<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 2, 1995
REGISTRATION NO. 33-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FOOD 4 LESS HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
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
REGISTRANT'S 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
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time
to time 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/
------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
TITLE OF EACH MAXIMUM MAXIMUM AMOUNT OF
CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER DEBENTURE(1) OFFERING PRICE(1) FEE
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<S> <C> <C> <C> <C>
13 5/8% Senior Discount
Debentures due 2007............. $193,363,570(1) $517.16 $100,000,000 $34,483
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</TABLE>
(1) Estimated solely for purposes of computing the registration fee pursuant to
Rule 457.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SECTION 8(A) MAY
DETERMINE.
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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
<TABLE>
<CAPTION>
ITEM NO. FORM S-1 CAPTION PROSPECTUS CAPTION
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<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. Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges....... Summary; Risk Factors; Business; Selected
Historical Financial Data of Holdings
4. Use of Proceeds.......................... Summary; The Merger and the Financing;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations
5. Determination of Offering Price.......... *
6. Dilution................................. *
7. Selling Security Holders................. Selling Debentureholder
8. Plan of Distribution..................... Plan of Distribution
9. Description of Securities to be
Registered............................... Summary; Description of the New Discount
Debentures
10. Interests of Named Experts and Counsel... *
11. Information with Respect to the
Registrant............................... Summary; Selected Historical Financial
Data of Holdings; Pro Forma
Capitalization; Management's Discussion
and Analysis of Financial Condition and
Results of Operations; Business;
Management; Executive Compensation;
Principal Stockholders; Certain
Relationships and Related Transactions;
Consolidated Financial Statements of
Holdings; Consolidated Financial
Statements of RSI; Unaudited Pro Forma
Combined Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. *
</TABLE>
- ---------------
* Inapplicable
<PAGE> 3
PROSPECTUS
FOOD 4 LESS HOLDINGS, INC.
[FOOD 4 LESS LOGO] [RALPHS LOGO]
13 5/8% SENIOR DISCOUNT DEBENTURES DUE 2005
------------------------------
The 13 5/8% Senior Discount Debentures due 2005 (the "New Discount
Debentures") of Food 4 Less Holdings, Inc., a Delaware corporation ("New
Holdings"), may be offered hereby from time to time by the holder thereof named
herein (the "Selling Debentureholder"). The New Discount Debentures will be
issued upon the Closing Date of the Merger (each as defined) in an aggregate
principal amount (at maturity) of $193,363,570 and will mature on July 15, 2005.
No interest will accrue on the New Discount Debentures until June 15, 2000, but
the New Discount Debentures will accrete in value at a rate of 13 5/8%
(representing the amortization of the original issue discount) from the date of
original issuance until June 15, 2000, such that the Accreted Value (as defined)
shall be equal to the full principal amount (at maturity) of the New Discount
Debentures on June 15, 2000. Beginning on June 15, 2000, cash interest on the
New Discount Debentures will accrue at a rate of 13 5/8% per annum and will be
payable semiannually in arrears on June 15 and December 15 of each year,
commencing December 15, 2000.
The New Discount Debentures may be redeemed, in whole or in part at the
option of New Holdings, at any time after June 15, 2000, at the redemption
prices set forth herein, plus accrued and unpaid interest to the redemption
date. In addition, prior to June 15, 1998, New Holdings may, at its option, use
the Net Proceeds (as defined) of a Public Equity Offering (as defined) to redeem
up to an aggregate of 35% of the principal amount of the New Discount Debentures
at a redemption price equal to 110% of the Accreted Value thereof. Upon a Change
of Control (as defined), each holder of New Discount Debentures will have a
right to require New Holdings to repurchase such holder's New Discount
Debentures at a price equal to 101% of the Accreted Value or the principal
amount, plus accrued and unpaid interest, if any, thereof (as the case may be)
to the date of repurchase. The New Discount Debentures will be senior unsecured
obligations of New Holdings, will rank senior in right of payment to all
Subordinated Indebtedness (as defined) of New Holdings. At January 29, 1995, on
a pro forma basis after giving effect to the Merger, the FFL Merger, the
Reincorporation Merger and the Financing (each as defined) (and certain related
assumptions), the aggregate outstanding amount of Subordinated Indebtedness of
New Holdings would have been approximately $131.5 million. In addition, the New
Discount Debentures will effectively be subordinated to all liabilities
(including trade payables) of the Company which on the same pro forma basis
would have been approximately $2,833.1 million (excluding letters of credit) at
such date. New Holdings will receive no part of the proceeds of the sale of the
New Discount Debentures offered pursuant to this Prospectus but will incur
certain expenses, estimated at $861,983, in connection with the offering. See
"Description of the New Discount Debentures" and "Selling Debentureholder."
The New Discount Debentures will be issued (the "New Discount Debenture
Placement") in part to the Selling Debentureholder and in part to partners of
the Selling Debentureholders who will contribute their New Discount Debentures
to the Selling Debentureholder. A portion of the New Discount Debentures will be
issued as part of the consideration for the proposed merger (the "RSI Merger")
of 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, Food 4 Less, Inc. ("FFL"), the parent
corporation of Food 4 Less Holdings, Inc., a California corporation
("Holdings"), 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 its wholly-owned
subsidiary New Holdings (the "Reincorporation Merger"). See "The Merger and the
Financing."
------------------------------
SEE "RISK FACTORS" AT PAGE 17 FOR A DISCUSSION OF CERTAIN FACTORS TO BE
CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NEW DISCOUNT DEBENTURES.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------------
This Prospectus relates to the public offering of the New Discount
Debentures by the Selling Debentureholder following the consummation of the
Merger. See "Selling Debentureholder." The Selling Debentureholder directly,
through agents designated from time to time, or through dealers or underwriters
also to be designated, may sell the New Discount Debentures from time to time on
terms to be determined at the time of sale. To the extent required, the specific
New Discount Debentures to be sold, the names of the Selling Debentureholder,
the respective purchase prices and public offering prices, the aggregate
principal amount of New Discount Debentures being offered, the terms of the
offering, the names of any such agent, dealer or underwriter, and any discounts,
commissions or other items constituting compensation from the Selling
Debentureholder, and any discounts, commissions or concessions allowed or
reallowed or paid to dealers, with respect to a particular offer will be set
forth in an accompanying prospectus supplement. See "Plan of Distribution."
The Selling Debentureholder and any broker-dealers, agents or underwriters
that participate with the Selling Debentureholder in the distribution of the New
Discount Debentures may be deemed to be "underwriters" within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), and any commissions
received by them and any profit on the resale of the New Discount Debentures
purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act.
------------------------------
The date of this Prospectus is June 2, 1995
<PAGE> 4
(cover page continued)
In addition to the issuance of the New Discount Debentures by New Holdings,
as part of the financial and solicitation transactions required to consummate
the Merger, Food 4 Less is (A) offering $350 million principal amount of new
10.45% Senior Notes due 2004 (the "New F4L Senior Notes") pursuant to a public
offering (the "Senior Note Public Offering") and offering $100 million principal
amount of new 11% Senior Subordinated Notes due 2005 (the "New RGC Notes")
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, (B) offering to holders of its 10.45%
Senior Notes due 2000 (the "Old F4L Senior Notes") to exchange such Old F4L
Senior Notes for additional New F4L Senior Notes (which will be part of the same
issue as the New F4L Senior Notes offered pursuant to the Senior Notes Public
Offering) plus $5.00 in cash for each $1,000 principal amount of Old F4L Senior
Notes exchanged and offering to holders of its 13.75% Senior Subordinated Notes
due 2001 (the "Old F4L Senior Subordinated Notes," and together with the Old F4L
Senior Notes, the "Old F4L Notes") to exchange such Old F4L Senior Subordinated
Notes for new 13.75% Senior Subordinated Notes due 2005 (the "New F4L Senior
Subordinated Notes," and together with the New F4L Senior Notes, the "New F4L
Notes") plus $20.00 in cash for each $1,000 principal amount of Old F4L Senior
Subordinated Notes exchanged, in each case plus accrued and unpaid interest
thereon, (C) soliciting consents from holders of the Old F4L Notes to certain
amendments to the indentures (collectively, the "Old F4L Indentures") under
which the Old F4L Notes were issued (such transactions being referred to herein
collectively as the "F4L Exchange Offers"), (D) 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 additional New RGC Notes (which will be part
of the same issue as the New RGC Notes offered pursuant to the Subordinated Note
Public Offering) 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, in each
case plus accrued and unpaid interest thereon, and (E) soliciting consents from
the holders of 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," and together with the F4L Exchange Offers, the "Exchange Offers").
Concurrently with the Public Offerings, the F4L Exchange Offers and the RGC
Offers, Holdings, which currently owns 100% of the outstanding stock of Food 4
Less, is (A) offering to holders of its 15.25% Senior Discount Notes due 2004
(the "Discount Notes") to purchase such Discount Notes 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) for each $1,000 principal amount
(at maturity) of Discount Notes accepted for purchase and (B) soliciting
consents from the holders of Discount Notes to certain amendments to the
indenture (the "Discount Note Indenture") under which the Discount Notes were
issued (such transactions being referred to herein collectively as the "Holdings
Offer to Purchase"). See "The Merger and the Financing," "Description of Other
Indebtedness" and "The Exchange Offers and the Public Offerings."
Concurrently with issuance of the New Discount Debentures and the
consummation of the other financing transactions described above, Food 4 Less
and RGC intend to obtain new senior financing (the "Bank Financing") pursuant to
a senior bank facility of $925 million (the "New Credit Facility") and to obtain
$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 principal amount of 13 5/8% Senior Subordinated
Pay-in-Kind Debentures due 2007 (the "Seller Debentures"). See "The Merger and
the Financing." The Exchange Offers, the Holdings Offer to Purchase and the
Public Offerings are sometimes hereinafter referred to as the "Other Debt
Financing Transactions."
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 New Discount Debenture Placement, the Other Debt
Financing Transactions, the New Equity Investment
ii
<PAGE> 5
(cover page continued)
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 Old F4L
Indentures or the Discount Note Indenture and no change of control purchase
offer will be made with respect to the Old F4L Notes or the Discount Notes.
AVAILABLE INFORMATION
New Holdings has filed a Registration Statement (the "Registration
Statement") on Form S-1 with the Securities and Exchange Commission (the
"Commission") under the Securities Act, with respect to the New Discount
Debentures. Each of Holdings, Food 4 Less and RGC is subject to the reporting
and other informational requirements of the Securities Exchange Act of 1934, as
amended (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.
In addition, whether or not it is required to do so by the rules and
regulations of the Commission, New Holdings is obligated under the New Discount
Debenture Indenture (as defined) to file with the Commission (i) all quarterly
and annual financial information that would be required to be contained in a
filing with the Commission on Forms 10-Q and 10-K, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report thereon by Holdings'
independent certified public accountants and (ii) all reports that would be
required to be filed with the Commission on Form 8-K. New Holdings intends to
furnish to each holder of New Discount Debentures, upon their request, annual
reports containing audited financial statements and quarterly reports containing
unaudited financial information for the first three quarters of each fiscal
year. Any such request should be directed to Jan Charles Gray, Esq., Senior Vice
President, General Counsel and Secretary of Ralphs Grocery Company at 1100 West
Artesia Boulevard, Compton, California 90220, telephone number (310) 884-4000.
This Prospectus summarizes the contents and terms of documents not included
herewith. These documents are available upon request from 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.
iii
<PAGE> 6
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the Financial Statements and notes thereto appearing elsewhere in this
Prospectus. Unless the context otherwise requires, (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 Prospectus 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.
New Holdings was incorporated in Delaware on December 19, 1994, under the
direction of its parent corporation, Food 4 Less Holdings, Inc., a California
corporation. Prior to the consummation of the Reincorporation Merger, New
Holdings will have neither any business operations nor any material assets of
its own. In addition, 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. However, 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 $3.1 billion, operating income
of approximately $183 million and $99 million and EBITDA (as defined) of
approximately $343 million and $211 million for the 52 weeks ended June 25, 1994
and the 31 weeks ended January 29, 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. Manage-
1
<PAGE> 7
ment believes the Food 4 Less warehouse format has demonstrated its appeal to
a wide range of demographic groups in Southern California and offers a
significant opportunity for future growth. The Company plans to open nine new
Food 4 Less warehouse stores and 21 new Ralphs stores over the next two years.
- - SUBSTANTIAL COST SAVINGS OPPORTUNITIES. Management believes that approximately
$90 million of net annual cost savings (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 conventional 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
2
<PAGE> 8
cost savings of approximately $16 million will be achieved by the third
full year of combined operations after certain capital expenditures on
existing facilities are completed.
-- CONSOLIDATED MANUFACTURING. Ralphs and Food 4 Less operate manufacturing
facilities that produce similar products or have excess capacity.
Management believes that consolidating meat, bakery, dairy, and other
manufacturing and processing operations, and discontinuing external
purchases of certain goods that can be manufactured internally, will
achieve annual cost savings of approximately $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> 9
"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 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 $600 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"), $6.5 million of which is
anticipated to be drawn at closing.
- The issuance of $350 million of New F4L Senior Notes pursuant to the
Senior Note Public Offering.
- The issuance of $100 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. and Apollo Advisors II, L.P. (on behalf of one or more
managed entities) or their respective affiliates and designees
("Apollo") and including affiliates of BT Securities Corporation ("BT
Securities"), CS First Boston Corporation ("CS First Boston") and
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") and other
institutional investors, yielding cash proceeds of $140 million pursuant
to the 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." Each of BT Securities, CS First Boston
and DLJ is acting as an Underwriter in the Public Offerings and as a
Dealer Manager in the Exchange Offers and the Holdings Offer to
Purchase.
- 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> 10
- 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) $17.5
million, $2.5 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 $162.9 million of other indebtedness of RGC and Food 4
Less.
- The purchase by Holdings pursuant to the Holdings Offer to Purchase of
Discount Notes 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 June 1, 1995 had an accreted value of $688.43 per
$1,000) accepted for purchase, together with the solicitation of
consents from the holders of the Discount Notes to certain amendments to
the Discount Note Indenture.
5
<PAGE> 11
The following table illustrates the sources and uses of funds to consummate
the Merger, assuming the transaction occurs as of June 15, 1995. Based upon
tenders received through May 26, 1995 (and, in the case of the Discount Notes,
anticipated tenders as of the Closing Date), this presentation assumes that
$423.0 million principal amount of Old RGC Notes is tendered into the RGC Offers
in exchange for New RGC Notes (representing 94.0% of the outstanding aggregate
principal amount of Old RGC Notes), $27.0 million principal amount of Old RGC
Notes is tendered into the RGC Offers for cash (representing 6.0% of the
outstanding aggregate principal amount of Old RGC Notes), $145.3 million
principal amount of Old F4L Senior Notes and $140.7 million principal amount of
Old F4L Senior Subordinated Notes are tendered into the F4L Exchange Offers
(representing 83.0% and 97.0% of the outstanding aggregate principal amount of
Old F4L Senior Notes and Old F4L Senior Subordinated Notes, respectively) and
$103.6 million principal amount (at maturity) of Discount Notes is tendered into
the Holdings 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 F4L
Exchange Offers, the RGC Offers and the Holdings Offer to Purchase.
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)................ $ 600.0 Purchase RSI Common Stock(j)....... $ 375.9
New Revolving Facility(b)........ 6.5 Purchase Old RGC Notes(k).......... 27.3
New F4L Senior Notes(c).......... 350.0 Purchase Discount Notes............ 84.4
New RGC Notes(d)................. 100.0 Repay Ralphs 1992 Credit
New Equity Investment(e)......... 140.0 Agreement........................ 238.2
New Discount Debentures(f)....... 59.0 Repay F4L Credit Agreement......... 160.8
Pay Accrued Interest(l)............ 34.4
EAR Related Payments(m)............ 22.8
Repay Mortgage Indebtedness(n)..... 194.4
Purchase New Holdings Common
Stock(o)......................... 3.7
Fees and Expenses(p)............... 113.6
-------- --------
Total Cash Sources............ $1,255.5 Total Cash Uses.................... $1,255.5
======== ========
NON-CASH SOURCES NON-CASH USES
- --------------------------------------------- ---------------------------------------------
New F4L Senior Notes(g).......... $ 145.3 Old F4L Senior Notes Exchanged..... $ 145.3
Assumed Old F4L Senior Notes..... 29.7 Assumed Old F4L Senior Notes....... 29.7
New F4L Senior Subordinated Old F4L Senior Subordinated Notes
Notes......................... 140.7 Exchanged........................ 140.7
Assumed Old F4L Senior Assumed Old F4L Senior Subordinated
Subordinated Notes............ 4.3 Notes............................ 4.3
New RGC Notes(h)................. 423.0 Old RGC Notes Exchanged............ 423.0
New Discount Debentures(f)....... 41.0 Fees and Expenses(p)............... 22.5
Assumed Capital Leases and Other Assumed Capital Leases and Other
Debt.......................... 162.9 Debt............................. 162.9
Seller Debentures(i)............. 131.5 Purchase RSI Common Stock(i)....... 150.0
-------- --------
Total Non-Cash Sources........ $1,078.4 Total Non-Cash Uses................ $1,078.4
======== ========
</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 $925 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 $600 million, comprised of a $275 million tranche with a six year
term (the "Tranche A Loan"), a $108.3 million tranche with a seven year
term (the "Tranche B Loan"), a $108.3 million tranche with an eight year
term (the "Tranche C Loan"), and a $108.4 million tranche with a nine year
term (the "Tranche D Loan," and, 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."
6
<PAGE> 12
(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.
(d) Represents New RGC Notes issued pursuant to the Subordinated Note Public
Offering.
(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 a portion of the New Discount Debentures having an aggregate
initial accreted value of $100 million, $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 $17.5 million, $2.5 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 $18.5 million
initial accreted value of New Discount Debentures and $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 Seller Debentures 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.
(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 $174.0 million, plus the estimated amount of the
prepayment fees payable with respect thereto.
(o) Represents the purchase of shares of New Holdings common stock from
stockholders who have exercised statutory dissenters' rights in connection
with the FFL Merger. There are no other shares subject to statutory
dissenters' rights.
(p) The $136.1 million in total cash and non-cash fees and expenses includes
advisory fees of $21.5 million to be paid to Yucaipa, other fees of $2.5
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, $17.5 million
of Yucaipa's advisory fee, $2.5 million of Apollo's commitment fee and BT
Securities' $2.5 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> 13
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> 14
AFTER MERGER, FFL MERGER AND REINCORPORATION MERGER
[SEE EDGAR APPENDIX]
9
<PAGE> 15
THE OFFERING
<TABLE>
<S> <C>
ISSUER................... Food 4 Less Holdings, Inc., a Delaware corporation.
SECURITIES OFFERED....... $193,363,570 aggregate principal amount (at maturity) of 13 5/8%
Senior Discount Debentures due 2005, with an Accreted Value of
$100,000,000 on the issue date. The initial Accreted Value per
$1,000 principal amount of New Discount Debentures will be $517.16
(representing the original purchase price).
MATURITY DATE............ July 15, 2005.
INTEREST................. Until June 15, 2000, no interest will accrue on the New Discount
Debentures, but the New Discount Debentures will accrete in value
at a rate of 13 5/8% (representing the amortization of the
original issue discount) from the date of original issuance until
June 15, 2000, on a semi-annual bond equivalent basis using a
360-day year comprised of twelve 30-day months, such that the
Accreted Value shall be equal to the full principal amount of the
New Discount Debentures on June 15, 2000. Beginning on June 15,
2000, cash interest on the New Discount Debentures will accrue at
a rate of 13 5/8% per annum and will be payable semiannually in
arrears on June 15 and December 15 of each year, commencing
December 15, 2000, to the holders of record on the immediately
preceding June 1 and December 1. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months and
actual number of days elapsed.
ORIGINAL ISSUE
DISCOUNT............... The New Discount Debentures will be issued with original issue
discount equal to the difference between their issue price and
their stated redemption price at maturity. As a result, initial
holders of New Discount Debentures will be required to include
amounts in gross income before receiving cash payments
attributable to such gross income. See "Certain Federal Income Tax
Considerations."
OPTIONAL REDEMPTION...... The New Discount Debentures will be redeemable at the option of
New Holdings, in whole or in part, at any time on or after June
15, 2000, at the redemption prices set forth below plus accrued
and unpaid interest to the redemption date, if redeemed during the
12-month period beginning June 15 of the years indicated:
</TABLE>
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2000................................................... 106.8125%
2001................................................... 105.1094%
2002................................................... 103.4063%
2003................................................... 101.7031%
2004 and thereafter.................................... 100.0000%
In addition, prior to June 15, 1998, New Holdings may at its
option use the Net Proceeds from a Public Equity Offering of New
Holdings or the Company to redeem up to an aggregate of 35% of the
principal amount of the New Discount Debentures at a redemption
price equal to 110% of the Accreted Value thereof.
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. In addition, the New Discount Debentures will
effectively be subordinated to all liabilities (including trade
payables) of the Company. At January 29, 1995, on a pro
</TABLE>
10
<PAGE> 16
<TABLE>
<S> <C>
forma basis after giving effect to the Merger, the FFL Merger, the
Reincorporation Merger and the Financing (and certain related
assumptions) New Holdings would have had outstanding $131.5
million of Subordinated Indebtedness, and all liabilities
(including trade payables) of the Company would have been
approximately $2,833.1 million (excluding letters of credit).
CHANGE OF CONTROL........ Upon the occurrence of a Change of Control (as defined), each
holder of New Discount Debentures will have the right to require
New Holdings to repurchase such holder's New Discount Debentures
at a purchase price equal to 101% of the Accreted Value or the
principal amount plus accrued and unpaid interest, if any, thereof
(as the case may be) to the date of repurchase.
CERTAIN COVENANTS........ The New Discount Debenture Indenture will contain certain
covenants, including, but not limited to, covenants with respect
to the following: (i) limitation on restricted payments; (ii)
limitation on incurrences of additional indebtedness; (iii)
limitation on liens; (iv) limitation on asset sales; (v)
limitation on dividend and other payment restrictions affecting
subsidiaries; (vi) limitation on transactions with affiliates;
(vii) limitation on mergers and certain other transactions; and
(viii) limitations on preferred stock of subsidiaries.
USE OF PROCEEDS.......... New Holdings will not receive any of the proceeds from the sale of
the New Discount Debentures by the Selling Debentureholder. See
"Selling Debentureholder."
</TABLE>
11
<PAGE> 17
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth summary unaudited pro forma combined
financial data of New Holdings for the 52 weeks ended June 25, 1994 and for the
31 weeks ended January 29, 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 29, 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 31 weeks
ended January 29, 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 32 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 Prospectus.
<TABLE>
<CAPTION>
52 WEEKS ENDED 31 WEEKS ENDED
JUNE 25, 1994 JANUARY 29, 1995
-------------- ----------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
OPERATING DATA:
Sales......................................................... $5,053.5 $3,121.0
Gross profit.................................................. 1,048.2 627.7
Selling, general and administrative expenses.................. 833.1 506.4
Interest expense:
Cash....................................................... 220.1 133.1
Non-cash................................................... 47.8 30.8
Amortization of debt issuance costs........................ 13.7 8.1
-------- --------
Total interest expense........................................ 281.6 172.0
Net loss(a)................................................... (115.5) (73.6)
Ratio of earnings to fixed charges(b)......................... -- --
BALANCE SHEET DATA (END OF PERIOD):
Working capital (deficit)..................................................... $ (8.1)
Total assets.................................................................. 3,112.9
Total debt.................................................................... 2,216.2
Stockholders' equity.......................................................... 48.3
OTHER DATA:
Depreciation and amortization................................. $ 150.7 $ 87.9
Capital expenditures(c)....................................... 123.2 97.8
Stores open at end of period(d)............................... -- 395
EBITDA (as defined)(a)(e)(f).................................. $ 342.5 $ 211.3
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 31 weeks ended January 29, 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
12
<PAGE> 18
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). New Holdings' pro forma earnings were insufficient to
cover pro forma fixed charges by approximately $115.5 million and $73.6
million for the 52 weeks ended June 25, 1994 and the 31 weeks ended January
29, 1995, respectively. However, such pro forma earnings included non-cash
charges of $221.8 million and $135.7 million, respectively, primarily
consisting of depreciation and amortization.
(c) Does not include Merger-related capital expenditures of $55.0 million and
$40.2 million for the 52 weeks ended June 25, 1994 and the 31 weeks ended
January 29, 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 New 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.
13
<PAGE> 19
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 Prospectus.
<TABLE>
<CAPTION>
53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED ENDED
FEBRUARY 3, FEBRUARY 2, JANUARY 31, JANUARY 30, JANUARY 29,
1991 1992 1993 1994 1995
----------- ----------- ----------- ----------- -----------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Sales............................................. $2,799.1 $2,889.2 $2,843.8 $2,730.2 $2,724.6
Gross profit...................................... 573.7 614.0 626.6 636.5 623.6
Selling, general and administrative expenses(a)... 438.0 459.2 470.0 471.0 467.0
Interest expense(b)............................... 128.5 130.2 125.6 108.8 112.7
Net earnings (loss)(c)............................ (51.4) (41.2) (76.1) 138.4(i) 32.1
Ratio of earnings to fixed charges(d)............. --(d) --(d) 1.02x 1.24x 1.24x
BALANCE SHEET DATA (end of period):
Working capital surplus (deficit)................. $ (93.9) $ (114.2) $ (122.0) $ (73.0) $ (119.5)
Total assets...................................... 1,406.4 1,357.6 1,388.5 1,483.7 1,509.9
Total debt(e)..................................... 986.1 941.9 1,029.8 998.9 1,018.5
Redeemable stock.................................. 3.0 3.0 -- -- --
Stockholders' equity (deficit).................... (16.0) (57.2) (133.3) 5.1 27.2
OTHER DATA:
Depreciation and amortization(f).................. $ 75.2 $ 76.6 $ 76.9 $ 74.5 $ 76.0
Capital expenditures.............................. 87.6 50.4 102.7 62.2 64.0
Stores open at end of period...................... 150 158 159 165 173
EBITDA (as defined)(g)............................ $ 207.0 $ 225.8 $ 227.3 $ 230.2 $ 230.2
EBITDA margin(h).................................. 7.4% 7.8% 8.0% 8.4% 8.4%
</TABLE>
- ---------------
(a) Includes provision for post retirement benefits other than pensions of $2.2
million, $2.6 million, $3.3 million, $3.4 million and $2.6 million for the
53 weeks ended February 3, 1991, the 52 weeks ended February 2, 1992,
January 31, 1993, January 30, 1994 and January 29, 1995, respectively.
(b) Interest expense includes non-cash charges related to the amortization of
deferred debt issuance costs of $4.1 million for the 53 weeks ended February
3, 1991, $5.0 million for the 52 weeks ended February 2, 1992, $5.5 million
for the 52 weeks ended January 31, 1993, $6.5 million for the 52 weeks ended
January 30, 1994 and $6.1 million for the 52 weeks ended January 29, 1995,
respectively.
(c) Net earnings (loss) includes expenses relating to provisions for Equity
Appreciation Rights and for tax indemnification payments to Federated,
extraordinary item relating to debt refinancing, loss on disposal of assets,
provisions for postretirement and pension benefits and provision for
earthquake losses. Net earnings (loss) includes a pre-tax provision for self
insurance, which is classified in cost of sales, selling, general and
administrative expenses and interest expense, of $29.2 million, $31.2
million, $36.9 million, $36.3 million, and $20.0 million, for the 53 weeks
ended February 3, 1991, the 52 weeks ended February 2, 1992, the 52 weeks
ended January 31, 1993, the 52 weeks ended January 30, 1994 and the 52 weeks
ended January 29, 1995, respectively. Included in the 52 weeks ended January
30, 1994 and the 52 weeks ended January 29, 1995 are reduced employer
contributions of $11.8 million and $12.7 million, respectively, related to
union health and welfare benefit plans.
(d) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of earnings before income taxes, cumulative effect of change in
accounting principles, extraordinary item and fixed charges before
capitalized interest. "Fixed charges" consist of interest expense (including
amortization of self-insurance reserves discount), capitalized interest,
amortization of deferred debt issuance costs and one-third of rental expense
(the portion deemed representative of the interest factor). Earnings were
insufficient to 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.).
14
<PAGE> 20
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 summary historical financial data of Food 4 Less presented below
as of and for the 52 weeks ended June 30, 1990, June 29, 1991 and June 27, 1992,
and the summary historical financial data of Holdings presented below as of and
for the 52 weeks ended June 26, 1993 and June 25, 1994 and the 31 weeks ended
January 29, 1995 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
32 weeks ended February 5, 1994 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 Prospectus.
Because New Holdings did not exist prior to December 19, 1994, no historical
financial data exists with respect thereto.
<TABLE>
<CAPTION>
FOOD 4 LESS HOLDINGS
------------------------------ ------------------------------------------------
53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 32 WEEKS 31 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30, JUNE 29, JUNE 27, JUNE 26, JUNE 25, FEBRUARY 5, JANUARY 29,
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 $1,616.7 $1,556.5
Gross profit................................. 204.8 265.7 520.8 484.2 469.3 299.5 262.4
Selling, general, administrative and other
expenses................................... 157.8 213.1 469.7 434.9 388.8 252.3 222.4
Interest expense(c).......................... 50.8 50.1 70.2 73.6 77.0 47.6 48.4
Net loss(d).................................. (10.1) (9.6) (33.8) (31.2) (11.5) (6.2) (17.6)
Ratio of earnings to fixed charges(e)........ --(e) --(e) --(e) --(e) --(e) --(e) --(e)
BALANCE SHEET DATA (end of period)(f):
Working capital surplus (deficit)............ $ (40.5) $ 13.7 $ (66.3) $ (19.2) $ (54.9) $ (13.8) $ (74.8)
Total assets................................. 574.7 980.0 998.5 957.8 980.1 957.4 1,000.7
Total debt(g)................................ 360.7 558.9 525.3 588.3 576.9 582.0 598.9
Redeemable stock............................. 5.1 -- -- -- -- -- --
Stockholder's equity (deficit)............... 20.6 84.6 50.8 22.6 10.0 15.8 (7.3)
OTHER DATA:
Depreciation and amortization(h)............. $ 25.8 $ 31.9 $ 54.9 $ 57.6 $ 57.1 $ 34.8 $ 36.6
Capital expenditures......................... 36.4 34.7 60.3 53.5 57.5 29.1 49.0
Stores open at end of period................. 115 259 249 248 258 249 267
EBITDA (as defined)(i)....................... $ 69.5 $ 80.7 $ 103.1 $ 105.9 $ 130.5 $ 79.8 $ 76.9
EBITDA margin(j)............................. 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 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, $3.4 million
for the 32 weeks ended February 5, 1994 and $3.4 million for the 31 weeks
ended January 29, 1995.
(d) Net loss includes a pre-tax provision for self insurance, which is
classified in cost of sales, selling, general and administrative expenses,
and interest expense of $11.2 million, $15.1 million, $51.1 million, $43.9
million, $25.7 million, $24.8 million, and $9.8 million for the 53 weeks
ended June 30, 1990, the 52 weeks ended June 29, 1991, the 52 weeks ended
June 27, 1992, the 52 weeks ended June 26, 1993, the 52 weeks ended June 25,
1994, the 32 weeks ended February 5, 1994 and the 31 weeks ended January 29,
1995, respectively. Included in the 52 weeks ended June 25, 1994, the 32
weeks ended February 5, 1994 and the 31 weeks ended January 29, 1995 are
reduced employer contributions of $8.1 million, $3.7 million and $14.3
million, respectively, related to union, health and welfare benefit plans.
(e) 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, the 32 weeks ended February 5, 1994 and the
15
<PAGE> 21
31 weeks ended January 29, 1995, by approximately $9.1 million, $3.4
million, $25.6 million, $29.8 million, $8.8 million, $5.2 million and $17.6
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, $43.5 million for the 32 weeks ended
February 5, 1994 and $46.2 million for the 31 weeks ended January 29, 1995,
primarily consisting of depreciation, amortization and accretion of
interest.
(f) 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 February 5, 1994 reflect the Alpha Beta acquisition and the financings
and refinancings associated therewith. Balance sheet data as of June 25,
1994 and January 29, 1995 reflect the acquisition of the Food Barn stores.
(g) Total debt includes long-term debt, current maturities of long-term debt and
capital lease obligations.
(h) 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 32 weeks ended
February 5, 1994 and the 31 weeks ended January 29, 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, $4.7 million and $4.6 million, respectively.
(i) "EBITDA," as defined and presented historically by Holdings, represents
income before interest expense, depreciation and amortization expense, the
LIFO provision, provision for income taxes, provision for earthquake
losses, provision for restructuring 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."
(j) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
16
<PAGE> 22
RISK FACTORS
Prospective investors should carefully consider the following factors, in
addition to the other matters described in this Prospectus, before purchasing
New Discount Debentures.
LEVERAGE AND DEBT SERVICE
Following the consummation of the Merger and the Financing, New Holdings
will be highly leveraged. At January 29, 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 stockholders' equity would have been $2,216.2 million and $48.3 million,
respectively, and the Company would have had an additional $188.4 million
available to be borrowed under the New Revolving Facility. In addition, as of
January 29, 1995, after giving effect to the Merger, the Reincorporation Merger,
the FFL 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 $125.6 million. On the same
pro forma basis, for the 52 weeks ended June 25, 1994 and the 31 weeks ended
January 29, 1995, New Holdings' earnings before fixed charges would have been
inadequate to cover fixed charges by $115.5 million and $73.6 million,
respectively. However, such earnings include non-cash charges of $221.8 million
and $135.7 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 approximately $61
million per annum. In addition, New Holdings will be required to commence
semi-annual cash payments of interest on any 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 the New Discount Debentures) and to make scheduled
payments under its operating leases depends on its future performance, which to
a certain extent is subject to economic, financial, competitive and other
factors beyond its control.
Based upon the current level of operations and anticipated cost savings,
New 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.
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
17
<PAGE> 23
default under the documents governing the indebtedness of New Holdings could
have a significant adverse effect on the market value of the New Discount
Debentures.
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 the New Discount
Debentures, and the New Discount Debentures will not be guaranteed by any
subsidiary of New Holdings. Therefore, the New Discount Debentures 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 the New Discount
Debentures. 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 Old RGC Notes, the New RGC Notes, the Old F4L Senior
Notes, the New F4L Senior Notes, the Old F4L Senior Subordinated Notes and the
New 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 New Discount Debentures. The New Discount
Debentures will effectively be subordinated to all liabilities (including trade
payables) of the Company which at January 29, 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) would have been approximately
$2,833.1 million (excluding letters of credit). In addition, at January 29,
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 capacity of the continuing facilities. It is
anticipated that $117 million in Merger-related capital expenditures and $50
million of other non-recurring costs will be required to complete store
conversions, integrate operations and expand warehouse facilities over the four
year period following the Merger, without which the estimated cost savings may
not be fully achievable. Management expects that the non-recurring integration
costs will effectively offset any cost savings in the first year following the
Merger. Because the assumptions underlying the cost savings estimates are
numerous and detailed, management believes that it would be impractical to
specify all such assumptions in this Prospectus. 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.
18
<PAGE> 24
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 31 weeks ended January 29, 1995 and the 32 weeks ended
January 29, 1995, Holdings and Ralphs experienced 4.6% and 3.2% 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 30.2%, 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 warrant holders 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 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,
19
<PAGE> 25
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
$21.5 million, of which $17.5 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."
ABSENCE OF ESTABLISHED PUBLIC MARKET FOR THE NEW DISCOUNT DEBENTURES
There is no established market for the New Discount Debentures and there
can be no assurance as to the liquidity of any markets that may develop for the
New Discount Debentures, the ability of holders of the New Discount Debentures
to sell their New Discount Debentures, or the price at which holders would be
able to sell their New Discount Debentures. Future trading prices of the New
Discount Debentures will depend on many factors, including, among other things,
prevailing interest rates, New Holdings' operating results and the market for
similar securities.
NET LOSSES
Holdings has reported a net loss of $17.6 million for the 31 weeks ended
January 29, 1995, $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 31 weeks ended January 29, 1995, after giving
effect to the Merger, the FFL Merger, the Reincorporation Merger and the
Financing (and certain related assumptions), New Holdings would have reported a
net loss of approximately $115.5 million and $73.6 million, respectively. There
can be no assurance that New Holdings will not report net losses in the future.
20
<PAGE> 26
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 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 (or its designee), 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
Food 4 Less or EJDC if the Merger has not been consummated on or prior to June
30, 1995.
As currently contemplated, the Merger will be financed through the
following transactions:
- Borrowings of $600 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, $6.5 million
of which is anticipated to be drawn at closing.
- The issuance of $350 million of New F4L Senior Notes pursuant to the
Senior Note Public Offering.
- The issuance of $100 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 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
21
<PAGE> 27
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 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) $17.5
million, $2.5 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 $162.9 million of other indebtedness of RGC and Food 4
Less.
- The purchase by Holdings pursuant to the Holdings Offer to Purchase of
Discount Notes 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 June 1, 1995 had an accreted value of $688.43 per
$1,000) accepted for purchase, together with the solicitation of
consents from the holders of the Discount Notes to certain amendments to
the Discount Note Indenture.
22
<PAGE> 28
The following table illustrates the sources and uses of funds to consummate
the Merger, assuming the transaction occurs as of June 15, 1995. Based upon
tenders received through May 26, 1995 (and, in the case of the Discount Notes,
anticipated tenders as of the Closing Date), this presentation assumes that
$423.0 million principal amount of Old RGC Notes is tendered into the RGC Offers
in exchange for New RGC Notes (representing 94.0% of the outstanding aggregate
principal amount of Old RGC Notes), $27.0 million principal amount of Old RGC
Notes is tendered into the RGC Offers for cash (representing 6.0% of the
outstanding aggregate principal amount of Old RGC Notes), $145.3 million
principal amount of Old F4L Senior Notes and $140.7 million principal amount of
Old F4L Senior Subordinated Notes are tendered into the F4L Exchange Offers
(representing 83.0% and 97.0% of the outstanding aggregate principal amount of
Old F4L Senior Notes and Old F4L Senior Subordinated Notes, respectively) and
$103.6 million principal amount (at maturity) of Discount Notes is tendered into
the Holdings 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 F4L
Exchange Offers, the RGC Offers and the Holdings Offer to Purchase.
SOURCES AND USES
(in millions)
<TABLE>
<S> <C> <C> <C>
CASH SOURCES CASH USES
- --------------------------------------------- ---------------------------------------------
New Term Loans(a).................. $ 600.0 Purchase RSI Common Stock(j)....... $ 375.9
New Revolving Facility(b).......... 6.5 Purchase Old RGC Notes(k).......... 27.3
New F4L Senior Notes(c)............ 350.0 Purchase Discount Notes............ 84.4
Repay Ralphs 1992 Credit
New RGC Notes(d)................... 100.0 Agreement.......................... 238.2
New Equity Investment(e)........... 140.0 Repay F4L Credit Agreement......... 160.8
New Discount Debentures(f)......... 59.0 Pay Accrued Interest(l)............ 34.4
EAR Related Payments(m)............ 22.8
Repay Mortgage Indebtedness(n)..... 194.4
Purchase New Holdings Common
Stock(o)........................... 3.7
Fees and Expenses(p)............... 113.6
-------- --------
Total Cash Sources............ $1,255.5 Total Cash Uses.................... $1,255.5
======== ========
NON-CASH SOURCES NON-CASH USES
- --------------------------------------------- ---------------------------------------------
New F4L Senior Notes(g)............ $ 145.3 Old F4L Senior Notes Exchanged..... $ 145.3
Assumed Old F4L Senior Notes....... 29.7 Assumed Old F4L Senior Notes....... 29.7
New F4L Senior Subordinated Old F4L Senior Subordinated Notes
Notes............................ 140.7 Exchanged.......................... 140.7
Assumed Old F4L Senior Subordinated Assumed Old F4L Senior Subordinated
Notes............................ 4.3 Notes............................ 4.3
New RGC Notes(h)................... 423.0 Old RGC Notes Exchanged............ 423.0
New Discount Debentures(f)......... 41.0 Fees and Expenses(p)............... 22.5
Assumed Capital Leases and Other Assumed Capital Leases and Other
Debt............................. 162.9 Debt............................... 162.9
Seller Debentures(i)............... 131.5 Purchase RSI Common Stock(i)....... 150.0
-------- --------
Total Non-Cash Sources........ $1,078.4 Total Non-Cash Uses................ $1,078.4
======== ========
</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 $925 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 $600 million, comprised of the $275 million Tranche A Loan,
the $108.3 million Tranche B Loan, the $108.3 million Tranche C Loan, and
the $108.4 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.
23
<PAGE> 29
(d) Represents New RGC Notes issued pursuant to the Subordinated Note Public
Offering.
(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 a portion of the New Discount Debentures having an aggregate
initial accreted value of $100 million, $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 $17.5 million, $2.5 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 $18.5 million
initial accreted value of New Discount Debentures and $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 Seller Debentures 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 $174.0 million, plus the estimated amount of the
prepayment fees payable with respect thereto.
(o) Represents the purchase of shares of New Holdings common stock from
stockholders who have exercised statutory dissenters' rights in connection
with the FFL Merger. There are no other shares subject to statutory
dissenters' rights.
(p) The $136.1 million in total cash and non-cash fees and expenses includes
advisory fees of $21.5 million to be paid to Yucaipa, other fees of $2.5
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, $17.5
million of Yucaipa's advisory fee, $2.5 million of Apollo's commitment fee
and BT Securities' $2.5 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
Exchange Offers and the Public Offerings" and "Description of Other
Indebtedness."
24
<PAGE> 30
PRO FORMA CAPITALIZATION
The following table sets forth the pro forma combined capitalization of New
Holdings as of January 29, 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. Based upon tenders
received through May 26, 1995 (and, in the case of the Discount Notes,
anticipated tenders as of the Closing Date), this presentation assumes that
$423.0 million principal amount of Old RGC Notes is tendered into the RGC Offers
in exchange for New RGC Notes, $27.0 million principal amount of Old RGC Notes
is tendered into the RGC Offers for cash, $145.3 million principal amount of Old
F4L Senior Notes and $140.7 million principal amount of Old F4L Senior
Subordinated Notes are tendered into the F4L Exchange Offers and $103.6 million
principal amount (at maturity) of Discount Notes is tendered into the Holdings
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 Prospectus.
<TABLE>
<CAPTION>
PRO FORMA
CAPITALIZATION
---------------
(IN MILLIONS)
<S> <C>
Cash............................................................................ $ 54.7
========
Short-term and current portion of long-term debt:
New Term Loans................................................................ $ 3.3
Other indebtedness............................................................ 24.3
--------
Total short-term and current portion of long-term debt................ $ 27.6
========
Long-term debt:
New Term Loans(a)............................................................. $ 596.7
New Revolving Facility(b)..................................................... 35.5
Other indebtedness............................................................ 131.9
New F4L Senior Notes(c)....................................................... 495.3
Old F4L Senior Notes.......................................................... 29.7
New RGC Notes(d).............................................................. 523.0
New F4L Senior Subordinated Notes............................................. 140.7
Old F4L Senior Subordinated Notes............................................. 4.3
New Discount Debentures (initial accreted value).............................. 100.0
Seller Debentures............................................................. 131.5
--------
Total long-term debt.................................................. 2,188.6
--------
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.............................................................. (197.9)
Treasury stock................................................................ (5.8)
--------
Total stockholders' equity................................................. 48.3
--------
Total capitalization.................................................. $2,236.9
========
</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 $925 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 $600 million, comprised of the $275 million Tranche A Loan,
the $108.3 million Tranche B Loan, the $108.3 million Tranche C Loan and the
$108.4 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."
25
<PAGE> 31
(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."
26
<PAGE> 32
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements of New
Holdings for the 52 weeks ended June 25, 1994 and as of and for the 31 weeks
ended January 29, 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 29, 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 31 weeks ended January 29,
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 32
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.
Reflecting tenders received through May 26, 1995 (and, in the case of the
Discount Notes, anticipated tenders as of the Closing Date), the pro forma
adjustments are based upon the following assumptions: (i) $423.0 million
principal amount of Old RGC Notes are tendered into the RGC Offers in exchange
for New RGC Notes, (ii) $27.0 million principal amount of Old RGC Notes are
tendered into the RGC Offers for cash, (iii) $145.3 million principal amount of
Old F4L Senior Notes and $140.7 million principal amount of Old F4L Senior
Subordinated Notes are tendered into the F4L Exchange Offers, and (iv) $103.6
million principal amount (at maturity) of Discount Notes are tendered into the
Holdings Offer to Purchase. The presentation also assumes that $100 million
principal amount of New RGC Notes are issued pursuant to the Subordinated Note
Public Offering and that $350 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 New Holdings as a purchase of Ralphs by New 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 New 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 Prospectus.
27
<PAGE> 33
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(l)................................... 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 10.6 (g) 29.3
Provision for restructuring..................... 2.4 0.0 -- 2.4
--------- -------- ------- --------
Operating income........................... 150.9 72.8 (40.3) 183.4
Other expenses:
Interest expense -- cash...................... 93.2 57.0 69.9 (h) 220.1
Interest expense -- non-cash.................. 9.4 14.6 23.8 (h) 47.8
Amortization of debt issuance costs........... 6.4 5.5 1.8 (h) 13.7
Loss on disposal of assets.................... 1.8 -- -- 1.8
Provision for earthquake loss................. 11.0 4.5 -- 15.5
--------- -------- ------- --------
Earnings (loss) before income tax
provision(m)............................. 29.1 (8.8) (135.8) (115.5)
Income tax expense (benefit).................... (108.0) 2.7 105.3 (i) --
--------- -------- ------- --------
Net earnings (loss)(j)..................... $ 137.1 $ (11.5) $(241.1) $ (115.5)
========= ======== ======= ========
Ratio of earnings to fixed charges(k)...... 1.2x -- --
========= ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Combined Statement of Operations.
28
<PAGE> 34
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS -- CONTINUED
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
32 WEEKS 31 WEEKS
ENDED ENDED
----------- -------------
RALPHS HOLDINGS
(HISTORICAL) (HISTORICAL)
(UNAUDITED) (AUDITED)
JANUARY 29, JANUARY 29, PRO FORMA PRO FORMA
1995 1995 ADJUSTMENTS COMBINED
----------- ------------- ----------- ---------
<S> <C> <C> <C> <C>
Sales.......................................... $1,695.8 $1,556.5 $(131.3)(a) $3,121.0
Cost of sales.................................. 1,304.5 1,294.1 (107.6)(a) 2,493.3
2.5 (b)
(1.0)(c)
0.8 (d)
-------- -------- ------- --------
Gross profit.............................. 391.3 262.4 (26.0) 627.7
Selling, general and administrative
expenses(l).................................. 294.8 222.4 (18.3)(a) 506.4
4.8 (b)
1.4 (d)
1.0 (e)
0.3 (f)
Amortization of excess cost over net assets
acquired..................................... 6.8 4.6 6.0 (g) 17.4
Provision for restructuring.................... 0.0 5.1 -- 5.1
-------- -------- ------- --------
Operating income.......................... 89.7 30.3 (21.2) 98.8
Other expenses:
Interest expense -- cash..................... 60.5 35.3 37.3 (h) 133.1
Interest expense -- non-cash................. 5.6 9.6 15.6 (h) 30.8
Amortization of debt issuance costs.......... 3.6 3.4 1.1 (h) 8.1
Loss (gain) on disposal of assets............ 0.8 (0.4) -- 0.4
-------- -------- ------- --------
Earnings (loss) before income tax
provision(m)............................ 19.2 (17.6) (75.2) (73.6)
Income tax expense (benefit)................... 0.0 0.0 -- 0.0
-------- -------- ------- --------
Net earnings (loss)(j).................... $ 19.2 $ (17.6) $ (75.2) $ (73.6)
======== ======== ======= ========
Ratio of earnings to fixed charges(k)..... 1.2x -- --
======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Combined Statement of Operations.
29
<PAGE> 35
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 $1.2 million for the 31 weeks ended January 29,
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 31 weeks ended January
29, 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 ($21.6 million for the 52 weeks ended June 25, 1994 and $12.8
million for the 31 weeks ended January 29, 1995) and elimination of Ralphs'
historical amortization ($11.0 million for the 52 weeks ended June 25, 1994
and $6.8 million for the 31 weeks ended January 29, 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>
31 WEEKS
52 WEEKS ENDED
ENDED JANUARY 29,
JUNE 25, 1994 1995
------------- ----------------
<S> <C> <C>
Historical interest expense -- cash.......................................... $150.2 $ 95.8
------ ------
Plus: Interest on borrowings under:
New Credit Facility...................................................... 63.2 37.2
New F4L Senior Notes..................................................... 36.6 21.8
New RGC Notes............................................................ 57.5 34.3
Other bank fees.......................................................... 3.9 2.3
Other debt............................................................... 2.0 2.1
Less: Interest on borrowings under:
Old bank term loans:
Ralphs................................................................. (21.3) (15.5)
Food 4 Less............................................................ (11.5) (7.7)
Old RGC Notes............................................................ (43.9) (27.0)
Other debt............................................................... (16.6) (10.2)
------ ------
Pro forma adjustment....................................................... 69.9 37.3
------ ------
Pro forma interest expense -- cash........................................... $220.1 $133.1
====== ======
Historical interest expense -- non-cash...................................... $ 24.0 $ 15.2
Plus:
Interest on Seller Debentures............................................ 18.5 12.3
Accretion of New Discount Debentures..................................... 14.1 9.4
Less:
Accretion of Discount Notes.............................................. (8.8) (6.1)
------ ------
Pro forma interest expense -- non-cash....................................... $ 47.8 $ 30.8
====== ======
Historical amortization of debt issuance costs............................... $ 11.9 $ 7.0
Plus:
Financing and exchange/consent fees...................................... 8.6 5.1
Other fees and expenses.................................................. 4.6 2.7
Less:
Historical financing costs:
Ralphs................................................................... (6.1) (3.6)
Food 4 Less.............................................................. (5.3) (3.1)
------ ------
Pro forma adjustment....................................................... 1.8 1.1
------ ------
Pro forma amortization of debt issuance costs................................ $ 13.7 $ 8.1
====== ======
</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) 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
30
<PAGE> 36
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 for the 52 weeks ended June
25, 1994 and the 31 weeks ended January 29, 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 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 31 weeks ended January 29, 1995 by
approximately $115.5 million and $73.6 million, respectively. However, such
pro forma earnings included non-cash charges of $221.8 million for the 52
weeks ended June 25, 1994 and $135.7 million for the 31 weeks ended January
29, 1995, primarily consisting of depreciation and amortization.
(l) Pro forma combined cost of sales and selling, general and administrative
expenses for the 52 weeks ended June 25, 1994 and the 31 weeks ended
January 29, 1995 include reduced employer contributions of $25.8 million
and $22.1 million, respectively, related to union health and welfare
benefit plans.
