<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 27, 1995
REGISTRATION NO. 33-86356
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST-EFFECTIVE
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FOOD 4 LESS HOLDINGS, INC.
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
CALIFORNIA 5411 95-4407768
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
777 SOUTH HARBOR BOULEVARD
LA HABRA, CALIFORNIA 90631
(714) 738-2000
FOOD 4 LESS HOLDINGS, INC.
(EXACT NAME OF CO-REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 5411 33-0642810
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
777 SOUTH HARBOR BOULEVARD
LA HABRA, CALIFORNIA 90631
(714) 738-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
------------------------
MARK A. RESNIK, ESQ.
VICE PRESIDENT AND SECRETARY
FOOD 4 LESS HOLDINGS, INC.
777 SOUTH HARBOR BOULEVARD
LA HABRA, CALIFORNIA 90631
(714) 738-2000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
THOMAS C. SADLER, ESQ.
PAMELA B. KELLY, ESQ.
LATHAM & WATKINS
633 WEST FIFTH STREET
LOS ANGELES, CALIFORNIA 90071
(213) 485-1234
WILLIAM M. HARTNETT, ESQ.
CAHILL GORDON & REINDEL
80 PINE STREET
NEW YORK, NEW YORK 10005
(212) 701-3000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. /X/
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- --------------------------------------------------------------------------------
<PAGE> 2
FOOD 4 LESS HOLDINGS, INC.
CROSS-REFERENCE SHEET
PURSUANT TO RULE 404(A) AND ITEM 501(B) OF REGULATION S-K
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ITEM NO. FORM S-4 CAPTION OFFER TO PURCHASE CAPTION
- -------- ----------------------------------------- -----------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus............................... Facing Page; Cross Reference Sheet;
Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front Cover Page; Outside Back
Cover Page
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information............ Summary; Risk Factors; Business; Selected
Historical Financial Data of Ralphs;
Selected Historical Financial Data of
Holdings
4. Terms of the Transaction................. The Offer to Purchase and Solicitation;
The Merger and the Financing; Certain
Federal Income Tax Considerations; The
Proposed Amendments
5. Pro Forma Financial Information.......... Unaudited Pro Forma Combined Financial
Statements
6. Material Contracts with the Company Being
Acquired................................. *
7. Additional Information Required for
Reoffering by Person and Parties Deemed
to Be Underwriters....................... *
8. Interests of Named Experts and Counsel... Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. *
10. Information with Respect to S-3
Registrants.............................. *
11. Incorporation of Certain Information by
Reference................................ *
12. Information with Respect to S-2 or S-3
Registrants.............................. *
</TABLE>
<TABLE>
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13. Incorporation of Certain Information by
Reference................................ *
14. Information with Respect to Registrants
Other than S-3 or S-2 Registrants........ Inside Front Cover Page; Summary; Pro
Forma Capitalization; Selected Historical
Financial Data of Ralphs; Selected
Historical Financial Data of Holdings;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Consolidated
Financial Statements of Ralphs;
Consolidated Financial Statements of
Holdings
15. Information with Respect to S-3
Companies................................ *
16. Information with Respect to S-2 or S-3
Companies................................ *
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
ITEM NO. FORM S-4 CAPTION OFFER TO PURCHASE CAPTION
- -------- ----------------------------------------- -----------------------------------------
<S> <C> <C>
17. Information with Respect to Companies
Other than S-2 or S-3 Companies.......... *
18. Information If Proxies, Consents or
Authorizations Are to Be Solicited....... The Offer to Purchase and Solicitation;
Management; Executive Compensation;
Principal Stockholders; Certain
Relationships and Related Transactions
19. Information If Proxies, Consents or
Authorizations Are not to Be Solicited,
or in an Exchange Offer.................. *
</TABLE>
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* Inapplicable
<PAGE> 4
OFFER TO PURCHASE AND SOLICITATION STATEMENT
FOOD 4 LESS HOLDINGS, INC.
[LOGO] OFFER TO PURCHASE FOR CASH AND [LOGO]
SOLICITATION OF CONSENTS
WITH RESPECT TO ITS
15.25% SENIOR DISCOUNT NOTES DUE 2004
------------------------------
Food 4 Less Holdings, Inc. ("Holdings") hereby amends and restates its
Prospectus and Solicitation Statement dated January 25, 1995 (the "Old
Prospectus") and hereby offers (the "Offer to Purchase") to holders of its
15.25% Senior Discount Notes due 2004 (the "Discount Notes") to purchase for
$785.00 in cash, plus accrued cash interest thereon at a rate of 15.25% per
annum from and after March 15, 1995 until the Closing Date (as defined) (the
"Cash Consideration") for every $1,000 principal amount (at maturity) of
Discount Notes (which, as of May 1, 1995 had an accreted value of $680.26 per
$1,000) accepted for purchase. The Offer to Purchase is subject to the terms and
conditions set forth in this Offer to Purchase and Solicitation Statement and in
the accompanying Consent and Letter of Transmittal (the "Letter of
Transmittal").
Concurrently with the Offer to Purchase, Holdings is soliciting (the
"Solicitation") consents ("Consents") from holders of the Discount Notes (the
"Discount Noteholders") representing not less than a majority in aggregate
principal amount of the outstanding Discount Notes held by persons other than
Holdings and its affiliates (the "Requisite Consents") to certain amendments
described herein (the "Proposed Amendments") to the indenture under which the
Discount Notes were issued (the "Discount Note Indenture"). As of May 1, 1995,
there was $103.6 million aggregate principal amount (at maturity) of the
Discount Notes issued and outstanding, with an aggregate Accreted Value (as
defined) of $70.5 million. HOLDERS OF DISCOUNT NOTES WHO DESIRE TO ACCEPT THE
OFFER TO PURCHASE MUST CONSENT TO THE PROPOSED AMENDMENTS. The Proposed
Amendments will only become operative upon consummation of the Offer to
Purchase. The primary purpose of the Proposed Amendments is to permit the Merger
(as defined) and to eliminate substantially all of the restrictive covenants in
the Discount Note Indenture. The Discount Notes, as so amended upon
effectiveness of the Proposed Amendments, are referred to herein as the "Amended
Discount Notes."
The Offer to Purchase and the Solicitation are part of the financing
required to consummate the proposed merger (the "RSI Merger") of Holdings'
subsidiary Food 4 Less Supermarkets, Inc. ("Food 4 Less") with and into Ralphs
Supermarkets, Inc. ("RSI"). Immediately following the RSI Merger, Ralphs Grocery
Company ("RGC"), a wholly-owned subsidiary of RSI, will merge with and into RSI
(the "RGC Merger," and together with the RSI Merger, the "Merger") and RSI will
change its name to Ralphs Grocery Company ("Ralphs Grocery Company" or the
"Company"). Prior to the Merger, Holdings' parent corporation, Food 4 Less, Inc.
("FFL") will merge with and into Holdings, which will be the surviving
corporation (the "FFL Merger"). Immediately following the FFL Merger, Holdings
will change its jurisdiction of incorporation by merging into a newly-formed,
wholly-owned subsidiary ("New Holdings"), incorporated in Delaware (the
"Reincorporation Merger"). As a result of the Merger, the FFL Merger and the
Reincorporation Merger, the Company will become a wholly-owned subsidiary of New
Holdings and any Discount Notes not accepted for purchase pursuant to the Offer
to Purchase will become the obligation of New Holdings.
THE OFFER TO PURCHASE AND THE SOLICITATION WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON MAY 30, 1995, UNLESS EXTENDED (THE "EXPIRATION DATE").
CONSENTS MAY BE REVOKED AND TENDERS MAY BE WITHDRAWN AT ANY TIME UNTIL SUCH TIME
AS THE REQUISITE CONSENTS HAVE BEEN RECEIVED AND THE SUPPLEMENTAL INDENTURE (AS
DEFINED) WITH RESPECT TO THE DISCOUNT NOTES HAS BEEN EXECUTED.
------------------------------
SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED IN
EVALUATING THE OFFER TO PURCHASE AND THE SOLICITATION.
------------------------------
The Dealer Managers for the Offer to Purchase and the Solicitation are:
BT SECURITIES CORPORATION
CS FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
-------------------------------
The date of this Offer to Purchase and Solicitation Statement is May 2, 1995
<PAGE> 5
(cover page continued)
Holdings and Food 4 Less have revised certain terms and conditions of
certain elements of the financing required for the Merger since the date of the
Old Prospectus. As set forth in more detail in this Offer to Purchase and
Solicitation Statement, Holdings and Food 4 Less have:
(i) amended the Consent Solicitation with respect to the Discount
Notes made pursuant to the Old Prospectus to provide for the commencement
of the Offer to Purchase and the Solicitation of Requisite Consents to
eliminate substantially all of the restrictive covenants in the Discount
Note Indenture;
(ii) amended the terms of the offers to the holders of Old RGC Notes
(as defined) to (A) increase the exchange payment from $10.00 to $20.00 for
each $1,000 principal amount of Old RGC Notes accepted in exchange for New
RGC Notes (as defined), (B) change the consideration offered by providing
holders of Old RGC Notes the option to tender all or any part of such Old
RGC Notes for $1,010.00 in cash for each $1,000 principal amount of Old RGC
Notes accepted for purchase, (C) revise the formula for establishing the
interest rate on the New RGC Notes as set forth herein under "The RGC
Offers, the F4L Exchange Offers and the Public Offerings" and (D) amend
certain conditions of the RGC Offers (as defined) to decrease the amount of
Old RGC Notes required to be tendered for exchange from 80% to a majority
in principal amount of the Old RGC Notes;
(iii) amended the Merger Agreement (as defined) with respect to the
RSI Merger to (A) decrease the cash consideration to be paid to the
stockholders of RSI from $425 million to $375 million, (B) increase the
amount of 13 5/8% Senior Subordinated Pay-In-Kind Debentures due 2007 (the
"Seller Debentures") to be issued as part of the consideration to be paid
to the stockholders of RSI from $100 million principal amount to $131.5
million principal amount, (C) increase the interest rate on the Seller
Debentures from 13% per annum to 13 5/8% per annum and (D) provide for the
issuance of $18.5 million in initial accreted value of 13 5/8% Senior
Discount Debentures due 2005 (the "New Discount Debentures") of New
Holdings as consideration to the stockholders of RSI;
(iv) increased the size of Food 4 Less' public debt offering for cash
proceeds from an offering of $400 million principal amount of New F4L
Senior Notes (as defined) to a total offering of $495 million principal
amount of debt securities consisting of $295 million principal amount of
New F4L Senior Notes and $200 million principal amount of New RGC Notes;
(v) amended the terms of the New Equity Investment (as defined) to
decrease the aggregate investment from $150 million to $140 million and to
provide that the liquidation preference and conversion ratio of the
convertible preferred stock issued pursuant to the New Equity Investment
will accrete at the rate of 7% per annum, compounded quarterly (and subject
to increase upon certain events), until the later of the fifth anniversary
of the issue date or the date the Company satisfies certain performance
criteria; and
(vi) committed to effect a placement (the "New Discount Debenture
Placement") of up to $100 million in initial accreted value of New Discount
Debentures, which includes the $18.5 million of New Discount Debentures to
be issued to the RSI stockholders, $22.5 million of New Discount Debentures
to be issued in satisfaction of fees otherwise payable by the Company and
New Holdings in connection with the Merger and the Financing and $59
million of New Discount Debentures to be issued for cash.
In addition, since the date of the Old Prospectus, Holdings has filed with the
Securities and Exchange Commission (the "Commission") its quarterly report on
Form 10-Q for the 28 weeks ended January 7, 1995 and RGC has filed with the
Commission its annual report on Form 10-K for the 52 weeks ended January 29,
1995.
This Offer to Purchase and Solicitation Statement sets forth the terms and
conditions of the Offer to Purchase, the Solicitation and the other financing
transactions described above as well as updated quarterly financial information
of Holdings, updated year-end financial information of RGC and updated pro forma
combined financial information.
ii
<PAGE> 6
(cover page continued)
If Holdings shall decide to decrease the amount of Discount Notes being
sought in the Offer to Purchase or to increase or decrease the consideration
offered to holders of Discount Notes, and if, at the time that notice of such
increase or decrease is first published, sent or given to holders of Discount
Notes in the manner specified in this Offer to Purchase and Solicitation
Statement, the Offer to Purchase is scheduled to expire at any time earlier than
the expiration of a period ending on the tenth Business Day from and including
the date that such notice is first so published, sent or given, then the Offer
to Purchase will be extended for such purposes until the expiration of such
period of ten Business Days. As used in this Offer to Purchase and Solicitation
Statement, "Business Day" has the meaning set forth in Rule 14d-1 (and
applicable to Regulation 14E) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
Concurrently with the Offer to Purchase and the Solicitation, Food 4 Less
is (i)(A) offering to holders of its 10.45% Senior Notes due 2000 (the "Old F4L
Senior Notes") to exchange such Old F4L Senior Notes for new Senior Notes due
2004 (the "New F4L Senior Notes") plus $5.00 in cash for each $1,000 principal
amount of Old F4L Senior Notes exchanged and to holders of its 13.75% Senior
Subordinated Notes due 2001 (the "Old F4L Senior Subordinated Notes," and
together with the Old F4L Senior Notes, the "Old F4L Notes") to exchange such
Old F4L Senior Subordinated Notes for new 13.75% Senior Subordinated Notes due
2005 (the "New F4L Senior Subordinated Notes") plus $20.00 in cash for each
$1,000 principal amount of Old F4L Senior Subordinated Notes exchanged and (B)
soliciting consents from holders of the Old F4L Notes to certain amendments to
the indentures (collectively, the "Old F4L Indentures") under which the Old F4L
Notes were issued (such transactions being referred to herein collectively as
the "F4L Exchange Offers"), and (ii)(A) offering to holders of the 9% Senior
Subordinated Notes due 2003 of RGC (the "Old RGC 9% Notes") and to holders of
the 10 1/4% Senior Subordinated Notes due 2002 of RGC (the "Old RGC 10 1/4%
Notes," and together with the Old RGC 9% Notes, the "Old RGC Notes") (1) to
exchange such Old RGC Notes for new Senior Subordinated Notes due 2005 (the "New
RGC Notes") plus $20.00 in cash for each $1,000 principal amount of Old RGC
Notes exchanged and (2) to purchase any or all of such holders' Old RGC Notes
for $1,010.00 in cash per $1,000 principal amount accepted for purchase, plus
accrued and unpaid interest thereon and (B) soliciting consents from holders of
the Old RGC Notes to certain amendments to the indentures (collectively, the
"Old RGC Indentures") under which the Old RGC Notes were issued (such
transactions being referred to herein collectively as the "RGC Offers"). See
"The Merger and the Financing" and "The RGC Offers, the F4L Exchange Offers and
the Public Offerings." The New F4L Senior Notes and any Old F4L Senior Notes not
exchanged in the F4L Exchange Offers are collectively referred to herein as the
"F4L Senior Notes." The New F4L Senior Subordinated Notes and any Old F4L Senior
Subordinated Notes not exchanged in the F4L Exchange Offers are collectively
referred to herein as the "F4L Senior Subordinated Notes." The New RGC Notes and
any Old RGC Notes not exchanged or purchased in the RGC Offers are collectively
referred to herein as the "RGC Senior Subordinated Notes." See "The Merger and
the Financing."
In addition to the Offer to Purchase, the Solicitation, the RGC Offers and
the F4L Exchange Offers, Food 4 Less is offering up to $295 million principal
amount of additional New F4L Senior Notes (which will be part of the same issue
as the New F4L Senior Notes offered pursuant to the F4L Exchange Offers)
pursuant to a public offering (the "Senior Note Public Offering") and is
offering up to $200 million principal amount of additional New RGC Notes (which
will be part of the same issue as the New RGC Notes offered pursuant to the RGC
Offers) pursuant to a public offering (the "Subordinated Note Public Offering,"
and together with the Senior Note Public Offering, the "Public Offerings"), each
registered under the Securities Act of 1933, as amended (the "Securities Act").
The Public Offerings are expected to price ten business days preceding the final
Expiration Date of the RGC Offers and the F4L Exchange Offers. See "The RGC
Offers, the F4L Exchange Offers and the Public Offerings." The RGC Offers, the
F4L Exchange Offers, the Public Offerings and the New Discount Debenture
Placement are sometimes hereinafter referred to as the "Other Debt Financing
Transactions."
Concurrently with the consummation of the Offer to Purchase, the
Solicitation and the Other Debt Financing Transactions, Food 4 Less and RGC
intend to obtain new senior financing (the "Bank Financing") pursuant to a
senior bank facility of up to $1,075 million (the "New Credit Facility") and to
obtain
iii
<PAGE> 7
(cover page continued)
$140 million in cash equity financing (the "New Equity Investment"). In
addition, New Holdings will issue as part of the consideration for the RSI
Merger $131.5 million aggregate principal amount of the Seller Debentures and
will issue $100 million in initial accreted value of New Discount Debentures
pursuant to the New Discount Debenture Placement. See "The Merger and the
Financing."
Standard & Poor's Ratings Group ("Standard & Poor's") has publicly
announced that, upon consummation of the Merger, it intends to assign a new
rating to the Old RGC Notes. Such new rating assignment, if implemented, would
constitute a Rating Decline (as defined) under the Old RGC Indentures. The
consummation of the Merger (which is conditioned on, among other things,
successful consummation of the Offer to Purchase, the Other Debt Financing
Transactions, the New Equity Investment, and the Bank Financing) and the
resulting change in composition of the Board of Directors of RGC, together with
the anticipated Rating Decline would constitute a Change of Control Triggering
Event (as defined) under the Old RGC Indentures. Although Food 4 Less does not
anticipate that there will be a significant amount of Old RGC Notes outstanding
following consummation of the RGC Offers, upon such a Change of Control
Triggering Event the Company would be obligated to make a change of control
purchase offer following the consummation of the Merger for all outstanding Old
RGC Notes at 101% of the principal amount thereof plus accrued and unpaid
interest to the date of purchase (the "Change of Control Offer"). The Merger
will not constitute a change of control under the Discount Note Indenture or the
Old F4L Indentures and no change of control purchase offer will be made with
respect to the Discount Notes or the Old F4L Notes.
Notwithstanding any other provision of the Offer to Purchase or the
Solicitation, the obligation of Holdings to accept for purchase any validly
tendered Discount Note is conditioned upon, among other things, the satisfaction
or waiver of certain conditions, including (i) the receipt of the Requisite
Consents with respect to the Discount Notes on or prior to the Expiration Date,
(ii) the satisfaction or waiver, in Holdings' sole discretion, of all conditions
precedent to the Merger, (iii) the prior or contemporaneous successful
completion of the Other Debt Financing Transactions and (iv) the prior or
contemporaneous consummation of the Bank Financing and the New Equity
Investment. There can be no assurance that such conditions will be satisfied or
waived. For additional information regarding other conditions to the
consummation of the Offer to Purchase and the Solicitation, see "The Offer to
Purchase and Solicitation -- Conditions."
Although it has no obligation to do so, New Holdings reserves the right in
the future to seek to acquire Discount Notes not tendered in the Offer to
Purchase by means of open market purchases, privately negotiated acquisitions,
subsequent exchanges or tender offers, redemptions or otherwise, at prices or on
terms which may be higher or lower or more or less favorable than those in the
Offer to Purchase.
THE OFFER TO PURCHASE IS NOT BEING MADE TO, AND NO CONSENTS ARE BEING
SOLICITED FROM, HOLDERS OF DISCOUNT NOTES IN ANY JURISDICTION IN WHICH
THE OFFER TO PURCHASE OR THE SOLICITATION WOULD NOT BE IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
iv
<PAGE> 8
(cover page continued)
HOLDINGS IS TERMINATING THE CONSENT SOLICITATION DESCRIBED IN THE OLD
PROSPECTUS. HOLDERS OF DISCOUNT NOTES THAT TENDERED CONSENTS IN CONNECTION WITH
SUCH CONSENT SOLICITATION MUST COMPLY WITH THE PROCEDURES SET FORTH IN THIS
AMENDED AND RESTATED PROSPECTUS AND SOLICITATION STATEMENT UNDER "THE OFFER TO
PURCHASE AND SOLICITATION -- PROCEDURES FOR TENDERING AND CONSENTING" TO
PARTICIPATE IN THE OFFER TO PURCHASE AND THE SOLICITATION.
Any Holder of Discount Notes desiring to accept the Offer to Purchase
should either (i) complete and sign the Letter of Transmittal or facsimile
thereof, have his signature thereon guaranteed and forward the Letter of
Transmittal with the certificate(s) evidencing his Discount Notes and any other
required documents to the Solicitation Agent (as defined), (ii) comply with the
guaranteed delivery procedures, (iii) tender such Discount Notes pursuant to the
procedure for book entry transfer or (iv) request his broker, dealer, commercial
bank, trust company or other nominee to effect the transaction for him, in each
case on or prior to the Expiration Date. Holders of Discount Notes having
Discount Notes registered in the name of a broker, dealer, commercial bank,
trust company or other nominee must contact such person if they desire to tender
such Discount Notes. HOLDERS OF DISCOUNT NOTES WHO DESIRE TO ACCEPT THE OFFER TO
PURCHASE MUST CONSENT TO THE PROPOSED AMENDMENTS. A HOLDER OF DISCOUNT NOTES WHO
DESIRES TO TENDER INTO THE OFFER TO PURCHASE WITH RESPECT TO ANY DISCOUNT NOTES
MUST TENDER ALL OF SUCH HOLDERS' DISCOUNT NOTES. See "The Offer to Purchase and
Solicitation -- Procedures for Tendering and Consenting."
Questions and requests for assistance or for additional copies of this
Offer to Purchase and Solicitation Statement or the accompanying Letter of
Transmittal or any other required documents may be directed to the Dealer
Managers or the Information Agent at the addresses and telephone numbers set
forth on the back cover hereof.
This Offer to Purchase and Solicitation Statement, together with the
accompanying Letter of Transmittal, is being sent to Holders of the Discount
Notes who are registered holders as of April 28, 1995.
AVAILABLE INFORMATION
Holdings and New Holdings have filed a Registration Statement on Form S-4
(the "Registration Statement") with the Commission under the Securities Act,
with respect to the Amended Discount Notes. Each of Holdings, Food 4 Less and
RGC is subject to the reporting and other informational requirements of the
Exchange Act, and the rules and regulations promulgated thereunder, and in
accordance therewith files reports and other information with the Commission.
Such reports and other information filed by Holdings, Food 4 Less or RGC with
the Commission can be inspected without charge at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, and at the following regional offices of the Commission:
New York Regional Office, 7 World Trade Center, 13th Floor, New York, New York
10048; and Chicago Regional Office, Suite 1400, Northwestern Atrium Center, 500
West Madison Street, Chicago, Illinois 60601. Copies of such materials can be
obtained from the Public Reference Section of the Commission, 450 Fifth Street,
N.W., Washington, D.C. 20549, at prescribed rates.
This Offer to Purchase and Solicitation Statement summarizes the contents
and terms of documents not included herewith. These documents are available upon
request from, as applicable, Holdings and Food 4 Less at 777 South Harbor Blvd.,
La Habra, California 90631, telephone number (714) 738-2000, Attn: Linda
McLoughlin Figel, Investor Relations; RGC at 1100 West Artesia Blvd., Compton,
California 90220, telephone number (310) 884-4000, Attn: Jan Charles Gray Esq.,
Senior Vice President, General Counsel and Secretary; or D.F. King & Co., Inc.,
at the address and telephone number set forth on the back cover hereof. In order
to ensure timely delivery of the documents, any request for such documents
should be made at least five business days prior to the Expiration Date.
v
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
AVAILABLE INFORMATION................................................................. v
SUMMARY............................................................................... 1
RISK FACTORS.......................................................................... 20
THE MERGER AND THE FINANCING.......................................................... 25
PRO FORMA CAPITALIZATION.............................................................. 29
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS..................................... 31
SELECTED HISTORICAL FINANCIAL DATA OF RALPHS.......................................... 39
SELECTED HISTORICAL FINANCIAL DATA OF HOLDINGS........................................ 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 43
BUSINESS.............................................................................. 58
MANAGEMENT............................................................................ 72
EXECUTIVE COMPENSATION................................................................ 74
PRINCIPAL STOCKHOLDERS................................................................ 80
DESCRIPTION OF CAPITAL STOCK.......................................................... 81
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................ 84
THE OFFER TO PURCHASE AND SOLICITATION................................................ 88
MARKET PRICES OF THE DISCOUNT NOTES................................................... 101
THE PROPOSED AMENDMENTS............................................................... 101
THE RGC OFFERS, THE F4L EXCHANGE OFFERS AND THE PUBLIC OFFERINGS...................... 102
DESCRIPTION OF THE NEW CREDIT FACILITY................................................ 109
DESCRIPTION OF OTHER INDEBTEDNESS..................................................... 112
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS............................................. 114
LEGAL MATTERS......................................................................... 115
EXPERTS............................................................................... 115
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
DESCRIPTION OF DISCOUNT NOTES......................................................... A-1
</TABLE>
vi
<PAGE> 10
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the Financial Statements and notes thereto appearing elsewhere in this Offer to
Purchase and Solicitation Statement. Unless the context otherwise requires, (i)
the terms "Food 4 Less" and "Ralphs," as used herein, refer to Food 4 Less and
RSI and their consolidated subsidiaries, respectively, prior to the consummation
of the Merger, (ii) the term "Holdings," as used herein, refers to Holdings and
its consolidated subsidiaries (including Food 4 Less) prior to the consummation
of the Reincorporation Merger, (iii) the term "FFL," as used herein, refers to
FFL and its consolidated subsidiaries prior to the consummation of the FFL
Merger, and (iv) the term "New Holdings," as used herein, refers to New Holdings
(which will be the successor to Holdings following the consummation of the
Reincorporation Merger) and its consolidated subsidiaries. The "Company" refers
to Ralphs Grocery Company as the surviving and renamed subsidiary corporation of
New Holdings following the consummation of the Merger and includes, unless the
context otherwise requires, all of its consolidated subsidiaries. As used
herein, "Southern California" means Los Angeles, Orange, Ventura, San
Bernardino, Riverside and San Diego counties. Except as otherwise stated,
references in this Offer to Purchase and Solicitation Statement to numbers of
stores prior to the consummation of the Merger are as of October 1, 1994.
References to the "pro forma" number of stores to be operated by the Company
following the consummation of the Merger are based on October 1, 1994 totals,
but give effect to certain anticipated store conversions, divestitures and
closings.
Holdings was incorporated in California on December 8, 1992, under the
direction of its parent corporation, Food 4 Less, Inc. Holdings does not have
any business operations of its own and its assets consist solely of all of the
outstanding capital stock of Food 4 Less. Following the Merger, the FFL Merger
and the Reincorporation Merger, New Holdings, as successor by merger to
Holdings, will own all of the outstanding stock of the Company.
THE COMPANY
The combination of Ralphs Grocery Company and Food 4 Less Supermarkets,
Inc. will create the largest food retailer in Southern California. Pro forma for
the Merger, the Company will operate approximately 332 Southern California
stores with an estimated 26% market share among the area's supermarkets. The
Company will operate the second largest conventional supermarket chain in the
region under the "Ralphs" name and the largest warehouse supermarket chain under
the "Food 4 Less" name. In addition, the Company will operate approximately 24
conventional format stores and 39 warehouse format stores in Northern California
and the Midwest. Management believes that by the end of the fourth full year of
combined operations, approximately $90 million in net annual cost savings will
be achieved as a result of the Merger. Pro forma for the Merger, Holdings would
have had sales of approximately $5.1 billion and $2.8 billion, operating income
of approximately $183 million and $90 million and EBITDA (as defined) of
approximately $343 million and $189 million for the 52 weeks ended June 25, 1994
and the 28 weeks ended January 7, 1995, respectively. Management believes the
Merger will enhance the growth and profitability of Ralphs and Food 4 Less by
providing the Company with the following benefits:
- - TWO LEADING COMPLEMENTARY FORMATS. The Company will operate its conventional
supermarkets in Southern California under the "Ralphs" name and all of its
price impact warehouse format stores in Southern California under the "Food 4
Less" name. Pro forma for the Merger and certain planned store conversions,
the Company will operate 264 Ralphs conventional format stores and 68 Food 4
Less warehouse format stores in the region. The Ralphs stores will continue to
emphasize a broad selection of merchandise, high quality fresh produce, meat
and seafood and service departments, including bakery and delicatessen
departments in most stores. The Company's conventional stores will also
benefit from Ralphs' strong private label program and its strengths in
merchandising, store operations and systems. Passing on format-related
efficiencies, the price impact warehouse format stores will continue to offer
consumers the lowest overall prices while providing product selections
comparable to conventional supermarkets. Management believes the Food 4 Less
warehouse format has demonstrated its appeal to a wide range of demographic
groups in Southern California and offers a significant opportunity for future
growth. The
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<PAGE> 11
Company plans to open nine new Food 4 Less warehouse stores and 21 new Ralphs
stores over the next two years.
- - SUBSTANTIAL COST SAVINGS OPPORTUNITIES. Management believes that approximately
$90 million of net annual cost savings (as compared to such costs for the pro
forma combined fiscal year ended June 25, 1994) will be achieved by the end of
the fourth full year of combined operations. It is also anticipated that
approximately $117 million in Merger-related capital expenditures and $50
million of other non-recurring costs will be required to complete store
conversions, integrate operations and expand warehouse facilities over the
same period. Although a portion of the anticipated cost savings is premised
upon the completion of such capital expenditures, management believes that
over 70% of the cost savings could be achieved without making any
Merger-related capital expenditures.
The following anticipated savings are based on estimates and assumptions
made by the Company that are inherently uncertain, though considered reasonable
by the Company, and are subject to significant business, economic and
competitive uncertainties and contingencies, all of which are difficult to
predict and many of which are beyond the control of management. There can be no
assurance that such savings will be achieved. The sum of the components of the
estimated annual cost savings exceeds $90 million; however, management's
estimate of $90 million in net annual cost savings gives effect to an offsetting
adjustment to reflect its expectation that a portion of the savings will be
reinvested in the Company's operations. See "Risk Factors -- Ability to Achieve
Anticipated Cost Savings."
-- REDUCED ADVERTISING EXPENSES. Consolidating the conventional format stores
in Southern California under the "Ralphs" name will eliminate most of the
separate advertising associated with Food 4 Less' existing Alpha Beta, Boys
and Viva formats. Since Ralphs' current advertising program covers the
Southern California region, the Company will be able to advertise for all
of its Southern California stores under the existing Ralphs program.
Management estimates that there will be annual advertising cost savings of
approximately $28 million as compared to such costs for the pro forma
combined fiscal year ended June 25, 1994. Because of reductions in certain
advertising expenses that Food 4 Less has already begun to implement and
certain refinements in the post-Merger advertising plan, actual cost
savings related to advertising expenses are presently expected to be $19
million in the first full year of combined operations following the Merger
as compared to the current annualized costs.
-- REDUCED STORE OPERATIONS EXPENSE. Management expects to reduce store
operations costs as a result of both reduced labor and benefit costs and
reduced non-labor expenses. Store-level labor savings will be achieved when
Ralphs' labor scheduling, computerized record keeping and other advanced
store systems are applied to the Food 4 Less store base. In addition,
management believes that the adoption of Ralphs' store systems in non-labor
areas, such as energy management, safety programs and pooled supply
purchasing, will produce further annual cost savings. Management estimates
that annual store operations cost savings of approximately $21 million will
be achieved by the fourth full year of combined operations after certain
required capital expenditures are made.
-- INCREASED VOLUME PURCHASING EFFICIENCIES. The combined volume requirements
and leading market position of the Company should generally allow the
Company to obtain improved terms from vendors, including suppliers of
products carried on an exclusive or promoted basis, and to convert some
less-than-truckload shipping quantities to full truckload quantities.
Management estimates that annual purchasing cost savings of approximately
$19 million will be achieved by the second full year of combined
operations.
-- WAREHOUSING AND DISTRIBUTION EFFICIENCIES. Consolidating the Company's
warehousing and distribution operations into Ralphs' two primary facilities
located in Compton, California and in the Atwater district of Los Angeles
and Food 4 Less' primary facility located in La Habra, California will
result in lower outside storage, transportation and labor costs. In
addition, occupancy costs will be reduced as a result of the closure of
certain existing facilities. Management estimates that annual warehousing
and distribution cost savings of approximately $16 million will be achieved
by the third full year of combined operations after certain capital
expenditures on existing facilities are completed.
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<PAGE> 12
-- CONSOLIDATED MANUFACTURING. Ralphs and Food 4 Less operate manufacturing
facilities that produce similar products or have excess capacity.
Management believes that consolidating meat, bakery, dairy, and other
manufacturing and processing operations, and discontinuing external
purchases of certain goods that can be manufactured internally, will
achieve annual cost savings of approximately $10 million by the second full
year of combined operations.
-- CONSOLIDATED ADMINISTRATIVE FUNCTIONS. The Company expects to achieve
savings from the elimination of redundant administrative staff, the
consolidation of management information systems and a decreased reliance on
certain outside services and consultants. Management estimates that annual
savings of approximately $15 million associated with consolidating
administrative functions will be achieved by the second full year of
combined operations.
- - TECHNOLOGICALLY ADVANCED WAREHOUSING AND DISTRIBUTION. The Company will
utilize Ralphs' technologically advanced warehousing and distribution
systems, which include a 17 million cubic foot high-rise automated storage
and retrieval system warehouse (the "ASRS") for non-perishable items and a
5.4 million cubic foot perishable service center (the "PSC") designed for
processing, storing and distributing all perishable items. These facilities
will provide the Company with substantial operating benefits, including: (i)
enhanced turnover to further improve the freshness and quality of in-store
products, (ii) added opportunities in forward buying programs and (iii) an
increased percentage of inventory supplied by the Company's own warehousing
and distribution system. Management believes the utilization of these
facilities and Food 4 Less' La Habra warehouse will enable the Company to
meet the combined inventory requirements of all stores with fewer employees
and lower operating and occupancy-related expenses.
- - STORE LOCATIONS. As a result of Ralphs' 122-year history and Alpha Beta
Company's ("Alpha Beta") 91-year history in Southern California, the Company
will have valuable and well established store locations, many of which are in
densely populated metropolitan areas.
- - RECENTLY REMODELED AND NEW STORE BASE. The Company will have a modern,
technologically advanced store base. During the five years ended June 25,
1994, on a combined basis, Ralphs and Food 4 Less opened 74 new stores and
remodeled 211 stores. Approximately 84% of the Company's stores have been
opened or remodeled during the last five years.
- - EXPERIENCED MANAGEMENT TEAM. The executive officers of the Company have
extensive experience in the supermarket industry. The strength of Ralphs
management expertise is evidenced by Ralphs' reputation for quality and
service, technologically advanced systems, strong store operations and high
historical EBITDA margins. The Food 4 Less management team will provide
valuable experience in operating warehouse supermarkets and in effectively
integrating companies into a combined operation. Following the acquisition of
Alpha Beta in 1991, Food 4 Less management successfully integrated Alpha Beta
with its existing Southern California operations and (within three years)
achieved annual cost savings in excess of $40 million (compared to a
pre-acquisition estimate of approximately $33 million).
THE YUCAIPA COMPANIES
Food 4 Less was organized in 1989 by its sponsor, The Yucaipa Companies
("Yucaipa"), a private investment group which specializes in the supermarket
industry. Yucaipa has a successful track record in acquiring, integrating and
improving the cash flow of supermarket companies. Since 1986, Yucaipa and its
affiliated companies have completed eleven acquisition transactions, including
five acquisitions by Food 4 Less and its subsidiaries. Following completion of
the Merger, Yucaipa and its affiliates will control the Board of Directors of
New Holdings and the Company.
THE MERGER AND THE FINANCING
On September 14, 1994, Food 4 Less, Inc. ("FFL"), Food 4 Less Supermarkets,
Inc. ("Food 4 Less") and Food 4 Less Holdings, Inc. ("Holdings"), entered into a
definitive Agreement and Plan of Merger (the
3
<PAGE> 13
"Merger Agreement") with Ralphs Supermarkets, Inc. ("RSI") and its stockholders.
Pursuant to the terms of the Merger Agreement, Food 4 Less will be merged with
and into RSI (the "RSI Merger"). Immediately following the RSI Merger, RGC,
which is currently a wholly-owned subsidiary of RSI, will merge with and into
RSI (the "RGC Merger," and together with the RSI Merger, the "Merger"), and RSI
will change its name to Ralphs Grocery Company ("Ralphs Grocery Company" or the
"Company"). Prior to the Merger, FFL will merge with and into Holdings, which
will be the surviving corporation (the "FFL Merger"). Immediately following the
FFL Merger, Holdings will change its jurisdiction of incorporation by merging
into a newly-formed, wholly-owned subsidiary ("New Holdings"), incorporated in
Delaware (the "Reincorporation Merger"). As a result of the Merger, the FFL
Merger and the Reincorporation Merger, the Company will become a wholly-owned
subsidiary of New Holdings. See "-- Corporate Structure." Conditions to the
consummation of the RSI Merger include the receipt of regulatory approvals and
other necessary consents and the completion of financing. The purchase price for
RSI is approximately $1.5 billion, including the assumption of debt. The
consideration payable to the stockholders of RSI consists of $375 million in
cash, $131.5 million principal amount of the Seller Debentures and $18.5 million
initial accreted value of the New Discount Debentures to be issued by New
Holdings. New Holdings will use $100 million of the cash received from the New
Equity Investment, together with the Seller Debentures and such New Discount
Debentures, to acquire approximately 48% of the capital stock of RSI immediately
prior to consummation of the RSI Merger. New Holdings will then contribute the
$250 million of purchased shares of RSI stock to Food 4 Less, and pursuant to
the RSI Merger the remaining shares of RSI stock will be acquired for $275
million in cash. As a result of the Reincorporation Merger, any Amended Discount
Notes that remain outstanding following the Merger will become the obligations
of New Holdings.
As currently contemplated, the Merger will be financed through the
following transactions (collectively, the "Financing"):
- Borrowings of up to $750 million aggregate principal amount pursuant to
the New Term Loans (as defined) under the New Credit Facility to be
provided by a syndicate of banks led by Bankers Trust Company ("Bankers
Trust"). The New Credit Facility will also provide for a $325 million
revolving credit facility (the "New Revolving Facility"), $12.7 million
of which is anticipated to be drawn at closing.
- The issuance of up to $295 million of New F4L Senior Notes pursuant to
the Senior Note Public Offering.
- The issuance of up to $200 million of New RGC Notes pursuant to the
Subordinated Note Public Offering.
- The issuance of preferred stock in a private placement by New Holdings
to a group of investors (the "New Equity Investors") led by Apollo
Advisors, L.P. (on behalf of one or more managed entities) or its
affiliates and designees ("Apollo") and including affiliates of BT
Securities Corporation ("BT Securities"), CS First Boston Corporation
("CS First Boston") and Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") and other institutional investors, yielding cash
proceeds of $140 million pursuant to the New Equity Investment.
Concurrently with the New Equity Investment, the New Equity Investors
will purchase outstanding shares of New Holdings capital stock from a
stockholder of New Holdings for a purchase price of $57.8 million. See
"Description of Capital Stock -- New Equity Investment."
- The exchange by Food 4 Less pursuant to the F4L Exchange Offers of (a)
up to $175 million aggregate principal amount of the Old F4L Senior
Notes for up to $175 million aggregate principal amount of New F4L
Senior Notes plus $5.00 in cash per $1,000 principal amount exchanged
and (b) up to $145 million aggregate principal amount of the Old F4L
Senior Subordinated Notes for up to $145 million aggregate principal
amount of the New F4L Senior Subordinated Notes plus $20.00 in cash per
$1,000 principal amount exchanged, together with the solicitation of
consents from the holders of the Old F4L Notes to certain amendments to
the Old F4L Indentures. It is a condition to the F4L Exchange Offers
that at least 80% of the outstanding principal amount of the Old F4L
Notes are exchanged pursuant to the F4L Exchange Offers.
4
<PAGE> 14
- The RGC Offers by Food 4 Less to (i) exchange up to $450 million
aggregate principal amount of the Old RGC Notes for up to $450 million
aggregate principal amount of the New RGC Notes plus $20.00 in cash per
$1,000 principal amount of Old RGC Notes exchanged and (ii) purchase Old
RGC Notes for $1,010.00 in cash per $1,000 principal amount of Old RGC
Notes accepted for purchase, together with the solicitation of consents
from the holders of the Old RGC Notes to certain amendments to the Old
RGC Indentures. It is a condition to the RGC Offers that at least a
majority of the outstanding principal amount of the Old RGC Notes are
exchanged for New RGC Notes pursuant to the RGC Offers (the "RGC Minimum
Exchange").
- The purchase by New Holdings of approximately 48% of the outstanding
common stock of RSI for an aggregate consideration of $250 million,
consisting of $100 million of the cash proceeds from the New Equity
Investment, $131.5 million principal amount of the Seller Debentures and
$18.5 million initial accreted value of the New Discount Debentures,
followed by the contribution of such common stock of RSI to Food 4 Less.
Pursuant to the RSI Merger, the remaining shares of RSI stock will be
acquired for $275 million in cash.
- The placement by New Holdings of $100 million initial accreted value of
New Discount Debentures to a partnership including Yucaipa, the selling
stockholders of Ralphs, an affiliate of George Soros, Apollo, and an
affiliate of each of BT Securities, CS First Boston and DLJ. The $100
million initial accreted value of New Discount Debentures includes (a)
$18.5 million that will be issued to the RSI stockholders, (b) $15
million, $5 million and $2.5 million that will be issued to Yucaipa, BT
Securities and Apollo, respectively, in satisfaction of fees otherwise
payable by the Company and New Holdings in connection with the Merger
and the Financing and (c) $59 million that will be issued for cash to
the partnership described above. The $41 million initial accreted value
of New Discount Debentures to be issued to the RSI stockholders, Apollo,
BT Securities and Yucaipa will be contributed to such partnership by the
recipients thereof.
- The assumption by the Company, pursuant to the Merger, of approximately
$166.8 million of other indebtedness of RGC and Food 4 Less.
- The Offer to Purchase and the Solicitation made hereunder to the holders
of the Discount Notes.
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<PAGE> 15
The following table illustrates the sources and uses of funds to consummate
the Merger, assuming the transaction occurs as of May 30, 1995. This
presentation assumes that $225.5 million principal amount of Old RGC Notes is
tendered into the RGC Offers in exchange for New RGC Notes (representing 50.1%
of the outstanding aggregate principal amount of Old RGC Notes), $224.5 million
principal amount of Old RGC Notes is tendered into the RGC Offers for cash
(representing 49.9% of the outstanding aggregate principal amount of Old RGC
Notes), $256 million principal amount of Old F4L Notes is tendered into the F4L
Exchange Offers (representing 80% of the outstanding aggregate principal amount
of Old F4L Notes) and $103.6 million principal amount (at maturity) of Discount
Notes is tendered into the Offer to Purchase (representing 100% of the
outstanding aggregate principal amount (at maturity) of Discount Notes).
Although management believes such assumptions are reasonable under the
circumstances, actual sources and uses may differ from those set forth below
depending upon the outcome of the Offer to Purchase, the F4L Exchange Offers and
the RGC Offers.
For additional information regarding the Financing, see "The Merger and the
Financing."
SOURCES AND USES
(in millions)
<TABLE>
<CAPTION>
CASH SOURCES CASH USES
- --------------------------------------------- ---------------------------------------------
<S> <C> <C> <C>
New Term Loans(a)............... $ 750.0 Purchase RSI Common Stock(j)...... $ 375.9
New Revolving Facility(b)....... 12.7 Purchase Old RGC Notes(k)......... 226.8
New F4L Senior Notes(c)......... 295.0 Purchase Discount Notes........... 83.9
Repay Ralphs 1992 Credit
New RGC Notes(d)................ 200.0 Agreement...................... 255.1
New Equity Investment(e)........ 140.0 Repay F4L Credit Agreement........ 161.5
New Discount Debentures(f)...... 59.0 Pay Accrued Interest(l)........... 29.3
EAR Related Payments(m)........... 22.8
Repay Mortgage Indebtedness(n).... 191.5
Fees and Expenses(o).............. 109.9
--------- ---------
Total Cash Sources........... $ 1,456.7 Total Cash Uses................... $ 1,456.7
========= =========
NON-CASH SOURCES NON-CASH USES
- --------------------------------------------- ---------------------------------------------
New F4L Senior Notes(g)......... $ 140.0 Old F4L Senior Notes Exchanged.... $ 140.0
Assumed Old F4L Senior Notes.... 35.0 Assumed Old F4L Senior Notes...... 35.0
New F4L Senior Subordinated Old F4L Senior Subordinated Notes
Notes........................ 116.0 Exchanged...................... 116.0
Assumed Old F4L Senior Assumed Old F4L Senior
Subordinated Notes........... 29.0 Subordinated Notes............. 29.0
New RGC Notes(h)................ 225.5 Old RGC Notes Exchanged........... 225.5
New Discount Debentures(f)...... 41.0 Fees and Expenses(o).............. 22.5
Assumed Capital Leases and Other Assumed Capital Leases and Other
Debt......................... 166.8 Debt........................... 166.8
Seller Debentures(i)............ 131.5 Purchase RSI Common Stock(i)...... 150.0
--------- ---------
Total Non-Cash Sources....... $ 884.8 Total Non-Cash Uses............... $ 884.8
========= =========
</TABLE>
- ---------------
(a) Food 4 Less has accepted a commitment letter from Bankers Trust pursuant to
which Bankers Trust has agreed, subject to certain conditions, to provide
the Company up to a maximum aggregate amount of $1,075 million of financing
under the New Credit Facility. It is anticipated that the New Credit
Facility will be syndicated to a number of financial institutions for whom
Bankers Trust will act as agent. The New Credit Facility will provide for
(i) term loans in the aggregate amount of up to $750 million, comprised of
a $375 million tranche with a six year term (the "Tranche A Loan"), a $125
million tranche with a seven year term (the "Tranche B Loan"), a $125
million tranche with an eight year term (the "Tranche C Loan"), and a $125
million tranche with a nine year term (the "Tranche D Loan," and, together
with the Tranche A Loan, Tranche B Loan and Tranche C Loan, the "New Term
Loans"); and (ii) a $325 million revolving credit facility (the "New
Revolving Facility"). The New Term Loans and the New Revolving Facility are
referred to collectively as the "New Credit Facility." The Tranche A Loan
may not be fully funded at the Closing Date. The New Credit Facility will
provide that the portion of the Tranche A Loan not funded at the Closing
Date will be available for a period of 91 days following the Closing Date
to fund the Change of Control Offer. See "Description of the New Credit
Facility."
(b) The New Revolving Facility will provide for a $325 million line of credit
which will be available for working capital requirements and general
corporate purposes. Up to $150 million of the New Revolving Facility may be
used to support standby letters of credit. The letters of credit will be
used to cover workers' compensation contingencies and for other purposes
permitted under the New Revolving Facility. The Company anticipates that
letters of credit for
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<PAGE> 16
approximately $92.6 million will be issued under the New Revolving
Facility at closing, in replacement of existing letters of credit,
primarily to satisfy the State of California's requirements relating to
workers compensation self-insurance.
(c) Represents New F4L Senior Notes issued pursuant to the Senior Note Public
Offering. If Food 4 Less receives tenders in excess of the RGC Minimum
Exchange in the RGC Offers, Food 4 Less may elect to decrease the amount of
New F4L Senior Notes being offered pursuant to the Senior Note Public
Offering.
(d) Represents New RGC Notes issued pursuant to the Subordinated Note Public
Offering. If Food 4 Less receives tenders in excess of the RGC Minimum
Exchange in the RGC Offers, Food 4 Less may elect to decrease the amount of
New RGC Notes being offered pursuant to the Subordinated Note Public
Offering. It is not anticipated that the amount of New RGC Notes offered
pursuant to the Subordinated Note Public Offering will be reduced below
$100 million principal amount.
(e) Does not include the $10 million equity contribution by Ralphs management.
See note (m) below. Concurrently with the New Equity Investment, certain
existing stockholders of New Holdings (formerly stockholders of FFL),
including affiliates of George Soros, will sell outstanding shares of New
Holdings stock to CLH Supermarket Corp. ("CLH"), a corporation owned by
certain Yucaipa partners, which in turn will sell such shares to the New
Equity Investors for an aggregate purchase price of $57.8 million (which
represents the same price per share as will be paid in the New Equity
Investment). In connection with the New Equity Investment, the New Equity
Investors will contribute the common stock so acquired to New Holdings in
consideration for newly-issued preferred shares. See "Description of
Capital Stock -- New Equity Investment."
(f) Represents $100 million initial accreted value of New Discount Debentures,
$59 million of which will be issued for cash, $18.5 million of which will
be issued to the RSI stockholders as Merger consideration and $15 million,
$5 million and $2.5 million of which will be issued to Yucaipa, BT
Securities and Apollo, respectively, in satisfaction of fees otherwise
payable by the Company and New Holdings in connection with the Merger and
the Financing.
(g) Represents New F4L Senior Notes issued pursuant to the F4L Exchange Offers,
which will be part of the same issue as the New F4L Senior Notes issued
pursuant to the Senior Note Public Offering.
(h) Represents New RGC Notes issued pursuant to the RGC Offers, which will be
part of the same issue as the New RGC Notes issued pursuant to the
Subordinated Note Public Offering.
(i) In connection with the RSI Merger, New Holdings will issue $131.5 million
principal amount of the Seller Debentures as part of the purchase price for
the RSI common stock, up to $10 million of which may be put to Yucaipa on
the closing date of the Merger at a purchase price equal to their principal
amount pursuant to the Put Agreement (as defined). In addition, Yucaipa
will be reimbursed by the Company for (i) any losses incurred upon the
resale of the $10 million principal amount of Seller Debentures which may
be put to it pursuant to the Put Agreement and (ii) its expenses in
connection with the Merger and the related transactions. See "The Merger
and the Financing" and "Description of Other Indebtedness -- The Seller
Debentures."
(j) Includes $375 million to be paid in cash to stockholders of RSI and $0.9
million to be paid in cash to holders of RSI management stock options. See
"Executive Compensation -- New Management Stock Option Plan and Management
Investment."
(k) Represents the purchase of Old RGC Notes tendered for cash pursuant to the
RGC Offers. In addition, to the extent any Old RGC Notes remain outstanding
following consummation of the RGC Offers, a portion of the Tranche A Loan
not fully funded at the Closing Date will be available to fund the purchase
of Old RGC Notes pursuant to the Change of Control Offer. See "The RGC
Offers, the F4L Exchange Offers and the Public Offerings."
(l) Represents accrued interest payable on all debt securities assumed to be
tendered pursuant to the F4L Exchange Offers and the RGC Offers.
(m) Represents payments to or for the benefit of Ralphs management with respect
to outstanding equity appreciation rights (the "EARs" or "Equity
Appreciation Rights") in connection with the Merger. Ralphs management will
receive New Holdings stock options in exchange for the cancellation of the
remaining EAR liability of $10 million. See "Executive
Compensation -- Equity Appreciation Rights Plan" and "Certain Relationships
and Related Transactions -- Food 4 Less and Holdings."
(n) Represents the repayment of outstanding mortgage indebtedness of Ralphs in
the principal amount of $174.1 million, plus the estimated amount of the
prepayment fees payable with respect thereto.
(o) Includes advisory fees of $19 million to be paid to Yucaipa, other fees of
$5 million to be paid to BT Securities and commitment fees of $5 million to
be paid to Apollo, upon closing of the Merger. Of such amounts, $15 million
of Yucaipa's advisory fee, $2.5 million of Apollo's commitment fee and BT
Securities' $5 million fee will be paid through the issuance of New
Discount Debentures in lieu of cash. Such New Discount Debentures will be
contributed by them to the partnership that will acquire all of the New
Discount Debentures. Yucaipa anticipates that it in turn will pay a cash
fee of approximately $3.5 million to Soros Fund Management in consideration
for advisory services which Soros Fund Management has rendered since 1991.
See "Certain Relationships and Related Transactions -- Food 4 Less and
Holdings."
7
<PAGE> 17
CORPORATE STRUCTURE
The following tables illustrate (i) the corporate structures of FFL,
Holdings, Food 4 Less and Ralphs immediately prior to the RSI Merger, the RGC
Merger, the FFL Merger and the Reincorporation Merger and (ii) the corporate
structure of New Holdings and the Company, and the anticipated outstanding
indebtedness of New Holdings and the Company, immediately after such mergers.
Prior to the RSI Merger, FFL will merge with and into Holdings, and Holdings
(which will be the surviving corporation) will reincorporate in Delaware as New
Holdings. Pursuant to the terms of the Merger Agreement, Food 4 Less will merge
with and into RSI and RSI will be the surviving corporation in the RSI Merger.
Immediately following the RSI Merger, RGC will merge with and into RSI and RSI
will be the surviving corporation in the RGC Merger and will change its name to
Ralphs Grocery Company.
BEFORE MERGER
[See Edgar Appendix]
8
<PAGE> 18
AFTER MERGER, FFL MERGER AND REINCORPORATION MERGER
[See Edgar Appendix]
9
<PAGE> 19
PURPOSES OF THE OFFER TO PURCHASE AND CONSENT SOLICITATION
The Offer to Purchase and the Solicitation, together with the other
financing and solicitation transactions described under "The Merger and the
Financing," are part of the transactions required to consummate the Merger of
Food 4 Less with and into RSI. Immediately following the RSI Merger, RGC, a
wholly-owned subsidiary of RSI, will merge with and into RSI and RSI will change
its name to Ralphs Grocery Company.
As a result of the Reincorporation Merger, any Amended Discount Notes that
remain outstanding following the consummation of the Offer to Purchase will
become the obligation of New Holdings. In connection with the consummation of
the Merger, Holdings is making the Offer to Purchase in order to retire the
Discount Notes and is seeking Consents to the Proposed Amendments in the
Solicitation in order to permit the consummation of the Merger and to eliminate
substantially all of the restrictive covenants in the Discount Note Indenture.
See "The Proposed Amendments." If adopted by the holders of not less than a
majority in aggregate principal amount of the outstanding Discount Notes held by
persons other than Holdings and its affiliates, the Proposed Amendments will
become effective immediately prior to the consummation of the Merger, upon
Holdings' acceptance of properly tendered Discount Notes for purchase pursuant
to the Offer to Purchase.
THE OFFER TO PURCHASE AND THE SOLICITATION
The Offer to Purchase......... Holdings is offering to holders of the Discount
Notes to purchase for $785.00 in cash, plus
accrued cash interest thereon at a rate of
15.25% per annum from and after March 15, 1995
until the Closing Date for every $1,000
principal amount (at maturity) of Discount
Notes (which, as of May 1, 1995 had an accreted
value of $680.26 per $1,000) accepted for
purchase. See "The Offer to Purchase and
Solicitation -- Terms of the Offer to
Purchase." Holders of the Discount Notes may
choose to participate in the Offer to Purchase
by completing the appropriate boxes on the
Letter of Transmittal. See "The Offer to
Purchase and Solicitation -- Procedures for
Tendering and Consenting."
The Solicitation.............. Concurrently with the Offer to Purchase,
Holdings is soliciting Consents from each of
the Discount Noteholders representing not less
than a majority in aggregate principal amount
of the outstanding Discount Notes held by
persons other than Holdings and its affiliates
to the Proposed Amendments to the Discount Note
Indenture. See "The Proposed Amendments."
HOLDERS OF DISCOUNT NOTES WHO DESIRE TO ACCEPT
THE OFFER TO PURCHASE MUST CONSENT TO THE
PROPOSED AMENDMENTS. HOLDERS DO NOT HAVE THE
OPTION TO CONSENT TO THE PROPOSED AMENDMENTS
WITHOUT TENDERING INTO THE OFFER TO PURCHASE.
See "The Offer to Purchase and
Solicitation -- Procedures for Tendering and
Consenting."
The Company and the trustee under the Discount
Note Indenture (the "Trustee") will execute the
Supplemental Indenture implementing the
Proposed Amendments to the Discount Note
Indenture after certification to the Trustee
that Holdings has received the Requisite
Consents. The Proposed Amendments will only
become operative upon the execution of the
Supplemental Indenture and consummation of the
Offer to Purchase. If the Proposed Amendments
become operative, the non-tendering holders of
Dis-
10
<PAGE> 20
count Notes will be bound thereby regardless of
whether they consented to the Proposed
Amendments. All references herein to the Offer
to Purchase shall be deemed to include the
Solicitation.
As of May 1, 1995, there was issued and
outstanding $103.6 million aggregate principal
amount (at maturity) of Discount Notes with an
accreted value of $70.5 million. See "The Offer
to Purchase and Solicitation -- The Consent
Solicitation."
The Proposed Amendments....... The Proposed Amendments would make the
following changes to the Discount Note
Indenture:
1. Eliminate the covenant entitled
"Disposition of Proceeds of Public Offering
Sale."
2. Eliminate the covenant entitled
"Limitation on Change of Control."
3. Eliminate the covenant entitled
"Limitation on Restricted Payments."
4. Eliminate the covenant entitled
"Limitation on Incurrences of Additional
Indebtedness."
5. Eliminate the covenant entitled
"Limitation on Liens."
6. Eliminate the covenant entitled
"Limitation on Disposition of Assets."
7. Eliminate the covenant entitled
"Restrictions on Sale of Stock of
Subsidiaries."
8. Eliminate the covenant entitled
"Limitation on Transactions with Affiliates."
9. Eliminate the covenant entitled "SEC
Reports and Other Information."
10. Amend the provisions regarding when
Holdings may consolidate or merge with or sell
all or substantially all of its assets to, any
other person or entity, to eliminate the
subsections thereof which require that
immediately after giving effect to such
transaction and the incurrence of any
indebtedness in connection therewith, Holdings
or the surviving entity, as the case may be,
has a Net Worth (as defined) that meets the
standards set forth therein.
11. The definitions relating solely to
such eliminated covenants will be eliminated.
The Supplemental Indenture will provide that
the New Credit Facility constitutes a
refinancing of the Loan Documents (as defined).
The remaining sections of the Discount Note
Indenture will not be changed by the Proposed
Amendments.
Expiration Date............... The Offer to Purchase and the Solicitation will
expire at 12:00 Midnight, New York City time,
on May 30, 1995, unless extended by Holdings.
Holdings reserves the right to extend the Offer
to Purchase or the Solicitation at its
discretion, in which event the term "Expiration
Date" shall mean the latest time and date at
11
<PAGE> 21
which the Offer to Purchase or the
Solicitation, as the case may be, as so
extended by Holdings, shall expire.
Withdrawal Rights and
Revocation of Consents...... Tenders of Discount Notes pursuant to the Offer
to Purchase may be withdrawn and Consents may
be revoked at any time until the Requisite
Consents with respect to the Discount Notes
have been received and the Supplemental
Indenture has been executed. Thereafter, such
tenders may be withdrawn and Consents may be
revoked if the Offer to Purchase is terminated
without any Discount Notes being accepted for
purchase thereunder. Any valid revocation of
Consents will automatically constitute a
withdrawal of the Discount Notes to which such
Consents relate. See "The Offer to Purchase and
Solicitation -- Withdrawal of Tenders and
Revocation of Consents."
Conditions.................... Notwithstanding any other provision of the
Offer to Purchase or the Solicitation, the
obligation of Holdings to accept for purchase
any validly tendered Discount Note is
conditioned upon, among other things, the
satisfaction or waiver of certain conditions,
including (i) the receipt of the Requisite
Consents (i.e., Consents from Discount
Noteholders representing at least a majority in
aggregate principal amount of the outstanding
Discount Notes held by persons other than
Holdings and its affiliates) on or prior to the
Expiration Date, (ii) satisfaction or waiver,
in Holdings' sole discretion, of all conditions
precedent to the Merger, (iii) the prior or
contemporaneous consummation of the Other Debt
Financing Transactions and (iv) the prior or
contemporaneous consummation of the Bank
Financing and the New Equity Investment. There
can be no assurance that such conditions will
be satisfied or waived. Holdings reserves the
right to waive certain of the conditions to the
Offer to Purchase and, subject to certain
limitations, to extend, terminate, cancel or
otherwise modify or amend the Offer to Purchase
in any respect. See "The Offer to Purchase and
Solicitation -- Conditions."
Procedures for Tendering and
Consenting.................. Any Discount Noteholder desiring to accept the
Offer to Purchase should either (i) complete
and sign the Letter of Transmittal or facsimile
thereof, have his signature thereon guaranteed
and forward the Letter of Transmittal, together
with the certificate(s) evidencing his Discount
Notes and any other required documents, to the
Depositary, (ii) comply with the guaranteed
delivery procedure described under the heading
"The Offer to Purchase and
Solicitation -- Guaranteed Delivery Procedure,"
(iii) tender such Discount Notes pursuant to
the procedure for book-entry transfer, or (iv)
request his broker, dealer, commercial bank,
trust company or other nominee to effect the
transaction for him, in each case prior to the
Expiration Date. Discount Noteholders having
Discount Notes registered in the name of a
broker, dealer, commercial
12
<PAGE> 22
bank, trust company or other nominee must
contact such person if such holder desires to
tender such Discount Notes. HOLDERS OF DISCOUNT
NOTES WHO DESIRE TO ACCEPT THE OFFER TO
PURCHASE MUST CONSENT TO THE PROPOSED
AMENDMENTS. A HOLDER OF DISCOUNT NOTES WHO
DESIRES TO TENDER INTO THE OFFER TO PURCHASE
WITH RESPECT TO ANY DISCOUNT NOTES MUST TENDER
ALL OF SUCH HOLDERS' DISCOUNT NOTES. See "The
Offer to Purchase and Solicitation --
Procedures for Tendering and Consenting."
HOLDINGS IS TERMINATING THE CONSENT
SOLICITATION DESCRIBED IN THE OLD PROSPECTUS.
HOLDERS OF DISCOUNT NOTES THAT TENDERED
CONSENTS IN CONNECTION WITH SUCH CONSENT
SOLICITATION MUST COMPLY WITH THE PROCEDURES
SET FORTH IN THIS OFFER TO PURCHASE AND
SOLICITATION STATEMENT UNDER "THE OFFER TO
PURCHASE AND SOLICITATION -- PROCEDURES FOR
TENDERING AND CONSENTING" TO PARTICIPATE IN THE
OFFER TO PURCHASE AND SOLICITATION.
Payment of the Cash
Consideration............... Upon satisfaction or waiver of the conditions
to the Offer to Purchase, Holdings will accept
all Discount Notes which are properly tendered
and not withdrawn, and promptly following such
acceptance, New Holdings will pay, or cause to
be paid, the Cash Consideration in accordance
with the instructions of the tendering Discount
Noteholder. See "The Offer to Purchase and
Solicitation -- Acceptance of Discount Notes
for Payment; Payment of the Cash
Consideration."
Certain Consequences to
Non-Tendering Discount
Noteholders................. Consummation of the Offer to Purchase and the
effectiveness of the Proposed Amendments may
have adverse consequences to non-tendering
Discount Noteholders, including that
non-tendering holders of Amended Discount Notes
will no longer be entitled to the benefit of
certain of the restrictive covenants currently
contained in the Discount Note Indenture and
that the reduced amount of outstanding Amended
Discount Notes as a result of the Offer to
Purchase may adversely affect the trading
market, liquidity and market price of the
Amended Discount Notes. If the Requisite
Consents are received and accepted, the
Proposed Amendments will be binding on all
non-tendering Discount Noteholders. See "Risk
Factors -- Potential Adverse Effects of the
Offer to Purchase and the Solicitation on
Holders of Untendered Discount Notes" and
"-- Effect of the Proposed Amendments on
Holders That Do Not Tender."
13
<PAGE> 23
No Appraisal Rights........... No appraisal rights are available to holders of
Discount Notes in connection with the Offer to
Purchase.
Certain Federal Income Tax
Considerations.............. Holders whose Discount Notes are purchased for
Cash Consideration will recognize gain or loss
for federal income tax purposes equal to the
difference between (i) the amount of Cash
Consideration received and (ii) the holder's
adjusted tax basis in the Discount Notes
purchased. See "Certain Federal Income Tax
Considerations."
Risk Factors.................. See "Risk Factors" for a discussion of certain
factors that should be considered in
evaluating the Offer to Purchase and the
Solicitation.
Dealer Managers............... BT Securities Corporation ("BT Securities"), CS
First Boston Corporation ("CS First Boston")
and Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") are serving as Dealer
Managers in connection with the Offer to
Purchase and the Solicitation. Their telephone
numbers are (212) 775-2166, (212) 909-2873 and
(212) 504-4753, respectively.
Depositary.................... Bankers Trust, an affiliate of BT Securities,
is serving as Depositary in connection with the
Offer to Purchase and the Solicitation. Its
telephone number is (212) 250-6270.
Information Agent............. D.F. King & Co., Inc. is serving as Information
Agent in connection with the Offer to Purchase
and the Solicitation. Requests for additional
copies of this Offer to Purchase and
Solicitation Statement, the Letter of
Transmittal and any other required documents
should be directed to the Information Agent or
any Dealer Manager at one of its addresses set
forth on the back cover page of this Offer to
Purchase and Solicitation Statement. The
telephone number of the Information Agent is
(800) 669-5550.
14
<PAGE> 24
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth summary unaudited pro forma combined
financial data for the 52 weeks ended June 25, 1994 and for the 28 weeks ended
January 7, 1995, after giving effect to the Merger, the FFL Merger, the
Reincorporation Merger and the Financing (and certain related assumptions), as
if such transactions had occurred on June 27, 1993 with respect to the pro forma
operating and other data, and as of January 7, 1995, with respect to the pro
forma balance sheet data. Such pro forma information combines the results of
operations of Holdings for the 52 weeks ended June 25, 1994 and the results of
operations and balance sheet data as of and for the 28 weeks ended January 7,
1995, with the results of operations of Ralphs for the 52 weeks ended July 17,
1994 and the results of operations and balance sheet data as of and for the 28
weeks ended January 29, 1995, respectively. See "The Merger and the Financing."
Prior to consummation of the Merger, FFL will merge with and into Holdings, and
Holdings (which will be the surviving corporation) will reincorporate in
Delaware as New Holdings. FFL is a holding company and the assets of FFL consist
solely of its investment in the capital stock of Holdings. For purposes of the
pro forma financial presentation set forth below, the minority ownership
interest in Holdings that existed prior to the FFL Merger has been classified
with the majority ownership interest in Holdings as a result of its elimination
in the FFL Merger. The merger of FFL into Holdings has no effect on Holdings.
The pro forma financial data set forth below is not necessarily indicative of
the results that actually would have been achieved had such transactions been
consummated as of the dates indicated, or that may be achieved in the future.
The following pro forma financial data should be read in conjunction with the
"Unaudited Pro Forma Combined Financial Statements," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
historical consolidated financial statements of Holdings and Ralphs and related
notes thereto, included elsewhere in this Offer to Purchase and Solicitation
Statement.
<TABLE>
<CAPTION>
52 WEEKS ENDED 28 WEEKS ENDED
JUNE 25, 1994 JANUARY 7, 1995
---------------------- ------------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
OPERATING DATA:
Sales.................................................... $5,053.5 $2,767.6
Gross profit............................................. 1,048.2 553.0
Selling, general and administrative expenses............. 833.1 442.1
Interest expense:
Cash.................................................. 223.9 122.3
Non-cash.............................................. 47.8 27.4
Amortization of debt issuance costs................... 13.4 6.9
---------- ----------
Total interest expense................................... 285.1 156.6
Net loss(a).............................................. (119.1) (67.1)
Ratio of earnings to fixed charges(b).................... -- --
BALANCE SHEET DATA (END OF PERIOD):
Working capital.................................................................. $ 18.4
Total assets..................................................................... 3,096.2
Total debt....................................................................... 2,225.1
Stockholders' equity............................................................. 56.2
OTHER DATA:
Depreciation and amortization............................ $ 150.8 $ 76.4
Capital expenditures(c).................................. 123.2 78.1
Stores open at end of period(d).......................... -- 395
EBITDA (as defined)(a)(e)(f)............................. $ 342.5 $ 189.3
EBITDA margin(g)......................................... 6.8% 6.8%
</TABLE>
- ---------------
(a) The summary unaudited pro forma combined financial data and the results of
operations and EBITDA (as defined) for the 52 weeks ended June 25, 1994 and
the 28 weeks ended January 7, 1995 do not include certain one-time
non-recurring costs related to (i) severance payments under certain
employment contracts with Food 4 Less management totaling $1.4 million that
are subject to change of control provisions and the achievement of earnings
and sales targets, (ii) costs related to the integration of the Company's
operations, which are estimated to be $50.0 million over a three-year
period, (iii) $1.8 million in costs related to the cancellation of an
employment agreement, and (iv) other costs related to warehouse closures,
which costs are not presently determinable.
(b) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of earnings before income taxes, cumulative effect of change in
accounting principles, extraordinary items and fixed charges before
capitalized interest. "Fixed charges" consist of
15
<PAGE> 25
interest expense (including amortization of self-insurance reserves discount),
capitalized interest, amortization of deferred debt issuance costs and one-third
of rental expense (the portion deemed representative of the interest factor).
Holdings' pro forma earnings were insufficient to cover pro forma fixed charges
by approximately $119.1 million and $67.1 million for the 52 weeks ended
June 25, 1994 and the 28 weeks ended January 7, 1995, respectively. However,
such pro forma earnings included non-cash charges of $221.6 million and
$119.4 million, respectively, primarily consisting of depreciation and
amortization.
(c) Does not include Merger-related capital expenditures of $55.0 million and
$37.5 million for the 52 weeks ended June 25, 1994 and the 28 weeks ended
January 7, 1995, respectively. It is estimated that the gross capital
expenditures to be made by the Company in the first fiscal year following
the closing will be approximately $153 million (or $106 million net of
expected capital leases), of which approximately $98 million relate to
ongoing expenditures for new stores, equipment and maintenance and
approximately $55 million relate to store conversions and other
Merger-related and non-recurring items.
(d) The pro forma number of stores is based on October 1, 1994 totals, but gives
effect to the closing or divestiture of 32 stores (29 Food 4 Less
conventional supermarkets or warehouse stores and 3 Ralphs stores) in
connection with the Merger and the closure of 2 additional Food 4 Less
conventional stores open at October 1, 1994 which were subsequently closed.
The pro forma financial information presented herein has been based upon the
actual number of stores open as of the beginning of each period presented,
adjusted for the closing or divestiture of the 32 stores which have yet to
be consummated and does not include any pro forma adjustment attributable to
the 2 stores closed subsequent to October 1, 1994.
(e) "EBITDA," as defined and presented historically by RGC, represents net
earnings before interest expense, income tax expense (benefit),
depreciation and amortization expense, provision for Equity Appreciation
Rights, provision for tax indemnification payments to Federated Department
Stores, Inc. ("Federated"), provision for postretirement benefits, the LIFO
charge, extraordinary item relating to debt refinancing, provision for
legal settlement, provision for restructuring, provision for earthquake
losses, a one-time charge for Teamsters Union sick pay benefits, transition
expense and gains and losses on disposal of assets. EBITDA is a widely
accepted financial indicator of a company's ability to service debt.
However, EBITDA should not be construed as an alternative to operating
income or to cash flows from operating activities (as determined in
accordance with generally accepted accounting principles) and should not be
construed as an indication of Holdings' operating performance or as a
measure of liquidity. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(f) Pro forma EBITDA does not give any effect to $90 million of anticipated net
annual cost savings (as compared to such costs for the pro forma combined
fiscal year ended June 25, 1994) which management believes are achievable
by the end of the fourth full year of combined operations. It is
anticipated that approximately $117 million in Merger-related capital
expenditures and $50 million of other non-recurring costs will be required
to complete store conversions, integrate operations and expand warehouse
facilities over the same period. Although a portion of the anticipated cost
savings is premised upon the completion of such capital expenditures,
management believes that over 70% of the cost savings could be achieved
without making any Merger-related capital expenditures. As shown below, the
sum of the components of the estimated annual cost savings exceeds $90
million; however, management's estimate of $90 million in net annual cost
savings gives effect to an offsetting adjustment to reflect its expectation
that a portion of the savings will be reinvested in the Company's
operations. These anticipated savings are based on estimates and
assumptions made by the Company that are inherently uncertain, though
considered reasonable by the Company, and are subject to significant
business, economic and competitive uncertainties and contingencies, all of
which are difficult to predict and many of which are beyond the control of
management. As a result, there can be no assurance that such savings will
be achieved. See "Business -- The Merger" and "Risk Factors -- Ability to
Achieve Anticipated Cost Savings." The components of the estimated cost
savings are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Pro forma EBITDA for the 52 weeks ended June 25, 1994........................ $ 342.5
Estimated net annual cost savings:
Reduced advertising expenses............................................... 28.0
Reduced store operations expense........................................... 21.0
Increased volume purchasing efficiencies................................... 19.0
Warehousing and distribution efficiencies.................................. 16.0
Consolidated manufacturing................................................. 10.0
Consolidated administrative functions...................................... 15.0
Less: Annual reinvestment of cost savings.................................. (19.0)
------
Total estimated net annual cost savings...................................... $ 90.0
------
Sum of EBITDA (as defined) and full amount of estimated annual cost savings
to be realized over four years............................................. $ 432.5
===========
</TABLE>
Because of reductions in certain advertising expenses that Food 4 Less has
already begun to implement and certain refinements in the post-Merger
advertising plan, actual cost savings related to advertising expenses are
expected to be approximately $19 million in the first full year following the
Merger as compared to the current annualized costs.
(g) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
16
<PAGE> 26
SUMMARY HISTORICAL FINANCIAL DATA OF RALPHS
The following table sets forth summary historical financial data of RGC (as
the predecessor of RSI) as of and for the 53 weeks ended February 3, 1991 and
the 52 weeks ended February 2, 1992, and summary historical financial data of
RSI as of and for the 52 weeks ended January 31, 1993, January 30, 1994 and
January 29, 1995, which have been derived from the financial statements of RSI
and RGC audited by KPMG Peat Marwick LLP, independent certified public
accountants. The following information should be read in conjunction with the
Unaudited Pro Forma Combined Financial Statements, "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the historical
consolidated financial statements of RSI and RGC and related notes thereto
included elsewhere in this Offer to Purchase and Solicitation Statement.
<TABLE>
<CAPTION>
53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED ENDED
FEBRUARY 3, FEBRUARY 2, JANUARY 31, JANUARY 30, JANUARY 29,
1991 1992 1993 1994 1995
----------- ----------- ----------- ----------- ----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales.................................................... $ 2,799.1 $ 2,889.2 $ 2,843.8 $ 2,730.2 $2,724.6
Gross profit............................................. 573.7 614.0 626.6 636.5 623.6
Selling, general and administrative expenses(a).......... 438.0 459.2 470.0 471.0 467.0
Interest expense(b)...................................... 128.5 130.2 125.6 108.8 112.7
Net earnings (loss)(c)................................... (51.4) (41.2) (76.1) 138.4(i) 32.1
Ratio of earnings to fixed charges(d).................... --(d) --(d) 1.02x 1.24x 1.24x
BALANCE SHEET DATA (end of period):
Working capital surplus (deficit)........................ $ (93.9) $ (114.2) $ (122.0) $ (73.0) $ (119.5)
Total assets............................................. 1,406.4 1,357.6 1,388.5 1,483.7 1,509.9
Total debt(e)............................................ 986.1 941.9 1,029.8 998.9 1,018.5
Redeemable stock......................................... 3.0 3.0 -- -- --
Stockholders' equity (deficit)........................... (16.0) (57.2) (133.3) 5.1 27.2
OTHER DATA:
Depreciation and amortization(f)......................... $ 75.2 $ 76.6 $ 76.9 $ 74.5 $ 76.0
Capital expenditures..................................... 87.6 50.4 102.7 62.2 64.0
Stores open at end of period............................. 150 158 159 165 173
EBITDA (as defined)(g)................................... $ 207.0 $ 225.8 $ 227.3 $ 230.2 $ 230.2
EBITDA margin(h)......................................... 7.4% 7.8% 8.0% 8.4% 8.4%
</TABLE>
- ---------------
(a) Includes provision for post retirement benefits other than pensions of $2.2
million, $2.6 million, $3.3 million, $3.4 million, and $2.6 million for the
53 weeks ended February 3, 1991, the 52 weeks ended February 2, 1992,
January 31, 1993, January 30, 1994 and January 29, 1995, respectively.
(b) Interest expense includes non-cash charges related to the amortization of
deferred debt issuance costs of $4.1 million for the 53 weeks ended February
3, 1991, $5.0 million for the 52 weeks ended February 2, 1992, $5.5 million
for the 52 weeks ended January 31, 1993, $6.5 million for the 52 weeks ended
January 30, 1994 and $6.1 million for the 52 weeks ended January 29, 1995,
respectively.
(c) Net earnings (loss) includes expenses relating to provisions for Equity
Appreciation Rights and for tax indemnification payments to Federated,
extraordinary item relating to debt refinancing, loss on disposal of assets,
provisions for postretirement and pension benefits and provision for
earthquake losses.
(d) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of earnings before income taxes, cumulative effect of change in
accounting principles, extraordinary item and fixed charges before
capitalized interest. "Fixed charges" consist of interest expense (including
amortization of self-insurance reserves discount), capitalized interest,
amortization of deferred debt issuance costs and one-third of rental expense
(the portion deemed representative of the interest factor). Earnings were
insufficient to cover fixed charges for the 53 weeks ended February 3, 1991
and the 52 weeks ended February 2, 1992 by approximately $25.5 million and
$27.7 million, respectively.
(e) Total debt includes long-term debt, current maturities of long-term debt,
short-term debt and capital lease obligations.
(f) For the 53 weeks ended February 3, 1991, the 52 weeks ended February 2,
1992, January 31, 1993, January 30, 1994 and January 29, 1995, depreciation
and amortization includes amortization of the excess of cost over net
assets acquired of $11.0 million, $11.0 million, $11.0 million, $11.0
million and $11.0 million, respectively.
(g) "EBITDA," as defined and presented historically by RGC, represents earnings
before interest expense, income tax expense (benefit), depreciation and
amortization expense, provisions for Equity Appreciation Rights, provision
for tax indemnification payments to Federated, provision for
postretirement benefits, the LIFO charge, extraordinary item relating to
debt refinancing, provision for legal settlement, provision for
restructuring, provision for earthquake losses, a one-time charge for
Teamsters Union sick pay benefits, transition expense and gains and losses
on disposal of assets. EBITDA is a widely accepted financial indicator of
a company's ability to service debt. However, EBITDA should not be
construed as an alternative to operating income or to cash flows from
operating activities (as determined in accordance with generally accepted
accounting principles) and should not be construed as an indication of
Ralphs' operating performance or as a measure of liquidity. See
"Management's Discussion and Analysis of Financial Condition and Results
of Operations."
(h) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
(i) Includes recognition of $109.1 million of deferred income tax benefit and
$1.1 million current income tax expense for Fiscal 1993 (see Note 11 of
Notes to Consolidated Financial Statements of Ralphs Supermarkets, Inc.).
17
<PAGE> 27
SUMMARY HISTORICAL FINANCIAL DATA OF HOLDINGS
The following table sets forth summary historical financial data of
Holdings and its predecessor, Food 4 Less. Because Holdings acquired the capital
stock of Food 4 Less in a reorganization, which occurred December 31, 1992, the
financial data presented below for periods ending prior to such date represent
data of Food 4 Less. Operating data of Holdings for the 52 weeks ended June 26,
1993 reflects the operating results of Food 4 Less only until December 31, 1992,
and reflects the consolidated operating results of Holdings for the remainder of
the period. The historical financial data of Food 4 Less presented below as of
and for the 52 weeks ended June 30, 1990, the 52 weeks ended June 29, 1991 and
the 52 weeks ended June 27, 1992, and the historical financial data of Holdings
presented below as of and for the 52 weeks ended June 26, 1993 and the 52 weeks
ended June 25, 1994 have been derived from the financial statements of Holdings
and Food 4 Less audited by Arthur Andersen LLP, independent public accountants.
The summary historical financial data of Holdings presented below as of and for
the 28 weeks ended January 8, 1994 and January 7, 1995 have been derived from
unaudited interim financial statements of Holdings which, in the opinion of
management, reflect all material adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of such data. The
following information should be read in conjunction with the Unaudited Pro Forma
Combined Financial Statements, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the historical consolidated
financial statements of Holdings and related notes thereto included elsewhere in
this Offer to Purchase and Solicitation Statement.
<TABLE>
<CAPTION>
FOOD 4 LESS HOLDINGS
------------------------------ ---------------------------------------------
53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 28 WEEKS 28 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30, JUNE 29, JUNE 27, JUNE 26, JUNE 25, JANUARY 8, JANUARY 7,
1990 1991(a) 1992 1993 1994(b) 1994 1995
-------- -------- -------- -------- -------- ---------- ----------
(DOLLARS IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales.......................................... $1,318.2 $1,606.6 $2,913.5 $2,742.0 $2,585.2 $1,416.2 $1,404.7
Gross profit................................... 204.8 265.7 520.8 484.2 469.3 262.2 237.5
Selling, general, administrative and other
expenses..................................... 157.8 213.1 469.7 434.9 388.8 221.5 199.2
Interest expense(c)............................ 50.8 50.1 70.2 73.6 77.0 41.5 43.2
Net loss....................................... (10.1) (9.6) (33.8) (31.2) (11.5) (5.7) (14.3)
Ratio of earnings to fixed charges(d).......... --(d) --(d) --(d) --(d) --(d) --(d) --(d)
BALANCE SHEET DATA (end of period)(e):
Working capital surplus (deficit).............. $ (40.5) $ 13.7 $ (66.3) $ (19.2) $ (54.9) $ (14.9) $ (44.8)
Total assets................................... 574.7 980.0 998.5 957.8 980.1 969.6 984.6
Total debt(f).................................. 360.7 558.9 525.3 588.3 576.9 576.2 615.9
Redeemable stock............................... 5.1 -- -- -- -- -- --
Stockholder's equity (deficit)................. 20.6 84.6 50.8 22.6 10.0 16.2 (4.1)
OTHER DATA:
Depreciation and amortization(g)............... $ 25.8 $ 31.9 $ 54.9 $ 57.6 $ 57.1 $ 30.4 $ 30.8
Capital expenditures........................... 36.4 34.7 60.3 53.5 57.5 20.4 39.0
Stores open at end of period................... 115 259 249 248 258 249 266
EBITDA (as defined)(h)......................... $ 69.5 $ 80.7 $ 103.1 $ 105.9 $ 130.5 $ 69.1 $ 69.4
EBITDA margin(i)............................... 5.3% 5.0% 3.5% 3.9% 5.0% 4.9% 4.9%
</TABLE>
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(a) Operating data for the 52 weeks ended June 29, 1991 include the results of
Alpha Beta only from June 17, 1991, the date of its acquisition. Alpha
Beta's sales for the two weeks ended June 29, 1991 were $59.2 million.
(b) Operating data for the 52 weeks ended June 25, 1994 include the results of
the Food Barn stores, which were not material, from March 29, 1994, the date
of the Food Barn acquisition.
(c) Interest expense includes non-cash charges related to the amortization of
deferred financing costs of $4.1 million for the 53 weeks ended June 30,
1990, $5.2 million for the 52 weeks ended June 29, 1991, $6.3 million for
the 52 weeks ended June 27, 1992, $4.9 million for the 52 weeks ended June
26, 1993, $5.5 million for the 52 weeks ended June 25, 1994, $2.9 million
for the 28 weeks ended January 8, 1994 and $3.1 million for the 28 weeks
ended January 7, 1995.
(d) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of loss before provision for income taxes and extraordinary charges
plus fixed charges. "Fixed charges" consist of interest on all indebtedness,
amortization of deferred debt financing costs and one-third of rental
expense (the portion deemed representative of the interest factor). Earnings
were insufficient to cover fixed charges for the 53 weeks ended June 30,
1990, the 52 weeks ended June 29, 1991, June 27, 1992, June 26, 1993 and
June 25, 1994 and the 28 weeks ended January 8, 1994 and January 7, 1995, by
approximately $9.1 million, $3.4 million, $25.6 million, $29.8 million, $8.8
million, $5.0 million and $13.8 million, respectively. However, such
earnings included non-cash charges of $29.9 million for the 53 weeks ended
June 30, 1990, $37.0 million for the 52 weeks ended June 29, 1991, $61.2
million for the 52 weeks ended June 27, 1992, $66.4 million for the 52 weeks
ended June 26, 1993, $71.3 million for the 52 weeks ended June 25, 1994,
$38.0 million for the 28 weeks ended January 8, 1994 and $44.6 million for
the 28 weeks ended January 7, 1995, primarily consisting of depreciation,
amortization and accretion of interest.
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<PAGE> 28
(e) Balance sheet data as of June 30, 1990 include the effect of the acquisition
of Breco Holding Company (the "BHC Acquisition"), as well as the
acquisitions of Bell Markets, Inc. and certain assets of ABC Market Corp.
Balance sheet data as of June 29, 1991, June 27, 1992, June 26, 1993 and
January 8, 1994 reflect the Alpha Beta acquisition and the financings and
refinancings associated therewith. Balance sheet data as of June 25, 1994
and January 7, 1995 reflect the acquisition of the Food Barn stores.
(f) Total debt includes long-term debt, current maturities of long-term debt
and capital lease obligations.
(g) For the 53 weeks ended June 30, 1990, the 52 weeks ended June 29, 1991, June
27, 1992, June 26, 1993 and June 25, 1994, and for the 28 weeks ended
January 8, 1994 and January 7, 1995, depreciation and amortization includes
amortization of excess of cost over net assets acquired of $5.3 million,
$5.3 million, $7.8 million, $7.6 million, $7.7 million, $4.1 million and
$4.2 million, respectively.
(h) "EBITDA," as defined and presented historically by Food 4 Less, represents
income before interest expense, depreciation and amortization expense, the
LIFO provision, provision for income taxes, provision for earthquake losses
and a one-time charge for Teamsters Union sick pay benefits. EBITDA is a
widely accepted financial indicator of a company's ability to service debt.
However, EBITDA should not be construed as an alternative to operating
income or to cash flows from operating activities (as determined in
accordance with generally accepted accounting principles) and should not be
construed as an indication of Holdings' operating performance or as a
measure of liquidity. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(i) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
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<PAGE> 29
RISK FACTORS
Before deciding whether or not to tender Discount Notes in the Offer to
Purchase and the Solicitation or to retain Amended Discount Notes, each holder
of Discount Notes should carefully consider the following factors, in addition
to the other matters described in this Offer to Purchase and Solicitation
Statement.
LEVERAGE AND DEBT SERVICE
Following the consummation of the Merger and the Financing, New Holdings
will be highly leveraged. At January 7, 1995, pro forma for the Merger, the FFL
Merger, the Reincorporation Merger and the Financing (and certain related
assumptions), New Holdings' total indebtedness (including current maturities)
and stockholder's equity would have been $2,225.1 million and $56.2 million,
respectively, and the Company would have had an additional $173.1 million
available to be borrowed under the New Revolving Facility. In addition, as of
January 7, 1995, after giving effect to the Merger, the FFL Merger, the
Reincorporation Merger and the Financing (and certain related assumptions),
scheduled payments under operating leases of the Company and its subsidiaries
for the twelve months following the Merger would have been $125.0 million. On
the same pro forma basis, for the 52 weeks ended June 25, 1994 and the 28 weeks
ended January 7, 1995, New Holdings' earnings before fixed charges would have
been inadequate to cover fixed charges by $119.1 million and $67.1 million,
respectively. However, such earnings include non-cash charges of $221.6 million
and $119.4 million, respectively, primarily consisting of depreciation and
amortization. New Holdings will be required to make 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 $61.0 million per annum.
In addition, New Holdings will be required to commence semi-annual cash payments
of interest on any Amended Discount Notes that remain outstanding following the
Merger commencing June 15, 1998. New Holdings' ability to make scheduled
payments of the principal of, or interest on, or to refinance its Indebtedness
(including any Amended Discount Notes that remain outstanding following the
Merger) and to make scheduled payments under its operating leases depends on its
future performance, which to a certain extent is subject to economic, financial,
competitive and other factors beyond its control.
The pro forma financial information presented in this Offer to Purchase and
Solicitation Statement is based on, among other things, the assumption that the
interest rate borne by the New F4L Senior Notes and the New RGC Notes will be
11% and 11.50%, respectively. In the event that the interest rates on the New
F4L Senior Notes and the New RGC Notes are higher than the respective assumed
interest rates, the Company's interest expense and deficiency of earnings to
fixed charges would increase over the amounts reflected in such pro forma
financial information. For a description of the effects on the pro forma
financial information of varying acceptance levels in the RGC Offers and the F4L
Exchange Offers and of varying interest rates, see Note (l) to the Notes to
Unaudited Pro Forma Combined Statement of Operations.
Based upon the current level of operations and anticipated cost savings,
Holdings believes that the Company's cash flow from operations, together with
borrowings under the New Revolving Facility and its other sources of liquidity
(including leases), will be adequate to meet its anticipated requirements for
working capital, capital expenditures, interest payments and scheduled principal
payments over the next several years. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources." There can be no assurance, however, that the Company's business will
continue to generate cash flow at or above current levels or that anticipated
cost savings can be fully achieved. If the Company is unable to generate
sufficient cash flow from operations in the future to service its debt and make
necessary capital expenditures, or if its future earnings growth is insufficient
to amortize all required principal payments out of internally generated funds,
the Company may be required to refinance all or a portion of its existing debt,
sell assets or obtain additional financing. There can be no assurance that any
such refinancing or asset sales would be possible or that any additional
financing could be obtained, particularly in view of the Company's high level of
debt following the Merger and the fact that substantially all of its assets will
be pledged to secure the borrowings under the New Credit Facility and other
secured obligations.
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<PAGE> 30
New Holdings' high level of debt will have several important effects on its
future operations, including the following: (a) New Holdings will have
significant cash requirements to service debt, reducing funds available for
operations and future business opportunities of the Company and increasing the
Company's vulnerability to adverse general economic and industry conditions; (b)
the financial covenants and other restrictions contained in the New Credit
Facility and other agreements relating to the indebtedness of New Holdings and
the Company will require the Company to meet certain financial tests and will
restrict its ability to borrow additional funds, to dispose of assets or to pay
cash dividends; and (c) because of New Holdings' debt service requirements,
funds available for working capital, capital expenditures, acquisitions and
general corporate purposes, may be limited. New Holdings' leveraged position may
increase the Company's vulnerability to competitive pressures. The Company's
continued growth depends, in part, on its ability to continue its expansion and
store conversion efforts, and, therefore, its inability to finance capital
expenditures through borrowed funds could have a material adverse effect on the
Company's future operations. Moreover, any default under the documents governing
the indebtedness of New Holdings could have a significant adverse effect on the
market value of any Amended Discount Notes that remain outstanding following the
Merger.
HOLDING COMPANY STRUCTURE
Following the Merger, the FFL Merger and the Reincorporation Merger, New
Holdings will be a holding company and the assets of New Holdings will consist
solely of 100% of the outstanding shares of capital stock of the Company, which
will be pledged to secure New Holdings' guarantee obligations under the New
Credit Facility. New Holdings will be the sole obligor on any Amended Discount
Notes that remain outstanding following the Merger, and any such Amended
Discount Notes will not be guaranteed by any subsidiary of New Holdings.
Therefore, any such Amended Discount Notes will be effectively subordinated to
all indebtedness and other liabilities of the Company and its subsidiaries. New
Holdings will rely on dividends and other advances and transfers of funds from
the Company to provide the sole source of funds necessary to meet its debt
service obligations under any such Amended Discount Notes. The ability of the
Company to pay such dividends and make such advances and transfers will be
subject to applicable state laws regulating the payment of dividends and to
restrictions in the New Credit Facility, the indentures governing the RGC Senior
Subordinated Notes, the F4L Senior Notes and the F4L Senior Subordinated Notes,
and other agreements governing indebtedness of the Company and its subsidiaries.
Claims of creditors of the Company and subsidiaries, including general trade
creditors, will generally have priority as to the assets of the Company and its
subsidiaries over the claims of New Holdings and the holders of the Discount
Notes. At January 7, 1995 on a pro forma basis after giving effect to the
Merger, the FFL Merger, the Reincorporation Merger and the Financing (and
certain related assumptions), the aggregate amount of indebtedness and other
liabilities of the Company and its subsidiaries that would effectively rank
senior to any Amended Discount Notes that remain outstanding following the
Merger would have been approximately $2,808.5 million, excluding letters of
credit, and the Company would have had $173.1 million available to be borrowed
under the New Revolving Facility. In addition, at January 7, 1995, the Company
and its subsidiaries had significant commitments under operating leases. See
"-- Leverage and Debt Service."
ABILITY TO ACHIEVE ANTICIPATED COST SAVINGS
Management of the Company has estimated that approximately $90 million of
annualized net cost savings (as compared to such costs for the pro forma
combined fiscal year ended June 25, 1994) can be achieved over a four year
period as a result of integrating the operations of Ralphs and Food 4 Less. See
"Business -- The Merger." The cost savings estimates have been prepared solely
by members of the management of each company. The estimates necessarily make
numerous assumptions as to future sales levels and other operating results, the
availability of funds for capital expenditures as well as general industry and
business conditions and other matters, many of which are beyond the control of
the Company. Several of the cost savings estimates are premised on the
assumption that certain levels of efficiency presently maintained by either Food
4 Less or Ralphs can be achieved by the combined Company following the Merger.
Other estimates are based on a management consensus as to what levels of
purchasing and similar efficiencies should be achievable by an entity the size
of the Company. Certain of the estimates relating to the consolidation of
warehousing and distribution facilities assume the completion of certain capital
expenditures to expand the
21
<PAGE> 31
capacity of the continuing facilities. It is anticipated that $117 million in
Merger-related capital expenditures and $50 million of other non-recurring costs
will be required to complete store conversions, integrate operations and expand
warehouse facilities over the four year period following the Merger, without
which the estimated cost savings may not be fully achievable. Management expects
that the non-recurring integration costs will effectively offset any cost
savings in the first year following the Merger. Because the assumptions
underlying the cost savings estimates are numerous and detailed, management
believes that it would be impractical to specify all such assumptions in this
Offer to Purchase and Solicitation Statement. However, management also believes
that all such assumptions are reasonable in light of existing business
conditions and prospects. Investors are cautioned that the actual cost savings
realized by the Company may vary considerably from the estimates contained
herein and that undue reliance should not be placed upon such estimates. There
also can be no assurance that unforeseen costs and expenses or other factors
will not offset the projected cost savings in whole or in part.
REGIONAL ECONOMIC CONDITIONS
Following the consummation of the Merger, a substantial percentage of the
Company's business (representing approximately 90% of pro forma sales) will be
conducted in Southern California. Southern California began to experience a
significant economic downturn in 1991 and has only recently begun a mild
recovery. The economy in Southern California has been affected by substantial
job losses in the defense and aerospace industries and other adverse economic
trends. These adverse regional economic conditions have resulted in declining
sales levels at Ralphs and Holdings in recent periods. For the 52 weeks ended
June 25, 1994, and the 52 weeks ended January 29, 1995, Holdings and Ralphs
experienced 6.9% and 3.7% declines, respectively, in comparable store sales as
compared with the comparable period in the prior year, primarily reflecting the
weak economy in Southern California, lower levels of price inflation in certain
food product categories, and increased competitive store openings in Southern
California. For the 28 weeks ended January 7, 1995 and the 28 weeks ended
January 29, 1995, Holdings and Ralphs experienced 4.5% and 3.4% declines,
respectively, in comparable store sales. However, both Holdings' and Ralphs'
comparable store sales declines have begun to moderate in recent months.
Although data indicate a mild recovery in the Southern California economy and
management believes that overall sales trends in Southern California should
improve along with the economy, there can be no assurance that improvement will
occur or that substantial future declines in same store sales will not occur.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
COMPETITION
The supermarket industry is highly competitive and characterized by narrow
profit margins. The Company's competitors in each of its operating divisions
include national and regional supermarket chains, independent and specialty
grocers, drug and convenience stores, and the newer "alternative format" food
stores, including warehouse club stores, deep discount drug stores and "super
centers." Supermarket chains generally compete on the basis of location, quality
of products, service, price, product variety and store condition. The Company
regularly monitors its competitors' prices and adjusts its prices and marketing
strategy as management deems appropriate in light of existing conditions. Some
of the Company's competitors have greater financial resources than the Company
and could use these resources to take steps which could adversely affect the
Company's competitive position. See "Business -- Competition."
CONTROL OF THE COMPANY
Pro forma for the Merger, the FFL Merger, the Reincorporation Merger and
certain related events, affiliates of Yucaipa and Apollo will have beneficial
ownership of approximately 41.8% and 33.9%, respectively, of the outstanding
capital stock of New Holdings. Pursuant to a new stockholders' agreement (the
"1995 Stockholders Agreement") which will be entered into by the New Equity
Investors and certain current FFL stockholders and Holdings warrantholders upon
completion of the Merger, New Holdings and the Company will have boards
consisting of nine and ten members, respectively, and (i) Yucaipa will have the
right to elect six directors to the board of New Holdings and seven directors to
the board of the Company, (ii) Apollo will have the right to elect two directors
to the board of each of New Holdings and the Company, and (iii) the other New
Equity Investors will have the right to elect one director to the board of each
of New
22
<PAGE> 32
Holdings and the Company. Under the 1995 Stockholders Agreement, unless and
until New Holdings has effected an initial public offering of its equity
securities meeting certain criteria, New Holdings and its subsidiaries,
including the Company, may not take certain actions without the approval of the
New Holdings directors which the New Equity Investors are entitled to elect,
including but not limited to certain mergers, sale transactions, transactions
with affiliates, issuances of capital stock and payments of dividends on or
repurchases of capital stock. As a result of the ownership structure of New
Holdings and the contractual rights described above, the voting and management
control of New Holdings is highly concentrated. Yucaipa, acting with the consent
of the directors elected by the New Equity Investors, has the ability to direct
the actions of New Holdings with respect to matters such as the payment of
dividends, material acquisitions and dispositions and other extraordinary
corporate transactions. Yucaipa will be a party to a consulting agreement with
the Company, pursuant to which Yucaipa will render certain management and
advisory services to the Company, and will receive fees for such services.
Yucaipa will also receive certain fees in connection with the consummation of
the Merger, including an advisory fee of $19 million, of which $15 million will
be paid through the issuance of New Discount Debentures. In addition, as a
result of the Merger, certain officers and former officers of Ralphs will redeem
the EARs for $17.8 million in cash and a deferred payment of up to $5 million
and will cancel certain options to purchase common stock of RSI for $880,000. An
additional $10 million of the EARs, however, will be reinvested in New Holdings
by such officers and former officers. Yucaipa also will be reimbursed for (i)
any losses incurred upon the resale of the $10 million principal amount of
Seller Debentures which may be put to it pursuant to the Put Agreement and (ii)
its expenses in connection with the Merger and the related transactions. In
addition, on the Closing Date the Company and EJDC will enter into a Consulting
Agreement, pursuant to which EJDC will act as a consultant to the Company with
respect to certain real estate and general commercial matters for a period of
five years from the Closing Date in exchange for the payment of a one-time
consulting fee of $9 million, of which $4 million will be used to purchase
interests in the partnership that will purchase the New Discount Debentures. See
"Certain Relationships and Related Transactions," "Principal Stockholders" and
"Description of Capital Stock."
POTENTIAL ADVERSE EFFECTS OF THE OFFER TO PURCHASE AND THE SOLICITATION ON
HOLDERS OF AMENDED DISCOUNT NOTES
There currently is a limited trading market for the Discount Notes, which
from time to time trade in the over-the-counter market. See "Market Prices of
the Discount Notes." To the extent that Discount Notes are tendered and accepted
for purchase in the Offer to Purchase the trading market for the remaining
Amended Discount Notes may become even more limited. A debt security with a
smaller outstanding principal amount available for trading (a smaller "float")
may command a lower price than would a comparable debt security with a greater
float. Therefore, the market price for the Amended Discount Notes not tendered
for purchase may be adversely affected to the extent that the principal amount
of the Discount Notes tendered pursuant to the Offer to Purchase reduces the
float. The reduced float may also tend to make the trading price more volatile.
Holders of unpurchased Amended Discount Notes may attempt to obtain quotations
for the Amended Discount Notes from their brokers; however, there can be no
assurance that any trading market will exist for the Amended Discount Notes
following consummation of the Offer to Purchase. The extent of the public market
for the Amended Discount Notes following consummation of the Offer to Purchase
will depend upon, among other things, the remaining outstanding principal amount
of the Amended Discount Notes after the Offer to Purchase, the number of holders
remaining at such time and the interest in maintaining a market in the Amended
Discount Notes on the part of securities firms.
EFFECT OF THE PROPOSED AMENDMENTS ON HOLDERS THAT DO NOT TENDER
If the Offer to Purchase is consummated and the Proposed Amendments become
operative, holders of Discount Notes that are not purchased pursuant to the
Offer to Purchase for any reason will no longer be entitled to the benefits of
certain of the restrictive covenants contained in the Discount Note Indenture
after they have been modified by the Proposed Amendments. The modification of
the restrictive covenants would permit New Holdings to take actions that could
increase the credit risks with respect to New Holdings faced by such holders or
that could otherwise be adverse to the interest of such holders. See "The
Proposed Amendments."
23
<PAGE> 33
NET LOSSES
Holdings has reported a net loss of $11.5 million for the 52 weeks ended
June 25, 1994, $31.2 million for the 52 weeks ended June 26, 1993, $33.8 million
for the 52 weeks ended June 27, 1992, $9.6 million for the 52 weeks ended June
29, 1991 and $10.1 million for the 53 weeks ended June 30, 1990. On a pro forma
basis for the 52 weeks ended June 25, 1994 and the 28 weeks ended January 7,
1995, after giving effect to the Merger, the FFL Merger and the Financing (and
certain related assumptions), Holdings would have reported a net loss of
approximately $119.1 million and $67.1 million, respectively. There can be no
assurance that Holdings will not continue to report net losses in the future.
24
<PAGE> 34
THE MERGER AND THE FINANCING
On September 14, 1994, Food 4 Less, Holdings and FFL entered into the
Merger Agreement with RSI and the stockholders of RSI. Pursuant to the terms of
the Merger Agreement, Food 4 Less will, subject to certain conditions being
satisfied or waived, be merged with and into RSI pursuant to the RSI Merger.
Immediately following the RSI Merger, RGC, which is currently a wholly-owned
subsidiary of RSI, will merge with and into RSI pursuant to the RGC Merger, and
RSI will change its name to Ralphs Grocery Company. Prior to the Merger, FFL
will merge with and into Holdings, which will be the surviving corporation in
the FFL Merger. Immediately following the FFL Merger, Holdings will change its
jurisdiction of incorporation by merging into a newly-formed, wholly-owned
subsidiary, New Holdings, incorporated in Delaware, pursuant to the
Reincorporation Merger. As a result of the Merger, the FFL Merger and the
Reincorporation Merger, the Company will become a wholly-owned subsidiary of
New Holdings. As a result of the Reincorporation Merger, any Amended Discount
Notes that remain outstanding following the Merger will be the obligations of
New Holdings. Conditions to the consummation of the RSI Merger include the
receipt of regulatory approvals and other necessary consents and the completion
of financing. The purchase price for RSI is approximately $1.5 billion,
including the assumption of debt. The consideration payable to the stockholders
of RSI consists of $375 million in cash, $131.5 million principal amount of the
Seller Debentures and $18.5 million initial accreted value of the New Discount
Debentures to be issued by New Holdings. New Holdings will use $100 million of
the cash received from the New Equity Investment, together with the Seller
Debentures and such New Discount Debentures, to acquire approximately 48% of
the capital stock of RSI immediately prior to consummation of the RSI Merger.
New Holdings will then contribute the $250 million of purchased shares of RSI
stock to Food 4 Less, and pursuant to the RSI Merger the remaining shares of
RSI stock will be acquired for $275 million in cash. Pursuant to an agreement
(the "Put Agreement") entered into in connection with the execution of the
Merger Agreement, the Edward J. DeBartolo Corporation, an Ohio corporation
("EJDC"), which currently owns approximately 60.3% of the outstanding common
stock of RSI, will have the right to put to Yucaipa, which controls Food 4
Less, on the closing date of the Merger (the "Closing Date"), up to $10 million
aggregate principal amount of Seller Debentures acquired by EJDC in connection
with the Merger, at a purchase price equal to their principal amount. Yucaipa
will be reimbursed for (i) any losses incurred upon the resale of the $10
million principal amount of Seller Debentures which may be put to it pursuant
to the Put Agreement and (ii) its expenses in connection with the Merger and
the related transactions. In addition, on the Closing Date the Company and EJDC
will enter into a Consulting Agreement, pursuant to which EJDC will act as a
consultant to the Company with respect to certain real estate and general
commercial matters for a period of five years from the Closing Date in exchange
for the payment of a consulting fee of $9 million, of which $4 million will be
used to purchase interests in the partnership that will purchase the New
Discount Debentures. See "Certain Relationships and Related Transactions --
Food 4 Less and Holdings." The Merger Agreement, as amended, provides that Food
4 Less will pay the stockholders of RSI interest on the aggregate purchase
price of $525 million at a rate equal to the prime rate plus 1% from and after
March 16, 1995 through the Closing Date. The Merger Agreement may be terminated
by the parties if the Merger has not been consummated on or prior to June 6,
1995.
As currently contemplated, the Merger will be financed through the
following transactions:
- Borrowings of up to $750 million aggregate principal amount pursuant to
the New Term Loans under the New Credit Facility to be provided by a
syndicate of banks led by Bankers Trust. The New Credit Facility will
also provide for the $325 million New Revolving Facility, $12.7 million
of which is anticipated to be drawn at closing.
- The issuance of up to $295 million of New F4L Senior Notes pursuant to
the Senior Note Public Offering.
- The issuance of up to $200 million of New RGC Notes pursuant to the
Subordinated Note Public Offering.
- The issuance of preferred stock in a private placement by New Holdings
to a group of investors led by Apollo and including affiliates of BT
Securities, CS First Boston and DLJ and other institutional investors,
yielding cash proceeds of $140 million pursuant to the New Equity
Investment. Concurrently with the New Equity Investment, the New Equity
Investors will purchase outstanding shares of
25
<PAGE> 35
New Holdings capital stock from a stockholder of New Holdings for a
purchase price of $57.8 million. See "Description of Capital
Stock -- New Equity Investment."
- The exchange by Food 4 Less pursuant to the F4L Exchange Offers of (a)
up to $175 million aggregate principal amount of the Old F4L Senior
Notes for up to $175 million aggregate principal amount of New F4L
Senior Notes plus $5.00 in cash per $1,000 principal amount exchanged
and (b) up to $145 million aggregate principal amount of the Old F4L
Senior Subordinated Notes for up to $145 million aggregate principal
amount of the New F4L Senior Subordinated Notes plus $20.00 in cash per
$1,000 principal amount exchanged, together with the solicitation of
consents from the holders of the Old F4L Notes to certain amendments to
the Old F4L Indentures. It is a condition to the F4L Exchange Offers
that at least 80% of the outstanding principal amount of Old F4L Notes
are exchanged pursuant to the F4L Exchange Offers.
- The RGC Offers by Food 4 Less to (i) exchange up to $450 million
aggregate principal amount of the Old RGC Notes for up to $450 million
aggregate principal amount of New RGC Notes plus $20.00 in cash per
$1,000 principal amount of Old RGC Notes exchanged and (ii) purchase Old
RGC Notes for $1,010.00 in cash per $1,000 principal amount of Old RGC
Notes accepted for purchase, together with the solicitation of consents
from holders of Old RGC Notes to certain amendments to the Old RGC
Indentures. The RGC Minimum Exchange condition to the RGC Offers
provides that at least a majority of the outstanding principal amount of
the Old RGC Notes are exchanged for New RGC Notes pursuant to the RGC
Offers.
- The purchase by New Holdings of approximately 48% of the outstanding
common stock of RSI for an aggregate consideration of $250 million,
consisting of $100 million of the cash proceeds from the New Equity
Investment, $131.5 million principal amount of the Seller Debentures and
$18.5 million initial accreted value of the New Discount Debentures,
followed by the contribution of such common stock of RSI to Food 4 Less.
Pursuant to the RSI Merger the remaining shares of RSI stock will be
acquired for $275 million in cash.
- The placement by New Holdings of $100 million initial accreted value of
New Discount Debentures to a partnership including Yucaipa, the selling
stockholders of Ralphs, an affiliate of George Soros, Apollo, and an
affiliate of each of BT Securities, CS First Boston and DLJ. The $100
million initial accreted value of New Discount Debentures includes (a)
$18.5 million that will be issued to the RSI stockholders, (b) $15
million, $5 million and $2.5 million that will be issued to Yucaipa, BT
Securities and Apollo, respectively, in satisfaction of fees otherwise
payable by the Company and New Holdings in connection with the Merger
and the Financing and (c) $59 million that will be issued for cash to
the partnership described above. The $41 million initial accreted value
of New Discount Debentures to be issued to the RSI stockholders, Apollo,
BT Securities and Yucaipa will be contributed to such partnership by the
recipients thereof.
- The assumption by the Company, pursuant to the RGC Merger, of
approximately $166.8 million of other indebtedness of RGC and Food 4
Less.
- The Offer to Purchase and the Solicitation made hereunder to the holders
of the Discount Notes.
26
<PAGE> 36
The following table illustrates the sources and uses of funds to consummate
the Merger, assuming the transaction occurs as of May 30, 1995. This
presentation assumes that $225.5 million principal amount of Old RGC Notes is
tendered into the RGC Offers in exchange for New RGC Notes (representing 50.1%
of the outstanding aggregate principal amount of Old RGC Notes), $224.5 million
principal amount of Old RGC Notes is tendered into the RGC Offers for cash
(representing 49.9% of the outstanding aggregate principal amount of Old RGC
Notes), $256 million principal amount of Old F4L Notes is tendered into the F4L
Exchange Offers (representing 80% of the outstanding aggregate principal amount
of Old F4L Notes) and $103.6 million principal amount (at maturity) of Discount
Notes is tendered into the Offer to Purchase (representing 100% of the
outstanding aggregate principal amount (at maturity) of Discount Notes).
Although management believes such assumptions are reasonable under the
circumstances, actual sources and uses may differ from those set forth below
depending upon the outcome of the Offer to Purchase, the F4L Exchange Offers and
the RGC Offers.
SOURCES AND USES
(in millions)
<TABLE>
<S> <C> <C> <C>
CASH SOURCES CASH USES
- --------------------------------------------- ---------------------------------------------
New Term Loans(a)................. $ 750.0 Purchase RSI Common Stock(j)...... $ 375.9
New Revolving Facility(b)......... 12.7 Purchase Old RGC Notes(k)......... 226.8
New F4L Senior Notes(c)........... 295.0 Purchase Discount Notes........... 83.9
Repay Ralphs 1992 Credit
New RGC Notes(d).................. 200.0 Agreement....................... 255.1
New Equity Investment(e).......... 140.0 Repay F4L Credit Agreement........ 161.5
New Discount Debentures(f)........ 59.0 Pay Accrued Interest(l)........... 29.3
EAR Related Payments(m)........... 22.8
Repay Mortgage Indebtedness(n).... 191.5
Fees and Expenses(o).............. 109.9
--------- ---------
Total Cash Sources........... $ 1,456.7 Total Cash Uses................... $ 1,456.7
========= =========
NON-CASH SOURCES NON-CASH USES
- --------------------------------------------- ---------------------------------------------
New F4L Senior Notes(g)........... $ 140.0 Old F4L Senior Notes Exchanged.... $ 140.0
Assumed Old F4L Senior Notes...... 35.0 Assumed Old F4L Senior Notes...... 35.0
New F4L Senior Subordinated Old F4L Senior Subordinated Notes
Notes........................... 116.0 Exchanged....................... 116.0
Assumed Old F4L Senior Assumed Old F4L Senior
Subordinated Notes.............. 29.0 Subordinated Notes.............. 29.0
New RGC Notes(h).................. 225.5 Old RGC Notes Exchanged........... 225.5
New Discount Debentures(f)........ 41.0 Fees and Expenses(o).............. 22.5
Assumed Capital Leases and Other Assumed Capital Leases and Other
Debt............................ 166.8 Debt............................ 166.8
Seller Debentures(i).............. 131.5 Purchase RSI Common Stock(i)...... 150.0
--------- ---------
Total Non-Cash Sources....... $ 884.8 Total Non-Cash Uses............... $ 884.8
========= =========
</TABLE>
- ---------------
(a) Food 4 Less has accepted a commitment letter from Bankers Trust pursuant to
which Bankers Trust has agreed, subject to certain conditions, to provide
the Company up to a maximum aggregate amount of $1,075 million of financing
under the New Credit Facility. It is anticipated that the New Credit
Facility will be syndicated to a number of financial institutions for whom
Bankers Trust will act as agent. The New Credit Facility will provide for
(i) the New Term Loans in the aggregate amount of up to $750 million,
comprised of the $375 million Tranche A Loan, the $125 million Tranche B
Loan, the $125 million Tranche C Loan, and the $125 million Tranche D Loan
and (ii) the $325 million New Revolving Facility. The Tranche A Loan may not
be fully funded at the Closing Date. The New Credit Facility will provide
that the portion of the Tranche A Loan not funded at the Closing Date will
be available for a period of 91 days following the Closing Date to fund the
Change of Control Offer. See "Description of the New Credit Facility."
(b) The New Revolving Facility will provide for a $325 million line of credit
which will be available for working capital requirements and general
corporate purposes. Up to $150 million of the New Revolving Facility may be
used to support standby letters of credit. The letters of credit will be
used to cover workers' compensation contingencies and for other purposes
permitted under the New Revolving Facility. The Company anticipates that
letters of credit for approximately $92.6 million will be issued under the
New Revolving Facility at closing, in replacement of existing letters of
credit, primarily to satisfy the State of California's requirements relating
to workers compensation self-insurance.
(c) Represents New F4L Senior Notes issued pursuant to the Senior Note Public
Offering. If Food 4 Less receives tenders in excess of the RGC Minimum
Exchange in the RGC Offers, Food 4 Less may elect to decrease the amount of
New F4L Senior Notes being offered pursuant to the Senior Note Public
Offering.
27
<PAGE> 37
(d) Represents New RGC Notes issued pursuant to the Subordinated Note Public
Offering. If Food 4 Less receives tenders in excess of the RGC Minimum
Exchange in the RGC Offers, Food 4 Less may elect to decrease the amount of
New RGC Notes being offered pursuant to the Subordinated Note Public
Offering. It is not anticipated that the amount of New RGC Notes offered
pursuant to the Subordinated Note Public Offering will be reduced below $100
million principal amount.
(e) Does not include the $10 million equity contribution by Ralphs management.
See note (m) below. Concurrently with the New Equity Investment, certain
existing stockholders of New Holdings (formerly stockholders of FFL),
including affiliates of George Soros, will sell outstanding shares of New
Holdings stock to CLH, which in turn will sell such shares to the New Equity
Investors for an aggregate purchase price of $57.8 million (which represents
the same price per share as will be paid in the New Equity Investment). In
connection with the New Equity Investment, the New Equity Investors will
contribute the common stock so acquired to New Holdings in consideration for
newly-issued preferred shares. See "Description of Capital Stock -- New
Equity Investment."
(f) Represents $100 million initial accreted value of New Discount Debentures,
$59 million of which will be issued for cash, $18.5 million of which will be
issued to the RSI stockholders as Merger consideration and $15 million, $5
million and $2.5 million of which will be issued to Yucaipa, BT Securities
and Apollo, respectively, in satisfaction of fees otherwise payable by the
Company and New Holdings in connection with the Merger and the Financing.
(g) Represents New F4L Senior Notes issued pursuant to the F4L Exchange Offers,
which will be part of the same issue as the New F4L Senior Notes issued
pursuant to the Senior Note Public Offering.
(h) Represents New RGC Notes issued pursuant to the RGC Offers, which will be
part of the same issue as the New RGC Notes issued pursuant to the
Subordinated Note Public Offering.
(i) In connection with the RSI Merger, New Holdings will issue $131.5 million
principal amount of the Seller Debentures as part of the purchase price for
the RSI common stock, up to $10 million of which may be put to Yucaipa on
the Closing Date at a purchase price equal to their principal amount
pursuant to the Put Agreement. In addition, Yucaipa will be reimbursed by
the Company for (i) any losses incurred upon the resale of the $10 million
principal amount of Seller Debentures which may be put to it pursuant to the
Put Agreement and (ii) its expenses in connection with the Merger and the
related transactions. See "Certain Relationships and Related
Transactions -- Food 4 Less."
(j) Includes $375 million to be paid in cash to stockholders of RSI and $0.9
million to be paid in cash to holders of RSI management stock options. See
"Executive Compensation -- New Management Stock Option Plan and Management
Investment."
(k) Represents the purchase of Old RGC Notes tendered for cash pursuant to the
RGC Offers. In addition, to the extent any Old RGC Notes remain outstanding
following consummation of the RGC Offers, a portion of the proceeds of the
Tranche A Loan not fully funded at the Closing Date will be available to
fund the purchase of Old RGC Notes pursuant to the Change of Control Offer.
(l) Represents accrued interest payable on all debt securities assumed to be
tendered pursuant to the F4L Exchange Offers and the RGC Offers.
(m) Represents payments to or for the benefit of Ralphs management with respect
to outstanding EARs in connection with the Merger. Ralphs management will
receive New Holdings stock options in exchange for the cancellation of the
remaining EAR liability of $10 million. See "Executive
Compensation -- Equity Appreciation Rights Plan" and "Certain Relationships
and Related Transactions -- Food 4 Less and Holdings."
(n) Represents the repayment of outstanding mortgage indebtedness of Ralphs in
the principal amount of $174.1 million, plus the estimated amount of the
prepayment fees payable with respect thereto.
(o) Includes advisory fees of $19 million to be paid to Yucaipa, other fees of
$5 million to be paid to BT Securities and commitment fees of $5 million to
be paid to Apollo upon the closing of the Merger. Of such amounts, $15
million of Yucaipa's advisory fee, $2.5 million of Apollo's commitment fee
and BT Securities' $5 million fee will be paid through the issuance of New
Discount Debentures in lieu of cash. Such New Discount Debentures will be
contributed by them to the partnership that will acquire all of the New
Discount Debentures. Yucaipa anticipates that it in turn will pay a cash fee
of approximately $3.5 million to Soros Fund Management in consideration for
advisory services which Soros Fund Management has rendered since 1991. See
"Certain Relationships and Related Transactions -- Food 4 Less and
Holdings."
For additional information, see "Description of the New Credit Facility," "The
RGC Offers, the F4L Exchange Offers and the Public Offerings" and "Description
of Other Indebtedness."
28
<PAGE> 38
PRO FORMA CAPITALIZATION
The following table sets forth the pro forma combined capitalization of
Holdings as of January 7, 1995, adjusted to give effect to the Merger, the FFL
Merger, the Reincorporation Merger and the Financing (and certain related
assumptions) and the application of the proceeds therefrom. This presentation
assumes that $225.5 million principal amount of Old RGC Notes is tendered into
the RGC Offers in exchange for New RGC Notes, $224.5 million principal amount of
Old RGC Notes is tendered into the RGC Offers for cash, $256 million principal
amount of Old F4L Notes is tendered into the F4L Exchange Offers and $103.6
million principal amount (at maturity) of Discount Notes is tendered into the
Offer to Purchase. This presentation also assumes that any Old RGC Notes not
tendered into the RGC Offers are repurchased after the Closing Date pursuant to
the Change of Control Offer. The table should be read in conjunction with the
Unaudited Pro Forma Combined Financial Statements and the historical
consolidated financial statements of Ralphs and Holdings and related notes
thereto included elsewhere in this Offer to Purchase and Solicitation Statement.
<TABLE>
<CAPTION>
PRO FORMA
CAPITALIZATION
---------------
(IN MILLIONS)
<S> <C>
Cash............................................................................ $ 50.9
=========
Short-term and current portion of long-term debt:
New Term Loans................................................................ $ 3.8
Other indebtedness............................................................ 23.0
---------
Total short-term and current portion of long-term debt................ $ 26.8
=========
Long-term debt:
New Term Loans(a)............................................................. $ 746.2
New Revolving Facility(b)..................................................... 50.8
Other indebtedness............................................................ 129.3
New F4L Senior Notes(c)....................................................... 435.0
Old F4L Senior Notes.......................................................... 35.0
New RGC Notes(d).............................................................. 425.5
New F4L Senior Subordinated Notes............................................. 116.0
Old F4L Senior Subordinated Notes............................................. 29.0
New Discount Debentures (initial accreted value).............................. 100.0
Seller Debentures............................................................. 131.5
---------
Total long-term debt.................................................. 2,198.3
---------
Stockholders' equity(e):
Series A Preferred Stock(f)................................................... 161.8
Series B Preferred Stock(f)................................................... 31.0
Common stock, $.01 par value.................................................. 0.0
Additional paid-in capital.................................................... 59.9
Notes receivable(g)........................................................... (0.7)
Retained deficit.............................................................. (193.6)
Treasury stock................................................................ (2.2)
---------
Total stockholders' equity................................................. 56.2
---------
Total capitalization.................................................. $ 2,254.5
=========
</TABLE>
- ---------------
(a) Food 4 Less has accepted a commitment letter from Bankers Trust pursuant to
which Bankers Trust has agreed, subject to certain conditions, to provide
the Company up to a maximum aggregate amount of $1,075 million of financing
under the New Credit Facility. It is anticipated that the New Credit
Facility will be syndicated to a number of financial institutions for whom
Bankers Trust will act as agent. The New Credit Facility will provide for
(i) the New Term Loans in the aggregate amount of up to $750 million,
comprised of the $375 million Tranche A Loan, the $125 million Tranche B
Loan, the $125 million Tranche C Loan and the $125 million Tranche D Loan
and (ii) the $325 million New Revolving Facility. The Tranche A Loan may not
be fully funded at the Closing Date. The New Credit Facility will provide
that the portion of the Tranche A Loan not funded at the Closing Date will
be available for a period of 91 days following the Closing Date to fund the
Change of Control Offer. See "Description of the New Credit Facility."
29
<PAGE> 39
(b) The New Revolving Facility will provide for a $325 million line of credit
which will be available for working capital requirements and general
corporate purposes. Up to $150 million of the New Revolving Facility may be
used to support standby letters of credit. The letters of credit will be
used to cover workers' compensation contingencies and for other purposes
permitted under the New Revolving Facility. The Company anticipates that
letters of credit for approximately $92.6 million will be issued under the
New Revolving Facility at closing, in replacement of existing letters of
credit, primarily to satisfy the State of California's requirements relating
to workers' compensation self-insurance.
(c) Includes New F4L Senior Notes issued pursuant to both the Senior Note Public
Offering and the F4L Exchange Offers.
(d) Includes New RGC Notes issued pursuant to both the Subordinated Note Public
Offering and the RGC Offers. In accordance with the terms of the Old RGC
Indentures, holders of Old RGC Notes not exchanged for New RGC Notes or
purchased pursuant to the RGC Offers will be entitled to have such Old RGC
Notes repurchased by the Company pursuant to the Change of Control Offer
which will occur up to 91 days following the closing of the Merger. A
portion of the Tranche A Loan not fully funded at the Closing Date will be
available to fund the purchase of Old RGC Notes pursuant to the Change of
Control Offer.
(e) Prior to consummation of the Merger, FFL will merge with and into Holdings
pursuant to the FFL Merger. FFL is a holding company and the assets of FFL
consist solely of its investment in the capital stock of Holdings.
Immediately following the FFL Merger, Holdings will change its jurisdiction
of incorporation by merging into its wholly-owned subsidiary, New Holdings,
incorporated in Delaware, pursuant to the Reincorporation Merger. For
purposes of the pro forma financial presentation set forth above, the
minority ownership interest in Holdings that existed prior to the FFL Merger
has been classified with the majority ownership interest in Holdings as a
result of its elimination in the FFL Merger.
(f) Reflects the issuance of the Series A Preferred Stock (liquidation
preference $166.8 million) and Series B Preferred Stock (liquidation
preference $31.0 million) in the New Equity Investment for cash net of, in
the case of the Series A Preferred Stock, $5 million in related commitment
fees (of which $2.5 million is being satisfied through the issuance of New
Discount Debentures).
(g) Represents notes receivable from shareholders of Holdings with respect to
the purchase of Holdings' common stock. See "Executive Compensation -- Food
4 Less Stock Plan."
30
<PAGE> 40
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements of Holdings
for the 52 weeks ended June 25, 1994 and as of and for the 28 weeks ended
January 7, 1995, give effect to the Merger, the FFL Merger, the Reincorporation
Merger and the Financing (and certain related assumptions set forth below) and
the application of the proceeds therefrom as if such transactions occurred on
June 27, 1993, with respect to the pro forma operating and other data, and as of
January 7, 1995, with respect to the pro forma balance sheet data. Such pro
forma information combines the results of operations of Holdings for the 52
weeks ended June 25, 1994 and the results of operations and balance sheet data
as of and for the 28 weeks ended January 7, 1995, with the results of operations
of Ralphs for the 52 weeks ended July 17, 1994 and the results of operations and
balance sheet data as of and for the 28 weeks ended January 29, 1995,
respectively. For information regarding the Merger, the FFL Merger, the
Reincorporation Merger and the Financing, see "The Merger and the Financing."
Prior to consummation of the Merger, FFL will merge with and into Holdings
pursuant to the FFL Merger. The Merger of FFL into Holdings has no effect on
Holdings. FFL is a holding company and the assets of FFL consist solely of its
investment in the capital stock of Holdings. Immediately following the FFL
Merger, Holdings will change its jurisdiction of incorporation by merging into a
newly-formed, wholly-owned subsidiary, New Holdings, incorporated in Delaware,
pursuant to the Reincorporation Merger. For purposes of the pro forma financial
presentation set forth below, the minority ownership interest in Holdings that
existed prior to the FFL Merger has been classified with the majority ownership
interest in Holdings as a result of its elimination in the FFL Merger. The pro
forma adjustments are based upon the following assumptions: (i) $225.5 million
principal amount of Old RGC Notes are tendered into the RGC Offers in exchange
for New RGC Notes, (ii) $224.5 million principal amount of Old RGC Notes are
tendered into the RGC Offers for cash, (iii) $256 million principal amount of
Old F4L Notes are tendered into the F4L Exchange Offers, and (iv) $103.6 million
principal amount (at maturity) of Discount Notes are tendered into the Offer to
Purchase. The presentation also assumes that $200 million principal amount of
New RGC Notes are issued pursuant to the Subordinated Note Public Offering and
that $295 million principal amount of New F4L Senior Notes are issued pursuant
to the Senior Note Public Offering. In addition, the unaudited pro forma
combined financial statements have been prepared based upon the assumption that
upon consummation of the Merger, the Company will divest or close 32 stores.
The pro forma adjustments are based upon currently available information
and upon certain assumptions that management believes are reasonable. The Merger
will be accounted for by Holdings as a purchase of Ralphs by Holdings and
Ralphs' assets and liabilities will be recorded at their estimated fair market
values at the date of the Merger. The adjustments included in the unaudited pro
forma combined financial statements represent Holdings' preliminary
determination of these adjustments based upon available information. There can
be no assurance that the actual adjustments will not differ significantly from
the pro forma adjustments reflected in the pro forma financial information.
The unaudited pro forma combined financial statements are not necessarily
indicative of either future results of operations or results that might have
been achieved if the foregoing transactions had been consummated as of the
indicated dates. The unaudited pro forma combined financial statements should be
read in conjunction with the historical consolidated financial statements of
Holdings and Ralphs, together with the related notes thereto, included elsewhere
in this Offer to Purchase and Solicitation Statement.
31
<PAGE> 41
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
52 WEEKS ENDED
--------------------------
RALPHS HOLDINGS
(HISTORICAL) (HISTORICAL)
(UNAUDITED) (AUDITED)
JULY 17, JUNE 25, PRO FORMA PRO FORMA
1994 1994 ADJUSTMENTS COMBINED
----------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
Sales........................................... $ 2,709.7 $2,585.2 $(241.4)(a) $ 5,053.5
Cost of sales................................... 2,076.3 2,115.9 (194.7)(a) 4,005.3
4.2 (b)
2.8 (c)
0.8 (d)
--------- -------- ------- ---------
Gross profit............................... 633.4 469.3 (54.5) 1,048.2
Selling, general and administrative expenses.... 469.1 388.8 (36.4)(a) 833.1
8.1 (b)
1.4 (d)
1.6 (e)
0.5 (f)
Amortization of excess cost over net assets
acquired...................................... 11.0 7.7 10.7 (g) 29.4
Provision for restructuring..................... 2.4 0.0 -- 2.4
--------- -------- ------- ---------
Operating income........................... 150.9 72.8 (40.4) 183.3
Other expenses:
Interest expense -- cash(l)................... 93.2 57.0 73.7 (h) 223.9
Interest expense -- non-cash(l)............... 9.4 14.6 23.8 (h) 47.8
Amortization of debt issuance costs(l)........ 6.4 5.5 1.5 (h) 13.4
Loss on disposal of assets.................... 1.8 -- -- 1.8
Provision for earthquake loss................. 11.0 4.5 -- 15.5
--------- -------- ------- ---------
Earnings (loss) before income tax
provision................................ 29.1 (8.8) (139.4) (119.1)
Income tax expense (benefit).................... (108.0) 2.7 105.3 (i) --
--------- -------- ------- ---------
Net earnings (loss)(j)..................... $ 137.1 $ (11.5) $(244.7) $ (119.1)
========= ======== ======= =========
Ratio of earnings to fixed charges(k)(l)... 1.2x -- --
========= ======== =========
Other Data:
EBITDA (as defined) (j)(m).................... $ 228.1 $ 130.5 $ (16.1)(n) $ 342.5
EBITDA margin(o).............................. 8.4% 5.0% 6.8%
</TABLE>
See Notes to Unaudited Pro Forma Combined Statement of Operations.
32
<PAGE> 42
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS -- CONTINUED
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
28 WEEKS ENDED
---------------------------
RALPHS HOLDINGS
(HISTORICAL) (HISTORICAL)
(UNAUDITED) (UNAUDITED)
JANUARY 29, JANUARY 7, PRO FORMA PRO FORMA
1995 1995 ADJUSTMENTS COMBINED
----------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Sales.......................................... $1,483.6 $ 1,404.7 $(120.7)(a) $2,767.6
Cost of sales.................................. 1,144.5 1,167.2 (99.3)(a) 2,214.6
2.3 (b)
(0.8)(c)
0.7 (d)
-------- --------- ------- --------
Gross profit.............................. 339.1 237.5 (23.6) 553.0
Selling, general and administrative expenses... 254.7 199.2 (18.7)(a) 442.1
4.4 (b)
1.3 (d)
0.9 (e)
0.3 (f)
Amortization of excess cost over net assets
acquired..................................... 5.9 4.2 5.8 (g) 15.9
Provision for restructuring.................... 0.0 5.1 -- 5.1
-------- --------- ------- --------
Operating income.......................... 78.5 29.0 (17.6) 89.9
Other expenses:
Interest expense -- cash(l).................. 53.2 31.6 37.5 (h) 122.3
Interest expense -- non-cash(l).............. 4.9 8.5 14.0 (h) 27.4
Amortization of debt issuance costs(l)....... 3.2 3.1 0.6 (h) 6.9
Loss (gain) on disposal of assets............ 0.8 (0.4) -- 0.4
-------- --------- ------- --------
Earnings (loss) before income tax
provision............................... 16.4 (13.8) (69.7) (67.1)
Income tax expense (benefit)................... 0.0 0.5 (0.5)(i) 0.0
-------- --------- ------- --------
Net earnings (loss)(j).................... $ 16.4 $ (14.3) $ (69.2) $ (67.1)
======== ========= ======= ========
Ratio of earnings to fixed
charges(k)(l)........................... 1.2x -- --
======== ========== ========
Other Data:
EBITDA (as defined)(j)(m).................... $ 126.0 $ 69.4 $ (6.1)(n) $ 189.3
EBITDA margin(o)............................. 8.5% 4.9% 6.8%
</TABLE>
See Notes to Unaudited Pro Forma Combined Statement of Operations.
33
<PAGE> 43
NOTES TO UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
(a) Reflects the anticipated closing or divestiture of 32 stores. Does not give
effect to the closure of 2 Food 4 Less stores open at October 1, 1994 which
were subsequently closed. Food 4 Less has determined that there is no
impairment of existing goodwill related to the store closures based on its
projection of future undiscounted cash flows.
(b) Represents the additional depreciation expense associated with the purchase
price allocation to property, plant and equipment of $160.0 million based on
the current estimate of fair market value. Property, plant and equipment is
being depreciated over an average useful life of 13 years. Depreciation
expense has been allocated among cost of sales and selling, general and
administrative expenses.
(c) Reflects the elimination of Ralphs historical LIFO provision.
(d) Reflects depreciation expense associated with approximately $36.8 million of
additional fixed assets required for the conversion of 23 Ralphs stores to
the Food 4 Less warehouse format and 122 Alpha Beta, Boys and Viva stores to
the Ralphs format.
(e) Reflects additional Yucaipa management fees ($2.0 million for the 52 weeks
ended June 25, 1994 and $1.1 million for the 28 weeks ended January 7, 1995)
and the elimination of an annual guarantee fee ($0.4 million for the 52
weeks ended June 25, 1994 and $0.2 million for the 28 weeks ended January 7,
1995) paid by Ralphs to EJDC.
(f) Reflects increased compensation resulting from new employment agreements
with certain of the current executive officers of Ralphs.
(g) Reflects the amortization of the excess of cost over net assets acquired in
the Merger ($21.7 million for the 52 weeks ended June 25, 1994 and $11.7
million for the 28 weeks ended January 7, 1995) and elimination of Ralphs'
historical amortization ($11.0 million for the 52 weeks ended June 25, 1994
and $5.9 million for the 28 weeks ended January 7, 1995). Amortization has
been calculated on the straight line basis over a period of 40 years.
(h) The following table presents a reconciliation of pro forma interest expense
and amortization of deferred financing costs:
<TABLE>
<CAPTION>
28 WEEKS
52 WEEKS ENDED
ENDED JANUARY 7,
JUNE 25, 1994 1995
------------- ----------
<S> <C> <C>
Historical interest expense -- cash.................. $ 150.2 $ 84.8
------- -------
Plus: Interest on borrowings under:
New Credit Facility.............................. 79.4 42.7
New F4L Senior Notes............................. 33.2 17.9
New RGC Notes.................................... 48.9 26.4
Other bank fees.................................. 3.5 1.9
Other debt....................................... 2.0 1.8
Less: Interest on borrowings under:
Old bank term loans:
Ralphs......................................... (21.3) (13.7)
Food 4 Less.................................... (11.5) (6.9)
Old RGC Notes.................................... (43.9) (23.6)
Other debt....................................... (16.6) (9.0)
------- -------
Pro forma adjustment............................... 73.7 37.5
------- -------
Pro forma interest expense -- cash................... $ 223.9 $ 122.3
======= =======
Historical interest expense -- non-cash.............. $ 24.0 $ 13.4
Plus:
Interest on Seller Debentures.................... 18.5 11.1
Accretion of New Discount Debentures............. 14.1 8.4
Less:
Accretion of Discount Notes...................... (8.8) (5.5)
------- -------
Pro forma interest expense -- non-cash............... $ 47.8 $ 27.4
======= =======
Historical amortization of debt issuance costs....... $ 11.9 $ 6.3
Plus:
Financing and exchange/consent fees.............. 9.0 4.8
Other fees and expenses.......................... 3.9 2.1
Less:
Historical financing costs:
Ralphs........................................... (6.1) (3.2)
Food 4 Less...................................... (5.3) (3.1)
------- -------
Pro forma adjustment............................... 1.5 0.6
------- -------
Pro forma amortization of debt issuance costs........ $ 13.4 $ 6.9
======= =======
</TABLE>
(i) Represents the elimination of the historical income tax benefit of Ralphs
($108.0 million for the 52 weeks ended June 25, 1994) and Holdings income
tax expense ($2.7 million for the 52 weeks ended June 25, 1994 and $0.5
million for the 28 weeks ended January 7, 1995) given expected pro forma
losses. Holdings' ability to recognize income tax benefits may be limited
in accordance with Financial Accounting Standard No. 109 "Accounting for
Income Taxes." As such, no income tax benefit has been reflected in these
pro forma financial statements. See "Certain Federal Income Tax
Considerations."
(j) The unaudited pro forma results of operations and EBITDA for the 52 weeks
ended June 25, 1994 and the 28 weeks ended January 7, 1995 do not include
one-time non-recurring costs related to (i) severance payments under
certain employment contracts with Food 4 Less management totalling $1.4
million that are subject to change of control provisions and the
achievement of earnings
34
<PAGE> 44
and sales targets, (ii) costs related to the integration of the Company's
operations which are estimated to be $50.0 million over a three-year
period, (iii) $1.8 million in costs related to the cancellation of an
employment agreement, or (iv) other costs related to warehouse closures,
which costs are not presently determinable.
(k) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of earnings before income taxes, cumulative effect of change in
accounting principles, extraordinary item and fixed charges before
capitalized interest. "Fixed charges" consist of interest expense (including
amortization of self-insurance reserves discount), capitalized interest,
amortization of deferred debt issuance costs and one-third of rental expense
(the portion deemed representative of the interest factor). Holdings' pro
forma earnings were inadequate to cover pro forma fixed charges for the 52
weeks ended June 25, 1994 and for the 28 weeks ended January 7, 1995 by
approximately $119.1 million and $67.1 million, respectively. However, such
pro forma earnings included non-cash charges of $221.6 million for the 52
weeks ended June 25, 1994 and $119.4 million for the 28 weeks ended January
7, 1995, primarily consisting of depreciation and amortization.
(l) Supplemental Pro Forma Adjustments:
The table below shows the variations that would occur in the pro forma
cash and non-cash interest expense, the amortization of debt issuance costs
and the amount of the deficiency of earnings to fixed charges at different
participation levels of Old RGC Notes tendered in exchange for New RGC Notes
in the RGC Offers (50.1%, 55.1%, 60.1% and 65.1%) and of Old F4L Notes
tendered into the F4L Exchange Offers (80%, 85%, 90% and 95%). The table
also indicates the changes in the foregoing items (at each participation
level) that would result from each 25 basis point increase in the interest
rate on the New F4L Senior Notes over the assumed rate of 11% and each 25
basis point increase in the interest rate on the New RGC Notes over the
assumed rate of 11.50%.
<TABLE>
<CAPTION>
52 WEEK PERIOD 28 WEEK PERIOD
----------------------------------------- -----------------------------------------
PARTICIPATION LEVEL(1) PARTICIPATION LEVEL(1)
----------------------------------------- -----------------------------------------
50.1/80% 55.1/85% 60.1/90% 65.1/95% 50.1/80% 55.1/85% 60.1/90% 65.1/95%
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest expense -- cash............ $223.9 $224.5 $225.1 $225.7 $122.3 $122.6 $122.9 $123.2
Interest expense -- non-cash........ 47.8 47.8 47.8 47.8 27.4 27.4 27.4 27.4
Amortization of debt issuance
costs............................. 13.4 13.5 13.6 13.7 6.9 7.0 7.0 7.1
Deficiency of earnings to fixed
charges(2)........................ 119.1 119.8 120.5 121.2 67.1 67.5 67.8 68.2
EFFECT OF EACH 25 BASIS POINT INCREASE IN THE
INTEREST RATE ON THE NEW F4L SENIOR NOTES
AND NEW RGC NOTES
Additional interest
expense -- cash................... $ 2.2 $ 2.2 $ 2.3 $ 2.4 $ 1.2 $ 1.2 $ 1.2 $ 1.3
Additional interest
expense -- non-cash............... -- -- -- -- -- -- -- --
Additional amortization of debt
issuance costs.................... -- -- -- -- -- -- -- --
Additional deficiency of earnings
to fixed charges(2)............... 2.2 2.2 2.3 2.4 1.2 1.2 1.2 1.3
</TABLE>
-------------------
(1) If Food 4 Less receives tenders in excess of the RGC Minimum
Exchange in the RGC Offers, Food 4 Less may elect to decrease
the amount of New RGC Notes being offered pursuant to the
Subordinated Note Public Offering and/or decrease the amount
of New F4L Senior Notes being offered pursuant to the Senior
Note Public Offering.
(2) "Earnings" consist of earnings before income taxes, cumulative
effect of change in accounting principles, extraordinary item
and fixed charges before capitalized interest. "Fixed charges"
consist of interest expense (including amortization of
self-insurance reserves discount), capitalized interest,
amortization of deferred debt issuance costs and one-third of
rental expense (the portion deemed representative of the
interest factor).
(m) "EBITDA," as defined and presented historically by RGC, represents net
earnings before interest expense, income tax expense (benefit), depreciation
and amortization expense, post-retirement benefits, the LIFO charge,
provision for restructuring, provision for earthquake losses, a one-time
charge for Teamsters Union sick pay benefits, transition expense and gains
and losses on disposal of assets. EBITDA is a widely accepted financial
indicator of a company's ability to service debt. However, EBITDA should not
be construed as an alternative to operating income or to cash flows from
operating activities (as determined in accordance with generally accepted
accounting principles) and should not be construed as an indication of the
Holdings' operating performance or as a measure of liquidity. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(n) Reflects primarily EBITDA (as defined) associated with closed or divested
stores and the adjustments referred to in notes (e) and (f) above.
(o) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
35
<PAGE> 45
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
RALPHS HOLDINGS
(HISTORICAL) (HISTORICAL)
(AUDITED) (UNAUDITED) PRO FORMA
JANUARY 29, 1995 JANUARY 7, 1995 ADJUSTMENTS PRO FORMA
---------------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 35.1 $ 15.8 $ 0.0(a) $ 50.9
Accounts receivable.......................... 43.6 26.8 -- 70.4
Inventories.................................. 221.4 223.2 39.9(b) 484.5
Prepaid expense and other current assets..... 19.8 17.6 -- 37.4
-------- ------- ------- --------
Total current assets.................. 319.9 283.4 39.9 643.2
Investments.................................... 0.0 12.4 12.4
Property, plant and equipment.................. 624.7 370.2 160.0(c) 1,130.1
(22.8)(d)
(2.0)(e)
Excess of cost over net assets acquired, net... 365.4 263.7 501.4(f) 1,130.5
Beneficial lease rights........................ 49.2 0.0 -- 49.2
Deferred debt issuance costs, net.............. 23.0 25.5 88.4(g) 94.1
(42.8)(h)
Deferred income taxes.......................... 112.5 0.0 (112.5)(i) 0.0
Other assets................................... 15.2 29.4 (12.9)(d) 36.7
5.0(j)
-------- ------- ------- --------
Total assets.......................... $1,509.9 $ 984.6 $ 601.7 $3,096.2
======== ======= ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt......... $ 84.0 $ 25.9 $ (83.1)(k) $ 26.8
Short-term debt.............................. 51.5 0.0 (51.5)(l) 0.0
Accounts payable............................. 176.6 165.0 -- 341.6
Accrued expenses............................. 99.8 108.8 (14.8)(m) 200.3
4.7(d)
1.8(n)
Current portion of self-insurance reserves... 27.5 28.6 -- 56.1
-------- ------- ------- --------
Total current liabilities............. 439.4 328.3 (142.9) 624.8
Long-term debt................................. 883.0 590.0 725.3(o) 2,198.3
Self-insurance reserves........................ 44.9 50.7 -- 95.6
Deferred income taxes.......................... 0.0 14.7 -- 14.7
Lease valuation reserve........................ 29.0 0.0 -- 29.0
Other non-current liabilities.................. 86.4 5.0 (27.8)(p) 77.6
11.0(q)
3.0(e)
-------- ------- ------- --------
Total liabilities..................... 1,482.7 988.7 568.6 3,040.0
-------- ------- ------- --------
Stockholders' equity:
Series A Preferred Stock, liquidation
preference $166.8 million.................. -- -- 104.0(r) 161.8
57.8(s)
Series B Preferred Stock, liquidation
preference $31.0 million................... -- -- 31.0(r) 31.0
Common Stock................................. 0.3 0.0 (0.3)(t) 0.0
Additional paid-in capital................... 175.2 105.5 10.0(p) 59.9
(175.2)(t)
(57.8)(s)
2.2(u)
Notes receivable from shareholders........... 0.0 (0.7) -- (0.7)
Retained deficit............................. (148.3) (108.9) (22.6)(v) (193.6)
148.3(t)
(40.4)(d)
(1.8)(n)
(19.9)(w)
Treasury stock............................... -- -- (2.2)(u) (2.2)
-------- ------- ------- --------
Total stockholders' equity(x)......... 27.2 (4.1) 33.1 56.2
-------- ------- ------- --------
Total liabilities and stockholders'
equity.............................. $1,509.9 $ 984.6 $ 601.7 $3,096.2
======== ======= ======= ========
</TABLE>
See Notes to Unaudited Pro Forma Combined Balance Sheet.
36
<PAGE> 46
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(a) Reflects gross proceeds received from (i) the New Term Loans, (ii) the New
Revolving Facility, (iii) the New Equity Investment, (iv) the Public
Offerings and (v) the New Discount Debenture Placement used to retire
certain debt and liabilities and to pay financing costs and other related
fees as set forth in the following table:
<TABLE>
<S> <C>
New Term Loans............................................................................ $ 750.0
New Revolving Facility.................................................................... 50.8
New F4L Senior Notes...................................................................... 295.0
New RGC Notes............................................................................. 200.0
New Equity Investment..................................................................... 140.0
New Discount Debentures................................................................... 59.0
Purchase Discount Notes................................................................... (83.9)
Purchase RSI Common Stock................................................................. (375.9)
Repay Ralphs 1992 Credit Agreement........................................................ (297.4)
Repay F4L Credit Agreement................................................................ (174.4)
Purchase Old RGC Notes.................................................................... (226.8)
Pay EAR liability......................................................................... (17.8)
Loan to affiliate......................................................................... (5.0)
Repay other Ralphs debt................................................................... (188.9)
Accrued Interest.......................................................................... (14.8)
Fees and Expenses......................................................................... (109.9)
-------
Pro forma adjustment.............................................................. $ 0.0
=======
</TABLE>
(b) Reflects the elimination of Ralphs historical LIFO reserve ($17.4 million)
and the write-up of merchandise inventory ($22.5 million); both to reflect
current estimated selling prices less costs of disposal and a reasonable
profit allowance for the selling effort of the acquiring company.
(c) Reflects the estimated write-up to fair value of Ralphs property, plant and
equipment as of the date of the Merger.
(d) Reflects estimated restructuring charge associated with closing 29 Food 4
Less conventional supermarkets or warehouse stores and converting 5 Food 4
Less conventional supermarkets to warehouse stores. Pursuant to the
settlement agreement with the State of California, 24 Food 4 Less stores (as
well as 3 Ralphs stores) must be closed by December 31, 1995. See
"Business -- California Settlement Agreement." Although not required by such
settlement agreement, an additional 5 under-performing stores selected by
the Company also are scheduled to be closed by December 31, 1995. The
restructuring charge consists of write-downs of property, plant and
equipment ($22.8 million), write-off of the Alpha Beta trademark ($8.6
million), write-off of other assets ($4.3 million), lease termination
expenses ($3.1 million) and miscellaneous expense accruals ($1.6 million).
The expected cash payments to be made in connection with the restructuring
charge total $7.1 million. It is expected that such cash payments will be
made by December 31, 1995. The estimated restructuring charge will be
recorded as an expense once the Merger is completed. No additional expenses
are expected to be incurred in future periods in connection with these
closings. Food 4 Less has determined that there is no impairment of existing
goodwill related to the store closures based on its projections of future
undiscounted cash flows.
(e) Reflects the anticipated closing of 3 Ralphs stores.
(f) Reflects the excess of costs over the fair value of the net assets of Ralphs
acquired in connection with the Merger ($866.8 million) and the elimination
of Ralphs historical excess of costs over the fair value of the net assets
acquired ($365.4 million). The purchase price and preliminary calculation of
the excess of cost over the net book value of assets acquired is as follows:
<TABLE>
<S> <C>
Purchase price:
Purchase of outstanding common equity.................................................. $ 525.9
Fees and expenses...................................................................... 55.8
--------
Total purchase price................................................................... $ 581.7
--------
Purchase price is financed by:
Seller Debentures...................................................................... $ 131.5
New Discount Debentures................................................................ 18.5
New Equity Investment.................................................................. 140.0
New borrowings......................................................................... 291.7
--------
$ 581.7
========
</TABLE>
Preliminary calculation of purchase price allocated to assets and
liabilities
based on management's estimate of fair values as of January 29, 1995:
<TABLE>
<S> <C>
Cash................................................................................... $ 35.1
Receivables............................................................................ 43.6
Inventories............................................................................ 261.3
Other current assets................................................................... 19.8
Property, fixtures and equipment....................................................... 782.7
Beneficial lease rights................................................................ 49.2
Goodwill............................................................................... 866.8
Other assets........................................................................... 18.0
Current liabilities.................................................................... (424.8)
Obligations under capital leases....................................................... (89.1)
Long-term debt......................................................................... (806.6)
Other non-current liabilities.......................................................... (174.3)
--------
$ 581.7
========
</TABLE>
37
<PAGE> 47
<TABLE>
<CAPTION>
<S> <C> <C>
Pro forma book value of historical assets acquired:
Historical net book value at January 29, 1995...................................... $ 27.2
Less book value of historical assets with no value at the acquisition date:
Historical deferred tax asset............................................. 112.5
Historical goodwill....................................................... 365.4
Historical deferred debt costs............................................ 20.2 (498.1)
----- --------
Negative pro forma book value of net assets acquired............................. 470.9
Purchase price..................................................................... 581.7
--------
Excess of purchase price to be allocated........................................... $1,052.6
========
Excess allocated to:
Inventories........................................................................ $ 39.9
Property, fixtures and equipment................................................... 160.0
Goodwill........................................................................... 866.8
Other non-current liabilities...................................................... (14.1)
--------
$1,052.6
========
</TABLE>
(g) Reflects the debt issuance costs associated with the New Credit Facility,
($33.4 million), the RGC Offers ($2.2 million), the F4L Exchange Offers
($2.6 million), the Senior Note Public Offering ($8.9 million) and the
Subordinated Note Public Offering ($6.0 million), the cash exchange payments
associated with the RGC Offers ($4.5 million) and the F4L Exchange Offers
($3.0 million) and other financing costs ($27.8 million). These amounts have
been capitalized as deferred financing costs.
(h) Reflects the elimination of deferred debt issuance costs associated with the
Ralphs 1992 Credit Agreement (as defined) ($6.3 million), the F4L Credit
Agreement (as defined) ($9.2 million), the Old RGC Notes ($10.4 million) and
the Old F4L Notes ($13.4 million) and other indebtedness of RGC and Food 4
Less ($3.5 million) to be repaid in connection with the Merger.
(i) Reflects the elimination of Ralphs deferred tax asset associated with
changes in the financial reporting basis of assets. The combined Company may
be required to record a valuation allowance on all or some deferred tax
assets in compliance with Financial Accounting Standard No. 109 "Accounting
for Income Taxes." This determination may be based, in part, on historical
or expected earnings. For purposes of these pro forma financial statements
it has been assumed that all deferred net tax assets have been fully
reserved.
(j) Represents a loan to a corporation owned by Yucaipa affiliates. The
corporation will invest the loan proceeds in a partnership that will
purchase New Discount Debentures. All proceeds received by the Company from
the repayment of the loan will be paid to former holders of Ralphs EARs in
satisfaction of the deferred EAR liability. See "Certain Relationships and
Related Transactions -- Food 4 Less and Holdings."
(k) Reflects the repayment and cancellation of the current maturities of Ralphs
1992 Credit Agreement ($65.0 million), the F4L Credit Agreement ($19.8
million), certain other Ralphs debt ($2.1 million) and the recording of the
current maturities of the New Credit Facility ($3.8 million).
(l) Reflects the repayment of Ralphs' old revolving credit facility.
(m) Reflects the payment of accrued interest on the Ralphs 1992 Credit Agreement
($1.5 million), the F4L Credit Agreement ($1.7 million), the Old RGC Notes
($5.5 million), the Old F4L Notes ($4.5 million) and other indebtedness of
RGC and Food 4 Less ($1.6 million) to be repaid in connection with the
Merger.
(n) Represents the liability to an executive under his employment contract due
to a change of control provision.
(o) Reflects the repayment and cancellation of the Ralphs 1992 Credit Agreement
and the F4L Credit Agreement and the repayment of certain other Ralphs debt,
and records borrowings under the New Credit Facility and issuance of the New
Discount Debentures and the Seller Debentures as set forth in the table
below:
<TABLE>
<S> <C>
New Term Loans............................................................................ $ 746.2
New Revolving Facility.................................................................... 50.8
New F4L Senior Notes...................................................................... 295.0
New RGC Notes............................................................................. 200.0
New Discount Debentures................................................................... 100.0
Seller Debentures......................................................................... 131.5
Purchase Discount Notes (book value)...................................................... (64.5)
Repay Ralphs 1992 Credit Agreement........................................................ (180.0)
Repay F4L Credit Agreement................................................................ (154.6)
Purchase Old RGC Notes.................................................................... (224.5)
Repay other Ralphs debt................................................................... (174.6)
-------
Net pro forma adjustment.......................................................... $ 725.3
=======
</TABLE>
(p) Reflects payments with respect to a portion of the Ralphs EAR liability
($17.8 million) and the issuance of New Holdings stock options in
consideration of the cancellation of the remaining Ralphs EAR liability
($10.0 million). See "Executive Compensation -- Equity Appreciation Rights
Plan." No future compensation expense will be recorded as the cancellation
of certain EAR liabilities ($10.0 million) in consideration for the issuance
of New Holdings stock options is deemed to reflect fair value.
(q) Reflects a reserve for Ralphs unfunded defined benefit pension plan,
determined as the difference between the projected benefit obligation of the
plan as compared to the fair value of plan assets, less amounts previously
accrued.
(r) Reflects the issuance of the Series A and Series B Preferred Stock for cash,
net of (in the case of the Series A Preferred Stock) $5.0 million in related
commitment fees. The proceeds will be used to acquire RSI stock, to
repurchase Discount Notes and to repay indebtedness of the Company.
(s) Represents the cancellation of 5,783,244 shares of common stock (after
giving effect to a 2.082-for-one stock split) in connection with the
issuance of Preferred Stock in the New Equity Investment.
(t) Reflects the elimination of Ralphs historical equity.
(u) Represents the reclassification of treasury stock held by Holdings.
(v) Represents the write-off of the historical deferred debt issuance costs of
Holdings related to its refinanced debt.
(w) Represents the premium over the book value of the Discount Notes as of
January 7, 1995 and related fees.
(x) The unaudited pro forma combined balance sheet as of January 7, 1995 does
not include certain one-time non-recurring costs related to (i) severance
payments under certain employment contracts with Food 4 Less management
totaling $1.4 million that are subject to change of control provisions and
the achievement of earnings and sales targets, (ii) costs related to the
integration of the Company's operations which are estimated to be $50.0
million (includes an estimated $12.0 million related to termination and
severance costs) over a three-year period, (iii) other costs related to
warehouse closures, which costs are not presently determinable or (iv) any
contingent liability to reimburse Yucaipa in the event it incurs a loss on
the resale of $10 million of the Seller Debentures.
38
<PAGE> 48
SELECTED HISTORICAL FINANCIAL DATA OF RALPHS
The following table presents selected historical financial data of RGC (as
the predecessor of RSI) as of and for the 53 weeks ended February 3, 1991, and
the 52 weeks ended February 2, 1992, and summary historical financial data of
RSI for the 52 weeks ended January 31, 1993, January 30, 1994 and January 29,
1995, which have been derived from the financial statements of RSI and RGC
audited by KPMG Peat Marwick LLP, independent certified public accountants. The
following information should be read in conjunction with the Unaudited Pro Forma
Combined Financial Statements, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the historical financial
statements of RSI and RGC and related notes thereto included elsewhere in this
Offer to Purchase and Solicitation Statement.
<TABLE>
<CAPTION>
53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED ENDED
FEBRUARY 3, FEBRUARY 2, JANUARY 31, JANUARY 30, JANUARY 29,
1991 1992 1993 1994 1995
----------- ----------- ----------- ----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales................................................ $2,799.1 $2,889.2 $ 2,843.8 $ 2,730.2 $2,724.6
Cost of sales........................................ 2,225.4 2,275.2 2,217.2 2,093.7 2,101.0
-------- -------- --------- --------- --------
Gross profit......................................... 573.7 614.0 626.6 636.5 623.6
Selling, general and administrative expenses(a)...... 438.0 459.2 470.0 471.0 467.0
Provision for equity appreciation rights............. 15.3 18.3 -- -- --
Amortization of excess of cost over net assets
acquired........................................... 11.0 11.0 11.0 11.0 11.0
Provisions for restructuring and tax indemnification
payments(b)........................................ -- 10.0 7.1 2.4 --
-------- -------- --------- --------- --------
Operating income..................................... 109.4 115.5 138.5 152.1 145.6
Interest expense(c)................................ 128.5 130.2 125.6 108.8 112.7
Loss on disposal of assets and provisions for legal
settlement and earthquake losses(d).............. 6.4 13.0 10.1 12.9 0.8
Income tax expense (benefit)......................... 12.8 13.5 8.3 (108.0)(e) --
Cumulative effect of change in accounting for
postretirement benefits other than pensions........ (13.1) -- -- -- --
Extraordinary item-debt refinancing, net of tax
benefits........................................... -- -- (70.6) -- --
-------- -------- --------- --------- --------
Net earnings (loss).................................. $ (51.4) $ (41.2) $ (76.1) $ 138.4 $ 32.1
======== ======== ========= ========= =========
Ratio of earnings to fixed charges(f)................ --(f) --(f) 1.02x 1.24x 1.24x
BALANCE SHEET DATA (end of period):
Working capital surplus (deficit).................... $ (93.9) $ (114.2) $ (122.0) $ (73.0) $ (119.5)
Total assets......................................... 1,406.4 1,357.6 1,388.5 1,483.7 1,509.9
Total debt(g)........................................ 986.1 941.9 1,029.8 998.9 1,018.5
Redeemable stock..................................... 3.0 3.0 -- -- --
Stockholders' equity (deficit)....................... (16.0) (57.2) (133.3) 5.1 27.2
OTHER DATA:
Depreciation and amortization(h)..................... $ 75.2 $ 76.6 $ 76.9 $ 74.5 $ 76.0
Capital expenditures................................. 87.6 50.4 102.7 62.2 64.0
Stores open at end of period......................... 150 158 159 165 173
EBITDA (as defined)(i)............................... $ 207.0 $ 225.8 $ 227.3 $ 230.2 $ 230.2
EBITDA margin(j)..................................... 7.4% 7.8% 8.0% 8.4% 8.4%
</TABLE>
- ---------------
(a) Includes provision for post retirement benefits other than pensions of $2.2
million, $2.6 million, $3.3 million, $3.4 million and $2.6 million for the
53 weeks ended February 3, 1991, the 52 weeks ended February 2, 1992,
January 31, 1993, January 30, 1994 and January 29, 1995, respectively.
(b) Provisions for restructuring are charges for expenses relating to closing of
Ralphs central bakery operation. The charge reflected the complete
write-down of the bakery building, machinery and equipment, leaseholds,
related inventory and supplies, and providing severance pay to terminated
employees. These charges were $7.1 million and $2.4 million for the 52 weeks
ended January 31, 1993 and the 52 weeks ended January 30, 1994,
respectively. Provision for tax indemnification payments to Federated were
$10.0 million for the 52 weeks ended February 2, 1992.
(c) Net earnings (loss) includes non-cash charges related to the amortization of
deferred debt issuance costs of $4.1 million for the 53 weeks ended February
3, 1991, $5.0 million for the 52 weeks ended February 2, 1992, $5.5 million
for the 52 weeks ended January 31, 1993, $6.5 million for the 52 weeks ended
January 30, 1994 and $6.1 million for the 52 weeks ended January 29, 1995,
respectively.
(d) Loss on disposal of assets was $6.4 million, $13.0 million, $2.6 million,
$1.9 million and $0.8 million for the 53 weeks ended February 3, 1991, the
52 weeks ended February 2, 1992, January 31, 1993, January 30, 1994 and
January 29, 1995, respectively. The 52 weeks ended February 2, 1992 includes
approximately $12.2 million representing a reserve against losses related to
the closing of three stores. Provision for legal settlement was $7.5 million
for the 52 weeks ended January 31, 1993. Provision for earthquake losses was
$11.0 million for the 52 weeks ended January 30, 1994. This represents
reserve for losses, net of anticipated insurance recoveries, resulting from
the January 17, 1994 Southern California earthquake.
39
<PAGE> 49
(e) Includes recognition of $109.1 million of deferred income tax benefit and
$1.1 million current income tax expense for Fiscal 1993 (see Note 11 of
Notes to Consolidated Financial Statements of Ralphs Supermarkets, Inc.).
(f) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of earnings before income taxes, cumulative effect of change in
accounting principles, extraordinary items and fixed charges before
capitalized interest. "Fixed charges" consist of interest expense (including
amortization of self-insurance reserves discount), capitalized interest,
amortization of deferred debt issuance costs and one-third of rental expense
(the portion deemed representative of the interest factor). Earnings were
insufficient to cover fixed charges for the 53 weeks ended February 3, 1991
and the 52 weeks ended February 2, 1992 by $25.5 million and $27.7 million,
respectively.
(g) Total debt includes long-term debt, current maturities of long-term debt,
short-term debt and capital lease obligations.
(h) For the 53 weeks ended February 3, 1991, the 52 weeks ended February 2,
1992, January 31, 1993, January 30, 1994 and January 29, 1995, depreciation
and amortization includes amortization of the excess of cost over net assets
acquired of $11.0 million, $11.0 million, $11.0 million, $11.0 million and
$11.0 million, respectively.
(i) "EBITDA," as defined and presented historically by RGC, represents earnings
before interest expense, income tax expense (benefit), depreciation and
amortization expense, provisions for Equity Appreciation Rights, provision
for tax indemnification payments to Federated, provision for postretirement
benefits, the LIFO charge, extraordinary item relating to debt refinancing,
provision for legal settlement, provision for restructuring, provision for
earthquake losses, a one-time charge for Teamsters Union sick pay benefits,
transition expense and gains and losses on disposal of assets. EBITDA is a
widely accepted financial indicator of a company's ability to service debt.
However, EBITDA should not be construed as an alternative to operating
income or to cash flows from operating activities (as determined in
accordance with generally accepted accounting principles) and should not be
construed as an indication of Ralphs' operating performance or as a measure
of liquidity. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(j) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
40
<PAGE> 50
SELECTED HISTORICAL FINANCIAL DATA OF HOLDINGS
The following table presents selected historical financial data of Holdings
and its predecessor, Food 4 Less. Because Holdings acquired the capital stock of
Food 4 Less in a reorganization, which occurred December 31, 1992, the financial
data presented below for periods ending prior to such date represent data of
Food 4 Less. Operating data of Holdings for the 52 weeks ended June 26, 1993
reflects the operating results of Food 4 Less only until December 31, 1992 and
reflects the consolidated operating results of Holdings for the remainder of the
period. The historical financial data of Food 4 Less presented below as of and
for the 52 weeks ended June 30, 1990, the 52 weeks ended June 29, 1991 and the
52 weeks ended June 27, 1992, and the historical financial data of Holdings
presented below as of and for the 52 weeks ended June 26, 1993 and the 52 weeks
ended June 25, 1994 have been derived from the financial statements of Holdings
and Food 4 Less audited by Arthur Andersen LLP, independent public accountants.
The summary historical financial data of Holdings presented below as of and for
the 28 weeks ended January 8, 1994 and January 7, 1995 have been derived from
unaudited interim financial statements of Holdings which, in the opinion of
management, reflect all material adjustments, consisting of only normal
recurring adjustments, necessary for a fair presentation of such data. The
following information should be read in conjunction with the Unaudited Pro Forma
Combined Financial Statements, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the historical consolidated
financial statements of Holdings and related notes thereto included elsewhere in
this Offer to Purchase and Solicitation Statement.
<TABLE>
<CAPTION>
FOOD 4 LESS HOLDINGS
-------------------------------- ----------------------------------------------
53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 28 WEEKS 28 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30, JUNE 29, JUNE 27, JUNE 26, JUNE 25, JANUARY 8, JANUARY 7,
1990 1991(A) 1992 1993 1994(B) 1994 1995
-------- -------- -------- -------- -------- ---------- ----------
(DOLLARS IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales....................................... $1,318.2 $1,606.6 $2,913.5 $2,742.0 $2,585.2 $ 1,416.2 $1,404.7
Cost of sales............................... 1,113.4 1,340.9 2,392.7 2,257.8 2,115.9 1,154.0 1,167.2
-------- -------- -------- -------- -------- --------- --------
Gross profit................................ 204.8 265.7 520.8 484.2 469.3 262.2 237.5
Selling, general, administrative and other
expenses.................................. 157.8 213.1 469.7 434.9 388.8 221.5 199.2
Amortization of excess cost over net assets
acquired.................................. 5.3 5.3 7.8 7.6 7.7 4.1 4.2
Restructuring charge........................ -- -- -- -- -- -- 5.1(d)
-------- -------- -------- -------- -------- --------- --------
Operating income............................ 41.7 47.3 43.3 41.7 72.8 36.6 29.0
Interest expense(c)......................... 50.8 50.1 70.2 73.6 77.0 41.5 43.2
Loss (gain) on disposal of assets........... -- 0.6 (1.3) (2.1 ) -- 0.1 (0.4)
Provision for earthquake losses............. -- -- -- -- 4.5 -- --
Provision for income taxes.................. 1.0 2.5 3.4 1.4 2.7 0.7 0.5
Extraordinary charge........................ -- 3.7(e) 4.8(f) -- -- -- --
-------- -------- -------- -------- -------- --------- --------
Net loss.................................... $ (10.1) $ (9.6) $ (33.8) $ (31.2) $ (11.5) $ (5.7) $ (14.3)
======== ======== ======== ======== ======== ========= ========
Ratio of earnings to fixed charges(g)....... --(g) --(g) --(g) -- (g) --(g) --(g) --(g)
BALANCE SHEET DATA (end of period)(h):
Working capital surplus (deficit)........... $ (40.5) $ 13.7 $ (66.3) $ (19.2) $ (54.9) $ (14.9) $ (44.8)
Total assets................................ 574.7 980.0 998.5 957.8 980.1 969.6 984.6
Total debt(i)............................... 360.7 558.9 525.3 588.3 576.9 576.2 615.9
Redeemable stock............................ 5.1 -- -- -- -- -- --
Stockholder's equity (deficit).............. 20.6 84.6 50.8 22.6 10.0 16.2 (4.1)
OTHER DATA:
Depreciation and amortization(j)............ $ 25.8 $ 31.9 $ 54.9 $ 57.6 $ 57.1 $ 30.4 $ 30.8
Capital expenditures........................ 36.4 34.7 60.3 53.5 57.5 20.4 39.0
Stores open at end of period................ 115 259 249 248 258 249 266
EBITDA (as defined)(k)...................... $ 69.5 $ 80.7 $ 103.1 $ 105.9 $ 130.5 $ 69.1 $ 69.4
EBITDA margin(l)............................ 5.3% 5.0% 3.5% 3.9% 5.0% 4.9% 4.9%
</TABLE>
- ---------------
(a) Operating data for the 52 weeks ended June 29, 1991 include the results of
Alpha Beta only from June 17, 1991, the date of its acquisition. Alpha
Beta's sales for the two weeks ended June 29, 1991 were $59.2 million.
(b) Operating data for the 52 weeks ended June 25, 1994 include the results of
the Food Barn stores, which were not material, from March 29, 1994, the date
of the acquisition of the Food Barn stores.
(c) Interest expense includes non-cash charges related to the amortization of
deferred financing costs of $4.1 million for the 53 weeks ended June 30,
1990, $5.2 million for the 52 weeks ended June 29, 1991, $6.3 million for
the 52 weeks ended June 27, 1992, $4.9 million for the 52 weeks ended June
26, 1993,
41
<PAGE> 51
$5.5 million for the 52 weeks ended June 25, 1994, $2.9 million for the 28
weeks ended January 8, 1994 and $3.1 million for the 28 weeks ended January
7, 1995.
(d) Represents the recording of a restructuring charge for the write-off of
property and equipment in connection with the conversion of 11 conventional
format supermarkets to warehouse format stores.
(e) Represents an extraordinary charge of $3.7 million (net of related income
tax benefit of $2.5 million) relating to the refinancing of certain
indebtedness in connection with the Alpha Beta acquisition and the write-off
of related debt issuance costs.
(f) Represents an extraordinary net charge of $4.8 million reflecting the
write-off of $6.7 million (net of related income tax benefit of $2.5
million) of deferred debt issuance costs as a result of the early redemption
of a portion of Food 4 Less' term loan facility under the F4L Credit
Agreement, partially offset by a $1.9 million extraordinary gain (net of a
related income tax expense of $0.7 million) on the replacement of partially
depreciated assets following the civil unrest in Los Angeles.
(g) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of loss before provision for income taxes and extraordinary charges,
plus fixed charges. "Fixed charges" consist of interest on all indebtedness,
amortization of deferred debt issuance costs and one-third of rental expense
(the portion deemed representative of the interest factor). Earnings were
insufficient to cover fixed charges for the 53 weeks ended June 30, 1990,
the 52 weeks ended June 29, 1991, June 27, 1992, June 26, 1993 and June 25,
1994 and the 28 weeks ended January 8, 1994 and January 7, 1995 by
approximately $9.1 million, $3.4 million, $25.6 million, $29.8 million, $8.8
million, $5.0 million and $13.8 million, respectively. However, such
earnings included non-cash charges of $29.9 million for the 53 weeks ended
June 30, 1990, $37.0 million for the 52 weeks ended June 29, 1991, $61.2
million for the 52 weeks ended June 27, 1992 and $66.4 million for the 52
weeks ended June 26, 1993, $71.3 million for the 52 weeks ended June 25,
1994, $38.0 million for the 28 weeks ended January 8, 1994 and $44.6 million
for the 28 weeks ended January 7, 1995, primarily consisting of
depreciation, amortization and accretion of interest.
(h) Balance sheet data as of June 30, 1990 include the effect of the BHC
Acquisition, as well as the acquisitions of Bell Markets, Inc. and certain
assets of ABC Market Corp. Balance sheet data as of June 29, 1991, June 27,
1992, June 26, 1993 and January 8, 1994 reflect the Alpha Beta acquisition
and the financings and refinancings associated therewith. Balance sheet data
as of June 25, 1994 and January 7, 1995 reflect the acquisition of the Food
Barn stores.
(i) Total debt includes long-term debt, current maturities of long-term debt and
capital lease obligations.
(j) For the 53 weeks ended June 30, 1990, the 52 weeks ended June 29, 1991, June
27, 1992, June 26, 1993 and June 25, 1994, and the 28 weeks ended January 8,
1994 and January 7, 1995, depreciation and amortization includes
amortization of excess of cost over net assets acquired of $5.3 million,
$5.3 million, $7.8 million, $7.6 million, $7.7 million, $4.1 million and
$4.2 million, respectively.
