RGC 10 1/4% Notes, repay a
portion of other indebtedness, pay holders of the Ralphs EARs and pay various
fees, expenses and other costs associated with the Merger and the Financing. The
New Revolving Facility will be available to provide for the working capital
requirements and general corporate purposes of the Company and to issue
commercial and standby letters of credit to support workers' compensation
contingencies and for other corporate purposes.
INTEREST RATE; FEES
Borrowings under (i) the New Revolving Facility and the Tranche A Loan will
bear interest at a rate equal to the Base Rate (as defined in the Loan
Agreement) plus 1.25% per annum or the reserve adjusted Euro-Dollar Rate (as
defined in the Loan Agreement) plus 2.50% per annum; (ii) the Tranche B Loan
will bear interest at the Base Rate plus 1.75% per annum or the reserve adjusted
Euro-Dollar Rate plus 3.00% per annum; (iii) the Tranche C Loan will bear
interest at the Base Rate plus 2.125% per annum or the reserve adjusted
Euro-Dollar Rate plus 3.375% per annum; and (iv) the Tranche D Loan will bear
interest at the Base Rate plus 2.50% per annum or the reserve adjusted
Euro-Dollar Rate plus 3.75% per annum, in each case as selected by the Company.
Applicable interest rates on Tranche A Loan and the New Revolving Facility and
the fees payable under the New Revolving Facility on letters of credit, will be
reduced by up to 0.50% per annum after the Term Loans have been reduced by such
amounts and if the Company meets certain financial tests. Up to $30 million of
the New Revolving Facility will be available as a swingline facility and loans
outstanding under the swingline facility shall bear interest at the Base Rate
plus 0.75% per annum (subject to adjustment as described in the preceding
sentence). After the occurrence of a default under the New Credit Facility,
interest will accrue at the rate equal to the rate on loans bearing interest at
the rate determined by reference to the Base Rate plus an additional 2.00% per
annum. The Company will pay certain fees on the standby and the commercial
letters of credit and will pay a commitment fee of 0.50% per annum on the
undrawn amount of the Tranche A Loans from the closing of the Merger until the
drawing or termination thereof and on the unused portions of the New Revolving
Facility. The New Credit Facility will require the Company to enter into hedging
agreements to limit its exposure to increases in interest rates for a period of
not less than two years. The New Credit Facility may be prepaid in whole or in
part without premium or penalty.
AMORTIZATION; PREPAYMENTS
The Tranche A Loan will mature six years after the closing of the Merger
and will be subject to amortization, commencing in the fifteenth month after the
closing of the Merger on a quarterly basis in aggregate annual amounts of $45
million in the second year, $75 million in the third year, $80 million in the
fourth year, $85 million in the fifth year, and $90 million in the sixth year.
The Tranche B Loan will mature seven years after the closing of the Merger and
will be subject to amortization on a quarterly basis in aggregate annual amounts
of $1.25 million for the first six years and $117.5 million in the seventh year.
The Tranche C Loan will mature eight years after the closing of the Merger and
will be subject to amortization on a quarterly basis in aggregate annual amounts
of $1.25 million for the first seven years and $116.25 million in the eighth
year. The Tranche D Loan will mature nine years after the closing of the Merger
and will be subject to amortization on a quarterly basis in aggregate annual
amounts of $1.25 million for the first eight years and $115 million in the ninth
year. The New Revolving Facility will mature on the same date as the Tranche A
Loan. The Company will be required to reduce loans outstanding under the New
Revolving Facility to $75 million for a period of not less than 30 consecutive
days during each consecutive 12-month period. The Company will be required to
make certain prepayments, subject to certain exceptions, on the New Credit
Facility with 75% of Consolidated Excess Cash Flow (as defined in the Loan
Agreement) and with the proceeds from certain asset sales, issuances of debt and
equity securities and any pension plan reversion. Such prepayments will be
allocated pro rata between the Tranche A Loans, Tranche B Loans, Tranche C Loans
and
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<PAGE> 140
the Tranche D Loans and to scheduled amortization payments of the Tranche A
Loans, the Tranche B Loans, Tranche C Loans, and the Tranche D Loans pro rata.
GUARANTEES AND COLLATERAL
New Holdings and all active subsidiaries of the Company (including the
Subsidiary Guarantors) will guarantee the Company's obligations under the New
Credit Facility. The Company's obligations and the guarantees of its
subsidiaries will be secured by substantially all personal property of the
Company and its subsidiaries, including a pledge of the stock of all
subsidiaries of the Company (with the exception of the stock of Bell Markets,
Inc., which has been pledged to secure notes payable to the former owners
thereof). New Holdings' guarantee will be secured by a pledge of the stock of
the Company. The Company's obligations will also be secured by first priority
liens on certain unencumbered real property fee interests of the Company and its
subsidiaries and the Company and its subsidiaries will use their reasonable
economic efforts to provide the lenders with a first priority lien on certain
unencumbered leasehold interests of the Company and its subsidiaries.
COVENANTS
The obligation of the lenders under the New Credit Facility to advance
funds is subject to the satisfaction of certain conditions customary in
agreements of this type. In addition, the Company will be subject to certain
customary affirmative and negative covenants contained in the New Credit
Facility, including, without limitation, covenants that restrict, subject to
specified exceptions, (i) the incurrence of additional indebtedness and other
obligations, (ii) a merger or acquisition, (iii) asset sales, (iv) the granting
of liens, (v) prepayment or repurchase of other indebtedness, (vi) engaging in
transactions with affiliates, or (vii) cash capital expenditures. Certain of
these covenants may be more restrictive than those in favor of holders of the
New Notes as described herein and as set forth in the New Note Indenture. In
addition, the New Credit Facility will require that the Company maintain certain
specified financial covenants, including a minimum fixed charge coverage, a
minimum EBITDA, a maximum ratio of total debt to EBITDA and a minimum net worth.
EVENTS OF DEFAULT
The New Credit Facility also provides for customary events of default. The
occurrence of any of such events of default could result in acceleration of the
Company's obligations under the New Credit Facility and foreclosure on the
collateral securing such obligations, which could have material adverse results
to holders of the New Notes.
DESCRIPTION OF HOLDING COMPANY INDEBTEDNESS
The Seller Debentures. The Seller Debentures will be issued to the
stockholders of RSI upon consummation of the Merger. The Seller Debentures will
be issued in an aggregate principal amount of $100 million and will mature on a
date to be determined in 2007. The Seller Debentures will be general unsecured
obligations of New Holdings and will be subordinated to the prior payment when
due of all Senior Indebtedness (as defined in the indenture governing the Seller
Debentures (the "Debenture Indenture")). The Seller Debentures will bear
interest at a rate equal to 13.00% per annum. Interest will accrue on the Seller
Debentures beginning from the date of issuance or from the most recent date to
which interest has been paid and will be payable semi-annually in arrears on
each interest payment date. New Holdings will have the option, in its sole
discretion, to issue additional securities ("Secondary Securities") in lieu of a
cash payment of any or all of the interest due for the period prior to the
interest payment date five years after the date of issuance of the Seller
Debentures.
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<PAGE> 141
On or after a date to be determined in 2000, the Seller Debentures may be
redeemed, at the option of New Holdings, in whole at any time or in part from
time to time, at a redemption price equal to the applicable percentage of the
principal amount thereof set forth below, together with accrued interest to the
redemption date, if redeemed during the twelve-month period commencing on a date
to be determined in the years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
------------------------------------- ----------------
<S> <C>
2000................................. 106.500%
2001................................. 104.875%
2002................................. 103.250%
2003................................. 101.625%
2004 and thereafter.................. 100.000%
</TABLE>
Notwithstanding the foregoing, prior to a date to be determined in 1998,
New Holdings may use the net proceeds of an Initial Public Offering (as defined
in the Debenture Indenture) of New Holdings or Food 4 Less (or of FFL under
certain circumstances) to redeem up to 35% of the Seller Debentures at a
redemption price equal to 110% of the principal amount thereof, plus accrued and
unpaid interest to the date of redemption.
In the event of a Change of Control (as defined in the Debenture
Indenture), each holder has the right to require the repurchase of such holder's
Seller Debentures at a purchase price equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest to the date of purchase.
The Debenture Indenture will contain certain covenants that, among other
things, limit the ability of New Holdings to enter into certain mergers or
consolidations or incur certain liens or of New Holdings or its subsidiaries to
incur additional indebtedness, pay dividends or make certain other Restricted
Payments (as defined in the Debenture Indenture), or engage in certain
transactions with affiliates. Under certain circumstances, New Holdings will be
required to make an offer to purchase Seller Debentures at a price equal to 100%
of the aggregate principal amount thereof with the proceeds of certain Asset
Sales (as defined in the Debenture Indenture). The Debenture Indenture will
contain certain customary events of default, which will include the failure to
pay interest and principal, the failure to comply with certain covenants in the
Seller Debentures or the Debenture Indenture, a default under certain
indebtedness, the imposition of certain final judgments or warrants of
attachment and certain events occurring under bankruptcy laws.
Pursuant to the terms of the Merger Agreement and a registration rights
agreement to be executed concurrently with the closing of the Merger, New
Holdings is obligated to file a shelf registration statement with the Commission
with respect to the Seller Debentures, use its best efforts to cause such shelf
registration statement to become effective and remain effective for up to three
years, and pay the expenses related thereto. The effectiveness of such shelf
registration statement is a condition to the consummation of the Merger. If New
Holdings fails to comply with its obligations to keep such shelf registration
statement effective, Holdings will be obligated to pay certain liquidated
damages.
The Holdings Discount Notes. The Holdings Discount Notes were issued in
December 1992, are limited in aggregate principal amount to $103.6 million and
will mature on December 15, 2004. The Holdings Discount Notes are unsecured
general obligations of Holdings (and will become obligations of New Holdings by
operation of the Reincorporation Merger) and bear interest at a rate equal to
15.25% per annum. The purchase discount on the Holdings Discount Notes accretes
from the date of issuance until December 15, 1997. Interest accrues on the
Holdings Discount Notes beginning December 15, 1997, or from the most recent
date to which interest has been paid, and is payable semi-annually on each June
15 and December 15, commencing on June 15, 1998.
The Holdings Discount Notes are redeemable, at the option of Holdings, in
whole at any time or in part from time to time, on or after December 15, 1997 at
the following redemption prices (expressed as
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<PAGE> 142
percentages of the accreted value) if redeemed during the twelve-month period
commencing on December 15 of the year set forth below, plus, in each case,
accrued and unpaid interest to the date of redemption:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
------------------------------------- ----------------
<S> <C>
1997................................. 107.625%
1998................................. 106.100%
1999................................. 104.575%
2000................................. 103.050%
2001................................. 101.525%
2002 and thereafter.................. 100.000%
</TABLE>
Notwithstanding the foregoing, prior to December 15, 1997, Holdings may use
the net proceeds of an Initial Public Offering (as defined in the Holdings
Discount Note Indenture) of Holdings or Food 4 Less to redeem up to 25% of the
Holdings Discount Notes at redemption prices equal to the sum of (i) the
applicable percentage of the accreted value plus (ii) the Proportionate Share
(as defined in the Holdings Discount Note Indenture) of the Holdings Discount
Notes, if any to the date of redemption if redeemed during the twelve-month
period beginning December 15 of the year set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
------------------------------------- ----------------
<S> <C>
1992................................. 120.000%
1993................................. 117.525%
1994................................. 115.050%
1995................................. 112.575%
1996................................. 110.100%
</TABLE>
In the event of a Change of Control (as defined in the Holdings Discount
Note Indenture), each holder has the right to require the repurchase of such
holder's Holdings Discount Notes at a purchase price equal to 101% of the
accreted value, plus either, (i) if the date of the purchase is prior to
December 15, 1997, the Proportionate Share, if any, with respect to the Holdings
Discount Notes to the date of purchase and (ii) if the date of the purchase is
on or after December 15, 1997, the aggregate principal amount thereof plus
accrued interest, if any, to the date of purchase.
Holdings will make a mandatory sinking fund payment on December 15, 2003,
sufficient to retire 50% of the Holdings Discount Notes, at a redemption price
equal to 100% of the principal amount thereof, together with accrued interest to
the redemption date. Holdings may, at its option, receive credit against such
sinking fund payment for 100% of the principal amount of any Holdings Discount
Notes previously acquired or redeemed by Holdings and surrendered to the Trustee
under the Holdings Discount Note Indenture for cancellation and which were not
previously used as a credit against any other required payment pursuant to the
Holdings Discount Note Indenture.
The Holdings Discount Note Indenture contains certain covenants that, among
other things, limit the ability of Holdings to enter into certain mergers or
consolidations or incur certain liens or of Holdings or its subsidiaries to
incur additional indebtedness, pay dividends or make certain other Restricted
Payments (as defined in the Debenture Indenture), or engage in certain
transactions with affiliates. Under certain circumstances, Holdings will be
required to make an offer to purchase Holdings Discount Notes at a price equal
to 100% of the aggregate principal amount thereof with the proceeds of certain
Asset Sales (as defined in the Debenture Indenture). The Holdings Discount Note
Indenture contains certain customary events of default, including the failure to
pay interest and principal, the failure to comply with certain covenants in the
Holdings Discount Notes or the Holdings Discount Note Indenture, a default under
certain indebtedness, the imposition of certain final judgments or warrants of
attachment and certain events occurring under bankruptcy laws.
Pursuant to the Holdings Consent Solicitation, Holdings is soliciting
consents from, and will make a cash consent payment of $20.00 for each $1,000
principal amount of Holdings Discount Notes for which a consent is properly
delivered and accepted to, holders of the Holdings Discount Notes representing
at least a majority
135
<PAGE> 143
in aggregate principal amount of such notes to proposed amendments to the
Holdings Discount Note Indenture to permit the consummation of the Merger and to
provide appropriate operating and financial flexibility to the Company after the
Merger. Following the Reincorporation Merger, New Holdings and the trustee under
the Holdings Discount Note Indenture will execute a supplemental indenture
assuming the obligations of Holdings thereunder. New Holdings and the trustee
under the Holdings Discount Note Indenture will then execute a second
supplemental indenture implementing such proposed amendments to the Holdings
Discount Note Indenture after certification to such trustee that Holdings has
received consents from at least a majority in aggregate principal amount of such
notes.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Latham & Watkins, counsel to Food 4 Less ("Counsel"), has advised Food 4
Less that the following discussion expresses their opinion as to the material
federal income tax consequences expected to result from the Exchange Offers and
the Solicitation. Such opinion is based on current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury Regulations,
judicial authority and current administrative rulings and pronouncements of the
Internal Revenue Service (the "Service"), any of which may be altered with
retroactive effect, thereby changing the federal income tax consequences
discussed below. There can be no assurance that the Service will not take a
contrary view, and no ruling from the Service has been or will be sought.
The tax treatment of a holder of Old RGC Notes or New Notes may vary
depending upon such holder's particular situation. Certain holders (including
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) may be subject to special rules not discussed
below. This discussion is limited to those who have held the Old RGC Notes as
"capital assets" and who will hold the New Notes as "capital assets" (generally,
property held for investment) within the meaning of Section 1221 of the Code.
EACH HOLDER SHOULD CONSULT HIS OR HER TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES OF EXCHANGING, HOLDING AND DISPOSING OF THE OLD RGC NOTES AND NEW
NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX
LAWS.
EXCHANGES OF OLD RGC NOTES FOR NEW NOTES AND THE EXCHANGE PAYMENT
GENERAL
Whether the exchange of Old RGC Notes for New Notes and the Exchange
Payment will be a recapitalization under the Code will depend in part upon
whether the Old RGC Notes and New Notes are considered to be "securities" within
the meaning of the provisions of the Code governing reorganizations. The test as
to whether a debt instrument is a "security" involves an overall evaluation of
the nature of the debt instrument, with the term of the debt instrument usually
regarded as a significant factor. Generally, a debt instrument with a term of
ten years or more is considered to constitute a security for purposes of the
reorganization provisions of the Code.
Although the treatment of Old RGC 10 1/4% Notes is not entirely certain
because the stated term of such instruments is less than ten years, the Old RGC
10 1/4% Notes should, and the Old RGC 9% Notes and New Notes will, be treated as
"securities" for federal income tax purposes. As a result, an exchange of Old
RGC Notes for New Notes and the Exchange Payment pursuant to the Exchange Offers
should constitute a recapitalization for federal income tax purposes. Thus,
exchanging holders of Old RGC Notes for New Notes and the Exchange Payment
should recognize gain, but not loss, equal to the lesser of (i) the amount of
the Exchange Payment received (other than that portion, if any, attributable to
accrued but unpaid interest on the Old RGC Notes) or (ii) the excess of the sum
of the issue price of the New Notes (or possibly their fair market value, for
cash method holders) and the amount of the Exchange Payment received over the
holders' adjusted tax basis in the Old RGC Notes surrendered therefor. Such gain
will be long-term capital gain if the Old RGC Notes had been held for more than
one year. A holder's initial tax basis in the New Notes received
136
<PAGE> 144
will equal such holder's adjusted tax basis in the Old RGC Notes exchanged
therefor, increased by any gain recognized as a result of the exchange and
decreased by the amount of the Exchange Payment received.
Because the law is unclear, however, Counsel is unable to opine on whether
the Old RGC 10 1/4% Notes will be treated as "securities" for federal income tax
purposes. If the Old RGC 10 1/4% Notes were determined not to constitute
"securities" for federal income tax purposes, holders exchanging Old RGC 10 1/4%
Notes for New Notes and the Exchange Payment would recognize gain or loss equal
to the difference between the sum of the issue price of the New Notes (or
possibly their fair market value for cash method holders) and the amount of cash
received (other than that portion, if any, attributable to accrued but unpaid
interest on the Old RGC 10 1/4 Notes) and the holders' adjusted tax basis in the
Old RGC 10 1/4% Notes surrendered therefor. Such gain or loss would generally be
long-term capital gain or loss, provided the Old RGC 10 1/4% Notes had been held
for more than one year. It should be noted that restrictions apply to the
deduction of net capital losses. Noncorporate taxpayers may deduct no more than
$3,000 of capital losses from ordinary income and corporations may deduct
capital losses only from capital gains.
ACCRUED INTEREST
Under the terms of the Exchange Offers, accrued interest on tendered Old
RGC Notes up to, but not including, the date on which such Old RGC Notes are
accepted for exchange or purchase will be paid in cash promptly after
consummation of the Exchange Offers.
CONSEQUENCES TO HOLDERS OF OLD RGC NOTES NOT PARTICIPATING IN THE EXCHANGE
OFFERS
Although not free from doubt, holders of Old RGC Notes who do not
participate in the Exchange Offers should not recognize any income, gain or loss
for federal income tax purposes as a result of the Proposed Amendments. Because
the law is unclear, however, Counsel is unable to opine on whether holders of
Old RGC Notes who do not participate in the Exchange Offers will recognize any
such income, gain or loss. The Service could assert that, due to the
modifications to certain covenants regarding the Old RGC Notes, such
non-participating holders should be treated as having exchanged their Old RGC
Notes for modified Old RGC Notes ("Modified Old RGC Notes"). The deemed exchange
should, however, constitute a recapitalization and non-participating holders
would not recognize any gain or loss as a result of such deemed exchange.
Modified Old RGC Notes may contain original issue discount if the Old RGC Notes
were treated as "traded on an established securities market" or, in certain
circumstances, in the case of a "potentially abusive situation." See "-- New
Notes -- Original Issue Discount."
NEW NOTES
STATED INTEREST
Holders of New Notes will be required to include stated interest in gross
income in accordance with their methods of accounting for tax purposes.
ORIGINAL ISSUE DISCOUNT
General Original Issue Discount Rules. The amount of original issue
discount, if any, on a debt instrument is the excess of its "stated redemption
price at maturity" over its "issue price," subject to a statutorily-defined de
minimis exception. The "issue price" of a debt instrument issued in exchange for
another debt instrument depends on whether either debt instrument is treated as
"traded on an established securities market." If neither is so traded, the issue
price of the debt instrument received will be equal to its stated principal
amount, assuming the debt instrument provides for "adequate stated interest"
(i.e., interest at least at the applicable Federal rate), and will be equal to
its "imputed principal amount" (the sum of the present values of all payments
due under the debt instrument, using a discount rate equal to the applicable
Federal rate) either if the debt instrument does not provide for "adequate
stated interest" or in the case of a "potentially abusive situation" (including
certain recent sales transactions). If the debt instrument received is "traded
on an established securities market," then its issue price will be its trading
price immediately following issuance. If the exchanged debt instrument is so
traded (but the debt instrument received in exchange therefor
137
<PAGE> 145
is not), the issue price of the debt instrument received will generally be equal
to the fair market value of the debt instrument exchanged therefor. The "stated
redemption price at maturity" of a debt instrument is the sum of its principal
amount plus all other payments required thereunder, other than payments of
"qualified stated interest" (defined generally as stated interest that is
unconditionally payable in cash or in property (other than debt instruments of
the issuer) at least annually at a single fixed rate that appropriately takes
into account the length of intervals between payments).
In general, a holder of a debt instrument with original issue discount must
include in gross income for federal income tax purposes the sum of the daily
portions of original issue discount with respect to such debt instrument for
each day during the taxable year or portion of a taxable year on which such
holder holds the debt instrument. The daily portion is determined by allocating
to each day of any accrual period (generally, a six month period or a shorter or
longer period from the date of original issuance) a pro rata portion of an
amount equal to the "adjusted issue price" of the debt instrument at the
beginning of the accrual period multiplied by the yield to maturity of the debt
instrument. The "adjusted issue price" is the issue price of the debt instrument
increased by the accrued original issue discount for all prior accrual periods
(and decreased by the amount of cash payments made in all prior accrual periods,
other than qualified stated interest payments). The tax basis of the debt
instrument in the hands of the holder will be increased by the amount of
original issue discount, if any, on the debt instrument that is included in the
holder's gross income and will be decreased by the amount of any cash payments
(other than qualified stated interest payments) received with respect to the
debt instrument, whether such payments are denominated as principal or interest.
Sections 1272 and 1273 of the Code and the Treasury regulations thereunder
provide detailed rules for computing original issue discount.
Notwithstanding the original issue discount rules described in the
preceding paragraphs, a holder of a debt instrument would not be required to
include original issue discount in income if such holder's tax basis in the debt
instrument were to exceed the debt instrument's stated principal amount. In
addition, a holder would be permitted to offset any original issue discount
income by an amount equal to the excess of such holder's tax basis (if less than
or equal to the stated principal amount) over the adjusted issue price of the
debt instrument.
New Notes. If neither the Old RGC Notes nor the New Notes were treated as
"traded on an established securities market," the issue price of the New Notes
would be equal to their stated principal amount (except in the case of a
"potentially abusive situation," as discussed above), and, because the stated
redemption price at maturity of the New Notes would also be equal to their
stated principal amount (in that all interest will be paid on a current basis in
cash), the New Notes generally would not be issued with original issue discount.
If the New Notes were considered to be "traded on an established securities
market," their issue price would be their trading price immediately following
their issuance. If the Old RGC Notes, but not the New Notes, were considered to
be so traded, then the issue price of the New Notes received would be equal to
the fair market value of the Old RGC Notes exchanged therefor. In either event,
if such trading price or fair market value were less than the stated principal
amount of the New Notes by more than the de minimis amount, holders of New Notes
would be required to include original issue discount in income.
MARKET DISCOUNT
The Code generally requires holders of "market discount bonds" to treat as
ordinary income any gain realized on the disposition (or gift) of such bonds to
the extent of the market discount accrued during the holder's period of
ownership. A "market discount bond" is a debt obligation purchased at a market
discount subject to a statutory de minimis exception. For this purpose, a
purchase at a market discount includes a purchase at or after the original issue
at a price below the stated redemption price at maturity, or, in the case of a
debt instrument issued with original issue discount, at a price below (a) its
"issue price," plus (b) the amount of original issue discount includible in
income by all prior holders of the debt instrument, minus (c) all cash payments
(other than payments constituting qualified stated interest) received by such
previous holders. The accrued market discount generally equals a ratable portion
of the bond's market discount, based on the number of days the taxpayer has held
the bond at the time of such disposition, as a percentage of the number of days
from the date the taxpayer acquired the bond to its date of maturity.
138
<PAGE> 146
An exception is made for certain tax-free (and partially tax-free)
exchanges, such as the exchange of Old RGC Notes for New Notes and the Exchange
Payment. In such cases, however, on a subsequent disposition of the stock or
securities received in such a non-recognition transaction, gain is treated as
ordinary income to the extent of the market discount accrued prior to the
nontaxable exchange. In that regard, the New Notes received by a holder of Old
RGC Notes will contain accrued market discount to the extent of the market
discount accrued in the Old RGC Notes but not recognized at the time of the
exchange.
AMORTIZABLE BOND PREMIUM
Generally, if the tax basis of an obligation held as a capital asset
exceeds the amount payable at maturity of the obligation, such excess will
constitute amortizable bond premium that the holder may elect to amortize under
the constant interest rate method and deduct over the period from his
acquisition date to the obligation's maturity date. A holder who elects to
amortize bond premium must reduce his tax basis in the related obligation by the
amount of the aggregate deductions allowable for amortizable bond premium.
Amortizable bond premium will be treated under the Code as an offset to interest
income on the related debt instrument for federal income tax purposes, subject
to the promulgation of Treasury regulations altering such treatment.
DISPOSITION
In general, a holder of New Notes will recognize gain or loss upon the
sale, exchange, redemption or other taxable disposition of such New Notes
measured by the difference between (i) the amount of cash and the fair market
value of property received (except to the extent attributable to accrued
interest on the New Notes) and (ii) the holder's tax basis in the New Notes (as
increased by any original issue discount and market discount previously included
in income by the holder and decreased by any amortizable bond premium, if any,
deducted over the term of the New Notes). Subject to the market discount rules
discussed above, any such gain or loss will generally be long-term capital gain
or loss, provided the New Notes had been held for more than one year.
ELECTION
A holder of New Notes, subject to certain limitations, may elect to include
all interest and discount, if any, on the New Notes in gross income under the
constant yield method. For this purpose, interest includes stated and unstated
interest, acquisition discount, original issue discount, de minimis market
discount and market discount, as adjusted by any acquisition premium. Such
election, if made in respect of a market discount bond, will constitute an
election to include market discount in income currently on all market discount
bonds acquired by such holder on or after the first day of the first taxable
year to which the election applies. See "-- Market Discount."
BACKUP WITHHOLDING
A holder of New Notes may be subject to backup withholding at the rate of
31% with respect to interest paid on and gross proceeds of a sale of the New
Notes unless (i) such holder is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (ii) provides a
correct taxpayer identification number, certifies as to no loss of exemption
from backup withholding and otherwise complies with applicable requirements of
the backup withholding rules. A holder of New Notes who does not provide the
Company with his or her correct taxpayer identification number may be subject to
penalties imposed by the Service.
The Company will report to the holders of the New Notes and the Service the
amount of any "reportable payments" (including any interest paid on the New
Notes) and any amount withheld with respect to the New Notes during the calendar
year.
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<PAGE> 147
TAX CONSEQUENCES TO THE COMPANY
EXCHANGE OFFERS AND SOLICITATION
In general, the consummation of the Exchange Offers and the Solicitation
will result in no material federal income tax consequences to the Company,
except that the Company will recognize cancellation of indebtedness income to
the extent that the adjusted issue price of the Old RGC Notes surrendered by
holders exceeds the sum of (i) the issue price of the New Notes (as described
above under "New Notes -- Original Issue Discount") and (ii) the amount of the
Exchange Payments delivered to holders in exchange therefor. The Company does
not expect to recognize any cancellation of indebtedness income as a result of
the consummation of the Exchange Offers and the Solicitation, although no
assurance can be given in this regard due to the uncertainty regarding the issue
price of the New Notes. See "New Notes -- Original Issue Discount."
NET OPERATING LOSS CARRYFORWARDS
Under Section 382 of the Code, if a corporation with net operating losses
(a "loss corporation") undergoes an "ownership change," the use of such net
operating losses will be limited annually to the product of the long-term
tax-exempt rate (published monthly by the Service) and the value of the loss
corporation's outstanding stock immediately before the ownership change
(excluding certain capital contributions) (the "Section 382 Limitation"). In
general, an "ownership change" occurs if the percentage of the value of the loss
corporation's stock owned by one or more direct or indirect "five percent
shareholders" has increased by more than 50 percentage points over the lowest
percentage of that value owned by such five percent shareholder or shareholders
at any time during the applicable "testing period" (generally the shorter of (i)
the three-year period preceding the testing date or (ii) the period of time
since the most recent ownership change of the corporation).
Both FFL and RSI have significant net operating loss carryforwards for
regular federal income tax purposes. The New Equity Investment and Merger will
trigger ownership changes for both the FFL and RSI affiliated groups for
purposes of Section 382 of the Code. As a result, the use of the FFL and RSI
pre-ownership change net operating loss carryforwards will be limited annually
by the Section 382 Limitation. The annual Section 382 Limitation that will be
applicable to the FFL net operating loss carryforwards is estimated to be
approximately $15.6 million, and the annual Section 382 Limitation that will be
applicable to the RSI net operating loss carryforwards is estimated to be
approximately $15 million.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF OLD RGC NOTES AND NEW
NOTES IN LIGHT OF HIS OR HER PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION.
EACH HOLDER OF OLD RGC NOTES AND NEW NOTES SHOULD CONSULT HIS OR HER TAX ADVISOR
AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE EXCHANGE OFFERS AND
THE SOLICITATION, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS.
LEGAL MATTERS
The validity of the New Notes to be issued in connection with the Exchange
Offers and the Solicitation will be passed upon for Food 4 Less by Latham &
Watkins, Los Angeles, California. Certain legal matters in connection with the
Exchange Offers and the Solicitation will be passed upon for the Dealer Managers
by Cahill Gordon & Reindel (a partnership including a professional corporation),
New York, New York.
