1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 28, 1995
REGISTRATION NO. 33-56445
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1
ON
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FOOD 4 LESS SUPERMARKETS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 5411 95-4222386
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
SUBSIDIARY REGISTRANTS
ALPHA BETA COMPANY CALIFORNIA 95-1456805
BAY AREA WAREHOUSE STORES, INC. CALIFORNIA 93-1087199
BELL MARKETS, INC. CALIFORNIA 94-1569281
CALA CO. DELAWARE 95-4200005
CALA FOODS, INC. CALIFORNIA 94-1342664
FALLEY'S, INC. KANSAS 48-0605992
FOOD 4 LESS OF CALIFORNIA, INC. CALIFORNIA 33-0293011
FOOD 4 LESS GM, INC. CALIFORNIA 95-4390407
FOOD 4 LESS MERCHANDISING, INC. CALIFORNIA 33-0483193
FOOD 4 LESS OF SOUTHERN CALIFORNIA, INC. DELAWARE 33-0483203
(EXACT NAME OF REGISTRANT AS (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
SPECIFIED IN ITS CHARTER) INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
777 SOUTH HARBOR BOULEVARD
LA HABRA, CALIFORNIA 90631
(714) 738-2000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANTS' PRINCIPAL EXECUTIVE OFFICES)
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MARK A. RESNIK, ESQ.
VICE PRESIDENT AND SECRETARY
FOOD 4 LESS SUPERMARKETS, 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)
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COPIES TO:
THOMAS C. SADLER, ESQ.
PAMELA B. KELLY, ESQ.
LATHAM & WATKINS
633 WEST FIFTH STREET
LOS ANGELES, CALIFORNIA 90071
(213) 485-1234
WILLIAM M. HARTNETT, ESQ.
CAHILL GORDON & REINDEL
80 PINE STREET
NEW YORK, NEW YORK 10005
(212) 701-3000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. /X/
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FOOD 4 LESS SUPERMARKETS, INC.
CROSS-REFERENCE SHEET
PURSUANT TO RULE 404(A) AND ITEM 501(B) OF REGULATION S-K
ITEM NO. FORM S-4 CAPTION PROSPECTUS CAPTION
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1. Forepart of the Registration Statement
and Outside Front Cover Page of
Prospectus............................... Facing Page; Cross Reference Sheet;
Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front Cover Page; Outside Back
Cover Page
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information............ Summary; Risk Factors; Business; Selected
Historical Financial Data of Food 4
Less
4. Terms of the Transaction................. The Exchange Offers and Solicitation;
Certain Federal Income Tax
Considerations; The Proposed
Amendments; Description of the New
Notes; Appendix A
5. Pro Forma Financial Information.......... Unaudited Pro Forma Combined Financial
Statements
6. Material Contracts with the Company Being
Acquired................................. *
7. Additional Information Required for
Reoffering by Person and Parties Deemed
to Be Underwriters....................... *
8. Interests of Named Experts and Counsel... Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. *
10. Information with Respect to S-3
Registrants.............................. *
11. Incorporation of Certain Information by
Reference................................ *
12. Information with Respect to S-2 or S-3
Registrants.............................. *
13. Incorporation of Certain Information by
Reference................................ *
14. Information with Respect to Registrants
Other than S-3 or S-2 Registrants........ Inside Front Cover Page; Summary; Pro
Forma Capitalization; Selected Historical
Financial Data of Food 4 Less;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Consolidated
Financial Statements of Food 4 Less
15. Information with Respect to S-3
Companies................................ *
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ITEM NO. FORM S-4 CAPTION PROSPECTUS CAPTION
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16. Information with Respect to S-2 or S-3
Companies................................ *
17. Information with Respect to Companies
Other than S-2 or S-3 Companies.......... *
18. Information If Proxies, Consents or
Authorizations Are to Be Solicited....... *
19. Information If Proxies, Consents or
Authorizations Are not to Be Solicited,
or in an Exchange Offer.................. Management; Executive Compensation;
Principal Stockholders; Certain
Relationships and Related Transactions
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* Inapplicable
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AMENDED AND RESTATED PROSPECTUS AND SOLICITATION STATEMENT
[LOGO] FOOD 4 LESS SUPERMARKETS, INC. [LOGO]
TO BE COMBINED THROUGH MERGER WITH
RALPHS GROCERY COMPANY
OFFERS TO EXCHANGE AND/OR PURCHASE AND SOLICITATION OF CONSENTS
WITH RESPECT TO THE
9% SENIOR SUBORDINATED NOTES DUE APRIL 1, 2003
AND THE
10 1/4% SENIOR SUBORDINATED NOTES DUE JULY 15, 2002
OF
RALPHS GROCERY COMPANY
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Food 4 Less Supermarkets, Inc. ("Food 4 Less") hereby amends and restates
its Prospectus and Solicitation Statement dated January 25, 1995 (the "Old
Prospectus") relating to its offers (as so amended and restated, the "Offers")
to holders of the 9% Senior Subordinated Notes due April 1, 2003 of Ralphs
Grocery Company ("RGC") (the "Old RGC 9% Notes") and the 10 1/4% Senior
Subordinated Notes due July 15, 2002 of RGC (the "Old RGC 10 1/4% Notes," and
together with the Old RGC 9% Notes, the "Old RGC Notes") (i) to exchange such
Old RGC Notes for new Senior Subordinated Notes due 2005 (the "New Notes") plus
a cash payment (the "Exchange Payment") and (ii) to purchase any or all of the
Old RGC Notes for cash, in each case as more fully described below. The Offers
are subject to the terms and conditions set forth in this Amended and Restated
Prospectus and Solicitation Statement and in the accompanying Consent and Letter
of Transmittal (the "Letter of Transmittal"). Holders of the Old RGC Notes may
choose to tender Old RGC Notes in the applicable Offer for New Notes, for cash,
or a combination of both, by completing the appropriate boxes on the Letter of
Transmittal.
FOR EACH $1,000
PRINCIPAL AMOUNT THE TENDERING HOLDER
OF: WILL RECEIVE:
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Old RGC 9% Either (i) $1,000 principal amount of New Notes and $20.00 in cash, or (ii)
Notes $1,010.00 in cash (the "9% Notes Cash Consideration"), in each case plus accrued and
unpaid interest to the date of exchange or purchase.
Old RGC 10 1/4% Either (i) $1,000 principal amount of New Notes and $20.00 in cash, or (ii)
Notes $1,010.00 in cash (the "10 1/4 Notes Cash Consideration" and, together with the 9%
Notes Cash Consideration, the "Cash Consideration"), in each case plus accrued and
unpaid interest to the date of exchange or purchase.
Concurrently with the Offers and the other financing transactions described
herein, Food 4 Less is offering up to $200 million principal amount of New Notes
(the "Subordinated Note Public Offering") and up to $295 million principal
amount of New F4L Senior Notes (as defined) (the "Senior Note Public Offering,"
and together with the Subordinated Note Public Offering, the "Public Offerings")
pursuant to registration under the Securities Act of 1933, as amended (the
"Securities Act"). The Subordinated Note Public Offering is expected to price
ten business days preceding the final Expiration Date (as defined) of the
Offers. The New Notes offered pursuant to the Offers will be part of the same
issue as the New Notes offered pursuant to the Subordinated Note Public Offering
and will bear interest at a fixed rate per annum equal to the greater of (a)
11.00% and (b) the Applicable Treasury Rate (as defined) plus 400 basis points
(4.00 percentage points); provided, however, that in no event will the New Notes
offered for exchange hereby bear interest at a rate per annum that is less than
the interest rate on the New Notes offered pursuant to the Subordinated Note
Public Offering.
THE OFFERS AND THE SOLICITATION (AS DEFINED) HAVE BEEN EXTENDED UNTIL AND
WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MAY 15, 1995, UNLESS
FURTHER EXTENDED (THE "EXPIRATION DATE"). CONSENTS MAY BE REVOKED AND TENDERS
MAY BE WITHDRAWN AT ANY TIME UNTIL SUCH TIME AS THE REQUISITE CONSENTS (AS
DEFINED) WITH RESPECT TO THE APPLICABLE ISSUE OF OLD RGC NOTES HAVE BEEN
RECEIVED AND THE SUPPLEMENTAL INDENTURE (AS DEFINED) FOR SUCH ISSUE HAS BEEN
EXECUTED. FOOD 4 LESS DOES NOT EXPECT TO COMMENCE THE PUBLIC OFFERINGS UNTIL
SUCH TIME AS THE MINIMUM EXCHANGE (AS DEFINED) HAS BEEN SATISFIED AND REQUISITE
CONSENTS HAVE BEEN RECEIVED. FOLLOWING THE PRICING OF THE SUBORDINATED NOTE
PUBLIC OFFERING, FOOD 4 LESS INTENDS TO FURTHER EXTEND THE EXPIRATION DATE TO A
DATE THAT IS TEN BUSINESS DAYS FOLLOWING THE PRICING THEREOF.
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SEE "RISK FACTORS" FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED
IN EVALUATING THE OFFERS AND THE SOLICITATION.
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The Dealer Managers for the Offers and the Solicitation are:
BT SECURITIES CORPORATION
CS FIRST BOSTON
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
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The date of this Amended and Restated Prospectus and Solicitation Statement is
May 2, 1995
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(cover page continued)
The Offers and the Solicitation are part of the financing required to
consummate the proposed merger (the "RSI Merger") of Food 4 Less with and into
Ralphs Supermarkets, Inc. ("RSI"). Immediately following the RSI Merger, RGC, a
wholly-owned subsidiary of RSI, will merge with and into RSI (the "RGC Merger,"
and together with the RSI Merger, the "Merger") and RSI will change its name to
Ralphs Grocery Company ("Ralphs Grocery Company" or the "Company"). As a result
of the Merger, the New Notes and any Old RGC Notes not exchanged or purchased in
the Offers will be the obligations of the Company.
Food 4 Less and its parent corporation Food 4 Less Holdings, Inc.
("Holdings") have revised certain terms and conditions of the Offers and certain
other elements of the financing required for the Merger since the date of the
Old Prospectus. As set forth in more detail in this Amended and Restated
Prospectus and Solicitation Statement, Food 4 Less and Holdings have:
(i) amended the terms of the offers to the holders of Old RGC Notes to
(A) increase the exchange payment from $10.00 to $20.00 for each $1,000
principal amount of Old RGC Notes accepted in exchange for New Notes, (B)
change the consideration offered by providing holders of Old RGC Notes the
option to tender all or any part of such Old RGC Notes for $1,010.00 in
cash for each $1,000 principal amount of Old RGC Notes accepted for
purchase, (C) revise the formula for establishing the interest rate on the
New Notes as set forth herein under "Description of the New Notes" and (D)
amend certain conditions of the Offers to decrease the amount of Old RGC
Notes required to be tendered for exchange from 80% to a majority in
principal amount of the Old RGC Notes;
(ii) terminated the consent solicitation with respect to the Discount
Notes (as defined) and commenced (A) the Holdings' offer to purchase
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) the solicitation of consents
to eliminate substantially all of the restrictive covenants in the Discount
Note Indenture (as defined);
(iii) amended the Merger Agreement (as defined) with respect to the
RSI Merger to (A) decrease the cash consideration to be paid to the
stockholders of RSI from $425 million to $375 million, (B) increase the
amount of 13 5/8% Senior Subordinated Pay-In-Kind Debentures due 2007 (the
"Seller Debentures") to be issued as part of the consideration to be paid
to the stockholders of RSI from $100 million principal amount to $131.5
million principal amount, (C) increase the interest rate on the Seller
Debentures from 13% per annum to 13 5/8% per annum and (D) provide for the
issuance of $18.5 million in initial accreted value of 13 5/8% Senior
Discount Debentures due 2005 (the "New Discount Debentures") of New
Holdings (as defined) as Merger consideration to the stockholders of RSI;
(iv) increased the size of Food 4 Less' public debt offering for cash
proceeds from an offering of $400 million principal amount of New F4L
Senior Notes (as defined) to a total offering of $495 million principal
amount of debt securities consisting of $295 million principal amount of
New F4L Senior Notes and $200 million principal amount of New Notes;
(v) amended the terms of the New Equity Investment (as defined) to
decrease the aggregate investment from $150 million to $140 million and to
provide that the liquidation preference and conversion ratio of the
convertible preferred stock issued pursuant to the New Equity Investment
will accrete at the rate of 7% per annum, compounded quarterly (and subject
to increase upon certain events), until the later of the fifth anniversary
of the issue date or the date the Company satisfies certain performance
criteria; and
(vi) committed to effect a placement (the "New Discount Debenture
Placement") of up to $100 million in initial accreted value of New Discount
Debentures, which includes the $18.5 million of New Discount Debentures to
be issued to the RSI stockholders, $22.5 million of New Discount Debentures
to be issued in satisfaction of fees otherwise payable by the Company and
New Holdings in connection with the Merger and the Financing and $59
million of New Discount Debentures to be issued for cash.
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In addition, since the date of the Old Prospectus Food 4 Less has filed with the
Securities and Exchange Commission (the "Commission") its quarterly report on
Form 10-Q for the 28 weeks ended January 7, 1995 and RGC has filed with the
Commission its annual report on Form 10-K for the 52 weeks ended January 29,
1995.
Consequently, Food 4 Less is amending and restating the Old Prospectus to
revise the description of the terms and conditions of the Offers and the other
financing transactions described above and to set forth updated quarterly
financial information of Food 4 Less, updated year-end financial information of
RGC and updated pro forma combined financial information.
Concurrently with the Offers, Food 4 Less is soliciting (the
"Solicitation") consents ("Consents") from holders of each of the Old RGC 9%
Notes (the "Old RGC 9% Noteholders") and the Old RGC 10 1/4% Notes (the "Old RGC
10 1/4% Noteholders," and together with the Old RGC 9% Noteholders, the "Old RGC
Noteholders") representing not less than a majority in aggregate principal
amount of each of the outstanding Old RGC 9% Notes and the Old RGC 10 1/4% Notes
held by persons other than RGC and its affiliates (the "Requisite Consents") to
certain amendments described herein (the "Proposed Amendments") to the
indentures under which the Old RGC Notes were issued (collectively, the "Old RGC
Indentures"). As of May 1, 1995, there was issued and outstanding $150 million
aggregate principal amount of the Old RGC 9% Notes and $300 million aggregate
principal amount of the Old RGC 10 1/4% Notes. HOLDERS OF OLD RGC NOTES WHO
DESIRE TO ACCEPT THE APPLICABLE OFFER MUST CONSENT TO THE PROPOSED AMENDMENTS.
The Proposed Amendments will only become operative upon consummation of the
Offers. The primary purpose of the Proposed Amendments is to permit the Merger
and to eliminate substantially all of the restrictive covenants in the Old RGC
Indentures.
As of the close of business on April 26, 1995, tenders and Consents for
$23,731,000 aggregate principal amount of Old RGC 9% Notes, representing over
15.8% of the aggregate outstanding principal amount of the Old RGC 9% Notes, and
tenders and Consents for $70,353,000 aggregate principal amount of Old RGC
10 1/4% Notes, representing over 23.4% of the aggregate outstanding principal
amount of Old RGC 10 1/4% Notes (collectively representing over 20.9% of the
aggregate outstanding principal amount of all Old RGC Notes), had been received.
Interest on the New Notes will be payable semi-annually on each May 15 and
November 15 commencing on November 15, 1995, at the rate set forth above. The
New Notes will mature on May 15, 2005. The New Notes will be redeemable, in
whole or in part, at the option of the Company, at any time after May 15, 2000,
at the redemption prices set forth herein, plus accrued and unpaid interest to
the redemption date. In addition, on or prior to May 15, 1998, the Company may,
at its option, use the net cash proceeds of one or more Public Equity Offerings
(as defined) to redeem up to an aggregate of 35% of the principal amount of the
New Notes originally issued, at a redemption price equal to 111.00% of the
principal amount thereof if redeemed during the 12 months commencing on May 15,
1995, 109.625% of the principal amount thereof if redeemed during the 12 months
commencing on May 15, 1996 and 108.25% of the principal amount thereof if
redeemed during the 12 months commencing on May 15, 1997, in each case plus
accrued and unpaid interest to the redemption date. In the event that the
interest rate on the New Notes is greater than 11.00%, the foregoing redemption
prices will be correspondingly adjusted. Upon a Change in Control (as defined),
each holder of New Notes will have the right to require the Company to
repurchase such holder's New Notes at a price equal to 101% of their principal
amount, plus accrued and unpaid interest to the date of repurchase. In addition,
subject to certain conditions, the Company will be obligated to make an offer to
repurchase the New Notes at 100% of their principal amount, plus accrued and
unpaid interest to the date of repurchase, with the net cash proceeds of certain
sales or other dispositions of assets. See "Description of the New Notes."
The New Notes will be senior subordinated unsecured obligations of the
Company and will be subordinated in right of payment to all Senior Indebtedness
(as defined) of the Company, including the Company's obligations under the New
Credit Facility (as defined) and the F4L Senior Notes. The New Notes will be
unconditionally guaranteed (the "Guarantees") on a senior subordinated basis by
each of the Company's wholly-owned subsidiaries (the "Subsidiary Guarantors").
At the time the New Notes are issued,
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the Subsidiary Guarantors will be Alpha Beta Company, Bay Area Warehouse Stores,
Inc., Bell Markets, Inc., Cala Co., Cala Foods, Inc., Falley's Inc., Food 4 Less
of California, Inc., Food 4 Less GM, Inc., Food 4 Less Merchandising, Inc. and
Food 4 Less of Southern California, Inc. The Guarantees will be released upon
the occurrence of certain events. See "Description of the New
Notes -- Guarantees." At January 7, 1995, on a pro forma basis after giving
effect to the Merger and the Financing (and certain related assumptions), the
aggregate outstanding amount of Senior Indebtedness (as defined) of the Company
(excluding Company guarantees of certain Guarantor Senior Indebtedness (as
defined)) would have been approximately $1,509.0 million and the aggregate
outstanding amount of Guarantor Senior Indebtedness of the Subsidiary Guarantors
(excluding guarantees by Subsidiary Guarantors of certain Senior Indebtedness of
the Company) would have been approximately $16.5 million and the Company would
have had $173.1 million available to be borrowed under the New Revolving
Facility (as defined).
Tendering holders will receive accrued and unpaid interest on Old RGC Notes
accepted for exchange or purchase up to, but not including, the date of such
exchange or purchase. Interest on the New Notes will accrue from, and including,
the date of such exchange, which will be the date of issuance of the New Notes.
If Food 4 Less shall decide to decrease the amount of Old RGC Notes being
sought in the Offers or to increase or decrease the consideration offered to the
Old RGC Noteholders, and if, at the time that notice of such increase or
decrease is first published, sent or given to Old RGC Noteholders in the manner
specified in this Amended and Restated Prospectus and Solicitation Statement,
such Offer is scheduled to expire at any time earlier than the expiration of a
period ending on the tenth Business Day from and including the date that such
notice is first so published, sent or given, such Offer will be extended for
such purposes until the expiration of such period of ten Business Days. As used
in this Amended and Restated Prospectus and Solicitation Statement, "Business
Day" has the meaning set forth in Rule 14d-1 (and applicable to Regulation 14E)
under the Securities Exchange Act of 1934, as amended (the "Exchange Act").
In addition to the Offers and the Solicitation, (i) Food 4 Less is (A)
offering up to $200 million principal amount of New Notes pursuant to the
Subordinated Note Public Offering (which will be part of the same issue as the
New Notes offered for exchange pursuant to the Offers), (B) offering up to $295
million principal amount of new Senior Notes due 2004 (the "New F4L Senior
Notes") pursuant to the Senior Note Public Offering, (C) 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 Note
Public Offering) plus $5.00 in cash for each $1,000 principal amount of Old F4L
Senior Notes exchanged and to holders of its 13.75% Senior Subordinated Notes
due 2001 (the "Old F4L Senior Subordinated Notes," and together with the Old F4L
Senior Notes, the "Old F4L Notes") to exchange such Old F4L Senior Subordinated
Notes for new 13.75% Senior Subordinated Notes due 2005 (the "New F4L Senior
Subordinated Notes," and together with the New F4L Senior Notes, the "New F4L
Notes") plus $20.00 in cash for each $1,000 principal amount of Old F4L Senior
Subordinated Notes exchanged and (D) soliciting consents from holders of the Old
F4L Notes to certain amendments to the indentures (collectively, the "Old F4L
Indentures"), under which the Old F4L Notes were issued (such transactions being
referred to herein collectively as the "F4L Exchange Offers") and (ii) 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 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").
Prior to the Merger, Holdings' parent corporation, Food 4 Less, Inc. ("FFL"),
will merge with and into Holdings, which will be the surviving corporation (the
"FFL Merger"). Immediately following the FFL Merger, Holdings will change its
jurisdiction of incorporation by merging into a newly-formed, wholly-owned
subsidiary incorporated in Delaware ("New Holdings"). See "The Merger and the
Financing," "Description of Holding Company Indebtedness" and "The F4L Exchange
Offers and the Public Offerings." The F4L Exchange Offers, the Public Offerings,
the Holdings Offer to Purchase and the New Discount Debenture Placement are
sometimes
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hereinafter referred to as the "Other Debt Financing Transactions." The New F4L
Senior Notes and any Old F4L Senior Notes not exchanged in the F4L Exchange
Offers are collectively referred to herein as the "F4L Senior Notes." The New
F4L Senior Subordinated Notes and any Old F4L Senior Subordinated Notes not
exchanged in the F4L Exchange Offers are collectively referred to herein as the
"F4L Senior Subordinated Notes."
Concurrently with the consummation of the Offers and the Other Debt
Financing Transactions, Food 4 Less and RGC intend to obtain new senior
financing (the "Bank Financing") pursuant to a senior bank facility of up to
$1,075 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 aggregate
principal amount of Seller Debentures and will issue $100 million in initial
accreted value of the New Discount Debentures in the New Discount Debenture
Placement. See "The Merger and the Financing."
Notwithstanding any other provision of the Offers or the Solicitation, 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) 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 Expiration Date (the "Minimum Exchange"), (ii) the receipt of the
Requisite Consents with respect to each of the Old RGC 9% Notes and the Old RGC
10 1/4% Notes on or prior to the Expiration Date, (iii) the satisfaction or
waiver, in Food 4 Less' sole discretion, of all conditions precedent to the RSI
Merger, (iv) the prior or contemporaneous successful completion of the Other
Debt Financing Transactions and (v) the prior or contemporaneous consummation of
the Bank Financing and the New Equity Investment. There can be no assurance that
such conditions will be satisfied or waived. For additional information
regarding other conditions to the consummation of the Offers, see "The Offers
and Solicitation -- Conditions."
Standard & Poor's Ratings Group ("Standard & Poor's") has publicly
announced that, upon consummation of the Merger, it intends to assign a new
rating to the Old RGC Notes. Such new rating assignment, if implemented, would
constitute a Rating Decline (as defined) under the Old RGC Indentures. The
consummation of the Merger (which is conditioned on, among other things,
successful consummation of the Offers, the Other Debt Financing Transactions,
the New Equity Investment and the Bank Financing) and the resulting change in
composition of the Board of Directors of RGC, together with the anticipated
Rating Decline would constitute a Change of Control Triggering Event (as
defined) under the Old RGC Indentures. Although Food 4 Less does not anticipate
that there will be a significant amount of Old RGC Notes outstanding following
consummation of the 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.
Although it has no obligation to do so, the Company reserves the right in
the future to seek to acquire Old RGC Notes not tendered in the Offers or the
Change of Control Offer by means of open market purchases, privately negotiated
acquisitions, subsequent exchange or tender offers, redemptions or otherwise, at
prices or on terms which may be higher or lower or more or less favorable than
those in the Offers or the Change of Control Offer.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS AMENDED AND RESTATED
PROSPECTUS AND SOLICITATION STATEMENT. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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THE OFFERS ARE NOT BEING MADE TO, AND NO CONSENTS ARE BEING SOLICITED FROM,
HOLDERS OF OLD RGC NOTES IN ANY JURISDICTION IN WHICH SUCH EXCHANGE
OFFERS OR THE ISSUANCE OF ANY SECURITY UPON ACCEPTANCE OF
TENDERS WOULD NOT BE IN COMPLIANCE WITH APPLICABLE STATE
SECURITIES OR BLUE SKY LAWS.
Investors in the New Notes in California will be able to transfer their New
Notes in California only to institutional investors (as defined under applicable
California securities laws, and subject to any conditions set forth therein) or
pursuant to another exemption under California securities laws. Such Investors
will be able to transfer their New Notes to persons outside California, provided
the transaction is effected through a broker-dealer registered in California and
complies with the securities laws of the state in which the New Notes will be
offered and sold.
The New Notes have not been registered under the securities laws of all
states. In certain jurisdictions in which the New Notes have been registered,
permits and orders issued in connection with such registrations typically expire
after a period of time and the securities may not be offered and sold by certain
holders without registration under the securities laws of such jurisdictions
unless an exemption is available under such securities laws.
Another form of the Letter of Transmittal is being circulated to holders of
Old RGC Notes with this Amended and Restated Prospectus and Solicitation
Statement. Holders may use such form or the form previously circulated to effect
valid tenders of Old RGC Notes for exchange for New Notes and valid deliveries
of Consents. However, to tender Old RGC Notes for cash, holders must use the
form of Letter of Transmittal circulated herewith. Any holder who previously has
validly tendered any Old RGC Notes or has delivered a valid Consent need not
take any further action to receive, subject to the terms and conditions of the
Offers, the New Notes and the Exchange Payment.
Any Old RGC Noteholder desiring to accept the applicable Offer should
either (i) complete and sign the Letter of Transmittal or facsimile thereof,
have his signature thereon guaranteed and forward the Letter of Transmittal with
the certificate(s) evidencing his Old RGC Notes and any other required documents
to the Exchange Agent (as defined), (ii) comply with the guaranteed delivery
procedures, (iii) tender such Old RGC Notes pursuant to the procedure for
book-entry transfer or (iv) request his broker, dealer, commercial bank, trust
company or other nominee to effect the transaction for him, in each case on or
prior to the Expiration Date. Old RGC Noteholders having Old RGC Notes
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee must contact such person if they desire to tender such Old RGC
Notes. HOLDERS OF OLD RGC NOTES WHO DESIRE TO ACCEPT THE APPLICABLE OFFER MUST
CONSENT TO THE PROPOSED AMENDMENTS. A HOLDER OF OLD RGC NOTES WHO DESIRES TO
TENDER INTO THE APPLICABLE OFFER WITH RESPECT TO ANY OLD RGC 9% NOTES OR OLD RGC
10 1/4% NOTES MUST TENDER ALL OF SUCH HOLDERS' OLD RGC 9% NOTES OR OLD RGC
10 1/4% NOTES, AS THE CASE MAY BE. See "The Offers and
Solicitation -- Procedures for Tendering and Consenting."
Questions and requests for assistance or for additional copies of this
Amended and Restated Prospectus and Solicitation Statement or the accompanying
Letter of Transmittal or any other required documents may be directed to the
Dealer Managers or the Information Agent at the addresses and telephone numbers
set forth on the back cover hereof.
This Amended and Restated Prospectus and Solicitation Statement, together
with the accompanying Letter of Transmittal, is being sent to holders of the Old
RGC Notes who are registered holders as of April 28, 1995.
vi
10
AVAILABLE INFORMATION
Food 4 Less has filed a Registration Statement on Form S-4 (the
"Registration Statement") with the Commission under the Securities Act with
respect to the New Notes. Each of Food 4 Less and RGC is subject to the
reporting and other informational requirements of the Exchange Act, and the
rules and regulations promulgated thereunder, and in accordance therewith files
reports and other information with the Commission. Such reports and other
information filed by Food 4 Less or RGC with the Commission can be inspected
without charge at the public reference facilities maintained by the Commission
at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at the
following regional offices of the Commission: New York Regional Office, 7 World
Trade Center, 13th Floor, New York, New York 10048; and Chicago Regional Office,
Suite 1400, Northwestern Atrium Center, 500 West Madison Street, Chicago,
Illinois 60601. Copies of such materials can also be obtained from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates.
In addition, whether or not it is required to do so by the rules and
regulations of the Commission, the Company will be obligated under the indenture
governing the New Notes (the "New Note Indenture") to file with the Commission
(i) all quarterly and annual financial information that would be required to be
contained in a filing with the Commission on Forms 10-Q and 10-K, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report thereon
by the Company's independent certified public accountants and (ii) all reports
that would be required to be filed with the Commission on Form 8-K. The Company
intends to furnish to each holder of New Notes, upon their request, annual
reports containing audited financial statements and quarterly reports containing
unaudited financial information for the first three quarters of each fiscal
year. Any such request should be directed to Jan Charles Gray, Senior Vice
President, General Counsel and Secretary of Ralphs Grocery Company at 1100 West
Artesia Boulevard, Compton, California 90220, telephone number (310) 884-4000.
This Amended and Restated Prospectus and Solicitation Statement summarizes
the contents and terms of documents not included herewith. These documents are
available upon request from, as applicable, Food 4 Less at 777 South Harbor
Blvd., La Habra, California 90631, telephone number (714) 738-2000, Attn: Linda
McLoughlin Figel, Investor Relations; RGC at 1100 West Artesia Blvd., Compton,
California 90220, telephone number (310) 884-4000, Attn: Jan Charles Gray, Esq.,
Senior Vice President, General Counsel and Secretary; or D.F. King & Co., Inc.
at the address and telephone number set forth on the back cover hereof. In order
to ensure timely delivery of the documents, any request for such documents
should be made at least five business days prior to the Expiration Date.
vii
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TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION................................................................. vii
SUMMARY............................................................................... 1
COMPARISON OF OLD RGC NOTES AND NEW NOTES............................................. 9
RISK FACTORS.......................................................................... 20
THE MERGER AND THE FINANCING.......................................................... 26
PRO FORMA CAPITALIZATION.............................................................. 30
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS..................................... 31
SELECTED HISTORICAL FINANCIAL DATA OF RALPHS.......................................... 39
SELECTED HISTORICAL FINANCIAL DATA OF FOOD 4 LESS..................................... 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 43
BUSINESS.............................................................................. 57
MANAGEMENT............................................................................ 71
EXECUTIVE COMPENSATION................................................................ 73
PRINCIPAL STOCKHOLDERS................................................................ 79
DESCRIPTION OF CAPITAL STOCK.......................................................... 80
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................ 83
THE OFFERS AND SOLICITATION........................................................... 87
DESCRIPTION OF THE NEW NOTES.......................................................... 102
MARKET PRICES OF THE OLD RGC NOTES.................................................... 130
THE PROPOSED AMENDMENTS............................................................... 130
THE F4L EXCHANGE OFFERS AND THE PUBLIC OFFERINGS...................................... 131
DESCRIPTION OF THE NEW CREDIT FACILITY................................................ 136
DESCRIPTION OF HOLDING COMPANY INDEBTEDNESS........................................... 138
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS............................................. 142
LEGAL MATTERS......................................................................... 147
EXPERTS............................................................................... 147
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
COMPARISON OF OLD RGC NOTES AND NEW NOTES............................................. A-1
viii
12
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 Amended
and Restated Prospectus and Solicitation Statement. Unless the context otherwise
requires, the terms "Food 4 Less" and "Ralphs," as used herein, refer to Food 4
Less and RSI and their consolidated subsidiaries, respectively, prior to the
consummation of the Merger. The "Company" refers to Ralphs Grocery Company as
the surviving and renamed corporation following the consummation of the Merger
and includes, unless the context otherwise requires, all of its consolidated
subsidiaries. As used herein, "Southern California" means Los Angeles, Orange,
Ventura, San Bernardino, Riverside and San Diego counties. Except as otherwise
stated, references in this Amended and Restated Prospectus and Solicitation
Statement to numbers of stores prior to the consummation of the Merger are as of
October 1, 1994. References to the "pro forma" number of stores to be operated
by the Company following the consummation of the Merger are based on October 1,
1994 totals, but give effect to certain anticipated store conversions,
divestitures and closings.
THE COMPANY
The combination of Ralphs Grocery Company and Food 4 Less Supermarkets,
Inc. will create the largest food retailer in Southern California. Pro forma for
the Merger, the Company will operate approximately 332 Southern California
stores with an estimated 26% market share among the area's supermarkets. The
Company will operate the second largest conventional supermarket chain in the
region under the "Ralphs" name and the largest warehouse supermarket chain under
the "Food 4 Less" name. In addition, the Company will operate approximately 24
conventional format stores and 39 warehouse format stores in Northern California
and the Midwest. Management believes that by the end of the fourth full year of
combined operations, approximately $90 million in net annual cost savings will
be achieved as a result of the Merger. Pro forma for the Merger, the Company
would have had sales of approximately $5.1 billion and $2.8 billion, operating
income of approximately $183 million and $90 million and EBITDA (as defined) of
approximately $343 million and $189 million for the 52 weeks ended June 25, 1994
and the 28 weeks ended January 7, 1995, respectively. Management believes the
Merger will enhance the growth and profitability of Ralphs and Food 4 Less by
providing the Company with the following benefits:
- - TWO LEADING COMPLEMENTARY FORMATS. The Company will operate its conventional
supermarkets in Southern California under the "Ralphs" name and all of its
price impact warehouse format stores in Southern California under the "Food 4
Less" name. Pro forma for the Merger and certain planned store conversions,
the Company will operate 264 Ralphs conventional format stores and 68 Food 4
Less warehouse format stores in the region. The Ralphs stores will continue to
emphasize a broad selection of merchandise, high quality fresh produce, meat
and seafood and service departments, including bakery and delicatessen
departments in most stores. The Company's conventional stores will also
benefit from Ralphs' strong private label program and its strengths in
merchandising, store operations and systems. Passing on format-related
efficiencies, the price impact warehouse format stores will continue to offer
consumers the lowest overall prices while providing product selections
comparable to conventional supermarkets. Management believes the Food 4 Less
warehouse format has demonstrated its appeal to a wide range of demographic
groups in Southern California and offers a significant opportunity for future
growth. The 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.
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The following anticipated savings are based on estimates and assumptions
made by the Company that are inherently uncertain, though considered reasonable
by the Company, and are subject to significant business, economic and
competitive uncertainties and contingencies, all of which are difficult to
predict and many of which are beyond the control of management. There can be no
assurance that such savings will be achieved. The sum of the components of the
estimated annual cost savings exceeds $90 million; however, management's
estimate of $90 million in net annual cost savings gives effect to an offsetting
adjustment to reflect its expectation that a portion of the savings will be
reinvested in the Company's operations. See "Risk Factors -- Ability to Achieve
Anticipated Cost Savings."
-- REDUCED ADVERTISING EXPENSES. Consolidating the conventional format stores
in Southern California under the "Ralphs" name will eliminate most of the
separate advertising associated with Food 4 Less' existing Alpha Beta, Boys
and Viva formats. Since Ralphs' current advertising program covers the
Southern California region, the Company will be able to advertise for all
of its Southern California stores under the existing Ralphs program.
Management estimates that there will be annual advertising cost savings of
approximately $28 million as compared to such costs for the pro forma
combined fiscal year ended June 25, 1994. Because of reductions in certain
advertising expenses that Food 4 Less has already begun to implement and
certain refinements in the post-Merger advertising plan, actual cost
savings related to advertising expenses are presently expected to be $19
million in the first full year of combined operations following the Merger
as compared to the current annualized costs.
-- REDUCED STORE OPERATIONS EXPENSE. Management expects to reduce store
operations costs as a result of both reduced labor and benefit costs and
reduced non-labor expenses. Store-level labor savings will be achieved when
Ralphs' labor scheduling, computerized record keeping and other advanced
store systems are applied to the Food 4 Less store base. In addition,
management believes that the adoption of Ralphs' store systems in non-labor
areas, such as energy management, safety programs and pooled supply
purchasing, will produce further annual cost savings. Management estimates
that annual store operations cost savings of approximately $21 million will
be achieved by the fourth full year of combined operations after certain
required capital expenditures are made.
-- INCREASED VOLUME PURCHASING EFFICIENCIES. The combined volume requirements
and leading market position of the Company should generally allow the
Company to obtain improved terms from vendors, including suppliers of
products carried on an exclusive or promoted basis, and to convert some
less-than-truckload shipping quantities to full truckload quantities.
Management estimates that annual purchasing cost savings of approximately
$19 million will be achieved by the second full year of combined
operations.
-- WAREHOUSING AND DISTRIBUTION EFFICIENCIES. Consolidating the Company's
warehousing and distribution operations into Ralphs' two primary facilities
located in Compton, California and in the Atwater district of Los Angeles
and Food 4 Less' primary facility located in La Habra, California will
result in lower outside storage, transportation and labor costs. In
addition, occupancy costs will be reduced as a result of the closure of
certain existing facilities. Management estimates that annual warehousing
and distribution cost savings of approximately $16 million will be achieved
by the third full year of combined operations after certain capital
expenditures on existing facilities are completed.
-- 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
2
14
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 Supermarkets, Inc. ("Food 4 Less"), Food
4 Less Holdings, Inc. ("Holdings"), and the parent company of Holdings, Food 4
Less, Inc. ("FFL"), entered into a definitive Agreement and Plan of Merger (the
"Merger Agreement") with Ralphs Supermarkets, Inc. ("RSI") and its stockholders.
Pursuant to the terms of the Merger Agreement, Food 4 Less will be merged with
and into RSI (the "RSI Merger"). Immediately following the RSI Merger, RGC,
which is currently a wholly-owned subsidiary of RSI, will merge with and into
RSI (the "RGC Merger," and together with the RSI Merger, the "Merger"), and RSI
will change its name to Ralphs Grocery Company ("Ralphs Grocery Company" or the
"Company"). Prior to the Merger, FFL will merge with and into Holdings, which
will be the surviving corporation (the "FFL Merger"). Immediately following the
FFL Merger, Holdings will change its jurisdiction of incorporation by merging
into a newly-formed, wholly-owned subsidiary ("New Holdings"), incorporated in
Delaware (the "Reincorporation Merger"). As a result of the Merger, the FFL
Merger and the Reincorporation Merger, the Company will become a wholly-owned
subsidiary of New Holdings. See "-- Corporate Structure." As a result of the RSI
Merger and the RGC Merger, the New Notes and any outstanding Old RGC Notes not
tendered in the Offers will be the obligations of the Company. Conditions to the
consummation of the RSI Merger include the receipt of regulatory approvals and
other necessary consents and the completion of financing. The purchase price for
RSI is approximately $1.5 billion, including the assumption of debt. The
consideration payable to the stockholders of RSI consists of $375 million in
cash, $131.5 million principal amount of the Seller Debentures and $18.5 million
initial accreted value of the New
3
15
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 currently contemplated, the Merger will be financed through the
following transactions (collectively, the "Financing"):
- Borrowings of up to $750 million aggregate principal amount pursuant to
the New Term Loans (as defined) under the New Credit Facility to be
provided by a syndicate of banks led by Bankers Trust Company ("Bankers
Trust"). The New Credit Facility will also provide for a $325 million
revolving credit facility (the "New Revolving Facility"), $12.7 million
of which is anticipated to be drawn at closing.
- The issuance of up to $295 million of New F4L Senior Notes pursuant to
the Senior Note Public Offering.
- The issuance of up to $200 million of New Notes pursuant to the
Subordinated Note Public Offering.
- The issuance of preferred stock in a private placement by New Holdings
to a group of investors (the "New Equity Investors") led by Apollo
Advisors, L.P. (on behalf of one or more managed entities) or its
affiliates and designees ("Apollo") and including affiliates of BT
Securities Corporation ("BT Securities"), CS First Boston Corporation
("CS First Boston") and Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") and other institutional investors, yielding cash
proceeds of $140 million pursuant to the New Equity Investment.
Concurrently with the New Equity Investment, the New Equity Investors
will purchase outstanding shares of New Holdings capital stock from a
stockholder of New Holdings for a purchase price of $57.8 million. See
"Description of Capital Stock -- New Equity Investment."
- The exchange by Food 4 Less pursuant to the F4L Exchange Offers of (a)
up to $175 million aggregate principal amount of the Old F4L Senior
Notes for up to $175 million aggregate principal amount of New F4L
Senior Notes plus $5.00 in cash per $1,000 principal amount exchanged
and (b) up to $145 million aggregate principal amount of the Old F4L
Senior Subordinated Notes for up to $145 million aggregate principal
amount of the New F4L Senior Subordinated Notes plus $20.00 in cash per
$1,000 principal amount exchanged, together with the solicitation of
consents from the holders of the Old F4L Notes to certain amendments to
the Old F4L Indentures. It is a condition to the F4L Exchange Offers
that at least 80% of the outstanding principal amount of the Old F4L
Notes are exchanged pursuant to the F4L Exchange Offers.
- The Offers made hereunder to holders of Old RGC Notes to tender for
exchange or purchase such Old RGC Notes, together with the solicitation
of consents from such holders to the Proposed Amendments to the Old RGC
Indentures.
- The purchase by New Holdings of approximately 48% of the outstanding
common stock of RSI for an aggregate consideration of $250 million,
consisting of $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 pursuant to the New Discount Debenture
Placement of $100 million initial accreted value of New Discount
Debentures to a partnership including Yucaipa, the selling stockholders
of Ralphs, an affiliate of George Soros, Apollo and an affiliate of each
of BT Securities, CS First Boston and DLJ. The $100 million initial
accreted value of New Discount Debentures includes (a) $18.5 million
that will be issued to the RSI stockholders, (b) $15 million, $5 million
and $2.5 million that will be issued to Yucaipa, BT Securities and
Apollo, respectively, in satisfaction of fees otherwise payable by the
Company and New Holdings in connection with the Merger and the Financing
and (c) $59 million that will be issued for cash to the partnership
described
4
16
above. The $41 million initial accreted value of New Discount Debentures
to be issued to the RSI stockholders, Apollo, BT Securities and Yucaipa
will be contributed to such partnership by the recipients thereof.
- The assumption by the Company, pursuant to the Merger, of approximately
$166.8 million of other indebtedness of RGC and Food 4 Less.
- The 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 each $1,000 principal amount (at maturity) of Discount
Notes (which, as of May 1, 1995 had an accreted value of $680.26 per
$1,000) accepted for purchase, together with the solicitation of
consents from the holders of the Discount Notes to certain amendments to
the Discount Note Indenture.
The following table illustrates the sources and uses of funds to consummate
the Merger, assuming the transaction occurs as of May 30, 1995. This
presentation assumes that $225.5 million principal amount of Old RGC Notes is
tendered into the Offers in exchange for New Notes (representing 50.1% of the
outstanding aggregate principal amount of Old RGC Notes), $224.5 million
principal amount of Old RGC Notes is tendered into the Offers for cash
(representing 49.9% of the outstanding aggregate principal amount of Old RGC
Notes), $256 million principal amount of Old F4L Notes is tendered into the F4L
Exchange Offers (representing 80% of the outstanding aggregate principal amount
of Old F4L Notes) and $103.6 million principal amount (at maturity) of Discount
Notes is tendered into the 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 Offers, the F4L Exchange Offers and the
Holdings Offer to Purchase.
For additional information regarding the Financing, see "The Merger and the
Financing."
SOURCES AND USES
(in millions)
CASH SOURCES CASH USES
- --------------------------------------------- ---------------------------------------------
New Term Loans(a)............... $ 750.0 Purchase RSI Common Stock(j)...... $ 375.9
New Revolving Facility(b)....... 12.7 Purchase Old RGC Notes(k)......... 226.8
New F4L Senior Notes(c)......... 295.0 Purchase Discount Notes........... 83.9
Repay Ralphs 1992 Credit
New Notes(d).................... 200.0 Agreement......................... 255.1
New Equity Investment(e)........ 140.0 Repay F4L Credit Agreement........ 161.5
New Discount Debentures(f)...... 59.0 Pay Accrued Interest(l)........... 29.3
EAR Related Payments(m)........... 22.8
Repay Mortgage Indebtedness(n).... 191.5
Fees and Expenses(o).............. 109.9
--------- ---------
Total Cash Sources........... $ 1,456.7 Total Cash Uses................... $ 1,456.7
======== ========
NON-CASH SOURCES NON-CASH USES
- --------------------------------------------- ---------------------------------------------
New F4L Senior Notes(g)........... $ 140.0 Old F4L Senior Notes Exchanged...... $ 140.0
Assumed Old F4L Senior Notes...... 35.0 Assumed Old F4L Senior Notes........ 35.0
New F4L Senior Subordinated Old F4L Senior Subordinated Notes
Notes.......................... 116.0 Exchanged........................... 116.0
Assumed Old F4L Senior Assumed Old F4L Senior Subordinated
Subordinated Notes............. 29.0 Notes............................... 29.0
New Notes(h)...................... 225.5 Old RGC Notes Exchanged............. 225.5
New Discount Debentures(f)........ 41.0 Fees and Expenses(o)................ 22.5
Assumed Capital Leases and Other Assumed Capital Leases and Other
Debt........................... 166.8 Debt................................ 166.8
Seller Debentures(i).............. 131.5 Purchase RSI Common Stock(i)........ 150.0
------- -------
Total Non-Cash Sources......... $ 884.8 Total Non-Cash Uses................. $ 884.8
======= =======
- ---------------
(a) Food 4 Less has accepted a commitment letter from Bankers Trust pursuant to
which Bankers Trust has agreed, subject to certain conditions, to provide
the Company up to a maximum aggregate amount of $1,075 million of financing
under the New Credit Facility. It is anticipated that the New Credit
Facility will be syndicated to a number of financial institutions for whom
Bankers Trust will act as agent. The New Credit Facility will provide for
(i) term loans in the aggregate amount of up to $750 million, comprised of
a $375 million tranche with a six year term (the
5
17
"Tranche A Loan"), a $125 million tranche with a seven year term (the
"Tranche B Loan"), a $125 million tranche with an eight year term (the
"Tranche C Loan"), and a $125 million tranche with a nine year term (the
"Tranche D Loan," and, together with the Tranche A Loan, Tranche B Loan and
Tranche C Loan, the "New Term Loans"); and (ii) a $325 million revolving
credit facility (the "New Revolving Facility"). The New Term Loans and the
New Revolving Facility are referred to collectively as the "New Credit
Facility." The Tranche A Loan may not be fully funded at the Closing Date.
The New Credit Facility will provide that the portion of the Tranche A Loan
not funded at the Closing Date will be available for a period of 91 days
following the Closing Date to fund the Change of Control Offer. See
"Description of the New Credit Facility."
(b) The New Revolving Facility will provide for a $325 million line of credit
which will be available for working capital requirements and general
corporate purposes. Up to $150 million of the New Revolving Facility may be
used to support standby letters of credit. The letters of credit will be
used to cover workers' compensation contingencies and for other purposes
permitted under the New Revolving Facility. The Company anticipates that
letters of credit for approximately $92.6 million will be issued under the
New Revolving Facility at closing, in replacement of existing letters of
credit, primarily to satisfy the State of California's requirements
relating to workers compensation self-insurance.
(c) Represents New F4L Senior Notes issued pursuant to the Senior Note Public
Offering. If Food 4 Less receives tenders in excess of the Minimum Exchange
in the Offers, Food 4 Less may elect to decrease the amount of New F4L
Senior Notes being offered pursuant to the Senior Note Public Offering.
(d) Represents New Notes issued pursuant to the Subordinated Note Public
Offering. If Food 4 Less receives tenders in excess of the Minimum Exchange
in the Offers, Food 4 Less may elect to decrease the amount of New Notes
offered pursuant to the Subordinated Note Public Offering. It is not
anticipated that the amount of New Notes offered pursuant to the
Subordinated Note Public Offering will be reduced below $100 million
principal amount.
(e) Does not include the $10 million equity contribution by Ralphs management.
See note (m) below. Concurrently with the New Equity Investment, certain
existing stockholders of New Holdings (formerly stockholders of FFL),
including affiliates of George Soros, will sell outstanding shares of New
Holdings stock to CLH Supermarket Corp. ("CLH"), a corporation owned by
certain Yucaipa partners, which in turn will sell such shares to the New
Equity Investors for an aggregate purchase price of $57.8 million (which
represents the same price per share as will be paid in the New Equity
Investment). In connection with the New Equity Investment, the New Equity
Investors will contribute the common stock so acquired to New Holdings in
consideration for newly-issued preferred shares. See "Description of
Capital Stock -- New Equity Investment."
(f) Represents $100 million initial accreted value of New Discount Debentures,
$59 million of which will be issued for cash, $18.5 million of which will
be issued to the RSI stockholders as Merger consideration and $15 million,
$5 million and $2.5 million of which will be issued to Yucaipa, BT
Securities and Apollo, respectively, in satisfaction of fees otherwise
payable by the Company and New Holdings in connection with the Merger and
the Financing.
(g) Represents New F4L Senior Notes issued pursuant to the F4L Exchange Offers,
which will be part of the same issue as the New F4L Senior Notes issued
pursuant to the Senior Note Public Offering.
(h) Represents New Notes issued pursuant to the Offers, which will be part of
the same issue as the New Notes issued pursuant to the Subordinated Note
Public Offering.
(i) In connection with the RSI Merger, New Holdings will issue $131.5 million
principal amount of the Seller Debentures as part of the purchase price for
the RSI common stock, up to $10 million of which may be put to Yucaipa on
the closing date of the Merger at a purchase price equal to their principal
amount pursuant to the Put Agreement (as defined). In addition, Yucaipa
will be reimbursed by the Company for (i) any losses incurred upon the
resale of the $10 million principal amount of Seller Debentures which may
be put to it pursuant to the Put Agreement and (ii) its expenses in
connection with the Merger and the related transactions. See "The Merger
and the Financing" and "Description of Holding Company 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
Offers. In addition, to the extent any Old RGC Notes remain outstanding
following consummation of the 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 Offers and the F4L Exchange 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."
(n) Represents the repayment of outstanding mortgage indebtedness of Ralphs in
the principal amount of $174.1 million, plus the estimated amount of the
prepayment fees payable with respect thereto.
(o) Includes advisory fees of $19 million to be paid to Yucaipa, other fees of
$5 million to be paid to BT Securities and commitment fees of $5 million to
be paid to Apollo, upon closing of the Merger. Of such amounts, $15 million
of Yucaipa's advisory fee, $2.5 million of Apollo's commitment fee and BT
Securities' $5 million fee will be paid through the issuance of New
Discount Debentures in lieu of cash. Such New Discount Debentures will be
contributed by them to the partnership that will acquire all of the New
Discount Debentures. Yucaipa anticipates that it in turn will pay a cash
fee of approximately $3.5 million to Soros Fund Management in consideration
for advisory services which Soros Fund Management has rendered since 1991.
See "Certain Relationships and Related Transactions -- Food 4 Less."
6
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CORPORATE STRUCTURE
The following tables illustrate (i) the corporate structures of Food 4 Less
and Ralphs immediately prior to the RSI Merger, the RGC Merger, the
Reincorporation Merger and the FFL Merger and (ii) the corporate structure of
the Company and its parent, New Holdings, and the anticipated outstanding
indebtedness of the Company and New Holdings immediately after such mergers.
Pursuant to the terms of the Merger Agreement, Food 4 Less will merge with and
into RSI and RSI will be the surviving corporation in the RSI Merger.
Immediately following the RSI Merger, RGC will merge with and into RSI and RSI
will be the surviving corporation in the RGC Merger and will change its name to
Ralphs Grocery Company. Prior to these transactions, FFL will merge with and
into Holdings, and Holdings (which will be the surviving corporation) will
reincorporate in Delaware as New Holdings.
BEFORE MERGER
[See Edgar Appendix]
7
19
AFTER MERGER, FFL MERGER AND REINCORPORATION MERGER
[See Edgar Appendix]
8
20
COMPARISON OF OLD RGC NOTES AND NEW NOTES
The following is a brief comparison of the principal features of the Old RGC
Notes and the New Notes. The terms of the New Notes differ from the current
(unamended) terms of the Old RGC Notes in certain significant respects including
those described below. The summary comparisons set forth below do not purport to
be complete and are qualified in their entirety by reference to "Description of
the New Notes" and the "Comparison of Old RGC Notes and New Notes" which is set
forth in Appendix A hereto, and the related definitions contained therein.
OLD RGC NOTES NEW NOTES
--------------------------------------------------- ---------------------------------------------------
Issuer RGC. The Company, as successor by merger to RGC.
Principal
Amount
Outstanding Old RGC 9% Notes: The up to $450 million principal amount of New
As of May 1, 1995, $150 million. Notes offered hereby will be part of an issue of up
Old RGC 10 1/4% Notes: to $650 million aggregate principal amount of New
As of May 1, 1995, $300 million. Notes, up to $200 million principal amount of which
will be issued pursuant to the Subordinated Note
Public Offering.
Interest Rate Old RGC 9% Notes: Concurrently with the Offers and the other
bear interest at the rate of 9% per annum. financing transactions described herein, Food 4
Less is offering up to $200 million principal
Old RGC 10 1/4% Notes: amount of New Notes pursuant to the Subordinated
bear interest at the rate of 10 1/4% per annum. Note Public Offering. The Subordinated Note Public
Offering is expected to price ten business days
preceding the final Expiration Date of the Offers.
The New Notes offered pursuant to the Offers will
bear interest at a fixed rate per annum equal to
the greater of (a) 11.00% and (b) the Applicable
Treasury Rate plus 400 basis points (4.00
percentage points); provided, however, that in no
event will the New Notes offered for exchange
hereby bear interest at a rate per annum that is
less than the interest rate on the New Notes
offered pursuant to the Subordinated Note Public
Offering.
Interest
Payment
Dates Old RGC 9% Notes: May 15 and November 15, commencing on November 15,
April 1 and October 1. 1995.
Old RGC 10 1/4% Notes:
January 15 and July 15.
Final
Maturity Date Old RGC 9% Notes: May 15, 2005.
April 1, 2003.
Old RGC 10 1/4% Notes:
July 15, 2002.
Optional
Redemption Old RGC 9% Notes: The New Notes will be redeemable at the option of
The Old RGC 9% Notes are subject to redemption in the Company, in whole or in part, at any time on or
whole or in part, at the option of RGC, at any after May 15, 2000, at the following redemption
time on or after April 1, 2000, at 100% of the prices if redeemed during the twelve-month period
principal amount thereof plus accrued and unpaid beginning May 15 of the years indicated below:
interest to the redemption date.
2000 ...................................104.125%
Old RGC 10 1/4% Notes: 2001 ...................................102.750%
The Old RGC 10 1/4% Notes are subject to redemption 2002 ...................................101.375%
in whole or in part, at the option of RGC, at any 2003 and thereafter......................100.000%
time on or after July 15, 1997, at the following
redemption prices if redeemed during the in each case plus accrued and unpaid interest to
twelve-month period beginning July 15, 1997 of the the redemption date. In the event that the interest
years indicated below: rate on the New Notes is greater than 11.00%, the
above redemption prices will be correspondingly
1997 ...................................105.0% adjusted.
1998 ...................................102.5%
1999 and thereafter......................100.0% In addition, on or prior to May 15, 1998, the
Company may, at its option, use the net cash from
in each case plus accrued and unpaid interest to one or more Public Equity Offerings to redeem up to
the redemption date. an aggregate of 35% of the principal amount of the
New Notes originally issued, at a redemption price
equal to 111.00% of the principal amount thereof if
redeemed during the 12 months commencing on May 15,
1995, 109.625% of the principal amount thereof if
redeemed during the 12 months commencing on May 15,
1996 and 108.25% of the principal amount thereof if
redeemed during the 12 months commencing on May 15,
1997, in each case plus accrued and unpaid
interest, to the redemption date. In the event that
the interest rate on the New Notes is greater than
11.00%, the above redemption prices will be
correspondingly adjusted.
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OLD RGC NOTES NEW NOTES
--------------------------------------------------- ---------------------------------------------------
Guarantees None. The New Notes will be guaranteed on a senior
subordinated basis by the Subsidiary Guarantors.
The Guarantees will be general unsecured
obligations of the Subsidiary Guarantors, and will
be released upon the occurrence of certain events.
See "Description of the New Notes -- Guarantees."
Ranking Subordinated to all Senior Indebtedness (as defined The New Notes will be senior subordinated unsecured
in the Old RGC Indentures) of RGC which, as of obligations of the Company and will be subordinated
January 29, 1995, was approximately $570 million. in right of payment to all Senior Indebtedness of
the Company, including the Company's obligations
under the New Credit Facility and the indebtedness
under the F4L Senior Notes. At January 7, 1995, on
a pro forma basis after giving effect to the Merger
and the Financing (and certain related
assumptions), the aggregate outstanding amount of
Senior Indebtedness of the Company (excluding
Company guarantees of certain Guarantor Senior
Indebtedness) would have been approximately
$1,509.0 million and the aggregate outstanding
amount of Guarantor Senior Indebtedness of the
Subsidiary Guarantors (excluding guarantees by
Subsidiary Guarantors of certain Senior
Indebtedness of the Company) would have been
approximately $16.5 million and the Company would
have had $173.1 million available to be borrowed
under the New Revolving Facility.
Change of
Control If a Change of Control Triggering Event (the The New Note Indenture will provide that if a
occurrence of both a Change of Control and a Rating Change of Control (as defined) occurs, each holder
Decline (both as defined)) occurs, each holder of will have the right to require the Company to
Old RGC Notes will have the right to require RGC to repurchase such holder's New Notes pursuant to a
repurchase such holder's Old RGC Notes at 101% of Change of Control Offer (as defined) at 101% of the
the principal amount thereof, plus accrued and principal amount thereof plus accrued and unpaid
unpaid interest to the date of repurchase. See interest to the date of repurchase.
"Appendix A -- Comparison of Old RGC Notes and New
Notes -- Change of Control." Standard & Poor's has The New Note Indenture will further provide that,
publicly announced that, upon consummation of the prior to making the Change of Control Offer, the
Merger, it intends to assign a new rating to the Company shall purchase all F4L Senior Notes (or
Old RGC Notes. Such new rating assignment, if permitted refinancings thereof) required to be
implemented, would constitute a Rating Decline purchased by reason of such Change of Control and
under the Old RGC Indentures. The consummation of either repay in full and terminate all commitments
the Merger (which is conditioned upon, among other under, or obtain requisite consents under, the New
things, successful consummation of the Offers, the Credit Facility (or any refinancings thereof).
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 and
the resulting 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 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.
Certain
Covenants The Old RGC Indentures contain certain covenants, The New Note Indenture will contain certain
including, but not limited to, covenants with covenants, including, but not limited to, covenants
respect to the following matters: (i) limitation on with respect to the following matters: (i)
incurrence of additional indebtedness; (ii) limitation on incurrence of additional
limitation on dividends and other restricted indebtedness; (ii) limitation on dividend and other
payments; (iii) limitation on transactions with restricted payments; (iii) limitation on
affiliates; (iv) limitation on liens securing transactions with affiliates; (iv) limitation on
subordinated indebtedness; (v) limitation on other liens; (v) limitation on other senior subordinated
senior subordinated indebtedness; (vi) limitation indebtedness; (vi) limitation on preferred stock of
on preferred stock of subsidiaries; (vii) subsidiaries; (vii) limitation on dividend and
limitation on dividend and other payment other payment restrictions affecting subsidiaries;
restrictions affecting subsidiaries; and (viii) (viii) limitation on mergers and certain other
limitation on mergers and sales of assets. transactions; (ix) limitation on asset sales; and
(x) limitation on guarantees of certain
indebtedness.
10
22
PURPOSE OF THE OFFERS AND CONSENT SOLICITATION
The Offers and the Solicitation, together with the other financing and
solicitation transactions described under "The Merger and the Financing," are
part of the transactions required to consummate the merger of Food 4 Less with
and into RSI. Immediately following the RSI Merger, RGC, a wholly-owned
subsidiary of RSI, will merge with and into RSI and RSI will change its name to
Ralphs Grocery Company.
As a result of the Merger, the New Notes and any Old RGC Notes not tendered
pursuant to the Offers, the F4L Senior Notes, the F4L Senior Subordinated Notes
and the indebtedness incurred pursuant to the New Credit Facility will become
the obligations of the Company. In connection with the consummation of the
Merger, Food 4 Less is making the Offers and the F4L Exchange Offers to (i)
extend the maturities of the existing debt securities of Food 4 Less and RGC by
exchanging such securities for new longer-term securities and (ii) establish
uniform covenants in the New F4L Notes and the New Notes in order to simplify
the capital structure of the Company. The Offers afford Old RGC Noteholders an
opportunity to elect to participate in the long-term capitalization of the
Company or receive a cash premium with respect to their Old RGC Notes.
Food 4 Less is also seeking Consents to the Proposed Amendments in the
Solicitation. The primary purpose of the Proposed Amendments is to permit the
consummation of the Merger and to eliminate substantially all of the restrictive
covenants in the Old RGC Indentures. See "The Proposed Amendments." If adopted
by holders of not less than a majority in aggregate principal amount of each of
the outstanding Old RGC 9% Notes and the outstanding Old RGC 10 1/4% Notes held
by persons other than RGC and its affiliates, the Proposed Amendments will
become effective immediately prior to the consummation of the Merger, upon Food
4 Less' acceptance of properly tendered Old RGC Notes for exchange or purchase
pursuant to the Offers.
THE OFFERS AND SOLICITATION
The Offers................. Food 4 Less is offering (A) to holders of the Old
RGC 9% Notes (i) to exchange for each $1,000
principal amount of Old RGC 9% Notes exchanged,
$1,000 principal amount of New Notes plus $20.00 in
cash and (ii) to purchase for $1,010.00 per $1,000
principal amount of Old RGC 9% Notes, any or all of
the Old RGC 9% Notes and (B) to holders of the Old
RGC 10 1/4% Notes (i) to exchange for each $1,000
principal amount of Old RGC 10 1/4% Notes
exchanged, $1,000 principal amount of New Notes
plus $20.00 in cash and (ii) to purchase for
$1,010.00 per $1,000 principal amount of Old RGC
10 1/4% Notes, any or all of the Old RGC 10 1/4%
Notes, in each case plus accrued and unpaid
interest to the date of exchange or purchase. Each
Offer constitutes a separate offer by Food 4 Less.
See "The Offers and Solicitation -- Terms of the
Offers." Holders of the Old RGC Notes may choose to
tender Old RGC Notes in the applicable Offer for
New Notes, cash, or both, by completing the
appropriate boxes on the Letter of Transmittal. See
"The Offers and Solicitation -- Procedures for
Tendering and Consenting."
Accrued Interest on the Old
RGC Notes................ Tendering holders will receive accrued interest on
Old RGC Notes accepted for exchange or purchase up
to, but not including, the date of such exchange or
purchase. Interest on the New Notes will accrue
from, and including, the date of such exchange,
which shall be the date of issuance of the New
Notes. Accrued interest on tendered Old RGC Notes
will be paid in cash to such tendering holders
promptly after consummation of the Offers. See "The
Offers and Solicitation -- Acceptance of Old RGC
Notes for Exchange or Purchase; Delivery of New
Notes and Payment of the Exchange Payment or Cash
Consideration."
11
23
Selection of Offer......... Holders of Old RGC Notes may choose to tender Old
RGC Notes in the applicable Offer in exchange for
New Notes, for purchase for cash or a combination
of both. Tendering holders must complete the Letter
of Transmittal and designate the aggregate
principal amount of Old RGC Notes to be tendered
pursuant to the applicable Offer in exchange for
New Notes or for purchase for cash in the table
entitled "Description of Old RGC Notes." See "The
Offers and Solicitation -- Procedures for Tendering
and Consenting."
The Solicitation........... Concurrently with the Offers, Food 4 Less is
soliciting Consents from each of the Old RGC 9%
Noteholders and the Old RGC 10 1/4% Noteholders
representing not less than a majority in aggregate
principal amount of each of the outstanding Old RGC
9% Notes and Old RGC 10 1/4% Notes held by persons
other than Food 4 Less and its affiliates to the
Proposed Amendments to the Old RGC Indentures. See
"The Proposed Amendments." HOLDERS OF OLD RGC NOTES
WHO DESIRE TO ACCEPT THE APPLICABLE OFFER MUST
CONSENT TO THE PROPOSED AMENDMENTS. HOLDERS DO NOT
HAVE THE OPTION TO CONSENT TO THE PROPOSED
AMENDMENTS WITHOUT TENDERING INTO THE APPLICABLE
OFFER. See "The Offers and
Solicitation -- Procedures for Tendering and
Consenting."
The Company and each of the Old Trustees (as
defined) will execute the Supplemental Indentures
implementing the Proposed Amendments to the Old RGC
Indentures after certification to each of the Old
Trustees that Food 4 Less has received the
Requisite Consents. The Proposed Amendments will
only become operative upon the execution of the
Supplemental Indenture and consummation of the
Offers. If the Proposed Amendments become
operative, the non-tendering holders of Old RGC
Notes will be bound thereby. All references herein
to the Offers shall be deemed to include the
Solicitation.
As of May 1, 1995, there was issued and outstanding
$150 million aggregate principal amount of Old RGC
9% Notes and $300 million aggregate principal
amount of Old RGC 10 1/4% Notes. See "The Offers
and Solicitation -- The Consent Solicitation."
Expiration Date............ The Offers and the Solicitation have been extended
until and will expire at 12:00 Midnight, New York
City time, on May 15, 1995, unless further extended
by Food 4 Less. Food 4 Less reserves the right to
further extend the Offers or the Solicitation at
its discretion, in which event the term "Expiration
Date" shall mean the latest time and date at which
such Offer or the Solicitation, as the case may be,
as so further extended by Food 4 Less, shall
expire. Food 4 Less does not expect to commence the
Public Offerings until such time as the Minimum
Exchange has been satisfied and Requisite Consents
have been received. Following the pricing of the
Subordinated Note Public Offering, Food 4 Less
intends to further extend the Expiration Date to a
date that is ten Business Days following the
pricing of the Public Offerings. See "The Offers
and Solicitation -- Expiration Date; Extensions;
Termination; Amendments."
Withdrawal Rights and
Revocation of Consents... Tenders of Old RGC Notes pursuant to the Offers may
be withdrawn and Consents may be revoked at any
time until such time as the Requisite Consents with
respect to the applicable issue of Old RGC
12
24
Notes have been received and the Supplemental
Indenture for such issue has been executed.
Thereafter, such tenders may be withdrawn and
Consents may be revoked if the Offer with respect
to such Old RGC Notes is terminated without any Old
RGC Notes being accepted for exchange or purchase
thereunder. Any valid revocation of Consents will
automatically constitute a withdrawal of the Old
RGC Notes to which such Consents relate. See "The
Offers and Solicitation -- Withdrawal of Tenders
and Revocation of Consents."
Conditions................. Notwithstanding any other provision of the Offers
or the Solicitation, 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 the
Minimum Exchange (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 Expiration Date), (ii) the receipt of
the Requisite Consents (i.e., Consents from Old RGC
Noteholders representing at least a majority in
aggregate principal amount of each of the
outstanding Old RGC 9% Notes and Old RGC 10 1/4%
Notes held by persons other than RGC and its
affiliates) on or prior to the Expiration Date,
(iii) satisfaction or waiver, in Food 4 Less' sole
discretion, of all conditions precedent to the RSI
Merger, (iv) the prior or contemporaneous
successful completion of the Other Debt Financing
Transactions and (v) the prior or contemporaneous
consummation of the Bank Financing and the New
Equity Investment. In addition, consummation of
each Offer is subject to the consummation of each
other Offer. There can be no assurance that such
conditions will be satisfied or waived. Food 4 Less
reserves the right to waive certain of the
conditions to either Offer and, subject to certain
limitations, to extend, terminate, cancel or
otherwise modify or amend either Offer in any
respect. See "The Offers and
Solicitation -- Conditions."
Procedures for Tendering
and Consenting............. Another form of the Letter of Transmittal is being
circulated to holders of Old RGC Notes with this
Amended and Restated Prospectus and Solicitation
Statement. Holders may use such form or the form
previously circulated to effect valid tenders of
Old RGC Notes for exchange for New Notes and valid
deliveries of Consents. However, to tender Old RGC
Notes for cash, holders must use the form of Letter
of Transmittal circulated herewith. Any holder who
previously has validly tendered any Old RGC Notes
for exchange or has delivered a valid Consent need
not take any further action to receive, subject to
the terms and conditions of the Offers, the New
Notes and the Exchange Payment. Any Old RGC
Noteholder desiring to accept the applicable Offer
should either (i) complete and sign the Letter of
Transmittal or facsimile thereof, have his
signature thereon guaranteed and forward the Letter
of Transmittal, together with the certificate(s)
evidencing his Old RGC Notes and any other required
documents, to the Exchange Agent, (ii) comply with
the guaranteed delivery procedures described under
the heading "The Offers and
Solicitation -- Guaranteed Delivery Procedure,"
(iii) tender such Old RGC Notes pursuant to the
procedure for book-entry transfer or (iv) request
his broker, dealer, commercial bank, trust company
or other nominee to effect the transaction for him,
in each case
13
25
prior to the Expiration Date. Old RGC Noteholders
having Old RGC Notes registered in the name of a
broker, dealer, commercial bank, trust company or
other nominee must contact such person if such
holder desires to tender such Old RGC Notes.
HOLDERS OF OLD RGC NOTES WHO DESIRE TO ACCEPT THE
APPLICABLE OFFER MUST CONSENT TO THE PROPOSED
AMENDMENTS. A HOLDER OF OLD RGC NOTES WHO DESIRES
TO TENDER INTO THE APPLICABLE OFFER WITH RESPECT TO
ANY OLD RGC 9% NOTES OR OLD RGC 10 1/4% NOTES MUST
TENDER ALL OF SUCH HOLDERS' OLD RGC 9% NOTES OR OLD
RGC 10 1/4% NOTES, AS THE CASE MAY BE. See "The
Offers and Solicitation -- Procedures for Tendering
and Consenting."
Delivery of New Notes and
Payment of the Exchange
Payment and Cash
Consideration............ Upon satisfaction or waiver of the conditions to
each of the Offers, Food 4 Less will accept all Old
RGC Notes which are properly tendered and not
withdrawn, and promptly following such acceptance,
the Company will issue, or cause to be issued, the
New Notes and will pay, or cause to be paid, the
Exchange Payment and/or the Cash Consideration, as
appropriate, in accordance with the instructions of
the tendering Old RGC Noteholder. See "The Offers
and Solicitation -- Acceptance of Old RGC Notes for
Exchange; Delivery of New Notes and Payment of the
Exchange Payment or Cash Consideration."
Certain Consequences to
Non-Tendering Old RGC
Noteholders.............. Consummation of the Offers and the effectiveness of
the Proposed Amendments may have adverse
consequences to non-tendering Old RGC Noteholders,
including that non-tendering holders of Old RGC
Notes will no longer be entitled to the benefit of
certain of the restrictive covenants currently
contained in the Old RGC Indentures and that the
reduced amount of outstanding Old RGC Notes as a
result of the Offers may adversely affect the
trading market, liquidity and market price of the
Old RGC Notes. If the Requisite Consents are
received and accepted, the Proposed Amendments will
be binding on all non-tendering Old RGC
Noteholders. See "Risk Factors -- Potential Adverse
Effects of the Offers and the Solicitation on
Holders of Untendered Old RGC Notes" and "-- Effect
of the Proposed Amendments on Holders That Do Not
Exchange."
No Appraisal Rights........ No appraisal rights are available to holders of Old
RGC Notes in connection with the Offers.
Certain Federal Income Tax
Considerations........... Holders of Old RGC Notes who exchange Old RGC Notes
for New Notes and the Exchange Payment (and, if
applicable, Cash Consideration) should recognize
gain, but not loss, for federal income tax purposes
equal to the lesser of (i) the amount of cash
received (other than that portion, if any,
attributable to accrued but unpaid interest on the
Old RGC Notes) or (ii) the amount of any gain
realized on the exchange of Old RGC Notes for New
Notes and the Exchange Payment (and, if applicable,
Cash Consideration). Holders whose Old RGC Notes
are purchased for Cash Consideration pursuant to
the Offers (and who do
14
26
not receive any New Notes) will recognize gain or
loss equal to the difference between (i) the amount
of Cash Consideration received and (ii) the
holders' adjusted tax basis in the Old RGC Notes
purchased. See "Certain Federal Income Tax
Considerations."
Risk Factors............... See "Risk Factors" for a discussion of certain
factors that should be considered in evaluating the
Offers and the Solicitation.
Dealer Managers............ BT Securities Corporation ("BT Securities"), CS
First Boston Corporation ("CS First Boston") and
Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ") are serving as Dealer Managers in
connection with the Offers and the Solicitation.
Their telephone numbers are (212) 775-2166, (212)
909-2873 and (212) 504-4753, respectively.
Exchange Agent............. Bankers Trust, an affiliate of BT Securities, is
serving as Exchange Agent in connection with the
Offers and the Solicitation. Its telephone number
is (212) 250-6270.
Information Agent.......... D.F. King & Co., Inc. is serving as Information
Agent in connection with the Offers and the
Solicitation. Requests for additional copies of
this Amended and Restated Prospectus and
Solicitation Statement, the Letter of Transmittal
and any other required documents should be directed
to the Information Agent or any Dealer Manager at
one of its addresses set forth on the back cover of
this Amended and Restated Prospectus and
Solicitation Statement. The telephone number of the
Information Agent is (800) 669-5550.
15
27
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following table sets forth summary unaudited pro forma combined
financial data for the 52 weeks ended June 25, 1994 and for the 28 weeks ended
January 7, 1995, after giving effect to the Merger, the FFL Merger, the
Reincorporation Merger and the Financing (and certain related assumptions), as
if such transactions had occurred on June 27, 1993 with respect to the pro forma
operating and other data, and as of January 7, 1995, with respect to the pro
forma balance sheet data. Such pro forma information combines the results of
operations of Food 4 Less for the 52 weeks ended June 25, 1994 and the results
of operations and balance sheet data as of and for the 28 weeks ended January 7,
1995, with the results of operations of Ralphs for the 52 weeks ended July 17,
1994 and the results of operations and balance sheet data as of and for the 28
weeks ended January 29, 1995, respectively. See "The Merger and the Financing."
The pro forma financial data set forth below is not necessarily indicative of
the results that actually would have been achieved had such transactions been
consummated as of the dates indicated, or that may be achieved in the future.
The following pro forma financial data should be read in conjunction with the
"Unaudited Pro Forma Combined Financial Statements," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and the
historical consolidated financial statements of Food 4 Less and Ralphs and
related notes thereto, included elsewhere in this Amended and Restated
Prospectus and Solicitation Statement.
52 WEEKS ENDED 28 WEEKS ENDED
JUNE 25, 1994 JANUARY 7, 1995
---------------------- ------------------
(DOLLARS IN MILLIONS)
OPERATING DATA:
Sales.................................................... $5,053.5 $2,767.6
Gross profit............................................. 1,048.2 553.0
Selling, general and administrative expenses............. 833.1 442.1
Interest expense:
Cash.................................................. 223.9 122.3
Non-cash.............................................. 15.2 7.9
Amortization of debt issuance costs................... 13.4 6.9
---------- ----------
Total interest expense................................... 252.5 137.1
Net loss(a).............................................. (86.5) (47.5)
Ratio of earnings to fixed charges(b).................... -- --
BALANCE SHEET DATA (END OF PERIOD):
Working capital.................................................................. $ 18.4
Total assets..................................................................... 3,096.2
Total debt....................................................................... 1,993.6
Stockholder's equity............................................................. 287.7
OTHER DATA:
Depreciation and amortization............................ $ 150.8 $ 76.4
Capital expenditures(c).................................. 123.2 78.1
Stores open at end of period(d).......................... -- 395
EBITDA (as defined)(a)(e)(f)............................. $ 342.5 $ 189.3
EBITDA margin(g)......................................... 6.8% 6.8%
- ---------------
(a) The summary unaudited pro forma combined financial data and the results of
operations and EBITDA (as defined) for the 52 weeks ended June 25, 1994 and
the 28 weeks ended January 7, 1995 do not include certain one-time
non-recurring costs related to (i) severance payments under certain
employment contracts with Food 4 Less management totaling $1.4 million that
are subject to change of control provisions and the achievement of earnings
and sales targets, (ii) costs related to the integration of the Company's
operations, which are estimated to be $50.0 million over a three-year
period, (iii) $1.8 million in costs related to the cancellation of an
employment agreement, and (iv) other costs related to warehouse closures,
which costs are not presently determinable.
(b) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of earnings before income taxes, cumulative effect of change in
accounting principles, extraordinary items and fixed charges before
capitalized interest. "Fixed charges" consist of interest expense (including
amortization of self-insurance reserves discount), capitalized interest,
amortization of deferred debt issuance costs and one-third of rental expense
(the portion deemed representative of the interest factor). The Company's
pro forma earnings were insufficient to cover pro forma fixed charges by
approximately $86.5 million and $47.5 million for the 52 weeks ended
16
28
June 25, 1994 and the 28 weeks ended January 7, 1995, respectively. However,
such pro forma earnings included non-cash charges of $189.0 million and
$99.9 million, respectively, primarily consisting of depreciation and
amortization.
(c) Does not include Merger-related capital expenditures of $55.0 million and
$37.5 million for the 52 weeks ended June 25, 1994 and the 28 weeks ended
January 7, 1995, respectively. It is estimated that the gross capital
expenditures to be made by the Company in the first fiscal year following
the closing will be approximately $153 million (or $106 million net of
expected capital leases), of which approximately $98 million relate to
ongoing expenditures for new stores, equipment and maintenance and
approximately $55 million relate to store conversions and other
Merger-related and non-recurring items.
(d) The pro forma number of stores is based on October 1, 1994 totals, but gives
effect to the closing or divestiture of 32 stores (29 Food 4 Less
conventional supermarkets or warehouse stores and 3 Ralphs stores) in
connection with the Merger and the closure of 2 additional Food 4 Less
conventional stores open at October 1, 1994 which were subsequently closed.
The pro forma financial information presented herein has been based upon the
actual number of stores open as of the beginning of each period presented,
adjusted for the closing or divestiture of the 32 stores which have yet to
be consummated and does not include any pro forma adjustment attributable to
the 2 stores closed subsequent to October 1, 1994.
(e) "EBITDA", as defined and presented historically by RGC, represents net
earnings before interest expense, income tax expense (benefit), depreciation
and amortization expense, provision for Equity Appreciation Rights,
provision for tax indemnification payments to Federated Department Stores,
Inc. ("Federated"), provision for postretirement benefits, the LIFO charge,
extraordinary item relating to debt refinancing, provision for legal
settlement, provision for restructuring, provision for earthquake losses, a
one-time charge for Teamsters Union sick pay benefits, transition expense
and gains and losses on disposal of assets. EBITDA is a widely accepted
financial indicator of a company's ability to service debt. However, EBITDA
should not be construed as an alternative to operating income or to cash
flows from operating activities (as determined in accordance with generally
accepted accounting principles) and should not be construed as an indication
of the Company's operating performance or as a measure of liquidity. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(f) Pro forma EBITDA does not give any effect to $90 million of anticipated net
annual cost savings (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 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:
(IN MILLIONS)
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
===========
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.
17
29
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 Amended and Restated Prospectus and Solicitation
Statement.
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)
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%
- ---------------
(a) Includes provision for post retirement benefits other than pensions of $2.2
million, $2.6 million, $3.3 million, $3.4 million and $2.6 million for the
53 weeks ended February 3, 1991, the 52 weeks ended February 2, 1992,
January 31, 1993, January 30, 1994 and January 29, 1995, respectively.
(b) Interest expense includes non-cash charges related to the amortization of
deferred debt issuance costs of $4.1 million for the 53 weeks ended February
3, 1991, $5.0 million for the 52 weeks ended February 2, 1992, $5.5 million
for the 52 weeks ended January 31, 1993, $6.5 million for the 52 weeks ended
January 30, 1994 and $6.1 million for the 52 weeks ended January 29, 1995,
respectively.
(c) Net earnings (loss) includes expenses relating to provisions for Equity
Appreciation Rights and for tax indemnification payments to Federated,
extraordinary item relating to debt refinancing, loss on disposal of assets,
provisions for postretirement and pension benefits and provision for
earthquake losses.
(d) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of earnings before income taxes, cumulative effect of change in
accounting principles, extraordinary item and fixed charges before
capitalized interest. "Fixed charges" consist of interest expense (including
amortization of self-insurance reserves discount), capitalized interest,
amortization of deferred debt issuance costs and one-third of rental expense
(the portion deemed representative of the interest factor). Earnings were
insufficient to cover fixed charges for the 53 weeks ended February 3, 1991
and the 52 weeks ended February 2, 1992 by approximately $25.5 million and
$27.7 million, respectively.
(e) Total debt includes long-term debt, current maturities of long-term debt,
short-term debt and capital lease obligations.
(f) For the 53 weeks ended February 3, 1991, the 52 weeks ended February 2,
1992, January 31, 1993, January 30, 1994 and January 29, 1995, depreciation
and amortization includes amortization of the excess of cost over net
assets acquired of $11.0 million, $11.0 million, $11.0 million, $11.0
million and $11.0 million, respectively.
(g) "EBITDA," as defined and presented historically by RGC, represents earnings
before interest expense, income tax expense (benefit), depreciation and
amortization expense, provisions for Equity Appreciation Rights, provision
for tax indemnification payments to Federated, provision for postretirement
benefits, the LIFO charge, extraordinary item relating to debt refinancing,
provision for legal settlement, provision for restructuring, provision for
earthquake losses, a one-time charge for Teamsters Union sick pay benefits,
transition expense and gains and losses on disposal of assets. EBITDA is a
widely accepted financial indicator of a company's ability to service debt.
However, EBITDA should not be construed as an alternative to operating
income or to cash flows from operating activities (as determined in
accordance with generally accepted accounting principles) and should not be
construed as an indication of Ralphs' operating performance or as a measure
of liquidity. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(h) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
(i) Includes recognition of $109.1 million of deferred income tax benefit and
$1.1 million current income tax expense for Fiscal 1993 (see Note 11 of
Notes to Consolidated Financial Statements of Ralphs Supermarkets, Inc.).
18
30
SUMMARY HISTORICAL FINANCIAL DATA OF FOOD 4 LESS
The following table sets forth summary historical financial data of Food 4
Less as of and for the 53 weeks ended June 30, 1990 and the 52 weeks ended June
29, 1991, June 27, 1992, June 26, 1993 and June 25, 1994 which have been derived
from the financial statements of Food 4 Less audited by Arthur Andersen LLP,
independent public accountants. The summary historical financial data of Food 4
Less presented below as of and for the 28 weeks ended January 8, 1994 and
January 7, 1995 have been derived from unaudited interim financial statements of
Food 4 Less which, in the opinion of management, reflect all material
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of such data. The following information should be read in
conjunction with the Unaudited Pro Forma Combined Financial Statements,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical consolidated financial statements of Food 4 Less
and related notes thereto included elsewhere in this Amended and Restated
Prospectus and Solicitation Statement.
53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED ENDED ENDED 28 WEEKS 28 WEEKS
JUNE 30, JUNE 29, JUNE 27, JUNE 26, JUNE 25, ENDED JANUARY ENDED JANUARY 7,
1990 1991(A) 1992 1993 1994(B) 8, 1994 1995
-------- -------- -------- -------- -------- ------------- -------------
(DOLLARS IN MILLIONS) (UNAUDITED)
OPERATING DATA:
Sales.................................... $1,318.2 $1,606.6 $2,913.5 $2,742.0 $2,585.2 $ 1,416.2 $ 1,404.7
Gross profit............................. 204.8 265.7 520.8 484.2 469.3 262.2 237.5
Selling, general, administrative and
other expenses......................... 157.8 213.1 469.7 434.9 388.8 221.5 199.2
Interest expense(c)...................... 50.8 50.1 70.2 69.8 68.3 36.8 37.7
Net loss................................. (10.1) (9.6) (33.8) (27.4) (2.7) (1.0) (8.7)
Ratio of earnings to fixed charges(d).... --(d) --(d) --(d) --(d) 1.0x --(d) --(d)
BALANCE SHEET DATA (end of period)(e):
Working capital surplus (deficit)........ $ (40.5) $ 13.7 $ (66.3) $ (19.2) $ (54.9) $ (14.9) $ (44.8)
Total assets............................. 574.7 980.0 998.5 957.8 980.1 969.6 984.6
Total debt(f)............................ 360.7 558.9 525.3 538.1 517.9 521.3 551.4
Redeemable stock......................... 5.1 -- -- -- -- -- --
Stockholder's equity..................... 20.6 84.6 50.8 72.9 69.0 71.2 60.4
OTHER DATA:
Depreciation and amortization(g)......... $ 25.8 $ 31.9 $ 54.9 $ 57.6 $ 57.1 $ 30.4 $ 30.8
Capital expenditures..................... 36.4 34.7 60.3 53.5 57.5 20.4 39.0
Stores open at end of period............. 115 259 249 248 258 249 266
EBITDA (as defined)(h)................... $ 69.5 $ 80.7 $ 103.1 $ 105.9 $ 130.5 $ 69.1 $ 69.4
EBITDA margin(i)......................... 5.3% 5.0% 3.5% 3.9% 5.0% 4.9% 4.9%
- ---------------
(a) Operating data for the 52 weeks ended June 29, 1991 include the results of
Alpha Beta only from June 17, 1991, the date of its acquisition. Alpha
Beta's sales for the two weeks ended June 29, 1991 were $59.2 million.
(b) Operating data for the 52 weeks ended June 25, 1994 include the results of
the Food Barn stores, which were not material, from March 29, 1994, the date
of the Food Barn acquisition.
(c) Interest expense includes non-cash charges related to the amortization of
deferred financing costs of $4.1 million for the 53 weeks ended June 30,
1990, $5.2 million for the 52 weeks ended June 29, 1991, $6.3 million for
the 52 weeks ended June 27, 1992, $4.9 million for the 52 weeks ended June
26, 1993, $5.5 million for the 52 weeks ended June 25, 1994, $2.9 million
for the 28 weeks ended January 8, 1994 and $3.1 million for the 28 weeks
ended January 7, 1995.
(d) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of loss before provision for income taxes and extraordinary charges
plus fixed charges. "Fixed charges" consist of interest on all indebtedness,
amortization of deferred debt financing costs and one-third of rental
expense (the portion deemed representative of the interest factor). Earnings
were insufficient to cover fixed charges for the 53 weeks ended June 30,
1990, the 52 weeks ended June 29, 1991, June 27, 1992 and June 26, 1993 and
the 28 weeks ended January 8, 1994 and January 7, 1995, by approximately
$9.1 million, $3.4 million, $25.6 million, $25.9 million, $0.3 million and
$8.2 million respectively. However, such earnings included non-cash charges
of $29.9 million for the 53 weeks ended June 30, 1990, $37.0 million for the
52 weeks ended June 29, 1991, $61.2 million for the 52 weeks ended June 27,
1992, $62.5 million for the 52 weeks ended June 26, 1993, $33.3 million for
the 28 weeks ended January 8, 1994 and $39.0 million for the 28 weeks ended
January 7, 1995, primarily consisting of depreciation and amortization.
(e) Balance sheet data as of June 30, 1990 relate to Food 4 Less and include the
effect of the acquisition of Breco Holding Company (the "BHC Acquisition"),
as well as the acquisitions of Bell Markets, Inc. and certain assets of ABC
Market Corp. Balance sheet data as of June 29, 1991, June 27, 1992, June 26,
1993 and January 8, 1994 relate to Food 4 Less and reflect the Alpha Beta
acquisition and the financings and refinancings associated therewith.
Balance sheet data as of June 25, 1994 and January 7, 1995 relate to Food 4
Less and reflect the acquisition of the Food Barn stores.
(f) Total debt includes long-term debt, current maturities of long-term debt and
capital lease obligations.
(g) For the 53 weeks ended June 30, 1990, the 52 weeks ended June 29, 1991, June
27, 1992, June 26, 1993 and June 25, 1994, and for the 28 weeks ended
January 8, 1994 and January 7, 1995, depreciation and amortization includes
amortization of excess of cost over net assets acquired of $5.3 million,
$5.3 million, $7.8 million, $7.6 million, $7.7 million, $4.1 million and
$4.2 million, respectively.