(m) The pro forma combined loss before income tax provision for the 52 weeks
ended June 25, 1994 and the 31 weeks ended January 29, 1995 includes
reductions in self insurance reserves of $26.4 million and $28.0 million,
respectively.
(n) "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."
The following table presents a reconciliation of pro forma EBITDA (as
defined):
<TABLE>
<CAPTION>
52 WEEKS ENDED 31 WEEKS ENDED
JUNE 25, 1994 JANUARY 29, 1995
-------------- ----------------
<S> <C> <C>
Historical EBITDA:
Ralphs EBITDA........................................................... $228.1 $143.5
EBITDA margin(1)...................................................... 8.4% 8.5%
Food 4 Less EBITDA...................................................... $130.5 $ 76.9
EBITDA margin......................................................... 5.0% 4.9%
Less: Pro Forma Adjustments(2)............................................ $(16.1) $ (9.1)
------ ------
Pro Forma EBITDA.......................................................... $342.5 $211.3
====== ======
Pro Forma EBITDA margin................................................. 6.8% 6.8%
====== ======
</TABLE>
- ---------------
(1) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
(2) Reflects primarily EBITDA (as defined) associated with closed or divested
stores and the adjustments referred to in notes (e) and (f) above.
31
<PAGE> 37
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
RALPHS HOLDINGS
(HISTORICAL) (HISTORICAL)
(AUDITED) (AUDITED) PRO FORMA
JANUARY 29, 1995 JANUARY 29, 1995 ADJUSTMENTS PRO FORMA
---------------- ---------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................... $ 35.1 $ 19.6 $ 0.0 (a) $ 54.7
Accounts receivable.......................... 43.6 23.4 -- 67.0
Inventories.................................. 221.4 224.7 39.9 (b) 486.0
Prepaid expense and other current assets..... 19.8 22.2 -- 42.0
-------- -------- ------- --------
Total current assets.................. 319.9 289.9 39.9 649.7
Investments.................................... 0.0 12.4 -- 12.4
Property, plant and equipment.................. 624.7 380.4 160.0 (c) 1,140.3
(22.8)(d)
(2.0)(e)
Excess of cost over net assets acquired, net... 365.4 263.1 496.7 (f) 1,125.2
Beneficial lease rights........................ 49.2 0.0 -- 49.2
Deferred debt issuance costs, net.............. 23.0 25.5 94.8 (g) 99.4
(43.9)(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 $1,000.7 $ 602.3 $3,112.9
======== ======== ======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt......... $ 84.0 $ 27.2 $ (83.6)(k) $ 27.6
Short-term debt.............................. 51.5 0.0 (51.5)(l) 0.0
Accounts payable............................. 176.6 190.5 -- 367.1
Accrued expenses............................. 99.8 118.3 (17.6)(m) 207.0
4.7 (d)
1.8 (n)
Current portion of self-insurance reserves... 27.5 28.6 -- 56.1
-------- -------- ------- --------
Total current liabilities............. 439.4 364.6 (146.2) 657.8
Long-term debt................................. 883.0 571.7 733.9 (o) 2,188.6
Self-insurance reserves........................ 44.9 44.1 -- 89.0
Deferred income taxes.......................... 0.0 17.5 -- 17.5
Lease valuation reserve........................ 29.0 0.0 -- 29.0
Other non-current liabilities.................. 86.4 10.1 (27.8)(p) 82.7
11.0 (q)
3.0 (e)
-------- -------- ------- --------
Total liabilities..................... 1,482.7 1,008.0 573.9 3,064.6
-------- -------- ------- --------
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................... 175.2 105.6 10.0 (p) 59.9
(175.2)(t)
(57.8)(s)
2.1 (u)
Notes receivable from shareholders........... 0.0 (0.7) -- (0.7)
Retained deficit............................. (148.3) (112.2) (23.7)(v) (197.9)
148.3 (t)
(40.4)(d)
(1.8)(n)
(19.8)(w)
Treasury stock............................... -- -- (2.1)(u) (5.8)
(3.7)(x)
-------- -------- ------- --------
Total stockholders' equity(y)......... 27.2 (7.3) 28.4 48.3
-------- -------- ------- --------
Total liabilities and stockholders'
equity.............................. $1,509.9 $1,000.7 $ 602.3 $3,112.9
======== ======== ======= ========
</TABLE>
See Notes to Unaudited Pro Forma Combined Balance Sheet.
32
<PAGE> 38
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............................................................................ $ 600.0
New Revolving Facility.................................................................... 35.5
New F4L Senior Notes...................................................................... 350.0
New RGC Notes............................................................................. 100.0
New Equity Investment..................................................................... 140.0
New Discount Debentures................................................................... 59.0
Purchase Discount Notes................................................................... (84.4)
Purchase RSI Common Stock................................................................. (375.9)
Repay Ralphs 1992 Credit Agreement........................................................ (297.4)
Repay F4L Credit Agreement................................................................ (153.0)
Purchase Old RGC Notes.................................................................... (27.3)
Pay EAR liability......................................................................... (17.8)
Loan to affiliate......................................................................... (5.0)
Repay other Ralphs debt................................................................... (188.8)
Purchase New Holdings Common Stock........................................................ (3.7)
Accrued Interest.......................................................................... (17.6)
Fees and Expenses......................................................................... (113.6)
-------
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 ($862.1 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...................................................................... 51.1
------
Total purchase price................................................................... $577.0
------
Purchase price is financed by:
Seller Debentures...................................................................... $131.5
New Discount Debentures................................................................ 18.5
New Equity Investment.................................................................. 140.0
New borrowings......................................................................... 287.0
------
$577.0
======
</TABLE>
33
<PAGE> 39
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............................................................................... 862.1
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)
-------
$ 577.0
=======
</TABLE>
<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..................................................................... 577.0
--------
Excess of purchase price to be allocated........................................... $1,047.9
========
Excess allocated to:
Inventories........................................................................ $ 39.9
Property, fixtures and equipment................................................... 160.0
Goodwill........................................................................... 862.1
Other non-current liabilities...................................................... (14.1)
--------
$1,047.9
========
</TABLE>
(g) Reflects the debt issuance costs associated with the New Credit Facility,
($29.4 million), the RGC Offers ($4.2 million), the F4L Exchange Offers
($2.9 million), the Senior Note Public Offering ($10.5 million) and the
Subordinated Note Public Offering ($3.0 million), the cash exchange payments
associated with the RGC Offers ($8.5 million) and the F4L Exchange Offers
($3.5 million) and other financing costs ($32.8 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) ($9.0 million), the Old RGC Notes ($10.4 million) and
the Old F4L Notes ($14.7 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 ($3.3 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 ($2.7 million), the Old RGC Notes
($5.5 million), the Old F4L Notes ($6.3 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.
34
<PAGE> 40
(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............................................................................ $ 596.7
New Revolving Facility.................................................................... 35.5
New F4L Senior Notes...................................................................... 350.0
New RGC Notes............................................................................. 100.0
New Discount Debentures................................................................... 100.0
Seller Debentures......................................................................... 131.5
Purchase Discount Notes (book value)...................................................... (65.1)
Repay Ralphs 1992 Credit Agreement........................................................ (180.0)
Repay F4L Credit Agreement................................................................ (133.2)
Purchase Old RGC Notes.................................................................... (27.0)
Repay other Ralphs debt................................................................... (174.5)
-------
Net pro forma adjustment.......................................................... $ 733.9
=======
</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 29, 1995 and related fees.
(x) Represents the purchase of shares of New Holdings common stock from
stockholders who have exercised statutory dissenters' rights in connection
with the FFL Merger. There are no other shares subject to statutory
dissenters' rights.
(y) The unaudited pro forma combined balance sheet as of January 29, 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.
35
<PAGE> 41
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
Prospectus.
<TABLE>
<CAPTION>
53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED ENDED
FEBRUARY 3, FEBRUARY 2, JANUARY 31, JANUARY 30, JANUARY 29,
1991 1992 1993 1994 1995
------------ ------------ ----------- ----------- ------------
(DOLLARS IN MILLIONS)
<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)(f)............................... $ (51.4) $ (41.2) $ (76.1) $ 138.4 $ 32.1
======== ======== ======== ======== ========
Ratio of earnings to fixed charges(g)................ --(g) --(g) 1.02x 1.24x 1.24x
BALANCE SHEET DATA (end of period):
Working capital surplus (deficit).................... $ (93.9) $ (114.2) $ (122.0) $ (73.0) $ (119.5)
Total assets......................................... 1,406.4 1,357.6 1,388.5 1,483.7 1,509.9
Total debt(h)........................................ 986.1 941.9 1,029.8 998.9 1,018.5
Redeemable stock..................................... 3.0 3.0 -- -- --
Stockholders' equity (deficit)....................... (16.0) (57.2) (133.3) 5.1 27.2
OTHER DATA:
Depreciation and amortization(i)..................... $ 75.2 $ 76.6 $ 76.9 $ 74.5 $ 76.0
Capital expenditures................................. 87.6 50.4 102.7 62.2 64.0
Stores open at end of period......................... 150 158 159 165 173
EBITDA (as defined)(j)............................... $ 207.0 $ 225.8 $ 227.3 $ 230.2 $ 230.2
EBITDA margin(k)..................................... 7.4% 7.8% 8.0% 8.4% 8.4%
</TABLE>
- ---------------
(a) Includes provision for post retirement benefits other than pensions of $2.2
million, $2.6 million, $3.3 million, $3.4 million and $2.6 million for the
53 weeks ended February 3, 1991, the 52 weeks ended February 2, 1992,
January 31, 1993, January 30, 1994 and January 29, 1995, respectively.
(b) Provisions for restructuring are charges for expenses relating to closing of
Ralphs central bakery operation. The charge reflected the complete
write-down of the bakery building, machinery and equipment, leaseholds,
related inventory and supplies, and providing severance pay to terminated
employees. These charges were $7.1 million and $2.4 million for the 52 weeks
ended January 31, 1993 and the 52 weeks ended January 30, 1994,
respectively. Provision for tax indemnification payments to Federated were
$10.0 million for the 52 weeks ended February 2, 1992.
(c) Interest expense includes non-cash charges related to the amortization of
deferred debt issuance costs of $4.1 million for the 53 weeks ended February
3, 1991, $5.0 million for the 52 weeks ended February 2, 1992, $5.5 million
for the 52 weeks ended 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.
36
<PAGE> 42
(e) Includes recognition of $109.1 million of deferred income tax benefit and
$1.1 million current income tax expense for Fiscal 1993 (see Note 11 of
Notes to Consolidated Financial Statements of Ralphs Supermarkets, Inc.).
(f) Net earnings (loss) includes a pre-tax provision for self insurance, which
is classified in cost of sales, selling, general and administrative expenses
and interest expense, of $29.2 million, $31.2 million, $36.9 million, $36.3
million, and $20.0 million, for the 53 weeks ended February 3, 1991, the 52
weeks ended February 2, 1992, the 52 weeks ended January 31, 1993, the 52
weeks ended January 30, 1994 and the 52 weeks ended January 29, 1995,
respectively. Included in the 52 weeks ended January 30, 1994 and the 52
weeks ended January 29, 1995 are reduced employer contributions of $11.8
million and $12.7 million, respectively, related to union health and welfare
benefit plans.
(g) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of earnings before income taxes, cumulative effect of change in
accounting principles, extraordinary items and fixed charges before
capitalized interest. "Fixed charges" consist of interest expense (including
amortization of self-insurance reserves discount), capitalized interest,
amortization of deferred debt issuance costs and one-third of rental expense
(the portion deemed representative of the interest factor). Earnings were
insufficient to cover fixed charges for the 53 weeks ended February 3, 1991
and the 52 weeks ended February 2, 1992 by $25.5 million and $27.7 million,
respectively.
(h) Total debt includes long-term debt, current maturities of long-term debt,
short-term debt and capital lease obligations.
(i) For the 53 weeks ended February 3, 1991, the 52 weeks ended February 2,
1992, January 31, 1993, January 30, 1994 and January 29, 1995, depreciation
and amortization includes amortization of the excess of cost over net assets
acquired of $11.0 million, $11.0 million, $11.0 million, $11.0 million and
$11.0 million, respectively.
(j) "EBITDA," as defined and presented historically by RGC, represents earnings
before interest expense, income tax expense (benefit), depreciation and
amortization expense, provisions for Equity Appreciation Rights, provision
for tax indemnification payments to Federated, provision for postretirement
benefits, the LIFO charge, extraordinary item relating to debt refinancing,
provision for legal settlement, provision for restructuring, provision for
earthquake losses, a one-time charge for Teamsters Union sick pay benefits,
transition expense and gains and losses on disposal of assets. EBITDA is a
widely accepted financial indicator of a company's ability to service debt.
However, EBITDA should not be construed as an alternative to operating
income or to cash flows from operating activities (as determined in
accordance with generally accepted accounting principles) and should not be
construed as an indication of Ralphs' operating performance or as a measure
of liquidity. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(k) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
37
<PAGE> 43
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, June 29, 1991 and June 27, 1992, and the
historical financial data of Holdings presented below as of and for the 52 weeks
ended June 26, 1993 and June 25, 1994 and the 31 weeks ended January 29, 1995
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 32 weeks
ended February 5, 1994 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 Prospectus. Because New
Holdings did not exist prior to December 19, 1994, no historical financial data
exists with respect thereto.
<TABLE>
<CAPTION>
FOOD 4 LESS HOLDINGS
---------------------------------- --------------------------------------------------------
53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 32 WEEKS 31 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30, JUNE 29, JUNE 27, JUNE 26, JUNE 25, FEBRUARY 5, JANUARY 29,
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 $1,616.7 $1,556.5
Cost of sales................. 1,113.4 1,340.9 2,392.7 2,257.8 2,115.9 1,317.2 1,294.1
-------- -------- -------- -------- -------- -------- --------
Gross profit.................. 204.8 265.7 520.8 484.2 469.3 299.5 262.4
Selling, general,
administrative and other
expenses.................... 157.8 213.1 469.7 434.9 388.8 252.3 222.4
Amortization of excess cost
over net assets acquired.... 5.3 5.3 7.8 7.6 7.7 4.7 4.6
Restructuring charge.......... -- -- -- -- -- -- 5.1(d)
-------- -------- -------- -------- -------- -------- --------
Operating income.............. 41.7 47.3 43.3 41.7 72.8 42.5 30.3
Interest expense(c)........... 50.8 50.1 70.2 73.6 77.0 47.6 48.4
Loss (gain) on disposal of
assets...................... -- 0.6 (1.3) (2.1) -- 0.1 (0.5)
Provision for earthquake
losses...................... -- -- -- -- 4.5 -- --
Provision for income taxes.... 1.0 2.5 3.4 1.4 2.7 1.0 --
Extraordinary charge.......... -- 3.7 (f) 4.8 (g) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net loss(e)................... $ (10.1) $ (9.6) $ (33.8) $ (31.2) $ (11.5) $ (6.2) $ (17.6)
======== ======== ======== ======== ======== ======== ========
Ratio of earnings to fixed
charges(h).................. -- (h) -- (h) -- (h) -- (h) -- (h) --(h) --(h)
BALANCE SHEET DATA (end of
period)(i):
Working capital surplus
(deficit)................... $ (40.5) $ 13.7 $ (66.3) $ (19.2) $ (54.9) $ (13.8) $ (74.8)
Total assets.................. 574.7 980.0 998.5 957.8 980.1 957.4 1,000.7
Total debt(j)................. 360.7 558.9 525.3 588.3 576.9 582.0 598.9
Redeemable stock.............. 5.1 -- -- -- -- -- --
Stockholder's equity
(deficit)................... 20.6 84.6 50.8 22.6 10.0 15.8 (7.3)
OTHER DATA:
Depreciation and
amortization(k)............. $ 25.8 $ 31.9 $ 54.9 $ 57.6 $ 57.1 $ 34.8 $ 36.6
Capital expenditures.......... 36.4 34.7 60.3 53.5 57.5 29.1 49.0
Stores open at end of
period...................... 115 259 249 248 258 249 267
EBITDA (as defined)(l)........ $ 69.5 $ 80.7 $ 103.1 $ 105.9 $ 130.5 $ 79.8 $ 76.9
EBITDA margin(m).............. 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,
38
<PAGE> 44
$5.5 million for the 52 weeks ended June 25, 1994, $3.4 million for the 32
weeks ended February 5, 1994 and $3.4 million for the 31 weeks ended January
29, 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) Net loss includes a pre-tax provision for self insurance, which is
classified in cost of sales, selling, general and administrative expenses,
and interest expense of $11.2 million, $15.1 million, $51.1 million, $43.9
million, $25.7 million, $24.8 million, and $9.8 million for the 53 weeks
ended June 30, 1990, the 52 weeks ended June 29, 1991, the 52 weeks ended
June 27, 1992, the 52 weeks ended June 26, 1993, the 52 weeks ended June 25,
1994, the 32 weeks ended February 5, 1994 and the 31 weeks ended January 29,
1995, respectively. Included in the 52 weeks ended June 25, 1994, the 32
weeks ended February 5, 1994 and the 31 weeks ended January 29, 1995 are
reduced employer contributions of $8.1 million, $3.7 million and $14.3
million, respectively, related to union health and welfare plans.
(f) 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.
(g) 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.
(h) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of loss before provision for income taxes and extraordinary charges,
plus fixed charges. "Fixed charges" consist of interest on all indebtedness,
amortization of deferred debt 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, the 32 weeks ended February 5, 1994 and the 31 weeks ended January 29,
1995 by approximately $9.1 million, $3.4 million, $25.6 million, $29.8
million, $8.8 million, $5.2 million and $17.6 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, $43.5 million for the 32 weeks ended February 5, 1994 and
$46.2 million for the 31 weeks ended January 29, 1995, primarily consisting
of depreciation, amortization and accretion of interest.
(i) 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 February 5, 1994 reflect the Alpha Beta acquisition
and the financings and refinancings associated therewith. Balance sheet data
as of June 25, 1994 and January 29, 1995 reflect the acquisition of the Food
Barn stores.
(j) Total debt includes long-term debt, current maturities of long-term debt and
capital lease obligations.
(k) 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 32 weeks ended February
5, 1994 and the 31 weeks ended January 29, 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, $4.7 million and $4.6 million, respectively.
(l) "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, provision for restructuring 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."
(m) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
39
<PAGE> 45
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
40
<PAGE> 46
"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 31 weeks ended January 29, 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 Prospectus, Holdings elected to restate its historical
financial statements to conform to Ralphs' classification of certain expenses.
The changes primarily involved the reclassification of certain labor,
41
<PAGE> 47
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 $129.1 million (unaudited) for the fiscal years ended June 27, 1992,
June 26, 1993, June 25, 1994 and the 32 weeks ended February 5, 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 $3.8 million (unaudited) for the fiscal
years ended June 27, 1992, June 26, 1993, June 25, 1994 and the 32 weeks ended
February 5, 1994. All historical financial information for Holdings and Food 4
Less included in this Prospectus reflects these reclassifications.
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, sales were $2,724.6
million, a decrease of $5.6 million or 0.2% from the fifty-two weeks ended
January 30, 1994. During Fiscal 1994, Ralphs opened ten new stores (four in Los
Angeles County, three in Orange County, one in San Diego County and two in
Riverside County), closed two stores (in conjunction with new stores opening in
the same areas), and completed five store remodels. Comparable store sales
decreased 3.7%, which included an increase of 0.3% for replacement store sales,
from $2,707.9 million in Fiscal 1993 to $2,606.4 million in Fiscal 1994. Ralphs
sales continued to be adversely affected by the continuing softness of the
economy in Southern California, continuing competitive new store and remodeling
activity and recent pricing and promotional changes by competitors. Ralphs
continued to take steps to mitigate the impact of the weak retailing environment
in its markets, which included continuing its own new store and remodeling
program and initiating the Ralphs Savings Plan in February 1994, a new marketing
campaign specifically designed to enhance customer value. See "Business --
Advertising and Promotion."
42
<PAGE> 48
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 along with the ongoing implementation of new
computer control programs and labor standards that improved distribution
productivity. The ASRS facility can hold substantially more inventory and
requires fewer employees to operate than does a conventional warehouse of equal
size. This facility has reduced Ralphs' warehousing costs of non-perishable
items markedly, enabling it to take advantage of advance buying opportunities
and minimize "out-of-stocks." Ralphs engages in forward-buy purchases to take
advantage of special prices or to delay the impact of upcoming price increases
by purchasing and warehousing larger quantities of merchandise than immediately
required. The PSC facility has consolidated the operations of three existing
facilities and holds more inventory than the facilities it replaced, thereby
reducing Ralphs' warehouse distribution costs.
Over the last several years, Ralphs has been implementing modifications in
its workers compensation and general liability insurance programs. Ralphs
believes that these modifications have resulted in a significant reduction in
self-insurance costs for Fiscal 1994. Based on a review of the results of these
modifications by Ralphs and its actuaries, adjustments to the accruals for
self-insurance costs were made during Fiscal 1994 resulting in a reduction of
approximately $18.9 million. Of the total $18.9 million reduction in
self-insurance costs, $7.5 million is included in cost of sales and $11.4
million is included in selling, general and administrative expenses.
Selling, General and Administrative Expenses
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
43
<PAGE> 49
contractual rates. In both Fiscal 1992 and Fiscal 1993 the multi-employer
pension plan was deemed to be overfunded based upon the collective bargaining
agreement then currently in force. During Fiscal 1993 the agreement called for
pension benefits which resulted in additional required expense. The UFCW health
and welfare benefit plans were overfunded and those employers who contributed to
these plans received a pro rata share of excess reserve in these health care
benefit plans through a reduction in current maintenance payments. Ralphs' share
of the excess reserve was approximately $24.5 million of which $11.8 million was
recognized in Fiscal 1993 and the remainder, $12.7 million, was recognized in
Fiscal 1994. Since employers are required to make contributions to the benefit
funds at whatever level is necessary to maintain plan benefits, there can be no
assurance that plan maintenance payments will remain at current levels.
Operating Income
Operating income in Fiscal 1994 decreased 4.3% to $145.6 million from
$152.1 million in Fiscal 1993. Operating margin, defined as operating income as
a percentage of sales, was 5.3% in Fiscal 1994 compared to 5.6% in Fiscal 1993.
EBITDA, defined as net earnings before interest expense, income tax expense
(benefit), depreciation and amortization expense, provision for postretirement
benefits, provision for LIFO expense, gain or loss on disposal of assets,
transition expense and a one-time charge for Teamsters Union sick pay benefits,
was 8.4% of sales or $230.2 million in Fiscal 1994 and 8.4% of sales or $230.2
million in Fiscal 1993.
Net Interest Expense
Net interest expense for Fiscal 1994 was $112.7 million versus $108.8
million for Fiscal 1993. Net interest expense increased primarily as a result of
increases in interest rates. Included as interest expense during Fiscal 1994 was
$97.4 million, representing interest expense on existing debt obligations,
capitalized leases and a swap agreement. Comparable interest expense for Fiscal
1993 was $92.8 million. Also included in net interest expense for Fiscal 1994
was $15.3 million representing certain other charges related to amortization of
debt issuance costs, self-insurance discounts, lease valuation reserves and
other miscellaneous charges (categorized by Ralphs as non-cash interest expense)
as compared to $16.0 million for Fiscal 1993. Investment income, which is
immaterial, has been offset against interest expense. The continuation of higher
interest rates subsequent to the end of Fiscal 1994 has continued to increase
interest expense and adversely affect Ralphs' net income.
Net Earnings
For Fiscal 1994, Ralphs reported net earnings of $32.1 million compared to
net earnings of $138.4 million for Fiscal 1993. The decrease in net earnings is
primarily the result of decreased operating income, higher interest expense due
to increased interest rates, the recognition of $109.1 million of deferred
income tax benefit in Fiscal 1993 partially offset by $11.0 million recorded for
earthquake losses in Fiscal 1993.
Other
In February 1994, the Board of Directors of Ralphs authorized a dividend of
$10.0 million to be paid to RSI, and the Board of Directors of RSI authorized
distribution of this dividend to its shareholders subject to certain restrictive
covenants in the instruments governing certain of Ralphs' indebtedness that
impose limitations on the declaration or payment of dividends. Ralphs' credit
agreement, entered into in 1992 (the "1992 Credit Agreement"), was amended to
allow for the payment of the dividend to RSI for distribution to RSI's
shareholders. The fee for the amendment was approximately $500,000, which was
included in interest expense for the period. The dividend was distributed to the
shareholders of RSI in the second quarter of Fiscal 1994.
44
<PAGE> 50
COMPARISON OF RALPHS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 30,
1994 WITH RALPHS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 31, 1993.
Sales
Sales in Fiscal 1993 were $2,730.2 million, a decrease of $113.6 million or
4.0% compared to Fiscal 1992. During Fiscal 1993, Ralphs opened eight new
stores, four in Los Angeles County, two in Orange County and two in Riverside
County, and remodeled six stores. Two of the eight new stores replaced the two
stores closed during the fiscal year. Comparable store sales decreased 5.8%,
which included an increase of 0.6% for the replacement stores, from $2,823.4
million to $2,659.3 million in Fiscal 1993. Ralphs' sales continued to be
adversely affected by the significant recession in Southern California,
continuing competitive new store and remodelling activity and pricing and
promotional changes by competitors.
Cost of Sales
Cost of sales decreased $123.5 million or 5.6% from $2,217.2 million in
Fiscal 1992 to $2,093.7 million in Fiscal 1993. As a percentage of sales, cost
of sales declined to 76.7% in Fiscal 1993 from 78.0% in Fiscal 1992. The
decrease in cost of sales as a percentage of sales was the result of savings in
warehousing and distribution costs, the pass-through of increased operating
costs and increases in relative margins where allowed by competitive conditions.
Selling, General and Administrative Expenses
SG&A increased $1.0 million or 0.2% from $470.0 million in Fiscal 1992 to
$471.0 million in Fiscal 1993. As a percentage of sales, SG&A increased from
16.5% in Fiscal 1992 to 17.2% in Fiscal 1993. The increase in SG&A as a
percentage of sales was the result of several factors including the soft sales
environment. Increases in expense were partially offset by cost savings programs
instituted by Ralphs.
Ralphs participates in multi-employer pension plans and health and welfare
plans administered by various trustees for substantially all union employees.
Contributions to these plans are based upon negotiated contractual rates. In
both Fiscal 1992 and Fiscal 1993 the UFCW multi-employer pension plan was deemed
to be overfunded based upon the collective bargaining agreement then currently
in force. During Fiscal 1993 the agreement called for pension benefits which
resulted in additional required expense. The UFCW health and welfare benefit
plans were overfunded and those employers who contributed to these plans are to
receive a pro rata share of the excess reserve in these health care benefit
plans through a reduction in current maintenance payments. Ralphs' share of the
excess reserve was approximately $24.5 million of which $11.8 million was
recognized in Fiscal 1993 and the remainder will be recognized in the fiscal
year ending January 29, 1995. The change in health and welfare plan expenses
resulted from the $11.8 million credit associated with the collective bargaining
agreement as well as a reduction in the current year plan expense due to the
overfunded status of the plan. Since employers are required to make
contributions to the benefit funds at whatever level is necessary to maintain
plan benefits, there can be no assurance that plan maintenance payments will
remain at current levels. Partially offsetting the reductions of health and
welfare maintenance payments was a $6.0 million contract ratification bonus paid
by Ralphs at the conclusion of contract negotiations with the UFCW in Fiscal
1993. The $6.0 million contract ratification payment was an item separate from
either of these plans.
Operating Income
Operating income in Fiscal 1993 increased to $152.1 million from $138.5
million in Fiscal 1992, a 9.8% increase. Operating margin increased in Fiscal
1993 to 5.6% from 4.9% in Fiscal 1992. This increase was primarily the result of
the aforementioned improvements in Ralphs' cost of sales percentage. EBITDA,
defined as net earnings before interest expense, income tax expense (benefit),
depreciation and amortization expenses, postretirement benefits, the LIFO
charge, extraordinary item relating to debt refinancing, provision for legal
settlement, provision for restructuring, provision for earthquake losses and
loss on disposal of assets, improved to $230.2 million or 8.4% of sales in
Fiscal 1993 from $227.3 million or 8.0% of sales in Fiscal 1992.
45
<PAGE> 51
Net Interest Expense
Net interest expense for Fiscal 1993 was $108.8 million, compared to $125.6
million for Fiscal 1992. The reduction in net interest expense was attributable
to the refinancing and defeasance of Ralphs 14% Senior Subordinated Debentures
due 2000 (the "14% Debentures") with the proceeds from the issuance of the Old
RGC 9% Notes as the final step in a recapitalization plan initiated on July 30,
1992. Cash interest expense during Fiscal 1993 was $92.8 million compared to
$105.5 million in Fiscal 1992. Also included in interest expense for Fiscal 1993
was $16.0 million representing certain other charges relating to amortization of
debt issuance costs, self-insurance discount, lease valuation reserves and other
miscellaneous charges (categorized 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.
46
<PAGE> 52
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"), for the 32 weeks ended February 5,
1994 and for the 31 weeks ended January 29, 1995:
<TABLE>
<CAPTION>
52 WEEKS ENDED
---------------------------------------------------------- 32 WEEKS ENDED 31 WEEKS ENDED
JUNE 27, JUNE 26, JUNE 25, FEBRUARY 5, JANUARY 29,
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% $1,616.7 100.0% $1,556.5 100.0%
Gross profit........... 520.8 17.9 484.2 17.7 469.3 18.1 299.5 18.5 262.4 16.9
Selling, general,
administrative and
other, net........... 469.7 16.1 434.9 15.9 388.8 15.0 252.3 15.6 222.4 14.3
Amortization of excess
costs over net assets
acquired............. 7.8 0.3 7.6 0.3 7.7 0.3 4.7 0.3 4.6 0.3
Restructuring charge... -- -- -- -- -- -- -- -- 5.1 0.3
Operating income....... 43.3 1.5 41.7 1.5 72.8 2.8 42.5 2.6 30.3 1.9
Interest expense....... 70.2 2.4 73.6 2.6 77.0 2.9 47.6 2.9 48.4 3.1
Loss (gain) on disposal
of assets............ (1.3) -- (2.1) (0.1) -- -- 0.1 -- (0.5) --
Provision for
earthquake losses.... -- -- -- -- 4.5 0.2 -- -- -- --
Provision for income
taxes................ 3.4 0.1 1.4 0.1 2.7 0.1 1.0 0.1 0.0 0.0
Loss before
extraordinary
charge............... (29.0) (1.0) (31.2) (1.1) (11.5) (0.4) (6.2) (0.4) (17.6) (1.1)
Extraordinary charge... 4.8 0.2 -- -- -- -- -- -- -- --
Net loss............... (33.8) (1.2) (31.2) (1.1) (11.5) (0.4) (6.2) (0.4) (17.6) (1.1)
</TABLE>
COMPARISON OF HOLDINGS' RESULTS OF OPERATIONS FOR THE 31 WEEKS ENDED JANUARY 29,
1995 WITH HOLDINGS' RESULTS OF OPERATIONS FOR THE 32 WEEKS ENDED FEBRUARY 5,
1994
Sales
Sales per week decreased $0.3 million, or 0.6%, from $50.5 million per week
in the 32 weeks ended February 5, 1994, to $50.2 million per week in the 31
weeks ended January 29, 1995, primarily as a result of a 4.6% decline in
comparable store sales, partially offset by sales from new and acquired stores
opened since February 5, 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 32 weeks
ended February 5, 1994, to 16.9% in the 31 weeks ended January 29, 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 February 5, 1994, to 89 at January 29, 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
$252.3 million and $222.4 million for the 32 weeks ended February 5, 1994 and
the 31 weeks ended January 29, 1995, respectively. SG&A decreased as a
percentage of sales from 15.6% to 14.3% for the same periods. Food 4 Less
experienced a reduction of workers' compensation and general liability
self-insurance costs of $14.8 million during the 31 weeks ended January 29, 1995
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
47
<PAGE> 53
awards for stores with the best loss experience, specific achievable 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 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 February 5, 1994, to 89 at January 29,
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 $3.7 million in the 32 weeks ended February 5, 1994 and $14.3 million
in the 31 weeks ended January 29, 1995, respectively. An additional $4.4 million
of credits was recognized during the period from February 6, 1994 through the
end of Fiscal 1994. The remainder of the excess reserves will be recognized as
the credits are taken during fiscal 1995.
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 which was recorded in the 31
weeks ended January 29, 1995.
Restructuring Charge
Food 4 Less has converted 11 of its conventional format supermarkets to
warehouse format stores. During the 31 weeks ended January 29, 1995, Food 4 Less
recorded a non-cash 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
$47.6 million and $48.4 million for the 32 weeks ended February 5, 1994 and the
31 weeks ended January 29, 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 during
the 31 weeks ended January 29, 1995. As a result of capital expenditures
subsequent to January 29, 1995, Food 4 Less has increased its borrowing under
the F4L Credit Agreement, which, coupled with increased rates, has increased its
interest expense and net loss during such period.
Net Loss
Primarily as a result of the factors discussed above, Holdings' net loss
increased from $6.2 million in the 32 weeks ended February 5, 1994 to $17.6
million in the 31 weeks ended January 29, 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.
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<PAGE> 54
Gross Profit
Gross profit increased as a percent of sales from 17.7% in Fiscal 1993 to
18.1% in Fiscal 1994. The increase in gross profit margin was attributable to
improvements in product procurement and an increase in vendors' participation in
Food 4 Less' promotional costs. These improvements were partially offset by an
increase in the number of warehouse format stores (which have lower gross
margins resulting from prices that are generally 5-12% below the prices in Food
4 Less' conventional stores) from 45 at June 26, 1993 to 66 at June 25, 1994,
and the effect of the fixed cost component of gross profit as compared to a
lower sales base.
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.
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<PAGE> 55
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 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
Prior to the consummation of the Reincorporation Merger, New Holdings will
have neither any business operations nor any material assets of its own. In
addition, 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 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 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
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<PAGE> 56
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 $1.3
billion. Pursuant to the New Equity Investment, New Holdings (as the successor
to Holdings) will issue capital stock for total cash proceeds of approximately
$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 Credit
Facility pursuant to which it will have available up to $600 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 $6.5 million is anticipated to be drawn
at the Closing Date. Food 4 Less will also issue up to $350 million principal
amount of New F4L Senior Notes pursuant to the Senior Note Public Offering and
will issue up to $100 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 $160.8 million at
Food 4 Less and $238.2 million at Ralphs, to repay existing mortgage debt of
$174.0 million (excluding prepayment fees) at Ralphs and to pay $84.4 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 $34.4 million (as of June 15, 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 $113.6 million of
fees and expenses of the Merger and the Financing and to pay $3.7 million to
purchase shares of New Holdings Common Stock. 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 June 15,
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 $225.9 million. Pursuant to the
New Credit Facility, the New Term Loans will be issued in four tranches: (i)
Tranche A, in the amount of $275 million, will have a six-year term;
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(ii) Tranche B, in the amount of $108.3 million, will have a seven-year term;
(iii) Tranche C, in the amount of $108.3 million, will have an eight-year term;
and, (iv) Tranche D, in the amount of $108.4 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 $3.3 million in the first
year, $36.3 million in the second year and increasing thereafter. The New Credit
Facility will be guaranteed by New Holdings and each of the Company's
subsidiaries and secured by liens on substantially all of the unencumbered
assets of the Company and its subsidiaries and by a pledge of New Holdings'
stock in the Company. The New Credit Facility will contain financial covenants
which are expected to require, among other things, the maintenance of specified
levels of cash flow and stockholder's equity. See "Description of the New Credit
Facility."
Standard & Poor's has publicly announced that, upon consummation of the
Merger, it intends to assign a new rating to the Old RGC Notes. Such new rating
assignment, if implemented, would constitute a Rating Decline under the Old RGC
Indentures. The consummation of the Merger (which is conditioned on, among other
things, successful consummation of the New Discount Debenture Placement, 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 and approximately $17.6 million of cash
from operating activities during the 52-week period ended June 25, 1994 and the
31 weeks ended January 29, 1995, respectively (as compared to generating
approximately $30.2 million of cash from operating activities during the 32
weeks ended February 5, 1994). The decrease in cash from operating activities is
due primarily to changes in operating assets and liabilities and a decrease in
operating income. 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 $74.8 million at January 29,
1995. Subsequent to January 29, 1995, Holdings continued its practice of using
cash from operations for non-current purposes which increased the working
capital deficit.
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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 31 weeks ended January 29, 1995, Holdings' cash used in
investing activities was $42.6 million. Investing activities consisted primarily
of capital expenditures of $49.0 million, partially offset by $6.5 million of
sale/leaseback transactions. The capital expenditures, net of the proceeds from
sale/leaseback transactions, were financed with cash provided by a combination
of financing and operating 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. In May 1995, the F4L Credit Agreement was
further amended in order to accommodate Food 4 Less' new fiscal year end and to
make adjustments to Food 4 Less' financial covenants.
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 $11.6 million for the 31
weeks ended January 29, 1995, which consisted primarily of $27.3 million of
borrowings outstanding on the Revolving Credit Facility at January 29, 1995
partially offset by a $11.3 million repayment of the Term Loan. At January 29,
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 approximately $61 million per
annum and (ii) any 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
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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 cost savings and growth can be achieved. See "Risk
Factors -- Leverage and Debt Service."
Interest Rate Protection Agreements
Ralphs and Food 4 Less currently are parties to certain interest rate
protection agreements required under the terms of their existing bank
indebtedness. In connection with the New Credit Facility, these interest rate
protection agreements will be replaced by a new agreement which will be
finalized prior to the closing of the Merger. The Company will be exposed to
credit loss in the event of nonperformance by the counterparty to the interest
rate protection agreement. However, the Company does not anticipate
nonperformance by such counterparty.
The following details the impact of Ralphs' hedging activity on its
weighted average interest rate for each of the last three fiscal years of
Ralphs:
<TABLE>
<CAPTION>
WITH WITHOUT
HEDGE HEDGE
-------- --------
<S> <C> <C>
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.
RECENT RESULTS
Ralphs. Ralphs sales for the 12 weeks ended April 23, 1995 (the "first
quarter") increased $21.5 million, or 3.5%, to $637.5 million from $616.0
million in the 12 weeks ended April 24, 1994. Comparable store sales in the
first quarter decreased 2.2% from the corresponding period in the prior year.
Operating income for the 12 weeks ended April 23, 1995 decreased $2.8 million to
$31.3 million from $34.1 million in the 12 weeks ended April 24, 1994. EBITDA
(as defined) in the first quarter of the current fiscal year decreased to $52.3
million from $52.7 million in the comparable period of the prior year. Ralphs
net earnings in the first quarter of the current fiscal year declined $3.5
million from $8.4 million in the first quarter of Fiscal 1994 to $4.9 million in
the first quarter of the current fiscal year. The decline in net earnings was
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largely attributable to an increased level of union health and welfare benefit
credits in the prior fiscal year. Such conditions continue to cause similar
decreases in operating income and net income through the period ended May 26,
1995 as compared to the same period in the preceding year.
Holdings. Holdings' sales for the 12 weeks ended April 23, 1995 increased
$35.7 million, or 6.1%, to $623.6 million from $587.9 million in the 12 week
period ended April 2, 1994. Comparable store sales decreased approximately 2.2%
from the 12 week period in the prior year. EBITDA (as defined) in the first
quarter of the current fiscal year decreased slightly to $30.1 million from
$30.2 million in the prior year's period. Food 4 Less' net loss decreased from
$6.3 million for the 12 weeks ended April 2, 1994 to $5.2 million for the 12
weeks ended April 23, 1995; however, Holdings' net loss for the 1994 period
reflected a charge of $4.5 million related to earthquake damage. Holdings'
increased borrowings for capital expenditures in the current fiscal year and the
resulting increased interest expense contributed to the net loss in the first
quarter of the current year.
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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, New Holdings would have had sales of approximately $5.1 billion and $3.1
billion, operating income of approximately $183 million and $99 million and
EBITDA (as defined) of approximately $343 million and $211 million for the 52
weeks ended June 25, 1994 and the 31 weeks ended January 29, 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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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 18.5% of sales (excluding meat, service
delicatessen and produce items) during Fiscal 1994. 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
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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.
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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,
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<PAGE> 65
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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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
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Company plans to continue its store expansion program in Southern California by
opening 17 new stores during calendar 1995 (including three Food 4 Less stores
which will be located in San Diego, a new market for Food 4 Less), and
additional stores in subsequent years. 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.
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ADVERTISING AND PROMOTION
Ralphs' marketing strategy is to provide a combination of wide product
selection, quality and freshness of perishable products, competitive prices and
double coupons supporting Ralphs' advertising theme "Everything You Need. Every
Time You Shop." In February 1994, Ralphs launched the Ralphs Savings Plan, a new
marketing campaign designed to enhance customer value. The Ralphs Savings Plan
is comprised of six major components: Guaranteed Low Prices ("GLPs"), Price
Breakers, Big Buys, Multi-Buys, Ralphs Brand Products and Double Coupons. GLPs
guarantee low prices on certain high volume items that are surveyed and updated
every four weeks. Price Breakers are weekly advertised items that offer
significant savings. Big Buys are club size items at prices competitive to club
store prices and Multi-Buys offer Ralphs shoppers the opportunity to purchase
club store quantities of regular sized items at prices competitive to club store
prices. 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
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given it a competitive advantage and has better enabled management to run its
business efficiently and to control costs.
The Company plans to convert the Food 4 Less management information systems
to the Ralphs management information systems. Ralphs stores that will be
converted to the Food 4 Less format will continue to use the Ralphs programs.
NORTHERN CALIFORNIA AND MIDWESTERN DIVISIONS
The Northern California Division of Food 4 Less operates 19 conventional
supermarkets in the greater San Francisco Bay Area under the names "Cala" and
"Bell," and six warehouse format stores under the "Foods Co." name. Management
believes that the Northern California Division has excellent store locations in
the city of San Francisco that are very difficult to replicate. The Midwestern
Division of Food 4 Less 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
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<PAGE> 70
Division Food 4 Less warehouse stores were renamed "Foods Co." in fiscal 1994
following the sale by Food 4 Less of exclusive rights to use the "Food 4 Less"
name in Northern California to Fleming Companies, Inc. See "-- Licensing
Operations."
The Company intends to focus its Midwestern Division expansion primarily on
its Food 4 Less operations. While Food 4 Less expects to construct new stores,
it may also expand operations by purchasing existing Food 4 Less stores from
unaffiliated licensees, or by acquiring existing supermarkets and converting
them to the Food 4 Less warehouse format. The acquisition in March 1994 of ten
warehouse stores formerly operated as "Food Barn" stores increased the
Midwestern Division's Food 4 Less warehouse store count from 23 at June 26, 1993
to 33 at June 25, 1994. During the last five fiscal years, the Midwestern
Division has opened 3 new stores, acquired 13 stores, closed one store and
remodeled 10 stores.
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>
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<PAGE> 71
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 Teamsters 1,675 drivers and warehousemen September 13, 1998
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>
FOOD 4 LESS
At January 29, 1995, Food 4 Less had a total of 6,157 full-time and 8,860
part-time employees as follows:
<TABLE>
<CAPTION>
EMPLOYEE TYPE UNION NON-UNION TOTAL
----------------------------------------------- ------ --------- ------
<S> <C> <C> <C>
Hourly......................................... 12,348 573 12,921
Salaried....................................... -- 2,096 2,096
------ ----- ------
Total employees...................... 12,348 2,669 15,017
</TABLE>
Of Food 4 Less' 15,017 total employees at January 29, 1995, 12,348 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.......................................... 6,869 Southern California October 6, 1996
clerks and meatcutters
Hospital and Service Employees................ 272 Southern California January 19, 1997
store porters
International Brotherhood of Teamsters........ 874 Southern California September 13, 1998
produce drivers
and warehousemen
UFCW.......................................... 927 Northern California March 7, 1998
clerks and meatcutters
UFCW.......................................... 3,115 Southern California February 25, 1996
clerks and meatcutters
Bakery and Confectionery Workers.............. 195 Southern California July 7, 1997
bakers
</TABLE>
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 the 31 weeks ended January 29,
1995, earnings from licensing operations were
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<PAGE> 72
approximately $77,000. An exclusive license with the right to sublicense the
"Food 4 Less" name in all areas of the United States except Arkansas, Iowa,
Illinois, Minnesota, Nebraska, North Dakota, South Dakota, Wisconsin, the upper
peninsula of Michigan, certain portions of Kansas, Missouri, and Tennessee has
been granted to Fleming Companies, Inc. ("Fleming"), a major food wholesaler and
retailer. In August of 1993, Food 4 Less amended (the "Amendment") its licensing
agreement with Fleming to give Fleming exclusive use of the Food 4 Less name in
Northern California and Food 4 Less exclusive use in Southern California.
Fleming paid Food 4 Less a fee of $1.9 million for the Amendment. With the
exception of Northern California, and subject to the Amendment and certain
proximity restrictions, Food 4 Less retains the right to open and operate its
own "Food 4 Less" warehouse supermarkets throughout the United States. As of
June 25, 1994, there were 158 Food 4 Less warehouse supermarkets in 20 states,
including the 61 stores owned or leased and operated by 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 TOTAL SELLING
SUPERMARKETS 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
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<PAGE> 73
was formerly owned by Food 4 Less, was the subject of a sale leaseback
arrangement entered into by Food 4 Less in August 1990. For information
regarding the Company's plan to consolidate its warehouse facilities following
completion of the Merger, see "-- The Merger -- Substantial Cost Savings
Opportunities -- Warehousing and Distribution Efficiencies."
LEGAL PROCEEDINGS
In December 1992, three California state antitrust class action suits were
commenced in Los Angeles Superior Court against RGC and Food 4 Less and other
major supermarket chains located in Southern California, alleging that they
conspired to refrain from competing in the retail market for fluid milk and to
fix the retail price of fluid milk above competitive prices. Specifically, class
actions were commenced by Diane 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
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<PAGE> 74
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 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. On or about
May 2, 1995 the EPA mailed a General Notice Letter to 14 parties, including
Ralphs as owner and operator of the Atwater property, naming them as additional
potentially responsible parties ("PRPs"). As such, Ralphs and the other PRPs may
be requested to perform or pay for remediation or oversight costs in connection
with the Superfund site. Ralphs is evaluating the implications of this letter to
determine an appropriate response. 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
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<PAGE> 75
acquisition of Alpha Beta the seller (who is also the lessor of the La Habra
facility) agreed to retain responsibility, subject to certain limitations, for
remediation of the release.
Ralphs and Food 4 Less are subject to a variety of environmental laws,
rules, regulations and investigative or enforcement activities, as are other
companies in the same or similar business. The Company believes it is in
substantial compliance with such laws, rules and regulations. These laws, rules,
regulations and agency activities change from time to time, and such changes may
affect the ongoing business and operations of the Company.
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<PAGE> 76
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 47 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.
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<PAGE> 77
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.
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<PAGE> 78
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. Certain existing contractual rights of Mr.
Golleher, including the right to be elected to the Company's board of directors
and the right to require the Company to repurchase certain of his shares of New
Holdings stock upon his death, disability or termination without cause, will
continue in effect pursuant to the new employment agreement.
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
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<PAGE> 79
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 payments aggregating $880,000 in connection with
the Merger.
74
<PAGE> 80
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 25,580
Chairman and Chief 1993 645,000 387,000 N/A 20,075
Executive Officer 1992 620,000 372,000 587,753 21,897
Alfred A. Marasca, 1994 400,000 0 N/A 10,580
President and Chief 1993 340,000 204,000 N/A 7,187
Chief Operating Officer 1992 296,260 148,125 308,812 8,206
Alan J. Reed, 1994 225,000 0 N/A 6,248
Senior Vice President, 1993 222,500 111,250 N/A 8,879
Finance and Chief 1992 211,250 105,625 154,406 6,125
Financial Officer
Terry Peets, 1994 215,000 0 N/A 7,562
Executive Vice 1993 192,500 96,250 N/A 6,127
President 1992 182,500 91,250 154,406 6,027
Jan Charles Gray, 1994 213,750 0 N/A 9,047
Senior Vice President, 1993 207,500 103,750 N/A 9,084
General Counsel and 1992 196,250 98,125 154,406 6,605
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: $18,500, $6,600, $4,025, $5,460 and $4,500;
(B) dollar value of the remainder of premiums: $5,232, $2,701, $0, $0 and
$2,699; (C) incentive plan contributions: $1,848, $1,278, $2,223, $2,102 and
$1,848.
75
<PAGE> 81
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1994 AND FISCAL YEAR-END OPTION/SAR
VALUES -- RALPHS
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES FISCAL YEAR-END(#) FISCAL YEAR-END($)
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>
76
<PAGE> 82
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
Neither New Holdings nor Holdings has operations of its own and neither New
Holdings' nor Holdings' executive officers receive any additional remuneration
for serving as executive officers of such companies. 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 $100,000 for services
rendered in all capacities to Food 4 Less and its subsidiaries for the 31 weeks
ended January 29, 1995.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
FISCAL YEAR -------------------- ALL OTHER
NAME AND PRINCIPAL POSITION ENDED SALARY($) BONUS($) COMPENSATION(4)($)
- --------------------------------------- ---------------- --------- -------- ------------------
<S> <C> <C> <C> <C>
Ronald W. Burkle, Chairman and......... January 29, 1995(5) -- -- --
Chief Executive Officer(1) June 25, 1994 -- -- --
June 26, 1993 -- -- --
June 27, 1992 -- -- --
George G. Golleher,.................... January 29, 1995(5) 298,100 250,000 3,329
President June 25, 1994 500,000 500,000 3,937
June 26, 1993 500,000 500,000 --
June 27, 1992 500,000 235,000 5,300
Greg Mays, Executive Vice-President.... January 29, 1995(5) 154,300 85,000 2,687
Finance/Administration and June 25, 1994 250,000 150,000 --
Chief Financial Officer(2) June 26, 1993 108,000 75,000 --
June 27, 1992 -- -- --
Joe Burkle,............................ January 29, 1995(5) 124,000 -- --
Executive Vice President(3) June 25, 1994 196,000 50,000 --
June 26, 1993 156,000 -- --
June 27, 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 $1.2 million in the 31 weeks ended
January 29, 1995 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 and Mr. Mays.
(5) Food 4 Less changed its fiscal year end from the 52 or 53-week period which
ends on the last Saturday in June to the 52 or 53-week period which ends on
the Sunday closest to January 31, resulting in a 31-week transition period.
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.
77
<PAGE> 83
FOOD 4 LESS STOCK PLAN
As of June 25, 1994, certain employees of Food 4 Less (the "Management
Stockholders") collectively owned approximately 4.5% of Holdings' outstanding
common stock which they acquired under the management stock plan of Food 4 Less.