(k) "EBITDA," as defined and presented historically by Holdings, represents
income before interest expense, depreciation and amortization expense, the
LIFO provision, provision for incomes taxes, provision for earthquake losses
and the one-time adjustment to the Teamsters Union sick pay accrual. EBITDA
is a widely accepted financial indicator of a company's ability to service
debt. However, EBITDA should not be construed as an alternative to operating
income or to cash flows from operating activities (as determined in
accordance with generally accepted accounting principles) and should not be
construed as an indication of Holdings' operating performance or as a
measure of liquidity. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(l) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
42
<PAGE> 52
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Prior to consummation of the Merger, FFL will merge with and into Holdings
pursuant to the FFL Merger. FFL is a holding company and the assets of FFL
consist solely of its investment in the capital stock of Holdings. FFL does not
conduct any operations of its own. Holdings owns 100% of the stock of Food 4
Less and does not conduct any business operations of its own. Immediately
following the FFL Merger, Holdings will change its jurisdiction of incorporation
by merging into a newly-formed, wholly-owned subsidiary, New Holdings,
incorporated in Delaware, pursuant to the Reincorporation Merger. The following
discussion addresses an overview of the combination of Ralphs and Food 4 Less,
the historical results of operations of Ralphs and Holdings and the liquidity
and capital resources of Ralphs and Holdings on both a historical and a pro
forma combined basis.
OVERVIEW
The combination of Ralphs and Food 4 Less will create the largest
supermarket operator in Southern California with an estimated 264 conventional
format Ralphs stores and an estimated 68 price-impact Food 4 Less warehouse
format stores. The Company will operate an additional 63 stores in Northern
California and certain areas of the Midwest. Management believes that the
Company's dual format strategy will appeal to a broad range of Southern
California consumers and enable the Company to significantly enhance its overall
competitive position. In addition, the Company expects to achieve cost savings
and incremental profitability through the integration of advertising,
administration, purchasing, distribution, manufacturing and other operations.
Due to its increased size, dual format strategy and integration related costs,
the Company believes that its future operating results may not be directly
comparable to the historical operating results of either Ralphs or Holdings.
Certain factors which are expected to affect the future operating results of the
Company (or their comparability to prior periods) are discussed below.
Regional Economic Conditions. In recent periods Ralphs and Food 4 Less have
each been affected by the adverse economic conditions that have existed in
Southern California since approximately 1991. These conditions were exacerbated
by the substantial layoffs in the defense and aerospace industries and by the
civil unrest in Los Angeles in April, 1992. In addition, management estimates
that approximately eight million square feet of supermarket selling space has
been added in Southern California over the past five years. As a result of these
factors and general deflationary pressures in certain food product categories,
Ralphs and Food 4 Less have each experienced declining comparable store sales in
recent periods. Over the last three fiscal years, Food 4 Less' and Ralphs' total
sales declined by 11.3% and 4.2%, respectively. However, both Food 4 Less' and
Ralphs' comparable store sales declines have begun to moderate in recent months.
Despite these sales trends, however, each company has improved its profitability
over the same period as discussed in greater detail below. Although data
indicate a mild recovery in the Southern California economy and management
believes that overall sales trends in Southern California should improve along
with the economy, there can be no assurance that such improvements will occur.
Management believes that its dual format strategy and anticipated cost savings
will leave it well positioned to take advantage of improvements in the regional
economy and growing population and to compete effectively in the Southern
California marketplace. See "Risk Factors -- Regional Economic Conditions."
Integration Costs and Restructuring Charges. The two principal components
of the Company's integration strategy will be (i) the conversion of up to 122 of
Food 4 Less' conventional stores (primarily Alpha Beta stores) to the Ralphs
name and format and the conversion of 16 other (Boys and Viva) Food 4 Less
conventional stores (11 of which were recently completed) and 23 Ralphs stores
to the Food 4 Less price impact warehouse format; and (ii) the achievement of
substantial cost savings through the consolidation of warehousing, manufacturing
and distribution operations and the elimination of certain other duplicative
overhead costs. Management has estimated that approximately $90 million of net
annual cost savings (as compared to such costs for the pro forma combined fiscal
year ended June 25, 1994) are achievable by the end of the fourth year of
combined operations. Although a portion of the anticipated cost savings is
premised upon the completion of certain capital expenditures, management
believes that over 70% of the cost savings could be achieved without making any
Merger-related capital expenditures. See "Business -- The Merger" and
43
<PAGE> 53
"Risk Factors -- Ability to Achieve Anticipated Cost Savings." Management
believes that approximately $117 million in Merger-related capital expenditures
and $50 million of other non-recurring costs will be required to complete store
conversions, integrate operations and expand warehouse facilities over this
four-year period. Management expects that the non-recurring integration costs
will effectively offset any cost savings in the first year following the Merger.
See "-- Liquidity and Capital Resources." In addition, management anticipates
that certain non-recurring costs associated with the integration of operations
will be recorded as a restructuring charge. The charge will cover costs
associated with the writedown of property and equipment and related reserves
associated with the conversion of certain Food 4 Less conventional supermarkets
to warehouse stores and the closure of certain Food 4 Less conventional stores
as well as the write-off of the Alpha Beta trademark. This restructuring charge
has been estimated, for purposes of the pro forma financial information included
elsewhere herein, at approximately $45.5 million. On December 14, 1994, Food 4
Less and Ralphs entered into a Settlement Agreement (the "Settlement Agreement")
with the State of California. See "Business -- California Settlement Agreement."
Under the Settlement Agreement, the Company must divest a total of 27 stores (24
Food 4 Less conventional supermarkets or warehouse stores and 3 Ralphs stores).
In addition, although not required pursuant to the Settlement Agreement, an
additional 5 under-performing stores selected by the Company are scheduled to be
closed following the Merger. It is anticipated that such closures and store
conversions will be substantially completed by December 31, 1995. The estimated
restructuring charge aggregating $45.5 million for the 24 Food 4 Less stores to
be divested under the Settlement Agreement, the planned closures (5 Food 4 Less
stores) and the conversion of 16 Food 4 Less conventional stores to warehouse
format stores reflects (i) the writedown of property, plant and equipment ($27.9
million), (ii) the write-off of the Alpha Beta trademark ($8.6 million), (iii)
the write-off of other assets ($4.3 million), (iv) lease termination expense
($3.1 million) and (v) miscellaneous expense accruals ($1.6 million). The
expected cash payments to be made in connection with the restructuring charge
will total $7.1 million. It is expected that such cash payments will be made by
December 31, 1995. As a result of the completion of 11 of the 16 planned Food 4
Less conventional store conversions during the second quarter of the current
fiscal year, Food 4 Less has recorded a restructuring charge of $5.1 million in
its results of operations for the 28 weeks ended January 7, 1995. Food 4 Less
has determined that there is no impairment of existing goodwill related to the
store closures based on its projections of future undiscounted cash flows. The
remaining estimated restructuring charge will be recorded as an expense once the
Merger is completed. The divestiture of the 3 Ralphs stores pursuant to the
Settlement Agreement will be reflected in the allocation of the purchase price
and therefore will not give rise to any restructuring charge.
Store Mix. Approximately 28% of the Company's total anticipated number of
stores following the Merger are expected to be warehouse format stores. Because
these stores offer prices that are generally 5-12% below those in Food 4 Less'
conventional stores, they produce lower gross profit margins than an average
conventional supermarket. As a result, the Holdings' consolidated gross margin
following the Merger is expected to decline from the levels historically
reported by Ralphs. In addition, if the percentage of warehouse stores in the
overall store mix increases following the Merger, as expected, the Holdings'
consolidated gross margins should also be expected to decline slightly over
time. Because of the reduced SG&A (as defined) costs associated with the
warehouse format stores, management believes that overall profitability of the
warehouse stores is comparable to that of conventional stores.
Purchase Accounting. The Merger will be accounted for as a purchase of
Ralphs by Holdings. As a result, the assets and liabilities of Ralphs will be
recorded at their estimated fair market values on the date the Merger is
consummated. The purchase price in excess of the fair market value of Ralphs'
assets will be recorded as goodwill and amortized over a forty-year period. The
purchase price allocation reflected in the pro forma statements is based on
management's preliminary estimates. The actual purchase accounting adjustments
will be determined following the Merger and may vary from the amounts reflected
in the Unaudited Pro Forma Financial Data included elsewhere herein.
Fiscal Year and Restatement of Holdings Financial Statements. Food 4 Less
and Holdings each have filed a Form 8-K with the Commission to announce that
they will adopt Ralphs' fiscal year end for financial reporting purposes.
Ralphs' fiscal year ends on the Sunday closest to January 31. In connection with
the preparation of this Offer to Purchase and Solicitation Statement, Holdings
elected to restate its historical financial statements to conform to Ralphs'
classification of certain expenses. The changes primarily involved
44
<PAGE> 54
the reclassification of certain labor, occupancy and utility costs associated
with product deliveries as cost of goods sold, which were previously classified
as selling, general, administrative and other expense, net. In addition,
depreciation expense, which had been reported separately by Holdings with the
amortization of goodwill, was classified as cost of goods sold or selling,
general, administrative and other expense, net, as appropriate. The amounts
aggregated $236.2 million, $224.5 million, $219.5 million and $114.3 million
(unaudited) for the fiscal years ended June 27, 1992, June 26, 1993, June 25,
1994 and the 28 weeks ended January 8, 1994. Holdings has also classified a
portion of its self-insurance costs as interest expense that was previously
recorded in selling, general, administrative and other expense, net. These
self-insurance amounts were reclassified to more completely segregate the
interest component of self-insurance costs arising from discounting long-term
obligations. The amounts reclassified aggregated $5.0 million, $5.9 million,
$5.8 million and $3.3 million (unaudited) for the fiscal years ended June 27,
1992, June 26, 1993, June 25, 1994 and the 28 weeks ended January 8, 1994. All
historical financial information for Holdings and Food 4 Less included in this
Offer to Purchase and Solicitation Statement reflects these reclassifications.
See Note 13 of Notes to Holdings Consolidated Financial Statements.
RESULTS OF OPERATIONS OF RALPHS
The following table sets forth the historical operating results of Ralphs
for the 52 weeks ended January 31, 1993 ("Fiscal 1992"), January 30, 1994
("Fiscal 1993") and January 29, 1995 ("Fiscal 1994"):
<TABLE>
<CAPTION>
52 WEEKS ENDED
--------------------------------------------------------
JANUARY 31, JANUARY 30, JANUARY 29,
1993 1994 1995
---------------- ---------------- ----------------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Sales............................................... $2,843.8 100.0% $2,730.2 100.0% $2,724.6 100.0%
Cost of sales....................................... 2,217.2 78.0 2,093.7 76.7 2,101.0 77.1
Selling, general and administrative expenses........ 470.0 16.5 471.0 17.2 467.0 17.2
Operating income(a)................................. 138.5 4.9 152.1 5.6 145.6 5.3
Net interest expense................................ 125.6 4.4 108.8 4.0 112.7 4.1
Provision for earthquake losses(b).................. -- -- 11.0 0.4 -- --
Income tax expense (benefit)........................ 8.3 0.3 (108.0) (4.0) -- --
Extraordinary item.................................. 70.6 2.5 -- -- -- --
Net earnings (loss)................................. (76.1) (2.7) 138.4 5.1 32.1 1.2
</TABLE>
- ---------------
(a) Operating income reflects charges of $7.1 million in Fiscal 1992 and $2.4
million in Fiscal 1993, for expenses relating to closing of central bakery
operation. The charges reflected the complete write-down of the bakery
building, machinery and equipment, leaseholds, related inventory and
supplies, and providing severance pay to terminated employees.
(b) Represents reserve for losses, net of expected insurance recoveries,
resulting from the January 17, 1994 Southern California earthquake.
COMPARISON OF RALPHS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 29,
1995 WITH RALPHS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 30, 1994.
Sales
For the fifty-two weeks ended January 29, 1995 ("Fiscal 1994"), sales were
$2,724.6 million, a decrease of $5.6 million or 0.2% from the fifty-two weeks
ended January 30, 1994 ("Fiscal 1993"). During Fiscal 1994, Ralphs opened ten
new stores (four in Los Angeles County, three in Orange County, one in San Diego
County and two in Riverside County), closed two stores (in conjunction with new
stores opening in the same areas), and completed five store remodels. Comparable
store sales decreased 3.7%, which included an increase of 0.3% for replacement
store sales, from $2,707.9 million in Fiscal 1993 to $2,606.4 million in Fiscal
1994. Ralphs sales continued to be adversely affected by the continuing softness
of the economy in Southern California, continuing competitive new store and
remodeling activity and recent pricing and promotional changes by competitors.
Ralphs continued to take steps to mitigate the impact of the weak retailing
environment in its markets, which included continuing its own new store and
remodeling program and initiating the Ralphs Savings Plan in February 1994, a
new marketing campaign specifically designed to enhance customer value. See
"Business -- Advertising and Promotion."
45
<PAGE> 55
On January 17, 1994, an earthquake in Southern California caused
considerable damage in Los Angeles and surrounding areas. Several Ralphs
supermarkets suffered earthquake damage, with 54 stores closed on the morning of
January 17th. Thirty-four stores reopened within one day and an additional 17
stores reopened within three days. Three stores in the San Fernando Valley area
of Los Angeles suffered major structural damage. All three stores have since
reopened for business, with the last reopening on April 15, 1994. Management
believes that there was some negative impact on sales resulting from the
temporary disruption of business resulting from the earthquake. Ralphs is
partially insured for earthquake losses. The pre-tax financial impact, net of
expected insurance recoveries, is expected to be approximately $11.0 million and
Ralphs reserved for this loss in Fiscal 1993. The gross earthquake loss is
approximately $25.3 million and the expected insurance recovery is approximately
$14.3 million.
Cost of Sales
Cost of sales increased $7.3 million or 0.3% from $2,093.7 million in
Fiscal 1993 to $2,101.0 million in Fiscal 1994. As a percentage of sales, cost
of sales increased to 77.1% in Fiscal 1994 from 76.7% in Fiscal 1993. The
increase in cost of sales as a percentage of sales included a one-time charge
for Teamsters Union sick pay benefits pursuant to a new contract ratified in
August 1994 with the Teamsters. The total charge was $2.5 million, of which $2.1
million was included in cost of sales and $0.4 million in selling, general and
administrative expense. Increases in cost of sales were partially offset by
savings in warehousing and distribution costs, reductions in self-insurance
costs, pass-throughs of increased operating costs and increases in relative
margins where allowed by competitive conditions.
Warehousing and distribution cost savings were primarily attributable to
Ralphs' ASRS and PSC facilities. The ASRS facility can hold substantially more
inventory and requires fewer employees to operate than does a conventional
warehouse of equal size. This facility has reduced Ralphs' warehousing costs of
non-perishable items markedly, enabling it to take advantage of advance buying
opportunities and minimize "out-of-stocks." Ralphs engages in forward-buy
purchases to take advantage of special prices or to delay the impact of upcoming
price increases by purchasing and warehousing larger quantities of merchandise
than immediately required. The PSC facility has consolidated the operations of
three existing facilities and holds more inventory than the facilities it
replaced, thereby reducing Ralphs' warehouse distribution costs.
Over the last several years, Ralphs has been implementing modifications in
its workers compensation and general liability insurance programs. Ralphs
believes that these modifications have resulted in a significant reduction in
self-insurance costs for Fiscal 1994. Based on a review of the results of these
modifications by Ralphs and its actuaries, adjustments to the accruals for
self-insurance costs were made during Fiscal 1994 resulting in a reduction of
approximately $18.9 million. Of the total $18.9 million reduction in
self-insurance costs, $7.5 million is included in cost of sales and $11.4
million is included in selling, general and administrative expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") decreased $4.0
million or 0.8% from $471.0 million in Fiscal 1993 to $467.0 million in Fiscal
1994. As a percentage of sales, SG&A was 17.2% in Fiscal 1993 and 17.2% in
Fiscal 1994. The decrease in SG&A was primarily due to a reduction in
contributions to the United Food and Commercial Workers Union ("UFCW") health
care benefit plans, due to an excess reserve in these plans, a reduction in
self-insurance costs, as discussed above, and the results of cost savings
programs instituted by Ralphs. Ralphs is continuing its expense reduction
program. The decrease in SG&A was partially offset by several factors including
increases in union wage rates, a one-time charge for Teamsters Union sick pay
benefits, as discussed above, transition expense relating to the Merger ($1.4
million) and increased rent expense resulting from new stores, including fixture
and equipment financing.
Ralphs participates in multi-employer pension plans and health and welfare
plans administered by various trustees for substantially all union employees.
Contributions to these plans are based upon negotiated contractual rates. In
both Fiscal 1992 and Fiscal 1993 the multi-employer pension plan was deemed to
be overfunded based upon the collective bargaining agreement then currently in
force. During Fiscal 1993 the
46
<PAGE> 56
agreement called for pension benefits which resulted in additional required
expense. The UFCW health and welfare benefit plans were overfunded and those
employers who contributed to these plans received a pro rata share of excess
reserve in these health care benefit plans through a reduction in current
maintenance payments. Ralphs' share of the excess reserve was approximately
$24.5 million of which $11.8 million was recognized in Fiscal 1993 and the
remainder, $12.7 million, was recognized in Fiscal 1994. Since employers are
required to make contributions to the benefit funds at whatever level is
necessary to maintain plan benefits, there can be no assurance that plan
maintenance payments will remain at current levels.
Operating Income
Operating income in Fiscal 1994 decreased 4.3% to $145.6 million from
$152.1 million in Fiscal 1993. Operating margin, defined as operating income as
a percentage of sales, was 5.3% in Fiscal 1994 compared to 5.6% in Fiscal 1993.
EBITDA, defined as net earnings before interest expense, income tax expense
(benefit), depreciation and amortization expense, provision for post-retirement
benefits, provision for LIFO expense, gain or loss on disposal of assets,
transition expense and a one-time charge for Teamsters Union sick pay benefits,
was 8.4% of sales or $230.2 million in Fiscal 1994 and 8.4% of sales or $230.2
million in Fiscal 1993.
Net Interest Expense
Net interest expense for Fiscal 1994 was $112.7 million versus $108.8
million for Fiscal 1993. Net interest expense increased primarily as a result of
increases in interest rates. Included as interest expense during Fiscal 1994 was
$97.4 million, representing interest expense on existing debt obligations,
capitalized leases and a swap agreement. Comparable interest expense for Fiscal
1993 was $92.8 million. Also included in net interest expense for Fiscal 1994
was $15.3 million representing certain other charges related to amortization of
debt issuance costs, self-insurance discounts, lease valuation reserves and
other miscellaneous charges (categorized by Ralphs as non-cash interest expense)
as compared to $16.0 million for Fiscal 1993. Investment income, which is
immaterial, has been offset against interest expense. The continuation of higher
interest rates subsequent to the end of Fiscal 1994 has continued to increase
interest expense and adversely affect Ralphs' net income.
Net Earnings
For Fiscal 1994, Ralphs reported net earnings of $32.1 million compared to
net earnings of $138.4 million for Fiscal 1993. The decrease in net earnings is
primarily the result of decreased operating income, higher interest expense due
to increased interest rates, the recognition of $109.1 million of deferred
income tax benefit in Fiscal 1993 and $11.0 million recorded for earthquake
losses in Fiscal 1993.
Other
In February 1994, the Board of Directors of Ralphs authorized a dividend of
$10.0 million to be paid to RSI, and the Board of Directors of RSI authorized
distribution of this dividend to its shareholders subject to certain restrictive
covenants in the instruments governing certain of Ralphs' indebtedness that
impose limitations on the declaration or payment of dividends. Ralphs' credit
agreement, entered into in 1992 (the "1992 Credit Agreement"), was amended to
allow for the payment of the dividend to RSI for distribution to RSI's
shareholders. The fee for the amendment was approximately $500,000, which was
included in interest expense for the period. The dividend was distributed to the
shareholders of RSI in the second quarter of Fiscal 1994.
COMPARISON OF RALPHS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 30,
1994 WITH RALPHS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 31, 1993.
Sales
Sales in Fiscal 1993 were $2,730.2 million, a decrease of $113.6 million or
4.0% compared to Fiscal 1992. During Fiscal 1993, Ralphs opened eight new
stores, four in Los Angeles County, two in Orange County and
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<PAGE> 57
two in Riverside County, and remodeled six stores. Two of the eight new stores
replaced the two stores closed during the fiscal year. Comparable store sales
decreased 5.8%, which included an increase of 0.6% for the replacement stores,
from $2,823.4 million to $2,659.3 million in Fiscal 1993. Ralphs' sales
continued to be adversely affected by the significant recession in Southern
California, continuing competitive new store and remodelling activity and
pricing and promotional changes by competitors.
Cost of Sales
Cost of sales decreased $123.5 million or 5.6% from $2,217.2 million in
Fiscal 1992 to $2,093.7 million in Fiscal 1993. As a percentage of sales, cost
of sales declined to 76.7% in Fiscal 1993 from 78.0% in Fiscal 1992. The
decrease in cost of sales as a percentage of sales was the result of savings in
warehousing and distribution costs, the pass-through of increased operating
costs and increases in relative margins where allowed by competitive conditions.
Selling, General and Administrative Expenses
SG&A increased $1.0 million or 0.2% from $470.0 million in Fiscal 1992 to
$471.0 million in Fiscal 1993. As a percentage of sales, SG&A increased from
16.5% in Fiscal 1992 to 17.2% in Fiscal 1993. The increase in SG&A as a
percentage of sales was the result of several factors including the soft sales
environment. Increases in expense were partially offset by cost savings programs
instituted by Ralphs.
Ralphs participates in multi-employer pension plans and health and welfare
plans administered by various trustees for substantially all union employees.
Contributions to these plans are based upon negotiated contractual rates. In
both Fiscal 1992 and Fiscal 1993 the UFCW multi-employer pension plan was deemed
to be overfunded based upon the collective bargaining agreement then currently
in force. During Fiscal 1993 the agreement called for pension benefits which
resulted in additional required expense. The UFCW health and welfare benefit
plans were overfunded and those employers who contributed to these plans are to
receive a pro rata share of the excess reserve in these health care benefit
plans through a reduction in current maintenance payments. Ralphs' share of the
excess reserve was approximately $24.5 million of which $11.8 million was
recognized in Fiscal 1993 and the remainder will be recognized in the fiscal
year ending January 29, 1995. The change in health and welfare plan expenses
resulted from the $11.8 million credit associated with the collective bargaining
agreement as well as a reduction in the current year plan expense due to the
overfunded status of the plan. Since employers are required to make
contributions to the benefit funds at whatever level is necessary to maintain
plan benefits, there can be no assurance that plan maintenance payments will
remain at current levels. Partially offsetting the reductions of health and
welfare maintenance payments was a $6.0 million contract ratification bonus paid
by Ralphs at the conclusion of contract negotiations with the UFCW in Fiscal
1993. The $6.0 million contract ratification payment was an item separate from
either of these plans.
Operating Income
Operating income in Fiscal 1993 increased to $152.1 million from $138.5
million in Fiscal 1992, a 9.8% increase. Operating margin increased in Fiscal
1993 to 5.6% from 4.9% in Fiscal 1992. This increase was primarily the result of
the aforementioned improvements in Ralphs' cost of sales percentage. EBITDA,
defined as net earnings before interest expense, income tax expense (benefit),
depreciation and amortization expenses, post-retirement benefits, the LIFO
charge, extraordinary item relating to debt refinancing, provision for legal
settlement, provision for restructuring, provision for earthquake losses and
loss on disposal of assets, improved to $230.2 million or 8.4% of sales in
Fiscal 1993 from $227.3 million or 8.0% of sales in Fiscal 1992.
Net Interest Expense
Net interest expense for Fiscal 1993 was $108.8 million, compared to $125.6
million for Fiscal 1992. The reduction in net interest expense was attributable
to the refinancing and defeasance of Ralphs 14% Senior Subordinated Debentures
due 2000 (the "14% Debentures") with the proceeds from the issuance of the Old
RGC 9% Notes as the final step in a recapitalization plan initiated on July 30,
1992. Cash interest expense
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<PAGE> 58
during Fiscal 1993 was $92.8 million compared to $105.5 million in Fiscal 1992.
Also included in interest expense for Fiscal 1993 was $16.0 million representing
certain other charges relating to amortization of debt issuance costs,
self-insurance discount, lease valuation reserves and other miscellaneous
charges (categorized by Ralphs as non-cash interest expense) as compared to
$20.1 million for Fiscal 1992. Investment income, which is immaterial, has been
offset against interest expense.
Earthquake Losses
Several Ralphs stores suffered earthquake damage from the January 17, 1994
earthquake in Southern California and 54 stores were completely shutdown on the
morning of January 17th. Management believes that there was some negative impact
on sales resulting from the temporary disruption of business resulting from the
earthquake. Ralphs is partially insured for earthquake losses. The pre-tax
financial impact, net of expected insurance recoveries, is expected to be
approximately $11.0 million and Ralphs reserved for this loss in Fiscal 1993.
The gross earthquake loss is approximately $25.3 million and the expected
insurance recovery is approximately $14.3 million.
Income Taxes
In Fiscal 1993, Ralphs recorded the incremental impact of The Omnibus
Budget Reconciliation Act of 1993 on net deductible temporary differences and
Ralphs increased its deferred income tax assets by a net amount of $109.1
million. Income tax expense (benefit) for Fiscal 1993 includes recognition of
$109.1 million of deferred income tax benefit and $1.1 million current income
tax expense for Fiscal 1993. See Note 11 of Notes to Ralphs Consolidated
Financial Statements.
Net Earnings
In Fiscal 1993, Ralphs reported net earnings of $138.4 million compared to
a net loss of $76.1 million for Fiscal 1992. This increase in net earnings was
primarily the result of Ralphs' recognition of $109.1 million of deferred income
tax benefit for Fiscal 1993 and the following items recorded in Fiscal 1992: (1)
an extraordinary charge, net of tax benefit, of $70.6 million relating to
Ralphs' recapitalization plan, (2) a provision of $7.1 million made for expenses
related to the closure of the central bakery operation (an additional charge of
$2.4 million was recorded in Fiscal 1993) and (3) a provision of $7.5 million
made for the maximum loss under a judgment rendered against Ralphs.
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RESULTS OF OPERATIONS OF HOLDINGS
The following table sets forth the historical operating results of Holdings
for the 52 weeks ended June 27, 1992 ("Fiscal 1992"), June 26, 1993 ("Fiscal
1993") and June 25, 1994 ("Fiscal 1994"), and for the 28 weeks ended January 8,
1994 and January 7, 1995:
<TABLE>
<CAPTION>
52 WEEKS ENDED 28 WEEKS ENDED
---------------------------------------------------------- -----------------------------------------
JUNE 27, JUNE 26, JUNE 25, JANUARY 8, JANUARY 7,
1992 1993 1994 1994 1995
---------------- ---------------- ---------------- ------------------ ------------------
(IN MILLIONS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales.................. $2,913.5 100.0% $2,742.0 100.0% $2,585.2 100.0% $1,416.2 100.0% $1,404.7 100.0%
Gross profit........... 520.8 17.9 484.2 17.7 469.3 18.1 262.2 18.5 237.5 16.9
Selling, general,
administrative and
other, net........... 469.7 16.1 434.9 15.9 388.8 15.0 221.5 15.6 199.2 14.2
Amortization of excess
costs over net assets
acquired............. 7.8 0.3 7.6 0.3 7.7 0.3 4.1 0.3 4.2 0.3
Restructuring charge... -- -- -- -- -- -- -- -- 5.1 0.4
Operating income....... 43.3 1.5 41.7 1.5 72.8 2.8 36.6 2.6 29.0 2.0
Interest expense....... 70.2 2.4 73.6 2.6 77.0 2.9 41.5 2.9 43.2 3.0
Loss (gain) on disposal
of assets............ (1.3) -- (2.1) (0.1) -- -- 0.1 -- (0.4) --
Provision for
earthquake losses.... -- -- -- -- 4.5 0.2 -- -- -- --
Provision for income
taxes................ 3.4 0.1 1.4 0.1 2.7 0.1 0.7 0.1 0.5 --
Loss before
extraordinary
charge............... (29.0) (1.0) (31.2) (1.1) (11.5) (0.4) (5.7) (0.4) (14.3) (1.0)
Extraordinary
charges.............. 4.8 0.2 -- -- -- -- -- -- -- --
Net loss............... (33.8) (1.2) (31.2) (1.1) (11.5) (0.4) (5.7) (0.4) (14.3) (1.0)
</TABLE>
COMPARISON OF HOLDINGS' RESULTS OF OPERATIONS FOR THE 28 WEEKS ENDED JANUARY 7,
1995 WITH HOLDINGS' RESULTS OF OPERATIONS FOR THE 28 WEEKS ENDED JANUARY 8, 1994
Sales
Sales decreased $11.5 million, or 0.8%, from $1,416.2 million in the 28
weeks ended January 8, 1994, to $1,404.7 million in the 28 weeks ended January
7, 1995, primarily as a result of a 4.5% decline in comparable store sales,
partially offset by sales from new and acquired stores opened since January 8,
1994. Management believes that the decline in comparable store sales is
attributable to the weak economy in Southern California and, to a lesser extent,
in Food 4 Less' other operating areas, and competitive store openings and
remodels in Southern California.
Gross Profit
Gross profit decreased as a percentage of sales from 18.5% in the 28 weeks
ended January 8, 1994, to 16.9% in the 28 weeks ended January 7, 1995. The
decrease in gross profit margin resulted primarily from pricing and promotional
activities related to Food 4 Less' "Total Value Pricing" program and an increase
in the number of warehouse format stores (which have lower gross margins
resulting from prices that are generally 5-12% below the prices in Food 4 Less'
conventional stores) from 48 at January 8, 1994, to 87 at January 7, 1995. The
decrease in the gross profit margin was partially offset by improvements in
product procurement.
Selling, General, Administrative and Other, Net
Selling, general, administrative and other expenses, net ("SG&A") were
$221.5 million and $199.2 million for the 28 weeks ended January 8, 1994 and
January 7, 1995, respectively. SG&A decreased as a percentage of sales from
15.6% to 14.2% for the same period. Food 4 Less experienced a reduction of
workers' compensation and general liability self-insurance costs of $9.7 million
due to continued improvement in the cost and frequency of claims. The improved
experience was due primarily to cost control programs implemented by Food 4
Less, including awards for stores with the best loss experience, specific
achievable
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goals for each store, and increased monitoring of third-party administrators. In
addition, Food 4 Less maintained tight control of administrative expenses and
store level expenses, including advertising, payroll (due primarily to increased
productivity), advertising and other controllable store expenses. Because Food 4
Less' warehouse stores have lower SG&A than conventional stores, the increase in
the number of warehouse stores, from 48 at January 8, 1994, to 87 at January 7,
1995, also contributed to decreased SG&A.
Food 4 Less participates in multi-employer health and welfare plans for its
store employees who are members of the UFCW. As part of the renewal of the
Southern California UFCW contract in October 1993, employers contributing to
UFCW health and welfare plans are to receive a pro rata share of the excess
reserves in the plans through a reduction of current employer contributions.
Food 4 Less' share of the excess reserves was $24.2 million, of which Holdings
recognized $8.1 million in Fiscal 1994 and $13.7 million in the 28 weeks ended
January 7, 1995. The remainder of the excess reserves will be recognized as the
credits are taken in the future.
On August 28, 1994, the Teamsters and Food 4 Less ratified a new contract
which, among other things, provided for the vesting of sick pay benefits
resulting in a one-time charge of $2.1 million.
Restructuring Charge
Food 4 Less has converted 11 of its conventional format supermarkets to
warehouse format stores. During the 28 weeks ended January 7, 1995, Food 4 Less
recorded a restructuring charge for the write-off of property and equipment at
the 11 stores of $5.1 million.
Interest Expense
Interest expense (including amortization of deferred financing costs) was
$41.5 million and $43.2 million for the 28 weeks ended January 8, 1994 and
January 7, 1995, respectively. The increase in interest expense was due
primarily to higher interest rates on the term loan portion (the "Term Loan") of
Food 4 Less' credit agreement dated as of June 17, 1991, as amended, (the "F4L
Credit Agreement"), and on the revolving credit portion of the F4L Credit
Agreement (the "Revolving Credit Facility"), combined with increased
indebtedness under the Discount Notes and the Revolving Credit Facility. The
increase was partially offset by the reduction of indebtedness under the Term
Loan as a result of amortization payments. Food 4 Less increased its borrowing
under the F4L Credit Agreement as a result of higher capital expenditures
subsequent to the end of its first quarter.
Net Loss
Primarily as a result of the factors discussed above, Holdings' net loss
increased from $5.7 million in the 28 weeks ended January 8, 1994, to $14.3
million in the 28 weeks ended January 7, 1995.
COMPARISON OF HOLDINGS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JUNE 25,
1994 WITH HOLDINGS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JUNE 26, 1993.
Sales
Sales decreased $156.8 million or 5.7% from $2,742.0 million in Fiscal 1993
to $2,585.2 million in Fiscal 1994. The decrease in sales resulted primarily
from a 6.9% decline in comparable store sales. The decline in comparable store
sales primarily reflects (i) the continuing softness of the economy in Southern
California, (ii) lower levels of price inflation in certain key food product
categories, and (iii) competitive factors, including new stores, remodeling and
recent pricing and promotional activity. This decrease in sales was partially
offset by sales from 13 stores opened or acquired during Fiscal 1994.
Gross Profit
Gross profit increased as a percent of sales from 17.7% in Fiscal 1993 to
18.1% in Fiscal 1994. The increase in gross profit margin was attributable to
improvements in product procurement and an increase in
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<PAGE> 61
vendors' participation in Food 4 Less' promotional costs. These improvements
were partially offset by an increase in the number of warehouse format stores
(which have lower gross margins resulting from prices that are generally 5-12%
below the prices in Food 4 Less' conventional stores) from 45 at June 26, 1993
to 66 at June 25, 1994, and the effect of the fixed cost component of gross
profit as compared to a lower sales base.
Selling, General, Administrative and Other, Net
SG&A was $434.9 million and $388.8 million in Fiscal 1993 and Fiscal 1994,
respectively. SG&A decreased as a percent of sales from 15.9% to 15.0% for the
same periods. Food 4 Less experienced a reduction of self-insurance costs of
$18.2 million due to continued improvement in the cost and frequency of claims.
The improved experience was due primarily to cost control programs implemented
by Food 4 Less, including awards for stores with the best loss experience,
specific achievable goals for each store, and increased monitoring of
third-party administrators, and, to a lesser extent, a lower sales base which
reduced Food 4 Less' exposure. In addition, Food 4 Less maintained tight control
of administrative expenses and store level expenses, including payroll (due
primarily to increased productivity), advertising, and other controllable store
expenses. Because Food 4 Less' warehouse stores have lower SG&A than
conventional stores, the increase in the number of warehouse stores, from 45 at
June 26, 1993 to 66 at June 25, 1994, also contributed to decreased SG&A as a
percentage of sales. The reduction in SG&A as a percentage of sales was
partially offset by the effect of the fixed cost component of SG&A as compared
to a lower sales base.
Food 4 Less participates in multi-employer health and welfare plans for its
store employees who are members of the UFCW. As part of the renewal of the
Southern California UFCW contract in October 1993, employers contributing to
UFCW health and welfare plans are to receive a pro rata share of the excess
reserves in the plans through a reduction of current employer contributions.
Food 4 Less' share of the excess reserves was $24.2 million, of which Holdings
recognized $8.1 million in Fiscal 1994 and the remainder of which will be
recognized as the credits are taken in the future. Offsetting the reduction in
employer contributions was a $5.5 million contract ratification bonus and
contractual wage increases.
Interest Expense
Interest expense (including amortization of deferred financing costs)
increased $3.4 million from $73.6 million to $77.0 million for Fiscal 1993 and
Fiscal 1994, respectively. The increase in interest expense is due to additional
indebtedness related to the Discount Notes, partially offset by reduced
borrowings under the F4L Credit Agreement.
Provision for Earthquake Losses
On January 17, 1994, Southern California was struck by a major earthquake
which resulted in the temporary closing of 31 of Food 4 Less' stores. The
closures were caused primarily by loss of electricity, water, inventory, or
structural damage. All but one of the closed stores reopened within a week of
the earthquake. The final closed store reopened on March 24, 1994. Food 4 Less
is insured against earthquake losses (including business interruption), subject
to certain deductibles. The pre-tax financial impact, net of expected insurance
recovery, was approximately $4.5 million.
Net Loss
Primarily as a result of the factors discussed above, Holdings' net loss
decreased from $31.2 million in Fiscal 1993 to $11.5 million in Fiscal 1994.
COMPARISON OF HOLDINGS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JUNE 26,
1993 WITH HOLDINGS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JUNE 27, 1992.
Sales
Sales decreased $171.5 million or 5.9% from $2,913.5 million in Fiscal 1992
to $2,742.0 million in Fiscal 1993, primarily as a result of a 5.1% decline in
comparable store sales and a net reduction in Food 4 Less' total
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store count of one store at June 26, 1993 compared to June 27, 1992. Management
believes that the decline in comparable store sales was attributable to (i) the
weak economy in Southern California, and, to a lesser extent, in Food 4 Less'
other operating areas, (ii) lower levels of price inflation in certain key food
categories, and (iii) increased competitive store openings in Southern
California.
Gross Profit
Gross profit decreased as a percent of sales from 17.9% in Fiscal 1992 to
17.7% in Fiscal 1993 primarily as a result of an increase in the number of Food
4 Less warehouse stores (which have lower gross margins resulting from prices
that are generally 5-12% below the prices in Food 4 Less' conventional stores),
from 34 stores in Fiscal 1992 to 45 stores in Fiscal 1993, and as a result of
the fixed cost component of gross profit being compared to a lower sales base,
partially offset by increases in relative margins allowed by competitive
conditions, improvements in the procurement function, and cost savings and
operating efficiencies associated with Food 4 Less' warehousing and
manufacturing facilities.
Selling, General, Administrative and Other, Net
SG&A was $469.7 million and $434.9 million in Fiscal 1992 and Fiscal 1993,
respectively. SG&A decreased as a percent of sales from 16.1% to 15.9% for the
same periods as a result of tight control of direct store expenses, primarily
payroll costs, the impact in Fiscal 1992 of the $12.8 million non-cash
self-insurance reserve adjustment partially offset by market-wide contractual
increases in union wages, current year increases in workers' compensation costs
primarily associated with the new law which took effect in 1990, and the fixed
cost component of SG&A being compared to a lower sales base.
Interest Expense
Interest expense (including amortization of deferred financing costs)
increased $3.4 million from $70.2 million to $73.6 million for the 52 weeks
ended June 27, 1992 and June 26, 1993, respectively. The increase to interest
expense is due to additional indebtedness related to the Discount Notes,
partially offset by lower interest expense due to the reduction of indebtedness
as a result of amortization payments combined with decreasing interest rates on
the Term Loan.
Loss Before Extraordinary Charge
Primarily as a result of the factors discussed above, Holdings' loss before
extraordinary charge increased from $29.0 million in Fiscal 1992 to $31.2
million in Fiscal 1993. Holdings recorded a net extraordinary charge of $4.8
million in Fiscal 1992, reflecting the write-off of certain deferred financing
costs which were partially offset by a gain on the replacement of partially
depreciated assets following the civil unrest in Los Angeles.
LIQUIDITY AND CAPITAL RESOURCES
Holdings does not conduct any business operations of its own and has no
income or assets other than its investment in Food 4 Less' common and preferred
stock. No cash interest is payable on any Amended Discount Notes that remain
outstanding following the Merger until June 15, 1998 and on the Seller
Debentures and the New Discount Debentures until the fifth anniversary of their
issue date. Holdings intends to service the cash interest payments on the Seller
Debentures, on the New Discount Debentures and on any Amended Discount Notes
that remain outstanding following the consummation of the Merger through
dividends it receives from the Company following the Merger. Such dividends and
other payments will be restricted under the terms of the debt agreements of the
Company. See "Risk Factors -- Holding Company Structure."
In order to consummate the Merger, Holdings and Food 4 Less expect to
utilize total new financing proceeds in the amount of approximately $1.5
billion. Pursuant to the New Equity Investment, New Holdings (as the successor
to Holdings) will issue capital stock for total cash proceeds of approximately
$140 million (excluding a $5 million commitment fee of which $2.5 million will
be paid in cash and $2.5 million will be satisfied through the issuance of New
Discount Debentures). In addition, Food 4 Less will enter into the New
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Credit Facility pursuant to which it will have available up to $750 million of
New Term Loans, all of which is anticipated to be drawn at the Closing Date
(assuming all Old RGC Notes are tendered into the RGC Offers), and will have
available a $325 million New Revolving Facility, of which $12.7 million is
anticipated to be drawn at the Closing Date. Food 4 Less will also issue up to
$295 million principal amount of New F4L Senior Notes pursuant to the Senior
Note Public Offering and will issue up to $200 million principal amount of New
RGC Notes pursuant to the Subordinated Note Public Offering. The proceeds from
the New Credit Facility and the Public Offerings, together with the $140 million
cash proceeds of the New Equity Investment, $59 million cash proceeds of the New
Discount Debenture Placement, $41 million in initial accreted value of
additional New Discount Debentures issued other than for cash and $131.5 million
principal amount of the Seller Debentures, will provide the sources of financing
required to consummate the Merger and to repay existing bank debt of
approximately $161.5 million at Food 4 Less and $255.1 million at Ralphs, to
repay existing mortgage debt of $174.1 million (excluding prepayment fees) at
Ralphs and to pay $83.9 million in consideration for the Discount Notes
(excluding related fees). Proceeds from the New Credit Facility and the Public
Offerings will also be used to pay the cash portions of the RGC Offers and the
F4L Exchange Offers, as well as the Change of Control Offer, if any, and accrued
interest on all exchanged debt securities in the amount of $29.3 million (as of
May 30, 1995), to pay $17.8 million to the holders of Ralphs Equity Appreciation
Rights and to loan $5 million to an affiliate for the benefit of such holders
and to pay up to $109.9 million of fees and expenses of the Merger and the
Financing. The Company will also assume certain existing indebtedness of Food 4
Less and Ralphs. Pursuant to the RGC Offers, Food 4 Less will seek the exchange
of at least a majority of the Old RGC Notes for New RGC Notes and pursuant to
the F4L Exchange Offers, Food 4 Less will seek the exchange of at least 80% of
the Old F4L Notes for New F4L Notes. The primary purpose of the F4L Exchange
Offers and the RGC Offers is to refinance Food 4 Less' and RGC's existing public
debt securities with longer term public debt securities, to obtain all necessary
consents to consummate the Merger and to eliminate substantially all of the
restrictive covenants contained in the Old F4L Indentures and the Old RGC
Indentures.
After the Merger the Company's principal sources of liquidity are expected
to be cash flow from operations, amounts available under the New Revolving
Facility and capital and operating leases. It is anticipated that the Company's
principal uses of liquidity will be to provide working capital, finance capital
expenditures, including the costs associated with the integration of Food 4 Less
and Ralphs, and to meet debt service requirements.
The New Revolving Facility will be a $325 million line of credit which will
be available for working capital requirements and general corporate purposes. Up
to $150 million of the New Revolving Facility may be used to support standby
letters of credit. The letters of credit will be used to cover workers'
compensation contingencies and for other purposes permitted under the New Credit
Facility. The Company anticipates that letters of credit for approximately $92.6
million will be drawn under the New Revolving Facility at closing, in
replacement of existing letters of credit, primarily to satisfy the State of
California's requirements relating to workers compensation self-insurance. The
New Revolving Facility will be non-amortizing and will have a six-year term. The
Company will be required to reduce loans outstanding under the New Revolving
Facility to $75 million for a period of not less than 30 consecutive days during
each consecutive 12-month period. Assuming that the Merger closes on May 30,
1995, giving effect to currently anticipated borrowings and letter of credit
issuances, the Company's remaining borrowing availability under the New
Revolving Facility would have been approximately $219.7 million. Pursuant to the
New Credit Facility, the New Term Loans will be issued in four tranches: (i)
Tranche A, in the amount of $375 million, will have a six-year term; (ii)
Tranche B, in the amount of $125 million, will have a seven-year term; (iii)
Tranche C, in the amount of $125 million, will have an eight-year term; and,
(iv) Tranche D, in the amount of $125 million, will have a nine-year term. The
Tranche A Loan may not be fully funded at the Closing Date. The New Credit
Facility will provide that the portion of the Tranche A Loan not funded at the
Closing Date will be available for a period of 91 days following the Closing
Date to fund the Change of Control Offer. The New Term Loans will require
quarterly amortization payments aggregating $3.8 million in the first year,
$48.8 million in the second year and increasing thereafter. The New Credit
Facility will be guaranteed by New Holdings and each of the Company's
subsidiaries and secured by liens on substantially all of the unencumbered
assets of the Company and its subsidiaries and by a pledge of New Holdings'
stock in the Company. The New Credit Facility will
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contain financial covenants which are expected to require, among other things,
the maintenance of specified levels of cash flow and stockholder's equity. See
"Description of the New Credit Facility."
Standard & Poor's has publicly announced that, upon consummation of the
Merger, it intends to assign a new rating to the Old RGC Notes. Such new rating
assignment, if implemented, would constitute a Rating Decline under the Old RGC
Indentures. The consummation of the Merger (which is conditioned on, among other
things, successful consummation of the Offer to Purchase, the Other Debt
Financing Transactions, the New Equity Investment and the Bank Financing) and
the resulting change in composition of the Board of Directors of RGC, together
with the anticipated Rating Decline, would constitute a Change of Control
Triggering Event under the Old RGC Indentures. Although Food 4 Less does not
anticipate that there will be a significant amount of Old RGC Notes outstanding
following consummation of the RGC Offers, upon such a Change of Control
Triggering Event the Company would be obligated to make the Change of Control
Offer following the consummation of the Merger for all outstanding Old RGC Notes
at 101% of the principal amount thereof plus accrued and unpaid interest to the
date of repurchase. The portion of the Tranche A Loan not fully funded at the
Closing Date will be available to fund the purchase of Old RGC Notes tendered
pursuant to the Change of Control Offer.
Management anticipates that significant capital expenditures will be
required following the Merger in connection with the integration of Ralphs and
Food 4 Less. In order to implement the Company's store format strategy, up to
122 conventional stores currently operated by Food 4 Less will be converted to
the Ralphs format and 16 conventional stores (primarily Boys and Viva) have been
or will be converted and 23 Ralphs stores will be converted to the Food 4 Less
warehouse format. An additional 18 Ralphs and Food 4 Less warehouse stores are
scheduled to be opened during calendar 1995. It is estimated that the gross
capital expenditures to be made by the Company in the first fiscal year
following the closing will be approximately $153 million (or $106 million net of
expected capital leases), of which approximately $98 million relate to ongoing
expenditures for new stores, equipment and maintenance and approximately $55
million relate to store conversions and other Merger-related and non-recurring
items. An additional $33 million of Merger-related and non-recurring capital
expenditure items (or $22 million net of expected capital leases) are
anticipated to be incurred in the second year following the consummation of the
Merger. Management expects that these expenditures will be financed primarily
through cash flow from operations and capital leases.
Ralphs cash flow from operating activities was $55.4 million for the 52
weeks ended January 29, 1995 and $104.0 million for Fiscal 1993. Holdings
generated approximately $87.8 million of cash from operating activities during
the 52-week period ended June 25, 1994 and used approximately $18.0 million of
cash for its operating activities during the 28 weeks ended January 7, 1995 (as
compared to generating $30.5 million of cash during the 28 weeks ended January
8, 1994). The decrease in cash from operating activities is due primarily to
changes in operating assets and liabilities. Holdings anticipates that one of
the principal uses of cash in its operating activities will be inventory
purchases. However, supermarket operators typically require small amounts of
working capital since inventory is generally sold prior to the time that
payments to suppliers are due. This reduces the need for short-term borrowings
and allows cash from operations to be used for non-current purposes such as
financing capital expenditures and other investing activities. Consistent with
this pattern, Ralphs and Holdings had working capital deficits of $119.5 million
and $44.8 million at January 29, 1995 and January 7, 1995, respectively.
Ralphs cash used in investing activities was $45.5 million during Fiscal
1993 and $50.8 million during the 52 weeks ended January 29, 1995. These amounts
reflected increased capital expenditures related to store remodels and new store
openings (including store acquisitions) and, to a lesser extent, expansion of
other warehousing, distribution and manufacturing facilities and equipment,
including data processing and computer systems. For the 52 weeks ended June 25,
1994, Holdings' cash used in investing activities was $55.8 million. Investing
activities consisted primarily of capital expenditures by Food 4 Less of $57.5
million, partially offset by $9.3 million of sale/leaseback transactions, and
$11.1 million of costs in connection with the acquisition of ten former "Food
Barn" stores. For the 28 weeks ended January 7, 1995, Holdings' cash used in
investing activities was $32.8 million. Investing activities consisted primarily
of capital expenditures by Food 4 Less of $39.0 million, partially offset by
$6.5 million of sale/leaseback transactions. The capital expenditures, net of
the proceeds from sale/leaseback transactions, were financed primarily with cash
provided by financing
55
<PAGE> 65
activities. The capital expenditures included the costs associated with the
conversion of 11 conventional format stores to the Food 4 Less warehouse format.
See "Business -- The Merger -- Two Leading Complementary Formats." In January
1995, Food 4 Less entered into an amendment to the F4L Credit Agreement to,
among other things, allow for the accelerating of the capital expenditures and
other costs associated with the conversion of stores to the warehouse format.
Ralphs cash used in financing activities was approximately $24.6 million
for the 52 weeks ended January 29, 1995. Reduction of capital lease obligations
of $12.2 million and the payment of a $10.0 million dividend reduced cash flow.
Food 4 Less' cash provided by financing activities was $33.6 million for the 28
weeks ended January 7, 1995, which consisted primarily of $48.7 million of
borrowings outstanding on its revolving credit facility at January 7, 1995
partially offset by a $11.3 million repayment of its term loan. At January 7,
1995, $48.6 million of standby letters of credit had been issued under Food 4
Less' existing letter of credit facility.
Ralphs and FFL have significant net operating loss carryforwards for
regular federal income tax purposes. As a result of the Merger and the New
Equity Investment, New Holdings' ability to utilize such loss carryforwards in
future periods will be limited to approximately $15.6 million per year with
respect to FFL net operating loss carryforwards and approximately $15.0 million
per year with respect to Ralphs' net operating loss carryforwards. Holdings does
not expect the Merger to materially adversely affect any other tax assets of the
Company or New Holdings. New Holdings will be a party to a tax sharing agreement
with the Company and its subsidiaries. Pursuant to the tax sharing agreement,
the Company will make payments to New Holdings in the amount it would be
required to pay if its consolidated liability was calculated on a separate
company basis. Conversely, if the Company generates losses or credits which
reduce the consolidated tax liability of New Holdings, New Holdings will credit
to the Company the amount of such reduction in the consolidated tax liability.
See "Certain Relationships and Related Transactions." The Company will continue
to be a party to an indemnification agreement with Federated and certain other
parties. See Note 1 of Notes to Consolidated Financial Statements of Ralphs
Supermarkets, Inc. Pursuant to the terms of such agreement, Ralphs will make
annual tax payments of $1.0 million in 1995 and 1996 and a final tax payment of
$5.0 million in 1997.
Following the Merger, the Company will be a wholly-owned subsidiary of New
Holdings. In addition, following the Merger, New Holdings will have $100 million
initial accreted value of the New Discount Debentures and $131.5 million
principal amount of the Seller Debentures outstanding. New Holdings is a holding
company which will have no assets other than the capital stock of the Company.
New Holdings will be required to commence semi-annual cash payments of interest
on (i) the New Discount Debentures and the Seller Debentures commencing five
years from their date of issuance in the amount of $61.0 million per annum and
(ii) any Amended Discount Notes that remain outstanding following the Merger
commencing June 15, 1998. Subject to the limitations contained in its debt
instruments, the Company intends to make dividend payments to New Holdings in
amounts which are sufficient to permit New Holdings to service its cash interest
requirements. The Company may pay other dividends to New Holdings in connection
with certain employee stock repurchases and for routine administrative expenses.
See "Risk Factors -- Holding Company Structure."
Following the consummation of the Merger and the Financing, New Holdings
will be highly leveraged. Based upon current levels of operations and
anticipated cost savings and future growth, Holdings believes that its cash flow
from operations, together with available borrowings under the New Revolving
Facility and its other sources of liquidity (including leases), will be adequate
to meet its anticipated requirements for working capital, capital expenditures,
integration costs and interest payments. There can be no assurance, however,
that the Company's business will continue to generate cash flow at or above
current levels or that future costs savings and growth can be achieved. See
"Risk Factors -- Leverage and Debt Service."
Interest Rate Protection Agreements
Ralphs and Food 4 Less currently are parties to certain interest rate
protection agreements required under the terms of their existing bank
indebtedness. In connection with the New Credit Facility, these interest rate
protection agreements will be replaced by a new agreement which will be
finalized prior to the closing of the
56
<PAGE> 66
Merger. The Company will be exposed to credit loss in the event of
nonperformance by the counterparty to the interest rate protection agreement.
However, the Company does not anticipate nonperformance by such counterparty.
The following details the impact of Ralphs' hedging activity on its
weighted average interest rate for each of the last three fiscal years of
Ralphs:
<TABLE>
<CAPTION>
WITH WITHOUT
HEDGE HEDGE
-------- --------
<S> <C> <C>
1992............................................ 10.52% 10.22%
1993............................................ 8.96% 8.96%
1994............................................ 9.37% 9.18%
</TABLE>
Due to increasing interest rates under its existing credit facility,
Ralphs' interest expense has increased during recent periods and may continue to
increase, reducing Ralphs' net income during such periods.
The following details the impact of Food 4 Less' hedging activity on its
weighted average interest rate for each of the last three fiscal years of Food 4
Less:
<TABLE>
<CAPTION>
WITH WITHOUT
HEDGE HEDGE
-------- --------
<S> <C> <C>
1992............................................ 10.28% 10.25%
1993............................................ 10.07% 10.03%
1994............................................ 10.10% 10.09%
</TABLE>
Effects of Inflation
The Company's primary costs, inventory and labor, are affected by a number
of factors that are beyond its control, including inflation, availability and
price of merchandise, the competitive climate and general and regional economic
conditions. As is typical of the supermarket industry, Ralphs and Food 4 Less
have generally been able to maintain margins by adjusting their retail prices,
but competitive conditions may from time to time render the Company unable to do
so while maintaining its market share.
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<PAGE> 67
BUSINESS
THE MERGER
The combination of Ralphs Grocery Company and Food 4 Less Supermarkets,
Inc. will create the largest food retailer in Southern California. Pro forma for
the Merger, the Company will operate approximately 332 Southern California
stores with an estimated 26% market share among the area's supermarkets. The
Company will operate the second largest conventional supermarket chain in the
region under the "Ralphs" name and the largest warehouse supermarket chain in
the region under the "Food 4 Less" name. In addition, the Company will operate
approximately 24 conventional format stores and 39 warehouse format stores in
Northern California and the Midwest. On a pro forma basis giving effect to the
Merger, Holdings would have had sales of approximately $5.1 billion and $2.8
billion, operating income of approximately $183 million and $90 million and
EBITDA (as defined) of approximately $343 million and $189 million for the 52
weeks ended June 25, 1994 and the 28 weeks ended January 7, 1995, respectively.
TWO LEADING COMPLEMENTARY FORMATS
In Southern California the Company plans to convert up to 122 conventional
stores currently operated by Food 4 Less to the "Ralphs" name and format and 39
Ralphs and Food 4 Less conventional stores to the "Food 4 Less" name and
warehouse format. As a result, and pro forma for the Merger, Ralphs will be the
region's second largest conventional format supermarket chain, with 264 stores
and Food 4 Less will be the region's largest warehouse format supermarket chain
with 68 stores. The Ralphs stores will continue to emphasize a broad selection
of merchandise, high quality fresh produce, meat and seafood and service
departments, including bakery and delicatessen departments in most stores. The
Company's conventional stores will also benefit from Ralphs' strong private
label program and its strengths in merchandising, store operations and systems.
Passing on format-related efficiencies, the Company's price impact warehouse
format stores will continue to offer consumers the lowest overall prices while
still providing product selections comparable to conventional supermarkets.
Management believes the Food 4 Less warehouse format has demonstrated its appeal
to a wide range of demographic groups in Southern California and offers a
significant opportunity for future growth. The Company plans to open nine new
Food 4 Less warehouse stores and 21 new Ralphs stores over the next two years.
Management believes the consolidation of its formats will improve the
Company's ability to adapt its stores' merchandising strategy to the local
markets in which they operate while achieving cost savings and other
efficiencies. These conversions will be effected in three phases which the
Company believes will be completed within the first 18 months of combined
operation.
Phase 1. Food 4 Less has converted 11 of its conventional format stores
operated under the names "Viva" and "Boys" into Food 4 Less warehouse format
supermarkets. Such conversions took up to eight weeks to complete and generally
required the store to be closed for up to two weeks. These Phase 1 conversions,
which were planned independently, were completed prior to the end of Food 4
Less' second quarter at a cost of approximately $1 million per store.
Phase 2. Following the Merger, the Company plans to begin converting up to
122 conventional format stores currently operated by Food 4 Less under the names
"Viva," "Alpha Beta" and "Boys" into Ralphs conventional format stores. It is
anticipated that these conversions will be completed at the rate of
approximately 10 stores per week. Management expects that the Company will be
able to substantially complete each conversion without closing the store.
Management believes that these Phase 2 conversions will be completed within the
first 12-16 weeks of the Company's combined operation at a cost of approximately
$75,000 per store.
Phase 3. Following the Merger, the Company also plans to convert 23
conventional Ralphs format stores and five Food 4 Less conventional format
stores into Food 4 Less warehouse format stores. Management expects that each
such conversion will take up to eight weeks and may require the store to be
closed for up to two to eight weeks during such period. Management believes that
these Phase 3 conversions will be completed within the first 18 months of the
Company's combined operation at a cost of approximately $1 million per store.
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<PAGE> 68
The following table summarizes the store formats to be operated by the
Company in Southern California both before and after giving effect to the
conversion program:
<TABLE>
<CAPTION>
PRO FORMA NUMBER OF
ACTUAL STORES(1)
---------- -------------------------
OCTOBER 1, PRIOR TO FOLLOWING
STORE FORMATS 1994 CONVERSION CONVERSION
------------- ---------- ---------- ----------
<S> <C> <C> <C>
Ralphs Conventional............................... 168 165 264
Food 4 Less Warehouse............................. 30 29 68
Alpha Beta Conventional........................... 129 105 0
Viva Conventional................................. 15 13 0
Boys Conventional................................. 24 20 0
--- --- ---
Total........................................... 366 332 332
</TABLE>
- ---------------
(1) Pro forma store numbers give effect to the anticipated Merger-related
divestiture or closing of 32 stores open at October 1, 1994 and the closure
of two additional Food 4 Less conventional stores.
Ralphs Conventional Format. Following completion of the store conversions
described above, and pro forma for the Merger, the Company will operate 264
Ralphs stores in Southern California. Management believes these conversions will
enhance Ralphs' market position and competitive advantages. Converted stores
will benefit from Ralphs strengths in merchandising, store operations, systems
and technology. Although all Ralphs stores use the Ralphs name and are operated
under a single format, each store is merchandised to appeal to the local
community it serves. Ralphs' substantial supermarket product selection is a
significant aspect of its marketing efforts: Ralphs stocks between 20,000 and
30,000 merchandise items in its stores, including approximately 2,800 private
label products, representing 17.3% of sales (excluding meat, service
delicatessen and produce items) during Fiscal 1993. Ralphs stores offer
name-brand grocery products; quality and freshness in its produce, meat,
seafood, delicatessen and bakery products; and broad selection in all
departments. Most existing Ralphs stores offer service delicatessen departments,
on-premises bakery facilities and seafood departments. Ralphs emphasizes store
ambiance and cleanliness, fast and friendly service, the convenience of debit
and credit card payment (including in-store branch banks) and 24-hour operations
in most stores.
Food 4 Less' 168 conventional supermarkets, currently operated under the
names "Alpha Beta," "Boys" and "Viva," are located throughout densely populated
areas of Los Angeles and surrounding counties, including both suburban and urban
neighborhoods. Food 4 Less' merchandising strategy for conventional stores has
been tailored to the community each store services, but has emphasized customer
service, quality of merchandise, and a large variety of product offerings in
modern store environments. Of Food 4 Less' 168 conventional supermarkets, up to
122 are intended to be converted to the "Ralphs" name and format, 16 will be
converted to the "Food 4 Less" warehouse format and the remainder are expected
to be closed or sold.
Food 4 Less Warehouse Format. Following completion of the store conversions
described above, and pro forma for the Merger, the Company will operate 68 Food
4 Less warehouse stores in Southern California. The conversions will
substantially accelerate the growth of the Food 4 Less format and will enhance
the Company's position as the largest operator of warehouse supermarkets in
Southern California. In addition to the conversions, the Company plans to
continue its rapid growth of the Food 4 Less format by opening nine new
warehouse format stores over the next two years, including five stores in San
Diego, a new market for Food 4 Less. Management believes the expansion of
warehouse format stores will create efficiencies in warehousing, distribution,
and administrative functions.
Food 4 Less' warehouse format stores target the price-conscious segment of
the market, encompassing a wide range of demographic groups in both urban and
suburban areas. Food 4 Less attempts to offer the lowest overall prices in its
marketing areas by passing savings on to the consumer while providing the
product selection associated with a conventional format. Savings are achieved
through labor efficiencies and lower overhead and advertising costs associated
with the warehouse format. In-store operations are designed to allow customers
to perform certain labor-intensive services usually offered in conventional
supermarkets. For example, merchandise is presented on warehouse style racks in
full cartons, reducing labor intensive
59
<PAGE> 69
unpacking, and customers bag their own groceries. Labor costs are also reduced
since the stores generally do not have service departments such as
delicatessens, bakeries and fresh seafood departments, although they do offer a
complete line of fresh meat, fish, produce and baked goods. Additionally, labor
rates are generally lower than in conventional supermarkets.
The Food 4 Less format generally consists of large facilities constructed
with high ceilings to accommodate warehouse racking with overhead pallet
storage. Wide aisles accommodate forklifts and, compared to conventional
supermarkets, a higher percentage of total store space is devoted to retail
selling because the top of the warehouse-style grocery racks on sales floors are
used to store inventory. This reduces the need for large backroom storage. The
Food 4 Less warehouse format supermarkets have brightly painted walls and
inexpensive signage in lieu of more expensive graphics. In addition, a "Wall of
Values" located at the entrance of each store presents the customer with a
selection of specially priced merchandise.
SUBSTANTIAL COST SAVINGS OPPORTUNITIES
Management believes that approximately $90 million of net annual cost
savings (as compared to such costs for the pro forma combined fiscal year ended
June 25, 1994) will be achieved by the end of the fourth full year of combined
operations. It is also anticipated that approximately $117 million in
Merger-related capital expenditures and $50 million of other non-recurring costs
will be required to complete store conversions, integrate operations and expand
warehouse facilities over the same period. Although a portion of the anticipated
cost savings is premised upon the completion of such capital expenditures,
management believes that over 70% of the cost savings could be achieved without
making any Merger-related capital expenditures. The following anticipated
savings are based on estimates and assumptions made by the Company that are
inherently uncertain, though considered reasonable by the Company, and are
subject to significant business, economic and competitive uncertainties and
contingencies, all of which are difficult to predict and many of which are
beyond the control of management. There can be no assurance that such savings
will be achieved. The sum of the components of the estimated cost savings
exceeds $90 million; however, management's estimate of $90 million in net annual
cost savings gives effect to an offsetting adjustment to reflect its expectation
that a portion of the savings will be reinvested in the Company's operations.
See "Risk Factors -- Ability to Achieve Anticipated Cost Savings."
Reduced Advertising Expenses. As a result of the consolidation of
conventional format stores in Southern California under the "Ralphs" name, the
Company will eliminate most of the separate advertising associated with Food 4
Less' existing Alpha Beta, Boys and Viva formats. Because Ralphs' current
advertising program now covers the Southern California region, the Company will
be able to expand the number of Ralphs stores without significantly increasing
advertising costs. Management estimates that there will be annual advertising
cost savings of approximately $28 million as compared to such costs for the pro
forma combined fiscal year ended June 25, 1994. Because of reductions in certain
advertising and promotional expenses on its conventional format stores that Food
4 Less has already begun to implement and certain refinements in the post-Merger
advertising plan, actual cost savings related to advertising expenses are
presently expected to be $19 million in the first full year of combined
operations following the Merger as compared to the current annualized costs.
Reduced Store Operations Expense. Management expects to reduce store
operations costs as a result of both reduced labor and benefit costs and reduced
non-labor expenses. Projected labor and benefit cost savings are based primarily
on Ralphs' labor scheduling system, which has reduced Ralphs' labor costs
relative to those of Food 4 Less. Other labor savings will result from the
reduction of certain high-cost labor as a result of changed manufacturing,
warehouse and distribution practices, and productivity enhancements resulting
from the installation of Ralphs store level systems.
Non-labor expense reductions are based primarily on the installation of
Ralphs' computerized energy management equipment in Food 4 Less stores which
will require significant capital expenditures. The expense savings associated
with the use of this equipment is based on Ralphs' historical experience. Other
significant non-labor expense reductions are projected to come from improved
safety programs, increased cardboard baling revenues, changes to guard and
shoplift agent programs and a reduction in supply and packaging costs.
60
<PAGE> 70
Total labor and non-labor operational savings estimated at approximately $21
million annually are anticipated to be achieved by the fourth full year of
combined operation.
Increased Volume Purchasing Efficiencies. Management has identified
approximately $19 million of cost savings it believes can be achieved as a
result of purchasing efficiencies. These efficiencies consist primarily of (i)
savings from increased discounts and allowances as a result of the combined
volume of the two companies; (ii) an improvement in the terms of vendor
contracts for products carried in the Company's stores on an exclusive or
promoted basis; and (iii) savings from the conversion of some
less-than-truckload shipping quantities to full truckload quantities. These
savings are anticipated to be achieved by the second full year of combined
operation.
Warehousing and Distribution Efficiencies. The consolidation of the
Company's warehousing and distribution facilities into Ralphs' two primary
facilities located in Compton, California and in the Atwater district of Los
Angeles and Food 4 Less' primary facility located in La Habra, California will
result in lower outside storage, transportation and labor costs. The Company
plans facility additions at one Ralphs facility to accommodate the additional
volume as a result of such consolidation. Management anticipates improvements in
the areas of automation, inventory management and handling, delivering,
scheduling and route optimization and worker safety. In addition, the Company
plans to close three existing facilities, which will result in lower occupancy
expenses. Management believes that annual savings of approximately $16 million
associated with warehousing and distribution will be achieved, before giving
effect to capital expenditures in connection with facilities expansions and
facility closing costs. Such savings are expected to be achieved by the third
full year of combined operations.
Consolidated Manufacturing. Ralphs and Food 4 Less operate manufacturing
facilities that produce similar products or have excess capacity. Through the
consolidation of meat, bakery, dairy and other manufacturing and processing
operations, and the discontinuance of external purchases of certain goods that
can be manufactured internally, management believes that annual cost savings of
approximately $10 million can be achieved. In each instance, management has
identified the facilities best suited to the needs of the combined company and
has estimated the expense savings associated with each consolidation. The
combined company will utilize a 316,000 square foot bakery and a 25,722 square
foot milk processing plant, located at Food 4 Less' La Habra facility, and a
28,000 square foot milk processing plant, a 9,000 square foot ice cream
processing plant, and a 23,000 square foot delicatessen kitchen located at
Ralphs' Compton facility. Previously, Ralphs purchased bakery products
externally and Food 4 Less purchased ice cream and delicatessen items
externally. Management also plans to utilize Ralphs' third party meat
processors, which have historically provided Ralphs with a full line of
prefabricated and retail cuts of beef, to produce meat for Food 4 Less stores.
Management anticipates that manufacturing expense savings will be achieved by
the second full year of combined operation.
Consolidated Administrative Functions. The Company expects to achieve
savings from the elimination of redundant administrative staff, the
consolidation of management information systems and a decreased reliance on
certain outside services and consultants. To reduce headcount, the Company plans
to target several functions for consolidation, including accounting, marketing,
management information systems, administration and human resources. The Company
plans to eliminate a data processing center, which is anticipated to result in
savings in the areas of equipment, software, headcount and outside programmer
fees. The Company also plans to eliminate the use of third party administrators
to handle workers compensation and general liability claims. Management
estimates that annual savings of approximately $15 million associated with
consolidating administrative functions will be achieved by the second full year
of combined operation.
EXPERIENCED MANAGEMENT TEAM
The executive officers of the Company have extensive experience in the
supermarket industry. The strength of Ralphs management expertise is evidenced
by Ralphs' reputation for quality and service, its technologically advanced
systems, strong store operations and high historical EBITDA margins. The Food 4
Less management team will provide valuable experience in operating warehouse
supermarkets and in effectively integrating companies into a combined operation.
Following the acquisition of Alpha Beta in 1991,
61
<PAGE> 71
Food 4 Less management successfully integrated Alpha Beta with its existing
Southern California operations and (within three years) achieved annual cost
savings in excess of $40 million (compared to a pre-acquisition estimate of
approximately $33 million). See "Management."
WAREHOUSING AND DISTRIBUTION
The combined Company will utilize Ralphs' technologically advanced
warehousing and distribution systems, which include a 17 million cubic foot
high-rise automated storage and retrieval system warehouse (the "ASRS") for
non-perishable items and a 5.4 million cubic foot perishable service center (the
"PSC") designed for processing, storing and distributing all perishable items.
These facilities and the Food 4 Less La Habra warehouse will provide the Company
with substantial operating benefits, including: (i) enhanced turnover to further
improve the freshness and quality of in-store products, (ii) additional
opportunities in forward buying programs and (iii) an increase in the percentage
of inventory supplied by the Company's own warehousing and distribution system.
Management believes the consolidation of these operations will enable the
Company to meet the combined inventory requirements of all stores with fewer
employees and lower operating and occupancy-related expenses.
In November 1987, Ralphs opened the 17 million cubic foot highrise ASRS
warehouse for non-perishable items in the Atwater district of Los Angeles, at a
cost of approximately $50 million. This facility significantly increased
capacity and improved the efficiency of Ralphs' warehouse operations. The
automated warehouse has a ground floor area of 170,000 square feet and capacity
of approximately 50,000 pallets. Guided by computer software, ten-story high
cranes move pallets from the receiving dock to programmed locations in the ASRS
warehouse while recording the location and time of storage. Goods are retrieved
and delivered by the cranes to conveyors leading to an adjacent "picking"
warehouse where individual store orders are filled and shipped. The Company
plans to utilize existing unused capacity to accommodate additional volume
resulting from the consolidation. The ASRS facility can hold substantially more
inventory and requires fewer employees to operate than a conventional warehouse
of equal size. This facility has reduced Ralphs' warehousing costs of
non-perishable items markedly, enabling it to take advantage of advance buying
opportunities and minimize "out-of-stocks." The Company plans to close two
existing Ralphs warehouse facilities in Los Angeles and Carson, California and
one Food 4 Less facility in Los Angeles, California.
In mid-1992, Ralphs opened the 5.4 million cubic foot PSC facility in
Compton, California, designed to process and store all perishable products. This
facility cost approximately $35 million and has provided Ralphs with the ability
to deliver perishable products to its stores on a daily basis, thereby improving
the freshness and quality of these products. The facility contains an energy
efficient refrigeration system and a computer system designed to document the
location and anticipated delivery time of all inventory. The PSC has
consolidated the operations of three existing facilities and holds more
inventory than the facilities it replaced, thereby reducing Ralphs' warehouse
distribution costs. The Company also plans to expand the PSC facility to
accommodate additional volume resulting from the consolidation.
Most Ralphs stores and Food 4 Less Southern California stores are located
within approximately a one-hour drive from Ralphs' distribution and warehousing
facilities. This geographical concentration, combined with Ralphs' efficient
order system, shortens the lead time between the placement of a merchandise
order and its receipt.
Food 4 Less currently operates a centralized manufacturing, warehouse and
office facility in La Habra, California which it leases from Alpha Beta's former
parent corporation. The La Habra facility measures 1,378,083 total square feet
over 75 acres and, in addition to serving warehousing, distribution and office
functions, houses manufacturing operations which include a bakery and a
creamery. The La Habra facility is operated pursuant to a long-term lease which
expires in 2001. The La Habra facility is expected to be used as an additional
distribution and warehouse facility.
Food 4 Less is party to a joint venture with a subsidiary of Certified
Grocers of California, Ltd. which operates a general merchandise warehouse in
Fresno, California. Management is evaluating the role of such warehouse in the
operation of the combined Company.
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<PAGE> 72
MANUFACTURING
Ralphs' manufacturing operations produce a variety of dairy and other
products, including fluid milk, ice cream, yogurt and bottled waters and juices
as well as packaged ice, cheese and salad preparations. Ralphs contracts with
meat processors to provide a full line of prefabricated and retail cuts of beef.
Ralphs ceased its bakery operations during the second quarter of Fiscal 1993 at
its 102,000 square foot facility in Los Angeles. Food 4 Less' La Habra facility
includes a full-line bakery as well as a creamery and certain other
manufacturing operations.
The following table sets forth information concerning the principal
manufacturing and processing facilities expected to be owned and operated by the
Company:
<TABLE>
<CAPTION>
FACILITY SQUARE FEET LOCATION
----------------------------------------------- ----------- ----------
<S> <C> <C>
Milk processing................................ 28,000 Compton
Ice cream processing........................... 9,000 Compton
Delicatessen kitchen........................... 23,000 Compton
Bakery......................................... 316,000 La Habra
Milk processing................................ 25,722 La Habra
</TABLE>
Management believes that Ralphs' manufacturing facilities and the La Habra
bakery can accommodate the volume requirements of the Company, after planned
expenditures of approximately $3.0 million over the next year.
PRIVATE LABEL PROGRAM
Through its private label program, Ralphs offers approximately 2,800 items
under the "Ralphs," "Private Selection," "Perfect Choice" and "Plain Wrap" brand
names. These products provide quality comparable to that of national brands at
prices 20-30% lower. Gross margins on private label goods are generally higher
than on national brands. Management believes its private label program is one of
the most successful programs in the supermarket industry, representing 17.3% of
sales (excluding meats, service delicatessen and produce items) during the
twelve months ended July 17, 1994. This figure has grown in the past few years,
and management intends to continue the growth of its private label program in
the future.
Food 4 Less has entered into several private label licensing arrangements
which allow it to exclusively utilize recognized brand names in connection with
certain goods it manufactures or purchases from others, including "Carnation"
and "Sunnyside Farms" (dairy products) and "Van de Kamps" (baked goods). In
addition, Food 4 Less has entered into an agreement to distribute private label
dry grocery and frozen products under the "Sunny Select" and "Grocers Pride"
labels and has established its own private label, "Equality," for health and
beauty aid products. Food 4 Less actively promoted its private label products
during fiscal 1994, and management believes that the additional variety,
superior quality and promotional program resulted in an overall increase in
private label sales and corresponding gross margins. It is expected that the
Company will continue the Carnation, Van de Kamps and certain of its other
licensing agreements following the Merger.
EXPANSION AND DEVELOPMENT
As a result of Ralphs' 122-year history and Alpha Beta's 91-year history in
Southern California, the Company will have valuable and well established store
locations, many of which are in densely populated metropolitan areas.
Additionally, the Company will have a technologically advanced store base.
During the five years ended June 25, 1994, on a combined basis, Ralphs and Food
4 Less opened 74 new stores and remodeled 211 stores. Approximately 84% of the
Company's stores have been opened or remodeled in the last five years.
The Company plans to expand the Southern California Division by acquiring
existing stores and constructing new ones. The Company intends to continue to
focus its new store construction and store conversion efforts during calendar
1995 and future years primarily within existing marketing areas. Such efforts
will encompass both of the Company's store formats, namely Food 4 Less and
Ralphs. To this end, the Company plans to continue its store expansion program
in Southern California by opening 17 new stores
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during calendar 1995 (including three Food 4 Less stores which will be located
in San Diego, a new market for Food 4 Less), and additional stores in subsequent
years. During the second quarter of its current fiscal year, Food 4 Less
converted 11 of its conventional format stores to warehouse format stores and,
following the Merger, the Company plans to convert approximately five additional
conventional stores currently managed by Food 4 Less and approximately 23 stores
currently managed by RGC to the "Food 4 Less" name and warehouse format, as Food
4 Less stores have proven to have a strong appeal to value-conscious consumers
across a wide range of demographic groups. See "-- The Merger -- Two Leading
Complementary Formats." Remodeling activity in Southern California will be
focused on the conventional format stores, including 13 planned major remodels
of such stores during calendar 1995. The Company's expansion, remodel and
conversion efforts have required, and will continue to require, the funding of
significant capital expenditures. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
During the last five fiscal years, Ralphs has opened 46 new stores and
remodeled 54 stores at a cost of approximately $277.2 million. A majority of
these new and remodeled stores offer expanded produce and European-style seafood
departments, service delicatessens, fresh bakeries and a broad selection of
general merchandise. With enhanced decor reflecting contemporary interior
design, these stores are designed to provide a quality shopping experience. At
the end of Fiscal 1994, 100 of Ralphs' 173 total stores were newly built or
remodeled within the past five fiscal years. While Ralphs has sold or closed 15
stores during the last five fiscal years, the number of Ralphs' stores has
increased from 142 stores at January 28, 1990 to 173 stores at January 29, 1995.
During the last five fiscal years, in Southern California Food 4 Less has
acquired or opened 172 stores (which includes 142 stores acquired in connection
with the acquisition of Alpha Beta) and remodeled 113 stores. Since its
acquisition of Alpha Beta in 1991, Food 4 Less has undertaken an extensive
program of store remodels, conversions and additions, which have resulted in a
substantially improved store base. During Fiscal 1994, Food 4 Less spent
approximately $50.7 million on capital improvements in Southern California.
Additionally, since the Alpha Beta acquisition, Food 4 Less has converted 22
Southern California stores from conventional formats to the warehouse format. As
Food 4 Less has remodeled existing stores, opened new larger stores and closed
smaller, marginally performing stores, there has been a net reduction in store
count, from 209 stores to 196 stores from the year ended June 29, 1991 ("Fiscal
1991") to the end of Fiscal 1994, but an increase in average store size. The
average square feet per store has increased from 28,700 at the end of Fiscal
1991 to 30,500 at the end of Fiscal 1994. During the last five fiscal years, 29
stores have been closed or sold (including five stores which closed as a result
of the April 1992 civil unrest in Los Angeles).
The Company will select most new store sites from developers' proposals
after such proposals have been researched and analyzed by the Company's
personnel. Each site will be monitored for population shifts, zoning changes,
traffic patterns, and nearby new construction and competitors' stores in an
effort to determine sales potential. The Company will actively participate with
developers in order to attain the Company's objectives for the site, including
adequate parking and complementary co-tenant mix. Remodeling involves enhancing
a store's decor through fixture replacement, upgrading of service departments
and improvements to lighting systems. In order to minimize the disruptive effect
on sales, most stores will be kept open during the remodeling period. The
primary objectives of remodeling will be to improve the attractiveness of
stores, increase sales of higher margin product categories and to increase
selling area where feasible.
Remodelings and openings, among other things, are subject to the
availability of developers' financing, agreements with developers and landlords,
local zoning regulations, construction schedules and other factors, including
costs, often beyond the Company's control. Accordingly, there can be no
assurance that the schedule will be met. Further, the Company expects increasing
competition for new store sites, and it is possible that this competition might
adversely affect the timing of its new store opening program.
ADVERTISING AND PROMOTION
Ralphs' marketing strategy is to provide a combination of wide product
selection, quality and freshness of perishable products, competitive prices and
double coupons supporting Ralphs' advertising theme "Everything
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<PAGE> 74
You Need. Every Time You Shop." In February 1994, Ralphs launched the Ralphs
Savings Plan, a new marketing campaign designed to enhance customer value. The
Ralphs Savings Plan is comprised of six major components: Guaranteed Low Prices
("GLPs"), Price Breakers, Big Buys, Multi-Buys, Ralphs Brand Products and Double
Coupons. GLPs guarantee low prices on certain high volume items that are
surveyed and updated every four weeks. Price Breakers are weekly advertised
items that offer significant savings. Big Buys are club size items at prices
competitive to club store prices and Multi-Buys offer Ralphs shoppers the
opportunity to purchase club store quantities of regular sized items at prices
competitive to club store prices. In conjunction with this new campaign Ralphs'
private label offering of approximately 2,800 products provides value to the
customer. In the second quarter of 1994, Ralphs began more aggressively
promoting perishables through weekly ad features and lower prices. In addition,
Ralphs increased the number of storewide GLPs. Further, a mailer program was
intensified to highlight the perishable pricing and increased GLPs.
Ralphs stores promote sales through the use of product coupons, consisting
of manufacturers' coupons and Ralphs' own promotional coupons. Ralphs offers a
double coupon program in all stores with Ralphs matching the price reduction
offered by the manufacturer. Ralphs also generates store traffic through weekly
advertised specials, special sales promotions such as discounts on recreational
activities, seasonal and holiday promotions, increased private label selection,
club pack items and exclusive product offerings. Current advertising by Ralphs
has substantially the same market coverage as Food 4 Less and it is expected
that following the Merger duplicative advertising can be eliminated.
The Food 4 Less warehouse stores utilize print and radio advertising which
emphasizes Food 4 Less' low-price leadership, rather than promoting special
prices on individual items. The Food 4 Less warehouse stores also utilize weekly
advertising circulars, customized to local communities, which highlight the
merchandise offered in each store.
INFORMATION SYSTEMS AND TECHNOLOGY
Ralphs' management utilizes technology and industrial engineering methods
to enhance operating efficiency. Every checkout lane in every Ralphs store has a
point of sale terminal. Information from these terminals is utilized to allocate
shelf space, select merchandise based on the buying patterns of each store,
reduce out-of-stocks and increase efficiency at the checkstand and in the
warehouses. Industrial engineering methods are used to schedule labor thereby
improving productivity at the store level and in warehousing and distribution
operations.
Ralphs was the first supermarket chain in the western United States to
adopt scanning in all of its stores and has upgraded this equipment through the
purchase of IBM 4680 point-of-sale computers. All Ralphs stores use laser
scanning equipment, operating through an integrated computer system, to scan the
Universal Product Code, which provides prices and descriptions for most
products.
Ralphs has a Uniform Communications Standard purchase order system that
electronically links Ralphs to major suppliers via computer. This system has
enabled the automated processing of purchase orders which management believes
reduces the lead time required for product purchases. In Fiscal 1993, Ralphs
completed installation of an industry standard, direct store delivery receiving
system for goods delivered directly by vendors. This system allows the receipt
of each order to be recorded electronically, thereby confirming product retail
price and purchase authorization. This system has reduced the incidence of
billing errors and unauthorized deliveries.
Industrial engineering standards have been established for all major work
functions in Ralphs stores, ranging from stocking to checkout. Performance of
each major department in each store is measured weekly against these standards.
Similar measurements are made in Ralphs' distribution, warehouse and
manufacturing operations. Ralphs believes that its application of qualitative
methods to the operation of the business has given it a competitive advantage
and has better enabled management to run its business efficiently and to control
costs.
The Company plans to convert the Food 4 Less management information systems
to the Ralphs management information systems. Ralphs stores that will be
converted to the Food 4 Less format will continue to use the Ralphs programs.
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NORTHERN CALIFORNIA AND MIDWESTERN DIVISIONS
The Northern California Division of Food 4 Less operates 19 conventional
supermarkets in the greater San Francisco Bay Area under the names "Cala" and
"Bell," and six warehouse format stores under the "Foods Co." name. Management
believes that the Northern California Division has excellent store locations in
the city of San Francisco that are very difficult to replicate. The Midwestern
Division of Food 4 Less operates 38 stores, of which 33, including ten former
"Food Barn" stores which Food 4 Less acquired in March 1994, are warehouse
format stores operated under the "Food 4 Less" name, and five of which are
conventional supermarkets operated under the "Falley's" name. Of these 38
stores, 34 are located in Kansas and four are located in Missouri. Management
believes the Food 4 Less warehouse format stores are the low-price leaders in
each of the markets in which they compete. The Northern California Division's
conventional store strategy is to attract customers through its convenient
locations, broad product line and emphasis on quality and service and its
advertising and promotion strategy highlights the reduced price specials offered
in its stores. In contrast, the Company's warehouse format stores, operated
under the Food 4 Less name in the Midwestern Division and the Foods Co. name in
the Northern California Division, emphasize lowest overall prices rather than
promoting special prices on individual items. The Northern California Division's
conventional stores range in size from approximately 8,900 square feet to 32,800
square feet, and average approximately 19,400 square feet. The Northern
California Division's warehouse stores range in size from approximately 30,000
square feet to 59,600 square feet, and average approximately 37,900 square feet.
The Midwestern Division's warehouse format stores range in size from
approximately 8,800 square feet to 60,200 square feet and average approximately
37,300 square feet.
The Northern California Division purchases merchandise from a number of
suppliers; however, approximately 40% of its purchases are made through
Certified Grocers of California, Ltd. ("Certified"), a food distribution
cooperative, pursuant to supply contracts. The Northern California Division does
not operate its own warehouse facilities, relying instead on direct delivery to
its stores by Certified and other vendors. Food 4 Less' Southern California
warehouse facilities supply a portion of the merchandise sold in the Northern
California Division stores, and it is expected that, following completion of the
Merger, the Company's Southern California warehouses will continue to do so.
The Midwestern Division's primary supplier is Associated Wholesale Grocers
("AWG"), a member-owned wholesale grocery cooperative based in Kansas City. The
Midwestern Division does not operate a central warehouse, but purchases
approximately 73% of the merchandise sold in its stores from AWG. Management
believes that, as AWG's largest single customer, the Midwestern Division has
significant buying power, allowing it to provide a broader product line more
economically than it could if it maintained its own full-line warehouse. The
Midwestern Division produces approximately 50% of all case-ready fresh meat
items sold in its stores at its central meat plant located in Topeka, Kansas.
In fiscal 1990, the Northern California Division initiated a remodeling
program to upgrade its stores and to increase profitability. Food 4 Less
remodeled 15 stores during the past five fiscal years, and opened five new
stores during the past four fiscal years. During fiscal 1994, Food 4 Less opened
one new warehouse store, converted three existing stores to the warehouse format
and remodeled one conventional format store. The Company has closed 4 stores
during the past five fiscal years and increased its number of stores from 22 at
the end of the fiscal year ended June 30, 1990 to 24 at the end of the fiscal
year ended June 25, 1994. The average square feet per store has increased from
20,000 at the end of fiscal 1990 to 23,300 at the end of fiscal 1994. The
Company plans to open one additional warehouse format store and remodel two
conventional format stores during fiscal 1995. Management plans to further
expand the Northern California Division in the future by acquiring existing
stores and constructing new stores, including warehouse stores. The Northern
California Division Food 4 Less warehouse stores were renamed "Foods Co." in
fiscal 1994 following the sale by Food 4 Less of exclusive rights to use the
"Food 4 Less" name in Northern California to Fleming Companies, Inc. See
"-- Licensing Operations."
The Company intends to focus its Midwestern Division expansion primarily on
its Food 4 Less operations. While Food 4 Less expects to construct new stores,
it may also expand operations by purchasing existing Food 4 Less stores from
unaffiliated licensees, or by acquiring existing supermarkets and converting
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them to the Food 4 Less warehouse format. The acquisition in March 1994 of ten
warehouse stores formerly operated as "Food Barn" stores increased the
Midwestern Division's Food 4 Less warehouse store count from 23 at June 26, 1993
to 33 at June 25, 1994. During the last five fiscal years, the Midwestern
Division has opened 3 new stores, acquired 13 stores, closed one store and
remodeled 10 stores.
COMPETITION
The supermarket industry is highly competitive and characterized by narrow
profit margins. The Company's competitors in each of its operating divisions
include national and regional supermarket chains, independent and specialty
grocers, drug and convenience stores, and the newer "alternative format" food
stores, including warehouse club stores, deep discount drug stores and "super
centers." Supermarket chains generally compete on the basis of location, quality
of products, service, price, product variety and store condition. The Company
regularly monitors its competitors' prices and adjusts its prices and marketing
strategy as management deems appropriate in light of existing conditions. Some
of the Company's competitors have greater financial resources than the Company
and could use these resources to take steps which could adversely affect the
Company's competitive position.
The Southern California stores compete with several large national and
regional chains, principally Albertsons, Hughes, Lucky, Smith's, Stater Bros.,
and Vons, and with smaller independent supermarkets and grocery stores as well
as warehouse clubs and other "alternative format" food stores. The Northern
California Division competes with large national and regional chains,
principally Lucky and Safeway, and with independent supermarket and grocery
store operators and other retailers, including "alternative format" stores. The
Midwestern Division's supermarkets compete with several national and regional
supermarket chains, principally Albertsons and Dillons, as well as independent
and "alternative format" stores such as Hypermarket USA. Food 4 Less positions
its Food 4 Less warehouse format supermarkets as the overall low-price leader in
each marketing area in which they operate. In addition, management believes that
Ralphs is a leading competitor in many of its marketing areas, based on its
strong customer franchise, desirable store locations, technology and efficient
distribution systems.
EMPLOYEES
RALPHS
At January 29, 1995, Ralphs had 6,213 full-time and 8,940 part-time
employees as follows:
<TABLE>
<CAPTION>
EMPLOYEE TYPE UNION NON-UNION TOTAL
--------------------------------------------- ------ --------- ------
<S> <C> <C> <C>
Hourly....................................... 13,854 245 14,099
Salaried..................................... -- 1,054 1,054
------ ----- ------
Total employees.................... 13,854 1,299 15,153
</TABLE>
Of Ralphs' 15,153 total employees at January 29, 1995, 13,854 were covered
by union contracts principally with the UFCW. The table below sets forth
information regarding Ralphs' union contracts which cover more than 100
employees.
<TABLE>
<CAPTION>
UNION NUMBER OF EMPLOYEES COVERED DATE OF EXPIRATION
- ---------------------------------- -------------------------------- -------------------
<S> <C> <C>
UFCW 10,723 clerks and meatcutters October 6, 1996
International Brotherhood of 1,675 drivers and warehousemen September 13, 1998
Teamsters
Hotel Employees and Restaurant
Employees 977 September 10, 1995
Hospital and Service Employees 328 Los Angeles January 19, 1997
67 San Diego April 20, 1997
</TABLE>
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FOOD 4 LESS
At June 25, 1994, Food 4 Less had a total of 5,728 full-time and 8,959
part-time employees as follows:
<TABLE>
<CAPTION>
EMPLOYEE TYPE UNION NON-UNION TOTAL
----------------------------------------------- ------ --------- ------
<S> <C> <C> <C>
Hourly......................................... 11,882 1,907 13,789
Salaried....................................... -- 898 898
------ ----- ------
Total employees...................... 11,882 2,805 14,687
</TABLE>
Of Food 4 Less' 14,687 total employees at June 25, 1994, 11,882 were
covered by union contracts, principally with UFCW. The table below sets forth
information regarding Food 4 Less' union contracts which cover more than 100
employees.
<TABLE>
<CAPTION>
NUMBER OF DATE OF
UNION EMPLOYEES COVERED EXPIRATION
- ---------------------------------------------- -------------------------- ---------------------
<S> <C> <C>
UFCW.......................................... 7,908 Southern California October 6, 1996
clerks and meatcutters
Hospital and Service Employees................ 299 Southern California January 19, 1997
store porters
International Brotherhood of Teamsters........ 886 Southern California September 13, 1998
produce drivers
and warehousemen
UFCW.......................................... 971 Northern California February 28, 1995(a)
clerks and meatcutters
UFCW.......................................... 1,532 Southern California February 25, 1996
clerks and meatcutters
Bakery and Confectionery Workers.............. 192 Southern California July 8, 1995
bakers
</TABLE>
- ---------------
(a) Certain of such employees are covered by a contract expiring on June 2,
1996. The contract which expired on February 28, 1995 and an additional
contract which expired on March 4, 1995 have been provisionally extended for
a five-month period and currently are being renegotiated.
Pursuant to their collective bargaining agreements, both Ralphs and Food 4
Less contribute to various union-sponsored, multi-employer pension plans.
The terms of most collective bargaining agreements that cover employees of
conventional stores operated by Food 4 Less are substantially identical to the
terms of the corresponding collective bargaining agreements of Ralphs. The terms
of each company's collective bargaining agreements generally will remain in
effect following the Merger, although it is expected that, as a result of
current negotiations, Ralphs' collective bargaining agreements will apply to all
Company stores converted to the Ralphs name and format, and the collective
bargaining agreements that cover employees of Food 4 Less warehouse format
stores will apply to all Company stores converted to the Food 4 Less name and
warehouse format.
Management believes that both Ralphs and Food 4 Less have good relations
with their employees.
LICENSING OPERATIONS
Food 4 Less owns the "Food 4 Less" trademark and service mark and licenses
the "Food 4 Less" name for use by others. In Fiscal 1994, earnings from
licensing operations were approximately $270,000. An exclusive license with the
right to sublicense the "Food 4 Less" name in all areas of the United States
except Arkansas, Iowa, Illinois, Minnesota, Nebraska, North Dakota, South
Dakota, Wisconsin, the upper peninsula of Michigan, certain portions of Kansas,
Missouri, and Tennessee has been granted to Fleming Companies, Inc. ("Fleming"),
a major food wholesaler and retailer. In August of 1993, Food 4 Less amended
(the "Amendment") its licensing agreement with Fleming to give Fleming exclusive
use of the Food 4 Less name in Northern California and Food 4 Less exclusive use
in Southern California. Fleming paid Food 4 Less a fee of $1.9 million for the
Amendment. With the exception of Northern California, and subject to the
Amendment and certain proximity restrictions, Food 4 Less retains the right to
open and operate its own
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"Food 4 Less" warehouse supermarkets throughout the United States. As of June
25, 1994, there were 158 Food 4 Less warehouse supermarkets in 20 states,
including the 61 stores owned or leased and operated by Food 4 Less. Of the
remaining 97 stores, Fleming operates three under license, 67 are operated under
sublicenses from Fleming and 27 are operated by other licensees.
PROPERTIES
At October 1, 1994, Ralphs and Food 4 Less operated a total of 429 stores,
as set forth in the table below:
<TABLE>
<CAPTION>
NUMBER OF
SUPERMARKETS TOTAL SELLING
-------------- SQUARE FEET SQUARE FEET
OWNED LEASED ----------- -----------
----- ------ (IN THOUSANDS)
<S> <C> <C> <C> <C>
Southern California..................... 49 317(a) 12,929 9,174
Northern California..................... -- 25 610 424
Midwestern.............................. 2(b) 36 1,357 1,025
-- --- ------ ------
Total......................... 51 378(c) 14,896 10,623
== === ====== ======
</TABLE>
- ---------------
(a) Includes 17 stores located on real property subject to a ground lease.
(b) Includes one store that is partially owned and partially leased.
(c) The average remaining term (including renewal options) of Ralphs' and Food 4
Less' supermarket leases is 27 years.
The number of Ralphs and Food 4 Less stores by size classification as of October
1, 1994 is as follows:
<TABLE>
<CAPTION>
AVERAGE GROSS SQUARE FEET AVERAGE SELLING SQUARE FEET NUMBER OF STORES
TOTAL SQUARE --------------------------- --------------------------- -------------------------------------
FEET RALPHS FOOD 4 LESS RALPHS FOOD 4 LESS RALPHS FOOD 4 LESS TOTAL
- ---------------- ----------- ----------- ----------- ----------- --------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
8,800 - 15,599 -- 13,175 -- 9,478 -- 8 8
15,600 - 25,000 21,867 21,740 16,709 14,880 3 92 95
25,001 - 30,000 27,926 26,966 19,725 18,633 15 37 52
30,001 - 35,000 32,993 32,574 24,204 23,247 31 51 82
35,001 - 40,000 37,254 36,804 27,053 26,272 32 27 59
40,001 - 45,000 43,264 42,329 31,422 30,038 59 12 71
45,001 - 50,000 46,356 48,037 33,185 34,572 15 11 26
50,001 - 84,280 68,400 55,056 48,466 37,814 13 23 36
</TABLE>
At October 1, 1994, the Company also operated 20 distribution, warehouse
and administrative facilities and five manufacturing and processing facilities,
14 of which are owned and 11 of which are leased. Certain of the facilities are
expected to be sold, closed or subleased following completion of the Merger. See
"-- Warehousing and Distribution."
Ralphs' distribution and warehouse facilities include the 17 million cubic
foot ASRS warehouse for nonperishable items that Ralphs opened in November 1987
and the 5.4 million cubic foot PSC facility for the processing and storage of
perishable products opened in mid-1992. Food 4 Less operates two warehouse
facilities: The largest of such facilities is Food 4 Less' central office,
manufacturing and warehouse complex in La Habra, California, which occupies
approximately 1.4 million total square feet over 75 acres. Food 4 Less has
entered into a lease of the La Habra property which expires in 2001 (and which
may be extended for up to 15 years at the election of Food 4 Less), with
American Food and Drug, Inc. ("AFDI"), a subsidiary of American Stores Company,
and has an option to purchase such property. Rent on the La Habra property was
$6.3 million in Fiscal 1994. Four of Food 4 Less' supermarkets are also leased
from AFDI. In addition to the La Habra facility, Food 4 Less leases a 321,000
square foot warehouse in Los Angeles. This warehouse, which was formerly owned
by Food 4 Less, was the subject of a sale leaseback arrangement entered into by
Food 4 Less in August 1990. For information regarding the Company's plan to
consolidate its warehouse facilities following completion of the Merger, see
"-- The Merger -- Substantial Cost Savings Opportunities -- Warehousing and
Distribution Efficiencies."
LEGAL PROCEEDINGS
In December 1992, three California state antitrust class action suits were
commenced in Los Angeles Superior Court against RGC and Food 4 Less and other
major supermarket chains located in Southern
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California, alleging that they conspired to refrain from competing in the retail
market for fluid milk and to fix the retail price of fluid milk above
competitive prices. Specifically, class actions were commenced by Diane Barela
and Neila Ross, Ron Moliare and Paul C. Pfeifle on December 7, December 14, and
December 23, 1992, respectively. The Court has yet to certify any of these
classes. A demurrer to the complaints was denied. Notwithstanding that it
believes there is no merit to these cases, RGC had reached an agreement in
principle to settle them. However, no settlement agreement has been signed. Food
4 Less is continuing to actively defend these suits and Ralphs has elected to
defer any further settlement discussions until after the consummation of the
Merger. The Company does not believe that the resolution of these cases will
have a material adverse effect on its future financial condition. Any settlement
would be subject to court approval.
On March 25, 1991, George A. Koteen Associates, Inc. ("Koteen Associates")
commenced an action in San Diego Superior Court alleging that RGC breached an
alleged utility rate consulting agreement. In December 1992, a jury returned a
verdict of approximately $4.9 million in favor of Koteen Associates and in March
1993, attorney's fees and certain other costs were awarded to the plaintiff. RGC
has appealed the judgment and fully reserved in Fiscal 1992 against an adverse
ruling by the appellate courts.
In April 1994, RGC was served with a complaint filed by over 240 former
employees at Ralphs' bakery in the Atwater district of Los Angeles (the "Bakery
Plaintiffs"). The action was commenced in the United States District Court for
the Central District of California, and, among other claims, the Bakery
Plaintiffs alleged that RGC breached its collective bargaining agreement and
violated the Workers Adjustment Retraining Notification Act (the "WARN Act")
when it downsized and subsequently closed the bakery. In their complaint, the
Bakery Plaintiffs are seeking damages for lost wages and benefits as well as
punitive damages. The Bakery Plaintiffs also named RGC and two of its management
employees in fraud, conspiracy and emotional distress causes of action. In
addition, the Bakery Plaintiffs sued their union local for breach of its duty of
fair representation and other alleged misconduct, including fraud and
conspiracy. The defendants have answered the complaint and discovery is ongoing.
Trial is set for February, 1996, and RGC is vigorously defending this suit.
Management believes, based on its assessment of the facts, that the resolution
of this case will not have a material effect on the Company's financial position
or results of operations.
In addition, Food 4 Less and Ralphs are defendants in a number of other
cases currently in litigation or potential claims encountered in the normal
course of business which are being vigorously defended. In the opinion of
management, the resolutions of these matters will not have a material effect on
Food 4 Less' or Ralphs' financial position or results of operations.
CALIFORNIA SETTLEMENT AGREEMENT
On December 14, 1994, Food 4 Less and Ralphs entered into a Settlement
Agreement (the "Settlement Agreement") with the State of California to settle
potential antitrust and unfair competition claims the State of California
asserted against Ralphs and Food 4 Less relating to the effects of the Merger on
supermarket competition in Southern California (the "State Claims"). Without
admitting any liability in connection with the State Claims, Food 4 Less and
Ralphs agreed in the Settlement Agreement to divest 27 specific stores in
Southern California. Under the Settlement Agreement, the Company must divest 14
stores by June 30, 1995, and the balance of 13 stores by December 31, 1995. The
Company also agreed not to acquire new stores from third parties in the six
Southern California areas specified in the Settlement Agreement for five years
following the date of the Settlement Agreement. If the Company fails to divest
the required stores by the two dates set forth in the Settlement Agreement, the
Company has agreed not to object to the appointment of a trustee to effect the
required sales. The Settlement Agreement also requires the Company to pay the
reasonable fees and costs of the attorneys and experts of the State of
California associated with its review.
GOVERNMENT REGULATION
Ralphs and Food 4 Less are subject to regulation by a variety of
governmental agencies, including, but not limited to, the California Department
of Alcoholic Beverage Control, the California Department of Agriculture, the
U.S. Food and Drug Administration, the U.S. Department of Agriculture and state
and local health departments. In addition, the Merger is subject to the review
of the Federal Trade Commission and the
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requirements and waiting period imposed by the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"). The waiting period under the HSR Act
has expired and on February 2, 1995, the Federal Trade Commission advised Food 4
Less and Ralphs that it had closed its investigation of the Merger.
ENVIRONMENTAL MATTERS
In January 1991, the California Regional Water Quality Control Board for
the Los Angeles Region (the "Regional Board") requested that Ralphs conduct a
subsurface characterization of Ralphs' Atwater property. This request was part
of an ongoing effort by the Regional Board, in connection with the U.S.
Environmental Protection Agency (the "EPA"), to identify contributors to
groundwater contamination in the San Fernando Valley. Significant parts of the
San Fernando Valley, including the area where Ralphs' Atwater property is
located, have been designated federal Superfund sites requiring response actions
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, because of regional groundwater contamination. On June 18,
1991, the EPA made its own request for information concerning the Atwater
property. Since that time, the Regional Board has requested further
investigations by Ralphs. Ralphs has conducted the requested investigations and
has reported the results to the Regional Board. Approximately 25 companies have
entered into a Consent Order (EPA Docket No. 94-11) with the EPA to investigate
and design a remediation system for contaminated groundwater beneath an area
which includes the Atwater property. Ralphs is not a party to that Consent
Order, but is cooperating with requests of the subject companies to allow
installation of monitoring or recovery wells on Ralphs' property. Based upon
available information, management does not believe this matter will have a
material adverse effect on the Company's financial condition or results of
operations.
Ralphs has removed underground storage tanks and remediated soil
contamination at the Atwater property. In some instances the removals and the
contamination were associated with grocery business operations; in others they
were associated with prior property users. Although the possibility of other
contamination from prior operations or adjacent properties exists at the Atwater
property, management does not believe that the costs of remediating such
contamination will be material to the Company.
Apart from the Atwater property, Ralphs and Food 4 Less have recently had
environmental assessments performed on a significant portion of Ralphs'
facilities and Food 4 Less' facilities, including warehouse and distribution
facilities. Management believes that any responsive actions required at the
examined properties as a result of such assessments will not have a material
adverse effect on its financial condition or results of operations.
Ralphs has incurred approximately $4.5 million in non-recurring capital
expenditures for conversion of refrigerants during 1994. Food 4 Less may incur
some additional capital expenditures for such conversion. Other than these
expenditures, neither Ralphs nor Food 4 Less has incurred material capital
expenditures for environmental controls during the previous three years, nor
does management anticipate incurring such expenditures during the current fiscal
year or the succeeding fiscal year.
At the time that Food 4 Less acquired Alpha Beta in 1991, it learned that
certain underground storage tanks located on the site of the La Habra facility
may have released hydrocarbons. In connection with the acquisition of Alpha Beta
the seller (who is also the lessor of the La Habra facility) agreed to retain
responsibility, subject to certain limitations, for remediation of the release.
Ralphs and Food 4 Less are subject to a variety of environmental laws,
rules, regulations and investigative or enforcement activities, as are other
companies in the same or similar business. The Company believes it is in
substantial compliance with such laws, rules and regulations. These laws, rules,
regulations and agency activities change from time to time, and such changes may
affect the ongoing business and operations of the Company.
71
<PAGE> 81
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding the persons
who are expected to serve as the executive officers and directors of the Company
and New Holdings, as successor to Holdings, following the consummation of the
Merger, the FFL Merger and the Reincorporation Merger.
<TABLE>
<CAPTION>
YEARS OF SUPERMARKET
INDUSTRY SERVICE
----------------------------
NAME AGE POSITION MANAGERIAL POSITIONS TOTAL
- ------------------------- --- ----------------------------------- -------------------- -----
<S> <C> <C> <C> <C>
Ronald W. Burkle 42 Director and Chairman of the Board 19 24
of New Holdings and the Company
Byron E. Allumbaugh 63 Director and Chief Executive 36 36
Officer of New Holdings and the
Company
George G. Golleher 46 Director and Vice Chairman of New 21 21
Holdings and the Company
Alfred A. Marasca 53 Director of the Company and 30 38
President and Chief Operating
Officer of New Holdings and the
Company
Joe S. Burkle 71 Director and Executive Vice 44 48
President of New Holdings and the
Company
Greg Mays 48 Executive Vice President of New 21 21
Holdings and the Company
Terry Peets 50 Executive Vice President of New 18 18
Holdings and the Company
Jan Charles Gray 47 Senior Vice President, General 20 31
Counsel and Secretary of New
Holdings and the Company
Alan J. Reed 48 Senior Vice President and Chief 22 22
Financial Officer of New Holdings
and the Company
Patrick L. Graham 45 Director of New Holdings and the -- --
Company
Mark A. Resnik 47 Director of New Holdings and the -- --
Company
</TABLE>
Ronald W. Burkle has been a Director and the Chairman of the Board and
Chief Executive Officer of Food 4 Less since its inception in 1989. Mr. Burkle
co-founded Yucaipa in 1986 and has served as Director, Chairman of the Board,
President and Chief Executive Officer of FFL since 1987 and of Holdings since
1992. From 1986 to 1988, Mr. Burkle was Chairman and Chief Executive Officer of
Jurgensen's, a Southern California gourmet food retailer. Before joining
Jurgensen's, Mr. Burkle was a private investor in Southern California. Mr.
Burkle is the son of Joe S. Burkle.
Byron E. Allumbaugh has been Chairman of the Board and Chief Executive
Officer of Ralphs since 1976 and a Director since 1988. He also is a Director of
the H.F. Ahmanson Company, El Paso Natural Gas Company and Ultramar, Inc.
George G. Golleher has been a Director of Food 4 Less since its inception
in 1989 and has been the President and Chief Operating Officer of Food 4 Less
since January 1990. From 1986 through 1989 Mr. Golleher served as Senior Vice
President, Finance and Administration, of The Boys Markets, Inc. Prior to
joining The Boys Markets, Inc. in 1984, Mr. Golleher served as Vice President
and Chief Financial Officer of Mayfair Markets, Inc. from 1983 to 1984.
Alfred A. Marasca has been President, Chief Operating Officer and a
Director of Ralphs since February 1994 and he was President from February 1993
to February 1994, Executive Vice President, Retail from 1991 until 1993 and
Executive Vice President, Marketing from 1985 to 1991.
72
<PAGE> 82
Joe S. Burkle has been a Director and Executive Vice President of Food 4
Less since its inception in 1989 and has been Chief Executive Officer of
Falley's, Inc. since 1987. Mr. Burkle began his career in the supermarket
industry in 1946, and served as President and Chief Executive Officer of Stater
Bros. Markets, a Southern California supermarket chain. Prior to 1987, Mr.
Burkle was a private investor in Southern California. Mr. Burkle is the father
of Ronald W. Burkle.
Greg Mays has been Executive Vice President -- Finance and Administration,
and Chief Financial Officer of Food 4 Less and of Holdings since December 1992.
From 1989 until 1991, Mr. Mays was Chief Financial Officer of Almac's, Inc. and,
from 1991 to December 1992, President and Chief Financial Officer of Almac's.
From April 1988 to June 1989, Mr. Mays was Chief Financial Officer of Food 4
Less of Modesto, Inc. and Cala Foods, Inc.
Terry Peets has been Executive Vice President of Ralphs since February
1994. He was Senior Vice President, Marketing from 1991 to February 1994, Senior
Vice President, Merchandising from 1990 to 1991, Group Vice President,
Merchandising from 1988 to 1990 and Group Vice President, Store Operations from
1987 to 1988.
Jan Charles Gray has been Senior Vice President, General Counsel and
Secretary of Ralphs since 1988. He was Senior Vice President and General Counsel
from 1985 to 1988 and Vice President and General Counsel from 1978 to 1985.
Alan J. Reed has been Senior Vice President and Chief Financial Officer of
Ralphs since 1988. He was Senior Vice President, Finance from 1985 to 1988 and
Vice President, Finance from 1983 to 1985.
Patrick L. Graham joined Yucaipa as a general partner in January 1993.
Prior to that time he was a Managing Director in the corporate finance
department of Libra Investments, Inc. from 1992 to 1993 and PaineWebber Inc.
from 1990 to 1992. From 1982 to 1990, he was a Managing Director of the
corporate finance department of Drexel Burnham Lambert Incorporated and an
Associate Director in the corporate finance department of Bear Stearns & Co.,
Inc.
Mark A. Resnik has been a Director and the Vice President and Secretary of
Food 4 Less since its inception in 1989, co-founded Yucaipa in 1986 and has been
a Director, Vice President and Secretary of FFL since 1987. From 1986 until
1988, Mr. Resnik served as a Director, Vice President and Secretary for
Jurgensen's. From 1983 through 1986, Mr. Resnik served as a Director, Vice
President and General Counsel of Stater Bros. Markets.
In addition to the directors named above, two members will be nominated to
the Board of Directors of each of the Company and New Holdings by Apollo, and
one member will be nominated to the Board of Directors of each of the Company
and New Holdings by the other New Equity Investors, pursuant to the terms of the
1995 Stockholders Agreement. See "Description of Capital Stock -- 1995
Stockholders Agreement."
All directors of the Company and New Holdings will hold office until the
election and qualification of their successors. Executive officers of each of
the Company and New Holdings will be chosen by its Board of Directors and will
serve at its discretion. It is anticipated that neither the Company nor New
Holdings will pay any fees or remuneration to its directors for service on the
board or any board committee, but that the Company and New Holdings will
reimburse directors for their ordinary out-of-pocket expenses incurred in
connection with attending meetings of the Board of Directors.
73
<PAGE> 83
EXECUTIVE COMPENSATION
EMPLOYMENT AGREEMENTS
Concurrently with the consummation of the Merger, the Company will enter
into employment agreements with certain of the current executive officers of
Ralphs and Food 4 Less. It is expected that Byron E. Allumbaugh, George G.
Golleher, Alfred A. Marasca, as well as other executive officers of the Company,
including Messrs. Mays, Peets, Gray and Reed, will enter into three-year
employment contracts with the Company and that the existing employment
contracts, if any, of such officers will be cancelled.
New Allumbaugh Agreement. The employment agreement between the Company and
Byron Allumbaugh, 63, is expected to provide for a salary of $1 million for the
first year and $1.25 million for the second year. If Mr. Allumbaugh continues as
the Chief Executive Officer during the third year following the Merger, he would
be entitled to a salary of $2 million and if he is employed in another capacity
then he would be entitled to a salary of $1.25 million for the third year. Mr.
Allumbaugh will be entitled to a bonus equal to his salary in each year if
certain prescribed earnings targets (the "Earnings Targets") for the year are
reached. If the Company completes an initial public offering of capital stock
during the first two years of Mr. Allumbaugh's employment, Mr. Allumbaugh will
remain Chief Executive Officer for one year after the public offering. If the
public offering is anticipated to occur during the third year of Mr.
Allumbaugh's employment agreement, Mr. Allumbaugh will resign as Chief Executive
Officer six months prior to the intended date of the public offering but will
continue to be employed at the lesser compensation level provided in his
employment agreement until its termination.
New Golleher Agreement. Food 4 Less is currently a party to a five-year
employment agreement with George G. Golleher providing for annual base
compensation of $350,000, plus employee benefits and an incentive bonus
calculated in accordance with a formula based on Food 4 Less' earnings. Under
the employment agreement, Mr. Golleher may terminate his employment agreement in
the event of a change of control of Food 4 Less, in which case he is entitled to
receive all of the salary and benefits provided under the agreement for the
remaining term thereof, notwithstanding the termination of his employment. In
connection with the consummation of the Merger, the Food 4 Less board of
directors has authorized the payment of a special bonus to George Golleher in a
lump sum amount equal to the base salary due him under the remaining term of his
employment agreement. As a condition of the payment of such bonus, Mr.
Golleher's existing employment agreement will be cancelled, and he will enter
into a new agreement containing terms to be mutually agreed upon between Food 4
Less and Mr. Golleher. The new employment agreement is expected to provide for
an annual salary of $500,000 plus a bonus equal to his salary in each year if
the Earnings Targets are reached. The new employment agreement will continue in
effect certain existing contractual rights of Mr. Golleher to be elected to the
Company's board of directors and to require the Company to repurchase certain of
his shares of New Holdings stock upon his death, disability or termination
without cause.
New Marasca Agreement. The employment agreement between the Company and
Alfred Marasca is expected to provide for a salary of $500,000 per annum and an
annual bonus equal to his salary if the Earnings Targets for the year are
reached.
General Provisions of the New Employment Agreements. The new employment
agreements are expected to provide generally that the Company may terminate the
agreement for cause or upon the failure of the employee to render services to
the Company for a continuous period to be agreed upon by the Company and the
employee because of the employee's disability. In addition, the employee's
services may be suspended upon notice by the Company and in such event the
employee will continue to be compensated by the Company during the remainder of
the term of the agreement subject to certain offsets if the employee becomes
engaged in another business.
Existing Food 4 Less Employment Agreements. Food 4 Less entered into
employment agreements with 24 officers providing for their employment for a
one-year term commencing on the date of a change of control of Food 4 Less.
These agreements provide for the payment of an incentive bonus calculated in
accordance with Food 4 Less policies, and certain of the agreements provide for
the payment of a special bonus payable upon a change of control (provided
certain financial performance targets have been met). These agreements
74
<PAGE> 84
will become effective upon the consummation of the Merger. Greg Mays, who will
be an Executive Vice President of the Company, will be entitled to receive a
base salary of not less than $250,000 and a special bonus of $150,000 (provided
certain financial performance targets have been met). It is anticipated that
some, but not all, of these employment agreements will be replaced by new
employment agreements with the Company.
Joe Burkle Consulting Agreement. Food 4 Less has a consulting agreement
with Joe S. Burkle providing for compensation of $3,000 per week, pursuant to
which Mr. Burkle provides the management and consulting services of an executive
vice president. The agreement has a five-year term, which is automatically
renewed on January 1 of each year for a five-year term unless sixty days' notice
is given by either party; provided that if Food 4 Less terminates Mr. Burkle's
services for reasons other than for good cause, the payments due under the
agreement continue for the balance of the term. It is expected that the Company
will assume Mr. Burkle's consulting agreement upon the consummation of the
Merger.
EQUITY APPRECIATION RIGHTS PLAN
RGC has 1,500,000 EARs outstanding that were granted under the RGC 1988
Equity Appreciation Rights Plan, as amended (the "EAR Plan"). The outstanding
EARs are held by 36 officers and former officers of Ralphs, including Byron
Allumbaugh, Alfred Marasca, Alan Reed, Terry Peets and Jan Charles Gray. All
outstanding EARs are vested in full and not subject to forfeiture by the
holders, except in the event a holder's employment is terminated for cause
within the meaning of the EAR Plan. The outstanding EARs represent the right to
receive, in the aggregate, 15% of the increase of the appraised value of RGC's
equity at the time of exercise over a base value of $120 million. Concurrently
with the consummation of the Merger, the outstanding EARs will be redeemed for
$17.8 million in cash and a deferred payment of up to $5.0 million. An
additional $10 million of EAR payments that would otherwise be payable upon
consummation of the Merger will be cancelled in exchange for the issuance of the
Reinvestment Options (as defined). No future compensation expense will be
recorded as the cancellation of certain EAR liabilities ($10.0 million) in
consideration for the Reinvestment Options is deemed by management to reflect
fair and equal value. See "-- New Management Stock Option Plan and Management
Investment," "Description of Capital Stock -- New Equity Investment" and
"Certain Relationships and Related Transactions -- Food 4 Less and Holdings."
The price to redeem the EARs is based on a $517 million valuation (the maximum
valuation possible under the EAR Plan) of RGC's equity.
NEW MANAGEMENT STOCK OPTION PLAN AND MANAGEMENT INVESTMENT
Upon the consummation of the Merger, certain members of Ralphs' management
and Food 4 Less' management will be entitled to receive options to purchase
common stock of New Holdings (the "New Options"). The New Options will have a
term of ten years and the exercise price with respect to each New Option will be
$10 per share, which is equal to the price paid by the New Equity Investors for
the New Equity Investment. The New Options will represent 7.5% of the total
equity of New Holdings, and will be allocated as follows: New Options
representing 1.5%, 0.5% and 0.5% of the total equity of New Holdings will be
granted to Byron Allumbaugh, George Golleher and Alfred Marasca, respectively
(the "Tier One Options"). The Tier One Options will be fully vested upon
issuance and will be immediately exercisable. New Options for an additional 2.5%
of the total equity of New Holdings will be granted to certain other management
employees of the Company (the "Tier Two Options"). Fifty percent (50%) of the
Tier Two Options granted to each holder will vest immediately upon issuance and
10% will vest each year thereafter. In addition, New Options representing an
aggregate of 2.5% of the total equity of New Holdings will be issued to holders
of EARs in exchange for the cancellation of $10 million of the EAR payments
which would otherwise be payable upon consummation of the Merger (the
"Reinvestment Options"). The value of the EAR payments cancelled will be
credited against the exercise price for each Reinvestment Option. The
Reinvestment Options will be fully vested upon issuance and will be immediately
exercisable.
Certain of Ralphs' officers, including Messrs. Allumbaugh, Marasca, Reed,
Peets and Gray, currently hold options to purchase common stock of RSI. These
options will be cancelled for cash payments aggregating $880,000 in connection
with the Merger.
75
<PAGE> 85
Each holder of New Options (collectively, the "Management Shareholders")
will also execute a management shareholder agreement with New Holdings
(collectively, the "Management Shareholder Agreements"). The Management
Shareholder Agreements generally will provide New Holdings with a right of first
refusal in the event of proposed sales of New Holdings stock acquired by the
Management Shareholders upon the exercise of New Options and an option,
exercisable following any termination for cause of a Management Shareholder's
employment, or if the Management Shareholder commences employment with a
competitor, to repurchase at Fair Market Value (as defined in the Management
Shareholder Agreements) any New Holdings stock acquired by such Management
Shareholder upon the exercise of New Options. Each Management Shareholder
Agreement will contain certain rights of the Management Shareholders to
participate in sales by Yucaipa of New Holdings stock and certain obligations of
the Management Shareholders to sell their New Holdings stock in the case of a
sale for cash of all of the outstanding New Holdings stock. Finally, the
Management Shareholders will be required to vote their New Holdings stock to
elect to the New Holdings Board of Directors the directors nominated by Yucaipa,
Apollo and the other New Equity Investors under New Holdings' 1995 Stockholders
Agreement. See "Description of Capital Stock -- 1995 Stockholders Agreement."
The Management Shareholders Agreements, and all rights and obligations of the
Management Shareholders thereunder described above, will terminate upon an
initial public offering of New Holdings common stock meeting certain criteria.
SUMMARY COMPENSATION TABLE -- RALPHS
The following Summary Compensation Table sets forth information concerning
the compensation of the Chief Executive Officer and the other four most highly
compensated executive officers of Ralphs who are expected to serve as executive
officers of the Company, whose total annual salary and bonus exceeded $100,000
for the year ended January 29, 1995.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
-------------------
ANNUAL COMPENSATION SECURITIES
NAME AND PRINCIPAL ----------------------- UNDERLYING ALL OTHER
POSITION YEAR SALARY($) BONUS($)(1) OPTIONS/SARS(#) COMPENSATION($)(2)
- ------------------------ ----- -------- ----------- ------------------- ------------------
<S> <C> <C> <C> <C> <C>
Byron E. Allumbaugh, 1994 650,000 0 N/A 44,080
Chairman and 1993 645,000 387,000 N/A 38,575
Chief Executive 1992 620,000 372,000 587,753 31,886
Officer
Alfred A. Marasca, 1994 400,000 0 N/A 17,180
President and 1993 340,000 204,000 N/A 18,177
Chief Operating 1992 296,260 148,125 308,812 11,485
Officer
Alan J. Reed, 1994 225,000 0 N/A 10,273
Senior Vice President, 1993 222,500 111,250 N/A 12,904
Finance and 1992 211,250 105,625 154,406 9,569
Chief Financial
Officer
Terry Peets, 1994 215,000 0 N/A 13,022
Executive Vice 1993 192,500 96,250 N/A 10,337
President 1992 182,500 91,250 154,406 10,237
Jan Charles Gray, 1994 213,750 0 N/A 13,547
Senior Vice President, 1993 207,500 103,750 N/A 13,584
General Counsel and 1992 196,250 98,125 154,406 13,593
Secretary
</TABLE>
- ---------------
(1) Bonuses for services performed in Fiscal Year 1994 were paid in Fiscal Year
1995. Bonus amounts for Messrs. Allumbaugh, Marasca, Reed, Peets and Gray
were $390,000, $240,000, $112,500, $107,500 and $106,875 respectively.
(2) Represents (i) insurance premiums and the dollar value of the remainder of
premiums paid under the Senior Executive Supplemental Benefit Plan, and (ii)
Ralphs' contributions under the Ralphs Thrift Incentive Plan. The respective
amount paid for Messrs. Allumbaugh, Marasca, Reed, Peets and Gray are as
follows: (A) Insurance premiums: $23,732, $9,302, $4,025, $5,460 and $7,199;
(B) dollar value of the remainder of premiums: $18,500, $6,600, $4,025,
$5,460 and $4,500; (C) incentive plan contributions: $1,848, $1,278, $2,223,
$2,102 and $1,848.
76
<PAGE> 86
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1994 AND FISCAL YEAR-END OPTION/SAR
VALUES -- RALPHS
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES FISCAL YEAR-END(#) FISCAL YEAR-END($)
ACQUIRED --------------------- --------------------
ON EXERCISE VALUE EXERCISABLE/ EXERCISABLE/
NAME (#)(1) REALIZED($) UNEXERCISABLE(2) UNEXERCISABLE(3)(4)
- ------------------------------- ----------- ----------- --------------------- --------------------
<S> <C> <C> <C> <C>
Byron E. Allumbaugh............ 70,000 1,961,646 352,652/ 0/
375,101 3,923,290
Alfred A. Marasca.............. 13,500 378,317 108,084/ 0/
259,228 1,639,375
Alan J. Reed................... 10,500 294,247 54,042/ 0/
145,864 1,275,069
Terry Peets.................... 7,500 210,176 54,042/ 0/
132,864 910,764
Jan Charles Gray............... 0 0 54,042/ 0/
132,864 1,120,940
</TABLE>
- ---------------
(1) Represents EARs exercised under the EAR Plan.
(2) Each number represents the aggregate number of options and EARs outstanding,
as currently exercisable/unexercisable. Options and EARs were granted under
different plans, not in tandem. All EARs are free standing.
(3) Represents value of EARs, based on a value of $28.0235 per EAR at the time
of exercise. Outstanding options are not currently in-the-money, based on
current estimates of the fair market value of the Common Stock.
(4) A portion of the EARs will be redeemed in connection with the Merger and the
remaining EARs will be cancelled in exchange for the issuance of the
Reinvestment Options by New Holdings, based upon their maximum possible
valuation of $39.70 per EAR (or $517 for the total equity of RGC). For
purposes of such redemptions and cancellations, the value of outstanding
EARs held by Messrs. Allumbaugh, Marasca, Reed, Peets and Gray is expected
to equal approximately $8.0 million, $2.7 million, $2.1 million, $1.5
million and $1.7 million, respectively.
RALPHS' RETIREMENT PLANS
Retirement Plan. The Ralphs Grocery Company Retirement Plan (the
"Retirement Plan") is a defined benefit pension plan for salaried and hourly
nonunion employees with at least one year of credited service (1,000 hours).
Ralphs makes annual contributions to the Retirement Plan in such amounts as are
actuarially required to fund the benefits payable to participants in accordance
with the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
Supplemental Executive Retirement Plan. To allow Ralphs' retirement program
to provide benefits based upon a participant's total compensation and without
regard to other ERISA or tax code pension plan limitations, eligible executive
employees of Ralphs participate in the Ralphs Grocery Company Supplemental
Executive Retirement Plan and, after December 31, 1993, the Ralphs Grocery
Company Retirement Supplement Plan (collectively, the "Supplemental Plan"). The
Supplemental Plan also modifies the benefit formula under the Retirement Plan in
other respects. Benefits provided under the Supplemental Plan were improved
effective April 9, 1994.
The following table sets forth the combined estimated annual benefits
payable in the form of a (single) life annuity under both the Retirement Plan
and the Supplemental Plan (unreduced by the cash surrender value of any life
insurance policies) to a participant in both plans who is retiring at a normal
retirement date of January 1, 1995 for the specified final average salaries and
years of credited service.
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
------------------------------------------------------------
FINAL AVERAGE SALARY 15 20 25 30 35
- -------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
$ 100,000 $ 19,484 $ 25,978 $ 32,473 $ 38,967 $ 45,462
200,000 41,984 55,978 69,973 83,967 97,962
300,000 90,000 120,000 150,000 180,000 180,000
400,000 120,000 160,000 200,000 240,000 240,000
600,000 180,000 240,000 300,000 360,000 360,000
800,000 240,000 320,000 400,000 480,000 480,000
1,000,000 300,000 400,000 500,000 600,000 600,000
1,200,000 360,000 480,000 600,000 720,000 720,000
</TABLE>
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<PAGE> 87
Messrs. Allumbaugh, Marasca, Reed, Peets and Gray have completed 36, 38,
22, 18 and 31 years of credited service, respectively. Compensation covered by
the Supplemental Plan includes both salary and bonus. The calculation of
retirement benefits generally is based on average compensation for the highest
three years of the ten years preceding retirement. The benefits earned by a
participant under the Supplemental Plan are reduced by any benefits which the
participant has earned under the Retirement Plan and may be offset under
certain circumstances by the cash surrender value of life insurance policies
maintained by Ralphs pursuant to the split dollar life insurance agreements
entered into by Ralphs and the executive. Benefits are not subject to any
deduction for social security offset.
It is currently anticipated, although there can be no assurance, that
Ralphs and Food 4 Less salaried employees will participate in the Retirement
Plan and other existing Ralphs benefit plans following the Merger. These plans
are currently being evaluated to determine the feasibility of such
participation.
SUMMARY COMPENSATION TABLE -- FOOD 4 LESS
Holdings has no operations of its own and Holdings' executive officers do
not receive any additional remuneration for serving as executive officers of
Holdings. The following Summary Compensation Table sets forth information
concerning the compensation of the Chief Executive Officer and the other three
most highly compensated executive officers of Food 4 Less who are expected to
serve as executive officers of the Company, whose total annual salary and bonus
exceeded $100,000 for services rendered in all capacities to Food 4 Less and its
subsidiaries for Fiscal 1994.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION(4)($)
- -------------------------------------------- ---- --------- -------- ------------------
<S> <C> <C> <C> <C>
Ronald W. Burkle, Chairman and.............. 1994 -- -- --
Chief Executive Officer(1) 1993 -- -- --
1992 -- -- --
George G. Golleher,......................... 1994 500,000 500,000 3,937
President 1993 500,000 500,000 --
1992 500,000 235,000 5,300
Greg Mays, Executive Vice-President......... 1994 250,000 150,000 --
Finance/Administration and 1993 108,000 75,000 --
Chief Financial Officer(2) 1992 -- -- --
Joe Burkle,................................. 1994 196,000 50,000 --
Executive Vice President(3) 1993 156,000 -- --
1992 156,000 -- --
</TABLE>
- ---------------
(1) Ronald W. Burkle and Mark A. Resnik, Vice President and Secretary of Food 4
Less, provide services to Food 4 Less pursuant to a management agreement
between Yucaipa and Food 4 Less. See "Certain Relationships and Related
Transactions." Pursuant to this management agreement, Food 4 Less paid
Yucaipa and an affiliate of Yucaipa $2.4 million in the fiscal year ended
June 25, 1994 for the services of Messrs. Ronald Burkle and Resnik and other
Yucaipa personnel. Such payments to Yucaipa and its affiliate are not
reflected in the table set forth above.
(2) During Fiscal 1993, Greg Mays became Executive Vice President-
Finance/Administration and Chief Financial Officer.
(3) Mr. Joe Burkle provides services to Food 4 Less pursuant to a consulting
agreement. See " -- Employment Agreements."
(4) The amounts shown in this column represent annual payments by Food 4 Less to
the Employee Profit Sharing and Retirement Program of Food 4 Less for the
benefit of Mr. Golleher.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION -- FOOD 4 LESS
Food 4 Less does not have a board committee performing the functions of a
compensation committee. Ronald W. Burkle, Chief Executive Officer of Food 4
Less, and George G. Golleher, President of Food 4 Less, made decisions with
regard to Food 4 Less' executive officer compensation for Fiscal 1994.
FOOD 4 LESS STOCK PLAN
As of June 25, 1994, certain employees of Food 4 Less (the "Management
Stockholders") collectively owned approximately 4.5% of Holdings' outstanding
common stock which they acquired under the management stock plan of Food 4 Less.
Pursuant to this plan, the Board of Directors of Holdings from time to time has
offered common stock of Holdings for sale to selected employees at a price and
for consideration (which may include a promissory note) determined at the
discretion of the Board. Management Stockholders who have purchased shares are
party to a Management Stockholders Agreement (the "Stockholders Agreement")
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<PAGE> 88
with Holdings, a Stockholder Voting Agreement and Proxy (the "Voting
Agreement"), and such other documents as Holdings may require. The Stockholders
Agreement prohibits the transfer of any of the Management Stockholder's common
stock for a period of four years from the date of its original issuance
(although such date may, in the case of certain Management Stockholders who were
shareholders of BHC, relate back to the date that shares were issued to them by
BHC) other than transfers to certain family members and heirs or pursuant to a
registration statement. The Management Stockholder's shares may be purchased by
Holdings if, (a) prior to the fourth anniversary of their issuance, the
Management Stockholder's employment terminates for any reason, or (b) after such
fourth anniversary, the Management Stockholder wishes to sell his/her common
stock to a third party. In the event of the death or permanent disability of the
Management Stockholder, each Management Stockholder has an irrevocable option
for one year to require Holdings to purchase all (or a portion) of his common
stock in the manner and on the terms set forth in the Stockholders Agreement;
provided, however, that the Management Stockholder may exercise such option in
the event of death or disability only to the extent that Holdings or Food 4 Less
has insurance, under which Holdings or Food 4 Less is the named beneficiary,
with respect to such event. Additionally, if shareholders holding at least fifty
percent (50%) of the issued and outstanding common stock of Holdings agree to
sell to a third party more than eighty percent (80%) of the shares of common
stock then held by them, then upon the demand of such selling stockholders, each
Management Stockholder must sell to such third party the same percentage of his
common stock as is proposed to be sold by the selling stockholders. The
Stockholders Agreement terminates on the tenth anniversary of the Merger.
Under the Voting Agreement, Ronald W. Burkle, George G. Golleher and
Yucaipa Capital Advisors, Inc. have sole voting control over the shares of
common stock owned by the other Management Stockholders until the tenth
anniversary of the Merger (unless extended by such Management Stockholders).
As of January 7, 1995, there was outstanding $0.7 million principal amount
of notes receivable from certain Management Stockholders, representing loans for
the purchase of Holdings' common stock. The notes are due over various periods,
bear interest at the bank "prime" lending rate, and are secured by such common
stock.
Pursuant to the Reincorporation Merger, New Holdings will succeed to the
rights and obligations of Holdings under the Food 4 Less stock plan. It is
expected that following the Merger, equity issuances to management will cease to
be made under the Food 4 Less stock plan and instead will be made under the New
Holdings option plan. See "-- New Management Stock Option Plan and Management
Investment."
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PRINCIPAL STOCKHOLDERS
The information in the following table gives effect to (i) the Merger and
the Financing and (ii) the FFL Merger and the Reincorporation Merger. The
information in the following table assumes that the outstanding stock options of
RSI have been cancelled, that certain new stock options of New Holdings have
been granted to management and that certain warrants to purchase New Holdings
Common Stock have been issued to institutional investors who currently hold
warrants to purchase Common Stock of Holdings. Based on such assumption and
giving effect to the foregoing events, the following table sets forth the
ownership of common stock and Series A Preferred Stock and Series B Preferred
Stock of New Holdings by each person who to the knowledge of Food 4 Less will
own 5% or more of New Holdings' outstanding voting stock, by each person who
will be a director or named executive officer of the Company, and by all
executive officers and directors of the Company as a group. Share amounts and
percentage ownership information set forth for the Series A Preferred Stock and
Series B Preferred Stock are subject to change pending finalization of the
Financing.
<TABLE>
<CAPTION>
SERIES A SERIES B
COMMON PREFERRED PREFERRED
STOCK(1)(2) STOCK(1) STOCK(1)
------------------ ----------------- ----------------- PERCENTAGE PERCENTAGE
NUMBER NUMBER NUMBER OF TOTAL OF ALL
OF OF OF VOTING OUTSTANDING
BENEFICIAL OWNER(3) SHARES % SHARES % SHARES % POWER STOCK
- --------------------------- ---------- ----- ---------- ---- --------- ---- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Yucaipa and affiliates:
The Yucaipa
Companies(4)(5)........ 17,567,622 62.3% -- -- -- -- 39.1% 36.6%
Ronald W. Burkle(4)(6)... 2,046,392 10.1% -- -- -- -- 5.5% 5.1%
George G.
Golleher(2)(6)......... 462,525 2.3% -- -- -- -- 1.3% 1.2%
10000 Santa Monica
Boulevard, Los Angeles,
California 90067
---------- ----- --- ---
Total................ 20,076,539 71.2% -- -- -- -- 44.7% 41.8%
Byron E. Allumbaugh(2)..... 600,000 3.0% -- -- -- -- 1.6% 1.5%
Alfred A. Marasca(2)....... 200,000 1.0% -- -- -- -- 0.5% 0.5%
Greg Mays(7)............... -- -- -- -- -- -- -- --
Alan J. Reed(8)............ -- -- -- -- -- -- -- --
Terry Peets(8)............. -- -- -- -- -- -- -- --
Jan Charles Gray(8)........ -- -- -- -- -- -- -- --
Apollo Advisors, L.P.(9)
2 Manhattanville Road
Purchase, NY 10577....... 1,285,165 6.4% 12,283,244 73.6% -- -- 36.8% 33.9%
BT Investment Partners,
Inc.(10)
130 Liberty Street
New York, NY 10006....... 509,812 2.5% 900,000 5.4% 3,100,000 100% 3.8% 11.3%
Other New Equity Investors
as a group(11)........... 3,500,000 21.0% -- -- 9.5% 8.8%
All directors and executive
officers as a group (15
persons)(2)(4)(5)(6)..... 20,876,539 74.0% -- -- -- -- 46.5% 43.5%
</TABLE>
- ---------------
(1) Gives effect to (i) a stock split to be effected with respect to the
outstanding common stock of Holdings prior to the Merger, (ii) the
conversion (in connection with the FFL Merger) of the outstanding common
stock of FFL into newly-issued common stock of Holdings in an amount which
will preserve the proportionate ownership interests of FFL's stockholders,
and of the equity holders of Holdings, in the combined Company, (iii) the
conversion (in connection with the Reincorporation Merger) of the
outstanding common stock, and warrants to acquire common stock, of Holdings
into New Holdings common stock and warrants, (iv) the issuance by New
Holdings of 16,683,244 shares of Series A Preferred Stock and 3,100,000
shares of Series B Preferred Stock in connection with the New Equity
Investment and the concurrent exchange of outstanding shares of common
stock acquired by the New Equity Investors from an existing stockholder,
and (v) the assumed exercise of the outstanding warrants to acquire New
Holdings common stock issued to the former Holdings warrantholders in
connection with the Reincorporation Merger.
(2) Gives effect to the exercise of Tier One Options to be issued to Byron E.
Allumbaugh, George G. Golleher and Alfred A. Marasca under a new management
stock option plan to be adopted prior to completion of the Merger, covering
600,000, 200,000 and 200,000 shares, respectively. Does not give effect to
the exercise of (a) Tier Two Options to purchase up to 1,000,000 shares of
New Holdings common stock to be issued at the discretion of the Board of
Directors to certain management employees of the Company, under such stock
option plan, concurrently with or following completion of the Merger or (b)
Reinvestment Options to purchase up to 1,000,000 shares of New Holdings
common stock to be issued to holders of EARs in exchange for the
cancellation of $10 million
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of the EAR payments which would otherwise be payable upon consummation of
the Merger. See "Executive Compensation -- New Management Stock Option Plan
and Management Investment."
(3) Except as otherwise indicated, each beneficial owner has the sole power to
vote, as applicable, and to dispose of all shares of Common Stock or Series
A Preferred Stock or Series B Preferred Stock owned by such beneficial
owner.
(4) Represents shares owned by The Yucaipa Companies, F4L Equity Partners,
L.P., FFL Partners, Yucaipa Capital Fund and Yucaipa/F4L Partners. These
entities are affiliated partnerships which are controlled, directly or
indirectly, by Ronald W. Burkle. Following completion of the Merger, the
foregoing entities will be parties to a stockholders agreement with other
New Holdings investors which will give to Yucaipa the right to elect a
majority of the directors of New Holdings. See "Description of Capital
Stock -- 1995 Stockholders Agreement."
(5) Share amount and percentages shown for Yucaipa include a warrant to
purchase 8,000,000 shares of New Holdings Common Stock to be issued to
Yucaipa concurrently with the completion of the Merger and the Financing.
Such warrant will become exercisable only upon the occurrence of an initial
public offering or certain sale transactions involving New Holdings. See
"Description of Capital Stock -- Yucaipa Warrant."
(6) Certain management stockholders who own in the aggregate 852,326 shares of
Common Stock (pro forma for the events and assumptions described above)
have entered into a Stockholder Voting Agreement and Proxy pursuant to
which Ronald W. Burkle, George G. Golleher and Yucaipa Capital Advisors,
Inc. have sole voting control over the shares currently owned by such
management stockholders until December 31, 2002 (unless extended by such
stockholders). See "Executive Compensation -- Food 4 Less Stock Plan." The
852,326 shares have been included, solely for purposes of the above table,
in the share amounts shown for Mr. Burkle but not for Mr. Golleher. Neither
Messrs. Burkle and Golleher nor Yucaipa Capital Advisors, Inc. have the
power to dispose of, or any other form of investment power with respect to,
such shares. Messrs. Burkle and Golleher have sole voting and investment
power with respect to 1,194,066 and 462,525 shares of Common Stock they
respectively own (including, in the case of Mr. Golleher, 200,000 shares
issuable upon the exercise of Tier One Options).
(7) Mr. Mays owns 8,890 of the 852,326 shares of Common Stock which are subject
to the Stockholder Voting Agreement and Proxy described in note (6) above.
(8) Does not include Reinvestment Options to purchase 60,000 shares, 60,000
shares and 174,940 shares of New Holdings Common Stock to be issued to
Messrs. Reed, Peets and Gray, respectively, in exchange for the
cancellation of the EAR payments which would otherwise be payable upon
consummation of the Merger.
(9) Represents shares owned by one or more entities managed by or affiliated
with Apollo Advisors, L.P., together with certain affiliates or designees
of Apollo.
(10) Represents shares owned by BT Investment Partners, Inc. ("BTIP"), Bankers
Trust New York Corporation and BT Securities Corporation. Bankers Trust New
York Corporation and BT Securities Corporation are affiliated with BTIP.
BTIP expressly disclaims beneficial ownership of all shares owned by
Bankers Trust New York Corporation and BT Securities Corporation.
(11) Includes certain institutional investors, other than Apollo and BTIP, which
will purchase Series A Preferred Stock of New Holdings in connection with
the Financing. Pursuant to the 1995 Stockholders Agreement, certain
corporate actions by New Holdings and its subsidiaries will require the
consent of the directors whom the New Equity Investors, including Apollo
and BTIP, are entitled to elect to the New Holdings Board of Directors. See
"Description of Capital Stock -- 1995 Stockholders Agreement." Such
investors do not affirm the existence of a "group" within the meaning of
Rule 13d-5 under the Exchange Act, and expressly disclaim beneficial
ownership of all New Holdings shares except for those shares held of record
by each such investor or its nominees.
DESCRIPTION OF CAPITAL STOCK
Following is a description of the capital stock of the Company and New
Holdings to be authorized and outstanding upon completion of the Merger, the FFL
Merger and the Reincorporation Merger, including the terms of the New Equity
Investment to be made in New Holdings in connection with the closing of the
Merger.
THE COMPANY
Upon completion of the Merger, the authorized capital stock of the Company
will consist of 1,600,000 shares of common stock, $.01 par value per share, of
which 1,513,938 shares will be outstanding. All of such outstanding shares will
be owned by New Holdings. There will be no public trading market for the common
stock of the Company. The indentures that will govern outstanding debt
securities of the Company will contain certain restrictions on the payment of
cash dividends with respect to the Company's common stock. In addition, it is
expected that the New Credit Facility will also restrict such payments. Subject
to the limitations contained in the New Credit Facility and such indentures,
holders of common stock of the Company will be entitled to dividends when and as
declared by the Board of Directors from funds legally available therefor, and
upon liquidation, will be entitled to share ratably in any distribution to
holders of common stock. All holders of common stock will be entitled to one
vote per share on any matter coming before the stockholders for a vote.
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<PAGE> 91
NEW HOLDINGS
Following completion of the Merger, the FFL Merger, the Reincorporation
Merger and the New Equity Investment, (i) the authorized capital stock of New
Holdings will consist of 60,000,000 shares of common stock, $.01 par value,
25,000,000 shares of Series A Preferred Stock, $.01 par value, and 25,000,000
shares of Series B Preferred Stock, $.01 par value, (ii) 17,207,882 shares of
common stock, 16,683,244 shares of Series A Preferred Stock and 3,100,000 shares
of Series B Preferred Stock will be outstanding and held by approximately 100
holders of record, (iii) 2,008,874 shares of common stock will be reserved for
issuance upon the exercise of outstanding warrants held by institutional
investors, and (iv) 3,000,000 shares of common stock will be reserved for
issuance upon the exercise of the New Options. See "Executive Compensation --
New Management Stock Option Plan and Management Investment." An additional
8,000,000 shares of common stock will be reserved for issuance upon the exercise
of a warrant to be issued to Yucaipa upon closing of the Merger. See "Yucaipa
Warrant" below.
There is no public trading market for the capital stock of New Holdings,
nor will any such market exist following completion of the Merger. New Holdings
does not expect in the foreseeable future to pay any dividends on its capital
stock. Holders of common stock of New Holdings are entitled to dividends when
and as declared by the Board of Directors of New Holdings from funds legally
available therefor, and upon liquidation, are entitled to share ratably in any
distribution to holders of common stock. All holders of New Holdings common
stock are entitled to one vote per share on any matter coming before the
stockholders for a vote.
The Series A Preferred Stock initially will have an aggregate liquidation
preference of $166,832,440, or $10 per share, which will accrete as described
below. The holders of the Series A Preferred Stock will vote (on an as-converted
basis) together with the common stock as a single class on all matters submitted
for stockholder vote. Each share of Series A Preferred Stock initially will be
convertible at the option of the holder thereof into a number of shares of New
Holdings common stock equal to the liquidation preference of such share of
Series A Preferred Stock divided by $10. Upon consummation of an initial public
offering of New Holdings equity securities which meets certain criteria, the
shares of Series A Preferred Stock will automatically convert into shares of
common stock of New Holdings at the same rate as applicable to an optional
conversion.
The Series B Preferred Stock initially will have an aggregate liquidation
preference of $31,000,000, or $10 per share, which will accrete as described
below. The holders of Series B Preferred Stock generally will not be entitled to
vote on any matters, except as required by the Delaware General Corporation Law.
Upon the occurrence of a change of control, each share of Series B Preferred
Stock initially will be convertible at the option of the holder thereof into a
number of shares of New Holdings common stock equal to the liquidation
preference of such share of Series B Preferred Stock divided by $10. Upon
consummation of an initial public offering of New Holdings equity securities
which meets certain criteria, shares of Series B Preferred Stock will
automatically convert into shares of non-voting common stock of New Holdings at
the same rate as applicable to an optional conversion.
The liquidation preference of the Series A Preferred Stock and the Series B
Preferred Stock initially will accrete daily at the rate of 7% per annum,
compounded quarterly, until the later of the fifth anniversary of the date of
issuance or the date the Company first reports EBDIT (as defined) of at least
$500 million for any twelve-month period. Thereafter, the liquidation preference
will remain constant. The accretion rate of the liquidation preference will
increase (a) by 2% per annum if the Company fails to report EBDIT of at least
$400 million for the four fiscal quarters ending closest to the third
anniversary of the date of issuance (or for the rolling four-quarter period
ending on any of the three subsequent quarter-ends), (b) by 2% per annum if the
Company fails to report EBDIT of at least $425 million for the four fiscal
quarters ending closest to the fourth anniversary of the date of issuance (or
for the rolling four-quarter period ending on any of the three subsequent
quarter-ends) or (c) by 2% per annum if the Company fails to report EBDIT of at
least $450 million for the four fiscal quarters ending closest to the fifth
anniversary of the date of issuance, in each case, such increase to take effect
on the first day after the last day of the fiscal quarter with respect to which
such failure occurred; provided that the accretion rate of the liquidation
preference will not at any time exceed
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<PAGE> 92
13% per annum. The accretion of the liquidation preference will result in a
proportional increase in the number of shares of common stock issuable upon
conversion of the Series A Preferred Stock and the Series B Preferred Stock. In
addition, the initial aggregate liquidation preference of the Series A Preferred
Stock and the Series B Preferred Stock may increase from the amounts set forth
above depending on whether New Holdings determines to increase the number of
shares it may sell pursuant to the New Equity Investment, and depending on
whether certain existing equity holders of FFL and Holdings exercise preemptive
rights to participate in the New Equity Investment.
Upon any transfer or sale of shares of either Series A Preferred Stock or
Series B Preferred Stock, such shares may be converted (subject to certain
conditions) at the option of the holder into shares of the other series. The
holders of Series A Preferred Stock and Series B Preferred Stock have no rights
to any fixed dividends in respect thereof. Subject to certain exceptions, New
Holdings will be prohibited from declaring dividends with respect to its common
stock without the consent of holders of a majority of the Series A Preferred
Stock and of the Series B Preferred Stock. If dividends are declared on the
Series A Preferred Stock or the Series B Preferred Stock which are payable in
voting securities of New Holdings, New Holdings will make available to each
holder of Series A Preferred Stock and Series B Preferred Stock, at such
holder's request, dividends consisting of non-voting securities of New Holdings
which are otherwise identical to the voting securities and which are convertible
into or exchangeable for such voting securities upon a change of control.
NEW EQUITY INVESTMENT
Concurrently with the closing of the Merger, certain existing stockholders
of New Holdings, including affiliates of George Soros, will sell 5,783,244
outstanding shares of common stock of New Holdings to CLH, which in turn will
sell such shares to the New Equity Investors for an aggregate purchase price of
$57.8 million. New Holdings will then issue 16,683,244 shares of Series A
Preferred Stock and 3,100,000 shares of Series B Preferred Stock in a private
placement to the New Equity Investors, led by Apollo and including affiliates of
BT Securities, CS First Boston and DLJ for an aggregate consideration of $140
million plus the contribution to New Holdings of the shares of common stock
purchased from CLH in the secondary sale transaction. The shares of Series A
Preferred Stock and Series B Preferred Stock acquired by the New Equity
Investors will represent approximately 41% in the aggregate of the fully diluted
common equity of New Holdings (assuming exercise of the Yucaipa warrant). See
"Principal Stockholders."
The $140 million cash proceeds from the issuance of Series A Preferred
Stock and Series B Preferred Stock will be applied by New Holdings as set forth
under "The Merger and the Financing."
Food 4 Less has accepted a commitment letter (the "Equity Commitment") from
Apollo pursuant to which Apollo has agreed (subject to certain conditions) to
purchase up to $140 million of the Series A Preferred Stock to be offered by New
Holdings as part of the New Equity Investment. In consideration of its equity
commitment, upon the closing of the Merger Apollo will receive from New Holdings
a fee of $5 million, of which $2.5 million will be satisfied through the
issuance to Apollo of New Discount Debentures and $2.5 million will be paid to
Apollo in cash. See "Certain Relationships and Related Transactions -- Food 4
Less." The Company anticipates that the remainder of the Series A Preferred
Stock and Series B Preferred Stock so offered will be purchased by affiliates of
lenders and other financial institutions which have provided financing to the
Company, including BTIP, which is an affiliate of Bankers Trust, by affiliates
of CS First Boston and DLJ and by certain other investors. The amounts of New
Holdings stock expected to be held by Apollo, affiliates of Bankers Trust and
all other holders of 5% or more of New Holdings' outstanding stock following
completion of the Merger and the Financing are set forth above under "Principal
Stockholders."
1995 STOCKHOLDERS AGREEMENT
Under the terms of the 1995 Stockholders Agreement (which is expected to be
entered into by New Holdings, Yucaipa and its affiliates, the New Equity
Investors and other stockholders), the New Equity Investors holding Series A
Preferred Stock will be entitled to nominate three directors to the Board of
Directors of each of New Holdings and the Company (the "Series A Directors"), of
which two directors will
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be nominees of Apollo and one director will be a nominee of the other New Equity
Investors holding Series A Preferred Stock. The 1995 Stockholders Agreement will
give to Yucaipa the right to nominate six directors of New Holdings and seven
directors of the Company, and the boards of New Holdings and the Company will
consist of a total of nine and ten directors, respectively. The numbers of
directors which may be nominated by the foregoing stockholders will be reduced
if such stockholders cease to own certain specified percentages of their initial
holdings. Unless and until New Holdings has effected an initial public offering
of its equity securities meeting certain criteria, New Holdings and its
subsidiaries may not take certain actions without the approval of the Series A
Directors, including but not limited to certain mergers, sale transactions,
transactions with affiliates, issuances of capital stock and payments of
dividends on or repurchases of capital stock. In addition, the New Equity
Investors will have certain "demand" and "piggyback" registration rights with
respect to their Series A Preferred Stock and Series B Preferred Stock, as well
as the right to participate, on a pro rata basis, in sales by Yucaipa of the New
Holdings stock it holds. In certain circumstances, Yucaipa will have the right
to compel the participation of the New Equity Investors and other stockholders
in sales of all the outstanding shares of New Holdings stock.
The Company will seek the agreement of the current stockholders of FFL and
warrantholders of Holdings to become party to the 1995 Stockholders Agreement,
which would grant to such holders certain rights in replacement of two existing
stockholders agreements among FFL and its stockholders entered into in 1987 and
1991, respectively, and an agreement among Holdings and its warrantholders
executed in 1992.
YUCAIPA WARRANT
Upon closing of the Merger, New Holdings has agreed to issue to Yucaipa a
warrant to purchase up to 8,000,000 shares of New Holdings common stock. The
initial exercise price of such warrant will be set such that the warrant will
have no value unless and until the value of New Holdings' equity appreciates to
$1.220 billion. Such warrant will be exercisable on a cashless basis at the
election of Yucaipa in the event New Holdings completes an initial public
offering of equity securities meeting certain criteria, or in connection with
certain sale transactions involving New Holdings, in either case effected on or
prior to the fifth anniversary of the Closing Date. The expiration date of such
warrant, and the deadline for such triggering transactions, may be extended from
the fifth to the seventh anniversary of the Closing Date if New Holdings meets
certain financial performance goals prior to such fifth anniversary. The
cashless exercise provisions of such warrant allow the holder to exercise it
without the payment of cash consideration, provided that New Holdings will
withhold from the shares otherwise issuable upon such exercise a number of
shares having a fair market value as of the exercise date equal to the exercise
price.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RALPHS
In connection with the acquisition of a majority of RSI's common stock in
February 1992, EJDC agreed to guarantee RGC's obligations as a self-insurer of
worker's compensation liabilities in the State of California (the "EJDC
Guaranty"). In consideration of the EJDC Guaranty, RGC unconditionally agreed to
reimburse EJDC for any payments made under the EJDC Guaranty and for the cost of
insurance up to $200,000 to cover liabilities incurred pursuant to the EJDC
Guaranty. Further, RGC agreed to pay EJDC a guarantee fee of $33,500 for each
month the EJDC Guaranty was in effect ($402,000 was paid in Fiscal 1994).
Concurrently with the completion of the Merger, the EJDC Guaranty will be
terminated, and RGC will cease to pay any guarantee fee to EJDC or to reimburse
it for the cost of insurance. However, RGC will continue to be obligated to
reimburse EJDC for any payments which EJDC could in the future be required to
make under the EJDC Guaranty in respect of prior claims. Moreover, FFL has
undertaken for the benefit of EJDC to maintain, until the fifth anniversary of
the closing of the Merger, bank letters of credit, insurance or other security
for the workers' compensation claims for which EJDC could have liability under
the EJDC Guaranty.
In connection with the bankruptcy reorganization of Federated and its
affiliates, Federated agreed to pay certain potential tax liabilities relating
to RGC as a member of the affiliated group of companies comprising Federated and
its subsidiaries. In consideration thereof, RSI and RGC agreed to pay Federated
a total of
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$10 million, payable $1 million on each of February 3, 1992, 1993, 1994, 1995
and 1996 and $5 million on February 3, 1997. The five $1 million installments
are to be paid by RGC and the $5 million payment is the joint obligation of RSI
and RGC. In the event Federated is required to pay certain tax liabilities, RSI
and RGC have agreed to reimburse Federated up to an additional $10 million,
subject to certain adjustments. This additional obligation, if any, is the joint
and several obligation of RSI and RGC. Pursuant to the terms of the Merger
Agreement, the $5 million payment and the potential $10 million payment will be
paid in cash. See Note 1 of Notes to Ralphs Consolidated Financial Statements.
In addition, EJDC and the other current holders of Common Stock of RSI are
parties to an agreement providing for various aspects of corporate governance
(the "Ralphs Registration Rights and Governance Agreement") relating to Ralphs.
Pursuant to the Ralphs Registration Rights and Governance Agreement, RGC is
obligated to provide RSI, by dividend, pursuant to a services agreement or
otherwise, with funds sufficient to enable RSI to perform its duties as the
holding company of RGC's stock and to perform its obligations set forth in the
Ralphs Registration Rights and Governance Agreement. The Ralphs Registration
Rights and Governance Agreement will be cancelled concurrently with the closing
of the Merger.
FOOD 4 LESS AND HOLDINGS
Yucaipa provides certain management and financial services to Food 4 Less
and its subsidiaries pursuant to a consulting agreement. The services of Ronald
Burkle, Mark Resnik and Patrick Graham, acting in their capacities as directors
and officers, and the services of other Yucaipa personnel are provided to Food 4
Less pursuant to this agreement. All of such individuals are partners of
Yucaipa. Yucaipa's consulting agreement provides for annual management fees
currently equal to $2 million plus an additional amount based on Food 4 Less'
performance. Upon completion of the Merger, the consulting agreement will be
amended to provide for an annual management fee payable by the Company to
Yucaipa in the amount of $4 million, with no additional amounts payable based on
performance. In addition, the Company may retain Yucaipa in an advisory capacity
in connection with certain acquisitions or sale transactions, in which case the
Company will pay Yucaipa an advisory fee. The agreement has a five-year term,
which will be automatically renewed on each anniversary of the Merger for a
five-year term unless ninety days' notice is given by either party. The
agreement may be terminated at any time by the Company, provided that Yucaipa
will be entitled to full monthly payments under the agreement for the remaining
term thereof, unless the Company terminates for cause pursuant to the terms of
the agreement. Yucaipa may terminate the agreement if the Company fails to make
a payment due thereunder, or if there occurs a change of control (as defined in
the agreement) of the Company, and upon any such termination Yucaipa will be
entitled to full payments for the remainder of the five-year period commencing
on the closing of the Merger. Pursuant to the agreement, Food 4 Less paid
Yucaipa a total of $2.4 million, $3.8 million and $2 million in management and
advisory fees for the fiscal years ended June 25, 1994, June 26, 1993 and June
27, 1992 respectively.
The Yucaipa consulting agreement also provides that upon closing of the
Merger, Yucaipa will be entitled to receive an advisory fee from the Company in
the amount of $19 million, plus reimbursement of expenses in connection with the
Merger and the related transactions. New Holdings will issue $15 million initial
accreted value of New Discount Debentures to Yucaipa in satisfaction of a
portion of such fee and the Company will pay the remaining $4 million of such
fee in cash. Upon closing of the Merger, Yucaipa anticipates that it in turn
will pay a cash fee of approximately $3.5 million to Soros Fund Management in
consideration for advisory services which Soros Fund Management has rendered
since 1991. The Company has no responsibility for such payment by Yucaipa.
Additionally, upon closing of the Merger, Yucaipa will receive a warrant to
purchase 8,000,000 shares of New Holdings common stock exercisable upon the
conditions described under "Description of Capital Stock -- The Yucaipa
Warrant." In consideration for its commitment to purchase Series A Preferred
Stock of New Holdings, Apollo will receive a fee of $5 million from New Holdings
upon the closing of the Merger. New Holdings will issue $2.5 million initial
accreted value of New Discount Debentures to Apollo in satisfaction of a portion
of such fee, and New Holdings will pay the remaining $2.5 million of such fee in
cash. See "Description of Capital Stock -- New Equity Investment."
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In connection with the execution of the Merger Agreement, Yucaipa entered
into the Put Agreement with EJDC, pursuant to which EJDC will be entitled to put
up to $10 million aggregate principal amount of Seller Debentures to Yucaipa on
the Closing Date. The Yucaipa consulting agreement will provide that the Company
will reimburse Yucaipa for any loss and expenses incurred by Yucaipa upon the
resale of such Seller Debentures to any unaffiliated third party. Yucaipa has
advised the Company that it intends to resell the Seller Debentures on the
Closing Date or as soon thereafter as practicable. The agreement will also
require Yucaipa to contribute any profit realized upon the resale of such Seller
Debentures within such period to the capital of the Company.
Pursuant to the New Discount Debenture Placement, New Holdings has
committed to issue $100 million initial accreted value of New Discount
Debentures, which will be acquired by a partnership comprised of FFL Investors
L.L.C. (an affiliate of George Soros), Yucaipa RGC L.L.C. (an affiliate of
Yucaipa whose members include Ronald Burkle, Mark Resnik and Patrick Graham)
("Yucaipa LLC"), RGC Investment Co. (a corporation controlled by certain Yucaipa
partners) ("RGCIC"), BTIP, an affiliate of CS First Boston, an affiliate of DLJ,
Apollo, EJDC and the other selling stockholders of RSI. New Discount Debentures
having an initial accreted value of $59 million will be issued directly to the
partnership by New Holdings for cash consideration contributed to the
partnership by (i) FFL Investors L.L.C., which will invest $40 million in cash
proceeds received from Soros' affiliate as a result of the secondary sale of New
Holdings common stock, (ii) BTIP, which will invest $5 million in cash, (iii) an
affiliate of CS First Boston, which will invest $2.5 million in cash, (iv) an
affiliate of DLJ, which will invest $2.5 million in cash, (v) EJDC, which will
invest $4 million of its consulting fee payable by the Company upon closing of
the Merger and (vi) RGCIC, which will invest $5 million in cash borrowed from
the Company. New Holdings will issue additional New Discount Debentures having
an initial accreted value of (a) $15 million to Yucaipa LLC in satisfaction of
advisory fees otherwise payable to Yucaipa by the Company in connection with the
Merger and the Financing, (b) $5 million to BT Securities in satisfaction of
other fees payable to BT Securities by the Company in connection with the
Financing, (c) $2.5 million to Apollo in satisfaction of a portion of the
commitment fees otherwise payable to Apollo by New Holdings in connection with
the New Equity Investment and (d) $18.5 million to RSI stockholders as Merger
consideration, all of which New Discount Debentures shall be contributed to the
partnership, whereupon the partnership will hold all $100 million initial
accreted value of New Discount Debentures issued by New Holdings.
New Holdings has granted to the partnership certain registration rights
with respect to the New Discount Debentures. Pursuant to such registration
rights agreement, New Holdings has committed to file with the Commission a shelf
registration statement which would permit resales of the New Discount Debentures
by the partnership commencing 60 days following closing of the Merger. New
Holdings will be obligated to use its best efforts to cause such shelf
registration statement to remain effective for up to three years. If New
Holdings fails to comply with its obligations to keep such shelf registration
statement effective, New Holdings will be obligated to pay certain liquidated
damages. New Holdings believes that the partnership actively would seek to
dispose of its entire interest in the New Discount Debentures promptly upon
expiration of the 60 day holdback period following closing of the Merger. New
Holdings has agreed to use its best efforts to assist the partnership in such
disposition, and to pay all expenses, including underwriting discounts and
brokers' or dealers' commissions and mark-ups (subject to certain limitations),
incident thereto.
The $5 million cash investment to be made in the partnership by RGCIC, as
described above, will be borrowed from the Company by RGCIC, and such borrowings
will bear interest at the applicable Federal rate (as defined under the Internal
Revenue Code). RGCIC will be obligated to repay such borrowings with any
distributions received from the partnership in connection with resales of the
New Discount Debentures. Such repayments will be applied first to the principal
balance of the borrowings and then to accrued interest. To the extent that such
distributions are not sufficient to repay such borrowings, any remaining
indebtedness of RGCIC (including all accrued interest) will be forgiven by the
Company and the Company's obligation to pay the Ralphs deferred EAR liability
will be correspondingly forgiven. Upon receipt of any principal amounts repaid
under such borrowings, the Company will be obligated to pay such amounts over to
former holders of RGC's EARs redeemed upon closing of the Merger. The aggregate
consideration payable to redeem the EARs includes, in addition to the foregoing
deferred cash payment of up to $5 million, $17.8 million in cash
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payable at closing and $10 million in Reinvestment Options. See "Executive
Compensation -- Equity Appreciation Rights Plan."
FFL files a consolidated federal income tax return, under which the federal
income tax liability of FFL and its subsidiaries (which since December 31, 1992
includes Holdings) is determined on a consolidated basis. FFL has entered into a
federal income tax sharing agreement with Food 4 Less and certain of its
subsidiaries (the "Tax Sharing Agreement"). The Tax Sharing Agreement provides
that in any year in which Food 4 Less is included in any consolidated tax
liability of FFL and has taxable income, Food 4 Less will pay to FFL the amount
of the tax liability that Food 4 Less would have had on such due date if it had
been filing a separate return. Conversely, if Food 4 Less generates losses or
credits which actually reduce the consolidated tax liability of FFL and its
other subsidiaries, FFL will credit to Food 4 Less the amount of such reduction
in the consolidated tax liability. In the event any state and local income taxes
are determinable on a combined or consolidated basis, the Tax Sharing Agreement
provides for a similar allocation between FFL and Food 4 Less of such state and
local taxes. By operation of the FFL Merger and the Reincorporation Merger, New
Holdings will succeed to the rights and obligations of FFL under the Tax Sharing
Agreement.
Management believes that the terms of the transactions described above are
or were fair to Food 4 Less and are or were on terms at least as favorable to
Food 4 Less as those which could be obtained from unaffiliated parties (assuming
that such transactions could be effected with such parties).
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THE OFFER TO PURCHASE AND SOLICITATION
BACKGROUND AND PURPOSES OF THE OFFER TO PURCHASE AND SOLICITATION
The Offer to Purchase and the Solicitation, together with the other
financing and solicitation transactions described under "The Merger and the
Financing," are part of the transactions required to consummate the Merger of
Food 4 Less with and into RSI. Immediately following the RSI Merger, RGC, a
wholly-owned subsidiary of RSI, will merge with and into RSI and RSI will change
its name to Ralphs Grocery Company.
As a result of the Reincorporation Merger, any Amended Discount Notes that
remain outstanding following the consummation of the Offer to Purchase will
become the obligation of New Holdings. In connection with the consummation of
the Merger, Holdings is making the Offer to Purchase in order to retire the
Discount Notes and is seeking Consents to the Proposed Amendments in the
Solicitation in order to permit the consummation of the Merger and to eliminate
substantially all of the restrictive covenants in the Discount Note Indenture.
See "The Proposed Amendments." If adopted by the holders of not less than a
majority in aggregate principal amount of the outstanding Discount Notes held by
persons other than Holdings and its affiliates, the Proposed Amendments will
become effective immediately prior to the consummation of the Merger, upon
Holdings' acceptance of properly tendered Discount Notes for purchase pursuant
to the Offer to Purchase.
TERMS OF THE OFFER TO PURCHASE
Upon the terms and subject to the conditions set forth herein and in the
accompanying Letter of Transmittal, Holdings is hereby offering to holders of
the Discount Notes $785.00 in cash, plus accrued interest thereon at a rate of
15.25% per annum from and after March 15, 1995 until the Closing Date for every
$1,000 principal amount (at maturity) of Discount Notes (which, as of May 1,
1995 had an accreted value of $680.26 per $1,000) accepted for purchase.
The offer by Holdings to purchase Discount Notes is referred to herein as
the "Offer to Purchase." Holdings reserves the right to extend, delay, accept,
amend or terminate the Offer to Purchase. All references herein to the Offer to
Purchase shall be deemed to include the Solicitation.
Noteholders who wish to tender their Discount Notes pursuant to the Offer
to Purchase and consent to the Proposed Amendments must complete the Letter of
Transmittal and the table therein entitled "Description of Discount Notes."
Nominees or other record holders of Discount Notes that hold Discount Notes for
more than one beneficial owner are entitled to make multiple elections pursuant
to the Letter of Transmittal that reflect the election of each of the beneficial
owners for whom they are tendering Discount Notes for purchase. In order to make
such multiple elections, nominees or other record holders should properly
complete the table under the box entitled "Election on Behalf of Multiple
Beneficial Owners." See "-- Procedures for Tendering and Consenting."
Holders of Discount Notes who desire to tender Discount Notes in the Offer
to Purchase will be required to consent to the Proposed Amendments. See "-- The
Consent Solicitation," "-- Conditions," "The Proposed Amendments" and
"Description of the Discount Notes" set forth in Appendix A hereto. THE TENDER
OF DISCOUNT NOTES BY THE HOLDER THEREOF PURSUANT TO THE OFFER TO PURCHASE WILL
CONSTITUTE THE CONSENT OF SUCH TENDERING HOLDER TO THE PROPOSED AMENDMENTS WITH
RESPECT TO SUCH DISCOUNT NOTES.
Discount Notes may be tendered and will be accepted for purchase only in
denominations of $1,000 principal amount (at maturity) and integral multiples
thereof. Holders must tender all of their Discount Notes if any are tendered
pursuant to the Offer to Purchase. Holdings shall be deemed to have accepted
validly tendered Discount Notes in the Offer to Purchase and validly delivered
Consents in the Solicitation when, as and if Holdings has given oral or written
notice thereof to the Depositary. The Depositary will act as agent for the
tendering holders of Discount Notes for the purposes of receiving the Cash
Consideration from Holdings. In the event Holdings increases the consideration
offered for the Discount Notes in the Offer to Purchase, such increased
consideration will be paid with regard to all Discount Notes accepted in the
Offer to Purchase, including those accepted before the announcement of such
increase. The Cash Consideration will be paid in
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exchange for Discount Notes accepted in the Offer to Purchase promptly after
acceptance on the Expiration Date.
As of May 1, 1995, there was outstanding $103.6 million aggregate principal
amount (at maturity) of Discount Notes.
Although it has no obligation to do so, Holdings reserves the right in the
future to seek to acquire Discount Notes not tendered in the Offer to Purchase
by means of open market purchases, privately negotiated acquisitions, exchange
offers, subsequent tender offers, redemptions or otherwise, at prices or on
terms which may be higher or lower or more or less favorable than those in the
Offer to Purchase. The terms of any such purchases or offers could differ from
the terms of the Offer to Purchase.
Holders of Discount Notes who tender in the Offer to Purchase will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Consent and Letter of Transmittal, transfer taxes with respect to the tender
of Discount Notes pursuant to the Offer to Purchase. Holdings will pay all
charges and expenses, other than certain applicable taxes, in connection with
the Offer to Purchase. See "-- Fees and Expenses."
No appraisal rights are available to Discount Noteholders in connection
with the Offer to Purchase.
THE CONSENT SOLICITATION
Concurrently with the Offer to Purchase, Holdings is soliciting Consents in
the Solicitation from holders of the Discount Notes with respect to the Proposed
Amendments to the Discount Note Indenture. The Offer to Purchase is subject to,
among other things, the condition that the Requisite Consents (i.e., Consents of
holders representing at least a majority in aggregate principal amount of the
outstanding Discount Notes held by persons other than Holdings and its
affiliates) shall have been received and not revoked on or prior to the
Expiration Date. HOLDERS OF DISCOUNT NOTES WHO DESIRE TO ACCEPT THE OFFER TO
PURCHASE MUST CONSENT TO THE PROPOSED AMENDMENTS. The Proposed Amendments will
only become operative upon consummation of the Offer to Purchase. The primary
purpose of the Proposed Amendments is to permit the Merger and to eliminate
substantially all of the restrictive covenants in the Discount Note Indenture.
The Proposed Amendments to the Discount Note Indenture require the consent
of holders of at least a majority in aggregate principal amount of the Discount
Notes not owned by Holdings or its affiliates. In addition, in order for any of
the Proposed Amendments to become effective, a Supplemental Indenture amending
the Discount Note Indenture must be executed by Holdings and the Trustee. See
"The Proposed Amendments" and "Description of the Discount Notes" set forth in
Appendix A hereto.
Upon receipt of the Requisite Consents from holders of Discount Notes,
Holdings will certify in writing to the Trustee that the Requisite Consents to
the adoption of the Proposed Amendments have been received with respect to the
Discount Notes. Upon receipt of such certification, all Consents to the Proposed
Amendments theretofore received with respect to the Discount Notes will be
irrevocable. Except as set forth under "-- Guaranteed Delivery Procedure,"
Consents from tendering holders of Discount Notes will not be counted towards
determining whether Holdings has received the Requisite Consents unless Holdings
is prepared to accept the tender of Discount Notes to which such Consents
relate. In addition, Consents with respect to any Discount Notes will not be
counted if the tender of such holders' Discount Notes is defective, unless
Holdings waives such defect. After receipt by the Trustee of, among other
things, certification by Holdings that the Requisite Consents with respect to
the Discount Notes, have been received, Holdings and the Trustee will execute a
supplemental indenture to evidence the adoption of the Proposed Amendments
relating to the Discount Note Indenture (the "Supplemental Indenture"). Upon the
acceptance by Holdings of the Requisite Consents from holders of Discount Notes
and the execution of the Supplemental Indenture, the Supplemental Indenture will
immediately become effective. Although the Proposed Amendments relating to the
Discount Notes will become effective upon certification that the Requisite
Consents from holders of the Discount Notes have been received, such Proposed
Amendments will not be operative until Holdings has accepted for purchase all
Discount Notes validly tendered and not withdrawn. Holdings will not be
obligated
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to pay the Cash Consideration pursuant to the Offer to Purchase unless, among
other things, the Requisite Consents to the adoption of the Proposed Amendments
have been received from the Discount Noteholders. See "-- Conditions."
