<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-Q
QUARTERLY REPORT
UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
_______________
<TABLE>
<S> <C>
FOR QUARTER ENDED COMMISSION FILE NUMBER
OCTOBER 8, 1995 33-31152
</TABLE>
RALPHS GROCERY COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 95-4356030
(STATE OR OTHER JURISDICTION OF (I.R.S EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
1100 WEST ARTESIA BOULEVARD
COMPTON, CALIFORNIA 90220
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
(310) 884-9000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL
REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO .
----- -----
AT NOVEMBER 22, 1995, THERE WERE 1,513,938 SHARES OF COMMON STOCK
OUTSTANDING. AS OF SUCH DATE, ALL OF THE OUTSTANDING SHARES OF COMMON STOCK
WERE HELD BY FOOD 4 LESS HOLDINGS, INC., AND THERE WAS NO PUBLIC MARKET FOR THE
COMMON STOCK.
================================================================================
<PAGE> 2
RALPHS GROCERY COMPANY
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated balance sheets as of
October 8, 1995 and January 29, 1995 . . . . . . . . . . . . . . . . . . . . 2
Consolidated statements of operations for the 12 weeks ended
October 8, 1995 and September 17, 1994 . . . . . . . . . . . . . . . . . . . 4
Consolidated statements of operations for the 36 weeks ended
October 8, 1995 and September 17, 1994 . . . . . . . . . . . . . . . . . . . 5
Consolidated statements of cash flows for the 36 weeks ended
October 8, 1995 and September 17, 1994 . . . . . . . . . . . . . . . . . . . 6
Consolidated statements of stockholder's equity as of
October 8, 1995 and January 29, 1995 . . . . . . . . . . . . . . . . . . . . 8
Notes to consolidated financial statements . . . . . . . . . . . . . . . . . . . . 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . 25
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
1
<PAGE> 4
RALPHS GROCERY COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
October 8, January 29,
ASSETS 1995 1995
----------- -----------
(unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 64,792 $ 19,560
Trade receivables, net 71,631 23,377
Notes and other receivables 6,268 3,985
Inventories 476,884 224,686
Patronage receivables from suppliers 3,761 5,173
Prepaid expenses and other 45,534 13,051
---------- ----------
Total current assets 668,870 289,832
INVESTMENTS IN AND NOTES RECEIVABLE FROM
SUPPLIER COOPERATIVES:
A. W. G. 7,288 6,718
Certified and Others 5,651 5,686
PROPERTY AND EQUIPMENT:
Land 185,872 23,488
Buildings 211,548 24,172
Leasehold improvements 224,092 110,020
Fixtures and Equipment 414,230 190,016
Construction in progress 47,504 8,042
Leased property under capital leases 179,646 82,526
Leasehold interests 115,942 96,556
---------- ----------
1,378,834 534,820
Less: Accumulated depreciation and amortization 192,759 154,382
---------- ----------
Net property and equipment 1,186,075 380,438
OTHER ASSETS:
Deferred financing costs, less accumulated amortization
of $5,379 and $20,496 at October 8, 1995 and
January 29, 1995, respectively 94,210 25,469
Goodwill, less accumulated amortization of $55,072
and $38,560 at October 8, 1995 and
January 29, 1995, respectively 1,120,179 263,112
Other, net 24,736 29,440
---------- ----------
$3,107,009 $1,000,695
========== ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
2
<PAGE> 5
RALPHS GROCERY COMPANY
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
October 8, January 29,
LIABILITIES AND STOCKHOLDER'S EQUITY 1995 1995
---------- -----------
(unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 384,393 $ 190,455
Accrued payroll and related liabilities 95,399 42,007
Accrued interest 54,648 10,730
Other accrued liabilities 174,581 65,279
Income taxes payable 1,491 293
Current portion of self-insurance liabilities 59,284 28,616
Current portion of long-term debt 24,649 22,263
Current portion of obligations under capital leases 20,341 4,965
---------- ----------
Total current liabilities 814,786 364,608
LONG-TERM SENIOR DEBT 1,113,213 320,901
OBLIGATIONS UNDER CAPITAL LEASES 130,140 40,675
SENIOR SUBORDINATED DEBT 671,222 145,000
DEFERRED INCOME TAXES 19,567 17,534
SELF-INSURANCE LIABILITIES 89,097 41,872
LEASE VALUATION RESERVE 24,655 --
OTHER NON-CURRENT LIABILITIES 79,527 12,302
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDER'S EQUITY:
Cumulative convertible preferred stock, $.01 par value,
200,000 shares authorized: 50,000 shares outstanding at
January 29, 1995 (aggregate liquidation value of
$67.9 million) and no shares at October 8, 1995 -- 65,136
Common stock, $.01 par value, 5,000,000 shares
authorized; 1,513,938 shares and 1,519,632 shares issued
at October 8, 1995 and January 29, 1995, respectively 15 15
Additional paid-in capital 466,783 107,650
Notes receivable from stockholders of parent (643) (702)
Retained deficit (301,353) (112,225)
---------- ----------
164,802 59,874
Treasury stock: 12,345 shares of common stock at
January 29, 1995 and no shares at October 8, 1995 -- (2,071)
---------- ----------
Total stockholder's equity 164,802 57,803
---------- ----------
$3,107,009 $1,000,695
========== ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
3
<PAGE> 6
RALPHS GROCERY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
12 Weeks 12 Weeks
Ended Ended
October 8, September 17,
1995 1994
---------- -------------
<S> <C> <C>
SALES $1,207,093 $ 598,698
COST OF SALES 965,976 495,656
---------- ---------
GROSS PROFIT 241,117 103,042
SELLING, GENERAL, ADMINISTRATIVE AND OTHER, NET 225,020 88,152
AMORTIZATION OF EXCESS COSTS OVER
NET ASSETS ACQUIRED 10,000 1,787
---------- ---------
OPERATING INCOME 6,097 13,103
INTEREST EXPENSE:
Interest expense, excluding amortization
of deferred financing costs 52,386 14,709
Amortization of deferred financing costs 3,369 1,299
---------- ---------
55,755 16,008
LOSS (GAIN) ON DISPOSAL OF ASSETS 92 (458)
---------- ---------
LOSS BEFORE PROVISION FOR INCOME TAXES (49,750) (2,447)
PROVISION FOR INCOME TAXES -- 900
---------- ---------
NET LOSS (49,750) (3,347)
PREFERRED STOCK ACCRETION -- 2,376
---------- ---------
LOSS APPLICABLE TO COMMON SHARES $ (49,750) $ (5,723)
========== =========
LOSS PER COMMON SHARE $ (32.86) $ (3.81)
========== ==========
Average Number of Common Shares Outstanding 1,513,938 1,502,900
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
4
<PAGE> 7
RALPHS GROCERY COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
36 Weeks 36 Weeks
Ended Ended
October 8, September 17,
1995 1994
---------- -------------
<S> <C> <C>
SALES $2,688,035 $1,767,645
COST OF SALES 2,178,133 1,457,509
---------- ----------
GROSS PROFIT 509,902 310,136
SELLING, GENERAL, ADMINISTRATIVE AND OTHER, NET 480,026 255,378
AMORTIZATION OF EXCESS COSTS OVER NET ASSETS ACQUIRED 16,512 5,346
RESTRUCTURING CHARGE 63,587 --
---------- ----------
OPERATING INCOME (LOSS) (50,223) 49,412
INTEREST EXPENSE:
Interest expense, excluding amortization
of deferred financing costs 98,354 43,573
Amortization of deferred financing costs 6,363 3,823
---------- ----------
104,717 47,396
GAIN ON DISPOSAL OF ASSETS (344) (362)
PROVISION FOR EARTHQUAKE LOSSES -- 4,504
---------- ----------
LOSS BEFORE EXTRAORDINARY CHARGE AND
PROVISION FOR INCOME TAXES (154,596) (2,126)
PROVISION FOR INCOME TAXES 500 2,900
---------- ----------
LOSS BEFORE EXTRAORDINARY CHARGE (155,096) (5,026)
EXTRAORDINARY CHARGE 23,128 --
---------- ----------
NET LOSS (178,224) (5,026)
PREFERRED STOCK ACCRETION 3,960 6,422
---------- ----------
LOSS APPLICABLE TO COMMON SHARES $ (182,184) $ (11,448)
========== ==========
LOSS PER COMMON SHARE:
Loss before extraordinary charges $ (105.31) $ (7.62)
Extraordinary charges (15.31) --
---------- ----------
Net Loss $ (120.62) $ (7.62)
========== ==========
Average Number of Common Shares Outstanding 1,510,349 1,503,195
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE> 8
RALPHS GROCERY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
36 Weeks 36 Weeks
Ended Ended
October 8, September 17,
1995 1994
---------- -------------
<S> <C> <C>
CASH PROVIDED BY OPERATING ACTIVITIES:
Cash received from customers $2,688,035 $1,767,645
Cash paid to suppliers and employees (2,533,431) (1,666,125)
Interest paid (54,436) (33,457)
Income taxes received (paid) 90 (3,550)
Interest received 528 1,105
Other, net 344 (2,613)
---------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 101,130 63,005
CASH USED BY INVESTING ACTIVITIES:
Proceeds from sale of property and equipment 5,788 2,795
Payment for purchase of property and equipment (68,515) (50,406)
Payment of acquisition costs, net of cash acquired (356,250) (11,050)
Other, net (3,219) 752
---------- -----------
NET CASH USED BY INVESTING ACTIVITIES (422,196) (57,909)
CASH PROVIDED (USED) BY FINANCING ACTIVITIES:
Proceeds from the issuance of long-term debt 956,179 --
Payments of long-term debt (559,634) (8,164)
Payments of capital lease obligation (8,170) (2,944)
Net change in Revolving Loan (27,300) 6,100
Capital contribution from parent 12,108 --
Dividends (6,944) --
Purchase of treasury stock, net -- (466)
Other, net 59 (26)
---------- -----------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 366,298 (5,500)
---------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 45,232 (404)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 19,560 29,792
---------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 64,792 $ 29,388
========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
<PAGE> 9
RALPHS GROCERY COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
36 Weeks 36 Weeks
Ended Ended
October 8, September 17,
1995 1994
---------- -------------
<S> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Net loss $ (178,224) $ (5,026)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Restructuring charge 63,587 --
Extraordinary charge 23,128 --
Depreciation and amortization 85,959 43,535
Gain on sale of assets (344) (480)
Change in assets and liabilities:
Accounts and notes receivable (8,513) 2,294
Inventories 23,915 1,325
Prepaid expenses and other (11,677) (4,008)
Accounts payable and accrued liabilities 101,274 29,605
Self-insurance liabilities 1,435 (3,590)
Income taxes payable 590 (650)
---------- --------
Total adjustments 279,354 68,031
---------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 101,130 $ 63,005
========== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH
FINANCING ACTIVITIES:
Acquisition of stores:
Fair value of assets acquired, less cash acquired
of $34,380 in 1995 $2,047,247 $11,241
Net cash paid in acquisition (356,250) (11,050)
Capital contribution from parent (280,000) --
---------- --------
Liabilities assumed $1,410,997 $ 191
---------- --------
Accretion of preferred stock $ 3,960 $ 6,422
========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
7
<PAGE> 10
RALPHS GROCERY COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Treasury Stock
--------------------- ------------------ --------------------
Number Number Number
of of of
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
BALANCES AT JANUARY 29, 1995 50,000 $65,136 1,519,632 $15 (12,345) $(2,071)
Cancellation of Food 4 Less Supermarkets, Inc.'s
Common Stock held as Treasury Stock (unaudited) -- -- (5,694) -- 5,694 955
Cancellation of Food 4 Less Holdings, Inc.'s
Common Stock held as Treasury Stock (unaudited) -- -- -- -- 6,651 1,116
Preferred Stock Accretion (unaudited) -- 3,960 -- -- -- --
Cancellation of Preferred Stock (unaudited) (50,000) (69,096) -- -- -- --
Dividend paid to Food 4 Less Holdings, Inc.
(unaudited) -- -- -- -- -- --
Payment on Stockholder Notes (unaudited) -- -- -- -- -- --
Capital Contribution by Food 4 Less Holdings, Inc.
(unaudited) -- -- -- -- -- --
Issuance of Stock Options (unaudited) -- -- -- -- -- --
Net loss (unaudited) -- -- -- -- -- --
------- ------- --------- --- ------- -------
BALANCES AT OCTOBER 8, 1995 (unaudited) -- $ -- 1,513,938 $ 15 -- $ --
========= ========= ========= === ======== ========
<CAPTION>
Stock- Add'l Total
holders' Paid-In Retained Stockholder's
Notes Capital Deficit Equity
-------- ------- --------- -------------
<S> <C> <C> <C> <C>
BALANCES AT JANUARY 29, 1995 $(702) $107,650 $(112,225) $ 57,803
Cancellation of Food 4 Less Supermarkets, Inc.'s
Common Stock held as Treasury Stock (unaudited) -- (955) -- --
Cancellation of Food 4 Less Holdings, Inc.'s
Common Stock held as Treasury Stock (unaudited) -- (1,116) -- --
Preferred Stock Accretion (unaudited) -- -- (3,960) --
Cancellation of Preferred Stock (unaudited) -- 69,096 -- --
Dividend paid to Food 4 Less Holdings, Inc.
(unaudited) -- -- (6,944) (6,944)
Payment on Stockholder Notes (unaudited) 59 -- -- 59
Capital Contribution by Food 4 Less Holdings, Inc.
(unaudited) -- 282,108 -- 282,108
Issuance of Stock Options (unaudited) -- 10,000 -- 10,000
Net loss (unaudited) -- -- (178,224) (178,224)
----- -------- --------- ---------
BALANCES AT OCTOBER 8, 1995 (unaudited) $(643) $466,783 $(301,353) $ 164,802
===== ======== ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
8
<PAGE> 11
RALPHS GROCERY COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated balance sheet and statement of stockholder's
equity of Ralphs Grocery Company (the "Company"), formerly known as
Food 4 Less Supermarkets, Inc. ("F4L Supermarkets") as of October 8,
1995 and the consolidated statements of operations and cash flows for
the interim periods ended October 8, 1995 and September 17, 1994 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 with the Company's financial statements and notes thereto
included in the Company's latest annual report filed under the name of
Food 4 Less Supermarkets, Inc. on Form 10-K for the fiscal year ended
January 29, 1995. Results of operations for interim periods are not
necessarily indicative of the results for a full fiscal year.
2. ORGANIZATION AND ACQUISITION
The Company, a wholly-owned subsidiary of Food 4 Less
Holdings, Inc. ("Holdings"), is a retail supermarket company with 412
stores located in Southern California, Northern California and certain
areas of the Midwest. The Company's Southern California division
includes manufacturing facilities, with bakery and creamery
operations, and full-line warehouse and distribution facilities.
ACQUISITION
On June 14, 1995, F4L Supermarkets acquired all of the common
stock of Ralphs Supermarkets, Inc. ("RSI") in a transaction accounted
for as a purchase by F4L Supermarkets. The consideration for the
acquisition consisted of $375 million in cash, $131.5 million
principal amount of 13.625% Senior Subordinated Pay-In-Kind Debentures
due 2007 of Holdings (the "Seller Debentures") and $18.5 million
initial accreted value of 13.625% Senior Discount Debentures due 2005
of Holdings (the "New Discount Debentures"). F4L Supermarkets, Ralphs
Supermarkets, Inc. ("RSI") and RSI's wholly owned subsidiary Ralphs
Grocery Company ("RGC") combined through mergers (the "Merger") in
which RSI remained as the surviving entity and changed its name to
Ralphs Grocery Company (referred to as the "Company" herein). The
financial statements reflect the preliminary allocation of the
purchase price as certain appraisals and other information needed to
complete the purchase price allocation have not been completed. The
allocation of the purchase price will be finalized in fiscal 1996.
The following unaudited pro forma information presents the
results of the Company's operations, adjusted to reflect interest
expense and depreciation and amortization, as though the Merger had
been consummated at the beginning of fiscal 1994.
9
<PAGE> 12
<TABLE>
<CAPTION>
36 Weeks 36 Weeks
Ended Ended
October 8, September 17,
1995 1994
------------ -------------
(dollars in thousands, except share amounts)
<S> <C> <C>
Sales $3,713,726 $3,623,986
Restructuring charge -- (63,587)
Integration costs -- (57,639)
Loss before extraordinary charge (32,243) (129,689)
Net loss (32,243) (160,232)
Loss per share:
Loss before extraordinary charge (21.35) (86.28)
Net loss (21.35) (106.59)
</TABLE>
The unaudited pro forma results of operations are not
necessarily indicative of the actual results of operations that would
have occurred had the purchase actually been made at the beginning of
fiscal 1994, or of the results which may occur in the future.
3. SIGNIFICANT ACCOUNTING POLICIES
Inventories
Inventories, which consist primarily 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 $19,459,000 and
$16,531,000 at October 8, 1995 and January 29, 1995, respectively, and
gross profit and operating income would have been greater by $934,000
and $2,928,000 for the 12 and 36 weeks ended October 8, 1995,
respectively, greater by $1,020,000 for the 12 weeks ended September
17, 1994 and less by $501,000 for the 36 weeks ended September 17,
1994.
Reclassifications
Certain prior period amounts in the consolidated financial
statements have been reclassified to conform to the October 8, 1995
presentation.
Other
The Financial Accounting Standards Board has issued a new
standard on accounting for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets
to be held and used and long-lived assets and certain identifiable
intangibles to be disposed of (FASB Statement No. 121). The Company
will adopt the accounting standard in fiscal 1996. The Company does
not expect the change in accounting to have a material effect on the
Company's reported financial position or results of operations.
4. RESTRUCTURING CHARGE
During the quarter ended July 16, 1995, the Company has
recorded a $63.6 million one-time restructuring charge associated with
the closing of 39 stores and one warehouse facility. Pursuant to the
settlement agreement with the State of California, 24 Food 4 Less
stores (as well as 3 Ralphs stores) must be divested by December 31,
1995. Although not required by such settlement agreement, an
additional 15 under-performing stores are scheduled to be closed by
June 30, 1996. The restructuring charge consists of write-downs of
property, plant and equipment ($40.6 million) less estimated proceeds
($16.0 million); reserve for closed stores and warehouse facility
($16.1 million); write-off of the Alpha Beta trademark ($8.3 million);
write-off of other assets ($8.0 million); lease
10
<PAGE> 13
termination expenses ($4.0 million); and miscellaneous expenses ($2.6
million). The expected cash payments to be made in connection with
the restructuring charge total $7.2 million. It is expected that cash
payments will be made by June 30, 1996. The increase in the
restructuring charge over previous estimates was due primarily to the
addition of the $16.1 million reserve for the closure of the warehouse
and stores. The remaining increase resulted from the identification
of additional assets to be written-off. During the 36 weeks ended
October 8, 1995, the Company utilized $37.5 million of the reserve
for restructuring costs ($46.6 million of costs partially offset by
$9.1 million of proceeds from the divestiture of stores).
The charges consisted of write-downs of property, plant and
equipment ($23.1 million); write-off of the Alpha Beta trademark ($8.3
million); and write-off of other assets ($6.1 million). No additional
expenses are expected to be incurred in future periods in connection
with these closings. The Company 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 addition of
the Riverside facility will likely result in an additional fourth
quarter restructuring charge, the amount of which has not yet been
finalized. (See Note 10 - "Subsequent Events.")
5. EXTRAORDINARY CHARGE
The extraordinary charge of $23.1 million recorded during the
quarter ended July 16, 1995 relates to the refinancing of F4L
Supermarkets' old credit facility, 10.45% Senior Notes due 2000 (the
"Old F4L Senior Notes"), 13.75% Senior Subordinated Notes due 2001
(the "Old F4L Senior Subordinated Notes") and Holdings' 15.25% Senior
Discount Notes due 2004 in connection with the Merger and the
write-off of their related debt issuance costs.
11
<PAGE> 14
6. LONG-TERM SENIOR DEBT AND SENIOR SUBORDINATED DEBT
The Company's long-term senior debt is summarized as follows:
<TABLE>
<CAPTION>
October 8, January 29,
1995 1995
-------------- ------------
<S> <C> <C>
New Term Loans, principal due quarterly through
2003, with interest payable quarterly in arrears $ 594,873,000 $ --
Old Bank Term Loan, principal due quarterly through
January 1999, with interest payable monthly in arrears -- 125,732,000
10.45% Senior Notes, principal due 2004 with
interest payable semi-annually in arrears 520,326,000 --
10.45% Senior Notes, principal due 2000 with
interest payable semi-annually in arrears 4,674,000 175,000,000
Revolving loan -- 27,300,000
Notes payable in varying monthly installments,
including interest ranging from 11.5 percent to
18.96 percent. Final payments due through
November 1996. Secured by equipment with a net
book value of $24.9 million. 3,951,000 --
10.0% Secured Promissory Note, collateralized
by the stock of Bell, due June 1996, interest
payable quarterly through June 1996. 8,000,000 8,000,000
10.625% 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
$2.1 million. 1,466,000 1,498,000
10.8% notes payable, collateralized equipment,
due October 1995, $72,000 of principal plus
interest payable monthly, plus balloon payment of
$1,004,000 of principal and interest. 995,000 1,420,000
Other long-term debt 3,577,000 4,214,000
-------------- ------------
1,137,862,000 343,164,000
Less current portion 24,649,000 22,263,000
-------------- ------------
$1,113,213,000 $320,901,000
============== ============
</TABLE>
Long Term Senior Debt
As part of the Merger financing, the Company entered into a
new credit agreement (the "New Credit Facility") with certain banks,
comprised of a $600 million term loan facility (the "New Term Loans")
and a revolving credit facility of $325 million (the "Revolving Credit
Facility") less amounts outstanding under a $150 million standby
letter of credit facility (the "Letter of Credit Facility").