(h) "EBITDA," as defined and presented historically by Food 4 Less, represents
income before interest expense, depreciation and amortization expense, the
LIFO provision, provision for income taxes, provision for earthquake losses
and a one-time charge for Teamsters Union sick pay benefits. EBITDA is a
widely accepted financial indicator of a company's ability to service debt.
However, EBITDA should not be construed as an alternative to operating
income or to cash flows from operating activities (as determined in
accordance with generally accepted accounting principles) and should not be
construed as an indication of Food 4 Less' operating performance or as a
measure of liquidity. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(i) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
19
31
RISK FACTORS
Before deciding whether to participate in the applicable Offer and the
Solicitation, each holder of Old RGC Notes should carefully consider the
following factors, in addition to the other matters described in this Amended
and Restated Prospectus and Solicitation Statement.
LEVERAGE AND DEBT SERVICE
Following the consummation of the Merger and the Financing, the Company
will be highly leveraged. At January 7, 1995, pro forma for the Merger, the FFL
Merger, the Reincorporation Merger and the Financing (and certain related
assumptions), the Company's total indebtedness (including current maturities)
and stockholder's equity would have been $1,993.6 million and $287.7 million,
respectively, and the Company would have had an additional $173.1 million
available to be borrowed under the New Revolving Facility. In addition, as of
January 7, 1995, after giving effect to the Merger, the FFL Merger, the
Reincorporation Merger and the Financing (and certain related assumptions),
scheduled payments under operating leases of the Company and its subsidiaries
for the twelve months following the Merger would have been $125.0 million. On
the same pro forma basis, for the 52 weeks ended June 25, 1994 and the 28 weeks
ended January 7, 1995, the Company's earnings before fixed charges would have
been inadequate to cover fixed charges by $86.5 million and $47.5 million,
respectively. However, such earnings include non-cash charges of $189.0 million
and $99.9 million, respectively, primarily consisting of depreciation and
amortization. New Holdings will be required to make semi-annual cash payments of
interest on the New Discount Debentures and the Seller Debentures commencing
five years from their date of issuance in the amount of $61.0 million per annum.
In addition, New Holdings will be required to commence semi-annual cash payments
of interest on any Discount Notes that remain outstanding following the Merger
commencing June 15, 1998. The New Note Indenture permits the Company (in the
absence of a default or event of default thereunder) to pay cash dividends to
New Holdings in an amount sufficient to allow New Holdings to pay interest on
such Indebtedness when due. The Company's ability to make scheduled payments of
the principal of, or interest on, or to refinance its Indebtedness (including
the New Notes) and to make scheduled payments under its operating leases depends
on its future performance, which to a certain extent is subject to economic,
financial, competitive and other factors beyond its control.
The pro forma financial information presented in this Amended and Restated
Prospectus and Solicitation Statement is based on, among other things, the
assumption that the interest rate borne by the New F4L Senior Notes and the New
Notes will be 11% and 11.50%, respectively. In the event that the interest rates
on the New F4L Senior Notes and the New Notes are higher than the respective
assumed interest rates, the Company's interest expense and deficiency of
earnings to fixed charges would increase over the amounts reflected in such pro
forma financial information. For a description of the effects on the pro forma
financial information of varying acceptance levels in the Offers and the F4L
Exchange Offers and of varying interest rates, see Note (l) to the Notes to
Unaudited Pro Forma Combined Statement of Operations.
Based upon the current level of operations and anticipated cost savings,
the Company believes that its cash flow from operations, together with
borrowings under the New Revolving Facility and its other sources of liquidity
(including leases), will be adequate to meet its anticipated requirements for
working capital, capital expenditures, interest payments and scheduled principal
payments over the next several years. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources." There can be no assurance, however, that the Company's business will
continue to generate cash flow at or above current levels or that anticipated
cost savings can be fully achieved. If the Company is unable to generate
sufficient cash flow from operations in the future to service its debt and make
necessary capital expenditures, or if its future earnings growth is insufficient
to amortize all required principal payments out of internally generated funds,
the Company may be required to refinance all or a portion of its existing debt,
sell assets or obtain additional financing. There can be no assurance that any
such refinancing or asset sales would be possible or that any additional
financing could be obtained, particularly in view of the Company's high level 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.
20
32
The Company's high level of debt will have several important effects on its
future operations, including the following: (a) the Company will have
significant cash requirements to service debt, reducing funds available for
operations and future business opportunities and increasing the Company's
vulnerability to adverse general economic and industry conditions; (b) the
financial covenants and other restrictions contained in the New Credit Facility
and other agreements relating to the Company's indebtedness and in the New Note
Indenture will require the Company to meet certain financial tests and will
restrict its ability to borrow additional funds, to dispose of assets or to pay
cash dividends; and (c) because of the Company's debt service requirements,
funds available for working capital, capital expenditures, acquisitions and
general corporate purposes, may be limited. The Company's leveraged position may
increase its vulnerability to competitive pressures. The Company's continued
growth depends, in part, on its ability to continue its expansion and store
conversion efforts, and, therefore, its inability to finance capital
expenditures through borrowed funds could have a material adverse effect on the
Company's future operations. Moreover, any default under the documents governing
the indebtedness of the Company could have a significant adverse effect on the
market value of the New Notes.
ABILITY TO ACHIEVE ANTICIPATED COST SAVINGS
Management of the Company has estimated that approximately $90 million of
annualized net cost savings (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 Amended and Restated Prospectus and
Solicitation Statement. However, management also believes that all such
assumptions are reasonable in light of existing business conditions and
prospects. Investors are cautioned that the actual cost savings realized by the
Company may vary considerably from the estimates contained herein and that undue
reliance should not be placed upon such estimates. There also can be no
assurance that unforeseen costs and expenses or other factors will not offset
the projected cost savings in whole or in part.
REGIONAL ECONOMIC CONDITIONS
Following the consummation of the Merger, a substantial percentage of the
Company's business (representing approximately 90% of pro forma sales) will be
conducted in Southern California. Southern California began to experience a
significant economic downturn in 1991 and has only recently begun a mild
recovery. The economy in Southern California has been affected by substantial
job losses in the defense and aerospace industries and other adverse economic
trends. These adverse regional economic conditions have resulted in declining
sales levels at Ralphs and Food 4 Less in recent periods. For the 52 weeks ended
June 25, 1994, and the 52 weeks ended January 29, 1995, Food 4 Less and Ralphs
experienced 6.9% and 3.7% declines, respectively, in comparable store sales as
compared with the comparable period in the prior year, primarily reflecting the
weak economy in Southern California, lower levels of price inflation in certain
food product categories, and increased competitive store openings in Southern
California. For the 28 weeks ended
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January 7, 1995 and the 28 weeks ended January 29, 1995, Food 4 Less and Ralphs
experienced 4.5% and 3.4% declines, respectively, in comparable store sales.
However, both Food 4 Less' 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."
CORPORATE STRUCTURE; EFFECTS OF ASSET ENCUMBRANCES
Following the consummation of the Merger, a significant portion of the
Company's operating income will be generated by its subsidiaries. As a result,
the Company will rely on distributions or advances from its subsidiaries to
provide a portion of the funds necessary to meet its debt service obligations,
including the payment of principal and interest on the New Notes. Should the
Company fail to satisfy any payment obligation under the New Notes, the holders
would have a direct claim therefor against the Subsidiary Guarantors pursuant to
their Guarantees. However, the capital stock of, and substantially all of the
assets of, the Subsidiary Guarantors will be pledged to secure the obligations
of the Company and such subsidiaries under the New Credit Facility and other
secured obligations. The New Note Indenture will limit, but not prohibit, the
ability of the Company and its subsidiaries to incur additional secured
indebtedness. In the event of a default under the New Credit Facility (or any
other secured indebtedness), the lenders thereunder would be entitled to a claim
on the assets securing such indebtedness which is prior to any claim of the
holders of the New Notes. Accordingly, there may be insufficient assets
remaining after payment of prior secured claims (including claims of lenders
under the New Credit Facility) to pay amounts due on the New Notes.
In addition, if a court were to avoid the Guarantees under fraudulent
conveyance laws or other legal principles or, by the terms of such Guarantees,
the obligations thereunder were reduced as necessary to prevent such avoidance,
or the Guarantees were released, the claims of other creditors of the Subsidiary
Guarantors, including trade creditors, would to such extent have priority as to
the assets of such Subsidiary Guarantors over the claims of the holders of the
New Notes. The Guarantees of the New Notes by any Subsidiary Guarantor will be
released upon the sale of such Subsidiary Guarantor or upon the release by the
lenders under the New Credit Facility of such Subsidiary Guarantor's Guarantee
of the Company's obligation under the New Credit Facility. The New Note
Indenture limits the ability of the Company and its subsidiaries to incur
additional indebtedness and to enter into agreements that would restrict the
ability of any subsidiary to make distributions, loans or other payments to the
Company. However, these limitations are subject to certain exceptions. See
"-- Fraudulent Conveyance Risks" and "Description of the New Notes."
CONTROL OF THE COMPANY
Following completion of the Merger, the FFL Merger and the Reincorporation
Merger, all of the Company's outstanding common stock will be held by New
Holdings. Pro forma for such mergers and certain related events, affiliates of
Yucaipa and Apollo will have beneficial ownership of approximately 41.8% and
33.9%, respectively, of the outstanding capital stock of New Holdings. Pursuant
to a new stockholders' agreement (the "1995 Stockholders Agreement") which will
be entered into by the New Equity Investors and
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certain current FFL stockholders and Holdings warrantholders, upon completion of
the Merger, New Holdings and the Company will have boards consisting of nine and
ten members, respectively, and (i) Yucaipa will have the right to elect six
directors to the board of New Holdings and seven directors to the board of the
Company, (ii) Apollo will have the right to elect two directors to the board of
each of New Holdings and the Company and (iii) the other New Equity Investors
will have the right to elect one director to the board of each of New 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 the Company and the
contractual rights described above, the voting and management control of the
Company is highly concentrated. Yucaipa, acting with the consent of the
directors elected by the New Equity Investors, has the ability to direct the
actions of the Company with respect to matters such as the payment of dividends,
material acquisitions and dispositions and other extraordinary corporate
transactions. Yucaipa will be a party to a consulting agreement with the
Company, pursuant to which Yucaipa will render certain management and advisory
services to the Company, and will receive fees for such services. Yucaipa will
also receive certain fees in connection with the consummation of the Merger,
including an advisory fee of $19 million, of which $15 million will be paid
through the issuance of New Discount Debentures. In addition, as a result of the
Merger, certain officers and former officers of Ralphs will redeem the EARs for
$17.8 million in cash and a deferred payment of up to $5 million and will cancel
certain options to purchase common stock of RSI for $880,000. An additional $10
million of the EARs, however, will be reinvested in New Holdings by such
officers and former officers. Yucaipa also will be reimbursed for (i) any losses
incurred upon the resale of the $10 million principal amount of Seller
Debentures which may be put to it pursuant to the Put Agreement and (ii) its
expenses in connection with the Merger and the related transactions. In
addition, on the Closing Date the Company and EJDC will enter into a Consulting
Agreement, pursuant to which EJDC will act as a consultant to the Company with
respect to certain real estate and general commercial matters for a period of
five years from the Closing Date in exchange for the payment of a one-time
consulting fee of $9 million, of which $4 million will be used to purchase
interests in the partnership that will purchase the New Discount Debentures. See
"Certain Relationships and Related Transactions," "Principal Stockholders" and
"Description of Capital Stock."
SUBORDINATION OF THE NEW NOTES
The payment of principal, premium, if any, and interest on, and any other
amounts owing in respect of, the New Notes will be subordinated to the prior
payment in full of all existing and future Senior Indebtedness, including
indebtedness under the New Credit Facility and the F4L Senior Notes. Each
Subsidiary Guarantor's Guarantee will also be subordinated in right of payment
to Senior Indebtedness of the Subsidiary Guarantors ("Guarantor Senior
Indebtedness"). Guarantor Senior Indebtedness will include all existing and
future indebtedness not expressly subordinated to other indebtedness, including
indebtedness represented by the guarantee of each Subsidiary Guarantor under the
New Credit Facility and the F4L Senior Notes. As of January 7, 1995, on a pro
forma basis, after giving effect to the Merger and the Financing (and certain
related assumptions), the aggregate outstanding amount of Senior Indebtedness of
the Company (excluding Company guarantees of certain Guarantor Senior
Indebtedness) would have been approximately $1,509.0 million and the aggregate
outstanding amount of Guarantor Senior Indebtedness of the Subsidiary Guarantors
(excluding guarantees by Subsidiary Guarantors of certain Senior Indebtedness of
the Company) would have been approximately $16.5 million and the Company would
have had $173.1 million available to be borrowed under the New Revolving
Facility. The New Note Indenture will limit, but not prohibit, the issuance by
the Subsidiary Guarantors of additional indebtedness which is Guarantor Senior
Indebtedness. See "Description of the New Notes -- Guarantees." In the event of
the bankruptcy, liquidation, dissolution, reorganization or other winding up of
the Company, the assets of the Company will be available to pay obligations on
the New Notes only after all Senior Indebtedness has been paid in full, and
there may not be sufficient assets remaining to pay amounts due on any or all of
the New Notes. In addition, under certain circumstances, the Company may not pay
principal of, premium, if any, or interest on, or any other amounts owing in
respect of, the New
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Notes, or purchase, redeem or otherwise retire the New Notes, if a payment
default or a non-payment default exists with respect to certain Senior
Indebtedness and, in the case of a non-payment default, a payment blockage
notice has been received by the New Note Trustee (as defined). See "Description
of the New Notes -- Subordination."
FRAUDULENT CONVEYANCE RISKS
Various fraudulent conveyance laws have been enacted for the protection of
creditors and may be utilized by a court to subordinate or avoid the New Notes
or any Guarantee in favor of other existing or future creditors of the Company
or a Subsidiary Guarantor.
If a court in a lawsuit on behalf of any unpaid creditor of the Company or
a representative of the Company's creditors were to find that, at the time the
Company issued the New Notes, the Company (x) intended to hinder, delay or
defraud any existing or future creditor or contemplated insolvency with a design
to prefer one or more creditors to the exclusion in whole or in part of others
or (y) did not receive fair consideration or reasonably equivalent value for
issuing the New Notes and the Company (i) was insolvent, (ii) was rendered
insolvent by reason of such distribution, (iii) was engaged or about to engage
in a business or transaction for which its remaining assets constituted
unreasonably small capital to carry on its business, or (iv) intended to incur,
or believed that it would incur, debts beyond its ability to pay such debts as
they matured, such court could void the New Notes and void such transactions.
Alternatively, in such event, claims of the holders of the New Notes could be
subordinated to claims of the other creditors of the Company.
The Company's obligations under the New Notes will be guaranteed by the
Subsidiary Guarantors. To the extent that a court were to find that (x) a
Guarantee was incurred by a Subsidiary Guarantor with intent to hinder, delay or
defraud any present or future creditor or the Subsidiary Guarantor contemplated
insolvency with a design to prefer one or more creditors to the exclusion in
whole or in part of others or (y) such Subsidiary Guarantor did not receive fair
consideration or reasonably equivalent value for issuing its Guarantee and such
Subsidiary Guarantor (i) was insolvent, (ii) was rendered insolvent by reason of
the issuance of such Guarantee, (iii) was engaged or about to engage in a
business or transaction for which the remaining assets of such Subsidiary
Guarantor constituted unreasonably small capital to carry on its business, or
(iv) intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they matured, the court could void or subordinate
such Guarantee in favor of the Subsidiary Guarantor's creditors. Among other
things, a legal challenge of a Guarantee on fraudulent conveyance grounds may
focus on the benefits, if any, realized by the Subsidiary Guarantor as a result
of the issuance by the Company of the New Notes.
To the extent any Guarantees were avoided as a fraudulent conveyance or
held unenforceable for any other reason, holders of the New Notes would cease to
have any claim in respect of such Subsidiary Guarantor and would be creditors
solely of the Company and any Subsidiary Guarantor whose Guarantee was not
avoided or held unenforceable. In such event, the claims of the holders of the
New Notes against the issuer of an invalid Guarantee would be subject to the
prior payment of all liabilities and preferred stock claims of such Subsidiary
Guarantor. There can be no assurance that, after providing for all prior claims
and preferred stock interests, if any, there would be sufficient assets to
satisfy the claims of the holders of the New Notes relating to any voided
portions of any of the Guarantees.
Based upon financial and other information currently available to it,
management of the Company believes that the New Notes and the Guarantees are
being incurred for proper purposes and in good faith and that the Company and
each Subsidiary Guarantor (i) is solvent and will continue to be solvent after
issuing the New Notes or its Guarantees, as the case may be, (ii) will have
sufficient capital for carrying on its business after such issuance, and (iii)
will be able to pay its debts as they mature. See "Management's Discussions and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
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ABSENCE OF ESTABLISHED MARKET FOR THE NEW NOTES
There is no established market for the New Notes and there can be no
assurance as to the liquidity of any markets that may develop for the New Notes,
the ability of holders of the New Notes to sell their New Notes, or the price at
which holders would be able to sell their New Notes. Future trading prices of
the New Notes will depend on many factors, including, among other things,
prevailing interest rates, the Company's operating results and the market for
similar securities. The Dealer Managers have advised the Company that they
currently intend to make a market in the New Notes. However, the Dealer Managers
are not obligated to do so and any market making may be discontinued at any time
without notice.
POTENTIAL ADVERSE EFFECTS OF THE OFFERS AND THE SOLICITATION ON HOLDERS OF
UNTENDERED OLD RGC NOTES
There currently is a limited trading market for the Old RGC Notes, which
from time to time trade in the over-the-counter market. See "Market Prices of
the Old RGC Notes." To the extent that Old RGC Notes are tendered and accepted
for exchange or purchase in the Offers the trading market for the remaining Old
RGC Notes may become even more limited. A debt security with a smaller
outstanding principal amount available for trading (a smaller "float") may
command a lower price than would a comparable debt security with a greater
float. Therefore, the market price for the Old RGC Notes not exchanged or
purchased may be adversely affected to the extent that the principal amount of
the Old RGC Notes tendered pursuant to the Offers reduces the float. The reduced
float may also tend to make the trading price more volatile. Holders of Old RGC
Notes not tendered in the Offers may attempt to obtain quotations for the Old
RGC Notes from their brokers; however, there can be no assurance that any
trading market will exist for the Old RGC Notes following consummation of the
Offers. The extent of the public market for the Old RGC Notes following
consummation of the Offers will depend upon, among other things, the remaining
outstanding principal amount of the Old RGC Notes after the Offers, the number
of holders remaining at such time and the interest in maintaining a market in
the Old RGC Notes on the part of securities firms.
EFFECT OF THE PROPOSED AMENDMENTS ON HOLDERS THAT DO NOT TENDER
If the Offers are consummated and the Proposed Amendments become operative,
holders of Old RGC Notes that are not exchanged or purchased pursuant to the
Offers for any reason will no longer be entitled to the benefits of certain of
the restrictive covenants contained in the Old RGC Indentures after they have
been modified by the Proposed Amendments. The modification of the restrictive
covenants would permit the Company to take actions that could increase the
credit risks with respect to the Company faced by such holders or that could
otherwise be adverse to the interest of such holders. See "The Proposed
Amendments."
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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. Upon consummation of the RSI Merger and the RGC Merger, the New Notes
and any outstanding Old RGC Notes not tendered into the Offers will be the
obligations of the Company. Conditions to the consummation of the RSI Merger
include the receipt of regulatory approvals and other necessary consents and the
completion of financing. The purchase price for RSI is approximately $1.5
billion, including the assumption of debt. The consideration payable to the
stockholders of RSI consists of $375 million in cash, $131.5 million principal
amount of the Seller Debentures and $18.5 million initial accreted value of the
New Discount Debentures to be issued by New Holdings. New Holdings will use $100
million of the cash received from the New Equity Investment, together with the
Seller Debentures and such New Discount Debentures, to acquire approximately 48%
of the capital stock of RSI immediately prior to consummation of the RSI Merger.
New Holdings will then contribute the $250 million of purchased shares of RSI
stock to Food 4 Less, and pursuant to the RSI Merger the remaining shares of RSI
stock will be acquired for $275 million in cash. Pursuant to an agreement (the
"Put Agreement") entered into in connection with the execution of the Merger
Agreement, the Edward J. DeBartolo Corporation, an Ohio corporation ("EJDC"),
which currently owns approximately 60.3% of the outstanding common stock of RSI,
will have the right to put to Yucaipa, which controls Food 4 Less, on the
closing date of the Merger (the "Closing Date"), up to $10 million aggregate
principal amount of Seller Debentures acquired by EJDC in connection with the
Merger, at a purchase price equal to their principal amount. Yucaipa will be
reimbursed for (i) any losses incurred upon the resale of the $10 million
principal amount of Seller Debentures which may be put to it pursuant to the Put
Agreement and (ii) its expenses in connection with the Merger and the related
transactions. In addition, on the Closing Date the Company and EJDC will enter
into a Consulting Agreement, pursuant to which EJDC will act as a consultant to
the Company with respect to certain real estate and general commercial matters
for a period of five years from the Closing Date in exchange for the payment of
a consulting fee of $9 million, of which $4 million will be used to purchase
interests in the partnership that will purchase New Discount Debentures. See
"Certain Relationships and Related Transactions -- Food 4 Less." The Merger
Agreement, as amended, provides that Food 4 Less will pay the stockholders of
RSI interest on the aggregate purchase price of $525 million at a rate equal to
the prime rate plus 1% from and after March 16, 1995 through the Closing Date.
The Merger Agreement may be terminated by the parties if the Merger has not been
consummated on or prior to June 6, 1995.
As currently contemplated, the Merger will be financed through the
following transactions:
- Borrowings of up to $750 million aggregate principal amount pursuant to
the New Term Loans under the New Credit Facility to be provided by a
syndicate of banks led by Bankers Trust. The New Credit Facility will
also provide for the $325 million New Revolving Facility, $12.7 million
of which is anticipated to be drawn at closing.
- The issuance of up to $295 million of New F4L Senior Notes pursuant to
the Senior Note Public Offering.
- The issuance of up to $200 million of New 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
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New Holdings capital stock from a stockholder of New Holdings for a
purchase price of $57.8 million. See "Description of Capital
Stock -- New Equity Investment."
- The exchange by Food 4 Less pursuant to the F4L Exchange Offers of (a)
up to $175 million aggregate principal amount of the Old F4L Senior
Notes for up to $175 million aggregate principal amount of the New F4L
Senior Notes plus $5.00 in cash per $1,000 principal amount exchanged
and (b) up to $145 million aggregate principal amount of the Old F4L
Senior Subordinated Notes for up to $145 million aggregate principal
amount of the New F4L Senior Subordinated Notes plus $20.00 in cash per
$1,000 principal amount exchanged, together with the solicitation of
consents from the holders of the Old F4L Notes to certain amendments to
the Old F4L Indentures. It is a condition to the F4L Exchange Offers
that at least 80% of the outstanding principal amount of the Old F4L
Notes are exchanged pursuant to the F4L Exchange Offers.
- The Offers made hereunder to holders of Old RGC Notes to tender for
exchange or purchase such Old RGC Notes, together with the solicitation
of consents from such holders to the Proposed Amendments to the Old RGC
Indentures.
- The purchase by New Holdings of approximately 48% of the outstanding
common stock of RSI for an aggregate consideration of $250 million,
consisting of $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 pursuant to the New Discount Debenture
Placement of $100 million initial accreted value of New Discount
Debentures to a partnership including Yucaipa, the selling stockholders
of Ralphs, an affiliate of George Soros, Apollo and an affiliate of each
of BT Securities, CS First Boston and DLJ. The $100 million initial
accreted value of New Discount Debentures includes (a) $18.5 million
that will be issued to the RSI stockholders, (b) $15 million, $5 million
and $2.5 million that will be issued to Yucaipa, BT Securities and
Apollo, respectively, in satisfaction of fees otherwise payable by the
Company and New Holdings in connection with the Merger and the Financing
and (c) $59 million that will be issued for cash to the partnership
described above. The $41 million initial accreted value of New Discount
Debentures to be issued to the RSI stockholders, Apollo, BT Securities
and Yucaipa will be contributed to such partnership by the recipients
thereof.
- The assumption by the Company, pursuant to the Merger, of approximately
$166.8 million of other indebtedness of RGC and Food 4 Less.
- The 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 May 1, 1995 had an accreted value of $680.26 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.
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The following table illustrates the sources and uses of funds to consummate
the Merger, assuming the transaction occurs as of May 30, 1995. This
presentation assumes that $225.5 million principal amount of Old RGC Notes is
tendered into the Offers in exchange for New Notes (representing 50.1% of the
outstanding aggregate principal amount of Old RGC Notes), $224.5 million
principal amount of Old RGC Notes is tendered into the Offers for cash
(representing 49.9% of the outstanding aggregate principal amount of Old RGC
Notes), $256 million principal amount of Old F4L Notes is tendered into the F4L
Exchange Offers (representing 80% of the outstanding aggregate principal amount
of Old F4L Notes) and $103.6 million principal amount (at maturity) of Discount
Notes is tendered into the 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 Offers, the F4L Exchange Offers and the
Holdings Offer to Purchase.
SOURCES AND USES
(in millions)
CASH SOURCES CASH USES
- --------------------------------------------- ---------------------------------------------
New Term Loans(a).................. $ 750.0 Purchase RSI Common Stock(j)....... $ 375.9
New Revolving Facility(b).......... 12.7 Purchase Old RGC Notes(k).......... 226.8
New F4L Senior Notes(c)............ 295.0 Purchase Discount Notes............ 83.9
Repay Ralphs 1992 Credit
New Notes(d)....................... 200.0 Agreement.......................... 255.1
New Equity Investment(e)........... 140.0 Repay F4L Credit Agreement......... 161.5
New Discount Debentures(f)......... 59.0 Pay Accrued Interest(l)............ 29.3
EAR Related Payments(m)............ 22.8
Repay Mortgage Indebtedness(n)..... 191.5
Fees and Expenses(o)............... 109.9
-------- --------
Total Cash Sources............ $1,456.7 Total Cash Uses.................... $1,456.7
======= =======
NON-CASH SOURCES NON-CASH USES
- --------------------------------------------- ---------------------------------------------
New F4L Senior Notes(g)............ $ 140.0 Old F4L Senior Notes Exchanged..... $ 140.0
Assumed Old F4L Senior Notes....... 35.0 Assumed Old F4L Senior Notes....... 35.0
New F4L Senior Subordinated Old F4L Senior Subordinated Notes
Notes............................ 116.0 Exchanged.......................... 116.0
Assumed Old F4L Senior Subordinated Assumed Old F4L Senior Subordinated
Notes............................ 29.0 Notes............................ 29.0
New Notes(h)....................... 225.5 Old RGC Notes Exchanged............ 225.5
New Discount Debentures(f)......... 41.0 Fees and Expenses(o)............... 22.5
Assumed Capital Leases and Other Assumed Capital Leases and Other
Debt............................. 166.8 Debt............................... 166.8
Seller Debentures(i)............... 131.5
--------
Purchase RSI Common Stock(i)....... 150.0
--------
Total Non-Cash Sources........ $ 884.8 Total Non-Cash Uses................ $ 884.8
======= =======
- ---------------
(a) Food 4 Less has accepted a commitment letter from Bankers Trust pursuant to
which Bankers Trust has agreed, subject to certain conditions, to provide
the Company up to a maximum aggregate amount of $1,075 million of financing
under the New Credit Facility. It is anticipated that the New Credit
Facility will be syndicated to a number of financial institutions for whom
Bankers Trust will act as agent. The New Credit Facility will provide for
(i) the New Term Loans in the aggregate amount of up to $750 million,
comprised of the $375 million Tranche A Loan, the $125 million Tranche B
Loan, the $125 million Tranche C Loan, and the $125 million Tranche D Loan
and (ii) the $325 million New Revolving Facility. The Tranche A Loan may
not be fully funded at the Closing Date. The New Credit Facility will
provide that the portion of the Tranche A Loan not funded at the Closing
Date will be available for a period of 91 days following the Closing Date
to fund the Change of Control Offer. See "Description of the New Credit
Facility."
(b) The New Revolving Facility will provide for a $325 million line of credit
which will be available for working capital requirements and general
corporate purposes. Up to $150 million of the New Revolving Facility may be
used to support standby letters of credit. The letters of credit will be
used to cover workers' compensation contingencies and for other purposes
permitted under the New Revolving Facility. The Company anticipates that
letters of credit for approximately $92.6 million will be issued under the
New Revolving Facility at closing, in replacement of existing letters of
credit, primarily to satisfy the State of California's requirements relating
to workers compensation self-insurance.
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(c) Represents New F4L Senior Notes issued pursuant to the Senior Note Public
Offering. If Food 4 Less receives tenders in excess of the Minimum Exchange
in the Offers, Food 4 Less may elect to decrease the amount of New F4L
Senior Notes being offered pursuant to the Senior Note Public Offering.
(d) Represents New Notes issued pursuant to the Subordinated Note Public
Offering. If Food 4 Less receives tenders in excess of the Minimum Exchange
in the Offers, Food 4 Less may elect to decrease the amount of New Notes
being offered pursuant to the Subordinated Note Public Offering. It is not
anticipated that the amount of New Notes offered pursuant to the
Subordinated Note Public Offering will be reduced below $100 million
principal amount.
(e) Does not include the $10 million equity contribution by Ralphs management.
See note (m) below. Concurrently with the New Equity Investment, certain
existing stockholders of New Holdings (formerly stockholders of FFL),
including affiliates of George Soros, will sell outstanding shares of New
Holdings stock to CLH, which in turn will sell such shares to the New
Equity Investors for an aggregate purchase price of $57.8 million (which
represents the same price per share as will be paid in the New Equity
Investment). In connection with the New Equity Investment, the New Equity
Investors will contribute the common stock so acquired to New Holdings in
consideration for newly-issued preferred shares. See "Description of
Capital Stock -- New Equity Investment."
(f) Represents $100 million initial accreted value of New Discount Debentures,
$59 million of which will be issued for cash, $18.5 million of which will
be issued to the RSI stockholders as Merger consideration and $15 million,
$5 million and $2.5 million of which will be issued to Yucaipa, BT
Securities and Apollo, respectively, in satisfaction of fees otherwise
payable by the Company and New Holdings in connection with the Merger and
the Financing.
(g) Represents New F4L Senior Notes issued pursuant to the F4L Exchange Offers,
which will be part of the same issue as the New F4L Senior Notes issued
pursuant to the Senior Note Public Offering.
(h) Represents New Notes issued pursuant to the Offers, which will be part of
the same issue as the New Notes issued pursuant to the Subordinated Note
Public Offering.
(i) In connection with the RSI Merger, New Holdings will issue $131.5 million
principal amount of the Seller Debentures as part of the purchase price for
the RSI common stock, up to $10 million of which may be put to Yucaipa on
the Closing Date at a purchase price equal to their principal amount
pursuant to the Put Agreement. In addition, Yucaipa will be reimbursed by
the Company for (i) any losses incurred upon the resale of the $10 million
principal amount of Seller Debentures which may be put to it pursuant to
the Put Agreement and (ii) its expenses in connection with the Merger and
the related transactions. See "Certain Relationships and Related
Transactions -- Food 4 Less."
(j) Includes $375 million to be paid in cash to stockholders of RSI and $0.9
million to be paid in cash to holders of RSI management stock options. See
"Executive Compensation -- New Management Stock Option Plan and Management
Investment."
(k) Represents the purchase of Old RGC Notes tendered for cash pursuant to the
Offers. In addition, to the extent any Old RGC Notes remain outstanding
following consummation of the 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 Offers and the F4L Exchange 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 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."
(n) Represents the repayment of outstanding mortgage indebtedness of Ralphs in
the principal amount of $174.1 million, plus the estimated amount of the
prepayment fees payable with respect thereto.
(o) Includes advisory fees of $19 million to be paid to Yucaipa, other fees of
$5 million to be paid to BT Securities and commitment fees of $5 million to
be paid to Apollo, upon the closing of the Merger. Of such amounts, $15
million of Yucaipa's advisory fee, $2.5 million of Apollo's commitment fee
and BT Securities' $5 million fee will be paid through the issuance of New
Discount Debentures in lieu of cash. Such New Discount Debentures will be
contributed by them to the partnership that will acquire all of the New
Discount Debentures. Yucaipa anticipates that it in turn will pay a cash fee
of approximately $3.5 million to Soros Fund Management in consideration for
advisory services which Soros Fund Management has rendered since 1991. See
"Certain Relationships and Related Transactions -- Food 4 Less."
For additional information, see "Description of the New Credit Facility," "The
F4L Exchange Offers and the Public Offerings" and "Description of Holding
Company Indebtedness."
29
41
PRO FORMA CAPITALIZATION
The following table sets forth the pro forma combined capitalization of the
Company as of January 7, 1995, adjusted to give effect to the Merger, the FFL
Merger, the Reincorporation Merger and the Financing (and certain related
assumptions) and the application of the proceeds therefrom. This presentation
assumes that $225.5 million principal amount of Old RGC Notes is tendered into
the Offers in exchange for New Notes, $224.5 million principal amount of Old RGC
Notes is tendered into the Offers for cash, $256 million principal amount of Old
F4L Notes is tendered into the F4L Exchange Offers and $103.6 million principal
amount (at maturity) of Discount Notes is tendered into the Holdings Offer to
Purchase. This presentation also assumes that any Old RGC Notes not tendered
into the Offers are repurchased after the Closing Date pursuant to the Change of
Control Offer. The table should be read in conjunction with the Unaudited Pro
Forma Combined Financial Statements and the historical consolidated financial
statements of Ralphs and Food 4 Less and related notes thereto included
elsewhere in this Amended and Restated Prospectus and Solicitation Statement.
PRO FORMA
CAPITALIZATION
---------------
(IN MILLIONS)
Cash..................................................................................... $ 50.9
=============
Short-term and current portion of long-term debt:
New Term Loans......................................................................... $ 3.8
Other indebtedness..................................................................... 23.0
---------------
Total short-term and current portion of long-term debt.......................... $ 26.8
=============
Long-term debt:
New Term Loans(a)...................................................................... $ 746.2
New Revolving Facility(b).............................................................. 50.8
Other indebtedness..................................................................... 129.3
New F4L Senior Notes(c)................................................................ 435.0
Old F4L Senior Notes................................................................... 35.0
New Notes(d)........................................................................... 425.5
New F4L Senior Subordinated Notes...................................................... 116.0
Old F4L Senior Subordinated Notes...................................................... 29.0
---------------
Total long-term debt............................................................ 1,966.8
---------------
Stockholder's equity:
Common stock, $.01 par value........................................................... 0.0
Additional paid-in capital............................................................. 464.3
Notes receivable(e).................................................................... (0.7)
Retained deficit....................................................................... (173.7)
Treasury stock......................................................................... (2.2)
---------------
Total stockholder's equity........................................................... 287.7
---------------
Total capitalization............................................................ $ 2,254.5
=============
- ---------------
(a) Food 4 Less has accepted a commitment letter from Bankers Trust pursuant to
which Bankers Trust has agreed, subject to certain conditions, to provide
the Company up to a maximum aggregate amount of $1,075 million of financing
under the New Credit Facility. It is anticipated that the New Credit
Facility will be syndicated to a number of financial institutions for whom
Bankers Trust will act as agent. The New Credit Facility will provide for
(i) the New Term Loans in the aggregate amount of up to $750 million,
comprised of the $375 million Tranche A Loan, the $125 million Tranche B
Loan, the $125 million Tranche C Loan and the $125 million Tranche D Loan
and (ii) the $325 million New Revolving Facility. The Tranche A Loan may not
be fully funded at the Closing Date. The New Credit Facility will provide
that the portion of the Tranche A Loan not funded at the Closing Date will
be available for a period of 91 days following the Closing Date to fund the
Change of Control Offer. See "Description of the New Credit Facility."
(b) The New Revolving Facility will provide for a $325 million line of credit
which will be available for working capital requirements and general
corporate purposes. Up to $150 million of the New Revolving Facility may be
used to support standby letters of credit. The letters of credit will be
used to cover workers' compensation contingencies and for other purposes
permitted under the New Revolving Facility. The Company anticipates that
letters of credit for approximately $92.6 million will be issued under the
New Revolving Facility at closing, in replacement of existing letters of
credit, primarily to satisfy the State of California's requirements relating
to workers' compensation self-insurance.
(c) Includes New F4L Senior Notes issued pursuant to both the Senior Note Public
Offering and the F4L Exchange Offers.
(d) Includes New Notes issued pursuant to both the Subordinated Note Public
Offering and the Offers. In accordance with the terms of the Old RGC
Indentures, holders of Old RGC Notes not exchanged for New Notes or
purchased pursuant to the 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) Represents notes receivable from shareholders of Holdings with respect to
the purchase of Holdings' common stock. See "Executive Compensation -- Food
4 Less Stock Plan."
30
42
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements of the
Company for the 52 weeks ended June 25, 1994 and as of and for the 28 weeks
ended January 7, 1995, give effect to the Merger, the FFL Merger, the
Reincorporation Merger and the Financing (and certain related assumptions set
forth below) and the application of the proceeds therefrom as if such
transactions occurred on June 27, 1993, with respect to the pro forma operating
and other data, and as of January 7, 1995, with respect to the pro forma balance
sheet data. Such pro forma information combines the results of operations of
Food 4 Less for the 52 weeks ended June 25, 1994 and the results of operations
and balance sheet data as of and for the 28 weeks ended January 7, 1995, with
the results of operations of Ralphs for the 52 weeks ended July 17, 1994 and the
results of operations and balance sheet data as of and for the 28 weeks ended
January 29, 1995, respectively. For information regarding the Merger and the
Financing, see "The Merger and the Financing."
The pro forma adjustments are based upon the following assumptions: (i)
$225.5 million principal amount of Old RGC Notes are tendered into the Offers in
exchange for New Notes, (ii) $224.5 million principal amount of Old RGC Notes
are tendered into the Offers for cash, (iii) $256 million principal amount of
Old F4L Notes are tendered into the F4L Exchange Offers and (iv) $103.6 million
principal amount (at maturity) of Discount Notes are tendered into the Holdings
Offer to Purchase. The presentation also assumes that $200 million principal
amount of New Notes are issued pursuant to the Subordinated Note Public Offering
and that $295 million principal amount of New F4L Senior Notes are issued
pursuant to the Senior Note Public Offering. In addition, the unaudited pro
forma combined financial statements have been prepared based upon the assumption
that upon consummation of the Merger, the Company will divest or close 32
stores.
The pro forma adjustments are based upon currently available information
and upon certain assumptions that management believes are reasonable. The Merger
will be accounted for by the Company as a purchase of Ralphs by Food 4 Less and
Ralphs' assets and liabilities will be recorded at their estimated fair market
values at the date of the Merger. The adjustments included in the unaudited pro
forma combined financial statements represent the Company's preliminary
determination of these adjustments based upon available information. There can
be no assurance that the actual adjustments will not differ significantly from
the pro forma adjustments reflected in the pro forma financial information.
The unaudited pro forma combined financial statements are not necessarily
indicative of either future results of operations or results that might have
been achieved if the foregoing transactions had been consummated as of the
indicated dates. The unaudited pro forma combined financial statements should be
read in conjunction with the historical consolidated financial statements of
Food 4 Less and Ralphs, together with the related notes thereto, included
elsewhere in this Amended and Restated Prospectus and Solicitation Statement.
31
43
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
(DOLLARS IN MILLIONS)
52 WEEKS ENDED
--------------------------
RALPHS FOOD 4 LESS
(HISTORICAL) (HISTORICAL)
(UNAUDITED) (AUDITED)
JULY 17, JUNE 25, PRO FORMA PRO FORMA
1994 1994 ADJUSTMENTS COMBINED
----------- ------------ ----------- ---------
Sales........................................... $ 2,709.7 $2,585.2 $(241.4)(a) $5,053.5
Cost of sales................................... 2,076.3 2,115.9 (194.7)(a) 4,005.3
4.2(b)
2.8(c)
0.8(d)
----------- ------------ ----------- ---------
Gross profit............................... 633.4 469.3 (54.5) 1,048.2
Selling, general and administrative expenses.... 469.1 388.8 (36.4)(a) 833.1
8.1(b)
1.4(d)
1.6(e)
0.5(f)
Amortization of excess cost over net assets
acquired...................................... 11.0 7.7 10.7(g) 29.4
Provision for restructuring..................... 2.4 0.0 -- 2.4
----------- ------------ ----------- ---------
Operating income........................... 150.9 72.8 (40.4) 183.3
Other expenses:
Interest expense -- cash(l)................... 93.2 57.0 73.7(h) 223.9
Interest expense -- non-cash(l)............... 9.4 5.8 -- 15.2
Amortization of debt issuance costs(l)........ 6.4 5.5 1.5(h) 13.4
Loss on disposal of assets.................... 1.8 -- -- 1.8
Provision for earthquake loss................. 11.0 4.5 -- 15.5
----------- ------------ ----------- ---------
Earnings (loss) before income tax
provision................................ 29.1 (0.0) (115.6) (86.5)
Income tax expense (benefit).................... (108.0) 2.7 105.3(i) --
----------- ------------ ----------- ---------
Net earnings (loss)(o)..................... $ 137.1 $ (2.7) $(220.9) $ (86.5)
========= ========= ========= ========
Preferred stock accretion....................... -- 8.8 (8.8)(j) --
Earnings (loss) applicable to common
shares................................... $ 137.1 $ (11.5) $(212.1) $ (86.5)
========= ========= ========= ========
Ratio of earnings to fixed charges(k)(l)... 1.2x 1.0x --
========= ========= ========
Other Data:
EBITDA (as defined)(m)(p)..................... $ 228.1 $ 130.5 $ (16.1)(n) $ 342.5
EBITDA margin(o).............................. 8.4% 5.0% 6.8%
See Notes to Unaudited Pro Forma Combined Statement of Operations.
32
44
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS -- CONTINUED
(DOLLARS IN MILLIONS)
28 WEEKS ENDED
---------------------------
RALPHS FOOD 4 LESS
(HISTORICAL) (HISTORICAL)
(UNAUDITED) (UNAUDITED)
JANUARY 29, JANUARY 7, PRO FORMA PRO FORMA
1995 1995 ADJUSTMENTS COMBINED
----------- ------------- ----------- ---------
Sales.......................................... $ 1,483.6 $ 1,404.7 $(120.7)(a) $2,767.6
Cost of sales.................................. 1,144.5 1,167.2 (99.3)(a) 2,214.6
2.3(b)
(0.8)(c)
0.7(d)
----------- ------------- ----------- ---------
Gross profit.............................. 339.1 237.5 (23.6) 553.0
Selling, general and administrative expenses... 254.7 199.2 (18.7)(a) 442.1
4.4(b)
1.3(d)
0.9(e)
0.3(f)
Amortization of excess cost over net assets
acquired..................................... 5.9 4.2 5.8(g) 15.9
Provision for restructuring.................... 0.0 5.1 -- 5.1
----------- ------------- ----------- ---------
Operating income.......................... 78.5 29.0 (17.6) 89.9
Other expenses:
Interest expense -- cash(l).................. 53.2 31.6 37.5(h) 122.3
Interest expense -- non-cash(l).............. 4.9 3.0 -- 7.9
Amortization of debt issuance costs(l)....... 3.2 3.1 0.6(h) 6.9
Loss (gain) on disposal of assets............ 0.8 (0.5) -- 0.3
----------- ------------- ----------- ---------
Earnings (loss) before income tax
provision............................... 16.4 (8.2) (55.7) (47.5)
Income tax expense (benefit)................... 0.0 0.5 (0.5)(i) 0.0
----------- ------------- ----------- ---------
Net earnings (loss)(o).................... $ 16.4 $ (8.7) $ (55.2) $ (47.5)
========= ========== ========= ========
Preferred stock accretion...................... -- 5.6 (5.6)(j) --
Earnings (loss) applicable to common
shares.................................. $ 16.4 $ (14.3) $ (49.6) $ (47.5)
========= ========== ========= ========
Ratio of earnings to fixed
charges(k)(l)........................... 1.2x -- --
========= ========== ========
Other Data:
EBITDA (as defined)(m)(p).................... $ 126.0 $ 69.4 $ (6.1)(n) $ 189.3
EBITDA margin(o)............................. 8.5% 4.9% 6.8%
See Notes to Unaudited Pro Forma Combined Statement of Operations.
33
45
NOTES TO UNAUDITED PRO FORMA
COMBINED STATEMENT OF OPERATIONS
(a) Reflects the anticipated closing or divestiture of 32 stores. Does not give
effect to the closure of 2 Food 4 Less stores open at October 1, 1994 which
were subsequently closed. Food 4 Less has determined that there is no
impairment of existing goodwill related to the store closures based on its
projection of future undiscounted cash flows.
(b) Represents the additional depreciation expense associated with the purchase
price allocation to property, plant and equipment of $160.0 million based on
the current estimate of fair market value. Property, plant and equipment is
being depreciated over an average useful life of 13 years. Depreciation
expense has been allocated among cost of sales and selling, general and
administrative expenses.
(c) Reflects the elimination of Ralphs historical LIFO provision.
(d) Reflects depreciation expense associated with approximately $36.8 million of
additional fixed assets required for the conversion of 23 Ralphs stores to
the Food 4 Less warehouse format and 122 Alpha Beta, Boys and Viva stores to
the Ralphs format.
(e) Reflects additional Yucaipa management fees ($2.0 million for the 52 weeks
ended June 25, 1994 and $1.1 million for the 28 weeks ended January 7, 1995)
and the elimination of an annual guarantee fee ($0.4 million for the 52
weeks ended June 25, 1994 and $0.2 million for the 28 weeks ended January 7,
1995) paid by Ralphs to EJDC.
(f) Reflects increased compensation resulting from new employment agreements
with certain of the current executive officers of Ralphs.
(g) Reflects the amortization of the excess of cost over net assets acquired in
the Merger ($21.7 million for the 52 weeks ended June 25, 1994 and $11.7
million for the 28 weeks ended January 7, 1995) and elimination of Ralphs'
historical amortization ($11.0 million for the 52 weeks ended June 25, 1994
and $5.9 million for the 28 weeks ended January 7, 1995). Amortization has
been calculated on the straight line basis over a period of 40 years.
(h) The following table presents a reconciliation of pro forma interest expense
and amortization of deferred financing costs:
52 WEEKS 28 WEEKS
ENDED ENDED
JUNE 25, 1994 JANUARY 7, 1995
------------- ---------------
Historical interest expense -- cash...................................... $ 150.2 $ 84.8
------ ------
Plus: Interest on borrowings under:
New Credit Facility.................................................. 79.4 42.7
New F4L Senior Notes................................................. 33.2 17.9
New Notes............................................................ 48.9 26.4
Other bank fees...................................................... 3.5 1.9
Other debt........................................................... 2.0 1.8
Less: Interest on borrowings under:
Old bank term loans:
Ralphs............................................................. (21.3) (13.7)
Food 4 Less........................................................ (11.5) (6.9)
Old RGC Notes........................................................ (43.9) (23.6)
Other debt........................................................... (16.6) (9.0)
------ ------
Pro forma adjustment................................................... 73.7 37.5
------ ------
Pro forma interest expense -- cash....................................... $ 223.9 $ 122.3
======= =======
Historical amortization of debt issuance costs........................... $ 11.9 $ 6.3
Plus:
Financing and exchange/consent fees.................................. 9.0 4.8
Other fees and expenses.............................................. 3.9 2.1
Less:
Historical financing costs:
Ralphs............................................................... (6.1) (3.2)
Food 4 Less.......................................................... (5.3) (3.1)
------ ------
Pro forma adjustment................................................... 1.5 0.6
------ ------
Pro forma amortization of debt issuance costs............................ $ 13.4 $ 6.9
======= =======
(i) Represents the elimination of the historical income tax benefit of Ralphs
($108.0 million for the 52 weeks ended June 25, 1994) and Food 4 Less
income tax expense ($2.7 million for the 52 weeks ended June 25, 1994 and
$0.5 million for the 28 weeks ended January 7, 1995) given expected pro
forma losses. The Company's ability to recognize income tax benefits may be
limited in accordance with Financial Accounting Standard No. 109
"Accounting for Income Taxes." As such, no income tax benefit has been
reflected in these pro forma financial statements. See "Certain Federal
Income Tax Considerations."
(j) Reflects cancellation of cumulative convertible preferred stock of Food 4
Less held by Holdings.
34
46
(k) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of earnings before income taxes, cumulative effect of change in
accounting principles, extraordinary item and fixed charges before
capitalized interest. "Fixed charges" consist of interest expense (including
amortization of self-insurance reserves discount), capitalized interest,
amortization of deferred debt issuance costs and one-third of rental expense
(the portion deemed representative of the interest factor). The Company's
pro forma earnings were inadequate to cover pro forma fixed charges for the
52 weeks ended June 25, 1994 and for the 28 weeks ended January 7, 1995 by
approximately $86.5 million and $47.5 million, respectively. However, such
pro forma earnings included non-cash charges of $189.0 million for the 52
weeks ended June 25, 1994 and $99.9 million for the 28 weeks ended January
7, 1995, primarily consisting of depreciation and amortization.
(l) Supplemental Pro Forma Adjustments:
The table below shows the variations that would occur in the pro forma cash
and non-cash interest expense, the amortization of debt issuance costs and
the amount of the deficiency of earnings to fixed charges at different
participation levels of Old RGC Notes tendered in exchange for New Notes in
the Offers (50.1%, 55.1%, 60.1% and 65.1%) and Old F4L Notes tendered into
the F4L Exchange Offers (80%, 85%, 90% and 95%). The table also indicates
the changes in the foregoing items (at each participation level) that would
result from each 25 basis point increase in the interest rate on the New
F4L Senior Notes over the assumed rate of 11% and each 25 basis point
increase in the interest rate on the New Notes over the assumed rate of
11.50%.
52 WEEK PERIOD 28 WEEK PERIOD
--------------------------------- ---------------------------------
PARTICIPATION LEVEL(1) PARTICIPATION LEVEL(1)
--------------------------------- ---------------------------------
50.1/ 55.1/ 60.1/ 65.1/ 50.1/ 55.1/ 60.1/ 65.1/
80% 85% 90% 95% 80% 85% 90% 95%
------ ------ ------ ------ ------ ------ ------ ------
Interest expense -- cash........................ $223.9 $224.5 $225.1 $225.7 $122.3 $122.6 $122.9 $123.2
Interest expense -- non-cash.................... 15.2 15.2 15.2 15.2 7.9 7.9 7.9 7.9
Amortization of debt issuance costs............. 13.4 13.5 13.6 13.7 6.9 7.0 7.0 7.1
Deficiency of earnings to fixed charges(2)...... 86.5 87.2 87.9 88.6 47.5 47.9 48.2 48.6
EFFECT OF EACH 25 BASIS POINT INCREASE IN THE
INTEREST RATE ON THE NEW F4L SENIOR NOTES AND
NEW NOTES
Additional interest expense -- cash............. $ 2.2 $ 2.2 $ 2.3 $ 2.4 $ 1.2 $ 1.2 $ 1.2 $ 1.3
Additional interest expense -- non-cash......... -- -- -- -- -- -- -- --
Additional amortization of debt issuance
costs......................................... -- -- -- -- -- -- -- --
Additional deficiency of earnings to fixed
charges(2).................................... 2.2 2.2 2.3 2.4 1.2 1.2 1.2 1.3
- ---------------
(1) If Food 4 Less receives tenders in excess of the Minimum Exchange in the
Offers, Food 4 Less may elect to decrease the amount of New Notes being
offered pursuant to the Subordinated Note Public Offering and/or
decrease the amount of New F4L Senior Notes being offered pursuant to
the Senior Note Public Offering.
(2) "Earnings" consist of earnings before income taxes, cumulative effect of
change in accounting principles, extraordinary item and fixed charges
before capitalized interest. "Fixed charges" consist of interest expense
(including amortization of self-insurance reserves discount),
capitalized interest, amortization of deferred debt issuance costs and
one-third of rental expense (the portion deemed representative of the
interest factor).
(m) "EBITDA," as defined and presented historically by RGC, represents net
earnings before interest expense, income tax expense (benefit), depreciation
and amortization expense, post-retirement benefits, the LIFO charge,
provision for restructuring, provision for earthquake losses, a one-time
charge for Teamsters Union sick pay benefits, transition expense and gains
and losses on disposal of assets. EBITDA is a widely accepted financial
indicator of a company's ability to service debt. However, EBITDA should not
be construed as an alternative to operating income or to cash flows from
operating activities (as determined in accordance with generally accepted
accounting principles) and should not be construed as an indication of the
Company's operating performance or as a measure of liquidity. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(n) Reflects primarily EBITDA (as defined) associated with closed or divested
stores and the adjustments referred to in notes (e) and (f) above.
(o) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
(p) The unaudited pro forma results of operations and EBITDA for the 52 weeks
ended June 25, 1994 and the 28 weeks ended January 7, 1995 do not include
certain one-time non-recurring costs related to (i) severance payments under
certain employment contracts with Food 4 Less management 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.
35
47
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(DOLLARS IN MILLIONS)
RALPHS FOOD 4 LESS
(HISTORICAL) (HISTORICAL)
(AUDITED) (UNAUDITED)
JANUARY 29, JANUARY 7, PRO FORMA
1995 1995 ADJUSTMENTS PRO FORMA
----------- ----------- ----------- ---------
ASSETS
Current assets:
Cash and cash equivalents..................... $ 35.1 $ 15.8 $ 0.0(a) $ 50.9
Accounts receivable........................... 43.6 26.8 -- 70.4
Inventories................................... 221.4 223.2 39.9(b) 484.5
Prepaid expense and other current assets...... 19.8 17.6 -- 37.4
----------- ----------- ----------- ---------
Total current assets.................. 319.9 283.4 39.9 643.2
Investments..................................... 0.0 12.4 -- 12.4
Property, plant and equipment................... 624.7 370.2 160.0(c) 1,130.1
(22.8)(d)
(2.0)(e)
Excess of cost over net assets acquired, net.... 365.4 263.7 501.4(f) 1,130.5
Beneficial lease rights......................... 49.2 0.0 -- 49.2
Deferred debt issuance costs, net............... 23.0 25.5 88.4(g) 94.1
(42.8)(h)
Deferred income taxes........................... 112.5 0.0 (112.5)(i) 0.0
Other assets.................................... 15.2 29.4 (12.9)(d) 36.7
5.0(j)
----------- ----------- ----------- ---------
Total assets.......................... $ 1,509.9 $ 984.6 $ 601.7 $3,096.2
======== ========= ========= ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt.......... $ 84.0 $ 25.9 $ (83.1)(k) $ 26.8
Short-term debt............................... 51.5 0.0 (51.5)(l) 0.0
Accounts payable.............................. 176.6 165.0 -- 341.6
Accrued expenses.............................. 99.8 108.8 (14.8)(m) 200.3
4.7(d)
1.8(n)
Current portion of self-insurance reserves.... 27.5 28.6 -- 56.1
----------- ----------- ----------- ---------
Total current liabilities............. 439.4 328.3 (142.9) 624.8
Long-term debt.................................. 883.0 525.5 558.3(o) 1,966.8
Self-insurance reserves......................... 44.9 50.7 -- 95.6
Deferred income taxes........................... 0.0 14.7 -- 14.7
Lease valuation reserve......................... 29.0 0.0 -- 29.0
Other non-current liabilities................... 86.4 5.0 (27.8)(p) 77.6
11.0(q)
3.0(e)
----------- ----------- ----------- ---------
Total liabilities..................... 1,482.7 924.2 401.6 2,808.5
----------- ----------- ----------- ---------
Stockholders' equity:
Preferred Stock............................... 0.0 64.5 (64.5)(r) 0.0
Common Stock.................................. 0.3 0.0 (0.3)(s) 0.0
Additional paid-in capital.................... 175.2 107.7 64.5(r) 464.3
10.0(p)
100.0(t)
32.1(u)
150.0(s)
(175.2)(v)
Notes receivable from shareholders of
parent..................................... 0.0 (0.7) -- (0.7)
Retained deficit.............................. (148.3) (108.9) (22.6)(w) (173.7)
148.3(v)
(40.4)(d)
(1.8)(n)
Treasury stock................................ 0.0 (2.2) -- (2.2)
----------- ----------- ----------- ---------
Total stockholder's equity(x)......... 27.2 60.4 200.1 287.7
----------- ----------- ----------- ---------
Total liabilities and stockholder's
equity.............................. $ 1,509.9 $ 984.6 $ 601.7 $3,096.2
======== ========= ========= ========
See Notes to Unaudited Pro Forma Combined Balance Sheet.
36
48
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(a) Reflects gross proceeds received from (i) the New Term Loans, (ii) the New
Revolving Facility, (iii) the New Equity Investment and (iv) the Public
Offerings used to retire certain debt and liabilities and to pay financing
costs and other related fees as set forth in the following table:
New Term Loans............................................................................ $ 750.0
New Revolving Facility.................................................................... 50.8
New F4L Senior Notes...................................................................... 295.0
New Notes................................................................................. 200.0
New Equity Investment..................................................................... 140.0
New Discount Debentures................................................................... 59.0
Purchase Discount Notes................................................................... (83.9)
Purchase RSI Common Stock................................................................. (375.9)
Repay Ralphs 1992 Credit Agreement........................................................ (297.4)
Repay F4L Credit Agreement................................................................ (174.4)
Purchase Old RGC Notes.................................................................... (226.8)
Pay EAR liability......................................................................... (17.8)
Loan to affiliate......................................................................... (5.0)
Repay other Ralphs debt................................................................... (188.9)
Accrued Interest.......................................................................... (14.8)
Fees and Expenses......................................................................... (109.9)
-------
Pro forma adjustment.............................................................. $ 0.0
=======
(b) Reflects the elimination of Ralphs historical LIFO reserve ($17.4 million)
and the write-up of merchandise inventory ($22.5 million); both to reflect
current estimated selling prices less costs of disposal and a reasonable
profit allowance for the selling effort of the acquiring company.
(c) Reflects the estimated write-up to fair value of Ralphs property, plant and
equipment as of the date of the Merger.
(d) Reflects estimated restructuring charge associated with closing 29 Food 4
Less conventional supermarkets or warehouse stores and converting 5 Food 4
Less conventional supermarkets to warehouse stores. Pursuant to the
settlement agreement with the State of California, 24 Food 4 Less stores (as
well as 3 Ralphs stores) must be closed by December 31, 1995. See
"Business -- California Settlement Agreement." Although not required by such
settlement agreement, an additional 5 under-performing stores selected by
the Company also are scheduled to be closed by December 31, 1995. The
restructuring charge consists of write-downs of property, plant and
equipment ($22.8 million), write-off of the Alpha Beta trademark ($8.6
million), write-off of other assets ($4.3 million), lease termination
expenses ($3.1 million), and miscellaneous expense accruals ($1.6 million).
The expected cash payments to be made in connection with the restructuring
charge total $7.1 million. It is expected that such cash payments will be
made by December 31, 1995. The estimated restructuring charge will be
recorded as an expense once the Merger is completed. No additional expenses
are expected to be incurred in future periods in connection with these
closings. Food 4 Less has determined that there is no impairment of existing
goodwill related to the store closures based on its projections of future
undiscounted cash flows.
(e) Reflects the anticipated closing of 3 Ralphs stores.
(f) Reflects the excess of costs over the fair value of the net assets of Ralphs
acquired in connection with the Merger ($866.8 million) and the elimination
of Ralphs historical excess of costs over the fair value of the net assets
acquired ($365.4 million). The purchase price and preliminary calculation of
the excess of cost over the net book value of assets acquired is as follows:
Purchase price:
Purchase of outstanding common equity................................................... $ 525.9
Fees and expenses....................................................................... 55.8
-------
Total purchase price.................................................................... $ 581.7
-------
Purchase price is financed by:
Seller Debentures....................................................................... $ 131.5
New Discount Debentures................................................................. 18.5
New Equity Investment................................................................... 140.0
New borrowings.......................................................................... 291.7
-------
$ 581.7
======
Preliminary calculation of purchase price allocated to assets and liabilities based on
management's estimate of fair values as of January 29, 1995:
Cash.................................................................................... $ 35.1
Receivables............................................................................. 43.6
Inventories............................................................................. 261.3
Other current assets.................................................................... 19.8
Property, fixtures and equipment........................................................ 782.7
Beneficial lease rights................................................................. 49.2
Goodwill................................................................................ 866.8
Other assets............................................................................ 18.0
Current liabilities..................................................................... (424.8)
Obligations under capital leases........................................................ (89.1)
Long-term debt.......................................................................... (806.6)
Other non-current liabilities........................................................... (174.3)
-------
$ 581.7
======
37
49
Pro forma book value of historical assets acquired:
Historical net book value at January 29, 1995...................................... $ 27.2
Less book value of historical assets with no value at the acquisition date:
Historical deferred tax asset.................................................... 112.5
Historical goodwill.............................................................. 365.4
Historical deferred debt costs................................................... 20.2 (498.1)
----- --------
Negative pro forma book value of net assets acquired............................. 470.9
Purchase price..................................................................... 581.7
--------
Excess of purchase price to be allocated........................................... $1,052.6
=======
Excess allocated to:
Inventories........................................................................ $ 39.9
Property, fixtures and equipment................................................... 160.0
Goodwill........................................................................... 866.8
Other non-current liabilities...................................................... (14.1)
--------
$1,052.6
=======
(g) Reflects the debt issuance costs associated with the New Credit Facility
($33.4 million), the Offers ($2.2 million), the F4L Exchange Offers ($2.6
million), the Senior Note Public Offering ($8.9 million) and the
Subordinated Note Public Offering ($6.0 million), the cash exchange payments
associated with the RGC Offers ($4.5 million) and the Exchange Offers ($3.0
million) and other financing costs ($27.8 million). These amounts have been
capitalized as deferred financing costs.
(h) Reflects the elimination of deferred debt issuance costs associated with the
Ralphs 1992 Credit Agreement (as defined) ($6.3 million), the F4L Credit
Agreement (as defined) ($9.2 million), the Old RGC Notes ($10.4 million) and
the Old F4L Notes ($13.4 million) and other indebtedness of RGC and Food 4
Less ($3.5 million) to be repaid in connection with the Merger.
(i) Reflects the elimination of Ralphs deferred tax asset associated with
changes in the financial reporting basis of assets. The combined Company may
be required to record a valuation allowance on all or some deferred tax
assets in compliance with Financial Accounting Standard No. 109 "Accounting
for Income Taxes." This determination may be based, in part, on historical
or expected earnings. For purposes of these pro forma financial statements
it has been assumed that all deferred net tax assets have been fully
reserved.
(j) Represents a loan to a corporation owned by Yucaipa affiliates. The
corporation will invest the 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 the Ralphs EARs in
satisfaction of the deferred EAR liability. See "Certain Relationships and
Related Transactions -- Food 4 Less."
(k) Reflects the repayment and cancellation of the current maturities of Ralphs
1992 Credit Agreement ($65.0 million), the F4L Credit Agreement ($19.8
million), certain other Ralphs debt ($2.1 million) and the recording of the
current maturities of the New Credit Facility ($3.8 million).
(l) Reflects the repayment of Ralphs' old revolving credit facility.
(m) Reflects the payment of accrued interest on the Ralphs 1992 Credit Agreement
($1.5 million), the F4L Credit Agreement ($1.7 million), the Old RGC Notes
($5.5 million), the Old F4L Notes ($4.5 million) and other indebtedness of
RGC and Food 4 Less ($1.6 million) to be repaid in connection with the
Merger.
(n) Represents the liability to an executive under his employment contract due
to a change of control provision.
(o) Reflects the repayment and cancellation of the Ralphs 1992 Credit Agreement
and the F4L Credit Agreement and the repayment of certain other Ralphs debt,
and records borrowings under the New Credit Facility as set forth in the
table below:
New Term Loans............................................................................ $ 746.2
New Revolving Facility.................................................................... 50.8
New F4L Senior Notes...................................................................... 295.0
New Notes................................................................................. 200.0
Repay Ralphs 1992 Credit Agreement........................................................ (180.0)
Repay F4L Credit Agreement................................................................ (154.6)
Purchase Old RGC Notes.................................................................... (224.5)
Repay other Ralphs debt................................................................... (174.6)
-------
Net pro forma adjustment.......................................................... $ 558.3
=======
(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
plans as compared to the fair value of plan assets, less amounts previously
accrued.
(r) Reflects cancellation of cumulative convertible preferred stock of Food 4
Less held by Holdings.
(s) Reflects the contribution by New Holdings of RSI stock acquired through the
issuance of $131.5 million aggregate principal amount of the Seller
Debentures and $18.5 million initial accreted value of the New Discount
Debentures.
(t) Reflects the contribution by New Holdings of RSI stock acquired with $100
million of the cash proceeds from the New Equity Investment.
(u) Reflects the contribution by New Holdings of $12.1 million in cash proceeds
from the New Equity Investment and the satisfaction by New Holdings, through
the issuance of New Discount Debentures, of $20.0 million in fees otherwise
payable by the Company in connection with the Merger and the Financing.
(v) Reflects the elimination of Ralphs historical equity.
(w) Represents the write-off of the historical deferred debt issuance costs of
Food 4 Less related to its refinanced debt.
(x) The unaudited pro forma combined balance sheet as of January 7, 1995 does
not include certain one-time non-recurring costs related to (i) severance
payments under certain employment contracts with Food 4 Less management
totaling $1.4 million that are subject to change of control provisions and
the achievement of earnings and sales targets, (ii) costs related to the
integration of the Company's operations which are estimated to be $50.0
million (includes an estimated $12.0 million related to termination and
severance costs) over a three-year period, (iii) other costs related to
warehouse closures, which costs are not presently determinable, or (iv) any
contingent liability to reimburse Yucaipa in the event it incurs a loss on
the resale of $10 million principal amount of Seller Debentures.
38
50
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 consolidated
financial statements of RSI and RGC and related notes thereto included elsewhere
in this Amended and Restated Prospectus and Solicitation Statement.
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)
OPERATING DATA:
Sales..................................................... $ 2,799.1 $ 2,889.2 $ 2,843.8 $ 2,730.2 $ 2,724.6
Cost of sales............................................. 2,225.4 2,275.2 2,217.2 2,093.7 2,101.0
----------- ----------- ----------- ----------- -----------
Gross profit.............................................. 573.7 614.0 626.6 636.5 623.6
Selling, general and administrative expenses(a)........... 438.0 459.2 470.0 471.0 467.0
Provision for equity appreciation rights.................. 15.3 18.3 -- -- --
Amortization of excess of cost over net assets acquired... 11.0 11.0 11.0 11.0 11.0
Provisions for restructuring and tax indemnification
payments(b)............................................. -- 10.0 7.1 2.4 --
----------- ----------- ----------- ----------- -----------
Operating income.......................................... 109.4 115.5 138.5 152.1 145.6
Interest expense(c)....................................... 128.5 130.2 125.6 108.8 112.7
Loss on disposal of assets and provisions for legal
settlement and earthquake losses(d)..................... 6.4 13.0 10.1 12.9 0.8
Income tax expense (benefit).............................. 12.8 13.5 8.3 (108.0)(e) --
Cumulative effect of change in accounting for
postretirement benefits other than pensions............. (13.1) -- -- -- --
Extraordinary item-debt refinancing, net of tax
benefits................................................ -- -- (70.6) -- --
----------- ----------- ----------- ----------- -----------
Net earnings (loss)....................................... $ (51.4) $ (41.2) $ (76.1) $ 138.4 $ 32.1
========== ========== ========== ========== ==========
Ratio of earnings to fixed charges(f)..................... --(f) --(f) 1.02x 1.24x 1.24x
BALANCE SHEET DATA (end of period):
Working capital surplus (deficit)......................... $ (93.9) $ (114.2) $ (122.0) $ (73.0) $ (119.5)
Total assets.............................................. 1,406.4 1,357.6 1,388.5 1,483.7 1,509.9
Total debt(g)............................................. 986.1 941.9 1,029.8 998.9 1,018.5
Redeemable stock.......................................... 3.0 3.0 -- -- --
Stockholders' equity (deficit)............................ (16.0) (57.2) (133.3) 5.1 27.2
OTHER DATA:
Depreciation and amortization(h).......................... $ 75.2 $ 76.6 $ 76.9 $ 74.5 $ 76.0
Capital expenditures...................................... 87.6 50.4 102.7 62.2 64.0
Stores open at end of period.............................. 150 158 159 165 173
EBITDA (as defined)(i).................................... $ 207.0 $ 225.8 $ 227.3 $ 230.2 $ 230.2
EBITDA margin(j).......................................... 7.4% 7.8% 8.0% 8.4% 8.4%
- ---------------
(a) Includes provision for post retirement benefits other than pensions of $2.2
million, $2.6 million, $3.3 million, $3.4 million and $2.6 million for the
53 weeks ended February 3, 1991, the 52 weeks ended February 2, 1992,
January 31, 1993, January 30, 1994 and January 29, 1995, respectively.
(b) Provisions for restructuring are charges for expenses relating to closing of
Ralphs central bakery operation. The charge reflected the complete
write-down of the bakery building, machinery and equipment, leaseholds,
related inventory and supplies, and providing severance pay to terminated
employees. These charges were $7.1 million and $2.4 million for the 52 weeks
ended January 31, 1993 and the 52 weeks ended January 30, 1994,
respectively. Provision for tax indemnification payments to Federated were
$10.0 million for the 52 weeks ended February 2, 1992.
(c) Net earnings (loss) includes non-cash charges related to the amortization of
deferred debt issuance costs of $4.1 million for the 53 weeks ended February
3, 1991, $5.0 million for the 52 weeks ended February 2, 1992, $5.5 million
for the 52 weeks ended January 31, 1993, $6.5 million for the 52 weeks ended
January 30, 1994 and $6.1 million for the 52 weeks ended January 29, 1995,
respectively.
(d) Loss on disposal of assets was $6.4 million, $13.0 million, $2.6 million,
$1.9 million and $0.8 million for the 53 weeks ended February 3, 1991, the
52 weeks ended February 2, 1992, January 31, 1993, January 30, 1994 and
January 29, 1995, respectively. The 52 weeks ended February 2, 1992 includes
approximately $12.2 million representing a reserve against losses related to
the closing of three stores. Provision for legal settlement was $7.5 million
for the 52 weeks ended January 31, 1993. Provision for earthquake losses was
$11.0 million for the 52 weeks ended January 30, 1994. This represents
reserve for losses, net of anticipated insurance recoveries, resulting from
the January 17, 1994 Southern California earthquake.
(e) Includes recognition of $109.1 million of deferred income tax benefit and
$1.1 million current income tax expense for Fiscal 1993 (see Note 11 of
Notes to Consolidated Financial Statements of Ralphs Supermarkets, Inc.).
(f) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of earnings before income taxes, cumulative effect of change in
accounting principles, extraordinary items and fixed charges before
capitalized interest. "Fixed charges" consist of interest expense (including
amortization
39
51
of self-insurance reserves discount), capitalized interest, amortization of
deferred debt issuance costs and one-third of rental expense (the portion
deemed representative of the interest factor). Earnings were insufficient to
cover fixed charges for the 53 weeks ended February 3, 1991 and the 52 weeks
ended February 2, 1992 by $25.5 million and $27.7 million, respectively.
(g) Total debt includes long-term debt, current maturities of long-term debt,
short-term debt and capital lease obligations.
(h) For the 53 weeks ended February 3, 1991, the 52 weeks ended February 2,
1992, January 31, 1993, January 30, 1994 and January 29, 1995, depreciation
and amortization includes amortization of the excess of cost over net assets
acquired of $11.0 million, $11.0 million, $11.0 million, $11.0 million and
$11.0 million, respectively.
(i) "EBITDA," as defined and presented historically by RGC, represents net
earnings before interest expense, income tax expense (benefit), depreciation
and amortization expense, provisions for Equity Appreciation Rights,
provision for tax indemnification payments to Federated, provision for
postretirement benefits, the LIFO charge, extraordinary item relating to
debt refinancing, provision for legal settlement, provision for
restructuring, provision for earthquake losses, a one-time charge for
Teamsters Union sick pay benefits, transition expense and gains and losses
on disposal of assets. EBITDA is a widely accepted financial indicator of a
company's ability to service debt. However, EBITDA should not be construed
as an alternative to operating income or to cash flows from operating
activities (as determined in accordance with generally accepted accounting
principles) and should not be construed as an indication of Ralphs'
operating performance or as a measure of liquidity. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(j) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
40
52
SELECTED HISTORICAL FINANCIAL DATA OF FOOD 4 LESS
The following table presents selected historical financial data of Food 4
Less as of and for the 53 weeks ended June 30, 1990 and the 52 weeks ended June
29, 1991, June 27, 1992, June 26, 1993 and June 25, 1994 which have been derived
from the financial statements of Food 4 Less audited by Arthur Andersen LLP,
independent public accountants. The summary historical financial data of Food 4
Less presented below as of and for the 28 weeks ended January 8, 1994 and
January 7, 1995 have been derived from unaudited interim financial statements of
Food 4 Less which, in the opinion of management, reflect all material
adjustments, consisting of only normal recurring adjustments, necessary for a
fair presentation of such data. The following information should be read in
conjunction with the Unaudited Pro Forma Combined Financial Statements,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical consolidated financial statements of Food 4 Less
and related notes thereto included elsewhere in this Amended and Restated
Prospectus and Solicitation Statement.
53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 28 WEEKS 28 WEEKS
ENDED ENDED ENDED ENDED ENDED ENDED ENDED
JUNE 30, JUNE 29, JUNE 27, JUNE 26, JUNE 25, JANUARY 8, JANUARY 7,
1990 1991(A) 1992 1993 1994(B) 1994 1995
-------- -------- -------- -------- -------- ------------- -------------
(DOLLARS IN MILLIONS) (UNAUDITED)
OPERATING DATA:
Sales................................ $1,318.2 $1,606.6 $2,913.5 $2,742.0 $2,585.2 $ 1,416.2 $ 1,404.7
Cost of sales......................... 1,113.4 1,340.9 2,392.7 2,257.8 2,115.9 1,154.0 1,167.2
-------- -------- -------- -------- -------- ------------- -------------
Gross profit.......................... 204.8 265.7 520.8 484.2 469.3 262.2 237.5
Selling, general, administrative and
other expenses...................... 157.8 213.1 469.7 434.9 388.8 221.5 199.2
Amortization of excess cost over net
assets acquired..................... 5.3 5.3 7.8 7.6 7.7 4.1 4.2
Restructuring charge.................. -- -- -- -- -- -- 5.1(d)
-------- -------- -------- -------- -------- ------------- -------------
Operating income...................... 41.7 47.3 43.3 41.7 72.8 36.6 29.0
Interest expense(c)................... 50.8 50.1 70.2 69.8 68.3 36.8 37.7
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 0.7 0.5
Extraordinary charge.................. -- 3.7 (e) 4.8 (f) -- -- -- --
-------- -------- -------- -------- -------- ------------- -------------
Net loss.............................. $ (10.1) $ (9.6) $ (33.8) $ (27.4) $ (2.7) $ (1.0) $ (8.7)
======== ======== ======== ======== ======== =========== ===========
Ratio of earnings to fixed
charges(g).......................... --(g) --(g) --(g) --(g) 1.0x --(g) --(g)
BALANCE SHEET DATA (end of period)(h):
Working capital surplus (deficit)..... $ (40.5) $ 13.7 $ (66.3) $ (19.2) $ (54.9) $ (14.9) $ (44.8)
Total assets.......................... 574.7 980.0 998.5 957.8 980.1 969.6 984.6
Total debt(i)......................... 360.7 558.9 525.3 538.1 517.9 521.3 551.4
Redeemable stock...................... 5.1 -- -- -- -- -- --
Stockholder's equity.................. 20.6 84.6 50.8 72.9 69.0 71.2 60.4
OTHER DATA:
Depreciation and amortization(j)...... $ 25.8 $ 31.9 $ 54.9 $ 57.6 $ 57.1 $ 30.4 $ 30.8
Capital expenditures.................. 36.4 34.7 60.3 53.5 57.5 20.4 39.0
Stores open at end of period.......... 115 259 249 248 258 249 266
EBITDA (as defined)(k)................ $ 69.5 $ 80.7 $ 103.1 $ 105.9 $ 130.5 $ 69.1 $ 69.4
EBITDA margin(l)...................... 5.3% 5.0% 3.5% 3.9% 5.0% 4.9% 4.9%
- ---------------
(a) Operating data for the 52 weeks ended June 29, 1991 include the results of
Alpha Beta only from June 17, 1991, the date of its acquisition. Alpha
Beta's sales for the two weeks ended June 29, 1991 were $59.2 million.
(b) Operating data for the 52 weeks ended June 25, 1994 include the results of
the Food Barn stores, which were not material, from March 29, 1994, the date
of the acquisition of the Food Barn stores.
(c) Interest expense includes non-cash charges related to the amortization of
deferred financing costs of $4.1 million for the 53 weeks ended June 30,
1990, $5.2 million for the 52 weeks ended June 29, 1991, $6.3 million for
the 52 weeks ended June 27, 1992, $4.9 million for the 52 weeks ended June
26, 1993, $5.5 million for the 52 weeks ended June 25, 1994, $2.9 million
for the 28 weeks ended January 8, 1994 and $3.1 million for the 28 weeks
ended January 7, 1995.
(d) Represents the recording of a restructuring charge for the write-off of
property and equipment in connection with the conversion of 11 conventional
format supermarkets to warehouse format stores.
(e) Represents an extraordinary charge of $3.7 million (net of related income
tax benefit of $2.5 million) relating to the refinancing of certain
indebtedness in connection with the Alpha Beta acquisition and the write-off
of related debt issuance costs.
41
53
(f) Represents an extraordinary net charge of $4.8 million reflecting the
write-off of $6.7 million (net of related income tax benefit of $2.5
million) of deferred debt issuance costs as a result of the early redemption
of a portion of Food 4 Less' term loan facility under the F4L Credit
Agreement, partially offset by a $1.9 million extraordinary gain (net of a
related income tax expense of $0.7 million) on the replacement of partially
depreciated assets following the civil unrest in Los Angeles.
(g) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of loss before provision for income taxes and extraordinary charges,
plus fixed charges. "Fixed charges" consist of interest on all indebtedness,
amortization of deferred debt issuance costs and one-third of rental expense
(the portion deemed representative of the interest factor). Earnings were
insufficient to cover fixed charges for the 53 weeks ended June 30, 1990,
the 52 weeks ended June 29, 1991, June 27, 1992 and June 26, 1993 and the 28
weeks ended January 8, 1994 and January 7, 1995 by approximately $9.1
million, $3.4 million, $25.6 million, $25.9 million, $0.3 million and $8.2
million, respectively. However, such earnings included non-cash charges of
$29.9 million for the 53 weeks ended June 30, 1990, $37.0 million for the 52
weeks ended June 29, 1991, $61.2 million for the 52 weeks ended June 27,
1992 and $62.5 million for the 52 weeks ended June 26, 1993, $33.3 million
for the 28 weeks ended January 8, 1994 and $39.0 million for the 28 weeks
ended January 7, 1995, primarily consisting of depreciation and
amortization.
(h) Balance sheet data as of June 30, 1990 relate to Food 4 Less and include the
effect of the BHC Acquisition, as well as the acquisitions of Bell Markets,
Inc. and certain assets of ABC Market Corp. Balance sheet data as of June
29, 1991, June 27, 1992, June 26, 1993 and January 8, 1994 relate to Food 4
Less and reflect the Alpha Beta acquisition and the financings and
refinancings associated therewith. Balance sheet data as of June 25, 1994
and January 7, 1995 relate to Food 4 Less and reflect the acquisition of the
Food Barn stores.
(i) Total debt includes long-term debt, current maturities of long-term debt and
capital lease obligations.
(j) For the 53 weeks ended June 30, 1990, the 52 weeks ended June 29, 1991, June
27, 1992, June 26, 1993 and June 25, 1994, and the 28 weeks ended January 8,
1994 and January 7, 1995, depreciation and amortization includes
amortization of excess of cost over net assets acquired of $5.3 million,
$5.3 million, $7.8 million, $7.6 million, $7.7 million, $4.1 million and
$4.2 million, respectively.
(k) "EBITDA," as defined and presented historically by Food 4 Less, represents
income before interest expense, depreciation and amortization expense, the
LIFO provision, provision for incomes taxes, provision for earthquake losses
and the one-time adjustment to the Teamsters Union sick pay accrual. EBITDA
is a widely accepted financial indicator of a company's ability to service
debt. However, EBITDA should not be construed as an alternative to operating
income or to cash flows from operating activities (as determined in
accordance with generally accepted accounting principles) and should not be
construed as an indication of Food 4 Less' operating performance or as a
measure of liquidity. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(l) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
42
54
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The combination of Ralphs and Food 4 Less will create the largest
supermarket operator in Southern California with an estimated 264 conventional
format Ralphs stores and an estimated 68 price-impact Food 4 Less warehouse
format stores. The Company will operate an additional 63 stores in Northern
California and certain areas of the Midwest. Management believes that the
Company's dual format strategy will appeal to a broad range of Southern
California consumers and enable the Company to significantly enhance its overall
competitive position. In addition, the Company expects to achieve cost savings
and incremental profitability through the integration of advertising,
administration, purchasing, distribution, manufacturing and other operations.
Due to its increased size, dual format strategy and integration related costs,
the Company believes that its future operating results may not be directly
comparable to the historical operating results of either Ralphs or Food 4 Less.
Certain factors which are expected to affect the future operating results of the
Company (or their comparability to prior periods) are discussed below.
Regional Economic Conditions. In recent periods Ralphs and Food 4 Less have
each been affected by the adverse economic conditions that have existed in
Southern California since approximately 1991. These conditions were exacerbated
by the substantial layoffs in the defense and aerospace industries and by the
civil unrest in Los Angeles in April, 1992. In addition, management estimates
that approximately eight million square feet of supermarket selling space has
been added in Southern California over the past five years. As a result of these
factors and general deflationary pressures in certain food product categories,
Ralphs and Food 4 Less have each experienced declining comparable store sales in
recent periods. Over the last three fiscal years, Food 4 Less' and Ralphs' total
sales declined by 11.3% and 4.2%, respectively, however, both Food 4 Less' and
Ralphs' comparable store sales declines have begun to moderate in recent months.
Despite these adverse 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 "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
43
55
forma financial information included elsewhere herein, at approximately $45.5
million. On December 14, 1994, Food 4 Less and Ralphs entered into a Settlement
Agreement (the "Settlement Agreement") with the State of California. See
"Business -- California Settlement Agreement." Under the Settlement Agreement,
the Company must divest a total of 27 stores (24 Food 4 Less conventional
supermarkets or warehouse stores and 3 Ralphs stores). In addition, although not
required pursuant to the Settlement Agreement, an additional 5 under-performing
stores selected by the Company are scheduled to be closed following the Merger.
It is anticipated that such closures and store conversions will be substantially
completed by December 31, 1995. The estimated restructuring charge aggregating
$45.5 million for the 24 Food 4 Less stores to be divested under the Settlement
Agreement, the planned closures (5 Food 4 Less stores) and the conversion of 16
Food 4 Less conventional stores to warehouse format stores reflects (i) the
writedown of property, plant and equipment ($27.9 million), (ii) the write-off
of the Alpha Beta trademark ($8.6 million), (iii) the write-off of other assets
($4.3 million), (iv) lease termination expense ($3.1 million) and (v)
miscellaneous expense accruals ($1.6 million). The expected cash payments to be
made in connection with the restructuring charge will total $7.1 million. It is
expected that such cash payments will be made by December 31, 1995. As a result
of the completion of 11 of the 16 planned Food 4 Less conventional store
conversions during the second quarter of the current fiscal year, Food 4 Less
has recorded a restructuring charge of $5.1 million in its results of operations
for the 28 weeks ended January 7, 1995. Food 4 Less has determined that there is
no impairment of existing goodwill related to the store closures based on its
projections of future undiscounted cash flows. The remaining estimated
restructuring charge will be recorded as an expense once the Merger is
completed. The divestiture of the 3 Ralphs stores pursuant to the Settlement
Agreement will be reflected in the allocation of the purchase price and
therefore will not give rise to any restructuring charge.
Store Mix. Approximately 28% of the Company's total anticipated number of
stores following the Merger are expected to be warehouse format stores. Because
these stores offer prices that are generally 5-12% below those in Food 4 Less'
conventional stores, they produce lower gross profit margins than an average
conventional supermarket. As a result, the Company's consolidated gross margin
following the Merger is expected to decline from the levels historically
reported by Ralphs. In addition, if the percentage of warehouse stores in the
overall store mix increases following the Merger, as expected, the Company's
consolidated gross margins should also be expected to decline slightly over
time. Because of the reduced SG&A (as defined) costs associated with the
warehouse format stores, management believes that overall profitability of the
warehouse stores is comparable to that of conventional stores.
Purchase Accounting. The Merger will be accounted for as a purchase of
Ralphs by Food 4 Less. As a result, the assets and liabilities of Ralphs will be
recorded at their estimated fair market values on the date the Merger is
consummated. The purchase price in excess of the fair market value of Ralphs'
assets will be recorded as goodwill and amortized over a forty year period. The
purchase price allocation reflected in the pro forma statements is based on
management's preliminary estimates. The actual purchase accounting adjustments
will be determined following the Merger and may vary from the amounts reflected
in the Unaudited Pro Forma Financial Data included elsewhere herein.
Fiscal Year and Restatement of Food 4 Less Financial Statements. 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 Amended and Restated Prospectus and Solicitation
Statement, Food 4 Less elected to restate its historical financial statements to
conform to Ralphs' classification of certain expenses. The changes primarily
involved the reclassification of certain labor, occupancy and utility costs
associated with product deliveries as cost of goods sold, which were previously
classified as selling, general, administrative and other expense, net. In
addition, depreciation expense, which had been reported separately by Food 4
Less with the amortization of goodwill, was classified as cost of goods sold or
selling, general, administrative and other expense, net, as appropriate. The
amounts aggregated $236.2 million, $224.5 million, $219.5 million and $114.3
million (unaudited) for the fiscal years ended June 27, 1992, June 26, 1993,
June 25, 1994 and the 28 weeks ended January 8, 1994. Food 4 Less has also
classified a portion of its self-insurance costs as interest expense that was
previously recorded in selling, general, administrative and other expense, net.
These self-insurance amounts were reclassified to more completely segregate the
interest component of self-insurance
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costs arising from discounting long-term obligations. The amounts reclassified
aggregated $5.0 million, $5.9 million, $5.8 million and $3.3 million (unaudited)
for the fiscal years ended June 27, 1992, June 26, 1993, June 25, 1994 and the
28 weeks ended January 8, 1994. All historical financial information for Food 4
Less included in this Amended and Restated Prospectus and Solicitation Statement
reflects these reclassifications. See Note 14 of Notes to Food 4 Less
Consolidated Financial Statements.
RESULTS OF OPERATIONS OF RALPHS
The following table sets forth the historical operating results of Ralphs
for the 52 weeks ended January 31, 1993 ("Fiscal 1992"), January 30, 1994
("Fiscal 1993") and January 29, 1995 ("Fiscal 1994"):
52 WEEKS ENDED
--------------------------------------------------------
JANUARY 31, JANUARY 30, JANUARY 29,
1993 1994 1995
---------------- ---------------- ----------------
(IN MILLIONS)
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
- ---------------
(a) Operating income reflects charges of $7.1 million in Fiscal 1992 and $2.4
million in Fiscal 1993, for expenses relating to closing of central bakery
operation. The charges reflected the complete write-down of the bakery
building, machinery and equipment, leaseholds, related inventory and
supplies, and providing severance pay to terminated employees.
(b) Represents reserve for losses, net of expected insurance recoveries,
resulting from the January 17, 1994 Southern California earthquake.
