1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 12, 1995
REGISTRATION NO. 33-56451
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 2
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. WILLIAM M. HARTNETT, ESQ.
PAMELA B. KELLY, ESQ. CAHILL GORDON & REINDEL
LATHAM & WATKINS 80 PINE STREET
633 WEST FIFTH STREET NEW YORK, NEW YORK 10005
LOS ANGELES, CALIFORNIA 90071 (212) 701-3000
(213) 485-1234
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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 F4L
Notes; Appendix A; Appendix B
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................................ *
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
FOOD 4 LESS SUPERMARKETS, INC.
TO BE COMBINED THROUGH MERGER WITH
RALPHS GROCERY COMPANY
OFFERS TO EXCHANGE
UP TO
$175,000,000 OF ITS SENIOR NOTES DUE JUNE 1, 2004
FOR ITS
10.45% SENIOR NOTES DUE APRIL 15, 2000
AND UP TO
$145,000,000 OF ITS 13.75% SENIOR SUBORDINATED NOTES DUE JUNE 1, 2005
FOR ITS
13.75% SENIOR SUBORDINATED NOTES DUE JUNE 15, 2001
AND SOLICITATION OF CONSENTS
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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 "Exchange
Offers") (i) to holders of its 10.45% Senior Notes due 2000 (the "Old F4L Senior
Notes") to exchange (the "F4L Senior Notes Exchange Offer") such Old F4L Senior
Notes for new Senior Notes due 2004 (the "New F4L Senior Notes") plus $5.00 in
cash for each $1,000 principal amount tendered for exchange (the "Senior Notes
Exchange Payment") and (ii) 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 (the "F4L Senior Subordinated
Notes Exchange Offer") 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 tendered for exchange (the "Senior Subordinated
Notes Exchange Payment," and together with the Senior Notes Exchange Payment,
the "Exchange Payment"), in each case as more fully described below. The
Exchange 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").
FOR EACH $1,000 THE TENDERING HOLDER
PRINCIPAL AMOUNT OF: WILL RECEIVE
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Old F4L Senior Notes $1,000 principal amount of New F4L Senior Notes and $5.00 in cash, plus
accrued and unpaid interest to the date of exchange.
Old F4L Senior Subordinated Notes $1,000 principal amount of New F4L Senior Subordinated Notes and $20.00 in
cash, plus accrued and unpaid interest to the date of exchange.
Concurrently with the Exchange Offers and the other financing transactions
described herein, Food 4 Less is offering up to $295 million principal amount of
New F4L Senior Notes (the "Senior Note Public Offering") and up to $200 million
principal amount of New RGC Notes (as defined) (the "Subordinated Note Public
Offering," and together with the Senior Note Public Offering, the "Public
Offerings") pursuant to registration under the Securities Act of 1933, as
amended (the "Securities Act"). The Senior Note Public Offering is expected to
price ten business days preceding the final Expiration Date (as defined) of the
Exchange Offers. The New F4L Senior Notes offered pursuant to the F4L Senior
Notes Exchange Offer will be part of the same issue as the New F4L Senior Notes
offered pursuant to the Senior Note Public Offering and will bear interest at a
fixed rate per annum equal to the greater of (a) 10.45% and (b) the Applicable
Treasury Rate (as defined) plus 350 basis points (3.50 percentage points);
provided, however, that in no event will the New F4L Senior Notes offered for
exchange hereby bear interest at a rate per annum that is less than the interest
rate on the New F4L Senior Notes offered pursuant to the Senior Note Public
Offering.
THE EXCHANGE OFFERS AND THE SOLICITATION (AS DEFINED) HAVE BEEN EXTENDED
UNTIL AND WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON MAY 25, 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 F4L 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 SENIOR 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 EXCHANGE OFFERS AND THE SOLICITATION.
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The Dealer Managers for the Exchange 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 12, 1995
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The Exchange 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,
Ralphs Grocery Company ("RGC"), a wholly-owned subsidiary of RSI, will merge
with and into RSI (the "RGC Merger," and together with the RSI Merger, the
"Merger") and RSI will change its name to Ralphs Grocery Company ("Ralphs
Grocery Company" or the "Company"). As a result of the Merger, the New F4L Notes
and any Old F4L Notes not exchanged in the Exchange 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 certain 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
(as defined) to (A) increase the exchange payment from $10.00 to $20.00 for
each $1,000 principal amount of Old RGC Notes accepted in exchange for New
RGC Notes, (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 accepted for purchase,
(C) revise the formula for establishing the interest rate on the New RGC
Notes as set forth herein under "The RGC Offers and the Public Offerings"
and (D) amend certain conditions of the RGC Offers (as defined) to decrease
the amount of Old RGC Notes required to be tendered for exchange from 80%
to a majority in principal amount of the Old RGC Notes;
(ii) amended the consent solicitation with respect to the Discount
Notes (as defined) and commenced (A) 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 to a total offering of $495 million principal amount of debt
securities consisting of $295 million principal amount of New F4L Senior
Notes and $200 million principal amount of New RGC Notes;
(v) amended the terms of the New Equity Investment (as defined) to
decrease the aggregate investment from $150 million to $140 million and to
provide that the liquidation preference and conversion ratio of the
convertible preferred stock issued pursuant to the New Equity Investment
will accrete at the rate of 7% per annum, compounded quarterly (and subject
to increase upon certain events), until the later of the fifth anniversary
of the issue date or the date the Company satisfies certain performance
criteria; and
(vi) committed to effect a placement (the "New Discount Debenture
Placement") of up to $100 million in initial accreted value of New Discount
Debentures, which includes the $18.5 million of New Discount Debentures to
be issued to the RSI stockholders, $22.5 million of New Discount Debentures
to
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(cover page continued)
be issued in satisfaction of fees otherwise payable by the Company and New
Holdings in connection with the Merger and the Financing and $59 million of
New Discount Debentures to be issued for cash.
In addition, since the date of the Old Prospectus, 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 Exchange 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 Exchange Offers, Food 4 Less is soliciting (the
"Solicitation") consents ("Consents") from holders of each of the Old F4L Senior
Notes (the "Old F4L Senior Noteholders") and the Old F4L Senior Subordinated
Notes (the "Old F4L Senior Subordinated Noteholders," and together with the Old
F4L Senior Noteholders, the "Old F4L Noteholders") representing not less than a
majority in aggregate principal amount of each of the outstanding Old F4L Senior
Notes and the Old F4L Senior Subordinated Notes held by persons other than Food
4 Less and its affiliates (the "Requisite Consents") to certain amendments
described herein (the "Proposed Amendments") to the indentures under which the
Old F4L Notes were issued (collectively, the "Old F4L Indentures"). As of May 1,
1995, there were issued and outstanding $175 million aggregate principal amount
of the Old F4L Senior Notes and $145 million aggregate principal amount of the
Old F4L Senior Subordinated Notes. HOLDERS OF OLD F4L NOTES WHO DESIRE TO ACCEPT
THE APPLICABLE EXCHANGE OFFER MUST CONSENT TO THE PROPOSED AMENDMENTS. The
Proposed Amendments will only become operative upon consummation of the Exchange
Offers. The primary purpose of the Proposed Amendments is to permit the Merger
and to eliminate substantially all of the restrictive covenants in the Old F4L
Indentures.
As of the close of business on May 10, 1995, tenders and Consents for
$60,942,000 aggregate principal amount of Old F4L Senior Notes, representing
over 34.8% of the aggregate outstanding principal amount of the Old F4L Senior
Notes, and tenders and Consents for $99,284,000 aggregate principal amount of
Old F4L Senior Subordinated Notes, representing over 68.4% of the aggregate
outstanding principal amount of Old F4L Senior Subordinated Notes (collectively
representing over 50% of the aggregate outstanding principal amount of all Old
F4L Notes), had been received.
Interest on the New F4L Senior Notes will be payable semiannually on each
June 1 and December 1, commencing on December 1, 1995, at the rate set forth
above. The New F4L Senior Notes will mature on June 1, 2004. Interest on the New
F4L Senior Subordinated Notes will be payable semiannually on each June 1 and
December 1, commencing December 1, 1995, at the rate of 13.75% per annum. The
New F4L Senior Subordinated Notes will mature on June 1, 2005. The New F4L
Senior Notes will be redeemable, in whole or in part, at the option of the
Company, at any time on and after June 1, 2000 and the New F4L Senior
Subordinated Notes will be redeemable, in whole or in part, at the option of the
Company, at any time on and after June 15, 1996, each at the respective
redemption prices set forth herein, plus accrued and unpaid interest to the
redemption date. In addition, on or prior to June 1, 1998, the Company may, at
its option, use the net cash proceeds of one or more Public Equity Offerings (as
defined) to redeem up to an aggregate of 35% of the 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 June 1, 1995,
109.1438% of the principal amount thereof if redeemed during the 12 months
commencing on June 1, 1996 and 107.8375% of the principal amount thereof if
redeemed during the 12 months commencing on June 1, 1997, in each case plus
accrued and unpaid interest, if any, to the redemption date. In the event that
the interest rate on the New F4L Senior Notes is greater than 10.45%, the
foregoing redemption prices will be correspondingly adjusted. Upon a Change of
Control (as defined) each holder of New F4L Notes will have the right to require
the Company to repurchase such holders' New F4L 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
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obligated to make an offer to repurchase the New F4L 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.
The New F4L Senior Notes will be senior unsecured obligations of the
Company and will rank pari passu in right of payment with other senior and
unsecured indebtedness of the Company. However, the New F4L Senior Notes will be
effectively subordinated to all secured indebtedness of the Company and its
subsidiaries, including indebtedness under the New Credit Facility (as defined).
See "Risk Factors -- Corporate Structure" and "-- Effects of Asset
Encumbrances." The New F4L Senior Notes will rank senior in right of payment to
all subordinated indebtedness of the Company, including the New F4L Senior
Subordinated Notes, the Old F4L Senior Subordinated Notes that remain
outstanding following the F4L Senior Subordinated Notes Exchange Offer
(collectively, the "F4L Senior Subordinated Notes") and the RGC Senior
Subordinated Notes (as defined). At January 7, 1995, on a pro forma basis after
giving effect to the Merger and the Financing (and certain related assumptions),
the Company and its subsidiaries would have had outstanding $1,057.9 million
aggregate principal amount of secured indebtedness.
The New F4L Senior Subordinated 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, the New F4L Senior Notes and any Old
F4L Senior Notes that remain outstanding following the F4L Senior Notes Exchange
Offer (collectively, the "F4L Senior Notes"). The New F4L Senior Notes will be
unconditionally guaranteed on a senior unsecured basis by each of the Company's
wholly-owned subsidiaries (the "Subsidiary Guarantors") and the New F4L Senior
Subordinated Notes will be unconditionally guaranteed (together, the
"Guarantees") on a senior subordinated unsecured basis by each of the Subsidiary
Guarantors. At the time the New F4L Notes are issued, the Subsidiary Guarantors
will be Alpha Beta Company, Bay Area Warehouse Stores, Inc., Bell Markets, Inc.,
Cala Co., Cala Foods, Inc., Falley's Inc., Food 4 Less of California, Inc., Food
4 Less GM, Inc., Food 4 Less Merchandising, Inc. and Food 4 Less of Southern
California, Inc. The Guarantees of the New F4L Notes will be released upon the
occurrence of certain events. See "Description of the New F4L
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 of the Company (excluding
Company guarantees of certain Guarantor Senior Indebtedness (as defined)) would
have been approximately $1,512.7 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 $169.4
million available to be borrowed under the New Revolving Facility (as defined).
Tendering holders will receive accrued and unpaid interest on Old F4L Notes
accepted for exchange, up to, but not including, the date of such exchange.
Interest on the New F4L Notes will accrue from, and including, the date of such
exchange, which will be the date of issuance of the New F4L Notes.
If Food 4 Less shall decide to decrease the amount of Old F4L Notes being
sought in either Exchange Offer or to increase or decrease the consideration
offered to holders of Old F4L Notes, and if, at the time that notice of such
increase or decrease is first published, sent or given to holders of Old F4L
Notes in the manner specified in this Amended and Restated Prospectus and
Solicitation Statement, such Exchange Offer is scheduled to expire at any time
earlier than the expiration of a period ending on the tenth Business Day from
and including the date that such notice is first so published, sent or given,
then such Exchange 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 Exchange Offers and the Solicitation, (i) Food 4 Less is
(A) offering up to $200 million principal amount of New Senior Subordinated
Notes due 2005 (the "New RGC Notes") pursuant to the Subordinated Note Public
Offering (which will be part of the same issue as the New RGC Notes offered for
exchange pursuant to the RGC Offers (as defined)), (B) offering up to $295
million principal amount of
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New F4L Senior Notes pursuant to the Senior Note Public Offering (which will be
part of the same issue as the New F4L Senior Notes offered for exchange pursuant
to the Exchange Offers), (C) offering (the "RGC Offers") to holders of RGC's 9%
Senior Subordinated Notes due 2003 (the "Old RGC 9% Notes") and to holders of
RGC's 10 1/4% Senior Subordinated Notes due 2002 (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 RGC Notes plus $20.00 in cash for each $1,000
principal amount of Old RGC Notes exchanged and (ii) to purchase any or all of
such holders' Old RGC Notes for $1,010.00 cash per $1,000 principal amount
accepted for purchase, plus accrued and unpaid interest thereon, and (D)
soliciting consents from the holders of each of the Old RGC 9% Notes and the Old
RGC 10 1/4% Notes to certain amendments to the indentures (collectively, the
"Old RGC Indentures") under which the Old RGC Notes were issued (the RGC Offers
and the solicitation of consents being referred to herein collectively as the
"RGC 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 ("New Holdings"), incorporated in
Delaware. See "The Merger and the Financing," "Description of Holding Company
Indebtedness" and "The RGC Offers and the Public Offerings." The RGC Offers, the
Public Offerings, the Holdings Offer to Purchase and the New Discount Debenture
Placement are sometimes hereinafter referred to as the "Other Debt Financing
Transactions." The New RGC Notes and any Old RGC Notes not exchanged in the RGC
Offers are collectively referred to herein as the "RGC Senior Subordinated
Notes."
Concurrently with the consummation of the Exchange Offers and the Other
Debt Financing Transactions, Food 4 Less and RGC intend to obtain new senior
financing (the "Bank Financing") pursuant to a senior 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 the Seller Debentures and will issue $100 million in initial
accreted value of the New Discount Debentures pursuant to the New Discount
Debenture Placement. See "The Merger and the Financing."
Notwithstanding any other provision of the Exchange Offers or the
Solicitation, the obligation of Food 4 Less to accept for exchange any validly
tendered Old F4L Note is conditioned upon, among other things, the satisfaction
or waiver of certain conditions, including (i) at least 80% of the aggregate
principal amount of the outstanding Old F4L Notes being validly tendered and not
withdrawn pursuant to the Exchange Offers prior to the Expiration Date (the
"Minimum Exchange"), (ii) the receipt of the Requisite Consents with respect to
each of the Old F4L Senior Notes and Old F4L Senior Subordinated 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 Exchange Offers, see "The Exchange
Offers and Solicitation -- Conditions."
Standard & Poor's Ratings Group ("Standard & Poor's") has publicly
announced that, upon consummation of the Merger, it intends to assign a new
rating to the Old RGC Notes. Such new rating assignment, if implemented, would
constitute a Rating Decline (as defined) under the Old RGC Indentures. The
consummation of the Merger (which is conditioned on, among other things,
successful consummation of the Exchange Offers, the Other Debt Financing
Transactions, the New Equity Investment and the Bank
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Financing) and the resulting change in composition of the Board of Directors of
RGC, together with the anticipated Rating Decline would constitute a Change of
Control Triggering Event (as defined) under the Old RGC Indentures. Although
Food 4 Less does not anticipate that there will be a significant amount of Old
RGC Notes outstanding following consummation of the RGC Offers, upon such a
Change of Control Triggering Event the Company would be obligated to make a
change of control purchase offer following the 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 "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 F4L Notes not tendered in the Exchange Offers
by means of open market purchases, privately negotiated acquisitions, subsequent
exchange or tender offers, redemptions or otherwise, at prices or on terms which
may be higher or lower or more or less favorable than those in the Exchange
Offers.
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.
THE EXCHANGE OFFERS ARE NOT BEING MADE TO, AND NO CONSENTS ARE BEING
SOLICITED FROM, HOLDERS OF OLD F4L NOTES IN ANY JURISDICTION IN WHICH
THE 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 F4L Notes in California will be able to transfer their
New F4L 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 F4L 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 F4L Notes will be offered and sold.
The New F4L Notes have not been registered under the securities laws of all
states. In certain jurisdictions in which the New F4L 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.
vi
9
(cover page continued)
Another form of the Letter of Transmittal is being circulated to holders of
Old F4L 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 F4L Notes and valid deliveries of Consents. Any holder who
previously has validly tendered any Old F4L Notes or has delivered a valid
Consent need not take any further action to receive, subject to the terms and
conditions of the Exchange Offers, the New F4L Notes and the Exchange Payment.
Any Old F4L Noteholder desiring to accept the applicable Exchange Offer
should either (i) complete and sign the Letter of Transmittal or facsimile
thereof, have his signature thereon guaranteed and forward the Letter of
Transmittal with the certificate(s) evidencing his Old F4L Notes and any other
required documents to the Exchange Agent (as defined), (ii) comply with the
guaranteed delivery procedures, (iii) tender such Old F4L 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 F4L Noteholders having Old F4L
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 F4L
Notes. HOLDERS OF OLD F4L NOTES WHO DESIRE TO ACCEPT THE APPLICABLE EXCHANGE
OFFER MUST CONSENT TO THE PROPOSED AMENDMENTS. A HOLDER OF OLD F4L NOTES WHO
DESIRES TO TENDER INTO THE APPLICABLE EXCHANGE OFFER WITH RESPECT TO ANY OLD F4L
SENIOR NOTES OR OLD F4L SENIOR SUBORDINATED NOTES MUST TENDER ALL OF SUCH
HOLDERS' OLD F4L SENIOR NOTES OR OLD F4L SENIOR SUBORDINATED NOTES, AS THE CASE
MAY BE. See "The Exchange Offers and Solicitation -- Procedures for Tendering
and Consenting."