At October 8, 1995, $594.9 million was outstanding under the
New Term Loans, there were no borrowings outstanding under the
Revolving Credit Facility, and $92.7 million of standby letters of
credit had been issued on behalf of the Company. A commitment fee of
one-half of one percent is charged on the average daily unused
portion of the Revolving Credit Facility; such commitment fees
12
<PAGE> 15
are due quarterly in arrears. Interest on borrowings under the New
Term Loans is at the bank's Base Rate (as defined) plus a margin
ranging from 1.50 percent to 2.75 percent or the adjusted Eurodollar
Rate (as defined) plus a margin ranging from 2.75 percent to 4.00
percent. At October 8, 1995, the weighted average interest rate on
the New Term Loans was 9.12 percent. Interest on borrowings under the
Revolving Credit Facility is at the bank's Base Rate (as defined) plus
a margin of 1.50 percent or the Adjusted Eurodollar Rate (as defined)
plus a margin of 2.75 percent.
On October 11, 1995, the Company entered into an interest rate
collar which effectively set interest rate limits on $300 million of
the Company's bank term debt. This interest rate collar, which was
effective as of October 19, 1995, limits the interest rate on $300
million to a range of 4.5% to 8.0% LIBOR for two years. This
agreement satisfies interest rate protection requirements under the
New Credit Facility.
Quarterly principal installments on the New Term Loans
continue to December 2003, with amounts payable in each year as
follows: $0.8 million in fiscal 1995, $19.5 million in fiscal 1996,
$46.6 million in fiscal 1997, $59.2 million in fiscal 1998, $62.8
million in fiscal 1999, $66.4 in fiscal 2000, $86.1 in fiscal 2001,
$102.9 in fiscal 2002 and $150.6 in fiscal 2003. The principal
installments can be accelerated from time to time by certain mandatory
prepayments which are required under the New Credit Facility. To the
extent that borrowings under the Revolving Credit Facility are not
paid earlier, they are due in December 2003. The common stock of the
Company and certain of its direct and indirect subsidiaries has been
pledged as security under the New Credit Facility.
The Company issued $350,000,000 of new 10.45% Senior Notes due
2004 (the "New F4L Senior Notes") and exchanged $170,326,000
principal amount of the Old F4L Senior Notes (together with the
New F4L Senior Notes, the "Senior Notes"), for an equal amount of the
New F4L Senior Notes, leaving an outstanding balance of $4,674,000 on
the Old F4L Senior Notes. The New Senior Notes are due on June 15,
2004 and the Old F4L Senior Notes are due in two equal sinking fund
payments on April 15, 1999 and 2000. The Senior Notes are senior
unsecured obligations of the Company and rank "pari passu" in right of
payment with other senior unsecured indebtedness of the Company.
However, the Senior Notes are effectively subordinated to all secured
indebtedness of the Company and its subsidiaries, including
indebtedness under the New Credit Facility. Interest on the New F4L
Senior Notes is payable semiannually in arrears on each June 15 and
December 15, commencing on December 15, 1995. Interest on the Old F4L
Senior Notes is payable semiannually in arrears on each April 15 and
October 15.
The New F4L Senior Notes may be redeemed, at the option of the
Company, in whole at any time or in part from time to time, beginning
in fiscal 2000, at a redemption price of 105.225 percent. The
redemption price declines ratably to 100 percent in fiscal 2003. In
addition, on or prior to June 15, 1998, the Company may, at its
option, use the net cash proceeds of one or more public equity
offerings to redeem up to an aggregate of 35 percent of the principal
amount of the New F4L Senior Notes originally issued, at a redemption
price equal to 110.450 percent, 108.957 percent, and 107.464 percent
of the principal amount thereof if redeemed during the 12 months
commencing on June 15, 1995, June 15, 1996, and June 15, 1997,
respectively, in each case plus accrued and unpaid interest, if any,
to the redemption date. The Old F4L Senior Notes may be redeemed
beginning in fiscal year 1996 at 104.48 percent, declining ratably to
100 percent in fiscal 1999.
13
<PAGE> 16
Scheduled maturities of principal of long-term senior debt at
October 8, 1995 are as follows:
<TABLE>
<CAPTION>
Fiscal Year
-----------
<S> <C>
1995 $ 3,499,000
1996 32,074,000
1997 46,761,000
1998 59,418,000
1999 63,051,000
Later years 933,059,000
--------------
$1,137,862,000
==============
</TABLE>
Senior Subordinated Deb
The Company issued $100,000,000 of new 11% Senior Subordinated
Notes due 2005 (the "New RGC Notes") and (i) exchanged $142,192,000
principal amount of the RGC 9% Senior Subordinated Notes due 2003
(the "Old RGC 9% Notes") and $281,813,000 principal amount of the RGC
10.25% Senior Subordinated Notes due 2002 (the "Old RGC 10.25%
Notes," and together with the Old RGC 9% Notes, the "Old RGC Notes")
for an equal amount of New RGC Notes, (ii) purchased $7,530,000
principal amount of Old RGC 9% Notes and $15,151,000 principal amount
of Old RGC 10.25% Notes in conjunction with the offers, and (iii)
subsequently purchased $133,000 principal amount of Old RGC 9% Notes
and $964,000 principal amount of Old RGC 10.25% Notes subject to the
change of control provision, leaving an outstanding balance of
$145,000 on the Old RGC 9% Notes and an outstanding balance of
$2,072,000 on the Old RGC 10.25% Notes. The New RGC Notes are senior
subordinated unsecured obligations of the Company and are subordinated
in right of payment to all senior indebtedness, including the
Company's obligations under the New Credit Facility and the Senior
Notes. Interest on the New RGC Notes is payable semiannually in
arrears on each June 15 and December 15, commencing on December 15,
1995.
The New RGC Notes may be redeemed at the option of the
Company, in whole at any time or in part from time to time, beginning
in fiscal year 2000, at an initial redemption price of 105.5 percent.
The redemption price declines ratably to 100 percent in fiscal 2003.
In addition, on or prior to June 15, 1998, the Company may, at its
option, use the net cash proceeds of one or more public equity
offerings to redeem up to an aggregate of 35 percent of the principal
amount of the New RGC Notes originally issued, at a redemption price
equal to 111 percent, 109.429 percent, and 107.857 percent of the
principal amount thereof if redeemed during the 12 months commencing
on June 15, 1995, June 15, 1996, and June 15, 1997, respectively, in
each case plus accrued and unpaid interest, if any, to the redemption
date.
The Company exchanged $140,184,000 Old F4L Senior Subordinated
Notes for an equal amount of new 13.75% Senior Subordinated Notes due
2005 (the "New F4L Senior Subordinated Notes," and together with the
Old F4L Senior Subordinated Notes, the "13.75% Senior Subordinated
Notes") of the Company, leaving an outstanding balance of $4,816,000
on the Old F4L Senior Subordinated Notes. The 13.75% Senior
Subordinated Notes are senior subordinated unsecured obligations of
the Company and are subordinated in right of payment to all senior
indebtedness including the Company's obligations under the New Credit
Facility and the Senior Notes. Interest on the 13.75% Senior
Subordinated Notes is payable semiannually in arrears on each June 15
and December 15 commencing on December 15, 1995. The 13.75% Senior
Subordinated Notes may be redeemed beginning in fiscal year 1996 at a
redemption price of 106.111 percent. The redemption price declines
ratably to 100 percent in fiscal 2000.
14
<PAGE> 17
Financial Covenants
The New Credit Facility, among other things, requires the
Company to maintain minimum levels of net worth (as defined), to
maintain minimum levels of earnings, to maintain a hedge agreement to
provide interest rate protection, and to comply with certain ratios
related to fixed charges and indebtedness. In addition, the New
Credit Facility and the indentures governing the New F4L Notes, the
New RGC Notes and the New F4L Senior Subordinated Notes limit, among
other things, additional borrowings, dividends on, and redemption of,
capital stock and the acquisition and the disposition of assets. At
October 8, 1995, the Company was in compliance with the financial
covenants of its debt agreements. At October 8, 1995, dividends and
certain other payments are restricted based on terms in the debt
agreements.
The proceeds of the New Credit Facility and the new debt
issuances (as described above) were used as sources of financing for
the Merger. (See Footnote 2 -- "Organization and Acquisition").
7. CAPITAL CONTRIBUTIONS
Holdings made capital contributions to the Company of $282.1
million in the form of (i) RSI stock acquired through the issuance of
$131.5 million aggregate principal amount of the Seller Debentures and
$18.5 million initial accreted value of the New Discount Debentures,
(ii) RSI stock acquired with $100 million of cash proceeds from the
$140 million new equity financing at Holdings (the "New Equity
Investment") and (iii) $12.1 million in cash proceeds from the New
Equity Investment and the satisfaction by Holdings, through the
issuance of the New Discount Debentures, of $20 million in fees
otherwise payable by the Company in connection with the Merger and the
Financing.
8. DIVIDENDS
In connection with the Merger, the Company paid dividends to
Holdings of $6.9 million. The Company paid dividends to Holdings of
$3.4 million for the purchase, by Holdings, of shares of Holdings
common stock from stockholders who exercised statutory dissenters'
rights in connection with the merger of Holdings and its majority
stockholder Food 4 Less, Inc. There are no other shares subject to
statutory dissenters' rights. Up to $10 million of the Seller
Debentures were subject to an agreement (the "Put Agreement") between
The Yucaipa Companies ("Yucaipa") and a selling stockholder of RSI
common stock (the "Selling Stockholder") in which Yucaipa was required
to purchase up to $10 million of the Seller Debentures back from the
Selling Stockholder upon a put by the Selling Stockholder. On June
14, 1995, the Selling Stockholder put $10 million of the Seller
Debentures ("Put Debentures") to Yucaipa. Yucaipa then sold the Put
Debentures to Bankers Trust Company at a price of $6.5 million. As
part of the Put Agreement, Holdings was obligated to reimburse
Yucaipa for any losses or expenses incurred in connection with a put
by the Selling Stockholder. As such, the Company paid dividends to
Holdings of $3.5 million for the loss which Yucaipa incurred as a
result of the put by the Selling Stockholder. Holdings subsequently
recorded a $3.5 million discount to the Seller Debentures.
9. STOCK OPTIONS
The Company's parent, Holdings, established the Food 4 Less
Holdings, Inc. 1995 Stock Option Plan (the "Plan") to grant officers
and other key employees of the Company the opportunity to acquire
Holdings common stock and to create an incentive for such persons to
remain in the employ of the Company. The Plan is administered by a
committee (the "Committee") which consists of selected members of the
Holdings' Board of Directors. The Committee may grant both incentive
and non-qualified stock options and each such option shall be
evidenced by a written Stock Option Agreement between the option
holder and Holdings. Each individual Stock Option Agreement may
differ from person to person, but must comply with the terms and
conditions of the Plan.
15
<PAGE> 18
The cumulative aggregate number of shares of common stock to
be issued under the Plan may not exceed 3,000,000 plus any shares
acquired by Holdings by repurchase of shares of common stock
previously issued to certain officers and other key employees under a
prior stock incentive program of Holdings.
The exercise price of each incentive stock option shall be
determined by the Committee, but, in the case of each incentive stock
option, shall not be less than 100% of the fair market value of the
common stock on the date of grant. The exercise price of each
non-qualified stock option is determined by the Committee at its
discretion.
The Committee determines the date that a particular option
shall become exercisable provided, however, that each option shall
become exercisable in full no later than five years after such option
is granted, and each option shall become exercisable as to at least
20% of the shares of common stock covered thereby on each anniversary
of the date such option is granted. The options are exercisable in
whole or in part and the expiration date which is determined on an
option-by-option basis by the Committee cannot exceed 10 years from
the date of issuance of such option.
Prior to the Merger, RSI had 1,500,000 Equity Appreciation
Rights ("EARs") outstanding that were granted under the 1988 Equity
Appreciation Rights Plan, as amended, to certain officers and key
employees of RGC. In connection with the Merger, a portion of the EAR
payment in the amount of $10 million was canceled in exchange for
the issuance of certain non-qualified stock options (collectively, the
"Reinvestment Options"). In addition to the Reinvestment Options,
Holdings granted stock options to certain management employees of the
Company and to one senior executive officer of Holdings. Compensation
expense was not recorded as the cancellation of the EAR liabilities in
consideration of the Reinvestment Options was deemed by management to
reflect fair and equal value. Each of the options granted in
connection with the Merger will expire on June 14, 2005. All of the
Reinvestment Options were fully exercisable upon the date of issuance.
At October 8, 1995, stock options covering 2,415,000 shares of
Holdings common stock, all of which were granted in connection with
the Merger, were the only options issued under the Plan and none of
these options had been exercised or canceled. Each of such stock
options has an exercise price of $10, which has been adjusted with
respect to each option holder to reflect the cancellation of the EAR
payments.
10. SUBSEQUENT EVENTS
On November 1, 1995, the Company entered into an agreement
with Smith's Food & Drug Centers, Inc. ("Smith's") to sublease (for
approximately 23 years, with renewal options through 2043) Smith's one
million square foot distribution center and creamery facility in
Riverside, California and to acquire certain operating assets and
inventory at that facility. The Company will pay approximately
$15 million for the operating assets (plus the cost of certain
additional assets based on a physical count) and will pay Smith's
cost, less certain discounts, for the inventory to be acquired (which
was valued at approximately $13.3 million based on inventory levels at
November 12, 1995). The Company will pay annual base rent of
approximately $8.8 million under the sublease. The transaction is
scheduled to be completed on or before January 29, 1996. This
transaction will delay and modify the previously planned integration
for the existing Ralphs and Food 4 Less warehouse facilities; however,
the Company believes the transaction will result in increased
operating efficiencies, cost offsets and reduced capital expenditures.
The acquisition of the Riverside facility, which is subject to certain
conditions, including the expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act, will result in an
additional fourth quarter restructuring charge, the amount of which
has not yet been finalized.
On October 20, 1995, the holder (the "Holder") of the 13 5/8%
Senior Discount Debentures due 2005 of Holdings (the "New Discount
Debentures") sold $193,363,000 principal amount of the New Discount
Debentures at a price equal to 77% of the accreted value thereof. The
sale of the New Discount Debentures was effected by BT Securities
Corporation ("BT Securities"). BT Securities received a fee in the
amount of 2% ($2.1 million) of the aggregate accreted value of the New
Discount
16
<PAGE> 19
Debentures. Holdings reimbursed the Holder for such fee and other
expenses of the sale as contemplated by a registration rights
agreement executed concurrently with the consummation of the Merger.
17
<PAGE> 20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
On June 14, 1995, Food 4 Less Supermarkets, Inc. ("F4L Supermarkets")
completed its acquisition of Ralphs Supermarkets, Inc. ("RSI") and its wholly
owned subsidiary, Ralphs Grocery Company ("RGC"). The acquisition was effected
through the merger of F4L Supermarkets with and into RSI (the "RSI Merger"),
followed by the merger of RGC with and into RSI (the "RGC Merger" and, together
with the RSI Merger, the "Merger"). The surviving corporation in the Merger
was renamed Ralphs Grocery Company (the "Company"). Concurrently with the
consummation of the Merger, the Company received a significant equity
investment from its parent, Food 4 Less Holdings, Inc. ("Holdings") and
refinanced a substantial portion of the existing indebtedness of F4L
Supermarkets and RGC. See "Liquidity and Capital Resources."
The Company's results of operations for the 36 weeks ended October 8,
1995 include 19 weeks of the operations of F4L Supermarkets prior to the
Merger and 17 weeks of operations of the combined Company. Management believes
that the Company's results of operations for periods ending after the
consummation of the Merger are not directly comparable to its results of
operations for periods ending prior to such date. This lack of comparability
is attributable to several factors, including the size of the combined Company
(since the Merger is expected to approximately double F4L Supermarkets' annual
sales volume), the addition of 174 conventional stores to the Company's overall
store mix and the material changes in the Company's capital structure.
The Merger is being accounted for as a purchase of RGC by F4L
Supermarkets. As a result, all financial statements for periods subsequent to
June 14, 1995, the date the Merger was consummated, will reflect RGC's assets
and liabilities at their estimated fair market values as of June 14, 1995. The
purchase price in excess of the fair market value of RGC's assets will be
recorded as goodwill and amortized over a 40-year period. The purchase price
allocation reflected in the Company's unaudited balance sheet at October 8,
1995 is based on management's preliminary estimates. The actual purchase
accounting adjustments, including adjustments to loss contingency accruals,
will be determined within one year following the Merger and may vary from the
preliminary estimates at October 8, 1995.
At October 8, 1995, the Company operated 291 conventional supermarkets
and 59 Food 4 Less warehouse stores in Southern California. It also operated
65 additional stores in Northern California and certain areas of the Midwest.
Following the Merger, the Company commenced the process of converting the
Company's Alpha Beta, Boys and Viva stores to the Ralphs format and also began
converting selected Ralphs stores to the Food 4 Less warehouse format. As of
October 8, 1995, 111 former Alpha Beta, Boys or Viva stores had been converted
to the Ralphs format and four former Ralphs stores had been converted to the
Food 4 Less warehouse format, with an additional six former Ralphs stores
currently being converted.
At October 8, 1995, the Company's bakery, creamery and deli
manufacturing operations and the management of major corporate departments had
been consolidated. The full integration of the Company's administrative
departments is expected to be completed by the end of fiscal 1995. The
previously planned integration and consolidation of the Company's warehousing
and distribution facilities into three primary facilities will be delayed and
modified as a result of the agreement with Smith's to lease its Riverside,
California distribution and creamery facility. (See Note 10 -- "Subsequent
Events.")
18
<PAGE> 21
RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth the selected unaudited operating
results of the Company for the 12 and 36 weeks ended October 8, 1995 and
September 17, 1994:
<TABLE>
<CAPTION>
12 WEEKS ENDED 36 WEEKS ENDED
-------------- --------------
OCTOBER 8, 1995 SEPTEMBER 17, 1994 OCTOBER 8, 1995 SEPTEMBER 17, 1994
--------------- ------------------ --------------- ------------------
(DOLLARS IN MILLIONS)
(UNAUDITED)
<S> <C> <C> <C> <C>
Sales $1,207.1 100.0% $598.7 100.0% $2,688.0 100.0% $1,767.6 100.0%
Gross profit 241.1 20.0 103.0 17.2 509.9 19.0 310.1 17.5
Selling, general, administrative
and other, net 225.0 18.6 88.2 14.7 480.0 17.9 255.4 14.4
Amortization of excess costs over
net assets acquired 10.0 0.9 1.8 0.3 16.5 0.6 5.3 0.3
Restructuring charge -- -- -- -- 63.6 2.4 -- --
Operating income (loss) 6.1 0.5 13.1 2.2 (50.2) -1.9 49.4 2.8
Interest expense 55.8 4.6 16.0 2.7 104.7 3.9 47.4 2.7
Loss (gain) on disposal of assets 0.1 -- (0.5) -0.1 (0.3) -- (0.4) --
Provision for earthquake losses -- -- -- -- -- -- 4.5 0.3
Provision for income taxes -- -- 0.9 0.2 0.5 -- 2.9 0.2
Loss before extraordinary charge (49.8) -4.1 (3.3) -0.6 (155.1) -5.8 (5.0) -0.3
Extraordinary charge -- -- -- -- 23.1 0.9 -- --
Net loss $(49.8) -4.1 $(3.3) -0.6 $(178.2) -6.6 $(5.0) -0.3
</TABLE>
Sales. Sales per week increased $50.7 million, or 101.6%, from $49.9
million in the 12 weeks ended September 17, 1994 to $100.6 million in the 12
weeks ended October 8, 1995 and increased $25.6 million, or 52.1%, from $49.1
million in the 36 weeks ended September 17, 1994 to $74.7 million in the 36
weeks ended October 8, 1995. The increase in sales for the 12 and 36 weeks
ended October 8, 1995, was primarily attributable to the addition of 174
conventional supermarkets acquired through the Merger. The sales increase was
partially offset by a comparable store sales decline of 3.0% and 2.4% for the
12 and 36 weeks ended October 8, 1995, respectively. Excluding stores
scheduled for divestiture or closing, the comparable store sales decreased 1.9%
and 1.4% for the 12 and 36 weeks ended October 8, 1995, respectively.
Management believes that the decline in comparable store sales is partially
attributable to additional competitive store openings and remodels in Southern
California, as well as the Company's own new store openings and conversions.
Notwithstanding these factors, comparable store sales in fiscal 1995 have
improved relative to recent years.
Gross Profit. Gross profit increased as a percentage of sales from
17.2% in the 12 weeks ended September 17, 1994 to 20.0% in the 12 weeks ended
October 8, 1995 and increased from 17.5% in the 36 weeks ended September 17,
1994 to 19.0 in the 36 weeks ended October 8, 1995. The increase in gross
profit margin was primarily attributable to the addition of 174 conventional
supermarkets which diluted the effect of the Company's warehouse stores (which
have lower gross margins than the Company's conventional supermarkets) on its
overall gross margin for the period. Gross profit during the 12 and 36 weeks
ended October 8, 1995 was also impacted by certain one-time costs associated
with the integration of the Company's operations. See "Operating Income
(Loss)."
Selling, General, Administrative and Other, Net. Selling, general,
administrative and other expenses ("SG&A") were $88.2 million and $225.0
million for the 12 weeks and $255.4 million and $480.0 million for the 36 weeks
ended September 17, 1994 and October 8, 1995, respectively. SG&A increased as
a percentage of sales from 14.7% to 18.6% and from 14.4% to 17.9% for the same
periods. The increase in SG&A as a percentage of sales was due primarily to
the addition of 174 conventional supermarkets acquired through the
19
<PAGE> 22
Merger. The additional conventional supermarkets diluted the effect of the
Company's warehouse stores (which have lower SG&A than the Company's
conventional supermarkets) on its SG&A margin for the period. SG&A during the
12 and 36 weeks ended October 8, 1995 was also impacted by certain one-time
costs associated with the integration of the Company's operations. See
"Operating Income (Loss)."