COMPARISON OF RALPHS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 29,
1995 WITH RALPHS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JANUARY 30, 1994.
Sales
For the fifty-two weeks ended January 29, 1995, ("Fiscal 1994"), sales were
$2,724.6 million, a decrease of $5.6 million or 0.2% from the fifty-two weeks
ended January 30, 1994 ("Fiscal 1993"). During Fiscal 1994, Ralphs opened ten
new stores (four in Los Angeles County, three in Orange County, one in San Diego
County and two in Riverside County), closed two stores (in conjunction with new
stores opening in the same areas), and completed five store remodels. Comparable
store sales decreased 3.7%, which included an increase of 0.3% for replacement
store sales, from $2,707.9 million in Fiscal 1993 to $2,606.4 million in Fiscal
1994. Ralphs sales continued to be adversely affected by the continuing softness
of the economy in Southern California, continuing competitive new store and
remodeling activity and recent pricing and promotional changes by competitors.
Ralphs continued to take steps to mitigate the impact of the weak retailing
environment in its markets, which included continuing its own new store and
remodeling program and initiating the Ralphs Savings Plan in February 1994, a
new marketing campaign specifically designed to enhance customer value. See
"Business -- Advertising and Promotion."
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
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57
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-controlled 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 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
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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.
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.
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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.
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.
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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.
RESULTS OF OPERATIONS OF FOOD 4 LESS
The following table sets forth the historical operating results of Food 4
Less for the 52 weeks ended June 27, 1992 ("Fiscal 1992"), June 26, 1993
("Fiscal 1993") and June 25, 1994 ("Fiscal 1994"), and for the 28 weeks ended
January 8, 1994 and January 7, 1995:
52 WEEKS ENDED 28 WEEKS ENDED
---------------------------------------------------------- -----------------------------------------
JUNE 27, JUNE 26, JUNE 25, JANUARY 8, JANUARY 7,
1992 1993 1994 1994 1995
---------------- ---------------- ---------------- ------------------ ------------------
(IN MILLIONS) (UNAUDITED)
Sales.................. $2,913.5 100.0% $2,742.0 100.0% $2,585.2 100.0% $1,416.2 100.0% $1,404.7 100.0%
Gross profit........... 520.8 17.9 484.2 17.7 469.3 18.1 262.2 18.5 237.5 16.9
Selling, general,
administrative and
other, net........... 469.7 16.1 434.9 15.9 388.8 15.0 221.5 15.6 199.2 14.2
Amortization of excess
costs over net assets
acquired............. 7.8 0.3 7.6 0.3 7.7 0.3 4.1 0.3 4.2 0.3
Restructuring charge... -- -- -- -- -- -- -- -- 5.1 0.4
Operating income....... 43.3 1.5 41.7 1.5 72.8 2.8 36.6 2.6 29.0 2.0
Interest expense....... 70.2 2.4 69.8 2.5 68.3 2.6 36.8 2.6 37.7 2.6
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 0.7 0.1 0.5 --
Loss before
extraordinary
charge............... (29.0) (1.0) (27.4) (1.0) (2.7) (0.1) (1.0) (0.1) (8.7) (0.6)
Extraordinary
charges.............. 4.8 0.2 -- -- -- -- -- -- -- --
Net loss............... (33.8) (1.2) (27.4) (1.0) (2.7) (0.1) (1.0) (0.1) (8.7) (0.6)
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COMPARISON OF FOOD 4 LESS' RESULTS OF OPERATIONS FOR THE 28 WEEKS ENDED JANUARY
7, 1995 WITH FOOD 4 LESS' RESULTS OF OPERATIONS FOR THE 28 WEEKS ENDED JANUARY
8, 1994
Sales
Sales decreased $11.5 million, or 0.8%, from $1,416.2 million in the 28
weeks ended January 8, 1994, to $1,404.7 million in the 28 weeks ended January
7, 1995, primarily as a result of a 4.5% decline in comparable store sales,
partially offset by sales from new and acquired stores opened since January 8,
1994. Management believes that the decline in comparable store sales is
attributable to the weak economy in Southern California and, to a lesser extent,
in Food 4 Less' other operating areas, and competitive store openings and
remodels in Southern California.
Gross Profit
Gross profit decreased as a percentage of sales from 18.5% in the 28 weeks
ended January 8, 1994, to 16.9% in the 28 weeks ended January 7, 1995. The
decrease in gross profit margin resulted primarily from pricing and promotional
activities related to Food 4 Less' "Total Value Pricing" program and an increase
in the number of warehouse format stores (which have lower gross margins
resulting from prices that are generally 5-12% below the prices in Food 4 Less'
conventional stores) from 48 at January 8, 1994, to 87 at January 7, 1995. The
decrease in the gross profit margin was partially offset by improvements in
product procurement.
Selling, General, Administrative and Other, Net
Selling, general, administrative and other expenses, net ("SG&A") were
$221.5 million and $199.2 million for the 28 weeks ended January 8, 1994 and
January 7, 1995, respectively. SG&A decreased as a percentage of sales from
15.6% to 14.2% for the same period. Food 4 Less experienced a reduction of
workers' compensation and general liability self-insurance costs of $9.7 million
due to continued improvement in the cost and frequency of claims. The improved
experience was due primarily to cost control programs implemented by Food 4
Less, including awards for stores with the best loss experience, specific
achievable 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
January 8, 1994, to 87 at January 7, 1995, also contributed to decreased SG&A.
Food 4 Less participates in multi-employer health and welfare plans for its
store employees who are members of the UFCW. As part of the renewal of the
Southern California UFCW contract in October 1993, employers contributing to
UFCW health and welfare plans are to receive a pro rata share of the excess
reserves in the plans through a reduction of current employer contributions.
Food 4 Less' share of the excess reserves was $24.2 million, of which Food 4
Less recognized $8.1 million in Fiscal 1994 and $13.7 million in the 28 weeks
ended January 7, 1995. The remainder of the excess reserves will be recognized
as the credits are taken in the future.
On August 28, 1994, the Teamsters and Food 4 Less ratified a new contract
which, among other things, provided for the vesting of sick pay benefits
resulting in a one-time charge of $2.1 million.
Restructuring Charge
Food 4 Less has converted 11 of its conventional format supermarkets to
warehouse format stores. During the 28 weeks ended January 7, 1995, Food 4 Less
recorded a restructuring charge for the write-off of property and equipment at
the 11 stores of $5.1 million.
Interest Expense
Interest expense (including amortization of deferred financing costs) was
$36.8 million and $37.7 million for the 28 weeks ended January 8, 1994 and
January 7, 1995, respectively. The increase in interest expense was primarily
due to higher interest rates on the term loan portion (the "Term Loan") of Food
4 Less' credit
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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"). The increase was partially offset by the reduction of
indebtedness under the Term Loan as a result of amortization payments. Food 4
Less increased its borrowing under the F4L Credit Agreement as a result of
higher capital expenditures subsequent to the end of its first quarter.
Net Loss
Primarily as a result of the factors discussed above, Food 4 Less' net loss
increased from $1.0 million in the 28 weeks ended January 8, 1994, to $8.7
million in the 28 weeks ended January 7, 1995.
COMPARISON OF FOOD 4 LESS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JUNE 25,
1994 WITH FOOD 4 LESS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JUNE 26,
1993.
Sales
Sales decreased $156.8 million or 5.7% from $2,742.0 million in Fiscal 1993
to $2,585.2 million in Fiscal 1994. The decrease in sales resulted primarily
from a 6.9% decline in comparable store sales. The decline in comparable store
sales primarily reflects (i) the continuing softness of the economy in Southern
California, (ii) lower levels of price inflation in certain key food product
categories, and (iii) competitive factors, including new stores, remodeling and
recent pricing and promotional activity. This decrease in sales was partially
offset by sales from 13 stores opened or acquired during Fiscal 1994.
Gross Profit
Gross profit increased as a percent of sales from 17.7% in Fiscal 1993 to
18.1% in Fiscal 1994. The increase in gross profit margin was attributable to
improvements in product procurement and an increase in vendors' participation in
Food 4 Less' promotional costs. These improvements were partially offset by an
increase in the number of warehouse format stores (which have lower gross
margins resulting from prices that are generally 5-12% below the prices in Food
4 Less' conventional stores) from 45 at June 26, 1993 to 66 at June 25, 1994,
and the effect of the fixed cost component of gross profit as compared to a
lower sales base.
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 Food 4
Less recognized $8.1 million in Fiscal 1994 and the remainder of which will be
recognized as the credits are taken in the future. Offsetting the reduction in
employer contributions was a $5.5 million contract ratification bonus and
contractual wage increases.
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Interest Expense
Interest expense (including amortization of deferred financing costs)
decreased $1.5 million from $69.8 million to $68.3 million for Fiscal 1993 and
Fiscal 1994, respectively. The decrease in interest expense is due primarily to
reduced borrowings under the F4L Credit Agreement.
Provision for Earthquake Losses
On January 17, 1994, Southern California was struck by a major earthquake
which resulted in the temporary closing of 31 of Food 4 Less' stores. The
closures were caused primarily by loss of electricity, water, inventory, or
structural damage. All but one of the closed stores reopened within a week of
the earthquake. The final closed store reopened on March 24, 1994. Food 4 Less
is insured against earthquake losses (including business interruption), subject
to certain deductibles. The pre-tax financial impact, net of expected insurance
recovery, was approximately $4.5 million.
Net Loss
Primarily as a result of the factors discussed above, Food 4 Less' net loss
decreased from $27.4 million in Fiscal 1993 to $2.7 million in Fiscal 1994.
COMPARISON OF FOOD 4 LESS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JUNE 26,
1993 WITH FOOD 4 LESS' RESULTS OF OPERATIONS FOR THE 52 WEEKS ENDED JUNE 27,
1992.
Sales
Sales decreased $171.5 million or 5.9% from $2,913.5 million in Fiscal 1992
to $2,742.0 million in Fiscal 1993, primarily as a result of a 5.1% decline in
comparable store sales and a net reduction in Food 4 Less' total store count of
one store at June 26, 1993 compared to June 27, 1992. Management believes that
the decline in comparable store sales was attributable to (i) the weak economy
in Southern California, and, to a lesser extent, in Food 4 Less' other operating
areas, (ii) lower levels of price inflation in certain key food categories, and
(iii) increased competitive store openings in Southern California.
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) was
$70.2 million for Fiscal 1992 and $69.8 million for Fiscal 1993, respectively.
The decrease in interest expense is due to the reduction of indebtedness as a
result of amortization payments combined with decreasing interest rates on the
Term Loan,
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partially offset by higher interest expense incurred in connection with the Old
F4L Senior Notes which replaced lower cost debt under the F4L Credit Agreement.
Loss Before Extraordinary Charge
Primarily as a result of the factors discussed above, Food 4 Less' loss
before extraordinary charge decreased from $29.0 million in Fiscal 1992 to $27.4
million in Fiscal 1993. Food 4 Less recorded a net extraordinary charge of $4.8
million in Fiscal 1992, reflecting the write-off of certain deferred financing
costs which were partially offset by a gain on the replacement of partially
depreciated assets following the civil unrest in Los Angeles.
LIQUIDITY AND CAPITAL RESOURCES
In order to consummate the Merger, Holdings and Food 4 Less expect to
utilize total new financing proceeds in the amount of approximately $1.5
billion. Pursuant to the New Equity Investment, New Holdings (as the successor
to Holdings) will issue capital stock for total cash proceeds of approximately
$140 million (excluding a $5 million commitment fee of which $2.5 million will
be paid in cash and $2.5 million will be satisfied through the issuance of New
Discount Debentures). In addition, Food 4 Less will enter into the New Credit
Facility pursuant to which it will have available up to $750 million of New Term
Loans, all of which is anticipated to be drawn at the Closing Date (assuming all
Old RGC Notes are tendered into the Offers), and will have available a $325
million New Revolving Facility, of which $12.7 million is anticipated to be
drawn at the Closing Date. Food 4 Less will also issue up to $295 million
principal amount of New F4L Senior Notes pursuant to the Senior Note Public
Offering and will issue up to $200 million principal amount of New Notes
pursuant to the Subordinated Note Public Offering. The proceeds from the New
Credit Facility and the Public Offerings, together with the $140 million cash
proceeds of the New Equity Investment, $59 million cash proceeds of the New
Discount Debenture Placement, $41 million in initial accreted value of
additional New Discount Debentures issued other than for cash and $131.5 million
principal amount of the Seller Debentures, will provide the sources of financing
required to consummate the Merger and to repay existing bank debt of
approximately $161.5 million at Food 4 Less and $255.1 million at Ralphs, to
repay existing mortgage debt of $174.1 million (excluding prepayment fees) at
Ralphs and to pay $83.9 million in consideration for the Discount Notes
(excluding related fees). Proceeds from the New Credit Facility and the Public
Offerings will also be used to pay the cash portions of the Offers and the F4L
Exchange Offers, as well as the Change of Control Offer, if any, and accrued
interest on all exchanged debt securities in the amount of $29.3 million (as of
May 30, 1995), to pay $17.8 million to the holders of Ralphs Equity Appreciation
Rights and to loan $5 million to an affiliate for the benefit of such holders
and to pay up to $109.9 million of fees and expenses of the Merger and the
Financing. The Company will also assume certain existing indebtedness of Food 4
Less and Ralphs. Pursuant to the Offers described hereunder and the F4L Exchange
Offers, Food 4 Less will seek the exchange of at least a majority of the Old RGC
Notes for New Notes and the exchange of at least 80% of the Old F4L Notes for
New F4L Notes. The primary purpose of the Offers described hereunder and the F4L
Exchange Offers is to refinance Food 4 Less' and RGC's existing public debt
securities with longer term public debt securities, to obtain all necessary
consents to consummate the Merger and to eliminate substantially all of the
restrictive covenants contained in the Old RGC Indentures and the Old F4L
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
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workers compensation self-insurance. The New Revolving Facility will be
non-amortizing and will have a six-year term. The Company will be required to
reduce loans outstanding under the New Revolving Facility to $75 million for a
period of not less than 30 consecutive days during each consecutive 12-month
period. Assuming that the Merger closes on May 30, 1995, giving effect to
currently anticipated borrowings and letter of credit issuances, the Company's
remaining borrowing availability under the New Revolving Facility would have
been approximately $219.7 million. Pursuant to the New Credit Facility, the New
Term Loans will be issued in four tranches: (i) Tranche A, in the amount of $375
million, will have a six-year term; (ii) Tranche B, in the amount of $125
million, will have a seven-year term; (iii) Tranche C, in the amount of $125
million, will have an eight-year term; and (iv) Tranche D, in the amount of $125
million, will have a nine-year term. The Tranche A Loan may not be fully funded
at the Closing Date. The New Credit Facility will provide that the portion of
the Tranche A Loan not funded at the Closing Date will be available for a period
of 91 days following the Closing Date to fund the Change of Control Offer. The
New Term Loans will require quarterly amortization payments aggregating $3.8
million in the first year, $48.8 million in the second year and increasing
thereafter. The New Credit Facility will be guaranteed by New Holdings and each
of the Company's subsidiaries and secured by liens on substantially all of the
unencumbered assets of the Company and its subsidiaries and by a pledge of New
Holdings' stock in the Company. The New Credit Facility will 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 Offers, 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 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. Food 4 Less
generated approximately $87.8 million of cash from operating activities during
the 52-week period ended June 25, 1994 and used approximately $18.0 million of
cash for its operating activities during the 28 weeks ended January 7, 1995 (as
compared to generating $30.5 million of cash during the 28 weeks ended January
8, 1994). The decrease in cash from operating activities is due primarily to
changes in operating assets and liabilities. The Company anticipates that one of
the principal uses of cash in its operating activities will be inventory
purchases. However, supermarket operators typically require
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small amounts of working capital since inventory is generally sold prior to the
time that payments to suppliers are due. This reduces the need for short-term
borrowings and allows cash from operations to be used for non-current purposes
such as financing capital expenditures and other investing activities.
Consistent with this pattern, Ralphs and Food 4 Less had working capital
deficits of $119.5 million and $44.8 million at January 29, 1995 and January 7,
1995, respectively.
Ralphs cash used in investing activities was $45.5 million during Fiscal
1993 and $50.8 million during the 52 weeks ended January 29, 1995. These amounts
reflected increased capital expenditures related to store remodels and new store
openings (including store acquisitions) and, to a lesser extent, expansion of
other warehousing, distribution and manufacturing facilities and equipment,
including data processing and computer systems. For the 52 weeks ended June 25,
1994, Food 4 Less' cash used in investing activities was $55.8 million.
Investing activities consisted primarily of capital expenditures of $57.5
million, partially offset by $9.3 million of sale/leaseback transactions, and
$11.1 million of costs in connection with the acquisition of ten former "Food
Barn" stores. For the 28 weeks ended January 7, 1995, Food 4 Less' cash used in
investing activities was $32.8 million. Investing activities consisted primarily
of capital expenditures of $39.0 million, partially offset by $6.5 million of
sale/leaseback transactions. The capital expenditures, net of the proceeds from
sale/leaseback transactions, were financed primarily with cash provided by
financing 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 acceleration of the
capital expenditures and other costs associated with the conversion of stores to
the warehouse format.
Ralphs cash used in financing activities was approximately $24.6 million
for the 52 weeks ended January 29, 1995. Reduction of capital lease obligations
of $12.2 million and the payment of a $10.0 million dividend reduced cash flow.
Food 4 Less' cash provided by financing activities was $33.6 million for the 28
weeks ended January 7, 1995, which consisted primarily of $48.7 million of
borrowings outstanding on its revolving credit facility at January 7, 1995
partially offset by a $11.3 million repayment of its term loan. At January 7,
1995, $48.6 million of standby letters of credit had been issued under Food 4
Less' existing letter of credit facility.
Ralphs and FFL have significant net operating loss carryforwards for
regular federal income tax purposes. As a result of the Merger and the New
Equity Investment, the Company's ability to utilize such loss carryforwards in
future periods will be limited to approximately $15.6 million per year with
respect to FFL net operating loss carryforwards and approximately $15.0 million
per year with respect to Ralphs' net operating loss carryforwards. The Company
does not expect the Merger to materially adversely affect any of its other tax
assets. The Company will be a party to a tax sharing agreement with New Holdings
and the subsidiaries of the Company. Pursuant to the tax sharing agreement,
payments by the Company will not exceed the amount it would be required to pay
if its consolidated liability was calculated on a separate company basis.
Conversely, if the Company generates losses or credits which reduce the
consolidated tax liability of New Holdings, New Holdings will credit to the
Company the amount of such reduction in the consolidated tax liability. See
"Certain Relationships and Related Transactions." The Company will continue to
be a party to an indemnification agreement with Federated and certain other
parties. See Note 1 of Notes to Consolidated Financial Statements of Ralphs
Supermarkets, Inc. Pursuant to the terms of such agreement, Ralphs will make
annual tax payments of $1.0 million in 1995 and 1996 and a final tax payment of
$5.0 million in 1997.
Following the Merger, the Company will be a wholly-owned subsidiary of New
Holdings. In addition, following the Merger, New Holdings will have $100 million
initial accreted value of the New Discount Debentures and $131.5 million
principal amount of the Seller Debentures outstanding. New Holdings is a holding
company which will have no assets other than the capital stock of the Company.
New Holdings will be required to commence semi-annual cash payments of interest
on (i) the New Discount Debentures and the Seller Debentures commencing five
years from their date of issuance in the amount of $61.0 million per annum and
(ii) any 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
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requirements. The Company may pay other dividends to New Holdings in connection
with certain employee stock repurchases and for routine administrative expenses.
Following the consummation of the Merger and the Financing, the Company
will be highly leveraged. Based upon current levels of operations and
anticipated cost savings and future growth, the Company believes that its cash
flow from operations, together with available borrowings under the New Revolving
Facility and its other sources of liquidity (including leases), will be adequate
to meet its anticipated requirements for working capital, capital expenditures,
integration costs and interest payments. There can be no assurance, however,
that the Company's business will continue to generate cash flow at or above
current levels or that future costs savings and growth can be achieved. See
"Risk Factors -- Leverage and Debt Service."
Interest Rate Protection Agreements
Ralphs and Food 4 Less currently are parties to certain interest rate
protection agreements required under the terms of their existing bank
indebtedness. In connection with the New Credit Facility, these interest rate
protection agreements will be replaced by a new agreement which will be
finalized prior to the closing of the Merger. The Company will be exposed to
credit loss in the event of nonperformance by the counterparty to the interest
rate protection agreement. However, the Company does not anticipate
nonperformance by such counterparty.
The following details the impact of Ralphs' hedging activity on its
weighted average interest rate for each of the last three fiscal years of
Ralphs:
WITH WITHOUT
HEDGE HEDGE
-------- --------
1992............................................ 10.52% 10.22%
1993............................................ 8.96% 8.96%
1994............................................ 9.37% 9.18%
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:
WITH WITHOUT
HEDGE HEDGE
-------- --------
1992............................................ 10.28% 10.25%
1993............................................ 10.07% 10.03%
1994............................................ 10.10% 10.09%
Effects of Inflation
The Company's primary costs, inventory and labor, are affected by a number
of factors that are beyond its control, including inflation, availability and
price of merchandise, the competitive climate and general and regional economic
conditions. As is typical of the supermarket industry, Ralphs and Food 4 Less
have generally been able to maintain margins by adjusting their retail prices,
but competitive conditions may from time to time render the Company unable to do
so while maintaining its market share.
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BUSINESS
THE MERGER
The combination of Ralphs Grocery Company and Food 4 Less Supermarkets,
Inc. will create the largest food retailer in Southern California. Pro forma for
the Merger, the Company will operate approximately 332 Southern California
stores with an estimated 26% market share among the area's supermarkets. The
Company will operate the second largest conventional supermarket chain in the
region under the "Ralphs" name and the largest warehouse supermarket chain in
the region under the "Food 4 Less" name. In addition, the Company will operate
approximately 24 conventional format stores and 39 warehouse format stores in
Northern California and the Midwest. On a pro forma basis giving effect to the
Merger, the Company would have had sales of approximately $5.1 billion and $2.8
billion, operating income of approximately $183 million and $90 million and
EBITDA (as defined) of approximately $343 million and $189 million for the 52
weeks ended June 25, 1994 and the 28 weeks ended January 7, 1995, respectively.
TWO LEADING COMPLEMENTARY FORMATS
In Southern California the Company plans to convert up to 122 conventional
stores currently operated by Food 4 Less to the "Ralphs" name and format and 39
Ralphs and Food 4 Less conventional stores to the "Food 4 Less" name and
warehouse format. As a result, and pro forma for the Merger, Ralphs will be the
region's second largest conventional format supermarket chain, with 264 stores
and Food 4 Less will be the region's largest warehouse format supermarket chain
with 68 stores. The Ralphs stores will continue to emphasize a broad selection
of merchandise, high quality fresh produce, meat and seafood and service
departments, including bakery and delicatessen departments in most stores. The
Company's conventional stores will also benefit from Ralphs' strong private
label program and its strengths in merchandising, store operations and systems.
Passing on format-related efficiencies, the Company's price impact warehouse
format stores will continue to offer consumers the lowest overall prices while
still providing product selections comparable to conventional supermarkets.
Management believes the Food 4 Less warehouse format has demonstrated its appeal
to a wide range of demographic groups in Southern California and offers a
significant opportunity for future growth. The Company plans to open nine new
Food 4 Less warehouse stores and 21 new Ralphs stores over the next two years.
Management believes the consolidation of its formats will improve the
Company's ability to adapt its stores' merchandising strategy to the local
markets in which they operate while achieving cost savings and other
efficiencies. These conversions will be effected in three phases which the
Company believes will be completed within the first 18 months of combined
operation.
Phase 1. Food 4 Less has converted 11 of its conventional format stores
operated under the names "Viva" and "Boys" into Food 4 Less warehouse format
supermarkets. Such conversions took up to eight weeks to complete and generally
required the store to be closed for up to two weeks. These Phase 1 conversions,
which were planned independently, were completed prior to the end of Food 4
Less' second quarter at a cost of approximately $1 million per store.
Phase 2. Following the Merger, the Company plans to begin converting up to
122 conventional format stores currently operated by Food 4 Less under the names
"Viva," "Alpha Beta" and "Boys" into Ralphs conventional format stores. It is
anticipated that these conversions will be completed at the rate of
approximately 10 stores per week. Management expects that the Company will be
able to substantially complete each conversion without closing the store.
Management believes that these Phase 2 conversions will be completed within the
first 12-16 weeks of the Company's combined operation at a cost of approximately
$75,000 per store.
Phase 3. Following the Merger, the Company also plans to convert 23
conventional Ralphs format stores and five Food 4 Less conventional format
stores into Food 4 Less warehouse format stores. Management expects that each
such conversion will take up to eight weeks and may require the store to be
closed for up to two to eight weeks during such period. Management believes that
these Phase 3 conversions will be completed within the first 18 months of the
Company's combined operation at a cost of approximately $1 million per store.
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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:
PRO FORMA NUMBER OF
ACTUAL STORES(1)
---------- -------------------------
OCTOBER 1, PRIOR TO FOLLOWING
STORE FORMATS 1994 CONVERSION CONVERSION
-------------------------------------------------- ---------- ---------- ----------
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
- ---------------
(1) Pro forma store numbers give effect to the anticipated Merger-related
divestiture or closing of 32 stores open at October 1, 1994 and the closure
of two additional Food 4 Less conventional stores.
Ralphs Conventional Format. Following completion of the store conversions
described above, and pro forma for the Merger, the Company will operate 264
Ralphs stores in Southern California. Management believes these conversions will
enhance Ralphs' market position and competitive advantages. Converted stores
will benefit from Ralphs strengths in merchandising, store operations, systems
and technology. Although all Ralphs stores use the Ralphs name and are operated
under a single format, each store is merchandised to appeal to the local
community it serves. Ralphs' substantial supermarket product selection is a
significant aspect of its marketing efforts: Ralphs stocks between 20,000 and
30,000 merchandise items in its stores, including approximately 2,800 private
label products, representing 17.3% of sales (excluding meat, service
delicatessen and produce items) during Fiscal 1993. Ralphs stores offer
name-brand grocery products; quality and freshness in its produce, meat,
seafood, delicatessen and bakery products; and broad selection in all
departments. Most existing Ralphs stores offer service delicatessen departments,
on-premises bakery facilities and seafood departments. Ralphs emphasizes store
ambiance and cleanliness, fast and friendly service, the convenience of debit
and credit card payment (including in-store branch banks) and 24-hour operations
in most stores.
Food 4 Less' 168 conventional supermarkets, currently operated under the
names "Alpha Beta," "Boys" and "Viva," are located throughout densely populated
areas of Los Angeles and surrounding counties, including both suburban and urban
neighborhoods. Food 4 Less' merchandising strategy for conventional stores has
been tailored to the community each store services, but has emphasized customer
service, quality of merchandise, and a large variety of product offerings in
modern store environments. Of Food 4 Less' 168 conventional supermarkets, up to
122 are intended to be converted to the "Ralphs" name and format, 16 will be
converted to the "Food 4 Less" warehouse format and the remainder are expected
to be closed or sold.
Food 4 Less Warehouse Format. Following completion of the store conversions
described above, and pro forma for the Merger, the Company will operate 68 Food
4 Less warehouse stores in Southern California. The conversions will
substantially accelerate the growth of the Food 4 Less format and will enhance
the Company's position as the largest operator of warehouse supermarkets in
Southern California. In addition to the conversions, the Company plans to
continue its rapid growth of the Food 4 Less format by opening nine new
warehouse format stores over the next two years, including five stores in San
Diego, a new market for Food 4 Less. Management believes the expansion of
warehouse format stores will create efficiencies in warehousing, distribution,
and administrative functions.
Food 4 Less' warehouse format stores target the price-conscious segment of
the market, encompassing a wide range of demographic groups in both urban and
suburban areas. Food 4 Less attempts to offer the lowest overall prices in its
marketing areas by passing savings on to the consumer while providing the
product selection associated with a conventional format. Savings are achieved
through labor efficiencies and lower overhead and advertising costs associated
with the warehouse format. In-store operations are designed to allow customers
to perform certain labor-intensive services usually offered in conventional
supermarkets. For example, merchandise is presented on warehouse style racks in
full cartons, reducing labor intensive unpacking, and customers bag their own
groceries. Labor costs are also reduced since the stores generally do
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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. 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.
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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, and administration and human resources. The
Company plans to eliminate a data processing center, which is anticipated to
result in savings in the areas of equipment, software, headcount and outside
programmer fees. The Company also plans to eliminate the use of third party
administrators to handle workers compensation and general liability claims.
Management estimates that annual savings of approximately $15 million associated
with consolidating administrative functions will be achieved by the second full
year of combined operation.
EXPERIENCED MANAGEMENT TEAM
The executive officers of the Company have extensive experience in the
supermarket industry. The strength of Ralphs management expertise is evidenced
by Ralphs' reputation for quality and service, its technologically advanced
systems, strong store operations and high historical EBITDA margins. The Food 4
Less management team will provide valuable experience in operating warehouse
supermarkets and in effectively integrating companies into a combined operation.
Following the acquisition of Alpha Beta in 1991, Food 4 Less management
successfully integrated Alpha Beta with its existing Southern California
operations and (within three years) achieved annual cost savings in excess of
$40 million (compared to a pre-acquisition estimate of approximately $33
million). See "Management."
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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.
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
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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:
FACILITY SQUARE FEET LOCATION
----------------------------------------------- ----------- ----------
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
Management believes that Ralphs' manufacturing facilities and the La Habra
bakery can accommodate the volume requirements of the Company, after planned
expenditures of approximately $3.0 million over the next year.
PRIVATE LABEL PROGRAM
Through its private label program, Ralphs offers approximately 2,800 items
under the "Ralphs," "Private Selection," "Perfect Choice" and "Plain Wrap" brand
names. These products provide quality comparable to that of national brands at
prices 20-30% lower. Gross margins on private label goods are generally higher
than on national brands. Management believes its private label program is one of
the most successful programs in the supermarket industry, representing 17.3% of
sales (excluding meats, service delicatessen and produce items) during the
twelve months ended July 17, 1994. This figure has grown in the past few years,
and management intends to continue the growth of its private label program in
the future.
Food 4 Less has entered into several private label licensing arrangements
which allow it to exclusively utilize recognized brand names in connection with
certain goods it manufactures or purchases from others, including "Carnation"
and "Sunnyside Farms" (dairy products) and "Van de Kamps" (baked goods). In
addition, Food 4 Less has entered into an agreement to distribute private label
dry grocery and frozen products under the "Sunny Select" and "Grocers Pride"
labels and has established its own private label, "Equality," for health and
beauty aid products. Food 4 Less actively promoted its private label products
during fiscal 1994, and management believes that the additional variety,
superior quality and promotional program resulted in an overall increase in
private label sales and corresponding gross margins. It is expected that the
Company will continue the Carnation, Van de Kamps and certain of its other
licensing agreements following the Merger.
EXPANSION AND DEVELOPMENT
As a result of Ralphs' 122-year history and Alpha Beta's 91-year history in
Southern California, the Company will have valuable and well established store
locations, many of which are in densely populated metropolitan areas.
Additionally, the Company will have a technologically advanced store base.
During the five years ended June 25, 1994, on a combined basis, Ralphs and Food
4 Less opened 74 new stores and remodeled 211 stores. Approximately 84% of the
Company's stores have been opened or remodeled in the last five years.
The Company plans to expand the Southern California Division by acquiring
existing stores and constructing new ones. The Company intends to continue to
focus its new store construction and store conversion efforts during calendar
1995 and future years primarily within existing marketing areas. Such efforts
will encompass both of the Company's store formats, namely Food 4 Less and
Ralphs. To this end, the Company plans to continue its store expansion program
in Southern California by opening 17 new stores during calendar 1995 (including
three Food 4 Less stores which will be located in San Diego, a new market for
Food 4 Less), and additional stores in subsequent years. 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
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Merger, the Company plans to convert approximately five additional conventional
stores currently managed by Food 4 Less and approximately 23 stores currently
managed by RGC to the "Food 4 Less" name and warehouse format, as Food 4 Less
stores have proven to have a strong appeal to value-conscious consumers across a
wide range of demographic groups. See "-- The Merger -- Two Leading
Complementary Formats." Remodeling activity in Southern California will be
focused on the conventional format stores, including 13 planned major remodels
of such stores during calendar 1995. The Company's expansion, remodel and
conversion efforts have required, and will continue to require, the funding of
significant capital expenditures. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources."
During the last five fiscal years, Ralphs has opened 46 new stores and
remodeled 54 stores at a cost of approximately $277.2 million. A majority of
these new and remodeled stores offer expanded produce and European-style seafood
departments, service delicatessens, fresh bakeries and a broad selection of
general merchandise. With enhanced decor reflecting contemporary interior
design, these stores are designed to provide a quality shopping experience. At
the end of Fiscal 1994, 100 of Ralphs' 173 total stores were newly built or
remodeled within the past five fiscal years. While Ralphs has sold or closed 15
stores during the last five fiscal years, the number of Ralphs' stores has
increased from 142 stores at January 28, 1990 to 173 stores at January 29, 1995.
During the last five fiscal years, in Southern California Food 4 Less has
acquired or opened 172 stores (which includes 142 stores acquired in connection
with the acquisition of Alpha Beta) and remodeled 113 stores. Since its
acquisition of Alpha Beta in 1991, Food 4 Less has undertaken an extensive
program of store remodels, conversions and additions, which have resulted in a
substantially improved store base. During Fiscal 1994, Food 4 Less spent
approximately $50.7 million on capital improvements in Southern California.
Additionally, since the Alpha Beta acquisition, Food 4 Less has converted 22
Southern California stores from conventional formats to the warehouse format. As
Food 4 Less has remodeled existing stores, opened new larger stores and closed
smaller, marginally performing stores, there has been a net reduction in store
count, from 209 stores to 196 stores from the year ended June 29, 1991 ("Fiscal
1991") to the end of Fiscal 1994, but an increase in average store size. The
average square feet per store has increased from 28,700 at the end of Fiscal
1991 to 30,500 at the end of Fiscal 1994. During the last five fiscal years, 29
stores have been closed or sold (including five stores which closed as a result
of the April 1992 civil unrest in Los Angeles).
The Company will select most new store sites from developers' proposals
after such proposals have been researched and analyzed by the Company's
personnel. Each site will be monitored for population shifts, zoning changes,
traffic patterns, and nearby new construction and competitors' stores in an
effort to determine sales potential. The Company will actively participate with
developers in order to attain the Company's objectives for the site, including
adequate parking and complementary co-tenant mix. Remodeling involves enhancing
a store's decor through fixture replacement, upgrading of service departments
and improvements to lighting systems. In order to minimize the disruptive effect
on sales, most stores will be kept open during the remodeling period. The
primary objectives of remodeling will be to improve the attractiveness of
stores, increase sales of higher margin product categories and to increase
selling area where feasible.
Remodelings and openings, among other things, are subject to the
availability of developers' financing, agreements with developers and landlords,
local zoning regulations, construction schedules and other factors, including
costs, often beyond the Company's control. Accordingly, there can be no
assurance that the schedule will be met. Further, the Company expects increasing
competition for new store sites, and it is possible that this competition might
adversely affect the timing of its new store opening program.
ADVERTISING AND PROMOTION
Ralphs' marketing strategy is to provide a combination of wide product
selection, quality and freshness of perishable products, competitive prices and
double coupons supporting Ralphs' advertising theme "Everything 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
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Products and Double Coupons. GLPs guarantee low prices on certain high volume
items that are surveyed and updated every four weeks. Price Breakers are weekly
advertised items that offer significant savings. Big Buys are club size items at
prices competitive to club store prices and Multi-Buys offer Ralphs shoppers the
opportunity to purchase club store quantities of regular sized items at prices
competitive to club store prices. In conjunction with this new campaign Ralphs'
private label offering of approximately 2,800 products provides value to the
customer. In the second quarter of 1994, Ralphs began more aggressively
promoting perishables through weekly ad features and lower prices. In addition,
Ralphs increased the number of storewide GLPs. Further, a mailer program was
intensified to highlight the perishable pricing and increased GLPs.
Ralphs stores promote sales through the use of product coupons, consisting
of manufacturers' coupons and Ralphs' own promotional coupons. Ralphs offers a
double coupon program in all stores with Ralphs matching the price reduction
offered by the manufacturer. Ralphs also generates store traffic through weekly
advertised specials, special sales promotions such as discounts on recreational
activities, seasonal and holiday promotions, increased private label selection,
club pack items and exclusive product offerings. Current advertising by Ralphs
has substantially the same market coverage as Food 4 Less and it is expected
that following the Merger duplicative advertising can be eliminated.
The Food 4 Less warehouse stores utilize print and radio advertising which
emphasizes Food 4 Less' low-price leadership, rather than promoting special
prices on individual items. The Food 4 Less warehouse stores also utilize weekly
advertising circulars, customized to local communities, which highlight the
merchandise offered in each store.
INFORMATION SYSTEMS AND TECHNOLOGY
Ralphs' management utilizes technology and industrial engineering methods
to enhance operating efficiency. Every checkout lane in every Ralphs store has a
point of sale terminal. Information from these terminals is utilized to allocate
shelf space, select merchandise based on the buying patterns of each store,
reduce out-of-stocks and increase efficiency at the checkstand and in the
warehouses. Industrial engineering methods are used to schedule labor thereby
improving productivity at the store level and in warehousing and distribution
operations.
Ralphs was the first supermarket chain in the western United States to
adopt scanning in all of its stores and has upgraded this equipment through the
purchase of IBM 4680 point-of-sale computers. All Ralphs stores use laser
scanning equipment, operating through an integrated computer system, to scan the
Universal Product Code, which provides prices and descriptions for most
products.
Ralphs has a Uniform Communications Standard purchase order system that
electronically links Ralphs to major suppliers via computer. This system has
enabled the automated processing of purchase orders which management believes
reduces the lead time required for product purchases. In Fiscal 1993, Ralphs
completed installation of an industry standard, direct store delivery receiving
system for goods delivered directly by vendors. This system allows the receipt
of each order to be recorded electronically, thereby confirming product retail
price and purchase authorization. This system has reduced the incidence of
billing errors and unauthorized deliveries.
Industrial engineering standards have been established for all major work
functions in Ralphs stores, ranging from stocking to checkout. Performance of
each major department in each store is measured weekly against these standards.
Similar measurements are made in Ralphs' distribution, warehouse and
manufacturing operations. Ralphs believes that its application of qualitative
methods to the operation of the business has given it a competitive advantage
and has better enabled management to run its business efficiently and to control
costs.
The Company plans to convert the Food 4 Less management information systems
to the Ralphs management information systems. Ralphs stores that will be
converted to the Food 4 Less format will continue to use the Ralphs programs.
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NORTHERN CALIFORNIA AND MIDWESTERN DIVISIONS
The Northern California Division of Food 4 Less operates 19 conventional
supermarkets in the greater San Francisco Bay Area under the names "Cala" and
"Bell," and six warehouse format stores under the "Foods Co." name. Management
believes that the Northern California Division has excellent store locations in
the city of San Francisco that are very difficult to replicate. The Midwestern
Division of Food 4 Less operates 38 stores, of which 33, including ten former
"Food Barn" stores which Food 4 Less acquired in March 1994, are warehouse
format stores operated under the "Food 4 Less" name, and five of which are
conventional supermarkets operated under the "Falley's" name. Of these 38
stores, 34 are located in Kansas and four are located in Missouri. Management
believes the Food 4 Less warehouse format stores are the low-price leaders in
each of the markets in which they compete. The Northern California Division's
conventional store strategy is to attract customers through its convenient
locations, broad product line and emphasis on quality and service and its
advertising and promotion strategy highlights the reduced price specials offered
in its stores. In contrast, the Company's warehouse format stores, operated
under the Food 4 Less name in the Midwestern Division and the Foods Co. name in
the Northern California Division, emphasize lowest overall prices rather than
promoting special prices on individual items. The Northern California Division's
conventional stores range in size from approximately 8,900 square feet to 32,800
square feet, and average approximately 19,400 square feet. The Northern
California Division's warehouse stores range in size from approximately 30,000
square feet to 59,600 square feet, and average approximately 37,900 square feet.
The Midwestern Division's warehouse format stores range in size from
approximately 8,800 square feet to 60,200 square feet and average approximately
37,300 square feet.
The Northern California Division purchases merchandise from a number of
suppliers; however, approximately 40% of its purchases are made through
Certified Grocers of California, Ltd. ("Certified"), a food distribution
cooperative, pursuant to supply contracts. The Northern California Division does
not operate its own warehouse facilities, relying instead on direct delivery to
its stores by Certified and other vendors. Food 4 Less' Southern California
warehouse facilities supply a portion of the merchandise sold in the Northern
California Division stores, and it is expected that, following completion of the
Merger, the Company's Southern California warehouses will continue to do so.
The Midwestern Division's primary supplier is Associated Wholesale Grocers
("AWG"), a member-owned wholesale grocery cooperative based in Kansas City. The
Midwestern Division does not operate a central warehouse, but purchases
approximately 73% of the merchandise sold in its stores from AWG. Management
believes that, as AWG's largest single customer, the Midwestern Division has
significant buying power, allowing it to provide a broader product line more
economically than it could if it maintained its own full-line warehouse. The
Midwestern Division produces approximately 50% of all case-ready fresh meat
items sold in its stores at its central meat plant located in Topeka, Kansas.
In fiscal 1990, the Northern California Division initiated a remodeling
program to upgrade its stores and to increase profitability. Food 4 Less
remodeled 15 stores during the past five fiscal years, and opened five new
stores during the past four fiscal years. During fiscal 1994, Food 4 Less opened
one new warehouse store, converted three existing stores to the warehouse format
and remodeled one conventional format store. The Company has closed 4 stores
during the past five fiscal years and increased its number of stores from 22 at
the end of the fiscal year ended June 30, 1990 to 24 at the end of the fiscal
year ended June 25, 1994. The average square feet per store has increased from
20,000 at the end of fiscal 1990 to 23,300 at the end of fiscal 1994. The
Company plans to open one additional warehouse format store and remodel two
conventional format stores during fiscal 1995. Management plans to further
expand the Northern California Division in the future by acquiring existing
stores and constructing new stores, including warehouse stores. The Northern
California Division Food 4 Less warehouse stores were renamed "Foods Co." in
fiscal 1994 following the sale by Food 4 Less of exclusive rights to use the
"Food 4 Less" name in Northern California to Fleming Companies, Inc. See
"-- Licensing Operations."
The Company intends to focus its Midwestern Division expansion primarily on
its Food 4 Less operations. While Food 4 Less expects to construct new stores,
it may also expand operations by purchasing existing Food 4 Less stores from
unaffiliated licensees, or by acquiring existing supermarkets and converting
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them to the Food 4 Less warehouse format. The acquisition in March 1994 of ten
warehouse stores formerly operated as "Food Barn" stores increased the
Midwestern Division's Food 4 Less warehouse store count from 23 at June 26, 1993
to 33 at June 25, 1994. During the last five fiscal years, the Midwestern
Division has opened 3 new stores, acquired 13 stores, closed one store and
remodeled 10 stores.
COMPETITION
The supermarket industry is highly competitive and characterized by narrow
profit margins. The Company's competitors in each of its operating divisions
include national and regional supermarket chains, independent and specialty
grocers, drug and convenience stores, and the newer "alternative format" food
stores, including warehouse club stores, deep discount drug stores and "super
centers." Supermarket chains generally compete on the basis of location, quality
of products, service, price, product variety and store condition. The Company
regularly monitors its competitors' prices and adjusts its prices and marketing
strategy as management deems appropriate in light of existing conditions. Some
of the Company's competitors have greater financial resources than the Company
and could use these resources to take steps which could adversely affect the
Company's competitive position.
The Southern California stores compete with several large national and
regional chains, principally Albertsons, Hughes, Lucky, Smith's, Stater Bros.,
and Vons, and with smaller independent supermarkets and grocery stores as well
as warehouse clubs and other "alternative format" food stores. The Northern
California Division competes with large national and regional chains,
principally Lucky and Safeway, and with independent supermarket and grocery
store operators and other retailers, including "alternative format" stores. The
Midwestern Division's supermarkets compete with several national and regional
supermarket chains, principally Albertsons and Dillons, as well as independent
and "alternative format" stores such as Hypermarket USA. Food 4 Less positions
its Food 4 Less warehouse format supermarkets as the overall low-price leader in
each marketing area in which they operate. In addition, management believes that
Ralphs is a leading competitor in many of its marketing areas, based on its
strong customer franchise, desirable store locations, technology and efficient
distribution systems.
EMPLOYEES
RALPHS
At January 29, 1995, Ralphs had 6,213 full-time and 8,940 part-time
employees as follows:
EMPLOYEE TYPE UNION NON-UNION TOTAL
--------------------------------------------- ------ --------- ------
Hourly....................................... 13,854 245 14,099
Salaried..................................... -- 1,054 1,054
------ --------- ------
Total employees.................... 13,854 1,299 15,153
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.
UNION NUMBER OF EMPLOYEES COVERED DATE OF EXPIRATION
- ---------------------------------- -------------------------------- -------------------
UFCW 10,723 clerks and meatcutters October 6, 1996
International Brotherhood of 1,675 drivers and warehousemen September 13, 1998
Teamsters
Hotel Employees and Restaurant
Employees 977 September 10, 1995
Hospital and Service Employees 328 Los Angeles January 19, 1997
67 San Diego April 20, 1997
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FOOD 4 LESS
At June 25, 1994, Food 4 Less had a total of 5,728 full-time and 8,959
part-time employees as follows:
EMPLOYEE TYPE UNION NON-UNION TOTAL
----------------------------------------------- ------ --------- ------
Hourly......................................... 11,882 1,907 13,789
Salaried....................................... -- 898 898
------ --------- ------
Total employees...................... 11,882 2,805 14,687
Of Food 4 Less' 14,687 total employees at June 25, 1994, 11,882 were
covered by union contracts, principally with UFCW. The table below sets forth
information regarding Food 4 Less' union contracts which cover more than 100
employees.
NUMBER OF DATE OF
UNION EMPLOYEES COVERED EXPIRATION
- ---------------------------------------------- -------------------------- ---------------------
UFCW.......................................... 7,908 Southern California October 6, 1996
clerks and meatcutters
Hospital and Service Employees................ 299 Southern California January 19, 1997
store porters
International Brotherhood of Teamsters........ 886 Southern California September 13, 1998
produce drivers
and warehousemen
UFCW.......................................... 971 Northern California February 28, 1995(a)
clerks and meatcutters
UFCW.......................................... 1,532 Southern California February 25, 1996
clerks and meatcutters
Bakery and Confectionery Workers.............. 192 Southern California July 8, 1995
bakers
- ---------------
(a) Certain of such employees are covered by a contract expiring on June 2,
1996. The contract which expired on February 28, 1995 and an additional
contract which expired on March 4, 1995 have each been provisionally
extended for a five-month period and currently are being renegotiated.
Pursuant to their collective bargaining agreements, both Ralphs and Food 4
Less contribute to various union-sponsored, multi-employer pension plans.
The terms of most collective bargaining agreements that cover employees of
conventional stores operated by Food 4 Less are substantially identical to the
terms of the corresponding collective bargaining agreements of Ralphs. The terms
of each company's collective bargaining agreements generally will remain in
effect following the Merger, although it is expected that, as a result of
current negotiations, Ralphs' collective bargaining agreements will apply to all
Company stores converted to the Ralphs name and format, and the collective
bargaining agreements that cover employees of Food 4 Less warehouse format
stores will apply to all Company stores converted to the Food 4 Less name and
warehouse format.
Management believes that both Ralphs and Food 4 Less have good relations
with their employees.
LICENSING OPERATIONS
Food 4 Less owns the "Food 4 Less" trademark and service mark and licenses
the "Food 4 Less" name for use by others. In Fiscal 1994, earnings from
licensing operations were approximately $270,000. An exclusive license with the
right to sublicense the "Food 4 Less" name in all areas of the United States
except Arkansas, Iowa, Illinois, Minnesota, Nebraska, North Dakota, South
Dakota, Wisconsin, the upper peninsula of Michigan, certain portions of Kansas,
Missouri, and Tennessee has been granted to Fleming Companies, Inc. ("Fleming"),
a major food wholesaler and retailer. In August of 1993, Food 4 Less amended
(the "Amendment") its licensing agreement with Fleming to give Fleming exclusive
use of the Food 4 Less name in Northern California and Food 4 Less exclusive use
in Southern California. Fleming paid Food 4 Less a fee of $1.9 million for the
Amendment. With the exception of Northern California, and subject to the
Amendment and certain proximity restrictions, Food 4 Less retains the right to
open and operate its own
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"Food 4 Less" warehouse supermarkets throughout the United States. As of June
25, 1994, there were 158 Food 4 Less warehouse supermarkets in 20 states,
including the 61 stores owned or leased and operated by Food 4 Less. Of the
remaining 97 stores, Fleming operates three under license, 67 are operated under
sublicenses from Fleming and 27 are operated by other licensees.
PROPERTIES
At October 1, 1994, Ralphs and Food 4 Less operated a total of 429 stores,
as set forth in the table below:
TOTAL SELLING
SQUARE FEET SQUARE FEET
----------- -----------
NUMBER OF
SUPERMARKETS
--------------
OWNED LEASED
----- ------
(IN THOUSANDS)
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
===== ===== ========= =========
- ---------------
(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:
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
- ---------------- ----------- ----------- ----------- ----------- --------- ----------- -----
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
At October 1, 1994, the Company also operated 20 distribution, warehouse
and administrative facilities and five manufacturing and processing facilities,
14 of which are owned and 11 of which are leased. Certain of the facilities are
expected to be sold, closed or subleased following completion of the Merger. See
"-- Warehousing and Distribution."
Ralphs' distribution and warehouse facilities include the 17 million cubic
foot ASRS warehouse for nonperishable items that Ralphs opened in November 1987
and the 5.4 million cubic foot PSC facility for the processing and storage of
perishable products opened in mid-1992. Food 4 Less operates two warehouse
facilities: The largest of such facilities is Food 4 Less' central office,
manufacturing and warehouse complex in La Habra, California, which occupies
approximately 1.4 million total square feet over 75 acres. Food 4 Less has
entered into a lease of the La Habra property which expires in 2001 (and which
may be extended for up to 15 years at the election of Food 4 Less), with
American Food and Drug, Inc. ("AFDI"), a subsidiary of American Stores Company,
and has an option to purchase such property. Rent on the La Habra property was
$6.3 million in Fiscal 1994. Four of Food 4 Less' supermarkets are also leased
from AFDI. In addition to the La Habra facility, Food 4 Less leases a 321,000
square foot warehouse in Los Angeles. This warehouse, which was formerly owned
by Food 4 Less, was the subject of a sale leaseback arrangement entered into by
Food 4 Less in August 1990. For information regarding the Company's plan to
consolidate its warehouse facilities following completion of the Merger, see
"-- The Merger -- Substantial Cost Savings Opportunities -- Warehousing and
Distribution Efficiencies."
LEGAL PROCEEDINGS
In December 1992, three California state antitrust class action suits were
commenced in Los Angeles Superior Court against RGC and Food 4 Less and other
major supermarket chains located in Southern
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California, alleging that they conspired to refrain from competing in the retail
market for fluid milk and to fix the retail price of fluid milk above
competitive prices. Specifically, class actions were commenced by Diane Barela
and Neila Ross, Ron Moliare and Paul C. Pfeifle on December 7, December 14, and
December 23, 1992, respectively. The Court has yet to certify any of these
classes. A demurrer to the complaints was denied. Notwithstanding that it
believes there is no merit to these cases, RGC had reached an agreement in
principle to settle them. However, no settlement agreement has been signed. Food
4 Less is continuing to actively defend these suits and Ralphs has elected to
defer any further settlement discussions until after the consummation of the
Merger. The Company does not believe that the resolution of these cases will
have a material adverse effect on its future financial condition. Any settlement
would be subject to court approval.
On March 25, 1991, George A. Koteen Associates, Inc. ("Koteen Associates")
commenced an action in San Diego Superior Court alleging that RGC breached an
alleged utility rate consulting agreement. In December 1992, a jury returned a
verdict of approximately $4.9 million in favor of Koteen Associates and in March
1993, attorney's fees and certain other costs were awarded to the plaintiff. RGC
has appealed the judgment and fully reserved in Fiscal 1992 against an adverse
ruling by the appellate courts.
In April 1994, RGC was served with a complaint filed by over 240 former
employees at Ralphs' bakery in the Atwater district of Los Angeles (the "Bakery
Plaintiffs"). The action was commenced in the United States District Court for
the Central District of California, and, among other claims, the Bakery
Plaintiffs alleged that RGC breached its collective bargaining agreement and
violated the Workers Adjustment Retraining Notification Act (the "WARN Act")
when it downsized and subsequently closed the bakery. In their complaint, the
Bakery Plaintiffs are seeking damages for lost wages and benefits as well as
punitive damages. The Bakery Plaintiffs also named RGC and two of its management
employees in fraud, conspiracy and emotional distress causes of action. In
addition, the Bakery Plaintiffs sued their union local for breach of its duty of
fair representation and other alleged misconduct, including fraud and
conspiracy. The defendants have answered the complaint and discovery is ongoing.
Trial is set for February, 1996, and RGC is vigorously defending this suit.
Management believes, based on its assessment of the facts, that the resolution
of this case will not have a material effect on the Company's financial position
or results of operations.
In addition, Food 4 Less and Ralphs are defendants in a number of other
cases currently in litigation or potential claims encountered in the normal
course of business which are being vigorously defended. In the opinion of
management, the resolutions of these matters will not have a material effect on
Food 4 Less' or Ralphs' financial position or results of operations.
CALIFORNIA SETTLEMENT AGREEMENT
On December 14, 1994, Food 4 Less and Ralphs entered into a Settlement
Agreement (the "Settlement Agreement") with the State of California to settle
potential antitrust and unfair competition claims the State of California
asserted against Ralphs and Food 4 Less relating to the effects of the Merger on
supermarket competition in Southern California (the "State Claims"). Without
admitting any liability in connection with the State Claims, Food 4 Less and
Ralphs agreed in the Settlement Agreement to divest 27 specific stores in
Southern California. Under the Settlement Agreement, the Company must divest 14
stores by June 30, 1995, and the balance of 13 stores by December 31, 1995. The
Company also agreed not to acquire new stores from third parties in the six
Southern California areas specified in the Settlement Agreement for five years
following the date of the Settlement Agreement. If the Company fails to divest
the required stores by the two dates set forth in the Settlement Agreement, the
Company has agreed not to object to the appointment of a trustee to effect the
required sales. The Settlement Agreement also requires the Company to pay the
reasonable fees and costs of the attorneys and experts of the State of
California associated with its review.
GOVERNMENT REGULATION
Ralphs and Food 4 Less are subject to regulation by a variety of
governmental agencies, including, but not limited to, the California Department
of Alcoholic Beverage Control, the California Department of Agriculture, the
U.S. Food and Drug Administration, the U.S. Department of Agriculture and state
and local health departments. In addition, the Merger is subject to the review
of the Federal Trade Commission and the
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requirements and waiting period imposed by the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act"). The waiting period under the HSR Act
has expired and on February 2, 1995, the Federal Trade Commission advised Food 4
Less and Ralphs that it had closed its investigation of the Merger.
ENVIRONMENTAL MATTERS
In January 1991, the California Regional Water Quality Control Board for
the Los Angeles Region (the "Regional Board") requested that Ralphs conduct a
subsurface characterization of Ralphs' Atwater property. This request was part
of an ongoing effort by the Regional Board, in connection with the U.S.
Environmental Protection Agency (the "EPA"), to identify contributors to
groundwater contamination in the San Fernando Valley. Significant parts of the
San Fernando Valley, including the area where Ralphs' Atwater property is
located, have been designated federal Superfund sites requiring response actions
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, because of regional groundwater contamination. On June 18,
1991, the EPA made its own request for information concerning the Atwater
property. Since that time, the Regional Board has requested further
investigations by Ralphs. Ralphs has conducted the requested investigations and
has reported the results to the Regional Board. Approximately 25 companies have
entered into a Consent Order (EPA Docket No. 94-11) with the EPA to investigate
and design a remediation system for contaminated groundwater beneath an area
which includes the Atwater property. Ralphs is not a party to that Consent
Order, but is cooperating with requests of the subject companies to allow
installation of monitoring or recovery wells on Ralphs' property. Based upon
available information, management does not believe this matter will have a
material adverse effect on the Company's financial condition or results of
operations.
Ralphs has removed underground storage tanks and remediated soil
contamination at the Atwater property. In some instances the removals and the
contamination were associated with grocery business operations; in others they
were associated with prior property users. Although the possibility of other
contamination from prior operations or adjacent properties exists at the Atwater
property, management does not believe that the costs of remediating such
contamination will be material to the Company.
Apart from the Atwater property, Ralphs and Food 4 Less have recently had
environmental assessments performed on a significant portion of Ralphs'
facilities and Food 4 Less' facilities, including warehouse and distribution
facilities. Management believes that any responsive actions required at the
examined properties as a result of such assessments will not have a material
adverse effect on its financial condition or results of operations.
Ralphs has incurred approximately $4.5 million in non-recurring capital
expenditures for conversion of refrigerants during 1994. Food 4 Less may incur
some additional capital expenditures for such conversion. Other than these
expenditures, neither Ralphs nor Food 4 Less has incurred material capital
expenditures for environmental controls during the previous three years, nor
does management anticipate incurring such expenditures during the current fiscal
year or the succeeding fiscal year.
At the time that Food 4 Less acquired Alpha Beta in 1991, it learned that
certain underground storage tanks located on the site of the La Habra facility
may have released hydrocarbons. In connection with the acquisition of Alpha Beta
the seller (who is also the lessor of the La Habra facility) agreed to retain
responsibility, subject to certain limitations, for remediation of the release.
Ralphs and Food 4 Less are subject to a variety of environmental laws,
rules, regulations and investigative or enforcement activities, as are other
companies in the same or similar business. The Company believes it is in
substantial compliance with such laws, rules and regulations. These laws, rules,
regulations and agency activities change from time to time, and such changes may
affect the ongoing business and operations of the Company.
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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.
YEARS OF SUPERMARKET
INDUSTRY SERVICE
----------------------------
NAME AGE POSITION MANAGERIAL POSITIONS TOTAL
- ------------------------- --- ----------------------------------- -------------------- -----
Ronald W. Burkle 42 Director and Chairman of the Board 19 24
of New Holdings and the Company
Byron E. Allumbaugh 63 Director and Chief Executive 36 36
Officer of New Holdings and the
Company
George G. Golleher 46 Director and Vice Chairman of New 21 21
Holdings and the Company
Alfred A. Marasca 53 Director of the Company and 30 38
President and Chief Operating
Officer of New Holdings and the
Company
Joe S. Burkle 71 Director and Executive Vice 44 48
President of New Holdings and the
Company
Greg Mays 48 Executive Vice President of New 21 21
Holdings and the Company
Terry Peets 50 Executive Vice President of New 18 18
Holdings and the Company
Jan Charles Gray 47 Senior Vice President, General 20 31
Counsel and Secretary of New
Holdings and the Company
Alan J. Reed 48 Senior Vice President and Chief 22 22
Financial Officer of New Holdings
and the Company
Patrick L. Graham 45 Director of New Holdings and the -- --
Company
Mark A. Resnik 47 Director of New Holdings and the -- --
Company
Ronald W. Burkle has been a Director and the Chairman of the Board and
Chief Executive Officer of Food 4 Less since its inception in 1989. Mr. Burkle
co-founded Yucaipa in 1986 and has served as Director, Chairman of the Board,
President and Chief Executive Officer of FFL since 1987 and of Holdings since
1992. From 1986 to 1988, Mr. Burkle was Chairman and Chief Executive Officer of
Jurgensen's, a Southern California gourmet food retailer. Before joining
Jurgensen's, Mr. Burkle was a private investor in Southern California. Mr.
Burkle is the son of Joe S. Burkle.
Byron E. Allumbaugh has been Chairman of the Board and Chief Executive
Officer of Ralphs since 1976 and a Director since 1988. He also is a Director of
the H.F. Ahmanson Company, El Paso Natural Gas Company and Ultramar, Inc.
George G. Golleher has been a Director of Food 4 Less since its inception
in 1989 and has been the President and Chief Operating Officer of Food 4 Less
since January 1990. From 1986 through 1989 Mr. Golleher served as Senior Vice
President, Finance and Administration, of The Boys Markets, Inc. Prior to
joining The Boys Markets, Inc. in 1984, Mr. Golleher served as Vice President
and Chief Financial Officer of Mayfair Markets, Inc. from 1983 to 1984.
Alfred A. Marasca has been President, Chief Operating Officer and a
Director of Ralphs since February 1994 and he was President from February 1993
to February 1994, Executive Vice President, Retail from 1991 until 1993 and
Executive Vice President, Marketing from 1985 to 1991.
Joe S. Burkle has been a Director and Executive Vice President of Food 4
Less since its inception in 1989 and has been Chief Executive Officer of
Falley's, Inc. since 1987. Mr. Burkle began his career in the
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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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EXECUTIVE COMPENSATION
EMPLOYMENT AGREEMENTS
Concurrently with the consummation of the Merger, the Company will enter
into employment agreements with certain of the current executive officers of
Ralphs and Food 4 Less. It is expected that Byron E. Allumbaugh, George G.
Golleher, Alfred A. Marasca, as well as other executive officers of the Company,
including Messrs. Mays, Peets, Gray and Reed, will enter into three-year
employment contracts with the Company and that the existing employment
contracts, if any, of such officers will be cancelled.
New Allumbaugh Agreement. The employment agreement between the Company and
Byron Allumbaugh, 63, is expected to provide for a salary of $1 million for the
first year and $1.25 million for the second year. If Mr. Allumbaugh continues as
the Chief Executive Officer during the third year following the Merger, he would
be entitled to a salary of $2 million and if he is employed in another capacity
then he would be entitled to a salary of $1.25 million for the third year. Mr.
Allumbaugh will be entitled to a bonus equal to his salary in each year if
certain prescribed earnings targets (the "Earnings Targets") for the year are
reached. If the Company completes an initial public offering of capital stock
during the first two years of Mr. Allumbaugh's employment, Mr. Allumbaugh will
remain Chief Executive Officer for one year after the public offering. If the
public offering is anticipated to occur during the third year of Mr.
Allumbaugh's employment agreement, Mr. Allumbaugh will resign as Chief Executive
Officer six months prior to the intended date of the public offering but will
continue to be employed at the lesser compensation level provided in his
employment agreement until its termination.
New Golleher Agreement. Food 4 Less is currently a party to a five-year
employment agreement with George G. Golleher providing for annual base
compensation of $350,000, plus employee benefits and an incentive bonus
calculated in accordance with a formula based on Food 4 Less' earnings. Under
the employment agreement, Mr. Golleher may terminate his employment agreement in
the event of a change of control of Food 4 Less, in which case he is entitled to
receive all of the salary and benefits provided under the agreement for the
remaining term thereof, notwithstanding the termination of his employment. In
connection with the consummation of the Merger, the Food 4 Less board of
directors has authorized the payment of a special bonus to George Golleher in a
lump sum amount equal to the base salary due him under the remaining term of his
employment agreement. As a condition of the payment of such bonus, Mr.
Golleher's existing employment agreement will be cancelled, and he will enter
into a new agreement containing terms to be mutually agreed upon between Food 4
Less and Mr. Golleher. The new employment agreement is expected to provide for
an annual salary of $500,000 plus a bonus equal to his salary in each year if
the Earnings Targets are reached. The new employment agreement will continue in
effect certain existing contractual rights of Mr. Golleher to be elected to the
Company's board of directors and to require the Company to repurchase certain of
his shares of New Holdings stock upon his death, disability or termination
without cause.
New Marasca Agreement. The employment agreement between the Company and
Alfred Marasca is expected to provide for a salary of $500,000 per annum and an
annual bonus equal to his salary if the Earnings Targets for the year are
reached.
General Provisions of the New Employment Agreements. The new employment
agreements are expected to provide generally that the Company may terminate the
agreement for cause or upon the failure of the employee to render services to
the Company for a continuous period to be agreed upon by the Company and the
employee because of the employee's disability. In addition, the employee's
services may be suspended upon notice by the Company and in such event the
employee will continue to be compensated by the Company during the remainder of
the term of the agreement subject to certain offsets if the employee becomes
engaged in another business.
Existing Food 4 Less Employment Agreements. Food 4 Less entered into
employment agreements with 24 officers providing for their employment for a
one-year term commencing on the date of a change of control of Food 4 Less.
These agreements provide for the payment of an incentive bonus calculated in
accordance with Food 4 Less policies, and certain of the agreements provide for
the payment of a special bonus payable upon a change of control (provided
certain financial performance targets have been met). These agreements
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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." The price to
redeem the EARs is based on a $517 million valuation (the maximum valuation
possible under the EAR Plan) of RGC's equity.
NEW MANAGEMENT STOCK OPTION PLAN AND MANAGEMENT INVESTMENT
Upon the consummation of the Merger, certain members of Ralphs' management
and Food 4 Less' management will be entitled to receive options to purchase
common stock of New Holdings (the "New Options"). The New Options will have a
term of ten years and the exercise price with respect to each New Option will be
$10 per share, which is equal to the price paid by the New Equity Investors for
the New Equity Investment. The New Options will represent 7.5% of the total
equity of New Holdings, and will be allocated as follows: New Options
representing 1.5%, 0.5% and 0.5% of the total equity of New Holdings will be
granted to Byron Allumbaugh, George Golleher and Alfred Marasca, respectively
(the "Tier One Options"). The Tier One Options will be fully vested upon
issuance and will be immediately exercisable. New Options for an additional 2.5%
of the total equity of New Holdings will be granted to certain other management
employees of the Company (the "Tier Two Options"). Fifty percent (50%) of the
Tier Two Options granted to each holder will vest immediately upon issuance and
10% will vest each year thereafter. In addition, New Options representing an
aggregate of 2.5% of the total equity of New Holdings will be issued to holders
of EARs in exchange for the cancellation of $10 million of the EAR payments
which would otherwise be payable upon consummation of the Merger (the
"Reinvestment Options"). The value of the EAR payments cancelled will be
credited against the exercise price for each Reinvestment Option. The
Reinvestment Options will be fully vested upon issuance and will be immediately
exercisable.
Certain of Ralphs' officers, including Messrs. Allumbaugh, Marasca, Reed,
Peets and Gray currently hold options to purchase common stock of RSI. These
options will be cancelled for cash payments aggregating $880,000 in connection
with the Merger.
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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 $100,000
for the year ended January 29, 1995.
LONG TERM
COMPENSATION AWARDS
-------------------
ANNUAL COMPENSATION SECURITIES
---------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) OPTIONS/SARS(#) COMPENSATION($)(2)
- ---------------------------- ----- -------- ----------- ------------------- ------------------
Byron E. Allumbaugh, 1994 650,000 0 N/A 25,580
Chairman and 1993 645,000 387,000 N/A 20,075
Chief Executive Officer 1992 620,000 372,000 587,753 21,897
Alfred A. Marasca, 1994 400,000 0 N/A 10,580
President and 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 1992 211,250 105,625 154,406 6,125
Chief Financial Officer
Terry Peets, 1994 215,000 0 N/A 7,562
Executive Vice President 1993 192,500 96,250 N/A 6,127
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
- ---------------
(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, $2,702, $0, $0 and
$2,699; (C) incentive plan contributions: $1,848, $1,278, $2,223, $2,102 and
$1,848.
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AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1994 AND FISCAL YEAR-END OPTION/SAR
VALUES -- RALPHS
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT OPTIONS/SARS AT
SHARES FISCAL YEAR-END(#) FISCAL YEAR-END($)
ACQUIRED --------------------- --------------------
ON EXERCISE VALUE EXERCISABLE/ EXERCISABLE/
NAME (#)(1) REALIZED($) UNEXERCISABLE(2) UNEXERCISABLE(3)(4)
- ------------------------------- ----------- ----------- --------------------- --------------------
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
- ---------------
(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.
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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.
YEARS OF CREDITED SERVICE
------------------------------------------------------------
FINAL AVERAGE SALARY 15 20 25 30 35
- -------------------- -------- -------- -------- -------- --------
$ 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
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
The following Summary Compensation Table sets forth information concerning
the compensation of the Chief Executive Officer and the other three most highly
compensated executive officers of Food 4 Less who are expected to serve as
executive officers of the Company, whose total annual salary and bonus exceeded
$100,000 for services rendered in all capacities to Food 4 Less and its
subsidiaries for Fiscal 1994.
ANNUAL COMPENSATION
---------------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) COMPENSATION(4)($)
- ---------------------------------------------- ---- --------- -------- ------------------
Ronald W. Burkle, Chairman and................ 1994 -- -- --
Chief Executive Officer(1) 1993 -- -- --
1992 -- -- --
George G. Golleher,........................... 1994 500,000 500,000 3,937
President 1993 500,000 500,000 --
1992 500,000 235,000 5,300
Greg Mays, Executive Vice-President........... 1994 250,000 150,000 --
Finance/Administration and 1993 108,000 75,000 --
Chief Financial Officer(2) 1992 -- -- --
Joe Burkle,................................... 1994 196,000 50,000 --
Executive Vice President(3) 1993 156,000 -- --
1992 156,000 -- --
- ---------------
(1) Ronald W. Burkle and Mark A. Resnik, Vice President and Secretary of Food 4
Less, provide services to Food 4 Less pursuant to a management agreement
between Yucaipa and Food 4 Less. See "Certain Relationships and Related
Transactions." Pursuant to this management agreement, Food 4 Less paid
Yucaipa and an affiliate of Yucaipa $2.4 million in the fiscal year ended
June 25, 1994 for the services of Messrs. Ronald Burkle and Resnik and other
Yucaipa personnel. Such payments to Yucaipa and its affiliate are not
reflected in the table set forth above.
(2) During Fiscal 1993, Greg Mays became Executive Vice
President-Finance/Administration and Chief Financial Officer.
(3) Mr. Joe Burkle provides services to Food 4 Less pursuant to a consulting
agreement. See " -- Employment Agreements."
(4) The amounts shown in this column represent annual payments by Food 4 Less to
the Employee Profit Sharing and Retirement Program of Food 4 Less for the
benefit of Mr. Golleher.
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COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION -- FOOD 4 LESS
Food 4 Less does not have a board committee performing the functions of a
compensation committee. Ronald W. Burkle, Chief Executive Officer of Food 4
Less, and George G. Golleher, President of Food 4 Less, made decisions with
regard to Food 4 Less' executive officer compensation for Fiscal 1994.
FOOD 4 LESS STOCK PLAN
As of June 25, 1994, certain employees of Food 4 Less (the "Management
Stockholders") collectively owned approximately 4.5% of Holdings' outstanding
common stock which they acquired under the management stock plan of Food 4 Less.
Pursuant to this plan, the Board of Directors of Holdings from time to time has
offered common stock of Holdings for sale to selected employees at a price and
for consideration (which may include a promissory note) determined at the
discretion of the Board. Management Stockholders who have purchased shares are
party to a Management Stockholders Agreement (the "Stockholders Agreement") with
Holdings, a Stockholder Voting Agreement and Proxy (the "Voting Agreement"), and
such other documents as Holdings may require. The Stockholders Agreement
prohibits the transfer of any of the Management Stockholder's common stock for a
period of four years from the date of its original issuance (although such date
may, in the case of certain Management Stockholders who were shareholders of
BHC, relate back to the date that shares were issued to them by BHC) other than
transfers to certain family members and heirs or pursuant to a registration
statement. The Management Stockholder's shares may be purchased by Holdings if,
(a) prior to the fourth anniversary of their issuance, the Management
Stockholder's employment terminates for any reason, or (b) after such fourth
anniversary, the Management Stockholder wishes to sell his/her common stock to a
third party. In the event of the death or permanent disability of the Management
Stockholder, each Management Stockholder has an irrevocable option for one year
to require Holdings to purchase all (or a portion) of his common stock in the
manner and on the terms set forth in the Stockholders Agreement; provided,
however, that the Management Stockholder may exercise such option in the event
of death or disability only to the extent that Holdings or Food 4 Less has
insurance, under which Holdings or Food 4 Less is the named beneficiary, with
respect to such event. Additionally, if shareholders holding at least fifty
percent (50%) of the issued and outstanding common stock of Holdings agree to
sell to a third party more than eighty percent (80%) of the shares of common
stock then held by them, then upon the demand of such selling stockholders, each
Management Stockholder must sell to such third party the same percentage of his
common stock as is proposed to be sold by the selling stockholders. The
Stockholders Agreement terminates on the tenth anniversary of the Merger.
Under the Voting Agreement, Ronald W. Burkle, George G. Golleher and
Yucaipa Capital Advisors, Inc. have sole voting control over the shares of
common stock owned by the other Management Stockholders until the tenth
anniversary of the Merger (unless extended by such Management Stockholders).
As of January 7, 1995, there was outstanding $0.7 million principal amount
of notes receivable from certain Management Stockholders, representing loans for
the purchase of Holdings' common stock. The notes are due over various periods,
bear interest at the bank "prime" lending rate, and are secured by such common
stock.
Pursuant to the Reincorporation Merger, New Holdings will succeed to the
rights and obligations of Holdings under the Food 4 Less stock plan. It is
expected that following the Merger, equity issuances to management will cease to
be made under the Food 4 Less stock plan and instead will be made under the New
Holdings option plan. See "-- New Management Stock Option Plan and Management
Investment."
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PRINCIPAL STOCKHOLDERS
The information in the following table gives effect to (i) the Merger and
the Financing and (ii) the FFL Merger and the Reincorporation Merger. The
information in the following table assumes that the outstanding stock options of
RSI have been cancelled, that certain new stock options of New Holdings have
been granted to management and that certain warrants to purchase New Holdings
Common Stock have been issued to institutional investors who currently hold
warrants to purchase Common Stock of Holdings. Based on such assumption and
giving effect to the foregoing events, the following table sets forth the
ownership of Common Stock and Series A Preferred Stock and Series B Preferred
Stock of New Holdings by each person who to the knowledge of Food 4 Less will
own 5% or more of New Holdings' outstanding voting stock, by each person who
will be a director or named executive officer of the Company, and by all
executive officers and directors of the Company as a group. Share amounts and
percentage ownership information set forth for the Series A Preferred Stock and
Series B Preferred Stock are subject to change pending finalization of the
Financing.
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
- ---------------------------- ---------- ----- ---------- ---- --------- ---- ---------- -----------
Yucaipa and affiliates:
The Yucaipa
Companies(4)(5)......... 17,567,622 62.3% -- -- -- -- 39.1% 36.6%
Ronald W. Burkle(4)(6).... 2,046,392 10.1% -- -- -- -- 5.5% 5.1%
George G. Golleher
(2)(6).................. 462,525 2.3% -- -- -- -- 1.3% 1.2%
10000 Santa Monica
Boulevard, Los Angeles,
California 90067
---------- ----- ---------- -----------
Total................. 20,076,539 71.2% -- -- -- -- 44.7% 41.8%
Byron E. Allumbaugh(2)...... 600,000 3.0% -- -- -- -- 1.6% 1.5%
Alfred A. Marasca(2)........ 200,000 1.0% -- -- -- -- 0.5% 0.5%
Greg Mays(7)................ -- -- -- -- -- -- -- --
Alan J. Reed(8)............. -- -- -- -- -- -- -- --
Terry Peets(8).............. -- -- -- -- -- -- -- --
Jan Charles Gray(8)......... -- -- -- -- -- -- -- --
Apollo Advisors, L.P.(9)
2 Manhattanville Road
Purchase, NY 10577........ 1,285,165 6.4% 12,283,244 73.6% -- -- 36.8% 33.9%
BT Investment Partners,
Inc.(10)
130 Liberty Street
New York, NY 10006........ 509,812 2.5% 900,000 5.4% 3,100,000 100% 3.8% 11.3%
Other New Equity Investors
as a group(11)............ 3,500,000 21.0% -- -- 9.5% 8.8%
All directors and executive
officers as a group (15
persons)(2)(4)(5)(6)...... 20,876,539 74.0% -- -- -- -- 46.5% 43.5%
- ---------------
(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,
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under such stock option plan, concurrently with or following completion of
the Merger or (b) Reinvestment Options to purchase up to 1,000,000 shares
of New Holdings common stock to be issued to holders of EARs in exchange
for the cancellation of $10 million of the EAR payments which would
otherwise be payable upon consummation of the Merger. See "Executive
Compensation -- New Management Stock Option Plan and Management
Investment."
(3) Except as otherwise indicated, each beneficial owner has the sole power to
vote, as applicable, and to dispose of all shares of Common Stock or Series
A Preferred Stock or Series B Preferred Stock owned by such beneficial
owner.
(4) Represents shares owned by The Yucaipa Companies, F4L Equity Partners,
L.P., FFL Partners, Yucaipa Capital Fund and Yucaipa/F4L Partners. These
entities are affiliated partnerships which are controlled, directly or
indirectly, by Ronald W. Burkle. Following completion of the Merger, the
foregoing entities will be parties to a stockholders agreement with other
New Holdings investors which will give to Yucaipa the right to elect a
majority of the directors of New Holdings. See "Description of Capital
Stock -- 1995 Stockholders Agreement."
(5) Share amount and percentages shown for Yucaipa include a warrant to
purchase 8,000,000 shares of New Holdings Common Stock to be issued to
Yucaipa concurrently with the completion of the Merger and the Financing.
Such warrant will become exercisable only upon the occurrence of an initial
public offering or certain sale transactions involving New Holdings. See
"Description of Capital Stock -- Yucaipa Warrant."
(6) Certain management stockholders who own in the aggregate 852,326 shares of
Common Stock (pro forma for the events and assumptions described above)
have entered into a Stockholder Voting Agreement and Proxy pursuant to
which Ronald W. Burkle, George G. Golleher and Yucaipa Capital Advisors,
Inc. have sole voting control over the shares currently owned by such
management stockholders until December 31, 2002 (unless extended by such
stockholders). See "Executive Compensation -- Food 4 Less Stock Plan." The
852,326 shares have been included, solely for purposes of the above table,
in the share amounts shown for Mr. Burkle but not for Mr. Golleher. Neither
Messrs. Burkle and Golleher nor Yucaipa Capital Advisors, Inc. have the
power to dispose of, or any other form of investment power with respect to,
such shares. Messrs. Burkle and Golleher have sole voting and investment
power with respect to 1,194,066 and 462,525 shares of Common Stock they
respectively own (including, in the case of Mr. Golleher, 200,000 shares
issuable upon the exercise of Tier One Options).
(7) Mr. Mays owns 8,890 of the 852,326 shares of Common Stock which are subject
to the Stockholder Voting Agreement and Proxy described in note (6) above.
(8) Does not include Reinvestment Options to purchase 60,000 shares, 60,000
shares and 174,940 shares of New Holdings Common Stock to be issued to
Messrs. Reed, Peets and Gray, respectively, in exchange for the
cancellation of EAR payments which would otherwise be payable upon
consummation of the Merger.
(9) Represents shares owned by one or more entities managed by or affiliated
with Apollo Advisors, L.P., together with certain affiliates or designees
of Apollo.
(10) Represents shares owned by BT Investment Partners, Inc. ("BTIP"), Bankers
Trust New York Corporation and BT Securities Corporation. Bankers Trust New
York Corporation and BT Securities Corporation are affiliated with BTIP.
BTIP expressly disclaims beneficial ownership of all shares owned by
Bankers Trust New York Corporation and BT Securities Corporation.
(11) Includes certain institutional investors, other than Apollo and BTIP, which
will purchase Series A Preferred Stock of New Holdings in connection with
the Financing. Pursuant to the 1995 Stockholders Agreement, certain
corporate actions by New Holdings and its subsidiaries will require the
consent of the directors whom the New Equity Investors, including Apollo
and BTIP, are entitled to elect to the New Holdings Board of Directors. See
"Description of Capital Stock -- 1995 Stockholders Agreement." Such
investors do not affirm the existence of a "group" within the meaning of
Rule 13d-5 under the Exchange Act, and expressly disclaim beneficial
ownership of all New Holdings shares except for those shares held of record
by each such investor or its nominees.
DESCRIPTION OF CAPITAL STOCK
Following is a description of the capital stock of the Company and New
Holdings to be authorized and outstanding upon completion of the Merger, the FFL
Merger and the Reincorporation Merger, including the terms of the New Equity
Investment to be made in New Holdings in connection with the closing of the
Merger.
THE COMPANY
Upon completion of the Merger, the authorized capital stock of the Company
will consist of 1,600,000 shares of common stock, $.01 par value per share, of
which 1,513,938 shares will be outstanding. All of such outstanding shares will
be owned by New Holdings. There will be no public trading market for the common
stock of the Company. The indentures that will govern outstanding debt
securities of the Company will contain certain restrictions on the payment of
cash dividends with respect to the Company's common stock. In addition, it is
expected that the New Credit Facility will also restrict such payments. Subject
to the limitations contained in the New Credit Facility and such indentures,
holders of common stock of the Company will be entitled to dividends when and as
declared by the Board of Directors from funds legally available therefor, and
upon liquidation, will be entitled to share ratably in any distribution to
holders of common stock. All holders of common stock will be entitled to one
vote per share on any matter coming before the stockholders for a vote.
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NEW HOLDINGS
Following completion of the Merger, the FFL Merger, the Reincorporation
Merger and the New Equity Investment, (i) the authorized capital stock of New
Holdings will consist of 60,000,000 shares of common stock, $.01 par value,
25,000,000 shares of Series A Preferred Stock, $.01 par value, and 25,000,000
shares of Series B Preferred Stock, $.01 par value, (ii) 17,207,882 shares of
common stock, 16,683,244 shares of Series A Preferred Stock and 3,100,000 shares
of Series B Preferred Stock will be outstanding and held by approximately 100
holders of record, (iii) 2,008,874 shares of common stock will be reserved for
issuance upon the exercise of outstanding warrants held by institutional
investors, and (iv) 3,000,000 shares of common stock will be reserved for
issuance upon the exercise of the New Options. See "Executive Compensation --
New Management Stock Option Plan and Management Investment." An additional
8,000,000 shares of common stock will be reserved for issuance upon the exercise
of a warrant to be issued to Yucaipa upon closing of the Merger. See "Yucaipa
Warrant" below.
There is no public trading market for the capital stock of New Holdings,
nor will any such market exist following completion of the Merger. New Holdings
does not expect in the foreseeable future to pay any dividends on its capital
stock. Holders of common stock of New Holdings are entitled to dividends when
and as declared by the Board of Directors of New Holdings from funds legally
available therefor, and upon liquidation, are entitled to share ratably in any
distribution to holders of common stock. All holders of New Holdings common
stock are entitled to one vote per share on any matter coming before the
stockholders for a vote.
The Series A Preferred Stock initially will have an aggregate liquidation
preference of $166,832,440, or $10 per share, which will accrete as described
below. The holders of the Series A Preferred Stock will vote (on an as-converted
basis) together with the common stock as a single class on all matters submitted
for stockholder vote. Each share of Series A Preferred Stock initially will be
convertible at the option of the holder thereof into a number of shares of New
Holdings common stock equal to the liquidation preference of such share of
Series A Preferred Stock divided by $10. Upon consummation of an initial public
offering of New Holdings equity securities which meets certain criteria, the
shares of Series A Preferred Stock will automatically convert into shares of
common stock of New Holdings at the same rate as applicable to an optional
conversion.
The Series B Preferred Stock initially will have an aggregate liquidation
preference of $31,000,000, or $10 per share, which will accrete as described
below. The holders of Series B Preferred Stock generally will not be entitled to
vote on any matters, except as required by the Delaware General Corporation Law.
Upon the occurrence of a change of control, each share of Series B Preferred
Stock initially will be convertible at the option of the holder thereof into a
number of shares of New Holdings common stock equal to the liquidation
preference of such share of Series B Preferred Stock divided by $10. Upon
consummation of an initial public offering of New Holdings equity securities
which meets certain criteria, shares of Series B Preferred Stock will
automatically convert into shares of non-voting common stock of New Holdings at
the same rate as applicable to an optional conversion.
The liquidation preference of the Series A Preferred Stock and the Series B
Preferred Stock initially will accrete daily at the rate of 7% per annum,
compounded quarterly, until the later of the fifth anniversary of the date of
issuance or the date the Company first reports EBDIT (as defined) of at least
$500 million for any twelve-month period. Thereafter, the liquidation preference
will remain constant. The accretion rate of the liquidation preference will
increase (a) by 2% per annum if the Company fails to report EBDIT of at least
$400 million for the four fiscal quarters ending closest to the third
anniversary of the date of issuance (or for the rolling four-quarter period
ending on any of the three subsequent quarter-ends), (b) by 2% per annum if the
Company fails to report EBDIT of at least $425 million for the four fiscal
quarters ending closest to the fourth anniversary of the date of issuance (or
for the rolling four-quarter period ending on any of the three subsequent
quarter-ends) or (c) by 2% per annum if the Company fails to report EBDIT of at
least $450 million for the four fiscal quarters ending closest to the fifth
anniversary of the date of issuance, in each case, such increase to take effect
on the first day after the last day of the fiscal quarter with respect to which
such failure occurred; provided that the accretion rate of the liquidation
preference will not at any time exceed
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13% per annum. The accretion of the liquidation preference will result in a
proportional increase in the number of shares of common stock issuable upon
conversion of the Series A Preferred Stock and the Series B Preferred Stock. In
addition, the initial aggregate liquidation preference of the Series A Preferred
Stock and the Series B Preferred Stock may increase from the amounts set forth
above depending on whether New Holdings determines to increase the number of
shares it may sell pursuant to the New Equity Investment, and depending on
whether certain existing equity holders of FFL and Holdings exercise preemptive
rights to participate in the New Equity Investment.
Upon any transfer or sale of shares of either Series A Preferred Stock or
Series B Preferred Stock, such shares may be converted (subject to certain
conditions) at the option of the holder into shares of the other series. The
holders of Series A Preferred Stock and Series B Preferred Stock have no rights
to any fixed dividends in respect thereof. Subject to certain exceptions, New
Holdings will be prohibited from declaring dividends with respect to its common
stock without the consent of holders of a majority of the Series A Preferred
Stock and of the Series B Preferred Stock. If dividends are declared on the
Series A Preferred Stock or the Series B Preferred Stock which are payable in
voting securities of New Holdings, New Holdings will make available to each
holder of Series A Preferred Stock and Series B Preferred Stock, at such
holder's request, dividends consisting of non-voting securities of New Holdings
which are otherwise identical to the voting securities and which are convertible
into or exchangeable for such voting securities upon a change of control.
NEW EQUITY INVESTMENT
Concurrently with the issuance of the New Notes and the closing of the
Merger, certain existing stockholders of New Holdings, including affiliates of
George Soros, will sell 5,783,244 outstanding shares of common stock of New
Holdings to CLH, which in turn will sell such shares to the New Equity Investors
for an aggregate purchase price of $57.8 million. New Holdings will then issue
16,683,244 shares of Series A Preferred Stock and 3,100,000 shares of Series B
Preferred Stock in a private placement to the New Equity Investors led by Apollo
and including affiliates of BT Securities, CS First Boston and DLJ for an
aggregate consideration of $140 million plus the contribution to New Holdings of
the shares of common stock purchased from CLH in the secondary sale transaction.
The shares of Series A Preferred Stock and Series B Preferred Stock acquired by
the New Equity Investors will represent approximately 41% in the aggregate of
the fully diluted common equity of New Holdings (assuming exercise of the
Yucaipa Warrant). See "Principal Stockholders."
The $140 million cash proceeds from the issuance of Series A Preferred
Stock and Series B Preferred Stock will be applied by New Holdings as set forth
under "The Merger and the Financing."
Food 4 Less has accepted a commitment letter (the "Equity Commitment") from
Apollo pursuant to which Apollo has agreed (subject to certain conditions) to
purchase up to $140 million of the Series A Preferred Stock to be offered by New
Holdings as part of the New Equity Investment. In consideration of its equity
commitment, upon the closing of the Merger Apollo will receive from New Holdings
a fee of $5 million, of which $2.5 million will be satisfied through the
issuance to Apollo of New Discount Debentures and $2.5 million will be paid to
Apollo in cash. See "Certain Relationships and Related Transactions -- Food 4
Less." The Company anticipates that the remainder of the Series A Preferred
Stock and Series B Preferred Stock so offered will be purchased by affiliates of
lenders and other financial institutions which have provided financing to the
Company, including BTIP, which is an affiliate of Bankers Trust, by affiliates
of CS First Boston and DLJ and by certain other investors. The amounts of New
Holdings stock expected to be held by Apollo, affiliates of Bankers Trust and
all other holders of 5% or more of New Holdings' outstanding stock following
completion of the Merger and the Financing are set forth above under "Principal
Stockholders."