Pursuant to this plan, the Board of Directors of Holdings from time to time has
offered common stock of Holdings for sale to selected employees at a price and
for consideration (which may include a promissory note) determined at the
discretion of the Board. Management Stockholders who have purchased shares are
party to a Management Stockholders Agreement (the "Stockholders Agreement") with
Holdings, a Stockholder Voting Agreement and Proxy (the "Voting Agreement"), and
such other documents as Holdings may require. The Stockholders Agreement
prohibits the transfer of any of the Management Stockholder's common stock for a
period of four years from the date of its original issuance (although such date
may, in the case of certain Management Stockholders who were shareholders of
BHC, relate back to the date that shares were issued to them by BHC) other than
transfers to certain family members and heirs or pursuant to a registration
statement. The Management Stockholder's shares may be purchased by Holdings if,
(a) prior to the fourth anniversary of their issuance, the Management
Stockholder's employment terminates for any reason, or (b) after such fourth
anniversary, the Management Stockholder wishes to sell his/her common stock to a
third party. In the event of the death or permanent disability of the Management
Stockholder, each Management Stockholder has an irrevocable option for one year
to require Holdings to purchase all (or a portion) of his common stock in the
manner and on the terms set forth in the Stockholders Agreement; provided,
however, that the Management Stockholder may exercise such option in the event
of death or disability only to the extent that Holdings or Food 4 Less has
insurance, under which Holdings or Food 4 Less is the named beneficiary, with
respect to such event. Additionally, if shareholders holding at least fifty
percent (50%) of the issued and outstanding common stock of Holdings agree to
sell to a third party more than eighty percent (80%) of the shares of common
stock then held by them, then upon the demand of such selling stockholders, each
Management Stockholder must sell to such third party the same percentage of his
common stock as is proposed to be sold by the selling stockholders. 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 29, 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."
78
<PAGE> 84
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)(7)......... 600,000 3.0% -- -- -- -- 1.6% 1.5%
Alfred A. Marasca(2)(7).... 200,000 1.0% -- -- -- -- 0.5% 0.5%
Greg Mays(8)............... -- -- -- -- -- -- -- --
Alan J. Reed(7)............ -- -- -- -- -- -- -- --
Terry Peets(7)............. -- -- -- -- -- -- -- --
Jan Charles Gray(7)........ -- -- -- -- -- -- -- --
Apollo Advisors, L.P.
Apollo Advisors II, L.P.(9)
2 Manhattanville Road
Purchase, NY 10577....... 1,285,165 6.4% 10,783,244 64.6% -- -- 32.7% 30.2%
BT Investment Partners,
Inc.(10)
130 Liberty Street
New York, NY 10006....... 509,812 2.5% 900,000 5.4% 3,100,000 100% 3.8% 11.3%
Other New Equity Investors
as a group(11)........... 40,172 0.2% 5,000,000 30.0% -- -- 13.7% 12.6%
All directors and executive
officers as a group
(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
79
<PAGE> 85
to 1,000,000 shares of New Holdings common stock to be issued to holders of
EARs in exchange for the cancellation of $10 million of the EAR payments
which would otherwise be payable upon consummation of the Merger. See
"Executive Compensation -- New Management Stock Option Plan and Management
Investment."
(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) Does not include Reinvestment Options to purchase 228,428 shares, 100,000
shares, 60,000 shares, 60,000 shares and 174,940 shares of New Holdings
Common Stock to be issued to Messrs. Allumbaugh, Marasca, Reed, Peets and
Gray, respectively, in exchange for the cancellation of the EAR payments
which would otherwise be payable upon consummation of the Merger.
(8) 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.
(9) Represents shares owned by one or more entities managed by or affiliated
with Apollo Advisors, L.P. or Apollo Advisors II, 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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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 Non-Voting Common Stock, $.01 par value, 25,000,000 shares
of Series A Preferred Stock, $.01 par value, and 25,000,000 shares of Series B
Preferred Stock, $.01 par value, (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 or Non-Voting Common Stock equal
to the liquidation preference of such share of Series B Preferred Stock divided
by $10. Upon consummation of an initial public offering of 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 EBITDA (as defined) of at least
$500 million for any twelve-month period. Thereafter, the liquidation preference
will remain constant. The accretion rate of the liquidation preference will
increase (a) by 2% per annum if the Company fails to report EBITDA of at least
$400 million for the four fiscal quarters ending closest to the third
anniversary of the date of issuance (or for the rolling four-quarter period
ending on any of the three subsequent quarter-ends), (b) by 2% per annum if the
Company fails to report EBITDA of at least $425 million for the four fiscal
quarters ending closest to the fourth anniversary of the date of issuance (or
for the rolling four-quarter period ending on any of the three subsequent
quarter-ends) or (c) by 2% per annum if the Company fails to report EBITDA of at
least $450 million for the four fiscal quarters ending closest to the fifth
anniversary of the date of issuance, in each case, such increase to take effect
on the first day after the last day of the fiscal quarter with respect to which
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such failure occurred; provided that the accretion rate of the liquidation
preference will not at any time exceed 13% per annum. The accretion of the
liquidation preference will result in a proportional increase in the number of
shares of common stock issuable upon conversion of the Series A Preferred Stock
and the Series B Preferred Stock. 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.
Shares of Series A Preferred Stock or Series B Preferred Stock may be
converted (subject to certain conditions) at the option of the holder into
shares of the other series. The holders of Series A Preferred Stock and Series B
Preferred Stock have no rights to any fixed dividends in respect thereof.
Subject to certain exceptions, New Holdings will be prohibited from declaring
dividends with respect to, or redeem, purchase or otherwise acquire all of its
capital stock without the consent of holders of a majority of the Series A
Preferred Stock. If dividends are declared on the Series A Preferred Stock or
the Series B Preferred Stock which are payable in voting securities of 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 and Holdings." 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, under the 1995
Registration Rights Agreement 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 under the
1995 Stockholders Agreement 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 the shares representing New
Holdings' equity on the Closing Date appreciates to $1.220 billion. Such warrant
will be exercisable on a cashless basis at the election of Yucaipa in the event
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
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Federated and its subsidiaries. In consideration thereof, RSI and RGC agreed to
pay Federated a total of $10 million, payable $1 million on each of February 3,
1992, 1993, 1994, 1995 and 1996 and $5 million on February 3, 1997. The five $1
million installments are to be paid by RGC and the $5 million payment is the
joint obligation of RSI and RGC. In the event Federated is required to pay
certain tax liabilities, RSI and RGC have agreed to reimburse Federated up to an
additional $10 million, subject to certain adjustments. This additional
obligation, if any, is the joint and several obligation of RSI and RGC. Pursuant
to the terms of the Merger Agreement, the $5 million payment and the potential
$10 million payment will be paid in cash. See Note 1 of Notes to Ralphs
Consolidated Financial Statements.
In addition, EJDC and the other current holders of Common Stock of RSI are
parties to an agreement providing for various aspects of corporate governance
(the "Ralphs Registration Rights and Governance Agreement") relating to Ralphs.
Pursuant to the Ralphs Registration Rights and Governance Agreement, RGC is
obligated to provide RSI, by dividend, pursuant to a services agreement or
otherwise, with funds sufficient to enable RSI to perform its duties as the
holding company of RGC's stock and to perform its obligations set forth in the
Ralphs Registration Rights and Governance Agreement. The Ralphs Registration
Rights and Governance Agreement will be cancelled concurrently with the closing
of the Merger.
FOOD 4 LESS 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 $21.5 million, plus reimbursement of expenses in connection with
the Merger and the related transactions. New Holdings will issue $17.5 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 or
its designee 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 designate a purchaser
for, or 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 entity certain of whose members are associated with 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"), affiliates of BT
Securities, 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
its members 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) $17.5 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) $2.5 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 will grant to the partnership certain registration rights with
respect to the New Discount Debentures. Pursuant to such registration rights
agreement, New Holdings has filed with the Commission a shelf registration
statement which will permit resales of the New Discount Debentures by the
partnership commencing 60 days following closing of the Merger, provided that
such 60-day holdback period may be shortened or waived by New Holdings with the
consent of the Underwriters for the Public Offerings. 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 and its
subsidiaries will agree not to effect any public distribution of securities
similar to the New Discount Debentures until the New Discount Debentures are
resold by the partnership (or until the third anniversary of the Closing Date,
if later). 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 (or at
such earlier time as New Holdings and the Underwriters for the Public Offerings
may agree). New Holdings will agree 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
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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 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. In connection with the FFL Merger and the Reincorporation Merger,
New Holdings will become a party to a revised tax sharing agreement, which is
substantially similar to 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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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 June 1, 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 $193,363,570 and will mature on July 15, 2005. The New Discount
Debentures will be issued at a substantial discount from their principal amount.
Until June 15, 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 June 15, 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 June 15, 2000. The initial Accreted Value per $1,000
principal amount of New Discount Debentures will be $517.16 (representing the
original purchase price). Beginning on June 15, 2000, cash interest on the New
Discount Debentures will accrue at a rate of 13 5/8% per annum and will be
payable semiannually in arrears on June 15 and December 15 of each year,
commencing December 15, 2000, to the Holders of record on the immediately
preceding June 1 and December 1. 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 $10.00 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 the Accreted Value or principal, premium, if any, and interest
on the New Discount Debentures at the New Discount Debenture 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 June 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, together with accrued and unpaid interest to the
redemption date, if redeemed during the twelve-month period commencing on June
15 in the years set forth below:
<TABLE>
<CAPTION>
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 June 15, 1998, New Holdings may use
the net proceeds of a Public Equity 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 a Public Equity Offering shall be made on a pro
rata basis unless such method is otherwise legally prohibited. Notice of
redemption will be mailed at least 30 days but not more than 60 days before the
redemption date to each Holder whose New Discount Debentures are to be redeemed
at such Holder's registered address. New Discount Debentures in denominations of
$1,000 or less 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 $10.00 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. In addition, the
New Discount Debentures will effectively be subordinated to all liabilities
(including trade payables) of the Company. As of January 29, 1995, on a pro
forma basis after giving effect to the Merger, the FFL Merger and the
Reincorporation Merger (and certain related assumptions), the aggregate
outstanding amount of Subordinated Indebtedness of New Holdings would have been
approximately $131.5 million. However, the New Discount Debentures will
effectively be subordinated to all liabilities (including trade
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payables) of the Company which on the same pro forma basis would have been
approximately $2,833.1 million (excluding letters of credit) at such date.
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 June
15, 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 June 15,
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
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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
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, (4) any payments by
New Holdings or any Subsidiary required to be made due to the exercise of
statutory dissenters', appraisal or similar rights by holders of common stock of
FFL in connection with the FFL Merger, and (5) 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) or (4) above or pursuant to clause (i), (ii), (iv) or (v)
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 to, directly or indirectly, 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 therewith) of the
purchase (whether
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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 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 to the extent any such clause limits 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 under the New Discount Debenture Indenture.
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) in the case
of a sale of a store or stores, deem such Net Cash Proceeds to have been applied
to the extent of any capital expenditures made to acquire or construct a
replacement store in the general vicinity of the store sold within 365 days
preceding the date of the Asset Sale; (iii) apply or cause to be applied such
Net Cash Proceeds to the repayment of Pari Passu Indebtedness of New Holdings or
any Indebtedness of any Subsidiary; (iv) use such Net Cash Proceeds to secure
Letter of Credit Obligations to the extent the related letters of credit have
not been drawn upon or returned undrawn; or (v) after such time as the
accumulated Net Cash Proceeds equals or exceeds $20 million, apply or cause to
be applied such Net Cash Proceeds to the purchase of 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 June 15, 2000 or 100% of the principal amount thereof, plus accrued
interest to the date of purchase if such date is on or after June 15, 2000. A
Net Proceeds Offer as a result of an Asset Sale made by New Holdings 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), (iii) or (iv) 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 date that is six months prior 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 325 nor more than
365 days after the relevant Asset Sale, with a copy to the New Discount
Debenture 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 $10.00 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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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; (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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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 or any Subsidiary, 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 any 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 the defined terms used therein in a manner that would be
adverse to the Holders of the New Discount Debentures; provided, however, that
it is understood that any amendment the purpose of which is to permit the
incurrence of additional Indebtedness under the Seller Debenture Indenture shall
not be construed as adversely affecting the subordination provisions of any
Seller Debentures.
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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
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.
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 direct or indirect
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
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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 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 all or substantially all of its property, or (d) makes
a general assignment for the benefit of its creditors; (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 all or any substantial part of their
respective properties or (c) order the winding-up or liquidation of New
Holdings' or any Significant Subsidiary's 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. In
the event of a declaration of acceleration because an Event of Default set forth
in clause (iv) above has occurred and is continuing, such declaration of
acceleration shall be automatically rescinded and annulled if either (i) the
holders of the Indebtedness which is the subject of such Event of Default have
waived such failure to pay at maturity or have rescinded the acceleration in
respect of such Indebtedness within 90 days of such maturity or declaration of
acceleration, as the case may be, and no other Event of Default has occurred
during such 90-day period which has not been cured or waived, or (ii) such
Indebtedness shall have been discharged or the maturity thereof shall have been
extended such that it is not then due and payable, or the underlying default has
been cured (and any acceleration based thereon of such other Indebtedness has
been rescinded), within 90 days of such maturity or declaration of acceleration,
as the case may be.
If an Event of Default (other than an Event of Default resulting from
bankruptcy, insolvency, receivership or reorganization of 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, the administrative agent under the
Credit Agreement 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
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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 aggregate 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 at least 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 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
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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 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 Officers' 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
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Discount Debenture Trustee and the Holders of at least 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 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
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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 11%
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 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 New 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.
CERTAIN DEFINITIONS
"Accreted Value" means, per $1,000 principal amount (at maturity) of the
New Discount Debentures, (i) as of any date of determination prior to June 15,
2000, the sum of (A) $517.16, representing 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 June 15 and December 15 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 and (ii) from and after June 15, 2000, $1,000.
"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
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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 and the Subsidiaries of $500,000 or less, (iii) pursuant to any
foreclosure of assets or other remedy provided by applicable law to a creditor
of 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, involving only Cash Equivalents or
inventory in the ordinary course of business or obsolete equipment in the
ordinary course of business consistent with past practices of New Holdings or
its Subsidiaries, (v) involving only the lease or sub-lease of any real or
personal property in the ordinary course of business or (vi) the proceeds of
such Asset Sale which are not applied as contemplated in "-- Certain
Covenants -- Limitation on Asset Sales" and which, together with all other such
Asset Sale proceeds, do not exceed $20 million.
"Average Life" means, as of the date of determination, with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
the number of years from the date of determination to the dates of each
successive scheduled 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), (v) shares of any money market mutual fund that (a) has at least 95% of
its assets invested continuously in the types of investments referred to in
clauses (i) and (ii) above, (b) has net assets of not less than $500 million,
and (c) has the highest rating obtainable from either Standard & Poor's Ratings
Group or Moody's Investors Service, Inc. and (vi) readily marketable direct
obligations issued by any state of the United States of America or any political
subdivision thereof having one of the two highest rating categories obtainable
from either Moody's Investors Service, Inc. or Standard & Poor's Ratings Group.
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"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 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.
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"Consolidated Net Worth" means, with respect to any person, the total
stockholders' equity (exclusive of any Disqualified Capital Stock) of such
person and its subsidiaries determined on a consolidated basis in accordance
with GAAP.
"Consulting Agreement" means that certain Consulting Agreement, dated as of
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 amended or replacement agreement do not exceed the amounts
payable under such Consulting Agreement as in effect on the Issue Date.
"Credit Agreement" means the Credit Agreement, dated as of 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 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 June 15, 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 June 15, 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
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reserve for cash charges for any future period), less, without duplication, (i)
non-cash items increasing Consolidated Net Income of such person for such period
(excluding any such items which represent the reversal of any accrual of, or
cash reserve for, anticipated cash charges in any prior period) in each case
determined in accordance with GAAP and (ii) the amount of all cash payments made
by such person or its subsidiaries during such period to the extent that such
cash payment has been provided for in a restructuring reserve or charge referred
to in clause (v) above (and 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.
"Existing Indebtedness" means the following indebtedness of the Company to
the extent outstanding on the Issue Date after giving effect to the Merger: (a)
the 10.45% 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 11% 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.
"FFL" means Food 4 Less, Inc., a Delaware corporation and its successors,
including, without limitation, Holdings following the FFL Merger and New
Holdings following the Reincorporation Merger.
"FFL Merger" means the merger, prior to the Merger and the Reincorporation
Merger, of FFL and Holdings.
"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 Preferred Stock of such person
and its consolidated subsidiaries (whether in cash or otherwise (except
dividends payable in shares of Qualified Capital Stock)) declared or paid or
required to be declared or paid, during such period (except to the extent
accrued in a prior period), and excluding items eliminated in consolidation. 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
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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 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 or consulting 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 and disinterested and
independent with respect to New Holdings and its Affiliates.
"Interest Swap Obligation" means any obligation of any person pursuant to
any arrangement with any other person whereby, directly or indirectly, such
person is entitled to receive from time to time periodic
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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 of its Subsidiaries and other similar
customary expenses incurred, in each case in the ordinary course of business
consistent with past practice) or similar credit extension constituting
Indebtedness of such other person, and any guarantee of Indebtedness of any
other person.
"Issue Date" means the date of original issuance of the New Discount
Debentures pursuant to the New Discount Debenture Indenture.
"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 July 15, 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 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 any Asset Sale received in the
form of cash or Cash Equivalents.
"Net Proceeds" means (a) in the case of any Asset Sale or any issuance and
sale by any person of Qualified Capital Stock, the aggregate net proceeds
received by such person after payment of expenses, taxes, commissions and the
like incurred in connection therewith (and, in the case of any Asset Sale, net
of the amount of cash applied to repay Indebtedness secured by the asset
involved in such Asset Sale), whether such proceeds are in cash or in property
(valued at the fair market value thereof at the time of receipt as determined
with respect to any Asset Sale resulting in Net Proceeds in excess of $5 million
in good faith by the Board of Directors of such person, which determination
shall be evidenced by a Board Resolution) and (b) in the case of any conversion
or exchange of any outstanding Indebtedness or Disqualified Capital Stock of
such person for or into shares of Qualified Capital Stock of 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.
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"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
such New Discount Debentures 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 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
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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 (and the Company and each subsidiary (to the extent it is
not an obligor) may guarantee such Indebtedness) pursuant to (i) the Term Loans
in an aggregate principal amount at any time outstanding not to exceed $600
million less the aggregate amount of all principal repayments thereunder
pursuant to and in accordance with the covenant described under "-- Certain
Covenants -- Limitation on Asset Sales" above subsequent to the Issue Date,
(ii) the revolving credit facility under the Credit Agreement (including the
Letter of Credit obligations) in an aggregate principal amount at any time
outstanding not to exceed $325 million, less all permanent reductions
thereunder pursuant to and in accordance with the covenant described under
"-- Certain Covenants -- Limitation on Asset Sales" above and (iii) any
Indebtedness incurred under the Credit Agreement pursuant to and in compliance
with (A) clause (o) of this definition and (B) the covenant described above
under the caption "-- Limitation on Incurrence of Additional Indebtedness"
(other than Permitted Indebtedness that is not incurred pursuant to clause (o)
or this clause (a) of this definition); (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 end of the fourth fiscal
quarter following 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 end of the twelfth fiscal quarter following 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 the 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,
the 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 the Seller Debentures (including the issuance of
additional secondary securities in lieu of cash interest payments pursuant to
the
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terms of the Seller Debenture Indenture); and (o) additional Indebtedness of New
Holdings or any Subsidiary in an amount not to exceed $175 million at any time
outstanding.
"Permitted Investment" by any person means (i) any Related Business
Investment, (ii) Investments in securities not constituting cash or Cash
Equivalents and received in connection with an Asset Sale 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 Transactions with
Affiliates," (vi) Investments in any Subsidiary, or by any Subsidiary in New
Holdings or by any Subsidiary in other Subsidiaries, and (vii) additional
Investments in an aggregate amount not exceeding $15 million.
"Permitted Liens" means (i) Liens for taxes, assessments and governmental
charges or claims not yet due or which are being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted and if a
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor; (ii) statutory Liens of
landlords and carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen or other like Liens arising in the ordinary course of business,
deposits made to obtain the release of such Liens, and with respect to amounts
not yet delinquent for a period of more than 60 days or being contested in good
faith by an appropriate process of law, and for which a reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been
made; (iii) Liens incurred or pledges or deposits made in the ordinary course of
business to secure obligations under workers' compensation, unemployment
insurance and other types of social security or similar legislation; (iv) Liens
incurred or deposits made to secure the performance of tenders, bids, leases,
statutory obligations, surety and appeal bonds, government contracts,
performance and return of money bonds and other obligations of a like nature
incurred in the ordinary course of business (exclusive of obligations for the
payment of borrowed money); (v) easements, rights-of-way, zoning or other
restrictions, minor defects or irregularities in title and other similar charges
or encumbrances not interfering in any material respect with the business of 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.
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<PAGE> 114
"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 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 New Holdings on the Issue Date, (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
required to be paid by New Holdings or any Subsidiaries to participants or
former 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), (iv) the loan by New Holdings or any Subsidiary on the Issue
Date to RGC Investment Co. of not more than $5 million and (v) for so long as
the sole business activity of such partnership is to acquire, hold, sell,
exchange, transfer or otherwise dispose of all or any portion of the New
Discount Debentures and to manage its investment in the New Discount Debentures,
any payment by New Holdings or any Subsidiary to fund ongoing costs and expenses
of RGC Partners, L.P. pursuant to the Subscription Agreement and the
Registration Rights Agreement.
"Permitted Transferees" means, with respect to any person, (i) any
Affiliate of such person, (ii) the heirs, executors, administrators,
testamentary trustees, legatees or beneficiaries of any such person, (iii) a
trust, the beneficiaries of which, or a corporation or partnership, the
stockholders or general or limited partners of which, include only such person
or his or her spouse or lineal descendants, in each case to whom such person has
transferred the beneficial ownership of any securities of 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, Capital Stock of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such person, over shares
of Capital Stock of any other class of such person.
"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms of the New 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.
"Public Equity Offering" means an underwritten public offering of common
stock of New Holdings or the Company pursuant to a registration statement filed
with the SEC in accordance with the Securities Act which public equity offering
results in gross proceeds to New Holdings or the Company of not less than $20
million.
"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
109
<PAGE> 115
(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 provisions no less favorable in any material respect to Holders than
those contained in such repaid or amended Subordinated Indebtedness.
"Registration Rights Agreement" means that certain Registration Rights
Agreement by and between RGC Partners, L.P., New Holdings and Food 4 Less, as
such Registration Rights 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 Registration Rights Agreement as in effect on the
Issue Date.
"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 of its Subsidiaries as of the Issue Date; (ii)
any Investment by such person in any cooperative or other supplier, including,
without limitation, any joint venture which is intended to supply any product or
service useful to the business of New Holdings and any of its Subsidiaries as it
is conducted as of the Issue Date and as such business may thereafter evolve or
change; and (iii) any capital expenditure or Investment, in each case reasonably
related to the business of New Holdings and any of its Subsidiaries as it is
conducted as of the Issue Date and as such business may thereafter evolve or
change.
"Restricted Debt Prepayment" means any purchase, redemption, defeasance
(including, but not limited to in-substance or legal defeasance) or other
acquisition or retirement for value directly or indirectly by New Holdings or a
Subsidiary, prior to the scheduled maturity or prior to any scheduled repayment
of principal or any sinking fund payment, as the case may be, 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 additional 13 5/8% Senior
Subordinated Pay-in-Kind Debentures due 2007 issued as interest thereon, 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.
"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 and refinancings thereof.
110
<PAGE> 116
"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 Issue Date) 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 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.
"Subscription Agreement" means that certain Subscription Agreement between
RGC Partners, L.P., New Holdings, Food 4 Less and the partnership investors
listed on Exhibit A thereto, as such Subscription Agreement may be amended or
replaced, so long as any amounts paid under any amended or replacement agreement
do not exceed the amounts payable under such Subscription Agreement as in effect
on the Issue Date.
"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).
111
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"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 New Discount Debenture
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.
112
<PAGE> 118
THE EXCHANGE OFFERS AND THE PUBLIC OFFERINGS
THE RGC OFFERS
In addition to the issuance of the New Discount Debentures by New Holdings
as part of the Financing of the Merger, 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 Public Offerings,
the F4L Exchange Offers and the Holdings Offer to Purchase.
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 Holdings Offer to
Purchase, 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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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 New Discount Debenture Placement,
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
11%. Interest will be payable on the New RGC Notes on each June 15 and December
15, beginning December 15, 1995. The New RGC Notes will mature on June 15, 2005.
On or after June 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 redemption
price equal to the applicable percentage of the principal amount thereof set
forth below, plus accrued and unpaid interest to the redemption date, if
redeemed during the 12 months commencing on June 15 of the years set forth
below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2000...................................................... 105.500%
2001...................................................... 103.667%
2002...................................................... 101.833%
2003 and thereafter....................................... 100.000%
</TABLE>
114
<PAGE> 120
In addition, on or prior to June 15, 1998 the Company may, at its option,
use the net cash proceeds from one or more Public Equity Offerings to redeem up
to an aggregate of 35% of the principal amount of the New RGC Notes originally
issued, at a redemption price equal to 111.000% of the principal amount thereof
if redeemed during the 12 months commencing on June 15, 1995, 109.429% of the
principal amount thereof if redeemed during the 12 months commencing on June 15,
1996 and 107.857% of the principal amount thereof if redeemed during the 12
months commencing on June 15, 1997, in each case plus accrued and unpaid
interest, if any, to the redemption date.
The 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 $550 million at any one time outstanding.
THE F4L EXCHANGE OFFERS
In addition to the issuance of the New Discount Debentures by New Holdings
as part of the Financing of the Merger, 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 Public
Offerings, the RGC Offers and the Holdings Offer to Purchase.
The obligation of Food 4 Less to accept for exchange any validly tendered
Old F4L Note is conditioned upon, among other things, the satisfaction or waiver
of certain conditions, including (i) satisfaction of a minimum tender amount
(i.e., at least 80% of the aggregate principal amount of the outstanding Old F4L
Notes being validly tendered and not withdrawn pursuant to the F4L Exchange
Offers prior to the date of expiration); (ii) the receipt of the requisite
consents to certain amendments to the indentures governing the Old F4L Notes
(i.e., consents from Old F4L Noteholders representing at least a majority in
aggregate principal amount of each issue of Old F4L Notes held by persons other
than Food 4 Less and its affiliates) on or prior to the date of expiration;
(iii) the satisfaction or waiver, in Food 4 Less' sole discretion, of all
conditions precedent to the Merger; (iv) the prior or contemporaneous
consummation of the New Discount Debenture Placement 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
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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 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
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<PAGE> 122
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 June 15 and December 15,
beginning December 15, 1995. The New F4L Senior Subordinated Notes will mature
on June 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.
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
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<PAGE> 123
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
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.
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<PAGE> 124
The New F4L Senior Notes will bear interest at a fixed rate per annum equal
to 10.45%. Interest will be payable on the New F4L Senior Notes on each June 15
and December 15, beginning December 15, 1995. The New F4L Senior Notes will
mature on June 15, 2004. On or after June 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 June 15 of
the years set forth below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2000..................................... 105.225%
2001..................................... 103.483%
2002..................................... 101.742%
2003 and thereafter...................... 100.000%
</TABLE>
In addition, on or prior to June 15, 1998, the Company may, at its option,
use the net cash proceeds of one or more Public Equity Offerings to redeem up to
an aggregate of 35% of the principal amount of the New F4L Senior Notes
originally issued, at a redemption price equal to 110.450% of the principal
amount thereof if redeemed during the 12 months commencing on June 15, 1995,
108.957% of the principal amount thereof if redeemed during the 12 months
commencing on June 15, 1996 and 107.464% of the principal amount thereof if
redeemed during the 12 months commencing on June 15, 1997, in each case plus
accrued and unpaid interest, if any, to the redemption date. In order to effect
the foregoing redemption with the proceeds of a Public Equity Offering, the
Company shall send the redemption notice not later than 60 days after the
consummation of such Public Equity Offering.
Upon a Change of Control (as defined), each holder of the New F4L Senior
Notes has the right to require the Company to repurchase such holder's New F4L
Senior Notes at a price equal to 101% of their principal amount, plus accrued
interest, if any, to the date of repurchase.
The aggregate principal amount of Old F4L Senior Notes and New F4L Senior
Notes, whether issued in the F4L Exchange Offers or pursuant to the Senior Note
Public Offering, will be limited to $525 million at any one time outstanding.
THE PUBLIC OFFERINGS
Concurrently with the Holdings Offer to Purchase, the F4L Exchange Offers
and the RGC Offers, Food 4 Less is (i) offering up to $350 million principal
amount of New F4L Senior Notes pursuant to the Senior Note Public Offering and
(ii) offering up to $100 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
Holdings 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 Holdings 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 $925 million of financing under the New Credit
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<PAGE> 125
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 $600 million, comprised of the $275 million Tranche A Loan, the $108.3
million Tranche B Loan, the $108.3 million Tranche C Loan, and the $108.4
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 $10 million will be available for a period of 91 days following the
Closing Date to finance the Change of Control Offer.
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 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
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<PAGE> 126
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 $33
million in the second year, $55 million in the third year, $59 million in the
fourth year, $62 million in the fifth year, and $66 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 $1.083 million for the first six years and $101.80 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 $1.083 million for the first seven years and $100.72 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 $1.083 million for the first eight years and $99.74 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 Tranche C Loans and
the Tranche D Loans will be used to make an offer to repay such loans and to the
extent not accepted 50% of such amount will be applied to reduce Tranche A Loans
on a pro rata basis and the remaining 50% may be retained by the Company.
GUARANTEES AND COLLATERAL
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.
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<PAGE> 127
EVENTS OF DEFAULT
The New Credit Facility also provides for customary events of default. The
occurrence of any of such events of default could result in acceleration of the
Company's obligations under the New Credit Facility and foreclosure on the
collateral securing such obligations, which could have material adverse results
to holders of the New Discount Debentures.
DESCRIPTION OF OTHER INDEBTEDNESS
THE SELLER DEBENTURES
The Seller Debentures will be issued to the stockholders of RSI upon
consummation of the Merger. The Seller Debentures will be issued in an aggregate
principal amount of $131.5 million and will mature on June 1, 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 the New Discount Debentures and any 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 June 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 June
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 June 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 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.
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<PAGE> 128
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. Pursuant to the registration rights agreement, the holders of the
Seller Debentures have agreed not to make public resales of the Seller
Debentures for a period of 90 days following the Closing Date, provided that
such 90-day holdback period may be shortened or waived by New Holdings with the
consent of the Underwriters for the Public Offerings and, until all New Discount
Debentures have been publicly resold, the partnership which will acquire the New
Discount Debentures on the Closing Date. Such 90-day holdback period will not be
applicable to the put of $10 million aggregate principal amount of Seller
Debentures to Yucaipa (or its designee) pursuant to the Put Agreement.
THE DISCOUNT NOTES
Concurrently with the RGC Offers and the F4L Exchange Offers, Holdings is
(A) offering to holders of the Discount Notes to purchase such Discount Notes
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 June 1, 1995 had
an accreted value of $688.43 per $1,000) accepted for purchase and (B)
soliciting consents from holders of the Discount Notes to certain amendments to
the Discount Note Indenture.
The obligation of Holdings to accept for exchange 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 to certain amendments to the Discount Note Indenture (i.e., consents
from Discount Noteholders representing at least a majority in aggregate
principal amount of Discount Notes held by persons other than Holdings and its
affiliates) on or prior to the date of expiration, (ii) the satisfaction or
waiver, in Holdings' sole discretion, of all conditions precedent to the RSI
Merger, (iii) the prior or contemporaneous successful completion of this
Offering, the F4L Exchange Offers, the RGC Offers and the New Discount Debenture
Placement, and (iv) the prior or contemporaneous consummation of the Bank
Financing and the New Equity Investment.
The Discount Notes were issued in December 1992, are limited in aggregate
principal amount (at maturity) to $103.6 million and will mature on December 15,
2004. The Discount Notes are unsecured general obligations of Holdings (and will
become obligations of New Holdings by operation of the Reincorporation Merger).
Cash interest does not accrue on the Discount Notes prior to December 15, 1997.
Thereafter, cash interest on the Discount Notes will accrue at the rate of
15.25% per annum, and will be payable in cash semiannually in arrears on each
June 15 and December 15, commencing on June 15, 1998.
The Discount Notes were issued at a substantial discount from their
principal amount and the purchase discount accretes at a rate of 15.25% per
annum compounded semi-annually on each June 15 and December 15 through (but
excluding) December 15, 1997.
The Discount Notes are redeemable, at the option of Holdings, in whole at
any time or in part from time to time, on or after December 15, 1997 at the
following redemption prices (expressed as percentages of the
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<PAGE> 129
accreted value) if redeemed during the twelve-month period commencing on
December 15 of the year set forth below, plus, in each case, accrued and unpaid
interest to the date of redemption:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
1997................................. 107.630%
1998................................. 106.100%
1999................................. 104.575%
2000................................. 103.050%
2001................................. 101.525%
2002 and thereafter.................. 100.000%
</TABLE>
Notwithstanding the foregoing, prior to December 15, 1997, Holdings may use
the net proceeds of an Initial Public Offering (as defined in the Discount Note
Indenture) of Holdings or Food 4 Less to redeem up to 25% of the Discount Notes
at redemption prices equal to the sum of (i) the applicable percentage of the
accreted value plus (ii) the Proportionate Share (as defined in the Discount
Note Indenture) of the Discount Notes, if any to the date of redemption if
redeemed during the twelve-month period beginning December 15 of the year set
forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
1992................................. 120.000%
1993................................. 117.525%
1994................................. 115.050%
1995................................. 112.575%
1996................................. 110.100%
</TABLE>
In the event of a Change of Control (as defined in the Discount Note
Indenture), each holder has the right to require the repurchase of such holder's
Discount Notes at a purchase price equal to 101% of the accreted value, plus
either, (i) if the date of the purchase is prior to December 15, 1997, the
Proportionate Share, if any, with respect to the Discount Notes to the date of
purchase and (ii) if the date of the purchase is on or after December 15, 1997,
the aggregate principal amount thereof plus accrued interest, if any, to the
date of purchase.
Holdings will make a mandatory sinking fund payment on December 15, 2003,
sufficient to retire 50% of the Discount Notes, at a redemption price equal to
100% of the principal amount thereof, together with accrued interest to the
redemption date. Holdings may, at its option, receive credit against such
sinking fund payment for 100% of the principal amount of any Discount Notes
previously acquired or redeemed by Holdings and surrendered to the trustee under
the Discount Note Indenture for cancellation and which were not previously used
as a credit against any other required payment pursuant to the Discount Note
Indenture. New Holdings intends to credit Discount Notes purchased pursuant to
the Holdings Offer to Purchase against its sinking fund obligations.
The Discount Note Indenture contains certain covenants that, among other
things, limit the ability of Holdings to enter into certain mergers or
consolidations or incur certain liens or of Holdings or its subsidiaries to
incur additional indebtedness, pay dividends or make certain other Restricted
Payments (as defined in the Debenture Indenture), or engage in certain
transactions with affiliates. Under certain circumstances, Holdings will be
required to make an offer to purchase Discount Notes at a price equal to 100% of
the aggregate principal amount thereof, plus accrued and unpaid interest, if
any, to the purchase date, with the proceeds of certain Asset Sales (as defined
in the Debenture Indenture). The Discount Note Indenture contains certain
customary events of default, including the failure to pay interest and
principal, the failure to comply with certain covenants in the Discount Notes or
the Discount Note Indenture, a default under certain indebtedness, the
imposition of certain final judgments or warrants of attachment and certain
events occurring under bankruptcy laws. In connection with the Holdings Offer to
Purchase, Holdings is soliciting consents to delete all of the restrictive
covenants from the Discount Note Indenture.
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<PAGE> 130
Following the Reincorporation Merger, New Holdings and the trustee under
the Discount Note Indenture will execute a supplemental indenture assuming the
obligations of Holdings thereunder. New Holdings and the trustee under the
Discount Note Indenture will then execute a second supplemental indenture
implementing such proposed amendments to the Discount Note Indenture after
certification to such trustee that Holdings has received consents from at least
a majority in aggregate principal amount of such notes.
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<PAGE> 131
SELLING DEBENTUREHOLDER
This Prospectus relates to the sale by the Selling Debentureholder from
time to time of up to $193,363,570 aggregate principal amount (at maturity) of
the New Discount Debentures. The New Discount Debentures will be issued to or
contributed to the Selling Debentureholder as part of the Financing of the
Merger. See "Certain Relationships and Related Transactions -- Food 4 Less and
Holdings." Pursuant to the Registration Rights Agreement to be executed by and
among New Holdings, the Company and the Selling Debentureholder on the Closing
Date, the Selling Debentureholder will be granted the right to have the offer
and sale of the New Discount Debentures registered under the Securities Act.
Pursuant to such Registration Rights Agreement the Selling Debentureholder will
agree not to make public resales of the New Discount Debentures for a period of
60 days following the Closing Date, provided that such 60-day holdback period
may be shortened or waived by New Holdings with the consent of the Underwriters
for the Public Offerings. See "Plan of Distribution."
The following table provides certain information with respect to the
Selling Debentureholder and the amount of New Discount Debentures owned, offered
and to be owned after the Offering by the Selling Debentureholder:
<TABLE>
<CAPTION>
PRINCIPAL PRINCIPAL
AMOUNT OF MAXIMUM AMOUNT AMOUNT OF
NEW DISCOUNT OF NEW DISCOUNT NEW DISCOUNT
DEBENTURES DEBENTURES TO BE DEBENTURES
OWNED BEFORE SOLD IN THE TO BE OWNED
SELLING DEBENTUREHOLDER OFFERING OFFERING AFTER OFFERING(1)
----------------------- ------------ ---------------- -----------------
<S> <C> <C> <C>
RGC Partners, L.P.(2) $193,363,570 $193,363,570 $ 0
10000 Santa Monica Boulevard
5th Floor
Los Angeles, CA 900067
</TABLE>
- ---------------
(1) There is no assurance that the Selling Debentureholder will sell any or all
of the New Discount Debentures offered by it.
(2) For information regarding the relationship between RGC Partners, L.P., New
Holdings and affiliates or predecessors of New Holdings, see "Certain
Relationships and Related Transactions -- Food 4 Less and Holdings."
New Holdings will pay all costs and expenses incurred in connection with
the registration under the Securities Act of the New Discount Debentures offered
by the Selling Debentureholder including, without limitation, all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws (including reasonable fees and disbursements of counsel for the Selling
Debentureholder in connection with blue sky qualifications of the New Discount
Debentures), printing and duplicating expenses, messengers and delivery
expenses, fees and disbursements of counsel for New Holdings and all independent
certified public accountants (including the expenses of any annual audit,
special audit or "cold comfort" letters in connection with the registration),
securities acts liability insurance (if the registrant elects to obtain such
insurance), the reasonable fees and expenses of any special experts retained in
connection with the registration and fees and expenses of other persons retained
by the registrant. New Holdings will not receive any of the proceeds from the
sale of the New Discount Debentures by the Selling Debentureholder. New Holdings
also will reimburse the Selling Debentureholder for all expenses incurred in
connection with the resale of the New Discount Debentures, including
underwriting discounts and brokers' or dealers' commissions and mark-ups
(subject to certain limitations), incident thereto.
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<PAGE> 132
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Latham & Watkins, counsel to New Holdings, has advised New Holdings that
the following discussion expresses their opinion as to the material federal
income tax consequences expected to result to holders from the purchase,
ownership and disposition of the New Discount Debentures. 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"). 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. Legislative,
judicial or administrative changes or interpretations may be forthcoming that
could alter or modify the statements and conclusions set forth herein. Any such
changes or interpretations may or may not be retroactive and could affect the
tax consequences to holders.
The tax treatment of a holder of the New Discount Debentures may vary
depending upon such holder's particular situation. Certain holders (including
insurance companies, tax-exempt organizations, financial institutions or
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) may be subject to special rules not discussed
below. EACH PURCHASER SHOULD CONSULT HIS OR HER TAX ADVISOR AS TO THE PARTICULAR
TAX CONSEQUENCES OF PURCHASING, HOLDING AND DISPOSING OF THE NEW DISCOUNT
DEBENTURES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR
FOREIGN TAX LAWS.
STATED INTEREST
Holders of New Discount Debentures will be required to include stated
interest in gross income in accordance with the original issue discount rules
set forth below.
ORIGINAL ISSUE DISCOUNT
General Original Issue Discount Rules
The amount of original issue discount, if any, on a debt instrument is the
excess of its "stated redemption price at maturity" over its "issue price,"
subject to a statutorily defined de minimis exception. The "issue price" of a
debt instrument issued in exchange for stock, such as a New Discount Debenture,
depends on whether the debt instrument or the stock is treated as "traded on an
established securities market." If the debt instrument is "traded on an
established securities market," its issue price will be its trading price
immediately following issuance. If the stock is so traded (but the debt
instrument received in exchange therefor is not), the issue price of the debt
instrument received will generally be equal to the fair market value of the
stock exchanged therefor.
If neither the debt instrument nor the stock is traded on an established
securities market, the issue price of the debt instrument will be equal to its
stated principal amount, assuming the debt instrument provides for "adequate
stated interest" (i.e., interest at least equal to the applicable federal rate),
and will be equal to its "imputed principal amount" (the sum of the present
values of all payments due under the debt instrument, using a discount rate
equal to the applicable federal rate) if either the debt instrument does not
provide for "adequate stated interest" or in the case of any "potentially
abusive situation" (including certain recent sales transactions).
The "stated redemption price at maturity" of a debt instrument is the sum
of its principal amount plus all other payments required thereunder, other than
payments of "qualified stated interest" (defined generally as stated interest
that is unconditionally payable in cash or in property (other than debt
instruments of the issuer) at least annually at a single fixed rate that
appropriately takes into account the length of intervals between payments).
In general, the amount of original issue discount that a holder of a debt
instrument with original issue discount must include in gross income for federal
income tax purposes will be the sum of the daily portions of original issue
discount with respect to such debt instrument for each day during the taxable
year or portion of a taxable year on which such holder holds the debt
instrument. The daily portion is determined by allocating to each day of an
accrual period (generally, a six month period or a shorter or longer period from
the date of
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<PAGE> 133
original issuance) a pro rata portion of an amount equal to the "adjusted issue
price" of the debt instrument at the beginning of the accrual period multiplied
by the yield to maturity of the debt instrument. The "adjusted issue price" is
the issue price of the debt instrument increased by the accrued original issue
discount for all prior accrual periods (and decreased by the amount of cash
payments made in all prior accrual periods, other than qualified stated interest
payments). The tax basis of the debt instrument in the hands of the holder will
be increased by the amount of original issue discount, if any, on the debt
instrument that is included in the holder's gross income and will be decreased
by the amount of any cash payments (other than qualified stated interest
payments) received with respect to the debt instrument, whether such payments
are denominated as principal or interest.
Notwithstanding the original issue discount rules described in the
preceding paragraphs, a holder of a debt instrument would not be required to
include original issue discount in income if such holder's tax basis in the debt
instrument were to exceed the debt instrument's stated principal amount. In
addition, a holder would be permitted to offset any original issue discount
income by an amount equal to the excess of such holder's tax basis (if less than
or equal to the stated principal amount) over the issue price of the debt
instrument.
New Discount Debentures
Because the New Discount Debentures will be issued at a discount from their
principal amount and do not provide for the payment of interest until June 15,
2000, the New Discount Debentures will be issued with original issue discount
for federal income tax purposes. As a result, initial holders of New Discount
Debentures will be required to include amounts in gross income before receiving
cash payments attributable to such gross income. For purposes of computing
original issue discount, the issue price of the New Discount Debentures will be
determined as described above under the heading "-- General Original Issue
Discount Rules." Because none of the payments of stated interest on the New
Discount Debentures will constitute payments of qualified stated interest, the
stated redemption price at maturity of the New Discount Debentures will be equal
to the sum of their principal amount plus all payments of stated interest.
APPLICABLE HIGH YIELD DISCOUNT OBLIGATION RULES
Generally, under Section 163(e)(5) of the Code, original issue discount is
not deductible until paid with respect to any debt instrument issued by a
corporation which (i) has a maturity date which is more than five years from the
date of issue, (ii) has a yield to maturity which equals or exceeds five
percentage points over the applicable federal rate for the calendar month in
which the obligation is issued and (iii) has "significant original issue
discount." A debt instrument is treated as having "significant original issue
discount" if the aggregate amount that would be includible in gross income with
respect to such debt instrument for periods before the close any accrual period
ending after the date five years after the date of issue exceeds the sum of (i)
the aggregate amount of interest to be paid in cash under the debt instrument
before the close of such accrual period and (ii) the product of the initial
issue price of such debt instrument and its yield to maturity. Moreover, if the
debt instrument's yield to maturity excess the applicable federal rate plus six
percentage points, a ratable portion of the issuing corporation's deduction for
original issue discount (the "Disqualified OID") will be denied. For purposes of
the dividends-received deduction under Section 243 of the Code, the Disqualified
OID will be treated as a dividend to the extent it would have been so treated if
it had been distributed by the issuing corporation with respect to its stock.
Due to their maturity date, yield to maturity and amount of original issue
discount, the New Discount Debentures may be subject to the high yield discount
obligation rules described above, depending on the applicable federal rate in
effect on the date the Seller Debentures are issued. If such rules were
applicable to the New Discount Debentures, New Holdings would not be permitted
to deduct any original issue discount on such New Discount Debentures until such
original issue discount were paid. In addition, the Disqualified OID would be
treated as a dividend for purposes of the dividends-received deduction under
Section 243 of the Code to the extent of New Holdings' current and accumulated
earnings and profits and would not be deductible by New Holdings.
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<PAGE> 134
MARKET DISCOUNT
The Code generally requires holders of "market discount bonds" to treat as
ordinary income any gain realized on the disposition (or gift) of such bonds to
the extent of the market discount accrued during the holder's period of
ownership. A "market discount bond" is a debt obligation purchased at a market
discount, subject to a statutory de minimis exception. For this purpose, a
purchase at a market discount includes a purchase at or after the original issue
at a price below the stated redemption price at maturity, or, in the case of a
debt instrument issued with original issue discount, at a price below (a) its
"issue price," plus (b) the amount of original issue discount includible in
income by all prior holders of the debt instrument, minus (c) all cash payments
received by such previous holders. The accrued market discount generally equals
a ratable portion of the bond's market discount, based on the number of days the
taxpayer has held the bond at the time of such disposition, as a percentage of
the number of days from the date the taxpayer acquired the bond to its date of
maturity.
AMORTIZABLE BOND PREMIUM
Generally, if the tax basis of an obligation held as a capital asset
exceeds the "stated redemption price at maturity" of the obligation (as defined
under "Original Issue Discount -- General Original Issue Discount Rules"), such
excess will constitute amortizable bond premium that the holder may elect to
amortize under the constant interest rate method and deduct over the period from
his acquisition date to the obligation's maturity date. A holder who elects to
amortize bond premium must reduce his tax basis in the related obligation by the
amount of the aggregate deductions allowable for amortizable bond premium.
Amortizable bond premium will be treated under the Code as an offset to interest
income on the related debt instrument for federal income tax purposes, subject
to the promulgation of Treasury Regulations altering such treatment.
DISPOSITION
In general, a holder of New Discount Debentures will recognize gain or loss
upon the sale, exchange, redemption or other taxable disposition of such New
Discount Debentures measured by the difference between (i) the amount of cash
and the fair market value of property received and (ii) the holder's tax basis
in the New Discount Debentures (as increased by any original issue discount and
market discount previously included in income by the holder and decreased by any
amortizable bond premium, if any, deducted over the term of the New Discount
Debentures). Subject to the market discount rules discussed above, any such gain
or loss will generally be long-term capital gain or loss, provided the New
Discount Debentures have been held for more than one year.
ELECTION
A holder of New Discount Debentures, subject to certain limitations, may
elect to include all interest and discount on the New Discount Debentures in
gross income under the constant yield method. For this purpose, interest
includes stated and unstated interest, acquisition discount, original issue
discount, de minimis market discount and market discount, as adjusted by any
acquisition premium. Such election, if made in respect of a market discount
bond, will constitute an election to include market discount in income currently
on all market discount bonds acquired by such holder on or after the first day
of the first taxable year to which the election applies. See "-- Market
Discount."
BACKUP WITHHOLDING
A holder of New Discount Debentures may be subject to backup withholding at
the rate of 31% with respect to interest paid on, original issue discount
accrued on and gross proceeds from the sale of, the New Discount Debentures
unless (i) such holder is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact or (ii) provides a correct
taxpayer identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. A holder of New Discount Debentures who does not provide New
Holdings with his or her correct taxpayer identification number may be subject
to penalties imposed by the Service.
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<PAGE> 135
New Holdings will report to holders of the New Discount Debentures and the
Service the amount of any "reportable payments" (including any interest paid and
any original issue discount accrued on the New Discount Debentures) and any
amount withheld with respect to the New Discount Debentures 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 NEW DISCOUNT DEBENTURES
IN LIGHT OF HIS OR HER PARTICULAR CIRCUMSTANCES AND INCOME TAX SITUATION. EACH
HOLDER OF NEW DISCOUNT DEBENTURES SHOULD CONSULT HIS OR HER TAX ADVISOR AS TO
THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER FROM THE PURCHASE, OWNERSHIP AND
DISPOSITION OF NEW DISCOUNT DEBENTURES, INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
PLAN OF DISTRIBUTION
The New Discount Debentures may be sold from time to time to purchasers
directly by the Selling Debentureholder. Alternatively, the Selling
Debentureholder may from time to time offer the New Discount Debentures through
underwriters, dealers or agents, who may receive compensation in the form of
underwriting discounts, concessions or commissions from the Selling
Debentureholder and/or the purchasers of New Discount Debentures for whom they
may act as agents. The Selling Debentureholder and any underwriters, dealers or
agents that participate in the distribution of New Discount Debentures may be
deemed to be underwriters, and any profit on the sale of New Discount Debentures
by them and any discounts, commissions or concessions received by any such
underwriters, dealers or agents might be deemed to be underwriting discounts and
commissions under the Securities Act. At the time a particular offer of New
Discount Debentures is made, to the extent required, a prospectus supplement
will be distributed which will set forth the aggregate amount of New Discount
Debentures being offered and the terms of the offering, including the name or
names of any underwriters, dealers or agents, any discounts, commissions and
other items constituting compensation from the Selling Debentureholder and any
discounts, commissions or concessions allowed or reallowed or paid to dealers.