Restructuring Charge. During the quarter ended July 16, 1995, the
Company recorded a $63.6 million charge associated with the closing of
39 stores and one warehouse facility. Pursuant to the settlement agreement
with the State of California, 24 Food 4 Less stores (as well as 3 Ralphs
stores) must be divested by December 31, 1995. Although not required by such
settlement agreement, an additional 15 under-performing stores are scheduled to
be closed by June 30, 1996. The restructuring charge consists of write-downs
of property, plant and equipment ($40.6 million) less estimated proceeds ($16.0
million); reserve for closed stores and warehouse facility ($16.1 million);
write-off of the Alpha Beta trademark ($8.3 million); write-off of other assets
($8.0 million); lease termination expenses ($4.0 million); and miscellaneous
expenses ($2.6 million). The expected cash payments to be made in connection
with the restructuring charge total $7.2 million. It is expected that cash
payments will be made by June 30, 1996. The increase in the restructuring
charge over previous estimates was due primarily to the addition of the $16.1
million reserve for the closure of the warehouse and stores. The remaining
increase resulted from the identification of additional assets to be written-
off. During the 36 weeks ended October 8, 1995, the Company utilized $37.5
million of the reserve for restructuring costs ($46.6 million of costs
partially offset by $9.1 million of proceeds from the divestiture of stores).
The charges consisted of write-downs of property, plant and equipment ($23.1
million); write-off of the Alpha Beta trademark ($8.3 million); and write-off
of other assets ($6.1 million). No additional expenses are expected to be
incurred in future periods in connection with these closings. The Company 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
addition of the Riverside facility will likely result in an additional fourth
quarter restructuring charge, the amount of which has not yet been finalized.
(See Note 10 -- "Subsequent Events.")
Operating Income (Loss). In addition to the factors discussed above,
operating income for the 12 and 36 weeks ended October 8, 1995 was impacted by
approximately $28 million and $58 million, respectively, for costs associated
with the conversion of stores and integration of the Company's operations.
Management anticipates these costs to continue during fiscal 1995 until the
integration plan is completed. During the 12 and 36 week periods, these
costs related primarily to (i) markdowns on clearance inventory at the
Company's Alpha Beta, Boys and Viva stores being converted to the Ralphs
format, (ii) the stepped-up advertising campaign promoting the store conversion
program and (iii) incremental labor costs associated with the training of
Company personnel following store conversions.
Interest Expense. Interest expense (including amortization of
deferred financing costs) was $16.0 million and $55.8 million for the 12 weeks
and $47.4 million and $104.7 million for the 36 weeks ended September 17, 1994
and October 8, 1995, respectively. The increase in interest expense was
primarily due to the increased indebtedness incurred in conjunction with the
Merger (see "Liquidity and Capital Resources").
Provision for Earthquake Losses. On January 17, 1994, Southern
California experienced a major earthquake which resulted in the temporary
closure of 31 of the Company's stores. The closures were caused primarily by
loss of electricity, water, 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). The pre-tax financial impact, net of
insurance recoveries, was $4.5 million. The Company reserved for this charge
during the 36 weeks ended September 17, 1994.
Loss Before Extraordinary Charge. Primarily as a result of the
factors discussed above, the Company's loss before extraordinary charge
increased from $3.3 million in the 12 weeks ended September 17, 1994 to $49.8
million in the 12 weeks ended October 8, 1995, and from $5.0 million in the 36
weeks ended September 17, 1994 to $155.1 million in the 36 weeks ended October
8, 1995.
20
<PAGE> 23
Extraordinary Charge. The extraordinary charge of $23.1 million
recorded during the quarter ended July 16, 1995 relates to the refinancing of
the F4L Supermarkets Old Credit Facility, 10.45% Senior Notes due 2000, and the
13.75% Senior Subordinated Notes due 2001 and the Food 4 Less Holdings, Inc.
15.25% Senior Discount Notes due 2004 in connection with the Merger and the
write-off of related debt issuance costs.
LIQUIDITY AND CAPITAL RESOURCES
The Company and Holdings utilized total new financing proceeds of
approximately $525 million to consummate the Merger, which included the
issuance of preferred stock by Holdings to a group of investors led by Apollo
Advisors, L.P. for cash proceeds of approximately $140 million (the "New Equity
Investment"). In addition, the Company entered into a new credit facility (the
"New Credit Facility") pursuant to which, upon the closing of the Merger, it
incurred $600 million under the term loan portion of the New Credit Facility
(the "New Term Loans") and approximately $91.6 million under the standby letter
of credit facility (the "Letter of Credit Facility"). The Company also issued
$350 million aggregate principal amount of new 10.45% Senior Notes due 2004
(the "New F4L Senior Notes") and $100 million aggregate principal amount of new
11% Senior Subordinated Notes due 2005 (the "New RGC Notes") pursuant to public
offerings (the "Public Offerings").
The proceeds from the New Credit Facility, Public Offerings and the
New Equity Investment and the issuance by Holdings of $59.0 million initial
accreted value of 13.625% Senior Discount Debentures due 2005 (the "New
Discount Debentures") for cash, $41.0 million in initial accreted value of
additional New Discount Debentures as Merger consideration and $131.5 million
aggregate principal amount of 13.625% Senior Subordinated Pay-In-Kind
Debentures due 2007 (the "Seller Debentures"), provided the sources of
financing required to consummate the Merger and to repay outstanding bank debt
of approximately $176.5 million at F4L Supermarkets and $228.9 million at RGC,
to repay existing mortgage debt of $174.0 million (excluding prepayment fees)
at RGC and to pay $84.4 million to the holders of the Senior Discount Notes due
2004 of Holdings (the "Discount Notes") (excluding related fees). Proceeds
from the New Credit Facility and the Public Offerings were used to pay the cash
portions of F4L Supermarkets' exchange offers and consent solicitations with
respect to (i) the 10.25% Senior Subordinated Notes due 2002 of RGC (the "Old
RGC 10.25% Notes,") and the 9% Senior Subordinated Notes due 2003 of RGC (the
"Old RGC 9% Notes," and together with the old RGC 10.25% Notes, the "Old RGC
Notes") (collectively, the "RGC Exchange Offers"), and (ii) the 10.45% Senior
Notes due 2000 of F4L Supermarkets (the "Old F4L Senior Notes") and the 13.75%
Senior Subordinated Notes due 2001 of F4L Supermarkets (the "Old F4L Senior
Subordinated Notes") (collectively, the "F4L Exchange Offers," and together
with the RGC Exchange Offers, the "Exchange Offers"), as well as the Change of
Control Offer (as defined below) and accrued interest on all exchanged debt
securities in the amount of $27.8 million, to pay $17.8 million to the holders
of the RGC Equity Appreciation Rights and to loan $5.0 million to an affiliate
for the benefit of such holders, to pay approximately $137.1 million of fees
and expenses of the Merger and the related financing and to pay $3.4 million to
purchase shares of common stock of Holdings from certain dissenting
shareholders. The Company assumed certain existing indebtedness of F4L
Supermarkets and RGC in connection with the Exchange Offers, pursuant to which
(i) holders of the Old RGC Notes exchanged approximately $424.0 million
aggregate principal amount of Old RGC Notes for an equal principal amount of
New RGC Notes, (ii) holders of the Old F4L Senior Notes exchanged approximately
$170.3 million aggregate principal amount of Old F4L Senior Notes for an equal
principal amount of New F4L Senior Notes, and (iii) holders of the Old F4L
Senior Subordinated Notes exchanged approximately $140.2 million aggregate
principal amount of Old F4L Senior Subordinated Notes for an equal principal
amount of new 13.75% Senior Subordinated Notes due 2005. In addition, pursuant
to the terms of the indentures governing the Old RGC Notes, the consummation of
the Merger required the Company to make an offer to purchase all of the
outstanding Old RGC Notes that were not exchanged in the RGC Offers (the
"Change of Control Offer"). The Change of Control Offer resulted in the
purchase of an additional $1.1 million of outstanding Old RGC Notes.
21
<PAGE> 24
The New Credit Facility provides for a revolving credit facility of
$325 million (the "Revolving Credit Facility") less amounts outstanding under a
$150 million standby Letter of Credit Facility. At October 8, 1995, there were
no borrowings under the Revolving Credit Facility and $92.7 million of standby
letters of credit had been issued under the Letter of Credit Facility. Under
the terms of the New Credit Facility, the Company is required to repay $1.6
million of the New Term Loans in fiscal 1995. The level of borrowings under
the Company's Revolving Credit Facility is dependent upon cash flows from
operations, the timing of disbursements, seasonal requirements and capital
expenditure activity. At November 20, 1995, the Company had $152.7 million
available for borrowing under the Revolving Credit Facility.
On October 11, 1995, the Company entered into an interest rate collar
which effectively set interest rate limits on $300 million of the Company's
bank term debt. This interest rate collar, which was effective as of October
19, 1995, limits the interest rate on $300 million to a range of 4.5% to 8.0%
LIBOR for two years. This agreement satisfies interest rate protection
requirements under the New Credit Facility.
Cash flow from operations, amounts available under the Revolving
Credit Facility and lease financing are the Company's principal sources of
liquidity. The Company believes that these sources will be adequate to meet
its anticipated capital expenditures, working capital needs and debt service
requirements for the remainder of fiscal 1995. However, there can be no
assurance that the Company will continue to generate cash flow from operations
at historical levels or that it will be able to make future borrowings under
the Revolving Credit Facility.
During the 36 week period ending October 8, 1995, cash provided by
operating activities was approximately $101.1 million compared to $63.0 million
for the 36 weeks ending September 17, 1994. The increase in cash from
operating activities is due primarily to changes in operating assets and
liabilities for the 36 weeks ending October 8, 1995, partially offset by a
decrease in operating income due primarily to the impact of certain costs
associated with the integration of the Company's operations subsequent to
the Merger. The Company's principal use of cash in its operating activities is
inventory purchases. The Company's high inventory turnover allows it to
finance a substantial portion of its inventory through trade payables, thereby
reducing its short-term borrowing needs. At October 8, 1995, this resulted in
a working capital deficit of $145.9 million.
Cash used for investing activities was $422.2 million for the 36 weeks
ended October 8, 1995. Investing activities consisted primarily of $356.3
million of acquisition costs associated with the Merger and capital
expenditures of $68.5 million, partially offset by $4.1 million of
sale/leaseback transactions. The capital expenditures, net of the proceeds
from sale/leaseback transactions, were financed primarily from cash provided by
operating and financing activities.
The capital expenditures discussed above were made to build 11 new
stores (8 of which had been completed at October 8, 1995), to remodel 7 stores
(all of which had been completed at October 8, 1995) and convert 111
conventional format stores to the Ralphs banner in conjunction with the Merger
(all of which had been completed at October 8, 1995) and convert ten Ralphs
stores to the Food 4 Less warehouse format (4 of which had been completed at
October 8, 1995). The Company also acquired three stores in Northern
California during the 12 weeks ended October 8, 1995. The Company currently
anticipates that its aggregate capital expenditures for fiscal 1995 will be
approximately $141.5 million. The remaining portion of the fiscal 1995
capital expenditure budget (approximately $70 million) will be used to (i)
complete construction of the 3 new stores in process at October 8, 1995 and
begin construction on an additional 11 stores scheduled to open during the
first half of fiscal 1996, (ii) complete the conversion of 15 supermarkets
from the Ralphs format to Food 4 Less warehouse stores and (iii) complete the
transition of the La Habra based data center to the data center located in the
main office in Compton. Consistent with past practices, the Company intends
to finance these capital expenditures primarily with cash provided by
operations and through leasing transactions. At November 15, 1995, the
Company had approximately $13.5 million of unused equipment leasing
facilities. No assurance can be given that sources of financing for capital
expenditures will be available or sufficient. However, the capital
expenditure program has substantial flexibility and is subject to revision
based on various factors, including changes in business conditions and cash
flow requirements. Management believes that if the Company were to
substantially reduce or postpone these programs, there would be no substantial
impact
22
<PAGE> 25
on short-term operating profitability. However, management also
believes that the construction of new stores is an important component of its
operating strategy. In the long term, if these programs were substantially
reduced, management believes its operating businesses, and ultimately its cash
flow, would be adversely affected.
The capital expenditures discussed above do not include potential
acquisitions which the Company could make to expand within its existing markets
or to enter other markets. The Company has grown through acquisition in the
past and from time to time engages in discussions with potential sellers of
individual stores, groups of stores or other retail supermarket chains.
Currently the Company is focusing on the integration of its operations
following the Merger. For a discussion of the costs associated with the
sublease of the Riverside warehouse see Note 10 - "Subsequent Events."
Cash provided by financing activities was $366.3 million for the 36
weeks ended October 8, 1995. Financing activities consisted primarily of the
following; (i) proceeds from issuance of new debt in the amount of $956.2
million including proceeds of $600 million under the New Credit Facility,
proceeds of $350 million from the issuance of New F4L Senior Notes and proceeds
of $100 million from the issuance of New RGC Notes net of issuance costs of
$93.8 million and (ii) proceeds from cash capital contributions by Holdings of
$12.1 million. These sources were partially offset by principal payments on
long-term debt of $559.6 million including: $125.7 million under the old credit
agreement, $228.9 million under the old RGC term loan; and $174.0 million in
real estate loans.
The Company is a wholly-owned subsidiary of Holdings. Holdings has
$100 million initial accreted value of the New Discount Debentures and $131.5
million principal amount of the Seller Debentures outstanding. Holdings is a
holding company which has no assets other than the capital stock of the
Company. Holdings will be required to commence semi-annual cash payments of
interest on the New Discount Debentures and the Seller Debentures commencing
five years from their date of issuance in the amount of approximately $61
million per annum. Subject to the limitations contained in its debt
instruments, the Company intends to make dividend payments to Holdings in
amounts which are sufficient to permit Holdings to service its cash interest
requirements. The Company may pay other dividends to Holdings in connection
with certain employee stock repurchases and for routine administrative
expenses. In connection with the resale of the New Discount Debentures by the
holder thereof (the "Holder") on October 20, 1995, a fee in the amount of 2%
($2.1 million) of the aggregate accreted value of the New Discount Debentures
was paid to BT Securities Corporation for effecting the sale. Holdings
reimbursed the Holder for such fee and other expenses of the sale as
contemplated by a registration rights agreement executed concurrently with the
consummation of the Merger. See "Note 10" of the Notes to Consolidated
Financial Statements.
The Company is highly leveraged. At October 8, 1995, the Company's
total long-term indebtedness (including current maturities) and stockholder's
equity were $2.0 billion and $164.8 million, respectively. 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 Revolving Credit Facility and its other sources of
liquidity (including lease financing), 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 cost savings and growth can be achieved.
EFFECTS OF INFLATION AND COMPETITION
The Company's primary costs, inventory and labor, are affected by a
number of factors that are beyond its control, including availability and price
of merchandise, the competitive climate and general and regional economic
conditions. As is typical of the supermarket industry, the Company has
generally been able to maintain margins by adjusting its retail prices, but
competitive conditions may from time to time render it unable to do so while
maintaining its market share.
23
<PAGE> 26
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.
24
<PAGE> 27
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.1 Distribution Center Transfer Agreement, dated as of
November 1, 1995, by and between Smith's Food & Drug
Centers, Inc., a Delaware corporation, and Ralphs
Grocery Company, relating to the Riverside,
California property.
27. Financial Data Schedule.
(b) Reports on Form 8-K
None.
25
<PAGE> 28
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned, thereunto duly authorized, in the County of Los Angeles, State
of California.
Dated: November 22, 1995 RALPHS GROCERY COMPANY
/s/ Greg Mays
--------------------------------
Greg Mays
Executive Vice President
Finance & Administration
Chief Financial Officer
26
<PAGE> 29
RALPHS GROCERY COMPANY
INDEX TO EXHIBITS
The following exhibits are filed as a separate section of this report:
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NO. DESCRIPTION OF EXHIBIT NUMBERED PAGE
- ------- ------------------------------------------------------------------ --------------
<S> <C> <C>
10.1 Distribution Center Transfer Agreement, dated as of November 1,
1995, by and between Smith's Food & Drug Centers, Inc., a Delaware
corporation, and Ralphs Grocery Company, relating to the
Riverside, California property.
</TABLE>
<PAGE> 1
EXHIBIT 10.1
DISTRIBUTION CENTER TRANSFER AGREEMENT
This Distribution Center Transfer Agreement (this
"Agreement"), dated as of November 1, 1995, is by and between Smith's Food &
Drug Centers, Inc., a Delaware corporation ("Seller"), and Ralphs Grocery
Company, a Delaware corporation ("Buyer").
RECITALS
A. Seller leases certain property pursuant to that
certain Lease dated as of December 21, 1993, between State Street Bank and
Trust Company of California, N.A., a national banking association, as landlord
(the "Master Landlord") and Seller, as tenant, as amended by that certain
Amendment No. 1 to Lease Agreement dated April 1, 1994 (collectively, the
"Master Lease");
B. Seller desires to sublease to Buyer those certain
premises which are the subject of the Master Lease, which premises are located
at 1500 Eastridge Avenue, Riverside, California (the "Premises") pursuant to
the terms of a sublease agreement (the "Sublease") in the form attached hereto
as Annex A. The Premises are described on Exhibit A attached to the Master
Lease;
C. The Premises contain approximately 911,898 square
feet of warehouse space, 115,676 square feet of dairy manufacturing plant and
related space, 19,505 square feet in a vehicle maintenance facility, and
attendant parking areas, truck maneuvering areas and accessways. Such
buildings and all other structures, including all fixtures included therein
(other than trade fixtures) that constitute a portion of the Premises, are
referred to herein as the "Facilities;"
D. In connection with the Sublease, Buyer also desires
to acquire from Seller certain trade fixtures, furnishings, equipment, tools,
machinery and other property identified on Annex B attached hereto
(collectively, the "Fixtures and Equipment"), which Fixtures and Equipment
includes certain equipment that is owned by Seller (the "Owned Equipment"),
including certain specified items, e.g., supplies-backstage, small
wares-backstage, pallets, janitorial supplies/equipment, milk crates, diesel
fuel, gasoline (collectively, the "Specified Equipment"), and certain equipment
that is leased by Seller from third parties (the "Leased Equipment"), in each
case as specified on Annex B; and
E. In connection with the Sublease, Buyer further
desires to acquire from Seller certain of Seller's inventory which is contained
in the Facilities on the Closing Date. The categories of inventory that are to
be acquired, as well as a description of certain types of products that are not
to be acquired, by Buyer are identified on Annex C attached hereto
(collectively, the "Inventory").
<PAGE> 2
NOW THEREFORE, in consideration of the foregoing and the
covenants and promises contained herein, and for other good and valuable
consideration, the receipt and adequacy of which is hereby acknowledged, Buyer
and Seller agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following
terms shall have the following meanings:
"Action" shall mean any chose in action, including any claim, suit,
litigation, labor dispute, arbitration, investigation or other action or
proceeding.
"Assets" shall mean, collectively, the Fixtures and Equipment and the
Inventory set forth on Annexes B and C, respectively.
"Assumed Contracts" shall mean all Contracts entered into by Seller in
the ordinary course of its business relating to the Real Property or the Assets
or the operations conducted by Seller thereon as described on Schedule 4.1.14
other than Excluded Contracts.
"Authorities" shall mean the various governmental bodies and agencies
having jurisdiction over the Assets and the Real Property.
"Books and Records" shall mean all building plans, specifications and
drawings, engineering, soils and geologic reports, environmental studies and
other documents prepared in connection with the construction, reconstruction,
maintenance, repair, management or operation of the Real Property and the
Fixtures and Equipment that are in the possession or under the control of
Seller and other books and records maintained in connection with the operation
of the Real Property and the Fixtures and Equipment including those maintained
or prepared after the date of this Agreement.
"City of Riverside Documents" shall mean (i) that certain Agreement
for 69kV Electrical Service dated as of August 12, 1992 by and between the City
of Riverside and Seller, (ii) that certain Funding and Acquisition Agreement
dated as of April 27, 1993 by and between the City of Riverside and Seller, and
(iii) that certain Owner Participation Agreement dated as of March 23, 1993 by
and between the Redevelopment Agency of the City of Riverside and Seller.
"Closing Date" shall mean January 29, 1996 or such other date as may
be designated as such by Buyer and Seller.
"Contracts" shall mean all executory contracts, leases, licenses,
undertakings, commitments, guarantees and warranties relating to the Assets or
the Real Property or the operations conducted by Seller thereon, or any portion
thereof, to which Seller is a party or by which it or the Assets or the Real
Property, or any portion thereof, is bound, including, but not
2
<PAGE> 3
limited to, Employment Contracts, maintenance contracts, and other similar
contracts, but excluding the Master Lease Documents.
"Court Order" shall mean any judgment, decision, consent decree,
injunction, ruling or order of any federal, state or local court or
governmental agency, department or authority that is binding on any person or
its property under applicable law.
"Damages" shall mean any and all debts, losses, claims, damages,
costs, demands, fines, judgements, penalties, obligations, payments,
Liabilities of every type and nature (whether known or unknown, fixed or
contingent) (including, without limitation, those arising out of any Action),
together with any reasonable costs and expenses (including, without limitation,
reasonable attorneys' fees and out-of-pocket expenses) incurred in connection
with any of the foregoing (including, without limitation, reasonable costs and
expenses incurred in investigating, preparing or defending any Action).
"Default" shall mean (1) a breach of or default under any specified
agreement, (2) the occurrence of an event that with the passage of time or the
giving of notice or both would constitute a breach of or default under any
specified agreement, or (3) the occurrence of an event that with or without the
passage of time or the giving of notice or both would give rise to a right of
termination, renegotiation or acceleration under any specified agreement.
"Due Diligence Period" shall mean the period starting on the date of
this Agreement and continuing to and including 6:00 p.m. Los Angeles time on
the first business day which is thirty (30) days following the date of this
Agreement.
"Employment Contract" shall mean any Contract or other agreement with
any employee or group of employees, including Union Contracts, to which Seller
or any of its affiliates is a party and which relates to employees of Seller or
any of its affiliates working at, or providing services to, the Facilities.
"Encumbrances" shall mean all claims, liens, pledges, options,
charges, easements, mortgages, rights-of-way, encroachments, private use
restrictions or other rights of a third party in or with respect to the Real
Property or the Assets, whether voluntarily incurred or arising by operation of
law, including any agreement to give any such right in the future.