140
<PAGE> 148
EXPERTS
The consolidated balance sheets of Ralphs Supermarkets, Inc. as of January
31, 1993 and January 30, 1994 and the related consolidated statements of
operations, cash flows and stockholders' equity for the year ended January 31,
1993, the year ended January 30, 1994, and the statements of operations, cash
flows and stockholders' equity of Ralphs Grocery Company for the year ended
February 2, 1992 have been included in this Prospectus and Solicitation
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
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, cash flows and stockholders' equity of Food 4 Less
Supermarkets, Inc. for the 52 weeks ended June 27, 1992, the 52 weeks ended June
26, 1993 and the 52 weeks ended June 25, 1994, and the related financial
statement schedules included in this Prospectus and Solicitation Statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
141
<PAGE> 149
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY):
Independent Auditors' Report (KPMG Peat Marwick LLP).................................. F-2
Consolidated balance sheets at January 31, 1993, January 30, 1994 and October 9, 1994
(unaudited)......................................................................... F-3
Consolidated statements of operations for the years ended February 2, 1992, January
31, 1993 and January 30, 1994 and the 36 weeks ended October 10, 1993 (unaudited)
and October 9, 1994 (unaudited)..................................................... F-4
Consolidated statements of cash flows for the years ended February 2, 1992, January
31, 1993 and January 30, 1994 and the 36 weeks ended October 10, 1993 (unaudited)
and October 9, 1994 (unaudited)..................................................... F-5
Consolidated statements of stockholders' equity for the years ended February 2, 1992,
January 31, 1993 and January 30, 1994 and the 36 weeks ended October 9, 1994
(unaudited)......................................................................... F-6
Notes to consolidated financial statements............................................ F-7
FOOD 4 LESS SUPERMARKETS, INC.:
Report of Independent Public Accountants (Arthur Andersen LLP)........................ F-27
Consolidated balance sheets as of June 26, 1993 and June 25, 1994 and September 17,
1994 (unaudited).................................................................... F-28
Consolidated statements of operations for the 52 weeks ended June 27, 1992, June 26,
1993 and June 25, 1994 and the 12 weeks ended September 18, 1993 (unaudited) and
September 17, 1994 (unaudited)...................................................... F-30
Consolidated statements of cash flows for the 52 weeks ended June 27, 1992, June 26,
1993 and June 25, 1994 and the 12 weeks ended September 18, 1993 (unaudited) and
September 17, 1994 (unaudited)...................................................... F-31
Consolidated statements of stockholder's equity for the 52 weeks ended June 27, 1992,
June 26, 1993 and June 25, 1994 and the 12 weeks ended September 17, 1994
(unaudited)......................................................................... F-33
Notes to consolidated financial statements............................................ F-34
</TABLE>
F-1
<PAGE> 150
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Ralphs Supermarkets, Inc.:
We have audited the consolidated balance sheets of Ralphs Supermarkets,
Inc. and subsidiary as of January 30, 1994 and January 31, 1993, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the years then ended and the statements of operations, stockholders' equity and
cash flows of Ralphs Grocery Company for the year ended February 2, 1992. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ralphs
Supermarkets, Inc. and subsidiary as of January 30, 1994 and January 31, 1993,
and the results of their operations and their cash flows for the years then
ended and the results of operations and cash flows of Ralphs Grocery Company for
the year ended February 2, 1992, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Los Angeles, California
April 8, 1994 (except as to
Note 16, which is as of
September 14, 1994)
F-2
<PAGE> 151
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30, OCTOBER 9,
1993 1994 1994
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents............................ $ 46,192 $ 55,080 $ 33,305
Accounts receivable.................................. 19,117 30,420 45,182
Inventories.......................................... 207,023 202,354 217,186
Prepaid expenses and other current assets............ 16,543 18,111 18,321
---------- ---------- ----------
Total current assets......................... 288,875 305,965 313,994
Property, plant and equipment, net................... 610,665 601,897 611,642
Excess of cost over net assets acquired, net......... 387,410 376,414 368,801
Beneficial lease rights, net......................... 60,757 55,553 50,733
Deferred debt issuance costs, net.................... 27,999 26,583 22,568
Deferred income taxes................................ -- 109,125 113,639
Other assets......................................... 12,792 8,113 9,985
---------- ---------- ----------
Total assets................................. $1,388,498 $1,483,650 $1,491,362
========== ========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt................. $ 66,465 $ 70,975 $ 79,865
Short-term debt...................................... 31,100 -- 37,400
Bank overdrafts...................................... 37,061 37,716 35,784
Accounts payable..................................... 120,709 138,554 141,775
Accrued expenses..................................... 127,788 101,543 109,273
Current portion of self-insurance reserves........... 27,732 30,138 28,209
---------- ---------- ----------
Total current liabilities.................... 410,855 378,926 432,306
Long-term debt....................................... 932,226 927,909 883,377
Self-insurance reserves.............................. 45,247 49,872 46,025
Lease valuation reserve.............................. 35,941 32,575 30,096
Other non-current liabilities........................ 97,526 89,299 84,593
---------- ---------- ----------
Total liabilities............................ 1,521,795 1,478,581 1,476,397
---------- ---------- ----------
Stockholders' equity (deficit):
Common stock, $.01 par value per share Authorized
50,000,000 shares; issued and outstanding,
25,587,280 shares at January 31, 1993, January 30,
1994 and October 9, 1994.......................... 256 256 256
Additional paid-in capital........................... 175,292 175,292 175,292
Accumulated deficit.................................. (308,845) (170,479) (160,583)
---------- ---------- ----------
Total stockholders' equity (deficit)......... (133,297) 5,069 14,965
---------- ---------- ----------
Commitments and contingencies (See Notes 2 and 8)
Total liabilities and stockholders' equity
(deficit).................................. $1,388,498 $1,483,650 $1,491,362
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 152
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTY-SIX THIRTY-SIX
YEAR ENDED YEAR ENDED YEAR ENDED WEEKS ENDED WEEKS ENDED
FEBRUARY 2, 1992 JANUARY 31, 1993 JANUARY 30, 1994 OCTOBER 10, 1993 OCTOBER 9, 1994
------------------ ------------------ ------------------ ------------------ ------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales................ $2,889,222 100.0% $2,843,816 100.0% $2,730,157 100.0% $1,874,222 100.0% $1,856,341 100.0%
Cost of sales........ 2,275,237 78.8 2,217,197 78.0 2,093,727 76.7 1,445,171 77.1 1,433,008 77.2
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Gross profit....... 613,985 21.2 626,619 22.0 636,430 23.3 429,051 22.9 423,333 22.8
Selling, general
and
administrative
expenses......... 456,602 15.8 466,737 16.4 467,630 17.1 319,417 17.1 316,045 17.0
Provision for
equity
appreciation
rights........... 18,321 0.6 -- -- -- -- -- -- -- --
Amortization of
excess cost over
net assets
acquired......... 10,996 0.4 10,997 0.4 10,996 0.4 7,614 0.4 7,613 0.4
Provision for
restructuring.... -- -- 7,100 0.2 2,374 0.1 -- -- -- --
Provision for post
retirement
benefits other
than pensions.... 2,627 0.1 3,275 0.1 3,370 0.1 2,079 0.1 1,821 0.1
Provision for tax
indemnification
payments to
Federated
Department
Stores, Inc...... 10,000 0.3 -- -- -- -- -- -- -- --
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Operating income... 115,439 4.0 138,510 4.9 152,060 5.6 99,941 5.3 97,854 5.3
Other expenses:
Interest expense,
net.............. 130,206 4.5 125,611 4.4 108,755 4.0 75,748 4.0 77,162 4.2
Loss on disposal of
assets........... 12,967 0.5 2,607 0.1 1,940 0.1 422 -- 796 --
Provision for legal
settlement....... -- -- 7,500 0.3 -- -- -- -- -- --
Provision for
earthquake
losses........... -- -- -- -- 11,048 0.4 -- -- -- --
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Earnings (loss)
before income taxes
and extraordinary
item............... (27,734) (1.0) 2,792 0.1 30,317 1.1 23,771 1.3 19,896 1.1
Income tax expense
(benefit).......... 13,506 0.4 8,346 0.3 (108,049) (4.0) -- -- -- --
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Earnings (loss)
before
extraordinary
item............... (41,240) (1.4) (5,554) (0.2) 138,366 5.1 23,771 1.3 19,896 1.1
Extraordinary
item-debt
refinancing, net of
tax benefit
$4,173............. -- -- (70,538) (2.5) -- -- -- -- -- --
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Net earnings
(loss)............. $ (41,240) (1.4)% $ (76,092) (2.7)% $ 138,366 5.1% $ 23,771 1.3% $ 19,896 1.1%
========== ===== ========== ===== ========== ===== ========== ===== ========== =====
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 153
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTY-SIX THIRTY-SIX
YEAR END YEAR END YEAR END WEEKS ENDED WEEKS ENDED
FEBRUARY 2, JANUARY 31, JANUARY 30, OCTOBER 10, OCTOBER 9,
1992 1993 1994 1993 1994
----------- --------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)........................... $(41,240) $ (76,092) $ 138,366 $ 23,771 $ 19,896
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Depreciation and amortization............... 76,552 76,873 74,452 51,704 51,929
Amortization of discounts and deferred debt
issuance costs............................ 8,564 20,978 9,768 6,715 6,322
LIFO charge (credit)........................ 2,829 1,115 (2,054) 2,615 1,897
Loss on sale of assets...................... 12,967 6,841 4,314 422 796
Provision for equity appreciation rights.... 18,321 -- -- -- --
Provision for post-retirement benefits...... 2,627 3,275 3,370 2,079 1,821
Provision for tax indemnification payments
to Federated Department Stores, Inc. ..... 10,000 -- -- -- --
Provision for legal settlement.............. -- 7,500 -- -- --
Other changes in assets and liabilities:
Accounts receivable........................... 20,660 6,376 326 (7) (14,763)
Inventories at replacement cost............... (21,523) (13,682) 6,724 6,058 (16,728)
Prepaid expenses and other current assets..... (4,446) 3,703 (1,658) 1,915 (210)
Other assets.................................. 2,133 (616) 4,449 2,353 (1,993)
Interest payable.............................. (1,448) (13,393) (4,822) (4,226) (11,089)
Accounts payable and accrued liabilities...... 1,606 23,054 (1,622) (771) 23,579
Income taxes payable.......................... 822 (527) (1,480) -- --
Deferred tax asset............................ -- -- (109,125) -- (4,514)
Business interruption credit.................. -- -- (581) -- --
Earthquake losses............................. -- -- (11,048) -- --
Self insurance reserves....................... 6,575 8,456 7,031 3,860 (5,776)
Other liabilities............................. 1,095 (170) (12,407) (6,957) (7,635)
-------- --------- --------- --------- ---------
Cash provided by operating activities......... 96,094 53,691 104,003 89,531 43,532
-------- --------- --------- --------- ---------
Cash flows from investing activities:
Capital expenditures.......................... (50,355) (102,697) (62,181) (46,827) (44,544)
Proceeds from sale of property, plant and
equipment................................... 8,498 219 16,700 2,968 6,362
-------- --------- --------- --------- ---------
Cash used in investing activities............. (41,857) (102,478) (45,481) (43,859) (38,182)
-------- --------- --------- --------- ---------
Cash flows from financing activities:
Net borrowings under lines of credit.......... 29,000 2,100 (31,100) (31,100) 37,400
Redemption of preferred stock................. -- (3,000) -- -- --
Capitalized financing and acquisition costs... (573) (22,426) (5,108) (5,717) (246)
Increase (decrease) in bank overdrafts........ (7,193) (8,865) 655 (751) (1,932)
Proceeds from issuance of long-term debt...... 2,000 668,269 150,000 150,000 --
Dividends paid................................ -- -- -- -- (10,000)
Principal payments on long-term debt.......... (75,361) (577,902) (164,081) (157,963) (52,347)
-------- --------- --------- --------- ---------
Cash provided by (used in) financing
activities.................................. (52,127) 58,176 (49,634) (45,531) (27,125)
-------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................... 2,110 9,389 8,888 141 (21,775)
Cash and cash equivalents at beginning of
period........................................ 34,693 36,803 46,192 46,192 55,080
-------- --------- --------- --------- ---------
Cash and cash equivalents at end of period...... $ 36,803 $ 46,192 $ 55,080 $ 46,333 $ 33,305
======== ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 154
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
RALPHS RALPHS
SUPERMARKETS, INC. GROCERY COMPANY
-------------------- -------------------- ADDITIONAL
OUTSTANDING COMMON OUTSTANDING COMMON PAID-IN- ACCUMULATED
SHARES STOCK SHARES STOCK CAPITAL DEFICIT TOTAL
----------- ------ ----------- ------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT FEBRUARY 3,
1991...................... -- $ -- 100 $ -- $ 175,548 $(191,513) $ (15,965)
Net Loss.................. -- -- -- -- -- (41,240) (41,240)
---------- ---- ---- ---- --------- ---------- ---------
BALANCES AT FEBRUARY 2,
1992...................... -- -- 100 -- 175,548 (232,753) (57,205)
Capitalization of Ralphs
Supermarkets, Inc. .... 25,587,280 256 (100) -- (256) -- --
Net Loss.................. -- -- -- -- -- (76,092) (76,092)
---------- ---- ---- ---- --------- ---------- ---------
BALANCES AT JANUARY 31,
1993...................... 25,587,280 256 -- -- 175,292 (308,845) (133,297)
Net earnings.............. -- -- -- -- -- 138,366 138,366
---------- ---- ---- ---- --------- --------- ---------
BALANCES AT JANUARY 30,
1994...................... 25,587,280 256 -- -- 175,292 (170,479) 5,069
Net Earnings
(unaudited)............ -- -- -- -- -- 19,896 19,896
Dividends Paid
(unaudited)............ -- -- -- -- -- (10,000) (10,000)
---------- ---- ---- ---- --------- --------- ---------
BALANCES AT OCTOBER 9, 1994
(unaudited)............... 25,587,280 $256 -- $ -- $ 175,292 $(160,583) $ 14,965
========== ==== ==== ==== ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 155
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION
At February 2, 1992, Ralphs Grocery Company was an indirect wholly owned
subsidiary of Federated Stores, Inc. ("Federated"). Two wholly owned
subsidiaries of Federated, Federated Holdings III, Inc. ("Holdings III") and
Allied Stores Corporation ("Allied") directly owned the common stock of Ralphs
Grocery Company approximately 84% and 16% respectively. In January 1990 Holdings
III and Allied, and certain other subsidiaries of Federated, each filed
petitions for relief under Chapter 11, Title 11 of the United States Code
("Chapter 11"). In March 1990, Federated filed a petition for relief under
Chapter 11. Pursuant to the plans of reorganization for Federated and certain of
its subsidiaries, Ralphs Supermarkets, Inc. was formed to hold the outstanding
shares of common stock of Ralphs Grocery Company. On February 3, 1992, Holdings
III and Allied contributed their shares of Ralphs Grocery Company to Ralphs
Supermarkets, Inc. in exchange for the issuance by Ralphs Supermarkets, Inc. of
Ralphs Supermarkets, Inc. shares in the same proportion in Ralphs Grocery
Company shares were owned ("Internal Reorganization"). For financial reporting
purposes, this transaction was recorded at predecessor cost. For Federal tax
purposes, a new basis was established at Ralphs Supermarket, Inc. as more fully
described in Note 11.
Under the plans of reorganization for Federated, Holdings III and certain
other subsidiaries of Federated (the "FSI Plan"), all Ralphs Supermarkets, Inc.
shares of common stock held by Holdings III were to be distributed to certain
creditors of Federated and Holdings III, including The Edward J. DeBartolo
Corporation ("EJDC"), Bank of Montreal ("BMO"), Banque Paribas ("BP") and Camdev
Properties Inc. ("Camdev"), and Federated. The FSI Plan was confirmed by the
Bankruptcy Court in January 1992 and was consummated on February 3, 1992. Under
the plan of reorganization of Allied and certain affiliates including Federated
Department Stores, Inc. (the "Allied-Federated Plan"), a portion of Allied's
Holding Company shares were to be distributed to BMO and BP. The
Allied-Federated Plan was confirmed by the Bankruptcy Court in January 1992 and
was consummated shortly after the FSI Plan.
Thus, following consummation of both the FSI Plan and the Allied-Federated
Plan and the transfer on July 19, 1993 of the shares of common stock in Ralphs
Supermarkets, Inc. held by Federated Stores, Inc. to Camdev. The approximate
ownership of Ralphs Supermarkets, Inc. is as follows:
<TABLE>
<CAPTION>
APPROXIMATE PERCENT
OWNERSHIP OF RALPHS
SUPERMARKETS, INC.
COMMON STOCK
AS OF JULY 19, 1993
----------------------------
<S> <C>
EJDC................................................ 60.4%
BMO................................................. 10.1%
BP.................................................. 10.1%
Camdev.............................................. 12.8%
Federated Department Stores, Inc. (as successor by
merger to Allied)................................. 6.6%
</TABLE>
Pursuant to certain agreements entered into contemporaneously with the
effectiveness of the FSI Plan and the Allied-Federated Plan, certain income tax
liabilities of Ralphs Grocery Company, Federated, Allied, Federated Department
Stores, Inc. and other affiliates have been settled with the Internal Revenue
Service. In addition, Ralphs Grocery Company and certain affiliates including
Federated Department Stores, Inc., Allied and Federated (the "Affiliated Group")
entered into an agreement (the "Tax Indemnity Agreement") pursuant to which
Federated Department Stores, Inc. agreed to pay certain tax liabilities, if any,
relating to Ralphs Grocery Company being a member of the Affiliated Group. The
Tax Indemnity Agreement provides a formula to determine the amount of additional
tax liabilities through February 3, 1992 that Ralphs Grocery
F-7
<PAGE> 156
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company would be obligated to pay the Affiliated Group. However, such additional
liability, if any, is limited to $10 million subject to certain adjustments.
Under the Tax Indemnity agreement, both Ralphs Supermarkets, Inc. and
Ralphs Grocery Company have agreed to pay Federated Department Stores, Inc. $1
million annually for each of five years starting on February 3, 1992, and an
additional $5 million on February 3, 1997. These total payments of $10 million
have been recorded in the consolidated financial statements at February 2, 1992.
The five $1 million installments are to be paid by Ralphs Grocery Company and
the $5 million is the joint obligation of both Ralphs Supermarkets, Inc. and
Ralphs Grocery Company. Also, in the event Federated Department Stores, Inc. is
required to pay certain tax liabilities on behalf of Ralphs Grocery Company,
both Ralphs Supermarkets, Inc. and Ralphs Grocery Company have agreed to
reimburse Federated Department Stores, Inc. up to an additional $10 million,
subject to certain adjustments. This additional obligation is the joint and
several obligation of both Ralphs Supermarkets, Inc. and Ralphs Grocery Company.
The $5 million payment and the potential $10 million payment may be paid, at the
option of both Ralphs Supermarkets, Inc. and Ralphs Grocery Company, in cash or
newly issued Ralphs Supermarkets, Inc. Common Stock.
In connection with the consummation of the FSI Plan and the
Allied-Federated Plan, Ralphs Grocery Company and certain parties entered into
an agreement (the "Comprehensive Settlement Agreement") pursuant to which the
parties thereto, among other things, agreed to deliver releases to the various
parties to the Comprehensive Settlement Agreement as well as certain additional
parties. Under the Comprehensive Settlement Agreement, Ralphs Grocery Company
received general releases from Allied, Federated, Federated Department Stores,
Inc. and certain other affiliates which released it from any and all claims
which could have been asserted by the parties thereto prior to the effective
dates of FSI Plan and the Allied-Federated Plan other than for claims arising
under the Comprehensive Settlement Agreement, the FSI Plan, the Allied-Federated
Plan and the Tax Indemnity Agreement.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
These consolidated financial statements present the statements of financial
position of Ralphs Supermarkets, Inc. and subsidiary as of January 30, 1994 and
January 31, 1993 and the results of their operations and their cash flows for
the two years then ended. In addition, these consolidated financial statements
present the results of operations and cash flows of Ralphs Grocery Company for
the year ended February 2, 1992. Ralphs Grocery Company is deemed to be the
predecessor entity of Ralphs Supermarkets, Inc. For purposes of these
consolidated financial statements Ralphs Supermarkets, Inc. and Ralphs Grocery
Company will be collectively referred to as "Ralphs".
The interim consolidated financial statements included herein have been
prepared by Ralphs (the "Company") without audit, pursuant to the rules and
regulations promulgated by the Securities and Exchange Commission (the
"Commission"). Certain information and footnote disclosures, normally included
in the financial statements prepared in accordance with generally accepted
accounting principles, have been omitted pursuant to Commission rules and
regulations; nevertheless, Ralphs believes that the disclosures are adequate to
make the information presented not misleading. These consolidated financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in Ralphs Grocery Company's latest annual report
filed on Form 10-K. In the opinion of management, all adjustments, consisting
only of normal recurring adjustments, necessary to present fairly the financial
position of Ralphs with respect to the interim financial statements, and of the
results of Ralphs' operations for the thirty-six weeks ended October 9, 1994 and
cash flows for the thirty-six weeks ended October 9, 1994 and the results of
Ralphs' operations for the thirty-six weeks ended October 10, 1993 and cash
flows for the thirty-six weeks ended October 10, 1993,
F-8
<PAGE> 157
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
have been included. The results of operations for the interim periods are not
necessarily indicative of the results for the full year.
(b) Reporting Period
Ralphs' fiscal year ends on the Sunday closest to January 31. Fiscal
year-ends are as follows:
February 2, 1992 (Fiscal 1991)
January 31, 1993 (Fiscal 1992)
January 30, 1994 (Fiscal 1993)
(c) Cash and Cash Equivalents
For purposes of the statements of cash flows, Ralphs considers all highly
liquid debt instruments with original maturities of three months or less to be
cash equivalents.
(d) Inventories
Inventories are stated at the lower cost or market. Cost is determined
primarily using the last-in, first-out (LIFO) method. The replacement cost of
inventories exceeded the LIFO inventory cost by $15.535 million and $17.589
million at January 30, 1994 and January 31, 1993, respectively.
(e) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Property and equipment
held under capital leases are stated at the present value of the minimum lease
payments at the inception of the lease.
Depreciation of plant and equipment is calculated using the straight-line
method over the estimated useful lives of assets. Plant and equipment held under
capital leases and leasehold improvements are amortized using the straight-line
method over the shorter of the lease term or the estimated useful life of the
asset. Useful lives range from 10 to 40 years for buildings and improvements and
3 to 20 years for fixtures and equipment.
Interest is capitalized in connection with the construction of major
facilities. The capitalized interest is recorded as part of the asset to which
it relates and is amortized over the asset's estimated useful life. Interest
cost capitalized during fiscal 1991, 1992 and 1993 was $.510 million, $1.074
million, and $.740 million, respectively.
(f) Deferred Debt Issuance Costs
Direct costs incurred as a result of financing transactions are capitalized
and amortized over the terms of the applicable debt agreements using the
effective interest method.
(g) Pre-opening Costs
Pre-opening costs of new stores are deferred and expensed at the time the
store opens. If a new store is ultimately not opened, the costs are expensed
directly to selling, general and administrative expense at the time it is
determined that the store will not be opened.
F-9
<PAGE> 158
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(h) Self Insurance Reserves
Ralphs is self-insured for a portion of workers' compensation, general
liability and automobile accident claims. Ralphs establishes reserve provisions
based on an independent actuary's review of claims filed and an estimate of
claims incurred but not yet filed.
(i) Excess of Cost Over Net Assets Acquired
The excess of cost over net assets acquired, resulting from the May 3, 1988
acquisition of Ralphs is being amortized using the straight-line method over 40
years. Ralphs assesses the recoverability of this intangible asset by
determining whether the amortization of the asset balance over its remaining
life can be recovered through projected undiscounted operating income (including
interest, depreciation and all amortization expense except amortization of
excess of cost over net assets acquired) over the remaining amortization period
of the excess of cost over net assets acquired. The amount of excess of cost
over net assets acquired impairment, if any, is measured based on projected
discounted future results using a discount rate reflecting Ralphs' average cost
of funds. Accumulated amortization aggregated $52.4 million and $63.4 million at
January 31, 1993 and January 30, 1994, respectively.
(j) Acquired Leases
Beneficial lease rights and lease valuation reserves are recorded as the
net present value of the differences between contractual rents under existing
lease agreements and fair value of entering such lease agreements as of the May
3, 1988 acquisition of Ralphs. All beneficial lease rights and lease valuation
reserves arose solely as a result of the May 3, 1988 acquisition. Adjustments to
the carrying value of these assets would typically occur only through additional
business combinations or in the event of early lease termination. Beneficial
lease rights are amortized using the straight-line method over the terms of the
leases. Lease valuation reserves are amortized using the interest method over
the terms of the leases.
(k) Discounts and Promotional Allowances
Promotional allowances and vendor discounts are recorded as a reduction of
cost of sales in the accompanying statements of operations. Allowance proceeds
received in advance are deferred and recognized over the period earned.
(l) Income Taxes
Through February 2, 1992, Ralphs operated under a tax-sharing agreement
with Federated and was included in the consolidated Federal tax returns of
Federated. Through January 28, 1990, Ralphs was included in the combined state
tax returns of Federated; however, Ralphs filed separate state tax returns
subsequent to January 28, 1990. Under the tax-sharing agreement, tax-sharing
payments were made to Federated based on the amount that Ralphs would be liable
for had Ralphs filed separate tax returns, taking into account applicable
carryback and carryforward provision of the tax laws.
Subsequent to February 2, 1992, Ralphs is responsible for filing tax
returns with the Internal Revenue Service and state taxing authorities. Prior to
February 3, 1992 Ralphs paid alternative minimum tax to Federated under its tax
sharing agreement. As a result of the Internal Reorganization, Ralphs will not
be entitled to offset its future Federal regular tax liability with the payments
made to Federated.
Effective for the fiscal year ended February 2, 1992, Ralphs adopted
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes." At the date of adoption such change had no impact on the
consolidated financial results.
F-10
<PAGE> 159
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(m) Postretirement Medical Benefits
Effective for the fiscal year ended February 3, 1991, Ralphs adopted SFAS
106, "Employers' Accounting for Postretirement Benefits other Than Pensions",
which requires that the cost of postretirement benefits other than pensions be
recognized in the financial statements over an employee's service with Ralphs.
(n) Reclassification
Certain amounts in the accompanying financial statements have been
reclassified to conform to the current year's presentation.
(o) Consolidation Policy
The consolidated financial statements include the accounts of Ralphs
Supermarkets, Inc., and its wholly owned subsidiary, Ralphs Grocery Company, and
its wholly owned subsidiary, collectively referred to as the Company. All
material intercompany balances and transactions are eliminated in consolidation.
(p) Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
(i) Cash and short-term investments
The carrying amount approximates fair value because of the short
maturity of those instruments.
(ii) Long-term debt
The fair value of Ralphs' long-term debt is estimated based on the
quoted market prices for the same or similar issues or on the
current rates offered to Ralphs for debt of the same remaining
maturities.
(iii) Interest Rate Swap Agreements
The fair value of interest rate swap agreements is the estimated
amount that Ralphs would receive or pay to terminate the swap
agreements at the reporting date, taking into account current
interest rates and the current credit-worthiness of the swap
counterparties.
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1993 1994
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Land................................................. $ 156,487 $ 159,904
Buildings and improvements........................... 180,639 191,179
Leasehold improvements............................... 149,273 161,341
Fixtures and equipment............................... 349,697 354,626
Capital leases....................................... 69,058 86,964
--------- ---------
905,154 954,014
Less: Accumulated depreciation....................... (266,127) (312,746)
Less: Accumulated capital lease amortization......... (28,362) (39,371)
--------- ---------
Property, plant and equipment, net................... $ 610,665 $ 601,897
========= =========
</TABLE>
F-11
<PAGE> 160
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) ACCRUED EXPENSES
Accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1993 1994
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accrued wages, vacation and sick leave............... $ 38,238 $ 34,763
Taxes other than income tax.......................... 13,285 11,084
Interest............................................. 15,912 11,090
Other................................................ 60,353 44,606
-------- --------
$127,788 $101,543
======== ========
</TABLE>
(5) LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1993 1994
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
First mortgage notes payable in monthly installments,
commencing June 1, 1994 of $1,553,000 including
interest at an effective rate of 9.651%; interest
only payable monthly prior to June 1, 1994. Final
payment due June 1, 1999. Secured by land and
buildings with a net book value of $190.8
million............................................ $178,482 $178,013
Notes payable in varying monthly installments
including interest ranging from 11.5% to 18.96%.
Final payment due through November 30, 1996.
Secured by equipment with a net book value of $30.0
million............................................ 17,920 9,721
Capitalized lease obligations at interest rates
ranging from 7.25% to 14% maturing at various dates
through 2009 (note 6).............................. 54,181 61,150
Note payable to bank................................. 350,000 300,000
Senior Subordinated Debentures, 14% due 2000......... 98,108 --
Initial Notes and Exchange Notes, 9% due 2003........ -- 150,000
Senior Subordinated Debentures, 10 1/4%, due 2002.... 300,000 300,000
-------- --------
Total long-term debt................................. 998,691 998,884
Less current maturities.............................. (66,465) (70,975)
-------- --------
Long-term debt....................................... $932,226 $927,909
======== ========
</TABLE>
During the third quarter of 1992, the Company implemented a
recapitalization plan (the "Recapitalization Plan") which was completed during
the first quarter of 1993 by the Company's offering of $150.0 million aggregate
principal amount of its 9% Senior Subordinated notes due 2003 (the "Initial
Notes") in private placement under the Securities Act of 1933, as amended (the
"Securities Act"). The proceeds of the Initial Notes were used to (i) purchase
for cancellation of $60.0 million aggregate principal amount of the Company's
14% Senior Subordinated Debentures due 2000 (the "14% Subordinated Debentures")
from a noteholder who had made an unsolicited offer to sell such 14%
Subordinated Debentures, (ii) defease the remaining $38.1 million aggregate
principal amount of the 14% Subordinated Debentures, (iii) prepay $36.1 million
of borrowings under the Company's $350.0 million 1992 term loan facility entered
into as part of the Recapitalization Plan and (iv) pay fees and expenses
associated with such transactions and for other
F-12
<PAGE> 161
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
purposes. As part of a registration rights agreement entered into with the
initial purchasers of the Initial Notes, the Company agreed to offer to exchange
up to $150.0 million aggregate principal amount of the Exchange Notes for all of
the outstanding Initial Notes (the "Exchange Offer"). The terms of the Exchange
Notes are substantially identical (including principal amount, interest rate and
maturity) in all respects to the terms of the Initial Notes except that the
Exchange Notes are freely transferable by the holders thereof (with certain
exceptions) and are not subject to any covenant upon the Company regarding
registration under the Securities Act. On June 24, 1993, the Company completed
the Exchange Offer exchanging $149.7 million aggregate principal amount of
Exchange Notes for Initial Notes ($.3 million of Initial Notes remain
outstanding).