1995 STOCKHOLDERS AGREEMENT
Under the terms of the 1995 Stockholders Agreement (which is expected to be
entered into by New Holdings, Yucaipa and its affiliates, the New Equity
Investors and other stockholders), the New Equity Investors holding Series A
Preferred Stock will be entitled to nominate three directors to the Board of
Directors of each of New Holdings and the Company (the "Series A Directors"), of
which two directors will
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be nominees of Apollo and one director will be a nominee of the other New Equity
Investors holding Series A Preferred Stock. The 1995 Stockholders Agreement will
give to Yucaipa the right to nominate six directors of New Holdings and seven
directors of the Company, and the boards of New Holdings and the Company will
consist of a total of nine and ten directors, respectively. The numbers of
directors which may be nominated by the foregoing stockholders will be reduced
if such stockholders cease to own certain specified percentages of their initial
holdings. Unless and until New Holdings has effected an initial public offering
of its equity securities meeting certain criteria, New Holdings and its
subsidiaries may not take certain actions without the approval of the Series A
Directors, including but not limited to certain mergers, sale transactions,
transactions with affiliates, issuances of capital stock and payments of
dividends on or repurchases of capital stock. In addition, the New Equity
Investors will have certain "demand" and "piggyback" registration rights with
respect to their Series A Preferred Stock and Series B Preferred Stock, as well
as the right to participate, on a pro rata basis, in sales by Yucaipa of the New
Holdings stock it holds. In certain circumstances, Yucaipa will have the right
to compel the participation of the New Equity Investors and other stockholders
in sales of all the outstanding shares of New Holdings stock.
The Company will seek the agreement of the current stockholders of FFL and
warrantholders of Holdings to become party to the 1995 Stockholders Agreement,
which would grant to such holders certain rights in replacement of two existing
stockholders agreements among FFL and its stockholders entered into in 1987 and
1991, respectively, and an agreement among Holdings and its warrantholders
executed in 1992.
YUCAIPA WARRANT
Upon closing of the Merger, New Holdings has agreed to issue to Yucaipa a
warrant to purchase up to 8,000,000 shares of New Holdings common stock. The
initial exercise price of such warrant will be set such that the warrant will
have no value unless and until the value of New Holdings' equity appreciates to
$1.220 billion. Such warrant will be exercisable on a cashless basis at the
election of Yucaipa in the event New Holdings completes an initial public
offering of equity securities meeting certain criteria, or in connection with
certain sale transactions involving New Holdings, in either case effected on or
prior to the fifth anniversary of the Closing Date. The expiration date of such
warrant, and the deadline for such triggering transactions, may be extended from
the fifth to the seventh anniversary of the Closing Date if New Holdings meets
certain financial performance goals prior to such fifth anniversary. The
cashless exercise provisions of such warrant allow the holder to exercise it
without the payment of cash consideration, provided that New Holdings will
withhold from the shares otherwise issuable upon such exercise a number of
shares having a fair market value as of the exercise date equal to the exercise
price.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RALPHS
In connection with the acquisition of a majority of RSI's common stock in
February 1992, EJDC agreed to guarantee RGC's obligations as a self-insurer of
worker's compensation liabilities in the State of California (the "EJDC
Guaranty"). In consideration of the EJDC Guaranty, RGC unconditionally agreed to
reimburse EJDC for any payments made under the EJDC Guaranty and for the cost of
insurance up to $200,000 to cover liabilities incurred pursuant to the EJDC
Guaranty. Further, RGC agreed to pay EJDC a guarantee fee of $33,500 for each
month the EJDC Guaranty was in effect ($402,000 was paid in Fiscal 1994).
Concurrently with the completion of the Merger, the EJDC Guaranty will be
terminated, and RGC will cease to pay any guarantee fee to EJDC or to reimburse
it for the cost of insurance. However, RGC will continue to be obligated to
reimburse EJDC for any payments which EJDC could in the future be required to
make under the EJDC Guaranty in respect of prior claims. Moreover, FFL has
undertaken for the benefit of EJDC to maintain, until the fifth anniversary of
the closing of the Merger, bank letters of credit, insurance or other security
for the workers' compensation claims for which EJDC could have liability under
the EJDC Guaranty.
In connection with the bankruptcy reorganization of Federated and its
affiliates, Federated agreed to pay certain potential tax liabilities relating
to RGC as a member of the affiliated group of companies comprising Federated and
its subsidiaries. In consideration thereof, RSI and RGC agreed to pay Federated
a total of $10 million, payable $1 million on each of February 3, 1992, 1993,
1994, 1995 and 1996 and $5 million on
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February 3, 1997. The five $1 million installments are to be paid by RGC and the
$5 million payment is the joint obligation of RSI and RGC. In the event
Federated is required to pay certain tax liabilities, RSI and RGC have agreed to
reimburse Federated up to an additional $10 million, subject to certain
adjustments. This additional obligation, if any, is the joint and several
obligation of RSI and RGC. Pursuant to the terms of the Merger Agreement, the $5
million payment and the potential $10 million payment will be paid in cash. See
Note 1 of Notes to Ralphs Consolidated Financial Statements.
In addition, EJDC and the other current holders of Common Stock of RSI are
parties to an agreement providing for various aspects of corporate governance
(the "Ralphs Registration Rights and Governance Agreement") relating to Ralphs.
Pursuant to the Ralphs Registration Rights and Governance Agreement, RGC is
obligated to provide RSI, by dividend, pursuant to a services agreement or
otherwise, with funds sufficient to enable RSI to perform its duties as the
holding company of RGC's stock and to perform its obligations set forth in the
Ralphs Registration Rights and Governance Agreement. The Ralphs Registration
Rights and Governance Agreement will be cancelled concurrently with the closing
of the Merger.
FOOD 4 LESS
Yucaipa provides certain management and financial services to Food 4 Less
and its subsidiaries pursuant to a consulting agreement. The services of Ronald
Burkle, Mark Resnik and Patrick Graham, acting in their capacities as directors
and officers, and the services of other Yucaipa personnel are provided to Food 4
Less pursuant to this agreement. All of such individuals are partners of
Yucaipa. Yucaipa's consulting agreement provides for annual management fees
currently equal to $2 million plus an additional amount based on Food 4 Less'
performance. Upon completion of the Merger, the consulting agreement will be
amended to provide for an annual management fee payable by the Company to
Yucaipa in the amount of $4 million, with no additional amounts payable based on
performance. In addition, the Company may retain Yucaipa in an advisory capacity
in connection with certain acquisitions or sale transactions, in which case the
Company will pay Yucaipa an advisory fee. The agreement has a five-year term,
which will be automatically renewed on each anniversary of the Merger for a
five-year term unless ninety days' notice is given by either party. The
agreement may be terminated at any time by the Company, provided that Yucaipa
will be entitled to full monthly payments under the agreement for the remaining
term thereof, unless the Company terminates for cause pursuant to the terms of
the agreement. Yucaipa may terminate the agreement if the Company fails to make
a payment due thereunder, or if there occurs a change of control (as defined in
the agreement) of the Company, and upon any such termination Yucaipa will be
entitled to full payments for the remainder of the five-year period commencing
on the closing of the Merger. Pursuant to the agreement, Food 4 Less paid
Yucaipa a total of $2.4 million, $3.8 million and $2 million in management and
advisory fees for the fiscal years ended June 25, 1994, June 26, 1993 and June
27, 1992 respectively.
The Yucaipa consulting agreement also provides that upon closing of the
Merger, Yucaipa will be entitled to receive an advisory fee from the Company in
the amount of $19 million, plus reimbursement of expenses in connection with the
Merger and the related transactions. New Holdings will issue $15 million initial
accreted value of New Discount Debentures to Yucaipa in satisfaction of a
portion of such fee and the Company will pay the remaining $4 million of such
fee in cash. Upon closing of the Merger, Yucaipa anticipates that it in turn
will pay a cash fee of approximately $3.5 million to Soros Fund Management in
consideration for advisory services which Soros Fund Management has rendered
since 1991. The Company has no responsibility for such payment by Yucaipa.
Additionally, upon closing of the Merger, Yucaipa will receive a warrant to
purchase 8,000,000 shares of New Holdings common stock exercisable upon the
conditions described under "Description of Capital Stock -- The Yucaipa
Warrant." In consideration for its commitment to purchase Series A Preferred
Stock of New Holdings, Apollo will receive a fee of $5 million from New Holdings
upon the closing of the Merger. New Holdings will issue $2.5 million initial
accreted value of New Discount Debentures to Apollo in satisfaction of a portion
of such fee, and New Holdings will pay the remaining $2.5 million of such fee in
cash. See "Description of Capital Stock -- New Equity Investment."
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
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Seller Debentures to Yucaipa on the Closing Date. The Yucaipa consulting
agreement will provide that the Company will reimburse Yucaipa for any loss and
expenses incurred by Yucaipa upon the resale of such Seller Debentures to any
unaffiliated third party. Yucaipa has advised the Company that it intends to
resell the Seller Debentures on the Closing Date or as soon thereafter as
practicable. The agreement will also require Yucaipa to contribute any profit
realized upon the resale of such Seller Debentures within such period to the
capital of the Company.
Pursuant to the New Discount Debenture Placement, New Holdings has
committed to issue $100 million initial accreted value of New Discount
Debentures, which will be acquired by a partnership comprised of FFL Investors
L.L.C. (an affiliate of George Soros), Yucaipa RGC L.L.C. (an affiliate of
Yucaipa whose members include Ronald Burkle, Mark Resnik and Patrick
Graham)("Yucaipa LLC"), RGC Investment Co. (a corporation controlled by certain
Yucaipa partners) ("RGCIC"), BTIP, an affiliate of CS First Boston, an affiliate
of DLJ, Apollo, EJDC and the other selling stockholders of RSI. New Discount
Debentures having an initial accreted value of $59 million will be issued
directly to the partnership by New Holdings for cash consideration contributed
to the partnership by (i) FFL Investors L.L.C., which will invest $40 million in
cash proceeds received from Soros' affiliate as a result of the secondary sale
of New Holdings common stock, (ii) BTIP, which will invest $5 million in cash,
(iii) an affiliate of CS First Boston, which will invest $2.5 million in cash,
(iv) an affiliate of DLJ, which will invest $2.5 million in cash, (v) EJDC,
which will invest $4 million of its consulting fee payable by the Company upon
closing of the Merger and (vi) RGCIC, which will invest $5 million in cash
borrowed from the Company. New Holdings will issue additional New Discount
Debentures having an initial accreted value of (a) $15 million to Yucaipa LLC in
satisfaction of advisory fees otherwise payable to Yucaipa by the Company in
connection with the Merger and the Financing, (b) $5 million to BT Securities in
satisfaction of other fees payable to BT Securities by the Company in connection
with the Financing, (c) $2.5 million to Apollo in satisfaction of a portion of
commitment fees otherwise payable to Apollo by New Holdings in connection with
the New Equity Investment and (d) $18.5 million to RSI stockholders as Merger
consideration all of which New Discount Debentures shall be contributed to the
partnership, whereupon the partnership will hold all $100 million initial
accreted value of New Discount Debentures issued by New Holdings.
New Holdings has granted to the partnership certain registration rights
with respect to the New Discount Debentures. Pursuant to such registration
rights agreement, New Holdings has committed to file with the Commission a shelf
registration statement which would permit resales of the New Discount Debentures
by the partnership commencing 60 days following closing of the Merger. New
Holdings will be obligated to use its best efforts to cause such shelf
registration statement to remain effective for up to three years. If New
Holdings fails to comply with its obligations to keep such shelf registration
statement effective, New Holdings will be obligated to pay certain liquidated
damages. New Holdings believes that the partnership actively would seek to
dispose of its entire interest in the New Discount Debentures promptly upon
expiration of the 60 day holdback period following closing of the Merger. New
Holdings has agreed to use its best efforts to assist the partnership in such
disposition, and to pay all expenses, including underwriting discounts and
brokers' or dealers' commissions and mark-ups (subject to certain limitations),
incident thereto.
The $5 million cash investment to be made in the partnership by RGCIC, as
described above, will be borrowed from the Company by RGCIC, and such borrowings
will bear interest at the applicable Federal rate (as defined under the Internal
Revenue Code). RGCIC will be obligated to repay such borrowings with any
distributions received from the partnership in connection with resales of the
New Discount Debentures. Such repayments will be applied first to the principal
balance of the borrowings and then to accrued interest. To the extent that such
distributions are not sufficient to repay such borrowings, any remaining
indebtedness of RGCIC (including all accrued interest) will be forgiven by the
Company and the Company's obligation to pay the Ralphs deferred EAR liability
will be correspondingly forgiven. Upon receipt of any principal amounts repaid
under such borrowings, the Company will be obligated to pay such amounts over to
former holders of RGC's EARs redeemed upon closing of the Merger. The aggregate
consideration payable to redeem the EARs includes, in addition to the foregoing
deferred cash payment of up to $5 million, $17.8 million in cash payable at
closing and $10 million in Reinvestment Options. See "Executive
Compensation -- Equity Appreciation Rights Plan."
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FFL files a consolidated federal income tax return, under which the federal
income tax liability of FFL and its subsidiaries (which since June 23, 1989
includes Food 4 Less) is determined on a consolidated basis. FFL has entered
into a federal income tax sharing agreement with Food 4 Less and certain of its
subsidiaries (the "Tax Sharing Agreement"). The Tax Sharing Agreement provides
that in any year in which Food 4 Less is included in any consolidated tax
liability of FFL and has taxable income, Food 4 Less will pay to FFL the amount
of the tax liability that Food 4 Less would have had on such due date if it had
been filing a separate return. Conversely, if Food 4 Less generates losses or
credits which actually reduce the consolidated tax liability of FFL and its
other subsidiaries, FFL will credit to Food 4 Less the amount of such reduction
in the consolidated tax liability. In the event any state and local income taxes
are determinable on a combined or consolidated basis, the Tax Sharing Agreement
provides for a similar allocation between FFL and Food 4 Less of such state and
local taxes. By operation of the FFL Merger and the Reincorporation Merger, New
Holdings will succeed to the rights and obligations of FFL under the Tax Sharing
Agreement.
Management believes that the terms of the transactions described above are
or were fair to Food 4 Less and are or were on terms at least as favorable to
Food 4 Less as those which could be obtained from unaffiliated parties (assuming
that such transactions could be effected with such parties).
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THE OFFERS AND SOLICITATION
BACKGROUND AND PURPOSES OF THE OFFERS AND SOLICITATION
The Offers and the Solicitation, together with the other financing and
solicitation transactions described under "The Merger and the Financing," are
part of the transactions required to consummate the merger of Food 4 Less with
and into RSI. Immediately following the RSI Merger, RGC, a wholly-owned
subsidiary of RSI, will merge into RSI and RSI will change its name to Ralphs
Grocery Company.
As a result of the Merger, the New Notes and any Old RGC Notes not tendered
pursuant to the Offers, the F4L Senior Notes, the F4L Senior Subordinated Notes
and the indebtedness incurred pursuant to the New Credit Facility will be the
obligations of the Company. In connection with the consummation of the Merger,
Food 4 Less is making the Offers and the F4L Exchange Offers to (i) extend the
maturities of the existing long-term debt securities of Food 4 Less and RGC by
exchanging such securities for new longer-term securities and (ii) establish
uniform covenants in the New Notes and the New F4L Notes in order to simplify
the capital structure of the Company. The Offers afford Old RGC Noteholders an
opportunity to elect to participate in the long-term capitalization of the
Company or receive a cash premium with respect to their Old RGC Notes.
Food 4 Less is also seeking Consents to the Proposed Amendments in the
Solicitation. The primary purpose of the Proposed Amendments is to permit the
consummation of the Merger and to eliminate substantially all of the restrictive
covenants in the Old RGC Indentures. See "The Proposed Amendments." If adopted
by the holders of not less than a majority in aggregate principal amount of each
of the outstanding Old RGC 9% Notes and Old RGC 10 1/4% Notes held by persons
other than RGC and its affiliates, the Proposed Amendments will become effective
immediately prior to the consummation of the Merger, upon Food 4 Less'
acceptance of properly tendered Old RGC Notes for exchange or purchase pursuant
to the Offers.
TERMS OF THE OFFERS
Upon the terms and subject to the conditions set forth herein and in the
accompanying applicable Letter of Transmittal, Food 4 Less is hereby offering
(A) to holders of the Old RGC 9% Notes (i) to exchange for each $1,000 principal
amount of Old RGC 9% Notes exchanged, $1,000 principal amount of New Senior
Subordinated Notes plus $20.00 in cash, and (ii) to purchase for $1,010.00 per
$1,000 principal amount of Old RGC 9% Notes, any or all of the Old RGC 9% Notes
and (B) to holders of the Old RGC 10 1/4% Notes (i) to exchange for each $1,000
principal amount of Old RGC 10 1/4% Notes exchanged, $1,000 principal amount of
New Senior Subordinated Notes plus $20.00 in cash, and (ii) to purchase for
$1,010.00 per $1,000 principal amount of Old RGC 10 1/4% Notes, any or all of
the Old RGC 10 1/4% Notes, in each case plus accrued and unpaid interest to the
date of exchange or purchase. Noteholders may also elect to tender a portion of
their Old RGC Notes for cash and a portion for New Notes.
The offers by Food 4 Less to exchange or purchase Old RGC 9% Notes and Old
RGC 10 1/4% Notes are referred to herein as the "9% Offer" and the "10 1/4%
Offer," respectively, and are referred to herein individually as the applicable
"Offer," as the case may be, and collectively as the "Offers." Each Offer
constitutes a separate offer by Food 4 Less. Food 4 Less reserves the right to
extend, delay, accept, amend or terminate either or both Offers and any
extension, delay, acceptance, amendment, termination or expiration of an Offer
shall apply only to such Offer to which such extension, delay, acceptance,
amendment, termination or expiration relates. Satisfaction of the conditions to
the Offers shall be determined separately with respect to each Offer.
Consummation of each Offer is subject to consummation of each other Offer. All
references herein to the Offers shall be deemed to include the Solicitation.
Holders of Old RGC Notes may choose to tender Old RGC Notes in the
applicable Offer in exchange for New Notes, for purchase for cash, or a
combination of both. In order to tender Old RGC Notes for New Notes, tendering
holders must complete the Letter of Transmittal and designate the aggregate
principal amount of Old RGC Notes to be tendered in exchange for New Notes in
the table entitled "Description of Old RGC Notes" under the column "Aggregate
Principal Amount Tendered in Exchange for New Notes." In order to tender Old RGC
Notes for purchase in cash, tendering holders must complete the Letter of
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Transmittal and designate the aggregate principal amount of Old RGC Notes to be
tendered for purchase in cash in the table entitled "Description of Old RGC
Notes" under the column "Aggregate Principal Amount Tendered for Purchase in
Cash." In order to tender Old RGC Notes for a combination of both New Notes and
cash, tendering holders must complete the Letter of Transmittal and designate
the aggregate principal amount of Old RGC Notes to be tendered in exchange for
New Notes and the aggregate principal amount of Old RGC Notes to be tendered for
purchase in cash in the table entitled "Description of Old RGC Notes" under the
respective columns. See "-- Procedures for Tendering and Consenting."
Nominees or other record holders of Old RGC Notes that hold Old RGC Notes
for more than one beneficial owner are entitled to make multiple elections
pursuant to the Letter of Transmittal that reflect the election of each of the
beneficial owners for whom they are tendering Old RGC Notes. In order to make
such multiple elections, nominees or other record holders should properly
complete the table under the box entitled "Election on Behalf of Multiple
Beneficial Owners." See "-- Procedures for Tendering and Consenting."
Holders of Old RGC Notes who desire to tender Old RGC Notes in an Offer
will be required to consent to the Proposed Amendments. See "-- The Consent
Solicitation," "-- Conditions," "The Proposed Amendments" and "Comparison of Old
RGC Notes and New Notes" set forth in Appendix A hereto. THE TENDER OF OLD RGC
NOTES BY THE HOLDER THEREOF PURSUANT TO THE APPLICABLE OFFER WILL CONSTITUTE THE
CONSENT OF SUCH TENDERING HOLDER TO THE PROPOSED AMENDMENTS WITH RESPECT TO SUCH
OLD RGC NOTES.
Old RGC Notes may be tendered and will be accepted only in denominations of
$1,000 principal amount and integral multiples thereof. Holders must tender all
of their Old RGC 9% Notes or Old RGC 10 1/4% Notes, as the case may be, if any
are tendered pursuant to the applicable Offer. Food 4 Less shall be deemed to
have accepted validly tendered Old RGC Notes in the Offers and validly delivered
Consents in the Solicitation when, as and if Food 4 Less has given oral or
written notice thereof to the Exchange Agent. The Exchange Agent will act as
agent for the tendering holders of Old RGC Notes for the purposes of receiving
the New Notes and the Exchange Payment or the Cash Consideration from the
Company. In the event Food 4 Less increases the consideration offered for the
Old RGC Notes in an Offer, such increased consideration will be paid with regard
to all Old RGC Notes accepted in such Offer, including those accepted before the
announcement of such increase. The New Notes will be delivered (and payments in
cash of accrued and unpaid interest thereon) and the Exchange Payment and the
Cash Consideration will be paid for Old RGC Notes accepted in the Offers
promptly after acceptance on the applicable Expiration Date.
As of May 1, 1995, (i) $150 million aggregate principal amount of the Old
RGC 9% Notes was outstanding and (ii) $300 million aggregate principal amount of
the Old RGC 10 1/4% Notes was outstanding.
Concurrently with the Offers and the Solicitation, Food 4 Less is offering
up to $295 million principal amount of New F4L Senior Notes pursuant to the
Senior Note Public Offering and is offering up to $200 million principal amount
of New Notes pursuant to the Subordinated Note Public Offering. Food 4 Less does
not expect to commence the Public Offerings until such time as the Minimum
Exchange has been satisfied and the Requisite Consents have been received.
Following the pricing of the Subordinated Note Public Offering, Food 4 Less
intends to further extend the Expiration Date to a date that is ten Business
Days following the pricing of the Public Offerings. CONSUMMATION OF EACH OFFER
IS CONDITIONED ON, AMONG OTHER THINGS, THE CONSUMMATION OF THE PUBLIC OFFERINGS.
There can be no assurance that such condition or the other conditions to the
Offers will be satisfied. See "-- Conditions." As a result of the Merger, the
New Notes will become the obligations of the Company.
Although it has no obligation to do so, the Company reserves the right in
the future to seek to acquire Old RGC Notes not tendered in the Offers or the
Change of Control Offer by means of open market purchases, privately negotiated
acquisitions, subsequent exchange or tender offers, redemptions or otherwise, at
prices or on terms which may be higher or lower or more or less favorable than
those in either Offer, or the Change of Control Offer. The terms of any such
purchases or offers could differ from the terms of either Offer, or the Change
of Control Offer.
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Holders of Old RGC Notes who tender in the Offers will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Consent
and Letter of Transmittal, transfer taxes with respect to the tender of Old RGC
Notes pursuant to the Offers. Food 4 Less will pay all charges and expenses,
other than certain applicable taxes, in connection with the Offers. See "-- Fees
and Expenses."
No appraisal rights are available to Old RGC Noteholders in connection with
the Offers.
THE CONSENT SOLICITATION
Concurrently with the Offers, Food 4 Less is soliciting Consents in the
Solicitation from holders of each of the Old RGC 9% Notes and the Old RGC
10 1/4% Notes with respect to the Proposed Amendments to the Old RGC Indentures.
See "Description of the Old RGC Notes and Proposed Amendments." The Offers are
subject to, among other things, the condition that the Requisite Consents (i.e.,
Consents of holders representing at least a majority in aggregate principal
amount of each of the outstanding Old RGC 9% Notes and Old RGC 10 1/4% Notes
held by persons other than RGC and its affiliates) shall have been received and
not revoked on or prior to the Expiration Date. HOLDERS OF OLD RGC NOTES WHO
DESIRE TO ACCEPT THE APPLICABLE OFFER MUST CONSENT TO THE PROPOSED AMENDMENTS.
The Proposed Amendments will only become operative upon consummation of the
Offers. The primary purpose of the Proposed Amendments is to permit the Merger
and to eliminate substantially all of the restrictive covenants in the Old RGC
Indentures.
The Proposed Amendments for each of the Old RGC 9% Notes and the Old RGC
10 1/4% Notes require the consent of holders of at least a majority in aggregate
principal amount of each of the Old RGC 9% Notes and the Old RGC 10 1/4% Notes,
in each case not owned by RGC or its affiliates. In addition, in order for any
of the Proposed Amendments to become effective, a Supplemental Indenture
amending each of the Old RGC Note Indentures must be executed by the Company and
the applicable Old Trustee. See "The Proposed Amendments" and "Comparison of Old
RGC Notes and New Notes" set forth in Appendix A hereto.
Upon receipt of the Requisite Consents from holders of Old RGC 9% Notes or
holders of Old RGC 10 1/4% Notes, Food 4 Less will certify in writing to the Old
RGC 9% Note Trustee or the Old RGC 10 1/4% Note Trustee (together, the "Old
Trustees"), as the case may be, that the Requisite Consents to the adoption of
the Proposed Amendments have been received with respect to such issue of Old RGC
Notes. Upon receipt of such certification, all Consents to the Proposed
Amendments theretofore received with respect to such issue of Old RGC Notes will
be irrevocable. Except as set forth under "-- Guaranteed Delivery Procedure,"
Consents from tendering holders of Old RGC Notes will not be counted towards
determining whether Food 4 Less has received the Requisite Consents unless Food
4 Less is prepared to accept the tender of Old RGC Notes to which such Consents
relate. In addition, Consents with respect to any Old RGC Notes will not be
counted if the tender of such holders' Old RGC Notes is defective, unless Food 4
Less waives such defect. After receipt by the Old RGC 9% Note Trustee or the Old
RGC 10 1/4% Note Trustee of, among other things, certification by Food 4 Less
that the Requisite Consents with respect to the Old RGC 9% Notes or the Old RGC
10 1/4% Notes, as the case may be, have been received, Food 4 Less and the
applicable Old Trustee will execute a supplemental indenture to evidence the
adoption of the Proposed Amendments relating to the applicable indenture under
which such Old RGC Notes were issued (each a "Supplemental Indenture"). Upon the
acceptance by Food 4 Less of the Requisite Consents from holders of Old RGC 9%
Notes or Old RGC 10 1/4% Notes and the execution of the applicable Supplemental
Indenture, such Supplemental Indenture will immediately become effective.
Although the Proposed Amendments relating to an issue of Old RGC Notes will
become effective upon certification that the Requisite Consents from holders of
the applicable Old RGC Notes have been received, such Proposed Amendments will
not be operative until Food 4 Less has accepted for purchase or exchange all Old
RGC Notes validly tendered and not withdrawn. The Company will not be obligated
pursuant to the Offers to issue the New Notes and pay the Exchange Payment
and/or pay the Cash Consideration unless, among other things, the Requisite
Consents to the adoption of the Proposed Amendments have been received from both
the Old RGC 9% Noteholders and the Old RGC 10 1/4% Noteholders. See
" -- Conditions."
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If the Proposed Amendments become effective, (i) the Exchange Agent, as
soon as practicable, will transmit a copy of the applicable Supplemental
Indenture to all registered holders of Old RGC Notes which remain outstanding,
and (ii) non-tendering holders will hold their Old RGC Notes under the
applicable Old RGC Note Indenture as amended by the Proposed Amendments.
Consents given by holders of Old RGC Notes tendered but rejected by Food 4 Less
pursuant to an Offer will not be counted for the purpose of determining whether
the Requisite Consents have been obtained.
Only a registered holder of Old RGC Notes (the "Registered Holder") can
effectively deliver a Consent to the Proposed Amendments. Pursuant to the terms
of the Old RGC Indentures, subsequent transfers of Old RGC Notes on the
applicable security register for such Old RGC Notes will not have the effect of
revoking any Consent theretofore given by the Registered Holder of such Old RGC
Notes, and such Consents will remain valid unless revoked by the transferee
holder in accordance with the procedures described under the heading
"-- Withdrawal of Tenders and Revocation of Consents."
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
Each Offer and the Solicitation have been extended until and will expire at
12:00 Midnight, New York City time, on May 15, 1995 (the "Expiration Date"),
unless further extended by Food 4 Less. Food 4 Less reserves the right to
further extend each Offer or the Solicitation, at its discretion, in which event
the term "Expiration Date" shall mean the latest time and date at which such
Offer or the Solicitation, as the case may be, as so further extended by Food 4
Less, shall expire. Food 4 Less does not expect to commence the Public Offerings
until such time as the Minimum Exchange has been satisfied and Requisite
Consents have been received. Following the pricing of the Subordinated Note
Public Offering, Food 4 Less intends to further extend the Expiration Date to a
date that is ten Business Days following the pricing of the Public Offerings.
Food 4 Less shall notify the Exchange Agent of any extension by oral or written
notice and shall make a public announcement thereof, each prior to 9:00 a.m.,
New York City time, on the next Business Day after the previously scheduled
Expiration Date. Such announcement may state that Food 4 Less is extending such
Offer or the Solicitation, as the case may be, for a specified period or on a
daily basis.
Food 4 Less also expressly reserves the right, at any time or from time to
time, to extend the period of time during which an Offer or the Solicitation, as
the case may be, is open. There can be no assurance that Food 4 Less will
exercise its right to extend any Offer or the Solicitation. During any extension
of an Offer, all Old RGC Notes previously tendered pursuant thereto and not
withdrawn will remain subject to such Offer and may be accepted for exchange or
purchase by Food 4 Less at the expiration of such Offer, subject to the right,
if any, of a tendering holder to withdraw its Old RGC Notes. See "-- Withdrawal
of Tenders and Revocation of Consents."
Each of the Company and Food 4 Less, as the case may be, also expressly
reserves the right, subject to applicable law and the terms of the Offers and to
the extent not inconsistent with the terms of the Merger, the Other Debt
Financing Transactions, the Bank Financing or the New Equity Investment, (i) to
delay the acceptance for exchange and purchase of any Old RGC Notes or,
regardless of whether such Old RGC Notes were theretofore accepted for exchange
or purchase, to delay the exchange and purchase of any Old RGC Notes pursuant to
an Offer and to terminate such Offer and not accept for exchange or purchase any
Old RGC Notes not theretofore accepted, upon the failure of any of the
conditions to such Offer specified herein to be satisfied, by giving oral or
written notice of such delay or termination to the Exchange Agent and (ii) at
any time, or from time to time, to amend any of the Offers in any respect.
Except as otherwise provided herein, withdrawal rights with respect to Old RGC
Notes tendered pursuant to an Offer will not be extended or reinstated as a
result of an extension or amendment of such Offer. See "-- Withdrawal of Tenders
and Revocation of Consents." The reservation by Food 4 Less of the right to
delay acceptance for exchange and/or purchase of Old RGC Notes is subject to the
provisions of Rule 14e-1(c) under the Exchange Act, which requires that Food 4
Less (or the Company as successor by Merger) pay the consideration offered or
return the Old RGC Notes deposited by or on behalf of holders thereof promptly
after the termination or withdrawal of an Offer.
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Any extension, delay, termination or amendment of an Offer will be followed
as promptly as practicable by a public announcement thereof. Without limiting
the manner in which Food 4 Less may choose to make a public announcement of any
extension, delay, termination or amendment of an Offer, Food 4 Less shall have
no obligation to publish, advertise or otherwise communicate any such public
announcement, other than by issuing a release to the Dow Jones News Service,
except in the case of an announcement of an extension of an Offer, in which case
Food 4 Less shall have no obligation to publish, advertise or otherwise
communicate such announcement other than by issuing a notice of such extension
by press release or other public announcement, which notice shall be issued no
later than 9:00 a.m., New York City time, on the next Business Day after the
previously scheduled Expiration Date.
If Food 4 Less shall decide to decrease the amount of Old RGC Notes being
sought in an Offer, or to increase or decrease the consideration offered to
holders of Old RGC Notes, and if, at the time that notice of such increase or
decrease is first published, sent or given to holders of Old RGC Notes in the
manner specified above, such Offer is scheduled to expire at any time earlier
than the expiration of a period ending on the tenth Business Day, from and
including the date that such notice is first so published, sent or given, then
such Offer will be extended for such purposes until the expiration of such
period of ten Business Days. As used in this Amended and Restated Prospectus and
Solicitation Statement, "Business Day" has the meaning set forth in Rule 14d-1
(and applicable to Regulation 14E) under the Exchange Act.
If Food 4 Less makes a material change in the terms of the Offers or the
information concerning the Offers, or waives any condition of the Offers that
results in a material change to the circumstances of an Offer, then Food 4 Less
will disseminate additional Offer materials to the extent required under the
Exchange Act and will extend such Offer to the extent required in order to
permit holders of Old RGC Notes adequate time to consider such materials. The
minimum period during which a tender offer must remain open following material
changes in the terms of an Offer or information concerning an Offer, other than
a change in price or percentage of securities sought, will depend upon the
specific facts and circumstances, including the relative materiality of the
terms or information.
CONDITIONS
Food 4 Less will not be required to accept any Old RGC Notes for exchange
or purchase, and may terminate or amend the 9% Offer or the 10 1/4% Offer, as
provided herein, before the acceptance of any Old RGC Notes, if either of the
Offers have not been consummated. In addition, notwithstanding any other
provision of the Offers or the Solicitation, Food 4 Less shall not be required
to accept any Old RGC Notes for exchange or payment or accept any Consents, and
may terminate, extend or amend an Offer or the Solicitation and may postpone,
subject to Rule 14e-1 under the Exchange Act, the acceptance of Old RGC Notes so
tendered and Consents so delivered, whether or not any other Old RGC Notes or
Consents have theretofore been accepted for exchange or payment pursuant to the
applicable Offer, if, on or prior to the Expiration Date, any of the following
conditions exist:
(i) the Minimum Exchange shall not have been satisfied;
(ii) the Requisite Consents shall not have been validly delivered (or
shall have been revoked);
(iii) all conditions precedent to the Merger shall not have been
satisfied or waived, in Food 4 Less' sole discretion;
(iv) any of the Other Debt Financing Transactions (including the
Public Offerings) shall not have been consummated;
(v) either the Bank Financing or the New Equity Investment shall not
have been consummated;
(vi) either of the Supplemental Indentures containing the Proposed
Amendments shall not have been executed;
(vii) there shall have been any action taken or threatened, or any
statute, rule, regulation, judgment, order, stay, decree or injunction
proposed, sought, promulgated, enacted, entered, enforced or deemed
applicable to an Offer by or before any local, state, federal or foreign
government or governmental regulatory or administrative agency or authority
or by any court or tribunal, domestic or foreign, which
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(a) challenges or seeks to restrain or prohibit the making or consummation
of an Offer or the tender of Old RGC Notes pursuant to the Offers, (b) in
the sole judgment of Food 4 Less, might directly or indirectly prohibit,
prevent, restrict or delay consummation of an Offer or otherwise relates in
any manner to an Offer, (c) seeks to make illegal the acceptance of Old RGC
Notes for purchase or exchange pursuant to an Offer, (d) makes the
Solicitation illegal, (e) might, in the sole judgment of Food 4 Less,
adversely affect the financing of an Offer, the Merger, the Other Debt
Financing Transactions, the New Credit Facility or the New Equity
Investment or the transactions contemplated thereby, or (f) in the sole
judgment of Food 4 Less, could materially adversely affect the business,
condition (financial or otherwise), income, operations, properties, assets,
liabilities or prospects of Food 4 Less (or the Company, after giving
effect to the Merger) and its subsidiaries, taken as a whole, or materially
impair the contemplated benefits of the Offers and the Solicitation to Food
4 Less (or the Company, after giving effect to the Merger);
(viii) there shall have occurred or be likely to occur any event
affecting the business or financial affairs of Food 4 Less (or the Company,
after giving effect to the Merger) that, in the sole judgment of Food 4
Less, (a) would or might prohibit, prevent, restrict or delay consummation
of an Offer, (b) will, or is reasonably likely to, materially impair the
contemplated benefits to Food 4 Less (or the Company, after giving effect
to the Merger) of the Offers and the Solicitation or otherwise result in
the consummation of an Offer not being in the best interests of Food 4 Less
or (c) might be material to holders of Old RGC Notes in deciding whether to
accept an Offer or the Solicitation;
(ix) there shall have occurred: (a) any general suspension of trading
in, or limitation on prices for, securities on the New York Stock Exchange
or in the over-the-counter market (whether or not mandatory); (b) any
significant adverse change in the price of either of the Old RGC 9% Notes
or the Old RGC 10 1/4% Notes; (c) a material impairment in the trading
market for debt securities generally; (d) a declaration of a banking
moratorium or any suspension of payments in respect of banks by federal or
state authorities in the United States (whether or not mandatory); (e) a
declaration of a national emergency or commencement of a war, armed
hostilities or other national or international crisis directly or
indirectly involving the United States; (f) any limitation (whether or not
mandatory) by any governmental or regulatory authority on, or any other
event that in the sole judgment of Food 4 Less might affect, the nature or
extension of credit by banks or other financial institutions; (g) any
significant change in United States currency exchange rates or a suspension
of, or limitation on, the markets therefor (whether or not mandatory); (h)
any significant adverse change in United States securities or financial
markets; or (i) in the case of any of the foregoing existing at the time of
the commencement of the Offers, in the sole judgment of Food 4 Less, a
material acceleration, escalation or worsening thereof;
(x) either of the Old Trustees shall have objected in any respect to,
or taken any action that could, in the sole judgment of Food 4 Less,
adversely affect the consummation of an Offer or the Solicitation or Food 4
Less's ability to obtain the Consents or to effect any of the Proposed
Amendments, or shall have taken any action that challenges the validity or
effectiveness of the procedures used by Food 4 Less in soliciting the
Consents (including the form thereof) or in the making of an Offer or the
acceptance for exchange or purchase of any of the Old RGC Notes; or
(xi) the Registration Statement has not been declared effective or a
stop order has been issued in connection therewith.
The foregoing conditions are for the sole benefit of Food 4 Less and may be
asserted by Food 4 Less in its sole discretion regardless of the circumstances
giving rise to any such condition (including any action or inaction by Food 4
Less) and may be waived by Food 4 Less, in whole or in part, at any time and
from time to time in its sole discretion. If any of the foregoing events shall
have occurred, Food 4 Less may, subject to applicable law, (i) terminate the
applicable Offer or the Solicitation and return all Old RGC Notes tendered
pursuant to such Offer or the Solicitation to the tendering holders, (ii) extend
the applicable Offer or the Solicitation and retain all tendered Old RGC Notes
until the extended Expiration Date, (iii) amend the terms of the applicable
Offer or the Solicitation or modify the consideration to be paid by Food 4 Less
(or the Company as successor by merger) pursuant to such Offer or the
Solicitation or (iv) waive the unsatisfied
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condition or conditions with respect to such Offer or the Solicitation and
accept all validly tendered Old RGC Notes. See "-- Expiration Date; Extensions;
Termination; Amendments" and "-- Procedures for Tendering and Consenting." The
failure by Food 4 Less at any time to exercise any of the foregoing rights shall
not be deemed a waiver of any such right and each such right shall be deemed an
ongoing right which may be asserted at any time and from time to time. Any
determination by Food 4 Less concerning the events described in this section
shall be final and binding upon all persons.
PROCEDURES FOR TENDERING AND CONSENTING
The tender by a holder of Old RGC Notes pursuant to one of the procedures
set forth below will constitute an agreement between such holder and Food 4 Less
in accordance with the terms and subject to the conditions set forth herein and
in the Letter of Transmittal.
Old RGC Notes may be tendered and will be accepted only in denominations of
$1,000 principal amount and integral multiples thereof. To be tendered
effectively pursuant to the Offers, (i) the properly completed Letter of
Transmittal, including a valid and unrevoked Consent (or facsimile(s) thereof),
duly executed by the registered holder thereof with any required signature
guarantee(s), together with the certificates for tendered Old RGC Notes in
proper form for transfer, or any book-entry transfer into the Exchange Agent's
account at DTC, MSTC or PDTC (each as defined) of Old RGC Notes tendered
electronically, and any other documents required by the Letter of Transmittal,
must be received by the Exchange Agent at one of its addresses set forth below
prior to 12:00 Midnight, New York City time, on the Expiration Date, or (ii) the
tendering holder must comply with the guaranteed delivery procedures set forth
under the heading "--Guaranteed Delivery Procedure."
THE WHITE CONSENT AND LETTER OF TRANSMITTAL SHALL BE USED TO TENDER ALL OLD
RGC NOTES.
LETTERS OF TRANSMITTAL AND OLD RGC NOTES SHOULD BE SENT TO THE EXCHANGE
AGENT AND NOT TO FOOD 4 LESS, RGC OR THE DEALER MANAGERS NOR TO THE APPLICABLE
TRUSTEE UNDER THE INDENTURE RELATING TO THE OLD RGC 9% NOTES OR THE OLD RGC
10 1/4% NOTES.
A HOLDER OF OLD RGC NOTES WHO DESIRES TO TENDER INTO THE APPLICABLE OFFER
WITH RESPECT TO ANY OLD RGC 9% NOTES OR OLD RGC 10 1/4% NOTES MUST TENDER ALL OF
SUCH HOLDERS' OLD RGC 9% NOTES OR OLD RGC 10 1/4% NOTES, AS THE CASE MAY BE.
Holders of Old RGC Notes will not be able to validly tender in the Offers
unless they consent to the Proposed Amendments. Tendering holders who sign the
Letter of Transmittal shall be deemed to have consented to the Proposed
Amendments.
All signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old RGC Notes tendered or withdrawn, as the case may be, pursuant
thereto are tendered (i) by a registered holder of Old RGC Notes (which term,
for purposes of the Letter of Transmittal, shall include any participant in DTC,
MSTC or PDTC whose name appears on a security position listing as the owner of
Old RGC Notes) who has not completed the box entitled "Special Issuance and
Payment Instructions" or "Special Delivery Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution. If Old RGC Notes
are registered in the name of a person other than the signer of a Letter of
Transmittal or a notice of withdrawal, as the case may be, or if payment is to
be made or certificates for unexchanged Old RGC Notes are to be issued or
returned to a person other than the registered holder, then the Old RGC Notes
must be endorsed by the registered holder, or be accompanied by a written
instrument or instruments of transfer or exchange in form satisfactory to Food 4
Less duly executed by the registered holder, with such signatures guaranteed by
an Eligible Institution. In the event that signatures on a Letter of Transmittal
(or other document) are required to be guaranteed, such guarantee must be by a
firm that is a member of a registered national securities exchange or a member
of the National
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Association of Securities Dealers, Inc. (the "NASD") or by a commercial bank or
trust company having an office in the United States (each of the foregoing being
an "Eligible Institution").
THE METHOD OF DELIVERY OF OLD RGC NOTES AND OTHER DOCUMENTS TO THE EXCHANGE
AGENT IS AT THE ELECTION AND RISK OF THE HOLDER, AND EXCEPT AS OTHERWISE
PROVIDED PURSUANT TO "-- GUARANTEED DELIVERY," DELIVERY WILL BE DEEMED MADE WHEN
ACTUALLY RECEIVED BY THE EXCHANGE AGENT. Instead of effecting delivery by mail
it is recommended that tendering Old RGC Noteholders use an overnight or hand
delivery service. If such delivery is by mail, it is recommended that holders
use registered mail, properly insured, with return receipt requested. In all
cases, sufficient time should be allowed to ensure delivery to the Exchange
Agent prior to 12:00 Midnight, New York City time, on the Expiration Date.
Tendering holders should indicate in the applicable box in the Letter of
Transmittal the name and address to which payments (including accrued and unpaid
interest in cash on the Old RGC Notes and the Exchange Payment or Cash
Consideration), certificates evidencing New Notes and/or certificates evidencing
Old RGC Notes for amounts not accepted for exchange or purchase (each, as
appropriate) are to be issued or sent, if different from the name and address of
the person signing the Letter of Transmittal. In the case of issuance or payment
in a different name, the employer identification or social security number of
the person named must also be indicated and a substitute Form W-9 for such
recipient must be completed. If no such instructions are given, such payments
(including accrued and unpaid interest in cash on the Old RGC Notes and the
Exchange Payment or Cash Consideration), New Notes or Old RGC Notes not accepted
for exchange or purchase, as the case may be, will be made or returned to the
registered holder of Old RGC Notes tendered. Holders of Old RGC Notes who are
not registered holders of, and who seek to tender, Old RGC Notes should (i)
obtain a properly completed Letter of Transmittal for such Old RGC Notes from
the registered holder with signatures guaranteed by an Eligible Institution and
obtain and include with such Letter of Transmittal Old RGC Notes properly
endorsed for transfer by the registered holder thereof or accompanied by a
written instrument or instruments of transfer or exchange from the registered
holder with signatures on the endorsement or written instrument or instruments
of transfer or exchange guaranteed by an Eligible Institution or (ii) effect a
record transfer of such Old RGC Notes and comply with the requirements
applicable to registered holders for tendering Old RGC Notes prior to 12:00
Midnight, New York City time, on the Expiration Date. Any Old RGC Notes properly
tendered prior to 12:00 Midnight, New York City time, on the Expiration Date
accompanied by a properly completed Letter of Transmittal for such Old RGC Notes
will be transferred of record by the registrar either prior to or as of the
Expiration Date at the discretion of Food 4 Less. Food 4 Less has no obligation
to transfer any Old RGC Notes from the name of the registered holder thereof if
Food 4 Less does not accept for exchange and payment any of such Old RGC
Notes.
Issuance of New Notes and the payment of the Exchange Payment and/or
payment of the Cash Consideration (each, as appropriate) will be made only
against deposit of the tendered Old RGC Notes.
Under the federal income tax laws, the Exchange Agent will be required to
withhold and will remit to the United States Treasury 31% of the amount of any
cash payments made to certain holders of Old RGC Notes pursuant to the Offers
and the Solicitation, and 31% of the interest payments due to certain holders of
New Notes. In order to avoid such backup withholding, each holder of Old RGC
Notes electing to tender Old RGC Notes pursuant to an Offer, and, if applicable,
each other payee, must provide the Exchange Agent with such holder's or payee's
correct taxpayer identification number and certify that such holder or payee is
not subject to such backup withholding by completing the Substitute Form W-9
accompanying the Letter of Transmittal. In general, if a holder or payee is an
individual, the taxpayer identification number is the Social Security number of
such individual. If the Exchange Agent is not provided with the correct taxpayer
identification number, the holder or payee may be subject to a $50 penalty
imposed by the Internal Revenue Service. Certain holders or payees (including,
among others, all corporations and certain foreign individuals) are not subject
to these backup withholding and reporting requirements. In order to satisfy the
Exchange Agent that a foreign individual qualifies as an exempt recipient, such
holder or payee must submit a statement, signed under penalties of perjury,
attesting to that individual's exempt status. Such statements can be obtained
from the Exchange Agent. For further information concerning backup withholding
and instructions for completing the Substitute Form W-9 (including how to obtain
a taxpayer identification number if you do not have one
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and how to complete the Substitute Form W-9 if Old RGC Notes are held in more
than one name), consult the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9.
Failure to complete the Substitute Form W-9 will not, by itself, cause Old
RGC Notes tendered pursuant to the Offers to be deemed invalidly tendered, but
may require the Exchange Agent to withhold 31% of the amount of any payments
made. Backup withholding is not an additional federal income tax. Rather, the
federal income tax liability of a person subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an overpayment
of taxes, a refund may be obtained provided that the required information is
furnished to the Internal Revenue Service.
All questions as to the form of all documents and the validity (including
the time of receipt), eligibility, acceptance and withdrawal of tendered Old RGC
Notes will be determined by Food 4 Less, in its sole discretion, which
determination shall be final and binding. Food 4 Less expressly reserves the
absolute right to reject any and all tenders not in proper form and to determine
whether the acceptance for exchange or purchase by it of such tenders would be
unlawful. Food 4 Less also reserves the absolute right, subject to applicable
law, to waive or amend any of the conditions to an Offer or the Solicitation or
to waive any defect or irregularity in the tender of any of the Old RGC Notes.
None of Food 4 Less, the Company, the Exchange Agent, the Information Agent or
any other person will be under any duty to give notification of any defects or
irregularities in tenders or will incur any liability for failure to give any
such notification. No tender of Old RGC Notes will be deemed to have been
validly made until all defects and irregularities with respect to such Old RGC
Notes have been cured or waived. Any Old RGC Notes received by the Exchange
Agent that are not properly tendered and as to which irregularities have not
been cured or waived will be returned by the Exchange Agent to the appropriate
tendering holder as soon as practicable. Food 4 Less' interpretation of the
terms and conditions of the Offers and the Solicitation (including the Letter of
Transmittal and the Instructions thereto) will be final and binding on all
parties.
The Exchange Agent will seek to establish accounts with respect to the Old
RGC Notes at The Depository Trust Company ("DTC"), the Midwest Securities
Transfer Company ("MSTC"), and the Philadelphia Depository Trust Company ("PDTC"
and, together with DTC and MSTC, collectively referred to herein as the
"Book-Entry Transfer Facilities") for the purpose of the Offers within two New
York Stock Exchange Inc. ("NYSE") trading days. Any financial institution that
is a participant in any of the Book-Entry Transfer Facilities' systems may make
book-entry delivery of Old RGC Notes by causing DTC, MSTC or PDTC to transfer
such Old RGC Notes into the Exchange Agent's account in accordance with such
Book-Entry Transfer Facility's procedure for such transfer. However, although
delivery of Old RGC Notes may be effected through book-entry transfer into the
Exchange Agent's account at DTC, MSTC or PDTC, the Letter of Transmittal (or
facsimile thereof), together with any required signature guarantees and any
other required documents, must, in any case, be transmitted to, and received or
confirmed by, the Exchange Agent at one of its addresses set forth on the back
cover of this Amended and Restated Prospectus and Solicitation Statement prior
to 12:00 Midnight, New York City time, on the Expiration Date, except as
otherwise provided below under the heading "Guarantee Delivery Procedure." Old
RGC Notes will not be deemed surrendered for exchange or purchase until such
documents are received by the Exchange Agent and delivery of such documents to a
Book-Entry Transfer Facility will not constitute valid delivery to the Exchange
Agent. FOOD 4 LESS UNDERSTANDS THAT THE BOOK-ENTRY TRANSFER FACILITIES WILL MAKE
ARRANGEMENTS FOR EXECUTION OF LETTERS OF TRANSMITTAL TO ACCOMMODATE BENEFICIAL
OWNERS THAT DESIRE TO TENDER OLD RGC NOTES IN THE OFFERS. HOWEVER, FOOD 4 LESS
UNDERSTANDS THAT THE BOOK-ENTRY TRANSFER FACILITIES WILL NOT ARRANGE FOR THE
EXECUTION OF LETTERS OF TRANSMITTAL WITH RESPECT TO THE SOLICITATION, UNLESS THE
OLD RGC NOTES ARE ALSO TENDERED IN THE OFFERS. HOLDERS MAY CONTACT THE EXCHANGE
AGENT AT ANY OF THE ADDRESSES SET FORTH ON THE BACK COVER PAGE HEREOF FOR
INFORMATION REGARDING WITHDRAWAL OF OLD RGC NOTES FROM A BOOK-ENTRY TRANSFER
FACILITY.
GUARANTEED DELIVERY PROCEDURE
If a registered holder of Old RGC Notes desires to tender such Old RGC
Notes and consent to the Proposed Amendments, and the Old RGC Notes are not
immediately available, or if time will not permit such holder's Old RGC Notes or
any other required documents to be delivered to the Exchange Agent prior to
12:00 Midnight, New York City time, on the Expiration Date, then such Old RGC
Notes may nevertheless be
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tendered and Consents may be effected if all of the following guaranteed
delivery procedure conditions are met:
(i) the tender and Consent is made by or through an Eligible
Institution;
(ii) prior to 12:00 Midnight, New York City time, on the Expiration
Date, the Exchange Agent receives from such Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery (by telegram,
telex, facsimile transmission, mail or hand delivery) substantially in the
form provided by Food 4 Less, that contains a signature guaranteed by an
Eligible Institution in the form set forth in such Notice of Guaranteed
Delivery, unless such tender is for the account of an Eligible Institution
(in which case no signature guarantee shall be required), and sets forth
the name and address of the holder of Old RGC Notes and the principal
amount of Old RGC Notes tendered for exchange or purchase or both, states
that the tender is being made thereby and guarantees that, within five NYSE
trading days after the date of execution of the Notice of Guaranteed
Delivery, the Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, together with the Old RGC Notes and any
required signature guarantees and any other documents required by such
Letter of Transmittal, will be deposited by the Eligible Institution with
the Exchange Agent; and
(iii) all tendered Old RGC Notes, or a confirmation of a book-entry
transfer of such Old RGC Notes into the Exchange Agent's applicable account
at a Book-Entry Transfer Facility as described above, as well as the Letter
of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees, and all other documents
required by such Letter of Transmittal, shall be received by the Exchange
Agent within five NYSE trading days after the date of execution of the
Notice of Guaranteed Delivery.
THE ORANGE NOTICE OF GUARANTEED DELIVERY SHALL BE USED IN CONNECTION WITH
TENDERS OF ALL OLD RGC NOTES.
Notwithstanding any other provision hereof, the exchange and/or purchase of
Old RGC Notes pursuant to the Offers will in all cases be made only after timely
receipt by the Exchange Agent of certificates for such Old RGC Notes and the
Letter of Transmittal (or facsimile thereof) in respect thereof, properly
completed and duly executed, together with any required signature guarantees and
any other documents required by such Letter of Transmittal.
ACCEPTANCE OF OLD RGC NOTES FOR EXCHANGE OR PURCHASE; DELIVERY OF NEW NOTES AND
PAYMENT OF THE EXCHANGE PAYMENT OR CASH CONSIDERATION
Upon the terms and subject to the conditions of the Offers and the
Solicitation, Food 4 Less will accept all Old RGC Notes validly tendered prior
to 12:00 Midnight, New York City time, on the Expiration Date and not properly
withdrawn. The acceptance for exchange or purchase of Old RGC Notes validly
tendered and not validly withdrawn and the delivery of New Notes and the payment
of the Exchange Payment or Cash Consideration (and any accrued and unpaid
interest on the Old RGC Notes) will be made as promptly as practicable after the
Expiration Date. Subject to rules promulgated pursuant to the Exchange Act, Food
4 Less, expressly reserves the right to delay acceptance of any of the Old RGC
Notes or to terminate an Offer or the Solicitation and not accept for exchange
or purchase any Old RGC Notes not theretofore accepted if any of the conditions
set forth under the heading "-- Conditions" shall not have been satisfied or
waived by Food 4 Less. The Company will deliver New Notes and make payments in
cash (including accrued and unpaid interest on the Old RGC Notes and the
Exchange Payment or Cash Consideration) in exchange for Old RGC Notes pursuant
to the Offers promptly following acceptance of the Old RGC Notes. In all cases,
exchange for Old RGC Notes accepted for exchange or payment for Old RGC Notes
accepted for purchase will be made only after timely receipt by the Exchange
Agent of Old RGC Notes (or confirmation of book-entry transfer thereof) and a
properly completed and validly executed Letter of Transmittal (or a manually
signed facsimile thereof) and any other documents required thereby.
New Notes will be issued in denominations of $1,000 principal amount and
integral multiples thereof.
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For purposes of the Offers and the Solicitation, Food 4 Less shall be
deemed to have accepted validly tendered and not properly withdrawn Old RGC
Notes when, as and if Food 4 Less gives oral or written notice thereof to the
Exchange Agent. The Exchange Agent will act as agent for the tendering holders
of Old RGC Notes for the purposes of receiving cash and/or New Notes from the
Company and transmitting the cash and New Notes to the tendering holders. Under
no circumstances will any additional amount be paid by Food 4 Less, the Company,
or the Exchange Agent by reason of any delay in making such payment or delivery.
All questions as to the validity, form, eligibility (including the time of
receipt), acceptance and withdrawal of tendered Old RGC Notes will be resolved
by Food 4 Less, whose determination will be final and binding. Food 4 Less
reserves the absolute right to reject any or all tenders that are not in proper
form or the acceptance of which would, in the opinion of counsel for Food 4
Less, be unlawful. Food 4 Less also reserves the right to waive any
irregularities or conditions of tender as to particular Old RGC Notes. Food 4
Less' interpretation of the terms and conditions of the Offers and the
Solicitation (including the instructions in the Letter of Transmittal) will be
final and binding. Unless waived, any irregularities or defects in connection
with tenders of Old RGC Notes must be cured within such time as Food 4 Less
determines. Neither Food 4 Less, the Company nor the Exchange Agent shall be
under any duty to give notification of irregularities or defects in such tenders
or shall incur any liability for failure to give such notification. Tenders of
Old RGC Notes will not be deemed to have been made until such irregularities
have been cured or waived.
If, for any reason whatsoever, acceptance for exchange or purchase of any
Old RGC Notes tendered pursuant to the Offers is delayed, or Food 4 Less is
unable to accept for exchange or purchase Old RGC Notes tendered pursuant to the
Offers, then, without prejudice to Food 4 Less' and the Company's rights set
forth herein, the Exchange Agent may nevertheless, on behalf of Food 4 Less and
subject to rules promulgated pursuant to the Exchange Act, retain tendered Old
RGC Notes, and such Old RGC Notes may not be withdrawn except to the extent that
the tendering holder of such Old RGC Notes is entitled to withdrawal rights as
described herein. See "-- Withdrawal of Tenders and Revocation of Consents."
If any tendered Old RGC Notes are not accepted for exchange or purchase
because of an invalid tender, the occurrence or non-occurrence of certain other
events set forth herein or otherwise, then such unaccepted Old RGC Notes will be
returned, at Food 4 Less' expense, to the tendering holder thereof as promptly
as practicable after the Expiration Date or the termination of the applicable
Offer therefor.
No alternative, conditional or contingent tenders will be accepted. A
tendering holder, by execution of a Letter of Transmittal, or facsimile thereof,
waives all rights to receive notice of acceptance of such holder's Old RGC Notes
for purchase or exchange.
WITHDRAWAL OF TENDERS AND REVOCATION OF CONSENTS
Tenders of Old RGC Notes pursuant to an Offer may be withdrawn and Consents
may be revoked at any time until the "Consent Date" which shall be such time as
the Requisite Consents (Consents of holders representing at least a majority in
aggregate principal amount of the outstanding Old RGC 9% Notes or Old RGC
10 1/4% Notes, as the case may be, held by persons other than RGC and its
affiliates) have been delivered by Food 4 Less to the applicable Old Trustee and
the Supplemental Indenture for such issue has been executed. Thereafter, such
tenders may be withdrawn and Consents may be revoked if the Offer with respect
to such issue of Old RGC Notes is terminated without any Old RGC Notes being
accepted thereunder. Tendering holders will receive in cash accrued and unpaid
interest on Old RGC Notes accepted for exchange or purchase up to, but not
including, the date of such exchange or purchase. Interest on the New Notes will
accrue from, and including, the date of such exchange, which will be the date of
issuance of the New Notes.
A different Consent Date may be established with respect to the Old RGC 9%
Notes and the Old RGC 10 1/4% Notes. The withdrawal of Old RGC Notes prior to
the time set forth above in accordance with the procedures set forth hereunder
will effect a revocation of the related Consent. Any valid revocation of
Consents will automatically render the prior tender of the Old RGC Notes to
which such Consents relate defective and Food 4 Less will have the right, which
it may waive, to reject such tender as invalid and ineffective.
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Any holder of Old RGC Notes who has tendered Old RGC Notes or who succeeds
to the record ownership of Old RGC Notes in respect of which such tenders or
Consents previously have been given may withdraw such Old RGC Notes or revoke
such Consents prior to the applicable Consent Date by delivery of a written
notice of withdrawal or revocation, subject to the limitations described herein.
To be effective, a written telegraphic, telex or facsimile transmission (or
delivered by hand or by mail) notice of withdrawal of a tender or revocation of
a Consent must (i) be timely received by the Exchange Agent at one of its
addresses set forth on the back cover hereof or prior to the applicable time
provided herein with respect to the applicable class of Old RGC Notes, (ii)
specify the name of the person having tendered the Old RGC Notes to be withdrawn
or as to which Consents are revoked, the principal amount of such Old RGC Notes
to be withdrawn and, if certificates for Old RGC Notes have been tendered, the
name of the registered holder(s) of such Old RGC Notes as set forth in such
certificates, if different from that of the person who tendered such Old RGC
Notes, (iii) identify the Old RGC Notes to be withdrawn or to which the notice
of revocation relates and (iv)(a) be signed by the holder in the same manner as
the original signature on the Letter of Transmittal or Notice of Guaranteed
Delivery (as the case may be) by which such Old RGC Notes were tendered
(including any required signature guarantees) or (b) be accompanied by evidence
satisfactory to Food 4 Less and the Exchange Agent that the holder withdrawing
such tender or revoking such Consents has succeeded to beneficial ownership of
such Old RGC Notes. If certificates representing Old RGC Notes to be withdrawn
or Consents to be revoked have been delivered or otherwise identified to the
Exchange Agent, then the name of the registered holder and the serial numbers of
the particular certificate evidencing the Old RGC Notes to be withdrawn or
Consents to be revoked and a signed notice of withdrawal with signatures
guaranteed by an Eligible Institution, except in the case of Old RGC Notes
tendered by an Eligible Institution (in which case no signature guarantee shall
be required), must also be so furnished to the Exchange Agent as aforesaid prior
to the physical release of the certificates for the withdrawn Old RGC Notes. If
Old RGC Notes have been tendered or if Consents have been delivered pursuant to
the procedures for book-entry transfer as set forth herein, any notice of
withdrawal or revocation of Consent must also specify the name and number of the
account at the appropriate Book-Entry Transfer Facility to be credited with the
withdrawn Old RGC Notes. Food 4 Less reserves the right to contest the validity
of any revocation. A purported notice of revocation which is not received by the
Exchange Agent in a timely fashion will not be effective to revoke a Consent
previously given.
Any permitted withdrawals of tenders of Old RGC Notes and revocation of
Consents may not be rescinded, and any Old RGC Notes properly withdrawn will
thereafter be deemed not validly tendered and any Consents revoked will be
deemed not validly delivered for purposes of an Offer; provided, however, that
withdrawn Old RGC Notes may be retendered and revoked Consents may be
redelivered by again following one of the appropriate procedures described
herein at any time prior to 12:00 Midnight, New York City time, on the
Expiration Date.
If Food 4 Less extends an Offer, is delayed in its acceptance for exchange
and/or purchase of Old RGC Notes or is unable to exchange and/or purchase Old
RGC Notes pursuant to an Offer, for any reason, then, without prejudice to Food
4 Less' rights under such Offer, the Exchange Agent may, subject to applicable
law, retain tendered Old RGC Notes on behalf of Food 4 Less, and such Old RGC
Notes may not be withdrawn (subject to Rule 14e-1 under the Exchange Act, which
requires that Food 4 Less or the Company, as the case may be, deliver the
consideration offered or return the Old RGC Notes deposited by or on behalf of
the Old RGC Noteholders promptly after the termination or withdrawal of an
Offer), except to the extent that tendering holders are entitled to withdrawal
rights as described herein.
All questions as to the validity, form and eligibility (including the time
of receipt) of notices of withdrawal or revocations of Consents will be
determined by Food 4 Less, whose determination will be final and binding on all
parties. None of Food 4 Less, the Exchange Agent, the Dealer Managers or any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or revocation of Consent or incur any
liability for failure to give any such notification.
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LOST OR MISSING CERTIFICATES
If a holder of Old RGC Notes desires to tender an Old RGC Note pursuant to
an Offer, but the Old RGC Note has been mutilated, lost, stolen or destroyed,
such holder should write to or telephone the Old Trustee under the Old RGC Notes
Indentures, at the address listed below, concerning the procedures for obtaining
replacement certificates for such Old RGC Notes, arranging for indemnification
or any other matter that requires handling by such Old Trustee:
United States Trust Company of New York
114 West 47th Street
New York, New York 10036-1532
Attention: Corporate Trust Department
(212) 852-1000
DEALER MANAGERS
Subject to the terms and conditions set forth in the Dealer Manager
Agreement (the "Dealer Manager Agreement") dated January 25, 1995 (as amended),
among FFL, Food 4 Less, Holdings and the Subsidiary Guarantors, (together, the
"Issuers") and BT Securities, CS First Boston and DLJ as dealer managers and
solicitation agents (the "Dealer Managers"), the Issuers have engaged BT
Securities, CS First Boston and DLJ to act as Dealer Managers in connection with
the Offers, the Solicitation, the F4L Exchange Offer and the Holdings Offer to
Purchase. The Issuers will pay the Dealer Managers, as compensation for their
services as Dealer Managers, a fee equal to (i) 1.0% of the aggregate principal
amount of Old RGC Notes and Old F4L Notes accepted for exchange or purchase in
the Offers and the F4L Exchange Offers; (ii) 0.5% of the aggregate accreted
value of Discount Notes accepted for purchase in the Holdings Offer to Purchase;
(iii) 0.5% of the aggregate principal amount of Old F4L Notes and Old RGC Notes
in respect of which a consent is accepted in the Solicitation and the F4L
Exchange Offers (other than Old RGC Notes and Old F4L Notes accepted for
exchange or purchase, as the case may be, in the F4L Exchange Offers and the
Offers) and (iv) 0.5% of the aggregate accreted value of Discount Notes in
respect of which a consent is accepted in the Holdings Offer to Purchase (other
than Discount Notes accepted for purchase in the Holdings Offer to Purchase). In
addition, the Issuers have agreed to reimburse each of the Dealer Managers for
all of its respective reasonable out-of-pocket expenses, including the
reasonable fees and reasonable expenses of their legal counsel, incurred in
connection with the Offers, the Solicitation, the F4L Exchange Offers and the
Holdings Offer to Purchase. The Issuers have agreed to indemnify each of the
Dealer Managers against certain liabilities in connection with the Offers,
Solicitation, the F4L Exchange Offer and the Holdings Offer to Purchase
including liabilities under the federal securities laws, and will contribute to
payments the Dealer Managers may be required to make in respect thereof.
Bankers Trust, an affiliate of BT Securities has been a co-agent and a
lender under the existing credit agreements of each of RGC and Food 4 Less and
will be administrative agent and a lender under the New Credit Facility. See
"Description of the New Credit Facility." BT Securities has provided services to
Food 4 Less in connection with the Financing and in consideration therefor Food
4 Less will pay to BT Securities a fee of $5 million upon closing of the Merger.
Such fee will be satisfied through the issuance by New Holdings to BT Securities
of $5 million initial accreted value of New Discount Debentures. Such New
Discount Debentures will be contributed to the partnership which will acquire
all of the New Discount Debentures. DLJ has provided financial advisory services
to Food 4 Less in connection with the Merger and will receive customary fees for
such services. The Dealer Managers will also serve as underwriters for the
Public Offerings and will receive customary fees in connection with such
services.
In addition, affiliates of the Dealer Managers are investing in the capital
stock of New Holdings pursuant to the New Equity Investment. After giving effect
to the Merger, BTIP will own in the aggregate approximately 900,000 shares of
Series A Preferred Stock and approximately 3,100,000 shares of Series B
Preferred Stock, affiliates of CS First Boston will own approximately 1,000,000
shares of Series A Preferred Stock and affiliates of DLJ will own approximately
1,000,000 shares of Series A Preferred Stock. Affiliates of BTIP additionally
own 509,812 shares of FFL Common Stock which they had previously acquired and
which
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will be converted to New Holdings capital stock following the FFL Merger and the
Reincorporation Merger. See "Principal Stockholders" and "Description of Capital
Stock." Affiliates of each of BT Securities, CS First Boston and DLJ are also
investing $5 million, $2.5 million and $2.5 million, respectively, in the
partnership that will purchase the New Discount Debentures. See "Certain
Relationships and Related Transactions -- Food 4 Less and Holdings."
Each of the Dealer Managers has from time to time provided investment
banking and financial advisory services to one or more of Food 4 Less, Holdings
and RGC and/or their respective affiliates and may continue to do so in the
future. The Dealer Managers have received customary fees for such services.
No fees or commission have been or will be paid to any broker, dealer or
other person, other than the Dealer Managers, in connection with the Offers, the
Solicitation, the F4L Exchange Offers and the Holdings Offer to Purchase.
EXCHANGE AGENT
Bankers Trust has been appointed as Exchange Agent for the Offers and the
Solicitation. Questions and requests for assistance, and all correspondence in
connection with the Offers or the Solicitation, or requests for additional
Letters of Transmittal and any other required documents, may be directed to the
Exchange Agent at one of its addresses and telephone numbers set forth on the
back cover of this Amended and Restated Prospectus and Solicitation Statement.
INFORMATION AGENT
D. F. King & Co., Inc. is serving as Information Agent in connection with
the Offers and the Solicitation. The Information Agent will assist with the
mailing of this Amended and Restated Prospectus and Solicitation Statement and
related materials to holders of Old RGC Notes, respond to inquiries of and
provide information to holders of Old RGC Notes in connection with the Offers
and the Solicitation and provide other similar advisory services as Food 4 Less
may request from time to time. Requests for additional copies of this Amended
and Restated Prospectus and Solicitation Statement, Letters of Transmittal and
any other required documents should be directed to the Dealer Managers or to the
Information Agent at one of its addresses and telephone numbers set forth on the
back cover page of this Amended and Restated Prospectus and Solicitation
Statement.
FEES AND EXPENSES
In addition to the fees and expenses payable to the Dealer Managers, Food 4
Less will pay the Exchange Agent and the Information Agent reasonable and
customary fees for their services (and will reimburse them for their reasonable
out-of-pocket expenses in connection therewith), will pay the reasonable
expenses of holders in delivering their Old RGC Notes to the Exchange Agent and
will pay brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of this
Amended and Restated Prospectus and Solicitation Statement and related documents
to the beneficial owners of the Old RGC Notes and in handling or forwarding
tenders for exchange and payment. In addition, Food 4 Less will indemnify the
Exchange Agent and the Information Agent against certain liabilities in
connection with their services, including liabilities under the federal
securities laws.
Food 4 Less will pay all transfer taxes, if any, applicable to the tender
of Old RGC Notes pursuant to the Offers. If, however, New Notes or Old RGC Notes
for principal amounts not accepted for tender, or both, are to be delivered to,
or are to be registered or issued in the name of, any person other than the
registered holder of the Old RGC Notes, or if tendered Old RGC Notes are to be
registered in the name of any person other than the person signing the Letter of
Transmittal, or if a transfer tax is imposed for any reason other than the
exchange or purchase of Old RGC Notes pursuant to an Offer, then the amount of
any such transfer tax (whether imposed on the registered holder or any other
person) will be payable by the tendering holder. If satisfactory evidence of
payment of such tax or exemption therefrom is not submitted, then the amount of
such transfer tax will be deducted from the Exchange Payment or Cash
Consideration otherwise payable to such tendering holder. Any remaining amount
will be billed directly to such tendering holder.
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The total cash expenditures for printing, accounting and legal fees and the
fees and expenses of the Exchange Agent, the Information Agent and the trustees
under the old and new indentures to be incurred by Food 4 Less in connection
with the Offers, the F4L Exchange Offers and the Holdings Consent Solicitation
are estimated to be approximately $9 million.
MISCELLANEOUS
The Offers are not subject to Section 13(e) of, or Rules 13e-3 or 13e-4 or
Regulation 14D promulgated under, the Exchange Act. The Offers are being made in
compliance with Regulation 14E under the Exchange Act.
Other than with respect to the Exchange Agent, the Information Agent and
the Dealer Managers, neither Food 4 Less nor any of its affiliates has engaged,
or made any arrangements for, and has no contract, arrangement or understanding
with, any broker, dealer, agent or other person regarding the exchange or
purchase of Old RGC Notes hereunder, and no person has been authorized by Food 4
Less or any of its affiliates to provide any information or to make any
representations in connection with the Offers and the Solicitation, other than
those expressly set forth in this Amended and Restated Prospectus and
Solicitation Statement, and, if so provided or made, such other information or
representations must not be relied upon as having been authorized by Food 4 Less
or any of its affiliates. The delivery of this Amended and Restated Prospectus
and Solicitation Statement shall not, under any circumstances, create any
implication that the information set forth herein is correct as of any time
subsequent to the date hereof.
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DESCRIPTION OF THE NEW NOTES
GENERAL
The New Notes will be issued under an Indenture (the "New Note Indenture")
to be dated as of May 15, 1995, by and among the Company, the Subsidiary
Guarantors and United States Trust Company of New York, as Trustee (the "New
Note Trustee").
The following summary of certain provisions of the New Notes and the New
Note Indenture does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, the Trust Indenture Act of 1939, as
amended (the "TIA"), and to all of the provisions of the New Notes and the New
Note Indenture, including the definitions of certain terms therein and those
terms made a part of the New Note Indenture by reference to the TIA. The
definitions of certain capitalized terms used in the following summary are set
forth below under "-- Certain Definitions." A copy of the form of the New Note
Indenture may be obtained from Food 4 Less.
The New Notes will be issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples thereof. Initially,
the New Note Trustee will act as Paying Agent and Registrar for the New Notes.
The New Notes may be presented for registration or transfer and exchange at the
offices of the Registrar, which initially will be the New Note Trustee's
corporate trust office. The Company may change any Paying Agent and Registrar
without notice to holders of the New Notes (the "Holders"). The Company will pay
principal (and premium, if any) on the New Notes at the New Note Trustee's
corporate office located in New York, New York. At the Company's option,
interest may be paid at the New Note Trustee's corporate trust office or by
check mailed to the registered address of the relevant Holders.
As used below in this "Description of the New Notes," the "Company" means
Ralphs Supermarkets, Inc. as survivor of the Merger (and renamed Ralphs Grocery
Company), but not any of its subsidiaries.
PRINCIPAL, MATURITY AND INTEREST
The New Notes will mature on May 15, 2005. The up to $450 million principal
amount of New Notes offered for exchange hereby will be part of an issue of up
to $650 million aggregate principal amount of New Notes, up to $200 million of
which will be issued pursuant to the Subordinated Note Public Offering. The
Subordinated Note Public Offering is expected to price ten business days
preceding the final Expiration Date of the Offers. See "The F4L Exchange Offers
and the Public Offerings -- The Public Offerings." The New Notes offered
pursuant to the Offers will bear interest at a fixed rate per annum equal to the
greater of (a) 11.00% and (b) the Applicable Treasury Rate (as hereinafter
defined) plus 400 basis points (4.00 percentage points); provided, however, that
in no event will the New Notes offered for exchange hereby bear interest at a
rate per annum that is less than the interest rate on the New Notes offered in
the Subordinated Note Public Offering. The "Applicable Treasury Rate" means the
yield to maturity at the time of computation of United States Treasury
securities with a constant maturity (as compiled by, and published in, the most
recent Federal Reserve Statistical Release H.15 (519)) most nearly equal to the
average life to stated maturity of the New Notes; provided that if the average
life to stated maturity of the New Notes is not equal to the constant maturity
of the United States Treasury security for which a weekly average yield is
given, the Treasury Rate shall be obtained by linear interpolation (calculated
to the nearest one-twelfth of the year) from the weekly average yields of the
United States Treasury securities for which such yields are given. Interest on
the New Notes will be payable semi-annually on each May 15 and November 15,
commencing on November 15, 1995, to the Holders of record on the immediately
preceding May 1 and November 1, respectively. Interest on the New Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of issuance. Interest will be computed on
the basis of a 360-day year comprised of twelve 30-day months.
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OPTIONAL REDEMPTION
The New Notes will be redeemable, at the option of the Company, in whole at
any time or in part, from time to time, on and after May 15, 2000 at the
following redemption prices (expressed as percentages of the principal amount)
if redeemed during the twelve-month period commencing on May 15 of the year set
forth below, plus, in each case, accrued and unpaid interest thereon to the date
of redemption:
YEAR PERCENTAGE
------------------------------------------ ----------
2000...................................... 104.125%
2001...................................... 102.750%
2002...................................... 101.375%
2003 and thereafter....................... 100.000%
In the event the interest rate on the New Notes is greater than 11.00%, the
above redemption prices will be correspondingly adjusted.
In addition, on or prior to May 15, 1998, the Company may, at its option,
use the net cash proceeds of one or more Public Equity Offerings to redeem up to
an aggregate of 35% of the principal amount of the New Notes originally issued,
at a redemption price equal to 111.00% of the principal amount thereof if
redeemed during the 12 months commencing on May 15, 1995, 109.625% of the
principal amount thereof if redeemed during the 12 months commencing on May 15,
1996 and 108.25% of the principal amount thereof if redeemed during the 12
months commencing on May 15, 1997, in each case plus accrued and unpaid
interest, if any, to the redemption date. In the event the interest rate on the
New Notes is greater than 11.00%, the above redemption prices will be
correspondingly adjusted. In order to effect the foregoing redemption with the
proceeds of a Public Equity Offering, the Company shall send the redemption
notice not later than 60 days after the consummation of such Public Equity
Offering.
The documents evidencing Senior Indebtedness will restrict the Company's
ability to optionally redeem New Notes.
NOTICES AND SELECTION
In the event of a redemption of less than all of the New Notes, such New
Notes will be selected for redemption by the New Note Trustee pro rata, by lot
or by any other method that the New Note Trustee considers fair and appropriate
and, if such New Notes are listed on any securities exchange, by a method that
complies with the requirements of such exchange; provided, however, that any
redemption of the New Notes pursuant to the provisions relating to a Public
Equity Offering shall be made on a pro rata basis. Notice of redemption will be
mailed at least 30 days but not more than 60 days before the redemption date to
each Holder of New Notes to be redeemed at such Holder's registered address. On
and after the redemption date, interest will cease to accrue on New Notes or
portions thereof called for redemption (unless the Company shall default in the
payment of the redemption price or accrued interest). New Notes that are
redeemed by the Company or that are purchased by the Company pursuant to a Net
Proceeds Offer as described under "-- Certain Covenants -- Limitation on Asset
Sales" below or pursuant to a Change of Control Offer as described under
"-- Change of Control" below or that are otherwise acquired by the Company will
be surrendered to the New Note Trustee for cancellation.
SUBORDINATION
The payment of the principal of, premium, if any, and interest on the New
Notes will be subordinated in right of payment, as set forth in the New Note
Indenture, to the prior payment in full in cash or Cash Equivalents of all
Senior Indebtedness, whether outstanding on the Issue Date or thereafter
incurred, including, with respect to Designated Senior Indebtedness, any
interest accruing subsequent to a bankruptcy or other similar proceeding whether
or not such interest is an allowed claim enforceable against the Company in a
bankruptcy case under Title 11 of the United States Code.
Upon any distribution of assets of the Company of any kind or character,
whether in cash, property or securities upon any dissolution, winding up, total
or partial liquidation or reorganization of the Company
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(including, without limitation, in bankruptcy, insolvency, or receivership
proceedings or upon any assignment for the benefit of creditors or any other
marshalling of the Company's assets and liabilities), the holders of Senior
Indebtedness shall first be entitled to receive payment in full in cash or Cash
Equivalents of all amounts payable under Senior Indebtedness (including, with
respect to Designated Senior Indebtedness, any interest accruing after the
commencement of any such proceeding at the rate specified in the applicable
Senior Indebtedness whether or not such interest is an allowed claim enforceable
against the Company in any such proceeding) before the Holders will be entitled
to receive any payment with respect to the New Notes (excluding Permitted
Subordinated Reorganization Securities), and until all obligations with respect
to Senior Indebtedness are paid in full in cash or Cash Equivalents, any
distribution to which the Holders would be entitled (excluding Permitted
Subordinated Reorganization Securities) shall be made to the holders of Senior
Indebtedness.
No direct or indirect payment (other than payments previously made pursuant
to the provisions described under "-- Defeasance" below) by or on behalf of the
Company of principal of, premium, if any, or interest on the New Notes whether
pursuant to the terms of the New Notes or upon acceleration or otherwise shall
be made if, at the time of such payment, there exists a default in the payment
of all or any portion of principal of, premium, if any, or interest on any
Designated Senior Indebtedness or any other Senior Indebtedness which, at the
time of determination, is equal to or greater than $50 million in aggregate
principal amount ("Significant Senior Indebtedness") (and the New Note Trustee
has received written notice thereof), and such default shall not have been cured
or waived by or on behalf of the holders of such Designated Senior Indebtedness
or Significant Senior Indebtedness, as the case may be, or shall have ceased to
exist, until such default shall have been cured or waived or shall have ceased
to exist or such Designated Senior Indebtedness or Significant Senior
Indebtedness, as the case may be, shall have been discharged or paid in full,
after which the Company shall resume making any and all required payments in
respect of the New Notes, including any missed payments.
In addition, during the continuance of any other event of default with
respect to any Designated Senior Indebtedness pursuant to which the maturity
thereof may be accelerated, upon the earliest to occur of (a) receipt by the New
Note Trustee of written notice from the holders of a majority of the outstanding
principal amount of the Designated Senior Indebtedness or their representative,
or (b) if such event of default results from the acceleration of the New Notes,
the date of such acceleration, no such payment (other than payments previously
made pursuant to the provisions described under "-- Defeasance" below) may be
made by the Company upon or in respect of the New Notes for a period ("Payment
Blockage Period") commencing on the earlier of the date of receipt of such
notice or the date of such acceleration and ending 179 days thereafter (unless
(x) such Payment Blockage Period shall be terminated by written notice to the
New Note Trustee from the holders of a majority of the outstanding principal
amount of such Designated Senior Indebtedness or their representative who
delivered such notice or (y) such default is cured or waived or ceases to exist
or such Designated Senior Indebtedness is discharged or paid in full), after
which the Company shall resume making any and all required payments in respect
of the New Notes, including any missed payments. Notwithstanding anything herein
to the contrary, in no event will a Payment Blockage Period extend beyond 179
days from the date on which such Payment Blockage Period was commenced. Not more
than one Payment Blockage Period may be commenced with respect to the New Notes
during any period of 365 consecutive days. No event of default which existed or
was continuing on the date of the commencement of any Payment Blockage Period
with respect to the Designated Senior Indebtedness initiating such Payment
Blockage Period shall be, or be made, the basis for the commencement of a second
Payment Blockage Period by the holders of such Designated Senior Indebtedness or
their representative whether or not within a period of 365 consecutive days
unless such event of default shall have been cured or waived for a period of not
less than 90 consecutive days.
If the Company fails to make any payment on the New Notes when due or
within any applicable grace period, whether or not on account of the payment
blockage provision referred to above, such failure would constitute an Event of
Default under the New Note Indenture and would enable the Holders of New Notes
to accelerate the maturity thereof. See "-- Events of Default."
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By reason of such subordination, in the event of the insolvency of the
Company, Holders of the New Notes may recover less, ratably, than holders of
Senior Indebtedness.
As of January 7, 1995, on a pro forma basis after giving effect to the
Merger, the aggregate amount of Senior Indebtedness outstanding (excluding
Company guarantees of certain Guarantor Senior Indebtedness) would have been
approximately $1,509.0 million, the aggregate amount of Guarantor Senior
Indebtedness of the Subsidiary Guarantors (excluding guarantees by Subsidiary
Guarantors of certain Senior Indebtedness of the Company) would have been
approximately $16.5 million, and the Company would have had $173.1 million
available to be borrowed under the New Revolving Facility.
GUARANTEES
Each Subsidiary Guarantor will unconditionally guarantee, jointly and
severally, the Company's obligations under the New Notes on a senior
subordinated unsecured basis (the "Guarantees"). The Indebtedness represented by
each Guarantee (including the payment of principal of, premium, if any, and
interest on the New Notes) will be subordinated on the same basis to Guarantor
Senior Indebtedness as the New Notes are subordinated to Senior Indebtedness.
See "-- Subordination".
Upon (i) the release by the lenders under the Term Loans, related documents
and future refinancings thereof of all guarantees of a Subsidiary Guarantor and
all Liens on the property and assets of such Subsidiary Guarantor relating to
such Indebtedness, or (ii) the sale or disposition (whether by merger, stock
purchase, asset sale or otherwise) of a Subsidiary Guarantor (or substantially
all of its assets) to an entity which is not a subsidiary of the Company, which
is otherwise in compliance with the New Note Indenture, such Subsidiary
Guarantor shall be deemed released from all its obligations under its Guarantee;
provided, however, that any such termination shall occur only to the extent that
all obligations of such Subsidiary Guarantor under all of its guarantees of, and
under all of its pledges of assets or other security interests which secure,
such Indebtedness of the Company shall also terminate upon such release, sale or
transfer.
Each Subsidiary Guarantor may consolidate with or merge into or sell its
assets to the Company or another Subsidiary Guarantor without limitation. The
New Note Indenture will further provide that a Subsidiary Guarantor may
consolidate with or merge into or sell its assets to a corporation other than
the Company or another Subsidiary Guarantor (whether or not affiliated with the
Subsidiary Guarantor, but subject to the provisions described in the immediately
preceding paragraph), provided that (a) if the surviving corporation is not the
Subsidiary Guarantor, the surviving corporation agrees to assume such Subsidiary
Guarantor's obligations under its Guarantee and all its obligations under the
New Note Indenture and (b) such transaction does not (i) violate any covenants
set forth in the New Note Indenture or (ii) result in a Default or Event of
Default under the New Note Indenture immediately thereafter that is continuing.
The obligations of each Subsidiary Guarantor under its Guarantee are
limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Subsidiary Guarantor (other than
liabilities of such Subsidiary Guarantor under Subordinated Indebtedness) and
after giving effect to any collections from or payments made by or on behalf of
any other Subsidiary Guarantor in respect of the obligations of such other
Subsidiary Guarantor under its Guarantee or pursuant to its contribution
obligations under the New Note Indenture, result in the obligations of such
Subsidiary Guarantor under its Guarantee not constituting a fraudulent
conveyance or fraudulent transfer under federal or state law. Each Subsidiary
Guarantor that makes a payment or distribution under a Guarantee shall be
entitled to a contribution from each other Subsidiary Guarantor in a pro rata
amount based on the Adjusted Net Assets of each Subsidiary Guarantor.
CHANGE OF CONTROL
The New Note Indenture will provide that, upon the occurrence of a Change
of Control, each Holder will have the right to require the repurchase of such
Holder's New Notes pursuant to the offer described below (the "Change of Control
Offer"), at a purchase price equal to 101% of the principal amount thereof plus
accrued and unpaid interest to the date of repurchase.
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The New Note Indenture will provide that within 30 days following the date
upon which the Change of Control occurred, the Company must send, by first class
mail, a notice to each Holder of New Notes, with a copy to the New Note Trustee,
which notice shall govern the terms of the Change of Control Offer. The New Note
Indenture shall require that notice of an event giving rise to a Change of
Control shall be given on the same date and in the same manner to all Holders.
Such notice shall state, among other things, the purchase date, which must be no
earlier than 30 days nor later than 40 days from the date such notice is mailed,
other than as may be required by law (the "Change of Control Payment Date").
Holders electing to have a New Note purchased pursuant to a Change of Control
Offer will be required to surrender the New Note, with the form entitled "Option
of Holder to Elect Purchase" on the reverse of the New Note completed, to the
Paying Agent at the address specified in the notice prior to the close of
business on the Business Day prior to the Change of Control Payment Date. Each
Change of Control Offer is required to remain open for at least 20 Business Days
and until 12:00 midnight, New York City time on the applicable Change of Control
Payment Date.
The New Note Indenture will further provide that, notwithstanding the
foregoing, prior to the mailing of the notice of a Change of Control Offer
referred to above, within 30 days following a Change of Control the Company
shall either (a) repay in full and terminate all commitments under Indebtedness
under the Credit Agreement to the extent the terms thereof require repayment
upon a Change of Control (or offer to repay in full and terminate all
commitments under all Indebtedness under the Credit Agreement and repay the
Indebtedness owed to each lender which has accepted such offer), or (b) obtain
the requisite consents under the Credit Agreement, the terms of which require
repayment upon a Change of Control, to permit the repurchase of the New Notes as
provided above. The Company shall first comply with the covenant in the
immediately preceding sentence before it shall be required to repurchase New
Notes pursuant to the provisions described above. The Company's failure to
comply with the covenants described in this paragraph shall constitute an Event
of Default under the New Note Indenture.