If the Proposed Amendments become effective, (i) the Depositary, as soon as
practicable, will transmit a copy of the Supplemental Indenture to all
registered holders of Discount Notes which remain outstanding, and (ii)
non-tendering holders will hold their Discount Notes under the Discount Note
Indenture as amended by the Proposed Amendments, whether or not that holder
consented to the Proposed Amendments. Consents given by holders of Discount
Notes tendered but rejected by Holdings pursuant to the Offer to Purchase will
not be counted for the purpose of determining whether the Requisite Consents
have been obtained.
Only a registered holder of Discount Notes (the "Registered Holder") can
effectively deliver a Consent to the Proposed Amendments. Pursuant to the terms
of the Discount Note Indenture, subsequent transfers of Discount Notes on the
security register for such Discount Notes will not have the effect of revoking
any Consent theretofore given by the Registered Holder of such Discount Notes,
and such Consents will remain valid unless revoked by the transferee holder in
accordance with the procedures described under the heading "-- Withdrawal of
Tenders and Revocation of Consents."
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Offer to Purchase and the Solicitation will expire at 12:00 Midnight,
New York City time, on May 30, 1995 (the "Expiration Date"), unless extended by
Holdings. Holdings reserves the right to extend the Offer to Purchase or the
Solicitation, at its discretion, in which event the term "Expiration Date" shall
mean the latest time and date at which the Offer to Purchase or the
Solicitation, as the case may be, as so extended by Holdings, shall expire.
Holdings shall notify the Depositary of any extension by oral or written notice
and shall make a public announcement thereof, each prior to 9:00 a.m., New York
City time, on the next Business Day after the previously scheduled Expiration
Date. Such announcement may state that Holdings is extending the Offer to
Purchase or the Solicitation, as the case may be, for a specified period or on a
daily basis.
Holdings also expressly reserves the right, at any time or from time to
time, to extend the period of time during which the Offer to Purchase or the
Solicitation, as the case may be, is open. There can be no assurance that
Holdings will exercise its right to extend the Offer to Purchase or the
Solicitation. During any extension of the Offer to Purchase all Discount Notes
previously tendered pursuant thereto and not withdrawn will remain subject to
the Offer to Purchase and may be accepted for purchase by Holdings at the
expiration of the Offer to Purchase subject to the right, if any, of a tendering
holder to withdraw its Discount Notes. See "-- Withdrawal of Tenders and
Revocation of Consents."
Each of Holdings and New Holdings also expressly reserves the right,
subject to applicable law and the terms of the Offer to Purchase and to the
extent not inconsistent with the terms of the Merger, the Other Debt Financing
Transactions, the Bank Financing or the New Equity Investment, (i) to delay the
acceptance for purchase of any Discount Notes or, regardless of whether such
Discount Notes were theretofore accepted for purchase, to delay the purchase of
any Discount Notes pursuant to the Offer to Purchase and to terminate the Offer
to Purchase and not accept for purchase any Discount Notes not theretofore
accepted for purchase, upon the failure of any of the conditions to the Offer to
Purchase specified herein to be satisfied, by giving oral or written notice of
such delay or termination to the Depositary and (ii) at any time, or from time
to time, to amend the Offer to Purchase in any respect. Except as otherwise
provided herein, withdrawal rights with respect to Discount Notes tendered
pursuant to the Offer to Purchase will not be extended or reinstated as a result
of an extension or amendment of the Offer to Purchase, as applicable. See
"-- Withdrawal of Tenders and Revocation of Consents." The reservation by
Holdings of the right to delay acceptance for purchase of Discount Notes is
subject to the provisions of Rule 14e-1(c) under the Exchange Act, which
requires that Holdings pay the consideration offered or return the Discount
Notes deposited by or on behalf of holders thereof promptly after the
termination or withdrawal of the Offer to Purchase.
Any extension, delay, termination or amendment of the Offer to Purchase
will be followed as promptly as practicable by a public announcement thereof.
Without limiting the manner in which Holdings may choose to make a public
announcement of any extension, delay, termination or amendment of the Offer to
Purchase,
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Holdings shall have no obligation to publish, advertise or otherwise communicate
any such public announcement, other than by issuing a release to the Dow Jones
News Service, except in the case of an announcement of an extension of the Offer
to Purchase, in which case Holdings shall have no obligation to publish,
advertise or otherwise communicate such announcement other than by issuing a
notice of such extension by press release or other public announcement, which
notice shall be issued no later than 9:00 a.m., New York City time, on the next
Business Day after the previously scheduled Expiration Date.
If Holdings shall decide to decrease the amount of Discount Notes being
sought in the Offer to Purchase or to increase or decrease the consideration
offered to holders of Discount Notes, and if, at the time that notice of such
increase or decrease is first published, sent or given to holders of Discount
Notes in the manner specified above, the Offer to Purchase is scheduled to
expire at any time earlier than the expiration of a period ending on the tenth
Business Day from and including the date that such notice is first so published,
sent or given, then the Offer to Purchase will be extended for such purposes
until the expiration of such period of ten Business Days.
If Holdings makes a material change in the terms of the Offer to Purchase
or the information concerning the Offer to Purchase, or waives any condition to
the Offer to Purchase that results in a material change to the circumstances of
the Offer to Purchase, then Holdings will disseminate additional tender offer
materials to the extent required under the Exchange Act and will extend the
Offer to Purchase to the extent required in order to permit holders of Discount
Notes adequate time to consider such materials. The minimum period during which
a tender offer must remain open following material changes in the terms of the
offer or information concerning the offer, other than a change in price or
percentage of securities sought, will depend upon the specific facts and
circumstances, including the relative materiality of the terms or information.
CONDITIONS
Holdings will not be required to accept any Discount Notes for purchase,
and may terminate or amend the Offer to Purchase, as provided herein, before the
acceptance of any Discount Notes, if the Offer to Purchase has not been
consummated. In addition, notwithstanding any other provision of the Offer to
Purchase or the Solicitation, Holdings shall not be required to accept any
Discount Notes for purchase or any Consents, and may terminate, extend or amend
the Offer to Purchase or the Solicitation and may postpone, subject to Rule
14e-1 under the Exchange Act, the acceptance of Discount Notes so tendered and
Consents so delivered, whether or not any other Discount Notes or Consents have
theretofore been accepted for purchase pursuant to the Offer to Purchase, if, on
or prior to the Expiration Date, any of the following conditions exist:
(i) the Requisite Consents shall not have been validly delivered (or
shall have been revoked);
(ii) all conditions precedent to the Merger shall not have been
satisfied or waived, in Holdings' sole discretion;
(iii) any of the Other Debt Financing Transactions (including the
Public Offerings) shall not have been consummated;
(iv) either the Bank Financing or the New Equity Investment shall not
have been consummated;
(v) the Supplemental Indenture containing the Proposed Amendments
shall not have been executed;
(vi) there shall have been any action taken or threatened, or any
statute, rule, regulation, judgment, order, stay, decree or injunction
proposed, sought, promulgated, enacted, entered, enforced or deemed
applicable to the Offer to Purchase by or before any local, state, federal
or foreign government or governmental regulatory or administrative agency
or authority or by any court or tribunal, domestic or foreign, which (a)
challenges or seeks to restrain or prohibit the making or consummation of
the Offer to Purchase or the purchase of Discount Notes pursuant to the
Offer to Purchase, (b) in the sole judgment of Holdings, might directly or
indirectly prohibit, prevent, restrict or delay consummation of the Offer
to Purchase or otherwise relates in any manner to the Offer to Purchase,
(c) seeks to make illegal the acceptance of Discount Notes for purchase
pursuant to the Offer to Purchase, (d) makes the Solicitation
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illegal, (e) might, in the sole judgment of Holdings, adversely affect the
financing of the Offer to Purchase, the Merger, the Other Debt Financing
Transactions, the Bank Financing or the New Equity Investment or the
transactions contemplated thereby, or (f) in the sole judgment of Holdings,
could materially adversely affect the business, condition (financial or
otherwise), income, operations, properties, assets, liabilities or
prospects of Holdings (or New Holdings or the Company, after giving effect
to the Merger and the Reincorporation Merger) and its subsidiaries, taken
as a whole, or materially impair the contemplated benefits of the Offer to
Purchase and the Solicitation to Holdings (or New Holdings or the Company,
after giving effect to the Merger and the Reincorporation Merger);
(vii) there shall have occurred or be likely to occur any event
affecting the business or financial affairs of Holdings (or New Holdings or
the Company, after giving effect to the Merger and the Reincorporation
Merger) that, in the sole judgment of Holdings, (a) would or might
prohibit, prevent, restrict or delay consummation of the Offer to Purchase,
or (b) will, or is reasonably likely to, materially impair the contemplated
benefits to Holdings (or New Holdings or the Company, after giving effect
to the Merger and the Reincorporation Merger) of the Offer to Purchase and
the Solicitation or otherwise result in the consummation of the Offer to
Purchase not being in the best interests of Holdings or (c) might be
material to holders of Discount Notes in deciding whether to accept the
Offer to Purchase or the Solicitation;
(viii) there shall have occurred: (a) any general suspension of
trading in, or limitation on prices for, securities on the New York Stock
Exchange or in the over-the-counter market (whether or not mandatory); (b)
any significant adverse change in the price of the Discount Notes; (c) a
material impairment in the trading market for debt securities generally;
(d) a declaration of a banking moratorium or any suspension of payments in
respect of banks by federal or state authorities in the United States
(whether or not mandatory); (e) a declaration of a national emergency or
commencement of a war, armed hostilities or other national or international
crisis directly or indirectly involving the United States; (f) any
limitation (whether or not mandatory) by any governmental or regulatory
authority on, or any other event that in the sole judgment of Holdings
might affect, the nature or extension of credit by banks or other financial
institutions; (g) any significant change in United States currency exchange
rates or a suspension of, or limitation on, the markets therefor (whether
or not mandatory); (h) any significant adverse change in United States
securities or financial markets; or (i) in the case of any of the foregoing
existing at the time of the commencement of the Offer to Purchase, in the
sole judgment of Holdings, a material acceleration, escalation or worsening
thereof;
(ix) the Trustee shall have objected in any respect to, or taken any
action that could, in the sole judgment of Holdings, adversely affect the
consummation of the Offer to Purchase or the Solicitation or Holdings'
ability to obtain the Consents or to effect any of the Proposed Amendments,
or shall have taken any action that challenges the validity or
effectiveness of the procedures used by Holdings in soliciting the Consents
(including the form thereof) or in the making of the Offer to Purchase or
the acceptance for exchange of any of the Discount Notes; or
(x) the Registration Statement has not been declared effective or a
stop order has been issued in connection therewith.
The foregoing conditions are for the sole benefit of Holdings and may be
asserted by Holdings in its sole discretion regardless of the circumstances
giving rise to any such condition (including any action or inaction by Holdings)
and may be waived by Holdings, in whole or in part, at any time and from time to
time in its sole discretion. If any of the foregoing events shall have occurred,
Holdings may, subject to applicable law, (i) terminate the Offer to Purchase or
the Solicitation and return all Discount Notes tendered pursuant to the Offer to
Purchase or the Solicitation to the tendering holders, (ii) extend the Offer to
Purchase or the Solicitation and retain all tendered Discount Notes until the
extended Expiration Date, (iii) amend the terms of the Offer to Purchase or the
Solicitation or modify the consideration to be paid by Holdings pursuant to the
Offer to Purchase or the Solicitation or (iv) waive the unsatisfied condition or
conditions with respect to the Offer to Purchase or the Solicitation and accept
all validly tendered Discount Notes. See "-- Expiration Date; Extensions;
Termination; Amendments" and "-- Procedures for Tendering and Consenting." The
failure by
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Holdings at any time to exercise any of the foregoing rights shall not be deemed
a waiver of any such right and each such right shall be deemed an ongoing right
which may be asserted at any time and from time to time. Any determination by
Holdings concerning the events described in this section shall be final and
binding upon all persons.
PROCEDURES FOR TENDERING AND CONSENTING
The tender by a holder of Discount Notes pursuant to one of the procedures
set forth below will constitute an agreement between such holder and Holdings in
accordance with the terms and subject to the conditions set forth herein and in
the Letter of Transmittal.
Holdings is terminating the Consent Solicitation described in the Old
Prospectus. Holders of Discount Notes that tendered Consents in connection with
such Consent Solicitation must comply with the procedures set forth below to
participate in the Offer to Purchase and Solicitation.
Discount Notes may be tendered and will be accepted for purchase only in
denominations of $1,000 principal amount (at maturity) and integral multiples
thereof. To be tendered effectively pursuant to the Offer to Purchase, (i) the
properly completed Letter of Transmittal, including a valid and unrevoked
Consent (or facsimile(s) thereof), duly executed by the registered holder
thereof with any required signature guarantee(s), together with the certificates
for tendered Discount Notes in proper form for transfer, or any book-entry
transfer into the Depositary's account at DTC, MSTC or PDTC (each as defined) of
Discount Notes tendered electronically, and any other documents required by the
Letter of Transmittal, must be received by the Depositary at one of its
addresses set forth below prior to 12:00 Midnight, New York City time, on the
Expiration Date, or (ii) the tendering holder must comply with the guaranteed
delivery procedure set forth under the heading "-- Guaranteed Delivery
Procedure."
THE GREEN CONSENT AND LETTER OF TRANSMITTAL SHOULD BE USED TO TENDER ALL
DISCOUNT NOTES.
LETTERS OF TRANSMITTAL AND DISCOUNT NOTES SHOULD BE SENT TO THE DEPOSITARY
AND NOT TO HOLDINGS OR THE DEALER MANAGERS NOR TO THE TRUSTEE UNDER THE
INDENTURE RELATING TO THE DISCOUNT NOTES.
A HOLDER OF DISCOUNT NOTES WHO DESIRES TO TENDER INTO THE OFFER TO PURCHASE
WITH RESPECT TO ANY DISCOUNT NOTES MUST TENDER ALL OF SUCH HOLDERS' DISCOUNT
NOTES.
Holders of Discount Notes will not be able to validly tender in the Offer
to Purchase unless they consent to the Proposed Amendments. Tendering holders
who sign the Letter of Transmittal shall be deemed to have consented to the
Proposed Amendments.
All signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Discount Notes tendered or withdrawn, as the case may be, pursuant
thereto are tendered (i) by a registered holder of Discount Notes (which term,
for purposes of the Letter of Transmittal, shall include any participant in DTC,
MSTC or PDTC whose name appears on a security position listing as the owner of
Discount Notes) who has not completed the box entitled "Special Issuance and
Payment Instructions" or "Special Delivery Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution. If Discount
Notes are registered in the name of a person other than the signer of a Letter
of Transmittal or a notice of withdrawal, as the case may be, or if payment is
to be made or certificates for unpurchased Discount Notes are to be issued or
returned to a person other than the registered holder, then the Discount Notes
must be endorsed by the registered holder, or be accompanied by a written
instrument or instruments of transfer in form satisfactory to Holdings duly
executed by the registered holder, with such signatures guaranteed by an
Eligible Institution. In the event that signatures on a Letter of Transmittal
(or other document) are required to be guaranteed, such guarantee must be by a
firm that is a member of a registered national securities exchange or a member
of the National Association of Securities Dealers, Inc. (the "NASD") or by a
commercial bank or trust company having an office in the United States (each of
the foregoing being an "Eligible Institution").
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THE METHOD OF DELIVERY OF DISCOUNT NOTES AND OTHER DOCUMENTS TO THE
DEPOSITARY IS AT THE ELECTION AND RISK OF THE HOLDER, AND EXCEPT AS OTHERWISE
PROVIDED PURSUANT TO "-- GUARANTEED DELIVERY," DELIVERY WILL BE DEEMED MADE WHEN
ACTUALLY RECEIVED BY THE DEPOSITARY. Instead of effecting delivery by mail it is
recommended that tendering Discount Noteholders use an overnight or hand
delivery service. If such delivery is by mail, it is recommended that holders
use registered mail, properly insured, with return receipt requested. In all
cases, sufficient time should be allowed to ensure delivery to the Depositary
prior to 12:00 Midnight, New York City time, on the Expiration Date.
Tendering holders should indicate in the applicable box in the Letter of
Transmittal the name and address to which payment of the Cash Consideration
and/or certificates evidencing Discount Notes for amounts not accepted for
tender, each as appropriate, are to be issued or sent, if different from the
name and address of the person signing the Letter of Transmittal. In the case of
issuance in a different name, the employer identification or social security
number of the person named must also be indicated and a substitute Form W-9 for
such recipient must be completed. If no such instructions are given, such
payment of the Cash Consideration or Discount Notes not accepted for tender, as
the case may be, will be made or returned, as the case may be, to the registered
holder of Discount Notes tendered. Holders of Discount Notes who are not
registered holders of, and who seek to tender, Discount Notes should (i) obtain
a properly completed Letter of Transmittal for such Discount Notes from the
registered holder with signatures guaranteed by an Eligible Institution and
obtain and include with such Letter of Transmittal Discount Notes properly
endorsed for transfer by the registered holder thereof or accompanied by a
written instrument or instruments of transfer from the registered holder with
signatures on the endorsement or written instrument or instruments of transfer
guaranteed by an Eligible Institution or (ii) effect a record transfer of such
Discount Notes and comply with the requirements applicable to registered holders
for tendering Discount Notes prior to 12:00 Midnight, New York City time, on the
Expiration Date. Any Discount Notes properly tendered prior to 12:00 Midnight,
New York City time, on the Expiration Date accompanied by a properly completed
Letter of Transmittal for such Discount Notes will be transferred of record by
the registrar either prior to or as of the Expiration Date at the discretion of
Holdings.
Payment of the Cash Consideration will be made only against deposit of the
tendered Discount Notes.
Under the federal income tax laws, the Depositary will be required to
withhold and will remit to the United States Treasury 31% of the amount of the
Cash Consideration paid to certain holders of Discount Notes pursuant to the
Offer to Purchase and the Solicitation. In order to avoid such backup
withholding, each tendering holder of Discount Notes electing to tender Discount
Notes pursuant to the Offer to Purchase, and, if applicable, each other payee,
must provide the Depositary with such holder's or payee's correct taxpayer
identification number and certify that such holder or payee is not subject to
such backup withholding by completing the Substitute Form W-9 accompanying the
Letter of Transmittal. In general, if a holder or payee is an individual, the
taxpayer identification number is the Social Security number of such individual.
If the Depositary is not provided with the correct taxpayer identification
number, the holder or payee may be subject to a $50 penalty imposed by the
Internal Revenue Service. Certain holders or payees (including, among others,
all corporations and certain foreign individuals) are not subject to these
backup withholding and reporting requirements. In order to satisfy the
Depositary that a foreign individual qualifies as an exempt recipient, such
holder or payee must submit a statement, signed under penalty of perjury,
attesting to that individual's exempt status. Such statements can be obtained
from the Depositary. For further information concerning backup withholding and
instructions for completing the Substitute Form W-9 (including how to obtain a
taxpayer identification number if you do not have one and how to complete the
Substitute Form W-9 if Discount Notes are held in more than one name), consult
the enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
Failure to complete the Substitute Form W-9 will not, by itself, cause
Discount Notes tendered pursuant to the Offer to Purchase to be deemed invalidly
tendered, but may require the Depositary to withhold 31% of the amount of any
payments made. Backup withholding is not an additional federal income tax.
Rather, the federal income tax liability of a person subject to backup
withholding will be reduced by the amount of tax
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withheld. If withholding results in an overpayment of taxes, a refund may be
obtained provided that the required information is furnished to the Internal
Revenue Service.
All questions as to the form of all documents and the validity (including
the time of receipt), eligibility, acceptance and withdrawal of tendered
Discount Notes will be determined by Holdings, in its sole discretion, which
determination shall be final and binding. Holdings expressly reserves the
absolute right to reject any and all tenders not in proper form and to determine
whether the acceptance of or payment by it for such tenders would be unlawful.
Holdings also reserves the absolute right, subject to applicable law, to waive
or amend any of the conditions to the Offer to Purchase or the Solicitation or
to waive any defect or irregularity in the tender of any of the Discount Notes.
None of Holdings, New Holdings, the Depositary, the Information Agent or any
other person will be under any duty to give notification of any defects or
irregularities in tenders or will incur any liability for failure to give any
such notification. No tender of Discount Notes will be deemed to have been
validly made until all defects and irregularities with respect to such Discount
Notes have been cured or waived. Any Discount Notes received by the Depositary
that are not properly tendered and as to which irregularities have not been
cured or waived will be returned by the Depositary to the appropriate tendering
holder as soon as practicable. Holdings' interpretation of the terms and
conditions of the Offer to Purchase and the Solicitation (including the Letter
of Transmittal and the Instructions thereto) will be final and binding on all
parties.
The Depositary will seek to establish accounts with respect to the Discount
Notes at The Depository Trust Company ("DTC"), the Midwest Securities Transfer
Company ("MSTC"), and the Philadelphia Depository Trust Company ("PDTC" and,
together with DTC and MSTC, collectively referred to herein as the "Book-Entry
Transfer Facilities") for the purpose of the Offer to Purchase within two New
York Stock Exchange Inc. ("NYSE") trading days. Any financial institution that
is a participant in any of the Book-Entry Transfer Facilities' systems may make
book-entry delivery of Discount Notes by causing DTC, MSTC or PDTC to transfer
such Discount Notes into the Depositary's account in accordance with such
Book-Entry Transfer Facility's procedure for such transfer. However, although
delivery of Discount Notes may be effected through book-entry transfer into the
Depositary's account at DTC, MSTC or PDTC, the Letter of Transmittal (or
facsimile thereof), together with any required signature guarantees and any
other required documents, must, in any case, be transmitted to, and received or
confirmed by, the Depositary at one of its addresses set forth on the back cover
of this Offer to Purchase and Solicitation Statement prior to 12:00 Midnight,
New York City time, on the Expiration Date, except as otherwise provided below
under the heading "Guarantee Delivery Procedure." Discount Notes will not be
deemed surrendered for purchase until such documents are received by the
Depositary and delivery of such documents to a Book-Entry Transfer Facility will
not constitute valid delivery to the Depositary. HOLDINGS UNDERSTANDS THAT THE
BOOK-ENTRY TRANSFER FACILITIES WILL MAKE ARRANGEMENTS FOR EXECUTION OF LETTERS
OF TRANSMITTAL TO ACCOMMODATE BENEFICIAL OWNERS THAT DESIRE TO TENDER DISCOUNT
NOTES IN THE OFFER TO PURCHASE. HOWEVER, HOLDINGS UNDERSTANDS THAT THE
BOOK-ENTRY TRANSFER FACILITIES WILL NOT ARRANGE FOR THE EXECUTION OF LETTERS OF
TRANSMITTAL WITH RESPECT TO THE OFFER TO PURCHASE AND THE SOLICITATION, UNLESS
THE DISCOUNT NOTES ARE ALSO TENDERED IN THE OFFER TO PURCHASE. HOLDERS MAY
CONTACT THE DEPOSITARY AT ANY OF THE ADDRESSES SET FORTH ON THE BACK COVER PAGE
HEREOF FOR INFORMATION REGARDING WITHDRAWAL OF DISCOUNT NOTES FROM A BOOK-ENTRY
TRANSFER FACILITY.
GUARANTEED DELIVERY PROCEDURE
If a registered holder of Discount Notes desires to tender such Discount
Notes and consent to the Proposed Amendments, and the Discount Notes are not
immediately available, or if time will not permit such holder's Discount Notes
or any other required documents to be delivered to the Depositary prior to 12:00
Midnight, New York City time, on the Expiration Date, then such Discount Notes
may nevertheless be tendered for purchase and Consents may be effected if all of
the following guaranteed delivery procedure conditions are met:
(i) the tender for purchase and Consent is made by or through an
Eligible Institution;
(ii) prior to 12:00 Midnight, New York City time, on the Expiration
Date, the Depositary receives from such Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery
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(by telegram, telex, facsimile transmission, mail or hand delivery)
substantially in the form provided by Holdings, that contains a signature
guaranteed by an Eligible Institution in the form set forth in such Notice
of Guaranteed Delivery, unless such tender is for the account of an
Eligible Institution (in which case no signature guarantee shall be
required), and sets forth the name and address of the holder of Discount
Notes and the principal amount of Discount Notes tendered for purchase,
states that the tender is being made thereby and guarantees that, within
five NYSE trading days after the date of execution of the Notice of
Guaranteed Delivery, the Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, together with the Discount Notes and
any required signature guarantees and any other documents required by such
Letter of Transmittal, will be deposited by the Eligible Institution with
the Depositary; and
(iii) all tendered Discount Notes, or a confirmation of a book-entry
transfer of such Discount Notes into the Depositary's account at a
Book-Entry Transfer Facility as described above, as well as the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed,
with any required signature guarantees, and all other documents required by
such Letter of Transmittal, shall be received by the Depositary within five
NYSE trading days after the date of execution of the Notice of Guaranteed
Delivery.
THE YELLOW NOTICE OF GUARANTEED DELIVERY SHOULD BE USED IN CONNECTION WITH
TENDERS OF ALL DISCOUNT NOTES.
Notwithstanding any other provision hereof, the purchase of Discount Notes
pursuant to the Offer to Purchase will in all cases be made only after timely
receipt by the Depositary of certificates for such Discount Notes and the Letter
of Transmittal (or facsimile thereof) in respect thereof, properly completed and
duly executed, together with any required signature guarantees and any other
documents required by such Letter of Transmittal.
ACCEPTANCE OF DISCOUNT NOTES FOR PAYMENT; PAYMENT OF THE CASH CONSIDERATION
Upon the terms and subject to the conditions of the Offer to Purchase and
the Solicitation, Holdings will accept all Discount Notes validly tendered prior
to 12:00 Midnight, New York City time, on the Expiration Date and not validly
withdrawn. The acceptance for purchase of Discount Notes validly tendered and
not validly withdrawn and the payment of the Cash Consideration will be made as
promptly as practicable after the Expiration Date. Subject to rules promulgated
pursuant to the Exchange Act, Holdings expressly reserves the right to delay
acceptance of any of the Discount Notes or to terminate the Offer to Purchase or
the Solicitation and not accept for purchase any Discount Notes not theretofore
accepted if any of the conditions set forth under the heading "-- Conditions"
shall not have been satisfied or waived by Holdings. New Holdings will make
payment of the Cash Consideration with respect to Discount Notes pursuant to the
Offer to Purchase promptly following acceptance of the Discount Notes. In all
cases, the purchase of Discount Notes accepted for purchase pursuant to the
Offer to Purchase will be made only after timely receipt by the Depositary of
Discount Notes (or confirmation of book-entry transfer thereof) and a properly
completed and validly executed Letter of Transmittal (or a manually signed
facsimile thereof) and any other documents required thereby.
For purposes of the Offer to Purchase and the Solicitation, Holdings shall
be deemed to have accepted validly tendered and not properly withdrawn Discount
Notes when, as and if Holdings gives oral or written notice thereof to the
Depositary. The Depositary will act as agent for the tendering holders of
Discount Notes for the purposes of receiving the Cash Consideration from New
Holdings transmitting the Cash Consideration to the tendering holders. Under no
circumstances will any additional amount be paid by New Holdings or the
Depositary by reason of any delay in making such payment.
All questions as to the validity, form, eligibility (including the time of
receipt), acceptance and withdrawal of tendered Discount Notes will be resolved
by Holdings, whose determination will be final and binding. Holdings reserves
the absolute right to reject any or all tenders that are not in proper form or
the acceptance of which would, in the opinion of counsel for Holdings, be
unlawful. Holdings also reserves the right to waive any irregularities or
conditions of tender as to particular Discount Notes. Holdings' interpreta-
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tion of the terms and conditions of the Offer to Purchase and the Solicitation
(including the instructions in the Letter of Transmittal) will be final and
binding. Unless waived, any irregularities or defects in connection with tenders
of Discount Notes must be cured within such time as Holdings determines. Neither
Holdings, New Holdings nor the Depositary shall be under any duty to give
notification of irregularities or defects in such tenders or shall incur any
liability for failure to give such notification. Tenders of Discount Notes will
not be deemed to have been made until such irregularities have been cured or
waived.
If, for any reason whatsoever, acceptance for purchase of any Discount
Notes tendered pursuant to the Offer to Purchase is delayed, or Holdings is
unable to accept for purchase Discount Notes tendered pursuant to the Offer to
Purchase, then, without prejudice to Holdings' and New Holdings' rights set
forth herein, the Depositary may nevertheless, on behalf of Holdings and subject
to rules promulgated pursuant to the Exchange Act, retain tendered Discount
Notes, and such Discount Notes may not be withdrawn except to the extent that
the tendering holder of such Discount Notes is entitled to withdrawal rights as
described herein. See "-- Withdrawal of Tenders and Revocation of Consents."
If any tendered Discount Notes are not accepted for purchase because of an
invalid tender, the occurrence or non-occurrence of certain other events set
forth herein or otherwise, then such unaccepted Discount Notes will be returned,
at Holdings' expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date or the termination of the Offer to Purchase therefor.
No alternative, conditional or contingent tenders will be accepted. A
tendering holder, by execution of a Letter of Transmittal, or facsimile thereof,
waives all rights to receive notice of acceptance of such holder's Discount
Notes for purchase.
WITHDRAWAL OF TENDERS AND REVOCATION OF CONSENTS
Tenders of Discount Notes pursuant to the Offer to Purchase may be
withdrawn and Consents may be revoked at any time until the "Consent Date,"
which shall be such time as the Requisite Consents (Consents of holders
representing at least a majority in aggregate principal amount of the
outstanding Discount Notes held by persons other than Holdings and its
affiliates) have been delivered by Holdings to the Trustee and the Supplemental
Indenture has been executed. Thereafter, such tenders may be withdrawn and
Consents may be revoked if the Offer to Purchase is terminated without any
Discount Notes being accepted for purchase thereunder.
The withdrawal of Discount Notes prior to the Consent Date in accordance
with the procedures set forth hereunder will effect a revocation of the related
Consent. Any valid revocation of Consents will automatically render the prior
tender of the Discount Notes to which such Consents relate defective and
Holdings will have the right, which it may waive, to reject such tender as
invalid and ineffective.
Any holder of Discount Notes who has tendered Discount Notes or who
succeeds to the record ownership of Discount Notes in respect of which such
tenders or Consents previously have been given may withdraw such Discount Notes
or revoke such Consents prior to the Consent Date by delivery of a written
notice of withdrawal or revocation, subject to the limitations described herein.
To be effective, a written telegraphic, telex or facsimile transmission (or
delivered by hand or by mail) notice of withdrawal of a tender or revocation of
a Consent must (i) be timely received by the Depositary at one of its addresses
set forth on the back cover hereof or prior to the applicable time provided
herein with respect to the Discount Notes, (ii) specify the name of the person
having tendered the Discount Notes to be withdrawn or as to which Consents are
revoked, the principal amount of such Discount Notes to be withdrawn and, if
certificates for Discount Notes have been tendered, the name of the registered
holder(s) of such Discount Notes as set forth in such certificates, if different
from that of the person who tendered such Discount Notes, (iii) identify the
Discount Notes to be withdrawn or to which the notice of revocation relates and
(iv)(a) be signed by the holder in the same manner as the original signature on
the Letter of Transmittal or Notice of Guaranteed Delivery (as the case may be)
by which such Discount Notes were tendered (including any required signature
guarantees) or (b) be accompanied by evidence satisfactory to Holdings and the
Depositary that the holder withdrawing such tender or revoking such Consents has
succeeded to beneficial ownership of such Discount Notes. If certificates
representing Discount Notes to be withdrawn or Consents to be revoked have been
delivered or otherwise
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identified to the Depositary, then the name of the registered holder and the
serial numbers of the particular certificate evidencing the Discount Notes to be
withdrawn or Consents to be revoked and a signed notice of withdrawal with
signatures guaranteed by an Eligible Institution, except in the case of Discount
Notes tendered by an Eligible Institution (in which case no signature guarantee
shall be required), must also be so furnished to the Depositary as aforesaid
prior to the physical release of the certificates for the withdrawn Discount
Notes. If Discount Notes have been tendered or if Consents have been delivered
pursuant to the procedures for book-entry transfer as set forth herein, any
notice of withdrawal or revocation of Consent must also specify the name and
number of the account at the appropriate Book-Entry Transfer Facility to be
credited with the withdrawn Discount Notes. Holdings reserves the right to
contest the validity of any revocation. A purported notice of revocation which
is not received by the Depositary in a timely fashion will not be effective to
revoke a Consent previously given.
Any permitted withdrawals of tenders of Discount Notes and revocation of
Consents may not be rescinded, and any Discount Notes properly withdrawn will
thereafter be deemed not validly tendered and any Consents revoked will be
deemed not validly delivered for purposes of the Offer to Purchase; provided,
however, that withdrawn Discount Notes may be retendered and revoked Consents
may be redelivered by again following one of the appropriate procedures
described herein at any time prior to 12:00 Midnight, New York City time, on the
Expiration Date.
If Holdings extends the Offer to Purchase or is delayed in its acceptance
for purchase of Discount Notes or is unable to purchase Discount Notes pursuant
to the Offer to Purchase for any reason, then, without prejudice to Holdings'
rights under the Offer to Purchase, the Depositary may, subject to applicable
law, retain tendered Discount Notes on behalf of Holdings, and such Discount
Notes may not be withdrawn (subject to Rule 14e-1 under the Exchange Act, which
requires that Holdings deliver the consideration offered or return the Discount
Notes deposited by or on behalf of the Discount Noteholders promptly after the
termination or withdrawal of the Offer to Purchase), except to the extent that
tendering holders are entitled to withdrawal rights as described herein.
All questions as to the validity, form and eligibility (including the time
of receipt) of notices of withdrawal or revocations of Consents will be
determined by Holdings, whose determination will be final and binding on all
parties. None of Holdings, the Depositary, the Dealer Managers or any other
person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or revocation of Consent or incur any
liability for failure to give any such notification.
LOST OR MISSING CERTIFICATES
If a holder of Discount Notes desires to tender a Discount Note pursuant to
the Offer to Purchase, but the Discount Note has been mutilated, lost, stolen or
destroyed, such holder should write to or telephone the Trustee under the
Discount Note Indenture at the address listed below, concerning the procedures
for obtaining replacement certificates for such Discount Notes, arranging for
indemnification or any other matter that requires handling by the Trustee:
<TABLE>
<S> <C>
United States Trust Company of New York
114 West 47th Street
New York, New York 10036-1532
Attn: Corporate Trust Division
(212) 852-1000
</TABLE>
DEALER MANAGERS
Subject to the terms and conditions set forth in the Dealer Manager
Agreement (the "Dealer Manager Agreement") dated January 25, 1995 (as amended),
among FFL, Holdings, Food 4 Less and each subsidiary of Food 4 Less (together,
the "Issuers") and BT Securities, CS First Boston and DLJ, as dealer managers
and solicitation agents (the "Dealer Managers"), the Issuers have engaged BT
Securities, CS First Boston and DLJ to act as Dealer Managers and in connection
with the Offer to Purchase, the Solicitation, the RGC Offers and the F4L
Exchange Offers. The Issuers will pay the Dealer Managers, as compensation for
their
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services as Dealer Managers, a fee equal to (i) 1.0% of the aggregate principal
amount of Old F4L Notes and Old RGC Notes accepted for exchange in the F4L
Exchange Offers and the RGC Offers, (ii) 0.5% of the aggregate accreted value of
Discount Notes accepted for purchase in the Offer to Purchase, (iii) 0.5% of the
aggregate principal amount of Old F4L Notes and Old RGC Notes in respect of
which a consent is accepted in the F4L Exchange Offers and the RGC Offers (other
than Old RGC Notes and Old F4L Notes accepted for exchange or purchase, as the
case may be, in the RGC Offers and the F4L Exchange Offers) and (iv) 0.5% of the
aggregate accreted value of Discount Notes in respect of which a consent is
accepted in the Solicitation (other than Discount Notes accepted for purchase in
the Offer to Purchase). In addition, the Issuers have agreed to reimburse each
of the Dealer Managers for all of its respective reasonable out-of-pocket
expenses, including the reasonable fees and expenses of its legal counsel,
incurred in connection with the Offer to Purchase, the Solicitation, the RGC
Offers and the F4L Exchange Offers. The Issuers have agreed to indemnify each of
the Dealer Managers against certain liabilities in connection with Offer to
Purchase, the Solicitation, the RGC Offers and the F4L Exchange Offers,
including liabilities under the federal securities laws, and will contribute to
payments the Dealer Managers may be required to make in respect thereof.
Bankers Trust, an affiliate of BT Securities, has been a co-agent and a
lender under the existing credit agreements of each of RGC and Food 4 Less and
will be administrative agent and a lender under the New Credit Facility. See
"Description of the New Credit Facility." BT Securities has provided services to
Food 4 Less in connection with the Financing and in consideration therefor Food
4 Less will pay to BT Securities a fee of $5 million upon closing of the Merger.
Such fee will be satisfied through the issuance by New Holdings to BT Securities
of $5 million initial accreted value of New Discount Debentures. Such New
Discount Debentures will be contributed to the partnership which will acquire
all of the New Discount Debentures. DLJ has provided financial advisory services
to Food 4 Less in connection with the Merger and will receive customary fees for
such services. The Dealer Managers will also serve as underwriters for the
Public Offerings and will receive customary fees for such services.
In addition, affiliates of the Dealer Managers are investing in the capital
stock of New Holdings pursuant to the New Equity Investment. After giving effect
to the Merger, BTIP will own approximately 900,000 shares of Series A Preferred
Stock and approximately 3,100,000 shares of Series B Preferred Stock, affiliates
of CS First Boston will own approximately 1,000,000 shares of Series A Preferred
Stock and affiliates of DLJ will own approximately 1,000,000 shares of Series A
Preferred Stock. Affiliates of BTIP additionally own 509,812 shares of FFL
common stock which they had previously acquired and which will be converted to
New Holdings capital stock following the FFL Merger and the Reincorporation
Merger. See "Principal Stockholders" and "Description of Capital Stock."
Affiliates of each of BT Securities, CS First Boston and DLJ are also investing
$5 million, $2.5 million and $2.5 million, respectively, in the partnership that
will purchase the New Discount Debentures. See "Certain Relationships and
Related Transactions -- Food 4 Less and Holdings."
Each of the Dealer Managers has from time to time provided investment
banking and financial advisory services to one or more of Food 4 Less, Holdings
and RGC and/or their respective affiliates and may continue to do so in the
future. The Dealer Managers have received customary fees for such services.
No fees or commission have been or will be paid to any broker, dealer or
other person, other than the Dealer Managers, in connection with the Offer to
Purchase, the Solicitation, the RGC Offers or the F4L Exchange Offers.
DEPOSITARY
Bankers Trust has been appointed as Depositary for the Offer to Purchase
and the Solicitation. Questions and requests for assistance, and all
correspondence in connection with the Offer to Purchase, the Solicitation, or
requests for additional Letters of Transmittal and any other required documents,
may be directed to the Depositary at one of its addresses and telephone numbers
set forth on the back cover of this Offer to Purchase and Solicitation
Statement.
INFORMATION AGENT
D.F. King & Co., Inc. is serving as Information Agent in connection with
the Offer to Purchase and the Solicitation. The Information Agent will assist
with the mailing of this Offer to Purchase and Solicitation
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Statement and related materials to holders of Discount Notes, respond to
inquiries of and provide information to holders of Discount Notes in connection
with the Offer to Purchase and the Solicitation and provide other similar
advisory services as Holdings may request from time to time. Requests for
additional copies of this Offer to Purchase and Solicitation Statement, Letters
of Transmittal and any other required documents should be directed to the Dealer
Managers or to the Information Agent at one of its addresses and telephone
numbers set forth on the back cover of this Offer to Purchase and Solicitation
Statement.
FEES AND EXPENSES
In addition to the fees and expenses payable to the Dealer Managers,
Holdings will pay the Depositary and the Information Agent reasonable and
customary fees for their services (and will reimburse them for their reasonable
out-of-pocket expenses in connection therewith), will pay the reasonable
expenses of holders in delivering their Discount Notes to the Depositary and
will pay brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of this
Offer to Purchase and Solicitation Statement and related documents to the
beneficial owners of the Discount Notes and in handling or forwarding tenders
for purchase. In addition, Holdings will indemnify the Depositary and the
Information Agent against certain liabilities in connection with their services,
including liabilities under the federal securities laws.
Holdings will pay all transfer taxes, if any, applicable to the purchase of
Discount Notes pursuant to the Offer to Purchase. If, however, Discount Notes
for principal amounts not accepted for tender are to be delivered to, or are to
be registered or issued in the name of, any person other than the registered
holder of the Discount Notes, or if tendered Discount Notes are to be registered
in the name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
purchase of Discount Notes pursuant to the Offer to Purchase, then the amount of
any such transfer tax (whether imposed on the registered holder or any other
person) will be payable by the tendering holder. If satisfactory evidence of
payment of such tax or exemption therefrom is not submitted, then the amount of
such transfer tax will be deducted from the Cash Consideration otherwise payable
to such tendering holder. Any remaining amount will be billed directly to such
tendering holder.
The total cash expenditures for printing, accounting and legal fees, and
the fees and expenses of the Depositary, the Information Agent and the trustees
under the old and new indentures, to be incurred by Food 4 Less and Holdings in
connection with the Offer to Purchase, the RGC Offers and the F4L Exchange
Offers are estimated to be approximately $9 million.
MISCELLANEOUS
The Offer to Purchase is not subject to Section 13(e) of, or Rules 13e-3 or
13e-4 or Regulation 14D promulgated under, the Exchange Act. The Offer to
Purchase is being made in compliance with Regulation 14E under the Exchange
Act.
Other than with respect to the Depositary, the Information Agent and the
Dealer Managers, neither Holdings nor any of its affiliates has engaged, or made
any arrangements for, and has no contract, arrangement or understanding with,
any broker, dealer, agent or other person regarding the exchange of Discount
Notes hereunder, and no person has been authorized by Holdings, or any of its
affiliates to provide any information or to make any representations in
connection with the Offer to Purchase and the Solicitation, other than those
expressly set forth in this Offer to Purchase and Solicitation Statement, and,
if so provided or made, such other information or representations must not be
relied upon as having been authorized by Holdings or any of its affiliates. The
delivery of this Offer to Purchase and Solicitation Statement shall not, under
any circumstances, create any implication that the information set forth herein
is correct as of any time subsequent to the date hereof.
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MARKET PRICES OF THE DISCOUNT NOTES
In general, there has been limited trading of the Discount Notes and such
trading has taken place primarily in the over-the-counter market. Prices and
trading volumes of the Discount Notes in the over-the-counter market are not
reported and can be difficult to monitor. Quotations for securities that are not
widely traded, such as the Discount Notes, may differ from actual trading prices
and should be viewed as approximations. Holders of Discount Notes are urged to
contact their brokers with respect to current information regarding the Discount
Notes that they hold.
THE PROPOSED AMENDMENTS
The 15.25% Senior Discount Notes due 2004 of Holdings were issued under the
Discount Note Indenture dated as of December 15, 1992 between Holdings and
United States Trust Company of New York, as Trustee.
In connection with the consummation of the Merger, Holdings is making the
Offer to Purchase in order to retire the Discount Notes and is seeking Consents
to the Proposed Amendments in the Solicitation in order to permit the
consummation of the Merger and to eliminate substantially all of the restrictive
covenants in the Discount Note Indenture. Upon receipt of the Requisite
Consents, the Supplemental Indenture to the Discount Note Indenture will be
executed between Holdings and the Trustee. Following the consummation of the
Merger, the obligations of Holdings under the Discount Note Indenture will be
assumed by New Holdings. The Proposed Amendments would make the following
changes to the Discount Note Indenture:
1. Eliminate the covenant entitled "Disposition of Proceeds of Public
Offering Sale".
2. Eliminate the covenant entitled "Limitation on Change of Control".
3. Eliminate the covenant entitled "Limitation on Restricted Payments".
4. Eliminate the covenant entitled "Limitation on Incurrences of
Additional Indebtedness".
5. Eliminate the covenant entitled "Limitation on Liens".
6. Eliminate the covenant entitled "Limitation on Disposition of Assets".
7. Eliminate the covenant entitled "Restrictions on Sale of Stock of
Subsidiaries".
8. Eliminate the covenant entitled "Limitation on Transactions with
Affiliates".
9. Eliminate the covenant entitled "SEC Reports and Other Information".
10. Amend the provisions regarding when Holdings may consolidate or merge
with, or sell all or substantially all of its assets to, any other person or
entity to eliminate the subsections thereof which require that immediately after
giving effect to such transaction and the incurrence of any indebtedness in
connection therewith, Holdings or the surviving entity, as the case may be, has
a Net Worth (as defined) that meets the standards set forth therein.
11. The definitions relating solely to such eliminated covenants will be
eliminated.
The Supplemental Indenture will provide that the New Credit Facility
constitutes a refinancing of the Loan Documents (as defined).
The remaining sections of the Discount Note Indenture will not be changed
by the Proposed Amendments.
Copies of the Discount Note Indenture and the form of the Supplemental
Indenture are available from Holdings upon request. For a description of the
covenants being amended or eliminated, see "Description of the Discount Notes"
set forth in Appendix A hereto.
101
<PAGE> 111
THE RGC OFFERS, THE F4L EXCHANGE OFFERS AND THE PUBLIC OFFERINGS
THE RGC OFFERS
Concurrently with the Offer to Purchase and the Solicitation, Food 4 Less
is offering to holders of the Old RGC Notes (i) to exchange such Old RGC Notes
for New RGC Notes and $20.00 in cash for each $1,000 principal amount tendered
for exchange or (ii) to tender for purchase Old RGC Notes for $1,010.00 in cash
per $1,000 principal amount of Old RGC Notes accepted for purchase, in each case
plus accrued and unpaid interest to the date of exchange or purchase. The
consummation of the RGC Offers will occur simultaneously with the consummation
of the Offer to Purchase. It is a condition to the consummation of the Offer to
Purchase that the RGC Offers be successfully consummated.
The obligation of Food 4 Less to accept for exchange or purchase any
validly tendered Old RGC Note is conditioned upon, among other things, the
satisfaction or waiver of certain conditions, including (i) satisfaction of a
minimum tender amount (i.e., at least a majority of the aggregate principal
amount of the outstanding Old RGC Notes being validly tendered for exchange for
New RGC Notes and not withdrawn pursuant to the RGC Offers prior to the date of
expiration); (ii) the receipt of the requisite consents to certain amendments to
the indentures under which the Old RGC Notes were issued (i.e., consents from
Old RGC Noteholders representing at least a majority in aggregate principal
amount of each issue of Old RGC Notes held by persons other than RGC and its
affiliates) on or prior to the date of expiration; (iii) the satisfaction or
waiver, in Food 4 Less' sole discretion, of all conditions precedent to the
Merger; (iv) the prior or contemporaneous consummation of the Offer to Purchase
and the Solicitation hereunder, the F4L Exchange Offers, the Public Offerings
and the New Discount Debenture Placement; and (v) the prior or contemporaneous
consummation of the Bank Financing and the New Equity Investment.
The terms of the Old RGC Indentures are substantially identical.
Noteholders participating in the RGC Offers will be required to consent to
certain proposed amendments to the Old RGC Indentures. Such proposed amendments
will modify certain terms of such indentures to permit the Merger and will
eliminate substantially all the restrictive covenants in the Old RGC Indentures.
The Old RGC Notes. The Old RGC 10 1/4% Notes were originally issued in
July 1992, are currently outstanding in an aggregate principal amount of $300
million and will mature on July 15, 2002. The Old RGC 9% Notes were originally
issued in March 1993, are currently outstanding in an aggregate principal amount
of $150 million and will mature on April 1, 2003. Interest on the Old RGC
10 1/4% Notes accrues at a rate of 10 1/4% per annum and is payable
semi-annually on each January 15 and July 15. Interest on the Old RGC 9% Notes
accrues at a rate of 9% per annum and is payable semi-annually on each April 1
and October 1.
The Old RGC 10 1/4% Notes are subject to redemption at any time on or after
July 15, 1997, at the option of RGC, in whole or in part, on not less than 30
nor more than 60 days' prior notice in amounts of $1,000 or an integral multiple
of $1,000 at the following redemption prices (expressed as percentages of the
principal amount), if redeemed during the 12-month period beginning July 15 of
the years indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
1997...................................................... 105.0%
1998...................................................... 102.5%
1999 and thereafter....................................... 100.0%
</TABLE>
in each case plus accrued and unpaid interest to the redemption date (subject to
the right of holders of record on relevant record dates to receive interest due
on an interest payment date).
The Old RGC 9% Notes are subject to redemption at any time on or after
April 1, 2000, at the option of RGC, in whole or in part, on not less than 30
nor more than 60 days' prior notice in amounts of $1,000 or an integral multiple
of $1,000 at 100% of the principal amount thereof plus accrued interest to the
redemption date (subject to the right of holders of record on relevant record
dates to receive interest due on an interest payment date.)
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<PAGE> 112
Standard & Poor's has publicly announced that, upon consummation of the
Merger, it intends to assign a new rating to the Old RGC Notes. Such new rating
assignment, if implemented, would constitute a Rating Decline under the Old RGC
Indentures. The consummation of the Merger (which is conditioned upon, among
other things, successful consummation of the Offer to Purchase, the Other Debt
Financing Transactions, the New Equity Investment and the Bank Financing) and
the resulting change in composition of the Board of Directors of RGC, together
with the anticipated Rating Decline would constitute a Change of Control
Triggering Event under the Old RGC Indentures. Although Food 4 Less does not
anticipate that there will be a significant amount of Old RGC Notes outstanding
following consummation of the RGC Offers, upon such a Change of Control
Triggering Event the Company would be obligated to make the Change of Control
Offer following the Merger for all outstanding Old RGC Notes at 101% of the
principal amount thereof plus accrued and unpaid interest to the date of
repurchase.
The Old RGC Indentures contain certain covenants, including, but not
limited to, covenants with respect to the following matters: (i) limitation on
incurrence of additional indebtedness; (ii) limitation on dividends and other
restricted payments; (iii) limitation on transactions with affiliates; (iv)
limitation on liens securing subordinated indebtedness; (v) limitation on other
senior subordinated indebtedness; (vi) limitation on preferred stock of
subsidiaries; (vii) limitation on dividend and other payment restrictions
affecting subsidiaries; and (viii) limitation on mergers and sales of assets.
Under the Old RGC Indentures, certain events constitute an event of default
including: (i) the failure to make any principal and interest payment on the Old
RGC Notes when due; (ii) the failure to comply with any other agreement
contained in the Old RGC Indentures or the Old RGC Notes; (iii) a default under
certain indebtedness; (iv) certain final judgments or orders for payments of
money; and (v) certain events occurring under bankruptcy laws.
Upon the consummation of the RGC Offers, supplemental indentures to each of
the Old RGC Indentures will become effective, reflecting the proposed amendments
to the Old RGC Indentures. Such supplemental indentures will eliminate
substantially all of the restrictive covenants in the Old RGC Indentures,
including covenants with respect to limitation on indebtedness, limitation on
restricted payments, limitation on transactions with affiliates, limitation on
liens securing subordinated indebtedness, restrictions on preferred stock of
subsidiaries and limitation on dividends and other payment restrictions
affecting subsidiaries. In addition, such supplemental indentures will modify
the covenants which limit the ability of RGC to consolidate or merge with, or
sell all or substantially all of its assets, to any other person or entity
unless certain conditions are satisfied, by eliminating the subsections thereof
which require that immediately after giving effect to such transaction on a pro
forma basis RGC or the surviving entity, as the case may be, has a Consolidated
Interest Coverage Ratio (as defined in the Old RGC Indentures) for its four most
recently completed fiscal quarters of at least 1.8 to 1.0.
The New RGC Notes. The New RGC Notes will be issued upon consummation of
the RGC Offers to tendering holders of Old RGC Notes who tender Old RGC Notes in
exchange for New RGC Notes and will be part of the same issue as the New RGC
Notes offered pursuant to the Subordinated Note Public Offering.
The New RGC Notes will bear interest at a fixed rate per annum equal to the
greater of (a) 11% and (b) the RGC Applicable Treasury Rate (as hereinafter
defined) plus 400 basis points (4.00 percentage points); provided, however, that
in no event will the New RGC Notes bear interest at a rate per annum that is
less than the interest rate on the New RGC Notes offered pursuant to the
Subordinated Note Public Offering. The "RGC Applicable Treasury Rate" means the
yield to maturity at the time of computation of United States Treasury
securities with a constant maturity (as compiled by and published in the most
recent Federal Reserve Statistical Release H.15 (519)) most nearly equal to the
average life to stated maturity of the New RGC Notes; provided, that if the
average life to stated maturity of the New RGC Notes is not equal to the
constant maturity of the United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of the year) from the
weekly average yields of the United States Treasury securities for which such
yields are given. Interest will be payable on the New RGC Notes on each May 15
and November 15, beginning November 15, 1995. The New RGC Notes will mature on
May 15, 2005. On or after May 15, 2000, the New RGC Notes may be redeemed in
whole at any time or in part from time to time, at the option of the Company, at
a
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<PAGE> 113
redemption price equal to the applicable percentage of the principal amount
thereof set forth below, plus accrued and unpaid interest to the redemption
date, if redeemed during the 12 months commencing on May 15 of the years set
forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2000...................................................... 104.125%
2001...................................................... 102.750%
2002...................................................... 101.375%
2003 and thereafter....................................... 100.000%
</TABLE>
In the event that the interest rate on the New RGC Notes is greater than 11%,
the above redemption prices will be correspondingly adjusted.
In addition, on or prior to May 15, 1998 the Company may, at its option,
use the net cash proceeds from one or more Public Equity Offerings to redeem up
to an aggregate of 35% of the principal amount of the New RGC Notes originally
issued, at a redemption price equal to 111% of the principal amount thereof if
redeemed during the 12 months commencing on May 15, 1995, 109.625% of the
principal amount thereof if redeemed during the 12 months commencing on May 15,
1996 and 108.25% of the principal amount thereof if redeemed during the 12
months commencing on May 15, 1997, in each case plus accrued and unpaid
interest, if any, to the redemption date. In the event that the interest rate on
the New RGC Notes is greater than 11%, the above redemption prices will be
correspondingly adjusted.
The New RGC Note Indenture (as defined) provides that if a Change of
Control (as defined therein) occurs, each holder will have the right to require
the Company to repurchase such holder's New RGC Notes pursuant to a Change of
Control Offer (as defined therein) at 101% of the principal amount thereof plus
accrued interest, if any, to the date of repurchase.
The indenture governing the New RGC Notes (the "New RGC Note Indenture")
contains certain covenants, including, but not limited to, covenants with
respect to the following matters: (i) limitation on dividends and other
restricted payments; (ii) limitation on incurrences of additional indebtedness;
(iii) limitation on liens; (iv) limitation on asset sales; (v) limitation on
dividend and other payment restrictions affecting subsidiaries; (vi) limitation
on transactions with affiliates; (vii) limitation on preferred stock of
subsidiaries; (viii) limitation on mergers and certain other transactions; (ix)
limitation on other senior subordinated indebtedness; and (x) limitation on
guarantees of certain indebtedness.
The aggregate principal amount of Old RGC Notes and New RGC Notes, whether
issued in the RGC Offers or pursuant to the Subordinated Note Public Offering,
will be limited to $650 million at any one time outstanding.
THE F4L EXCHANGE OFFERS
Concurrently with the Offer to Purchase and the Solicitation, Food 4 Less
is offering to holders of its Old F4L Senior Subordinated Notes and its Old F4L
Senior Notes the opportunity to (i) exchange such Old F4L Senior Subordinated
Notes for New F4L Senior Subordinated Notes, plus $20.00 in cash for each $1,000
principal amount exchanged and (ii) exchange such Old F4L Senior Notes for New
F4L Senior Notes, plus $5.00 in cash for each $1,000 principal amount exchanged,
in each case plus accrued and unpaid interest to the date of exchange. The
consummation of the F4L Exchange Offers will occur simultaneously with the
consummation of the Offer to Purchase. It is a condition to the consummation of
the Offer to Purchase that the F4L Exchange Offers be successfully consummated.
The obligation of Food 4 Less to accept for exchange any validly tendered
Old F4L Note is conditioned upon, among other things, the satisfaction or waiver
of certain conditions, including (i) satisfaction of a minimum tender amount
(i.e., at least 80% of the aggregate principal amount of the outstanding Old F4L
Notes being validly tendered and not withdrawn pursuant to the F4L Exchange
Offers prior to the date of expiration); (ii) the receipt of the requisite
consents to certain amendments to the indentures governing the Old F4L Notes
(i.e., consents from Old F4L Noteholders representing at least a majority in
aggregate
104
<PAGE> 114
principal amount of each issue of Old F4L Notes held by persons other than Food
4 Less and its affiliates) on or prior to the date of expiration; (iii) the
satisfaction or waiver, in Food 4 Less' sole discretion, of all conditions
precedent to the Merger; (iv) the prior or contemporaneous consummation of the
Offer to Purchase, the Solicitation hereunder and the Other Debt Financing
Transactions; and (v) the prior or contemporaneous consummation of the Bank
Financing and the New Equity Investment.
Noteholders participating in the F4L Exchange Offers will be required to
consent to certain amendments to the indentures governing the Old F4L Notes.
Such proposed amendments will modify certain terms of such indentures to permit
the Merger and will eliminate substantially all of the restrictive covenants in
the Old F4L Indentures.
The Old F4L Senior Subordinated Notes. The Old F4L Senior Subordinated
Notes were issued in June 1991, are limited in aggregate principal amount to
$145 million and will mature on June 15, 2001. The Old F4L Senior Subordinated
Notes are unsecured general obligations of Food 4 Less, are subordinated to the
prior payment when due of all Senior Indebtedness (as defined in the indenture
(the "Old F4L Senior Subordinated Note Indenture") governing the Old F4L Senior
Subordinated Notes) and are guaranteed on a senior subordinated basis by Food 4
Less' wholly-owned subsidiaries.
The Old F4L Senior Subordinated Notes bear interest at a rate equal to
13.75% per annum and interest is payable semi-annually on June 15 and December
15 of each year. On or after June 15, 1996, the Old F4L Senior Subordinated
Notes may be redeemed in whole or from time to time in part, at the option of
Food 4 Less, at a redemption price equal to the applicable percentage of the
principal amount thereof set forth below, together with accrued interest to the
redemption date, if redeemed during the 12 months commencing on June 15 in the
years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
1996...................................... 106.111%
1997...................................... 104.583%
1998...................................... 103.056%
1999...................................... 101.528%
</TABLE>
and thereafter at 100% of the principal amount thereof, plus accrued and unpaid
interest to the redemption date.
In the event of a Change of Control (as defined in the Old F4L Senior
Subordinated Note Indenture), the Old F4L Senior Subordinated Notes may be
redeemed on or after June 15, 1994 and prior to June 15, 1996, at the option of
Food 4 Less, at a redemption price equal to the applicable percentage of the
principal amount thereof set forth below, plus accrued and unpaid interest to
the redemption date, if redeemed during the 12 months commencing on June 15 in
the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
1994...................................... 109.167%
1995...................................... 107.639%
</TABLE>
Food 4 Less is required to make a mandatory sinking fund payment on June
15, 2000, sufficient to retire 50% of the Old F4L Senior Subordinated Notes, at
a redemption price equal to 100% of the principal amount thereof, together with
accrued interest to the redemption date. Food 4 Less may, at its option, receive
credit against such sinking fund payment for 100% of the principal amount of any
Old F4L Senior Subordinated Notes previously acquired by Food 4 Less in the open
market and surrendered to the trustee under the Old F4L Senior Subordinated Note
Indenture for cancellation or redeemed at the option of Food 4 Less and which
were not previously used as a credit against any other required payment pursuant
to the Old F4L Senior Subordinated Note Indenture. Food 4 Less intends to credit
exchanges of Old F4L Senior Subordinated Notes accepted pursuant to the F4L
Exchange Offers against its sinking fund obligations.
The Old F4L Senior Subordinated Notes are subject to certain covenants as
provided in the Old F4L Senior Subordinated Note Indenture. These covenants
impose certain limitations on the ability of Food 4 Less
105
<PAGE> 115
to, among other things, incur indebtedness, pay dividends or make certain other
restricted payments, enter into certain transactions with affiliates, merge or
consolidate with any other person, or sell, lease, transfer or otherwise dispose
of substantially all of the properties or assets of Food 4 Less. In addition,
upon the occurrence of a Change of Control, each holder has the right to require
the repurchase of such holder's Old F4L Senior Subordinated Notes at a purchase
price equal to 101% of the principal amount thereof plus accrued interest, if
any, to the date of purchase. The Old F4L Senior Subordinated Note Indenture
also requires Food 4 Less to offer to repurchase a specified portion of the Old
F4L Senior Subordinated Notes if its net worth does not equal or exceed a
specified minimum net worth at the end of any two consecutive fiscal quarters.
Under the Old F4L Senior Subordinated Note Indenture, certain events
constitute an event of default, including (i) the failure to make any principal
and interest payment on the Old F4L Senior Subordinated Notes when due; (ii) the
failure to comply with any other agreement contained in the Old F4L Senior
Subordinated Note Indenture or the Old F4L Senior Subordinated Notes; (iii) a
default under certain indebtedness; (iv) certain final judgments or orders for
payments of money; and (v) certain events occurring under bankruptcy laws.
Upon the consummation of the F4L Exchange Offers, a supplemental indenture
to the Old F4L Senior Subordinated Note Indenture will become effective,
reflecting the proposed amendments to the Old F4L Senior Subordinated Note
Indenture. Such supplemental indenture will eliminate substantially all of the
restrictive covenants in the Old F4L Senior Subordinated Note Indenture,
including covenants with respect to maintenance of net worth, the limitation on
restricted payments, limitation on incurrences of additional indebtedness,
limitation on liens, limitation on disposition of assets, limitation on payment
restrictions affecting subsidiaries, limitation on transactions with affiliates,
limitation on change of control and the covenant requiring additional subsidiary
guarantees under certain circumstances. In addition, such supplemental indenture
will modify the covenant which limits the ability of Food 4 Less to consolidate
or merge with, or sell all or substantially all of its assets to, any other
person or entity unless certain conditions are satisfied by eliminating the
subsections thereof which require that immediately after giving effect to such
transaction and the incurrence of any indebtedness in connection therewith, Food
4 Less or the surviving entity, as the case may be, has a Net Worth (as defined)
or Operating Coverage Ratio (as defined) that meets the standards set forth
therein.
The New F4L Senior Subordinated Notes. The New F4L Senior Subordinated
Notes will be issued upon consummation of the F4L Exchange Offers to tendering
holders of Old F4L Senior Subordinated Notes.
The New F4L Senior Subordinated Notes will bear interest at a rate of
13.75% per annum and interest will be payable on each May 15 and November 15,
beginning November 15, 1995. The New F4L Senior Subordinated Notes will mature
on May 15, 2005. On or after June 15, 1996, the New F4L Senior Subordinated
Notes may be redeemed in whole at any time or in part from time to time, at the
option of the Company, at a redemption price equal to the applicable percentage
of the principal amount thereof set below, plus accrued and unpaid interest to
the redemption date, if redeemed during the 12 months commencing on June 15 of
the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
1996...................................... 106.111%
1997...................................... 104.583%
1998...................................... 103.056%
1999...................................... 101.528%
</TABLE>
and thereafter at 100% of the principal amount thereof, plus accrued and unpaid
interest to the redemption date.
Upon a Change of Control (as defined), each holder of the New F4L Senior
Subordinated Notes has the right to require the Company to repurchase such
holder's New F4L Senior Subordinated Notes at a price equal to 101% of their
principal amount, plus accrued interest, if any, to the date of repurchase.
106
<PAGE> 116
The aggregate principal amount of Old F4L Senior Subordinated Notes and New
F4L Senior Subordinated Notes will be limited to $145 million at any one time
outstanding.
The Old F4L Senior Notes. The Old F4L Senior Notes were issued in April
1992, are limited in aggregate principal amount to $175 million and will mature
on April 15, 2000. The Old F4L Senior Notes are unsecured general obligations of
Food 4 Less and are guaranteed on a senior basis by Food 4 Less' wholly-owned
subsidiaries.
The Old F4L Senior Notes bear interest at a rate equal to 10.45% per annum
and interest is payable semi-annually on April 15 and October 15 of each year.
The Old F4L Senior Notes are redeemable, at the option of Food 4 Less, in whole
at any time or in part from time to time, on and after April 15, 1996 at the
following redemption prices (expressed as percentages of the principal amount)
if redeemed during the twelve-month period commencing on April 15 of the year
set forth below, plus, in each case, accrued and unpaid interest to the date of
redemption:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
1996...................................... 104.48%
1997...................................... 102.99%
1998...................................... 101.49%
1999 and thereafter....................... 100.00%
</TABLE>
In the event of a Change of Control (as defined in the indenture (the "Old
F4L Senior Note Indenture") governing the Old F4L Senior Notes), each holder has
the right to require the repurchase of such holder's Old F4L Senior Notes at a
purchase price equal to 101% of the principal amount thereof, plus accrued and
unpaid interest to the date of repurchase.
Food 4 Less is required to make a mandatory sinking fund payment of $87.5
million on April 15, 1999, sufficient to retire 50% of the Old F4L Senior Notes
originally issued, at a redemption price equal to 100% of the principal amount
thereof, together with accrued interest to the date of redemption. Food 4 Less
may, at its option, receive credit against such sinking fund payment for 100% of
the principal amount of any Old F4L Senior Note previously acquired by Food 4
Less and surrendered to the trustee under the Old F4L Senior Note Indenture for
cancellation or redeemed at the option of Food 4 Less and which, in each case,
were not previously used for or as a credit against any other required payment
pursuant to the Old F4L Senior Note Indenture. Food 4 Less intends to credit
exchanges of Old F4L Senior Notes accepted pursuant to the F4L Exchange Offers
against its sinking fund obligations.
The Old F4L Senior Notes are subject to certain covenants as provided in
the Old F4L Senior Note Indenture. These covenants impose certain limitations on
the ability of Food 4 Less to, among other things, incur indebtedness, pay
dividends or make certain other restricted payments, enter into certain
transactions with affiliates, incur liens, guarantee indebtedness or merge or
consolidate with any other person, or sell, lease, transfer or otherwise dispose
of substantially all of the properties or assets of Food 4 Less. The Old F4L
Senior Note Indenture also requires Food 4 Less to offer to repurchase a
specified portion of the Old F4L Senior Notes if its net worth does not equal or
exceed a specified minimum net worth at the end of any two consecutive fiscal
quarters.
Under the Old F4L Senior Note Indenture, certain events constitute an event
of default. These events are as follows: (i) the failure to make any principal
and interest payment on the Old F4L Senior Notes when due; (ii) the failure to
comply with any other agreement contained in the Old F4L Senior Note Indenture
or the Old F4L Senior Notes; (iii) a default under certain indebtedness; (iv)
certain final judgments or orders for payments of money; and (v) certain events
occurring under bankruptcy laws.
Upon consummation of the F4L Exchange Offers, a supplemental indenture to
the Old F4L Senior Note Indenture will become effective, reflecting the proposed
amendments to the Old F4L Senior Note Indenture. Such supplemental indenture
will eliminate substantially all of the restrictive covenants in the Old F4L
Senior Note Indenture, including covenants with respect to the maintenance of
net worth, the limitation on change of control, the limitation on restricted
payments, the limitation on incurrences of additional indebtedness, the
107
<PAGE> 117
limitation on liens, the limitation on disposition of assets, the limitation on
payment restrictions affecting subsidiaries and the limitation on transactions
with affiliates and the covenant requiring additional subsidiary guarantees
under certain circumstances. In addition, the supplemental indenture will modify
the covenant which limits the ability of Food 4 Less to consolidate or merge
with, or sell all or substantially all of its assets to, any other person or
entity unless certain conditions are satisfied, to eliminate the subsections
thereof which require that immediately after giving effect to such transaction
and the incurrence of any indebtedness in connection therewith, Food 4 Less or
the surviving entity, as the case may be, has a Net Worth (as defined) or
Operating Coverage Ratio (as defined) that meets the standards set forth
therein.
The New F4L Senior Notes. The New F4L Senior Notes that will be issued upon
consummation of the F4L Exchange Offers to tendering holders of Old F4L Senior
Notes will be part of the same issue as the New F4L Senior Notes issued pursuant
to the Senior Note Public Offering.
The New F4L Senior Notes will bear interest at a fixed rate per annum equal
to the greater of (a) 10.45% and (b) the F4L Applicable Treasury Rate (as
defined) plus 350 basis points (3.50 percentage points), provided, however, that
in any event the New F4L Senior Notes will bear interest at a rate per annum no
less than the rate on the New F4L Senior Notes offered in the Senior Note Public
Offering. The "F4L Applicable Treasury Rate" means the yield to maturity at the
time of computation of United States Treasury securities with a constant
maturity (as compiled by, and published in, the most recent Federal Reserve
Statistical Release H.15 (519)) most nearly equal to the average life to stated
maturity of the New F4L Senior Notes; provided, that if the average life to
stated maturity of the New F4L Senior Notes is not equal to the constant
maturity of the United States Treasury security for which a weekly average yield
is given, the F4L Applicable Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of the year) from the
weekly average yields of the United States Treasury securities for which such
yields are given. Interest will be payable on the New F4L Senior Notes on each
May 15 and November 15, beginning November 15, 1995. The New F4L Senior Notes
will mature on May 15, 2004. On or after May 15, 2000, the New F4L Senior Notes
may be redeemed in whole at any time or in part from time to time, at the option
of the Company, at a redemption price equal to the applicable percentage of the
principal amount thereof set forth below, plus accrued and unpaid interest to
the redemption date, if redeemed during the 12 months commencing on May 15 of
the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2000..................................... 103.9188%
2001..................................... 102.6125%
2002..................................... 101.3063%
2003 and thereafter...................... 100.0000%
</TABLE>
In the event that the interest rate on the New F4L Senior Notes is greater than
10.45%, the above redemption prices will be correspondingly adjusted.
In addition, on or prior to May 15, 1998, the Company may, at its option,
use the net cash proceeds of one or more Public Equity Offerings to redeem up to
an aggregate of 35% of the principal amount of the New F4L Senior Notes
originally issued, at a redemption price equal to 110.45% of the principal
amount thereof if redeemed during the 12 months commencing on May 15, 1995,
109.1438% of the principal amount thereof if redeemed during the 12 months
commencing on May 15, 1996 and 107.8375% of the principal amount thereof if
redeemed during the 12 months commencing on May 15, 1997, in each case plus
accrued and unpaid interest, if any, to the redemption date. In the event that
the interest rate on the New F4L Senior Notes is greater than 10.45%, the above
redemption prices will be correspondingly adjusted. In order to effect the
foregoing redemption with the proceeds of a Public Equity Offering, the Company
shall send the redemption notice not later than 60 days after the consummation
of such Public Equity Offering.
Upon a Change of Control (as defined), each holder of the New F4L Senior
Notes has the right to require the Company to repurchase such holder's New F4L
Senior Notes at a price equal to 101% of their principal amount, plus accrued
interest, if any, to the date of repurchase.
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<PAGE> 118
The aggregate principal amount of Old F4L Senior Notes and New F4L Senior
Notes, whether issued in the F4L Exchange Offers or pursuant to the Senior Note
Public Offering, will be limited to $470 million at any one time outstanding.
THE PUBLIC OFFERINGS
Concurrently with the Offer to Purchase, the F4L Exchange Offers and the
RGC Offers, Food 4 Less is (i) offering up to $295 million principal amount of
New F4L Senior Notes pursuant to the Senior Note Public Offering and (ii)
offering up to $200 million principal amount of New RGC Notes pursuant to the
Subordinated Note Public Offering. The New F4L Senior Notes offered for exchange
pursuant to the Senior Note Public Offering will be part of the same issue as
the New F4L Senior Notes issued pursuant to the F4L Exchange Offers and the New
RGC Notes offered pursuant to the Subordinated Note Public Offering will be part
of the same issue as the New RGC Notes offered for exchange pursuant to the RGC
Offers. Food 4 Less does not expect to commence the Public Offerings until such
time as the RGC Minimum Exchange has been satisfied and the Requisite Consents
have been received. The consummation of the Public Offerings, the Offer to
Purchase, the F4L Exchange Offers and the RGC Offers will occur simultaneously.
It is a condition to the consummation of the Public Offerings that the Offer to
Purchase, the F4L Exchange Offers and the RGC Offers be successfully
consummated. See "The Merger and the Financing -- Sources and Uses."
DESCRIPTION OF THE NEW CREDIT FACILITY
In connection with the Merger, Food 4 Less will enter into the New Credit
Facility with a syndicate of financial institutions for whom Bankers Trust will
act as agent. All of Food 4 Less' obligations under the New Credit Facility will
be assumed by the Company immediately following the Merger. Food 4 Less has
accepted a commitment letter (the "Commitment Letter") from Bankers Trust
pursuant to which Bankers Trust has agreed, subject to certain conditions, to
provide the Company up to a maximum aggregate amount of $1,075 million of
financing under the New Credit Facility. The following is a summary of the
anticipated material terms and conditions of the New Credit Facility. This
summary does not purport to be a complete description of the New Credit Facility
and is subject to the detailed provisions of the loan agreement (the "Loan
Agreement") and various related documents to be entered into in connection with
the New Credit Facility. A draft copy of the Loan Agreement will be available
upon request from Food 4 Less.
GENERAL
The New Credit Facility will provide for (i) term loans in the aggregate
amount of $750 million, comprised of the $375 million Tranche A Loan, the $125
million Tranche B Loan, the $125 million Tranche C Loan, and the $125 million
Tranche D Loan; and (ii) the $325 million New Revolving Facility under which
working capital loans may be made and commercial or standby letters of credit in
the maximum aggregate amount of up to $150 million may be issued, under which
approximately $92.6 million of letters of credit are expected to be issued upon
the closing of the Merger. The Tranche A Loan may not be fully funded at the
Closing Date. The New Credit Facility will provide that the portion of the
Tranche A Loan not funded at the Closing Date in an amount not to exceed $225
million will be available for a period of 91 days following the Closing Date to
finance the Change of Control Offer. In addition, if the total principal amount
of the Old RGC Notes exchanged for New RGC Notes exceeds $225 million the
Commitment Letter requires that there be a reduction, in an amount equal to such
excess, in one or any combination of (i) the principal amount of proceeds from
the Senior Note Public Offerings, (ii) the principal amount of proceeds from the
Subordinated Note Public Offering or (iii) the principal amount available under
the Tranche A Loan.
Proceeds of the New Term Loans and loans under the Revolving Credit
Facility on the Closing Date, together with proceeds from the New Discount
Debenture Placement, the New Equity Investment and the Public Offerings, will be
used to fund the cash requirements for the acquisition of RSI, refinance
existing bank indebtedness of Ralphs and Food 4 Less, purchase the Discount
Notes, Old RGC 9% Notes and Old RGC 10 1/4% Notes, repay a portion of other
indebtedness, pay holders of the Ralphs EARs and pay various fees, expenses and
other costs associated with the Merger and the Financing. The New Revolving
Facility will be
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<PAGE> 119
available to provide for the working capital requirements and general corporate
purposes of the Company and to issue commercial and standby letters of credit to
support workers' compensation contingencies and for other corporate purposes.
INTEREST RATE; FEES
Borrowings under (i) the New Revolving Facility and the Tranche A Loan will
bear interest at a rate equal to the Base Rate (as defined in the Loan
Agreement) plus 1.50% per annum or the reserve adjusted Euro-Dollar Rate (as
defined in the Loan Agreement) plus 2.75% per annum; (ii) the Tranche B Loan
will bear interest at the Base Rate plus 2.00% per annum or the reserve adjusted
Euro-Dollar Rate plus 3.25% per annum; (iii) the Tranche C Loan will bear
interest at the Base Rate plus 2.50% per annum or the reserve adjusted
Euro-Dollar Rate plus 3.75% per annum; and (iv) the Tranche D Loan will bear
interest at the Base Rate plus 2.75% per annum or the reserve adjusted
Euro-Dollar Rate plus 4.00% per annum, in each case as selected by the Company.
Applicable interest rates on Tranche A Loan and the New Revolving Facility and
the fees payable under the New Revolving Facility on letters of credit, will be
reduced by up to 0.50% per annum after the New Term Loans have been reduced by
amounts to be agreed upon by the Company and Bankers Trust and if the Company
meets certain financial tests. Up to $30 million of the New Revolving Facility
will be available as a swingline facility and loans outstanding under the
swingline facility shall bear interest at the Base Rate plus 1.00% per annum
(subject to adjustment as described in the preceding sentence). After the
occurrence of a default under the New Credit Facility, interest will accrue at
the rate equal to the rate on loans bearing interest at the rate determined by
reference to the Base Rate plus an additional 2.00% per annum. The Company will
pay the issuing bank a fee of 0.25% on each standby letter of credit and each
commercial letter of credit and will pay the lenders under the New Credit
Facility a fee equal to the margin on Eurodollar Rate loans under the Revolving
Credit Facility (the "Eurodollar Margin") for standby letters of credit and a
fee equal to the Eurodollar Margin minus 1% for commercial letters of credit.
Each of these fees will be calculated based on the amount available to be drawn
under a letter of credit. In addition, the Company will pay a commitment fee of
0.50% per annum on the undrawn amount of the Tranche A Loans from the closing of
the Merger until the drawing or termination thereof and on the unused portions
of the New Revolving Facility and for purposes of calculating this fee, loans
under the swingline facility shall not be deemed to be outstanding. The New
Credit Facility will require the Company to enter into hedging agreements to
limit its exposure to increases in interest rates for a period of not less than
two years. The New Credit Facility may be prepaid in whole or in part without
premium or penalty.
AMORTIZATION; PREPAYMENTS
The Tranche A Loan will mature six years after the closing of the Merger
and will be subject to amortization, commencing in the fifteenth month after the
closing of the Merger on a quarterly basis in aggregate annual amounts of $45
million in the second year, $75 million in the third year, $80 million in the
fourth year, $85 million in the fifth year, and $90 million in the sixth year.
The Tranche B Loan will mature seven years after the closing of the Merger and
will be subject to amortization on a quarterly basis in aggregate annual amounts
of $1.25 million for the first six years and $117.5 million in the seventh year.
The Tranche C Loan will mature eight years after the closing of the Merger and
will be subject to amortization on a quarterly basis in aggregate annual amounts
of $1.25 million for the first seven years and $116.25 million in the eighth
year. The Tranche D Loan will mature nine years after the closing of the Merger
and will be subject to amortization on a quarterly basis in aggregate annual
amounts of $1.25 million for the first eight years and $115 million in the ninth
year. The New Revolving Facility will mature on the same date as the Tranche A
Loan. The Company will be required to reduce loans outstanding under the New
Revolving Facility to $75 million for a period of not less than 30 consecutive
days during each consecutive 12-month period. The Company will be required to
make certain prepayments, subject to certain exceptions, on the New Credit
Facility with 75% of Consolidated Excess Cash Flow (as defined in the Loan
Agreement) and with the proceeds from certain asset sales, issuances of debt and
equity securities and any pension plan reversion. Such prepayments will be
allocated pro rata between the Tranche A Loans, Tranche B Loans, Tranche C Loans
and the Tranche D Loans and to scheduled amortization payments of the Tranche A
Loans, the Tranche B Loans, Tranche C Loans, and the Tranche D Loans pro rata.
Mandatory prepayments on the Tranche B Loans, the
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<PAGE> 120
Tranche C Loans and the Tranche D Loans will be used to make an offer to repay
such loans and to the extent not accepted of 50% of such amount will be applied
to reduce Tranche A Loans on a pro rata basis and the remaining 50% may be
retained by the Company.
GUARANTEES AND COLLATERAL
New Holdings and all active subsidiaries of the Company (including the
Subsidiary Guarantors) will guarantee the Company's obligations under the New
Credit Facility. The Company's obligations and the guarantees of its
subsidiaries will be secured by substantially all personal property of the
Company and its subsidiaries, including a pledge of the stock of all
subsidiaries of the Company (with the exception of the stock of Bell Markets,
Inc., which has been pledged to secure notes payable to the former owners
thereof, so long and only so long as such stock is subject to the liens of such
former owners). New Holdings' guarantee will be secured by a pledge of the stock
of the Company. The Company's obligations will also be secured by first priority
liens on certain unencumbered real property fee interests of the Company and its
subsidiaries and the Company and its subsidiaries will use their reasonable
economic efforts to provide the lenders with a first priority lien on certain
unencumbered leasehold interests of the Company and its subsidiaries.
COVENANTS
The obligation of the lenders under the New Credit Facility to advance
funds is subject to the satisfaction of certain conditions customary in
agreements of this type. In addition, the Company will be subject to certain
customary affirmative and negative covenants contained in the New Credit
Facility, including, without limitation, covenants that restrict, subject to
specified exceptions, (i) the incurrence of additional indebtedness and other
obligations, (ii) a merger or acquisition, (iii) asset sales, (iv) the granting
of liens, (v) prepayment or repurchase of other indebtedness, (vi) engaging in
transactions with affiliates, or (vii) cash capital expenditures. In addition,
the New Credit Facility will require that the Company maintain certain specified
financial covenants, including a minimum fixed charge coverage, a minimum
EBITDA, a maximum ratio of total debt to EBITDA and a minimum net worth.
EVENTS OF DEFAULT
The New Credit Facility also provides for customary events of default. The
occurrence of any of such events of default could result in acceleration of the
Company's obligations under the New Credit Facility and foreclosure on the
collateral securing such obligations, which could have material adverse results
to holders of the Discount Notes.
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<PAGE> 121
DESCRIPTION OF OTHER INDEBTEDNESS
THE NEW DISCOUNT DEBENTURES
The New Discount Debentures will be issued in the New Discount Debenture
Placement upon consummation of the Merger. The New Discount Debentures will be
issued in an aggregate principal amount of $193,295,080 at maturity and will
mature on June 15, 2005. The New Discount Debentures will be senior unsecured
obligations of New Holdings and will be senior in right of payment to all
subordinated indebtedness of New Holdings, including indebtedness under the
Seller Debentures. Until May 15, 2000, no interest will accrue on the New
Discount Debentures, but the Accreted Value (as defined in the indenture
governing the New Discount Debentures (the "New Debenture Indenture")) will
accrete at a rate of 13 5/8% (representing the amortization of the original
issue discount) from the date of original issuance until May 15, 2000, on a
semi-annual bond equivalent basis using a 360 day year comprised of twelve
30-day months, such that the Accreted Value shall be equal to the full principal
amount of the New Discount Debentures on May 15, 2000. The initial Accreted
Value per $1,000 principal amount of New Discount Debentures will be $517.33
(representing the original purchase price). Beginning on May 15, 2000, cash
interest on the New Discount Debentures will accrue at a rate of 13 5/8% per
annum and will be payable semi-annually in arrears on each May 15 and November
15 of each year, commencing November 15, 2000, to the holders of record on the
immediately preceding May 1 and November 1.
On or after May 15, 2000, the New Discount Debentures may be redeemed, at
the option of New Holdings, in whole at any time or in part from time to time,
at a redemption price equal to the applicable percentage of the principal amount
thereof set forth below, plus accrued and unpaid interest, to the redemption
date, if redeemed during the twelve-month period commencing on May 15 in the
years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
2000...................................... 106.8125%
2001...................................... 105.1094%
2002...................................... 103.4063%
2003...................................... 101.7031%
2004 and thereafter....................... 100.0000%
</TABLE>
Notwithstanding the foregoing, prior to May 15, 1998, New Holdings may use
the net proceeds of an Initial Public Offering (as defined in the New Debenture
Indenture) of New Holdings or the Company (or of FFL under certain
circumstances) to redeem up to 35% of the New Discount Debentures at a
redemption price equal to 110% of the Accreted Value thereof on the date of
redemption.
In the event of a Change of Control (as defined in the New Debenture
Indenture), each holder has the right to require the repurchase of such holder's
New Discount Debentures at a purchase price equal to 101% of the Accreted Value
thereof on the Change of Control Payment Date (as defined in the New Debenture
Indenture) (if such date is prior to May 15, 2000) or 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the Change of
Control Payment Date (if such date is on or after May 15, 2000).
The New Debenture Indenture will contain covenants that, among other
things, limit the ability of New Holdings to enter into certain mergers or
consolidations or incur certain liens or of New Holdings or its subsidiaries to
incur additional indebtedness, pay dividends or make certain other Restricted
Payments (as defined in the New Debenture Indenture), or engage in certain
transactions with affiliates. Under certain circumstances, New Holdings will be
required to make an offer to purchase New Discount Debentures at a price equal
to 100% of the Accreted Value thereof on the date of purchase, if such date is
prior to May 15, 2000, or 100% of the principal amount thereof, plus accrued
interest to the date of purchase, if such date is on or after May 15, 2000, with
the proceeds of certain Asset Sales (as defined in the New Debenture Indenture).
The New Debenture Indenture will contain certain customary events of defaults,
which will include the failure to pay interest and principal, the failure to
comply with certain covenants in the New Discount Debentures or
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<PAGE> 122
the New Debenture Indenture, a default under certain indebtedness, the
imposition of certain final judgments or warrants of attachment and certain
events occurring under bankruptcy laws.
Pursuant to the terms of a registration rights agreement to be entered into
by New Holdings, New Holdings is obligated to file a shelf registration
statement with the Commission with respect to the New Discount Debentures, to
have such shelf registration statement declared effective prior to or at the
closing of the Merger, to use its best efforts to cause such shelf registration
statement to remain effective for up to three years, and to pay the expenses
related thereto, including underwriting discounts and brokers' or dealers'
commissions and mark-ups (subject to certain limitations). If New Holdings fails
to comply with its obligations to keep such shelf registration statement
effective, New Holdings will be obligated to pay certain liquidated damages.
Under the registration rights agreement, the holder of the New Discount
Debentures will be entitled to commence resales of the New Discount Debentures
60 days following closing of the Merger. New Holdings believes that the holder
of the New Discount Debentures actively would seek to dispose of its entire
interest in the New Discount Debentures promptly upon expiration of the 60 day
holdback period following closing of the Merger.
THE SELLER DEBENTURES
The Seller Debentures will be issued to the stockholders of RSI upon
consummation of the Merger. The Seller Debentures will be issued in an aggregate
principal amount of $131.5 million and will mature on May 15, 2007. The Seller
Debentures will be general unsecured obligations of New Holdings and will be
subordinated to the prior payment when due of all Senior Indebtedness (as
defined in the indenture governing the Seller Debentures (the "Debenture
Indenture")), including Indebtedness under the New Discount Debentures and any
Amended Discount Notes that remain outstanding following consummation of the
Merger. The Seller Debentures will bear interest at a rate equal to 13 5/8% per
annum. Interest will accrue on the Seller Debentures beginning from the date of
issuance or from the most recent date to which interest has been paid and will
be payable semi-annually in arrears on each interest payment date. New Holdings
will have the option, in its sole discretion, to issue additional securities
("Secondary Securities") in lieu of a cash payment of any or all of the interest
due for the period prior to the interest payment date five years after the date
of issuance of the Seller Debentures.
On or after May 15, 2000, the Seller Debentures may be redeemed, at the
option of New Holdings, in whole at any time or in part from time to time, at a
redemption price equal to the applicable percentage of the principal amount
thereof set forth below, plus accrued and unpaid interest, if any, to the
redemption date, if redeemed during the twelve-month period commencing on May 15
in the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2000..................................... 106.8125%
2001..................................... 105.1094%
2002..................................... 103.4063%
2003..................................... 101.7031%
2004 and thereafter...................... 100.0000%
</TABLE>
Notwithstanding the foregoing, prior to May 15, 1998, New Holdings may use
the net proceeds of an Initial Public Offering (as defined in the Debenture
Indenture) of New Holdings or Food 4 Less to redeem up to 35% of the Seller
Debentures at a redemption price equal to 110% of the aggregate principal amount
thereof, plus accrued and unpaid interest, if any, to the date of redemption.
In the event of a Change of Control (as defined in the Debenture
Indenture), each holder has the right to require the repurchase of such holder's
Seller Debentures at a purchase price equal to 101% of the aggregate principal
amount thereof, plus accrued and unpaid interest, if any, to the date of
purchase.
The Debenture Indenture will contain certain covenants that, among other
things, limit the ability of New Holdings to enter into certain mergers or
consolidations or incur certain liens or of New Holdings or its subsidiaries to
incur additional indebtedness, pay dividends or make certain other Restricted
Payments (as
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<PAGE> 123
defined in the Debenture Indenture), or engage in certain transactions with
affiliates. Under certain circumstances, New Holdings will be required to make
an offer to purchase Seller Debentures at a price equal to 100% of the aggregate
principal amount thereof, plus accrued and unpaid interest, if any, to the
repurchase date with the proceeds of certain Asset Sales (as defined in the
Debenture Indenture). The Debenture Indenture will contain certain customary
events of default, which will include the failure to pay interest and principal,
the failure to comply with certain covenants in the Seller Debentures or the
Debenture Indenture, a default under certain indebtedness, the imposition of
certain final judgments or warrants of attachment and certain events occurring
under bankruptcy laws.
Pursuant to the terms of the Merger Agreement and a registration rights
agreement to be executed concurrently with the closing of the Merger, New
Holdings is obligated to file a shelf registration statement with the Commission
with respect to the Seller Debentures, use its best efforts to cause such shelf
registration statement to become effective and remain effective for up to three
years, and pay the expenses related thereto. The effectiveness of such shelf
registration statement is a condition to the consummation of the Merger. If New
Holdings fails to comply with its obligations to keep such shelf registration
statement effective, New Holdings will be obligated to pay certain liquidated
damages.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Latham & Watkins, counsel to Holdings ("Counsel"), has advised Holdings
that the following discussion expresses their opinion as to the material federal
income tax consequences expected to result from the Offer to Purchase and the
Solicitation. Such opinion is based on current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury Regulations,
judicial authority and current administrative rulings and pronouncements of the
Internal Revenue Service (the "Service"), any of which may be altered with
retroactive effect, thereby changing the federal income tax consequences
discussed below. There can be no assurance that the Service will not take a
contrary view, and no ruling from the Service has been or will be sought.
The tax treatment of a holder of Discount Notes may vary depending on such
holder's particular situation. Certain holders (including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the United States)
may be subject to special rules not discussed below. This discussion is limited
to holders who have held Discount Notes as "capital assets" (generally, property
held for investment) within the meaning of Section 1221 of the Code. EACH HOLDER
SHOULD CONSULT HIS OR HER TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES OF
THE OFFER TO PURCHASE AND THE SOLICITATION, INCLUDING THE APPLICABILITY AND
EFFECT OF ANY STATE, LOCAL, FOREIGN OR OTHER TAX LAWS.
PURCHASE OF DISCOUNT NOTES FOR CASH CONSIDERATION
A holder whose Discount Notes are purchased for Cash Consideration pursuant
to the Offer to Purchase will recognize gain or loss equal to the difference
between (i) the amount of Cash Consideration received and (ii) the holder's
adjusted tax basis in the Discount Notes purchased. Such gain or loss should be
long-term capital gain or loss, provided the Discount Notes were held for more
than one year and subject to the rules discussed below under "-- Market
Discount."
MARKET DISCOUNT
A holder who acquired a Discount Note at a market discount (subject to a
statutorily-defined de minimis exception) will generally be required to treat
any gain on a sale thereof pursuant to the Offer to Purchase as ordinary income
rather than capital gain to the extent of the accrued market discount, unless an
election was made to include market discount in income as it accrued. In the
case of a debt instrument issued with original issue discount, such as a
Discount Note, market discount equals the excess of the debt instrument's
"revised issue price" (the sum of the "issue price" of the debt instrument and
the aggregate amount of original issue
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discount includible in gross income by all prior holders of the debt instrument,
reduced by the amount of all cash payments received by such previous holders)
over a holder's initial tax basis in the debt instrument.
CONSEQUENCES TO HOLDERS NOT PARTICIPATING IN THE OFFER TO PURCHASE
Holders of Discount Notes who do not participate in the Offer to Purchase
will not recognize any income, gain or loss for federal income tax purposes as a
result of the Proposed Amendments.
BACKUP WITHHOLDING
A holder who exchanges Discount Notes for Cash Consideration may be subject
to backup withholding at the rate of 31% unless (i) such holder is a corporation
or comes within certain other exempt categories and, when required, demonstrates
this fact or (ii) provides a correct taxpayer identification number, certifies
as to no loss of exemption from backup withholding and otherwise complies with
applicable requirements of the backup withholding rules. A holder of Discount
Notes who does not provide Holdings with his or her correct taxpayer
identification number may be subject to penalties imposed by the Service.
Holdings will report to the holders of Discount Notes and the Service the
amount of any "reportable payments" and any amount withheld with respect to the
Discount Notes during the calendar year.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF DISCOUNT NOTES IN LIGHT
OF HIS OR HER PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION. EACH HOLDER OF
DISCOUNT NOTES SHOULD CONSULT HIS OR HER TAX ADVISOR AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE OFFER TO PURCHASE AND THE SOLICITATION, INCLUDING THE
APPLICABILITY AND EFFECT OF STATE, LOCAL, FOREIGN OR OTHER TAX LAWS.
LEGAL MATTERS
The validity of the Discount Notes to be amended in connection with the
Offer to Purchase and the Solicitation will be passed upon for Holdings and New
Holdings by Latham & Watkins, Los Angeles, California. Certain legal matters in
connection with the Offer to Purchase and the Solicitation will be passed upon
for the Dealer Managers by Cahill Gordon & Reindel (a partnership including a
professional corporation), New York, New York.
EXPERTS
The consolidated balance sheets of Ralphs Supermarkets, Inc. as of January
30, 1994 and January 29, 1995 and the related consolidated statements of
operations, cash flows and stockholders' equity for the year ended January 31,
1993, the year ended January 30, 1994 and the year ended January 29, 1995, have
been included in this Offer to Purchase and Solicitation Statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
The consolidated balance sheets of Food 4 Less Holdings, Inc., a California
corporation, and subsidiaries as of June 26, 1993 and June 25, 1994 and the
related consolidated statements of operations, cash flows and shareholders'
equity of Food 4 Less Holdings, Inc. for the 52 weeks ended June 27, 1992, the
52 weeks ended June 26, 1993 and the 52 weeks ended June 25, 1994, and the
related financial statement schedules and the balance sheet of Food 4 Less
Holdings, Inc., a Delaware corporation, as of January 4, 1995 included in this
Offer to Purchase and Solicitation Statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
RALPHS SUPERMARKETS, INC. (AS SUCCESSOR TO RALPHS GROCERY COMPANY):
Independent Auditors' Report (KPMG Peat Marwick LLP).................................. F-2
Consolidated balance sheets at January 30, 1994 and January 29, 1995 ................. F-3
Consolidated statements of operations for the years ended January 31, 1993, January
30, 1994 and January 29, 1995....................................................... F-4
Consolidated statements of cash flows for the years ended January 31, 1993, January
30, 1994 and January 29, 1995....................................................... F-5
Consolidated statements of stockholders' equity for the years ended January 31, 1993,
January 30, 1994 and January 29, 1995............................................... F-6
Notes to consolidated financial statements............................................ F-7
FOOD 4 LESS HOLDINGS, INC. (A CALIFORNIA CORPORATION):
Report of Independent Public Accountants (Arthur Andersen LLP)........................ F-28
Consolidated balance sheets as of June 26, 1993, June 25, 1994 and January 7, 1995
(unaudited)......................................................................... F-29
Consolidated statements of operations for the 52 weeks ended June 27, 1992, June 26,
1993 and June 25, 1994 and the 28 weeks ended January 8, 1994 (unaudited) and
January 7, 1995 (unaudited)......................................................... F-31
Consolidated statements of cash flows for the 52 weeks ended June 27, 1992, June 26,
1993 and June 25, 1994 and the 28 weeks ended January 8, 1994 (unaudited) and
January 7, 1995 (unaudited)......................................................... F-32
Consolidated statements of shareholder's equity for the 52 weeks ended June 27, 1992,
June 26, 1993 and June 25, 1994 and the 28 weeks ended January 7, 1995
(unaudited)......................................................................... F-34
Notes to consolidated financial statements............................................ F-35
FOOD 4 LESS HOLDINGS, INC. (A DELAWARE CORPORATION):
Report of Independent Public Accountants (Arthur Andersen LLP)........................ F-50
Balance sheet as of January 4, 1995................................................... F-51
Notes to the balance sheet............................................................ F-52
</TABLE>
F-1
<PAGE> 126
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Ralphs Supermarkets, Inc.:
We have audited the consolidated balance sheets of Ralphs Supermarkets,
Inc. and subsidiary as of January 30, 1994 and January 29, 1995, and the related
consolidated statements of operations, stockholders' equity and cash flows for
the year ended January 31, 1993, the year ended January 30, 1994 and the year
ended January 29, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Ralphs
Supermarkets, Inc. and subsidiary as of January 30, 1994 and January 29, 1995,
and the results of their operations and their cash flows for each of the years
in the three-year period ended January 29, 1995, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
Los Angeles, California
March 9, 1995
F-2
<PAGE> 127
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents......................................... $ 55,080 $ 35,125
Accounts receivable............................................... 30,420 43,597
Inventories....................................................... 202,354 221,388
Prepaid expenses and other current assets......................... 18,111 19,793
---------- ----------
Total current assets...................................... 305,965 319,903
Property, plant and equipment, net................................ 601,897 624,724
Excess of cost over net assets acquired, net...................... 376,414 365,418
Beneficial lease rights, net...................................... 55,553 49,164
Deferred debt issuance costs, net................................. 26,583 23,011
Deferred income taxes............................................. 109,125 112,491
Other assets...................................................... 8,113 15,203
---------- ----------
Total assets.............................................. $1,483,650 $1,509,914
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt.............................. $ 70,975 $ 83,989
Short-term debt................................................... -- 51,500
Bank overdrafts................................................... 37,716 45,669
Accounts payable.................................................. 138,554 130,889
Accrued expenses.................................................. 101,543 99,804
Current portion of self-insurance reserves........................ 30,138 27,552
---------- ----------
Total current liabilities................................. 378,926 439,403
Long-term debt.................................................... 927,909 883,020
Self-insurance reserves........................................... 49,872 44,954
Lease valuation reserve........................................... 32,575 28,957
Other non-current liabilities..................................... 89,299 86,393
---------- ----------
Total liabilities......................................... 1,478,581 1,482,727
---------- ----------
Stockholders' equity:
Common stock, $.01 par value per share Authorized 50,000,000
shares; issued and outstanding, 25,587,280 shares at January
30, 1994 and January 29, 1995.................................. 256 256
Additional paid-in capital........................................ 175,292 175,292
Accumulated deficit............................................... (170,479) (148,361)
---------- ----------
Total stockholders' equity................................ 5,069 27,187
---------- ----------
Commitments and contingencies (See Notes 2 and 8)
Total liabilities and stockholders' equity (deficit)...... $1,483,650 $1,509,914
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 128
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, 1993 JANUARY 30, 1994 JANUARY 29, 1995
------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Sales............................ $2,843,816 100.0% $2,730,157 100.0% $2,724,604 100.0%
Cost of sales.................... 2,217,197 78.0 2,093,727 76.7 2,101,033 77.1
---------- ----- ---------- ----- ---------- -----
Gross profit................... 626,619 22.0 636,430 23.3 623,571 22.9
Selling, general and
administrative expenses..... 470,012 16.5 471,000 17.2 467,022 17.2
Amortization of excess cost
over net assets acquired.... 10,997 0.4 10,996 0.4 10,996 0.4
Provision for restructuring.... 7,100 0.2 2,374 0.1 -- --
---------- ----- ---------- ----- ---------- -----
Operating income............... 138,510 4.9 152,060 5.6 145,553 5.3
Other expenses:
Interest expense, net.......... 125,611 4.4 108,755 4.0 112,651 4.1
Loss on disposal of assets..... 2,607 0.1 1,940 0.1 784 0.0
Provision for legal
settlement.................. 7,500 0.3 -- -- -- --
Provision for earthquake
losses...................... -- -- 11,048 0.4 -- --
---------- ----- ---------- ----- ---------- -----
Earnings before income taxes and
extraordinary item............. 2,792 0.1 30,317 1.1 32,118 1.2
Income tax expense (benefit)..... 8,346 0.3 (108,049) (4.0) -- --
---------- ----- ---------- ----- ---------- -----
Earnings (loss) before
extraordinary item............. (5,554) (0.2) 138,366 5.1 32,118 1.2
Extraordinary item-debt
refinancing, net of tax benefit
$4,173......................... (70,538) (2.5) -- -- -- --
---------- ----- ---------- ----- ---------- -----
Net earnings (loss).............. $ (76,092) (2.7)% $ 138,366 5.1% $ 32,118 1.2%
========== ===== ========== ===== ========== =====
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 129
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 30, JANUARY 29,
1993 1994 1995
----------- ----------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)................................. $ (76,092) $ 138,366 $ 32,118
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization.................... 76,873 74,452 76,043
Amortization of discounts and deferred debt
issuance costs................................. 20,978 9,768 9,032
LIFO charge (credit)............................. 1,115 (2,054) 2,085
Loss on sale of assets........................... 6,841 4,314 784
Provision for post-retirement benefits........... 3,275 3,370 2,555
Provision for legal settlement................... 7,500 -- --
Other changes in assets and liabilities:
Accounts receivable................................. 6,376 326 (13,177)
Inventories at replacement cost..................... (13,682) 6,724 (21,120)
Prepaid expenses and other current assets........... 3,703 (1,658) (1,682)
Other assets........................................ (616) 4,449 (7,287)
Interest payable.................................... (13,393) (4,822) (2,419)
Accounts payable and accrued liabilities............ 23,054 (1,622) (1,047)
Income taxes payable................................ (527) (1,480) (2,906)
Deferred tax asset.................................. -- (109,125) (3,366)
Business interruption credit........................ -- (581) --
Earthquake losses................................... -- (11,048) --
Self insurance reserves............................. 8,456 7,031 (7,503)
Other liabilities................................... (170) (12,407) (6,692)
--------- --------- --------
Cash provided by operating activities............... 53,691 104,003 55,418
--------- --------- --------
Cash flows from investing activities:
Capital expenditures................................ (102,697) (62,181) (64,018)
Proceeds from sale of property, plant and
equipment........................................ 219 16,700 13,257
--------- --------- --------
Cash used in investing activities................... (102,478) (45,481) (50,761)
--------- --------- --------
Cash flows from financing activities:
Net borrowings under lines of credit................ 2,100 (31,100) 51,500
Redemption of preferred stock....................... (3,000) -- --
Capitalized financing and acquisition costs......... (22,426) (5,108) (2,496)
Increase (decrease) in bank overdrafts.............. (8,865) 655 7,952
Proceeds from issuance of long-term debt............ 668,269 150,000 --
Dividends paid...................................... -- -- (10,000)
Principal payments on long-term debt................ (577,902) (164,081) (71,568)
--------- --------- --------
Cash provided by (used in) financing activities..... 58,176 (49,634) (24,612)
--------- --------- --------
Net increase (decrease) in cash and cash
equivalents......................................... 9,389 8,888 (19,955)
Cash and cash equivalents at beginning of period...... 36,803 46,192 55,080
--------- --------- --------
Cash and cash equivalents at end of period............ $ 46,192 $ 55,080 $ 35,125
========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 130
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
RALPHS RALPHS
SUPERMARKETS, INC. GROCERY COMPANY
-------------------- -------------------- ADDITIONAL
OUTSTANDING COMMON OUTSTANDING COMMON PAID-IN- ACCUMULATED
SHARES STOCK SHARES STOCK CAPITAL DEFICIT TOTAL
----------- ------ ----------- ------ ---------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT FEBRUARY 2,
1992...................... -- $ -- 100 -- $ 175,548 $(232,753) $ (57,205)
Capitalization of Ralphs
Supermarkets, Inc. .... 25,587,280 256 (100) -- (256) -- --
Net Loss.................. -- -- -- -- -- (76,092) (76,092)
---------- ---- ---- ---- --------- --------- ---------
BALANCES AT JANUARY 31,
1993...................... 25,587,280 256 -- -- 175,292 (308,845) (133,297)
Net earnings.............. -- -- -- -- -- 138,366 138,366
---------- ---- ---- ---- --------- --------- ---------
BALANCES AT JANUARY 30,
1994...................... 25,587,280 256 -- -- 175,292 (170,479) 5,069
Net Earnings.............. -- -- -- -- -- 32,118 32,118
Dividends Paid............ -- -- -- -- -- (10,000) (10,000)
---------- ---- ---- ---- --------- --------- ---------
BALANCES AT JANUARY 29,
1995...................... 25,587,280 $256 -- $ -- $ 175,292 $(148,361) $ 27,187
========== ==== ==== ==== ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 131
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION
At February 2, 1992, Ralphs Grocery Company was an indirect wholly owned
subsidiary of Federated Stores, Inc. ("Federated"). Two wholly owned
subsidiaries of Federated, Federated Holdings III, Inc. ("Holdings III") and
Allied Stores Corporation ("Allied") directly owned the common stock of Ralphs
Grocery Company approximately 84% and 16% respectively. In January 1990 Holdings
III and Allied, and certain other subsidiaries of Federated, each filed
petitions for relief under Chapter 11, Title 11 of the United States Code
("Chapter 11"). In March 1990, Federated filed a petition for relief under
Chapter 11. Pursuant to the plans of reorganization for Federated and certain of
its subsidiaries, Ralphs Supermarkets, Inc. was formed to hold the outstanding
shares of common stock of Ralphs Grocery Company. On February 3, 1992, Holdings
III and Allied contributed their shares of Ralphs Grocery Company to Ralphs
Supermarkets, Inc. in exchange for the issuance by Ralphs Supermarkets, Inc. of
Ralphs Supermarkets, Inc. shares in the same proportion in Ralphs Grocery
Company shares were owned ("Internal Reorganization"). For financial reporting
purposes, this transaction was recorded at predecessor cost. For Federal tax
purposes, a new basis was established at Ralphs Supermarket, Inc. as more fully
described in Note 11.
Under the plans of reorganization for Federated, Holdings III and certain
other subsidiaries of Federated (the "FSI Plan"), all Ralphs Supermarkets, Inc.
shares of common stock held by Holdings III were to be distributed to certain
creditors of Federated and Holdings III, including The Edward J. DeBartolo
Corporation ("EJDC"), Bank of Montreal ("BMO"), Banque Paribas ("BP") and Camdev
Properties Inc. ("Camdev"), and Federated. The FSI Plan was confirmed by the
Bankruptcy Court in January 1992 and was consummated on February 3, 1992. Under
the plan of reorganization of Allied and certain affiliates including Federated
Department Stores, Inc. (the "Allied-Federated Plan"), a portion of Allied's
Holding Company shares were to be distributed to BMO and BP. The
Allied-Federated Plan was confirmed by the Bankruptcy Court in January 1992 and
was consummated shortly after the FSI Plan.
Thus, following consummation of both the FSI Plan and the Allied-Federated
Plan and the transfer on July 19, 1993 of the shares of common stock in Ralphs
Supermarkets, Inc. held by Federated Stores, Inc. to Camdev, the approximate
ownership of Ralphs Supermarkets, Inc. is as follows:
<TABLE>
<CAPTION>
APPROXIMATE PERCENT
OWNERSHIP OF RALPHS
SUPERMARKETS, INC.
COMMON STOCK
AS OF JULY 19, 1993
-------------------
<S> <C>
EJDC................................................ 60.4%
BMO................................................. 10.1%
BP.................................................. 10.1%
Camdev.............................................. 12.8%
Federated Department Stores, Inc. (as successor by
merger to Allied)................................. 6.6%
</TABLE>
Pursuant to certain agreements entered into contemporaneously with the
effectiveness of the FSI Plan and the Allied-Federated Plan, certain income tax
liabilities of Ralphs Grocery Company, Federated, Allied, Federated Department
Stores, Inc. and other affiliates have been settled with the Internal Revenue
Service. In addition, Ralphs Grocery Company and certain affiliates including
Federated Department Stores, Inc., Allied and Federated (the "Affiliated Group")
entered into an agreement (the "Tax Indemnity Agreement") pursuant to which
Federated Department Stores, Inc. agreed to pay certain tax liabilities, if any,
relating to Ralphs Grocery Company being a member of the Affiliated Group. The
Tax Indemnity Agreement provides a formula to determine the amount of additional
tax liabilities through February 3, 1992 that Ralphs Grocery
F-7
<PAGE> 132
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company would be obligated to pay the Affiliated Group. However, such additional
liability, if any, is limited to $10 million subject to certain adjustments.
Under the Tax Indemnity agreement, both Ralphs Supermarkets, Inc. and
Ralphs Grocery Company have agreed to pay Federated Department Stores, Inc. $1
million annually for each of five years starting on February 3, 1992, and an
additional $5 million on February 3, 1997. These total payments of $10 million
have been recorded in the consolidated financial statements at February 2, 1992.
The five $1 million installments are to be paid by Ralphs Grocery Company and
the $5 million is the joint obligation of both Ralphs Supermarkets, Inc. and
Ralphs Grocery Company. Also, in the event Federated Department Stores, Inc. is
required to pay certain tax liabilities on behalf of Ralphs Grocery Company,
both Ralphs Supermarkets, Inc. and Ralphs Grocery Company have agreed to
reimburse Federated Department Stores, Inc. up to an additional $10 million,
subject to certain adjustments. This additional obligation is the joint and
several obligation of both Ralphs Supermarkets, Inc. and Ralphs Grocery Company.
The $5 million payment and the potential $10 million payment may be paid, at the
option of both Ralphs Supermarkets, Inc. and Ralphs Grocery Company, in cash or
newly issued Ralphs Supermarkets, Inc. Common Stock.
In connection with the consummation of the FSI Plan and the
Allied-Federated Plan, Ralphs Grocery Company and certain parties entered into
an agreement (the "Comprehensive Settlement Agreement") pursuant to which the
parties thereto, among other things, agreed to deliver releases to the various
parties to the Comprehensive Settlement Agreement as well as certain additional
parties. Under the Comprehensive Settlement Agreement, Ralphs Grocery Company
received general releases from Allied, Federated, Federated Department Stores,
Inc. and certain other affiliates which released it from any and all claims
which could have been asserted by the parties thereto prior to the effective
dates of FSI Plan and the Allied-Federated Plan other than for claims arising
under the Comprehensive Settlement Agreement, the FSI Plan, the Allied-Federated
Plan and the Tax Indemnity Agreement.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
These consolidated financial statements present the statements of financial
position of Ralphs Supermarkets, Inc. and subsidiary as of January 31, 1993,
January 30, 1994 and January 29, 1995 and the results of their operations and
their cash flows for the three years then ended. Ralphs Grocery Company is
deemed to be the predecessor entity of Ralphs Supermarkets, Inc. For purposes of
these consolidated financial statements Ralphs Supermarkets, Inc. and Ralphs
Grocery Company will be collectively referred to as "Ralphs".
(b) Reporting Period
Ralphs' fiscal year ends on the Sunday closest to January 31. Fiscal
year-ends are as follows:
January 31, 1993 (Fiscal 1992)
January 30, 1994 (Fiscal 1993)
January 29, 1995 (Fiscal 1994)
(c) Cash and Cash Equivalents
For purposes of the statements of cash flows, Ralphs considers all highly
liquid debt instruments with original maturities of three months or less to be
cash equivalents.
F-8
<PAGE> 133
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(d) Inventories
Inventories are stated at the lower cost or market. Cost is determined
primarily using the last-in, first-out (LIFO) method. The replacement cost of
inventories exceeded the LIFO inventory cost by $15.5 million and $17.6 million
at January 30, 1994 and January 29, 1995, respectively.
(e) Property, Plant and Equipment
Property, plant and equipment are stated at cost. Property and equipment
held under capital leases are stated at the present value of the minimum lease
payments at the inception of the lease.
Depreciation of plant and equipment is calculated using the straight-line
method over the estimated useful lives of assets. Plant and equipment held under
capital leases and leasehold improvements are amortized using the straight-line
method over the shorter of the lease term or the estimated useful life of the
asset. Useful lives range from 10 to 40 years for buildings and improvements and
3 to 20 years for fixtures and equipment.
Interest is capitalized in connection with the construction of major
facilities. The capitalized interest is recorded as part of the asset to which
it relates and is amortized over the asset's estimated useful life. Interest
cost capitalized during fiscal 1992, 1993 and 1994 was $1.074 million, $.740
million and $.324 million, respectively.
(f) Deferred Debt Issuance Costs
Direct costs incurred as a result of financing transactions are capitalized
and amortized over the terms of the applicable debt agreements using the
effective interest method.
(g) Pre-opening Costs
Pre-opening costs of new stores are deferred and expensed at the time the
store opens. If a new store is ultimately not opened, the costs are expensed
directly to selling, general and administrative expense at the time it is
determined that the store will not be opened.
(h) Self Insurance Reserves
Ralphs is self-insured for a portion of workers' compensation, general
liability and automobile accident claims. Ralphs establishes reserve provisions
based on an independent actuary's review of claims filed and an estimate of
claims incurred but not yet filed.
(i) Excess of Cost Over Net Assets Acquired
The excess of cost over net assets acquired, resulting from the May 3, 1988
acquisition of Ralphs is being amortized using the straight-line method over 40
years. Ralphs assesses the recoverability of this intangible asset by
determining whether the amortization of the asset balance over its remaining
life can be recovered through projected undiscounted operating income (including
interest, depreciation and all amortization expense except amortization of
excess of cost over net assets acquired) over the remaining amortization period
of the excess of cost over net assets acquired. The amount of excess of cost
over net assets acquired impairment, if any, is measured based on projected
discounted future results using a discount rate reflecting Ralphs' average cost
of funds. Accumulated amortization aggregated $63.4 million and $74.4 million at
January 30, 1994 and January 29, 1995, respectively.
F-9
<PAGE> 134
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(j) Acquired Leases
Beneficial lease rights and lease valuation reserves are recorded as the
net present value of the differences between contractual rents under existing
lease agreements and fair value of entering such lease agreements as of the May
3, 1988 acquisition of Ralphs. All beneficial lease rights and lease valuation
reserves arose solely as a result of the May 3, 1988 acquisition. Adjustments to
the carrying value of these assets would typically occur only through additional
business combinations or in the event of early lease termination. Beneficial
lease rights are amortized using the straight-line method over the terms of the
leases. Lease valuation reserves are amortized using the interest method over
the terms of the leases.
(k) Discounts and Promotional Allowances
Promotional allowances and vendor discounts are recorded as a reduction of
cost of sales in the accompanying statements of operations. Allowance proceeds
received in advance are deferred and recognized over the period earned.
(l) Income Taxes
Through February 2, 1992, Ralphs operated under a tax-sharing agreement
with Federated and was included in the consolidated Federal tax returns of
Federated. Through January 28, 1990, Ralphs was included in the combined state
tax returns of Federated; however, Ralphs filed separate state tax returns
subsequent to January 28, 1990. Under the tax-sharing agreement, tax-sharing
payments were made to Federated based on the amount that Ralphs would be liable
for had Ralphs filed separate tax returns, taking into account applicable
carryback and carryforward provision of the tax laws.
Subsequent to February 2, 1992, Ralphs is responsible for filing tax
returns with the Internal Revenue Service and state taxing authorities. Prior to
February 3, 1992 Ralphs paid alternative minimum tax to Federated under its tax
sharing agreement. As a result of the Internal Reorganization, Ralphs will not
be entitled to offset its future Federal regular tax liability with the payments
made to Federated.
Effective for the fiscal year ended February 2, 1992, Ralphs adopted
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes." At the date of adoption such change had no impact on the
consolidated financial results.
(m) Reclassification
Certain amounts in the accompanying financial statements have been
reclassified to conform to the current year's presentation.
(n) Consolidation Policy
The consolidated financial statements include the accounts of Ralphs
Supermarkets, Inc., and its wholly owned subsidiary, Ralphs Grocery Company, and
its wholly owned subsidiary, collectively referred to as the Company. All
material intercompany balances and transactions are eliminated in consolidation.
(o) Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
(i) Cash and short-term investments
The carrying amount approximates fair value because of the short
maturity of those instruments.
F-10
<PAGE> 135
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(ii) Long-term debt
The fair value of Ralphs' long-term debt is estimated based on the
quoted market prices for the same or similar issues or on the current rates
offered to Ralphs for debt of the same remaining maturities.
(iii) Interest Rate Swap Agreements
The fair value of interest rate swap agreements is the estimated amount
that Ralphs would receive or pay to terminate the swap agreements at the
reporting date, taking into account current interest rates and the current
credit-worthiness of the swap counterparties.
(p) Advertising
The Company expenses the production costs of advertising the first time the
advertising takes place. Advertising expense was $17.5 million, $16.4 million
and $18.2 million in fiscal 1992, 1993 and 1994, respectively.
(q) Transaction Costs
In connection with the proposed merger, Ralphs has capitalized in other
assets approximately $2.3 million of transaction costs, principally attorney and
accounting fees. Upon completion of the merger these amounts will be
reclassified to excess of cost of net assets acquired and amortized accordingly.
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is summarized as follows:
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Land........................................... $ 159,904 $ 161,725
Buildings and improvements..................... 191,179 199,133
Leasehold improvements......................... 161,341 170,430
Fixtures and equipment......................... 354,626 372,077
Capital leases................................. 86,964 124,861
--------- ----------
954,014 1,028,226
Less: Accumulated depreciation................. (312,746) (354,539)
Less: Accumulated capital lease amortization... (39,371) (48,963)
--------- ----------
Property, plant and equipment, net............. $ 601,897 $ 624,724
========= ==========
</TABLE>
(4) ACCRUED EXPENSES
Accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accrued wages, vacation and sick leave......... $ 34,763 $43,766
Taxes other than income tax.................... 11,084 10,055
Interest....................................... 11,090 8,670
Other.......................................... 44,606 37,313
-------- -------
$101,543 $99,804
======== =======
</TABLE>
F-11
<PAGE> 136
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
First mortgage notes payable in monthly
installments, commencing June 1, 1994 of $1.6
million including interest at an effective rate
of 9.651%; interest only payable monthly prior to
June 1, 1994. Final payment due June 1, 1999.
Secured by land and buildings with a net book
value of $188.8 million.......................... $ 178,013 $ 176,634
Notes payable in varying monthly installments
including interest ranging from 11.5% to 18.96%.
Final payment due through November 30, 1996.
Secured by equipment with a net book value of
$28.5 million.................................... 9,721 6,291
Capitalized lease obligations at interest rates
ranging from 7.25% to 14% maturing at various
dates through 2019 (note 6)...................... 61,150 89,084
Note payable to bank............................... 300,000 245,000
Initial Notes and Exchange Notes, 9% due 2003...... 150,000 150,000
Senior Subordinated Debentures, 10 1/4%, due
2002............................................. 300,000 300,000
--------- ---------
Total long-term debt............................... 998,884 967,009
Less current maturities............................ (70,975) (83,989)
--------- ---------
Long-term debt..................................... $ 927,909 $ 883,020
========= =========
</TABLE>
During the third quarter of 1992, the Company implemented a
recapitalization plan (the "Recapitalization Plan") which was completed during
the first quarter of 1993 by the Company's offering of $150.0 million aggregate
principal amount of its 9% Senior Subordinated notes due 2003 (the "Initial
Notes") in private placement under the Securities Act of 1933, as amended (the
"Securities Act"). The proceeds of the Initial Notes were used to (i) purchase
for cancellation of $60.0 million aggregate principal amount of the Company's
14% Senior Subordinated Debentures due 2000 (the "14% Subordinated Debentures")
from a noteholder who had made an unsolicited offer to sell such 14%
Subordinated Debentures, (ii) defease the remaining $38.1 million aggregate
principal amount of the 14% Subordinated Debentures, (iii) prepay $36.1 million
of borrowings under the Company's $350.0 million 1992 term loan facility entered
into as part of the Recapitalization Plan and (iv) pay fees and expenses
associated with such transactions and for other purposes. As part of a
registration rights agreement entered into with the initial purchasers of the
Initial Notes, the Company agreed to offer to exchange up to $150.0 million
aggregate principal amount of the Exchange Notes for all of the outstanding
Initial Notes (the "Exchange Offer"). The terms of the Exchange Notes are
substantially identical (including principal amount, interest rate and maturity)
in all respects to the terms of the Initial Notes except that the Exchange Notes
are freely transferable by the holders thereof (with certain exceptions) and are
not subject to any covenant upon the Company regarding registration under the
Securities Act. On June 24, 1993, the Company completed the Exchange Offer
exchanging $149.7 million aggregate principal amount of Exchange Notes for
Initial Notes ($.3 million of Initial Notes remain outstanding).
The note payable to bank and working capital line, under the 1992 Credit
Agreement, are secured by first priority liens on Ralphs' inventory and
receivables, servicemarks and registered trademarks, equipment (other than
equipment located at facilities subject to existing liens in favor of equipment
financiers) and after-acquired real property interests and all existing real
property interests (other than those that are subject to prior encumbrances) and
bears interest at the rates, as selected by Ralphs as follows: (i) 1 3/4% over
the prime
F-12
<PAGE> 137
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
rate, or (ii) 2 3/4% over the Eurodollar Rate. Interest calculated pursuant to
(i) above is payable quarterly, otherwise interest is payable quarterly or at
the selected borrowings option maturity. During the 52 weeks ended January 29,
1995, interest rates under these borrowings ranged from 5.9375% to 10.25%.
Ralphs is required to pay an annual administrative fee of $300,000 pursuant to
the 1992 Credit Agreement as well as a commitment fee of 0.5% on the average
daily amounts available for borrowing under the $120.0 million working capital
credit line.
The 1992 Credit Agreement, which includes a $350.0 million term loan and
$120.0 million working capital credit line, also supports up to $60.0 million of
letters of credit which reduce the available borrowings on the credit line. The
1992 Credit Agreement is subject to quarterly principal payment requirements,
which commenced on March 31, 1993, with payment in full on June 30, 1998. As of
January 29, 1995, $52.4 million of letters of credit and $51.5 million in
borrowings were outstanding, with $16.1 million available under the working
capital credit line.
In the fourth quarter of Fiscal 1992, Ralphs entered into an interest rate
cap agreement with an effective date of November 6, 1992 and a three-year
maturity. The interest rate cap agreement hedges the interest rate in excess of
6.5% LIBOR on $105.0 million principal amount against increases in short-term
rates. This agreement satisfies interest rate protection requirements under the
1992 Credit Agreement. In addition to the interest rate cap agreement, Ralphs
entered into an interest rate swap agreement on $150.0 million notional
principal amount. Under the interest rate swap agreement, Ralphs is required to
pay interest based on LIBOR at the end of each six month calculation period and
Ralphs will receive interest payments based on LIBOR at the beginning of each
six month calculation period. This interest rate swap agreement has a three-year
term expiring November 6, 1995. Ralphs is exposed to credit loss in the event of
nonperformance by the other party to the interest rate swap agreement. However,
Ralphs does not anticipate nonperformance by the counterpart.
The following details the impact of the hedging activity on the weighted
average interest rate for each of the last three fiscal years.
<TABLE>
<CAPTION>
WITH HEDGE WITHOUT HEDGE
---------- -------------
<S> <C> <C>
1992........................................ 10.52% 10.22%
1993........................................ 8.96% 8.96%
1994........................................ 9.37% 9.18%
</TABLE>
The Initial Notes and Exchange Notes are unsecured obligations of Ralphs
subordinated in right of payment to amounts due on the aforementioned senior
debt. Interest at 9% is payable each April 1 and October 1 through April 1,
2003, when the notes mature.
The 10 1/4% Senior Subordinated Debentures are unsecured obligations of
Ralphs subordinated in right of payment to amounts due on the senior debt.
Interest at 10 1/4% is payable each January 15 and July 15 through July 15,
2002, when the debentures mature.
The aforementioned debt agreements contain various restrictive covenants
pertaining to net worth levels, limitations on additional indebtedness and
capital expenditures, financial ratios and dividends. The 1992 Credit Agreement
requires Ralphs to reduce its working capital credit line to zero for 30
consecutive days annually. The current annual period extends from July 1 to June
30. The Company has not yet complied with this annual covenant. The Company
intends to either satisfy this covenant by June 30, 1995 or seek to obtain the
necessary waiver from its lenders, if such event of non-compliance ultimately
occurs but there is no assurance that such waiver will be granted, or, if
granted, will be on terms acceptable to the Company. At January 29, 1995, Ralphs
is in compliance with all its 1992 Credit Agreement restrictive covenants. The
Company currently anticipates that it may be out of compliance with certain
other maintenance covenants at the end of the second quarter of 1995. The
Company intends to seek the necessary waivers from its lenders should these
events of non-compliance ultimately occur, but there is no assurance that such
waivers will be granted, or, if granted, will be on terms acceptable to the
Company.
F-13
<PAGE> 138
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate maturities on long-term debt for each of the five years
subsequent to fiscal 1994 are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
------------
<S> <C>
1995........................................ $ 83,989
1996........................................ 86,792
1997........................................ 84,771
1998........................................ 53,605
1999........................................ 175,400
2000 and thereafter......................... 482,452
--------
$967,009
========
</TABLE>
The unaudited fair value of each class of financial instruments (where
practical), all held for non-trading purposes, is as follows in (000s):
<TABLE>
<S> <C>
Long-term debt............................... $953,883
Interest rate swap agreement................. $ 1,252
Interest rate cap agreement.................. $ (366)
</TABLE>
(6) LEASES
Ralphs has leases for retail store facilities, warehouses and manufacturing
plants for periods up to 30 years. Generally, the lease agreements include
renewal options for five years each. Under most leases, Ralphs is responsible
for property taxes, insurance, maintenance and expense related to the lease
property. Certain store leases require excess rentals based on a percentage of
sales at that location. Certain equipment is leased by Ralphs under agreements
ranging from 3 to 15 years. The agreements usually do not include renewal option
provisions.
Minimum rental payments due under capital leases and operating leases
subsequent to fiscal 1994 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES TOTAL
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1995............................................... $ 21,640 $ 61,324 $ 82,964
1996............................................... 19,093 60,847 79,940
1997............................................... 18,288 58,182 76,470
1998............................................... 15,901 53,321 69,222
1999............................................... 11,784 52,839 64,623
2000 and thereafter................................ 53,959 373,021 426,980
-------- -------- --------
Total minimum lease payments....................... $140,665 $659,534 $800,199
======== ========
Less amounts representing interest................. (51,581)
--------
Present value of net minimum lease payments........ 89,084
Less current portion of lease obligations.......... (13,151)
--------
Long-term capital lease obligations................ $ 75,933
========
</TABLE>
F-14
<PAGE> 139
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total rent expense is summarized as follows:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JANUARY 31, JANUARY 30, JANUARY 29,
1993 1994 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Capital Leases
Contingent rental............ $ 2,443 $ 2,241 $ 2,256
Rentals from subleases....... (2,144) (2,048) (1,734)
Operating Leases
Minimum rentals.............. 49,001 54,965 55,906
Contingent rentals........... 5,058 3,645 3,763
Rentals from subleases....... (1,123) (1,150) (1,791)
------- ------- -------
$53,235 $57,653 $58,400
======= ======= =======
</TABLE>
(7) SELF-INSURANCE
Ralphs is a qualified self-insurer in the State of California for worker's
compensation and for automobile liability. For fiscal 1992, 1993 and 1994 self
insurance loss provisions amounted to (in thousands) $25,950, $30,323 and
$14,003, respectively. Ralphs discounts self-insurance liabilities using an 8%
discount rate for all years presented. Management believes that this rate
approximates the time value of money over the anticipated payout period
(approximately 8 years) for essentially risk free investments.
Based on a review of modifications in its workers compensation and general
liability insurance programs, Ralphs adjusted its self-insurance costs during
Fiscal 1994, resulting in a reduction in the loss provision in Fiscal 1994 of
approximately $18.9 million.
Ralphs' historical self-insurance liability for the previous two fiscal
years is as follows:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS
ENDED ENDED
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Self-insurance liability............... $ 97,864 $ 87,830
Less: Discount......................... (17,854) (15,324)
-------- --------
Net self-insurance liability........... $ 80,010 $ 72,506
======== ========
</TABLE>
The Company expects that cash payments for claims over the next five years
will aggregate approximately $28 million (unaudited) in fiscal year 1995, $19
million (unaudited) in fiscal year 1996, $13 million (unaudited) in fiscal year
1997, $8 million (unaudited) in fiscal year 1998 and $7 million (unaudited) in
fiscal year 1999.
(8) COMMITMENTS AND CONTINGENCIES
In December 1992, three California state antitrust class action suits were
commenced in Los Angeles Superior Court against Ralphs and other major
supermarket chains located in Southern California, alleging that they conspired
to refrain from competing in the retail market for fluid milk and to fix the
retail price of fluid milk above competitive prices. Specifically, class actions
were commenced by Diane Barela and Neila Ross, Ron Moliare and Paul C. Pfeifle
on December 7, December 14, and December 23, 1992, respectively. The Court has
yet to certify any of these classes. A demurrer to the complaints was denied.
Notwithstanding that it believes there is no merit to these cases, Ralphs had
reached an agreement in principle to settle them.
F-15
<PAGE> 140
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
However, no settlement agreement has been signed. The Company does not believe
that the resolution of these cases will have a material adverse effect on its
future financial condition. Any settlement would be subject to court approval.
On March 25, 1991, George A. Koteen Associates, In. ("Koteen Associates")
commenced an action in San Diego Superior Court alleging that Ralphs breached an
alleged utility rate consulting agreement. In December 1992, a jury returned a
verdict of approximately $4.9 million in favor of Koteen Associates and in March
1993, attorney's fees and certain other costs were awarded to the plaintiff.
Ralphs has appealed the judgment and fully reserved in Fiscal 1992 against an
adverse ruling by the appellate courts.
In April 1994, Ralphs was served with a complaint filed by over 240 former
employees at Ralphs' bakery in the Atwater district of Los Angeles (the "Bakery
Plaintiffs"). The action was commenced in the United States District Court for
the Central District of California, and, among other claims, the Bakery
Plaintiffs alleged that Ralphs breached its collective bargaining agreement and
violated the Workers Adjustment Retraining Notification Act (the "WARN Act")
when it downsized and subsequently closed the bakery. In their complaint, the
Bakery Plaintiffs are seeking damages for lost wages and benefits as well as
punitive damages. The Bakery Plaintiffs also named Ralphs and two of its
management employees in fraud, conspiracy and emotional distress causes of
action. In addition, the Bakery Plaintiffs sued their union local for breach of
its duty of fair representation and other alleged misconduct, including fraud
and conspiracy. The defendants have answered the complaint and discovery is
ongoing. Trial is set for February, 1996, and Ralphs is vigorously defending
this suit. Management believes, based on its assessment of the facts, that the
resolution of this case will not have a material effect on the Company's
financial position or results of operations.
In addition, Ralphs is a defendant in a number of other cases currently in
litigation or potential claims encountered in the normal course of business
which are being vigorously defended. In the opinion of management, the
resolutions of these matters will not have a material effect on Ralphs'
financial position or results of operations.
Environmental Matters
In January 1991, the California Regional Water Quality Control Board for
the Los Angeles Region (the "Regional Board") requested that Ralphs conduct a
subsurface characterization of Ralphs' Atwater property. This request was part
of an ongoing effort by the Regional Board, in connection with the U.S.
Environmental Protection Agency (the "EPA"), to identify contributors to
groundwater contamination in the San Fernando Valley. Significant parts of the
San Fernando Valley, including the area where Ralphs' Atwater property is
located, have been designated federal Superfund sites requiring response actions
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, because of regional groundwater contamination. On June 18,
1991, the EPA made its own request for information concerning the Atwater
property. Since that time, the Regional Board has requested further
investigation by Ralphs. Ralphs has conducted the requested investigations and
has reported the results to the Regional Board. Approximately 25 companies have
entered into a Consent Order (EPA Docket No. 94-11) with the EPA to investigate
and design a remediation system for contaminated groundwater beneath an area
which includes the Atwater property. Ralphs is not a party to the Consent Order,
but is cooperating with requests of the subject companies to allow installation
of monitoring or recovery wells on Ralphs' property. Based upon available
information, management does not believe this matter will have a material
adverse effect on the Company's financial condition or results of operations.
Ralphs has removed underground storage tanks and remediated soil
contamination at the Atwater property. In some instances the removals and the
contamination were associated with grocery business operations, in others they
were associated with prior property users. Although the possibility of other
F-16
<PAGE> 141
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
contamination from prior operations or adjacent properties exists at the Atwater
property, management does not believe that the costs of remediating such
contamination will be material to the Company.
Apart from the Atwater property, the Company has recently had environmental
assessments performed on a significant portion of its facilities, including
warehouse and distribution facilities. The Company believes that any responsive
actions required at the examined properties as a result of such assessments will
not have a material adverse effect on its financial condition or results of
operations.
Ralphs has incurred approximately $4.5 million in non-recurring capital
expenditures for conversion of refrigerants during 1994. Other than these
expenditures, Ralphs has not incurred material capital expenditures for
environmental controls during the previous three years, nor does management
anticipate incurring such expenditures during the current fiscal year or the
succeeding fiscal year.
Ralphs is subject to a variety of environmental laws, rules, regulations
and investigative or enforcement activities, as are other companies in the same
or similar business. The Company believes it is in substantial compliance with
such laws, rules and regulations. These laws, rules, regulations and agency
activities change from time to time, and such changes may affect the ongoing
business and operations of the Company.
(9) REDEEMABLE PREFERRED STOCK
Ralphs' non-voting preferred stock consisted of 10,000,000 shares of
authorized $.01 par value preferred stock. At February 3, 1991 and February 2,
1992, 170,000 shares of Class A Preferred Stock and 130,000 shares of Class B
Preferred Stock were issued and outstanding. All of the outstanding shares of
preferred stock were redeemed by Ralphs during February 1992 at their initial
issuance price of $3.0 million.
(10) EQUITY APPRECIATION RIGHTS PLANS
Effective August 26, 1988, Ralphs adopted an Equity Appreciation Plan
("1988 Plan"), whereby certain officers received equity rights representing, in
aggregate, the right to receive 15% of the increase in the appraised value (as
defined in the 1988 Plan) of the Ralphs' equity over an initial value of $120.0
million. The 1988 Plan was amended in January 1992 by agreement among Ralphs and
the Equity Rights holders ("Amended Plan"). Ralphs accrued for the increase in
equity appreciation rights over the contractually defined vesting period (fully
accrued in fiscal 1991), based upon the maximum allowable contractual amount
which approximated ending appraised value.
Under the Amended Plan, all outstanding Equity Rights vested in full are no
longer subject to forfeiture by the holders, except in the event a holder's
employment is terminated for cause within the meaning of the Amended Plan. The
appraised value of Ralphs' equity is to be determined as of May 1 each year by
an investment banking company engaged for this purpose utilizing the methodology
specified in the Amended Plan (which is unchanged from that specified in the
1988 Plan); however, under the Amended Plan the appraised value of Ralphs'
equity for purposes of the plan may not be less than $400.0 million nor exceed
$517.0 million. The amount of equity rights redeemable at any given time is
defined in each holders' separate agreement. On exercise of an equity right, the
holder will be entitled to receive a pro rata percentage of any such increase in
appraised value. In addition, the Amended Plan provides for the possible
additional further payment to the holder of each exercised Equity Right of an
amount equal to the "Deferred Value" of such Equity Right as defined in the
Amended Plan. Ralphs did not incur any expense under the Equity Appreciation
Rights Plan in fiscal 1992, fiscal 1993 and fiscal 1994.
F-17
<PAGE> 142
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amount of Equity Rights redeemable for each of the four years
subsequent to fiscal 1994 are as follows:
<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C>
1995...................................................... $ 6,669
1996...................................................... 12,389
1997...................................................... 3,636
1998...................................................... 10,150
-------
$32,844
=======
</TABLE>
(11) INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JANUARY 31, JANUARY 30, JANUARY 29,
1993 1994 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current
Federal...................................... $ 4,173 $ (2,424) $ 713
State........................................ -- 3,500 2,653
------- ---------- -------
$ 4,173 $ 1,076 $ 3,366
------- ---------- -------
Deferred
Federal...................................... $ -- $ (109,125) $(3,366)
State........................................ -- -- --
------- ---------- -------
$ -- $ (109,125) $(3,366)
------- ---------- -------
Total income tax expense (benefit)........... $ 4,173 $ (108,049) $ --
======= ========== =======
</TABLE>
Income tax expense (benefit) has been classified in the accompanying
statements of operations as follows:
<TABLE>
<CAPTION>
1992 1993 1994
------- --------- ---------
<S> <C> <C> <C>
Earnings before extraordinary items............. $ 8,346 $(108,049) $ --
Extraordinary item.............................. (4,173) -- --
------- --------- ---------
Net tax expense (benefit)....................... $ 4,173 $(108,049) $ --
======= ========= =========
</TABLE>
F-18
<PAGE> 143
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The differences between income tax expense and income taxes computed using
the top marginal U.S. Federal income tax rate of 34% for Fiscal 1992 and of 35%
for fiscal 1993 and fiscal 1994 applied to earnings (loss) before income taxes
(including, in Fiscal 1992, the extraordinary loss of $74.8 million) were as
follows:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JANUARY 31, JANUARY 30, JANUARY 29,
1993 1994 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Amount of expected expense (benefit) computed
using the statutory Federal rate.............. $ (24,450) $ 10,611 $ 11,241
Utilization of financial operating loss....... -- (10,611) (11,241)
Amortization of excess cost over net assets
acquired................................... 3,356 -- --
State income taxes, net of Federal income tax
benefit.................................... -- 3,500 2,653
Accounting limitation (recognition) of
deferred tax benefit....................... 20,041 (109,125) (3,366)
Alternative minimum tax....................... 4,173 625 --
Other, net.................................... 1,053 (3,049) 713
--------- ---------- ----------
Total income tax expense (benefit).... $ 4,173 $ (108,049) $ --
========= ========== ==========
</TABLE>
Ralphs' deferred tax assets, recorded under SFAS 109, were comprised of the
following:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS
ENDED ENDED
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Deductible intangible assets............................... $ 56,000 $ 43,000
Net operating loss carryforward and tax credit............. 40,125 55,000
Self insurance accrual..................................... 43,000 25,000
Software basis difference and amortization................. -- --
Fees collected in advance.................................. -- 2,600
Property, plant and equipment basis difference and
depreciation............................................. 21,000 16,000
Equity appreciation rights................................. 16,000 11,000
Favorable lease basis differences.......................... 16,000 16,000
State deferred taxes....................................... 17,000 19,000
Other...................................................... 40,000 51,103
--------- ---------
249,125 238,703
Less valuation allowance................................. (140,000) (126,212)
--------- ---------
Total............................................ $ 109,125 $ 112,491
========= =========
</TABLE>
On October 15, 1992, Ralphs filed an election with the Internal Revenue
Service under Section 338(h)(10). Under this Section, Ralphs is required to
restate, for Federal tax purposes, its assets and liabilities to fair market
value as of February 3, 1992. The effect of this transaction is to record a new
Federal tax basis to reflect a change of control for Federal tax purposes
resulting from the Internal Reorganization. No change of control for financial
reporting purposes was affected.
In August, 1993, The Omnibus Budget Reconciliation Act of 1993 (the "Act")
was enacted. The Act increased the Federal income tax rate from 34 to 35 percent
for filers whose taxable income exceeded $10.0 million. In the current year, the
effect of the Federal income tax rate change was to increase the net
F-19
<PAGE> 144
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
deferred tax assets. In addition, the Act also provided for the deductibility of
certain intangibles, including costs in excess gross assets acquired.
The Act has significantly impacted the aggregate deferred tax asset
position of Ralphs at January 29, 1995. Ralphs elected to retroactively apply
certain provisions of the Act related to the February 3, 1992 change of control
for Federal tax purposes. As such, approximately $610.7 million in excess of
cost over net assets acquired became fully deductible for Federal tax purposes.
This amount is deductible over 15 years. This excess in the tax basis over the
financial statement basis of excess of cost over net assets acquired aggregated
$123.0 million at January 29, 1995.
During the year ended January 30, 1994, Ralphs recorded the incremental
impact of the Act on deductible temporary differences and increased its deferred
income tax assets by a net amount of $109.1 million. The decision to reduce the
valuation allowance was based upon several factors. Specific among them, was the
Company's completion of its restructuring plan which effectively reduced
estimated interest expense by approximately $9.0 as compared to the year ended
January 31, 1993. In addition, the January 31, 1993 operating results were
negatively effected by several charges including provisions for restructuring,
legal settlements and a loss on retirement of debt all aggregating approximately
$90 million on a pre-tax basis.
Although there can be no assurance as to future taxable income, the Company
believes that, based upon the above mentioned events, as well as the Company's
expectation of future taxable income, it is more likely than not that the
recorded deferred tax asset will be realized. In order to realize the net
deferred tax asset currently recorded, Ralphs will need to generate sufficient
future taxable income, assuming current tax rates, of approximately $320.0
million.
At January 29, 1995, the Company has Federal net operating loss (NOL)
carryforwards of approximately $162.0 million and Federal and state Alternative
Minimum Tax Credit carryforwards of approximately $2.1 million which can be used
to offset Federal taxable income and regular taxes payable, respectively. The
NOL carryforwards begin expiring in 2008.
During the past three fiscal years, the Company has generated Federal
taxable losses of approximately $162.0 million versus financial pre-tax earnings
of approximately $65.2 million for the same periods. These differences result
principally from excess tax versus financial amortization on certain intangible
assets (excess of cost over net assets acquired), as well as several other
originating temporary differences.
(12) EMPLOYEE BENEFIT PLANS
Ralphs has a defined benefit pension plan covering substantially all
employees not already covered by collective bargaining agreements with at least
one year of credit service (defined at 1,000 hours). Ralphs' policy is to fund
pension costs at or above the minimum annual requirement.
On February 23, 1990, the Company adopted a Supplemental Executive
Retirement Plan covering certain key officers of Ralphs. The Company has
purchased split dollar life insurance policies for participants under this plan.
Under certain circumstances, the cash surrender value of certain split dollar
life insurance policies will offset Ralphs obligations under the Supplemental
Executive Retirement Plan.
During the second quarter of 1994, the Company approved and adopted a new
non-qualified retirement plan, the Ralphs Grocery Company Retirement
Supplemental Plan ("Retirement Supplement Plan") effective January 1, 1994 and
amended the existing Supplemental Executive Retirement Plan effective April 9,
1994. These changes to the retirement plans were made pursuant to the enactment
of the 1993 Omnibus Budget Reconciliation Act.
F-20
<PAGE> 145
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
At January 29, 1995, the Company recorded a $4.0 million additional minimum
liability in offsetting intangible asset to reflect the changes in the new and
amended plans.
Under the provisions of the Retirement Supplement Plan, participants are
entitled to receive benefits based on earnings over the indexed amount of
$150,000.
The following actuarially determined components were included in the net
pension expense:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JANUARY 31, JANUARY 30, JANUARY 29,
1993 1994 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost...................................... $ 2,076 $ 2,228 $ 2,901
Interest cost on projected benefit obligation..... 2,471 2,838 3,821
Actual return on assets........................... (2,794) (2,695) (1,447)
Net amortization and deferral..................... 237 (46) (1,100)
----------- ----------- -----------
Net pension expense............................. $ 1,990 $ 2,325 $ 4,175
======== ======== ========
</TABLE>
The funded status of Ralphs' pension plan, (based on December 31, 1993 and
1994 asset values), is as follows:
<TABLE>
<CAPTION>
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Assets Exceed Accumulated Benefits:
Actuarial present value of benefit obligations:
Vested benefit obligation................................... $29,659 $31,621
Accumulated benefit obligation.............................. 29,950 31,856
Projected benefit obligation................................ 42,690 45,246
Plan assets at fair value................................... 32,968 38,179
----------- -----------
Projected benefit obligation in excess of Plan Assets......... (9,722) (7,067)
Unrecognized net gain......................................... 4,567 3,611
Unrecognized prior service cost............................... (1,778) (1,659)
Unrecognized net asset........................................ -- --
----------- -----------
Accrued pension cost........................................ $(6,933) $(5,115)
======== ========
Accumulated Benefits Exceed Assets:
Actuarial present value of benefit obligations:
Vested benefit obligation................................... 2,982
Accumulated benefit obligation.............................. 2,982
Projected benefit obligation................................ 7,102
Plan assets at fair value................................... --
-----------
Projected benefit obligation in excess of plan assets......... (7,102)
Unrecognized net gain......................................... (229)
Unrecognized prior service cost............................... 8,354
Adjustment required to recognized minimum liability........... (4,005)
-----------
Accrued pension cost........................................ $(2,982)
========
</TABLE>
The accrued pension cost for accumulated benefits that exceeded assets at
January 30, 1994 was immaterial to the consolidated financial statements.
F-21
<PAGE> 146
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Service costs for fiscal 1992 and 1993 were calculated using a discount
rate of 8.5% and a rate of increase in future compensation levels of 6%. The
1994 discount rate and the rate of increase in future compensation levels were
reduced to 7.75% and 5.0%, respectively, to reflect the decline in interest
rates in 1994. The discount rate will be increased to 8.25% in 1995 in order to
reflect the increase in the current long-term interest rate. A long-term rate of
return on assets of 9% was used for fiscal 1992, 1993 and 1994.
The pension plan assets consist primarily of common stocks, bonds, debt
securities, and a money market fund. Plan benefits are based primarily on years
of service and on average compensation during the last years of employment.
Ralphs participates in multi-employer pension plans and health and welfare
plans administered by various trustees for substantially all union employees.
Contributions to these plans are based upon negotiated contractual rates. In
both Fiscal 1992 and Fiscal 1993 the multi-employer pension plan was deemed to
be overfunded based upon the collective bargaining agreement then currently in
force. During Fiscal 1993 the agreement called for pension benefits which
resulted in additional required expense. The UFCW health and welfare benefit
plans were overfunded and those employers who contributed to these plans
received a prorata share of excess reserve in these health care benefit plans
through a reduction in current maintenance payments. Ralphs' share of the excess
reserve was approximately $24.5 million of which $11.8 million was recognized in
Fiscal 1993 and the remainder, $12.7 million, was recognized in Fiscal 1994.
Since employers are required to make contributions to the benefit funds at
whatever level is necessary to maintain plan benefits, there can be no assurance
that plan maintenance payments will remain at current levels.
The expense related to these plans is summarized as follows:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JANUARY 31, JANUARY 30, JANUARY 29,
1993 1994 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Multi-employer pension plans.............. $ 7,973 $17,687 $ 8,897
======= ======= =======
Multi-employer health and welfare......... $71,183 $45,235 $66,351
======= ======= =======
</TABLE>
Ralphs maintains the Ralphs Grocery Company Savings Plan Plus -- Prime and
the Ralphs Grocery Savings Plan Plus -- Basic (collectively referred to as the
"401(k) Plan") covering substantially all employees who are not covered by
collective bargaining agreements and who have at least one year of credited
service (defined at 1,000 hours). The 401(k) Plan provided for both pre-tax and
after-tax contributions by participating employees. With certain limitations,
participants may elect to contribute from 1% to 12% of their annual compensation
on a pre-tax basis to the Plan. Ralphs has committed to match a minimum of 20%
of an employee's contribution to the 401(k) Plan that do not exceed 5% of the
employee's compensation. Expenses under the 401(k) Plan for fiscal 1992, 1993
and 1994 were $407,961, $431,774 and $446,826, respectively.
Ralphs has an executive incentive compensation plan which covers
approximately 39 key employees. Benefits to participants are earned based on a
percentage of base compensation upon attainment of a targeted formula of
earnings. Expense under this plan for fiscal 1992, 1993 and 1994 was $2.5
million, $2.6 million and $2.4 million, respectively. Ralphs has also adopted an
incentive plan for certain members of management. Benefits to participants are
earned based on a percentage of base compensation upon attainment of a targeted
formula of earnings. Expense under this plan for fiscal 1992, 1993 and 1994 was
$2.8 million, $3.0 million and $3.1 million, respectively.
The aforementioned incentive plans may be cancelled by the Board of
Directors at any time.
F-22
<PAGE> 147
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Ralphs sponsors a postretirement medical benefit plan (Postretirement
Medical Plan) covering substantially all employees who are not members of a
collective bargaining agreement and who retire under certain age and service
requirements.
The Postretirement Medical Plan is a traditional type medical plan
providing outpatient, inpatient and various other covered services. Such
benefits are funded from Ralphs' general assets. The calendar year deductible is
$1,270 per individual, indexed to the Medical Consumer Price Index.
The net periodic cost of the Postretirement Medical Plan includes the
following components:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JANUARY 31, JANUARY 30, JANUARY 29,
1993 1994 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Service cost.............................. $ 1,908 $ 1,767 $ 1,396
Interest cost............................. 1,367 1,603 1,387
Return on plan assets..................... -- -- --
Net amortization and deferral............. -- -- (228)
----------- ----------- -----------
Net postretirement benefit cost......... $ 3,275 $ 3,370 $ 2,555
</TABLE>
The funded status of the postretirement benefit plan is as follows:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS
ENDED ENDED
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.............................................. $ 1,237 $ 1,303
Fully eligible plan participants...................... 357 1,499
Other active plan participants........................ 16,062 10,289
Plan assets at fair value............................. -- --
----------- -----------
Funded status......................................... (17,656) (13,091)
Plan assets in excess of projected obligations........ -- --
Unrecognized gain (loss).............................. 6,302 13,676
Unrecognized prior service cost....................... -- (358)
----------- -----------
Accrued postretirement benefit obligation............. $ (23,958) $ (26,409)
======== ========
</TABLE>
Service cost was calculated using a medical cost trend of 10.5% for fiscal
1992. Service cost was calculated using a medical cost trend of 10.5% and a
decreasing medical cost trend rate of 14%-8% for 1993 and 1994 respectively. The
discount rate for 1993 was 8.5% and was reduced to 7.75% in 1994 to reflect the
decline in interest rates in 1994. In 1995, the discount rate will increase to
8.25% in order to reflect the increase in the current long-term interest rate.
The long-term rate of return of plan assets is not applicable as the plan is not
funded.
The effect of a one-percent increase in the medical cost trend would
increase the fiscal 1994 service and interest cost to 18%. The accumulated
postretirement benefit obligation at January 29, 1995 would also increase by
27%.
F-23
<PAGE> 148
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) QUARTERLY RESULTS (UNAUDITED)
Quarterly results for fiscal 1993 and 1994 are as follows:
<TABLE>
<CAPTION>
GROSS OPERATING INCOME NET
SALES PROFIT INCOME TAXES EARNINGS
-------- ------ --------- ------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
FY 1993 Quarters
12 weeks ended 04/25/93......................... $ 632.4 $142.4 $ 31.4 $ 1.0 $ 3.9
12 weeks ended 07/18/93......................... 629.0 145.2 36.8 (1.0) 12.9
12 weeks ended 10/10/93......................... 612.8 141.5 31.7 -- 7.0
16 weeks ended 01/30/94......................... 856.0 207.4 52.2 (108.0) 114.6
-------- ------ ------ ------- ------
Total................................... $2,730.2 $636.5 $152.1 $(108.0) $138.4
======== ====== ====== ======= ======
FY 1994 Quarters
12 weeks ended 04/24/94......................... $ 616.0 $141.7 $ 34.1 $ -- $ 8.4
12 weeks ended 07/17/94......................... 625.0 142.9 32.9 -- 7.2
12 weeks ended 10/09/94......................... 615.4 138.8 30.8 -- 4.3
16 weeks ended 01/29/95......................... 868.2 200.2 47.8 -- 12.2
-------- ------ ------ ------- ------
Total................................... $2,724.6 $623.6 $145.6 $ -- $ 32.1
======== ====== ====== ======= ======
</TABLE>
(14) SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JANUARY 31, JANUARY 30, JANUARY 29,
1993 1994 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Supplemental cash flow disclosures:
Interest paid, net of amounts capitalized................... $ 118,391 $93,738 $99,067
Income taxes paid........................................... $ 7,169 $ 2,423 $ 6,270
Capital lease assets and obligations assumed................ $ -- $15,395 $41,131
</TABLE>
(15) STOCK OPTION PLAN
On February 3, 1992, 3,162,235 options for Common Stock of the Company were
granted under the Ralphs Non-qualified Stock Option Plan. All options were
vested, but not exercisable, on the date of the grant. Options granted to
certain officers become exercisable at the rate of 20% on each September 30 of
calendar years 1992 through 1996. Options granted to other officers become
exercisable as to 10% of the grant on each of September 30, 1992 and 1993, 15%
on each of September 30, 1994 through September 30, 1997, and 20% on September
20, 1998.
F-24
<PAGE> 149
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the Ralphs Non-qualified Stock Option Plan.
<TABLE>
<CAPTION>
NUMBER OF PRICE
OPTIONS RANGE
--------- ------
<S> <C> <C>
Options Outstanding at January 30, 1994:
Beginning of year............................................. 3,162,235 $20.21
Granted....................................................... -- --
Exercised..................................................... -- --
Cancelled..................................................... -- --
Expired....................................................... -- --
End of year................................................ 3,162,235 $20.21
--------- ------
Exercisable at end of year...................................... 811,760 --
--------- ------
Available for grant at end of year.............................. -- --
--------- ------
Options Outstanding at January 29, 1995:
Beginning of year............................................. 3,162,235 $20.21
Granted....................................................... -- --
Exercised..................................................... -- --
Cancelled..................................................... -- --
Expired....................................................... -- --
End of year................................................ 3,162,235 $20.21
--------- ------
Exercisable at end of year...................................... 1,330,924 --
--------- ------
Available for grant at end of year.............................. -- --
--------- ------
</TABLE>
The option price for outstanding options at January 29, 1995 assumes a
grant date fair market value of Common Stock of the Company equal to $20.21 per
share, which represents the high end of a range of estimated values of the
Common Stock of the Company on February 3, 1992, the date of the grant.
(16) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The methods and assumptions used to estimate the fair value of each class
of financial instruments for which it is practicable to estimate that value is
discussed in Note 2.
The unaudited fair value of each class of financial instruments (where
practical), all held for non-trading purposes, is as follows in (000s):
<TABLE>
<CAPTION>
JANUARY 30, 1994 JANUARY 29, 1995
----------------------- -----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Long term debt................................ $998,884 $1,014,634 $967,009 $ 953,883
Interest rate swap agreements................. n/a 1,153 n/a 1,252
Interest rate cap agreements.................. n/a (19) n/a (366)
</TABLE>
In the fourth quarter of Fiscal 1992, Ralphs entered into an interest rate
cap agreement with an effective date of November 6, 1992 and a three year
maturity. The interest rate cap agreement hedges the interest rate in excess of
6.5% LIBOR on $105.0 million principal amount against increases in short-term
rates. This
F-25
<PAGE> 150
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
agreement satisfies interest rate protection requirements under the 1992 Credit
Agreement. In addition to the interest rate cap agreement, Ralphs entered into
an interest rate swap agreement on $150.0 million national principal amount.
Under the interest rate swap agreement, Ralphs is required to pay interest based
on LIBOR at the end of each six month calculation period and Ralphs will receive
interest payments based on LIBOR at the beginning of each six month calculation
period. This interest rate swap agreement has a three-year term expiring
November 6, 1995. Ralphs is exposed to credit loss in the event of
nonperformance by the other party to the interest rate swap agreement. However,
Ralphs does not anticipate nonperformance by the counterpart.
The following details the impact of the hedging activity on the weighted
average rate for each of the last three fiscal years.
<TABLE>
<CAPTION>
WITH HEDGE WITHOUT HEDGE
---------- -------------
<S> <C> <C>
1992........................................................ 10.52% 10.22%
1993........................................................ 8.96% 8.96%
1994........................................................ 9.37% 9.18%
</TABLE>
(17) THE MERGER (UNAUDITED)
On September 14, 1994, Food 4 Less Supermarkets, Inc. ("Food 4 Less"), Food
4 Less Holdings, Inc. ("Holdings"), and the parent company of Holdings, Food 4
Less, Inc. ("FFL"), entered into a definitive Agreement and Plan of Merger (as
amended from time to time, the "Merger Agreement") with Ralphs Supermarkets,
Inc. (the "Holding Company") and its stockholders. Pursuant to the terms of the
Merger Agreement, Food 4 Less will be merged with and into Holding Company (the
"RSI Merger") and Holding Company will continue as the surviving corporation.
Food 4 Less is a multiple format supermarket operator that operates in three
geographic areas: Southern California, Northern California and certain areas of
the Midwest.
Immediately following the RSI Merger, Ralphs Grocery Company ("RGC"), which
is currently a wholly-owned subsidiary of Holding Company, will merge with and
into Holding Company (the "RGC Merger," and together with the RSI Merger, the
"Merger"), and Holding Company will change its name to Ralphs Grocery Company
(the "New Company"). Prior to the Merger, FFL will merge with and into Holdings,
which will be the surviving corporation (the "FFL Merger"). Immediately
following the FFL Merger, Holdings will change its jurisdiction of incorporation
by merging with a newly-formed, wholly-owned subsidiary ("New Holdings"),
incorporated in Delaware (the "Reincorporation Merger"). As a result of the
Merger, the FFL Merger and the Reincorporation Merger, the New Company will
become a wholly-owned subsidiary of New Holdings. Agreement has been reached
with each of the California Attorney General and the Federal Trade Commission
for approval of the Merger. Food 4 Less and Ralphs have agreed in a settlement
agreement with the Attorney General to divest 27 specific stores in Southern
California. Under the agreement, the Company must divest 14 stores by June 30,
1995, and the balance of 13 stores by December 31, 1995.
In order to consummate the Merger, Food 4 Less has made an Offer to
Exchange and Offer to Purchase and Solicit Consents with respect to the holders
of the 9% Senior Subordinated Notes (the "Old RGC 9% Notes") due April 1, 2003
of Ralphs and the 10 1/4% Senior Subordinated Notes due July 15, 2002 of RGC
(the "Old RGC 10 1/4% Notes," and together with the Old RGC 9% Notes, the "Old
RGC Notes") (i) to exchange (as so amended and restated, the "Exchange Offers")
such Old RGC Notes for New Senior Subordinated Notes due 2005 (the "New Notes")
plus a cash payment of $20.00 in cash for each $1,000 principal amount of Old
RGC Notes tendered for exchange or (ii) to purchase (the "Cash Offers," and
together with the Exchange Offers, the "Offers") Old RGC Notes for $1,010 in
cash per $1,000 principal amount of Old RGC Notes accepted for purchase, in each
case, plus accrued and unpaid interest to the date of exchange or purchase. The
Offers are subject to the terms and conditions set forth in an Amended and
F-26
<PAGE> 151
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Restated Prospectus and Solicitation Statement, which has been filed by Food 4
Less with the Securities and Exchange Commission and which is subject to further
change (the "Prospectus"), including: (1) satisfaction of a minimum tender
amount (i.e., at least a majority of the aggregate principal amount of the
outstanding Old RGC Notes being validly tendered for exchange for New Notes and
not withdrawn pursuant to the Offers prior to the date of expiration); (2) the
receipt of the requisite consents to certain amendments to the indentures (the
"Indentures") under which the Old RGC Notes were issued (i.e., consents from
holders of Old RGC Notes representing at least a majority in aggregate principal
amount of each issue of Old RGC Notes held by persons other than Ralphs and its
affiliates) on or prior to the date of expiration; (3) the satisfaction or
waiver, in Food 4 Less' sole discretion, of all conditions precedent to the
Merger; (4) the prior or contemporaneous consummation of other exchange offers,
consent solicitations and public offerings contemplated by the Prospectus; and
(5) the prior or contemporaneous consummation of the bank financing and the
equity investment described in the Prospectus. As a result of the RSI Merger and
the RGC Merger, the New Notes and any outstanding Old RGC Notes not tendered in
the Offers will be the obligations of the New Company.
Conditions to the consummation of the RSI Merger include the receipt of
necessary consents and the completion of financing of the transaction. The
purchase price for Holding Company is approximately $1.5 billion, including the
assumption or repayment of debt. The consideration payable to the stockholders
of Holding Company consists of $375 million in cash, $131.5 million principal
amount of 13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 to be
issued to the selling shareholders of Holding Company (the "Seller Debentures")
by New Holdings and $18.5 million initial accreted value of 13 5/8% Senior
Discount Debentures due 2005 (the "New Discount Debentures"). New Holdings will
use $100 million of the cash received from a new equity investment (the "New
Equity Investment"), together with the Seller Debentures and the New Discount
Debentures, to acquire approximately 48% of the capital stock of Holding Company
immediately prior to consummation of the RSI Merger. New Holdings will then
contribute the $250 million of purchased shares of Holding Company stock to Food
4 Less, and pursuant to the RSI Merger the remaining shares of Holding Company
stock will be acquired for $275 million in cash.
Standard & Poor's has publicly announced that, upon consummation of the
Merger, it intends to assign a new rating to the Old RGC Notes. Such new rating
assignment, if implemented, would constitute a Rating Decline pursuant to the
Indentures. The consummation of the Merger and the resulting change in
composition of the Board of Directors of RGC, together with the anticipated
Rating Decline, would constitute a Change of Control Triggering Event under the
Indentures. Although RGC does not anticipate that there will be a significant
amount of Old RGC Notes outstanding following consummation of the Exchange
Offers, upon such a Change of Control Triggering Event, the New Company would be
obligated to make the Change of Control Offer following the Merger for all
outstanding Old RGC Notes at 101% of the principal amount thereof plus accrued
and unpaid interest to the date of repurchase.
Due to the increased size, dual format strategy and integration related
costs, after giving effect to or in connection with the Merger, RGC believes
that its future operating results will not be directly comparable to the
historical operating results of RGC. Upon consummation of the Merger, the
operations and activities of RGC will be significantly impacted due to
conversions of some existing stores to Food 4 Less warehouse stores as well as
the consolidation of various operating functions and departments. This
consolidation may result in a restructuring charge for the New Company. The
amount of the restructuring charge is not determinable due to various factors,
including uncertainties inherent in the completion of the Merger, however, the
restructuring charge may be material in relation to the stockholders' equity and
financial position of RGC and the New Company.
Following the consummation of the Merger, the New Company will be highly
leveraged.