The note payable to bank and working capital line, under the 1992 Credit
Agreement, are secured by first priority liens on Ralphs' inventory and
receivables, servicemarks and registered trademarks, equipment (other than
equipment located at facilities subject to existing liens in favor of equipment
financiers) and after-acquired real property interests and all existing real
property interests (other than those that are subject to prior encumbrances) and
bears interest at the rates, as selected by Ralphs as follows: (i) 1 3/4% over
the prime rate, or (ii) 2 3/4% over the Eurodollar Rate. Interest calculated
pursuant to (i) above is payable quarterly, otherwise interest is payable
quarterly or at the selected borrowings option maturity. During the 52 weeks
ended January 30, 1994, interest rates under these borrowings ranged from
5.9375% to 7.75%. Ralphs is required to pay an annual administrative fee of
$300,000 pursuant to the 1992 Credit Agreement as well as a commitment fee of
0.5% on the average daily amounts available for borrowing under the $120.0
million working capital credit line.
The 1992 Credit Agreement, which includes a $350.0 million term loan and
$120.0 million working capital credit line, also supports up to $60.0 million of
letters of credit which reduce the available borrowings on the credit line. The
1992 Credit Agreement is subject to quarterly principal payment requirements,
which commenced on March 31, 1993, with payment in full on June 30, 1998. As of
January 30, 1994, $51.1 million of letters of credit were outstanding, with
$68.9 million available under the working capital credit line.
In the fourth quarter of Fiscal 1992, Ralphs entered into an interest rate
cap agreement with an effective date of November 6, 1992 and a three-year
maturity. The interest rate cap agreement hedges the interest rate in excess of
6.5% LIBOR on $105.0 million principal amount against increases in short-term
rates. This agreement satisfies interest rate protection requirements under the
1992 Credit Agreement. In addition to the interest rate cap agreement, Ralphs
entered into an interest rate swap agreement on $150.0 million notional
principal amount. Under the interest rate swap agreement, Ralphs is required to
pay interest based on LIBOR at the end of each six month calculation period and
Ralphs will receive interest payments based on LIBOR at the beginning of each
six month calculation period. This interest rate swap agreement has a three-year
term expiring November 6, 1995. Ralphs is exposed to credit loss in the event of
nonperformance by the other party to the interest rate swap agreement. However,
Ralphs does not anticipate nonperformance by the counterpart.
The following details the impact of the hedging activity on the weighted
average interest rate for each of the last three fiscal years.
<TABLE>
<CAPTION>
WITH HEDGE WITHOUT HEDGE
---------- -------------
<S> <C> <C>
1991........................................ 11.87% 11.52%
1992........................................ 10.52% 10.22%
1993........................................ 8.96% 8.96%
</TABLE>
The Initial Notes and Exchange Notes are unsecured obligations of Ralphs
subordinated in right of payment to amounts due on the aforementioned senior
debt. Interest at 9% is payable each April 1 and October 1 through April 1,
2003, when the notes mature.
F-13
<PAGE> 162
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 10 1/4% Senior Subordinated Debentures are unsecured obligations of
Ralphs subordinated in right of payment to amounts due on the senior debt.
Interest at 10 1/4% is payable each January 15 and July 15 through July 15,
2002, when the debentures mature.
The aforementioned debt agreements contain various restrictive covenants
pertaining to net worth levels, limitations on additional indebtedness and
capital expenditures, financial ratios and dividends.
The aggregate maturities on long-term debt for each of the five years
subsequent to fiscal 1993 are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
------------
<S> <C>
1994...................................................... $ 70,975
1995...................................................... 81,572
1996...................................................... 83,756
1997...................................................... 81,716
1998...................................................... 50,406
1999 and thereafter....................................... 630,459
--------
$998,884
========
</TABLE>
The fair value of each class of financial instruments (where practical) is
as follows in (000s):
<TABLE>
<S> <C>
Long-term debt........................................... $1,014,634
Interest rate swap agreement............................. $ 1,153
Interest rate cap agreement.............................. $ (19)
</TABLE>
(6) LEASES
Ralphs has leases for retail store facilities, warehouses and manufacturing
plants for periods up to 30 years. Generally, the lease agreements include
renewal options for five years each. Under most leases, Ralphs is responsible
for property taxes, insurance, maintenance and expense related to the lease
property. Certain store leases require excess rentals based on a percentage of
sales at that location. Certain equipment is leased by Ralphs under agreements
ranging from 3 to 15 years. The agreements usually do not include renewal option
provisions.
F-14
<PAGE> 163
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Minimum rental payments due under capital leases and operating leases
subsequent to fiscal 1993 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES TOTAL
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1994............................................... $ 17,043 $ 57,264 $ 74,307
1995............................................... 15,172 55,424 70,596
1996............................................... 12,381 53,998 66,379
1997............................................... 11,607 51,124 62,731
1998............................................... 9,286 47,211 56,497
1999 and thereafter................................ 18,247 321,149 339,396
-------- -------- --------
Total minimum lease payments....................... $ 83,736 $586,170 $669,906
======== ========
Less amounts representing interest................. (22,586)
--------
Present value of net minimum lease payments........ 61,150
Less current portion of lease obligations.......... (11,052)
--------
Long-term capital lease obligations................ $ 50,098
========
</TABLE>
Total rent expense is summarized as follows:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
FEBRUARY 2, JANUARY 31, JANUARY 30,
1992 1993 1994
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Capital Leases
Contingent rental............................... $ 2,358 $ 2,443 $ 2,241
Rentals from subleases.......................... (2,133) (2,144) (2,048)
Operating Leases
Minimum rentals................................. 42,156 49,001 54,965
Contingent rentals.............................. 4,081 5,058 3,645
Rentals from subleases.......................... (1,057) (1,123) (1,150)
------- ------- -------
$45,405 $53,235 $57,653
======= ======= =======
</TABLE>
(7) SELF-INSURANCE
Ralphs is a qualified self-insurer in the State of California for worker's
compensation and for automobile liability. For fiscal 1991, 1992 and 1993 self
insurance loss provisions amounted to (in thousands) $25,549, $25,950 and
$30,323, respectively. Ralphs discounts self-insurance liabilities using an 8%
discount rate for all years presented. Management believes that this rate
approximates the time value of money over the anticipated payout period
(approximately 8 years) for essentially risk free investments.
Ralphs' historical self-insurance liability for the previous three fiscal
years is as follows:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
FEBRUARY 2, JANUARY 31, JANUARY 30,
1992 1993 1994
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Self-insurance liability........................... $ 82,757 $ 88,987 $ 97,864
Less: Discount..................................... (18,234) (16,008) (17,854)
-------- -------- --------
Net self-insurance liability....................... $ 64,523 $ 72,979 $ 80,010
======== ======== ========
</TABLE>
F-15
<PAGE> 164
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company expects that cash payments for claims will aggregate
approximately $28 million (unaudited) in fiscal year 1995, $19 million
(unaudited) in fiscal year 1996, $13 million (unaudited) in fiscal year 1997, $8
million (unaudited) in fiscal year 1998 and $7 million (unaudited) in fiscal
year 1999 and thereafter.
(8) COMMITMENTS AND CONTINGENCIES
In December 1992, three California state antitrust class action suits were
commenced in Los Angeles Superior Court against Ralphs and other major
supermarket chains located in Southern California, alleging that they conspired
to refrain from competing in 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. Ralphs intends to vigorously pursue its defense
in these actions.
On March 25, 1991, George A. Koteen Associates, Inc. ("Koteen Associates")
commenced an action in San Diego Superior Court alleging that Ralphs breached an
alleged utility rate consulting agreement. In December 1992, a jury returned a
verdict of $4,949,084 in favor of Koteen Associates and in March 1993,
attorney's fees and certain other costs were awarded to the plaintiff. Ralphs
has appealed the judgment and fully reserved in Fiscal 1992 against an adverse
judgment.
Environmental Matters
In January 1991, the California Regional Water Quality Control Board for
the Los Angeles Region (the "Regional Board") requested that Ralphs conduct a
subsurface characterization of Ralphs's Atwater property. This request was part
of an ongoing effort by the Regional Board, in connection with the U.S.
Environmental Protection Agency (the "EPA"), to identify contributors to
groundwater contamination in the San Fernando Valley. Significant parts of the
San Fernando Valley, including the area where Ralphs' Atwater property is
located, have been designated federal Superfund sites requiring response actions
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, because of regional groundwater contamination. On June 18,
1991, the EPA made its own request for information concerning the Atwater
property. Since that time, the Regional Board has requested further
investigations by Ralphs. Ralphs has conducted the requested investigations and
has reported the results to the Regional Board. Approximately 25 companies have
entered into a Consent Order with the EPA to investigate contaminated
groundwater beneath an area which includes the Atwater property. Ralphs is not a
party to that Consent Order, but is cooperating with requests of the subject
companies to allow installation of monitoring or recovery wells on Ralphs'
property. Based upon available information, management does not believe this
matter will have a material adverse effect on Ralphs' financial condition or
results of operations.
Ralphs has removed several underground storage tanks and remediated soil
contamination at the Atwater property. Although the possibility of other
localized contamination from prior operations or adjacent properties exists at
the Atwater property, management does not believe that the costs of remediating
such contamination will be material to Ralphs.
Ralphs has not incurred material capitalizable and noncapitalizable
expenses relating to environmental type issues during the previous three fiscal
years.
Ralphs has not incurred material preventative and remediation costs related
to environmental type issues.
Ralphs is a party to several pending legal proceedings and claims incurred
in the normal course of business. In the opinion of management, based in part on
the advice of counsel, these matters are adequately covered by insurance or will
not have a material effect on Ralphs' financial position or results of
operations.
F-16
<PAGE> 165
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) REDEEMABLE PREFERRED STOCK
Ralphs' non-voting preferred stock consisted of 10,000,000 shares of
authorized $.01 par value preferred stock. At February 3, 1991 and February 2,
1992, 170,000 shares of Class A Preferred Stock and 130,000 shares of Class B
Preferred Stock were issued and outstanding. All of the outstanding shares of
preferred stock were redeemed by Ralphs during February 1992 at their initial
issuance price of $3.0 million.
(10) EQUITY APPRECIATION RIGHTS PLANS
Effective August 26, 1988, Ralphs adopted an Equity Appreciation Plan
("1988 Plan"), whereby certain officers received equity rights representing, in
aggregate, the right to receive 15% of the increase in the appraised value (as
defined in the 1988 Plan) of the Ralphs' equity over an initial value of $120.0
million. The 1988 Plan was amended in January 1992 by agreement among Ralphs and
the Equity Rights holders ("Amended Plan"). Ralphs accrued for the increase in
equity appreciation rights over the contractually defined vesting period (fully
accrued in fiscal 1991), based upon the maximum allowable contractual amount
which approximated ending appraised value.
Under the Amended Plan, all outstanding Equity Rights are vested in full
are no longer subject to forfeiture by the holders, except in the event a
holder's employment is terminated for cause within the meaning of the Amended
Plan. The appraised value of Ralphs' equity is to be determined as of May 1 each
year by an investment banking company engaged for this purpose utilizing the
methodology specified in the Amended Plan (which is unchanged from that
specified in the 1988 Plan); however, under the Amended Plan the appraised value
of Ralphs' equity for purposes of the plan may not be less than $400.0 million
nor exceed $517.0 million. The amount of equity rights redeemable at any given
time is defined in each holders' separate agreement. On exercise of an equity
right, the holder will be entitled to receive a pro rata percentage of any such
increase in appraised value. In addition, the Amended Plan provides for the
possible additional further payment to the holder of each exercised Equity Right
of an amount equal to the "Deferred Value" of such Equity Right as defined in
the Amended Plan. Ralphs did not incur any expense under the Equity Appreciation
Rights Plan in fiscal 1992 and fiscal 1993.
The amount of Equity Rights redeemable for each of the five years
subsequent to fiscal 1993 are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C>
1994...................................................... $ 7,251
1995...................................................... 7,251
1996...................................................... 7,251
1997...................................................... 5,185
1998...................................................... 13,318
-------
$40,256
=======
</TABLE>
F-17
<PAGE> 166
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(11) INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
FEBRUARY 2, JANUARY 31, JANUARY 30,
1992 1993 1994
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal........................................ $ 9,224 $ 4,173 $ (2,424)
State.......................................... 4,282 -- 3,500
------- ------- ----------
$13,506 $ 4,173 $ 1,076
------- ------- ----------
Deferred
Federal........................................ $ -- $ -- $ (109,125)
State.......................................... -- -- --
------- ------- ----------
$ -- $ -- $ (109,125)
------- ------- ----------
Total income tax expense (benefit)............. $13,506 $ 4,173 $ (108,049)
======= ======= ==========
</TABLE>
Income tax expense (benefit) has been classified in the accompanying
statements of operations as follows:
<TABLE>
<CAPTION>
1991 1992 1993
------- ------- ---------
<S> <C> <C> <C>
Earnings before extraordinary items................. $13,506 $ 8,346 $(108,049)
Extraordinary item.................................. -- (4,173) --
------- ------- ---------
Net tax expense (benefit)........................... $13,506 $ 4,173 $(108,049)
======= ======= =========
</TABLE>
The differences between income tax expense and income taxes computed using
the top marginal U.S. Federal income tax rate of 34% for both Fiscal 1991 and
1992 and, for Fiscal 1993, of 35% applied to earnings (loss) before income taxes
(including, in Fiscal 1992, the extraordinary loss of $74.8 million) were as
follows:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
FEBRUARY 2, JANUARY 31, JANUARY 30,
1992 1993 1994
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Amount of expected expense (benefit) computed
using the statutory Federal rate............... $ (9,430) $ (24,450) $ 10,611
Utilization of financial operating loss........ -- -- (10,611)
Amortization of excess cost over net assets
acquired.................................... 3,356 3,356 --
State income taxes, net of Federal income tax
benefit..................................... 4,282 -- 3,500
Accounting limitation (recognition) of deferred
tax benefit................................. 6,139 20,041 (109,125)
Alternative minimum tax........................ 9,224 4,173 625
Other, net..................................... (65) 1,053 (3,049)
-------- ---------- ----------
Total income tax expense (benefit)..... $ 13,506 $ 4,173 $ (108,049)
======== ========== ==========
</TABLE>
F-18
<PAGE> 167
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Ralphs' deferred tax assets, recorded under SFAS 109, were comprised of the
following:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS
ENDED ENDED
JANUARY 31, JANUARY 30,
1993 1994
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deductible intangible assets................................. $ -- $ 56,000
Net operating loss carryforward and tax credit............... 5,907 40,125
Self insurance accrual....................................... 8,951 43,000
Software basis difference and amortization................... 9,320 --
Fees collected in advance.................................... 5,572 --
Property, plant and equipment basis difference and
depreciation............................................... 25,914 21,000
Equity appreciation rights................................... -- 16,000
Favorable lease basis differences............................ -- 16,000
State deferred taxes......................................... -- 17,000
Other........................................................ 16,539 40,000
---------- ----------
72,203 249,125
Less valuation allowance................................... (72,203) (140,000)
--------- ----------
Total.............................................. $ -- $ 109,125
========= ==========
</TABLE>
The provision for income taxes for the thirty-six weeks ended October 9,
1994 and the thirty-six weeks ended October 10, 1993 consists of the following:
<TABLE>
<CAPTION>
36 WEEKS 36 WEEKS
ENDED ENDED
OCTOBER 10, OCTOBER 9,
1993 1994
----------- ----------
(UNAUDITED)
<S> <C> <C>
Federal Income Taxes................................ $ 3,121 $ 836
State Income Taxes.................................. 1,290 3,678
Adjustment to Valuation Allowance for Deferred Tax
Assets............................................ (4,411) (4,514)
------- -------
Total Income Tax Provision.......................... $ -- $ --
======= =======
</TABLE>
On October 15, 1992, Ralphs filed an election with the Internal Revenue
Service under Section 338(h)(10). Under this Section, Ralphs is required to
restate, for Federal tax purposes, its assets and liabilities to fair market
value as of February 3, 1992. The effect of this transaction is to record a new
Federal tax basis to reflect a change of control for Federal tax purposes
resulting from the Internal Reorganization. No change of control for financial
reporting purposes was affected.
In August, 1993, The Omnibus Budget Reconciliation Act of 1993 (the "Act")
was enacted. The Act increased the Federal income tax rate from 34 to 35 percent
for filers whose taxable income exceeded $10.0 million. In the current year, the
effect of the Federal income tax rate change was to increase the net deferred
tax assets. In addition, the Act also provided for the deductibility of certain
intangibles, including costs in excess gross assets acquired.
The Act has significantly impacted the aggregate deferred tax asset
position of Ralphs at January 30, 1994. Ralphs elected to retroactively apply
certain provisions of the Act related to the February 3, 1992 change of control
for Federal tax purposes. As such, approximately $610.7 million in excess of
cost over net assets acquired became fully deductible for Federal tax purposes.
This amount is deductible over 15 years.
F-19
<PAGE> 168
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
This excess in the tax basis over the financial statement basis of excess of
cost over net assets acquired aggregated $153.0 million at January 30, 1994.
During the year ended January 30, 1994, Ralphs has recorded the incremental
impact of the Act on deductible temporary differences and increased its deferred
income tax assets by a net amount of $109.1 million. The decision to reduce the
valuation allowance was based upon several factors. Specific among them, was the
Company's completion of its restructuring plan which effectively reduced
estimated interest expense by approximately $9.0 as compared to the year ended
January 31, 1993. In addition, the January 31, 1993 operating results were
negatively effected by several charges including provisions for restructuring,
legal settlements and a loss on retirement of debt all aggregating approximately
$90 million on a pre-tax basis.
Although there can be no assurance as to future taxable income, the Company
believes that, based upon the above mentioned events, as well as the Company's
expectation of future taxable income, it is more likely than not that the
recorded deferred tax asset will be realized. In order to realize the net
deferred tax asset currently recorded, Ralphs will need to generate sufficient
future taxable income, assuming current tax rates, of approximately $300.0
million.
At January 30, 1994, the Company has Federal net operating loss (NOL)
carryforwards of approximately $115.0 million and Federal and state Alternative
Minimum Tax Credit carryforwards of approximately $2.1 million which can be used
to offset Federal taxable income and regular taxes payable, respectively. The
NOL carryforwards begin expiring in 2008.
During the past two fiscal years, the Company has generated Federal taxable
losses of approximately $115.0 million versus financial pre-tax losses of
approximately $42.0 million for the same periods. These differences result
principally from excess tax versus financial amortization on certain intangible
assets (excess of cost over net assets acquired), as well as several other
originating temporary differences.
(12) EMPLOYEE BENEFIT PLANS
Ralphs has a defined benefit pension plan covering substantially all
employees not already covered by collective bargaining agreements with at least
one year of credit service (defined at 1,000 hours). Ralphs' policy is to fund
pension costs at or above the minimum annual requirement.
The following actuarially determined components were included in the net
pension expense:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
FEBRUARY 2, JANUARY 31, JANUARY 30,
1992 1993 1994
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost...................................... $ 1,806 $ 2,076 $ 2,228
Interest cost on projected benefit obligation..... 2,079 2,471 2,838
Actual return on assets........................... (3,291) (2,794) (2,695)
Net amortization and deferral..................... 992 237 (46)
------- ------- -------
Net pension expense............................. $ 1,586 $ 1,990 $ 2,325
======= ======= =======
</TABLE>
F-20
<PAGE> 169
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status of Ralphs' pension plan, (based on December 31, 1992 and
1993 asset values), is as follows:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1993 1994
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation................................... $18,608 $29,659
Accumulated benefit obligation.............................. 20,887 29,950
Projected benefit obligation................................ 33,378 42,690
Plan assets at fair value................................... 30,684 32,968
------- -------
Projected benefit obligation in excess of Plan Assets......... (2,694) (9,722)
Unrecognized net gain......................................... (1,959) 4,567
Unrecognized prior service cost............................... 46 (1,778)
Unrecognized net asset........................................ -- --
------- -------
Accrued pension cost........................................ $(4,607) $(6,933)
======= =======
</TABLE>
Service costs for fiscal 1991, 1992 and 1993 were calculated using a rate
of increase in future compensation levels of 6% and discount rate of 8.5%.
Certain assumptions will be revised to reflect future trends in fiscal 1994. The
discount rate will be reduced to 7.75% to reflect current decline in interest
rates and the rate of increase in future compensation levels will be 5% for
fiscal 1994. These changes are not expected to have a material effect on Fiscal
1994 operations. A long-term rate of return on assets of 9% was used for fiscal
1992 and 1993.
Plan assets consist primarily of debt securities, guaranteed interest
contracts and a money market fund. Plan benefits are based primarily on years of
service and on average compensation during the last years of employment.
On February 23, 1990, Ralphs adopted a Supplemental Executive Retirement
Plan covering certain key officers of Ralphs. Earned vested benefits under the
Plan were $4,246,300 at December 31, 1992 and $5,075,000 at December 31, 1993.
Under certain circumstances, the cash surrender value of certain split-dollar
life insurance policies purchased under split-dollar life insurance agreement
will offset Ralphs' obligations under the Supplemental Executive Retirement
Plan.
Ralphs participates in multi-employer pension plans and health and welfare
plans administered by various trustees for substantially all union employees.
Contributions to these plans are based upon negotiated contractual rates. The
United Food and Commercial Workers health and welfare benefit plans were
overfunded and those employers who contributed to these plans are to receive a
pro-rata share of the excess reserve in these health care benefit plans through
a reduction in current maintenance payments. Ralphs share of the excess reserve
was approximately $24.5 million of which $11.8 million was recognized in Fiscal
1993 and the remainder will be recognized in Fiscal 1994. Since employers are
required to make contributions to the benefit funds at whatever level is
necessary to maintain plan benefits, there can be no assurance that plan
maintenance payments will remain at current levels.
F-21
<PAGE> 170
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The expense related to these plans is summarized as follows:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
FEBRUARY 2, JANUARY 31, JANUARY 30,
1992 1993 1994
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Multi-employer pension plans...................... $ 7,370 $ 7,973 $17,687
======= ======= =======
Multi-employer health and welfare................. $73,250 $71,183 $45,235
======= ======= =======
</TABLE>
Ralphs maintains the Ralphs Grocery Company Savings Plan Plus--Prime and
the Ralphs Grocery Savings Plan Plus -- Basic (collectively referred to as the
"401(k) Plan") covering substantially all employees who are not covered by
collective bargaining agreements and who have at least one year of credited
service (defined at 1,000 hours). The 401(k) Plan provided for both pre-tax and
after-tax contributions by participating employees. With certain limitations,
participants may elect to contribute from 1% to 10% of their annual compensation
on a pre-tax basis to the Plan. Ralphs has committed to match a minimum of 20%
of an employee's contribution to the 401(k) Plan that do not exceed 5% of the
employee's compensation. Expenses under the 401(k) Plan for fiscal 1991, 1992
and 1993 were $377,335, $407,961 and $431,774, respectively.
Ralphs has an executive incentive compensation plan which covers
approximately 39 key employees. Benefits to participants are earned based on a
percentage of base compensation upon attainment of a targeted formula of
earnings. Expense under this plan for fiscal 1991, 1992 and 1993 was $2.4
million, $2.5 million and $2.6 million, respectively. Ralphs has also adopted an
incentive plan for certain members of management. Benefits to participants are
earned based on a percentage of base compensation upon attainment of a targeted
formula of earnings. Expense under this plan for fiscal 1991, 1992 and 1993 was
$2.8 million, $2.8 million and $3.0 million, respectively.
The aforementioned incentive plans may be cancelled by the Board of
Directors at any time.
Ralphs sponsors a postretirement medical benefit plan (Postretirement
Medical Plan) covering substantially all employees who are not members of a
collective bargaining agreement and who retire under certain age and service
requirements.
The Postretirement Medical Plan is a traditional type medical plan
providing outpatient, inpatient and various other covered services. Such
benefits are funded from Ralphs' general assets. The calendar year deductible is
$1,180 per individual, indexed to the Medical Consumer Price Index.
On February 3, 1991, Ralphs adopted Statement of Financial Accounting
Standards (SFAS) 106, "Employees' Accounting for Postretirement Benefits other
Than Pension," which required that the cost of future benefits under the
Postretirement Medical Plan be recognized in the financial statements over an
employee's service with Ralphs. At the beginning of fiscal 1990, Ralphs elected
to immediately recognize the transition obligation in accordance with the
provision of SFAS 106. Previously, expenses were recognized as paid.
F-22
<PAGE> 171
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The net periodic cost of the Postretirement Medical Plan includes the
following components:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
FEBRUARY 2, JANUARY 31, JANUARY 30,
1992 1993 1994
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost...................................... $1,323 $1,908 $1,767
Interest cost..................................... 1,304 1,367 1,603
Return on plan assets............................. -- -- --
Net amortization and deferral..................... -- -- --
------ ------ ------
Net postretirement benefit cost................. $2,627 $3,275 $3,370
</TABLE>
The funded status of the postretirement benefit plan is as follows:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS
ENDED ENDED
JANUARY 31, JANUARY 30,
1993 1994
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees...................................................... $ 2,218 $ 1,237
Fully eligible plan participants.............................. 441 357
Other active plan participants................................ 16,675 16,062
Plan assets at fair value..................................... -- --
-------- --------
Funded status................................................. (19,334) (17,656)
Plan assets in excess of projected obligations................ -- --
Unrecognized gain (loss)...................................... 1,694 6,302
Unrecognized prior service cost............................... -- --
-------- --------
Accrued postretirement benefit obligation..................... $(21,028) $(23,958)
======== ========
</TABLE>
Service cost was calculated using a medical cost trend of 10.5% for fiscal
1992 and 1993. Certain assumptions will be revised to reflect future trends. The
discount rate will be reduced to 7.75% in 1994 to reflect current decline in
interest rates. The long term rate of return of plan assets is not applicable as
the plan is not funded.
The effect on a one-percent increase in the medical cost trend would
increase the fiscal 1993 service and interest cost of 24%. The accumulated
postretirement benefit obligation at January 30, 1994 would also increase by
31%.
F-23
<PAGE> 172
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) QUARTERLY RESULTS (UNAUDITED)
Quarterly results for fiscal 1992 and 1993 are as follows:
<TABLE>
<CAPTION>
EXTRAORDINARY
ITEM, NET OF NET
GROSS OPERATING INCOME INCOME TAX EARNINGS/
SALES PROFIT INCOME TAXES BENEFIT (LOSS)
------- ------ --------- ------- ------------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
FY 1992 Quarters
12 weeks ended 04/26/92............. $ 677.0 $146.7 $ 35.1 $ 3.9 $ -- $ 2.2
12 weeks ended 07/19/92............. 660.3 143.5 33.0 3.9 -- 1.7
12 weeks ended 10/11/92............. 631.4 137.0 28.8 1.3 (55.8) (58.6)
16 weeks ended 01/31/93............. 875.1 199.4 41.6 (.8) (14.8) (21.4)
-------- ------ ------- ------- ------- -------
Total....................... $2,843.8 $626.6 $ 138.5 $ 8.3 $ (70.6) $ (76.1)
======== ====== ======= ======= ======= =======
FY 1993 Quarters
12 weeks ended 04/25/93............. $ 632.4 $142.4 $ 31.4 $ 1.0 $ -- $ 3.9
12 weeks ended 07/18/93............. 629.0 145.2 36.8 (1.0) -- 12.9
12 weeks ended 10/10/93............. 612.8 141.5 31.7 -- -- 7.0
16 weeks ended 01/30/94............. 856.0 207.4 52.2 (108.0) -- 114.6
------- ------ ------- ------- ------- -------
Total....................... $2,730.2 $636.5 $ 152.1 $(108.0) $ -- $ 138.4
======== ====== ======= ======= ======= =======
</TABLE>
(14) SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS 36 WEEKS 36 WEEKS
ENDED ENDED ENDED ENDED ENDED
FEBRUARY 2, JANUARY 31, JANUARY 30, OCTOBER 10, OCTOBER 9,
1992 1993 1994 1993 1994
----------- ----------- ----------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Supplemental cash flow disclosures:
Interest paid, net of amounts
capitalized........................... $ 115,159 $ 118,391 $93,738 $ 65,148 $ 65,969
Income taxes paid........................ $ 12,643 $ 7,169 $ 2,423 $ 2,196 $ 4,750
Capital lease assets and obligations
assumed............................... $ 3,847 $ -- $15,395 $ 92 $ 17,630
</TABLE>
(15) STOCK OPTION PLAN
On February 3, 1992, 3,162,235 options for Common Stock of the Company were
granted under the Ralphs Non-qualified Stock Option Plan. All options were
vested, but not exercisable, on the date of the grant. Options granted to
certain officers become exercisable at the rate of 20% on each September 30 of
calendar years 1992 through 1996. Options granted to other officers become
exercisable as to 10% of the grant on each of September 30, 1992 and 1993, 15%
on each of September 30, 1994 through September 30, 1997, and 20% on September
20, 1998.
F-24
<PAGE> 173
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the Ralphs Non-qualified Stock Option Plan.