"Environmental Laws" shall mean all Regulations which regulate or
relate to the protection, clean-up and restoration of the environment; the use,
treatment, storage, transportation, generation, manufacture, processing,
distribution, handling or disposal of, or emission, discharge or other release
or threatened release of, Hazardous Substances or otherwise dangerous
substances, wastes, pollution or materials (whether, gas, liquid or solid); the
preservation or protection of waterways, groundwater, drinking water, air,
wildlife, plants or other natural resources, or the health and safety of
persons or property, including protection of the health and safety of
employees; and compensation for personal injury, property damage or damages to
natural resources resulting from a Release or threatened Release.
Environmental Laws shall include the Resource Conservation & Recovery Act
("RCRA"), Clean Water Act, Safe Drinking Water Act, Atomic Energy Act,
Occupational Safety and Health Act, Toxic
3
<PAGE> 4
Substances Control Act, Clean Air Act, Oil Pollution Act of 1990, Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") and the
Hazardous Materials Transportation Act, and the California Safe Drinking Water
and Toxic Enforcement Act of 1986 ("Proposition 65") and all other analogous or
related Regulations, each as amended.
"Excluded Contracts" shall mean (i) the Ross Swiss Contract; and (ii)
all Employment Contracts.
"Hazardous Substance" shall mean any pollutants, contaminants,
chemicals, waste and any toxic, infectious, carcinogenic, reactive, corrosive,
ignitible or flammable chemical or chemical compound or hazardous substance,
material or waste, whether solid, liquid or gas, including any quantity of
asbestos in any form, urea formaldehyde, PCB's, radon gas, crude oil or any
fraction thereof, all forms of natural gas, petroleum products or by-products
or derivatives, radioactive substance, waste waters, sludges, slag and any
other substance, material or waste that is subject to regulation, control or
remediation under any Environmental Laws.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"Liabilities" shall mean any direct or indirect liability,
indebtedness, obligation, commitment, expense, claim, deficiency, guaranty or
endorsement of or by any person of any type, whether accrued, absolute,
contingent, matured, unmatured or other.
"Master Lease Documents" shall mean the Master Lease and the related
documents identified on Exhibit A-5 to the Sublease.
"Permits" shall mean all licenses, permits, franchises, approvals,
authorizations, consents or orders of, or filings with, any Authority,
necessary or desirable for the past, present or anticipated operation of the
Real Property or the Assets.
"Phase I Report" shall mean that certain Preliminary Environmental
Site Assessment of Smith's Food & Drug Centers Distribution Warehouse, 1500
Eastridge Avenue, Riverside, California (Job No. 93758-9) prepared by CJH
Incorporated and dated November 22, 1993.
"Property Taxes" shall mean all local, state, federal or foreign
taxes, assessments or other government charges levied or assessed against the
Real Property or the Fixtures and Equipment, or any portion or item thereof or
the rents or other revenues therefrom, including all business, occupation,
franchise, sales, transfer or use taxes and all interest and penalties
associated therewith, but excluding all such taxes, assessments or charges
measured by the net income of Seller.
"Real Property" shall mean, collectively, the Premises and the
Facilities.
"Regulations" shall mean all laws, ordinances, rules, requirements and
regulations of any Authority applicable to the ownership or operation of the
Real Property or the Assets, including those relating to zoning, occupational
health and safety and earthquake, fire and other hazards.
4
<PAGE> 5
"Release" shall mean and include any spilling, leaking, pumping,
pouring, emitting, emptying, discharging, injecting, escaping, leaching,
dumping or disposing into, or migration within, the environment or the
workplace of any Hazardous Substance, and otherwise as defined in any
Environmental Law.
"Representative" shall mean any authorized officer, director,
principal, attorney, agent, employee or other representative.
"Ross Swiss Contract" shall mean that certain Dairy Products Agreement
dated as of June 23, 1995 by and between Seller and F&L Enterprises, Inc., a
California corporation, doing business as Ross Swiss Dairies.
"Taxes" shall mean any federal, state, local, foreign or other tax,
levy, impost, fee, assessment or other government charge, including without
limitation the Property Taxes and any income, estimated income, business,
occupation, franchise, payroll, personal property, sales, transfer, use,
employment, commercial rent, occupancy, franchise or withholding taxes, and any
premium, including without limitation interest, penalties and additions in
connection therewith.
"Title Company" shall mean Stewart Title Guaranty Company.
"Title Policy" shall mean that certain Policy of Title Insurance No.
9977-00235 issued by the Title Company.
"Union Contract" shall mean any collective bargaining agreement or
other agreement with any union to which Seller or any of its affiliates is a
party and which relates to employees of Seller or any of its affiliates working
at, or providing services to, the Facilities.
1.2 Other Defined Terms. The following terms are defined in the
following Sections:
<TABLE>
<CAPTION>
Term Section
---- -------
<S> <C>
"Actual Inventory Purchase Price" 2.5.2
"Assumed Liabilities" 2.3
"Assumption Document" 3.2.3
"Claim" 9.3
"Claim Notice" 9.3
"Closing" 3.1
"Disclosing Party" 5.3.2
"Estimated Inventory Purchase Price" 2.5.1
"Excluded Liabilities" 2.4
"Facilities" Recital C
"Fixtures and Equipment" Recital D
"Fixtures and Equipment Purchase Price" 2.6
"including" 11.9
"Inventory" Recital E
</TABLE>
5
<PAGE> 6
<TABLE>
<S> <C>
"Inventory Service" 2.5.3
"Leased Equipment" Recital D
"Master Landlord" Recital A
"Master Lease" Recital A
"Owned Equipment" Recital D
"Purchase Price" 2.5.2
"Premises" Recital B
"Receiving Party" 5.3.2
"Service and Supply Agreement" 8.3
"Specified Equipment" Recital D
"Sublease" Recital B
"to the best knowledge of" 11.9
</TABLE>
ARTICLE 2
EXECUTION OF SUBLEASE;
PURCHASE AND SALE
2.1 Execution of Sublease. Upon the terms and subject to the
conditions contained herein and therein, at the Closing, Seller and Buyer shall
each execute and deliver the Sublease to the other party.
2.2 Transfer of Assets. Upon the terms and subject to the
conditions contained herein, at the Closing, Seller will sell, convey,
transfer, assign and deliver to Buyer, and Buyer will acquire from Seller, the
Owned Equipment and the Inventory free and clear of all Encumbrances.
2.3 Assumption of Liabilities. Upon the terms and subject to
the conditions contained herein, at the Closing, Buyer shall assume the
following, and only the following, Liabilities (the "Assumed Liabilities"):
2.3.1 All Liabilities resulting from Buyer's ownership,
leasing or operation of the Assets or the Real Property from and after the
Closing Date.
2.3.2 If Buyer has delivered timely notice directing
Seller to terminate the Ross Swiss Contract pursuant to Section 5.2.2 and
Seller has in fact terminated such contract on or before December 1, 1995, all
Liabilities accruing, arising out of, or relating to the Ross Swiss Contract to
the extent that any such Liabilities shall arise after the Closing Date, but
not including any Liability for any Default under the Ross Swiss Contract
occurring on or prior to the Closing Date.
2.3.3 All Liabilities accruing, arising out of, or
relating to events or occurrences happening after the Closing Date under the
Assumed Contracts, but not including any Liability for any Default under any
such Assumed Contract occurring on or prior to the Closing Date.
6
<PAGE> 7
2.4 Excluded Liabilities. Notwithstanding any other provision
of this Agreement, and except for the Assumed Liabilities expressly specified
in Section 2.3, Buyer shall not assume, or otherwise be responsible for, any
Liabilities of Seller, whether liquidated or unliquidated, or known or unknown,
arising out of Seller's ownership, leasing or operation of the Assets or the
Real Property on or prior to the Closing Date ("Excluded Liabilities"), which
Excluded Liabilities include, without limitation:
2.4.1 Any Liability of Seller with respect to any Taxes,
other than the Taxes to be apportioned or paid by Buyer hereunder;
2.4.2 Any Action against Seller or any Action which
adversely affects the Assets or the Real Property and which shall have
been asserted on or prior to the Closing Date or which shall be based
upon facts or circumstances which occurred or arose on or prior to the
Closing Date;
2.4.3 Any Liability to or in respect of any employees or
former employees of Seller (or any affiliate of Seller) including
without limitation (i) any Employment Contract, whether or not
written, between Seller (or any affiliate of Seller) and any person or
entity, (ii) any Liability under any employee plan at any time
maintained, contributed to or required to be contributed to by or with
respect to Seller (or any affiliate of Seller) or under which Seller
(or any affiliate of Seller) may incur any Liability, or any
contributions, benefits or Liabilities therefor, or any Liability with
respect to Seller's (or any such affiliate's) withdrawal or partial
withdrawal from or termination of any employee plan and (iii) any
claim of an unfair labor practice, or any claim under any state
unemployment compensation or worker's compensation law or regulation
or under any federal or state employment discrimination law or
regulation, which shall have been asserted on or prior to the Closing
Date or is based on acts or omissions which occurred on or prior to
the Closing Date;
2.4.4 Any Liability arising before the Closing Date from
any injury to or death of any person or damage to or destruction of
any property, whether based on negligence, breach of warranty, strict
liability, enterprise liability or any other legal or equitable
theory;
2.4.5 Any Liability associated with any Excluded Contract;
and
2.4.6 Any of Seller's liabilities or obligations resulting
from entering into, performing its obligations under or consummating
the transactions contemplated by, this Agreement.
2.5 Purchase Price for Inventory.
2.5.1 Estimated Price and Settlement. Five (5) business
days before the Closing Date, Seller shall provide Buyer with a written
estimate of the purchase price payable for the Inventory (the "Estimated
Inventory Purchase Price"), and Buyer shall pay such amount at the Closing.
Within five (5) business days after determination of the Actual Inventory
7
<PAGE> 8
Purchase Price pursuant to Section 2.5.2, any amounts due from Seller to Buyer,
if the Estimated Inventory Purchase Price is greater than the Actual Inventory
Purchase Price, or from Buyer to Seller, if the Actual Inventory Purchase Price
is greater than the Estimated Inventory Purchase Price, shall be paid by wire
transfer in immediately available funds to an account designated by the payee.
2.5.2 Actual Inventory Purchase Price. The "Actual
Inventory Purchase Price" (collectively with the Fixtures and Equipment
Purchase Price, the "Purchase Price") shall be determined within seven (7)
calendar days after the Closing Date and shall be based on Seller's book cost
of the actual amount of the Inventory to be acquired by Buyer as of the Closing
Date, except for those categories of Inventory designated on Annex C which
shall be based on Seller's book cost less seven percent (7.0%).
2.5.3 Inventory Procedures. The quantities of Inventory
to be purchased and sold hereunder shall be determined by an itemized inventory
to be taken at such time as Buyer and Seller mutually agree and shall be
adjusted to book as of the Closing Date based upon a physical inventory
pursuant to which all Inventory will be counted as to quantity by personnel of
Seller and Buyer using procedures mutually agreed to by Buyer and Seller to
take inventories of the type of Inventory being counted (which physical
inventory shall be adjusted, if necessary, for any inventories added or removed
in the ordinary course of business after the date of such physical inventory
and before the Closing Date); provided, however, that if Buyer and Seller shall
mutually agree, an outside inventory service or services (the "Inventory
Service") mutually selected by Seller and Buyer may be selected to take such
inventory. Both Buyer and Seller will have the right to have Representatives
present to observe the physical inventories. Any disputes as to the physical
count, usability or salability of any item of Inventory will, if possible, be
resolved while such physical inventory is being taken. Any unresolved disputes
regarding the foregoing not resolved by the Closing Date will be separately
listed and settled as soon as expeditiously practicable thereafter by the
parties or by another independent third party mutually acceptable to both
parties, or if they are unable to agree then by the Inventory Service. The
determination of any third party so engaged shall be final and binding on the
parties. No failure to resolve any such matters shall prevent the Closing or
payment of the Purchase Price. If Buyer so requests, the physical inventory
contemplated by this Section 2.5.3 shall also include a physical count of the
Specified Equipment identified on Annex B to verify the unit counts.
2.6 Purchase Price for Fixtures and Equipment. On the Closing
Date, Buyer shall pay to Seller in immediately available funds the sum of $15.0
million for the Fixtures and Equipment other than the Specified Equipment, plus
an additional amount reflecting Seller's book cost for the Specified Equipment
(collectively, the "Fixtures and Equipment Purchase Price").
2.7 Prorations.
2.7.1 In General. Except as otherwise specifically
provided herein, all periodic charges payable or receivable with respect to the
Real Property, the Assets or the operations with respect to any of such items,
shall be apportioned between Buyer and Seller so that all such items
attributable to the period prior to the Closing Date shall be for the account
of Seller, and
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all such items attributable to the period on and after the Closing Date shall
be for the account of Buyer. The items to be so apportioned shall include:
(1) Property Taxes and personal Property Taxes;
(2) Water, gas, electricity and other utility
charges (which charges shall be based, to the extent possible, on
actual utility meter readings);
(3) Payments and amounts payable under Assumed
Contracts;
(4) Fees and charges under Permits to be
assigned to Buyer or which run with the Real Property or the Assets;
and
(5) Other similar items and deposits, costs and
charges related to the operation of the Real Property or the Assets.
2.7.2 Methodology.
(1) Property Taxes shall be apportioned on the
basis that there is allocated to the period prior to the Closing Date
the Property Taxes due and payable by Seller for the fiscal year of
the applicable taxing authority in which the Closing Date occurs, or
for periods prior thereto, determined on the basis of the number of
days which have elapsed from the first day of such fiscal year to, but
not including, the Closing Date, whether or not the same shall be
payable prior to the Closing Date. If as of the Closing Date (i) the
actual tax bills for the fiscal year or years in question are not
available or (ii) the applicable property tax rate or rates for the
current tax year is or are not established by the Closing Date, and as
a result thereof the Property Taxes to be apportioned hereunder cannot
be ascertained, then the Property Taxes shall be estimated on the
basis of the applicable rates and assessed valuations in effect for
the previous fiscal year, taking into account any known changes, and
such estimate shall be used for purposes of making an interim
apportionment on the Closing Date. Increases in Property Taxes
resulting from a reassessment as of or after the Closing Date
attributable to the transactions contemplated hereunder or resulting
from Buyer's actions with respect to the Real Property or the Assets,
shall be allocated entirely to the period including and after the
Closing Date.
(2) All utilities shall be apportioned as of
the Closing Date using the per diem rate calculated from the latest
available billings or other operating history of the Real Property or
the Assets furnished by Seller. Utility security deposits, if any,
shall, at the direction of Buyer with the concurrence of each utility,
either be retained by Seller without adjustment or delivered to Buyer
and reimbursed in full to Seller.
(3) Seller shall be entitled to a credit for
the amount of any payments made by Seller on any of the Assumed
Contracts which relate to the period on and after the Closing Date.
Buyer shall be entitled to a credit for the amount of any unpaid
liabilities (e.g., payments in arrears) incurred by Buyer under any of
the Assumed
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Contracts which relate to the period prior to the Closing Date.
Before either party shall make any payment in respect of an Assumed
Contract which payment would otherwise be the responsibility of the
other party under this Agreement, the party making such payment shall
first give notice thereof to the other party.
2.7.3 Payment. Buyer and Seller shall use their
respective best efforts to reach final agreement on the amounts of all the
apportionments contemplated by this Section 2.7 at least five (5) days prior to
the Closing Date. If such an agreement is reached, such apportionments shall
not be adjusted after the Closing Date.
2.7.4 Adjustments. If Buyer and Seller do not reach final
agreement on the apportionments contemplated by this Section 2.7 prior to the
Closing Date, then Buyer and Seller shall use their respective best efforts to
agree on reasonable estimates of the amounts of such apportionments on or
before the Closing Date, which estimates shall be subject to an initial
post-closing adjustment within thirty (30) days after the Closing Date based
upon actual receipts and expenditures. If any of the prorations,
apportionments or computations required under this Section 2.7 shall require
further correction or adjustment, then the parties shall make the appropriate
adjustments promptly when accurate information becomes available and either
Buyer or Seller shall be entitled to an adjustment to reflect the same;
provided, however, that no party hereto shall be entitled to any such
adjustment unless it makes written demand on the other party hereto prior to
the first anniversary of the Closing Date. Any corrected adjustment shall be
paid in cash to the party entitled thereto.
2.8 Closing Costs.
2.8.1 Taxes. Buyer shall pay the cost of all transfer
taxes, all sales, use or other taxes imposed by reason of the execution of the
Sublease or the transfer of the Fixtures and Equipment and the Inventory,
including any deficiency, interest or penalty asserted with respect thereto.
2.8.2 Permits. Buyer shall pay all out-of-pocket fees and
costs associated with obtaining any required new Permits or obtaining the
transfer of any existing Permits that may be lawfully transferred.
2.8.3 Other. Buyer and Seller shall each pay their own
out-of-pocket fees and costs related to the consummation of this Agreement.
ARTICLE 3
CLOSING
3.1 Time and Place. The pre-closing of the transactions
contemplated hereunder shall be held at 9:00 a.m. Los Angeles time on the
business day preceding the Closing Date at the offices of Latham & Watkins, 633
West Fifth Street, Suite 4000, Los Angeles, California
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90071. The closing of the transactions contemplated herein (the "Closing")
shall be held at 9:00 a.m. local time on the Closing Date at the aforementioned
offices of Latham & Watkins, unless the parties hereto otherwise agree.
3.2 Deliveries at Closing.
3.2.1 Instruments and Possession. To effect the
transactions referred to in Sections 2.1, 2.2 and 2.3 hereof, Seller shall, at
the Closing, execute and deliver to Buyer:
(1) The Sublease substantially in the form
attached hereto as Annex A and a memorandum thereof in a form suitable
for recordation in the County of Riverside;
(2) One or more bills of sale, in the form of
Annex E hereto, conveying all of Seller's Fixtures and Equipment and
the Inventory included in the Assets;
(3) One or more assignments, in the form of
Annex D hereto, of all of Seller's right, title and interest in and to
the Assumed Contracts, or if such Assumed Contracts are not
assignable, Seller shall provide to Buyer the economic benefits of
such Assumed Contracts;
(4) One or more assignments of the Permits
which may be assigned;
(5) One or more assignments of any and all
warranties and guarantees belonging to Seller pertaining to the Real
Property or the Assets, to the extent assignable; and
(6) The originals, or true and complete copies
if the originals are unavailable, of the Master Lease Documents and
the Assumed Contracts and true and correct copies of the Books and
Records.
3.2.2 Funds. At the Closing, Buyer shall pay to Seller
the Estimated Inventory Purchase Price and the Fixtures and Equipment Purchase
Price by wire transfer of immediately available funds to an account designated
by Seller; provided, however, that the amount of the Estimated Inventory
Purchase Price shall be subject to adjustment as set forth in Section 2.5.
3.2.3 Assumption Document. Upon the terms and subject to
the conditions contained herein, at the Closing Buyer shall deliver to Seller
an instrument of assumption substantially in the form attached hereto as Annex
F, evidencing Buyer's assumption, pursuant to Section 2.3, of the Assumed
Liabilities (the "Assumption Document").
3.2.4 Form of Instruments. To the extent that a form of
any document to be delivered hereunder is not attached as an annex hereto, such
documents shall be in form and substance, and shall be executed and delivered
in a manner, reasonably satisfactory to the parties.
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3.2.5 Certificates. Each party shall furnish the other
with such certificates of its officers and others to evidence satisfaction of
the conditions provided in Articles 4 and 5 as the other may reasonably
request.
3.2.6 Consents. Subject to Section 7.2, Seller shall
deliver all Permits, or the benefits of such Permits, and any other third-party
consents required for the valid transfer of the Real Property or the Assets as
contemplated by this Agreement.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 Of Seller. Seller hereby represents and warrants to Buyer
as follows, which representations and warranties are, as of the date hereof,
and will be, as of the Closing Date, true and correct:
4.1.1 Organization. Seller is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with full corporate power and authority to conduct its business as it
is presently being conducted and to lease and sublease the Real Property and to
sell the Assets. Seller is duly qualified to do business as a foreign
corporation and is in good standing in the State of California.
4.1.2 Authority. Seller has all requisite corporate power
and authority, and has taken all corporate action necessary, to execute and
deliver this Agreement and the Sublease, to consummate the transactions
contemplated hereby and thereby and to perform its obligations hereunder and
thereunder. The execution and delivery of this Agreement and the Sublease by
Seller and the consummation by Seller of the transactions contemplated hereby
and thereby have been duly approved by the board of directors of Seller. No
other corporate proceedings on the part of Seller are necessary to authorize
this Agreement and the Sublease and the transactions contemplated hereby and
thereby. This Agreement has been duly executed and delivered by Seller and is
a legal, valid and binding obligation of Seller enforceable against Seller in
accordance with its terms. Upon execution and delivery, the Sublease will be a
legal, valid and binding obligation of Seller enforceable against it in
accordance with its terms.
4.1.3 Consents and Approvals. Except as set forth on
Schedule 4.1.3 hereto and other than in connection with or in compliance with
the provisions of the HSR Act, no notice to, declaration, filing or
registration with, or authorization, consent or approval of, or permit from,
any Authority, or any third person, is required to be made or obtained by
Seller in connection with the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby.
Without limiting any of the foregoing, Schedule 4.1.3 identifies those
consents, approvals and authorizations that are required in order for Buyer to
assume the Assumed Contracts.
4.1.4 Premises. The Premises conform in all material
respects to the description thereof included in Exhibit A attached to the
Master Lease.
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4.1.5 Title.
(1) Seller has and will transfer good and
marketable title to the Fixtures and Equipment (other than the Leased
Equipment) and the Inventory and upon the consummation of the
transactions contemplated hereby, Buyer will acquire good and
marketable title to all of the Fixtures and Equipment (other than the
Leased Equipment) and the Inventory, free and clear of any
Encumbrances. Seller has a valid leasehold interest in the Leased
Equipment.