In addition, the New Note Indenture will provide that prior to purchasing
New Notes tendered in a Change of Control Offer, the Company shall purchase all
F4L Senior Notes (or permitted refinancings thereof) which it is required to
purchase by reason of such Change of Control pursuant to the provisions of the
indenture under which such F4L Senior Notes are issued, as in effect on the
Issue Date (the "F4L Senior Note Indenture").
The Company must comply with Rule 14e-1 under the Exchange Act and any
other applicable provisions of the federal securities laws in connection with a
Change of Control Offer.
CERTAIN COVENANTS
The New Note Indenture will contain, among other things, the following
covenants:
Limitation on Restricted Payments. The New Note Indenture will provide that
the Company shall not, and shall cause each of its Subsidiaries not to, directly
or indirectly, make any Restricted Payment if, at the time of such proposed
Restricted Payment, or after giving effect thereto, (a) a Default or an Event of
Default shall have occurred and be continuing, (b) the Company could not incur
$1.00 of additional Indebtedness (other than Permitted Indebtedness) pursuant to
the covenant described under "-- Limitation on Incurrences of Additional
Indebtedness" below or (c) the aggregate amount expended for all Restricted
Payments, including such proposed Restricted Payment (the amount of any
Restricted Payment, if other than cash, to be the fair market value thereof at
the date of payment as determined in good faith by the Board of Directors of the
Company), subsequent to the Issue Date, shall exceed the sum of (i) 50% of the
aggregate Consolidated Net Income (or if such aggregate Consolidated Net Income
is a loss, minus 100% of such loss) of the Company earned subsequent to the
Issue Date and on or prior to the date of the proposed Restricted Payment (the
"Reference Date") plus (ii) 100% of the aggregate Net Proceeds received by the
Company from any person (other than a Subsidiary of the Company) from the
issuance and sale (including upon exchange or conversion for other securities of
the Company) subsequent to the Issue Date and on or prior to the Reference Date
of Qualified Capital Stock (excluding (A) Qualified Capital Stock paid as a
dividend on any Capital Stock or as interest on any Indebtedness and (B) any Net
Proceeds from issuances and sales financed directly
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or indirectly using funds borrowed from the Company or any Subsidiary, until and
to the extent such borrowing is repaid), plus (iii) 100% of the aggregate net
cash proceeds received by the Company as capital contributions to the Company
after the Issue Date, plus (iv) $25 million.
The New Note Indenture will provide that if no Default or Event of Default
shall have occurred and be continuing as a consequence thereof, the provisions
set forth in the immediately preceding paragraph will not prevent (1) the
payment of any dividend within 60 days after the date of its declaration if the
dividend would have been permitted on the date of declaration, (2) the
acquisition of any shares of Capital Stock of the Company or the repurchase,
redemption or other repayment of any Subordinated Indebtedness in exchange for
or solely out of the proceeds of the substantially concurrent sale (other than
to a Subsidiary) of shares of Qualified Capital Stock of the Company, (3) the
repurchase, redemption or other repayment of any Subordinated Indebtedness in
exchange for or solely out of the proceeds of the substantially concurrent sale
(other than to a Subsidiary) of Subordinated Indebtedness of the Company with an
Average Life equal to or greater than the then remaining Average Life of the
Subordinated Indebtedness repurchased, redeemed or repaid, and (4) Permitted
Payments; provided, however, that the declaration of each dividend paid in
accordance with clause (1) above, each acquisition, repurchase, redemption or
other repayment made in accordance with, or of the type set forth in, clause (2)
above, and each payment described in clause (iii), (iv), (v), (vi), (vii) and
(ix) of the definition of the term "Permitted Payments" shall each be counted
for purposes of computing amounts expended pursuant to subclause (c) in the
immediately preceding paragraph, and no amounts expended pursuant to clause (3)
above or pursuant to clause (i), (ii) or (viii) of the definition of the term
"Permitted Payments" shall be so counted; provided further that to the extent
any payments made pursuant to clause (vii) of the definition of the term
"Permitted Payments" are deducted for purposes of computing the Consolidated Net
Income of the Company, such payments shall not be counted for purposes of
computing amounts expended as Restricted Payments pursuant to subclause (c) in
the immediately preceding paragraph.
Limitation on Incurrences of Additional Indebtedness. The New Note
Indenture will provide that the Company shall not, and shall not permit any of
its Subsidiaries, directly or indirectly, to incur, assume, guarantee, become
liable, contingently or otherwise, with respect to, or otherwise become
responsible for the payment of (collectively "incur") any Indebtedness other
than Permitted Indebtedness; provided, however, that if no Default with respect
to payment of principal of, or interest on, the New Notes or Event of Default
shall have occurred and be continuing at the time or as a consequence of the
incurrence of any such Indebtedness, the Company may incur Indebtedness if
immediately before and immediately after giving effect to the incurrence of such
Indebtedness the Operating Coverage Ratio of the Company would be greater than
2.0 to 1.0; provided further a Subsidiary may incur Acquired Indebtedness to the
extent such Indebtedness could have been incurred by the Company pursuant to the
immediately preceding proviso.
Limitation on Liens. The New Note Indenture will provide that the Company
shall not and shall not permit any Subsidiary to create, incur, assume or suffer
to exist any Liens upon any of their respective assets unless the New Notes are
equally and ratably secured by the Liens covering such assets, except for (i)
Liens on assets of the Company securing Senior Indebtedness and Liens on assets
of a Subsidiary Guarantor which, at the time of incurrence, secure Guarantor
Senior Indebtedness, (ii) existing and future Liens securing Indebtedness and
other obligations of the Company and its Subsidiaries under the Credit Agreement
and related documents or any refinancing or replacement thereof in whole or in
part permitted under the New Note Indenture, (iii) Permitted Liens, (iv) Liens
securing Acquired Indebtedness; provided that such Liens (x) are not incurred in
connection with, or in contemplation of the acquisition of the property or
assets acquired and (y) do not extend to or cover any property or assets of the
Company or any Subsidiary other than the property or assets so acquired, (v)
Liens to secure Capitalized Lease Obligations and certain other Indebtedness
that is otherwise permitted under the New Note Indenture; provided that (A) any
such Lien is created solely for the purpose of securing such other Indebtedness
representing, or incurred to finance, refinance or refund, the cost (including
sales and excise taxes, installation and delivery charges and other direct costs
of, and other direct expenses paid or charged in connection with, the purchase
(whether through stock or asset purchase, merger or otherwise) or construction)
or improvement of the property subject thereto (whether real or personal,
including fixtures and other equipment), (B) the principal amount of the
Indebtedness secured by such Lien does not exceed 100% of such costs and (C)
such Lien does not extend to
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or cover any other property other than such item of property and any
improvements on such item; (vi) Liens existing on the Issue Date (after giving
effect to the Merger); (vii) Liens in favor of the New Note Trustee under the
New Note Indenture and any substantially equivalent Lien granted to any trustee
or similar institution under any indenture for Indebtedness permitted to be
incurred under the New Note Indenture; and (viii) any replacement, extension or
renewal, in whole or in part, of any Lien described in this or the foregoing
clauses including in connection with any refinancing of the Indebtedness, in
whole or in part, secured by any such Lien; provided that to the extent any such
clause limits the amount secured or the assets subject to such Liens, no
extension or renewal shall increase the amount or the assets subject to such
Liens, except to the extent that the Liens associated with such additional
assets are otherwise permitted hereunder.
Limitation on Asset Sales. The New Note Indenture will provide that neither
the Company nor any of its Subsidiaries shall consummate an Asset Sale unless
(a) the Company or the applicable Subsidiary receives consideration at the time
of such Asset Sale at least equal to the fair market value of the assets sold
and (b) upon consummation of an Asset Sale, the Company will within 365 days of
the receipt of the proceeds therefrom, either: (i) apply or cause its Subsidiary
to apply the Net Cash Proceeds of any Asset Sale to (A) a Related Business
Investment, (B) an investment in properties and assets that replace the
properties and assets that are the subject of such Asset Sale or (C) an
investment in properties and assets that will be used in the business of the
Company and its Subsidiaries existing on the Issue Date or in businesses
reasonably related thereto; (ii) apply or cause to be applied such Net Cash
Proceeds to the permanent repayment of Pari Passu Indebtedness or Senior
Indebtedness; provided, however, that the repayment of any revolving loan (under
the Credit Agreement or otherwise) shall result in a permanent reduction in the
commitment thereunder; (iii) use such Net Cash Proceeds to secure Letter of
Credit Obligations to the extent the related letters of credit have not been
drawn upon or returned undrawn; or (iv) after such time as the accumulated Net
Cash Proceeds equals or exceeds $20 million, apply or cause to be applied such
Net Cash Proceeds to the purchase of New Notes tendered to the Company for
purchase at a price equal to 100% of the principal amount thereof plus accrued
interest to the date of purchase pursuant to an offer to purchase made by the
Company as set forth below (a "Net Proceeds Offer"); provided, however, that the
Company shall have the right to exclude from the foregoing provisions Asset
Sales subsequent to the Issue Date, the proceeds of which are derived from the
sale and substantially concurrent lease-back of a supermarket and/or related
assets which are acquired or constructed by the Company or a Subsidiary
subsequent to the Issue Date, provided that such sale and substantially
concurrent lease-back occurs within 180 days following such acquisition or the
completion of such construction, as the case may be; provided further that
pending the utilization of any Net Cash Proceeds in the manner (and within the
time period) described above, the Company may use any such Net Cash Proceeds to
repay revolving loans (under the Credit Agreement or otherwise) without a
permanent reduction of the commitment thereunder.
Each Net Proceeds Offer will be mailed to record Holders of New Notes as
shown on the register of Holders not less than 325 nor more than 365 days after
the relevant Asset Sale, with a copy to the New Note Trustee, shall specify the
purchase date (which shall be no earlier than 30 days nor later than 40 days
from the date such notice is mailed) and shall otherwise comply with the
procedures set forth in the New Note Indenture. Upon receiving notice of the Net
Proceeds Offer, Holders may elect to tender their New Notes in whole or in part
in integral multiples of $1,000 in exchange for cash. To the extent Holders
properly tender New Notes in an amount exceeding the Net Proceeds Offer, New
Notes of tendering Holders will be repurchased on a pro rata basis (based on
amounts tendered).
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of New Notes pursuant to a Net Proceeds Offer.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The New Note Indenture will provide that the Company shall not,
and shall not permit any Subsidiary to, directly or indirectly, create or suffer
to exist, or allow to become effective any consensual Payment Restriction with
respect to any of its Subsidiaries, except for (a) any such restrictions
contained in (i) the Credit Agreement and related documents as in effect on the
Issue Date, as any such payment restriction may apply to any present or future
Subsidiary, (ii) the New Note Indenture and any agreement in effect at or
entered into on the Issue
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Date, (iii) Indebtedness of a person existing at the time such person becomes a
Subsidiary (provided that (x) such Indebtedness is not incurred in connection
with, or in contemplation of, such person becoming a Subsidiary, (y) such
restriction is not applicable to any person, or the properties or assets of any
person, other than the person so acquired and (z) such Indebtedness is otherwise
permitted to be incurred pursuant to the provisions of the covenant described
under "-- Limitation on Incurrences of Additional Indebtedness" above), (iv)
secured Indebtedness otherwise permitted to be incurred pursuant to the
provisions of the covenants described under "-- Limitation on Incurrences of
Additional Indebtedness" and "-- Limitation on Liens" above that limit the right
of the debtor to dispose of the assets securing such Indebtedness; (b) customary
non-assignment provisions restricting subletting or assignment of any lease or
other agreement entered into by a Subsidiary; (c) customary net worth provisions
contained in leases and other agreements entered into by a Subsidiary in the
ordinary course of business; (d) customary restrictions with respect to a
Subsidiary pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of such
Subsidiary; (e) customary provisions in joint venture agreements and other
similar agreements; and (f) restrictions contained in Indebtedness incurred to
refinance, refund, extend or renew Indebtedness referred to in clause (a) above;
provided that the restrictions contained therein are not materially more
restrictive taken as a whole than those provided for in such Indebtedness being
refinanced, refunded, extended or renewed and (g) Payment Restrictions contained
in any other Indebtedness permitted to be incurred subsequent to the Issue Date
pursuant to the provisions of the covenant described under "-- Limitation on
Incurrences of Additional Indebtedness" above; provided that any such Payment
Restrictions are ordinary and customary with respect to the type of Indebtedness
being incurred (under the relevant circumstances) and, in any event, no more
restrictive than the most restrictive Payment Restrictions in effect on the
Issue Date.
Guarantees of Certain Indebtedness. The New Note Indenture will provide
that the Company shall not permit any of its Subsidiaries to (a) incur,
guarantee or secure through the granting of Liens the payment of any
Indebtedness under the term portion of the Credit Agreement or refinancings
thereof or (b) pledge any intercompany notes representing obligations of any of
its Subsidiaries, to secure the payment of any Indebtedness under the term
portion of the Credit Agreement or refinancings thereof, in each case unless
such Subsidiary, the Company and the New Note Trustee execute and deliver a
supplemental indenture evidencing such Subsidiary's Guarantee.
Limitation on Transactions with Affiliates. The New Note Indenture will
provide that neither the Company nor any of its Subsidiaries shall (i) sell,
lease, transfer or otherwise dispose of any of its properties or assets or issue
securities (other than equity securities which do not constitute Disqualified
Capital Stock) to, (ii) purchase any property, assets or securities (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 the Company or any
Subsidiary (an "Affiliate Transaction"), other than (x) Affiliate Transactions
permitted under the following paragraph and (y) Affiliate Transactions in the
ordinary course of business, that are fair to the Company or such Subsidiary, as
the case may be, and on terms at least as favorable as might reasonably have
been obtainable at such time from an unaffiliated party; provided that (A) with
respect to Affiliate Transactions involving aggregate payments in excess of $1
million and less than $5 million, the Company or such Subsidiary, as the case
may be, shall have delivered an Officers' Certificate to the Trustee certifying
that such 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), (B) with respect to Affiliate Transactions
involving aggregate payments in excess of $5 million and less than $15 million,
the Company or such Subsidiary, as the case may be, shall have delivered an
Officers' Certificate to the Trustee certifying that such Affiliate Transaction
complies with clause (y) above (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 the Company
or the Subsidiary, as the case may be, or, in the absence of any such approval
by the disinterested members of the Board of Directors of the Company or the
Subsidiary, as the case may be, that an Independent Financial Advisor has
reasonably and in good faith determined that the financial terms of such
Affiliate Transaction are fair to the Company or such Subsidiary, as the case
may
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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, the Company
or such Subsidiary, as the case may be, shall have delivered to the New Note
Trustee, a written opinion from an Independent Financial Advisor to the effect
that the financial terms of such Affiliate Transaction are fair to the Company
or such Subsidiary, as the case may be, or that the terms of such Affiliate
Transaction are at least as favorable as those that might reasonably have been
obtained at the time from an unaffiliated party.
The provisions of the foregoing paragraph shall not apply to (i) any
Permitted Payment, (ii) any Restricted Payment that is made in compliance with
the provisions of the covenant described under "-- Limitation on Restricted
Payments" above, (iii) reasonable and customary fees and compensation paid to,
and indemnity provided on behalf of, officers, directors, employees or
consultants of the Company or any Subsidiary, as determined by the Board of
Directors of the Company or any Subsidiary or the senior management thereof in
good faith, (iv) transactions exclusively between or among the Company and any
of its wholly-owned Subsidiaries or exclusively between or among such
wholly-owned Subsidiaries, provided such transactions are not otherwise
prohibited by the New Note Indenture, (v) any agreement as in effect as of the
Issue Date or any amendment thereto or any transaction contemplated thereby
(including pursuant to any amendment thereto) so long as any such amendment is
not disadvantageous to the Holders of the New Notes in any material respect,
(vi) the existence of, or the performance by the Company or any of its
Subsidiaries of its obligations under the terms of, any stockholders agreement
(including any registration rights agreement or purchase agreement related
thereto) to which it (or New Holdings) is a party as of the Issue Date and any
similar agreements which it (or New Holdings) may enter into thereafter;
provided, however, that the existence of, or the performance by the Company or
any Subsidiaries of obligations under any future amendment to, any such existing
agreement or under any similar agreement entered into after the Issue Date shall
only be permitted by this clause (vi) to the extent that the terms of any such
amendment or new agreement are not otherwise disadvantageous to the Holders of
the New Notes in any material respect, (vii) transactions permitted by, and
complying with, the provisions of the covenant described under "-- Limitation on
Mergers and Certain Other Transactions" below, and (viii) 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 Note
Indenture which are fair to the Company, in the reasonable determination of the
Board of Directors of the Company or the senior management thereof, or are on
terms at least as favorable as might reasonably have been obtained at such time
from an unaffiliated party.
Limitations on Preferred Stock of Subsidiaries. The New Note Indenture will
provide that the Company will not permit any of its Subsidiaries to issue any
Preferred Stock (other than to the Company or to a wholly-owned Subsidiary) or
permit any person (other than the Company or a wholly-owned Subsidiary) to own
any Preferred Stock of any Subsidiary.
Limitation on Mergers and Certain Other Transactions. The New Note
Indenture will provide that the Company, in a single transaction or through a
series of related transactions, shall not (i) consolidate with or merge with or
into any other person, or transfer (by lease, assignment, sale or otherwise) all
or substantially all of its properties and assets as an entirety or
substantially as an entirety to another person or group of affiliated persons or
(ii) adopt a Plan of Liquidation, unless, in either case, (1) either the Company
shall be the continuing person, or the person (if other than the Company) formed
by such consolidation or into which the Company is merged or to which all or
substantially all of the properties and assets of the Company as an entirety or
substantially as an entirety are transferred (or, in the case of a Plan of
Liquidation, any person to which assets are transferred) (the Company or such
other person being hereinafter referred to as the "Surviving Person") shall be a
corporation organized and validly existing under the laws of the United States,
any state thereof or the District of Columbia, and shall expressly assume, by an
indenture supplement, all the obligations of the Company under the New Note
Indenture and the New Notes; (2) immediately after and giving effect to such
transaction and the assumption contemplated by clause (1) above and the
incurrence or anticipated incurrence of any Indebtedness to be incurred in
connection therewith, (A) the Surviving Person shall have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of the Company
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immediately preceding the transaction and (B) the Surviving Person could incur
at least $1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to the provisions of the covenant described under "-- Limitation on
Incurrences of Additional Indebtedness" above; (3) immediately before and
immediately after and giving effect to such transaction and the assumption of
the obligations as set forth in clause (1) above and the incurrence or
anticipated incurrence of any Indebtedness to be incurred in connection
therewith, no Default or Event of Default shall have occurred and be continuing;
and (4) each Subsidiary Guarantor, unless it is the other party to the
transaction, shall have by supplemental indenture confirmed that its Guarantee
of the obligations of the Company under the New Notes and the New Note Indenture
shall apply, without alteration or amendment as such Guarantee applies on the
date it was granted under the New Note Indenture to the obligations of the
Company under the New Note Indenture and the New Notes to the obligations of the
Company or such Person, as the case may be, under the New Note Indenture and the
New Notes, after the consummation of such transaction.
Notwithstanding the foregoing, the consummation of the Merger on the Issue
Date need only comply with clauses (1) and (3) of the foregoing paragraph.
The New Note Indenture will provide that upon any consolidation or merger
or any transfer of all or substantially all of the assets of the Company or any
adoption of a Plan of Liquidation by the Company in accordance with the
foregoing, the surviving person formed by such consolidation or into which the
Company is merged or to which such transfer is made (or, in the case of a Plan
of Liquidation, to which assets are transferred) shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
the New Note Indenture with the same effect as if such surviving person had been
named as the Company 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 the Company with respect to periods subsequent to the effective time of such
merger, consolidation or transfer of assets.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise) of all or substantially all of the properties and assets of one or
more Subsidiaries, the Capital Stock of which constitutes all or substantially
all of the properties and assets of the Company shall be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
Limitation on Other Senior Subordinated Indebtedness. The New Note
Indenture will provide that neither the Company nor any Subsidiary Guarantor
will, directly or indirectly, incur any Indebtedness (including Acquired
Indebtedness) that is subordinate in right of payment to any Indebtedness of the
Company or such Subsidiary Guarantor, as the case may be, unless such
Indebtedness is either (a) pari passu in right of payment with the New Notes or
the Guarantee of such Subsidiary Guarantor, as the case may be, or (b)
subordinate in right of payment to the New Notes or the Guarantee of such
Subsidiary Guarantor, as the case may be, in the same manner and at least to the
same extent as the New Notes are subordinate to Senior Indebtedness or as such
Guarantee is subordinated to Guarantor Senior Indebtedness of such Subsidiary
Guarantor, as the case may be.
EVENTS OF DEFAULT
The following events constitute "Events of Default" under the New Note
Indenture: (i) failure to make any interest payment on the New Notes when due
and the continuance of such default for a period of 30 days; (ii) failure to pay
principal of, or premium, if any, on the New Notes when due, whether at
maturity, upon acceleration, redemption, required repurchase or otherwise; (iii)
failure to comply with any other agreement contained in the New Notes or the New
Note Indenture, if such failure continues unremedied for 30 days after written
notice given by the New Note Trustee or the Holders of at least 25% in principal
amount of the New Notes then outstanding (except in the case of a default with
respect to the covenants described under "-- Certain Covenants -- Limitation on
Restricted Payments," "-- Certain Covenants -- Limitations on Asset Sales,"
"-- Change of Control," and "-- Certain Covenants -- Limitations on Mergers and
Certain Other Transactions," which shall constitute Events of Default with
notice but without passage of time); (iv) a
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default under any Indebtedness of the Company or its Subsidiaries, whether such
Indebtedness now exists or shall hereinafter be created, if both (A) such
default either (1) results from the failure to pay any such Indebtedness at its
stated final maturity or (2) relates to an obligation other than the obligation
to pay such Indebtedness at its stated final maturity and results in the holder
or holders of such Indebtedness causing such Indebtedness to become due prior to
its stated maturity and (B) the principal amount of such Indebtedness, together
with the principal amount of any other such Indebtedness in default for failure
to pay principal at stated final maturity or the maturity of which has been so
accelerated, aggregate $20 million or more at any one time outstanding; (v) any
final judgment or order for payment of money in excess of $20 million shall be
entered against the Company or any Significant Subsidiary and shall not be
discharged for a period of 60 days after such judgment becomes final and
nonappealable; (vi) either the Company or any Significant Subsidiary pursuant to
or within the meaning of any Bankruptcy Law: (a) commences a voluntary case or
proceeding; (b) consents to the entry of an order for relief against it in an
involuntary case or proceeding; (c) consents to the appointment of a Custodian
of it or for all or substantially all of its property; or (d) makes a general
assignment for the benefit of its creditors; (vii) a court of competent
jurisdiction enters an order or decree under any Bankruptcy Law that: (a) is for
relief against the Company or any Significant Subsidiary, in an involuntary case
or proceeding; (b) appoints a Custodian of the Company or any Significant
Subsidiary, or for all or any substantial part of their respective properties;
or (c) orders the liquidation of the Company or any Significant Subsidiary, and
in each case the order or decree remains unstayed and in effect for 60 days;
(viii) the lenders under the Credit Agreement shall commence judicial
proceedings to foreclose upon any material portion of the assets of the Company
and its Subsidiaries; or (ix) any of the Guarantees shall be declared or
adjudged invalid in a final judgment or order issued by any court of
governmental authority. In the event of a declaration of acceleration because an
Event of Default set forth in clause (iv) above has occurred and is continuing,
such declaration of acceleration shall be automatically rescinded and annulled
if either (i) the holders of the Indebtedness which is the subject of such Event
of Default have waived such failure to pay at maturity or have rescinded the
acceleration in respect of such Indebtedness within 90 days of such maturity or
declaration of acceleration, as the case may be, and no other Event of Default
has occurred during such 90-day period which has not been cured or waived, or
(ii) such Indebtedness shall have been discharged or the maturity thereof shall
have been extended such that it is not then due and payable, or the underlying
default has been cured, within 90 days of such maturity or declaration of
acceleration, as the case may be.
If an Event of Default (other than an Event of Default resulting from
bankruptcy, insolvency, receivership or reorganization of the Company or a
Subsidiary Guarantor) occurs and is continuing, the New Note Trustee or the
Holders of at least 25% in principal amount of the then outstanding New Notes
may declare due and payable all unpaid principal and interest accrued and unpaid
on the then outstanding New Notes by notice in writing to the Company and the
New Note Trustee specifying the respective Event of Default and that it is a
"notice of acceleration" (the "Acceleration Notice"), and the same (i) shall
become immediately due and payable or (ii) if there are any amounts outstanding
under the Credit Agreement, shall become due and payable upon the first to occur
of an acceleration under the Credit Agreement, or five business days after
receipt by the Company and the administrative agent under the Credit Agreement
of such Acceleration Notice. If an Event of Default resulting from certain
events of bankruptcy, insolvency, receivership or reorganization of the Company
or a Subsidiary Guarantor that is a Significant Subsidiary shall occur, all
unpaid principal of and accrued interest on all then outstanding New Notes shall
be immediately due and payable without any declaration or other act on the part
of the New Note Trustee or any of the Holders. After a declaration of
acceleration, subject to certain conditions, the Holders of a majority in
principal amount of the then outstanding New Notes, by notice to the New Note
Trustee, may rescind such declaration if all existing Events of Default are
remedied. In certain cases the Holders of a majority in principal amount of
outstanding New Notes may waive a past default under the New Note Indenture and
its consequences, except a default in the payment of or interest on any of the
New Notes.
The New Note Indenture provides that if a Default or Event of Default
occurs and is continuing thereunder and if it is known to the New Note Trustee,
the New Note Trustee shall mail to each Holder of New Notes notice of the
Default or Event of Default within 90 days after such Default or Event of
Default occurs; provided, however, that, except in the case of a Default or
Event of Default in the payment of the principal of or interest on any New Note,
including the failure to make payment on a Change of Control
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Payment Date pursuant to a Change of Control Offer or payment when due pursuant
to a Net Proceeds Offer the New Note Trustee may withhold such notice if it in
good faith determines that withholding such notice is in the interest of the
Holders.
The New Note Indenture provides that no Holder of New Notes may pursue any
remedy thereunder unless the New Note Trustee (i) shall have failed to act for a
period of 60 days after receiving written notice of a continuing Event of
Default by such Holder and a request to act by Holders of at least 25% in
principal amount of New Notes and (ii) has received indemnification satisfactory
to it; provided, however, that such provision does not affect the right of any
Holder to sue for enforcement of any overdue payment of New Notes.
The New Note Indenture provides that two officers of the Company are
required to certify to the New Note Trustee within 120 days after the end of
each fiscal year of the Company whether or not they know of any Default that
occurred during such fiscal year and, if applicable, describe such Default and
the status thereof.
DEFEASANCE OF INDENTURE
The Company may, at its option and at any time, elect to have the
obligations of the Company discharged with respect to the outstanding New Notes.
Such Legal Defeasance means that the Company shall be deemed to have paid and
discharged the entire Indebtedness represented by the New Notes except for (i)
the rights of Holders of New Notes to receive payments in respect of the
principal of, premium, if any, and interest on such New Notes when such payments
are due solely from the funds held by the New Note Trustee in the trust referred
to below; (ii) the Company's obligations to issue temporary New Notes, register
the transfer or exchange of New Notes, replace mutilated, destroyed, lost or
stolen New Notes and maintain an office or agency for payments in respect of the
New Notes and money for security payments held in trust in respect of the New
Notes; (iii) the rights, powers, trusts, duties and immunities of the New Note
Trustee and the Company's obligations in connection therewith; and (iv) the
Legal Defeasance provisions of the New Note Indenture. In addition, the Company
may, at its option and at any time elect to have the obligations of the Company
released with respect to certain covenants described above under "-- Certain
Covenants" ("Covenant Defeasance"), and thereafter any omission to comply with
such obligations shall not constitute a Default or Event of Default with respect
to the New Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance with
respect to the New Notes, (i) the Company must have irrevocably deposited with
the New Note Trustee, in trust, for the benefit of the Holders of the New Notes,
cash in U.S. dollars, U.S. Government Obligations (as defined in the New Note
Indenture), or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on the outstanding New
Notes to redemption or maturity provided that the New Note Trustee shall have
been irrevocably instructed to apply such money or the proceeds of such U.S.
Government Obligations to said payments with respect to the New Notes on the
Maturity Date or such redemption date, as the case may be; (ii) in the case of
Legal Defeasance, the Company shall have delivered to the New Note Trustee an
opinion of counsel stating that (A) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (B) since the Issue
Date, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders of New Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the New Note Trustee an opinion of counsel stating that the Holders
of New Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Covenant Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Covenant Defeasance had not occurred; (iv) no
Default or Event of Default shall have occurred and be continuing on the date of
such deposit or insofar as clauses (vi) and (vii) under the first paragraph
under "-- Events of Default" above are concerned, at any time in the period
ending on the 91st day after the date of deposit; (v) such Legal
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Defeasance or Covenant Defeasance shall not result in a breach or violation of,
or constitute a default under, the New Note Indenture or any other material
agreement or instrument to which the Company or any Subsidiary Guarantor is a
party or by which it is bound (and in that connection, the New Note Trustee
shall have received a certificate from the Agent under the Credit Agreement to
that effect with respect to such Credit Agreement if then in effect); (vi) the
Company shall have delivered to the New Note Trustee an opinion of counsel to
the effect that after the 91st day following the deposit (A) the trust funds
will not be subject to any rights of holders of Senior Indebtedness or Guarantor
Senior Indebtedness, including, without limitation, those arising under the New
Note Indenture and (B) the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally; (vii) the Company shall have delivered to the New
Note Trustee an Officer's Certificate stating that the deposit was not made by
the Company with the intent of preferring the Holders of the New Notes over
other creditors of the Company or any Subsidiary Guarantor or with the intent of
defeating, hindering, delaying or defrauding creditors of the Company, any
Subsidiary Guarantor or others; and (viii) the Company shall have delivered to
the New Note Trustee an officers' certificate and an opinion of counsel, each
stating that all conditions precedent provided for relating to the Legal
Defeasance or Covenant Defeasance, have been complied with.
SATISFACTION AND DISCHARGE
The New Note Indenture will be discharged and will cease to be of further
effect as to all outstanding New Notes when either (a) all New Notes theretofore
authenticated and delivered (except lost, stolen or destroyed New Notes which
have been replaced or paid and New Notes for whose payment money has theretofore
been deposited in trust and thereafter repaid to the Company) have been
delivered to the New Note Trustee for cancellation; or (b)(i) all New Notes not
theretofore delivered to the New Note Trustee for cancellation have become due
and payable by reason of the making of a notice of redemption or otherwise and
the Company has irrevocably deposited or caused to be deposited with the New
Note Trustee as trust funds in trust for the purpose an amount of money
sufficient to pay and discharge the entire indebtedness on the New Notes not
theretofore delivered to the New Note Trustee for cancellation for principal,
premium, if any, and accrued interest to the date of maturity or redemption;
(ii) the Company has paid all sums payable by it under the New Note Indenture;
and (iii) the Company has delivered irrevocable instructions to the New Note
Trustee to apply the deposited money toward the payment of the New Notes at
maturity or the redemption date, as the case may be. In addition, the Company
must deliver an Officers' Certificate and an Opinion of Counsel to the New Note
Trustee stating that all conditions precedent to satisfaction and discharge have
been complied with.
MODIFICATION OF THE NEW NOTE INDENTURE
The New Note Indenture and the New Notes may be amended or supplemented
(and compliance with any provision thereof may be waived) by the Company, the
Subsidiary Guarantors, the New Note Trustee and the Holders of not less than a
majority in aggregate principal amount of New Notes then outstanding, except
that (i) without the consent of each Holder of New Notes affected, no such
amendment, supplement or waiver may (1) change the principal amount of the New
Notes the Holders of which must consent to an amendment, supplement or waiver of
any provision of the New Note Indenture, the New Notes or the Guarantees, (2)
reduce the rate or extend the time for payment of interest on any New Notes, (3)
reduce the principal amount of any New Notes, (4) change the Maturity Date of
any New Notes or alter the redemption provisions in the New Note Indenture or
the New Notes in a manner adverse to any Holder, (5) make any changes in the
provisions concerning waivers of Defaults or Events of Default by Holders or the
rights of Holders to recover the principal of, interest on or redemption payment
with respect to any New Notes, (6) make the principal of, or interest on, any
New Notes payable with anything or in any manner other than as provided for in
the New Note Indenture, the New Notes and the Guarantees or (7) modify the
subordination provisions of the New Note Indenture (including the related
definitions) so as to adversely affect the ranking of any New Note or Guarantee,
(ii) without the consent of Holders of not less than 75% in aggregate principal
amount of New Notes 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 Notes pursuant to
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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 and (iii)
without the consent of Holders of not less than two thirds in aggregate
principal amount of New Notes then outstanding, no such amendment, supplement or
waiver may release any Subsidiary Guarantor from any of its obligations under
its Guarantee or the New Note Indenture other than in accordance with the terms
of such Guarantee and the New Note Indenture.
In addition, the New Note Indenture, the New Notes and the related
Guarantees may be amended by the Company, the Subsidiary Guarantors and the New
Note Trustee (a) to cure any ambiguity, defect or inconsistency therein;
provided that such amendment or supplement does not adversely affect the rights
of any Holder thereof or (b) to make any other change that does not adversely
affect the rights of any Holder thereunder in any material respect.
THE NEW NOTE TRUSTEE
The New Note Indenture will provide that the Holders of a majority in
principal amount of the outstanding New Notes may remove the New Note Trustee
and appoint a successor trustee with the Company's consent, by so notifying the
trustee to be so removed and the Company. In addition, the Holders of a majority
in principal amount of the outstanding New Notes have the right, subject to
certain limitations, to direct the time, method and place of conducting any
proceeding for any remedy available to the New Note Trustee or of exercising any
trust or power conferred on the New Note Trustee.
The New Note Indenture will provide that, in case a Default or an Event of
Default has occurred and is continuing, the New Note Trustee shall exercise such
of the rights and powers vested in it by the New Note Indenture, and use the
same degree of care and skill in the exercise thereof, as a prudent person would
exercise or use under the circumstances in the conduct of such person's own
affairs. Subject to the latter provision, the New Note Trustee is under no
obligation to exercise any of its rights or powers under the New Note Indenture
at the request, order or direction of any of the Holders of the New Notes,
unless they shall have offered to the New Note Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
thereby. If the Company fails to pay such amounts of principal of, premium, if
any, or interest on, the New Notes as shall have become due and payable upon
demand as specified in the New Note Indenture, the New Note Trustee, at the
request of the Holders of a majority in aggregate principal amount of New Notes
at the time outstanding, and upon being offered such reasonable indemnity as it
may be required against the costs, expenses and liabilities incurred by it,
except as a result of its negligence or bad faith, shall institute any actions
or proceedings at law or in equity for the collection of the sums so due and
unpaid, and collect in the manner provided by law the monies adjudged or decreed
to be payable.
The New Note Indenture contains limitations on the rights of the New Note
Trustee, should it become a creditor of the Company, to obtain payment of claims
in certain cases or to be realized on certain property received by it in respect
of any such claims, securities or otherwise. The New Note Trustee is permitted
to engage in other transactions; however, if the New Note Trustee acquires any
"conflicting interest," it must eliminate such conflict or resign.
REPORTS
The New Note Indenture will provide that the Company will deliver to the
New Note Trustee within 15 days after the filing of the same with the
Commission, copies of the quarterly and annual report and of the information,
documents and other reports, if any, which the Company is required to file with
the Commission pursuant to Section 13 or 15(d) of the Exchange Act. The New Note
Indenture will further provide that, notwithstanding that the Company may not be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company will file with the Commission, to the extent permitted, and
provide the New Note Trustee and Holders of the New Notes with such annual
reports and such information, documents and other reports specified in Sections
13 and 15(d) of the Exchange Act. The Company will also comply with the other
provisions of TIA sec. 314(a).
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CERTAIN DEFINITIONS
"Acquired Indebtedness" means (i) with respect to any person that becomes a
Subsidiary of the Company (or is merged into the Company or any of its
Subsidiaries) after the Issue Date, Indebtedness of, such person or any of its
Subsidiaries existing at the time such person becomes a Subsidiary of the
Company (or is merged into the Company or any of its Subsidiaries) and which was
not incurred in connection with, or in contemplation of, such person becoming a
Subsidiary of the Company (or being merged into the Company or any of its
Subsidiaries) and (ii) with respect to the Company or any of its Subsidiaries,
any Indebtedness assumed by the Company or any of its Subsidiaries in connection
with the acquisition of any assets from another person (other than the Company
or any of its Subsidiaries), and which was not incurred by such other person in
connection with, or in contemplation of, such acquisition.
"Adjusted Net Assets" means, with respect to a Subsidiary Guarantor at any
date, the lesser of the amount by which (x) the fair value of the property of
such Subsidiary Guarantor exceeds the total amount of liabilities, including,
without limitation, contingent liabilities (after giving effect to all other
fixed and contingent liabilities incurred or assumed on such date (other than
liabilities of such Subsidiary Guarantor under Subordinated Indebtedness)), but
excluding liabilities under the Guarantee of such Subsidiary Guarantor at such
date and (y) the present fair salable value of the assets of such Subsidiary
Guarantor at such date exceeds the amount that will be required to pay the
probable liability of such Subsidiary Guarantor on its debts (after giving
effect to all other fixed and contingent liabilities incurred or assumed on such
date (other than liabilities of such Subsidiary Guarantor under Subordinated
Indebtedness) and after giving effect to any collection from any Subsidiary of
such Subsidiary Guarantor in respect of the obligations of such Subsidiary under
its Guarantee), excluding debt in respect of the Guarantee of such Subsidiary
Guarantor as they become absolute and matured.
"Affiliate" means, with respect to any person, any other person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For the purposes of this definition,
"control" when used with respect to any person means the power to direct the
management and policies of such person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"affiliated," "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of the New Note Indenture, neither BT Securities
Corporation nor any of its Affiliates shall be deemed to be an Affiliate of the
Company or any of its Subsidiaries.
"Asset Sale" means, with respect to any person, any sale, transfer or other
disposition or series of sales, transfers or other dispositions (including,
without limitation, by merger or consolidation or by exchange of assets and
whether by operation of law or otherwise) made by such person or any of its
subsidiaries to any person other than such person or one of its wholly-owned
subsidiaries (or, in the case of a sale, transfer or other disposition by a
Subsidiary, to any person other than the Company or a directly or indirectly
wholly-owned Subsidiary) of any assets of such person or any of its subsidiaries
including, without limitation, assets consisting of any Capital Stock or other
securities held by such person or any of its subsidiaries, and any Capital Stock
issued by any subsidiary of such person, in each case, outside of the ordinary
course of business, excluding, however, any sale, transfer or other disposition,
or series of related sales, transfers or other dispositions (i) involving only
Excluded Assets; (ii) resulting in Net Proceeds to the Company 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 the Company with a Lien
on such assets, which Lien is permitted under the New Note Indenture, provided
that such foreclosure or other remedy is conducted in a commercially reasonable
manner or in accordance with any Bankruptcy Law; (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
the Company; (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 which,
together with all other such Asset Sale Proceeds, do not exceed $20 million.
"Average Life" means, as of any date of determination, with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
the number of years from the date of determination to the
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dates of each successive scheduled principal payments of such debt security
multiplied by the amount of each such principal payment by (ii) the sum of all
such principal payments.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal, state or
foreign law for the relief of debtors.
"Board Resolution" means, with respect to any person, a duly adopted
resolution of the Board of Directors of such person.
"Capital Stock" means, with respect to any person, any and all shares,
interests, participation or other equivalents (however designated) of corporate
stock, including each class of common stock and preferred stock of such person.
"Capitalized Lease Obligation" means obligations under a lease that is
required to be capitalized for financial reporting purposes in accordance with
GAAP, and the amount of Indebtedness represented by such obligations shall be
the capitalized amount of such obligations determined in accordance with GAAP.
"Cash Equivalents" means (i) obligations issued or unconditionally
guaranteed by the United States of America or any agency thereof, or obligations
issued by any agency or instrumentality thereof and backed by the full faith and
credit of the United States of America, (ii) commercial paper rated the highest
grade by Moody's Investors Service, Inc. and Standard & Poor's Ratings Group and
maturing not more than one year from the date of creation thereof, (iii) time
deposits with, and certificates of deposit and banker's acceptances issued by,
any bank having capital surplus and undivided profits aggregating at least $500
million and maturing not more than one year from the date of creation thereof,
(iv) repurchase agreements that are secured by a perfected security interest in
an obligation described in clause (i) and are with any bank described in clause
(iii) and (v) readily marketable direct obligations issued by any state of the
United States of America or any political subdivision thereof having one of the
two highest rating categories obtainable from either Moody's Investors Service,
Inc. or Standard & Poor's Ratings Group.
"Change of Control" means the acquisition after the Issue Date, in one or
more transactions, of beneficial ownership (within the meaning of Rule 13d-3
under the Exchange Act) by (i) any person or entity (other than any Permitted
Holder) or (ii) any group of persons or entities (excluding any Permitted
Holders) who constitute a group (within the meaning of Section 13(d)(3) of the
Exchange Act), in either case, of any securities of New Holdings or the Company
such that, as a result of such acquisition, such person, entity or group
beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act),
directly or indirectly, 40% or more of the then outstanding voting securities
entitled to vote on a regular basis for a majority of the Board of Directors of
the Company (but only to the extent that such beneficial ownership is not shared
with any Permitted Holder who has the power to direct the vote thereof);
provided, however, that no such Change of Control shall be deemed to have
occurred if (A) the Permitted Holders beneficially own, in the aggregate, at
such time, a greater percentage of such voting securities than such other
person, entity or group or (B) at the time of such acquisition, the Permitted
Holders (or any of them) possess the ability (by contract or otherwise) to
elect, or cause the election, of a majority of the members of the Company's
Board of Directors.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means, with respect to any person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of, such person's common stock, whether
outstanding at the Issue Date or issued after the Issue Date, and includes,
without limitation, all series and classes of such common stock.
"Consolidated Net Income" means, with respect to any person, for any
period, the aggregate of the net income (or loss) of such person and its
subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (a) the net income of any other person in which such
person or any of its subsidiaries has an interest (which interest does not cause
the net income of such other person to be consolidated with the net income of
such person and its subsidiaries in accordance with GAAP) shall be included only
to the extent of the amount of dividends or distributions actually paid to such
person or such subsidiary by such other person in such period; (b) the net
income of any subsidiary of such person that is subject to any Payment
Restriction shall be excluded to the extent such Payment Restriction actually
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prevented the payment of an amount that otherwise could have been paid to, or
received by, such person or a subsidiary of such person not subject to any
Payment Restriction; and (c)(i) the net income (or loss) of any other person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition, (ii) all gains and losses realized on any Asset Sale, (iii)
all gains realized upon or in connection with or as a consequence of the
issuance of the Capital Stock of such person or any of its subsidiaries and any
gains on pension reversions received by such person or any of its subsidiaries,
(iv) all gains and losses realized on the purchase or other acquisition by such
person or any of its subsidiaries of any securities of such person or any of its
subsidiaries, (v) all gains and losses resulting from the cumulative effect of
any accounting change pursuant to the application of Accounting Principles Board
Opinion No. 20, as amended, (vi) all other extraordinary gains and losses, (vii)
(A) all non-cash charges, (B) up to $10 million of severance costs and (C) any
other restructuring reserves or charges (provided, however, that any cash
payments actually made with respect to the liabilities for which such
restructuring reserves or charges were created shall be deducted from
Consolidated Net Income in the period when made), in each case, incurred by the
Company or any of its Subsidiaries in connection with the Merger, including,
without limitation, the divestiture of the Excluded Assets, (viii) losses
incurred by the Company and its Subsidiaries resulting from earthquakes and (ix)
with respect to the Company, all deferred financing costs written off in
connection with the early extinguishment of any Indebtedness, shall each be
excluded.
"Consolidated Net Worth" means, with respect to any person, the total
stockholders' equity (exclusive of any Disqualified Capital Stock) of such
person and its subsidiaries determined on a consolidated basis in accordance
with GAAP.
"Consulting Agreement" means that certain Consulting Agreement dated as of
the Issue Date, between Food 4 Less, New Holdings and The Yucaipa Companies (as
such Consulting Agreement may be amended or replaced, so long as any amounts
paid under any amended or replacement agreement do not exceed the amounts
payable under such Consulting Agreement as in effect on the Issue Date).
"Credit Agreement" means the Credit Agreement, dated as of the Issue Date,
by and among Food 4 Less, certain of its subsidiaries, the Lenders referred to
therein and Bankers Trust Company, as administrative agent, as the same may be
amended, extended, renewed, restated, supplemented or otherwise modified (in
each case, in whole or in part, and without limitation as to amount, terms,
conditions, covenants and other provisions) from time to time, and any agreement
governing Indebtedness incurred to refund, replace or refinance any borrowings
and commitments then outstanding or permitted to be outstanding under such
Credit Agreement or any such prior agreement as the same may be amended,
extended, renewed, restated, supplemented or otherwise modified (in each case,
in whole or in part, and without limitation as to amount, terms, conditions,
covenants and other provisions). The term "Credit Agreement" shall include all
related or ancillary documents, including, without limitation, any guarantee
agreements and security documents. The Company shall promptly notify the New
Note Trustee of any such refunding or refinancing of the Credit Agreement.
"Custodian" means any receiver, trustee, assignee, liquidator, sequestrator
or similar official under any Bankruptcy Law.
"Designated Senior Indebtedness" means (i) in the event any Indebtedness is
outstanding under the Credit Agreement, all Senior Indebtedness under the Credit
Agreement and (ii) if no Indebtedness is outstanding under the Credit Agreement,
any other issue of Senior Indebtedness which (a) at the time of the
determination is equal to or greater than $50 million in aggregate principal
amount and (b) is specifically designated in the instrument evidencing such
Senior Indebtedness as "Designated Senior Indebtedness" by the Company. For
purposes of this definition, the term "Credit Agreement" shall not include any
agreement governing Indebtedness incurred to refund, replace or refinance
borrowings or commitments under the Credit Agreement other than any such
agreements incurred to refund, replace or refinance the entirety of the
borrowings and commitments then outstanding or permitted to be outstanding
thereunder.
"Discount Notes" means the 15.25% Senior Discount Notes due 2004 of New
Holdings issued pursuant to the Discount Note Indenture, as the same may be
modified or amended from time to time and future refinancings thereof.
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"Discount Note Indenture" means the indenture dated as of December 15, 1992
under which the 15.25% Senior Discount Notes due 2004 of Holdings were issued,
as the same may be modified and amended from time to time and refinancings
thereof.
"Disqualified Capital Stock" means, 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 any event or
the passage of time would be, required to be redeemed or repurchased by such
person or its subsidiaries, including at the option of the holder thereof, in
whole or in part, or has, or upon the happening of an event or passage of time
would have, a redemption or similar payment due, on or prior to the Maturity
Date or any other Capital Stock of such person or its subsidiaries designated as
Disqualified Capital Stock by such person at the time of issuance; provided,
however, that if such Capital Stock is either (i) redeemable or repurchasable
solely at the option of such person or (ii) issued to employees of the Company
or its Subsidiaries or to any plan for the benefit of such employees, such
Capital Stock shall not constitute Disqualified Capital Stock unless so
designated.
"EBDIT" means, with respect to any person, for any period, the Consolidated
Net Income of such person for such period, plus, in each case to the extent
deducted in computing Consolidated Net Income of such person for such period
(without duplication) (i) provisions for income taxes or similar charges
recognized by such person and its consolidated subsidiaries accrued during such
period, (ii) depreciation and amortization expense of such person and its
consolidated subsidiaries accrued during such period (but only to the extent not
included in Fixed Charges), (iii) Fixed Charges of such person and its
consolidated subsidiaries for such period, (iv) LIFO charges (credits) 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 were not otherwise deducted in the computation of
Consolidated Net Income of such person for such period).
"Exchange Act" means the Securities Exchange Act of 1934, as amended and
the rules and regulations promulgated by the Commission thereunder.
"Excluded Assets" means assets of the Company 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 % Senior Notes due 2004 issued pursuant to an indenture dated as of the
Issue Date; (b) the 10.45% Senior Notes due 2000 issued pursuant to an indenture
dated as of April 15, 1992; (c) the % Senior Subordinated Notes due 2005
issued pursuant to an indenture dated as of the Issue Date; (d) the 9% Senior
Subordinated Notes due 2003 issued pursuant to an indenture dated as of March
30, 1993; (e) the 10 1/4% Senior Subordinated Notes due 2002 issued pursuant to
an indenture dated as of July 29, 1992; (f) the 13.75% Senior Subordinated Notes
due 2005 issued pursuant to an indenture dated as of the Issue Date, and (g) the
13.75% Senior Subordinated Notes due 2001 issued pursuant to an indenture dated
as of June 15, 1991.
"Fixed Charges" means, with respect to any person, for any period, the
aggregate amount of (i) interest, whether expensed or capitalized, paid, accrued
or scheduled to be paid or accrued during such period (except to the extent
accrued in a prior period) in respect of all Indebtedness of such person and its
consolidated subsidiaries (including (a) original issue discount on any
Indebtedness (including (without duplication), in the case of the Company, any
original issue discount on the applicable New Notes but excluding amortization
of debt issuance costs) and (b) the interest portion of all deferred payment
obligations, calculated in
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accordance with the effective interest method, in each case to the extent
attributable to such period but excluding the amortization of debt issuance
costs) and (ii) dividend requirements on Capital Stock of such person and its
consolidated subsidiaries (whether in cash or otherwise (except dividends
payable in shares of Qualified Capital Stock)) declared or paid or required to
be declared or paid during such period (except to the extent accrued in a prior
period) and excluding items eliminated in consolidation. For purposes of this
definition, (a) interest on a Capitalized Lease Obligation shall be deemed to
accrue at an interest rate reasonably determined by the Board of Directors of
such person (as evidenced by a Board Resolution) to be the rate of interest
implicit in such Capitalized Lease Obligation in accordance with GAAP, (b)
interest on Indebtedness that is determined on a fluctuating basis shall be
deemed to have accrued at a fixed rate per annum equal to the rate of interest
of such Indebtedness in effect on the date Fixed Charges are being calculated,
(c) interest on Indebtedness that may optionally be determined at an interest
rate based upon a factor of a prime or similar rate, a eurocurrency interbank
offered rate, or other rate, shall be deemed to have been based upon the rate
actually chosen, or, if none, then based upon such optional rate chosen as the
Company may designate, and (d) Fixed Charges shall be increased or reduced by
the net cost (including amortization of discount) or benefit associated with
Interest Swap Obligations attributable to such period. For purposes of clause
(ii) above, dividend requirements shall be increased to an amount representing
the pre-tax earnings that would be required to cover such dividend requirements;
accordingly, the increased amount shall be equal to a fraction, the numerator of
which is the amount of such dividend requirements and the denominator of which
is one (1) minus the applicable actual combined federal, state, local and
foreign income tax rate of such person and its subsidiaries (expressed as a
decimal), on a consolidated basis, for the fiscal year immediately preceding the
date of the transaction giving rise to the need to calculate Fixed Charges.
"FFL" means Food 4 Less, Inc., a Delaware corporation, and its successors,
including, without limitation, Holdings following the FFL Merger and New
Holdings following the Reincorporation Merger.
"FFL Merger" means the merger, prior to the Merger and the Reincorporation
Merger, of FFL and Holdings.
"Food 4 Less" means Food 4 Less Supermarkets, Inc., a Delaware corporation,
and its successors, including, without limitation, Ralphs Supermarkets, Inc. (to
be renamed Ralphs Grocery Company following the Merger).
"Foreign Exchange Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect
against fluctuations in currency values.
"Guarantor Senior Indebtedness" means, with respect to any Subsidiary
Guarantor, the principal of, premium, if any, and interest on any Indebtedness
of such Subsidiary Guarantor, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Guarantee of such Subsidiary Guarantor.
Without limiting the generality of the foregoing, "Guarantor Senior
Indebtedness" shall include the principal of, premium, if any, and interest on
all obligations of every nature of such Subsidiary Guarantor from time to time
owed to the lenders under the Credit Agreement, including, without limitation,
the Letter of Credit Obligations and principal of and interest on, and all fees,
indemnities and expenses payable under the Credit Agreement. Notwithstanding the
foregoing, "Guarantor Senior Indebtedness" shall not include (a) Indebtedness
evidenced by the Guarantee of such Subsidiary Guarantor, (b) Indebtedness that
is expressly subordinate or junior in right of payment to any Indebtedness of
such Subsidiary Guarantor, (c) Indebtedness which, when incurred and without
respect to any election under Section 1111(b) of Title 11, United States Code,
is without recourse to such Subsidiary Guarantor, (d) Indebtedness which is
represented by Disqualified Capital Stock, (e) obligations for goods, materials
or services purchased in the ordinary course of business or obligations
consisting of trade payables, (f) Indebtedness of or amounts owed by such
Subsidiary Guarantor for compensation to employees or for services rendered to
such Subsidiary Guarantor, (g) any liability for federal, state, local or other
taxes owed or owing by such Subsidiary Guarantor, (h) Indebtedness of such
Subsidiary Guarantor representing a guarantee of Subordinated Indebtedness or
Pari Passu Indebtedness of the Company or any other Subsidiary Guarantor, (i)
Indebtedness of such
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Subsidiary Guarantor to a Subsidiary of the Company and (j) that portion of any
Indebtedness which is incurred by such Subsidiary Guarantor in violation of the
New Note Indenture.
"Holdings" means Food 4 Less Holdings, Inc., a California corporation, and
its successors including, without limitation, New Holdings following the
Reincorporation Merger.
"Indebtedness" means with respect to any person, without duplication, (i)
all liabilities, contingent or otherwise, of such person (a) for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of such
person or only to a portion thereof), (b) evidenced by bonds, notes, debentures,
drafts accepted or similar instruments or letters of credit or representing the
balance deferred and unpaid of the purchase price of any property (other than
any such balance that represents an account payable or any other monetary
obligation to a trade creditor (whether or not an Affiliate) created, incurred,
assumed or guaranteed by such person in the ordinary course of business of such
person in connection with obtaining goods, materials or services and due within
twelve months (or such longer period for payment as is customarily extended by
such trade creditor) of the incurrence thereof, which account is not overdue by
more than 90 days, according to the original terms of sale, unless such account
payable is being contested in good faith), or (c) for the payment of money
relating to a Capitalized Lease Obligation; (ii) the maximum fixed repurchase
price of all Disqualified Capital Stock of such person; (iii) reimbursement
obligations of such person with respect to letters of credit; (iv) obligations
of such person with respect to Interest Swap Obligations and Foreign Exchange
Agreements; (v) all liabilities of others of the kind described in the preceding
clause (i), (ii), (iii) or (iv) that such person has guaranteed or that is
otherwise its legal liability; and (vi) all obligations of others secured by a
Lien to which any of the properties or assets (including, without limitation,
leasehold interests and any other tangible or intangible property rights) of
such person are subject, whether or not the obligations secured thereby shall
have been assumed by such person or shall otherwise be such person's legal
liability (provided that if the obligations so secured have not been assumed by
such person or are not otherwise such person's legal liability, such obligations
shall be deemed to be in an amount equal to the fair market value of such
properties or assets, as determined in good faith by the Board of Directors of
such person, which determination shall be evidenced by a Board Resolution). For
purposes of the preceding sentence, the "maximum fixed repurchase price" of any
Disqualified Capital Stock that does not have a fixed repurchase price shall be
calculated in accordance with the terms of such Disqualified Capital Stock as if
such Disqualified Capital Stock were purchased on any date on which Indebtedness
shall be required to be determined pursuant to this Indenture, and if such price
is based upon, or measured by, the fair market value of such Disqualified
Capital Stock (or any equity security for which it may be exchanged or
converted), such fair market value shall be determined in good faith by the
Board of Directors of such person, which determination shall be evidenced by a
Board Resolution. For purposes of the New Note Indenture, Indebtedness incurred
by any person that is a general partnership (other than non-recourse
Indebtedness) shall be deemed to have been incurred by the general partners of
such partnership pro rata in accordance with their respective interests in the
liabilities of such partnership unless any such general partner shall, in the
reasonable determination of the Board of Directors of the Company, be unable to
satisfy its pro rata share of the liabilities of the partnership, in which case
the pro rata share of any Indebtedness attributable to such partner shall be
deemed to be incurred at such time by the remaining general partners on a pro
rata basis in accordance with their interests.
"Independent Financial Advisor" means a reputable accounting, appraisal or
nationally recognized investment banking firm that is, in the reasonable
judgment of the Board of Directors of the Company, qualified to perform the
tasks for which such firm has been engaged and disinterested and independent
with respect to the Company and its Affiliates.
"Interest Swap Obligation" means any obligation of any person pursuant to
any arrangement with any other person whereby, directly or indirectly, such
person is entitled to receive from time to time periodic payments calculated by
applying either a fixed or floating rate of interest on a stated notional amount
in exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount; provided that
the term "Interest Swap Obligation" shall also include interest rate exchange,
collar, cap, swap option or similar agreements providing interest rate
protection.
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"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 the Company and other similar customary expenses incurred, in
each case in the ordinary course of business consistent with past practice) or
similar credit extension constituting Indebtedness of such other person, and any
guarantee of Indebtedness of any other person.
"Issue Date" means the date of original issuance of the New Notes under the
New Note Indenture.
"Letter of Credit Obligations" means Indebtedness of the Company or any of
its Subsidiaries with respect to letters of credit issued pursuant to the Credit
Agreement, and for purposes of the definition of the term "Permitted
Indebtedness" above, the aggregate principal amount of Indebtedness outstanding
at any time with respect thereto, shall be deemed to consist of (a) the
aggregate maximum amount then available to be drawn under all such letters of
credit (the determination of such maximum amount to assume compliance with all
conditions for drawing), and (b) the aggregate amount that has then been paid
by, and not reimbursed to, the issuers under such letters of credit.
"Lien" means any mortgage, pledge, lien, encumbrance, charge or adverse
claim affecting title or resulting in an encumbrance against real or personal
property, or a security interest of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof, any option or
other agreement to sell which is intended to constitute or create a security
interest, mortgage, pledge or lien, and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction); provided that in no event shall an operating lease be
deemed to constitute a Lien under the New Note Indenture.
"Maturity Date" means May 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 September
14, 1994, by and among Holdings, FFL, Food 4 Less, RSI and the stockholders of
RSI, as such agreement is in effect on the Issue Date.
"Net Cash Proceeds" means the Net Proceeds of any Asset Sale received in
the form of cash or Cash Equivalents.
"Net Proceeds" means (a) in the case of any Asset Sale or any issuance and
sale by any person of Qualified Capital Stock, the aggregate net proceeds
received by such person after payment of expenses, taxes, commissions and the
like incurred in connection therewith (and, in the case of any Asset Sale, net
of the amount of cash applied to repay Indebtedness secured by the asset
involved in such Asset Sale), whether such proceeds are in cash or in property
(valued at the fair market value thereof at the time of receipt as determined
with respect to any Asset Sale resulting in Net Proceeds in excess of $5 million
in good faith by the Board of Directors of such person, which determination
shall be evidenced by a Board Resolution) and (b) in the case of any conversion
or exchange of any outstanding Indebtedness or Disqualified Capital Stock of
such person for or into shares of Qualified Capital Stock of the Company, the
sum of (i) the fair market value of the proceeds received by the Company in
connection with the issuance of such Indebtedness or Disqualified Capital Stock
on the date of such issuance and (ii) any additional amount paid by the Holder
to the Company upon such conversion or exchange.
"New Discount Debenture Indenture" means the indenture dated as of the
Issue Date under which the 13 5/8% Senior Discount Debentures due 2005 of New
Holdings were issued, as the same may be modified and amended from time to time
and refinancings thereof.
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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
the same may be modified or amended from time to time and future refinancings
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 the Company, after
giving effect on a pro forma basis to the Merger as if it had occurred on the
first day of the Pro Forma Period. In addition to, but without duplication of,
the foregoing, for purposes of this definition, "EBDIT" shall be calculated
after giving effect (without duplication), on a pro forma basis for the Pro
Forma Period (but no longer), to (a) any Investment, during the period
commencing on the first day of the Pro Forma Period to and including the
Transaction Date (the "Reference Period"), in any other person that, as a result
of such Investment, becomes a subsidiary of such person, (b) the acquisition,
during the Reference Period (by merger, consolidation or purchase of stock or
assets) of any business or assets, which acquisition is not prohibited by the
Indenture, and (c) any sales or other dispositions of assets (other than sales
of inventory in the ordinary course of business) occurring during the Reference
Period, in each case as if such incurrence, Investment, repayment, acquisition
or asset sale had occurred on the first day of the Reference Period. In
addition, for purposes of this definition, "Fixed Charges" shall be calculated
after giving effect (without duplication), on a pro forma basis for the Forward
Period, to any Indebtedness incurred or repaid on or after the first day of the
Forward Period and prior to the Transaction Date. If such person or any of its
subsidiaries directly or indirectly guarantees any Indebtedness of a third
person, the Operating Coverage Ratio shall give effect to the incurrence of such
Indebtedness as if such person or subsidiary had directly incurred such
guaranteed Indebtedness.
"operating lease" means any lease the obligations under which do not
constitute Capitalized Lease Obligations.
"Pari Passu Indebtedness" means, with respect to the Company or any
Subsidiary Guarantor, Indebtedness of such person which ranks pari passu in
right of payment to the New Notes or the Guarantee of such Subsidiary Guarantor,
as the case may be.
"Payment Restriction" means, with respect to a subsidiary of any person,
any encumbrance, restriction or limitation, whether by operation of the terms of
its charter or by reason of any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation, on the ability of (i) such subsidiary
to (a) pay dividends or make other distributions on its Capital Stock or make
payments on any obligation, liability or indebtedness owed to such person or any
other subsidiary of such person, (b) make loans or advances to such person or
any other subsidiary of such person or (c) transfer any of its properties or
assets to such person or any other subsidiary of such persons, or (ii) such
person or any other subsidiary of such person to receive or retain any such (a)
dividends, distributions or payments, (b) loans or advances or (c) transfer of
properties or assets.
"Permitted Holder" means (i) Food 4 Less Equity Partners, L.P. and The
Yucaipa Companies, or 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 the Company or any of its subsidiaries or any participant therein, (iv)
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company or any of its subsidiaries or (v) any Permitted Transferee of any
of the foregoing persons.
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"Permitted Indebtedness" means (a) Indebtedness of the Company and its
Subsidiaries pursuant to (i) the Term Loans in an aggregate principal amount at
any time outstanding not to exceed $750 million or such lesser amount as may be
actually funded under the Term Loans on or within 91 days following the Issue
Date (with any such amounts funded after the Issue Date to be used to finance
the repurchase of up to $224.5 million aggregate principal amount of Old RGC
Notes pursuant to the "change of control purchase offer" provision set forth in
section 1014 of the Old RGC Indentures, plus related fees and expenses) less the
aggregate amount of all principal repayments thereunder pursuant to and in
accordance with the covenant described under "-- Certain Covenants -- Limitation
on Asset Sales" above subsequent to the Issue Date, and (ii) the revolving
credit facility under the Credit Agreement (and the Company and each Subsidiary
(to the extent it is not an obligor) may guarantee such Indebtedness) in an
aggregate principal amount at any time outstanding not to exceed $325 million,
less all permanent reductions thereunder pursuant to and in accordance with the
covenant described under "-- Certain Covenants -- Limitation on Asset Sales"
above, (b) Indebtedness of the Company or a Subsidiary Guarantor owed to and
held by the Company or a Subsidiary Guarantor; (c) Indebtedness incurred by the
Company or any Subsidiary in connection with the purchase or improvement of
property (real or personal) or equipment or other capital expenditures in the
ordinary course of business (including for the purchase of assets or stock of
any retail grocery store or business) or consisting of Capitalized Lease
Obligations, provided that (i) at the time of the incurrence thereof, such
Indebtedness, together with any other Indebtedness incurred during the most
recently completed four fiscal quarter period in reliance upon this clause (c)
does not exceed, in the aggregate, 3% of net sales of the Company and its
Subsidiaries during the most recently completed four fiscal quarter period on a
consolidated basis (calculated on a pro forma basis if the date of incurrence is
prior to the first anniversary of the Merger) and (ii) such Indebtedness,
together with all then outstanding Indebtedness incurred in reliance upon this
clause (c) does not exceed, in the aggregate, 3% of the aggregate net sales of
the Company and its Subsidiaries during the most recently completed twelve
fiscal quarter period on a consolidated basis (calculated on a pro forma basis
if the date of incurrence is prior to the third anniversary of the Merger); (d)
Indebtedness incurred by the Company or any Subsidiary in connection with
capital expenditures in an aggregate principal amount not exceeding $150
million, provided that such capital expenditures relate solely to the
integration of the operations of RSI, Food 4 Less and their respective
subsidiaries as described in this Amended and Restated Prospectus and
Solicitation Statement; (e) Indebtedness of the Company incurred under certain
Foreign Exchange Agreements and Interest Swap Obligations; (f) guarantees
incurred in the ordinary course of business by the Company or a Subsidiary, of
Indebtedness of any other person in aggregate not to exceed $25 million at any
time outstanding; (g) guarantees by the Company or a Subsidiary Guarantor of
Indebtedness incurred by a wholly-owned Subsidiary Guarantor so long as the
incurrence of such Indebtedness incurred by such wholly-owned Subsidiary
Guarantor is permitted under the terms of the New Note Indenture; (h)
Refinancing Indebtedness; (i) Indebtedness for letters of credit relating to
workers' compensation claims and self-insurance or similar requirements in the
ordinary course of business; (j) Existing Indebtedness and other Indebtedness
outstanding on the Issue Date (after giving effect to the Merger); (k)
Indebtedness arising from guarantees of Indebtedness of the Company or any
Subsidiary or other agreements of the Company or a Subsidiary providing for
indemnification, adjustment of purchase price or similar obligations, in each
case, incurred or assumed in connection with the disposition of any business,
assets or Subsidiary, other than guarantees of Indebtedness incurred by any
person acquiring all or any portion of such business, assets or Subsidiary for
the purpose of financing such acquisition; provided that the maximum aggregate
liability in respect of all such Indebtedness shall at no time exceed the gross
proceeds actually received by the Company and its Subsidiaries in connection
with such disposition; (l) obligations in respect of performance bonds and
completion guarantees provided by the Company or any Subsidiary in the ordinary
course of business; and (m) additional Indebtedness of the Company and the
Subsidiary Guarantors in an amount not to exceed $200 million at any time
outstanding.
"Permitted Investment" by any person means (i) any Related Business
Investment, (ii) Investments in securities not constituting cash or Cash
Equivalents and received in connection with an Asset Sale made pursuant to the
provisions of the covenant described under "-- Certain Covenants -- Limitation
on Asset Sales" above or any other disposition of assets not constituting an
Asset Sale by reason of the $500,000 threshold contained in the definition
thereof, (iii) cash and Cash Equivalents, (iv) Investments existing on the
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Issue Date, (v) Investments specifically permitted by and made in accordance
with the provisions of the covenant described under "-- Certain
Covenants -- Limitation on Transactions with Affiliates", (vi) Investments by
Subsidiary Guarantors in other Subsidiary Guarantors and Investments by
Subsidiaries which are not Subsidiary Guarantors in other Subsidiaries which are
not Subsidiary Guarantors and (vii) additional Investments in an aggregate
amount not exceeding $5 million.
"Permitted Liens" 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, warehouseman, mechanics, suppliers, materialmen,
repairmen or other like Liens arising in the ordinary course of business,
deposits made to obtain the release of such Liens, and with respect to amounts
not yet delinquent for a period of more than 60 days or being contested in good
faith by an appropriate process of law, and for which a reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been
made; (iii) Liens incurred or pledges or deposits made in the ordinary course of
business to secure obligations under workers' compensation, unemployment
insurance and other types of social security or similar legislation; (iv) Liens
incurred or deposits made to secure the performance of tenders, bids, leases,
statutory obligations, surety and appeal bonds, government contracts,
performance and return of money bonds and other obligations of a like nature
incurred in the ordinary course of business (exclusive of obligations for the
payment of borrowed money); (v) easements, rights-of-way, zoning or other
restrictions, minor defects or irregularities in title and other similar charges
or encumbrances not interfering in any material respect with the business of the
Company or any of its Subsidiaries incurred in the ordinary course of business;
(vi) Liens upon specific items of inventory or other goods and proceeds of any
person securing such person's obligations in respect of bankers' acceptances
issued or created for the account of such person to facilitate the purchase,
shipment or storage of such inventory or other goods in the ordinary course of
business; (vii) Liens securing reimbursement obligations with respect to letters
of credit which encumber documents and other property relating to such letters
of credit and the products and proceeds thereof; (viii) Liens in favor of
customs and revenue authorities arising as a matter of law to secure payment of
nondelinquent customs duties in connection with the importation of goods; (ix)
judgment and attachment Liens not giving rise to a Default or Event of Default;
(x) leases or subleases granted to others not interfering in any material
respect with the business of the Company or any Subsidiary; (xi) Liens
encumbering customary initial deposits and margin deposits, and other Liens
incurred in the ordinary course of business that are within the general
parameters customary in the industry, in each case securing Indebtedness under
Interest Swap Obligations and Foreign Exchange Agreements and forward contracts,
option futures contracts, futures options or similar agreements or arrangements
designed to protect the Company or any Subsidiary from fluctuations in the price
of commodities; (xii) Liens encumbering deposits made in the ordinary course of
business to secure nondelinquent obligations arising from statutory, regulatory,
contractual or warranty requirements of the Company or its Subsidiaries for
which a reserve or other appropriate provision, if any, as shall be required by
GAAP shall have been made; (xiii) Liens arising out of consignment or similar
arrangements for the sale of goods entered into by the Company or any Subsidiary
in the ordinary course of business in accordance with past practices; (xiv) any
interest or title of a lessor in the property subject to any lease, whether
characterized as capitalized or operating other than any such interest or title
resulting from or arising out of a default by the Company or any Subsidiary of
its obligations under such lease; (xv) Liens arising from filing UCC financing
statements for precautionary purposes in connection with true leases of personal
property that are otherwise permitted under the New Note Indenture and under
which the Company or any Subsidiary is lessee; (xvi) Liens on assets of the
Company securing Indebtedness which would constitute Senior Indebtedness but for
the provisions of clause (c) in the third sentence of the definition of Senior
Indebtedness and Liens on assets of a Subsidiary Guarantor securing Indebtedness
which would constitute Guarantor Senior Indebtedness but for the provisions of
clause (c) in the third sentence of the definition of Guarantor Senior
Indebtedness; and (xvii) additional Liens securing Indebtedness at any one time
outstanding not exceeding the sum of (i) $25 million and (ii) 10% of the
aggregate Consolidated Net Income of the Company earned subsequent to the Issue
Date and on or prior to such time.
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"Permitted Payments" means (i) any payment by the Company or any
Subsidiary, or any dividend by the Company or any Subsidiary to New Holdings the
proceeds of which are utilized by New Holdings to make payments, 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 the Company or any Subsidiary pursuant to the Amended and Restated
Tax Sharing Agreement, dated as of June 17, 1991, between Food 4 Less and
certain Subsidiaries, as such Tax Sharing Agreement may be amended from time to
time, so long as the payment thereunder by the Company and its Subsidiaries
shall not exceed the amount of taxes the Company would be required to pay if it
were the filing person for all applicable taxes, (iii) any payment by the
Company or any Subsidiary pursuant to the Transfer and Assumption Agreement,
dated as of June 23, 1989, between Food 4 Less and Holdings, as in effect on the
Issue Date, (iv) any payment by the Company or any Subsidiary (a) in connection
with repurchases of outstanding shares of the Company's or New Holdings' Common
Stock following the death, disability or termination of employment of management
stockholders, and (b) of amounts required to be paid by New Holdings, the
Company or any of its Subsidiaries to participants in employee benefit plans
upon termination of employment by such participants, as provided in the
documents related thereto, in an aggregate amount (for both clauses (a) and (b))
not to exceed $10 million in any Yearly Period (provided that any unused amounts
may be carried over to any subsequent Yearly Period subject to a maximum amount
of $20 million in any Yearly Period), (v) from and after June 30, 1998, payments
of cash dividends to New Holdings in an amount sufficient to enable New Holdings
to make payments of interest required to be made in respect of the Discount
Notes in an amount not to exceed the amount payable thereunder in accordance
with the terms thereof in effect on the Issue Date, (vi) from and after May 15,
2000, payments of cash dividends to New Holdings in an amount sufficient to
enable New Holdings to make payments of interest required to be made in respect
of the Seller Debentures and the New Discount Debentures in an amount not to
exceed the amount payable thereunder in accordance with the terms thereof in
effect on the Issue Date, (vii) dividends or other payments to New Holdings
sufficient to enable New Holdings to perform accounting, legal, corporate
reporting and administrative functions in the ordinary course of business or to
pay required fees and expenses in connection with the Merger, the FFL Merger,
the Reincorporation Merger and the registration under applicable laws and
regulations of its debt or equity securities, (viii) dividends or other
distributions by the Company to New Holdings on the Issue Date of shares of New
Holdings common stock owned by the Company and (ix) dividends by the Company to
New Holdings of the Net Cash Proceeds of an Asset Sale to the extent that (a)
neither the Company nor any of the Subsidiaries is required, or may be required,
pursuant to the documents governing any outstanding Indebtedness of the Company
or any of the Subsidiaries to utilize such Net Cash Proceeds to repay (or offer
to repay) such Indebtedness (or has complied with all such requirements), (b)
such Net Cash Proceeds have not been utilized to repay outstanding Indebtedness
of the Company or any of the Subsidiaries and (c) New Holdings is required
pursuant to the documents governing any outstanding Indebtedness of New Holdings
to utilize such Net Cash Proceeds to repay (or offer to repay) such
Indebtedness.
"Permitted Subordinated Reorganization Securities" means securities of the
Company issued in a plan of reorganization in a case under the Bankruptcy Law
relating to the Company which constitutes either (y) Capital Stock (other than
Disqualified Capital Stock with the reference to "Maturity Date" in the
definition of such term modified to relate to the final stated maturity of any
debt securities issued in such plan of reorganization to the holders of
Designated Senior Indebtedness ("Senior Reorganization Securities")) and (z)
debt securities of the Company which are (i) unsecured, (ii) have no scheduled
mandatory amortization thereon prior to the final stated maturity of the Senior
Reorganization Securities and (iii) are subordinated in right of payment to the
Senior Reorganization Securities to at least the same extent as the Securities
are subordinated to Designated Senior Indebtedness.
"Permitted Transferees" means, with respect to any person, (i) any
Affiliate of such person, (ii) the heirs, executors, administrators,
testamentary trustees, legatees or beneficiaries of any such person, (iii) a
trust, the beneficiaries of which, or a corporation or partnership, the
stockholders or general or limited partners of which, include only such person
or his or her spouse or lineal descendants, in each case to whom such person has
transferred the beneficial ownership of any securities of the Company, (iv) any
investment account whose investment managers and investment advisors consist
solely of such person and/or Permitted
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Transferees of such person and (v) any investment fund or investment entity that
is a subsidiary of such person or a Permitted Transferee of such person.
"Plan of Liquidation" means, with respect to any person, a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and all
or substantially all of the remaining assets of such person to holders of
Capital Stock of such person.
"Preferred Stock" means, with respect to any person, Capital Stock of any
class or classes (however designated) which is preferred as to the payment of
dividends or distributions, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such person, over shares
of Capital Stock of any other class of such person.
"pro forma" means, with respect to any calculation made or required to be
made pursuant to the terms of the New Note Indenture, a calculation in
accordance with Article 11 of Regulation S-X under the Securities Act of 1933,
as amended, as interpreted by the Company's chief financial officer or Board of
Directors in consultation with its independent certified public accountants.
"Public Equity Offering" means an underwritten public offering of Common
Stock of the Company or New Holdings pursuant to a registration statement filed
with the Commission in accordance with the Securities Act which public equity
offering results in gross proceeds to the Company or New Holdings, as the case
may be, of not less than $20 million; provided, however, that in the case of a
Public Equity Offering by New Holdings, New Holdings contributes to the capital
of the Company net cash proceeds in an amount sufficient to redeem New Notes
called for redemption in accordance with the terms thereof.
"Qualified Capital Stock" means, with respect to any person, any Capital
Stock of such person that is not Disqualified Capital Stock.
"Refinancing Indebtedness" means, with respect to any person, Indebtedness
of such person issued in exchange for, or the proceeds from the issuance and
sale or disbursement of which are used to substantially concurrently repay,
redeem, refund, refinance, discharge or otherwise retire for value, in whole or
in part (collectively, "repay"), or constituting an amendment, modification or
supplement to, or a deferral or renewal of (collectively, an "amendment"), any
Indebtedness of such person existing on the Issue Date or Indebtedness (other
than Permitted Indebtedness, except Permitted Indebtedness incurred pursuant to
clauses (c), (d), (h) and (j), of the definition thereof) incurred in accordance
with the New Note Indenture (a) in a principal amount (or, if such Refinancing
Indebtedness provides for an amount less than the principal amount thereof to be
due and payable upon the acceleration thereof, with an original issue price) not
in excess of (without duplication) (i) the principal amount or the original
issue price, as the case may be, of the Indebtedness so refinanced (or, if such
Refinancing Indebtedness refinances Indebtedness under a revolving credit
facility or other agreement providing a commitment for subsequent borrowings,
with a maximum commitment not to exceed the maximum commitment under such
revolving credit facility or other agreement) plus (ii) unpaid accrued interest
on such Indebtedness plus (iii) premiums, penalties, fees and expenses actually
incurred by such person in connection with the repayment or amendment thereof
and (b) with respect to Refinancing Indebtedness that repays or constitutes an
amendment to Subordinated Indebtedness, such Refinancing Indebtedness (x) shall
not have any fixed mandatory redemption or sinking fund requirement in an amount
greater than or at a time prior to the amounts and times specified in such
repaid or amended Subordinated Indebtedness, except to the extent that any such
requirement applies on a date after the Maturity Date and (y) shall contain
subordination and default provisions no less favorable in any material respect
to Holders than those contained in such repaid or amended Subordinated
Indebtedness.
"Reincorporation Merger" means the merger, prior to the Merger, of Holdings
with and into New Holdings.
"Related Business Investment" means (i) any Investment by a person in any
other person a majority of whose revenues are derived from the operation of one
or more retail grocery stores or supermarkets or any other line of business
engaged in by the Company or any of its Subsidiaries as of the Issue Date; (ii)
any
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Investment by such person in any cooperative or other supplier, including,
without limitation, any joint venture which is intended to supply any product or
service useful to the business of the Company and its Subsidiaries as it is
conducted as of the Issue Date and as such business may thereafter evolve or
change; and (iii) any capital expenditure or Investment, in each case reasonably
related to the business of the Company and its Subsidiaries as it is conducted
as of the Issue Date and as such business may thereafter evolve or change.
"Restricted Debt Prepayment" means any purchase, redemption, defeasance
(including, but not limited to, in substance or legal defeasance) or other
acquisition or retirement for value, directly or indirectly, by the Company or a
Subsidiary, prior to the scheduled maturity or prior to any scheduled repayment
of principal or sinking fund payment, as the case may be, in respect of
Subordinated Indebtedness.
"Restricted Payment" means any (i) Stock Payment, (ii) Investment (other
than a Permitted Investment) or (iii) Restricted Debt Prepayment.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Seller Debentures" means the 13 5/8% Senior Subordinated Pay-in-Kind
Debentures due 2007 of New Holdings issued pursuant to the Seller Debenture
Indenture, including any additional 13 5/8% Senior Subordinated Pay-in-Kind
Debentures due 2007 issued as interest thereof, in each case, as such Seller
Debentures may be modified or amended from time to time and future refinancings
thereof.
"Seller Debenture Indenture" means the indenture dated as of the Issue Date
under which the 13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 of
New Holdings were issued, as the same may be modified and amended from time to
time and refinancings thereof.
"Senior Indebtedness" means the principal of, premium, if any, and interest
on any Indebtedness of the Company, whether outstanding on the Issue Date or
thereafter created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the New Notes. Without limiting the
generality of the foregoing, "Senior Indebtedness" shall include (x) the
principal of, premium, if any, and interest on all obligations of every nature
of the Company from time to time owed to the lenders under the Credit Agreement,
including, without limitation, the Letter of Credit Obligations and principal of
and interest on, all fees and expenses payable under the Credit Agreement, and
(y) interest accruing thereon subsequent to the occurrence of any Event of
Default specified in clause (vi) or (vii) under "-- Events of Default" relating
to the Company, whether or not the claim for such interest is allowed under any
applicable Bankruptcy Law. Notwithstanding the foregoing, "Senior Indebtedness"
shall not include (a) Indebtedness evidenced by the New Notes, (b) Indebtedness
that is expressly subordinate or junior in right of payment to any Indebtedness
of the Company, (c) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company, (d) Indebtedness which is represented by Disqualified
Capital Stock, (e) obligations for goods, materials or services purchased in the
ordinary course of business or obligations consisting of trade payables, (f)
Indebtedness of or amounts owed by the Company for compensation to employees or
for services rendered to the Company, (g) any liability for federal, state,
local or other taxes owed or owing by the Company, (h) Indebtedness of the
Company to a Subsidiary of the Company, and (i) that portion of any Indebtedness
which is incurred by the Company in violation of the New Note Indenture.
"Significant Stockholder" means, with respect to any person, any other
person who is the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of more than 10% of any class of equity securities of such person
that are entitled to vote on a regular basis for the election of directors of
such person.
"Significant Subsidiary" means each subsidiary of the Company that is
either (a) a "significant subsidiary" as defined in Rule 1-02(v) of Regulation
S-X under the Securities Act of 1933, as amended, and the Exchange Act (as such
regulation is in effect on the Issue Date) or (b) material to the financial
condition or results of operations of the Company and its Subsidiaries taken as
a whole.
"Stock Payment" means, with respect to any person, (a) the declaration or
payment by such person, either in cash or in property, of any dividend on
(except, in the case of the Company, dividends payable solely
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in Qualified Capital Stock of the Company), or the making by such person or any
of its subsidiaries of any other distribution in respect of, such person's
Qualified Capital Stock or any warrants, rights or options to purchase or
acquire shares of any class of such Capital Stock (other than exchangeable or
convertible Indebtedness of such person), or (b) the redemption, repurchase,
retirement or other acquisition for value by such person or any of its
subsidiaries, directly or indirectly, of such person's Qualified Capital Stock
(and, in the case of a Subsidiary, Qualified Capital Stock of the Company) or
any warrants, rights or options to purchase or acquire shares of any class of
such Capital Stock (other than exchangeable or convertible Indebtedness of such
person), other than, in the case of the Company, through the issuance in
exchange therefor solely of Qualified Capital Stock of the Company; provided,
however, that in the case of a Subsidiary, the term "Stock Payment" shall not
include any such payment with respect to its Capital Stock or warrants, rights
or options to purchase or acquire shares of any class of its Capital Stock that
are owned solely by the Company or a wholly-owned Subsidiary.
"Subordinated Indebtedness" means, with respect to the Company or any
Subsidiary Guarantor, Indebtedness of such person which is subordinated in right
of payment to the New Notes or the Guarantee of such Subsidiary Guarantor, as
the case may be.
"subsidiary" of any person means (i) a corporation a majority of whose
Capital Stock with voting power, under ordinary circumstances, to elect
directors is, at the date of determination, directly or indirectly, owned by
such person, by one or more subsidiaries of such person or by such person and
one or more subsidiaries of such person or (ii) a partnership in which such
person or a subsidiary of such person is, at the date of determination, a
general partner of such partnership, but only if such person or its subsidiary
is entitled to receive more than fifty percent of the assets of such partnership
upon its dissolution, or (iii) any other person (other than a corporation or a
partnership) in which such person, a subsidiary of such person or such person
and one or more subsidiaries of such person, directly or indirectly, at the date
of determination, has (x) at least a majority ownership interest or (y) the
power to elect or direct the election of a majority of the directors or other
governing body of such person.
"Subsidiary" means any subsidiary of the Company.
"Subsidiary Guarantor" means (i) each of Alpha Beta Company, Bay Area
Warehouse Stores, Inc., Bell Markets, Inc., Cala Co., Cala Foods, Inc., Falley's
Inc., Food 4 Less of California, Inc., Food 4 Less Merchandising, Inc., Food 4
Less GM, Inc. and Food 4 Less of Southern California, Inc., (ii) upon
consummation of the Merger, Crawford Stores, Inc., (iii) each of the Company's
Subsidiaries which becomes a guarantor of the New Notes in compliance with the
provisions set forth under "-- Certain Covenants -- Guarantees of Certain
Indebtedness," and (iv) each of the Company's Subsidiaries executing a
supplemental indenture in which such Subsidiary agrees to be bound by the terms
of the New Note Indenture.
"Term Loans" means the term loan facility under the Credit Agreement and
any agreement governing Indebtedness incurred to refund, replace or refinance
any borrowings outstanding under such facility or under any prior refunding,
replacement or refinancing thereof (in each case, in whole or in part, and
without limitation as to amount, terms, conditions, covenants and other
provisions).
"Yearly Period" means each fiscal year of the Company; provided that the
first Yearly Period shall begin on the Issue Date and shall end on January 28,
1996.
"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 Note Indenture.
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MARKET PRICES OF THE OLD RGC NOTES
In general, there has been limited trading of the Old RGC Notes and such
trading has taken place primarily in the over-the-counter market. Prices and
trading volumes of the Old RGC Notes in the over-the-counter market are not
reported and can be difficult to monitor. Quotations for securities that are not
widely traded, such as the Old RGC Notes, may differ from actual trading prices
and should be viewed as approximations. Holders of Old RGC Notes are urged to
contact their brokers with respect to current information regarding the Old RGC
Notes that they hold.
THE PROPOSED AMENDMENTS
The 10 1/4% Senior Subordinated Notes due 2002 of RGC were issued under an
indenture dated as of July 29, 1992 (the "Old RGC 10 1/4% Indenture") between
RGC and United States Trust Company of New York, as trustee (the "Old RGC Note
Trustee"). The 9% Senior Subordinated Notes due 2003 of RGC were issued under an
indenture dated as of March 30, 1993 between RGC and the Old RGC Note Trustee
(the "Old RGC 9% Indenture," and, together with the Old RGC 10 1/4% Indenture,
the "Old RGC Indentures"). The terms of the Old RGC 9% Indenture and the Old RGC
10 1/4% Indenture are substantially identical and are described in the
"Comparison of Old RGC Notes and New Notes" set forth in Appendix A hereto.
In connection with the consummation of the Merger, Food 4 Less is
soliciting Consents from the Old RGC Noteholders to the Proposed Amendments and
is making the Exchange Offers to (i) extend the maturities of the existing
long-term debt securities of RGC and Food 4 Less by exchanging such securities
for new longer-term securities and (ii) establish uniform covenants in the New
Notes and the New F4L Notes in order to simplify the capital structure of the
Company. The primary purpose of the Proposed Amendments is to permit the Merger
and to eliminate substantially all of the restrictive covenants in the Old RGC
Indentures. Upon receipt of the Requisite Consents, a supplemental indenture to
each of the Old RGC 9% Indenture and the Old RGC 10 1/4% Indenture will be
executed between RGC and the Old RGC Note Trustee (the "RGC Supplemental
Indentures"). Following the consummation of the Merger, the obligations of RGC
under the Old RGC Indentures and the RGC Supplemental Indenture will be assumed
by the Company. The Proposed Amendments would make the following changes to the
Old RGC Indentures:
1. Eliminate the covenant entitled "Limitation on Indebtedness".
2. Eliminate the covenant entitled "Limitation on Restricted Payments".
3. Eliminate the covenant entitled "Limitation on Transactions with
Affiliates".
4. Eliminate the covenant entitled "Limitation on Liens Securing
Subordinated Indebtedness".