Questions and requests for assistance or for additional copies of this
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 Old F4L
Notes who are registered holders as of May 10, 1995.
vii
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 F4L 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 F4L Senior Notes (the "New F4L Senior Note Indenture") and the
indenture governing the New F4L Senior Subordinated Notes (the "New F4L Senior
Subordinated Note Indenture," and together with the New F4L Senior Note
Indenture, the "New F4L Indentures") 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 F4L 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.
viii
11
TABLE OF CONTENTS
PAGE
----
AVAILABLE INFORMATION................................................................. viii
SUMMARY............................................................................... 1
COMPARISON OF OLD F4L SENIOR NOTES AND NEW F4L SENIOR NOTES........................... 10
COMPARISON OF OLD F4L SENIOR SUBORDINATED NOTES AND NEW F4L SENIOR SUBORDINATED
NOTES............................................................................... 12
RISK FACTORS.......................................................................... 23
THE MERGER AND THE FINANCING.......................................................... 29
PRO FORMA CAPITALIZATION.............................................................. 33
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS..................................... 34
SELECTED HISTORICAL FINANCIAL DATA OF RALPHS.......................................... 42
SELECTED HISTORICAL FINANCIAL DATA OF FOOD 4 LESS..................................... 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.......................................................................... 46
BUSINESS.............................................................................. 60
MANAGEMENT............................................................................ 75
EXECUTIVE COMPENSATION................................................................ 77
PRINCIPAL STOCKHOLDERS................................................................ 83
DESCRIPTION OF CAPITAL STOCK.......................................................... 84
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................................ 87
THE EXCHANGE OFFERS AND SOLICITATION.................................................. 91
DESCRIPTION OF THE NEW F4L NOTES...................................................... 106
MARKET PRICES OF THE OLD F4L NOTES.................................................... 137
THE PROPOSED AMENDMENTS............................................................... 137
THE RGC OFFERS AND THE PUBLIC OFFERINGS............................................... 139
DESCRIPTION OF THE NEW CREDIT FACILITY................................................ 142
DESCRIPTION OF HOLDING COMPANY INDEBTEDNESS........................................... 144
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS............................................. 148
LEGAL MATTERS......................................................................... 153
EXPERTS............................................................................... 153
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
COMPARISON OF OLD F4L SENIOR NOTES AND NEW F4L SENIOR NOTES........................... A-1
COMPARISON OF OLD F4L SENIOR SUBORDINATED NOTES AND NEW F4L SENIOR SUBORDINATED
NOTES............................................................................... B-1
ix
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
2
14
automated storage and retrieval system warehouse (the "ASRS") for
non-perishable items and a 5.4 million cubic foot perishable service center
(the "PSC") designed for processing, storing and distributing all perishable
items. These facilities will provide the Company with substantial operating
benefits, including: (i) enhanced turnover to further improve the freshness
and quality of in-store products, (ii) added opportunities in forward buying
programs and (iii) an increased percentage of inventory supplied by the
Company's own warehousing and distribution system. Management believes the
utilization of these facilities and Food 4 Less' La Habra warehouse will
enable the Company to meet the combined inventory requirements of all stores
with fewer employees and lower operating and occupancy-related expenses.
- - STORE LOCATIONS. As a result of Ralphs' 122-year history and Alpha Beta
Company's ("Alpha Beta") 91-year history in Southern California, the Company
will have valuable and well established store locations, many of which are in
densely populated metropolitan areas.
- - RECENTLY REMODELED AND NEW STORE BASE. The Company will have a modern,
technologically advanced store base. During the five years ended June 25,
1994, on a combined basis, Ralphs and Food 4 Less opened 74 new stores and
remodeled 211 stores. Approximately 84% of the Company's stores have been
opened or remodeled during the last five years.
- - EXPERIENCED MANAGEMENT TEAM. The executive officers of the Company have
extensive experience in the supermarket industry. The strength of Ralphs
management expertise is evidenced by Ralphs' reputation for quality and
service, technologically advanced systems, strong store operations and high
historical EBITDA margins. The Food 4 Less management team will provide
valuable experience in operating warehouse supermarkets and in effectively
integrating companies into a combined operation. Following the acquisition of
Alpha Beta in 1991, Food 4 Less management successfully integrated Alpha Beta
with its existing Southern California operations and (within three years)
achieved annual cost savings in excess of $40 million (compared to a
pre-acquisition estimate of approximately $33 million).
THE YUCAIPA COMPANIES
Food 4 Less was organized in 1989 by its sponsor, The Yucaipa Companies
("Yucaipa"), a private investment group which specializes in the supermarket
industry. Yucaipa has a successful track record in acquiring, integrating and
improving the cash flow of supermarket companies. Since 1986, Yucaipa and its
affiliated companies have completed eleven acquisition transactions, including
five acquisitions by Food 4 Less and its subsidiaries. Following completion of
the Merger, Yucaipa and its affiliates will control the Board of Directors of
New Holdings and the Company.
THE MERGER AND THE FINANCING
On September 14, 1994, Food 4 Less 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 F4L Notes and any outstanding Old F4L Notes
not tendered in the Exchange Offers will be the obligations of the Company.
Conditions to the consummation of the RSI Merger include the receipt of
regulatory approvals and other necessary consents and the completion of
financing. The purchase price for RSI is approximately $1.5 billion, including
the assumption of debt. The consideration payable to the stockholders of RSI
consists of $375 million in cash, $131.5 million principal amount of the Seller
Debentures and $18.5 million initial
3
15
accreted value of the New Discount Debentures to be issued by New Holdings. New
Holdings will use $100 million of the cash received from the New Equity
Investment, together with the Seller Debentures and such New Discount
Debentures, to acquire approximately 48% of the capital stock of RSI immediately
prior to consummation of the RSI Merger. New Holdings will then contribute the
$250 million of purchased shares of RSI stock to Food 4 Less, and pursuant to
the RSI Merger the remaining shares of RSI stock will be acquired for $275
million in cash.
As 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"), $16.4 million
of which is anticipated to be drawn at closing.
- The issuance of up to $295 million of New F4L Senior Notes pursuant to
the Senior Note Public Offering.
- The issuance of up to $200 million of New RGC Notes pursuant to the
Subordinated Note Public Offering.
- The issuance of preferred stock in a private placement by New Holdings to
a group of investors (the "New Equity Investors") led by Apollo Advisors,
L.P. (on behalf of one or more managed entities) or its affiliates and
designees ("Apollo") and including affiliates of BT Securities
Corporation ("BT Securities"), CS First Boston Corporation ("CS First
Boston") and Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ")
and other institutional investors, yielding cash proceeds of $140 million
pursuant to the New Equity Investment. Concurrently with the New Equity
Investment, the New Equity Investors will purchase outstanding shares of
New Holdings capital stock from a stockholder of New Holdings for a
purchase price of $57.8 million. See "Description of Capital Stock -- New
Equity Investment."
- The RGC Offers by Food 4 Less to (i) exchange up to $450 million
aggregate principal amount of the Old RGC Notes for up to $450 million
aggregate principal amount of the New RGC Notes plus $20.00 in cash per
$1,000 principal amount exchanged and (ii) purchase Old RGC Notes for
$1,010.00 in cash per $1,000 principal amount of Old RGC Notes accepted
for purchase, together with the solicitation of consents from the holders
of the Old RGC Notes to certain amendments to the Old RGC Indentures. It
is a condition to the RGC Offers that at least a majority of the
outstanding principal amount of the Old RGC Notes are exchanged for New
RGC Notes pursuant to the RGC Offers (the "RGC Minimum Exchange").
- The Exchange Offers made hereunder to holders of Old F4L Notes to tender
for exchange such Old F4L Notes for New F4L Notes and the Exchange
Payment, together with the solicitation of consents from such holders to
the Proposed Amendments to the Old F4L 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
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16
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 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.
5
17
The following table illustrates the sources and uses of funds to consummate
the Merger, assuming the transaction occurs as of May 30, 1995. This
presentation assumes that $225.5 million principal amount of Old RGC Notes is
tendered into the RGC Offers in exchange for New RGC Notes (representing 50.1%
of the outstanding aggregate principal amount of Old RGC Notes), $224.5 million
principal amount of Old RGC Notes is tendered into the RGC Offers for cash
(representing 49.9% of the outstanding aggregate principal amount of Old RGC
Notes), $256 million principal amount of Old F4L Notes is tendered into the
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). This
presentation assumes the use of the maximum amount of cash proceeds that could
be necessary to consummate the Merger (if holders representing more than 49.9%
of the outstanding principal amount of Old RGC Notes tender into the RGC Offers
in exchange for New RGC Notes, rather than for cash (i.e. the RGC Minimum
Exchange is exceeded), the non-cash sources and cash uses would be
correspondingly adjusted). 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 RGC Offers, the 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)........ 16.4 Purchase Old RGC Notes(k).......... 226.8
New F4L Senior Notes(c).......... 295.0 Purchase Discount Notes............ 83.9
Repay Ralphs 1992 Credit
New RGC Notes(d)................. 200.0 Agreement.......................... 255.1
New Equity Investment(e)......... 140.0 Repay F4L Credit Agreement......... 161.5
New Discount Debentures(f)....... 59.0 Pay Accrued Interest(l)............ 29.3
EAR Related Payments(m)............ 22.8
Repay Mortgage Indebtedness(n)..... 191.5
Purchase New Holdings Common
Stock(o)......................... 3.7
Fees and Expenses(p)............... 109.9
-------- --------
Total Cash Sources............ $1,460.4 Total Cash Uses.................... $1,460.4
======= =======
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 RGC Notes(h)................. 225.5 Old RGC Notes Exchanged............ 225.5
New Discount Debentures(f)....... 41.0 Fees and Expenses(p)............... 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 "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."
6
18
(b) The New Revolving Facility will provide for a $325 million line of credit
which will be available for working capital requirements and general
corporate purposes. Up to $150 million of the New Revolving Facility may be
used to support standby letters of credit. The letters of credit will be
used to cover workers' compensation contingencies and for other purposes
permitted under the New Revolving Facility. The Company anticipates that
letters of credit for approximately $92.6 million will be issued under the
New Revolving Facility at closing, in replacement of existing letters of
credit, primarily to satisfy the State of California's requirements
relating to workers compensation self-insurance.
(c) Represents New F4L Senior Notes issued pursuant to the Senior Note Public
Offering. If Food 4 Less receives tenders in excess of the RGC Minimum
Exchange in the RGC Offers, Food 4 Less may elect to decrease the amount of
New F4L Senior Notes being offered pursuant to the Senior Note Public
Offering.
(d) Represents New RGC Notes issued pursuant to the Subordinated Note Public
Offering. If Food 4 Less receives tenders in excess of the RGC Minimum
Exchange in the RGC Offers, Food 4 Less may elect to decrease the amount of
New RGC Notes being offered pursuant to the Subordinated Note Public
Offering. It is not anticipated that the amount of New RGC Notes offered
pursuant to the Subordinated Note Public Offering will be reduced below
$100 million principal amount.
(e) Does not include the $10 million equity contribution by Ralphs management.
See note (m) below. Concurrently with the New Equity Investment, certain
existing stockholders of New Holdings (formerly stockholders of FFL),
including affiliates of George Soros, will sell outstanding shares of New
Holdings stock to CLH Supermarket Corp. ("CLH"), a corporation owned by
certain Yucaipa partners, which in turn will sell such shares to the New
Equity Investors for an aggregate purchase price of $57.8 million (which
represents the same price per share as will be paid in the New Equity
Investment). In connection with the New Equity Investment, the New Equity
Investors will contribute the common stock so acquired to New Holdings in
consideration for newly-issued preferred shares. See "Description of
Capital Stock -- New Equity Investment."
(f) Represents $100 million initial accreted value of New Discount Debentures,
$59 million of which will be issued for cash, $18.5 million of which will
be issued to the RSI stockholders as Merger consideration and $15 million,
$5 million and $2.5 million of which will be issued to Yucaipa, BT
Securities and Apollo, respectively, in satisfaction of fees otherwise
payable by the Company and New Holdings in connection with the Merger and
the Financing.
(g) Represents New F4L Senior Notes issued pursuant to the F4L Senior Notes
Exchange Offer, which will be part of the same issue as the New F4L Senior
Notes issued pursuant to the Senior Note Public Offering.
(h) Represents New RGC Notes issued pursuant to the RGC Offers, which will be
part of the same issue as the New RGC Notes issued pursuant to the
Subordinated Note Public Offering.
(i) In connection with the RSI Merger, New Holdings will issue $131.5 million
principal amount of the Seller Debentures as part of the purchase price for
the RSI common stock, up to $10 million of which may be put to Yucaipa on
the closing date of the Merger at a purchase price equal to their principal
amount pursuant to the Put Agreement (as defined). In addition, Yucaipa
will be reimbursed by the Company for (i) any losses incurred upon the
resale of the $10 million principal amount of Seller Debentures which may
be put to it pursuant to the Put Agreement and (ii) its expenses in
connection with the Merger and the related transactions. See "The Merger
and the Financing" and "Description of 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
RGC Offers. In addition, to the extent any Old RGC Notes remain outstanding
following consummation of the RGC Offers, a portion of the Tranche A Loan
not fully funded at the Closing Date will be available to fund the purchase
of Old RGC Notes pursuant to the Change of Control Offer. See "The RGC
Offers and the Public Offerings."
(l) Represents accrued interest payable on all debt securities assumed to be
tendered pursuant to the Exchange Offers and the RGC Offers.
(m) Represents payments to or for the benefit of Ralphs management with respect
to outstanding equity appreciation rights (the "EARs" or "Equity
Appreciation Rights") in connection with the Merger. Ralphs management will
receive New Holdings stock options in exchange for the cancellation of the
remaining EAR liability of $10 million. See "Executive
Compensation -- Equity Appreciation Rights Plan" and "Certain Relationships
and Related Transactions -- Food 4 Less."
(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) Represents the purchase of shares of New Holdings common stock from
stockholders who have exercised statutory dissenters' rights in connection
with the FFL Merger. There are no other shares subject to statutory
dissenters' rights.
(p) 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."
7
19
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]
8
20
AFTER MERGER, FFL MERGER AND REINCORPORATION MERGER
[SEE EDGAR APPENDIX]
9
21
COMPARISON OF OLD F4L SENIOR NOTES AND
NEW F4L SENIOR NOTES
The following is a brief comparison of the principal features of the Old
F4L Senior Notes and the New F4L Senior Notes. The terms of the New F4L Senior
Notes differ from the current (unamended) terms of the Old F4L Senior 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 F4L Notes" and to the
"Comparison of Old F4L Senior Notes and New F4L Senior Notes" set forth in
Appendix A hereto, and the related definitions contained therein.
OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES
-------------------------------------------- --------------------------------------------
ISSUER Food 4 Less. The Company, as successor by merger to Food
4 Less.
PRINCIPAL AMOUNT As of May 1, 1995, $175 million. The up to $175 million principal amount of
OUTSTANDING New F4L Senior Notes offered hereby will be
part of an issue of up to $470 million
aggregate principal amount of New F4L Senior
Notes, up to $295 million principal amount
of which will be issued pursuant to the
Senior Note Public Offering.
INTEREST RATE The Old F4L Senior Notes bear interest at Concurrently with the Exchange Offers, Food
the rate of 10.45% per annum. 4 Less is offering up to $295 million
principal amount of the New F4L Senior Notes
pursuant to the Senior Note Public Offering.
The Senior Note Public Offering is expected
to price ten business days preceding the
final Expiration Date of the Exchange
Offers. The New F4L Senior Notes offered
pursuant to the Exchange Offers will bear
interest at a fixed rate per annum equal to
the greater of (a) 10.45% and (b) the
Applicable Treasury Rate (as defined) plus
350 basis points (3.50 percentage points);
provided, however, that in no event will the
New F4L Senior Notes offered for exchange
hereby bear interest at a rate per annum
that is less than the interest rate on the
New F4L Senior Notes offered pursuant to the
Senior Note Public Offering.
INTEREST PAYMENT April 15 and October 15. June 1 and December 1, commencing on Decem-
DATES ber 1, 1995.
FINAL MATURITY DATE April 15, 2000. June 1, 2004.
OPTIONAL REDEMPTION The Old F4L Senior Notes are subject to The New F4L Senior Notes are subject to
redemption in whole or in part, at the redemption in whole or in part, at the
option of Food 4 Less, at any time on or option of the Company, at any time on or
after April 15, 1996, at the following after June 1, 2000, at the following
redemption prices if redeemed during the redemption prices if redeemed during the
twelve-month period commencing on April 15 twelve-month period commencing on June 1 of
of the year set forth below: the years set forth below:
1996.................................104.48% 2000...............................103.9188%
1997.................................102.99% 2001...............................102.6125%
1998.................................101.49% 2002...............................101.3063%
1999 and thereafter..................100.00% 2003 and thereafter................100.0000%
in each case plus accrued and unpaid in each case plus accrued and unpaid
interest to the date of redemption. interest to the date of redemption. In the
event that the interest rate on the New F4L
Senior Notes is greater than 10.45%, the
above redemption prices will be corre-
spondingly adjusted.
In addition, on or prior to June 1, 1998,
the Company may, at its option, use the net
cash proceeds of one or more Public Equity
Offerings to redeem up to an aggregate of
35% of the New F4L Senior Notes originally
issued, at a redemption price equal to
110.45% of the principal amount thereof if
redeemed during the 12 months commencing on
June 1, 1995, 109.1438% of the principal
amount thereof if redeemed during the 12
months commencing on June 1, 1996 and
107.8375% of the principal amount
10
22
OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES
-------------------------------------------- --------------------------------------------
thereof if redeemed during the 12 months
commencing on June 1, 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.
MANDATORY Under the Old F4L Senior Note Indenture, The New F4L Senior Notes are not subject to
REDEMPTION Food 4 Less is required to make a mandatory a mandatory sinking fund requirement.
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, plus accrued and
unpaid interest to the date of redemption.
FOOD 4 LESS INTENDS TO CREDIT EXCHANGES OF
OLD F4L SENIOR NOTES ACCEPTED PURSUANT TO
THE EXCHANGE OFFERS HEREUNDER AGAINST ITS
SINKING FUND OBLIGATIONS.
RANKING The Old F4L Senior Notes are senior The New F4L Senior Notes will be senior
unsecured obligations of Food 4 Less and are unsecured obligations of the Company and
senior to all subordinated indebtedness of will rank senior in right of payment to all
Food 4 Less, including the Old F4L Senior subordinated indebtedness of the Company
Subordinated Notes. The Old F4L Senior Notes including the F4L Senior Subordinated Notes
rank pari passu in right of payment with all and the RGC Senior Subordinated Notes. The
borrowings and other obligations of Food 4 New F4L Senior Notes will rank pari passu in
Less and its subsidiaries under the Credit right of payment with other senior and
Agreement. Such borrowings and obligations unsecured indebtedness of the Company.
under the Credit Agreement and related However, the New F4L Senior Notes will be
guarantees are secured by substantially all effectively subordinated to all secured
of the assets of Food 4 Less and its indebtedness of the Company and its
subsidiaries, whereas the Old F4L Senior subsidiaries, including indebtedness under
Notes are senior unsecured obligations of the New Credit Facility. At January 7, 1995,
Food 4 Less and its subsidiaries. on a pro forma basis after giving effect to
the Merger and the Financing (and certain
related assumptions) the Company would have
had outstanding $1,057.9 million in secured
indebtedness.
GUARANTEES Each Subsidiary Guarantor has Each Subsidiary Guarantor (including the
unconditionally guaranteed, jointly and Subsidiaries of RGC) will unconditionally
severally, the full and prompt performance guarantee, jointly and severally, the full
of Food 4 Less's obligations under the Old and prompt performance of the Company's
F4L Senior Note Indenture and Old F4L Senior obligations under the New F4L Senior Note
Notes. Indenture and the New F4L Senior Notes.
CHANGE OF CONTROL Upon the occurrence of a Change of Control Upon the occurrence of a Change of Control
(as defined), each holder will have the (as defined), each holder will have the
right to require the repurchase of such right to require the Company to repurchase
holder's Old F4L Senior Notes at a purchase such holder's New F4L Senior Notes at a
price equal to 101% of the principal amount purchase price equal to 101% of the
thereof plus accrued and unpaid interest to principal amount thereof plus accrued and
the date of repurchase. The consummation of unpaid interest to the date of repurchase.
the Merger will not constitute a Change of
Control under the Old F4L Senior Note
Indenture.
CERTAIN COVENANTS The Old F4L Senior Notes Indenture contains The New F4L Senior Notes Indenture contains
certain covenants, including, but not certain covenants, including, but not
limited to, covenants with respect to the limited to, covenants with respect to the
following: (i) limitation on restricted following: (i) limitation on restricted
payments; (ii) limitation on incurrences of payments; (ii) limitation on incurrences of
additional indebtedness; (iii) limitation on additional indebtedness; (iii) limitation on
liens; (iv) limitation on disposition of liens; (iv) limitation on asset sales; (v)
assets; (v) limitation on dividend payment limitation on dividend and other payment
restrictions affecting subsidiaries; (vi) restrictions affecting subsidiaries; (vi)
guarantees of certain indebtedness; (vii) guarantees of certain indebtedness; (vii)
limitation on transactions with affiliates; limitation on transactions with affiliates;
(viii) limitation on mergers and certain (viii) limitation on mergers and certain
other transactions; and (ix) maintenance of other transactions; and (ix) limitations on
Net Worth. preferred stock of subsidiaries.