F-27
<PAGE> 152
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of Food 4 Less Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Food 4 Less
Holdings, Inc. (a California corporation) and subsidiaries (the Company) as of
June 26, 1993 and June 25, 1994, and the related consolidated statements of
operations, shareholder's equity and cash flows for the 52 weeks ended June 27,
1992, the 52 weeks ended June 26, 1993, and the 52 weeks ended June 25, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Food 4 Less
Holdings, Inc. and subsidiaries as of June 26, 1993 and June 25, 1994, and the
results of their operations and their cash flows for the 52 weeks ended June 27,
1992, the 52 weeks ended June 26, 1993, and the 52 weeks ended June 25, 1994 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
July 29, 1994 (except with respect
to the matter discussed in
Note 13, as to which the date is
October 14, 1994, and with respect to
the matter discussed in Note 14, as to
which the date is April 13, 1995)
F-28
<PAGE> 153
FOOD 4 LESS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JUNE 26, JUNE 25, JANUARY 7,
1993 1994 1995
-------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................ $ 25,089 $ 32,996 $ 15,750
Trade receivables, less allowances of $1,919, $1,386 and
$1,264 at June 26, 1993, June 25, 1994 and January 7,
1995, respectively.................................... 22,048 25,039 25,992
Notes and other receivables.............................. 1,278 1,312 777
Inventories.............................................. 191,467 212,892 223,261
Patronage receivables from suppliers..................... 2,680 2,875 5,093
Prepaid expenses and other............................... 6,011 6,323 12,542
-------- -------- --------
Total current assets............................. 248,573 281,437 283,415
INVESTMENTS IN AND NOTES RECEIVABLE FROM SUPPLIER
COOPERATIVES:
A.W.G.................................................... 6,693 6,718 6,718
Certified and Other...................................... 6,657 5,984 5,694
PROPERTY AND EQUIPMENT:
Land..................................................... 23,912 23,488 23,488
Buildings................................................ 12,827 12,827 24,148
Leasehold improvements................................... 81,049 97,673 106,484
Store equipment and fixtures............................. 129,178 148,249 153,538
Transportation equipment................................. 31,758 32,259 32,363
Construction in progress................................. 757 12,641 14,459
Leased property under capital leases..................... 77,553 78,222 78,222
Leasehold interests...................................... 93,863 93,464 93,226
-------- -------- --------
450,897 498,823 525,928
Less: Accumulated depreciation and amortization.......... 96,948 134,089 155,758
-------- -------- --------
Net property and equipment............................ 353,949 364,734 370,170
OTHER ASSETS:
Deferred financing costs, less accumulated amortization
of $11,611, $17,083 and $20,166 at June 26, 1993, June
25, 1994 and January 7, 1995, respectively............ 33,778 28,536 25,529
Goodwill, less accumulated amortization of $26,254,
$33,945 and $38,113 at June 26, 1993, June 25, 1994
and January 7, 1995, respectively..................... 280,895 267,884 263,658
Other, net............................................... 27,295 24,787 29,438
-------- -------- --------
$957,840 $980,080 $984,622
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-29
<PAGE> 154
FOOD 4 LESS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 26, JUNE 25, JANUARY 7,
1993 1994 1995
-------- -------- ----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable........................................ $140,468 $180,708 $ 164,981
Accrued payroll and related liabilities................. 40,319 42,805 39,976
Accrued interest........................................ 5,293 5,474 7,454
Other accrued liabilities............................... 40,467 53,910 60,619
Income taxes payable.................................... 2,053 2,000 689
Current portion of self-insurance liabilities........... 23,552 29,492 28,616
Current portion of long-term debt....................... 12,778 18,314 22,290
Current portion of obligations under capital leases..... 2,865 3,616 3,634
-------- -------- ---------
Total current liabilities....................... 267,795 336,319 328,259
LONG-TERM DEBT............................................ 335,576 310,944 342,396
OBLIGATIONS UNDER CAPITAL LEASES.......................... 41,864 39,998 38,071
SENIOR SUBORDINATED DEBT.................................. 145,000 145,000 145,000
SENIOR HOLDINGS DISCOUNT NOTES............................ 50,230 58,997 64,541
DEFERRED INCOME TAXES..................................... 22,429 14,740 14,740
SELF-INSURANCE LIABILITIES AND OTHER...................... 72,313 64,058 55,701
COMMITMENTS AND CONTINGENCIES............................. -- -- --
SHAREHOLDERS' EQUITY:
Common stock, $.01 par value, 1,600,000 shares
authorized and 1,385,265, 1,381,782 and 1,384,309
shares issued at June 26, 1993, June 25, 1994 and
January 7, 1995, respectively........................ 14 14 14
Additional paid-in capital.............................. 106,452 105,182 105,460
Notes receivable from shareholders...................... (714) (586) (702)
Retained deficit........................................ (83,119) (94,586) (108,858)
-------- -------- ---------
Total shareholders' equity (deficit)............ 22,633 10,024 (4,086)
-------- -------- ---------
$957,840 $980,080 $ 984,622
======== ======== =========
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
F-30
<PAGE> 155
FOOD 4 LESS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FIFTY-TWO FIFTY-TWO FIFTY-TWO TWENTY-EIGHT TWENTY-EIGHT
WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
JUNE 27, JUNE 26, JUNE 25, JANUARY 8, JANUARY 7,
1992 1993 1994 1994 1995
----------- ----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SALES...................................... $2,913,493 $2,742,027 $2,585,160 $1,416,213 $1,404,665
COST OF SALES (including purchases from
related parties of $277,812, $204,028,
$175,929, $106,060 and $99,367 for the 52
weeks ended June 27, 1992, June 26, 1993,
and June 25, 1994, and for the 28 weeks
ended January 8, 1994 and January 7,
1995, respectively)...................... 2,392,655 2,257,835 2,115,842 1,153,989 1,167,205
---------- ---------- ---------- ---------- ----------
GROSS PROFIT............................... 520,838 484,192 469,318 262,224 237,460
SELLING, GENERAL, ADMINISTRATIVE AND OTHER,
NET...................................... 469,751 434,908 388,836 221,464 199,161
AMORTIZATION OF EXCESS COSTS OVER NET
ASSETS ACQUIRED.......................... 7,795 7,571 7,691 4,132 4,168
RESTRUCTURING CHARGE....................... -- -- -- -- 5,134
---------- ---------- ---------- ---------- ----------
OPERATING INCOME........................... 43,292 41,713 72,791 36,628 28,997
INTEREST EXPENSE:
Interest expense, excluding amortization
of deferred financing costs........... 63,907 68,713 71,545 38,635 40,145
Amortization of deferred financing
costs................................. 6,304 4,901 5,472 2,948 3,083
---------- ---------- ---------- ---------- ----------
70,211 73,614 77,017 41,583 43,228
LOSS (GAIN) ON DISPOSAL OF ASSETS.......... (1,364) (2,083) 37 87 (459)
PROVISION FOR EARTHQUAKE LOSSES............ -- -- 4,504 -- --
---------- ---------- ---------- ---------- ----------
LOSS BEFORE PROVISION FOR INCOME TAXES AND
EXTRAORDINARY CHARGES.................... (25,555) (29,818) (8,767) (5,042) (13,772)
PROVISION FOR INCOME TAXES................. 3,441 1,427 2,700 700 500
---------- ---------- ---------- ---------- ----------
LOSS BEFORE EXTRAORDINARY CHARGES.......... (28,996) (31,245) (11,467) (5,742) (14,272)
EXTRAORDINARY CHARGES:
Loss on extinguishment of debt, net of
income tax benefit of $2,484.......... 6,716 -- -- -- --
Gain on partially depreciated assets
replaced by insurance companies, net
of income tax expense of $702......... (1,898) -- -- -- --
---------- ---------- ---------- ---------- ----------
NET LOSS................................... $ (33,814) $ (31,245) $ (11,467) $ (5,742) $ (14,272)
========== ========== ========== ========== ==========
LOSS PER COMMON SHARE:
Loss before extraordinary charges........ $ (20.74) $ (22.43) $ (8.29) $ (4.15) $ (10.32)
Extraordinary charges.................... (3.45) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net loss................................. $ (24.19) $ (22.43) $ (8.29) $ (4.15) $ (10.32)
========== ========== ========== ========== ==========
Average Number of Common Shares
Outstanding........................... 1,397,939 1,393,289 1,382,710 1,383,127 1,383,170
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-31
<PAGE> 156
FOOD 4 LESS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
FIFTY-TWO FIFTY-TWO FIFTY-TWO TWENTY-EIGHT TWENTY-EIGHT
WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
JUNE 27, JUNE 26, JUNE 25, JANUARY 8, JANUARY 7,
1992 1993 1994 1994 1995
----------- ----------- ----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH PROVIDED (USED) BY OPERATING
ACTIVITIES:
Cash received from customers........... $ 2,913,493 $ 2,742,027 $ 2,585,160 $ 1,416,213 $ 1,404,665
Cash paid to suppliers and employees... (2,752,442) (2,711,779) (2,441,353) (1,361,103) (1,389,667)
Interest paid.......................... (56,234) (58,807) (56,762) (29,178) (32,621)
Income taxes (paid) refunded........... (4,665) 2,971 (247) 1,652 (1,811)
Interest received...................... 1,266 993 903 486 836
Other, net............................. 4,734 8,093 121 2,388 583
----------- ----------- ----------- ------------ ------------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES............................. 106,152 (16,502) 87,822 30,458 (18,015)
CASH PROVIDED (USED) BY INVESTING
ACTIVITIES:
Proceeds from sale of property and
equipment........................... 17,395 15,685 11,953 12,307 7,120
Payment for purchase of property and
equipment........................... (60,263) (53,467) (57,471) (20,404) (39,049)
Proceeds (payment) for sale (purchase)
of other assets..................... (4,754) (18) 813 -- --
Business acquisition costs, net of cash
acquired............................ (27,563) -- (11,050) -- --
Receivable received from seller of
business acquired................... 12,259 -- -- -- --
Other, net............................. -- -- -- 61 (907)
----------- ----------- ----------- ------------ ------------
NET CASH USED BY INVESTING ACTIVITIES.... (62,926) (37,800) (55,755) (8,036) (32,836)
CASH PROVIDED (USED) BY FINANCING
ACTIVITIES:
Proceeds from issuance of long-term
debt................................ 177,500 26,557 28 28 --
Net increase (decrease) in revolving
loan................................ (23,900) 4,900 (4,900) (4,900) 48,700
Payments of long-term debt............. (184,389) (14,319) (14,224) (10,395) (13,272)
Proceeds from the issuance of preferred
stock............................... -- 46,348 -- -- --
Proceeds from issuance of common stock,
net................................. 341 3,652 -- -- --
Purchase of treasury stock, net........ (313) (545) (1,192) (726) 92
Payments of capital lease obligation... (2,814) (2,840) (3,693) (1,565) (1,909)
Deferred financing costs and other..... (6,656) (8,839) (179) (161) (6)
----------- ----------- ----------- ------------ ------------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES............................. (40,231) 54,914 (24,160) (17,719) 33,605
----------- ----------- ----------- ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................ 2,995 612 7,907 4,703 (17,246)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD................. 21,482 24,477 25,089 25,089 32,996
----------- ----------- ----------- ------------ ------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD....................... $ 24,477 $ 25,089 $ 32,996 $ 29,792 $ 15,750
=========== =========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-32
<PAGE> 157
FOOD 4 LESS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
FIFTY-TWO FIFTY-TWO FIFTY-TWO TWENTY-EIGHT TWENTY-EIGHT
WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
JUNE 27, JUNE 26, JUNE 25, JANUARY 8, JANUARY 7,
1992 1993 1994 1994 1995
----------- ----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED (USED) BY OPERATING ACTIVITIES:
Net loss................................ $(33,814) $(31,245) $(11,467) $(5,742) $ (14,272)
Adjustments to reconcile net loss to net
cash provided (used) by operating
activities:
Depreciation and amortization........ 61,181 62,541 62,555 33,320 33,878
Accretion of Holdings Discount
Notes.............................. -- 3,882 8,767 4,721 5,544
Extraordinary charge................. 4,818 -- -- -- --
Restructuring charge................. -- -- -- -- 5,134
Loss (gain) on sale of assets........ (1,364) (4,613) 65 87 (459)
Equity loss on investments in
supplier cooperative............... 472 207 -- --
Change in assets and liabilities, net
of effects from acquisition of
businesses:
Accounts and notes receivable...... (7,688) 17,145 (3,220) (9,568) (2,725)
Inventories........................ 202 17,697 (17,125) (16,106) (10,369)
Prepaid expenses and other......... (2,834) (6,163) (5,717) (5,659) (9,097)
Accounts payable and accrued
liabilities..................... 71,369 (83,286) 55,301 23,752 (20,228)
Self-insurance liabilities......... 15,034 2,935 (3,790) 3,301 (4,110)
Deferred income taxes.............. 2,033 4,004 2,506 1,714 --
Income taxes payable............... (3,257) 394 (53) 638 (1,311)
-------- -------- -------- ------- ---------
Total adjustments.................... 139,966 14,743 99,289 36,200 (3,743)
-------- -------- -------- ------- ---------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES.............................. $106,152 $(16,502) $ 87,822 $30,458 $ (18,015)
======== ======== ======== ======= =========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Purchase of property and equipment
through issuance of capital lease
obligation........................... -- -- $ 2,575 -- --
======== ======== ======== ======= =========
Reduction of goodwill and deferred
income taxes......................... -- -- $ 9,896 -- --
======== ======== ======== ======= =========
Acquisition of businesses:
Fair value of assets acquired........ -- -- $ 11,241 -- --
Net cash paid in acquisition......... -- -- (11,050) -- --
-------- -------- -------- ------- ---------
Liabilities assumed.................. -- -- $ 191 -- --
======== ======== ======== ======= =========
Final purchase price allocation for the
Alpha Beta Acquisition:
Property and equipment valuation
adjustment......................... $ 44,231 -- -- -- --
======== ======== ======== ======= =========
Additional acquisition liabilities... $ 14,305 -- -- -- --
======== ======== ======== ======= =========
Deferred tax benefit................. $ 12,800 -- -- -- --
======== ======== ======== ======= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-33
<PAGE> 158
FOOD 4 LESS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
------------------ --------------- TOTAL
NUMBER NUMBER SHARE- ADD'L SHARE-
OF OF HOLDERS' PAID-IN RETAINED HOLDERS'
SHARES AMOUNT SHARES AMOUNT NOTES CAPITAL (DEFICIT) EQUITY
--------- ------ ------ ------ --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES AT JUNE 29, 1991........... 1,396,878 $ 14 (1,250) $ (125) $(930) $103,658 $ (18,060) $ 84,557
Net loss.......................... -- -- -- -- -- -- (33,814) (33,814)
Issuance of Common Stock.......... 1,636 -- -- -- (190) 341 -- 151
Purchase of Treasury Stock........ -- -- (3,947) (463) 131 -- -- (332)
Sale of Treasury Stock............ -- -- 1,560 159 (50) -- -- 109
Payments of Shareholders' Notes... -- -- -- -- 100 -- -- 100
--------- ---- ------ ------ ----- -------- --------- --------
BALANCES AT JUNE 27, 1992........... 1,398,514 14 (3,637) (429) (939) 103,999 (51,874) 50,771
Net loss.......................... -- -- -- -- -- -- (31,245) (31,245)
Issuance of Common Stock
Warrants....................... -- -- -- -- -- 3,652 -- 3,652
Purchase of Treasury Stock........ -- -- (9,612) (770) 225 -- -- (545)
Elimination of Treasury Stock..... (13,249) -- 13,249 1,199 -- (1,199) -- --
--------- ---- ------ ------ ----- -------- --------- --------
BALANCES AT JUNE 26, 1993........... 1,385,265 14 -- -- (714) 106,452 (83,119) 22,633
Net loss.......................... -- -- -- -- -- -- (11,467) (11,467)
Purchase of Common Stock.......... (3,483) -- -- -- 78 (1,270) -- (1,192)
Payments of Shareholders' Notes... -- -- -- -- 50 -- -- 50
--------- ---- ------ ------ ----- -------- --------- --------
BALANCES AT JUNE 25, 1994........... 1,381,782 14 -- -- (586) 105,182 (94,586) 10,024
Payment of Shareholders' Notes
(unaudited).................... -- -- -- -- 70 -- -- 70
Issuance of Common Stock
(unaudited).................... 3,644 -- -- -- (191) 340 -- 149
Purchase of Common Stock
(unaudited).................... (1,117) -- -- -- 5 (62) -- (57)
Net loss (unaudited).............. -- -- -- -- -- -- (14,272) (14,272)
--------- ---- ------ ------ ----- -------- --------- --------
BALANCES AT JANUARY 7, 1995
(unaudited)....................... 1,384,309 $ 14 -- $ -- $(702) $105,460 $(108,858) $ (4,086)
========= ==== ====== ====== ===== ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-34
<PAGE> 159
FOOD 4 LESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND ACQUISITIONS
Food 4 Less Holdings, Inc. ("Holdings" or together with its subsidiaries,
the "Company"), a majority-owned subsidiary of Food 4 Less, Inc. ("FFL"), was
formed on December 8, 1992 for the purpose of issuing Senior Discount Notes (the
"Holdings Discount Notes") in a principal amount sufficient to yield gross
proceeds of approximately $50.0 million, together with Common Stock Purchase
Warrants (the "Warrants") in a private placement offering. FFL is a holding
company with no operations or activities and its only asset is its investment in
Holdings. In conjunction with the offering of the Holdings Discount Notes and
Warrants, the stockholders of Food 4 Less Supermarkets, Inc. (together with its
subsidiaries, "Supermarkets") exchanged their common stock in Supermarkets for
common stock in Holdings, and Supermarkets became a 100%-owned subsidiary of
Holdings. Supermarkets is a multiple format supermarket operator that tailors
its retail strategy to the particular needs of the individual communities it
serves. It operates in three geographic areas: Southern California, Northern
California and certain areas of the Midwest. Supermarkets has three first-tier
subsidiaries: Cala Co. ("Cala"), Falley's, Inc. ("Falley's") and Food 4 Less of
Southern California, Inc. ("F4L-SoCal"), formerly known as Breco Holding
Company, Inc. ("BHC"). Cala Foods, Inc. ("Cala Foods") and Bell Markets, Inc.
("Bell") are subsidiaries of Cala, and Alpha Beta Company ("Alpha Beta") is a
subsidiary of F4L-SoCal.
(a) Acquisitions
On March 29, 1994, the Company purchased certain operating assets formerly
owned by Food Barn Stores, Inc. (the "Food Barn Stores") from Associated
Wholesale Grocers, Inc. ("AWG") (the "Food Barn Acquisition") for $11,241,000
(including acquisition costs of $180,000). The financial statements reflect the
preliminary allocation of the purchase price as the purchase price allocation
has not been finalized. The effect of the acquisition was not material to the
Company's financial position and results of operations. Falley's has agreed to
purchase merchandise (as defined) for the Food Barn Stores from AWG through
March 24, 2001. Falley's has pledged its patronage dividends and notes
receivable from AWG as security under this supply agreement.
On June 17, 1991, Supermarkets acquired all of the common stock of Alpha
Beta for $270,513,000 (including acquisition costs of $41,477,000) in a
transaction accounted for as a purchase.
In January 1990, Supermarkets purchased certain operating assets of ABC
Market Corp. ("ABC") for $14,675,000, plus approximately $1,000,000 in fees and
expenses.
On June 30, 1989, Supermarkets acquired Bell for approximately $13,700,000,
which includes $8,000,000 of notes and the assumption of Bell's long-term debt.
The transaction was accounted for as a purchase. Certified Grocers of
California, Ltd. ("Certified") has guaranteed up to $4,000,000 of notes issued
by the Company to the seller in connection with the purchase and the performance
of a lease.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Business
Holdings is a nonoperating holding company formed for the purpose of
issuing the Holdings Discount Notes and the Warrants.
The Company is engaged primarily in the operation of retail supermarkets.
(b) Basis of Presentation
Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. The results of operations of Alpha Beta, F4L-SoCal
F-35
<PAGE> 160
FOOD 4 LESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(BHC), Bell, ABC and the Food Barn Stores have been excluded from the
consolidated financial statements prior to their respective acquisition dates.
The excess of the purchase price over the fair value of the net assets acquired
is classified as goodwill. All intercompany transactions have been eliminated in
consolidation.
Interim Financial Statements. The consolidated balance sheet of the Company
as of January 7, 1995 and the consolidated statements of operations and cash
flows for the interim periods ended January 7, 1995 and January 8, 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 herein. Results of operations for interim periods are not necessarily
indicative of the results for a full fiscal year.
(c) Fiscal Years
The Company's fiscal year is the 52 or 53-week period which ends on the
last Saturday in June. Fiscal years 1994, 1993, and 1992 include 52 weeks.
(d) Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three months or
less to be cash equivalents.
(e) Inventories
Inventories, which consist of grocery products, are stated at the lower of
cost or market. Cost has been principally determined using the last-in,
first-out ("LIFO") method. If inventories had been valued using the first-in,
first-out ("FIFO") method, inventories would have been higher by $13,103,000,
$13,802,000 and $16,202,000 (unaudited) at June 26, 1993, June 25, 1994 and
January 7, 1995, respectively, and gross profit and operating income would have
been greater by $3,554,000, $4,441,000, $699,000, $2,200,000 (unaudited) and
$2,400,000 (unaudited) for the 52 weeks ended June 27, 1992, the 52 weeks ended
June 26, 1993, the 52 weeks ended June 25, 1994, the 28 weeks ended January 8,
1994, and the 28 weeks ended January 7, 1995, respectively.
(f) Pre-opening Costs
The costs associated with opening new stores are deferred and amortized
over one year following the opening of each new store.
(g) Closed Store Reserves
When a store is closed, the Company provides a reserve for the net book
value of any store assets, net of salvage value, and the net present value of
the remaining lease obligation, net of sublease income. For the 52 weeks ended
June 27, 1992, the 52 weeks ended June 26, 1993, the 52 weeks ended June 25,
1994, the 28 weeks ended January 8, 1994 and the 28 weeks ended January 7, 1995,
utilization of this reserve was $4.0 million, $2.4 million, $1.1 million, $0.5
million (unaudited) and $0.5 million (unaudited), respectively.
(h) Investments in Supplier Cooperatives
The investment in Certified is accounted for on the cost method. There are
certain restrictions on the sale of this investment.
F-36
<PAGE> 161
FOOD 4 LESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(i) Investment in Food 4 Less of Modesto, Inc.
During the 52 weeks ended June 26, 1993, the Company sold its 20%
investment in Food 4 Less of Modesto, Inc. ("Modesto") for gross proceeds of
$4.5 million, which included a $1.5 million note receivable, resulting in a gain
of $2.5 million. The Company previously accounted for this investment using the
cost method.
(j) Property and Equipment
Property and equipment are stated at cost and are depreciated principally
using the straight-line method over the following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements.................. 5-40 years
Equipment and fixtures...................... 3-10 years
Property under capital leases and leasehold
interests................................. 3-45 years (lease term)
</TABLE>
(k) Deferred Financing Costs
Costs incurred in connection with the issuance of debt are amortized over
the term of the related debt using the effective interest method.
(l) Goodwill and Covenants Not to Compete
The excess of the purchase price over the fair value of the net assets of
businesses acquired is amortized on a straight-line basis over 40 years
beginning at the date of acquisition. Covenants not to compete, which are
included in Other Assets, are amortized on a straight-line basis over the term
of the covenant.
Current and undiscounted future operating cash flows are compared to
current and undiscounted future goodwill amortization to determine if an
impairment of goodwill has occurred and is continuing. As of June 25, 1994, no
impairment exists.
(m) Income Taxes
On June 27, 1993, the Company prospectively adopted Statement of Financial
Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes. SFAS 109
is an asset and liability approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns. In
estimating future tax consequences, SFAS 109 generally considers all expected
future events other than enactments of changes in the tax law or rates.
Previously, the Company used the SFAS 96 asset and liability approach that gave
no recognition to future events other than the recovery of assets and settlement
of liabilities at their carrying amounts.
Under SFAS 109, the Company recognizes to a greater degree the future tax
benefits of expenses which have been recognized in the financial statements.
The implementation of SFAS No. 109 did not have a material effect on the
accompanying consolidated financial statements.
(n) Notes Receivable from Shareholders
Notes receivable from shareholders represent loans to employees of the
Company for purchases of the Company's stock. The notes are due over various
periods, bear interest at the prime rate, and are secured by each shareholder's
shares of common stock.
F-37
<PAGE> 162
FOOD 4 LESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(o) Self-Insurance
Certain of the Company's subsidiaries are self-insured for a portion of
workers' compensation, general liability and automobile accident claims. The
Company establishes reserves based on an independent actuary's review of claims
filed and an estimate of claims incurred but not yet filed.
(p) Discounts and Promotional Allowances
Promotional allowances and vendor discounts are recorded as a reduction of
cost of sales in the accompanying consolidated statements of operations.
Allowance proceeds received in advance are deferred and recognized over the
period earned.
(q) Provision for Earthquake Losses
On January 17, 1994, Southern California was struck by a major earthquake
which resulted in the temporary closing of 31 of the Company's stores. The
closures were caused primarily by loss of electricity, water, inventory, or
structural damage. All but one of the closed stores reopened within a week of
the earthquake. The final closed store reopened on March 24, 1994. The Company
is insured against earthquake losses (including business interruption), subject
to certain deductibles. The pre-tax financial impact, net of insurance claims,
was approximately $4.5 million. At June 25, 1994, the Company had received all
expected insurance proceeds related to this claim.
(r) Extraordinary Items
For the 52 weeks ended June 27, 1992, the Company classified the write-off
of deferred financing costs associated with the early extinguishment of debt as
an extraordinary item. For the 52 weeks ended June 27, 1992, the Company also
classified the difference between the net book value and replacement cost of
property and equipment destroyed during the April 1992 civil unrest in Los
Angeles and replaced by insurance companies as an extraordinary item. Proceeds
received from insurance companies for business interruption related to the civil
unrest are included as a component of selling, general, administrative and other
expenses.
(s) Loss Per Common Share
Loss per common share is computed based on the weighted average number of
shares outstanding during the applicable period. Fully diluted loss per share
has been omitted as it is anti-dilutive for all periods presented.
(t) Reclassifications
Certain prior period amounts in the consolidated financial statements have
been reclassified to conform to the June 25, 1994 presentation.
F-38
<PAGE> 163
FOOD 4 LESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) LONG-TERM DEBT AND SENIOR SUBORDINATED DEBT
The Company's long-term debt is summarized as follows:
<TABLE>
<CAPTION>
JUNE 26, JUNE 25,
1993 1994
------------ ------------
<S> <C> <C>
Bank Term Loan, principal due quarterly through January
1999, with interest payable monthly in arrears........ $148,478,000 $137,064,000
10.45 percent Senior Notes principal due 2000 with
interest payable semi-annually in arrears............. 175,000,000 175,000,000
15.25 percent Senior Holdings Discount Notes due 2004;
after December 15, 1997, interest payable
semi-annually in arrears.............................. 50,230,000 58,997,000
Revolving Loan.......................................... 4,900,000 --
10.625 percent first real estate mortgage due 1998,
$12,000 of principal plus interest payable monthly
secured by land and building with a net book value of
$2,122,000............................................ 1,558,000 1,521,000
9.2 to 9.25 percent notes payable, collateralized by
equipment, due September 1994, $67,000 of principal
plus interest payable monthly, plus balloon payment of
$992,000.............................................. 1,772,000 1,103,000
10.8 percent notes payable, collateralized by equipment,
due September 1995, $72,000 of principal plus interest
payable monthly, plus balloon payment of $1,004,000... 2,447,000 1,819,000
10.0 percent secured promissory note, collateralized by
the stock of Bell, due 1996, interest payable
quarterly through June 1996........................... 8,000,000 8,000,000
10.08 percent notes payable, collateralized by
equipment, due November 1996, $34,000 of principal
plus interest payable monthly, plus balloon payment of
$493,000.............................................. 1,515,000 1,242,000
10.15 percent notes payable, collateralized by
equipment, due December 1996, $45,000 of principal and
interest payable monthly, plus balloon payment of
$640,000.............................................. 1,994,000 1,675,000
10.0 percent real estate mortgage due 2000, $8,000 of
principal and interest payable monthly................ 474,000 419,000
Other long-term debt.................................... 2,216,000 1,415,000
------------ ------------
398,584,000 388,255,000
Less -- current portion................................. 12,778,000 18,314,000
------------ ------------
$385,806,000 $369,941,000
============ ============
</TABLE>
In June 1991, Supermarkets and certain of its subsidiaries entered into a
Credit Agreement (the "Credit Agreement") with certain banks, comprised of a
$315,000,000 Term Loan (the "Bank Term Loan") facility, a $70,000,000 Revolving
Loan (the "Revolving Loan") facility and a $55,000,000 standby letter of credit
facility (the "Letter of Credit Facility"). At June 25, 1994, $137,064,000 was
outstanding under the Bank Term Loan, there were no borrowings outstanding under
the Revolving Loan and $48,131,000 of standby letters of credit had been issued
on behalf of the Company. A commitment fee of 1/2 of 1 percent is charged on the
average daily unused portion of the Revolving Loan and the Letter of Credit
Facility; such commitment fees are due quarterly in arrears. Interest on
borrowings under the Bank Term Loan is at the bank's Base Rate (as defined) plus
1.25 percent or the Eurodollar Rate (as defined) plus 2.5 percent. At June 25,
1994, the weighted average interest rate on the Bank Term Loan was 6.5 percent.
In accordance with certain requirements of the Credit Agreement, the Company
purchased an interest rate cap for a principal amount of approximately $91.4
million on the three-month Libor rate at 5.5% which expires on January 3, 1995.
Quarterly principal installments on the Bank Term Loan continue to December
1998, with $15,580,000
F-39
<PAGE> 164
FOOD 4 LESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
payable in fiscal year 1995, $21,245,000 payable in fiscal year 1996,
$22,661,000 payable in fiscal 1997, $40,489,000 payable in fiscal 1998, and
$37,089,000 payable in fiscal 1999. Interest on borrowings under the Revolving
Loan is at the bank's Base Rate (as defined) plus 1.25 percent. At June 25,
1994, the interest rate on the Revolving Loan was 8.5 percent. To the extent
borrowings under the Revolving Loan are not paid earlier, they are due in June
1996. The common stock of F4L-SoCal, Falley's, Cala and certain of their direct
and indirect subsidiaries has been pledged as security under the Credit
Agreement.
In April 1992, Supermarkets and its wholly-owned subsidiaries issued
$175,000,000 of 10.45 percent Senior Notes (the "Senior Notes"). These notes are
due in two equal sinking fund payments on April 15, 1999 and 2000. They are
general unsecured obligations of the Company and rank senior in right of payment
to all subordinated indebtedness (as defined). The Senior Notes rank pari passu
in right of payment with all borrowings and other obligations of the Company
under its bank Credit Agreement; however, the obligations under the Credit
Agreement are secured by substantially all the assets of the Company and its
subsidiaries. The Senior Notes may be redeemed beginning in 1996 at 104.5
percent, declining ratably to 100 percent in 1999. The proceeds received, net of
issuance costs, were used to pay down borrowings under the Bank Term Loan.
Deferred financing costs related to the portion of the Bank Term Loan that was
retired of $6.7 million, net of related tax benefit of $2.5 million, are
classified as an extraordinary item in the Company's consolidated statement of
operations for the 52 weeks ended June 27, 1992.
Scheduled maturities of principal of Long-Term Debt at June 25, 1994 are as
follows:
<TABLE>
<S> <C>
1995.................................................. $ 18,314,000
1996.................................................. 23,384,000
1997.................................................. 32,322,000
1998.................................................. 40,701,000
1999.................................................. 124,823,000
Later years........................................... 148,711,000
------------
$388,255,000
============
</TABLE>
Supermarkets issued $145,000,000 principal amount of Senior Subordinated
Notes (the "Subordinated Notes") in connection with the acquisition of Alpha
Beta as described in Note 1. The Subordinated Notes bear interest, payable
semi-annually on June 15 and December 15, at an annual rate of 13.75 percent.
The Subordinated Notes are subordinated to all Senior Indebtedness (as defined)
of the Company, and may be redeemed beginning in 1996 at a redemption price of
106 percent. The redemption price declines ratably to 100 percent in 2000.
On December 31, 1992, Holdings issued $103.6 million aggregate principal
amount of Holdings Discount Notes and 121,118 Warrants for gross proceeds of
$50.0 million. The expenses related to the issuance of the Discount Notes and
the Warrants were paid by Supermarkets. The Holdings Discount Notes are due in
two equal sinking fund payments on December 15, 2003 and 2004. They are general
unsecured obligations of Holdings and will rank senior in right of payment to
all future subordinated indebtedness of Holdings and pari passu in right of
payment to all future senior indebtedness of Holdings. As a debt obligation of
Holdings, the Holdings Discount Notes are structurally subordinate to all
existing and future liabilities and obligations (whether or not borrowed for
money) of Supermarkets. The first cash interest payment is due June 15, 1998.
The debt agreements, among other things, require Supermarkets to maintain
minimum levels of net worth (as defined), to maintain minimum levels of earnings
(as defined), to maintain a hedge agreement to provide interest rate protection,
and to comply with certain ratios related to interest expense (as defined),
fixed charges (as defined), working capital and indebtedness. In addition, the
debt agreements limit, among other things, additional borrowings, dividends on,
and redemption of, capital stock, capital expenditures, incurrence of lease
obligations, and the acquisition and disposition of assets. At June 26, 1993 and
June 25, 1994, the
F-40
<PAGE> 165
FOOD 4 LESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company was in compliance with the financial covenants of its debt agreements.
At June 25, 1994, dividends and certain other payments are restricted based on
terms in the debt agreements.
(4) LEASES
The Company's operations are conducted primarily in leased properties.
Substantially all leases contain renewal options. Rental expense under operating
leases was as follows:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JUNE 27, JUNE 26, JUNE 25,
1992 1993 1994
----------- ----------- -----------
<S> <C> <C> <C>
Minimum rents................................. $46,706,000 $44,504,000 $49,788,000
Rents based on sales.......................... 7,656,000 5,917,000 3,806,000
</TABLE>
Following is a summary of future minimum lease payments under operating
leases at June 25, 1994:
<TABLE>
<S> <C>
1995................................................... $ 52,542,000
1996................................................... 48,966,000
1997................................................... 45,325,000
1998................................................... 38,925,000
1999................................................... 34,423,000
Later years............................................ 269,332,000
------------
$489,513,000
============
</TABLE>
The Company has entered into lease agreements for new supermarket sites
which were not in operation at June 25, 1994. Future minimum lease payments
under such operating leases generally begin when such supermarkets open and at
June 25, 1994 are: 1995 -- $5,990,000; 1996 -- $11,772,000; 1997 -- $11,825,000;
1998 -- $11,810,000; 1999 -- $11,819,000; later years -- $218,480,000.
Certain leases qualify as capital leases under the criteria established in
Statement of Financial Accounting Standards No. 13, "Accounting for Leases," and
are classified on the consolidated balance sheets as leased property under
capital leases. Future minimum lease payments for the property under capital
leases at June 25, 1994 are as follows:
<TABLE>
<S> <C>
1995.................................................... $ 7,948,000
1996.................................................... 7,521,000
1997.................................................... 6,995,000
1998.................................................... 6,374,000
1999.................................................... 6,071,000
Later years............................................. 44,108,000
-----------
Total minimum lease payments.................. 79,017,000
Less: amounts representing interest..................... 35,403,000
-----------
Present value of minimum lease payments................. 43,614,000
Less: current portion................................... 3,616,000
-----------
$39,998,000
===========
</TABLE>
Accumulated depreciation related to capital leases was $20,356,000 and
$24,041,000 at June 26, 1993 and June 25, 1994, respectively.
F-41
<PAGE> 166
FOOD 4 LESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is leasing a distribution facility and four store locations
from the previous owner of Alpha Beta. The agreement contains a purchase option
for the land, buildings and improvements and equipment at a price that equals or
exceeds the estimated fair market value throughout the term of the lease.
(5) INVESTMENT IN A.W.G.
The investment in Associated Wholesale Grocers ("A.W.G.") consists
principally of the cooperative's six percent interest-bearing seven and
eight-year patronage certificates received in payment of certain rebates.
Following is a summary of future maturities based upon current redemption terms:
<TABLE>
<S> <C>
1995..................................................... $ --
1996..................................................... --
1997..................................................... 795,000
1998..................................................... 1,420,000
1999..................................................... 1,520,000
Later years.............................................. 2,983,000
----------
$6,718,000
==========
</TABLE>
(6) INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JUNE 27, JUNE 26, JUNE 25,
1992 1993 1994
---------- ---------- -----------
<S> <C> <C> <C>
Current:
Federal..................................... $2,507,000 $ -- $ 3,251,000
State and other............................. 934,000 82,000 712,000
---------- ---------- -----------
3,441,000 82,000 3,963,000
---------- ---------- -----------
Deferred:
Federal..................................... -- 1,345,000 78,000
State and other............................. -- -- (1,341,000)
---------- ---------- -----------
-- 1,345,000 (1,263,000)
---------- ---------- -----------
$3,441,000 $1,427,000 $ 2,700,000
========== ========== ===========
</TABLE>
F-42
<PAGE> 167
FOOD 4 LESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the provision (benefit) for income taxes to amounts
computed at the federal statutory rates of 34% for fiscal 1992 and 1993 and 35%
for fiscal 1994 is as follows:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JUNE 27, JUNE 26, JUNE 25,
1992 1993 1994
------------ ------------ -----------
<S> <C> <C> <C>
Federal income taxes at statutory rate on loss
before provision for income taxes and
extraordinary charges........................... $ (8,689,000) $(10,138,000) $(3,068,000)
State and other taxes, net of federal tax
benefit......................................... 934,000 82,000 (1,000)
Alternative minimum tax........................... 2,507,000 -- --
Effect of permanent differences resulting from:
Amortization of goodwill........................ 2,706,000 2,850,000 2,820,000
Original issue discount......................... -- 208,000 526,000
Accounting limitation of deferred tax benefit..... 5,983,000 8,425,000 2,423,000
------------ ------------ -----------
$ 3,441,000 $ 1,427,000 $ 2,700,000
============ ============ ===========
</TABLE>
The provision (benefit) for deferred taxes consists of the following:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JUNE 27, JUNE 26, JUNE 25,
1992 1993 1994
------------ ------------ -----------
<S> <C> <C> <C>
Depreciation...................................... $ 6,282,000 $ 7,756,000 $ 2,536,000
Difference between book and tax basis of assets
sold............................................ 2,514,000 3,198,000 (4,223,000)
Deferred revenues and allowances.................. (7,028,000) 40,000 (2,349,000)
Original issue discount........................... -- (1,308,000) (2,981,000)
Pre-opening costs................................. 1,072,000 (512,000) 174,000
Accounts receivable reserves...................... -- (270,000) 249,000
Unicap............................................ (124,000) (5,000) (536,000)
Capital lease obligation.......................... (2,010,000) (1,385,000) 2,792,000
Self-insurance reserves........................... (13,558,000) (4,082,000) (535,000)
Inventory shrink reserve.......................... (528,000) 777,000 (869,000)
LIFO.............................................. 7,104,000 (554,000) (1,010,000)
Closed store reserve.............................. 964,000 1,092,000 440,000
Accrued expense................................... -- -- (582,000)
Accrued payroll and related liabilities........... (2,656,000) 193,000 1,721,000
Damaged inventory reimbursement................... 1,195,000 -- --
Acquisition costs................................. 4,974,000 2,626,000 1,397,000
Sales tax reserves................................ -- (715,000) (418,000)
Deferred rent subsidy............................. -- (483,000) (624,000)
Net operating loss usage.......................... -- -- 5,782,000
Tax credits benefited............................. -- (1,392,000) (4,477,000)
Accounting limitation (recognition) of deferred
tax benefit..................................... 1,588,000 (3,283,000) 1,896,000
Other, net........................................ 211,000 (348,000) 354,000
------------ ------------ -----------
$ -- $ 1,345,000 $(1,263,000)
============ ============ ===========
</TABLE>
F-43
<PAGE> 168
FOOD 4 LESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The significant components of the Company's deferred tax assets
(liabilities) are as follows:
<TABLE>
<CAPTION>
JUNE 26, JUNE 25,
1993 1994
------------ ------------
<S> <C> <C>
Deferred tax assets:
Accrued payroll and related liabilities............... $ 4,064,000 $ 2,448,000
Other accrued liabilities............................. 14,796,000 18,271,000
Property and equipment................................ 9,674,000 2,997,000
Self-insurance liabilities............................ 30,907,000 27,744,000
Loss carryforwards.................................... 27,863,000 20,675,000
Tax credit carryforwards.............................. 1,392,000 5,869,000
Other................................................. 1,223,000 580,000
------------ ------------
Gross deferred tax assets.......................... 89,919,000 78,584,000
Valuation allowance................................... (46,316,000) (35,467,000)
------------ ------------
Net deferred tax assets............................ $ 43,603,000 $ 43,117,000
------------ ------------
Deferred tax liabilities:
Inventories........................................... $(20,243,000) $(16,738,000)
Property and equipment................................ (38,298,000) (30,516,000)
Obligations under capital leases...................... (5,802,000) (8,733,000)
Other................................................. (1,689,000) (1,870,000)
------------ ------------
Gross deferred tax liability....................... (66,032,000) (57,857,000)
------------ ------------
Net deferred tax liability......................... $(22,429,000) $(14,740,000)
============ ============
</TABLE>
The Company recorded a valuation allowance to reserve a portion of its
gross deferred tax assets at June 25, 1994 due primarily to financial and tax
losses in recent years. Under SFAS 109, this valuation allowance will be
adjusted in future periods as appropriate. However, the timing and extent of
such future adjustments to the allowance cannot be determined at this time.
At June 25, 1994, approximately $8,864,000 of the valuation allowance for
deferred tax assets will reduce goodwill when the allowance is no longer
required.
At June 25, 1994, the Company has net operating loss carryforwards for
federal income tax purposes of $59,071,000, which expire in 2007 through 2008.
The Company has federal and state Alternative Minimum Tax ("AMT") credit
carryforwards of approximately $4,090,000 which are available to reduce future
regular taxes in excess of AMT. Currently, there is no expiration date for these
credits.
FFL files a consolidated federal income tax return, under which the federal
income tax liability of FFL and its subsidiaries (which since June 23, 1989
include the Company) is determined on a consolidated basis. FFL has entered into
a federal income tax sharing agreement with the Company and certain of its
subsidiaries (the "Tax Sharing Agreement"). The Tax Sharing Agreement provides
that in any year in which the Company is included in any consolidated tax
liability of FFL and has taxable income, the Company will pay to FFL the amount
of the tax liability that the Company would have had on such due date if it had
been filing a separate return. Conversely, if the Company generates losses or
credits which actually reduce the consolidated tax liability of FFL and its
other subsidiaries, FFL will credit to the Company the amount of such reduction
in the consolidated tax liability. These credits are passed between FFL and the
Company in the form of cash payments. In the event any state and local income
taxes are determinable on a combined or consolidated basis, the Tax Sharing
Agreement provides for a similar allocation between FFL and the Company of such
state and local taxes.
F-44
<PAGE> 169
FOOD 4 LESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company currently has an Internal Revenue Service examination in
process covering its 1990 and 1991 fiscal years. The Internal Revenue Service
has not yet made any additional tax assessments related to these years.
(7) RELATED PARTY TRANSACTIONS
Supermarkets has a five-year consulting agreement with an affiliated
company effective June 17, 1991 for management, financing, acquisition and other
services. The agreement is automatically renewed on January 1 of each year for
the five-year term unless ninety (90) days' notice is given by either party. The
contract provides for annual management fees equal to $2 million plus an
additional amount based on Supermarkets' performance and advisory fees for
acquisition and financing transactions.
Fees paid or accrued associated with management services were $2,270,000
during the 52 weeks ended June 25, 1994, $2,000,000 during the 52 weeks ended
June 26, 1993, and $2,000,000 during the 52 weeks ended June 27, 1992. Advisory
fees paid or accrued were $170,000 during the 52 weeks ended June 25, 1994,
$1,795,000 for the 52 weeks ended June 26, 1993, and $116,000 for the 52 weeks
ended June 27, 1992. Advisory fees paid or accrued for financing transactions
are capitalized and amortized over the term of the related financing. In
connection with the acquisitions of Alpha Beta, ABC and the Food Barn Stores,
the Company capitalized fees of $8,000,000, $500,000 and $92,000, respectively,
which were paid to this affiliated company for acquisition services.
(8) COMMITMENTS AND CONTINGENCIES
The Company is contingently liable to former stockholders of certain
predecessors of F4L-SoCal for any prorated gains which may be realized within
ten years of the acquisition of the respective companies resulting from the sale
of the Certified stock. Such gains are only payable if Certified is purchased or
dissolved, or if the Company sells the shares to Certified within the period
noted above.
Supermarkets is a partner in a supplier partnership, in which it is
contingently liable for the partnership's long-term debt. Supermarkets' portion
of such debt is approximately $1,650,000.
The Company has entered into lease agreements with the developers of
several new sites in which the Company has agreed to provide construction
financing. At June 25, 1994, the Company had capitalized construction costs of
$10,435,000 on total commitments of $19,250,000.
In December 1992, three California state antitrust class action suits were
commenced in Los Angeles Superior Court against the Company and other major
supermarket chains located in Southern California, alleging that they conspired
to refrain from competing in and to fix the price of fluid milk above
competitive prices. Specifically, class actions were commenced by Diane Barela
and Neila Ross, Ron Moliare and Paul C. Pfeifle on December 7, December 14 and
December 23, 1992, respectively. To date, the Court has yet to certify any of
these classes, while a demurrer to the complaints was denied. The Company will
vigorously defend itself in these class action suits.
In addition, the Company or its subsidiaries are defendants in a number of
other cases currently in litigation or potential claims encountered in the
normal course of business which are being vigorously defended. In the opinion of
management, the resolutions of these matters will not have a material effect on
the Company's financial position or results of operations.
The Company self-insures its workers compensation and general liability.
For the 52 weeks ended June 25, 1994, the 52 weeks ended June 26, 1993, and the
52 weeks ended June 27, 1992, self-insurance loss provisions were $19,880,000,
$38,040,000 and $46,140,000, respectively. The Company discounts its self-
insurance liability using a 7% discount rate for all years presented. Management
believes that this rate
F-45
<PAGE> 170
FOOD 4 LESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximates the time value of money over the anticipated payout period
(approximately 10 years) for essentially risk free investments.
The Company's historical self-insurance liability for the three most recent
fiscal years is as follows:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JUNE 27, JUNE 26, JUNE 25,
1992 1993 1994
----------- ----------- ----------
<S> <C> <C> <C>
Self-insurance liability.............. $95,605,000 $100,773,000 $90,898,000
Less: Discount........................ (13,046,000) (15,279,000) (9,194,000)
----------- ----------- ----------
Net self-insurance liability.......... $82,559,000 $85,494,000 $81,704,000
=========== =========== ==========
</TABLE>
The Company expects that cash payments for claims will aggregate
approximately $14 million (unaudited), $20 million (unaudited), $17 million
(unaudited), $12 million (unaudited) and $7 million (unaudited) for its fiscal
years ended in June 1995, 1996, 1997, 1998 and 1999.
(9) EMPLOYEE BENEFIT PLANS
The Company implemented SOP No. 93-6, Employer Accounting for Employee
Stock Ownership Plans, effective June 26, 1994. The implementation of SOP No.
93-6 did not have a material effect on the accompanying unaudited consolidated
financial statements.
The Company and its subsidiaries sponsor several defined contribution
benefit plans. The full-time employees of Falley's who are not members of a
collective bargaining agreement are covered under a 401(k) plan under which the
Company matches certain employee contributions with cash or FFL stock (the
"Falley's ESOP"). As part of the original stock sale agreement between FFL and
the Falley's ESOP, which has been amended from time to time, an affiliate of the
Company has assumed the obligation to purchase any FFL shares as to which
terminated plan participants have exercised a put option under the terms of
Falley's ESOP. As part of that agreement, the Company may, at its sole
discretion, after providing a right of first refusal to the affiliate, purchase
FFL shares put under the provisions of the plan. During the year ended June 25,
1994, the Company elected to purchase $1.0 million of FFL shares as to which
terminated plan participants had exercised their put option. FFL shares
purchased by the Company are classified as additional paid-in-capital. As of the
most recent valuation letter, dated December 16, 1994, the fair value of the
shares allocated which are subject to a repurchase obligation by an affiliate of
the Company was approximately $14,326,000 (unaudited).
The Company also sponsors two ESOPs for employees of the Company who are
members of certain collective bargaining agreements (the "Union ESOPs"). The
Union ESOPs provide for annual contributions based on hours worked at a rate
specified by the terms of the collective bargaining agreements. The Company
contributions are made in the form of Holdings stock or cash for the purchase of
Holdings stock and are to be allocated to participants based on hours worked.
During the 28 weeks ended January 7, 1995, the Company recorded a charge against
operations of approximately $230,000 (unaudited) for benefits under the Union
ESOPs. There were no shares issued to the Union ESOPs at January 7, 1995.
All other full-time employees of the Company who are not members of a
collective bargaining agreement are covered under a separate 401(k) plan (the
"Management Plan"). The Management Plan provides for annual contributions which
are determined at the discretion of the Company. The Company contributions are
allocated to participants based on employee compensation and matching of certain
employee contributions. A portion of the Company contribution allocated based on
compensation is made in the form of stock or cash for the purchase of stock.
F-46
<PAGE> 171
FOOD 4 LESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total charges against operations related to all employee benefit plans
sponsored by the Company and its subsidiaries were $337,000, $284,000 and
$699,000 for the 52 weeks ended June 27, 1992, the 52 weeks ended June 26, 1993,
and the 52 weeks ended June 25, 1994, respectively. No contributions were made
with stock and no stock was acquired by any plans in fiscal 1992, fiscal 1993 or
fiscal 1994.
The Company contributes to multi-employer pension plans administered by
various trustees. Contributions to these plans are based upon negotiated wage
contracts. These plans may be deemed to be defined benefit plans. Information
related to accumulated plan benefits and plan net assets as they may be
allocated to the Company at June 25, 1994 is not available. The Company
contributed $78.6 million, $69.4 million and $57.2 million to these plans for
the 52 weeks ended June 27, 1992, June 26, 1993, and June 25, 1994,
respectively. Management is not aware of any plans to terminate such plans.
The United Food and Commercial Workers health and welfare plans were
overfunded and those employers who contributed to the plans are to receive a pro
rata share of the excess reserves in these plans through a reduction of current
contributions. The Company's share of the excess reserve was $24.2 million, of
which $8.1 million was recognized in the 52 weeks ended June 25, 1994, with the
remainder to be recognized in future periods as the credits are taken.
Offsetting the reduction in employer contributions was a $5.5 million union
contract ratification bonus and contractual wage increases.
(10) COMMON STOCK WARRANTS
Concurrent with the purchase of the Holdings Discount Notes, the
Noteholders purchased 121,118 Warrants for $30.16 per Warrant. Each Warrant is
exercisable on or after December 15, 1997 or earlier, upon the occurrence of
certain events and allows the holder to acquire one share of common stock at
$.01 per share.
(11) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
(a) Cash and Cash Equivalents
The carrying amount approximates fair value as a result of the short
maturity of these instruments.
(b) Short-Term Notes and Other Receivables
The carrying amount approximates fair value as a result of the short
maturity of these instruments.
(c) Investments In and Notes Receivable From Supplier Cooperatives
The Company maintains a non-current deposit with Certified in the form of
Class B shares of Certified. Certified is not obligated in any fiscal year to
redeem more than a prescribed number of the Class B shares issued. Therefore, it
is not practicable to estimate the fair value of this investment.
The Company maintains a non-current note receivable from A.W.G. There are
no quoted market prices for this investment and a reasonable estimate could not
be made without incurring excessive costs. Additional information pertinent to
the value of this investment is provided in Note 5.
(d) Long-Term Debt
The fair value of the $175.0 million Senior Notes, the $145.0 million
Subordinated Notes, the $103.6 million Holdings Discount Notes and the Bank Term
Loan is based on quoted market prices. Market quotes for the fair value of the
remainder of the Company's debt are not available, and a reasonable estimate
F-47
<PAGE> 172
FOOD 4 LESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of the fair value could not be made without incurring excessive costs.
Additional information pertinent to the value of the unquoted debt is provided
in Note 3.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
JUNE 25, 1994
-----------------------------
CARRYING FAIR
AMOUNT VALUE
------------ ------------
<S> <C> <C>
Cash and cash equivalents............................... $ 32,996,000 $ 32,996,000
Short-term notes and other receivables.................. 4,187,000 4,187,000
Investments in and notes receivable from supplier
cooperatives.......................................... 12,702,000 --
Long-term debt for which it is:
- Practicable to estimate fair values................. 516,061,000 547,112,000
- Not practicable..................................... 17,194,000 --
</TABLE>
(12) OTHER INCOME, NET
The components of other income items included in SG&A are as follows:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JUNE 27, JUNE 26, JUNE 25,
1992 1993 1994
---------- ---------- ---------
<S> <C> <C> <C>
Interest income.................................... $1,266,000 $ 993,000 $ 903,000
Licensing fees..................................... 493,000 246,000 270,000
Other income (expense)............................. 769,000 3,710,000 (177,000)
---------- ---------- ---------
$2,528,000 $4,949,000 $ 996,000
========= ========= =========
</TABLE>
(13) RESTATEMENT
The Company has restated the statements of operations for its fiscal years
ended June 27, 1992, June 26, 1993 and June 25, 1994 and the 28 weeks ended
January 8, 1994 to classify certain buying, occupancy and labor costs associated
with making its products available for sale as cost of sales. These amounts were
previously classified as selling, general, administrative and other net, and
depreciation and amortization of property and equipment and totalled
$236,152,000, $224,469,000, $219,548,000 and $114,334,000 (unaudited) for the
fiscal years ended June 27, 1992, June 26, 1993 and June 25, 1994 and the 28
weeks ended January 8, 1994, respectively. The Company has also classified a
portion of its self-insurance costs as interest expense that was previously
recorded in selling, general, administrative and other, net. These amounts were
$4,960,000, $5,865,000, $5,836,000 and $3,275,000 (unaudited) for the fiscal
years 1992, 1993 and 1994 and the 28 weeks ended January 8, 1994, respectively.
Depreciation and amortization costs not classified in cost of sales are included
in selling, general, administrative and other, net. The change in classification
did not affect the net loss, loss before provision for income taxes and
extraordinary charges or loss per common share.
(14) SUBSEQUENT EVENT (UNAUDITED)
On September 14, 1994, the Company, Supermarkets, and FFL entered into a
definitive Agreement and Plan of Merger (the "Merger") with Ralphs Supermarkets,
Inc. ("Ralphs") and the stockholders of Ralphs. Pursuant to the terms of the
Merger Agreement, Supermarkets will, subject to certain terms and conditions
being satisfied or waived, be merged into Ralphs and Ralphs will become a
wholly-owned subsidiary of the Company. Conditions to the consummation of the
Merger include, among other things, receipt of regulatory approvals and other
necessary consents and the completion of financing for the transaction. The
purchase price for Ralphs is approximately $1.5 billion, including the
assumption of debt.
F-48
<PAGE> 173
FOOD 4 LESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate purchase price, payable to the stockholders of Ralphs, will
consist of $375 million in cash, $131.5 million initial principal amount of
13 5/8% Senior Subordinated Pay-in Kind Debentures due 2007 ("Seller
Debentures") and $18.5 million of initial accreted value of 13 5/8% Senior
Discount Debentures due 2005 ("New Discount Debentures"). In addition,
Supermarkets will enter into an agreement with a stockholder of Ralphs pursuant
to which such stockholder will act as a consultant to Supermarkets with respect
to certain real estate and general commercial matters for a period of five years
from the closing of the Ralphs Merger in exchange for the payment of a
consulting fee.
The financing required to complete the Merger will include the issuance of
significant additional equity by FFL, the issuance of new debt securities by the
Company and Supermarkets and the incurrence of additional bank financing by
Supermarkets. The equity issuance would be made to a group of investors led by
Apollo Advisors, L.P. ("Apollo"), which will purchase $140 million in FFL stock.
Apollo will receive a $5 million fee for its commitment to make an equity
investment. The issuance of new debt securities would be in the form of senior
notes of Supermarkets of up to $295 million and senior subordinated notes of
Supermarkets of up to $200 million. The bank financing would be made pursuant to
a commitment by Bankers Trust Company to provide up to $1,075 million in such
financing. In connection with the receipt of new financing, the Company and
Supermarkets will also be required to complete certain exchange offers, consent
solicitations and or other transactions with the holders of their currently
outstanding debt securities. The Company will issue an additional $81.5 million
of initial accreted value of New Discount Debentures for $59.0 million in cash
and $22.5 million in lieu of cash for fees associated with the Merger. The
Company will redeem the Discount Notes, with a book value of $64.5 million at
January 7, 1995, for $83.9 million in cash.
As of January 29, 1995, Ralphs had outstanding indebtedness of
approximately $1,018.5 million. Ralphs had sales of $2,724.6 million, operating
income of $145.6 million and earnings before income taxes of $32.1 million for
its most recent fiscal year ended January 29, 1995.
Upon consummation of the Merger, the operations and activities of
Supermarkets will be significantly impacted due to conversions of the
Supermarkets' existing Southern California conventional stores to either Ralphs
or Food 4 Less warehouse stores as well as the consolidation of various
operating functions and departments. The Merger will result in restructuring
charges that are currently estimated to be approximately $45 million, of which
approximately $5.1 million was recorded in the Company's results of operations
for the 28 weeks ended January 7, 1995. The remaining estimated restructuring
charges will be recorded as an expense once the Merger is completed.
(15) RESTRUCTURING CHARGE (UNAUDITED)
The Company has converted 11 of its conventional format supermarkets to
warehouse format stores. During the 28 weeks ended January 7, 1995, the Company
recorded a restructuring charge for the write-off of property and equipment at
the 11 stores of $5.1 million.
F-49
<PAGE> 174
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholder of Food 4 Less Holdings, Inc.:
We have audited the accompanying balance sheet of Food 4 Less Holdings,
Inc. (a Delaware corporation) (the Company) as of January 4, 1995. This
financial statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Food 4 Less Holdings, Inc. as of
January 4, 1995, in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
January 4, 1995 (except with
respect to the matter
discussed in Note 2, as
to which the date is
April 13, 1995)
F-50
<PAGE> 175
FOOD 4 LESS HOLDINGS, INC.
BALANCE SHEET
JANUARY 4, 1995
<TABLE>
<S> <C>
Cash................................................................................ $1,000
======
SHAREHOLDER'S EQUITY:
Preferred stock, $.01 par value, 50,000,000 shares authorized, none outstanding... $ --
Common stock, $.01 par value, 60,000,000 shares authorized, 1,000 shares
outstanding.................................................................... 10
Additional paid-in capital........................................................ 990
------
Total shareholder's equity................................................ $1,000
======
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-51
<PAGE> 176
FOOD 4 LESS HOLDINGS, INC.
NOTES TO THE BALANCE SHEET
(1) ORGANIZATION
Food 4 Less Holdings, Inc., a Delaware corporation (the Company), is a
wholly-owned subsidiary of Food 4 Less Holdings, Inc., a California corporation
(Holdings). The Company was incorporated in December 1994 for the purpose of
reincorporating Holdings into a Delaware corporation. The Company and Holdings
have no operations or activities. Holdings is a holding company whose sole asset
is its ownership in Food 4 Less Supermarkets, Inc. (Food 4 Less). Holdings is
majority owned by Food 4 Less, Inc. (FFL) which is also a holding company whose
sole asset is its ownership of Holdings stock.
On December 31, 1992, Holdings issued $103.6 million aggregate principal
amount of Holdings Discount Notes and 121,118 Warrants for gross proceeds of
$50.0 million. The proceeds were contributed to Food 4 Less in exchange for Food
4 Less preferred stock. The Holdings Discount Notes are due in two equal sinking
fund payments on December 15, 2003 and 2004. They are general unsecured
obligations of Holdings. As a debt obligation of Holdings, the Holdings Discount
Notes are structurally subordinate to all existing and future liabilities and
obligations (whether or not borrowed for money) of Food 4 Less. The first cash
interest payment is due June 15, 1998.
(2) ACQUISITION OF RALPHS SUPERMARKETS, INC.
On September 14, 1994 Food 4 Less entered into a definitive Agreement and
Plan of Merger (the Merger Agreement) with Ralphs Supermarkets Inc. (RSI) and
its stockholders. Pursuant to the terms of the Merger Agreement, Food 4 Less
will, subject to certain conditions being waived or satisfied, be merged with
and into RSI (the "RSI Merger"). Immediately following the RSI Merger, Ralphs
Grocery Company ("RGC"), which is currently a wholly-owned subsidiary of RSI,
will merge with and into RSI (the "RGC Merger," and together with the RSI
Merger, the "Merger"), and RSI will change its name to Ralphs Grocery Company
(Ralphs). Prior to the Merger, FFL will merge with and into Holdings, which will
be the surviving corporation (the "FFL Merger"). Immediately following the FFL
Merger, Holdings will change its jurisdiction of incorporation by merging into
the Company (the "Reincorporation Merger"). As a result of the Merger, the FFL
Merger and the Reincorporation Merger, Ralphs will become a wholly-owned
subsidiary of the Company. As a result of the Reincorporation Merger, the
Holdings Discount Notes will become the obligations of the Company. Conditions
to the consummation of the RSI Merger include the receipt of regulatory
approvals and other necessary consents and the completion of financing.
The purchase price for RSI is approximately $1.5 billion, including the
assumption of debt. The consideration payable to the stockholders of RSI
consists of $375 million in cash, $131.5 million principal amount of 13 5/8%
Senior Subordinated Pay-in Kind Debentures due 2007 (Seller Debentures) and
$18.5 million of initial accreted value 13 5/8% Senior Discount Debentures (New
Discount Debentures) due 2005 to be issued by the Company. In connection with
the Merger, the Company will issue preferred stock to new equity investors for
gross proceeds of $140 million in cash, for which they will pay a $5 million
fee. One hundred million dollars of the cash proceeds received from the new
equity investors, together with the $131.5 million principal amount of the
Seller Debentures and $18.5 million of the New Discount Debentures will be used
to acquire approximately 48% of the capital stock of RSI immediately prior to
consummation of the RSI Merger. The Company will issue an additional $81.5
million of initial accreted value of New Discount Debentures for $59.0 million
in cash and $22.5 million in lieu of cash for fees associated with the Merger.
The Company will then contribute the $250 million of purchased shares of RSI
stock, together with the remaining net cash proceeds received from the new
equity investors and the issuance of New Discount Debentures, to Food 4 Less,
and pursuant to the RSI Merger the remaining shares of RSI stock will be
acquired for $275 million in cash by Food 4 Less. As a result of the
Reincorporation Merger, $103.6 million of the Holdings 15.25% Discount Notes
with a book value of $64.5 million at January 7, 1995 will be redeemed for $83.9
million.
F-52
<PAGE> 177
APPENDIX A
DESCRIPTION OF DISCOUNT NOTES
The Discount Notes were issued under the Discount Note Indenture, dated as
of December 15, 1992, between Holdings and United States Trust Company of New
York, as Trustee. Upon receipt of the Requisite Consents, the Supplemental
Indenture will be executed between Holdings and the Trustee giving effect to the
Proposed Amendments. Set forth below is a description of the principal terms of
the Discount Notes as currently in effect and as proposed to be amended by the
Proposed Amendments. The following summary of certain provisions of the Discount
Note Indenture, and as amended by the Supplemental Indenture, does not purport
to be complete and is subject to, and is qualified in its entirety by reference
to, the Trust Indenture Act of 1939, as amended (the "TIA"), and to all of the
provisions of the Discount Note Indenture and the Supplemental Indenture,
including the definitions of certain terms therein and those terms made a part
of the Discount Note Indenture and the Supplemental Indenture by reference to
the TIA as in effect on the date of the Discount Note Indenture and the
Supplemental Indenture. The definitions of certain capitalized terms used in the
following summary are set forth below under "Certain Definitions." Copies of the
Discount Note Indenture and the Supplemental Indenture are available from
Holdings upon request.
As used below in this "Description of Discount Notes," "Holdings" means Food
4 Less Holdings, Inc., but not any of its subsidiaries. Following the
consummation of the Reincorporation Merger, the obligations of Holdings under
the Discount Note Indenture and the Supplemental Indenture will become the
obligations of New Holdings.
If the Proposed Amendments become effective, provisions substantially in the
form of the italicized sections indicated below will be deleted from the
Discount Note Indenture. The remaining (unitalicized) sections of the Discount
Note Indenture will not be changed by the Proposed Amendments. All references to
the "Discount Notes" contained in this Appendix A shall include references to
the Discount Notes, as amended upon execution of the Supplemental Indenture and
effectiveness of the Proposed Amendments.
PRINCIPAL, MATURITY AND INTEREST
The Discount Notes were issued at a substantial discount from their
principal amount and the purchase discount on the Discount Notes accretes from
the date of their original issuance on December 31, 1992 until December 15,
1997. The Discount Notes are limited in aggregate principal amount of
$103,600,000 and will mature on December 15, 2004. The Discount Notes bear
interest at the rate of 15.25% per annum and interest accrues on the Discount
Notes beginning December 15, 1997, or from the most recent date to which
interest has been paid, and is payable semiannually in arrears on June 15 and
December 15 of each year, commencing June 15, 1998, to the Holders of record on
the immediately preceding June 1 and December 1. Interest is computed on the
basis of a 360-day year comprised of twelve 30-day months and actual number of
days elapsed. The Discount Notes are payable both as to principal and interest
at the office or agency of Holdings maintained for such purpose within or
without the City and State of New York, or at the option of Holdings, payment of
interest may be made by check mailed to the Holders of the Discount Notes at
their respective addresses set forth in the register of Holders of Discount
Notes. Until otherwise designated by Holdings, Holdings' office or agency in New
York is the office of the Trustee maintained for such purpose. The Discount
Notes are issued in denominations of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
The Discount Notes are redeemable, at the option of Holdings, in whole at
any time or in part from time to time, on and after December 15, 1997 at the
following redemption prices (expressed as percentages of the Accreted Value) if
redeemed during the twelve-month period commencing on December 15 of the year
set forth below, plus in each case, accrued interest thereon to the date of
redemption:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
1997............................................... 107.63%
1998............................................... 106.10
1999............................................... 104.58
2000............................................... 103.05
2001............................................... 101.53
2002 and thereafter................................ 100.00
</TABLE>
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<PAGE> 178
In addition, in the event of an Initial Public Offering up to 25% of the
Discount Notes may be redeemed prior to December 15, 1997, at the option of
Holdings, at a redemption price equal to the sum of the applicable percentage of
the Accreted Value thereof set forth below, plus the Proportionate Share of the
Discount Notes, if any, to the date of redemption, if redeemed during the 12
months commencing on December 15 of the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
1992............................................... 120.000%
1993............................................... 117.525
1994............................................... 115.050
1995............................................... 112.575
1996............................................... 110.100
</TABLE>
MANDATORY REDEMPTION
Holdings will make a mandatory sinking fund payment on December 15, 2003,
sufficient to retire 50% of the Discount Notes originally issued, at a
redemption price equal to 100% of the principal amount thereof, together with
accrued interest to the date of redemption. Holdings may, at its option, receive
credit against such sinking fund payment for 100% of the principal amount of any
Discount Notes previously acquired by Holdings and surrendered to the Trustee
for cancellation or redeemed at the option of Holdings and which, in each case,
were not previously used for or as a credit against any other required payment
pursuant to the Discount Note Indenture. Holdings may use the same Discount Note
as a credit only once.
RANKING
The Discount Notes are unsecured obligations of Holdings and rank senior in
right of payment to all subordinated indebtedness of Holdings and pari passu in
right of payment to all future senior indebtedness of Holdings. As a debt
obligation of Holdings, the Discount Notes are effectively subordinated to all
existing indebtedness and other liabilities (including trade payables) of its
subsidiaries, including the indebtedness of Food 4 Less. As of January 7, 1995,
the aggregate amount of indebtedness and other liabilities of Food 4 Less that
effectively rank senior to the Discount Notes would have been $924.2 million.
CERTAIN COVENANTS
LIMITATION ON CHANGE OF CONTROL. (a) Upon the occurrence of a Change of
Control (the "Change of Control Date"), each Holder shall have the right to
require the repurchase of such Holder's Discount Notes pursuant to the offer
described in paragraph (b), below (the "Change of Control Offer"), at a purchase
price equal to 101% of the Accreted Value thereof plus either, (i) if the date
of purchase is prior to December 15, 1997, the Proportionate Share, if any, with
respect to the Discount Notes to the date of purchase and (ii) if the date of
purchase is on or after December 15, 1997, the aggregate principal amount
thereof plus accrued interest to the date of purchase. Within 10 days after any
Change of Control Date requiring Holdings to make a Change of Control Offer
pursuant to this covenant, Holdings shall so notify the Trustee.
(b) The notice to the Holders shall contain all instructions and materials
necessary to enable such Holders to tender Discount Notes pursuant to the Change
of Control Offer. Within 30 days following any Change of Control Date, Holdings
shall send, by first class mail, a notice to each Holder, with copies to the
Trustee, which notice shall govern the terms of the Change of Control Offer.
LIMITATION ON RESTRICTED PAYMENTS. Holdings shall not, and shall cause each
of its Subsidiaries not to, directly or indirectly, make any Restricted Payment
if, at the time of such Restricted Payment, or after giving effect thereto, (a)
a Default or an Event of Default shall have occurred and be continuing, or (b)
the Net Worth of Holdings on the last day of the full fiscal quarter immediately
preceding the date of such Restricted Payment (pro forma to give effect thereto)
is not greater than $75 million, or (c) Holdings' Operating Coverage Ratio,
calculated on a pro forma basis as if such Restricted Payment had been made at
the beginning of the Pro Forma Period, shall be less than 2.0 to 1.0, or (d) the
aggregate amount expended for all Restricted Payments, including such Restricted
Payment (the amount of any Restricted Payment, if other than cash, to be the
fair market value thereof at the date of payment, as determined in good faith by
the Board of Directors of Holdings, which determination shall be evidenced by a
Board Resolution), subsequent to the Issue Date, shall exceed the sum of (i) 50%
of the aggregate Consolidated Net Income (or if such Consolidated Net Income is
a loss, minus 100% of such loss) of Holdings earned subsequent to the Issue Date
and on or prior to the date the Restricted Payment occurs (the "Reference Date")
plus (ii) 100% of the aggregate Net Cash Proceeds and 50% of the Net Proceeds
which do not constitute Net Cash Proceeds received by Holdings from any person
(other than a Subsidiary) from the issuance and sale (including upon exchange or
conversion for other securities of Holdings) subsequent to the Issue Date and on
or prior to the Reference Date of Qualified Capital Stock (excluding (A)
Qualified Capital Stock paid as a dividend on any
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<PAGE> 179
Capital Stock or as interest on any Indebtedness and (B) any Net Proceeds from
issuances and sales financed directly or indirectly using funds borrowed from
Holdings or any Subsidiary, until and to the extent such borrowing is repaid).
Notwithstanding the foregoing, if no Default or Event of Default shall have
occurred and be continuing as a consequence thereof, the provisions set forth in
the immediately preceding paragraph will not prevent (1) the payment of any
dividend within 60 days after the date of its declaration if the dividend would
have been permitted on the date of declaration, (2) the acquisition of any
shares of Capital Stock in exchange for or solely out of the proceeds of the
substantially concurrent sale (other than to a Subsidiary) of shares of
Qualified Capital Stock or (3) Permitted Payments; provided that (x) the
declaration of each dividend paid in accordance with clause (1) above, each
acquisition or repayment made in accordance with, or of the type set forth in,
clause (2) above and each payment described in clause (iii) of the definition of
"Permitted Payments" shall each be counted for purposes of computing amounts
expended pursuant to subclause (d) in the immediately preceding paragraph, and
(y) no amounts pursuant to clause (i) or (ii) of the definition of "Permitted
Payments" shall be so counted.
Prior to any Restricted Payment under the first paragraph of this covenant,
Holdings shall deliver to the Trustee an Officers' Certificate setting forth the
computation by which the amount available for Restricted Payments pursuant to
such paragraph was determined. The Trustee shall have no duty of responsibility
to determine the accuracy or correctness of this computation and shall be fully
protected in relying on such officers' certificate.
LIMITATION ON INCURRENCES OF ADDITIONAL INDEBTEDNESS. (a) Except as set
forth herein, Holdings shall not, and shall not permit any Subsidiary, after the
original issuance of the Securities, directly or indirectly, to incur, assume,
guarantee, become liable, contingently or otherwise, with respect to, or
otherwise become responsible for the payment of (collectively "incur") any
indebtedness. For purposes of the Discount Note Indenture, Indebtedness incurred
by any person that is not a Subsidiary, which Indebtedness is outstanding at the
time such person becomes, or is merged into or consolidated with, a Subsidiary,
shall be deemed to have been incurred or issued, as the case may be, at the time
such person becomes, or is merged into or consolidated with, a Subsidiary.
(b) Notwithstanding the foregoing, Holdings or any Subsidiary may incur
Indebtedness if (i) no Default with respect to payment of principal of, or
interest on, the Securities or Event of Default shall have occurred and be
continuing at the time or as a consequence of the incurrence of such
Indebtedness and (ii) on the date of the incurrence of such Indebtedness, the
Operating Coverage Ratio of Holdings would be greater than 1.75 to 1.0 if such
date is prior to June 15, 1994; greater than 2.0 to 1.0 if such date is on or
after June 15, 1994 and prior to June 15, 1996; and greater than 2.25 to 1.0
thereafter.
(c) Notwithstanding the foregoing, (i) in addition to Indebtedness permitted
under clauses (ii) and (iii) hereof, any Subsidiary may incur (A) Indebtedness
under the Term Facility (as defined in the Credit Agreement) under or pursuant
to the Loan Documents (and Holdings and each Subsidiary may guarantee such
Indebtedness) in an aggregate principal amount at any time outstanding not to
exceed $165 million (plus obligations for related payments for early
termination, interest, fees, expenses and indemnities and other amounts payable
thereunder or in connection therewith) less the aggregate amount of all future
principal payments made with respect to the Term Advances (as defined in the
Credit Agreement) or any other term advances thereunder and (B) Indebtedness
under Supplementary Documents (and each Subsidiary may guarantee such
Indebtedness), (ii) in addition to Indebtedness permitted under clauses (i) and
(iii) hereof, any Subsidiary may incur Indebtedness under the Loan Documents
pursuant to Subsidiary Letter of Credit Obligations (and Holdings and any
Subsidiary (to the extent it is not an obligor) may guarantee such Indebtedness)
in an aggregate principal amount at any time outstanding not to exceed $55
million (plus obligations for related payments for early termination, interest,
fees, expenses, indemnities and other amounts payable thereunder or in
connection therewith) and (iii) in addition to Indebtedness permitted under
clauses (i) and (ii) hereof, any Subsidiary may incur (A) additional
Indebtedness under the Revolving Facility (as defined in the Credit Agreement)
under the Loan Documents, including pursuant to Subsidiary Letter of Credit
Obligations (and Holdings and any Subsidiary (to the extent it is not an
obligor) may guarantee such Indebtedness) in an aggregate principal amount at
any time outstanding not to exceed $70 million (plus obligations for related
payments for early termination, interest, fees, expenses, indemnities and other
amounts payable thereunder or in connection therewith) and (B) Indebtedness
under the Supplementary Documents (and Holdings or any Subsidiary (to the extent
it is not an obligor) may guarantee such Indebtedness).
(d) Notwithstanding the foregoing, Holdings or any Subsidiary may incur
Indebtedness evidenced by the Securities or the Secondary Securities.
(e) Notwithstanding the foregoing, Holdings may incur Indebtedness to any
Subsidiary, and any Subsidiary may incur Indebtedness to Holdings or to another
Subsidiary.
(f) Notwithstanding the foregoing, Holdings or any Subsidiary may incur
Indebtedness in connection with the purchase or improvement of property (real or
personal) or equipment or other capital expenditures in the ordinary course of
business (including, if in the ordinary course, for the purchase of assets or
stock of any retail grocery store or business) or consisting of Capitalized
Lease Obligations; provided that the aggregate principal amount incurred
pursuant to this paragraph (f) in any Yearly Period shall not exceed $25 million
(provided that any unused amounts may be carried over to the next (but not any
subsequent) Yearly Period).
A-3
<PAGE> 180
(g) Notwithstanding the foregoing, Holdings or any Subsidiary may (i) incur
Indebtedness under Supplementary Documents entered into with respect to
Indebtedness in a notional amount not exceeding the aggregate principal amount
of Indebtedness outstanding or committed under the Loan Documents on the date of
such incurrence and otherwise permitted to be outstanding pursuant to this
Section and (ii) incur Indebtedness under Foreign Exchange Agreements and
Interest Swap Obligations entered into with respect to Indebtedness in a
notional amount not exceeding (A) the aggregate principal amount of Indebtedness
outstanding or committed under the Loan Documents at the date of such incurrence
and otherwise permitted to be outstanding pursuant to this Section less (B) the
aggregate notional amount of Indebtedness then outstanding pursuant to clause
(i) above.
(h) Notwithstanding the foregoing, Holdings or any Subsidiary may incur
Permitted Guarantees of Indebtedness in an aggregate principal amount not to
exceed $25 million (plus obligations for related interest, fees, expenses,
indemnities and other amounts) at any time outstanding in addition to the
Permitted Guarantees outstanding on the Issue Date.
(i) Notwithstanding the foregoing, Holdings or any Subsidiary may guarantee
Indebtedness of the Company or any Subsidiary of the Company; provided that the
Indebtedness of such Subsidiary was not incurred in violation of this Section.
(j) Notwithstanding the foregoing, Holdings or any Subsidiary may incur
Refinancing Indebtedness; provided, however, that (x) the proceeds received from
the incurrence of Refinancing Indebtedness incurred to repay Securities then
outstanding shall be irrevocably deposited by Holdings with the Trustee or the
Paying Agent to repay such Securities on the date fixed for repayment thereof
and (y) if such Refinancing Indebtedness is incurred to repay all of the
Securities then outstanding, Holdings shall redeem the Securities pursuant to
the Securities on the earliest date permitted thereunder.
(k) Notwithstanding the foregoing, any Subsidiary may incur Indebtedness
represented by the Senior Subordinated Notes and the related guarantees thereof.
(l) Notwithstanding the foregoing, any Subsidiary may incur Indebtedness
represented by the Senior Notes and related guarantees thereof.
(m) Notwithstanding the foregoing, Holdings may incur Indebtedness
represented by the accretion of principal of the Securities and may issue
additional Securities in accordance with the provisions of the Registration
Rights Agreement.
(n) Notwithstanding the foregoing, Holdings or any Subsidiary may incur
Indebtedness in connection with an acquisition of the La Habra Facility and
Option Stores.
(o) Notwithstanding the foregoing, Holdings or any Subsidiary may incur
Indebtedness represented by letters of credit for the account of Holdings or
such Subsidiary in order to provide security for workers compensation claims,
payment obligations in connection with self-insurance or similar requirements in
the ordinary course of business.
(p) Notwithstanding the foregoing, Holdings or any Subsidiary may incur
Indebtedness in addition to Indebtedness incurred pursuant to paragraphs (b)
through (o); provided that the aggregate principal amount of Indebtedness
incurred by Holdings and any Subsidiary pursuant to this paragraph (p) shall not
exceed $75 million (plus obligations for payments for early termination,
interest, fees, expenses, indemnities and other amounts) at any time
outstanding.
(q) Notwithstanding the foregoing, Holdings shall not incur any Indebtedness
pursuant to paragraphs (b), (e), (h), (i), (j) (other than in connection with
the refinancing of Indebtedness incurred under (c), (d), (f), (g), (m) and (o)
and (p) of this Section unless such Indebtedness is Disqualified Capital Stock
or is otherwise expressly subordinate in right of payment to the Securities to
the same extent that the Senior Subordinated Notes are subordinated to the
Senior Notes.
(r) No limitation contained in the foregoing clauses (b) through (p) shall
preclude Holdings or any Subsidiary from incurring additional Indebtedness
permitted to be incurred under any other of such clauses.
(s) Notwithstanding the foregoing, Holdings shall not permit any Subsidiary
to guarantee any Indebtedness of Holdings.
LIMITATION ON LIENS. Holdings shall not create, incur, assume or suffer to
exist any Liens upon any of its assets unless the Discount Notes are equally and
ratably secured by the Liens covering such assets, except for (i) Permitted
Liens, (ii) Liens securing Acquired Indebtedness; provided that such Liens (x)
are not incurred in connection with, or in contemplation of, the acquisition of
the property or assets acquired and (y) do not extend to or cover any property
or assets of Holdings or any Subsidiary other than the property or assets so
acquired, (iii) Liens existing on the Issue Date, (iv) Liens to secure
Indebtedness that is permitted under the provisions of the Discount Note
Indenture summarized under "Limitation on Incurrences of Additional
Indebtedness"; provided that (A) any such Lien is created solely for the purpose
of securing Indebtedness representing, or incurred to finance, refinance or
refund, the cost (including sales and excise taxes, installation and delivery
charges and other direct costs of, and other direct expenses paid or charged in
connection with, the purchase (whether through stock or asset purchase, merger
or otherwise) or construction) of the property subject thereto, (B) the
principal amount of the Indebtedness secured by such Lien does not exceed 100%
of such costs and (C) such Lien does not extend to or cover any property other
than such item of property and any improvements on such item; (v) Liens in favor
of the Trustee; (vi) Liens securing Indebtedness permitted by clauses (e), (k)
or (m) of the foregoing section entitled "Limitation on Incurrences of
Additional Indebtedness"; provided that, in the case of Indebtedness permitted
by
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clause (k) above, the principal amount of the Indebtedness secured by Liens does
not exceed 100% of the purchase price of the La Habra Facility or the Option
Stores, as the case may be; and (vii) any replacement, extension or renewal, in
whole or in part, of any Lien described in this or the foregoing clauses (i)
through (vi), including in connection with any refinancing of the Indebtedness,
in whole or in part, secured by any such Lien; provided that if any such clauses
limit the amount secured by or the assets subject to such Liens, no extension or
renewal shall increase the amount or the assets subject to such Liens, except to
the extent that the Liens associated with such additional assets are otherwise
permitted hereunder. Notwithstanding the foregoing, Holdings shall not (i)
create, incur, assume or suffer to exist any Liens upon any of its assets to
secure Indebtedness of its Subsidiaries or (ii) cause any Subsidiary to create,
incur, assume or suffer to exist any Liens upon any of its assets to secure
Indebtedness of Holdings.
LIMITATION ON DISPOSITION OF ASSETS. (a) Holdings will not, and will not
permit any of its Subsidiaries to, make any Asset Sale unless (a) Holdings or
the applicable Subsidiary receives consideration at the time of such Asset Sale
at least equal to the fair market value of the assets sold or otherwise disposed
of as determined in good faith by the Board of Directors of Holdings or if the
aggregate fair market value of all non-cash consideration received by Holdings
or such Subsidiary, as the case may be, from any such Asset Sale shall exceed
$15 million, as determined by an Independent Financial Advisor; provided that no
such determination by the Board of Directors of Holdings shall be required if
the fair market value of the assets sold or otherwise disposed of does not
exceed $5 million; and (b) the Net Cash Proceeds received by Holdings or such
Subsidiary, as the case may be, from such Asset Sale are applied in accordance
with this covenant; and (c) the Net Cash Proceeds received by Holdings or such
Subsidiary from such Asset Sale are applied within 270 days of such Asset Sale,
at Holdings' election, (i) to repay Indebtedness of Holdings or any Subsidiary
(ii) in a manner that would constitute a Related Business Investment; or (iii)
to the purchase of Discount Notes pursuant to a Net Proceeds Offer as set forth
below, provided, however, that Holdings shall not be required to satisfy the
condition specified in clause (a) above if such Asset Sale is pursuant to a
foreclosure by the Lenders under the Credit Agreement and the other Loan
Documents or their representative on collateral securing Indebtedness under the
Loan Documents; provided, further, that if at any time any non-cash
consideration received by Holdings or any Subsidiary in connection with any
Asset Sale is converted into or sold or otherwise disposed of for cash, then
such cash shall constitute Net Cash Proceeds for purposes of this covenant and
shall be applied in accordance with clause (c) above within 270 days of the
receipt of such cash; provided, further, that Holdings has the right to exclude
Asset Sales subsequent to the Issue Date, the proceeds of which in the aggregate
do not exceed $10 million, from the provisions of this covenant. To the extent
that the Net Cash Proceeds are not actually applied in accordance with clause
(c)(i) or (ii) above, or after such application there remains a portion of the
Net Cash Proceeds which, when added to any other Net Cash Proceeds remaining
after such application, accumulates at least $2,500,000 subsequent to the
previous time Holdings shall have accumulated at least such an amount and used
it in accordance with this covenant, or if no such accumulation shall previously
have occurred, subsequent to the date of the Holdings Discount Note Indenture,
Holdings shall make an offer as described in the following paragraph below (the
"Net Proceeds Offer") to purchase Discount Notes at a price equal to 100% of,
(i) if the date of the Net Proceeds Offer is prior to December 15, 1997, the
Accreted Value thereto plus the Proportionate Share, if any, with respect to the
Discount Notes to the date of purchase and (ii) if the date of the Net Proceeds
Offer is on or after December 15, 1997, the aggregate principal amount thereof,
plus accrued interest to the date of purchase, which shall in the aggregate
equal the Net Proceeds required by this covenant to be used to purchase Discount
Notes in a Net Proceeds Offer; provided, however, that Holdings may credit
against the principal amount of Discount Notes to be acquired the principal
amount of Discount Notes acquired by Holdings through purchase, optional
redemption, exchange or otherwise following consummation of the Asset Sale and
surrendered for cancellation and not previously used as a credit against any
other required payment pursuant to the Discount Note Indenture; provided,
further, that a Net Proceeds Offer as a result of an Asset Sale made by
Supermarkets or one of its subsidiaries shall not be required to be in excess of
the lesser of (A) the Net Cash Proceeds of such Asset Sale less the Net Cash
Proceeds actually applied in accordance with clauses (c)(i) or (ii) above and
(B) the amount that Supermarkets is permitted to distribute to Holdings as a
dividend pursuant to the Old F4L Senior Note Indenture, the Old F4L Subordinated
Note Indenture (or pursuant to agreements governing Indebtedness the proceeds of
which were used to refinance in whole or in part the Old F4L Senior Notes or the
Old F4L Subordinated Notes so long as the dividend restrictions contained
therein are comparable to those set forth in the Old F4L Senior Note Indenture
and Old F4L Subordinated Note Indenture) and by state law. The Net Proceeds
Offer shall remain open from the time of mailing until 5 days (or such shorter
period as may be required under applicable law) before the Proceeds Purchase
Date.
(b) Notice of a Net Proceeds Offer shall be sent, by first class mail, by
Holdings not less than 230 days nor more than 270 days after the relevant Asset
Sale to all Holders at their last registered addresses, with a copy to the
Trustee and the Credit Agent. The notice shall contain all instructions and
materials necessary to enable such Holders to tender Securities pursuant to the
Net Proceeds Offer and shall state the following terms:
(1) that the Net Proceeds Offer is being made pursuant to the Discount
Note Indenture and that all Securities tendered will be accepted for
payment; provided, however, that if the aggregate principal amount of
Securities tendered in a Net Proceeds Offer plus accrued interest at the
expiration of such offer exceeds the aggregate amount of the Net Proceeds
Offer, Holdings shall select the Securities to be purchased on a pro rata
basis (with such adjustments as may be deemed appropriate by Holdings so
that only Securities in denominations of $1,000 or multiples thereof shall
be purchased);
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(2) the purchase price (including the amount of accrued interest) and
the purchase date (which shall be no earlier than 30 days nor later than 40
days from the date such notice is mailed, other than as may be required by
law (the "Proceeds Purchase Date");
(3) that any Security not tendered will continue to accrue interest if
interest is then accruing;
(4) that, unless Holdings defaults in making payment therefor, any
Security accepted for payment pursuant to the Net Proceeds Offer shall cease
to accrue interest after the Proceeds Purchase Date;
(5) that Holders electing to have a Security purchased pursuant to a Net
Proceeds Offer will be required to surrender the Security, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Security
completed, to the Paying Agent at the address specified in the notice prior
to the close of business on the Business Day prior to the Proceeds Purchase
Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than two Business Days prior to the
Proceeds Purchase Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the Securities
the Holder delivered for purchase and a statement that such Holder is
withdrawing his election to have such Security purchased; and
(7) that Holders whose Securities were purchased only in part will be
issued new Securities equal in principal amount to the unpurchased portion
of the Securities surrendered.
On or before the Proceeds Purchase Date, Holdings shall (i) accept for
payment Securities or portions thereof tendered pursuant to the Net Proceeds
Offer which are to be purchased in accordance with item (b)(1) above, (ii)
deposit with the Paying Agent U.S. Legal Tender sufficient to pay the purchase
price of all Securities to be purchased and (iii) deliver to the Trustee
Securities so accepted together with an Officers' Certificate stating the
Securities or portions thereof being purchased by Holdings. The Paying Agent
shall promptly mail to the Holders of Securities so accepted payment in an
amount equal to the purchase price. Holdings will publicly announce the results
of the Net Proceeds Offer on or as soon as practicable after the Proceeds
Purchase Date. For purposes of this Section, the Trustee shall act as the Paying
Agent.
Any amounts remaining after the purchase of Securities pursuant to a Net
Proceeds Offer shall be returned by the Trustee to Holdings.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. Neither Holdings nor any
Subsidiary shall (i) sell, lease, transfer or otherwise dispose of any of its
properties or assets or securities to, (ii) purchase any property, assets or
securities from, (iii) make any Investment in, or (iv) enter into or suffer to
exist any contract or agreement with or for the benefit of, an Affiliate or
Significant Stockholder (and any Affiliate of such Significant Stockholder) of
Holdings or any Subsidiary (an "Affiliate Transaction"), other than (x)
Affiliate Transactions permitted under the following paragraph and (y) Affiliate
Transactions (including lease transactions) in the ordinary course of business,
that are fair to Holdings or such Subsidiary, as the case may be, and on terms
at least as favorable as might reasonably have been obtainable at such time from
an unaffiliated party, unless the Board of Directors of Holdings or such
Subsidiary, as the case may be, pursuant to a Board Resolution, reasonably and
in good faith determines that such Affiliate Transaction is fair to Holdings or
such Subsidiary, as the case may be, and is on terms at least as favorable as
might reasonably have been obtainable at such time from an unaffiliated party,
provided that if an Affiliate Transaction or series of related Affiliate
Transactions involves or has a value in excess of $1 million and less than or
equal to $15 million, Holdings or such Subsidiary, as the case may be, shall not
enter into such Affiliate Transaction or series of related Affiliate
Transactions unless a majority of the disinterested members of the Board of
Directors of Holdings or such Subsidiary or an Independent Financial Advisor
shall reasonably and in good faith determine that such Affiliate Transaction is
fair to Holdings or such Subsidiary, as the case may be, or is on terms at least
as favorable as might reasonably have been obtained at such time from an
unaffiliated party. In addition, neither Holdings nor any of Subsidiary shall
enter into an Affiliate Transaction or series of related Affiliate Transactions
involving or having a value of more than $15 million unless Holdings or such
Subsidiary, as the case may be, has received an opinion from an Independent
Financial Advisor to the effect that the financial terms of such Affiliate
Transaction are fair to Holdings or such Subsidiary or are at least as favorable
as might reasonably have been obtained at such time from an unaffiliated party.
The provisions of the foregoing paragraph shall not apply to (i) any
Permitted Payment, (ii) any Restricted Payment that is made in compliance with
the provisions of the Discount Note Indenture summarized under "Limitation on
Restricted Payments," (iii) reasonable and customary fees and compensation paid
to, and indemnity provided on behalf of, officers, directors, employees or
consultants of Holdings or any Subsidiary, as determined by the Board of
Directors of Holdings or any Subsidiary or the senior management thereof in good
faith, (iv) transactions exclusively between or among Holdings, Supermarkets and
any of their respective wholly-owned Subsidiaries or exclusively between or
among such wholly-owned Subsidiaries, provided such transactions are not
otherwise prohibited by the Discount Note Indenture, (v) any agreement as in
effect as of the Issue Date or any amendment thereto or any transaction
contemplated thereby (including pursuant to any amendment thereto) so long as
any such amendment is not disadvantageous to the Holders in any material
respect, (vi) the existence of, or the performance by Holdings or any Subsidiary
of its obligations under the terms of, any stockholder agreement (including any
registration rights agreement or purchase agreement related thereto)
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to which it (or FFL) is a party as of the Issue Date and any similar agreements
(including any registration of Discount Notes as contemplated by the
Registration Rights Agreement and that certain Common Stock Registration Rights
Agreement dated as of December 31, 1992) which it (or FFL) may enter into
thereafter, provided, however, that the existence of, or the performance by
Holdings or any Subsidiary of obligations under any future amendment to, any
such existing agreement or under any similar agreement entered into after the
Issue Date shall only be permitted by this clause (vi) to the extent that the
terms of any such amendment or new agreement are not otherwise disadvantageous
to the Holders in any material respect, (vii) transactions permitted by, and
complying with, the provisions of the Discount Note Indenture summarized under
"Limitations on Mergers and Certain Other Transactions," or (viii) transactions
with Certified Grocers of California, Inc., Affiliated Wholesale Grocers of
Kansas City, Inc. or their subsidiaries or other suppliers in the ordinary
course of business (including, without limitation, pursuant to joint venture
agreements with such persons) and otherwise in compliance with the terms of the
Indenture.
LIMITATIONS ON MERGERS. Pursuant to the Discount Note Indenture, Holdings
shall not in a single transaction or through a series of related transactions
(i) consolidate with or merge with or into any other person, or transfer (by
lease, assignment, sale or otherwise) all or substantially all of its properties
and assets as an entirety or substantially as an entirety to another person or
group of affiliated persons or (ii) adopt a Plan of Liquidation, unless, in
either case: (1) either Holdings shall be the continuing person, or the person
(if other than Holdings) formed by such consolidation or into which Holdings is
merged or to which all or substantially all of the properties and assets of
Holdings as an entirety or substantially as an entirety are transferred (or, in
the case of a Plan of Liquidation, any person to which assets are transferred)
(Holdings or such other person being hereinafter referred to as the "Surviving
Person") shall be a corporation organized and validly existing under the laws of
the United States, any State thereof or the District of Columbia, and shall
expressly assume, by an indenture supplemental hereto, executed and delivered to
the Trustee, in form satisfactory to the Trustee, all the obligations of
Holdings under the Trustee, all the obligations of Holdings under the Discount
Notes and this Discount Note Indenture; (2) immediately after and giving effect
to such transaction and the assumption contemplated by clause (1) above and the
incurrence or anticipated incurrence of any Indebtedness to be incurred in
connection therewith, (A) the Surviving Person shall have a Net Worth equal to
or greater than the Net Worth of Holdings immediately preceding the transaction
and (B) the Surviving Person could incur at least $1 of Indebtedness pursuant to
the covenant "Limitation on Incurrences on Additional Indebtedness" above; (3)
immediately before and immediately after and giving effect to such transaction
and the assumption of the obligations as set forth in clause (1) above and the
incurrence or anticipated incurrence of any Indebtedness to be incurred in
connection therewith, no Default or Event of Default shall have occurred and be
continuing; and (4) Holdings shall have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that such consolidation,
merger, transfer or adoption and such supplemental indenture comply with the
covenant of the Discount Notes Indenture entitled "When Company May Merge, Etc."
that the Surviving Person agrees to be bound hereby, and that all conditions
precedent herein provided relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties and assets of one or more Subsidiaries, the
Capital Stock of which constitutes all or substantially all of the properties
and assets of Holdings shall be deemed to be the transfer of all or
substantially all of the properties and assets of Holdings.
Nothing contained herein shall prohibit the consolidation or merger of
Holdings and FFL so long as the surviving corporation in such consolidation or
merger (i) is Holdings or (ii) assumes all of the obligations of Holdings under
the Discount Note Indenture; provided that FFL shall not have incurred any
Indebtedness or other material liabilities, contingent or otherwise, subsequent
to the Issue Date and prior to such consolidation or merger, other than
liabilities resulting from registration rights relating to capital stock of FFL,
tax liabilities incurred in the ordinary course of business consistent with past
practice and liabilities in connection with effecting such consolidation or
merger.
This section shall not apply to (i) the creation, incurrence or assumption
of Liens securing Indebtedness outstanding under the Credit Agreement or (ii)
any sale or other disposition of assets in connection with an event of default
and acceleration under the Credit Agreement.
Upon any consolidation or merger, or any transfer of assets in accordance
with the foregoing, the successor person formed by such consolidation or into
which Holdings is merged or to which such transfer is made shall succeed to, and
be substituted for, and may exercise every right and power of, Holdings under
the Discount Note Indenture with the same effect as if such successor person had
been named as Holdings herein. When a successor corporation assumes all of the
obligations of Holdings hereunder and under the Discount Notes and agrees to be
bound hereby and thereby, the predecessor shall be released from such
obligations.
DISPOSITION OF PROCEEDS OF PUBLIC OFFERING SALE. (a) Holdings will not, and
will not permit any of its Subsidiaries to, participate in any Public Offering
Sale or have the Net Cash Proceeds of a Public Offering Sale by FFL contributed
to, invested in or otherwise accepted by Holdings or any Subsidiary unless (a)
the Net Cash Proceeds of any Public Offering Sale contributed to, or received by
Holdings or such Subsidiary, as the case may be, from such Public Offering Sale
are applied in accordance with this covenant, (b) the Net Cash Proceeds are
applied within 270 days of the Initial Public Offering Consummation Date, at the
election of Holdings, (i) to repay or cause to be repaid Indebtedness of
Holdings or any Subsidiary; (ii) in a manner that would constitute a Related
Business Investment hereunder; or (iii) to the purchase of
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Discount Notes pursuant to a Net Proceeds Offer as set forth below; and (c) any
Net Cash Proceeds of a Public Offering Sale by FFL which are contributed to
Holdings shall be contributed in exchange for, or in respect of, Capital Stock
of Holdings. To the extent that the Net Cash Proceeds are not actually applied
in accordance with clauses (b)(i) or (ii) above, Holdings shall make an offer as
described in paragraph (b) below (the "Net Proceeds Offer") to purchase Discount
Notes at a price equal to 100% of, (i) if the date of the Net Proceeds Offer is
prior to December 15, 1997, the Accreted Value thereof plus the Proportionate
Share, if any, with respect to the Discount Notes to the date of purchase and
(ii) if the date of the Net Proceeds Offer is on or after December 15, 1997, the
aggregate principal amount thereof, plus accrued interest to the date of
purchase pursuant to this covenant, which shall in the aggregate equal the Net
Cash Proceeds required by this covenant to be used to purchase Discount Notes in
a Net Proceeds Offer; provided, however, that Holdings may credit against the
principal amount of Discount Notes to be acquired pursuant to this covenant the
principal amount of Discount Notes acquired by Holdings through purchase,
optional redemption, exchange or otherwise following the Initial Public Offering
Consummation Date and surrendered for cancellation and not previously used as a
credit against any other required payment pursuant to the Discount Note
Indenture; provided, further, that a Net Proceeds Offer as a result of a Public
Offering Sale made by Supermarkets shall not be required to be in excess of the
lesser of (A) the Net Cash Proceeds of such Public Offering Sale less the Net
Cash Proceeds actually applied in accordance with clauses (b)(i) or (ii) above
and (B) the amount that Supermarkets is permitted to distribute to Holdings as a
dividend pursuant to the Old F4L Senior Note Indenture, the Old F4L Senior
Subordinated Note Indenture (or pursuant to agreements governing Indebtedness
the proceeds of which were used to refinance in whole or in part the Old F4L
Senior Notes or the Old F4L Senior Subordinated Notes so long as the dividend
restrictions contained therein are comparable to those set forth in the Old F4L
Senior Note Indenture and Old F4L Senior Subordinated Note Indenture) and by
state law. The Net Proceeds Offer shall remain open from the time of mailing
until 5 days (or such shorter period as may be required under applicable law)
before the Proceeds Purchase Date.
(b) Notice of a Net Proceeds Offer pursuant to this covenant shall be
mailed, by first class mail, by Holdings not less than 230 days nor more than
270 days after the relevant Initial Public Offering Consummation Date to all
Holders at their last registered addresses, with copies to the Credit Agent and
the Trustee. The notice shall contain all instructions and material necessary to
enable such Holders to tender Discount Notes pursuant to the Net Proceeds Offer
and shall state the terms set forth in the Discount Note Indenture.
RESTRICTIONS ON SALE OF STOCK OF SUBSIDIARIES. Holdings will not permit any
of its Subsidiaries to issue any Preferred Stock (other than to Holdings or to a
wholly-owned Subsidiary of Holdings) other than Disqualified Capital Stock
permitted to be issued pursuant to the provisions of the Discount Note Indenture
summarized under "Limitation on Incurrences of Additional Indebtedness" or
permit any person (other than Holdings or a wholly-owned Subsidiary of Holdings)
to own any Preferred Stock of any Subsidiary of Holdings (other than
Disqualified Capital Stock permitted to be issued pursuant to the conditions
described in the provisions of the Discount Note Indenture summarized under
"Limitation on Incurrences of Additional Indebtedness.
Holdings will not permit any of its Subsidiaries to issue any Capital Stock
(other than Preferred Stock permitted under the foregoing paragraph and other
than to Holdings or to a wholly-owned Subsidiary of Holdings) or permit any
person (other than Holdings or a wholly-owned Subsidiary of Holdings) to own any
Capital Stock (other than Preferred Stock as provided in the foregoing
paragraph) of any Subsidiary of Holdings (other than in the case of a sale of
100% of the Capital Stock of a Subsidiary of Holdings which is not otherwise
prohibited by the Discount Note Indenture); provided that this paragraph shall
not apply to any Subsidiary of Supermarkets that becomes a Subsidiary of
Supermarkets after the Issue Date pursuant to the making of an Investment that
constituted a Restricted Payment and was permitted by the provisions of the
Discount Note Indenture summarized under "Limitation on Restricted Payments" or
pursuant to the making of a Related Business Investment that at the time made
could have been made as a Restricted Payment in compliance with the provisions
of the Discount Note Indenture summarized under "Limitation on Restricted
Payments" so long as such Related Business Investment is actually treated as a
Restricted Payment effective as of the date it was originally made, and the
provisions of the aforementioned covenant would not have been breached at any
time thereafter; provided, further, that this paragraph shall not prevent the
sale of less than 100% of the Capital Stock of a Subsidiary of Holdings if (i)
immediately after and giving pro forma effect to such transaction as if Holdings
ceased to own any equity interest in such Subsidiary on the first day of the
Reference Period (even if less than 100% of the Capital Stock of such Subsidiary
is sold) and the application of proceeds therefrom, Holdings could incur at
least $1 of Indebtedness pursuant to the provisions of the Discount Note
Indenture summarized in the first paragraph under "Limitations on Incurrences of
Additional Indebtedness" or (ii) such sale is pursuant to a foreclosure by the
lenders or other secured parties under the Credit Agreement and the other Loan
Documents (or by the holders of any Indebtedness secured by such Capital Stock)
or their Representative on collateral securing Indebtedness under the Loan
Documents; provided, however, that notwithstanding any other provision of this
covenant, Holdings will permit Supermarkets to issue any Capital Stock of
Supermarkets (other than Preferred Stock permitted under the first paragraph
above) other than to Holdings or permit any person (other than Holdings) to own
any Capital Stock (other than Preferred Stock permitted under the first
paragraph above) of Supermarkets.
SEC REPORTS AND OTHER INFORMATION. (a) To the extent permitted by applicable
law or regulation, whether or not Holdings is subject to the requirements of
Section 13 or 15(d) of the Exchange Act, Holdings shall file with the SEC all
quarterly and annual reports and such other information, documents or other
reports (or copies of such portions of any of
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the foregoing as the SEC may by rules and regulations prescribe) required to be
filed pursuant to such provisions of the Exchange Act. Holdings shall file with
the Trustee, within 5 days after it files the same with the SEC, copies of the
quarterly and annual reports and the information, documents, and other reports
(or copies of such portions of any of the foregoing as the SEC may by rules and
regulations prescribe) that it is required to file with the SEC pursuant to this
Section 4.09. Holdings shall also comply with the other provisions of TIA
sec. 314(a). If Holdings is not permitted by applicable law or regulations to
file the aforementioned reports, Holdings (at its own expense) shall file with
the Trustee and mail, or cause the Trustee to mail, to Holders at their
addresses appearing in the register of Securities maintained by the Registrar at
the time of such mailing within 5 days after it would have been required to file
such information with the SEC, all information and financial statements,
including any notes thereto and with respect to annual reports, an auditors'
report by an accounting firm of established national reputation, and a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," comparable to the disclosure that Holdings would have been required
to include in annual and quarterly reports, information, documents or other
reports, including, without limitation, reports on Forms 10-K, 10-Q and 8-K, if
Holdings was subject to the requirements of such Section 13 or 15(d) of the
Exchange Act.
(b) At any time when Holdings is not permitted by applicable law or
regulations to file the aforementioned reports, upon the request of a Holder of
a Series A Note, Holdings will promptly furnish or cause to be furnished such
information as is specified pursuant to Rule 144A(d)(4) under the Securities Act
(or any successor provision thereto) to such Holder or to a prospective
purchaser of such Series A Note designated by such Holder, as the case may be,
in order to permit compliance by such Holder with Rule 144A under the Securities
Act.
EVENTS OF DEFAULT.
Under the terms of the Discount Note Indenture the following events
constitute "Events of Default": (1) Holdings defaults in the payment of interest
on the Securities when the same becomes due and payable and the Default
continues for a period of 30 days; (2) Holdings defaults in the payment of the
principal of the Discount Notes when the same becomes due and payable at
maturity, upon acceleration, redemption or otherwise; (3) Holdings fails to
comply with any of its other agreements or covenants in, or provisions of, the
Discount Notes or the Discount Note Indenture and the Default continues for the
period and after the notice specified below; (4) there shall be a default under
any bond, debenture, or other evidence of Indebtedness of Holdings or of any
Significant Subsidiary or under any mortgage, indenture or other instrument
under which there may be issued or by which there may be secured or evidenced
any such Indebtedness, whether such Indebtedness now exists or shall hereafter
be created, if both (A) such default either (i) results from the failure to pay
such Indebtedness at its stated final maturity (that is, the date of the last
principal installment of any installment Indebtedness under the instrument or
agreement pursuant to or under which such Indebtedness was created or is
evidenced) or (ii) relates to an obligation other than the obligation to pay any
principal of such Indebtedness at its stated maturity and results in the holder
or holders of such Indebtedness causing such Indebtedness to become due prior to
its stated maturity and (B) the principal amount of such Indebtedness, together
with the principal amount of any other such Indebtedness the maturity of which
has been so accelerated, aggregates $25 million or more at any one time; (5)
there shall be a default in payment of interest or principal (other than as set
forth in clause (4) above by any Significant Subsidiary on Indebtedness under
the Credit Agreement, the Old F4L Senior Note Indenture or Old F4L Senior
Subordinated Note Indenture or any Refinancing Indebtedness relating thereto
(the "Designated Debt") when such interest or principal becomes due and payable
(a "Payment Default") and such Payment Default shall not have been cured or
waived within the Cure Period as defined below after such payment was due and
all applicable grace periods as in effect on the Issue Date (or in the case of
Refinancing Indebtedness periods comparable to the periods in the Indebtedness
being so refinanced relating to such payment) shall have lapsed (the "Designated
Debt Due Date"); provided for purposes of the foregoing Cure Period shall mean
the shorter of the following periods: (i) 90 days from the Designated Debt Due
Date or (ii) if within the 180 day period immediately prior to the date of such
Payment Default one or more Payment Defaults occurred which was or were cured or
waived within the applicable Cure Period, 90 days minus the total number of days
within such 180 day period for which all such prior Payment Defaults continued
uncured or unwaived beyond the applicable Designated Debt Due Date; (6) Holdings
or any Significant Subsidiary (A) admits in writing its inability to pay its
debts generally as they become due, (B) commences a voluntary case or proceeding
under any Bankruptcy Law with respect to itself, (C) consents to the entry of a
judgment, decree or order for relief against it in an involuntary case or
proceeding under any Bankruptcy Law, (D) consents to the appointment of a
Custodian of it or for substantially all of its property, (E) consents to or
acquiesces in the institution of a bankruptcy or an insolvency proceeding
against it, (F) makes a general assignment for the benefit of its creditors, or
(G) takes any corporate action to authorize or effect any of the foregoing; (7)
a court of competent jurisdiction enters a judgment, decree or order for relief
in respect of Holdings or any Significant Subsidiary in an involuntary case or
proceeding under any Bankruptcy Law, which shall (A) approve as properly filed a
petition seeking reorganization, arrangement, adjustment or composition in
respect of Holdings or any Significant Subsidiary, (B) appoint a Custodian of
Holdings or any Significant Subsidiary or for substantially all of its property
or (C) order the winding-up or liquidation of its affairs; and such judgment,
decree or order shall remain unstayed and in effect for a period of 60
consecutive days; or (8) any warrant of attachment is issued against any portion
of the property of Holdings having a value of at least $20 million, which
warrant is not released within 60 days after service of process with respect
thereto, or final judgments not covered by insurance for the payment of money
which in the aggregate at any one time exceeds $20 million shall be rendered
against Holdings by a
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court of competent jurisdiction and shall remain undischarged for a period
(during which execution shall not be effectively stayed) of 60 days after such
judgment becomes final and nonappealable.
A Default under clause (3) above (other than in the case of any Defaults
resulting from any Default under "Limitation on Restricted Payments,"
"Limitation on Change of Control," as described in the Holdings Discount Note
Indenture, which Defaults shall be Events of Default with the notice specified
in this paragraph but without the passage of time specified in this paragraph)
is not an Event of Default until the Trustee notifies Holdings, or the Holders
of at least 25% in aggregate principal amount of the outstanding Holdings
Discount Notes notify Holdings and the Trustee, of the Default, and Holdings
does not cure the Default within 30 days after receipt of the notice. The notice
must specify the Default, demand that it be remedied and state that the notice
is a "Notice of Default." Such notice shall be given by the Trustee if so
requested by the Holders of at least 25% in aggregate principal amount of the
Discount Notes then outstanding. When a Default is cured, it ceases.
SATISFACTION AND DISCHARGE OF INDENTURE.
The Discount Note Indenture provides that Holdings may terminate its
obligations under the Discount Notes and the Discount Note Indenture if (i) all
Discount Notes previously authenticated and delivered have been delivered to the
Trustee for cancellation and Holdings has paid all sums payable by it
thereunder, or (ii) a period of 91 days has elapsed after Holdings has
irrevocably deposited in trust with the Trustee under the terms of an
irrevocable trust and security agreement in form and substance reasonably
satisfactory to the Trustee, money or United States government obligations
maturing as to principal and interest in such amounts and at such times as are
sufficient without consideration of any reinvestment of such interest to pay
principal of and interest on the outstanding Discount Notes on the dates on
which any such payments are due and payable in accordance with the terms of the
Discount Note Indenture and the Discount Notes; provided that among other
things, Holdings shall have delivered to the Trustee an opinion of counsel to
the effect that the holders of such Discount Notes will not recognize income,
gain or loss for federal income tax purposes as a result of Holdings' deposit
and the defeasance contemplated thereby and will be subject to federal income
tax in the same amounts and in the same manner and at the same times as would
have been the case if such deposit and defeasance had not occurred. Certain
obligations of Holdings under the Discount Note Indenture or of the Discount
Notes, including the payment of interest and principal, shall remain in full
force and effect until such Discount Notes are no longer outstanding.
MODIFICATION OF THE DISCOUNT NOTE INDENTURE.
Holdings, when authorized by a Board Resolution, and the Trustee, together,
may amend or supplement the Discount Note Indenture or the Discount Notes
without notice to or consent of any Holder: (1) to cure any ambiguity, defect or
inconsistency; provided that such amendment or supplement does not adversely
affect the rights of any Holder, (2) to comply with Article 5 of the Discount
Note Indenture; (3) to provide for uncertificated Discount Notes in addition to
or in place of certificated Holdings Discount Notes; (4) to make any other
change that does not adversely affect the rights of any Holders; or (5) to
comply with any requirements of the SEC in connection with the qualification of
the Discount Note Indenture under the TIA; provided that Holdings has delivered
to the Trustee an opinion of counsel stating that such amendment or supplement
complies with the provisions of this Section.
Subject to the "Right of Holders to Receive Payment," as described in the
Discount Note Indenture, Holdings, when authorized by a Board Resolution, and
the Trustee, together, with the written consent of the Holder or Holders of at
least a majority in aggregate principal amount of the outstanding Discount
Notes, may amend or supplement the Discount Note Indenture or the Discount
Notes, without notice to any other Holders. Holders of at least a majority in
aggregate principal amount of the outstanding Discount Notes may waive
compliance by Holdings with any provision of the Discount Note Indenture or the
Discount Notes without notice to any other Holder. Without the consent of each
Holder affected, however, no amendment, supplement or waiver, including a waiver
pursuant to the requirements as described in the Discount Note Indenture, may:
(1) change the principal amount of the Discount Note whose Holders must consent
to an amendment, supplement or waiver of any provision of this Discount Note
Indenture or the Discount Notes; (2) reduce the rate or extend the time for
payment of interest on any Holdings Discount Notes; (3) reduce the Accreted
Value of any Discount Notes; (4) reduce the principal amount of any Discount
Notes; (5) change the Maturity Date of any Discount Notes, or alter the
redemption provisions contained in paragraph 6 or 7 of the Discount Notes in a
manner adverse to any Holder; (6) make any changes in the provisions concerning
waivers of Defaults or Events of Default by Holders of the Discount Notes or the
rights of Holders to recover the principal of, interest on, or redemption
payment with respect to, any Discount Note; (7) make any changes in the sections
"Waiver of Past Defaults," "Rights of Holders to Receive Payment" described in
the Discount Note Indenture or this third sentence of this clause; (8) make the
principal of, or the interest on any Discount Note payable with anything or in
any manner other than as provided for in the Discount Note Indenture and the
Discount Notes as in effect on the date hereof.
It shall not be necessary for the consent of the Holders under this clause
to approve the particular form of any proposed amendment, supplement or waiver,
but it shall be sufficient if such consent approves the substance thereof.
After an amendment, supplement or waiver under this clause becomes
effective, Holdings shall mail to the Holders affected thereby a notice briefly
describing the amendment, supplement or waiver. Any failure of Holdings to mail
such
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notice, or any defect therein, shall not, however, in any way impair or affect
the validity of any such supplemental indenture.
In connection with any amendment, supplement or waiver under Article Nine of
the Discount Note Indenture, Holdings may, but shall not be obligated to, offer
to any Holder who consents to such amendment, supplement or waiver, or to all
Holders, consideration for such Holder's consent to such amendment, supplement
or waiver.
CERTAIN DEFINITIONS
"ACCRETED VALUE" means, as of any date, with respect to each $1,000
principal amount of Securities, the Accreted Value set forth below for the
immediately preceding Semi-Annual Accrual Date:
<TABLE>
<CAPTION>
ACCRETED VALUE
(PER $1,000
SEMIANNUAL ACCRUAL DATE PRINCIPAL AMOUNT)
---------------------------------------------- -----------------
<S> <C>
December 31, 1992............................. $ 482.63
June 15, 1993................................. 516.16
December 15, 1993............................. 555.51
June 15, 1994................................. 597.87
December 15, 1994............................. 643.46
June 15, 1995................................. 692.52
December 15, 1995............................. 745.33
June 15, 1996................................. 802.16
December 15, 1996............................. 863.32
June 15, 1997................................. 929.15
December 15, 1997 and thereafter.............. $1,000.00
</TABLE>
"ACQUIRED INDEBTEDNESS" means Indebtedness of person or any of its
subsidiaries existing at the time such person becomes a Subsidiary or assumed in
connection with the acquisition of assets from such person and not incurred by
such person in connection with, or in anticipation or contemplation of, such
person becoming a Subsidiary or such acquisition.
"AFFILIATE" of any specified person means any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" when used with respect to any person means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"affiliated," "controlling" and "controlled" have meanings correlative to the
foregoing. Notwithstanding the foregoing, except as otherwise provided by law,
the term "Affiliate," with respect to Holdings and its Affiliates, shall not
include (i) BT Securities Corporation, Donaldson, Lufkin & Jenrette Securities
Corporation or any of their Affiliates or (ii) any other person who is not a
Significant Stockholder.
"ASSET SALE" means, for any person, any sale, transfer or other disposition
or series of sales, transfers or other dispositions (including, without
limitation, by merger or consolidation or by exchange of assets and whether by
operation of law or otherwise) made by such person or any of its subsidiaries to
any person other than such person or one of its wholly-owned subsidiaries (or,
in the case of a sale, transfer or other disposition by a Subsidiary, to any
person other than Holdings or any wholly-owned Subsidiary) of any assets of such
person or any of its subsidiaries including, without limitation, assets
consisting of any capital stock or other securities held by such person or any
of its subsidiaries, and any capital stock issued by any subsidiary of such
person, outside of the ordinary course of business, excluding, however, any
sale, transfer or other disposition, or series of related sales, transfers or
other dispositions, having a purchase price or transaction value, as the case
may be, of $250,000 or less.
"BANKRUPTCY LAW" means Title 11, U.S. Code or any similar Federal, state or
foreign law for the relief of debtors.
"BOARD OF DIRECTORS" means, with respect to any person, the Board of
Directors of such person or any committee of the Board of Directors of such
person duly authorized, with respect to any particular matter, to exercise the
power of the Board of Directors of such person.
"BOARD RESOLUTION" means, with respect to any person, a duly adopted
resolution of the Board of Directors of such person.
"BUSINESS DAY" means a day that is not a Legal Holiday.
"CAPITAL STOCK" means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated) of corporate
stock, including each class of common stock and preferred stock of such person,
including Preferred Stock.
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"CAPITALIZED LEASE OBLIGATION" means obligations under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP, and the amount of Indebtedness represented by such obligations shall be
the capitalized amount of such obligations determined in accordance with GAAP.
"CASH EQUIVALENTS" means (i) obligations issued or unconditionally
guaranteed by the United States of America or any agency thereof, or obligations
issued by any agency or instrumentality thereof and backed by the full faith and
credit of the United States of America, (ii) commercial paper rated the highest
grade by Moody's Investors Service, Inc. and Standard & Poor's Corporation and
maturing not more than one year from the date of creation thereof, (iii) time
deposits with, and certificates of deposit and banker's acceptances issued by,
any bank having capital surplus and undivided profits aggregating at least $500
million and maturing not more than one year from the date of creation thereof,
(iv) repurchase agreements that are secured by a perfected security interest in
an obligation described in clause (i) and are with any bank described in clause
(iii) and (v) readily marketable direct obligations issued by any state of the
United States of America or any political subdivision thereof having one of the
two highest rating categories obtainable from either Moody's Investors Service,
Inc. or Standard & Poor's Corporation.
"CHANGE OF CONTROL" means (I) the acquisition after the Issue Date, in one
or more transactions, of beneficial ownership (within the meaning of Rule 13d-3
under the Exchange Act) by (i) any person or entity (other than any Permitted
Holder) or (ii) any group of persons or entities (excluding any Permitted
Holders) who constitute a group (within the meaning of Section 13(d)(3) of the
Exchange Act), in either case, of any securities of Holdings or FFL such that,
as a result of such acquisition, such person, entity or group either (A)
beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act)
directly or indirectly, 51% or more of Holdings' then outstanding voting
securities entitled to vote on a regular basis for a majority of the Board of
Directors of Holdings (but only to the extent that such beneficial ownership is
not shared with any Permitted Holder who has the power to direct the vote
thereof) or (B) otherwise has the ability to elect, directly or indirectly, a
majority of the members of Holdings' Board of Directors or (II) Holdings ceasing
to own 100% of the outstanding voting securities entitled to vote on a regular
basis for a majority of the Board of Directors of Supermarkets.
"CONSOLIDATED NET INCOME," with respect to any person, for any period, means
the aggregate of the net income (or loss) of such person and its subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (a) the net income of any other person in which such person or any
of its subsidiaries has an interest (which interest does not cause the net
income of such other person to be consolidated with the net income of such
person and its subsidiaries in accordance with GAAP) shall be included only to
the extent of the amount of dividends or distributions actually paid to such
person or such subsidiary by such other person in such period; (b) the net
income of any subsidiary of such person that is subject to any Payment
Restriction shall be excluded to the extent such Payment Restriction actually
prevented the payment of an amount that otherwise could have been paid to, or
received by, such person or a subsidiary of such person not subject to any
Payment Restriction, provided, however, that with respect to the net income of
Holdings, the net income of Supermarkets and its Subsidiaries shall not be so
excluded, notwithstanding the existence of any such Payment Restriction, so long
as the terms of any such consensual Payment Restriction limiting the payment of
dividends are not materially more restrictive at the time of determination of
Consolidated Net Income than the most restrictive Payment Restriction limiting
the payment of dividends in effect on the Issue Date; and (c)(i) the net income
(or loss) of any other person acquired in a pooling of interests transaction for
any period prior to the date of such acquisition, (ii) all gains and losses
realized on any Asset Sale or in connection with the closure of the Long Beach
Warehouse, (iii) all gains realized upon or in connection with or as a
consequence of the issuance of the Capital Stock of such person or any of its
subsidiaries and any gains on pension reversions received by such person or any
of its subsidiaries, (iv) all gains and losses realized on the purchase or other
acquisition by such person or any of its subsidiaries of any securities of such
person or any of its subsidiaries, (v) all gains and losses resulting from the
cumulative effect of any accounting change pursuant to the application of
Accounting Principles Board Opinion No. 20, as amended (vi) all other
extraordinary gains and losses, and (vii) with respect to Holdings and its
Subsidiaries, all deferred financing costs written off in connection with the
early extinguishment of any Indebtedness, shall each be excluded.
"CREDIT AGENT" means, at any time, the then acting Administrative Agent as
defined in and under the Credit Agreement, which initially shall be Citicorp
North America, Inc. Holdings shall promptly notify the Holdings Discount Note
Trustee of any change in the Credit Agent.
"CREDIT AGREEMENT" means the Credit Agreement, dated as of June 17, 1991, by
and among Supermarkets, certain of its subsidiaries, the Lenders and Designated
Issuers of the Lenders referred to therein, Bankers Trust Company, Citicorp
North America, Inc., and Chemical Bank (the successor to Manufacturers Hanover
Trust Company), as Co-Agents, and Citicorp North America, Inc., as
Administrative Agent, together with the documents related thereto, as it may be
amended, extended, renewed, restated, supplemented or otherwise modified (in
whole or in part, and without limitation as to amount, terms, conditions,
covenants and other provisions) from time to time, and any agreement governing
Indebtedness incurred to refund or refinance (including by way of placement or
issuance of notes) or restructuring the entirety of the borrowings and
commitments then outstanding or permitted to be outstanding under such Credit
Agreement or such agreement. Holdings shall promptly notify the Holdings
Discount Note Trustee of any such refunding or refinancing of the Credit
Agreement.
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"CUSTODIAN" means any receiver, trustee, assignee, liquidator, sequestrator
or similar official under any Bankruptcy Law.
"DEFAULT" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"DEFAULT AMOUNT" means, with respect to the Securities, (i) if the Date of
Declaration (as defined below) is prior to December 15, 1997, the unpaid
Accreted Value of the Securities then outstanding as of the date on which the
Securities are declared to be due and payable (the "Date of Declaration") plus
the Proportionate Share thereof, if any, to the Date of Declaration, and (ii) if
the Date of Declaration is on or after December 15, 1997, the aggregate unpaid
principal amount of the Securities then outstanding as of the Date of
Declaration, plus accrued and unpaid interest thereon to the Date of
Declaration.
"DISQUALIFIED CAPITAL STOCK" means, (i) with respect to any person, any
Capital Stock of such person or its subsidiaries that, by its terms, by the
terms of any agreement related thereto or by the terms of any security into
which it is convertible, puttable or exchangeable, is, or upon the happening of
an event or the passage of time would be, required to be redeemed or repurchased
by such person or its subsidiaries, including at the option of the holder, in
whole or in part, or has, or upon the happening of an event or passage of time
would have, a redemption or similar payment due, on or prior to the Maturity
Date or any other Capital Stock of such person or its subsidiaries designated as
Disqualified Capital Stock by such person at the time of issuance; provided,
however, that if such Capital Stock is either (a) redeemable or repurchasable
solely at the option of such person or (b) issued to employees of Holdings or
its Subsidiaries or to any plan for the benefit of such employees, such Capital
Stock shall not constitute Disqualified Capital Stock unless so designated; and
(ii) with respect to any Subsidiary of Holdings, any Preferred Stock issued by a
Subsidiary of Holdings other than Preferred Stock issued to Holdings.
"EBDIT" means, with respect to any person, for any period, without
duplication, the sum of the amounts for such period of (i) Consolidated Net
Income of such person for such period, (ii) provisions for income taxes or
similar charges recognized by such person and its consolidated subsidiaries for
such period, (iii) depreciation and amortization expense of such person and its
consolidated subsidiaries accrued during such period (but only to the extent not
included in Fixed Charges), (iv) Fixed Charges of such person and its
consolidated subsidiaries for such period, and (v) other non-cash charges
reducing Consolidated Net Income and which have been customarily added back to
Consolidated Net Income by such person in determining EBDIT, in each case
determined in accordance with GAAP; provided that the amounts set forth in
clauses (i) through (iv) shall be included only to the extent such amounts
reduced Consolidated Net Income.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC thereunder.
"FFL" means Food 4 Less, Inc., a Delaware corporation, until a successor
replaces it and thereafter means such successor.
"FINAL ACCRETION DATE" means December 15, 1997.
"FIXED CHARGES" means, with respect to any person, for any period, the
aggregate amount of (i) interest, whether expensed or capitalized, paid, accrued
or scheduled to be paid or accrued during such period (except to the extent
accrued in a prior period) in respect of all Indebtedness of such person and its
consolidated subsidiaries (including, without duplication, (a) original issue
discount on any Indebtedness (including, in the case of Holdings, any original
issue discount on the Discount Notes) and (b) the interest portion of all
deferred payment obligations, calculated in accordance with the effective
interest method, in each case to the extent attributable to such period) and
(ii) dividend requirements on Capital Stock of such person and its consolidated
subsidiaries (whether in cash or otherwise (except dividends payable in shares
of Qualified Capital Stock)) paid, accrued or scheduled to be paid or accrued
during such period (except to the extent accrued in a prior period) and
excluding items eliminated in consolidation. For purposes of this definition,
(a) interest on a Capitalized Lease Obligation shall be deemed to accrue at an
interest rate reasonably determined by the Board of Directors of such person (as
evidenced by a Board Resolution) to be the rate of interest implicit in such
Capitalized Lease Obligation in accordance with GAAP, (b) interest on
Indebtedness that is determined on a fluctuating basis shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest of such
Indebtedness in effect on the date Fixed Charges are being calculated, (c)
interest on Indebtedness that may optionally be determined at an interest rate
based upon a factor of a prime or similar rate, a eurocurrency interbank offered
rate, or other rate, shall be deemed to have been based upon the rate actually
chosen, or, if none, then based upon such optional rate chosen as Holdings or
any Subsidiary may designate, and (d) Fixed Charges shall be increased or
reduced by the net cost (including amortization of discount) or benefit
associated with Interest Swap Obligations attributable to such period. For
purposes of clause (ii) above, dividend requirements shall be increased to an
amount representing the pre-tax earnings that would be required to cover such
dividend requirements; accordingly the increased amount shall be equal to a
fraction, the numerator of which is such dividend requirements and the
denominator of which is 1 minus the applicable actual combined federal, state,
local and foreign income tax rate of such person and its subsidiaries (expressed
as a decimal), on a consolidated basis, for the fiscal year immediately
preceding the date of the transaction giving rise to the need to calculate Fixed
Charges.
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"FOREIGN EXCHANGE AGREEMENT" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect
against fluctuations in currency values.
"FORWARD PERIOD" shall have the meaning set forth in the definition of
Operating Coverage Ratio contained in this Section 1.01.
"HOLDINGS" means Food 4 Less Holdings, Inc., a California corporation, until
a successor replaces it and thereafter means such successor.
"INDEBTEDNESS" means with respect to any person, without duplication, (i)
all liabilities, contingent or otherwise, of such person (a) for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of such
person or only to a portion thereof), (b) evidenced by bonds, notes, debentures,
drafts accepted or similar instruments or letters of credit or representing the
balance deferred and unpaid of the purchase price of any property (other than
any such balance that represents an account payable or any other monetary
obligation to a trade creditor (whether or not an Affiliate) created, incurred,
assumed or guaranteed by such person in the ordinary course of business of such
person in connection with obtaining goods, materials or services and due within
twelve months (or such longer period for payment as is customarily extended by
such trade creditor) of the incurrence thereof, which account is not overdue by
more than 90 days, according to the original terms of sale, unless such account
payable is being contested in good faith), or (c) for the payment of money
relating to a Capitalized Lease Obligation; (ii) the maximum fixed repurchase
price of all Disqualified Capital Stock of such person or, if there is no such
maximum fixed repurchase price, the liquidation preference of such Disqualified
Capital Stock, plus accrued but unpaid dividends; (iii) reimbursement
obligations of such person with respect to letters of credit; (iv) obligations
of such person with respect to Interest Swap Obligations and Foreign Exchange
Agreements; (v) all liabilities of others of the kind described in the preceding
clause (i), (ii), (iii) or (iv) that such person has guaranteed or that is
otherwise its legal liability; and (vi) all obligations of others secured by a
Lien to which any of the properties or assets (including, without limitation,
leasehold interests and any other tangible or intangible property rights) of
such person are subject, whether or not the obligations secured thereby shall
have been assumed by such person or shall otherwise be such person's legal
liability (provided that if the obligations so secured have not been assumed by
such person or are not otherwise such person's legal liability, such obligations
shall be deemed to be in an amount equal to the fair market value of such
properties or assets, as determined in good faith by the Board of Directors of
such person, which determination shall be evidenced by a Board Resolution). For
purposes of the preceding sentence, the "maximum fixed repurchase price" of any
Disqualified Capital Stock that does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Capital Stock as if
such Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to this Indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock (or any equity security for which it may be exchanged or
converted), such fair market value shall be determined in good faith by the
Board of Directors of such person, which determination shall be evidenced by a
Board Resolution. For purposes hereof, Indebtedness incurred by any person that
is a general partnership (other than non-recourse Indebtedness) shall be deemed
to have been incurred by the general partners of such partnership pro rata in
accordance with their respective interests in the liabilities of such
partnership unless any such general partner shall, in the reasonable
determination of the Board of Directors of Holdings, be unable to satisfy its
pro rata share of the liabilities of the partnership, in which case the pro rata
share of any Indebtedness attributable to such partner shall be deemed to be
incurred at such time by the remaining general partners on a pro rata basis in
accordance with their interests.
"INDEPENDENT FINANCIAL ADVISOR" means a reputable accounting, appraisal or a
nationally recognized investment banking firm that is, in the reasonable
judgment of the Board of Directors of Holdings, qualified to perform the task
for which such firm has been engaged hereunder and disinterested and independent
with respect to Holdings and its Affiliates.
"INITIAL PUBLIC OFFERING" means an underwritten primary public offering of
common stock of FFL, Holdings or the Company at a time when neither FFL,
Holdings nor the Company has previously issued or sold any equity securities in
an underwritten transaction pursuant to a registration statement filed pursuant
to the Securities Act.
"INTEREST SWAP OBLIGATION" means any obligation of any person pursuant to
any arrangement with any other person whereby, directly or indirectly, such
person is entitled to receive from time to time periodic payments calculated by
applying either a fixed or floating rate of interest on a stated notional amount
in exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount; provided that
the term "Interest Swap Obligation" shall also include interest rate exchange,
collar, cap, swap option or similar agreements providing interest rate
protection.
"INVESTMENT" by any person in any other person means any investment by such
person in such other person, whether by a purchase of assets, in any transaction
or series of related transactions, individually or in the aggregate, in an
amount greater than $5 million, share purchase, capital contribution, loan,
advance (other than reasonable loans and advances to employees for moving and
travel expenses, as salary advances, or to permit the purchase of Qualified
Capital Stock of FFL, Holdings or any Subsidiary and other similar customary
expenses incurred, in each case in the ordinary course of business consistent
with past practice) or similar credit extension constituting Indebtedness of
such other person, and any guarantee of Indebtedness of any other person.
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"ISSUE DATE" means the date of first issuance of the Securities under this
Indenture.
"LIEN" means any mortgage, pledge, lien, encumbrance, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property, or a security interest of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof, any option or
other agreement to sell which is intended to constitute or create a security
interest, mortgage, pledge or lien, and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction); provided that in no event shall an operating lease be
deemed to constitute a Lien hereunder.
"LOAN DOCUMENTS" means the Credit Agreement and all promissory notes,
guarantees, security agreements, pledge agreements, deeds of trust, mortgages,
letters of credit and other instruments, agreements and documents executed
pursuant thereto or in connection therewith, including all amendments,
supplements, extensions, renewals, restatements, replacements or refinancings
thereof, or other modifications (in whole or in part, and without limitation as
to amount, terms, conditions, covenants or other provisions) thereof from time
to time.
"MATURITY DATE" means December 15, 2004.
"NET CASH PROCEEDS" means Net Proceeds of (i) the sale of Qualified Capital
Stock of FFL, Holdings or the Company or (ii) any Asset Sale in the form of cash
or Cash Equivalents.
"NET PROCEEDS" means (a) in the case of any issuance and sale by any person
of Qualified Capital Stock, the aggregate net proceeds received by such person
after payment of expenses, taxes, commissions and the like incurred in
connection therewith, whether such proceeds are in cash or in property (valued
at the fair market value thereof at the time of receipt as determined in good
faith by the Board of Directors of Holdings or, if the aggregate fair market
value of all non-cash consideration received shall exceed $15 million, as
determined by an Independent Financial Advisor) and (b) in the case of any
conversion or exchange of any outstanding Indebtedness or Disqualified Capital
Stock of such person for or into shares of Qualified Capital Stock of Holdings,
the sum of (i) the fair market value of the proceeds received by Holdings in
connection with the issuance of such Indebtedness or Disqualified Capital Stock
on the date of such issuance and (ii) any additional amount paid by the holder
to Holdings upon such conversion or exchange.
"NET WORTH" as of any date means, with respect to any person, the amount of
the equity of the holders of Capital Stock of such person that would appear on
the balance sheet of such person as of such date, determined in accordance with
GAAP, adjusted to include the amount of any minority interest attributed to
Capital Stock held by management of Holdings or any Subsidiary reflected on such
balance sheet as of the Issue Date and to exclude (to the extent included in
such equity), (a) the amount of equity attributable to Disqualified Capital
Stock (but only to the extent that any such equity would constitute Disqualified
Capital Stock pursuant to clause (i) of the definition thereof) and (b) with
respect to Holdings, the effect of (i) all non-cash charges reducing such equity
amount and attributable to the early extinguishment of, or acceleration of costs
of, the financing of the Alpha Beta Acquisition (other than amortization of
original issue discount), (ii) prepayment penalties or other charges incurred in
connection with the retirement of certain Indebtedness of a Subsidiary of
Holdings existing immediately prior to the date of the Alpha Beta Acquisition
and (iii) the recognition of deferred losses, in an amount not to exceed $3
million, on the Long Beach Warehouse.
"OPERATING COVERAGE RATIO" means, with respect to any person, the ratio of
(1) EBDIT of such person for the period (the "Pro Forma Period") consisting of
the most recent four full fiscal quarters for which financial information in
respect thereof is available immediately prior to the date of the transaction
giving rise to the need to calculate the Operating Coverage Ratio (the
"Transaction Date") to (2) the aggregate Fixed Charges of such person for the
fiscal quarter in which the Transaction Date occurs and the three fiscal
quarters immediately subsequent to such fiscal quarter (the "Forward Period")
reasonably anticipated by the Board of Directors of such person to become due
from time to time during such period. In addition to, but without duplication
of, the foregoing, for purposes of this definition, "EBDIT" shall be calculated
after giving effect (without duplication), on a pro forma basis for the Pro
Forma Period (but no longer), to (a) any Investment, during the period
commencing on the first day of the Pro Forma Period to and including the
Transaction Date (the "Reference Period"), in any other person that, as a result
of such Investment, becomes a subsidiary of such person, (b) the acquisition,
during the Reference Period (by merger, consolidation or purchase of stock or
assets) of any business or assets, which acquisition is not prohibited by this
Indenture, and (c) any sales or other dispositions of assets (other than sales
of inventory in the ordinary course of business) occurring during the Reference
Period, in each case as if such incurrence, Investment, repayment, acquisition
or asset sale had occurred on the first day of the Reference Period. In
addition, for purposes of this definition, "Fixed Charges" shall be calculated
after giving effect (without duplication), on a pro forma basis for the Forward
Period, to any Indebtedness incurred or repaid on or after the first day of the
Forward Period and prior to the Transaction Date.
"PAYMENT RESTRICTION" means, with respect to a Subsidiary of any person, any
encumbrance, restriction or limitation, whether by operation of the terms of its
charter or by reason of any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation, on the ability of (i) such subsidiary
to (a) pay dividends or make other distributions on its Capital Stock or make
payments on any obligation, liability or Indebtedness owed to such person or any
other subsidiary of such person, (b) make loans or advances to such person or
any other subsidiary of such person, or
A-15
<PAGE> 192
(c) transfer any of its properties or assets to such person or any other
subsidiary of such person, or (ii) such person or any such (a) dividends,
distributions or payments, (b) loans or advances, or (c) transfer of properties
or assets.
"PERMITTED GUARANTEES" means (i) guarantees in effect on the Issue Date and
(ii) guarantees incurred in the ordinary course of business, by Holdings or any
Subsidiary, of Indebtedness of any other person.
"PERMITTED HOLDER" means (i) Food 4 Less Equity Partners, L.P., The Yucaipa
Companies or any entity controlled thereby, (ii) an employee benefit plan of
Holdings, or any participant therein or any of Subsidiary, (iii) a trustee or
other fiduciary holding securities under an employee benefit plan of Holdings or
any Subsidiary or (v) any Permitted Transferee of any of the foregoing persons.
"PERMITTED INVESTMENT" by any person means (i) any Related Business
Investment, (ii) Investments in securities not constituting cash or Cash
Equivalents and received in connection with an Asset Sale or any other
disposition of assets not constituting an Asset Sale by reason of the $250,000
threshold contained in the definition thereof, (iii) cash and Cash Equivalents,
(iv) Investments existing on the Issue Date, (v) Investments specifically
permitted by and made in accordance with the "Limitation on Restricted Payments"
covenant and the "Limitation on Transactions with Affiliates" covenant and (vi)
Investments by any Subsidiary in other Subsidiaries.
"PERMITTED LIENS" shall mean (i) Liens for taxes, assessments, and
governmental charges to the extent not required to be paid under "Payment of
Taxes and Other Claims"; (ii) statutory Liens of landlords and carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen, or other like Liens
arising in the ordinary course of business and with respect to amounts not yet
delinquent or being contested in good faith by appropriate process of law, and
for which a reserve or other appropriate provision, if any, as shall be required
by GAAP shall have been made; (iii) pledges or deposits in the ordinary course
of business to secure lease obligations or nondelinquent obligations under
workers' compensation, unemployment insurance or similar legislation; (iv) Liens
to secure the performance of public statutory obligations that are not
delinquent, appeal bonds, performance bonds or other obligations of a like
nature (other than for borrowed money); (v) easements, rights-of-way,
restrictions, minor defects or irregularities in title and other similar charges
or encumbrances not interfering in any material respect with the business of
Holdings or any Subsidiary incurred in the ordinary course of business; (vi)
purchase money Liens upon or in any real or personal property (including
fixtures and other equipment) acquired or held by Holdings or any Subsidiary in
the ordinary course of business to secure the purchase price of such property or
to secure Indebtedness incurred solely for the purpose of financing or
refinancing the acquisition or improvement of such property, or Liens existing
on such property at the time of its acquisition (other than any such Lien
created in contemplation of such acquisition) provided that (x) no such Lien
shall extend to or cover any property other than the property being acquired or
improved and (y) any such Indebtedness would be permitted to be incurred
pursuant to the covenant entitled "Limitation on Additional Indebtedness."
"PERMITTED PAYMENTS" means any payment by Holdings or any Subsidiary (i) to
The Yucaipa Companies or the principals thereof for consulting, investment
banking or similar services during such period pursuant to that certain Amended
and Restated Consulting Agreement, dated as of June 17, 1991, among
Supermarkets, Yucaipa Management Company and The Yucaipa Companies, as such
amounts would be calculated under such Consulting Agreement as in effect on the
Issue Date, (ii) pursuant to the Transfer and Assumption Agreement, dated as of
June 23, 1989, between Supermarkets and FFL, as in effect on the Issue Date, and
(iii) (a) in connection with repurchases of outstanding shares of Supermarkets',
Holdings' and FFL's common stock following the death, disability or termination
of employment of management stockholders, and (b) of amounts required to be paid
by FFL, Holdings, Supermarkets or any Subsidiaries to participants in employee
benefit plans upon any termination of employment by such participants, as
provided in the documents related thereto, in an aggregate amount (for both
clauses (a) and (b)) not to exceed $10 million in any Yearly Period (provided
that any unused amounts may be carried over to any subsequent Yearly Period
subject to a maximum amount of $20 million in any Yearly Period).
"PERMITTED TRANSFEREES" means, with respect to any person, (i) any Affiliate
of such person, (ii) the heirs, executors, administrators, testamentary
trustees, legatees or beneficiaries of any such person, and (iii) a trust, the
beneficiaries of which, or a corporation or partnership, the stockholders or
general or limited partners of which, include only such person or his or her
spouse or lineal descendants, in each case to whom such person has transferred
the beneficial ownership of any securities of FFL, Holdings or the Company.
"PLAN OF LIQUIDATION" means, with respect to any person, a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and all
or substantially all of the remaining assets of such person to holders of
Capital Stock of such person.
"PREFERRED STOCK" means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated) of such
person's preferred or preference stock, whether outstanding on the date hereof
or issued after the date of this Indenture, and including, without limitation,
all classes and series of preferred or preference stock of such person.
A-16
<PAGE> 193
"PRO FORMA" means, with respect to any calculation made or required to be
made pursuant to the terms of this Indenture, a calculation in accordance with
Article 11 of Regulation S-X under the Securities Act of 1933, as amended, as
interpreted by Holdings' Board of Directors in consultation with its independent
certified public accountants.
"PRO FORMA PERIOD" shall have the meaning set forth in the definition of
Operating Coverage Ratio.
"PROPORTIONATE SHARE" means, as of any date, an amount equal to the product
of (i) the Accreted Value for the immediately following Semi-Annual Accrual Date
less the Accreted Value for the immediately preceding Semi-Annual Accrual Date
times (ii) a fraction, the numerator of which is the actual number of days
elapsed from the immediately preceding Semi-Annual Accrual Date to the date for
which the Proportionate Share is being determined, and the denominator of which
is the total number of days in the period between the immediately preceding
Semi-Annual Accrual Date and the immediately following Semi-Annual Accrual Date.
"PUBLIC OFFERING SALE" means any sale or issuance of common stock of FFL,
Holdings or the Company pursuant to an Initial Public Offering.
"QUALIFIED CAPITAL STOCK" means, with respect to any person, any Capital
Stock of such person that is not Disqualified Capital Stock.
"REFINANCING INDEBTEDNESS" means Indebtedness of Holdings or any Subsidiary
(i) issued in exchange for, or the proceeds from the issuance and sale or
disbursement of which are used to substantially concurrently repay, redeem,
refund, refinance, discharge or otherwise retire for value, in whole or in part
(collectively, "repay"), or constituting an amendment, modification or
supplement to, or a deferral or renewal of (collectively, an "amendment"), any
Indebtedness of Holdings or any Subsidiary (and any penalties, fees and expenses
actually incurred by Holdings or such Subsidiary in connection with the
repayment or amendment thereof) existing immediately after the original issuance
of the Securities or incurred pursuant to paragraphs (b), (c), (d), (f), (g),
(h), (i), (j), (k), (l), (m), (n), (o) or (p) of the covenant entitled
"Limitation on Incurrences of Additional Indebtedness" in a principal amount
(or, if such Refinancing Indebtedness provides for an amount less than the
principal amount thereof to be due and payable upon the acceleration thereof,
with an original issue price) not in excess of (1) the principal amount of the
Indebtedness so refinanced (or, if such Refinancing Indebtedness refinances
Indebtedness under a revolving credit facility or other agreement providing a
commitment for subsequent borrowings, with a maximum commitment not to exceed
the maximum commitment under such revolving credit facility or other agreement)
plus (2) unpaid accrued interest on such Indebtedness plus (3) penalties, fees
and expenses actually incurred by Holdings or such Subsidiary, as the case may
be, in connection with the repayment or amendment thereof; or (ii) in an amount
permitted to be incurred at the time of such incurrence by Holdings or such
Subsidiary, as the case may be, under the Credit Agreement pursuant to the
covenant entitled "Limitation on Incurrences of Additional Indebtedness."
"RELATED BUSINESS INVESTMENT" means (i) any Investment by a person in any
other person a majority of whose revenues are derived from the operation of one
or more retail grocery stores or supermarkets or any other line of business
engaged in by Holdings or any Subsidiary as of the Issue Date; (ii) any
Investment by such person in any cooperative or other supplier, including,
without limitation, any joint venture which is intended to supply any product or
service useful to the business of Holdings and any Subsidiary as it is conducted
as of the Issue Date and as such business may thereafter evolve or change; and
(iii) any capital expenditure or Investment (without regard to the $5 million
threshold in the definition thereof), in each case reasonably related to the
business of Holdings and any Subsidiary as it is conducted as of the Issue Date
and as such business may thereafter evolve or change.
"RESTRICTED PAYMENT" means any (i) Stock Payment or (ii) Investment (other
than a Permitted Investment).
"REVOLVING CREDIT FACILITY" means the revolving credit facility under the
Credit Agreement.
"SEMI-ANNUAL ACCRUAL DATE" means each June 15 and December 15 in each year
commencing on the Issue Date and ending on the Final Accretion Date.
"SENIOR NOTE INDENTURE" means the Indenture dated as of April 15, 1992,
among the Company, the subsidiary guarantors named therein and Norwest Bank
Minnesota, N.A., as trustee, as amended or supplemented from time to time or an
indenture pursuant to which the Senior Notes are issued which is identical in
all material respects to the Senior Note Indenture, as amended or supplemented
from time to time.
"SENIOR NOTES" means the Company's 10.45% Senior Notes due 2000, as amended
or supplemented from time to time, issued pursuant to the Senior Note Indenture
dated as of April 15, 1992 among the Company, the subsidiary guarantors named
therein and Norwest Bank Minnesota, N.A., as trustee, as amended from time to
time.
"SENIOR SUBORDINATED NOTE INDENTURE" means the Indenture dated as of June
15, 1991, among the Company, the subsidiary guarantors named therein and United
States Trust Company of New York, as trustee, as amended or supplemented from
time to time or an indenture pursuant to which Senior Subordinated Notes are
issued which is identical in all material respects to the Senior Subordinated
Note Indenture, as amended or supplemented from time to time.
A-17
<PAGE> 194
"SENIOR SUBORDINATED NOTES" means the Company's 13 3/4% Senior Subordinated
Notes due 2001, as amended or supplemented from time to time, issued pursuant to
the Senior Subordinated Note Indenture or an indenture which is identical in all
material respects to the Senior Subordinated Note Indenture.
"SIGNIFICANT STOCKHOLDER" means, with respect to any person, any other
person who is the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of more than 10% of any class of equity securities of such person
that are entitled to vote on a regular basis for the election of directors of
such person.
"SIGNIFICANT SUBSIDIARY" means each subsidiary of the Company that is either
(a) a "significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X
under the Securities Act and the Exchange Act (as such regulation is in effect
on the date hereof) or (b) material to the financial condition or results of
operations of Holdings and any Subsidiary taken as a whole.
"STOCK PAYMENT" means, with respect to any person, (a) the declaration or
payment by such person, either in cash or in property, of any dividend on
(except, in the case of Holdings, dividends payable solely in Qualified Capital
Stock of Holdings), or the making by such person or any of its subsidiaries of
any other distribution in respect of, such person's Qualified Capital Stock or
any warrants, rights or options to purchase or acquire shares of any class of
such Capital Stock (other than exchangeable or convertible Indebtedness of such
person), or (b) the redemption, repurchase, retirement or other acquisition for
value by such person or any of its subsidiaries, directly or indirectly, of such
person's Qualified Capital Stock (and, in the case of a Subsidiary, Qualified
Capital Stock of Holdings) or any warrants, rights or options to purchase or
acquire shares of any class of such Capital Stock (other than exchangeable or
convertible Indebtedness of such person), other than, in the case of Holdings,
through the issuance in exchange therefor solely of Qualified Capital Stock of
Holdings; PROVIDED, HOWEVER, that in the case of a Subsidiary, the term "Stock
Payment" shall not include any such payment with respect to its Capital Stock or
warrants, rights or options to purchase or acquire shares of any class of its
Capital Stock that are owned solely by Holdings or a wholly owned Subsidiary.
"SUBSIDIARY" of any person means (i) a corporation a majority of whose
Capital Stock with voting power, under ordinary circumstances, to elect
directors is, at the date of determination, directly or indirectly, owned by
such person, by one or more subsidiaries of such person or by such person and
one or more subsidiaries of such person or (ii) a partnership in which such
person or a subsidiary of such person is, at the date of determination, a
general partner of such partnership, but only if such person or its subsidiary
is entitled to receive more than 50% of the assets of such partnership upon its
dissolution, or (iii) any other person (other than a corporation or a
partnership) in which such person, a subsidiary of such person or such person
and one or more subsidiaries of such person, directly or indirectly, at the date
of determination, has (x) at least a majority ownership interest or (y) the
power to elect or direct the election of a majority of the directors or other
governing body of such person.
"SUBSIDIARY" means any subsidiary of Holdings.
"SUBSIDIARY LETTER OF CREDIT OBLIGATIONS" means Indebtedness of the
Subsidiaries with respect to letters of credit issued pursuant to the Credit
Agreement, and for purposes of the provisions of the Holdings Discount Note
Indenture summarized under the heading "Limitations on Incurrences of Additional
Indebtedness" the aggregate principal amount of Indebtedness outstanding at any
time with respect thereto, shall be deemed to consist of (a) the aggregate
maximum amount then available to be drawn under all such letters of credit (the
determination of such maximum amount to assume compliance with all conditions
for drawing), and (b) the aggregate amount that has then been paid by, and not
reimbursed to, the issuers under such letters of credit.
"SUPPLEMENTARY DOCUMENTS" shall have the meaning provided in Section 1.01 of
the Credit Agreement as in effect on the Issue Date.
"TERM LOAN" means the term loan facility under the Credit Agreement.
"THE YUCAIPA COMPANIES" means The Yucaipa Companies, a California general
partnership.
"TRANSACTION DATE" shall have the meaning provided in the definition of
"Operating Coverage Ratio."
"WHOLLY-OWNED SUBSIDIARY" means any Subsidiary all of the shares of Capital
Stock of which (other than Permitted Preferred Stock and directors' qualifying
shares) are at the time directly or indirectly owned by Holdings.
"YEARLY PERIOD" means each fiscal year of Holdings; provided that the first
Yearly Period shall begin on the Issue Date and shall end on June 26, 1993.
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<PAGE> 195
The Depositary is:
BANKERS TRUST COMPANY
Facsimile Transmission Number:
(212) 250-6275
(212) 250-3290
<TABLE>
<S> <C> <C>
By Mail: (For Eligible Institutions Only) By Hand/Overnight Delivery:
Bankers Trust Company Bankers Trust Company
Corporate Trust and Agency Group Confirm by Telephone: Corporate Trust and Agency Group
Reorganization Dept. (212) 250-6270 Receipt & Delivery Window
P.O. Box 1458 123 Washington Street, 1st Floor
Church Street Station New York, New York 10006
New York, New York 10008-1458
</TABLE>
Any questions or requests for assistance or additional copies of this Offer
to Purchase and Solicitation Statement, the Letter of Transmittal and the Notice
of Guaranteed Delivery may be directed to the Information Agent or one of the
Dealer Managers at their respective telephone numbers and locations set forth
below. You may also contact your broker, dealer, commercial bank, trust company
or other nominee for assistance concerning the Offer to Purchase and the
Solicitation.
The Information Agent is:
D.F. KING & CO., INC.
Call Toll Free: (800) 669-5550
77 Water Street
New York, NY 10005
(212) 269-5550 (collect)
The Dealer Managers are:
<TABLE>
<S> <C> <C>
BT SECURITIES CS FIRST BOSTON DONALDSON, LUFKIN
CORPORATION 55 East 52nd Street & JENRETTE
One Bankers Trust Plaza New York, New York 10055 SECURITIES CORPORATION
130 Liberty Street (212) 909-2873 140 Broadway
New York, New York 10006 New York, New York 10005
(212) 775-2166 (212) 504-4753
</TABLE>
<PAGE> 196
EDGAR APPENDIX
This EDGAR Appendix is filed in compliance with Item 304 of Regulation S-T
regarding graphic and image information. It describes material appearing on
pages 7 and 8 of the Offer to Purchase and Solicitation Statement.
PAGE 7
The chart consists of two columns which graphically illustrate the
respective corporate structures of Food 4 Less and Ralphs before the Merger.
Food 4 Less' corporate structure illustrates that Food 4 Less, Inc. ("FFL") owns
Food 4 Less Holdings, Inc. ("Holdings"), which, in turn, owns Food 4 Less
Supermarkets, Inc. ("Food 4 Less") which, in turn, owns several other Food 4
Less subsidiaries. The Ralphs' corporate structure illustrates that Ralphs
Supermarkets, Inc. ("RSI"), owns Ralphs Grocery Company ("RGC") which, in turn,
owns Crawford Stores, Inc. A dotted arrow has been drawn from the box
representing Food 4 Less to the box representing RSI to simulate the RSI Merger.
A dotted arrow has been drawn from the box representing RGC to the box
representing RSI to simulate the RGC Merger. A dotted arrow has been drawn to
the box representing Holdings from the box representing FFL to simulate the FFL
Merger.
PAGE 8
The chart illustrates the corporate structure of the Company after the
Merger and the FFL Merger. The corporate structure illustrates that New Holdings
owns the Company which, in turn, is the parent of all other subsidiaries of the
Company. The anticipated debt obligations of New Holdings are placed in order of
ranking next to the box representing New Holdings and the anticipated debt
obligations of the Company are placed in order of ranking next to the box
representing the Company.
<PAGE> 197
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Holdings is a California corporation and its Certificate of Incorporation
and Bylaws provide for indemnification of its officers and directors to the
fullest extent permitted by law. Section 204(10) of the California General
Corporation Law (the "CGCL") eliminates the liability of a corporation's
directors for monetary damages to the fullest extent permissible under
California law. Pursuant to Section 204(11) of the CGCL, a California
corporation may indemnify Agents (as defined in Section 317 of the CGCL),
subject only to the applicable limits set forth in Section 204 of the CGCL with
respect to actions for breach of duty to the corporation and its shareholders.
As permitted by Section 317 of the CGCL, indemnification may be provided by
a California corporation of its Agents (as defined in Section 317 of the CGCL),
to the maximum extent permitted by the CGCL, in connection with any proceeding
arising by reason of the fact that such person is or was such a director or
officer, against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in any such proceeding.
New Holdings is a Delaware corporation and its Certificate of Incorporation
and Bylaws provide for indemnification of its officers and directors to the
fullest extent permitted by law. Section 102(b)(7) of the Delaware General
Corporation Law (the "DGCL") eliminates the liability of a corporation's
directors to a corporation or its stockholders, except for liabilities related
to breach of duly of loyalty, actions not in good faith, and certain other
liabilities.
Section 145 of the DGCL provides for the indemnification by a Delaware
corporation of its directors, officers, employees and agents in connection with
actions, suits or proceedings brought against them by a third party or in the
right of the corporation, by reason of the fact that they were or are such
directors, officers, employees or agents, against liabilities and expenses
incurred in any such action, suit or proceeding.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
A list of exhibits filed with this Registration Statement on Form S-4 is
set forth in the Index to Exhibits on page E-1, and is incorporated herein by
reference.
(b) Financial Statement Schedules
<TABLE>
<S> <C>
(i) Ralphs
Schedule II -- Valuation and Qualifying Accounts
(ii) Holdings
Schedule I -- Condensed Financial Information of Registrant
Schedule II -- Valuation and Qualifying Accounts
</TABLE>
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled
II-1
<PAGE> 198
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
(b) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus ant facts or events arising after the
effective date of the registration statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
II-2
<PAGE> 199
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Post-effective Amendment No. 1 to Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Los Angeles, State of California, on April 27, 1995.
FOOD 4 LESS HOLDINGS, INC.,
a California corporation
By: /s/ MARK A. RESNIK
------------------------------------
Mark A. Resnik
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-effective Amendment No. 1 to Registration Statement has been signed below
by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer and April 27, 1995
- --------------------------------------------- Director (Principal Executive
Ronald W. Burkle Officer)
* Executive Vice President -- April 27, 1995
- --------------------------------------------- Finance/Administration and
Greg Mays Chief Financial Officer
(Principal Financial and
Accounting Officer)
* Director April 27, 1995
- ---------------------------------------------
Joe S. Burkle
/s/ MARK A. RESNIK Director April 27, 1995
- ---------------------------------------------
Mark A. Resnik
* Director April 27, 1995
- ---------------------------------------------
George G. Golleher
* Power of Attorney by
/s/ MARK A. RESNIK
- ---------------------------------------------
Mark A. Resnik
Vice President and Secretary
</TABLE>
II-3
<PAGE> 200
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Post-effective Amendment No. 1 to Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Los Angeles, State of California, on April 27, 1995.
FOOD 4 LESS HOLDINGS, INC., a Delaware
corporation
By: /s/ MARK A. RESNIK
-------------------------------------
Mark A. Resnik
Vice President and Secretary
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Ronald
W. Burkle, George G. Golleher and Mark A. Resnik, his true and lawful attorney
and agent, each acting alone, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement and to file the same, with all exhibits thereto
and all other documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorney and agent, each acting alone,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming that said attorney
and agent, each acting alone, or his substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Post-effective Amendment No. 1 to Registration Statement has been signed below
by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ RONALD W. BURKLE President and Director April 27, 1995
- --------------------------------------------- (Principal Executive Officer)
Ronald W. Burkle
/s/ GREG MAYS Executive Vice President April 27, 1995
- --------------------------------------------- (Principal Financial and
Greg Mays Accounting Officer)
/s/ JOE S. BURKLE Director April 27, 1995
- ---------------------------------------------
Joe S. Burkle
/s/ MARK A. RESNIK Secretary and Director April 27, 1995
- ---------------------------------------------
Mark A. Resnik
/s/ GEORGE G. GOLLEHER Director April 27, 1995
- ---------------------------------------------
George G. Golleher
/s/ PATRICK L. GRAHAM Director April 27, 1995
- ---------------------------------------------
Patrick L. Graham
</TABLE>
II-4
<PAGE> 201
ACCOUNTANTS' CONSENT AND REPORT ON SCHEDULES
Board of Directors and Stockholders
Ralphs Supermarkets, Inc.:
The audits referred to in our report dated March 9, 1995 included the related
financial statement schedule as of January 30, 1994 and January 29, 1995, and
for each of the fiscal years in the three-year period ended January 29, 1995,
included in the registration statement. This financial statement schedule is the
responsibility of Ralphs management. Our responsibility is to express an opinion
on this financial statement schedule based on our audits. In our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the headings "Summary Historical Financial Data of Ralphs," "Selected
Historical Financial Data of Ralphs" and "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Los Angeles, California
April 25, 1995
S-1
<PAGE> 202
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
52 WEEKS ENDED JANUARY 29, 1995, 52 WEEKS ENDED JANUARY 30, 1994
AND 52 WEEKS ENDED JANUARY 31, 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE CHARGED TO BALANCE
BEGINNING COSTS AND CHARGED TO DEDUCTIONS AT END
OF PERIOD EXPENSES OTHER ACCOUNTS(b) (PAYMENTS) OF PERIOD
--------- ---------- ----------------- ---------- ---------
<S> <C> <C> <C> <C> <C>
JANUARY 29, 1995:
Self-Insurance Reserves(a)............. $80,010 $14,003 $ 5,976 $(27,483) $72,506
Store Closure Reserves................. $ 9,514 $ -- $ -- $ (764) $ 8,750
JANUARY 30, 1994:
Self-Insurance Reserves(a)............. $72,979 $30,323 $ 5,953 $(29,245) $80,010
Store Closure Reserves................. $10,277 $ -- $ -- $ (763) $ 9,514
JANUARY 31, 1993:
Self-Insurance Reserves(a)............. $64,523 $25,950 $10,902 $(28,396) $72,979
Store Closure Reserves................. $14,244 $ 1,838 $ -- $ (5,805) $10,277
</TABLE>
- ---------------
(a) Includes short-term portion.
(b) Amortization of discount on self-insurance reserves to interest expense.
S-2
<PAGE> 203
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Shareholders of Food 4 Less Holdings, Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated balance sheets of Food 4 Less Holdings, Inc. (a California
corporation) and subsidiaries as of June 26, 1993 and June 25, 1994, and the
related consolidated statements of operations, shareholders' equity and cash
flows for the 52 weeks ended June 27, 1992, the 52 weeks ended June 26, 1993,
and the 52 weeks ended June 25, 1994 and have issued our report thereon dated
July 29, 1994 (except with respect to the matter discussed in Note 13, as to
which the date is October 14, 1994, and with respect to the matter discussed in
Note 14, as to which the date is April 13, 1995). Our audits were made for the
purpose of forming an opinion on the basic financial statements taken as a
whole. The financial statement schedules on pages S-4 through S-7 are the
responsibility of Holdings' management and are presented for purposes of
complying with the Securities and Exchange Commission's rules and are not part
of the basic consolidated financial statements. These schedules have been
subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements and, in our opinion, fairly state in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Los Angeles, California
July 29, 1994 (except with
respect to the matter discussed in
Note 13, as to which the date is
October 14, 1994, and with respect
to the matter discussed in
Note 14, as to which the date is
April 13, 1995)
S-3
<PAGE> 204
FOOD 4 LESS HOLDINGS, INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
AS OF, AND FOR, THE 52 WEEKS ENDED JUNE 25, 1994
(DOLLARS IN THOUSANDS)
The following condensed financial statements have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to those rules and regulations, although
the Company believes that the disclosures made are adequate to make the
information presented not misleading.
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
JUNE 25,
1994
--------
<S> <C>
ASSETS
Investment in subsidiary........................................................ $ 69,021
--------
Total Assets............................................................ $ 69,021
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Senior discount notes........................................................... $ 58,997
Common stock: $0.01 par value, 1,600,000 shares authorized and 1,381,782
outstanding.................................................................. 14
Additional paid-in capital...................................................... 34,413
Retained deficit................................................................ (24,403)
--------
Total Liabilities and Shareholders' Equity.............................. $ 69,021
========
</TABLE>
CONDENSED STATEMENT OF LOSS
<TABLE>
<CAPTION>
52 WEEKS
ENDED
JUNE 25,
1994
--------
<S> <C>
Net loss of subsidiary............................................................ $ (2,700)
Interest expense.................................................................. (8,767)
--------
Total loss.............................................................. $(11,467)
========
</TABLE>
S-4
<PAGE> 205
FOOD 4 LESS HOLDINGS, INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
AS OF, AND FOR, THE 52 WEEKS ENDED JUNE 25, 1994
(DOLLARS IN THOUSANDS)
CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<S> <C>
RECONCILIATION OF NET LOSS TO NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES:
Net loss........................................................ $(11,467)
Adjustments to reconcile net loss to net cash provided (used) by
operating activities:
Net loss of subsidiary....................................... 2,700
Accretion of Holdings Discount Notes......................... 8,767
--------
NET CASH USED BY OPERATING ACTIVITIES............................. --
NET INCREASE IN CASH AND CASH EQUIVALENTS......................... --
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................. --
--------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................ $ --
========
</TABLE>
S-5
<PAGE> 206
FOOD 4 LESS HOLDINGS, INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. Food 4 Less Holdings, Inc. (the "Company") is a non-operating holding
company. The above financial statements have been prepared on a parent company
stand-alone basis. They do not contain all disclosures necessary to be in
conformity with generally accepted accounting principles. They should be read in
conjunction with the consolidated financial statements of Food 4 Less Holdings,
Inc. contained elsewhere in this report.
2. The debt agreements of the Company's subsidiary, Food 4 Less
Supermarkets, Inc. ("Supermarkets"), among other things, require Supermarkets to
maintain minimum levels of net worth (as defined), to maintain minimum levels of
earnings (as defined), to maintain a hedge agreement to provide interest rate
protection, and to comply with certain ratios related to interest expense (as
defined), fixed charges (as defined), working capital and indebtedness. In
addition, the debt agreements limit, among other things, additional borrowings,
dividends on, and redemption of, capital stock, capital expenditures, incurrence
of lease obligations, and the acquisition and disposition of assets. At June 25,
1994, dividends and certain other payments are restricted based on terms of the
debt agreements.
S-6
<PAGE> 207
FOOD 4 LESS HOLDINGS, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
52 WEEKS ENDED JUNE 25, 1994, 52 WEEKS ENDED JUNE 26, 1993, AND 52 WEEKS ENDED
JUNE 27, 1992
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT PROVISIONS CHARGED TO BALANCE AT
BEGINNING CHARGED TO INTEREST OTHER END OF
OF PERIOD EXPENSE EXPENSE(b) PAYMENTS CHANGES PERIOD
----------- ----------- ----------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
SELF-INSURANCE LIABILITIES:
52 weeks ended June 25, 1994...... $85,494 $19,880 $5,836 $29,506 $ -- $81,704
======= ======= ====== ======= ====== =======
52 weeks ended June 26, 1993...... $82,559 $38,040 $5,865 $40,970 $ -- $85,494
======= ======= ====== ======= ====== =======
52 weeks ended June 27, 1992...... $59,525 $46,140 $4,960 $36,066 $8,000(a) $82,559
======= ======= ====== ======= ====== =======
</TABLE>
- ---------------
(a) Reflects self-insurance reserve related to Alpha Beta resulting from the
acquisition of Alpha Beta.
(b) Amortization of discount on self-insurance reserves charged to interest
expense.
S-7
<PAGE> 208
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ---------------------------------------------------------------------- ----
<S> <C> <C>
1.1 Form of Dealer Manager Agreement among Food 4 Less Supermarkets, Inc.,
Food 4 Less Holdings, Inc., the subsidiary guarantors named therein,
BT Securities Corporation, CS First Boston Corporation and Donaldson,
Lufkin & Jenrette Securities Corporation dated as of January , 1995
(incorporated herein by reference to Exhibit 1.1 to Amendment No. 2 to
Food 4 Less' Registration Statement on Form S-4, No. 33-56451)........
1.1.1 Form of Amendment No. 1 to Dealer Manager Agreement among Food 4 Less
Supermarkets, Inc., Food 4 Less Holdings, Inc., the subsidiary
guarantors named therein, BT Securities Corporation, CS First Boston
Corporation and Donaldson, Lufkin & Jenrette Securities Corporation
dated as of April , 1995............................................
2.1 Agreement and Plan of Merger by and among Food 4 Less, Inc., Food 4
Less Holdings, Inc., Food 4 Less Supermarkets, Inc., Ralphs
Supermarkets, Inc. and the Stockholders of Ralphs Supermarkets, Inc.
(incorporated herein by reference to Exhibit 99 to Food 4 Less
Holdings, Inc.'s Form 8-K dated September 14, 1994)...................
2.1.1 Amendment No. 1 dated as of January 12, 1995, to Agreement and Plan of
Merger by and among Food 4 Less, Inc., Food 4 Less Holdings, Inc.,
Food 4 Less Holdings, Inc. (a Delaware corporation), Food 4 Less,
Ralphs Supermarkets, Inc. and the stockholders of Ralphs Supermarkets,
Inc. (incorporated herein by reference to Exhibit 2.1.1 to Amendment
No. 2 to Food 4 Less' Registration Statement on Form S-4, No.
33-56451).............................................................
2.1.2 Amendment No. 2 dated as of February 24, 1995, to the Agreement and
Plan of Merger by and among Food 4 Less, Inc., Food 4 Less Holdings,
Inc., Food 4 Less Holdings, Inc. (a Delaware corporation), Food 4
Less, Ralphs Supermarkets, Inc. and the stockholders of Ralphs
Supermarkets, Inc.....................................................
2.1.3 Amendment No. 3 dated as of April 26, 1995, to the Agreement and Plan
of Merger by and among Food 4 Less, Inc., Food 4 Less Holdings, Inc.,
Food 4 Less Holdings, Inc. (a Delaware corporation), Food 4 Less,
Ralphs Supermarkets, Inc. and the stockholders of Ralphs Supermarkets,
Inc...................................................................
3.1 Articles of Incorporation of Food 4 Less Holdings, Inc. (incorporated
herein by reference to Exhibit 3.1 to Food 4 Less Holdings, Inc.'s
Registration Statement on Form S-4, No. 33-59214).....................
3.2 Bylaws of Food 4 Less Holdings, Inc. (incorporated herein by reference
to Exhibit 3.2 to Food 4 Less Holdings, Inc.'s Registration Statement
on Form S-4, No. 33-59214)............................................
3.3 Certificate of Incorporation of Food 4 Less Holdings, Inc. (a Delaware
corporation) (incorporated herein by reference to Exhibit 3.3 to New
Holdings' Registration Statement on Form S-4, No. 33-88894)...........
3.4 Bylaws of Food 4 Less Holdings, Inc. (a Delaware corporation)
(incorporated herein by reference to Exhibit 3.4 to New Holdings'
Registration Statement on Form S-4, No. 33-88894).....................
3.4.1 Amended and Restated Bylaws of Food 4 Less Holdings, Inc. (a Delaware
corporation)..........................................................
4.1 Form of Senior Note Indenture dated as of , 1995 by and
among Ralphs Grocery Company (as successor by merger to Food 4 Less),
the subsidiary guarantors identified therein and Norwest Bank
Minnesota, N.A., as trustee, with respect to its Senior Notes due 2004
(incorporated herein by reference to Exhibit 4.1 to Amendment No. 1 to
Food 4 Less' Registration Statement on Form S-4, No. 33-56451)........
</TABLE>
E-1
<PAGE> 209
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ---------------------------------------------------------------------- ----
<S> <C> <C>
4.2 Form of Senior Subordinated Note Indenture dated as of
, 1995 by and among Ralphs Grocery Company (as
successor by merger to Food 4 Less), the subsidiary guarantors
identified therein and United States Trust Company of New York, as
trustee, with respect to its 13.75% Senior Subordinated Notes due 2005
(incorporated herein by reference to Exhibit 4.2 to Amendment No. 1 to
Food 4 Less' Registration Statement on Form S-4, No. 33-56451)........
4.3 Form of Senior Subordinated Note Indenture dated as of
, 1995 by and among Ralphs Grocery Company (as
successor by merger to Food 4 Less), the subsidiary guarantors
identified therein and United States Trust Company of New York, as
trustee, with respect to its Senior Subordinated Notes due 2005
(incorporated herein by reference to Exhibit 4.3 to Amendment No. 1 to
Food 4 Less' Registration Statement on Form S-4, No. 33-56445)........
4.4.1 Form of First Supplemental Indenture dated as of , 1995
by and between Ralphs Grocery Company and United States Trust Company
of New York, as trustee, with respect to its 10 1/4% Senior
Subordinated Notes due 2002 (incorporated herein by reference to
Exhibit 4.4.1 to Amendment No. 1 to Food 4 Less' Registration
Statement on Form S-4, No. 33-56445)..................................
4.4.2 Form of Second Supplemental Indenture dated as of , 1995 by
and between Ralphs Grocery Company (as successor by merger to Food 4
Less) and United States Trust Company of New York, as trustee, with
respect to its 10 1/4% Senior Subordinated Notes due 2002
(incorporated herein by reference to Exhibit 4.4.2 to Amendment No. 1
to Food 4 Less' Registration Statement on Form S-4, No. 33-56445).....
4.5.1 Form of Second Supplemental Indenture dated as of ,
1995 by and between Ralphs Grocery Company (as successor by merger to
Food 4 Less) and United States Trust Company of New York, as trustee,
with respect to the 9% Senior Subordinated Notes due 2003
(incorporated herein by reference to Exhibit 4.5.1 to Amendment No. 1
to Food 4 Less' Registration Statement on Form S-4, No. 33-56445).....
4.5.2 Form of Third Supplemental Indenture dated as of , 1995 by
and between Ralphs Grocery Company (as successor by merger to Food 4
Less) and United States Trust Company of New York, as trustee, with
respect to its 9% Senior Subordinated Notes due 2003 (incorporated
herein by reference to Exhibit 4.5.2 to Amendment No. 1 to Food 4
Less' Registration Statement on Form S-4, No. 33-56445)...............
4.6.1 Holdings Discount Note Indenture dated as of December 15, 1992 by and
among Food 4 Less Holdings, Inc. and United States Trust Company of
New York, as Trustee (incorporated herein by reference to Exhibit 4.1
to Food 4 Less Holdings, Inc.'s Registration Statement on Form S-4,
No. 33-59214).........................................................
4.6.2 Form of First Supplemental Indenture dated as of ,
1995 by and among Food 4 Less Holdings, Inc. and United States Trust
Company of New York, as trustee.......................................
4.6.3 Form of Second Supplemental Indenture dated as of , 1995 by
and among Food 4 Less Holdings, Inc. (a Delaware corporation) and
United States Trust Company of New York, as trustee...................
4.7 Senior Note Indenture dated as of April 15, 1992 by and among Food 4
Less Supermarkets, Inc., the subsidiary guarantors identified therein
and Norwest Bank Minnesota, N.A., as trustee (incorporated herein by
reference to Exhibit 4.1 to Food 4 Less Supermarkets, Inc.'s
Registration Statement on Form S-1, No. 33-46750).....................
</TABLE>
E-2
<PAGE> 210
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ---------------------------------------------------------------------- ----
<S> <C> <C>
4.7.1 First Supplemental Indenture dated as of July 24, 1992 by and among
Food 4 Less Supermarkets, Inc., Bay Area Warehouse Stores, Inc., and
Norwest Bank Minnesota, N.A., as trustee (incorporated herein by
reference to Exhibit 4.1.1 to Food 4 Less Supermarkets, Inc.'s Annual
Report on Form 10-K for the fiscal year ended June 27, 1992)..........
4.7.2 Form of Second Supplemental Indenture dated as of ,
1995 by and among Food 4 Less Supermarkets, Inc., the subsidiary
guarantors identified therein and Norwest Bank Minnesota, N.A., as
trustee (incorporated herein by reference to Exhibit 4.6.2 to
Amendment No. 1 to Food 4 Less' Registration Statement on Form S-4,
No. 33-56451).........................................................
4.7.3 Form of Third Supplemental Indenture dated as of , 1995 by
and among Ralphs Grocery Company (as successor by merger to Food 4
Less) the subsidiary guarantors identified therein and Norwest Bank
Minnesota, N.A., as trustee (incorporated herein by reference to
Exhibit 4.6.3 to Amendment No. 1 to Food 4 Less' Registration
Statement on Form S-4, No. 33-56451)..................................
4.8 Senior Subordinated Note Indenture dated as of June 15, 1991 by and
among Food 4 Less Supermarkets, Inc., the subsidiary guarantors
identified therein and United States Trust Company of New York as
trustee (incorporated herein by reference to Exhibit 4.1 to Food 4
Less Supermarkets, Inc.'s Annual Report on Form 10-K for the fiscal
year ended June 29, 1991).............................................
4.8.1 First Supplemental Indenture dated as of April 8, 1992 by and among
Food 4 Less Supermarkets, Inc., Food 4 Less GM, Inc. and United States
Trust Company of New York, as trustee (incorporated herein by
reference to Exhibit 4.2.1 to Food 4 Less Supermarkets, Inc.'s Annual
Report on Form 10-K for the fiscal year ended June 27, 1992)..........
4.8.2 Second Supplemental Indenture dated as of May 18, 1992 by and among
Food 4 Less Supermarkets, Inc., the subsidiary guarantors named
therein and United States Trust Company of New York, as trustee
(incorporated herein by reference to Exhibit 4.2.2 to Food 4 Less
Supermarkets, Inc.'s Annual Report on Form 10-K for the fiscal year
ended June 27, 1992)..................................................
4.8.3 Third Supplemental Indenture dated as of July 24, 1992 by and among
Food 4 Less Supermarkets, Inc., Bay Area Warehouse Stores, Inc. and
United States Trust Company of New York, as trustee (incorporated
herein by reference to Exhibit 4.2.3 to Food 4 Less Supermarkets,
Inc.'s Annual Report on Form 10-K for the fiscal year ended June 27,
1992).................................................................
4.8.4 Form of Fourth Supplemental Indenture dated as of ,
1995, by and among Food 4 Less Supermarkets, Inc., the subsidiary
guarantors identified therein and United States Trust Company of New
York, as trustee (incorporated herein by reference to Exhibit 4.7.4 to
Amendment No. 1 to Food 4 Less' Registration Statement on Form S-4,
No. 33-56451).........................................................
4.8.5 Form of Fifth Supplemental Indenture dated as of , 1995 by
and among Ralphs Grocery Company (as successor by merger to Food 4
Less), the subsidiary guarantors identified therein and the United
States Trust Company of New York, as trustee (incorporated herein by
reference to Exhibit 4.7.5 to Amendment No. 1 to Food 4 Less'
Registration Statement on Form S-4, No. 33-56451).....................
4.9 Credit Agreement dated as of June 17, 1991 by and among Food 4 Less
and the subsidiaries named therein, as borrowers; Citicorp North
America, Inc., Bankers Trust Company and Manufacturers Hanover Trust
Company, as Co-Agents, Citicorp North America, Inc. as Administrative
Agent and the Initial Lenders and the Designated Issuers, all as
identified therein (incorporated herein by reference to Exhibit 4.4 to
Food 4 Less' Annual Report on Form 10-K for the fiscal year ended June
29, 1991).............................................................
</TABLE>
E-3
<PAGE> 211
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ---------------------------------------------------------------------- ----
<S> <C> <C>
4.9.1 First Modification Agreement dated as of January 24, 1992 by and among
Food 4 Less and the subsidiaries named therein, as borrowers; Citicorp
North America, Inc., Bankers Trust Company and Manufacturers Hanover
Trust Company, as Co-Agents, Citicorp North America, Inc. as
Administrative Agent and the Required Lenders and the other Loan
Parties, all as identified therein (incorporated herein by reference
to Exhibit 4.5.1 to Food 4 Less' Annual Report on Form 10-K for the
fiscal year ended June 27, 1992)......................................
4.9.2 Second Modification Agreement dated as of April 13, 1992 by and among
Food 4 Less, and the subsidiaries named therein, as borrowers;
Citicorp North America, Inc., Bankers Trust Company and Manufacturers
Hanover Trust Company as Co-Agents, Citicorp North America, Inc. as
Administrative Agent and the Required Lenders and the other Loan
Parties, all as identified therein (incorporated herein by reference
to Exhibit 4.5.2 to Food 4 Less' Annual Report on Form 10-K for the
fiscal year ended June 27, 1992)......................................
4.9.3 Third Modification Agreement dated as of September 15, 1992 by and
among Food 4 Less, Alpha Beta Company, Cala Foods, Inc., Falley's,
Inc. and Food 4 Less Merchandising, Inc., as borrowers; Citicorp North
America, Inc., Bankers Trust Company and Manufacturers Hanover Trust
Company, as Co-Agents, Citicorp North America, Inc. as Administrative
Agent and the Required Lenders and the other Loan Parties, all as
identified therein (incorporated herein by reference to Exhibit 4.5.3
to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended
June 27, 1992)........................................................