5. Eliminate the covenant entitled "Restrictions on Preferred Stock of
Subsidiaries".
6. Eliminate the covenant entitled "Limitation on Dividends and Other
Payment Restrictions Affecting Subsidiaries".
7. Amend the provisions regarding when RGC may consolidate or merge, which
limits the ability of RGC to consolidate or merge with, or sell all or
substantially all of its assets to, any other person or entity unless certain
conditions are satisfied, to eliminate the subsection thereof which requires
that immediately after any such merger, consolidation or asset sale on a pro
forma basis RGC or the surviving entity, as the case may be, has a Consolidated
Interest Coverage Ratio (as defined) for its four most recently completed fiscal
quarters of at least 1.8 to 1.0.
8. The definitions relating solely to such eliminated covenants will be
eliminated.
The RGC Supplemental Indentures will provide that the New Credit Facility
constitutes a refinancing of the 1992 Credit Facility.
The remaining sections of the Old RGC Indentures will not be changed by the
Proposed Amendments.
Copies of the Old RGC Indentures and the form of the RGC Supplemental
Indentures are available from Food 4 Less upon request. For a description of the
covenants being amended or eliminated, see "Comparison of Old RGC Notes and New
Notes" set forth in Appendix A.
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THE F4L EXCHANGE OFFERS AND THE PUBLIC OFFERINGS
Concurrently with the Offers, Food 4 Less is (A) offering up to $200
million principal amount of New Notes pursuant to the Subordinated Note Public
Offering (which will be part of the same issue as the New Notes offered for
exchange pursuant to the Exchange Offers), (B) offering up to $295 million
principal amount of New F4L Senior Notes pursuant to the Senior Note Public
Offering, (C) offering to holders of its Old F4L Senior Notes and its Old F4L
Senior Subordinated Notes the opportunity to (i) exchange such Old F4L Senior
Notes for New F4L Senior Notes (which will be part of the same issue as the New
F4L Senior Notes issued pursuant to the Senior Note Public Offering) plus $5.00
in cash for each $1,000 principal amount of Old F4L Senior Notes exchanged and
(ii) exchange such Old F4L Senior Subordinated Notes for New F4L Senior
Subordinated Notes, plus $20.00 in cash for each $1,000 principal amount of Old
F4L Senior Subordinated Notes exchanged and (D) soliciting consents from holders
of the Old F4L Notes to certain amendments to the Old F4L Indentures. The
consummation of the Public Offerings, the F4L Exchange Offers and the Offers
will occur simultaneously. It is a condition to the consummation of the Public
Offerings that the Offers and the F4L Exchange Offers be successfully
consummated. See "-- The F4L Exchange Offers -- The New F4L Senior Notes" for a
description of the securities to be offered pursuant to the Senior Note Public
Offering and to tendering holders of Old F4L Senior Notes.
THE F4L EXCHANGE OFFERS
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 Offers and the Solicitation hereunder, the Public Offerings,
the Holdings Offer to Purchase and the New Discount Debenture Placement; and (v)
the prior or contemporaneous consummation of the Bank Financing and the New
Equity Investment.
Noteholders participating in the F4L Exchange Offers will be required to
consent to certain amendments to the indentures governing the Old F4L Notes.
Such proposed amendments will modify certain terms of such indentures to permit
the Merger and will eliminate substantially all of the restrictive covenants in
the Old F4L Indentures.
The Old F4L Senior Subordinated Notes. The Old F4L Senior Subordinated
Notes were issued in June 1991, are limited in aggregate principal amount to
$145 million and will mature on June 15, 2001. The Old F4L Senior Subordinated
Notes are unsecured general obligations of Food 4 Less, are subordinated to the
prior payment when due of all Senior Indebtedness (as defined in the indenture
(the "Old F4L Senior Subordinated Note Indenture") governing the Old F4L Senior
Subordinated Notes) and are guaranteed on a senior subordinated basis by Food 4
Less' wholly-owned subsidiaries.
The Old F4L Senior Subordinated Notes bear interest at a rate equal to
13.75% per annum and interest is payable semi-annually on June 15 and December
15 of each year. On or after June 15, 1996, the Old F4L Senior Subordinated
Notes may be redeemed in whole or from time to time in part, at the option of
Food 4 Less, at a redemption price equal to the applicable percentage of the
principal amount thereof set forth below,
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together with accrued interest to the redemption date, if redeemed during the 12
months commencing on June 15 in the years set forth below:
YEAR REDEMPTION PRICE
------ ----------------
1996................................. 106.111%
1997................................. 104.583%
1998................................. 103.056%
1999................................. 101.528%
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:
YEAR REDEMPTION PRICE
------ ----------------
1994................................. 109.167%
1995................................. 107.639%
Food 4 Less is required to make a mandatory sinking fund payment on June
15, 2000, sufficient to retire 50% of the Old F4L Senior Subordinated Notes, at
a redemption price equal to 100% of the principal amount thereof, together with
accrued interest to the redemption date. Food 4 Less may, at its option, receive
credit against such sinking fund payment for 100% of the principal amount of any
Old F4L Senior Subordinated Notes previously acquired by Food 4 Less in the open
market and surrendered to the Trustee under the Old F4L Senior Subordinated Note
Indenture for cancellation or redeemed at the option of Food 4 Less and which
were not previously used as a credit against any other required payment pursuant
to the Old F4L Senior Subordinated Note Indenture. Food 4 Less intends to credit
exchanges of Old F4L Senior Subordinated Notes accepted pursuant to the F4L
Exchange Offers against its sinking fund obligations.
The Old F4L Senior Subordinated Notes are subject to certain covenants as
provided in the Old F4L Senior Subordinated Note Indenture. These covenants
impose certain limitations on the ability of Food 4 Less to, among other things,
incur indebtedness, pay dividends or make certain other restricted payments,
enter into certain transactions with affiliates, merge or consolidate with any
other person, or sell, lease, transfer or otherwise dispose of substantially all
of the properties or assets of Food 4 Less. In addition, upon the occurrence of
a Change of Control, each holder has the right to require the repurchase of such
holder's Old F4L Senior Subordinated Notes at a purchase price equal to 101% of
the principal amount thereof plus accrued interest, if any, to the date of
purchase. The Old F4L Senior Subordinated Note Indenture also requires Food 4
Less to offer to repurchase a specified portion of the Old F4L Senior
Subordinated Notes if its net worth does not equal or exceed a specified minimum
net worth at the end of any two consecutive fiscal quarters.
Under the Old F4L Senior Subordinated Note Indenture, certain events
constitute an event of default, including (i) the failure to make any principal
and interest payment on the Old F4L Senior Subordinated Notes when due; (ii) the
failure to comply with any other agreement contained in the Old F4L Senior
Subordinated Note Indenture or the Old F4L Senior Subordinated Notes; (iii) a
default under certain indebtedness; (iv) certain final judgments or orders for
payments of money; and (v) certain events occurring under bankruptcy laws.
Upon the consummation of the F4L Exchange Offers, a supplemental indenture
to the Old F4L Senior Subordinated Note Indenture will become effective,
reflecting the proposed amendments to the Old F4L Senior Subordinated Note
Indenture. Such supplemental indenture will eliminate substantially all of the
restrictive covenants in the Old F4L Senior Subordinated Note Indenture,
including covenants with respect to maintenance of net worth, the limitation on
restricted payments, limitation on incurrences of additional
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indebtedness, limitation on liens, limitation on disposition of assets,
limitation on payment restrictions affecting subsidiaries, limitation on
transactions with affiliates, limitation on change of control and the covenant
requiring additional subsidiary guarantees under certain circumstances. In
addition, such supplemental indenture will modify the covenant which limits the
ability of Food 4 Less to consolidate or merge with, or sell all or
substantially all of its assets to, any other person or entity unless certain
conditions are satisfied by eliminating the subsections thereof which require
that immediately after giving effect to such transaction and the incurrence of
any indebtedness in connection therewith, Food 4 Less or the surviving entity,
as the case may be, has a Net Worth (as defined) or Operating Coverage Ratio (as
defined) that meets the standards set forth therein.
The New F4L Senior Subordinated Notes. The New F4L Senior Subordinated
Notes will be issued upon consummation of the F4L Exchange Offers to tendering
holders of Old F4L Senior Subordinated Notes.
The New F4L Senior Subordinated Notes will bear interest at a rate of
13.75% per annum and interest will be payable on each May 15 and November 15,
beginning November 15, 1995. The New F4L Senior Subordinated Notes will mature
on May 15, 2005. On or after June 15, 1996, the New F4L Senior Subordinated
Notes may be redeemed in whole at any time or in part from time to time, at the
option of the Company, at a redemption price equal to the applicable percentage
of the principal amount thereof set below, plus accrued and unpaid interest to
the redemption date, if redeemed during the 12 months commencing on June 15 of
the years set forth below:
YEAR REDEMPTION PRICE
------------------------------------- ----------------
1996................................. 106.111%
1997................................. 104.583%
1998................................. 103.056%
1999................................. 101.528%
and thereafter at 100% of the principal amount thereof, plus accrued and unpaid
interest to the redemption date.
Upon a Change of Control (as defined), each holder of the New F4L Senior
Subordinated Notes has the right to require the Company to repurchase such
holder's New F4L Senior Subordinated Notes at a price equal to 101% of their
principal amount, plus accrued interest, if any, to the date of repurchase.
The aggregate principal amount of Old F4L Senior Subordinated Notes and New
F4L Senior Subordinated Notes will be limited to $145 million at any one time
outstanding. The covenants in the indenture governing the New F4L Senior
Subordinated Notes will be substantially similar to the covenants in the New
Notes Indenture.
The Old F4L Senior Notes. The Old F4L Senior Notes were issued in April
1992, are limited in aggregate principal amount to $175 million and will mature
on April 15, 2000. The Old F4L Senior Notes are unsecured general obligations of
Food 4 Less and are guaranteed on a senior basis by Food 4 Less' wholly-owned
subsidiaries.
The Old F4L Senior Notes bear interest at a rate equal to 10.45% per annum
and interest is payable semi-annually on April 15 and October 15 of each year.
The Old F4L Senior Notes are redeemable, at the option of Food 4 Less, in whole
at any time or in part from time to time, on and after April 15, 1996 at the
following redemption prices (expressed as percentages of the principal amount)
if redeemed during the twelve-month period commencing on April 15 of the year
set forth below, plus, in each case, accrued and unpaid interest to the date of
redemption:
YEAR REDEMPTION PRICE
------------------------------------- ----------------
1996................................. 104.48%
1997................................. 102.99%
1998................................. 101.49%
1999 and thereafter.................. 100.00%
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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 will be issued upon
consummation of the F4L Exchange Offers to tendering holders of Old F4L Senior
Notes and will be part of the same issue as the New F4L Senior Notes issued
pursuant to the Senior Note Public Offering.
The New F4L Senior Notes will bear interest at a fixed rate per annum equal
to the greater of (a) 10.45% and (b) the F4L Applicable Treasury Rate (as
defined) plus 350 basis points (3.50 percentage points); provided, however, that
in any event the New F4L Senior Notes will bear interest at a rate per annum no
less than the rate on the New F4L Senior Notes offered in the Senior Note Public
Offering. The "F4L Applicable Treasury Rate" means the yield to maturity at the
time of computation of United States Treasury securities with a constant
maturity (as compiled by, and published in, the most recent Federal Reserve
Statistical Release H.15 (519)) most nearly equal to the average life to stated
maturity of the New F4L Senior Notes; provided that if the average life to
stated maturity of the New F4L Senior Notes is not equal to the constant
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maturity of the United States Treasury security for which a weekly average yield
is given, the F4L Applicable Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of the year) from the
weekly average yields of the United States Treasury securities for which such
yields are given. Interest will be payable on the New F4L Senior Notes on each
May 15 and November 15, beginning November 15, 1995. The New F4L Senior Notes
will mature on May 15, 2004. On or after May 15, 2000, the New F4L Senior Notes
may be redeemed in whole at any time or in part from time to time, at the option
of the Company, at a redemption price equal to the applicable percentage of the
principal amount thereof set forth below, plus accrued and unpaid interest to
the redemption date, if redeemed during the 12 months commencing on May 15 of
the years set forth below:
YEAR REDEMPTION PRICE
------------------------------------- ----------------
2000................................. 103.9188%
2001................................. 102.6125%
2002................................. 101.3063%
2003 and thereafter.................. 100.0000%
In the event that the interest rate on the New F4L Senior Notes is greater than
10.45%, the above redemption prices will be correspondingly adjusted.
In addition, on or prior to May 15, 1998, the Company may, at its option,
use the net cash proceeds of one or more Public Equity Offerings to redeem up to
an aggregate of 35% of the New F4L Senior Notes originally issued, at a
redemption price equal to 110.45% of the principal amount thereof if redeemed
during the 12 months commencing on May 15, 1995, 109.1438% of the principal
amount thereof if redeemed during the 12 months commencing on May 15, 1996 and
107.8375% of the principal amount thereof if redeemed during the 12 months
commencing on May 15, 1997, in each case plus accrued and unpaid interest to the
redemption date. In the event that the interest rate on the New F4L Senior Notes
is greater than 10.45%, the above redemption prices will be correspondingly
adjusted. In order to effect the foregoing redemption with the proceeds of a
Public Equity Offering, the Company shall send the redemption notice not later
than 60 days after the consummation of such Public Equity Offering.
Upon a Change of Control (as defined), each holder of the New F4L Senior
Notes has the right to require the Company to repurchase such holder's New F4L
Senior Notes at a price equal to 101% of their principal amount, plus accrued
interest, if any, to the date of repurchase.
The aggregate principal amount of Old F4L Senior Notes and New F4L Senior
Notes will be limited to $470 million at any one time outstanding.
THE PUBLIC OFFERINGS
Concurrently with the Offers, Food 4 Less is (i) offering up to $295
million principal amount of New F4L Senior Notes pursuant to the Senior Note
Public Offering and (ii) offering up to $200 million principal amount of New
Notes pursuant to the Subordinated Note Public Offering. The New F4L Senior
Notes offered pursuant to the Senior Note Public Offering will be part of the
same issue as the New F4L Senior Notes offered for exchange pursuant to the F4L
Exchange Offers and the New Notes offered pursuant to the Subordinated Note
Public Offering will be part of the same issue as the New Notes offered for
exchange pursuant to the Offers. Food 4 Less does not expect to commence the
Public Offerings until such time as the Minimum Exchange has been satisfied and
Requisite Consents have been received. The consummation of the Public Offerings,
the Offers, the F4L Exchange Offers and the Holdings Offer to Purchase will
occur simultaneously. It is a condition to the consummation of the Public
Offerings that the F4L Exchange Offers and the Offers be successfully
consummated. See "The Merger and the Financing -- Sources and Uses."
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DESCRIPTION OF THE NEW CREDIT FACILITY
In connection with the Merger, Food 4 Less will enter into the New Credit
Facility with a syndicate of financial institutions for whom Bankers Trust will
act as agent. All of Food 4 Less' obligations under the New Credit Facility will
be assumed by the Company immediately following the Merger. Food 4 Less has
accepted a commitment letter (the "Commitment Letter") from Bankers Trust
pursuant to which Bankers Trust has agreed, subject to certain conditions, to
provide the Company up to a maximum aggregate amount of $1,075 million of
financing under the New Credit Facility. The following is a summary of the
anticipated material terms and conditions of the New Credit Facility. This
summary does not purport to be a complete description of the New Credit Facility
and is subject to the detailed provisions of the loan agreement (the "Loan
Agreement") and various related documents to be entered into in connection with
the New Credit Facility. A draft copy of the Loan Agreement will be available
upon request from Food 4 Less.
GENERAL
The New Credit Facility will provide for (i) term loans in the aggregate
amount of $750 million, comprised of the $375 million Tranche A Loan, the $125
million Tranche B Loan, the $125 million Tranche C Loan, and the $125 million
Tranche D Loan; and (ii) the $325 million New Revolving Facility under which
working capital loans may be made and commercial or standby letters of credit in
the maximum aggregate amount of up to $150 million may be issued, under which
approximately $92.6 million of letters of credit are expected to be issued upon
the closing of the Merger. The Tranche A Loan may not be fully funded at the
Closing Date. The New Credit Facility will provide that the portion of the
Tranche A Loan not funded at the Closing Date in an amount not to exceed $225
million will be available for a period of 91 days following the Closing Date to
finance the Change of Control Offer. In addition, if the total principal amount
of the Old RGC Notes exchanged for New Notes exceeds $225 million the Commitment
Letter requires that there be a reduction, in an amount equal to such excess, in
one or any combination of (i) the principal amount of proceeds from the Senior
Note Public Offering, (ii) the principal amount of proceeds from the
Subordinated Note Public Offering or (iii) the principal amount available under
the Tranche A Loan.
Proceeds of the New Term Loans and loans under the Revolving Credit
Facility on the Closing Date, together with proceeds from the New Discount
Debenture Placement, the New Equity Investment and the Public Offering, will be
used to fund the cash requirements for the acquisition of RSI, refinance
existing bank indebtedness of Ralphs and Food 4 Less, purchase 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
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credit and each commercial letter of credit and will pay the lenders under the
New Credit Facility a fee equal to the margin on Eurodollar Rate loans under the
Revolving Credit Facility (the "Eurodollar Margin") for standby letters of
credit and a fee equal to the Eurodollar Margin minus 1% for commercial letters
of credit. Each of these fees will be calculated based on the amount available
to be drawn under a letter of credit. In addition, the Company will pay a
commitment fee of 0.50% per annum on the undrawn amount of the Tranche A Loans
from the closing of the Merger until the drawing or termination thereof and on
the unused portions of the New Revolving Facility and for purposes of
calculating this fee, loans under the swingline facility shall not be deemed to
be outstanding. The New Credit Facility will require the Company to enter into
hedging agreements to limit its exposure to increases in interest rates for a
period of not less than two years. The New Credit Facility may be prepaid in
whole or in part without premium or penalty.
AMORTIZATION; PREPAYMENTS
The Tranche A Loan will mature six years after the closing of the Merger
and will be subject to amortization, commencing in the fifteenth month after the
closing of the Merger on a quarterly basis in aggregate annual amounts of $45
million in the second year, $75 million in the third year, $80 million in the
fourth year, $85 million in the fifth year, and $90 million in the sixth year.
The Tranche B Loan will mature seven years after the closing of the Merger and
will be subject to amortization on a quarterly basis in aggregate annual amounts
of $1.25 million for the first six years and $117.5 million in the seventh year.
The Tranche C Loan will mature eight years after the closing of the Merger and
will be subject to amortization on a quarterly basis in aggregate annual amounts
of $1.25 million for the first seven years and $116.25 million in the eighth
year. The Tranche D Loan will mature nine years after the closing of the Merger
and will be subject to amortization on a quarterly basis in aggregate annual
amounts of $1.25 million for the first eight years and $115 million in the ninth
year. The New Revolving Facility will mature on the same date as the Tranche A
Loan. The Company will be required to reduce loans outstanding under the New
Revolving Facility to $75 million or less 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 indebted-
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ness and other obligations, (ii) a merger or acquisition, (iii) asset sales,
(iv) the granting of liens, (v) prepayment or repurchase of other indebtedness,
(vi) engaging in transactions with affiliates, or (vii) cash capital
expenditures. Certain of these covenants may be more restrictive than those in
favor of holders of the New Notes as described herein and as set forth in the
New Note Indenture. In addition, the New Credit Facility will require that the
Company maintain certain specified financial covenants, including a minimum
fixed charge coverage, a minimum EBITDA, a maximum ratio of total debt to EBITDA
and a minimum net worth.
EVENTS OF DEFAULT
The New Credit Facility also provides for customary events of default. The
occurrence of any of such events of default could result in acceleration of the
Company's obligations under the New Credit Facility and foreclosure on the
collateral securing such obligations, which could have material adverse results
to holders of the New Notes.
DESCRIPTION OF HOLDING COMPANY INDEBTEDNESS
THE NEW DISCOUNT DEBENTURES
The New Discount Debentures will be issued in the New Discount Debenture
Placement upon consummation of the Merger. The New Discount Debentures will be
issued in an aggregate principal amount of $193,295,080 at maturity and will
mature on June 15, 2005. The New Discount Debentures will be senior unsecured
obligations of New Holdings and will be senior in right of payment to all
subordinated indebtedness of New Holdings, including indebtedness under the
Seller Debentures. Until May 15, 2000, no interest will accrue on the New
Discount Debentures, but the Accreted Value (as defined in the indenture
governing the New Discount Debentures (the "New Debenture Indenture")) will
accrete at a rate of 13 5/8% (representing the amortization of the original
issue discount) from the date of original issuance until May 15, 2000, on a
semi-annual bond equivalent basis using a 360 day year comprised of twelve
30-day months, such that the Accreted Value shall be equal to the full principal
amount of the New Discount Debentures on May 15, 2000. The initial Accreted
Value per $1,000 principal amount of New Discount Debentures will be $517.33
(representing the original purchase price). Beginning on May 15, 2000, cash
interest on the New Discount Debentures will accrue at a rate of 13 5/8% per
annum and will be payable semi-annually in arrears on each May 15 and November
15 of each year, commencing November 15, 2000, to the holders of record on the
immediately preceding May 1 and November 1.
On or after May 15, 2000, the New Discount Debentures may be redeemed, at
the option of New Holdings, in whole at any time or in part from time to time,
at a redemption price equal to the applicable percentage of the principal amount
thereof set forth below, plus accrued and unpaid interest, to the redemption
date, if redeemed during the twelve-month period commencing on May 15 in the
years set forth below:
YEAR REDEMPTION PRICE
------------------------------------------ ----------------
2000...................................... 106.8125%
2001...................................... 105.1094%
2002...................................... 103.4063%
2003...................................... 101.7031%
2004 and thereafter....................... 100.0000%
Notwithstanding the foregoing, prior to May 15, 1998, New Holdings may use
the net proceeds of an Initial Public Offering (as defined in the New Debenture
Indenture) of New Holdings or the Company (or of FFL under certain
circumstances) to redeem up to 35% of the New Discount Debentures at a
redemption price equal to 110% of the Accreted Value thereof on the date of
redemption.
In the event of a Change of Control (as defined in the New Debenture
Indenture), each holder has the right to require the repurchase of such holder's
New Discount Debentures at a purchase price equal to 101% of
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150
the Accreted Value thereof on the Change of Control Payment Date (as defined in
the New Debenture Indenture) (if such date is prior to May 15, 2000) or 101% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
Change of Control Payment Date (if such date is on or after May 15, 2000).
The New Debenture Indenture will contain covenants that, among other
things, limit the ability of New Holdings to enter into certain mergers or
consolidations or incur certain liens or of New Holdings or its subsidiaries to
incur additional indebtedness, pay dividends or make certain other Restricted
Payments (as defined in the New Debenture Indenture), or engage in certain
transactions with affiliates. Under certain circumstances, New Holdings will be
required to make an offer to purchase New Discount Debentures at a price equal
to 100% of the Accreted Value thereof on the date of purchase, if such date is
prior to May 15, 2000 or 100% of the principal amount thereof, plus accrued
interest to the date of purchase, if such date is on or after May 15, 2000, with
the proceeds of certain Asset Sales (as defined in the New Debenture Indenture).
The New Debenture Indenture will contain certain customary events of defaults,
which will include the failure to pay interest and principal, the failure to
comply with certain covenants in the New Discount Debentures or the New
Debenture Indenture, a default under certain indebtedness, the imposition of
certain final judgments or warrants of attachment and certain events occurring
under bankruptcy laws.
Pursuant to the terms of a registration rights agreement to be entered into
by New Holdings, New Holdings is obligated to file a shelf registration
statement with the Commission with respect to the New Discount Debentures, to
have such shelf registration statement declared effective prior to or at the
closing of the Merger, to use its best efforts to cause such shelf registration
statement to remain effective for up to three years, and to pay the expenses
related thereto, including underwriting discounts and brokers' or dealers'
commissions and markups (subject to certain limitations). If New Holdings fails
to comply with its obligations to keep such shelf registration statement
effective, New Holdings will be obligated to pay certain liquidated damages.
Under the registration rights agreement, the holder of the New Discount
Debentures will be entitled to commence resales of the New Discount Debentures
60 days following closing of the Merger. New Holdings believes that the holders
of the New Discount Debentures actively would seek to dispose of its entire
interest in the New Discount Debentures promptly upon expiration of the 60 day
holdback period following closing of the Merger.
THE SELLER DEBENTURES
The Seller Debentures will be issued to the stockholders of RSI upon
consummation of the Merger. The Seller Debentures will be issued in an aggregate
principal amount of $131.5 million and will mature on May 15, 2007. The Seller
Debentures will be general unsecured obligations of New Holdings and will be
subordinated to the prior payment when due of all Senior Indebtedness (as
defined in the indenture governing the Seller Debentures (the "Debenture
Indenture")), including Indebtedness under the New Discount Debentures and any
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.
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On or after May 15, 2000, the Seller Debentures may be redeemed, at the
option of New Holdings, in whole at any time or in part from time to time, at a
redemption price equal to the applicable percentage of the principal amount
thereof set forth below, plus accrued and unpaid interest, if any, to the
redemption date, if redeemed during the twelve-month period commencing on May 15
in the years set forth below:
YEAR REDEMPTION PRICE
------------------------------------- ----------------
2000................................. 106.8125%
2001................................. 105.1094%
2002................................. 103.4063%
2003................................. 101.7031%
2004 and thereafter.................. 100.0000%
Notwithstanding the foregoing, prior to May 15, 1998, New Holdings may use
the net proceeds of an Initial Public Offering (as defined in the Debenture
Indenture) of New Holdings or Food 4 Less to redeem up to 35% of the Seller
Debentures at a redemption price equal to 110% of the 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 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 principal amount thereof, plus accrued and unpaid interest, if any, to
the repurchase date with the proceeds of certain Asset Sales (as defined in the
Debenture Indenture). The Debenture Indenture will contain certain customary
events of default, which will include the failure to pay interest and principal,
the failure to comply with certain covenants in the Seller Debentures or the
Debenture Indenture, a default under certain indebtedness, the imposition of
certain final judgments or warrants of attachment and certain events occurring
under bankruptcy laws.
Pursuant to the terms of the Merger Agreement and a registration rights
agreement to be executed concurrently with the closing of the Merger, New
Holdings is obligated to file a shelf registration statement with the Commission
with respect to the Seller Debentures, use its best efforts to cause such shelf
registration statement to become effective and remain effective for up to three
years, and pay the expenses related thereto. The effectiveness of such shelf
registration statement is a condition to the consummation of the Merger. If New
Holdings fails to comply with its obligations to keep such shelf registration
statement effective, Holdings will be obligated to pay certain liquidated
damages.
THE DISCOUNT NOTES
Concurrently with the 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 May 1, 1995 had
an accreted value of $680.26 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
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successful completion of the Public Offerings, 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 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:
YEAR REDEMPTION PRICE
------------------------------------- ----------------
1997................................. 107.630%
1998................................. 106.100%
1999................................. 104.575%
2000................................. 103.050%
2001................................. 101.525%
2002 and thereafter.................. 100.000%
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:
YEAR REDEMPTION PRICE
------------------------------------- ----------------
1992................................. 120.000%
1993................................. 117.525%
1994................................. 115.050%
1995................................. 112.575%
1996................................. 110.100%
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.
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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.
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.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
Latham & Watkins, counsel to Food 4 Less ("Counsel"), has advised Food 4
Less that the following discussion expresses their opinion as to the material
federal income tax consequences expected to result from the Offers and the
Solicitation. Such opinion is based on current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury Regulations,
judicial authority and current administrative rulings and pronouncements of the
Internal Revenue Service (the "Service"), any of which may be altered with
retroactive effect, thereby changing the federal income tax consequences
discussed below. There can be no assurance that the Service will not take a
contrary view, and no ruling from the Service has been or will be sought.
The tax treatment of a holder of Old RGC Notes or New Notes may vary
depending upon such holder's particular situation. Certain holders (including
insurance companies, tax-exempt organizations, financial institutions,
broker-dealers, foreign corporations and persons who are not citizens or
residents of the United States) may be subject to special rules not discussed
below. This discussion is limited to those who have held the Old RGC Notes as
"capital assets" and who will hold the New Notes as "capital assets" (generally,
property held for investment) within the meaning of Section 1221 of the Code.
EACH HOLDER SHOULD CONSULT HIS OR HER TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES OF EXCHANGING, HOLDING AND DISPOSING OF THE OLD RGC NOTES AND NEW
NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX
LAWS.
EXCHANGES OF OLD RGC NOTES FOR NEW NOTES, THE EXCHANGE PAYMENT AND/OR CASH
CONSIDERATION
GENERAL
Whether the exchange of Old RGC Notes for New Notes and the Exchange
Payment pursuant to the Offers (or New Notes, the Exchange Payment and Cash
Consideration pursuant to a combination of both of the Offers) will be a
recapitalization under the Code will depend in part upon whether the Old RGC
Notes and New Notes are considered to be "securities" within the meaning of the
provisions of the Code governing reorganizations. The test as to whether a debt
instrument is a "security" involves an overall evaluation of the nature of the
debt instrument, with the term of the debt instrument usually regarded as a
significant factor.
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Generally, a debt instrument with a term of ten years or more is considered to
constitute a security for purposes of the reorganization provisions of the Code.
Although the treatment of Old RGC 10 1/4% Notes is not entirely certain
because the stated term of such instruments is less than ten years, the Old RGC
10 1/4% Notes should, and the Old RGC 9% Notes and New Notes will, be treated as
"securities" for federal income tax purposes. As a result, an exchange of Old
RGC Notes for New Notes and the Exchange Payment pursuant to the Offers should
constitute a recapitalization for federal income tax purposes. Thus, exchanging
holders of Old RGC Notes for New Notes and the Exchange Payment should recognize
gain, but not loss, equal to the lesser of (i) the amount of the Exchange
Payment received (other than that portion, if any, attributable to accrued but
unpaid interest on the Old RGC Notes) or (ii) the excess of the sum of the issue
price of the New Notes (or possibly their fair market value, for cash method
holders) and the amount of the Exchange Payment received over the holders'
adjusted tax basis in the Old RGC Notes surrendered therefor. Such gain will be
long-term capital gain if the Old RGC Notes had been held for more than one
year. A holder's initial tax basis in the New Notes received will equal such
holder's adjusted tax basis in the Old RGC Notes exchanged therefor, increased
by any gain recognized as a result of the exchange and decreased by the amount
of the Exchange Payment received.
An exchange of Old RGC Notes for New Notes, the Exchange Payment and Cash
Consideration pursuant to the Offers should also constitute a recapitalization
for federal income tax purposes. As a result, exchanging holders of Old RGC
Notes who receive New Notes, the Exchange Payment and Cash Consideration should
recognize gain, but not loss, equal to the lesser of (i) the amount of the
Exchange Payment and Cash Consideration received (other than that portion, if
any, attributable to accrued but unpaid interest on the Old RGC Notes) or (ii)
the excess of the sum of the issue price of the New Notes (or possibly their
fair market value, for cash method holders) and the amount of the Exchange
Payment and Cash Consideration (other than that portion, if any, attributable to
accrued but unpaid interest on the Old RGC Notes) received over the holders'
adjusted tax basis in the Old RGC Notes surrendered therefor. Such gain will be
long-term capital gain if the Old RGC Notes had been held for more than one
year. A holder's initial tax basis in the New Notes received in such exchange
will equal such holder's adjusted tax basis in the Old RGC Notes exchanged
therefor, increased by any gain recognized as a result of the exchange and
decreased by the amount of the Exchange Payment and Cash Consideration received.
A holder whose Old RGC Notes are purchased for Cash Consideration pursuant
to the Offers (and who does not receive any New Notes) will recognize gain or
loss equal to the difference between (i) the amount of Cash Consideration
received and (ii) the holder's adjusted tax basis in the Old RGC Notes
purchased. Such gain or loss should be long-term capital gain or loss if the Old
RGC Notes had been held for more than one year.
Because the law is unclear, however, Counsel is unable to opine on whether
the Old RGC 10 1/4% Notes will be treated as "securities" for federal income tax
purposes. If the Old RGC 10 1/4% Notes were determined not to constitute
"securities" for federal income tax purposes, holders exchanging Old RGC 10 1/4%
Notes for New Notes and the Exchange Payment pursuant to the Offers (or New
Notes, the Exchange Payment and Cash Consideration pursuant to a combination of
both of the Offers) would recognize gain or loss equal to the difference between
the sum of the issue price of the New Notes (or possibly their fair market value
for cash method holders) and the amount of cash received (other than that
portion, if any, attributable to accrued but unpaid interest on the Old RGC
10 1/4 Notes) and the holders' adjusted tax basis in the Old RGC 10 1/4% Notes
surrendered therefor. Such gain or loss would generally be long-term capital
gain or loss, provided the Old RGC 10 1/4% Notes had been held for more than one
year. It should be noted that restrictions apply to the deduction of net capital
losses. Noncorporate taxpayers may deduct no more than $3,000 of capital losses
from ordinary income and corporations may deduct capital losses only from
capital gains.
ACCRUED INTEREST
Under the terms of the Offers, accrued interest on tendered Old RGC Notes
up to, but not including, the date on which such Old RGC Notes are accepted for
exchange or purchase will be paid in cash promptly after consummation of the
Offers and will be taxable as ordinary income.
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CONSEQUENCES TO HOLDERS OF OLD RGC NOTES NOT PARTICIPATING IN THE OFFERS
Although not free from doubt, holders of Old RGC Notes who do not
participate in the Offers should not recognize any income, gain or loss for
federal income tax purposes as a result of the Proposed Amendments. Because the
law is unclear, however, Counsel is unable to opine on whether holders of Old
RGC Notes who do not participate in the Offers will recognize any such income,
gain or loss. The Service could assert that, due to the modifications to certain
covenants regarding the Old RGC Notes, such non-participating holders should be
treated as having exchanged their Old RGC Notes for modified Old RGC Notes
("Modified Old RGC Notes"). The deemed exchange should, however, constitute a
recapitalization and non-participating holders would not recognize any gain or
loss as a result of such deemed exchange. Modified Old RGC Notes may, however,
contain original issue discount (see "-- New Notes -- Original Issue Discount").
NEW NOTES
STATED INTEREST
Holders of New Notes will be required to include stated interest in gross
income in accordance with their methods of accounting for tax purposes.
ORIGINAL ISSUE DISCOUNT
General Original Issue Discount Rules. The amount of original issue
discount, if any, on a debt instrument is the excess of its "stated redemption
price at maturity" over its "issue price," subject to a statutorily-defined de
minimis exception. The "issue price" of a debt instrument that is part of an
issue of debt instruments a substantial amount of which is issued for money
(such as the New Notes) will be equal to the first price at which a substantial
amount of such debt instruments is sold for money. The "stated redemption price
at maturity" of a debt instrument is the sum of its principal amount plus all
other payments required thereunder, other than payments of "qualified stated
interest" (defined generally as stated interest that is unconditionally payable
in cash or in property (other than debt instruments of the issuer) at least
annually at a single fixed rate that appropriately takes into account the length
of intervals between payments).
In general, a holder of a debt instrument with original issue discount must
include in gross income for federal income tax purposes the sum of the daily
portions of original issue discount with respect to such debt instrument for
each day during the taxable year or portion of a taxable year on which such
holder holds the debt instrument. The daily portion is determined by allocating
to each day of any accrual period (generally, a six month period or a shorter or
longer period from the date of original issuance) a pro rata portion of an
amount equal to the "adjusted issue price" of the debt instrument at the
beginning of the accrual period multiplied by the yield to maturity of the debt
instrument. The "adjusted issue price" is the issue price of the debt instrument
increased by the accrued original issue discount for all prior accrual periods
(and decreased by the amount of cash payments made in all prior accrual periods,
other than qualified stated interest payments). The tax basis of the debt
instrument in the hands of the holder will be increased by the amount of
original issue discount, if any, on the debt instrument that is included in the
holder's gross income and will be decreased by the amount of any cash payments
(other than qualified stated interest payments) received with respect to the
debt instrument, whether such payments are denominated as principal or interest.
Sections 1272 and 1273 of the Code and the Treasury regulations thereunder
provide detailed rules for computing original issue discount.
Notwithstanding the original issue discount rules described in the
preceding paragraphs, a holder of a debt instrument would not be required to
include original issue discount in income if such holder's tax basis in the debt
instrument were to exceed the debt instrument's stated principal amount. In
addition, a holder would be permitted to offset any original issue discount
income by an amount equal to the excess of such holder's tax basis (if less than
or equal to the stated principal amount) over the adjusted issue price of the
debt instrument.
New Notes. Because the New Notes will be part of an issue a substantial
amount of which will be sold in the Subordinated Note Public Offering for money,
the issue price of the New Notes received by holders in exchange for their Old
RGC Notes should be equal to the first price at which a substantial amount of
the New
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Notes is sold pursuant to the Subordinated Note Public Offering. The stated
redemption price at maturity of the New Notes will be equal to their stated
principal amount (in that all interest will be paid on a current basis in cash
and will constitute qualified stated interest). As a result, the New Notes will
not be issued with original issue discount unless the first price at which the
New Notes are sold pursuant to the Subordinated Note Public Offering is less
than the stated principal amount of the New Notes by more than the de minimis
amount.
MARKET DISCOUNT
The Code generally requires holders of "market discount bonds" to treat as
ordinary income any gain realized on the disposition (or gift) of such bonds to
the extent of the market discount accrued during the holder's period of
ownership. A "market discount bond" is a debt obligation purchased at a market
discount subject to a statutory de minimis exception. For this purpose, a
purchase at a market discount includes a purchase at or after the original issue
at a price below the stated redemption price at maturity, or, in the case of a
debt instrument issued with original issue discount, at a price below (a) its
"issue price," plus (b) the amount of original issue discount includible in
income by all prior holders of the debt instrument, minus (c) all cash payments
(other than payments constituting qualified stated interest) received by such
previous holders. The accrued market discount generally equals a ratable portion
of the bond's market discount, based on the number of days the taxpayer has held
the bond at the time of such disposition, as a percentage of the number of days
from the date the taxpayer acquired the bond to its date of maturity.
An exception is made for certain tax-free (and partially tax-free)
exchanges, such as the exchange of Old RGC Notes for New Notes and the Exchange
Payment (and, if applicable, Cash Consideration). In such cases, however, on a
subsequent disposition of the stock or securities received in such a
non-recognition transaction, gain is treated as ordinary income to the extent of
the market discount accrued prior to the nontaxable exchange. In that regard,
the New Notes received by a holder of Old RGC Notes will contain accrued market
discount to the extent of the market discount accrued in the Old RGC Notes but
not recognized at the time of the exchange.
AMORTIZABLE BOND PREMIUM
Generally, if the tax basis of an obligation held as a capital asset
exceeds the amount payable at maturity of the obligation, such excess will
constitute amortizable bond premium that the holder may elect to amortize under
the constant interest rate method and deduct over the period from his
acquisition date to the obligation's maturity date. A holder who elects to
amortize bond premium must reduce his tax basis in the related obligation by the
amount of the aggregate deductions allowable for amortizable bond premium.
Amortizable bond premium will be treated under the Code as an offset to interest
income on the related debt instrument for federal income tax purposes, subject
to the promulgation of Treasury regulations altering such treatment.
DISPOSITION
In general, a holder of New Notes will recognize gain or loss upon the
sale, exchange, redemption or other taxable disposition of such New Notes
measured by the difference between (i) the amount of cash and the fair market
value of property received (except to the extent attributable to accrued
interest on the New Notes) and (ii) the holder's tax basis in the New Notes (as
increased by any original issue discount and market discount previously included
in income by the holder and decreased by any amortizable bond premium, if any,
deducted over the term of the New Notes). Subject to the market discount rules
discussed above, any such gain or loss will generally be long-term capital gain
or loss, provided the New Notes had been held for more than one year.
ELECTION
A holder of New Notes, subject to certain limitations, may elect to include
all interest and discount, if any, on the New Notes in gross income under the
constant yield method. For this purpose, interest includes stated and unstated
interest, acquisition discount, original issue discount, de minimis market
discount and
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market discount, as adjusted by any acquisition premium. Such election, if made
in respect of a market discount bond, will constitute an election to include
market discount in income currently on all market discount bonds acquired by
such holder on or after the first day of the first taxable year to which the
election applies. See "-- Market Discount."
BACKUP WITHHOLDING
A holder of New Notes may be subject to backup withholding at the rate of
31% with respect to interest paid on and gross proceeds of a sale of the New
Notes unless (i) such holder is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact or (ii) provides a
correct taxpayer identification number, certifies as to no loss of exemption
from backup withholding and otherwise complies with applicable requirements of
the backup withholding rules. A holder of New Notes who does not provide the
Company with his or her correct taxpayer identification number may be subject to
penalties imposed by the Service.
The Company will report to the holders of the New Notes and the Service the
amount of any "reportable payments" (including any interest paid on the New
Notes) and any amount withheld with respect to the New Notes during the calendar
year.
TAX CONSEQUENCES TO THE COMPANY
OFFERS AND SOLICITATION
In general, the consummation of the Offers and the Solicitation will result
in no material federal income tax consequences to the Company, except that the
Company will recognize cancellation of indebtedness income to the extent that
the adjusted issue price of the Old RGC Notes surrendered by holders exceeds the
sum of (i) the issue price of the New Notes (as described above under "New
Notes -- Original Issue Discount") and (ii) the amount of the Exchange Payments
and Cash Consideration delivered to holders in exchange therefor. The Company
does not expect to recognize any cancellation of indebtedness income as a result
of the consummation of the Offers and the Solicitation, although no assurance
can be given in this regard due to the uncertainty regarding the issue price of
the New Notes. See "New Notes -- Original Issue Discount."
NET OPERATING LOSS CARRYFORWARDS
Under Section 382 of the Code, if a corporation with net operating losses
(a "loss corporation") undergoes an "ownership change," the use of such net
operating losses will be limited annually to the product of the long-term
tax-exempt rate (published monthly by the Service) and the value of the loss
corporation's outstanding stock immediately before the ownership change
(excluding certain capital contributions) (the "Section 382 Limitation"). In
general, an "ownership change" occurs if the percentage of the value of the loss
corporation's stock owned by one or more direct or indirect "five percent
shareholders" has increased by more than 50 percentage points over the lowest
percentage of that value owned by such five percent shareholder or shareholders
at any time during the applicable "testing period" (generally the shorter of (i)
the three-year period preceding the testing date or (ii) the period of time
since the most recent ownership change of the corporation).
Both FFL and RSI have significant net operating loss carryforwards for
regular federal income tax purposes. The New Equity Investment and Merger will
trigger ownership changes for both the FFL and RSI affiliated groups for
purposes of Section 382 of the Code. As a result, the use of the FFL and RSI
pre-ownership change net operating loss carryforwards will be limited annually
by the Section 382 Limitation. The annual Section 382 Limitation that will be
applicable to the FFL net operating loss carryforwards is estimated to be
approximately $15.6 million, and the annual Section 382 Limitation that will be
applicable to the RSI net operating loss carryforwards is estimated to be
approximately $15 million.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO A PARTICULAR HOLDER OF OLD RGC NOTES AND
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NEW NOTES IN LIGHT OF HIS OR HER PARTICULAR CIRCUMSTANCES AND INCOME TAX
SITUATION. EACH HOLDER OF OLD RGC NOTES AND NEW NOTES SHOULD CONSULT HIS OR HER
TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE OFFERS AND
THE SOLICITATION, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS.
LEGAL MATTERS
The validity of the New Notes to be issued in connection with the Offers
and the Solicitation will be passed upon for Food 4 Less by Latham & Watkins,
Los Angeles, California. Certain legal matters in connection with the Offers and
the Solicitation will be passed upon for the Dealer Managers by Cahill Gordon &
Reindel (a partnership including a professional corporation), New York, New
York.
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 Amended and Restated Prospectus and Solicitation Statement
in reliance upon the report of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
The consolidated balance sheets of Food 4 Less Supermarkets, Inc. and
subsidiaries as of June 26, 1993 and June 25, 1994 and the related consolidated
statements of operations, cash flows and stockholders' equity of Food 4 Less
Supermarkets, Inc. for the 52 weeks ended June 27, 1992, the 52 weeks ended June
26, 1993 and the 52 weeks ended June 25, 1994, and the related financial
statement schedules included in this Amended and Restated Prospectus and
Solicitation Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
147
159
INDEX TO FINANCIAL STATEMENTS
PAGE
-----
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 SUPERMARKETS, INC.:
Report of Independent Public Accountants (Arthur Andersen LLP)........................ F-28
Consolidated balance sheets as of June 26, 1993, June 25, 1994 and January 7, 1995
(unaudited)......................................................................... F-29
Consolidated statements of operations for the 52 weeks ended June 27, 1992, June 26,
1993 and June 25, 1994 and the 28 weeks ended January 8, 1994 (unaudited) and
January 7, 1995 (unaudited)......................................................... F-31
Consolidated statements of cash flows for the 52 weeks ended June 27, 1992, June 26,
1993 and June 25, 1994 and the 28 weeks ended January 8, 1994 (unaudited) and
January 7, 1995 (unaudited)......................................................... F-32
Consolidated statements of stockholder's equity for the 52 weeks ended June 27, 1992,
June 26, 1993 and June 25, 1994 and the 28 weeks ended January 7, 1995
(unaudited)......................................................................... F-34
Notes to consolidated financial statements............................................ F-35
F-1
160
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
161
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
JANUARY JANUARY
30, 29,
1994 1995
---------- ----------
Current Assets:
Cash and cash equivalents......................................... $ 55,080 $ 35,125
Accounts receivable............................................... 30,420 43,597
Inventories....................................................... 202,354 221,388
Prepaid expenses and other current assets......................... 18,111 19,793
---------- ----------
Total current assets...................................... 305,965 319,903
Property, plant and equipment, net................................ 601,897 624,724
Excess of cost over net assets acquired, net...................... 376,414 365,418
Beneficial lease rights, net...................................... 55,553 49,164
Deferred debt issuance costs, net................................. 26,583 23,011
Deferred income taxes............................................. 109,125 112,491
Other assets...................................................... 8,113 15,203
---------- ----------
Total assets.............................................. $1,483,650 $1,509,914
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt.............................. $ 70,975 $ 83,989
Short-term debt................................................... -- 51,500
Bank overdrafts................................................... 37,716 45,669
Accounts payable.................................................. 138,554 130,889
Accrued expenses.................................................. 101,543 99,804
Current portion of self-insurance reserves........................ 30,138 27,552
---------- ----------
Total current liabilities................................. 378,926 439,403
Long-term debt.................................................... 927,909 883,020
Self-insurance reserves........................................... 49,872 44,954
Lease valuation reserve........................................... 32,575 28,957
Other non-current liabilities..................................... 89,299 86,393
---------- ----------
Total liabilities......................................... 1,478,581 1,482,727
---------- ----------
Stockholders' equity:
Common stock, $.01 par value per share Authorized 50,000,000
shares; issued and outstanding, 25,587,280 shares at January
30, 1994 and January 29, 1995.................................. 256 256
Additional paid-in capital........................................ 175,292 175,292
Accumulated deficit............................................... (170,479) (148,361)
---------- ----------
Total stockholders' equity................................ 5,069 27,187
---------- ----------
Commitments and contingencies (See Notes 2 and 8)
Total liabilities and stockholders' equity (deficit)...... $1,483,650 $1,509,914
========= =========
See accompanying notes to consolidated financial statements.
F-3
162
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, 1993 JANUARY 30, 1994 JANUARY 29, 1995
------------------ ------------------ ------------------
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%
========= ===== ========= ===== ========= =====
See accompanying notes to consolidated financial statements.
F-4
163
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
YEAR ENDED YEAR ENDED YEAR ENDED
JANUARY 31, JANUARY 30, JANUARY 29,
1993 1994 1995
----------- ----------- -----------
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
========= ========= ========
See accompanying notes to consolidated financial statements.
F-5
164
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
RALPHS RALPHS
SUPERMARKETS, INC. GROCERY COMPANY
-------------------- -------------------- ADDITIONAL
OUTSTANDING COMMON OUTSTANDING COMMON PAID-IN- ACCUMULATED
SHARES STOCK SHARES STOCK CAPITAL DEFICIT TOTAL
----------- ------ ----------- ------ ---------- ----------- ---------
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
========= ====== ========= ====== ======== ========= =========
See accompanying notes to consolidated financial statements.
F-6
165
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:
APPROXIMATE PERCENT
OWNERSHIP OF RALPHS
SUPERMARKETS, INC.
COMMON STOCK
AS OF JULY 19, 1993
----------------------------
EJDC................................................ 60.4%
BMO................................................. 10.1%
BP.................................................. 10.1%
Camdev.............................................. 12.8%
Federated Department Stores, Inc. (as successor by
merger to Allied)................................. 6.6%
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
166
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
167
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
168
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
169
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:
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
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
========= =========
(4) ACCRUED EXPENSES
Accrued expenses are summarized as follows:
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
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
========= =========
F-11
170
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:
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
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
========= =========
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
171
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.
WITH HEDGE WITHOUT HEDGE
---------- -------------
1992........................................ 10.52% 10.22%
1993........................................ 8.96% 8.96%
1994........................................ 9.37% 9.18%
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
F-13
172
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
The aggregate maturities on long-term debt for each of the five years
subsequent to fiscal 1994 are as follows:
(DOLLARS IN
THOUSANDS)
------------
1995...................................................... $ 83,989
1996...................................................... 86,792
1997...................................................... 84,771
1998...................................................... 53,605
1999...................................................... 175,400
2000 and thereafter....................................... 482,452
--------
$967,009
========
The unaudited fair value of each class of financial instruments (where
practical), all held for non-trading purposes, is as follows in (000s):
Long-term debt............................................ $953,883
Interest rate swap agreement.............................. $ 1,252
Interest rate cap agreement............................... $ (366)
(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:
CAPITAL OPERATING
LEASES LEASES TOTAL
-------- -------- --------
(DOLLARS IN THOUSANDS)
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
========
F-14
173
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total rent expense is summarized as follows:
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JANUARY 31, JANUARY 30, JANUARY 29,
1993 1994 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
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
======== ======== ========
(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:
52 WEEKS 52 WEEKS
ENDED ENDED
JANUARY JANUARY
30, 29,
1994 1995
-------- --------
(DOLLARS IN
THOUSANDS)
Self-insurance liability..................................... $ 97,864 $ 87,830
Less: Discount............................................... (17,854) (15,324)
-------- --------
Net self-insurance liability................................. $ 80,010 $ 72,506
======== ========
The Company expects that cash payments for claims over the next five years
will aggregate approximately $28 million (unaudited) in fiscal year 1995, $19
million (unaudited) in fiscal year 1996, $13 million (unaudited) in fiscal year
1997, $8 million (unaudited) in fiscal year 1998 and $7 million (unaudited) in
fiscal year 1999.
(8) COMMITMENTS AND CONTINGENCIES
In December 1992, three California state antitrust class action suits were
commenced in Los Angeles Superior Court against Ralphs and other major
supermarket chains located in Southern California, alleging that they conspired
to refrain from competing in the retail market for fluid milk and to fix the
retail price of fluid milk above competitive prices. Specifically, class actions
were commenced by Diane Barela and Neila Ross, Ron Moliare and Paul C. Pfeifle
on December 7, December 14, and December 23, 1992, respectively. The Court has
yet to certify any of these classes. A demurrer to the complaints was denied.
Notwithstanding
F-15
174
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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
F-16
175
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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, 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
176
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:
(DOLLARS IN
THOUSANDS)
1995...................................................... $ 6,669
1996...................................................... 12,389
1997...................................................... 3,636
1998...................................................... 10,150
-----------
$32,844
========
(11) INCOME TAXES
Income tax expense (benefit) consists of the following:
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JANUARY 31, JANUARY 30, JANUARY 29,
1993 1994 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
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) $ --
======== ========= =========
Income tax expense (benefit) has been classified in the accompanying
statements of operations as follows:
1992 1993 1994
------- --------- ---------
Earnings before extraordinary items............. $ 8,346 $(108,049) $ --
Extraordinary item.............................. (4,173) -- --
------- --------- ---------
Net tax expense (benefit)....................... $ 4,173 $(108,049) $ --
======= ========= =========
F-18
177
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:
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JANUARY 31, JANUARY 30, JANUARY 29,
1993 1994 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
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) $ --
========= ========= =========
Ralphs' deferred tax assets, recorded under SFAS 109, were comprised of the
following:
52 WEEKS 52 WEEKS
ENDED ENDED
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
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
========= =========
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
178
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
179
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:
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JANUARY 31, JANUARY 30, JANUARY 29,
1993 1994 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
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
======== ======== ========
The funded status of Ralphs' pension plan, (based on December 31, 1993 and
1994 asset values), is as follows:
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
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)
========
The accrued pension cost for accumulated benefits that exceeded assets at
January 30, 1994 was immaterial to the consolidated financial statements.
F-21
180
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The accrued pension cost for accumulated benefits that exceeded assets at
January 30, 1994 was immaterial to the consolidated financial statements.
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:
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JANUARY 31, JANUARY 30, JANUARY 29,
1993 1994 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
Multi-employer pension plans.............. $ 7,973 $17,687 $ 8,897
======== ======== ========
Multi-employer health and welfare......... $71,183 $45,235 $66,351
======== ======== ========
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.
F-22
181
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The aforementioned incentive plans may be cancelled by the Board of
Directors at any time.
Ralphs sponsors a postretirement medical benefit plan (Postretirement
Medical Plan) covering substantially all employees who are not members of a
collective bargaining agreement and who retire under certain age and service
requirements.
The Postretirement Medical Plan is a traditional type medical plan
providing outpatient, inpatient and various other covered services. Such
benefits are funded from Ralphs' general assets. The calendar year deductible is
$1,270 per individual, indexed to the Medical Consumer Price Index.
The net periodic cost of the Postretirement Medical Plan includes the
following components:
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JANUARY 31, JANUARY 30, JANUARY 29,
1993 1994 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
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
The funded status of the postretirement benefit plan is as follows:
52 WEEKS 52 WEEKS
ENDED ENDED
JANUARY 30, JANUARY 29,
1994 1995
----------- -----------
(DOLLARS IN THOUSANDS)
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)
======== ========
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
182
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:
GROSS OPERATING INCOME NET
SALES PROFIT INCOME TAXES EARNINGS
------- ------ --------- ------- --------
(DOLLARS IN MILLIONS)
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
======= ====== ======= ======= ======
(14) SUPPLEMENTAL CASH FLOW INFORMATION
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JANUARY 31, JANUARY 30, JANUARY 29,
1993 1994 1995
----------- ----------- -----------
(DOLLARS IN THOUSANDS)
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
(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
183
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.
NUMBER OF PRICE
OPTIONS RANGE
--------- ------
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.............................. -- --
--------- ------
The option price for outstanding options at January 29, 1995 assumes a
grant date fair market value of Common Stock of the Company equal to $20.21 per
share, which represents the high end of a range of estimated values of the
Common Stock of the Company on February 3, 1992, the date of the grant.
(16) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The methods and assumptions used to estimate the fair value of each class
of financial instruments for which it is practicable to estimate that value is
discussed in Note 2.
The unaudited fair value of each class of financial instruments (where
practical), all held for non-trading purposes, is as follows in (000s):
JANUARY 30, 1994 JANUARY 29, 1995
----------------------- -----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
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)
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
184
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
agreement satisfies interest rate protection requirements under the 1992 Credit
Agreement. In addition to the interest rate cap agreement, Ralphs entered into
an interest rate swap agreement on $150.0 million national principal amount.
Under the interest rate swap agreement, Ralphs is required to pay interest based
on LIBOR at the end of each six month calculation period and Ralphs will receive
interest payments based on LIBOR at the beginning of each six month calculation
period. This interest rate swap agreement has a three-year term expiring
November 6, 1995. Ralphs is exposed to credit loss in the event of
nonperformance by the other party to the interest rate swap agreement. However,
Ralphs does not anticipate nonperformance by the counterpart.
The following details the impact of the hedging activity on the weighted
average rate for each of the last three fiscal years.
WITH HEDGE WITHOUT HEDGE
---------- -------------
1992........................................................ 10.52% 10.22%
1993........................................................ 8.96% 8.96%
1994........................................................ 9.37% 9.18%
(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
F-26
185
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
exchange or purchase. The Offers are subject to the terms and conditions set
forth in an Amended and 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 may result in a restructuring charge for the New Company. The
amount of the restructuring charge is not determinable due to various factors,
including uncertainties inherent in the completion of the Merger, however, the
restructuring charge may be material in relation to the stockholders' equity and
financial position of RGC and the New Company.
Following the consummation of the Merger, the New Company will be highly
leveraged.
F-27
186
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholder of Food 4 Less Supermarkets, Inc.:
We have audited the accompanying consolidated balance sheets of Food 4 Less
Supermarkets, Inc. (a Delaware corporation) and subsidiaries (the Company) as of
June 26, 1993 and June 25, 1994, and the related consolidated statements of
operations, stockholder's equity and cash flows for the 52 weeks ended June 27,
1992, the 52 weeks ended June 26, 1993, and the 52 weeks ended June 25, 1994.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Food 4 Less
Supermarkets, Inc. and subsidiaries as of June 26, 1993 and June 25, 1994, and
the results of their operations and their cash flows for the 52 weeks ended June
27, 1992, the 52 weeks ended June 26, 1993, and the 52 weeks ended June 25, 1994
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
July 29, 1994 (except with respect
to the matter discussed in
Note 14, as to which the date is
October 14, 1994, and with respect to
the matter discussed in Note 15, as to
which the date is April 13, 1995)
F-28
187
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
JUNE 26, JUNE 25, JANUARY 7,
1993 1994 1995
-------- -------- -----------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents.............................. $ 25,089 $ 32,996 $ 15,750
Trade receivables, less allowances of $1,919, $1,386
and $1,264 at June 26, 1993, June 25, 1994 and
January 7, 1995, respectively....................... 22,048 25,039 25,992
Notes and other receivables............................ 1,278 1,312 777
Inventories............................................ 191,467 212,892 223,261
Patronage receivables from suppliers................... 2,680 2,875 5,093
Prepaid expenses and other............................. 6,011 6,323 12,542
-------- -------- ---------
Total current assets........................... 248,573 281,437 283,415
INVESTMENTS IN AND NOTES RECEIVABLE FROM SUPPLIER
COOPERATIVES:
A.W.G.................................................. 6,693 6,718 6,718
Certified and Other.................................... 6,657 5,984 5,694
PROPERTY AND EQUIPMENT:
Land................................................... 23,912 23,488 23,488
Buildings.............................................. 12,827 12,827 24,148
Leasehold improvements................................. 81,049 97,673 106,484
Store equipment and fixtures........................... 129,178 148,249 153,538
Transportation equipment............................... 31,758 32,259 32,363
Construction in progress............................... 757 12,641 14,459
Leased property under capital leases................... 77,553 78,222 78,222
Leasehold interests.................................... 93,863 93,464 93,226
-------- -------- ---------
450,897 498,823 525,928
Less: Accumulated depreciation and amortization........ 96,948 134,089 155,758
-------- -------- ---------
Net property and equipment.......................... 353,949 364,734 370,170
OTHER ASSETS:
Deferred financing costs, less accumulated amortization
of $11,611, $17,083 and $20,166 at June 26, 1993,
June 25, 1994 and January 7, 1995, respectively..... 33,778 28,536 25,529
Goodwill, less accumulated amortization of $26,254,
$33,945 and $38,113 at June 26, 1993, June 25, 1994
and January 7, 1995, respectively................... 280,895 267,884 263,658
Other, net............................................. 27,295 24,787 29,438
-------- -------- ---------
$957,840 $980,080 $ 984,622
======== ======== =========
The accompanying notes are an integral part of these consolidated balance
sheets.
F-29
188
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND STOCKHOLDER'S EQUITY
JUNE 26, JUNE 25, JANUARY 7,
1993 1994 1995
-------- -------- ----------
(UNAUDITED)
CURRENT LIABILITIES:
Accounts payable........................................ $140,468 $180,708 $ 164,981
Accrued payroll and related liabilities................. 40,319 42,805 39,976
Accrued interest........................................ 5,293 5,474 7,454
Other accrued liabilities............................... 40,467 53,910 60,619
Income taxes payable.................................... 2,053 2,000 689
Current portion of self-insurance liabilities........... 23,552 29,492 28,616
Current portion of long-term debt....................... 12,778 18,314 22,290
Current portion of obligations under capital leases..... 2,865 3,616 3,634
-------- -------- ----------
Total current liabilities................................. 267,795 336,319 328,259
LONG-TERM DEBT............................................ 335,576 310,944 342,396
OBLIGATIONS UNDER CAPITAL LEASES.......................... 41,864 39,998 38,071
SENIOR SUBORDINATED DEBT.................................. 145,000 145,000 145,000
DEFERRED INCOME TAXES..................................... 22,429 14,740 14,740
SELF-INSURANCE LIABILITIES AND OTHER...................... 72,313 64,058 55,701
COMMITMENTS AND CONTINGENCIES............................. -- -- --
STOCKHOLDER'S EQUITY:
Cumulative convertible preferred stock, $.01 par value,
200,000 shares authorized and 50,000 shares issued at
June 26, 1993, June 25, 1994 and January 7, 1995
(aggregate liquidation value of $53.8 million, $62.2
million and $67.3 million at June 26, 1993, June 25,
1994 and January 7, 1995, respectively).............. 50,230 58,997 64,541
Common stock, $.01 par value, 1,600,000 shares
authorized and 1,519,632 shares issued at June 26,
1993, June 25, 1994 and January 7, 1995.............. 15 15 15
Additional paid-in capital.............................. 107,650 107,650 107,650
Notes receivable from shareholders of parent............ (714) (586) (702)
Retained deficit........................................ (83,119) (94,586) (108,858)
-------- -------- ----------
74,062 71,490 62,646
Treasury stock: 13,249 shares, 16,732 shares and 14,205
shares of common stock at June 26, 1993, June 25,
1994 and January 7, 1995, respectively............... (1,199) (2,469) (2,191)
-------- -------- ----------
Total stockholder's equity...................... 72,863 69,021 60,455
-------- -------- ----------
$957,840 $980,080 $ 984,622
======== ======== ==========
The accompanying notes are an integral part of these consolidated balance
sheets.
F-30
189
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
FIFTY-TWO FIFTY-TWO FIFTY-TWO TWENTY-EIGHT TWENTY-EIGHT
WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
JUNE 27, JUNE 26, JUNE 25, JANUARY 8, JANUARY 7,
1992 1993 1994 1994 1995
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
SALES....................................... $2,913,493 $2,742,027 $2,585,160 $1,416,213 $1,404,665
COST OF SALES (including purchases from
related parties of $277,812, $204,028,
$175,929, $106,060 and $99,367 for the 52
weeks ended June 27, 1992, June 26, 1993,
and June 25, 1994, and for the 28 weeks
ended January 8, 1994 and January 7, 1995,
respectively)............................. 2,392,655 2,257,835 2,115,842 1,153,989 1,167,205
---------- ---------- ----------- ---------- ----------
GROSS PROFIT................................ 520,838 484,192 469,318 262,224 237,460
SELLING, GENERAL, ADMINISTRATIVE AND OTHER,
NET....................................... 469,751 434,908 388,836 221,464 199,161
AMORTIZATION OF EXCESS COST OVER NET ASSETS
ACQUIRED.................................. 7,795 7,571 7,691 4,132 4,168
RESTRUCTURING CHARGE........................ -- -- -- -- 5,134
---------- ---------- ----------- ---------- ----------
OPERATING INCOME............................ 43,292 41,713 72,791 36,628 28,997
INTEREST EXPENSE:
Interest expense, excluding amortization
of deferred financing costs............ 63,907 64,831 62,778 33,914 34,601
Amortization of deferred financing
costs.................................. 6,304 4,901 5,472 2,948 3,083
---------- ---------- ----------- ---------- ----------
70,211 69,732 68,250 36,862 37,684
LOSS (GAIN) ON DISPOSAL OF ASSETS........... (1,364) (2,083) 37 87 (459)
PROVISION FOR EARTHQUAKE LOSSES............. -- -- 4,504 -- --
---------- ---------- ----------- ---------- ----------
LOSS BEFORE PROVISION FOR INCOME TAXES AND
EXTRAORDINARY CHARGES..................... (25,555) (25,936) -- (321) (8,228)
PROVISION FOR INCOME TAXES.................. 3,441 1,427 2,700 700 500
---------- ---------- ----------- ---------- ----------
LOSS BEFORE EXTRAORDINARY CHARGES........... (28,996) (27,363) (2,700) (1,021) (8,728)
EXTRAORDINARY CHARGES:
Loss on extinguishment of debt, net of
income tax benefit of $2,484........... 6,716 -- -- -- --
Gain on partially depreciated assets
replaced by insurance companies, net of
income tax expense of $702............. (1,898) -- -- -- --
---------- ---------- ----------- ---------- ----------
NET LOSS.................................... $ (33,814) $ (27,363) $ (2,700) $ (1,021) $ (8,728)
========== ========== ========== ========== ==========
PREFERRED STOCK ACCRETION................... -- 3,882 8,767 4,721 5,544
LOSS APPLICABLE TO COMMON SHARES............ $ (33,814) $ (31,245) $ (11,467) $ (5,742) $ (14,272)
========== ========== ========== ========== ==========
LOSS PER COMMON SHARE:
Loss before extraordinary charges......... $ (20.74) $ (21.52) $ (7.63) $ (3.82) $ (9.49)
Extraordinary charges..................... (3.45) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net loss.................................. $ (24.19) $ (21.52) $ (7.63) $ (3.82) $ (9.49)
========== ========== ========== ========== ==========
Average Number of Common Shares
Outstanding............................ 1,397,939 1,452,184 1,503,828 1,504,245 1,504,288
========== ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated statements.
F-31
190
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FIFTY-TWO FIFTY-TWO FIFTY-TWO TWENTY-EIGHT TWENTY-EIGHT
WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
JUNE 27, JUNE 26, JUNE 25, JANUARY 8, JANUARY 7,
1992 1993 1994 1994 1995
----------- ----------- ----------- ------------- -------------
(UNAUDITED)
CASH PROVIDED (USED) BY OPERATING
ACTIVITIES:
Cash received from customers............. $ 2,913,493 $ 2,742,027 $ 2,585,160 $ 1,416,213 $ 1,404,665
Cash paid to suppliers and employees..... (2,752,442) (2,711,779) (2,441,353) (1,361,103) (1,389,667)
Interest paid............................ (56,234) (58,807) (56,762) (29,178) (32,621)
Income taxes (paid) refunded............. (4,665) 2,971 (247) 1,652 (1,811)
Interest received........................ 1,266 993 903 486 836
Other, net............................... 4,734 8,093 121 2,388 583
----------- ----------- ----------- ------------- -------------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES............................... 106,152 (16,502) 87,822 30,458 (18,015)
CASH PROVIDED (USED) BY INVESTING
ACTIVITIES:
Proceeds from sale of property and
equipment............................. 17,395 15,685 11,953 12,307 7,120
Payment for purchase of property and
equipment............................. (60,263) (53,467) (57,471) (20,404) (39,049)
Proceeds (payment) for sale (purchase) of
other assets.......................... (4,754) (18) 813 -- --
Business acquisition costs, net of cash
acquired.............................. (27,563) -- (11,050) -- --
Receivable received from seller of
business acquired..................... 12,259 -- -- -- --
Other, net............................... -- -- -- 61 (907)
----------- ----------- ----------- ------------- -------------
NET CASH USED BY INVESTING ACTIVITIES...... (62,926) (37,800) (55,755) (8,036) (32,836)
CASH PROVIDED (USED) BY FINANCING
ACTIVITIES:
Proceeds from issuance of long-term
debt.................................. 177,500 26,557 28 28 --
Net increase (decrease) in revolving
loan.................................. (23,900) 4,900 (4,900) (4,900) 48,700
Payments of long-term debt............... (184,389) (14,319) (14,224) (10,395) (13,272)
Proceeds from the issuance of preferred
stock................................. -- 46,348 -- -- --
Proceeds from issuance of common stock,
net................................... 341 3,652 -- -- --
Purchase (sale) of treasury stock, net... (313) (545) (1,192) (726) 92
Payments of capital lease obligation..... (2,814) (2,840) (3,693) (1,565) (1,909)
Deferred financing costs and other....... (6,656) (8,839) (179) (161) (6)
----------- ----------- ----------- ------------- -------------
NET CASH PROVIDED (USED) BY FINANCING
ACTIVITIES............................... (40,231) 54,914 (24,160) (17,719) 33,605
----------- ----------- ----------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.............................. 2,995 612 7,907 4,703 (17,246)
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD................... 21,482 24,477 25,089 25,089 32,996
----------- ----------- ----------- ------------- -------------
CASH AND CASH EQUIVALENTS
AT END OF PERIOD......................... $ 24,477 $ 25,089 $ 32,996 $ 29,792 $ 15,750
========== ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated statements.
F-32
191
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(DOLLARS IN THOUSANDS)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
FIFTY-TWO FIFTY-TWO FIFTY-TWO TWENTY-EIGHT TWENTY-EIGHT
WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
JUNE 27, JUNE 26, JUNE 25, JANUARY 8, JANUARY 7,
1992 1993 1994 1994 1995
------------ ------------ ------------ ------------ ------------
(UNAUDITED)
RECONCILIATION OF NET LOSS TO NET CASH
PROVIDED (USED) BY OPERATING ACTIVITIES:
Net loss................................ $ (33,814) $(27,363) $ (2,700) $ (1,021) $ (8,728)
Adjustments to reconcile net loss to net
cash provided (used) by operating
activities:
Depreciation and amortization........ 61,181 62,541 62,555 33,320 33,878
Extraordinary charge................. 4,818 -- -- -- --
Restructuring charge................. -- -- -- -- 5,134
Loss (gain) on sale of assets........ (1,364) (4,613) 65 87 (459)
Equity loss on investments in
supplier cooperative............... 472 207 -- -- --
Change in assets and liabilities, net
of effects from acquisition of
businesses:
Accounts and notes receivable...... (7,688) 17,145 (3,220) (9,568) (2,725)
Inventories........................ 202 17,697 (17,125) (16,106) (10,369)
Prepaid expenses and other......... (2,834) (6,163) (5,717) (5,659) (9,097)
Accounts payable and accrued
liabilities..................... 71,369 (83,286) 55,301 23,752 (20,228)
Self-insurance liabilities......... 15,034 2,935 (3,790) 3,301 (4,110)
Deferred income taxes.............. 2,033 4,004 2,506 1,714 --
Income taxes payable............... (3,257) 394 (53) 638 (1,311)
------------ ------------ ------------ ------------ ------------
Total adjustments.................... 139,966 10,861 90,522 31,479 (9,287)
------------ ------------ ------------ ------------ ------------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES.............................. $ 106,152 $(16,502) $ 87,822 $ 30,458 $(18,015)
========== ========== ========== ========== ==========
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Purchase of property and equipment
through issuance of capital lease
obligation........................... -- -- $ 2,575 -- --
========== ========== ========== ========== ==========
Reduction of goodwill and deferred
income taxes......................... -- -- $ 9,896 -- --
========== ========== ========== ========== ==========
Acquisition of businesses:
Fair value of assets acquired........ -- -- $ 11,241 -- --
Net cash paid in acquisition......... -- -- (11,050) -- --
------------ ------------ ------------ ------------ ------------
Liabilities assumed.................. -- -- $ 191 -- --
========== ========== ========== ========== ==========
Final purchase price allocation for the
Alpha Beta Acquisition:
Property and equipment valuation
adjustment......................... $ 44,231 -- -- -- --
========== ========== ========== ========== ==========
Additional acquisition liabilities... $ 14,305 -- -- -- --
========== ========== ========== ========== ==========
Deferred tax benefit................. $ 12,800 -- -- -- --
========== ========== ========== ========== ==========
Accretion of preferred stock............ $ -- $ 3,882 $ 8,767 $ 4,721 $ 5,544
========== ========== ========== ========== ==========
The accompanying notes are an integral part of these consolidated statements.
F-33
192
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
PREFERRED STOCK COMMON STOCK TREASURY STOCK
---------------- ------------------ ----------------- TOTAL
NUMBER NUMBER NUMBER SHARE- ADD'L STOCK-
OF OF OF HOLDERS' PAID-IN RETAINED HOLDER'S
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT NOTES CAPITAL (DEFICIT) EQUITY
------ ------- --------- ------ ------- ------- -------- -------- --------- --------
BALANCES AT JUNE 29,
1991................... -- $ -- 1,396,878 $ 14 (1,250) $ (125) $ (930) $103,658 $ (18,060) $ 84,557
Net loss............... -- -- -- -- -- -- -- -- (33,814) (33,814)
Issuance of Common
Stock................ -- -- 1,636 -- -- -- (190) 341 -- 151
Purchase of Treasury
Stock................ -- -- -- -- (3,947) (463) 131 -- -- (332)
Sale of Treasury
Stock................ -- -- -- -- 1,560 159 (50) -- -- 109
Payments of
Shareholders'
Notes................ -- -- -- -- -- -- 100 -- -- 100
------ ------- --------- ------ ------- ------- -------- -------- --------- --------
BALANCES AT JUNE 27,
1992................... -- -- 1,398,514 14 (3,637) (429) (939) 103,999 (51,874) 50,771
Net loss............... -- -- -- -- -- -- -- -- (27,363) (27,363)
Issuance of Common
Stock................ -- -- 121,118 1 -- -- -- 3,651 -- 3,652
Purchase of Treasury
Stock................ -- -- -- -- (9,612) (770) 225 -- -- (545)
Issuance of Cumulative
Convertible Preferred
Stock................ 50,000 46,348 -- -- -- -- -- -- -- 46,348
Accretion of Preferred
Stock................ -- 3,882 -- -- -- -- -- -- (3,882) --
------ ------- --------- ------ ------- ------- -------- -------- --------- --------
BALANCES AT JUNE 26,
1993................... 50,000 50,230 1,519,632 15 (13,249) (1,199) (714) 107,650 (83,119) 72,863
Net loss............... -- -- -- -- -- -- -- -- (2,700) (2,700)
Purchase of Treasury
Stock................ -- -- -- -- (3,483) (1,270) 78 -- -- (1,192)
Payments of
Shareholders'
Notes................ -- -- -- -- -- -- 50 -- -- 50
Accretion of Preferred
Stock................ -- 8,767 -- -- -- -- -- -- (8,767) --
------ ------- --------- ------ ------- ------- -------- -------- --------- --------
BALANCES AT JUNE 25,
1994................... 50,000 58,997 1,519,632 15 (16,732) (2,469) (586) 107,650 (94,586) 69,021
Net loss (unaudited)... -- -- -- -- -- -- -- -- (8,728) (8,728)
Payment of
Shareholders' Notes
(unaudited).......... -- -- -- -- -- -- 70 -- -- 70
Issuance of Treasury
Stock (unaudited).... -- -- -- -- 3,644 340 (191) -- -- 149
Purchase of Treasury
Stock (unaudited).... -- -- -- -- (1,117) (62) 5 -- -- (57)
Accretion of Preferred
Stock (unaudited).... -- 5,544 -- -- -- -- -- -- (5,544) --
------ ------- --------- ------ ------- ------- -------- -------- --------- --------
BALANCES AT JANUARY 7,
1995 (unaudited)....... 50,000 $64,541 1,519,632 $ 15 (14,205) $(2,191) $ (702) $107,650 $(108,858) $ 60,455
======= ======== ========= ======= ======== ======== ======= ========= ========== ========
The accompanying notes are an integral part of these consolidated statements.
F-34
193
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND ACQUISITIONS
Food 4 Less Supermarkets, Inc. (the "Company"), a wholly-owned subsidiary
of Food 4 Less Holdings, Inc. ("Holdings"), is a multiple format supermarket
operator that tailors its retail strategy to the particular needs of the
individual communities it serves. Holdings is a majority-owned subsidiary of
Food 4 Less, Inc. ("FFL"). The Company operates in three geographic areas:
Southern California, Northern California and certain areas of the Midwest. The
Company has three first-tier subsidiaries: Cala Co. ("Cala"), Falley's, Inc.
("Falley's") and Food 4 Less of Southern California, Inc. ("F4L-SoCal"),
formerly known as Breco Holding Company, Inc. ("BHC"). Cala Foods, Inc. ("Cala
Foods") and Bell Markets, Inc. ("Bell") are subsidiaries of Cala, and Alpha Beta
Company ("Alpha Beta") is a subsidiary of F4L-SoCal.
(a) Acquisitions
On March 29, 1994, the Company purchased certain operating assets formerly
owned by Food Barn Stores, Inc. (the "Food Barn Stores") from Associated
Wholesale Grocers, Inc. ("AWG") (the "Food Barn Acquisition") for $11,241,000
(including acquisition costs of $180,000). The financial statements reflect the
preliminary allocation of the purchase price as the purchase price allocation
has not been finalized. The effect of the acquisition was not material to the
Company's financial position and results of operations. Falley's has agreed to
purchase merchandise (as defined) for the Food Barn Stores from AWG through
March 24, 2001. Falley's has pledged its patronage dividends and notes
receivable from AWG as security under this supply agreement.
On June 17, 1991, the Company acquired all of the common stock of Alpha
Beta for $270,513,000 (including acquisition costs of $41,477,000) in a
transaction accounted for as a purchase.
In January 1990, the Company purchased certain operating assets of ABC
Market Corp. ("ABC") for $14,675,000, plus approximately $1,000,000 in fees and
expenses.
On June 30, 1989, the Company acquired Bell for approximately $13,700,000,
which includes $8,000,000 of notes and the assumption of Bell's long-term debt.
The transaction was accounted for as a purchase. Certified Grocers of
California, Ltd. ("Certified") has guaranteed up to $4,000,000 of notes issued
by the Company to the seller in connection with the purchase and the performance
of a lease.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Business
The Company is engaged primarily in the operation of retail supermarkets.
(b) Basis of Presentation
Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned
subsidiaries. The results of operations of Alpha Beta, F4L-SoCal (BHC), Bell,
ABC and the Food Barn Stores have been excluded from the consolidated financial
statements prior to their respective acquisition dates. The excess of the
purchase price over the fair value of the net assets acquired is classified as
goodwill. All intercompany transactions have been eliminated in consolidation.
Interim Financial Statements. The consolidated balance sheet of the Company
as of January 7, 1995 and the consolidated statements of operations and cash
flows for the interim periods ended January 7, 1995 and January 8, 1994 are
unaudited, but include all adjustments (consisting of only normal recurring
accruals) which the Company considers necessary for a fair presentation of its
consolidated financial position, results of operations and cash flows for these
periods. These interim financial statements do not include all disclosures
required by generally accepted accounting principles, and, therefore, should be
read in conjunction with the
F-35
194
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company's financial statements and notes thereto included herein. Results of
operations for interim periods are not necessarily indicative of the results for
a full fiscal year.
(c) Fiscal Years
The Company's fiscal year is the 52 or 53-week period which ends on the
last Saturday in June. Fiscal years 1994, 1993, and 1992 include 52 weeks.
(d) Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three months or
less to be cash equivalents.
(e) Inventories
Inventories, which consist of grocery products, are stated at the lower of
cost or market. Cost has been principally determined using the last-in,
first-out ("LIFO") method. If inventories had been valued using the first-in,
first-out ("FIFO") method, inventories would have been higher by $13,103,000,
$13,802,000 and $16,202,000 (unaudited) at June 26, 1993, June 25, 1994 and
January 7, 1995, respectively, and gross profit and operating income would have
been greater by $3,554,000, $4,441,000, $699,000, $2,200,000 (unaudited) and
$2,400,000 (unaudited) for the 52 weeks ended June 27, 1992, the 52 weeks ended
June 26, 1993, the 52 weeks ended June 25, 1994, the 28 weeks ended January 8,
1994, and the 28 weeks ended January 7, 1995, respectively.
(f) Pre-opening Costs
The costs associated with opening new stores are deferred and amortized
over one year following the opening of each new store.
(g) Closed Store Reserves
When a store is closed, the Company provides a reserve for the net book
value of any store assets, net of salvage value, and the net present value of
the remaining lease obligation, net of sublease income. For the 52 weeks ended
June 27, 1992, the 52 weeks ended June 26, 1993, the 52 weeks ended June 25,
1994, the 28 weeks ended January 8, 1994 and the 28 weeks ended January 7, 1995,
utilization of this reserve was $4.0 million, $2.4 million, $1.1 million, $0.5
million (unaudited) and $0.5 million (unaudited), respectively.
(h) Investments in Supplier Cooperatives
The investment in Certified is accounted for on the cost method. There are
certain restrictions on the sale of this investment.
(i) Investment in Food 4 Less of Modesto, Inc.
During the 52 weeks ended June 26, 1993, the Company sold its 20%
investment in Food 4 Less of Modesto, Inc. ("Modesto") for gross proceeds of
$4.5 million, which included a $1.5 million note receivable, resulting in a gain
of $2.5 million. The Company previously accounted for this investment using the
cost method.
F-36
195
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(j) Property and Equipment
Property and equipment are stated at cost and are depreciated principally
using the straight-line method over the following estimated useful lives:
Buildings and improvements.................. 5-40 years
Equipment and fixtures...................... 3-10 years
Property under capital leases and leasehold
interests................................. 3-45 years (lease term)
(k) Deferred Financing Costs
Costs incurred in connection with the issuance of debt are amortized over
the term of the related debt using the effective interest method.
(l) Goodwill and Covenants Not to Compete
The excess of the purchase price over the fair value of the net assets of
businesses acquired is amortized on a straight-line basis over 40 years
beginning at the date of acquisition. Covenants not to compete, which are
included in Other Assets, are amortized on a straight-line basis over the term
of the covenant.
Current and undiscounted future operating cash flows are compared to
current and undiscounted future goodwill amortization to determine if an
impairment of goodwill has occurred and is continuing. As of June 25, 1994, no
impairment exists.
(m) Income Taxes
On June 27, 1993, the Company prospectively adopted Statement of Financial
Accounting Standards No. 109 (SFAS 109), Accounting for Income Taxes. SFAS 109
is an asset and liability approach that requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of events that
have been recognized in the Company's financial statements or tax returns. In
estimating future tax consequences, SFAS 109 generally considers all expected
future events other than enactments of changes in the tax law or rates.
Previously, the Company used the SFAS 96 asset and liability approach that gave
no recognition to future events other than the recovery of assets and settlement
of liabilities at their carrying amounts.
Under SFAS 109, the Company recognizes to a greater degree the future tax
benefits of expenses which have been recognized in the financial statements.
The implementation of SFAS No. 109 did not have a material effect on the
accompanying consolidated financial statements.
(n) Notes Receivable from Shareholders of Parent
Notes receivable from shareholders of parent represent loans to employees
of the Company for purchases of Holdings' stock. The notes are due over various
periods, bear interest at the prime rate, and are secured by each shareholder's
shares of common stock.
(o) Self-Insurance
Certain of the Company's subsidiaries are self-insured for a portion of
workers' compensation, general liability and automobile accident claims. The
Company establishes reserves based on an independent actuary's review of claims
filed and an estimate of claims incurred but not yet filed.
F-37
196
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(p) Discounts and Promotional Allowances
Promotional allowances and vendor discounts are recorded as a reduction of
cost of sales in the accompanying consolidated statements of operations.
Allowance proceeds received in advance are deferred and recognized over the
period earned.
(q) Provision for Earthquake Losses
On January 17, 1994, Southern California was struck by a major earthquake
which resulted in the temporary closing of 31 of the Company's stores. The
closures were caused primarily by loss of electricity, water, inventory, or
structural damage. All but one of the closed stores reopened within a week of
the earthquake. The final closed store reopened on March 24, 1994. The Company
is insured against earthquake losses (including business interruption), subject
to certain deductibles. The pre-tax financial impact, net of insurance claims,
was approximately $4.5 million. At June 25, 1994, the Company had received all
expected insurance proceeds related to this claim.
(r) Extraordinary Items
For the 52 weeks ended June 27, 1992, the Company classified the write-off
of deferred financing costs associated with the early extinguishment of debt as
an extraordinary item. For the 52 weeks ended June 27, 1992, the Company also
classified the difference between the net book value and replacement cost of
property and equipment destroyed during the April 1992 civil unrest in Los
Angeles and replaced by insurance companies as an extraordinary item. Proceeds
received from insurance companies for business interruption related to the civil
unrest are included as a component of selling, general, administrative and other
expenses.
(s) Loss Per Common Share
Loss per common share is computed based on the weighted average number of
shares outstanding during the applicable period. Fully diluted loss per share
has been omitted as it is anti-dilutive for all periods presented.
(t) Reclassifications
Certain prior period amounts in the consolidated financial statements have
been reclassified to conform to the June 25, 1994 presentation.
(3) PREFERRED STOCK
On December 31, 1992, the Company issued 50,000 shares of $.01 par value
Series A cumulative convertible preferred stock (the "Preferred Stock") with a
liquidation value of $1,000 per share and 121,118 shares of its $.01 par value
common stock (the "Common Stock") to its parent company, Food 4 Less Holdings,
Inc. ("Holdings") in exchange for gross proceeds of $50.0 million. The Preferred
Stock is convertible into common stock at the option of the holder based upon a
conversion price which results in a one-for-one exchange. The Preferred Stock
has a stated dividend rate of $152.50 per share, per annum, and is
anti-dilutive. The Company may pay dividends on or before December 31, 1997 only
by issuing additional shares of Preferred Stock. The Company may redeem the
Preferred Stock at any time after December 31, 1997 for its liquidation value.
At June 25, 1994, the Company had accrued approximately $12,649,000 for the
Preferred Stock dividends earned but not yet declared.
In order to finance the purchase of the Preferred and Common Stock from the
Company, Holdings issued $103.6 million aggregate principal amount of 15.25%
Senior Discount Notes due 2004 (the "Holdings
F-38
197
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Notes") and 121,118 Common Stock Purchase Warrants (the "Warrants") for gross
proceeds of $50.0 million. No cash interest is payable on the Notes until June
15, 1998.
At the present time, Holdings has no other income or assets other than its
investment in the Company's Common and Preferred Stock and intends to service
the interest payments on the Holdings Notes when they become payable in cash (in
fiscal 1998) through dividends it receives on the Company's capital stock.
(4) LONG-TERM DEBT AND SENIOR SUBORDINATED DEBT
The Company's long-term debt is summarized as follows:
JUNE 26, JUNE 25,
1993 1994
------------ ------------
Bank Term Loan, principal due quarterly through January
1999, with interest payable monthly in arrears........ $148,478,000 $137,064,000
10.45 percent Senior Notes principal due 2000 with
interest payable semi-annually in arrears............. 175,000,000 175,000,000
Revolving Loan.......................................... 4,900,000 --
10.625 percent first real estate mortgage due 1998,
$12,000 of principal plus interest payable monthly
secured by land and building with a net book value of
$2,122,000............................................ 1,558,000 1,521,000
9.2 to 9.25 percent notes payable, collateralized by
equipment, due September 1994, $67,000 of principal
plus interest payable monthly, plus balloon payment of
$992,000.............................................. 1,772,000 1,103,000
10.8 percent notes payable, collateralized by equipment,
due September 1995, $72,000 of principal plus interest
payable monthly, plus balloon payment of $1,004,000... 2,447,000 1,819,000
10.0 percent secured promissory note, collateralized by
the stock of Bell, due 1996, interest payable
quarterly through June 1996........................... 8,000,000 8,000,000
10.08 percent notes payable, collateralized by
equipment, due November 1996, $34,000 of principal
plus interest payable monthly, plus balloon payment of
$493,000.............................................. 1,515,000 1,242,000
10.15 percent notes payable, collateralized by
equipment, due December 1996, $45,000 of principal and
interest payable monthly, plus balloon payment of
$640,000.............................................. 1,994,000 1,675,000
10.0 percent real estate mortgage due 2000, $8,000 of
principal and interest payable monthly................ 474,000 419,000
Other long-term debt.................................... 2,216,000 1,415,000
------------ ------------
348,354,000 329,258,000
Less -- current portion................................. 12,778,000 18,314,000
------------ ------------
$335,576,000 $310,944,000
=========== ===========
In June 1991, the Company and certain of its subsidiaries entered into a
Credit Agreement (the "Credit Agreement") with certain banks, comprised of a
$315,000,000 Term Loan (the "Bank Term Loan") facility, a $70,000,000 Revolving
Loan (the "Revolving Loan") facility and a $55,000,000 standby letter of credit
facility (the "Letter of Credit Facility"). At June 25, 1994, $137,064,000 was
outstanding under the Bank Term Loan, there were no borrowings outstanding under
the Revolving Loan and $48,131,000 of standby letters of credit had been issued
on behalf of the Company. A commitment fee of 1/2 of 1 percent is charged on the
average daily unused portion of the Revolving Loan and the Letter of Credit
Facility; such commitment fees are due quarterly in arrears. Interest on
borrowings under the Bank Term Loan is at the bank's Base Rate (as defined) plus
1.25 percent or the Eurodollar Rate (as defined) plus 2.5 percent. At June 25,
1994, the
F-39
198
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
weighted average interest rate on the Bank Term Loan was 6.5 percent. In
accordance with certain requirements of the Credit Agreement, the Company
purchased an interest rate cap for a principal amount of approximately $91.4
million on the three-month Libor rate at 5.5% which expires on January 3, 1995.