(2) Seller leases the Real Property subject
only to (i) liens for current Property Taxes, (ii) materialmen's,
mechanics', carriers', workmen's, repairmen's or other like liens
arising in the ordinary course of business for amounts not yet due or
which are being contested in good faith by appropriate proceedings,
(iii) Encumbrances which are identified in the Title Policy, (iv)
Encumbrances arising out of the City of Riverside Documents, (v)
Encumbrances arising out of the Sale/Leaseback transaction documents
referred to in Recital C of the Sublease, and (vi) other Encumbrances
arising since the date of the Title Policy which do not, individually
or in the aggregate, (x) materially breach any covenant,
representation or warranty of Seller contained herein, (y) materially
adversely affect the value of the Real Property or any lawful use of
the Real Property or (z) render title to the Real Property
unmarketable.
4.1.6 Inventory. The Inventory has been maintained in
accordance with the regular business practices of Seller and consists of new
and unused items of a quality and quantity usable or saleable in the ordinary
course of business.
4.1.7 Condition. To the best knowledge of Seller, the
Facilities and the Fixtures and Equipment are in good condition and repair and
the Facilities are free of structural or mechanical defects other than any
defects which would, individually or in the aggregate, not have a material
adverse effect on the ownership or operation of the Real Property or the
Assets. The Fixtures and Equipment have been maintained in accordance with the
regular business practices of Seller. To the best knowledge of Seller, the
mechanical systems, including the elevators, plumbing, heating, air
conditioning, ventilation and life safety systems, and the electrical system
which constitute a portion of the Facilities, and each of them, are in good
operating condition and repair and, to the best knowledge of Seller, are not in
need of any material capital or other improvement. To the best knowledge of
Seller, the Facilities and the Fixtures and Equipment conform in all material
respects to all applicable Regulations (including Environmental Laws) relating
to their construction, use and operation.
4.1.8 Absence of Defaults. All of the Assumed Contracts,
the Master Lease Documents and the City of Riverside Documents to which Seller
is party or by which it or any of the Assets or Real Property is bound or
affected are valid, binding and enforceable in accordance with their terms.
Seller has fulfilled, or taken all action necessary to enable it to fulfill
when due, all of its material obligations under each of such Assumed Contracts,
Excluded Contracts and the Master Lease Documents. All parties to such Assumed
Contracts, Excluded Contracts and the Master Lease Documents have complied in
all material respects with the provisions thereof, no party is in Default
thereunder and no notice of any claim of Default has
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been given to Seller. With respect to the Master Lease Documents, Seller has
not received any notice of cancellation or termination under any option or
right reserved to the lessor or any other party thereto.
4.1.9 Permits. To the best knowledge of Seller, Seller
has, and at all times has had, all Permits required under any Regulation
(including Environmental Laws) in the operation of the Real Property and the
Assets or with respect to its interests in the Real Property or the Assets, and
owns or possesses such Permits free and clear of all Encumbrances, except such
Permits the failure of which to obtain would not have a material adverse effect
on the ownership or operation of the Real Property and the Assets. Seller is
not in Default, nor has it received any notice of any claim of Default, with
respect to any such Permit. To the best knowledge of Seller and except as
otherwise governed by law, all such Permits are renewable by their terms or in
the ordinary course of business without the need to comply with any special
qualification procedures or to pay any amounts other than routine filing fees
and will not be adversely affected by the completion of the transactions
contemplated by this Agreement.
4.1.10 Utilities. The Real Property is supplied with all
utilities, including water, sewage disposal, electricity, gas and telephone,
and other services necessary for the operation thereof as the same is currently
operated.
4.1.11 Materials. To the best knowledge of Seller, the
information contained in the materials provided to Buyer pursuant to Section
5.1.1 hereof was, when delivered, accurate in all material respects and, except
to the extent that the information contained in any such materials has been
superseded by information contained in subsequent materials which have been
provided to Buyer before the Closing Date, remains accurate in all material
respects.
4.1.12 Independent Facility. The Real Property is an
independent unit which currently does not and as of the Closing Date will not
rely on any other facilities, other than public utilities, to fulfill any
zoning, building code or other municipal or governmental requirement.
Conversely, no other facility relies on any part of the Real Property to
fulfill any zoning, building code or other municipal or governmental
requirement. The Real Property is assessed by local property assessors as a
tax parcel or parcels separate from all other tax parcels.
4.1.13 Compliance with Law.
(1) To the best knowledge of Seller, the Real
Property is in compliance with all Regulations, including
Environmental Laws, and all Court Orders applicable to the Real
Property or the operation thereof by Seller; provided, however, that
such representation with respect to the relevant building code or
codes is limited to compliance as of the date of construction of the
Facilities. Seller has received no notice at any time that it is or
was claimed to be in violation of, or that the Real Property or the
Assets was not in compliance with, the provisions of any Environmental
Law. Seller has received no notice that it is not currently in
compliance with any other Regulations or that it must make
improvements or modifications to the Real Property in order to be or
to become in such compliance. Seller has no reason to believe that
any presently
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existing facts or circumstances are likely to result in a violation of
any Regulation, including any Environmental Law.
(2) To the best knowledge of Seller and except as
referenced in the Phase I Report or as set forth on Schedule 4.1.13,
there are no Hazardous Substances being used, generated, treated,
stored, transported or disposed on, under, about or from the Real
Property, or any portion thereof which is not in material compliance
with all applicable Environmental Laws. To the best knowledge of
Seller, the Real Property has at all times when owned, leased or
operated by Seller, been owned, leased and operated in compliance with
all Environmental Laws and in a manner that will not give rise to any
Liability under any Environmental Laws.
(3) To the best knowledge of Seller, and except as
referenced in the Phase I Report or as set forth on Schedule 4.1.13,
(i) no prior owner, lessee or operator of the Real Property has acted
in a manner that would give rise to any Liability under any
Environmental Law, (ii) there is not now and there has not been any
Hazardous Substance used, generated, treated, stored, transported,
disposed of or otherwise existing on, under, about or from the Real
Property, or any portion thereof which is not in material compliance
with all applicable Environmental Laws, and (iii) there is not now and
there has never been any underground storage tank or pipeline located
on, in or under the Real Property.
(4) True, complete and correct copies of all
environmental audits or assessments which have been conducted with
respect to the Real Property by Seller or any environmental consultant
or engineer engaged by Seller for such purpose have previously been
delivered to Buyer or will be so delivered in accordance with the
provisions of this Agreement.
4.1.14 Contracts, Excluded Contracts and Assumed
Contracts. Schedule 4.1.14 hereto identifies (i) all Contracts that (a) would
not be cancelable by Seller or Buyer (if such Assumed Contract has been assumed
by Buyer) on 30 days prior written notice without cost or penalty, or (b)
involve aggregate annual payments or other expenditures in excess of $25,000,
and (ii) all Excluded Contracts. True and complete copies of the Contracts and
Excluded Contracts identified thereon, including all amendments and supplements
thereto, have previously been delivered to Buyer or will be so delivered to
Buyer within a reasonable amount of time before the end of the Diligence
Period. With respect to the Assumed Contracts and the Excluded Contracts, (A)
such contracts have been negotiated in the ordinary course of business at arms'
length without any disproportionate deferral of payments in a manner that would
unduly burden Buyer; (B) all of such Assumed Contracts are valid and in full
force and effect; and (C) Seller will have duly performed all of the
obligations under such Assumed Contracts and Excluded Contracts that were
required to be performed by Seller thereunder prior to the Closing Date.
4.1.15 Litigation. Except as set forth in Schedule 4.1.15
hereto, there is no Action pending, or, to the best knowledge of Seller, filed
but not yet served upon Seller, threatened or anticipated relating to or
affecting (i) Seller that would have a material adverse
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effect on Seller's ability to perform its obligations under this Agreement, the
Sublease or the Master Lease Documents, (ii) the Assets or the Real Property,
or (iii) the transactions contemplated hereunder. There are no pending or, to
the best knowledge of Seller, threatened condemnation proceedings with respect
to the Real Property.
4.1.16 Brokers. Neither Seller nor any of its officers,
directors, employees, shareholders or affiliates has employed or made any
agreement with any broker, finder or similar agent or any person or firm which
will result in the obligation of Buyer or any of its affiliates to pay any
finder's fee, brokerage fees or commission or similar payment in connection
with the transactions contemplated hereby.
4.1.17 No Other Agreements of Seller to Sell the Real
Property or the Assets. Neither Seller nor any affiliate of Seller has any
commitment or legal obligation, absolute or contingent, to any other person or
firm other than Buyer to sell or otherwise transfer the Real Property or the
Assets, to sell or otherwise transfer all or substantially all of the assets of
Seller or to enter into any agreement with respect thereto.
4.1.18 Ability to Perform. Seller is not aware of any
fact, condition or circumstance that would be likely to impair its future
ability to perform its obligations under this Agreement, the Sublease or the
Master Lease Documents.
4.1.19 Master Lease Documents, Assumed Contracts. As of
the Closing Date, Seller has provided to Buyer true, correct and compete copies
of all Master Lease Documents and all Assumed Contracts, including all
amendments or additions thereto.
4.1.20 Material Misstatements or Omissions. No
representation or warranty by Seller hereunder contains or will contain any
untrue statement of a material fact, or omits or will omit any material fact
necessary to make the statements or facts contained therein not misleading.
Seller has disclosed to Buyer all events, conditions and facts known to Seller
materially affecting the Assets or the Real Property.
4.2 Of Buyer. Buyer hereby represents and warrants to Seller as
follows, which representations and warranties are, as of the date hereof, and
will be, as of the Closing Date, true and correct:
4.2.1 Organization. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware with full corporate power and authority to conduct its business as it
is presently being conducted and to sublease the Real Property and to own the
Assets. Buyer is duly qualified to do business as a foreign corporation and is
in good standing in the State of California.
4.2.2 Authority. Buyer has all requisite corporate power
and authority, and has taken all corporate action necessary, to execute and
deliver this Agreement and the Sublease, to consummate the transactions
contemplated hereby and thereby and to perform its obligations hereunder and
thereunder. The execution and delivery of this Agreement and the Sublease by
Buyer and the consummation by Buyer of the transactions contemplated hereby and
thereby have
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been duly approved by the board of directors of Buyer. No other corporate
proceedings on the part of Buyer are necessary to authorize this Agreement and
the Sublease and the transactions contemplated hereby and thereby. This
Agreement has been duly executed and delivered by Buyer and is a legal, valid
and binding obligation of Buyer enforceable against Buyer in accordance with
its terms. Upon execution and delivery, the Sublease will be a legal, valid
and binding obligation of Buyer enforceable against it in accordance with its
terms.
4.2.3 Consents and Approvals. Except as set forth on
Schedule 4.2.3 hereto and other than in connection with or in compliance with
the provisions of the HSR Act, no notice to, declaration, filing or
registration with, or authorization, consent or approval of, or permit from,
any Authority or any third person is required to be made or obtained by Buyer
in connection with the execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby.
4.2.4 Litigation. Except as set forth in Schedule 4.2.4
hereto, there is no Action pending, or, to the best knowledge of Buyer, filed
but not yet served upon Buyer, threatened or anticipated relating to or
affecting (i) Buyer that would have a material adverse effect on Buyer's
ability to perform its obligations under this Agreement or the Sublease, (ii)
the Assets or the Real Property, or (iii) the transactions contemplated
hereunder.
4.2.5 Brokers. Neither Buyer nor any of its officers,
directors, employees, shareholders or affiliates has employed or made any
agreement with any broker, finder or similar agent or any person or firm which
will result in the obligation of Seller or any of its affiliates to pay any
finder's fee, brokerage fees or commission or similar payment in connection
with the transactions contemplated hereby.
4.2.6 Ability to Perform. Buyer is not aware of any fact,
condition or circumstance that would be likely to impair its future ability to
perform its obligations under this Agreement, the Sublease or any of the
Assumed Contracts.
4.2.7 Material Misstatements or Omissions. No
representation or warranty by Buyer hereunder contains or will contain any
untrue statement of a material fact, or omits or will omit any material fact
necessary to make the statements or facts contained therein not misleading.
4.3 In General.
4.3.1 Survival. The representations and warranties
contained in Sections 4.1 and 4.2 hereof shall survive until the fourth
anniversary of the Closing Date.
4.3.2 Merger. No representation or warranty contained in
Sections 4.1 or 4.2 hereof shall be deemed to have merged into the Sublease or
any other conveyancing instrument, and no such instrument shall be deemed to
supersede, eliminate or modify any of such representations or warranties.
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4.3.3 Waiver. No investigation by Buyer, whether pursuant
to Sections 5.2.1, 6.2.7 hereof or otherwise, and no receipt of information by
Buyer or attributable to Buyer, shall constitute a waiver of, or otherwise
affect, any representation or warranty of Seller hereunder.
ARTICLE 5
CERTAIN COVENANTS
5.1 Of Seller.
5.1.1 Inspection and Deliveries. Seller shall permit
Buyer to conduct, in the manner and subject to the limitations set forth in
Section 5.2.1 hereto, inspections of the Assets and the Real Property and
inspections of the Books and Records of Seller with respect to the Assets and
the Real Property to the extent that such Books and Records are in the
possession or under the control of Seller. In addition, Seller shall provide
to Buyer (i) as soon as practicable and in any event within ten (10) days
following the date of this Agreement, accurate and complete copies of all
engineering, soils and geological, environmental and marketing reports and
studies with respect to the Assets and the Real Property in its possession or
under its control and (ii) such other financial, operating and other
information pertaining to the Assets and the Real Property as Buyer may
reasonably request, including the Contracts, the Master Lease Documents, the
City of Riverside Documents and the Books and Records. Schedule 5.1.1
identifies certain information previously requested by Buyer that has not yet
been delivered by Seller. Seller agrees to use its best efforts to provide
such information to Buyer within the five (5) days following the date of this
Agreement.
5.1.2 Maintenance of Real Property and Assets. Seller
shall operate the Assets and the Real Property in the ordinary course of
business and in a manner consistent with past practice. Without limiting the
generality of the foregoing, Seller shall (i) maintain the Facilities and the
Fixtures and Equipment in substantially their current state of repair, normal
wear and tear excepted, (ii) maintain the Inventory that is to be acquired by
Buyer hereunder in a manner consistent with Seller's past practices and normal
course of business (other than Seller's normal replenishment practices), (iii)
maintain insurance covering the Real Property and the Fixtures and Equipment of
the same nature and at the same level as that in effect on the date hereof and
(iv) replace in accordance with past practice inoperable, worn-out or obsolete
Fixtures and Equipment.
5.1.3 Leases and Contracts.
(1) Buyer acknowledges that Seller shall have
the right to enter into additional Contracts in the ordinary course of
business prior to the Closing Date which may be in effect following
the Closing Date. In connection with any such proposed Contract,
Seller shall (i) deliver a draft thereof to Buyer prior to entering
into the same and (ii) obtain Buyer's prior written consent to such
Contract prior to its execution by Seller, which consent shall not be
unreasonably withheld or delayed. Buyer shall reimburse Seller, as
billed, for all capital expenditures made by Seller pursuant to
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Contracts approved by Buyer under this Section 5.1.3 within five (5)
days following the Closing Date.
(2) Subject to Section 5.2.2, Seller shall not
modify, amend, cancel or extend the term of any Contract without the
prior written consent of Buyer, which such consent shall not be
unreasonably withheld or delayed.
(3) Seller shall use its best efforts to obtain
any consents required in order for Buyer to assume the Assumed
Contracts.
(4) Seller shall use its best efforts to obtain
a non-disturbance agreement for the benefit of Buyer and any lenders
to Buyer from the Master Landlord and the Indenture Trustee (as
defined in the Master Lease).
5.1.4 Employees. Seller has notified Buyer of, and has
made available true and correct copies of, all Employment Contracts and, in its
reasonable discretion, Seller has further provided Buyer with certain
additional information relating to Seller's employees used in the operation of
Seller's business at the Facilities. Buyer shall use its best efforts to
review such information and to consider whether such employees of Seller, if
any, can be accommodated into the operations Buyer intends to conduct at the
Facilities after the Closing Date; provided, however, Seller agrees and
acknowledges that Seller shall be responsible for terminating the employment,
or relocating, its employees and that Buyer shall have no obligation to retain
and/or rehire any such employees. Seller shall assume complete responsibility
for all notices required under, and all liabilities accruing to Seller or to
Buyer under, the federal Worker Adjustment and Retaining Notification Act
("WARN Act") in connection with this transaction. Seller currently employs
approximately 350 employees at the Premises.
5.1.5 Delivery of Possession. Effective as of the Closing
Date and subject to the conditions set forth in this Section 5.1.5, Seller
shall deliver possession of the Real Property to Buyer. As of the Closing
Date, the Real Property shall be in a condition that is suitable for occupancy
by Buyer and Seller shall have removed therefrom all of its rolling stock and
any personal property, and shall have used its best efforts to remove any
inventory, not included in the Assets being acquired by Buyer hereunder.
Notwithstanding the foregoing, to the extent that Seller, after using its best
efforts, is unable to remove all such inventory, Buyer shall allow Seller to
store in the Facilities, and have reasonable access to the Real Property to
remove, any inventory not to be acquired by Buyer hereunder. Buyer shall
cooperate with Seller to provide assistance with the loading of such inventory
on Seller's trucks at Buyer's direct labor cost therefor. All such inventory
shall be removed within thirty (30) days following the Closing Date.
5.2 Of Buyer.
5.2.1 Inspections. Buyer shall conduct or cause to be
conducted the tests and inspections contemplated in Sections 5.1.1 and 6.2.7
hereof only (i) during regular business hours, (ii) upon reasonable advance
notice to Seller, (iii) in a manner which will not unduly disturb or disrupt
the activities of Seller or unduly interfere with the operation of, access to
or
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egress from the Real Property and, (iv) if required by Seller, when accompanied
by representatives of Seller. Upon completion of any test, Buyer shall
promptly repair and restore any portion of the Real Property and the Assets
damaged by such test to the condition existing immediately prior to the test;
provided, however, that if repair or restoration is impracticable, Buyer shall
be entitled to compensate Seller for such damage in lieu of repairing or
restoring the same. If the transactions contemplated hereunder fail to occur,
Buyer shall provide to Seller, at Seller's request, copies of any third-party
engineering, environmental or soils or geologic reports or studies regarding
the Real Property and the Assets made for Buyer prior to the Closing Date upon
receipt of payment from Seller of one-half ( 1/2) of the out-of-pocket costs
and expenses incurred by Buyer in obtaining such reports and studies.
5.2.2 Ross Swiss Contract Election. On or before November
25, 1995, Buyer shall deliver to Seller notice directing Seller to either
terminate or continue the Ross Swiss Contract in effect. Seller shall
thereafter either terminate or continue the Ross Swiss Contract pursuant to the
terms of Buyer's aforementioned notice. In the event that Buyer (i) timely
directs Seller to continue the Ross Swiss Contract or (ii) fails to give timely
give such notice, then the Ross Swiss Contract shall be treated as an Assumed
Contract for the purposes of Section 2.3 hereof and the operation of this
Agreement and the Ross Swiss Contract shall be set forth on Schedule 4.1.14 as
an Assumed Contract. In such event Buyer shall pay to Seller at Closing the
cost of the milk crates obtained in connection with the Ross Swiss Contract.
In the event Buyer gives timely notice directing Seller to terminate the Ross
Swiss Contract, then (i) the Ross Swiss Contract shall not be an Assumed
Contract and, if Seller has in fact terminated such contract on or before
December 1, 1995, the Ross Swiss Contract shall be treated as an Assumed
Liability pursuant to Section 2.3.2; or (ii) if Seller has not terminated the
Ross Swiss Contract, the Ross Swiss Contract shall not be an Assumed Contract
and shall not be an Assumed Liability.
5.3 Covenants of Buyer and Seller. Buyer and Seller each
covenant with the other as follows:
5.3.1 Further Assurances. Upon the terms and subject to
the conditions contained herein, the parties agree, both before and after the
Closing, (i) to use all reasonable efforts to take, or cause to be taken, all
actions and to do, or cause to be done, all things necessary, proper or
advisable to consummate and make effective the transactions contemplated by
this Agreement, (ii) to execute any documents, instruments or conveyances of
any kind which may be reasonably necessary or advisable to carry out any of the
transactions contemplated hereunder, and (iii) to cooperate with each other in
connection with the foregoing. Without limiting the foregoing, the parties
agree to use their respective best efforts (A) to obtain all necessary waivers,
consents and approvals from other parties to the Assumed Contracts; provided,
however that Buyer shall not be required to make any payments, commence
litigation or agree to modifications of the terms thereof in order to obtain
any such waivers, consents or approvals, (B) to obtain all necessary Permits as
are required to be obtained under any Regulations, (C) to defend all Actions
challenging this Agreement or the consummation of the transactions contemplated
hereby, (D) to lift or rescind any injunction or restraining order or other
Court Order adversely affecting the ability of the parties to consummate the
transactions contemplated hereby, (E) to give all notices to, and make all
registrations and filings with third
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parties, including without limitation submissions of information requested by
governmental authorities, and (F) to fulfill all conditions to this Agreement.
As soon as practicable but in no event later than ten (10) calendar days after
the execution and delivery of this Agreement, Buyer and Seller shall make all
filings required under the HSR Act. In addition, Seller and Buyer shall
commence all actions required under this Section 5.3.1 by a date which is early
enough to allow the transactions contemplated hereunder to be consummated by
the Closing Date.
5.3.2 Confidentiality.
(1) Subject to the requirements of law,
including any Environmental Law, and except with respect to
information in the public domain or lawfully acquired on a
non-confidential basis from others, a party receiving information
hereunder ("Receiving Party") shall keep confidential, and shall use
its best efforts to cause its Representatives to keep confidential,
all information concerning the Real Property or the Assets obtained
from the party disclosing such information ("Disclosing Party"),
including without limitation any information obtained pursuant to
Section 6.2.7 hereof, until such time as such information is otherwise
publicly available. The Receiving Party shall use its best efforts to
limit such information to its employees and its other Representatives
who agree to comply with the provisions of this subsection (1), who
are participating in or overseeing the due diligence contemplated
hereunder.