<TABLE>
<CAPTION>
NUMBER OF PRICE
OPTIONS RANGE
--------- ------
<S> <C> <C>
Options Outstanding at January 30, 1994:
Beginning of year............................................. 3,162,235 $20.21
Granted....................................................... -- --
Exercised..................................................... -- --
Cancelled..................................................... -- --
Expired....................................................... -- --
End of year................................................ 3,162,235 $20.21
--------- ------
Exercisable at end of year...................................... 811,760 --
--------- ------
Available for grant at end of year.............................. -- --
--------- ------
Options Outstanding at January 31, 1993:
Beginning of year............................................. -- --
Granted....................................................... 3,162,235 $20.21
Exercised..................................................... -- --
Cancelled..................................................... -- --
Expired....................................................... -- --
--------- ------
End of year................................................ 3,162,235 $20.21
--------- ------
Exercisable at end of year...................................... 405,880 --
--------- ------
Available for grant at end of year.............................. -- --
--------- ------
</TABLE>
The option price for outstanding options at January 30, 1994 assumes a
grant date fair market value of Common Stock of the Company equal to $20.21 per
share, which represents the high end of a range of estimated values of the
Common Stock of the Company on February 3, 1992, the date of the grant.
(16) SUBSEQUENT EVENT (UNAUDITED)
On September 14, 1994 Ralphs entered into a definitive Agreement and Plan
of Merger (the "Merger") with Food 4 Less, Inc. ("FFL"), Food 4 Less Holdings
("FFL Holdings") and Food 4 Less Supermarkets, Inc. ("FFL Supermarkets").
Pursuant to the terms of the Merger Agreement, Ralphs will merge with FFL
Supermarkets and become a wholly-owned subsidiary of FFL Holdings. Conditions to
the consummation of the Merger include, among other things, receipt of
regulatory approvals and other necessary consents and the completion of
financing for the transactions. The consideration price paid for the Company
approximates $1.5 billion, including assumption of debt.
Upon the effectiveness of the Merger, each outstanding share of common
stock, par value $0.01 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 FFL Holdings (the "Debentures"). This represents aggregate
consideration, payable to the stockholders of the Company of $425 million in
cash and $100 million initial principal amount of Debentures.
F-25
<PAGE> 174
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Upon consummation of the Merger, the operations and activities of Ralphs
will be significantly impacted due to conversions of some existing stores to
Food 4 Less warehouse stores as well as the consolidation of various operating
functions and departments. This consolidation may result in a restructuring
charge for the merged entity. 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 stockholders' equity and financial position of
Ralphs at January 30, 1994 and to the merged entity.
F-26
<PAGE> 175
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, and with respect to
the matter discussed in Note 15, as to
which the date is October 14, 1994)
F-27
<PAGE> 176
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 17,
JUNE 26, JUNE 25, 1994
1993 1994 -------------
-------- -------- (UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 25,089 $ 32,996 $ 29,388
Trade receivables, less allowances of $1,919, $1,386
and $1,318 at June 26, 1993, June 25, 1994 and
September 17, 1994, respectively.................... 22,048 25,039 24,331
Notes and other receivables............................ 1,278 1,312 1,094
Inventories............................................ 191,467 212,892 210,548
Patronage receivables from suppliers................... 2,680 2,875 3,998
Prepaid expenses and other............................. 6,011 6,323 9,437
-------- -------- ---------
Total current assets........................... 248,573 281,437 278,796
INVESTMENTS IN AND NOTES RECEIVABLE FROM SUPPLIER
COOPERATIVES:
A.W.G.................................................. 6,693 6,718 6,718
Certified and Other.................................... 6,657 5,984 5,952
PROPERTY AND EQUIPMENT:
Land................................................... 23,912 23,488 23,488
Buildings.............................................. 12,827 12,827 12,827
Leasehold improvements................................. 81,049 97,673 101,634
Store equipment and fixtures........................... 129,178 148,249 150,851
Transportation equipment............................... 31,758 32,259 32,306
Construction in progress............................... 757 12,641 20,369
Leased property under capital leases................... 77,553 78,222 78,222
Leasehold interests.................................... 93,863 93,464 93,473
-------- -------- ---------
450,897 498,823 513,170
Less: Accumulated depreciation and amortization........ 96,948 134,089 143,135
-------- -------- ---------
Net property and equipment.......................... 353,949 364,734 370,035
OTHER ASSETS:
Deferred financing costs, less accumulated amortization
of $11,611, $17,083 and $18,382 at June 26, 1993,
June 25, 1994 and September 17, 1994,
respectively........................................ 33,778 28,536 27,245
Goodwill, less accumulated amortization of $26,254,
$33,945 and $35,732 at June 26, 1993, June 25, 1994
and September 17, 1994, respectively................ 280,895 267,884 266,097
Other, net............................................. 27,295 24,787 23,643
-------- -------- ---------
$957,840 $980,080 $ 978,486
======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE> 177
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
JUNE 26, JUNE 25, SEPTEMBER 17,
1993 1994 1994
-------- -------- ------------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable....................................... $140,468 $180,708 $ 176,148
Accrued payroll and related liabilities................ 40,319 42,805 43,767
Accrued interest....................................... 5,293 5,474 14,310
Other accrued liabilities.............................. 40,467 53,910 48,782
Income taxes payable................................... 2,053 2,000 1,249
Current portion of self-insurance liabilities.......... 23,552 29,492 29,492
Current portion of long-term debt...................... 12,778 18,314 19,566
Current portion of obligations under capital leases.... 2,865 3,616 3,612
-------- -------- ---------
Total current liabilities................................ 267,795 336,319 336,926
LONG-TERM DEBT........................................... 335,576 310,944 311,457
OBLIGATIONS UNDER CAPITAL LEASES......................... 41,864 39,998 39,186
SENIOR SUBORDINATED DEBT................................. 145,000 145,000 145,000
DEFERRED INCOME TAXES.................................... 22,429 14,740 14,740
SELF-INSURANCE LIABILITIES AND OTHER..................... 72,313 64,058 65,503
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, June 25, 1994 and September 17,
1994 (aggregate liquidation value of $53.8 million,
$62.2 million and $64.4 million at June 26, 1993,
June 25, 1994 and September 17, 1994,
respectively)....................................... 50,230 58,997 61,373
Common stock, $.01 par value, 1,600,000 shares
authorized and 1,519,632 shares issued at June 26,
1993, June 25, 1994 and September 17, 1994.......... 15 15 15
Additional paid-in capital............................. 107,650 107,650 107,650
Notes receivable from shareholders of parent........... (714) (586) (586)
Retained deficit....................................... (83,119) (94,586) (100,309)
-------- -------- ---------
74,062 71,490 68,143
Treasury stock: 13,249 shares, 16,732 shares and 16,732
shares of common stock at June 26, 1993, June 25,
1994 and September 17, 1994, respectively........... (1,199) (2,469) (2,469)
-------- -------- ---------
Total stockholder's equity..................... 72,863 69,021 65,674
-------- -------- ---------
$957,840 $980,080 $ 978,486
======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-29
<PAGE> 178
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FIFTY-TWO FIFTY-TWO FIFTY-TWO TWELVE WEEKS TWELVE WEEKS
WEEKS ENDED WEEKS ENDED WEEKS ENDED ENDED ENDED
JUNE 27, JUNE 26, JUNE 25, SEPTEMBER 18, SEPTEMBER 17,
1992 1993 1994 1993 1994
----------- ----------- ----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SALES...................................... $2,913,493 $2,742,027 $2,585,160 $ 616,616 $ 598,698
COST OF SALES (including purchases from
related parties of $277,812, $204,028,
$175,929, $47,607 and $41,165 for the 52
weeks ended June 27, 1992, June 26, 1993,
and June 25, 1994, and for the 12 weeks
ended September 18, 1993 and September
17, 1994, respectively).................. 2,392,655 2,257,835 2,115,842 504,269 495,656
----------- ----------- ----------- ---------- -----------
GROSS PROFIT............................... 520,838 484,192 469,318 112,347 103,042
SELLING, GENERAL, ADMINISTRATIVE AND OTHER,
NET...................................... 469,751 434,908 388,836 95,694 88,152
AMORTIZATION OF EXCESS COST OVER NET ASSETS
ACQUIRED................................. 7,795 7,571 7,691 1,772 1,787
----------- ----------- ----------- ---------- -----------
OPERATING INCOME........................... 43,292 41,713 72,791 14,881 13,103
INTEREST EXPENSE:
Interest expense, excluding amortization
of deferred financing costs........... 63,907 64,831 62,778 14,491 14,709
Amortization of deferred financing
costs................................. 6,304 4,901 5,472 1,239 1,299
----------- ----------- ----------- ---------- -----------
70,211 69,732 68,250 15,730 16,008
LOSS (GAIN) ON DISPOSAL OF ASSETS.......... (1,364) (2,083) 37 (37) (458)
PROVISION FOR EARTHQUAKE LOSSES............ -- -- 4,504 -- --
----------- ----------- ----------- ---------- -----------
LOSS BEFORE PROVISION FOR INCOME TAXES AND
EXTRAORDINARY CHARGES.................... (25,555) (25,936) -- (812) (2,447)
PROVISION FOR INCOME TAXES................. 3,441 1,427 2,700 300 900
----------- ----------- ----------- ---------- -----------
LOSS BEFORE EXTRAORDINARY CHARGES.......... (28,996) (27,363) (2,700) (1,112) (3,347)
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) $ (1,112) $ (3,347)
========== ========== ========== ========== ==========
PREFERRED STOCK ACCRETION.................. -- 3,882 8,767 2,023 2,376
LOSS APPLICABLE TO COMMON SHARES........... $ (33,814) $ (31,245) $ (11,467) $ (3,135) $ (5,723)
========== ========== ========== ========== ==========
LOSS PER COMMON SHARE:
Loss before extraordinary charges........ $ (20.74) $ (21.52) $ (7.63) $ (2.08) $ (3.81)
Extraordinary charges.................... (3.45) -- -- -- --
----------- ----------- ----------- ---------- -----------
Net loss................................. $ (24.19) $ (21.52) $ (7.63) $ (2.08) $ (3.81)
========== ========== ========== ========== ==========
Average Number of Common Shares
Outstanding........................... 1,397,939 1,452,184 1,503,828 1,505,004 1,502,900
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE> 179
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
FIFTY-TWO FIFTY-TWO FIFTY-TWO TWELVE TWELVE
WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
JUNE 27, JUNE 26, JUNE 25, SEPTEMBER 18, SEPTEMBER 17,
1992 1993 1994 1993 1994
----------- ----------- ----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH PROVIDED (USED) BY OPERATING
ACTIVITIES:
Cash received from customers............ $ 2,913,493 $ 2,742,027 $ 2,585,160 $ 616,616 $ 598,698
Cash paid to suppliers and employees.... (2,752,442) (2,711,779) (2,441,353) (586,745) (582,504)
Interest paid........................... (56,234) (58,807) (56,762) (4,367) (5,873)
Income taxes (paid) refunded............ (4,665) 2,971 (247) 1,289 (1,651)
Interest received....................... 1,266 993 903 202 688
Other, net.............................. 4,734 8,093 121 2,093 140
----------- ----------- ----------- ------------- -------------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES.............................. 106,152 (16,502) 87,822 29,088 9,498
CASH PROVIDED (USED) BY INVESTING
ACTIVITIES:
Proceeds from sale of property and
equipment............................ 17,395 15,685 11,953 2,486 2,703
Payment for purchase of property and
equipment............................ (60,263) (53,467) (57,471) (6,585) (16,750)
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 -- -- -- --
Other, net.............................. -- -- -- 799 --
----------- ----------- ----------- ------------- -------------
NET CASH USED BY INVESTING ACTIVITIES..... (62,926) (37,800) (55,755) (3,300) (14,047)
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) (4,900) 6,100
Payments of long-term debt.............. (184,389) (14,319) (14,224) (1,955) (4,335)
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) (667) (816)
Deferred financing costs and other...... (6,656) (8,839) (179) (214) (8)
----------- ----------- ----------- ------------- -------------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES.............................. (40,231) 54,914 (24,160) (7,736) 941
----------- ----------- ----------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................. 2,995 612 7,907 18,052 (3,608)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD.................. 21,482 24,477 25,089 25,089 32,996
----------- ----------- ----------- ------------- -------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD........................ $ 24,477 $ 25,089 $ 32,996 $ 43,141 $ 29,388
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE> 180
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
FIFTY-TWO FIFTY-TWO FIFTY-TWO TWELVE TWELVE
WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
JUNE 27, JUNE 26, JUNE 25, SEPTEMBER 18, SEPTEMBER 17,
1992 1993 1994 1993 1994
------------ ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED (USED) BY OPERATING ACTIVITIES:
Net loss................................ $ (33,814) $(27,363) $ (2,700) $ (1,112) $ (3,347)
Adjustments to reconcile net loss to net
cash provided (used) by operating
activities:
Depreciation and amortization........ 61,181 62,541 62,555 14,263 14,301
Extraordinary charge................. 4,818 -- --
Loss (gain) on sale of assets........ (1,364) (4,613) 65 (37) (458)
Equity loss on investments in
supplier cooperative............... 472 207 -- -- 32
Change in assets and liabilities, net
of effects from acquisition of
businesses:
Accounts and notes receivable...... (7,688) 17,145 (3,220) (5,777) (197)
Inventories........................ 202 17,697 (17,125) 7,562 2,344
Prepaid expenses and other......... (2,834) (6,163) (5,717) (3,213) (3,982)
Accounts payable and accrued
liabilities..................... 71,369 (83,286) 55,301 14,573 (1,945)
Self-insurance liabilities......... 15,034 2,935 (3,790) 1,240 3,501
Deferred income taxes.............. 2,033 4,004 2,506 1,289 --
Income taxes payable............... (3,257) 394 (53) 300 (751)
------------ ------------ ------------ ------------- -------------
Total adjustments.................... 139,966 10,861 90,522 30,200 12,845
------------ ------------ ------------ ------------- -------------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES.............................. $ 106,152 $(16,502) $ 87,822 $ 29,088 $ 9,498
========== ========== ========== ========== ==========
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 $ 2,023 $ 2,376
========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-32
<PAGE> 181
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<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
SHARES 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) $103,658 $ (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
Net loss (unaudited)... -- -- -- -- -- -- -- -- (3,347) (3,347)
Accretion of Preferred
Stock (unaudited).... -- 2,376 -- -- -- -- -- -- (2,376) --
------ ------- --------- ------ ------- ------- -------- -------- --------- --------
BALANCES AT SEPTEMBER 17,
1994 (unaudited)....... 50,000 $61,373 1,519,632 $ 15 (16,732) $(2,469) $ (586) $107,650 $(100,309) $ 65,674
======= ======== ========= ======= ======== ======== ======= ========= ========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-33
<PAGE> 182
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.
(a) Acquisitions
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
receivable from AWG as security under this supply agreement.
On June 17, 1991, the Company acquired all of the common stock of Alpha
Beta for $270,513,000 (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
(a) Business
The Company is engaged primarily in the operation of retail supermarkets.
(b) Basis of Presentation
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.
Interim Financial Statements. The consolidated balance sheet of the Company
as of September 17, 1994 and the consolidated statements of operations and cash
flows for the interim periods ended September 17, 1994 and September 18, 1993
are unaudited, but include all adjustments (consisting of only normal recurring
accruals) which the Company considers necessary for a fair presentation of its
consolidated financial position, results of operations and cash flows for these
periods. These interim financial statements do not include all disclosures
required by generally accepted accounting principles, and, therefore, should be
read in conjunction
F-34
<PAGE> 183
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
with the Company's financial statements and notes thereto included herein.
Results of operations for interim periods are not necessarily indicative of the
results for a full fiscal year.
(c) 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.
(d) 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.
(e) 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,
$13,802,000 and $14,822,000 (unaudited) at June 26, 1993, June 25, 1994 and
September 17, 1994, respectively, and gross profit and operating income would
have been greater by $3,554,000, $4,441,000, $699,000, $1,011,000 (unaudited)
and $1,020,000 (unaudited) for the 52 weeks ended June 27, 1992, the 52 weeks
ended June 26, 1993, the 52 weeks ended June 25, 1994, the 12 weeks ended
September 18, 1993, and the 12 weeks ended September 17, 1994, respectively.
(f) Pre-opening Costs
The costs associated with opening new stores are deferred and amortized
over one year following the opening of each new store.
(g) Closed Store Reserves
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. For the 52 weeks ended
June 27, 1992, the 52 weeks ended June 26, 1993, the 52 weeks ended June 25,
1994, the 12 weeks ended September 18, 1993 and the 12 weeks ended September 17,
1994, utilization of this reserve was $4.0 million, $2.4 million, $1.1 million,
$0.2 million (unaudited) and $0.2 million (unaudited), respectively.
(h) Investments in Supplier Cooperatives
The investment in Certified is accounted for on the cost method. There are
certain restrictions on the sale of this investment.
(i) 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.
F-35
<PAGE> 184
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(j) 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> <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>
(k) Deferred Financing Costs
Costs incurred in connection with the issuance of debt are amortized over
the term of the related debt using the effective interest method.
(l) 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.
(m) 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.
(n) 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.
(o) 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.
F-36
<PAGE> 185
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(p) 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.
(q) 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. At June 25, 1994, the Company had received all
expected insurance proceeds related to this claim.
(r) Extraordinary Items
For the 52 weeks ended 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.
(s) 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.
(t) 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
F-37
<PAGE> 186
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
(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
F-38
<PAGE> 187
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
weighted average interest rate on the Bank Term Loan was 6.5 percent. 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.
F-39
<PAGE> 188
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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.
F-40
<PAGE> 189
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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>
F-41
<PAGE> 190
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision (benefit) for deferred taxes consists of the following:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 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>
F-42
<PAGE> 191
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The significant components of the Company's deferred tax assets
(liabilities) are as follows:
<TABLE>
<CAPTION>
JUNE 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 25, 1994 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.
F-43
<PAGE> 192
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
(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.
The Company self-insures its workers compensation and general liability.
For the 52 weeks ended June 25, 1994, the 52 weeks ended June 26, 1993, and the
52 weeks ended June 27, 1992 self-insurance loss provisions were $19,880,000,
$38,040,000 and $46,140,000, respectively. The Company discounts its self-
insurance liability using a 7% discount rate for all years presented. Management
believes that this rate
F-44
<PAGE> 193
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximates the time value of money over the anticipated payout period
(approximately 10 years) for essentially risk free investments.
The Company's historical self-insurance liability for the three most recent
fiscal years 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>
Self-insurance liability.......... $ 95,605,000 $100,773,000 $90,898,000
Less: Discount.................... (13,046,000) (15,279,000) (9,194,000)
------------ ------------ -----------
Net self-insurance liability...... $ 82,559,000 $ 85,494,000 $81,704,000
=========== =========== ==========
</TABLE>
The Company expects that cash payments for claims will aggregate
approximately $14 million (unaudited), $20 million (unaudited), $17 million
(unaudited), $12 million (unaudited) and $7 million (unaudited) for its fiscal
years ended in June 1995, 1996, 1997, 1998 and 1999.
(10) EMPLOYEE BENEFIT PLANS
The Company implemented SOP No. 93-6, Employer Accounting for Employee
Stock Ownership Plans, effective June 26, 1994. The implementation of SOP No.
93-6 did not have a material effect on the accompanying unaudited consolidated
financial statements.
The Company and its subsidiaries sponsor several defined contribution
benefit plans. The full-time employees of Falley's who are not members of a
collective bargaining agreement are covered under a 401(k) plan 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 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. As of September 17,
1994, the fair value of the shares allocated which are subject to a repurchase
obligation by an affiliate of the Company was approximately $13,286,000
(unaudited).
The Company also sponsors two ESOPs for employees of the Company who are
members of certain collective bargaining agreements (the "Union ESOPs"). The
Union ESOPs provide for annual contributions based on hours worked at a rate
specified by the terms of the collective bargaining agreements. The Company
contributions are made in the form of Holdings stock or cash for the purchase of
Holdings stock and are to be allocated to participants based on hours worked.
During the 12 weeks ended September 17, 1994, the Company recorded a charge
against operations of approximately $77,000 (unaudited) for benefits under the
Union ESOPs. There were no shares issued to the Union ESOPs at September 17,
1994.
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
F-45
<PAGE> 194
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
(a) Cash and Cash Equivalents
The carrying amount approximates fair value as a result of the short
maturity of these instruments. (b) Short-Term Notes and Other Receivables
The carrying amount approximates fair value as a result of the short
maturity of these instruments.
(c) Investments In and Notes Receivable From Supplier Cooperatives
The Company maintains a non-current deposit with Certified in the form of
Class B shares of Certified. Certified is not obligated in any fiscal year to
redeem more than a prescribed number of the Class B shares issued. Therefore, it
is not practicable to estimate the fair value of this investment.
The Company maintains 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.
(d) 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.
F-46
<PAGE> 195
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
- Practicable to estimate fair values..................... 457,064,000 472,779,000
- 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
Licensing fees..................................... 493,000 246,000 270,000
Other income (expense)............................. 769,000 3,710,000 (177,000)
---------- ---------- ---------
$2,528,000 $4,949,000 $ 996,000
========= ========= =========
</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, 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
F-47
<PAGE> 196
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
(15) RESTATEMENT
The Company has restated the statements of operations for its fiscal years
ended June 27, 1992, June 26, 1993 and June 25, 1994 and the 12 weeks ended
September 18, 1993 to classify certain buying, occupancy and labor costs
associated with making its products available for sale as cost of sales. These
amounts were previously classified as selling, general, administrative, and
other net, and depreciation and amortization of property and equipment and
totalled $236,152,000, $224,469,000, $219,548,000 and $50,910,000 (unaudited)
for the fiscal years ended June 27, 1992, June 26, 1993 and June 25, 1994 and
the 12 weeks ended September 18, 1993, respectively. The Company has also
classified a portion of its self-insurance costs as interest expense that was
previously recorded in selling, general, administrative and other, net. These
amounts were $4,960,000, $5,865,000, $5,836,000 and $1,389,000 (unaudited) for
the fiscal years 1992, 1993 and 1994 and the 12 weeks ended September 18, 1993,
respectively. Depreciation and amortization costs not classified in cost of
sales are included in selling, general, administrative and other, net. The
change in classification did not affect the net loss, loss before provision for
income taxes and extraordinary charges or loss per common share.
F-48
<PAGE> 197
APPENDIX A
COMPARISON OF OLD RGC NOTES AND NEW NOTES
The terms of the New Notes differ from the current (unamended) terms of the
Old RGC Notes in certain significant respects including those described below.
The comparisons set forth below are summaries which do not purport to be
complete and are qualified in their entirety by reference to the description of
the Proposed Amendments and to the description of the New Notes and the related
definitions contained therein.
<TABLE>
<CAPTION>
OLD RGC NOTES NEW NOTES
- ------------------------------------------------------ ------------------------------------------------------
<S> <C>
ISSUER ISSUER
RGC The Company, as successor by merger to RGC.
PRINCIPAL AMOUNT OUTSTANDING PRINCIPAL AMOUNT OUTSTANDING
Old RGC 9% Notes: Up to $450 million.
As of November 1, 1994, $150 million.
Old RGC 10 1/4 Notes:
As of November 1, 1994, $300 million.
INTEREST RATE INTEREST RATE
Old RGC 9% Notes: Concurrently with the Exchange Offers and the other
bear interest at the rate of 9% per annum. financing transactions described herein, Food 4 Less is
offering up to $400 million principal amount of New F4L
Old RGC 10 1/4% Notes: Senior Notes in the Public Offering. The Public
bear interest at the rate of 10 1/4% per annum. Offering is expected to price ten business days
preceding the Expiration Date. The New Notes offered
pursuant to the Exchange Offers will bear interest at a
fixed rate per annum equal to the greater of (a) 11.50%
and (b) the Applicable Treasury Rate plus 425 basis
points (4.25 percentage points); provided, however,
that in no event will the New Notes bear interest at a
rate per annum that is less than the interest rate on
the New F4L Senior Notes offered in the Public Offering
plus 50 basis points (0.50 percentage points).
The "Applicable Treasury Rate" means the yield to
maturity at the time of computation of United States
Treasury securities with a constant maturity (as
compiled by, and published in, the most recent Federal
Reserve Statistical Release H.15 (519)) most nearly
equal to the average life to stated maturity of the New
Notes; provided, that if the average life to stated
maturity of the New Notes is not equal to the constant
maturity of the United States Treasury security for
which a weekly average yield is given, the Treasury
Rate shall be obtained by linear interpolation
(calculated to the nearest one-twelfth of the year)
from the weekly average yields of the United States
Treasury securities for which such yields are given.
INTEREST PAYMENT DATES INTEREST PAYMENT DATES
Old RGC 9% Notes: March 1 and September 1, commencing on September 1,
April 1 and October 1. 1995.
Old RGC 10 1/4% Notes:
January 15 and July 15.
FINAL MATURITY DATE FINAL MATURITY DATE
Old RGC 9% Notes: March 1, 2005.
April 1, 2003.
Old RGC 10 1/4% Notes:
July 15, 2002.
OPTIONAL REDEMPTION OPTIONAL REDEMPTION
Old RGC 9% Notes: The New Notes will be redeemable at the option of the
The Old RGC 9% Notes are subject to redemption in Company, in whole or in part, at any time on or after
whole or in part, at the option of RGC, at any time March 1, 2000, at the following redemption prices
on or after April 1, 2000, at 100% of the principal (expressed as percentages of principal amount) if
amount thereof plus accrued and unpaid interest to redeemed during the twelve month period beginning March
the redemption date. 1 of the years set forth below:
Old RGC 10 1/4% Notes: YEAR PERCENTAGE
The Old RGC 10 1/4% Notes are subject to redemption ---- ----------
in whole or in part, at the option of RGC, at any 2000............................ 104.3125%
time on or after July 15, 1997, at the following 2001............................ 102.8750%
redemption prices if redeemed during the twelve-month 2002............................ 101.4375%
period beginning July 15, 1997 of the years indicated 2003 and thereafter............. 100.0000%
below:
in each case plus accrued and unpaid interest to the
redemption
</TABLE>
A-1
<PAGE> 198
<TABLE>
<CAPTION>
OLD RGC NOTES NEW NOTES
- ------------------------------------------------------ ------------------------------------------------------
<S> <C>
1997..........................................105.0% date. In the event the interest rate on the New Notes
1998..........................................102.5% is greater than 11.50%, the above redemption prices
1999 and thereafter...........................100.0% will be correspondingly adjusted.
in each case plus accrued and unpaid interest to the In addition, on or prior to March 1, 1998, the Company
redemption date. may, at its option, use the net cash proceeds of one or
more Public Equity Offerings to redeem up to an
aggregate of 35% of the principal amount of the New
Notes originally issued, at a redemption price equal to
111.5% of the principal amount thereof if redeemed
during the 12 months commencing on March 1, 1995,
110.0625% of the principal amount thereof if redeemed
during the 12 months commencing on March 1, 1996 and
108.625% of the principal amount thereof if redeemed
during the 12 months commencing on March 1, 1997, in
each case plus accrued and unpaid interest to the
redemption date. In order to effect the foregoing
redemption with the proceeds of a Public Equity
Offering, the Company shall send the redemption notice
not later than 60 days after the consummation of such
Public Equity Offering. The documents evidencing Senior
Indebtedness will restrict the Company's ability to
optionally redeem New Notes.
GUARANTEES GUARANTEES
None. The New Notes will be guaranteed on a senior
subordinated basis by the Subsidiary Guarantors. The
Guarantees will be general unsecured obligations of the
Subsidiary Guarantors, and will be released upon the
occurrence of certain events. See "Description of the
New Notes -- Guarantees."
"Subsidiary Guarantors" means (i) each of Alpha Beta
Company, Bay Area Warehouse Stores, Inc., Bell Markets,
Inc., Cala Co., Cala Foods, Inc., Falley's Inc., Food 4
Less of California, Inc., Food 4 Less Merchandising,
Inc., Food 4 Less GM, Inc. and Food 4 Less of Southern
California, Inc., (ii) upon consummation of the Merger,
Crawford Stores, Inc., (iii) each of the Company's
Subsidiaries which becomes a guarantor of the New Notes
in compliance with the provisions set forth under
"-- Certain Covenants -- Guarantees of Certain
Indebtedness," and (iv) each of the Company's
Subsidiaries executing a supplemental indenture in
which such Subsidiary agrees to be bound by the terms
of the New Note Indenture.
RANKING RANKING
Subordinated to all Senior Indebtedness of RGC which, The New Notes will be senior subordinated unsecured
as of October 9, 1994, was approximately $540 obligations of the Company and will be subordinated in
million. right of payment to all Senior Indebtedness of the
Company, including the Company's obligations under the
"Senior Indebtedness" means (i) the principal of, Credit Agreement and the indebtedness under the New F4L
premium, if any, and accrued and unpaid interest on Senior Notes and the Old F4L Senior Notes, if any.