Quarterly principal installments on the Bank Term Loan continue to December
1998, with $15,580,000 payable in fiscal year 1995, $21,245,000 payable in
fiscal year 1996, $22,661,000 payable in fiscal 1997, $40,489,000 payable in
fiscal 1998, and $37,089,000 payable in fiscal 1999. Interest on borrowings
under the Revolving Loan is at the bank's Base Rate (as defined) plus 1.25
percent. At June 25, 1994, the interest rate on the Revolving Loan was 8.5
percent. To the extent borrowings under the Revolving Loan are not paid earlier,
they are due in June 1996. The common stock of F4L-SoCal, Falley's, Cala and
certain of their direct and indirect subsidiaries has been pledged as security
under the Credit Agreement.
In April 1992, the Company and its wholly-owned subsidiaries issued
$175,000,000 of 10.45 percent Senior Notes (the "Senior Notes"). These notes are
due in two equal sinking fund payments on April 15, 1999 and 2000. They are
general unsecured obligations of the Company and rank senior in right of payment
to all subordinated indebtedness (as defined). The Senior Notes rank "pari
passu" in right of payment with all borrowings and other obligations of the
Company under its bank Credit Agreement; however, the obligations under the
Credit Agreement are secured by substantially all the assets of the Company and
its subsidiaries. The Senior Notes may be redeemed beginning in 1996 at 104.5
percent, declining ratably to 100 percent in 1999. The proceeds received, net of
issuance costs, were used to pay down borrowings under the Bank Term Loan.
Deferred financing costs related to the portion of the Bank Term Loan that was
retired of $6.7 million, net of related tax benefit of $2.5 million, are
classified as an extraordinary item in the Company's consolidated statement of
operations for the 52 weeks ended June 27, 1992.
Scheduled maturities of principal of Long-Term Debt at June 25, 1994 are as
follows:
1995................................................... $ 18,314,000
1996................................................... 23,384,000
1997................................................... 32,322,000
1998................................................... 40,701,000
1999................................................... 124,823,000
Later years............................................ 89,714,000
------------
$329,258,000
===========
The Company issued $145,000,000 principal amount of Senior Subordinated
Notes (the "Subordinated Notes") in connection with the acquisition of Alpha
Beta as described in Note 1. The Subordinated Notes bear interest, payable
semi-annually on June 15 and December 15, at an annual rate of 13.75 percent.
The Subordinated Notes are subordinated to all Senior Indebtedness (as defined)
of the Company, and may be redeemed beginning in 1996 at a redemption price of
106 percent. The redemption price declines ratably to 100 percent in 2000.
The debt agreements, among other things, require the Company to maintain
minimum levels of net worth (as defined), to maintain minimum levels of earnings
(as defined), to maintain a hedge agreement to provide interest rate protection,
and to comply with certain ratios related to interest expense (as defined),
fixed charges (as defined), working capital and indebtedness. In addition, the
debt agreements limit, among other things, additional borrowings, dividends on,
and redemption of, capital stock, capital expenditures, incurrence of lease
obligations, and the acquisition and disposition of assets. At June 26, 1993 and
June 25, 1994 the Company was in compliance with the financial covenants of its
debt agreements. At June 25, 1994, dividends and certain other payments are
restricted based on terms in the debt agreements.
F-40
199
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) LEASES
The Company's operations are conducted primarily in leased properties.
Substantially all leases contain renewal options. Rental expense under operating
leases was as follows:
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JUNE 27, JUNE 26, JUNE 25,
1992 1993 1994
----------- ----------- -----------
Minimum rents................................. $46,706,000 $44,504,000 $49,788,000
Rents based on sales.......................... 7,656,000 5,917,000 3,806,000
Following is a summary of future minimum lease payments under operating
leases at June 25, 1994:
1995................................................... $ 52,542,000
1996................................................... 48,966,000
1997................................................... 45,325,000
1998................................................... 38,925,000
1999................................................... 34,423,000
Later years............................................ 269,332,000
------------
$489,513,000
===========
The Company has entered into lease agreements for new supermarket sites
which were not in operation at June 25, 1994. Future minimum lease payments
under such operating leases generally begin when such supermarkets open and at
June 25, 1994 are: 1995 -- $5,990,000; 1996 -- $11,772,000; 1997 -- $11,825,000;
1998 -- $11,810,000; 1999 -- $11,819,000; later years -- $218,480,000.
Certain leases qualify as capital leases under the criteria established in
Statement of Financial Accounting Standards No. 13, "Accounting for Leases," and
are classified on the consolidated balance sheets as leased property under
capital leases. Future minimum lease payments for the property under capital
leases at June 25, 1994 are as follows:
1995.................................................... $ 7,948,000
1996.................................................... 7,521,000
1997.................................................... 6,995,000
1998.................................................... 6,374,000
1999.................................................... 6,071,000
Later years............................................. 44,108,000
-----------
Total minimum lease payments.................. 79,017,000
Less: amounts representing interest..................... 35,403,000
-----------
Present value of minimum lease payments................. 43,614,000
Less: current portion................................... 3,616,000
-----------
$39,998,000
==========
Accumulated depreciation related to capital leases was $20,356,000 and
$24,041,000 at June 26, 1993 and June 25, 1994, respectively.
The Company is leasing a distribution facility and four store locations
from the previous owner of Alpha Beta. The agreement contains a purchase option
for the land, buildings and improvements and equipment at a price that equals or
exceeds the estimated fair market value throughout the term of the lease.
F-41
200
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) INVESTMENT IN A.W.G.
The investment in Associated Wholesale Grocers ("A.W.G.") consists
principally of the cooperative's six percent interest-bearing seven and
eight-year patronage certificates received in payment of certain rebates.
Following is a summary of future maturities based upon current redemption terms:
1995..................................................... $ --
1996..................................................... --
1997..................................................... 795,000
1998..................................................... 1,420,000
1999..................................................... 1,520,000
Later years.............................................. 2,983,000
----------
$6,718,000
=========
(7) INCOME TAXES
The provision (benefit) for income taxes consists of the following:
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JUNE 27, JUNE 26, JUNE 25,
1992 1993 1994
---------- ---------- -----------
Current:
Federal..................................... $2,507,000 $ -- $ 3,251,000
State and other............................. 934,000 82,000 712,000
---------- ---------- -----------
3,441,000 82,000 3,963,000
---------- ---------- -----------
Deferred:
Federal..................................... -- 1,345,000 (70,000)
State and other............................. -- -- (1,193,000)
---------- ---------- -----------
-- 1,345,000 (1,263,000)
---------- ---------- -----------
$3,441,000 $1,427,000 $ 2,700,000
========= ========= ==========
A reconciliation of the provision (benefit) for income taxes to amounts
computed at the federal statutory rates of 34% for fiscal 1992 and 1993 and 35%
for fiscal 1994 is as follows:
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JUNE 27, JUNE 26, JUNE 25,
1992 1993 1994
----------- ----------- ----------
Federal income taxes at statutory rate on
loss before provision for income taxes and
extraordinary charges...................... $(8,689,000) $(8,818,000) $ --
State and other taxes, net of federal tax
benefit.................................... 934,000 82,000 (1,000)
Alternative minimum tax...................... 2,507,000 -- --
Effect of permanent differences resulting
primarily from amortization of goodwill.... 2,706,000 2,850,000 2,820,000
Accounting limitation (recognition) of
deferred tax benefit....................... 5,983,000 7,313,000 (119,000)
----------- ----------- ----------
$ 3,441,000 $ 1,427,000 $2,700,000
========== ========== =========
F-42
201
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The provision (benefit) for deferred taxes consists of the following:
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JUNE 27, JUNE 26, JUNE 25,
1992 1993 1994
------------ ----------- -----------
Depreciation....................................... $ 6,282,000 $ 7,756,000 $ 2,536,000
Difference between book and tax basis of assets
sold............................................. 2,514,000 3,198,000 (4,223,000)
Deferred revenues and allowances................... (7,028,000) 40,000 (2,349,000)
Pre-opening costs.................................. 1,072,000 (512,000) 174,000
Accounts receivable reserves....................... -- (270,000) 249,000
Unicap............................................. (124,000) (5,000) (536,000)
Capital lease obligation........................... (2,010,000) (1,385,000) 2,792,000
Self-insurance reserves............................ (13,558,000) (4,082,000) (535,000)
Inventory shrink reserve........................... (528,000) 777,000 (869,000)
LIFO............................................... 7,104,000 (554,000) (1,010,000)
Closed store reserve............................... 964,000 1,092,000 440,000
Accrued expense.................................... -- -- (582,000)
Accrued payroll and related liabilities............ (2,656,000) 193,000 1,721,000
Damaged inventory reimbursement.................... 1,195,000 -- --
Acquisition costs.................................. 4,974,000 2,626,000 1,397,000
Sales tax reserves................................. -- (715,000) (418,000)
Deferred rent subsidy.............................. -- (483,000) (624,000)
Net operating loss usage........................... -- -- 5,782,000
Tax credits benefited.............................. -- (1,392,000) (4,477,000)
Accounting limitation (recognition) of deferred tax
benefit 1,588,000 (4,591,000) (1,085,000)
Other, net......................................... 211,000 (348,000) 354,000
------------ ----------- -----------
$ -- $ 1,345,000 $(1,263,000)
=========== ========== ==========
F-43
202
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The significant components of the Company's deferred tax assets
(liabilities) are as follows:
JUNE 26, JUNE 25,
1993 1994
------------ ------------
Deferred tax assets:
Accrued payroll and related liabilities............... $ 4,064,000 $ 2,448,000
Other accrued liabilities............................. 13,488,000 13,953,000
Property and equipment................................ 9,674,000 2,997,000
Self-insurance liabilities............................ 30,907,000 27,744,000
Loss carryforwards.................................... 27,863,000 20,675,000
Tax credit carryforwards.............................. 1,392,000 5,869,000
Other................................................. 1,223,000 580,000
------------ ------------
Gross deferred tax assets.......................... 88,611,000 74,266,000
Valuation allowance................................... (45,008,000) (31,149,000)
------------ ------------
Net deferred tax assets............................ $ 43,603,000 $ 43,117,000
------------ ------------
Deferred tax liabilities:
Inventories........................................... $(20,243,000) $(16,738,000)
Property and equipment................................ (38,298,000) (30,516,000)
Obligations under capital leases...................... (5,802,000) (8,733,000)
Other................................................. (1,689,000) (1,870,000)
------------ ------------
Gross deferred tax liability....................... (66,032,000) (57,857,000)
------------ ------------
Net deferred tax liability......................... $(22,429,000) $(14,740,000)
=========== ===========
The Company recorded a valuation allowance to reserve a portion of its
gross deferred tax assets at June 25, 1994 due primarily to financial and tax
losses in recent years. Under SFAS 109, this valuation allowance will be
adjusted in future periods as appropriate. However, the timing and extent of
such future adjustments to the allowance cannot be determined at this time.
At June 25, 1994, approximately $8,864,000 of the valuation allowance for
deferred tax assets will reduce goodwill when the allowance is no longer
required.
At June 25, 1994, the Company has net operating loss carryforwards for
federal income tax purposes of $59,071,000, which expire in 2007 through 2008.
The Company has federal and state Alternative Minimum Tax ("AMT") credit
carryforwards of approximately $4,090,000 which are available to reduce future
regular taxes in excess of AMT. Currently, there is no expiration date for these
credits.
FFL files a consolidated federal income tax return, under which the federal
income tax liability of FFL and its subsidiaries (which since June 23, 1989
include the Company) is determined on a consolidated basis. FFL has entered into
a federal income tax sharing agreement with the Company and certain of its
subsidiaries (the "Tax Sharing Agreement"). The Tax Sharing Agreement provides
that in any year in which the Company is included in any consolidated tax
liability of FFL and has taxable income, the Company will pay to FFL the amount
of the tax liability that the Company would have had on such due date if it had
been filing a separate return. Conversely, if the Company generates losses or
credits which actually reduce the consolidated tax liability of FFL and its
other subsidiaries, FFL will credit to the Company the amount of such reduction
in the consolidated tax liability. These credits are passed between FFL and the
Company in the form of cash payments. In the event any state and local income
taxes are determinable on a combined or consolidated basis, the Tax Sharing
Agreement provides for a similar allocation between FFL and the Company of such
state and local taxes.
F-44
203
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company currently has an Internal Revenue Service examination in
process covering its 1990 and 1991 fiscal years. The Internal Revenue Service
has not yet made any additional tax assessments related to these years.
(8) RELATED PARTY TRANSACTIONS
The Company has a five-year consulting agreement with an affiliated company
effective June 17, 1991 for management, financing, acquisition and other
services. The agreement is automatically renewed on January 1 of each year for
the five-year term unless ninety (90) days' notice is given by either party. The
contract provides for annual management fees equal to $2 million plus an
additional amount based on the Company's performance and advisory fees for
acquisition and financing transactions.
Fees paid or accrued associated with management services were $2,270,000
during the 52 weeks ended June 25, 1994, $2,000,000 during the 52 weeks ended
June 26, 1993, and $2,000,000 during the 52 weeks ended June 27, 1992. Advisory
fees paid or accrued were $170,000 during the 52 weeks ended June 25, 1994,
$1,795,000 for the 52 weeks ended June 26, 1993, and $116,000 for the 52 weeks
ended June 27, 1992. Advisory fees paid or accrued for financing transactions
are capitalized and amortized over the term of the related financing. In
connection with the acquisitions of Alpha Beta, ABC and the Food Barn Stores,
the Company capitalized fees of $8,000,000, $500,000 and $92,000, respectively,
which were paid to this affiliated company for acquisition services.
(9) COMMITMENTS AND CONTINGENCIES
The Company is contingently liable to former stockholders of certain
predecessors for any prorated gains which may be realized within ten years of
the acquisition of the respective companies resulting from the sale of the
Certified stock. Such gains are only payable if Certified is purchased or
dissolved, or if the Company sells the shares to Certified within the period
noted above.
The Company is a partner in a supplier partnership, in which it is
contingently liable for the partnership's long-term debt. The Company's portion
of such debt is approximately $1,650,000.
The Company has entered into lease agreements with the developers of
several new sites in which the Company has agreed to provide construction
financing. At June 25, 1994, the Company had capitalized construction costs of
$10,435,000 on total commitments of $19,250,000.
In December 1992, three California state antitrust class action suits were
commenced in Los Angeles Superior Court against the Company and other major
supermarket chains located in Southern California, alleging that they conspired
to refrain from competing in and to fix the price of fluid milk above
competitive prices. Specifically, class actions were commenced by Diane Barela
and Neila Ross, Ron Moliare and Paul C. Pfeifle on December 7, December 14 and
December 23, 1992, respectively. To date, the Court has yet to certify any of
these classes, while a demurrer to the complaints was denied. The Company will
vigorously defend itself in these class action suits.
In addition, the Company or its subsidiaries are defendants in a number of
other cases currently in litigation or potential claims encountered in the
normal course of business which are being vigorously defended. In the opinion of
management, the resolutions of these matters will not have a material effect on
the Company's financial position or results of operations.
The Company self-insures its workers compensation and general liability.
For the 52 weeks ended June 25, 1994, the 52 weeks ended June 26, 1993, and the
52 weeks ended June 27, 1992, self-insurance loss provisions were $19,880,000,
$38,040,000 and $46,140,000, respectively. The Company discounts its self-
insurance liability using a 7% discount rate for all years presented. Management
believes that this rate
F-45
204
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximates the time value of money over the anticipated payout period
(approximately 10 years) for essentially risk free investments.
The Company's historical self-insurance liability for the three most recent
fiscal years is as follows:
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JUNE 27, JUNE 26, JUNE 25,
1992 1993 1994
------------ ------------ -----------
Self-insurance liability.......... $ 95,605,000 $100,773,000 $90,898,000
Less: Discount.................... (13,046,000) (15,279,000) (9,194,000)
------------ ------------ -----------
Net self-insurance liability...... $ 82,559,000 $ 85,494,000 $81,704,000
=========== =========== ==========
The Company expects that cash payments for claims will aggregate
approximately $14 million (unaudited), $20 million (unaudited), $17 million
(unaudited), $12 million (unaudited) and $7 million (unaudited) for its fiscal
years ended in June 1995, 1996, 1997, 1998 and 1999.
(10) EMPLOYEE BENEFIT PLANS
The Company implemented SOP No. 93-6, Employer Accounting for Employee
Stock Ownership Plans, effective June 26, 1994. The implementation of SOP No.
93-6 did not have a material effect on the accompanying unaudited consolidated
financial statements.
The Company and its subsidiaries sponsor several defined contribution
benefit plans. The full-time employees of Falley's who are not members of a
collective bargaining agreement are covered under a 401(k) plan under which the
Company matches certain employee contributions with cash or FFL stock (the
"Falley's ESOP"). As part of the original stock sale agreement between FFL and
the Falley's ESOP, which has been amended from time to time, an affiliate of the
Company has assumed the obligation to purchase any FFL shares as to which
terminated plan participants have exercised a put option under the terms of
Falley's ESOP. As part of that agreement, the Company may, at its sole
discretion, after providing a right of first refusal to the affiliate, purchase
FFL shares put under the provisions of the plan. During the year ended June 25,
1994, the Company elected to purchase $1.0 million of FFL shares as to which
terminated plan participants had exercised their put option. FFL shares
purchased by the Company are classified as treasury stock. As of the most recent
valuation letter, dated December 16, 1994, the fair value of the shares
allocated which are subject to a repurchase obligation by an affiliate of the
Company was approximately $14,326,000 (unaudited).
The Company also sponsors two ESOPs for employees of the Company who are
members of certain collective bargaining agreements (the "Union ESOPs"). The
Union ESOPs provide for annual contributions based on hours worked at a rate
specified by the terms of the collective bargaining agreements. The Company
contributions are made in the form of Holdings stock or cash for the purchase of
Holdings stock and are to be allocated to participants based on hours worked.
During the 28 weeks ended January 7, 1995, the Company recorded a charge against
operations of approximately $230,000 (unaudited) for benefits under the Union
ESOPs. There were no shares issued to the Union ESOPs at January 7, 1995.
All other full-time employees of the Company who are not members of a
collective bargaining agreement are covered under a separate 401(k) plan (the
"Management Plan"). The Management Plan provides for annual contributions which
are determined at the discretion of the Company. The Company contributions are
allocated to participants based on employee compensation and matching of certain
employee contributions. A portion of the Company contribution allocated based on
compensation is made in the form of stock or cash for the purchase of stock.
Total charges against operations related to all employee benefit plans
sponsored by the Company and its subsidiaries were $337,000, $284,000 and
$699,000 for the 52 weeks ended June 27, 1992, the 52 weeks ended
F-46
205
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
June 26, 1993, and the 52 weeks ended June 25, 1994, respectively. No
contributions were made with stock and no stock was acquired by any plans in
fiscal 1992, fiscal 1993 or fiscal 1994.
The Company contributes to multi-employer pension plans administered by
various trustees. Contributions to these plans are based upon negotiated wage
contracts. These plans may be deemed to be defined benefit plans. Information
related to accumulated plan benefits and plan net assets as they may be
allocated to the Company at June 25, 1994 is not available. The Company
contributed $78.6 million, $69.4 million and $57.2 million to these plans for
the 52 weeks ended June 27, 1992, June 26, 1993, and June 25, 1994,
respectively. Management is not aware of any plans to terminate such plans.
The United Food and Commercial Workers health and welfare plans were
overfunded and those employers who contributed to the plans are to receive a pro
rata share of the excess reserves in these plans through a reduction of current
contributions. The Company's share of the excess reserve was $24.2 million, of
which $8.1 million was recognized in the 52 weeks ended June 25, 1994, with the
remainder to be recognized in future periods as the credits are taken.
Offsetting the reduction in employer contributions was a $5.5 million union
contract ratification bonus and contractual wage increases.
(11) COMMON STOCK
On December 31, 1992, concurrent with the sale of the Preferred Stock, the
Company sold 121,118 shares of common stock to Holdings. Concurrently, the
remaining shares of common stock of the Company were exchanged for shares of
Holdings common stock on a one for one basis.
(12) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
(a) Cash and Cash Equivalents
The carrying amount approximates fair value as a result of the short
maturity of these instruments.
(b) Short-Term Notes and Other Receivables
The carrying amount approximates fair value as a result of the short
maturity of these instruments.
(c) Investments In and Notes Receivable From Supplier Cooperatives
The Company maintains a non-current deposit with Certified in the form of
Class B shares of Certified. Certified is not obligated in any fiscal year to
redeem more than a prescribed number of the Class B shares issued. Therefore, it
is not practicable to estimate the fair value of this investment.
The Company maintains a non-current note receivable from A.W.G. There are
no quoted market prices for this investment and a reasonable estimate could not
be made without incurring excessive costs. Additional information pertinent to
the value of this investment is provided in Note 6.
(d) Long-Term Debt
The fair value of the $175.0 million Senior Notes, the $145.0 million
Subordinated Notes and the Bank Term Loan is based on quoted market prices.
Market quotes for the fair value of the remainder of the Company's debt are not
available, and a reasonable estimate of the fair value could not be made without
incurring excessive costs. Additional information pertinent to the value of the
unquoted debt is provided in Note 4.
F-47
206
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The estimated fair values of the Company's financial instruments are as
follows:
JUNE 25, 1994
-------------------------
CARRYING FAIR
AMOUNT VALUE
----------- -----------
Cash and cash equivalents................................... $32,996,000 $32,996,000
Short-term notes and other receivables...................... 4,187,000 4,187,000
Investments in and notes receivable from supplier
cooperatives.............................................. 12,702,000 --
Long-term debt for which it is:
- Practicable to estimate fair values..................... 457,064,000 472,779,000
- Not practicable......................................... 17,194,000 --
(13) OTHER INCOME, NET
The components of other income items included in SG&A are as follows:
52 WEEKS 52 WEEKS 52 WEEKS
ENDED ENDED ENDED
JUNE 27, JUNE 26, JUNE 25,
1992 1993 1994
---------- ---------- ---------
Interest income.................................... $1,266,000 $ 993,000 $ 903,000
Licensing fees..................................... 493,000 246,000 270,000
Other income (expense)............................. 769,000 3,710,000 (177,000)
---------- ---------- ---------
$2,528,000 $4,949,000 $ 996,000
========= ========= =========
(14) RESTATEMENT
The Company has restated the statements of operations for its fiscal years
ended June 27, 1992, June 26, 1993 and June 25, 1994 and the 28 weeks ended
January 8, 1994 to classify certain buying, occupancy and labor costs associated
with making its products available for sale as cost of sales. These amounts were
previously classified as selling, general, administrative, and other net, and
depreciation and amortization of property and equipment and totalled
$236,152,000, $224,469,000, $219,548,000 and $114,334,000 (unaudited) for the
fiscal years ended June 27, 1992, June 26, 1993 and June 25, 1994 and the 28
weeks ended January 8, 1994, respectively. The Company has also classified a
portion of its self-insurance costs as interest expense that was previously
recorded in selling, general, administrative and other, net. These amounts were
$4,960,000, $5,865,000, $5,836,000 and $3,275,000 (unaudited) for the fiscal
years 1992, 1993 and 1994 and the 28 weeks ended January 8, 1994, respectively.
Depreciation and amortization costs not classified in cost of sales are included
in selling, general, administrative and other, net. The change in classification
did not affect the net loss, loss before provision for income taxes and
extraordinary charges or loss per common share.
(15) SUBSEQUENT EVENT (UNAUDITED)
On September 14, 1994, the Company, Holdings, and FFL entered into a
definitive Agreement and Plan of Merger (the "Merger") with Ralphs Supermarkets,
Inc. ("Ralphs") and the stockholders of Ralphs. Pursuant to the terms of the
Merger Agreement, the Company will, subject to certain terms and conditions
being satisfied or waived, be merged into Ralphs and Ralphs will become a
wholly-owned subsidiary of Holdings. Conditions to the consummation of the
Merger include, among other things, receipt of regulatory approvals and other
necessary consents and the completion of financing for the transaction. The
purchase price for Ralphs is approximately $1.5 billion, including the
assumption of debt.
The aggregate purchase price, payable to the stockholders of Ralphs, will
consist of $375 million in cash, $131.5 million initial principal amount of
13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007
F-48
207
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
("Seller Debentures") and $18.5 million of initial accreted value of 13 5/8%
Senior Discount Debentures due 2005 ("New Discount Debentures"). In addition,
the Company will enter into an agreement with a stockholder of Ralphs pursuant
to which such stockholder will act as a consultant to the Company with respect
to certain real estate and general commercial matters for a period of five years
from the closing of the Ralphs Merger in exchange for the payment of a
consulting fee.
The financing required to complete the Merger will include the issuance of
significant additional equity by FFL, the issuance of new debt securities by the
Company and Holdings and the incurrence of additional bank financing by the
Company. The equity issuance would be made to a group of investors led by Apollo
Advisors, L.P. ("Apollo"), which will purchase up to $140 million in FFL stock.
Apollo will receive a $5 million fee for its commitment to make an equity
investment. The issuance of new debt securities would be in the form of senior
notes of Supermarkets of up to $295 million and senior subordinated notes of
Supermarkets of up to $200 million. The bank financing would be made pursuant to
a commitment by Bankers Trust Company to provide up to $1,075 million in such
financing. In connection with the receipt of new financing, the Company and
Holdings will also be required to complete certain exchange offers, consent
solicitations and or other transactions with the holders of their currently
outstanding debt securities. 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 $64.5 million at January 7,
1995, for $83.9 million in cash.
As of January 29, 1995, Ralphs had outstanding indebtedness of
approximately $1,018.5 million. Ralphs had sales of $2,724.6 million, operating
income of $145.6 million and earnings before income taxes of $32.1 million for
its most recent fiscal year ended January 29, 1995.
Upon consummation of the Merger, the operations and activities of the
Company will be significantly impacted due to conversions of the Company's
existing Southern California conventional stores to either Ralphs or Food 4 Less
warehouse stores as well as the consolidation of various operating functions and
departments. The Merger will result in restructuring charges that are currently
estimated to be approximately $45 million, of which approximately $5.1 million
was recorded in the Company's results of operations for the 28 weeks ended
January 7, 1995. The remaining estimated restructuring charges will be recorded
as an expense once the Merger is completed.
(16) RESTRUCTURING CHARGE (UNAUDITED)
The Company has converted 11 of its conventional format supermarkets to
warehouse format stores. During the 28 weeks ended January 7, 1995, the Company
recorded a restructuring charge for the write-off of property and equipment at
the 11 stores of $5.1 million.
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APPENDIX A
COMPARISON OF OLD RGC NOTES AND NEW NOTES
The terms of the New Notes differ from the current (unamended) terms of the
Old RGC Notes in certain significant respects including those described below.
The comparisons set forth below are summaries which do not purport to be
complete and are qualified in their entirety by reference to the description of
the Proposed Amendments and to the description of the New Notes and the related
definitions contained therein.
OLD RGC NOTES NEW NOTES
- ------------------------------------------------------ ------------------------------------------------------
ISSUER ISSUER
RGC The Company, as successor by merger to RGC.
PRINCIPAL AMOUNT OUTSTANDING PRINCIPAL AMOUNT OUTSTANDING
Old RGC 9% Notes: The up to $450 million principal amount of New Notes
As of May 1, 1995, $150 million. offered hereby will be part of an issue of up to $650
million aggregate principal amount of New Notes, up to
Old RGC 10 1/4 Notes: $200 million principal amount of which will be issued
As of May 1, 1995, $300 million. pursuant to the Subordinated Note Public Offering.
INTEREST RATE INTEREST RATE
Old RGC 9% Notes: Concurrently with the Exchange Offers and the other
bear interest at the rate of 9% per annum. financing transactions described herein, Food 4 Less is
offering up to $200 million principal amount of New
Old RGC 10 1/4% Notes: Notes in the Subordinated Note Public Offering. The
bear interest at the rate of 10 1/4% per annum. Subordinated Note Public Offering is expected to price
ten business days preceding the final Expiration Date
of the Offers. The New Notes offered pursuant to the
Offers will bear interest at a fixed rate per annum
equal to the greater of (a) 11.00% and (b) the
Applicable Treasury Rate plus 400 basis points (4.00
percentage points); provided, however, that in no event
will the New Notes offered for exchange hereby bear
interest at a rate per annum that is less than the
interest rate on the New Notes offered in the
Subordinated Note Public Offering.
The "Applicable Treasury Rate" means the yield to
maturity at the time of computation of United States
Treasury securities with a constant maturity (as
compiled by, and published in, the most recent Federal
Reserve Statistical Release H.15 (519)) most nearly
equal to the average life to stated maturity of the New
Notes; provided that if the average life to stated
maturity of the New Notes is not equal to the constant
maturity of the United States Treasury security for
which a weekly average yield is given, the Treasury
Rate shall be obtained by linear interpolation
(calculated to the nearest one-twelfth of the year)
from the weekly average yields of the United States
Treasury securities for which such yields are given.
INTEREST PAYMENT DATES INTEREST PAYMENT DATES
Old RGC 9% Notes: May 15 and November 15, commencing on November 15,
April 1 and October 1. 1995.
Old RGC 10 1/4% Notes:
January 15 and July 15.
FINAL MATURITY DATE FINAL MATURITY DATE
Old RGC 9% Notes: May 15, 2005.
May 1, 2003.
Old RGC 10 1/4% Notes:
July 15, 2002.
OPTIONAL REDEMPTION OPTIONAL REDEMPTION
Old RGC 9% Notes: The New Notes will be redeemable at the option of the
The Old RGC 9% Notes are subject to redemption in Company, in whole or in part, at any time on or after
whole or in part, at the option of RGC, at any time May 15, 2000, at the following redemption prices
on or after April 1, 2000, at 100% of the principal (expressed as percentages of principal amount) if
amount thereof plus accrued and unpaid interest to redeemed during the twelve month period beginning May
the redemption date. 15 of the years set forth below:
Old RGC 10 1/4% Notes: YEAR PERCENTAGE
The Old RGC 10 1/4% Notes are subject to redemption 2000............................. 104.125%
in whole or in part, at the option of RGC, at any 2001............................. 102.750%
time on or after July 15, 1997, at the following 2002............................. 101.375%
redemption prices if redeemed during the twelve-month 2003 and thereafter.............. 100.000%
period beginning July 15, 1997 of the years indicated
below:
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OLD RGC NOTES NEW NOTES
- ------------------------------------------------------ ------------------------------------------------------
1997..........................................105.0% in each case plus accrued and unpaid interest to the
1998..........................................102.5% redemption date. In the event the interest rate on the
1999 and thereafter...........................100.0% New Notes is greater than 11.00%, the above redemption
prices will be correspondingly adjusted.
in each case plus accrued and unpaid interest to the
redemption date. In addition, on or prior to May 15, 1998, the Company
may, at its option, use the net cash proceeds of one or
more Public Equity Offerings to redeem up to an
aggregate of 35% of the principal amount of the New
Notes originally issued, at a redemption price equal to
111.00% of the principal amount thereof if redeemed
during the 12 months commencing on May 15, 1995,
109.625% of the principal amount thereof if redeemed
during the 12 months commencing on May 15, 1996 and
108.25% of the principal amount thereof if redeemed
during the 12 months commencing on May 15, 1997, in
each case plus accrued and unpaid interest to the
redemption date. In the event the interest rate on the
New Notes is greater than 11.00%, the above redemption
prices will be correspondingly adjusted. In order to
effect the foregoing redemption with the proceeds of a
Public Equity Offering, the Company shall send the
redemption notice not later than 60 days after the
consummation of such Public Equity Offering. The
documents evidencing Senior Indebtedness will restrict
the Company's ability to optionally redeem New Notes.
GUARANTEES GUARANTEES
None. The New Notes will be guaranteed on a senior
subordinated basis by the Subsidiary Guarantors. The
Guarantees will be general unsecured obligations of the
Subsidiary Guarantors, and will be released upon the
occurrence of certain events. See "Description of the
New Notes -- Guarantees."
"Subsidiary Guarantors" means (i) each of Alpha Beta
Company, Bay Area Warehouse Stores, Inc., Bell Markets,
Inc., Cala Co., Cala Foods, Inc., Falley's Inc., Food 4
Less of California, Inc., Food 4 Less Merchandising,
Inc., Food 4 Less GM, Inc. and Food 4 Less of Southern
California, Inc., (ii) upon consummation of the Merger,
Crawford Stores, Inc., (iii) each of the Company's
Subsidiaries which becomes a guarantor of the New Notes
in compliance with the provisions set forth under
"-- Certain Covenants -- Guarantees of Certain
Indebtedness," and (iv) each of the Company's
Subsidiaries executing a supplemental indenture in
which such Subsidiary agrees to be bound by the terms
of the New Note Indenture.
RANKING RANKING
Subordinated to all Senior Indebtedness of RGC which, The New Notes will be senior subordinated unsecured
as of January 29, 1995, was approximately $570 obligations of the Company and will be subordinated in
million. right of payment to all Senior Indebtedness of the
Company, including the Company's obligations under the
"Senior Indebtedness" means (i) the principal of, Credit Agreement and the indebtedness under the New F4L
premium, if any, and accrued and unpaid interest on Senior Notes and the Old F4L Senior Notes, if any.
(including, without limitation, interest at the
contract rate subsequent to the commencement of any The Indebtedness represented by each Guarantee
bankruptcy, insolvency or similar proceeding with (including the payment of principal of, premium, if
respect to RGC and with respect to the 1992 Credit any, and interest on the New Notes) will be
Agreement only, such interest whether or not a claim subordinated on the same basis to Guarantor Senior
therefor is allowed in such proceeding), letters of Indebtedness as the New Notes are subordinated to
credit (or reimbursement agreements with respect Senior Indebtedness.
thereto) and any fees and reasonable expenses payable
under or in respect of (A) Indebtedness of RGC under At January 7, 1995, on a pro forma basis after giving
the 1992 Credit Agreement, (B) Indebtedness of RGC, effect to the Merger and the Financing (and certain
contingent or otherwise, in respect of borrowed money related assumptions), the aggregate outstanding amount
(whether or not the recourse of the lender is to the of Senior Indebtedness of the Company (excluding
whole of the assets of RGC or only to a portion thereof Company guarantees of certain Guarantor Senior
and including any Indebtedness issued in exchange for Indebtedness) would have been approximately $1,509.0
Indebtedness for borrowed money), (C) Guaranties by RGC million and the aggregate outstanding amount of Guar-
of Indebtedness for borrowed money (exclusive of antor Senior Indebtedness of the Subsidiary Guarantors
whether such Indebtedness would appear on a balance (excluding guarantees by Subsidiary Guarantors of
sheet), (D) Indebtedness of RGC evidenced by notes, certain Senior Indebtedness) would have been
debentures, bonds, overdrafts or other similar approximately $16.5 million and the Company would have
instruments for which RGC is liable, bankers' had $173.1 million available to be borrowed under the
acceptances or similar credit transactions or New Revolving Facility.
representing the balance deferred and unpaid of the
purchase price of any property that would appear as a "Senior Indebtedness" means the principal of, premium,
liability on RGC's consolidated balance sheet prepared if any, and interest on any Indebtedness of the
in accordance with GAAP consistently applied, (E) Company, whether
obligations of RGC under
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OLD RGC NOTES NEW NOTES
- ------------------------------------------------------ ------------------------------------------------------
leases which have, in accordance with GAAP consistently outstanding on the Issue Date or thereafter created,
applied, been recorded as capital leases, and (F) incurred or assumed, unless, in the case of any
obligations under interest rate and currency swaps, particular Indebtedness, the instrument creating or
caps, collars, options, forward or spot contracts or evidencing the same or pursuant to which the same is
similar arrangements or with respect to foreign outstanding expressly provides that such Indebtedness
currency hedges or similar agreements or arrangements shall not be senior in right of payment to the New
designed to protect RGC against fluctuations in Notes. Without limiting the generality of the
interest or currency rates, and (ii) modifications, foregoing, "Senior Indebtedness" shall include (x) the
renewals, extensions and refundings (including principal of, premium, if any, and interest on all
increases and refinancing of the Indebtedness of RGC obligations of every nature of the Company from time to
under the 1992 Credit Agreement) of the foregoing time owed to the lenders under the Credit Agreement
obligations, unless the foregoing obligations or such including, without limitation, the Letter of Credit
modifications, renewals, extensions and refundings Obligations and principal of and interest on, and all
thereof provide by their terms that such shall not be fees, and expenses payable under the Credit Agreement
superior in right of payment to the Old RGC Notes. and the Letter of Credit Obligations and (y) interest
Notwithstanding the foregoing, "Senior Indebtedness" accruing thereon subsequent to the occurrence of any
shall not include (i) Indebtedness evidenced by the Old Event of Default specified in clause (vi) or (vii)
RGC Notes, (ii) Indebtedness that is subordinate or under "Events of Default" in the New Note Indenture
junior in right of payment to any Indebtedness of RGC relating to the Company, whether or not the claim for
(provided, however, that Indebtedness under the 1992 such interest is allowed under any applicable
Credit Agreement shall always be considered Senior Bankruptcy Law.
Indebtedness), (iii) any liability for federal, state,
provincial, local or other taxes owed or owing by RGC, Notwithstanding the foregoing, "Senior Indebtedness"
(iv) Indebtedness of RGC to a Subsidiary of RGC or any shall not include (a) Indebtedness evidenced by the New
other Affiliate of RGC or any of such Affiliate's Notes, (b) Indebtedness that is expressly subordinate
subsidiaries other than payments pursuant to the EJDC or junior in right of payment to any Indebtedness of
Guaranty, (v) that portion of any Indebtedness which at the Company, (c) Indebtedness which, when incurred and
the time of issuance is issued in violation of the without respect to any election under Section 1111(b)
applicable Old RGC Indenture, and (vi) amounts owing of Title 11, United States Code, is without recourse to
under leases (other than Capital Lease Obligations). the Company, (d) Indebtedness which is represented by
Disqualified Capital Stock, (e) obligations for goods,
"1992 Credit Agreement" means that certain Credit materials or services purchased in the ordinary course
Agreement dated as of July 22, 1992 among RGC, the of business or obligations consisting of trade
lenders named therein and Bankers Trust Company, as payables, (f) Indebtedness of or amounts owed by the
agent, as the same may be amended, amended and Company for compensation to employees or for services
restated, supplemented or otherwise modified from time rendered to the Company, (g) any liability for federal,
to time and any agreement providing for aggregate state, local or other taxes owed or owing by the
extension of credit in excess of $25,000,000 Company, (h) Indebtedness of the Company to a
refinancing or replacing such agreement. Subsidiary of the Company and (i) that portion of any
Indebtedness which is incurred by the Company in
"EJDC Guaranty" means the Guaranty issued by the violation of the New Note Indenture.
Permitted Holder guaranteeing the payment of
obligations of RGC as required under workers'
compensation regulations in the State of California and
any extensions and renewals thereof.
"Guarantor Senior Indebtedness" means, with respect to
any Subsidiary Guarantor, the principal of, premium, if
any, and interest on any Indebtedness of such
Subsidiary Guarantor, whether outstanding on the Issue
Date or thereafter created, incurred or assumed,
unless, in the case of any particular Indebtedness, the
instrument creating or evidencing the same or pursuant
to which the same is outstanding expressly provides
that such Indebtedness shall not be senior in right of
payment to the Guarantee of such Subsidiary Guarantor.
Without limiting the generality of the foregoing,
"Guarantor Senior Indebtedness" shall include the
principal of, premium, if any, and interest on all
obligations of every nature of such Subsidiary
Guarantor from time to time owed to the lenders under
the Credit Agreement, including, without limitation,
the Letter of Credit Obligations and principal of and
interest on, and all fees, indemnities and expenses
payable under the Credit Agreement and the Letters of
Credit Obligations. Notwithstanding the foregoing,
"Guarantor Senior Indebtedness" shall not include (a)
Indebtedness evidenced by the Guarantee of such
Subsidiary Guarantor, (b) Indebtedness that is
expressly subordinate or junior in right of payment to
any Indebtedness of such Subsidiary Guarantor, (c)
Indebtedness which, when incurred and without respect
to any election under Section 1111(b) of Title 11,
United States Code, is without recourse to such
Subsidiary Guarantor, (d) Indebtedness which is
represented by Disqualified Capital Stock, (e)
obligations for goods, materials or services purchased
in the ordinary course of business or obligations
consisting of trade payables, (f) Indebtedness of or
amounts owed by such Subsidiary Guarantor for
compensation to employees or for services rendered to
such Subsidiary Guarantor, (g) any liability for
federal, state, local or other taxes owed or owing by
such Subsidiary Guarantor, (h) Indebtedness of such
Subsidiary
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OLD RGC NOTES NEW NOTES
- ------------------------------------------------------ ------------------------------------------------------
Guarantor representing a guarantee of Subordinated
Indebtedness or Pari Passu Indebtedness of the Company
or any other Subsidiary Guarantor, (i) Indebtedness of
such Subsidiary Guarantor to a Subsidiary of the
Company and (j) that portion of any Indebtedness which
is incurred by such Subsidiary Guarantor in violation
of the New Note Indenture.
"Credit Agreement" means the Credit Agreement, dated as
of the Issue Date, by and among Food 4 Less, certain of
its subsidiaries, the Lenders referred to therein and
Bankers Trust Company, as administrative agent, as the
same may be amended, extended, renewed, restated,
supplemented or otherwise modified (in each case, in
whole or in part, and without limitation as to amount,
terms, conditions, covenants and other provisions) from
time to time, and any agreement governing Indebtedness
incurred to refund, replace or refinance any borrowings
and commitments then outstanding or permitted to be
outstanding under such Credit Agreement or any such
prior agreement as the same may be amended, extended,
renewed, restated, supplemented or otherwise modified
(in each case, in whole or in part, and without
limitation as to amount, terms, conditions, covenants
and other provisions). The term "Credit Agreement"
shall include all related or ancillary documents,
including, without limitation, any guarantee agreements
and security documents. The Company shall promptly
notify the New Note Trustee of any such refunding or
refinancing of the Credit Agreement.
"Designated Senior Indebtedness" means (i) in the event
any Indebtedness is outstanding under the Credit
Agreement, all Senior Indebtedness under the Credit
Agreement and (ii) if no Indebtedness is outstanding
under the Credit Agreement, any other issue of Senior
Indebtedness which (a) at the time of the determination
is equal to or greater than $50 million in aggregate
principal amount and (b) is specifically designated in
the instrument evidencing such Senior Indebtedness as
"Designated Senior Indebtedness" by the Company. For
purposes of this definition, the term "Credit
Agreement" shall not include any agreement governing
Indebtedness incurred to refund, replace or refinance
borrowings or commitments under the Credit Agreement
other than any such agreements incurred to refund,
replace or refinance the entirety of the borrowings and
commitments then outstanding or permitted to be
outstanding thereunder.
CHANGE OF CONTROL CHANGE OF CONTROL
The Old RGC Indentures provide that if a Change of The New Note Indenture will provide that, upon the
Control Triggering Event shall occur at any time, occurrence of a Change of Control, each Holder will
then, subject to the provisions of the Old RGC have the right to require the repurchase of such
Indentures, each Holder of Old RGC Notes shall have the Holder's New Notes pursuant to the offer described
right to require that RGC repurchase such Holder's Old below (the "Change of Control Offer"), at a purchase
RGC Notes in whole or in part in integral multiples of price equal to 101% of the principal amount thereof
$1,000, at a purchase price (the "Change of Control plus accrued and unpaid interest to the date of
Purchase Price") in cash in an amount equal to 101% of repurchase.
the principal amount of such Old RGC Notes, plus
accrued and unpaid interest (including any defaulted The New Note Indenture will provide that within 30 days
interest), if any, to the date of purchase, pursuant to following the date upon which the Change of Control
the offer described in the following paragraph (the occurred, the Company must send, by first class mail, a
"Change of Control Offer") and other procedures set notice to each Holder of New Notes, with a copy to the
forth in this covenant. Any rights of Holders arising New Note Trustee, which notice shall govern the terms
pursuant to a Change of Control Offer shall be of the Change of Control Offer. The New Note Indenture
subordinated in right of payment to all Senior shall require that notice of an event giving rise to a
Indebtedness of RGC to the same extent as the Old RGC Change of Control shall be given on the same date and
Notes are subordinated to Senior Indebtedness of RGC. in the same manner to all Holders. Such notice shall
state, among other things, the purchase date, which
Pursuant to the Old RGC Indentures, within 30 days must be no earlier than 30 days nor later than 40 days
following any Change of Control Triggering Event, RGC from the date such notice is mailed, other than as may
shall notify each Old RGC Note Trustee and the Old RGC be required by law (the "Change of Control Payment
Note Trustee shall promptly send by first-class mail, Date"). The New Note Indenture shall provide that the
postage prepaid, to each holder of the Old RGC Notes, Change of Control Payment Date under the Senior F4L
at his address appearing in the Old RGC Note registers, Note Indenture shall be one Business Day prior to the
a notice stating, among other things, the purchase Change of Control Payment Date under the New Note
price and that the purchase date (the "Change of Indenture with respect to such Change of Control.
Control Purchase Date") shall be a Business Day no Holders electing to have a New Note purchased pursuant
earlier than 45 days nor later than 60 days from the to a Change of Control Offer will be required to
date such notice is mailed, or such later date as is surrender the New Note, with the form entitled "Option
necessary to comply with requirements under of Holder to Elect Purchase" on the reverse of the New
Note completed, to the Paying Agent at the
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OLD RGC NOTES NEW NOTES
- ------------------------------------------------------ ------------------------------------------------------
the Exchange Act; that any Old RGC Note not tendered address specified in the notice prior to the close of
will continue to accrue interest; that RGC will pay the business on the Business Day prior to the Change of
Change of Control Purchase Price for any Old RGC Notes Control Payment Date. Each Change of Control Offer is
that have been properly tendered and not withdrawn required to remain open for at least 20 Business Days
promptly following the Change of Control Purchase Date; and until 12:00 Midnight New York City time on the
and certain other procedures that a Holder must follow applicable Change of Control Payment Date.
to accept a Change of Control Offer or withdrawal such
acceptance. Any failure to comply with this covenant The New Note Indenture will further provide that,
shall constitute a default in the performance of a notwithstanding the foregoing, prior to the mailing of
covenant for purposes of determining whether an Event the notice of a Change of Control Offer referred to
of Default has occurred if payment of the Change of above, within 30 days following a Change of Control the
Control Purchase Price is prohibited by the Company shall either (a) repay in full and terminate
subordination provisions of the Indenture. all commitments under Indebtedness under the Credit
Agreement to the extent the terms thereof require
"Change of Control Triggering Event" means the repayment upon a Change of Control (or offer to repay
occurrence of both a Change of Control and a Rating in full and terminate all commitments under all
Decline. Indebtedness under the Credit Agreement and repay the
Indebtedness owed to each lender which has accepted
"Change of Control" means such time as (i) a "person" such offer), or (b) obtain the requisite consents under
or "group" (within the meaning of Sections 13(d) and the Credit Agreement, the terms of which require
14(d)(2) of the Exchange Act), other than the Permitted repayment upon a Change of Control, to permit the
Holder or its Affiliates, becomes the "beneficial repurchase of the New Notes as provided above. The
owner" (as defined in Rule 13d-3 under the Exchange Company shall first comply with the covenant in the
Act) of more than fifty percent (50%) of the total immediately preceding sentence before it shall be
voting power of the then outstanding Voting Stock of required to repurchase New Notes pursuant to the
RGC or RSI and (ii) such person or group succeeds in provisions described above. The Company's failure to
having its or their nominees constitute a majority of comply with the covenants described in this paragraph
RGC's or RSI's board of directors. shall constitute an Event of Default under the New Note
Indenture.
"Rating Decline" means the occurrence of the
following on, or within 90 days after, the earlier of In addition, the New Note Indenture will provide that
(i) the occurrence of a Change of Control, or (ii) prior to purchasing New Notes tendered in a Change of
public notice of the occurrence of a Change of Control Control Offer, the Company shall purchase all F4L
or the intention by RGC or RSI to effect a Change of Senior Notes (or permitted refinancings thereof) which
Control (which period shall be extended so long as the it is required to purchase by reason of such Change of
rating of the Old RGC Notes is under publicly announced Control pursuant to the provisions of the indenture
consideration for possible downgrade by any of the under which such F4L Senior Notes are issued, as in
Rating Agencies): (a) in the event the Old RGC Notes effect on the Issue Date.
are rated by either Standard & Poor's or Moody's on the
Rating Date as Investment Grade, the rating of the Old The New Note Indenture will provide that the Company
RGC Notes by both Rating Agencies shall be reduced must comply with Rule 14e-1 under the Exchange Act and
below Investment Grade, or (b) in the event the Old RGC any other applicable provisions of the federal
Notes are rated below Investment Grade by both rating securities laws in connection with a Change of Control
agencies on the Rating Date, the rating of the Old RGC Offer.
Notes by either Rating Agency shall be decreased by one
or more gradations (including gradations within Rating "Change of Control" means the acquisition after the
Categories as well as between Rating Categories). Issue Date, in one or more transactions, of beneficial
ownership (within the meaning of Rule 13d-3 under the
"Permitted Holder" means the Edward J. DeBartolo Exchange Act) by (i) any person or entity (other than
Corporation. any Permitted Holder) or (ii) any group of persons or
entities (excluding any Permitted Holders) who
constitute a group (within the meaning of Section
13(d)(3) of the Exchange Act), in either case, of any
securities of New Holdings or the Company such that, as
a result of such acquisition, such person, entity or
group beneficially owns (within the meaning of Rule
13d-3 under the Exchange Act), directly or indirectly,
40% or more of the then outstanding voting securities
entitled to vote on a regular basis for a majority of
the Board of Directors of the Company (but only to the
extent that such beneficial ownership is not shared
with any Permitted Holder who has the power to direct
the vote thereof); provided, however, that no such
Change of Control shall be deemed to have occurred if
(A) the Permitted Holders beneficially own, in the
aggregate, at such time, a greater percentage of such
voting securities than such other person, entity or
group or (B) at the time of such acquisition, the
Permitted Holders (or any of them) possess the ability
(by contract or otherwise) to elect, or cause the
election, of a majority of the members of the Company's
Board of Directors.
"New Holdings" means Food 4 Less Holdings, Inc., a
Delaware corporation, and its successors.
"Permitted Holder" means (i) Food 4 Less Equity
Partners, L.P. and the Yucaipa Companies, or entity
controlled thereby or any of the partners thereof, (ii)
Apollo Advisors, L.P., Lion Advisors, L.P. or any
entity controlled thereby or any of the partners
thereof, (iii) an employee benefit plan of the Company
or any of its subsidiaries or any participant therein,
(iv) a trustee
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OLD RGC NOTES NEW NOTES
- ------------------------------------------------------ ------------------------------------------------------
or other fiduciary holding securities under an employee
benefit plan of the Company or any of its subsidiaries
or (v) any Permitted Transferee of any of the foregoing
persons.
"Permitted Transferees" means, with respect to any
person, (i) any Affiliate of such person, (ii) the
heirs, executors, administrators, testamentary
trustees, legatees or beneficiaries of any such
persons, (iii) a trust, the beneficiaries of which, or
a corporation or partnership, the stockholders or
general or limited partners of which, include only such
person or his or her spouse or lineal descendants, in
each case to whom such person has transferred the
beneficial ownership of any securities of the Company,
(iv) any investment account whose investment managers
and investment advisors consist solely of such person
and/or Permitted Transferees of such person and (v) any
investment fund or investment entity that is a
subsidiary of such person or a Permitted Transferee of
such person.
CERTAIN COVENANTS CERTAIN COVENANTS
Limitation on Incurrence of Additional Limitation on Incurrences of Additional
Indebtedness. The Old RGC Indentures provide that RGC Indebtedness. The New Note Indenture will provide that
will not, and will not permit any of its Subsidiaries the Company shall not, and shall not permit any of its
to, create, incur, assume, or directly or indirectly Subsidiaries, directly or indirectly, to incur, assume,
guarantee or in any other manner become directly or guarantee, become liable, contingently or otherwise,
indirectly liable for the payment of, any Indebtedness with respect to, or otherwise become responsible for
(including any Acquired Indebtedness, but excluding the payment of (collectively "incur") any Indebtedness
Permitted Indebtedness) unless, in the case of Acquired other than Permitted Indebtedness; provided, however,
Indebtedness and Indebtedness of RGC or any Subsidiary, that if no Default with respect to payment of principal
at the time of such event and after giving effect of, or interest on, the New Notes or Event of Default
thereto on a pro forma basis, RGC's Consolidated shall have occurred and be continuing at the time or as
Interest Coverage Ratio for the four full fiscal a consequence of the incurrence of any such
quarters for which financial information in respect Indebtedness, the Company may incur Indebtedness if
thereof is available immediately preceding such event, immediately before and immediately after giving effect
taken as one period and calculated on the assumption to the incurrence of such Indebtedness the Operating
that such Indebtedness had been incurred on the first Coverage Ratio of the Company would be greater than 2.0
day of such four-quarter period and, in the case of to 1.0; provided, further, a Subsidiary may incur
Acquired Indebtedness, on the assumption that the Acquired Indebtedness to the extent such Indebtedness
related acquisition (whether by means of purchase, could have been incurred by the Company pursuant to the
merger or otherwise) also had occurred on such date immediately preceding proviso.
with the appropriate adjustments with respect to such
acquisition being included in such pro forma "Subsidiary" means any subsidiary of the Company.
calculation, would have exceeded 1.8 to 1.0. IF THE
PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD RGC "Indebtedness" means with respect to any person,
INDENTURES WILL BE MODIFIED TO ELIMINATE THIS without duplication, (i) all liabilities, contingent or
PROVISION. otherwise, of such person (a) for borrowed money
(whether or not the recourse of the lender is to the
"Subsidiary" means any person a majority of the whole of the assets of such person or only to a portion
equity ownership or the voting stock of which is at the thereof), (b) evidenced by bonds, notes, debentures,
time owned directly or indirectly, by RGC or by one or drafts accepted or similar instruments or letters of
more other Subsidiaries, or by RGC and one or more credit or representing the balance deferred and unpaid
other Subsidiaries. of the purchase price of any property (other than any
such balance that repre sents an account payable or any
"Indebtedness" means, with respect to any person, any other monetary obligation to a trade creditor (whether or
indebtedness, contingent or otherwise, in respect of not an Affiliate) created, incurred, assumed or
borrowed money (whether or not the recourse of the guaranteed by such person in the ordinary course of
lender is to the whole of the assets of such person or business of such person in connection with obtaining goods,
only to a portion thereof and including any indebtedness materials or services and due within twelve months
issued in exchange for indebtedness for borrowed money), (or such longer period for payment as is customarily
orevidenced by bonds, notes, debentures or similar extended by such trade creditor) of the incurrence
instruments or representing the balance deferred and thereof, which account is not overdue by more than
unpaid of the purchase price of any property, if and to 90 days, according to the original terms of sale,
the extent any of the foregoing indebtedness would unless such account payable is being contested in good
appear as a liability upon a balance sheet of such faith), or (c) for the payment of money relating to a
person prepared on a consolidated basis in accordance Capitalized Lease Obligation; (ii) the maximum fixed
with GAAP consistently applied and letters of credit or repurchase price of all Disqualified Capital Stock
reimbursement agreements related thereto; provided, of such person; (iii) reimbursement obligations of
however, that "Indebtedness" shall not include accounts such person with respect to letters of credit;
payable to trade creditors or other indebtedness for (iv) obligations of such person with respect to Interest
goods or services created or assumed in the ordinary Swap Obligations and Foreign Exchange Agreements;
course of business or amounts payable under the EAR (v) all liabilities of others of the kind described in
Plan. "Indebtedness" shall also include any amounts (in the preceding clause (i), (ii), (iii) or (iv) that such
addition to principal and interest) payable under the person has guaranteed or that is otherwise its legal
1992 Credit Agreement, the principal component of any liability; and (vi) all obligations of others secured
Capital Lease Obligations and Guaranties of items that by a Lien to which any of the properties or assets
would be included within this definition (regardless of (including, without limitation, leasehold interests
whether such items would appear upon such balance and any other tangible or intangible property rights)
sheet), provided that for purposes of computing of such person are subject, whether or not the
Indebtedness outstanding at any time, such items shall obligations secured thereby shall have been assumed by
be excluded to the extent that they would otherwise be such person or shall otherwise be such person's legal
eliminated as intercompany items in consolidation. Any liability (provided that if the obligations so
reference in the Old RGC Indentures to any Indebtedness secured have not been assumed by
shall be deemed to include any renewals, extensions,
refundings, amend-
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ments and modifications of any such Indebtedness. such person or are not otherwise such person's legal
liability, such obligations shall be deemed to be in an
"Acquired Indebtedness" means Indebtedness of a amount equal to the fair market value of such
person (i) existing at the time such person becomes a properties or assets, as determined in good faith by
Subsidiary or (ii) assumed in connection with the the Board of Directors of such person, which
acquisition of assets from a person, other than determination shall be evidenced by a Board
Indebtedness incurred in connection with, or in Resolution). For purposes of the preceding sentence,
contemplation of, such person becoming a Subsidiary or the "maximum fixed repurchase price" of any
such acquisition, as the case may be. Disqualified Capital Stock that does not have a fixed
repurchase price shall be calculated in accordance with
"Permitted Indebtedness" means any of the following the terms of such Disqualified Capital Stock as if such
Indebtedness of RGC or any Subsidiary, as the case may Disqualified Capital Stock were purchased on any date
be: on which Indebtedness shall be required to be
determined pursuant to the New Note Indenture, and if
(i) Indebtedness of RGC outstanding at any time under such price is based upon, or measured by, the fair
the 1992 Credit Agreement, or any successor thereto, in market value of such Disqualified Capital Stock (or any
an aggregate principal amount not to exceed the equity security for which it may be exchanged or
aggregate commitments as in effect on the date of the converted), such fair market value shall be determined
Old RGC Indentures; in good faith by the Board of Directors of such person,
which determination shall be evidenced by a Board
(ii) (a) Indebtedness and obligations of RGC under the Resolution. For purposes of the New Note Indenture,
Old RGC Notes and the obligations relating to the Old Indebtedness incurred by any person that is a general
RGC Notes under the Old RGC Indentures, (b) any other partnership (other than non-recourse Indebtedness)
Indebtedness and obligations outstanding on the dates shall be deemed to have been incurred by the general
of the Old RGC Indentures and (c) Indebtedness and partners of such partnership pro rata in accordance
obligations arising after the dates of the Old RGC with their respective interests in the liabilities of
Indentures in respect of agreements existing as of the such partnership unless any such general partner shall,
dates of the Old RGC Indentures providing for in the reasonable determination of the Board of
indemnification, adjustment Directors of the Company, be unable to satisfy its pro
of purchase price or similar obligations incurred in rata share of the liabilities of the partnership, in
connection with the acquisition of any business; which case the pro rata share of any Indebtedness
attributable to such partner shall be deemed to be
(iii) Indebtedness of a Subsidiary to RGC; incurred at such time by the remaining general partners
on a pro rata basis in accordance with their interests.
(iv) Indebtedness the proceeds of which are used,
directly or indirectly, to refinance outstanding "Permitted Indebtedness" means (a) Indebtedness of the
Indebtedness of RGC or any Subsidiary (which Company and its Subsidiaries pursuant to (i) the Term
outstanding Indebtedness shall include, in the case of Loans in an aggregate principal amount at any time
the 1992 Credit Agreement or any successor thereto, the outstanding not to exceed $750 million or such lesser
amount of the aggregate commitments under the 1992 amount as may be actually funded under the Term Loans
Credit Agreement as in effect on the date of the Old on or within 91 days following the Issue Date (with any
RGC Indentures) in a principal amount (or, if such such amounts funded after the Issue Date to be used to
Indebtedness does not require cash payments prior to finance the repurchase of up to $224.5 million
maturity, with an original issue price of such aggregate principal amount of Old RGC Notes pursuant to
Indebtedness) not to exceed the principal amount of the the "change of control purchase offer" provision set
Indebtedness so refinanced (or, if the Indebtedness forth in section 1014 of the Old RGC Indentues, plus
being refinanced was issued with an original issue related fees and expenses), less the aggregate amount
discount, the original issue price plus the amortized of all principal repayments thereunder pursuant to and
portion of the original issue discount to the date that in accordance with the covenant described under
such refinancing Indebtedness was incurred), plus any "-- Certain Covenants -- Limitation on Asset Sales"
prepayment penalties and premiums, accrued and unpaid herein subsequent to the Issue Date, and (ii) the
interest on the Indebtedness so refinanced, plus revolving credit facility under the Credit Agreement
customary fees, expenses and costs related to the (and the Company and each Subsidiary (to the extent it
incurrence of such refinancing Indebtedness; provided, is not an obligor) may guarantee such Indebtedness) in
that if the Indebtedness being refinanced is an aggregate principal amount at any time outstanding
Indebtedness of RGC, such refinancing shall be not to exceed $325 million, less all permanent
Indebtedness of RGC; provided further that Indebtedness reductions thereunder pursuant to and in accordance
the proceeds of which are used to refinance with the covenant described under "-- Certain
Indebtedness of RGC that is subordinated in right of Covenants -- Limitation on Asset Sales" above, (b)
payment to the Old RGC Notes will only be permitted if Indebtedness of the Company or a Subsidiary Guarantor
(x) such Indebtedness is expressly subordinated in owed to and held by the Company or a Subsidiary
right of payment to the Old RGC Notes at least to the Guarantor; (c) Indebtedness incurred by the Company or
same extent that the Indebtedness to be refinanced is any Subsidiary in connection with the purchase or
subordinated to the Old RGC Notes, and (y) the Average improvement of property (real or personal) or equipment
Life to Stated Maturity and Stated Maturity of such or other capital expenditures in the ordinary course of
Indebtedness exceeds the Stated Maturity of the Old RGC business (including for the purchase of assets or stock
Notes. of any retail grocery store or business) or consisting
of Capitalized Lease Obligations, provided that (i) at
(v) Indebtedness which represents the assumption by RGC the time of the incurrence thereof, such Indebtedness,
of Indebtedness of any Subsidiary and refinancings together with any other Indebtedness incurred during
thereof; the most recently completed four fiscal quarter period
in reliance upon this clause (c) does not exceed, in
(vi) Indebtedness under Currency Agreements, Interest the aggregate, 3% of net sales of the Company and its
Swap Obligations and other agreements between RGC or a Subsidiaries during the most recently completed four
Subsidiary and one or more financial institutions fiscal quarter period on a consolidated basis
providing for "swap," "cap," "collar" or other interest (calculated on a pro forma basis if the date of
rate protection; incurrence is prior to the first anniversary of the
Merger) and (ii) such Indebtedness, together with all
(vii) Indebtedness not to exceed at any one time then outstanding Indebtedness incurred in reliance upon
outstanding an aggregate principal amount of $75 this clause (c) does not exceed, in the aggregate, 3%
million in addition to the Indebtedness otherwise of the aggregate net sales of the Company and its
permitted hereby; Subsidiaries during the most recently com-
(viii) Indebtedness arising from guarantees of
Indebtedness of RGC or any Subsidiary and agreements
providing for indemnification, adjustment of purchase
price or similar obligations incurred or assumed in
connection with the disposition of any
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business, assets or Subsidiary, other than guarantees pleted twelve fiscal quarter period on a consolidated
of Indebtedness incurred by any person acquiring all or basis (calculated on a pro forma basis if the date of
any portion of such business, assets or Subsidiary for incurrence is prior to the third anniversary of the
the purpose of financing such acquisition, provided Merger); (d) Indebtedness incurred by the Company or
that the maximum aggregate liability in respect of all any Subsidiary in connection with capital expenditures
such Indebtedness in the nature of such guarantees in an aggregate principal amount not exceeding $150
shall at no time exceed the gross proceeds actually million, provided that such capital expenditures relate
received in connection with such disposition; solely to the integration of the operations of RSI,
Food 4 Less and their respective subsidiaries, as
(ix) Indebtedness of RGC or any Subsidiary incurred in described in this Amended and Restated Prospectus and
the ordinary course of business under guarantees of Solicitation Statement; (e) Indebtedness of the Company
Indebtedness of suppliers, contractors, licensees, incurred under certain Foreign Exchange Agreements and
franchisees, or customers; Interest Swap Obligations; (f) guarantees incurred in
the ordinary course of business, by the Company or a
(x) accounts payable or any other indebtedness or Subsidiary, of Indebtedness of any other person in
monetary obligations of RGC or any Subsidiary to trade aggregate not to exceed $25 million at any time
creditors, employees, representatives or agents outstanding; (g) guarantees by the Company or a
created, assumed or guaranteed by RGC or by any Subsidiary Guarantor of Indebtedness incurred by a
Subsidiary in the ordinary course of business in wholly-owned Subsidiary Guarantor so long as the
connection with the obtaining of materials, goods or incurrence of such Indebtedness incurred by such
services; wholly-owned Subsidiary Guarantor is permitted under
the terms of the New Note Indenture; (h) Refinancing
(xi) accrued expenses of RGC or any Subsidiary incurred Indebtedness; (i) Indebtedness for letters of credit
in the ordinary course of business. relating to workers' compensation claims and
self-insurance or similar requirements in the ordinary
(xii) obligations in respect or performance bonds and course of business; (j) Existing Indebtedness and other
surety bonds provided by RGC or any Subsidiary in the Indebtedness outstanding on the Issue Date (after
ordinary course of business and any renewals, giving effect to the Merger); (k) Indebtedness arising
extensions or amendments, modifications or supplements from guarantees of Indebtedness of the Company or any
thereto; Subsidiary or other agreements of the Company or a
Subsidiary providing for indemnification, adjustment of
(xiii) Indebtedness incurred to finance Consolidated purchase price or similar obligations, in each case,
Capital Expenditures (including Acquired Indebtedness incurred or assumed in connection with the disposition
to the extent that, in conformity with GAAP, assets of any business, assets or Subsidiary, other than
acquired in conjunction with such Acquired Indebtedness guarantees of Indebtedness incurred by any person
are included in the property, plant or equipment acquiring all or any portion of such business, assets
reflected on the consolidated balance sheet of RGC and or Subsidiary for the purpose of financing such
its Subsidiaries); acquisition; provided that the maximum aggregate
liability in respect of all such Indebtedness shall at
(xiv) Indebtedness represented by letters of credit not no time exceed the gross proceeds actually received by
exceeding an aggregate amount of $45 million at any one the Company and its Subsidiaries in connection with
time outstanding; such disposition; (l) obligations in respect of
performance bonds and completion guarantees provided by
(xv) Indebtedness arising from the honoring by a bank the Company or any Subsidiary in the ordinary course of
or other financial institution of a check, draft or business; and (m) additional Indebtedness of the
similar instrument drawn against insufficient funds in Company and the Subsidiary Guarantors in an amount not
the ordinary course of business, provided that such to exceed $200 million at any time outstanding.
Indebtedness is extinguished within two Business Days
of its incurrence; "Refinancing Indebtedness" means, with respect to any
person, Indebtedness of such person issued in exchange
(xvi) Indebtedness represented by the obligations of for, or the proceeds from the issuance and sale or
RGC, as they may exist from time to time, to repurchase disbursement of which are used to substantially
from any employee or director, or former employee or concurrently repay, redeem, refund, refinance,
director, of RGC or a Subsidiary, Capital Stock of RGC, discharge or otherwise retire for value, in whole or in
or options, warrants or rights therefor, issued part (collectively, "repay"), or constituting an
pursuant to any compensatory plan of RGC; and amendment, modification or supplement to, or a deferral
or renewal of (collectively, an "amendment"), any
(xvi) unsecured Indebtedness with an initial maturity Indebtedness of such person existing on the Issue Date
not in excess of 270 days incurred in the ordinary or Indebtedness (other than Permitted Indebtedness,
course of business in amounts permitted by the 1992 except Permitted Indebtedness incurred pursuant to
Credit Agreement and any successor thereto. clauses (c), (d), (h) and (j) of the definition
thereof) incurred in accordance with the New Note
For the purpose of determining the amount of Indenture (a) in a principal amount (or, if such
outstanding Indebtedness under any of the foregoing Refinancing Indebtedness provides for an amount less
clauses, there shall be included (A) the principal than the principal amount thereof to be due and payable
amount then outstanding that was originally incurred upon the acceleration thereof, with an original issue
pursuant to such clause; (B) any outstanding price) not in excess of (without duplication) (i) the
Indebtedness incurred pursuant to clause (iv) to principal amount or the original issue price, as the
refinance or refund Indebtedness originally incurred case may be, of the Indebtedness so refinanced (or, if
pursuant to such clause; and (C) any subsequent such Refinancing Indebtedness refinances Indebtedness
refinancings or refundings thereof. under a revolving credit facility or other agreement
providing a commitment for subsequent borrowings, with
"Consolidated Interest Coverage Ratio" with respect a maximum commitment not to exceed the maximum
to any period means the ratio of (i) the aggregate of commitment under such revolving credit facility or
consolidated earnings before interest expense other agreement) plus (ii) unpaid accrued interest on
(including imputed interest expense with respect to any such Indebtedness plus (iii) premiums, penalties, fees
Capital Lease Obligations and capitalized interest, if and expenses actually incurred by such person in
any), income taxes, depreciation and other noncash connection with the repayment or amendment thereof and
charges deducted in computing consolidated net income (b) with respect to Refinancing Indebtedness that
and without giving effect to any extraordinary gain or repays or constitutes an amendment to Subordinated
loss or gains or losses from sales of assets (other Indebtedness, such Refinancing Indebtedness (x) shall
than sales of inventory in the ordinary course of not have any fixed
business), for such period (taken as one accounting
period) to (ii) the aggregate amount of consolidated
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OLD RGC NOTES NEW NOTES
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interest expense (including imputed interest expense mandatory redemption or sinking fund requirement in an
with respect to any Capital Lease Obligations and amount greater than or at a time prior to the amounts
capitalized interest, if any) and dividends paid by and times specified in such repaid or amended
subsidiaries on preferred stock other than to RGC or a Subordinated Indebtedness, except to the extent that
wholly owned subsidiary of RGC for such period. 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.
"Operating Coverage Ratio" means, with respect to any
person, the ratio of (1) EBDIT of such person for the
period (the "Pro Forma Period") consisting of the most
recent four full fiscal quarters for which financial
information in respect thereof is available immediately
prior to the date of the transaction giving
rise to the need to calculate the Operating Coverage
Ratio (the "Transaction Date") to (2) the aggregate Fixed
Charges of such person for the fiscal quarter in which the
Transaction Date occurs and the three fiscal quarters
immediately subsequent to such fiscal quarter (the
"Forward Period") reasonably anticipated by the Board
of Directors of such person to become due from time to
time during such period. For purposes of this
definition, if the Transaction Date occurs prior to the
first anniversary of the Merger, "EBDIT" for the Pro
Forma Period shall be calculated, in the case of the
Company, after giving effect on a pro forma basis to
the Merger as if it had occurred on the first day of
the Pro Forma Period. In addition to, but without
duplication of, the foregoing, for purposes of this
definition, "EBDIT" shall be calculated after giving
effect (without duplication), on a pro forma basis for
the Pro Forma Period (but no longer), to (a) any
Investment, during the period commencing on the first
day of the Pro Forma Period to and including the
Transaction Date (the "Reference Period"), in any other
person that, as a result of such Investment, becomes a
subsidiary of such person, (b) the acquisition, during
the Reference Period (by merger, consolidation or
purchase of stock or assets) of any business or assets,
which acquisition is not prohibited by the New Note
Indenture, and (c) any sales or other dispositions of
assets (other than sales of inventory in the ordinary
course of business) occurring during the Reference
Period, in each case as if such incurrence, Investment,
repayment, acquisition or asset sale had occurred on
the first day of the Reference Period. In addition, for
purposes of this definition, "Fixed Charges" shall be
calculated after giving effect (without duplication),
on a pro forma basis for the Forward Period, to any
Indebtedness incurred or repaid on or after the first
day of the Forward Period and prior to the Transaction
Date. If such person or any of its subsidiaries
directly or indirectly guarantees any Indebtedness of a
third person, the Operating Coverage Ratio shall give
effect to the incurrence of such Indebtedness as if
such person or subsidiary had directly incurred such
guaranteed Indebtedness.
"EBDIT" means, with respect to any person, for any
period, the Consolidated Net Income of such person for
such period, plus, in each case to the extent deducted
in computing Consolidated Net Income of such person for
such period (without duplication) (i) provisions for
income taxes or similar charges recognized by such
person and its consolidated subsidiaries accrued during
such period, (ii) depreciation and amortization expense
of such person and its consolidated subsidiaries
accrued during such period (but only to the extent not
included in Fixed Charges), (iii) Fixed Charges of such
person and its consolidated subsidiaries for such
period, (iv) LIFO charges (credit) of such person and
its consolidated subsidiaries for such period, (v) the
amount of any restructuring reserve or charge recorded
during such period in accordance with GAAP, including
any such reserve or charge related to the Merger, and
(vi) any other non-cash charges reducing Consolidated
Net Income for such period (excluding any such charge
which requires an accrual of or a cash reserve for cash
charges for any future period), less, without
duplication, (i) non-cash items increasing Consolidated
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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 were not otherwise
deducted in the computation of Consolidated Net Income
for such period).
"Fixed Charges" means, with respect to any person, for
any period, the aggregate amount of (i) interest,
whether expensed or capitalized, paid, accrued or
scheduled to be paid or accrued during such period
(except to the extent accrued in a prior period) in
respect of all Indebtedness of such person and its
consolidated subsidiaries (including (a) original issue
discount on any Indebtedness (including (without
duplication), in the case of the Company, any original
issue discount on the applicable New Notes but
excluding amortization of debt issuance costs) and (b)
the interest portion of all deferred payment
obligations, calculated in accordance with the
effective interest method, in each case to the extent
attributable to such period but excluding the
amortization of debt issuance costs) and (ii) dividend
requirements on Capital Stock of such person and its
consolidated subsidiaries (whether in cash or otherwise
(except dividends payable in shares of Qualified
Capital Stock)) 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
the Company may designate, and (d) Fixed Charges shall
be increased or reduced by the net cost (including
amortization of discount) or benefit associated with
Interest Swap Obligations attributable to such period.
For purposes of clause (ii) above, dividend
requirements shall be increased to an amount
representing the pre-tax earnings that would be
required to cover such dividend requirements;
accordingly, the increased amount shall be equal to a
fraction, the numerator of which is the amount of such
dividend requirements and the denominator of which is
one (1) minus the applicable actual combined federal,
state, local and foreign income tax rate of such person
and its subsidiaries (expressed as a decimal), on a
consolidated basis, for the fiscal year immediately
preceding the date of the transaction giving rise to
the need to calculate Fixed Charges.
"Acquired Indebtedness" means (i) with respect to any
person that becomes a Subsidiary of the Company (or is
merged into the Company or any of its Subsidiaries)
after the Issue Date, Indebtedness of, such person or
any of its Subsidiaries existing at the time such
person becomes a Subsidiary of the Company (or is
merged into the Company or any of its Subsidiaries) and
which was not incurred in connection with, or in
contemplation of, such person becoming a Subsidiary of
the Company (or being merged into the Company or any of
its Subsidiaries) and (ii) with respect to the Company
or any of its Subsidiaries, any Indebtedness assumed by
the Company or any of its Subsidiaries in connection
with the acquisition of any assets from another person
(other than the Company or any of its Subsidiaries),
and
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which was not incurred by such other person in
connection with, or in contemplation of, such
acquisition.
"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 % Senior Notes due 2004 issued pursuant to an
indenture dated as of the Issue Date; (b) the 10.45%
Senior Notes due 2000 issued pursuant to an indenture
dated as of April 15, 1992; (c) the % Senior
Subordinated Notes due 2005 issued pursuant to an
indenture dated as of the Issue Date; (d) the 9% Senior
Subordinated Notes due 2003 issued pursuant to an
indenture dated as of March 30, 1993; (e) the 10 1/4%
Senior Subordinated Notes due 2002 issued pursuant to
an indenture dated as of July 29, 1992; (f) the 13.75%
Senior Subordinated Notes due 2005 issued pursuant to
an indenture dated as of the Issue Date, and (g) the
13.75% Senior Subordinated Notes due 2001 issued
pursuant to an indenture dated as of June 15, 1991.
Limitation on Restricted Payments. The Old RGC Inden- Limitation on Restricted Payments. The New Note
tures provide that RGC will not, and will not permit Indenture will provide that the Company shall not, and
any of its Subsidiaries to, directly or indirectly, shall cause each of its Subsidiaries not to, directly
(i) declare or pay any dividend on, or make any or indirectly, make any Restricted Payment if, at the
distribution to holders of, any shares of RGC's Capital time of such proposed Restricted Payment, or after
Stock (other than dividends or distributions payable in giving effect thereto, (a) a Default or an Event of
shares of its Capital Stock or in options, warrants or Default shall have occurred and be continuing, (b) the
other rights to purchase such Capital Stock, but Company could not incur $1.00 of additional
excluding dividends or distributions payable in Indebtedness (other than Permitted Indebtedness)
Redeemable Capital Stock or in options, warrants or pursuant to the covenant described under "-- Certain
other rights to purchase Redeemable Capital Stock), Covenants -- Limitation on Incurrences of Additional
(ii) directly or indirectly purchase, redeem or acquire Indebtedness" herein or (c) the aggregate amount
or retire for value any Capital Stock of RGC or any expended for all Restricted Payments, including such
Subsidiary or any options, warrants or other rights to proposed Restricted Payment (the amount of any
acquire such Capital Stock, (iii) declare or pay any Restricted Payment, if other than cash, to be the fair
dividend or distribution on any Capital Stock of any market value thereof at the date of payment as
Subsidiary to any Person (other than RGC or any of its determined in good faith by the Board of Directors of
wholly owned Subsidiaries), (iv) incur, create or the Company), subsequent to the Issue Date, shall
assume any guarantee of Indebtedness of any Affiliate exceed the sum of (i) 50% of the aggregate Consolidated
(other than a wholly owned Subsidiary), or (v) make any Net Income (or if such aggregate Consolidated Net
Investment (other than any Permitted Investment) in any Income is a loss, minus 100% of such loss) of the
person other than a wholly owned Subsidiary (such Company earned subsequent to the Issue Date and on or
payments or other actions described in clauses (i) prior to the date of the proposed Restricted Payment
through (v) are collectively referred to as "Restricted (the "Reference Date") plus (ii) 100% of the aggregate
Payments," provided, that Restricted Payments will not Net Proceeds received by the Company from any person
include Permitted Holding Company Payments), unless at (other than a Subsidiary of the Company) from the
the time of and after giving effect to the proposed issuance and sale (including upon exchange or
Restricted Payment (the amount of any such Restricted conversion for other securities of the Company)
Payment, if other than cash, shall be as determined by subsequent to the Issue Date and on or prior to the
the board of directors of RGC, whose determination Reference Date of Qualified Capital Stock (excluding
shall be conclusive and evidenced by a board (A) Qualified Capital Stock paid as a dividend on any
resolution), (1) no Default or Event of Default shall Capital Stock or as interest on any Indebtedness and
have occurred and be continuing or shall occur as a (B) any Net Proceeds from issuances and sales financed
result of such Restricted Payment and (2) the aggregate directly or indirectly using funds borrowed from the
amount of all Restricted Payments declared or made Company or any Subsidiary, until and to the extent such
after the date of the Old RGC Indentures shall not borrowing is repaid), plus (iii) 100% of the aggregate
exceed the sum of: net cash proceeds received by the Company as capital
contributions to the Company after the Issue Date (ex-
(A) 50% of the aggregate cumulative Consolidated Net cluding net cash proceeds of a Public Equity Offering
Income of RGC accrued on a cumulative basis during the used to redeem outstanding New Notes), plus (iv) $25
period beginning October 12, 1992, in the case of the million.
Old RGC 9% Notes, or July 20, 1992, in the case of the
Old RGC 10 1/4% Notes, and ending on the last day of The New Note Indenture will provide that if no Default
RGC's last fiscal quarter ending prior to the date of or Event of Default shall have occurred and be
such proposed Restricted Payment (or, if such aggregate continuing as a consequence thereof, the provisions set
cumulative Consolidated Net Income shall be a loss, forth in the immediately preceding paragraph will not
minus 100% of such loss), prevent (1) the payment of any dividend within 60 days
after the date of its declaration if the dividend would
(B) the aggregate net proceeds, including the Fair have been permitted on the date of declaration, (2) the
Market Value of property other than cash (as determined acquisition of any shares of Capital Stock of the
by RGC's board of directors, whose determination shall Company or the repurchase, redemption or other
be conclusive) received after the date of the Old RGC repayment of any Subordinated Indebtedness in exchange
Indentures by RGC from the issuance or sale (other than for or solely out of the proceeds of the substantially
to any of its Subsidiaries) of shares of Capital Stock concurrent sale (other than to a Subsidiary) of shares
of RGC (other than Redeemable Capital Stock) or of Qualified Capital Stock of the Company, (3) the
warrants, options or rights to purchase such shares of repurchase, redemption or other repayment of any
Capital Stock of RGC (other than Redeemable Capital Subordinated Indebtedness in exchange for or solely out
Stock), of the proceeds of the substantially concurrent sale
(other than to a Subsidiary) of Subordinated
Indebtedness of the Company with
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OLD RGC NOTES NEW NOTES
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(C) the aggregate net proceeds, including the Fair an Average Life equal to or greater than the remaining
Market Value of property other than cash (as determined Average Life of the Subordinated Indebtedness
by RGC's board of directors, whose determination shall repurchased, redeemed or repaid, and (4) Permitted
be conclusive) received after the date of the Old RGC Payments; provided, however, that the declaration of
Indentures by RGC (other than from any of its each dividend paid in accordance with clause (1) above,
Subsidiaries) upon the exercise of options, warrants or each acquisition or repayment made in accordance with,
rights to purchase shares of Capital Stock of RGC or of the type set forth in, clause (2) above, and each
(other than Redeemable Capital Stock), payment described in clause (iii), (iv), (v), (vi),
(vii) and (ix) of the definition of the term "Permitted
(D) the aggregate net proceeds, including the Fair Payments" shall each be counted for purposes of
Market Value of property other than cash (as determined computing amounts expended pursuant to subclause (c) in
by RGC's board of directors, whose determination shall the immediately preceding paragraph, and no amounts
be conclusive) received after the date of the Old RGC expended pursuant to clause (3) above or pursuant to
Indentures by RGC from the issue or sale of debt clause (i), (ii) or (viii) of the definition of the
securities or Redeemable Capital Stock that have been term "Permitted Payments" shall be so counted;
converted into or exchanged for Capital Stock of RGC provided, further that to the extent any payments made
(other than Redeemable Capital Stock), plus the pursuant to clause (vii) of the definition of the term
aggregate cash received by RGC at the time of such "Permitted Payments" are deducted for purposes of
conversion or exchange, and computing the Consolidated Net Income of the Company,
such payments shall not be counted for purposes of
(E) $25 million. computing amounts expended as Restricted Payments
pursuant to subclause (c) in the immediately preceding
The foregoing provision of the Old RGC Indentures paragraph.
will not be violated by reason of (a) the payment of
any dividend within 60 days after the date of "Restricted Payment" means any (i) Stock Payment, (ii)
declaration thereof, if at such declaration date such Investment (other than a Permitted Investment) or (iii)
declaration complied with the foregoing provision (in Restricted Debt Prepayment.
which event such dividend shall be deemed to have been
paid on such date of declaration thereof for purposes "Investment" by any person in any other person means
of the foregoing provision), (b) a Restricted Payment any investment by such person in such other person,
by a Subsidiary solely to RGC or a wholly owned whether by share purchase, capital contribution, loan,
Subsidiary of RGC, (c) the retirement of any share of advance (other than reasonable loans and advances to
Capital Stock or Subordinated Indebtedness by exercise employees for moving and travel expenses, as salary
for, or upon conversion of, or out of the proceeds of, advances or to permit the purchase of Qualified Capital
the substantially concurrent sale for cash (other than Stock of the Company and other similar customary
to a Subsidiary) of other shares of Capital Stock expenses incurred, in each case in the ordinary course
(other than Redeemable Capital Stock) of RGC or (d) any of business consistent with past practice) or similar
cash payment pursuant to the EAR Plan with respect to credit extension constituting Indebtedness of such
obligations existing on February 2, 1992, provided that other person, and any guarantee of Indebtedness of any
any such payment shall be counted as a Restricted other person.
Payment; provided, however, any surrender of a right
under the EAR Plan in connection with, or as a credit "Permitted Investment" by any person means (i) any
toward, the exercise of any option for Capital Stock of Related Business Investment, (ii) Investments in
the Holding Company shall not be deemed a Restricted securities not constituting cash or Cash Equivalents
Payment. IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, and received in connection with an Asset Sale made
THE OLD RGC INDENTURES WILL BE AMENDED TO ELIMINATE pursuant to the provisions of the covenant described
THIS PROVISION. under "-- Certain Covenants -- Limitation on Asset
Sales" above or any other disposition of assets not
"Investment" means, directly or indirectly, any constituting an Asset Sale by reason of the $500,000
advance, loan or other extension of credit or capital threshold contained in the definition thereof, (iii)
contribution to (by means of any transfer of cash or cash and Cash Equivalents, (iv) Investments existing on
other property to others or any payment for property or the Issue Date, (v) Investments specifically permitted
services for the account or use of others), or any by and made in accordance with the provisions of the
purchase or acquisition by such person of any stock, covenant described under "-- Certain Cove-
bonds, notes, debentures or other securities issued or nants -- Limitation on Transactions with Affiliates",
owned by, any other person. Investment shall exclude (vi) Investments by Subsidiary Guarantors in other
extensions of trade credit on commercially reasonable Subsidiary Guarantors and Investments by Subsidiaries
terms in accordance with normal trade practices. which are not Subsidiary Guarantors in other
Subsidiaries which are not Subsidiary Guarantors and
"Permitted Investment" means an Investment which (vii) additional Investments in an aggregate amount not
consists of any one or more of the following: exceeding $5 million.