11
23
COMPARISON OF OLD F4L SENIOR SUBORDINATED NOTES AND
NEW F4L SENIOR SUBORDINATED NOTES
The following is a brief comparison of the principal features of the Old
F4L Senior Subordinated Notes to the New F4L Senior Subordinated Notes. The
terms of the New F4L Senior Subordinated Notes differ from the current
(unamended) terms of the Old F4L Senior Subordinated Notes in certain
significant respects, including those discussed below. The summary comparisons
set forth below do not purport to be complete and are qualified in their
entirety by reference to "Description of New F4L Notes" and to the "Comparison
of Old F4L Senior Subordinated Notes and New F4L Senior Subordinated Notes" set
forth in Appendix B hereto, and the related definitions contained therein.
OLD F4L SENIOR NEW F4L SENIOR
SUBORDINATED NOTES SUBORDINATED NOTES
-------------------------------------------- --------------------------------------------
ISSUER Food 4 Less. The Company, as successor by merger to Food
4 Less.
PRINCIPAL AMOUNT As of May 1, 1995, $145 million. Up to $145 million.
OUTSTANDING
INTEREST RATE The Old F4L Senior Subordinated Notes bear The New F4L Senior Subordinated Notes will
interest at the rate of 13.75% per annum. bear interest at the rate of 13.75% per
annum.
INTEREST PAYMENT June 15 and December 15. June 1, and December 1, commencing on
DATES December 1, 1995.
FINAL MATURITY DATE June 15, 2001. June 1, 2005.
OPTIONAL REDEMPTION The Old F4L Senior Subordinated Notes are The New F4L Senior Subordinated Notes are
subject to redemption in whole or in part, subject to redemption in whole or in part,
at the option of Food 4 Less, at any time on at the option of the Company, at any time on
or after June 15, 1996, at the following or after June 15, 1996, at the following
redemption prices if redeemed during the redemption prices if redeemed during the
twelve-month period commencing on June 15 of twelve-month period commencing on June 15 of
the year set forth below: the years set forth below:
1996................................106.111% 1996................................106.111%
1997................................104.583% 1997................................104.583%
1998................................103.056% 1998................................103.056%
1999................................101.528% 1999................................101.528%
And thereafter......................100.000% And thereafter......................100.000%
in each case plus accrued and unpaid in each case plus accrued and unpaid
interest to the date of redemption. interest to the date of redemption.
In the event of a Change of Control, 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, together
with accrued and unpaid interest to the date
of redemption, if redeemed during the 12
months commencing on June 15 in the years
set forth below:
Year
Percentage
1994................................109.167%
1995................................107.639%
MANDATORY REDEMPTION Under the Old F4L Senior Subordinated Note The New F4L Senior Subordinated Notes are
Indenture, Food 4 Less is required to make a not subject to a mandatory sinking fund
mandatory sinking fund payment on June 15, requirement.
2000, sufficient to retire 50% of the Old
F4L Senior Subordinated Notes originally
issued, at a redemption price equal to 100%
of the principal amount thereof, plus
accrued and unpaid interest to the date of
redemption. FOOD 4 LESS INTENDS TO CREDIT
EXCHANGES OF OLD F4L SENIOR SUBORDINATED
NOTES ACCEPTED PURSUANT TO THE EXCHANGE
OFFERS HEREUNDER AGAINST ITS SINKING FUND
OBLIGATIONS.
12
24
OLD F4L SENIOR NEW F4L SENIOR
SUBORDINATED NOTES SUBORDINATED NOTES
-------------------------------------------- --------------------------------------------
RANKING The Old F4L Senior Subordinated Notes are The New F4L Senior Subordinated Notes will
unsecured general obligations of Food 4 Less be senior subordinated unsecured obligations
and are subordinated to all Senior of the Company and will be subordinated in
Indebtedness of Food 4 Less, including the right of payment to all Senior Indebtedness
Old F4L Senior Notes and the borrowings and (as defined) of the Company, including the
other obligations under the Credit Company's obligations under the New Credit
Agreement. As of January 7, 1995, the Facility and the F4L Senior Notes. At
aggregate outstanding amount of Senior January 7, 1995, on a pro forma basis after
Indebtedness of Food 4 Less (excluding Food giving effect to the Merger and the
4 Less guarantees of certain Guarantor Financing (and certain related assumptions),
Senior Indebtedness) would have been the aggregate outstanding amount of Senior
approximately $395.5 million and the Indebtedness of the Company (excluding
aggregate outstanding amount of Guarantor Company guarantees of certain Guarantor
Senior Indebtedness of the Subsidiary Senior Indebtedness) would have been
Guarantors (excluding guarantees by approximately $1,512.7 million and the
Subsidiary Guarantors of certain Senior aggregate outstanding amount of Guarantor
Indebtedness of Food 4 Less) would have been Senior Indebtedness of the Subsidiary
approximately $16.5 million. 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 $169.4 million available to
be borrowed under the New Revolving
Facility.
GUARANTEES Each Subsidiary Guarantor has Each Subsidiary Guarantor will
unconditionally guaranteed, jointly and unconditionally guarantee, jointly and
severally, the full and prompt performance severally, the full and prompt performance
of Food 4 Less's obligations under the Old of the Company's obligations under the New
F4L Senior Subordinated Note Indenture and F4L Senior Subordinated Note Indenture and
the Old F4L Senior Subordinated Notes. the New F4L Senior Subordinated Notes.
CHANGE OF CONTROL Upon the occurrence of a Change of Control Upon the occurrence of a Change of Control
(as defined), each holder will have the (as defined) each holder will have the right
right to require the repurchase of such to require the repurchase of such holder's
holder's Old F4L Senior Subordinated Notes New F4L Senior Subordinated Notes at a
at a purchase price equal to 101% of the purchase price equal to 101% of the
principal amount thereof plus accrued and principal amount thereof plus accrued and
unpaid interest to the date of repurchase. unpaid interest to the date of repurchase.
The consummation of the Merger will not
constitute a Change of Control under the Old
F4L Senior Subordinated Note Indenture.
CERTAIN COVENANTS The Old F4L Senior Subordinated Notes The New F4L Senior Subordinated Notes
Indenture contains certain covenants, Indenture contains certain covenants,
including, but not limited to, covenants including, but not limited to, covenants
with respect to the following: (i) with respect to the following: (i)
limitation on restricted payments; (ii) limitation on restricted payments; (ii)
limitation on incurrences of additional limitation on incurrences of additional
indebtedness; (iii) limitation on liens; indebtedness; (iii) limitations on liens;
(iv) limitation on asset sales; (v) (iv) limitation on asset sales; (v)
limitation on payment restrictions affecting limitation on dividends and other payment
subsidiaries; (vi) guarantees of certain restrictions affecting subsidiaries; (vi)
indebtedness; (vii) limitation on guarantees of certain indebtedness; (vii)
transactions with affiliates; (viii) limitation on transactions with affiliates;
limitations on merger and certain other (viii) limitation on mergers and certain
transactions and (ix) maintenance of Net other transactions; and (ix) limitation on
Worth. preferred stock of subsidiaries.
13
25
PURPOSES OF THE EXCHANGE OFFERS AND CONSENT SOLICITATION
The Exchange Offers and the Solicitation, together with the other financing
and solicitation transactions described under "The Merger and the Financing,"
are part of the transactions required to consummate the merger of Food 4 Less
with and into RSI. Immediately following the RSI Merger, RGC, a wholly-owned
subsidiary of RSI, will merge with and into RSI and RSI will change its name to
Ralphs Grocery Company.
As a result of the Merger, the New F4L Notes and any Old F4L Notes not
tendered for exchange pursuant to the Exchange Offers, the New RGC Notes and the
Old RGC Notes not tendered pursuant to the RGC Offers, and the indebtedness
incurred pursuant to the New Credit Facility will become the obligations of the
Company. In connection with the consummation of the Merger, Food 4 Less is
making the Exchange Offers and the RGC 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 RGC Notes in order to simplify the capital
structure of the Company. The Exchange Offers afford Old F4L Noteholders an
opportunity to elect to participate in the long-term capitalization of the
Company.
Food 4 Less is also seeking Consents to the Proposed Amendments in the
Solicitation. The primary purpose of the Proposed Amendments is to permit the
consummation of the Merger and to eliminate substantially all of the restrictive
covenants in the Old F4L 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 F4L Senior Notes and the outstanding Old F4L Senior
Subordinated Notes held by persons other than Food 4 Less 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 F4L Notes for exchange pursuant to the Exchange Offers.
THE EXCHANGE OFFERS AND THE SOLICITATION
The Exchange Offers........... Food 4 Less is offering (i) to holders of the
Old F4L Senior Notes to exchange for each
$1,000 principal amount of Old F4L Senior Notes
exchanged, $1,000 principal amount of New F4L
Senior Notes plus $5.00 in cash and (ii) to
holders of the Old F4L Senior Subordinated
Notes to exchange for each $1,000 principal
amount of Old F4L Senior Subordinated Notes
exchanged, $1,000 principal amount of New F4L
Senior Subordinated Notes plus $20.00 in cash,
in each case plus accrued and unpaid interest
to the date of exchange. Each Exchange Offer
constitutes a separate exchange offer by Food 4
Less. See "The Exchange Offers and
Solicitation -- Terms of the Exchange Offers."
Holders of the Old F4L Notes may choose to
participate in the applicable Exchange Offer by
completing the appropriate boxes on the Letter
of Transmittal. See "The Exchange Offers and
Solicitation -- Procedures for Tendering and
Consenting."
Accrued Interest on the
Old F4L Notes............... Tendering holders will receive accrued interest
on Old F4L Notes accepted for exchange up to,
but not including, the date of such exchange.
Interest on the New F4L Notes will accrue from,
and including, the date of such exchange, which
shall be the date of issuance of the New F4L
Notes. Accrued interest on tendered Old F4L
Notes will be paid in cash to such tendering
holders promptly after consummation of the
Exchange Offers. See "The Exchange
14
26
Offers and Solicitation -- Acceptance of Old
F4L Notes for Exchange; Delivery of New F4L
Notes and Payment of Exchange Payment."
The Solicitation.............. Concurrently with the Exchange Offers, Food 4
Less is soliciting Consents from each of the
Old F4L Senior Noteholders and the Old F4L
Senior Subordinated Noteholders representing
not less than a majority in aggregate principal
amount of each of the outstanding Old F4L
Senior Notes and Old F4L Senior Subordinated
Notes held by persons other than Food 4 Less
and its affiliates to the Proposed Amendments
to the Old F4L Indentures. See "The Proposed
Amendments." HOLDERS OF OLD F4L NOTES WHO
DESIRE TO ACCEPT THE APPLICABLE EXCHANGE OFFER
MUST CONSENT TO THE PROPOSED AMENDMENTS.
HOLDERS DO NOT HAVE THE OPTION TO CONSENT TO
THE PROPOSED AMENDMENTS WITHOUT TENDERING INTO
THE APPLICABLE EXCHANGE OFFER. See "The
Exchange Offers and Solicitation -- Procedures
for Tendering and Consenting."
The Company and each of the Old Trustees (as
defined) will execute the Supplemental
Indentures implementing the Proposed Amendments
to the Old F4L Note Indentures after
certification to each of the Old F4L Note
Trustees that Food 4 Less has received the
Requisite Consents. The Proposed Amendments
will only become operative upon execution of
the Supplemental Indentures and consummation of
the Exchange Offers. If the Proposed Amendments
become operative, the non-tendering holders of
Old F4L Notes will be bound thereby regardless
of whether they consented to the Proposed
Amendments. All references herein to the
Exchange Offers shall be deemed to include the
Solicitation.
As of May 1, 1995, there was issued and
outstanding $175 million aggregate principal
amount of Old F4L Senior Notes and $145 million
aggregate principal amount of Old F4L Senior
Subordinated Notes. See "The Exchange Offers
and Solicitation -- The Consent Solicitation."
Expiration Date............... Each Exchange Offer and the Solicitation have
been extended until and will expire at 12:00
Midnight, New York City time, on May 25, 1995,
unless further extended by Food 4 Less. Food 4
Less reserves the right to further extend
either Exchange Offer or the Solicitation at
its discretion, in which event the term
"Expiration Date" shall mean the latest time
and date at which such Exchange Offer or the
Solicitation, as the case may be, as so 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 Senior 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 Exchange Offers and
Solicitation -- Expiration Date; Extensions;
Termination; Amendments."
15
27
Withdrawal Rights and
Revocation
of Consents............... Tenders of Old F4L Notes pursuant to the
Exchange Offers may be withdrawn and Consents
may be revoked at any time until the Requisite
Consents with respect to the applicable issue
of Old F4L 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
Exchange Offer with respect to such Old F4L
Notes is terminated without any Old F4L Notes
being accepted for exchange thereunder. Any
valid revocation of Consents will automatically
constitute a withdrawal of the Old F4L Notes to
which such Consents relate. See "The Exchange
Offers and Solicitation -- Withdrawal of
Tenders and Revocation of Consents."
Conditions.................... Notwithstanding any other provision of the
Exchange Offers or the Solicitation, the
obligation of Food 4 Less to accept for
exchange any validly tendered Old F4L 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 80% of the aggregate
principal amount of the outstanding Old F4L
Notes being validly tendered and not withdrawn
pursuant to the Exchange Offers prior to the
Expiration Date), (ii) the receipt of the
Requisite Consents (i.e., Consents from Old F4L
Noteholders representing at least a majority in
aggregate principal amount of each of the
outstanding Old F4L Senior Notes and Old F4L
Senior Subordinated Notes held by persons other
than Food 4 Less 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
consummation 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 Exchange Offer
is subject to the consummation of the other
Exchange Offer. There can be no assurance that
such conditions will be satisfied or waived.
Food 4 Less reserves the right to waive certain
of the conditions to either Exchange Offer and,
subject to certain limitations, to extend,
terminate, cancel or otherwise modify or amend
either Exchange Offer in any respect. See "The
Exchange Offers and
Solicitation -- Conditions."
Procedures for Tendering and
Consenting.................. Another form of the Letter of Transmittal is
being circulated to holders of Old F4L 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 F4L Notes and valid
deliveries of Consents. Any holder who
previously has validly tendered any Old F4L
Notes or has delivered a valid Consent need not
take any further action to receive, subject to
the terms and conditions of the Exchange
Offers, the New F4L Notes and the Exchange
Payment. Any Old F4L Noteholder desiring to
16
28
accept the applicable Exchange Offer should
either (i) complete and sign the Letter of
Transmittal or facsimile thereof, have his
signature thereon guaranteed and forward the
Letter of Transmittal, together with the
certificate(s) evidencing his Old F4L Notes and
any other required documents, to the Exchange
Agent, (ii) comply with the guaranteed delivery
procedure described under the heading "The
Exchange Offers and Solicitation -- Guaranteed
Delivery Procedure," (iii) tender such Old F4L
Notes pursuant to the procedure for book-entry
transfer, or (iv) request his broker, dealer,
commercial bank, trust company or other nominee
to effect the transaction for him, in each case
prior to the Expiration Date. Old F4L
Noteholders having Old F4L 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 F4L Notes. HOLDERS OF OLD F4L NOTES
WHO DESIRE TO ACCEPT THE APPLICABLE EXCHANGE
OFFER MUST CONSENT TO THE PROPOSED AMENDMENTS.
A HOLDER OF OLD F4L NOTES WHO DESIRES TO TENDER
INTO THE APPLICABLE EXCHANGE OFFER WITH RESPECT
TO ANY OLD F4L SENIOR NOTES OR OLD F4L SENIOR
SUBORDINATED NOTES MUST TENDER ALL OF SUCH
HOLDERS' OLD F4L SENIOR NOTES OR OLD F4L SENIOR
SUBORDINATED NOTES, AS THE CASE MAY BE. See
"The Exchange Offers and
Solicitation -- Procedures for Tendering and
Consenting."
Delivery of New F4L Notes and
Payment of the Exchange
Payment..................... Upon satisfaction or waiver of the conditions
to each of the Exchange Offers, Food 4 Less
will accept all Old F4L Notes which are
properly tendered and not withdrawn, and
promptly following such acceptance, the Company
will issue, or cause to be issued, the New F4L
Notes and will pay, or cause to be paid, the
applicable Exchange Payment in accordance with
the instructions of the tendering Old F4L
Noteholder. See "The Exchange Offers and
Solicitation -- Acceptance of Old F4L Notes for
Exchange; Delivery of New F4L Notes and Payment
of the Exchange Payment."
Certain Consequences to Non-
Tendering Old F4L
Noteholders................. Consummation of the Exchange Offers and the
effectiveness of the Proposed Amendments may
have adverse consequences to non-tendering Old
F4L Noteholders, including that non-tendering
holders of Old F4L Notes will no longer be
entitled to the benefit of certain of the
restrictive covenants currently contained in
the Old F4L Indentures and that the reduced
amount of outstanding Old F4L Notes as a result
of the Exchange Offers may adversely affect the
trading market, liquidity and market price of
the Old
17
29
F4L Notes. If the Requisite Consents are
received and accepted, the Proposed Amendments
will be binding on all non-tendering Old F4L
Noteholders. See "Risk Factors -- Potential
Adverse Effects of the Exchange Offers and the
Solicitation on Holders of Untendered Old F4L
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 F4L Notes in connection with the Exchange
Offers.
Certain Federal Income Tax
Considerations.............. Holders of Old F4L Notes who exchange Old F4L
Notes for New F4L Notes and cash should
recognize gain, but not loss, for federal
income tax purposes equal to the lesser of (i)
the amount of cash received (other than that
portion, if any, attributable to accrued but
unpaid interest on the Old F4L Notes) or (ii)
the amount of any gain realized on the exchange
of Old F4L Notes for New F4L Notes and cash.
See "Certain Federal Income Tax
Considerations."
Risk Factors.................. See "Risk Factors" for a discussion of certain
factors that should
be considered in evaluating the Exchange Offers
and the Solicitation.
Dealer Managers............... BT Securities Corporation ("BT Securities"), CS
First Boston Corporation ("CS First Boston")
and Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") are serving as Dealer
Managers in connection with the Exchange Offers
and the Solicitation. Their telephone numbers
are (212) 775-2166, (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 Exchange Offers and the Solicitation. Its
telephone number is (212) 250-6270.
Information Agent............. D.F. King & Co., Inc. is serving as Information
Agent in connection with the Exchange Offers
and the Solicitation. Requests for additional
copies of this 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 page of this Amended
and Restated Prospectus and Solicitation
Statement. The telephone number of the
Information Agent is (800) 669-5550.
18
30
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.................................................... 224.3 122.5
Non-cash................................................ 15.2 7.9
Amortization of debt issuance costs..................... 13.4 6.9
---------- ----------------
Total interest expense..................................... 252.9 137.3
Net loss(a)................................................ (86.9) (47.7)
Ratio of earnings to fixed charges(b)...................... -- --
BALANCE SHEET DATA (END OF PERIOD):
Working capital.................................................................... $ 18.4
Total assets....................................................................... 3,096.2
Total debt......................................................................... 1,997.3
Stockholder's equity............................................................... 284.0
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 $86.9 million and $47.7 million for the 52 weeks ended
19
31
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.