(including, without limitation, interest at the
contract rate subsequent to the commencement of any The Indebtedness represented by each Guarantee
bankruptcy, insolvency or similar proceeding with (including the payment of principal of, premium, if
respect to RGC and with respect to the 1992 Credit any, and interest on the New Notes) will be
Agreement only, such interest whether or not a claim subordinated on the same basis to Guarantor Senior
therefor is allowed in such proceeding), letters of Indebtedness as the New Notes are subordinated to
credit (or reimbursement agreements with respect Senior Indebtedness.
thereto) and any fees and reasonable expenses payable
under or in respect of (A) Indebtedness of RGC under At September 17, 1994, on a pro forma basis after
the 1992 Credit Agreement, (B) Indebtedness of RGC, giving effect to the Merger and the financing (and
contingent or otherwise, in respect of borrowed money certain related assumptions), the aggregate outstanding
(whether or not the recourse of the lender is to the amount of Senior Indebtedness of the Company (excluding
whole of the assets of RGC or only to a portion thereof Company guarantees of certain Guarantor Senior
and including any Indebtedness issued in exchange for Indebtedness) would have been approximately $1,554.8
Indebtedness for borrowed money), (C) Guaranties by RGC million and the aggregate outstanding amount of Guar-
of Indebtedness for borrowed money (exclusive of antor Senior Indebtedness of the Subsidiary Guarantors
whether such Indebtedness would appear on a balance (excluding guarantees by Subsidiary Guarantors of
sheet), (D) Indebtedness of RGC evidenced by notes, certain Senior Indebtedness) would have been
debentures, bonds, overdrafts or other similar approximately $16.0 million and the Company would have
instruments for which RGC is liable, bankers' had $218.2 million available to be borrowed under the
acceptances or similar credit transactions or New Revolving Facility.
representing the balance deferred and unpaid of the
purchase price of any property that would appear as a "Senior Indebtedness" means the principal of, premium,
liability on RGC's consolidated balance sheet prepared if any, and interest on any Indebtedness of the
in accordance with GAAP consistently applied, (E) Company, whether outstanding on the Issue Date or
obligations of RGC under leases which have, in thereafter created, incurred or assumed, unless, in the
accordance with GAAP consistently applied, been case of any particular Indebtedness, the instrument
recorded as capital leases, and (F) obligations under creating or evidencing the same or pursuant to which
interest rate and currency swaps, caps, collars,
options, forward or
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spot contracts or similar arrangements or with respect the same is outstanding expressly provides that such
to foreign currency hedges or similar agreements or Indebtedness shall not be senior in right of payment to
arrangements designed to protect RGC against the New Notes. Without limiting the generality of the
fluctuations in interest or currency rates, and (ii) foregoing, "Senior Indebtedness" shall include (x) the
modifications, renewals, extensions and refundings (in- principal of, premium, if any, and interest on all
cluding increases and refinancing of the Indebtedness obligations of every nature of the Company from time to
of RGC under the 1992 Credit Agreement) of the time owed to the lenders under the Credit Agreement
foregoing obligations, unless the foregoing obligations including, without limitation, the Letter of Credit
or such modifications, renewals, extensions and Obligations and principal of and interest on, and all
refundings thereof provide by their terms that such fees, indemnities, and expenses payable under the
shall not be superior in right of payment to the Old Credit Agreement and the Letter of Credit Obligations
RGC Notes. Notwithstanding the foregoing, "Senior and (y) interest accruing thereon subsequent to the
Indebtedness" shall not include (i) Indebtedness occurrence of any Event of Default specified in clause
evidenced by the Old RGC Notes, (ii) Indebtedness that (vi) or (vii) under "Events of Default" in the New Note
is subordinate or junior in right of payment to any Indenture relating to the Company, whether or not the
Indebtedness of RGC (provided, however, that claim for such interest is allowed under any applicable
Indebtedness under the 1992 Credit Agreement shall Bankruptcy Code.
always be considered Senior Indebtedness), (iii) any
liability for federal, state, provincial, local or Notwithstanding the foregoing, "Senior Indebtedness"
other taxes owed or owing by RGC, (iv) Indebtedness of shall not include (a) Indebtedness evidenced by the New
RGC to a Subsidiary of RGC or any other Affiliate of Notes, (b) Indebtedness that is expressly subordinate
RGC or any of such Affiliate's subsidiaries other than or junior in right of payment to any Indebtedness of
payments pursuant to the EJDC Guaranty, (v) that the Company, (c) Indebtedness which, when incurred and
portion of any Indebtedness which at the time of without respect to any election under Section 1111(b)
issuance is issued in violation of the applicable Old of Title 11, United States Code, is without recourse to
RGC Indenture, and (vi) amounts owing under leases the Company, (d) Indebtedness which is represented by
(other than Capital Lease Obligations). Disqualified Capital Stock, (e) obligations for goods,
materials or services purchased in the ordinary course
"1992 Credit Agreement" means that certain Credit of business or obligations consisting of trade
Agreement dated as of July 22, 1992 among RGC, the payables, (f) Indebtedness of or amounts owed by the
lenders named therein and Bankers Trust Company, as Company for compensation to employees or for services
agent, as the same may be amended, amended and rendered to the Company, (g) any liability for federal,
restated, supplemented or otherwise modified from time state, local or other taxes owed or owing by the
to time and any agreement providing for aggregate Company, (h) Indebtedness of the Company to a
extension of credit in excess of $25,000,000 Subsidiary of the Company and (i) that portion of any
refinancing or replacing such agreement. Indebtedness which is incurred by the Company in
violation of the New Note Indenture.
"EJDC Guaranty" means the Guaranty issued by the
Permitted Holder guaranteeing the payment of
obligations of RGC as required under workers'
compensation regulations in the State of California and
any extensions and renewals thereof.
"Guarantor Senior Indebtedness" means, with respect to
any Subsidiary Guarantor, the principal of, premium, if
any, and interest on any Indebtedness of such
Subsidiary Guarantor, whether outstanding on the Issue
Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the
instrument creating or evidencing the same or pursuant
to which the same is outstanding expressly provides
that such Indebtedness shall not be senior in right of
payment to the Guarantee of such Subsidiary Guarantor.
Without limiting the generality of the foregoing,
"Guarantor Senior Indebtedness" shall include the
principal of, premium, if any, and interest on all
obligations of every nature of such Subsidiary
Guarantor from time to time owed to the lenders under
the Credit Agreement, including, without limitation,
the Letter of Credit Obligations and principal of and
interest on, and all fees, indemnities and expenses
payable under the Credit Agreement and the Letters of
Credit Obligations. Notwithstanding the foregoing,
"Guarantor Senior Indebtedness" shall not include (a)
Indebtedness evidenced by the Guarantee of such
Subsidiary Guarantor, (b) Indebtedness that is
expressly subordinate or junior in right of payment to
any Indebtedness of such Subsidiary Guarantor, (c)
Indebtedness which, when incurred and without respect
to any election under Section 1111(b) of Title 11,
United States Code, is without recourse to such
Subsidiary Guarantor, (d) Indebtedness which is
represented by Disqualified Capital Stock, (e)
obligations for goods, materials or services purchased
in the ordinary course of business or obligations
consisting of trade payables, (f) Indebtedness of or
amounts owed by such Subsidiary Guarantor for
compensation to employees or for services rendered to
such Subsidiary Guarantor, (g) any liability for
federal, state, local or other taxes owed or owing by
such Subsidiary Guarantor, (h) Indebtedness of such
Subsidiary Guarantor representing a guarantee of
Subordinated Indebtedness or Pari Passu Indebtedness of
the Company or any other Subsidiary Guarantor, (i)
Indebtedness of such Subsidiary
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Guarantor to a Subsidiary of the Company and (j) that
portion of any Indebtedness which is incurred by such
Subsidiary Guarantor in violation of the New Note
Indenture.
"Credit Agreement" means the Credit Agreement, dated as
of the Issue Date, by and among Food 4 Less, certain of
its subsidiaries, the Lenders referred to therein and
Bankers Trust Company, as administrative agent, as the
same may be amended, extended, renewed, restated,
supplemented or otherwise modified (in each case, in
whole or in part, and without limitation as to amount,
terms, conditions, covenants and other provisions) from
time to time, and any agreement governing Indebtedness
incurred to refund, replace or refinance any borrowings
and commitments then outstanding or permitted to be
outstanding under such Credit Agreement or any such
prior agreement as the same may be amended, extended,
renewed, restated, supplemented or otherwise modified
(in each case, in whole or in part, and without
limitation as to amount, terms, conditions, covenants
and other provisions). The term "Credit Agreement"
shall include all related or ancillary documents,
including, without limitation, any guarantee agreements
and security documents. The Company shall promptly
notify the New Note Trustee of any such refunding or
refinancing of the Credit Agreement.
"Designated Senior Indebtedness" means (i) in the event
any Indebtedness is outstanding under the Credit
Agreement, all Senior Indebtedness under the Credit
Agreement and (ii) if no Indebtedness is outstanding
under the Credit Agreement, any other issue of Senior
Indebtedness which (a) at the time of the determination
is equal to or greater than $50 million in aggregate
principal amount and (b) is specifically designated in
the instrument evidencing such Senior Indebtedness as
"Designated Senior Indebtedness" by the Company. For
purposes of this definition, the term "Credit
Agreement" shall not include any agreement governing
Indebtedness incurred to refund, replace or refinance
borrowings or commitments under the Credit Agreement
other than any such agreements incurred to refund,
replace or refinance the entirety of the borrowings and
commitments then outstanding or permitted to be
outstanding thereunder.
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CHANGE OF CONTROL CHANGE OF CONTROL
The Old RGC Indentures provide that if a Change of The New Note Indenture will provide that, upon the
Control Triggering Event shall occur at any time, occurrence of a Change of Control, each Holder will
then, subject to the provisions of the Old RGC have the right to require the repurchase of such
Indentures, each Holder of Old RGC Notes shall have the Holder's New Notes pursuant to the offer described
right to require that RGC repurchase such Holder's Old below (the "Change of Control Offer"), at a purchase
RGC Notes in whole or in part in integral multiples of price equal to 101% of the principal amount thereof
$1,000, at a purchase price (the "Change of Control plus accrued and unpaid interest to the date of
Purchase Price") in cash in an amount equal to 101% of repurchase.
the principal amount of such Old RGC Notes, plus
accrued and unpaid interest (including any defaulted The New Note Indenture will provide that within 30 days
interest), if any, to the date of purchase, pursuant to following the date upon which the Change of Control
the offer described in the following paragraph (the occurred, the Company must send, by first class mail, a
"Change of Control Offer") and other procedures set notice to each Holder of New Notes, with a copy to the
forth in this covenant. Any rights of Holders arising New Note Trustee, which notice shall govern the terms
pursuant to a Change of Control Offer shall be of the Change of Control Offer. The New Note Indenture
subordinated in right of payment to all Senior shall require that notice of an event giving rise to a
Indebtedness of RGC to the same extent as the Old RGC Change of Control shall be given on the same date and
Notes are subordinated to Senior Indebtedness of RGC. in the same manner to all Holders. Such notice shall
state, among other things, the purchase date, which
Pursuant to the Old RGC Indentures, within 30 days must be no earlier than 30 days nor later than 40 days
following any Change of Control Triggering Event, RGC from the date such notice is mailed, other than as may
shall notify each Old RGC Note Trustee and the Old RGC be required by law (the "Change of Control Payment
Note Trustee shall promptly send by first-class mail, Date"). The New Note Indenture shall provide that the
postage prepaid, to each holder of the Old RGC Notes, Change of Control Payment Date under the Senior F4L
at his address appearing in the Old RGC Note registers, Note Indenture shall be one Business Day prior to the
a notice stating, among other things, the purchase Change of Control Payment Date under the New Note
price and that the purchase date (the "Change of Indenture with respect to such Change of Control.
Control Purchase Date") shall be a Business Day no Holders electing to have a New Note purchased pursuant
earlier than 45 days nor later than 60 days from the to a Change of Control Offer will be required to
date such notice is mailed, or such later date as is surrender the New Note, with the form entitled "Option
necessary to comply with requirements under the of Holder to Elect Purchase" on the reverse of the New
Exchange Act; that any Old RGC Note not tendered will Note completed, to the Paying Agent at the address
continue to accrue interest; that RGC will pay the specified in the notice prior to the close of business
Change of Control Purchase Price for any Old RGC Notes on the Business Day prior to the Change of Control
that have been properly tendered and not withdrawn Payment Date. Each Change of Control Offer is required
promptly following the Change of Control Purchase Date; to remain open for at least 20 Business Days and until
and certain other procedures that a Holder must follow 12:00 Midnight New York City time on the applicable
to accept a Change of Control Offer or withdrawal such Change of Control Payment Date.
acceptance. Any failure to comply with this covenant
shall constitute a default in the performance of a The New Note Indenture will further provide that,
covenant for purposes of determining whether an Event notwithstanding the foregoing, prior to the mailing of
of Default has occurred if payment of the Change of the notice of a Change of Control Offer referred to
Control Purchase Price is prohibited by the above, the Company shall either (a) repay in full and
subordination provisions of the Indenture. terminate all commitments under Indebtedness under the
Credit Agreement to the extent the terms thereof
"Change of Control Triggering Event" means the require repayment upon a Change of Control (or offer to
occurrence of both a Change of Control and a Rating repay in full and terminate all commitments under all
Decline. such Indebtedness under the Credit Agreement and repay
the Indebtedness owed to each lender which has accepted
"Change of Control" means such time as (i) a "person" such offer), or (b) obtain the requisite consents under
or "group" (within the meaning of Sections 13(d) and the Credit Agreement, the terms of which require
14(d)(2) of the Exchange Act), other than the Permitted repayment upon a Change of Control, to permit the
Holder or its Affiliates, becomes the "beneficial repurchase of the New Notes as provided above. The
owner" (as defined in Rule 13d-3 under the Exchange Company shall first comply with the covenant in the
Act) or more than fifty percent (50%) of the total immediately preceding sentence before it shall be
voting power of the then outstanding Voting Stock of required to repurchase New Notes pursuant to the
RGC or FSI and (ii) such person or group succeeds in provisions described above. The Company's
having its or their nominees constitute a majority of failure to comply with the covenants described
RGC's or FSI's board of directors. in this paragraph shall constitute an
Event of Default under the New Note
"Rating Decline" means the occurrence of the Indenture.
following on, or within 90 days after, the earlier of
(i) the occurrence of a Change of Control, or (ii) In addition, the New Note Indenture will provide that
public notice of the occurrence of a Change of Control prior to purchasing New Notes tendered in a Change of
or the intention by RGC or RSI to effect a Change of Control Offer, the Company shall purchase all Senior
Control (which period shall be extended so long as the F4L Notes (or permitted refinancings thereof) which it
rating of the Old RGC Notes is under publicly announced is required to purchase by reason of such Change of
consideration for possible downgrade by any of the Control pursuant to the provisions of the indenture
Rating Agencies): (a) in the event the Old RGC Notes under which such Senior F4L Notes are issued, as in
are rated by either Standard & Poors or Moody's on the effect on the Issue Date.
Rating Date as Investment Grade, the rating of the Old
RGC Notes by both Rating Agencies shall be reduced The New Note Indenture will provide that the Company
below Investment Grade, or (b) in the event the Old RGC must comply with Rule 14e-1 under the Exchange Act and
Notes are rated below Investment Grade by both rating any other applicable provisions of the federal
agencies on the Rating Date, the rating of the Old RGC securities laws in connection with a Change of Control
Notes by either Rating Agency shall be decreased by one Offer.
or more gradations (including gradations within Rating
Categories as well as between Rating Categories). "Change of Control" means the acquisition after the
Issue Date, in one or more transactions, of beneficial
ownership (within the meaning of Rule 13d-3 under the
Exchange Act) by (i) any person or entity (other than
any Permitted Holder) or (ii) any group of persons or
entities (excluding any Permitted Holders) who
constitute a group (within the meaning of Sec-
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"Permitted Holder" means the Edward J. DeBartolo tion 13(d)(3) of the Exchange Act), in either case, of
Corporation. any securities of New Holdings or the Company such
that, as a result of such acquisition, such person,
entity or group beneficially owns (within the meaning
of Rule 13d-3 under the Exchange Act), directly or
indirectly, 40% or more of the then outstanding voting
securities entitled to vote on a regular basis for a
majority of the Board of Directors of the Company (but
only to the extent that such beneficial ownership is
not shared with any Permitted Holder who has the power
to direct the vote thereof); provided, however, that no
such Change of Control shall be deemed to have occurred
if (A) the Permitted Holders beneficially own, in the
aggregate, at such time, a greater percentage of such
voting securities than such other person, entity or
group or (B) at the time of such acquisition, the
Permitted Holders (or any of them) possess the ability
(by contract or otherwise) to elect, or cause the
election, of a majority of the members of the Company's
Board of Directors.
"New Holdings" means Food 4 Less Holdings, Inc., a
Delaware corporation, and its successors.
"Permitted Holder" means (i) Food 4 Less Equity
Partners, L.P., and the Yucaipa Companies, or entity
controlled thereby or any of the partners thereof, (ii)
Apollo Advisors, L.P., Lion Advisors, L.P. or any
entity controlled thereby or any of the partners
thereof, (iii) an employee benefit plan of the Company,
or any participant therein or any of its subsidiaries,
(iv) a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or any of
its subsidiaries or (v) any Permitted Transferee of any
of the foregoing persons.
"Permitted Transferees" means, with respect to any
person, (i) any Affiliate of such person, (ii) the
heirs, executors, administrators, testamentary
trustees, legatees or beneficiaries of any such
persons, (iii) a trust, the beneficiaries of which, or
a corporation or partnership, the stockholders or
general or limited partners of which, include only such
person or his or her spouse or lineal descendants, in
each case to whom such person has transferred the
beneficial ownership of any securities of the Company,
(iv) any investment account whose investment managers
and investment advisors consist solely of such person
and/or Permitted Transferees of such person and (v) any
investment fund or investment entity that is a
subsidiary of such person or a Permitted Transferee of
such person.
CERTAIN COVENANTS CERTAIN COVENANTS
Limitation on Incurrence of Additional Indebtedness. Limitation on Incurrences of Additional Indebtedness.
The Old RGC Indentures provide that RGC will not, The New Note Indenture will provide that the Company
and will not permit any of its Subsidiaries to, shall not, and shall not permit any of its Subsidiaries,
create, incur, assume, or directly or indirectly directly or indirectly, to incur, assume, guarantee,
guarantee or in any other manner become directly or become liable, contingently or otherwise, with
indirectly liable for the payment of, any Indebtedness respect to, or otherwise become responsible for the
(including any Acquired Indebtedness, but excluding payment of (collectively "incur") any Indebtedness
Permitted Indebtedness) unless, in the case of Acquired other than Permitted Indebtedness; provided, however,
Indebtedness and Indebtedness of RGC or any Subsidiary, that if no Default with respect to payment of principal
at the time of such event and after giving effect of, or interest on, the New Notes or Event of Default
thereto on a pro forma basis, RGC's Consolidated shall have occurred and be continuing at the time or as
Interest Coverage Ratio for the four full fiscal a consequence of the incurrence of any such
quarters for which financial information in respect Indebtedness, the Company or any Subsidiary Guarantor
thereof is available immediately preceding such event, may incur Indebtedness if immediately before and
taken as one period and calculated on the assumption immediately after giving effect to the incurrence of
that such Indebtedness had been incurred on the first such Indebtedness the Operating Coverage Ratio of the
day of such four-quarter period and, in the case of Company would be greater than 2.0 to 1.0; provided,
Acquired Indebtedness, on the assumption that the further, a Subsidiary may incur Acquired Indebtedness
related acquisition (whether by means of purchase, to the extent such Indebtedness could have been
merger or otherwise) also had occurred on such date incurred by the Company pursuant to the immediately
with the appropriate adjustments with respect to such preceding proviso.
acquisition being included in such pro forma
calculation, would have exceeded 1.8 to 1.0. IF THE "Subsidiary" means any subsidiary of the Company.
PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD RGC
INDENTURES WILL BE MODIFIED TO ELIMINATE THIS "Indebtedness" means with respect to any person,
PROVISION. without duplication, (i) all liabilities, contingent or
otherwise, of such person (a) for borrowed money
"Subsidiary" means any person a majority of the (whether or not the recourse of the lender is to the
equity ownership or the voting stock of which is at the whole of the assets of such person or only to a portion
time owned directly or indirectly, by RGC or by one or thereof), (b) evidenced by bonds, notes, debentures,
more other Subsidiar-
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ies, or by RGC and one or more other Subsidiaries. drafts accepted or similar instruments or letters
of credit or representing the balance deferred and
"Indebtedness" means, with respect to any unpaid of the purchase price of any property
Person, any indebtedness, contingent or otherwise, (other than any such balance that represents an
in respect of borrowed money (whether or not account payable or any other monetary obligation
the recourse of the lender is to the whole of to a trade creditor (whether or not an Affiliate)
the assets of such Person or only to a portion created, incurred, assumed or guaranteed by
thereof and including any indebtedness issued such person in the ordinary course of business of such
in exchange for indebtedness for borrowed money), or person in connection with obtaining goods, materials or
evidenced by bonds, notes, debentures or similar services and due within twelve months (or such longer
instruments or representing the balance deferred and period for payment as is customarily extended by such
unpaid of the purchase price of any property, if and to trade creditor) of the incurrence thereof, which
the extent any of the foregoing indebtedness would account is not overdue by more than 90 days, according
appear as a liability upon a balance sheet of such to the original terms of sale, unless such account
Person prepared on a consolidated basis in accordance payable is being contested in good faith), or (c) for
with GAAP consistently applied and letters of credit the payment of money relating to a Capitalized Lease
for reimbursement agreements related thereto; provided, Obligation; (ii) the maximum fixed repurchase price of
however, that "Indebtedness" shall not include accounts all Disqualified Capital Stock of such person; (iii)
payable to trade creditors or other indebtedness for reimbursement obligations of such person with respect
goods or services created or assumed in the ordinary to letters of credit; (iv) obligations of such person
course of business or amounts payable under the EAR with respect to Interest Swap Obligations and Foreign
Plan. "Indebtedness" shall also include any amounts (in Exchange Agreements; (v) all liabilities of others of
addition to principal and interest) payable under the the kind described in the preceding clause (i), (ii),
1992 Credit Agreement, the principal component of any (iii) or (iv) that such person has guaranteed or that
Capital Lease Obligations and Guaranties of items that is otherwise its legal liability; and (vi) all
would be included within this definition (regardless of obligations of others secured by a Lien to which any of
whether such items would appear upon such balance the properties or assets (including, without
sheet); provided that for purposes of computing limitation, leasehold interests and any other tangible
Indebtedness outstanding at any time, such items shall or intangible property rights) of such person are
be excluded to the extent that they would otherwise be subject, whether or not the obligations secured thereby
eliminated as intercompany items in consolidation. Any shall have been assumed by such person or shall
reference in the Old RGC Indentures to any Indebtedness otherwise be such person's legal liability (provided
shall be deemed to include any renewals, extensions, that if the obligations so secured have not been
refundings, amendments and modifications of any such assumed by such person or are not otherwise such
Indebtedness. person's legal liability, such obligations shall be
deemed to be in an amount equal to the fair market
"Acquired Indebtedness" means Indebtedness of a value of such properties or assets, as determined in
Person (i) existing at the time such Person becomes a good faith by the Board of Directors of such person,
Subsidiary or (ii) assumed in connection with the which determination shall be evidenced by a Board
acquisition of assets from a Person, other than Resolution). For purposes of the preceding sentence,
Indebtedness incurred in connection with, or in the "maximum fixed repurchase price" of any
contemplation of, such Person becoming a Subsidiary or Disqualified Capital Stock that does not have a fixed
such acquisition, as the case may be. repurchase price shall be calculated in accordance with
the terms of such Disqualified Capital Stock as if such
"Permitted Indebtedness" means any of the following Disqualified Capital Stock were purchased on any date
Indebtedness of RGC or any Subsidiary, as the case may on which Indebtedness shall be required to be
be: determined pursuant to the New Note Indenture, and if
such price is based upon, or measured by, the fair
(i) Indebtedness of RGC outstanding at any time under market value of such Disqualified Capital Stock (or any
the 1992 Credit Agreement, or any successor thereto, in equity security for which it may be exchanged or
an aggregate principal amount not to exceed the converted), such fair market value shall be determined
aggregate commitments as in effect on the date of the in good faith by the Board of Directors of such person,
Indenture; which determination shall be evidenced by a Board
Resolution. For purposes of the New Note Indenture,
(ii) (a) Indebtedness and obligations of RGC under the Indebtedness incurred by any person that is a general
Old RGC Notes and the obligations relating to the Old partnership (other than non-recourse Indebtedness)
RGC Notes under the Old RGC Indentures, (b) any other shall be deemed to have been incurred by the general
Indebtedness and obligations outstanding on the dates partners of such partnership pro rata in accordance
of the Indentures and (c) Indebtedness and obligations with their respective interests in the liabilities of
arising after the dates of the Indentures in respect of such partnership unless any such general partner shall,
agreements existing as of the dates of the Old RGC in the reasonable determination of the Board of
Indentures providing for indemnification, adjustment Directors of the Company, be unable to satisfy its pro
of purchase price or similar obligations incurred in rata share of the liabilities of the partnership, in
connection with the acquisition of any business; which case the pro rata share of any Indebtedness
attributable to such partner shall be deemed to be
(iii) Indebtedness of a Subsidiary to RGC; incurred at such time by the remaining general partners
on a pro rata basis in accordance with their interests.
(iv) Indebtedness the proceeds of which are used,
directly or indirectly, to refinance outstanding "Permitted Indebtedness" means (a) Indebtedness of the
Indebtedness of RGC or any Subsidiary (which Company and its Subsidiaries pursuant to (i) the Term
outstanding Indebtedness shall include, in the case of Loans in an aggregate principal amount at any time
the 1992 Credit Agreement or any successor thereto, the outstanding not to exceed $750 million, less the
amount of the aggregate commitments under the 1992 aggregate amount of all principal repayments thereunder
Credit Agreement as in effect on the date of the pursuant to and in accordance with the covenant
Indenture) in a principal amount (or, if such described under "-- Certain Covenants -- Limitation on
Indebtedness does not require cash payments prior to Asset Sales" herein subsequent to the Issue Date, and
maturity, with an original issue price of such (ii) the revolving credit facility under the Credit
Indebtedness) not to exceed the principal amount of the Agreement (and the Company and each Subsidiary (to the
Indebtedness so refinanced (or, if the Indebtedness extent it is not an obligor) may guarantee such
being refinanced was issued with an original issue Indebtedness) in an aggregate principal amount at any
discount, the original issue price plus the amortized time outstanding not to exceed $325 million, less all
portion of the original issue discount to the date that permanent reductions thereunder pursuant to and in
such refinancing Indebtedness was incurred), plus any accordance with the covenant described under
prepayment penalties and premiums, accrued and unpaid "-- Certain Cove-
interest on the Indebtedness so refinanced, plus
customary fees, expenses and costs related to the
incurrence of such refinancing Indebtedness; provided,
that if the Indebtedness being refinanced is
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Indebtedness of RGC, such refinancing shall be nants -- Limitation on Asset Sales" above, (b)
Indebtedness of RGC; provided further that Indebtedness Indebtedness of the Company or a Subsidiary Guarantor
the proceeds of which are used to refinance owed to and held by the Company or a Subsidiary
Indebtedness of RGC that is subordinated in right of Guarantor; (c) Indebtedness incurred by the Company or
payment to the Old RGC Notes will only be permitted if any Subsidiary in connection with the purchase or
(x) such Indebtedness is expressly subordinated in improvement of property (real or personal) or equipment
right of payment to the Old RGC Notes at least to the or other capital expenditures in the ordinary course of
same extent that the Indebtedness to be refinanced is business (including for the purchase of assets or stock
subordinated to the Old RGC Notes, and (y) the Average of any retail grocery store or business) or consisting
Life to Stated Maturity and Stated Maturity of such of Capitalized Lease Obligations, provided that
Indebtedness exceeds the Stated Maturity of the Old RGC (i) at the time of the incurrence thereof, such
Notes. Indebtedness, together with any other Indebtedness
incurred during the most recently completed
(v) Indebtedness which represents the assumption by RGC four fiscal quarter period in reliance upon
of Indebtedness of any Subsidiary and refinancings this clause (c) does not exceed, in the aggregate, 3%
thereof; of net sales of the Company and its Subsidiaries during
the most recently completed four fiscal quarter period
(vi) Indebtedness under Currency Agreements, Interest on a consolidated basis (calculated on a pro forma
Swap Obligations and other agreements between RGC or a basis if the date of incurrence is prior to the first
Subsidiary and one or more financial institutions anniversary of the Merger) and (ii) such Indebtedness,
providing for "swap," "cap," "collar" or other interest together with all then outstanding Indebtedness
rate protection; incurred in reliance upon this clause (c) does not
exceed, in the aggregate, 3% of the aggregate net sales
(vii) Indebtedness not to exceed at any one time of the Company and its Subsidiaries during the most
outstanding an aggregate principal amount of $75 recently completed twelve fiscal quarter period on a
million in addition to the Indebtedness otherwise consolidated basis (calculated on a pro forma basis if
permitted hereby; the date of incurrence is prior to the third
anniversary of the Merger); (d) Indebtedness incurred
(viii) Indebtedness arising from guarantees of by the Company or any Subsidiary in connection with
Indebtedness of RGC or any Subsidiary and agreements capital expenditures in an aggregate principal amount
providing for indemnification, adjustment of purchase not exceeding $150 million, provided that such capital
price or similar obligations incurred or assumed in expenditures relate solely to the integration of the
connection with the disposition of any business, assets operations of RSI, Food 4 Less and their respective
or Subsidiary, other than guarantees of Indebtedness subsidiaries, as described in this Prospectus and
incurred by any person acquiring all or any portion of Solicitation Statement; (e) Indebtedness of the Company
such business, assets or Subsidiary for the purpose of incurred under certain Foreign Exchange Agreements and
financing such acquisition, provided that the maximum Interest Swap Obligations; (f) guarantees incurred in
aggregate liability in respect of all such Indebtedness the ordinary course of business, by the Company or a
in the nature of such guarantees shall at no time Subsidiary, of Indebtedness of any other person in
exceed the gross proceeds actually received in aggregate not to exceed $25 million at any time
connection with such disposition; outstanding; (g) guarantees by the Company or a
Subsidiary Guarantor of Indebtedness incurred by a
(ix) Indebtedness of RGC or any Subsidiary incurred in wholly-owned Subsidiary Guarantor so long as the
the ordinary course of business under guarantees of incurrence of such Indebtedness incurred by such
Indebtedness of suppliers, contractors, licensees, wholly-owned Subsidiary Guarantor is permitted under
franchisees, or customers; the terms of the New Note Indenture; (h) Refinancing
Indebtedness; (i) Indebtedness for letters of credit
(x) accounts payable or any other indebtedness or relating to workers' compensation claims and
monetary obligations of RGC or any Subsidiary to trade self-insurance or similar requirements in the ordinary
creditors, employees, representatives or agents course of business; (j) other Indebtedness outstanding
created, assumed or guaranteed by by RGC or by any on the Issue Date (after giving effect to the Merger);
Subsidiary in the ordinary course of business in (k) Indebtedness arising from guarantees of
connection with the obtaining of materials, goods or Indebtedness of the Company or any Subsidiary or other
services; agreements of the Company or a Subsidiary providing for
indemnification, adjustment of purchase price or
(xi) accrued expenses of RGC or any Subsidiary incurred similar obligations, in each case, incurred or assumed
in the ordinary course of business. in connection with the disposition of any business,
assets or Subsidiary, other than guarantees of
(xii) obligations in respect or performance bonds and Indebtedness incurred by any person acquiring all or
surety bonds provided by RGC or any Subsidiary in the any portion of such business, assets or Subsidiary for
ordinary course of business and any renewals, the purpose of financing such acquisition; provided
extensions or amendments, modifications or supplements that the maximum assumable liability in respect of all
thereto; such Indebtedness shall at no time exceed the gross
proceeds actually received by the Company and its
(xiii) Indebtedness incurred to finance Consolidated Subsidiaries in connection with such disposition; (l)
Capital Expenditures (including Acquired Indebtedness obligations in respect of performance bonds and comple-
to the extent that, in conformity with GAAP, assets tion guarantees provided by the Company or any
acquired in conjunction with such Acquired Indebtedness Subsidiary in the ordinary course of business; and (m)
are included in the property, plant or equipment additional Indebtedness of the Company and the
reflected on the consolidated balance sheet of RGC and Subsidiary Guarantors in an amount not to exceed $200
its Subsidiaries); million at any time outstanding.