The distribution of the New Discount Debentures may be effected from time
to time in one or more transactions at a fixed price or prices, which may be
changed, or at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices. However, pursuant to
the Registration Rights Agreement to be executed by and among New Holdings, the
Company and the Selling Debentureholder on the Closing Date, the Selling
Debentureholder has agreed not to make public resales of the New Discount
Debentures for a period of 60 days following the Closing Date, provided that
such 60-day holdback period may be shortened or waived by New Holdings with the
consent of the Underwriters for the Public Offerings. New Holdings will agree to
use its best efforts to assist the partnership in the disposition of New
Discount Debentures and to pay all expenses, including underwriting discounts
and brokers' or dealers' commissions and mark-ups (subject to certain
limitations), incident thereto.
If underwriters are used in an offering of New Discount Debentures, the
name of each managing underwriter, if any, and any other underwriters and terms
of the transaction, including any underwriting discounts and other items
constituting compensation of the underwriters and dealers, if any, will be set
forth in the prospectus supplement relating to such offering and the New
Discount Debentures will be acquired by the underwriters for their own accounts
and may be resold from time to time in one or more transactions, including
negotiated transactions, at a fixed public offering price or at varying prices
determined at the time of sale. Any initial public offering price and any
discounts or concessions allowed or reallowed or paid to dealers may be changed
from time to time. It is anticipated that any underwriting agreement pertaining
to any New Discount Debentures will (1) entitle the underwriters to
indemnification by New Holdings against certain civil liabilities under the
Securities Act, or to contribution with respect to payments which the
underwriters may be required to make in respect thereof, (2) provide that the
obligations of the underwriters will be subject to certain conditions precedent
and (3) provide that the underwriters will be obligated to purchase all New
Discount Debentures offered in a particular offering if any such New Discount
Debentures are purchased.
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<PAGE> 136
Under applicable rules and regulations of the Exchange Act, any person
engaged in the distribution of the New Discount Debentures may not
simultaneously engage in certain market making activities with respect to such
New Discount Debentures for a period of nine business days prior to the
commencement of such distribution. In addition and without limiting the
foregoing, the Selling Debentureholder will be subject to applicable provisions
of the Exchange Act and the rules and regulations thereunder, including without
limitation Rules 10b-2, 10b-6 and 10b-7, which provisions may limit the timing
of purchases and sales of any of the Seller Debentures by the Selling
Debentureholder.
LEGAL MATTERS
The validity of the New Discount Debentures to be offered hereby will be
passed upon for New Holdings by Latham & Watkins, Los Angeles, California.
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 Prospectus 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, June 25, 1994 and January 29,
1995, and the related consolidated statements of operations, cash flows and
shareholders' equity for the 52 weeks ended June 27, 1992, the 52 weeks ended
June 26, 1993, the 52 weeks ended June 25, 1994 and the 31 weeks ended January
29, 1995, 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 Prospectus 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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<PAGE> 137
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 29, 1995... F-29
Consolidated statements of operations for the 52 weeks ended June 27, 1992, June 26,
1993 and June 25, 1994, the 32 weeks ended February 5, 1994 (unaudited) and the 31
weeks ended January 29, 1995........................................................ F-31
Consolidated statements of cash flows for the 52 weeks ended June 27, 1992, June 26,
1993 and June 25, 1994, the 32 weeks ended February 5, 1994 (unaudited) and the 31
weeks ended January 29, 1995........................................................ F-32
Consolidated statements of shareholders' equity (deficit) for the 52 weeks ended June
27, 1992, June 26, 1993 and June 25, 1994 and the 31 weeks ended January 29, 1995... 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-52
Balance sheet as of January 4, 1995................................................... F-53
Notes to the balance sheet............................................................ F-54
</TABLE>
F-1
<PAGE> 138
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> 139
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................ $1,483,650 $1,509,914
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 140
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> 141
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> 142
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> 143
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> 144
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> 145
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> 146
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> 147
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> 148
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> 149
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> 150
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 estimated fair value of each class of financial instruments (where
practical), all held for non-trading purposes, is as follows in (000s):
<TABLE>
<S> <C>
Long-term debt............................................ $953,883
Interest rate swap agreement.............................. $ 1,252
Interest rate cap agreement............................... $ (366)
</TABLE>
(6) LEASES
Ralphs has leases for retail store facilities, warehouses and manufacturing
plants for periods up to 30 years. Generally, the lease agreements include
renewal options for five years each. Under most leases, Ralphs is responsible
for property taxes, insurance, maintenance and expense related to the lease
property. Certain store leases require excess rentals based on a percentage of
sales at that location. Certain equipment is leased by Ralphs under agreements
ranging from 3 to 15 years. The agreements usually do not include renewal option
provisions.
Minimum rental payments due under capital leases and operating leases
subsequent to fiscal 1994 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES TOTAL
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1995............................................... $ 21,640 $ 61,324 $ 82,964
1996............................................... 19,093 60,847 79,940
1997............................................... 18,288 58,182 76,470
1998............................................... 15,901 53,321 69,222
1999............................................... 11,784 52,839 64,623
2000 and thereafter................................ 53,959 373,021 426,980
-------- -------- --------
Total minimum lease payments....................... $140,665 $659,534 $800,199
======== ========
Less amounts representing interest................. (51,581)
--------
Present value of net minimum lease payments........ 89,084
Less current portion of lease obligations.......... (13,151)
--------
Long-term capital lease obligations................ $ 75,933
========
</TABLE>
F-14
<PAGE> 151
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total rent expense is summarized as follows:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JANUARY 31, JANUARY 30, JANUARY 29,
1993 1994 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Capital Leases
Contingent rental............................. $ 2,443 $ 2,241 $ 2,256
Rentals from subleases........................ (2,144) (2,048) (1,734)
Operating Leases
Minimum rentals............................... 49,001 54,965 55,906
Contingent rentals............................ 5,058 3,645 3,763
Rentals from subleases........................ (1,123) (1,150) (1,791)
------- ------- -------
$53,235 $57,653 $58,400
======= ======= =======
</TABLE>
(7) SELF-INSURANCE
Ralphs is a qualified self-insurer in the State of California for worker's
compensation and for automobile liability. For fiscal 1992, 1993 and 1994 self
insurance loss provisions amounted to (in thousands) $25,950, $30,323 and
$14,003, respectively. Ralphs discounts self-insurance liabilities using an 8%
discount rate for all years presented. Management believes that this rate
approximates the time value of money over the anticipated payout period
(approximately 8 years) for essentially risk free investments.
Based on a review of modifications in its workers compensation and general
liability insurance programs, Ralphs adjusted its self-insurance costs during
Fiscal 1994, resulting in a reduction in the loss provision in Fiscal 1994 of
approximately $18.9 million.
Ralphs' historical self-insurance liability for the previous two fiscal
years is as follows:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS
ENDED ENDED
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Self-insurance liability..................................... $ 97,864 $ 87,830
Less: Discount............................................... (17,854) (15,324)
-------- --------
Net self-insurance liability................................. $ 80,010 $ 72,506
======== ========
</TABLE>
The Company expects that cash payments for claims over the next five years
will aggregate approximately $28 million in fiscal year 1995, $19 million in
fiscal year 1996, $13 million in fiscal year 1997, $8 million in fiscal year
1998 and $7 million in fiscal year 1999.
(8) COMMITMENTS AND CONTINGENCIES
In December 1992, three California state antitrust class action suits were
commenced in Los Angeles Superior Court against Ralphs and other major
supermarket chains located in Southern California, alleging that they conspired
to refrain from competing in the retail market for fluid milk and to fix the
retail price of fluid milk above competitive prices. Specifically, class actions
were commenced by Diane Barela and Neila Ross, Ron Moliare and Paul C. Pfeifle
on December 7, December 14, and December 23, 1992, respectively. The Court has
yet to certify any of these classes. A demurrer to the complaints was denied.
Notwithstanding that it believes there is no merit to these cases, Ralphs had
reached an agreement in principle to settle them. However, no settlement
agreement has been signed. The Company does not believe that the resolution of
F-15
<PAGE> 152
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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> 153
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> 154
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> 155
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> 156
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> 157
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> 158
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> 159
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> 160
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> 161
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 estimated fair value of each class of financial instruments (where
practical), all held for non-trading purposes, is as follows in (000s):
<TABLE>
<CAPTION>
JANUARY 30, 1994 JANUARY 29, 1995
----------------------- -----------------------
CARRYING CARRYING
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> 162
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 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 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> 163
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Restated Prospectus and Solicitation Statement, filed by Food 4 Less with the
Securities and Exchange Commission and which is subject to further change (the
"Prospectus"), including: (1) satisfaction of a minimum tender amount (i.e., at
least a majority of the aggregate principal amount of the outstanding Old RGC
Notes being validly tendered 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 is expected to result in a restructuring charge for the New
Company. The restructuring charge may be material in relation to the
stockholders' equity and financial position of RGC and the New Company.
Following the consummation of the Merger, the New Company will be highly
leveraged.
F-27
<PAGE> 164
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, June 25, 1994 and January 29, 1995 and the related consolidated
statements of operations, shareholders' equity and cash flows for the 52 weeks
ended June 27, 1992, June 26, 1993 and June 25, 1994 and the 31 weeks ended
January 29, 1995. 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, June 25, 1994 and January
29, 1995, and the results of their operations and their cash flows for the 52
weeks ended June 27, 1992, June 26, 1993 and June 25, 1994 and the 31 weeks
ended January 29, 1995, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
May 18, 1995
F-28
<PAGE> 165
FOOD 4 LESS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
JUNE 26, JUNE 25, JANUARY 29,
1993 1994 1995
-------- -------- -----------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents............................... $ 25,089 $ 32,996 $ 19,560
Trade receivables, less allowances of $1,919, $1,386 and
$1,192 at June 26, 1993, June 25, 1994 and January
29, 1995, respectively............................... 22,048 25,039 23,377
Notes and other receivables............................. 1,278 1,312 3,985
Inventories............................................. 191,467 212,892 224,686
Patronage receivables from suppliers.................... 2,680 2,875 5,173
Prepaid expenses and other.............................. 6,011 6,323 13,051
-------- -------- ----------
Total current assets............................ 248,573 281,437 289,832
INVESTMENTS IN AND NOTES RECEIVABLE FROM SUPPLIER
COOPERATIVES:
A.W.G................................................... 6,693 6,718 6,718
Certified and Other..................................... 6,657 5,984 5,686
PROPERTY AND EQUIPMENT:
Land.................................................... 23,912 23,488 23,488
Buildings............................................... 12,827 12,827 24,172
Leasehold improvements.................................. 81,049 97,673 110,020
Store equipment and fixtures............................ 129,178 148,249 157,607
Transportation equipment................................ 31,758 32,259 32,409
Construction in progress................................ 757 12,641 8,042
Leased property under capital leases.................... 77,553 78,222 82,526
Leasehold interests..................................... 93,863 93,464 96,556
-------- -------- ----------
450,897 498,823 534,820
Less: Accumulated depreciation and amortization......... 96,948 134,089 154,382
-------- -------- ----------
Net property and equipment........................... 353,949 364,734 380,438
OTHER ASSETS:
Deferred financing costs, less accumulated amortization
of $11,611, $17,083 and $20,496 at June 26, 1993,
June 25, 1994 and January 29, 1995, respectively..... 33,778 28,536 25,469
Goodwill, less accumulated amortization of $26,254,
$33,945 and $38,560 at June 26, 1993, June 25, 1994
and January 29, 1995, respectively................... 280,895 267,884 263,112
Other, net.............................................. 27,295 24,787 29,440
-------- -------- ----------
$957,840 $980,080 $1,000,695
======== ======== ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
F-29
<PAGE> 166
FOOD 4 LESS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
JUNE 26, JUNE 25, JANUARY 29,
1993 1994 1995
-------- -------- -----------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable........................................ $140,468 $180,708 $ 190,455
Accrued payroll and related liabilities................. 40,319 42,805 42,007
Accrued interest........................................ 5,293 5,474 10,730
Other accrued liabilities............................... 40,467 53,910 65,279
Income taxes payable.................................... 2,053 2,000 293
Current portion of self-insurance liabilities........... 23,552 29,492 28,616
Current portion of long-term debt....................... 12,778 18,314 22,263
Current portion of obligations under capital leases..... 2,865 3,616 4,965
-------- -------- ----------
Total current liabilities....................... 267,795 336,319 364,608
LONG-TERM DEBT............................................ 335,576 310,944 320,901
OBLIGATIONS UNDER CAPITAL LEASES.......................... 41,864 39,998 40,675
SENIOR SUBORDINATED DEBT.................................. 145,000 145,000 145,000
SENIOR HOLDINGS DISCOUNT NOTES............................ 50,230 58,997 65,136
DEFERRED INCOME TAXES..................................... 22,429 14,740 17,534
SELF-INSURANCE LIABILITIES AND OTHER...................... 72,313 64,058 54,174
COMMITMENTS AND CONTINGENCIES............................. -- -- --
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $.01 par value, 1,600,000 shares
authorized and 1,385,265, 1,381,782 and 1,386,169
shares issued at June 26, 1993, June 25, 1994 and
January 29, 1995, respectively....................... 14 14 14
Additional paid-in capital.............................. 106,452 105,182 105,580
Notes receivable from shareholders...................... (714) (586) (702)
Retained deficit........................................ (83,119) (94,586) (112,225)
-------- -------- ----------
Total shareholders' equity (deficit)............ 22,633 10,024 (7,333)
-------- -------- ----------
$957,840 $980,080 $1,000,695
======== ======== ==========
</TABLE>
The accompanying notes are an integral part
of these consolidated balance sheets.
F-30
<PAGE> 167
FOOD 4 LESS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FIFTY-TWO FIFTY-TWO FIFTY-TWO THIRTY-TWO THIRTY-ONE
WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
JUNE 27, JUNE 26, JUNE 25, FEBRUARY 5, JANUARY 29,
1992 1993 1994 1994 1995
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SALES....................................... $2,913,493 $2,742,027 $2,585,160 $1,616,720 $1,556,522
COST OF SALES (including purchases from
related parties of $277,812, $204,028,
$175,929, $108,264 (unaudited) and
$104,407 for the 52 weeks ended June 27,
1992, June 26, 1993, and June 25, 1994,
the 32 weeks ended February 5, 1994 and
the 31 weeks ended January 29, 1995,
respectively)............................. 2,392,655 2,257,835 2,115,842 1,317,216 1,294,147
---------- ---------- ---------- ---------- ----------
GROSS PROFIT................................ 520,838 484,192 469,318 299,504 262,375
SELLING, GENERAL, ADMINISTRATIVE AND OTHER,
NET....................................... 469,751 434,908 388,836 252,313 222,359
AMORTIZATION OF EXCESS COSTS OVER NET ASSETS
ACQUIRED.................................. 7,795 7,571 7,691 4,723 4,615
RESTRUCTURING CHARGE........................ -- -- -- -- 5,134
---------- ---------- ---------- ---------- ----------
OPERATING INCOME............................ 43,292 41,713 72,791 42,468 30,267
INTEREST EXPENSE:
Interest expense, excluding amortization
of deferred financing costs............ 63,907 68,713 71,545 44,195 44,948
Amortization of deferred financing
costs.................................. 6,304 4,901 5,472 3,368 3,413
---------- ---------- ---------- ---------- ----------
70,211 73,614 77,017 47,563 48,361
LOSS (GAIN) ON DISPOSAL OF ASSETS........... (1,364) (2,083) 37 60 (455)
PROVISION FOR EARTHQUAKE LOSSES............. -- -- 4,504 -- --
---------- ---------- ---------- ---------- ----------
LOSS BEFORE PROVISION FOR INCOME TAXES AND
EXTRAORDINARY CHARGES..................... (25,555) (29,818) (8,767) (5,155) (17,639)
PROVISION FOR INCOME TAXES.................. 3,441 1,427 2,700 1,000 --
---------- ---------- ---------- ---------- ----------
LOSS BEFORE EXTRAORDINARY CHARGES........... (28,996) (31,245) (11,467) (6,155) (17,639)
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) $ (6,155) $ (17,639)
========== ========== ========== ========== ==========
LOSS PER COMMON SHARE:
Loss before extraordinary charges......... $ (20.74) $ (22.43) $ (8.29) $ (4.45) $ (12.75)
Extraordinary charges..................... (3.45) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net loss.................................. $ (24.19) $ (22.43) $ (8.29) $ (4.45) $ (12.75)
========== ========== ========== ========== ==========
Average Number of Common Shares
Outstanding............................ 1,397,939 1,393,289 1,382,710 1,383,054 1,383,307
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-31
<PAGE> 168
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 THIRTY-TWO THIRTY-ONE
WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
JUNE 27, JUNE 26, JUNE 25, FEBRUARY 5, JANUARY 29,
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 $ 1,616,720 $ 1,556,522
Cash paid to suppliers and employees... (2,752,442) (2,711,779) (2,441,353) (1,561,092) (1,507,523)
Interest paid.......................... (56,234) (58,807) (56,762) (29,743) (33,553)
Income taxes (paid) refunded........... (4,665) 2,971 (247) 1,652 1,087
Interest received...................... 1,266 993 903 544 867
Other, net............................. 4,734 8,093 121 2,108 221
----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES............................. 106,152 (16,502) 87,822 30,189 17,621
CASH PROVIDED (USED) BY INVESTING
ACTIVITIES:
Proceeds from sale of property and
equipment........................... 17,395 15,685 11,953 12,337 7,199
Payment for purchase of property and
equipment........................... (60,263) (53,467) (57,471) (29,090) (49,023)
Business acquisition costs, net of cash
acquired............................ (27,563) -- (11,050) -- --
Receivable received from seller of
business acquired................... 12,259 -- -- -- --
Other, net............................. (4,754) (18) 813 718 (797)
----------- ----------- ----------- ----------- -----------
NET CASH USED BY INVESTING ACTIVITIES.... (62,926) (37,800) (55,755) (16,035) (42,621)
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) 600 27,300
Payments of long-term debt............. (184,389) (14,319) (14,224) (10,571) (13,394)
Proceeds from the issuance of preferred
stock............................... -- 46,348 -- -- --
Proceeds from issuance of common stock,
net................................. 341 3,652 -- -- 269
Purchase of common stock, net.......... (313) (545) (1,192) (726) (57)
Payments of capital lease obligation... (2,814) (2,840) (3,693) (1,791) (2,278)
Deferred financing costs and other..... (6,656) (8,839) (179) (161) (276)
----------- ----------- ----------- ----------- -----------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES............................. (40,231) 54,914 (24,160) (12,621) 11,564
----------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS............................ 2,995 612 7,907 1,533 (13,436)
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 $ 26,622 $ 19,560
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-32
<PAGE> 169
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 THIRTY-TWO THIRTY-ONE
WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
JUNE 27, JUNE 26, JUNE 25, FEBRUARY 5, JANUARY 29,
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) $ (6,155) $(17,639)
Adjustments to reconcile net loss to net
cash provided (used) by operating
activities:
Depreciation and amortization......... 61,181 62,541 62,555 38,123 40,036
Accretion of Holdings Discount
Notes............................... -- 3,882 8,767 5,395 6,139
Restructuring charge.................. -- -- -- -- 5,134
Extraordinary charge.................. 4,818 -- -- -- --
Loss (gain) on sale of assets......... (1,364) (4,613) 65 60 (455)
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) (2,139) (3,398)
Inventories......................... 202 17,697 (17,125) (10,254) (11,794)
Prepaid expenses and other.......... (2,834) (6,163) (5,717) (6,701) (11,239)
Accounts payable and accrued
liabilities...................... 71,369 (83,286) 55,301 5,614 18,715
Self-insurance liabilities.......... 15,034 2,935 (3,790) 3,594 (8,965)
Deferred income taxes............... 2,033 4,004 2,506 1,714 2,794
Income taxes payable................ (3,257) 394 (53) 938 (1,707)
-------- -------- -------- --------- ---------
Total adjustments..................... 139,966 14,743 99,289 36,344 35,260
-------- -------- -------- --------- ---------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES............................... $106,152 $(16,502) $ 87,822 $ 30,189 $ 17,621
======== ======== ======== ======== ========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Purchase of property and equipment
through issuance of capital lease
obligation............................ -- -- $ 2,575 -- $ 4,304
======== ======== ======== ======== ========
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> 170
FOOD 4 LESS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK TREASURY STOCK
------------------ --------------- TOTAL SHARE-
NUMBER NUMBER SHARE- ADD'L HOLDERS'
OF OF HOLDERS' PAID-IN RETAINED EQUITY
SHARES AMOUNT SHARES AMOUNT NOTES CAPITAL (DEFICIT) (DEFICIT)
--------- ------ ------ ------ -------- -------- --------- ---------
<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
Net loss.......................... -- -- -- -- -- -- (17,639) (17,639)
Issuance of Common Stock.......... 5,504 -- -- -- (191) 460 -- 269
Purchase of Common Stock.......... (1,117) -- -- -- 5 (62) -- (57)
Payment of Shareholders' Notes.... -- -- -- -- 70 -- -- 70
--------- --- ------ ------ ----- -------- --------- --------
BALANCES AT JANUARY 29, 1995........ 1,386,169 $14 -- $ -- $(702) $105,580 $(112,225) $ (7,333)
========= === ====== ====== ===== ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-34
<PAGE> 171
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> 172
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.
(c) Fiscal Years
In anticipation of the Merger (as defined in Note 13 -- Ralphs Merger), and
in order to align the Company's fiscal year end with the fiscal year end of RSI
(as defined in Note 13 -- Ralphs Merger), the Company, together with its
subsidiaries, changed its fiscal year end from the 52 or 53-week period which
ends on the last Saturday in June to the 52 or 53-week period which ends on the
Sunday closest to January 31, resulting in a 31-week transition period ended
January 29, 1995. As a result of the fiscal year end change, the 52-week period
ended June 27, 1992 is referred to as fiscal year 1992, the 52-week period ended
June 26, 1993 is referred to as fiscal year 1993, the 52-week period ended June
25, 1994 is referred to as fiscal year 1994, the 32-week period ended February
5, 1994 is referred to as the 1994 transition period, and the 31-week period
ended January 29, 1995 is referred to as the 1995 transition period. In
addition, information presented below concerning subsequent fiscal years starts
with fiscal year 1995, which will cover the 52 weeks ended January 28, 1996, and
will proceed sequentially forward.
(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 $16,531,000 at June 26, 1993, June 25, 1994 and January 29,
1995, respectively, and gross profit and operating income would have been
greater by $3,554,000, $4,441,000, $699,000, $2,565,000 (unaudited) and
$2,729,000 for the 52 weeks ended June 27, 1992, June 26, 1993, and June 25,
1994, the 32 weeks ended February 5, 1994, and the 31 weeks ended January 29,
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, June 26, 1993, and June 25, 1994, the 32 weeks ended February 5,
1994 and the 31 weeks ended January 29, 1995, utilization of this reserve was
$4.0 million, $2.4 million, $1.1 million, $579,000 (unaudited) and $573,000,
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> 173
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. Current and undiscounted future operating
cash flows are compared to current and undiscounted future goodwill amortization
to determine if an impairment of goodwill has occurred and is continuing. As of
January 29, 1995, no impairment existed.
Covenants not to compete, which are included in Other Assets, are amortized
on a straight-line basis over the term of the covenant.
(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> 174
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 January 29, 1995 presentation.
F-38
<PAGE> 175
FOOD 4 LESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) LONG-TERM DEBT AND SENIOR SUBORDINATED DEBT
Long-Term Debt
The Company's long-term debt is summarized as follows:
<TABLE>
<CAPTION>
JUNE 26, JUNE 25, JANUARY 29,
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Bank Term Loan, principal due quarterly
through January 1999, with interest
payable monthly in arrears............... $148,478,000 $137,064,000 $125,732,000
10.45 percent Senior Notes principal due
2000 with interest payable semi-annually
in arrears............................... 175,000,000 175,000,000 175,000,000
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 65,136,000
Revolving Loan............................. 4,900,000 -- 27,300,000
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
$2,104,000............................... 1,558,000 1,521,000 1,498,000
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 1,420,000
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 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 1,070,000
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 1,422,000
10.0 percent real estate mortgage due 2000,
$8,000 of principal and interest payable
monthly.................................. 474,000 419,000 392,000
Other long-term debt....................... 2,216,000 1,415,000 1,330,000
------------ ------------ ------------
398,584,000 388,255,000 408,300,000
Less -- current portion.................... 12,778,000 18,314,000 22,263,000
------------ ------------ ------------
$385,806,000 $369,941,000 $386,037,000
============ ============ ============
</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 January 29, 1995, $125.7 million
was outstanding under the Bank Term Loan, $27.3 million was outstanding under
the Revolving Loan and $48.6 million of standby letters of
F-39
<PAGE> 176
FOOD 4 LESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 January 29, 1995, the weighted average interest rate on the
Bank Term Loan was 8.3 percent. Quarterly principal installments on the Bank
Term Loan continue to December 1998, with $19,829,000 payable in fiscal year
1995, $22,661,000 payable in fiscal year 1996, $33,792,000 payable in fiscal
year 1997 and $49,450,000 payable in fiscal year 1998. Interest on borrowings
under the Revolving Loan is at the bank's Base Rate (as defined) plus 1.25
percent. At January 29, 1995, the interest rate on the Revolving Loan was 9.75
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. The Credit Agreement has been amended to,
among other things, allow for the acceleration of the capital expenditures and
other costs associated with the conversion of 11 conventional stores to the
warehouse format. In May 1995, the Credit Agreement was further amended in
order to, among other things, accommodate the Company's new fiscal year end for
financial reporting purposes and to make adjustments to financial covenants of
the Company.
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.
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 January 29, 1995,
the Company was in compliance with the financial covenants of its debt
agreements. At January 29, 1995, dividends and certain other payments are
restricted based on terms in the debt agreements.
On December 31, 1992, Holdings issued $103.6 million aggregate principal
amount of 15.25% Senior 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.
F-40
<PAGE> 177
FOOD 4 LESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Scheduled maturities of principal of Long-Term Debt at January 29, 1995 are
as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
1995................................................... $ 22,263,000
1996................................................... 59,902,000
1997................................................... 33,991,000
1998................................................... 49,673,000
1999................................................... 88,976,000
Later years............................................ 153,495,000
------------
$408,300,000
============
</TABLE>
Senior Subordinated Debt
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, which are due on June 15, 2001, 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.
(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 32 WEEKS 31 WEEKS
ENDED ENDED ENDED ENDED ENDED
JUNE 27, JUNE 26, JUNE 25, FEBRUARY 5, JANUARY 29,
1992 1993 1994 1994 1995
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Minimum rents................... $46,706,000 $44,504,000 $49,788,000 $29,830,000 $35,458,000
Rents based on sales............ 7,656,000 5,917,000 3,806,000 2,716,000 1,999,000
</TABLE>
Following is a summary of future minimum lease payments under operating
leases at January 29, 1995:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
1995................................................... $ 62,120,000
1996................................................... 58,163,000
1997................................................... 53,432,000
1998................................................... 47,064,000
1999................................................... 44,680,000
Later years............................................ 406,897,000
------------
$672,356,000
============
</TABLE>
The Company has entered into lease agreements for new supermarket sites
which were not in operation at January 29, 1995. Future minimum lease payments
under such operating leases generally begin when such supermarkets open and at
January 29, 1995 are: 1995 -- $2,170,000; 1996 -- $6,640,000;
1997 -- $6,890,000; 1998 -- $6,890,000; 1999 -- $6,890,000; later
years -- $145,425,000.
F-41
<PAGE> 178
FOOD 4 LESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Certain leases qualify as capital leases under the criteria established in
Statement of Financial Accounting Standards No. 13, "Accounting for Leases," and
are classified on the consolidated balance sheets as leased property under
capital leases. Future minimum lease payments for the property under capital
leases at January 29, 1995 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
1995.................................................... $ 9,564,000
1996.................................................... 8,957,000
1997.................................................... 8,050,000
1998.................................................... 6,236,000
1999.................................................... 5,739,000
Later years............................................. 40,841,000
-----------
Total minimum lease payments.................. 79,387,000
Less: amounts representing interest..................... 33,747,000
-----------
Present value of minimum lease payments................. 45,640,000
Less: current portion................................... 4,965,000
-----------
$40,675,000
===========
</TABLE>
Accumulated depreciation related to capital leases was $20,356,000,
$24,041,000 and $27,623,000 at June 26, 1993, June 25, 1994 and January 29,
1995, respectively.
The Company is leasing a distribution facility and four store locations
from the previous owner of Alpha Beta. The agreement contains a purchase option
for the land, buildings and improvements and equipment at a price that equals or
exceeds the estimated fair market value throughout the term of the lease.
(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>
<CAPTION>
FISCAL YEAR
-----------
<S> <C>
1995..................................................... $ --
1996..................................................... 795,000
1997..................................................... 1,420,000
1998..................................................... 1,520,000
1999..................................................... 1,504,000
Later years.............................................. 1,479,000
----------
$6,718,000
==========
</TABLE>
F-42
<PAGE> 179
FOOD 4 LESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS 31 WEEKS
ENDED ENDED ENDED ENDED
JUNE 27, JUNE 26, JUNE 25, JANUARY 29,
1992 1993 1994 1995
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Current:
Federal....................... $2,507,000 $ -- $ 3,251,000 $(2,894,000)
State and other............... 934,000 82,000 712,000 100,000
---------- ---------- ----------- -----------
3,441,000 82,000 3,963,000 (2,794,000)
---------- ---------- ----------- -----------
Deferred:
Federal....................... -- 1,345,000 78,000 2,794,000
State and other............... -- -- (1,341,000) --
---------- ---------- ----------- -----------
-- 1,345,000 (1,263,000) 2,794,000
---------- ---------- ----------- -----------
$3,441,000 $1,427,000 $ 2,700,000 $ --
========== ========== =========== ===========
</TABLE>
A reconciliation of the provision (benefit) for income taxes to amounts
computed at the federal statutory rates of 34% for fiscal 1992 and 1993 and 35%
for fiscal 1994 and the 1995 transition period is as follows:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS 31 WEEKS
ENDED ENDED ENDED ENDED
JUNE 27, JUNE 26, JUNE 25, JANUARY 29,
1992 1993 1994 1995
----------- ------------ ----------- -----------
<S> <C> <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) $(6,173,000)
State and other taxes, net of federal tax
benefit.................................. 934,000 82,000 (1,000) 65,000
Alternative minimum tax.................... 2,507,000 -- -- --
Effect of permanent differences resulting
from:
Amortization of goodwill................. 2,706,000 2,850,000 2,820,000 1,701,000
Original issue discount.................. -- 208,000 526,000 387,000
Accounting limitation of deferred tax
benefit.................................. 5,983,000 8,425,000 2,423,000 4,020,000
----------- ------------ ----------- -----------
$ 3,441,000 $ 1,427,000 $ 2,700,000 $ --
=========== ============ =========== ===========
</TABLE>
F-43
<PAGE> 180
FOOD 4 LESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision (benefit) for deferred taxes consists of the following:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS 31 WEEKS
ENDED ENDED ENDED ENDED
JUNE 27, JUNE 26, JUNE 25, JANUARY 29,
1992 1993 1994 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Depreciation................................ $ 6,282,000 $ 7,756,000 $ 2,536,000 $(1,513,000)
Difference between book and tax basis
of assets sold............................ 2,514,000 3,198,000 (4,223,000) 2,505,000
Deferred revenues and allowances............ (7,028,000) 40,000 (2,349,000) 707,000
Original issue discount..................... -- (1,308,000) (2,981,000) (2,066,000)
Pre-opening costs........................... 1,072,000 (512,000) 174,000 784,000
Accounts receivable reserves................ -- (270,000) 249,000 80,000
Unicap...................................... (124,000) (5,000) (536,000) (755,000)
Capital lease obligation.................... (2,010,000) (1,385,000) 2,792,000 527,000
Self-insurance reserves..................... (13,558,000) (4,082,000) (535,000) 5,523,000
Inventory shrink reserve.................... (528,000) 777,000 (869,000) (569,000)
LIFO........................................ 7,104,000 (554,000) (1,010,000) (1,303,000)
Closed store reserve........................ 964,000 1,092,000 440,000 176,000
Accrued expense............................. -- -- (582,000) 350,000
Accrued payroll and related liabilities..... (2,656,000) 193,000 1,721,000 (3,879,000)
Damaged inventory reimbursement............. 1,195,000 -- -- --
Acquisition costs........................... 4,974,000 2,626,000 1,397,000 (5,444,000)
Sales tax reserves.......................... -- (715,000) (418,000) 433,000
Deferred rent subsidy....................... -- (483,000) (624,000) (29,000)
Net operating loss usage.................... -- -- 5,782,000 (6,963,000)
Tax credits benefited....................... -- (1,392,000) (4,477,000) 1,711,000
Accounting limitation (recognition)
of deferred tax benefit................... 1,588,000 (3,283,000) 1,896,000 12,563,000
Other, net.................................. 211,000 (348,000) 354,000 (44,000)
----------- ----------- ----------- -----------
$ -- $ 1,345,000 $(1,263,000) $ 2,794,000
=========== =========== =========== ===========
</TABLE>
F-44
<PAGE> 181
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, JANUARY 29,
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Deferred tax assets:
Accrued payroll and related
liabilities......................... $ 4,064,000 $ 2,448,000 $ 6,248,000
Other accrued liabilities.............. 14,796,000 18,271,000 18,467,000
Property and equipment................. 9,674,000 2,997,000 --
Self-insurance liabilities............. 30,907,000 27,744,000 25,204,000
Loss carryforwards..................... 27,863,000 20,675,000 27,638,000
Tax credit carryforwards............... 1,392,000 5,869,000 4,157,000
Other.................................. 1,223,000 580,000 570,000
------------ ------------ ------------
Gross deferred tax assets........... 89,919,000 78,584,000 82,284,000
Valuation allowance.................... (46,316,000) (35,467,000) (48,030,000)
------------ ------------ ------------
Net deferred tax assets............. $ 43,603,000 $ 43,117,000 $ 34,254,000
------------ ------------ ------------
Deferred tax liabilities:
Inventories............................ $(20,243,000) $(16,738,000) $(11,690,000)
Property and equipment................. (38,298,000) (30,516,000) (28,527,000)
Obligations under capital leases....... (5,802,000) (8,733,000) (9,261,000)
Other.................................. (1,689,000) (1,870,000) (2,310,000)
------------ ------------ ------------
Gross deferred tax liability........ (66,032,000) (57,857,000) (51,788,000)
------------ ------------ ------------
Net deferred tax liability.......... $(22,429,000) $(14,740,000) $(17,534,000)
============ ============ ============
</TABLE>
The Company recorded a valuation allowance to reserve a portion of its
gross deferred tax assets at January 29, 1995 due primarily to financial and tax
losses in recent years. Under SFAS 109, this valuation allowance will be
adjusted in future periods as appropriate. However, the timing and extent of
such future adjustments to the allowance cannot be determined at this time.
At January 29, 1995, approximately $8,864,000 of the valuation allowance
for deferred tax assets will reduce goodwill when the allowance is no longer
required.
At January 29, 1995, the Company has net operating loss carryforwards for
federal income tax purposes of $77,360,000, which expire in 2007 through 2009.
The Company has federal Alternative Minimum Tax ("AMT") credit carryforwards of
approximately $556,000 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 and
December 8, 1992 include Supermarkets and Holdings, respectively) 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-45
<PAGE> 182
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 $1,167,000
during the 31 weeks ended January 29, 1995, $1,231,000 (unaudited) during the 32
weeks ended February 5, 1994, $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. There were no such
advisory fees paid or accrued for the 31 weeks ended January 29, 1995 or for the
32 weeks ended February 5, 1994. 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 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 $1,818,000.
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 January 29, 1995, the Company had capitalized construction costs
of $15,081,000 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 31 weeks ended January 29, 1995, the 32 weeks ended February 5, 1994,
and the 52 weeks ended June 25, 1994, June 26, 1993 and June 27, 1992,
self-insurance loss provisions were $6,304,000, $21,064,000 (unaudited),
$19,880,000,
F-46
<PAGE> 183
FOOD 4 LESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$38,040,000 and $46,140,000, respectively. During the 52 weeks ended June 27,
1992, June 26, 1993 and June 25, 1994, the Company discounted its self-insurance
liability using a 7.0% discount rate. In the 1995 transition period, the Company
changed the discount rate to 7.5%. Management believes that this rate
approximates the time value of money over the anticipated payout period
(approximately 10 years) for essentially risk-free investments. The net
self-insurance liability would have been greater by $794,000 had the 7.0%
discount rate been applied during the 31 weeks ended January 29, 1995, as
opposed to the 7.5% discount rate.
The Company's historical self-insurance liability for the three most recent
fiscal years and the 1995 transition period is as follows:
<TABLE>
<CAPTION>
52 WEEKS 52 WEEKS 52 WEEKS 31 WEEKS
ENDED ENDED ENDED ENDED
JUNE 27, JUNE 26, JUNE 25, JANUARY 29,
1992 1993 1994 1995
----------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Self-insurance
liability............ $95,605,000 $100,773,000 $90,898,000 $ 84,286,000
Less: Discount......... (13,046,000) (15,279,000) (9,194,000) (11,547,000)
------------ ------------ ----------- ------------
Net self-insurance
liability............ $82,559,000 $85,494,000 $81,704,000 $ 72,739,000
============ ============ =========== ============
</TABLE>
The Company expects that cash payments for claims will aggregate
approximately $10 million, $14 million, $13 million, $15 million and $5 million
for its fiscal years ended in June 1995, 1996, 1997, 1998 and 1999,
respectively.
(9) EMPLOYEE BENEFIT PLANS
The Company implemented Statement of Position No. 93-6 (the "SOP"),
"Employer Accounting for Employee Stock Ownership Plans," effective June 26,
1994. The implementation of 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, a partnership which
owns stock of FFL has assumed the obligation to purchase any FFL shares as to
which terminated plan participants exercise a put option under the terms of
Falley's ESOP. The Company is not required to make cash payments to redeem the
shares. As part of that agreement, the Company may elect, after providing a
right of first refusal to the partnership, to purchase FFL shares put under the
provisions of the plan. However, the partnership's obligation to purchase such
FFL shares is unconditional, and any repurchase of shares by the Company is at
the Company's sole election. During the 31-week period ended January 29, 1995,
the Company did not purchase any of the FFL shares. FFL shares purchased by the
Company are classified as additional paid-in-capital. As of April 30, 1994, the
fair value of the shares allocated which are subject to a repurchase obligation
by the partnership referred to above was approximately $15,170,000.
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 31 weeks ended January 29, 1995, the Company recorded a charge
against operations of approximately $286,000 for benefits under the Union ESOPs.
There were no shares issued to the Union ESOPs at January 29, 1995.
F-47
<PAGE> 184
FOOD 4 LESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
All other full-time employees of the Company who are not members of a
collective bargaining agreement are covered under a separate 401(k) plan (the
"Management Plan"). The Management Plan provides for annual contributions which
are determined at the discretion of the Company. The Company contributions are
allocated to participants based on employee compensation and matching of certain
employee contributions. A portion of the Company contribution allocated based on
compensation is made in the form of stock or cash for the purchase of stock.
Total charges against operations related to all employee benefit plans
sponsored by the Company and its subsidiaries were $337,000, $284,000, $103,000
(unaudited) and $699,000 for the 52 weeks ended June 27, 1992, the 52 weeks
ended June 26, 1993, the 32 weeks ended February 5, 1994 and the 52 weeks ended
June 25, 1994, respectively, and there were no such charges for the 31 weeks
ended January 29, 1995. No contributions were made with stock and no stock was
acquired by any plans in fiscal 1992, fiscal 1993, fiscal 1994 or in the 1995
transition period.
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 January 29, 1995 is not available. The Company
contributed $78.6 million, $69.4 million, $57.2 million, $35.7 million
(unaudited) and $21.6 million to these plans for the 52 weeks ended June 27,
1992, June 26, 1993, June 25, 1994, the 32 weeks ended February 5, 1994 and the
31 weeks ended January 29, 1995, 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, $3.7 million (unaudited) and $14.3 million was recognized in
the 52 weeks ended June 25, 1994, the 32 weeks ended February 5, 1994 and the 31
weeks ended January 29, 1995, respectively, 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.
F-48
<PAGE> 185
FOOD 4 LESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(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 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>
JANUARY 29, 1995
-----------------------------
CARRYING FAIR
AMOUNT VALUE
------------ ------------
<S> <C> <C>
Cash and cash equivalents............................... $ 19,560,000 $ 19,560,000
Short-term notes and other receivables.................. 6,364,000 6,364,000
Investments in and notes receivable from supplier
cooperatives.......................................... 12,404,000 --
Long-term debt for which it is:
- Practicable to estimate fair values................. 538,168,000 550,915,000
- Not practicable..................................... 15,132,000 --
</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 32 WEEKS 31 WEEKS
ENDED ENDED ENDED ENDED ENDED
JUNE 27, JUNE 26, JUNE 25, FEBRUARY 5, JANUARY 29,
1992 1993 1994 1994 1995
---------- ---------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Interest income.............. $1,266,000 $ 993,000 $ 903,000 $ 544,000 $ 867,000
Licensing fees............... 493,000 246,000 270,000 142,000 77,000
Other income (expense)....... 769,000 3,710,000 (177,000) 1,967,000 139,000
---------- ---------- --------- ---------- ----------
$2,528,000 $4,949,000 $ 996,000 $2,653,000 $1,083,000
========== ========== ========= ========== ==========
</TABLE>
(13) RALPHS MERGER
On September 14, 1994, Holdings, Supermarkets and FFL entered into a
definitive Agreement and Plan of Merger (the "Merger Agreement") with Ralphs
Supermarkets, Inc. ("RSI") and the stockholders of RSI. Pursuant to the terms of
the Merger Agreement, as amended, the Company will 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
F-49
<PAGE> 186
FOOD 4 LESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
"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, Ralphs will become a wholly-owned subsidiary of New Holdings. Conditions
to the consummation of the Merger include, among other things, the completion of
financing for the transaction and the receipt of other necessary consents. The
purchase price for RSI is approximately $1.5 billion, including the assumption
of debt.
The aggregate purchase price, payable to the stockholders of RSI in
connection with the Merger, consists of $375 million in cash, $131.5 million
initial principal amount of New Holdings 13 5/8% Senior Subordinated Pay-in-Kind
Debentures due 2007 and $18.5 million initial accreted value of New Holdings
13 5/8% Senior Discount Debentures due 2005. In addition, Ralphs will enter into
an agreement with a stockholder of RSI pursuant to which such stockholder will
act as a consultant to Ralphs with respect to certain real estate and general
commercial matters for a period of five years from the closing of the 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 New Holdings, the issuance of new debt
securities by Supermarkets and New Holdings and the incurrence of additional
bank financing by Ralphs. The equity issuance will be made to a group of
investors led by Apollo Advisors, L.P. and Apollo Advisors II, L.P., which has
committed to purchase up to $140 million in New Holdings stock. The issuance of
new debt securities is expected to consist of up to $295 million principal
amount of Senior Notes due 2004 and $200 million principal amount of Senior
Subordinated Notes due 2005 to be issued by Supermarkets and, in addition to the
debt securities to be issued to the stockholders of RSI, $81.5 million initial
accreted value of 13 5/8% Senior Discount Debentures due 2005 to be issued by
New Holdings. New Holdings 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. Holdings will
redeem the Discount Notes, with a book value of $65.1 million at January 29,
1995, for $83.9 million in cash. The bank financing will 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, Holdings and
Supermarkets will also be required to complete certain exchange offers, consent
solicitations, offers to repurchase, and other transactions with the holders of
Holdings', Supermarkets' and RGC's currently outstanding debt securities.
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, 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 of the Company's conventional stores to warehouse stores
and the closure of certain of the Company's conventional stores as well as the
write-off of the Alpha Beta trademark. This restructuring charge has been
estimated at approximately $45.5 million. On December 14, 1994, the Company and
RSI entered into a Settlement Agreement (the "Settlement Agreement") with the
State of California. Under the Settlement Agreement, the Company must divest a
total of 27 stores (23 of the Company's conventional stores, 1 warehouse store
and 3 RGC stores). In addition, although not required pursuant to the Settlement
Agreement, an additional 5 under-performing stores 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 Company's 24 stores to be
divested under the Settlement Agreement, the 5 planned closures and the
conversion of 16 of the Company's conventional
F-50
<PAGE> 187
FOOD 4 LESS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stores to warehouse 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 conventional store conversions by the Company during the
second quarter of the 1995 transition period, the Company has recorded a
non-cash restructuring charge for the write-off of property and equipment of
$5.1 million in its results of operations for the 31 weeks ended January 29,
1995. The Company has determined that there is no impairment of existing
goodwill related to the store closures based on its projections of future
undiscounted cash flows. The remaining estimated restructuring charge will be
recorded as an expense once the Merger is completed. The divestiture of the 3
RGC 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.
(14) RESTRUCTURING CHARGE
The Company has converted 11 of its conventional format supermarkets to
warehouse format stores. During the 31 weeks ended January 29, 1995, the Company
recorded a restructuring charge for the write-off of property and equipment at
the 11 stores of $5.1 million.
F-51
<PAGE> 188
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-52
<PAGE> 189
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-53
<PAGE> 190
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.
One hundred three million six hundred thousand dollars 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. 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.
F-54
<PAGE> 191
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE NEW DISCOUNT
DEBENTURES OFFERED BY THIS PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY THE NEW DISCOUNT DEBENTURES BY ANYONE IN
ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information...................... iii
Summary.................................... 1
Risk Factors............................... 17
The Merger and the Financing............... 21
Pro Forma Capitalization................... 25
Unaudited Pro Forma Combined Financial
Statements............................... 27
Selected Historical Financial Data of
Ralphs................................... 36
Selected Historical Financial Data of
Holdings................................. 38
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................... 40
Business................................... 56
Management................................. 71
Executive Compensation..................... 73
Principal Stockholders..................... 79
Description of Capital Stock............... 80
Certain Relationships and Related
Transactions............................. 83
Description of the New Discount
Debentures............................... 87
The Exchange Offers and the Public
Offerings................................ 113
Description of the New Credit Facility..... 119
Description of Other Indebtedness.......... 122
Selling Debentureholder.................... 126
Certain Federal Income Tax
Considerations........................... 127
Plan of Distribution....................... 130
Legal Matters.............................. 131
Experts.................................... 131
Index to Financial Statements.............. F-1
- -------------------------------------------------
- -------------------------------------------------
</TABLE>
- -------------------------------------------------
- -------------------------------------------------
-------------------------
PROSPECTUS
-------------------------
$193,363,570
[FOOD 4 LESS LOGO] [RALPHS LOGO]
FOOD 4 LESS
HOLDINGS, INC.
13 5/8% SENIOR DISCOUNT
DEBENTURES DUE 2005
JUNE 2, 1995
- -------------------------------------------------
- -------------------------------------------------
<PAGE> 192
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 8 and 9 of the Prospectus.
PAGE 8
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 9
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> 193
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses in connection with
the issuance and distribution of the New Discount Debentures.
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 34,483
Blue Sky fees and expenses........................................ 2,500
Accounting fees and expenses...................................... 200,000
Legal fees and expenses........................................... 400,000
Printing and engraving expenses................................... 200,000
Trustee fees...................................................... 5,000
Miscellaneous..................................................... 20,000
--------
Total................................................... $861,983
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Food 4 Less Holdings, Inc. 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 duty of loyalty, actions not in good faith, and
certain other liabilities.
Section 145 of the DGCL provides for the indemnification by a Delaware
corporation of its directors, officers, employees and agents in connection with
actions, suits or proceedings brought against them by a third party or in the
right of the corporation, by reason of the fact that they were or are such
directors, officers, employees or agents, against liabilities and expenses
incurred in any such action, suit or proceeding.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Food 4 Less Holdings, Inc., a Delaware Corporation ("New Holdings"), was
formed on December 19, 1994. New Holdings has sold no securities within the past
three years which were not registered under the Securities Act. However, in
connection with a financing transaction undertaken by Food 4 Less, Inc. ("FFL"),
in December 1992, New Holdings' parent, Food 4 Less Holdings, Inc. ("Holdings"),
which will be merged with an into New Holdings pursuant to the Reincorporation
Merger, was formed as a subsidiary of FFL and issued, in a private placement
transaction, $103.6 million aggregate principal amount of 15.25% Senior Discount
Notes due 2004 and 121,118 common stock purchase warrants for gross proceeds of
$50.0 million (the "Discount Notes Offering"). Holdings contributed the proceeds
from the Discount Notes Offering to Food 4 Less in return for the issuance of
1,513,938 shares of common stock, $.01 par value, and 50,000 shares of Series A
Preferred Stock, $.01 par value, to Holdings on December 31, 1992. Such
securities were issued by Food 4 Less to Holdings in reliance upon an exemption
from the registration requirements of the Securities Act provided by Section
4(2) of the Securities Act.
II-1
<PAGE> 194
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
A list of exhibits filed with this Registration Statement on Form S-1 is
set forth in the Index to Exhibits on page E-1, and is incorporated herein by
reference.
(b) Financial Statement Schedules
(i) Ralphs
<TABLE>
<S> <C>
Schedule II -- Valuation and Qualifying Accounts
</TABLE>
(ii) Holdings
<TABLE>
<S> <C>
Schedule I -- Condensed Financial Information of the Registrant
Schedule II -- Valuation and Qualifying Accounts
</TABLE>
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8 or Form F-3, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed with or furnished to the Commission by the
registrant pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 that are incorporated by reference 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.
(4) If the registrant is a foreign private issuer, to file a
post-effective amendment to the registration statement to include any
financial statements required by Rule 3-19 of this chapter at the start of
any delayed offering or throughout a continuous offering. Financial
statements and information otherwise required by Section 10(a)(3) of the
Act need not be furnished, provided, that the registrant includes in the
prospectus, by means of a post-effective amendment, financial statements
required pursuant to this paragraph (a)(4) and other information necessary
to ensure that all other information in the prospectus is at least as
current as the date of those financial statements. Notwithstanding the
foregoing, with respect to registration statements on Form F-3, a
post-effective amendment need not be filed to include financial statements
and information required by Section 10(a)(3) of the Act and Rule 3-19 of
this chapter if such financial statements and information are contained in
periodic reports filed with or furnished to the
II-2
<PAGE> 195
Commission by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
Form F-3.
(b) 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 registrants of expenses
incurred or paid by a director, officer or controlling person of the registrants
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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.
II-3
<PAGE> 196
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Los Angeles, State of
California, on June 2, 1995.
FOOD 4 LESS HOLDINGS, INC.