20
32
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. Net earnings (loss) includes a pre-tax provision for self
insurance, which is classified in cost of sales, selling, general and
administrative expenses and interest expense, of $29.2 million, $31.2
million, $36.9 million, $36.3 million, and $20.0 million, for the 53 weeks
ended February 3, 1991, the 52 weeks ended February 2, 1992, the 52 weeks
ended January 31, 1993, the 52 weeks ended January 30, 1994 and the 52 weeks
ended January 29, 1995, respectively. Included in the 52 weeks ended January
31, 1994 and the 52 weeks ended January 29, 1995 are reduced employer
contributions of $11.8 million and $12.7 million, respectively, related to
union health and welfare benefit plans.
(d) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of earnings before income taxes, cumulative effect of change in
accounting principles, extraordinary item and fixed charges before
capitalized interest. "Fixed charges" consist of interest expense (including
amortization of self-insurance reserves discount), capitalized interest,
amortization of deferred debt issuance costs and one-third of rental expense
(the portion deemed representative of the interest factor). Earnings were
insufficient to cover fixed charges for the 53 weeks ended February 3, 1991
and the 52 weeks ended February 2, 1992 by approximately $25.5 million and
$27.7 million, respectively.
(e) Total debt includes long-term debt, current maturities of long-term debt,
short-term debt and capital lease obligations.
(f) For the 53 weeks ended February 3, 1991, the 52 weeks ended February 2,
1992, January 31, 1993, January 30, 1994 and January 29, 1995, depreciation
and amortization includes amortization of the excess of cost over net assets
acquired of $11.0 million, $11.0 million, $11.0 million, $11.0 million and
$11.0 million, respectively.
(g) "EBITDA," as defined and presented historically by RGC, represents earnings
before interest expense, income tax expense (benefit), depreciation and
amortization expense, provisions for Equity Appreciation Rights, provision
for tax indemnification payments to Federated, provision for postretirement
benefits, the LIFO charge, extraordinary item relating to debt refinancing,
provision for legal settlement, provision for restructuring, provision for
earthquake losses, a one-time charge for Teamsters Union sick pay benefits,
transition expense and gains and losses on disposal of assets. EBITDA is a
widely accepted financial indicator of a company's ability to service debt.
However, EBITDA should not be construed as an alternative to operating
income or to cash flows from operating activities (as determined in
accordance with generally accepted accounting principles) and should not be
construed as an indication of Ralphs' operating performance or as a measure
of liquidity. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
(h) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
(i) Includes recognition of $109.1 million of deferred income tax benefit and
$1.1 million current income tax expense for Fiscal 1993 (see Note 11 of
Notes to Consolidated Financial Statements of Ralphs Supermarkets, Inc.).
21
33
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 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
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(d).................................... (10.1) (9.6) (33.8) (27.4) (2.7) (1.0) (8.7)
Ratio of earnings to fixed charges(e).......... --(e) --(e) --(e) --(e) 1.0 x --(e) --(e)
BALANCE SHEET DATA (end of period)(f):
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(g).................................. 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(h)............... $ 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)(i)......................... $ 69.5 $ 80.7 $ 103.1 $ 105.9 $ 130.5 $ 69.1 $ 69.4
EBITDA margin(j)............................... 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) Net loss includes a pre-tax provision for self insurance, which is
classified in cost of sales, selling, general and administrative expenses,
and interest expense of $11.2 million, $15.1 million, $51.1 million, $43.9
million, $25.7 million, $24.8 million, and $14.9 million for the 53 weeks
ended June 30, 1990, the 52 weeks ended June 29, 1991, the 52 weeks ended,
June 27, 1992, the 52 weeks ended June 26, 1993, the 52 weeks ended June 25,
1994, the 28 weeks ended January 8, 1994 and the 28 weeks ended January 7,
1995, respectively. Included in the 52 weeks ended June 25, 1994, the 28
weeks ended January 8, 1994 and the 28 weeks ended January 7, 1995 are
reduced employer contributions of $8.1 million, $2.8 million and $13.7
million, respectively, related to union health and welfare benefit plans.
(e) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of loss before provision for income taxes and extraordinary charges
plus fixed charges. "Fixed charges" consist of interest on all indebtedness,
amortization of deferred debt financing costs and one-third of rental
expense (the portion deemed representative of the interest factor). Earnings
were insufficient to cover fixed charges for the 53 weeks ended June 30,
1990, the 52 weeks ended June 29, 1991, June 27, 1992 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.
(f) 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.
(g) Total debt includes long-term debt, current maturities of long-term debt and
capital lease obligations.
(h) For the 53 weeks ended June 30, 1990, the 52 weeks ended June 29, 1991, June
27, 1992, June 26, 1993 and June 25, 1994, and for the 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.
(i) "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."
(j) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
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RISK FACTORS
Before deciding whether to participate in the applicable Exchange Offer and
the Solicitation, each holder of Old F4L 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 $1,997.3 million and $284.0 million,
respectively, and the Company would have had an additional $169.4 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 $86.9 million and $47.7 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 F4L Indentures permit 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 F4L 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
RGC Notes will be 11% and 11.50%, respectively. In the event that the interest
rates on the New F4L Senior Notes and the New RGC Notes are higher than the
respective assumed interest rates, the Company's interest expense and deficiency
of earnings to fixed charges would increase over the amounts reflected in such
pro forma financial information. For a description of the effects on the pro
forma financial information of varying acceptance levels in the Exchange Offers
and the RGC 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.
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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 F4L
Indentures 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 F4L 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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36
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 F4L Notes. Should the
Company fail to satisfy any payment obligation under the New F4L 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 F4L Indentures 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 F4L 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 F4L 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 F4L Notes. The Guarantees of the New F4L 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 F4L
Indentures limit 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 F4L 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'
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agreement (the "1995 Stockholders Agreement") which will be entered into by the
New Equity Investors and certain current FFL stockholders and Holdings
warrantholders, upon completion of the Merger, New Holdings and the Company will
have boards consisting of nine and ten members, respectively, and (i) Yucaipa
will have the right to elect six directors to the board of New Holdings and
seven directors to the board of the Company, (ii) Apollo will have the right to
elect two directors to the board of each of New Holdings and the Company, and
(iii) the other New Equity Investors will have the right to elect one director
to the board of each of New 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 F4L SENIOR SUBORDINATED NOTES
The payment of principal, premium, if any, and interest on, and any other
amounts owing in respect of, the New F4L Senior Subordinated 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 $1,512.7 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 $169.4 million available to be borrowed under the New
Revolving Facility. The New F4L Senior Subordinated 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
F4L 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 F4L Senior
Subordinated Notes only
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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 F4L
Senior Subordinated 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 F4L Senior Subordinated Notes, or purchase, redeem
or otherwise retire the New F4L Senior Subordinated 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 F4L Senior Subordinated Note Trustee (as defined). See
"Description of the New F4L Notes -- Subordination of the New F4L Senior
Subordinated Notes."
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 F4L
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 F4L Senior Notes or the New F4L Senior Subordinated
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 such New F4L 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 such New F4L Notes and void such transactions. Alternatively, in such
event, claims of the holders of such New F4L Notes could be subordinated to
claims of the other creditors of the Company.
The Company's obligations under the New F4L 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 applicable New F4L Notes.
To the extent any Guarantees were avoided as a fraudulent conveyance or
held unenforceable for any other reason, holders of the New F4L 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 applicable New F4L 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 applicable New F4L
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 F4L 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 F4L 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
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Discussions and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
ABSENCE OF ESTABLISHED MARKET FOR THE NEW F4L NOTES
There are no established markets for the New F4L Notes and there can be no
assurance as to the liquidity of any markets that may develop for the New F4L
Notes, the ability of holders of the New F4L Notes to sell their New F4L Notes,
or the price at which holders would be able to sell their New F4L Notes. Future
trading prices of the New F4L 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 F4L Notes.
However, the Dealer Managers are not obligated to do so and any market-making
may be discontinued at any time without notice.
POTENTIAL ADVERSE EFFECTS OF THE EXCHANGE OFFERS AND THE SOLICITATION DUE TO
REDUCED TRADING MARKET FOR UNTENDERED OLD F4L NOTES
There currently is a limited trading market for the Old F4L Notes, which
from time to time trade in the over-the-counter market. See "Market Prices of
the Old F4L Notes." To the extent that Old F4L Notes are tendered and accepted
for exchange in the Exchange Offers the trading market for the remaining Old F4L
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 F4L Notes not exchanged may be adversely affected to
the extent that the principal amount of the Old F4L Notes tendered pursuant to
the Exchange Offers reduces the float. The reduced float may also tend to make
the trading price more volatile. Holders of unexchanged Old F4L Notes may
attempt to obtain quotations for the Old F4L Notes from their brokers; however,
there can be no assurance that any trading market will exist for the Old F4L
Notes following consummation of the Exchange Offers. The extent of the public
market for the Old F4L Notes following consummation of the Exchange Offers will
depend upon, among other things, the remaining outstanding principal amount of
the Old F4L Notes after the Exchange Offers, the number of holders remaining at
such time and the interest in maintaining a market in the Old F4L Notes on the
part of securities firms.
EFFECT OF THE PROPOSED AMENDMENTS ON HOLDERS THAT DO NOT EXCHANGE
If the Exchange Offers are consummated and the Proposed Amendments become
operative, holders of Old F4L Notes that are not exchanged pursuant to the
Exchange Offers for any reason will no longer be entitled to the benefits of
certain of the restrictive covenants contained in the Old F4L 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 RGC Merger, the New F4L Notes
and any outstanding Old F4L Notes not tendered into the Exchange Offers will be
the obligations of the Company. Conditions to the consummation of the RSI Merger
include the receipt of regulatory approvals and other necessary consents and
completion of financing. The purchase price for RSI is approximately $1.5
billion, including the assumption of debt. The consideration payable to the
stockholders of RSI consists of $375 million in cash, $131.5 million principal
amount of the Seller Debentures and $18.5 million initial accreted value of the
New Discount Debentures to be issued by New Holdings. New Holdings will use $100
million of the cash received from the New Equity Investment, together with the
Seller Debentures and such New Discount Debentures, to acquire approximately 48%
of the capital stock of RSI immediately prior to consummation of the RSI Merger.
New Holdings will then contribute the $250 million of purchased shares of RSI
stock to Food 4 Less, and pursuant to the RSI Merger the remaining shares of RSI
stock will be acquired for $275 million in cash. Pursuant to an agreement (the
"Put Agreement") entered into in connection with the execution of the Merger
Agreement, the Edward J. DeBartolo Corporation, an Ohio corporation ("EJDC"),
which currently owns approximately 60.3% of the outstanding common stock of RSI,
will have the right to put to Yucaipa, which controls Food 4 Less, on the
closing date of the Merger (the "Closing Date"), up to $10 million aggregate
principal amount of Seller Debentures acquired by EJDC in connection with the
Merger, at a purchase price equal to their principal amount. Yucaipa will be
reimbursed for (i) any losses incurred upon the resale of the $10 million
principal amount of Seller Debentures which may be put to it pursuant to the Put
Agreement and (ii) its expenses in connection with the Merger and the related
transactions. In addition, on the Closing Date the Company and EJDC will enter
into a Consulting Agreement, pursuant to which EJDC will act as a consultant to
the Company with respect to certain real estate and general commercial matters
for a period of five years from the Closing Date in exchange for the payment of
a consulting fee of $9 million, of which $4 million will be used to purchase
interests in the partnership that will purchase the New Discount Debentures. See
"Certain Relationships and Related Transactions -- Food 4 Less." 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, $16.4 million
of which is anticipated to be drawn at closing.
- The issuance of up to $295 million of New F4L Senior Notes pursuant to
the Senior Note Public Offering.
- The issuance of up to $200 million of New RGC Notes pursuant to the
Subordinated Note Public Offering.
- The issuance of preferred stock in a private placement by New Holdings to
a group of investors led by Apollo and including affiliates of BT
Securities, CS First Boston and DLJ and other institutional investors,
yielding cash proceeds of $140 million pursuant to the New Equity
Investment. Concurrently
29
41
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 RGC Offers by Food 4 Less to (i) exchange up to $450 million
aggregate principal amount of the Old RGC Notes for up to $450 million
aggregate principal amount of New RGC Notes plus $20.00 in cash per
$1,000 principal amount exchanged and (ii) purchase Old RGC Notes for
$1,010.00 in cash per $1,000 principal amount of Old RGC Notes accepted
for purchase, together with the solicitation of consents from holders of
Old RGC Notes to certain amendments to the Old RGC Indentures. The RGC
Minimum Exchange condition to the RGC Offers provides that at least a
majority of the outstanding principal amount of the Old RGC Notes are
exchanged for New Notes pursuant to the RGC Offers.
- The Exchange Offers made hereunder to holders of Old F4L Notes to tender
for exchange such Old F4L Notes for New F4L Notes and the Exchange
Payment, together with the solicitation of consents from such holders to
the Proposed Amendments to the Old F4L 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, and $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 RGC Merger, of
approximately $166.8 million of other indebtedness of RGC and Food 4
Less.
- The purchase of 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.
30
42
The following table illustrates the sources and uses of funds to consummate
the Merger, assuming the transaction occurs as of May 30, 1995. This
presentation assumes that $225.5 million principal amount of Old RGC Notes is
tendered into the RGC Offers in exchange for New RGC Notes (representing 50.1%
of the outstanding aggregate principal amount of Old RGC Notes), $224.5 million
principal amount of Old RGC Notes is tendered into the RGC Offers for cash
(representing 49.9% of the outstanding aggregate principal amount of Old RGC
Notes), $256 million principal amount of Old F4L Notes is tendered into the
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). This
presentation assumes the use of the maximum amount of cash proceeds that could
be necessary to consummate the Merger (if holders representing more than 49.9%
of the outstanding principal amount of Old RGC Notes tender into the RGC Offers
in exchange for New RGC Notes, rather than for cash (i.e. the RGC Minimum
Exchange is exceeded), the non-cash sources and cash uses would be
correspondingly adjusted). 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 RGC Offers, the 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).......... 16.4 Purchase Old RGC Notes(k).......... 226.8
New F4L Senior Notes(c)............ 295.0 Purchase Discount Notes............ 83.9
Repay Ralphs 1992 Credit
New RGC Notes(d)................... 200.0 Agreement.......................... 255.1
New Equity Investment(e) 140.0 Repay F4L Credit Agreement......... 161.5
New Discount Debentures(f)......... 59.0 Pay Accrued Interest(l)............ 29.3
EAR Related Payments(m)............ 22.8
Repay Mortgage Indebtedness(n)..... 191.5
Purchase New Holdings Common
Stock(o)......................... 3.7
Fees and Expenses(p)............... 109.9
-------- --------
Total Cash Sources............ $1,460.4 Total Cash Uses.................... $1,460.4
======= =======
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 RGC Notes(h)................... 225.5 Old RGC Notes Exchanged............ 225.5
New Discount Debentures(f)......... 41.0 Fees and Expenses(p)............... 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
31
43
funded at the Closing Date. The New Credit Facility will provide that the
portion of the Tranche A Loan not funded at the Closing Date will be
available for a period of 91 days following the Closing Date to fund the
Change of Control Offer. See "Description of the New Credit Facility."
(b) The New Revolving Facility will provide for a $325 million line of credit
which will be available for working capital requirements and general
corporate purposes. Up to $150 million of the New Revolving Facility may be
used to support standby letters of credit. The letters of credit will be
used to cover workers' compensation contingencies and for other purposes
permitted under the New Revolving Facility. The Company anticipates that
letters of credit for approximately $92.6 million will be issued under the
New Revolving Facility at closing, in replacement of existing letters of
credit, primarily to satisfy the State of California's requirements relating
to workers compensation self-insurance.
(c) Represents New F4L Senior Notes issued pursuant to the Senior Note Public
Offering. If Food 4 Less receives tenders in excess of the RGC Minimum
Exchange in the RGC Offers, Food 4 Less may elect to decrease the amount of
New F4L Senior Notes being offered pursuant to the Senior Note Public
Offering.
(d) Represents New RGC Notes issued pursuant to the Subordinated Note Public
Offering. If Food 4 Less receives tenders in excess of the RGC Minimum
Exchange in the RGC Offers, Food 4 Less may elect to decrease the amount of
New RGC Notes being offered pursuant to the Subordinated Note Public
Offering. It is not anticipated that the amount of New RGC Notes offered
pursuant to the Subordinated Note Public Offering will be reduced below $100
million principal amount.
(e) Does not include the $10 million equity contribution by Ralphs management.
See note (m) below. Concurrently with the New Equity Investment, certain
existing stockholders of New Holdings (formerly stockholders of FFL),
including affiliates of George Soros, will sell outstanding shares of New
Holdings stock to CLH, which in turn will sell such shares to the New Equity
Investors for an aggregate purchase price of $57.8 million (which represents
the same price per share as will be paid in the New Equity Investment). In
connection with the New Equity Investment, the New Equity Investors will
contribute the common stock so acquired to New Holdings in consideration for
newly-issued, preferred shares. See "Description of Capital Stock -- New
Equity Investment."
(f) Represents $100 million initial accreted value of New Discount Debentures,
$59 million of which will be issued for cash, $18.5 million of which will
be issued to the RSI stockholders as Merger consideration and $15 million,
$5 million and $2.5 million of which will be issued to Yucaipa, BT
Securities and Apollo, respectively, in satisfaction of fees otherwise
payable by the Company and New Holdings in connection with the Merger and
the Financing.
(g) Represents New F4L Senior Notes issued pursuant to the F4L Senior Notes
Exchange Offer, which will be part of the same issue as the New F4L Senior
Notes issued pursuant to the Senior Note Public Offering.
(h) Represents New RGC Notes issued pursuant to the RGC Offers, which will be
part of the same issue as the New RGC Notes issued pursuant to the
Subordinated Note Public Offering.
(i) In connection with the RSI Merger, New Holdings will issue $131.5 million
principal amount of the Seller Debentures as part of the purchase price for
the RSI common stock, up to $10 million of which may be put to Yucaipa on
the Closing Date at a purchase price equal to their principal amount
pursuant to the Put Agreement. In addition, Yucaipa will be reimbursed by
the Company for (i) any losses incurred upon the resale of the $10 million
principal amount of Seller Debentures which may be put to it pursuant to
the Put Agreement and (ii) its expenses in connection with the Merger and
the related transactions. See "Certain Relationships and Related
Transactions -- Food 4 Less."
(j) Includes $375 million to be paid in cash to stockholders of RSI and $0.9
million to be paid in cash to holders of RSI management stock options. See
"Executive Compensation -- New Management Stock Option Plan and Management
Investment."
(k) Represents purchase of Old RGC Notes tendered for cash pursuant to the RGC
Offers. In addition, to the extent any Old RGC Notes remain outstanding
following consummation of the RGC Offers, portion of the proceeds of the
Tranche A Loan not 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 RGC Offers and the 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 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) Represents the purchase of shares of New Holdings comon stock from
stockholders who have exercised statutory dissenters' rights in connection
with the FFL Merger. There are no other shares subject to statutory
dissenters' rights.
(p) 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
RGC Offers and the Public Offerings" and "Description of Holding Company
Indebtedness."
32
44
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 RGC Offers in exchange for New Notes, $224.5 million principal amount of Old
RGC Notes is tendered into the RGC Offers for cash, $256 million principal
amount of Old F4L Notes is tendered into the Exchange Offers and $103.6 million
principal amount (at maturity) of Discount Notes is tendered into the Holdings
Offer to Purchase. This presentation also assumes that any Old RGC Notes not
tendered into the RGC Offers are repurchased after the Closing Date pursuant to
the Change of Control Offer. The table should be read in conjunction with the
Unaudited Pro Forma Combined Financial Statements and the historical
consolidated financial statements of Ralphs and 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).............................................................. 54.5
Other indebtedness..................................................................... 129.3
New F4L Senior Notes(c)................................................................ 435.0
Old F4L Senior Notes................................................................... 35.0
New RGC Notes(d)....................................................................... 425.5
New F4L Senior Subordinated Notes...................................................... 116.0
Old F4L Senior Subordinated Notes...................................................... 29.0
--------------
Total long-term debt............................................................ 1,970.5
--------------
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......................................................................... (5.9)
--------------
Total stockholder's equity........................................................... 284.0
--------------
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 Senior Notes Exchange Offer.