4.9.4 Fourth Modification Agreement dated as of October 9, 1992 by and among
Food 4 Less, Alpha Beta Company, Cala Foods, Inc., Falley's, Inc. and
Food 4 Less Merchandising, Inc., as borrowers; Citicorp North America,
Inc., Bankers Trust Company and Manufacturers Hanover Trust Company,
as Co-Agents, Citicorp North America, Inc. as Administrative Agent and
the Required Lenders and the other Loan Parties, all as identified
therein (incorporated herein by reference to Exhibit 4.5.4 to Food 4
Less' Annual Report on Form 10-K for the fiscal year ended June 27,
1992).................................................................
4.9.5 Fifth Modification Agreement dated as of December 21, 1992 by and
among Food 4 Less, Alpha Beta Company, Cala Foods, Inc., Falley's,
Inc. and Food 4 Less Merchandising, Inc., as borrowers; Citicorp North
America, Inc., Bankers Trust Company and Chemical Bank (as successor
in interest to Manufacturers Hanover Trust Company), as Co-Agents,
Citicorp North America, Inc. as Administrative Agent and the Required
Lenders and the other Loan Parties, all as identified therein
(incorporated herein by reference to Exhibit 19.1 to Food 4 Less'
Quarterly Report on Form 10-Q for the quarter ended April 3, 1993)....
4.9.6 Sixth Modification Agreement dated as of November 22, 1994 by and
among Food 4 Less, the subsidiaries named therein, as borrowers, and
Bankers Trust Company, Citicorp North America, Inc. and Chemical Bank
as Co-Agents, Citicorp North America, Inc., as Administrative Agent
and the Required Lenders and the other Loan Parties, all as identified
therein (incorporated herein by reference to Exhibit 4.8.6 to
Amendment No. 2 to Food 4 Less' Registration Statement on Form S-4,
No. 33-56451).........................................................
4.9.7 Seventh Modification Agreement dated as of January 23, 1995 by and
among Food 4 Less, the subsidiaries named therein, as borrowers, and
Bankers Trust Company, Citicorp North America, Inc. and Chemical Bank
as Co-Agents, Citicorp North America, Inc., as Administrative Agent
and the Required Lenders and the other Loan Parties, all as identified
therein (incorporated herein by reference to Exhibit 4.8.7 to
Amendment No. 2 to Food 4 Less' Registration Statement on Form S-4,
No. 33-56451).........................................................
</TABLE>
E-4
<PAGE> 212
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ---------------------------------------------------------------------- ----
<S> <C> <C>
4.10.1 Bank commitment letter by and among Food 4 Less Supermarkets, Inc.,
the guarantors named therein and Bankers Trust Company, as agent, and
the financial institutions identified therein (incorporated herein by
reference to Exhibit 4.9 to Amendment No. 2 to Food 4 Less'
Registration Statement on Form S-4, No. 33-56451).....................
4.10.2 Form of Amendment No. 1 to bank commitment letter dated as of April
, 1995 by and among Food 4 Less Supermarkets, Inc., the guarantors
named therein and Bankers Trust Company, as agent, and the financial
institutions identified therein.......................................
5.1 Form of Opinion of Latham & Watkins regarding the legality of the
Discount Notes, including consent+....................................
8.1 Form of Opinion of Latham & Watkins regarding certain tax matters with
respect to the Discount Notes, including consent+.....................
9 Stockholder Voting Agreement and Proxy dated as of December 31, 1992
by and among Ronald W. Burkle, George G. Golleher, Yucaipa Capital
Advisors, Inc. and the Management Shareholders of Food 4 Less
Holdings, Inc. (incorporated herein by reference to Exhibit 9 to Food
4 Less Holdings, Inc.'s Registration Statement on Form S-4, No.
33-59214).............................................................
10.1 Common Stock Registration Rights Agreement dated as of December 31,
1992 by and among Food 4 Less Holdings, Inc. and the purchasers named
therein (incorporated herein by reference to Exhibit 10.1 to Food 4
Less Holdings, Inc.'s Registration Statement on Form S-4, No.
33-59214).............................................................
10.2 Warrant Agreement dated as of December 31, 1992 by and among Food 4
Less Holdings, Inc. and the purchasers named therein (incorporated
herein by reference to Exhibit 10.2 to Food 4 Less Holdings, Inc.'s
Registration Statement on Form S-4, No. 33-59214).....................
10.3 Warrantholders Agreement dated as of December 31, 1992 by and among
Food 4 Less Holdings, Inc., Food 4 Less, Inc. and the purchasers named
therein (incorporated herein by reference to Exhibit 10.3 to Food 4
Less Holdings, Inc.'s Registration Statement on Form S-4, No.
33-59214).............................................................
10.4 Lease dated as of June 17, 1991 by and between Food 4 Less
Supermarkets, Inc. and American Food and Drug, Inc. relating to La
Habra, California property (incorporated herein by reference to
Exhibit 10.4 to Food 4 Less Supermarkets, Inc.'s Annual Report on Form
10-K for the fiscal year ended June 29, 1991).........................
10.5 Stockholders Agreement dated as of June 23, 1989 by and among Food 4
Less Supermarkets, Inc., Food 4 Less, Inc. and Peter J. Sodini
(incorporated herein by reference to Exhibit 10.16 to Food 4 Less'
Registration Statement on Form S-1, No. 33-31152).....................
10.5.1 Amendment dated as of May 4, 1990 to Stockholders Agreement by and
among Food 4 Less Supermarkets, Inc., Food 4 Less, Inc. and Peter J.
Sodini (incorporated herein by reference to Exhibit 10.58 to Food 4
Less Supermarkets, Inc.'s Registration Statement on Form S-1, No.
33-31152).............................................................
10.5.2 Letter Agreement dated as of June 27, 1990 by and among Peter J.
Sodini, The Boys Markets, Inc., and certain affiliates, officers,
directors and employees of Food 4 Less Supermarkets, Inc.
(incorporated herein by reference to Exhibit 10.39.1 to Food 4 Less
Supermarkets, Inc.'s Annual Report on Form 10-K for the fiscal year
ended June 30, 1990)..................................................
10.5.3 Assignment and Assumption Agreement dated as of August 22, 1990 by and
between Peter J. Sodini and Ronald W. Burkle with respect to
Stockholders Agreement by and among Food 4 Less, Food 4 Less, Inc. and
Peter J. Sodini (incorporated herein by reference to Exhibit 10.16.2
to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended
June 30, 1990)........................................................
</TABLE>
E-5
<PAGE> 213
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ---------------------------------------------------------------------- ----
<S> <C> <C>
10.5.4 Amendment dated as of December 31, 1992 by and among Food 4 Less,
Inc., Food 4 Less Holdings, Inc., Food 4 Less Supermarkets, Inc. and
Ronald W. Burkle to Stockholders Agreement by and among Food 4 Less,
Food 4 Less Supermarkets, Inc. and Peter J. Sodini (incorporated
herein by reference to Exhibit 10.6.2 to Food 4 Less Holdings, Inc.'s
Registration Statement on Form S-4, No. 33-59214).....................
10.6 Stockholders Agreement dated as of June 23, 1989 by and among Food 4
Less Supermarkets, Inc., Food 4 Less, Inc. and George G. Golleher
(incorporated herein by reference to Exhibit 10.17 to Food 4 Less
Supermarkets, Inc.'s Registration Statement on Form S-1, No.
33-31152).............................................................
10.6.1 Amendment dated as of May 4, 1990 to Stockholders Agreement by and
among Food 4 Less, Food 4 Less, Inc. and George G. Golleher
(incorporated herein by reference to Exhibit 10.59 to Food 4 Less'
Registration Statement on Form S-1, No. 33-31152).....................
10.6.2 Amendment dated as of December 31, 1992 by and among Food 4 Less
Holdings, Inc., Food 4 Less Supermarkets, Inc., Food 4 Less, Inc. and
George G. Golleher to Stockholders Agreement by and among Food 4 Less
Supermarkets, Inc., Food 4 Less, Inc. and George G. Golleher
(incorporated herein by reference to Exhibit 10.8.2 to Food 4 Less
Holdings, Inc.'s Registration Statement on Form S-4, No. 33-59214)....
10.7 Letter Agreement dated as of September 14, 1994 by and among FFL
Partners, Food 4 Less, Inc., Food 4 Less Holdings, Inc., Food 4 Less
Supermarkets, Inc. and Falley's Inc. relating to certain obligations
arising under the Falley's, Inc. Stock Ownership Plan and Trust, as
amended (incorporated herein by reference to Exhibit 10.4 to Food 4
Less Supermarkets, Inc.'s Annual Report on Form 10-K for the fiscal
year ended June 25, 1994).............................................
10.8 Consulting Agreement dated as of June 27, 1988 by and between
Falley's, Inc. and Joe S. Burkle (incorporated herein by reference to
Exhibit 10.38 to Food 4 Less Supermarkets, Inc.'s Registration
Statement on Form S-1, No. 33-31152)..................................
10.8.1 Letter Agreement dated as of December 10, 1990 amending Consulting
Agreement by and between Falley's, Inc. and Joe S. Burkle
(incorporated herein by reference to Exhibit 10.17.1 to Food 4 Less
Supermarkets, Inc.'s Annual Report on Form 10-K for the fiscal year
ended June 29, 1991)..................................................
10.9 Employment Agreement dated as of July 1, 1994 between Food 4 Less
Supermarkets, Inc. and Harley DeLano (incorporated herein by reference
to Exhibit 10.9 to Food 4 Less Supermarkets, Inc.'s Annual Report on
Form 10-K dated June 25, 1994)........................................
10.10 Employment Agreement dated as of July 1, 1994 between Food 4 Less
Supermarkets, Inc. and Greg Mays (incorporated herein by reference to
Exhibit 10.10 to Food 4 Less Supermarkets, Inc.'s Annual Report on
Form 10-K dated June 25, 1994)........................................
10.11 Amended and Restated Tax Sharing Agreement dated as of June 17, 1991
by and among Food 4 Less, Inc., Food 4 Less Supermarkets, Inc. and the
subsidiaries of Food 4 Less Supermarkets, Inc. (incorporated herein by
reference to Exhibit 10.20 to Food 4 Less Supermarkets, Inc.'s Annual
Report on Form 10-K for the fiscal year ended June 29, 1991)..........
10.12 Stockholders Agreement dated as of December 31, 1992 by and between
Food 4 Less Holdings, Inc. and each Management Stockholder
(incorporated herein by reference to Exhibit 10.9 to Food 4 Less
Holdings, Inc.'s Registration Statement on Form S-4, No. 33-59214)....
12.1 Statements regarding computations of ratios of earnings to fixed
charges...............................................................
21.1 Subsidiaries of Food 4 Less Holdings, Inc. (incorporated herein by
reference to Exhibit 21 to Food 4 Less Holdings, Inc.'s Annual Report
on Form 10-K dated June 25, 1994).....................................
</TABLE>
E-6
<PAGE> 214
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ---------------------------------------------------------------------- ----
<S> <C> <C>
23.1 Consent of KPMG Peat Marwick LLP, independent certified public
accountants...........................................................
23.2 Consent of Arthur Andersen LLP, independent public accountants........
23.3 Consent of Latham & Watkins (included in the opinion filed as Exhibit
5 to the Registration Statement)+.....................................
24 Power of Attorney of directors and officers of Food 4 Less Holdings,
Inc. (included in the signature pages in Part II of the Registration
Statement)+...........................................................
24.1 Power of Attorney of directors and officers of Food 4 Less Holdings,
Inc. (a Delaware corporation) (included in the signature pages in Part
II of the Registration Statement).....................................
99.1 Letter of Transmittal and Consent with respect to the Offer to
Purchase and the Solicitation.........................................
99.2 Notice of Guaranteed Delivery with respect to the Offer to Purchase
and the Solicitation..................................................
99.3 Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees with respect to the Offer to Purchase and the
Solicitation..........................................................
99.4 Letter to Clients with respect to the Offer to Purchase and the
Solicitation..........................................................
99.5 Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9...................................................
</TABLE>
- ---------------
+ Previously filed.
E-7
<PAGE> 1
EXHIBIT 1.1.1
Amendment No. 1
to Dealer Manager Agreement
This AMENDMENT NO. 1 dated as of April __, 1995 (this
"Amendment") to the Dealer Manager Agreement, dated as of
January 25, 1995 (the "Dealer Manager Agreement"), among each
of Food 4 Less, Inc., Food 4 Less Holdings, Inc., Food 4 Less
Supermarkets, Inc., Alpha Beta Company, Bay Area Warehouse
Stores, Inc., Bell Markets, Inc., Cala Co., Cala Foods, Inc.,
Falley's, Inc., Food 4 Less of California, Inc., Food 4 Less
Merchandising, Inc., Food 4 Less of Southern California, Inc.,
Food 4 Less GM, Inc. and Ralphs Supermarkets, Inc., on the one
hand, and BT Securities Corporation ("BTSC"), CS First Boston
Corporation, and Donald, Lufkin & Jenrette Securities
Corporation (collectively, the "Dealer Managers") on the other
hand. Unless otherwise specifically defined herein, each term
used herein that is defined in the Dealer Manager Agreement
shall have the meaning assigned to such term in the Dealer
Manager Agreement.
SECTION 1. The recitals to the Dealer Manager
Agreement are hereby amended and restated in their entirety so
that it reads as follows:
"Food 4 Less Supermarkets, Inc., a Delaware
corporation ("Food 4 Less"), intends to merge (the
"Merger") with and into Ralphs Supermarkets, Inc., a
Delaware corporation ("RSI"), with RSI surviving the
Merger (as such surviving company, the "Surviving
Company"), pursuant to an Agreement and Plan of Merger
dated as of September 14, 1994 (as amended through the
date hereof, the "Merger Agreement"), by and among Food 4
Less, Food 4 Less, Inc. ("F4L"), Food 4 Less Holdings,
Inc. ("Holdings"), RSI and the stockholders of RSI. Upon
consummation of the Merger, it is anticipated that the
Surviving Company will merge with its wholly owned
subsidiary, Ralphs Grocery Company, a Delaware corporation
("RGC"), with the Surviving Company surviving such merger
(the "Subsequent Merger", and together with the Merger,
the "Mergers"). Upon consummation of the Mergers, the
Surviving Company will change its name to "Ralphs Grocery
Company" ("Ralphs"). Prior to the Merger, (i) F4L intends
to merge with Holdings, with Holdings surviving such
merger (the "F4L Merger") and (ii) immediately following
the F4L Merger, Holdings will merge with and into its
newly formed wholly-owned subsidiary incorporated in
Delaware ("New Holdings"), with New Holdings surviving
such Merger (the "Delaware Merger" and together with the
F4L Merger, the "Equity Merger").
<PAGE> 2
"In connection with the Mergers, Food 4 Less proposes
to offer (collectively, the "F4L Exchange Offers") (i) to
holders of its 10.45% Senior Notes due 2000 (the "Old F4L
10.45% Notes") and its 13.75% Senior Subordinated Notes
due 2001 (the "Old F4L 13.75% Notes", and together with
the Old 10.45% Notes, the "Old F4L Notes") upon the terms
and subject to the conditions set forth in the Prospectus
and Solicitation Statement dated April __, 1995 (the "F4L
Prospectus"), to exchange (a) for each $1,000 principal
amount of Old 10.45% Notes, $1,000 principal amount of new
Senior Notes due 2004 of the Surviving Company (the "New
Senior Notes") and a cash payment and (b) for each $1,000
principal amount of Old 13.75% Notes, $1,000 principal
amount of new Senior Subordinated Notes due 2005 of the
Surviving Company (the "New F4L Senior Subordinated
Notes", and together with the New Senior Notes, the "New
F4L Notes") and a cash payment and (ii) to holders of the
9% Senior Subordinated Notes due 2003 of RGC (the "9% RGC
Notes") and the 10 1/4% Senior Subordinated Notes due 2002
of RGC (the "10 1/4% RGC Notes", and together with the 9%
RGC Notes, the "Old RGC Notes", and together with the Old
F4L Notes, the "Old Notes") upon the terms and subject to
the conditions set forth in the Prospectus and
Solicitation Statement dated April ___, 1995 (the "RGC
Prospectus"), (a) to exchange for each $1,000 principal
amount of Old RGC Notes, $1,000 principal amount of new
Senior Subordinated Notes due 2005 of the Surviving
Company (the "New RGC Notes" and collectively with New F4L
Notes, the "New Notes") and a cash payment and (b) to
purchase for cash any or all of the Old RGC Notes. The
New F4L Senior Subordinated Notes will be issued pursuant
to an Indenture (the "F4L Senior Subordinated Note
Indenture") to be entered into by the Surviving Company,
as issuer, each of Alpha Beta Company, Bay Area Warehouse
Stores, Inc., Bell Markets, Inc., Cala Co., Cala Foods,
Inc., Falley's Inc., Food 4 Less of California, Inc.,
Food 4 Less Merchandising, Inc., Food 4 Less of Southern
California, Inc. and Food 4 Less GM, Inc., as guarantors,
(collectively, the "Subsidiary Guarantors") and United
States Trust Company of New York, as trustee (the "F4L
Senior Subordinated Note Trustee"). The New Senior Notes
will be issued pursuant to an Indenture (the "Senior Note
Indenture") to be entered into by the Surviving Company,
as issuer, the Subsidiary Guarantors, as guarantors, and
Norwest Bank Minnesota N.A., as trustee (the "Senior Note
Trustee). The New RGC Notes will be issued pursuant to an
Indenture (the "RGC Note Indenture" and collectively with
the F4L Senior Note Indenture and the F4L Senior
Subordinated Note Indenture, the "Indentures") to be
entered into by the Surviving Company, as issuer, the
Subsidiary Guarantors, and United States Trust Company of
New York, as trustee (the "RGC Note Trustee" and
collectively with the Senior Note Trustee and the F4L
Senior Subordinated Note Trustee). The New F4L Notes and
the New RGC Notes will be unconditionally guaranteed (the
"Guarantees"), on a joint and several basis, by each of
<PAGE> 3
the Subsidiary Guarantors pursuant to the terms of the
applicable indenture. As used in this Agreement, the term
"Issuers" shall refer collectively to Food 4 Less (or
after giving effect to the Mergers, the Surviving Company)
and the Subsidiary Guarantors.
"Concurrently with the F4L Exchange Offers, Holdings
proposes to offer (the "Holdings Offer") to the holders of
its 15 1/4% Senior Discount Notes due 2004 (the "Holdings
Notes") upon the terms and subject the conditions set
forth in the Prospectus and Solicitation Statement dated
April __, 1995 (the "Holdings Prospectus") to purchase for
cash any and all of the Holdings Notes. As used in this
Agreement, the term "Registrants" shall refer collectively
to Holdings (or after giving effect to the consummation of
the Equity Merger, New Holdings) and the Issuers.
"Concurrently with the F4L Exchange Offers and the
Holdings Offer, (i) Food 4 Less is soliciting consents
(collectively, the "F4L Consent Solicitations") (a) from
the holders of the Old F4L Notes to amendments (the
"Proposed F4L Amendments") to certain of the provisions in
the respective indentures governing the Old F4L Notes (the
"Old F4L Indentures"), all as described in the F4L
Prospectus and (b) from the holders of the Old RGC Notes
to amendments (the "Proposed RGC Amendments") to certain
of the provisions in the respective indentures governing
the Old RGC Notes (the "Old RGC Indentures"), all as
described in the RGC Prospectus and (ii) Holdings is
soliciting consents (the "Holdings Consent Solicitations"
and, together with the F4L Consent Solicitations, the
"Consent Solicitations") from the holders of the Holdings
Notes to amendments (the "Proposed Holdings Amendments"
and, collectively with the Proposed F4L Amendments and the
Proposed RGC Amendments, the "Proposed Amendments") to
certain of the provisions in the indenture governing the
Holdings Notes (the "Old Holdings Indenture" and,
collectively with the Old RGC Indentures and the Old F4L
Indentures, the "Old Indentures"), all as described in the
Holdings Prospectus. Upon receipt of the Requisite
Consents (as defined in the applicable prospectus) with
respect to an issue of Old Notes or the Holdings Notes,
the Issuers (in the case of the Old F4L Notes), RGC (in
the case of the Old RGC Notes) or Holdings (in the case of
the Holding Notes) will enter into an indenture
supplemental to the Old Indenture under which such Old
Notes or the Holdings Notes were issued (each, a "Consent
Supplemental Indenture") with the trustee under such Old
Indenture, which will give effect to the applicable
Proposed Amendments. The F4L Exchange Offer, the Holdings
Offer and the Consent Solicitations shall be referred to
collectively herein as the "Exchange Offers".
"Upon consummation of the Mergers, the Surviving
Company and the Subsidiary Guarantors will enter into an
indenture supplemental to each of the Indentures and the
Old F4L Indentures (the "Guarantor Supplemental
<PAGE> 4
Indentures" and, together with the Consent Supplemental
Indentures the "Supplemental Indentures") with the
trustees thereunder and Crawford Stores, Inc., an indirect
wholly-owned subsidiary of RSI, pursuant to which such
subsidiary (the "Additional Guarantor") will guarantee the
New Notes and the Old F4L Notes, pursuant to and in
accordance with the applicable Indenture or Old F4L
Indenture as the case may be. As used herein with respect
to periods subsequent to the consummation of the Merger,
the term "Subsidiary Guarantor" will include the
Additional Guarantor."
SECTION 2. Section 2(e)(i) of the Dealer Manager
Agreement is hereby amended and restated in its entirety so
that it reads as follows:
"(i) At the Closing the Registrants shall pay to the
Dealer Managers a fee equal to the sum of (x) 1.0% of the
aggregate principal amount of Old Notes accepted for
exchange in the Exchange Offers, (y) 0.5% of the aggregate
accreted value of Holdings Notes accepted for purchase in
the Exchange Offers and (z) 0.5% of (i) the aggregate
principal amount of Old Notes and (ii) the aggregate
accreted value of Holdings Notes, in each case, in respect
of which a consent is accepted pursuant to the Exchange
Offers (other than any such Old Notes or Holdings Notes
accepted for exchange or purchase in the Exchange
Offers)."
SECTION 3. Section 3(e) of the Dealer Manager
Agreement is hereby amended and restated in its entirety so
that it reads as follows:
"(e) The Registrants will notify you, not less than
two hours prior thereto, of the time when they propose to
commence the Exchange Offers or, after commencement, to
extend the Exchange Offers and, immediately upon the
commencement of the Exchange Offers, the Registrants shall
advise or cause the Information Agent or the Depositary to
advise you upon your reasonable request from time to time
during the period of, and promptly after the expiration
of, the Exchange Offers, as to all names and addresses of
the holders of the Old Notes and Holdings Notes which have
been tendered for exchange or purchase, the aggregate
principal amount of Old Notes and Holdings Notes tendered
for exchange or purchase, the aggregate principal amount
of Old Notes and Holdings Notes tendered for exchange or
purchase by each holder, during the immediately preceding
day, indicating the aggregate principal amount of Old
Notes or Holdings Notes, as the case may be, verified to
be in proper form for tender or consent, as the case may
be, rejected for tender or consent, as the case may be,
and being processed; and will notify you promptly
following expiration of the Exchange Offers on the
Expiration Date (as defined in the Offering Materials), of
the aggregate principal amount of Old Notes and Holdings
<PAGE> 5
Notes so deposited, indicating the aggregate principal
amount of Old Notes and Holdings Notes verified to be in
proper form for tender or consent, as the case may be,
rejected for tender or consent, as the case may be, and
being processed. The Registrants shall promptly give you
notice of changes in Expiration Dates with respect to the
Exchange Offers. Food 4 Less will not (x) accept Old
Notes for exchange or purchase or (y) accept consents in
respect of Old Notes, and Holdings will not (x) accept
Holdings Notes for purchase or (y) accept consents in
respect of Holdings Notes, unless the conditions to the
obligations of the Dealer Managers set forth in Section 6
hereof have been satisfied."
SECTION 4. Clause (ii) of Section 5(a) of the Dealer
Manager Agreement is hereby amended by amending and restating
the second sentence of such Clause so that it reads as follows:
"Each of Food 4 Less, the Subsidiary Guarantors and
Holdings has, and after giving effect to the Mergers and
the Equity Merger, the Surviving Company, New Holdings and
the Subsidiary Guarantors will have, taken all necessary
corporate action to authorize the Exchange Offers and upon
consummation of the Mergers the Registrants will have
taken all necessary corporate action to authorize the
exchange or purchase of Old Notes and Holdings Notes
pursuant to the Exchange Offers."
SECTION 5. Clause (x) of Section 5(a) of the Dealer
Manager Agreement is hereby amended and restated in its
entirety so that it reads as follows:
"(x) (x) Immediately after the consummation of the
Mergers and the other transactions contemplated by the
Offering Materials, the fair value and present fair
saleable value of the assets of New Holdings, the
Surviving Company and each Subsidiary Guarantor will
exceed the sum of its stated liabilities and identified
contingent liabilities; and (y) after giving effect to the
execution, delivery and performance of the Transaction
Documents and the consummation of the transactions
contemplated thereby and by the Offering Materials, none
of the Registrants is, nor, upon consummation of the
Mergers, will New Holdings, the Surviving Company or any
Subsidiary Guarantor be, (a) left with unreasonably small
capital with which to carry on its business as it is
proposed to be conducted, (b) unable to pay its debts
(contingent or otherwise) as they mature or (c)
insolvent."
SECTION 6. Each of subparagraphs (2), (4) and (5) of
Section 6(u) of the Dealer Manager Agreement is hereby amended
and restated in its entirety so that it reads as follows:
"(2) The New Credit Facility (as defined in
the Offering Materials) with aggregate
commitments thereunder of not less than
<PAGE> 6
$1,075,000,000 shall be in full force and effect,
no event shall have occurred and no event shall
have failed to occur, which would relieve the
lenders under the New Credit Facility (the
"Lenders") of their obligation to advance funds,
or preclude them from advancing funds to Food 4
Less thereunder, and concurrently with the
Closing the Lenders shall have advanced funds
under the New Credit Facility in an amount
sufficient to fund the Mergers and related
transactions and there shall be a sufficient
amount available to be borrowed under the term
loan facilities for a period of at least ninety
days following the Closing Date to fund the
Change of Control Offers (as defined in the
Offering Materials);
"(4) New Holdings shall have received at
least $140,000,000 in cash from institutional
investors as consideration for the issuance and
sale by New Holdings of shares of capital stock
of New Holdings on the terms and conditions
described in the Offering Materials (the "New
Equity Investment"); New Holdings shall have
purchased at least 48% of the outstanding common
stock of RSI with $100,000,000 of the proceeds of
such issuance, $131,500,000 aggregate principal
amount of its 13 5/8% Senior Subordinated Pay in
Kind Debentures due 2005 (the "Seller
Debentures") and $18,500,000 principal amount of
its 13 5/8% Senior Discount Debentures due 2005
(the "New Discount Debentures"), all as described
in the Offering Materials. New Holdings shall
have contributed such common stock of RSI
together with $12.1 million of the proceeds of
the New Equity Investment to the capital of Food
4 Less. New Holdings shall have received at
least $59,000,000 in cash consideration from
institutional investors for the issuance and sale
by New Holdings to such institutional investors
of $59,000,000 aggregate principal amount of New
Discount Debentures, all as described in the
Offering Materials. New Holdings shall have
issued (i) $15,000,000 principal amount of New
Discount Debentures to The Yucaipa Companies and
$5,000,000 principal amount of New Discount Debentures
to BTSC in satisfaction of certain fees payable by the
Company to The Yucaipa Companies and BTSC in connection
with the Mergers and the Financing and (ii) $2.5 million
principal amount of New Discount Debentures to Apollo
Advisors, L.P. in consideration of certain fees
payable by New Holdings to Apollo Advisors, L.P.
in connection with the Mergers, all as set forth
in the Offering Materials. New Holdings and Food
4 Less shall have the issued, authorized and
outstanding capitalization set forth in the
Offering Materials;
<PAGE> 7
"(5) Simultaneously with the Closing, the
Issuers shall have consummated the issuance and
sale of (i) $295,000,000 aggregate principal
amount of New Senior Notes and (ii) $200,000,000
aggregate principal amount of New RGC Notes, all
pursuant to the Public Offering (as defined in
the Offering Materials) for gross cash proceeds
of not less than $495,000,000 on terms and
conditions satisfactory in form and substance to
the Dealer Managers, and Cahill Gordon & Reindel,
counsel to the Managers; and"
SECTION 7. Section 7 of the Dealer Manager Agreement
is hereby amended by (i) adding in the twenty-fourth line of
such Section the phrase ",Holdings Notes" immediately after the
phrase "Old Notes" contained in such line of such Section and
(ii) amending and restating clause (i) of the third paragraph
of such Section so that it reads in its entirety as follows:
"(i) the aggregate principal amount of Old Notes and
Holdings Notes solicited for exchange, purchase or consent
pursuant to the Exchange Offers bears to"
SECTION 8. Exhibit D to the Dealer Manager Agreement
is hereby replaced in its entirety by Exhibit A hereto and all
references in the Dealer Manager Agreement to Exhibit D thereto
shall be deemed to be references to Exhibit A to this
Amendment.
SECTION 9. Each of F4L, the Registrants and RSI
hereby represents and warrants that each of the representations
and warranties made by such person in the Dealer Manager
Agreement as of the Commencement Date are true and correct as
of the date hereof (except as expressly provided therein).
SECTION 10. All terms, provisions, covenants,
representations, warranties, agreements and conditions
contained in the Dealer Manager Agreement shall remain in full
force and effect except as expressly contemplated herein and
shall not otherwise be deemed waived, modified or amended
hereby.
SECTION 11. This amendment shall be governed by, and
construed in accordance with, the internal laws of the state of
New York without reference to its principles of conflict of
laws.
SECTION 12. This Amendment may be executed in one or
more counterparts, each of which shall be deemed to be an
original but all of which together, shall constitute one and
the same instrument.
If the foregoing correctly sets forth our
understanding, please indicate your acceptance thereof in the
space provided below for that purpose, whereupon this Amendment
<PAGE> 8
shall constitute a binding agreement among F4L, each
Registrant, RSI and the Dealer Managers.
Very truly yours,
FOOD 4 LESS, INC.
By:
Name: Mark A. Resnik
Title: Secretary
FOOD 4 LESS HOLDINGS, INC.
By:
Name: Mark A. Resnik
Title: Secretary
FOOD 4 LESS SUPERMARKETS, INC.
By:
Name: Mark A. Resnik
Title: Secretary
ALPHA BETA COMPANY,
as a Guarantor
By:
Name: Mark A. Resnik
Title: Secretary
BAY AREA WAREHOUSE STORES, INC.
By:
Name: Mark A. Resnik
Title: Secretary
BELL MARKETS, INC.,
as a Guarantor
By:
Name: Mark A. Resnik
Title: Secretary
CALA CO.,
as a Guarantor
By:
Name: Mark A. Resnik
Title: Secretary
<PAGE> 9
CALA FOODS, INC.,
as a Guarantor
By:
Name: Mark A. Resnik
Title: Secretary
FALLEY'S, INC.
as a Guarantor
By:
Name: Mark A. Resnik
Title: Secretary
FOOD 4 LESS OF CALIFORNIA, INC.,
as a Guarantor
By:
Name: Mark A. Resnik
Title: Secretary
FOOD 4 LESS OF
MERCHANDISING, INC.,
as a Guarantor
By:
Name: Mark A. Resnik
Title: Secretary
FOOD 4 LESS OF SOUTHERN
CALIFORNIA, INC.,
as a Guarantor
By:
Name: Mark A. Resnik
Title: Secretary
FOOD 4 LESS GM, INC.
as a Guarantor
By:
Name: Mark A. Resnik
Title: Secretary
RALPHS SUPERMARKETS, INC.,
By:
Name: Jan Charles Gray
Title: Senior Vice President,
General Counsel and
Secretary
<PAGE> 10
This Amendment is hereby
confirmed and accepted as
of the date first above written
BT SECURITIES CORPORATION
By:
Name: Lori Finkel
Title: Managing Director
CS FIRST BOSTON CORPORATION
By:
Name:
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
Name:
Title:
<PAGE> 11
Exhibit A to Amendment No. 1
to Dealer Manager Agreement
FORM OF OPINION OF LATHAM & WATKINS
1. Each of New Holdings, the Surviving Company (immediately after the
consummation of the Mergers) and the Subsidiary Guarantors other than Falley's
(collectively, the "Corporations") has been duly incorporated and is validly
existing and in good standing under the laws of its state of incorporation with
corporate power and authority to own or lease its properties and to conduct its
business as now conducted as described in each Prospectus.
2. Immediately following the consummation of the Mergers, each of the
Surviving Company, Cala Co. and Food 4 Less of Southern California, Inc. is duly
qualified to do business as a foreign corporation in California and is in good
standing in California.
3. Immediately following the consummation of the Mergers, the Surviving
Company or a subsidiary or subsidiaries of the Surviving Company own of record
in the aggregate 100% of the capital stock of each corporation that is a
Subsidiary Guarantor and all such capital stock has been duly authorized and
validly issued and is fully paid and nonassessable.
4. Upon consummation of the Mergers, (i) the Surviving Company will have
full corporate power and authority to execute, deliver and perform its
obligations under the Indentures, the New Notes, and the supplemental indentures
pursuant to which the Surviving Company will assume the obligations of Food 4
Less and RGC under the Consent Supplemental Indentures relating to the Old Notes
(the "Assumption Supplemental Indentures"), and will have full corporate power
and authority to issue the New Notes and (ii) each of the Subsidiary Guarantors
other than Falley's will have full corporate power and authority to issue the
Guarantees and perform its obligations under the Guarantees. New Holdings has
full corporate power and authority to perform its obligations under the
supplemental indenture pursuant to which New Holdings will assume the
obligations of Holdings under the Holdings Notes (the "Holdings Assumption
Indenture") and the Holdings Supplemental Indenture.
5. To the best of our knowledge, there is no action, suit, proceeding or
investigation pending or threatened against or affecting any of the Registrants
or any of their respective properties or assets in any court or before any
governmental authority or arbitration board or tribunal that seeks to restrain,
enjoin, prevent the consummation of or otherwise challenge the Exchange Offers
or the issuance, sale and delivery of the New Notes or the Guarantees or any of
the other transactions contemplated by the Registration Statements.
6. Each of the Indentures and the Assumption Supplemental Indentures has
been duly authorized, executed and delivered by the Surviving Company and the
Subsidiary Guarantors other than Falley's and
<PAGE> 12
(assuming due authorization, execution and delivery by the applicable Trustee)
is the legally valid and binding agreement of each of them, enforceable against
each of them in accordance with its terms.
7. The Holdings Supplemental Indenture and the Holdings Assumption
Indenture have been duly authorized, executed and delivered by New Holdings and
(assuming due authorization, execution and delivery by applicable trustee) are
the legally valid and binding agreements of New Holdings, enforceable against
New Holdings in accordance with their terms.
8. Each of the Consent Supplemental Indentures relating to the Old F4L
Notes has been duly authorized, executed and delivered by Food 4 Less and the
Subsidiary Guarantors other than Falley's and (assuming due authorization,
execution and delivery by the applicable trustee under the Old F4L Indentures)
is the legally valid and binding agreement of each of Food 4 Less and the
Subsidiary Guarantors other than Falley's, enforceable against each of them in
accordance with its terms.
9. Upon consummation of the Mergers, the New Notes will have been duly
authorized by the Surviving Company for issuance and, when executed and
authenticated in accordance with the terms of the applicable Indenture and
delivered to exchanging holders of Old Notes in accordance with the terms of the
Registration Statements, will be legally valid and binding obligations of the
Surviving Company, enforceable against the Surviving Company in accordance with
their terms.
10. The Guarantees have been duly authorized by the Subsidiary Guarantors
and, when executed in accordance with the terms of the applicable Indenture and
upon due execution, authentication and delivery of the New Notes, will be
legally valid and binding obligations of the Subsidiary Guarantors, enforceable
against the Subsidiary Guarantors in accordance with their terms.
11. Upon the consummation of the Mergers, the execution and delivery of the
Indentures, the New Notes, the Guarantees, the Assumption Supplemental Indenture
and the Holdings Assumption Indenture by New Holdings, the Surviving Company and
the Subsidiary Guarantors other than Falley's, to the extent each is a party
thereto, the issuance and sale of the New Notes in exchange for Old Notes, the
purchase of Old RGC Notes and Holdings Notes and the making of the Guarantees
pursuant to the Indentures will not result in the violation by New Holdings, the
Surviving Company or the Subsidiary Guarantors other than Falley's of its
certificate or articles of incorporation and bylaws or any federal, New York,
California, or Delaware General Corporation Law statute, rule or regulation
known to us to be applicable to New Holdings, the Surviving Company or any
Subsidiary Guarantor other than Falley's (other than state securities laws as to
which we express no opinion, or federal securities laws, as specifically
addressed elsewhere herein) or in the breach of or a default by New Holdings,
the Surviving Company or any Subsidiary Guarantor other than Falley's under any
of the material agreements or court orders specifically directed to New
Holdings, the Surviving Company or any Subsidiary Guarantor other than Falley's
(which material agreements have been identified to us by an officer of such
person as material to such person), which violation,
<PAGE> 13
breach or default would have a material adverse effect on New Holdings, the
Surviving Company and the Subsidiary Guarantors, taken as a whole.
12. The execution and delivery of the Consent Supplemental Indentures by
Holdings, Food 4 Less and the Subsidiary Guarantors other than Falley's (to the
extent each is a party thereto) will not result in the violation by Holdings,
Food 4 Less or any Subsidiary Guarantor other than Falley's of its certificate
or articles of incorporation and bylaws or any federal, New York, California or
Delaware General Corporation Law statute, rule or regulation known to us to be
applicable to Holdings, Food 4 Less and the Subsidiary Guarantors other than
Falley's (other than state securities laws as to which we express no opinion, or
federal securities laws, as specifically addressed elsewhere herein), or in the
breach of or a default by Holdings Food 4 Less and the Subsidiary Guarantors
other than Falleys's under any of the material agreements or court orders
specifically directed to Holdings, Food 4 Less and the Subsidiary Guarantors
other than Falley's (which material agreements have been identified to us by an
officer of such person as material to such person), which violation, breach or
default would have a material adverse effect on Holdings, Food 4 Less and the
Subsidiary Guarantors, taken as a whole.
13. To the best of our knowledge, no consent, approval, authorization or
order of, or filing with, any federal, New York, California, or Delaware court
or governmental agency or body is required for the issuance of the New Notes in
exchange for the Old Notes, the purchase of Old RGC Notes, the purchase of
Holdings Notes or the Consent Solicitations, except (i) such as have been
obtained or made under the Act or the Trust Indenture Act or otherwise, and
(ii)such as may be required under state securities laws in connection with the
issuance of such New Notes and Guarantees by the Surviving Company and the
Subsidiary Guarantors.
14. We call your attention to the fact that the New Indentures, the New
Notes, the Guarantees, the Assumption Supplemental Indentures, the Consent
Supplemental Indentures and the Holdings Assumption Indenture select the
internal laws of the State of New York as the governing law. It is our opinion
that a New York State court or a federal court sitting in New York will honor
the parties' choice of the internal laws of the State of New York as the law
applicable to such documents.
15. It is our opinion that the material federal income tax consequences to
holders whose Old Notes or Holdings Notes, as the case may be, are tendered and
exchanged in the Exchange Offers are accurately set forth under the heading
"Certain Federal Income Tax Considerations" in the applicable Prospectus.
16. Each of the Indentures, the New Notes, the Guarantees and the Consent
Supplemental Indentures conforms to the description thereof in the Registration
Statements in all material respects.
17. Each Indenture is, and each old F4L Indenture and the Holdings
Indenture has been, and is, duly qualified under the Trust Indenture Act.
<PAGE> 14
18. Each Registration Statement has become effective under the Act and, to
the best of our knowledge, no stop order suspending the effectiveness of any
Registration Statement has been issued under the Act and no proceedings therefor
have been initiated by the Commission and any required filing of any Prospectus
pursuant to Rule 424(b) under the Act has been made in accordance with Rules
424(b) and 430A under the Act.
19. Each Registration Statement and each Prospectus comply as to form in
all material respects with the applicable requirements for registration
statements on Form S-4 under the Act, and comply as to form in all material
respects with the applicable requirements of the Trust Indenture Act and the
Exchange Act; it being understood, however, that we express no opinion with
respect to the financial statements, schedules and other financial and
statistical data included in any Registration Statement, Prospectus or in the
exhibits to any Registration Statement or with respect to any Form T-1. In
passing upon the compliance as to form of each Registration Statement and each
Prospectus, we have assumed that the statements made therein are correct and
complete.
20. The consummation of the Exchange Offers on the terms set forth in the
Registration Statements complies with the applicable requirements of Sections 13
and 14 of the Exchange Act and the rules and regulations promulgated thereunder.
21. To the best of our knowledge, there are no contracts or documents of a
character required to be described in any Registration Statement or Prospectus
or to be filed as exhibits to any Registration Statement that are not described
and filed as required.
In addition, we have participated in conferences with officers and other
representatives of F4L, the Registrants and RSI, representatives of the
independent public accountants for F4L, the Registrants, and RSI, and your
representatives, at which the contents of the Registration Statements and each
Prospectus and related matters were discussed and, although we are not passing
upon, and do not assume any responsibility for, the accuracy, completeness or
fairness of the statements contained in the Registration Statements or any
Prospectus and have not made any independent check or verification thereof,
during the course of such participation (relying as to materiality to a large
extent upon the statements of officers and other representatives of F4L,
Registrants and RSI), no facts came to our attention that caused us to believe
that any Registration Statement, at the time it became effective, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or that any Prospectus, as of its date, contained an untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; it being understood that we express no belief with respect to
the financial statements, schedules and other financial and statistical data
included in any Registration Statement or Prospectus or with respect to any Form
T-1.
<PAGE> 1
EXHIBIT 2.1.2
AMENDMENT NO. 2
TO
AGREEMENT AND PLAN OF MERGER
This Amendment No. 2 (this "Amendment"), dated as of February
24, 1995, to the Agreement and Plan of Merger dated as of September 14, 1994,
as amended by Amendment No. 1 dated as of January 12, 1995 (collectively, the
"Merger Agreement"), is by and among Food 4 Less, Inc., a Delaware corporation
("F4L"), Food 4 Less Holdings, Inc., a California corporation ("F4L Holdings"),
Food 4 Less Holdings, Inc., a Delaware corporation ("F4L Holdings Delaware"),
Food 4 Less Supermarkets, Inc., a Delaware corporation ("F4L Supermarkets"),
Ralphs Supermarkets, Inc., a Delaware corporation ("Ralphs Supermarkets"), and
The Edward J. DeBartolo Corporation ("EJDC") and the other stockholders of
Ralphs Supermarkets (each a "Selling Stockholder"). Capitalized terms not
otherwise defined herein have the meanings given to them in the Merger
Agreement.
WHEREAS, F4L, F4L Holdings, F4L Holdings Delaware, F4L
Supermarkets, Ralphs Supermarkets and the Selling Stockholders previously have
entered into the Merger Agreement, by which the parties agreed to merge F4L
Supermarkets with and into Ralphs Supermarkets in accordance with the terms and
conditions of the Merger Agreement and Section 251 of the General Corporation
Law of the State of Delaware;
WHEREAS, the parties desire to amend certain provisions of
the Merger Agreement as more fully set forth herein;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained, the parties hereto agree as follows:
1. Amendment of Defined Terms.
(a) The definition of "Closing Date" in Section 1.1 of
the Merger Agreement is hereby amended to delete the date "March 15, 1995" and
to substitute in its place the date "April 14, 1995."
(b) The definition of "Debentures" in Section 1.1 of the
Merger Agreement is hereby amended to read as follows:
"Debentures" shall mean the 13-5/8% Senior
Subordinated Pay-in-Kind Debentures due 2007 to be issued by F4L
Holdings Delaware pursuant to the Indenture.
(c) The definition of "Indenture" in Section 1.1 of the
Merger Agreement is hereby amended to delete "F4L Holdings" and to substitute
in its place "F4L Holdings Delaware."
2. Amendment of Section 2.1(a). Section 2.1(a) of the
Merger Agreement is hereby amended (i) to delete "$12.31060748 in cash"
appearing in the third line thereof and to substitute in its place "$8.20710248
in cash" and (ii) to delete "$8.2074 principal amount of Debentures" appearing
in the third line thereof and to substitute in its place "$12.310905 principal
amount of Debentures."
<PAGE> 2
3. Amendment of Section 9.6. Section 9.6 of the Merger
Agreement is hereby amended to delete "F4L Holdings" and to substitute in its
place "F4L Holdings Delaware."
4. Amendment of Section 11.1(b). Section 11.1(b) of the
Merger Agreement is hereby amended to delete the date "March 31, 1995"
appearing in the second line thereof and to substitute in its place the date
"April 14, 1995."
5. Schedules.
(a) Schedule 2.1 of the Merger Agreement is hereby deleted
and the attached Schedule 2.1 is hereby substituted in its place and
incorporated herein by reference.
(b) Schedule 9.9 of the Merger Agreement is hereby
amended to delete "$150 million" appearing in clause (1) thereof and to
substitute in its place "$140 million."
6. Exhibit A. Exhibit A (Form of Indenture) of the
Merger Agreement is hereby deleted and the attached Exhibit A (Form of
Indenture) is hereby substituted in its place and incorporated herein by
reference.
7. Exhibit D. Exhibit D (Form of Opinion of Counsel to
F4L, F4L Holdings and F4L Supermarkets) of the Merger Agreement is hereby
amended as more fully described below.
(a) All references in Paragraph 7 to the "Consulting
Agreement" are hereby amended to substitute in its place the "Put Agreement."
(b) Paragraph 7 is hereby amended to delete the phrase
"and in good standing" appearing in the first and second lines thereof.
8. Exhibit E. Exhibit E (Form of Put Agreement) of the
Merger Agreement is hereby amended to delete "$60,346,000 aggregate principal
amount of 13% Senior Subordinated Pay-in-Kind Debentures due 2006 (the
"Debentures") issued by F4L Holdings" appearing in the second recital and to
substitute in its place "$90,517,000 aggregate principal amount of 13-5/8%
Senior Subordinated Pay-in-Kind Debentures due 2007 (the "Debentures") issued
by Food 4 Less Holdings, Inc., a Delaware corporation."
9. Exhibit G. Exhibit G (Form of Registration Rights
Agreement) of the Merger Agreement is hereby amended as more fully described
below.
(a) F4L Holdings Delaware shall replace F4L Holdings as a
party to such Registration Rights Agreement and all references to the "Company"
therein shall mean F4L Holdings Delaware.
(b) The definition of "Debentures" in Section 1 is hereby
amended to (i) delete "13% Senior Subordinated Pay-in-Kind Debentures due 2006"
appearing in the first line and to substitute in its place "13-5/8% Senior
Subordinated Pay-in-Kind Debentures due 2007," and (ii) delete "$100,000,000"
appearing in the third line and to substitute in its place "$150,000,000."
10. Terms and Conditions. Except as specifically
modified herein, all other terms and conditions of the Merger Agreement shall
remain in full force and effect.
2
<PAGE> 3
IN WITNESS WHEREOF, this Amendment has been signed by or on
behalf of each of the parties as of the day first above written.
"F4L": FOOD 4 LESS, INC.
By: _________________________
Name:
Title:
"F4L HOLDINGS": FOOD 4 LESS HOLDINGS, INC.
By: _________________________
Name:
Title:
"F4L HOLDINGS DELAWARE": FOOD 4 LESS HOLDINGS, INC.
By: _________________________
Name:
Title:
"F4L SUPERMARKETS": FOOD 4 LESS SUPERMARKETS, INC.
By: _________________________
Name:
Title:
"RALPHS SUPERMARKETS": RALPHS SUPERMARKETS, INC.
By: _________________________
Name:
Title:
"SELLING
STOCKHOLDERS": THE EDWARD J. DEBARTOLO CORPORATION
By: _________________________
Name:
Title:
S-1
<PAGE> 4
CAMDEV PROPERTIES INC.
By: _________________________
Name:
Title:
BANK OF MONTREAL
By: _________________________
Name:
Title:
BANQUE PARIBAS
By: _________________________
Name:
Title:
FEDERATED DEPARTMENT STORES, INC.
By: _________________________
Name:
Title:
S-2
<PAGE> 5
EXHIBIT A
FOOD 4 LESS HOLDINGS, INC.
AND
NORWEST BANK MINNESOTA, N.A.
AS TRUSTEE
INDENTURE
Dated as of ___________ __, 1995
$150,000,000
13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007
<PAGE> 6
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA INDENTURE
Section Section
- ------- ---------
<S> <C>
310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.8; 7.10; 13.2
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.3
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.3
313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6; 13.2
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10; 13.2
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2; 13.4
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2; 13.4
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.5
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(b)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5; 13.2
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(a)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(c)
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316(a)(last sentence) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7
317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4
318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1
- -----------------------
</TABLE>
N.A. means Not Applicable
NOTE: This Cross-Reference Table shall not, for any purpose,
be deemed to be a part of the Indenture.
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Incorporation by Reference of TIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 1.3. Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE II THE SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.1. Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.2. Execution and Authentication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.3. Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.4. Paying Agent To Hold Assets in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.5. Securityholder Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.6. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.7. Replacement Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.8. Outstanding Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.9. Treasury Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.10. Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.11. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.12. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.13. CUSIP Number. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE III REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.1. Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.2. Selection of Securities To Be Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.3. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 3.4. Effect of Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 3.5. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.6. Securities Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE IV COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.1. Payment of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.2. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 4.3. Limitation on Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 4.4. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.5. Payment of Taxes and Other Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.6. Maintenance of Properties and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.7. Compliance Certificate; Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.8. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
i
<PAGE> 8
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 4.9. SEC Reports and Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 4.10. Waiver of Stay, Extension or Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 4.11. Limitation on Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 4.12. Limitation on Incurrences of Additional Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 4.13. Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 4.14. Limitation on Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 4.15. Limitation on Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 4.16. Limitation on Senior Subordinated Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 4.17. Limitation on Preferred Stock of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 4.18. Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries . . . . . . . . . . . . . 38
ARTICLE V SUCCESSOR CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 5.1. When Holdings May Merge, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 5.2. Successor Corporation Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
ARTICLE VI DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 6.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 6.2. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 6.3. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 6.4. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 6.5. Control by Majority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 6.6. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 6.7. Rights of Holders To Receive Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 6.8. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 6.9. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE VII TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 7.1. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 7.2. Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 7.3. Individual Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 7.4. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 7.5. Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 7.6. Reports By Trustee to Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 7.7. Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 7.8. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 7.9. Successor Trustee by Merger, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 7.10. Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
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Section 7.11. Preferential Collection of Claims Against Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 50
ARTICLE VIII LEGAL DEFEASANCE AND COVENANT DEFEASANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 8.1. Option to Effect Legal Defeasance or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . 50
Section 8.2. Legal Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 8.3. Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 8.4. Conditions to Legal or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 8.5. Deposited Money and U.S. Government Obligations to be Held in Trust; Other Miscellaneous Provisions. . 53
Section 8.6. Repayment to Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 8.7. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE IX AMENDMENTS, SUPPLEMENTS AND WAIVERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 9.1. Without Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 9.2. With Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 9.3. Compliance with TIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 9.4. Revocation and Effect of Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 9.5. Notation on or Exchange of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 9.6. Trustee To Sign Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
ARTICLE X MEETINGS OF SECURITYHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 10.1. Purposes for Which Meetings May Be Called . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 10.2. Manner of Calling Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 10.3. Call of Meetings by Holdings or Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 10.4. Who May Attend and Vote at Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 10.5. Regulations May Be Made by Trustee; Conduct of the Meeting; Voting Rights; Adjournment . . . . . . . . 59
Section 10.6. Voting at the Meeting and Record To Be Kept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 10.7. Exercise of Rights of Trustee or Holders May Not Be Hindered or Delayed by Call of Meeting . . . . . . 60
ARTICLE XI SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 11.1. Securities Subordinated to Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 11.2. No Payment on Securities in Certain Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 11.3. Securities Subordinated to Prior Payment of All Senior Indebtedness on Dissolution, Liquidation or
Reorganization of Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 11.4. Holders to Be Subrogated to Rights of Holders of Senior Indebtedness . . . . . . . . . . . . . . . . . 64
Section 11.5. Obligations of Holdings Unconditional . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 11.6. Trustee Entitled to Assume Payments Not Prohibited in Absence of Notice . . . . . . . . . . . . . . . 65
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Section 11.7. Application by Trustee of Assets Deposited with It. . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 11.8. Subordination Rights Not Impaired by Acts or Omissions of Holdings or Holders of Senior Indebtedness . 66
Section 11.9. Holders Authorize Trustee to Effectuate Subordination of Securities . . . . . . . . . . . . . . . . . 66
Section 11.10. Right of Trustee to Hold Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 11.11. Article Eleven Not to Prevent Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 11.12. No Fiduciary Duty of Trustee to Holders of Senior Indebtedness . . . . . . . . . . . . . . . . . . . . 67
ARTICLE XII SATISFACTION AND DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 12.1. Satisfaction and Discharge of the Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 12.2. Conditions to Satisfaction and Discharge of the Indenture . . . . . . . . . . . . . . . . . . . . . . 68
ARTICLE XIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 13.1. TIA Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 13.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 13.3. Communications by Holders with Other Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 13.4. Certificate and Opinion as to Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 13.5. Statements Required in Certificate or Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 13.6. Rules by Trustee, Paying Agent, Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 13.7. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 13.8. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 13.9. No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 13.10. No Recourse Against Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 13.11. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 13.12. Duplicate Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 13.13. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
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INDENTURE dated as of ________ __, 1995, between FOOD 4 LESS HOLDINGS, INC., a
Delaware corporation ("Holdings"), and Norwest Bank Minnesota, N.A., a National
Banking Association, as Trustee.
Each party hereto agrees as follows for the benefit of each other party and for
the equal and ratable benefit of the Holders of the 13 5/8% Senior Subordinated
Pay-in-Kind Debentures due 2007:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.1. Definitions.
"Acquired Indebtedness" means Indebtedness of a person or any of its
subsidiaries existing at the time such person becomes a Subsidiary or assumed
in connection with the acquisition of assets from such person and not incurred
by such person in connection with, or in anticipation or contemplation of, such
person becoming a Subsidiary or such acquisition.
"Affiliate" means, with respect to any person, any other person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" when used with respect to any person means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"affiliated," "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of this Indenture, neither BT Securities Corporation
nor any of its Affiliates shall be deemed to be an Affiliate of Holdings or any
of its Subsidiaries.
"Affiliate Obligation" means any contractual obligation (not
constituting Indebtedness) between Holdings and any Affiliate, other than
obligations relating to the purchase or sale of goods in the ordinary course of
business made in compliance with Section 4.11 hereof.
"Affiliate Transaction" shall have the meaning provided in Section 4.11.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Asset Sale" means, with respect to any person, any sale, transfer or
other disposition or series of sales, transfers or other dispositions
(including, without limitation, by merger or consolidation or by exchange of
assets and whether by operation of law or otherwise), made by such person or
any of its subsidiaries to any person other than such person or one of its
wholly-owned subsidiaries (or, in the case of a sale, transfer or other
disposition by a Subsidiary, to any person other than Holdings or a directly or
indirectly wholly-owned Subsidiary) of any assets of such person or any of its
subsidiaries including, without limitation, assets consisting of any Capital
Stock or other securities held by such person or any of its subsidiaries, and
any Capital Stock issued by any subsidiary of such person, in each case,
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outside of the ordinary course of business, excluding, however, any sale,
transfer or other disposition, or series of related sales, transfers or other
dispositions, (i) involving only Excluded Assets, (ii) resulting in Net
Proceeds to Holdings or any Subsidiary of $500,000 or less or (iii) pursuant to
any foreclosure of assets or other remedy provided by applicable law to a
creditor of Holdings or any Subsidiary with a Lien on such assets, which Lien
is permitted under this Indenture, provided that such foreclosure or other
remedy is conducted in a commercially reasonable manner or in accordance with
any Bankruptcy Law.
"Average Life" means, as of any date of determination, with respect to
any debt security, the quotient obtained by dividing (i) the sum of the
products of the number of years from the date of determination to the dates of
each successive scheduled principal payments of such debt security multiplied
by the amount of such principal payment by (ii) the sum of all such principal
payments.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal, state
or foreign law for the relief of debtors.
"Board of Directors" means, with respect to any person, the Board of
Directors of such person or any committee of the Board of Directors of such
person duly authorized, with respect to any particular matter, to exercise the
power of the Board of Directors of such person.
"Board Resolution" means, with respect to any person, a duly adopted
resolution of the Board of Directors of such person.
"Business Day" means a day that is not a Legal Holiday.
"Capital Stock" means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated) of
corporate stock, including each class of common stock and preferred stock of
such person, including Preferred Stock.
"Capitalized Lease Obligation" means obligations under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP, and the amount of Indebtedness represented by such obligations shall be
the capitalized amount of such obligations determined in accordance with GAAP.
"Cash Equivalents" means (i) obligations issued or unconditionally
guaranteed by the United States of America or any agency thereof, or
obligations issued by any agency or instrumentality thereof and backed by the
full faith and credit of the United States of America, (ii) commercial paper
rated the highest grade by Moody's Investors Service, Inc. and Standard &
Poor's Ratings Group and maturing not more than one year from the date of
creation thereof, (iii) time deposits with, and certificates of deposit and
banker's acceptances issued by, any bank having capital surplus and undivided
profits aggregating at least $500 million and maturing not more than one year
from the date of creation thereof, (iv) repurchase agreements that are secured
by a perfected security interest in an obligation described in clause (i) and
are with any bank described in clause (iii) and (v) readily marketable direct
obligations issued by any state of the United States of America or any
political subdivision thereof having one of the two
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highest rating categories obtainable from either Moody's Investors Service,
Inc. or Standard & Poor's Ratings Group.
"Change of Control" means (I) the acquisition after the Issue Date, in
one or more transactions, of beneficial ownership (within the meaning of Rule
13d-3 under the Exchange Act) by (i) any person or entity (other than any
Permitted Holder) or (ii) any group of persons or entities (excluding any
Permitted Holders) who constitute a group (within the meaning of Section
13(d)(3) of the Exchange Act), in either case, of any securities of Holdings
such that, as a result of such acquisition, such person, entity or group
beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act),
directly or indirectly, 40% or more of the then outstanding voting securities
entitled to vote on a regular basis for a majority of the Board of Directors of
Holdings (but only to the extent that such beneficial ownership is not shared
with any Permitted Holder who has the power to direct the vote thereof);
provided, however, that no such Change of Control shall be deemed to have
occurred if (A) the Permitted Holders beneficially own, in the aggregate, at
such time, a greater percentage of such voting securities than such other
person, entity or group or (B) at the time of such acquisition, the Permitted
Holders (or any of them) possess the ability (by contract or otherwise) to
elect, or cause the election, of a majority of the members of Holdings' Board
of Directors or (II) Holdings ceasing to own 100% of the outstanding voting
securities entitled to vote on a regular basis to elect a majority of the Board
of Directors of the Company.
"Change of Control Date" shall have the meaning provided in Section 4.14.
"Change of Control Offer" shall have the meaning provided in Section
4.14.
"Change of Control Payment Date" shall have the meaning provided in
Section 4.14.
"Company" means Food 4 Less Supermarkets, Inc., a Delaware corporation,
and its successors, including, without limitation, Ralphs Supermarkets (to be
renamed Ralphs Grocery Company) following the Merger.
"Consolidated Net Income" means, with respect to any person, for any
period, the aggregate of the net income (or loss) of such person and its
subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (a) the net income of any other person in which such
person or any of its subsidiaries has an interest (which interest does not
cause the net income of such other person to be consolidated with the net
income of such person and its subsidiaries in accordance with GAAP) shall be
included only to the extent of the amount of dividends or distributions
actually paid to such person or such subsidiary by such other person in such
period; (b) the net income of any subsidiary of such person that is subject to
any Payment Restriction shall be excluded to the extent such Payment
Restriction actually prevented the payment of an amount that otherwise could
have been paid to, or received by, such person or a subsidiary of such person
not subject to any Payment Restriction, provided, however, that with respect to
the net income of Holdings, the net income of the Company and its subsidiaries
shall not be so excluded, notwithstanding the existence of any such Payment
Restriction, so long as the terms of any such consensual Payment Restriction
limiting the
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payment of dividends are not materially more restrictive at the time of
determination of Consolidated Net Income than the most restrictive Payment
Restriction limiting the payment of dividends in effect on the Issue Date; and
(c)(i) the net income (or loss) of any other person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition,
(ii) all gains and losses realized on any Asset Sale, (iii) all gains realized
upon or in connection with or as a consequence of the issuance of the Capital
Stock of such person or any of its subsidiaries and any gains on pension
reversions received by such person or any of its subsidiaries, (iv) all gains
and losses realized on the purchase or other acquisition by such person or any
of its subsidiaries of any securities of such person or any of its
subsidiaries, (v) all gains and losses resulting from the cumulative effect of
any accounting change pursuant to the application of Accounting Principles
Board Opinion No. 20, as amended, (vi) all other extraordinary gains and
losses, (vii) (A) all non-cash charges, (B) up to $10 million of severance
costs and (C) any other restructuring reserves or charges (provided, however,
that any cash payments actually made with respect to the liabilities for which
such restructuring reserves or charges were created shall be deducted from
Consolidated Net Income in the period when made), in each case, incurred by
Holdings or any of its Subsidiaries in connection with the Merger, including,
without limitation, the divestiture of the Excluded Assets, (viii) losses
incurred by Holdings and its Subsidiaries resulting from earthquakes and (ix)
with respect to Holdings and its Subsidiaries, all deferred financing costs
written off in connection with the early extinguishment of any Indebtedness,
shall each be excluded.
"Consolidated Net Worth" means, with respect to any person, the total
stockholders' equity (exclusive of any Disqualified Capital Stock) of such
person and its subsidiaries determined on a consolidated basis in accordance
with GAAP.
"Consulting Agreement" means that certain Consulting Agreement, dated as
of the Issue Date, between Holdings, the Company and The Yucaipa Companies, as
such Consulting Agreement may be amended or replaced, so long as any amounts
paid under any amended or replacement agreement do not exceed the amounts
payable under such Consulting Agreement as in effect on the Issue Date.
"Covenant Defeasance" shall have the meaning provided in Section 8.3.
"Credit Agent" means, at any time, the then-acting Administrative Agent
as defined in and under the Credit Agreement, which initially shall be
____________________. Holdings shall promptly notify the Trustee of any change
in the Credit Agent.
"Credit Agreement" means the Credit Agreement, dated as of the Issue
Date, by and among the Company, certain of its subsidiaries, the Lenders
referred to therein and Bankers Trust Company, as administrative agent, as the
same may be amended, extended, renewed, restated, supplemented or otherwise
modified (in each case, in whole or in part, and without limitation as to
amount, terms, conditions, covenants and other provisions) from time to time,
and any agreement governing Indebtedness incurred to refund, replace or
refinance any borrowings and commitments then outstanding or permitted to be
outstanding any such Credit Agreement or any such prior agreement as the same
may be amended, extended, renewed, restated, supplemented or otherwise
modified (in each case, in whole or in part, and
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without limitation as to amount, terms, conditions, covenants and other
provisions). The term "Credit Agreement" shall include all related or
ancillary documents, including, without limitation, any guarantee agreements
and security documents. Holdings shall promptly notify the Trustee of any such
refunding or refinancing of the Credit Agreement.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Disqualified Capital Stock" means, (i) with respect to any person, any
Capital Stock of such person or its subsidiaries that, by its terms, by the
terms of any agreement related thereto or by the terms of any security into
which it is convertible, puttable or exchangeable, is, or upon the happening of
an event or the passage of time would be, required to be redeemed or
repurchased by such person or its subsidiaries, including at the option of the
holder, in whole or in part, or has, or upon the happening of an event or
passage of time would have, a redemption or similar payment due, on or prior to
the Maturity Date or any other Capital Stock of such person or its subsidiaries
designated as Disqualified Capital Stock by such person at the time of
issuance; provided, however, that if such Capital Stock is either (a)
redeemable or repurchasable solely at the option of such person or (b) issued
to employees of Holdings or its Subsidiaries or to any plan for the benefit of
such employees, such Capital Stock shall not constitute Disqualified Capital
Stock unless so designated; and (ii) with respect to any Subsidiary of
Holdings, any Preferred Stock issued by a Subsidiary of Holdings other than
Preferred Stock issued to Holdings.
"EBDIT" means, with respect to any person, for any period, the
Consolidated Net Income of such person for such period, plus, in each case to
the extent deducted in computing Consolidated Net Income of such person for
such period (without duplication) (i) provisions for income taxes or similar
charges recognized by such person and its consolidated subsidiaries accrued
during such period, (ii) depreciation and amortization expense of such person
and its consolidated subsidiaries accrued during such period (but only to the
extent not included in Fixed Charges), (iii) Fixed Charges of such person and
its consolidated subsidiaries for such period, (iv) LIFO charges (credit) of
such person and its consolidated subsidiaries for such period, (v) the amount
of any restructuring reserve or charge recorded during such period in
accordance with GAAP, including any such reserve or charge related to the
Merger, and (vi) any other non-cash charges reducing Consolidated Net Income
for such period (excluding any such charge which requires an accrual of or a
cash reserve for cash charges for any future period), less, without
duplication, (i) non-cash items increasing Consolidated Net Income of such
person for such period in each case determined in accordance with GAAP and (ii)
the amount of all cash payments made by such person or its subsidiaries during
such period to the extent that such cash payment has been provided for in a
restructuring reserve or charge referred to in clause (v) above (and was not
otherwise deducted in the computation of Consolidated Net Income of such person
for such period).
"EJDC" means The Edward J. DeBartolo Corporation, an Ohio corporation.
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<PAGE> 16
"Event of Default" shall have the meaning provided in Section 6.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated by the SEC thereunder.
"Excluded Assets" means assets of Holdings or any Subsidiary required to
be disposed of by applicable regulatory authorities in connection with the
Merger.
"Fixed Charges" means, with respect to any person, for any period, the
aggregate amount of (i) interest, whether expensed or capitalized, paid,
accrued or scheduled to be paid or accrued during such period (except to the
extent accrued in a prior period) in respect of all Indebtedness of such person
and its consolidated subsidiaries (including (a) original issue discount on any
Indebtedness (including (without duplication), in the case of Holdings, any
original issue discount on the Senior Discount Notes and the Securities but
excluding amortization of debt issuance costs and (b) the interest portion of
all deferred payment obligations, calculated in accordance with the effective
interest method, in each case to the extent attributable to such period, but
excluding the amortization of debt issuance costs) and (ii) dividend
requirements on Capital Stock of such person and its consolidated subsidiaries
(whether in cash or otherwise (except dividends payable in shares of Qualified
Capital Stock)) declared or paid, or required to be declared or paid or accrued
during such period (except to the extent accrued in a prior period) and
excluding items eliminated in consolidation. For purposes of this definition,
(a) interest on a Capitalized Lease Obligation shall be deemed to accrue at an
interest rate reasonably determined by the Board of Directors of such person
(as evidenced by a Board Resolution) to be the rate of interest implicit in
such Capitalized Lease Obligation in accordance with GAAP, (b) interest on
Indebtedness that is determined on a fluctuating basis shall be deemed to have
accrued at a fixed rate per annum equal to the rate of interest of such
Indebtedness in effect on the date Fixed Charges are being calculated, (c)
interest on Indebtedness that may optionally be determined at an interest rate
based upon a factor of a prime or similar rate, a eurocurrency interbank
offered rate, or other rate, shall be deemed to have been based upon the rate
actually chosen, or, if none, then based upon such optional rate chosen as
Holdings may designate, and (d) Fixed Charges shall be increased or reduced by
the net cost (including amortization of discount) or benefit associated with
Interest Swap Obligations attributable to such period. For purposes of clause
(ii) above, dividend requirements shall be increased to an amount representing
the pretax earnings that would be required to cover such dividend requirements;
accordingly, the increased amount shall be equal to a fraction, the numerator
of which is the amount of such dividend requirements and the denominator of
which is one (1) minus the applicable actual combined federal, state, local and
foreign income tax rate of such person and its subsidiaries (expressed as a
decimal), on a consolidated basis, for the fiscal year immediately preceding
the date of the transaction giving rise to the need to calculate Fixed Charges.
"Foreign Exchange Agreement" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect against fluctuations in currency values.
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"Forward Period" shall have the meaning set forth in the definition of
Operating Coverage Ratio contained in this Section 1.1.
"GAAP" means generally accepted accounting principles as in effect in
the United States of America as of the date of this Indenture.
"Holder" means the person in whose name a Security is registered on the
Registrar's books.
"Holdings" means the party named as such above, until a successor
replaces it in accordance with the terms of this Indenture, and thereafter
means such successor.
"incur" shall have the meaning set forth in Section 4.12.
"Indebtedness" means with respect to any person, without duplication,
(i) all liabilities, contingent or otherwise, of such person (a) for borrowed
money (whether or not the recourse of the lender is to the whole of the assets
of such person or only to a portion thereof), (b) evidenced by bonds, notes,
debentures, drafts accepted or similar instruments or letters of credit or
representing the balance deferred and unpaid of the purchase price of any
property (other than any such balance that represents an account payable or any
other monetary obligation to a trade creditor (whether or not an Affiliate)
created, incurred, assumed or guaranteed by such person in the ordinary course
of business of such person in connection with obtaining goods, materials or
services and due within twelve months (or such longer period for payment as is
customarily extended by such trade creditor) of the incurrence thereof, which
account is not overdue by more than 90 days, according to the original terms of
sale, unless such account payable is being contested in good faith), or (c) for
the payment of money relating to a Capitalized Lease Obligation; (ii) the
maximum fixed repurchase price of all Disqualified Capital Stock of such person
or, if there is no such maximum fixed repurchase price, the liquidation
preference of such Disqualified Capital Stock, plus accrued but unpaid
dividends; (iii) reimbursement obligations of such person with respect to
letters of credit; (iv) obligations of such person with respect to Interest
Swap Obligations and Foreign Exchange Agreements; (v) all liabilities of others
of the kind described in the preceding clause (i), (ii), (iii) or (iv) that
such person has guaranteed or that is otherwise its legal liability; and (vi)
all obligations of others secured by a Lien to which any of the properties or
assets (including, without limitation, leasehold interests and any other
tangible or intangible property rights) of such person are subject, whether or
not the obligations secured thereby shall have been assumed by such person or
shall otherwise be such person's legal liability (provided that if the
obligations so secured have not been assumed by such person or are not
otherwise such person's legal liability, such obligations shall be deemed to be
in an amount equal to the fair market value of such properties or assets, as
determined in good faith by the Board of Directors of such person, which
determination shall be evidenced by a Board Resolution). For purposes of the
preceding sentence, the "maximum fixed repurchase price" of any Disqualified
Capital Stock that does not have a fixed repurchase price shall be calculated
in accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to this Indenture, and if such
price is based upon, or measured by, the fair market value of such Disqualified
Capital Stock
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<PAGE> 18
(or any equity security for which it may be exchanged or converted), such fair
market value shall be determined in good faith by the Board of Directors of
such person, which determination shall be evidenced by a Board Resolution. For
purposes hereof, Indebtedness incurred by any person that is a general
partnership (other than non-recourse Indebtedness) shall be deemed to have been
incurred by the general partners of such partnership pro rata in accordance
with their respective interests in the liabilities of such partnership unless
any such general partner shall, in the reasonable determination of the Board of
Directors of Holdings, be unable to satisfy its pro rata share of the
liabilities of the partnership, in which case the pro rata share of any
Indebtedness attributable to such partner shall be deemed to be incurred at
such time by the remaining general partners on a pro rata basis in accordance
with their interests.
"Indenture" means this Indenture, as amended or supplemented from time
to time in accordance with the terms hereof.
"Independent Financial Advisor" means a reputable accounting, appraisal
or a nationally recognized investment banking firm that is, in the reasonable
judgment of the Board of Directors of Holdings, qualified to perform the task
for which such firm has been engaged hereunder and disinterested and
independent with respect to Holdings and its Affiliates.
"Initial Public Offering" means an underwritten primary public offering
of common stock of Holdings at a time when Holdings has not previously issued
or sold any equity securities in an underwritten transaction pursuant to a
registration statement filed pursuant to the Securities Act.
"Initial Public Offering Consummation Date" means the first date on
which Holdings or the Company receives any proceeds from an Initial Public
Offering.
"Interest Payment Date" means the stated maturity of an installment of
interest on the Securities.
"Interest Swap Obligation" means any obligation of any person pursuant
to any arrangement with any other person whereby, directly or indirectly, such
person is entitled to receive from time to time periodic payments calculated by
applying either a fixed or floating rate of interest on a stated notional
amount in exchange for periodic payments made by such person calculated by
applying a fixed or floating rate of interest on the same notional amount;
provided that the term "Interest Swap Obligation" shall also include interest
rate exchange, collar, cap, swap option or similar agreements providing
interest rate protection.
"Investment" by any person in any other person means any investment by
such person in such other person, whether by a purchase of assets, in any
transaction or series of related transactions, individually or in the
aggregate, in an amount greater than $5 million, share purchase, capital
contribution, loan, advance (other than reasonable loans and advances to
employees for moving and travel expenses, as salary advances, or to permit the
purchase of Qualified Capital Stock of Holdings or any Subsidiary and other
similar customary expenses incurred, in each case in the ordinary course of
business consistent with past practice) or similar
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credit extension constituting Indebtedness of such other person, and any
guarantee of Indebtedness of any other person.
"Issue Date" means the date of first issuance of the Securities under
this Indenture.
"Legal Defeasance" shall have the meaning provided in Section 8.2.
"Legal Holiday" shall have the meaning provided in Section 13.7.
"Letter of Credit Obligations" means Indebtedness of Subsidiaries with
respect to letters of credit issued pursuant to the Credit Agreement, and for
purposes of Section 4.12, the aggregate principal amount of Indebtedness
outstanding at any time with respect thereto, shall be deemed to consist of (a)
the aggregate maximum amount then available to be drawn under all such letters
of credit (the determination of such maximum amount to assume compliance with
all conditions for drawing), and (b) the aggregate amount that has then been
paid by, and not reimbursed to, the issuers under such letters of credit.
"Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property, or a security interest of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof, any option or
other agreement to sell which is intended to constitute or create a security
interest, mortgage, pledge or lien, any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction); provided that in no event shall an operating lease be
deemed to constitute a Lien hereunder.
"Maturity Date" means ________ __, 2007.
"Merger" means (i) the merger of the Company into Ralphs Supermarkets
(with Ralphs Supermarkets surviving such merger) pursuant to the Merger
Agreement and (ii) immediately following the merger described in clause (i) of
this definition, the merger of RGC into Ralphs Supermarkets (with Ralphs
Supermarkets surviving such merger and changing its name to "Ralphs Grocery
Company" in connection with such merger).
"Merger Agreement" means the Agreement and Plan of Merger, dated as of
September 14, 1994, by and among Food 4 Less, Inc., a Delaware corporation,
Holdings, Food 4 Less Holdings, Inc., a California corporation, Ralphs
Supermarkets, the Company and the stockholders of Ralphs Supermarkets, as such
agreement is in effect on the Issue Date.
"Net Cash Proceeds" means Net Proceeds of (i) the sale of Qualified
Capital Stock of Holdings or (ii) any Asset Sale, in each case, in the form of
cash or Cash Equivalents.
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"Net Proceeds" means (a) in the case of any Asset Sale or any issuance
and sale by any person of Qualified Capital Stock, the aggregate net proceeds
received by such person after payment of expenses, taxes, commissions and the
like incurred in connection therewith, (and, in the case of any Asset Sale, net
of the amount of cash applied to repay Indebtedness secured by the asset
involved in such Asset Sale) whether such proceeds are in cash or in property
(valued at the fair market value thereof at the time of receipt as determined
with respect to any Asset Sale resulting in Net Proceeds in excess of $5
million in good faith by the Board of Directors of such person, which
determination shall be evidenced by a Board Resolution) and (b) in the case of
any conversion or exchange of any outstanding Indebtedness or Disqualified
Capital Stock of such person for or into shares of Qualified Capital Stock of
Holdings, the sum of (i) the fair market value of the proceeds received by
Holdings in connection with the issuance of such Indebtedness or Disqualified
Capital Stock on the date of such issuance and (ii) any additional amount paid
by the holder to Holdings upon such conversion or exchange.
"New F4L Senior Notes" means the ___% Senior Notes due 2004 of the
Company, issued pursuant to an indenture dated as of the Issue Date, as the
same may be modified or amended from time to time and refinancings thereof, to
the extent such refinancings are permitted to be incurred under this Indenture.
"New F4L Subordinated Notes" means the 13.75% Senior Subordinated Notes
due 2005 of the Company, issued pursuant to an indenture dated as of the Issue
Date, as the same may be modified or amended from time to time and refinancings
thereof, to the extent such refinancings are permitted to be incurred under
this Indenture.
"New F4L Senior Note Indenture" means the indenture pursuant to which
the New F4L Senior Notes were issued, as amended or supplemented from time to
time in accordance with the terms thereof.
"New F4L Subordinated Note Indenture" means the indenture pursuant to
which the New F4L Subordinated Notes were issued, as amended or supplemented
from time to time in accordance with the terms thereof.
"New Notes" means the ___% Senior Subordinated Notes due 2005 of the
Company, issued pursuant to an indenture dated as of the Issue Date, as the
same may be modified or amended from time to time and refinancings thereof, to
the extent such refinancings are permitted to be incurred under this Indenture.
"New Note Indenture" means the indenture pursuant to which the New Notes
were issued, as amended or supplemented from time to time in accordance with
the terms thereof.
"Officer" means, with respect to any person, the Chairman of the Board,
the President, any Vice President, the Chief Financial Officer, the Controller,
or the Secretary of such person.
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"Officers' Certificate" means, with respect to any person, a certificate
signed by two Officers or by an Officer and either an Assistant Treasurer or an
Assistant Secretary of such person and otherwise complying with the
requirements of Sections 13.4 and 13.5.
"Operating Coverage Ratio" means with respect to any person, the ratio
of (1) EBDIT of such person for the period (the "Pro Forma Period") consisting
of the most recent four full fiscal quarters for which financial information in
respect thereof is available immediately prior to the date of the transaction
giving rise to the need to calculate the Operating Coverage Ratio (the
"Transaction Date") to (2) the aggregate Fixed Charges of such person for the
fiscal quarter in which the Transaction Date occurs and the three fiscal
quarters immediately subsequent to such fiscal quarter (the "Forward Period")
reasonably anticipated by the Board of Directors of such person to become due
from time to time during such period. For purposes of this definition, if the
Transaction Date occurs prior to the first anniversary of the Merger, "EBDIT"
for the Pro Forma Period shall be calculated, in the case of Holdings, after
giving effect on a pro forma basis to the Merger as if it had occurred on the
first day of the Pro Forma Period. In addition to, but without duplication of,
the foregoing, for purposes of this definition, "EBDIT" shall be calculated
after giving effect (without duplication), on a pro forma basis for the Pro
Forma Period (but no longer), to (a) any Investment, during the period
commencing on the first day of the Pro Forma Period to and including the
Transaction Date (the "Reference Period"), in any other person that, as a
result of such Investment, becomes a subsidiary of such person, (b) the
acquisition, during the Reference Period (by merger, consolidation or purchase
of stock or assets) of any business or assets, which acquisition is not
prohibited by this Indenture, and (c) any sales or other dispositions of assets
(other than sales of inventory in the ordinary course of business) occurring
during the Reference Period, in each case as if such incurrence, Investment,
repayment, acquisition or asset sale had occurred on the first day of the
Reference Period. In addition, for purposes of this definition, "Fixed
Charges" shall be calculated after giving effect (without duplication), on a
pro forma basis for the Forward Period, to any Indebtedness incurred or repaid
on or after the first day of the Forward Period and prior to the Transaction
Date. If such person or any of its subsidiaries directly or indirectly
guarantees any Indebtedness of a third person, the Operating Coverage Ratio
shall give effect to the incurrence of such Indebtedness as if such person or
subsidiary had directly incurred such guaranteed Indebtedness.
"operating lease" means any lease the obligations under which do not
constitute Capitalized Lease Obligations.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee complying with the requirements of
Sections 13.4 and 13.5. Unless otherwise required by the Trustee, the legal
counsel may be an employee of or counsel to Holdings or the Trustee.
"Other Obligations" has the meaning set forth in Section 11.1 hereof.
"Pari Passu Indebtedness" means, with respect to Holdings, Indebtedness
that ranks pari passu in right of payment to the Securities (whether or not
secured by any Lien).
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"Paying Agent" shall have the meaning provided in Section 2.3, except
that, for the purposes of Articles Three and Eight and Section 4.14, the Paying
Agent shall not be Holdings or any Subsidiary.
"Payment Restriction" means, with respect to a Subsidiary of any person,
any encumbrance, restriction or limitation, whether by operation of the terms
of its charter or by reason of any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation, on the ability of (i) such
subsidiary to (a) pay dividends or make other distributions on its Capital
Stock or make payments on any obligation, liability or Indebtedness owed to
such person or any other subsidiary of such person, (b) make loans or advances
to such person or any other subsidiary of such person, or (c) transfer any of
its properties or assets to such person or any other subsidiary of such person,
or (ii) such person or any other subsidiary of such person to receive or retain
any such (a) dividends, distributions or payments, (b) loans or advances, or
(c) transfer of properties or assets.
"Permitted Holder" means (i) Food 4 Less Equity Partners, L.P., The
Yucaipa Companies or any entity controlled thereby or any of the partners
thereof, (ii) Apollo Advisors, L.P., Lion Advisors, L.P., or any entity
controlled thereby or any of the partners thereof, (iii) an employee benefit
plan of Holdings or any Subsidiary, or any participant therein, (iv) a trustee
or other fiduciary holding securities under an employee benefit plan of
Holdings or any Subsidiary or (v) any Permitted Transferee of any of the
foregoing persons.
"Permitted Indebtedness" means (a) Indebtedness of the Company and its
subsidiaries pursuant to (i) the term loans under the Credit Agreement in an
aggregate principal amount at any time outstanding not to exceed $750 million,
less the aggregate amount of all principal repayments thereunder pursuant to
and in accordance with the provisions of Section 4.15 subsequent to the Issue
Date, (ii) the revolving credit facility under the Credit Agreement (and the
Company and each Subsidiary (to the extent it is not an obligor) may guarantee
such Indebtedness) in an aggregate principal amount at any time outstanding not
to exceed $325 million, less all permanent reductions thereunder pursuant to
and in accordance with the provisions of Section 4.15, and (iii) any guarantee
by Holdings of the Indebtedness referred to in the foregoing clauses (i) and
(ii); (b) Indebtedness of Holdings or a Subsidiary owed to and held by Holdings
or a Subsidiary; (c) Indebtedness incurred by Holdings or any Subsidiary in
connection with the purchase or improvement of property (real or personal) or
equipment or other capital expenditures in the ordinary course of business
(including for the purchase of assets or stock of any retail grocery store or
business) or consisting of Capitalized Lease Obligations, provided that (i) at
the time of the incurrence thereof, such Indebtedness, together with any other
Indebtedness incurred during the most recently completed four fiscal quarter
period in reliance upon this clause (c) does not exceed, in the aggregate, 3%
of net sales of Holdings and its Subsidiaries during the most recently
completed four fiscal quarter period on a consolidated basis (calculated on a
pro forma basis if the date of incurrence is prior to the first anniversary of
the Merger) and (ii) such Indebtedness, together with all then outstanding
Indebtedness incurred in reliance upon this clause (c) does not exceed, in the
aggregate, 3% of the aggregate net sales of Holdings and its Subsidiaries
during the most recently completed twelve fiscal quarter period on a
consolidated basis (calculated on a pro forma basis if the date of incurrence
is prior to the third anniversary of the Merger); (d) Indebtedness incurred by
Holdings or any Subsidiary in
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connection with capital expenditures in an aggregate principal amount not
exceeding $150 million, provided that such capital expenditures relate solely
to the integration of the operations of Ralphs Supermarkets, the Company, and
their respective subsidiaries as described in that certain Registration
Statement of Holdings dated ______, 1995; (e) Indebtedness of Holdings or any
Subsidiary incurred under Foreign Exchange Agreements and Interest Swap
Obligations; (f) guarantees incurred in the ordinary course of business, by
Holdings or a Subsidiary, of Indebtedness of any other person in aggregate not
to exceed $25 million at any time outstanding; (g) guarantees by Holdings or a
Subsidiary of Indebtedness incurred by a wholly-owned Subsidiary so long as the
incurrence of such Indebtedness incurred by such wholly-owned Subsidiary is
permitted under the terms of this Indenture; (h) Refinancing Indebtedness; (i)
Indebtedness for letters of credit relating to workers' compensation claims and
self-insurance or similar requirements in the ordinary course of business; (j)
other Indebtedness outstanding on the Issue Date (after giving effect to the
Merger); (k) Indebtedness arising from guarantees of Indebtedness of Holdings
or any Subsidiary or other agreements of Holdings or a Subsidiary providing for
indemnification, adjustment of purchase price or similar obligations, in each
case, incurred or assumed in connection with the disposition of any business,
assets or Subsidiary, other than guarantees of Indebtedness incurred by any
person acquiring all or any portion of such business, assets or Subsidiary for
the purpose of financing such acquisition; provided that the maximum assumable
liability in respect of all such Indebtedness shall at no time exceed the gross
proceeds actually received by Holdings and its Subsidiaries in connection with
such disposition; (l) obligations in respect of performance bonds and
completion guarantees provided by Holdings or any Subsidiary in the ordinary
course of business; (m) Indebtedness of Holdings with respect to the Senior
Discount Notes and the Securities as in effect on the Issue Date (including the
accretion of the Senior Discount Notes and the issuance of Secondary Securities
in lieu of cash interest payments pursuant to the terms of this Indenture as in
effect on the Issue Date); and (n) additional Indebtedness of Holdings or any
Subsidiary in an amount not to exceed $200 million at any time outstanding.
"Permitted Investment" by any person means (i) any Related Business
Investment, (ii) Investments in securities not constituting cash or Cash
Equivalents and received in connection with an Asset Sale or any other
disposition of assets not constituting an Asset Sale by reason of the $500,000
threshold contained in the definition thereof, (iii) cash and Cash Equivalents,
(iv) Investments existing on the Issue Date, (v) Investments specifically
permitted by and made in accordance with Sections 4.3 and 4.11, (vi)
Investments in any Subsidiary or by any Subsidiary in Holdings or any other
Subsidiary in other Subsidiaries, and (vii) additional Investments in an
aggregate amount not exceeding $5 million.
"Permitted Payments" means any (i) payment by Holdings or any Subsidiary
to The Yucaipa Companies or the principals or any Affiliates thereof for
consulting, management, investment banking or similar services during such
period pursuant to the Consulting Agreement (including payments for the
repurchase of equity securities pursuant to the terms of such Consulting
Agreement), (ii) payment by Holdings or any Subsidiary to Apollo Advisors, L.P.
or the principals or any Affiliates thereof in an aggregate amount not to
exceed $5 million as a commitment fee in connection with the purchase of equity
securities of Holdings on the Issue Date, and (iii) any payment by Holdings or
any Subsidiary, (a) in connection with repurchases of outstanding shares of
Holdings' common stock following the death, disability or termination of
employment of management stockholders, and (b) of amounts required to be paid
by Holdings or any Subsidiaries to participants in employee benefit plans upon
any termination of employment by such participants, as provided in the documents
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related thereto, in an aggregate amount (for both clauses (a) and (b)) not to
exceed $10 million in any Yearly Period (provided that any unused amounts may
be carried over to any subsequent Yearly Period subject to a maximum amount of
$20 million in any Yearly Period).
"Permitted Transferees" means, with respect to any person, (i) any
Affiliate of such person, (ii) the heirs, executors, administrators,
testamentary trustees, legatees or beneficiaries of any such person, (iii) a
trust, the beneficiaries of which, or a corporation or partnership, the
stockholders or general or limited partners of which, include only such person
or his or her spouse or lineal descendants, in each case to whom such person
has transferred the beneficial ownership of any securities of Holdings, (iv)
any investment account whose investment managers and investment advisors
consist solely of such person and/or Permitted Transferees of such person, and
(v) any investment fund or investment entity that is a subsidiary of such
person or a permitted transferee of such person.
"Person" or "person" means any individual, corporation, partnership,
joint venture, association, joint-stock company, trust, unincorporated
organization or government or other agency or political subdivision thereof.
"Plan of Liquidation" means, with respect to any person, a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and
all or substantially all of the remaining assets of such person to holders of
Capital Stock of such person.
"Preferred Stock" means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated) of such
person's preferred or preference stock, whether outstanding on the date hereof
or issued after the Issue Date, and including, without limitation, all classes
and series of preferred or preference stock of such person.
"principal" of any Indebtedness (including the Securities) means the
principal of such Indebtedness plus the premium, if any, on such Indebtedness.
"pro forma" means, with respect to any calculation made or required to
be made pursuant to the terms of this Indenture, a calculation in accordance
with Article 11 of Regulation S-X under the Securities Act, as interpreted by
Holdings' chief financial officer or Board of Directors in consultation with
its independent certified public accountants.
"Pro Forma Period" shall have the meaning set forth in the definition of
Operating Coverage Ratio contained in this Section 1.1.
"Qualified Capital Stock" means, with respect to any person, any Capital
Stock of such person that is not Disqualified Capital Stock.
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"Ralphs Supermarkets" means Ralphs Supermarkets, Inc., a Delaware
corporation, until a successor replaces it and thereafter means such successor.
"Record Date" means the Record Dates specified in the Securities;
provided that if any such date is a Legal Holiday, the Record Date shall be the
first day immediately preceding such specified day that is not a Legal Holiday.
"Redemption Date," when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to this Indenture
and the Securities.
"Redemption Price," when used with respect to any Security to be
redeemed, means the price fixed for such redemption pursuant to this Indenture
and the Securities.
"Reference Period" shall have the meaning provided in the definition of
"Operating Coverage Ratio" contained in this Section 1.1.
"Refinancing Indebtedness" means, with respect to any person,
Indebtedness of such person issued in exchange for, or the proceeds from the
issuance and sale or disbursement of which are used to substantially
concurrently repay, redeem, refund, refinance, discharge or otherwise retire
for value, in whole or in part (collectively, "repay"), or constituting an
amendment, modification or supplement to, or a deferral or renewal of
(collectively, an "amendment"), any Indebtedness of such person existing on the
Issue Date or Indebtedness (other than Permitted Indebtedness, except Permitted
Indebtedness incurred pursuant to clauses (c), (d), (h), (j) and (m) of the
definition thereof) incurred in accordance with this Indenture (a) in a
principal amount (or, if such Refinancing Indebtedness provides for an amount
less than the principal amount thereof to be due and payable upon the
acceleration thereof, with an original issue price) not in excess of (without
duplication) (i) the principal amount or the original issue price, as the case
may be, of the Indebtedness so refinanced (or, if such Refinancing Indebtedness
refinances Indebtedness under a revolving credit facility or other agreement
providing a commitment for subsequent borrowings, with a maximum commitment not
to exceed the maximum commitment under such revolving credit facility or other
agreement) plus (ii) unpaid accrued interest on such Indebtedness plus (iii)
premiums, penalties, fees and expenses actually incurred by such person in
connection with the repayment or amendment thereof and (b) with respect to
Refinancing Indebtedness that repays or constitutes an amendment to
Subordinated Indebtedness, such Refinancing Indebtedness (x) shall not have any
fixed mandatory redemption or sinking fund requirement in an amount greater
than or at a time prior to the amounts and times specified in such repaid or
amended Subordinated Indebtedness, except to the extent that any such
requirement applies on a date after the Maturity Date and (y) shall contain
subordination and default provisions no less favorable in any material respect
to Holders than those contained in such repaid or amended Subordinated
Indebtedness.
"Registrar" shall have the meaning provided in Section 2.3.
"Registration Rights Agreement" means the registration rights agreement
dated as of the Issue Date by and among Holdings, the Company and the
stockholders of Ralphs Supermarkets with respect to the Securities.
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"Related Business Investment" means (i) any Investment by a person in
any other person a majority of whose revenues are derived from the operation of
one or more retail grocery stores or supermarkets or any other line of business
engaged in by Holdings or any Subsidiary as of the Issue Date; (ii) any
Investment by such person in any cooperative or other supplier, including,
without limitation, any joint venture which is intended to supply any product
or service useful to the business of Holdings and any Subsidiary as it is
conducted as of the Issue Date and as such business may thereafter evolve or
change; and (iii) any capital expenditure or Investment (without regard to the
$5 million threshold in the definition thereof), in each case reasonably
related to the business of Holdings and any Subsidiary as it is conducted as of
the Issue Date and as such business may thereafter evolve or change.
"Representative" means the indenture trustee or other trustee, agent or
representative for any Senior Indebtedness.
"Restricted Debt Prepayment" means the purchase, redemption, acquisition
or retirement for value by Holdings, prior to the scheduled maturity or prior
to any scheduled repayment of principal or any sinking fund payment in respect
of any Subordinated Indebtedness.
"Restricted Payment" means any (i) Stock Payment or (ii) Investment
(other than a Permitted Investment) or (iii) Restricted Debt Prepayment.
"RGC" means Ralphs Grocery Company, a Delaware corporation, until a
successor replaces it and thereafter means such successor.
"SEC" means the Securities and Exchange Commission.
"Secondary Securities" has the meaning set forth in Section 2.2.
"Securities" means the 13% Senior Subordinated Pay-in-Kind
Debentures due 2007 of Holdings, including any Secondary Securities issued in
respect thereof, as amended or supplemented from time to time in accordance
with the terms hereof, that are issued pursuant to this Indenture.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Senior Discount Notes" means the 15.25% Senior Discount Notes due 2004
of Food 4 Less Holdings, Inc., issued pursuant to an indenture dated as of
December 15, 1992, as the same may be modified or amended from time to time and
refinancings thereof, to the extent such refinancing indebtedness is permitted
to be incurred under this Indenture.
"Senior Discount Note Indenture" means the indenture pursuant to which
the Senior Discount Notes were issued, as amended or supplemented from time to
time in accordance with the terms thereof.
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"Senior Indebtedness" means the principal of, premium, if any, and
interest on (such Senior Indebtedness being deemed to include for all purposes
of Article XI of this Indenture the amount required to fully secure in cash
undrawn Letter of Credit Obligations under the Credit Agreement and such
interest on Senior Indebtedness being deemed to include for all purposes of
Article XI interest accruing after the filing of a petition initiating any
proceeding pursuant to any Bankruptcy Law in accordance with and at the rate
(including any rate applicable upon any default, to the extent lawful)
specified in any document evidencing the Senior Indebtedness, whether or not
the claim for such interest is allowed as a claim after such filing in any
proceeding under such Bankruptcy Law) any Indebtedness of Holdings (and, in the
case of the Credit Agreement, all obligations of Holdings for fees, expenses,
indemnities and other amounts payable thereunder or in connection therewith),
whether outstanding on the Issue Date or thereafter created, incurred, assumed
or guaranteed or in effect guaranteed by Holdings (including, without
limitation, Indebtedness under the Credit Agreement), unless, in the case of
any particular Indebtedness, the instrument creating or evidencing such
Indebtedness expressly provides that such Indebtedness shall not be senior in
right of payment to the Securities. Without limiting the generality of the
foregoing, "Senior Indebtedness" shall include the principal of, premium, if
any, and interest on all obligations of every nature of Holdings from time to
time owed or guaranteed by Holdings with respect to the Credit Agreement and
the Senior Discount Notes. Notwithstanding the foregoing, "Senior
Indebtedness" shall not include (i) any Pari Passu Indebtedness or any
Subordinated Indebtedness, (ii) any Indebtedness constituting Disqualified
Capital Stock, (iii) Indebtedness of Holdings to any Subsidiary, (iv) that
portion of any Indebtedness which is incurred in violation of Section 4.12 of
this Indenture, (v) Indebtedness to, or guaranteed on behalf of, any
shareholder, director, officer or employee of Holdings or of any Subsidiary
(including, without limitation, amounts owed for compensation), (vi)
Indebtedness to trade creditors and other amounts incurred in connection with
obtaining goods, materials or services, and (vii) any liability for federal,
state, local or other taxes owed or owing by Holdings.
"Significant Stockholder" means, with respect to any person, any other
person who is the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of more than 10% of any class of equity securities of such person
that are entitled to vote on a regular basis for the election of directors of
such person.
"Significant Subsidiary" means each Subsidiary that is either (a) a
"significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X under the
Securities Act and the Exchange Act (as such regulation is in effect on the
date hereof) or (b) material to the financial condition or results of
operations of Holdings and its Subsidiaries taken as a whole.
"Stock Payment" means, with respect to any person, (a) the declaration
or payment by such person, either in cash or in property, of any dividend on
(except, in the case of Holdings, dividends payable solely in Qualified Capital
Stock of Holdings), or the making by such person or any of its subsidiaries of
any other distribution in respect of, such person's Qualified Capital Stock or
any warrants, rights or options to purchase or acquire shares of any class of
such Capital Stock (other than exchangeable or convertible Indebtedness of such
person), or (b) the redemption, repurchase, retirement or other acquisition for
value by such person or any of its subsidiaries, directly or indirectly, of
such person's Qualified Capital Stock (and, in
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the case of a Subsidiary, Qualified Capital Stock of Holdings) or any warrants,
rights or options to purchase or acquire shares of any class of such Capital
Stock (other than exchangeable or convertible Indebtedness of such person),
other than, in the case of Holdings, through the issuance in exchange therefor
solely of Qualified Capital Stock of Holdings; provided, however, that in the
case of a Subsidiary, the term "Stock Payment" shall not include any such
payment with respect to its Capital Stock or warrants, rights or options to
purchase or acquire shares of any class of its Capital Stock that are owned
solely by Holdings or a wholly-owned Subsidiary.
"Subordinated Indebtedness" means Indebtedness of Holdings that is
subordinated in right of payment to the Securities.
"subsidiary" of any person means (i) a corporation a majority of whose
Capital Stock with voting power, under ordinary circumstances, to elect
directors is, at the date of determination, directly or indirectly, owned by
such person, by one or more subsidiaries of such person or by such person and
one or more subsidiaries of such person or (ii) a partnership in which such
person or a subsidiary of such person is, at the date of determination, a
general partner of such partnership, but only if such person or its subsidiary
is entitled to receive more than 50% of the assets of such partnership upon its
dissolution, or (iii) any other person (other than a corporation or a
partnership) in which such person, a subsidiary of such person or such person
and one or more subsidiaries of such person, directly or indirectly, at the
date of determination, has (x) at least a majority ownership interest or (y)
the power to elect or direct the election of a majority of the directors or
other governing body of such person.
"Subsidiary" means any subsidiary of Holdings.
"The Yucaipa Companies" means The Yucaipa Companies, a California
general partnership.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Sections
77aaa-77bbbb), as amended, as in effect on the date on which this Indenture is
qualified under the TIA, except as otherwise provided in Section 9.3.
"Transaction Date" shall have the meaning provided in the definition of
"Operating Coverage Ratio" contained in this Section 1.1.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Trust Officer" means any officer of the Trustee assigned by the Trustee
to administer its corporate trust matters.
"U.S. Government Obligations" shall have the meaning provided in Section
8.4.
"U.S. Legal Tender" means such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts.
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"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the sum
of the products obtained by multiplying (x) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (y) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
principal amount of such Indebtedness.
"wholly-owned Subsidiary" means any Subsidiary all of the shares of
Capital Stock of which (other than permitted Preferred Stock and directors'
qualifying shares) are at the time directly or indirectly owned by Holdings.
"Yearly Period" means each fiscal year of Holdings; provided that the
first Yearly Period shall begin on the Issue Date and shall end on January 28,
1996.
Section 1.2. Incorporation by Reference of TIA.
Whenever this Indenture refers to a provision of the TIA, such provision
is incorporated by reference in, and made a part of, this Indenture. The
following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means Holdings or any other
obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them therein.
Section 1.3. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
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(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the plural
include the singular;
(5) provisions apply to successive events and transactions; and
(6) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or other
subdivision.
ARTICLE II
THE SECURITIES
Section 2.1. Form and Dating.
The Securities and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A. The Securities may have notations,
legends or endorsements required by law, stock exchange rule or usage or as
required by the Registration Rights Agreement. Holdings and the Trustee shall
approve the form of the Securities and any notation, legend or endorsement on
them. Each Security shall be dated the date of its authentication.
The terms and provisions contained in the Securities shall constitute,
and are hereby expressly made, a part of this Indenture and, to the extent
applicable, Holdings and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound
thereby.
Section 2.2. Execution and Authentication.
An Officer or an Assistant Secretary, shall sign (either of whom shall,
in each case, have been duly authorized by all requisite corporate actions) the
Securities for Holdings by manual or facsimile signature.
If an Officer whose signature is on a Security was an Officer at the
time of such execution but no longer holds that office at the time the Trustee
authenticates the Security, the Security shall be valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee shall authenticate Securities, excluding Secondary
Securities, for original issue in the aggregate principal amount of up to
$150,000,000 upon a written order of Holdings in the form of an Officers'
Certificate. The Officers' Certificate shall specify the amount of Securities
to be authenticated and the date on which the Securities are to be
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authenticated. The aggregate principal amount of Securities outstanding at any
time may not exceed $150,000,000, except for any Securities that may be issued
pursuant to the immediately following paragraph and except as provided in
Section 2.7 and 2.8. Upon the written order of Holdings in the form of an
Officers' Certificate, the Trustee shall authenticate Securities in
substitution of Securities originally issued to reflect any name change of
Holdings.
Holdings may, on each Interest Payment Date prior to (and including)
[the Interest Payment Date five years after the Issue Date], at its option and
in its sole discretion, pay interest in additional Securities ("Secondary
Securities") in lieu of the payment in whole or in part of interest in cash on
the Securities as provided in paragraph 1 of the Securities. Holdings shall
give written notice to the Trustee of the amount of interest to be paid in
Secondary Securities not less than five Business Days prior to the relevant
Interest Payment Date, and the Trustee or an authenticating agent (upon written
order of Holdings signed by an Officer of Holdings given not less than five nor
more than 45 days prior to such Interest Payment Date) shall authenticate for
original issue (pro rata to each Holder of any Securities of such record date)
Secondary Securities in an aggregate principal amount equal to the amount of
cash interest not paid on such Interest Payment Date. Except as set forth in
the following paragraph each issuance of Secondary Securities in lieu of the
payment of interest in cash on the Securities shall be made pro rata with
respect to the outstanding Securities, and Holdings shall have the right to
aggregate amounts of interest payable in the form of Secondary Securities to a
Holder of outstanding Securities and issue to such Holder a single Secondary
Security in payment thereof. Any Secondary Securities may be denominated a
separate series if Holdings deems it necessary to do so in order to comply with
any law or other applicable regulation or requirement, with appropriate
distinguishing designations.
The Securities shall be issuable only in registered form without coupons
in denominations of $1,000 and any integral multiple thereof except that
Secondary Securities or Securities issued upon registration of transfer of such
Secondary Securities may be in denominations of other than $1,000; provided
that Holdings may at its option pay cash in lieu of issuing Secondary
Securities in any denominations of less than $1,000.
The Trustee may appoint an authenticating agent reasonably acceptable to
Holdings to authenticate Securities. Unless otherwise provided in the
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with Holdings and Affiliates of Holdings.
Section 2.3. Registrar and Paying Agent.
Holdings shall maintain an office or agency in the Borough of Manhattan,
The City of New York, where (a) Securities may be presented or surrendered for
registration of transfer or for exchange ("Registrar"), (b) Securities may be
presented or surrendered for payment ("Paying Agent") and (c) notices and
demands to or upon Holdings in respect of the Securities and this Indenture may
be served. Holdings may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for
any
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or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve Holdings of its obligation to maintain an office or agency in the
Borough of Manhattan, The City of New York, for such purposes. Holdings may
act as its own Registrar or Paying Agent except that for the purposes of
Articles Three and Eight and Sections 4.4 and 4.14, neither Holdings nor any
Subsidiary shall act as Paying Agent. The Registrar shall keep a register of
the Securities and of their transfer and exchange. Holdings, upon notice to
the Trustee, may have one or more co-Registrars and one or more additional
paying agents reasonably acceptable to the Trustee. The term "Paying Agent"
includes any additional paying agent. Holdings initially appoints the Trustee
as Registrar and Paying Agent until such time as the Trustee has resigned or a
successor has been appointed.
Holdings shall enter into an appropriate agency agreement with any Agent
not a party to this Indenture, which agreement shall implement the provisions
of this Indenture that relate to such Agent. Holdings shall notify the
Trustee, in advance, of the name and address of any such Agent. If Holdings
fails to maintain a Registrar or Paying Agent, the Trustee shall act as such.
Section 2.4. Paying Agent To Hold Assets in Trust.
Holdings shall require each Paying Agent other than the Trustee to agree
in writing that each Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all assets and/or Secondary Securities held by the
Paying Agent for the payment of principal of, or interest on, the Securities
(whether such assets have been distributed to it by Holdings or any other
obligor on the Securities), and shall notify the Trustee of any Default by
Holdings (or any other obligor on the Securities) in making any such payment.
If Holdings or a Subsidiary acts as Paying Agent, it shall segregate such
assets and/or Secondary Securities and hold them as a separate trust fund.
Holdings at any time may require a Paying Agent to distribute all assets and/or
Secondary Securities held by it to the Trustee and account for any assets
disbursed and the Trustee may at any time during the continuance of any payment
Default, upon written request to a Paying Agent, require such Paying Agent to
distribute all assets and/or Secondary Securities held by it to the Trustee and
to account for any assets so distributed. Upon distribution to the Trustee of
all assets that shall have been delivered by Holdings to the Paying Agent, the
Paying Agent shall have no further liability for such assets and/or Secondary
Securities.
Section 2.5. Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, Holdings shall furnish to the
Trustee on or before each Interest Payment Date and at such other times as the
Trustee may request in writing a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Holders, which
list may be conclusively relied upon by the Trustee.
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Section 2.6. Transfer and Exchange.
When a Security is presented to the Registrar or a co-registrar with a
request to register a transfer, the Registrar shall register the transfer as
requested if the requirements of the Registrar are met. The Registrar need not
transfer or exchange any Securities selected for redemption. Also, it need not
transfer or exchange any Securities for a period of 30 days before a selection
of Securities to be redeemed. When Securities are presented to the Registrar
or a co-registrar with a request to exchange them for an equal principal amount
of Securities of other authorized denominations, the Registrar shall make the
exchange as requested if the requirements of the Registrar are met. Holdings
shall cooperate with the Registrar in meeting its requirements. To permit
transfers, registration and exchanges, the Trustee shall authenticate
Securities at the Registrar's request. No service charge shall be made for any
transfer, registration or exchange, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith, but not for any exchange pursuant to Section 2.10, 3.6 or
9.5.
Section 2.7. Replacement Securities.
If a mutilated Security is surrendered to the Trustee or if the Holder
of a Security claims that the Security has been lost, destroyed or wrongfully
taken, Holdings shall issue and the Trustee shall authenticate a replacement
Security if the Trustee's requirements are met. If required by the Trustee or
Holdings, such Holder must provide an indemnity bond or other indemnity,
sufficient in the judgment of both Holdings and the Trustee, to protect
Holdings, the Trustee or any Agent from any loss which any of them may suffer
if a Security is replaced. Holdings may charge such Holder for its reasonable,
out-of-pocket expenses in replacing a Security, including reasonable fees and
expenses of counsel. Every replacement Security shall constitute an additional
obligation of Holdings.
Section 2.8. Outstanding Securities.
Securities outstanding at any time are all the Securities that have been
authenticated by the Trustee, including the Secondary Securities, except those
cancelled by it, those delivered to it for cancellation and those described in
this Section as not outstanding. A Security does not cease to be outstanding
because Holdings or any of its Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.7 (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be
outstanding upon surrender of such Security and replacement thereof pursuant to
Section 2.7.
If on a Redemption Date or the Maturity Date the Paying Agent (other
than Holdings or any Subsidiary) holds U.S. Legal Tender or U.S. Government
Obligations sufficient to pay all of the principal and interest due on the
Securities payable on that date, then on and after that date such Securities
cease to be outstanding and interest on them ceases to accrue.
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Section 2.9. Treasury Securities.
In determining whether the Holders of the required aggregate principal
amount of Securities have concurred in any direction, waiver or consent,
Securities owned by Holdings or any of its Affiliates shall be disregarded,
except that, for the purposes of determining whether the Trustee shall be
protected in relying on any such direction, waiver or consent, only Securities
that the Trustee knows or has reason to know are so owned shall be disregarded.
Notwithstanding the foregoing and except as otherwise provided by the TIA, a
majority of Securities not owned by Holdings or any of its Affiliates shall be
sufficient to approve any such direction, waiver or consent.
Section 2.10. Temporary Securities.
Until definitive Securities are ready for delivery, Holdings may prepare
and the Trustee shall authenticate temporary Securities. Temporary Securities
shall be substantially in the form of definitive Securities but may have
variations that Holdings considers appropriate for temporary Securities.
Without unreasonable delay, Holdings shall prepare and the Trustee shall
authenticate definitive Securities in exchange for temporary Securities.
Section 2.11. Cancellation.
Holdings at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent
(other than Holdings or any Subsidiary), and no one else, shall cancel and, at
the written direction of Holdings, shall dispose of all Securities surrendered
for transfer, exchange, payment or cancellation. Subject to Section 2.7,
Holdings may not issue new Securities to replace Securities that it has paid or
delivered to the Trustee for cancellation. If Holdings or any Subsidiary shall
acquire any of the Securities, such acquisition shall not operate as a
redemption or satisfaction of the Indebtedness represented by such Securities
unless and until the same are surrendered to the Trustee for cancellation
pursuant to this Section 2.11.
Section 2.12. Defaulted Interest.
If Holdings defaults in a payment of interest on the Securities, it
shall, unless the Trustee fixes another record date pursuant to Section 6.10,
pay the defaulted interest, plus (to the extent lawful) any interest payable on
the defaulted interest, to the persons who are Holders on a subsequent special
record date, which date shall be the fifteenth day next preceding the date
fixed by Holdings for the payment of defaulted interest or the next succeeding
Business Day if such date is not a Business Day. At least 15 days before the
subsequent special record date, Holdings shall mail to each Holder, with a copy
to the Trustee, a notice that states the subsequent special record date, the
payment date and the amount of defaulted interest, and interest payable on such
defaulted interest, if any, to be paid.
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Section 2.13. CUSIP Number.
Holdings in issuing the Securities may use a "CUSIP" number, and if so,
the Trustee shall use the CUSIP number in notices of redemption or exchange as
a convenience to Holders; provided that any such notice may state that no
representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Securities, and that reliance may be placed
only on the other identification numbers printed on the Securities.
ARTICLE III
REDEMPTION
Section 3.1. Notices to Trustee.
If Holdings elects to redeem Securities pursuant to Paragraph 5 of the
Securities it shall notify the Trustee of the Redemption Date and aggregate
principal amount of the Securities to be redeemed and whether it wants the
Trustee to give notice of redemption to the Holders (at Holdings' expense) at
least 30 days (unless a shorter notice shall be satisfactory to the Trustee)
but not more than 60 days before the Redemption Date. Any notice given
pursuant to this Section 3.1 may be cancelled at any time prior to notice of
such redemption being mailed to any Holder and shall thereby be void and of no
effect.
Section 3.2. Selection of Securities To Be Redeemed.
If fewer than all of the Securities are to be redeemed, the Trustee
shall select the Securities to be redeemed pro rata, by lot or by such other
method as the Trustee considers to be fair and appropriate and in such manner
as complies with applicable legal and stock exchange requirements, if any.
Securities in denominations of less than $1,000 shall be redeemed first.
Thereafter the Trustee shall make the selection from the Securities outstanding
and not previously called for redemption and shall promptly notify Holdings in
writing of the Securities selected for redemption and, in the case of any
Security selected for partial redemption, the aggregate principal amount
thereof to be redeemed. Securities in denominations of $1,000 or less may be
redeemed only in whole. The Trustee may select for redemption portions (equal
to $1,000 or any integral multiple thereof) of the principal of Securities that
have denominations larger than $1,000. Provisions of this Indenture that apply
to Securities called for redemption also apply to portions of Securities called
for redemption.
Section 3.3. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption Date,
Holdings shall mail a notice of redemption by first class mail to each Holder
whose Securities are to be redeemed at such Holder's registered address, with a
copy to the Trustee. At Holdings' request,
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the Trustee shall give the notice of redemption in Holdings' name and at
Holdings' expense. Each notice for redemption shall identify the Securities to
be redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price;
(5) that, unless Holdings defaults in making the redemption payment,
interest on Securities called for redemption ceases to accrue on and after
the Redemption Date, and the only remaining right of the Holders of such
Securities is to receive payment of the Redemption Price upon surrender to
the Paying Agent of the Securities redeemed;
(6) if any Security is being redeemed in part, the portion of the
aggregate principal amount of such Security to be redeemed and that, after
the Redemption Date, and upon surrender of such Security, a new Security or
Securities in aggregate principal amount equal to the unredeemed portion
thereof will be issued; and
(7) if fewer than all the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof to be
redeemed), as well as the aggregate principal amount of Securities to be
redeemed and the aggregate principal amount of Securities to be outstanding
after such partial redemption.
Section 3.4. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.3,
Securities called for redemption become due and payable on the Redemption Date
and at the Redemption Price. Upon surrender to the Trustee or Paying Agent,
such Securities called for redemption shall be paid at the Redemption Price.
Section 3.5. Deposit of Redemption Price.
On or before the Redemption Date, Holdings shall deposit with the Paying
Agent U.S. Legal Tender sufficient to pay the Redemption Price of all
Securities to be redeemed on that date (other than Securities or portions
thereof called for redemption on that date which have been delivered by
Holdings to the Trustee for cancellation). The Paying Agent shall promptly
return to Holdings any U.S. Legal Tender so deposited which is not required for
that purpose upon the written request of Holdings, except with respect to
monies owed as obligations to the Trustee pursuant to Article Seven.
If Holdings complies with the preceding paragraph, then, unless
Holdings defaults in the payment of such Redemption Price, interest on the
Securities to be redeemed will cease
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to accrue on and after the applicable Redemption Date, whether or not such
Securities are presented for payment.
If a Security is redeemed on or after a Record Date but on or prior to
the related Interest Payment Date, then any accrued and unpaid interest shall
be paid to the Person in whose name such Security was registered at the close
of business on such Record Date. If any Security called for redemption shall
not be so paid upon surrender for redemption because of the failure of Holdings
to comply with the first paragraph of this Section 3.5, interest shall be paid
on the unpaid principal, from the redemption date until such principal is paid,
and, to the extent lawful, on any interest not paid on such unpaid principal,
in each case at the rate provided in the Securities and in Section 4.1 hereof.
Section 3.6. Securities Redeemed in Part.
Upon surrender of a Security that is to be redeemed in part, the Trustee
shall authenticate for the Holder a new Security or Securities equal in
principal amount to the unredeemed portion of the Security surrendered.
ARTICLE IV
COVENANTS
Section 4.1. Payment of Securities.
Holdings shall pay the principal amount of, premium, if any, and
interest on, as the case may be, the Securities on the dates and in the manner
provided in the Securities. An installment shall be considered paid on the
date it is due if the Trustee or Paying Agent (other than Holdings or a
Subsidiary) holds on that date U.S. Legal Tender and/or, to the extent
permitted by Section 2.2, Secondary Securities designated for and sufficient to
pay the installment.
Holdings shall pay interest on overdue principal (including
post-petition interest in any proceeding under any Bankruptcy Law, to the
extent allowable as a claim in any such proceeding) at the same rate borne by
the Securities and it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law, to the extent allowable as a claim in
any such proceeding) on overdue installments of interest (without regard to any
applicable grace period) at the same rate borne by the Securities, to the
extent lawful.
Section 4.2. Maintenance of Office or Agency.
Holdings shall maintain in the Borough of Manhattan, The City of New
York, the office or agency required under Section 2.3. Holdings shall give
prior notice to the Trustee of the location, and any change in the location, of
such office or agency. If at any time Holdings shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the address of the Trustee set forth in Section 13.2.
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Section 4.3. Limitation on Restricted Payments.
Holdings shall not, and shall cause each of its Subsidiaries not to,
directly or indirectly, make any Restricted Payment if, at the time of such
Restricted Payment, or after giving effect thereto, (a) a Default or an Event
of Default shall have occurred and be continuing, (b) Holdings or such
Subsidiary could not incur at least $1 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to Section 4.12, or (c) the aggregate amount
expended for all Restricted Payments, including such Restricted Payment (the
amount of any Restricted Payment, if other than cash, to be the fair market
value thereof at the date of payment, as determined in good faith by the Board
of Directors of Holdings, which determination shall be evidenced by a Board
Resolution), subsequent to the Issue Date, shall exceed the sum of (i) 50% of
the aggregate Consolidated Net Income (or if such Consolidated Net Income is a
loss, minus 100% of such loss) of Holdings earned subsequent to the Issue Date
and on or prior to the date the Restricted Payment occurs (the "Reference
Date") plus (ii) 100% of the aggregate Net Proceeds received by Holdings from
any person (other than a Subsidiary) from the issuance and sale (including upon
exchange or conversion for other securities of Holdings) subsequent to the
Issue Date and on or prior to the Reference Date of Qualified Capital Stock
(excluding (A) Qualified Capital Stock paid as a dividend on any Capital Stock
or as interest on any Indebtedness and (B) any Net Proceeds from issuances and
sales financed directly or indirectly using funds borrowed from Holdings or any
Subsidiary, until and to the extent such borrowing is repaid) plus (iii) 100%
of the aggregate net cash proceeds received by Holdings as capital
contributions to Holdings after the Issue Date, plus (iv) $25,000,000.
Notwithstanding the foregoing, if no Default or Event of Default shall
have occurred and be continuing as a consequence thereof, the provisions set
forth in the immediately preceding paragraph will not prevent (1) the payment
of any dividend within 60 days after the date of its declaration if the
dividend would have been permitted on the date of declaration, (2) the
acquisition of any shares of Capital Stock of Holdings or the repurchase,
redemption, or other repayment of any Subordinated Indebtedness in exchange for
or solely out of the proceeds of the substantially concurrent sale (other than
to a Subsidiary) of shares of Qualified Capital Stock of Holdings, (3) the
repurchase, redemption or other repayment of any Subordinated Indebtedness in
exchange for or solely out of the proceeds of the substantially concurrent sale
(other than to a Subsidiary) of Subordinated Indebtedness of Holdings with an
Average Life equal to or greater than the then remaining Average Life of the
Subordinated Indebtedness repurchased, redeemed or repaid, and (4) Permitted
Payments; provided that (x) the declaration of each dividend paid in accordance
with clause (1) above, each acquisition, repurchase, redemption or other
repayment made in accordance with, or of the type set forth in, clause (2)
above, and each payment described in clause (ii) of the definition of
"Permitted Payments" shall each be counted for purposes of computing amounts
expended pursuant to subclause (c) in the immediately preceding paragraph, and
(y) no amounts paid pursuant to clause (3) above or clause (i) of the
definition of "Permitted Payments" shall be so counted.
Prior to making any Restricted Payment under the first paragraph of this
Section 4.3, Holdings shall deliver to the Trustee an Officers' Certificate
setting forth the computation by which the amount available for Restricted
Payments pursuant to such paragraph was determined. The Trustee shall have no
duty or responsibility to determine the accuracy or
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correctness of this computation and shall be fully protected in relying on such
Officers' Certificate.
Section 4.4. Corporate Existence.
Except as otherwise permitted by Article Five, Holdings shall do or
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence and the corporate or other existence of each of
its Significant Subsidiaries in accordance with the respective organizational
documents of each such Significant Subsidiary and the rights (charter and
statutory) and franchises of Holdings and each such Significant Subsidiary;
provided, however, that Holdings shall not be required to preserve, with
respect to itself, any right or franchise, and with respect to any of its
Significant Subsidiaries, any such existence, right or franchise, if the Board
of Directors of Holdings or such Significant Subsidiary, as the case may be,
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of Holdings or any such Significant Subsidiary.
Section 4.5. Payment of Taxes and Other Claims.
Holdings shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (i) all taxes, assessments and
governmental charges (including withholding taxes and any penalties, interest
and additions to taxes) levied or imposed upon it or any of its Subsidiaries or
properties of it or any of its Subsidiaries and (ii) all lawful claims for
labor, materials and supplies that, if unpaid, might by law become a Lien upon
the property of it or any of its Subsidiaries; provided, however, that Holdings
shall not be required to pay or discharge or cause to be paid or discharged any
such tax, assessment, charge or claim if either (a) the amount, applicability
or validity thereof is being contested in good faith by appropriate proceedings
and an adequate reserve has been established therefor to the extent required by
GAAP or (b) the failure to make such payment or effect such discharge (together
with all other such failures) would not have a material adverse effect on the
financial condition or results or operations of Holdings and its Subsidiaries
taken as a whole.
Section 4.6. Maintenance of Properties and Insurance.
(a) Holdings shall cause all properties used or useful to the conduct
of its business or the business of any Subsidiaries to be maintained and kept
in good condition, repair and working order and supplied with all necessary
equipment and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in its judgment may
be necessary, so that the business carried on in connection therewith may be
properly and advantageously conducted at all times unless the failure to so
maintain such properties (together with all other such failures) would not have
a material adverse effect on the financial condition or results of operations
of Holdings and its Subsidiaries taken as a whole; provided, however, that
nothing in this Section 4.6 shall prevent Holdings or any Subsidiary from
discontinuing the operation or maintenance of any of such properties, or
disposing of any of them, if such discontinuance or disposal is either (i) in
the ordinary course of business, (ii) in the good faith judgment of the Board
of Directors of Holdings or the Subsidiary concerned, or of the senior officers
of Holdings or such Subsidiary, as the case may be, desirable in the
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conduct of the business of Holdings or such Subsidiary, as the case may be, or
(iii) is otherwise permitted by this Indenture.
(b) Holdings shall provide or cause to be provided, for itself and
each of its Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds that, in the reasonable, good faith opinion
of Holdings, are adequate and appropriate for the conduct of the business of
Holdings and such Subsidiaries in a prudent manner, with reputable insurers or
with the government of the United States of America or an agency or
instrumentality thereof, in such amounts, with such deductibles, and by such
methods as shall be either (i) consistent with past practices of Holdings or
the applicable Subsidiary or (ii) customary, in the reasonable, good faith
opinion of Holdings, for corporations similarly situated in the industry,
unless the failure to provide such insurance (together with all other such
failures) would not have a material adverse effect on the financial condition
or results of operations of Holdings and its Subsidiaries, taken as a whole.
Section 4.7. Compliance Certificate; Notice of Default.
(a) Holdings shall deliver to the Trustee within 120 days after the
end of Holdings' fiscal year an Officers' Certificate stating that a review of
its activities and the activities of its Subsidiaries during the preceding
fiscal year has been made under the supervision of the signing Officers with a
view to determining whether it has kept, observed, performed and fulfilled its
obligations under this Indenture and further stating, as to each such Officer
signing such certificate, that to the best of his knowledge Holdings during
such preceding fiscal year has kept, observed, performed and fulfilled each and
every such covenant and no Default or Event of Default occurred during such
year or, if such signers do know of such a Default or Event of Default, the
certificate shall describe the Default or Event of Default and its status with
particularity. The Officers' Certificate shall also notify the Trustee should
Holdings elect to change the manner in which it fixes its fiscal year end.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, Holdings shall deliver
to the Trustee within 120 days after the end of each fiscal year a written
statement by Holdings' independent certified public accountants stating (A)
that their audit examination has included a review of the terms of this
Indenture and the Securities as they relate to accounting matters, and (B)
whether, in connection with their audit examination, any Default has come to
their attention and if such a Default has come to their attention, specifying
the nature and period of existence thereof.
(c) Holdings shall, so long as the Securities are outstanding,
deliver to the Trustee, within five Business Days after any officer becomes
aware of any Default or Event of Default, an Officer's Certificate specifying
such Default or Event of Default and what action Holdings is taking or proposes
to take with respect thereto.
Section 4.8. Compliance with Laws.
Holdings shall comply, and shall cause each of its Subsidiaries to
comply, with all applicable statutes, rules, regulations, orders and
restrictions of the United States of America,
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all states and municipalities thereof, and of any governmental department,
commission, board, regulatory authority, bureau, agency and instrumentality of
the foregoing, in respect of the conduct of their respective businesses and the
ownership of their respective properties, except such as are being contested in
good faith and by appropriate proceedings and except for such noncompliances as
would not in the aggregate have a material adverse effect on the financial
condition or results of operations of Holdings and its Subsidiaries taken as a
whole.
Section 4.9. SEC Reports and Other Information.
(a) To the extent permitted by applicable law or regulation, whether
or not Holdings is subject to the requirements of Section 13 or 15(d) of the
Exchange Act, Holdings shall file with the SEC all quarterly and annual reports
and such other information, documents or other reports (or copies of such
portions of any of the foregoing as the SEC may by rules and regulations
prescribe) required to be filed pursuant to such provisions of the Exchange
Act. Holdings shall file with the Trustee, within 5 days after it files the
same with the SEC, copies of the quarterly and annual reports and the
information, documents, and other reports (or copies of such portions of any of
the foregoing as the SEC may by rules and regulations prescribe) that it is
required to file with the SEC pursuant to this Section 4.9. Holdings shall
also comply with the other provisions of TIA Section 314(a). If Holdings is
not permitted by applicable law or regulations to file the aforementioned
reports, Holdings (at its own expense) shall file with the Trustee and mail, or
cause the Trustee to mail, to Holders at their addresses appearing in the
register of Securities maintained by the Registrar at the time of such mailing
within 5 days after it would have been required to file such information with
the SEC, all information and financial statements, including any notes thereto
and with respect to annual reports, an auditors' report by an accounting firm
of established national reputation, and a "Management's Discussion and Analysis
of Financial Condition and Results of Operations," comparable to the disclosure
that Holdings would have been required to include in annual and quarterly
reports, information, documents or other reports, including, without
limitation, reports on Forms 10-K, 10-Q and 8-K, if Holdings was subject to the
requirements of such Section 13 or 15(d) of the Exchange Act.
(b) At any time when Holdings is not permitted by applicable law or
regulations to file the aforementioned reports, upon the request of a Holder of
Securities, Holdings will promptly furnish or cause to be furnished such
information as is specified pursuant to Rule 144A(d)(4) under the Securities
Act (or any successor provision thereto) to such Holder or to a prospective
purchaser of such Securities designated by such Holder, as the case may be, in
order to permit compliance by such Holder with Rule 144A under the Securities
Act.
Section 4.10. Waiver of Stay, Extension or Usury Laws.
Holdings covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law or any usury law or
other law that would prohibit or forgive Holdings from paying all or any
portion of the principal of or interest on the Securities as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this Indenture; and (to the extent
that it may lawfully do so) Holdings hereby expressly waives all benefit or
advantage of any such law, and covenants that
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it will not hinder, delay or impede the execution of any power herein granted
to the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
Section 4.11. Limitation on Transactions with Affiliates.
(a) Neither Holdings nor any of its Subsidiaries shall (i) sell,
lease, transfer or otherwise dispose of any of its properties or assets, or
issue securities (other than equity securities which do not constitute
Disqualified Capital Stock) to, (ii) purchase any property, assets or
securities from, (iii) make any Investment in, or (iv) enter into or suffer to
exist any contract or agreement with or for the benefit of, an Affiliate or
Significant Stockholder (or any Affiliate of such Significant Stockholder) of
Holdings or any Subsidiary (an "Affiliate Transaction"), other than (x)
Affiliate Transactions permitted under Section 4.11(b) and (y) Affiliate
Transactions in the ordinary course of business, that are fair to Holdings or
such Subsidiary, as the case may be, and on terms at least as favorable as
might reasonably have been obtainable at such time from an unaffiliated party;
provided, that (A) with respect to Affiliate Transactions involving aggregate
payments in excess of $1 million and less than $5 million, Holdings or such
Subsidiary, as the case may be, shall have delivered an Officers' Certificate
to the Trustee certifying that such transaction or series of transactions
complies with clause (y) above (other than the requirement set forth in such
clause (y) that such Affiliate Transaction be in the ordinary course of
business), (B) with respect to Affiliate Transactions involving aggregate
payments in excess of $5 million and less than $15 million, Holdings or such
Subsidiary, as the case may be, shall have delivered an Officers' Certificate
to the Trustee certifying that such Affiliate Transaction complies with clause
(y) above (other than the requirement set forth in such clause (y) that such
Affiliate Transaction be in the ordinary course of business) and that such
Affiliate Transaction has received the approval of a majority of the
disinterested members of the Board of Directors of Holdings or the Subsidiary,
as the case may be, or, in the absence of any such approval by the
disinterested members of the Board of Directors of Holdings or the Subsidiary,
as the case may be, that an Independent Financial Advisor has reasonably and in
good faith determined that the financial terms of such Affiliate Transaction
are fair to Holdings or such Subsidiary, as the case may be, or that the terms
of such Affiliate Transaction are at least as favorable as might reasonably
have been obtained at such time from an unaffiliated party and that such
Independent Financial Advisor has provided written confirmation of such
determination to the Board of Directors and (C) with respect to Affiliates
Transactions involving aggregate payments in excess of $15 million, Holdings or
such Subsidiary, as the case may be, shall have delivered to the Trustee, a
written opinion from an Independent Financial Advisor to the effect that the
financial terms of such Affiliate Transaction are fair to Holdings or such
Subsidiary, as the case may be, or that the terms of such Affiliate Transaction
are at least as favorable as those that might reasonably have been obtained at
the time from an unaffiliated party.
(b) The provisions of Section 4.11(a) shall not apply to (i) any
Permitted Payment, (ii) any Restricted Payment that is made in compliance with
the provisions of Section 4.3, (iii) reasonable and customary fees and
compensation paid to, and indemnity provided on behalf of, officers, directors,
employees or consultants of Holdings or any Subsidiary, as determined by the
Board of Directors of Holdings or any Subsidiary or the senior management
thereof in good faith, (iv) transactions exclusively between or among Holdings
and any of its
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wholly-owned Subsidiaries or exclusively between or among such wholly-owned
Subsidiaries, provided such transactions are not otherwise prohibited by this
Indenture, (v) any agreement as in effect as of the Issue Date or any amendment
thereto or any transaction contemplated thereby (including pursuant to any
amendment thereto) so long as any such amendment is not disadvantageous to the
Holders in any material respect, (vi) the existence of, or the performance by
Holdings or any of its Subsidiaries of its obligations under the terms of, any
stockholder agreement (including any registration rights agreement or purchase
agreement related thereto) to which it is a party as of the Issue Date and any
similar agreements which it may enter into thereafter; provided, however, that
the existence of, or the performance by Holdings or any of its Subsidiaries of
obligations under any future amendment to, any such existing agreement or under
any similar agreement entered into after the Issue Date shall only be permitted
by this clause (vi) to the extent that the terms of any such amendment or new
agreement are not otherwise disadvantageous to the Holders in any material
respect, (vii) transactions permitted by, and complying with, the provisions of
Section 5.1, and (viii) purchases or sales of goods or services or other
transactions with suppliers, in each case, in the ordinary course of business
(including, without limitation, pursuant to joint venture agreements) and
otherwise in compliance with the terms of this Indenture which are fair to
Holdings or any Subsidiary, in the reasonable determination of the Board of
Directors, or are on terms at least as favorable as might reasonably have been
obtained at such time from an unaffiliated party.
Section 4.12. Limitation on Incurrences of Additional Indebtedness.1/
Holdings will not, and will not permit any Subsidiary, directly or
indirectly, to incur, assume, guarantee, become liable, contingently or
otherwise, with respect to, or otherwise become responsible for the payment of
(collectively "incur") any Indebtedness other than Permitted Indebtedness;
provided, however, that if no Default with respect to payment of principal of,
or interest on, the Securities or Event of Default shall have occurred and be
continuing at the time or as a consequence of the incurrence of such
Indebtedness, (i) Holdings may incur Indebtedness if immediately before and
immediately after giving effect to the incurrence of such Indebtedness the
Operating Coverage Ratio of Holdings would be greater than 2.0 to 1.0 and (ii)
the Company or any subsidiary of the Company may incur Indebtedness if
immediately before and immediately after giving effect to the incurrence of
such Indebtedness the Operating Coverage Ratio of the Company would be greater
than 2.0 to 1.0.
Section 4.13. Limitation on Liens.
Holdings will not create, incur, assume or suffer to exist any Lien of
any kind securing any Pari Passu Indebtedness, any Subordinated Indebtedness or
any Affiliate Obligation upon any property or assets of Holdings owned on the
Issue Date or acquired after the Issue Date, or any income or profits
therefrom, unless the Securities are secured equally and ratably with (or prior
to in the case of Subordinated Indebtedness) to the obligation or liability
secured by such Lien, and except for any Lien securing Acquired Indebtedness
created prior to the
____________________
1. This Section 4.12 will conform to the covenant in the new
public securities, as appropriately modified to be applicable to
Holdings and its subsidiaries.
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incurrence of such Indebtedness by Holdings, provided that any such Lien only
extends to the assets that were subject to such Lien securing such Acquired
Indebtedness prior to the related acquisition by Holdings.
Section 4.14. Limitation on Change of Control.
(a) Upon the occurrence of a Change of Control (the "Change of
Control Date"), each Holder shall have the right to require the repurchase of
such Holder's Securities pursuant to the offer described in paragraph (b),
below (the "Change of Control Offer"), at a purchase price equal to 101% of the
aggregate principal amount thereof plus accrued interest, if any, to the date
of purchase. Prior to the mailing of the notice to Holders provided for in
paragraph (b) below, but in any event within 30 days following the Change of
Control Date, Holdings shall cause the Company to either (a) repay in full and
terminate all commitments under Indebtedness under the Credit Agreement to the
extent the terms thereof require repayment upon a Change of Control (or offer
to repay in full and terminate all commitments under all such Indebtedness
under the Credit Agreement and repay the Indebtedness owed to each lender which
has accepted such offer), or (b) obtain the requisite consents under the Credit
Agreement, the terms of which require repayment upon a Change of Control, to
permit the repurchase of the Securities as provided for in this Section 4.14.
Holdings shall first comply with the covenant in the immediately preceding
sentence before Holdings shall be required to repurchase Securities pursuant to
this Section 4.14, and any failure to so comply shall constitute an Event of
Default under this Indenture. Within 10 days after any Change of Control Date
requiring Holdings to make a Change of Control Offer pursuant to this Section
4.14, Holdings shall so notify the Trustee.
(b) The Change of Control Offer shall be made to all Holders and the
notice to the Holders shall contain all instructions and materials necessary to
enable such Holders to tender Securities pursuant to the Change of Control
Offer. Within 30 days following any Change of Control Date, Holdings shall
send, by first class mail, a notice to each Holder, with copies to the Trustee,
which notice shall govern the terms of the Change of Control Offer. Such
notice shall state:
(1) that the Change of Control Offer is being made pursuant to this
Section 4.14 and that all Securities tendered will be accepted for payment;
(2) the purchase price (including the amount of accrued interest) and
the purchase date (which shall be no earlier than 30 days nor later than 40
days from the date such notice is mailed, other than as may be required by
law) (the "Change of Control Payment Date");
(3) that any Security not tendered will continue to accrue interest
if interest is then accruing;
(4) that, unless Holdings defaults in making payment therefor, any
Security accepted for payment pursuant to the Change of Control Offer shall
cease to accrue interest after the Change of Control Payment Date;
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(5) that Holders electing to have a Security purchased pursuant to a
Change of Control Offer will be required to surrender the Security, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Security completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the Business Day prior to the Change
of Control Payment Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than two Business Days prior to the Change
of Control Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the aggregate principal amount of the
Securities the Holder delivered for purchase and a statement that such Holder
is withdrawing his election to have such Security purchased;
(7) that Holders whose Securities are being purchased only in part
will be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered; provided that each Holder shall tender
Securities, and each Security purchased and each such new Security issued by
Holdings shall be, in a principal amount of $1,000 or integral multiples
thereof (except for Secondary Securities that were issued in denominations
other than $1,000); and
(8) the circumstances and relevant facts regarding such Change of
Control, including information available to Holdings concerning the Person or
Persons acquiring control and such historical or pro forma financial
information as Holdings reasonably deems appropriate under the circumstances.
(c) On or before the Change of Control Payment Date, Holdings shall
(i) accept for payment Securities or portions thereof tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent U.S. Legal Tender
sufficient to pay the purchase price of all Securities so tendered and (iii)
deliver to the Trustee Securities so accepted together with an Officers'
Certificate stating the Securities or portions thereof being purchased by
Holdings. The Paying Agent shall promptly mail to the Holders of Securities so
accepted payment in an amount equal to the purchase price; provided that each
such new Security shall be in the principal amount of $1,000 or integral
multiples thereof. Holdings will publicly announce the results of the Change
of Control Offer on or as soon as practicable after the Change of Control
Payment Date. For purposes of this Section 4.14, the Trustee shall act as the
Paying Agent.
(d) Holdings, to the extent applicable and if required by law, will
comply with Rule 14e-1 under the Exchange Act and any other applicable
provisions of the federal securities laws in connection with a Change of
Control Offer.
Section 4.15. Limitation on Asset Sales.
(a) Neither Holdings nor any of its Subsidiaries will consummate an
Asset Sale, unless (a) Holdings or the applicable Subsidiary receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold; and (b) upon consummation of an Asset Sale, Holdings
or the applicable Subsidiary will, within 365 days of the receipt of the
proceeds therefrom, either: (i) apply or cause its Subsidiary to apply the Net
Cash Proceeds
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of any Asset Sale to (1) a Related Business Investment (2) an investment in
properties and assets that replace the properties and assets that are the
subject of such Asset Sale, or (3) an investment in properties and assets that
will be used in the business of Holdings and its Subsidiaries existing on the
Issue Date or in a business reasonably related thereto; (ii) apply or cause to
be applied such Net Cash Proceeds to the repayment of Senior Indebtedness or
Pari Passu Indebtedness of Holdings or any Indebtedness of any Subsidiary;
(iii) use such Net Cash Proceeds to secure Letter of Credit Obligations to the
extent the related letters of credit have not been drawn upon or returned
undrawn; or (iv) after such time as the accumulated Net Cash Proceeds equals or
exceeds $20 million, apply or cause to be applied such Net Cash Proceeds to the
purchase of Notes tendered to Holdings for purchase at a price equal to 100% of
the aggregate principal amount thereof, plus accrued interest to the date of
purchase pursuant to an offer to purchase made by Holdings as set forth below
(a "Net Proceeds Offer"), provided, however, that if at any time any noncash
consideration received by Holdings or any Subsidiary in connection with any
Asset Sale is converted into or sold or otherwise disposed of for cash, then
such cash shall constitute Net Cash Proceeds for purposes of this Section 4.15
and shall be applied in accordance with clause (b) above within 365 days of the
receipt of such cash; and provided further, however, that if at any time any
security deposits or other amounts used to secure Letter of Credit Obligations
pursuant to clause b(iii) above are returned to Holdings or any Subsidiary,
then such security deposits or other amounts shall constitute Net Cash Proceeds
for purposes of this Section 4.15 and shall be applied in accordance with
clause (b) above within 365 days of the receipt of such security deposits or
other amounts. A Net Proceeds Offer as a result of an Asset Sale made by the
Company or one of its subsidiaries shall not be required to be in excess of the
Net Cash Proceeds of such Asset Sale less the Net Cash Proceeds actually
applied in accordance with clauses (b)(i), (ii) or (iii) above; provided,
however, that Holdings shall have the right to exclude from the foregoing
provisions Asset Sales subsequent to the Issue Date, (x) the proceeds of which
are derived from the sale and substantially concurrent lease-back of a
supermarket and/or related assets which are acquired or constructed by Holdings
or a Subsidiary subsequent to the Issue Date, provided that such sale and
substantially concurrent lease-back occurs within 180 days following such
acquisition or the completion of such construction, as the case may be, and (y)
the proceeds of which in the aggregate do not exceed $20 million.
(b) Notice of a Net Proceeds Offer pursuant to this Section 4.15
shall be mailed, by first class mail, by Holdings not less than 305 days nor
more than 335 days after the relevant Asset Sale to all Holders at their last
registered addresses, with a copy to the Trustee. The notice shall contain all
instructions and materials necessary to enable such Holders to tender
Securities pursuant to the Net Proceeds Offer and shall state the following
terms:
(1) that the Net Proceeds Offer is being made pursuant to Section
4.15 and that all Securities tendered will be accepted for payment; provided,
however, that if the aggregate principal amount of Securities tendered in a
Net Proceeds Offer plus accrued interest at the expiration of such offer
exceeds the aggregate amount of the Net Proceeds Offer, Holdings shall select
the Securities to be purchased on a pro rata basis (with such adjustments as
may be deemed appropriate by Holdings so that only Securities in
denominations of $1,000 or multiples thereof shall be purchased, except for
Secondary Securities that were issued in denominations other than $1,000);
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(2) the purchase price (including the amount of accrued interest) and
the purchase date (which shall be no earlier than 30 days nor later than 40
days from the date such notice is mailed, other than as may be required by
law) (the "Proceeds Purchase Date");
(3) that any Security not tendered will continue to accrue interest
if interest is then accruing;
(4) that, unless Holdings defaults in making payment therefor, any
Security accepted for payment pursuant to the Net Proceeds Offer shall cease
to accrue interest after the Proceeds Purchase Date;
(5) that Holders electing to have a Security purchased pursuant to a
Net Proceeds Offer will be required to surrender the Security, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Security
completed, to the Paying Agent at the address specified in the notice prior
to the close of business on the Business Day prior to the Proceeds Purchase
Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than two Business Days prior to the Proceeds
Purchase Date, a telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the Securities the
Holder delivered for purchase and a statement that such Holder is withdrawing
his election to have such Security purchased; and
(7) that Holders whose Securities were purchased only in part will be
issued new Securities equal in principal amount to the unpurchased portion of
the Securities surrendered.
On or before the Proceeds Purchase Date, Holdings shall (i) accept for
payment Securities or portions thereof tendered pursuant to the Net Proceeds
Offer which are to be purchased in accordance with item (b)(l) above, (ii)
deposit with the Paying Agent U.S. Legal Tender sufficient to pay the purchase
price of all Securities to be purchased and (iii) deliver to the Trustee
Securities so accepted together with an Officers' Certificate stating the
Securities or portions thereof being purchased by Holdings. The Paying Agent
shall promptly mail to the Holders of Securities so accepted payment in an
amount equal to the purchase price. Holdings will publicly announce the
results of the Net Proceeds Offer on or as soon as practicable after the
Proceeds Purchase Date. For purposes of this Section 4.15, the Trustee shall
act as the Paying Agent.
(c) Holdings will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to
the extent such laws and regulations are applicable in connection with the
repurchase of Securities pursuant to a Net Proceeds Offer.
Any amounts remaining after the purchase of Securities pursuant to a Net
Proceeds Offer shall be returned by the Trustee to Holdings.
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Section 4.16. Limitation on Senior Subordinated Indebtedness.
Holdings will not incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to any Senior Indebtedness and senior in right of payment to the
Securities.
Section 4.17. Limitation on Preferred Stock of Subsidiaries.
Holdings will not permit any of its Subsidiaries to issue any Preferred Stock
(other than to Holdings or a wholly-owned Subsidiary), or permit any person
(other than Holdings or a wholly-owned Subsidiary) to own or hold an interest
in any Preferred Stock of any such Subsidiary, unless such Subsidiary would be
entitled to incur Indebtedness in accordance with the provisions of Section
4.12 in the aggregate principal amount equal to the aggregate liquidation value
of such Preferred Stock.
Section 4.18. Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries.
Holdings shall not, and shall not permit any Subsidiary to, directly or
indirectly, create or suffer to exist, or allow to become effective any
consensual Payment Restriction with respect to any of its Subsidiaries, except
for (a) any such restrictions contained in (i) the Credit Agreement as in
effect on the Issue Date, as any such Payment Restriction may apply to any
present or future Subsidiary, (ii) the Senior Discount Note Indenture, the New
F4L Senior Note Indenture, the New F4L Subordinated Note Indenture, the New
Note Indenture and any other agreement in effect at or entered into on the
Issue Date, (iii) Indebtedness of a person existing at the time such person
becomes a Subsidiary (provided that (x) such Indebtedness is not incurred in
connection with, or in contemplation of, such person becoming a Subsidiary, (y)
such restriction is not applicable to any person, or the properties or assets
of any person, other than the person so acquired and (z) such Indebtedness is
otherwise permitted to be incurred pursuant to Section 4.12), (iv) secured
Indebtedness otherwise permitted to be incurred pursuant to Sections 4.12 and
4.13 that limit the right of the debtor to dispose of the assets securing such
Indebtedness; (b) customary non-assignment provisions restricting subletting or
assignment of any lease or other agreement entered into by a Subsidiary; (c)
customary net worth provisions contained in leases and other agreements entered
into by a Subsidiary in the ordinary course of business; (d) customary
restrictions with respect to a Subsidiary pursuant to an agreement that has
been entered into for the sale or disposition of all or substantially all of
the Capital Stock or assets of such Subsidiary; (e) customary provisions in
joint venture agreements and other similar agreements; (f) restrictions
contained in Indebtedness incurred to refinance, refund, extend or renew
Indebtedness referred to in clause (a) above; provided that the restrictions
contained therein are not materially more restrictive taken as a whole, than
those provided for in such Indebtedness being refinanced, refunded, extended or
renewed, and (g) Payment Restrictions contained in any other Indebtedness
permitted to be incurred subsequent to the Issue Date pursuant to the
provisions of Section 4.12; provided that any such Payment Restrictions are
ordinary and customary with respect to the type of Indebtedness being incurred
(under the relevant circumstances) and, in any event, no more restrictive than
the most restrictive Payment Restrictions in effect of the Issue Date.
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ARTICLE V
SUCCESSOR CORPORATION
Section 5.1. When Holdings May Merge, Etc.
(a) Holdings, in a single transaction or through a series of related
transactions, shall not (i) consolidate with or merge with or into any other
person, or transfer (by lease, assignment, sale or otherwise) all or
substantially all of its properties and assets as an entirety or substantially
as an entirety to another person or group of affiliated persons or (ii) adopt a
Plan of Liquidation, unless, in either case:
(1) either Holdings shall be the continuing person, or the person (if
other than Holdings) formed by such consolidation or into which Holdings is
merged or to which all or substantially all of the properties and assets of
Holdings as an entirety or substantially as an entirety are transferred (or,
in the case of a Plan of Liquidation, any person to which assets are
transferred) (Holdings or such other person being hereinafter referred to as
the "Surviving Person") shall be a corporation organized and validly existing
under the laws of the United States, any state thereof or the District of
Columbia, and shall expressly assume, by an indenture supplement, all the
obligations of Holdings under the Securities and this Indenture;
(2) immediately after and giving effect to such transaction and the
assumption contemplated by clause (1) above and the incurrence or anticipated
incurrence of any Indebtedness to be incurred in connection therewith, (A)
the Surviving Person shall have a Consolidated Net Worth equal to or greater
than the Consolidated Net Worth of Holdings immediately preceding the
transaction and (B) the Surviving Person could incur at least $1 of
Indebtedness other than Permitted Indebtedness pursuant to Section 4.12; and
(3) immediately before and immediately after and giving effect to
such transaction and the assumption of the obligations as set forth in clause
(1) above and the incurrence or anticipated incurrence of any Indebtedness to
be incurred in connection therewith, no Default or Event of Default shall
have occurred and be continuing.
(b) For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties and assets of one
or more Subsidiaries, the Capital Stock of which constitutes all or
substantially all of the properties and assets of Holdings shall be deemed to
be the transfer of all or substantially all of the properties and assets of
Holdings.
Section 5.2. Successor Corporation Substituted.
Upon any consolidation or merger or any transfer of all or substantially
all of the assets of Holdings or any adoption of a Plan of Liquidation by
Holdings in accordance with Section 5.1, the surviving person formed by such
consolidation or into which Holdings is
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merged or to which such transfer is made, (or, in the case of a Plan of
Liquidation, to which assets are transferred) shall succeed to, and be
substituted for, and may exercise every right and power of, Holdings under this
Indenture with the same effect as if such surviving person had been named as
Holdings herein; provided, however, that solely for purposes of computing
amounts described in subclause (c) of Section 4.3, any such surviving person
shall only be deemed to have succeeded to and be substituted for Holdings with
respect to periods subsequent to the effective time of such merger,
consolidation or transfer of assets. When a successor corporation assumes all
of the obligations of Holdings hereunder and under the Securities and agrees to
be bound hereby and thereby, the predecessor shall be released from such
obligations.
ARTICLE VI
DEFAULT AND REMEDIES
Section 6.1. Events of Default.
An "Event of Default" occurs if:
(1) Holdings defaults in the payment of interest on the Securities
when the same becomes due and payable and the default continues for a period
of 30 days;
(2) Holdings defaults in the payment of the principal of the
Securities when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise (including the failure to repurchase
Securities tendered pursuant to the requirements set forth in Sections 4.14
and 4.15), whether or not such payment shall be prohibited by the provisions
of Article Eleven hereof;
(3) Holdings fails to comply with any of its other agreements or
covenants in, or provisions of, the Securities or this Indenture and the
default continues for the period and after the notice specified below;
(4) there shall be a default under any bond, debenture, or other
evidence of Indebtedness of Holdings or of any Significant Subsidiary or
under any mortgage, indenture or other instrument under which there may be
issued or by which there may be secured or evidenced any such Indebtedness,
whether such Indebtedness now exists or shall hereafter be created, if both
(A) such default either (i) results from the failure to pay such Indebtedness
at its stated final maturity (that is, the date of the last principal
installment of any installment Indebtedness under the instrument or agreement
pursuant to or under which such Indebtedness was created or is evidenced) or
(ii) relates to an obligation (including any obligation to pay interest, to
purchase such Indebtedness or to pay the principal of such Indebtedness,
other than the obligation to pay any principal of such Indebtedness at its
stated final maturity) and results in the holder or holders of such
Indebtedness causing such Indebtedness to become due prior to its stated
final maturity) and (B) the principal amount of such Indebtedness, together
with the principal amount of any other such Indebtedness the maturity of
which has been so accelerated, aggregates $25 million or more at any one
time;
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(5) Holdings or any Significant Subsidiary (A) commences a voluntary
case or proceeding under any Bankruptcy Law with respect to itself, (B)
consents to the entry of a judgment, decree or order for relief against it in
an involuntary case or proceeding under any Bankruptcy Law, (C) consents to
the appointment of a Custodian of it or for substantially all of its
property, (D) consents to or acquiesces in the institution of a bankruptcy or
an insolvency proceeding against it, (E) makes a general assignment for the
benefit of its creditors, or (F) takes any corporate action to authorize or
effect any of the foregoing;
(6) a court of competent jurisdiction enters a judgment, decree or
order for relief in respect of Holdings or any Significant Subsidiary in an
involuntary case or proceeding under any Bankruptcy Law, which shall (A)
approve as properly filed a petition seeking reorganization, arrangement,
adjustment or composition in respect of Holdings or any Significant
Subsidiary, (B) appoint a Custodian of Holdings or any Significant Subsidiary
or for substantially all of its property or (C) order the winding-up or
liquidation of its affairs; and such judgment, decree or order shall remain
unstayed and in effect for a period of 60 consecutive days;
(7) the lenders under the Credit Agreement shall commence judicial
proceedings to foreclose upon any material portion of the assets of Holdings
and its Subsidiaries; or
(8) any final judgments or order for payment of money in excess of
$25 million shall be rendered against Holdings or any Significant Subsidiary
by a court of competent jurisdiction and shall remain undischarged for a
period of 60 days after such judgment becomes final and nonappealable.
A Default under clause (3) above (other than in the case of any Defaults
resulting from any Default under Section 4.3, 4.14 or 5.1, which Defaults shall
be Events of Default with the notice specified in this paragraph but without
the passage of time specified in this paragraph) is not an Event of Default
until the Trustee notifies Holdings, or the Holders of at least 25% in
aggregate principal amount of the outstanding Securities notify Holdings and
the Trustee, of the Default, and Holdings does not cure the Default within 30
days after receipt of the notice. The notice must specify the Default, demand
that it be remedied and state that the notice is a "Notice of Default." Such
notice shall be given by the Trustee if so requested by the Holders of at least
25% in aggregate principal amount of the Securities then outstanding. When a
Default is cured, it ceases.
Section 6.2. Acceleration.
(a) If an Event of Default (other than an Event of Default specified
in Section 6.1(5) or (6) with respect to Holdings or any Significant
Subsidiary) occurs and is continuing, the Trustee may, by notice to Holdings
(and, if any Indebtedness is outstanding under the Credit Agreement or the
Credit Agreement is otherwise in effect, to the Credit Agent), or the Holders
of at least 25% in aggregate principal amount of the Securities then
outstanding may, by written notice to Holdings and the Trustee, and the Trustee
shall (with
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notice to the Credit Agent if any Indebtedness is outstanding under the Credit
Agreement or the Credit Agreement is otherwise in effect), upon the request of
such Holders, declare the aggregate principal amount of the Securities
outstanding, together with accrued but unpaid interest thereon to the date of
payment, to be due and payable and, upon any such declaration, the same shall
become and be due and payable; provided, that so long as the Credit Agreement
shall be in force and effect, if any such Event of Default shall have occurred
and be continuing, any such acceleration shall not be effective until the
earlier of (a) five Business Days following a notice of acceleration given to
Holdings and the Credit Agent under the Credit Agreement and only if upon such
fifth Business Day such Event of Default shall be continuing or (b) the
acceleration of any Indebtedness under the Credit Agreement. If an Event of
Default specified in Section 6.1(5) or (6) occurs with respect to Holdings or
any Significant Subsidiary, all unpaid principal and accrued interest on the
Securities then outstanding shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder. Upon payment of such principal amount, interest, and premium, if any,
all of Holdings' obligations under the Securities and this Indenture, other
than obligations under Section 7.7, shall terminate. The Holders of a majority
in aggregate principal amount of the Securities then outstanding by notice to
the Trustee may rescind an acceleration and its consequences if (i) all
existing Events of Default, other than the non-payment of the principal and
interest on the Securities which have become due solely by such declaration of
acceleration, have been cured or waived, (ii) to the extent the payment of such
interest is lawful, interest on overdue installments of interest and overdue
principal, which has become due otherwise than by such declaration of
acceleration, has been paid, and (iii) the rescission would not conflict with
any judgment or decree of a court of competent jurisdiction.
(b) In the event of a declaration of acceleration under this
Indenture because an Event of Default set forth in Section 6.1(4) has occurred
and is continuing, such declaration of acceleration shall be automatically
rescinded and annulled if either (i) the holders of the Indebtedness which is
the subject of such Event of Default have waived such failure to pay at
maturity or have rescinded the acceleration in respect of such Indebtedness
within 90 days of such maturity or declaration of acceleration, as the case may
be, and no other Event of Default has occurred during such 90-day period which
has not been cured or waived, or (ii) such Indebtedness shall have been
discharged or the maturity thereof shall have been extended such that it is not
then due and payable, or the underlying default has been cured (and any
acceleration based thereon of such other Indebtedness has been rescinded),
within 90 days of such maturity or declaration of acceleration, as the case may
be.
Section 6.3. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy by proceeding at law or in equity to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder in exercising any right or remedy
accruing upon an Event of Default shall
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not impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default. No remedy is exclusive of any other remedy. All available
remedies are cumulative to the extent permitted by law.
Section 6.4. Waiver of Past Defaults.
Subject to Sections 6.7 and 9.2, the Holders of at least a majority in
aggregate principal amount of the outstanding Securities by notice to the
Trustee may waive an existing Default or Event of Default and its consequences,
except a Default in the payment of principal of or interest on any Security as
specified in clauses (1) and (2) of Section 6.1. When a Default or Event of
Default is waived, it is cured and ceases.
Section 6.5. Control by Majority.
The Holders of at least a majority in aggregate principal amount of the
outstanding Securities may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on it. Subject to Section 7.1, however, the Trustee may refuse
to follow any direction that conflicts with any law or this Indenture that the
Trustee determines may be unduly prejudicial to the rights of another Holder,
or that may involve the Trustee in personal liability; provided that the
Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction.
Section 6.6. Limitation on Suits.
A Holder may not pursue any remedy with respect to this Indenture or the
Securities unless:
(1) the Holder gives to the Trustee notice of a continuing Event of
Default;
(2) the Holder or Holders of at least 25% in aggregate principal
amount of the outstanding Securities make a written request to the Trustee to
pursue the remedy;
(3) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense to be
incurred in compliance with such request;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(5) during such 60-day period the Holder or Holders of at least 25%
in aggregate principal amount of the outstanding Securities do not give the
Trustee a direction which, in the opinion of the Trustee, is inconsistent
with the request.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over such other Holder.
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Section 6.7. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder to receive payment of principal of and interest on a Security, on or
after the respective due dates expressed in such Security, or to bring suit for
the enforcement of any such payment on or after such respective dates, shall
not be impaired or affected without the consent of the Holder.
Section 6.8. Collection Suit by Trustee.
If an Event of Default in payment of principal or interest specified in
clause (1) or (2) of Section 6.1 occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against
Holdings or any other obligor on the Securities for the whole amount of
principal and accrued interest remaining unpaid, together with interest on
overdue principal and, to the extent that payment of such interest is lawful,
interest on overdue installments of interest, in each case at the rate per
annum borne by the Securities and such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
Section 6.9. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel) and the Holders allowed in
any judicial proceedings relating to Holdings or any other obligor upon the
Securities, any of their respective creditors or any of their respective
property and shall be entitled and empowered to collect and receive any monies
or other property payable or deliverable on any such claims and to distribute
the same, and any Custodian in any such judicial proceedings is hereby
authorized by each Holder to make such payments to the Trustee and, in the
event that the Trustee shall consent to the making of such payments directly to
the Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.7. Nothing
herein contained shall be deemed to authorize the Trustee to authorize or
consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article Six, it shall
pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.7;
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Second: if the Holders are forced to proceed against Holdings directly
without the Trustee, to the Holders for their collection costs;
Third: to the Holders for amounts due and unpaid on the Securities for
principal and interest, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Securities for principal and
interest, respectively; and
Fourth: to Holdings.
The Trustee, upon prior notice to Holdings, may fix a record date and
payment date for any payment to the Holders pursuant to this Section 6.10.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.7, or a suit by a Holder or Holders of more than 10% in
aggregate principal amount of the outstanding Securities.
ARTICLE VII
TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this Indenture
and covenants and agrees to perform the same, as herein expressed.
Section 7.1. Duties of Trustee.
(a) If a Default or an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture and use the same degree of care and skill in its exercise
thereof as a prudent person could exercise or use under the circumstances in
the conduct of his own affairs.
(b) Except during the continuance of a Default or an Event of
Default:
(1) The Trustee need perform only those duties as are specifically
set forth in this Indenture and no covenants or obligations shall be implied
in this Indenture that are adverse to the Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements
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of this Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of this
Section 7.1.
(2) The Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction received
by it pursuant to Section 6.5.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.1.
(f) The Trustee shall not be liable for interest on any assets
received by it except as the Trustee may agree with Holdings. Assets held in
trust by the Trustee need not be segregated from other assets except to the
extent required by law.
Section 7.2. Rights of Trustee.
Subject to Section 7.1:
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper person. The Trustee need
not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may consult
with counsel and may require an Officers' Certificate or an Opinion of
Counsel, which shall conform to Sections 13.4 and 13.5. The Trustee shall
not be liable for any action it takes or omits to take in good faith in
reliance on such certificate or opinion.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed
with due care.
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(d) The Trustee shall not be liable for any action that it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers.
(e) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, notice, request, direction, consent, order, bond,
debenture, or other paper or document, but the Trustee, in its discretion,
may make such further inquiry or investigation into such facts or matters as
it may see fit.
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders pursuant to the provisions of this Indenture,
unless such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby.
Section 7.3. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner
or pledgee of Securities and may otherwise deal with Holdings, its
Subsidiaries, or their respective Affiliates with the same rights it would have
if it were not Trustee. Any Agent may do the same with like rights. However,
the Trustee must comply with Sections 7.10 and 7.11.
Section 7.4. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for Holdings' use
of the proceeds from the Securities, and it shall not be responsible for any
statement in the Securities other than the Trustee's certificate of
authentication.
Section 7.5. Notice of Default.
If a Default or an Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to each Holder notice of the
uncured Default or Event of Default within 90 days after such Default or Event
of Default occurs. Except in the case of a Default or an Event of Default in
payment of principal of, premium, if any, or interest on, any Security,
including the failure to make payment on the Change of Control Payment Date
pursuant to a Change of Control Offer, the Trustee may withhold the notice if
and so long as its board of directors, the executive committee of its board of
directors or a committee of its directors and/or Trust Officers in good faith
determines that withholding the notice is in the interest of the Holders.
Section 7.6. Reports By Trustee to Holders.
Within 60 days after each May 15 beginning with the May 15 following the
date of this Indenture, the Trustee shall, to the extent that any of the events
described in TIA Section 313(a) occurred within the previous twelve months,
but not otherwise, mail to each Holder a brief
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report dated as of such May 15 that complies with TIA Section 313(a). The
Trustee also shall comply with TIA Sections 313(b) and 313(c).
A copy of each report at the time of its mailing to Holders shall be
mailed to Holdings and filed with the SEC and each stock exchange, if any, on
which the Securities are listed.
Holdings shall notify the Trustee if the Securities become listed on any
stock exchange.
Section 7.7. Compensation and Indemnity.
Holdings shall pay to the Trustee from time to time reasonable
compensation for its services. The Trustee's compensation shall not be limited
by any law on compensation of a trustee of an express trust. Holdings shall
reimburse the Trustee upon request for all reasonable disbursements, expenses
and advances incurred or made by it including, without limitation, any taxes
imposed on the trust or on the income from the Securities. Such expenses shall
include the reasonable compensation, disbursements and expenses of the
Trustee's agents and counsel.
Holdings shall indemnify the Trustee for, and hold it harmless against,
any loss or liability incurred by it except for such actions to the extent
caused by any negligence or bad faith on its part, arising out of or in
connection with the administration of this trust and its rights or duties
hereunder. The Trustee shall notify Holdings promptly of any claim asserted
against the Trustee for which it may seek indemnity. Holdings shall defend the
claim and the Trustee shall cooperate in the defense. The Trustee may have
separate counsel and Holdings shall pay the reasonable fees and expenses of
such counsel; provided that Holdings will not be required to pay such fees and
expenses if it assumes the Trustee's defense and there is no conflict of
interest between Holdings and the Trustee in connection with such defense as
reasonably determined by the Trustee. Holdings need not pay for any settlement
made without its written consent. Holdings need not reimburse any expense or
indemnify against any loss or liability to the extent incurred by the Trustee
through its negligence, bad faith or willful misconduct.
To secure Holdings' payment obligations in this Section 7.7, the Trustee
shall have a lien prior to the Securities on all assets held or collected by
the Trustee, in its capacity as Trustee, except assets held in trust to pay
principal of, premium, if any, or interest on particular Securities.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.1(5) or (6) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
Section 7.8. Replacement of Trustee.
The Trustee may resign by so notifying Holdings. The Holders of a
majority in aggregate principal amount of the outstanding Securities may remove
the Trustee by so notifying
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Holdings and the Trustee may appoint a successor Trustee with Holdings'
consent. Holdings may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, Holdings shall notify each Holder of such
event and shall promptly appoint a successor Trustee. Within one year after
the successor Trustee takes office, the Holders of a majority in aggregate
principal amount of the Securities may appoint a successor Trustee to replace
the successor Trustee appointed by Holdings.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to Holdings. Immediately after that,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, subject to the lien provided in Section 7.7, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Holder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, Holdings or the
Holders of at least 10% in aggregate principal amount of the outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section 7.8,
Holdings' obligations under Section 7.7 shall continue for the benefit of the
retiring Trustee.
Section 7.9. Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee.
Section 7.10. Eligibility; Disqualification.
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This Indenture shall always have a Trustee who satisfies the
requirements of TIA Sections 310(a)(1) and 310(a)(5). The Trustee
shall have a combined capital and surplus of at least $100,000,000 as set forth
in its most recent published annual report of condition. The Trustee shall
comply with TIA Section 310(b); provided, however, that there shall be
excluded from the operation of TIA Section 310(b)(1) any indenture or
indentures under which other securities, or certificates of interest or
participation in other securities, of Holdings are outstanding, if the
requirements for such exclusion set forth in TIA Section 310(b)(1) are met.
Section 7.11. Preferential Collection of Claims Against Holdings.
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated.
ARTICLE VIII
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.1. Option to Effect Legal Defeasance or Covenant Defeasance.
Holdings may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.2 or 8.3 hereof be applied to all outstanding Securities upon
compliance with the conditions set forth below in this Article Eight.
Section 8.2. Legal Defeasance.
Upon Holdings' exercise under Section 8.1 hereof of the option
applicable to this Section 8.2, Holdings shall, subject to the satisfaction of
the conditions set forth in Section 8.4 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Securities on
the date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that Holdings shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Securities, which shall thereafter be deemed to be "outstanding"
only for the purposes of Section 8.5 hereof and the other Sections of this
Indenture referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Securities and this Indenture (and the Trustee, on
demand of and at the expense of Holdings, shall execute proper instruments
acknowledging the same), except for the following provisions which shall
survive until otherwise terminated or discharged hereunder: (a) the rights of
Holders of outstanding Securities to receive solely from the trust fund
described in Section 8.4 hereof, and as more fully set forth in such Section,
payments in respect of the principal, of, premium, if any, and interest on such
Securities when such payments are due, (b) Holdings' obligations with respect
to such Securities under Article Two and Section 4.2 hereof and the rights,
powers, trusts, duties and immunities of the Trustee and Holdings' obligations
in connection therewith, and (c) this Article Eight. Subject to compliance
with this Article Eight, Holdings may exercise its option under this Section
8.2 notwithstanding the prior exercise of its option under Section 8.3 hereof.
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Section 8.3. Covenant Defeasance.
Upon Holdings' exercise under Section 8.1 hereof of the option
applicable to this Section 8.3, Holdings shall, subject to the satisfaction of
the conditions set forth in Section 8.4 hereof, be released from its
obligations under the covenants contained in Sections 4.3 and 4.6 through 4.18
and Article V hereof with respect to the outstanding Securities on and after
the date the conditions set forth below are satisfied (hereinafter, "Covenant
Defeasance"), and the Securities shall thereafter be deemed not "outstanding"
for the purposes of any direction, waiver, consent or declaration or act of
Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "outstanding" for all other purposes
hereunder (it being understood that such Securities shall not be deemed
outstanding for accounting purposes). For this purpose, Covenant Defeasance
means that, with respect to the outstanding Securities, Holdings may omit to
comply with and shall have no liability in respect of any term, condition or
limitation set forth in any such covenant, whether directly or indirectly, by
reason of any reference elsewhere herein to any such covenant or by reason of
any reference in any such covenant to any other provision herein or in any
other document and such omission to comply shall not constitute a Default or an
Event of Default under Section 6.1 hereof, but, except as specified above, the
remainder of this Indenture and such Securities shall be unaffected thereby.
In addition, upon Holdings' exercise under Section 8.1 hereof of the option
applicable to this Section 8.3 hereof, subject to the satisfaction of the
conditions set forth in Section 8.4 hereof, Sections 6.1(3) (but only to the
extent it relates to a breach of any of the covenants contained in Sections 4.3
and 4.6 through 4.18 and Article V hereof), 6.1(4) and 6.1(7) hereof shall not
constitute Events of Default.
Section 8.4. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of either Section
8.2 or 8.3 hereof to the outstanding Securities:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) Holdings must irrevocably deposit with the Trustee,
in trust, for the benefit of the Holders of the Securities, cash in
United States dollars, or direct non-callable obligations of, or
non-callable obligations guaranteed by, the United States of America for
the payment of which obligation or guarantee the full faith and credit
of the United States of America is pledged ("U.S. Government
Obligations"), or a combination thereof, in such amounts and at such
times as will be sufficient, without consideration of the reinvestment
of such interest and after payment of all federal, state and local taxes
or other charges or assessments in respect thereof payable by the
Trustee, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and
interest on the outstanding Securities to redemption or maturity
provided that the Trustee shall have been irrevocably instructed to
apply such money or the proceeds of such U.S. Government Obligations to
said payments with respect to the Securities on the Maturity Date or
such redemption date, as the case may be;
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(b) in the case of an election under Section 8.2 hereof,
Holdings shall have delivered to the Trustee an Opinion of Counsel
stating that (A) Holdings has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the Issue Date,
there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such Opinion of
Counsel shall confirm that, the Holders of the outstanding Securities
will not recognize income, gain or loss for federal income tax purposes
as a result of such deposit and Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such deposit and Legal
Defeasance had not occurred;
(c) in the case of an election under Section 8.3 hereof,
Holdings shall have delivered to the Trustee an Opinion of Counsel
stating that the Holders of the outstanding Securities will not
recognize income, gain or loss for federal income tax purposes as a
result of such deposit and Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if deposit and such Covenant
Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred
and be continuing on the date of such deposit or insofar as Section
6.1(5) or 6.1(6) hereof is concerned, at any time in the period ending
on the 91st day after the date of deposit (it being understood that this
condition shall not be deemed satisfied until after such 91st day);
(e) such Legal Defeasance or Covenant Defeasance shall
not result in a breach or violation of, or constitute a default under,
this Indenture or any other material agreement or instrument to which
Holdings is a party or by which Holdings is bound (and in that
connection, the Trustee shall have received a certificate from the
administrative agent under the Credit Agreement to that effect with
respect to such Credit Agreement if then in effect);
(f) Holdings shall have delivered to the Trustee an
Opinion of Counsel to the effect that, assuming that no Default or Event
of Default shall occur and be continuing under Section 6.1(5) or 6.1(6)
during the period ending on the 91st day after the date of deposit, the
trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
(g) Holdings shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by Holdings
with the intent of preferring the Holders over the other creditors of
Holdings or with the intent of defeating, hindering, delaying or
defrauding creditors of Holdings, or others; and
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(h) Holdings shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or
the Covenant Defeasance have been complied with.
Section 8.5. Deposited Money and U.S. Government Obligations to be Held in
Trust; Other Miscellaneous Provisions.
Subject to Section 8.6 hereof, all money and U.S. Government Obligations
(including the proceeds thereof) deposited with the Trustee pursuant to Section
8.4 hereof in respect of the outstanding Securities shall be held in trust and
applied by the Trustee, in accordance with the provisions of such Securities
and this Indenture, to the payment, either directly or through any Paying Agent
(excluding Holdings or any Affiliate thereof) as the Trustee may determine, to
the Holders of such Securities of all sums due and to become due thereon in
respect of principal, premium, if any, and interest, but such money need not be
segregated from other funds except to the extent required by law.
Holdings shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or U.S. Government
Obligations deposited pursuant to Section 8.4 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding
Securities.
Anything in this Article Eight to the contrary notwithstanding, the
Trustee shall deliver or pay to Holdings from time to time upon the request of
Holdings any money or non-callable U.S. Government Obligations held by it as
provided in Section 8.4 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.4(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Covenant Defeasance.
Section 8.6. Repayment to Holdings.
Any money deposited with the Trustee or any Paying Agent in trust for
the payment of the principal of, premium, if any, or interest on any Security
and remaining unclaimed for two years after such principal, and premium, if
any, or interest has become due and payable shall be paid to Holdings on its
request or shall be discharged from such trust; and the Holder of such Security
shall thereafter, as a creditor, look only to Holdings for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money shall thereupon cease; provided, however, that the Trustee or such Paying
Agent, before being required to make any such repayment, shall at the expense
of Holdings cause to be published once, in The New York Times and The Wall
Street Journal (national edition), notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such notification or publication, any unclaimed balance of such
money then remaining will be repaid to Holdings.