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
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
---------- ----- ----
<C> <S> <C>
/s/ RONALD W. BURKLE President and Director (Principal June 2, 1995
- --------------------------------------------- Executive Officer)
Ronald W. Burkle
/s/ GREG MAYS Executive Vice President June 2, 1995
- --------------------------------------------- (Principal Financial and
Greg Mays Accounting Officer)
/s/ JOE S. BURKLE Director June 2, 1995
- ---------------------------------------------
Joe S. Burkle
/s/ MARK A. RESNIK Secretary and Director June 2, 1995
- ---------------------------------------------
Mark A. Resnik
/s/ GEORGE G. GOLLEHER Director June 2, 1995
- ---------------------------------------------
George G. Golleher
/s/ PATRICK L. GRAHAM Director June 2, 1995
- ---------------------------------------------
Patrick L. Graham
</TABLE>
II-4
<PAGE> 197
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
June 1, 1995
S-1
<PAGE> 198
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> 199
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, June 25, 1994 and January 29,
1995 and the related consolidated statements of operations, shareholders' equity
and cash flows for the 52 weeks ended June 27, 1992, June 26, 1993 and June 25,
1994 and the 31 weeks ended January 29, 1995 and have issued our report thereon
dated May 18, 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
May 18, 1995
S-3
<PAGE> 200
FOOD 4 LESS HOLDINGS, INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
AS OF, AND FOR, THE 31 WEEKS ENDED JANUARY 29, 1995
(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>
JANUARY 29,
1995
-----------
<S> <C>
ASSETS
Investment in subsidiary........................................................ $ 57,803
--------
Total Assets............................................................ $ 57,803
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Senior discount notes........................................................... $ 65,136
Common stock: $0.01 par value, 1,600,000 shares authorized and 1,381,782
outstanding.................................................................. 14
Additional paid-in capital...................................................... 34,695
Retained deficit................................................................ (42,042)
--------
Total Liabilities and Shareholders' Equity.............................. $ 57,803
========
</TABLE>
CONDENSED STATEMENT OF LOSS
<TABLE>
<CAPTION>
31 WEEKS
ENDED
JANUARY 29,
1995
-----------
<S> <C>
Net loss of subsidiary............................................................ $(11,500)
Interest expense.................................................................. (6,139)
--------
Total loss.............................................................. $(17,639)
========
</TABLE>
S-4
<PAGE> 201
FOOD 4 LESS HOLDINGS, INC.
SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
AS OF, AND FOR, THE 31 WEEKS ENDED JANUARY 29, 1995
(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........................................................ $(17,639)
Adjustments to reconcile net loss to net cash provided (used) by
operating activities:
Net loss of subsidiary....................................... 11,500
Accretion of Holdings Discount Notes......................... 6,139
--------
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> 202
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 January
29, 1995, dividends and certain other payments are restricted based on terms of
the debt agreements.
S-6
<PAGE> 203
FOOD 4 LESS HOLDINGS, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
31 WEEKS ENDED JANUARY 29, 1995, 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:
31 weeks ended January 29, 1995... $81,704 $ 6,304 $3,453 $18,722 $ -- $72,739
======= ======= ====== ======= ====== =======
52 weeks ended June 25, 1994...... $85,494 $19,880 $5,836 $29,506 $ -- $81,704
======= ======= ====== ======= ====== =======
52 weeks ended June 26, 1993...... $82,559 $38,040 $5,865 $40,970 $ -- $85,494
======= ======= ====== ======= ====== =======
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> 204
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<S> <C> <C>
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. (incorporated herein by reference to Exhibit 2.1.2
to Post-effective Amendment No. 1 to Holdings' Registration Statement
on Form S-4, No. 33-86356)............................................
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. (incorporated herein by reference to Exhibit 2.1.3 to
Post-effective Amendment No. 1 to Holdings' Registration Statement on
Form S-4, No. 33-86356)...............................................
3.1 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)...........
3.2 Amended and Restated Bylaws of Food 4 Less Holdings, Inc. (a Delaware
corporation) (incorporated by reference to Exhibit 3.4.1 to
Post-effective Amendment No. 1 to Holdings' Registration Statement on
Form S-4, No. 33-86356)...............................................
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)........
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)........
</TABLE>
E-1
<PAGE> 205
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<S> <C> <C>
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 the 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 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, with respect to its 15.25% Senior Discount Notes due
2004 (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 (incorporated herein by reference to
Exhibit 4.6.2 to Post-effective Amendment No. 1 to Holdings'
Registration Statement or Form S-4, No. 33-86356).....................
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 (incorporated
herein by reference to Exhibit 4.6.3 to Post-effective Amendment No. 1
to Holdings' Registration Statement on Form S-4, No. 33-86356)........
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).....................
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)..........
</TABLE>
E-2
<PAGE> 206
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<S> <C> <C>
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> 207
<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).........................................................
</TABLE>
E-4
<PAGE> 208
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<S> <C> <C>
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).........................................................
4.9.8 Eighth Modification Agreement dated as of May 17, 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 Partners, all as identified
therein (incorporated herein by reference to Exhibit 4.3.8 to Food 4
Less' Annual Report on Form 10-K for the fiscal year ended January 29,
1995).................................................................
4.10 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).....................
4.10.1 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, Bankers Trust Company, as agent, and the financial
institutions identified therein (incorporated herein by reference to
Exhibit 4.10.2 to Post-effective Amendment No. 1 to Holdings'
Registration Statement on Form S-4, No. 33-86356).....................
4.11 Form of Seller Debenture Indenture dated as of , 1995 by
and among Food 4 Less Holdings, Inc. (a Delaware corporation) and
Norwest Bank Minnesota, N.A., as trustee, with respect to the 13 5/8%
Senior Subordinated Pay-In-Kind Debentures due 2007 of Food 4 Less
Holdings, Inc. (a Delaware corporation) (incorporated herein by
reference to Exhibit A to Exhibit 2.1.3 to Post-effective Amendment
No. 1 to Holdings' Registration Statement on Form S-4, No. 33-
86356)................................................................
4.12 Form of New Discount Debenture 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, with respect
to the 13 5/8% Senior Discount Debentures due 2005 of Food 4 Less
Holdings, Inc. (a Delaware corporation)...............................
5.1 Opinion of Latham & Watkins regarding the legality of the New Discount
Debentures, including consent.........................................
8.1 Opinion of Latham & Watkins regarding certain tax matters with respect
to the New Discount Debentures, 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).............................................................
</TABLE>
E-5
<PAGE> 209
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ----------- ----
<S> <C> <C>
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 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).............................................
10.6 Consulting Agreement dated as of June 27, 1988 by and between
Falley's, Inc. and Joe S. Burkle (incorporated herein by reference to
Exhibit 10.38 to Food 4 Less Supermarkets, Inc.'s Registration
Statement on Form S-1, No. 33-31152)..................................
10.6.1 Letter Agreement dated as of December 10, 1990 amending Consulting
Agreement by and between Falley's, Inc. and Joe S. Burkle
(incorporated herein by reference to Exhibit 10.17.1 to Food 4 Less
Supermarkets, Inc.'s Annual Report on Form 10-K for the fiscal year
ended June 29, 1991)..................................................
10.7 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)........................................
10.8 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)........................................
10.9 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)..........
10.10 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)....
10.11 Form of Stockholders Agreement of Food 4 Less Holdings, Inc. dated as
of June , 1995 by and among Food 4 Less Holdings, Inc. (a Delaware
corporation), Ralphs Grocery Company and the investors listed on the
signature pages thereto (incorporated herein by reference to Annex A
to the Prospectus and Solicitation Statement filed as part of Food 4
Less Holdings, Inc.'s Registration Statement on Form S-4, No.
33-88894).............................................................
</TABLE>
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<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
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<S> <C> <C>
10.12 Form of Registration Rights Agreement dated as of June , 1995 by and
among Food 4 Less Holdings, Inc. (a Delaware corporation) and the
investors listed on the signature pages thereto (incorporated herein
by reference to Annex B to the Prospectus and Solicitation Statement
filed as part of Food 4 Less Holdings, Inc.'s Registration Statement
on Form S-4, No. 33-88894)............................................
10.13 Form of Consulting Agreement dated as of June , 1995 by and among
The Yucaipa Companies, Food 4 Less Holdings, Inc. (a Delaware
corporation) and Ralphs Grocery Company (incorporated herein by
reference to Exhibit C to Annex A to the Prospectus and Solicitation
Statement filed as part of Food 4 Less Holdings, Inc.'s Registration
Statement on Form S-4, No. 33-88894)..................................
10.14 Form of Common Stock Purchase Warrant of Food 4 Less Holdings, Inc. (a
Delaware corporation) dated June , 1995 (incorporated herein by
reference to Exhibit 10.4 to Food 4 Less Holdings, Inc.'s Registration
Statement on Form S-4, No. 33-88894)..................................
10.15 Form of Registration Rights Agreement dated as of , 1995,
by and among Food 4 Less Holdings, Inc. (a Delaware corporation), Food
4 Less Supermarkets, Inc. and the Holders of the 13 5/8% Senior
Subordinated Pay-In-Kind Debentures due 2007 of Food 4 Less Holdings,
Inc. (a Delaware corporation) (incorporated herein by reference to
Exhibit G of Exhibit 99 to Food 4 Less Holding, Inc.'s Form 8-K dated
September 14, 1994)...................................................
10.16 Form of Registration Rights Agreement dated as of , 1995,
by and among Food 4 Less Holdings, Inc. (a Delaware corporation), Food
4 Less Supermarkets, Inc. and the Holders of the 13 5/8% Senior
Discount Debentures due 2005 of Food 4 Less Holdings, Inc. (a Delaware
corporation) (incorporated herein by reference to Exhibit C of Exhibit
10.17 to this Registration Statement).................................
10.17 Form of Subscription Agreement dated as of , 1995 among
RGC Partners, L.P., Food 4 Less Holdings, Inc., Food 4 Less
Supermarkets, Inc. and the Partnership Investors listed in Exhibit A
thereto...............................................................
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).....................................
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 Director Nominee Byron E. Allumbaugh.......................
23.4 Consent of Latham & Watkins (included in the opinions filed as
Exhibits 5.1 and 8.1 to this 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)............................................................
25.1 Statement of Eligibility and Qualification on Form T-1 of United
States Trust Company of New York, as trustee, under the indenture for
the 13 5/8% Senior Discount Debentures due 2005.......................
</TABLE>
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+ Previously filed.
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<PAGE> 1
EXHIBIT 4.12
- --------------------------------------------------------------------------------
FOOD 4 LESS HOLDINGS, INC.
AND
UNITED STATES TRUST COMPANY OF NEW YORK
AS TRUSTEE
------------
INDENTURE
Dated as of ___________ __, 1995
------------
13-5/8% Senior Discount Debentures due 2005
- --------------------------------------------------------------------------------
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA INDENTURE
Section Section
- ------- ---------
<S> <C>
310(a)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(a)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(a)(5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.10
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.8; 7.10; 12.2
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
311(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.11
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
312(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.5
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.3
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.3
313(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
(b)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(b)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6; 12.2
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.6
314(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.10; 12.2
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2; 12.4
(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.2; 12.4
(c)(3) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(e) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N.A.
315(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.1(b)
(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.5; 12.2
(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) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.1
(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.1
- -----------------------
</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> 3
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ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. Incorporation by Reference of TIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 1.3. Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE II
THE SECURITIES
Section 2.1. Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.2. Execution and Authentication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Section 2.3. Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.4. Paying Agent To Hold Assets in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.5. Securityholder Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.6. Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.7. Replacement Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.8. Outstanding Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.9. Treasury Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.10. Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 2.11. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.12. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 2.13. CUSIP Number. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE III
REDEMPTION
Section 3.1. Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Section 3.2. Selection of Securities To Be Redeemed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.3. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 3.4. Effect of Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 3.5. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 3.6. Securities Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE IV
COVENANTS
Section 4.1. Payment of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.2. Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
</TABLE>
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Section 4.3. Limitation on Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 4.4. Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 4.5. Payment of Taxes and Other Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 4.6. Maintenance of Properties and Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 4.7. Compliance Certificate; Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 4.8. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 4.9. SEC Reports and Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 4.10. Waiver of Stay, Extension or Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 4.11. Limitation on Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 4.12. Limitation on Incurrences of Additional
Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 4.13. Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 4.14. Limitation on Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 4.15. Limitation on Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 4.16. No Amendment to Subordination Provisions of
Seller Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 4.17. Limitation on Preferred Stock of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 4.18. Limitation on Dividend and Other Payment
Restrictions Affecting Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
ARTICLE V
SUCCESSOR CORPORATION
Section 5.1. When Holdings May Merge, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 5.2. Successor Corporation Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
ARTICLE VI
DEFAULT AND REMEDIES
Section 6.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 6.2. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 6.3. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 6.4. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 6.5. Control by Majority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 6.6. Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 6.7. Rights of Holders To Receive Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 6.8. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 6.9. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
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ARTICLE VII
TRUSTEE
Section 7.1. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Section 7.2. Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Section 7.3. Individual Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 7.4. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 7.5. Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 7.6. Reports By Trustee to Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 7.7. Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 7.8. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 7.9. Successor Trustee by Merger, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 7.10. Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 7.11. Preferential Collection of Claims Against Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . 53
ARTICLE VIII
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.1. Option to Effect Legal Defeasance or
Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 8.2. Legal Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 8.3. Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 8.4. Conditions to Legal or Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 8.5. Deposited Money and U.S. Government Obligations
to be Held in Trust; Other Miscellaneous
Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 8.6. Repayment to Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 8.7. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 9.1. Without Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 9.2. With Consent of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 9.3. Compliance with TIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 9.4. Revocation and Effect of Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 9.5. Notation on or Exchange of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 9.6. Trustee To Sign Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
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ARTICLE X
MEETINGS OF SECURITYHOLDERS
Section 10.1. Purposes for Which Meetings May Be Called . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 10.2. Manner of Calling Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 10.3. Call of Meetings by Holdings or Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 10.4. Who May Attend and Vote at Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 10.5. Regulations May Be Made by Trustee; Conduct of
the Meeting; Voting Rights; Adjournment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 10.6. Voting at the Meeting and Record To Be Kept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 10.7. Exercise of Rights of Trustee or Holders May Not
Be Hindered or Delayed by Call of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE XI
SATISFACTION AND DISCHARGE
Section 11.1. Satisfaction and Discharge of the Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 11.2. Conditions to Satisfaction and Discharge of
the Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
ARTICLE XII
MISCELLANEOUS
Section 12.1. TIA Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 12.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 12.3. Communications by Holders with Other Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 12.4. Certificate and Opinion as to Conditions Precedent . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 12.5. Statements Required in Certificate or Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Section 12.6. Rules by Trustee, Paying Agent, Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 12.7. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 12.8. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 12.9. No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 12.10. No Recourse Against Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 12.11. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 12.12. Duplicate Originals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 12.13. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
</TABLE>
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INDENTURE dated as of ________ __, 1995, between FOOD 4 LESS HOLDINGS, INC., a
Delaware corporation ("Holdings"), and United States Trust Company of New York,
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 Discount
Debentures due 2005:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.1. Definitions.
"Acceleration Notice" shall have the meaning provided in
Section 6.2.
"Accreted Value" means, per $1,000 principal amount (at
maturity) of Securities, (i) as of any date of determination prior to June 15,
2000, the sum of (A) $517.16, representing the initial purchase price of each
Security and (B) the portion of the excess of the principal amount of each
Security 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 June 15 and December 15 at the rate of 13-5/8%
per annum from the date of issuance of the Securities through the date of
determination, computed on the basis of a 360-day year of twelve 30-day months
and (ii) from and after June 15, 2000, $1,000.
"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 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
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<PAGE> 8
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,
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 and the Subsidiaries of $500,000 or less, (iii) pursuant
to any foreclosure of assets or other remedy provided by applicable law to a
creditor of 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, (iv) involving only Cash Equivalents or inventory in the
ordinary course of business or obsolete equipment in the ordinary course of
business consistent with past practices of Holdings or its Subsidiaries, (v)
involving only the lease or sub-lease of any real or personal property in the
ordinary course of business, or (vi) the proceeds of such Asset Sale which are
not applied as contemplated in Section 4.15 hereof and which, together with all
other such Asset Sale proceeds, do not exceed $20 million.
"Average Life" means, as of the date of determination, with
respect to any debt security, the quotient obtained by dividing (i) the sum of
the products of the number of years from the date of determination to the dates
of each successive scheduled principal payments of such debt security
multiplied by the amount of 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.
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<PAGE> 9
"Cash Equivalents" means (i) obligations issued or
unconditionally guaranteed by the United States of America or any agency
thereof, or obligations issued by any agency or instrumentality thereof and
backed by the full faith and credit of the United States of America, (ii)
commercial paper rated the highest grade by Moody's Investors Service, Inc.
and Standard & Poor's Ratings Group and maturing not more than one year from
the date of creation thereof, (iii) time deposits with, and certificates of
deposit and banker's acceptances issued by, any bank having capital surplus and
undivided profits aggregating at least $500 million and maturing not more than
one year from the date of creation thereof, (iv) repurchase agreements that are
secured by a perfected security interest in an obligation described in clause
(i) and are with any bank described in clause (iii), (v) shares of any money
market mutual fund that (a) has at least 95% of its assets invested
continuously in the types of investments referred to in clauses (i) and (ii)
above, (b) has net assets of not less than $500 million, and (c) has the
highest rating obtainable from either Standard & Poor's Ratings Group or
Moody's Investors Service, Inc. and (vi) readily marketable direct obligations
issued by any state of the United States of America or any political
subdivision thereof having one of the two highest rating categories obtainable
from either Moody's Investors Service, Inc. or Standard & Poor's Ratings Group.
"Change of Control" means (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.
3
<PAGE> 10
"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 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.
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<PAGE> 11
"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 Bankers Trust Company. 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 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.
"Default Amount" means (i) if the Date of Declaration (as
defined below) is prior to June 15, 2000, 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"), and (ii) if the Date of
Declaration is on or after June 15, 2000, the aggregate 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
5
<PAGE> 12
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 reserve for, anticipated cash charges in any prior
period) in each case determined in accordance with GAAP and (ii) the amount of
all cash payments made by such person or its subsidiaries during such period to
the extent that such cash payment has been provided for in a restructuring
reserve or charge referred to in clause (v) above (and was not otherwise
deducted in the computation of Consolidated Net Income of such person for such
period).
"Event of Default" shall have the meaning provided in Section
6.1.
"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 to the extent outstanding on the Issue Date after giving effect to
the Merger: (a) the 10.45% 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 11% 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.
"FFL" means Food 4 Less, Inc., a Delaware corporation and its
successors, including, without limitation, Old Holdings following the FFL
Merger and Holdings following the Reincorporation Merger.
6
<PAGE> 13
"FFL Merger" means the merger, prior to the Merger and the
Reincorporation Merger, of FFL and Old Holdings.
"Final Accretion Date" means June 15, 2000.
"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 Seller 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 Preferred Stock of such person and its
consolidated subsidiaries (whether in cash or otherwise (except dividends
payable in shares of Qualified Capital Stock)) declared or paid or required to
be declared or paid, during such period (except to the extent accrued in a
prior period), and excluding items eliminated in consolidation. 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.
"Forward Period" shall have the meaning set forth in the
definition of Operating Coverage Ratio contained in this Section 1.1.
7
<PAGE> 14
"GAAP" means generally accepted accounting principles as in
effect in the United States of America as of the Issue Date.
"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 (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
8
<PAGE> 15
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 nationally recognized investment banking or consulting 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.
"Interest Payment Date" means the stated maturity of an
installment of interest on the Securities.
"Interest Swap Obligation" means any obligation of any person
pursuant to any arrangement with any other person whereby, directly or
indirectly, such person is entitled to receive from time to time periodic
payments calculated by applying either a fixed or floating rate of interest on
a stated notional amount in exchange for periodic payments made by such person
calculated by applying a fixed or floating rate of interest on the same
notional amount; provided that the term "Interest Swap Obligation" shall also
include interest rate exchange, collar, cap, swap option or similar agreements
providing interest rate protection.
"Investment" by any person in any other person means any
investment by such person in such other person, whether by share purchase,
capital contribution, loan, advance (other than reasonable loans and advances
to employees for moving and travel expenses, as salary advances, or to permit
the purchase of Qualified Capital Stock of Holdings or any of its Subsidiaries
and other similar customary expenses incurred, in each case in the ordinary
course of business consistent with past practice) or similar credit extension
constituting Indebtedness of such other person, and any guarantee of
Indebtedness of any other person.
"Issue Date" means the date of original 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
12.7.
"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
9
<PAGE> 16
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 July 15, 2005.
"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, Old Holdings, 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 any Asset Sale
received in the form of cash or Cash Equivalents.
"Net Proceeds" means (a) in the case of any Asset Sale or any
issuance and sale by any person of Qualified Capital Stock, the aggregate net
proceeds received by such person after payment of expenses, taxes, commissions
and the like incurred in connection therewith, (and, in the case of any Asset
Sale, net of the amount of cash applied to repay Indebtedness secured by the
asset involved in such Asset Sale) whether such proceeds are in cash or in
property (valued at the fair market value thereof at the time of receipt as
determined with respect to any Asset Sale resulting in Net Proceeds in excess
of $5 million in good faith by the Board of Directors of such person, which
determination shall be evidenced by a Board Resolution) and (b) in the case of
any conversion or exchange of any outstanding Indebtedness or Disqualified
Capital Stock of such person for or into shares of Qualified Capital Stock of
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.
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"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 12.4 and 12.5.
"Old Holdings" means Food 4 Less Holdings, Inc., a California
corporation, and its successors, including, without limitation, Holdings,
following the Reincorporation Merger.
"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 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.
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"Opinion of Counsel" means a written opinion from legal
counsel who is reasonably acceptable to the Trustee complying with the
requirements of Sections 12.4 and 12.5. Unless otherwise required by the
Trustee, the legal counsel may be an employee of or counsel to Holdings or the
Trustee.
"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) including the Senior Discount Notes, to
the extent any remain outstanding following the Merger.
"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 an Affiliate of Holdings.
"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 (and the Company and each subsidiary (to the
extent it is not an obligor) may guarantee such Indebtedness) pursuant to
(i) the Term Loans in an aggregate principal amount at any time outstanding not
to exceed $600 million less the aggregate amount of all principal repayments
thereunder pursuant to and in accordance with the provisions of Section 4.15
subsequent to the Issue Date, (ii) the revolving credit facility under the
Credit Agreement (including Letter of Credit Obligations) in an aggregate
principal amount at any time outstanding not to exceed $325 million, less all
permanent reductions thereunder pursuant to and in accordance with the
provisions of Section 4.15 and (iii) any Indebtedness incurred under the Credit
Agreement pursuant to and in compliance with (A) clause (o) of this definition
and (B) Section
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4.12 (other than Permitted Indebtedness that is not incurred pursuant to clause
(o) or this clause (a) of this definition); (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 end of the fourth fiscal quarter
following 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 end of the twelfth fiscal quarter following 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 entered into
with respect to Indebtedness otherwise permitted to be outstanding pursuant to
Section 4.12 or this definition of "Permitted Indebtedness" in a notional
amount not exceeding the aggregate principal amount of such Indebtedness; (g)
guarantees incurred in the ordinary course of business, by Holdings or a
Subsidiary, of Indebtedness of any other person in the 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 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
Securities (including the accretion of the Senior Discount Notes and the
Securities up to their respective stated principal amount at maturity) and the
Seller Debentures (including the issuance of secondary securities in lieu of
cash interest payments pursuant to the terms of the Seller
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Debenture Indenture); and (o) additional Indebtedness of Holdings or any
Subsidiary in an amount not to exceed $175 million at any time outstanding.
"Permitted Investment" by any person means (i) any Related
Business Investment, (ii) Investments in securities not constituting cash or
Cash Equivalents and received in connection with an Asset Sale made pursuant to
Section 4.15 or any other disposition of assets not constituting an Asset Sale
by reason of the $500,000 threshold contained in the definition thereof, (iii)
cash and Cash Equivalents, (iv) Investments existing on the Issue Date, (v)
Investments specifically permitted by and made in accordance with Section 4.11,
(vi) Investments in any Subsidiary or by any Subsidiary in Holdings or by any
Subsidiary in other Subsidiaries, and (vii) additional Investments in an
aggregate amount not exceeding $15 million.
"Permitted Liens" means (i) Liens for taxes, assessments and
governmental charges or claims not yet due or which are being contested in good
faith by appropriate proceedings promptly instituted and diligently conducted
and if a reserve or other appropriate provision, if any, as shall be required
in conformity with GAAP shall have been made therefor; (ii) statutory Liens of
landlords and carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen or other like Liens arising in the ordinary course of business,
deposits made to obtain the release of such Liens, and with respect to amounts
not yet delinquent for a period of more than 60 days or being contested in good
faith by an appropriate process of law, and for which a reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been
made; (iii) Liens incurred or pledges or deposits made in the ordinary course
of business to secure obligations under workers' compensation, unemployment
insurance and other types of social security or similar legislation; (iv) Liens
incurred or deposits made to secure the performance of tenders, bids, leases,
statutory obligations, surety and appeal bonds, government contracts,
performance and return of money bonds and other obligations of a like nature
incurred in the ordinary course of business (exclusive of obligations for the
payment of borrowed money); (v) easements, rights-of-way, zoning or other
restrictions, minor defects or irregularities in title and other similar
charges or encumbrances not interfering in any material respect with the
business of 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 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 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
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<PAGE> 21
obligations arising from statutory, regulatory, contractual or warranty
requirements of 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 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 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 this Indenture and under which 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 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) any 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, (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 or former 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), (iv) the loan
by Holdings or any Subsidiary on the Issue Date to RGC Investment Co. of not
more than $5 million and (v) for so long as the sole business activity of such
partnership is to acquire, hold, sell, exchange, transfer or otherwise dispose
of all or any portion of the Securities and to manage its investment in the
Securities, any payment by Holdings or any of its Subsidiaries to fund ongoing
costs and expenses of RGC Partners, L.P. pursuant to the Subscription Agreement
and the Registration Rights Agreement.
"Permitted Transferees" means, with respect to any person, (i)
any Affiliate of such person, (ii) the heirs, executors, administrators,
testamentary trustees, legatees or beneficiaries of any such person, (iii) a
trust, the beneficiaries of which, or a corporation or partnership, the
stockholders or general or limited partners of which, include only such person
or his or her spouse or lineal descendants, in each case to whom such person
has transferred the beneficial ownership of any securities of 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.
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"Person" or "person" means any individual, corporation,
partnership, limited liability company, joint venture, association, joint-stock
company, trust, unincorporated organization or government or other agency or
political subdivision thereof.
"Plan of Liquidation" means, with respect to any person, a
plan that provides for, contemplates or the effectuation of which is preceded
or accompanied by (whether or not substantially contemporaneously, in phases or
otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and
all or substantially all of the remaining assets of such person to holders of
Capital Stock of such person.
"Preferred Stock" means, with respect to any person, Capital
Stock of any class or classes (however designated) which is preferred as to the
payment of dividends or distributions, or as to the distribution of assets upon
any voluntary or involuntary liquidation or dissolution of such person, over
shares of Capital Stock of any other class of such person.
"principal" of any Indebtedness (including the Securities)
means the principal of such Indebtedness plus the premium, if any, on such
Indebtedness.
"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.
"Public Equity Offering" means an underwritten public offering
of common stock of Holdings or the Company pursuant to a registration statement
filed with the SEC in accordance with the Securities Act which public equity
offering results in gross proceeds to Holdings or the Company of not less than
$20,000,000.
"Public Equity Offering Consummation Date" means the first
date on which Holdings or the Company receives any proceeds from a Public
Equity Offering.
"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 Paragraph 5 of the Securities annexed hereto as Exhibit A.
"Redemption Price," when used with respect to any Security to
be redeemed, means the price fixed for such redemption pursuant to this
Indenture and Paragraph 5 of the Securities annexed hereto as Exhibit A.
"Reference Date" shall have the meaning provided in Section
4.3.
"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 that certain
Registration Rights Agreement by and among Holdings, the Company and RGC
Partners, L.P. as such Registration Rights 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 Registration Rights
Agreement as in effect on the Issue Date.
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"Reincorporation Merger" means the merger, prior to the
Merger, of Old Holdings with and into 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 Holdings or any of its Subsidiaries as of the
Issue Date; (ii) any Investment by such person in any cooperative or other
supplier, including, without limitation, any joint venture which is intended to
supply any product or service useful to the business of Holdings and its
Subsidiaries as it is conducted as of the Issue Date and as such business may
thereafter evolve or change; and (iii) any capital expenditure or Investment,
in each case reasonably related to the business of Holdings and its
Subsidiaries as it is conducted as of the Issue Date and as such business may
thereafter evolve or change.
"Restricted Debt Prepayment" means any purchase, redemption,
defeasance (including, but not limited to, in-substance or legal defeasance) or
other acquisition or retirement for value directly or indirectly by Holdings or
a Subsidiary, prior to the scheduled maturity or prior to any scheduled
repayment of principal or any sinking fund payment, as the case may be, 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.
"Securities" means the 13-5/8% Senior Discount Debentures due
2005 of Holdings 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.
"Seller Debentures" means the 13-5/8% Senior Subordinated
Pay-in-Kind Debentures due 2007 of Holdings, including any additional 13 5/8%
Senior Subordinated Pay-in-Kind Debentures due 2007 issued as interest thereon,
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.
"Seller Debenture Indenture" means the indenture between
Holdings and Norwest Bank Minnesota, N.A., as trustee, dated as of the Issue
Date, pursuant to which the Seller
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<PAGE> 25
Debentures will be issued, as amended or supplemented from time to time and
refinancings thereof.
"Senior Discount Notes" means the 15.25% Senior Discount Notes
due 2004 of Old 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 this Indenture.
"Senior Discount Note Indenture" means the indenture between
Old 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 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 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 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 including
Indebtedness under the Seller Debentures.
"Subscription Agreement" means that certain Subscription
Agreement between RGC Partners, L.P., Holdings, the Company and the partnership
investors listed on Exhibit A thereto, as such Subscription Agreement may be
amended or replaced, so long as any amounts
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paid under any amended or replacement agreement do not exceed the amounts
payable with such Subscription Agreement as in effect on the Issue Date.
"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
Section Section 77aaa-77bbbb), as amended, as in effect on the date 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.
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"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 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.
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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.
Section 2.2. Execution and Authentication.
Two Officers, or an Officer and an Assistant Secretary, shall
sign, or one Officer shall sign and one Officer or an Assistant Secretary (each
of whom shall, in each case, have been duly authorized by all requisite
corporate actions) shall attest to, the Securities for Holdings by manual or
facsimile signature.
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If an Officer whose signature is on a Security was an Officer
at the time of such execution but no longer holds that office at the time the
Trustee authenticates the Security, the Security shall be valid nevertheless.
A Security shall not be valid until an authorized signatory of
the Trustee manually signs the certificate of authentication on the Security.
The signature shall be conclusive evidence that the Security has been
authenticated under this Indenture.
The Trustee shall authenticate Securities, for original issue
in the aggregate principal amount (at maturity) of up to $193,363,570 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 (at maturity) of Securities outstanding at any
time may not exceed $193,363,570, 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.
The Securities shall be issuable only in registered form
without coupons in denominations of $10.00 and any integral multiple thereof.
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 4.14 and 4.15, neither
Holdings nor any Affiliate 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.
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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 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 an Affiliate acts as Paying Agent, it
shall segregate such assets and hold them as a separate trust fund. Holdings
at any time may require a Paying Agent to distribute all assets held by it to
the Trustee and account for any assets disbursed and the Trustee may at any
time during the continuance of any payment Default, upon written request to a
Paying Agent, require such Paying Agent to distribute all assets held by it to
the Trustee and to account for any assets 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.
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; provided, however, that the Securities surrendered for transfer or
exchange shall be duly endorsed or accompanied by a written instrument of
transfer in form satisfactory to Holdings and the Registrar or co-Registrar,
duly executed by the Holder thereof or his attorney duly authorized in writing.
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
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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 2.2, 2.7,
2.10, 3.6, 4.14, 4.15 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, 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 and in Article IX, a majority of Securities not owned by Holdings or
any of its Affiliates shall be sufficient to approve any such direction, waiver
or consent.
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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.
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.
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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, with a copy to the Credit
Agent, 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. In order to effect a redemption pursuant to Paragraph 5 of
the Securities with the proceeds of a Public Equity Offering, Holdings shall
send the redemption notice not later than 60 days after the consummation of
such Public Equity Offering. 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; provided, however, that any redemption pursuant to paragraph 5(b) of the
Securities shall be made on a pro rata basis unless such method is otherwise
legally prohibited.
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 principal amount at maturity or any integral multiple
thereof) of the principal amount of Securities that have denominations larger
than $1,000 principal amount at maturity. 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 and the Credit Agent. In order to effect a
redemption pursuant to paragraph 5 of the Securities with the proceeds of a
Public Equity Offering, Holdings shall send the redemption notice not later
than 60 days after the consummation of such Public Equity Offering. 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:
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(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 principal amount (in integral multiples of $10.00
principal amount at maturity) of such Security to be redeemed and
that, after the Redemption Date, and upon surrender of such Security,
a new Security or Securities in the principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder
thereof; 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 to accrue on and after the applicable
Redemption Date, whether or not such Securities are presented for payment.
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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 Accreted Value or 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 an Affiliate) holds on that date U.S. Legal Tender 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 12.2.
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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 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 $1.00 of additional Indebtedness
(other than Permitted Indebtedness) pursuant to Section 4.12, or (c) the
aggregate amount expended for all Restricted Payments, including such proposed
Restricted Payment (the amount of any Restricted Payment, if other than cash,
to be the fair market value thereof at the date of payment, as determined in
good faith by the Board of Directors of 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 of the
proposed Restricted Payment (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 shall 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,
(4) any payments by Holdings or any Subsidiary required to be made due to the
exercise of statutory dissenters', appraisal or similar rights by holders of
common stock of FFL in connection with the FFL Merger, and (5) 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) or (4) above or pursuant to clause
(i), (ii), (iv) or (v) of the definition of "Permitted Payments" shall be so
counted.
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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 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
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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 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.
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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.
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 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 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.
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.
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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 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 Affiliate
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
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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.
Section 4.12. Limitation on Incurrences of Additional Indebtedness.
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 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 shall not create, incur, assume or suffer to exist
any Liens upon any of its assets unless the Securities are equally and ratably
secured by the Liens covering such assets, except for (i) existing and future
Liens securing Indebtedness and other obligations of Holdings and its
Subsidiaries under the Credit Agreement and related documents or any
refinancing or replacement thereof in whole or in part permitted under this
Indenture, (ii) Permitted Liens, (iii) Liens securing Acquired Indebtedness;
provided that such Liens (x) are not incurred in connection with, or in
contemplation of, the acquisition of the property or assets 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, (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
this Indenture; provided that (A) any such Lien is created
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solely for the purpose of securing such other Indebtedness representing, or
incurred to finance, refinance or refund, the cost (including sales and excise
taxes, installation and delivery charges and other direct costs of, and other
direct expenses paid or charged in connection therewith) of the purchase
(whether through stock or asset purchase, merger or otherwise) or construction
or improvement of the property subject thereto (whether real or personal,
including fixtures and other equipment), (B) the principal amount of the
Indebtedness secured by such Lien does not exceed 100% of such costs and (C)
such Lien does not extend to or cover any property other than such item of
property and any improvement on such item; (vi) Liens in favor of the Trustee
under this Indenture and any substantially equivalent lien granted to any
trustee or similar institution under any indenture for Indebtedness permitted
by the terms of this Indenture; and (vii) any replacement, extension or
renewal, in whole or in part, of any Lien described in this or the foregoing
clauses, including in connection with any refinancing of the Indebtedness, in
whole or in part, secured by any such Lien; provided that to the extent any
such clause limits the amount secured 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.
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 Accreted Value thereof on the Change of Control Payment Date (if
such date is prior to June 15, 2000) or 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the Change of Control Payment Date
(if such date is on or after June 15, 2000). 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 a copy
to the Trustee, which notice shall govern the terms of the Change of Control
Offer.
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Holdings shall give notice of an event giving rise to a Change of Control on
the same date and in the same manner to all Holders of Securities. Such notice
shall state:
(1) that the Change of Control Offer is being made
pursuant to this Section 4.14 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 $10.00 or integral multiples thereof;
(8) that each Change of Control Offer is required to
remain open for at least 20 Business Days or such longer period as may
be required by law and until 12:00 Midnight New York City time on the
applicable Change of Control Payment Date; and
(9) the circumstances and relevant facts regarding such
Change of Control, 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.
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(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 (and
the Trustee shall promptly authenticate and mail to such Holders new Securities
equal in principal amount to any unpurchased portion of the Securities
surrendered); provided that each such new Security shall be in the principal
amount of $10.00 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 will comply with Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Securities pursuant to a Change of Control Offer. To the extent
the provisions of any securities laws or regulations conflict with the
provisions under this Section 4.14, Holdings shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this Section 4.14 by virtue thereof.
Section 4.15. Limitation on Asset Sales.
(a) Neither Holdings nor any of its Subsidiaries shall
consummate 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 and (b) upon consummation of an Asset
Sale, Holdings or the applicable Subsidiary shall, 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) in the case of a sale of a store or stores,
deem such Net Cash Proceeds to have been applied to the extent of any capital
expenditures made to acquire or construct a replacement store in the general
vicinity of the store sold within 365 days preceding the date of the Asset
Sale; (iii) apply or cause to be applied such Net Cash Proceeds to the
repayment of Pari Passu Indebtedness of Holdings or any Indebtedness of any
Subsidiary; (iv) use such Net Cash Proceeds to secure Letter of Credit
Obligations to the extent the related letters of credit have not been drawn
upon or returned undrawn; or (v) after such time as the accumulated Net Cash
Proceeds equals or exceeds $20 million, apply or cause to be applied such Net
Cash Proceeds to the purchase of Securities tendered to Holdings pursuant to an
offer to purchase made by 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 June 15, 2000 or 100% of the principal
amount thereof, plus accrued interest to the date of purchase if such date is
on or after June 15, 2000. A Net Proceeds Offer as a result of an Asset Sale
made by Holdings 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
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applied in accordance with clauses (b)(i), (ii), (iii) or (iv) 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 date that is six
months prior 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
$10.00 or multiples thereof shall be purchased);
(2) the purchase price (including the amount of accrued
interest) and the purchase date (which shall be no earlier than 30
days nor later than 40 days from the date such notice is mailed, other
than as may be required by law) (the "Proceeds Purchase Date");
(3) that any Security not tendered will continue to
accrue interest if interest is then accruing;
(4) that, unless 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;
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(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; and
(8) that the Net Proceeds Offer shall remain open for a
period of 20 Business Days or such longer period as may be required by
law.
On or before the Proceeds Purchase Date, 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 (and the Trustee shall promptly
authenticate and mail or deliver to such Holders a new Security equal in
principal amount to any unpurchased portion of the Security surrendered).
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 shall comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of Securities pursuant to a Net Proceeds Offer. To the
extent the provisions of any securities laws or regulations conflict with the
provisions under this Section 4.16, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under this Section 4.16 by virtue thereof.
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. No Amendment to Subordination Provisions of Seller Debentures.
Holdings shall 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 Securities
or (ii) amend the provisions of Article Eleven of the Seller Debenture
Indenture (which relates to subordination) or the defined terms used therein in
a manner that would be adverse to the Holders of the Securities; provided,
however, that it is understood that any amendment the purpose of which is to
permit the incurrence of additional Indebtedness under the Seller Debenture
Indenture shall not be construed as adversely affecting the subordination
provisions of any Seller Debentures.
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Section 4.17. Limitation on Preferred Stock of Subsidiaries.
Holdings shall 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) this Indenture, the Senior Discount Note
Indenture, the Seller 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 on 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 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.
Notwithstanding the foregoing, the consummation of the Merger
on the Issue Date need only comply with clauses (1) and (3) of the foregoing
paragraph (a).
(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 direct or indirect 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.
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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.
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 any
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,
or premium, if any, on the Securities when the same becomes due and
payable whether 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);
(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
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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;
(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 all or substantially all of its property or (D) makes a
general assignment for the benefit of its creditors;
(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 all or any substantial
part of their respective properties or (C) order the winding-up or
liquidation of Holdings' or any Significant Subsidiary's 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 Default under Section 4.3, 4.14, 4.15 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.
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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 or the Holders of
at least 25% in aggregate principal amount of the Securities then outstanding
may, and the Trustee upon the request of the Holders of not less than 25% in
aggregate principal amount of the then outstanding Securities shall, declare
the Default Amount to be due and payable by written 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), and the Trustee
specifying the respective Event of Default and that it is a "notice of
acceleration" (the "Acceleration Notice"), and the same (i) shall become
immediately due and payable or (ii) if there are any amounts outstanding under
the Credit Agreement, shall become due and payable upon the first to occur of
an acceleration under the Credit Agreement, or five Business Days after receipt
by Holdings and the Credit Agent of such Acceleration Notice. 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.
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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 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 including, without limitation, any remedies
provided for in Section 6.3. 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 written 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
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(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.
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.
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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.
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 would exercise or use under the
circumstances in the conduct of his own affairs.
(b) Except during the continuance of a Default or an
Event of Default:
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(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.
(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.
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(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 12.4 and 12.5.
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.
(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 or payment when due pursuant
to a Net Proceeds Offer, the Trustee may withhold the notice if and so long as
its board of directors, the executive
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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 Section Section 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.
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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 and 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.
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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 Section Section 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
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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, 4.6 through 4.9 and
4.11 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, Section
6.1(3) (but only to the extent it relates to a breach of any of the covenants
contained in Sections 4.3, 4.6 through 4.9 and 4.11 through 4.18 and Article V
hereof), hereof shall not constitute an 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 have
deposited 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
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("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 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
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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.
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
Legal Defeasance or 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
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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 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 hereunder;
(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;
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(4) to make any other change that does not adversely
affect the rights of any Holders in any material
respect; 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 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 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) reduce the Accreted Value of any Security;
(5) 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;
(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 Security;
(7) make any changes in Section 6.4, 6.7 or this third
sentence of this Section 9.2; or
(8) 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 not less than 75% of
the aggregate principal amount of the outstanding Securities, no such
amendment, supplement or waiver may
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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.
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, 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.
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
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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.
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
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(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.
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.
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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,
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
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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.
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
SATISFACTION AND DISCHARGE
Section 11.1. 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.
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Section 11.2. 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 XII
MISCELLANEOUS
Section 12.1. 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 12.2. 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:
United States Trust Company of New York
114 West 47th Street
New York, New York 10036-1532
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).
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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 12.3. 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 12.4. 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 12.5. 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
65
<PAGE> 72
matters of fact an Opinion of Counsel may rely on an Officers'
Certificate or certificates of public officials.
Section 12.6. 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 12.7. 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.
Section 12.8. 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 12.9. 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 12.10. 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 12.11. 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.
66
<PAGE> 73
Section 12.12. 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 12.13. 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.
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:
____________________________
67
<PAGE> 74
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 Discount Debentures
due July 15, 2005
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 July 15, 2005.
Interest payment dates: June 15 and December 15 commencing
December 15, 2000.
Record dates: June 1 and December 1.
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:
By: ___________________________
Name:
Title:
This is one of the Securities described in the
within-mentioned Indenture.
Dated: ________ __, 1995 _______________________________
as Trustee
By: ___________________________
Title:
A-1
<PAGE> 75
FOOD 4 LESS HOLDINGS, INC.
13-5/8% Senior Discount Debenture
due July 15, 2005
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 will pay interest semiannually in
arrears on June 15 and December 15 of each year (the "Interest Payment Date")
commencing December 15, 2000. 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.
Commencing on the Issue Date, accretion of the purchase
discount will occur, through and including the Final Accretion Date, in an
amount equal to the Accreted Value. Commencing on December 15, 2000, 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"). However, Holdings may pay principal
and interest by its check payable in such U.S. Legal Tender or by wire transfer
of federal funds. 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, United States Trust Company of New York (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 Discount Debentures due 2005. 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
A-2
<PAGE> 76
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 $193,363,570, except as otherwise provided in the Indenture.
5. Optional Redemption.
(a) The Securities may not be redeemed at the option of Holdings
prior to June 15, 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 and unpaid
interest, if any, to the Redemption Date (as defined in the Indenture) if
redeemed during the 12-month period beginning June 15, of the years indicated
below:
<TABLE>
<CAPTION>
Applicable
Year Percentage
---- ----------
<S> <C>
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106.8125%
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105.1094%
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103.4063%
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101.7031%
2004 and thereafter . . . . . . . . . . . . . . . . . . . . . 100.0000%
</TABLE>
(b) Notwithstanding the foregoing, prior to June 15, 1998,
Holdings may use the Net Proceeds (as defined in the Indenture) of a Public
Equity 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
Accreted Value thereof on 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 60 days
after the Public Equity 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 principal amount at maturity 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
A-3
<PAGE> 77
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 Accreted Value thereof on the date of purchase, if such date is prior to
June 15, 2000 or 100% of the principal amount thereof, plus accrued interest,
if any, to the date of purchase if such date is on or after June 15, 2000,
which shall in the aggregate equal the net proceeds required to be applied
thereto.
9. Denominations; Transfer; Exchange.
The Securities are in registered form, without coupons, in
denominations of $10.00 and integral multiples of $10.00. 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.
10. Persons Deemed Owners.
The registered Holder of a Security shall be treated as the
owner of it for all purposes.
11. Unclaimed Money.
If money for the payment of principal or interest remains
unclaimed for one year, the Trustee and the Paying Agents will pay the money
back to Holdings at its request.
A-4
<PAGE> 78
After that, all liability of the Trustee and such Paying Agents with respect to
such money shall cease.
12. Discharge Prior to Redemption or Maturity.
If 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).
13. 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 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 at least a
majority in aggregate principal amount 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 Default or Event of
Default resulting from a failure to comply with Section 4.14 of the Indenture.
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.
14. 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.
15. 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
A-5
<PAGE> 79
Event of Default (except a Default in payment of principal or interest) if it
determines that withholding notice is in their interest.
16. 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.
17. 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.
18. Authentication.
This Security shall not be valid until the Trustee or
authenticating agent manually signs the certificate of authentication on this
Security.
19. Governing Law.
The Laws of the State of New York shall govern this Security
and the Indenture.
20. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of
a Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
21. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures, 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.
22. 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.
A-6
<PAGE> 80
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.
23. 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.
24. 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> 81
[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> 82
[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 5.1
[LATHAM & WATKINS LETTERHEAD]
June 2, 1995
Food 4 Less Holdings, Inc.
777 South Harbor Boulevard
La Habra, California 90631
Re: FOOD 4 LESS HOLDINGS, INC.
REGISTRATION STATEMENT ON FORM S-1
Gentlemen:
At your request, we have examined the Registration Statement on Form S-1
(the "Registration Statement") of Food 4 Less Holdings, Inc., a Delaware
corporation ("New Holdings"), which you have filed with the Securities and
Exchange Commission on June 2, 1995 in connection with the registration under
the Securities Act of 1933, as amended, of up to $193,363,570 principal amount
of 13 5/8% Senior Discount Debentures due 2005 (the "Debentures").
We have examined such matters of fact and questions of law as we have
considered appropriate for purposes of this opinion. We have examined, among
other things, the terms of the Debentures, and the indenture pursuant to which
the Debentures are to be issued. In our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, and the conformity to authentic original documents of all
documents submitted to us as copies. Capitalized terms used herein without
definition have the meaning given to them in the Registration Statement.
We are opining herein as to the effect on the subject transaction only of
the federal securities laws of the United States, the internal laws of the
States of New York and California and the General Corporation Law of the State
of Delaware, and we express no opinion with respect to the applicability
thereto, or the effect thereon, of any other laws.
<PAGE> 2
[Letterhead]
Food 4 Less Holdings, Inc.
June 2, 1995
Page 2
Based upon the foregoing, we are of the opinion that, upon the execution of
the indenture governing the Debentures and the authentication and delivery of
the Debentures and the issuance thereof in the manner described in the
Registration Statement, the Debentures will be legally valid and binding
obligations of the Company, except as may be limited by the effect of
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to or affecting the rights or remedies of
creditors; the effect of general principles of equity, whether enforcement is
considered in a proceeding in equity or at law, and the discretion of the court
before which any proceeding therefor may be brought; and the unenforceability
under certain circumstances under law or court decisions of provisions providing
for the indemnification of or contribution to a party with respect to a
liability where such indemnification or contribution is contrary to public
policy.
We consent to your filing this opinion as an exhibit to the Registration
Statement.
Very truly yours,
LATHAM & WATKINS
<PAGE> 1
EXHIBIT 8.1
[LATHAM & WATKINS LETTERHEAD]
June 2, 1995
Food 4 Less Holdings, Inc.
777 South Harbor Boulevard
La Habra, CA 90631
Re: Food 4 Less Holdings, Inc. (a Delaware corporation)
Registration Statement on Form S-1
Ladies/Gentlemen:
You have requested our opinion concerning the material federal income tax
consequences of the offering of the 13 5/8% Senior Discount Debentures due 2005
of Food 4 Less Holdings, Inc., a Delaware corporation, in connection with the
Registration Statement on Form S-1 filed with the Securities and Exchange
Commission (the "Commission") on June 2, 1995 (the "Registration Statement").
The facts, as we understand them, and upon which with your permission we
rely in rendering the opinion expressed herein, are set forth in the
Registration Statement. Based on such facts, it is our opinion that the material
federal income tax consequences are accurately set forth under the heading
"Certain Federal Income Tax Considerations" in the Registration Statement. No
opinion is expressed as to any matter not discussed therein.
This opinion is based on various statutory provisions, regulations
promulgated thereunder and interpretations thereof by the Internal Revenue
Service and the courts having jurisdiction over such matters, all of which are
subject to change either prospectively or retroactively. Also, any variation or
difference in the facts from those set forth in the Registration Statement may
affect the conclusion stated herein.
This opinion is rendered to you solely for use in connection with the
Registration Statement. We consent to your filing this opinion as an exhibit to
the Registration Statement and to the reference of our firm under the heading
"Certain Federal Income Tax Considerations."
Very truly yours,
LATHAM & WATKINS
<PAGE> 1
EXHIBIT
10.17
================================================================================
SUBSCRIPTION AGREEMENT
among
RGC PARTNERS, L.P.
FOOD 4 LESS HOLDINGS, INC.