(xiv) Indebtedness represented by letters of credit not "Refinancing Indebtedness" means, with respect to any
exceeding an aggregate amount of $45 million at any one person, Indebtedness of such person issued in exchange
time outstanding; for, or the proceeds from the issuance and sale or
disbursement of which are used to substantially
(xv) Indebtedness arising from the honoring by a bank concurrently repay, redeem, refund, refinance,
or other financial institution of a check, draft or discharge or otherwise retire for value, in whole or in
similar instrument drawn against insufficient funds in part (collectively, "repay"), or constituting an
the ordinary course of business, provided that such amendment, modification or supplement to, or a deferral
Indebtedness is extinguished within two Business Days or renewal of (collectively, an "amendment"), any
of its incurrence; Indebtedness of such person existing on the Issue Date
or Indebtedness (other than Permitted Indebtedness,
(xvi) Indebtedness represented by the obligations of
RGC, as they may exist from time to time, to repurchase
from any employee or director, or former employee or
director, of RGC or
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a Subsidiary, Capital Stock of RGC, or options, except Permitted Indebtedness incurred pursuant to
warrants or rights therefor, issued pursuant to any clauses (c), (d), (h) and (j) of the definition
compensatory plan of RGC; and thereof) incurred in accordance with the New Note
Indenture (a) in a principal amount (or, if such
(xvi) unsecured Indebtedness with an initial maturity Refinancing Indebtedness provides for an amount less
not in excess of 270 days incurred in the ordinary than the principal amount thereof to be due and payable
course of business in amounts permitted by the 1992 upon the acceleration thereof, with an original issue
Credit Agreement and any successor thereto. price) not in excess of (without duplication) (i) the
principal amount or the original issue price, as the
For the purpose of determining the amount of case may be, of the Indebtedness so refinanced (or, if
outstanding Indebtedness under any of the foregoing such Refinancing Indebtedness refinances Indebtedness
clauses, there shall be included (A) the principal under a revolving credit facility or other agreement
amount then outstanding that was originally incurred providing a commitment for subsequent borrowings, with
pursuant to such clause; (B) any outstanding a maximum commitment not to exceed the maximum
Indebtedness incurred pursuant to clause (iv) to commitment under such revolving credit facility or
refinance or refund Indebtedness originally incurred other agreement) plus (ii) unpaid accrued interest on
pursuant to such clause; and (C) any subsequent such Indebtedness plus (iii) premiums, penalties, fees
refinancings or refundings thereof. and expenses actually incurred by such person in
connection with the repayment or amendment thereof and
"Consolidated Interest Coverage Ratio" with respect (b) with respect to Refinancing Indebtedness that
to any period means the ratio of (i) the aggregate of repays or constitutes an amendment to Subordinated
consolidated earnings before interest expense Indebtedness, such Refinancing Indebtedness (x) shall
(including imputed interest expense with respect to any not have any fixed mandatory redemption or sinking fund
Capital Lease Obligations and capitalized interest, if requirement in an amount greater than or at a time
any), income taxes, depreciation and other noncash prior to the amounts and times specified in such repaid
charges deducted in computing consolidated net income or amended Subordinated Indebtedness, except to the
and without giving effect to any extraordinary gain or extent that any such requirement applies on a date
loss or gains or losses from sales of assets (other after the Maturity Date and (y) shall contain
than sales of inventory in the ordinary course of subordination and default provisions no less favorable
business), for such period (taken as one accounting in any material respect to Holders than those contained
period) to (ii) the aggregate amount of consolidated in such repaid or amended Subordinated Indebtedness.
interest expense (including imputed interest expense
with respect to any Capital Lease Obligations and "Operating Coverage Ratio" means, with respect to any
capitalized interest, if any) and dividends paid by person, the ratio of (1) EBDIT of such person for the
subsidiaries on preferred stock other than to RGC or a period (the "Pro Forma Period") consisting of the most
wholly owned subsidiary of RGC for such period. recent four full fiscal quarters for which financial
information in respect thereof is available immediately
prior to the date of the transaction giving
rise to the need to calculate the Operating Coverage
Ratio (the
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"Transaction Date") to (2) the aggregate Fixed Charges
of such person for the fiscal quarter in which the
Transaction Date occurs and the three fiscal quarters
immediately subsequent to such fiscal quarter (the
"Forward Period") reasonably anticipated by the Board
of Directors of such person to become due from time to
time during such period. For purposes of this
definition, if the Transaction Date occurs prior to the
first anniversary of the Merger, "EBDIT" for the Pro
Forma Period shall be calculated, in the case of the
Company, after giving effect on a pro forma basis to
the Merger as if it had occurred on the first day of
the Pro Forma Period. In addition to, but without
duplication of, the foregoing, for purposes of this
definition, "EBDIT" shall be calculated after giving
effect (without duplication), on a pro forma basis for
the Pro Forma Period (but no longer), to (a) any
Investment, during the period commencing on the first
day of the Pro Forma Period to and including the
Transaction Date (the "Reference Period"), in any other
person that, as a result of such Investment, becomes a
subsidiary of such person, (b) the acquisition, during
the Reference Period (by merger, consolidation or
purchase of stock or assets) of any business or assets,
which acquisition is not prohibited by the New Note
Indenture, and (c) any sales or other dispositions of
assets (other than sales of inventory in the ordinary
course of business) occurring during the Reference
Period, in each case as if such incurrence, Investment,
repayment, acquisition or asset sale had occurred on
the first day of the Reference Period. In addition, for
purposes of this definition, "Fixed Charges" shall be
calculated after giving effect (without duplication),
on a pro forma basis for the Forward Period, to any
Indebtedness incurred or repaid on or after the first
day of the Forward Period and prior to the Transaction
Date. If such person or any of its subsidiaries
directly or indirectly guarantees any Indebtedness of a
third person, the Operating Coverage Ratio shall give
effect to the incurrence of such Indebtedness as if
such person or subsidiary had directly incurred such
guaranteed Indebtedness.
"EBDIT" means, with respect to any person, for any
period, the Consolidated Net Income of such person for
such period, plus, in each case to the extent deducted
in computing Consolidated Net Income of such person for
such period (without duplication) (i) provisions for
income taxes or similar charges recognized by such
person and its consolidated subsidiaries accrued during
such period, (ii) depreciation and amortization expense
of such person and its consolidated subsidiaries
accrued during such period (but only to the extent not
included in Fixed Charges), (iii) Fixed Charges of such
person and its consolidated subsidiaries for such
period, (iv) LIFO charges (credit) of such person and
its consolidated subsidiaries for such period, (v) the
amount of any restructuring reserve or charge recorded
during such period in accordance with GAAP, including
any such reserve or charge related to the Merger, and
(vi) any other non-cash charges reducing Consolidated
Net Income for such period (excluding any such charge
which requires an accrual of or a cash reserve for cash
charges for any future period), less, without
duplication, (i) non-cash items increasing Consolidated
Net Income of such person for such period in each case
determined in accordance with GAAP and (ii) the amount
of all cash payments made by such person or its
Subsidiaries during such period to the extent that such
cash payment has been provided for in a restructuring
reserve or charge referred to in clause (v) above (and
was not otherwise deducted in the computation of
Consolidated Net Income for such period).
"Fixed Charges" means, with respect to any person,
for any period, the aggregate amount of (i) interest,
whether expensed or capitalized, paid, accrued or
scheduled to be paid or accrued during such period
(except to the extent accrued in a prior period) in
respect of all Indebtedness of such person and its
consolidated subsidiaries (including (a) original issue
discount on any Indebtedness (including (without
duplication), in the
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case of the Company, any original issue discount on the
applicable Notes but excluding amortization of debt
issuance costs) and (b) the interest portion of all
deferred payment obligations, calculated in accordance
with the effective interest method, in each case to the
extent attributable to such period, but excluding the
amortization of debt issuance costs) and (ii) dividend
requirements on Capital Stock of such person and its
consolidated subsidiaries (whether in cash or otherwise
(except dividends payable in shares of Qualified
Capital Stock)) paid, accrued or scheduled to be paid
or accrued during such period (except to the extent
accrued in a prior period) and excluding items
eliminated in consolidation. For purposes of this
definition, (a) interest on a Capitalized Lease
Obligation shall be deemed to accrue at an interest
rate reasonably determined by the Board of Directors of
such person (as evidenced by a Board Resolution) to be
the rate of interest implicit in such Capitalized Lease
Obligation in accordance with GAAP, (b) interest on
Indebtedness that is determined on a fluctuating basis
shall be deemed to have accrued at a fixed rate per
annum equal to the rate of interest of such
Indebtedness in effect on the date Fixed Charges are
being calculated, (c) interest on Indebtedness that may
optionally be determined at an interest rate based upon
a factor of a prime or similar rate, a eurocurrency
interbank offered rate, or other rate, shall be deemed
to have been based upon the rate actually chosen, or,
if none, then based upon such optional rate chosen as
the Company may designate, and (d) Fixed Charges shall
be increased or reduced by the net cost (including
amortization of discount) or benefit associated with
Interest Swap Obligations attributable to such period.
For purposes of clause (ii) above, dividend
requirements shall be increased to an amount
representing the pretax earnings that would be required
to cover such dividend requirements; accordingly, the
increased amount shall be equal to a fraction, the
numerator of which is the amount of such dividend
requirements and the denominator of which is one (1)
minus the applicable actual combined federal, state,
local and foreign income tax rate of such person and
its subsidiaries (expressed as a decimal), on a
consolidated basis, for the fiscal year immediately
preceding the date of the transaction giving rise to
the need to calculate Fixed Charges.
"Acquired Indebtedness" means (i) with respect to any
person that becomes a Subsidiary of the Company (or is
merged into the Company or any of its Subsidiaries)
after the Issue Date, Indebtedness of, such person or
any of its Subsidiaries existing at the time such
person becomes a Subsidiary of the Company (or is
merged into the Company or any of its Subsidiaries) and
which was not incurred in connection with, or in
contemplation of, such person becoming a Subsidiary of
the Company (or being merged into the Company or any of
its Subsidiaries) and (ii) with respect to the Company
or any of its Subsidiaries, any Indebtedness assumed by
the Company or any of its Subsidiaries in connection
with the acquisition of any assets from another person
(other than the Company or any of its Subsidiaries),
and which was not incurred by such other person in
connection with, or in contemplation of, such
acquisition.
Limitation on Restricted Payments. The Old RGC Inden- Limitation on Restricted Payments. The New Note
tures provide that RGC will not, and will not permit Indenture will provide that the Company shall not, and
any of its Subsidiaries to, directly or indirectly, shall cause each of its Subsidiaries not to, directly
(i) declare or pay any dividend on, or make any or indirectly, make any Restricted Payment if, at the
distribution to holders of, any shares of RGC's Capital time of such proposed Restricted Payment, or after
Stock (other than dividends or distributions payable in giving effect thereto, (a) a Default or an Event of
shares of its Capital Stock or in options, warrants or Default shall have occurred and be continuing, (b) the
other rights to purchase such Capital Stock, but Company could not incur $1.00 of additional
excluding dividends or distributions payable in Indebtedness (other than Permitted Indebtedness)
Redeemable Capital Stock or in options, warrants or pursuant to the covenant described under "-- Certain
other rights to purchase Redeemable Capital Stock), Covenants -- Limitation on Incurrences of Additional
(ii) directly or indirectly purchase, redeem or acquire Indebtedness" herein or (c) the aggregate amount
or retire for value any Capital Stock of RGC or any expended for all Restricted Payments, including such
Subsidiary or any options, warrants or other rights to proposed Restricted Payment (the amount of any
acquire such Capital Stock, (iii) declare or pay any Restricted Payment, if other than cash, to be the fair
dividend or distribu- market value thereof at the date of payment
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tion on any Capital Stock of any Subsidiary to any as determined in good faith by the Board of Directors
Person (other than RGC or any of its wholly owned of the Company), subsequent to the Issue Date, shall
Subsidiaries), (iv) incur, create or assume any exceed the sum of (i) 50% of the aggregate Consolidated
guarantee of Indebtedness of any Affiliate (other than Net Income (or if such aggregate Consolidated Net
a wholly owned Subsidiary), or (v) make any Investment Income is a loss, minus 100% of such loss) of the
(other than any Permitted Investment) in any Person Company earned subsequent to the Issue Date and on or
other than a wholly owned Subsidiary (such payments or prior to the date of the proposed Restricted Payment
other actions described in clauses (i) through (v) are (the "Reference Date") plus (ii) 100% of the aggregate
collectively referred to as "Restricted Payments," Net Proceeds received by the Company from any person
provided, that Restricted Payments will not include (other than a Subsidiary of the Company) from the
Permitted Holding Company Payments), unless at the time issuance and sale (including upon exchange or
of and after giving effect to the proposed Restricted conversion for other securities of the Company)
Payment (the amount of any such Restricted Payment, if subsequent to the Issue Date and on or prior to the
other than cash, shall be as determined by the board of Reference Date of Qualified Capital Stock (excluding
directors of RGC, whose determination shall be (A) Qualified Capital Stock paid as a dividend on any
conclusive and evidenced by a board resolution), (1) no Capital Stock or as interest on any Indebtedness, and
Default or Event of Default shall have occurred and be (B) any Net Proceeds from issuances and sales financed
continuing or shall occur as a result of such directly or indirectly using funds borrowed from the
Restricted Payment and (2) the aggregate amount of all Company or any Subsidiary, until and to the extent such
Restricted Payments declared or made after the date of borrowing is repaid) plus (iii) 100% of the aggregate
the Old RGC Indentures shall not exceed the sum of: net cash proceeds received by the Company as capital
contributions to the Company after the Issue Date
(A) 50% of the aggregate cumulative Consolidated Net (excluding net cash proceeds of a Public Equity
Income of RGC accrued on a cumulative basis during the Offering used to redeem outstanding New Notes) plus
period beginning October 12, 1992, in the case of the (iv) $25 million.
Old RGC 9% Notes, or July 20, 1992, in the case of the
Old RGC 10 1/4% Notes, and ending on the last day of The New Note Indenture will provide that if no Default
RGC's last fiscal quarter ending prior to the date of or Event of Default shall have occurred and be
such proposed Restricted Payment (or, if such aggregate continuing as a consequence thereof, the provisions set
cumulative Consolidated Net Income shall be a loss, forth in the immediately preceding paragraph will not
minus 100% of such loss), prevent (1) the payment of any dividend within 60 days
after the date of its declaration if the dividend would
(B) the aggregate net proceeds, including the Fair have been permitted on the date of declaration, (2) the
Market Value of property other than cash (as determined acquisition of any shares of Capital Stock of the
by RGC's board of directors, whose determination shall Company or the repurchase, redemption or other
be conclusive) received after the date of the Old RGC repayment of any Subordinated Indebtedness in exchange
Indentures by RGC from the issuance or sale (other than for or solely out of the proceeds of the substantially
to any of its Subsidiaries) of shares of Capital Stock concurrent sale (other than to a Subsidiary) of shares
of RGC (other than Redeemable Capital Stock) or of Qualified Capital Stock of the Company, (3) the
warrants, options or rights to purchase such shares of repurchase, redemption or other repayment of any
Capital Stock of RGC (other than Redeemable Capital Subordinated Indebtedness in exchange for or solely out
Stock), of the proceeds of the substantially concurrent sale
(other than to a Subsidiary) of Subordinated
(C) the aggregate net proceeds, including the Fair Indebtedness of the Company with an Average Life equal
Market Value of property other than cash (as determined to or greater than the remaining Average Life of the
by RGC's board of directors, whose determination shall Subordinated Indebtedness repurchased, redeemed or
be conclusive) received after the date of the Old RGC repaid, and (4) Permitted Payments; provided, however,
Indentures by RGC (other than from any of its that the declaration of each dividend paid in
Subsidiaries) upon the exercise of options, warrants or accordance with clause (1) above, each acquisition or
rights to purchase shares of Capital Stock of RGC repayment made in accordance with, or of the type set
(other than Redeemable Capital Stock), forth in, clause (2) above, and each payment described
in clause (iii), (iv), (v), (vi), (vii) or (ix) of the
(D) the aggregate net proceeds, including the Fair definition of the term "Permitted Payments" shall each
Market Value of property other than cash (as determined be counted for purposes of computing amounts expended
by RGC's board of directors, whose determination shall pursuant to subclause (c) in the immediately preceding
be conclusive) received after the date of the Old RGC paragraph, and no amounts expended pursuant to clause
Indentures by RGC from the issue or sale of debt (3) above or pursuant to clause (i), (ii) or (viii) of
securities or Redeemable Capital Stock that have been the definition of the term "Permitted Payments" shall
converted into or exchanged for Capital Stock of RGC be so counted; provided, further that to the extent any
(other than Redeemable Capital Stock), plus the payments made pursuant to clause (vii) of the
aggregate cash received by RGC at the time of such definition of the term "Permitted Payment" are deducted
conversion or exchange, and for purposes of computing the Consolidated Net Income
of the Company, such payments shall not be counted for
(E) $25 million. purposes of computing amounts expended as Restricted
Payments pursuant to subclause (c) in the immediately
The foregoing provision of the Old RGC Indentures preceding paragraph.
will not be violated by reason of (a) the payment of
any dividend within 60 days after the date of "Restricted Payment" means any (i) Stock Payment, (ii)
declaration thereof, if at such declaration date such Investment (other than a Permitted Investment) or (iii)
declaration complied with the foregoing provision (in Restricted Debt Prepayment.
which event such dividend shall be deemed to have been
paid on such date of declaration thereof for purposes "Investment" by any person in any other person means
of the foregoing provision), (b) a Restricted Payment any investment by such person in such other person,
by a Subsidiary solely to RGC or a wholly owned whether by a purchase of assets, in any transaction or
Subsidiary of RGC, (c) the retirement of any share of series of related transactions, individually or in the
Capital Stock or Subordinated Indebtedness by exercise aggregate, in an amount greater than $5 million, share
for, or upon conversion of, or out of the proceeds of, purchase, capital contribution, loan, advance (other
the substantially concurrent sale for cash (other than than reasonable loans and advances to employees for
to a Subsidiary) of other shares of Capital Stock moving and travel expenses, as salary advances or to
(other than Redeemable Capital Stock) of RGC or (d) any permit the purchase of Qualified Capital Stock of the
cash payment pursuant to the Company and other similar customary expenses incurred,
in each case in the ordinary
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EAR Plan with respect to obligations existing on course of business consistent with past practice) or
February 2, 1992, provided that any such payment shall similar credit extension constituting Indebtedness of
be counted as a Restricted Payment; provided, however, such other person, and any guarantee of Indebtedness of
any surrender of a right under the EAR Plan in any other person.
connection with, or as a credit toward, the exercise of
any option for Capital Stock of the Holding Company "Permitted Investment" by any person means (i) any
shall not be deemed a Restricted Payment. IF THE Related Business Investment, (ii) Investments in
PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD RGC securities not constituting cash or Cash Equivalents
INDENTURES WILL BE AMENDED TO ELIMINATE THIS PROVISION. and received in connection with an Asset Sale made
pursuant to the provisions of the covenant described
"Investment" means, directly or indirectly, any under "-- Certain Covenants -- Limitation on Asset
advance, loan or other extension of credit or capital Sales" above or any other disposition of assets not
contribution to (by means of any transfer of cash or constituting an Asset Sale by reason of the $500,000
other property to others or any payment for property or threshold contained in the definition thereof, (iii)
services for the account or use of others), or any cash and Cash Equivalents, (iv) Investments existing on
purchase or acquisition by such Person of any stock, the Issue Date, (v) Investments specifically permitted
bonds, notes, debentures or other securities issued or by and made in accordance with the provisions of the
owned by, any other Person. Investment shall exclude covenant described under "-- Certain Cove-
extensions of trade credit on commercially reasonable nants -- Limitation on Transactions with Affiliates",
terms in accordance with normal trade practices. (vi) Investments by Subsidiary Guarantors in other
Subsidiary Guarantors and Investments by Subsidiaries
"Permitted Investment" means an Investment which which are not Subsidiary Guarantors in other
consists of any one or more of the following: Subsidiaries which are not Subsidiary Guarantors and
(vii) additional Investments in an aggregate amount not
(i) Investment in a Subsidiary or another Person which, exceeding $5 million.
immediately after such Investment, will be a wholly
owned Subsidiary; "Related Business Investment" means (i) any Investment
by a person in any other person a majority of whose
(ii) Investments by wholly owned Subsidiaries in RGC; revenues are derived from the operation of one or more
retail grocery stores or supermarkets or any other line
(iii)(a) commercial paper rated P-1 by Moody's of business engaged in by the Company or any of its
Investors Service Inc. or A-1 by Standard & Poor's Subsidiaries as of the Issue Date; (ii) any Investment
Corporation on the date of acquisition, (b) by such person in any cooperative or other supplier,
certificates of deposit of United States commercial including, without limitation, any joint venture which
banks having a combined capital and surplus in excess is intended to supply any product or service useful to
of $100 million, (c) obligations of, or guaranteed by, the business of the Company and its Subsidiaries as it
the United States government or any agency thereof, (d) is conducted as of the Issue Date and as such business
money market funds organized under the laws of the may thereafter evolve or change; and (iii) any capital
United States or any state thereof that invest expenditure or Investment (without regard to the $5
substantially all their assets in any of the types of million threshold in the definition thereof), in each
investments described in subclauses (a), (b) or (c) of case reasonably related to the business of the Company
this clause (iii), or (e) to the extent not and its Subsidiaries as it is conducted as of the Issue
comprehended by subclauses (a) through (d) of this Date and as such business may thereafter evolve or
clause (iii), temporary investments of cash balances in change.
investments deemed to be cash equivalents under GAAP;
"Restricted Debt Prepayment" means any purchase,
(iv) negotiable instruments held for collection; redemption, defeasance (including, but not limited to,
outstanding travel, moving and other like advances to in substance or legal defeasance) or other acquisition
officers, employees and consultants; lease, utility and or retirement for value, directly or indirectly, by the
other similar deposits; or stock, obligations or Company or a Subsidiary, prior to the scheduled
securities received in settlement of debts owing to RGC maturity or prior to any scheduled repayment of
or a subsidiary as a result of foreclosure, perfection principal or sinking fund payment, as the case may be,
or enforcement of any Lien, in each of the foregoing in respect of Subordinated Indebtedness.
cases in the ordinary course of business of RGC or a
Subsidiary as the case may be; "Consolidated Net Income," means, with respect to any
person, for any period, the aggregate of the net income
(v) sales of goods on trade credit terms consistent (or loss) of such person and its subsidiaries for such
with RGC's past practices or as otherwise consistent period, on a consolidated basis, determined in
with trade credit terms in common use in the industry; accordance with GAAP; provided that (a) the net income
of any other person in which such person or any of its
(vi) Investments, in an aggregate amount not to exceed subsidiaries has an interest (which interest does not
$15 million, in joint ventures, corporations or cause the net income of such other person to be
partnerships formed with or organized by third persons, consolidated with the net income of such person and its
which joint ventures, corporations or partnerships, as subsidiaries in accordance with GAAP) shall be included
the case may be, engage in a business other than a only to the extent of the amount of dividends or
business conducted by RGC; or distributions actually paid to such person or such
subsidiary by such other person in such period; (b) the
(vii) Investments in joint ventures, corporations or net income of any subsidiary of such person that is
partnerships formed with or organized by third persons, subject to any Payment Restriction shall be excluded to
which joint ventures, corporations or partnerships, as the extent such Payment Restriction actually prevented
the case may be, engage in a business substantially the payment of an amount that otherwise could have been
similar, or related, to the business conducted by RGC. paid to, or received by, such person or a subsidiary of
such person not subject to any Payment Restriction; and
"Permitted Holding Company Payments" means only such (c)(i) the net income (or loss) of any other person
amounts as are required to cover all the needs of any acquired in a pooling of interests transaction for any
type or kind and ordinary and necessary expenses of any period prior to the date of such acquisition, (ii) all
type or kind incident to the Holding Company's gains and losses realized on any Asset Sale, (iii) all
functioning as a publicly owned company that owns, and gains realized upon or in connection with or as a
provides certain services for, RGC. consequence of the issuance of the Capital Stock of
such person or any of its subsidiaries and any gains on
pension reversions received by such person or any of
its subsidiaries, (iv) all gains and losses realized on
the purchase or
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"Consolidated Net Income" means, for any period, the other acquisition by such person or any of its
net income (or loss) of any Person and its Subsidiaries subsidiaries of any securities of such person or any of
for such period taken as a single accounting period its subsidiaries, (v) all gains and losses resulting
determined on a consolidated basis in accordance with from the cumulative effect of any accounting change
GAAP excluding the effect of extraordinary items. pursuant to the application of Accounting Principles
Board Opinion No. 20, as amended, (vi) all other
"Subordinated Indebtedness" means all Indebtedness of extraordinary gains and losses, (vii) all non-cash
RGC that is expressly subordinated in right of payment charges incurred by the Company or any of its
to any other Indebtedness of RGC, provided, however, Subsidiaries in connection with the Merger, including,
that Indebtedness under the 1992 Credit Agreement shall without limitation, the divestiture of the Excluded
never constitute Subordinated Indebtedness. Assets, (viii) losses incurred by the Company and
Subsidiaries resulting from earthquakes, and (ix) with
"EAR Plan" means RGC's 1988 Equity Appreciation respect to the Company, all deferred financing costs
Rights Plan, as amended. written off in connection with the early extinguishment
of any Indebtedness, shall each be excluded.
"Net Proceeds" means (a) in the case of any Asset Sale
or any issuance and sale by any person of Qualified
Capital Stock, the aggregate net proceeds received by
such person after payment of expenses, taxes,
commissions and the like incurred in connection
therewith (and, in the case of any Asset Sale, net of
the amount of cash applied to repay Indebtedness
secured by the asset involved in such Asset Sale),
whether such proceeds are in cash or in property
(valued at the fair market value thereof at the time of
receipt as determined with respect to any Asset Sale
resulting in Net Proceeds in excess of $5 million in
good faith by the Board of Directors of such person,
which determination shall be evidenced by a Board of
Resolution) and (b) in the case of any conversion or
exchange of any outstanding Indebtedness or
Disqualified Capital Stock of such person for or into
shares of Qualified Capital Stock of the Company, the
sum of (i) the fair market value of the proceeds
received by the Company in connection with the issuance
of such Indebtedness or Disqualified Capital Stock on
the date of such issuance and (ii) any additional
amount paid by the Holder to the Company upon such
conversion or exchange.
"Public Equity Offering" means an underwritten public
offering of Common Stock of the Company or New Holdings
pursuant to a registration statement filed with the
Commission in accordance with the Securities Act which
public equity offering results in gross proceeds to the
Company or New Holdings, as the case may be, of not
less than $20 million; provided, however, that in the
case of a Public Equity Offering by New Holdings, New
Holdings contributes to the capital of the Company net
cash proceeds in an amount sufficient to redeem New
Notes called for redemption in accordance with the
terms thereof.
"Subordinated Indebtedness" means, with respect to the
Company or any Subsidiary Guarantor Indebtedness of
such person which is subordinated in right of payment
to the New Notes or the Guarantee of such Subsidiary
Guarantor, as the case may be.
"Permitted Payments" means (i) any payment by the Com-
pany or any Subsidiary to The Yucaipa Companies or the
principals thereof for consulting, management,
investment banking or similar advisory services
pursuant to that certain Consulting Agreement, dated as
of the Issue Date, among Food 4 Less, New Holdings and
The Yucaipa Companies, (as such payments would be
calculated under such Consulting Agreement as in effect
on the Issue Date) (ii) any payment by the Company or
any Subsidiary pursuant to the Amended and Restated Tax
Sharing Agreement, dated as of June 17, 1991, between
Food 4 Less and certain Subsidiaries, as such Tax
Sharing Agreement may be amended from time to time, so
long as the payment thereunder by the Company and its
Subsidiaries shall not exceed the amount of taxes the
Company would be required to pay if it were the filing
person for all applicable taxes, (iii) any payment by
the Company or any Subsidiary pursuant to the Transfer
and Assumption Agreement, dated as of June 23, 1989,
between Food 4 Less and Holdings, as in effect on the
Issue Date,
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(iv) any payment by the Company or any Subsidiary (a)
in connection with repurchases of outstanding shares of
the Company's or New Holdings' Common Stock following
the death, disability or termination of employment of
management stockholders, and (b) of amounts required to
be paid by New Holdings, the Company or any of its
Subsidiaries to participants in employee benefit plans
upon termination of employment by such participants, as
provided in the documents related thereto, in an
aggregate amount (for both clauses (a) and (b)) not to
exceed $10 million in any Yearly Period (provided that
any unused amounts may be carried over to any
subsequent Yearly Period subject to a maximum amount of
$20 million in any Yearly Period), (v) from and after
June 30, 1998, payments of cash dividends to New
Holdings in an amount sufficient to enable New Holdings
to make payments of interest required to be made in
respect of the Holdings Discount Notes in accordance
with the terms thereof in effect on the Issue Date,
(vi) from and after February , 2000, payments of cash
dividends to New Holdings in an amount sufficient to
enable New Holdings to make payments of interest
required to be made in respect of the Seller Debentures
in accordance with the terms thereof in effect on the
Issue Date, (vii) dividends or other payments to New
Holdings sufficient to enable New Holdings to perform
accounting, legal, corporate reporting and
administrative functions in the ordinary course of
business or to pay required fees and expenses in
connection with the Merger, the Reincorporation Merger
and the registration under applicable laws and
regulations of its debt or equity securities, (viii)
dividends or other distributions by the Company to New
Holdings on the Issue Date of shares of New Holdings
common stock owned by the Company and (ix) dividends by
the Company to New Holdings of the Net Cash Proceeds of
an Asset Sale to the extent that (w) neither the
Company nor any of the Subsidiaries is required, nor
may be required, pursuant to the documents governing
any outstanding Indebtedness of the Company or any of
the Subsidiaries to utilize such Net Cash Proceeds to
repay (or offer to repay) such Indebtedness, (x) such
Net Cash Proceeds have not been utilzied to repay
outstanding Indebtedness of the Company or any of the
Subsidiaries and (y) New Holdings is required pursuant
to the documents governing any outstanding Indebtedness
of New Holdings to utilize such Net Cash Proceeds to
repay (or offer to repay) such Indebtedness.