(d) Includes New RGC Notes issued pursuant to both the Subordinated Note Public
Offering and the RGC Offers. In accordance with the terms of the Old RGC
Indentures, holders of Old RGC Notes not exchanged for New RGC Notes
pursuant to the RGC Offers will be entitled to have such Old RGC Notes
repurchased by the Company pursuant to the Change of Control Offer, which
will occur up to 91 days following the 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."
33
45
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 RGC
Offers in exchange for New Notes, (ii) $224.5 million principal amount of Old
RGC Notes are tendered into the RGC Offers for cash, (iii) $256 million
principal amount of Old F4L Notes are tendered into the 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 RGC Notes are issued pursuant to the
Subordinated Note Public Offering and that $295 million principal amount of New
F4L Senior Notes are issued pursuant to the Senior Note Public Offering. In
addition, the unaudited pro forma combined financial statements have been
prepared based upon the assumption that upon consummation of the Merger, the
Company will divest or close 32 stores.
The pro forma adjustments are based upon currently available information
and upon certain assumptions that management believes are reasonable. The Merger
will be accounted for by 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.
34
46
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(n)................................... 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 74.1(h) 224.3
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(o)............................. 29.1 (0.0) (116.0) (86.9 )
Income tax expense (benefit).................... (108.0) 2.7 105.3(i) --
----------- ------------ ----------- ---------
Net earnings (loss)(m)..................... $ 137.1 $ (2.7) $(221.3) $ (86.9 )
========= ========= ========= ========
Preferred stock accretion....................... -- 8.8 (8.8)(j) --
Earnings (loss) applicable to common
shares................................... $ 137.1 $ (11.5) $(212.5) $ (86.9 )
========= ========= ========= ========
Ratio of earnings to fixed charges(k)(l)... 1.2x 1.0x --
========= ========= ========
See Notes to Unaudited Pro Forma Combined Statement of Operations.
35
47
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(n)................................... 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 37.7(h) 122.5
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(o)............................. 16.4 (8.2) (55.9) (47.7 )
Income tax expense (benefit).................... 0.0 0.5 (0.5)(i) 0.0
----------- ------------ ----------- ---------
Net earnings (loss)(m)..................... $ 16.4 $ (8.7) $ (55.4) $ (47.7 )
========= ========== ========= ========
Preferred stock accretion....................... -- 5.6 (5.5)(j) --
Earnings (loss) applicable to common
shares................................... $ 16.4 $ (14.3) $ (49.8) $ (47.7 )
========= ========== ========= ========
Ratio of earnings to fixed charges(k)(l)... 1.2x -- --
========= ========== ========
See Notes to Unaudited Pro Forma Combined Statement of Operations.
36
48
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, JANUARY 7,
1994 1995
-------- ----------
Historical interest expense -- cash............................................ $150.2 $ 84.8
-------- ----------
Plus: Interest on borrowings under:
New Credit Facility........................................................ 79.8 42.9
New F4L Senior Notes....................................................... 33.2 17.9
New RGC Notes.............................................................. 48.9 26.4
Other bank fees............................................................ 3.5 1.9
Other debt................................................................. 2.0 1.8
Less: Interest on borrowings under:
Old bank term loans:
Ralphs................................................................... (21.3) (13.7)
Food 4 Less.............................................................. (11.5) (6.9)
Old RGC Notes.............................................................. (43.9) (23.6)
Other debt................................................................. (16.6) (9.0)
-------- ----------
Pro forma adjustment......................................................... 74.1 37.7
-------- ----------
Pro forma interest expense -- cash............................................. $224.3 $122.5
========= =========
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.
(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 $86.9 million and $47.7 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.
37
49
(l) Supplemental Pro Forma Adjustments:
The table below shows the variations that would occur in the pro forma cash
and non-cash interest expense, the amortization of debt issuance costs and
the amount of the deficiency of earnings to fixed charges at different
participation levels of Old RGC Notes tendered in exchange for New RGC
Notes in the RGC Offers (50.1%, 55.1%, 60.1% and 65.1%) and Old F4L Notes
tendered into the Exchange Offers (80%, 85%, 90% and 95%). The table also
indicates the changes in the foregoing items (at each participation level)
that would result from each 25 basis point increase in the interest rate on
the New F4L Senior Notes over the assumed rate of 11% and each 25 basis
point increase in the interest rate on the New RGC Notes over the assumed
rate of 11.50%.
52 WEEK PERIOD 28 WEEK PERIOD
----------------------------------------- -----------------------------------------
PARTICIPATION LEVEL(1) PARTICIPATION LEVEL(1)
----------------------------------------- -----------------------------------------
50.1/80% 55.1/85% 60.1/90% 65.1/95% 50.1/80% 55.1/85% 60.1/90% 65.1/95%
-------- -------- -------- -------- -------- -------- -------- --------
Interest expense -- cash.......... $224.3 $224.9 $225.4 $226.0 $122.5 $122.8 $123.1 $123.4
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)...................... 86.9 87.6 88.2 88.9 47.7 48.1 48.4 48.8
EFFECT OF EACH 25 BASIS POINT INCREASE IN THE
INTEREST RATE ON THE NEW F4L SENIOR NOTES
AND NEW RGC NOTES
Additional interest
expense -- cash................. $ 2.2 $ 2.2 $ 2.3 $ 2.4 $ 1.2 $ 1.2 $ 1.2 $ 1.3
Additional interest
expense -- non-cash............. -- -- -- -- -- -- -- --
Additional amortization of debt
issuance costs.................. -- -- -- -- -- -- -- --
Additional deficiency of earnings
to fixed charges(2)............. 2.2 2.2 2.3 2.4 1.2 1.2 1.2 1.3
- ---------------
(1) If Food 4 Less receives tenders in excess of the RGC Minimum Exchange in
the RGC Offers, Food 4 Less may elect to decrease the amount of New RGC
Notes being offered pursuant to the Subordinated Note Public Offering
and/or decrease the amount of New F4L Senior Notes being offered
pursuant to the Senior Note Public Offering.
(2) "Earnings" consist of earnings before income taxes, cumulative effect of
change in accounting principles, extraordinary item and fixed charges
before capitalized interest. "Fixed charges" consist of interest expense
(including amortization of self-insurance reserves discount),
capitalized interest, amortization of deferred debt issuance costs and
one-third of rental expense (the portion deemed representative of the
interest factor).
(m) The unaudited pro forma results of operations 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.
(n) Pro forma combined selling, general and administrative expenses for the 52
weeks ended June 25, 1994 and the 28 weeks ended January 7, 1995 include
reduced employer contributions of $25.8 million and $20.5 million,
respectively, related to union health and welfare benefit plans.
(o) The pro forma combined loss before income tax provision for the 52 weeks
ended June 25, 1994 and the 28 weeks ended January 7, 1995 includes
reductions in self insurance reserves of $26.4 million and $21.5 million,
respectively.
(p) "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."
The following table presents a reconciliation of pro forma EBITDA (as
defined):
28 WEEKS ENDED
52 WEEKS ENDED JANUARY 7,
JUNE 25, 1994 1995
-------------- --------------
Historical EBITDA:
Ralphs EBITDA...................................................... $228.1 $126.0
EBITDA margin(1)................................................. 8.4% 8.5%
Food 4 Less EBITDA................................................. $130.5 $ 69.4
EBITDA margin.................................................... 5.0% 4.9%
Less: Pro Forma Adjustments(2)....................................... $(61.1) $ (6.1)
Pro Forma EBITDA..................................................... $342.5 $189.3
Pro Forma EBITDA margin............................................ 6.8% 6.8%
- ---------------
(1) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
(2) Reflects primarily EBITDA (as defined) associated with closed or
divested stores and the adjustments referred to in notes (e) and (f)
above.
38
50
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.................................. 883.0 525.5 562.0(o) 1,970.5
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..................... 1,482.7 924.2 405.3 2,812.2
----------- ----------- ----------- ---------
Stockholder's 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) (3.7)(x) (5.9 )
----------- ----------- ----------- ---------
Total stockholder's equity(y)......... 27.2 60.4 196.4 284.0
----------- ----------- ----------- ---------
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.
39
51
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.................................................................... 54.5
New F4L Senior Notes...................................................................... 295.0
New RGC Notes............................................................................. 200.0
New Equity Investment..................................................................... 140.0
New Discount Debentures................................................................... 59.0
Purchase Discount Notes................................................................... (83.9)
Purchase RSI Common Stock................................................................. (375.9)
Repay Ralphs 1992 Credit Agreement........................................................ (297.4)
Repay F4L Credit Agreement................................................................ (174.4)
Purchase Old RGC Notes.................................................................... (226.8)
Pay EAR liability......................................................................... (17.8)
Loan to affiliate......................................................................... (5.0)
Repay other Ralphs debt................................................................... (188.9)
Purchase New Holdings Common Stock........................................................ (3.7)
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
=======
40
52
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 RGC Offers ($2.2 million), the F4L Exchange Offers
($2.6 million), the Senior Note Public Offering ($8.9 million) and the
Subordinated Note Public Offering ($6.0 million), the cash exchange payments
associated with the RGC Offers ($4.5 million) and the 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 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.................................................................... 54.5
New F4L Senior Notes...................................................................... 295.0
New RGC 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.......................................................... $ 562.0
=======
(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) Represents the purchase of shares of New Holdings common stock from
stockholders who have exercised statutory dissenters' rights in connection
with the FFL Merger. There are no other shares subject to statutory
dissenters' rights.
(y) The unaudited pro forma combined balance sheet as of January 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.
41
53
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)(f)...................................... $ (51.4) $ (41.2) $ (76.1) $ 138.4 $ 32.1
========== ========== ========== ========== ==========
Ratio of earnings to fixed charges(g)....................... --(g) --(g) 1.02x 1.24x 1.24x
BALANCE SHEET DATA (end of period):
Working capital surplus (deficit)........................... $ (93.9) $ (114.2) $ (122.0) $ (73.0) $ (119.5)
Total assets................................................ 1,406.4 1,357.6 1,388.5 1,483.7 1,509.9
Total debt(h)............................................... 986.1 941.9 1,029.8 998.9 1,018.5
Redeemable stock............................................ 3.0 3.0 -- -- --
Stockholders' equity (deficit).............................. (16.0) (57.2) (133.3) 5.1 27.2
OTHER DATA:
Depreciation and amortization(i)............................ $ 75.2 $ 76.6 $ 76.9 $ 74.5 $ 76.0
Capital expenditures........................................ 87.6 50.4 102.7 62.2 64.0
Stores open at end of period................................ 150 158 159 165 173
EBITDA (as defined)(j)...................................... $ 207.0 $ 225.8 $ 227.3 $ 230.2 $ 230.2
EBITDA margin(k)............................................ 7.4% 7.8% 8.0% 8.4% 8.4%
- ---------------
(a) Includes provision for post retirement benefits other than pensions of $2.2
million, $2.6 million, $3.3 million, $3.4 million, and $2.6 million for the
53 weeks ended February 3, 1991, the 52 weeks ended February 2, 1992,
January 31, 1993, January 30, 1994 and January 29, 1995, respectively.
(b) Provisions for restructuring are charges for expenses relating to closing of
Ralphs central bakery operation. The charge reflected the complete
write-down of the bakery building, machinery and equipment, leaseholds,
related inventory and supplies, and providing severance pay to terminated
employees. These charges were $7.1 million and $2.4 million for the 52 weeks
ended January 31, 1993 and the 52 weeks ended January 30, 1994,
respectively. Provision for tax indemnification payments to Federated were
$10.0 million for the 52 weeks ended February 2, 1992.
(c) Interest expense includes non-cash charges related to the amortization of
deferred debt issuance costs of $4.1 million for the 53 weeks ended February
3, 1991, $5.0 million for the 52 weeks ended February 2, 1992, $5.5 million
for the 52 weeks ended January 31, 1993, $6.5 million for the 52 weeks ended
January 30, 1994 and $6.1 million for the 52 weeks ended January 29, 1995,
respectively.
(d) Loss on disposal of assets was $6.4 million, $13.0 million, $2.6 million,
$1.9 million and $0.8 million for the 53 weeks ended February 3, 1991, the
52 weeks ended February 2, 1992, January 31, 1993, January 30, 1994 and
January 29, 1995, respectively. The 52 weeks ended February 2, 1992 includes
approximately $12.2 million representing a reserve against losses related to
the closing of three stores. Provision for legal settlement was $7.5 million
for the 52 weeks ended January 31, 1993. Provision for earthquake losses was
$11.0 million for the 52 weeks ended January 30, 1994. This represents
reserve for losses, net of anticipated insurance recoveries, resulting from
the January 17, 1994 Southern California earthquake.
(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.).
42
54
(f) Net earnings (loss) includes a pre-tax provision for self insurance, which
is classified in cost of sales, selling, general and administrative expenses
and interest expense, of $29.2 million, $31.2 million, $36.9 million, $36.3
million, and $20.0 million, for the 53 weeks ended February 3, 1991, the 52
weeks ended February 2, 1992, the 52 weeks ended January 31, 1993, the 52
weeks ended January 30, 1994 and the 52 weeks ended January 29, 1995,
respectively. Included in the 52 weeks ended January 30, 1994 and the 52
weeks ended January 29, 1995 are reduced employer contributions of $11.8
million and $12.7 million, respectively, related to union health and welfare
benefit plans.
(g) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of earnings before income taxes, cumulative effect of change in
accounting principles, extraordinary items and fixed charges before
capitalized interest. "Fixed charges" consist of interest expense (including
amortization of self-insurance reserves discount), capitalized interest,
amortization of deferred debt issuance costs and one-third of rental expense
(the portion deemed representative of the interest factor). Earnings were
insufficient to cover fixed charges for the 53 weeks ended February 3, 1991
and the 52 weeks ended February 2, 1992 by $25.5 million and $27.7 million,
respectively.
(h) Total debt includes long-term debt, current maturities of long-term debt,
short-term debt and capital lease obligations.
(i) For the 53 weeks ended February 3, 1991, the 52 weeks ended February 2,
1992, January 31, 1993, January 30, 1994 and January 29, 1995, depreciation
and amortization includes amortization of the excess of cost over net assets
acquired of $11.0 million, $11.0 million, $11.0 million, $11.0 million and
$11.0 million, respectively.
(j) "EBITDA," as defined and presented historically by RGC, represents 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."
(k) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
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55
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.
28 WEEKS 28 WEEKS
53 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS 52 WEEKS ENDED ENDED
ENDED ENDED ENDED ENDED ENDED JANUARY JANUARY
JUNE 30, JUNE 29, JUNE 27, JUNE 26, JUNE 25, 8, 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 (f) 4.8 (g) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net loss(e)................ $ (10.1) $ (9.6) $ (33.8) $ (27.4) $ (2.7) $ (1.0) $ (8.7)
======== ======== ======== ======== ======== ======== ========
Ratio of earnings to fixed
charges (h).............. -- (h) -- (h) -- (h) -- (h) 1.0 x -- (h) -- (h)
BALANCE SHEET DATA (end of
period)(i):
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(j).............. 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(k).......... $ 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)(l)..... $ 69.5 $ 80.7 $ 103.1 $ 105.9 $ 130.5 $ 69.1 $ 69.4
EBITDA margin(m)........... 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) Net loss includes a pre-tax provision for self insurance, which is
classified in cost of sales, selling, general and administrative expenses
and interest expense of $11.2 million, $15.1 million, $51.1 million, $43.9
million, $25.7 million, $24.8 million, and $14.9 million for the 53 weeks
ended June 30, 1990, the 52 weeks ended June 29, 1991, the 52 weeks ended
June 27, 1992, the 52 weeks ended June 26, 1993, the 52 weeks ended June 25,
1994, the 28 weeks ended January 8, 1994 and the 28 weeks ended January 7,
1995, respectively. Included in the 52 weeks ended June 25, 1994, the 28
weeks ended January 8, 1994
44
56
and the 28 weeks ended January 7, 1995 are reduced employer contributions of
$8.1 million, $2.8 million and $13.7 million, respectively, related to union
health and welfare benefit plans.
(f) Represents an extraordinary charge of $3.7 million (net of related income
tax benefit of $2.5 million) relating to the refinancing of certain
indebtedness in connection with the Alpha Beta acquisition and the write-off
of related debt issuance costs.
(g) Represents an extraordinary net charge of $4.8 million reflecting the
write-off of $6.7 million (net of related income tax benefit of $2.5
million) of deferred debt issuance costs as a result of the early redemption
of a portion of Food 4 Less' term loan facility under the F4L Credit
Agreement, partially offset by a $1.9 million extraordinary gain (net of a
related income tax expense of $0.7 million) on the replacement of partially
depreciated assets following the civil unrest in Los Angeles.
(h) For purposes of computing the ratio of earnings to fixed charges, "earnings"
consist of loss before provision for income taxes and extraordinary charges,
plus fixed charges. "Fixed charges" consist of interest on all indebtedness,
amortization of deferred debt issuance costs and one-third of rental expense
(the portion deemed representative of the interest factor). Earnings were
insufficient to cover fixed charges for the 53 weeks ended June 30, 1990,
the 52 weeks ended June 29, 1991, June 27, 1992 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.
(i) 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.
(j) Total debt includes long-term debt, current maturities of long-term debt and
capital lease obligations.
(k) For the 53 weeks ended June 30, 1990, the 52 weeks ended June 29, 1991, June
27, 1992, June 26, 1993 and June 25, 1994, and the 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.
(l) "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."
(m) EBITDA margin represents EBITDA (as defined) as a percentage of sales.
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57
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 forma financial information included
elsewhere herein, at approximately $45.5 million. On December 14,
46
58
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 non-cash 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 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,
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59
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 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.
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60
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 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.
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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.
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.
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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.
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
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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)
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
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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 non-cash restructuring charge for the write-off of property and
equipment at the 11 stores of $5.1 million.
Interest Expense
Interest expense (including amortization of deferred financing costs) was
$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 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.
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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.
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.
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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, 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
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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 RGC Offers), and will have available a $325
million New Revolving Facility, of which $16.4 million is anticipated to be
drawn at the Closing Date. Food 4 Less will also issue up to $295 million
principal amount of New F4L Senior Notes pursuant to the Senior Note Public
Offering and will issue up to $200 million principal amount of New RGC Notes
pursuant to the Subordinated Note Public Offering. The proceeds from the New
Credit Facility and the Public Offerings, together with the $140 million cash
proceeds of the New Equity Investment, $59 million cash proceeds of the New
Discount Debenture Placement, $41 million in initial accreted value of
additional New Discount Debentures issued other than for cash and $131.5 million
principal amount of the Seller Debentures, will provide the sources of financing
required to consummate the Merger and to repay existing bank debt of
approximately $161.5 million at Food 4 Less and $255.1 million at Ralphs, to
repay existing mortgage debt of $174.1 million (excluding prepayment fees) at
Ralphs and to pay $83.9 million in consideration for the Discount Notes
(excluding related fees). Proceeds from the New Credit Facility and the Public
Offerings will also be used to pay the cash portions of the Exchange Offers and
the RGC 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,
to pay up to $109.9 million of fees and expenses of the Merger and the Financing
and to pay $3.7 million to purchase shares of New Holdings Common Stock. The
Company will also assume certain existing indebtedness of Food 4 Less and
Ralphs. Pursuant to the Exchange Offers described hereunder and the RGC Offers,
Food 4 Less will seek the exchange of at least a majority of the Old RGC Notes
for the New RGC Notes and the exchange of at least 80% of the Old F4L Notes for
New F4L Senior Notes and New F4L Senior Subordinated Notes, as the case may be.