FOOD 4 LESS SUPERMARKETS, INC.
and
THE PARTNERSHIP INVESTORS LISTED ON EXHIBIT A HERETO
___________________________
Dated
June __, 1995
___________________________
================================================================================
<PAGE> 2
TABLE OF CONTENTS
(Not Part of Agreement)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - SALE AND PURCHASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SECTION 2.1. Agreement to Issue and to Acquire Partnership Interests . . . . . . . . . . . . . . . . . . . . . 5
SECTION 2.2. Agreement to Sell and to Purchase Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.3. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF HOLDINGS
AND SUPERMARKETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 3.1. Organization and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 3.2. Authorization; Enforceability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3.3. Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3.4. No Violation; Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 3.5. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 3.6. Representations and Warranties in the Stock Purchase Agreement. . . . . . . . . . . . . . . . . . 8
SECTION 3.7. Private Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 3.8. No Material Omission or Misstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE IV - REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIP
INVESTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 4.1. Authorization; Enforceability; No Violations. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 4.2. Consents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 4.3. Private Placement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 4.4. Ownership of Debentures Delivered to Partnership. . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 4.5. Absence of General Solicitation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE V - COVENANTS OF THE PARTNERSHIP, HOLDINGS AND
SUPERMARKETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 5.1. Operation of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 5.2. Amendment or Modification of or Waivers under Acquisition
Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 5.3. Notices Under the Acquisition Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 5.4. Agreement to Take Necessary and Desirable Actions . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 5.5. Compliance with Conditions; Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 5.6. Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 5.7. Expenses of Partnership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE VI - COVENANTS OF THE PARTNERSHIP INVESTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
SECTION 6.1. Agreement to Take Necessary and Desirable Actions. . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 6.2. Compliance with Conditions; Commercially Reasonable Efforts . . . . . . . . . . . . . . . . . . . 13
ARTICLE VII - CONDITIONS PRECEDENT TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 7.1. Conditions to the Partnership's, Holdings' and Supermarkets'
Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SECTION 7.2. Conditions to Partnership Investors' Obligations . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE VIII - MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 8.1. Survival; Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 8.2. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 8.3. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 8.4. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 8.5. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 8.6. Modifications and Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 8.7. Waivers and Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 8.8. Titles and Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 8.9. Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 8.10. Expenses; Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 8.11. Press Releases and Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 8.12. Assignment; No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 8.13. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 8.14. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 8.15. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 8.16. Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 8.17. Several Liability of the Partnership Investors . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 8.18. Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 8.19. No Duty to Other Partnership Investors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
EXHIBIT A - SCHEDULE OF PARTNERSHIP INVESTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
</TABLE>
ii
<PAGE> 4
EXHIBITS
<TABLE>
<S> <C>
Exhibit A Schedule of Partnership Investors
Exhibit B Form of Indenture
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Opinion of Latham & Watkins
</TABLE>
iii
<PAGE> 5
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement") is made and
entered into as of June __, 1995 by and among RGC Partners, L.P., a Delaware
limited partnership (the "Partnership"), Food 4 Less Holdings, Inc., a Delaware
corporation ("Holdings"), Food 4 Less Supermarkets, Inc., a Delaware
corporation ("Supermarkets") and each of the investors listed on Exhibit A
hereto (the "Partnership Investors").
NOW, THEREFORE, the parties hereto hereby agree as follows.
ARTICLE I
DEFINITIONS
(a) As used in this
Agreement, the following terms shall have the following meanings:
"Acquisition" means the acquisition of the capital stock of
Ralphs pursuant to the Acquisition Agreement.
"Acquisition Agreement" means the Agreement and Plan of
Merger, dated as of September 14, 1994, by and among Food 4 Less, Holdings, F4L
Holdings, Supermarkets, Ralphs and the stockholders of Ralphs, as amended by
Amendment No. 1 dated as of January 12, 1995, Amendment No. 2 dated as of
February 24, 1995, and Amendment No. 3 dated as of April 26, 1995.
"Acquisition Closing Date" means the closing date of the
Acquisition.
"Acquisition Documents" mean (i) the Partnership Documents,
(ii) the Acquisition Agreement, (iii) the Stock Purchase Agreement, (iv) the
Commitment Letter and (v) all other documents and agreements referred to in or
contemplated by paragraphs (c) and (d) of Section 7.2.
"Agreement" shall have the meaning set forth in the preamble
hereto.
"Applicable Law" means, with respect to any Person, any law,
statute, rule, regulation, order, writ, injunction, judgment or decree of any
Governmental Authority to which such Person or any of its subsidiaries is bound
or to which any of their respective properties is subject.
"Certificate" means the Certificate of Limited Partnership of
the Partnership and any duly authorized, executed and filed amendments thereto
or restatements thereof.
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<PAGE> 6
"Charter" with respect to any corporation means the
certificate of incorporation or articles of incorporation of such corporation.
"Closing" has the meaning set forth in Section 2.3 hereof.
"Commission" means the United States Securities and Exchange
Commission.
"Commitment Letter" means the letter agreement dated August
31, 1994 and amended on January 15, 1995 and April 27, 1995, by and among
Apollo Advisors, L.P., on behalf of one or more managed entities, Yucaipa, Food
4 Less, F4L Holdings, Holdings and Supermarkets.
"Debenture Registration Statement" means the Registration
Statement on Form S-1 of Holdings with respect to the Debentures.
"Debentures" means the $193,363,570 aggregate principal amount
(at maturity) of 13- 5/8% Senior Discount Debentures due 2005 of Holdings
issued pursuant to the terms of the Indenture on the Acquisition Closing Date
(provided that the principal amount stated herein is based on an Acquisition
Closing Date of June 14, 1995, and may be adjusted for an Acquisition Closing
Date other than such date).
"Dow" has the meaning set forth in Section 7.2 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Financing" means the debt and equity financing required to
consummate the Acquisition and the other transactions contemplated by the
Acquisition Agreement (including the refinancing, as required, of any existing
indebtedness of Food 4 Less, Ralphs or their respective subsidiaries) and any
financing necessary to provide working capital for the Surviving Corporation
and its subsidiaries on an ongoing basis.
"F4L Holdings" means Food 4 Less Holdings, Inc., a California
corporation.
"Food 4 Less" means Food 4 Less, Inc., a Delaware corporation.
"Food 4 Less Entities" means Holdings and its Subsidiaries.
"Governmental Authority" means any federal, state or local
court or governmental or regulatory authority.
"Holdings" has the meaning set forth in the preamble hereto.
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<PAGE> 7
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Indemnified Party" has the meaning set forth in Section 8.1
hereof.
"Indemnifying Party" has the meaning set forth in Section 8.1
hereof.
"Indenture" means the indenture by and between Holdings and
United States Trust Company of New York,as trustee, governing the terms of the
Debentures, in the form attached hereto as Exhibit B.
"Lien" means any pledge, lien, claim, restriction, charge or
encumbrance of any kind.
"Material Adverse Effect" means a material adverse effect (i)
on the business, operations, prospects, properties, earnings, assets,
liabilities or condition (financial or other) of Holdings, Ralphs and their
respective subsidiaries, taken as a whole, (ii) on the ability of the
Partnership, Holdings or Supermarkets to perform its obligations hereunder or
under any of the other Partnership Documents, or (iii) on the value of the
Partnership Investors' investment in the Partnership.
"New Credit Facility" means the Credit Agreement, dated as of
the Acquisition Closing Date, among Holdings, as guarantor, Supermarkets, as
borrower, Bankers Trust Company, as administrative agent, and the lenders,
co-agents and co-arrangers named therein.
"Nonperforming Purchaser" has the meaning set forth in Section
8.4 hereof.
"Notices" has the meaning set forth in Section 8.2 hereof.
"Opening Dow" has the meaning set forth in Section 7.2 hereof.
"Partners" means, collectively, the General Partners, the
Class A Limited Partners and the Class B Limited Partners of the Partnership
set forth on Exhibit A hereto. Reference to a "Partner" shall refer to any one
or more of the Partners, as the context may require.
"Partnership" has the meaning set forth in the preamble hereto.
"Partnership Agreement" means the Limited Partnership
Agreement of RGC Partners, L.P., in the form executed by the Partnership
Investors on or prior to the date hereof.
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<PAGE> 8
"Partnership Commitment Letter" means the letter agreement,
dated April 26, 1995, by and among Holdings, Supermarkets and the Partnership
Investors.
"Partnership Documents" means (i) this Agreement, (ii) the
Partnership Agreement, (iii) the Indenture and (iv) the Registration Rights
Agreement.
"Partnership Interest" means the ownership interest of a
Partner in the Partnership.
"Partnership Investors" has the meaning set forth in the
preamble hereto.
"Percentage Interest" means, with respect to each Partner, the
percentage set forth on Exhibit A hereto.
"Performing Purchasers" has the meaning set forth in Section
8.4 hereof.
"Permitted Liens" means any Liens arising as a result of the
New Credit Facility or permitted to be incurred or to exist under the New
Credit Facility.
"Permitted Transferee" shall mean (a) in the case of any
Partnership Investor (i) any officer, director, member or partner of, or Person
controlling, such Partnership Investor or any other Partnership Investor or
(ii) any other Person that is (x) an affiliate of the general partner(s),
member(s), investment manager(s) or investment advisor(s) of such Partnership
Investor on the date hereof, (y) an affiliate of such Partnership Investor or a
Permitted Transferee of such Partnership Investor or (z) an investment fund,
investment account or investment entity whose investment manager, investment
advisor, or any member or general partner thereof is such Partnership Investor
or a Permitted Transferee of such Partnership Investor, (b) in the case of The
Edward J. DeBartolo Corporation and Camdev Properties, Inc., any of their
respective banks or representatives thereof, and (c) in the case of Federated
Department Stores, Inc., an affiliated not-for-profit corporation, in each case
(a), (b) and (c) in a bona fide distribution or other transaction not intended
to avoid the provisions of this Agreement.
"Person" means any individual, partnership, corporation,
limited liability company, joint venture, association, joint-stock company,
trust, unincorporated organization, government or agency or political
subdivision thereof, or other entity.
"Public Debt Refinancing" means the defeasance, amendment,
repurchase, exchange or other acquisition or retirement by F4L Holdings,
Holdings or the Surviving Corporation of the existing public debt securities of
Ralphs Grocery, Supermarkets and F4L Holdings to the extent that such
transactions are necessary in order to permit the consummation of the
Acquisition and the other
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<PAGE> 9
transactions contemplated by the Acquisition Agreement (including the
incurrence of any additional indebtedness constituting part of the Financing)
or as may otherwise be required by the banks, underwriters or other responsible
financial institutions or other responsible Persons providing the Financing as
set forth in the commitment letters entered into with such parties.
"Ralphs" means Ralphs Supermarkets, Inc. a Delaware
corporation.
"Ralphs Grocery" means Ralphs Grocery Company, a Delaware
corporation.
"Registration Rights Agreement" means the Registration Rights
Agreement, by and among the Partnership, Holdings and Supermarkets, in the form
attached hereto as Exhibit C.
"Registration Statement" has the meaning set forth in Section
7.2(c) hereof.
"Securities Act" means the Securities Act of 1933, as amended.
"Stock Purchase Agreement" means that certain Stock Purchase
and Exchange Agreement dated as of the Acquisition Closing Date by and among
Holdings, Supermarkets, CLH Supermarket Corp. and the purchasers listed on
Schedule 1 thereto.
"subsidiary" means, with respect to any Person (a) a
corporation a majority of whose capital stock with voting power, under ordinary
circumstances, to elect directors is at the time, directly or indirectly, owned
by such Person, by a subsidiary of such Person, or by such Person and one or
more subsidiaries of such Person, (b) a partnership in which such Person or a
subsidiary of such Person is, at the date of determination, a general partner
of such partnership, or (c) any other Person (other than a corporation) 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 thereof, has (i) at least a majority ownership interest or (ii)
the power to elect or direct the election of the directors or other governing
body of such Person.
"Subsidiary" means a subsidiary of Holdings.
"Substitute Purchaser Undertaking" has the meaning set forth
in Section 8.4 hereof.
"Supplying Purchasers" has the meaning set forth in Section
8.19 hereof.
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<PAGE> 10
"Surviving Corporation" means Ralphs following (i) the
Acquisition and (ii) the merger of Ralphs Grocery with and into Ralphs.
"Supermarkets" has the meaning set forth in the preamble
hereto.
"Yucaipa" means The Yucaipa Companies, a California general
partnership.
"Yucaipa Entity" means Yucaipa RGC L.L.C., a Delaware limited
liability company and RGC Investment Co., a Delaware corporation.
ARTICLE II
SALE AND PURCHASE
SECTION 2.1. Agreement to Issue and to
Acquire Partnership Interests. On the Acquisition Closing Date, and upon the
terms and subject to the conditions set forth in this Agreement, the
Partnership shall issue to each Partnership Investor, and each Partnership
Investor, severally and not jointly, shall acquire and accept from the
Partnership, such Partnership Interests representing the Percentage Interest in
the Partnership as set forth on Exhibit A hereto for the consideration set
forth on Exhibit A hereto.
SECTION 2.2. Agreement to Sell and to
Purchase Debentures. On the Acquisition Closing Date, and upon the terms and
subject to the conditions set forth in this Agreement and the Indenture,
Holdings shall sell to the Partnership, and the Partnership shall purchase and
accept from Holdings, $114,084,510 aggregate principal amount of Debentures
(based on an Acquisition Closing Date of June 14, 1995, as such amount may be
adjusted for an Acquisition Closing Date other than such date) for a purchase
price, payable in immediately available funds, of $59,000,000 (representing the
initial accreted value of such Debentures). The parties to this Agreement
hereby agree to treat $59,000,000 as the issue price of the Debentures for all
tax purposes.
SECTION 2.3. Closing. The closing of the
issuance of the Partnership Interests and the purchase and sale of the
Debentures (the "Closing") shall take place at 8:00 a.m., local time, on the
Acquisition Closing Date, at the offices of Latham & Watkins, 633 West Fifth
Street, Suite 4000, Los Angeles, California 90071 or at such other place as the
parties hereto shall agree in writing. At the Closing (a) each Partnership
Investor shall (i) deposit into one or more bank accounts designated by the
Partnership, by wire transfer of immediately available funds, or assign its
rights to receive cash proceeds in connection with the Financing on the
Acquisition Closing Date, in an amount equal to the aggregate cash portion of
the capital contribution being
6
<PAGE> 11
contributed by such Partnership Investor to the Partnership in exchange for
Partnership Interests and/or (ii) deliver to the Partnership the Debentures
being delivered by such Partnership Investor pursuant to Section 2.1, or assign
its rights to receive Debentures from Holdings in connection with the Financing
on the Acquisition Closing Date (such cash amounts and Debentures in (i) and
(ii) to constitute in the aggregate a contribution to the Partnership of
$41,000,000), (b) the Partnership shall deposit into one or more bank accounts,
by wire transfer of immediately available funds, $59,000,000, representing the
purchase price for the Debentures being issued by Holdings to the Partnership
and (c) Holdings will deliver to the Partnership the Debentures being sold by
Holdings to the Partnership pursuant to Section 2.2.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF HOLDINGS AND SUPERMARKETS
Holdings and Supermarkets hereby represent and warrant,
jointly and severally, to each Partnership Investor (but not any Yucaipa
Entity) as follows:
SECTION 3.1. Organization and Standing. The
Partnership is duly organized, validly existing and in good standing as a
limited partnership under the laws of the State of Delaware and has all
requisite partnership power and authority to own its properties and assets and
to carry on its business as proposed to be conducted. The Partnership is duly
qualified to transact business and is in good standing in each jurisdiction in
which the character of the properties owned or leased by it or the nature of
its business makes such qualification necessary, except where the failure to so
qualify or be in good standing could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
SECTION 3.2. Authorization; Enforceability.
Each of the Partnership, Holdings and Supermarkets has the partnership or
corporate power to execute, deliver and perform the terms and provisions of
each of the Partnership Documents to which it is a party and has taken all
necessary partnership or corporate action to authorize the execution, delivery
and performance by it of each of the Partnership Documents to which it is a
party and to consummate the transactions contemplated hereby and thereby. No
other partnership or corporate proceedings on the part of the Partnership,
Holdings or Supermarkets is necessary therefor. Each of the Partnership,
Holdings and Supermarkets has duly executed and delivered the Partnership
Documents to which it is a party. The Partnership Documents, when executed and
delivered by each of the Partnership, Holdings and Supermarkets and assuming
due execution by the other parties thereto, will constitute, legal, valid and
binding obligations of each of the Partnership, Holdings and Supermarkets
enforceable against each of the Partnership, Holdings
7
<PAGE> 12
and Supermarkets in accordance with their terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law).
SECTION 3.3. Securities.
(a) The Partnership Interests have
been duly and validly authorized by the Partnership and no other rights to
subscribe for any interests in the Partnership, other than the Partnership
Interests, are outstanding.
(b) The Debentures have been duly and
validly authorized by Holdings for issuance. The Debentures, when executed by
Holdings and authenticated by the trustee in accordance with the provisions of
the Indenture, and delivered to and paid for by the Partnership and those
Partnership Investors, as shown on Exhibit A, who will acquire Debentures on
the Acquisition Closing Date, in accordance with the terms hereof and of the
other Acquisition Documents pursuant to which such Debentures will be issued,
will have been duly executed, issued and delivered and will constitute valid
and legally binding obligations of Holdings entitled to the benefits of the
Indenture and enforceable against Holdings in accordance with their terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law).
SECTION 3.4. No Violation; Consents.
(a) The execution, delivery and
performance by each of the Partnership, Holdings and Supermarkets of each of
the Partnership Documents to which it is a party and the consummation of the
transactions contemplated hereby and thereby do not and will not contravene any
Applicable Law, except for any such contraventions that could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.
The execution, delivery and performance by each of the Partnership, Holdings
and Supermarkets of each of the Partnership Documents to which it is a party
and the consummation of the transactions contemplated hereby and thereby (i)
will not (after giving effect to all amendments or waivers obtained on or prior
to the Acquisition Closing Date) (x) violate, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any
contract, lease, loan agreement, mortgage, security agreement, trust indenture
or other agreement or instrument to which it is a party or by which it is bound
or to which its properties or assets is subject, or (y) result in the creation
or imposition of any Lien (other than Permitted Liens) upon any of its
properties or assets, except for any such defaults or Liens that could not,
individually or in the aggregate, reasonably be expected
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<PAGE> 13
to have a Material Adverse Effect, and (ii) will not violate any provision of
(A) the Certificate or (B) the Charter or bylaws of Holdings or Supermarkets.
(b) No consent, authorization or
order of, or filing or registration with, any Governmental Authority or other
person is required to be obtained or made by any of the Partnership, Holdings
or Supermarkets for the execution, delivery and performance of any of the
Partnership Documents to which it is a party, or the consummation of any of the
transactions contemplated hereby or thereby, except (i) for those consents or
authorizations that will have been obtained or made on or prior to the
Acquisition Closing Date or (ii) where the failure to obtain such consents,
authorizations or orders, or make such filings or registrations, could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
SECTION 3.5. Litigation. There are no
pending or, to the best knowledge of Holdings or Supermarkets, threatened
claims, actions, suits, labor disputes, grievances, administrative or
arbitration or other proceedings or, to the best knowledge of Holdings or
Supermarkets, investigations against the Partnership or its assets or
properties before or by any Governmental Authority or before any arbitrator
that could, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. None of the transactions contemplated by any of the
Partnership Documents is restrained or enjoined (either temporarily,
preliminarily or permanently), and no material adverse conditions have been
imposed thereon by any Governmental Authority or arbitrator. Neither the
Partnership nor any of its assets or properties is subject to any order, writ,
judgment, award, injunction or decree of any Governmental Authority or
arbitrator, that could, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
SECTION 3.6. Representations and Warranties
in the Stock Purchase Agreement. The representations and warranties of
Holdings and Supermarkets in the Stock Purchase Agreement, which are
incorporated as representations and warranties herein by this reference
(provided, that for purposes of this Agreement, references in such
representations and warranties to the "Acquisition Documents" shall be deemed
to include the "Partnership Documents"), will be true and correct on the
Acquisition Closing Date.
SECTION 3.7. Private Offering.
(a) Based, in part, on the Partnership
Investors' representations in Section 4.3, the sale of the Partnership
Interests by the Partnership to the Partnership Investors is exempt from the
registration and prospectus delivery requirements of the Securities Act.
Neither the Partnership nor anyone acting on its behalf has offered or sold or
will offer or sell any securities, or has taken or will take any other action,
which would subject the
9
<PAGE> 14
offer, issuance or sale of the Partnership Interests as contemplated hereby to
the registration provisions of the Securities Act.
(b) The sale of the Debentures by
Holdings to the Partnership is exempt from the registration and prospectus
delivery requirements of the Securities Act. Neither Holdings nor anyone
acting on its behalf has offered or sold or will offer or sell any securities,
or has taken or will take any other action, which would subject the offer,
issuance or sale of the Debentures as contemplated hereby to the registration
provisions of the Securities Act.
SECTION 3.8. No Material Omission or
Misstatement. When the Debenture Registration Statement or any amendment
thereto is declared effective, it (i) will comply in all material respects with
the requirements of the Securities Act and (ii) will not include any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading. The
Prospectus contained in the Debenture Registration Statement did not, as of its
date, contain an untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIP INVESTORS
Each Partnership Investor severally as to itself only, and not
jointly, hereby represents and warrants to the Partnership, Holdings and
Supermarkets as follows:
SECTION 4.1. Authorization; Enforceability;
No Violations.
(a) It is duly organized, validly
existing and in good standing as a corporation, partnership or limited
liability company under the laws of its jurisdiction of organization. It has
the corporate, partnership or limited liability company power to execute,
deliver and perform the terms and provisions of the Partnership Documents to
which it is a party and has taken all necessary corporate, partnership or
limited liability company action to authorize the execution, delivery and
performance by it of such Partnership Documents and to consummate the
transactions contemplated hereby and thereby. No other corporate, partnership
or limited liability company proceedings on its part is necessary therefor.
(b) The execution, delivery and
performance by such Partnership Investor of the terms and provisions of the
Partnership Documents to which it is a party and the consummation of the
transactions contemplated hereby and thereby do not and will not violate any
provision of the Charter, bylaws, partnership agreement
10
<PAGE> 15
or other governing documents of such Partnership Investor, or of any other
agreement or instrument to which such Partnership Investor is bound, or to
which any of its properties or assets is subject, or of any Applicable Law. It
has duly executed and delivered, or will duly execute and deliver, the
Partnership Documents to which it is a party. The Partnership Documents to
which it is a party, when executed and delivered by it and assuming the due
execution by the other parties hereto and thereto, will constitute its legal,
valid and binding obligations, enforceable against it in accordance with their
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity or at
law).
SECTION 4.2. Consents. No consent,
authorization or order of, or filing or registration with, any Governmental
Authority or other person is required to be obtained or made by it for the
execution, delivery and performance by it of the Partnership Documents to which
it is a party or the consummation of any of the transactions contemplated
hereby or thereby other than those that will have been made or obtained on or
prior to the Acquisition Closing Date.
SECTION 4.3. Private Placement.
(a) Such Partnership Investor
understands that (i) the offering and sale of the Debentures and the
Partnership Interests are intended to be exempt from registration under the
Securities Act pursuant to Section 4(2) thereof, and (ii) there is no existing
public or other market for the Partnership Interests.
(b) The Partnership Interests to be
acquired by such Partnership Investor pursuant to this Agreement, and any
Debentures to be acquired by any Partnership Investor pursuant to any other
Acquisition Document, are being acquired for its own account and without a view
to making a distribution thereof in violation of the Securities Act or any
state securities laws which may be applicable (provided that the contribution
of the Debentures to the Partnership shall not be deemed to be such a
distribution).
(c) Such Partnership Investor has
sufficient knowledge and experience in financial and business matters so as to
be capable of evaluating the merits and risks of its investment in the
Partnership Interests (or, if applicable, the Debentures) and such Partnership
Investor is capable of bearing the economic risks of such investment, including
a complete loss of its investment in the Partnership Interests.
(d) Such Partnership Investor is an
"accredited investor" as such term is defined in Regulation D under the
Securities Act.
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(e) Such Partnership Investor
acknowledges that the Partnership and Holdings and, for purposes of the
opinions to be delivered to the Partnership Investors pursuant to Section 7.2
hereof, Latham & Watkins, will rely on the accuracy and truth of its
representations in this Section 4.3, and such Partnership Investor hereby
consents to such reliance.
SECTION 4.4. Ownership of Debentures
Delivered to Partnership. The Debentures to be delivered by any Partnership
Investor to the Partnership pursuant to Section 2.1 will be, at the time of
such delivery, owned by such Partnership Investor, free and clear of any Lien,
and upon delivery thereof, all of such Partnership Investor's right, title and
interest in and to such Debentures shall have been contributed, transferred and
assigned to the Partnership free and clear of any Lien.
SECTION 4.5. Absence of General
Solicitation. Neither such Partnership Investor nor anyone acting on its
behalf has offered or sold or will offer or sell any securities, or has taken
or will take any other action that would subject the offer, issuance or sale of
the Debentures by Holdings to the Partnership or the Partnership Investors, or
the contribution of the Debentures by any Partnership Investor to the
Partnership, in each case as contemplated hereby, to the registration
provisions of the Securities Act.
ARTICLE V
COVENANTS OF THE PARTNERSHIP, HOLDINGS AND SUPERMARKETS
SECTION 5.1. Operation of Business.
(a) From the date hereof until the
Acquisition Closing Date, the Partnership will not conduct any business.
(b) From the date hereof until the
Acquisition Closing Date, except as provided for in, or contemplated by, the
Acquisition Documents (including the schedules thereto), and except as
consented to or approved by the Partnership Investors, Holdings shall not, and
shall not permit any of the Subsidiaries to, take any action that would cause
any of the representations and warranties made by Holdings or Supermarkets in
this Agreement not to remain true and correct as if made at and as of the date
of this Agreement.
SECTION 5.2. Amendment or Modification of or
Waivers under Acquisition Agreement. Each of Holdings and Supermarkets agrees
that, without the prior written consent of the Partnership Investors (which
consent will not be unreasonably withheld), it will not consent to any
amendment or modification to, or waive any of its rights under, any Acquisition
Document, which amendment, modification or waiver could reasonably be expected
to have a Material Adverse Effect, or which amendment, modification or waiver
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would cause a failure of the condition specified in Section 7.2(e) hereof.
SECTION 5.3. Notices Under the Acquisition
Agreement. Holdings shall promptly provide the Partnership Investors with such
notices and reports as any Food 4 Less Entity may send to or receive from
Ralphs or the stockholders of Ralphs pursuant to the terms of or relating to
the Acquisition Agreement.
SECTION 5.4. Agreement to Take Necessary and
Desirable Actions. Each of the Partnership, Holdings and Supermarkets shall
execute and deliver each of the Partnership Documents to which each is a party
and such other documents, certificates, agreements and other writings and take
such other actions as may be necessary, desirable or reasonably requested by
the Partnership Investors in order to consummate or implement expeditiously the
transactions contemplated hereby.
SECTION 5.5. Compliance with Conditions;
Best Efforts. Each of the Partnership, Holdings and Supermarkets shall use its
best efforts to cause all of the obligations imposed upon it in this Agreement
to be duly complied with and to cause all conditions precedent to the
obligations of the Partnership, Holdings, Supermarkets and the Partnership
Investors to be satisfied. Upon the terms and subject to the conditions of
this Agreement, each of the Partnership, Holdings and Supermarkets will use its
best efforts to take, or cause to be taken, all action, and to do, or cause to
be done, all things necessary, proper or advisable consistent with applicable
law to consummate and make effective in the most expeditious manner practicable
the transactions contemplated hereby.
SECTION 5.6. Consents and Approvals. The
Partnership, Holdings and Supermarkets shall use their best efforts to obtain
all necessary consents, waivers, authorizations and approvals of all
Governmental Authorities and of all other Persons, firms or corporations
required in connection with the execution, delivery and performance by them of
this Agreement, any other Partnership Document or any of the transactions
contemplated hereby or thereby, and shall diligently assist and cooperate with
the Partnership Investors in preparing and filing all documents required to be
submitted by the Partnership Investors to any Governmental Authority in
connection with such transactions and in obtaining any governmental consents,
waivers, authorizations or approvals which may be required to be obtained by
the Partnership Investors in connection with such transactions (which
assistance and cooperation shall include, without limitation, timely furnishing
to the Partnership Investors all information concerning the Food 4 Less
Entities that counsel to any Partnership Investors determines is required to be
included in such documents or would be helpful in obtaining any such required
consent, waiver, authorization or approval).
SECTION 5.7. Expenses of Partnership. In
addition to the expenses payable by Holdings pursuant to Section 8.10, and in
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consideration of the purchase by the Partnership of the Debentures as provided
in Section 2.2, Holdings and Supermarkets will pay, or cause to be paid, all
costs and expenses of organizing the Partnership, including without limitation
legal expenses of the Partners, all ongoing costs and expenses of the
Partnership not specifically provided for by the terms of the Registration
Rights Agreement, including without limitation administrative and accounting
expenses and all reasonable costs and expenses incurred in connection with the
resale of the Debentures and the distribution of the proceeds therefrom.
Notwithstanding the foregoing or the provisions of Section 8.10, Holdings shall
not pay any costs or expenses expressly excluded from reimbursement pursuant to
Section 8 of the Registration Rights Agreement.
ARTICLE VI
COVENANTS OF THE PARTNERSHIP INVESTORS
SECTION 6.1. Agreement to Take Necessary and
Desirable Actions. Each Partnership Investor shall execute and deliver each of
the Partnership Documents to which it is a party and such other documents,
certificates, agreements and other writings and take such other actions as may
be necessary, desirable or reasonably requested by the Partnership, Holdings or
Supermarkets in order to consummate or implement expeditiously the transactions
contemplated hereby.
SECTION 6.2. Compliance with Conditions;
Commercially Reasonable Efforts. Each Partnership Investor shall use
commercially reasonable efforts to cause all of the obligations imposed upon it
in this Agreement to be duly complied with and to cause all conditions
precedent to its obligations to be satisfied. Upon the terms and subject to
the conditions of this Agreement, each Partnership Investor will use
commercially reasonable efforts to take, or cause to be taken, all action, and
to do, or cause to be done, all things necessary, proper or advisable
consistent with applicable law to consummate the transactions contemplated
hereby.
ARTICLE VII
CONDITIONS PRECEDENT TO CLOSING
SECTION 7.1. Conditions to the
Partnership's, Holdings' and Supermarkets' Obligations. The obligations of the
Partnership, of Holdings and of Supermarkets hereunder required to be performed
on the Acquisition Closing Date shall be subject, at their respective election,
to the satisfaction or waiver (which waiver, if so requested by the Partnership
Investors, shall be made in writing), at or prior to the Acquisition Closing
Date, of the following conditions:
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(a) The representations and warranties
of each Partnership Investor contained in this Agreement shall have been true
and correct in all material respects when made and, in addition, shall be
repeated and true and correct in all material respects on and as of the
Acquisition Closing Date with the same force and effect as though made on and
as of the Acquisition Closing Date.
(b) Each Partnership Investor shall
have performed in all material respects all obligations and agreements, and
complied in all material respects with all covenants, contained in this
Agreement, to be performed and complied with by such Partnership Investor at or
prior to the Acquisition Closing Date. In lieu of a certificate from each
Partnership Investor to the Partnership certifying that the conditions
specified in this Section 7.1 have been satisfied, the delivery of the
Debentures and/or payment of the purchase price for the Partnership Interests
shall be deemed to be the certification by such Partnership Investor of the
satisfaction of each of such conditions specified in this Section 7.1.
(c) All conditions precedent to the
consummation of the transactions contemplated by the Acquisition Documents
shall have been satisfied or waived.
SECTION 7.2. Conditions to Partnership
Investors' Obligations. The obligations of each Partnership Investor hereunder
required to be performed on the Acquisition Closing Date shall be subject, at
its election, to the satisfaction or waiver (which waiver, if so requested by
Holdings or the Partnership, shall be made in writing), on or prior to the
Acquisition Closing Date, of the following conditions:
(a) The representations and warranties of each other
Partnership Investor, Holdings and Supermarkets contained or
incorporated in this Agreement shall have been true and correct in all
material respects when made (except for those representations and
warranties that speak as of a given date, which representations and
warranties shall have been true and correct in all material respects
on such date) and, in addition, shall be repeated and true and correct
in all material respects on and as of the Acquisition Closing Date
(after giving effect to the transactions contemplated hereby) with the
same force and effect as though made on and as of the Acquisition
Closing Date.
(b) Each other Partnership Investor and each of
Holdings, Supermarkets and the Partnership shall have performed all
obligations and agreements, and complied with all covenants, contained
in this Agreement, to be performed and complied with by it at or prior
to the Acquisition Closing Date.
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(c) The terms and conditions of the Financing,
including, without limitation, the Public Debt Refinancing, any other
refinancings, amendments and consents made at or obtained in
connection with the closing of the transactions contemplated by the
Acquisition Documents, and the fees payable to lenders, underwriters
and investors in connection therewith, shall be satisfactory to each
Partnership Investor; and the Financing and all related transactions
shall have been consummated pursuant to definitive agreements in form
and substance satisfactory to each Partnership Investor; provided,
that for purposes of the foregoing, the Partnership Investors are
deemed to have approved the terms of the Financing and all related
transactions, including the fees payable in connection therewith, as
described in Post-Effective Amendment No. 1 to Holdings' Registration
Statement on Form S-4, No. 33-86356 (the "Registration Statement").
(d) (i) Holdings and its Subsidiaries shall have
received, simultaneously with the receipt of the proceeds of the sale
of the Debentures to the Partnership, proceeds under or as a result of
the Financing which shall be sufficient to consummate the Acquisition
and the Public Debt Refinancing including payment of fees and expenses
in respect thereof as described in the Registration Statement;
(ii) The Partnership Investors shall have
entered into or caused to become effective the Partnership Agreement
and such other agreements and governing documents as each Partnership
Investor may deem reasonably appropriate to effect the provisions of
the Partnership Agreement, and containing other terms and provisions
which shall be mutually agreed upon between the parties and each of
such agreements and documents shall be in full force and effect; and
(iii) Holdings, Supermarkets and the
Partnership shall have entered into the Registration Rights Agreement,
the Debenture Registration Statement shall have become effective under
the Securities Act and the terms of the Debentures shall be
substantially consistent with the terms of the new Senior Notes due
2004 of Supermarkets as in effect on the Acquisition Closing Date
(except to the extent necessary to take account of the different
issuers of the securities and other structural differences).
(e) Subject to the last sentence of this Section
7.2, no waiver of any of the conditions of, or amendment to, or the
initiation by Yucaipa, Food 4 Less, Holdings or Supermarkets of (or
consent to) any termination of, the Acquisition Documents shall have
occurred except such as shall have been consented to in writing by
each Partnership Investor, which consent shall not be unreasonably
withheld, and, with respect to any conditions thereunder the
fulfillment of which is or may be determined by Yucaipa, Food 4 Less,
Holdings or Supermarkets, as the case may be, in its judgment or
discretion,
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such conditions shall not be deemed fulfilled unless each Partnership
Investor in its reasonable judgment shall also be satisfied that such
conditions are fulfilled; provided that Holdings will deliver to each
Partnership Investor, prior to filing with the Commission, copies of
the Debenture Registration Statement, and each proposed amendment
thereto marked to show changes, in accordance with the terms of the
Registration Rights Agreement; and the election by each Partnership
Investor to consummate the transactions contemplated by this Agreement
following delivery of the Debenture Registration Statement and each
proposed amendment thereto shall constitute approval by each
Partnership Investor of any changes to the terms of the Acquisition
Documents as disclosed in the Debenture Registration Statement or any
such amendment, without the requirement of any written consent as
described above.
(f) All documents, instruments, agreements and
arrangements relating to the transactions contemplated by the
Acquisition Documents (copies of which shall have been delivered to
each Partnership Investor) shall be reasonably satisfactory to each
Partnership Investor, shall have been executed and delivered by the
parties thereto, shall be in full force and effect and no party to any
of the foregoing shall have breached any of its material obligations
thereunder.
(g) Since January 29, 1995, no change shall have
occurred or have been threatened in the business, operations,
prospects, properties or condition (financial or other) of Food 4
Less, Ralphs or any of their respective subsidiaries, which, in the
reasonable judgment of the Partnership Investors, is or may be
materially adverse to Holdings, Ralphs and their respective
subsidiaries, taken as a whole, or the transactions contemplated by
the Acquisition Documents; provided, that the transactions
contemplated by the Acquisition Documents shall not be deemed to be
such a materially adverse change.
(h) Each Partnership Investor shall have received a
copy of the letter delivered to the Selling Stockholders (as defined
in the Acquisition Agreement) in connection with the Acquisition with
respect to the solvency, sufficiency of capital and the ability to pay
debts and other obligations of Holdings after giving effect to the
transactions contemplated by the Acquisition Documents and other
obligations in connection therewith, which letter need not be
addressed to the Partnership Investors.
(i) There shall be no litigation, proceeding or
other action seeking an injunction or other restraining order, damages
or other relief from a court or administrative agency of competent
jurisdiction pending or threatened which, in the reasonable judgment
of the Partnership Investors, would
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materially adversely affect the consummation of the transactions
contemplated by the Acquisition Documents on the terms contemplated
thereby and there shall be no litigation, proceeding or other action
(including, without limitation, relating to environmental and pension
matters) pending or threatened against Holdings, Ralphs or their
respective subsidiaries which is reasonably likely to have a Material
Adverse Effect.
(j) (x) During the period from the date of the
Partnership Commitment Letter and ending on the Acquisition Closing
Date, (A) trading in securities generally on the New York Stock
Exchange or the American Stock Exchange or the over-the-counter market
shall not have been suspended and minimum prices shall not have been
established on either of such exchanges or such market by such
exchange or by the Commission, (B) a general banking moratorium shall
not have been declared by federal or New York or California
authorities, and (C) no change (or any condition, event or development
involving a prospective change) shall have occurred or be threatened
that, in the reasonable judgment of the Partnership Investors, has had
or is reasonably likely to have a material adverse effect upon the
prices or trading of securities generally traded on financial markets
in the United States, and (y) the Dow Jones Industrial Average (the
"Dow") on the business day immediately preceding the Acquisition
Closing Date shall not be more than 20% lower than the Dow on the date
of the Partnership Commitment Letter (the "Opening Dow") and the Dow
on any business day between the date of the Partnership Commitment
Letter and the Acquisition Closing Date shall not have been more than
20% lower than the Opening Dow.
(k) All corporate and other proceedings taken or to
be taken by the parties to the Acquisition Documents in connection
with the transactions contemplated thereby shall be in form and
substance reasonably satisfactory to each Partnership Investor as
being consistent with the satisfaction of the foregoing conditions.
(l) All governmental and regulatory approvals and
clearances and all third party consents necessary for the consummation
of the transactions contemplated by the Acquisition Documents shall
have been obtained and shall be in full force and effect, including
(without limitation) expiration of the applicable waiting periods
under the HSR Act, and each Partnership Investor shall be reasonably
satisfied that the consummation of such transactions does not and will
not contravene any Applicable Law, except to the extent any
contravention or contraventions, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect.
(m) All conditions precedent to the consummation of
the transactions contemplated by the Acquisition Documents
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shall have been satisfied or waived, and the Acquisition shall have
occurred as contemplated herein prior to, or concurrently with the
purchase and sale of the Partnership Interests; and all fees and
expenses due to any Partnership Investor shall have been paid in
accordance with the terms of the Acquisition Documents.
(n) All proceeds received by Holdings on the
Acquisition Closing Date under or as a result of the transactions
contemplated by this Agreement shall be used (or shall be usable)
solely to effect the repurchase of the 15.25% Senior Discount Notes
due 2004 of F4L Holdings.
(o) An affiliate of Yucaipa shall have consummated
the purchase from Geosor Corporation and related Persons of
outstanding shares of capital stock of Holdings pursuant to that
certain Stock Purchase Agreement dated as of September 9, 1994.
(p) The Closing under the Acquisition Agreement
shall have occurred.
(q) The Partnership shall have delivered to the
Partnership Investors (but not any Yucaipa entity) a certificate
executed by it or on its behalf by a duly authorized representative,
dated the Acquisition Closing Date, to the effect that each of the
conditions (other than any condition the fulfillment of which is
subject to the reasonable satisfaction of the Partnership Investors)
specified in this Section 7.2 has been satisfied.
(r) Latham & Watkins, counsel to the Partnership,
Holdings and Supermarkets, shall have delivered to the Partnership
Investors an opinion, dated the Acquisition Closing Date, addressed to
the Partnership Investors, in the form attached hereto as Exhibit D.
(s) The Partnership Investors shall have received
such other certificates, instruments and documents in furtherance of
the transactions contemplated by this Agreement as they may reasonably
request.
(t) All conditions precedent to the consummation of
the transactions contemplated by the Acquisition Documents shall have
been satisfied or waived.
(u) Each of the other Partnership Investors shall
have funded its obligations hereunder.
Nothing in this Agreement shall constitute a waiver by any Partnership Investor
of any right under the Acquisition Agreement.
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ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. Survival; Indemnification.
(a) All representations, warranties,
covenants and agreements (except covenants and agreements which are expressly
required to be performed and are performed in full on or before the Acquisition
Closing Date) contained in this Agreement shall be deemed made at the Closing
as if made at such time and shall survive the Closing for two years (or a
longer period to the extent that such representations and warranties are
incorporated herein by reference from another Acquisition Document which
provides for such longer survival period), except that (i) with respect to
claims asserted pursuant to this Section 8.1 before the expiration of the
applicable representation or warranty, such claims shall survive until the date
they are finally liquidated or otherwise resolved, and (ii) the representations
in Section 3.3(a) and (b) and this Section 8.1 shall survive indefinitely. All
statements as to factual matters contained in any certificate executed and
delivered by the parties pursuant hereto, as well as the certification by each
Partnership Investor in lieu of a certificate as provided in Section 7.1(b),
shall be deemed to be representations, warranties and covenants by such party
hereunder. No claim may be commenced under this Section 8.1 (or otherwise)
following expiration of the applicable period of survival, and upon such
expiration the Indemnifying Party shall be released from all liability with
respect to claims under each such section not theretofore made by the
Indemnified Party. No right of indemnity against any claim of a third party
shall arise from any representation, warranty or covenant of an Indemnifying
Party herein contained, unless such third-party claim is filed or lodged
against the Indemnified Party on or prior to the expiration of the applicable
period of survival provided above, and all other conditions hereunder are
satisfied. A claim shall be made or commenced hereunder by the Indemnified
Party delivering to the Indemnifying Party a written notice specifying in
reasonable detail the nature of the claim, the amount claimed (if known or
reasonably estimable), and the factual basis for the claim. The
indemnification provided for in this Section 8.1 shall be the exclusive remedy
for breach of any such representations, warranties or covenants contained in
this Agreement or given hereunder.
(b) Each of Holdings and Supermarkets
agrees to indemnify and hold harmless each of the Partnership Investors and
their respective partners, members, affiliates, officers, directors, employees
and duly authorized agents and each of their affiliates and each other Person
controlling any of the Partnership Investors or any of their affiliates within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act and any partner of any of them from and against any loss, claim,
liability, cost, expense or damage (including, without limitation, reasonable
counsel fees and disbursements and court costs),
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judgments, fines, settlements and other amounts accruing from or resulting by
reason of (i) the breach of any of the representations or warranties made in
Article III of this Agreement or in any certificate furnished by the
Partnership, Holdings or Supermarkets pursuant to this Agreement, or (ii) the
breach or failure of the Partnership, Holdings or Supermarkets duly to perform
or observe any covenant or agreement pursuant to this Agreement. In addition,
should any of the Partnership Investors or any employees or affiliates of any
Partnership Investor be involved (whether as party, witness or otherwise) in
any litigation in connection with the transactions contemplated by this
Agreement, each of Holdings and Supermarkets agree to compensate the
Partnership Investor (or such affiliate) in an amount equal to $2,000 per day
for each day that such employee is actively involved in preparation, discovery
proceedings or testimony pertaining to any litigation in connection with the
transactions contemplated hereby.
(c) Each of Holdings and Supermarkets
agrees to indemnify and hold harmless each of the general partners of the
Partnership and their respective partners, members, affiliates, officers,
directors, employees and duly authorized agents and each of their affiliates
and each other Person controlling any of the general partners of the
Partnership or any of their affiliates within the meaning of either Section 15
of the Securities Act or Section 20 of the Exchange Act and any partner or
member of any of them from and against any loss, claim, liability, cost,
expense or damage (including, without limitation, reasonable counsel fees and
disbursements and court costs), judgments, fines, settlements and other amounts
arising from any and all third party claims, demands, actions, suits or
proceedings, civil, criminal, administrative or investigative in which such
Indemnified Party may be involved, or threatened to be involved as a party or
otherwise, relating to the performance or nonperformance of any act concerning
the activities of the Partnership, unless such Indemnified Party did not act in
good faith, provided, however, that in no event shall Holdings or Supermarkets
have any liability to any Indemnified Party for the failure to obtain any price
in connection with the disposal of assets of the Partnership, providing any
such disposal is made in a bona fide arms-length transaction. The termination
of an action, suit or proceeding by judgment, order, settlement, or upon a plea
of nolo contendere or its equivalent, shall not, in and of itself, create a
presumption or otherwise constitute evidence that such party acted in a manner
contrary to that specified above. The provisions of this Section 8.1(c) are
for the benefit of the Indemnified Parties and shall not be deemed to create
any rights for the benefit of any other Person.
(d) Each Partnership Investor,
severally and not jointly, agrees to indemnify and hold harmless each of the
Partnership, Holdings and Supermarkets and its partners, affiliates, officers,
directors, employees and duly authorized agents and each of their affiliates
and each other Person controlling the Partnership, Holdings or Supermarkets or
any of their affiliates within the meaning of either Section 15 of the Securi-
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ties Act or Section 20 of the Exchange Act and any partner of any of them
from and against any loss, claim, liability, cost, expense or damage
(including, without limitation, reasonable counsel fees and disbursements and
court costs), judgments, fines, settlements and other amounts accruing from or
resulting by reason of (i) the breach of any of the representations or
warranties made by such Partnership Investor in Article IV of this Agreement or
in any certificate furnished by the Partnership Investor pursuant to this
Agreement (or the certification in lieu of a certificate as provided in Section
7.1(b)) or (ii) the breach or failure of the Partnership Investor duly to
perform or observe any covenant or agreement on the part of the Partnership
Investor to be performed or observed.
(e) If a person entitled to indemnity
hereunder (an "Indemnified Party") asserts that any party hereto (the
"Indemnifying Party") has become obligated to the Indemnified Party pursuant to
Section 8.1(b), (c) or (d), or if any suit, action, investigation, claim or
proceeding is begun, made or instituted as a result of which the Indemnifying
Party may become obligated to the Indemnified Party hereunder, the Indemnified
Party agrees to notify the Indemnifying Party promptly and to cooperate with
the Indemnifying Party, at the Indemnifying Party's expense, to the extent
reasonably necessary for the resolution of such claim or in the defense of such
suit, action or proceeding, including making available any information,
documents and things in the possession of the Indemnified Party which are
reasonably necessary therefor.
Notwithstanding the foregoing notice requirement, the right to
indemnification hereunder shall not be affected by any failure to give, or
delay in giving, notice unless, and only to the extent that, the rights and
remedies of the Indemnifying Party shall have been prejudiced as a result of
such failure or delay. An Indemnifying Party shall not be liable to any
Indemnified Party (a) in respect of any loss, claim, damage, liability or
expense to an Indemnified Party to the extent the same is determined, in a
final judgment by a court having jurisdiction, to have resulted primarily from
the gross negligence or willful misconduct of such Indemnified Party or (b) for
any settlement effected by such Indemnified Party without the written consent
of such Indemnifying Party, which consent shall not be unreasonably withheld.
(f) In the event of the assertion
against any Indemnified Party of a claim or the commencement of any action or
proceeding for which indemnity is sought under this Section 8.1, each
Indemnifying Party shall be entitled to participate in such action or
proceeding and in the investigation of such claim, and, after written notice
from such Indemnifying Party to such Indemnified Party, to assume the
investigation or defense of such claim, action or proceeding with counsel of
the Indemnifying Party's choice at the Indemnifying Party's expense; provided,
however, that such counsel shall be reasonably satisfactory to the Indemnified
Party. Notwithstanding anything to the contrary contained herein, the
Indemnifying Parties may retain one firm of
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counsel to represent all Indemnified Parties (other than Yucaipa or Indemnified
Parties that are affiliates of Yucaipa) in such claim, action or proceeding;
provided, however, that in the event that the defendants in, or targets of, any
such claim, action or proceeding include more than one such Indemnified Party,
and in the written opinion of counsel to an Indemnified Party there may be one
or more legal defenses available to it which are in conflict with those
available to any other such Indemnified Party, then such Indemnified Party may
employ separate counsel reasonably satisfactory to the Indemnifying Parties, to
represent or defend it or any other person entitled to indemnification and
reimbursement hereunder with respect to any such claim, action or proceeding in
which it or such other person may become involved or is named as defendant and
the Indemnifying Parties shall pay the reasonable fees and disbursement of such
counsel. Notwithstanding an Indemnifying Party's election to assume the
defense or investigation of such claim, action or proceeding, the Indemnified
Parties shall have the right to employ separate counsel selected by the
Indemnified Parties (or, if the Indemnified Parties are the Partnership
Investors, by the holders of a Majority in Partnership Interests of the
Indemnified Parties) and to participate in the defense or investigation of such
claim, action or proceeding, and the Indemnifying Parties shall bear the
expense of such separate counsel, if (i) in the written opinion of counsel to
the Indemnified Parties use of counsel of the Indemnifying Party's choice could
reasonably be expected to give rise to a conflict of interest, (ii) the
Indemnifying Parties shall not have employed counsel reasonably satisfactory to
the Indemnified Parties (or, if the Indemnified Parties are the Partnership
Investors, by the holders of a majority in Partnership Interests of the
Indemnified Parties) to represent the Indemnified Parties within a reasonable
time after notice of the assertion of any such claim or institution of any such
action or proceeding or (iii) if an Indemnifying Party shall authorize the
Indemnified Party to employ separate counsel at the Indemnifying Party's
expense.
(g) If for any reason (other than the
gross negligence or willful misconduct of an Indemnified Party referred to
above) the foregoing indemnification is unavailable to any Indemnified Party or
insufficient to hold it harmless as and to the extent contemplated by the
preceding paragraphs (b), (c), (d) or (e), then the Indemnifying Parties shall
contribute to the amount paid or payable by the Indemnified Party as a result
of such loss, claim, damage or liability in such proportion as is appropriate
to reflect the relative benefits received by the Indemnifying Parties and their
affiliates, on the one hand, and the Indemnified Parties, on the other hand,
and also the relative fault of the Indemnifying Parties and their affiliates,
on the one hand, and the Indemnified Parties, on the other hand, as well as any
other relevant equitable considerations.
SECTION 8.2. Notices. All notices, demands,
requests, consents, approvals or other communications (collectively, "Notices")
required or permitted to be given hereunder or which are given with respect to
this Agreement shall be in writing and shall
23
<PAGE> 28
be personally served, delivered by reputable air courier service with charges
prepaid, or transmitted by hand delivery, telegram, telex or facsimile,
addressed as set forth below, or to such other address as such party shall have
specified most recently by written notice. Notice shall be deemed given on the
date of service or transmission if personally served or transmitted by
telegram, telex or facsimile. Notice otherwise sent as provided herein shall
be deemed given on the next business day following delivery of such notice to a
reputable air courier service.
To the Partnership:
To the addresses specified in the Partnership
Agreement
To Holdings or Supermarkets:
c/o 10000 Santa Monica Boulevard
Fifth Floor
Los Angeles, California 90067
Attn: Mark A. Resnik, Esq.