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Section 8.7. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States
dollars or U.S. Government Obligations in accordance with Section 8.2 or 8.3
hereof, as the case may be, by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then Holdings' obligations under this Indenture and the Securities
shall be revived and reinstated as though no deposit had occurred pursuant to
Section 8.2 or 8.3 hereof until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 8.2 or 8.3 hereof,
as the case may be; provided, however, that, if Holdings makes any payment of
principal of, premium, if any, or interest on any Security following the
reinstatement of its obligations, Holdings shall be subrogated to the rights of
the Holders of such Securities to receive such payment from the money held by
the Trustee or Paying Agent.
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 9.1. Without Consent of Holders.
Holdings, when authorized by a Board Resolution, and the Trustee,
together, may amend or supplement this Indenture or the Securities without
notice to or consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency; provided that
such amendment or supplement does not adversely affect the rights of any
Holder;
(2) to comply with Article Five;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities; provided, however, that the uncertificated
Securities are issued in registered form for purposes of Section 163(f) of
the Internal Revenue Code of 1986, as from time to time amended, or in a
manner such that the uncertificated Securities are described in Section
163(f)(2)(B) of the Internal Revenue Code of 1986, as from time to time
amended;
(4) to make any other change that does not adversely affect the
rights of any Holders; or
(5) to comply with any requirements of the SEC in connection with the
qualification of this Indenture under the TIA;
provided that Holdings has delivered to the Trustee an Opinion of Counsel
stating that such amendment or supplement complies with the provisions of this
Section 9.1.
Section 9.2. With Consent of Holders.
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Subject to Section 6.7, Holdings, when authorized by a Board Resolution,
and the Trustee, together, with the written consent of the Holder or Holders of
at least fifty four percent in aggregate principal amount of the outstanding
Securities (or at least a majority in aggregate principal amount of the
outstanding Securities in the event that EJDC shall cease to beneficially own
at least a majority in aggregate principal amount of the outstanding
Securities), may amend or supplement this Indenture or the Securities, without
notice to any other Holders. Subject to Section 6.7, the Holder or Holders of
at least fifty four percent in aggregate principal amount of the outstanding
Securities (or at least a majority in aggregate principal amount of the
outstanding Securities in the event that EJDC shall cease to beneficially own
at least a majority in aggregate principal amount of the outstanding
Securities) may waive compliance by Holdings with any provision of this
Indenture or the Securities without notice to any other Holder. Without the
consent of each Holder affected, however, no amendment, supplement or waiver,
including a waiver pursuant to Section 6.4, may:
(1) change the principal amount of Securities whose Holders must
consent to an amendment, supplement or waiver of any provision of this
Indenture or the Securities;
(2) reduce the rate or extend the time for payment of interest on any
Security;
(3) reduce the principal amount of any Security;
(4) change the Maturity Date of any Security, or alter the redemption
provisions contained in paragraph 5 of the Securities in a manner adverse to
any Holder;
(5) make any changes in the provisions concerning waivers of Defaults
or Events of Default by Holders or the rights of Holders to recover the
principal of, interest on, or redemption payment with respect to, any
Security;
(6) make any changes in Section 6.4, 6.7 or this third sentence of
this Section 9.2; or
(7) make the principal of, or the interest on any Security payable
with anything or in any manner other than as provided for in this Indenture
and the Securities as in effect on the date hereof.
Without the consent of the Holder or Holders of at least 66 2/3% of the
aggregate principal amount of the outstanding Securities, no change may be made
to the provisions of Article Eleven that adversely affects the rights of any
Holder under Article Eleven.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, Holdings shall mail to the Holders affected thereby a notice briefly
describing the amendment,
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supplement or waiver. Any failure of Holdings to mail such notice, or any
defect therein, shall not, however, in any way impair or affect the validity of
any such supplemental indenture.
In connection with any amendment, supplement or waiver under this
Article Nine, Holdings may, but shall not be obligated to, offer to any Holder
who consents to such amendment, supplement or waiver, or to all Holders,
consideration for such Holder's consent to such amendment, supplement or
waiver.
Holdings agrees that no amendment, supplement or waiver under this
Article Nine may make any change that adversely affects the rights under
Article Eleven of any holders of Senior Indebtedness unless the holders of such
Senior Indebtedness consent to the change.
Section 9.3. Compliance with TIA.
Every amendment, waiver or supplement of this Indenture or the
Securities shall comply with the TIA as then in effect.
Section 9.4. Revocation and Effect of Consents.
Until an amendment, waiver or supplement becomes effective, a consent to
it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made
on any Security. However, any such Holder or subsequent Holder may revoke the
consent as to his Security or portion of his Security by notice to the Trustee
or Holdings received before the date on which the Trustee receives an Officers'
Certificate certifying that the Holders of the requisite principal amount of
Securities have consented (and not theretofore revoked such consent) to the
amendment, supplement or waiver.
Holdings may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be at least 30 days prior to the
first solicitation of such consent. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph, those
persons who were Holders at such record date (or their duly designated
proxies), and only those persons, shall be entitled to revoke any consent
previously given, whether or not such persons continue to be Holders after such
record date. No such consent shall be valid or effective for more than 90 days
after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder, unless it makes a change described in any of clauses (1)
through (7) of Section 9.2, in which case, the amendment, supplement or waiver
shall bind only each Holder of a Security who has consented to it and every
subsequent Holder of a Security or portion of a Security that evidences the
same debt as the consenting Holder's Security; provided that any such waiver
shall not impair or affect the right of any Holder to receive payment of
principal of and interest on a Security, on or after the respective due dates
expressed in such Security, or to bring suit for the enforcement of any such
payment on or after such respective dates without the consent of such Holder.
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Section 9.5. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the
Trustee. The Trustee may place an appropriate notation on the Security about
the changed terms and return it to the Holder. Alternatively, if Holdings or
the Trustee so determines, Holdings in exchange for the Security shall issue
and the Trustee shall authenticate a new Security that reflects the changed
terms.
Section 9.6. Trustee To Sign Amendments, Etc.
The Trustee shall execute any amendment, supplement or waiver authorized
pursuant to this Article Nine; provided that the Trustee may, but shall not be
obligated to, execute any such amendment, supplement or waiver which affects
the Trustee's own rights, duties or immunities under this Indenture. The
Trustee shall be entitled to receive, and shall be fully protected in relying
upon, an Opinion of Counsel stating that the execution of any amendment,
supplement or waiver authorized pursuant to this Article Nine is authorized or
permitted by this Indenture.
ARTICLE X
MEETINGS OF SECURITYHOLDERS
Section 10.1. Purposes for Which Meetings May Be Called.
A meeting of Holders may be called at any time and from time to time
pursuant to the provisions of this Article Ten for any of the following
purposes:
(a) to give any notice to Holdings or to the Trustee, or to give any
directions to the Trustee, or to waive or to consent to the waiving of any
Default or Event of Default hereunder and its consequences, or to take any
other action authorized to be taken by Holders pursuant to any of the
provisions of Article Six;
(b) to remove the Trustee or appoint a successor Trustee pursuant to
the provisions of Article Seven;
(c) to consent to an amendment, supplement or waiver pursuant to the
provisions of Section 9.2; or
(d) to take any other action (i) authorized to be taken by or on
behalf of the Holders of any specified aggregate principal amount of the
Securities under any other provision of this Indenture, or authorized or
permitted by law or (ii) which the Trustee deems necessary or appropriate in
connection with the administration of this Indenture.
Section 10.2. Manner of Calling Meetings.
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The Trustee may at any time call a meeting of Holders to take any action
specified in Section 10.1, to be held at such time and at such place in New
York, New York or elsewhere as the Trustee shall determine. Notice of every
meeting of Holders, setting forth the time and place of such meeting and in
general terms the action proposed to be taken at such meeting, shall be mailed
by the Trustee, first-class postage prepaid, to Holdings and to the Holders at
their last addresses as they shall appear on the registration books of the
Registrar not less than 10 nor more than 60 days prior to the date fixed for a
meeting.
Any meeting of Holders shall be valid without notice if the Holders of
all Securities then outstanding are present in person or by proxy, or if notice
is waived before or after the meeting by the Holders of all Securities
outstanding, and if Holdings, any Subsidiary and the Trustee are either present
by duly authorized representatives or have, before or after the meeting, waived
notice.
Section 10.3. Call of Meetings by Holdings or Holders.
In case at any time Holdings, pursuant to a Board Resolution, or the
Holders of not less than 10% in aggregate principal amount of the Securities
then outstanding shall have requested the Trustee to call a meeting of Holders
to take any action specified in Section 10.1, by written request setting forth
in reasonable detail the action proposed to be taken at the meeting, and the
Trustee shall not have mailed the notice of such meeting within 20 days after
receipt of such request, then Holdings or the Holders in the amount above
specified may determine the time and place in New York, New York or elsewhere
for such meeting and may call such meeting for the purpose of taking such
action, by mailing or causing to be mailed notice thereof as provided in
Section 10.2, or by causing notice thereof to be published at least once in
each of two successive calendar weeks (on any Business Day during such week) in
a newspaper or newspapers printed in the English language, customarily
published at least five days a week of a general circulation in New York, New
York, the first such publication to be not less than 10 nor more than 60 days
prior to the date fixed for the meeting.
Section 10.4. Who May Attend and Vote at Meetings.
To be entitled to vote at any meeting of Holders, a person shall (a) be
a registered Holder of one or more Securities, or (b) be a person appointed by
an instrument in writing as proxy for the registered Holder or Holders of
Securities. The only persons who shall be entitled to be present or to speak
at any meeting of Holders shall be the persons entitled to vote at such meeting
and their counsel and any representatives of the Trustee and its counsel and
any representatives of Holdings and its counsel.
Section 10.5. Regulations May Be Made by Trustee; Conduct of the Meeting;
Voting Rights; Adjournment.
Notwithstanding any other provision of this Indenture, the Trustee may
make such reasonable regulations as it may deem advisable for any action by or
any meeting of Holders, in regard to proof of the holding of Securities and of
the appointment of proxies, and in regard to the appointment and duties of
inspectors of votes, and submission and examination of proxies,
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certificates and other evidence of the right to vote, and such other matters
concerning the conduct of the meeting as it shall think appropriate. Such
regulations may fix a record date and time for determining the Holders of
record of Securities entitled to vote at such meeting, in which case those and
only those persons who are Holders of Securities at the record date and time so
fixed, or their proxies, shall be entitled to vote at such meeting whether or
not they shall be such Holders at the time of the meeting.
The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by Holdings
or by Holders as provided in Section 10.3, in which case Holdings or the
Holders calling the meeting, as the case may be, shall in like manner appoint a
temporary chairman. A permanent chairman and a permanent secretary of the
meeting shall be elected by vote of the Holders of a majority in aggregate
principal amount of the Securities represented at the meeting and entitled to
vote.
At any meeting each Holder or proxy shall be entitled to one vote for
each $1,000 principal amount of Securities held or represented by him;
provided, however, that no vote shall be cast or counted at any meeting in
respect of any Securities challenged as not outstanding and ruled by the
chairman of the meeting to be not outstanding. The chairman may adjourn any
such meeting if he is unable to determine whether any Holder or proxy shall be
entitled to vote at such meeting. The chairman of the meeting shall have no
right to vote other than by virtue of Securities held by him or instruments in
writing as aforesaid duly designating him as the proxy to vote on behalf of
other Holders. Any meeting of Holders duly called pursuant to the provisions
of Section 10.2 or Section 10.3 may be adjourned from time to time by vote of
the Holders of a majority in aggregate principal amount of the Securities
represented at the meeting and entitled to vote, and the meeting may be held as
so adjourned without further notice.
Section 10.6. Voting at the Meeting and Record To Be Kept.
The vote upon any resolution submitted to any meeting of Holders shall
be by written ballots on which shall be subscribed the signatures of the
Holders of Securities or of their representatives by proxy and the principal
amount of the Securities voted by the ballot. The permanent chairman of the
meeting shall appoint two inspectors of votes, who shall count all votes cast
at the meeting for or against any resolution and who shall make and file with
the secretary of the meeting their verified written reports in duplicate of all
votes cast at the meeting. A record in duplicate of the proceedings of each
meeting of Holders shall be prepared by the secretary of the meeting and there
shall be attached to such record the original reports of the inspectors of
votes on any vote by ballot taken thereat and affidavits by one or more persons
having knowledge of the facts, setting forth a copy of the notice of the
meeting and showing that such notice was mailed as provided in Section 10.2 or
published as provided in Section 10.3. The record shall be signed and verified
by the affidavits of the permanent chairman and the secretary of the meeting
and one of the duplicates shall be delivered to Holdings and the other to the
Trustee to be preserved by the Trustee, the latter to have attached thereto the
ballots voted at the meeting.
Any record so signed and verified shall be conclusive evidence of the
matters therein stated.
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Section 10.7. Exercise of Rights of Trustee or Holders May Not Be
Hindered or Delayed by Call of Meeting.
Nothing contained in this Article Ten shall be deemed or construed to
authorize or permit, by reason of any call of a meeting of Holders or any
rights expressly or impliedly conferred hereunder to make such call, any
hindrance or delay in the exercise of any right or rights conferred upon or
reserved to the Trustee or to the Holders under any of the provisions of this
Indenture or of the Securities.
ARTICLE XI
SUBORDINATION
Section 11.1. Securities Subordinated to Senior Indebtedness.
Anything herein to the contrary notwithstanding, Holdings, for itself
and its successors, and each Holder, by accepting a Security, agrees, that the
payment of the principal of and interest on and premiums, penalties, fees and
other liabilities (including, without limitation, liabilities in respect of any
indemnity, reimbursement, compensation or contribution obligations, the
occurrence of a Change of Control, any liquidated damage provision, any breach
of representation or warranty, or any rights of redemption or rescission under
this Indenture, the Merger Agreement and the Registration Rights Agreement or
by law or otherwise) ("Other Obligations") with respect to the Securities is
subordinated, to the extent and in the manner provided in this Article Eleven,
to the prior payment in full in cash of all Senior Indebtedness.
This Article Eleven shall constitute a continuing offer to all persons
who become holders of, or continue to hold, Senior Indebtedness, and such
provisions are made for the benefit of the holders of Senior Indebtedness and
such holders are made obligees hereunder and any one or more of them may
enforce such provisions. Holders of Senior Indebtedness need not prove
reliance on the subordination provisions hereof.
Section 11.2. No Payment on Securities in Certain Circumstances.
(a) No direct or indirect payment or distribution shall be made by or
on behalf of Holdings (other than a payment in Secondary Securities) on account
of principal of or interest on or Other Obligations with respect to the
Securities or to acquire, repurchase, redeem, retire or defease any of the
Securities or on account of the redemption provisions of the Securities (i)
upon the maturity of any Senior Indebtedness by lapse of time, acceleration or
otherwise, unless and until all principal thereof and interest thereon shall
first be paid in full in cash or (ii) upon the happening of any default in
payment of any principal of or interest on any Senior Indebtedness when the
same becomes due and payable (a "Payment Default"), unless and until such
default shall have been cured or waived or shall have ceased to exist.
(b) Without limiting the effect of Section 11.2(a), upon the
happening of a default or event of default (other than a Payment Default)
(including any event which, with the giving of notice or lapse of time, or
both, would become an event of default and including any
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default or event of default that would result upon any payment with respect to
the Securities) with respect to any Senior Indebtedness, as such default or
event of default is defined therein or in the instrument or agreement under
which it is outstanding, and upon written notice thereof given to Holdings and
the Trustee by any holders of such Senior Indebtedness or their Representative
specifying an intent to effect a Payment Blockage Period hereunder ("Payment
Notice"), then, unless and until such default or event of default shall have
been cured or waived or shall have ceased to exist, no direct or indirect
payment or distribution (other than of Secondary Securities) shall be made by
or on behalf of Holdings on account of principal of or interest on or Other
Obligations with respect to the Securities or to acquire, repurchase, redeem,
retire or defease any of the Securities or on account of the redemption
provisions of the Securities; provided, however, that this paragraph (b) shall
not prevent the making of any payment for a period of (a "Payment Blockage
Period") of more than 179 days after a Payment Notice shall have been given (or
earlier if such Payment Blockage Period is terminated (i) by written notice to
the Trustee and Holdings from the Credit Agent or the Representative which gave
such Payment Notice, (ii) repayment in full of such Senior Indebtedness or
(iii) because the default specified in the Payment Notice is no longer
continuing). Subject to the provisions contained in Section 11.2(a) above,
Holdings may resume payments on the Securities after such Payment Blockage
Period expires. Notwithstanding the foregoing, (i) not more than one Payment
Notice shall be given within a period of 360 consecutive days, and (ii) a
Payment Notice may only be given (A) if Senior Indebtedness is outstanding
under the Credit Agreement at the time of such notice, by the Credit Agent and
(B) if no Senior Indebtedness is outstanding under the Credit Agreement at the
time of such notice, by a holder or holders (or the Representative of holders)
of at least $35,000,000 principal amount of such Senior Indebtedness. For
purposes of this Section, no default or event of default which existed or was
continuing on the date of the commencement of any Payment Blockage Period with
respect to the Senior Indebtedness initiating such Payment Blockage Period
shall be, or be made, the basis of the commencement of a subsequent Payment
Blockage Period by the Representative of such Senior Indebtedness whether or
not within a period of 360 consecutive days unless such default or event of
default shall have been cured or waived for a period of not less than 90
consecutive days.
(c) In furtherance of the provisions of Section 11.1, if,
notwithstanding the foregoing provisions of this Section 11.2, any direct or
indirect payment or distribution other than Secondary Securities on account of
principal of or interest on or Other Obligations with respect to the Securities
or to acquire, repurchase, redeem, retire or defease any of the Securities or
on account of the redemption provisions of the Securities shall be made by or
on behalf of Holdings and received by the Trustee, by any Holder or by any
Paying Agent (or, if Holdings or any Subsidiary or Affiliate of Holdings is
acting as Paying Agent, money for any such payment or distribution shall be
segregated and held in trust), at a time when such payment or distribution was
prohibited by the provisions of this Section 11.2, then, unless and until such
payment or distribution is no longer prohibited by this Section 11.2, such
payment or distribution (subject to the provisions of Sections 11.6 and 11.7)
shall be received, segregated from other funds, and held in trust by the
Trustee or such Holder or Paying Agent, as the case may be, for the benefit of,
and shall be immediately paid over to, the holders of Senior Indebtedness or
their Representative, ratably according to the respective amounts of Senior
Indebtedness held or represented by each, to the extent necessary to make
payment in full in cash of all Senior Indebtedness remaining unpaid, after
giving effect to all concurrent payments and distributions
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to or for the holders of Senior Indebtedness. Holdings shall give prompt
notice to the Trustee of any default or event of default or any acceleration
under any Senior Indebtedness or under any agreement pursuant to which Senior
Indebtedness may have been issued. Failure to give such notice shall not
affect the subordination of the Securities to Senior Indebtedness provided in
this Article Eleven. Notwithstanding anything to the contrary contained
herein, in the absence of its gross negligence or willful misconduct, the
Trustee shall have no duty to collect or retrieve monies previously paid by it
in good faith; provided that this sentence shall not affect the obligation of
any other party receiving such payment to hold such payment for the benefit of,
and to pay such payment over to, the holders of Senior Indebtedness or their
Representative.
Section 11.3. Securities Subordinated to Prior Payment of All Senior
Indebtedness on Dissolution, Liquidation or Reorganization
of Holdings.
Upon any payment or distribution of assets or securities of Holdings of
any kind or character, whether in cash, property or securities, upon any
dissolution, winding-up, total or partial liquidation or total or partial
reorganization of Holdings (including, without limitation, in bankruptcy,
insolvency or receivership proceedings or upon any assignment for the benefit
of creditors or any other marshalling of assets and liabilities of Holdings and
whether voluntary or involuntary):
(a) the holders of all Senior Indebtedness shall first be entitled to
receive payments in full in cash of the principal thereof and interest
thereon before the Holders are entitled to receive any payment on account of
the principal of or interest on or Other Obligations with respect to the
Securities (whether by payment, acquisition, retirement, defeasance,
redemption or otherwise) or any other payment or distribution of assets or
securities by or on behalf of Holdings;
(b) any payment or distribution of assets or securities of Holdings
of any kind or character, whether in cash, property or securities, to which
the Holders or the Trustee on behalf of the Holders would be entitled except
for the provisions of this Article Eleven, including any such payment or
distribution that is payable or deliverable by reason of the payment of any
other Indebtedness of Holdings being subordinated to the payment of the
Securities (except for any such payment or distribution (x) authorized by an
order or decree giving effect, and stating in such order or decree that
effect is given, to the subordination of the Securities to the Senior
Indebtedness, and made by a court of competent jurisdiction in a
reorganization proceeding under any applicable bankruptcy law, (y) of
securities that (i) are unsecured, (ii) have a Weighted Average Life to
Maturity and final maturity that are no shorter than the Weighted Average
Life to Maturity of the Securities or any securities issued to the holders of
Senior Indebtedness under the Credit Agreement pursuant to a plan of
reorganization or readjustment and (iii) are subordinated, to at least the
same extent as the Securities, to the payment of all Senior Indebtedness then
outstanding or (z) of Capital Stock), shall be paid by the liquidating
trustee or agent or other person making such a payment or distribution,
directly to the holders of Senior Indebtedness or their Representative,
ratably according to the respective amounts of Senior Indebtedness held or
represented by each, until all Senior Indebtedness remaining unpaid shall
have been paid in full in cash, after giving
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effect to all concurrent payments and distributions to or for the holders of
such Senior Indebtedness; and
(c) in the event that, notwithstanding the foregoing, any payment or
distribution of assets or securities of Holdings of any kind or character,
whether in cash, property or securities, shall be received by the Trustee or
the Holders or any Paying Agent (or, if Holdings or any Subsidiary or
Affiliate of Holdings is acting as Paying Agent, money, assets or securities
of any kind or character for any such payment or distribution shall be
segregated or held in trust) on account of principal of or interest on or
Other Obligations with respect to the Securities before all Senior
Indebtedness is paid in full in cash, such payment or distribution (subject
to the provisions of Sections 11.6 and 11.7) shall be received, segregated
from other funds, and held in trust by the Trustee or such Holder or Paying
Agent for the benefit of, and shall immediately be paid over to, the holders
of Senior Indebtedness or their Representative, ratably according to the
respective amounts of Senior Indebtedness held or represented by each, until
all Senior Indebtedness remaining unpaid shall have been paid in full in
cash, after giving effect to all concurrent payments and distributions to or
for the holders of Senior Indebtedness. Notwithstanding anything to the
contrary contained herein, in the absence of its gross negligence or wilful
misconduct, the Trustee shall have no duty to collect or retrieve monies
previously paid by it in good faith; provided that this sentence shall not
affect the obligation of any other party receiving such payment to hold such
payment for the benefit of, and to pay over such payment over to, the holders
of Senior Indebtedness or their Representative.
Holdings shall give prompt notice to the Trustee prior to any
dissolution, winding-up, total or partial liquidation or total or partial
reorganization of Holdings or assignment for the benefit of creditors by
Holdings.
Section 11.4. Holders to Be Subrogated to Rights of Holders of Senior
Indebtedness.
Subject to the payment in full in cash of all Senior Indebtedness, the
Holders of Securities shall be subrogated to the rights of the holders of
Senior Indebtedness to receive payments or distributions of assets of Holdings
applicable to the Senior Indebtedness until all amounts owing on the Securities
shall be paid in full in cash, and for the purpose of such subrogation no
payments or distributions to the holders of Senior Indebtedness by or on behalf
of Holdings, or by or on behalf of the Holders by virtue of this Article
Eleven, which otherwise would have been made to the Holders, shall, as between
Holdings and the Holders, be deemed to be payment by Holdings to or on account
of the Senior Indebtedness, it being understood that the provisions of this
Article Eleven are and are intended solely for the purpose of defining the
relative rights of the Holders, on the one hand, and the holders of Senior
Indebtedness, on the other hand.
If any payment or distribution to which the Holders would otherwise have
been entitled but for the provisions of this Article Eleven shall have been
applied, pursuant to the provisions of this Article Eleven, to the payment of
all amounts payable under the Senior Indebtedness, then the Holders shall be
entitled to receive from the holders of such Senior
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Indebtedness any payments or distributions received by such holders of Senior
Indebtedness in excess of the amount sufficient to pay all amounts payable
under or in respect of the Senior Indebtedness in full in cash.
Section 11.5. Obligations of Holdings Unconditional.
Nothing contained in this Article Eleven or elsewhere in this Indenture
or in the Securities is intended to or shall impair, as between Holdings and
the Holders, the obligation of Holdings, which is absolute and unconditional,
to pay to the Holders the principal of and interest on and Other Obligations in
respect of the Securities as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect the relative
rights of the Holders and creditors of Holdings other than the holders of the
Senior Indebtedness, nor shall anything herein or therein prevent the Trustee
or any Holder from exercising all remedies otherwise permitted by applicable
law upon default under this Indenture, subject to the rights, if any, under
this Article Eleven, of the holders of Senior Indebtedness in respect of cash,
property or securities of Holdings received upon the exercise of any such
remedy. Upon any payment or distribution of assets or securities of Holdings
referred to in this Article Eleven, the Trustee, subject to the provisions of
Sections 7.1 and 7.2, and the Holders shall be entitled to rely upon any order
or decree made by any court of competent jurisdiction in which any dissolution,
winding-up, liquidation or reorganization proceedings are pending, or a
certificate of the receiver, trustee in bankruptcy, liquidating trustee or
agent or other person making any payment or distribution to the Trustee or to
the Holders for the purpose of ascertaining the persons entitled to participate
in such payment or distribution, the holders of Senior Indebtedness and other
Indebtedness of Holdings, the amount thereof or payable thereon, the amount or
amounts paid or distributed thereon and all other facts pertinent thereto or to
this Article Eleven. Nothing in this Section 11.5 shall apply to the claims
of, or payments to, the Trustee under or pursuant to Section 7.7.
Section 11.6. Trustee Entitled to Assume Payments Not Prohibited in
Absence of Notice.
The Trustee shall not at any time be charged with knowledge of the
existence of any facts that would prohibit the making of any payment to or by
the Trustee unless and until the Trustee or any Paying Agent shall have
received written notice thereof from Holdings or from one or more holders of
Senior Indebtedness or from any Representative therefor and, prior to the
receipt of any such notice, the Trustee, subject to the provisions of Sections
7.1 and 7.2, shall be entitled in all respects conclusively to assume that no
such fact exists.
Section 11.7. Application by Trustee of Assets Deposited with It.
U.S. Legal Tender or U.S. Government Obligations deposited in trust with
the Trustee pursuant to and in accordance with Section 8.4 shall be for the
sole benefit of Holders and, to the extent allocated for the payment of
Securities, shall not be subject to the subordination provisions of this
Article Eleven. Otherwise, any deposit of assets or securities by or on behalf
of Holdings with the Trustee or any Paying Agent (whether or not in trust) for
the payment of principal of or interest on or Other Obligations with respect to
any Securities shall be subject to the provisions of this Article Eleven;
provided that if prior to the second
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Business Day preceding the date on which by the terms of this Indenture any
such assets may become distributable for any purpose (including, without
limitation, the payment of either principal of or interest on any Security) the
Trustee or such Paying Agent shall not have received with respect to such
assets the notice provided for in Section 11.6, then the Trustee or such Paying
Agent shall have full power and authority to receive such assets and to apply
the same to the purpose for which they were received, and shall not be affected
by any notice to the contrary received by it on or after such date. The
foregoing shall not apply to the Paying Agent if Holdings or any Subsidiary or
Affiliate of Holdings is acting as Paying Agent. Nothing contained in this
Section 11.7 (except the first sentence of this Section 11.7) shall limit the
right of the holders of Senior Indebtedness to recover payments as contemplated
by this Article Eleven.
Section 11.8. Subordination Rights Not Impaired by Acts or Omissions of
Holdings or Holders of Senior Indebtedness.
No right of any present or future holders of any Senior Indebtedness to
enforce the subordination provisions contained in this Article Eleven shall at
any time in any way be prejudiced or impaired by any act or failure to act on
the part of Holdings or by any act or failure to act, in good faith, by any
such holder, or by any noncompliance by Holdings with the terms of this
Indenture, regardless of any knowledge thereof that any such holder may have or
be otherwise charged with. The holders of Senior Indebtedness may extend,
renew, restate, supplement, modify or amend the terms of the Senior
Indebtedness or any security therefor and release, sell or exchange such
security and otherwise deal freely with Holdings and its Subsidiaries all
without affecting the liabilities and obligations of the parties to this
Indenture or the Holders. No provision in any supplemental indenture that
affects the subordination of the Securities or other provisions of this Article
Eleven shall be effective against the holders of the Senior Indebtedness who
have not consented thereto.
Each Holder by accepting a Security agrees that the Representative of
any Senior Indebtedness (including without limitation, the Credit Agent), in
its discretion, without notice or demand and without affecting any rights of
any holder of Senior Indebtedness under this Article Eleven, may foreclose any
mortgage or deed of trust covering interests in real property secured thereby,
by judicial or nonjudicial sale; and such Holder hereby waives any defense to
the enforcement by the Representative (including without limitation, the Credit
Agent) of any Senior Indebtedness or by any holder of any Senior Indebtedness
against such Holder of this Article Eleven after a judicial or nonjudicial sale
or other disposition of its interests in real property secured by such mortgage
or deed of trust; and such Holder expressly waives any defense or benefits that
may be derived from California Civil Code Sections 2808, 2809, 2810, 2819,
2845, 2849 or 2850, or California Code of Civil Procedure Sections 580a,
580d or 726, or comparable provisions of the laws of any other jurisdiction
or any similar statute in effect in any other jurisdiction.
Section 11.9. Holders Authorize Trustee to Effectuate Subordination of
Securities.
Each Holder by accepting a Security authorizes and expressly directs the
Trustee on his behalf to take such action as may be necessary or appropriate to
effect the subordination provisions contained in this Article Eleven, and
appoints the Trustee his attorney-in-fact for such
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purpose, including, in the event of any dissolution, winding up, liquidation or
reorganization of Holdings (whether in bankruptcy, insolvency or receivership
proceedings or upon an assignment for the benefit of creditors or any other
marshalling of assets and liabilities of Holdings) tending towards liquidation
or reorganization of the business and assets of Holdings, the immediate filing
of a claim for the unpaid balance of its or his Securities and Other
Obligations in the form required in said proceedings and cause said claim to be
approved. If the Trustee does not file a proper claim or proof of debt in the
form required in such proceeding prior to 30 days before the expiration of the
time to file such claim or claims, then the holders of the Senior Indebtedness
or their Representative is hereby authorized to file an appropriate claim for
and on behalf of the Holders of said Securities. Nothing herein contained
shall be deemed to authorize the Trustee or the holders of Senior Indebtedness
or their Representative to authorize or consent to or accept or adopt on behalf
of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Securities or the rights of any Holder thereof, or to
authorize the Trustee or the holders of Senior Indebtedness or their
Representative to vote in respect of the claim of any Holder in any such
proceeding.
Section 11.10. Right of Trustee to Hold Senior Indebtedness.
The Trustee shall be entitled to all of the rights set forth in this
Article Eleven in respect of any Senior Indebtedness at any time held by it to
the same extent as any other holder of Senior Indebtedness, and nothing in this
Indenture shall be construed to deprive the Trustee of any of its rights as
such holder.
Section 11.11. Article Eleven Not to Prevent Events of Default.
The failure to make a payment on account of principal of or interest on
the Securities by reason of any provision of this Article Eleven shall not be
construed as preventing the occurrence of a Default or an Event of Default
under Section 6.1.
Section 11.12. No Fiduciary Duty of Trustee to Holders of Senior Indebtedness.
The Trustee shall not be deemed to owe any fiduciary duty to the holders
of Senior Indebtedness, and shall not be liable to any such holders (other than
for its willful misconduct or gross negligence) if it shall in good faith
mistakenly pay over or deliver to the Holders of Securities or Holdings or any
other person, money or assets to which any holders of Senior Indebtedness shall
be entitled by virtue of this Article Eleven or otherwise. Nothing in this
Section 11.12 shall affect the obligation of any person other than the Trustee
to hold such payment for the benefit of, and to pay such payment over to, the
holders of Senior Indebtedness or their Representative.
ARTICLE XII
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SATISFACTION AND DISCHARGE
Section 12.1. Satisfaction and Discharge of the Indenture.
This Indenture will be discharged and will cease to be of further effect
as to all outstanding Securities when:
(a) all Securities theretofore authenticated and delivered (except
lost, stolen or destroyed Securities which have been replaced or paid and
Securities for whose payment money has theretofore been deposited in trust and
thereafter repaid to Holdings) have been delivered to the Trustee for
cancellation; or
(b) (1) all Securities not theretofore delivered to the Trustee for
cancellation have become due and payable by reason of the making of a notice
of redemption or otherwise and Holdings has irrevocably deposited or caused
to be deposited with the Trustee as trust funds in trust for the purpose an
amount sufficient to pay and discharge the entire indebtedness on the
Securities not theretofore delivered to the Trustee for cancellation for
principal, premium, if any, and accrued interest to the date of maturity or
redemption;
(2) Holdings has paid all sums payable by it under this
Indenture; and
(3) Holdings has delivered irrevocable instructions to the
Trustee to apply the deposited money toward the payment of the Securities at
maturity or the redemption date, as the case may be.
Section 12.2. Conditions to Satisfaction and Discharge of the Indenture.
Holdings shall deliver an Officers' Certificate and an Opinion of
Counsel to the Trustee stating that all conditions precedent to satisfaction
and discharge have been complied with.
ARTICLE XIII
MISCELLANEOUS
Section 13.1. TIA Controls.
If any provision of this Indenture limits, qualifies, or conflicts with
the duties imposed by operation of Section 3.18(c) of the TIA, the imposed
duties shall control.
Section 13.2. Notices.
Any notices or other communications required or permitted hereunder
shall be in writing, and shall be sufficiently given if made by hand delivery,
by telex, by telecopier or registered or certified mail, postage prepaid,
return receipt requested, addressed as follows:
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if to Holdings:
c/o The Yucaipa Companies
10000 Santa Monica Boulevard
Fifth Floor
Los Angeles, California 90067
Attention: Mark A. Resnik
if to the Trustee:
------------------------------------
------------------------------------
------------------------------------
------------------------------------
Attention: Corporate Trust Administration
Each of Holdings and the Trustee by written notice to each other such
person may designate additional or different addresses for notices to such
person. Any notice or communication to Holdings and the Trustee shall be
deemed to have been given or made as of the date so delivered if personally
delivered; when answered back, if telexed; when receipt is acknowledged, if
telecopied; and five (5) calendar days after mailing if sent by registered or
certified mail, postage prepaid (except that a notice of change of address
shall not be deemed to have been given until actually received by the
addressee).
Any notice or communication mailed to a Holder shall be mailed to him by
first class mail or other equivalent means at his address as it appears on the
registration books of the Registrar and shall be sufficiently given to him if
so mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. If a notice
or communication is mailed in the manner provided above, it is duly given,
whether or not the addressee receives it.
Section 13.3. Communications by Holders with Other Holders.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Securities.
Holdings, the Trustee, the Registrar and any other person shall have the
protection of TIA Section 312(c).
Section 13.4. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by Holdings to the Trustee to take any
action under this Indenture, Holdings shall furnish to the Trustee:
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(1) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
Section 13.5. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture, other than the Officers'
Certificate required by Section 4.7, shall include:
(1) a statement that the person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether or not, in the opinion of each such
person, such condition or covenant has been complied with; provided, however,
that with respect to matters of fact an Opinion of Counsel may rely on an
Officers' Certificate or certificates of public officials.
Section 13.6. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Paying Agent or Registrar may make reasonable rules for its
functions.
Section 13.7. Legal Holidays.
A "Legal Holiday" used with respect to a particular place of payment is
a Saturday, a Sunday or a day on which banking institutions in New York, New
York, Los Angeles, California or at such place of payment are not required to
be open. If a payment date is a Legal Holiday at such place, payment may be
made at such place on the next succeeding day that is not a Legal Holiday, and
no interest shall accrue for the intervening period.
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Section 13.8. Governing Law.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. Each of the parties hereto agrees to submit to the
jurisdiction of the courts of the State of New York in any action or proceeding
arising out of or relating to this Indenture.
Section 13.9. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of any of Holdings or any Subsidiary. Any such indenture, loan
or debt agreement may not be used to interpret this Indenture.
Section 13.10. No Recourse Against Others.
A director, officer, employee, stockholder or incorporator, as such, of
Holdings shall not have any liability for any obligations of Holdings under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creations. Each Holder by accepting a
Security waives and releases all such liability. Such waiver and release are
part of the consideration for the issuance of the Securities.
Section 13.11. Successors.
All agreements of Holdings in this Indenture and the Securities shall
bind their respective successors. All agreements of the Trustee in this
Indenture shall bind its successor.
Section 13.12. Duplicate Originals.
All parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together shall represent the
same agreement.
Section 13.13. Severability.
In case any one or more of the provisions in this Indenture or in the
Securities shall be held invalid, illegal or unenforceable, in any respect for
any reason, the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions shall not in any way be
affected or impaired thereby, it being intended that all of the provisions
hereof shall be enforceable to the full extent permitted by law.
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the date first written above.
Dated: , 1995
-------------
[SEAL] FOOD 4 LESS HOLDINGS, INC.
Attest: By:
-----------------------------------
Name: Mark A. Resnik
Title: Vice President
- ----------------------------
Dated: , 1995
-------------
[SEAL] --------------------------------------
--------------------------------------
as Trustee
Attest: By:
-----------------------------------
Name:
Title:
- ----------------------------
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EXHIBIT A
PURSUANT TO PROVISIONS OF THE INTERNAL REVENUE CODE OF 1986 RELATING TO
ORIGINAL ISSUE DISCOUNT AND TREASURY REGULATIONS
PROMULGATED THEREUNDER WITH RESPECT TO DEBT INSTRUMENTS ISSUED ON OR AFTER
APRIL 4, 1994, THE FOLLOWING INFORMATION IS
PROVIDED: (1) THIS SECURITY IS BEING ISSUED WITH ORIGINAL ISSUE DISCOUNT IN THE
AMOUNT OF $____ PER FACE AMOUNT; (2) THE ISSUE
PRICE OF THIS SECURITY IS $___ PER FACE AMOUNT; (3) THE ISSUE DATE OF THIS
SECURITY IS ______ __, ____; AND (4) THE YIELD TO
MATURITY OF THIS SECURITY IS __%.
FOOD 4 LESS HOLDINGS, INC.
13 5/8% Senior Subordinated Pay-in-Kind Debentures
due ________ __, 2007
No. $
Food 4 Less Holdings, Inc., a Delaware corporation ("Holdings," which term
includes any successor entity), for value received promises to pay to
or registered assigns, the principal sum of dollars, on ________ __,
2007.
Interest payment dates: ________________ and _______________
commencing ________ __, ____.
Record dates: _________ and _________.
Reference is made to the further provisions of this security contained
herein, which will for all purposes have the same effect as if set forth at
this place.
IN WITNESS WHEREOF, Holdings has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
Dated: ________ __, 1995
FOOD 4 LESS HOLDINGS, INC.
By:
---------------------------------
Name:
Title:
This is one of the Securities described in the within-mentioned
Indenture.
Dated: ________ __, 1995
-------------------------------------
as Trustee
By:
---------------------------------
Title:
A-1
<PAGE> 83
FOOD 4 LESS HOLDINGS, INC.
13 5/8% Senior Subordinated Pay-in-Kind Debenture
due ________ __, 2007
1. Interest.
FOOD 4 LESS HOLDINGS, INC., a Delaware corporation ("Holdings"),
promises to pay interest on the principal amount of this Security at the rate
per annum shown above. Holdings may, in its sole discretion, issue additional
Securities ("Secondary Securities") in lieu of a cash payment of any or all of
the interest due on any Interest Payment Date occurring on or prior to [the
Interest Payment Date five years after the Issue Date]. If Holdings issues
Secondary Securities in lieu of cash payment, in whole or in part, of interest
due on any Interest Payment Date occurring on or prior to [the Interest Payment
Date five years after the Issue Date], pursuant to this paragraph, it shall
give notice to the Trustee not less than 5 Business Days prior to the relevant
Interest Payment Date, and shall instruct the Trustee (upon written order of
Holdings signed by an Officer of Holdings given not less than 5 nor more than
45 days prior to such Interest Payment Date) to authenticate a Secondary
Security, dated such Interest Payment Date, in a principal amount equal to the
amount of interest not paid in cash in respect of this Security on such
Interest Payment Date. Each issuance of Secondary Securities in lieu of cash
payments of interest on the Securities shall be made pro rata with respect to
the outstanding Securities. Any such Secondary Securities shall be governed by
the Indenture and shall be subject to the same terms (including the maturity
date and the rate of interest from time to time payable thereon) as this
Security (except, as the case may be, with respect to the title, issuance date
and aggregate principal amount). The term Securities shall include the
Secondary Securities that may be issued under the Indenture.
Holdings will pay interest semi-annually in arrears on ___________ and
_________ of each year (the "Interest Payment Date"), commencing ___________,
____. Interest on this Security will accrue from the date of issuance or from
the most recent date to which interest has been paid. Interest will be
computed on the basis of a 360-day year of twelve 30-day months and actual
number of days elapsed.
Holdings shall pay interest on overdue principal and interest on overdue
installments of interest, to the extent lawful, at the rate per annum borne by
the Securities.
2. Method of Payment.
Holdings shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of
business on the Record Date immediately preceding the Interest Payment Date
even if the Securities are cancelled on registration of transfer or
registration of exchange after such Record Date. Holders must surrender
Securities to a Paying Agent to collect principal payments. Holdings shall pay
principal and interest in money of the United States that at the time of
payment is legal tender for payment of public and private debts ("U.S. Legal
Tender") (or, pursuant to
A-2
<PAGE> 84
Paragraph 1 hereof, in Secondary Securities). However, Holdings may pay
principal and interest by its check payable in such U.S. Legal Tender or by
wire transfer of federal funds (or, pursuant to Paragraph 1 hereof, in
Secondary Securities). Holdings may deliver any such interest payment to the
Paying Agent or to a Holder at the Holder's registered address.
3. Paying Agent and Registrar.
Initially, Norwest Bank Minnesota, N.A. (the "Trustee"), will act as
Paying Agent and Registrar. Holdings may change any Paying Agent, Registrar or
co-Registrar without notice to the Holders. Holdings or any Subsidiary may,
subject to certain exceptions, act as Paying Agent, Registrar or co-Registrar.
4. Indenture.
Holdings issued the Securities under an Indenture, dated as of ________
__, 1995 (the "Indenture"), between Holdings and the Trustee. This Security is
one of a duly authorized issue of Securities of Holdings designated as its 13
5/8% Senior Subordinated Pay-in-Kind Debentures due 2007. Capitalized terms
herein are used as defined in the Indenture unless otherwise defined herein.
The terms of the Securities include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939 (15
U.S. Code Sections 77aaa-77bbbb) (the "TIA"), as in effect on the date of the
Indenture until such time as the Indenture is qualified under the TIA, and
thereafter as in effect on the date on which the Indenture is qualified
under the TIA. Notwithstanding anything to the contrary herein, the Securities
are subject to all such terms, and Holders of Securities are referred to the
Indenture and said Act for a statement of them. The Securities are general
unsecured obligations of Holdings limited in aggregate principal amount to
$150,000,000, except for Secondary Securities and except as otherwise provided
in the Indenture.
5. Optional Redemption.
The Securities may not be redeemed at the option of Holdings prior to
________ __, 2000. Thereafter, upon at least 30 days' but not more than 60
days' notice to the Holders, Holdings may redeem all or any of the Securities
at any time at redemption prices equal to the applicable percentage of the
principal amount thereof set forth below, plus accrued interest, if any, to the
Redemption Date (as defined in the Indenture) if redeemed during the 12-month
period beginning ________ __ of the years indicated below:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106.8125%
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105.1094%
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103.4063%
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101.7031%
2004 and thereafter . . . . . . . . . . . . . . . . . . . . . 100.0000%
</TABLE>
A-3
<PAGE> 85
Notwithstanding the foregoing, prior to ________ __, 1998, Holdings may
use the Net Proceeds (as defined in the Indenture) of an Initial Public
Offering (as defined in the Indenture) of Holdings or the Company to redeem up
to 35% of the Securities at a redemption price equal to 110% of the principal
amount thereof plus accrued interest, if any, to the date of redemption.
In order to effect the foregoing redemption, Holdings shall send the
notice required by Section 3.3 of the Indenture not later than 30 days after
the Initial Public Offering Consummation Date (as defined in the Indenture).
6. Notice of Redemption.
Notice of redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each Holder of Securities to be redeemed
at such Holder's registered address. Securities in denominations larger than
$1,000 may be redeemed in part.
Except as set forth in the Indenture, from and after any Redemption
Date, if monies for the redemption of the Securities called for redemption
shall have been deposited with the Paying Agent for redemption on such
Redemption Date, then, unless Holdings defaults in the payment of such
Redemption Price, the Securities called for redemption will cease to bear
interest and the only right of the Holders of such Securities will be to
receive payment of the Redemption Price.
7. Change of Control Offer.
In the event of a Change of Control, upon the satisfaction of the
conditions set forth in the Indenture, Holdings shall be required to offer to
purchase all of the then outstanding Securities pursuant to a Change of Control
Offer at a purchase price equal to 101% of the aggregate principal amount
thereof plus accrued interest, if any, to the date of purchase. Holders of
Securities which are the subject of such an offer to repurchase shall receive
an offer to repurchase and may elect to have such Securities repurchased in
accordance with the provisions of the Indenture pursuant to and in accordance
with the terms of the Indenture.
8. Limitation on Disposition of Assets.
Under certain circumstances Holdings is required to apply the net
proceeds from Asset Sales to the repayment of Indebtedness of Holdings or any
Subsidiary, to make Related Business Investments and certain other investments
or to purchase in a Net Proceeds Offer at a price equal to 100% of the
aggregate principal amount thereof, plus accrued interest, if any, to the date
of purchase, which shall in the aggregate equal the net proceeds required to be
applied thereto.
9. Subordination. The Securities are subordinated in right of payment, in
the manner and to the extent set forth in the Indenture, to the prior payment
in full of Senior Indebtedness of Holdings whether outstanding on the date of
the Indenture or thereafter
A-4
<PAGE> 86
created, incurred, assumed or guaranteed. Each Holder, by accepting a
Security, agrees to such subordination and authorizes the Trustee to give it
effect.
10. Denominations; Transfer; Exchange.
The Securities are in registered form, without coupons, in denominations
of $1,000 and integral multiples of $1,000 (other than Secondary Securities
which may be in denominations of less than $1,000). A Holder shall register
the transfer of or exchange Securities in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay certain transfer taxes or
similar governmental charges payable in connection therewith as permitted by
the Indenture. The Registrar need not register the transfer of or exchange any
Securities or portions thereof selected for redemption. No service charge
shall be made for any transfer, registration or exchange, but Holdings may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith, but not for any exchange pursuant to
Section 2.10, 3.6 or 9.5 of the Indenture.
11. Persons Deemed Owners.
The registered Holder of a Security shall be treated as the owner of it
for all purposes.
12. Unclaimed Money.
If money for the payment of principal or interest remains unclaimed for
one year, the Trustee and the Paying Agents will pay the money back to Holdings
at its request. After that, all liability of the Trustee and such Paying
Agents with respect to such money shall cease.
13. Discharge Prior to Redemption or Maturity.
If Holdings at any time deposits with the Trustee U.S. Legal Tender or
U.S. Government Obligations sufficient to pay the principal of and interest on
the Securities to redemption or maturity and complies with the other provisions
of the Indenture relating thereto, Holdings will be discharged from certain
provisions of the Indenture and the Securities (including the financial
covenants, but excluding its obligation to pay the principal of and interest on
the Securities).
14. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Securities may be
amended or supplemented with the written consent of the Holders of at least
fifty four percent (and, in some cases, a majority) in aggregate principal
amount of the Securities then outstanding, and any existing Default or Event of
Default or compliance with any provision may be waived with the consent of the
Holders of fifty four percent (and, in some cases, a majority) in aggregate
principal amount, as the case may be, of the Securities then outstanding.
Without notice to or consent of any Holder, the parties thereto may amend or
A-5
<PAGE> 87
supplement the Indenture or the Securities to, among other things, cure any
ambiguity, defect or inconsistency, provide for uncertificated Securities in
addition to or in place of certificated Securities, comply with Article Five of
the Indenture or comply with any requirements of the SEC in connection with the
qualification of the Indenture under the TIA, or make any other change that
does not adversely affect the rights of any Holder of a Security. An amendment
may not make any change that adversely affects the rights under Article 11 of
the Indenture of any holders of Senior Indebtedness unless the holders of
Senior Indebtedness consent to the change.
15. Successors.
When a successor assumes all the obligations of its predecessor under
the Securities and the Indenture, the predecessor will be released from those
obligations.
16. Defaults and Remedies.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable in the manner,
at the time and with the effect provided in the Indenture. Holders of
Securities may not enforce the Indenture or the Securities except as provided
in the Indenture. The Trustee is not obligated to enforce the Indenture or the
Securities unless it has received indemnity satisfactory to it. The Indenture
permits, subject to certain limitations therein provided, Holders of a majority
in aggregate principal amount of the Securities then outstanding to direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Securities notice of any continuing Default or Event of Default
(except a Default in payment of principal or interest) if it determines that
withholding notice is in their interest.
17. Trustee Dealings with Holdings.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with Holdings, its Subsidiaries or their respective Affiliates as if it were
not the Trustee.
18. No Recourse Against Others.
No stockholder, director, officer, employee or incorporator, as such, of
Holdings shall have any liability for any obligation of Holdings under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of, such obligations or their creation. Each Holder of a Security by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities.
19. Authentication.
This Security shall not be valid until the Trustee or authenticating
agent manually signs the certificate of authentication on this Security.
A-6
<PAGE> 88
20. Governing Law.
The Laws of the State of New York shall govern this Security and the
Indenture.
21. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
22. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, Holdings will cause CUSIP numbers to be
printed on the Securities immediately prior to the qualification of the
Indenture under the TIA as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
23. Indenture.
Each Holder, by accepting a Security, agrees to be bound by all of the
terms and provisions of the Indenture, as the same may be amended from time to
time.
Holdings will furnish to any Holder of a Security upon written request
and without charge a copy of the Indenture. Requests may be made to: FOOD 4
LESS HOLDINGS, INC., c/o The Yucaipa Companies, 10000 Santa Monica Boulevard,
Fifth Floor, Los Angeles, California 90067, Attn: Mark A. Resnik.
24. Certain Information Obligations.
To the extent permitted by applicable law or regulation, whether or not
Holdings is subject to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"), Holdings shall file with
the SEC all quarterly and annual reports and such other information, documents
or other reports (or copies of such portions of any of the foregoing as the SEC
may by rules and regulations prescribe) required to be filed pursuant to such
provisions of the Exchange Act. Holdings shall file with the Trustee copies of
the quarterly and annual reports and the information, documents, and other
reports (or copies of such portions of any of the foregoing as the SEC may by
rules and regulations prescribe) that it is required to file with the SEC
pursuant to the Indenture. At any time when Holdings is not permitted by
applicable law or regulations to file the aforementioned reports, Holdings
shall furnish the Trustee and the Holders with the information that Holdings
would have had to provide to the SEC if Holdings had been subject to Section 13
or 15(d) of the Exchange Act.
25. Holdings Indebtedness.
Each Holder acknowledges that Holdings is the sole obligor of the
Securities and no Subsidiary of Holdings is a co-obligor or a guarantor of the
Securities.
A-7
<PAGE> 89
[FORM OF ASSIGNMENT]
I or we assign this Security to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee)
Please insert Social Security or other
identifying number of assignee
- -----------------------------------------
and irrevocably appoint agent to transfer this Security
-----------------------
on the books of Holdings. The agent may substitute another to act for him.
Dated: Signed:
---------------------------- --------------------------------
- ------------------------------------------------------------------------------
(Sign exactly as your name appears on the front of this Security)
Signature Guarantee:
----------------------------------------------------------
A-8
<PAGE> 90
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Security purchased by Holdings
pursuant to Section 4.14 or Section 4.15 of the Indenture, check the box:
Section 4.14 [ ] Section 4.15 [ ]
If you want to elect to have only part of this Security purchased by
Holdings pursuant to Section 4.14 or Section 4.15 of the Indenture, state the
amount:
$
Date:_______________
Signature:____________________________
(Sign exactly as your name appears
on the front of this Security)
Signature Guarantee:___________________________________________________________
A-9
<PAGE> 1
EXHIBIT 2.1.3.
AMENDMENT NO. 3
TO
AGREEMENT AND PLAN OF MERGER
This Amendment No. 3 (this "Amendment"), dated as of April 26,
1995, to the Agreement and Plan of Merger dated as of September 14, 1994, as
amended by Amendment No. 1 dated as of January 12, 1995 and Amendment No. 2
dated as of February 24, 1995 (collectively, the "Merger Agreement"), is by and
among Food 4 Less, Inc., a Delaware corporation ("F4L"), Food 4 Less Holdings,
Inc., a California corporation ("F4L Holdings"), Food 4 Less Holdings, Inc., a
Delaware corporation ("F4L Holdings Delaware"), Food 4 Less Supermarkets, Inc.,
a Delaware corporation ("F4L Supermarkets"), Ralphs Supermarkets, Inc., a
Delaware corporation ("Ralphs Supermarkets"), and The Edward J. DeBartolo
Corporation ("EJDC") and the other stockholders of Ralphs Supermarkets (each a
"Selling Stockholder"). Capitalized terms not otherwise defined herein have
the meanings given to them in the Merger Agreement.
WHEREAS, F4L, F4L Holdings, F4L Holdings Delaware, F4L
Supermarkets, Ralphs Supermarkets and the Selling Stockholders previously have
entered into the Merger Agreement, by which the parties agreed to merge F4L
Supermarkets with and into Ralphs Supermarkets in accordance with the terms and
conditions of the Merger Agreement and Section 251 of the General Corporation
Law of the State of Delaware;
WHEREAS, the parties desire to amend certain provisions of
the Merger Agreement as more fully set forth herein;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained, the parties hereto agree as follows:
1. Defined Terms.
(a) Section 1.1 of the Merger Agreement is hereby amended
to add the following defined terms:
"Discount Debentures" shall mean the 13-5/8% Senior Discount
Debentures due 2005 to be issued by F4L Holdings Delaware
pursuant to the terms set forth in the Description of Discount
Debentures attached hereto as Exhibit I.
"Discount Debenture Indenture" shall mean the indenture
governing the Discount Debentures to be entered into
by F4L Holdings Delaware on the Closing Date.
(b) The definition of "Closing Date" in Section 1.1 of
the Merger Agreement is hereby amended to delete the date "April 14, 1995" and
to substitute in its place the date "June 6, 1995."
<PAGE> 2
2. Amendment of Section 2.1(a). Section 2.1(a) of the
Merger Agreement is hereby amended to delete the first sentence thereof and to
substitute in its place the following sentence:
F4L Holdings Delaware will purchase 12,184,405.61789 Shares
(the "Share Purchase"), pro rata from the Selling Stockholders
in proportion to their respective holdings, for per Share
consideration consisting of (i) $8.20698 in cash, (ii)
$10.79265 principal amount of Debentures and (iii) $1.5184
initial accreted value of Discount Debentures (or the pro rata
portion of such cash, Debentures and Discount Debentures, in
the case of fractional shares) (collectively, and together
with the cash amounts referred to in Section 2.1(b) below, the
"Purchase Consideration").
3. Amendment of Section 2.1(b). Section 2.1(b) of the
Merger Agreement is hereby deleted in full and the following provision is
hereby substituted in its place:
Debentures and Discount Debentures will each be issued only in
denominations of $1000 and integral multiples of $1000. A
Selling Stockholder will not be entitled to receive Debentures
or Discount Debentures in initial principal amounts less than
$1000, or in initial principal amounts in excess of $1000 (or
an integral multiple thereof) but less than the next highest
integral multiple ("Fractional Amounts"), but instead will be
entitled to receive cash in lieu of any such Fractional
Amount.
4. Amendment of Section 2.1(c). Section 2.1(c) of the
Merger Agreement is hereby amended to delete the share amount
"12,184,418.99116" appearing therein and to substitute in its place the share
amount "12,184,405.61789."
5. Amendment of Section 2.6(a). Section 2.6(a) of the
Merger Agreement is hereby amended to delete the amount "$20.51800748"
appearing in the third line thereof and to substitute in its place the amount
"$20.51803."
6. Amendment of Section 2.6(e). Section 2.6(e) of the
Merger Agreement is hereby amended to delete the parenthetical phrase
"(including the principal amount of Seller Debentures)" and to substitute in
its place the parenthetical phrase "(including the initial principal amount of
the Debentures and the Discount Debentures)."
7. Amendment of Sections 2.7, 2.8, 3.4, 5.1, 5.10,
6.1(d), 8.9, 9.6. Sections 2.7, 2.8, 3.4, 5.1, 5.10, 6.1(d) and 8.9 of the
Merger Agreement are hereby amended so that each reference therein to the
Debentures shall also include the Discount Debentures and Sections 5.1 and 9.6
are hereby amended so that each reference therein to the Indenture shall also
include the Discount Debenture Indenture.
8. Amendment of Section 5.6. Section 5.6 of the Merger
Agreement is hereby amended to add the words "or as partly or wholly replaced
by" to the eighth line thereof following the words "exchanged for."
9. Amendment of Section 11.1(b). Section 11.1(b) of the
Merger Agreement is hereby amended (i) to delete the date "April 14, 1995"
appearing in the second line thereof and to
2
<PAGE> 3
substitute in its place the date "June 6, 1995" and (ii) to delete the date
"April 30, 1995" appearing in the third line thereof and to substitute in its
place the date "June 30, 1995."
10. Schedules.
(a) Schedule 2.1 of the Merger Agreement is hereby
deleted and the attached Schedule 2.1 is hereby substituted in its place and
incorporated herein by reference.
(b) Schedule 9.9 of the Merger Agreement is hereby
amended to delete "$2.150 billion" in clause (2) thereof and to substitute in
its place "$2.210 billion."
11. Exhibit A. Exhibit A (Form of Indenture) of the
Merger Agreement is hereby deleted and the attached Exhibit A (Form of
Indenture) is hereby substituted in its place and incorporated herein by
reference.
12. Exhibit D. Exhibit D (Form of Opinion of Counsel to
F4L) of the Merger Agreement is hereby amended so that (i) each reference
therein to the Debentures shall also include the Discount Debentures and (ii)
each reference therein to the Indenture shall also include the Discount
Debenture Indenture.
13. Exhibit E. Exhibit E (Form of Put Agreement) of the
Merger Agreement is hereby amended to delete the amount $90,517,000" appearing
in the second recital and to substitute in its place the amount "$79,354,000."
14. Exhibit G. Exhibit G (Form of Registration Rights
Agreement) of the Merger Agreement is hereby amended as more fully described
below.
(a) The definition of "Debentures" in Section 1 is hereby
amended to delete "$150,000,000" appearing in the third line
thereof and to substitute in its place "$131,500,000."
(b) The following sentence is hereby added at the end of
Section 2: "It is further understood that a gift of any
Debentures by Federated Department Stores, Inc. to Federated
Department Stores Foundation, an Ohio not-for-profit
corporation, made at any time while the Shelf Registration
Statement is effective shall be deemed to be a transfer
pursuant to an effective Registration Statement."
(c) The parenthetical phrase contained in Section 5(d) shall
be deleted and the parenthetical phrase "(other than the
Company's 13-5/8% Senior Discount Debentures due 2005 sold for
the account of RGC Partners, L.P. and other than bank
borrowings, obligations of the Company with respect to trade
debt and other debt incurred by the Company in the ordinary
course of business)" shall be substituted in its place.
15. Exhibit I. Exhibit I (Description of the New
Discount Debentures), as attached hereto, is hereby added as an Exhibit to the
Merger Agreement.
16. Partnership. Notwithstanding Section 5.14 of the
Merger Agreement, the Selling Stockholders, together with certain other
entities, including an affiliate of The Yucaipa Companies, will
3
<PAGE> 4
be parties to a partnership agreement, a subscription agreement and related
documents with respect to RGC Partners, L.P., a partnership to be formed for
the purpose of acquiring the Discount Debentures.
17. Amendment of Article IX. Article IX of the Merger
Agreement is hereby amended to add the following new Section 9.14 at the end
thereof:
Section 9.14 Partnership Agreement. RGC Partners, L.P. shall
have been formed and funded as contemplated by the commitment to purchase
partnership interests.
18. Terms and Conditions. Except as specifically
modified herein, all other terms and conditions of the Merger Agreement shall
remain in full force and effect.
4
<PAGE> 5
IN WITNESS WHEREOF, this Amendment has been signed by or on
behalf of each of the parties as of the day first above written.
"F4L": FOOD 4 LESS, INC.
By: _________________________
Name:
Title:
"F4L HOLDINGS": FOOD 4 LESS HOLDINGS, INC.
By: _________________________
Name:
Title:
"F4L HOLDINGS DELAWARE": FOOD 4 LESS HOLDINGS, INC.
By: _________________________
Name:
Title:
"F4L SUPERMARKETS": FOOD 4 LESS SUPERMARKETS, INC.
By: _________________________
Name:
Title:
"RALPHS SUPERMARKETS": RALPHS SUPERMARKETS, INC.
By: _________________________
Name:
Title:
"SELLING
STOCKHOLDERS": THE EDWARD J. DEBARTOLO CORPORATION
By: _________________________
Name:
Title:
S-1
<PAGE> 6
CAMDEV PROPERTIES INC.
By: _________________________
Name:
Title:
BANK OF MONTREAL
By: _________________________
Name:
Title:
BANQUE PARIBAS
By: _________________________
Name:
Title:
FEDERATED DEPARTMENT STORES, INC.
By: _________________________
Name:
Title:
S-2
<PAGE> 7
SCHEDULE 2.1
CONSIDERATION TO RSI SHAREHOLDERS
<TABLE>
<Option> # shares # shares
purchased convt'd mrgr cash purch price debentures
# RSI shares owned (Section 2.1) (Section 2.6) (Section 2.1(a)) (Section 2.1(a))
------------------ ----------------- ----------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
EJDC ................................ 15,440,600.00000 7,352,658.59421 8,087,941.40579 $60,343,122.03 $ 79,354,000
Camdev Properties ................... 3,276,681.37923 1,560,322.75323 1,716,358.62600 $12,805,537.63 $ 16,840,000
Bank of Montreal .................... 2,591,815.11029 1,234,196.31655 1,357,618.79374 $10,129,024.49 $ 13,320,000
Banque Paribas ...................... 2,591,815.11029 1,234,196.31655 1,357,618.79374 $10,129,024.49 $ 13,320,000
Federated Department Stores, Inc. ... 1,686,368.28990 803,031.63735 883,336.65255 $ 6,590,464.29 $ 8,666,000
---------------- ---------------- ---------------- -------------- ------------
Total ........................... 25,587,279.88971 12,184,405.61789 13,402,874.27182 $99,997,173.22 $131,500,000
</TABLE>
<TABLE>
<CAPTION>
discount cash in lieu tot cash cash payable
debentures of fract purch price in merger cash total
(Section 2.1(a)) (Section 2.1(b)) (Section 2.1) (Section 2.6) (purch + mrgr)
---------------- ---------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
EJDC ................................ $11,164,000 $ 947.59 $60,344,069.62 $165,948,624.40 $226,292,694.02
Camdev Properties ................... $ 2,369,000 $ 17.36 $12,805,554.99 $ 35,216,297.78 $ 48,021,852.77
Bank of Montreal .................... $ 1,874,000 $ 248.88 $10,129,273.36 $ 27,855,663.14 $ 37,984,936.50
Banque Paribas ...................... $ 1,874,000 $ 248.88 $10,129,273.36 $ 27,855,663.14 $ 37,984,936.50
Federated Department Stores, Inc. ... $ 1,219,000 $ 839.40 $ 6,591,303.99 $ 18,124,327.94 $ 24,715,631.93
----------- --------- -------------- --------------- ---------------
Total ........................... $18,500,000 $2,302.10 $99,999,475.32 $275,000,576.40 $375,000,051.71
</TABLE>
<TABLE>
<CAPTION>
Per share amounts
- -----------------
Purchase price
(Section 2.1)
--------------
<S> <C> <C>
cash ......................... $ 8.2069800000
debentures ................... $10.7926500000
discount debentures .......... $ 1.5184000000
--------------
Total ...................... $20.5180300000
Merger consideration
(Section 2.6)
--------------------
cash ......................... $20.5180300000
</TABLE>
<PAGE> 8
EXHIBIT A
FOOD 4 LESS HOLDINGS, INC.
AND
NORWEST BANK MINNESOTA, N.A.
AS TRUSTEE
INDENTURE
Dated as of ___________ __, 1995
$131,500,000
13-5/8% Senior Subordinated Pay-in-Kind Debentures due 2007
<PAGE> 9
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA INDENTURE
Section Section
- ------- ---------------
<S> <C>
310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.8; 7.10; 13.2
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.3
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.3
313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6; 13.2
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10; 13.2
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2; 13.4
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2; 13.4
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.5
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(b)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5; 13.2
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(a)
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(c)
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.11
316(a)(last sentence) . . . . . . . . . . . . . . . . . . . . . . . . . . 2.9
(a)(1)(A) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.5
(a)(1)(B) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.4
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.7
317(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.8
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.9
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.4
318(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.1
- -----------------------
</TABLE>
N.A. means Not Applicable
NOTE: This Cross-Reference Table shall not, for any purpose,
be deemed to be a part of the Indenture.
<PAGE> 10
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I DEFINITIONS AND INCORPORATION BY REFERENCE . . . . . . . . . . . . . . . . 1
Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Incorporation by Reference of TIA . . . . . . . . . . . . . . . 19
Section 1.3. Rules of Construction . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE II THE SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.1. Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2.2. Execution and Authentication . . . . . . . . . . . . . . . . . . 21
Section 2.3. Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . 22
Section 2.4. Paying Agent To Hold Assets in Trust . . . . . . . . . . . . . . 22
Section 2.5. Securityholder Lists . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.6. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . 23
Section 2.7. Replacement Securities . . . . . . . . . . . . . . . . . . . . . 23
Section 2.8. Outstanding Securities . . . . . . . . . . . . . . . . . . . . . 24
Section 2.9. Treasury Securities . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.10. Temporary Securities . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.11. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.12. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.13. CUSIP Number. . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE III REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.1. Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . . 25
Section 3.2. Selection of Securities To Be Redeemed . . . . . . . . . . . . . 25
Section 3.3. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . 26
Section 3.4. Effect of Notice of Redemption . . . . . . . . . . . . . . . . . 27
Section 3.5. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . 27
Section 3.6. Securities Redeemed in Part . . . . . . . . . . . . . . . . . . 27
ARTICLE IV COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 4.1. Payment of Securities . . . . . . . . . . . . . . . . . . . . . 27
Section 4.2. Maintenance of Office or Agency . . . . . . . . . . . . . . . . 28
Section 4.3. Limitation on Restricted Payments . . . . . . . . . . . . . . . 28
Section 4.4. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.5. Payment of Taxes and Other Claims . . . . . . . . . . . . . . . 29
Section 4.6. Maintenance of Properties and Insurance . . . . . . . . . . . . 30
Section 4.7. Compliance Certificate; Notice of Default . . . . . . . . . . . 30
</TABLE>
i
<PAGE> 11
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 4.8. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . 31
Section 4.9. SEC Reports and Other Information . . . . . . . . . . . . . . 31
Section 4.10. Waiver of Stay, Extension or Usury Laws . . . . . . . . . . . 32
Section 4.11. Limitation on Transactions with Affiliates . . . . . . . . . . 32
Section 4.12. Limitation on Incurrences of Additional Indebtedness . . . . . 34
Section 4.13. Limitation on Liens . . . . . . . . . . . . . . . . . . . . . 34
Section 4.14. Limitation on Change of Control . . . . . . . . . . . . . . . 34
Section 4.15. Limitation on Asset Sales . . . . . . . . . . . . . . . . . . 36
Section 4.16. Limitation on Senior Subordinated Indebtedness . . . . . . . . 38
Section 4.17. Limitation on Preferred Stock of Subsidiaries . . . . . . . . 38
Section 4.18. Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries . . . . . . . . . . . . . . . . . . . 39
ARTICLE V SUCCESSOR CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 5.1. When Holdings May Merge, Etc . . . . . . . . . . . . . . . . . 39
Section 5.2. Successor Corporation Substituted . . . . . . . . . . . . . . 40
ARTICLE VI DEFAULT AND REMEDIES . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 6.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . 41
Section 6.2. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 6.3. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 6.4. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . 43
Section 6.5. Control by Majority . . . . . . . . . . . . . . . . . . . . . 44
Section 6.6. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . 44
Section 6.7. Rights of Holders To Receive Payment . . . . . . . . . . . . . 44
Section 6.8. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . 45
Section 6.9. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . 45
Section 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . 46
ARTICLE VII TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 7.1. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . 46
Section 7.2. Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . 47
Section 7.3. Individual Rights of Trustee . . . . . . . . . . . . . . . . . 48
Section 7.4. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . 48
Section 7.5. Notice of Default . . . . . . . . . . . . . . . . . . . . . . 48
Section 7.6. Reports By Trustee to Holders . . . . . . . . . . . . . . . . 48
Section 7.7. Compensation and Indemnity . . . . . . . . . . . . . . . . . . 49
Section 7.8. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . 49
</TABLE>
ii
<PAGE> 12
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 7.9. Successor Trustee by Merger, Etc . . . . . . . . . . . . . . 50
Section 7.10. Eligibility; Disqualification . . . . . . . . . . . . . . . 50
Section 7.11. Preferential Collection of Claims Against Holdings . . . . . 51
ARTICLE VIII LEGAL DEFEASANCE AND COVENANT DEFEASANCE . . . . . . . . . . . . . 51
Section 8.1. Option to Effect Legal Defeasance or Covenant Defeasance . . 51
Section 8.2. Legal Defeasance . . . . . . . . . . . . . . . . . . . . . . 51
Section 8.3. Covenant Defeasance . . . . . . . . . . . . . . . . . . . . 51
Section 8.4. Conditions to Legal or Covenant Defeasance . . . . . . . . . 52
Section 8.5. Deposited Money and U.S. Government Obligations to be
Held in Trust; Other Miscellaneous Provisions. . . . . . . .
Section 8.6. Repayment to Holdings . . . . . . . . . . . . . . . . . . . 54
Section 8.7. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE IX AMENDMENTS, SUPPLEMENTS AND WAIVERS . . . . . . . . . . . . . . . . . 55
Section 9.1. Without Consent of Holders . . . . . . . . . . . . . . . . . 55
Section 9.2. With Consent of Holders . . . . . . . . . . . . . . . . . . 55
Section 9.3. Compliance with TIA . . . . . . . . . . . . . . . . . . . . 57
Section 9.4. Revocation and Effect of Consents . . . . . . . . . . . . . 57
Section 9.5. Notation on or Exchange of Securities . . . . . . . . . . . 57
Section 9.6. Trustee To Sign Amendments, Etc. . . . . . . . . . . . . . . 58
ARTICLE X MEETINGS OF SECURITYHOLDERS . . . . . . . . . . . . . . . . . . . . . 58
Section 10.1. Purposes for Which Meetings May Be Called . . . . . . . . . 58
Section 10.2. Manner of Calling Meetings . . . . . . . . . . . . . . . . . 58
Section 10.3. Call of Meetings by Holdings or Holders . . . . . . . . . . 59
Section 10.4. Who May Attend and Vote at Meetings . . . . . . . . . . . . 59
Section 10.5. Regulations May Be Made by Trustee; Conduct of the Meeting;
Voting Rights; Adjournment . . . . . . . . . . . . . . . . 59
Section 10.6. Voting at the Meeting and Record To Be Kept . . . . . . . . 60
Section 10.7. Exercise of Rights of Trustee or Holders May Not Be
Hindered or Delayed by Call of Meeting . . . . . . . . . . 61
ARTICLE XI SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 11.1. Securities Subordinated to Senior Indebtedness . . . . . . . 61
Section 11.2. No Payment on Securities in Certain Circumstances . . . . . 61
Section 11.3. Securities Subordinated to Prior Payment of All Senior
Indebtedness on Dissolution, Liquidation or
Reorganization of Holdings . . . . . . . . . . . . . . . . . 63
</TABLE>
iii
<PAGE> 13
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 11.4. Holders to Be Subrogated to Rights of Holders of
Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . 64
Section 11.5. Obligations of Holdings Unconditional . . . . . . . . . . . . . . 65
Section 11.6. Trustee Entitled to Assume Payments Not Prohibited in
Absence of Notice . . . . . . . . . . . . . . . . . . . . . . . 65
Section 11.7. Application by Trustee of Assets Deposited with It. . . . . . . . 65
Section 11.8. Subordination Rights Not Impaired by Acts or
Omissions of Holdings or Holders of Senior Indebtedness . . . . 66
Section 11.9. Holders Authorize Trustee to Effectuate Subordination
of Securities . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 11.10. Right of Trustee to Hold Senior Indebtedness . . . . . . . . . . 67
Section 11.11. Article Eleven Not to Prevent Events of Default . . . . . . . . . 67
Section 11.12. No Fiduciary Duty of Trustee to Holders of Senior Indebtedness . 67
ARTICLE XII SATISFACTION AND DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . 68
Section 12.1. Satisfaction and Discharge of the Indenture . . . . . . . . . . 68
Section 12.2. Conditions to Satisfaction and Discharge of the Indenture . . . 68
ARTICLE XIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 13.1. TIA Controls . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 13.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 13.3. Communications by Holders with Other Holders . . . . . . . . . . 69
Section 13.4. Certificate and Opinion as to Conditions Precedent . . . . . . . 70
Section 13.5. Statements Required in Certificate or Opinion . . . . . . . . . 70
Section 13.6. Rules by Trustee, Paying Agent, Registrar . . . . . . . . . . . 70
Section 13.7. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 13.8. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 13.9. No Adverse Interpretation of Other Agreements . . . . . . . . . 71
Section 13.10. No Recourse Against Others . . . . . . . . . . . . . . . . . . . 71
Section 13.11. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 13.12. Duplicate Originals . . . . . . . . . . . . . . . . . . . . . . . 71
Section 13.13. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . 71
</TABLE>
iv
<PAGE> 14
INDENTURE dated as of ________ __, 1995, between FOOD 4 LESS HOLDINGS, INC., a
Delaware corporation ("Holdings"), and Norwest Bank Minnesota, N.A., a National
Banking Association, as Trustee.
Each party hereto agrees as follows for the benefit of each other party and for
the equal and ratable benefit of the Holders of the 13-5/8% Senior Subordinated
Pay-in-Kind Debentures due 2007:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.1. Definitions.
"Acquired Indebtedness" means Indebtedness of a person or any of its
subsidiaries existing at the time such person becomes a Subsidiary or assumed
in connection with the acquisition of assets from such person and not incurred
by such person in connection with, or in anticipation or contemplation of, such
person becoming a Subsidiary or such acquisition.
"Affiliate" means, with respect to any person, any other person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" when used with respect to any person means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"affiliated," "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of this Indenture, neither BT Securities Corporation
nor any of its Affiliates shall be deemed to be an Affiliate of Holdings or any
of its Subsidiaries.
"Affiliate Obligation" means any contractual obligation (not
constituting Indebtedness) between Holdings and any Affiliate, other than
obligations relating to the purchase or sale of goods in the ordinary course of
business made in compliance with Section 4.11 hereof.
"Affiliate Transaction" shall have the meaning provided in Section 4.11.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Asset Sale" means, with respect to any person, any sale, transfer or
other disposition or series of sales, transfers or other dispositions
(including, without limitation, by merger or consolidation or by exchange of
assets and whether by operation of law or otherwise), made by such person or
any of its subsidiaries to any person other than such person or one of its
wholly-owned subsidiaries (or, in the case of a sale, transfer or other
disposition by a Subsidiary, to any person other than Holdings or a directly or
indirectly wholly-owned Subsidiary) of any assets of such person or any of its
subsidiaries including, without limitation, assets consisting of any Capital
Stock or other securities held by such person or any of its subsidiaries, and
any Capital Stock issued by any subsidiary of such person, in each case,
1
<PAGE> 15
outside of the ordinary course of business, excluding, however, any sale,
transfer or other disposition, or series of related sales, transfers or other
dispositions, (i) involving only Excluded Assets, (ii) resulting in Net
Proceeds to Holdings or any Subsidiary of $500,000 or less, (iii) pursuant to
any foreclosure of assets or other remedy provided by applicable law to a
creditor of Holdings or any Subsidiary with a Lien on such assets, which Lien
is permitted under this Indenture, provided that such foreclosure or other
remedy is conducted in a commercially reasonable manner or in accordance with
any Bankruptcy Law, or (iv) the proceeds of which are not applied as
contemplated in Section 4.15 hereof and which, together with all other such
Asset Sale proceeds, do not exceed $20 million.
"Average Life" means, as of any date of determination, with respect to
any debt security, the quotient obtained by dividing (i) the sum of the
products of the number of years from the date of determination to the dates of
each successive scheduled principal payments of such debt security multiplied
by the amount of such principal payment by (ii) the sum of all such principal
payments.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal, state
or foreign law for the relief of debtors.
"Board of Directors" means, with respect to any person, the Board of
Directors of such person or any committee of the Board of Directors of such
person duly authorized, with respect to any particular matter, to exercise the
power of the Board of Directors of such person.
"Board Resolution" means, with respect to any person, a duly adopted
resolution of the Board of Directors of such person.
"Business Day" means a day that is not a Legal Holiday.
"Capital Stock" means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated) of
corporate stock, including each class of common stock and preferred stock of
such person, including Preferred Stock.
"Capitalized Lease Obligation" means obligations under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP, and the amount of Indebtedness represented by such obligations shall be
the capitalized amount of such obligations determined in accordance with GAAP.
"Cash Equivalents" means (i) obligations issued or unconditionally
guaranteed by the United States of America or any agency thereof, or
obligations issued by any agency or instrumentality thereof and backed by the
full faith and credit of the United States of America, (ii) commercial paper
rated the highest grade by Moody's Investors Service, Inc. and Standard &
Poor's Ratings Group and maturing not more than one year from the date of
creation thereof, (iii) time deposits with, and certificates of deposit and
banker's acceptances issued by, any bank having capital surplus and undivided
profits aggregating at least $500 million and maturing not more than one year
from the date of creation thereof, (iv) repurchase agreements that are secured
by a perfected security interest in an obligation described in clause (i) and
are with any
2
<PAGE> 16
bank described in clause (iii) and (v) readily marketable direct obligations
issued by any state of the United States of America or any political
subdivision thereof having one of the two highest rating categories obtainable
from either Moody's Investors Service, Inc. or Standard & Poor's Ratings
Group.
"Change of Control" means (I) the acquisition after the Issue Date, in
one or more transactions, of beneficial ownership (within the meaning of Rule
13d-3 under the Exchange Act) by (i) any person or entity (other than any
Permitted Holder) or (ii) any group of persons or entities (excluding any
Permitted Holders) who constitute a group (within the meaning of Section
13(d)(3) of the Exchange Act), in either case, of any securities of Holdings
such that, as a result of such acquisition, such person, entity or group
beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act),
directly or indirectly, 40% or more of the then outstanding voting securities
entitled to vote on a regular basis for a majority of the Board of Directors of
Holdings (but only to the extent that such beneficial ownership is not shared
with any Permitted Holder who has the power to direct the vote thereof);
provided, however, that no such Change of Control shall be deemed to have
occurred if (A) the Permitted Holders beneficially own, in the aggregate, at
such time, a greater percentage of such voting securities than such other
person, entity or group or (B) at the time of such acquisition, the Permitted
Holders (or any of them) possess the ability (by contract or otherwise) to
elect, or cause the election, of a majority of the members of Holdings' Board
of Directors or (II) Holdings ceasing to own 100% of the outstanding voting
securities entitled to vote on a regular basis to elect a majority of the Board
of Directors of the Company (other than in connection with a merger of Holdings
and the Company).
"Change of Control Date" shall have the meaning provided in Section 4.14.
"Change of Control Offer" shall have the meaning provided in Section
4.14.
"Change of Control Payment Date" shall have the meaning provided in
Section 4.14.
"Company" means Food 4 Less Supermarkets, Inc., a Delaware corporation,
and its successors, including, without limitation, Ralphs Supermarkets (to be
renamed Ralphs Grocery Company) following the Merger.
"Consolidated Net Income" means, with respect to any person, for any
period, the aggregate of the net income (or loss) of such person and its
subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (a) the net income of any other person in which such
person or any of its subsidiaries has an interest (which interest does not
cause the net income of such other person to be consolidated with the net
income of such person and its subsidiaries in accordance with GAAP) shall be
included only to the extent of the amount of dividends or distributions
actually paid to such person or such subsidiary by such other person in such
period; (b) the net income of any subsidiary of such person that is subject to
any Payment Restriction shall be excluded to the extent such Payment
Restriction actually prevented the payment of an amount that otherwise could
have been paid to, or received
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<PAGE> 17
by, such person or a subsidiary of such person not subject to any Payment
Restriction, provided, however, that with respect to the net income of
Holdings, the net income of the Company and its wholly-owned subsidiaries shall
not be so excluded, notwithstanding the existence of any such Payment
Restriction, so long as the terms of any such consensual Payment Restriction
limiting the payment of dividends are not materially more restrictive at the
time of determination of Consolidated Net Income than the most restrictive
Payment Restriction limiting the payment of dividends in effect on the Issue
Date and so long as the Company continues to be a wholly-owned subsidiary of
Holdings; and (c)(i) the net income (or loss) of any other person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition, (ii) all gains and losses realized on any Asset Sale, (iii) all
gains realized upon or in connection with or as a consequence of the issuance
of the Capital Stock of such person or any of its subsidiaries and any gains on
pension reversions received by such person or any of its subsidiaries, (iv) all
gains and losses realized on the purchase or other acquisition by such person
or any of its subsidiaries of any securities of such person or any of its
subsidiaries, (v) all gains and losses resulting from the cumulative effect of
any accounting change pursuant to the application of Accounting Principles
Board Opinion No. 20, as amended, (vi) all other extraordinary gains and
losses, (vii) (A) all non-cash charges, (B) up to $10 million of severance
costs and (C) any other restructuring reserves or charges (provided, however,
that any cash payments actually made with respect to the liabilities for which
such restructuring reserves or charges were created shall be deducted from
Consolidated Net Income in the period when made), in each case, incurred by
Holdings or any of its Subsidiaries in connection with the Merger, including,
without limitation, the divestiture of the Excluded Assets, (viii) losses
incurred by Holdings and its Subsidiaries resulting from earthquakes and (ix)
with respect to Holdings and its Subsidiaries, all deferred financing costs
written off in connection with the early extinguishment of any Indebtedness,
shall each be excluded.
"Consolidated Net Worth" means, with respect to any person, the total
stockholders' equity (exclusive of any Disqualified Capital Stock) of such
person and its subsidiaries determined on a consolidated basis in accordance
with GAAP.
"Consulting Agreement" means that certain Consulting Agreement, dated as
of the Issue Date, between Holdings, the Company and The Yucaipa Companies, as
such Consulting Agreement may be amended or replaced, so long as any amounts
paid under any amended or replacement agreement do not exceed the amounts
payable under such Consulting Agreement as in effect on the Issue Date.
"Covenant Defeasance" shall have the meaning provided in Section 8.3.
"Credit Agent" means, at any time, the then-acting Administrative Agent
as defined in and under the Credit Agreement, which initially shall be
____________________. Holdings shall promptly notify the Trustee of any change
in the Credit Agent.
"Credit Agreement" means the Credit Agreement, dated as of the Issue
Date, by and among the Company as borrower, Holdings as guarantor, certain of
the Company's subsidiaries, the Lenders referred to therein and Bankers Trust
Company, as administrative agent, as the same may be amended, extended,
renewed, restated, supplemented or otherwise
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<PAGE> 18
modified (in each case, in whole or in part, and without limitation as to
amount, terms, conditions, covenants and other provisions) from time to time,
and any agreement governing Indebtedness incurred to refund, replace or
refinance any borrowings and commitments then outstanding or permitted to be
outstanding under such Credit Agreement or any such prior agreement as the same
may be amended, extended, renewed, restated, supplemented or otherwise modified
(in each case, in whole or in part, and without limitation as to amount, terms,
conditions, covenants and other provisions). The term "Credit Agreement" shall
include all related or ancillary documents, including, without limitation, any
guarantee agreements and security documents. Holdings shall promptly notify
the Trustee of any such refunding or refinancing of the Credit Agreement.
"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means any event which is, or after notice or passage of time
or both would be, an Event of Default.
"Disqualified Capital Stock" means, (i) with respect to any person, any
Capital Stock of such person or its subsidiaries that, by its terms, by the
terms of any agreement related thereto or by the terms of any security into
which it is convertible, puttable or exchangeable, is, or upon the happening of
an event or the passage of time would be, required to be redeemed or
repurchased by such person or its subsidiaries, including at the option of the
holder, in whole or in part, or has, or upon the happening of an event or
passage of time would have, a redemption or similar payment due, on or prior to
the Maturity Date or any other Capital Stock of such person or its subsidiaries
designated as Disqualified Capital Stock by such person at the time of
issuance; provided, however, that if such Capital Stock is either (a)
redeemable or repurchasable solely at the option of such person or (b) issued
to employees of Holdings or its Subsidiaries or to any plan for the benefit of
such employees, such Capital Stock shall not constitute Disqualified Capital
Stock unless so designated; and (ii) with respect to any Subsidiary of
Holdings, any Preferred Stock issued by a Subsidiary of Holdings other than
Preferred Stock issued to Holdings.
"EBDIT" means, with respect to any person, for any period, the
Consolidated Net Income of such person for such period, plus, in each case to
the extent deducted in computing Consolidated Net Income of such person for
such period (without duplication) (i) provisions for income taxes or similar
charges recognized by such person and its consolidated subsidiaries accrued
during such period, (ii) depreciation and amortization expense of such person
and its consolidated subsidiaries accrued during such period (but only to the
extent not included in Fixed Charges), (iii) Fixed Charges of such person and
its consolidated subsidiaries for such period, (iv) LIFO charges (credit) of
such person and its consolidated subsidiaries for such period, (v) the amount
of any restructuring reserve or charge recorded during such period in
accordance with GAAP, including any such reserve or charge related to the
Merger, and (vi) any other non-cash charges reducing Consolidated Net Income
for such period (excluding any such charge which requires an accrual of or a
cash reserve for cash charges for any future period), less, without
duplication, (i) non-cash items increasing Consolidated Net Income of such
person for such period (excluding any such items which represent the reversal
of any accrual of, or cash
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<PAGE> 19
reserve for, anticipated charges in any prior period) in each case determined
in accordance with GAAP and (ii) the amount of all cash payments made by such
person or its subsidiaries during such period to the extent that such cash
payment has been provided for in a restructuring reserve or charge referred to
in clause (v) above (and was not otherwise deducted in the computation of
Consolidated Net Income of such person for such period).
"EJDC" means The Edward J. DeBartolo Corporation, an Ohio corporation.
"Event of Default" shall have the meaning provided in Section 6.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated by the SEC thereunder.
"Excluded Assets" means assets of Holdings or any Subsidiary required to
be disposed of by applicable regulatory authorities in connection with the
Merger.
"Existing Indebtedness" means the following indebtedness of the Company
outstanding on the Issue Date after giving effect to the Merger: (a) the ___%
Senior Notes due 2004 issued pursuant to an indenture dated as of the Issue
Date; (b) the 10.45% Senior Notes due 2000 issued pursuant to an indenture
dated as of April 15, 1992; (c) the ___% Senior Subordinated Notes due 2005
issued pursuant to an indenture dated as of the Issue Date; (d) the 9% Senior
Subordinated Notes due 2003 issued pursuant to an indenture dated as of March
30, 1993; (e) the 10 1/4% Senior Subordinated Notes due 2002 issued pursuant to
an indenture dated as of July 29, 1992; (f) the 13.75% Senior Subordinated
Notes due 2005 issued pursuant to an indenture dated as of the Issue Date; and
(g) the 13.75% Senior Subordinated Notes due 2001 issued pursuant to an
indenture dated as of June 15, 1991.
"Fixed Charges" means, with respect to any person, for any period, the
aggregate amount of (i) interest, whether expensed or capitalized, paid,
accrued or scheduled to be paid or accrued during such period (except to the
extent accrued in a prior period) in respect of all Indebtedness of such person
and its consolidated subsidiaries (including (a) original issue discount on any
Indebtedness (including (without duplication), in the case of Holdings, any
original issue discount on the Senior Discount Debentures, the Senior Discount
Notes and the Securities but excluding amortization of debt issuance costs and
(b) the interest portion of all deferred payment obligations, calculated in
accordance with the effective interest method, in each case to the extent
attributable to such period, but excluding the amortization of debt issuance
costs) and (ii) dividend requirements on Capital Stock of such person and its
consolidated subsidiaries declared or paid in cash or required to be declared
or paid in cash during such period and excluding items eliminated in
consolidation. For purposes of this definition, (a) interest on a Capitalized
Lease Obligation shall be deemed to accrue at an interest rate reasonably
determined by the Board of Directors of such person (as evidenced by a Board
Resolution) to be the rate of interest implicit in such Capitalized Lease
Obligation in accordance with GAAP, (b) interest on Indebtedness that is
determined on a fluctuating basis shall be deemed to have accrued at a fixed
rate per annum equal to the rate of interest of such Indebtedness in effect on
the date Fixed Charges are being calculated, (c) interest on Indebtedness that
may optionally be determined at an interest rate based upon a factor of a prime
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<PAGE> 20
or similar rate, a eurocurrency interbank offered rate, or other rate, shall be
deemed to have been based upon the rate actually chosen, or, if none, then
based upon such optional rate chosen as Holdings may designate, and (d) Fixed
Charges shall be increased or reduced by the net cost (including amortization
of discount) or benefit associated with Interest Swap Obligations attributable
to such period. For purposes of clause (ii) above, dividend requirements shall
be increased to an amount representing the pretax earnings that would be
required to cover such dividend requirements; accordingly, the increased amount
shall be equal to a fraction, the numerator of which is the amount of such
dividend requirements and the denominator of which is one (1) minus the
applicable actual combined federal, state, local and foreign income tax rate of
such person and its subsidiaries (expressed as a decimal), on a consolidated
basis, for the fiscal year immediately preceding the date of the transaction
giving rise to the need to calculate Fixed Charges.
"Foreign Exchange Agreement" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect against fluctuations in currency values.
"Forward Period" shall have the meaning set forth in the definition of
Operating Coverage Ratio contained in this Section 1.1.
"GAAP" means generally accepted accounting principles as in effect in
the United States of America as of the date of this Indenture.
"Holder" means the person in whose name a Security is registered on the
Registrar's books.
"Holdings" means the party named as such above, until a successor
replaces it in accordance with the terms of this Indenture, and thereafter
means such successor.
"incur" shall have the meaning set forth in Section 4.12.
"Indebtedness" means with respect to any person, without duplication,
(i) all liabilities, contingent or otherwise, of such person (a) for borrowed
money (whether or not the recourse of the lender is to the whole of the assets
of such person or only to a portion thereof), (b) evidenced by bonds, notes,
debentures, drafts accepted or similar instruments or letters of credit or
representing the balance deferred and unpaid of the purchase price of any
property (other than any such balance that represents an account payable or any
other monetary obligation to a trade creditor (whether or not an Affiliate)
created, incurred, assumed or guaranteed by such person in the ordinary course
of business of such person in connection with obtaining goods, materials or
services and due within twelve months (or such longer period for payment as is
customarily extended by such trade creditor) of the incurrence thereof, which
account is not overdue by more than 90 days, according to the original terms of
sale, unless such account payable is being contested in good faith), or (c) for
the payment of money relating to a Capitalized Lease Obligation; (ii) the
maximum fixed repurchase price of all Disqualified Capital Stock of such person
or, if there is no such maximum fixed repurchase price, the liquidation
preference of such Disqualified Capital Stock, plus accrued but unpaid
dividends; (iii)
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reimbursement obligations of such person with respect to letters of credit;
(iv) obligations of such person with respect to Interest Swap Obligations and
Foreign Exchange Agreements; (v) all liabilities of others of the kind
described in the preceding clause (i), (ii), (iii) or (iv) that such person has
guaranteed or that is otherwise its legal liability; and (vi) all obligations
of others secured by a Lien to which any of the properties or assets
(including, without limitation, leasehold interests and any other tangible or
intangible property rights) of such person are subject, whether or not the
obligations secured thereby shall have been assumed by such person or shall
otherwise be such person's legal liability (provided that if the obligations so
secured have not been assumed by such person or are not otherwise such person's
legal liability, such obligations shall be deemed to be in an amount equal to
the fair market value of such properties or assets, as determined in good faith
by the Board of Directors of such person, which determination shall be
evidenced by a Board Resolution). For purposes of the preceding sentence, the
"maximum fixed repurchase price" of any Disqualified Capital Stock that does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Disqualified Capital Stock as if such Disqualified Capital Stock
were purchased on any date on which Indebtedness shall be required to be
determined pursuant to this Indenture, and if such price is based upon, or
measured by, the fair market value of such Disqualified Capital Stock (or any
equity security for which it may be exchanged or converted), such fair market
value shall be determined in good faith by the Board of Directors of such
person, which determination shall be evidenced by a Board Resolution. For
purposes hereof, Indebtedness incurred by any person that is a general
partnership (other than non-recourse Indebtedness) shall be deemed to have been
incurred by the general partners of such partnership pro rata in accordance
with their respective interests in the liabilities of such partnership unless
any such general partner shall, in the reasonable determination of the Board of
Directors of Holdings, be unable to satisfy its pro rata share of the
liabilities of the partnership, in which case the pro rata share of any
Indebtedness attributable to such partner shall be deemed to be incurred at
such time by the remaining general partners on a pro rata basis in accordance
with their interests.
"Indenture" means this Indenture, as amended or supplemented from time
to time in accordance with the terms hereof.
"Independent Financial Advisor" means a reputable accounting, appraisal
or a nationally recognized investment banking firm that is, in the reasonable
judgment of the Board of Directors of Holdings, qualified to perform the task
for which such firm has been engaged hereunder and disinterested and
independent with respect to Holdings and its Affiliates.
"Initial Public Offering" means an underwritten primary public offering
of common stock of Holdings at a time when Holdings has not previously issued
or sold any equity securities in an underwritten transaction pursuant to a
registration statement filed pursuant to the Securities Act.
"Initial Public Offering Consummation Date" means the first date on
which Holdings or the Company receives any proceeds from an Initial Public
Offering.
"Interest Payment Date" means the stated maturity of an installment of
interest on the Securities.
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"Interest Swap Obligation" means any obligation of any person pursuant
to any arrangement with any other person whereby, directly or indirectly, such
person is entitled to receive from time to time periodic payments calculated by
applying either a fixed or floating rate of interest on a stated notional
amount in exchange for periodic payments made by such person calculated by
applying a fixed or floating rate of interest on the same notional amount;
provided that the term "Interest Swap Obligation" shall also include interest
rate exchange, collar, cap, swap option or similar agreements providing
interest rate protection.
"Investment" by any person in any other person means any investment by
such person in such other person, whether by share purchase, capital
contribution, loan, advance (other than reasonable loans and advances to
employees for moving and travel expenses, as salary advances, or to permit the
purchase of Qualified Capital Stock of Holdings or any Subsidiary and other
similar customary expenses incurred, in each case in the ordinary course of
business consistent with past practice) or similar credit extension
constituting Indebtedness of such other person, and any guarantee of
Indebtedness of any other person.
"Issue Date" means the date of first issuance of the Securities pursuant
to this Indenture.
"Legal Defeasance" shall have the meaning provided in Section 8.2.
"Legal Holiday" shall have the meaning provided in Section 13.7.
"Letter of Credit Obligations" means Indebtedness of Subsidiaries with
respect to letters of credit issued pursuant to the Credit Agreement, and for
purposes of Section 4.12, the aggregate principal amount of Indebtedness
outstanding at any time with respect thereto, shall be deemed to consist of (a)
the aggregate maximum amount then available to be drawn under all such letters
of credit (the determination of such maximum amount to assume compliance with
all conditions for drawing), and (b) the aggregate amount that has then been
paid by, and not reimbursed to, the issuers under such letters of credit.
"Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property, or a security interest of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof, any option or
other agreement to sell which is intended to constitute or create a security
interest, mortgage, pledge or lien, any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction); provided that in no event shall an operating lease be
deemed to constitute a Lien hereunder.
"Maturity Date" means ________ __, 2007.
"Merger" means (i) the merger of the Company into Ralphs Supermarkets
(with Ralphs Supermarkets surviving such merger) pursuant to the Merger
Agreement and (ii) immediately following the merger described in clause (i) of
this definition, the merger of RGC
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<PAGE> 23
into Ralphs Supermarkets (with Ralphs Supermarkets surviving such merger and
changing its name to "Ralphs Grocery Company" in connection with such merger).
"Merger Agreement" means the Agreement and Plan of Merger, dated as of
September 14, 1994, by and among Food 4 Less, Inc., a Delaware corporation,
Holdings, Food 4 Less Holdings, Inc., a California corporation, Ralphs
Supermarkets, the Company and the stockholders of Ralphs Supermarkets, as such
agreement is in effect on the Issue Date.
"Net Cash Proceeds" means Net Proceeds of (i) the sale of Qualified
Capital Stock of Holdings or (ii) any Asset Sale, in each case, in the form of
cash or Cash Equivalents.
"Net Proceeds" means (a) in the case of any Asset Sale or any issuance
and sale by any person of Qualified Capital Stock, the aggregate net proceeds
received by such person after payment of expenses, taxes, commissions and the
like incurred in connection therewith, (and, in the case of any Asset Sale, net
of the amount of cash applied to repay Indebtedness secured by the asset
involved in such Asset Sale) whether such proceeds are in cash or in property
(valued at the fair market value thereof at the time of receipt as determined
with respect to any Asset Sale resulting in Net Proceeds in excess of $5
million in good faith by the Board of Directors of such person, which
determination shall be evidenced by a Board Resolution) and (b) in the case of
any conversion or exchange of any outstanding Indebtedness or Disqualified
Capital Stock of such person for or into shares of Qualified Capital Stock of
Holdings, the sum of (i) the fair market value of the proceeds received by
Holdings in connection with the issuance of such Indebtedness or Disqualified
Capital Stock on the date of such issuance and (ii) any additional amount paid
by the holder to Holdings upon such conversion or exchange.
"Officer" means, with respect to any person, the Chairman of the Board,
the President, any Vice President, the Chief Financial Officer, the Controller,
or the Secretary of such person.
"Officers' Certificate" means, with respect to any person, a certificate
signed by two Officers or by an Officer and either an Assistant Treasurer or an
Assistant Secretary of such person and otherwise complying with the
requirements of Sections 13.4 and 13.5.
"Old RGC Notes" means the 9% Senior Subordinated Notes due 2003 and the
10-1/4% Senior Subordinated Notes due 2002 of Ralphs Grocery Company.
"Operating Coverage Ratio" means with respect to any person, the ratio
of (1) EBDIT of such person for the period (the "Pro Forma Period") consisting
of the most recent four full fiscal quarters for which financial information in
respect thereof is available immediately prior to the date of the transaction
giving rise to the need to calculate the Operating Coverage Ratio (the
"Transaction Date") to (2) the aggregate Fixed Charges of such person for the
fiscal quarter in which the Transaction Date occurs and the three fiscal
quarters immediately subsequent to such fiscal quarter (the "Forward Period")
reasonably anticipated by the Board of Directors of such person to become due
from time to time during such period. For purposes of this definition, if the
Transaction Date occurs prior to the first anniversary of the Merger, "EBDIT"
for the Pro Forma Period shall be calculated, in the case of Holdings, after
giving
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effect on a pro forma basis to the Merger as if it had occurred on the first
day of the Pro Forma Period. In addition to, but without duplication of, the
foregoing, for purposes of this definition, "EBDIT" shall be calculated after
giving effect (without duplication), on a pro forma basis for the Pro Forma
Period (but no longer), to (a) any Investment, during the period commencing on
the first day of the Pro Forma Period to and including the Transaction Date
(the "Reference Period"), in any other person that, as a result of such
Investment, becomes a subsidiary of such person, (b) the acquisition, during
the Reference Period (by merger, consolidation or purchase of stock or assets)
of any business or assets, which acquisition is not prohibited by this
Indenture, and (c) any sales or other dispositions of assets (other than sales
of inventory in the ordinary course of business) occurring during the Reference
Period, in each case as if such incurrence, Investment, repayment, acquisition
or asset sale had occurred on the first day of the Reference Period. In
addition, for purposes of this definition, "Fixed Charges" shall be calculated
after giving effect (without duplication), on a pro forma basis for the Forward
Period, to any Indebtedness incurred or repaid on or after the first day of the
Forward Period and prior to the Transaction Date. If such person or any of its
subsidiaries directly or indirectly guarantees any Indebtedness of a third
person, the Operating Coverage Ratio shall give effect to the incurrence of
such Indebtedness as if such person or subsidiary had directly incurred such
guaranteed Indebtedness.
"operating lease" means any lease the obligations under which do not
constitute Capitalized Lease Obligations.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee complying with the requirements of
Sections 13.4 and 13.5. Unless otherwise required by the Trustee, the legal
counsel may be an employee of or counsel to Holdings or the Trustee.
"Other Obligations" has the meaning set forth in Section 11.1 hereof.
"Pari Passu Indebtedness" means, with respect to Holdings, Indebtedness
that ranks pari passu in right of payment to the Securities (whether or not
secured by any Lien).
"Paying Agent" shall have the meaning provided in Section 2.3, except
that, for the purposes of Articles Three and Eight and Section 4.14, the Paying
Agent shall not be Holdings or any Subsidiary.
"Payment Restriction" means, with respect to a Subsidiary of any person,
any encumbrance, restriction or limitation, whether by operation of the terms
of its charter or by reason of any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation, on the ability of (i) such
subsidiary to (a) pay dividends or make other distributions on its Capital
Stock or make payments on any obligation, liability or Indebtedness owed to
such person or any other subsidiary of such person, (b) make loans or advances
to such person or any other subsidiary of such person, or (c) transfer any of
its properties or assets to such person or any other subsidiary of such person,
or (ii) such person or any other subsidiary of such person to receive or retain
any such (a) dividends, distributions or payments, (b) loans or advances, or
(c) transfer of properties or assets.
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"Permitted Holder" means (i) Food 4 Less Equity Partners, L.P., The
Yucaipa Companies or any entity controlled thereby or any of the partners
thereof, (ii) Apollo Advisors, L.P., Lion Advisors, L.P., or any entity
controlled thereby or any of the partners thereof, (iii) an employee benefit
plan of Holdings or any Subsidiary, or any participant therein, (iv) a trustee
or other fiduciary holding securities under an employee benefit plan of
Holdings or any Subsidiary or (v) any Permitted Transferee of any of the
foregoing persons.
"Permitted Indebtedness" means (a) Indebtedness of the Company and its
subsidiaries pursuant to (i) the Term Loans (and the Company and each
Subsidiary (to the extent it is not an obligor) may guarantee such
Indebtedness) in an aggregate principal amount at any time outstanding not to
exceed $750 million or such lesser amount as may be actually funded under the
Term Loans on or within 91 days following the Issue Date (with any such amounts
funded after the Issue Date to be used to finance the repurchase of up to
$224.5 million aggregate principal amount of Old RGC Notes pursuant to the
"change of control purchase offer" provision set forth in Section 1014 of the
indentures pursuant to which the Old RGC Notes were issued, plus related fees
and expenses), less the aggregate amount of all principal repayments thereunder
pursuant to and in accordance with the provisions of Section 4.15 subsequent to
the Issue Date and (ii) the revolving credit facility under the Credit
Agreement (and the Company and each Subsidiary (to the extent it is not an
obligor) may guarantee such Indebtedness) in an aggregate principal amount at
any time outstanding not to exceed $325 million, less all permanent reductions
thereunder pursuant to and in accordance with the provisions of Section 4.15;
(b) any guarantee by Holdings of the Indebtedness referred to in the foregoing
clause (a); (c) Indebtedness of Holdings or a Subsidiary owed to and held by
Holdings or a Subsidiary; (d) Indebtedness incurred by Holdings or any
Subsidiary in connection with the purchase or improvement of property (real or
personal) or equipment or other capital expenditures in the ordinary course of
business (including for the purchase of assets or stock of any retail grocery
store or business) or consisting of Capitalized Lease Obligations, provided
that (i) at the time of the incurrence thereof, such Indebtedness, together
with any other Indebtedness incurred during the most recently completed four
fiscal quarter period in reliance upon this clause (d) does not exceed, in the
aggregate, 3% of net sales of Holdings and its Subsidiaries during the most
recently completed four fiscal quarter period on a consolidated basis
(calculated on a pro forma basis if the date of incurrence is prior to the
first anniversary of the Merger) and (ii) such Indebtedness, together with all
then outstanding Indebtedness incurred in reliance upon this clause (d) does
not exceed, in the aggregate, 3% of the aggregate net sales of Holdings and its
Subsidiaries during the most recently completed twelve fiscal quarter period on
a consolidated basis (calculated on a pro forma basis if the date of incurrence
is prior to the third anniversary of the Merger); (e) Indebtedness incurred by
Holdings or any Subsidiary in connection with capital expenditures in an
aggregate principal amount not exceeding $150 million, provided that such
capital expenditures relate solely to the integration of the operations of
Ralphs Supermarkets, the Company, and their respective subsidiaries as
described in that certain Registration Statement of Holdings dated ______,
1995; (f) Indebtedness of Holdings or any Subsidiary incurred under Foreign
Exchange Agreements and Interest Swap Obligations; (g) guarantees incurred in
the ordinary course of business, by Holdings or a Subsidiary, of Indebtedness
of any other person in aggregate not to exceed $25 million at any time
outstanding; (h) guarantees by Holdings or a Subsidiary of Indebtedness
incurred by a wholly-owned Subsidiary so long as the incurrence of such
Indebtedness incurred by such wholly-owned
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Subsidiary is permitted under the terms of this Indenture; (i) Refinancing
Indebtedness; (j) Indebtedness for letters of credit relating to workers'
compensation claims and self-insurance or similar requirements in the ordinary
course of business; (k) Existing Indebtedness and other Indebtedness
outstanding on the Issue Date (after giving effect to the Merger); (l)
Indebtedness arising from guarantees of Indebtedness of Holdings or any
Subsidiary or other agreements of Holdings or a Subsidiary providing for
indemnification, adjustment of purchase price or similar obligations, in each
case, incurred or assumed in connection with the disposition of any business,
assets or Subsidiary, other than guarantees of Indebtedness incurred by any
person acquiring all or any portion of such business, assets or Subsidiary for
the purpose of financing such acquisition; provided that the maximum assumable
liability in respect of all such Indebtedness shall at no time exceed the gross
proceeds actually received by Holdings and its Subsidiaries in connection with
such disposition; (m) obligations in respect of performance bonds and
completion guarantees provided by Holdings or any Subsidiary in the ordinary
course of business; (n) Indebtedness of Holdings with respect to the Senior
Discount Notes, if any, the Senior Discount Debentures (including the accretion
of the Senior Discount Notes and the Senior Discount Debentures up to their
respective stated principal amount at maturity) and the Securities (including
the issuance of Secondary Securities in lieu of cash interest payments pursuant
to the terms of this Indenture); and (o) additional Indebtedness of Holdings or
any Subsidiary in an amount not to exceed $200 million at any time outstanding.
"Permitted Investment" by any person means (i) any Related Business
Investment, (ii) Investments in securities not constituting cash or Cash
Equivalents and received in connection with an Asset Sale or any other
disposition of assets not constituting an Asset Sale by reason of the $500,000
threshold contained in the definition thereof, (iii) cash and Cash Equivalents,
(iv) Investments existing on the Issue Date, (v) Investments specifically
permitted by and made in accordance with Sections 4.3 and 4.11, (vi)
Investments in any Subsidiary or by any Subsidiary in Holdings or any other
Subsidiary in other Subsidiaries, and (vii) additional Investments in an
aggregate amount not exceeding $5 million.
"Permitted Payments" means any (i) payment by Holdings or any Subsidiary
to The Yucaipa Companies or the principals or any Affiliates thereof for
consulting, management, investment banking or similar services, or for
reimbursement of losses, costs and expenses pursuant to the Consulting
Agreement, (ii) payment by Holdings or any Subsidiary to Apollo Advisors, L.P.
or the principals or any Affiliates thereof in an aggregate amount not to
exceed $5 million as a commitment fee in connection with the purchase of equity
securities of Holdings on the Issue Date, and (iii) payment by Holdings or any
Subsidiary, (a) in connection with repurchases of outstanding shares of
Holdings' common stock following the death, disability or termination of
employment of management stockholders, and (b) of amounts required to be paid
by Holdings or any Subsidiaries to participants in employee benefit plans upon
any termination of employment by such participants, as provided in the
documents related thereto, in an aggregate amount (for both clauses (a) and
(b)) not to exceed $10 million in any Yearly Period (provided that any unused
amounts may be carried over to any subsequent Yearly Period subject to a
maximum amount of $20 million in any Yearly Period).
"Permitted Transferees" means, with respect to any person, (i) any
Affiliate of such person, (ii) the heirs, executors, administrators,
testamentary trustees, legatees or bene-
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ficiaries of any such person, (iii) a trust, the beneficiaries of which, or a
corporation or partnership, the stockholders or general or limited partners of
which, include only such person or his or her spouse or lineal descendants, in
each case to whom such person has transferred the beneficial ownership of any
securities of Holdings, (iv) any investment account whose investment managers
and investment advisors consist solely of such person and/or Permitted
Transferees of such person, and (v) any investment fund or investment entity
that is a subsidiary of such person or a permitted transferee of such person.
"Person" or "person" means any individual, corporation, partnership,
joint venture, association, joint-stock company, trust, unincorporated
organization or government or other agency or political subdivision thereof.
"Plan of Liquidation" means, with respect to any person, a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and
all or substantially all of the remaining assets of such person to holders of
Capital Stock of such person.
"Preferred Stock" means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated) of such
person's preferred or preference stock, whether outstanding on the date hereof
or issued after the Issue Date, and including, without limitation, all classes
and series of preferred or preference stock of such person.
"principal" of any Indebtedness (including the Securities) means the
principal of such Indebtedness plus the premium, if any, on such Indebtedness.
"pro forma" means, with respect to any calculation made or required to
be made pursuant to the terms of this Indenture, a calculation in accordance
with Article 11 of Regulation S-X under the Securities Act, as interpreted by
Holdings' chief financial officer or Board of Directors in consultation with
its independent certified public accountants.
"Pro Forma Period" shall have the meaning set forth in the definition of
Operating Coverage Ratio contained in this Section 1.1.
"Qualified Capital Stock" means, with respect to any person, any Capital
Stock of such person that is not Disqualified Capital Stock.
"Ralphs Supermarkets" means Ralphs Supermarkets, Inc., a Delaware
corporation, until a successor replaces it and thereafter means such successor.
"Record Date" means the Record Dates specified in the Securities;
provided that if any such date is a Legal Holiday, the Record Date shall be the
first day immediately preceding such specified day that is not a Legal Holiday.
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"Redemption Date," when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to this Indenture
and the Securities.
"Redemption Price," when used with respect to any Security to be
redeemed, means the price fixed for such redemption pursuant to this Indenture
and the Securities.
"Reference Period" shall have the meaning provided in the definition of
"Operating Coverage Ratio" contained in this Section 1.1.
"Refinancing Indebtedness" means, with respect to any person,
Indebtedness of such person issued in exchange for, or the proceeds from the
issuance and sale or disbursement of which are used to substantially
concurrently repay, redeem, refund, refinance, discharge or otherwise retire
for value, in whole or in part (collectively, "repay"), or constituting an
amendment, modification or supplement to, or a deferral or renewal of
(collectively, an "amendment"), any Indebtedness of such person existing on the
Issue Date or Indebtedness (other than Permitted Indebtedness, except Permitted
Indebtedness incurred pursuant to clauses (b), (d), (e), (i), (k) and (n) of
the definition thereof) incurred in accordance with this Indenture (a) in a
principal amount (or, if such Refinancing Indebtedness provides for an amount
less than the principal amount thereof to be due and payable upon the
acceleration thereof, with an original issue price) not in excess of (without
duplication) (i) the principal amount or the original issue price, as the case
may be, of the Indebtedness so refinanced (or, if such Refinancing Indebtedness
refinances Indebtedness under a revolving credit facility or other agreement
providing a commitment for subsequent borrowings, with a maximum commitment not
to exceed the maximum commitment under such revolving credit facility or other
agreement) plus (ii) unpaid accrued interest on such Indebtedness plus (iii)
premiums, penalties, fees and expenses actually incurred by such person in
connection with the repayment or amendment thereof and (b) with respect to
Refinancing Indebtedness that repays or constitutes an amendment to
Subordinated Indebtedness, such Refinancing Indebtedness (x) shall not have any
fixed mandatory redemption or sinking fund requirement in an amount greater
than or at a time prior to the amounts and times specified in such repaid or
amended Subordinated Indebtedness, except to the extent that any such
requirement applies on a date after the Maturity Date and (y) shall contain
subordination and default provisions no less favorable in any material respect
to Holders than those contained in such repaid or amended Subordinated
Indebtedness.
"Registrar" shall have the meaning provided in Section 2.3.
"Registration Rights Agreement" means the registration rights agreement
dated as of the Issue Date by and among Holdings, the Company and the
stockholders of Ralphs Supermarkets with respect to the Securities.
"Related Business Investment" means (i) any Investment by a person in
any other person a majority of whose revenues are derived from the operation of
one or more retail grocery stores or supermarkets or any other line of business
engaged in by Holdings or any Subsidiary as of the Issue Date; (ii) any
Investment by such person in any cooperative or other supplier, including,
without limitation, any joint venture which is intended to supply any product
or service useful to the business of Holdings and any Subsidiary as it is
conducted as of the Issue
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Date and as such business may thereafter evolve or change; and (iii) any
capital expenditure or Investment in each case reasonably related to the
business of Holdings and any Subsidiary as it is conducted as of the Issue Date
and as such business may thereafter evolve or change.
"Representative" means the indenture trustee or other trustee, agent or
representative for any Senior Indebtedness.
"Restricted Debt Prepayment" means the purchase, redemption, acquisition
or retirement for value by Holdings, prior to the scheduled maturity or prior
to any scheduled repayment of principal or any sinking fund payment in respect
of any Subordinated Indebtedness.
"Restricted Payment" means any (i) Stock Payment or (ii) Investment
(other than a Permitted Investment) or (iii) Restricted Debt Prepayment.
"RGC" means Ralphs Grocery Company, a Delaware corporation, until a
successor replaces it and thereafter means such successor.
"SEC" means the Securities and Exchange Commission.
"Secondary Securities" has the meaning set forth in Section 2.2.
"Securities" means the 13-5/8% Senior Subordinated Pay-in-Kind
Debentures due 2007 of Holdings, including any Secondary Securities issued in
respect thereof, in each case, issued pursuant to this Indenture, as the same
may be modified or amended from time to time and refinancings thereof, to the
extent such refinancing indebtedness is permitted to be incurred under this
Indenture.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Senior Discount Debentures" means the 13-5/8% Senior Discount
Debentures due 2005 of Holdings, issued pursuant to the Senior Discount
Debenture Indenture, as the same may be modified or amended from time to time
and refinancings thereof, to the extent such refinancing indebtedness is
permitted to be incurred under this Indenture.
"Senior Discount Debenture Indenture" means the indenture between
Holdings and United States Trust Company of New York, as trustee, dated as of
the Issue Date, pursuant to which the Senior Discount Debentures were issued,
as amended or supplemented from time to time in accordance with the terms
thereof.
"Senior Discount Notes" means the 15.25% Senior Discount Notes due 2004
of Food 4 Less Holdings, Inc., issued pursuant to the Senior Discount Note
Indenture, as the same may be modified or amended from time to time and
refinancings thereof, to the extent such refinancing indebtedness is permitted
to be incurred under this Indenture.
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"Senior Discount Note Indenture" means the indenture between Holdings
and United States Trust Company of New York, as trustee, dated as of December
15, 1992, pursuant to which the Senior Discount Notes were issued, as amended
or supplemented from time to time in accordance with the terms thereof.
"Senior Indebtedness" means the principal of, premium, if any, and
interest on (such Senior Indebtedness being deemed to include for all purposes
of Article XI of this Indenture the amount required to fully secure in cash
undrawn Letter of Credit Obligations under the Credit Agreement and such
interest on Senior Indebtedness being deemed to include for all purposes of
Article XI interest accruing after the filing of a petition initiating any
proceeding pursuant to any Bankruptcy Law in accordance with and at the rate
(including any rate applicable upon any default, to the extent lawful)
specified in any document evidencing the Senior Indebtedness, whether or not
the claim for such interest is allowed as a claim after such filing in any
proceeding under such Bankruptcy Law) any Indebtedness of Holdings (and, in the
case of the Credit Agreement, all obligations of Holdings for fees, expenses,
indemnities and other amounts payable thereunder or in connection therewith),
whether outstanding on the Issue Date or thereafter created, incurred, assumed
or guaranteed or in effect guaranteed by Holdings (including, without
limitation, Indebtedness under the Credit Agreement), unless, in the case of
any particular Indebtedness, the instrument creating or evidencing such
Indebtedness expressly provides that such Indebtedness shall not be senior in
right of payment to the Securities. Without limiting the generality of the
foregoing, "Senior Indebtedness" shall include the principal of, premium, if
any, and interest on all obligations of every nature of Holdings from time to
time owed or guaranteed by Holdings with respect to the Credit Agreement, the
Senior Discount Debentures and the Senior Discount Notes, if any.
Notwithstanding the foregoing, "Senior Indebtedness" shall not include (i) any
Pari Passu Indebtedness or any Subordinated Indebtedness, (ii) any Indebtedness
constituting Disqualified Capital Stock, (iii) Indebtedness of Holdings to any
Subsidiary, (iv) that portion of any Indebtedness which is incurred in
violation of Section 4.12 of this Indenture, (v) Indebtedness to, or guaranteed
on behalf of, any shareholder, director, officer or employee of Holdings or of
any Subsidiary (including, without limitation, amounts owed for compensation),
(vi) Indebtedness to trade creditors and other amounts incurred in connection
with obtaining goods, materials or services, and (vii) any liability for
federal, state, local or other taxes owed or owing by Holdings.
"Significant Stockholder" means, with respect to any person, any other
person who is the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of more than 10% of any class of equity securities of such person
that are entitled to vote on a regular basis for the election of directors of
such person.
"Significant Subsidiary" means each Subsidiary that is either (a) a
"significant subsidiary" as defined in Rule 1-02(v) of Regulation S-X under the
Securities Act and the Exchange Act (as such regulation is in effect on the
date hereof) or (b) material to the financial condition or results of
operations of Holdings and its Subsidiaries taken as a whole.
"Stock Payment" means, with respect to any person, (a) the declaration
or payment by such person, either in cash or in property, of any dividend on
(except, in the case of Holdings, dividends payable solely in Qualified Capital
Stock of Holdings), or the making by
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such person or any of its subsidiaries of any other distribution in respect of,
such person's Qualified Capital Stock or any warrants, rights or options to
purchase or acquire shares of any class of such Capital Stock (other than
exchangeable or convertible Indebtedness of such person), or (b) the
redemption, repurchase, retirement or other acquisition for value by such
person or any of its subsidiaries, directly or indirectly, of such person's
Qualified Capital Stock (and, in the case of a Subsidiary, Qualified Capital
Stock of Holdings) or any warrants, rights or options to purchase or acquire
shares of any class of such Capital Stock (other than exchangeable or
convertible Indebtedness of such person), other than, in the case of Holdings,
through the issuance in exchange therefor solely of Qualified Capital Stock of
Holdings; provided, however, that in the case of a Subsidiary, the term "Stock
Payment" shall not include any such payment with respect to its Capital Stock
or warrants, rights or options to purchase or acquire shares of any class of
its Capital Stock that are owned solely by Holdings or a wholly-owned
Subsidiary.
"Subordinated Indebtedness" means Indebtedness of Holdings that is
subordinated in right of payment to the Securities.
"subsidiary" of any person means (i) a corporation a majority of whose
Capital Stock with voting power, under ordinary circumstances, to elect
directors is, at the date of determination, directly or indirectly, owned by
such person, by one or more subsidiaries of such person or by such person and
one or more subsidiaries of such person or (ii) a partnership in which such
person or a subsidiary of such person is, at the date of determination, a
general partner of such partnership, but only if such person or its subsidiary
is entitled to receive more than 50% of the assets of such partnership upon its
dissolution, or (iii) any other person (other than a corporation or a
partnership) in which such person, a subsidiary of such person or such person
and one or more subsidiaries of such person, directly or indirectly, at the
date of determination, has (x) at least a majority ownership interest or (y)
the power to elect or direct the election of a majority of the directors or
other governing body of such person.
"Subsidiary" means any subsidiary of Holdings.
"Term Loans" means the term loan facility under the Credit Agreement and
any agreement governing Indebtedness incurred to refund, replace or refinance
any borrowings outstanding under such facility or under any prior refunding,
replacement or refinancing thereof (in each case, in whole or in part, and
without limitation as to amount, terms, conditions, covenants and other
provisions).
"The Yucaipa Companies" means The Yucaipa Companies, a California
general partnership, or any successor thereto which is an Affiliate of Ronald
W. Burkle or his Permitted Transferees and which has been established for the
sole purpose of changing the form of The Yucaipa Companies from that of a
partnership to that of a limited liability company or any other form of entity
which is not materially adverse to the rights of the Holders under this
Indenture.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Sections
77aaa-77bbbb), as amended, as in effect on the date on which this Indenture
is qualified under the TIA, except as otherwise provided in Section 9.3.
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"Transaction Date" shall have the meaning provided in the definition of
"Operating Coverage Ratio" contained in this Section 1.1.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Trust Officer" means any officer of the Trustee assigned by the Trustee
to administer its corporate trust matters.
"U.S. Government Obligations" shall have the meaning provided in Section
8.4.
"U.S. Legal Tender" means such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment of
public and private debts.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the sum
of the products obtained by multiplying (x) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (y) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment, by (b) the then outstanding
principal amount of such Indebtedness.
"wholly-owned Subsidiary" means any Subsidiary all of the shares of
Capital Stock of which (other than permitted Preferred Stock and directors'
qualifying shares) are at the time directly or indirectly owned by Holdings.
"Yearly Period" means each fiscal year of Holdings; provided that the
first Yearly Period shall begin on the Issue Date and shall end on January 28,
1996.
Section 1.2. Incorporation by Reference of TIA.
Whenever this Indenture refers to a provision of the TIA, such provision
is incorporated by reference in, and made a part of, this Indenture. The
following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
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"obligor" on the indenture securities means Holdings or any other
obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them therein.
Section 1.3. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in
the plural include the singular;
(5) provisions apply to successive events and transactions; and
(6) "herein," "hereof" and other words of similar import
refer to this Indenture as a whole and not to any particular Article, Section
or other subdivision.
ARTICLE II
THE SECURITIES
Section 2.1. Form and Dating.
The Securities and the Trustee's certificate of authentication shall be
substantially in the form of Exhibit A. The Securities may have notations,
legends or endorsements required by law, stock exchange rule or usage or as
required by the Registration Rights Agreement. Holdings and the Trustee shall
approve the form of the Securities and any notation, legend or endorsement on
them. Each Security shall be dated the date of its authentication.
The terms and provisions contained in the Securities shall constitute,
and are hereby expressly made, a part of this Indenture and, to the extent
applicable, Holdings and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound
thereby.
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Section 2.2. Execution and Authentication.
An Officer or an Assistant Secretary, shall sign (either of whom shall,
in each case, have been duly authorized by all requisite corporate actions) the
Securities for Holdings by manual or facsimile signature.
If an Officer whose signature is on a Security was an Officer at the
time of such execution but no longer holds that office at the time the Trustee
authenticates the Security, the Security shall be valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee shall authenticate Securities, excluding Secondary
Securities, for original issue in the aggregate principal amount of up to
$131,500,000 upon a written order of Holdings in the form of an Officers'
Certificate. The Officers' Certificate shall specify the amount of Securities
to be authenticated and the date on which the Securities are to be
authenticated. The aggregate principal amount of Securities outstanding at any
time may not exceed $131,500,000, except for any Securities that may be issued
pursuant to the immediately following paragraph and except as provided in
Section 2.7 and 2.8. Upon the written order of Holdings in the form of an
Officers' Certificate, the Trustee shall authenticate Securities in
substitution of Securities originally issued to reflect any name change of
Holdings.
Holdings may, on each Interest Payment Date prior to (and including)
[the Interest Payment Date five years after the Issue Date], at its option and
in its sole discretion, pay interest in additional Securities ("Secondary
Securities") in lieu of the payment in whole or in part of interest in cash on
the Securities as provided in paragraph 1 of the Securities. Holdings shall
give written notice to the Trustee of the amount of interest to be paid in
Secondary Securities not less than five Business Days prior to the relevant
Interest Payment Date, and the Trustee or an authenticating agent (upon written
order of Holdings signed by an Officer of Holdings given not less than five nor
more than 45 days prior to such Interest Payment Date) shall authenticate for
original issue (pro rata to each Holder of any Securities of such record date)
Secondary Securities in an aggregate principal amount equal to the amount of
cash interest not paid on such Interest Payment Date. Except as set forth in
the following paragraph each issuance of Secondary Securities in lieu of the
payment of interest in cash on the Securities shall be made pro rata with
respect to the outstanding Securities, and Holdings shall have the right to
aggregate amounts of interest payable in the form of Secondary Securities to a
Holder of outstanding Securities and issue to such Holder a single Secondary
Security in payment thereof. Any Secondary Securities may be denominated a
separate series if Holdings deems it necessary to do so in order to comply with
any law or other applicable regulation or requirement, with appropriate
distinguishing designations.
The Securities shall be issuable only in registered form without coupons
in denominations of $1,000 and any integral multiple thereof except that
Secondary Securities or Securities issued upon registration of transfer of such
Secondary Securities may be in
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denominations of other than $1,000; provided that Holdings may at its option
pay cash in lieu of issuing Secondary Securities in any denominations of less
than $1,000.
The Trustee may appoint an authenticating agent reasonably acceptable to
Holdings to authenticate Securities. Unless otherwise provided in the
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with Holdings and Affiliates of Holdings.
Section 2.3. Registrar and Paying Agent.
Holdings shall maintain an office or agency in the Borough of Manhattan,
The City of New York, where (a) Securities may be presented or surrendered for
registration of transfer or for exchange ("Registrar"), (b) Securities may be
presented or surrendered for payment ("Paying Agent") and (c) notices and
demands to or upon Holdings in respect of the Securities and this Indenture may
be served. Holdings may also from time to time designate one or more other
offices or agencies where the Securities may be presented or surrendered for
any or all such purposes and may from time to time rescind such designations;
provided, however, that no such designation or rescission shall in any manner
relieve Holdings of its obligation to maintain an office or agency in the
Borough of Manhattan, The City of New York, for such purposes. Holdings may
act as its own Registrar or Paying Agent except that for the purposes of
Articles Three and Eight and Sections 4.4 and 4.14, neither Holdings nor any
Subsidiary shall act as Paying Agent. The Registrar shall keep a register of
the Securities and of their transfer and exchange. Holdings, upon notice to
the Trustee, may have one or more co-Registrars and one or more additional
paying agents reasonably acceptable to the Trustee. The term "Paying Agent"
includes any additional paying agent. Holdings initially appoints the Trustee
as Registrar and Paying Agent until such time as the Trustee has resigned or a
successor has been appointed.
Holdings shall enter into an appropriate agency agreement with any Agent
not a party to this Indenture, which agreement shall implement the provisions
of this Indenture that relate to such Agent. Holdings shall notify the
Trustee, in advance, of the name and address of any such Agent. If Holdings
fails to maintain a Registrar or Paying Agent, the Trustee shall act as such.
Section 2.4. Paying Agent To Hold Assets in Trust.
Holdings shall require each Paying Agent other than the Trustee to agree
in writing that each Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all assets and/or Secondary Securities held by the
Paying Agent for the payment of principal of, or interest on, the Securities
(whether such assets have been distributed to it by Holdings or any other
obligor on the Securities), and shall notify the Trustee of any Default by
Holdings (or any other obligor on the Securities) in making any such payment.
If Holdings or a Subsidiary acts as Paying Agent, it shall segregate such
assets and/or Secondary Securities and hold them as a separate trust fund.
Holdings at any time may require a Paying Agent to distribute all assets and/or
Secondary Securities held by it to the Trustee and account for any assets
disbursed and
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the Trustee may at any time during the continuance of any payment Default, upon
written request to a Paying Agent, require such Paying Agent to distribute all
assets and/or Secondary Securities held by it to the Trustee and to account for
any assets so distributed. Upon distribution to the Trustee of all assets that
shall have been delivered by Holdings to the Paying Agent, the Paying Agent
shall have no further liability for such assets and/or Secondary Securities.
Section 2.5. Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, Holdings shall furnish to the
Trustee on or before each Interest Payment Date and at such other times as the
Trustee may request in writing a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Holders, which
list may be conclusively relied upon by the Trustee.
Section 2.6. Transfer and Exchange.
When a Security is presented to the Registrar or a co-registrar with a
request to register a transfer, the Registrar shall register the transfer as
requested if the requirements of the Registrar are met. The Registrar need not
transfer or exchange any Securities selected for redemption. Also, it need not
transfer or exchange any Securities for a period of 30 days before a selection
of Securities to be redeemed. When Securities are presented to the Registrar
or a co-registrar with a request to exchange them for an equal principal amount
of Securities of other authorized denominations, the Registrar shall make the
exchange as requested if the requirements of the Registrar are met. Holdings
shall cooperate with the Registrar in meeting its requirements. To permit
transfers, registration and exchanges, the Trustee shall authenticate
Securities at the Registrar's request. No service charge shall be made for any
transfer, registration or exchange, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge payable in
connection therewith, but not for any exchange pursuant to Section 2.10, 3.6 or
9.5.
Section 2.7. Replacement Securities.
If a mutilated Security is surrendered to the Trustee or if the Holder
of a Security claims that the Security has been lost, destroyed or wrongfully
taken, Holdings shall issue and the Trustee shall authenticate a replacement
Security if the Trustee's requirements are met. If required by the Trustee or
Holdings, such Holder must provide an indemnity bond or other indemnity,
sufficient in the judgment of both Holdings and the Trustee, to protect
Holdings, the Trustee or any Agent from any loss which any of them may suffer
if a Security is replaced. Holdings may charge such Holder for its reasonable,
out-of-pocket expenses in replacing a Security, including reasonable fees and
expenses of counsel. Every replacement Security shall constitute an additional
obligation of Holdings.
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Section 2.8. Outstanding Securities.
Securities outstanding at any time are all the Securities that have been
authenticated by the Trustee, including the Secondary Securities, except those
cancelled by it, those delivered to it for cancellation and those described in
this Section as not outstanding. A Security does not cease to be outstanding
because Holdings or any of its Affiliates holds the Security.
If a Security is replaced pursuant to Section 2.7 (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be
outstanding upon surrender of such Security and replacement thereof pursuant to
Section 2.7.
If on a Redemption Date or the Maturity Date the Paying Agent (other
than Holdings or any Subsidiary) holds U.S. Legal Tender or U.S. Government
Obligations sufficient to pay all of the principal and interest due on the
Securities payable on that date, then on and after that date such Securities
cease to be outstanding and interest on them ceases to accrue.
Section 2.9. Treasury Securities.
In determining whether the Holders of the required aggregate principal
amount of Securities have concurred in any direction, waiver or consent,
Securities owned by Holdings or any of its Affiliates shall be disregarded,
except that, for the purposes of determining whether the Trustee shall be
protected in relying on any such direction, waiver or consent, only Securities
that the Trustee knows or has reason to know are so owned shall be disregarded.
Notwithstanding the foregoing and except as otherwise provided by the TIA, a
majority of Securities not owned by Holdings or any of its Affiliates shall be
sufficient to approve any such direction, waiver or consent.
Section 2.10. Temporary Securities.
Until definitive Securities are ready for delivery, Holdings may prepare
and the Trustee shall authenticate temporary Securities. Temporary Securities
shall be substantially in the form of definitive Securities but may have
variations that Holdings considers appropriate for temporary Securities.
Without unreasonable delay, Holdings shall prepare and the Trustee shall
authenticate definitive Securities in exchange for temporary Securities.
Section 2.11. Cancellation.
Holdings at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent
(other than Holdings or any Subsidiary), and no one else, shall cancel and, at
the written direction of Holdings, shall dispose of all Securities surrendered
for transfer, exchange, payment or cancellation. Subject to Section 2.7,
Holdings may not issue new
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Securities to replace Securities that it has paid or delivered to the Trustee
for cancellation. If Holdings or any Subsidiary shall acquire any of the
Securities, such acquisition shall not operate as a redemption or satisfaction
of the Indebtedness represented by such Securities unless and until the same
are surrendered to the Trustee for cancellation pursuant to this Section 2.11.
Section 2.12. Defaulted Interest.
If Holdings defaults in a payment of interest on the Securities, it
shall, unless the Trustee fixes another record date pursuant to Section 6.10,
pay the defaulted interest, plus (to the extent lawful) any interest payable on
the defaulted interest, to the persons who are Holders on a subsequent special
record date, which date shall be the fifteenth day next preceding the date
fixed by Holdings for the payment of defaulted interest or the next succeeding
Business Day if such date is not a Business Day. At least 15 days before the
subsequent special record date, Holdings shall mail to each Holder, with a copy
to the Trustee, a notice that states the subsequent special record date, the
payment date and the amount of defaulted interest, and interest payable on such
defaulted interest, if any, to be paid.
Section 2.13. CUSIP Number.
Holdings in issuing the Securities may use a "CUSIP" number, and if so,
the Trustee shall use the CUSIP number in notices of redemption or exchange as
a convenience to Holders; provided that any such notice may state that no
representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Securities, and that reliance may be placed
only on the other identification numbers printed on the Securities.
ARTICLE III
REDEMPTION
Section 3.1. Notices to Trustee.
If Holdings elects to redeem Securities pursuant to Paragraph 5 of the
Securities it shall notify the Trustee of the Redemption Date and aggregate
principal amount of the Securities to be redeemed and whether it wants the
Trustee to give notice of redemption to the Holders (at Holdings' expense) at
least 30 days (unless a shorter notice shall be satisfactory to the Trustee)
but not more than 60 days before the Redemption Date. Any notice given
pursuant to this Section 3.1 may be cancelled at any time prior to notice of
such redemption being mailed to any Holder and shall thereby be void and of no
effect.
Section 3.2. Selection of Securities To Be Redeemed.
If fewer than all of the Securities are to be redeemed, the Trustee
shall select the Securities to be redeemed pro rata, by lot or by such other
method as the Trustee considers to be fair and appropriate and in such manner
as complies with applicable legal and stock exchange
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requirements, if any; provided, however, that any redemption pursuant to
paragraph 5(b) of the Securities shall be made on a pro rata basis.
Securities in denominations of less than $1,000 shall be redeemed first.
Thereafter the Trustee shall make the selection from the Securities outstanding
and not previously called for redemption and shall promptly notify Holdings in
writing of the Securities selected for redemption and, in the case of any
Security selected for partial redemption, the aggregate principal amount
thereof to be redeemed. Securities in denominations of $1,000 or less may be
redeemed only in whole. The Trustee may select for redemption portions (equal
to $1,000 or any integral multiple thereof) of the principal of Securities that
have denominations larger than $1,000. Provisions of this Indenture that apply
to Securities called for redemption also apply to portions of Securities called
for redemption.
Section 3.3. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemption Date,
Holdings shall mail a notice of redemption by first class mail to each Holder
whose Securities are to be redeemed at such Holder's registered address, with a
copy to the Trustee. At Holdings' request, the Trustee shall give the notice
of redemption in Holdings' name and at Holdings' expense. Each notice for
redemption shall identify the Securities to be redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the Redemption Price;
(5) that, unless Holdings defaults in making the redemption payment,
interest on Securities called for redemption ceases to accrue on and after
the Redemption Date, and the only remaining right of the Holders of such
Securities is to receive payment of the Redemption Price upon surrender to
the Paying Agent of the Securities redeemed;
(6) if any Security is being redeemed in part, the portion of the
aggregate principal amount of such Security to be redeemed and that, after
the Redemption Date, and upon surrender of such Security, a new Security or
Securities in aggregate principal amount equal to the unredeemed portion
thereof will be issued; and
(7) if fewer than all the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof to be
redeemed), as well as the aggregate principal amount of Securities to be
redeemed and the aggregate principal amount of Securities to be outstanding
after such partial redemption.
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Section 3.4. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.3,
Securities called for redemption become due and payable on the Redemption Date
and at the Redemption Price. Upon surrender to the Trustee or Paying Agent,
such Securities called for redemption shall be paid at the Redemption Price.
Section 3.5. Deposit of Redemption Price.
On or before the Redemption Date, Holdings shall deposit with the Paying
Agent U.S. Legal Tender sufficient to pay the Redemption Price of all
Securities to be redeemed on that date (other than Securities or portions
thereof called for redemption on that date which have been delivered by
Holdings to the Trustee for cancellation). The Paying Agent shall promptly
return to Holdings any U.S. Legal Tender so deposited which is not required for
that purpose upon the written request of Holdings, except with respect to
monies owed as obligations to the Trustee pursuant to Article Seven.
If Holdings complies with the preceding paragraph, then, unless
Holdings defaults in the payment of such Redemption Price, interest on the
Securities to be redeemed will cease to accrue on and after the applicable
Redemption Date, whether or not such Securities are presented for payment.
If a Security is redeemed on or after a Record Date but on or prior to
the related Interest Payment Date, then any accrued and unpaid interest shall
be paid to the Person in whose name such Security was registered at the close
of business on such Record Date. If any Security called for redemption shall
not be so paid upon surrender for redemption because of the failure of Holdings
to comply with the first paragraph of this Section 3.5, interest shall be paid
on the unpaid principal, from the redemption date until such principal is paid,
and, to the extent lawful, on any interest not paid on such unpaid principal,
in each case at the rate provided in the Securities and in Section 4.1 hereof.
Section 3.6. Securities Redeemed in Part.
Upon surrender of a Security that is to be redeemed in part, the Trustee
shall authenticate for the Holder a new Security or Securities equal in
principal amount to the unredeemed portion of the Security surrendered.
ARTICLE IV
COVENANTS
Section 4.1. Payment of Securities.
Holdings shall pay the principal amount of, premium, if any, and
interest on, as the case may be, the Securities on the dates and in the manner
provided in the Securities. An installment shall be considered paid on the
date it is due if the Trustee or Paying Agent (other
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than Holdings or a Subsidiary) holds on that date U.S. Legal Tender and/or, to
the extent permitted by Section 2.2, Secondary Securities designated for and
sufficient to pay the installment.
Holdings shall pay interest on overdue principal (including
post-petition interest in any proceeding under any Bankruptcy Law, to the
extent allowable as a claim in any such proceeding) at the same rate borne by
the Securities and it shall pay interest (including post-petition interest in
any proceeding under any Bankruptcy Law, to the extent allowable as a claim in
any such proceeding) on overdue installments of interest (without regard to any
applicable grace period) at the same rate borne by the Securities, to the
extent lawful.
Section 4.2. Maintenance of Office or Agency.
Holdings shall maintain in the Borough of Manhattan, The City of New
York, the office or agency required under Section 2.3. Holdings shall give
prior notice to the Trustee of the location, and any change in the location, of
such office or agency. If at any time Holdings shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the address of the Trustee set forth in Section 13.2.
Section 4.3. Limitation on Restricted Payments.
Holdings shall not, and shall cause each of its Subsidiaries not to,
directly or indirectly, make any Restricted Payment if, at the time of such
proposed Restricted Payment, or after giving effect thereto, (a) a Default or
an Event of Default shall have occurred and be continuing, (b) Holdings or such
Subsidiary could not incur at least $1 of additional Indebtedness (other than
Permitted Indebtedness) pursuant to Section 4.12, or (c) the aggregate amount
expended for all Restricted Payments, including such proposed Restricted
Payment (the amount of any Restricted Payment, if other than cash, to be the
fair market value thereof at the date of payment, as determined in good faith
by the Board of Directors of Holdings, which determination shall be evidenced
by a Board Resolution), subsequent to the Issue Date, shall exceed the sum of
(i) 50% of the aggregate Consolidated Net Income (or if such aggregate
Consolidated Net Income is a loss, minus 100% of such loss) of Holdings earned
subsequent to the Issue Date and on or prior to the date the proposed
Restricted Payment occurs (the "Reference Date") plus (ii) 100% of the
aggregate Net Proceeds received by Holdings from any person (other than a
Subsidiary) from the issuance and sale (including upon exchange or conversion
for other securities of Holdings) subsequent to the Issue Date and on or prior
to the Reference Date of Qualified Capital Stock (excluding (A) Qualified
Capital Stock paid as a dividend on any Capital Stock or as interest on any
Indebtedness and (B) any Net Proceeds from issuances and sales financed
directly or indirectly using funds borrowed from Holdings or any Subsidiary,
until and to the extent such borrowing is repaid) plus (iii) 100% of the
aggregate net cash proceeds received by Holdings as capital contributions to
Holdings after the Issue Date, plus (iv) $25,000,000.
Notwithstanding the foregoing, if no Default or Event of Default shall
have occurred and be continuing as a consequence thereof, the provisions set
forth in the immediately
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preceding paragraph will not prevent (1) the payment of any dividend within 60
days after the date of its declaration if the dividend would have been
permitted on the date of declaration, (2) the acquisition of any shares of
Capital Stock of Holdings or the repurchase, redemption, or other repayment of
any Subordinated Indebtedness in exchange for or solely out of the proceeds of
the substantially concurrent sale (other than to a Subsidiary) of shares of
Qualified Capital Stock of Holdings, (3) the repurchase, redemption or other
repayment of any Subordinated Indebtedness in exchange for or solely out of the
proceeds of the substantially concurrent sale (other than to a Subsidiary) of
Subordinated Indebtedness of Holdings with an Average Life equal to or greater
than the then remaining Average Life of the Subordinated Indebtedness
repurchased, redeemed or repaid, and (4) Permitted Payments; provided, however,
that (x) the declaration of each dividend paid in accordance with clause (1)
above, each acquisition, repurchase, redemption or other repayment made in
accordance with, or of the type set forth in, clause (2) above, and each
payment described in clause (iii) of the definition of "Permitted Payments"
shall each be counted for purposes of computing amounts expended pursuant to
subclause (c) in the immediately preceding paragraph, and (y) no amounts paid
pursuant to clause (3) above or pursuant to clause (i) or (ii) of the
definition of "Permitted Payments" shall be so counted.
Prior to making any Restricted Payment under the first paragraph of this
Section 4.3, Holdings shall deliver to the Trustee an Officers' Certificate
setting forth the computation by which the amount available for Restricted
Payments pursuant to such paragraph was determined. The Trustee shall have no
duty or responsibility to determine the accuracy or correctness of this
computation and shall be fully protected in relying on such Officers'
Certificate.
Section 4.4. Corporate Existence.
Except as otherwise permitted by Article Five, Holdings shall do or
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence and the corporate or other existence of each of
its Significant Subsidiaries in accordance with the respective organizational
documents of each such Significant Subsidiary and the rights (charter and
statutory) and franchises of Holdings and each such Significant Subsidiary;
provided, however, that Holdings shall not be required to preserve, with
respect to itself, any right or franchise, and with respect to any of its
Significant Subsidiaries, any such existence, right or franchise, if the Board
of Directors of Holdings or such Significant Subsidiary, as the case may be,
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of Holdings or any such Significant Subsidiary.
Section 4.5. Payment of Taxes and Other Claims.
Holdings shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (i) all taxes, assessments and
governmental charges (including withholding taxes and any penalties, interest
and additions to taxes) levied or imposed upon it or any of its Subsidiaries or
properties of it or any of its Subsidiaries and (ii) all lawful claims for
labor, materials and supplies that, if unpaid, might by law become a Lien upon
the property of it or any of its Subsidiaries; provided, however, that Holdings
shall not be required to pay or
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discharge or cause to be paid or discharged any such tax, assessment, charge or
claim if either (a) the amount, applicability or validity thereof is being
contested in good faith by appropriate proceedings and an adequate reserve has
been established therefor to the extent required by GAAP or (b) the failure to
make such payment or effect such discharge (together with all other such
failures) would not have a material adverse effect on the financial condition
or results or operations of Holdings and its Subsidiaries taken as a whole.
Section 4.6. Maintenance of Properties and Insurance.
(a) Holdings shall cause all properties used or useful to the conduct
of its business or the business of any Subsidiaries to be maintained and kept
in good condition, repair and working order and supplied with all necessary
equipment and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in its judgment may
be necessary, so that the business carried on in connection therewith may be
properly and advantageously conducted at all times unless the failure to so
maintain such properties (together with all other such failures) would not have
a material adverse effect on the financial condition or results of operations
of Holdings and its Subsidiaries taken as a whole; provided, however, that
nothing in this Section 4.6 shall prevent Holdings or any Subsidiary from
discontinuing the operation or maintenance of any of such properties, or
disposing of any of them, if such discontinuance or disposal is either (i) in
the ordinary course of business, (ii) in the good faith judgment of the Board
of Directors of Holdings or the Subsidiary concerned, or of the senior officers
of Holdings or such Subsidiary, as the case may be, desirable in the conduct of
the business of Holdings or such Subsidiary, as the case may be, or (iii) is
otherwise permitted by this Indenture.
(b) Holdings shall provide or cause to be provided, for itself and
each of its Subsidiaries, insurance (including appropriate self-insurance)
against loss or damage of the kinds that, in the reasonable, good faith opinion
of Holdings, are adequate and appropriate for the conduct of the business of
Holdings and such Subsidiaries in a prudent manner, with reputable insurers or
with the government of the United States of America or an agency or
instrumentality thereof, in such amounts, with such deductibles, and by such
methods as shall be either (i) consistent with past practices of Holdings or
the applicable Subsidiary or (ii) customary, in the reasonable, good faith
opinion of Holdings, for corporations similarly situated in the industry,
unless the failure to provide such insurance (together with all other such
failures) would not have a material adverse effect on the financial condition
or results of operations of Holdings and its Subsidiaries, taken as a whole.
Section 4.7. Compliance Certificate; Notice of Default.
(a) Holdings shall deliver to the Trustee within 120 days after the
end of Holdings' fiscal year an Officers' Certificate stating that a review of
its activities and the activities of its Subsidiaries during the preceding
fiscal year has been made under the supervision of the signing Officers with a
view to determining whether it has kept, observed, performed and fulfilled its
obligations under this Indenture and further stating, as to each such Officer
signing such certificate, that to the best of his knowledge Holdings during
such preceding fiscal year has kept, observed, performed and fulfilled each and
every such covenant and no Default or Event
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of Default occurred during such year or, if such signers do know of such a
Default or Event of Default, the certificate shall describe the Default or
Event of Default and its status with particularity. The Officers' Certificate
shall also notify the Trustee should Holdings elect to change the manner in
which it fixes its fiscal year end.
(b) So long as not contrary to the then current recommendations of
the American Institute of Certified Public Accountants, Holdings shall deliver
to the Trustee within 120 days after the end of each fiscal year a written
statement by Holdings' independent certified public accountants stating (A)
that their audit examination has included a review of the terms of this
Indenture and the Securities as they relate to accounting matters, and (B)
whether, in connection with their audit examination, any Default has come to
their attention and if such a Default has come to their attention, specifying
the nature and period of existence thereof.
(c) Holdings shall, so long as the Securities are outstanding,
deliver to the Trustee, within five Business Days after any officer becomes
aware of any Default or Event of Default, an Officer's Certificate specifying
such Default or Event of Default and what action Holdings is taking or proposes
to take with respect thereto.
Section 4.8. Compliance with Laws.
Holdings shall comply, and shall cause each of its Subsidiaries to
comply, with all applicable statutes, rules, regulations, orders and
restrictions of the United States of America, all states and municipalities
thereof, and of any governmental department, commission, board, regulatory
authority, bureau, agency and instrumentality of the foregoing, in respect of
the conduct of their respective businesses and the ownership of their
respective properties, except such as are being contested in good faith and by
appropriate proceedings and except for such noncompliances as would not in the
aggregate have a material adverse effect on the financial condition or results
of operations of Holdings and its Subsidiaries taken as a whole.
Section 4.9. SEC Reports and Other Information.
(a) To the extent permitted by applicable law or regulation, whether
or not Holdings is subject to the requirements of Section 13 or 15(d) of the
Exchange Act, Holdings shall file with the SEC all quarterly and annual reports
and such other information, documents or other reports (or copies of such
portions of any of the foregoing as the SEC may by rules and regulations
prescribe) required to be filed pursuant to such provisions of the Exchange
Act. Holdings shall file with the Trustee, within 5 days after it files the
same with the SEC, copies of the quarterly and annual reports and the
information, documents, and other reports (or copies of such portions of any of
the foregoing as the SEC may by rules and regulations prescribe) that it is
required to file with the SEC pursuant to this Section 4.9. Holdings shall
also comply with the other provisions of TIA Section 314(a). If Holdings is
not permitted by applicable law or regulations to file the aforementioned
reports, Holdings (at its own expense) shall file with the Trustee and mail, or
cause the Trustee to mail, to Holders at their addresses appearing in the
register of Securities maintained by the Registrar at the time of such mailing
within 5 days after it would have been required to file such information with
the SEC, all information and financial statements, including any notes thereto
and with respect to annual reports, an auditors' report
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by an accounting firm of established national reputation, and a "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
comparable to the disclosure that Holdings would have been required to include
in annual and quarterly reports, information, documents or other reports,
including, without limitation, reports on Forms 10-K, 10-Q and 8-K, if Holdings
was subject to the requirements of such Section 13 or 15(d) of the Exchange
Act.
(b) At any time when Holdings is not permitted by applicable law or
regulations to file the aforementioned reports, upon the request of a Holder of
Securities, Holdings will promptly furnish or cause to be furnished such
information as is specified pursuant to Rule 144A(d)(4) under the Securities
Act (or any successor provision thereto) to such Holder or to a prospective
purchaser of such Securities designated by such Holder, as the case may be, in
order to permit compliance by such Holder with Rule 144A under the Securities
Act.
Section 4.10. Waiver of Stay, Extension or Usury Laws.
Holdings covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law or any usury law or
other law that would prohibit or forgive Holdings from paying all or any
portion of the principal of or interest on the Securities as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this Indenture; and (to the extent
that it may lawfully do so) Holdings hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will
suffer and permit the execution of every such power as though no such law had
been enacted.
Section 4.11. Limitation on Transactions with Affiliates.
(a) Neither Holdings nor any of its Subsidiaries shall (i) sell,
lease, transfer or otherwise dispose of any of its properties or assets, or
issue securities (other than equity securities which do not constitute
Disqualified Capital Stock) to, (ii) purchase any property, assets or
securities (other than equity securities which do not constitute Disqualified
Capital Stock) from, (iii) make any Investment in, or (iv) enter into or suffer
to exist any contract or agreement with or for the benefit of, an Affiliate or
Significant Stockholder (or any Affiliate of such Significant Stockholder) of
Holdings or any Subsidiary (an "Affiliate Transaction"), other than (x)
Affiliate Transactions permitted under Section 4.11(b) and (y) Affiliate
Transactions in the ordinary course of business, that are fair to Holdings or
such Subsidiary, as the case may be, and on terms at least as favorable as
might reasonably have been obtainable at such time from an unaffiliated party;
provided, that (A) with respect to Affiliate Transactions involving aggregate
payments in excess of $1 million and less than $5 million, Holdings or such
Subsidiary, as the case may be, shall have delivered an Officers' Certificate
to the Trustee certifying that such transaction or series of transactions
complies with clause (y) above (other than the requirement set forth in such
clause (y) that such Affiliate Transaction be in the ordinary course of
business), (B) with respect to Affiliate Transactions involving aggregate
payments in excess of $5 million and less than $15 million, Holdings or such
Subsidiary, as the case may be, shall have delivered an Officers' Certificate
to the Trustee certifying that such
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Affiliate Transaction complies with clause (y) above (other than the
requirement set forth in such clause (y) that such Affiliate Transaction be in
the ordinary course of business) and that such Affiliate Transaction has
received the approval of a majority of the disinterested members of the Board
of Directors of Holdings or the Subsidiary, as the case may be, or, in the
absence of any such approval by the disinterested members of the Board of
Directors of Holdings or the Subsidiary, as the case may be, that an
Independent Financial Advisor has reasonably and in good faith determined that
the financial terms of such Affiliate Transaction are fair to Holdings or such
Subsidiary, as the case may be, or that the terms of such Affiliate Transaction
are at least as favorable as might reasonably have been obtained at such time
from an unaffiliated party and that such Independent Financial Advisor has
provided written confirmation of such determination to the Board of Directors
and (C) with respect to Affiliates Transactions involving aggregate payments in
excess of $15 million, Holdings or such Subsidiary, as the case may be, shall
have delivered to the Trustee, a written opinion from an Independent Financial
Advisor to the effect that the financial terms of such Affiliate Transaction
are fair to Holdings or such Subsidiary, as the case may be, or that the terms
of such Affiliate Transaction are at least as favorable as those that might
reasonably have been obtained at the time from an unaffiliated party.
(b) The provisions of Section 4.11(a) shall not apply to (i) any
Permitted Payment, (ii) any Restricted Payment that is made in compliance with
the provisions of Section 4.3, (iii) reasonable and customary fees and
compensation paid to, and indemnity provided on behalf of, officers, directors,
employees or consultants of Holdings or any Subsidiary, as determined by the
Board of Directors of Holdings or any Subsidiary or the senior management
thereof in good faith, (iv) transactions exclusively between or among Holdings
and any of its wholly-owned Subsidiaries or exclusively between or among such
wholly-owned Subsidiaries, provided such transactions are not otherwise
prohibited by this Indenture, (v) any agreement as in effect as of the Issue
Date or any amendment thereto or any transaction contemplated thereby
(including pursuant to any amendment thereto) so long as any such amendment is
not disadvantageous to the Holders in any material respect, (vi) the existence
of, or the performance by Holdings or any of its Subsidiaries of its
obligations under the terms of, any stockholder agreement (including any
registration rights agreement or purchase agreement related thereto) to which
it is a party as of the Issue Date and any similar agreements which it may
enter into thereafter; provided, however, that the existence of, or the
performance by Holdings or any of its Subsidiaries of obligations under any
future amendment to, any such existing agreement or under any similar agreement
entered into after the Issue Date shall only be permitted by this clause (vi)
to the extent that the terms of any such amendment or new agreement are not
otherwise disadvantageous to the Holders in any material respect, (vii)
transactions permitted by, and complying with, the provisions of Section 5.1,
and (viii) transactions with suppliers or other purchases or sales of goods or
services, in each case, in the ordinary course of business (including, without
limitation, pursuant to joint venture agreements) and otherwise in compliance
with the terms of this Indenture which are fair to Holdings or any Subsidiary,
in the reasonable determination of the Board of Directors or senior management
of Holdings, or are on terms at least as favorable as might reasonably have
been obtained at such time from an unaffiliated party.
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Section 4.12. Limitation on Incurrences of Additional Indebtedness.1/
Holdings will not, and will not permit any Subsidiary, directly or
indirectly, to incur, assume, guarantee, become liable, contingently or
otherwise, with respect to, or otherwise become responsible for the payment of
(collectively "incur") any Indebtedness other than Permitted Indebtedness;
provided, however, that if no Default with respect to payment of principal of,
or interest on, the Securities or Event of Default shall have occurred and be
continuing at the time or as a consequence of the incurrence of any such
Indebtedness, (i) Holdings may incur Indebtedness if immediately before and
immediately after giving effect to the incurrence of such Indebtedness the
Operating Coverage Ratio of Holdings would be greater than 2.0 to 1.0 and (ii)
the Company or any subsidiary of the Company may incur Indebtedness if
immediately before and immediately after giving effect to the incurrence of
such Indebtedness the Operating Coverage Ratio of the Company would be greater
than 2.0 to 1.0.
Section 4.13. Limitation on Liens.
Holdings will not create, incur, assume or suffer to exist any Lien of
any kind securing any Pari Passu Indebtedness, any Subordinated Indebtedness or
any Affiliate Obligation upon any property or assets of Holdings owned on the
Issue Date or acquired after the Issue Date, or any income or profits
therefrom, unless the Securities are secured equally and ratably with (or prior
to in the case of Subordinated Indebtedness) to the obligation or liability
secured by such Lien, and except for any Lien securing Acquired Indebtedness
created prior to the incurrence of such Indebtedness by Holdings, provided that
any such Lien only extends to the assets that were subject to such Lien
securing such Acquired Indebtedness prior to the related acquisition by
Holdings.
Section 4.14. Limitation on Change of Control.
(a) Upon the occurrence of a Change of Control (the "Change of
Control Date"), each Holder shall have the right to require the repurchase of
such Holder's Securities pursuant to the offer described in paragraph (b),
below (the "Change of Control Offer"), at a purchase price equal to 101% of the
aggregate principal amount thereof plus accrued interest, if any, to the date
of purchase. Prior to the mailing of the notice to Holders provided for in
paragraph (b) below, but in any event within 30 days following the Change of
Control Date, Holdings shall cause the Company to either (a) repay in full and
terminate all commitments under Indebtedness under the Credit Agreement to the
extent the terms thereof require repayment upon a Change of Control (or offer
to repay in full and terminate all commitments under all such Indebtedness
under the Credit Agreement and repay the Indebtedness owed to each lender which
has accepted such offer), or (b) obtain the requisite consents under the Credit
Agreement, the terms of which require repayment upon a Change of Control, to
permit the repurchase of the Securities as provided for in this Section 4.14.
Holdings shall first comply with the covenant in the immediately preceding
sentence before Holdings shall be required to repurchase Securities
____________________
1. This Section 4.12 will conform to the covenant in the new
public securities, as appropriately modified to be applicable to
Holdings and its subsidiaries.
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pursuant to this Section 4.14, and any failure to so comply shall constitute an
Event of Default under this Indenture. Within 10 days after any Change of
Control Date requiring Holdings to make a Change of Control Offer pursuant to
this Section 4.14, Holdings shall so notify the Trustee.
(b) The Change of Control Offer shall be made to all Holders and the
notice to the Holders shall contain all instructions and materials necessary to
enable such Holders to tender Securities pursuant to the Change of Control
Offer. Within 30 days following any Change of Control Date, Holdings shall
send, by first class mail, a notice to each Holder, with copies to the Trustee,
which notice shall govern the terms of the Change of Control Offer. Such
notice shall state:
(1) that the Change of Control Offer is being made pursuant to this
Section 4.14 and that all Securities tendered will be accepted for payment;
(2) the purchase price (including the amount of accrued interest) and
the purchase date (which shall be no earlier than 30 days nor later than 40
days from the date such notice is mailed, other than as may be required by
law) (the "Change of Control Payment Date");
(3) that any Security not tendered will continue to accrue interest
if interest is then accruing;
(4) that, unless Holdings defaults in making payment therefor, any
Security accepted for payment pursuant to the Change of Control Offer shall
cease to accrue interest after the Change of Control Payment Date;
(5) that Holders electing to have a Security purchased pursuant to a
Change of Control Offer will be required to surrender the Security, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Security completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the Business Day prior to the Change
of Control Payment Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than two Business Days prior to the Change
of Control Payment Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the aggregate principal amount of the
Securities the Holder delivered for purchase and a statement that such Holder
is withdrawing his election to have such Security purchased;
(7) that Holders whose Securities are being purchased only in part
will be issued new Securities equal in principal amount to the unpurchased
portion of the Securities surrendered; provided that each Holder shall tender
Securities, and each Security purchased and each such new Security issued by
Holdings shall be, in a principal amount of $1,000 or integral multiples
thereof (except for Secondary Securities that were issued in denominations
other than $1,000); and
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(8) the circumstances and relevant facts regarding such Change of
Control, including information available to Holdings concerning the Person or
Persons acquiring control and such historical or pro forma financial
information as Holdings reasonably deems appropriate under the circumstances.
(c) On or before the Change of Control Payment Date, Holdings shall
(i) accept for payment Securities or portions thereof tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent U.S. Legal Tender
sufficient to pay the purchase price of all Securities so tendered and (iii)
deliver to the Trustee Securities so accepted together with an Officers'
Certificate stating the Securities or portions thereof being purchased by
Holdings. The Paying Agent shall promptly mail to the Holders of Securities so
accepted payment in an amount equal to the purchase price; provided that each
such new Security shall be in the principal amount of $1,000 or integral
multiples thereof. Holdings will publicly announce the results of the Change
of Control Offer on or as soon as practicable after the Change of Control
Payment Date. For purposes of this Section 4.14, the Trustee shall act as the
Paying Agent.
(d) Holdings, to the extent applicable and if required by law, will
comply with Rule 14e-1 under the Exchange Act and any other applicable
provisions of the federal securities laws in connection with a Change of
Control Offer.
Section 4.15. Limitation on Asset Sales.
(a) Neither Holdings nor any of its Subsidiaries will consummate an
Asset Sale, unless (a) Holdings or the applicable Subsidiary receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold and (b) upon consummation of an Asset Sale, Holdings
or the applicable Subsidiary will, within 365 days of the receipt of the
proceeds therefrom, either: (i) apply or cause its Subsidiary to apply the Net
Cash Proceeds of any Asset Sale to (1) a Related Business Investment (2) an
investment in properties and assets that replace the properties and assets that
are the subject of such Asset Sale, or (3) an investment in properties and
assets that will be used in the business of Holdings and its Subsidiaries
existing on the Issue Date or in a business reasonably related thereto; (ii)
apply or cause to be applied such Net Cash Proceeds to the repayment of Senior
Indebtedness or Pari Passu Indebtedness of Holdings or any Indebtedness of any
Subsidiary; (iii) use such Net Cash Proceeds to secure Letter of Credit
Obligations to the extent the related letters of credit have not been drawn
upon or returned undrawn; or (iv) after such time as the accumulated Net Cash
Proceeds equals or exceeds $20 million, apply or cause to be applied such Net
Cash Proceeds to the purchase of Securities tendered to Holdings for purchase
at a price equal to 100% of the aggregate principal amount thereof, plus
accrued interest to the date of purchase pursuant to an offer to purchase made
by Holdings as set forth below (a "Net Proceeds Offer"), provided, however,
that if at any time any noncash consideration received by Holdings or any
Subsidiary in connection with any Asset Sale is converted into or sold or
otherwise disposed of for cash, then such cash shall constitute Net Cash
Proceeds for purposes of this Section 4.15 and shall be applied in accordance
with clause (b) above within 365 days of the receipt of such cash; and provided
further, however, that if at any time any security deposits or other amounts
used to secure Letter of Credit Obligations pursuant to clause (b) (iii) above
are returned to Holdings or any Subsidiary, then such security deposits or
other amounts shall constitute Net Cash Proceeds for
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purposes of this Section 4.15 and shall be applied in accordance with clause
(b) above within 365 days of the receipt of such security deposits or other
amounts. A Net Proceeds Offer as a result of an Asset Sale made by the Company
or one of its subsidiaries shall not be required to be in excess of the Net
Cash Proceeds of such Asset Sale less the Net Cash Proceeds actually applied in
accordance with clauses (b)(i), (ii) or (iii) above; provided, however, that
Holdings shall have the right to exclude from the foregoing provisions Asset
Sales subsequent to the Issue Date, the proceeds of which are derived from the
sale and substantially concurrent lease-back of one or more supermarkets and/or
related assets or equipment which are acquired or constructed by Holdings or a
Subsidiary subsequent to the Issue Date, provided that any such sale and
substantially concurrent lease-back occurs within 270 days following such
acquisition or the completion of such construction, as the case may be.
(b) Notice of a Net Proceeds Offer pursuant to this Section 4.15
shall be mailed, by first class mail, by Holdings not less than 305 days nor
more than 335 days after the relevant Asset Sale to all Holders at their last
registered addresses, with a copy to the Trustee. The notice shall contain all
instructions and materials necessary to enable such Holders to tender
Securities pursuant to the Net Proceeds Offer and shall state the following
terms:
(1) that the Net Proceeds Offer is being made pursuant to Section
4.15 and that all Securities tendered will be accepted for payment; provided,
however, that if the aggregate principal amount of Securities tendered in a
Net Proceeds Offer plus accrued interest at the expiration of such offer
exceeds the aggregate amount of the Net Proceeds Offer, Holdings shall select
the Securities to be purchased on a pro rata basis (with such adjustments as
may be deemed appropriate by Holdings so that only Securities in
denominations of $1,000 or multiples thereof shall be purchased, except for
Secondary Securities that were issued in denominations other than $1,000);
(2) the purchase price (including the amount of accrued interest) and
the purchase date (which shall be no earlier than 30 days nor later than 40
days from the date such notice is mailed, other than as may be required by
law) (the "Proceeds Purchase Date");
(3) that any Security not tendered will continue to accrue interest
if interest is then accruing;
(4) that, unless Holdings defaults in making payment therefor, any
Security accepted for payment pursuant to the Net Proceeds Offer shall cease
to accrue interest after the Proceeds Purchase Date;
(5) that Holders electing to have a Security purchased pursuant to a
Net Proceeds Offer will be required to surrender the Security, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Security
completed, to the Paying Agent at the address specified in the notice prior
to the close of business on the Business Day prior to the Proceeds Purchase
Date;
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(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than two Business Days prior to the Proceeds
Purchase Date, a telegram, telex, facsimile transmission or letter setting
forth the name of the Holder, the principal amount of the Securities the
Holder delivered for purchase and a statement that such Holder is withdrawing
his election to have such Security purchased; and
(7) that Holders whose Securities were purchased only in part will be
issued new Securities equal in principal amount to the unpurchased portion of
the Securities surrendered.
On or before the Proceeds Purchase Date, Holdings shall (i) accept for
payment Securities or portions thereof tendered pursuant to the Net Proceeds
Offer which are to be purchased in accordance with item (b)(l) above, (ii)
deposit with the Paying Agent U.S. Legal Tender sufficient to pay the purchase
price of all Securities to be purchased and (iii) deliver to the Trustee
Securities so accepted together with an Officers' Certificate stating the
Securities or portions thereof being purchased by Holdings. The Paying Agent
shall promptly mail to the Holders of Securities so accepted payment in an
amount equal to the purchase price. Holdings will publicly announce the
results of the Net Proceeds Offer on or as soon as practicable after the
Proceeds Purchase Date. For purposes of this Section 4.15, the Trustee shall
act as the Paying Agent.
(c) Holdings will comply with the requirements of Rule 14e-1 under
the Exchange Act and any other securities laws and regulations thereunder to
the extent such laws and regulations are applicable in connection with the
repurchase of Securities pursuant to a Net Proceeds Offer.
Any amounts remaining after the purchase of Securities pursuant to a Net
Proceeds Offer shall be returned by the Trustee to Holdings.
Section 4.16. Limitation on Senior Subordinated Indebtedness.
Holdings will not incur, create, issue, assume, guarantee or otherwise
become liable for any Indebtedness that by its terms is subordinate or junior
in right of payment to any Senior Indebtedness and senior in right of payment
to the Securities.
Section 4.17. Limitation on Preferred Stock of Subsidiaries.
Holdings will not permit any of its Subsidiaries to issue any Preferred Stock
(other than to Holdings or a wholly-owned Subsidiary), or permit any person
(other than Holdings or a wholly-owned Subsidiary) to own or hold an interest
in any Preferred Stock of any such Subsidiary, unless such Subsidiary would be
entitled to incur Indebtedness in accordance with the provisions of Section
4.12 in the aggregate principal amount equal to the aggregate liquidation value
of such Preferred Stock.
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Section 4.18. Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries.
Holdings shall not, and shall not permit any Subsidiary to, directly or
indirectly, create or suffer to exist, or allow to become effective any
consensual Payment Restriction with respect to any of its Subsidiaries, except
for (a) any such restrictions contained in (i) the Credit Agreement as in
effect on the Issue Date, as any such Payment Restriction may apply to any
present or future Subsidiary, (ii) this Indenture, the Senior Discount Note
Indenture, the Senior Discount Debenture Indenture, the indentures with respect
to Existing Indebtedness and any other agreement in effect at or entered into
on the Issue Date, (iii) Indebtedness of a person existing at the time such
person becomes a Subsidiary (provided that (x) such Indebtedness is not
incurred in connection with, or in contemplation of, such person becoming a
Subsidiary, (y) such restriction is not applicable to any person, or the
properties or assets of any person, other than the person so acquired and (z)
such Indebtedness is otherwise permitted to be incurred pursuant to Section
4.12), (iv) secured Indebtedness otherwise permitted to be incurred pursuant to
Sections 4.12 and 4.13 that limit the right of the debtor to dispose of the
assets securing such Indebtedness; (b) customary non-assignment provisions
restricting subletting or assignment of any lease or other agreement entered
into by a Subsidiary; (c) customary net worth provisions contained in leases
and other agreements entered into by a Subsidiary in the ordinary course of
business; (d) customary restrictions with respect to a Subsidiary pursuant to
an agreement that has been entered into for the sale or disposition of all or
substantially all of the Capital Stock or assets of such Subsidiary; (e)
customary provisions in joint venture agreements and other similar agreements;
(f) restrictions contained in Indebtedness incurred to refinance, refund,
extend or renew Indebtedness referred to in clause (a) above; provided that the
restrictions contained therein are not materially more restrictive taken as a
whole, than those provided for in such Indebtedness being refinanced, refunded,
extended or renewed, and (g) Payment Restrictions contained in any other
Indebtedness permitted to be incurred subsequent to the Issue Date pursuant to
the provisions of Section 4.12; provided that any such Payment Restrictions are
ordinary and customary with respect to the type of Indebtedness being incurred
(under the relevant circumstances) and, in any event, no more restrictive than
the most restrictive Payment Restrictions in effect of the Issue Date.
ARTICLE V
SUCCESSOR CORPORATION
Section 5.1. When Holdings May Merge, Etc.
(a) Holdings, in a single transaction or through a series of related
transactions, shall not (i) consolidate with or merge with or into any other
person, or transfer (by lease, assignment, sale or otherwise) all or
substantially all of its properties and assets as an entirety or substantially
as an entirety to another person or group of affiliated persons or (ii) adopt a
Plan of Liquidation, unless, in either case:
(1) either Holdings shall be the continuing person, or the person (if
other than Holdings) formed by such consolidation or into which Holdings is
merged or to which
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all or substantially all of the properties and assets of Holdings as an
entirety or substantially as an entirety are transferred (or, in the case of
a Plan of Liquidation, any person to which assets are transferred) (Holdings
or such other person being hereinafter referred to as the "Surviving Person")
shall be a corporation organized and validly existing under the laws of the
United States, any state thereof or the District of Columbia, and shall
expressly assume, by an indenture supplement, all the obligations of Holdings
under the Securities and this Indenture;
(2) immediately after and giving effect to such transaction and the
assumption contemplated by clause (1) above and the incurrence or anticipated
incurrence of any Indebtedness to be incurred in connection therewith, (A)
the Surviving Person shall have a Consolidated Net Worth equal to or greater
than the Consolidated Net Worth of Holdings immediately preceding the
transaction and (B) the Surviving Person could incur at least $1 of
additional Indebtedness other than Permitted Indebtedness pursuant to Section
4.12; and
(3) immediately before and immediately after and giving effect to
such transaction and the assumption of the obligations as set forth in clause
(1) above and the incurrence or anticipated incurrence of any Indebtedness to
be incurred in connection therewith, no Default or Event of Default shall
have occurred and be continuing.