(2) If the Receiving Party is required to disclose
information which is required to be kept confidential hereunder, the
Receiving Party shall provide the Disclosing Party with prompt notice
of such request so that Seller may seek an appropriate protective
order. In the absence of a protective order, the Receiving Party
shall be entitled to disclose such information but shall use its best
efforts to (i) furnish only that portion of such information which is
legally required to be furnished and (ii) obtain reasonable assurances
that each recipient of such information shall treat the same as
confidential.
(3) If this Agreement is terminated and if so
requested by the Disclosing Party, the Receiving Party shall return to
the Disclosing Party all documents and other material, including
copies, extracts and summaries thereof, obtained from the Disclosing
Party or any of its Representatives, whether obtained before or after
the execution of this Agreement.
5.3.3 No Solicitation. From the date hereof through the
Closing or the earlier termination of this Agreement, Seller and its
Representatives shall not, and shall cause its shareholders or their
Representatives (including without limitation investment bankers, attorneys and
accountants), not to, directly or indirectly, enter into, solicit, initiate or
continue any discussions or negotiations with, or encourage or respond to any
inquiries or proposals by, or participate in any negotiations with, or provide
any information to, or otherwise cooperate in any other way with, any
corporation, partnership, person or other entity or group, other than Buyer and
its Representatives, concerning any sale of all or a portion of the Assets or
the Real Property. Seller shall notify Buyer promptly (orally and in writing)
if any such written offer, or any inquiry or contact with any person with
respect thereto, is made and shall provide Buyer
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with a copy of such offer and shall keep Buyer informed of the status of any
negotiations regarding such offer.
5.3.4 Notification of Adverse Events. From the date
hereof through the Closing, Seller and Buyer shall each give the other prompt
notice of (a) the occurrence, or failure to occur, of any event which
occurrence or failure would be likely to cause any representation or warranty
made by the notifying party in this Agreement or in any annex or schedule
hereto to be untrue or inaccurate in any material respect and (b) any material
failure of such notifying party, or any of its affiliates or Representatives,
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by such notifying party under this Agreement or any exhibit
or schedule hereto; provided, however, that such disclosure shall not be deemed
to cure any breach of a representation, warranty, covenant or agreement or to
satisfy any condition. Buyer and Seller shall each promptly notify the other
party of any Default, the threat or commencement of any Action, or any
development that occurs before the Closing that could in any way materially
affect such notifying party, the Real Property or the Assets.
5.3.5 Annexes, Schedules. The parties understand and
acknowledge that the annexes and schedules to be attached hereto may not be in
satisfactory or final form as of the date of this Agreement. Seller and Buyer
shall use their respective best efforts to produce such annexes and Seller
shall use its best efforts to produce such schedules as soon as practicable
after the date hereof but in no event later than 12:00 noon, Los Angeles time,
on November 16, 1995. When such annexes and schedules have been completed and
delivered, they shall be attached hereto and incorporated herein as of the date
hereof.
5.3.6 Liquor Escrow. The parties shall comply with the
Regulations of the State of California with respect to the liquor Inventory and
all Assets related thereto, including the creation of any escrow and the
disbursement or release of any funds or Assets held in such escrow. The
parties shall cooperate in executing or delivering any documentation necessary
to effect the foregoing and to determine the amount of the Purchase Price or
the portion of the Assets allocable to such liquor Inventory.
ARTICLE 6
CONDITIONS PRECEDENT
6.1 To Seller's Obligations. The obligations of Seller to
consummate the transactions contemplated hereunder are subject to the
satisfaction or waiver by Seller, on or prior to the Closing Date, of each of
the conditions set forth below.
6.1.1 Accuracy of Representations and Warranties. All
representations and warranties of Buyer contained in this Agreement shall be
true and correct in all material respects at and as of the date of this
Agreement and at and as of the Closing Date, except as and to the extent that
the facts and conditions upon which such representations and warranties are
based are expressly required or permitted to be changed by the terms hereof.
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6.1.2 Performance of Buyer's Covenants. Buyer shall have
performed all covenants required to be performed by it hereunder on or prior to
the Closing Date including having executed and delivered the Sublease and the
other agreements contemplated by this Agreement to which Buyer is a party.
6.1.3 Consents. All consents, approvals and waivers from
governmental authorities and other parties necessary to permit Seller to enter
into the Sublease, transfer the Assets to Buyer, give to Buyer the benefits of
the Assumed Contracts, or take any other action contemplated hereby or thereby
shall have been obtained. Seller shall be satisfied that all approvals
required under any Regulations to carry out the transactions contemplated by
this Agreement shall have been obtained and that the parties shall have
complied with all Regulations applicable to such transactions. The applicable
waiting period, including any extension thereof, under the HSR Act shall have
expired.
6.1.4 Absence of Litigation.
(1) No Action shall be pending or threatened
against Seller and/or Buyer, or in which either party is a plaintiff,
which questions or could reasonably be expected to question the
validity or legality of, or seeks to enjoin the consummation of, the
transactions contemplated hereunder, or which adversely affects the
ability of Seller or Buyer to perform their respective obligations
hereunder; and
(2) No Action by any Authority shall have been
instituted or threatened which questions the validity or legality of
the transactions contemplated hereunder and which could reasonably be
expected to materially damage Seller if the transactions contemplated
hereunder are consummated.
6.1.5 Corporate Documents. Seller shall have received
from Buyer resolutions adopted by the board of directors of Buyer approving
this Agreement, the Sublease and the transactions contemplated hereby and
thereby, certified by Buyer's corporate secretary.
6.2 To Buyer's Obligations. The obligations of Buyer to
consummate the transactions contemplated hereunder are subject to the
satisfaction or waiver by Buyer of each of the conditions set forth below on or
prior to the Closing Date, except for the conditions set forth in Section 6.2.7
hereof which must be satisfied, if at all, within the Due Diligence Period.
6.2.1 Accuracy of Representations and Warranties. All
representations and warranties of Seller contained in this Agreement shall be
true and correct in all respects at and as of the date of this Agreement and at
and as of the Closing Date, except as and to the extent that the facts and
conditions upon which such representations and warranties are based are
expressly required or permitted to be changed by the terms hereof and except
for any inaccuracies that, individually or in the aggregate, would not have a
material impact on the value of the Assets, the Real Property or the Sublease,
or the ability of Buyer to operate the Assets or Facilities for the purposes
for which they are intended.
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6.2.2 Performance of Seller's Covenants. Seller shall
have performed all covenants required to be performed by it hereunder at or
prior to the Closing Date, including having executed and delivered the Sublease
and the other agreements contemplated by this Agreement to which Seller is a
party.
6.2.3 Consents. All consents, approvals and waivers from
governmental authorities and other parties necessary to permit Buyer to enter
into the Sublease, purchase the Assets from Seller, obtain the benefits of the
Assumed Contracts (including without limitation the City of Riverside Documents
and that certain License Agreement for DSC Distribution Systems Software dated
as of June 29, 1990 by and between Seller and Dallas Systems Corporation,
including all exhibits thereto pertaining to the Premises or to Seller in its
corporate capacity), or take any other action contemplated hereby or thereby
shall have been obtained, or with respect to any Assumed Contracts for which
such consents, approvals or waivers are not obtained, Seller shall provide to
Buyer the economic benefits of such Assumed Contracts. Buyer shall be
satisfied that all approvals required under any Regulations to carry out the
transactions contemplated by this Agreement shall have been obtained and that
the parties shall have complied with all Regulations applicable to such
transactions. The applicable waiting period, including any extension thereof,
under the HSR Act shall have expired. Buyer acknowledges that the City of
Riverside is only obligated to use its best efforts with respect to any funding
obligations that it may have pursuant to the City of Riverside Documents.
6.2.4 Absence of Litigation.
(1) No Action shall be pending or threatened
against Seller and/or Buyer, or in which either party is a plaintiff,
which (i) questions or could reasonably be expected to question the
validity or legality of, or seeks to enjoin the consummation of, the
transactions contemplated hereunder, or which adversely affects the
ability of Seller or Buyer to perform their respective obligations
hereunder, or (ii) affects or could reasonably be expected to affect
the Assets or the Real Property or any portion thereof; and
(2) No Action by any Authority shall have been
instituted or threatened which questions the validity or legality of
the transactions contemplated hereunder or which could reasonably be
expected to adversely affect the right or ability of Buyer to own,
operate or transfer any material portion of the Assets or the Real
Property after the Closing if the transactions contemplated hereunder
are consummated.
6.2.5 Corporate Documents. Buyer shall have received from
Seller resolutions adopted by the board of directors of Seller approving this
Agreement, the Sublease and the transactions contemplated hereby and thereby,
certified by Seller's corporate secretary.
6.2.6 UCC Filings. Buyer shall have received from the
Secretary of State of the State of California a UCC search no earlier than
fifteen (15) days prior to the Closing Date showing any and all filings against
Seller as debtor or lessor, and Seller shall have made arrangements
satisfactory to Buyer to remove and release from the public records all such
filings with respect to the Real Property and the Assets, or any portion
thereof, the continued existence
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of which is not contemplated by this Agreement or the Sublease, effective as of
the Closing Date.
6.2.7 Due Diligence.
(1) Buyer and its Representatives shall have
satisfied themselves that (i) any costs or other obligations
attributable to the Master Lease Documents that are to be assumed by
Buyer pursuant to the Sublease, in addition to the base rent and other
customary "triple net" expenses to be paid under the Sublease
(including any Tax indemnity obligation), would not be likely to
exceed $100,000 in any year or materially adversely affect Buyer; and
(ii) the exceptions to the Title Policy would not materially impair
Buyer's use of the Real Property. In that context, Buyer shall have
the right, at its sole cost and expense, to conduct an inspection to
(a) complete its review of the Master Lease Documents and (b) complete
its review of the exceptions to the Title Policy. Seller shall make
available to Buyer true, correct and complete copies of all the
foregoing materials in connection with such inspection.
(2) Buyer shall have satisfied itself that the
Real Property is free from Hazardous Substances that would constitute
a material violation of any Environmental Law, and that the Facilities
and the Fixtures and Equipment are in good operating condition and
repair and are free from all material defects. In that context, Buyer
shall have the right, at its sole cost and expense, to retain a
consultant to conduct an inspection of the Real Property to the extent
necessary to update the Phase I Report.
(3) If Buyer shall have notified Seller on or
prior to the expiration of the Due Diligence Period that the
contingencies set forth in subsections (1) and (2) above have not been
satisfied or waived, this Agreement shall automatically terminate as
of the earlier of the date of receipt of such notice or the expiration
of the Due Diligence Period.
6.2.8 Title Insurance Commitment. Buyer shall have
received a commitment for an ALTA policy or policies of title insurance with
respect to the leasehold estate created by the Sublease with such endorsements
thereto as Buyer shall reasonably require, pursuant to which the Title Company
agrees to insure, at its regular rates, Buyer's leasehold estate in and to the
Real Property subject only to the exceptions set forth in the Title Policy and
other exceptions relating to the Master Lease Documents, the Sale/Leaseback
transaction documents referred to in Recital C of the Sublease, and other
Encumbrances which do not, individually or in the aggregate, (x) materially
breach any covenant, representation or warranty of Seller contained herein, (y)
materially adversely affect the value of the Real Property or any lawful use of
the Real Property or (z) render title to the Real Property unmarketable.
6.2.9 Estoppel Certificate. Seller shall deliver or cause
to be delivered to Buyer an estoppel certificate from the Master Landlord in a
form reasonably satisfactory to Buyer.
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ARTICLE 7
RISK OF LOSS; CONSENTS TO ASSIGNMENT
7.1 Risk of Loss. From the date hereof through the Closing
Date, all risk of loss or damage to the Real Property or the Assets shall be
borne by Seller, and thereafter shall be borne by Buyer. If any portion of the
Real Property or the Assets is destroyed or damaged by fire or any other cause
on or prior to the Closing Date, other than use, wear or loss in the ordinary
course of business, Seller shall give written notice to Buyer as soon as
practicable after, but in any event within five (5) calendar days of, discovery
of such damage or destruction, the amount of insurance, if any, covering such
Real Property or Assets and the amount, if any, which Seller is otherwise
entitled to receive as a consequence. Prior to the Closing, Buyer shall have
the option, which shall be exercised by written notice to Seller within ten
(10) calendar days after receipt of Seller's notice or if there is not ten (10)
calendar days prior to the Closing Date, as soon as practicable prior to the
Closing Date, of (a) accepting such Real Property or Assets in their destroyed
or damaged condition in which event Buyer shall be entitled to the proceeds of
any insurance or other proceeds payable with respect to such loss and to prompt
reimbursement for any uninsured portion of such loss, and the full Purchase
Price shall be paid for such Assets, (b), in the case of the Assets only,
excluding such Assets from this Agreement, in which event the Purchase Price
shall be reduced by the amount allocated to such Assets, as mutually agreed
between the parties, or (c) terminating this Agreement in accordance with
Section 10.1. If Buyer accepts such Real Property or Assets, then after the
Closing, any insurance or other proceeds shall belong, and shall be assigned
to, Buyer without any reduction in the Purchase Price; otherwise, such
insurance proceeds shall belong to Seller.
7.2 Consents to Assignment. Anything in this Agreement to the
contrary notwithstanding, this Agreement shall not constitute an agreement to
assign any Assumed Contract (including without limitation the City of Riverside
Documents), Permit or any claim or right or any benefit arising thereunder or
resulting therefrom if an attempted assignment thereof, without the consent of
a third party thereto, would constitute a Default thereof or in any way
adversely affect the rights of Buyer thereunder. If such consent is not
obtained, or if an attempted assignment thereof would be ineffective or would
affect the rights thereunder so that Buyer would not receive all such rights,
Seller will cooperate with Buyer, in all reasonable respects, to provide to
Buyer the benefits under any such Assumed Contract, Permit or any claim or
right, including without limitation enforcement for the benefit of Buyer of
any and all rights of Seller against a third party thereto arising out of the
Default or cancellation by such third party or otherwise. Nothing in this
Section 7.2 shall affect Buyer's right to terminate this Agreement under
Section 10.1 in the event that any consent or approval to the transfer of any
Asset is not obtained.
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ARTICLE 8
ACTIONS BY SELLER AND BUYER
AFTER THE CLOSING
8.1 Books and Records; Tax Matters.
8.1.1 Books and Records. Each party agrees that it will
cooperate with and make available to the other party, during normal business
hours, all Books and Records, information and employees (without substantial
disruption of employment) retained and remaining in existence after the Closing
which are necessary or useful in connection with any tax inquiry, audit,
investigation or dispute, any litigation or investigation or any other matter
requiring any such Books and Records, information or employees for any
reasonable business purpose. The party requesting any such Books and Records,
information or employees shall bear all of the out-of-pocket costs and expenses
(including without limitation attorneys' fees, but excluding reimbursement for
salaries and employee benefits) reasonably incurred in connection with
providing such Books and Records, information or employees.
8.1.2 Cooperation and Records Retention. Seller and Buyer
shall (i) each provide the other with such assistance as may reasonably be
requested by any of them in connection with the preparation of any return,
audit, or other examination by any taxing authority or judicial or
administrative proceedings relating to Liability for Taxes, (ii) each retain
and provide the other with any records or other information that may be
relevant to such return, audit or examination, proceeding or determination, and
(iii) each provide the other with any final determination of any such audit or
examination, proceeding, or determination that affects any amount required to
be shown on any tax return of the other for any period. Without limiting the
generality of the foregoing, Buyer and Seller shall each retain, until the
applicable statutes of limitations (including any extensions) have expired,
copies of all tax returns, supporting work schedules, and other records or
information that may be relevant to such returns for all tax periods or
portions thereof ending on or before the Closing Date and shall not destroy or
otherwise dispose of any such records without first providing the other party
with a reasonable opportunity to review and copy the same.
8.2 Bulk Sales. It may not be practicable to comply or attempt
to comply with the procedures of the "Bulk Sales Act" or similar law of any or
all of the states in which the Real Property or the Assets are situated or of
any other state which may be asserted to be applicable to the transactions
contemplated hereby. Accordingly, to induce Buyer to waive any requirements
for compliance with any or all of such laws, Seller hereby agrees that any
damages or costs arising out of or resulting from the failure of Seller or
Buyer to comply with any such laws will be Excluded Liabilities for purposes of
this Agreement.
8.3 Reimbursement Payments. On or before the Closing Date,
Buyer and Seller shall enter into a service and supply agreement (the "Service
and Supply Agreement") on such terms as they shall mutually agree, pursuant to
which Seller shall pay to Buyer semi-annually in arrears commencing 180 days
after the Closing Date an amount not to exceed $4 million in any calendar year
or $20 million in the aggregate, subject to Section 11.1 hereof.
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ARTICLE 9
INDEMNIFICATION
9.1 Post-Closing Indemnity by Seller. Seller shall indemnify
and hold Buyer harmless from and against any and all Damages incurred by Buyer
and arising from (i) any and all claims arising as a result of the
noncompliance by Seller with the bulk transfer provisions of the Uniform
Commercial Code, (ii) the inaccuracy of any representation or warranty of
Seller, or the breach by Seller of any covenant, contained herein, and (iii)
any Excluded Liabilities.
9.2 Post-Closing Indemnity by Buyer. Buyer shall indemnify and
hold Seller harmless from and against any and all Damages incurred by Seller
and arising from (i) the inaccuracy of any representation or warranty of Buyer,
or the breach by Buyer of any covenant, contained herein, or (ii) any Assumed
Liability.
9.3 Defense of Claims. If a claim for Damages (a "Claim") is to
be made by a party entitled to indemnification hereunder against the
indemnifying party, the party claiming such indemnification shall give written
notice (a "Claim Notice") to the indemnifying party as soon as practicable
after the party entitled to indemnification becomes aware of any fact,
condition or event which may give rise to Damages for which indemnification may
be sought under this Section 9.3. If any lawsuit or enforcement action is
filed against any party entitled to the benefit of indemnity hereunder, written
notice thereof shall be given to the indemnifying party as promptly as
practicable (and in any event within fifteen (15) calendar days after the
service of the citation or summons). The failure of any indemnified party to
give timely notice hereunder shall not affect rights to indemnification
hereunder, except to the extent that the indemnifying party demonstrates actual
damage caused by such failure. After such notice, if the indemnifying party
shall acknowledge in writing to the indemnified party that the indemnifying
party shall be obligated under the terms of its indemnity hereunder in
connection with such lawsuit or action, then the indemnifying party shall be
entitled, if it so elects at its own cost, risk and expense, (i) to take
control of the defense and investigation of such lawsuit or action, (ii) to
employ and engage attorneys of its own choice to handle and defend the same
unless the named parties to such action or proceeding include both the
indemnifying party and the indemnified party and the indemnified party has been
advised in writing by counsel that there may be one or more legal defenses
available to such indemnified party that are different from or additional to
those available to the indemnifying party, in which event the indemnified party
shall be entitled, at the indemnifying party's cost, risk and expense, to
separate counsel of its own choosing, and (iii) to compromise or settle such
claim, which compromise or settlement shall be made only with the written
consent of the indemnified party, such consent not to be unreasonably withheld.
If the indemnifying party fails to assume the defense of such claim within
fifteen (15) calendar days after receipt of the Claim Notice, the indemnified
party against which such claim has been asserted will (upon delivering notice
to such effect to the indemnifying party) have the right to undertake, at the
indemnifying party's cost and expense, the defense, compromise or settlement of
such claim on behalf of and for the account and risk of the indemnifying party.
In the event the indemnified party assumes the defense of the claim, the
indemnified party will keep the indemnifying party reasonably informed of the
progress of any such defense, compromise or settlement. The indemnifying party
shall be liable for any settlement of any action effected pursuant to and in
accordance with this Section 9.3 and for any
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final judgment (subject to any right of appeal), and the indemnifying party
agrees to indemnify and hold harmless an indemnified party from and against any
Damages by reason of such settlement or judgment.
ARTICLE 10
TERMINATION
10.1 Termination. This Agreement may be terminated at any time
prior to Closing:
10.1.1 By mutual written consent of Buyer and Seller;
10.1.2 By Buyer or Seller if the Closing shall not have
occurred on or before March 31, 1996; provided, however, that this provision
shall not be available to Buyer if Seller has the right to terminate this
Agreement under clause (4) of this Section 10.1, and this provision shall not
be available to Seller if Buyer has the right to terminate this Agreement under
clause (3) of this Section 10.1;
10.1.3 By Buyer if there is a material breach of any
representation or warranty set forth in Section 4.1 hereof or any covenant or
agreement to be complied with or performed by Parent or Seller pursuant to the
terms of this Agreement or the failure of a condition set forth in Section 6.2
to be satisfied (and such condition is not waived in writing by Buyer) on or
prior to the Closing Date, or the occurrence of any event which results or
would result in the failure of a condition set forth in Section 6.2 to be
satisfied on or prior to the Closing Date, provided that Buyer may not
terminate this Agreement prior to the Closing if Seller has not had an adequate
opportunity to cure such failure;
10.1.4 By Seller if there is a material breach of any
representation or warranty set forth in Section 4.2 hereof or of any covenant
or agreement to be complied with or performed by Buyer pursuant to the terms of
this Agreement or the failure of a condition set forth in Section 6.1 to be
satisfied (and such condition is not waived in writing by Seller) on or prior
to the Closing Date, or the occurrence of any event which results or would
result in the failure of a condition set forth in Section 6.1 to be satisfied
on or prior to the Closing Date; provided, however, that, Seller may not
terminate this Agreement prior to the Closing Date if Buyer has not has an
adequate opportunity to cure such failure;
10.1.5 By (i) Buyer if Buyer has not received from Seller
all schedules contemplated by this Agreement in accordance with Section 5.3.5
hereto prior to 12:00 noon, Los Angeles time, on November 16, 1995 in form and
substance reasonably satisfactory to Buyer, or (ii) by Buyer or Seller if Buyer
has not accepted such schedules after prior consultation with Seller concerning
the content of such schedules prior to the expiration of the Diligence Period.