Fax: (310) 789-7201
with a copy (which shall not constitute notice) to:
Latham & Watkins
633 West Fifth Street
Suite 4000
Los Angeles, California 90071
Attn: Thomas C. Sadler, Esq.
Fax: (213) 891-8763
To the Partnership Investors:
To the address specified on Exhibit A hereto.
SECTION 8.3. GOVERNING LAW. THIS AGREEMENT
SHALL BE GOVERNED BY, INTERPRETED UNDER, AND CONSTRUED IN ACCORDANCE WITH THE
INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE
PERFORMED WITHIN THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE
CHOICE-OF-LAW PROVISIONS THEREOF.
SECTION 8.4. Termination.
(a) This Agreement may be terminated, and except as
set forth below shall be of no further force or effect, (i) in the event one or
more Partnership Investors fails to perform its obligation to purchase the
Partnership Interests as provided for herein (the "Nonperforming Purchaser"),
by the Partnership, Holdings, Supermarkets or one or more Partnership Investors
who are not Nonperforming Purchasers if the Closing shall not have occurred on
the Acquisition Closing Date unless the Partnership, Holdings and Supermarkets
shall have received a Substitute Purchaser Undertaking or (ii) if the Closing
shall not have occurred on or prior
24
<PAGE> 29
to June 30, 1995, by either the Partnership, Holdings and Supermarkets, on the
one hand, or any Partnership Investor, on the other hand, at any time after
June 30, 1995. Termination pursuant to the foregoing clauses (i) or (ii)
notwithstanding, Sections 5.7, 8.10 and 8.11 hereof shall remain in effect.
(b) In the event one or more Partnership Investors
becomes a Nonperforming Purchaser, the remaining Partnership Investor or
Partnership Investors (the "Performing Purchasers") shall have the right,
exercisable as provided below, to purchase the Partnership Interests to have
been purchased by the Nonperforming Purchaser on the same terms and conditions
provided for herein (in ratable percentages, if there are two or more
Performing Purchasers each of whom so elects), unless the Nonperforming
Purchaser shall have theretofore performed its obligations hereunder and
purchased its Partnership Interests. Such right shall be irrevocably exercised
by each Performing Purchaser who elects to do so at the Closing by delivery of
a written notice (a "Substitute Purchaser Undertaking") to such effect to the
Partnership, Holdings and Supermarkets, which notice shall constitute the
binding obligation of such Performing Purchaser.
SECTION 8.5. Entire Agreement. This Agreement
and the Partnership Documents (including all agreements entered into pursuant
hereto and thereto and all certificates and instruments delivered pursuant
hereto and thereto) constitute the entire agreement of the parties with respect
to the subject matter hereof and supersede all prior and contemporaneous
agreements, representations, understandings, negotiations and discussions
between the parties, whether oral or written, with respect to the subject
matter hereof other than the provisions set forth in Sections 4 and 8 of the
Partnership Commitment Letter which remain in full force and effect.
SECTION 8.6. Modifications and Amendments. No
amendment, modification or termination of this Agreement shall be binding upon
any other party unless executed in writing by the parties hereto intending to
be bound thereby.
SECTION 8.7. Waivers and Extensions. Any
party to this Agreement may waive any right, breach or default which such party
has the right to waive, provided that such waiver will not be effective against
the waiving party unless it is in writing, is signed by such party, and
specifically refers to this Agreement. Waivers may be made in advance or after
the right waived has arisen or the breach or default waived has occurred. Any
waiver may be conditional. No waiver of any breach of any agreement or
provision herein contained shall be deemed a waiver of any preceding or
succeeding breach thereof nor of any other agreement or provision herein
contained. No waiver or extension of time for performance of any obligations
or acts shall be deemed a waiver or extension of the time for performance of
any other obligations or acts.
25
<PAGE> 30
SECTION 8.8. Titles and Headings. Titles and
headings of sections of this Agreement are for convenience only and shall not
affect the construction of any provision of this Agreement.
SECTION 8.9. Exhibits. Each of the exhibits
referred to herein and attached hereto is an integral part of this Agreement
and is incorporated herein by reference.
SECTION 8.10. Expenses; Brokers. Each of
Holdings and Supermarkets shall pay or cause to be paid, whether or not the
Closing occurs hereunder, all reasonable out-of-pocket fees and expenses
incurred by the Partnership Investors and their affiliates (including, but not
limited to, reasonable fees and expenses of counsel) in connection with the
commitment to provide the financing hereunder, the Acquisition and all matters
related thereto provided, that the fees and expenses reimbursable to the Edward
J. DeBartolo Corporation, Camdev Properties, Inc., Bank of Montreal, Banque
Paribas and Federated Department Stores, Inc. and their respective affiliates
shall be limited to those fees and expenses incurred in connection with the
commitment to provide the financing hereunder, and shall not include other fees
and expenses incurred in connection with the Acquisition. Each of the parties
represents to the others that, except as otherwise disclosed in any Acquisition
Document, neither it nor any of its affiliates has used a broker or other
intermediary, other than Yucaipa, in connection with the transactions
contemplated by this Agreement for whose fees or expenses any other party will
be liable and respectively agrees to indemnify and hold the others harmless
from and against any and all claims, liabilities or obligations with respect to
any such fees or expenses asserted by any person on the basis of any act or
statement alleged to have been made by such party or any of its affiliates.
SECTION 8.11. Press Releases and Public
Announcements. The Partnership Investors shall keep confidential the terms of
the Partnership Agreement, and all public announcements or disclosures relating
to the transactions contemplated by the Partnership Commitment Letter, the
Partnership Agreement or this Agreement shall be made only if mutually agreed
upon by Holdings and the Partnership Investors except to the extent such
disclosure is, (i) in the opinion of counsel, required by law; provided that
any such required disclosure shall only be made, to the extent consistent with
law, after consultation with the Partnership Investors, (ii) made to lenders or
investors subject to confidentiality agreements or (iii) made with the consent
of the holders of a majority of the Class A Partnership Interests and the
holders of a majority of Class B Partnership Interests as set forth on Exhibit
A hereto.
SECTION 8.12. Assignment; No Third Party
Beneficiaries. This Agreement and the rights, duties and obligations hereunder
may not be assigned or delegated by either the Partnership, Holdings or
Supermarkets, on the one hand, or the Partnership Investors, on the other hand,
without the prior written consent of the other;
26
<PAGE> 31
provided, that each Partnership Investor may assign or delegate its rights,
duties and obligations hereunder to a Permitted Transferee. Except as provided
in the preceding sentence, any assignment or delegation of rights, duties or
obligations hereunder made without the prior written consent of the other party
hereto shall be void and of no effect. This Agreement and the provisions
hereof shall be binding upon and shall inure to the benefit of each of the
parties and their respective successors and permitted assigns. This Agreement
is not intended to confer any rights or benefits on any persons that are not
party hereto other than as expressly set forth in this Section 8.12.
SECTION 8.13. Severability. This Agreement
shall be deemed severable, and the invalidity or unenforceability of any term
or provision hereof shall not affect the validity or enforceability of this
Agreement or of any other term or provision hereof. Furthermore, in lieu of
any such invalid or unenforceable term or provision, the parties hereto intend
that there shall be added as a part of this Agreement a provision as similar in
terms to such invalid or unenforceable provision as may be possible and be
valid and enforceable.
SECTION 8.14. Counterparts. This Agreement
may be executed in counterparts, each of which shall be deemed an original, but
all of which taken together shall constitute one and the same instrument.
SECTION 8.15. Further Assurances. Each party
hereto, upon the request of any other party hereto, shall do all such further
acts and execute, acknowledge and deliver all such further instruments and
documents as may be necessary or desirable to carry out the transactions
contemplated by this Agreement, including, in the case of the Partnership, such
acts, instruments and documents as may be necessary or desirable to convey and
transfer to each of the Partnership Investors the Partnership Interests to be
purchased by it hereunder.
SECTION 8.16. Remedies Cumulative. The
remedies provided herein shall be cumulative and shall not preclude the
assertion by any party hereto of any other rights or the seeking of any
remedies against the other party hereto, except as provided in Section 8.1.
SECTION 8.17. Several Liability of the
Partnership Investors. Nothing in this Agreement shall be construed to impose
on any Partnership Investor any liability for any action or failure to act of
any other Partnership Investor.
SECTION 8.18. Counsel. Each Partnership
Investor confirms that it has been advised by its own counsel with respect to
its investment in the Partnership.
SECTION 8.19. No Duty to Other Partnership
Investors. Each Partnership Investor confirms that it has conducted its own
27
<PAGE> 32
due diligence in connection with its investment in Partnership Interests and
the other Partnership Investors may therefore have information different from,
or additional to, the information possessed by such Partnership Investor. In
addition, although certain of the other Partnership Investors (the "Supplying
Purchasers") may have shared information received by them (including
information contained in third party reports prepared for such other
Partnership Investors) with such Partnership Investor, no representation or
warranty is being made with respect to such information by any Supplying
Purchaser or any such third party. Nothing in this Section 8.19 is meant to
limit any duty, obligation or liability the Partnership, Holdings or
Supermarkets may have to any Partnership Investor under this Agreement or
otherwise.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
RGC PARTNERS, L.P.
a Delaware limited partnership
By: Yucaipa RGC, L.L.C.
Its: General Partner
____________________________________
Name: Mark A. Resnik
Title: Authorized Member
FOOD 4 LESS HOLDINGS, INC.,
a Delaware corporation
____________________________________
Name: Mark A. Resnik
Title: Secretary
FOOD 4 LESS SUPERMARKETS, INC.,
a Delaware corporation
____________________________________
Name: Mark A. Resnik
Title: Vice President
YUCAIPA RGC L.L.C.
____________________________________
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<PAGE> 33
Name: Mark A. Resnik
Title: Authorized Member
FFL INVESTORS L.L.C.
____________________________________
Name:
Title:
APOLLO MANAGEMENT, L.P.
on behalf of one or more managed entities
By: Apollo Management III, Inc.
Its General Partner
____________________________________
Name:
Title:
THE EDWARD J. DEBARTOLO CORPORATION
____________________________________
Name:
Title:
CAMDEV PROPERTIES, INC.
____________________________________
Name:
Title:
S-2
<PAGE> 34
BANK OF MONTREAL
___________________________________
Name:
Title:
BANQUE PARIBAS
____________________________________
Name:
Title:
FEDERATED DEPARTMENT STORES, INC.
____________________________________
Name:
Title:
RGC INVESTMENT CO.
____________________________________
Name:
Title:
BT INVESTMENT PARTNERS, INC.
____________________________________
Name:
Title:
S-3
<PAGE> 35
BT SECURITIES CORPORATION
____________________________________
Name:
Title:
CS FIRST BOSTON SECURITIES CORP.
____________________________________
Name:
Title:
DLJ CAPITAL CORPORATION
____________________________________
Name:
Title:
S-4
<PAGE> 36
EXHIBIT A
SCHEDULE OF PARTNERSHIP INVESTORS
<TABLE>
<CAPTION>
GENERAL PARTNERS Capital Contribution Percentage Interest in
---------------- -------------------- ----------------------
Partnership
-----------
<S> <C> <C>
Yucaipa RGC L.L.C. $1,000,000 initial
10000 Santa Monica Boulevard accreted value of 1%
Fifth Floor Debentures
Los Angeles, California 90067
FFL Investors L.L.C. $1,000,000 cash
c/o Soros Fund Management 1%
888 Seventh Avenue
New York, New York 10016
</TABLE>
<PAGE> 37
<TABLE>
<CAPTION>
CLASS A LIMITED PARTNERS
------------------------
<S> <C> <C>
Yucaipa RGC L.L.C. $9,000,000 initial 9%
10000 Santa Monica Boulevard accreted value of
Fifth Floor Debentures
Los Angeles, California 90067
FFL Investors L.L.C. $39,000,000 cash 39%
c/o Soros Fund Management
888 Seventh Avenue
New York, New York 10016
BT Investment Partners, Inc. $5,000,000 cash 5%
One Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
CS First Boston Securities $2,500,000 cash 2.5%
Corporation
Park Avenue Plaza
55 East 52nd Street
New York, New York 10055
DLJ Capital Corporation $2,500,000 cash 2.5%
2121 Avenue of the Stars
Suite 3000
Los Angeles, California 90067
</TABLE>
<PAGE> 38
<TABLE>
<CAPTION>
CLASS B LIMITED PARTNERS Capital Contribution Percentage Interest in
------------------------ -------------------- ----------------------
Partnership
-----------
<S> <C> <C>
The Edward J. DeBartolo $4,000,000 cash plus
----
Corporation $11,164,000 initial 15.164%
7620 Market Street accreted value of
Youngstown, Ohio 44513 Debentures
Camdev Properties, Inc. $2,369,000 initial
40 King Street West, Suite 2700 accreted value of 2.369%
Toronto, Ontario M5H 3Y2 Debentures
Bank of Montreal $1,874,000 initial
700 Louisiana, Suite 4400 accreted value of 1.874%
Houston, Texas 77002 Debentures
Banque Paribas $1,874,000 initial
The Equitable Tower accreted value of 1.874%
787 Seventh Avenue, 32nd Floor Debentures
New York, New York 10019
Federated Department Stores, Inc. $1,219,000 initial
7 West Seventh Street accreted value of 1.219%
Cincinnati, Ohio 45202 Debentures
Yucaipa RGC L.L.C. $7,500,000 initial
10000 Santa Monica Boulevard accreted value of 7.5%
Fifth Floor Debentures
Los Angeles, California 90067
BT Securities Corporation $2,500,000 initial
One Bankers Trust Plaza accreted value of 2.5%
130 Liberty Street Debentures
New York, New York 10006
Apollo Management, L.P. $2,500,000 initial
1999 Avenue of the Stars accreted value of 2.5%
Suite 1900 Debentures
Los Angeles, California 90067
RGC Investment Co. $5,000,000 cash
10000 Santa Monica Boulevard 5.0%
Fifth Floor
Los Angeles, California 90067
</TABLE>
<PAGE> 39
EXHIBIT C
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REGISTRATION RIGHTS AGREEMENT
DATED AS OF JUNE __, 1995
BY AND AMONG
FOOD 4 LESS HOLDINGS, INC.
FOOD 4 LESS SUPERMARKETS, INC.
AND
THE HOLDER OF THE 13-5/8% SENIOR
DISCOUNT DEBENTURES DUE 2005
OF FOOD 4 LESS HOLDINGS, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 40
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Legends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
3. Shelf Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4. Liquidated Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5. Hold-Back Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
6. Representations and Warranties of the
Partnership, the Company and F4L Supermarkets . . . . . . . . . . . . . . . . . . . . . . . . . . 8
7. Registration Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8. Registration Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
9. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
10. Rule 144 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
11. Participation in Underwritten Registrations . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
12. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
<PAGE> 41
This REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made
and entered into as of June __, 1995, by and among Food 4 Less Holdings, Inc.,
a Delaware corporation (the "Company"), Food 4 Less Supermarkets, Inc., a
Delaware corporation ("F4L Supermarkets") and RGC Partners, L.P., a Delaware
limited partnership (the "Partnership").
This Agreement is made pursuant to the Subscription Agreement,
dated as of May __, 1995 (the "Subscription Agreement"), by and among the
Company, F4L Supermarkets, the Partnership and the Partnership Investors listed
on Exhibit A thereto. In order to induce the Partnership to enter into the
Subscription Agreement, the Company has agreed to provide the registration
rights set forth in this Agreement. The execution and delivery of this
Agreement is a condition to the closing under the Subscription Agreement.
Concurrently with the closing under the Subscription Agreement, F4L
Supermarkets will merge into Ralphs Supermarkets, Inc., which will assume all
of the liabilities of F4L Supermarkets, including the liabilities of F4L
Supermarkets hereunder.
The parties hereby agree as follows:
1. Definitions.
Capitalized terms used herein without definition shall have
the meanings set forth in the Subscription Agreement. As used in this
Agreement, the following capitalized terms shall have the following meanings:
Advice: As defined in the last paragraph of Section 7 hereof.
Business Day: A day that is not a Saturday, a Sunday or a day
on which banking institutions in New York, New York or Los Angeles, California
are not required to be open (a "Legal Holiday"). If a payment date is a Legal
Holiday, payment may be made on the next succeeding day that is not a Legal
Holiday, and no interest shall accrue for the intervening period.
Closing Date: The date of closing under the Subscription
Agreement.
Company: As defined in the preamble hereto.
Debentures: The 13-5/8% Senior Discount Debentures due 2005
being issued pursuant to the Indenture and sold pursuant to the Subscription
Agreement in an aggregate principal amount at maturity of $193,295,080, as the
Debentures may be amended or supplemented from time to time in accordance
1
<PAGE> 42
with the terms of the Indenture, and any debt securities issued in exchange or
substitution for the Debentures.
Effectiveness Period: As defined in Section 3(a).
Exchange Act: The Securities Exchange Act of 1934, as amended
from time to time.
F4L Supermarkets: As defined in the preamble hereto.
Holder or holder: Any Person that owns any Registrable
Securities.
Indenture: The Indenture dated as of June __, 1995 between
the Company and United States Trust Company of New York, as trustee, pursuant
to which the Debentures are being issued, as the same may be amended from time
to time in accordance with the terms thereof.
Initial Shelf Registration Statement: As defined in Section
3(a) hereof.
Lender: As defined in Section 12(e).
Liquidated Damages Amount Due: As defined in Section 4(b).
NASD: National Association of Securities Dealers, Inc.
90-Day Periods: As defined in Section 5(c).
Partnership: As defined in the preamble hereto.
Partnership Investor: As defined in the Subscription
Agreement.
Person: An individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
Prospectus: The prospectus included in the Shelf Registration
Statement, as amended or supplemented by any prospectus supplement with respect
to the terms of the offering of any portion of the Registrable Securities
covered by such Shelf Registration Statement and by all other amendments and
supplements to the prospectus, including post-effective amendments and all
material incorporated by reference in such prospectus.
2
<PAGE> 43
Registrable Securities: All Debentures originally issued or
contributed to the Partnership pursuant to the Subscription Agreement; provided
that a Debenture ceases to be a Registrable Security when it is no longer a
Transfer Restricted Security.
Registration Default: As defined in Section 4(a) hereof.
Registration Expenses: As defined in Section 8 hereof.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended from
time to time.
Shelf Registration Statement: The Initial Shelf Registration
Statement and any Subsequent Shelf Registration Statement, including the
Prospectus, amendments and supplements to any such Shelf Registration
Statement, any post-effective amendments, all exhibits and all material
incorporated by reference in any such Shelf Registration Statement.
Subscription Agreement: As defined in the preamble hereto.
Subsequent Shelf Registration Statement: As defined in
Section 3(b).
Transfer Restricted Securities: The Debentures until
distributed to the public pursuant to an effective registration statement or
distributed to the public pursuant to Rule 144 under the Securities Act;
provided that a security that has ceased to be a Transfer Restricted Security
cannot thereafter become a Transfer Restricted Security.
underwritten registration or underwritten offering: A
registration in which securities of the Company are sold to an underwriter for
reoffering to the public.
2. Legends.
Upon original issuance thereof, and until such time as the
same is no longer a Transfer Restricted Security, each certificate evidencing
the Debentures (and all securities issued in exchange therefor or substitution
thereof) shall bear a legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES
3
<PAGE> 44
ACT"), OR QUALIFIED UNDER STATE SECURITIES LAWS AND MAY NOT BE
TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
EXEMPTION FROM REGISTRATION UNDER THE ACT, AND IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE
HOLDER OF THIS SECURITY MAY BE REQUIRED TO DELIVER TO THE COMPANY, IF
THE COMPANY SO REQUESTS, A WRITTEN OPINION OF COUNSEL THAT SUCH
TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR OTHER DISPOSITION
IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF THE ACT AND THE RULES
AND REGULATIONS IN EFFECT THEREUNDER."
If the Partnership or any other Holder desires to offer, sell
or otherwise transfer, pledge or hypothecate all or any part of the Debentures
(other than pursuant to an effective registration statement under the
Securities Act), the Partnership or such other Holder shall deliver to the
Company, if the Company so requests, a written opinion of counsel (who may be
in-house or special counsel), reasonably satisfactory in form and substance to
the Company, that an exemption from the registration requirements of the
Securities Act is available.
3. Shelf Registration.
(a) Initial Shelf Registration Statement. The Company
has filed a "shelf" registration statement on Form S-1 (No. 33- _____) pursuant
to Rule 415 under the Securities Act (the "Initial Shelf Registration
Statement") relating to the resale by the Partnership of all the Transfer
Restricted Securities. The Initial Shelf Registration Statement was declared
effective by the SEC on _________, 1995 and the Indenture has been qualified
under the Trust Indenture Act. The Company agrees to use its best efforts to
keep the Initial Shelf Registration Statement continuously effective for a
period of three years following the Closing Date, as such period may be
extended pursuant to the terms of this Agreement or such shorter period (in
either case, the "Effectiveness Period") which will terminate (i) when all the
Registrable Securities covered by the Initial Shelf Registration Statement have
been sold pursuant thereto; or (ii) when a Subsequent Shelf Registration
Statement covering all of the Registrable Securities has been declared
effective under the Securities Act and all of the Registrable Securities have
been sold pursuant thereto.
(b) Subsequent Shelf Registration Statement. If the
Initial Shelf Registration Statement ceases to be effective for any reason at
any time during the Effectiveness Period (other than at the request of the
Company or because of the sale of
4
<PAGE> 45
all of the securities registered thereunder), the Company shall use its best
efforts to obtain the prompt withdrawal of any order suspending the
effectiveness thereof, and in any event shall within 30 days of such cessation
of effectiveness amend the Initial Shelf Registration Statement in a manner
reasonably expected to obtain the withdrawal of the order suspending the
effectiveness thereof, or file an additional registration statement pursuant to
Rule 415 covering all of the Registrable Securities (a "Subsequent Shelf
Registration Statement"). If a Subsequent Shelf Registration Statement is
filed, the Company shall use its best efforts to cause it to be declared
effective as soon as practicable after such filing and to keep it continuously
effective for a period equal to the Effectiveness Period less the aggregate
number of days during which the Initial Shelf Registration Statement or any
Subsequent Shelf Registration Statement was previously effective.
(c) Supplements and Amendments. The Company shall
supplement and amend any Initial or Subsequent Shelf Registration Statement if
required by the policies, rules, regulations or instructions applicable to the
registration form used by the Company, if required by the Securities Act, or if
reasonably requested by the Holders of a majority in aggregate principal amount
of the Registrable Securities covered by such Shelf Registration Statement or
by any underwriter of such Registrable Securities. The Company shall provide a
copy of all such supplements and amendments to each Holder, to the Partnership
and to each Partnership Investor.
4. Liquidated Damages.
(a) Each of the Company and the Partnership acknowledge
that the Holders of Registrable Securities will suffer damages if the
effectiveness of the Shelf Registration Statement is not maintained during the
Effectiveness Period. Accordingly, if (i) prior to the end of the
Effectiveness Period, the SEC shall have issued a stop order suspending the
effectiveness of the Shelf Registration Statement or the Shelf Registration
Statement shall cease to be effective or (ii) the Company notifies or is
required to notify the selling Holders of Registrable Securities pursuant to
Section 7(b)(6) (provided that there shall be excluded for purposes of this
clause (a)(ii): a notice under Section 7(b)(6) if (A) the Company has
delivered a supplemented or amended Prospectus contemplated by Section 7(k)
hereof or an Advice within ten Business Days after receipt of such notice or
after such requirement arises or (B) such notice under Section 7(b)(6) relates
solely to a transaction of the type described in Section 5(c) hereof) (any of
the events described in the foregoing clauses (i) or (ii) being referred to
herein as a "Registration Default"), then the Company hereby agrees to pay
liquidated damages to each Holder
5
<PAGE> 46
of Registrable Securities with respect to the first 30 Business Days
immediately following the occurrence of such Registration Default, in an amount
equal to $50 per Business Day per $1,000,000 principal amount of Registrable
Securities held by such Holder for each Business Day or portion thereof that
the Registration Default continues. The amount of the liquidated damages
thereafter shall increase to $75 per Business Day per $1,000,000 principal
amount of Registrable Securities until the cumulative number of Business Days
elapsed following such Registration Default is equal to 60, and the amount of
liquidated damages thereafter shall increase to $100 per Business Day per
$1,000,000 principal amount of Registrable Securities; provided, however, that
such liquidated damages will cease to accrue on the date on which (A) the
applicable Shelf Registration Statement is no longer subject to an order
suspending the effectiveness thereof or a new Subsequent Shelf Registration
Statement is declared effective, with respect to liquidated damages for the
failure to remain effective or (B) a notice issued, or required to be issued,
pursuant to Section 7(b)(6) is no longer effective or required to be effective
with respect to liquidated damages payable pursuant to clause (ii) above.
(b) The Company shall notify the Indenture trustee within
five Business Days after any Registration Default. The Company shall pay the
liquidated damages amount due on the Registrable Securities (the "Liquidated
Damages Amount Due") to the Partnership and any other Holder of Registrable
Securities, in sums sufficient to pay the Liquidated Damages Amount Due with
respect to the amount of Registrable Securities, if any, then held by the
Partnership and each such other Holder. The Liquidated Damages Amount Due
shall be payable on or prior to the fifth day of each calendar month with
respect to the preceding calendar month or that portion of the preceding
calendar month during which a Registration Default was in existence and
remained uncured, to the Persons who were registered Holders of Registrable
Securities at the close of business on the last day of the preceding calendar
month, by federal funds check mailed to such Holders' registered address or by
wire transfer of immediately available funds. Each obligation to pay
liquidated damages shall be deemed to accrue on the date of the Registration
Default. The parties hereto agree that the liquidated damages provided for in
this Section 4 constitute a reasonable estimate of the damages that may be
incurred by Holders of Registrable Securities by reason of the failure of a
Shelf Registration Statement to remain effective in accordance with this
Section 4.
All obligations of the Company set forth in the preceding
paragraph that are outstanding with respect to any Transfer Restricted Security
at the time such security ceases
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to be a Transfer Restricted Security shall survive (although such obligations
shall not continue to accrue) until such time as all such obligations with
respect to such security shall have been satisfied in full.
5. Hold-Back Agreements.
(a) Each Holder of Registrable Securities whose
Registrable Securities are covered by the Shelf Registration Statement agrees
not to (i) effect any public sale or distribution of the Debentures pursuant to
the Shelf Registration Statement or (ii) otherwise conduct marketing activities
with respect to the Debentures which marketing activities would impair or
interfere with the Company's or F4L Supermarkets' marketing activities with
respect to debt securities comprising any portion of the Financing, in either
case during the period commencing on the Acquisition Closing Date and ending on
the 60th day following the Acquisition Closing Date.
(b) Each Holder whose Transfer Restricted Securities are
covered by a Shelf Registration Statement agrees, if requested by the managing
underwriters in an underwritten offering of at least $50,000,000 accreted value
of Debentures, not to effect any public sale or distribution of the Debentures
or any other securities of any issue being registered or a similar security or
any securities convertible or exchangeable or exercisable for such securities
including a sale pursuant to Rule 144 or Rule 144A (except as part of such
underwritten registration), during the 10-day period prior to, and ending 30
days after, the closing date of each underwritten offering made pursuant to
such Shelf Registration Statement, to the extent timely notified in writing by
the Company or the managing underwriters.
(c) Each Holder agrees, upon a request of the Company made
after June 30, 1996 (which date shall be extended by each Business Day for
which liquidated damages are payable pursuant to Section 4 hereof) in writing
and delivered with at least five days' prior notice, not to effect any public
sale or distribution of the Debentures or otherwise conduct marketing
activities with respect to the Debentures for a period not to exceed 90 days
(the "90-Day Period") if the Company or any subsidiary of the Company proposes
to make a securities offering, material acquisition or engage in any other
material corporate transaction not in the ordinary course of business, if the
Board of Directors of the Company determines in good faith as evidenced by a
resolution of the Board of Directors that the continuation of public sales or a
distribution or other marketing activities would adversely affect the Company's
ability to complete such other transactions. Holders will be
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<PAGE> 48
subject to the requirements of this subparagraph only during the period
commencing on June 30, 1996 (as so extended, if applicable) and ending on the
last day of the Effectiveness Period, provided, however, that the Company shall
not be permitted to designate more than one such 90-Day Period and the
Effectiveness Period will be extended by such number of days equal to the
number of days the Holders were subject to the requirements of this
subparagraph.
(d) Subject to the Company's prior request to Holders
pursuant to Section 5(c), the Company agrees, unless otherwise consented to by
all general partners of the Partnership, or Holders of a majority in principal
amount of Registrable Securities (if other than the Partnership), not to effect
any public sale or distribution of securities, for its own account or for the
account of any securityholder, of any of the issue being registered or a
similar security issued by the Company or any Subsidiary, or any securities
convertible or exchangeable or exercisable for such securities (other than (i)
the Company's 13-5/8% Senior Subordinated Pay-In-Kind Debentures due 2007 (the
"PIK Debentures") sold for the account of (A) any holder thereof on or after
the 90th day following the Closing Date, pursuant to the terms of that certain
Registration Rights Agreement dated the Closing Date among the Company, F4L
Supermarkets and such holders, or (B) The Yucaipa Companies, or its affiliate
or designee, or The Edward J. DeBartolo Corporation, pursuant to the terms of
that certain Senior Subordinated Pay- In-Kind Debenture Put Agreement dated the
Closing Date, provided that the aggregate principal amount of PIK Debentures
sold under this clause (B) shall not exceed $10,000,000, and that any such sale
will be substantially contemporaneous with the closing under the Subscription
Agreement, and (ii) bank borrowings, obligations of the Company with respect to
trade debt and other debt incurred by the Company in the ordinary course of
business), during the Effectiveness Period (except as part of such underwritten
registration or pursuant to registrations on Forms S-4 or S-8 or any successor
form to such Forms).
6. Representations and Warranties of the Partnership,
the Company and F4L Supermarkets.
(a) The Partnership hereby represents and warrants to the
Company and F4L Supermarkets as follows:
(i) The Partnership is duly formed, validly existing
and in good standing under the laws of the State of Delaware. The
execution and delivery of this Agreement, the performance of the
Partnership's obligations hereunder, and the transactions contemplated
hereby have been duly authorized by all necessary
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<PAGE> 49
partnership action on the part of the Partnership. This Agreement has
been duly executed and delivered by the Partnership, and, assuming the
due execution hereof by each other party hereto, this Agreement
constitutes the legal, valid and binding obligation of the
Partnership, enforceable against the Partnership in accordance with
its terms, subject in each case to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws now or hereafter in effect
relating to or affecting creditors' rights generally and to general
equitable principles (regardless of whether enforcement is sought in
equity or at law); and
(ii) The Partnership is purchasing the Debentures for
its own account (or on behalf of managed accounts that are purchasing
for their own accounts), and with no intention or agreement or
understanding with any Person to distribute or resell said Debentures
or any part thereof or to participate in any such distribution or
resale in any transaction that would be in violation of the securities
laws of the United States of America or any state thereof, without
prejudice, however, to its right at all times to sell or otherwise
dispose of all or any part of said Debentures pursuant to an effective
registration statement under the Securities Act and applicable state
securities laws, or under an exemption from such registration
available under the Securities Act and other applicable state
securities laws and subject, nevertheless, to the disposition of
Debentures being at all times within the Partnership's control.
(b) Each of the Company and F4L Supermarkets hereby
represents and warrants to the Partnership as follows:
(i) Each of the Company and F4L Supermarkets is duly
incorporated, validly existing and in good standing under the laws of
its state of incorporation. The execution and delivery of this
Agreement, the performance of the Company's or F4L Supermarkets'
obligations hereunder and the transactions contemplated hereby have
been duly authorized by the board of directors of each of the Company
and F4L Supermarkets. This Agreement has been duly executed and
delivered by each of the Company and F4L Supermarkets, and, assuming
the due execution hereof by each other party hereto, this Agreement
constitutes the legal, valid and binding obligation of each of the
Company and F4L Supermarkets, enforceable against the Company and F4L
Supermarkets in accordance with its terms, subject in each case to
applicable bankruptcy, insolvency, reorganization, moratorium or other
laws now or hereafter in effect relating to or affecting creditors'
rights
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generally and to general equitable principles (regardless of whether
enforcement is sought in equity or at law).
7. Registration Procedures.
In connection with the Company's Shelf Registration Statement
obligations pursuant to Section 4 hereof, the Company will use its best efforts
to effect such registration to permit the sale of Registrable Securities in
accordance with the intended method or methods of distribution thereof, and
pursuant thereto and in connection therewith the Company will:
(a) prepare and file with the SEC such post-effective
amendments to the Shelf Registration Statement as may be necessary to keep the
Shelf Registration Statement effective during the Effectiveness Period; cause
the Prospectus to be supplemented by any required Prospectus supplement, and as
so supplemented to be filed pursuant to Rule 424 under the Securities Act;
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such Shelf Registration Statement
during the applicable period in accordance with the intended method or methods
of distribution by the sellers thereof set forth in such Shelf Registration
Statement or supplement to the Prospectus; and amend or supplement the Shelf
Registration Statement as necessary to reflect any changes in such intended
methods of distribution as to which the sellers from time to time may notify
the Company;
(b) notify the selling holders of Registrable Securities
and the managing underwriters, if any, promptly (but in any event within five
Business Days), and (if requested by any such Person) confirm such advice in
writing, (1) when any Prospectus supplement or post-effective amendment has
been filed, and, with respect to any post-effective amendment, when the same
has become effective, (2) of any request by the SEC for amendments or
supplements to the Shelf Registration Statement or the Prospectus or for
additional information, (3) of the issuance by the SEC of any stop order
suspending the effectiveness of the Shelf Registration Statement or the
initiation of any proceedings for that purpose, (4) if at any time when a
prospectus is required by the Securities Act to be delivered in connection
with sales of the Registrable Securities the representations and warranties of
the Company contained in any agreement contemplated by paragraph (o) below
cease to be true and correct in all material respects, (5) of the receipt by
the Company of any notification with respect to the suspension of the
qualification or exemption from qualification of the Registrable Securities for
sale in any jurisdiction or the initiation or threatening of any proceeding for
such purpose and (6) of the happening of any event (or the
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<PAGE> 51
passage of time) which makes any statement made in the Shelf Registration
Statement, the Prospectus or any document incorporated therein by reference
untrue in any material respect or which requires the making of any changes in
the Shelf Registration Statement, the Prospectus or any document incorporated
therein by reference so that, in the case of such Shelf Registration Statement,
it will not contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading, and that in the case of the Prospectus, it
will not contain any untrue statement of a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and so that in either
case such Shelf Registration Statement or Prospectus complies with all
applicable requirements of the Securities Act;
(c) use its best efforts to obtain the withdrawal of any
order suspending the effectiveness or the qualification or exemption from
qualification of the Shelf Registration Statement or the Registrable Securities
at the earliest possible moment;
(d) at least three Business Days prior to the filing of
the same with the SEC, furnish to each underwriter, if any, each Partnership
Investor and each of the selling Holders who beneficially own more than five
percent (in principal amount) of the outstanding Debentures, copies of any
Shelf Registration Statement or any Prospectus included therein or any
amendments or supplements to any such Shelf Registration Statement or
Prospectus (including, upon request, all documents incorporated by reference
into such Shelf Registration Statement), other than any amendment or supplement
which differs from the Shelf Registration Statement or Prospectus amended or
supplemented thereby only in that it contains additions to, or changes in, the
listing of Holders of Transfer Restricted Securities which are selling
securities thereunder, or contains updated financial statements and related
information (provided that copies of such amended or supplemented Shelf
Registration Statement or Prospectus shall be furnished to such selling Holders
of more than five percent (in principal amount) of the outstanding Debentures),
which documents will be subject to the review and comment of such Holders,
Partnership Investors and underwriter, if any, and make the Company's and F4L's
representatives available for discussion of such documents and other customary
due diligence matters; and the Company will not file any such Shelf
Registration Statement or Prospectus or any amendment or supplement to any such
Shelf Registration Statement or Prospectus (including all such documents
incorporated by reference) to which the Partnership Investors,
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the Holders of a majority in principal amount of the Registrable Securities or
the underwriter, if any, shall reasonably object within two Business Days after
the receipt thereof, except for such amendments or supplements which counsel
for the Company shall advise are required to be filed to comply with applicable
law. The objection of the Partnership Investors, the selling Holders or
underwriter, if any, shall be deemed reasonable if such Shelf Registration
Statement, amendment, Prospectus or supplement, as applicable, as proposed to
be filed, contains a material misstatement or omission or fails to comply with
the applicable requirements of the Securities Act. Notwithstanding anything to
the contrary contained herein, no Registration Default shall be deemed to have
occurred under Section 4(a)(ii) hereof if the Company has complied or been
prepared to comply with all deadlines set forth therein, but has been prevented
from filing any amendment or supplement solely because of a good faith
disagreement between the Company and the Partnership Investors, the Holders of
a majority in principal amount of the Registrable Securities or the
underwriter, if any, under this subsection (d) regarding the existence of a
material misstatement or omission or failure to comply with the Securities Act;
(e) if requested by the managing underwriter or
underwriters or the holders of a majority in aggregate principal amount of
Registrable Securities being sold, promptly incorporate in a Prospectus
supplement or post-effective amendment such information as the managing
underwriters or such holders request should be included therein relating to the
plan of distribution with respect to such Registrable Securities, including,
without limitation, information with respect to the principal amount of
Registrable Securities being sold to such underwriters or otherwise, the
purchase price being paid therefor by such underwriters or other persons and
with respect to any other terms of the underwritten (or non-underwritten)
offering of the Registrable Securities to be sold in such offering; and make
all required filings of such Prospectus supplement or post-effective amendment
as soon as practicable after receiving notification of the matters to be
incorporated in such Prospectus supplement or post-effective amendment;
provided, however, that the Company shall not be required to take any actions
under this Section 7(e) that are not, in the opinion of counsel for the
Company, in compliance with applicable law;
(f) furnish to each Partnership Investor and each selling
holder of Registrable Securities who so requests, and each managing
underwriter, if any, without charge, one conformed copy of the Shelf
Registration Statement and any post-effective amendment thereto, including
financial statements and schedules, and shall furnish only to the counsel
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<PAGE> 53
of such Persons, without change, one copy of all documents incorporated therein
by reference and all exhibits;
(g) deliver to each Partnership Investor, each selling
holder of Registrable Securities and the underwriter, if any, without charge,
as many copies of the Prospectus (including each preliminary prospectus) and
any amendment or supplement thereto as such Persons may reasonably request;
and, subject to the penultimate paragraph of this Section 7, the Company
consents to the use of the Prospectus or any amendment or supplement thereto by
each Partnership Investor, each of the selling holders of Registrable
Securities and the underwriters, if any, in connection with the offering and
sale of the Registrable Securities covered by the Prospectus or any amendment
or supplement thereto;
(h) prior to any public offering of Registrable
Securities, to use its best efforts to register or qualify or cooperate with
the selling holders of Registrable Securities, the underwriters, if any, and
their respective counsel in connection with the registration or qualification
(or exemption from such registration or qualification) of such Registrable
Securities for offer and sale under the securities or blue sky laws of such
jurisdictions as any selling holder or managing underwriter reasonably requests
in writing and use its best efforts to do any and all other acts or things
necessary or advisable to enable the disposition in such jurisdictions of the
Registrable Securities covered by the Shelf Registration Statement; provided
that the Company will not be required to qualify generally to do business in
any jurisdiction where it is not then so qualified or to take any action which
would subject it to general service of process in any such jurisdiction where
it is not then so subject;
(i) cooperate with the selling holders of Registrable
Securities and the managing underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold and not bearing any restrictive legends; and enable such Registrable
Securities to be in such denominations and registered in such names as the
selling holders or managing underwriters may request at least two business days
prior to any sale of Registrable Securities;
(j) use its best efforts to cause the Registrable
Securities covered by the applicable Shelf Registration Statement to be
registered with or approved by such other governmental agencies or authorities
within the United States as may be necessary to enable the seller or sellers
thereof or the underwriters, if any, to consummate the disposition of such
Registrable Securities except as may be required solely as a
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<PAGE> 54
consequence of the nature of such selling holder's business, in which case the
Company will cooperate in all reasonable respects with the filing of such Shelf
Registration Statement and the granting of such approvals;
(k) upon the occurrence of any event contemplated by
paragraph (b)(6) above, as promptly as practicable prepare a supplement or
post-effective amendment to the Shelf Registration Statement or the related
Prospectus or any document incorporated therein by reference or file any other
required document so that, as thereafter delivered to the purchasers of the
Registrable Securities, the Prospectus will not contain an untrue statement of
a material fact or omit to state any material fact necessary to make the
statements therein in light of the circumstances under which they were made,
not misleading, and otherwise will comply with all applicable requirements
under the Securities Act;
(l) cause all Registrable Securities covered by the Shelf
Registration Statement to be listed on each securities exchange on which
similar securities issued by the Company are then listed;
(m) cause the Registrable Securities covered by the Shelf
Registration Statement to be rated with the appropriate rating agencies, if so
requested by the holders of a majority in aggregate principal amount of such
Registrable Securities or the managing underwriters, if any;
(n) not later than the effective date of the Shelf
Registration Statement, provide a CUSIP number for all Registrable Securities
and provide the Indenture trustee with printed certificates for the Registrable
Securities which are in a form eligible for deposit with the Depository Trust
Company;
(o) in connection with any underwritten offering of
Registrable Securities pursuant to a Shelf Registration Statement, enter into
an underwriting agreement with one or more underwriters designated in
accordance with Section 11 hereof, such agreement to be of form, scope and
substance as is customary in underwritten offerings, and take all such other
actions as are reasonably requested by the managing underwriter in order to
expedite or facilitate the disposition of such Registrable Securities and in
such connection (1) make such representations and warranties to the
underwriters in form, substance and scope as are customarily made by issuers to
underwriters in primary underwritten offerings with respect to the business of
the Company and the Shelf Registration Statement; (2) obtain opinions of
counsel to the Company and updates thereof (which counsel and opinions (in
form, scope and
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<PAGE> 55
substance) shall be reasonably satisfactory to the managing underwriters
addressed to the underwriters covering the matters customarily covered in
opinions requested in underwritten offerings and such other matters as may be
reasonably requested by underwriters); (3) obtain "comfort" letters and updates
thereof from the Company's independent certified public accountants addressed
to the underwriters such letters to be in customary form and covering matters
of the type customarily covered in "cold comfort" letters by underwriters in
connection with primary underwritten offerings; (4) if an underwriting
agreement is entered into, the same shall set forth in full the indemnification
provisions and procedures of Section 9 hereof with respect to all parties to be
indemnified pursuant to said Section; and (5) the Company shall deliver such
documents and certificates as may be requested by the managing underwriters to
evidence compliance with clause (h) above and with any customary conditions
contained in the underwriting agreement or other agreement entered into by the
Company. The above shall be done at each closing under such underwriting or
similar agreement (subject to the Holders' agreement that the Company not be
required to assist in more than two such underwritings), as and to the extent
required thereunder, and if at any time the representations and warranties of
the Company contemplated in clause (o)(1) above cease to be true and correct,
the Company shall so advise the underwriter(s), if any, and each selling Holder
promptly and, if requested by such Persons, shall confirm such advice in
writing. Additionally, the opinions and "comfort" letters referred to in
clauses (2) and (3) above shall from time to time be obtained and delivered to
the Holders in connection with sales of Registrable Securities pursuant to the
Shelf Registration Statement, whether or not such sales are underwritten, upon
the reasonable request of the managing general partner of the Partnership, or
the Holders of a majority in principal amount of Registrable Securities (if
other than the Partnership), and in any event shall be obtained and delivered
upon cessation or waiver of the holdback period referred to in Section 5(a),
and shall be updated (i) in quarterly intervals thereafter or more frequently
as may be necessary in connection with any sale of Registrable Securities
having an accreted value of $20,000,000 or more, (ii) upon any change in the
managing general partner of the Partnership, and (iii) as necessary in
connection with any amendment or supplement to the Shelf Registration
Statement, provided that any such "comfort" letters shall be required to be
obtained, delivered or updated only to the extent permitted by, and in
accordance with, applicable requirements of the American Institute of Certified
Public Accountants;
(p) make available for inspection by a representative of
the holders of the Registrable Securities being sold (such representative to be
selected by the holders of a
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<PAGE> 56
majority in principal amount of the Registrable Securities being sold), any
underwriter participating in any disposition pursuant to such Shelf
Registration Statement, and any attorney or accountant retained by such
representative or underwriter, at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably requested by any
such representative, underwriter, attorney or accountant in connection with
such Shelf Registration Statement; provided that any records, information or
documents that are designated by the Company in writing as confidential at the
time of delivery of such information shall be kept confidential by such Persons
unless disclosure of such records, information or documents is required by
court or administrative order or such information has otherwise become public,
and without limiting the foregoing, no such information shall be used by such
Person as the basis for any market transactions in securities of the Company or
its subsidiaries in violation of law;
(q) otherwise use its best efforts to comply with all
applicable rules and regulations of the SEC, and make generally available to
its security holders, earnings statements satisfying the provisions of Section
11(a) of the Securities Act, no later than 45 days after the end of any
12-month period (or 90 days, if such period is a fiscal year) (1) commencing at
the end of any fiscal quarter in which Registrable Securities are sold to
underwriters in a firm or best efforts underwritten offering, or (2) if not
sold to underwriters in such an offering, beginning with the first month of the
Company's first fiscal quarter commencing after the effective date of the Shelf
Registration Statement, which statements shall cover said 12-month periods;
(r) cooperate with the trustee under the Indenture and
the holders of the Registrable Securities to effect such changes to the
Indenture as may be required for the Indenture to continue to be qualified in
accordance with the terms of the Trust Indenture Act and execute, and use its
best efforts to cause the trustee to execute, all documents as may be required
to effect such changes and all other forms and documents required to be filed
with the SEC to enable the Indenture to continue to be so qualified in a timely
manner;
(s) make its appropriate representatives of management
available, upon the reasonable request of the Holders of a majority of the
Registrable Securities, but in no event upon less than 30 days' notice (or 15
days' notice if at least 30 days' notice of a possible need to make management
available shall have been given), for a period not to exceed
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<PAGE> 57
five days for a road show in connection with the placement or underwritten
offering of the Registrable Securities; the Company will also make
representatives of management available for conference calls in connection with
any underwritten or non-underwritten public offering upon reasonable advance
notice; and
(t) use its best efforts to assist the Partnership in the
resale of the Debentures, including in addition to all of the foregoing, taking
such other actions as may in the reasonable opinion of the managing
underwriter, if any, or the managing general partner of the Partnership, be
necessary or appropriate to facilitate the resale of the Debentures.
The Company may require each seller of Registrable Securities
as to which any registration is being effected to furnish to the Company such
information regarding the distribution of such securities as the Company may
from time to time reasonably request in writing.
Each holder of Registrable Securities agrees by acquisition of
such Registrable Securities that, upon receipt of any notice from the Company
of the happening of any event of the kind described in Sections 7(b)(3),
7(b)(5) or 7(b)(6) hereof, such holder will forthwith discontinue disposition
of Registrable Securities pursuant to such Shelf Registration Statement until
such holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 7(k) hereof, or until it is advised in writing (the
"Advice") by the Company that the use of the applicable Prospectus may be
resumed, and has received copies of any additional or supplemental filings
which are incorporated by reference in the Prospectus, and, if so directed by
the Company, such holder will deliver to the Company (at the Company's expense)
all copies, other than permanent file copies then in such holder's possession,
of the Prospectus covering such Registrable Securities current at the time of
receipt of such notice. In the event the Company shall give any such notice,
the Effectiveness Period shall be extended by the number of days during the
period from and including the date of the giving of such notice to and
including the date when each seller of Registrable Securities covered by such
Shelf Registration Statement shall have received the copies of the supplemented
or amended prospectus contemplated by Section 7(k) hereof or the Advice.
8. Registration Expenses.
(a) All expenses incident to the Company's and F4L
Supermarkets' performance of or compliance with this Agreement, including
without limitation all registration and filing fees, fees and expenses
associated with filings required to be made
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with the NASD (including, if applicable, the fees and expenses of any
"qualified independent underwriter" and its counsel that may be required by the
rules and regulations of the NASD), fees and expenses of compliance with
securities or blue sky laws (including fees and disbursements of counsel for
the underwriters or selling holders in connection with blue sky qualifications
of the Registrable Securities and determination of their eligibility for
investment under the laws of such jurisdictions as the managing underwriters or
holders of a majority in aggregate principal amount of the Registrable
Securities being sold may designate), printing expenses (including expenses of
printing certificates for the Registrable Securities in a form eligible for
deposit with Depository Trust Company and of printing prospectuses), messenger,
telephone and delivery expenses, and fees and disbursements of counsel for the
Company and for the sellers of the Registrable Securities (subject to the
provisions of Section 8(b) hereof) and of all independent certified public
accountants of the Company (including the expenses of any special audit and
"cold comfort" letters required by or incident to such performance),
underwriters (including underwriting or brokers' or dealers' discounts,
commissions or mark-ups (or the equivalent); provided that such discounts,
commissions or mark-ups will be reimbursed only to the extent that the
aggregate net proceeds of resale are less than the accreted value of the
Debentures being resold by or through such underwriter, broker or dealer),
legal expenses of any Person other than the Company and the Holders, securities
acts liability insurance if the Company so desires and fees and expenses of
other Persons retained by the Company (all such expenses being herein called
"Registration Expenses") will be borne by the Company, regardless of whether
the Shelf Registration Statement becomes effective. The Company will, in any
event, pay its internal expenses (including, without limitation, all salaries
and expenses of its officers and employees performing legal or accounting
duties), the expense of any annual audit, the fees and expenses incurred in
connection with the listing of the securities to be registered on each
securities exchange on which similar securities issued by the Company are then
listed, rating agency fees and the fees and expenses of any Person, including
special experts, retained by the Company.
(b) In connection with the Shelf Registration Statement
hereunder, the Company will reimburse the holders of Registrable Securities
being registered in such registration for the reasonable fees and disbursements
of not more than one firm of counsel for all holders of Registrable Securities
chosen by the holders of a majority in principal amount of such Registrable
Securities or, if the holder of a majority in principal amount of such
Registrable Securities is the
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Partnership, by the holders of a majority of Partnership interests (excluding
interests held by affiliates of The Yucaipa Companies).
9. Indemnification.
(a) Indemnification by Company and F4L Supermarkets.