(i) Investment in a Subsidiary or another person which,
immediately after such Investment, will be a wholly "Related Business Investment" means (i) any Investment
owned Subsidiary; by a person in any other person a majority of whose
revenues are derived from the operation of one or more
(ii) Investments by wholly owned Subsidiaries in RGC; retail grocery stores or supermarkets or any other line
of business engaged in by the Company or any of its
(iii)(a) commercial paper rated P-1 by Moody's Subsidiaries as of the Issue Date; (ii) any Investment
Investors Service Inc. or A-1 by Standard & Poor's by such person in any cooperative or other supplier,
Corporation on the date of acquisition, (b) including, without limitation, any joint venture which
certificates of deposit of United States commercial is intended to supply any product or service useful to
banks having a combined capital and surplus in excess the business of the Company and its Subsidiaries as it
of $100 million, (c) obligations of, or guaranteed by, is conducted as of the Issue Date and as such business
the United States government or any agency thereof, (d) may thereafter evolve or change; and (iii) any capital
money market funds organized under the laws of the expenditure or Investment, in each case reasonably
United States or any state thereof that invest related to the business of the Company and its
substantially all their assets in any of the types of Subsidiaries as it is conducted as of the Issue Date
investments described in subclauses (a), (b) or (c) of and as such business may thereafter evolve or change.
this clause (iii), or (e) to the extent not
comprehended by subclauses (a) through (d) of this "Restricted Debt Prepayment" means any purchase,
clause (iii), temporary investments of redemption, defeasance (including, but not limited to,
in substance or legal defeasance) or other acquisition
or retirement for value,
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OLD RGC NOTES NEW NOTES
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cash balances in investments deemed to be cash directly or indirectly, by the Company or a Subsidiary,
equivalents under GAAP; prior to the scheduled maturity or prior to any
scheduled repayment of principal or sinking fund
(iv) negotiable instruments held for collection; payment, as the case may be, in respect of Subordinated
outstanding travel, moving and other like advances to Indebtedness.
officers, employees and consultants; lease, utility and
other similar deposits; or stock, obligations or "Consolidated Net Income" means, with respect to any
securities received in settlement of debts owing to RGC person, for any period, the aggregate of the net income
or a subsidiary as a result of foreclosure, perfection (or loss) of such person and its subsidiaries for such
or enforcement of any Lien, in each of the foregoing period, on a consolidated basis, determined in
cases in the ordinary course of business of RGC or a accordance with GAAP; provided that (a) the net income
Subsidiary as the case may be; of any other person in which such person or any of its
subsidiaries has an interest (which interest does not
(v) sales of goods on trade credit terms consistent cause the net income of such other person to be
with RGC's past practices or as otherwise consistent consolidated with the net income of such person and its
with trade credit terms in common use in the industry; subsidiaries in accordance with GAAP) shall be included
only to the extent of the amount of dividends or
(vi) Investments, in an aggregate amount not to exceed distributions actually paid to such person or such
$15 million, in joint ventures, corporations or subsidiary by such other person in such period; (b) the
partnerships formed with or organized by third persons, net income of any subsidiary of such person that is
which joint ventures, corporations or partnerships, as subject to any Payment Restriction shall be excluded to
the case may be, engage in a business other than a the extent such Payment Restriction actually prevented
business conducted by RGC; or the payment of an amount that otherwise could have been
paid to, or received by, such person or a subsidiary of
(vii) Investments in joint ventures, corporations or such person not subject to any Payment Restriction; and
partnerships formed with or organized by third persons, (c)(i) the net income (or loss) of any other person
which joint ventures, corporations or partnerships, as acquired in a pooling of interests transaction for any
the case may be, engage in a business substantially period prior to the date of such acquisition, (ii) all
similar, or related, to the business conducted by RGC. gains and losses realized on any Asset Sale, (iii) all
gains realized upon or in connection with or as a
"Permitted Holding Company Payments" means only such consequence of the issuance of the Capital Stock of
amounts as are required to cover all the needs of any such person or any of its subsidiaries and any gains on
type or kind and ordinary and necessary expenses of any pension reversions received by such person or any of
type or kind incidental to RSI's functioning as a its subsidiaries, (iv) all gains and losses realized on
publicly owned company that owns, and provides certain the purchase or other acquisition by such person or any
services for, RGC. of its subsidiaries of any securities of such person or
any of its subsidiaries, (v) all gains and losses
"Consolidated Net Income" means, for any period, the resulting from the cumulative effect of any accounting
net income (or loss) of any person and its Subsidiaries change pursuant to the application of Accounting
for such period taken as a single accounting period Principles Board Opinion No. 20, as amended, (vi) all
determined on a consolidated basis in accordance with other extraordinary gains and losses, (vii) all
GAAP excluding the effect of extraordinary items. non-cash charges incurred by the Company or any of its
Subsidiaries in connection with the Merger, including,
"Subordinated Indebtedness" means all Indebtedness of without limitation, the divestiture of the Excluded
RGC that is expressly subordinated in right of payment Assets, (viii) losses incurred by the Company and
to any other Indebtedness of RGC, provided, however, Subsidiaries resulting from earthquakes and (ix) with
that Indebtedness under the 1992 Credit Agreement shall respect to the Company, all deferred financing costs
never constitute Subordinated Indebtedness. written off in connection with the early extinguishment
of any Indebtedness, shall each be excluded.
"EAR Plan" means RGC's 1988 Equity Appreciation
Rights Plan, as amended.
"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 the Company, the
sum of (i) the fair market value of the proceeds
received by the Company in connection with the issuance
of such Indebtedness or Disqualified Capital Stock on
the date of such issuance and (ii) any additional
amount paid by the Holder to the Company upon such
conversion or exchange.
"Public Equity Offering" means an underwritten public
offering of Common Stock of the Company or New Holdings
pursuant to a registration statement filed with the
Commission in
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OLD RGC NOTES NEW NOTES
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accordance with the Securities Act which public equity
offering results in gross proceeds to the Company or
New Holdings, as the case may be, of not less than $20
million; provided, however, that in the case of a
Public Equity Offering by New Holdings, New Holdings
contributes to the capital of the Company net cash
proceeds in an amount sufficient to redeem New Notes
called for redemption in accordance with the terms
thereof.
"Subordinated Indebtedness" means, with respect to the
Company or any Subsidiary Guarantor, Indebtedness of
such person which is subordinated in right of payment
to the New Notes or the Guarantee of such Subsidiary
Guarantor, as the case may be.
"Permitted Payments" means (i) any payment by the Com-
pany or any Subsidiary, or any dividend by the Company
or any Subsidiary to New Holdings the proceeds of which
are utilized by New Holdings to make payments, to The
Yucaipa Companies or the principals or any Affiliates
thereof for consulting, management, investment banking
or similar services, or for the reimbursement of
losses, costs and expenses pursuant to the Consulting
Agreement, (ii) any payment by the Company or any
Subsidiary pursuant to the Amended and Restated Tax
Sharing Agreement, dated as of June 17, 1991, between
Food 4 Less and certain Subsidiaries, as such Tax
Sharing Agreement may be amended from time to time, so
long as the payment thereunder by the Company and its
Subsidiaries shall not exceed the amount of taxes the
Company would be required to pay if it were the filing
person for all applicable taxes, (iii) any payment by
the Company or any Subsidiary pursuant to the Transfer
and Assumption Agreement, dated as of June 23, 1989,
between Food 4 Less and Holdings, as in effect on the
Issue Date, (iv) any payment by the Company or any
Subsidiary (a) in connection with repurchases of
outstanding shares of the Company's or New Holdings'
Common Stock following the death, disability or
termination of employment of management stockholders,
and (b) of amounts required to be paid by New Holdings,
the Company or any of its Subsidiaries to participants
in employee benefit plans upon termination of
employment by such participants, as provided in the
documents related thereto, in an aggregate amount (for
both clauses (a) and (b)) not to exceed $10 million in
any Yearly Period (provided that any unused amounts may
be carried over to any subsequent Yearly Period subject
to a maximum amount of $20 million in any Yearly
Period), (v) from and after June 30, 1998, payments of
cash dividends to New Holdings in an amount sufficient
to enable New Holdings to make payments of interest
required to be made in respect of the Discount Notes in
an amount not to exceed the amount payable thereunder
in accordance with the terms thereof in effect on the
Issue Date, (vi) from and after May 15, 2000, payments
of cash dividends to New Holdings in an amount
sufficient to enable New Holdings to make payments of
interest required to be made in respect of the Seller
Debentures and the New Discount Debentures in an amount
not to exceed the amount payable thereunder in
accordance with the terms thereof in effect on the
Issue Date, (vii) dividends or other payments to New
Holdings sufficient to enable New Holdings to perform
accounting, legal, corporate reporting and
administrative functions in the ordinary course of
business or to pay required fees and expenses in
connection with the Merger, the Reincorporation Merger
and the registration under applicable laws and regula-
tions of its debt or equity securities, (viii)
dividends or other distributions by the Company to New
Holdings on the Issue Date of shares of New Holdings
common stock owned by the Company and (ix) dividends by
the Company to New Holdings of the Net Cash Proceeds of
an Asset Sale to the extent that (a) neither the
Company nor any of the Subsidiaries is required, nor
may be required, pursuant to the documents governing
any outstanding Indebtedness of the Company or any of
the Subsidi-
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OLD RGC NOTES NEW NOTES
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aries to utilize such Net Cash Proceeds to repay (or
offer to repay) such Indebtedness (or has complied with
all such requirements), (b) such Net Cash Proceeds have
not been utilized to repay outstanding Indebtedness of
the Company or any of the Subsidiaries and (c) New
Holdings is required pursuant to the documents
governing any outstanding Indebtedness of New Holdings
to utilize such Net Cash Proceeds to repay (or offer to
repay) such Indebtedness.
"Consulting Agreement" means that certain Consulting
Agreement dated as of the Issue Date, between Food 4
Less, New Holdings and The Yucaipa Companies (as such
Consulting Agreement may be amended or replaced, so
long as any amounts paid under any amended or
replacement agreement do not exceed the amounts payable
under such Consulting Agreement as in effect on the
Issue Date).
Limitation on Transactions with Affiliates. The Old Limitation on Transactions with Affiliates. The New
RGC Indentures provide that RGC will not, and will Note Indenture will provide that neither the Company
not permit any of its Subsidiaries to, directly or nor any of its Subsidiaries shall (i) sell, lease,
indirectly, enter into any transaction or series of transfer or otherwise dispose of any of its properties
related transactions (including, without limitation, or assets or issue securities (other than equity
the sale, purchase, exchange or lease of assets, securities which do not constitute Disqualified Capital
property or services) in an amount greater than Stock) to, (ii) purchase any property, assets or
$100,000 in any fiscal year with any Affiliate of RGC securities (other than equity securities which do not
(other than a wholly owned Subsidiary thereof) unless constitute Disqualified Capital Stock) from, (iii) make
(i) such transaction or series of transactions is or any Investment in, or (iv) enter into or suffer to
are on terms that are no less favorable to RGC or such exist any contract or agreement with or for the benefit
Subsidiary, as the case may be, than could have been of, an Affiliate or Significant Stockholder (or any
obtained at the time of such transaction or Affiliate of such Significant Stockholder) of the
transactions in a comparable transaction in Company or any Subsidiary (an "Affiliate Transaction"),
arm's-length dealings with an unaffiliated third party other than (x) Affiliate Transactions permitted under
and (ii) with respect to any transaction or series of the following paragraph and (y) Affiliate Transactions
transactions involving aggregate payments in excess of in the ordinary course of business, that are fair to
$5 million, RGC delivers an officer's certificate to the Company or such Subsidiary, as the case may be, and
the Old RGC Note Trustee certifying that such on terms at least as favorable as might reasonably have
transaction or series of transactions complies with been obtainable at such time from an unaffiliated
clause (i) above and that such transaction or series of party; provided, that (A) with respect to Affiliate
transactions has received the approval of a majority of Transactions involving aggregate payments in excess of
the disinterested directors of the board of directors $1 million and less than $5 million, the Company or
of RGC provided, however, that the foregoing such Subsidiary, as the case may be, shall have
restriction shall not apply to transactions pursuant to delivered an Officers' Certificate to the Trustee
agreements in place and as in place as of the date of certifying that such Affiliate Transaction complies
the Old RGC Indentures as disclosed in the Registration with clause (y) above (other than the requirement set
Statement for such Old RGC Notes to the extent required forth in such clause (y) than such Affiliate
to be so disclosed. IF THE PROPOSED AMENDMENTS BECOME Transaction be in the ordinary course of business), (B)
OPERATIVE, THE OLD RGC INDENTURES WILL BE AMENDED TO with respect to Affiliate Transactions involving
ELIMINATE THIS PROVISION. aggregate payments in excess of $5 million and less
than $15 million, the Company or such Subsidiary, as
"Affiliate" means, with respect to any specified the case may be, shall have delivered an Officers'
person, (i) any other person directly or indirectly Certificate to the Trustee certifying that such
controlling or controlled by or under direct or Affiliate Transaction or series of transactions
indirect common control with such specified person, complies with clause (y) above (other than the
(ii) any spouse, immediate family member or other requirement set forth in such clause (y) that such
relative who has the same principal residence of any Affiliate Transaction be in the ordinary course of
person described in (i) above, (iii) any trust in which business) and that such Affiliate Transaction has
any such person described in clause (i) or (ii) above received the approval of a majority of the
has a beneficial interest and (iv) any corporation or disinterested members of the Board of Directors of the
other organization of which any such person described Company or the Subsidiary, as the case may be, or, in
in clause (i), (ii) or (iii) above collectively owns the absence of any such approval by the disinterested
more than 50% of the equity of such entity. For members of the Board of Directors of the Company or the
purposes of this definition, beneficial ownership of Subsidiary, as the case may be, that an Independent
10% or more of voting common equity (on a fully diluted Financial Advisor has reasonably and in good faith
basis) or warrants to purchase such equity (whether or determined that the financial terms of such Affiliate
not currently exercisable) of a person shall be deemed Transaction are fair to the Company or such Subsidiary,
to be control of such person. 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 has provided written
confirmation of such determination to the Board of
Directors and (C) with respect to any transaction or
series of transactions involving aggregate payments in
excess of $15 million, the Company or such Subsidiary,
as the case may be, shall have delivered to the New
Note Trustee, a written opinion from an Independent
Financial Advisor to the effect that the financial
terms of such Affiliate Transaction are fair to the
Company or such Subsidiary, as the case may be, or that
the terms of such Affiliate Transaction are at least as
favorable as those that might reasonably have been
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OLD RGC NOTES NEW NOTES
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obtained at the time from an unaffiliated party.
The provisions of the foregoing paragraph shall not
apply to (i) any Permitted Payment, (ii) any Restricted
Payment that is made in compliance with the provisions
of the covenant described under "-- Certain
Covenants -- Limitation on Restricted Payments" herein,
(iii) reasonable and customary fees and compensation
paid to, and indemnity provided on behalf of, officers,
directors, employees or consultants of the Company or
any Subsidiary, as determined by the Board of Directors
of the Company or any Subsidiary or the senior
management thereof in good faith, (iv) transactions
exclusively between or among the Company and any of its
wholly-owned Subsidiaries or exclusively between or
among such wholly-owned Subsidiaries, provided such
transactions are not otherwise prohibited by the New
Note Indenture, (v) any agreement in effect as of the
Issue Date or any amendment thereto or any transaction
contemplated thereby (including pursuant to any
amendment thereto) so long as any such amendment is not
disadvantageous to the Holders of the New Notes in any
material respect, (vi) the existence of, or the
performance by the Company or any of its Subsidiaries
of its obligations under the terms of, any stockholders
agreement (including any registration rights agreement
or purchase agreement related thereto) to which it (or
New Holdings) is a party as of the Issue Date and any
similar agreements which it (or New Holdings) may enter
into thereafter; provided, however, that the existence
of, or the performance by the Company or any Subsidi-
aries of obligations under any future amendment to, any
such existing agreement or under any similar agreement
entered into after the Issue Date shall only be
permitted by this clause (vi) to the extent that the
terms of any such amendment or new agreement are not
otherwise disadvantageous to the Holders of the New
Notes in any material respect, (vii) transactions
permitted by, and complying with, the provisions of the
covenant described under "-- Limitation on Mergers and
Certain Other Transactions" herein and (viii)
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 Note Indenture
which are fair to the Company, in the reasonable
determination of the Board of Directors of the Company
or the senior management thereof, or are on terms at
least as favorable as might reasonably have been
obtained at such time from an unaffiliated party.
"Affiliate" means, with respect to any person, any
other person directly or indirectly controlling or
controlled by or under direct or indirect common
control with such specified person. For the purposes of
this definition, "control" when used with respect to
any person means the power to direct the management and
policies of such person, directly or indirectly,
whether through the ownership of voting securities, by
contract or otherwise; and the terms "affiliated,"
"controlling" and "controlled" have meanings
correlative to the foregoing. For purposes of the New
Note Indenture, neither BT Securities Corporation nor
any of its Affiliates shall be deemed to be an
Affiliate of the Company or any of its Subsidiaries.
"Independent Financial Advisor" means a reputable
accounting, appraisal or nationally recognized
investment banking firm that is, in the reasonable
judgment of the Board of Directors of the Company,
qualified to perform the tasks for which such firm has
been engaged and disinterested and independent with
respect to the Company and its Affiliates.
"Significant Stockholder" means, with respect to any
person, any other person who is the beneficial owner
(within the meaning of Rule 13d-3 under the Exchange
Act) of more than 10% of any class of equity securities
of such person that are entitled to vote on a regular
basis for the election of directors of such person.
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OLD RGC NOTES NEW NOTES
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Limitation on Liens Securing Subordinated Limitation on Liens. The New Note Indenture will
Indebtedness. The Old RGC Indentures provide that if provide that the Company shall not and shall not permit
RGC or any Subsidiary creates, incurs, assumes or any Subsidiary to create, incur, assume or suffer to
suffers to exist any Lien of any kind (i) securing any exist any Liens upon any of their respective assets
Subordinated Indebtedness of RGC then RGC will and will unless the New Notes are equally and ratably secured by
cause its Subsidiaries, concurrently or immediately the Liens covering such assets, except for (i) Liens on
thereafter, to provide that the Old RGC Notes are assets of the Company securing Senior Indebtedness and
equally and ratably secured, provided that if such Liens on assets of a Subsidiary Guarantor which, at the
Subordinated Indebtedness is expressly subordinated to time of incurrence, secure Guarantor Senior
the Old RGC Notes, the Lien securing such Subordinated Indebtedness, (ii) existing and future Liens securing
Indebtedness shall be subordinate and junior to the Indebtedness and other obligations of the Company and
Lien securing the Old RGC Notes with the same relative its Subsidiaries under the Credit Agreement and related
priority as such Subordinated Indebtedness shall have documents or any refinancing or replacement thereof in
with respect to the Old RGC Notes, and provided further whole or in part permitted under the New Note
that this clause (i) shall not be applicable to any Indenture, (iii) Permitted Liens, (iv) Liens securing
Liens securing any such Indebtedness which became Acquired Indebtedness; provided that such Liens (x) are
Indebtedness of RGC pursuant to a transaction subject not incurred in connection with, or in contemplation of
to the provisions of the Old RGC Indentures described the acquisition of the property or assets acquired and
below under "Merger and Sale of Assets, etc." and which (y) do not extend to or cover any property or assets of
Liens were in existence at the time of such transaction the Company or any Subsidiary other than the property
(unless such Indebtedness was incurred or such Lien or assets so acquired, (v) Liens to secure Capitalized
created in connection with, or in contemplation of, Lease Obligations and certain other Indebtedness that
such transaction), so long as such Liens do not extend is otherwise permitted under the New Note Indenture;
to or cover any property or assets of RGC or any provided that (A) any such Lien is created solely for
Subsidiary of RGC other than property or assets the purpose of securing such other Indebtedness
acquired in such transaction; or (ii) securing any representing, or incurred to finance, refinance or
assumption, guarantee or other liability of any refund, the cost (including sales and excise taxes,
Subsidiary of RGC in respect of any Subordinated installation and delivery charges and other direct
Indebtedness of RGC, then a substantially similar costs of, and other direct expenses paid or charged in
assumption, guarantee or other liability of such connection with, the purchase (whether through stock or
Subsidiary in respect of the Old RGC Notes, asset purchase, merger or otherwise) or construction)
concurrently or immediately thereafter, shall be or improvement of the property subject thereto (whether
equally and ratably secured, provided, that if such real or personal, including fixtures and other
Subordinated Indebtedness is expressly subordinated to equipment), (B) the principal amount of the
the Old RGC Notes, the Lien securing the assumption, Indebtedness secured by such Lien does not exceed 100%
guarantee or other liability of such Subsidiary in of such costs and (C) such Lien does not extend to or
respect of such Subordinated Indebtedness shall be cover any other property other than such item of
subordinate and junior to the Lien securing the property and any improvements on such item; (vi) Liens
assumption, guarantee or other liability of such existing on the Issue Date(after giving effect to the
Subsidiary in respect of the Old RGC Notes with the Merger); (vii) Liens in favor of the New Note Trustee
same relative priority as such Subordinated under the New Note Indenture and any substantially
Indebtedness shall have with respect to the Old RGC equivalent Lien granted to any trustee or similar
Notes, and provided further that this clause (ii) shall institution under any Indenture for Indebtedness
not be applicable to Liens securing any such permitted to be incurred under the New Note Indenture;
assumption, guarantee or other liability which existed and (viii) any replacement, extension or renewal, in
at the time such Subsidiary became a Subsidiary of RGC whole or in part, of any Lien described in this or the
and which Liens were in existence at the time of such foregoing clauses including in connection with any
transaction (unless such assumption, guarantee or other refinancing of the Indebtedness, in whole or in part,
liability was incurred or such Lien created in secured by any such Lien provided that to the extent
connection with, or in contemplation of, such person any such clause limits the amount secured or the assets
becoming a Subsidiary of RGC), so long as such Liens do subject to such Liens, no extension or renewal shall
not extend to or cover any property or assets of RGC or increase the amount or the assets subject to such
any Subsidiary of RGC other than the assets of such Liens, except to the extent that the Liens associated
person. IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, with such additional assets are otherwise permitted
THE OLD RGC INDENTURES WILL BE AMENDED TO ELIMINATE hereunder.
THIS PROVISION.
"Lien" means any mortgage, pledge, lien, encumbrance,
charge or adverse claim affecting title or resulting in
an encumbrance against real or personal property, or a
security interest of any kind (including any
conditional sale or other title retention agreement,
any lease in the nature thereof, any option or other
agreement to sell which is intended to constitute or
create a security interest, mortgage, pledge or lien,
and any filing of or agreement to give any financing
statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction); provided
that in no event shall an operating lease be deemed to
constitute a Lien under the New Note Indenture.
"Permitted Liens" 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 thereof; (ii)
statutory Liens of landlords and carriers,
warehousemen, mechanics, suppliers, materialmen,
repairmen or other like Liens arising in the ordinary
course of business, deposits made to obtain the release
of such Liens and with respect to amounts not yet
delinquent for a period
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of more than 60 days or being contested in good faith
by an appropriate process of law, and for which a
reserve or other appropriate provision, if any, as
shall be required by GAAP shall have been made; (iii)
Liens incurred or pledges or deposits made in the
ordinary course of business to secure lease obligations
or nondelinquent obligations under workers'
compensation, unemployment insurance and other types of
social security or similar legislation; (iv) Liens
incurred or deposits made to secure the performance of
tenders, bids, leases, statutory obligations, surety
and appeal bonds, government contracts, performance and
return of money bonds and other obligations of a like
nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed
money); (v) easements, rights-of-way, zoning or other
restrictions, minor defects or irregularities in title
and other similar charges or encumbrances not
interfering in any material respect with the business
of the Company or any of its Subsidiaries incurred in
the ordinary course of business; (vi) Liens upon
specific items of inventory or other goods and proceeds
of any person securing such person's obligations in
respect of bankers' acceptances issued or created for
the account of such person to facilitate the purchase,
shipment or storage of such inventory or other goods in
the ordinary course of business; (vii) Liens securing
reimbursement obligations with respect to letters of
credit which encumber documents and other property
relating to such letters of credit and the products and
proceeds thereof; (viii) Liens in favor of customs and
revenue authorities arising as a matter of law to
secure payment of nondelinquent customs duties in
connection with the importation of goods; (ix) judgment
and attachment Liens not giving rise to a Default or
Event of Default; (x) leases or subleases granted to
others not interfering in any material respect with the
business of the Company or any Subsidiary; (xi) Liens
encumbering customary initial deposits and margin
deposits, and other Liens incurred in the ordinary
course of business that are within the general
parameters customary in the industry, in each case
securing Indebtedness under Interest Swap Obligations
and Foreign Exchange Agreements and forward contracts,
option futures contracts, futures options or similar
arrangements or arrangements designed to protect the
Company or any Subsidiary from fluctuations in the
price of commodities; (xii) Liens encumbering deposits
made in the ordinary course of business to secure
nondelinquent obligations arising from statutory,
regulatory, contractual or warranty requirements of the
Company or its Subsidiaries for which a reserve or
other appropriate provision, if any, as shall be
required by GAAP shall have been made; (xiii) Liens
arising out of consignment or similar arrangements for
the sale of goods entered into by the Company or any
Subsidiary in the ordinary course of business in
accordance with past practices; (xiv) any interest or
title of a lessor in the property subject to any lease,
whether characterized as capitalized or operating other
than any such interest or title resulting from or
arising out of a default by the Company or any
Subsidiary of its obligations under such lease; (xv)
Liens arising from filing UCC financing statements for
precautionary purposes in connection with true leases
of personal property that are otherwise permitted under
the New Note Indenture and under which the Company or
any Subsidiary is lessee; (xvi) Liens on assets of the
Company securing Indebtedness which would constitute
Senior Indebtedness but for the provisions of clause
(c) in the third sentence of the definition of Senior
Indebtedness and Liens on assets of a Subsidiary
Guarantor securing Indebtedness which would constitute
Guarantor Senior Indebtedness but for the provisions of
clause (c) in the third sentence of the definition of
Guarantor Senior Indebtedness; and (xvii) additional
Liens securing Indebtedness at any one time outstanding
not exceeding the sum of (i) $25 million and (ii) 10%
of the Aggregate Consolidated Net Income of the Company
earned subsequent to the Issue Date and on or prior to
such time.
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Limitation on Other Senior Subordinated Limitation on Other Senior Subordinated
Indebtedness. The Old RGC Indentures provide that RGC Indebtedness. The New Note Indenture will provide that
will not create, incur, assume, guarantee or in any neither the Company nor any Subsidiary Guarantor will,
other manner become liable with respect to any directly or indirectly, incur any Indebtedness
Indebtedness that is subordinate in right of payment to (including Acquired Indebtedness) that is subordinate
any Senior Indebtedness unless such Indebtedness is in right of payment to any Indebtedness of the Company
also pari passu with or subordinate in right of payment or such Subsidiary Guarantor, as the case may be,
to the Old RGC Notes, pursuant to subordination unless such Indebtedness is either (a) pari passu in
provisions substantially similar to those contained in right or payment with the New Notes or the Guarantee of
the Old RGC Indentures. such Subsidiary Guarantor, as the case may be, or (b)
subordinate in right of payment to the New Notes or the
Guarantee of such Subsidiary Guarantor, as the case may
be, in the same manner and at least to the same extent
as the New Notes are subordinate to Senior Indebtedness
or as such Guarantee is subordinated to Guarantor
Senior Indebtedness of such Subsidiary Guarantor, as
the case may be.
Limitation on Preferred Stock of Subsidiaries. The Limitations on Preferred Stock of Subsidiaries. The New
Old RGC Indentures provide that RGC will not permit Note Indenture will provide that the Company will not
any of its Subsidiaries to issue any Preferred Stock permit any of its Subsidiaries to issue any Preferred
(other than to RGC or a wholly owned Subsidiary of RGC) Stock (other than to the Company or to a wholly-owned
or permit any person (other than RGC or a wholly owned Subsidiary) or permit any person (other than the
Subsidiary of RGC) to own or hold an interest in any Company or a wholly-owned Subsidiary) to own any
Preferred Stock of any such Subsidiary, unless the Preferred Stock of any Subsidiary.
Subsidiary would be entitled to incur Indebtedness
pursuant to the provisions of "Limitation on
Indebtedness" in the aggregate principal amount equal
to the aggregate liquidation value of such Preferred
Stock. IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE
OLD RGC INDENTURES WILL BE AMENDED TO ELIMINATE THIS
PROVISION.
Limitation on Dividends and Other Payment Limitations on Dividends and Other Payment Restrictions
Restrictions Affecting Subsidiaries. The Old RGC Affecting Subsidiaries. The New Note Indenture will
Indentures provide that RGC will not, and will not provide that the Company shall not, and shall not
permit any Subsidiary to, create or otherwise cause or permit any Subsidiary to, directly or indirectly,
suffer to exist or become effective any consensual create or suffer to exist, or allow to become effective
encumbrance or restriction of any kind, on the ability any consensual Payment Restriction with respect to any
of any Subsidiary to (a) pay dividends or make any of its Subsidiaries, except for (a) any such restric-
other distribution on its Capital Stock, (b) pay any tions contained in (i) the Credit Agreement and related
Indebtedness owed to RGC or any Subsidiary, (c) make documents as in effect on the Issue Date as any such
loans or advances to RGC or any Subsidiary, or (d) payment restriction may apply to any present or future
transfer any of its property or assets to RGC or any Subsidiary, (ii) the New Note Indenture and any
Subsidiary, except (i) any encumbrance or restriction agreement in effect at or entered into on the Issue
pursuant to an agreement in effect at or entered into Date, (iii) Indebtedness of a person existing at the
on the date of the Old RGC Indentures; (ii) any time such person becomes a Subsidiary (provided that
encumbrance or restriction with respect to a Subsidiary (x) such Indebtedness is not incurred in connection
that was not a Subsidiary of RGC on the date of the Old with, or in contemplation of, such person becoming a
RGC Indentures, in existence at the time such person Subsidiary, (y) such restriction is not applicable to
became a Subsidiary of RGC or created on the date it any person, or the properties or assets of any person,
becomes a Subsidiary; and (iii) any encumbrance or other than the person so acquired and (z) such
restriction pursuant to any agreement that extends, Indebtedness is otherwise permitted to be incurred
refinances, renews or replaces any agreement containing pursuant to the provisions of the covenant described
any of the restrictions described in the foregoing under "-- Limitation on Incurrences of Additional
clauses (i) through (iii); provided that the terms and Indebtedness" herein), (iv) secured Indebtedness
conditions of any such restrictions are not materially otherwise permitted to be incurred pursuant to the
less favorable to the Holders of the Old RGC Notes than provisions of the covenants described under
those under or pursuant to the agreement extended, "-- Limitation on Incurrences of Additional Indebted-
refinanced, renewed or replaced. IF THE PROPOSED ness" and "-- Limitation on Liens" herein that limit
AMENDMENTS BECOME OPERATIVE, THE OLD RGC INDENTURES the right of the debtor to dispose of the assets
WILL BE AMENDED TO ELIMINATE THIS PROVISION. securing such Indebtedness; (b) customary
non-assignment provisions restricting subletting or
assignment of any lease or other agreement entered into
by a Subsidiary; (c) customary net worth provisions
contained in leases and other agreements entered into
by a Subsidiary in the ordinary course of business; (d)
customary restrictions with respect to a Subsidiary
pursuant to an agreement that has been entered into for
the sale or disposition of all or substantially all of
the Capital Stock or assets of such Subsidiary; (e)
customary provisions in joint venture agreements and
other similar agreements; and (f) restrictions
contained in Indebtedness incurred to refinance,
refund, extend or renew Indebtedness referred to in
clause (a) above; provided that the restrictions
contained therein are not materially more restrictive
taken as a whole than those provided for in such
Indebtedness being refinanced, refunded, extended or
renewed and (g) Payment Restrictions contained in any
other Indebtedness permitted to be incurred subsequent
to the Issue Date pursuant to the provisions of the
covenant
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OLD RGC NOTES NEW NOTES
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described under "-- Limitation on Incurrences of
Additional Indebtedness" herein; provided that any such
Payment Restrictions are ordinary and customary with
respect to the type of Indebtedness being incurred
(under the relevant circumstances), and, in any event,
no more restrictive than the most restrictive Payment
Restrictions in effect on the Issue Date.
"Payment Restriction" means, with respect to a
subsidiary of any person, any encumbrance, restriction
or limitation, whether by operation of the terms of its
charter or by reason of any agreement, instrument,
judgment, decree, order, statute, rule or governmental
regulation, on the ability of (i) such subsidiary to
(a) pay dividends or make other distributions on its
Capital Stock or make payments on any obligation,
liability or Indebtedness owed to such person or any
other subsidiary of such person, (b) make loans or
advances to such person or any other subsidiary of such
person or (c) transfer any of its properties or assets
to such person or any other subsidiary of such persons,
or (ii) such person or any other subsidiary of such
person to receive or retain any such (a) dividends,
distributions or payments, (b) loans or advances, or
(c) transfer of properties or assets.
Limitation on Mergers and Sales of Assets, etc. The Limitation on Mergers and Certain Other
Old RGC Indentures provide that RGC shall not Transactions. The New Note Indenture will provide that
consolidate with or merge with or into any other person the Company, in a single transaction or through a
or sell, assign, convey, transfer, lease or otherwise series of related transactions, shall not (i)
dispose of all or substantially all of its properties consolidate with or merge with or into any other
and assets substantially as an entirety to any person person, or transfer (by lease, assignment, sale or
or group of affiliated persons unless at the time and otherwise) all or substantially all of its properties
after giving effect thereto (i) either (a) RGC shall be and assets as an entirety or substantially as an
the continuing corporation, or (b) the person (if other entirety to another person or group of affiliated
than RGC) formed by such consolidation or into which persons or (ii) adopt a Plan of Liquidation, unless, in
RGC is merged or the person which acquires by sale, either case, (1) either the Company shall be the
assignment, conveyance, transfer, lease or disposition continuing person, or the person (if other than the
the properties and assets of RGC, substantially as an Company) formed by such consolidation or into which the
entirety (the "Surviving Entity") shall be a Company is merged or to which all or substantially all
corporation duly organized and validly existing under of the properties and assets of the Company as an
the laws of the United States of America, any state entirety or substantially as an entirety are
thereof or the District of Columbia and shall, in transferred (or, in the case of a Plan of Liquidation,
either case, expressly assume, by a supplemental any person to which assets are transferred) (the
indenture, executed and delivered to the applicable Old Company or such other person being hereinafter referred
RGC Note Trustee, in form satisfactory to such Old RGC to as the "Surviving Person") shall be a corporation
Note Trustee, all the obligations of RGC under the Old organized and validly existing under the laws of the
RGC Notes and the applicable Old RGC Note Indenture and United States, any state thereof or the District of
the applicable Old RGC Note Indenture shall remain in Columbia, and shall expressly assume, by an indenture
full force and effect; (ii) immediately prior to such supplement, all the obligations of the Company under
transaction, and immediately after giving effect to the New Note Indenture and the New Notes; (2) immedi-
such transaction on a pro forma basis, no Default or ately after and giving effect to such transaction and
Event of Default shall have occurred and be continuing; the assumption contemplated by clause (1) above and the
and (iii) immediately after giving effect to such incurrence or anticipated incurrence of any
transaction on a pro forma basis, the Consolidated Indebtedness to be incurred in connection therewith,
Interest Coverage Ratio of RGC (or the Surviving Entity (A) the Surviving Person shall have a Consolidated Net
if RGC is not the continuing obligor under such Old RGC Worth equal to or greater than the Consolidated Net
Indenture), for RGC's four most recently completed full Worth of the Company immediately preceding the
fiscal quarters exceeds 1.8 to 1.0. IF THE PROPOSED transaction and (B) the Surviving Person could incur at
AMENDMENTS BECOME OPERATIVE, THE OLD RGC INDENTURES least $1.00 of additional Indebtedness (other than
WILL BE AMENDED TO ELIMINATE THE REQUIREMENT THAT RGC Permitted Indebtedness) pursuant to the provisions of
OR THE SURVIVING ENTITY MEET THE CONSOLIDATED INTEREST the covenant described under "-- Limitation on
COVERAGE RATIO TEST. Incurrences of Additional Indebtedness" herein; (3)
immediately before and immediately after and giving
The Old RGC Indentures provide that in connection effect to such transaction and the assumption of the
with any consolidation, merger, transfer or lease obligations as set forth in clause (1) above and the
contemplated thereby, RGC shall deliver, or cause to be incurrence or anticipated incurrence of any
delivered, to the Old RGC Note Trustees, in form and Indebtedness to be incurred in connection therewith, no
substance reasonably satisfactory to the Old RGC Note Default or Event of Default shall have occurred and be
Trustees, an officer's certificate and an opinion of continuing; and (4) each Subsidiary Guarantor, unless
counsel, each stating that such consolidation, merger, it is the other party to the transaction, shall have by
transfer or lease and the supplemental indenture in supplemental indenture confirmed that its Guarantee of
respect thereto comply with the provisions described the obligations of the Company under the New Notes and
herein and that all conditions precedent herein the New Note Indenture shall apply, without alteration
provided for relating to such transaction have been or amendment such Guarantee applies on the date it was
complied with. granted under the New Note Indenture to the obligations
of the Company under the New Note Indenture and the New
The Old RGC Notes Indentures provide that upon any Notes to the obligations of the Company or such Person,
consolidation or merger or any transfer of all or as the case may be, under the New Note Indenture and
substantially all of the assets of RGC in accordance the New Notes, after the consummation of such
with the foregoing, the successor corporation formed by transaction.
such a consolidation or into which RGC is
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merged or to which such transfer is made shall succeed
to, and be substituted for, and may exercise every Notwithstanding the foregoing, the consummation of the
right and power of, RGC under the Old RGC Indentures Merger on the Issue Date need only comply with clauses
with the same effect as if such successor corporation (1) and (3) of the foregoing paragraph.
had been named as RGC therein.
The New Note Indenture will provide that upon any
The Old RGC Indentures provide that in the event of consolidation or merger or any transfer of all or
any transaction (other than a lease) described in and substantially all of the assets of the Company or any
complying with the conditions listed in the immediately adoption of a Plan of Liquidation by the Company in
preceding paragraphs in which RGC is not the continuing accordance with the foregoing, the surviving person
corporation, the successor person formed or remaining formed by such consolidation or into which the Company
shall succeed to, and be substituted for, and may is merged or to which such transfer is made (or, in the
exercise every right and power of, RGC and RGC would be case of a Plan of Liquidation, to which assets
discharged from all obligations and covenants under the are transferred) shall succeed to, and be substituted
Old RGC Indentures and the Old RGC Notes. for, and may exercise every right and power of,
the Company under the New Note Indenture with the
same effect as if such surviving person had been named
as the Company 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"
herein, any such surviving person shall only be
deemed to have succeeded to and be substituted for the
Company with respect to periods subsequent to the
effective time of such merger, consolidation or transfer
of assets.
For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise) of all or substantially
all of the properties and assets of one or more
Subsidiaries, the Capital Stock of which constitutes
all or substantially all of the properties and assets
of the Company, shall be deemed to be the transfer of
all or substantially all of the properties and assets
of the Company.
"Plan of Liquidation" means, with respect to any
person, a plan that provides for, contemplates, or the
effectuation of which is preceded or accompanied by
(whether or not substantially contemporaneously, in
phases or otherwise) (i) the sale, lease, conveyance or
other disposition of all or substantially all of the
assets of such person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution
of all or substantially all of the proceeds of such
sale, lease, conveyance or other disposition and all or
substantially all of the remaining assets of such
person to holders of Capital Stock of such person.
"Consolidated Net Worth" means, with respect to any
person, the total stockholders' equity (exclusive of
any Disqualified Capital Stock) of such person and its
subsidiaries determined on a consolidated basis in
accordance with GAAP.
"Merger" means (i) the merger of Food 4 Less
Supermarkets, Inc. into Ralphs Supermarkets, Inc. (with
Ralphs Supermarkets, Inc. surviving such merger)
pursuant to the Merger Agreement and (ii) immediately
following the merger described in clause (i) of this
definition, the merger of Ralphs Grocery Company into
Ralphs Supermarkets, Inc. (with Ralphs Supermarkets,
Inc. surviving such merger and changing its name to
"Ralphs Grocery Company" in connection with such
merger).
Limitation on Asset Sales. There is no corresponding Limitation on Asset Sales. The New Note Indenture will
provision in the Old RGC Note Indenture. provide that neither the Company nor any of its
Subsidiaries shall consummate an Asset Sale unless (a)
the Company or the applicable Subsidiary receives
consideration at the time of such Asset Sale at least
equal to the fair market value of the assets sold and
(b) upon consummation of an Asset Sale, the Company
will within 365 days of the receipt of the proceeds
therefrom, either: (i) apply or cause its Subsidiary to
apply the Net Cash Proceeds of any Asset Sale to (A) a
Related Business Investment, (B) an investment in
properties and assets that replace the properties and
assets that are the subject of such Asset Sale or (C)
an investment in properties and assets that will be
used in the business of the Company and its
Subsidiaries existing on the Issue Date or in
businesses reasonably related thereto; (ii) apply or
cause to be applied such Net Cash Proceeds to the
permanent
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repayment of Pari Passu Indebtedness or Senior
Indebtedness; provided, however, that the repayment of
any revolving loan (under the Credit Agreement or
otherwise) shall result in a permanent reduction in the
commitment thereunder; (iii) use such Net Cash Proceeds
to secure Letter of Credit Obligations to the extent
the related letters of credit have not been drawn upon
or returned undrawn; or (iv) after such time as the
accumulated Net Cash Proceeds equals or exceeds $20
million, apply or cause to be applied such Net Cash
Proceeds to the purchase of New Notes tendered to the
Company for purchase at a price equal to 100% of the
principal amount thereof plus accrued interest to the
date of purchase pursuant to an offer to purchase made
by the Company as set forth below (a "Net Proceeds
Offer"); provided, however, that the Company shall have
the right to exclude from the foregoing provisions
Asset Sales subsequent to the Issue Date, the proceeds
of which are derived from the sale and substantially
concurrent lease-back of a supermarket and/or related
assets which are acquired or constructed by the Company
or a Subsidiary subsequent to the Issue Date, provided
that such sale and substantially concurrent lease-back
occurs within 180 days following such acquisition or
the completion of such construction, as the case may
be; provided further that pending the utilization of
any Net Cash Proceeds in the manner (and within the
time period) described above, the Company may use any
such Net Cash Proceeds to repay revolving loans (under
the Credit Agreement or otherwise) without a permanent
reduction of the commitment thereunder.
Each Net Proceeds Offer will be mailed to record
Holders of New Notes as shown on the register of
Holders not less than 325 nor more than 365 days after
the relevant Asset Sale, with a copy to the New Note
Trustee, shall specify the purchase date (which shall
be no earlier than 30 days nor later than 40 days from
the date such notice is mailed) and shall otherwise
comply with the procedures set forth in the New Note
Indenture. Upon receiving notice of the Net Proceeds
Offer, Holders may elect to tender their New Notes in
whole or in part in integral multiples of $1,000 in
exchange for cash. To the extent Holders properly
tender New Notes in an amount exceeding the Net
Proceeds Offer, New Notes of tendering Holders will be
repurchased on a pro rata basis (based on amounts
tendered).
The Company will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities
laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the
repurchase of New Notes pursuant to a Net Proceeds
Offer.
"Asset Sale" means, with respect to any person, any
sale, transfer or other disposition or series of sales,
transfers or other dispositions (including, without
limitation, by merger or consolidation or by exchange
of assets and whether by operation of law or otherwise)
made by such person or any of its subsidiaries to any
person other than such person or one of its
wholly-owned subsidiaries (or, in the case of a sale,
transfer or other disposition by a Subsidiary, to any
person other than the Company or a directly or
indirectly wholly-owned Subsidiary) of any assets of
such person or any of its subsidiaries including,
without limitation, assets consisting of any Capital
Stock or other securities held by such person or any of
its subsidiaries, and any Capital Stock issued by any
subsidiary of such person, in each case, outside of the
ordinary course of business, excluding, however, any
sale, transfer or other disposition, or series of
related sales, transfers or other dispositions (i)
involving only Excluded Assets; (ii) resulting in Net
Proceeds to the Company of $500,000 or less; (iii)
pursuant to any foreclosure of assets or other remedy
provided by applicable law to a creditor of the Company
with a Lien on such assets, which Lien is permitted
under the New Note Indenture, provided that such
foreclosure or other remedy is converted in a
commercially reasonable manner or in accordance with
any Bankruptcy Law; (iv) involving only Cash
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Equivalents or inventory in the ordinary course of
business or obsolete equipment in the ordinary course
of business consistent with past practices of the
Company; (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 which, together with
all other such Asset Sale Proceeds, do not exceed $20
million.
"Net Cash Proceeds" means the Net Proceeds of any Asset
Sale received in the form of cash or Cash Equivalents.
"Cash Equivalents" means (i) obligations issued or
unconditionally guaranteed by the United States of
America or any agency thereof, or obligations issued by
any agency or instrumentality thereof and backed by the
full faith and credit of the United States of America,
(ii) commercial paper rated the highest grade by
Moody's Investors Service, Inc. and Standard & Poor's
Ratings Group and maturing not more than one year from
the date of creation thereof, (iii) time deposits with,
and certificates of deposit and banker's acceptances
issued by, any bank having capital surplus and
undivided profits aggregating at least $500 million and
maturing not more than one year from the date of
creation thereof, (iv) repurchase agreements that are
secured by a perfected security interest in an
obligation described in clause (i) and are with any
bank described in clause (iii) and (v) readily
marketable direct obligations issued by any state of
the United States of America or any political
subdivision thereof having one of the two highest
rating categories obtainable from either Moody's
Investors Service, Inc. or Standard & Poor's Ratings
Group.
"Related Business Investment" means (i) any Investment
by a person in any other person a majority of whose
revenues are derived from the operation of one or more
retail grocery stores or supermarkets or any other line
of business engaged in by the Company or any of its
Subsidiaries as of the Issue Date; (ii) any Investment
by such person in any cooperative or other supplier,
including, without limitation, any joint venture which
is intended to supply any product or service useful to
the business of the Company and its Subsidiaries as it
is conducted as of the Issue Date and as such business
may thereafter evolve or change; and (iii) any capital
expenditure or Investment, in each case reasonably
related to the business of the Company and its
Subsidiaries as it is conducted as of the Issue Date
and as such business may thereafter evolve or change.
"Pari Passu Indebtedness" means, with respect to the
Company or any Subsidiary Guarantor, Indebtedness of
such person which ranks pari passu in right of payment
to the New Notes or the Guarantee of such Subsidiary
Guarantor, as the case may be.
"Letter of Credit Obligations" means Indebtedness of
the Company or any of its Subsidiaries with respect to
letters of credit issued pursuant to the Credit
Agreement, and, for purposes of the definition of the
term "Permitted Indebtedness" herein, the aggregate
principal amount of Indebtedness outstanding at any
time with respect thereto, shall be deemed to consist
of (a) the aggregate maximum amount then available to
be drawn under all such letters of credit (the
determination of such maximum amount to assume
compliance with all conditions for drawing), and (b)
the aggregate amount that has then been paid by, and
not reimbursed to, the issuers under such letters of
credit.
Guarantees of Certain Indebtedness. There is no Guarantees of Certain Indebtedness. The New Note
corresponding provision in the Old RGC Note Indenture will provide that the Company shall not
Indenture. permit any of its Subsidiaries to (a) incur, guarantee
or secure through the granting of Liens the payment of
any Indebtedness under the term portion of the Credit
Agreement or refinancings thereof or (b) pledge any
intercompany notes representing obligations of any of
its Subsidiaries, to secure the payment of any
Indebtedness under the term portion of the Credit
Agreement or refinancings thereof, in each case unless
such subsidiary, the Company
A-23
231
OLD RGC NOTES NEW NOTES
- ------------------------------------------------------ ------------------------------------------------------
and the New Note Trustee execute and deliver a
supplemental indenture evidencing such Subsidiary's
Guarantee.
EVENTS OF DEFAULT EVENTS OF DEFAULT
An "Event of Default" will occur under the Old RGC Pursuant to the New Note Indenture the following events
Indentures upon: constitute "Events of Default": (i) failure to make any
interest payment on the New Notes when due and the
(a) default in the payment of any interest on any Old continuance of such default for a period of 30 days;
RGC Note when it becomes due and payable, and (ii) failure to pay principal of, or premium, if any,
continuance of such default for a period of 30 days; or on the New Notes when due, whether at
maturity, upon acceleration, redemption, required
(b) default in the payment of the principal of (or repurchase or otherwise; (iii) failure to comply with
premium, if any, on) any Old RGC Note at its Stated any other agreement contained in the New Notes or the
Maturity; or New Note Indenture, if such failure continues
unremedied for 30 days after written notice given by
(c) default in the performance, or breach, of any the New Note Trustee or the holders of at least 25% in
covenant or warranty of RGC under the Old RGC principal amount of the New Notes then outstanding
Indentures (other than a default in the performance, or (except in the case of a default with respect to the
breach, of a covenant or warranty that is specifically covenants described under "Limitation on Restricted
dealt with elsewhere herein), and continuance of such Payments," "Limitations on Assets Sales," "Change of
default or breach for a period of 60 days after there Control," and "Limitations on Merger and Certain Other
has been given, by registered or certified mail, to RGC Transactions," which shall constitute Events of Default
by the Old RGC Note Trustee thereunder or to RGC and with notice but without passage of time); (iv) a
such Old RGC Note Trustee by the holders of at least default under any Indebtedness of the Company or its
25% in principal amount of the outstanding Old RGC subsidiaries, whether such Indebtedness now exists or
Notes, a written notice specifying such default or shall hereinafter be created, if both (A) such default
breach and stating that such notice is a "Notice of either (1) results from the failure to pay any such
Default" thereunder; or Indebtedness at its stated final maturity or (2)
relates to an obligation other than the obligation to
(d) an event of default as defined in any mortgage, pay such Indebtedness at its stated final maturity and
bond, indenture, loan agreement or other evidence of results in the holder or holders of such Indebtedness
Indebtedness under which there may be issued or by causing such Indebtedness to become due prior to its
which there may be secured or evidenced any stated maturity and (B) the principal amount of such
Indebtedness of RGC or any Material Subsidiary for Indebtedness, together with the principal amount of any
money borrowed, in each case in excess of $15 million other such Indebtedness in default for failure to pay
in the aggregate, shall occur and shall result in such principal at stated final maturity or the maturity of
Indebtedness becoming or being declared due and payable which has been so accelerated, aggregate $20 million or
prior to the date on which it would otherwise become more at any one time outstanding; (v) any final
due and payable; or judgment or order for payment of money in excess of $20
million shall be entered against the Company or any
(e) final judgments or orders are rendered against RGC Significant Subsidiary and shall not be discharged for
or any Material Subsidiary which require the payment in a period of 60 days after such judgment becomes final
money, either individually or in an aggregate amount, and nonappealable; (vi) either the Company or any
that is more than $10 million and such judgment or Significant Subsidiary pursuant to or within the
order shall remain unsatisfied or unstayed for 60 days; meaning of any Bankruptcy Law: (a) commences a
or voluntary case or proceeding; (b) consents to the entry
of an order for relief against it in an involuntary
(f) the entry of a decree or order by a court having case or proceeding; (c) consents to the appointment of
jurisdiction in the premises (A) for relief in respect a custodian of it or for all or substantially all of
of RGC or any Material Subsidiary in an involuntary its property; or (d) makes a general assignment for the
case or proceeding under the Federal Bankruptcy Code or benefit of its creditors; (vii) a court of competent
any other federal or state bankruptcy, insolvency, jurisdiction enters an order or decree under any
reorganization or similar law or (B) adjudging RGC or Bankruptcy Law that: (a) is for relief against the
any Material Subsidiary a bankrupt or insolvent, or Company or any Significant Subsidiary, in an
approving as properly filed a petition seeking involuntary case or proceeding; (b) appoints a
reorganization, arrangement, adjustment or composition custodian of the Company or any Significant Subsidiary,
of or in respect of RGC or any Material Subsidiary or for all or any substantial part of their respective
under the Federal Bankruptcy Code or any other properties; or (c) orders the liquidation of the Com-
applicable federal or state law, or appointing a pany or any Significant Subsidiary, and in each case
custodian, receiver, liquidator, assignee, trustee, the order or decree remains unstayed and in effect for
sequestrator (or other similar official) of RGC or any 60 days; (viii) the lenders under the Credit Agreement
Material Subsidiary of any substantial part of any of shall commence judicial proceedings to foreclose upon
their properties, or ordering the winding up or any material portion of the assets of the Company and
liquidation of any of their affairs, and the its Subsidiaries; or (ix) any of the guaran-tees issued
continuance of any such decree or order unstayed and in under the New Note Indenture shall be declared or
effect for a period of 60 consecutive days; or adjudged unenforceable or invalid in a final judgment
or order issued by any court of governmental authority.
(g) the institution by RGC or any Material Subsidiary In the event of a declaration of acceleration because
of a voluntary case or proceeding under the Federal an Event of Default set forth in clause (iv) above has
Bankruptcy Code or any other applicable federal or occurred and is continuing, such declaration of
state law or any other case or proceedings to be acceleration shall be automatically rescinded and
adjudicated a bankrupt or insolvent, or the consent by annulled if either (i) the holders of the Indebtedness
RGC or any Material Subsidiary to the entry of a decree which is the subject of such Event of Default have
or order for relief in respect of RGC or any Material waived such failure to pay at maturity or have
Subsidiary in any involuntary case or proceeding under rescinded the acceleration in respect of such
the Federal Bankruptcy Code or any other applicable Indebtedness within 90 days of such maturity or
federal or state law or to the institution of declaration of acceleration, as the case may be, and no
bankruptcy or insolvency proceedings against RGC or any other Event of Default has occurred during such 90-day
Material Subsidiary, or the filing by RGC or any period which has not been cured or waived, or (ii) such
Material Subsidiary of a petition or answer or consent Indebtedness shall have been discharged or the maturity
seeking reorganization or relief under the Federal thereof shall have been extended such
Bankruptcy
A-24
232
OLD RGC NOTES NEW NOTES
- ------------------------------------------------------ ------------------------------------------------------
Code or any other applicable federal or state law, or that it is not then due and payable, or the underlying
the consent by it to the filing of any such petition or default has been cured, within 90 days of such maturity
to the appointment of or taking possession by a or declaration of acceleration, as the case may be.
custodian, receiver, liquidator, assignee, trustee,
sequestrator (or other similar official) or any of RGC Under the terms of the New Note Indenture, if an Event
or any Material Subsidiary or of any substantial part of Default (other than an Event of Default resulting
of its property, or the making by it of an assignment from bankruptcy, insolvency, receivership or
for the benefit of creditors, or the admission by it in reorganization of the Company or a Subsidiary
writing of its inability to pay its debts generally as Guarantor) occurs and is continuing, the New Note
they become due or taking of corporate action by RGC or Trustee or the holders of at least 25% in principal
any Material Subsidiary in furtherance of any such amount of the then outstanding New Notes issued under
action; or (h) default in the performance of breach of the New Indenture may declare immediately due and
the provisions of "Merger and Sale of Assets, etc." payable all unpaid principal and interest accrued
and unpaid on the then outstanding New Notes by
notice in writing to the Company and the
If an Event of Default (other than as specified in applicable New Trustee specifying the respective
clauses (f) and (g) above) shall occur and be Event of Default and that it is a "notice of
continuing under the Old RGC Indentures, the Old RGC acceleration" (the "Acceleration Notice"), and the same
Note Trustee thereunder or the holders of not less than (i) shall become immediately due and payable or (ii) if
25% in aggregate principal amount of either the Old RGC there are any amounts outstanding under the Credit
Notes issued thereunder then outstanding, as the case Agreement, shall become due and payable upon the first
may be, may declare such Old RGC Notes due and payable to occur of an acceleration under the Credit Agreement,
immediately at their principal amount together with ac- or five business days after receipt by the Company and
crued interest to the date such Old RGC Notes become due the administrative agent under the Credit Agreement of
and payable; provided that so long as the 1992 Credit such Acceleration Notice. If an Event of Default
Agreement shall be in force and effect, if any such resulting from certain events of bankruptcy,
Event of Default shall have occurred and be continuing, insolvency, receivership or reorganization of the
any such acceleration shall not be effective until the Company or a Subsidiary Guarantor that is a Significant
earlier of (a) five Business Days following a notice of Subsidiary shall occur, all unpaid principal of and
acceleration given to RGC and the Agent under the 1992 accrued interest on all then outstanding New Notes
Credit Agreement and only if upon such fifth Business shall be immediately due and payable without any
Day such Event of Default shall be continuing or (b) declaration or other act on the part of the New Note
the acceleration of any Indebtedness under the 1992 Trustee or any of the holders. After a declaration of
Credit Agreement. Thereupon such Old RGC Note Trustee acceleration, subject to certain conditions, the
may, at its discretion, proceed to protect and enforce holders of a majority in principal amount of the then
the rights of the holders of such Old RGC Notes by outstanding New Notes, by notice to the New Note
appropriate judicial proceeding. If an Event of Default Trustee, may rescind such declaration if all existing
specified in clause (f) or (g) above occurs and is Events of Default are remedied. In certain cases the
continuing, hen the principal of and accrued interest holders of a majority in principal amount of
on all Old RGC Notes shall ipso facto become and be outstanding New Notes may waive a past default under
immediately due and payable without any declaration of the New Note Indenture and its consequences, except a
other act on the part of the Old RGC Note Trustee or default in the payment of or interest on any of the New
any holder. Notes.
The New Note Indenture provides that if a Default or
After a declaration of acceleration of Old RGC Notes, Event of Default occurs and is continuing thereunder
but before a judgment or decree for payment of the and if it is known to the New Note Trustee, the New
money due has been obtained by the applicable Old RGC Note Trustee shall mail to each holder of New Notes
Note Trustee, the Holders of a majority in aggregate notice of the Default or Event of Default within 90
principal amount of such Old RGC Notes outstanding, by days after such Default or Event of Default occurs;
written notice to RGC and the applicable Old RGC Note provided, however, that, except in the case of a
Trustee, may annul such declaration if (a) RGC has paid Default or Event of Default in the payment of the
or deposited with the applicable Old RGC Note Trustee a principal of or interest on any New Note, including the
sum sufficient to pay (i) all sums paid or advanced by failure to make payment on a Change of Control Payment
the Old RGC Note Trustee under the indenture and the Date pursuant to a Change of Control Offer or payment
reasonable compensation, expenses, disbursements and when due pursuant to a Proceeds Offer the New Note
advances of the Old RGC Note Trustee, its agents and Trustee may withhold such notice if it in good faith
counsel, (ii) all overdue interest on all such Old RGC determines that withholding such notice is in the
Notes, (iii) the principal of and premium, if any, on interest of the holders.
any such Old RGC Notes which have become due otherwise
than by such declaration of acceleration and interest The New Note Indenture provides that no holder of New
thereon at the applicable rate borne by such Old RGC Notes may pursue any remedy thereunder unless the New
Notes, and (iv) to the extent that payment of such Note Trustee (i) shall have failed to act for a period
interest is lawful, interest upon overdue interest at of 60 days after receiving written notice of a
the rate borne by such Old RGC Notes; and (b) all continuing Event of Default by such holder and a
Events of Default, other than the non-payment of request to act by holders of at least 25% in principal
principal of such Old RGC Notes which have become due amount of New Notes and (ii) has received
solely by the declaration of acceleration, have been indemnification satisfactory to it; provided, however,
cured or waived. that such provision does not affect the right of any
holder to sue for enforcement of any overdue payment of
The Holders of not less than a majority in principal New Notes.
amount of either the Old RGC 10 1/4% Notes or the Old
RGC 9% Notes then outstanding may on behalf of the Under the New Note Indenture, two officers of the
holders of the respective Old RGC Notes waive any past Company are required to certify to the New Note Trustee
defaults under the applicable Old RGC Indenture, except within 120 days after the end of each fiscal year of
a default in the payment of the principal of, premium, Ralphs Grocery whether or not they know of any Default
if any, or interest on any such Old RGC Note, or in that occurred during such fiscal year and, if
respect of a covenant or provision which under the applicable, describe such Default and the status
applicable Old RGC Indenture cannot be modified or thereof.
amended without the consent of the Holder of each such
Old RGC Note affected.
A-25
233
OLD RGC NOTES NEW NOTES
- ------------------------------------------------------ ------------------------------------------------------
RGC is also required to notify the Old RGC Note
Trustees within five business days of the occurrence of
any Default.
MODIFICATION AND AMENDMENT MODIFICATION AND AMENDMENT
Modifications and amendments of the Old RGC 9% The New Note Indenture and the New Notes may be amended
Indenture and the Old RGC 10 1/4% Indenture may be or supplemented (and compliance with any provision
made by RGC and the applicable Old RGC Note Trustee thereof, may be waived) by the Company, the Subsidiary
with the consent of the Holders of not less than a Guarantors, the New Note Trustee and the Holders of not
majority in aggregate principal amount of the less than a majority in aggregate principal amount of
outstanding Old RGC 9% Notes and the Old RGC 10 1/4% New Notes then outstanding, except that (i) without the
Notes, as the case may be; provided, however, that no consent of each Holder of New Notes affected, no such
such modification or amendment may, without the consent amendment, supplement or waiver may (1) change the
of the Holder of each outstanding Old RGC Note affected principal amount of the New Notes the Holders of which
thereby: (i) change the Stated Maturity of the must consent to an amendment, supplement or waiver of
principal of, or any installment of interest on, any any provision of the New Note Indenture, the New Notes
Old RGC Note or reduce the principal amount thereof or or the Guarantees, (2) reduce the rate or extend the
the rate of interest thereon or any premium payable time for payment of interest on any New Notes, (3)
upon the redemption thereof, or change the coin or reduce the principal amount of any New Notes, (4)
currency in which the principal of any Old RGC Note or change the Maturity Date of any New Notes or alter the
any premium or the interest thereon is payable, or redemption provisions in the New Note Indenture or the
impair the right to institute suit for the enforcement New Notes in a manner adverse to any Holder, (5) make
of any such payment after the Stated Maturity thereof any changes in the provisions concerning waivers of
(or, in the case of redemption, on or after the Defaults or Events of Default by Holders or the rights
redemption date) or modify the obligation of RGC to of Holders to recover the principal of, interest on or
purchase the Old RGC Notes upon a Change of Control redemption payment with respect to any New Notes, (6)
Triggering Event; or (ii) reduce the percentage in make the principal of, or interest on, any New Notes
principal amount of outstanding Old RGC Notes, the payable with anything or in any manner other than as
consent of whose Holders is required for any such provided for in the New Note Indenture, the New Notes
supplemental indenture or the consent of whose Holders and the Guarantees or (7) modify the subordination
is required for any waiver; or (iii) modify any of the provisions of the New Note Indenture (including the
provisions relating to supplemental indentures related definitions) so as to adversely affect the
requiring the consent of Holders or relating to the ranking of any New Note or Guarantee, (ii) without the
waiver of past defaults or relating to the waiver of consent of Holders of not less than 75% in aggregate
certain covenants, except to increase the percentage of principal amount of New Notes then outstanding, no such
outstanding Old RGC Notes required for such actions or amendment, supplement or waiver may change the Change
to provide that certain other provisions of the Old RGC of Control Payment Date or the purchase price in
Indenture cannot be modified or waived without the connection with any repurchase of New Notes pursuant to
consent of the holder of each Old RGC Note affected the covenant described under "-- Change of Control"
thereby; or (iv) modify any of the provisions of the above in a manner adverse to any Holder or waive a
Old RGC Indenture relating to the subordination of the Default or Event of Default resulting from a failure to
Old RGC Notes in a manner adverse to the Holders comply with the covenant described under "-- Change of
thereof. Control" above and (iii) without the consent of Holders
of not less than two-thirds in aggregate principal
The Holders of a majority in aggregate principal amount of New Notes then outstanding, no such
amount of the Old RGC 9% Notes or Old RGC 10 1/4% Notes amendment, supplement or waiver may release any
outstanding, as the case may be, may waive compliance Subsidiary Guarantor from any of its Obligations under
with certain restrictive covenants and provisions of its Guarantee or the New Note Indenture other than in
the Old RGC Indentures. accordance with the terms of such Guarantee and the New
Note Indenture.
In addition, the New Note Indenture, the New Notes and
the related Guarantees may be amended by the Company,
the Subsidiary Guarantors and the New Note Trustee (a)
to cure any ambiguity, defect or inconsistency therein;
provided that such amendment or supplement does not
adversely affect the rights of any Holder thereof or
(b) to make any other change that does not adversely
affect the rights of any Holder thereunder in any
material respect.
A-26
234
Facsimile copies of the Letter of Transmittal, properly completed and duly
executed, will be accepted. Letters of Transmittal, certificates for the Old RGC
Notes and any other required documents should be sent by each holder or its
broker, dealer, commercial bank, trust company or other nominee to the Exchange
Agent at one of its addresses set forth below.
The Exchange Agent is:
BANKERS TRUST COMPANY
Facsimile Transmission Number:
(212) 250-6275
(212) 250-3290
By Mail: (For Eligible Institutions Only) By Hand/Overnight Delivery:
Bankers Trust Company Bankers Trust Company
Corporate Trust and Agency Group Confirm by Telephone: Corporate Trust and Agency Group
Reorganization Dept. (212) 250-6270 Receipt & Delivery Window
P.O. Box 1458 123 Washington Street, 1st Floor
Church Street Station New York, New York 10006
New York, New York 10008-1458
Any questions or requests for assistance or additional copies of this
Amended and Restated Prospectus and Solicitation Statement, the Letter of
Transmittal and the Notices of Guaranteed Delivery may be directed to the
Information Agent or one of the Dealer Managers at their respective telephone
numbers and locations set forth below. You may also contact your broker, dealer,
commercial bank, trust company or other nominee for assistance concerning the
Offers and the Solicitation.
The Information Agent is:
D.F. KING & CO., INC.
Call Toll Free: (800) 669-5550
77 Water St.
New York, NY 10005
(212) 269-5550 (collect)
The Dealer Managers are:
BT SECURITIES CS FIRST BOSTON DONALDSON, LUFKIN
CORPORATION 55 East 52nd Street & JENRETTE
One Bankers Trust Plaza New York, New York 10055 SECURITIES CORPORATION
130 Liberty Street (212) 909-2873 140 Broadway
New York, New York 10006 New York, New York 10005
(212) 775-2166 (212) 504-4753
235
EDGAR APPENDIX
This EDGAR Appendix is filed in compliance with Item 304 of Regulation S-T
regarding graphic and image information. It describes material appearing on
pages 7 and 8 of the Amended and Restated Prospectus and Solicitation Statement.
PAGE 7
The chart consists of two columns which graphically illustrate the
respective corporate structures of Food 4 Less and Ralphs before the Merger.
Food 4 Less' corporate structure illustrates that Food 4 Less, Inc. ("FFL") owns
Food 4 Less Holdings, Inc. ("Holdings"), which, in turn, owns Food 4 Less
Supermarkets, Inc. ("Food 4 Less") which, in turn, owns several other Food 4
Less subsidiaries. The Ralphs' corporate structure illustrates that Ralphs
Supermarkets, Inc. ("RSI"), owns Ralphs Grocery Company ("RGC") which, in turn,
owns Crawford Stores, Inc. A dotted arrow has been drawn from the box
representing Food 4 Less to the box representing RSI to simulate the RSI Merger.
A dotted arrow has been drawn from the box representing RGC to the box
representing RSI to simulate the RGC Merger. A dotted arrow has been drawn to
the box representing Holdings from the box representing FFL to simulate the FFL
Merger.
PAGE 8
The chart illustrates the corporate structure of the Company after the
Merger and the FFL Merger. The corporate structure illustrates that New Holdings
owns the Company which, in turn, is the parent of all other subsidiaries of the
Company. The anticipated debt obligations of New Holdings are placed in order of
ranking next to the box representing New Holdings and the anticipated debt
obligations of the Company are placed in order of ranking next to the box
representing the Company.
236
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Food 4 Less and its subsidiaries Cala Foods, Inc. and Food 4 Less of
Southern California, Inc., are Delaware corporations and their Certificates of
Incorporation and Bylaws provide for indemnification of their 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.
Alpha Beta Company, Bay Area Warehouse Stores, Inc., Bell Markets, Inc.,
Cala Co., Food 4 Less of California, Inc., Food 4 Less GM, Inc. and Food 4 Less
Merchandising, Inc. are California corporations and their Certificates of
Incorporation and Bylaws provide for indemnification of their officers and
directors to the fullest extent permitted by law. Section 204(10) of the
California General Corporation Law (the "CGCL") eliminates the liability of a
corporation's directors for monetary damages to the fullest extent permissible
under California law. Pursuant to Section 204(11) of the CGCL, a California
corporation may indemnify Agents (as defined in Section 317 of the CGCL),
subject only to the applicable limits set forth in Section 204 of the CGCL with
respect to actions for breach of duty to the corporation and its shareholders.
As permitted by Section 317 of the CGCL, indemnification may be provided by
a California corporation of its Agents (as defined in Section 317 of the CGCL),
to the maximum extent permitted by the CGCL, in connection with any proceeding
arising by reason of the fact that such person is or was such a director or
officer, against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in any such proceeding.
Falley's, Inc. is a Kansas corporation and its Bylaws provide for
indemnification of its officers and directors to the fullest extent permitted by
law. Section 17-6305(a) of the Kansas General Corporation Code (the "KGCC")
provides for the indemnification by a Kansas corporation of its directors,
officers, employees and agents in connection with actions, suits or proceedings
brought against them by a third party or in the right of the corporation, by
reason of the fact that they were or are such directors, officers, employees or
agents, against liabilities and expenses incurred in any such action, suit or
proceeding.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
A list of exhibits filed with this Registration Statement on Form S-4 is
set forth in the Index to Exhibits on page E-1, and is incorporated herein by
reference.
(b) Financial Statement Schedules
(i) Ralphs
Schedule II -- Valuation and Qualifying Accounts
(ii) Food 4 Less
Schedule II -- Valuation and Qualifying Accounts
II-1
237
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrants pursuant to the foregoing provisions, or otherwise, the
registrants have 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 registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by them is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(b) The undersigned registrants hereby undertake to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(c) The undersigned registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(d) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus 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
II-2
238
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 or Rule 3-19 of this chapter if such financial
statements and information are contained in periodic reports filed with or
furnished to the 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.
II-3
239
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Post-effective Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on April 28, 1995.
FOOD 4 LESS SUPERMARKETS, INC.
By: /s/ MARK A. RESNIK
------------------------------------
Mark A. Resnik
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-effective Amendment No. 1 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------- -------------------
* Chief Executive Officer and April 28, 1995
- --------------------------------------------- Director (Principal
Ronald W. Burkle Executive Officer)
* Executive Vice President -- April 28, 1995
- --------------------------------------------- Finance/Administration and
Greg Mays Chief Financial Officer
(Principal Financial and
Accounting Officer)
* Director April 28, 1995
- ---------------------------------------------
Joe S. Burkle
/s/ MARK A. RESNIK Director April 28, 1995
- ---------------------------------------------
Mark A. Resnik
* Director April 28, 1995
- ---------------------------------------------
George G. Golleher
* Power of Attorney by
/s/ MARK A. RESNIK
- ---------------------------------------------
Mark A. Resnik
Vice President and Secretary
II-4
240
SIGNATURES
(continued)
Pursuant to the requirements of the Securities Act of 1933, the registrants
have duly caused this Post-effective Amendment No. 1 to the Registration
Statement to be signed on their behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on April 28, 1995.
BAY AREA WAREHOUSE STORES, INC.
BELL MARKETS, INC.
CALA CO.
CALA FOODS, INC.
FOOD 4 LESS OF CALIFORNIA, INC.
FOOD 4 LESS GM, INC.
FOOD 4 LESS MERCHANDISING, INC.
FOOD 4 LESS OF SOUTHERN CALIFORNIA,
INC.
By: /s/ MARK A. RESNIK
------------------------------------
Mark A. Resnik
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-effective Amendment No. 1 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------------------------------------------- -------------------------------- ---------------
* Director and Chairman of the April 28, 1995
- --------------------------------------------- Board of each Registrant
Ronald W. Burkle
* Chief Executive Officer and April 28, 1995
- --------------------------------------------- Director (Principal Executive
George G. Golleher Officer) of each Registrant
* Executive Vice President -- April 28, 1995
- --------------------------------------------- Finance/Administration and
Greg Mays Chief Financial Officer
(Principal Financial and
Accounting Officer) of each
Registrant
* Power of Attorney by
/s/ MARK A. RESNIK
- ---------------------------------------------
Mark A. Resnik
Vice President and Secretary
II-5
241
SIGNATURES
(continued)
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Post-effective Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on April 28, 1995.
ALPHA BETA COMPANY
BY: /S/ MARK A. RESNIK
------------------------------------
Mark A. Resnik
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-effective Amendment No. 1 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------------------------------------------- ---------------------------- ------------------
* Director and Chief Executive April 28, 1995
- --------------------------------------------- Officer (Principal
Ronald W. Burkle Executive Officer)
* Director April 28, 1995
- ---------------------------------------------
George G. Golleher
* Executive Vice President -- April 28, 1995
- --------------------------------------------- Finance/Administration and
Greg Mays Chief Financial Officer
(Principal Financial and
Accounting Officer)
* Power of Attorney by
/s/ MARK A. RESNIK
- ---------------------------------------------
Mark A. Resnik
Vice President and Secretary
II-6
242
SIGNATURES
(continued)
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Post-effective Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on April 28, 1995.
FALLEY'S, INC.
By: /s/ MARK A. RESNIK
------------------------------------
Mark A. Resnik
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Post-effective Amendment No. 1 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------- ---------------
* Director April 28, 1995
- ---------------------------------------------
Ronald W. Burkle
* Director April 28, 1995
- ---------------------------------------------
George G. Golleher
* Chief Executive Officer April 28, 1995
- --------------------------------------------- (Principal Executive Officer)
Joe S. Burkle
* Director April 28, 1995
- ---------------------------------------------
Michael Saltman
* Executive Vice President -- April 28, 1995
- --------------------------------------------- Finance/Administration and
Greg Mays Chief Financial Officer
(Principal Financial and
Accounting Officer)
* Power of Attorney by
/s/ MARK A. RESNIK
- ---------------------------------------------
Mark A. Resnik
Vice President and Secretary
II-7
243
ACCOUNTANTS' CONSENT AND REPORT ON SCHEDULES
Board of Directors and Stockholders
Ralphs Supermarkets, Inc.:
The audits referred to in our report dated March 9, 1995 included the related
financial statement schedule as of January 30, 1994 and January 29, 1995, and
for each of the fiscal years in the three-year period ended January 29, 1995,
included in the registration statement. This financial statement schedule is the
responsibility of Ralphs management. Our responsibility is to express an opinion
on this financial statement schedule based on our audits. In our opinion, such
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference to our
firm under the headings "Summary Historical Financial Data of Ralphs," "Selected
Historical Financial Data of Ralphs" and "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Los Angeles, California
April 25, 1995
S-1
244
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)
BALANCE CHARGED TO BALANCE
BEGINNING COSTS AND CHARGED TO DEDUCTIONS AT END
OF PERIOD EXPENSES OTHER ACCOUNTS(B) (PAYMENTS) OF PERIOD
--------- ---------- ----------------- ---------- ---------
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
- ---------------
(a) Includes short-term portion.
(b) Amortization of discount on self-insurance reserves to interest expense.
S-2
245
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholder of Food 4 Less Supermarkets, Inc.:
We have audited, in accordance with generally accepted auditing standards,
the consolidated balance sheets of Food 4 Less Supermarkets, Inc. and
subsidiaries as of June 26, 1993 and June 25, 1994, and the related consolidated
statements of operations, stockholder's equity and cash flows for the 52 weeks
ended June 27, 1992, the 52 weeks ended June 26, 1993, and the 52 weeks ended
June 25, 1994 and have issued our report thereon dated July 29, 1994 (except
with respect to the matter discussed in Note 14, as to which the date is October
14, 1994, and with respect to the matter discussed in Note 15, as to which the
date is April 13, 1995). Our audits were made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The financial
statement schedule on page S-4 is the responsibility of the Company's management
and is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic consolidated financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic consolidated financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Los Angeles, California
July 29, 1994 (except with
respect to the matter discussed in
Note 14, as to which the date is
October 14, 1994, and with respect
to the matter discussed in
Note 15, as to which the date is
April 13, 1995)
S-3
246
FOOD 4 LESS SUPERMARKETS, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
52 WEEKS ENDED JUNE 25, 1994, 52 WEEKS ENDED JUNE 26, 1993, AND 52 WEEKS ENDED
JUNE 27, 1992
(IN THOUSANDS)
BALANCE AT PROVISIONS CHARGED TO BALANCE AT
BEGINNING CHARGED TO INTEREST OTHER END OF
OF PERIOD EXPENSE EXPENSE(B) PAYMENTS CHANGES PERIOD
----------- ----------- ----------- --------- -------- ----------
SELF-INSURANCE LIABILITIES:
52 weeks ended June 25, 1994...... $85,494 $19,880 $ 5,836 $29,506 $ -- $ 81,704
======== ======== ========= ======= ====== =======
52 weeks ended June 26, 1993...... $82,559 $38,040 $ 5,865 $40,970 $ -- $ 85,494
======== ======== ========= ======= ====== =======
52 weeks ended June 27, 1992...... $59,525 $46,140 $ 4,960 $36,066 $8,000(a) $ 82,559
======== ======== ========= ======= ====== =======
- ---------------
(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-4
247
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ---------------------------------------------------------------------- ----
1.1 Form of Dealer Manager Agreement among Food 4 Less, Food 4 Less
Holdings, Inc., the subsidiary guarantors named therein, BT Securities
Corporation, CS First Boston Corporation and Donaldson, Lufkin &
Jenrette Securities Corporation dated as of January , 1995
(incorporated herein by reference to Exhibit 1.1 to Amendment No. 2 to
Food 4 Less' Registration Statement on Form S-4, No. 33-56451)........
1.1.1 Form of Amendment No. 1 to Dealer Manager Agreement among Food 4 Less
Supermarkets, Inc., Food 4 Less Holdings, Inc., the subsidiary
guarantors named therein, BT Securities Corporation, CS First Boston
Corporation and Donaldson, Lufkin & Jenrette Securities Corporation
dated as of April , 1995 (incorporated herein by reference to
Exhibit 1.1.1 to Post-effective Amendment No. 1 to Holdings'
Registration Statement on Form S-4, No. 33-86356).....................
2.1 Agreement and Plan of Merger by and among Food 4 Less, Inc., Food 4
Less Holdings, Inc., Food 4 Less, Ralphs Supermarkets, Inc. and the
Stockholders of Ralphs Supermarkets, Inc. (incorporated herein by
reference to Exhibit 99 to Food 4 Less' Form 8-K dated September 14,
1994).................................................................
2.1.1 Amendment No. 1 dated as of January 12, 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 2.1.1 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, as amended (incorporated
herein by reference to Exhibit 3.1 to Food 4 Less' Annual Report on
Form 10-K for the fiscal year ended June 25, 1994)....................
3.2 Bylaws of Food 4 Less, as amended (incorporated herein by reference to
Exhibit 3.2 to Food 4 Less's Registration Statement on Form S-1, No.
33-31152).............................................................
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+......
E-1
248
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ---------------------------------------------------------------------- ----
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+.......................................................
4.4.2 Form of Second Supplemental Indenture dated as of , 1995 by
and between Ralphs Grocery Company (as successor by merger to Food 4
Less) and United States Trust Company of New York, as trustee, with
respect to its 10 1/4% Senior Subordinated Notes due 2002+............
4.5.1 Form of Second 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 9% Senior Subordinated Notes
due 2003+.............................................................
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+.................
4.6 Senior Note Indenture dated as of April 15, 1992 by and among Food 4
Less, 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' Registration Statement on Form S-1, No.
33-46750).............................................................
4.6.1 First Supplemental Indenture dated as of July 24, 1992 by and among
Food 4 Less, 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' Annual Report on Form 10-K for the
fiscal year ended June 27, 1992)......................................
4.6.2 Form of Second Supplemental Indenture dated as of ,
1995 by and among Food 4 Less, the subsidiary guarantors identified
therein and Norwest Bank Minnesota, N.A., as trustee, with respect to
its 10.45% Senior Notes due 2000 (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)..................................
4.6.3 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, with respect to its 10.45% Senior Notes
due 2000 (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).........................................................
4.7 Senior Subordinated Note Indenture dated as of June 15, 1991 by and
among Food 4 Less, 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's Annual Report on
Form 10-K for the fiscal year ended June 29, 1991)....................
4.7.1 First Supplemental Indenture dated as of April 8, 1992 by and among
Food 4 Less, 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' Annual Report on Form 10-K for the fiscal year
ended June 27, 1992)..................................................
4.7.2 Second Supplemental Indenture dated as of May 18, 1992 by and among
Food 4 Less, the Subsidiary Guarantors and United States Trust Company
of New York, as trustee (incorporated herein by reference to Exhibit
4.2.2 to Food 4 Less' Annual Report on Form 10-K for the fiscal year
ended June 27, 1992)..................................................
4.7.3 Third Supplemental Indenture dated as of July 24, 1992 by and among
Food 4 Less, 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' Annual Report on Form 10-K for the
fiscal year ended June 27, 1992)......................................
4.7.4 Form of Fourth Supplemental Indenture dated as of ,
1995, by and among Food 4 Less, the subsidiary guarantors identified
therein and United States Trust Company of New York, as trustee, with
respect to its 13 3/4% Senior Subordinated Notes due 2001
(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).....
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249
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ---------------------------------------------------------------------- ----
4.7.5 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, with respect to its
13 3/4% Senior Subordinated Notes due 2001 (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).....................
4.8 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).............................................................
4.8.1 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)......................................
4.8.2 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)......................................
4.8.3 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)........................................................
4.8.4 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).................................................................
4.8.5 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)....
4.8.6 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).........................................................
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250
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ---------------------------------------------------------------------- ----
4.8.7 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 Bank commitment letter by and among Food 4 Less, the guarantors named
therein, 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)............................................
4.9.1 Form of Amendment No. 1 to bank commitment letter by and among Food 4
Less, 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)...........
5.1 Opinion of Latham & Watkins regarding the legality of the Senior
Subordinated Notes due 2005, the 9% Senior Subordinated Notes due
2003, as amended, and the 10 1/4% Senior Subordinated Notes due 2002
and the guarantees of the Subsidiary Guarantors, as amended, including
consent+..............................................................
5.2 Opinion of Irwin, Clutter & Severson regarding the guarantee of
Falley's Inc.+........................................................
8.1 Opinion of Latham & Watkins regarding certain tax matters with respect
to the Senior Subordinated Notes due 2005, the 9% Senior Subordinated
Notes due 2003, as amended, and the 10 1/4 Senior Subordinated Notes
due 2002, as amended, including consent+..............................
10.1 Lease dated as of June 17, 1991 by and between Food 4 Less and
American Food and Drug, Inc. relating to La Habra, California property
(incorporated herein by reference to Exhibit 10.4 to Food 4 Less'
Annual Report on Form 10-K for the fiscal year ended June 29, 1991)...
10.2 Stockholders Agreement dated as of June 23, 1989 by and among Food 4
Less, Food 4 Less, Inc. and Peter J. Sodini (incorporated herein by
reference to Exhibit 10.16 to Food 4 Less' Registration Statement on
Form S-1, No. 33-31152)...............................................
10.2.1 Amendment dated as of May 4, 1990 to Stockholders Agreement by and
among Food 4 Less, Food 4 Less, Inc. and Peter J. Sodini (incorporated
herein by reference to Exhibit 10.58 to Food 4 Less' Registration
Statement on Form S-1, No. 33-31152)..................................
10.2.2 Letter Agreement dated as of June 27, 1990 by and among Peter J.
Sodini, The Boys Markets, Inc., and certain affiliates, officers,
directors and employees of Food 4 Less (incorporated herein by
reference to Exhibit 10.39.1 to Food 4 Less' Annual Report on Form
10-K for the fiscal year ended June 30, 1990).........................
10.2.3 Assignment and Assumption Agreement dated as of August 22, 1990 by and
between Peter J. Sodini and Ronald W. Burkle with respect to
Stockholders Agreement by and among Food 4 Less, Food 4 Less, Inc. and
Peter J. Sodini (incorporated herein by reference to Exhibit 10.16.2
to Food 4 Less' Annual Report on Form 10-K for the fiscal year ended
June 30, 1990)........................................................
10.2.4 Amendment dated as of December 31, 1992 by and among Food 4 Less,
Inc., Food 4 Less Holdings, Inc., Food 4 Less and Ronald W. Burkle to
Stockholders Agreement by and among Food 4 Less, Food 4 Less, Inc. and
Peter J. Sodini (incorporated herein by reference to Exhibit 10.6.2 to
Food 4 Less Holdings, Inc.'s Registration Statement on Form S-4, No.
33-59214).............................................................
10.3 Stockholders Agreement dated as of June 23, 1989 by and among Food 4
Less, Food 4 Less, Inc. and George G. Golleher (incorporated herein by
reference to Exhibit 10.17 to Food 4 Less' Registration Statement on
Form S-1, No. 33-31152)...............................................
10.3.1 Amendment dated as of May 4, 1990 to Stockholders Agreement by and
among Food 4 Less, Food 4 Less, Inc. and George G. Golleher
(incorporated herein by reference to Exhibit 10.59 to Food 4 Less'
Registration Statement on Form S-1, No. 33-31152).....................
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10.3.2 Amendment dated as of December 31, 1992 by and among Food 4 Less
Holdings, Inc., Food 4 Less, Food 4 Less, Inc. and George G. Golleher
to Stockholders Agreement by and among Food 4 Less, Food 4 Less, Inc.
and George G. Golleher (incorporated herein by reference to Exhibit
10.8.2 to Food 4 Less Holdings, Inc.'s Registration Statement on Form
S-4, No. 33-59214)....................................................
10.4 Letter Agreement dated as of September 14, 1994 by and among FFL
Partners, Food 4 Less, Inc., Food 4 Less Holdings, Inc., Food 4 Less
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'
Annual Report on Form 10-K for the fiscal year ended June 25, 1994)...
10.5 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' Registration Statement on Form S-1, No.
33-31152).............................................................
10.5.1 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'
Annual Report on Form 10-K for the fiscal year ended June 29, 1991)...
10.6 Employment Agreement dated as of July 1, 1994 between Food 4 Less and
Harley DeLano (incorporated herein by reference to Exhibit 10.9 to
Food 4 Less' Annual Report on Form 10-K dated June 25, 1994)..........
10.7 Employment Agreement dated as of July 1, 1994 between Food 4 Less and
Greg Mays (incorporated herein by reference to Exhibit 10.10 to Food 4
Less' Annual Report on Form 10-K dated June 25, 1994).................
10.8 Amended and Restated Tax Sharing Agreement dated as of June 17, 1991
by and among Food 4 Less, Inc., Food 4 Less and the subsidiaries of
Food 4 Less (incorporated herein by reference to Exhibit 10.20 to Food
4 Less' Annual Report on Form 10-K for the fiscal year ended June 29,
1991).................................................................
12.1 Statements regarding computations of ratios of earnings to fixed
charges...............................................................
21.1 Subsidiaries of Food 4 Less (incorporated herein by reference to
Exhibit 22.1 to Food 4 Less' 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 Latham & Watkins (included in the opinion filed as Exhibit
5.1 to the Registration Statement)+...................................
23.4 Consent of Director Nominee Byron E. Allumbaugh+......................
23.5 Consent of Director Nominee Alfred A. Marasca+........................
23.6 Consent of Director Nominee Patrick L. Graham+........................
23.7 Consent of Irwin, Clutter & Severson (included in the opinion filed as
Exhibit 5.2 to the Registration Statement)+...........................
24 Power of Attorney of directors and officers of Food 4 Less (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 Senior Subordinated Notes due 2005+...............................
25.2 Statement of Eligibility and Qualification on Form T-1 of United
States Trust Company of New York, as trustee, under the Indenture for
the 13.75% Senior Subordinated Notes due 2005 (incorporated herein by
reference to Exhibit 25.2 to Amendment No. 1 to Food 4 Less'
Registration Statement on Form S-4, No. 33-56451).....................
25.3 Statement of Eligibility and Qualification on Form T-1 of Norwest Bank
Minnesota, N.A., as Trustee, under the Indenture for the Senior Notes
due 2004 (incorporated herein by reference to Exhibit 25.1 to
Amendment No. 1 to Food 4 Less' Registration Statement on Form S-4,
No. 33-56451).........................................................
99.1 Letter of Transmittal and Consent with respect to the Offers and the
Solicitation..........................................................
99.2 Notice of Guaranteed Delivery with respect to the Offers and the
Solicitation..........................................................
99.3 Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees with respect to the Offers and the Solicitation........
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99.4 Letter to Clients with respect to the Offers and the Solicitation.....
99.5 Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9...................................................
- ---------------
+ Previously filed.
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