10.1.6 By Buyer in accordance with the provisions of
Sections 6.2.7 or 7.1.
29
<PAGE> 30
10.2 In the Event of Termination. In the event of termination of
this Agreement:
10.2.1 Each party will redeliver all documents, work papers
and other material of any other party relating to the transactions contemplated
hereby, whether so obtained before or after the execution hereof, to the party
furnishing the same;
10.2.2 The provisions of Section 5.3.2 shall continue in
full force and effect; and
10.2.3 No party hereto shall have any Liability to any
other party to this Agreement, except as stated in this Section 10.2, except
for any willful breach of this Agreement occurring prior to the proper
termination of this Agreement. The foregoing provisions shall not limit or
restrict the availability of specific performance or other injunctive relief to
the extent that specific performance or such other relief would otherwise be
available to a party hereunder.
ARTICLE 11
MISCELLANEOUS
11.1 Right of Offset. In the event that either party defaults
with respect to any payment obligations pursuant to this Agreement, the
Sublease or the Service and Supply Agreement, then, in addition to any other
remedies that may be available pursuant to this Agreement or the Sublease, the
other party may offset from amounts otherwise to be paid to the defaulting
party hereunder or under the Sublease the amount of such delinquent payment
that has not been received.
11.2 Assignment. Neither this Agreement nor any of the rights or
obligations hereunder may be assigned by either party without the prior written
consent of the other party.
11.3 Notices. All notices, consents, requests, demands and other
communications which are required or may be given hereunder shall be in writing
and shall be deemed to have been duly given (i) upon receipt, if personally
delivered or if sent by certified or registered mail, return receipt requested
and (ii) the day after being sent, if sent for next day delivery to a domestic
address by recognized overnight delivery service (e.g., Federal Express) or if
sent by telecopy; provided, however, that any notice sent by telecopy shall be
accompanied by a copy thereof sent by regular United States mail. In each
case, such notice, etc. shall be addressed:
If to Seller, to:
Smith's Food & Drug Centers, Inc.
1550 South Redwood Road
Salt Lake City, Utah 84104
Attention: General Counsel
FAX: (801) 974 - 1494.
30
<PAGE> 31
If to Buyer, to:
Ralphs Grocery Company
1100 West Artesia Blvd.
Compton, California 90220
Attention: General Counsel
FAX: (310) 884 - 2610.
If prior to the Closing Date, with a copy to:
Latham & Watkins
633 West Fifth Street, 4000
Los Angeles, CA 90071
Attention: Thomas C. Sadler
FAX: (213) 891-8763
or to such other address and with such other copies as either party may
designate as to itself by written notice to the other.
11.4 Entire Agreement, Amendments. This Agreement, together with
all annexes and schedules hereto, constitutes the entire agreement among the
parties pertaining to the Real Property and the Assets and supersedes all prior
agreements, understandings, negotiations and discussions, whether oral or
written. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties to this Agreement. No amendment,
supplement, modification or waiver of this Agreement shall be binding unless
executed in writing by the party to be charged thereby. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver
of any other provision of this Agreement, whether or not similar, nor shall any
such waiver constitute a continuing waiver unless otherwise expressly provided.
11.5 Counterparts. This Agreement may be executed by original
signature or by facsimile transmission and in one or more counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
11.6 Choice of Law. This Agreement shall be construed and
interpreted and the rights of the parties shall be determined in accordance
with the laws of the State of California, without regard to the conflict laws
of any state, except with respect to matters of law concerning the internal
corporate affairs of any corporate entity which is a party to or the subject of
this Agreement, as to which the law of the jurisdiction under which the
respective entity derives its powers shall govern.
11.7 Attorneys' Fees. If any Action is brought by either party
against the other party, the prevailing party shall be entitled to recover from
the other party the reasonable attorneys' fees, costs and expenses incurred in
connection with the prosecution or defense of such Action, including printing,
photostating, duplicating and other expenses, air freight charges and fees
31
<PAGE> 32
billed for law clerks, paralegals and other persons not admitted to the bar but
performing services under the supervision of an attorney.
11.8 Invalidity. If any one or more of the provisions of this
Agreement or any other instrument referred to herein, shall, for any reason, be
held to be invalid, illegal or unenforceable in any respect, then to the
maximum extent permitted by law, such invalidity, illegality or
unenforceability shall not affect any other provision of this Agreement or any
other such instrument.
11.9 Construction. The headings hereof are solely for the
convenience of the parties and are not a part of this Agreement. Whenever
required by the context of this Agreement, the singular includes the plural and
the masculine includes the feminine. "Including" shall mean including without
limitation. "To the best knowledge of" or similar phrases refers to the
knowledge of executive officers or directors of such party after inquiry of
responsible persons.
11.10 No Third-Party Beneficiaries. The parties do not intend to
confer any benefit under this Agreement on any person, firm or corporation
other than the parties to this Agreement or their successors or assigns.
11.11 Time of Essence. Seller and Buyer hereby acknowledge and
agree that time is strictly of the essence with respect to each and every term,
condition, obligation and provision of this Agreement and that failure to
timely perform any of the terms, conditions, obligations or provisions of this
Agreement by either party shall constitute a material breach of and a
noncurable, but waivable, default under this Agreement by the party so failing
to perform.
(Signature page follows.)
32
<PAGE> 33
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed on their respective behalf, by their respective
officers thereunto duly authorized, all as of the day and year first above
written.
RALPHS GROCERY COMPANY,
a Delaware corporation
By: /s/ Bryron E. Allumbaugh
---------------------------------
Name: Byron E. Allumbaugh
Title: Chief Executive Officer
SMITH'S FOOD & DRUG CENTERS, INC.,
a Delaware corporation
By: /s/ Jeff Smith
-------------------------------------------
Name: Jeff Smith
Title: Chairman and Chief Executive Officer
<PAGE> 34
ANNEX A
FORM OF SUBLEASE
<PAGE> 35
ANNEX B
LIST OF FIXTURES AND EQUIPMENT
Owned Equipment
[To come.]
Specified Equipment
[To come.]
Leased Equipment
[To come.]
Fixtures and Equipment not to be acquired
[To come.]
<PAGE> 36
ANNEX C
LIST OF INVENTORY
Inventory to be Acquired:
See attached schedule. [Inventory designated as grocery, frozen foods
and club items will be purchased at Seller's book cost less 7%]
Inventory not to be Acquired:
Notwithstanding the foregoing attachment, Buyer shall not acquire any
Seller's "private label" items or "private label" supplies or any other items
or supplies of a size or type not sold or used in the ordinary course of
Buyer's business. Buyer will provide Seller upon request with periodic updates
of the information concerning the inventory items Buyer will be able to
acquire.
<PAGE> 37
ANNEX D
ASSIGNMENT OF CONTRACT RIGHTS
For good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Smith's Food & Drug Centers, Inc., a
Delaware corporation, ("Seller"), hereby grants, bargains, transfers, sells,
assigns, conveys and delivers to Ralphs Grocery Company, a Delaware corporation
("Buyer"), all right, title and interest in and to the agreements listed on
Schedule A attached hereto and made a part hereof together with all amendments
and clarifications attached thereto (the "Schedule A Contracts").
Seller for itself, its successors and assigns hereby
covenants and agrees that, subject to the terms of the Distribution Center
Transfer Agreement dated as of November 1, 1995 by and between Seller and Buyer
(the "Agreement") (capitalized terms used herein but not otherwise defined
shall have the meaning ascribed to such terms in the Agreement), Seller will
do, execute, acknowledge and deliver or cause to be done, executed,
acknowledged and delivered, all of such further acts, deeds, assignments,
transfers, conveyances, powers of attorney and assurances in order to assign,
transfer, set over, convey, assure and confirm unto and vest in Buyer, its
successors and assigns all right, title and interest in and to the Schedule A
Contracts and made a part hereof together with all amendments and
clarifications attached thereto.
Executed at _______________ this ___ day of January, 1996.
SMITH'S FOOD & DRUG CENTERS, INC.
By: _________________________________
Name:
Title:
<PAGE> 38
ANNEX E
BILL OF SALE
For good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Smith's Food & Drug Centers, Inc., a
Delaware corporation ("Seller"), does hereby grant, bargain, transfer, sell,
assign, convey and deliver to Ralphs Grocery Company, a Delaware corporation
("Buyer"), all right, title and interest in and to the Assets (other than
Fixtures and Equipment that is subject to an Excluded Contract) as such terms
are defined in the Distribution Center Transfer Agreement dated as of November
1, 1995 by and between Seller and Buyer (the "Agreement"). Buyer hereby
acknowledges that Seller is making no representation or warranty with respect
any item being conveyed hereby except as specifically set forth in the
Agreement. Seller for itself, its successors and assigns hereby covenants and
agrees that, at any time and from time to time forthwith upon the written
request of Buyer, Seller will do, execute, acknowledge and deliver or cause to
be done, executed, acknowledged and delivered, each and all of such further
acts, deeds, assignments, transfers, conveyances, powers of attorney and
assurances as may reasonably be required by Buyer in order to assign, transfer,
set over, convey, assure and confirm unto and vest in Buyer, its successors and
assigns, title to the assets sold, conveyed, transferred and delivered by this
Bill of Sale.
Executed at _______________ this ___ day of January, 1996.
SMITH'S FOOD & DRUG CENTERS, INC.
By: ________________________________
Name:
Title:
STATE OF CALIFORNIA )
) ss.
COUNTY OF [RIVERSIDE] )
On _______________________, before me, ___________________, personally appeared
____________________________________, personally known to me (or proved to me
on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
_________________________________ [SEAL]
Notary Public in and for said
County and State
<PAGE> 39
ANNEX F
ASSUMPTION DOCUMENT
Pursuant to that certain Distribution Center Transfer
Agreement dated as of November 1, 1995 by and between Smith's Food & Drug
Centers, Inc., a Delaware corporation ("Seller"), and Ralphs Grocery Company, a
Delaware corporation ("Buyer") (the "Agreement"), for good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, Buyer
hereby does assume the Assumed Liabilities as such term is defined in the
Agreement by and subject to the terms and conditions of the Agreement;
provided, however, that Buyer shall assume such liabilities and obligations
only to the extent such liabilities and obligations arise after the Closing
Date (as defined in the Agreement). Except as expressly assumed herein, Buyer
does not assume and shall not in any manner be responsible for any liability
(including without limitation any contingent liability), obligation, lien or
encumbrance of Seller. Buyer for itself, its successors and assigns hereby
covenants and agrees that, at any time and from time to time forthwith upon the
written request of Seller, Buyer will do, execute, acknowledge and deliver or
cause to be done, executed, acknowledged and delivered, all of such further
acts, deeds, assignments, transfers, conveyances, powers of attorney and
assurances in order to assume such Assumed Liabilities.
Executed at _______________ this ___ day of January, 1996.
RALPHS GROCERY COMPANY
By: ________________________________
Name:
Title:
<PAGE> 40
SCHEDULE 4.1.3
CONSENTS, APPROVALS AND AUTHORIZATIONS REQUIRED
FOR SELLER TO CONSUMMATE TRANSACTION
<PAGE> 41
SCHEDULE 4.1.13
NON-COMPLIANCE WITH ENVIRONMENTAL LAWS;
PRESENCE OF HAZARDOUS SUBSTANCES
<PAGE> 42
SCHEDULE 4.1.14
CONTRACTS AND EXCLUDED CONTRACTS
Contracts to become Assumed Contracts
[To come.]
Excluded Contracts
[To come.]
<PAGE> 43
SCHEDULE 4.1.15
LITIGATION AFFECTING SELLER
<PAGE> 44
SCHEDULE 4.2.3
CONSENTS AND APPROVALS REQUIRED FOR
BUYER TO CONSUMMATE TRANSACTION
[None.]
<PAGE> 45
SCHEDULE 4.2.4
LITIGATION AFFECTING BUYER
[None.]
<PAGE> 46
SCHEDULE 5.1.1
INFORMATION AND MATERIAL PREVIOUSLY REQUESTED BY BUYER
Accurate and complete copies of:
1. The Phase I Report;
2. All permits relating to the underground storage tanks on the
Premises;
3. All wastewater permits relating to the operation of the
Assets and the Real Property; and
4. All environmental assessment reports or reviews by the
County of Riverside.
<PAGE> 47
DISTRIBUTION CENTER
TRANSFER AGREEMENT
by and between
SMITH'S FOOD & DRUG CENTERS, INC.
as "Seller"
and
RALPHS GROCERY COMPANY
as "Buyer"
Dated: November 1, 1995
<PAGE> 48
ANNEXES AND SCHEDULES
<TABLE>
<CAPTION>
Annex
-----
<S> <C>
A Form of Sublease
B List of Fixtures and Equipment
C List of Inventory
D Form of Assignment of Contract Rights
E Form of Bill of Sale
F Form of Assumption Document
Schedule
--------
4.1.3 Consents and Approvals Required for Seller to Consummate Transaction
4.1.13 Non-Compliance with Environmental Laws; Presence of Hazardous Substances.
4.1.14 Assumed Contracts and Excluded Contracts
4.1.15 Litigation Affecting Seller
4.2.3 Consents and Approvals Required for Buyer to Consummate Transaction
4.2.4 Litigation Affecting Buyer
5.1.1 Information Previously Requested by Buyer
</TABLE>
<PAGE> 49
SUBLEASE AGREEMENT
This Sublease Agreement (the "Sublease") is made this _____
day of January, 1996, between SMITH'S FOOD & DRUG CENTERS, INC., a Delaware
corporation, hereinafter referred to as "Sublessor" or "Smith's" and RALPHS
GROCERY COMPANY, a Delaware corporation hereinafter referred to as "Sublessee."
DESCRIPTION OF PREMISES
AND UNDERLYING INSTRUMENTS
A. Reference is made to (i) that certain Lease dated as of the
21st of December, 1993, between State Street Bank and Trust Company of
California, N.A., a national banking association, as Lessor (the "Master
Landlord") and Smith's, as Lessee, as amended by that certain Amendment No. 1
to Lease Agreement dated as of the 1st of April, 1994 (collectively the "Master
Lease") and (ii) that certain Distribution Center Transfer Agreement dated as
of November 1, 1995 between Smith's and Sublessee pursuant to which Smith's
agreed to sublease the Leased Property under the Master Lease and sell certain
assets to Sublessee (the "Purchase Agreement").
B. Sublessor and Sublessee desire to enter into this Sublease for
the Leased Property as defined in the Master Lease, which such Property is
located at 1500 Eastridge Avenue, Riverside, California (the "Premises"). The
Premises contain approximately 911,898 square feet of warehouse space, 115,676
square feet of dairy manufacturing plant and related space, 19,505 square feet
in a vehicle maintenance facility, and attendant parking areas, truck
maneuvering areas and accessways. The Premises are described on Exhibit "A"
attached to the Master Lease (Exhibit A-2).
C. As used herein, the phrase "Master Lease" also includes all
documents and instruments comprising the Sale/Leaseback transaction between
Smith's, Master Landlord and various other third parties which are identified
on Exhibit A-5 hereto. True, correct and complete copies of many, but not all,
of the documents and instruments comprising the Master Lease are attached
hereto as Exhibit "A" and made a part hereof. Sublessor has delivered true,
correct and complete copies of the other documents and instruments comprising
the Master Lease and Sublessee acknowledges receipt of such copies. It is
understood and agreed that the documents and instruments identified on Exhibit
A-5 are only made a part of the Master Lease to the extent the provisions
therein relate to the Premises.
D. Capitalized terms used in this Sublease which are not
otherwise defined herein shall have the meanings set forth in the Master Lease
and in the instrument entitled "Appendix A" which is attached hereto as Exhibit
"A-3."
Annex A
<PAGE> 50
A G R E E M E N T S
1. SUBLETTING OF PREMISES.
1.1 Sublessor hereby leases to Sublessee and Sublessee hereby
rents from Sublessor the Premises, together with all rights, privileges,
easements and licenses appertaining thereto which are granted to Sublessor
under the Master Lease.
1.2 The Initial Term of this Sublease shall be for approximately
23 years and shall commence as of the date hereof ("Commencement Date") and
shall expire on December 30, 2018. Sublessee shall have possession of the
Premises on the Commencement Date.
1.3 A. Provided Sublessee is not in default hereunder, Sublessee
shall have the right, at its option, to require Sublessor to exercise any or
all of the options for the Fixed-Rate Renewal Terms or the Fair Market Renewal
Term set forth in the Master Lease; provided, however, that Sublessee
acknowledges that (i) Sublessor cannot exercise the option for the Fair Market
Renewal Term unless and until it has exercised its option with respect to at
least the first Fixed-Rate Renewal Term and (ii) Sublessor cannot exercise the
option for any subsequent Fixed-Rate Renewal Term once it has exercised the
option for the Fair Market Renewal Term; and, provided further, that Sublessee
cannot direct Sublessor to exercise the option for any subsequent Fixed-Rate
Renewal Term unless Sublessor has, at the direction of Sublessee, exercised its
option for the preceding Fixed-Rate Renewal Term.
B. In order to require Sublessor to exercise its option for
the first Fixed-Rate Renewal Term, Sublessee must give notice to Sublessor at
least thirty (30) months prior to the expiration of the Initial Term. In order
to require Sublessor to exercise any subsequent option, Sublessee must give
notice to Sublessor at least one (1) year, and no more than five (5) years,
prior to the expiration of the preceding Fixed Rate Renewal Term. Any such
notice shall also constitute the election by Sublessee to sublease the Premises
for the same term as the option so noticed in which event the terms and
provisions of this Sublease shall remain in effect throughout each option term
except that the basic rent payable hereunder shall be the Fixed-Rate Renewal
Basic Rent or the Fair Market Rental Value of the Leased Property, as the case
may be.
C. If Sublessee has directed Sublessor to exercise the option
for the Fair Market Renewal Term under the Master Lease, Sublessee shall also
include in its notice to Sublessor the length of the term of such option and
undertake, at no cost or expense to Sublessor, all of the obligations of
Sublessor pursuant to the Master Lease with respect to the determination of the
Fair Market Rental Value of the Leased Property thereunder.
2 of 13
<PAGE> 51
2. RENT.
2.1 Basic Rent.
A. During the term of this Sublease, Sublessee shall pay to
Sublessor as basic rent for the Premises $8,813,856 per annum, payable
in advance in monthly installments of $734,488.
B. The first payment of basic monthly rent shall be made on
the Commencement Date and reflect a full or prorated portion of rent
for the calendar month in which the Commencement Date occurs.
Thereafter, basic monthly rent shall be paid on or before the first
day of each calendar month.
C. Payments of monthly basic rent shall be paid on or before
the due date thereof at the following address:
Smith's Food & Drug Centers, Inc.
1550 South Redwood Road
Salt Lake City, Utah 84104
Attention: Banking Manager
D. The acceptance by Sublessor of any partial payment due
hereunder shall not, absent an express written agreement to the
contrary, constitute a waiver of Sublessor's right to full payment and
no endorsement or special limitation on any instrument accompanying or
constituting any such partial payment shall constitute any such waiver
or an accord and satisfaction with respect to the amount owing.
2.2 Additional Rent. In addition to the foregoing basic rent for
each year, Sublessee shall pay to Sublessor or its designee, or to the person
or entity entitled thereto, as additional rentals, all monetary obligations of
Sublessor under the Master Lease except the sums described in Section 3 (Rent;
Adjustments to Rent) described in the Master Lease (Exhibits A-1 and A-2).
Without limiting the generality of the foregoing:
A. Sublessee shall timely pay to the third party entitled
thereto, or reimburse Sublessor if it has previously paid the same
pursuant to this Sublease or the Master Lease, all costs of required
insurance for the Premises [Section 10 of the Master Lease (Exhibits
A-1 and A-2)]; all property taxes and assessments applicable to the
Premises; any taxes, or increased basic rent under the Master Lease
pursuant to Section 7.2 (General Tax Indemnity) of the Participation
Agreement, which Section is attached hereto as Exhibit A-4, or
pursuant to the Tax Indemnification Agreement referenced in Exhibit
A-5; costs, exclusive of principal and interest, payable by Sublessor
attributable to the financing of the Premises through the
Sale/Leaseback transaction described in Paragraph C of the first page
hereof, including, without limitation, the fees payable to the
Indenture Trustee, the Pass Through Trustee, the Owner Trustee and the
Remainderman Trustee; [NOTE: unless, pursuant to the provisions of the
Purchase Agreement, one or more utility agreements are not
3 of 13
<PAGE> 52
transferred in which event this Sublease shall provide for Smith's to
pay, and Ralphs to reimburse, the utility(ies) {or} all utilities used
at, or charged to, the Premises]; and the cost of all repairs and
maintenance related to the Premises [Section 8(a) and (b) of the
Master Lease (Exhibit A-1)]; in each instance, attributable to the
period commencing with and following the Commencement Date; and
B. To the extent not inconsistent with the foregoing
provision, and subject to (i) the indemnity and other provisions of
the Purchase Agreement pursuant to which Sublessee may be entitled to
recover against Sublessor on account of a breach of a covenant or
representation or warranty contained therein and (ii) Section 6
hereof, Section 4 (Net Lease) of the Master Lease (Exhibit A-2) is
incorporated herein as though Sublessee were the Lessee thereunder,
and Sublessee specifically acknowledges that (y) it shall timely pay
basic rent and additional rent without defense or offset whatsoever
and (z) this Sublease is non-terminable.
3. ASSIGNMENT AND SUBLETTING.
Sublessee shall not assign, hypothecate or otherwise transfer
any interest in the Premises or this Sublease, by operation of law or
otherwise, or lease or otherwise transfer or hypothecate all or any part of the
Premises or allow any part of the Premises to be used by anyone other than
Sublessee, without the prior written consent of Sublessor, which such consent
shall not be unreasonably withheld or delayed; provided, however, that
Sublessee may, without such consent:
(i) assign this Sublease or sub-sublease the
Premises to any entity controlled by, controlling or under common
control with Sublessee, or to any successor to Sublessee by way of
merger, consolidation or sale of all or substantially all of the
assets of Sublessee, provided any such assignee assumes for the
benefit of Sublessor all of the obligations of Sublessee hereunder;
and
(ii) mortgage or assign this Sublease to an
institutional lender to Sublessee in which event Sublessor shall, at
the request and sole cost and expense of Sublessee, enter into a
non-disturbance agreement with such lender providing for (x) notice
and an opportunity to cure; (x) an opportunity for such lender to
succeed to the rights of Sublessee hereunder until such time as such
lender can assign this Sublease to a third party, subject to the prior
written consent of Sublessor, which such consent shall not be
unreasonably withheld or delayed; (y) the right to remove from the
Premises within thirty (30) days following any termination of the
Sublease any of Sublessee's personal property contained therein; and
(z) such other provisions as such lender shall reasonably request.