(b) For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties and assets of one
or more Subsidiaries, the Capital Stock of which constitutes all or
substantially all of the properties and assets of Holdings shall be deemed to
be the transfer of all or substantially all of the properties and assets of
Holdings.
Section 5.2. Successor Corporation Substituted.
Upon any consolidation or merger or any transfer of all or substantially
all of the assets of Holdings or any adoption of a Plan of Liquidation by
Holdings in accordance with Section 5.1, the surviving person formed by such
consolidation or into which Holdings is merged or to which such transfer is
made, (or, in the case of a Plan of Liquidation, to which assets are
transferred) shall succeed to, and be substituted for, and may exercise every
right and power of, Holdings under this Indenture with the same effect as if
such surviving person had been named as Holdings herein; provided, however,
that solely for purposes of computing amounts described in subclause (c) of
Section 4.3, any such surviving person shall only be deemed to have succeeded
to and be substituted for Holdings with respect to periods subsequent to the
effective time of such merger, consolidation or transfer of assets. When a
successor corporation assumes all of the obligations of Holdings hereunder and
under the Securities and agrees to be bound hereby and thereby, the predecessor
shall be released from such obligations.
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ARTICLE VI
DEFAULT AND REMEDIES
Section 6.1. Events of Default.
An "Event of Default" occurs if:
(1) Holdings defaults in the payment of interest on the Securities
when the same becomes due and payable and the default continues for a period
of 30 days;
(2) Holdings defaults in the payment of the principal of the
Securities when the same becomes due and payable at maturity, upon
acceleration, redemption or otherwise (including the failure to repurchase
Securities tendered pursuant to the requirements set forth in Sections 4.14
and 4.15), whether or not such payment shall be prohibited by the provisions
of Article Eleven hereof;
(3) Holdings fails to comply with any of its other agreements or
covenants in, or provisions of, the Securities or this Indenture and the
default continues for the period and after the notice specified below;
(4) there shall be a default under any bond, debenture, or other
evidence of Indebtedness of Holdings or of any Significant Subsidiary or
under any mortgage, indenture or other instrument under which there may be
issued or by which there may be secured or evidenced any such Indebtedness,
whether such Indebtedness now exists or shall hereafter be created, if both
(A) such default either (i) results from the failure to pay such Indebtedness
at its stated final maturity (that is, the date of the last principal
installment of any installment Indebtedness under the instrument or agreement
pursuant to or under which such Indebtedness was created or is evidenced) or
(ii) relates to an obligation (including any obligation to pay interest, to
purchase such Indebtedness or to pay the principal of such Indebtedness,
other than the obligation to pay any principal of such Indebtedness at its
stated final maturity) and results in the holder or holders of such
Indebtedness causing such Indebtedness to become due prior to its stated
final maturity) and (B) the principal amount of such Indebtedness, together
with the principal amount of any other such Indebtedness the maturity of
which has been so accelerated, aggregates $25 million or more at any one time
outstanding;
(5) Holdings or any Significant Subsidiary (A) commences a voluntary
case or proceeding under any Bankruptcy Law with respect to itself, (B)
consents to the entry of a judgment, decree or order for relief against it in
an involuntary case or proceeding under any Bankruptcy Law, (C) consents to
the appointment of a Custodian of it or for substantially all of its
property, (D) consents to or acquiesces in the institution of a bankruptcy or
an insolvency proceeding against it, (E) makes a general assignment for the
benefit of its creditors, or (F) takes any corporate action to authorize or
effect any of the foregoing;
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(6) a court of competent jurisdiction enters a judgment, decree or
order for relief in respect of Holdings or any Significant Subsidiary in an
involuntary case or proceeding under any Bankruptcy Law, which shall (A)
approve as properly filed a petition seeking reorganization, arrangement,
adjustment or composition in respect of Holdings or any Significant
Subsidiary, (B) appoint a Custodian of Holdings or any Significant Subsidiary
or for substantially all of its property or (C) order the winding-up or
liquidation of its affairs; and such judgment, decree or order shall remain
unstayed and in effect for a period of 60 consecutive days;
(7) the lenders under the Credit Agreement shall commence judicial
proceedings to foreclose upon any material portion of the assets of Holdings
and its Subsidiaries; or
(8) any final judgment or order for payment of money in excess of $25
million shall be entered against Holdings or any Significant Subsidiary by a
court of competent jurisdiction and shall remain undischarged for a period of
60 days after such judgment becomes final and nonappealable.
A Default under clause (3) above (other than in the case of any Defaults
resulting from any Default under Section 4.3, 4.14 or 5.1, which Defaults shall
be Events of Default with the notice specified in this paragraph but without
the passage of time specified in this paragraph) is not an Event of Default
until the Trustee notifies Holdings, or the Holders of at least 25% in
aggregate principal amount of the outstanding Securities notify Holdings and
the Trustee, of the Default, and Holdings does not cure the Default within 30
days after receipt of the notice. The notice must specify the Default, demand
that it be remedied and state that the notice is a "Notice of Default." Such
notice shall be given by the Trustee if so requested by the Holders of at least
25% in aggregate principal amount of the Securities then outstanding. When a
Default is cured, it ceases.
Section 6.2. Acceleration.
(a) If an Event of Default (other than an Event of Default specified
in Section 6.1(5) or (6) with respect to Holdings or any Significant
Subsidiary) occurs and is continuing, the Trustee may, by notice to Holdings
(and, if any Indebtedness is outstanding under the Credit Agreement or the
Credit Agreement is otherwise in effect, to the Credit Agent), or the Holders
of at least 25% in aggregate principal amount of the Securities then
outstanding may, by written notice to Holdings and the Trustee, and the Trustee
shall (with notice to the Credit Agent if any Indebtedness is outstanding under
the Credit Agreement or the Credit Agreement is otherwise in effect), upon the
request of such Holders, declare the aggregate principal amount of the
Securities outstanding, together with accrued but unpaid interest thereon to
the date of payment, to be due and payable and, upon any such declaration, the
same shall become and be due and payable; provided, that so long as the Credit
Agreement shall be in force and effect, if any such Event of Default shall have
occurred and be continuing, any such acceleration shall not be effective until
the earlier of (a) five Business Days following a notice of acceleration given
to Holdings and the Credit Agent under the Credit Agreement and only if upon
such fifth Business Day such Event of Default shall be continuing or (b) the
acceleration
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of any Indebtedness under the Credit Agreement. If an Event of Default
specified in Section 6.1(5) or (6) occurs with respect to Holdings or any
Significant Subsidiary, all unpaid principal and accrued interest on the
Securities then outstanding shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or any
Holder. Upon payment of such principal amount, interest, and premium, if any,
all of Holdings' obligations under the Securities and this Indenture, other
than obligations under Section 7.7, shall terminate. The Holders of a majority
in aggregate principal amount of the Securities then outstanding by notice to
the Trustee may rescind an acceleration and its consequences if (i) all
existing Events of Default, other than the non-payment of the principal and
interest on the Securities which have become due solely by such declaration of
acceleration, have been cured or waived, (ii) to the extent the payment of such
interest is lawful, interest on overdue installments of interest and overdue
principal, which has become due otherwise than by such declaration of
acceleration, has been paid, and (iii) the rescission would not conflict with
any judgment or decree of a court of competent jurisdiction.
(b) In the event of a declaration of acceleration under this
Indenture because an Event of Default set forth in Section 6.1(4) has occurred
and is continuing, such declaration of acceleration shall be automatically
rescinded and annulled if either (i) the holders of the Indebtedness which is
the subject of such Event of Default have waived such failure to pay at
maturity or have rescinded the acceleration in respect of such Indebtedness
within 90 days of such maturity or declaration of acceleration, as the case may
be, and no other Event of Default has occurred during such 90-day period which
has not been cured or waived, or (ii) such Indebtedness shall have been
discharged or the maturity thereof shall have been extended such that it is not
then due and payable, or the underlying default has been cured (and any
acceleration based thereon of such other Indebtedness has been rescinded),
within 90 days of such maturity or declaration of acceleration, as the case may
be.
Section 6.3. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy by proceeding at law or in equity to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any of
the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
Section 6.4. Waiver of Past Defaults.
Subject to Sections 6.7 and 9.2, the Holders of at least fifty four
percent (54%) in aggregate principal amount of the outstanding Securities (or
at least a majority in aggregate principal amount of the outstanding Securities
in the event that EJDC shall cease to beneficially
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own at least a majority in aggregate principal amount of the outstanding
Securities), by notice to the Trustee may waive an existing Default or Event of
Default and its consequences, except a Default in the payment of principal of
or interest on any Security as specified in clauses (1) and (2) of Section 6.1.
When a Default or Event of Default is waived, it is cured and ceases.
Section 6.5. Control by Majority.
The Holders of at least a majority in aggregate principal amount of the
outstanding Securities may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on it. Subject to Section 7.1, however, the Trustee may refuse
to follow any direction that conflicts with any law or this Indenture that the
Trustee determines may be unduly prejudicial to the rights of another Holder,
or that may involve the Trustee in personal liability; provided that the
Trustee may take any other action deemed proper by the Trustee which is not
inconsistent with such direction.
Section 6.6. Limitation on Suits.
A Holder may not pursue any remedy with respect to this Indenture or the
Securities unless:
(1) the Holder gives to the Trustee notice of a continuing Event of
Default;
(2) the Holder or Holders of at least 25% in aggregate principal
amount of the outstanding Securities make a written request to the Trustee to
pursue the remedy;
(3) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense to be
incurred in compliance with such request;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of indemnity; and
(5) during such 60-day period the Holder or Holders of at least 25%
in aggregate principal amount of the outstanding Securities do not give the
Trustee a direction which, in the opinion of the Trustee, is inconsistent
with the request.
A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over such other Holder.
Section 6.7. Rights of Holders To Receive Payment.
Notwithstanding any other provision of this Indenture, the right of any
Holder to receive payment of principal of and interest on a Security, on or
after the respective due dates expressed in such Security, or to bring suit for
the enforcement of any such payment on or after such respective dates, shall
not be impaired or affected without the consent of the Holder.
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Section 6.8. Collection Suit by Trustee.
If an Event of Default in payment of principal or interest specified in
clause (1) or (2) of Section 6.1 occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against
Holdings or any other obligor on the Securities for the whole amount of
principal and accrued interest remaining unpaid, together with interest on
overdue principal and, to the extent that payment of such interest is lawful,
interest on overdue installments of interest, in each case at the rate per
annum borne by the Securities and such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
Section 6.9. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel) and the Holders allowed in
any judicial proceedings relating to Holdings or any other obligor upon the
Securities, any of their respective creditors or any of their respective
property and shall be entitled and empowered to collect and receive any monies
or other property payable or deliverable on any such claims and to distribute
the same, and any Custodian in any such judicial proceedings is hereby
authorized by each Holder to make such payments to the Trustee and, in the
event that the Trustee shall consent to the making of such payments directly to
the Holders, to pay to the Trustee any amount due to it for the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, and any other amounts due the Trustee under Section 7.7. Nothing
herein contained shall be deemed to authorize the Trustee to authorize or
consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article Six, it shall
pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.7;
Second: if the Holders are forced to proceed against Holdings directly
without the Trustee, to the Holders for their collection costs;
Third: to the Holders for amounts due and unpaid on the Securities for
principal and interest, ratably, without preference or priority of any kind,
according to the amounts due and payable on the Securities for principal and
interest, respectively; and
Fourth: to Holdings.
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The Trustee, upon prior notice to Holdings, may fix a record date and
payment date for any payment to the Holders pursuant to this Section 6.10.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an undertaking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.7, or a suit by a Holder or Holders of more than 10% in
aggregate principal amount of the outstanding Securities.
ARTICLE VII
TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this Indenture
and covenants and agrees to perform the same, as herein expressed.
Section 7.1. Duties of Trustee.
(a) If a Default or an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture and use the same degree of care and skill in its exercise
thereof as a prudent person could exercise or use under the circumstances in
the conduct of his own affairs.
(b) Except during the continuance of a Default or an Event of Default:
(1) The Trustee need perform only those duties as are specifically
set forth in this Indenture and no covenants or obligations shall be implied
in this Indenture that are adverse to the Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture. However,
the Trustee shall examine the certificates and opinions to determine whether
or not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of this
Section 7.1.
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(2) The Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction received
by it pursuant to Section 6.5.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.1.
(f) The Trustee shall not be liable for interest on any assets
received by it except as the Trustee may agree with Holdings. Assets held in
trust by the Trustee need not be segregated from other assets except to the
extent required by law.
Section 7.2. Rights of Trustee.
Subject to Section 7.1:
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper person. The Trustee need
not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may consult
with counsel and may require an Officers' Certificate or an Opinion of
Counsel, which shall conform to Sections 13.4 and 13.5. The Trustee shall
not be liable for any action it takes or omits to take in good faith in
reliance on such certificate or opinion.
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed
with due care.
(d) The Trustee shall not be liable for any action that it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers.
(e) The Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, notice, request, direction, consent, order, bond,
debenture, or other paper or document, but the Trustee, in its discretion,
may make such further inquiry or investigation into such facts or matters as
it may see fit.
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(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders pursuant to the provisions of this Indenture,
unless such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby.
Section 7.3. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner
or pledgee of Securities and may otherwise deal with Holdings, its
Subsidiaries, or their respective Affiliates with the same rights it would have
if it were not Trustee. Any Agent may do the same with like rights. However,
the Trustee must comply with Sections 7.10 and 7.11.
Section 7.4. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for Holdings' use
of the proceeds from the Securities, and it shall not be responsible for any
statement in the Securities other than the Trustee's certificate of
authentication.
Section 7.5. Notice of Default.
If a Default or an Event of Default occurs and is continuing and if it
is known to the Trustee, the Trustee shall mail to each Holder notice of the
uncured Default or Event of Default within 90 days after such Default or Event
of Default occurs. Except in the case of a Default or an Event of Default in
payment of principal of, premium, if any, or interest on, any Security,
including the failure to make payment on the Change of Control Payment Date
pursuant to a Change of Control Offer, the Trustee may withhold the notice if
and so long as its board of directors, the executive committee of its board of
directors or a committee of its directors and/or Trust Officers in good faith
determines that withholding the notice is in the interest of the Holders.
Section 7.6. Reports By Trustee to Holders.
Within 60 days after each May 15 beginning with the May 15 following the
date of this Indenture, the Trustee shall, to the extent that any of the events
described in TIA Section 313(a) occurred within the previous twelve months,
but not otherwise, mail to each Holder a brief report dated as of such May 15
that complies with TIA Section 313(a). The Trustee also shall comply with TIA
Sections 313(b) and 313(c).
A copy of each report at the time of its mailing to Holders shall be
mailed to Holdings and filed with the SEC and each stock exchange, if any, on
which the Securities are listed.
Holdings shall notify the Trustee if the Securities become listed on any
stock exchange.
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Section 7.7. Compensation and Indemnity.
Holdings shall pay to the Trustee from time to time reasonable
compensation for its services. The Trustee's compensation shall not be limited
by any law on compensation of a trustee of an express trust. Holdings shall
reimburse the Trustee upon request for all reasonable disbursements, expenses
and advances incurred or made by it including, without limitation, any taxes
imposed on the trust or on the income from the Securities. Such expenses shall
include the reasonable compensation, disbursements and expenses of the
Trustee's agents and counsel.
Holdings shall indemnify the Trustee for, and hold it harmless against,
any loss or liability incurred by it except for such actions to the extent
caused by any negligence or bad faith on its part, arising out of or in
connection with the administration of this trust and its rights or duties
hereunder. The Trustee shall notify Holdings promptly of any claim asserted
against the Trustee for which it may seek indemnity. Holdings shall defend the
claim and the Trustee shall cooperate in the defense. The Trustee may have
separate counsel and Holdings shall pay the reasonable fees and expenses of
such counsel; provided that Holdings will not be required to pay such fees and
expenses if it assumes the Trustee's defense and there is no conflict of
interest between Holdings and the Trustee in connection with such defense as
reasonably determined by the Trustee. Holdings need not pay for any settlement
made without its written consent. Holdings need not reimburse any expense or
indemnify against any loss or liability to the extent incurred by the Trustee
through its negligence, bad faith or willful misconduct.
To secure Holdings' payment obligations in this Section 7.7, the Trustee
shall have a lien prior to the Securities on all assets held or collected by
the Trustee, in its capacity as Trustee, except assets held in trust to pay
principal of, premium, if any, or interest on particular Securities.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.1(5) or (6) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
Section 7.8. Replacement of Trustee.
The Trustee may resign by so notifying Holdings. The Holders of a
majority in aggregate principal amount of the outstanding Securities may remove
the Trustee by so notifying Holdings and the Trustee may appoint a successor
Trustee with Holdings' consent. Holdings may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or other public officer takes charge of the
Trustee or its property; or
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(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, Holdings shall notify each Holder of such
event and shall promptly appoint a successor Trustee. Within one year after
the successor Trustee takes office, the Holders of a majority in aggregate
principal amount of the Securities may appoint a successor Trustee to replace
the successor Trustee appointed by Holdings.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to Holdings. Immediately after that,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, subject to the lien provided in Section 7.7, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Holder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, Holdings or the
Holders of at least 10% in aggregate principal amount of the outstanding
Securities may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section 7.8,
Holdings' obligations under Section 7.7 shall continue for the benefit of the
retiring Trustee.
Section 7.9. Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee.
Section 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Sections 310(a)(1) and 310(a)(5). The Trustee
shall have a combined capital and surplus of at least $100,000,000 as set forth
in its most recent published annual report of condition. The Trustee shall
comply with TIA Section 310(b); provided, however, that there shall be
excluded from the operation of TIA Section 310(b)(1) any indenture or
indentures under which other securities, or certificates of interest or
participation in other securities, of Holdings are outstanding, if the
requirements for such exclusion set forth in TIA Section 310(b)(1) are met.
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Section 7.11. Preferential Collection of Claims Against Holdings.
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has
resigned or been removed shall be subject to TIA Section 311(a) to the extent
indicated.
ARTICLE VIII
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.1. Option to Effect Legal Defeasance or Covenant Defeasance.
Holdings may, at the option of its Board of Directors evidenced by a
resolution set forth in an Officers' Certificate, at any time, elect to have
either Section 8.2 or 8.3 hereof be applied to all outstanding Securities upon
compliance with the conditions set forth below in this Article Eight.
Section 8.2. Legal Defeasance.
Upon Holdings' exercise under Section 8.1 hereof of the option
applicable to this Section 8.2, Holdings shall, subject to the satisfaction of
the conditions set forth in Section 8.4 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Securities on
the date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that Holdings shall be
deemed to have paid and discharged the entire Indebtedness represented by the
outstanding Securities, which shall thereafter be deemed to be "outstanding"
only for the purposes of Section 8.5 hereof and the other Sections of this
Indenture referred to in (a) and (b) below, and to have satisfied all its other
obligations under such Securities and this Indenture (and the Trustee, on
demand of and at the expense of Holdings, shall execute proper instruments
acknowledging the same), except for the following provisions which shall
survive until otherwise terminated or discharged hereunder: (a) the rights of
Holders of outstanding Securities to receive solely from the trust fund
described in Section 8.4 hereof, and as more fully set forth in such Section,
payments in respect of the principal, of, premium, if any, and interest on such
Securities when such payments are due, (b) Holdings' obligations with respect
to such Securities under Article Two and Section 4.2 hereof and the rights,
powers, trusts, duties and immunities of the Trustee and Holdings' obligations
in connection therewith, and (c) this Article Eight. Subject to compliance
with this Article Eight, Holdings may exercise its option under this Section
8.2 notwithstanding the prior exercise of its option under Section 8.3 hereof.
Section 8.3. Covenant Defeasance.
Upon Holdings' exercise under Section 8.1 hereof of the option
applicable to this Section 8.3, Holdings shall, subject to the satisfaction of
the conditions set forth in Section 8.4 hereof, be released from its
obligations under the covenants contained in Sections 4.3 and 4.6 through 4.18
and Article V hereof with respect to the outstanding Securities on and after
the date the conditions set forth below are satisfied (hereinafter, "Covenant
Defeasance"), and the
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Securities shall thereafter be deemed not "outstanding" for the purposes of any
direction, waiver, consent or declaration or act of Holders (and the
consequences of any thereof) in connection with such covenants, but shall
continue to be deemed "outstanding" for all other purposes hereunder (it being
understood that such Securities shall not be deemed outstanding for accounting
purposes). For this purpose, Covenant Defeasance means that, with respect to
the outstanding Securities, Holdings may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
covenant, whether directly or indirectly, by reason of any reference elsewhere
herein to any such covenant or by reason of any reference in any such covenant
to any other provision herein or in any other document and such omission to
comply shall not constitute a Default or an Event of Default under Section 6.1
hereof, but, except as specified above, the remainder of this Indenture and
such Securities shall be unaffected thereby. In addition, upon Holdings'
exercise under Section 8.1 hereof of the option applicable to this Section 8.3
hereof, subject to the satisfaction of the conditions set forth in Section 8.4
hereof, Sections 6.1(3) (but only to the extent it relates to a breach of any
of the covenants contained in Sections 4.3 and 4.6 through 4.18 and Article V
hereof), 6.1(4) and 6.1(7) hereof shall not constitute Events of Default.
Section 8.4. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of either Section
8.2 or 8.3 hereof to the outstanding Securities:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) Holdings must irrevocably deposit with the Trustee,
in trust, for the benefit of the Holders of the Securities, cash in
United States dollars, or direct non-callable obligations of, or
non-callable obligations guaranteed by, the United States of America for
the payment of which obligation or guarantee the full faith and credit
of the United States of America is pledged ("U.S. Government
Obligations"), or a combination thereof, in such amounts and at such
times as will be sufficient, without consideration of the reinvestment
of such interest and after payment of all federal, state and local taxes
or other charges or assessments in respect thereof payable by the
Trustee, in the opinion of a nationally recognized firm of independent
public accountants, to pay the principal of, premium, if any, and
interest on the outstanding Securities to redemption or maturity
provided that the Trustee shall have been irrevocably instructed to
apply such money or the proceeds of such U.S. Government Obligations to
said payments with respect to the Securities on the Maturity Date or
such redemption date, as the case may be;
(b) in the case of an election under Section 8.2 hereof,
Holdings shall have delivered to the Trustee an Opinion of Counsel
stating that (A) Holdings has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the Issue Date,
there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such Opinion of
Counsel shall confirm that, the Holders of the
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outstanding Securities will not recognize income, gain or loss for
federal income tax purposes as a result of such deposit and Legal
Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such deposit and Legal Defeasance had not occurred;
(c) in the case of an election under Section 8.3 hereof,
Holdings shall have delivered to the Trustee an Opinion of Counsel
stating that the Holders of the outstanding Securities will not
recognize income, gain or loss for federal income tax purposes as a
result of such deposit and Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if deposit and such Covenant
Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred
and be continuing on the date of such deposit or insofar as Section
6.1(5) or 6.1(6) hereof is concerned, at any time in the period ending
on the 91st day after the date of deposit (it being understood that this
condition shall not be deemed satisfied until after such 91st day);
(e) such Legal Defeasance or Covenant Defeasance shall
not result in a breach or violation of, or constitute a default under,
this Indenture or any other material agreement or instrument to which
Holdings is a party or by which Holdings is bound (and in that
connection, the Trustee shall have received a certificate from the
administrative agent under the Credit Agreement to that effect with
respect to such Credit Agreement if then in effect);
(f) Holdings shall have delivered to the Trustee an
Opinion of Counsel to the effect that, assuming that no Default or Event
of Default shall occur and be continuing under Section 6.1(5) or 6.1(6)
during the period ending on the 91st day after the date of deposit, the
trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally;
(g) Holdings shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by Holdings
with the intent of preferring the Holders over the other creditors of
Holdings or with the intent of defeating, hindering, delaying or
defrauding creditors of Holdings, or others; and
(h) Holdings shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or
the Covenant Defeasance have been complied with.
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Section 8.5. Deposited Money and U.S. Government Obligations to be Held in
Trust; Other Miscellaneous Provisions.
Subject to Section 8.6 hereof, all money and U.S. Government Obligations
(including the proceeds thereof) deposited with the Trustee pursuant to Section
8.4 hereof in respect of the outstanding Securities shall be held in trust and
applied by the Trustee, in accordance with the provisions of such Securities
and this Indenture, to the payment, either directly or through any Paying Agent
(excluding Holdings or any Affiliate thereof) as the Trustee may determine, to
the Holders of such Securities of all sums due and to become due thereon in
respect of principal, premium, if any, and interest, but such money need not be
segregated from other funds except to the extent required by law.
Holdings shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the cash or U.S. Government
Obligations deposited pursuant to Section 8.4 hereof or the principal and
interest received in respect thereof other than any such tax, fee or other
charge which by law is for the account of the Holders of the outstanding
Securities.
Anything in this Article Eight to the contrary notwithstanding, the
Trustee shall deliver or pay to Holdings from time to time upon the request of
Holdings any money or non-callable U.S. Government Obligations held by it as
provided in Section 8.4 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.4(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Covenant Defeasance.
Section 8.6. Repayment to Holdings.
Any money deposited with the Trustee or any Paying Agent in trust for
the payment of the principal of, premium, if any, or interest on any Security
and remaining unclaimed for two years after such principal, and premium, if
any, or interest has become due and payable shall be paid to Holdings on its
request or shall be discharged from such trust; and the Holder of such Security
shall thereafter, as a creditor, look only to Holdings for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money shall thereupon cease; provided, however, that the Trustee or such Paying
Agent, before being required to make any such repayment, shall at the expense
of Holdings cause to be published once, in The New York Times and The Wall
Street Journal (national edition), notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such notification or publication, any unclaimed balance of such
money then remaining will be repaid to Holdings.
Section 8.7. Reinstatement.
If the Trustee or Paying Agent is unable to apply any United States
dollars or U.S. Government Obligations in accordance with Section 8.2 or 8.3
hereof, as the case may be, by reason of any order or judgment of any court or
governmental authority enjoining, restraining
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or otherwise prohibiting such application, then Holdings' obligations under
this Indenture and the Securities shall be revived and reinstated as though no
deposit had occurred pursuant to Section 8.2 or 8.3 hereof until such time as
the Trustee or Paying Agent is permitted to apply all such money in accordance
with Section 8.2 or 8.3 hereof, as the case may be; provided, however, that, if
Holdings makes any payment of principal of, premium, if any, or interest on any
Security following the reinstatement of its obligations, Holdings shall be
subrogated to the rights of the Holders of such Securities to receive such
payment from the money held by the Trustee or Paying Agent.
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 9.1. Without Consent of Holders.
Holdings, when authorized by a Board Resolution, and the Trustee,
together, may amend or supplement this Indenture or the Securities without
notice to or consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency; provided that
such amendment or supplement does not adversely affect the rights of any
Holder;
(2) to comply with Article Five;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities; provided, however, that the uncertificated
Securities are issued in registered form for purposes of Section 163(f) of
the Internal Revenue Code of 1986, as from time to time amended, or in a
manner such that the uncertificated Securities are described in Section
163(f)(2)(B) of the Internal Revenue Code of 1986, as from time to time
amended;
(4) to make any other change that does not adversely affect the
rights of any Holders; or
(5) to comply with any requirements of the SEC in connection with the
qualification of this Indenture under the TIA;
provided that Holdings has delivered to the Trustee an Opinion of Counsel
stating that such amendment or supplement complies with the provisions of this
Section 9.1.
Section 9.2. With Consent of Holders.
Subject to Section 6.7, Holdings, when authorized by a Board Resolution,
and the Trustee, together, with the written consent of the Holder or Holders of
at least fifty four percent (54%) in aggregate principal amount of the
outstanding Securities (or at least a majority in aggregate principal amount of
the outstanding Securities in the event that EJDC shall cease to
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beneficially own at least a majority in aggregate principal amount of the
outstanding Securities), may amend or supplement this Indenture or the
Securities, without notice to any other Holders. Subject to Section 6.7, the
Holder or Holders of at least fifty four percent (54%) in aggregate principal
amount of the outstanding Securities (or at least a majority in aggregate
principal amount of the outstanding Securities in the event that EJDC shall
cease to beneficially own at least a majority in aggregate principal amount of
the outstanding Securities) may waive compliance by Holdings with any provision
of this Indenture or the Securities without notice to any other Holder.
Without the consent of each Holder affected, however, no amendment, supplement
or waiver, including a waiver pursuant to Section 6.4, may:
(1) change the principal amount of Securities whose Holders must
consent to an amendment, supplement or waiver of any provision of this
Indenture or the Securities;
(2) reduce the rate or extend the time for payment of interest on any
Security;
(3) reduce the principal amount of any Security;
(4) change the Maturity Date of any Security, or alter the redemption
provisions contained in paragraph 5 of the Securities in a manner adverse to
any Holder;
(5) make any changes in the provisions concerning waivers of Defaults
or Events of Default by Holders or the rights of Holders to recover the
principal of, interest on, or redemption payment with respect to, any
Security;
(6) make any changes in Section 6.4, 6.7 or this third sentence of
this Section 9.2; or
(7) make the principal of, or the interest on any Security payable
with anything or in any manner other than as provided for in this Indenture
and the Securities as in effect on the date hereof.
Without the consent of the Holder or Holders of at least 75% of the
aggregate principal amount of the outstanding Securities, no such amendment,
supplement or waiver may change the Change of Control Payment Date or the
purchase price in connection with any repurchase of Securities pursuant to
Section 4.14 hereof in a manner adverse to any Holder or waive a Default or
Event of Default resulting from a failure to comply with Section 4.14 hereof.
Without the consent of the Holder or Holders of at least 66-2/3% of the
aggregate principal amount of the outstanding Securities, no change may be made
to the provisions of Article Eleven that adversely affects the rights of any
Holder under Article Eleven.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
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After an amendment, supplement or waiver under this Section becomes
effective, Holdings shall mail to the Holders affected thereby a notice briefly
describing the amendment, supplement or waiver. Any failure of Holdings to
mail such notice, or any defect therein, shall not, however, in any way impair
or affect the validity of any such supplemental indenture.
In connection with any amendment, supplement or waiver under this
Article Nine, Holdings may, but shall not be obligated to, offer to any Holder
who consents to such amendment, supplement or waiver, or to all Holders,
consideration for such Holder's consent to such amendment, supplement or
waiver.
Holdings agrees that no amendment, supplement or waiver under this
Article Nine may make any change that adversely affects the rights under
Article Eleven of any holders of Senior Indebtedness unless the holders of such
Senior Indebtedness consent to the change.
Section 9.3. Compliance with TIA.
Every amendment, waiver or supplement of this Indenture or the
Securities shall comply with the TIA as then in effect.
Section 9.4. Revocation and Effect of Consents.
Until an amendment, waiver or supplement becomes effective, a consent to
it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made
on any Security. However, any such Holder or subsequent Holder may revoke the
consent as to his Security or portion of his Security by notice to the Trustee
or Holdings received before the date on which the Trustee receives an Officers'
Certificate certifying that the Holders of the requisite principal amount of
Securities have consented (and not theretofore revoked such consent) to the
amendment, supplement or waiver.
Holdings may, but shall not be obligated to, fix a record date for the
purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be at least 30 days prior to the
first solicitation of such consent. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph, those
persons who were Holders at such record date (or their duly designated
proxies), and only those persons, shall be entitled to revoke any consent
previously given, whether or not such persons continue to be Holders after such
record date. No such consent shall be valid or effective for more than 90 days
after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Holder, unless it makes a change described in any of clauses (1)
through (7) of Section 9.2, in which case, the amendment, supplement or waiver
shall bind only each Holder of a Security who has consented to it and every
subsequent Holder of a Security or portion of a Security that evidences the
same debt as the consenting Holder's Security; provided that any such waiver
shall not impair or affect the right of any Holder to receive payment of
principal of and interest on a Security, on or after the respective due dates
expressed in such Security, or to bring suit for
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the enforcement of any such payment on or after such respective dates without
the consent of such Holder.
Section 9.5. Notation on or Exchange of Securities.
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the
Trustee. The Trustee may place an appropriate notation on the Security about
the changed terms and return it to the Holder. Alternatively, if Holdings or
the Trustee so determines, Holdings in exchange for the Security shall issue
and the Trustee shall authenticate a new Security that reflects the changed
terms.
Section 9.6. Trustee To Sign Amendments, Etc.
The Trustee shall execute any amendment, supplement or waiver authorized
pursuant to this Article Nine; provided that the Trustee may, but shall not be
obligated to, execute any such amendment, supplement or waiver which affects
the Trustee's own rights, duties or immunities under this Indenture. The
Trustee shall be entitled to receive, and shall be fully protected in relying
upon, an Opinion of Counsel stating that the execution of any amendment,
supplement or waiver authorized pursuant to this Article Nine is authorized or
permitted by this Indenture.
ARTICLE X
MEETINGS OF SECURITYHOLDERS
Section 10.1. Purposes for Which Meetings May Be Called.
A meeting of Holders may be called at any time and from time to time
pursuant to the provisions of this Article Ten for any of the following
purposes:
(a) to give any notice to Holdings or to the Trustee, or to give any
directions to the Trustee, or to waive or to consent to the waiving of any
Default or Event of Default hereunder and its consequences, or to take any
other action authorized to be taken by Holders pursuant to any of the
provisions of Article Six;
(b) to remove the Trustee or appoint a successor Trustee pursuant to
the provisions of Article Seven;
(c) to consent to an amendment, supplement or waiver pursuant to the
provisions of Section 9.2; or
(d) to take any other action (i) authorized to be taken by or on
behalf of the Holders of any specified aggregate principal amount of the
Securities under any other provision of this Indenture, or authorized or
permitted by law or (ii) which the Trustee deems necessary or appropriate in
connection with the administration of this Indenture.
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Section 10.2. Manner of Calling Meetings.
The Trustee may at any time call a meeting of Holders to take any action
specified in Section 10.1, to be held at such time and at such place in New
York, New York or elsewhere as the Trustee shall determine. Notice of every
meeting of Holders, setting forth the time and place of such meeting and in
general terms the action proposed to be taken at such meeting, shall be mailed
by the Trustee, first-class postage prepaid, to Holdings and to the Holders at
their last addresses as they shall appear on the registration books of the
Registrar not less than 10 nor more than 60 days prior to the date fixed for a
meeting.
Any meeting of Holders shall be valid without notice if the Holders of
all Securities then outstanding are present in person or by proxy, or if notice
is waived before or after the meeting by the Holders of all Securities
outstanding, and if Holdings, any Subsidiary and the Trustee are either present
by duly authorized representatives or have, before or after the meeting, waived
notice.
Section 10.3. Call of Meetings by Holdings or Holders.
In case at any time Holdings, pursuant to a Board Resolution, or the
Holders of not less than 10% in aggregate principal amount of the Securities
then outstanding shall have requested the Trustee to call a meeting of Holders
to take any action specified in Section 10.1, by written request setting forth
in reasonable detail the action proposed to be taken at the meeting, and the
Trustee shall not have mailed the notice of such meeting within 20 days after
receipt of such request, then Holdings or the Holders in the amount above
specified may determine the time and place in New York, New York or elsewhere
for such meeting and may call such meeting for the purpose of taking such
action, by mailing or causing to be mailed notice thereof as provided in
Section 10.2, or by causing notice thereof to be published at least once in
each of two successive calendar weeks (on any Business Day during such week) in
a newspaper or newspapers printed in the English language, customarily
published at least five days a week of a general circulation in New York, New
York, the first such publication to be not less than 10 nor more than 60 days
prior to the date fixed for the meeting.
Section 10.4. Who May Attend and Vote at Meetings.
To be entitled to vote at any meeting of Holders, a person shall (a) be
a registered Holder of one or more Securities, or (b) be a person appointed by
an instrument in writing as proxy for the registered Holder or Holders of
Securities. The only persons who shall be entitled to be present or to speak
at any meeting of Holders shall be the persons entitled to vote at such meeting
and their counsel and any representatives of the Trustee and its counsel and
any representatives of Holdings and its counsel.
Section 10.5. Regulations May Be Made by Trustee; Conduct of the Meeting;
Voting Rights; Adjournment.
Notwithstanding any other provision of this Indenture, the Trustee may
make such reasonable regulations as it may deem advisable for any action by or
any meeting of Holders,
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in regard to proof of the holding of Securities and of the appointment of
proxies, and in regard to the appointment and duties of inspectors of votes,
and submission and examination of proxies, certificates and other evidence of
the right to vote, and such other matters concerning the conduct of the meeting
as it shall think appropriate. Such regulations may fix a record date and time
for determining the Holders of record of Securities entitled to vote at such
meeting, in which case those and only those persons who are Holders of
Securities at the record date and time so fixed, or their proxies, shall be
entitled to vote at such meeting whether or not they shall be such Holders at
the time of the meeting.
The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by Holdings
or by Holders as provided in Section 10.3, in which case Holdings or the
Holders calling the meeting, as the case may be, shall in like manner appoint a
temporary chairman. A permanent chairman and a permanent secretary of the
meeting shall be elected by vote of the Holders of a majority in aggregate
principal amount of the Securities represented at the meeting and entitled to
vote.
At any meeting each Holder or proxy shall be entitled to one vote for
each $1,000 principal amount of Securities held or represented by him;
provided, however, that no vote shall be cast or counted at any meeting in
respect of any Securities challenged as not outstanding and ruled by the
chairman of the meeting to be not outstanding. The chairman may adjourn any
such meeting if he is unable to determine whether any Holder or proxy shall be
entitled to vote at such meeting. The chairman of the meeting shall have no
right to vote other than by virtue of Securities held by him or instruments in
writing as aforesaid duly designating him as the proxy to vote on behalf of
other Holders. Any meeting of Holders duly called pursuant to the provisions
of Section 10.2 or Section 10.3 may be adjourned from time to time by vote of
the Holders of a majority in aggregate principal amount of the Securities
represented at the meeting and entitled to vote, and the meeting may be held as
so adjourned without further notice.
Section 10.6. Voting at the Meeting and Record To Be Kept.
The vote upon any resolution submitted to any meeting of Holders shall
be by written ballots on which shall be subscribed the signatures of the
Holders of Securities or of their representatives by proxy and the principal
amount of the Securities voted by the ballot. The permanent chairman of the
meeting shall appoint two inspectors of votes, who shall count all votes cast
at the meeting for or against any resolution and who shall make and file with
the secretary of the meeting their verified written reports in duplicate of all
votes cast at the meeting. A record in duplicate of the proceedings of each
meeting of Holders shall be prepared by the secretary of the meeting and there
shall be attached to such record the original reports of the inspectors of
votes on any vote by ballot taken thereat and affidavits by one or more persons
having knowledge of the facts, setting forth a copy of the notice of the
meeting and showing that such notice was mailed as provided in Section 10.2 or
published as provided in Section 10.3. The record shall be signed and verified
by the affidavits of the permanent chairman and the secretary of the meeting
and one of the duplicates shall be delivered to Holdings and the other to the
Trustee to be preserved by the Trustee, the latter to have attached thereto the
ballots voted at the meeting.
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Any record so signed and verified shall be conclusive evidence of the
matters therein stated.
Section 10.7. Exercise of Rights of Trustee or Holders May Not Be
Hindered or Delayed by Call of Meeting.
Nothing contained in this Article Ten shall be deemed or construed to
authorize or permit, by reason of any call of a meeting of Holders or any
rights expressly or impliedly conferred hereunder to make such call, any
hindrance or delay in the exercise of any right or rights conferred upon or
reserved to the Trustee or to the Holders under any of the provisions of this
Indenture or of the Securities.
ARTICLE XI
SUBORDINATION
Section 11.1. Securities Subordinated to Senior Indebtedness.
Anything herein to the contrary notwithstanding, Holdings, for itself
and its successors, and each Holder, by accepting a Security, agrees, that the
payment of the principal of and interest on and premiums, penalties, fees and
other liabilities (including, without limitation, liabilities in respect of any
indemnity, reimbursement, compensation or contribution obligations, the
occurrence of a Change of Control, any liquidated damage provision, any breach
of representation or warranty, or any rights of redemption or rescission under
this Indenture, the Merger Agreement and the Registration Rights Agreement or
by law or otherwise) ("Other Obligations") with respect to the Securities is
subordinated, to the extent and in the manner provided in this Article Eleven,
to the prior payment in full in cash of all Senior Indebtedness.
This Article Eleven shall constitute a continuing offer to all persons
who become holders of, or continue to hold, Senior Indebtedness, and such
provisions are made for the benefit of the holders of Senior Indebtedness and
such holders are made obligees hereunder and any one or more of them may
enforce such provisions. Holders of Senior Indebtedness need not prove
reliance on the subordination provisions hereof.
Section 11.2. No Payment on Securities in Certain Circumstances.
(a) No direct or indirect payment or distribution shall be made by or
on behalf of Holdings (other than a payment in Secondary Securities) on account
of principal of or interest on or Other Obligations with respect to the
Securities or to acquire, repurchase, redeem, retire or defease any of the
Securities or on account of the redemption provisions of the Securities (i)
upon the maturity of any Senior Indebtedness by lapse of time, acceleration or
otherwise, unless and until all principal thereof and interest thereon shall
first be paid in full in cash or (ii) upon the happening of any default in
payment of any principal of or interest on any Senior Indebtedness when the
same becomes due and payable (a "Payment Default"), unless and until such
default shall have been cured or waived or shall have ceased to exist.
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(b) Without limiting the effect of Section 11.2(a), upon the
happening of a default or event of default (other than a Payment Default)
(including any event which, with the giving of notice or lapse of time, or
both, would become an event of default and including any default or event of
default that would result upon any payment with respect to the Securities) with
respect to any Senior Indebtedness, as such default or event of default is
defined therein or in the instrument or agreement under which it is
outstanding, and upon written notice thereof given to Holdings and the Trustee
by any holders of such Senior Indebtedness or their Representative specifying
an intent to effect a Payment Blockage Period hereunder ("Payment Notice"),
then, unless and until such default or event of default shall have been cured
or waived or shall have ceased to exist, no direct or indirect payment or
distribution (other than of Secondary Securities) shall be made by or on behalf
of Holdings on account of principal of or interest on or Other Obligations with
respect to the Securities or to acquire, repurchase, redeem, retire or defease
any of the Securities or on account of the redemption provisions of the
Securities; provided, however, that this paragraph (b) shall not prevent the
making of any payment for a period of (a "Payment Blockage Period") of more
than 179 days after a Payment Notice shall have been given (or earlier if such
Payment Blockage Period is terminated (i) by written notice to the Trustee and
Holdings from the Credit Agent or the Representative which gave such Payment
Notice, (ii) repayment in full of such Senior Indebtedness or (iii) because the
default specified in the Payment Notice is no longer continuing). Subject to
the provisions contained in Section 11.2(a) above, Holdings may resume payments
on the Securities after such Payment Blockage Period expires. Notwithstanding
the foregoing, (i) not more than one Payment Notice shall be given within a
period of 360 consecutive days, and (ii) a Payment Notice may only be given (A)
if Senior Indebtedness is outstanding under the Credit Agreement at the time of
such notice, by the Credit Agent and (B) if no Senior Indebtedness is
outstanding under the Credit Agreement at the time of such notice, by a holder
or holders (or the Representative of holders) of at least $35,000,000 principal
amount of such Senior Indebtedness. For purposes of this Section, no default
or event of default which existed or was continuing on the date of the
commencement of any Payment Blockage Period with respect to the Senior
Indebtedness initiating such Payment Blockage Period shall be, or be made, the
basis of the commencement of a subsequent Payment Blockage Period by the
Representative of such Senior Indebtedness whether or not within a period of
360 consecutive days unless such default or event of default shall have been
cured or waived for a period of not less than 90 consecutive days.
(c) In furtherance of the provisions of Section 11.1, if,
notwithstanding the foregoing provisions of this Section 11.2, any direct or
indirect payment or distribution other than Secondary Securities on account of
principal of or interest on or Other Obligations with respect to the Securities
or to acquire, repurchase, redeem, retire or defease any of the Securities or
on account of the redemption provisions of the Securities shall be made by or
on behalf of Holdings and received by the Trustee, by any Holder or by any
Paying Agent (or, if Holdings or any Subsidiary or Affiliate of Holdings is
acting as Paying Agent, money for any such payment or distribution shall be
segregated and held in trust), at a time when such payment or distribution was
prohibited by the provisions of this Section 11.2, then, unless and until such
payment or distribution is no longer prohibited by this Section 11.2, such
payment or distribution (subject to the provisions of Sections 11.6 and 11.7)
shall be received, segregated from other funds, and held in trust by the
Trustee or such Holder or Paying Agent, as the case may be, for the benefit of,
and shall be immediately paid over to, the holders of Senior Indebtedness or
their
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Representative, ratably according to the respective amounts of Senior
Indebtedness held or represented by each, to the extent necessary to make
payment in full in cash of all Senior Indebtedness remaining unpaid, after
giving effect to all concurrent payments and distributions to or for the
holders of Senior Indebtedness. Holdings shall give prompt notice to the
Trustee of any default or event of default or any acceleration under any Senior
Indebtedness or under any agreement pursuant to which Senior Indebtedness may
have been issued. Failure to give such notice shall not affect the
subordination of the Securities to Senior Indebtedness provided in this Article
Eleven. Notwithstanding anything to the contrary contained herein, in the
absence of its gross negligence or willful misconduct, the Trustee shall have
no duty to collect or retrieve monies previously paid by it in good faith;
provided that this sentence shall not affect the obligation of any other party
receiving such payment to hold such payment for the benefit of, and to pay such
payment over to, the holders of Senior Indebtedness or their Representative.
Section 11.3. Securities Subordinated to Prior Payment of All Senior
Indebtedness on Dissolution, Liquidation or Reorganization
of Holdings.
Upon any payment or distribution of assets or securities of Holdings of
any kind or character, whether in cash, property or securities, upon any
dissolution, winding-up, total or partial liquidation or total or partial
reorganization of Holdings (including, without limitation, in bankruptcy,
insolvency or receivership proceedings or upon any assignment for the benefit
of creditors or any other marshalling of assets and liabilities of Holdings and
whether voluntary or involuntary):
(a) the holders of all Senior Indebtedness shall first be entitled to
receive payments in full in cash of the principal thereof and interest
thereon before the Holders are entitled to receive any payment on account of
the principal of or interest on or Other Obligations with respect to the
Securities (whether by payment, acquisition, retirement, defeasance,
redemption or otherwise) or any other payment or distribution of assets or
securities by or on behalf of Holdings;
(b) any payment or distribution of assets or securities of Holdings
of any kind or character, whether in cash, property or securities, to which
the Holders or the Trustee on behalf of the Holders would be entitled except
for the provisions of this Article Eleven, including any such payment or
distribution that is payable or deliverable by reason of the payment of any
other Indebtedness of Holdings being subordinated to the payment of the
Securities (except for any such payment or distribution (x) authorized by an
order or decree giving effect, and stating in such order or decree that
effect is given, to the subordination of the Securities to the Senior
Indebtedness, and made by a court of competent jurisdiction in a
reorganization proceeding under any applicable bankruptcy law, (y) of
securities that (i) are unsecured, (ii) have a Weighted Average Life to
Maturity and final maturity that are no shorter than the Weighted Average
Life to Maturity of the Securities or any securities issued to the holders of
Senior Indebtedness under the Credit Agreement pursuant to a plan of
reorganization or readjustment and (iii) are subordinated, to at least the
same extent as the Securities, to the payment of all Senior Indebtedness then
outstanding or (z) of Capital Stock), shall be paid by the liquidating
trustee or agent or other person making such a payment or distribution,
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directly to the holders of Senior Indebtedness or their Representative,
ratably according to the respective amounts of Senior Indebtedness held or
represented by each, until all Senior Indebtedness remaining unpaid shall
have been paid in full in cash, after giving effect to all concurrent
payments and distributions to or for the holders of such Senior Indebtedness;
and
(c) in the event that, notwithstanding the foregoing, any payment or
distribution of assets or securities of Holdings of any kind or character,
whether in cash, property or securities, shall be received by the Trustee or
the Holders or any Paying Agent (or, if Holdings or any Subsidiary or
Affiliate of Holdings is acting as Paying Agent, money, assets or securities
of any kind or character for any such payment or distribution shall be
segregated or held in trust) on account of principal of or interest on or
Other Obligations with respect to the Securities before all Senior
Indebtedness is paid in full in cash, such payment or distribution (subject
to the provisions of Sections 11.6 and 11.7) shall be received, segregated
from other funds, and held in trust by the Trustee or such Holder or Paying
Agent for the benefit of, and shall immediately be paid over to, the holders
of Senior Indebtedness or their Representative, ratably according to the
respective amounts of Senior Indebtedness held or represented by each, until
all Senior Indebtedness remaining unpaid shall have been paid in full in
cash, after giving effect to all concurrent payments and distributions to or
for the holders of Senior Indebtedness. Notwithstanding anything to the
contrary contained herein, in the absence of its gross negligence or wilful
misconduct, the Trustee shall have no duty to collect or retrieve monies
previously paid by it in good faith; provided that this sentence shall not
affect the obligation of any other party receiving such payment to hold such
payment for the benefit of, and to pay over such payment over to, the holders
of Senior Indebtedness or their Representative.
Holdings shall give prompt notice to the Trustee prior to any
dissolution, winding-up, total or partial liquidation or total or partial
reorganization of Holdings or assignment for the benefit of creditors by
Holdings.
Section 11.4. Holders to Be Subrogated to Rights of Holders of Senior
Indebtedness.
Subject to the payment in full in cash of all Senior Indebtedness, the
Holders of Securities shall be subrogated to the rights of the holders of
Senior Indebtedness to receive payments or distributions of assets of Holdings
applicable to the Senior Indebtedness until all amounts owing on the Securities
shall be paid in full in cash, and for the purpose of such subrogation no
payments or distributions to the holders of Senior Indebtedness by or on behalf
of Holdings, or by or on behalf of the Holders by virtue of this Article
Eleven, which otherwise would have been made to the Holders, shall, as between
Holdings and the Holders, be deemed to be payment by Holdings to or on account
of the Senior Indebtedness, it being understood that the provisions of this
Article Eleven are and are intended solely for the purpose of defining the
relative rights of the Holders, on the one hand, and the holders of Senior
Indebtedness, on the other hand.
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If any payment or distribution to which the Holders would otherwise have
been entitled but for the provisions of this Article Eleven shall have been
applied, pursuant to the provisions of this Article Eleven, to the payment of
all amounts payable under the Senior Indebtedness, then the Holders shall be
entitled to receive from the holders of such Senior Indebtedness any payments
or distributions received by such holders of Senior Indebtedness in excess of
the amount sufficient to pay all amounts payable under or in respect of the
Senior Indebtedness in full in cash.
Section 11.5. Obligations of Holdings Unconditional.
Nothing contained in this Article Eleven or elsewhere in this Indenture
or in the Securities is intended to or shall impair, as between Holdings and
the Holders, the obligation of Holdings, which is absolute and unconditional,
to pay to the Holders the principal of and interest on and Other Obligations in
respect of the Securities as and when the same shall become due and payable in
accordance with their terms, or is intended to or shall affect the relative
rights of the Holders and creditors of Holdings other than the holders of the
Senior Indebtedness, nor shall anything herein or therein prevent the Trustee
or any Holder from exercising all remedies otherwise permitted by applicable
law upon default under this Indenture, subject to the rights, if any, under
this Article Eleven, of the holders of Senior Indebtedness in respect of cash,
property or securities of Holdings received upon the exercise of any such
remedy. Upon any payment or distribution of assets or securities of Holdings
referred to in this Article Eleven, the Trustee, subject to the provisions of
Sections 7.1 and 7.2, and the Holders shall be entitled to rely upon any order
or decree made by any court of competent jurisdiction in which any dissolution,
winding-up, liquidation or reorganization proceedings are pending, or a
certificate of the receiver, trustee in bankruptcy, liquidating trustee or
agent or other person making any payment or distribution to the Trustee or to
the Holders for the purpose of ascertaining the persons entitled to participate
in such payment or distribution, the holders of Senior Indebtedness and other
Indebtedness of Holdings, the amount thereof or payable thereon, the amount or
amounts paid or distributed thereon and all other facts pertinent thereto or to
this Article Eleven. Nothing in this Section 11.5 shall apply to the claims
of, or payments to, the Trustee under or pursuant to Section 7.7.
Section 11.6. Trustee Entitled to Assume Payments Not Prohibited in
Absence of Notice.
The Trustee shall not at any time be charged with knowledge of the
existence of any facts that would prohibit the making of any payment to or by
the Trustee unless and until the Trustee or any Paying Agent shall have
received written notice thereof from Holdings or from one or more holders of
Senior Indebtedness or from any Representative therefor and, prior to the
receipt of any such notice, the Trustee, subject to the provisions of Sections
7.1 and 7.2, shall be entitled in all respects conclusively to assume that no
such fact exists.
Section 11.7. Application by Trustee of Assets Deposited with It.
U.S. Legal Tender or U.S. Government Obligations deposited in trust with
the Trustee pursuant to and in accordance with Section 8.4 shall be for the
sole benefit of Holders and, to the extent allocated for the payment of
Securities, shall not be subject to the
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subordination provisions of this Article Eleven. Otherwise, any deposit of
assets or securities by or on behalf of Holdings with the Trustee or any Paying
Agent (whether or not in trust) for the payment of principal of or interest on
or Other Obligations with respect to any Securities shall be subject to the
provisions of this Article Eleven; provided that if prior to the second
Business Day preceding the date on which by the terms of this Indenture any
such assets may become distributable for any purpose (including, without
limitation, the payment of either principal of or interest on any Security) the
Trustee or such Paying Agent shall not have received with respect to such
assets the notice provided for in Section 11.6, then the Trustee or such Paying
Agent shall have full power and authority to receive such assets and to apply
the same to the purpose for which they were received, and shall not be affected
by any notice to the contrary received by it on or after such date. The
foregoing shall not apply to the Paying Agent if Holdings or any Subsidiary or
Affiliate of Holdings is acting as Paying Agent. Nothing contained in this
Section 11.7 (except the first sentence of this Section 11.7) shall limit the
right of the holders of Senior Indebtedness to recover payments as contemplated
by this Article Eleven.
Section 11.8. Subordination Rights Not Impaired by Acts or Omissions of
Holdings or Holders of Senior Indebtedness.
No right of any present or future holders of any Senior Indebtedness to
enforce the subordination provisions contained in this Article Eleven shall at
any time in any way be prejudiced or impaired by any act or failure to act on
the part of Holdings or by any act or failure to act, in good faith, by any
such holder, or by any noncompliance by Holdings with the terms of this
Indenture, regardless of any knowledge thereof that any such holder may have or
be otherwise charged with. The holders of Senior Indebtedness may extend,
renew, restate, supplement, modify or amend the terms of the Senior
Indebtedness or any security therefor and release, sell or exchange such
security and otherwise deal freely with Holdings and its Subsidiaries all
without affecting the liabilities and obligations of the parties to this
Indenture or the Holders. No provision in any supplemental indenture that
affects the subordination of the Securities or other provisions of this Article
Eleven shall be effective against the holders of the Senior Indebtedness who
have not consented thereto.
Each Holder by accepting a Security agrees that the Representative of
any Senior Indebtedness (including without limitation, the Credit Agent), in
its discretion, without notice or demand and without affecting any rights of
any holder of Senior Indebtedness under this Article Eleven, may foreclose any
mortgage or deed of trust covering interests in real property secured thereby,
by judicial or nonjudicial sale; and such Holder hereby waives any defense to
the enforcement by the Representative (including without limitation, the Credit
Agent) of any Senior Indebtedness or by any holder of any Senior Indebtedness
against such Holder of this Article Eleven after a judicial or nonjudicial sale
or other disposition of its interests in real property secured by such mortgage
or deed of trust; and such Holder expressly waives any defense or benefits that
may be derived from California Civil Code Section Section 2808, 2809, 2810,
2819, 2845, 2849 or 2850, or California Code of Civil Procedure Section Section
580a, 580d or 726, or comparable provisions of the laws of any other
jurisdiction or any similar statute in effect in any other jurisdiction.
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Section 11.9. Holders Authorize Trustee to Effectuate Subordination of
Securities.
Each Holder by accepting a Security authorizes and expressly directs the
Trustee on his behalf to take such action as may be necessary or appropriate to
effect the subordination provisions contained in this Article Eleven, and
appoints the Trustee his attorney-in-fact for such purpose, including, in the
event of any dissolution, winding up, liquidation or reorganization of Holdings
(whether in bankruptcy, insolvency or receivership proceedings or upon an
assignment for the benefit of creditors or any other marshalling of assets and
liabilities of Holdings) tending towards liquidation or reorganization of the
business and assets of Holdings, the immediate filing of a claim for the unpaid
balance of its or his Securities and Other Obligations in the form required in
said proceedings and cause said claim to be approved. If the Trustee does not
file a proper claim or proof of debt in the form required in such proceeding
prior to 30 days before the expiration of the time to file such claim or
claims, then the holders of the Senior Indebtedness or their Representative is
hereby authorized to file an appropriate claim for and on behalf of the Holders
of said Securities. Nothing herein contained shall be deemed to authorize the
Trustee or the holders of Senior Indebtedness or their Representative to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee or the holders
of Senior Indebtedness or their Representative to vote in respect of the claim
of any Holder in any such proceeding.
Section 11.10. Right of Trustee to Hold Senior Indebtedness.
The Trustee shall be entitled to all of the rights set forth in this
Article Eleven in respect of any Senior Indebtedness at any time held by it to
the same extent as any other holder of Senior Indebtedness, and nothing in this
Indenture shall be construed to deprive the Trustee of any of its rights as
such holder.
Section 11.11. Article Eleven Not to Prevent Events of Default.
The failure to make a payment on account of principal of or interest on
the Securities by reason of any provision of this Article Eleven shall not be
construed as preventing the occurrence of a Default or an Event of Default
under Section 6.1.
Section 11.12. No Fiduciary Duty of Trustee to Holders of Senior Indebtedness.
The Trustee shall not be deemed to owe any fiduciary duty to the holders
of Senior Indebtedness, and shall not be liable to any such holders (other than
for its willful misconduct or gross negligence) if it shall in good faith
mistakenly pay over or deliver to the Holders of Securities or Holdings or any
other person, money or assets to which any holders of Senior Indebtedness shall
be entitled by virtue of this Article Eleven or otherwise. Nothing in this
Section 11.12 shall affect the obligation of any person other than the Trustee
to hold such payment for the benefit of, and to pay such payment over to, the
holders of Senior Indebtedness or their Representative.
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ARTICLE XII
SATISFACTION AND DISCHARGE
Section 12.1. Satisfaction and Discharge of the Indenture.
This Indenture will be discharged and will cease to be of further effect
as to all outstanding Securities when:
(a) all Securities theretofore authenticated and delivered (except
lost, stolen or destroyed Securities which have been replaced or paid and
Securities for whose payment money has theretofore been deposited in trust and
thereafter repaid to Holdings) have been delivered to the Trustee for
cancellation; or
(b) (1) all Securities not theretofore delivered to the Trustee for
cancellation have become due and payable by reason of the making of a notice
of redemption or otherwise and Holdings has irrevocably deposited or caused
to be deposited with the Trustee as trust funds in trust for the purpose an
amount sufficient to pay and discharge the entire indebtedness on the
Securities not theretofore delivered to the Trustee for cancellation for
principal, premium, if any, and accrued interest to the date of maturity or
redemption;
(2) Holdings has paid all sums payable by it under this
Indenture; and
(3) Holdings has delivered irrevocable instructions to the
Trustee to apply the deposited money toward the payment of the Securities at
maturity or the redemption date, as the case may be.
Section 12.2. Conditions to Satisfaction and Discharge of the Indenture.
Holdings shall deliver an Officers' Certificate and an Opinion of
Counsel to the Trustee stating that all conditions precedent to satisfaction
and discharge have been complied with.
ARTICLE XIII
MISCELLANEOUS
Section 13.1. TIA Controls.
If any provision of this Indenture limits, qualifies, or conflicts with
the duties imposed by operation of Section 3.18(c) of the TIA, the imposed
duties shall control.
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Section 13.2. Notices.
Any notices or other communications required or permitted hereunder
shall be in writing, and shall be sufficiently given if made by hand delivery,
by telex, by telecopier or registered or certified mail, postage prepaid,
return receipt requested, addressed as follows:
if to Holdings:
c/o The Yucaipa Companies
10000 Santa Monica Boulevard
Fifth Floor
Los Angeles, California 90067
Attention: Mark A. Resnik
if to the Trustee:
------------------------------------------
------------------------------------------
------------------------------------------
------------------------------------------
Attention: Corporate Trust Administration
Each of Holdings and the Trustee by written notice to each other such
person may designate additional or different addresses for notices to such
person. Any notice or communication to Holdings and the Trustee shall be
deemed to have been given or made as of the date so delivered if personally
delivered; when answered back, if telexed; when receipt is acknowledged, if
telecopied; and five (5) calendar days after mailing if sent by registered or
certified mail, postage prepaid (except that a notice of change of address
shall not be deemed to have been given until actually received by the
addressee).
Any notice or communication mailed to a Holder shall be mailed to him by
first class mail or other equivalent means at his address as it appears on the
registration books of the Registrar and shall be sufficiently given to him if
so mailed within the time prescribed.
Failure to mail a notice or communication to a Holder or any defect in
it shall not affect its sufficiency with respect to other Holders. If a notice
or communication is mailed in the manner provided above, it is duly given,
whether or not the addressee receives it.
Section 13.3. Communications by Holders with Other Holders.
Holders may communicate pursuant to TIA Section 312(b) with other
Holders with respect to their rights under this Indenture or the Securities.
Holdings, the Trustee, the Registrar and any other person shall have the
protection of TIA Section 312(c).
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Section 13.4. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by Holdings to the Trustee to take any
action under this Indenture, Holdings shall furnish to the Trustee:
(1) an Officers' Certificate stating that, in the opinion of the
signers, all conditions precedent, if any, provided for in this Indenture
relating to the proposed action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
Section 13.5. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture, other than the Officers'
Certificate required by Section 4.7, shall include:
(1) a statement that the person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether or not, in the opinion of each such
person, such condition or covenant has been complied with; provided, however,
that with respect to matters of fact an Opinion of Counsel may rely on an
Officers' Certificate or certificates of public officials.
Section 13.6. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules for action by or at a meeting of
Holders. The Paying Agent or Registrar may make reasonable rules for its
functions.
Section 13.7. Legal Holidays.
A "Legal Holiday" used with respect to a particular place of payment is
a Saturday, a Sunday or a day on which banking institutions in New York, New
York, Los Angeles, California or at such place of payment are not required to
be open. If a payment date is a Legal Holiday at such place, payment may be
made at such place on the next succeeding day that is not a Legal Holiday, and
no interest shall accrue for the intervening period.
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<PAGE> 84
Section 13.8. Governing Law.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. Each of the parties hereto agrees to submit to the
jurisdiction of the courts of the State of New York in any action or proceeding
arising out of or relating to this Indenture.
Section 13.9. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of any of Holdings or any Subsidiary. Any such indenture, loan
or debt agreement may not be used to interpret this Indenture.
Section 13.10. No Recourse Against Others.
A director, officer, employee, stockholder or incorporator, as such, of
Holdings shall not have any liability for any obligations of Holdings under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creations. Each Holder by accepting a
Security waives and releases all such liability. Such waiver and release are
part of the consideration for the issuance of the Securities.
Section 13.11. Successors.
All agreements of Holdings in this Indenture and the Securities shall
bind their respective successors. All agreements of the Trustee in this
Indenture shall bind its successor.
Section 13.12. Duplicate Originals.
All parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together shall represent the
same agreement.
Section 13.13. Severability.
In case any one or more of the provisions in this Indenture or in the
Securities shall be held invalid, illegal or unenforceable, in any respect for
any reason, the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions shall not in any way be
affected or impaired thereby, it being intended that all of the provisions
hereof shall be enforceable to the full extent permitted by law.
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<PAGE> 85
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, and their respective corporate seals to be hereunto affixed and
attested, all as of the date first written above.
Dated: ________ __, 1995
[SEAL] FOOD 4 LESS HOLDINGS,
INC.
Attest: By:
______________________________
Name: Mark A. Resnik
Title: Vice President
____________________________
Dated: ________ __, 1995
[SEAL] _______________________________
_______________________________
as Trustee
Attest: By:
______________________________
Name:
Title:
____________________________
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EXHIBIT A
PURSUANT TO PROVISIONS OF THE INTERNAL REVENUE CODE OF 1986 RELATING TO
ORIGINAL ISSUE DISCOUNT AND TREASURY REGULATIONS PROMULGATED THEREUNDER WITH
RESPECT TO DEBT INSTRUMENTS ISSUED ON OR AFTER APRIL 4, 1994, THE FOLLOWING
INFORMATION IS PROVIDED: (1) THIS SECURITY IS BEING ISSUED WITH ORIGINAL
ISSUE DISCOUNT IN THE AMOUNT OF $____ PER FACE AMOUNT; (2) THE ISSUE PRICE
OF THIS SECURITY IS $___ PER FACE AMOUNT; (3) THE ISSUE DATE OF THIS SECURITY
IS ______ __, ____; AND (4) THE YIELD TO MATURITY OF THIS SECURITY IS __%.
FOOD 4 LESS HOLDINGS, INC.
13-5/8% Senior Subordinated Pay-in-Kind Debentures
due ________ __, 2007
No. $
Food 4 Less Holdings, Inc., a Delaware corporation ("Holdings," which term
includes any successor entity), for value received promises to pay to
or registered assigns, the principal sum of dollars, on ________ __,
2007.
Interest payment dates: ________________ and _______________
commencing ________ __, ____.
Record dates: _________ and _________.
Reference is made to the further provisions of this security contained
herein, which will for all purposes have the same effect as if set forth at
this place.
IN WITNESS WHEREOF, Holdings has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
Dated: ________ __, 1995
FOOD 4 LESS HOLDINGS, INC.
By:
_______________________________________
Name:
Title:
This is one of the Securities described in the within-mentioned
Indenture.
Dated: ________ __, 1995
__________________________________
as Trustee
By:
_______________________________________
Title:
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FOOD 4 LESS HOLDINGS, INC.
13-5/8% Senior Subordinated Pay-in-Kind Debenture
due ________ __, 2007
1. Interest.
FOOD 4 LESS HOLDINGS, INC., a Delaware corporation ("Holdings"),
promises to pay interest on the principal amount of this Security at the rate
per annum shown above. Holdings may, in its sole discretion, issue additional
Securities ("Secondary Securities") in lieu of a cash payment of any or all of
the interest due on any Interest Payment Date occurring on or prior to [the
Interest Payment Date five years after the Issue Date]. If Holdings issues
Secondary Securities in lieu of cash payment, in whole or in part, of interest
due on any Interest Payment Date occurring on or prior to [the Interest Payment
Date five years after the Issue Date], pursuant to this paragraph, it shall
give notice to the Trustee not less than 5 Business Days prior to the relevant
Interest Payment Date, and shall instruct the Trustee (upon written order of
Holdings signed by an Officer of Holdings given not less than 5 nor more than
45 days prior to such Interest Payment Date) to authenticate a Secondary
Security, dated such Interest Payment Date, in a principal amount equal to the
amount of interest not paid in cash in respect of this Security on such
Interest Payment Date. Each issuance of Secondary Securities in lieu of cash
payments of interest on the Securities shall be made pro rata with respect to
the outstanding Securities. Any such Secondary Securities shall be governed by
the Indenture and shall be subject to the same terms (including the maturity
date and the rate of interest from time to time payable thereon) as this
Security (except, as the case may be, with respect to the title, issuance date
and aggregate principal amount). The term Securities shall include the
Secondary Securities that may be issued under the Indenture.
Holdings will pay interest semi-annually in arrears on ___________ and
_________ of each year (the "Interest Payment Date"), commencing ___________,
____. Interest on this Security will accrue from the date of issuance or from
the most recent date to which interest has been paid. Interest will be
computed on the basis of a 360-day year of twelve 30-day months and actual
number of days elapsed.
Holdings shall pay interest on overdue principal and interest on overdue
installments of interest, to the extent lawful, at the rate per annum borne by
the Securities.
2. Method of Payment.
Holdings shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of
business on the Record Date immediately preceding the Interest Payment Date
even if the Securities are cancelled on registration of transfer or
registration of exchange after such Record Date. Holders must surrender
Securities to a Paying Agent to collect principal payments. Holdings shall pay
principal and interest in money of the United States that at the time of
payment is legal tender for payment of public and private debts ("U.S. Legal
Tender") (or, pursuant to
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Paragraph 1 hereof, in Secondary Securities). However, Holdings may pay
principal and interest by its check payable in such U.S. Legal Tender or by
wire transfer of federal funds (or, pursuant to Paragraph 1 hereof, in
Secondary Securities). Holdings may deliver any such interest payment to the
Paying Agent or to a Holder at the Holder's registered address.
3. Paying Agent and Registrar.
Initially, Norwest Bank Minnesota, N.A. (the "Trustee"), will act as
Paying Agent and Registrar. Holdings may change any Paying Agent, Registrar or
co-Registrar without notice to the Holders. Holdings or any Subsidiary may,
subject to certain exceptions, act as Paying Agent, Registrar or co-Registrar.
4. Indenture.
Holdings issued the Securities under an Indenture, dated as of ________
__, 1995 (the "Indenture"), between Holdings and the Trustee. This Security is
one of a duly authorized issue of Securities of Holdings designated as its
13-5/8% Senior Subordinated Pay-in-Kind Debentures due 2007. Capitalized terms
herein are used as defined in the Indenture unless otherwise defined herein.
The terms of the Securities include those stated in the Indenture and those
made part of the Indenture by reference to the Trust Indenture Act of 1939 (15
U.S. Code Section Section 77aaa-77bbbb) (the "TIA"), as in effect on the date
of the Indenture until such time as the Indenture is qualified under the TIA,
and thereafter as in effect on the date on which the Indenture is qualified
under the TIA. Notwithstanding anything to the contrary herein, the Securities
are subject to all such terms, and Holders of Securities are referred to the
Indenture and said Act for a statement of them. The Securities are general
unsecured obligations of Holdings limited in aggregate principal amount to
$131,500,000, except for Secondary Securities and except as otherwise provided
in the Indenture.
5. Optional Redemption.
(a) The Securities may not be redeemed at the option of Holdings prior
to ________ __, 2000. Thereafter, upon at least 30 days' but not more than 60
days' notice to the Holders, Holdings may redeem all or any of the Securities
at any time at redemption prices equal to the applicable percentage of the
principal amount thereof set forth below, plus accrued interest, if any, to the
Redemption Date (as defined in the Indenture) if redeemed during the 12-month
period beginning ________ __ of the years indicated below:
Applicable
Year Percentage
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106.8125%
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105.1094%
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103.4063%
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101.7031%
2004 and thereafter . . . . . . . . . . . . . . . . . . . . . 100.0000%
(b) Notwithstanding the foregoing, prior to ________ __, 1998, Holdings
may use the Net Proceeds (as defined in the Indenture) of an Initial Public
Offering (as defined in the
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Indenture) of Holdings or the Company to redeem up to 35% of the Securities at
a redemption price equal to 110% of the principal amount thereof plus accrued
interest, if any, to the date of redemption.
In order to effect the foregoing redemption, Holdings shall send the
notice required by Section 3.3 of the Indenture not later than 30 days after
the Initial Public Offering Consummation Date (as defined in the Indenture).
6. Notice of Redemption.
Notice of redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each Holder of Securities to be redeemed
at such Holder's registered address. Securities in denominations larger than
$1,000 may be redeemed in part.
Except as set forth in the Indenture, from and after any Redemption
Date, if monies for the redemption of the Securities called for redemption
shall have been deposited with the Paying Agent for redemption on such
Redemption Date, then, unless Holdings defaults in the payment of such
Redemption Price, the Securities called for redemption will cease to bear
interest and the only right of the Holders of such Securities will be to
receive payment of the Redemption Price.
7. Change of Control Offer.
In the event of a Change of Control, upon the satisfaction of the
conditions set forth in the Indenture, Holdings shall be required to offer to
purchase all of the then outstanding Securities pursuant to a Change of Control
Offer at a purchase price equal to 101% of the aggregate principal amount
thereof plus accrued interest, if any, to the date of purchase. Holders of
Securities which are the subject of such an offer to repurchase shall receive
an offer to repurchase and may elect to have such Securities repurchased in
accordance with the provisions of the Indenture pursuant to and in accordance
with the terms of the Indenture.
8. Limitation on Disposition of Assets.
Under certain circumstances Holdings is required to apply the net
proceeds from Asset Sales to the repayment of Indebtedness of Holdings or any
Subsidiary, to make Related Business Investments and certain other investments
or to purchase in a Net Proceeds Offer at a price equal to 100% of the
aggregate principal amount thereof, plus accrued interest, if any, to the date
of purchase, which shall in the aggregate equal the net proceeds required to be
applied thereto.
9. Subordination.
The Securities are subordinated in right of payment, in the manner and
to the extent set forth in the Indenture, to the prior payment in full of
Senior Indebtedness of Holdings whether outstanding on the date of the
Indenture or thereafter created, incurred, assumed or guaranteed. Each Holder,
by accepting a Security, agrees to such subordination and authorizes the
Trustee to give it effect.
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10. Denominations; Transfer; Exchange.
The Securities are in registered form, without coupons, in denominations
of $1,000 and integral multiples of $1,000 (other than Secondary Securities
which may be in denominations of less than $1,000). A Holder shall register
the transfer of or exchange Securities in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay certain transfer taxes or
similar governmental charges payable in connection therewith as permitted by
the Indenture. The Registrar need not register the transfer of or exchange any
Securities or portions thereof selected for redemption. No service charge
shall be made for any transfer, registration or exchange, but Holdings may
require payment of a sum sufficient to cover any tax or other governmental
charge payable in connection therewith, but not for any exchange pursuant to
Section 2.10, 3.6 or 9.5 of the Indenture.
11. Persons Deemed Owners.
The registered Holder of a Security shall be treated as the owner of it
for all purposes.
12. Unclaimed Money.
If money for the payment of principal or interest remains unclaimed for
one year, the Trustee and the Paying Agents will pay the money back to Holdings
at its request. After that, all liability of the Trustee and such Paying
Agents with respect to such money shall cease.
13. Discharge Prior to Redemption or Maturity.
If Holdings at any time deposits with the Trustee U.S. Legal Tender or
U.S. Government Obligations sufficient to pay the principal of and interest on
the Securities to redemption or maturity and complies with the other provisions
of the Indenture relating thereto, Holdings will be discharged from certain
provisions of the Indenture and the Securities (including the financial
covenants, but excluding its obligation to pay the principal of and interest on
the Securities).
14. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Securities may be
amended or supplemented with the written consent of the Holders of at least
fifty four percent (and, in some cases, a majority) in aggregate principal
amount of the Securities then outstanding, and any existing Default or Event of
Default or compliance with any provision may be waived with the consent of the
Holders of fifty four percent (and, in some cases, a majority) in aggregate
principal amount, as the case may be, of the Securities then outstanding.
Without the consent of the Holders of at least 75% in aggregate principal
amount of the Securities then outstanding, no such amendment, supplement or
waiver may change the Change of Control Payment Date or the purchase price in
connection with any repurchase of Securities pursuant to Section 4.14 of the
Indenture in a manner adverse to any Holder or waive a
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Default or Event of Default resulting from a failure to comply with Section
4.14 of the Indenture. Without the consent of the Holders of at least 66-2/3%
in aggregate principal amount of the Securities then outstanding, no change may
be made to the provisions of Article Eleven of the Indenture that adversely
affects the rights of any Holder under Article Eleven. Without notice to or
consent of any Holder, the parties thereto may amend or supplement the
Indenture or the Securities to, among other things, cure any ambiguity, defect
or inconsistency, provide for uncertificated Securities in addition to or in
place of certificated Securities, comply with Article Five of the Indenture or
comply with any requirements of the SEC in connection with the qualification of
the Indenture under the TIA, or make any other change that does not adversely
affect the rights of any Holder of a Security. An amendment may not make any
change that adversely affects the rights under Article Eleven of the Indenture
of any holders of Senior Indebtedness unless the holders of Senior Indebtedness
consent to the change.
15. Successors.
When a successor assumes all the obligations of its predecessor under
the Securities and the Indenture, the predecessor will be released from those
obligations.
16. Defaults and Remedies.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable in the manner,
at the time and with the effect provided in the Indenture. Holders of
Securities may not enforce the Indenture or the Securities except as provided
in the Indenture. The Trustee is not obligated to enforce the Indenture or the
Securities unless it has received indemnity satisfactory to it. The Indenture
permits, subject to certain limitations therein provided, Holders of a majority
in aggregate principal amount of the Securities then outstanding to direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Securities notice of any continuing Default or Event of Default
(except a Default in payment of principal or interest) if it determines that
withholding notice is in their interest.
17. Trustee Dealings with Holdings.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with Holdings, its Subsidiaries or their respective Affiliates as if it were
not the Trustee.
18. No Recourse Against Others.
No stockholder, director, officer, employee or incorporator, as such, of
Holdings shall have any liability for any obligation of Holdings under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of, such obligations or their creation. Each Holder of a Security by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities.
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19. Authentication.
This Security shall not be valid until the Trustee or authenticating
agent manually signs the certificate of authentication on this Security.
20. Governing Law.
The Laws of the State of New York shall govern this Security and the
Indenture.
21. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
22. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, Holdings will cause CUSIP numbers to be
printed on the Securities immediately prior to the qualification of the
Indenture under the TIA as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
23. Indenture.
Each Holder, by accepting a Security, agrees to be bound by all of the
terms and provisions of the Indenture, as the same may be amended from time to
time.
Holdings will furnish to any Holder of a Security upon written request
and without charge a copy of the Indenture. Requests may be made to: FOOD 4
LESS HOLDINGS, INC., c/o The Yucaipa Companies, 10000 Santa Monica Boulevard,
Fifth Floor, Los Angeles, California 90067, Attn: Mark A. Resnik.
24. Certain Information Obligations.
To the extent permitted by applicable law or regulation, whether or not
Holdings is subject to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"), Holdings shall file with
the SEC all quarterly and annual reports and such other information, documents
or other reports (or copies of such portions of any of the foregoing as the SEC
may by rules and regulations prescribe) required to be filed pursuant to such
provisions of the Exchange Act. Holdings shall file with the Trustee copies of
the quarterly and annual reports and the information, documents, and other
reports (or copies of such portions of any of the foregoing as the SEC may by
rules and regulations prescribe) that it is required to file with the SEC
pursuant to the Indenture. At any time when Holdings is not permitted by
applicable law or regulations to file the aforementioned reports, Holdings
shall furnish the Trustee and the Holders with the information that Holdings
would have had to provide to the SEC if Holdings had been subject to Section 13
or 15(d) of the Exchange Act.
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25. Holdings Indebtedness.
Each Holder acknowledges that Holdings is the sole obligor of the
Securities and no Subsidiary of Holdings is a co-obligor or a guarantor of the
Securities.
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[FORM OF ASSIGNMENT]
I or we assign this Security to
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code of assignee)
Please insert Social Security or other
identifying number of assignee
_________________________________________
and irrevocably appoint _______________________ agent to transfer this Security
on the books of Holdings. The agent may substitute another to act for him.
Dated:____________________________ Signed:________________________________
________________________________________________________________________________
(Sign exactly as your name appears on the front of this Security)
Signature Guarantee:______________________________________________________
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[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Security purchased by Holdings
pursuant to Section 4.14 or Section 4.15 of the Indenture, check the box:
Section 4.14 [ ] Section 4.15 [ ]
If you want to elect to have only part of this Security purchased by
Holdings pursuant to Section 4.14 or Section 4.15 of the Indenture, state the
amount:
$
Date:_______________
Signature:_____________________________
(Sign exactly as your name appears
on the front of this Security)
Signature Guarantee:____________________________________________________
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EXHIBIT I
DESCRIPTION OF THE NEW DISCOUNT DEBENTURES
GENERAL
The 13 5/8% Senior Discount Debentures due 2005 (the "New Discount
Debentures") will be issued under an indenture (the "New Discount Debenture
Indenture"), to be dated as of , 1995, between New Holdings and
United States Trust Company of New York, as trustee (the "New Discount Debenture
Trustee").
The following summary of certain provisions of the New Discount Debentures
and the New Discount Debenture Indenture does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the Trust
Indenture Act of 1939, as amended (the "TIA"), and to all of the provisions of
the New Discount Debentures and the New Discount Debenture Indenture, including
the definitions of certain terms therein and those terms made a part of the New
Discount Debenture Indenture by reference to the TIA. The definitions of certain
capitalized terms used in the following summary are set forth below under
"-- Certain Definitions." A copy of the form of the New Discount Debenture
Indenture may be obtained from New Holdings.
As used below in this "Description of the New Discount Debentures," "New
Holdings" means Food 4 Less Holdings, Inc., a Delaware corporation, as survivor
of the FFL Merger and the Reincorporation Merger, but not any of its
subsidiaries.
PRINCIPAL, MATURITY AND INTEREST
The New Discount Debentures will be limited in aggregate principal amount
at maturity to $193,300,000 and will mature on , 2005. The New
Discount Debentures will be issued at a substantial discount from their
principal amount. Until , 2000, no interest will accrue on the New
Discount Debentures, but the Accreted Value will accrete at a rate of 13 5/8%
(representing the amortization of the original issue discount) from the date of
original issuance until , 2000, on a semi-annual bond equivalent
basis using a 360 day year comprised of twelve 30-day months and actual number
of days elapsed, such that the Accreted Value shall be equal to the full
principal amount of the New Discount Debenture on , 2000. The
initial Accreted Value per $1,000 principal amount of New Discount Debentures
will be $ (representing the original purchase price). Beginning on
, 2000, cash interest on the New Discount Debentures will accrue
at a rate of 13 5/8% per annum and will be payable semiannually in arrears on
and of each year, commencing ,
2000, to the Holders of record on the immediately preceding and
. Interest is computed on the basis of a 360-day year comprised
of twelve 30-day months and actual number of days elapsed.
The New Discount Debentures will be issued in fully registered form only,
without coupons, in denominations of $1,000 and integral multiples thereof.
Initially, the New Discount Debenture Trustee will act as Paying Agent and
Registrar for the New Discount Debentures. The New Discount Debentures may be
presented for registration of transfer and exchange at the offices of the
Registrar, which initially will be the New Discount Debenture Trustee's
corporate trust office. New Holdings may change any Paying Agent and Registrar
without notice to holders of the New Discount Debentures (the "Holders"). New
Holdings will pay principal, premium, if any, and interest on the New Discount
Debentures at the Trustee's corporate office located in the Borough of
Manhattan, The City of New York. At New Holdings' option, interest may be paid
at the New Discount Debenture Trustee's corporate office or by check mailed to
the registered holders of the New Discount Debentures at their respective
addresses set forth in the register of Holders of New Discount Debentures.
Unless otherwise designated by New Holdings, New Holdings' office or agency in
New York is the office of the New Discount Debenture Trustee maintained for such
purpose.
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OPTIONAL REDEMPTION
On or after , 2000, the New Discount Debentures may be redeemed,
at the option of New Holdings, in whole at any time or in part from time to
time, at a redemption price equal to the applicable percentage of the principal
amount thereof set forth below, together with accrued and unpaid interest to the
redemption date, if redeemed during the twelve-month period commencing on
in the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2000.............................................................. 106.8125%
2001.............................................................. 105.1094%
2002.............................................................. 103.4063%
2003.............................................................. 101.7031%
2004 and thereafter............................................... 100.0000%
</TABLE>
Notwithstanding the foregoing, prior to 1998, New Holdings may
use the net proceeds of an Initial Public Offering of New Holdings or the
Company to redeem up to 35% of the New Discount Debentures at a redemption price
equal to 110% of the Accreted Value thereof on the date of redemption.
NOTICES AND SELECTION
In the event of a redemption of less than all of the New Discount
Debentures at the option of New Holdings, such New Discount Debentures will be
selected for redemption by the New Discount Debenture Trustee pro rata, by lot
or by any other method that the New Discount Debenture Trustee considers fair
and appropriate and in such manner as complies with applicable legal and stock
exchange requirements, if any; provided, however, that any redemption pursuant
to the provisions relating to an Initial Public Offering shall be made on a pro
rata basis. Notice of redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each Holder whose New Discount
Debentures are to be redeemed at such Holder's registered address. New Discount
Debentures in denominations of $1,000 principal amount at maturity may be
redeemed only in whole and the New Discount Debenture Trustee may select for
redemption portions (equal to $1,000 principal amount at maturity or any
integral multiple thereof) of the principal amount of New Discount Debentures
that have denominations larger than $1,000 principal amount at maturity. If any
New Discount Debenture is to be redeemed in part, the notice of redemption
relating to such New Discount Debenture will state the portion of the principal
amount (in integral multiples of $1,000 principal amount at maturity) to be
redeemed and that a New Discount Debenture or New Discount Debentures in the
principal amount equal to the unredeemed portion thereof will be issued in the
name of the holder thereof upon surrender of the original New Discount
Debenture. On and after the redemption date, interest will cease to accrue on
the New Discount Debentures or portions thereof called for redemption (unless
New Holdings shall default in the payment of the redemption price or accrued
interest). New Discount Debentures that are redeemed by New Holdings or that are
purchased by New Holdings pursuant to a Net Proceeds Offer as described under
"-- Certain Covenants -- Limitation on Asset Sales" below or pursuant to a
Change of Control Offer as described under "-- Change of Control" below or that
are otherwise acquired by New Holdings will be surrendered to the New Discount
Debenture Trustee for cancellation.
RANKING
The New Discount Debentures will be senior unsecured obligations of New
Holdings and will rank senior in right of payment to all Subordinated
Indebtedness of New Holdings, including the Seller Debentures. The New Discount
Debentures will rank pari passu in right of payment with all unsubordinated
Indebtedness of New Holdings, including New Holdings' guarantees of the
Company's obligations under the Credit Agreement and the Senior Discount Notes
to the extent any remain outstanding following the Merger. In addition, the New
Discount Debentures will effectively be subordinated to all liabilities
(including trade payables) of the Company.
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<PAGE> 98
CHANGE OF CONTROL
Upon the occurrence of a Change of Control (as defined below), each Holder
will have the right to require the repurchase of such Holder's New Discount
Debentures pursuant to the offer described below (the "Change of Control
Offer"), at a purchase price equal to 101% of the Accreted Value thereof on the
Change of Control Payment Date (as defined below) (if such date is prior to
, 2000) or 101% of the principal amount thereof, plus accrued
interest, if any, to the Change of Control Payment Date (if such date is on or
after , 2000).
Within 30 days following the date upon which the Change of Control occurred
(the "Change of Control Date"), New Holdings must send, by first class mail, a
notice to each Holder, with a copy to the New Discount Debenture Trustee, which
notice shall govern the terms of the Change of Control Offer. Such notice shall
state, among other things, the purchase date, which must be no earlier than 30
days nor later than 40 days from the date such notice is mailed, other than as
may be required by law (the "Change of Control Payment Date"). Holders electing
to have a New Discount Debenture purchased pursuant to a Change of Control Offer
will be required to surrender the New Discount Debenture, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the New Discount
Debenture completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the Business Day prior to the Change of
Control Payment Date.
The New Discount Debenture Indenture will further provide that,
notwithstanding the foregoing, prior to the mailing of the notice of a Change of
Control Offer referred to above, within 30 days following any Change of Control,
New Holdings will cause the Company to either (a) repay in full and terminate
all commitments under Indebtedness under the Credit Agreement to the extent the
terms thereof require repayment upon a Change of Control (or offer to repay in
full and terminate all commitments under all such Indebtedness under the Credit
Agreement and repay the Indebtedness owed to each lender which has accepted such
offer) or (b) obtain the requisite consents under the Credit Agreement, the
terms of which require repayment upon a Change of Control, to permit the
repurchase of the New Discount Debentures as provided above. New Holdings shall
first comply with the covenant in the immediately preceding sentence before New
Holdings shall be required to repurchase New Discount Debentures pursuant to the
provisions described above. New Holdings' failure to comply with the covenants
described in this paragraph shall constitute an Event of Default under the New
Discount Debenture Indenture.
New Holdings will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other applicable provisions of the federal securities laws
in connection with a Change of Control Offer.
CERTAIN COVENANTS
The New Discount Debenture Indenture will contain, among other things, the
following covenants:
Limitation on Restricted Payments. The New Discount Debenture Indenture
will provide that New Holdings shall not, and shall cause each of its
Subsidiaries not to, directly or indirectly, make any Restricted Payment if, at
the time of such proposed Restricted Payment, or after giving effect thereto,
(a) a Default or an Event of Default shall have occurred and be continuing, (b)
New Holdings or such Subsidiary could not incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the covenant
described under "-- Limitation on Incurrences of Additional Indebtedness" below
or (c) the aggregate amount expended for all Restricted Payments, including such
proposed Restricted Payment (the amount of any Restricted Payment, if other than
cash, to be the fair market value thereof at the date of payment, as determined
in good faith by the Board of Directors of New Holdings, which determination
shall be evidenced by a Board Resolution), subsequent to the Issue Date, shall
exceed the sum of (i) 50% of the aggregate Consolidated Net Income (or if such
aggregate Consolidated Net Income is a loss, minus 100% of such loss) of New
Holdings earned subsequent to the Issue Date and on or prior to the date the
proposed Restricted Payment occurs (the "Reference Date") plus (ii) 100% of the
aggregate Net Proceeds received by New Holdings from any person (other than a
Subsidiary) from the issuance and sale (including upon exchange or conversion
for other securities of New Holdings) subsequent to the Issue Date and on or
prior to the Reference Date of Qualified Capital Stock (excluding (A) Qualified
Capital Stock paid as a dividend on any
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<PAGE> 99
Capital Stock or as interest on any Indebtedness and (B) any Net Proceeds from
issuances and sales financed directly or indirectly using funds borrowed from
New Holdings or any Subsidiary, until and to the extent such borrowing is
repaid), plus (iii) 100% of the aggregate net cash proceeds received by New
Holdings as capital contributions to New Holdings after the Issue Date, plus
(iv) $25 million.
Notwithstanding the foregoing, if no Default or Event of Default shall have
occurred and be continuing as a consequence thereof, the provisions set forth in
the immediately preceding paragraph will not prevent (1) the payment of any
dividend within 60 days after the date of its declaration if the dividend would
have been permitted on the date of declaration, (2) the acquisition of any
shares of Capital Stock of New Holdings or the repurchase, redemption, or other
repayment of any Subordinated Indebtedness in exchange for or solely out of the
proceeds of the substantially concurrent sale (other than to a Subsidiary) of
shares of Qualified Capital Stock of New Holdings, (3) the repurchase,
redemption or other repayment of any Subordinated Indebtedness in exchange for
or solely out of the proceeds of the substantially concurrent sale (other than
to a Subsidiary) of Subordinated Indebtedness of New Holdings with an Average
Life equal to or greater than the then remaining Average Life of the
Subordinated Indebtedness repurchased, redeemed or repaid, and (4) Permitted
Payments; provided, however, that (x) the declaration of each dividend paid in
accordance with clause (1) above, each acquisition, repurchase, redemption or
other repayment made in accordance with, or of the type set forth in, clause (2)
above, and each payment described in clause (iii) of the definition of Permitted
Payments shall each be counted for purposes of computing amounts expended
pursuant to subclause (c) in the immediately preceding paragraph, and (y) no
amounts paid pursuant to clause (3) above or pursuant to clause (i) or (ii) of
the definition of "Permitted Payments" shall be so counted.
Limitation on Incurrences of Additional Indebtedness. The New Discount
Debenture Indenture will provide that New Holdings shall not, and shall not
permit any Subsidiary, directly or indirectly, to incur, assume, guarantee,
become liable, contingently or otherwise, with respect to, or otherwise become
responsible for the payment of (collectively "incur") any Indebtedness other
than Permitted Indebtedness; provided, however, that if no Default with respect
to payment of principal of, or interest on, the New Discount Debentures or Event
of Default shall have occurred and be continuing at the time or as a consequence
of the incurrence of any such Indebtedness, (i) New Holdings may incur
Indebtedness if immediately before and immediately after giving effect to the
incurrence of such Indebtedness the Operating Coverage Ratio of New Holdings
would be greater than 2.0 to 1.0 and (ii) the Company or any subsidiary of the
Company may incur Indebtedness if immediately before and immediately after
giving effect to the incurrence of such Indebtedness the Operating Coverage
Ratio of the Company would be greater than 2.0 to 1.0.
Limitation on Liens. The New Discount Debenture Indenture will provide that
New Holdings shall not create, incur, assume or suffer to exist any Liens upon
any of its assets unless the New Discount Debentures are equally and ratably
secured by the Liens covering such assets, except for (i) existing and future
Liens securing Indebtedness and other obligations of New Holdings and its
Subsidiaries under the Credit Agreement and related documents or any refinancing
or replacement thereof in whole or in part permitted under the New Discount
Debenture Indenture, (ii) Permitted Liens, (iii) Liens securing Acquired
Indebtedness; provided that such Liens (x) are not incurred in connection with,
or in contemplation of, the acquisition of the property or assets acquired and
(y) do not extend to or cover any property or assets of New Holdings or any
Subsidiary other than the property or assets so acquired, (iv) Liens existing on
the Issue Date (after giving effect to the Merger), (v) Liens to secure
Capitalized Lease Obligations and certain other Indebtedness that is otherwise
permitted under the New Discount Debenture Indenture; provided that (A) any such
Lien is created solely for the purpose of securing such other Indebtedness
representing, or incurred to finance, refinance or refund, the cost (including
sales and excise taxes, installation and delivery charges and other direct costs
of, and other direct expenses paid or charged in connection with, the purchase
(whether through stock or asset purchase, merger or otherwise) or construction
or improvement of the property subject thereto (whether real or personal,
including fixtures and other equipment), (B) the principal amount of the
Indebtedness secured by such Lien does not exceed 100% of such costs and (C)
such Lien does not extend to or cover any property other than such item of
property and any improvement on such item; (vi) Liens in favor of the New
Discount Debenture Trustee under the New Discount Debenture Indenture and any
substantially equivalent lien granted to any trustee or similar institution
under any indenture for Indebtedness permitted by
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<PAGE> 100
the terms of the New Discount Debenture Indenture; and (vii) any replacement,
extension or renewal, in whole or in part, of any Lien described in this or the
foregoing clauses, including in connection with any refinancing of the
Indebtedness, in whole or in part, secured by any such Lien; provided that if
any such clauses limit the amount secured by or the assets subject to such
Liens, no replacement, extension or renewal shall increase the amount or the
assets subject to such Liens, except to the extent that the Liens associated
with such additional assets are otherwise permitted hereunder.
Limitation on Asset Sales. The New Discount Debenture Indenture will
provide that neither New Holdings nor any of its Subsidiaries shall consummate
an Asset Sale unless (a) New Holdings or the applicable Subsidiary receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold and (b) upon consummation of an Asset Sale, New
Holdings or the applicable Subsidiary will, within 365 days of the receipt of
the proceeds therefrom, either: (i) apply or cause its Subsidiary to apply the
Net Cash Proceeds of any Asset Sale to (1) a Related Business Investment (2) an
investment in properties and assets that replace the properties and assets that
are the subject of such Asset Sale or (3) an investment in properties and assets
that will be used in the business of New Holdings and its Subsidiaries existing
on the Issue Date or in a business reasonably related thereto; (ii) apply or
cause to be applied such Net Cash Proceeds to the repayment of Pari Passu
Indebtedness of New Holdings or any Indebtedness of any Subsidiary; (iii) use
such Net Cash Proceeds to secure Letter of Credit Obligations to the extent the
related letters of credit have not been drawn upon or returned undrawn; or (iv)
after such time as the accumulated Net Cash Proceeds equals or exceeds $20
million, apply or cause to be applied such Net Cash Proceeds to the purchase of
New Discount Debentures tendered to New Holdings pursuant to an offer to
purchase made by New Holdings as set forth below (a "Net Proceeds Offer") for
purchase at a price equal to 100% of the Accreted Value thereof on the date of
purchase, if such date is prior to , 2000 or 100% of the principal
amount thereof, plus accrued interest to the date of purchase if such date is on
or after , 2000; provided, however, that if at any time any non-cash
consideration received by New Holdings or any Subsidiary in connection with any
Asset Sale is converted into or sold or otherwise disposed of for cash, then
such cash shall constitute Net Cash Proceeds for purposes of this covenant and
shall be applied in accordance with clause (b) above within 365 days of the
receipt of such cash; and provided further, however, that if at any time any
security deposits or other amounts used to secure Letter of Credit Obligations
pursuant to clause (b)(iii) above are returned to New Holdings or any
Subsidiary, then such security deposits or other amounts shall constitute Net
Cash Proceeds for purposes of this covenant and shall be applied in accordance
with clause (b) above within 365 days of the receipt of such security deposits
or other amounts. A Net Proceeds Offer as a result of an Asset Sale made by the
Company or one of its subsidiaries shall not be required to be in excess of the
Net Cash Proceeds of such Asset Sale less the Net Cash Proceeds actually applied
in accordance with clauses (b)(i), (ii) or (iii) above; provided, however, that
New Holdings shall have the right to exclude from the foregoing provisions Asset
Sales subsequent to the Issue Date, the proceeds of which are derived from the
sale and substantially concurrent lease-back of one or more supermarkets and/or
related assets or equipment which are acquired or constructed by New Holdings or
a Subsidiary subsequent to the Issue Date, provided that any such sale and
substantially concurrent lease-back occurs within [270] days following such
acquisition or the completion of such construction, as the case may be.
Each Net Proceeds Offer will be mailed to record Holders of New Discount
Debentures as shown on the register of Holders not less than 305 nor more than
335 days after the relevant Asset Sale, with a copy to the Trustee, shall
specify the purchase date (which shall be no earlier than 30 days nor later than
40 days from the date such notice is mailed) and shall otherwise comply with the
procedures set forth in the New Discount Debenture Indenture. Upon receiving
notice of the Net Proceeds Offer, Holders may elect to tender the New Discount
Debentures in whole or in part in integral multiples of $1,000 in exchange for
cash. To the extent Holders properly tender New Discount Debentures in an amount
exceeding the Net Proceeds Offer, New Discount Debentures of tendering Holders
will be repurchased on a pro rata basis (based on amounts tendered).
New Holdings will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of New Discount Debentures pursuant to a Net Proceeds Offer.
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<PAGE> 101
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The New Discount Debenture Indenture will provide that New
Holdings shall not, and shall not permit any Subsidiary to, directly or
indirectly, create or suffer to exist, or allow to become effective any
consensual Payment Restriction with respect to any of its Subsidiaries, except
for (a) any such restrictions contained in (i) the Credit Agreement as in effect
on the Issue Date, as any such Payment Restriction may apply to any present or
future Subsidiary, (ii) the New Discount Debenture Indenture, the Seller
Debenture Indenture, the Senior Discount Note Indenture, the indentures with
respect to Existing Indebtedness and any other agreement in effect at or entered
into on the Issue Date, (iii) Indebtedness of a person existing at the time such
person becomes a Subsidiary (provided that (x) such Indebtedness is not incurred
in connection with, or in contemplation of, such person becoming a Subsidiary,
(y) such restriction is not applicable to any person, or the properties or
assets of any person, other than the person so acquired and (z) such
Indebtedness is otherwise permitted to be incurred pursuant to the provisions of
the covenant described under "-- Limitation on Incurrences of Additional
Indebtedness" above), (iv) secured Indebtedness otherwise permitted to be
incurred pursuant to the provisions of the covenants described under
"-- Limitation on Incurrences of Additional Indebtedness" and "-- Limitation on
Liens" above that limit the right of the debtor to dispose of the assets
securing such Indebtedness; (b) customary non-assignment provisions restricting
subletting or assignment of any lease or other agreement entered into by a
Subsidiary; (c) customary net worth provisions contained in leases and other
agreements entered into by a Subsidiary in the ordinary course of business; (d)
customary restrictions with respect to a Subsidiary pursuant to an agreement
that has been entered into for the sale or disposition of all or substantially
all of the Capital Stock or assets of such Subsidiary; (e) customary provisions
in joint venture agreements and other similar agreements; and (f) restrictions
contained in Indebtedness incurred to refinance, refund, extend or renew
Indebtedness referred to in clause (a) above; provided that the restrictions
contained therein are not materially more restrictive taken as a whole than
those provided for in such Indebtedness being refinanced, refunded, extended or
renewed and (g) Payment Restrictions contained in any other Indebtedness
permitted to be incurred subsequent to the Issue Date pursuant to the provisions
of the covenant described under "-- Limitation on Incurrences of Additional
Indebtedness" above; provided that any such Payment Restrictions are ordinary
and customary with respect to the type of Indebtedness being incurred (under the
relevant circumstances) and, in any event, no more restrictive than the most
restrictive Payment Restrictions in effect on the Issue Date.
Limitation on Transactions with Affiliates. The New Discount Debenture
Indenture will provide that neither New Holdings nor any of its Subsidiaries
shall (i) sell, lease, transfer or otherwise dispose of any of its properties or
assets or issue securities (other than equity securities which do not constitute
Disqualified Capital Stock) to, (ii) purchase any property, assets or securities
(other than equity securities which do not constitute Disqualified Capital
Stock) from, (iii) make any Investment in, or (iv) enter into or suffer to exist
any contract or agreement with or for the benefit of, an Affiliate or
Significant Stockholder (or any Affiliate of such Significant Stockholder) of
New Holdings or any Subsidiary (an "Affiliate Transaction"), other than (x)
Affiliate Transactions permitted under the following paragraph and (y) Affiliate
Transactions in the ordinary course of business that are fair to New Holdings or
such Subsidiary, as the case may be, and on terms at least as favorable as might
reasonably have been obtainable at such time from an unaffiliated party;
provided, that (A) with respect to Affiliate Transactions involving aggregate
payments in excess of $1 million and less than $5 million, New Holdings or such
Subsidiary, as the case may be, shall have delivered an Officers' Certificate to
the New Discount Debenture Trustee certifying that such transaction or series of
transactions complies with clause (y) above (other than the requirement set
forth in such clause (y) that such Affiliate Transaction be in the ordinary
course of business), (B) with respect to Affiliate Transactions involving
aggregate payments in excess of $5 million and less than $15 million, New
Holdings or such Subsidiary, as the case may be, shall have delivered an
Officers' Certificate to the New Discount Debenture Trustee certifying that such
Affiliate Transaction complies with clause (y) above (other than the requirement
set forth in such clause (y) that such Affiliate Transaction be in the ordinary
course of business) and that such Affiliate Transaction has received the
approval of a majority of the disinterested members of the Board of Directors of
New Holdings or the Subsidiary, as the case may be, or, in the absence of any
such approval by the disinterested members of the Board of Directors of New
Holdings or the Subsidiary, as the case may be, that an Independent Financial
Advisor has reasonably and in good faith determined that the financial terms of
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<PAGE> 102
such Affiliate Transaction are fair to New Holdings or such Subsidiary, as the
case may be, or that the terms of such Affiliate Transaction are at least as
favorable as might reasonably have been obtained at such time from an
unaffiliated party and that such Independent Financial Advisor has provided
written confirmation of such determination to the Board of Directors and (C)
with respect to Affiliate Transactions involving aggregate payments in excess of
$15 million, New Holdings or such Subsidiary, as the case may be, shall have
delivered to the New Discount Debenture Trustee, a written opinion from an
Independent Financial Advisor to the effect that the financial terms of such
Affiliate Transaction are fair to New Holdings or such Subsidiary, as the case
may be, or that the terms of such Affiliate Transaction are at least as
favorable as those that might reasonably have been obtained at the time from an
unaffiliated party.
The provisions of the foregoing paragraph shall not apply to (i) any
Permitted Payment, (ii) any Restricted Payment that is made in compliance with
the provisions of the covenant described under "-- Limitation on Restricted
Payments" above, (iii) reasonable and customary fees and compensation paid to,
and indemnity provided on behalf of, officers, directors, employees or
consultants of New Holdings or any Subsidiary, as determined by the Board of
Directors of New Holdings or any Subsidiary or the senior management thereof in
good faith, (iv) transactions exclusively between or among New Holdings and any
of its wholly-owned Subsidiaries or exclusively between or among such
wholly-owned Subsidiaries, provided such transactions are not otherwise
prohibited by the New Discount Debenture Indenture, (v) any agreement as in
effect as of the Issue Date or any amendment thereto or any transaction
contemplated thereby (including pursuant to any amendment thereto) so long as
any such amendment is not disadvantageous to the Holders in any material
respect, (vi) the existence of, or the performance by New Holdings or any of its
Subsidiaries of its obligations under the terms of, any stockholder agreement
(including any registration rights agreement or purchase agreement related
thereto) to which it is a party as of the Issue Date and any similar agreements
which it may enter into thereafter; provided, however, that the existence of, or
the performance by New Holdings or any Subsidiaries of obligations under any
future amendment to, any such existing agreement or under any similar agreement
entered into after the Issue Date shall only be permitted by this clause (vi) to
the extent that the terms of any such amendment or new agreement are not
otherwise disadvantageous to the Holders in any material respect, (vii)
transactions permitted by, and complying with, the provisions of the covenant
described under "-- Limitation on Mergers and Certain Other Transactions" below,
and (viii) transactions with suppliers or other purchases or sales of goods or
services, in each case, in the ordinary course of business (including, without
limitation, pursuant to joint venture agreements) and otherwise in compliance
with the terms of the New Discount Debenture Indenture which are fair to New
Holdings, in the reasonable determination of the Board of Directors or senior
management of New Holdings, or are on terms at least as favorable as might
reasonably have been obtained at such time from an unaffiliated party.
Limitations on Preferred Stock of Subsidiaries. The New Discount Debenture
Indenture will provide that New Holdings will not permit any of its Subsidiaries
to issue any Preferred Stock (other than to New Holdings or a wholly-owned
Subsidiary), or permit any person (other than New Holdings or a wholly-owned
Subsidiary) to own or hold an interest in any Preferred Stock of such
Subsidiary, unless such Subsidiary would be entitled to incur Indebtedness in
accordance with the provisions described above under "-- Limitation on
Incurrence of Additional Indebtedness" in the aggregate principal amount equal
to the aggregate liquidation value of such Preferred Stock.
No Amendment to Subordination Provisions of Seller Debentures. The New
Discount Debenture Indenture will provide that New Holdings will not amend,
modify or alter the Seller Debenture Indenture in any way that would (i)
increase the principal of, advance the final maturity date of or shorten the
Weighted Average Life to Maturity of any Seller Debentures such that the final
maturity date of the Seller Debentures is earlier than the 91st day following
the final maturity date of the New Discount Debentures or (ii) amend the
provisions of Article Eleven of the Seller Debenture Indenture (which relates to
subordination) or certain of the defined terms used therein in a manner that
would be adverse to the Holders of the New Discount Debentures.
Limitations on Mergers and Certain Other Transactions. The New Discount
Debenture Indenture will provide that New Holdings, in a single transaction or
through a series of related transactions, shall not (i) consolidate with or
merge with or into any other person, or transfer (by lease, assignment, sale or
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<PAGE> 103
otherwise) all or substantially all of its properties and assets as an entirety
or substantially as an entirety to another person or group of affiliated persons
or (ii) adopt a Plan of Liquidation, unless, in either case, (1) either New
Holdings shall be the continuing person, or the person (if other than New
Holdings) formed by such consolidation or into which New Holdings is merged or
to which all or substantially all of the properties and assets of New Holdings
as an entirety or substantially as an entirety are transferred (or, in the case
of a Plan of Liquidation, any person to which assets are transferred) (New
Holdings or such other person being hereinafter referred to as the "Surviving
Person") shall be a corporation organized and validly existing under the laws of
the United States, any state thereof or the District of Columbia, and shall
expressly assume, by an indenture supplement, all the obligations of New
Holdings under the New Discount Debentures and the New Discount Debenture
Indenture; (2) immediately after and giving effect to such transaction and the
assumption contemplated by clause (1) above and the incurrence or anticipated
incurrence of any Indebtedness to be incurred in connection therewith, (A) the
Surviving Person shall have a Consolidated Net Worth equal to or greater than
the Consolidated Net Worth of New Holdings immediately preceding the
transaction, and (B) the Surviving Person could incur at least $1 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the provisions of
the covenant described under the heading "-- Limitation on Incurrences of
Additional Indebtedness" above; and (3) immediately before and immediately after
and giving effect to such transaction and the assumption of the obligations as
set forth in clause (1) above and the incurrence or anticipated incurrence of
any Indebtedness to be incurred in connection therewith, no Default or Event of
Default shall have occurred and be continuing.
Notwithstanding the foregoing, the consummation of the Merger on the Issue
Date need only comply with clauses (1) and (3) of the foregoing paragraph.
The New Discount Debenture Indenture will provide that upon any
consolidation or merger or any transfer of all or substantially all of the
assets of New Holdings or any adoption of a Plan of Liquidation by New Holdings
in accordance with the foregoing, the surviving person formed by such
consolidation or into which New Holdings is merged or to which such transfer is
made (or, in the case of a Plan of Liquidation, to which assets are transferred)
shall succeed to, and be substituted for, and may exercise every right and power
of, New Holdings under the New Discount Debenture Indenture with the same effect
as if such surviving person had been named as New Holdings therein; provided,
however, that solely for purposes of computing amounts described in subclause
(c) of the first paragraph of the covenant described under " -- Limitation on
Restricted Payments" above, any such surviving person shall only be deemed to
have succeeded to and be substituted for New Holdings with respect to periods
subsequent to the effective time of such merger, consolidation or transfer of
assets. When a successor corporation assumes all of the obligations of New
Holdings under the New Discount Debenture Indenture and under the New Discount
Debentures and agrees to be bound thereby, the predecessor shall be released
from such obligations.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties and assets of one or more Subsidiaries, the
Capital Stock of which constitutes all or substantially all of the properties
and assets of New Holdings shall be deemed to be the transfer of all or
substantially all of the properties and assets of New Holdings.
EVENTS OF DEFAULT
The following events constitute "Events of Default" under the New Discount
Debenture Indenture: (i) failure to make any payment of interest on the New
Discount Debentures when due and the continuance of such default for a period of
30 days; (ii) failure to pay principal of, or premium, if any, on the New
Discount Debentures when due, whether at maturity, upon acceleration, redemption
or otherwise (including the failure to repurchase New Discount Debentures
tendered pursuant to the requirements set forth in the covenants described under
the headings "-- Certain Covenants -- Change of Control" and "-- Certain
Covenants -- Limitation on Asset Sales"), (iii) failure to comply with any other
agreement or covenant contained in, or provisions of, the New Discount
Debentures or the New Discount Debenture Indenture, if such failure continues
unremedied for 30 days after notice given by the New Discount Debenture Trustee
or the Holders of at least 25% in principal amount of the New Discount
Debentures then outstanding (except in the case of a default with respect to the
covenants described under the headings "-- Certain Covenants -- Limitation on
Restricted Payments," "-- Change of Control," "-- Certain
Covenants -- Limitation
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on Asset Sales" and "-- Certain Covenants -- Limitations on Mergers and Certain
Other Transactions," which shall constitute Events of Default with notice but
without passage of time); (iv) a default under any bond, debenture, or other
evidence of Indebtedness of New Holdings or of any Significant Subsidiary or
under any mortgage, indenture or other instrument under which there may be
issued or by which there may be secured or evidenced any such Indebtedness,
whether such Indebtedness now exists or shall hereafter be created, if both (A)
such default either (1) results from the failure to pay such Indebtedness at its
stated final maturity or (2) relates to an obligation (other than the obligation
to pay any principal of such Indebtedness at its stated final maturity) and
results in the holder or holders of such Indebtedness causing such Indebtedness
to become due prior to its stated final maturity and (B) the principal amount of
such Indebtedness, together with the principal amount of any other such
Indebtedness in default for failure to pay principal at stated final maturity or
the maturity of which has been so accelerated, aggregates $25 million or more at
any one time outstanding; (v) New Holdings or any Significant Subsidiary (a)
commences a voluntary case or proceeding under any Bankruptcy Law with respect
to itself, (b) consents to the entry of a judgment, decree or order for relief
against it in an involuntary case or proceeding under any Bankruptcy Law, (c)
consents to the appointment of a Custodian of it or for substantially all of its
property, (d) consents to or acquiesces in the institution of a bankruptcy or an
insolvency proceeding against it, (e) makes a general assignment for the benefit
of its creditors, or (f) takes any corporate action to authorize or effect any
of the foregoing; (vi) a court of competent jurisdiction enters a judgment,
decree or order for relief in respect of New Holdings or any Significant
Subsidiary in an involuntary case or proceeding under any Bankruptcy Law, which
shall (a) approve as properly filed a petition seeking reorganization,
arrangement, adjustment or composition in respect of New Holdings or any
Significant Subsidiary, (b) appoint a Custodian of New Holdings or any
Significant Subsidiary or for substantially all of its property or (c) order the
winding-up or liquidation of its affairs; and such judgment, decree or order
shall remain unstayed and in effect for a period of 60 consecutive days; (vii)
the lenders under the Credit Agreement shall commence judicial proceedings to
foreclose upon any material portion of the assets of New Holdings and its
Subsidiaries; or (viii) any final judgment or order for payment of money in
excess of $25 million shall be entered against New Holdings or any Significant
Subsidiary by a court of competent jurisdiction and shall remain undischarged
for a period of 60 days after such judgment becomes final and nonappealable.
If an Event of Default (other than an Event of Default resulting from
bankruptcy, insolvency, receivership or reorganization of New Holdings or any
Significant Subsidiary) occurs and is continuing, the New Discount Debenture
Trustee or the Holders of at least 25% in aggregate principal amount of the New
Discount Debentures then outstanding may declare the Default Amount due and
payable by notice in writing to New Holdings and the New Discount Debenture
Trustee specifying the respective Event of Default and that it is a "notice of
acceleration" (the "Acceleration Notice"), and the same (i) shall become
immediately due and payable or (ii) if there are any amounts outstanding under
the Credit Agreement, shall become due and payable upon the first to occur of an
acceleration under the Credit Agreement, or five business days after receipt by
New Holdings and the administrative agent under the Credit Agreement of such
Acceleration Notice. If an Event of Default resulting from certain events of
bankruptcy, insolvency, receivership or reorganization shall occur with respect
to New Holdings or a Significant Subsidiary, the Default Amount shall ipso facto
become immediately due and payable without any declaration or other act on the
part of the New Discount Debenture Trustee or any of the Holders of the New
Discount Debentures. Subject to certain conditions, the Holders of a majority in
principal amount of the New Discount Debentures then outstanding, by notice to
the New Discount Debenture Trustee, may rescind an acceleration if all existing
Events of Default are remedied. In certain cases the Holders of a majority in
principal amount of outstanding New Discount Debentures may waive any past
default and its consequences, except a default in the payment of principal of or
interest on any of the New Discount Debentures.
The New Discount Debenture Indenture provides that if a Default or an Event
of Default occurs and is continuing thereunder and if it is known to the New
Discount Debenture Trustee, the New Discount Debenture Trustee shall mail to
each Holder of the New Discount Debentures notice of the uncured Default or
Event of Default within 90 days after such Default or Event of Default occurs;
provided, however, that, except in the case of a Default or Event of Default in
the payment of principal of, premium, if any, or interest on, any New Discount
Debenture, including the failure to make payment on the Change of Control
Payment
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Date pursuant to a Change of Control Offer or payment when due pursuant to a Net
Proceeds Offer, the New Discount Debenture Trustee may withhold such notice if
it in good faith determines that withholding such notice is in the interest of
the Holders.
The New Discount Debenture Indenture provides that no holder may pursue any
remedy thereunder unless the New Discount Debenture Trustee (i) shall have
failed to act for a period of 60 days after receiving written notice of a
continuing Event of Default by such Holder and a written request to act by
Holders of at least 25% in principal amount of the New Discount Debentures and
(ii) has received indemnification satisfactory to it; provided, however, that
such provision does not affect the right of any Holder to sue for enforcement of
any overdue payment on the New Discount Debentures.
Under the New Discount Debenture Indenture, two officers of New Holdings
are required to certify to the New Discount Debenture Trustee within 120 days
after the end of each fiscal year of New Holdings whether or not they know of
any Default or Event of Default that occurred during such fiscal year and, if
applicable, describe such Default or Event of Default and the status thereof.
DEFEASANCE OF INDENTURE
New Holdings may, at its option and at any time, elect to have New
Holdings' obligations discharged with respect to the outstanding New Discount
Debentures. Such Legal Defeasance means that New Holdings shall be deemed to
have paid and discharged the entire Indebtedness represented by the outstanding
New Discount Debentures except for (i) the rights of Holders of outstanding New
Discount Debentures to receive payments in respect of the principal of, premium,
if any, and interest on such New Discount Debentures when such payments are due
solely from the funds held by the New Discount Debenture Trustee in the trust
referred to below; (ii) New Holdings' obligations to issue temporary New
Discount Debentures, register the transfer or exchange of New Discount
Debentures, replace mutilated, destroyed, lost or stolen New Discount Debentures
and maintain an office or agency for payments in respect of the New Discount
Debentures and money for security payments held in trust in respect of the New
Discount Debentures; (iii) the rights, powers, trusts, duties and immunities of
the New Discount Debenture Trustee and New Holdings' obligations in connection
therewith; and (iv) the Legal Defeasance provisions of the New Discount
Debenture Indenture. In addition, New Holdings may, at its option and at any
time elect to have the obligations of New Holdings released with respect to
certain covenants described above under "-- Certain Covenants" ("Covenant
Defeasance"), and thereafter any omission to comply with such obligations shall
not constitute a Default or Event of Default with respect to the New Discount
Debentures.
In order to exercise either Legal Defeasance or Covenant Defeasance with
respect to the New Discount Debentures, (i) New Holdings must have irrevocably
deposited with the New Discount Debenture Trustee, in trust, for the benefit of
the Holders of the New Discount Debentures, cash in U.S. dollars, U.S.
Government Obligations (as defined in the New Discount Debenture Indenture), or
a combination thereof, in such amounts as will be sufficient, in the opinion of
a nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the outstanding New Discount
Debentures to redemption or maturity provided that the New Discount Debenture
Trustee shall have been irrevocably instructed to apply such money or the
proceeds of such U.S. Government Obligations to said payments with respect to
the New Discount Debentures on the Maturity Date or such redemption date, as the
case may be; (ii) in the case of Legal Defeasance, New Holdings shall have
delivered to the New Discount Debenture Trustee an opinion of counsel stating
that (A) New Holdings has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the Issue Date, there has been a
change in the applicable federal income tax law, in either case to the effect
that, and based thereon such opinion of counsel shall confirm that, the Holders
of outstanding New Discount Debentures will not recognize income, gain or loss
for federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, New Holdings shall have
delivered to the New Discount Debenture Trustee an opinion of counsel stating
that the Holders of outstanding New Discount Debentures will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case if
such Covenant Defeasance had not
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occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as clauses (v) and (vi) under
the first paragraph under "-- Events of Default" above are concerned, at any
time in the period ending on the 91st day after the date of deposit; (v) such
Legal Defeasance or Covenant Defeasance shall not result in a breach or
violation of, or constitute a default under, the New Discount Debenture
Indenture or any other material agreement or instrument to which New Holdings is
a party or by which it is bound (and in that connection, the New Discount
Debenture Trustee shall have received a certificate from the Agent under the
Credit Agreement to that effect with respect to such Credit Agreement if then in
effect); (vi) New Holdings shall have delivered to the New Discount Debenture
Trustee an opinion of counsel to the effect that after the 91st day following
the deposit, the trust funds will not be subject to the effect of any applicable
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally; (vii) New Holdings shall have delivered to the New Discount
Debenture Trustee an Officer's Certificate stating that the deposit was not made
by New Holdings with the intent of preferring the Holders of the New Discount
Debentures over other creditors of New Holdings or with the intent of defeating,
hindering, delaying or defrauding creditors of Holdings, or others; and (viii)
New Holdings shall have delivered to the New Discount Debenture Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or Covenant
Defeasance, have been complied with.
SATISFACTION AND DISCHARGE
The New Discount Debenture Indenture will be discharged and will cease to
be of further effect as to all outstanding New Discount Debentures when either
(a) all New Discount Debentures theretofore authenticated and delivered (except
lost, stolen or destroyed New Discount Debentures which have been replaced or
paid and New Discount Debentures for whose payment money has theretofore been
deposited in trust and thereafter repaid to New Holdings) have been delivered to
the New Discount Debenture Trustee for cancellation; or (b)(i) all New Discount
Debentures not theretofore delivered to the New Discount Debenture Trustee for
cancellation have become due and payable by reason of the making of a notice of
redemption or otherwise and New Holdings has irrevocably deposited or caused to
be deposited with the New Discount Debenture Trustee as trust funds in trust for
the purpose an amount of money sufficient to pay and discharge the entire
indebtedness on the New Discount Debentures not theretofore delivered to the New
Discount Debenture Trustee for cancellation for principal, premium, if any, and
accrued interest to the date of maturity or redemption; (ii) New Holdings has
paid all sums payable by it under the New Discount Debenture Indenture; and
(iii) New Holdings has delivered irrevocable instructions to the New Discount
Debenture Trustee to apply the deposited money toward the payment of the New
Discount Debentures at maturity or the redemption date, as the case may be. In
addition, New Holdings must deliver an Officers' Certificate and an Opinion of
Counsel to the New Discount Debenture Trustee stating that all conditions
precedent to satisfaction and discharge have been complied with.
MODIFICATION OF THE NEW DISCOUNT DEBENTURE INDENTURE
The New Discount Debenture Indenture and the New Discount Debentures may be
amended or supplemented (and compliance with any provision thereof may be
waived) by New Holdings, the New Discount Debenture Trustee and the Holders of
not less than a majority in aggregate principal amount of the New Discount
Debentures then outstanding, except that (i) without the consent of each Holder
of New Discount Debentures affected, no such amendment, supplement or waiver may
(1) change the principal amount of New Discount Debentures whose Holders must
consent to an amendment, supplement or waiver of any provision of the New
Discount Debenture Indenture or the New Discount Debentures; (2) reduce the rate
or extend the time for payment of interest on any New Discount Debenture; (3)
reduce the Accreted Value of any New Discount Debenture; (4) reduce the
principal amount of any New Discount Debenture; (5) change the Maturity Date of
any New Discount Debenture, or alter the redemption provisions in a manner
adverse to any Holder; (6) make any changes in the provisions concerning waivers
of Defaults or Events of Default by Holders or the rights of Holders to recover
the principal of, interest on, or redemption payment with respect to, any New
Discount Debenture, or (7) make the principal of, or the interest on, any New
Discount Debentures payable with anything or in any manner other than as
provided for in the New Discount Debenture Indenture and the New Discount
Debentures as in effect on the date of the New
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Discount Debenture Indenture and (ii) without the consent of Holders of not less
than 75% in aggregate principal amount of New Discount Debentures then
outstanding, no such amendment, supplement or waiver may change the Change of
Control Payment Date or the purchase price in connection with any repurchase of
New Discount Debentures pursuant to the covenant described under "-- Change of
Control" above in a manner adverse to any Holder or waive a Default or Event of
Default resulting from a failure to comply with the covenant described under
"-- Change of Control" above.
In addition, New Holdings and the New Discount Debenture Trustee may amend
the New Discount Debenture Indenture and the New Discount Debentures (a) to cure
any ambiguity, defect or inconsistency therein; provided, that such amendment or
supplement does not adversely affect the rights of any Holder or (b) to make any
other change that does not adversely affect the rights of any Holder thereunder
in any material respect.
THE NEW DISCOUNT DEBENTURE TRUSTEE
The Holders of a majority in principal amount of the outstanding New
Discount Debentures may remove the New Discount Debenture Trustee and appoint a
successor trustee with New Holdings' consent, by so notifying the New Discount
Debenture Trustee to be so removed and New Holdings. In addition, the Holders of
a majority in principal amount of the outstanding New Discount Debentures have
the right, subject to certain limitations, to direct the time, method and place
of conducting any proceeding for any remedy available to the New Discount
Debenture Trustee or of exercising any trust or power conferred on the New
Discount Debenture Trustee.
The New Discount Debenture Indenture provides that, in case a Default or an
Event of Default has occurred and is continuing, the New Discount Debenture
Trustee thereunder shall exercise such of the rights and powers vested in it by
the New Discount Debenture Indenture, and use the same degree of care and skill
in the exercise thereof, as a prudent person would exercise or use under the
circumstances in the conduct of his own affairs. Subject to the latter
provision, the New Discount Debenture Trustee is under no obligation to exercise
any of its rights or powers under the New Discount Debenture Indenture at the
request, order or direction of any of the Holders, unless they shall have
offered to the New Discount Debenture Trustee reasonable security or indemnity
against the costs, expenses and liabilities which may be incurred thereby. If
New Holdings fails to pay such amounts of principal of, or interest on, the New
Discount Debentures as shall have become due and payable upon demand as
specified in the New Discount Debenture Indenture, the New Discount Debenture
Trustee thereunder, at the request of the Holders of a majority in aggregate
principal amount of the New Discount Debentures at the time outstanding, and
upon being offered such reasonable indemnity as it may be required against the
costs, expenses and liabilities incurred by it, except as a result of its
negligence or bad faith, shall institute any actions or proceedings at law or in
equity for the collection of the sums so due and unpaid, and collect in the
manner provided by law the monies adjudged or decreed to be payable.
The New Discount Debenture Indenture contains limitations on the rights of
the New Discount Debenture Trustee, should it become a creditor of New Holdings,
to obtain payment of claims in certain cases or to be realized on certain
property received by it in respect of any such claims, securities or otherwise.
The New Discount Debenture Trustee is permitted to engage in other transactions;
however, if the New Discount Debenture Trustee acquires any "conflicting
interest," it must eliminate such conflict or resign.
The New Discount Debenture Trustee is also the trustee for (a) the %
Senior Subordinated Notes due 2005 of the Company; (b) the 9% Senior
Subordinated Notes due 2003 of the Company; (c) the 10 1/4% Senior Subordinated
Notes due 2002 of the Company; (d) the 13.75% Senior Subordinated Notes due 2005
of the Company; and (e) the 13.75% Senior Subordinated Notes due 2001 of the
Company.
REPORTS
The New Discount Debenture Indenture will provide that to the extent
permitted by applicable law or regulation, whether or not New Holdings is
subject to the requirements of Section 13 or 15(d) of the Exchange Act, New
Holdings shall file with the SEC all quarterly and annual reports and such other
information, documents or other reports (or copies of such portions of any of
the foregoing as the SEC may by rules and regulations prescribe) required to be
filed pursuant to such provisions of the Exchange Act. New
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Holdings shall file with the New Discount Debenture Trustee, within 15 days
after it files the same with the SEC, copies of the quarterly and annual reports
and the information, documents, and other reports (or copies of such portions of
any of the foregoing as the SEC may by rules and regulations prescribe) that it
is required to file with the SEC pursuant to the New Discount Debenture
Indenture. New Holdings shall also comply with the other provisions of TIA
sec. 314(a). If New Holdings is not permitted by applicable law or regulations
to file the aforementioned reports, New Holdings (at its own expense) shall file
with the New Discount Debenture Trustee and mail, or cause the New Discount
Debenture Trustee to mail, to Holders at their addresses appearing in the
register of New Discount Debentures maintained by the Registrar at the time of
such mailing within 5 days after it would have been required to file such
information with the SEC, all information and financial statements, including
any notes thereto and with respect to annual reports, an auditors' report by an
accounting firm of established national reputation, and a "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
comparable to the disclosure that Holdings would have been required to include
in annual and quarterly reports, information, documents or other reports,
including, without limitation, reports on Forms 10-K, 10-Q and 8-K, if New
Holdings was subject to the requirements of such Section 13 or 15(d) of the
Exchange Act.
At any time when New Holdings is not permitted by applicable law or
regulations to file the aforementioned reports, upon the request of a Holder of
New Discount Debentures, New Holdings will promptly furnish or cause to be
furnished such information as is specified pursuant to Rule 144A(d)(4) under the
Securities Act (or any successor provision thereto) to such Holder or to a
prospective purchaser of such New Discount Debentures designated by such Holder,
as the case may be, in order to permit compliance by such Holder with Rule 144A
under the Securities Act.
CERTAIN DEFINITIONS
"Accreted Value" means, as of any date of determination prior to
, 2000, the sum of (a) the initial purchase price of each New Discount
Debenture and (b) the portion of the excess of the principal amount of each New
Discount Debenture over such initial purchase price which shall have been
accreted through such date, such amount to be so accreted on a daily basis and
compounded semi-annually on each and at the rate of 13 5/8%
per annum from the date of issuance of the New Discount Debentures through the
date of determination, computed on the basis of a 360-day year of twelve 30-day
months.
"Acquired Indebtedness" means Indebtedness of a person or any of its
subsidiaries existing at the time such person becomes a Subsidiary or assumed in
connection with the acquisition of assets from such person and not incurred by
such person in connection with, or in anticipation or contemplation of, such
person becoming a Subsidiary or such acquisition.
"Affiliate" means, with respect to any person, any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" when used with respect to any person means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"affiliated," "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of the New Discount Debenture Indenture, neither BT
Securities Corporation nor any of its Affiliates shall be deemed to be an
Affiliate of New Holdings or any of its Subsidiaries.
"Asset Sale" means, with respect to any person, any sale, transfer or other
disposition or series of sales, transfers or other dispositions (including,
without limitation, by merger or consolidation or by exchange of assets and
whether by operation of law or otherwise) made by such person or any of its
subsidiaries to any person other than such person or one of its wholly-owned
subsidiaries (or, in the case of a sale, transfer or other disposition by a
Subsidiary, to any person other than New Holdings or a directly or indirectly
wholly-owned Subsidiary) of any assets of such person or any of its subsidiaries
including, without limitation, assets consisting of any Capital Stock or other
securities held by such person or any of its subsidiaries, and any Capital Stock
issued by any subsidiary of such person, in each case, outside of the ordinary
course of business, excluding, however, any sale, transfer or other disposition,
or series of related sales, transfers or other dispositions (i) involving only
Excluded Assets, (ii) resulting in Net Proceeds to New Holdings or any
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Subsidiary of $500,000 or less, (iii) pursuant to any foreclosure of assets or
other remedy provided by applicable law to a creditor of New Holdings or any
Subsidiary with a Lien on such assets, which Lien is permitted under the New
Discount Debenture Indenture, provided that such foreclosure or other remedy is
conducted in a commercially reasonable manner or in accordance with any
Bankruptcy Law, or (iv) the proceeds of which are not applied as contemplated in
"-- Certain Covenants -- Limitation on Asset Sales" and which, together with all
other such Asset Sale proceeds, do not exceed $20 million.
"Average Life" means, as of any date of determination, with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
the number of years from the date of determination to the dates of each
successive scheduled principle payments of such debt security multiplied by the
amount of such principal payment by (ii) the sum of all such principal payments.
"Bankruptcy Law" means Title 11, U.S. Code or any similar federal, state or
foreign law for the relief of debtors.
"Board of Directors" means, with respect to any person, the Board of
Directors of such person or any committee of the Board of Directors of such
person duly authorized, with respect to any particular matter, to exercise the
power of the Board of Directors of such person.
"Board Resolution" means, with respect to any person, a duly adopted
resolution of the Board of Directors of such person.
"Business Day" means a day that is not a Legal Holiday.
"Capital Stock" means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated) of corporate
stock, including each class of common stock and preferred stock of such person,
including Preferred Stock.
"Capitalized Lease Obligation" means obligations under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP, and the amount of Indebtedness represented by such obligations shall be
the capitalized amount of such obligations determined in accordance with GAAP.
"Cash Equivalents" means (i) obligations issued or unconditionally
guaranteed by the United States of America or any agency thereof, or obligations
issued by any agency or instrumentality thereof and backed by the full faith and
credit of the United States of America, (ii) commercial paper rated the highest
grade by Moody's Investors Service, Inc and Standard & Poor's Ratings Group and
maturing not more than one year from the date of creation thereof, (iii) time
deposits with, and certificates of deposit and banker's acceptances issued by,
any bank having capital surplus and undivided profits aggregating at least $500
million and maturing not more than one year from the date of creation thereof,
(iv) repurchase agreements that are secured by a perfected security interest in
an obligation described in clause (i) and are with any bank described in clause
(iii) and (v) readily marketable direct obligations issued by any state of the
United States of America or any political subdivision thereof having one of the
two highest rating categories obtainable from either Moody's Investors Service,
Inc. or Standard & Poor's Ratings Group.
"Change of Control" means (I) the acquisition after the Issue Date, in one
or more transactions, of beneficial ownership (within the meaning of Rule 13d-3
under the Exchange Act) by (i) any person or entity (other than any Permitted
Holder) or (ii) any group of persons or entities (excluding any Permitted
Holders) who constitute a group (within the meaning of Section 13(d)(3) of the
Exchange Act), in either case, of any securities of New Holdings such that, as a
result of such acquisition, such person, entity or group beneficially owns
(within the meaning of Rule 13d-3 under the Exchange Act), directly or
indirectly, 40% or more of the then outstanding voting securities entitled to
vote on a regular basis for a majority of the Board of Directors of New Holdings
(but only to the extent that such beneficial ownership is not shared with any
Permitted Holder who has the power to direct the vote thereof); provided,
however, that no such Change of Control shall be deemed to have occurred if (A)
the Permitted Holders beneficially own, in the aggregate, at such time, a
greater percentage of such voting securities than such other person, entity or
group or (B) at the time of such acquisition, the Permitted Holders (or any of
them) possess the ability (by contract or otherwise) to elect, or cause the
election, of a majority of the members of New Holdings' Board of Directors or
(II) New Holdings ceasing to own 100% of the outstanding voting securities
entitled to vote on a regular basis to elect a majority
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of the Board of Directors of the Company (other than in connection with a merger
of New Holdings and the Company).
"Company" means Food 4 Less Supermarkets, Inc., a Delaware corporation, and
its successors, including, without limitation, Ralphs Supermarkets, Inc. (to be
renamed Ralphs Grocery Company) following the Merger.
"Consolidated Net Income" means, with respect to any person, for any
period, the aggregate of the net income (or loss) of such person and its
subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (a) the net income of any other person in which such
person or any of its subsidiaries has an interest (which interest does not cause
the net income of such other person to be consolidated with the net income of
such person and its subsidiaries in accordance with GAAP) shall be included only
to the extent of the amount of dividends or distributions actually paid to such
person or such subsidiary by such other person in such period; (b) the net
income of any subsidiary of such person that is subject to any Payment
Restriction shall be excluded to the extent such Payment Restriction actually
prevented the payment of an amount that otherwise could have been paid to, or
received by, such person or a subsidiary of such person not subject to any
Payment Restriction; provided, however, that with respect to the net income of
New Holdings, the net income of the Company and its wholly-owned subsidiaries
shall not be so excluded, notwithstanding the existence of any such Payment
Restriction, so long as the terms of any such consensual Payment Restriction
limiting the payment of dividends are not materially more restrictive at the
time of determination of Consolidated Net Income than the most restrictive
Payment Restriction limiting the payment of dividends in effect on the Issue
Date and so long as the Company continues to be a wholly-owned subsidiary of New
Holdings; and (c)(i) the net income (or loss) of any other person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition, (ii) all gains and losses realized on any Asset Sale, (iii) all
gains realized upon or in connection with or as a consequence of the issuance of
the Capital Stock of such person or any of its subsidiaries and any gains on
pension reversions received by such person or any of its subsidiaries, (iv) all
gains and losses realized on the purchase or other acquisition by such person or
any of its subsidiaries of any securities of such person or any of its
subsidiaries, (v) all gains and losses resulting from the cumulative effect of
any accounting change pursuant to the application of Accounting Principles Board
Opinion No. 20, as amended, (vi) all other extraordinary gains and losses, (vii)
(A) all non-cash charges, (B) up to $10 million of severance costs and (C) any
other restructuring reserves or charges (provided, however, that any cash
payments actually made with respect to the liabilities for which such
restructuring reserves or charges were created shall be deducted from
Consolidated Net Income in the period when made), in each case, incurred by New
Holdings or any of its Subsidiaries in connection with the Merger, including,
without limitation, the divestiture of the Excluded Assets, (viii) losses
incurred by New Holdings and its Subsidiaries resulting from earthquakes and
(ix) with respect to New Holdings and its Subsidiaries, all deferred financing
costs written off in connection with the early extinguishment of any
Indebtedness, shall each be excluded.
"Consolidated Net Worth" means, with respect to any person, the total
stockholders' equity (exclusive of any Disqualified Capital Stock) of such
person and its subsidiaries determined on a consolidated basis in accordance
with GAAP.
"Consulting Agreement" means that certain Consulting Agreement dated as of
the Issue Date, between the Company, New Holdings and The Yucaipa Companies, as
such Consulting Agreement may be amended or replaced, so long as any amounts
paid under any amendment or replacement agreement do not exceed the amounts
payable under such Consulting Agreement as in effect on the Issue Date.
"Credit Agreement" means the Credit Agreement, dated as of the Issue Date,
by and among the Company as borrower, New Holdings as guarantor, certain of the
Company's subsidiaries, the Lenders referred to therein and Bankers Trust
Company, as administrative agent, as the same may be amended, extended, renewed,
restated, supplemented or otherwise modified (in each case, in whole or in part,
and without limitation as to amount, terms, conditions, covenants and other
provisions) from time to time, and any agreement governing Indebtedness incurred
to refund, replace or refinance any borrowings and commitments then outstanding
or permitted to be outstanding under such Credit Agreement or any such prior
agreement as
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the same may be amended, extended, renewed, restated, supplemented or otherwise
modified (in each case, in whole or in part, and without limitation as to
amount, terms, conditions, covenants and other provisions). The term "Credit
Agreement" shall include all related or ancillary documents, including, without
limitation, any guarantee agreements and security documents. New Holdings shall
promptly notify the New Discount Debenture Trustee of any such refunding or
refinancing of the Credit Agreement.
"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator
or similar official under any Bankruptcy Law.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
"Default Amount" means (i) if the Date of Declaration (as defined below) is
prior to , 2000, the unpaid Accreted Value of the New Discount
Debentures then outstanding as of the date on which the New Discount Debentures
are declared to be due and payable (the "Date of Declaration"), and (ii) if the
Date of Declaration is on or after , 2000, the aggregate principal
amount of the New Discount Debentures then outstanding as of the Date of
Declaration, plus accrued and unpaid interest thereon to the Date of
Declaration.
"Disqualified Capital Stock" means, (i) with respect to any person, any
Capital Stock of such person or its subsidiaries that, by its terms, by the
terms of any agreement related thereto or by the terms of any security into
which it is convertible, putable or exchangeable, is, or upon the happening of
an event or the passage of time would be, required to be redeemed or repurchased
by such person or its subsidiaries, including at the option of the holder, in
whole or in part, or has, or upon the happening of an event or passage of time
would have, a redemption or similar payment due, on or prior to the Maturity
Date or any other Capital Stock of such person or its subsidiaries designated as
Disqualified Capital Stock by such person at the time of issuance; provided,
however, that if such Capital Stock is either (a) redeemable or repurchasable
solely at the option of such person or (b) issued to employees of New Holdings
or its Subsidiaries or to any plan for the benefit of such employees, such
Capital Stock shall not constitute Disqualified Capital Stock unless so
designated; and (ii) with respect to any Subsidiary of New Holdings, any
Preferred Stock issued by a Subsidiary of New Holdings other than Preferred
Stock issued to New Holdings.
"EBDIT" means, with respect to any person, for any period, the Consolidated
Net Income of such person for such period, plus, in each case to the extent
deducted in computing Consolidated Net Income of such person for such period
(without duplication) (i) provisions for income taxes or similar charges
recognized by such person and its consolidated subsidiaries accrued during such
period, (ii) depreciation and amortization expense of such person and its
consolidated subsidiaries accrued during such period (but only to the extent not
included in Fixed Charges), (iii) Fixed Charges of such person and its
consolidated subsidiaries for such period, (iv) LIFO charges (credit) of such
person and its consolidated subsidiaries for such period, (v) the amount of any
restructuring reserve or charge recorded during such period in accordance with
GAAP, including any such reserve or charge related to the Merger, and (vi) any
other non-cash charges reducing Consolidated Net Income for such period
(excluding any such charge which requires an accrual of or a cash reserve for
cash charges for any future period), less, without duplication, (i) non-cash
items increasing Consolidated Net Income of such person for such period
(excluding any such items which represent the reversal of any accrual of, or
cash reserve for, anticipated charges in any prior period) in each case
determined in accordance with GAAP and (ii) the amount of all cash payments made
by such person or its subsidiaries during such period to the extent that such
cash payment has been provided for in a restructuring reserve or charge referred
to in clause (v) above (and was not otherwise deducted in the computation of
Consolidated Net Income of such person for such period).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated by the SEC thereunder.
"Excluded Assets" means assets of New Holdings or any Subsidiary required
to be disposed of by applicable regulatory authorities in connection with the
Merger.
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"Existing Indebtedness" means the following indebtedness of the Company
outstanding on the Issue Date after giving effect to the Merger: (a) the %
Senior Notes due 2004 issued pursuant to an indenture dated as of the Issue
Date; (b) the 10.45% Senior Notes due 2000 issued pursuant to an indenture dated
as of April 15, 1992; (c) the % Senior Subordinated Notes due 2005 issued
pursuant to an indenture dated as of the Issue Date; (d) the 9% Senior
Subordinated Notes due 2003 issued pursuant to an indenture dated as of March
30, 1993; (e) the 10 1/4% Senior Subordinated Notes due 2002 issued pursuant to
an indenture dated as of July 29, 1992; (f) the 13.75% Senior Subordinated Notes
due 2005 issued pursuant to an indenture dated as of the Issue Date; and (g) the
13.75% Senior Subordinated Notes due 2001 issued pursuant to an indenture dated
as of June 15, 1991.
"Fixed Charges" means, with respect to any person, for any period, the
aggregate amount of (i) interest, whether expensed or capitalized, paid, accrued
or scheduled to be paid or accrued during such period (except to the extent
accrued in a prior period) in respect of all Indebtedness of such person and its
consolidated subsidiaries (including (a) original issue discount on any
Indebtedness (including (without duplication), in the case of New Holdings, any
original issue discount on the New Discount Debentures, the Senior Discount
Notes and the Seller Debentures but excluding amortization of debt issuance
costs and (b) the interest portion of all deferred payment obligations,
calculated in accordance with the effective interest method, in each case to the
extent attributable to such period, but excluding the amortization of debt
issuance costs) and (ii) dividend requirements on Capital Stock of such person
and its consolidated subsidiaries declared or paid in cash or required to be
declared or paid in cash, during such period, and excluding items eliminated in
consolidation. For purposes of this definition, (a) interest on a Capitalized
Lease Obligation shall be deemed to accrue at an interest rate reasonably
determined by the Board of Directors of such person (as evidenced by a Board
Resolution) to be the rate of interest implicit in such Capitalized Lease
Obligation in accordance with GAAP, (b) interest on Indebtedness that is
determined on a fluctuating basis shall be deemed to have accrued at a fixed
rate per annum equal to the rate of interest of such Indebtedness in effect on
the date Fixed Charges are being calculated, (c) interest on Indebtedness that
may optionally be determined at an interest rate based upon a factor of a prime
or similar rate, a Eurocurrency interbank offered rate, or other rate, shall be
deemed to have been based upon the rate actually chosen, or, if none, then based
upon such optional rate chosen as New Holdings may designate, and (d) Fixed
Charges shall be increased or reduced by the net cost (including amortization of
discount) or benefit associated with Interest Swap Obligations attributable to
such period. For purposes of clause (ii) above, dividend requirements shall be
increased to an amount representing the pretax earnings that would be required
to cover such dividend requirements; accordingly, the increased amount shall be
equal to a fraction, the numerator of which is the amount of such dividend
requirements and the denominator of which is one (1) minus the applicable actual
combined federal, state, local and foreign income tax rate of such person and
its subsidiaries (expressed as a decimal), on a consolidated basis, for the
fiscal year immediately preceding the date of the transaction giving rise to the
need to calculate Fixed Charges.
"Foreign Exchange Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect
against fluctuations in currency values.
"GAAP" means generally accepted accounting principles as in effect in the
United States of America as of the Issue Date.
"Holdings" means Food 4 Less Holdings, Inc., a California corporation, and
its successors, including, without limitation, New Holdings, following the
Reincorporation Merger.
"Indebtedness" means with respect to any person, without duplication, (i)
all liabilities, contingent or otherwise, of such person (a) for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of such
person or only to a portion thereof), (b) evidenced by bonds, notes, debentures,
drafts accepted or similar instruments or letters of credit or representing the
balance deferred and unpaid of the purchase price of any property (other than
any such balance that represents an account payable or any other monetary
obligation to a trade creditor (whether or not an Affiliate) created, incurred,
assumed or guaranteed by such person in the ordinary course of business of such
person in connection with obtaining goods, materials or services and due within
twelve months (or such longer period for payment as is customarily extended by
such trade creditor) of the incurrence thereof, which account is not overdue by
more than 90 days, according
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to the original terms of sale, unless such account payable is being contested in
good faith), or (c) for the payment of money relating to a Capitalized Lease
Obligation; (ii) the maximum fixed repurchase price of all Disqualified Capital
Stock of such person or, if there is no such maximum fixed repurchase price, the
liquidation preference of such Disqualified Capital Stock, plus accrued but
unpaid dividends; (iii) reimbursement obligations of such person with respect to
letters of credit; (iv) obligations of such person with respect to Interest Swap
Obligations and Foreign Exchange Agreements; (v) all liabilities of others of
the kind described in the preceding clause (i), (ii), (iii) or (iv) that such
person has guaranteed or that is otherwise its legal liability, and (vi) all
obligations of others secured by a Lien to which any of the properties or assets
(including, without limitation, leasehold interests and any other tangible or
intangible property rights) of such person are subject, whether or not the
obligations secured thereby shall have been assumed by such person or shall
otherwise be such person's legal liability (provided that if the obligations so
secured have not been assumed by such person or are not otherwise such person's
legal liability, such obligations shall be deemed to be in an amount equal to
the fair market value of such properties or assets, as determined in good faith
by the Board of Directors of such person, which determination shall be evidenced
by a Board Resolution). For purposes of the preceding sentence, the "maximum
fixed repurchase price" of any Disqualified Capital Stock that does not have a
fixed repurchase price shall be calculated in accordance with the terms of such
Disqualified Capital Stock as if such Disqualified Capital Stock were purchased
on any date on which Indebtedness shall be required to be determined pursuant to
the New Discount Debenture Indenture, and if such price is based upon, or
measured by, the fair market value of such Disqualified Capital Stock (or any
equity security for which it may be exchanged or converted), such fair market
value shall be determined in good faith by the Board of Directors of such
person, which determination shall be evidenced by a Board Resolution. For
purposes of the New Discount Debenture Indenture, Indebtedness incurred by any
person that is a general partnership (other than non-recourse Indebtedness)
shall be deemed to have been incurred by the general partners of such
partnership pro rata in accordance with their respective interests in the
liabilities of such partnership unless any such general partner shall, in the
reasonable determination of the Board of Directors of New Holdings, be unable to
satisfy its pro rata share of the liabilities of the partnership, in which case
the pro rata share of any Indebtedness attributable to such partner shall be
deemed to be incurred at such time by the remaining general partners on a pro
rata basis in accordance with their interests.
"Independent Financial Advisor" means a reputable accounting, appraisal or
a nationally recognized investment banking firm that is, in the reasonable
judgment of the Board of Directors of New Holdings, qualified to perform the
task for which such firm has been engaged hereunder and disinterested and
independent with respect to New Holdings and its Affiliates.
"Initial Public Offering" means an underwritten primary public offering of
common stock of New Holdings at a time when New Holdings has not previously
issued or sold any equity securities in an underwritten transaction pursuant to
a registration statement filed pursuant to the Securities Act.
"Interest Swap Obligation" means any obligation of any person pursuant to
any arrangement with any other person whereby, directly or indirectly, such
person is entitled to receive from time to time periodic payments calculated by
applying either a fixed or floating rate of interest on a stated notional amount
in exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount; provided that
the term "Interest Swap Obligation" shall also include interest rate exchange,
collar, cap, swap option or similar agreements providing interest rate
protection.
"Investment" by any person in any other person means any investment by such
person in such other person, whether by share purchase, capital contribution,
loan, advance (other than reasonable loans and advances to employees for moving
and travel expenses, as salary advances, or to permit the purchase of Qualified
Capital Stock of New Holdings or any Subsidiary and other similar customary
expenses incurred, in each case in the ordinary course of business consistent
with past practice) or similar credit extension constituting Indebtedness of
such other person, and any guarantee of Indebtedness of any other person.
"Issue Date" means the date of original issuance of the New Discount
Debentures pursuant to the New Discount Debenture Indenture.
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"Letter of Credit Obligations" means Indebtedness of the Subsidiaries with
respect to letters of credit issued pursuant to the Credit Agreement, and for
purposes of the provisions of the New Discount Debenture Indenture summarized
under the heading "Limitations on Incurrences of Additional Indebtedness," the
aggregate principal amount of Indebtedness outstanding at any time with respect
thereto, shall be deemed to consist of (a) the aggregate maximum amount then
available to be drawn under all such letters of credit (the determination of
such maximum amount to assume compliance with all conditions for drawing), and
(b) the aggregate amount that has then been paid by, and not reimbursed to, the
issuers under such letters of credit.
"Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property, or a security interest of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof, any option or
other agreement to sell which is intended to constitute or create a security
interest, mortgage, pledge or lien, and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction); provided that in no event shall an operating lease be
deemed to constitute a Lien hereunder.
"Maturity Date" means , 2005.
"Merger" means (i) the merger of Food 4 Less Supermarkets, Inc. into Ralphs
Supermarkets, Inc. (with Ralphs Supermarkets, Inc. surviving such merger)
pursuant to the Merger Agreement and (ii) immediately following the merger
described in clause (i) of this definition, the merger of Ralphs Grocery Company
into Ralphs Supermarkets, Inc. (with Ralphs Supermarkets, Inc. surviving such
merger and changing its name to "Ralphs Grocery Company" in connection with such
merger).
"Merger Agreement" means the Agreement and Plan of Merger, dated as of
September 14, 1994, by and among New Holdings, Holdings, FFL, Food 4 Less
Supermarkets, Inc., RSI and the stockholders of RSI, as such agreement is in
effect on the Issue Date.
"Net Cash Proceeds" means Net Proceeds of (i) the sale of Qualified Capital
Stock of New Holdings or (ii) any Asset Sale, in each case, in the form of cash
or Cash Equivalents.
"Net Proceeds" means (a) in the case of any Asset Sale or any issuance and
sale by any person of Qualified Capital Stock, the aggregate net proceeds
received by such person after payment of expenses, taxes, commissions and the
like incurred in connection therewith (and, in the case of any Asset Sale, net
of the amount of cash applied to repay Indebtedness secured by the asset
involved in such Asset Sale), whether such proceeds are in cash or in property
(valued at the fair market value thereof at the time of receipt as determined
with respect to any Asset Sale resulting in Net Proceeds in excess of $5 million
in good faith by the Board of Directors of such person, which determination
shall be evidenced by a Board Resolution) and (b) in the case of any conversion
or exchange of any outstanding Indebtedness or Disqualified Capital Stock of
such person for or into shares of Qualified Capital Stock of New Holdings, the
sum of (i) the fair market value of the proceeds received by New Holdings in
connection with the issuance of such Indebtedness or Disqualified Capital Stock
on the date of such issuance and (ii) any additional amount paid by the Holder
to New Holdings upon such conversion or exchange.
"New Discount Debentures" means the 13 5/8% Senior Discount Debentures due
2005 of New Holdings issued pursuant to the New Discount Debenture Indenture, as
the same may be modified or amended from time to time and refinancings thereof,
to the extent such refinancing indebtedness is permitted to be incurred under
the New Discount Debenture Indenture.
"New Discount Debenture Indenture" means the indenture between New Holdings
and United States Trust Company of New York, as trustee, dated as of the Issue
Date, pursuant to which the New Discount Debentures will be issued, as amended
or supplemented from time to time in accordance with the terms thereof.
"New Holdings" means Food 4 Less Holdings, Inc., a Delaware corporation,
and its successors.
"Operating Coverage Ratio" means, with respect to any person, the ratio of
(1) EBDIT of such person for the period (the "Pro Forma Period") consisting of
the most recent four full fiscal quarters for which
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financial information in respect thereof is available immediately prior to the
date of the transaction giving rise to the need to calculate the Operating
Coverage Ratio (the "Transaction Date") to (2) the aggregate Fixed Charges of
such person for the fiscal quarter in which the Transaction Date occurs and the
three fiscal quarters immediately subsequent to such fiscal quarter (the
"Forward Period") reasonably anticipated by the Board of Directors of such
person to become due from time to time during such period. For purposes of this
definition, if the Transaction Date occurs prior to the first anniversary of the
Merger, EBDIT for the Pro Forma Period shall be calculated, in the case of New
Holdings, after giving effect on a pro forma basis to the Merger as if it had
occurred on the first day of the Pro Forma Period. In addition to, but without
duplication of, the foregoing, for purposes of this definition, EBDIT shall be
calculated after giving effect (without duplication), on a pro forma basis for
the Pro Forma Period (but no longer), to (a) any Investment, during the period
commencing on the first day of the Pro Forma Period to and including the
Transaction Date (the "Reference Period"), in any other person that, as a result
of such Investment, becomes a subsidiary of such person, (b) the acquisition,
during the Reference Period (by merger, consolidation or purchase of stock or
assets) of any business or assets, which acquisition is not prohibited by the
Indenture, and (c) any sales or other dispositions of assets (other than sales
of inventory in the ordinary course of business) occurring during the Reference
Period, in each case as if such incurrence, Investment, repayment, acquisition
or asset sale had occurred on the first day of the Reference Period. In
addition, for purposes of this definition, Fixed Charges shall be calculated
after giving effect (without duplication), on a pro forma basis for the Forward
Period, to any Indebtedness incurred or repaid on or after the first day of the
Forward Period and prior to the Transaction Date. If such person or any of its
subsidiaries directly or indirectly guarantees any Indebtedness of a third
person, the Operating Coverage Ratio shall give effect to the incurrence of such
Indebtedness as if such person or subsidiary had directly incurred such
guaranteed Indebtedness.
"operating lease" means any lease the obligations under which do not
constitute Capitalized Lease Obligations.
"Pari Passu Indebtedness" means, with respect to New Holdings, Indebtedness
that ranks pari passu in right of payment to the New Discount Debentures
(whether or not secured by any Lien) including the Senior Discount Notes, to the
extent any remain outstanding following the Merger.
"Payment Restriction" means, with respect to a Subsidiary of any person,
any encumbrance, restriction or limitation, whether by operation of the terms of
its charter or by reason of any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation, on the ability of (i) such subsidiary
to (a) pay dividends or make other distributions on its Capital Stock or make
payments on any obligation, liability or Indebtedness owed to such person or any
other subsidiary of such person, (b) make loans or advances to such person or
any other subsidiary of such person, or (c) transfer any of its properties or
assets to such person or any other subsidiary of such person, or (ii) such
person or any other subsidiary of such person to receive or retain any such (a)
dividends, distributions or payments, (b) loans or advances, or (c) transfer of
properties or assets.
"Permitted Holder" means (i) Food 4 Less Equity Partners, L.P., The Yucaipa
Companies or any entity controlled thereby or any of the partners thereof, (ii)
Apollo Advisors, L.P., Lion Advisors, L.P., or any entity controlled thereby or
any of the partners thereof, (iii) an employee benefit plan of New Holdings or
any Subsidiary, or any participant therein, (iv) a trustee or other fiduciary
holding securities under an employee benefit plan of New Holdings or any
Subsidiary or (v) any Permitted Transferee of any of the foregoing persons.
"Permitted Indebtedness" means (a) Indebtedness of the Company and its
subsidiaries pursuant to (i) the Term Loans (and the Company and each Subsidiary
(to the extent it is not an obligor) may guarantee such Indebtedness) in an
aggregate principal amount at any time outstanding not to exceed $750 million or
such lesser amount as may be actually funded under the Term Loans on or within
91 days following the Issue Date (with any such amounts funded after the Issue
Date to be used to finance the repurchase of up to $224.5 million aggregate
principal amount of Old RGC Notes pursuant to the "change of control purchase
offer" provision set forth in section 1014 of the indentures pursuant to which
the Old RGC Notes were issued, plus related fees and expenses) less the
aggregate amount of all principal repayments thereunder pursuant to
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and in accordance with the covenant described under "-- Certain
Covenants -- Limitation on Asset Sales" above subsequent to the Issue Date and
(ii) the revolving credit facility under the Credit Agreement (and the Company
and each Subsidiary (to the extent it is not an obligor) may guarantee such
Indebtedness) in an aggregate principal amount at any time outstanding not to
exceed $325 million, less all permanent reductions thereunder pursuant to and in
accordance with the covenant described under "-- Certain Covenants -- Limitation
on Asset Sales" above; (b) any guarantee by New Holdings of the Indebtedness
referred to in the foregoing clause (a); (c) Indebtedness of New Holdings or a
Subsidiary owed to and held by New Holdings or a Subsidiary; (d) Indebtedness
incurred by New Holdings or any Subsidiary in connection with the purchase or
improvement of property (real or personal) or equipment or other capital
expenditures in the ordinary course of business (including for the purchase of
assets or stock of any retail grocery store or business) or consisting of
Capitalized Lease Obligations, provided that (i) at the time of the incurrence
thereof, such Indebtedness, together with any other Indebtedness incurred during
the most recently completed four fiscal quarter period in reliance upon this
clause (d) does not exceed, in the aggregate, 3% of net sales of New Holdings
and its Subsidiaries during the most recently completed four fiscal quarter
period on a consolidated basis (calculated on a pro forma basis if the date of
incurrence is prior to the first anniversary of the Merger) and (ii) such
Indebtedness, together with all then outstanding Indebtedness incurred in
reliance upon this clause (d) does not exceed, in the aggregate, 3% of the
aggregate net sales of New Holdings and its Subsidiaries during the most
recently completed twelve fiscal quarter period on a consolidated basis
(calculated on a pro forma basis if the date of incurrence is prior to the third
anniversary of the Merger); (e) Indebtedness incurred by New Holdings or any
Subsidiary in connection with capital expenditures in an aggregate principal
amount not exceeding $150 million, provided that such capital expenditures
relate solely to the integration of the operations of RSI, Food 4 Less
Supermarkets, Inc. and their respective subsidiaries as described in this
Prospectus; (f) Indebtedness of New Holdings or any Subsidiary incurred under
Foreign Exchange Agreements and Interest Swap Obligations; (g) guarantees
incurred in the ordinary course of business, by New Holdings or a Subsidiary, of
Indebtedness of any other person in aggregate not to exceed $25 million at any
time outstanding; (h) guarantees by New Holdings or a Subsidiary of Indebtedness
incurred by a wholly-owned Subsidiary so long as the incurrence of such
Indebtedness incurred by such wholly-owned Subsidiary is permitted under the
terms of the New Discount Debenture Indenture; (i) Refinancing Indebtedness; (j)
Indebtedness for letters of credit relating to workers' compensation claims and
self-insurance or similar requirements in the ordinary course of business; (k)
Existing Indebtedness and other Indebtedness outstanding on the Issue Date
(after giving effect to the Merger); (l) Indebtedness arising from guarantees of
Indebtedness of New Holdings or any Subsidiary or other agreements of New
Holdings or a Subsidiary providing for indemnification, adjustment of purchase
price or similar obligations, in each case, incurred or assumed in connection
with the disposition of any business, assets or Subsidiary, other than
guarantees of Indebtedness incurred by any person acquiring all or any portion
of such business, assets or Subsidiary for the purpose of financing such
acquisition; provided that the maximum assumable liability in respect of all
such Indebtedness shall at no time exceed the gross proceeds actually received
by New Holdings and its Subsidiaries in connection with such disposition; (m)
obligations in respect of performance bonds and completion guarantees provided
by New Holdings or any Subsidiary in the ordinary course of business; (n)
Indebtedness of New Holdings with respect to the Senior Discount Notes, if any,
New Discount Debentures (including the accretion of the Senior Discount Notes
and the New Discount Debentures up to their respective stated principal amount
at maturity) and Seller Debentures (including the issuance of secondary
securities in lieu of cash interest payments pursuant to the terms of the Seller
Debenture Indenture); and (o) additional Indebtedness of New Holdings or any
Subsidiary in an amount not to exceed $200 million at any time outstanding.
"Permitted Investment" by any person means (i) any Related Business
Investment, (ii) Investments in securities not constituting cash or Cash
Equivalents and received in connection with an Asset Sale or any other
disposition of assets not constituting an Asset Sale by reason of the $500,000
threshold contained in the definition thereof, (iii) cash and Cash Equivalents,
(iv) Investments existing on the Issue Date, (v) Investments specifically
permitted by and made in accordance with the provisions of the New Discount
Debenture Indenture summarized under "Limitation on Restricted Payments" and
"Limitation on Transac-
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tions with Affiliates," (vi) Investments by any Subsidiary in other
Subsidiaries, and (vii) additional Investments in an aggregate amount not
exceeding $5 million.
"Permitted Liens" shall mean (i) Liens for taxes, assessments and
governmental charges or claims not yet due or which are being contested in good
faith by appropriate proceedings promptly instituted and diligently conducted
and if a reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor; (ii) statutory Liens of
landlords and carriers, warehouseman, mechanics, suppliers, materialmen,
repairmen or other like Liens arising in the ordinary course of business,
deposits made to obtain the release of such Liens, and with respect to amounts
not yet delinquent for a period of more than 60 days or being contested in good
faith by an appropriate process of law, and for which a reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been
made; (iii) Liens incurred or pledges or deposits made in the ordinary course of
business to secure obligations under workers' compensation, unemployment
insurance and other types of social security or similar legislation; (iv) Liens
incurred or deposits made to secure the performance of tenders, bids, leases,
statutory obligations, surety and appeal bonds, government contracts,
performance and return of money bonds and other obligations of a like nature
incurred in the ordinary course of business (exclusive of obligations for the
payment of borrowed money); (v) easements, rights-of-way, zoning or other
restrictions, minor defects or irregularities in title and other similar charges
or encumbrances not interfering in any material respect with the business of New
Holdings or any of its Subsidiaries incurred in the ordinary course of business;
(vi) Liens upon specific items of inventory or other goods and proceeds of any
person securing such person's obligations in respect of bankers' acceptances
issued or created for the account of such person to facilitate the purchase,
shipment or storage of such inventory or other goods in the ordinary course of
business; (vii) Liens securing reimbursement obligations with respect to letters
of credit which encumber documents and other property relating to such letters
of credit and the products and proceeds thereof; (viii) Liens in favor of
customs and revenue authorities arising as a matter of law to secure payment of
nondelinquent customs duties in connection with the importation of goods; (ix)
judgement and attachment Liens not giving rise to a Default or Event of Default;
(x) leases or subleases granted to others not interfering in any material
respect with the business of New Holdings or any Subsidiary; (xi) Liens
encumbering customary initial deposits and margin deposits, and other Liens
incurred in the ordinary course of business that are within the general
parameters customary in the industry, in each case securing Indebtedness under
Interest Swap Obligations and Foreign Exchange Agreements and forward contracts,
option futures contracts, futures options or similar agreements or arrangements
designed to protect New Holdings or any Subsidiary from fluctuations in the
price of commodities; (xii) Liens encumbering deposits made in the ordinary
course of business to secure nondelinquent obligations arising from statutory,
regulatory, contractual or warranty requirements of New Holdings or its
Subsidiaries for which a reserve or other appropriate provision, if any, as
shall be required by GAAP shall have been made; (xiii) Liens arising out of
consignment or similar arrangements for the sale of goods entered into by New
Holdings or any Subsidiary in the ordinary course of business in accordance with
past practices; (xiv) any interest or title of a lessor in the property subject
to any lease, whether characterized as capitalized or operating other than any
such interest or title resulting from or arising out of a default by New
Holdings or any Subsidiary of its obligations under such lease; (xv) Liens
arising from filing UCC financial statements for precautionary purposes in
connection with true leases of personal property that are otherwise permitted
under the New Discount Debenture Indenture and under which New Holdings or any
Subsidiary is lessee; and (xvi) additional Liens securing Indebtedness of the
Company at any one time outstanding not exceeding the sum of (i) $25 million and
(ii) 10% of the aggregate Consolidated Net Income of the Company earned
subsequent to the Issue Date and on or prior to such time.
"Permitted Payments" means (i) any payment by New Holdings or any
Subsidiary to The Yucaipa Companies or the principals or any Affiliate thereof
for consulting, management, investment banking or similar services, or for
reimbursement of losses, costs and expenses pursuant to the Consulting
Agreement, (ii) any payment by New Holdings or any Subsidiary to Apollo
Advisors, L.P. or the principals or Affiliates thereof in an aggregate amount
not to exceed $5 million as a commitment fee in connection with the purchase of
equity securities of New Holdings on the Issue Date, and (iii) any payment by
New Holdings or any Subsidiary (a) in connection with repurchases of outstanding
shares of New Holdings common stock following the death, disability or
termination of employment of management stockholders, and (b) of amounts
22
<PAGE> 118
required to be paid by New Holdings or any Subsidiaries to participants in
employee benefit plans upon any termination of employment by such participants,
as provided in the documents related thereto, in an aggregate amount (for both
clauses (a) and (b)) not to exceed $10 million in any Yearly Period (provided
that any unused amounts may be carried over to any subsequent Yearly Period
subject to a maximum amount of $20 million in any Yearly Period).
"Permitted Transferees" means, with respect to any person, (i) any
Affiliate of such person, (ii) the heirs, executors, administrators,
testamentary trustees, legatees or beneficiaries of any such person, (iii) a
trust, the beneficiaries of which, or a corporation or partnership, the
stockholders or general or limited partners of which, include only such person
or his or her spouse or lineal descendants, in each case to whom such person has
transferred the beneficial ownership of any securities of New Holdings, (iv) any
investment account whose investment managers and investment advisors consist
solely of such person and/or Permitted Transferees of such person and (v) any
investment fund or investment entity that is a subsidiary of such person or a
Permitted Transferee of such person.
"Plan of Liquidation" means, with respect to any person, a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and all
or substantially all of the remaining assets of such person to holders of
Capital Stock of such person.
"Preferred Stock" means, with respect to any person, any and all shares,
interests, participations or other equivalents (however designated) of such
person's preferred or preference stock, whether outstanding on the date hereof
or issued after the Issue Date, and including, without limitation, all classes
and series of preferred or preference stock of such person.
"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms of the New Discount Debenture Indenture, a
calculation in accordance with Article 11 of Regulation S-X under the Securities
Act as interpreted by New Holdings' chief financial officer or Board of
Directors in consultation with its independent certified public accountants.
"Qualified Capital Stock" means, with respect to any person, any Capital
Stock of such person that is not Disqualified Capital Stock.
"Refinancing Indebtedness" means, with respect to any person, Indebtedness
of such person issued in exchange for, or the proceeds from the issuance and
sale or disbursement of which are used to substantially concurrently repay,
redeem, refund, refinance, discharge or otherwise retire for value, in whole or
in part (collectively, "repay"), or constituting an amendment, modification or
supplement to, or a deferral or renewal of (collectively, an "amendment"), any
Indebtedness of such person existing on the Issue Date or Indebtedness (other
than Permitted Indebtedness, except Permitted Indebtedness incurred pursuant to
clauses (b), (d), (e), (i), (k) and (n) of the definition thereof) incurred in
accordance with the New Discount Debenture Indenture (a) in a principal amount
(or, if such Refinancing Indebtedness provides for an amount less than the
principal amount thereof to be due and payable upon the acceleration thereof,
with an original issue price) not in excess of (without duplication) (i) the
principal amount or the original issue price, as the case may be, of the
Indebtedness so refinanced (or, if such Refinancing Indebtedness refinances
Indebtedness under a revolving credit facility or other agreement providing a
commitment for subsequent borrowings, with a maximum commitment not to exceed
the maximum commitment under such revolving credit facility or other agreement)
plus (ii) unpaid accrued interest on such Indebtedness plus (iii) premiums,
penalties, fees and expenses actually incurred by such person in connection with
the repayment or amendment thereof and (b) with respect to Refinancing
Indebtedness that repays or constitutes an amendment to Subordinated
Indebtedness, such Refinancing Indebtedness (x) shall not have any fixed
mandatory redemption or sinking fund requirement in an amount greater than or at
a time prior to the amounts and times specified in such repaid or amended
Subordinated Indebtedness, except to the extent that any such requirement
applies on a date after the Maturity Date and (y) shall contain subordination
and default
23
<PAGE> 119
provisions no less favorable in any material respect to Holders than those
contained in such repaid or amended Subordinated Indebtedness.
"Reincorporation Merger" means the merger, prior to the Merger, of Holdings
with and into New Holdings.
"Related Business Investment" means (i) any Investment by a person in any
other person a majority of whose revenues are derived from the operation of one
or more retail grocery stores or supermarkets or any other line of business
engaged in by New Holdings or any Subsidiary as of the Issue Date; (ii) any
Investment by such person in any cooperative or other supplier, including,
without limitation, any joint venture which is intended to supply any product or
service useful to the business of New Holdings and any Subsidiary as it is
conducted as of the Issue Date and as such business may thereafter evolve or
change; and (iii) any capital expenditure or Investment in each case reasonably
related to the business of New Holdings and any Subsidiary as it is conducted as
of the Issue Date and as such business may thereafter evolve or change.
"Restricted Debt Prepayment" means the purchase, redemption, acquisition or
retirement for value by New Holdings, prior to the scheduled maturity or prior
to any scheduled repayment of principal or any sinking fund payment in respect
of any Subordinated Indebtedness.
"Restricted Payment" means any (i) Stock Payment or (ii) Investment (other
than a Permitted Investment) or (iii) Restricted Debt Prepayment.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Seller Debentures" means the 13 5/8% Senior Subordinated Pay-in-Kind
Debentures due 2007 of New Holdings, including any secondary securities issued
in respect thereof, in each case, issued pursuant to the Seller Debenture
Indenture, as the same may be modified or amended from time to time and
refinancings thereof, to the extent such refinancing indebtedness is permitted
to be incurred under the New Discount Debenture Indenture.
"Seller Debenture Indenture" means the indenture between New Holdings and
Norwest Bank Minnesota, N.A., as trustee, dated as of the Issue Date, pursuant
to which the Seller Debentures will be issued, as amended or supplemented from
time to time in accordance with the terms thereof.
"Senior Discount Notes" means the 15.25% Senior Discount Notes due 2004 of
Holdings issued pursuant to the Senior Discount Note Indenture, as the same may
be modified or amended from time to time and refinancings thereof, to the extent
such refinancing indebtedness is permitted to be incurred under the New Discount
Debenture Indenture.
"Senior Discount Note Indenture" means the indenture between Holdings and
United States Trust Company of New York, as trustee, dated as of December 15,
1992, pursuant to which the Senior Discount Notes were issued, as amended or
supplemented from time to time in accordance with the terms thereof.