Each of the Company and F4L Supermarkets agrees to, jointly and severally,
indemnify and hold harmless, to the full extent permitted by law, each
Partnership Investor, each Holder of Registrable Securities and each Person who
controls each such Partnership Investor or Holder (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act), any
underwriters participating in the distribution, and the affiliates of each such
Person and their respective partners, members, representatives, agents,
officers, directors and employees, against all losses, claims, damages,
liabilities and reasonable expenses (including reasonable attorneys' fees (and,
any other expenses reasonably incurred by any underwriter or any such
controlling person in connection with defending or investigating any action or
claim)) arising out of or based upon any untrue or alleged untrue statement of
a material fact contained in the Shelf Registration Statement, Prospectus or
preliminary Prospectus or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same arise out of or are based
upon information furnished in writing to the Company or F4L Supermarkets by
such indemnified party or the related Holder of Registrable Securities
expressly for use therein; provided, however, that neither the Company nor F4L
Supermarkets shall be liable in any such case to the extent that any such loss,
claim, damage, liability or expense arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any such preliminary Prospectus if (a) such indemnified party or the related
Holder of Registrable Securities failed to deliver a copy of the Prospectus
with or prior to the delivery of written confirmation of the sale by such
Person to the Person asserting such loss, claim, damage, liability or expense
and (b) the Prospectus would have corrected such untrue statement or alleged
untrue statement or omission or alleged omission; and provided, further, that
neither the Company nor F4L Supermarkets shall be liable in any such case to
the extent that any such loss, claim, damage, liability or expense arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission in the Prospectus, if (a) such untrue statement or alleged
untrue statement, omission or alleged omission is corrected in an amendment or
supplement to the Prospectus delivered to the indemnified party prior to the
sale of Registrable Securities and (b) such indemnified party or the
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<PAGE> 60
related Holder of Registrable Securities thereafter failed to deliver such
Prospectus as so amended or supplemented prior to or concurrently with the sale
of the Registrable Securities to the Person asserting such loss, claim, damage,
liability or expense; and provided further, that neither the Company nor
F4L Supermarkets shall be liable in any such case to the extent that any such
loss, claim, damage, liability or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission in
the Prospectus, if (a) such untrue statement or alleged untrue statement,
omission or alleged omission is contained in a Prospectus or an amendment or
supplement thereto which is the subject of a notice delivered by the Company
pursuant to, and in accordance with, Sections 7(b)(3), 7(b)(5) or 7(b)(6), and
(b) to the extent that such losses arise out of a misstatement or omission in
the Prospectus resulting from the breach by such indemnified party or the
related Holder of Registrable Securities of the obligations of such indemnified
party or the related Holder of Registrable Securities contained in the
penultimate paragraph of Section 7.
(b) Indemnification by Holder of Registrable Securities.
In connection with each Shelf Registration Statement in which a Holder of
Registrable Securities is participating, an authorized officer of such Holder
of Registrable Securities will furnish to the Company in writing such
information and affidavits as the Company reasonably requests for use in
connection with any Shelf Registration Statement or Prospectus and each such
Holder agrees to indemnify and hold harmless, to the full extent permitted by
law, the Company and each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), any
underwriters participating in the distribution, and the affiliates of each such
Person and their respective partners, members, directors, officers and
employees, against all losses, claims, damages, liabilities and reasonable
expenses (including reasonable attorneys' fees) arising out of or based upon
any untrue or alleged untrue statement of a material fact or any omission or
alleged omission of a material fact required to be stated in the Shelf
Registration Statement or Prospectus or preliminary Prospectus or necessary to
make the statements therein not misleading, to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
so furnished in writing by such Holder to the Company specifically for use in
such Shelf Registration Statement or Prospectus. In no event shall the
liability of any selling Holder of Registrable Securities hereunder be greater
in amount than the dollar amount of the proceeds received by such Holder upon
the sale of the Registrable Securities giving rise to such indemnification
obligation. The Company shall be entitled to receive
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indemnities from underwriters, selling brokers, dealer managers and similar
securities industry professionals participating in the distribution, to the
same extent as provided above with respect to information so furnished in
writing by such Persons specifically for inclusion in any Prospectus or Shelf
Registration Statement.
(c) Conduct of Indemnification Proceedings. Any Person
entitled to indemnification hereunder will (i) give prompt notice to the
indemnifying party of any claim with respect to which it seeks indemnification
and (ii) permit such indemnifying party to assume the defense of such claim
with counsel reasonably satisfactory to the indemnified party; provided,
however, that any Person entitled to indemnification hereunder shall have the
right to employ separate counsel and to participate in the defense of such
claim, but the fees and expenses of such counsel shall be at the expense of
such Person unless (a) the indemnifying party has agreed to pay such fees or
expenses, or (b) the indemnifying party shall have failed to assume the defense
of such claim and employ counsel reasonably satisfactory to such Person or (c)
in the reasonable judgment of any such Person, based upon advice of its
counsel, a conflict of interest may exist between such Person and the
indemnifying party with respect to such claims (in which case, if the Person
notifies the indemnifying party in writing that such Person elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such claim on behalf of
such Person). If such defense is not assumed by the indemnifying party, the
indemnifying party will not be subject to any liability for any settlement made
without its consent (but such consent will not be unreasonably withheld). The
indemnifying party shall not be liable for any settlement of any proceeding
effected without its written consent, but if settled with such consent or if
there be a final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability by
reason of such settlement or judgment. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement of
any pending or threatened proceeding in respect of which any indemnified party
is a party and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject matter of
such proceeding. An indemnifying party who is not entitled to, or elects not
to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party a conflict of interest may exist between such
indemnified party and any other
21
<PAGE> 62
of such indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels.
(d) Contribution. If the indemnification provided for in
this Section 9 is unavailable to an indemnified party or is insufficient to
hold such indemnified party harmless for any losses in respect of which this
Section 9 would otherwise apply by its terms, then each applicable indemnifying
party, in lieu of indemnifying such indemnified party, shall have a joint and
several obligation to contribute to the amount paid or payable by such
indemnified party as a result of such losses, in such proportion as is
appropriate to reflect the relative fault of the indemnifying party, on the one
hand, and such indemnified party, on the other hand, in connection with the
actions, statements or omissions that resulted in such losses as well as any
other relevant equitable considerations. The relative fault of such
indemnifying party, on the one hand, and indemnified party, on the other hand,
shall be determined by reference to, among other things, whether any action in
question, including any untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact, has been taken by, or
relates to information supplied by, such indemnifying party or indemnified
party, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent any such action, statement or omission. The
amount paid or payable by a party as a result of any losses shall be deemed to
include any legal or other fees or expenses incurred by such party in
connection with any proceeding, to the extent such party would have been
indemnified for such expenses if the indemnification provided for in Section
9(a) or 9(b) was available to such party.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 9(d) were determined by pro
rata allocation or by any other method of allocation that does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. Notwithstanding the provision of this Section 9(d), an indemnifying
party that is a selling Holder of Registrable Securities shall not be required
to contribute any amount in excess of the amount by which the total price at
which the Registrable Securities sold by such indemnifying party and
distributed to the public were offered to the public exceeds the amount of any
damages that such indemnifying party has otherwise been required to pay by
reasons of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
22
<PAGE> 63
(e) The indemnity, contribution and expense reimbursement
obligations under this Section 9 shall be in addition to any liability each
indemnifying party may otherwise have; provided that any payment made by the
Company or F4L Supermarkets which results in the indemnified party receiving
from any source(s) indemnification, contribution or reimbursement for an amount
in excess of the actual loss, liability or expense incurred by such indemnified
party, shall be refunded to the Company or F4L Supermarkets, as the case may
be, by the indemnified party receiving such excess payment.
10. Rule 144.
The Company covenants that it will file the reports required
to be filed by it under the Securities Act and the Exchange Act and the rules
and regulations adopted by the SEC thereunder (as if the Company were subject
to the reporting requirements of Section 13 or Section 15(d) of the Exchange
Act whether or not it is so subject) and it will take such further action as
any holder of Registrable Securities may reasonably request, all to the extent
required from time to time to enable such holder to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144 under the Securities Act, as such Rule may
be amended from time to time, or (b) any similar rule or regulation hereafter
adopted by the SEC. Upon the request of any holder of Registrable Securities,
the Company will deliver to such holder a written statement as to whether it
has complied with such information and requirements.
11. Participation in Underwritten Registrations.
If any of the Registrable Securities covered by the Shelf
Registration Statement are to be sold in an underwritten offering, the
investment banker or investment bankers and manager or managers that will
administer the offering will be selected by the Partnership or by the Holders
(if other than the Partnership) of a majority in aggregate principal amount of
such Registrable Securities included in such offering; provided that such
investment bankers and managers must be reasonably satisfactory to the Company.
In the event any Holder proposes to sell Registrable
Securities covered by the Shelf Registration Statement in an underwritten
offering, it will so notify the Company and provide the Company with the
information to be included in the notice to be given by the Company hereinafter
set forth. Promptly (and in any event within two (2) Business Days) after
receipt of such notice, the Company will give written notice to each other
Holder of Registrable Securities of (i) the name of the proposing Holder, (ii)
the principal amount of Registrable
23
<PAGE> 64
Securities proposed to be sold by such proposing Holder, and (iii) the right of
each other Holder to elect to have all or a portion of the Registrable
Securities owned by such Holder included in such underwritten offering by
notifying the Company and the proposing Holder of such election (and specifying
the principal amount of Registrable Securities to be so included) within ten
(10) Business Days after receipt of such notice from the Company. A Holder
making such an election on a timely basis shall be entitled to have the
aggregate principal amount of Registrable Securities specified in such election
included in the underwritten offering; provided, however, that, if the managing
underwriter advises the participating Holders in writing that marketing factors
require a limitation of the principal amount of Registrable Securities to be
underwritten, the amount of Registrable Securities that may be included in the
underwriting shall be so limited and shall be allocated among the participating
Holders pro rata in accordance with the aggregate principal amount of
Registrable Securities proposed to be included in the underwritten offering by
the participating Holders.
No Person may participate in any underwritten registration
hereunder unless such Person (a) agrees to sell such Person's securities on the
basis provided in any underwriting arrangements approved by the Persons
entitled hereunder to approve such arrangements and (b) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements
and other documents required under the terms of such underwriting arrangements.
Nothing in this Section 11 shall be construed to create any additional rights
regarding the registration of Registrable Securities in any Person otherwise
than as set forth herein.
12. Miscellaneous.
(a) Remedies. Each Holder, in addition to being entitled
to exercise all rights provided herein, in the Indenture or granted by law,
including recovery of liquidated or other damages, will be entitled to specific
performance of its rights under this Agreement. The Company and F4L
Supermarkets agree that monetary damages (including the liquidated damages
contemplated hereby) would not be adequate compensation for any loss incurred
by reason of a breach by them of the provisions of this Agreement and hereby
agree to waive the defense in any action for specific performance that a remedy
at law would be adequate.
(b) No Inconsistent Agreements. The Company will not on
or after the date of this Agreement enter into any agreement with respect to
its securities which is inconsistent with the rights granted to the Holders of
Registrable
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<PAGE> 65
Securities in this Agreement or otherwise conflicts with the provisions hereof.
The Company has not previously entered into any agreement with respect to its
debt securities granting any registration rights to any Person, except as may
be disclosed in the Shelf Registration Statement filed prior to the date
hereof. The rights granted to the Holders of Registrable Securities hereunder
do not in any way conflict with and are not inconsistent with the rights
granted to the holders of the Company's securities under any such agreements.
The Company has not entered into, and will not enter into, any agreement with
respect to any of its securities that will grant to any Person any piggyback or
similar registration rights with respect to any Shelf Registration Statement.
(c) Amendments and Waivers. The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given unless the Company has obtained the written
consent of holders of at least a majority of the principal amount of the
outstanding Registrable Securities.
(d) Notices. All notices and other communications
provided for or permitted hereunder shall be made in writing by hand-delivery,
registered first-class mail, telex, telecopier, or air courier guaranteeing
overnight delivery:
(i) if to a holder of Registrable Securities, at the most
current address given by such holder to the Company in accordance with
the provisions of this Section 12(d), which address initially is, with
respect to the Partnership, RGC Partners, L.P., c/o Yucaipa RGC
L.L.C., 10000 Santa Monica Boulevard, Fifth Floor, Los Angeles,
California 90067, with a copy to Latham & Watkins, 633 West Fifth
Street, Suite 4000, Los Angeles, CA 90071, Attention: Thomas C.
Sadler, Esq., provided that if the Partnership is still a Holder of
Debentures on the 180th day following the date the Debentures are
issued under the Indenture, the Partnership address will be RGC
Investors, L.P., c/o FFL Investors L.L.C., Soros Fund Management, 888
Seventh Avenue, New York, New York 10016, with a copy to Akin, Gump,
Strauss, Hauer & Feld, L.L.P., 65 East 55th Street, 33rd Floor, New
York, New York 10022, Attention: Ed Sopher, Esq.
(ii) if to the Company, initially at its address set forth
in the Subscription Agreement and thereafter at such other address,
notice of which is given in accordance with the provisions of this
Section 12(d), with a copy to Latham & Watkins, 633 West Fifth Street,
Suite 4000, Los Angeles, CA 90071, Attention: Thomas C. Sadler, Esq.
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<PAGE> 66
All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; five
Business Days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt acknowledged, if telecopied; and
on the next Business Day if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands or other communications
shall be concurrently delivered by the Person giving the same to the trustee
under the Indenture at the address specified in the Indenture.
(e) Successors and Assigns. This Agreement shall inure
to the benefit of and be binding upon the successors and assigns of each of the
parties, including without limitation and without the need for an express
assignment, subsequent holders of Registrable Securities.
(f) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(g) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(h) Governing Law. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of New York.
(i) Severability. In the event that any one or more of
the provisions contained herein, or the application thereof in any
circumstance, is held invalid, illegal or unenforceable, the validity, legality
and enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
(j) Joint and Several Obligations. F4L Supermarkets will
have joint and several obligations for all of the obligations of the Company
hereunder.
(k) Entire Agreement. This Agreement is intended by the
parties as a final expression of their agreement and intended to be a complete
and exclusive statement of the agreement and understanding of the parties
hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein with respect to the
26
<PAGE> 67
registration rights granted by the Company with respect to the Debentures. This
Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
(l) Attorneys' Fees. In any action or proceeding brought
to enforce any provision of this Agreement, the successful party shall be
entitled to recover reasonable attorneys' fees in addition to its costs and
expenses and any other available remedy.
(m) Securities Held by the Company or Its Subsidiaries.
Whenever the consent or approval of Holders of a specified percentage of
Registrable Securities is required hereunder, Registrable Securities held by
the Company or its Subsidiaries shall not be counted in determining whether
such consent or approval was given by the Holders of such required percentage.
27
<PAGE> 68
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first written above.
FOOD 4 LESS HOLDINGS, INC.
By: ____________________________________
Title: _________________________________
FOOD 4 LESS SUPERMARKETS, INC.
By: ____________________________________
Title: _________________________________
RGC PARTNERS, L.P.
By: _______________________________________
Title: ____________________________________
28
<PAGE> 69
EXHIBIT D
OPINION OF LATHAM & WATKINS
1. The Partnership is duly organized and validly
existing as a limited partnership under the laws of the State of Delaware with
full partnership power and authority to own its properties and assets and to
conduct its business as proposed to be conducted.
2. Each of Holdings and Supermarkets has been duly
incorporated and is validly existing and in good standing under the laws of the
State of Delaware with full corporate power and authority to own its properties
and assets and to conduct its business as presently being conducted.
3. Each of Holdings and Supermarkets is duly qualified
to do business and is in good standing as a foreign corporation in the State of
California.
4. Each of the Partnership, Holdings and Supermarkets
has the partnership or corporate power to execute, deliver and perform its
obligations under each of the Partnership Documents to which it is a party.
5. Each of the Partnership, Holdings and Supermarkets
has duly executed and delivered each of the Partnership Documents to which it
is a party.
6. Each of the Partnership Documents has been duly
authorized by all necessary partnership or corporate action of each of the
Partnership, Holdings and Supermarkets, as applicable, has been duly executed
and delivered by each of the Partnership, Holdings and Supermarkets, as
applicable, and constitutes the legal, valid and binding obligation of each of
the Partnership, Holdings and Supermarkets, as applicable, enforceable against
each of the Partnership, Holdings and Supermarkets, as applicable, in
accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
affecting the enforcement of creditors' rights generally and by general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law), and subject to other customary exceptions and
qualifications.
7. The Debentures have been duly and validly authorized
by Holdings for issuance. The Debentures, when executed by Holdings and
authenticated by the trustee in accordance with the provisions of the
Indenture, and delivered to and paid for by the Partnership and those
Partnership Investors who will acquire Debentures on the Acquisition Closing
Date, in accordance with the terms of the Acquisition Documents pursuant to
which such Debentures will be issued, will have been duly executed, issued and
delivered and will constitute valid and legally binding obligations of Holdings
entitled to the benefits of the Indenture and
<PAGE> 70
enforceable against Holdings in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of
creditors' rights generally and by general principles of equity (regardless of
whether enforcement is sought in a proceeding in equity or at law), and subject
to other customary exceptions and qualifications.
8. Based solely, as to factual matters, upon the
representations and warranties of the Partnership Investors contained in
Article Four of the Subscription Agreement and on certificates from the
Managing General Partner and from an officer of Holdings, and without any
independent investigation of the accuracy of such representations, it is not
necessary to register the initial sale of the Partnership Interests to you by
the Partnership or the initial issuance of the Debentures by Holdings to the
Partnership or to the Partnership Investors, as applicable, under the
Securities Act of 1933, as amended.
9. The execution, delivery and performance by each of
the Partnership, Holdings and Supermarkets of each of the Partnership Documents
to which it is a party will not (i) conflict with or constitute a breach of or
default under (with due notice or passage of time or otherwise) any of the
agreements identified to us as material agreements of any such Person by an
officer of Holdings or Supermarkets or the Managing General Partner or court
orders of any such Person specifically directed to any such Person and
identified to us by an officer of Holdings or Supermarkets or the Managing
General Partner, or violate any law, statute or regulation applicable to the
Partnership, Holdings and Supermarkets, which conflict, breach, default or
violation could reasonably be expected to have a Material Adverse Effect, or
(ii) violate any provision of the Partnership Agreement or the Charter or
bylaws of Holdings or Supermarkets.
10. No consent, authorization or order of, or
registration or filing with, any governmental or public authority is required
on or prior to the date hereof in connection with the execution, delivery and
performance by any of the Partnership, Holdings or Supermarkets of the
Partnership Documents to which it is a party, or in connection with the offer,
sale and delivery of the Partnership Interests or the Debentures, except (i)
for such consents, authorizations, orders, registrations or filings as have
been made or secured on or prior to the date hereof or (ii) where the failure
to obtain such consents, authorizations, or orders, or to make such
registrations or filings, could reasonably be expected to have a Material
Adverse Effect.
11. To the best of our knowledge, there is no action,
suit, proceeding or investigation pending or threatened against or affecting
any of the Partnership, Holdings or Supermarkets 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
<PAGE> 71
challenge any of the Partnership Documents or the issuance, sale and delivery
of the Partnership Interests or the Debentures.
12. Annex I hereto contains our opinion with respect to
the status of the Partnership for federal income tax purposes.
<PAGE> 72
[LATHAM & WATKINS LETTERHEAD]
ANNEX I
June __, 1995
To the Partners of
RGC Partners, L.P.
Re: RGC Partners, L.P.
Dear Sir:
We have acted as counsel to RGC Partners, L.P., a Delaware
limited partnership (the "Partnership") in connection with the organization of
the Partnership. You have requested our opinion as to whether the Partnership
constitutes a partnership, rather than an association or a publicly traded
partnership taxable as a corporation, for federal income tax purposes. The
facts, representations, and assumptions as we understand them and upon which we
expressly rely with your permission in rendering the opinion contained herein,
are as follows.
The Partnership is a Delaware limited partnership, organized
pursuant to the provisions of the Delaware Revised Uniform Limited Partnership
Act (the "Act"). Yucaipa RGC L.L.C., a Delaware limited liability company
("Yucaipa") and FFL Investors, L.L.C., a Delaware limited liability company
("FFL Investors") are the general partners of the Partnership (Yucaipa and FFL
Investors are sometimes referred to herein as a "General Partner" or
collectively as the "General Partners").
In rendering this opinion we have reviewed and relied upon the
Limited Partnership Agreement dated as of June __, 1995 (the "Partnership
Agreement") and such other documents as in our judgment were necessary or
appropriate to enable us to render the opinion contained herein.
<PAGE> 73
LATHAM & WATKINS
To the Partners of RGC Partners, L.P.
June __, 1995
Page 2
We have assumed that (i) no person will stand ready to make a
market in interests in the Partnership; (ii) interests in the Partnership will
not be regularly quoted by persons such as brokers or dealers and (iii) holders
of interests in the Partnership will not have a readily available, regular and
ongoing opportunity to buy, sell or exchange such interests in a time frame and
with the regularity and continuity that a secondary market for interests in the
Partnership would provide. In addition, it has been represented to us that (i)
the Partnership will be operated in accordance with the terms of the
Partnership Agreement and the provisions of the Act; (ii) neither of the
General Partners is now, and neither of the General Partners intends to be a
mere dummy acting as agent or under control of the Partnership's limited
partners; (iii) the General Partners will at all times act independently of the
Partnership's other partners and will not be subject to individual or aggregate
partner influence or control, except as expressly provided by the Partnership
Agreement; (iv) interests in the Partnership will neither be listed nor traded
on an established securities market or exchange (including an over-the-counter
market); (v) no interests in the Partnership will be issued in a transaction
that is registered under the Securities Act of 1933; (vi) the partners of the
Partnership will not take any action which could cause the Partnership to have
more than 500 partners (including as partners those persons indirectly owning
an interest in the Partnership through a partnership, limited liability
company, S corporation, or grantor trust) and (vii) neither the General
Partners nor the Partnership will participate in or tacitly allow the
facilitation of public trading of interests in the Partnership. A copy of
these representations is appended hereto as Exhibit A and Exhibit B.
Based upon our review and analysis of the facts,
representations and assumptions recited or referred to above and existing
applicable law (including (i) the Internal Revenue Code of 1986, as amended
(the "Code"), (ii) the applicable Treasury Regulations thereunder (the
"Regulations"), (iii) judicial decisions and (iv) administrative rulings) ((i)
through (iv) hereinafter referred to collectively as the "Law"), it is our
opinion, for the reasons indicated below, that the Partnership will be treated
as a partnership, rather than an association or publicly traded partnership
taxable as a corporation, for federal income tax purposes.
1. Classification as a Partnership Rather than an Association
Regulations section 301.7701-2, which we believe to be
controlling, provides that a limited partnership will generally be classified
as a partnership for federal income tax purposes, and not as an association
taxable as a corporation, if it lacks at least two of the following four
corporate characteristics: (i) free transferability of interests; (ii)
continuity of life; (iii) centralization of management; and (iv) limited
liability. The Internal Revenue Service (the "Service") has indicated that it
will continue
<PAGE> 74
LATHAM & WATKINS
To the Partners of RGC Partners, L.P.
June __, 1995
Page 3
to recognize the test set forth in the Regulations as controlling in
determinations regarding the status of partnerships for federal income tax
purposes. See, e.g., Rev. Rul. 88-76, 1988-2 C.B. 360, Rev. Rul. 79-106,
1979-1 C.B. 448. As discussed below, we believe that the Partnership will
initially lack at least three of the enumerated corporate characteristics, and
is expected to continue to lack at least two of such characteristics.
(a) Free Transferability of Interests
The Regulations provide that an organization has the corporate
characteristic of free transferability of interests if each of its members or
those members owning "substantially all" of the interests in the organization
have the power, without the consent of other members, to substitute for
themselves in the same organization a person who is not a member of the
organization. Treas. Reg. Section 301.7701-2(e)(1). What constitutes
"substantially all" of the interests in an organization generally depends upon
the facts and circumstances and is not defined with reference to a particular
percentage. See e.g. Rev. Rul. 57-118, 1957-2 C.B.253, 254 (holding that what
constitutes substantially all of the properties of a corporation for purposes
of Section 368(a)(1)(C) of the Code depends upon the facts and circumstances
rather than any particular percentage). The Service has indicated, however,
that in interpreting "substantially all" for purposes of issuing a private
letter ruling, a partnership will generally be regarded as lacking free
transferability of interests if, throughout the life of the partnership, the
partnership agreement expressly restricts the transferability of interests
representing more than 20 percent of all interests in partnership capital,
income, gain, loss, deduction and credit. Rev. Proc. 92-33, 1992-1 C.B. 782.
The Regulations further provide that in order for this power of substitution to
exist in the corporate sense, the member must be able, without the consent of
other members, to confer upon his substitute all the attributes of his interest
in the organization. Treas. Reg. Section 301.7701-2(e)(1). Accordingly, the
Regulations provide that the corporate characteristic of free transferability
of interests does not exist in a case in which each member can, without the
consent of other members, assign only his right to share in profits but cannot
so assign his right to participate in the management of the organization. Id.
Section 7.1 of the Partnership Agreement provides that the
General Partners and the limited partners may, under certain circumstances,
transfer their interests in the Partnership without the consent of the other
partners. Section 7.3 of the Partnership Agreement provides, however, that
until such time as a transferee of a partnership interest is admitted to the
Partnership as a substitute limited Partner or a substitute general partner
pursuant to Section 7.6 or Section 7.7, as applicable, such transferee shall be
an assignee only and, as such, shall only shall receive, to the extent
transferred, the distributions and allocations of income, gain, loss,
deduction, credit or
<PAGE> 75
LATHAM & WATKINS
To the Partners of RGC Partners, L.P.
June __, 1995
Page 4
similar item to which the transferor Partner would be entitled, and shall not
be entitled or enabled to exercise any other rights or powers of a Partner
(such rights to remain with the transferring Partner). Section 7.7 provides
that no person, whether as an assignee of a General Partner's interest in the
Partnership or otherwise, shall become a general partner of the Partnership
without, among other things, the unanimous written consent of the other
Partners, which approval may be given or withheld by any such Partner in such
Partner's sole and absolute discretion. Section 7.6.1(a) provides that an
assignee of any interests of a limited partner or a General Partner shall not
become a substituted limited partner unless, among other things, the
non-transferring General Partners shall have consented to such substitution,
which consent may be given or withheld by the General Partners in their sole
and absolute discretion (or in the case of a transfer by a Partner that is the
sole general partner, non-transferring Partners holding a majority of the
Percentage Interests (as defined in the Partnership Agreement) held by such
non-transferring Partners consent in writing to such admission, which consents
may be given or withheld by such Partners in their sole and absolute
discretion).
Section 7.6.2 provides two limited exceptions to the
requirement that the General Partners consent to the substitution of a
transferee as a substitute limited partner. First, Section 7.1.3 provides that
the "Bank Holding Company Partners" (defined as BT Investments Partners, Inc.,
BT Securities Corporation, Bank of Montreal, and Banque Paribas, as well as any
transferee of such Bank Holding Company Partner's initial interest in the
Partnership) are permitted (without the consent of the General Partners) to
transfer their Bank Holding Company Interests (defined as the interests in the
Partnership initially issued to the three initial Bank Holding Company
Partners) to any person, to the extent required by law. Section 7.6.2(a)
permits any transferee of a Bank Holding Company Interest to be admitted as a
substitute limited partner without consent of the General Partners with respect
to their Bank Holding Company Interests. Second, Section 7.1.2 permits (i) The
Edward J. DeBartolo Corporation ("DeBartolo") and Camdev Properties, Inc.
("Camdev") to transfer their initial interests in the partnership to one or
more lenders, and (ii) Federated Department Stores, Inc. ("Federated") to
transfer its initial interest in the Partnership (collectively, with the
initial interests in the Partnership acquired by DeBartolo and Camdev, the
"Sale Date Interests") to an affiliate with respect to all or any portion of
the Sale Date Interest in the Partnership so acquired. The authority granted
to DeBartolo, Camdev, and Federated pursuant to Section 7.1.2 does not extend
to the transferees of such Partners. Pursuant to Section 7.6.2(b), the General
Partners have consented in advance to the admission as a substituted limited
partner of any transferee of DeBartolo, Camdev or Federated pursuant to Section
7.1.2. with respect to the Sale Date Interest so transferred.
<PAGE> 76
LATHAM & WATKINS
To the Partners of RGC Partners, L.P.
June __, 1995
Page 5
The special exceptions set forth in Section 7.6.2 are limited,
however, by Section 7.6.3 of the Partnership Agreement. The Bank Holding
Company Partners, DeBartolo, Camdev and Federated are referred to in the
Partnership Agreement as the "Special Agreement Partners." Pursuant to Section
7.6.3, the special exceptions provided in Section 7.6.2 are expressly limited
such that if, at any time, the Bank Holding Company Interests and the Sale Date
Interests held by the Special Agreement Partners constitute, in the aggregate,
more than a 70 percent interest in Partnership capital, or more than 70 percent
of the Percentage Interests of all Partners, then a portion of each Special
Agreement Partner's Bank Holding Company Interest or Sale Date Interest, as
applicable (such portion to be based upon the relative Percentage Interest of
such interest held by such Special Agreement Partner, as compared with the
aggregate Percentage Interests of such interests held by all Special Agreement
Partners) will become subject to the general rule set forth in Section 7.6.1,
such that the maximum interests in Partnership capital and the maximum
Percentage Interests that may be governed by Section 7.6.2 at any time, will
not exceed 70% of the total outstanding Partnership capital, and Percentage
Interest, respectively.
The Special Agreement Partners hold, in the aggregate, 30
percent of the Partnership's initial capital, and Percentage Interests of 30
percent. Therefore, at least initially, Section 7.6.1(a) and Section 7.7 of
the Partnership Agreement restrict the transferability (within the meaning of
Treasury Regulation Section 301.7701-2(e)(1)) of interests representing 70
percent of all interests in partnership capital, income, gain, loss, deduction
and credit, which is substantially more than the 20 percent restriction
required by Revenue Procedure 92-33.
Each Special Agreement Partner is a Class B Limited Partner,
with the exception of BT Investment Partners, Inc., which holds its 5 percent
interest in capital and Percentage Interests as a Class A Limited Partner.
Because the Partnership Agreement provides that the Class A Limited Partners
are entitled to a return of their capital contributions before distributions
may be made to the Class B Limited Partners, it is possible that, in the
future, the percentage of interests in partnership capital, income, gain, loss,
deduction and credit that are subject to the transferability restrictions of
Section 7.6.1(a) and Section 7.7 may be reduced. Nevertheless, the interests
held by the Special Agreement Partners as Class B Limited Partners constitute
only 62.5 percent of the total interests held by all Class B Limited Partners.
Therefore, even if the Class A Limited Partners had received a complete return
of all of their Partnership capital, a minimum of 37.5 percent of the interests
in partnership capital and profits will at all times be subject to the transfer
restrictions set forth in Section 7.6.1(a). Moreover, as described above, the
special exceptions set forth in Section 7.6.2 are expressly limited by Section
7.6.3 to interests constituting 70 percent of Partnership capital and
Percentage
<PAGE> 77
LATHAM & WATKINS
To the Partners of RGC Partners, L.P.
June __, 1995
Page 6
Interests. Therefore, under the express terms of the Partnership Agreement, a
minimum of 30 percent of the interests in partnership capital and Percentage
Interests will at all times be subject to the transfer restrictions set forth
in Section 7.6.1(a).
Because the ability of the General Partner and limited
partners to transfer their respective interests in the Partnership is
restricted as described above, and because the interests in Partnership
capital, income, deduction, and credits held by the Special Agreement Partners
will initially be, and will continue to be, less than 80 percent of the total
interests in the Partnership, we believe the Partnership will be viewed as
lacking the corporate characteristic of free transferability of interests.
(b) Continuity of Life
The Regulations provide that a limited partnership subject to
a statute corresponding to the ULPA lacks the corporate characteristic of
continuity of life. Treas. Reg. Section 301.7701-2(b)(3). The Service has
determined that the Act (as amended through August 1, 1990) corresponds to the
ULPA. See Rev. Rul. 95-2, 1995-1 I.R.B. 7 (January 3, 1995). There have been
no material amendments to the relevant provisions of the Act subsequent to
August 1, 1990.
The Service has indicated that the corporate characteristic of
continuity of life is lacking if, under local law and the partnership
agreement, the bankruptcy or removal of a general partner causes a dissolution
of the partnership, even if the remaining general partners or a majority in
interest of all remaining partners may agree to continue the partnership. Rev.
Proc. 92-35, 1992-1 C.B. 790. Similarly, the Regulations provide that, for
taxable years beginning on or after June 14, 1993, if the death, insanity,
bankruptcy, retirement, resignation, expulsion, or other event of withdrawal of
the general partner causes a dissolution of the partnership under local law,
then continuity of life does not exist notwithstanding the fact that a
dissolution may be avoided upon such an event of withdrawal of a general
partner by an agreement by the remaining general partners, or at least a
majority in interest of the remaining partners, to continue the partnership.
Treas. Reg. Section 301.7701-2(b)(1). The Service has determined that the
requirement in Treasury Regulation Section 301.7701- 2(b)(1) will be satisfied
if remaining partners owning (1) a majority of the profits interests
(determined and allocated based on any reasonable estimate of profits from the
date of the dissolution event to the projected termination of the partnership,
taking into account present and future allocations of profit under the
partnership agreement in effect as of the date of the dissolution event) and
(2) a majority of the capital interests owned by all the remaining partners
agree to continue the partnership. Rev. Proc. 94-46, 1994-28 I.R.B. (July 11,
1984).
<PAGE> 78
LATHAM & WATKINS
To the Partners of RGC Partners, L.P.
June __, 1995
Page 7
Section 8.2 of the Partnership Agreement provides that the
Partnership shall dissolve upon the occurrence of, among other things, the
death, dissolution, bankruptcy, withdrawal or removal of any General Partner,
unless (i) there remains in the Partnership one or more General Partners and
such General Partner(s) elect(s) to continue the business of the Partnership or
(ii) if there are no remaining General Partners, limited partners owning a
majority interest of both capital and profits (determined and allocated based
on any reasonable estimate of profits from the date of the dissolution event to
the projected termination of the partnership, taking into account present and
future allocations of profit under the partnership agreement in effect as of
the date of the dissolution event) of the Partnership agree in writing to
continue the business of the Partnership and to the appointment of a substitute
general partner within 90 days following the occurrence of any such event.
Accordingly, because the Partnership is subject to the Act, a statute that
corresponds to the ULPA, and because Section 8.2 of the Partnership Agreement
provides that the Partnership shall dissolve under the circumstances described
above, we believe the Partnership lacks the corporate characteristic of
continuity of life.
(c) Centralization of Management
The Regulations provide that an organization has the corporate
characteristic of centralized management if any group of persons that does not
include all the members of the organization has "continuing exclusive authority
to make the management decisions necessary to the conduct of the business."
Treas. Reg. Section 301.7701-2(c)(1). A limited partnership subject to a
statute corresponding to the ULPA generally does not possess the corporate
characteristic of centralized management. Treas. Reg. Section
301.7701-2(c)(4). The Regulations provide, however, that a limited partnership
subject to a statute corresponding to the ULPA ordinarily possesses centralized
management if "substantially all the interests in the partnership are owned by
the limited partners." Id. Similarly, such a limited partnership will possess
centralized management if the limited partners may remove a general partner,
unless such right is "substantially restricted." For purposes of determining
whether "substantially all the interests in the partnership are owned by the
limited partners," the Service generally will rule that substantially all such
interests are not owned by the limited partners (and therefore that the
partnership does not possess centralized management) where limited partnership
interests (excluding those held by general partners) do not exceed 80 percent
of the total interests in the partnership. Rev. Proc. 89-12, 1989-1 C.B. 798.
Here, the general partners will initially own, in the
aggregate, a 57.5 percent interest in the capital of the Partnership and a 57.5
percent Percentage Interest (as defined in the Partnership Agreement).
Furthermore, Section 7.4 of the Partnership
<PAGE> 79
LATHAM & WATKINS
To the Partners of RGC Partners, L.P.
June __, 1995
Page 8
Agreement provides that the general partner may not be removed by the limited
partners. Accordingly, as a result of these facts and because the Partnership
is subject to the Act, a statute that corresponds to the ULPA, we believe the
Partnership will initially lack the corporate characteristic of centralized
management.
The Partnership Agreement provides, however, that if and when
FFL Investors has received a return of its initial capital contributions from
the Partnership, its general partner interest in the Partnership will be
converted into a limited partner interest, and Yucaipa will become the sole
general partner of the Partnership. If and when this occurs, Yucaipa will own
less than a 20 percent interest in partnership capital, and will own only a
17.5 percent Percentage Interest (i.e., 1 percent as general partner, 9 percent
as a Class A Limited Partner and 7.5 percent as a Class B Limited Partner). As
a result, the Partnership may possess the corporate characteristic of
centralized management if and when the general partner interest held by FFL
Investors is converted into a limited partner interest.
(d) Limited Liability
The Regulations provide that, in the case of a limited
partnership subject to a statute corresponding to the ULPA, the corporate
characteristic of limited liability is not present unless the general partner
of the limited partnership (i) has no substantial assets (other than its
interest in the limited partnership) that may be reached by a creditor of the
limited partnership and (ii) is a mere "dummy" acting as the agent of the
limited partnership's limited partners. Treas. Reg. Section 301.7701- 2(d)(1)
& (2). Stated differently, the Regulations provide that limited liability is
absent if the general partner either has substantial assets or is not a dummy.
See Larson v. Commissioner, 66 T.C. 159, 179-80 (1976) acq., 1979-2 C.B. 1.
In Larson, the United States Tax Court held that a general partner will be
considered a "dummy" within the meaning of the foregoing Regulation if the
general partner is "totally under the control of the limited partners." 66
T.C. at 181.
Because the Partnership is subject to the Act, a statute that
corresponds to the ULPA, and assuming that neither of the General Partners are
a "dummy" for the limited partners (it has been represented to us that neither
of the General Partners is under the direct or indirect control of the limited
partners of the Partnership and that neither of the General Partners is acting
as the agent of the limited partners of the Partnership), the Partnership
should lack the corporate characteristic of limited liability. Nevertheless,
in light of the fact that the Partnership lacks the corporate characteristics
of free transferability of interests and continuity of life, it is unnecessary
for us to express an opinion as to whether the Partnership lacks the corporate
characteristic of limited liability.
<PAGE> 80
LATHAM & WATKINS
To the Partners of RGC Partners, L.P.
June __, 1995
Page 9
2. Classification as a Publicly Traded Partnership
Section 7704 of the Code provides that certain "publicly
traded partnerships" are considered corporations for federal income tax
purposes. Code Section 7704(a). A partnership is a "publicly traded
partnership" if (i) interests in the partnership are traded on an established
securities market, or (ii) interests in the partnership are readily tradable on
a secondary market (or the substantial equivalent thereof). Code Section
7704(b). As discussed below, we believe that the Partnership should not be
considered to be a "publicly traded partnership" within the meaning of section
7704 of the Code.
Neither the Code nor the Regulations define the terms "readily
tradable on a secondary market (or the substantial equivalent thereof)."
Nevertheless, the legislative history of the Omnibus Budget Reconciliation Act
of 1987, which enacted section 7704 of the Code, provides that "[a] secondary
market is generally indicated by the existence of a person standing ready to
make a market in the interest." H.R. Conf. Rep. No. 495, 100th Cong., 1st
Sess. 948, reprinted in 1987 U.S. Code Cong. & Admin. News 2313-1245,
2313-1694. In addition, Congress did not intend that partnership interests be
treated as readily tradable if (i) a market is publicly available, but offers
to buy or sell interests are normally not accepted in a time frame comparable
to that which would be available on a secondary market, or (ii) there are
occasional accommodation trades of partnership interests. Id.
The Service has identified certain "safe harbors" within which
it will not consider interests in a partnership to be "readily tradable."
I.R.S. Notice 88-75, 1988-2 C.B. 386. According to the Notice, the Service
will not consider interests in a partnership readily tradable on a secondary
market, or the substantial equivalent thereof, if (i) interests in the
partnership are not registered under the Securities Act of 1933 and (ii) the
partnership has 500 or fewer partners (including "indirect" ownership of
interests through a partnership, S corporation, or grantor trust) (the "Private
Placement Safe Harbor"). Id. Recently proposed Regulations, which are not yet
effective, would provide certain safe harbors that differ from (and generally
are more restrictive than) the safe harbors provided in Notice 88-75, including
the Private Placement Safe Harbor. See e.g. Prop. Treas. Reg. Section
1.7704-1(g). Such proposed Regulations are effective only for taxable years of
a partnership beginning on or after the date final Regulations are published in
the Federal Register. Prop. Treas. Reg. Section 1.7704-1(k). The Service has
announced that the provisions of Notice 88-75 will continue to apply until
such Regulations take effect. Notice 95-28 I.R.B. 1995-21 (May 22, 1995).
We are unable to predict when such Regulations will be finalized, nor are we
able to predict whether and to what extent the final Regulations will differ
from the proposed Regulations.
<PAGE> 81
LATHAM & WATKINS
To the Partners of RGC Partners, L.P.
June __, 1995
Page 10
Section 7.2(e) of the Partnership Agreement provides that any
transfer of an interest in the Partnership that would result in the Partnership
having more than 50 partners (directly or indirectly) will be null and void,
provided however that transfers by DeBartolo, Camdev, and Federated pursuant to
Section 7.1.2 are permitted so long as such transfers would not result in the
Partnership having more than 500 partners (directly or indirectly). Moreover,
it has been represented to us that (i) no interests in the Partnership will be
issued in a transaction that is registered under the Securities Act of 1933 and
(ii) the Partnership will never have more than 500 partners (directly or
indirectly). Therefore, the Partnership should meet the requirements for the
Private Placement Safe Harbor, as set forth in Notice 88-75. In addition,
Section 7.2(d) of the Partnership Agreement provides that any transfer of an
interest in the Partnership that would result in the Partnership becoming a
publicly traded partnership shall be null and void.
Because (i) interests in the Partnership will neither be
listed nor traded on an established securities market or exchange (including an
over-the-counter market), (ii) neither the General Partners nor the Partnership
will participate in or tacitly allow the facilitation of public trading of
interests in the Partnership, (iii) no person will stand ready to make a market
in interests in the Partnership, (iv) interests in the Partnership will not be
regularly quoted by persons such as brokers or dealers, (v) holders of
interests in the Partnership will not have a readily available, regular and
ongoing opportunity to buy, sell or exchange such interests in a time frame and
with the regularity and continuity that a secondary market for interests in the
Partnership would provide and (vi) it is expected that trading of the
Partnership's interests will fall within the Private Placement Safe Harbor, the
Partnership will not be considered a publicly traded partnership for purposes
of section 7704 of the Code.
We emphasize that the foregoing is based upon the Law as of
the date hereof and the facts, representations and assumptions recited or
referred to hereinabove, a change, variation or difference in any of which
could affect the conclusions stated herein.
<PAGE> 82
LATHAM & WATKINS
To the Partners of RGC Partners, L.P.
June __, 1995
Page 11
This opinion is rendered only to you and is solely for your
benefit in connection with the organization of the Partnership. This opinion
may not be relied upon by you for any other purpose, or furnished to, quoted to
or relied upon by any other person, firm or entity for any purpose without our
prior written consent, except that this opinion may be furnished or quoted to
your legal counsel and to judicial and regulatory authorities having
jurisdiction over you.
Very truly yours,
<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>
32 WEEKS ENDED 31 WEEKS ENDED
FEBRUARY 5, 1994 JANUARY 29, 1995
------------------ ------------------
FIXED FIXED FIXED
CHARGES EARNINGS CHARGES EARNINGS CHARGES
------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Loss before provision for income
taxes and extraordinary charges..... $ -- $(5,155) $ -- $(17,639) $ --
Add: Fixed charges:
Interest expense including
amortization of deferred financing
costs.............................. 77,017 47,563 47,563 48,631 48,631
Interest factor in rent expense(1)... 16,596 9,943 9,943 11,819 11,819
------- ------- ------- -------- -------
$93,613 $52,351 $57,506 $ 42,811 $60,450
======= ======= ======= ======== =======
Ratio of earnings to fixed charges... -- --
======= ========
Deficiency of earnings to cover
fixed charges...................... $ 5,155 $ 17,639
======= ========
</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>
32 WEEKS ENDED 31 WEEKS ENDED
1994 FEBRUARY 5, 1994 JANUARY 29, 1995
------- ------------------ ------------------
<S> <C> <C> <C>
Minimum rent......................... $49,788 $29,830 $35,458
Interest factor...................... /3 /3 /3
------- ------- -------
$16,596 $ 9,943 $11,819
======= ======= =======
</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, 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
June 1, 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
May 30, 1995
<PAGE> 1
EXHIBIT 23.3
CONSENT OF DIRECTOR NOMINEE
The undersigned hereby consents to the reference of the undersigned as a
director nominee of Food 4 Less Holdings Inc. (a Delaware corporation) (the
"Company") in the Company's Registration Statement on Form S-1.
/s/ BYRON E. ALLUMBAUGH
--------------------------------------
Byron E. Allumbaugh
<PAGE> 1
EXHIBIT 25.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
------------------------
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2)
------------------------
UNITED STATES TRUST COMPANY OF NEW YORK
(EXACT NAME OF TRUSTEE AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
NEW YORK 13-5459866
(JURISDICTION OF INCORPORATION OR (I.R.S. EMPLOYER
ORGANIZATION IF NOT A U.S. NATIONAL BANK) IDENTIFICATION NUMBER)
114 WEST 47TH STREET
NEW YORK, NEW YORK 10036-1532
(ADDRESS OF PRINCIPAL (ZIP CODE)
EXECUTIVE OFFICES)
</TABLE>
------------------------
FOOD 4 LESS HOLDINGS, INC., DELAWARE
(EXACT NAME OF OBLIGOR AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 33-0642810
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
777 SOUTH HARBOR BOULEVARD
LA HABRA, CALIFORNIA 90631
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
------------------------
13 5/8% SENIOR DISCOUNT DEBENTURES DUE 2005
(TITLE OF THE INDENTURE SECURITIES)
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<PAGE> 2
GENERAL
1. GENERAL INFORMATION
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System).
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 AND 15.
The Food 4 Less Holdings, Inc., Delaware is currently not in default under
any of its outstanding securities for which United States Trust Company of
New York is Trustee. Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9,
10, 11, 12, 13, 14 and 15 of Form T-1 are not required under General
Instruction B.
16. LIST OF EXHIBITS
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T-1.1 -- "Chapter 204, Laws of 1853, An Act to Incorporate the United States Trust
Company of New York, as Amended", is incorporated by reference to Exhibit
T-1.1 to Form T-1 filed on September 20, 1991 with the Securities and
Exchange Commission (the "Commission") pursuant to the Trust Indenture Act of
1939 (Registration No. 2221291).
T-1.2 -- The trustee was organized by a special act of the New York Legislature in
1853 prior to the time that the New York Banking Law was revised to require a
Certificate of authority to commence business. Accordingly, under New York
Banking Law, the Charter (Exhibit T-1.1) constitutes an equivalent of a
certificate of authority to commence business.
T-1.3 -- The authorization of the trustee to exercise corporate trust powers is
contained in the Charter (Exhibit T1.1).
T-1.4 -- The By-laws of the United States Trust Company of New York, as amended to
date, are incorporated by reference to Exhibit T-1.4 to Form T-1 filed on
September 20, 1991 with the Commission pursuant to the Trust Indenture Act of
1939 (Registration No. 2221291).
T-1.6 -- The consent of the trustee required by Section 321(b) of the Trust Indenture
Act of 1939, as amended by the Trust Indenture Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee published pursuant to
law or the requirements of its supervising or examining authority.
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NOTE
As of May 24, 1995, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U. S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States Trust
Company of New York and its parent company, U. S. Trust Corporation.
<PAGE> 3
In answering Item 2 in this statement of eligibility and qualification, as
to matters peculiarly within the knowledge of the obligor or its directors, the
trustee has relied upon information furnished to it by the obligor and will rely
on information to be furnished by the obligor and the trustee disclaims
responsibility for the accuracy or completeness of such information.
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Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, United States Trust Company of New York, a corporation organized and
existing under the laws of the State of New York, has duly caused this statement
of eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New York,
on the 24th day of May, 1995.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By:
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Assistant Vice President
<PAGE> 4
EXHIBIT T-1.6
THE CONSENT OF THE TRUSTEE REQUIRED BY SECTION 321 (B) OF THE ACT.
UNITED STATES TRUST COMPANY OF NEW YORK
114 WEST 47TH STREET
NEW YORK
NY 10036
March 31, 1992
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Gentlemen:
Pursuant to the provisions of Section 321 (b) of the Trust Indenture Act of
1939, as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
By: /s/ GERARD F. GANEY
-------------------------
Gerard F. Ganey
Senior Vice President
<PAGE> 5
EXHIBIT T-1.7
CONSOLIDATED REPORT OF CONDITION OF UNITED STATES TRUST COMPANY OF NEW YORK AND
FOREIGN AND DOMESTIC SUBSIDIARIES, A MEMBER OF THE FEDERAL RESERVE SYSTEM, AT
THE CLOSE OF BUSINESS ON MARCH 31, 1995, IN ACCORDANCE WITH A CALL MADE BY THE
FEDERAL RESERVE BANK OF THIS DISTRICT PURSUANT TO THE PROVISIONS OF THE FEDERAL
RESERVE ACT.
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<CAPTION>
DOLLAR AMOUNTS
IN THOUSANDS
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ASSETS
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Cash and balances due from depository institutions:
a. Noninterest bearing balances and currency and coin........................ $ 172,519
b. Interest bearing balances................................................. 50,000
Securities..................................................................... 538,152
Federal funds sold and securities purchased under agreements to resell......... 337,554
Loans............................................................... 1,270,262
LESS: Allowance credit losses....................................... 13,215
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Net Loans...................................................................... 1,257,047
Premises and Equipment......................................................... 103,800
Other assets................................................................... 120,886
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TOTAL ASSETS................................................................... $2,579,958
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LIABILITIES
Deposits....................................................................... $2,166,456
(1) Non interest bearing.......................................... 915,446
(2) Interest bearing.............................................. 1,251,010
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Federal funds purchased, securities sold under agreements to repurchase and
other borrowings............................................................. 107,583
Accounts Payable and Accrued Liabilities....................................... 99,004
Long Term Debt................................................................. 11,227
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TOTAL LIABILITIES.............................................................. $2,384,270
==========
EQUITY CAPITAL
Common Stock................................................................... $ 14,995
Capital Surplus................................................................ 41,500
Undivided profits and capital reserves......................................... 137,599
Net unrealized holding gains (losses) on available-for-sale securities......... 1,594
TOTAL EQUITY CAPITAL........................................................... $ 195,688
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TOTAL LIABILITY AND EQUITY CAPITAL............................................. $2,579,958
==========
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<PAGE> 6
I, RICHARD E. BRINKMANN, SENIOR VICE PRESIDENT & CONTROLLER, of the above-
named bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
RICHARD E. BRINKMANN, SVP & CONTROLLER
March 31, 1995
We, the undersigned directors, attest the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
H. MARSHALL SCHWARZ
JEFFREY S. MAURER
FREDERICK S. WONHAM Directors