No assignment or sublease pursuant to clause (i) above, and no consent by
Sublessor to any assignment or subletting by Sublessee, shall relieve Sublessee
of any obligation to be performed by Sublessee under this Sublease, whether
accruing before or after such consent, assignment or subletting. The consent
by Sublessor to any assignment or subletting shall not
4 of 13
<PAGE> 53
relieve Sublessee or any successor, assignee or subtenant of Sublessee, from
the obligation to obtain Sublessor's consent to any subsequent assignment or
subletting.
4. PAYMENTS TO MASTER LANDLORD.
Sublessor shall make all of the payments required to be made
under Section 3 of the Master Lease on a timely basis and otherwise perform any
of the obligations thereunder that Sublessee is not obligated to perform
directly hereunder or that are personal to Smith's. In the event that
Sublessor fails to make such payments or perform such obligations, Sublessee
may itself make such payments or perform such obligation due to the Master
Landlord under the Master Lease, and credit the amount so paid to amounts due
from Sublessee under this Sublease.
5. WAIVER AND INDEMNITY.
5.1 Sublessee agrees and this Sublease is made upon the condition
that Sublessor on and after the Commencement Date shall not be liable,
responsible, or in any way accountable to Sublessee, Sublessee's agents,
employees, or invitees, or to any person whomsoever, for:
A. Loss or destruction of or damage to any merchandise,
fixtures, equipment, or other property located on or about the
Premises or on or about any of the facilities which Sublessee may use
in conjunction with this Sublease; or
B. Injury to or death of any person or persons who may
at any time be using, occupying or visiting the Premises or said
facilities; or
C. Loss of business or profits, regardless of the nature
or cause of such loss, destruction, damage, injury, or death,
including without limitation, any patent or latent defects in the
Premises or facilities;
provided, however, that notwithstanding the foregoing, Sublessor shall be
liable and responsible for those claims or causes of action of the type
described above which arose prior to the Commencement Date.
5.2 Except, in each instance, as set forth in the Purchase
Agreement:
A. Sublessee acknowledges that it is subletting the Premises
from Sublessor in their "as is" condition, with all defects, patent or
latent, known or unknown and subject to the existing state of title;
B. In the event of any defect or deficiency of any nature in
the Premises or any fixture or other item constituting a portion
thereof, whether patent or latent, Sublessor shall have no
responsibility or liability with respect thereto; and
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<PAGE> 54
C. SUBLESSOR HEREBY DISCLAIMS ANY AND ALL WARRANTIES, EXPRESS
OR IMPLIED (OTHER THAN AS EXPRESSLY SET FORTH HEREIN OR AS SET FORTH
IN PARAGRAPH 6 BELOW), INCLUDING ANY WARRANTY OF MERCHANTABILITY OR
FITNESS FOR A PARTICULAR PURPOSE OR OF HABITABILITY WITH RESPECT TO
THE PREMISES OR ANY FIXTURE OR OTHER ITEM CONSTITUTING A PORTION
THEREOF, WHETHER ARISING PURSUANT TO THE UNIFORM COMMERCIAL CODE OR
ANOTHER LAW NOW OR HEREAFTER IN EFFECT OR OTHERWISE.
5.3 Nothing in this Section 5 shall be construed to constitute a
waiver of or operate as an estoppel of the Sublessor's or the Sublessee's right
to enforce any claim or right either of them may have against any third party
in connection with the acquisition, design, structure, erection, assembly,
installation, inspection, testing, start-up, operation and maintenance of the
Premises or any part thereof, or as the quality or the material, equipment or
workmanship in or of the Premises or any part thereof, nor shall anything in
this Section 5 operate to create any rights in any third party. In that
context, the provisions of Section 6(c) of the Master Lease are incorporated
herein by this reference as though Sublessee were the Lessee thereunder and
Sublessor were the Lessor thereunder; subject, however, to the Master Landlord
making available to Sublessor the warranties and other rights described
therein.
5.4 Sublessee shall indemnify, defend and hold Sublessor harmless
from and against any and all claims, demands, liability, loss, cost or expense
of every kind whatsoever (including reasonable attorneys' fees), arising out of
or in any way connected with (i) Sublessee's use or occupancy of the Premises
or facilities; (ii) the physical condition thereof, including any latent or
patent defects; (iii) the business conducted thereon during the term of this
Sublease; and (iv) the obligations of Sublessor under the Master Lease assumed
by Sublessee hereunder; excluding, however, such claims, demands, liability,
loss, cost or expense as (i) may be recoverable by Sublessee pursuant to the
Purchase Agreement, (ii) are attributable to the breach by Sublessor of its
obligations hereunder or (iii) may result from any act or omission of Sublessor
(other than with respect to an obligation expressly assumed by Sublessee
herein). Upon the assertion of any claim or demand covered by the foregoing
indemnity, Sublessee shall undertake the defense thereof and discharge any
judgment, order or compromise settlement rendered against or suffered by
Sublessor and shall pay all costs, interest and attorneys' fees connected
therewith.
5.5 Nothing contained in this Section 5 shall preclude or limit a
claim by Sublessee against Master Landlord which is not otherwise barred by the
Master Lease; provided, however, that if Sublessee asserts any such claim, and
Sublessor shall cooperate with Sublessee in enabling Sublessee to assert any
such claim, Sublessee shall indemnify Sublessor to the extent and pursuant to
the provisions of Paragraph 5.4 above against any cross-claims asserted by the
Master Landlord thereunder which would not have been assertable by the Master
Landlord had Sublessee not brought such claim.
6 of 13
<PAGE> 55
6. COVENANT OF QUIET ENJOYMENT.
Sublessor warrants, covenants and agrees that, unless an Event
of Default shall have occurred and be continuing, Sublessee's peaceable
possession, use and enjoyment of the Premises in accordance with this Sublease
shall not be interfered with, interrupted or disturbed by Sublessor or any
other Person claiming by or through Sublessor or acting at the direction of
Sublessor.
7. INSURANCE.
Sublessee understands that it is obligated to provide the
insurance coverage described in Section 10 and other related Sections of the
Master Lease (Exhibits A-1 and A-2). Copies of certificates of insurance and
certificates of the Responsible Officer of Sublessee which are required
pursuant to said Section 10 shall be provided to the Master Landlord and
Sublessor within the time frames set forth in said Section 10. Should
Sublessee elect to self-insure some portion of its insurance obligation, it
shall provide the Master Landlord and Sublessor with evidence of its net worth
as required by Section 10(c) of the Master Lease
8. EVENT OF LOSS.
In the event of a Casualty or Condemnation, Sublessee shall
have the rights and obligations of the Lessee under Section 9 and related
Sections of the Master Lease (Exhibits A-1 and A-2). In either such event
Sublessee shall be responsible to repair and restore the Premises or pay the
Casualty Value thereof as required by the Master Lease, in either instance
receiving the benefit of any Casualty or Condemnation proceeds to the extent
provided in the Master Lease without Sublessor claiming an interest in such
proceeds.
9. OFF-SITE IMPROVEMENTS.
Sublessee acknowledges that Smith's is a party to that certain
Owner Participation Agreement dated March 23, 1993 with the Redevelopment
Agency of the City of Riverside, is a party to that certain Funding and
Acquisition Agreement dated April 27, 1993 with the City of Riverside and is a
party to various other related agreements, all of which concern the
construction and financing of certain off-site improvements associated with the
Premises (collectively, the "Off-Site Agreements"). The costs incurred to date
by Sublessor under the Off-Site Agreements have been included in the
Sale/Leaseback transaction described in Paragraph C on the first page hereof or
are included in the Purchase Price set forth in Section 2.6 of the Purchase
Agreement. Sublessee shall be responsible for all of the obligations to be
performed by Sublessor under the Off-Site Agreements from and after the
Commencement Date, including, without limitation, promptly paying to third
parties or, if such Agreements are not assigned to Sublessor pursuant to the
Purchase Agreement, reimbursing Sublessor, as the case may be, for any and all
additional sums required to be
7 of 13
<PAGE> 56
paid by Sublessor or Sublessee under the Off-Site Agreements. Sublessee shall
be entitled to all of the benefits of the Offsite Agreements from and after the
Commencement Date, including, without limitation, the right to retain those
sums reimbursed by the City of Riverside or the Riverside Redevelopment Agency
or others on account of all payments made by Sublessor or Sublessee under the
Off-Site Agreements. Sublessee recognizes that Sublessee will incur an
increase in the taxes and assessments levied against the Premises as a result
of such reimbursement. Sublessee further acknowledges that Sublessor has
posted certain letters of credit to guarantee the performance of certain
off-site construction. Sublessee agrees to immediately reimburse Sublessor for
(i) the reasonable costs of obtaining and maintaining such letters of credit,
including all such costs incurred by Sublessor prior to the Commencement Date
to the extent such costs are not included in the Sale/Leaseback transaction
described in Paragraph C on the first page hereof or in the Purchase Price set
forth in Section 2.6 of the Purchase Agreement; and (ii) any sums paid out
under said letters of credit subsequent to the Commencement Date as a result of
the breach by Sublessee of its obligations set forth in this Section 9.
Sublessee may elect to substitute its own letters of credit for those posted by
Sublessor provided the City of Riverside and the Riverside Redevelopment Agency
will accept such substitution.
10. NOTICES.
A. Any notice or demand from or by either party hereto to the
other party shall be in writing and signed by or on behalf of the party giving
notice or making the demand. It shall be served by fax and by registered or
certified mail or by air courier service. Service shall be conclusively deemed
made upon proof of receipt through an air courier service or upon seventy-two
(72) hours after the deposit of the notice or demand in the United States Mail,
postage prepaid, with return receipt requested, addressed to the party to whom
such notice or demand is to be given. The addresses of the parties on the date
of this Sublease are as follows:
Sublessor Address: Smith's Food & Drug Centers, Inc.
1550 South Redwood Road
Salt Lake City, Utah 84104
Attention: General Counsel
Sublessee Address: Ralphs Grocery Company
1100 West Artesia Boulevard
Compton, California 90220
Attention: General Counsel
Ralphs Grocery Company
1100 West Artesia Boulevard
Compton, California 90220
Attention: Director of Real Estate
8 of 13
<PAGE> 57
Addresses for receiving notices or demands may be changed for the purpose of
this paragraph by the party requesting such change notifying the other by a
method herein provided.
B. Upon receiving on official or material notice from a third
party concerning the Premises or the Master Lease, the party receiving the same
shall immediately give a complete copy thereof to the other party.
11. DEFAULT.
11.1 Notwithstanding anything to the contrary contained in the
Master Lease, if Sublessee fails to remedy any default of any term, covenant,
condition or provision of this Sublease or the Master Lease within the later to
occur of (i) five (5) days or (ii) five (5) days less than the cure period
provided for such default in the Master Lease, in each case after service of
notice of default, Sublessee shall be deemed to be in breach of this Sublease;
and Sublessor, without further notice of any kind, may, at its option, exercise
the following remedies in addition to all other remedies provided by this
Sublease or to the Master Landlord pursuant to the Master Lease (exclusive,
however of the debt repayment obligations set forth in clauses (ii), (v) and
(vi) of Section 16(a) of the Master Lease):
A. Terminate Sublessee's right to possession of the
Premises because of such breach and recover from Sublessee all damages
allowed under applicable law, including, without limitation, the worth
at the time of the award of the amount by which the unpaid rent for
the balance of the term after the time of award exceeds the amount of
such rental loss for the same period that Sublessee proves could
reasonably be avoided; or
B. Not terminate Sublessee's right to possession
because of such breach, but continue this Sublease, including the
right to recover the rental and all other charges as the same become
due hereunder; or
C. Not terminate this Sublease, but remove Sublessee
from possession of the Premises, and sublet the Premises in
Sublessor's name, but for the account of Sublessee, applying all rents
received from such subletting first, to the cost of dispossessing
Sublessee and obtaining a new subtenant (including the costs of making
the Premises ready for occupancy by such new subtenant), and second,
to the obligations of Sublessee under this Sublease (with Sublessor
being entitled to hold any surplus amounts received to apply toward
future damages incurred by Sublessor due to the default of Sublessee).
11.2 Any sum accruing to Sublessor under the terms and provisions of
this Sublease which shall not be paid when due shall bear interest at the rate
of ten percent (10%) per annum from the date the same becomes due and payable
by the terms and provisions hereof, or the highest rate permitted by law,
whichever is less, until paid (unless otherwise specifically provided in this
Sublease).
9 of 13
<PAGE> 58
11.3 Sublessee hereby waives all claims or demands for damages that
may be caused by Sublessor in re-entering and retaking possession of the
Premises after default by Sublessee.
11.4 Nothing contained in this Sublease shall limit Sublessor to
the remedies hereinabove set forth and upon Sublessee's default, Sublessor
shall be entitled to exercise any right or remedy then provided by applicable
state law.
11.5 The waiver by Sublessor of any default in the performance by
Sublessee of any covenant contained herein shall not be construed to be a
waiver of any preceding or subsequent default of the same or any other
covenants contained herein. The subsequent acceptance of rent or other sums
hereunder by Sublessor shall not be deemed a waiver of any preceding default
other than the failure of Sublessee to pay the particular rental or other sums
or portion thereof so accepted, regardless of Sublessor's knowledge of such
preceding default at the time of acceptance of such rent or other sum.
11.6 In the event of any default in performance of any material
obligation by Sublessor hereunder, or in the event any specific representation
or warranty by Sublessor which is set forth herein or in the Purchase Agreement
shall be untrue and such untruth (i) is noticed to Sublessor within any
applicable limitation period set forth in the Purchase Agreement and (ii)
interferes with Sublessee's use and enjoyment of the Premises, and if Sublessor
fails to cure such default or untruth within thirty (30) days after its receipt
of written notice from Sublessee, Sublessee may upon ten (10) days additional
notice to Sublessor terminate this Sublease or may exercise any other remedy at
law or in equity.
12. INSOLVENCY.
12.1 The filing of any petition by or against Sublessee under any
state or federal bankruptcy act or insolvency statute, or any successor statute
thereto, or the adjudication of Sublessee as a bankrupt or insolvent, or the
appointment of a receiver or trustee to take possession of all or substantially
all of the assets of Sublessee, or a general assignment by Sublessee for the
benefit of creditors, or any other action taken or suffered by Sublessee under
any state or federal insolvency or bankruptcy act, shall, at Sublessor's
option, constitute a breach of this Sublease by Sublessee, regardless of
Sublessee's compliance with the other provisions of this Sublease; and
Sublessor, at its option by written notice to Sublessee, may exercise all
rights and remedies provided for in Paragraph 11, including the termination of
this Sublease, effective on service of such notice, without the necessity of
further notice.
12.2 Neither this Sublease, nor any interest herein, nor any estate
created hereby, shall pass by operation of law under any state or federal
insolvency or bankruptcy act to any trustee, receiver, assignee for the benefit
of creditors or any other person whatsoever without the prior written consent
of Sublessor.
10 of 13
<PAGE> 59
12.3 The acceptance of rent at any time and from time to time by
Sublessor from Sublessee as debtor in possession or from the transferee of the
type mentioned in Paragraph 12.2, shall not preclude Sublessor from exercising
its rights under this Section 12 at any time thereafter.
12.4 In the event a bankruptcy court having jurisdiction of any
bankruptcy proceedings involving Sublessee refuses to allow Sublessor the
benefit of the provisions described above, the parties agree that the following
provisions shall be operative due to the size of, and critical nature of, the
sums required to be paid by Sublessor to Master Landlord under the Master
Lease. Sublessee understands that Sublessor is making the rental and other
payments due under the Master Lease and therefore must timely receive the
rental and other payments due from Sublessee hereunder. In the event of a
bankruptcy proceeding involving Sublessee, Sublessee agrees to assume or reject
this Sublease strictly in accordance with the 60 day limit for assumption or
rejection set forth in the United States Bankruptcy Court without seeking or
accepting any extension of said time limits.
13. ATTORNEY'S FEES.
If either party hereto shall file any action or bring any
proceeding against the other party arising out of this Sublease or for the
declaration of any rights hereunder, the prevailing party therein shall be
entitled to have and recover from the other party, all costs and expenses,
including reasonable attorney's fees, incurred by the prevailing party in
connection therewith.
14. USE.
It is understood that the Premises shall be used for those
purposes permitted by Section 5 of the Master Lease (Exhibit A-1) and shall not
be left vacant for more than the number of years permitted by such Section 5.
15. ALTERATIONS REQUIRED BY LAW; MODIFICATIONS.
The provisions of Section 8(c) of the Master Lease (Exhibit
A-l) are hereby incorporated herein by this reference as though Sublessee were
the Lessee thereunder; provided, however, that the provisions of Section 8(f)
thereof shall not be applicable to this Sublease and Sublessee shall not look
to Master Landlord or Sublessor as a source of financing of any such
Modifications. Sublessee shall make the required Modifications thereunder
regardless of whether or not such alterations pertain to the nature,
construction or structure of the building(s) within the Premises or to the use
made thereof by Sublessee. Such Modifications shall be at the sole cost of
Sublessee regardless of whether the work is performed by Sublessor, Master
Landlord or Sublessee. The foregoing includes, without limitation, any
Modifications to the Premises required by the Federal Americans with
Disabilities Act or any other state or local law, regulation or requirement.
11 of 13
<PAGE> 60
16. MASTER LEASE.
16.1 This Sublease is subject and subordinate to the Master Lease,
and except as specifically modified in Paragraphs 1 through 15 above, Sublessee
shall, effective as of the Commencement Date, be bound by and shall perform and
observe all of the terms and conditions to be performed and observed by
Smith's, as Lessee, under the Master Lease subsequent to the Commencement Date
as fully and to the same extent and effect as though Sublessee were the Lessee
thereunder in the place and stead of Smith's. Any event resulting in
termination of the Master Lease by its terms or otherwise shall also result in
termination of this Sublease; provided, however that if Sublessor has the right
to terminate the Master Lease pursuant to any specific Section thereof, (i)
Sublessor shall not do so without the prior written consent of Sublessee, which
such consent may be granted or withheld in the sole discretion of Sublessee;
and (ii) Sublessee shall have the same right to terminate this Sublease by
providing to Sublessor notice of Sublessee's election to terminate this
Sublease not less than ten (10) days prior to the time Sublessor must provide
its notice of election to Master Landlord.
16.2 Nothing contained in this Sublease shall be deemed to impose on
Sublessor any of the responsibilities of the Master Landlord under the Master
Lease. If the Master Landlord fails to perform any of its obligations under
the Master Lease, Smith's agrees to cooperate with Sublessee in enforcing any
rights of the tenant under the Master Lease. Each party agrees to give the
other party written notice of any default under the Master Lease of which it is
aware.
16.3 Sublessee agrees to return the Premises on the termination date
to the Master Landlord in the condition required by the terms of the Master
Lease; provided, however, that any condition required to be satisfied under or
with respect to the Environmental Report referred to in the Master Lease
attributable to the periods of ownership or occupancy of the Premises by
Sublessor shall be at the sole cost and expense of Sublessor.
17. GOVERNING LAW.
This Sublease shall be governed by the laws of the state in
which the Premises are located.
18. SEVERABILITY.
If any of the provisions of this Sublease or the application
thereof to any person or circumstances shall to any extent be invalid or
unenforceable, the remainder of this Sublease, or the application of such
provision to persons or circumstances other than those to which it is invalid
or unenforceable, shall not be affected thereby, and each provision of this
Sublease shall be valid and be enforced to the fullest extent permitted by law.
12 of 13
<PAGE> 61
19. ENTIRE AGREEMENT.
This Sublease and its exhibits, together with the Purchase
Agreement, constitute the entire agreement between the parties and all prior
discussions, negotiation, conversations and understandings are merged herein
and are extinguished.
20. AMENDMENTS.
This Sublease may not be modified or amended except by an
instrument in writing, executed by the party to be charged thereby.
21. SUCCESSORS.
The covenants and conditions herein contained shall apply to
and bind the parties hereto and, subject to Section 3 above, their respective
successors and assigns.
22. COUNTERPARTS.
This Sublease may be executed in any number of counterparts,
each of which shall be a valid and binding original, but all of which, taken
together, shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto executed the foregoing
Sublease the day and year first above written.
"SUBLESSOR"
SMITH'S FOOD & DRUG CENTERS, INC.,
a Delaware corporation
By: __________________________________
Its: _________________________________
"SUBLESSEE"
RALPHS GROCERY COMPANY,
a Delaware Corporation
By: __________________________________
Its: _________________________________
13 of 13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-28-1996
<PERIOD-START> JAN-30-1995
<PERIOD-END> OCT-08-1995
<CASH> 64,792
<SECURITIES> 0
<RECEIVABLES> 77,899
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<CURRENT-ASSETS> 668,870
<PP&E> 1,378,834
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<TOTAL-ASSETS> 3,107,009
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<BONDS> 1,914,575
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0
0
<OTHER-SE> 164,787
<TOTAL-LIABILITY-AND-EQUITY> 3,107,009
<SALES> 2,688,035
<TOTAL-REVENUES> 2,688,035
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<OTHER-EXPENSES> 560,125
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<INCOME-PRETAX> (154,596)
<INCOME-TAX> 500
<INCOME-CONTINUING> (155,096)
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<EXTRAORDINARY> (23,128)
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<NET-INCOME> (178,224)
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<EPS-DILUTED> (120.62)
<FN>
Other-expenses include 63,587 restructuring charge.
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