The primary purpose of the Exchange Offers described hereunder and the RGC
Offers is to refinance Food 4 Less' and RGC's existing public debt securities
with longer term public debt securities, to obtain all necessary consents to
consummate the Merger and to eliminate substantially all of the restrictive
covenants contained in the Old 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 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
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of credit issuances, the Company's remaining borrowing availability under the
New Revolving Facility would have been approximately $216.0 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 Exchange 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 RGC Offers, upon such a Change of Control Triggering Event
the Company would be obligated to make the Change of Control Offer following the
consummation of the Merger for all outstanding Old RGC Notes at 101% of the
principal amount thereof plus accrued and unpaid interest to the date of
repurchase. The portion of the Tranche A Loan not fully funded at the Closing
Date will be available to fund the purchase of Old RGC Notes tendered pursuant
to the Change of Control Offer.
Management anticipates that significant capital expenditures will be
required following the Merger in connection with the integration of Ralphs and
Food 4 Less. In order to implement the Company's store format strategy, up to
122 conventional stores currently operated by Food 4 Less will be converted to
the Ralphs format and 16 conventional stores (primarily Boys and Viva) have been
or will be converted and 23 Ralphs stores will be converted to the Food 4 Less
warehouse format. An additional 18 Ralphs and Food 4 Less warehouse stores are
scheduled to be opened during calendar 1995. It is estimated that the gross
capital expenditures to be made by the Company in the first fiscal year
following the closing will be approximately $153 million (or $106 million net of
expected capital leases), of which approximately $98 million relate to ongoing
expenditures for new stores, equipment and maintenance and approximately $55
million relate to store conversions and other Merger-related and non-recurring
items. An additional $33 million of Merger-related and non-recurring capital
expenditure items (or $22 million net of expected capital leases) are
anticipated to be incurred in the second year following the consummation of the
Merger. Management expects that these expenditures will be financed primarily
through cash flow from operations and capital leases.
Ralphs cash flow from operating activities was $55.4 million for the 52
weeks ended January 29, 1995 and $104.0 million for Fiscal 1993. 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 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.
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Ralphs cash used in investing activities was $45.5 million during Fiscal
1993 and $50.8 million during the 52 weeks ended January 29, 1995. These amounts
reflected increased capital expenditures related to store remodels and new store
openings (including store acquisitions) and, to a lesser extent, expansion of
other warehousing, distribution and manufacturing facilities and equipment,
including data processing and computer systems. For the 52 weeks ended June 25,
1994, 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 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
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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.
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Total labor and non-labor operational savings estimated at approximately $21
million annually are anticipated to be achieved by the fourth full year of
combined operation.
Increased Volume Purchasing Efficiencies. Management has identified
approximately $19 million of cost savings it believes can be achieved as a
result of purchasing efficiencies. These efficiencies consist primarily of (i)
savings from increased discounts and allowances as a result of the combined
volume of the two companies; (ii) an improvement in the terms of vendor
contracts for products carried in the Company's stores on an exclusive or
promoted basis; and (iii) savings from the conversion of some
less-than-truckload shipping quantities to full truckload quantities. These
savings are anticipated to be achieved by the second full year of combined
operation.
Warehousing and Distribution Efficiencies. The consolidation of the
Company's warehousing and distribution facilities into Ralphs' two primary
facilities located in Compton, California and in the Atwater district of Los
Angeles and Food 4 Less' primary facility located in La Habra, California will
result in lower outside storage, transportation and labor costs. The Company
plans facility additions at one Ralphs facility to accommodate the additional
volume as a result of such consolidation. Management anticipates improvements in
the areas of automation, inventory management and handling, delivering,
scheduling and route optimization and worker safety. In addition, the Company
plans to close three existing facilities, which will result in lower occupancy
expenses. Management believes that annual savings of approximately $16 million
associated with warehousing and distribution will be achieved, before giving
effect to capital expenditures in connection with facilities expansions and
facility closing costs. Such savings are expected to be achieved by the third
full year of combined operations.
Consolidated Manufacturing. Ralphs and Food 4 Less operate manufacturing
facilities that produce similar products or have excess capacity. Through the
consolidation of meat, bakery, dairy and other manufacturing and processing
operations, and the discontinuance of external purchases of certain goods that
can be manufactured internally, management believes that annual cost savings of
approximately $10 million can be achieved. In each instance, management has
identified the facilities best suited to the needs of the combined company and
has estimated the expense savings associated with each consolidation. The
combined company will utilize a 316,000 square foot bakery and a 25,722 square
foot milk processing plant, located at Food 4 Less' La Habra facility, and a
28,000 square foot milk processing plant, a 9,000 square foot ice cream
processing plant, and a 23,000 square foot delicatessen kitchen located at
Ralphs' Compton facility. Previously, Ralphs purchased bakery products
externally and Food 4 Less purchased ice cream and delicatessen items
externally. Management also plans to utilize Ralphs' third party meat
processors, which have historically provided Ralphs with a full line of
prefabricated and retail cuts of beef, to produce meat for Food 4 Less stores.
Management anticipates that manufacturing expense savings will be achieved by
the second full year of combined operation.
Consolidated Administrative Functions. The Company expects to achieve
savings from the elimination of redundant administrative staff, the
consolidation of management information systems and a decreased reliance on
certain outside services and consultants. To reduce headcount, the Company plans
to target several functions for consolidation, including accounting, marketing,
management information systems, 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,
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Food 4 Less management successfully integrated Alpha Beta with its existing
Southern California operations and (within three years) achieved annual cost
savings in excess of $40 million (compared to a pre-acquisition estimate of
approximately $33 million). See "Management."
WAREHOUSING AND DISTRIBUTION
The combined Company will utilize Ralphs' technologically advanced
warehousing and distribution systems, which include a 17 million cubic foot
high-rise automated storage and retrieval system warehouse (the "ASRS") for
non-perishable items and a 5.4 million cubic foot perishable service center (the
"PSC") designed for processing, storing and distributing all perishable items.
These facilities and the Food 4 Less La Habra warehouse will provide the Company
with substantial operating benefits, including: (i) enhanced turnover to further
improve the freshness and quality of in-store products, (ii) additional
opportunities in forward buying programs and (iii) an increase in the percentage
of inventory supplied by the Company's own warehousing and distribution system.
Management believes the consolidation of these operations will enable the
Company to meet the combined inventory requirements of all stores with fewer
employees and lower operating and occupancy-related expenses.
In November 1987, Ralphs opened the 17 million cubic foot highrise ASRS
warehouse for non-perishable items in the Atwater district of Los Angeles, at a
cost of approximately $50 million. This facility significantly increased
capacity and improved the efficiency of Ralphs' warehouse operations. The
automated warehouse has a ground floor area of 170,000 square feet and capacity
of approximately 50,000 pallets. Guided by computer software, ten-story high
cranes move pallets from the receiving dock to programmed locations in the ASRS
warehouse while recording the location and time of storage. Goods are retrieved
and delivered by the cranes to conveyors leading to an adjacent "picking"
warehouse where individual store orders are filled and shipped. The Company
plans to utilize existing unused capacity to accommodate additional volume
resulting from the consolidation. The ASRS facility can hold substantially more
inventory and requires fewer employees to operate than a conventional warehouse
of equal size. This facility has reduced Ralphs' warehousing costs of
non-perishable items markedly, enabling it to take advantage of advance buying
opportunities and minimize "out-of-stocks." The Company plans to close two
existing Ralphs warehouse facilities in Los Angeles and Carson, California and
one Food 4 Less facility in Los Angeles, California.
In mid-1992, Ralphs opened the 5.4 million cubic foot PSC facility in
Compton, California, designed to process and store all perishable products. This
facility cost approximately $35 million and has provided Ralphs with the ability
to deliver perishable products to its stores on a daily basis, thereby improving
the freshness and quality of these products. The facility contains an energy
efficient refrigeration system and a computer system designed to document the
location and anticipated delivery time of all inventory. The PSC has
consolidated the operations of three existing facilities and holds more
inventory than the facilities it replaced, thereby reducing Ralphs' warehouse
distribution costs. The Company also plans to expand the PSC facility to
accommodate additional volume resulting from the consolidation.
Most Ralphs stores and Food 4 Less Southern California stores are located
within approximately a one-hour drive from Ralphs' distribution and warehousing
facilities. This geographical concentration, combined with Ralphs' efficient
order system, shortens the lead time between the placement of a merchandise
order and its receipt.
Food 4 Less currently operates a centralized manufacturing, warehouse and
office facility in La Habra, California which it leases from Alpha Beta's former
parent corporation. The La Habra facility measures 1,378,083 total square feet
over 75 acres and, in addition to serving warehousing, distribution and office
functions, houses manufacturing operations which include a bakery and a
creamery. The La Habra facility is operated pursuant to a long-term lease which
expires in 2001. The La Habra facility is expected to be used as an additional
distribution and warehouse facility.
Food 4 Less is party to a joint venture with a subsidiary of Certified
Grocers of California, Ltd. which operates a general merchandise warehouse in
Fresno, California. Management is evaluating the role of such warehouse in the
operation of the combined Company.
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MANUFACTURING
Ralphs' manufacturing operations produce a variety of dairy and other
products, including fluid milk, ice cream, yogurt and bottled waters and juices
as well as packaged ice, cheese and salad preparations. Ralphs contracts with
meat processors to provide a full line of prefabricated and retail cuts of beef.
Ralphs ceased its bakery operations during the second quarter of Fiscal 1993 at
its 102,000 square foot facility in Los Angeles. Food 4 Less' La Habra facility
includes a full-line bakery as well as a creamery and certain other
manufacturing operations.
The following table sets forth information concerning the principal
manufacturing and processing facilities expected to be owned and operated by the
Company:
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
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Company plans to continue its store expansion program in Southern California by
opening 17 new stores during calendar 1995 (including three Food 4 Less stores
which will be located in San Diego, a new market for Food 4 Less), and
additional stores in subsequent years. During the second quarter of its current
fiscal year, Food 4 Less converted 11 of its conventional format stores to
warehouse format stores and, following the Merger, the Company plans to convert
approximately five additional conventional stores currently managed by Food 4
Less and approximately 23 stores currently managed by RGC to the "Food 4 Less"
name and warehouse format, as Food 4 Less stores have proven to have a strong
appeal to value-conscious consumers across a wide range of demographic groups.
See "-- The Merger -- Two Leading Complementary Formats." Remodeling activity in
Southern California will be focused on the conventional format stores, including
13 planned major remodels of such stores during calendar 1995. The Company's
expansion, remodel and conversion efforts have required, and will continue to
require, the funding of significant capital expenditures. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
During the last five fiscal years, Ralphs has opened 46 new stores and
remodeled 54 stores at a cost of approximately $277.2 million. A majority of
these new and remodeled stores offer expanded produce and European-style seafood
departments, service delicatessens, fresh bakeries and a broad selection of
general merchandise. With enhanced decor reflecting contemporary interior
design, these stores are designed to provide a quality shopping experience. At
the end of Fiscal 1994, 100 of Ralphs' 173 total stores were newly built or
remodeled within the past five fiscal years. While Ralphs has sold or closed 15
stores during the last five fiscal years, the number of Ralphs' stores has
increased from 142 stores at January 28, 1990 to 173 stores at January 29, 1995.
During the last five fiscal years, in Southern California Food 4 Less has
acquired or opened 172 stores (which includes 142 stores acquired in connection
with the acquisition of Alpha Beta) and remodeled 113 stores. Since its
acquisition of Alpha Beta in 1991, Food 4 Less has undertaken an extensive
program of store remodels, conversions and additions, which have resulted in a
substantially improved store base. During Fiscal 1994, Food 4 Less spent
approximately $50.7 million on capital improvements in Southern California.
Additionally, since the Alpha Beta acquisition, Food 4 Less has converted 22
Southern California stores from conventional formats to the warehouse format. As
Food 4 Less has remodeled existing stores, opened new larger stores and closed
smaller, marginally performing stores, there has been a net reduction in store
count, from 209 stores to 196 stores from the year ended June 29, 1991 ("Fiscal
1991") to the end of Fiscal 1994, but an increase in average store size. The
average square feet per store has increased from 28,700 at the end of Fiscal
1991 to 30,500 at the end of Fiscal 1994. During the last five fiscal years, 29
stores have been closed or sold (including five stores which closed as a result
of the April 1992 civil unrest in Los Angeles).
The Company will select most new store sites from developers' proposals
after such proposals have been researched and analyzed by the Company's
personnel. Each site will be monitored for population shifts, zoning changes,
traffic patterns, and nearby new construction and competitors' stores in an
effort to determine sales potential. The Company will actively participate with
developers in order to attain the Company's objectives for the site, including
adequate parking and complementary co-tenant mix. Remodeling involves enhancing
a store's decor through fixture replacement, upgrading of service departments
and improvements to lighting systems. In order to minimize the disruptive effect
on sales, most stores will be kept open during the remodeling period. The
primary objectives of remodeling will be to improve the attractiveness of
stores, increase sales of higher margin product categories and to increase
selling area where feasible.
Remodelings and openings, among other things, are subject to the
availability of developers' financing, agreements with developers and landlords,
local zoning regulations, construction schedules and other factors, including
costs, often beyond the Company's control. Accordingly, there can be no
assurance that the schedule will be met. Further, the Company expects increasing
competition for new store sites, and it is possible that this competition might
adversely affect the timing of its new store opening program.
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ADVERTISING AND PROMOTION
Ralphs' marketing strategy is to provide a combination of wide product
selection, quality and freshness of perishable products, competitive prices and
double coupons supporting Ralphs' advertising theme "Everything You Need. Every
Time You Shop." In February 1994, Ralphs launched the Ralphs Savings Plan, a new
marketing campaign designed to enhance customer value. The Ralphs Savings Plan
is comprised of six major components: Guaranteed Low Prices ("GLPs"), Price
Breakers, Big Buys, Multi-Buys, Ralphs Brand Products and Double Coupons. GLPs
guarantee low prices on certain high volume items that are surveyed and updated
every four weeks. Price Breakers are weekly advertised items that offer
significant savings. Big Buys are club size items at prices competitive to club
store prices and Multi-Buys offer Ralphs shoppers the opportunity to purchase
club store quantities of regular sized items at prices competitive to club store
prices. In conjunction with this new campaign Ralphs' private label offering of
approximately 2,800 products provides value to the customer. In the second
quarter of 1994, Ralphs began more aggressively promoting perishables through
weekly ad features and lower prices. In addition, Ralphs increased the number of
storewide GLPs. Further, a mailer program was intensified to highlight the
perishable pricing and increased GLPs.
Ralphs stores promote sales through the use of product coupons, consisting
of manufacturers' coupons and Ralphs' own promotional coupons. Ralphs offers a
double coupon program in all stores with Ralphs matching the price reduction
offered by the manufacturer. Ralphs also generates store traffic through weekly
advertised specials, special sales promotions such as discounts on recreational
activities, seasonal and holiday promotions, increased private label selection,
club pack items and exclusive product offerings. Current advertising by Ralphs
has substantially the same market coverage as Food 4 Less and it is expected
that following the Merger duplicative advertising can be eliminated.
The Food 4 Less warehouse stores utilize print and radio advertising which
emphasizes Food 4 Less' low-price leadership, rather than promoting special
prices on individual items. The Food 4 Less warehouse stores also utilize weekly
advertising circulars, customized to local communities, which highlight the
merchandise offered in each store.
INFORMATION SYSTEMS AND TECHNOLOGY
Ralphs' management utilizes technology and industrial engineering methods
to enhance operating efficiency. Every checkout lane in every Ralphs store has a
point of sale terminal. Information from these terminals is utilized to allocate
shelf space, select merchandise based on the buying patterns of each store,
reduce out-of-stocks and increase efficiency at the checkstand and in the
warehouses. Industrial engineering methods are used to schedule labor thereby
improving productivity at the store level and in warehousing and distribution
operations.
Ralphs was the first supermarket chain in the western United States to
adopt scanning in all of its stores and has upgraded this equipment through the
purchase of IBM 4680 point-of-sale computers. All Ralphs stores use laser
scanning equipment, operating through an integrated computer system, to scan the
Universal Product Code, which provides prices and descriptions for most
products.
Ralphs has a Uniform Communications Standard purchase order system that
electronically links Ralphs to major suppliers via computer. This system has
enabled the automated processing of purchase orders which management believes
reduces the lead time required for product purchases. In Fiscal 1993, Ralphs
completed installation of an industry standard, direct store delivery receiving
system for goods delivered directly by vendors. This system allows the receipt
of each order to be recorded electronically, thereby confirming product retail
price and purchase authorization. This system has reduced the incidence of
billing errors and unauthorized deliveries.
Industrial engineering standards have been established for all major work
functions in Ralphs stores, ranging from stocking to checkout. Performance of
each major department in each store is measured weekly against these standards.
Similar measurements are made in Ralphs' distribution, warehouse and
manufacturing operations. Ralphs believes that its application of qualitative
methods to the operation of the business has
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given it a competitive advantage and has better enabled management to run its
business efficiently and to control costs.
The Company plans to convert the Food 4 Less management information systems
to the Ralphs management information systems. Ralphs stores that will be
converted to the Food 4 Less format will continue to use the Ralphs programs.
NORTHERN CALIFORNIA AND MIDWESTERN DIVISIONS
The Northern California Division of Food 4 Less operates 19 conventional
supermarkets in the greater San Francisco Bay Area under the names "Cala" and
"Bell," and six warehouse format stores under the "Foods Co." name. Management
believes that the Northern California Division has excellent store locations in
the city of San Francisco that are very difficult to replicate. The Midwestern
Division of Food 4 Less operates 38 stores, of which 33, including ten former
"Food Barn" stores which Food 4 Less acquired in March 1994, are warehouse
format stores operated under the "Food 4 Less" name, and five of which are
conventional supermarkets operated under the "Falley's" name. Of these 38
stores, 34 are located in Kansas and four are located in Missouri. Management
believes the Food 4 Less warehouse format stores are the low-price leaders in
each of the markets in which they compete. The Northern California Division's
conventional store strategy is to attract customers through its convenient
locations, broad product line and emphasis on quality and service and its
advertising and promotion strategy highlights the reduced price specials offered
in its stores. In contrast, the Company's warehouse format stores, operated
under the Food 4 Less name in the Midwestern Division and the Foods Co. name in
the Northern California Division, emphasize lowest overall prices rather than
promoting special prices on individual items. The Northern California Division's
conventional stores range in size from approximately 8,900 square feet to 32,800
square feet, and average approximately 19,400 square feet. The Northern
California Division's warehouse stores range in size from approximately 30,000
square feet to 59,600 square feet, and average approximately 37,900 square feet.
The Midwestern Division's warehouse format stores range in size from
approximately 8,800 square feet to 60,200 square feet and average approximately
37,300 square feet.
The Northern California Division purchases merchandise from a number of
suppliers; however, approximately 40% of its purchases are made through
Certified Grocers of California, Ltd. ("Certified"), a food distribution
cooperative, pursuant to supply contracts. The Northern California Division does
not operate its own warehouse facilities, relying instead on direct delivery to
its stores by Certified and other vendors. Food 4 Less' Southern California
warehouse facilities supply a portion of the merchandise sold in the Northern
California Division stores, and it is expected that, following completion of the
Merger, the Company's Southern California warehouses will continue to do so.