Limitation on Transactions with Affiliates. The Old Limitation on Transactions with Affiliates. The New
RGC Indentures provide that RGC will not, and will Note Indenture will provide that neither the Company
not permit any of its Subsidiaries to, directly or nor any of its Subsidiaries shall (i) sell, lease,
indirectly, enter into any transaction or series of transfer or otherwise dispose of any of its properties
related transactions (including, without limitation, or assets or issue securities (other than equity
the sale, purchase, exchange or lease of assets, securities which do not constitute Disqualified Capital
property or services) in an amount greater than Stock) to, (ii) purchase any property, assets or
$100,000 in any fiscal year with any Affiliate of RGC securities from, (iii) make any Investment in, or (iv)
(other than a wholly owned Subsidiary thereof) unless enter into or suffer to exist any contract or agreement
(i) such transaction or series of transactions is or with or for the benefit of, an Affiliate or Significant
are on terms that are no less favorable to RGC or such Stockholder (or any Affiliate of such Significant
Subsidiary, as the case may be, than could have been Stockholder) of the Company or any Subsidiary (an
obtained at the time of such transaction or "Affiliate Transaction"), other than (x) Affiliate
transactions in a comparable transaction in Transactions permitted under the following paragraph
arm's-length dealings with an unaffiliated third party and (y) Affiliate Transactions in the ordinary course
and (ii) with respect to any transaction or series of of business, that are fair to the Company or such
transactions involving aggregate payments in excess of Subsidiary, as the case may be, and on terms at least
$5 million, RGC delivers an officer's certificate to as favorable as might reasonably have been obtainable
the Old RGC Note Trustee certifying that such at such time from an unaffiliated party; provided, that
transaction or series of transactions complies with (A) with respect to Affiliate Transactions involving
clause (i) above and that such transaction or series of aggregate payments in excess of $1 million and less
transactions has received the approval of a majority of than $5 million, the Company or such Subsidiary, as the
the disinterested directors of the board of directors case may be, shall have delivered an Officers'
of RGC provided, however, that the foregoing Certificate to the Trustee certifying that such
restriction shall not apply to transactions pursuant to transaction or series of transactions complies with
agreements in place and as in place as of the date of clause (y) above, (B) with respect to Affiliate
the Old RGC Indentures as disclosed in the Registration Transactions involving aggregate payments in excess of
Statement for such Old RGC Notes to the extent required $5 million and less than $15 million, the Company or
to be so disclosed. IF THE PROPOSED AMENDMENTS BECOME such Subsidiary, as the case may be, shall have
OPERATIVE, THE OLD RGC INDENTURES WILL BE AMENDED TO delivered an Officers' Certificate to the Trustee
ELIMINATE THIS certifying that such Affiliate
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PROVISION. Transaction or series of transactions complies with
clause (y) above and that such Affiliate Transaction
"Affiliate" means, with respect to any specified has received the approval of a majority of the
Person, (i) any other Person directly or indirectly disinterested members of the Board of Directors of the
controlling or controlled by or under direct or Company or the Subsidiary, as the case may be, or, in
indirect common control with such specified Person, the absence of any such approval by the disinterested
(ii) any spouse, immediate family member or other members of the Board of Directors of the Company or the
relative who has the same principal residence of any Subsidiary, as the case may be, that an Independent
Person described in (i) above, (iii) any trust in which Financial Advisor has reasonably and in good faith
any such Person described in clause (i) or (ii) above determined that the financial terms of such Affiliate
has a beneficial interest and (iv) any corporation or Transaction are fair to the Company or such Subsidiary,
other organization of which any such Person described as the case may be, or that the terms of such Affiliate
in clause (i), (ii) or (iii) above collectively owns Transaction are at least as favorable as might
more than 50% of the equity of such entity. For reasonably have been obtained at such time from an
purposes of this definition, beneficial ownership of unaffiliated party and has provided written
10% or more of voting common equity (on a fully diluted confirmation of such determination to the Board of
basis) or warrants to purchase such equity (whether or Directors and (C) with respect to any transaction or
not currently exercisable) of a Person shall be deemed series of transactions involving aggregate payments in
to be control of such Person. excess of $15 million, the Company or such Subsidiary,
as the case may be, shall have delivered to the New
Note Trustee, a written opinion from an Independent
Financial Advisor to the effect that the financial
terms of such Affiliate Transaction are fair to the
Company or such Subsidiary, as the case may be, or that
the terms of such Affiliate Transaction are at least as
favorable as those that might reasonably have been
obtained at the time from an unaffiliated party.
The provisions of the foregoing paragraph shall not
apply to (i) any Permitted Payment, (ii) any Restricted
Payment that is made in compliance with the provisions
of the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments" herein,
(iii) reasonable and customary fees and compensation
paid to, and indemnity provided on behalf of, officers,
directors, employees or consultants of the Company or
any Subsidiary, as determined by the Board of Directors
of the Company or any Subsidiary or the senior
management thereof in good faith, (iv) transactions
exclusively between or among the Company and any of its
wholly-owned Subsidiaries or exclusively between or
among such wholly-owned Subsidiaries, provided such
transactions are not otherwise prohibited by the New
Note Indenture, (v) any agreement in effect as of the
Issue Date or any amendment thereto or any transaction
contemplated thereby (including pursuant to any
amendment thereto) so long as any such amendment is not
disadvantageous to the Holders of the New Notes in any
material respect, (vi) the existence of, or the
performance by the Company or any of its Subsidiaries
of its obligations under the terms of, any stockholders
agreement (including any registration rights agreement
or purchase agreement related thereto) to which it (or
New Holdings) is a party as of the Issue Date and any
similar agreements which it (or New Holdings) may enter
into thereafter; provided, however, that the existence
of, or the performance by the Company or any Subsidi-
aries of obligations under any future amendment to, any
such existing agreement or under any similar agreement
entered into after the Issue Date shall only be
permitted by this clause (vi) to the extent that the
terms of any such amendment or new agreement are not
otherwise disadvantageous to the Holders of the New
Notes in any material respect, (vii) transactions
permitted by, and complying with, the provisions of the
covenant described under "-- Limitation on Mergers and
Certain Other Transactions" herein and (viii) purchases
or sales of goods or services or other transactions
with suppliers, in each case in the ordinary course of
business (including, without limitation, pursuant to
joint venture agreements) and otherwise in compliance
with the terms of the New Note Indenture which are fair
to the Company, in the reasonable determination of the
Board of Directors, or are on terms at least as
favorable as might reasonably have been obtained at
such time from an unaffiliated party.
"Affiliate" means, with respect to any person, any
other person directly or indirectly controlling or
controlled by or under direct or indirect common
control with such specified person. For the purposes of
this definition, "control" when used with respect to
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any person means the power to direct the management and
policies of such person, directly or indirectly,
whether through the ownership of voting securities, by
contract or otherwise; and the terms "affiliated,"
"controlling" and "controlled" have meanings
correlative to the foregoing. For purposes of the New
Note Indenture, neither BT Securities Corporation nor
any of its Affiliates shall be deemed to be an
Affiliate of the Company or any of its Subsidiaries.
"Independent Financial Advisor" means a reputable
accounting, appraisal or nationally recognized
investment banking firm that is, in the reasonable
judgment of the Board of Directors of the Company,
qualified to perform the tasks for which such firm has
been engaged hereunder and disinterested and
independent with respect to the Company and its
Affiliates.
"Significant Stockholder" means, with respect to any
person, any other person who is the beneficial owner
(within the meaning of Rule 13d-3 under the Exchange
Act) of more than 10% of any class of equity securities
of such person that are entitled to vote on a regular
basis for the election of directors of such person.
Limitation on Liens Securing Subordinated Limitation on Liens. The New Note Indenture will
Indebtedness. The Old RGC Indentures provide that if provide that the Company shall not and shall not permit
RGC or any Subsidiary creates, incurs, assumes or any Subsidiary to create, incur, assume or suffer to
suffers to exist any Lien of any kind (i) securing any exist any Liens upon any of their respective assets
Subordinated Indebtedness of RGC then RGC will and will unless the New Notes are equally and ratably secured by
cause its Subsidiaries, concurrently or immediately the Liens covering such assets, except for (i) Liens on
thereafter, to provide that the Old RGC Notes are assets of the Company securing Senior Indebtedness and
equally and ratably secured, provided that if such Liens on assets of a Subsidiary Guarantor which, at the
Subordinated Indebtedness is expressly subordinated to time of incurrence, secure Guarantor Senior
the Old RGC Notes, the Lien securing such Subordinated Indebtedness, (ii) existing and future Liens securing
Indebtedness shall be subordinate and junior to the Indebtedness and other obligations of the Company and
Lien securing the Old RGC Notes with the same relative its Subsidiaries under the Credit Agreement and related
priority as such Subordinated Indebtedness shall have documents or any refinancing or replacement thereof in
with respect to the Old RGC Notes, and provided further whole or in part permitted under the New Note
that this clause (i) shall not be applicable to any Indenture, (iii) Permitted Liens, (iv) Liens securing
Liens securing any such Indebtedness which became Acquired Indebtedness; provided that such Liens (x) are
Indebtedness of RGC pursuant to a transaction subject not incurred in connection with, or in contemplation of
to the provisions of the Old RGC Indentures described the acquisition of the property or assets acquired and
below under "Merger and Sale of Assets, etc." and which (y) do not extend to or cover any property or assets of
Liens were in existence at the time of such transaction the Company or any Subsidiary other than the property
(unless such Indebtedness was incurred or such Lien or assets so acquired, (v) Liens to secure Capitalized
created in connection with, or in contemplation of, Lease Obligations and certain other Indebtedness that
such transaction), so long as such Liens do not extend is otherwise permitted under the New Note Indenture;
to or cover any property or assets of RGC or any provided that (A) any such Lien is created solely for
Subsidiary of RGC other than property or assets the purpose of securing such other Indebtedness
acquired in such transaction; or (ii) securing any representing, or incurred to finance, refinance or
assumption, guarantee or other liability of any refund, the cost (including sales and excise taxes,
Subsidiary of RGC in respect of any Subordinated installation and delivery charges and other direct
Indebtedness of RGC, then a substantially similar costs of, and other direct expenses paid or charged in
assumption, guarantee or other liability of such connection with, the purchase (whether through stock or
Subsidiary in respect of the Old RGC Notes, asset purchase, merger or otherwise) or construction)
concurrently or immediately thereafter, shall be or improvement of the property subject thereto (whether
equally and ratably secured, provided, that if such real or personal, including fixtures and other
Subordinated Indebtedness is expressly subordinated to equipment), (B) the principal amount of the
the Old RGC Notes, the Lien securing the assumption, Indebtedness secured by such Lien does not exceed 100%
guarantee or other liability of such Subsidiary in of such costs and (C) such Lien does not extend to or
respect of such Subordinated Indebtedness shall be cover any other property other than such item of
subordinate and junior to the Lien securing the property and any improvements on such item; (vi) Liens
assumption, guarantee or other liability of such existing on the Issue Date(after giving effect to the
Subsidiary in respect of the Old RGC Notes with the Merger); (vii) Liens in favor of the New Note Trustee
same relative priority as such Subordinated under the New Note Indenture and any substantially
Indebtedness shall have with respect to the Old RGC equivalent Lien granted to any Trustee or similar
Notes, and provided further that this clause (ii) shall institution under any Indenture for Indebtedness
not be applicable to Liens securing any such permitted by the terms of the Holdings Indenture; and
assumption, guarantee or other liability which existed (viii) any replacement, extension or renewal, in whole
at the time such Subsidiary became a Subsidiary of RGC or in part, of any Lien described in this or the
and which Liens were in existence at the time of such foregoing clauses including in connection with any
transaction (unless such assumption, guarantee or other refinancing of the Indebtedness, in whole or in part,
liability was incurred or such Lien created in secured by any such Lien provided that to the extent
connection with, or in contemplation of, such person any such clause limits the amount secured or the assets
becoming a Subsidiary of RGC), so long as such Liens do subject to such Liens, no extension or renewal shall
not extend to or cover any property or assets of RGC or increase the amount or the assets subject to such
any Subsidiary of RGC other than the assets of such Liens, except to the extent that the Liens associated
Person. IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, with such additional assets are otherwise permitted
THE OLD RGC INDENTURES WILL BE AMENDED TO ELIMINATE hereunder.
THIS PROVISION.
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"Lien" means any mortgage, pledge, lien, encumbrance,
charge or adverse claim affecting title or resulting in
an encumbrance against real or personal property, or a
security interest of any kind (including any
conditional sale or other title retention agreement,
any lease in the nature thereof, any option or other
agreement to sell which is intended to constitute or
create a security interest, mortgage, pledge or lien,
and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction); provided
that in no event shall an operating lease be deemed to
constitute a Lien under the New Note Indenture.
"Permitted Liens" shall mean (i) Liens for taxes,
assessments and governmental charges or claims not yet
due or which are being contested in good faith by
appropriate proceedings promptly instituted and
diligently conducted and if a reserve or other
appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made thereof; (ii)
statutory Liens of landlords and carriers,
warehousemen, mechanics, suppliers, materialmen,
repairmen or other like Liens arising in the ordinary
course of business, deposits made to obtain the release
of such Liens and with respect to amounts not yet
delinquent for a period of more than 60 days or being
contested in good faith by an appropriate process of
law, and for which a reserve or other appropriate
provision, if any, as shall be required by GAAP shall
have been made; (iii) Liens incurred or pledges or
deposits made in the ordinary course of business to
secure lease obligations or nondelinquent obligations
under workers' compensation, unemployment insurance and
other types of social security or similar legislation;
(iv) Liens incurred or deposits made to secure the
performance of tenders, bids, leases, statutory
obligations, surety and appeal bonds, government
contracts, performance and return of money bonds and
other obligations of a like nature incurred in the
ordinary course of business (exclusive of obligations
for the payment of borrowed money); (v) easements,
rights-of-way, zoning or other restrictions, minor
defects or irregularities in title and other similar
charges or encumbrances not interfering in any material
respect with the business of the Company or any of its
Subsidiaries incurred in the ordinary course of
business; (vi) Liens upon specific items of inventory
or other goods and proceeds of any person securing such
person's obligations in respect of bankers' acceptances
issued or created for the account of such person to
facilitate the purchase, shipment or storage of such
inventory or other goods in the ordinary course of
business; (vii) Liens securing reimbursement
obligations with respect to letters of credit which
encumber documents and other property relating to such
letters of credit and the products and proceeds
thereof; (viii) Liens in favor of customs and revenue
authorities arising as a matter of law to secure
payment of nondelinquent customs duties in connection
with the importation of goods; (ix) judgment and
attachment Liens not giving rise to a Default or Event
of Default; (x) leases or subleases granted to others
not interfering in any material respect with the
business of the Company or any Subsidiary; (xi) Liens
encumbering customary initial deposits and margin
deposits, and other Liens incurred in the ordinary
course of business that are within the general
parameters customary in the industry, in each case
securing Indebtedness under Interest Swap Obligations
and Foreign Exchange Agreements and forward contracts,
option futures contracts, futures options or similar
arrangements or arrangements designed to protect the
Company or any Subsidiary from fluctuations in the
price of commodities; (xii) Liens encumbering deposits
made in the ordinary course of business to secure
nondelinquent obligations arising from statutory,
regulatory, contractual or warranty requirements of the
Company or its Subsidiaries for which a reserve or
other appropriate provision, if any, as shall be
required by GAAP shall have been made; (xiii) Liens
arising out of consignment or similar arrangements for
the sale of goods entered into by the Company
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or any Subsidiary in the ordinary course of business in
accordance with past practices; (xiv) any interest or
title of a lessor in the property subject to any lease,
whether characterized as capitalized or operating other
than any such interest or title resulting from or
arising out of a default by the Company or any
Subsidiary of its obligations under such lease; (xv)
Liens arising from filing UCC financing statements for
precautionary purposes in connection with true leases
of personal property that are otherwise permitted under
the applicable New Note Indenture and under which the
Company or any Subsidiary is lessee; (xvi) Liens on
assets of the Company securing Indebtedness which would
constitute Senior Indebtedness but for the provisions
of clause (c) in the third sentence of the definition
of Senior Indebtedness and Liens on assets of a
Subsidiary Guarantor securing Indebtedness which would
constitute Guarantor Senior Indebtedness but for the
provisions of clause (c) in the third sentence of the
definition of Guarantor Senior Indebtedness; and (xvii)
additional Liens securing Indebtedness at any one time
outstanding not exceeding the sum of (i) $25 million
and (ii) 10% of the Aggregate Consolidated Net Income
of the Company earned subsequent to the Issue Date and
on or prior to such time.
Limitation on Other Senior Subordinated Limitation on Other Senior Subordinated
Indebtedness. The Old RGC Indentures provide that RGC Indebtedness. The New Note Indenture will provide that
will not create, incur, assume, guarantee or in any neither the Company nor any Subsidiary Guarantor will,
other manner become liable with respect to any directly or indirectly, incur any Indebtedness
Indebtedness that is subordinate in right of payment to (including Acquired Indebtedness) that is subordinate
any Senior Indebtedness unless such Indebtedness is in right of payment to any Indebtedness of the Company
also pari passu with or subordinate in right of payment or such Subsidiary Guarantor, as the case may be,
to the Old RGC Notes, pursuant to subordination unless such Indebtedness is either (a) pari passu in
provisions substantially similar to those contained in right or payment with the New Notes or the Guarantee of
the Old RGC Indentures. such Subsidiary Guarantor, as the case may be, or (b)
subordinate in right of payment to the New Notes or the
Guarantee of such Subsidiary Guarantor, as the case may
be, in the same manner and at least to the same extent
as the New Notes are subordinate to Senior Indebtedness
or as such Guarantee is subordinated to Guarantor
Senior Indebtedness of such Subsidiary Guarantor, as
the case may be.
Limitation on Preferred Stock of Subsidiaries. The Limitations on Preferred Stock of Subsidiaries. The New
Old RGC Indentures provide that RGC will not permit Note Indenture will provide that the Company will not
any of its Subsidiaries to issue any Preferred Stock permit any of its Subsidiaries to issue any Preferred
(other than to RGC or a wholly owned Subsidiary of RGC) Stock (other than to the Company or to a wholly-owned
or permit any Person (other than RGC or a wholly owned Subsidiary) or permit any person (other than the
Subsidiary of RGC) to own or hold an interest in any Company or a wholly-owned Subsidiary) to own any
Preferred Stock of any such Subsidiary, unless the Preferred Stock of any Subsidiary.
Subsidiary would be entitled to incur Indebtedness
pursuant to the provisions of "Limitation on
Indebtedness" in the aggregate principal amount equal
to the aggregate liquidation value of such Preferred
Stock. IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE
OLD RGC INDENTURES WILL BE AMENDED TO ELIMINATE THIS
PROVISION.
Limitation on Dividends and Other Payment Limitations on Dividends and Other Payment Restrictions
Restrictions Affecting Subsidiaries. The Old RGC Affecting Subsidiaries. The New Note Indenture will
Indentures provide that RGC will not, and will not provide that the Company shall not, and shall not
permit any Subsidiary to, create or otherwise cause or permit any Subsidiary to, directly or indirectly,
suffer to exist or become effective any consensual create or suffer to exist, or allow to become effective
encumbrance or restriction of any kind, on the ability any consensual Payment Restriction with respect to any
of any Subsidiary to (a) pay dividends or make any of its Subsidiaries, except for (a) any such restric-
other distribution on its Capital Stock, (b) pay any tions contained in (i) the Credit Agreement and related
Indebtedness owed to RGC or any Subsidiary, (c) make documents as in effect on the Issue Date as any such
loans or advances to RGC or any Subsidiary, or (d) payment restriction may apply to any present or future
transfer any of its property or assets to RGC or any Subsidiary, (ii) the New Note Indenture and any
Subsidiary, except (i) any encumbrance or restriction agreement in effect at or entered into on the Issue
pursuant to an agreement in effect at or entered into Date, (iii) Indebtedness of a person existing at the
on the date of the Old RGC Indentures; (ii) any time such person becomes a Subsidiary (provided that
encumbrance or restriction with respect to a Subsidiary (x) such Indebtedness is not incurred in connection
that was not a Subsidiary of RGC on the date of the Old with, or in contemplation of, such person becoming a
RGC Indentures, in existence at the time such Person Subsidiary, (y) such restriction is not applicable to
became a Subsidiary of RGC or created on the date it any person, or the properties or assets of any person,
becomes a Subsidiary; and (iii) any encumbrance or other than the person so acquired and (z) such
restriction pursuant to any agreement that extends, Indebtedness is otherwise permitted to be incurred
refinances, renews or replaces any agreement containing pursuant to the provisions of the covenant described
any of the restric- under
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tions described in the foregoing clauses (i) through "-- Limitation on Incurrences of Additional
(iii); provided that the terms and conditions of any Indebtedness" herein), (iv) secured Indebtedness
such restrictions are not materially less favorable to otherwise permitted to be incurred pursuant to the
the Holders of the Old RGC Notes than those under or provisions of the covenants described under
pursuant to the agreement extended, refinanced, renewed "-- Limitation on Incurrences of Additional Indebted-
or replaced. IF THE PROPOSED AMENDMENTS BECOME ness" and "-- Limitation on Liens" herein that limit
OPERATIVE, THE OLD RGC INDENTURES WILL BE AMENDED TO the right of the debtor to dispose of the assets
ELIMINATE THIS PROVISION. securing such Indebtedness; (b) customary
non-assignment provisions restricting subletting or
assignment of any lease or other agreement entered into
by a Subsidiary; (c) customary net worth provisions
contained in leases and other agreements entered into
by a Subsidiary in the ordinary course of business; (d)
customary restrictions with respect to a Subsidiary
pursuant to an agreement that has been entered into for
the sale or disposition of all or substantially all of
the Capital Stock or assets of such Subsidiary; (e)
customary provisions in joint venture agreements and
other similar agreements; and (f) restrictions
contained in Indebtedness incurred to refinance,
refund, extend or renew Indebtedness referred to in
clause (a) above; provided that the restrictions
contained therein are not materially more restrictive
taken as a whole than those provided for in such
Indebtedness being refinanced, refunded, extended or
renewed and (g) Payment Restrictions contained in any
other Indebtedness permitted to be incurred subsequent
to the Issue Date pursuant to the provisions of the
covenant described under "-- Limitation on Incurrences
of Additional Indebtedness" herein; provided that any
such Payment Restrictions are ordinary and customary
with respect to the type of Indebtedness being incurred
(under the relevant circumstances), and, in any event,
no more restrictive than the most restrictive Payment
Restrictions in effect on the Issue Date.
"Payment Restriction" means, with respect to a
subsidiary of any person, any encumbrance, restriction
or limitation, whether by operation of the terms of its
charter or by reason of any agreement, instrument,
judgment, decree, order, statute, rule or governmental
regulation, on the ability of (i) such subsidiary to
(a) pay dividends or make other distributions on its
Capital Stock or make payments on any obligation,
liability or Indebtedness owed to such person or any
other subsidiary of such person, (b) make loans or
advances to such person or any other subsidiary of such
person or (c) transfer any of its properties or assets
to such person or any other subsidiary of such persons,
or (ii) such person or any other subsidiary of such
person to receive or retain any such (a) dividends,
distributions or payments, (b) loans or advances, or
(c) transfer of properties or assets.
Limitation on Mergers and Sales of Assets, etc. The Limitation on Mergers and Certain Other
Old RGC Indentures provide that RGC shall not Transactions. The New Note Indenture will provide that
consolidate with or merge with or into any other Person the Company, in a single transaction or through a
or sell, assign, convey, transfer, lease or otherwise series of related transactions, shall not (i)
dispose of all or substantially all of its properties consolidate with or merge with or into any other
and assets substantially as an entirety to any Person person, or transfer (by lease, assignment, sale or
or group of affiliated Persons unless at the time and otherwise) all or substantially all of its properties
after giving effect thereto (i) either (a) RGC shall be and assets as an entirety or substantially as an
the continuing corporation, or (b) the Person (if other entirety to another person or group of affiliated
than RGC) formed by such consolidation or into which persons or (ii) adopt a Plan of Liquidation, unless, in
RGC is merged or the Person which acquires by sale, either case, (1) either the Company shall be the
assignment, conveyance, transfer, lease or disposition continuing person, or the person (if other than the
the properties and assets of RGC, substantially as an Company) formed by such consolidation or into which the
entirety (the "Surviving Entity") shall be a Company is merged or to which all or substantially all
corporation duly organized and validly existing under of the properties and assets of the Company as an
the laws of the United States of America, any state entirety or substantially as an entirety are
thereof or the District of Columbia and shall, in transferred (or, in the case of a Plan of Liquidation,
either case, expressly assume, by a supplemental any person to which assets are transferred) (the
indenture, executed and delivered to the applicable Old Company or such other person being hereinafter referred
RGC Note Trustee, in form satisfactory to such Old RGC to as the "Surviving Person") shall be a corporation
Note Trustee, all the obligations of RGC under the Old organized and validly existing under the laws of the
RGC Notes and the applicable Old RGC Note Indenture and United States, any state thereof or the District of
the applicable Old RGC Note Indenture shall remain in Columbia, and shall expressly assume, by an indenture
full force and effect; (ii) immediately prior to such supplement, all the obligations of the Company under
transaction, and immediately after giving effect to the New Note Indenture and the New Notes; (2) immedi-
such transaction on a proforma basis, no Default or ately after and giving effect to such transaction and
Event of Default shall have occurred and be continuing; the assumption contemplated by clause (1) above and the
and (iii) immediately after giving effect to such incurrence or anticipated incurrence of any
transaction on a pro Indebtedness to be incurred in connection therewith,
(A) the Surviving Person shall have a
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forma basis, the Consolidated Interest Coverage Ratio Consolidated Net Worth equal to or greater than the
of RGC (or the Surviving Entity if RGC is not the Consolidated Net Worth of the Company immediately
continuing obligor under such Old RGC Indenture), for preceding the transaction and (B) the Surviving Person
RGC's four most recently completed full fiscal quarters could incur at least $1.00 of additional Indebtedness
exceeds 1.8 to 1.0. IF THE PROPOSED AMENDMENTS BECOME (other than Permitted Indebtedness) pursuant to the
OPERATIVE, THE OLD RGC INDENTURES WILL BE AMENDED TO provisions of the covenant described under
ELIMINATE THE REQUIREMENT THAT RGC OR THE SURVIVING "-- Limitation on Incurrences of Additional Indebted-
ENTITY MEET THE CONSOLIDATED INTEREST COVERAGE RATIO ness" herein; (3) immediately before and immediately
TEST. after and giving effect to such transaction and the
assumption of the obligations as set forth in clause
The Old RGC Indentures provide that in connection (1) above and the incurrence or anticipated incurrence
with any consolidation, merger, transfer or lease of any Indebtedness to be incurred in connection
contemplated thereby, RGC shall deliver, or cause to be therewith, no Default or Event of Default shall have
delivered, to the Old RGC Note Trustees, in form and occurred and be continuing; and (4) each Subsidiary
substance reasonably satisfactory to the Old RGC Note Guarantor, unless it is the other party to the
Trustees, an officer's certificate and an opinion of transaction, shall have by supplemental indenture
counsel, each stating that such consolidation, merger, confirmed that its Guarantee of the obligations of the
transfer or lease and the supplemental indenture in Company under the New Notes and the New Note Indenture
respect thereto comply with the provisions described shall apply, without alteration or amendment such
herein and that all conditions precedent herein Guarantee applies on the date it was granted under the
provided for relating to such transaction have been New Note Indenture to the obligations of the Company
complied with. under the New Note Indenture and the New Notes to the
obligations of the Company or such Person, as the case
The Old RGC Notes Indentures provide that upon any may be, under the New Note Indenture and the New Notes,
consolidation or merger or any transfer of all or after the consummation of such transaction.
substantially all of the assets of RGC in accordance
with the foregoing, the successor corporation formed by Notwithstanding the foregoing, the consummation of the
such a consolidation or into which RGC is merged or to Merger on the Issue Date need only comply with clauses
which such transfer is made shall succeed to, and be (1) and (3) of the foregoing paragraph.
substituted for, and may exercise every right and power
of, RGC under the Old RGC Indentures with the same The New Note Indenture will provide that upon any
effect as if such successor corporation had been named consolidation or merger or any transfer of all or
as RGC therein. substantially all of the assets of the Company or any
adoption of a Plan of Liquidation by the Company in
The Old RGC Indentures provide that in the event of accordance with the foregoing, the surviving person
any transaction (other than a lease) described in and formed by such consolidation or into which the Company
complying with the conditions listed in the immediately is merged or to which such transfer is made
preceding paragraphs in which RGC is not the continuing (or, in the case of a Plan of Liquidation,
corporation, the successor Person formed or remaining to which assets are transferred) shall succeed
shall succeed to, and be substituted for, and may to, and be substituted for, and may exercise
exercise every right and power of, RGC and RGC would be every right and power of, the Company under
discharged from all obligations and covenants under the the New Note Indenture with the same effect as if such
Old RGC Indentures and the Old RGC Notes. surviving person had been named as the Company herein;
provided, however, that solely for purposes of
computing amounts described in subclause (c) of the
first paragraph of the covenant described under
"-- Limitation on Restricted Payments" herein, any such
surviving person shall only be deemed to have succeeded
to and be substituted for the Company with respect to
periods subsequent to the effective time of such
merger, consolidation or transfer of assets.