"Significant Stockholder" means, with respect to any person, any other
person who is the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of more than 10% of any class of equity securities of such person
that are entitled to vote on a regular basis for the election of directors of
such person.
"Significant Subsidiary" means each subsidiary of New Holdings that is
either (a) a "significant subsidiary" as defined in Rule 1-02(v) of Regulation
S-X under the Securities Act and the Exchange Act (as such regulation is in
effect on the date hereof) or (b) material to the financial condition or results
of operations of New Holdings and its Subsidiaries taken as a whole.
"Stock Payment" means, with respect to any person, (a) the declaration or
payment by such person, either in cash or in property, of any dividend on
(except, in the case of New Holdings, dividends payable solely in Qualified
Capital Stock of New Holdings), or the making by such person or any of its
subsidiaries of any other distribution in respect of, such person's Qualified
Capital Stock or any warrants, rights or options to purchase or acquire shares
of any class of such Capital Stock (other than exchangeable or convertible
Indebtedness of such person), or (b) the redemption, repurchase, retirement or
other acquisition for value by
24
<PAGE> 120
such person or any of its subsidiaries, directly or indirectly, of such person's
Qualified Capital Stock (and, in the case of a Subsidiary, Qualified Capital
Stock of New Holdings) or any warrants, rights or options to purchase or acquire
shares of any class of such Capital Stock (other than exchangeable or
convertible Indebtedness of such person), other than, in the case of New
Holdings, through the issuance in exchange therefor solely of Qualified Capital
Stock of New Holdings, provided, however, that in the case of a Subsidiary, the
term "Stock Payment" shall not include any such payment with respect to its
Capital Stock or warrants, rights or options to purchase or acquire shares of
any class of its Capital Stock that are owned solely by New Holdings or a wholly
owned Subsidiary.
"Subordinated Indebtedness" means Indebtedness of New Holdings that is
subordinated in right of payment to the New Discount Debentures, including
Indebtedness under the Seller Debentures.
"subsidiary" of any person means (i) a corporation a majority of whose
Capital Stock with voting power, under ordinary circumstances, to elect
directors is, at the date of determination, directly or indirectly, owned by
such person, by one or more subsidiaries of such person or by such person and
one or more subsidiaries of such person or (ii) a partnership in which such
person or a subsidiary of such person is, at the date of determination, a
general partner of such partnership, but only if such person or its subsidiary
is entitled to receive more than 50% of the assets of such partnership upon its
dissolution, or (iii) any other person (other than a corporation or a
partnership) in which such person, a subsidiary of such person or such person
and one or more subsidiaries of such person, directly or indirectly, at the date
of determination, has (x) at least a majority ownership interest or (y) the
power to elect or direct the election of a majority of the directors or other
governing body of such person.
"Subsidiary" means any subsidiary of New Holdings.
"Term Loans" means the term loan facility under the Credit Agreement and
any agreement governing Indebtedness incurred to refund, replace or refinance
any borrowings outstanding under such facility or under any prior refunding,
replacement or refinancing thereof (in each case, in whole or in part, and
without limitation as to amount, terms, conditions, covenants and other
provisions).
"The Yucaipa Companies" means The Yucaipa Companies, a California general
partnership, or any successor thereto which is an Affiliate of Ronald W. Burkle
or his Permitted Transferees and which has been established for the sole purpose
of changing the form of The Yucaipa Companies from that of a partnership to that
of a limited liability company or any other form of entity which is not
materially adverse to the rights of the Holders under the Indenture.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the sum of the
products obtained by multiplying (x) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (y) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (b) the then outstanding principal
amount of such Indebtedness.
"wholly-owned Subsidiary" means any Subsidiary all of the shares of Capital
Stock of which (other than directors' qualifying shares) are at the time
directly or indirectly owned by New Holdings.
"Yearly Period" means each fiscal year of New Holdings; provided that the
first Yearly Period shall begin on the Issue Date and shall end on January 28,
1996.
25
<PAGE> 1
EXHIBIT 3.4.1
RESTATED BYLAWS
OF
FOOD 4 LESS HOLDINGS, INC.
<PAGE> 2
RESTATED BYLAWS
OF
FOOD 4 LESS HOLDINGS, INC.
TABLE OF CONTENTS
<TABLE>
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ARTICLE I OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Registered Office. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Other Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II MEETINGS OF STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Annual Meeting of Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 3. Quorum; Adjourned Meetings
and Notice Thereof . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 4. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 5. Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 6. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 7. Notice of Stockholder's Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 8. Maintenance and Inspection of
Stockholder List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 9. Stockholder Action by Written Consent
Without a Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE III DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1. The Number of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 4. Effect of Stockholders Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 5. Place of Directors' Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 6. Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 7. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 8. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 9. Action Without Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 10. Telephonic Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 11. Committees of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 12. Minutes of Committee Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 13. Compensation of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 14. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
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ARTICLE IV OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 1. Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2. Election of Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3. Subordinate Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4. Compensation of Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 5. Term of Office; Removal and Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 6. Action With Respect to Securities
Owned by the Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 7. Chairman of the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 8. President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 9. Vice President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 10. Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 11. Assistant Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 12. Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 13. Assistant Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE V CERTIFICATES OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 1. Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 2. Signatures on Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3. Statement of Stock Rights,
Preferences, Privilege . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4. Lost Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 5. Transfers of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 6. Fixing Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 7. Registered Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE VI GENERAL PROVISIONS - DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 1. Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 2. Payment of Dividends; Directors' Duties . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 3. Checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 4. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 5. Corporate Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 6. Manner of Giving Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 7. Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 8. Annual Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE VII AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
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Section 1. Amendment by Directors or
Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
iii
<PAGE> 5
RESTATED BYLAWS
OF
FOOD 4 LESS HOLDINGS, INC.
ARTICLE I
OFFICES
Section 1. The registered office shall be in the City of
Dover, County of Kent, State of Delaware.
Section 2. The corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. All meetings of the stockholders shall be held at
any place either within or outside the State of Delaware designated by the
Board of Directors. In the absence of any such designation, stockholders'
meetings shall be held at the principal executive office of the corporation.
Section 2. The annual meeting of stockholders shall be held
each year on a date and a time designated by the Board of Directors. At each
annual meeting directors shall be elected and any other proper business may be
transacted.
Section 3. A majority of the stock issued and outstanding and
entitled to vote at any meeting of stockholders, the holders of which are
present in person or represented by proxy, shall constitute a quorum for the
transaction of business except as otherwise provided
<PAGE> 6
by law, by the Certificate of Incorporation, or by these Bylaws. A
quorum, once established, shall not be broken by the withdrawal of enough
votes to leave less than a quorum and the votes present may continue to
transact business until adjournment. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, a majority of the
voting stock represented in person or by proxy may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present or represented. At such adjourned meeting at which a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote thereat.
Section 4. When a quorum is present at any meeting, the vote
of the holders of a majority of the stock having voting power present in person
or represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes, or
the Certificate of Incorporation, or these Bylaws, a different vote is required
in which case such express provision shall govern and control the decision of
such question.
Section 5. At each meeting of the stockholders, each
stockholder having the right to vote may vote in person or may authorize
another person or persons to act for him by proxy appointed by an instrument in
writing subscribed by such stockholder and bearing a date not more than three
years prior to said meeting, unless said instrument provides for a longer
period. All proxies must be filed with the Secretary of the corporation at the
beginning of each meeting in order to be counted in any vote at the meeting.
Each
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stockholder shall have one vote for each share of stock having voting power,
registered in his name on the books of the corporation on the record date set
by the Board of Directors as provided in Article V, Section 6 hereof. All
elections shall be had and all questions decided by a plurality vote.
Section 6. Special meetings of the stockholders, for any
purpose, or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called by the President and shall be
called by the President or the Secretary at the request in writing of a
majority of the Board of Directors, or at the request in writing of
stockholders owning a majority in amount of the entire capital stock of the
corporation issued and outstanding, and entitled to vote. Such request shall
state the purpose or purposes of the proposed meeting. Business transacted at
any special meeting of stockholders shall be limited to the purposes stated in
the notice.
Section 7. Whenever stockholders are required or permitted to
take any action at a meeting, a written notice of the meeting shall be given
which notice shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called. The written notice of any meeting shall be given to each stockholder
entitled to vote at such meeting not less than ten nor more than sixty days
before the date of the meeting. If mailed, notice is given when deposited in
the United States mail, postage prepaid, directed to the stockholder at his
address as it appears on the records of the corporation.
Section 8. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten days before every meeting
of stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and
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showing the address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, either
at a place within the city where the meeting is to be held, which place shall
be specified in the notice of the meeting, or, if not so specified, at the
place where the meeting is to be held. The list shall also be produced and kept
at the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
Section 9. Unless otherwise provided in the Certificate of
Incorporation, any action required to be taken at any annual or special meeting
of stockholders of the corporation, or any action which may be taken at any
annual or special meeting of such stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted and shall be delivered to the corporation by delivery to
its registered office in Delaware, its principal place of business, or to an
officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Every written consent
shall bear the date of signature of each stockholder who signs the consent and
no written consent shall be effective to take the corporate action referred to
therein unless, within sixty days of the earliest dated consent delivered in
the manner required by this Section 9 to the corporation, written consents
signed by a sufficient number of holders to take action are delivered to the
corporation by delivery to its registered office in
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Delaware, its principal place of business or to an officer or agent of the
corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to a corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have
not consented in writing.
ARTICLE III
DIRECTORS
Section 1. The number of directors which shall constitute the
whole Board shall be nine (9). The directors need not be stockholders. Except
as provided in Section 2 of this Article, the directors shall be elected at the
annual meeting of the stockholders (or any special meeting of the stockholders
called for the purpose of electing directors) and each director elected shall
hold office until his successor is elected and qualified; provided, however,
that except as otherwise provided for in that certain Stockholders Agreement
dated as of April __, 1995 of the corporation (the "Stockholders Agreement") or
restricted by the Certificate of Incorporation or by law, any director or the
entire Board of Directors may be removed, either with or without cause, from
the Board of Directors at any meeting of stockholders by a majority of the
stock represented and entitled to vote thereat.
Section 2. Except as provided for in the Stockholders
Agreement, vacancies on the Board of Directors by reason of death, resignation,
retirement, disqualification, removal from office, or otherwise, and newly
created directorships resulting from any increase in the authorized number of
directors may be filled by a majority of the directors then in office, although
less than a quorum, or by a sole remaining director. The directors
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so chosen shall hold office until the next annual election of directors and
until their successors are duly elected and shall qualify, unless sooner
displaced. If there are no directors in office, then, except as provided for
in the Stockholders Agreement, an election of directors may be held in the
manner provided by statute. If, at the time of filling any vacancy or any
newly created directorship, the directors then in office shall constitute less
than a majority of the whole Board (as constituted immediately prior to any
such increase), the Court of Chancery may, upon application of any stockholder
or stockholders holding at least ten percent of the total number of the shares
at the time outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the directors then in
office.
Section 3. The property and business of the corporation shall
be managed by or under the direction of its Board of Directors, and in a manner
consistent with the requirements of Section 5.2 of the Stockholders Agreement,
as long as such agreement remains effective and enforceable. Except as
provided in the Stockholders Agreement, in addition to the powers and
authorities by these Bylaws expressly conferred upon them, the Board may
exercise all such powers of the corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by these
Bylaws directed or required to be exercised or done by the stockholders.
Section 4. Notwithstanding anything to the contrary contained
herein, election, renewal and filling of vacancies on the Board of Directors
shall be effected in accordance with the terms and provisions set forth in
Article V of the Stockholders Agreement, as long as such agreement remains
effective and enforceable.
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MEETINGS OF THE BOARD OF DIRECTORS
Section 5. The directors may hold their meetings and have one
or more offices, and keep the books of the corporation outside of the State of
Delaware.
Section 6. Regular meetings of the Board of Directors may be
held without notice at such time and place as shall from time to time be
determined by the Board.
Section 7. Special meetings of the Board of Directors may be
called by the President on forty-eight hours' notice to each director, either
personally or by mail or by telegram; special meetings shall be called by the
President or the Secretary in like manner and on like notice on the written
request of two directors unless the Board consists of only one director; in
which case special meetings shall be called by the President or Secretary in
like manner or on like notice on the written request of the sole director.
Section 8. At all meetings of the Board of Directors a
majority of the authorized number of directors shall be necessary and
sufficient to constitute a quorum for the transaction of business, and the vote
of a majority of the directors present at any meeting at which there is a
quorum, shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute, by the Certificate of Incorporation, by these
Bylaws or by the Stockholders Agreement. If a quorum shall not be present at
any meeting of the Board of Directors, the directors present thereat may
adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present. If only one director is
authorized, such sole director shall constitute a quorum.
Section 9. Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the
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Board or committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board or
committee.
Section 10. Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at such meeting.
COMMITTEES OF DIRECTORS
Section 11. The Board of Directors may, by resolution passed
by a majority of the whole Board, designate one or more committees, including
an audit committee and an executive committee (as provided for in Section 5.1
of the Stockholders Agreement), each such committee to consist of one or more
of the directors of the corporation, and having authority to take such action
as set forth in Section 5.1 of the Stockholders Agreement, as long as such
agreement remains effective and enforceable. The Board may designate one or
more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. In the absence
or disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board
of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
Stockholders Agreement and in the resolution of the Board of Directors, shall
have and may exercise all the powers and authority of the Board of Directors in
the management of the
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business and affairs of the corporation, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the Bylaws of the corporation; and, unless the resolution or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
Section 12. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
Section 13. Unless otherwise restricted by the Certificate of
Incorporation or these Bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors and
may be paid a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be
allowed like compensation for attending committee meetings.
INDEMNIFICATION
Section 14(a). The corporation shall indemnify to the maximum
extent permitted by law any person who was or is a party or is threatened to be
made a party to any
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threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or in the
right of the corporation) by reason of the fact that he is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) The corporation shall indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of
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the corporation and except that no such indemnification shall be made in
respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery of Delaware or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which such Court
of Chancery or such other court shall deem proper.
(c) To the extent that a director or officer of the
corporation shall be successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in paragraphs (a) and (b), or in defense
of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(d) Any indemnification under paragraphs (a) and (b)
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director
or officer is proper in the circumstances because he has met the applicable
standard of conduct set forth in paragraphs (a) and (b). Such determination
shall be made (1) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or
proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (3) by the stockholders.
(e) Expenses, including attorneys' fees, incurred by an
officer or director in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the corporation in
advance of the final disposition of such action, suit or
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proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the corporation as authorized in this Section
14.
(f) The indemnification and advancement of expenses
provided by, or granted pursuant to, the other paragraphs of this Section 14
shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement of expenses may be entitled under any bylaw,
agreement, vote of stockholders or disinterested directors or otherwise, both
as to action in his official capacity and as to action in another capacity
while holding such office.
(g) The Board of Directors may authorize, by a vote of a
majority of a quorum of the Board of Directors, the corporation to purchase and
maintain insurance on behalf of any person who is or was a director or officer
of the corporation, or is or was serving at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust
or other enterprise against any liability asserted against him and incurred by
him in any such capacity, or arising out of his status as such, whether or not
the corporation would have the power to indemnify him against such liability
under the provisions of this Section 14.
(h) For the purposes of this Section 14, references to
"the corporation" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed
in a consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors or officers so
that any person who is or was a director or officer of such constituent
corporation, or is or was serving at the request of such constituent
corporation as a director
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or officer of another corporation, partnership, joint venture, trust or other
enterprise, shall stand in the same position under the provisions of this
Section with respect to the resulting or surviving corporation as he would have
with respect to such constituent corporation if its separate existence had
continued.
(i) For purposes of this Section 14, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the corporation"
shall include service as a director or officer of the corporation which imposes
duties on, or involves services by, such director or officer with respect to an
employee benefit plan, its participants or beneficiaries; and a person who
acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this Section 14.
(j) The indemnification and advancement of expenses
provided by, or granted pursuant to, this Section 14 shall, unless otherwise
provided when authorized or ratified, continue as to a person who has ceased to
be a director or officer and shall inure to the benefit of the heirs, executors
and administrators of such a person.
ARTICLE IV
OFFICERS
Section 1. OFFICERS. The officers of this corporation shall
be chosen by the Board of Directors and shall include a Chairman of the Board
of Directors or a President, or both, and a Secretary. The corporation may
also have at the discretion of the Board of Directors such other officers as
are desired, including a Vice-Chairman of the
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Board of Directors, a Chief Executive Officer, a Treasurer, one or more Vice
Presidents, one or more Assistant Secretaries and Assistant Treasurers, and
such other officers as may be appointed in accordance with the provisions of
Section 3 hereof. In the event there are two or more Vice Presidents, then one
or more may be designated as Executive Vice President, Senior Vice President,
or other similar or dissimilar title. At the time of the election of officers,
the directors may by resolution determine the order of their rank. Any number
of offices may be held by the same person, unless the Certificate of
Incorporation or these Bylaws otherwise provide.
Section 2. The Board of Directors, at its first meeting after
each annual meeting of stockholders, shall choose the officers of the
corporation.
Section 3. The Board of Directors may appoint such other
officers and agents as it shall deem necessary who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board.
Section 4. The salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office
until their successors are chosen and qualify in their stead. Any officer
elected or appointed by the Board of Directors may be removed at any time by
the affirmative vote of a majority of the Board of Directors. If the office of
any officer or officers becomes vacant for any reason, the vacancy shall be
filled by the Board of Directors.
Section 6. Powers of attorney, proxies, waivers of notice of
meeting, consents and other instruments relating to securities owned by the
Corporation may be executed in the name of and on behalf of the Corporation by
the President or any Vice President and any
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such officer may, in the name of and on behalf of the Corporation, take all
such action not otherwise prohibited by the Stockholders Agreement as any such
officer may deem advisable to vote in person or by proxy at any meeting of
security holders of any corporation in which the Corporation may own securities
and at any such meeting shall possess and may exercise any and all rights and
power incident to the ownership of such securities and which, as the owner
thereof, the Corporation might have exercised and possessed if present.
CHAIRMAN OF THE BOARD
Section 7. The Chairman of the Board, if such an officer be
elected, shall, if present, preside at all meetings of the Board of Directors
and exercise and perform such other powers and duties as may be from time to
time assigned to him by the Board of Directors or prescribed by these Bylaws.
If there is no President, the Chairman of the Board shall in addition be the
Chief Executive Officer of the corporation and shall have the powers and duties
prescribed in Section 7 of this Article IV.
PRESIDENT
Section 8. Subject to such supervisory powers, if any, as may
be given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the President shall be the Chief Executive Officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. He shall preside at all meetings of the stockholders and, in the
absence of the Chairman of the Board, or if there be none, at all meetings of
the Board of Directors. He shall be an ex-officio member of all committees and
shall have the general powers and duties of management usually vested in the
office of President and Chief
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Executive Officer of corporations, and shall have such other powers and duties
as may be prescribed by the Board of Directors or these Bylaws.
VICE PRESIDENTS
Section 9. In the absence or disability of the President, the
Vice Presidents in order of their rank as fixed by the Board of Directors, or
if not ranked, the Vice President designated by the Board of Directors, shall
perform all the duties of the President, and when so acting shall have all the
powers of and be subject to all the restrictions upon the President. The Vice
Presidents shall have such other duties as from time to time may be prescribed
for them, respectively, by the Board of Directors.
SECRETARY AND ASSISTANT SECRETARY
Section 10. The Secretary shall attend all sessions of the
Board of Directors and all meetings of the stockholders and record all votes
and the minutes of all proceedings in a book to be kept for that purpose; and
shall perform like duties for the standing committees when required by the
Board of Directors. He shall give, or cause to be given, notice of all
meetings of the stockholders and of the Board of Directors, and shall perform
such other duties as may be prescribed by the Board of Directors or these
Bylaws. He shall keep in safe custody the seal of the corporation, and when
authorized by the Board, affix the same to any instrument requiring it, and
when so affixed it shall be attested by his signature or by the signature of an
Assistant Secretary. The Board of Directors may give general authority to any
other officer to affix the seal of the corporation and to attest the affixing
by his signature.
Section 11. The Assistant Secretary, or if there be more than
one, the Assistant Secretaries in the order determined by the Board of
Directors, or if there be no
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such determination, the Assistant Secretary designated by the Board of
Directors, shall, in the absence or disability of the Secretary, perform the
duties and exercise the powers of the Secretary and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
TREASURER AND ASSISTANT TREASURER
Section 12. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall
deposit all moneys, and other valuable effects in the name and to the credit of
the corporation, in such depositories as may be designated by the Board of
Directors. He shall disburse the funds of the corporation as may be ordered by
the Board of Directors, taking proper vouchers for such disbursements, and
shall render to the Board of Directors, at its regular meetings, or when the
Board of Directors so requires, an account of all his transactions as Treasurer
and of the financial condition of the corporation. If required by the Board of
Directors, he shall give the corporation a bond, in such sum and with such
surety or sureties as shall be satisfactory to the Board of Directors, for the
faithful performance of the duties of his office and for the restoration to the
corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the corporation.
Section 13. The Assistant Treasurer, or if there shall be
more than one, the Assistant Treasurers in the order determined by the Board of
Directors, or if there be no such determination, the Assistant Treasurer
designated by the Board of Directors, shall, in the absence or disability of
the Treasurer, perform the duties and exercise the powers of the
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Treasurer and shall perform such other duties and have such other powers as the
Board of Directors may from time to time prescribe.
ARTICLE V
CERTIFICATES OF STOCK
Section 1. Every holder of stock of the corporation shall be
entitled to have a certificate signed by, or in the name of the corporation by,
the Chairman or Vice Chairman of the Board of Directors, or the President or a
Vice President, and by the Secretary or an Assistant Secretary, or the
Treasurer or an Assistant Treasurer of the corporation, certifying the number
of shares represented by the certificate owned by such stockholder in the
corporation.
Section 2. Any or all of the signatures on the certificate
may be a facsimile. In case any officer, transfer agent, or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent, or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent, or registrar at the date of issue.
Section 3. If the corporation shall be authorized to issue
more than one class of stock or more than one series of any class, the powers,
designations, preferences and relative, participating, optional or other
special rights of each class of stock or series thereof and the qualification,
limitations or restrictions of such preferences and/or rights shall be set
forth in full or summarized on the face or back of the certificate which the
corporation shall issue to represent such class or series of stock, provided
that, except as otherwise provided in section 202 of the General Corporation
Law of Delaware, in lieu of the foregoing requirements, there may be set forth
on the face or back of the certificate which the
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corporation shall issue to represent such class or series of stock, a statement
that the corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
LOST, STOLEN OR DESTROYED CERTIFICATES
Section 4. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
TRANSFERS OF STOCK
Section 5. Upon surrender to the corporation, or the transfer
agent of the corporation, of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
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FIXING RECORD DATE
Section 6. FIXING RECORD DATE. In order that the corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of the stockholders, or any adjournment thereof, or entitled to receive payment
of any dividend or other distribution or allotment of any rights, or entitled
to exercise any rights in respect of any change, conversion or exchange of
stock or for the purpose of any other lawful action, the Board of Directors may
fix a record date which shall not be more than sixty nor less than ten days
before the date of such meeting, nor more than sixty days prior to any other
action. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
REGISTERED STOCKHOLDERS
Section 7. The corporation shall be entitled to treat the
holder of record of any share or shares of stock as the holder in fact thereof
and accordingly shall not be bound to recognize any equitable or other claim or
interest in such share on the part of any other person, whether or not it shall
have express or other notice thereof, save as expressly provided by the laws of
the State of Delaware.
ARTICLE VI
GENERAL PROVISIONS
DIVIDENDS
Section 1. Dividends upon the capital stock of the
corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash,
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in property, or in shares of the capital stock, subject to the provisions of
the Certificate of Incorporation.
Section 2. Before payment of any dividend there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve fund to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interests of the
corporation, and the directors may abolish any such reserve.
CHECKS
Section 3. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
FISCAL YEAR
Section 4. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
SEAL
Section 5. The corporate seal shall have inscribed thereon
the name of the corporation, the year of its organization and the words
"Corporate Seal, Delaware." Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
NOTICES
Section 6. Whenever, under the provisions of the statutes or
of the Certificate of Incorporation or of these Bylaws, notice is required to
be given to any director or
21
<PAGE> 26
stockholder, it shall not be construed to mean personal notice, but such notice
may be given in writing, by mail, addressed to such director or stockholder, at
his address as it appears on the records of the corporation, with postage
thereon prepaid, and such notice shall be deemed to be given at the time when
the same shall be deposited in the United States mail. Notice to directors may
also be given by telegram.
Section 7. Whenever any notice is required to be given under
the provisions of the statutes or of the Certificate of Incorporation or of
these Bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ANNUAL STATEMENT
Section 8. The Board of Directors shall present at each
annual meeting, and at any special meeting of the stockholders when called for
by vote of the stockholders, a full and clear statement of the business and
condition of the corporation.
ARTICLE VII
AMENDMENTS
Section 1. These Bylaws may be altered, amended or repealed
or new Bylaws may be adopted by the stockholders or by the Board of Directors,
when such power is conferred upon the Board of Directors by the Certificate of
Incorporation, at any regular meeting of the stockholders or of the Board of
Directors or at any special meeting of the stockholders or of the Board of
Directors if notice of such alteration, amendment, repeal or adoption of new
Bylaws be contained in the notice of such special meeting. If the power to
adopt, amend or repeal Bylaws is conferred upon the Board of Directors by the
Certificate of
22
<PAGE> 27
Incorporation it shall not divest or limit the power of the stockholders to
adopt, amend or repeal Bylaws.
23
<PAGE> 1
EXHIBIT 4.6.2
SENIOR DISCOUNT NOTES DUE 2004, SERIES A
SENIOR DISCOUNT NOTES DUE 2004, SERIES B
------------------------
FIRST SUPPLEMENTAL INDENTURE
DATED AS OF , 1995
TO
INDENTURE
DATED AS OF DECEMBER 15, 1992
------------------------
FOOD 4 LESS HOLDINGS, INC.
AND
UNITED STATES TRUST COMPANY OF NEW YORK
TRUSTEE
This FIRST SUPPLEMENTAL INDENTURE to the Indenture (as defined below) (the
"First Supplemental Indenture") is dated as of , 1995, and is made
by and among Food 4 Less Holdings, Inc., a California corporation (the
"Company") and United States Trust Company of New York (the "Trustee").
RECITALS
A. Pursuant to an Indenture dated December 15, 1992 (the "Indenture")
between the Company and the Trustee, the Company issued $103,600,000 principal
amount (at maturity) of its 15.25% Senior Discount Notes due 2004.
B. Capitalized terms used herein without definition shall have the meanings
assigned to them in the Indenture.
C. The Company has entered into a definitive Agreement and Plan of Merger
whereby the Company's subsidiary Food 4 Less Supermarkets, Inc. will be merged
with and into Ralphs Supermarkets, Inc. ("RSI"), and immediately thereafter
Ralphs Grocery Company ("RGC"), which is a wholly-owned subsidiary of RSI, will
merge with and into RSI and RSI will change its name to Ralphs Grocery Company
(together, the "Merger").
D. In order to permit the Merger under the Indenture, the Company must
amend or supplement Section 5.01 thereof which limits the ability of the Company
to consolidate or merge with any other person unless certain conditions are
satisfied. In addition, in connection with the Merger and the cash tender offer
made to Holders of the Securities precedent thereto, the Company desires to
eliminate substantially all of the restrictive covenants in the Indenture. The
primary purpose of this First Supplemental Indenture is to permit the Merger and
to eliminate substantially all of the restrictive covenants in the Indenture.
E. Section 9.02 of the Indenture provides that the Company, when authorized
by a Board Resolution, and the Trustee, together with the written consent of the
Holder or Holders of not less than a majority in aggregate principal amount (at
maturity) of the outstanding Securities, may amend or supplement the Indenture,
including Section 5.01 and the other sections thereof set forth below, or the
Securities.
F. The Company, having been duly authorized by a Board Resolution, and the
Trustee, having received
<PAGE> 2
an Opinion of Counsel that the execution of this First Supplemental Indenture is
authorized and permitted by the Indenture and having received an Officer's
Certificate of the Company certifying that Holders of not less than a majority
in aggregate principal amount (at maturity) of the outstanding Securities have
consented (and not theretofore revoked) to the amendments and supplements set
forth below, execute and deliver this First Supplemental Indenture pursuant to
Article 9 of the Indenture.
G. All the conditions and requirements necessary to make this First
Supplemental Indenture, when duly executed and delivered, a valid, binding
agreement, enforceable in accordance with its terms, have been performed and
fulfilled.
NOW, THEREFORE, it is agreed as follows:
1. Pursuant to Section 9.02 of the Indenture and having received the
requisite consents required thereby, the Indenture is amended as follows:
a. The covenant entitled "Limitation on Restricted Payments", set
forth in Section 4.03 of the Indenture, is hereby deleted in its entirety.
b. The covenant entitled "Limitation on Transactions with Affiliates"
set forth in Section 4.11 of the Indenture, is hereby deleted in its
entirety.
c. The covenant entitled "Limitation on Incurrences of Additional
Indebtedness", set forth in Section 4.12 of the Indenture, is hereby
deleted in its entirety.
d. The covenant entitled "Limitation on Liens", set forth in Section
4.13 of the Indenture, is hereby deleted in its entirety.
e. The covenant entitled "Limitation on Change of Control", set forth
in Section 4.14 of the Indenture, is hereby deleted in its entirety.
f. The covenant entitled "Limitation on Proceeds of Public Offering
Sale", set forth in Section 4.15 of the Indenture, is hereby deleted in its
entirety.
g. The covenant entitled "Limitation on Disposition of Assets", set
forth in Section 4.16 of the Indenture, is hereby deleted in its entirety.
h. The covenant entitled "Limitation on Sale of Stock of
Subsidiaries", set forth in Section 4.17 of the Indenture, is hereby
deleted in its entirety.
i. Section 5.01(a)(2) of the Indenture under the covenant entitled
"When Company May Merge, Etc.", is hereby deleted in its entirety.
j. The following definition is hereby added to Section 1.01 of the
Indenture:
"The New Credit Facility" means the senior bank facility pursuant
to which Bankers Trust Company has agreed, subject to certain
conditions, to provide up to $1,075 million of financing under the Loan
Agreement dated , 1995.
k. The following sentence is hereby added to the definition of "Loan
Documents", set forth in Section 1.01 of the Indenture:
"The New Credit Facility shall be deemed to constitute a
refinancing of the Loan Documents."
2. This First Supplemental Indenture shall be effective as of the date
hereof upon consummation of the Merger.
3. This instrument may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument, and any of
the parties hereto may execute the instrument by signing such counterpart.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this First Supplemental
Indenture to be signed and acknowledged by their respective officers thereunto
duly authorized and their respective corporate seals to be hereunto duly affixed
and attested, all as of the day and year first above written.
<TABLE>
<S> <C>
FOOD 4 LESS HOLDINGS, INC.
[Seal]
Attest:
_________________________________ By: _________________________________
Its:
UNITED STATES TRUST COMPANY
OF NEW YORK
[Seal]
Attest:
_________________________________ By: _________________________________
Its:
</TABLE>
3
<PAGE> 1
EXHIBIT 4.6.3
SENIOR DISCOUNT NOTES DUE 2004, SERIES A
SENIOR DISCOUNT NOTES DUE 2004, SERIES B
------------------------
SECOND SUPPLEMENTAL INDENTURE
DATED AS OF , 1995
TO
INDENTURE
DATED AS OF DECEMBER 15, 1992
------------------------
FOOD 4 LESS HOLDINGS, INC.
(A DELAWARE CORPORATION)
AS SUCCESSOR BY MERGER TO FOOD 4 LESS HOLDINGS, INC.
(A CALIFORNIA CORPORATION)
AND
UNITED STATES TRUST COMPANY OF NEW YORK
TRUSTEE
This SECOND SUPPLEMENTAL INDENTURE to the Indenture (as defined below) (the
"Second Supplemental Indenture") is dated as of , 1995, and is made by
and among Food 4 Less Holdings, Inc., a Delaware corporation ("New Holdings"),
as successor by merger to Food 4 Less Holdings, Inc., a California corporation
(the "Company"), and United States Trust Company of New York (the "Trustee").
RECITALS
A. Pursuant to an Indenture dated December 15, 1992 (the "Indenture")
between the Company and the Trustee, the Company issued $103,600,000 principal
amount (at maturity) of its 15.25% Senior Discount Notes due 2004.
B. Capitalized terms used herein without definition shall have the meanings
assigned to them in the Indenture.
C. Pursuant to the Agreement and Plan of Merger dated September 14, 1994,
as amended, the Company merged with and into New Holdings (the "Merger").
D. The Merger was a transaction subject to the requirements of Section 5.01
of the Indenture. Section 5.02 of the Indenture provides that upon any merger
subject to Section 5.01 thereof, the successor person into which the Company is
merged shall succeed to and be substituted for, and may exercise every right and
power of the Company under the Indenture with the same effect as if such
successor person had been named as the Company therein. Section 5.02 also
provides that when a successor corporation assumes all of the obligations of the
Company under the Indenture and under the Securities, and agrees to be bound
thereby, the predecessor shall be released from such obligations. The sole
purpose of this Second Supplemental Indenture is to allow New Holdings, as the
successor person to the Company in the Merger, to assume the obligations of the
Company under the Indenture.
E. The Company, being duly authorized by a Board Resolution, and the
Trustee are authorized to execute and deliver this Second Supplemental
Indenture.
4
<PAGE> 2
F. All the conditions and requirements necessary to make this Second
Supplemental Indenture, when duly executed and delivered, a valid, binding
agreement, enforceable in accordance with its terms, have been performed and
fulfilled.
NOW, THEREFORE, it is agreed as follows:
1. Pursuant to Section 5.02, New Holdings, as the successor person into
which the Company has been merged in the Merger subject to Section 5.01, hereby
succeeds to and is substituted for, and may exercise every right and power of
the Company under the Indenture with the same effect as if New Holdings had been
named as the Company therein. New Holdings hereby assumes all of the obligations
of the Company under the Indenture and under the Securities and agrees to be
bound thereby. In accord with Section 5.02, the Company is released from such
obligations.
2. This Second Supplemental Indenture shall be effective as of the date
hereof upon consummation of the Merger.
3. This instrument may be executed in any number of counterparts, all of
which taken together shall constitute one and the same instrument, and any of
the parties hereto may execute the instrument by signing such counterpart.
IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental
Indenture to be signed and acknowledged by their respective officers thereunto
duly authorized and their respective corporate seals to be hereunto duly affixed
and attested, all as of the day and year first above written.
<TABLE>
<CAPTION>
<S> <C>
FOOD 4 LESS HOLDINGS, INC.
(a Delaware corporation)
[Seal]
Attest:
_____________________________________ ___________________________________________
By:
Its:
UNITED STATES TRUST COMPANY
OF NEW YORK
[Seal]
Attest:
______________________________________ By: _______________________________________
Its:
</TABLE>
5
<PAGE> 1
EXHIBIT 4.10.2
April 26, 1995
Food 4 Less Supermarkets, Inc.
c/o The Yucaipa Companies
10000 Santa Monica Boulevard
Fifth Floor
Los Angeles, California 90067
Attention: Mr. Ronald W. Burkle
Mr. Patrick Graham
Re: Acquisition of Ralphs Supermarkets, Inc.
Gentlemen:
You have advised us that Food 4 Less Supermarkets, Inc.
("F4L"), a wholly-owned subsidiary of Food 4 Less Holdings, Inc. ("F4L
Holdings"), proposes to acquire (the "Acquisition") all of the outstanding
capital stock of Ralphs Supermarkets, Inc. ("RSI"). RSI owns all of the issued
and outstanding capital stock of Ralphs Grocery Company ("RG"). Prior to the
Acquisition, Food 4 Less, Inc. ("FFL") will merge with F4L Holdings, its
wholly-owned subsidiary (the "FFL Merger"), with F4L Holdings being the
surviving corporation (such surviving corporation being referred to herein as
"Holdings"), and, immediately following the FFL Merger, Holdings will merge
with its newly-formed wholly-owned subsidiary incorporated in Delaware, with
such subsidiary being the surviving corporation (such surviving corporation
being referred to herein as "New Holdings"; the merger of Holdings with and
into New Holdings, together with the FFL Merger, being referred to herein as
the "Holdings Mergers"). The Acquisition will be consummated by merging RSI
with and into F4L with RSI being the surviving corporation (the "RSI Merger").
Upon consummation of the RSI Merger, RG will be merged with and into RSI with
RSI being the surviving corporation (the "RGC Merger"; the RSI Merger and the
RGC Merger are hereinafter collectively referred to as the "Mergers"). Upon
the consummation of the Holdings Mergers and the Mergers, all of F4L's current
subsidiaries will initially be direct or indirect wholly-owned subsidiaries of
RSI and RSI will be a wholly-owned subsidiary of New Holdings which will be
controlled, directly or indirectly, by an affiliate of The Yucaipa Companies
("Yucaipa").
We are pleased to confirm that Bankers Trust Company ("Bankers
Trust") is prepared to commit to provide all of the senior bank financing which
is required to consummate the
<PAGE> 2
Acquisition, the Mergers and related transactions on the terms and conditions
described in this letter up to a maximum aggregate amount of $1,075 million.
Bankers Trust welcomes the opportunity to continue its relationship with the
F4L companies. Bankers Trust's long-term experience with each of F4L and RG,
currently as a Co-Agent and the Agent on their existing bank credit agreements,
respectively, provides strong support for its willingness and ability to
provide the senior bank financing described herein.
The senior bank facilities will consist of a term loan
facility of up to $750 million (the "Term Loan Facility") and a six year
revolving credit facility of up to $325 million with a $150 million sublimit
for letters of credit (the "Revolving Credit Facility"; the Term Loan Facility
and the Revolving Credit Facility are hereinafter collectively referred to as
the "Bank Facilities"). Based on the assumptions described below, we propose
that the Term Loan Facility will consist of a six year Tranche A Loan of up to
$375 million, a seven year Tranche B Loan of up to $125 million, an eight year
Tranche C Loan of up to $125 million and a nine year Tranche D Loan of up to
$125 million. We reserve the right to propose changes in the actual amount,
maturity and amortization of each such tranche, however, in the event those
assumptions are not met, including the successful consummation of certain
consent solicitations and exchange and purchase offers with respect to the
existing F4L and RG debt securities described below, or if we determine that to
do so would enhance the successful syndication of the Bank Facilities.
With respect to the existing public debt securities of F4L,
Holdings and RG, you have advised us that F4L currently has outstanding $175
million in aggregate principal amount of 10.45% Senior Notes due April 15, 2000
(the "10.45% Senior Notes") and $145 million in aggregate principal amount of
13.75% Senior Subordinated Notes due June 15, 2001 (the "13.75% Subordinated
Notes"); that Holdings currently has outstanding $103.6 million in aggregate
face amount ($71.3 million in estimated accreted value at closing) of 15.25%
Senior Discount Notes, Series B due December 15, 2004 (the "15.25% Discount
Notes"; the 10.45% Senior Notes, the 13.75% Subordinated Notes and the 15.25%
Discount Notes are hereinafter collectively referred to as the "Existing F4L
Debt Securities"); and that RG currently has outstanding $150 million in
aggregate principal amount of 9% Senior Subordinated Notes due April 1, 2003
(the "9% Subordinated Notes") and $300 million in aggregate principal amount of
10-1/4% Senior Subordinated Notes due July 15, 2002 (the "10-1/4% Subordinated
Notes"; the 9% Subordinated Notes and the 10-1/4% Subordinated Notes are
hereinafter collectively referred to as the "Existing RG Debt Securities"). To
consummate the Acquisition, the Holdings Mergers and the Mergers as proposed,
you have advised us of the following:
2
<PAGE> 3
1. F4L and Holdings intend to undertake consent
solicitations with respect to the Existing F4L Debt Securities to
obtain the necessary amendments to the terms of the Existing F4L Debt
Securities, including such covenants in the indentures pursuant to
which the Existing F4L Debt Securities have been issued as may be
mutually agreed upon, to permit the Acquisition, the Holdings Mergers,
the Mergers and related transactions to occur as described herein.
With respect to the 15.25% Discount Notes, you have advised us that
you intend to offer to purchase for cash such securities at an
aggregate price which does not exceed $85.3 million, in part from the
proceeds of the issuance by New Holdings in a private placement of not
less than $100 million in initial accreted value of 13-5/8% Senior
Discount Debentures due 2005 (the "New Holdings Discount Debentures").
The New Holdings Discount Debentures will not mature or amortize prior
to the date which is 10 years and 1 month from the consummation of the
Acquisition (the "Closing Date") and will accrete at a rate of 13-5/8%
from the date of original issuance for not less than 5 years, such
that the aggregate principal amount of the New Holdings Discount
Debentures shall be $193,300,000 at maturity. From and after five
years following the date of original issuance, the New Holdings
Discount Debentures may bear cash interest at a rate of 13-5/8% per
annum. In addition, (i) F4L will issue (x) new Senior Notes due 2004
(the "New F4L Senior Notes"), and make a cash payment in an aggregate
amount to be mutually agreed upon, in exchange for an equivalent
principal amount of its 10.45% Senior Notes and (y) new senior
subordinated notes due 2005 (the "New F4L 13.75% Subordinated Notes"),
and make a cash payment in an aggregate amount to be mutually agreed
upon, in exchange for an equivalent principal amount of its 13.75%
Subordinated Notes. The amount of (i) the New F4L Senior Notes and
the 10.45% Senior Notes outstanding at any time will not exceed $470
million in aggregate principal amount and (ii) the New F4L 13.75%
Subordinated Notes and the 13.75% Subordinated Notes outstanding at
any time will not exceed $145 million in aggregate principal amount.
The offer to purchase, consent solicitations and exchange offers
described in this paragraph 1 are collectively referred to herein as
the "F4L Solicitations".
2. You intend (i) to offer to exchange the Existing RG
Debt Securities for an equivalent principal amount (but in no event
less than $225 million) of new Senior Subordinated Notes due 2005 (the
"F4L Senior Subordinated Notes") to be issued by F4L and a cash
payment in an aggregate amount to be mutually agreed upon, (ii) to
purchase for cash an amount of Existing RG Debt Securities equal to
the amount of Existing RG Debt Securities which are not exchanged for
F4L Senior Subordinated Notes as described in clause (i) above, but in
no event shall such amount
3
<PAGE> 4
exceed $225 million and (iii) to solicit certain consents with respect
to the Existing RG Debt Securities. The offers and solicitation
described in clauses (i), (ii) and (iii) are collectively referred to
herein as the "RG Solicitations"). Following the consummation of the
Mergers, it is anticipated that RSI will make an offer to purchase
(the "Change of Control Offer") any then outstanding Existing RG Debt
Securities in accordance with the provisions of the indentures
governing such securities at a purchase price of 101% of the principal
amount thereof plus accrued interest thereon, and RSI will utilize a
portion of the Tranche A Term Loan Facility to finance such
redemption. The aggregate principal amount of the Existing RG Debt
Securities and the F4L Senior Subordinated Notes outstanding at any
time will not exceed $650 million; provided that if more than $225
million principal amount of Existing RG Debt Securities is exchanged
for F4L Senior Subordinated Notes pursuant to the RG Solicitations,
the amount of proceeds of the Public Offering or the Term Loan
Facility shall be reduced on a dollar-for-dollar basis.
3. In order to provide a portion of the financing to
consummate the Acquisition and the other transactions contemplated
thereby, F4L is offering (i) up to $295 million principal amount of
additional New F4L Senior Notes and (ii) up to $200 million principal
amount of additional F4L Senior Subordinated Notes in a public
offering (the "Public Offering") registered under the Securities Act
of 1933, as amended.
The proceeds of (v) the Term Loan Facility, (w) approximately
$12.7 million of the Revolving Credit Facility, (x) the Public Offering, (y)
the New Holdings Discount Debentures, together with (z) not less than $10
million in cash contributions to New Holdings invested by the management of RG
(in the form of a cancellation of their rights to receive certain cash payments
at closing), and not less than $140 million in other cash contributions to New
Holdings (the "Equity Contributions"), will be used (i) to pay a $375.9 million
cash purchase price for the RSI common stock, (ii) to refinance certain
existing bank indebtedness of RG of approximately $255.1 million, (iii) to
refinance certain existing bank indebtedness of F4L of approximately $161.5
million, (iv) to repay in full the approximately $175 million in principal
amount of outstanding real estate mortagages of RG (the "Mortgage Debt") plus
accrued interest and premiums thereon, (v) to pay up to $22.8 million in equity
appreciation rights of RSI, (vi) to make cash payments to purchase Existing RG
Debt Securities in the RG Solicitations and the Change of Control Offer, (vii)
to repay in full the principal amount of the 15.25% Discount Notes plus accrued
interest and premiums thereon in an aggregate amount not to exceed $85.3
million and (viii) to pay approximately $157 million in fees, expenses,
premiums, accrued interest and other costs in
4
<PAGE> 5
connection with the Acquisition, the Holdings Mergers, the Mergers, the F4L
Solicitations, the RG Solicitations, the prepayment of the Mortgage Debt and
the related transactions. You have also advised us that in addition to the
$375.9 million in cash to be paid for the RSI common stock, the shareholders of
RSI will receive $131.5 million in initial principal amount of New Holdings
13-5/8% Senior Subordinated Pay-In-Kind Debentures Due 2007 (the "Seller
Debentures") and $18.5 million in initial accreted value of New Holdings
Discount Debentures, to the effect that, following the Closing Date, there will
be outstanding $131.5 million principal amount of Seller Debentures and $100
million initial accreted value of New Holdings Discount Debentures. The Seller
Debentures will not mature or amortize prior to the twelfth anniversary of the
Closing Date and will pay interest through the issuance of additional Seller
Debentures for not less than five years following the Closing Date. The RSI
common stock purchased with the proceeds of the Equity Contributions and in
consideration of the issuance of the Seller Debentures shall be contributed as
equity capital to F4L by New Holdings.
The Bank Facilities as described in this letter and on Annex A
attached hereto assume (i) that the F4L Solicitations and RG Solicitations are
obtained on terms that are satisfactory to you and to Bankers Trust, (ii) that
the New F4L Senior Notes and the F4L Senior Subordinated Notes issued in the
Public Offering are issued on terms that are satisfactory to you and to Bankers
Trust, (iii) that not less than 80% of the 10.45% Senior Notes and of the
13.75% Subordinated Notes are exchanged for the additional New F4L Senior Notes
and the New F4L 13.75% Subordinated Notes, respectively, (iv) that not less
than 50% of the 9% Subordinated Notes and the 10-1/4% Subordinated Notes are
exchanged for F4L Senior Subordinated Notes, (v) that the Mortgage Debt is
repaid in full and (vi) that the 15.25% Discount Notes are repaid in full. In
the event that such assumptions are not accurate, we reserve the right to
suggest alternative financing structures, including without limitation,
modifying the amounts, maturities and amortization of the Term Loan Facility.
Upon consummation of the Acquisition and the Mergers, total other indebtedness
for borrowed money of RSI and its subsidiaries expected to be outstanding will
not exceed $166.9 million in aggregate principal amount, including
approximately $145.1 million in capital lease obligations and approximately
$21.8 million in mortgage debt and all other indebtedness. Upon consummation
of such Acquisition and the Mergers, the remaining portion of the Revolving
Credit Facility will be available to be used by RSI (as the surviving
corporation in the Mergers) to provide for the working capital requirements and
other corporate purposes of RSI and its subsidiaries and the Letter of Credit
Facility will be available to be used for commercial letters of credit and
standby letters of credit for RSI and its subsidiaries.
5
<PAGE> 6
Bankers Trust intends to arrange for other banks, financial
institutions and other "accredited investors" (as defined in Securities and
Exchange Commission regulations; each such bank, financial institution and
accredited investor, including Bankers Trust, being a "Lender" and
collectively, the "Lenders") to provide a portion of the Bank Facilities and
Bankers Trust will act as agent for the Lenders (in such capacity, the
"Administrative Agent"). Certain of the terms of each of the Bank Facilities
are set forth in Annex A attached hereto (the "Term Sheet").
We have reviewed certain historical and pro forma financial
statements of RSI and F4L and their respective subsidiaries and met with
representatives of F4L and with members of management of F4L and we are pleased
to advise you that the results of our business and financial due diligence
investigation of RSI and F4L and their respective subsidiaries to date are
satisfactory. However, Bankers Trust's commitment to provide the financings
described in this letter is subject to our continuing satisfaction that there
has not occurred a material adverse change in the business, operations,
condition (financial and otherwise) and prospects of RSI and F4L and their
respective subsidiaries, our continuing satisfaction with the structure of the
Acquisition, including the tax, accounting and legal consequences thereof, and
the satisfaction of the conditions to be set forth in the definitive
documentation relating to the Bank Facilities including, without limitation,
those conditions set forth in the Term Sheet. It is understood that you (and
your advisors) will continue to fully cooperate with Bankers Trust with respect
to its ongoing due diligence analysis and review (including, but not limited
to, by providing adequate access to the records and management of RSI and F4L
and their respective subsidiaries). In the event that such ongoing due
diligence review discloses information relating to conditions or events not
previously disclosed to us or relating to new information or additional
developments concerning conditions or events previously disclosed to us which
we believe may have a material adverse effect on the condition (financial or
otherwise), assets, properties, business or prospects of RSI and F4L and their
respective subsidiaries, taken as a whole, or any such conditions set forth in
such definitive documentation are not satisfied, we may, in our sole
discretion, suggest alternative financing amounts or structures that ensure
adequate protection for the Lenders or decline to participate in the proposed
financing.
F4L hereby represents and covenants that based on its review
and analysis, to its knowledge (a) all information, other than Projections (as
defined below), which has been or is hereafter made available to Bankers Trust
or the Lenders by F4L or RSI or any of their representatives in connection with
the transactions contemplated hereby (the "Information") has been reviewed and
analyzed by F4L in connection with the performance of its own due diligence and
is, or in the case of Information
6
<PAGE> 7
made available after the date hereof will be, complete and correct in all
material respects and does not and will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
contained therein, in light of the circumstances under which such statements
were or are made, not materially misleading and (b) all financial projections
concerning RSI and F4L and their respective subsidiaries that have been or are
hereafter made available to Bankers Trust or the Lenders by RSI or F4L or any
of their representatives in connection with the transactions contemplated
hereby (the "Projections") have been or, in the case of Projections made
available after the date hereof, will be prepared in good faith based upon
reasonable assumptions (it being understood that the Projections are subject to
significant uncertainties and contingencies, many of which are beyond the
control of F4L and/or RSI, and that no assurance can be given that such
Projections will be realized). F4L agrees to supplement the Information and
the Projections from time to time until the Closing Date so that the
representation and warranty made in the preceding sentence is correct on the
Closing Date. In arranging and syndicating the Bank Facilities, Bankers Trust
will be using and relying on the Information and the Projections without
independent verification thereof. The representations and covenants contained
in this paragraph shall remain effective until a definitive financing agreement
is executed and thereafter the representations contained herein shall be
superseded by those contained in such definitive financing agreement.
The reasonable costs and expenses (including the reasonable
fees and expenses of counsel to Bankers Trust, reasonable professional fees of
consultants and other experts and reasonable out-of-pocket expenses of Bankers
Trust, including without limitation syndication expenses) arising in connection
with the preparation, execution and delivery of this letter and the definitive
financing agreements and the syndication of the Bank Facilities shall be for
the account of F4L. F4L further agrees to indemnify and hold harmless each of
the Lenders (including Bankers Trust) and each director, officer, employee and
affiliate thereof (each an "indemnified person") from and against any losses,
claims, damages, liabilities or other expenses to which a Lender or such
indemnified persons may become subject, insofar as such losses, claims,
damages, liabilities (or actions or other proceedings commenced or threatened
in respect thereof) or other expenses arise out of or in any way relate to the
Acquisition, the Holdings Mergers, the Mergers and related transactions, or any
of the statements contained in this letter or relating to the extension of the
financing contemplated by this letter, or any use or intended use of the
proceeds of any of the loans and other extensions of credit contemplated by
this letter, and to reimburse each of the Lenders and each indemnified person
for any reasonable legal or other expenses incurred in connection with
investigating, defending or participating in any such investigation, litigation
or other proceeding (whether or
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<PAGE> 8
not such Lender or any such person is a party to any investigation, litigation
or proceeding out of which any such expenses arise); provided, however, that
the indemnity contained herein shall not apply to the extent that such losses,
claims, damages, liabilities or other expenses result from the gross negligence
or willful misconduct of such Lender or indemnified person. The obligations to
indemnify each Lender and such indemnified persons and pay such legal and other
expenses shall remain effective until a definitive financing agreement is
executed and thereafter the indemnification and expense reimbursement
obligations contained herein shall be superseded by those contained in such
definitive financing agreement. Neither Bankers Trust nor any other Lender
shall be responsible or liable to any other party or any other person for
consequential damages which may be alleged as a result of this letter.
In connection with the services to be provided hereunder by
Bankers Trust, Bankers Trust may employ the services of its affiliates,
including, without limitation, BT Securities Corporation. Bankers Trust may
share with such affiliates, and such affiliates may share with Bankers Trust,
any information concerning F4L and RSI; provided that Bankers Trust and such
affiliates agree to hold any non-public information confidential in accordance
with their respective customary policies relating to non-public information.
Any such affiliate so employed (and its directors, officers, employees and
affiliates) shall be entitled to all of the benefits afforded to Bankers Trust
hereunder.
This letter is confidential and shall not be disclosed by you
to any person other than your accountants, attorneys and, to the extent
approved by Bankers Trust, other advisors, and to RSI and its attorneys and, to
the extent approved by Bankers Trust, other advisors, and then only on a
confidential basis and in connection with the Acquisition, the Mergers and the
related transactions contemplated herein. Additionally, you may make such
disclosures of this letter as are required by law or judicial process or as may
be required or appropriate in response to any summons or subpoena or in
connection with any litigation. This letter supersedes any prior letters from
Bankers Trust with respect to the subject matter hereof including without
limitation our letters dated August 25, 1994, November 14, 1994 and January 6,
1995.
Our offer will terminate on April 28, 1995, unless on or
before that date you sign and return an enclosed counterpart of this letter
together with an executed copy of the accompanying letter concerning certain
fee arrangements. The Bank Facilities referred to herein shall in no event be
available unless the Acquisition and related transactions have been consummated
on or prior to the earlier of (x) the date on which the Agreement and Plan of
Merger dated as of September 14, 1994, as amended on January 12, 1995, February
24, 1995 and April 26, 1995 by and
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<PAGE> 9
among FFL, F4L Holdings, F4L, RSI and the Selling Stockholders (as defined
therein) is terminated in accordance with Article XI thereof and (y) June 30,
1995.
This letter agreement shall be construed in accordance with
the internal laws of the State of New York. This letter agreement may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed an original, but all such counterparts together shall constitute but one
and the same instrument.
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ANNEX A
FOOD 4 LESS SUPERMARKETS, INC.
SUMMARY OF TERMS
BANK FACILITIES
The following summarizes certain terms for a senior bank term
loan facility and a senior bank revolving credit facility to be utilized in
connection with the proposed acquisition of Ralphs Supermarkets, Inc. by Food 4
Less Supermarkets, Inc. All terms defined in the financing letter to which
this Annex A is attached and not otherwise defined herein shall have the same
meanings when used herein.
I. THE BANK FACILITIES
Borrower: Food 4 Less Supermarkets, Inc. ("F4L") will be the
borrower under the Term Loan Facility and will borrow
approximately $12.7 million under the Revolving
Credit Facility; in connection with the consummation
of the Acquisition, F4L will be merged with and into
Ralphs Supermarkets, Inc. ("RSI") with RSI being the
surviving corporation (the "RSI Merger") and RSI will
assume all obligations of F4L in respect of the Bank
Facilities; upon consummation of the RSI Merger,
Ralphs Grocery Company ("RG") will be merged with and
into RSI, with RSI being the surviving corporation;
after such mergers, RSI will change its name to
"Ralphs Grocery Company" ("Company") and additional
extensions of credit under the Term Loan Facility and
the Revolving Credit Facility will be incurred by
Company.
The Lenders: Bankers Trust and a syndicate of banks, financial
institutions and other accredited investors (the
"Lenders").
Co-Agents for the Bankers Trust and such other Lenders as may be
Lenders: mutually agreed upon by Bankers Trust and F4L (the
"Co-Agents").
Co-Arrangers for Such Lenders as may be mutually agreed upon by
the Lenders: Bankers Trust and F4L (the "Co-Arrangers").
Administrative Bankers Trust (in such capacity, the "Administrative
Agent for the Agent").
Lenders:
Type and Amount: The Bank Facilities shall consist of the Term
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Loan Facility and the Revolving Credit Facility.
Term Loan Facility. The Term Loan Facility will
consist of Tranche A Loans, Tranche B Loans, Tranche
C Loans and Tranche D Loans. The Lenders'
commitments to lend the Tranche A Loans, the Tranche
B Loans, the Tranche C Loans and the Tranche D Loans
will terminate immediately upon the consummation of
the Acquisition; provided that a portion of the
Tranche A Term Loan Facility may be available for up
to 91 days after the Closing Date to purchase the
Existing RG Debt Securities in the event that any
Change of Control Offer is required to be made for
such securities.
Tranche A Loans. The Tranche A Loans will mature on
the date six years from the Closing Date and be in an
original principal amount of up to $375 million. If
the amount of the Existing RG Debt Securities
exchanged in the RG Solicitations exceeds $225
million, then the amount available for borrowing
under the Term Loan Facility shall be reduced, on a
dollar-for-dollar basis, to the extent that the
amount of proceeds from the Public Offering is not
reduced from $495 million. The Tranche A Loans will
be required to be amortized, commencing in the
fifteenth month after the Closing Date, in quarterly
installments in aggregate annual amounts of $45
million in the second year; $75 million in the third
year; $80 million in the fourth year; $85 million in
the fifth year; and $90 million in the sixth year;
provided that in the event that less than $375
million of the Tranche A Loans are utilized, the
annual amounts of amortization payments set forth
above shall be reduced on a pro rata basis.
Tranche B Loans. The Tranche B Loans will mature on
the date seven years from the Closing Date and be in
an original principal amount of up to $125 million.
The Tranche B Loans will be required to be amortized
in equal quarterly installments in aggregate annual
amounts of $1.25 million for the first six years and
$117.5 million in the seventh year.
Tranche C Loans. The Tranche C Loans will mature on
the date eight years from the
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Closing Date and be in an original principal amount
of up to $125 million. The Tranche C Loans will be
required to be amortized in equal quarterly
installments in aggregate annual amounts of $1.25
million for the first seven years and $116.25 million
in the eighth year.
Tranche D Loans. The Tranche D Loans will mature on
the date nine years from the Closing Date and be in
an original principal amount of up to $125 million.
The Tranche D Loans will be required to be amortized
in equal quarterly installments in aggregate annual
amounts of $1.25 million for the first eight years
and $115 million in the ninth year.
The amounts, amortization payments and maturities of
the Term Loan Facility are subject to modification in
the event that various financing transactions are not
consummated on mutually agreeable terms as described
in "Certain Conditions Precedent to Initial
Funding--Seller Debentures and New Holdings Discount
Debentures;--Issuance of F4L Senior Subordinated
Notes;--Public Offering;--F4L Solicitations" below,
or Bankers Trust believes that such modification
would enhance the successful syndication of the Bank
Facilities.
Revolving Credit Facility. The Revolving Credit
Facility will mature on the same date as the Tranche
A Loan and be in an amount of up to $325 million
under which working capital loans may be made and
commercial or standby letters of credit in the
maximum aggregate amount of up to $150 million may be
issued. Up to $30 million of the Revolving Credit
Facility will be available as a swingline facility.
Use of Proceeds: The proceeds of (without duplication) (u) the Term
Loan Facility, (v) approximately $12.7 million of the
Revolving Credit Facility, (w) up to $495 million
from the Public Offering, (x) the issuance of up to
$450 million of F4L Senior Subordinated Notes, (y)
the issuance of not less than $100 million initial
accreted value of New Holdings Discount Debentures,
together with (z) not less than $10 million in cash
contributions invested by the RG management (in the
form of a cancellation of
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their rights to receive certain cash payments at
closing), and not less than $140 million in proceeds
from the issuance of preferred stock, a portion of
which shall be contributed by New Holdings to F4L as
common equity shall be used as follows:
1. to pay the cash component of the purchase
price for the stock of RSI of approximately
$375.9 million; the remaining purchase price
will be paid through the issuance of $131.5
million in initial principal amount of the
Seller Debentures by New Holdings and $18.5
million initial accreted value of New
Holdings Discount Debentures;
2. to refinance approximately $255.1 million of
existing bank indebtedness of RG and
approximately $161.5 million of existing bank
indebtedness of F4L;
3. to exchange up to $450 million (but in no
event less than $225 million) principal
amount of Existing RG Debt Securities for F4L
Senior Subordinated Notes plus a cash
payment, and to purchase Existing RG Debt
Securities in the RG Solicitations or in any
Change of Control Offer (provided that the
aggregate outstanding principal amount of F4L
Senior Subordinated Notes and Existing RG
Debt Securities shall not exceed $650 million
at any time); provided further that if more
than $225 million pricipal amount of Existing
RG Debt Securities is exchanged for F4L
Senior Subordinated Notes pursuant to the RG
Solicitations, the amount of proceeds of the
Public Offering or the Term Loan Facility
shall be reduced on a dollar-for-dollar
basis;
4. to repay in full the approximately $175
million in principal amount of the Mortgage
Debt;
5. to pay up to $22.8 million in RSI equity
appreciation rights;
6. to repay in full the principal amount of the
15.25% Discount Notes plus accrued interest
and premiums thereon in an
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aggregate amount not to exceed $85.3 million;
and
7. to pay up to $157 million of fees, expenses,
premiums, accrued interest and other costs
associated with the Acquisition and the
Mergers, the Bank Facilities, the F4L
Solicitations, the RG Solicitations, the
Public Offering, the Change of Control Offer,
if any, the prepayment of the Mortgage Debt
and the related transactions described
herein.
A portion of the Tranche A Term Loan Facility, equal
to the principal amount of Existing RG Debt
Securities not exchanged or purchased in the RG
Solicitations, but in no event to exceed $225
million, may be available in a single draw as soon as
practicable (but not later than 91 days) after the
Closing Date to purchase any such Existing RG Debt
Securities tendered in any Change of Control Offer.
The Revolving Credit Facility will be available to
provide for the working capital requirements and
general corporate purposes of Company and its
subsidiaries and to issue commercial letters of
credit and standby letters of credit to support
workers' compensation contingencies and for other
corporate purposes to be agreed upon.
Security: All extensions of credit to Company and guaranties of
subsidiaries of Company will be secured by all
personal property of Company and its subsidiaries,
including a pledge of the stock of all subsidiaries
of Company (other than the stock of Bell Markets,
Inc.). The guaranty of New Holdings will be secured
by a pledge of the stock of F4L and, upon
consummation of the merger of F4L into RSI, RSI.
In an abundance of caution, the Bank Facilities shall
also be secured by first priority liens on all
unencumbered real property fee interests of Company
and its subsidiaries and Company and its subsidiaries
shall use their reasonable economic efforts to
provide the Lenders with a first priority lien on all
unencumbered leasehold interests of Company and its
subsidiaries.
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To effect liens securing the Bank Facilities, F4L and
its subsidiaries (and, upon consummation of the
Mergers, Company and its subsidiaries) shall execute
and deliver to Administrative Agent all security
agreements, financing statements, deeds of trust,
mortgages and other documents and instruments as are
necessary to grant a first priority perfected
security interest in and lien upon all their
respective properties, subject to customary permitted
liens to be agreed upon.
Negative pledge on all assets of Company and its
subsidiaries, subject to exceptions to be agreed
upon.
Guarantors: New Holdings and all active subsidiaries of F4L (and,
upon consummation of the Mergers, all active
subsidiaries of Company). The aggregate assets and
revenues of inactive subsidiaries that are not
guarantors shall be de minimis in amount.
Interest Rates: All amounts outstanding under the Bank Facilities
shall bear interest, at Company's option, as follows:
A. With respect to the Tranche A Loans and loans
made under the Revolving Credit Facility:
(i) at the Base Rate plus 1.50% per
annum; or
(ii) at the reserve adjusted Euro-Dollar
Rate plus 2.75% per annum.
B. With respect to the Tranche B Loans:
(i) at the Base Rate plus 2.00% per
annum; or
(ii) at the reserve adjusted Euro-Dollar
Rate plus 3.25% per annum.
C. With respect to the Tranche C Loans:
(i) at the Base Rate plus 2.50% per
annum; or
(ii) at the reserve adjusted Euro-Dollar
Rate plus 3.75% per annum.
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D. With respect to the Tranche D Loans:
(i) at the Base Rate plus 2.75% per
annum; or
(ii) at the reserve adjusted Euro-Dollar
Rate plus 4.00% per annum.
The foregoing interest rates on the Tranche A Loans
and the Revolving Credit Facility and the fees
payable under the Revolving Credit Facility on
letters of credit, will be reduced in increments of
0.25% per annum (but not more than .50% per annum for
all such reductions in the aggregate) after the Term
Loan Facility has been reduced by such amounts, and
during such times as the ratio of EBITDA (to be
defined) to cash interest expense for the four most
recently concluded fiscal quarters exceeds such
ratios, as are mutually agreed upon.
Loans outstanding under the swingline facility shall
bear interest at the Base Rate plus 1.00% per annum
(subject to adjustment as described in the preceding
paragraph) and, solely for the purposes of
calculating the commitment fee, such outstanding
loans shall not constitute usage of the Revolving
Credit Facility.
As used herein, the terms "Base Rate" and "reserve
adjusted Euro-Dollar Rate" shall have meanings
customary and appropriate for financings of this
type, and the basis for calculating accrued interest
and the interest periods for loans bearing interest
at the reserve adjusted Euro-Dollar Rate shall be
customary and appropriate for financings of this
type. After the occurrence of a default, interest
shall accrue at a rate equal to the rate on loans
bearing interest at the rate determined by reference
to the Base Rate plus an additional two percentage
points (2.00%) per annum and shall be payable on
demand.
Interest Quarterly for Base Rate Loans; on the last day of
Payments: selected interest periods (which shall be 1, 2, 3
and 6 months) for Euro-Dollar Loans (and at the end
of every three months, in the case of interest
periods of longer than three months); and upon
prepayment, in each case
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payable in arrears and computed on the basis of a
360-day year.
Interest Rate Within 120 days of the Closing Date, Company will
Protection: obtain interest rate protection by interest rate
swaps, caps or other agreements satisfactory to
Administrative Agent against increases in interest
rates with respect to a notional amount equal to
not less than one-third of the Term Loans
outstanding on the Closing Date for a period of not
less than two years.
Letter of Credit The fees payable on the standby letters of credit
Fees: shall be equal to the sum of (i) an amount, to be
shared by all Lenders pro rata, equal to the
applicable margin over the reserve adjusted
Euro-Dollar Rate under the Revolving Credit Facility
(as the same may be adjusted) plus (ii) an
additional .25% per annum to be retained by the
Lender issuing the standby letter of credit. The
fees payable on the commercial letters of credit
shall be equal to the sum of (i) an amount, to be
shared by all Lenders pro rata, equal to the
applicable margin over the reserve adjusted
Euro-Dollar Rate under the Revolving Credit Facility
(as the same may be adjusted) minus 1.00% per annum
plus (ii) an additional .25% per annum to be
retained by the Lender issuing the commercial
letter of credit. Fees on all letters of credit
shall be based upon the amount available for drawing
under such outstanding letters of credit.
Commitment Fees: Commitment fees equal to .50% per annum times the
undrawn portion of the Tranche A Term Loan Facility
shall accrue from the Closing Date to the date of
drawing thereof or the date of termination of such
undrawn commitment (which shall be no later than 91
days after the Closing Date) and shall be payable
upon such drawing or termination. Commitment fees
equal to .50% per annum times the daily average
unused portion of the Revolving Credit Facility shall
accrue from the Closing Date and shall be payable
quarterly in arrears and at maturity.
Voluntary The Bank Facilities may be prepaid in whole or in
Prepayments: part without premium or penalty (Euro-Dollar Rate
Loans prepayable only on the last days of related
interest periods) and the
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Lenders' commitments relative thereto reduced or
terminated upon such notice and in such amounts as
may be agreed upon. Voluntary prepayments of the
Term Loan Facility shall be applied ratably among
Tranche A Loans, Tranche B Loans, Tranche C Loans and
Tranche D Loans and shall be applied to scheduled
amortization payments pro rata.
Mandatory Company shall make the following mandatory
Prepayments: prepayments (subject to certain basket amounts to be
negotiated in the definitive financing agreements):
1. prepayments in the amount of all of the net
after-tax cash proceeds of the sale or other
disposition of any property or assets of
Company or its subsidiaries, other than net
cash proceeds of sales or other dispositions
of inventory or obsolete equipment in the
ordinary course of business, reinvestment of
the proceeds from the sale of any store in
like assets within 9 months of such sale and
the sale/leaseback of any store within 6
months of the completion of such store and
other exceptions to be negotiated, payable no
later than the third Business Day following
the date of receipt or other date such
payment becomes due;
2. prepayments in the amount of the net cash
proceeds received from the issuance of
certain debt securities of New Holdings or
its subsidiaries with exceptions to be agreed
upon, payable no later than the first
Business Day following the date of receipt;
3. prepayments in an amount equal to 50% (the
"Equity Repayment Amount"), of the net cash
proceeds received from the issuance of equity
securities of New Holdings, payable no later
than the first Business Day following the
date of receipt; provided that a portion of
the Equity Repayment Amount may be used to
redeem, retire or repurchase other
indebtedness of New Holdings or Company in an
amount to be mutually agreed upon;
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4. prepayments in the amount of all proceeds
received from any pension plan reversion,
payable upon receipt; and
5. prepayments in an amount equal to 75% (the
"Cash Flow Repayment Amount") of excess cash
flow (to be defined), payable within 100 days
of fiscal year-end; provided that a portion
of the Cash Flow Repayment Amount may be used
to redeem, retire or repurchase other
indebtedness of New Holdings or Company in an
amount to be mutually agreed upon.
All mandatory prepayments shall be applied ratably
between Tranche A Loans, Tranche B Loans, Tranche C
Loans and Tranche D Loans and to scheduled
amortization payments of the Tranche A Loans, Tranche
B Loans, Tranche C Loans and Tranche D Loans pro
rata. Mandatory prepayments allocated to the Tranche
B Loans, Tranche C Loans and Tranche D Loans will be
used to make an offer for such Loans and, to the
extent not accepted by the holders of such Loans, 50%
may be retained by Company and the remaining 50% will
be applied to the prepayment of the Tranche A Loans.
Clean-Down: Loans outstanding under the Revolving Credit Facility
shall be reduced to $75 million for not less than 30
consecutive days during each consecutive twelve-month
period.
Representations Customary and appropriate, including without
Warranties: limitation due organization and authorization,
financial and condition, no material adverse changes,
title to properties, liens, litigation, payment of
taxes, no material adverse agreements, employee
benefit plans, environmental liabilities and full
disclosure.
Covenants: Customary and appropriate affirmative and negative
covenants, including but not limited to financial
covenants related to minimum fixed charge coverage,
minimum EBITDA, maximum leverage (to be defined as
the ratio of total debt to EBITDA) and minimum net
worth. Other covenants will include financial
reporting, compliance with laws, limitations on other
indebtedness, liens, investments, guarantees,
restricted junior payments (dividends, redemptions
and payments on subordinated debt), prepayment or
repurchase of other
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indebtedness (other than from the proceeds of Equity
Repayment Amounts and Cash Flow Repayment Amounts or
from the proceeds of certain refinancing indebtedness
as mutually agreed upon), mergers and acquisitions,
sales of assets, cash capital expenditures, leases,
transactions with affiliates and other provisions
customary and appropriate for financings of this
type, including exceptions and baskets to be mutually
agreed upon.
Events of Customary and appropriate, including without
Default: limitation failure to make payments when due,
defaults under other agreements or instruments of
indebtedness, noncompliance with covenants, breaches
of representations and warranties, bankruptcy,
judgments in excess of specified amounts, impairment
of security interests in collateral, invalidity of
guarantees, and "changes of control" (to be defined
in a mutually agreed upon manner).
II. CONDITIONS TO LOANS
Certain Conditions precedent to the initial funding of the
Conditions Bank Facilities will include, without limitation, the
Precedent to following:
Initial Funding:
1. Satisfactory Bank Documentation. The
definitive documentation evidencing the Bank
Facilities (the "Definitive Financing
Documents") shall be prepared by counsel to
Bankers Trust and shall be in form and
substance satisfactory to Bankers Trust and
Lenders.
2. Structure and Other Related Documentation.
The tax, accounting and legal aspects of the
structure utilized to consummate the
Acquisition, the Holdings Mergers, the
Mergers and the financings and other
transactions related thereto and the
definitive documentation evidencing such
transactions shall be in form and substance
satisfactory to Bankers Trust and Lenders.
3. New Equity. Prior to or concurrently with
the Closing Date, New Holdings shall have
received cash contributions of not less than
$10 million contributed by the RG management
(in the form of a cancellation of their
rights to receive
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certain cash payments), plus not less than
$140 million in proceeds from the issuance of
preferred stock to new equity investors, a
portion of the proceeds of which shall be
used to purchase RSI common stock in
connection with the Acquisition, which common
stock shall be contributed to the equity
capital of F4L. The terms and conditions of
the preferred stock issued by New Holdings,
including the type and amount of dividend
payments and any redemption provisions, shall
be satisfactory to Bankers Trust; provided
that such preferred stock shall not be
subject to any mandatory redemption and no
payments of cash dividends shall be required
thereon.
4. Seller Debentures and New Holdings Discount
Debentures. Prior to or concurrently with
the Closing Date, New Holdings shall have
issued (i) the Seller Debentures in the
aggregate initial principal amount of $131.5
million and (ii) the New Holdings Discount
Debentures in the initial accreted value of
$100 million. The Seller Debentures may not
mature, and amortization payments may not be
made on the Seller Debentures, prior to the
twelfth anniversary of the Closing Date. The
New Holdings Discount Debentures, may not
mature, and amortization payments may not be
made on the New Holdings Discount Debentures,
prior to the date which is 10 years and 1
month from the Closing Date. Interest shall
be payable on the Seller Debentures through
the issuance of additional Seller Debentures
until the fifth anniversary of the Closing
Date and thereafter may be paid in cash. The
New Holdings Discount Debentures will accrete
at a rate of 13-5/8% from the date of
original issuance for not less than 5 years
and thereafter interest may be paid on the
New Holdings Discount Debentures in cash.
The Seller Debentures and the New Holdings
Discount Debentures shall be structurally
subordinate to the Bank Facilities and may
not be secured or guaranteed. The interest
rate, covenants, defaults, subordination
terms, remedies and all other terms of the
Seller Debentures and
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the New Holdings Discount Debentures shall be
satisfactory to Bankers Trust and Lenders and
shall be consistent with the terms of the F4L
Senior Subordinated Notes. In addition,
without limitation of the foregoing, Bankers
Trust and Lenders shall be satisfied with the
appropriateness of the definition of a
"Change of Control" contained in the Seller
Debentures and the New Holdings Discount
Debentures in light of all of the relevant
circumstances on the Closing Date, including
the equity ownership of Yucaipa and its
affiliates and the other major shareholders
and the terms of all shareholder agreements.
Bankers Trust has reviewed a draft dated
September 1, 1994 of the Indenture pursuant
to which the Seller Debentures are to be
issued and except for provisions of the
Indenture which are not yet completed and
subject to our satisfaction with such
consistency and such matters related to a
Change of Control, the terms of such
Indenture are satisfactory to Bankers Trust.
The RSI common stock purchased for cash and
in consideration of the issuance of the
Seller Debentures and the New Holdings
Discount Debentures shall be contributed to
the equity capital of F4L by New Holdings.
5. Issuance of F4L Senior Subordinated Notes.
Not less than 50% of the 9% Subordinated
Notes and of the 10-1/4% Subordinated Notes
shall have been tendered for exchange as a
result of the RG Solicitations and F4L shall
have obtained all such consents and
amendments as may be required to permit the
Acquisition, the Holdings Mergers, the
Mergers, the borrowings under the Bank
Facilities and the related transactions to
occur as described herein, the terms and
conditions of such consents to be in form and
substance satisfactory to Bankers Trust and
Lenders. Prior to or concurrently with the
Closing Date, F4L shall have issued not less
than $225 million of F4L Senior Subordinated
Notes in exchange for a like principal amount
of Existing RG Debt Securities and an
aggregate cash payment in an amount to be
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mutually agreed upon. The F4L Senior
Subordinated Notes shall be unsecured and
shall have no scheduled principal payments
payable prior to the tenth anniversary of the
Closing Date. The interest rate, covenants,
defaults, subordination provisions, remedies
and all other terms of the F4L Senior
Subordinated Notes shall be satisfactory to
Bankers Trust and Lenders. All such negative
covenants and defaults shall be less
restrictive than those contained in the
Definitive Financing Documents. The
aggregate principal amount of the F4L Senior
Subordinated Notes and the Existing RG Debt
Securities shall not exceed $650 million
outstanding at any time; provided that if
more than $225 million principal amount of
Existing RG Debt Securities is exchanged for
F4L Senior Subordinated Notes pursuant to the
RG Solicitations, the amount of proceeds of
the Public Offering or the Term Loan Facility
shall be reduced on a dollar-for-dollar
basis.
6. Public Offering. Prior to or concurrently
with the Closing Date, F4L shall have
received cash proceeds of (i) not less than
$200 million from the Public Offering of F4L
Senior Subordinated Notes and (ii) not less
than $295 million from the Public Offering of
New F4L Senior Notes, in each case, the
proceeds of which shall be applied to the
purposes specified under "Use of Proceeds"
above; provided that either or both of such
amounts may be reduced if the amount of
Existing RG Debt Securities exchanged in the
RG Solicitations exceeds $225 million. The
terms and conditions of the F4L Senior
Subordinated Notes issued on the Public
Offering shall be as described under
"Issuance of F4L Senior Subordinated Notes"
above. The terms and conditions of the New
F4L Senior Notes issued in the Public
Offering shall be as described under "F4L
Solicitations" below.
7. Payment of Purchase Price. Concurrently with
the Closing Date, New Holdings shall have
acquired 100% of the capital stock
14
<PAGE> 24
of RSI at a purchase price not to exceed a
payment of $525.9 million, comprised of a
$375.9 million cash payment and the issuance
of $131.5 million of Seller Debentures and
$18.5 million initial accreted value of New
Holdings Discount Debentures by New Holdings,
not including any refinancing or assumption
of existing indebtedness as described below.
Upon consummation of the Acquisition, the
Holdings Mergers and the Mergers, all shares
of the capital stock of Company shall be
owned by New Holdings and Yucaipa shall,
directly or indirectly, control New Holdings.
8. Discharge of Bank Indebtedness. Concurrently
with the Acquisition, all existing bank
indebtedness of RG in the approximate
aggregate principal amount of $255.1 million
and of F4L and its subsidiaries in the
approximate aggregate principal amount of
$161.5 million shall be repaid in full and
all commitments thereunder shall have been
terminated.
9. F4L Solicitations. Prior to or concurrently
with the Closing Date, F4L shall have issued
additional New F4L Senior Notes and the New
F4L 13.75% Subordinated Notes in exchange for
not less than 80% of the 10.45% Senior Notes
and the 13.75% Subordinated Notes and an
aggregate cash payment to be mutually agreed
upon, and Holdings and F4L shall have
obtained all such consents and amendments as
may be required to permit the Acquisition,
the Holdings Mergers, the Mergers, the
borrowings under the Bank Facilities and the
related transactions to occur as described
herein, the terms and conditions of such
consents to be in form and substance
satisfactory to Bankers Trust and Lenders.
The New F4L Senior Notes and the New F4L
13.75% Subordinated Notes shall be unsecured
and shall have no scheduled principal
payments prior to 2004 and 2005,
respectively. The interest rate, covenants,
defaults, remedies, subordination provisions
(in the case of the New F4L 13.75%
Subordinated Notes) and all other terms
15
<PAGE> 25
of the New F4L Senior Notes and New F4L
13.75% Subordinated Notes shall be
satisfactory to Bankers Trust and Lenders.
All such negative covenants and defaults
shall be less restrictive than those
contained in the Definitive Financing
Documents. The aggregate principal amount of
the 10.45% Senior Notes and the New F4L
Senior Notes shall not exceed $470 million at
any time outstanding, and the aggregate
principal amount of the 13.75% Subordinated
Notes and the New F4L 13.75% Subordinated
Notes shall not exceed $145 million at any
time outstanding. F4L shall otherwise be in
compliance with its obligations under the
indentures pursuant to which the 10.45%
Senior Notes and the 13.75% Subordinated
Notes have been issued.
10. Mortgage Debt and Other Obligations. Prior
to or concurrently with the Closing Date, RG
shall have repaid in full the Mortgage Debt.
Company and its subsidiaries may remain
liable with respect to obligations relating
to existing indebtedness in the approximate
aggregate principal amount of $166.9 million,
including approximately $145.1 million in
existing capital lease obligations and
approximately $21.8 million in mortgage debt
and all other indebtedness, all such matters
to be on terms and conditions and in form and
substance satisfactory to Bankers Trust and
Lenders. RSI and its subsidiaries shall have
obtained all such consents, waivers,
amendments, approvals and the like as may be
required under the existing contracts and
agreements of such persons to permit the
borrowing under the Bank Facilities, the
Acquisition, the Holdings Mergers, the
Mergers and all related transactions and
shall otherwise be in compliance in all
material respects with their respective
obligations under such agreements.
11. Security. The Administrative Agent, for the
benefit of Lenders, shall have been granted a
perfected security interest in all assets to
the extent described above under the heading
"Security".
16
<PAGE> 26
12. Title Insurance. The Administrative Agent
shall have received satisfactory assurances
that an ALTA title insurance policy insuring
the interest of the Administrative Agent for
the benefit of Lenders in certain of the real
property securing the Bank Facilities will be
available in form and substance satisfactory
to Bankers Trust.
13. Appraisals. Upon request of Bankers Trust or
Lenders, the Administrative Agent shall have
received appraisals in form, scope and
substance reasonably satisfactory to Bankers
Trust and satisfying the requirements of any
applicable laws and regulations concerning
the real property security.
14. Environmental Matters. Bankers Trust and
Lenders shall have received reports and other
information in form, scope and substance
satisfactory to Bankers Trust and Lenders
concerning environmental liabilities of F4L,
RG and their respective subsidiaries.
15. No Material Adverse Change. Other than with
respect to such information as is disclosed
in the filing on Form 10Q made on July 17,
1994 with respect to RSI and its
subsidiaries, there shall have occurred no
material adverse change in the condition
(financial or otherwise), business, assets,
liabilities, properties, results of
operations or prospects of F4L, RG and their
respective subsidiaries, individually and
taken as a whole, since June 25, 1994, in the
case of Holdings and its subsidiaries, and
January 30, 1994, in the case of RSI and its
subsidiaries.
16. No Disruption of Financial and Capital
Markets. There shall have been no material
adverse change after the date hereof to the
syndication markets for credit facilities
similar in nature to the Bank Facilities and
there shall not have occurred and be
continuing a material disruption of or
material adverse change in financial, banking
or capital markets that would have an
17
<PAGE> 27
adverse effect on such syndication market, in
each case as determined by Bankers Trust in
its sole discretion.
17. Financial Statements. Bankers Trust and
Lenders shall have received the unaudited
financial statements for F4L, RG and their
respective subsidiaries for most recently
ended fiscal periods. If unaudited, Bankers
Trust and Lenders may review such unaudited
financial statements with the independent
certified public accountants for F4L and the
cost of such review shall be for the account
of F4L.
18. Due Diligence. The results of Bankers
Trust's business and financial due diligence
investigations, and any supplemental business
or financial due diligence that Bankers Trust
reasonably determines has become necessary,
shall be satisfactory in all respects to
Bankers Trust. Bankers Trust and Lenders
shall also have received any information
reasonably necessary to conduct such due
diligence. Bankers Trust completed such due
diligence by October 14, 1994.
19. Solvency. Bankers Trust and Lenders shall
have received a solvency opinion from a
nationally recognized valuation firm
satisfactory to Bankers Trust and a
certificate from the chief financial officer
of F4L in form and substance satisfactory to
Bankers Trust and Lenders, supporting the
conclusions that, after giving effect to the
Acquisition, the Mergers and related
transactions, Company will not be insolvent
or will not be rendered insolvent by the
indebtedness incurred in connection
therewith, or be left with unreasonably small
capital with which to engage in its
businesses or have incurred debts beyond its
ability to pay such debts as they mature.
20. Customary Closing Documents. All documents
required to be delivered under the Definitive
Financing Documents, including customary
legal opinions, corporate records and
documents from
18
<PAGE> 28
public officials and officers' certificates,
shall have been delivered.
Conditions to All The conditions to all borrowings will include
Borrowings: requirements relating to prior written notice of
borrowing, the accuracy of representations and
warranties, and the absence of any default or
potential event of default, and will otherwise be
customary and appropriate for financings of this
type.
III. MISCELLANEOUS
Syndication: A syndicate of financial institutions will be
arranged by Bankers Trust. RG and F4L shall
cooperate with Bankers Trust in the syndication of
the Bank Facilities (including, but not limited to,
participation in meetings with Lenders and assisting
in the preparation of a Confidential Information
Memorandum and other materials to be used in
connection with such syndication) and shall provide
and cause its advisors to provide all information
reasonably deemed necessary by Bankers Trust to
complete a successful syndication. RG and F4L also
agree to assist in coordinating Bankers Trust's
primary syndication efforts with those of other
financings contemplated by RG and F4L in this
transaction.
The Lenders may assign all or, in an amount of not
less than $5 million, any part of their share of the
Bank Facilities to affiliates or one or more banks or
other entities that are eligible assignees (to be
described in the loan documentation) which, in the
case of assignments made by Lenders other than
Bankers Trust, are acceptable to Administrative Agent
and Company, such consent not to be unreasonably
withheld, and upon such assignment, such affiliate,
bank or entity shall become a Lender for all purposes
of the loan documentation; provided that assignments
made to affiliates and other Lenders shall not be
subject to the $5 million minimum assignment
requirement. Lenders will have the right to sell
participations, subject to customary limitations on
voting rights, in their share of the Bank Facilities.
Requisite Requisite Lenders shall mean Lenders holding in the
Lenders: aggregate 51% of the commitments under the Bank
Facilities.
19
<PAGE> 29
Taxes, Reserve All payments are to be made free and clear of any
Requirements & taxes (other than franchise taxes and taxes on
Indemnities: overall net income), imposts, assessments,
withholdings, or other deductions whatsoever.
Foreign lenders shall furnish to Administrative
Agent (for delivery to Company) appropriate
certificates or other evidence of exemption from
U.S. federal tax withholding.
Company is to indemnify the Lenders against all
increased costs of capital resulting from reserve
requirements or otherwise imposed, in each case
subject to customary increased costs, capital
adequacy and similar provisions to the extent not
taken into account in the calculation of the Base
Rate or the Euro-Dollar Rate.
Governing Law and Company will submit to the non-exclusive jurisdiction
Jurisdiction: and venue of the federal and state courts of the
State of New York and will waive any right to trial
by jury. New York law shall govern loan
documentation.
Bankers Trust's O'Melveny & Myers.
Counsel:
20
<PAGE> 30
We appreciate having been given the opportunity by you to be
involved in this transaction and we look forward to continuing our relationship
with the F4L companies in the future.
Very truly yours,
BANKERS TRUST COMPANY
By: __________________________
Title: _______________________
AGREED AND ACCEPTED THIS
___ day of April, 1995
FOOD 4 LESS SUPERMARKETS, INC.
By:_____________________
Title:__________________
S-1
<PAGE> 1
EXHIBIT 12.1
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES(A)
(DOLLAR IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED ENDED
FEBRUARY 3, FEBRUARY 2, JANUARY 31, JANUARY 30, JANUARY 29,
1991 1992 1993 1994 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Earnings (loss) before income taxes,
cumulative effect of change in accounting
and extraordinary item...................... $(25,529) $(27,734) $ 2,792 $ 30,317 $ 32,118
Add:
Portion of rents representative of the
interest factor.......................... 12,936 15,135 17,745 19,218 19,467
Capitalized interest....................... 915 510 1,074 740 325
Interest expense........................... 128,477 130,206 125,611 108,755 112,651
-------- -------- -------- -------- --------
Earnings as adjusted....................... $116,799 $118,117 $147,222 $159,030 $164,561
======== ======== ======== ======== ========
Fixed charges:
Interest expense........................... 128,477 130,206 125,611 108,755 112,651
Capitalized interest....................... 915 510 1,074 740 325
Portion of rents representative of the
interest factor.......................... 12,936 15,135 17,745 19,218 19,467
-------- -------- -------- -------- --------
Total fixed charges........................ $142,328 $145,851 $144,430 $128,713 $132,443
======== ======== ======== ======== ========
Ratio of earnings to fixed charges........... --(b) --(b) 1.02 1.24 1.24
======== ======== ======== ======== ========
</TABLE>
- ---------------
(a) The ratio of earnings to fixed charges has been computed based upon net
earnings (loss) before income taxes, extraordinary item and fixed charges.
Fixed charges consist of interest expense (including amortization of
self-insurance reserves discount), capitalized interest, amortization of
debt discount and expense and one-third of rental expense (the proportion
deemed representative of the interest factor).
(b) Earnings before income taxes and fixed charges were insufficient to cover
fixed charges for the periods ended February 3, 1991 and February 2, 1992 by
$25,529 and $27,734, respectively.
Page 1 of 2
<PAGE> 2
EXHIBIT 12.1
FOOD 4 LESS HOLDINGS, INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
52 WEEKS
ENDED
53 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED 52 WEEKS ENDED JUNE 25,
JUNE 30, 1990 JUNE 29, 1991 JUNE 27, 1992 JUNE 26, 1993 1994
------------------ ------------------ ------------------ ------------------ --------
FIXED FIXED FIXED FIXED
EARNINGS CHARGES EARNINGS CHARGES EARNINGS CHARGES EARNINGS CHARGES EARNINGS
-------- ------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loss before provision for income
taxes and extraordinary charges..... $(9,106 ) $ -- $(3,387 ) $ -- $(25,555) $ -- $(29,818) $ -- $(8,767)
Add: Fixed charges:
Interest expense including
amortization of deferred financing
costs.............................. 50,789 50,789 50,084 50,084 70,211 70,211 73,614 73,614 77,017
Interest factor in rent expense(1)... 3,814 3,814 6,523 6,523 15,569 15,569 14,835 14,835 16,596
-------- ------- -------- ------- -------- ------- -------- ------- --------
$45,497 $54,603 $53,220 $56,607 $ 60,225 $85,780 $ 58,631 $88,449 $84,846
======= ======= ======= ======= ======== ======= ======== ======= =======
Ratio of earnings to fixed charges... -- -- -- -- --
======= ======= ======== ======== =======
Deficiency of earnings to cover fixed
charges............................ $ 9,106 $ 3,387 $ 25,555 $ 29,818 8,767
======= ======= ======== ======== =======
<CAPTION>
28 WEEKS ENDED 28 WEEKS ENDED
JANUARY 8, 1994 JANUARY 7, 1995
------------------ ------------------
FIXED FIXED FIXED
CHARGES EARNINGS CHARGES EARNINGS CHARGES
------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Loss before provision for income
taxes and extraordinary charges..... $ -- $(5,042 ) $ -- $(13,772) $ --
Add: Fixed charges:
Interest expense including
amortization of deferred financing
costs.............................. 77,017 41,583 41,583 43,228 43,228
Interest factor in rent expense(1)... 16,596 8,667 8,667 10,158 10,158
------- -------- ------- -------- -------
$93,613 $45,208 $50,250 $ 39,614 $53,386
======= ======= ======= ======== =======
Ratio of earnings to fixed charges... -- --
======= ========
Deficiency of earnings to cover fixed
charges............................ $ 5,042 $ 13,772
======= ========
</TABLE>
- ---------------
(1) Calculated as one-third of minimum rent expense (see note 4 in the audited
financial statements):
<TABLE>
<CAPTION>
1990 1991 1992 1993
------- ------- ------- -------
<S> <C> <C> <C> <C>
Minimum rent......................... $11,443 $19,570 $46,706 $44,504
Interest factor...................... /3 /3 /3 /3
------- ------- ------- -------
$ 3,814 $ 6,523 $15,569 $14,835
======= ======= ======= =======
<CAPTION>
28 WEEKS ENDED 28 WEEKS ENDED
1994 JANUARY 8, 1994 JANUARY 7, 1995
------- ------------------ ------------------
<S> <C> <C> <C>
Minimum rent......................... $49,788 $26,002 $30,473
Interest factor...................... /3 /3 /3
------- ------ ------
$16,596 $ 8,667 $10,158
======= ======= =======
</TABLE>
Page 2 of 2
<PAGE> 1
EXHIBIT 23.1
ACCOUNTANTS' CONSENT AND REPORT ON SCHEDULES
Board of Directors and Stockholders
Ralphs Supermarkets, Inc.:
The audits referred to in our report dated March 9, 1995, included the related
financial statement schedule as of January 30, 1994 and January 29, 1995, and
for each of the fiscal years in the three-year period ended January 29, 1995,
included in the registration statement. This financial statement schedule is the
responsibility of Ralphs management. Our responsibility is to express an opinion
on this financial statement schedule based on our audits. In our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the headings "Summary Historical Financial Data of Ralphs," "Selected
Historical Financial Data of Ralphs" and "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Los Angeles, California
April 25, 1995
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our firm included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Los Angeles, California
April 21, 1995
<PAGE> 1
EXHIBIT 99.1
CONSENT AND LETTER OF TRANSMITTAL
TO TENDER AND TO CONSENT TO
CERTAIN INDENTURE AMENDMENTS WITH RESPECT TO THE
15.25% SENIOR DISCOUNT NOTES DUE 2004
OF
FOOD 4 LESS HOLDINGS, INC.
PURSUANT TO THE OFFER TO PURCHASE
AND SOLICITATION STATEMENT DATED MAY 2, 1995
THE OFFER AND THE SOLICITATION WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON MAY 30, 1995, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY ONLY
BE WITHDRAWN AND CONSENTS MAY ONLY BE REVOKED UNDER THE CIRCUMSTANCES DESCRIBED
HEREIN AND IN THE OFFER TO PURCHASE AND SOLICITATION STATEMENT.
TO THE DEPOSITARY:
BANKERS TRUST COMPANY
<TABLE>
<S> <C> <C>
By Hand Delivery or
Overnight Courier: Facsimile Transmission: By Mail:
Bankers Trust Company (212) 250-6275
Corporate Trust & Agency Group (212) 250-3290 Bankers Trust Company
Reorganization Department Confirm by Telephone: Corporate Trust & Agency Group
Receipt & Delivery Window (212) 250-6270 Reorganization Department
123 Washington St., First Floor P.O. Box 1458
New York, NY 10006 Church Street Station
New York, NY 10008-1458
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR
TRANSMISSION OF THIS LETTER VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS
CONSENT AND LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS CONSENT
AND LETTER OF TRANSMITTAL IS COMPLETED.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
DESCRIPTION OF DISCOUNT NOTES
- ------------------------------------------------------------------------------------------------------------------------------
You must consent to the Proposed Amendments with respect to the Discount Notes tendered hereby. The tender of Discount Notes
hereby will constitute a Consent to the Proposed Amendments with respect to such Discount Notes. If you are not the registered
holder of your Discount Notes, you must either have the Discount Notes registered in your name or have the registered holder
sign the form of consent herein or obtain a valid proxy from the registered holder of such Discount Notes to tender them.
- ------------------------------------------------------------------------------------------------------------------------------
CERTIFICATE(S) TENDERED
(ATTACH ADDITIONAL SCHEDULE IF NECESSARY)
- ------------------------------------------------------------------------------------------------------------------------------
(1) (2) (3)
AGGREGATE
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) PRINCIPAL
(PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) CERTIFICATE AMOUNT
APPEAR(S) ON DISCOUNT NOTES) NUMBER(S)(*) TENDERED(**)
- ------------------------------------------------------------------------------------------------------------------------------
------------------------------------------------
------------------------------------------------
------------------------------------------------
------------------------------------------------
------------------------------------------------
TOTAL:
- ------------------------------------------------------------------------------------------------------------------------------
* Need not be completed by Book-Entry Holders (see below).
** If you wish to accept the Offer with respect to any Discount Notes you must tender all of such Discount Notes beneficially
owned by you.
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 2
The undersigned acknowledges receipt of the Offer to Purchase and
Solicitation Statement dated May 2, 1995 (as the same may be amended or
supplemented from time to time, the "Offer to Purchase"), of Food 4 Less
Holdings, Inc. ("Holdings"), relating to (i) the offer (the "Offer") by
Holdings, upon the terms and subject to the conditions set forth in the Offer to
Purchase and in this Consent and Letter of Transmittal and the instructions
hereto (the "Letter of Transmittal"), to holders of its 15.25% Senior Discount
Notes due 2004 (the "Discount Notes") to purchase for $785.00 in cash plus
accrued cash interest thereon at a rate of 15.25% per annum from and after March
15, 1995 until the Closing Date (the "Cash Consideration") for each $1,000
principal amount (at maturity) of Discount Notes accepted for purchase and(ii)
the solicitation (the "Solicitation") of consents (the "Consents") from holders
of the Discount Notes ("Noteholders") to the proposed amendments (the "Proposed
Amendments") to the indenture under which the Discount Notes were issued (the
"Discount Note Indenture") (as described in the Offer to Purchase under the
captions "The Proposed Amendments" and "Appendix A -- Description of the
Discount Notes).
Holders of Discount Notes who desire to accept the Offer will be required
to consent to the Proposed Amendments with respect to such Discount Notes. The
tender of Discount Notes under this Letter of Transmittal will constitute such
consent. Noteholders who do not tender Discount Notes pursuant to the Offer will
not be eligible to consent to the Proposed Amendments. Each Noteholder who
desires to accept the Offer with respect to any Discount Notes must tender all
of such Noteholders' Discount Notes. Capitalized terms used in this Letter of
Transmittal but not defined herein have the respective meanings given them in
the Offer to Purchase. Unless otherwise indicated, references herein to the
Offer shall be deemed to include the Solicitation.
THE OFFER AND THE SOLICITATION ARE NOT BEING MADE TO (NOR WILL THE
SURRENDER OF DISCOUNT NOTES FOR PURCHASE BE ACCEPTED FROM OR ON BEHALF OF)
NOTEHOLDERS IN ANY JURISDICTION IN WHICH THE MAKING OR ACCEPTANCE OF THE OFFER
OR THE SOLICITATION WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH
JURISDICTION.
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE
COMPLETING ANY BOX BELOW
This Letter of Transmittal is to be used (i) if Discount Notes are to be
physically delivered herewith or (ii) if delivery of Discount Notes is to be
made by book-entry transfer to the account maintained by the Depositary at the
Depository Trust Company ("DTC"), the Midwest Securities Trust Company ("MSTC")
or the Philadelphia Securities Depository Trust Company ("PDTC") (collectively,
the "Book-Entry Transfer Facilities") pursuant to the procedures set forth in
the Offer to Purchase under the caption "The Offer to Purchase and
Solicitation -- Procedures for Tendering and Consenting." Delivery of documents
to a Book-Entry Transfer Facility does not constitute delivery to the
Depositary.
If certificates for Discount Notes are not immediately available or cannot
be delivered along with other required documents to the Depositary or the
procedure for book-entry transfer cannot be completed on or prior to the
Expiration Date, the Noteholder may tender such Discount Notes according to the
guaranteed delivery procedures set forth in the Offer to Purchase under the
caption "The Offer to Purchase and Solicitation -- Guaranteed Delivery
Procedure." See Instruction 2 herein.
Noteholders who wish to tender their Discount Notes pursuant to the Offer
and consent to the Proposed Amendments must complete the box entitled
"DESCRIPTION OF DISCOUNT NOTES" and sign below.
2
<PAGE> 3
METHOD OF DELIVERY
- --------------------------------------------------------------------------------
/ / CHECK HERE IF CERTIFICATES FOR TENDERED DISCOUNT NOTES ARE ENCLOSED
HEREWITH.
/ / CHECK HERE IF TENDERED DISCOUNT NOTES ARE BEING DELIVERED BY
BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE
SOLICITATION AGENT WITH A BOOK-ENTRY TRANSFER FACILITY SPECIFIED
ABOVE AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:
------------------------------------
Name of Book-Entry Transfer Facility:
/ / DTC / / MSTC / / PDTC
Account Number:
----------------------------------------------------
Transaction Code Number:
-------------------------------------------
/ / CHECK HERE IF TENDERED DISCOUNT NOTES ARE BEING DELIVERED PURSUANT TO
A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE SOLICITATION
AGENT AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s) of Discount Notes:
--------------------
Window Ticket Number (if any):
-------------------------------------
Date of Execution of Notice of Guaranteed Delivery:
----------------
Name of Eligible Institution which Guaranteed Delivery:
------------
If delivered by a Book-Entry Transfer Facility, check box of
Book-Entry Transfer Facility:
/ / DTC / / MSTC / / PDTC
Account Number:
---------------------------------------------------------
Transaction Code Number:
------------------------------------------------
- --------------------------------------------------------------------------------
3
<PAGE> 4
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Consent and Tender of Discount Notes
Upon the terms and subject to the conditions contained in the Offer to
Purchase and this Letter of Transmittal, the undersigned hereby Consents to the
Proposed Amendments with respect to the Discount Notes indicated above and
tenders to Holdings the Discount Notes indicated above. Tendering Noteholders
will be deemed to have Consented to the Proposed Amendments with respect to all
Discount Notes tendered.
Subject to and effective upon acceptance for purchase of the Discount Notes
tendered herewith, the undersigned hereby sells, assigns and transfers to or
upon the order of Holdings all right, title and interest in and to, and any and
all claims in respect of or arising or having arisen as a result of the
undersigned's status as a holder of, all Discount Notes tendered hereby. The
undersigned hereby appoints the Depositary the true and lawful agent and
attorney-in-fact of the undersigned with respect to such Discount Notes with
full power of substitution (such power of attorney being deemed to be an
irrevocable power coupled with an interest) to (a) deliver certificates for such
Discount Notes, or transfer ownership of such Discount Notes on the account
books maintained by DTC, MSTC or PDTC, together, in any such case, with all
accompanying evidences of transfer and authenticity, to or upon the order of
Holdings, (b) present such Discount Notes for transfer on the register, (c)
deliver the Consent contained herein to Holdings and the trustee (the "Trustee")
under the Discount Note Indenture and (d) receive all benefits and otherwise
exercise all right of beneficial ownership of such Discount Notes all in
accordance with the terms of the Offer.
The undersigned hereby represents and warrants that the undersigned accepts
the terms and conditions contained in the Offer to Purchase and this Letter of
Transmittal, owns the Discount Notes tendered hereby within the meaning of Rule
10b-4 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), has full power and authority to tender, sell, assign and transfer the
Discount Notes tendered hereby and that Holdings will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim. The undersigned will,
upon request, execute and deliver any additional documents deemed by the
Depositary or Holdings to be necessary or desirable to complete the sale,
assignment and transfer of the Discount Notes tendered. All authority herein
conferred or agreed to be conferred shall survive the death or incapacity of the
undersigned, and any obligation of the undersigned hereunder shall be binding
upon the heirs, personal representatives, successors and assigns of the
undersigned.
Tenders of Discount Notes pursuant to the Offer may be withdrawn and
Consents may be revoked, subject to the procedures described in the Offer to
Purchase under "The Offer to Purchase and Solicitation -- Withdrawal of Tenders
and Revocation of Consents," and under Instruction 3 herein, at any time until
the "Consent Date," which shall be such time as the Requisite Consents (as
defined under Instruction 3 herein) with respect to the Discount Notes have been
received and the Supplemental Indenture (as defined) has been executed.
Thereafter, such tenders may be withdrawn and Consents may be revoked if the
Offer is terminated without any Discount Notes being accepted for purchase
thereunder. Holdings shall be deemed to have accepted for purchase, and to have
purchased validly tendered and not properly withdrawn Discount Notes in the
Offer when, as and if Holdings has given oral or written notice thereof to the
Depositary.
Upon receipt of the Requisite Consents from holders of Discount Notes,
Holdings will certify in writing to the Trustee that the Requisite Consents to
the adoption of the Proposed Amendments have been received with respect to the
Discount Notes. Except as set forth under Instruction 2 herein and in the Offer
to Purchase under "The Offer to Purchase and Solicitation -- Guaranteed Delivery
Procedure," Consents from tendering holders of Discount Notes will not be
counted towards determining whether Holdings has received the Requisite Consents
unless Holdings is prepared to accept the tender of Discount Notes to which such
Consents relate. In addition, Consents with respect to Discount Notes will not
be counted if the tender of such Discount Notes is defective, unless Holdings
waives such defect. After receipt by the Trustee of, among other things,
certification by Holdings that the Requisite Consents have been received,
Holdings and the Trustee will execute a supplemental indenture to evidence the
adoption of the Proposed Amendments (a "Supplemental Indenture"). Upon the
acceptance by Holdings of the Requisite Consents from holders of Discount Notes
and the execution of the Supplemental Indenture, such Supplemental Indenture
will immediately become effective. Although the Proposed Amendments relating to
the Discount Notes will become effective upon certification that the Requisite
Consents from holders of the Discount Notes have been received, such Proposed
Amendments will not be operative until Holdings has accepted for purchase all
Discount Notes validly tendered and not withdrawn. Holdings will not be
obligated to pay the Cash Consideration pursuant to the Offer unless, among
other things, the Requisite Consents to the adoption of the Proposed Amendments
have been received. The withdrawal of Discount Notes in accordance with the
procedures set forth in the Offer to Purchase under "The Offer to Purchase and
Solicitation -- Withdrawals of
4
<PAGE> 5
Tenders and Revocation of Consents," and under Instruction 3 herein, will effect
a revocation of the related Consents. Any valid revocation of Consents will
automatically render the prior tender of the Discount Notes to which such
Consents relate defective and Holdings will have the right, which it may waive,
to reject such tender as invalid and ineffective.
The undersigned recognizes that, under certain circumstances set forth in
the Offer to Purchase, Holdings may not be required to accept any of the
Discount Notes tendered (as described in the Offer to Purchase under the caption
"The Offer to Purchase and Solicitation -- Conditions"). Discount Notes not
accepted for purchase or that are withdrawn will be returned to the undersigned
at the address set forth above unless otherwise indicated under "SPECIAL
DELIVERY INSTRUCTIONS" below.
Unless otherwise indicated under "SPECIAL PAYMENT INSTRUCTIONS" or "SPECIAL
DELIVERY INSTRUCTIONS" below, the Depositary will deliver the Cash Consideration
(and, if applicable, return Discount Notes for any principal amount of Discount
Notes not accepted for purchase) to the undersigned at the address set forth
above. The undersigned understands that holders who tender Discount Notes by
book-entry transfer ("Book-Entry Holders") may request that any Discount Notes
not accepted for purchase be returned by crediting the account maintained by
DTC, MSTC or PDTC as such Book-Entry Holders may designate by ranking an
appropriate entry under the box entitled "SPECIAL PAYMENT INSTRUCTIONS" below.
The undersigned recognizes that Holdings has no obligation pursuant to "SPECIAL
PAYMENT INSTRUCTIONS" to transfer any Discount Notes from the name of the
registered holder thereof if Holdings does not accept for purchase any of such
Discount Notes. See Instruction 5.
The undersigned understands that tenders of Discount Notes pursuant to any
one of the procedures described under "The Offer to Purchase and
Solicitation -- Procedures for Tendering and Consenting" in the Offer to
Purchase and in the instructions hereto will constitute a binding agreement
between the undersigned and Holdings in accordance with the terms and subject to
the conditions of the contained in the Offer to Purchase and this Letter of
Transmittal.
5
<PAGE> 6
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF DISCOUNT
NOTES" ABOVE AND SIGNING THIS LETTER OF TRANSMITTAL, WILL BE DEEMED TO HAVE
TENDERED SUCH DISCOUNT NOTES, CONSENTED TO THE PROPOSED AMENDMENTS WITH RESPECT
TO SUCH DISCOUNT NOTES AND MADE CERTAIN REPRESENTATIONS AS DESCRIBED HEREIN AND
IN THE PROSPECTUS. ONLY REGISTERED HOLDERS OF DISCOUNT NOTES ARE ENTITLED TO
CONSENT TO THE PROPOSED AMENDMENTS. IF THE UNDERSIGNED IS NOT THE REGISTERED
HOLDER OF THE DISCOUNT NOTES TENDERED PURSUANT HERETO, THE UNDERSIGNED MUST
EITHER HAVE THE DISCOUNT NOTES REGISTERED IN THE UNDERSIGNED'S NAME OR HAVE THE
REGISTERED HOLDER SIGN THE FORM OF CONSENT APPEARING BELOW OR A VALID PROXY.
PLEASE SIGN HERE
(See Instructions 1 and 4 and the following paragraph)
X
-----------------------------------------------------------------------
X
-----------------------------------------------------------------------
Signature(s) of Owner(s) Date
Area Code and Telephone Number:
----------------------------------------------
This Letter of Transmittal must be signed by the Registered
Holder(s) of Discount Notes as their name(s) appear(s) on certificates for
Discount Notes or, if tendered by a participant in one of the Book-Entry
Transfer Facilities, exactly as such participant's name appears on a security
position listing as the owner of Discount Notes, or by person(s) authorized to
become Registered Holder(s) by endorsement and documents transmitted herewith.
If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, please set forth full title. See Instruction 4.
Name(s):
----------------------------------------------------------------
----------------------------------------------------------------
Please Type or Print
Capacity:
---------------------------------------------------------------
Address:
----------------------------------------------------------------
(Including Zip Code)
SIGNATURE GUARANTEE
(If required by Instruction 4)
Signature(s) Guaranteed
by an Eligible Institution:
---------------------------------------------
(Authorized Signature)
---------------------------------------------
(Title)
---------------------------------------------
(Name of Firm)
Dated:
------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please indicate (by marking the appropriate box provided below) whether
the beneficial holder(s) of the Discount Notes tendered herewith is a(n):
/ / Bank
/ / Pension or Profit-Sharing Trust
/ / Savings Institution
/ / Dealer
/ / Trust Company
/ / Foundation
/ / Insurance Company
/ / Corporation
/ / Investment Company
/ / Other Financial or
Institutional Investor
/ / Individual
Address of beneficial holder(s):
---------------------------------------
------------------------------------------
6
<PAGE> 7
IF THIS LETTER OF TRANSMITTAL IS SIGNED BY A HOLDER OF DISCOUNT NOTES WHO
IS NOT THE REGISTERED HOLDER THEREOF, THEN THE REGISTERED HOLDER MUST SIGN THE
FOLLOWING CONSENT OR A VALID PROXY:
Pursuant to the Offer and the Solicitation of Consents to the Proposed
Amendments, the undersigned hereby consents to the Proposed Amendments with
respect to the Discount Notes tendered hereby and with respect to the Discount
Note Indenture. This consent shall not be deemed to be effective if the
above-described Discount Notes are not accepted for purchase pursuant to the
Offer.
X
------------------------------------------------------------------------
Signature of Registered Holder
X
------------------------------------------------------------------------
Signature of Registered Holder
(if more than one)
Dated:
-------------------------------------------------------------------
(Must be signed by the Registered Holder(s) as name(s) appear(s) on the
certificates for Discount Notes. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer or other person acting in a
fiduciary or representative capacity, please set forth full title. See
Instruction 4.)
Name(s):
-----------------------------------------------------------------
-----------------------------------------------------------------
Please Type or Print
Capacity:
----------------------------------------------------------------
Address:
----------------------------------------------------------------
(Including Zip Code)
SIGNATURE GUARANTEE
(If required by Instruction 4)
Signature(s) Guaranteed
by an Eligible Institution:
----------------------------------------------
(Authorized Signature)
----------------------------------------------
(Title)
----------------------------------------------
(Name of Firm)
Dated:
-------------------------------------------------------------------
7
<PAGE> 8
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 4 AND 5)
To be completed ONLY if certificates for Discount Notes not accepted for payment
and/or the check for the Cash Consideration are to be issued in the name of
someone other than the person who submits this Letter of Transmittal or issued
to an address different from that shown in the box entitled "DESCRIPTION OF
DISCOUNT NOTES" above in this Letter of Transmittal or if Discount Notes are to
be returned by credit to an account maintained by DTC, MSTC or PDTC.
ISSUE TO:
Name
--------------------------------------------------------------------------
(Please Print)
Address
-----------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(Include Zip Code)
- ------------------------------------------------------------------------------
(Social Security Number or Employer Identification Number)
A correct taxpayer identification number must also be provided on the
Substitute Form W-9 included herein.
CREDIT UNACCEPTED DISCOUNT NOTES TENDERED BY BOOK-ENTRY TRANSFER TO THE:
/ / DTC / / MSTC or / / PDTC (check one)
account set forth below:
- ------------------------------------------------------------------------------
(DTC, MSTC or PDTC Account Number)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4 AND 5)
To be completed ONLY if certificates evidencing Discount Notes for amounts not
accepted for payment and/or the check for the Cash Consideration are to be sent
to someone other than the person who submits this Letter of Transmittal at an
address other than that shown in the box entitled "DESCRIPTION OF DISCOUNT
NOTES" above in this Letter of Transmittal.
MAIL TO:
Name
--------------------------------------------------------------------------
(Please Print)
Address
-----------------------------------------------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(Include Zip Code)
8
<PAGE> 9
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE
OFFER AND THE SOLICITATION
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES. Certificates for
Discount Notes, or any book-entry transfer into the Depositary's account at DTC,
MSTC or PDTC of Discount Notes tendered electronically, as well as a properly
completed Letter of Transmittal, including a valid and unrevoked Consent or
facsimile(s) thereof, duly executed by the registered holder thereof with any
required signature guarantee(s), and any other documents required by this Letter
of Transmittal, must be received by the Depositary at one of its addresses set
forth herein on or prior to 12:00 Midnight, New York City time, on the
Expiration Date of the Offer and the Solicitation, except as otherwise provided
in Instruction 2, "Guaranteed Delivery Procedures."
Tenders of Discount Notes into the Offer will be accepted only in principal
amounts equal to $1,000 (at maturity) or integral multiples thereof.
The method of delivery of this Letter of Transmittal, certificates for
Discount Notes and any other required documents is at the election and risk of
the tendering Noteholder, and except as otherwise provided below, the delivery
will be deemed made when actually received by the Depositary. Instead of
effecting delivery by mail, it is recommended that tendering Noteholders use an
overnight or hand delivery service. If Discount Notes are sent by mail,
registered mail, with return receipt requested, properly insured, is
recommended. In all cases, sufficient time should be allowed to assure timely
delivery. No documents should be sent to Holdings, the Information Agent, the
Dealer Managers, or the Trustee.
If the person signing this Letter of Transmittal is not the registered
holder of the securities tendered hereby, then such person must either have the
securities hereby registered in such person's name or obtain from the registered
holder and submit to the Depositary the form of consent of the registered holder
to the Proposed Amendments appearing above or a valid proxy.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance, withdrawal and revocation of tendered Discount Notes and
delivered Consents to the Proposed Amendments will be resolved by Holdings,
whose determination will be final and binding. Holdings reserves the absolute
right to reject any or all tenders and withdrawals of Discount Notes and
deliveries and revocations of Consents to the Proposed Amendments that are not
in proper form or the acceptance of which would, in the opinion of Holdings or
counsel for Holdings, be unlawful. Holdings also reserves the right to waive any
irregularities or conditions of tender, consent or proxy as to particular
Discount Notes. Holdings interpretation of the terms and conditions of the Offer
(including the instructions in this Letter of Transmittal) will be final and
binding. Unless waived, any irregularities in connection with tenders and
withdrawals of Discount Notes and revocations of Consents to the Proposed
Amendments must be cured within such time as Holdings shall determine. Neither
Holdings nor the Depositary shall be under any duty to give notification of
defects in such tenders, withdrawals, deliveries or revocations or shall incur
any liability for failure to give such notification. Tenders and withdrawals of
Discount Notes and deliveries and revocations of Consents to the Proposed
Amendments will not be deemed to have been made until such irregularities have
been cured or waived. Any Discount Notes received by the Depositary that are not
properly tendered or delivered and to which the irregularities have not been
cured or waived will be returned by the Depositary to the tendering Noteholders
unless otherwise provided in this Letter of Transmittal as soon as practicable
following the Expiration Date.
None of Holdings, the Depositary, the Information Agent, the Dealer
Managers or any other person shall be obligated to give notification of defects
or irregularities in any tender, or shall incur any liability for failure to
give any such notification.
2. GUARANTEED DELIVERY PROCEDURES. If a registered holder of Discount Notes
desires to tender such Discount Notes and consent to the Proposed Amendments,
and such holder's Discount Notes are not immediately available, or if time will
not permit such holder's Discount Notes or any other required documents to be
delivered to the Depositary prior to 12:00 Midnight, New York City time, on the
Expiration Date, then such Discount Notes may nevertheless be tendered for
purchase and Consents may be effected if all of the following guaranteed
delivery procedure conditions are met:
(i) the tender for purchase and Consent is made by or through an
Eligible Institution;
(ii) prior to 12:00 Midnight, New York City time, on the Expiration
Date, the Depositary receives from such Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery (by telegram,
telex, facsimile transmission, mail or hand delivery) substantially in the
form provided by Holdings herewith, that contains a signature guaranteed by
an Eligible Institution in the form set forth in such Notice of Guaranteed
Delivery, unless such tender is for the account of an Eligible Institution
(in which case no signature guarantee shall be required), and
9
<PAGE> 10
sets forth the name and address of the holder of Discount Notes and the
principal amount of Discount Notes tendered for purchase, states that the
tender is being made thereby and guarantees that, within five New York
Stock Exchange ("NYSE") trading days after the date of execution of the
Notice of Guaranteed Delivery, this Letter of Transmittal (or facsimile
thereof), properly completed and duly executed, together with the Discount
Notes and any required signature guarantees and any other documents
required by this Letter of Transmittal, will be deposited by the Eligible
Institution with the Depositary; and
(iii) all tendered Discount Notes, or a confirmation of a book-entry
transfer of such Discount Notes into the Depositary's applicable account at
a Book-Entry Transfer Facility, as well as this Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, and all other documents required by this Letter of
Transmittal, shall be received by the Depositary within five NYSE trading
days after the date of execution of the Notice of Guaranteed Delivery.
The YELLOW Notice of Guaranteed Delivery provided herewith shall be used in
connection with tenders of Discount Notes.
Notwithstanding any other provision hereof, the purchase of Discount Notes
pursuant to the Offer will in all cases be made only after timely receipt by the
Depositary of certificates for such Discount Notes and this Letter of
Transmittal (or facsimile thereof) in respect thereof, properly completed and
duly executed, together with any required signature guarantees and any other
documents required by the Offer to Purchase and this Letter of Transmittal.
3. CONSENT TO PROPOSED AMENDMENTS; WITHDRAWAL OF TENDERS; REVOCATION OF
CONSENTS. A valid Consent to the adoption of the Proposed Amendments may be
given only by the registered holder of Discount Notes or his or her
attorney-in-fact. Noteholders will not be able to validly tender unless they
Consent to the Proposed Amendments. Noteholders not tendering Discount Notes
pursuant to the Offer will not be eligible to Consent to the Proposed
Amendments. Tendering holders who sign this Letter of Transmittal and tender any
Discount Notes shall be deemed to have Consented to the Proposed Amendments with
respect to such Discount Notes tendered.
Tenders of Discount Notes pursuant to the Offer may be withdrawn and
Consents may be revoked at any time until the "Consent Date," which shall be
such time as the Requisite Consents (Consents of holders representing at least a
majority in aggregate principal amount of the outstanding Discount Notes held by
persons other than Holdings and its affiliates) have been delivered by Holdings
to the Trustee and the Supplemental Indenture has been executed. Thereafter,
such tenders may be withdrawn and Consents may be revoked if the Offer is
terminated without any Discount Notes being accepted for purchase thereunder.
The withdrawal of Discount Notes prior to the Consent Date in accordance with
the procedures set forth hereunder will effect a revocation of the related
Consent. Any valid revocation of Consents will automatically render the prior
tender of the Discount Notes to which such Consents relate defective and
Holdings will have the right, which it may waive, to reject such tender as
invalid and ineffective.
Any holder of Discount Notes who has tendered Discount Notes or who
succeeds to the record ownership of Discount Notes in respect of which such
tenders or Consents previously have been given may withdraw such Discount Notes
or revoke such Consents prior to the Consent Date by delivery of a written
notice of withdrawal or revocation, subject to the limitations described herein.
To be effective, a written telegraphic, telex or facsimile transmission (or
delivered by hand or by mail) notice of withdrawal of a tender or revocation of
a Consent must (i) be timely received by the Depositary at one of its addresses
set forth on the front cover hereof or prior to the time provided herein with
respect to the Discount Notes, (ii) specify the name of the person having
tendered the Discount Notes to be withdrawn or as to which Consents are revoked,
the principal amount of such Discount Notes to be withdrawn and, if certificates
for Discount Notes have been tendered, the name of the registered holder(s) of
such Discount Notes as set forth in such certificates, if different from that of
the person who tendered such Discount Notes, (iii) identify the Discount Notes
to be withdrawn or to which the notice of revocation relates and (iv)(a) be
signed by the holder in the same manner as the original signature on this Letter
of Transmittal or Notice of Guaranteed Delivery (as the case may be) by which
such Discount Notes were tendered (including any required signature guarantees)
or (b) be accompanied by evidence satisfactory to Holdings and the Depositary
that the holder withdrawing such tender or revoking such Consents has succeeded
to beneficial ownership of such Discount Notes. If certificates representing
Discount Notes to be withdrawn or Consents to be revoked have been delivered or
otherwise identified to the Depositary, then the name of the registered holder
and the serial numbers of the particular certificate evidencing the Discount
Notes to be withdrawn or Consents to be revoked and a signed notice of
withdrawal with signatures guaranteed by an Eligible Institution, except in the
case of Discount Notes tendered by an Eligible Institution (in which case no
signature guarantee shall be required), must also be so furnished to the
Depositary as aforesaid prior to the physical release of the certificates for
the withdrawn Discount Notes. If Discount Notes have been tendered or if
Consents have been delivered pursuant to the procedures for book-entry transfer
as set forth herein, any notice of withdrawal or revocation of a Consent must
also specify the name and number of the account at the appropriate Book-Entry
Transfer Facility to be credited with the withdrawn Discount Notes.
10
<PAGE> 11
Holdings reserves the right to contest the validity of any revocation. A
purported notice of revocation which is not received by the Depositary in a
timely fashion will not be effective to revoke a Consent previously given.
Any permitted withdrawals of tenders of Discount Notes and revocation of
Consents may not be rescinded, and any Discount Notes properly withdrawn will
thereafter be deemed not validly tendered and any Consents revoked will be
deemed not validly delivered for purposes of the Offer or the Solicitation;
provided, however, that withdrawn Discount Notes may be retendered and revoked
Consents may be redelivered by again following one of the appropriate procedures
described herein at any time prior to 12:00 Midnight, New York City time, on the
Expiration Date.
If Holdings shall decide to decrease the amount of Discount Notes being
sought in the Offer or to increase or decrease the consideration offered to the
Discount Noteholders, and if, at the time that notice of such increase or
decrease is first published, sent or given to Discount Noteholders in the manner
specified in the Offer to Purchase, the Offer is scheduled to expire at any time
earlier than the expiration of a period ending on the tenth Business Day from
and including the date that such notice is first so published, sent or given the
Offer will be extended for such purposes until the expiration of such period of
ten Business Days. As used in the Offer to Purchase, "Business Day" has the
meaning set forth in Rule 14d-1 (and applicable to Regulation 14E) under the
Exchange Act. In addition, if the Offer or the Solicitation is amended in a
manner determined by Holdings to constitute a material adverse change to the
Discount Noteholders, Holdings promptly will disclose such amendment in a public
announcement and will extend the Offer or the Solicitation for a period deemed
by it to be adequate to permit the Discount Noteholders to properly deliver or
withdraw their Discount Notes and give or revoke Consents.
If Holdings extends the Offer, is delayed in its acceptance for purchase of
Discount Notes or is unable to purchase Discount Notes pursuant to the Offer,
for any reason, then, without prejudice to Holdings' rights under the Offer, the
Depositary may, subject to applicable law, retain tendered Discount Notes on
behalf of Holdings, and such Discount Notes may not be withdrawn (subject to
Rule 14e-1 under the Exchange Act, which requires that Holdings deliver the
consideration offered or return the Discount Notes deposited by or on behalf of
the Noteholders promptly after the termination or withdrawal of the Offer),
except to the extent that tendering holders are entitled to withdrawal rights as
described herein.
All questions as to the validity, form and eligibility (including the time
of receipt) of notices of withdrawal or revocations of Consents will be
determined by Holdings, whose determination will be final and binding on all
parties. None of Holdings, the Depositary, the Dealer Managers, the Information
Agent or any other person will be under any duty to give notification of any
defects or irregularities in any notice of withdrawal or revocation of Consent
or incur any liability for failure to give any such notification.
4. SIGNATURES ON THIS LETTER OF TRANSMITTAL, AND ENDORSEMENTS; GUARANTEE OF
SIGNATURE. If this Letter of Transmittal is signed by the registered holder(s)
of the Discount Notes tendered hereby, the signature must correspond with the
name(s) as written on the face of the certificate(s) without alteration or any
change whatsoever.
If any of the Discount Notes tendered hereby are registered in the names of
two or more joint owners, all owners must sign this Letter of Transmittal. If
any tendered Discount Notes are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal and any other required documents as there are different
names in which the Discount Notes are registered.
If tendered Discount Notes are registered in the name of a person other
than the person signing this Letter of Transmittal, the tendered Discount Notes
must be endorsed or accompanied by appropriate bond powers, signed by the
registered holder or holders of the Discount Notes transmitted hereby or
separate bond powers are required, with signatures guaranteed in either case.
If this Letter of Transmittal or any certificate or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and proper evidence satisfactory to
Holdings of their authority so to act must be submitted.
Endorsements on certificates of Discount Notes or signatures on bond powers
required by this Instruction 4 must be guaranteed by an Eligible Institution.
All signatures on this Letter of Transmittal or a notice of withdrawal, as
the case may be, must be guaranteed by an Eligible Institution (as defined
below) unless the Discount Notes tendered or withdrawn, as the case may be,
pursuant thereto are tendered (i) by a registered holder(s) (which term, for
purposes of this Letter of Transmittal, shall include any participant in DTC,
MSTC or PDTC whose name appears on a security position listing as the owner of
Discount Notes) of Discount Notes who has not completed the box entitled
"SPECIAL PAYMENT INSTRUCTIONS" or "SPECIAL DELIVERY INSTRUCTIONS" on this Letter
of Transmittal or (ii) for the account of an Eligible
11
<PAGE> 12
Institution. If Discount Notes are registered in the name of a person other than
the signer of this Letter of Transmittal or a notice of withdrawal, as the case
may be, or if payment is to be made or certificates for Discount Notes not
purchased are to be issued or returned to a person other than the registered
holder, then the Discount Notes must be endorsed by the registered
Noteholder(s), or be accompanied by a written instrument or instruments of
transfer or exchange in form satisfactory to Holdings duly executed by the
registered Noteholder(s), with such signatures guaranteed by an Eligible
Institution. In the event that signatures on this Letter of Transmittal (or
other document) are required to be guaranteed, such guarantee must be by a firm
that is a member of a registered national securities exchange or a member of the
National Association of Securities Dealers, Inc. (the "NASD") or by a commercial
bank or trust company having an office in the United States (each of the
foregoing being an "Eligible Institution").
5. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. Tendering Noteholders should
indicate, in the applicable box, the name and address to which the Cash
Consideration and/or Discount Notes for principal amounts not accepted for
purchase are to be issued, sent or paid, if different from the name and address
of the person submitting this Letter of Transmittal. In the case of issuance or
payment in a different name, the tax identification number of the person named
must also be indicated and a Substitute Form W-9 for such recipient must be
completed. See Instruction 6. If no such instructions are given, the Cash
Consideration and/or Discount Notes not accepted for purchase will be sent to
the name and address of the person signing this Letter of Transmittal or, at
Holdings' option, by crediting the account at DTC, MSTC or PDTC designated above
in the box entitled "SPECIAL PAYMENT INSTRUCTIONS."
6. SUBSTITUTE FORM W-9. The tendering Noteholder is required to provide the
Depositary (as payor) with his or her correct taxpayer identification number
("TIN") on the Substitute Form W-9 included in this Letter of Transmittal. In
the case of a tendering Noteholder who has completed the box entitled "SPECIAL
PAYMENT INSTRUCTIONS" above, however, the correct TIN on Form W-9 should be
provided for the recipient of the securities and/or payment delivered pursuant
to such instructions. Failure to provide the information on the form will cause
the Depositary to withhold 31% of any payments made to the tendering Noteholder
or such recipient, as the case may be, until such information is received. See
"IMPORTANT TAX INFORMATION" below.
7. TRANSFER TAXES. Holdings will pay all transfer taxes, if any, applicable
to the purchase of Discount Notes pursuant to the Offer. If, however, the Cash
Consideration and/or Discount Notes not accepted for purchase are to be
delivered to, or are to be registered or issued in the name of, any person other
than the registered holder of the Discount Notes, or if tendered Discount Notes
are to be registered in the name of any person other than the person signing
this Letter of Transmittal, or if a transfer tax is imposed for any reason other
than the purchase of Discount Notes pursuant to Offer, then the amount of any
such transfer tax (whether imposed on the registered holder or any other person)
will be payable by the tendering holder. If satisfactory evidence of payment of
such tax or exemption therefrom is not submitted, then the amount of such
transfer tax will be deducted from the Cash Consideration and/or otherwise
payable to such tendering holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 7, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATES LISTED IN THIS LETTER OF
TRANSMITTAL.
8. WAIVER OF CONDITIONS. Holdings reserves the absolute right to amend in
any respect or waive any of the specified conditions in the Offer and the
Solicitation in the case of any Discount Notes tendered.
9. MUTILATED, LOST, STOLEN OR DESTROYED DISCOUNT NOTES. If a Noteholder
desires to tender Discount Notes pursuant to the Offer, but any such Discount
Note has been mutilated, lost, stolen or destroyed, such holder should write to
or telephone the Trustee under the Discount Note Indenture, at the address
listed below, concerning the procedures for obtaining replacement certificates
for such Discount Note, arranging for indemnification or any other matter that
requires handling by the Trustee:
<TABLE>
<S> <C>
United States Trust Company of New York
114 West 47th Street
New York, New York 10036-1532
Attention: Corporate Trust Department
(212) 852-1000
</TABLE>
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to the
procedure for tendering, as well as requests for additional copies of the Offer
to Purchase and this Letter of Transmittal, may be directed to the Information
Agent, D.F. King & Co., Inc., (800) 669-5550.
12
<PAGE> 13
IMPORTANT TAX INFORMATION
GENERAL
Under federal income tax law, a holder whose tendered Discount Notes are
accepted for purchase is required to provide the Depositary with such holder's
correct taxpayer identification number on the Substitute Form W-9 included in
this Letter of Transmittal. If such holder is an individual, the taxpayer
identification number is his or her social security number. If the Depositary is
not provided with the correct taxpayer identification number or adequate basis
for exemption, the holder may be subject to a $50 penalty imposed by the
Internal Revenue Service. In addition, payments that are made to such holder in
exchange for tendered Discount Notes may be subject to backup withholding.
Certain holders of Discount Notes (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. In order for a foreign individual to
qualify as an exempt recipient, that holder must submit a statement, signed
under penalties of perjury, attesting to that individual's exempt status. Such
statements can be obtained from the Depositary. See the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional instructions.
If backup withholding applies, the Depositary is required to withhold 31%
of any payments made to the holder. Backup withholding is not an additional tax.
Rather, the tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an overpayment
of taxes, a refund may be obtained.
WHAT NUMBER TO GIVE TO EXCHANGE AGENT
The holder is required to give the Depositary the social security number or
employer identification number of the registered holder of the Discount Notes.
If the certificates for Discount Notes are registered in more than one name or
are not in the name of the actual owner, consult the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional guidance on which number to report.
13
<PAGE> 14
<TABLE>
TO BE COMPLETED BY ALL TENDERING
HOLDERS OF DISCOUNT NOTES
(SEE INSTRUCTION 6)
- -------------------------------------------------------------------------------------------------------
PAYOR'S NAME: BANKERS TRUST COMPANY
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUBSTITUTE Social Security Number
FORM W-9 PART 1 - PLEASE PROVIDE YOUR TAX -------------------------------
PAYER IDENTIFICATION NUMBER IN OR
DEPARTMENT OF THE TREASURY THE BOX AT THE RIGHT AND CERTIFY
INTERNAL REVENUE SERVICE BY SIGNING AND DATING BELOW. Employer Identification Number
PAYOR'S REQUEST FOR TAXPAYER --------------------------------
IDENTIFICATION NUMBER (TIN)
-----------------------------------------------------------------------
PART II -- For Payees exempt from backup withholding, see the Important
Tax Information above and Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 enclosed herewith and
complete as instructed therein.
- -------------------------------------------------------------------------------------------------------
CERTIFICATIONS -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number (or a Taxpayer
Identification Number has not been issued to me and either (a) I have mailed or delivered an
application to receive a Taxpayer Identification Number to the appropriate Internal Revenue
Service Center or Social Security Administration office or (b) I intend to mail or deliver an
application in the near future). (I understand that if I do not provide a Taxpayer Identification
Number to the payer, 31% of all reportable payments made to me thereafter will be withheld until
I provide a number to the payer and that, if I do not provide my Taxpayer Identification Number
within sixty (60) days, such retained amounts shall be remitted to the Internal Revenue Service
("IRS") as backup withholding.
(2) I am not subject to backup withholding either because I have not been notified by the IRS that
I am subject to backup withholding as a result of a failure to report all interest or dividends
or the IRS has notified me that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTION -- You must cross out item (2) above if you have been notified by the IRS
that you are subject to backup withholding because of underreporting interest or dividends on your
tax return. However, if after being notified by the IRS that you were subject to backup withholding
you received another notification from the IRS that you were no longer subject to backup withholding,
do not cross out item (2). (Also see the IMPORTANT TAX INFORMATION above.)
- -------------------------------------------------------------------------------------------------------
Name
------------------------------------------------------------------------------------------------
(Please Print)
Address
---------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------
(Including Zip Code)
Signature Date
--------------------------------------------------- ----------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE "GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON
SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS.
IMPORTANT: This Letter of Transmittal or a facsimile thereof (together with
Discount Notes and all other required documents) must be received by the
Depositary on or prior to the Expiration Date.
Your bank or broker can assist you in completing this form. The
Instructions included in this Letter of Transmittal must be followed.
Requests for assistance or additional copies of the Offer to Purchase or
this Letter of Transmittal may be obtained from the Information Agent at the
address or telephone numbers set forth below.
The Information Agent for the Offer and the Solicitation is:
D.F. KING & CO., INC.
Call Toll Free: (800) 669-5550
77 Water Street
New York, NY 10005
(212) 269-5550 (collect)
14
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
TO TENDER
AND
TO CONSENT TO CERTAIN INDENTURE AMENDMENTS
WITH RESPECT TO THE
15.25% SENIOR DISCOUNT NOTES DUE 2004
OF
FOOD 4 LESS HOLDINGS, INC.
PURSUANT TO THE OFFER TO PURCHASE AND
SOLICITATION STATEMENT DATED MAY 2, 1995
As set forth in the Offer to Purchase and Solicitation Statement dated May
2, 1995 (as the same may be amended or supplemented from time to time, the
"Offer to Purchase") of Food 4 Less Holdings, Inc. ("Holdings"), under the
caption "The Offer to Purchase and Solicitation -- Guaranteed Delivery
Procedure," and in the accompanying Consent and Letter of Transmittal and
Instruction 2 thereto (the "Letter of Transmittal"), this form or one
substantially equivalent hereto must be used to (a) accept Holdings' offer (the
"Offer"), upon the terms and subject to the conditions set forth in the Offer to
Purchase and Letter of Transmittal, to holders of its 15.25% Senior Discount
Notes Due 2004 (the "Discount Notes") to purchase for $785.00 in cash plus
accrued cash interest thereon at a rate of 15.25% per annum from and after March
15, 1995 until the Closing Date (the "Cash Consideration") for each $1,000
principal amount (at maturity) of Discount Notes accepted for purchase and (b)
deliver consents pursuant to Holdings' solicitation (the "Solicitation") of
consents (the "Consents") from holders of the Discount Notes ("Noteholders") to
the proposed amendments (the "Proposed Amendments") to the indenture under which
the Discount Notes were issued (the "Discount Note Indenture") (as described in
the Offer to Purchase under the captions "The Proposed Amendments" and "Appendix
A -- Description of the Discount Notes"), if (i) certificates representing the
Discount Notes to be tendered pursuant thereto and with respect to Consents to
be delivered are not lost but are not immediately available, (ii) the procedures
for book-entry transfer cannot be completed prior to the Expiration Date (as
defined below), or (iii) time will not permit all required documents to reach
the Depositary prior to the Expiration Date. This form may be delivered by an
Eligible Institution by mail or hand delivery or transmitted, via facsimile, to
the Depositary as set forth below. All capitalized terms used herein but not
defined herein shall have the meanings ascribed to them in the Offer to
Purchase. Unless otherwise indicated, references herein to the Offer shall be
deemed to include the Solicitation.
THE OFFER AND THE SOLICITATION ARE NOT BEING MADE TO (NOR WILL THE
SURRENDER OF DISCOUNT NOTES FOR PURCHASE BE ACCEPTED FROM OR ON BEHALF OF)
NOTEHOLDERS IN ANY JURISDICTION IN WHICH THE MAKING OR ACCEPTANCE OF THE OFFER
OR THE SOLICITATION WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF SUCH
JURISDICTION.
THE OFFER AND THE SOLICITATION WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON MAY 30, 1995 UNLESS EXTENDED (THE "EXPIRATION DATE").
TENDERED DISCOUNT NOTES MAY ONLY BE WITHDRAWN AND THE CORRESPONDING
CONSENTS MAY ONLY BE REVOKED, UNDER THE CIRCUMSTANCES DESCRIBED IN THE
OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL.
<PAGE> 2
The Depositary for the Offer is:
BANKERS TRUST COMPANY
<TABLE>
<S> <C> <C>
By Hand/Overnight Courier: Facsimile Transmission Number: By Mail:
Bankers Trust Company (212) 250-6275 Bankers Trust Company
Corporate Trust & Agency Group (212) 250-3290 Corporate Trust & Agency Department
Reorganization Department Reorganization Department
Receipt & Delivery Window Confirm by Telephone: P.O. Box 1458
123 Washington St., (212) 250-6270 Church Street Station
First Floor New York, NY 10008-1558
New York, NY 10006
For Information Call:
(800) 669-5550
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS, OR
TRANSMISSION VIA FACSIMILE, OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A
VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on the
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
Ladies and Gentlemen:
The undersigned hereby tender(s) to Holdings and delivers to Holdings
Consents with respect to, upon the terms and subject to the conditions set forth
in the Offer to Purchase and the Letter of Transmittal, receipt of which is
hereby acknowledged, the principal amount of Discount Notes set forth below
pursuant to the guaranteed delivery procedures set forth in the Offer to
Purchase under the caption "The Offer to Purchase and Solicitation -- Guaranteed
Delivery Procedure."
Subject to and effective upon acceptance for purchase of the Discount Notes
tendered herewith, the undersigned hereby sells, assigns and transfers to or
upon the order of Holdings all right, title and interest in and to, and any and
all claims in respect of or arising or having arisen as a result of the
undersigned's status as a holder of, all Discount Notes tendered hereby. The
undersigned authorizes the Depositary to deliver this Notice of Guaranteed
Delivery to Holdings and the Trustee as evidence of the undersigned's Consent to
the Proposed Amendments with respect to the Discount Notes tendered hereby and
as certification that Requisite Consents (as defined in the Offer to Purchase)
to the Proposed Amendments with respect to such Discount Notes have been
received. In the event of a termination of the Offer the Discount Notes tendered
pursuant thereto will be returned to the tendering Noteholder promptly.
The undersigned hereby represents and warrants that the undersigned accepts
the terms and conditions of the Offer to Purchase and the Letter of Transmittal,
owns the Discount Notes tendered hereby within the meaning of Rule 10b-4 under
the Securities Exchange Act of 1934, as amended, has full power and authority to
tender, sell, assign and transfer the Discount Notes tendered hereby and that
Holdings will acquire good and unencumbered title thereto, free and clear of all
liens, restrictions, charges and encumbrances and not subject to any adverse
claim. The undersigned will, upon request, execute and deliver any additional
documents deemed by the Depositary or Holdings to be necessary or desirable to
complete the sale, assignment and transfer of the Discount Notes tendered.
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death or incapacity of the undersigned and
every obligation of the undersigned under this Notice of Guaranteed Delivery
shall be binding upon the heirs, personal representatives, executors,
administrators, successors, assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
2
<PAGE> 3
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CERTIFICATE NUMBERS PRINCIPAL AMOUNT
(IF AVAILABLE) TO BE TENDERED*
------------------------------ ------------------------------
<S> <C> <C>
Discount Notes.................
------------------------------ ------------------------------
------------------------------ ------------------------------
------------------------------ ------------------------------
</TABLE>
- ---------------
* Must be in principal amounts equal to $1,000 or integral multiples thereof.
- --------------------------------------------------------------------------------
PLEASE SIGN AND COMPLETE
Signatures of Registered Holder(s) or Authorized Signatory:
- ------------------------------------------------------------
- ------------------------------------------------------------
Name(s) of Registered Holder(s):
- ------------------------------------------------------------
- ------------------------------------------------------------
Date:
------------------------------------------------------
Address:
----------------------------------------------------
- ------------------------------------------------------------
Area Code and Telephone No.:
If Discount Notes will be delivered by book-entry transfer, check trust company
below:
/ / The Depository Trust Company
/ / Midwest Securities Trust Company
/ / Philadelphia Depository Trust Company
Transaction Code No.:
--------------------------------------
Exchange Agent Account No.:
--------------------------------
3
<PAGE> 4
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a member firm of a registered national securities exchange
or of the National Association of Securities Dealers, Inc. or a commercial bank
or trust company having an office or a correspondent in the United States,
hereby guarantees that, within five New York Stock Exchange trading days from
the date of this Notice of Guaranteed Delivery, a properly completed and duly
executed Letter of Transmittal (or a facsimile thereof), together with
certificates representing the Discount Notes tendered hereby in proper form for
transfer (or confirmation of the book-entry transfer of such Discount Notes into
the Depositary's account at a Book-Entry Transfer Facility, pursuant to the
procedure for book-entry transfer set forth in the Offer to Purchase under the
caption "The Offer to Purchase and Solicitation -- Procedures for Tendering and
Consenting"), and any other required documents will be deposited by the
undersigned with the Depositary.
<TABLE>
<S> <C>
Name of Firm: -----------------------------------------
------------------------------------- Authorized Signature
Address: Name:
----------------------------------------- -----------------------------------------
Title:
- -------------------------------------------------- -----------------------------------------
Area Code and Telephone No. Date:
--------------------- -----------------------------------------
</TABLE>
DO NOT SEND DISCOUNT NOTES WITH THIS FORM. ACTUAL SURRENDER OF DISCOUNT
NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY COMPLETED AND
VALIDLY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS.
This Notice of Guaranteed Delivery must be signed by the Noteholder(s)
exactly as their name(s) appear on certificates for Discount Notes or on a
security position listing as the owner of Discount Notes, or by person(s)
authorized to become Noteholder(s) by endorsements and documents transmitted
with this Notice of Guaranteed Delivery. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, agent or
other person acting in a fiduciary or representative capacity, such person must
provide the following information:
Name:
----------------------------------------------------
(Please Type or Print)
Capacity:
-------------------------------------------------
Address:
-------------------------------------------------
-------------------------------------------------
(Zip Code)
4
<PAGE> 1
EXHIBIT 99.3
<TABLE>
<S> <C> <C>
BT SECURITIES CORPORATION CS FIRST BOSTON DONALDSON, LUFKIN & JENRETTE
ONE BANKERS TRUST PLAZA LEVERAGED FINANCE DEPARTMENT SECURITIES CORPORATION
130 LIBERTY STREET 55 E. 52ND STREET 140 BROADWAY
NEW YORK, NEW YORK 10006 NEW YORK, NEW YORK 10055 NEW YORK, NEW YORK 10005
</TABLE>
TO TENDER
AND
TO CONSENT TO CERTAIN INDENTURE AMENDMENTS
WITH RESPECT TO THE
15.25% SENIOR DISCOUNT NOTES DUE 2004
OF
FOOD 4 LESS HOLDINGS, INC.
PURSUANT TO OFFER TO PURCHASE AND
SOLICITATION STATEMENT DATED MAY 2, 1995
THE OFFER AND THE SOLICITATION WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON MAY 30, 1995, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF
15.25% SENIOR DISCOUNT NOTES DUE 2004, MAY ONLY BE WITHDRAWN AND THE
CORRESPONDING CONSENTS MAY ONLY BE REVOKED UNDER THE CIRCUMSTANCES DESCRIBED IN
THE OFFER TO PURCHASE AND SOLICITATION STATEMENT AND THE CONSENT AND LETTER OF
TRANSMITTAL.
May 2, 1995
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
We have been appointed by Food 4 Less, Inc., Food 4 Less Holdings, Inc.
("Holdings"), Food 4 Less Supermarkets, Inc., and its subsidiaries to act as the
Dealer Managers in connection with the offer (the "Offer") by Holdings, upon the
terms and subject to the conditions set forth in the Offer to Purchase and
Solicitation Statement dated May 2, 1995 (as the same may be amended or
supplemented from time to time, the "Offer to Purchase") and in the related
Consent and Letter of Transmittal and instructions contained therein (the
"Letter of Transmittal"), to holders of its 15.25% Senior Discount Notes Due
2004 (the "Discount Notes") to purchase for $785.00 in cash plus accrued cash
interest thereon at a rate of 15.25% per annum from and after March 15, 1995
until the Closing Date (the "Cash Consideration") for each $1,000 principal
amount (at maturity) of Discount Notes accepted for purchase. Holdings is also
soliciting (the "Solicitation") consents (the "Consents") from holders of the
Discount Notes ("Noteholders") to certain proposed amendments (the "Proposed
Amendments") to the indenture under which the Discount Notes were issued (the
"Discount Note Indenture") (as described in the Offer to Purchase under the
captions "The Proposed Amendments" and "Appendix A -- Description of the
Discount Notes"). Upon consummation of the Offer and the Solicitation, Holdings
will deliver the Cash Consideration to the holders of Discount Notes whose
Discount Notes are accepted by Holdings pursuant to the Offer. Unless otherwise
indicated, references herein to the Offer shall be deemed to include the
Solicitation.
THE OFFER AND THE SOLICITATION ARE NOT BEING MADE TO (NOR WILL THE
SURRENDER OF DISCOUNT NOTES FOR PURCHASE BE ACCEPTED FROM OR ON BEHALF OF)
NOTEHOLDERS IN ANY JURISDICTION IN WHICH THE MAKING OR ACCEPTANCE OF THE OFFER
OR THE SOLICITATION WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF THE
JURISDICTION.
<PAGE> 2
Enclosed herewith are copies of the following documents:
1. The Offer to Purchase and Solicitation Statement;
2. The Consent and Letter of Transmittal for your use and for the
information of your clients, together with guidelines of the Internal
Revenue Service for Certification of Taxpayer Identification Number on
Substitute Form W-9 providing information relating to backup federal income
tax withholding;
3. Notice of Guaranteed Delivery to be used to accept the Offer and
the Solicitation if the Discount Notes and all other required documents
cannot be delivered to the Depositary on or prior to the Expiration Date;
4. A form of letter which may be sent to your clients for whose
account you hold the Discount Notes in your name or in the name of a
nominee, with space provided for obtaining such clients' instructions with
regard to the Offer and the Solicitation; and
5. A return envelope addressed to the Depositary.
PLEASE NOTE THAT THE OFFER AND THE SOLICITATION WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON MAY 30, 1995 UNLESS EXTENDED. WE URGE YOU TO
CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE.
Holdings will not pay any fees or commissions to any broker or dealer or
other person (other than the Dealer Managers) for soliciting tenders of the
Discount Notes pursuant to the Offer and the Solicitation. You will be
reimbursed for customary mailing and handling expenses incurred by you in
forwarding the enclosed materials to your clients.
Additional copies of the enclosed documents may be obtained from the Dealer
Managers or the Information Agent, at their respective addresses and telephone
numbers set forth on the back cover of the enclosed Offer to Purchase.
BT SECURITIES CORPORATION
CS FIRST BOSTON CORPORATION
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON THE AGENT OF HOLDINGS, THE DEPOSITARY, THE INFORMATION AGENT
OR THE DEALER MANAGERS OR AUTHORIZE YOU OR ANY OTHER PERSON TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION ON BEHALF OF ANY OF THEM WITH RESPECT TO
THE OFFER OR THE SOLICITATION NOT CONTAINED IN THE OFFER TO PURCHASE OR THE
LETTER OF TRANSMITTAL.
<PAGE> 1
EXHIBIT 99.4
TO TENDER
AND
TO CONSENT TO CERTAIN INDENTURE AMENDMENTS
WITH RESPECT TO THE
15.25% SENIOR DISCOUNT NOTES DUE 2004
OF
FOOD 4 LESS HOLDINGS, INC.
PURSUANT TO THE OFFER TO PURCHASE AND
SOLICITATION STATEMENT DATED MAY 2, 1995
THE OFFER AND THE SOLICITATION WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON MAY 30, 1995, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS OF
15.25% SENIOR DISCOUNT NOTES DUE 2004, MAY ONLY BE WITHDRAWN AND THE
CORRESPONDING CONSENTS MAY ONLY BE REVOKED UNDER THE CIRCUMSTANCES DESCRIBED IN
THE OFFER TO PURCHASE AND SOLICITATION STATEMENT AND THE CONSENT AND LETTER OF
TRANSMITTAL.
TO OUR CLIENTS:
Enclosed for your consideration is the Offer to Purchase and Solicitation
Statement dated May 2, 1995 (as the same may be amended or supplemented from
time to time, the "Offer to Purchase") and a related form of Consent and Letter
of Transmittal and instructions thereto (the "Letter of Transmittal") relating
to (i) the offer (the "Offer") by Food 4 Less Holdings, Inc. ("Holdings"), to
holders of its 15.25% Senior Discount Notes Due 2004 (the "Discount Notes") to
purchase for $785.00 in cash plus accrued cash interest thereon at a rate of
15.25% per annum from and after March 15, 1995 until the Closing Date (the "Cash
Consideration") for each $1,000 principal amount (at maturity) of Discount Notes
accepted for purchase and (ii) the solicitation (the "Solicitation") of consents
(the "Consents") from holders of the Discount Notes ("Noteholders") to certain
proposed amendments (the "Proposed Amendments") to the indenture under which the
Discount Notes were issued (the "Discount Note Indenture") (as described in the
Offer to Purchase under the captions "The Proposed Amendments" and "Appendix
A -- Description of the Discount Notes").
Consummation of the Offer and the Solicitation are subject to certain
conditions described in the Offer to Purchase under the caption "The Offer to
Purchase and Solicitation -- Conditions." Capitalized terms used herein but not
defined shall have the meanings ascribed to them in the Offer to Purchase.
WE ARE THE REGISTERED HOLDER OF THE DISCOUNT NOTES HELD BY US FOR YOUR
ACCOUNT. A TENDER OF ANY SUCH DISCOUNT NOTES AND DELIVERY OF CONSENTS WITH
RESPECT THERETO CAN BE MADE ONLY BY US AS THE REGISTERED HOLDER AND PURSUANT TO
YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR
INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER DISCOUNT NOTES, OR DELIVER
A CONSENT WITH RESPECT TO SUCH DISCOUNT NOTES, HELD BY US FOR YOUR ACCOUNT.
Accordingly, we request instructions as to whether you wish us to tender
such Discount Notes held by us for your account, and deliver Consents with
respect to all of such Discount Notes so tendered, pursuant to the terms and
conditions set forth in the Offer to Purchase and the Letter of Transmittal. We
urge you to read the Offer to Purchase and the Letter of Transmittal carefully
before instructing us to tender your Discount Notes and to deliver Consents with
respect to Discount Notes. Unless otherwise indicated, references herein to the
Offer shall be deemed to include the Solicitation.
Your instructions to us should be forwarded as promptly as possible in
order to permit us to tender Discount Notes and deliver Consents with respect to
Discount Notes on your behalf in accordance with the provisions of the Offer to
Purchase and the Letter of Transmittal. The Offer and the Solicitation will
expire at 12:00 Midnight, New York City time, on May 30, 1995. Discount Notes
tendered pursuant to the Offer may only be withdrawn and the corresponding
Consents delivered pursuant to the Solicitation may only be revoked, under the
circumstances and subject to the procedures described in the Offer to Purchase
and the Letter of Transmittal. After receipt by the Trustee of, among other
<PAGE> 2
things, certification by Holdings that the Requisite Consents with respect to
the Discount Notes have been received, Holdings and the Trustee will execute a
supplemental indenture to evidence the adoption of the Proposed Amendments
relating to the Discount Notes (the "Supplemental Indenture"). Upon the
acceptance by Holdings of the Requisite Consents from holders of Discount Notes
and the execution of the Supplemental Indenture, such Supplemental Indenture
will immediately become effective. Although the Proposed Amendments relating to
the Discount Notes will become effective upon certification that the Requisite
Consents from holders of the Discount Notes have been received, such Proposed
Amendments will not be operative until Holdings has accepted for purchase all
Discount Notes validly tendered and not withdrawn.
Your attention is directed to the following:
1. The Offer is for the entire aggregate principal amount of the
outstanding Discount Notes.
2. The Offer and the Solicitation are not being made to (nor will the
surrender of Discount Notes for purchase be accepted from or on behalf of)
Noteholders in any jurisdiction in which the making or acceptance of the
Offer or the Solicitation would not be in compliance with the laws of such
jurisdiction.
3. A holder of Discount Notes who desires to tender into the Offer
with respect to any Discount Notes must tender all the Discount Notes
beneficially owned by such holder. The tender of Discount Notes pursuant to
the Offer will constitute the Consent of such tendering holder to the
Proposed Amendments with respect to such Discount Notes. Noteholders who
desire to accept the Offer must consent to the Proposed Amendments.
Noteholders do not have the option to consent to the Proposed Amendments
without tendering into the Offer.
4. The acceptance for purchase of Discount Notes validly tendered and
not validly withdrawn and the payment of the Cash Consideration will be
made as promptly as practicable after the Expiration Date. Subject to rules
promulgated pursuant to the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Holdings, however, expressly reserves the right to
delay acceptance of any of the Discount Notes or to terminate the Offer or
the Solicitation and not accept for purchase any Discount Notes not
theretofore accepted if any of the conditions set forth in the Offer to
Purchase under the caption "The Offer to Purchase and
Solicitation -- Conditions" shall not have been satisfied or waived by
Holdings. Holdings will pay the Cash Consideration for Discount Notes
pursuant to the Offer promptly following acceptance of the Discount Notes.
5. Consummation of the Offer and the Solicitation are subject to,
among other things, satisfaction or waiver of certain conditions, including
(i) the receipt of the Requisite Consents (i.e., Consents from Noteholders
representing at least a majority in aggregate principal amount of the
outstanding Discount Notes held by persons other than Holdings and its
affiliates) on or prior to the Expiration Date, (ii) satisfaction or waiver
in Holdings' sole discretion, of all conditions precedent to the Merger,
(iii) the prior or contemporaneous successful completion of the Other Debt
Financing Transactions (including the Public Offering), (iv) the prior or
contemporaneous consummation of the Bank Financing and the New Equity
Investment and (v) certain other conditions. See "The Offer to Purchase and
Solicitation -- Conditions" in the Offer to Purchase. There can be no
assurance that such conditions will be satisfied or waived. Holdings
reserves the right to waive certain limitations, to extend, terminate,
cancel or otherwise modify or amend the Offer in any respect.
6. Holdings expressly reserves the right, subject to applicable law
and the terms of the Offer and to the extent not inconsistent with the
terms of the Merger, the Other Debt Financing Transactions, the Bank
Financing or the New Equity Investment, (i) to delay acceptance for
purchase of any Discount Notes or, regardless of whether such Discount
Notes were theretofore accepted for purchase, to delay the purchase of any
Discount Notes pursuant to the Offer and to terminate the Offer and not
accept for purchase any Discount Notes not theretofore accepted for
purchase, upon the failure of any of the conditions to the Offer specified
herein to be satisfied, by giving oral or written notice of such delay or
termination to the Depositary and (ii) at any time, or from time to time,
to amend the Offer in any respect. Except as otherwise provided in the
Offer to Purchase, withdrawal rights with respect to Discount Notes
tendered pursuant to the Offer will not be extended or reinstated as a
result of an extension or amendment of the Offer. The reservation by
Holdings of the right to delay acceptance for purchase of Discount Notes is
subject to the provisions of Rule 14e-1(c) under the Exchange Act, which
requires that Holdings pay the consideration offered or return the Discount
Notes deposited by or on behalf of holders thereof promptly after the
termination or withdrawal of the Offer.
7. Consummation of the Offer and the effectiveness of the Proposed
Amendments may have adverse consequences to non-tendering Noteholders,
including that non-tendering Noteholders will no longer be entitled to the
benefit of certain of the restrictive covenants currently contained in the
Discount Indenture and that the reduced amount of outstanding Discount
Notes as a result of the Offer may adversely affect the trading market,
liquidity and market price of the Discount Notes. If the Requisite Consents
are received and accepted, the Proposed Amendments will be binding on all
non-tendering Noteholders.
2
<PAGE> 3
8. Any transfer taxes incident to the transfer of Discount Notes from
the tendering holder to Holdings will be paid by Holdings, except as
provided in the Offer to Purchase and the instructions to the Letter of
Transmittal.
If you wish to have us tender any Discount Notes held by us for your
account, and deliver your Consent to the Proposed Amendments with respect to all
of such Discount Notes, please so instruct us by completing, executing and
returning to us the instruction form that follows.
Any inquiries you may have with respect to the Offer and the Solicitation
or requests for additional copies of the Offer to Purchase or any other document
should be addressed to D.F. King & Co., Inc., the Information Agent, at one of
the addresses or telephone numbers set forth on the back cover of the enclosed
Offer to Purchase, or call toll free at 1-800-669-5550.
3
<PAGE> 4
INSTRUCTIONS REGARDING THE OFFER AND THE SOLICITATION
WITH RESPECT TO THE 15.25% SENIOR DISCOUNT NOTES DUE 2004 AND
OF FOOD 4 LESS HOLDINGS, INC.
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Offer and the Solicitation by
Holdings.
This will instruct you whether to tender the principal amount of Discount
Notes indicated below held by you for the account of the undersigned, and to
deliver my Consent to the Proposed Amendments with respect to such Discount
Notes, pursuant to the terms and conditions set forth in the Offer to Purchase
and the Letter of Transmittal.
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
TO BE TENDERED*
----------------------
<S> <C>
Discount Notes...........................................
----------------------
(please fill in blank)
</TABLE>
* Must be in principal amounts equal to $1,000 or integral multiples thereof.
Date: , 1995
---------------------------------
---------------------------------
Signature(s)
---------------------------------
---------------------------------
Please print name(s) here
---------------------------------
---------------------------------
---------------------------------
Please type or print address
---------------------------------
Area Code and Telephone Number
---------------------------------
Taxpayer Identification or Social
Security Number
---------------------------------
My Account Number with You
4
<PAGE> 1
EXHIBIT 99.5
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
WHAT NAME AND NUMBER TO GIVE THE REQUESTER
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------
GIVE THE NAME AND
FOR THIS TYPE OF ACCOUNT: SOCIAL SECURITY
NUMBER OF --
- ---------------------------------------------------------
1. Individual The individual
2. Two or more individuals The actual owner of
(joint account) the account or, if
combined funds, the
first individual on
the account(1)
3. Custodian account of a minor The minor(2)
(Uniform Gift to Minors Act)
4. a. The usual revocable The grantor-
savings trust (grantor is trustee(1)
also trustee)
b. So-called trust account The actual owner(1)
that is not a legal or valid
trust under state law
5. Sole proprietorship The owner(3)
- ---------------------------------------------------------
GIVE THE NAME AND
FOR THIS TYPE OF ACCOUNT: EMPLOYER
IDENTIFICATION
NUMBER OF --
- ---------------------------------------------------------
6. Sole proprietorship The owner(3)
7. A valid trust, estate, or Legal entity(4)
pension trust
8. Corporate The corporation
9. Association, club, The organization
religious, charitable,
educational, or other
tax-exempt organization
10. Partnership The partnership
11. A broker or registered The broker or nominee
nominee
12. Account with the Department The public entity
of Agriculture in the name
of a public entity (such as
a state or local government,
school district, or prison)
that receives agricultural
program payments
</TABLE>
- ------------------------------------------------------------------
1 List first and circle the name of the person whose number you furnish.
2 Circle the minor's name and furnish the minor's social security number.
3 Show the individual's name. See Item 5 or 6. You may also enter your business
name.
4 List first and circle the name of the legal trust, estate, or pension trust.
(Do not furnish the identification number of the personal representative or
trustee unless the legal entity itself is not designated in the account
title.)
NOTE: If no name is circled when there is more than one name listed, the number
will be considered to be that of the first name listed.
------------------------
INSTRUCTIONS
(Section references are to the Internal Revenue Code.)
PURPOSE OF FORM. -- A person who is required to file an information return with
the Internal Revenue Service (the IRS) must obtain your correct taxpayer
identification number (TIN) to report income paid to you, real-estate
transactions, mortgage interest you paid, the acquisition or abandonment of
secured property, or contributions you made to an individual retirement
arrangement (IRA). Use Form W-9 to furnish your correct TIN to the requester
(the person asking you to furnish your TIN), and, when applicable, (1) to
certify that the TIN you are furnishing is correct (or that you are waiting for
a number to be issued), (2) to certify that you are not subject to backup
withholding, and (3) to claim exemption from backup withholding if you are an
exempt payee. Furnishing your correct TIN and making the appropriate
certifications will prevent certain payments from being subject to backup
withholding.
NOTE: If a requester gives you a form other than a W-9 to request your TIN, you
must use the requester's form.
HOW TO OBTAIN A TIN. -- If you do not have a TIN, apply for one immediately. To
apply, get Form SS-5, Application for a Social Security Card (SSN) (for
individuals), from your local office of the Social Security Administration, or
Form SS-4, Application for Employer Identification Number (EIN) (for businesses
and all other entities) from your local IRS office.
Generally, you will then have 60 days to obtain a TIN and furnish it to the
requester. If the requester does not receive your TIN within 60 days, backup
withholding, if applicable, will begin and continue until you furnish your TIN
to the requester. For reportable interest or dividend payments, the payer must
exercise one of the following options concerning backup withholding during this
60-day period. Under option (1), a payer must backup withhold on any withdrawals
you make from your account after 7 business days after the requester receives
this form back from you. Under option (2), the payer must backup withhold on any
reportable interest or dividend payments made to your account, regardless of
whether you make any withdrawals. The backup withholding under option (2) must
begin no later than 7 business days after the requester receives this form back.
Under option (2), the payer is required to refund the amounts withheld if your
certified TIN is received within the 60-day period and you were not subject to
backup withholding during the period.
NOTE: Checking the box in Part II on the Substitute Form W-9 means that you have
already applied for a TIN or that you intend to apply for one in the near
future.
As soon as you receive your TIN, complete another Form W-9, include your
TIN, sign and date this form, and give it to the requester.
(continued on back)
<PAGE> 2
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
WHAT IS BACKUP WITHHOLDING? -- Persons making certain payments to you are
required to withhold and pay to the IRS 31% of such payments under certain
conditions. This is called "backup withholding." Payments that could be subject
to backup withholding include interest, dividends, broker and barter exchange
transactions, rents, royalties, nonemployee compensation, and certain payments
from fishing boat operators, but do not include real estate transactions.
If you give the requester your correct TIN, make the appropriate
certifications, and report all your taxable interest and dividends on your tax
return, your payments will not be subject to backup withholding. Payments you
receive will be subject to backup withholding if:
(1) You do not furnish your TIN to the requester, or
(2) The IRS notifies the requester that you furnished an incorrect TIN, or
(3) You are notified by the IRS that you are subject to backup withholding
because you failed to report all your interest and dividends on your tax return
(for reportable interest and dividends only), or
(4) You fail to certify to the requester that you are not subject to backup
withholding under (3) above (for reportable interest and dividend accounts
opened after 1983 only), or
(5) You fail to certify your TIN. This applies only to reportable interest,
dividend, broker, or barter exchange accounts opened after 1983, or broker
accounts considered inactive in 1983.
Except as explained in (5) above, other reportable payments are subject to
backup withholding only if (1) or (2) above applies. Certain payees and payments
are exempt from backup withholding and information reporting. See Payees and
Payments Exempt From Backup Withholding, below, and Exempt Payees and Payments
under Specific Instructions, below, if you are an exempt payee.
PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING. -- The following is a list
of payees exempt from backup withholding and for which no information reporting
is required. For interest and dividends, all listed payees are exempt except
Item (9). For broker transactions, payees listed in (1) through (13) and a
person registered under the Investment Advisors Act of 1940 who regularly acts
as a broker are exempt. Payments subject to reporting under sections 6041 and
6041A are generally exempt from backup withholding only if made to payees
described in Items (1) through (7), except that a corporation that provides
medical and health care services or bills and collects payments for such
services is not exempt from backup withholding or information reporting. Only
payees described in Items (2) through (6) are exempt from backup withholding for
barter exchange transactions, patronage dividends, and payments by certain
fishing boat operators.
(1) A corporation.
(2) An organization exempt from tax under section 501(a), or an Individual
Retirement Plan (IRA), or a custodial account under section 403(b)(7).
(3) The United States or any of its agencies or instrumentalities.
(4) A state, the District of Columbia, a possession of the United States, or
any of their political subdivisions or instrumentalities.
(5) A foreign government or any of its political subdivisions, agencies, or
instrumentalities.
(6) An international organization or any of its agencies or
instrumentalities.
(7) A foreign central bank of issue.
(8) A dealer in securities or commodities required to register in the U.S.
or a possession of the U.S.
(9) A futures commission merchant registered with the Commodity Futures
Trading Commission.
(10) A real estate investment trust.
(11) An entity registered at all times during the tax year under the
investment Company Act of 1940.
(12) A common trust fund operated by a bank under section 584(a).
(13) A financial institution.
(14) A middleman known in the investment community as a nominee or listed in
the most recent publication of the American Society of Corporation Secretaries,
Inc., Nominee List.
(15) A trust exempt from tax under section 664 or described in section 4947.
Payments of dividends and patronage dividends generally not subject to
backup withholding include the following:
o Payments to nonresident aliens subject to withholding under
section 1441.
o Payments to partnerships not engaged in trade or business in the U.S. and
that have at least one nonresident partner.
o Payments of patronage dividends not paid in money.
o Payments made by certain foreign organizations.
Payments of interest generally not subject to backup withholding include the
following:
o Payments of interest on obligations issued by individuals.
NOTE: You may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the payer's trade or business and you have not
provided your correct TIN to the payer.
o Payments of tax-exempt interest (including exempt-interest dividends under
section 852).
o Payments described in section 6049(b)(5) to nonresident aliens.
o Payments on tax-free covenant bonds under section 1451.
o Payments made by certain foreign organizations.
o Mortgage interest paid by you.
Payments that are not subject to information reporting are also not subject to
backup withholding. For details, see sections 6041, 6041A(a), 6042, 6044, 6045,
6049, 6050A, and 6050N, and their regulations.
PENALTIES
FAILURE TO FURNISH TIN. -- If you fail to furnish your correct TIN to a
requester, you are subject to a penalty of $50 for each such failure unless your
failure is due to reasonable cause and not to willful neglect.
CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING. -- If you make
a false statement with no reasonable basis that results in no backup
withholding, you are subject to a $500 penalty.
CRIMINAL PENALTY FOR FALSIFYING INFORMATION. -- Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
SPECIFIC INSTRUCTIONS
NAME. -- If you are an individual, you must generally provide the name shown on
your social security card. However, if you have changed your last name, for
instance, due to marriage, without informing the Social Security Administration
of the name change please enter your first name, the last name shown on your
social security card and your new last name.
If you are a sole proprietor, you must furnish your individual name and
either your SSN or EIN. You may also enter your business name on the business
name line. Enter your name(s) as shown on your social security card and/or as it
was used to apply for your EIN on Form SS-4.
SIGNING THE CERTIFICATION. --
(1) INTEREST, DIVIDEND, AND BARTER EXCHANGE ACCOUNTS OPENED BEFORE 1984 AND
BROKER ACCOUNTS CONSIDERED ACTIVE DURING 1983. -- You are required to furnish
your correct TIN, but you are not required to sign the certification.
(2) INTEREST, DIVIDEND, BROKER AND BARTER EXCHANGE ACCOUNTS OPENED AFTER 1983
AND BROKER ACCOUNTS CONSIDERED INACTIVE DURING 1983. -- You must sign the
certification or backup withholding will apply. If you are subject to backup
withholding and you are merely providing your correct TIN to the requester, you
must cross out part (2) in the certification before signing the form.
(3) REAL ESTATE TRANSACTIONS. -- You must sign the certification. You may cross
out part (2) of the certification.
(4) OTHER PAYMENTS. -- You are required to furnish your correct TIN, but you are
not required to sign the certification unless you have been notified of an
incorrect TIN. Other payments include payments made in the course of the
requester's trade or business for rents, royalties, goods (other than bills for
merchandise), medical and health care services, payments to a nonemployee for
services (including attorney and accounting fees), and payments to certain
fishing boat crew members.
(5) MORTGAGE INTEREST PAID BY YOU, ACQUISITION OR ABANDONMENT OF SECURED
PROPERTY, OR IRA CONTRIBUTIONS. -- You are required to furnish your correct TIN,
but you are not required to sign the certification.
(6) EXEMPT PAYEES AND PAYMENTS. -- If you are exempt from backup withholding,
you should complete this form to avoid possible erroneous backup withholding.
Enter your correct TIN in Part 1, write "EXEMPT" in the block in Part 2, sign
and date the form. If you are a nonresident alien or foreign entity not subject
to backup withholding, give the requester a completed FORM W-8, Certificate of
Foreign Status.
(7) "AWAITING TIN." -- Follow the instructions under How To Obtain a TIN, on
page 1, check the box in Part 3 of the Substitute Form W-9 and sign and date the
form.
SIGNATURE. -- For a joint account, only the person whose TIN is shown in Part 1
should sign this form.
PRIVACY ACT NOTICE. -- Section 6109 requires you to furnish your correct TIN to
persons who must file information returns with the IRS to report interest,
dividends, and certain other income paid to you, mortgage interest you paid, the
acquisition or abandonment of secured property, cancellation of debt or
contributions you made to an individual retirement arrangement (IRA). The IRS
uses the numbers for identification purposes and to help verify the accuracy of
your tax return. You must provide your TIN whether or not you are required to
file a tax return. Payers must generally withhold 31% of taxable interest,
dividend, and certain other payments to a payee who does not furnish a TIN to a
payer. Certain penalties may also apply.