The Midwestern Division's primary supplier is Associated Wholesale Grocers
("AWG"), a member-owned wholesale grocery cooperative based in Kansas City. The
Midwestern Division does not operate a central warehouse, but purchases
approximately 73% of the merchandise sold in its stores from AWG. Management
believes that, as AWG's largest single customer, the Midwestern Division has
significant buying power, allowing it to provide a broader product line more
economically than it could if it maintained its own full-line warehouse. The
Midwestern Division produces approximately 50% of all case-ready fresh meat
items sold in its stores at its central meat plant located in Topeka, Kansas.
In fiscal 1990, the Northern California Division initiated a remodeling
program to upgrade its stores and to increase profitability. Food 4 Less
remodeled 15 stores during the past five fiscal years, and opened five new
stores during the past four fiscal years. During fiscal 1994, Food 4 Less opened
one new warehouse store, converted three existing stores to the warehouse format
and remodeled one conventional format store. The Company has closed 4 stores
during the past five fiscal years and increased its number of stores from 22 at
the end of the fiscal year ended June 30, 1990 to 24 at the end of the fiscal
year ended June 25, 1994. The average square feet per store has increased from
20,000 at the end of fiscal 1990 to 23,300 at the end of fiscal 1994. The
Company plans to open one additional warehouse format store and remodel two
conventional format stores during fiscal 1995. Management plans to further
expand the Northern California Division in the future by acquiring existing
stores and constructing new stores, including warehouse stores. The Northern
California
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Division Food 4 Less warehouse stores were renamed "Foods Co." in fiscal 1994
following the sale by Food 4 Less of exclusive rights to use the "Food 4 Less"
name in Northern California to Fleming Companies, Inc. See "-- Licensing
Operations."
The Company intends to focus its Midwestern Division expansion primarily on
its Food 4 Less operations. While Food 4 Less expects to construct new stores,
it may also expand operations by purchasing existing Food 4 Less stores from
unaffiliated licensees, or by acquiring existing supermarkets and converting
them to the Food 4 Less warehouse format. The acquisition in March 1994 of ten
warehouse stores formerly operated as "Food Barn" stores increased the
Midwestern Division's Food 4 Less warehouse store count from 23 at June 26, 1993
to 33 at June 25, 1994. During the last five fiscal years, the Midwestern
Division has opened 3 new stores, acquired 13 stores, closed one store and
remodeled 10 stores.
COMPETITION
The supermarket industry is highly competitive and characterized by narrow
profit margins. The Company's competitors in each of its operating divisions
include national and regional supermarket chains, independent and specialty
grocers, drug and convenience stores, and the newer "alternative format" food
stores, including warehouse club stores, deep discount drug stores and "super
centers." Supermarket chains generally compete on the basis of location, quality
of products, service, price, product variety and store condition. The Company
regularly monitors its competitors' prices and adjusts its prices and marketing
strategy as management deems appropriate in light of existing conditions. Some
of the Company's competitors have greater financial resources than the Company
and could use these resources to take steps which could adversely affect the
Company's competitive position.
The Southern California stores compete with several large national and
regional chains, principally Albertsons, Hughes, Lucky, Smith's, Stater Bros.,
and Vons, and with smaller independent supermarkets and grocery stores as well
as warehouse clubs and other "alternative format" food stores. The Northern
California Division competes with large national and regional chains,
principally Lucky and Safeway, and with independent supermarket and grocery
store operators and other retailers, including "alternative format" stores. The
Midwestern Division's supermarkets compete with several national and regional
supermarket chains, principally Albertsons and Dillons, as well as independent
and "alternative format" stores such as Hypermarket USA. Food 4 Less positions
its Food 4 Less warehouse format supermarkets as the overall low-price leader in
each marketing area in which they operate. In addition, management believes that
Ralphs is a leading competitor in many of its marketing areas, based on its
strong customer franchise, desirable store locations, technology and efficient
distribution systems.
EMPLOYEES
RALPHS
At January 29, 1995, Ralphs had 6,213 full-time and 8,940 part-time
employees as follows:
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
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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
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.
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LICENSING OPERATIONS
Food 4 Less owns the "Food 4 Less" trademark and service mark and licenses
the "Food 4 Less" name for use by others. In Fiscal 1994, earnings from
licensing operations were approximately $270,000. An exclusive license with the
right to sublicense the "Food 4 Less" name in all areas of the United States
except Arkansas, Iowa, Illinois, Minnesota, Nebraska, North Dakota, South
Dakota, Wisconsin, the upper peninsula of Michigan, certain portions of Kansas,
Missouri, and Tennessee has been granted to Fleming Companies, Inc. ("Fleming"),
a major food wholesaler and retailer. In August of 1993, Food 4 Less amended
(the "Amendment") its licensing agreement with Fleming to give Fleming exclusive
use of the Food 4 Less name in Northern California and Food 4 Less exclusive use
in Southern California. Fleming paid Food 4 Less a fee of $1.9 million for the
Amendment. With the exception of Northern California, and subject to the
Amendment and certain proximity restrictions, Food 4 Less retains the right to
open and operate its own "Food 4 Less" warehouse supermarkets throughout the
United States. As of June 25, 1994, there were 158 Food 4 Less warehouse
supermarkets in 20 states, including the 61 stores owned or leased and operated
by 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:
NUMBER OF
SUPERMARKETS
-------------- TOTAL SELLING
OWNED LEASED SQUARE FEET SQUARE FEET
----- ------ ----------- -----------
(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
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American Stores Company, and has an option to purchase such property. Rent on
the La Habra property was $6.3 million in Fiscal 1994. Four of Food 4 Less'
supermarkets are also leased from AFDI. In addition to the La Habra facility,
Food 4 Less leases a 321,000 square foot warehouse in Los Angeles. This
warehouse, which was formerly owned by Food 4 Less, was the subject of a sale
leaseback arrangement entered into by Food 4 Less in August 1990. For
information regarding the Company's plan to consolidate its warehouse facilities
following completion of the Merger, see "-- The Merger -- Substantial Cost
Savings Opportunities -- Warehousing and Distribution Efficiencies."
LEGAL PROCEEDINGS
In December 1992, three California state antitrust class action suits were
commenced in Los Angeles Superior Court against RGC and Food 4 Less and other
major supermarket chains located in Southern California, alleging that they
conspired to refrain from competing in the retail market for fluid milk and to
fix the retail price of fluid milk above competitive prices. Specifically, class
actions were commenced by Diane 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
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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 requirements and waiting period imposed
by the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act"). The
waiting period under the HSR Act has expired and on February 2, 1995, the
Federal Trade Commission advised Food 4 Less and Ralphs that it had closed its
investigation of the Merger.
ENVIRONMENTAL MATTERS
In January 1991, the California Regional Water Quality Control Board for
the Los Angeles Region (the "Regional Board") requested that Ralphs conduct a
subsurface characterization of Ralphs' Atwater property. This request was part
of an ongoing effort by the Regional Board, in connection with the U.S.
Environmental Protection Agency (the "EPA"), to identify contributors to
groundwater contamination in the San Fernando Valley. Significant parts of the
San Fernando Valley, including the area where Ralphs' Atwater property is
located, have been designated federal Superfund sites requiring response actions
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, because of regional groundwater contamination. On June 18,
1991, the EPA made its own request for information concerning the Atwater
property. Since that time, the Regional Board has requested further
investigations by Ralphs. Ralphs has conducted the requested investigations and
has reported the results to the Regional Board. Approximately 25 companies have
entered into a Consent Order (EPA Docket No. 94-11) with the EPA to investigate
and design a remediation system for contaminated groundwater beneath an area
which includes the Atwater property. Ralphs is not a party to that Consent
Order, but is cooperating with requests of the subject companies to allow
installation of monitoring or recovery wells on Ralphs' property. On or about
May 2, 1995 the EPA mailed a General Notice Letter to 14 parties, including
Ralphs as owner and operator of the Atwater property, naming them as additional
potentially responsible parties ("PRPs"). As such, Ralphs and the other PRPs may
be requested to perform or pay remediation or pay oversight costs in connection
with the Superfund site. Ralphs is evaluating the implications of this letter to
determine an appropriate response. Based upon available information, management
does not believe this matter will have a material adverse effect on the
Company's financial condition or results of operations.
Ralphs has removed underground storage tanks and remediated soil
contamination at the Atwater property. In some instances the removals and the
contamination were associated with grocery business operations; in others they
were associated with prior property users. Although the possibility of other
contamination from prior operations or adjacent properties exists at the Atwater
property, management does not believe that the costs of remediating such
contamination will be material to the Company.
Apart from the Atwater property, Ralphs and Food 4 Less have recently had
environmental assessments performed on a significant portion of Ralphs'
facilities and Food 4 Less' facilities, including warehouse and distribution
facilities. Management believes that any responsive actions required at the
examined properties as a result of such assessments will not have a material
adverse effect on its financial condition or results of operations.
Ralphs has incurred approximately $4.5 million in non-recurring capital
expenditures for conversion of refrigerants during 1994. Food 4 Less may incur
some additional capital expenditures for such conversion. Other than these
expenditures, neither Ralphs nor Food 4 Less has incurred material capital
expenditures for
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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 47 Director and Vice Chairman of New 21 21
Holdings and the Company
Alfred A. Marasca 53 Director of the Company and 30 38
President and Chief Operating
Officer of New Holdings and the
Company
Joe S. Burkle 71 Director and Executive Vice 44 48
President of New Holdings and the
Company
Greg Mays 48 Executive Vice President of New 21 21
Holdings and the Company
Terry Peets 50 Executive Vice President of New 18 18
Holdings and the Company
Jan Charles Gray 47 Senior Vice President, General 20 31
Counsel and Secretary of New
Holdings and the Company
Alan J. Reed 48 Senior Vice President and Chief 22 22
Financial Officer of New Holdings
and the Company
Patrick L. Graham 45 Director of New Holdings and the -- --
Company
Mark A. Resnik 47 Director of New Holdings and the -- --
Company
Ronald W. Burkle has been a Director and the Chairman of the Board and
Chief Executive Officer of Food 4 Less since its inception in 1989. Mr. Burkle
co-founded Yucaipa in 1986 and has served as Director, Chairman of the Board,
President and Chief Executive Officer of FFL since 1987 and of Holdings since
1992. From 1986 to 1988, Mr. Burkle was Chairman and Chief Executive Officer of
Jurgensen's, a Southern California gourmet food retailer. Before joining
Jurgensen's, Mr. Burkle was a private investor in Southern California. Mr.
Burkle is the son of Joe S. Burkle.
Byron E. Allumbaugh has been Chairman of the Board and Chief Executive
Officer of Ralphs since 1976 and a Director since 1988. He also is a Director of
the H.F. Ahmanson Company, El Paso Natural Gas Company and Ultramar, Inc.
George G. Golleher has been a Director of Food 4 Less since its inception
in 1989 and has been the President and Chief Operating Officer of Food 4 Less
since January 1990. From 1986 through 1989 Mr. Golleher served as Senior Vice
President, Finance and Administration, of The Boys Markets, Inc. Prior to
joining The Boys Markets, Inc. in 1984, Mr. Golleher served as Vice President
and Chief Financial Officer of Mayfair Markets, Inc. from 1983 to 1984.
Alfred A. Marasca has been President, Chief Operating Officer and a
Director of Ralphs since February 1994 and he was President from February 1993
to February 1994, Executive Vice President, Retail from 1991 until 1993 and
Executive Vice President, Marketing from 1985 to 1991.
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Joe S. Burkle has been a Director and Executive Vice President of Food 4
Less since its inception in 1989 and has been Chief Executive Officer of
Falley's, Inc. since 1987. Mr. Burkle began his career in the supermarket
industry in 1946, and served as President and Chief Executive Officer of Stater
Bros. Markets, a Southern California supermarket chain. Prior to 1987, Mr.
Burkle was a private investor in Southern California. Mr. Burkle is the father
of Ronald W. Burkle.
Greg Mays has been Executive Vice President -- Finance and Administration,
and Chief Financial Officer of Food 4 Less and of Holdings since December 1992.
From 1989 until 1991, Mr. Mays was Chief Financial Officer of Almac's, Inc. and,
from 1991 to December 1992, President and Chief Financial Officer of Almac's.
From April 1988 to June 1989, Mr. Mays was Chief Financial Officer of Food 4
Less of Modesto, Inc. and Cala Foods, Inc.
Terry Peets has been Executive Vice President of Ralphs since February
1994. He was Senior Vice President, Marketing from 1991 to February 1994, Senior
Vice President, Merchandising from 1990 to 1991, Group Vice President,
Merchandising from 1988 to 1990 and Group Vice President, Store Operations from
1987 to 1988.
Jan Charles Gray has been Senior Vice President, General Counsel and
Secretary of Ralphs since 1988. He was Senior Vice President and General Counsel
from 1985 to 1988 and Vice President and General Counsel from 1978 to 1985.
Alan J. Reed has been Senior Vice President and Chief Financial Officer of
Ralphs since 1988. He was Senior Vice President, Finance from 1985 to 1988 and
Vice President, Finance from 1983 to 1985.
Patrick L. Graham joined Yucaipa as a general partner in January 1993.
Prior to that time he was a Managing Director in the corporate finance
department of Libra Investments, Inc. from 1992 to 1993 and PaineWebber Inc.
from 1990 to 1992. From 1982 to 1990, he was a Managing Director of the
corporate finance department of Drexel Burnham Lambert Incorporated and an
Associate Director in the corporate finance department of Bear Stearns & Co.,
Inc.
Mark A. Resnik has been a Director and the Vice President and Secretary of
Food 4 Less since its inception in 1989, co-founded Yucaipa in 1986 and has been
a Director, Vice President and Secretary of FFL since 1987. From 1986 until
1988, Mr. Resnik served as a Director, Vice President and Secretary for
Jurgensen's. From 1983 through 1986, Mr. Resnik served as a Director, Vice
President and General Counsel of Stater Bros. Markets.
In addition to the directors named above, two members will be nominated to
the Board of Directors of each of the Company and New Holdings by Apollo, and
one member will be nominated to the Board of Directors of each of the Company
and New Holdings by the other New Equity Investors, pursuant to the terms of the
1995 Stockholders Agreement. See "Description of Capital Stock -- 1995
Stockholders Agreement."
All directors of the Company and New Holdings will hold office until the
election and qualification of their successors. Executive officers of each of
the Company and New Holdings will be chosen by its Board of Directors and will
serve at its discretion. It is anticipated that neither the Company nor New
Holdings will pay any fees or remuneration to its directors for service on the
board or any board committee, but that the Company and New Holdings will
reimburse directors for their ordinary out-of-pocket expenses incurred in
connection with attending meetings of the Board of Directors.
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EXECUTIVE COMPENSATION
EMPLOYMENT AGREEMENTS
Concurrently with the consummation of the Merger, the Company will enter
into employment agreements with certain of the current executive officers of
Ralphs and Food 4 Less. It is expected that Byron E. Allumbaugh, George G.
Golleher, Alfred A. Marasca, as well as other executive officers of the Company,
including Messrs. Mays, Peets, Gray and Reed, will enter into three-year
employment contracts with the Company and that the existing employment
contracts, if any, of such officers will be cancelled.
New Allumbaugh Agreement. The employment agreement between the Company and
Byron Allumbaugh, 63, is expected to provide for a salary of $1 million for the
first year and $1.25 million for the second year. If Mr. Allumbaugh continues as
the Chief Executive Officer during the third year following the Merger, he would
be entitled to a salary of $2 million and if he is employed in another capacity
then he would be entitled to a salary of $1.25 million for the third year. Mr.
Allumbaugh will be entitled to a bonus equal to his salary in each year if
certain prescribed earnings targets (the "Earnings Targets") for the year are
reached. If the Company completes an initial public offering of capital stock
during the first two years of Mr. Allumbaugh's employment, Mr. Allumbaugh will
remain Chief Executive Officer for one year after the public offering. If the
public offering is anticipated to occur during the third year of Mr.
Allumbaugh's employment agreement, Mr. Allumbaugh will resign as Chief Executive
Officer six months prior to the intended date of the public offering but will
continue to be employed at the lesser compensation level provided in his
employment agreement until its termination.
New Golleher Agreement. Food 4 Less is currently a party to a five-year
employment agreement with George G. Golleher providing for annual base
compensation of $350,000, plus employee benefits and an incentive bonus
calculated in accordance with a formula based on Food 4 Less' earnings. Under
the employment agreement, Mr. Golleher may terminate his employment agreement in
the event of a change of control of Food 4 Less, in which case he is entitled to
receive all of the salary and benefits provided under the agreement for the
remaining term thereof, notwithstanding the termination of his employment. In
connection with the consummation of the Merger, the Food 4 Less board of
directors has authorized the payment of a special bonus to George Golleher in a
lump sum amount equal to the base salary due him under the remaining term of his
employment agreement. As a condition of the payment of such bonus, Mr.
Golleher's existing employment agreement will be cancelled, and he will enter
into a new agreement containing terms to be mutually agreed upon between Food 4
Less and Mr. Golleher. The new employment agreement is expected to provide for
an annual salary of $500,000 plus a bonus equal to his salary in each year if
the Earnings Targets are reached. Certain existing contractual rights of Mr.
Golleher, including the right to be elected to the Company's board of directors
and the right to require the Company to repurchase certain of his shares of New
Holdings stock upon his death, disability or termination without cause, will
continue in effect pursuant to the new employment agreement.
New Marasca Agreement. The employment agreement between the Company and
Alfred Marasca is expected to provide for a salary of $500,000 per annum and an
annual bonus equal to his salary if the Earnings Targets for the year are
reached.
General Provisions of the New Employment Agreements. The new employment
agreements are expected to provide generally that the Company may terminate the
agreement for cause or upon the failure of the employee to render services to
the Company for a continuous period to be agreed upon by the Company and the
employee because of the employee's disability. In addition, the employee's
services may be suspended upon notice by the Company and in such event the
employee will continue to be compensated by the Company during the remainder of
the term of the agreement subject to certain offsets if the employee becomes
engaged in another business.
Existing Food 4 Less Employment Agreements. Food 4 Less entered into
employment agreements with 24 officers providing for their employment for a
one-year term commencing on the date of a change of control of Food 4 Less.
These agreements provide for the payment of an incentive bonus calculated in
accordance with Food 4 Less policies, and certain of the agreements provide for
the payment of a special bonus payable upon a change of control (provided
certain financial performance targets have been met). These agreements will
become effective upon the consummation of the Merger. Greg Mays, who will be an
Executive Vice
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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 B
COMMON SERIES A PREFERRED
STOCK(1)(2) PREFERRED 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)(7).. 600,000 3.0% -- -- -- -- 1.6% 1.5%
Alfred A. Marasca(2)(7).... 200,000 1.0% -- -- -- -- 0.5% 0.5%
Greg Mays(8)............... -- -- -- -- -- -- -- --
Alan J. Reed(7)............ -- -- -- -- -- -- -- --
Terry Peets(7)............. -- -- -- -- -- -- -- --
Jan Charles Gray(7)........ -- -- -- -- -- -- -- --
Apollo Advisors, L.P.(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, under such stock
option plan, concurrently with or following completion of the Merger or (b)
Reinvestment Options to purchase up
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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 6,000,000 shares of New Holdings Common Stock to be issued to
Yucaipa concurrently with the completion of the Merger and the Financing.
Such warrant will become exercisable only upon the occurrence of an initial
public offering or certain sale transactions involving New Holdings. See
"Description of Capital Stock -- Yucaipa Warrant."