For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise) of all or substantially
all of the properties and assets of one or more direct
or indirect Subsidiaries, the Capital Stock of which
constitutes all or substantially all of the properties
and assets of the Company, shall be deemed to be the
transfer of all or substantially all of the properties
and assets of the Company.
"Plan of Liquidation" means, with respect to any
person, a plan that provides for, contemplates, or the
effectuation of which is preceded or accompanied by
(whether or not substantially contemporaneously, in
phases or otherwise) (i) the sale, lease, conveyance or
other disposition of all or substantially all of the
assets of such person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution
of all or substantially all of the proceeds of such
sale, lease, conveyance or other disposition and all or
substantially all of the remaining assets of such
person to holders of Capital Stock of such person.
"Consolidated Net Worth" means, with respect to any
person, the total stockholders' equity (exclusive of
any Disqualified Capital Stock) of such person and its
subsidiaries determined on a consolidated basis in
accordance with GAAP.
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"Merger" means (i) the merger of Food 4 Less
Supermarkets, Inc. into Ralphs Supermarkets, Inc. (with
Ralphs Supermarkets, Inc. surviving such merger)
pursuant to the Merger Agreement and (ii) immediately
following the merger described in clause (i) of this
definition, the merger of Ralphs Grocery Company into
Ralphs Supermarkets, Inc. (with Ralphs Supermarkets,
Inc. surviving such merger and changing its name to
"Ralphs Grocery Company" in connection with such
merger).
Limitation on Asset Sales. There is no corresponding
provision in the Old RGC Note Indenture. Limitation on Asset Sales. The New Note Indenture will
provide that neither the Company nor any of its
Subsidiaries shall consummate an Asset Sale unless (a)
the Company or the applicable Subsidiary receives
consideration at the time of such Asset Sale at least
equal to the fair market value of the assets sold and
(b) upon consummation of an Asset Sale, the Company
will within 365 days of the receipt of the proceeds
therefrom, either: (i) apply or cause its Subsidiary to
apply the Net Cash Proceeds of any Asset Sale to (A) a
Related Business Investment, (B) an investment in
properties and assets that replace the properties and
assets that are the subject of such Asset Sale or (C)
an investment in properties and assets that will be
used in the business of the Company and its
Subsidiaries existing on the Issue Date or in a
business reasonably related thereto; (ii) apply or
cause to be applied such Net Cash Proceeds to the
permanent repayment of Pari Passu Indebtedness or
Senior Indebtedness; provided, however, that the
repayment of any revolving loan (under the Credit
Agreement or otherwise) shall result in a permanent
reduction in the commitment thereunder; (iii) use such
Net Cash Proceeds to secure Letter of Credit
Obligations to the extent the related letters of credit
have not been drawn upon or returned undrawn; or (iv)
after such time as the accumulated Net Cash Proceeds
equals or exceeds $20 million, apply or cause to be
applied such Net Cash Proceeds to the purchase of New
Notes tendered to the Company for purchase at a price
equal to 100% of the principal amount thereof plus
accrued and unpaid interest thereon to the date of
purchase pursuant to an offer to purchase made by the
Company as set forth below (a "Net Proceeds Offer");
provided, however, that the Company shall have the
right to exclude from the foregoing provisions Asset
Sales subsequent to the Issue Date, (x) the proceeds of
which are derived from the sale and substantially
concurrent lease-back of a supermarket and/or related
assets which are acquired or constructed by the Company
or a Subsidiary subsequent to the Issue Date, provided
that such sale and substantially concurrent lease-back
occurs within 180 days following such acquisition or
the completion of such construction, as the case may
be, and (y) the proceeds of which in the aggregate do
not exceed $20 million; provided, further, that pending
the utilization of any Net Cash Proceeds in the manner
(and within the time period) described above, the
Company may use any such Net Cash Proceeds to repay
revolving loans (under the Credit Agreement or
otherwise) without a permanent reduction of the
Commitment thereunder.
The New Note Indenture will further provide that,
notwithstanding the foregoing, prior to the mailing of
the Net Proceeds Offer described below, the Company
shall purchase all Senior F4L Notes (or permitted
refinancings thereof) which it is required to purchase
by reason of such Asset Sale pursuant to the provisions
of the Senior F4L Note Indenture.
Each Net Proceeds Offer will be mailed to record
Holders of New Notes as shown on the register of
Holders not less than 325 nor more than 365 days after
the relevant Asset Sale, with a copy to the New Note
Trustee, shall specify the purchase date (which shall
be no earlier than 30 days nor later than 40 days from
the date such notice is mailed) and shall otherwise
comply with the procedures set forth in the New Note
Indenture. Upon receiving notice of the Net Proceeds
Offer, Holders may elect to tender their New Notes in
whole or in part in integral multiples of
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$1,000 in exchange for cash. To the extent Holders
properly tender New Notes in an amount exceeding the
Net Proceeds Offer, New Notes of tendering Holders will
be repurchased on a pro rata basis (based on amounts
tendered).
The Company will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the
repurchase of New Notes pursuant to a Net Proceeds
Offer.
"Asset Sale" means, with respect to any person, any
sale, transfer or other disposition or series of sales,
transfers or other dispositions (including, without
limitation, by merger or consolidation or by exchange
of assets and whether by operation of law or otherwise)
made by such person or any of its subsidiaries to any
person other than such person or one of its
wholly-owned subsidiaries (or, in the case of a sale,
transfer or other disposition by a Subsidiary, to any
person other than the Company or a directly or
indirectly wholly-owned Subsidiary) of any assets of
such person or any of its subsidiaries including,
without limitation, assets consisting of any Capital
Stock or other securities held by such person or any of
its subsidiaries, and any Capital Stock issued by any
subsidiary of such person, in each case, outside of the
ordinary course of business, excluding, however, any
sale, transfer or other disposition, or series of
related sales, transfers or other dispositions (i)
involving any Excluded Assets, (ii) resulting in Net
Proceeds to the Company of $500,000 or less or (iii)
pursuant to any foreclosure of assets or other remedy
provided by applicable law to a creditor of the Company
with a Lien on such assets, which Lien is permitted
under the New Note Indenture, provided that such
foreclosure or other remedy is converted in a
commercially reasonable manner or in accordance with
any Bankruptcy Law.
"Net Cash Proceeds" means the Net Proceeds of any Asset
Sale received in the form of cash or Cash Equivalents.
"Cash Equivalents" means (i) obligations issued or
unconditionally guaranteed by the United States of
America or any agency thereof, or obligations issued by
any agency or instrumentality thereof and backed by the
full faith and credit of the United States of America,
(ii) commercial paper rated the highest grade by
Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group and maturing not more than one year from
the date of creation thereof, (iii) time deposits with,
and certificates of deposit and banker's acceptances
issued by, any bank having capital surplus and
undivided profits aggregating at least $500 million and
maturing not more than one year from the date of
creation thereof, (iv) repurchase agreements that are
secured by a perfected security interest in an
obligation described in clause (i) and are with any
bank described in clause (iii) and (v) readily
marketable direct obligations issued by any state of
the United States of America or any political
subdivision thereof having one of the two highest
rating categories obtainable from either Moody's
Investors Service, Inc. or Standard & Poor's Ratings
Group.
"Related Business Investment" means (i) any Investment
by a person in any other person a majority of whose
revenues are derived from the operation of one or more
retail grocery stores or supermarkets or any other line
of business engaged in by the Company or any of its
Subsidiaries as of the Issue Date; (ii) any Investment
by such person in any cooperative or other supplier,
including, without limitation, any joint venture which
is intended to supply any product or service useful to
the business of the Company and its Subsidiaries as it
is conducted as of the Issue Date and as such business
may thereafter evolve or change; and (iii) any capital
expenditure or Investment (without regard to the $5
million threshold in the definition thereof), in each
case reasonably related to the business of the Company
and its Subsidiaries as it is conducted as of the Issue
Date and as such
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business may thereafter evolve or change.
"Pari Passu Indebtedness" means, with respect to the
Company or any Subsidiary Guarantor, Indebtedness of
such person which ranks pari passu in right of payment
to the New Notes or the Guarantee of such Subsidiary
Guarantor, as the case may be.
"Letter of Credit Obligations" means Indebtedness of
the Company or any of its Subsidiaries with respect to
letters of credit issued pursuant to the Credit
Agreement, and, for purposes of the definition of the
term "Permitted Indebtedness" herein, the aggregate
principal amount of Indebtedness outstanding at any
time with respect thereto, shall be deemed to consist
of (a) the aggregate maximum amount then available to
be drawn under all such letters of credit (the
determination of such maximum amount to assume
compliance with all conditions for drawing), and (b)
the aggregate amount that has then been paid by, and
not reimbursed to, the issuers under such letters of
credit.
Guarantees of Certain Indebtedness. There is no Guarantees of Certain Indebtedness. The New Note
corresponding provision in the Old RGC Note Indenture will provide that the Company shall not
Indenture. permit any of its Subsidiaries to (a) incur, guarantee
or secure through the granting of Liens the payment of
any Indebtedness under the term portion of the Credit
Agreement or refinancings thereof or (b) pledge any
intercompany notes representing obligations of any of
its Subsidiaries, to secure the payment of any
Indebtedness under the term portion of the Credit
Agreement or refinancings thereof, in each case unless
such subsidiary, the Company and the New Note Trustee
execute and deliver a supplemental indenture evidencing
such Subsidiary's Guarantee.
EVENTS OF DEFAULT EVENTS OF DEFAULT
An "Event of Default" will occur under the Old RGC Pursuant to the New Note Indenture the following events
Indentures upon: constitute "Events of Default": (i) failure to make any
interest payment on the New Notes when due and the
(a) default in the payment of any interest on any Old continuance of such default for a period of 30 days;
RGC Note when it becomes due and payable, and (ii) failure to pay principal of, or premium, if any,
continuance of such default for a period of 30 days; or on the New Notes when due, whether at
maturity, upon acceleration, redemption, required
(b) default in the payment of the principal of (or repurchase or otherwise; (iii) failure to comply with
premium, if any, on) any Old RGC Note at its Stated any other agreement contained in the New Notes or the
Maturity; or New Note Indenture, if such failure continues
unremedied for 30 days after written notice given by
(c) default in the performance, or breach, of any the New Note Trustee or the holders of at least 25% in
covenant or warranty of RGC under the Old RGC principal amount of the New Notes then outstanding
Indentures (other than a default in the performance, or (except in the case of a default with respect to the
breach, of a covenant or warranty that is specifically covenants described under "Limitation on Restricted
dealt with elsewhere herein), and continuance of such Payments," "Limitations on Disposition of Assets,"
default or breach for a period of 60 days after there "Change of Control," and "Limitations on Merger and
has been given, by registered or certified mail, to RGC Certain Other Transactions," which shall constitute
by the Old RGC Note Trustee thereunder or to RGC and Events of Default with notice but without passage of
such Old RGC Note Trustee by the holders of at least time); (iv) a default under any Indebtedness of the
25% in principal amount of the outstanding Old RGC Company or its subsidiaries, whether such Indebtedness
Notes, a written notice specifying such default or now exists or shall hereinafter be created, if both (A)
breach and stating that such notice is a "Notice of such default either (1) results from the failure to pay
Default" thereunder; or any such Indebtedness at its stated final maturity or
(2) relates to an obligation other than the obligation
(d) an event of default as defined in any mortgage, to pay such Indebtedness at its stated final maturity
bond, indenture, loan agreement or other evidence of and results in the holder or holders of such
Indebtedness under which there may be issued or by Indebtedness causing such Indebtedness to become due
which there may be secured or evidenced any prior to its stated maturity and (B) the principal
Indebtedness of RGC or any Material Subsidiary for amount of such Indebtedness, together with the princi-
money borrowed, in each case in excess of $15 million pal amount of any other such Indebtedness in default
in the aggregate, shall occur and shall result in such for failure to pay principal at stated final maturity
Indebtedness becoming or being declared due and payable or the maturity of which has been so accelerated,
prior to the date on which it would otherwise become aggregate $20 million or more at any one time
due and payable; or outstanding; (v) any final judgment or order for
payment of money in excess of $20 million shall be
(e) final judgments or orders are rendered against RGC entered against the Company or any Significant
or any Material Subsidiary which require the payment in Subsidiary and shall not be discharged for a period of
money, either individually or in an aggregate amount, 60 days after such judgment becomes final and
that is more than $10 million and such judgment or nonappealable; (vi) either the Company or any Signifi-
order shall remain unsatisfied or unstayed for 60 days; cant Subsidiary pursuant to or within the meaning of
or any Bankruptcy Law: (a) commences a voluntary case or
proceeding; (b) consents to the entry of an order for
(f) the entry of a decree or order by a court having relief against it in an involuntary case or proceeding;
jurisdiction (c) consents to the appointment
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in the premises (A) for relief in respect of RGC or any of a custodian of it or for all or substantially all of
Material Subsidiary in an involuntary case or its property; or (d) makes a general assignment for the
proceeding under the Federal Bankruptcy Code or any benefit of its creditors; (vii) a court of competent
other federal or state bankruptcy, insolvency, jurisdiction enters an order or decree under any
reorganization or similar law or (B) adjudging RGC or Bankruptcy Law that: (a) is for relief against the
any Material Subsidiary a bankrupt or insolvent, or Company or any Significant Subsidiary, in an
approving as properly filed a petition seeking involuntary case or proceeding; (b) appoints a
reorganization, arrangement, adjustment or composition custodian of the Company or any Significant Subsidiary,
of or in respect of RGC or any Material Subsidiary or for all or any substantial part of their respective
under the Federal Bankruptcy Code or any other properties; or (c) orders the liquidation of the Com-
applicable federal or state law, or appointing a pany or any Significant Subsidiary, and in each case
custodian, receiver, liquidator, assignee, trustee, the order or decree remains unstayed and in effect for
sequestrator (or other similar official) of RGC or any 60 days; (viii) the lenders under the Credit Agreement
Material Subsidiary of any substantial part of any of shall commence judicial proceedings to foreclose upon
their properties, or ordering the winding up or any material portion of the assets of the Company and
liquidation of any of their affairs, and the its Subsidiaries; or (ix) any of the guaran-tees issued
continuance of any such decree or order unstayed and in under the New Note Indenture shall be declared or
effect for a period of 60 consecutive days; or adjudged unenforceable or invalid in a final judgment
or order issued by any court of governmental authority.
(g) the institution by RGC or any Material Subsidiiary In the event of a declaration of acceleration because
of a voluntary case or proceeding under the Federal an Event of Default set forth in clause (iv) above has
Bankruptcy Code or any other applicable federal or occurred and is continuing, such declaration of
state law or any other case or proceedings to be acceleration shall be automatically rescinded and
adjudicated a bankrupt or insolvent, or the consent by annulled if either (i) the holders of the Indebtedness
RGC or any Material Subsidiary to the entry of a decree which is the subject of such Event of Default have
or order for relief in respect of RGC or any Material waived such failure to pay at maturity or have
Subsidiary in any involuntary case or proceeding under rescinded the acceleration in respect of such
the Federal Bankrupcty Code or any other applicable Indebtedness within 90 days of such maturity or
federal or state law or to the institution of declaration of acceleration, as the case may be, and no
bankruptcy or insolvency proceedings against RGC or any other Event of Default has occurred during such 90-day
Material Subsidiary, or the filing by RGC or any period which has not been cured or waived, or (ii) such
Material Subsidiary of a petition or answer or consent Indebtedness shall have been discharged or the maturity
seeking reorganization or relief under the Federal thereof shall have been extended such that it is not
Bankruptcy Code or any other applicable federal or then due and payable, or the underlying default has
state law, or the consent by it to the filing of any been cured, within 90 days of such maturity or
such petition or to the appointment of or taking declaration of acceleration, as the case may be.
possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator (or other similar Under the terms of the New Note Indenture, if an Event
official) or any of RGC or any Material Subsidiary or of Default (other than an Event of Default resulting
of any substantial part of its property, or the making from bankruptcy, insolvency, receivership or
by it of an assignment for the benefit of creditors, or reorganization of the Company or a Subsidiary
the admission by it in writing of its inability to pay Guarantor) occurs and is continuing, the New Note
its debts generally as they become due or taking of Trustee or the holders of at least 25% in principal
corporate action by RGC or any Material Subsidiary in amount of the then outstanding New Notes issued under
furtherance of any such action; or (h) default in the the New Indenture may declare immediately due and
performance of breach of the provisions of "Merger and payable all unpaid principal and interest accrued and
Sale of Assets, etc." unpaid on the then outstanding New Notes by notice in
writing to the Company and
If an Event of Default (other than as specified in the applicable New Trustee specifying the respective
clauses (f) and (g) above) shall occur and be Event of Default and that it is a "notice of
continuing under the Old RGC Indentures, the Old RGC acceleration" (the "Acceleration Notice"), and the same
Note Trustee thereunder or the holders of not less than (i) shall become immediately due and payable or (ii) if
25% in aggregate principal amount of either the Old RGC there are any amounts outstanding under the Credit
Notes issued thereunder then outstanding, as the case Agreement, shall become due and payable upon the first
may be, may declare such Old RGC Notes due and payable to occur of an acceleration under the Credit Agreement,
immediately at their principal amount together with or five business days after receipt by the Company and
accrued interest to the date such Old RGC Notes become the administrative agent under the Credit Agreement of
due such Acceleration Notice. If an Event of Default
and payable; provided that so long as the 1992 Credit resulting from certain events of bankruptcy,
Agreement shall be in force and effect, if any such insolvency, receivership or reorganization of the
Event of Default shall have occurred and be continuing, Company or a Subsidiary Guarantor shall occur, all
any such acceleration shall not be effective until the unpaid principal of and accrued interest on all then
earlier of (a) five Business Days following a notice of outstanding New Notes shall be immediately due and
acceleration given to RGC and the Agent under the 1992 payable without any declaration or other act on the
Credit Agreement and only if upon such fifth Business part of the New Note Trustee or any of the holders.
Day such Event of Default shall be continuing or (b) After a declaration of acceleration, subject to certain
the acceleration of any Indebtedness under the 1992 conditions, the holders of a majority in principal
Credit Agreement. Thereupon such Old RGC Note Trustee amount of the then outstanding New Notes, by notice to
may, at its discretion, proceed to protect and enforce the New Note Trustee, may rescind such declaration if
the rights of the holders of such Old RGC Notes by all existing Events of Default are remedied. In certain
appropriate judicial proceeding. If an Event of Default cases the holders of a majority in principal amount of
specified in clause (f) or (g) above occurs and is outstanding New Notes may waive a past default under
continuing, then the principal of and accrued interest the New Note Indenture and its consequences, except a
on all Old RGC Notes shall ipso facto become and be default in the payment of or interest on any of the New
immediately due and payable without any declaration or Notes.
other act on the part of the Old RGC Note Trustee or
any holder. The New Note Indenture provides that if a Default or
Event of Default occurs and is continuing and if it is
After a declaration of acceleration of Old RGC Notes, known to the New Note Trustee, the New Note Trustee
but before a judgment or decree for payment of the shall mail to each holder of New Notes notice of the
money due has been obtained by the applicable Old RGC Default or Event of Default within 90 days after such
Note Trustee, the Holders of a majority in aggregate Default or Event of Default occurs; provided, however,
principal amount of such Old RGC Notes outstanding, by that, except in the case of a Default or Event of
written notice to RGC and the Default
</TABLE>
A-26
<PAGE> 222
<TABLE>
<CAPTION>
OLD RGC NOTES NEW NOTES
- ------------------------------------------------------ ------------------------------------------------------
<S> <C>
applicable Old RGC Note Trustee, may annul such in the payment of the principal of or interest on any
declaration if (a) RGC has paid or deposited with the New Note, including the failure to make payment on a
applicable Old RGC Note Trustee a sum sufficient to pay Change of Control Payment Date pursuant to a Change of
(i) all sums paid or advanced by the Old RGC Note Control Offer or payment when due pursuant to a
Trustee under the indenture and the reasonable Proceeds Offer the New Note Trustee may withhold such
compensation, expenses, disbursements and advances of notice if it in good faith determines that withholding
the Old RGC Note Trustee, its agents and counsel, (ii) such notice is in the interest of the holders.
all overdue interest on all such Old RGC Notes, (iii)
the principal of and premium, if any, on any such Old The New Note Indenture provides that no holder of New
RGC Notes which have become due otherwise than by such Notes may pursue any remedy thereunder unless the New
declaration of acceleration and interest thereon at the Note Trustee (i) shall have failed to act for a period
applicable rate borne by such Old RGC Notes, and (iv) of 60 days after receiving written notice of a
to the extent that payment of such interest is lawful, continuing Event of Default by such holder and a
interest upon overdue interest at the rate borne by request to act by holders of at least 25% in principal
such Old RGC Notes; and (b) all Events of Default, amount of New Notes and (ii) has received
other than the non-payment of principal of such Old RGC indemnification satisfactory to it; provided, however,
Notes which have become due solely by the declaration that such provision does not affect the right of any
of acceleration, have been cured or waived. holder to sue for enforcement of any overdue payment of
New Notes.
The Holders of not less than a majority in principal
amount of either the Old RGC 10 1/4% Notes or the Old Under the New Note Indenture, two officers of the
RGC 9% Notes then outstanding may on behalf of the Company are required to certify to the New Note Trustee
holders of the respective Old RGC Notes waive any past within 120 days after the end of each fiscal year of
defaults under the applicable Old RGC Indenture, except Ralphs Grocery whether or not they know of any Default
a default in the payment of the principal of, premium, that occurred during such fiscal year and, if
if any, or interest on any such Old RGC Note, or in applicable, describe such Default and the status
respect of a covenant or provision which under the thereof.
applicable Old RGC Indenture cannot be modified or
amended without the consent of the Holder of each such
Old RGC Note affected.
RGC is also required to notify the Old RGC Note
Trustees within five business days of the occurrence of
any Default.
MODIFICATION AND AMENDMENT MODIFICATION AND AMENDMENT
Modifications and amendments of the Old RGC 9% The New Note Indenture and the New Notes may be amended
Indenture and the Old RGC 10 1/4% Indenture may be or supplemented (and compliance with any provision
made by RGC and the applicable Old RGC Note Trustee thereof, may be waived) by the Company, the Subsidiary
with the consent of the Holders of not less than a Guarantors, the New Note Trustee and the Holders of not
majority in aggregate principal amount of the less than a majority in aggregate principal amount of
outstanding Old RGC 9% Notes and the Old RGC 10 1/4% New Notes then outstanding, except that (i) without the
Notes, as the case may be; provided, however, that no consent of each Holder of New Notes affected, no such
such modification or amendment may, without the consent amendment, supplement or waiver may (i) change the
of the Holder of each outstanding Old RGC Note affected principal amount of the New Notes the Holders of which
thereby: (i) change the Stated Maturity of the must consent to an amendment, supplement or waiver of
principal of, or any installment of interest on, any any provision of the New Note Indenture, the New Notes
Old RGC Note or reduce the principal amount thereof or or the Guarantees, (ii) reduce the rate or extend the
the rate of interest thereon or any premium payable time for payment of interest on any New Notes, (iii)
upon the redemption thereof, or change the coin or reduce the principal amount of any New Notes, (iv)
currency in which the principal of any Old RGC Note or change the Maturity Date of any New Notes or the Change
any premium or the interest thereon is payable, or of Control Payment Date or alter the redemption
impair the right to institute suit for the enforcement provisions in the New Note Indenture or the New Notes
of any such payment after the Stated Maturity thereof or the purchase price in connection with any repurchase
(or, in the case of redemption, on or after the of New Notes pursuant to the covenant described under
redemption date) or modify the obligation of RGC to "Change of Control" above in a manner adverse to any
purchase the Old RGC Notes upon a Change of Control Holder, (v) make any changes in the provisions
Triggering Event; or (ii) reduce the percentage in concerning waivers of Defaults or Events of Default by
principal amount of outstanding Old RGC Notes, the Holders or the rights of Holders to recover the
consent of whose Holders is required for any such principal of, interest on or redemption payment with
supplemental indenture or the consent of whose Holders respect to any New Notes, (vi) make the principal of,
is required for any waiver; or (iii) modify any of the or interest on, any New Notes payable with anything or
provisions relating to supplemental indentures in any manner other than as provided for in the New
requiring the consent of Holders or relating to the Note Indenture, the New Notes and the Guarantees, (vii)
waiver of past defaults or relating to the waiver of waive a Default or Event of Default resulting from a
certain covenants, except to increase the percentage of failure to comply with the covenant described under
outstanding Old RGC Notes required for such actions or "Change of Control" above or (viii) modify the
to provide that certain other provisions of the Old RGC subordination provisions of the New Note Indenture
Indenture cannot be modified or waived without the (including the related definitions) so as to adversely
consent of the holder of each Old RGC Note affected affect the ranking of any New Note or Guarantee and
thereby; or (iv) modify any of the provisions of the (ii) without the consent of Holders of not less than
Old RGC Indenture relating to the subordination of the two-thirds in aggregate principal amount of New Notes
Old RGC Notes in a manner adverse to the Holders then outstanding, no such amendment, supplement or
thereof. waiver may release any Subsidiary Guarantor from any of
its Obligations under its Guarantee or the New Note
The Holders of a majority in aggregate principal Indenture other than in accordance with the terms of
amount of the Old RGC 9% Notes or Old RGC 10 1/4% Notes such Guarantee and the New Note Indenture.
outstanding, as the case may be, may waive compliance
with certain restrictive covenants and provisions of In addition, the New Note Indenture and the New Notes
the Old RGC Indentures. and
</TABLE>
A-27
<TABLE>
<CAPTION>
OLD RGC NOTES NEW NOTES
- ------------------------------------------------------ ------------------------------------------------------
<S> <C>
the related Guarantees may be amended by the Company,
the Subsidiary Guarantors and the New Note Trustee (a)
to cure any ambiguity, defect or ambiguity therein;
provided that such amendment or supplement does not
adversely affect the rights of any Holder thereof or
(b) to make any other change that does not adversely
affect the rights of any Holder thereunder in any
material respect.
</TABLE>
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<PAGE> 223
Facsimile copies of the Letter of Transmittal, properly completed and duly
executed, will be accepted. Letters of Transmittal, certificates for the Old RGC
Notes and any other required documents should be sent by each holder or its
broker, dealer, commercial bank, trust company or other nominee to the Exchange
Agent at one of its addresses set forth below.
The Exchange Agent is:
BANKERS TRUST COMPANY
Facsimile Transmission Number:
(212) 250-6275
(212) 250-3290
<TABLE>
<S> <C> <C>
By Mail: (For Eligible Institutions Only) By Hand/Overnight Delivery:
Bankers Trust Company Bankers Trust Company
Corporate Trust and Agency Group Confirm by Telephone: Corporate Trust and Agency Group
Reorganization Dept. (212) 250-6270 Receipt & Delivery Window
P.O. Box 1458 123 Washington Street, 1st Floor
Church Street Station New York, New York 10006
New York, New York 10008-1458
</TABLE>
Any questions or requests for assistance or additional copies of this
Prospectus and Solicitation Statement, the Letter of Transmittal and the Notices
of Guaranteed Delivery may be directed to the Information Agent or one of the
Dealer Managers at their respective telephone numbers and locations set forth
below. You may also contact your broker, dealer, commercial bank, trust company
or other nominee for assistance concerning the Exchange Offers and the
Solicitation.
The Information Agent is:
D.F. KING & CO., INC.
Call Toll Free: (800) 669-5550
77 Water St.
New York, NY 10005
(212) 269-5550 (collect)
The Dealer Managers are:
<TABLE>
<S> <C> <C>
BT SECURITIES CS FIRST BOSTON DONALDSON, LUFKIN
CORPORATION 55 East 52nd Street & JENRETTE
One Bankers Trust Plaza New York, New York 10055 SECURITIES CORPORATION
130 Liberty Street (212) 909-2873 140 Broadway
New York, New York 10006 New York, New York 10005
(212) 775-4300 (212) 504-4753
</TABLE>
<PAGE> 224
EDGAR APPENDIX
This EDGAR Appendix is filed in compliance with Item 304 of Regulation S-T
regarding graphic and image information. It describes material appearing on
pages 7 and 8 of the Prospectus and Solicitation Statement.
PAGE 7
The chart consists of two columns which graphically illustrate the
respective corporate structures of Food 4 Less and Ralphs before the Merger.
Food 4 Less' corporate structure illustrates that Food 4 Less, Inc. ("FFL") owns
Food 4 Less Holdings, Inc. ("Holdings"), which, in turn, owns Food 4 Less
Supermarkets, Inc. ("Food 4 Less") which, in turn, owns several other Food 4
Less subsidiaries. The Ralphs' corporate structure illustrates that Ralphs
Supermarkets, Inc. ("RSI"), owns Ralphs Grocery Company ("RGC") which, in turn,
owns Crawford Stores, Inc. A dotted arrow has been drawn from the box
representing Food 4 Less to the box representing RSI to simulate the RSI Merger.
A dotted arrow has been drawn from the box representing RGC to the box
representing RSI to simulate the RGC Merger. A dotted arrow has been drawn to
the box representing Holdings from the box representing FFL to simulate the FFL
Merger.
PAGE 8
The chart illustrates the corporate structure of the Company after the
Merger and the FFL Merger. The corporate structure illustrates that New Holdings
owns the Company which, in turn, is the parent of all other subsidiaries of the
Company. The anticipated debt obligations of New Holdings are placed in order of
ranking next to the box representing New Holdings and the anticipated debt
obligations of the Company are placed in order of ranking next to the box
representing the Company.