(6) Certain management stockholders who own in the aggregate 852,326 shares of
Common Stock (pro forma for the events and assumptions described above)
have entered into a Stockholder Voting Agreement and Proxy pursuant to
which Ronald W. Burkle, George G. Golleher and Yucaipa Capital Advisors,
Inc. have sole voting control over the shares currently owned by such
management stockholders until December 31, 2002 (unless extended by such
stockholders). See "Executive Compensation -- Food 4 Less Stock Plan." The
852,326 shares have been included, solely for purposes of the above table,
in the share amounts shown for Mr. Burkle but not for Mr. Golleher. Neither
Messrs. Burkle and Golleher nor Yucaipa Capital Advisors, Inc. have the
power to dispose of, or any other form of investment power with respect to,
such shares. Messrs. Burkle and Golleher have sole voting and investment
power with respect to 1,194,066 and 462,525 shares of Common Stock they
respectively own (including, in the case of Mr. Golleher, 200,000 shares
issuable upon the exercise of Tier One Options).
(7) Does not include Reinvestment Options to purchase 228,432 shares, 100,000
shares, 60,000 shares, 60,000 shares and 174,940 shares of New Holdings
Common Stock to be issued to Messrs. Allumbaugh, Marasca, Reed, Peets and
Gray, respectively, in exchange for the cancellation of EAR payments which
would otherwise be payable upon consummation of the Merger.
(8) Mr. Mays owns 8,890 of the 852,326 shares of Common Stock which are subject
to the Stockholder Voting Agreement and Proxy described in note (6) above.
(9) Represents shares owned by one or more entities managed by or affiliated
with Apollo Advisors, L.P., 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 13% per annum. The accretion of the
liquidation preference will result in a proportional increase in the number of
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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 be nominees of Apollo and one director will be a
nominee of the other New Equity Investors holding Series A
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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 February 3, 1997. The five $1 million
installments are to be paid by RGC and the $5 million payment is the
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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 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 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 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
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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 will grant to the partnership certain registration rights with
respect to the New Discount Debentures. Pursuant to such registration rights
agreement, New Holdings will file with the Commission a shelf registration
statement which will permit resales of the New Discount Debentures by the
partnership commencing 60 days following closing of the Merger. New Holdings
will be obligated to use its best efforts to cause such shelf registration
statement to remain effective for up to three years. If New Holdings fails to
comply with its obligations to keep such shelf registration statement effective,
New Holdings will be obligated to pay certain liquidated damages. New Holdings
and its subsidiaries will agree not to effect any public distribution of
securities similar to the New Discount Debentures until the New Discount
Debentures are resold by the partnership (or until the third anniversary of the
Closing Date, if later). New Holdings believes that the partnership actively
would seek to dispose of its entire interest in the New Discount Debentures
promptly upon expiration of the 60 day holdback period following closing of the
Merger. New Holdings will agree to use its best efforts to assist the
partnership in such disposition, and to pay all expenses, including underwriting
discounts and brokers' or dealers' commissions and mark-ups (subject to certain
limitations), incident thereto.
The $5 million cash investment to be made in the partnership by RGCIC, as
described above, will be borrowed from the Company by RGCIC, and such borrowings
will bear interest at the applicable Federal rate (as defined under the Internal
Revenue Code). RGCIC will be obligated to repay such borrowings with any
distributions received from the partnership in connection with resales of the
New Discount Debentures. Such repayments will be applied first to the principal
balance of the borrowings and then to accrued interest. To the extent that such
distributions are not sufficient to repay such borrowings, any remaining
indebtedness of RGCIC (including all accrued interest) will be forgiven by the
Company and the Company's obligation to pay the Ralphs deferred EAR liability
will be correspondingly forgiven. Upon receipt of any principal amounts repaid
under such borrowings, the Company will be obligated to pay such amounts over to
former holders of RGC's EARs redeemed upon closing of the Merger. The aggregate
consideration payable to redeem the EARs includes, in addition to the foregoing
deferred cash payment of up to $5 million, $17.8 million in cash
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payable at closing and $10 million in Reinvestment Options. See "Executive
Compensation -- Equity Appreciation Rights Plan."
FFL files a consolidated federal income tax return, under which the federal
income tax liability of FFL and its subsidiaries (which since June 23, 1989
includes Food 4 Less) is determined on a consolidated basis. FFL has entered
into a federal income tax sharing agreement with Food 4 Less and certain of its
subsidiaries (the "Tax Sharing Agreement"). The Tax Sharing Agreement provides
that in any year in which Food 4 Less is included in any consolidated tax
liability of FFL and has taxable income, Food 4 Less will pay to FFL the amount
of the tax liability that Food 4 Less would have had on such due date if it had
been filing a separate return. Conversely, if Food 4 Less generates losses or
credits which actually reduce the consolidated tax liability of FFL and its
other subsidiaries, FFL will credit to Food 4 Less the amount of such reduction
in the consolidated tax liability. In the event any state and local income taxes
are determinable on a combined or consolidated basis, the Tax Sharing Agreement
provides for a similar allocation between FFL and Food 4 Less of such state and
local taxes. By operation of the FFL Merger and the Reincorporation Merger, New
Holdings will succeed to the rights and obligations of FFL under the Tax Sharing
Agreement.
Management believes that the terms of the transactions described above are
or were fair to Food 4 Less and are or were on terms at least as favorable to
Food 4 Less as those which could be obtained from unaffiliated parties (assuming
that such transactions could be effected with such parties).
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THE EXCHANGE OFFERS AND SOLICITATION
BACKGROUND AND PURPOSES OF THE EXCHANGE OFFERS AND SOLICITATION
The Exchange Offers and the Solicitation, together with the 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 F4L Notes, any Old F4L Notes not
tendered for exchange pursuant to the Exchange Offers, the New RGC Notes, any
Old RGC Notes not tendered pursuant to the RGC Exchange Offer, and the
indebtedness incurred pursuant to the New Credit Facility will be the
obligations of the Company. In connection with the consummation of the Merger,
Food 4 Less is making the Exchange Offers and the RGC 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 F4L Notes and the New RGC Notes in order to
simplify the capital structure of the Company. The Exchange Offers afford Old
F4L Noteholders an opportunity to elect to participate in the long-term
capitalization of the Company.
Food 4 Less is also seeking Consents to the Proposed Amendments in the
Solicitation. The primary purpose of the Proposed Amendments is to permit the
consummation of the Merger and to eliminate substantially all of the restrictive
covenants in the Old F4L Indentures. See "The Proposed Amendments." If adopted
by the holders of a majority in aggregate principal amount of each of the
outstanding Old F4L Senior Notes and the outstanding Old F4L Senior Subordinated
Notes, the Proposed Amendments will become effective immediately prior to the
consummation of the Merger, upon Food 4 Less' acceptance of properly tendered
Old F4L Notes for exchange pursuant to the Exchange Offers.
TERMS OF THE EXCHANGE OFFERS
Upon the terms and subject to the conditions set forth herein and in the
accompanying applicable Letter of Transmittal, Food 4 Less is hereby offering
(A) to holders of the Old F4L Senior Notes to exchange for each $1,000 principal
amount of Old F4L Senior Notes exchanged, $1,000 principal amount of New F4L
Senior Notes plus $5.00 in cash, and (B) to holders of the Old F4L Senior
Subordinated Notes to exchange for each $1,000 principal amount of Old F4L
Senior Subordinated Notes exchanged, $1,000 principal amount of New F4L Senior
Subordinated Notes plus $20.00 in cash, in each case plus accrued and unpaid
interest to the date of exchange.
The offers by Food 4 Less to exchange Old F4L Senior Notes and Old F4L
Senior Subordinated Notes are referred to herein as the "F4L Senior Note
Exchange Offer" and the "F4L Senior Subordinated Note Exchange Offer,"
respectively, and are referred to herein individually as the applicable
"Exchange Offer" and collectively as the "Exchange Offers." Each Exchange Offer
constitutes a separate exchange offer by Food 4 Less. Food 4 Less reserves the
right to extend, delay, accept, amend or terminate either or both of the
Exchange Offers, and any extension, delay, acceptance, amendment, termination or
expiration of an Exchange Offer shall apply only to such Exchange Offer to which
such extension, delay, acceptance, amendment, termination or expiration relates.
Satisfaction of the conditions to the Exchange Offer shall be determined
separately with respect to each Exchange Offer. Consummation of each Exchange
Offer is subject to consummation of the other Exchange Offer. All references
herein to the Exchange Offers shall be deemed to include the Solicitation.
Noteholders who wish to tender their Old F4L Notes pursuant to the
applicable Exchange Offer and consent to the Proposed Amendments must complete
the Letter of Transmittal and the table therein entitled "Description of Old F4L
Notes." Nominees or other record holders of Old F4L Notes that hold Old F4L
Notes for more than one beneficial owner are entitled to make multiple elections
pursuant to the Letter of Transmittal that reflect the election of each of the
beneficial owners for whom they are exchanging Old F4L Notes. In order to make
such multiple elections, nominees or other record holders should properly
complete the table under the box entitled "Election on Behalf of Multiple
Beneficial Owners." See "-- Procedures for Tendering and Consenting."
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Holders of Old F4L Notes who desire to tender Old F4L Notes in an Exchange
Offer will be required to consent to the Proposed Amendments. See "-- The
Consent Solicitation," "-- Conditions," "The Proposed Amendments," "Comparison
of Old F4L Senior Notes and New F4L Senior Notes" set forth in Appendix A hereto
and "Comparison of Old F4L Senior Subordinated Notes and New F4L Senior
Subordinated Notes" set forth in Appendix B hereto. THE TENDER OF OLD F4L NOTES
BY THE HOLDER THEREOF PURSUANT TO THE APPLICABLE EXCHANGE OFFER WILL CONSTITUTE
THE CONSENT OF SUCH TENDERING HOLDER TO THE PROPOSED AMENDMENTS WITH RESPECT TO
SUCH OLD F4L NOTES.
Old F4L Notes may be tendered and will be accepted for exchange only in
denominations of $1,000 principal amount and integral multiples thereof. Holders
must tender all of their Old F4L Senior Notes or Old F4L Senior Subordinated
Notes, as the case may be, if any are tendered pursuant to the applicable
Exchange Offer. Food 4 Less shall be deemed to have accepted validly tendered
Old F4L Notes in the Exchange Offers and validly delivered Consents in the
Solicitation when, as and if Food 4 Less has given oral or written notice
thereof to the Exchange Agent. The Exchange Agent will act as agent for the
tendering holders of Old F4L Notes for the purposes of receiving the New F4L
Notes and the Exchange Payment from the Company. In the event Food 4 Less
increases the consideration offered for the Old F4L Notes in the Exchange Offer,
such increased consideration will be paid with regard to all Old F4L Notes
accepted in the Exchange Offer, including those accepted before the announcement
of such increase. The New F4L Notes will be delivered (and payments in cash of
accrued and unpaid interest thereon and the accompanying Exchange Payment will
be made) in exchange for Old F4L Notes accepted in the Exchange Offers promptly
after acceptance on the applicable Expiration Date.
As of May 1, 1995, (i) $175 million aggregate principal amount of the Old
F4L Senior Notes was outstanding and (ii) $145 million aggregate principal
amount of the Old F4L Senior Subordinated Notes was outstanding.
Concurrently with the Exchange Offers and the Solicitation, Food 4 Less is
offering up to $295 million of New F4L Senior Notes pursuant to the Senior Note
Public Offering and is offering up to $200 million principal amount of New RGC
Notes pursuant to the Subordinated Note Public Offering. The Public Offerings
are expected to price ten Business Days preceding the final Expiration Date.
CONSUMMATION OF EACH EXCHANGE 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 Exchange Offers will be satisfied. See
"-- Conditions." As a result of the Merger, the New F4L 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 F4L Notes not tendered in the Exchange Offers
by means of open market purchases, privately negotiated acquisitions, subsequent
exchange or tender offers, redemptions or otherwise, at prices or on terms which
may be higher or lower or more or less favorable than those in the Exchange
Offers. The terms or any such purchases or offers could differ from the terms of
the Exchange Offers.
Holders of Old F4L Notes who tender in the Exchange Offers will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Consent and Letter of Transmittal, transfer taxes with respect to the
exchange of Old F4L Notes pursuant to the Exchange Offers. Food 4 Less will pay
all charges and expenses, other than certain applicable taxes, in connection
with the Exchange Offers. See "-- Fees and Expenses."
No appraisal rights are available to Old F4L Noteholders in connection with
the Exchange Offers.
THE CONSENT SOLICITATION
Concurrently with the Exchange Offers, Food 4 Less is soliciting Consents
in the Solicitation from holders of each of the Old F4L Senior Notes and the Old
F4L Senior Subordinated Notes with respect to the Proposed Amendments to the Old
F4L Indentures. The Exchange Offers are subject to, among other things, the
condition that the Requisite Consents (i.e., Consents of holders representing at
least a majority in
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aggregate principal amount of each of the outstanding Old F4L Senior Notes and
Old F4L Senior Subordinated Notes held by persons other than Food 4 Less and its
affiliates) shall have been received and not revoked on or prior to the
Expiration Date. HOLDERS OF OLD F4L NOTES WHO DESIRE TO ACCEPT THE APPLICABLE
EXCHANGE OFFER MUST CONSENT TO THE PROPOSED AMENDMENTS. The Proposed Amendments
will only become operative upon consummation of the Exchange Offers. The primary
purpose of the Proposed Amendments is to permit the Merger and to eliminate
substantially all of the restrictive covenants in the Old F4L Indentures.
The Proposed Amendments for each of the Old F4L Senior Notes and the Old
F4L Senior Subordinated Notes require the consent of holders of at least a
majority in aggregate principal amount of each of the Old F4L Senior Notes and
the Old F4L Senior Subordinated Notes, in each case not owned by Food 4 Less or
its affiliates. In addition, in order for any of the Proposed Amendments to
become effective, a Supplemental Indenture amending each of the Old F4L Senior
Note Indenture and the Old F4L Senior Subordinated Note Indenture must be
executed by the Company and the applicable Old Trustee. See "The Proposed
Amendments," "Comparison of Old F4L Senior Notes and New F4L Senior Notes" set
forth in Appendix A hereto and "Comparison of Old F4L Senior Subordinated Notes
and New F4L Senior Subordinated Notes" set forth in Appendix B hereto.
Upon receipt of the Requisite Consents from holders of Old F4L Senior Notes
or holders of Old F4L Senior Subordinated Notes, Food 4 Less will certify in
writing to the Old F4L Senior Note Trustee or the Old F4L Senior Subordinated
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 F4L Notes. Upon receipt of such certification,
all Consents to the Proposed Amendments theretofore received with respect to
such issue of Old F4L Notes will be irrevocable. Except as set forth under
"-- Guaranteed Delivery Procedure," Consents from tendering holders of Old F4L
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 F4L Notes to which such Consents relate. In addition, Consents with respect
to any Old F4L Notes will not be counted if the tender of such holders' Old F4L
Notes is defective, unless Food 4 Less waives such defect. After receipt by the
Old F4L Senior Note Trustee or the Old F4L Senior Subordinated Note Trustee of,
among other things, certification by Food 4 Less that the Requisite Consents
with respect to the Old F4L Senior Notes or the Old F4L Senior Subordinated
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 F4L Notes were issued (each a "Supplemental Indenture"). Upon the acceptance
by Food 4 Less of the Requisite Consents from holders of Old F4L Senior Notes or
Old F4L Senior Subordinated 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 F4L
Notes will become effective upon certification that the Requisite Consents from
holders of the applicable Old F4L Notes have been received, such Proposed
Amendments will not be operative until Food 4 Less has accepted for exchange all
Old F4L Notes validly tendered and not withdrawn. The Company will not be
obligated to issue the New F4L Senior Notes or the New F4L Senior Subordinated
Notes pursuant to the Exchange Offers unless, among other things, the Requisite
Consents to the adoption of the Proposed Amendments have been received from both
the Old F4L Senior Noteholders and the Old F4L Senior Subordinated Noteholders.
See "-- Conditions."
If the Proposed Amendments become effective, (i) the Exchange Agent, as
soon as practicable, will transmit a copy of the applicable Supplemental
Indenture to all registered holders of Old F4L Notes which remain outstanding,
and (ii) non-tendering holders will hold their Old F4L Notes under the
applicable Old F4L Indenture as amended by the Proposed Amendments, whether or
not that holder consented to the Proposed Amendments. Consents given by holders
of Old F4L Notes tendered but rejected by Food 4 Less pursuant to an Exchange
Offer will not be counted for the purpose of determining whether the Requisite
Consents have been obtained.
Only a registered holder of Old F4L Notes (the "Registered Holder") can
effectively deliver a Consent to the Proposed Amendments. Pursuant to the terms
of the Old F4L Indentures, subsequent transfers of Old
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F4L Notes on the applicable security register for such Old F4L Notes will not
have the effect of revoking any Consent theretofore given by the Registered
Holder of such Old F4L 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 Exchange Offer and the Solicitation have been extended until and will
expire at 12:00 Midnight, New York City time, on May 25, 1995 (the "Expiration
Date"), unless further extended by Food 4 Less. Food 4 Less reserves the right
to further extend either Exchange Offer or the Solicitation, at its discretion,
in which event the term "Expiration Date" shall mean the latest time and date at
which such Exchange Offer or the Solicitation, as the case may be, as so 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 Senior
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 Exchange Offer or the Solicitation, as the case may be, for a
specified period or on a daily basis.
Food 4 Less also expressly reserves the right, at any time or from time to
time, to extend the period of time during which an Exchange Offer or the
Solicitation, as the case may be, is open. There can be no assurance that Food 4
Less will exercise its right to extend either Exchange Offer or the
Solicitation. During any extension of an Exchange Offer all Old F4L Notes
previously tendered pursuant thereto and not withdrawn will remain subject to
such Exchange Offer and may be accepted for exchange by Food 4 Less at the
expiration of such Exchange Offer subject to the right, if any, of a tendering
holder to withdraw its Old F4L Notes. See "-- Withdrawal of Tenders and
Revocation of Consents."
Each of the Company and Food 4 Less, as the case may be, also expressly
reserve the right, subject to applicable law and the terms of the Exchange
Offers and to the extent not inconsistent with the terms of the Merger, the
Other Debt Financing Transactions, the Bank Financing or the New Equity
Investment, (i) to delay the acceptance for exchange of any Old F4L Notes or,
regardless of whether such Old F4L Notes were theretofore accepted for exchange,
to delay the exchange of any Old F4L Notes pursuant to an Exchange Offer and to
terminate such Exchange Offer and not accept for exchange any Old F4L Notes not
theretofore accepted for exchange, upon the failure of any of the conditions to
such Exchange Offer specified herein to be satisfied, by giving oral or written
notice of such delay or termination to the Exchange Agent and (ii) at any time,
or from time to time, to amend either of the Exchange Offers in any respect.
Except as otherwise provided herein, withdrawal rights with respect to Old F4L
Notes tendered pursuant to an Exchange Offer will not be extended or reinstated
as a result of an extension or amendment of such Exchange Offer, as applicable.
See "-- Withdrawal of Tenders and Revocation of Consents." The reservation by
Food 4 Less of the right to delay acceptance for exchange of Old F4L 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 F4L Notes deposited by or on behalf of
holders thereof promptly after the termination or withdrawal of an Exchange
Offer.
Any extension, delay, termination or amendment of either Exchange Offer
will be followed as promptly as practicable by a public announcement thereof.
Without limiting the manner in which Food 4 Less may choose to make a public
announcement of any extension, delay, termination or amendment of an Exchange
Offer, Food 4 Less shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by issuing a release to the
Dow Jones News Service, except in the case of an announcement of an extension of
an Exchange Offer, in which case Food 4 Less shall have no obligation to
publish, advertise or otherwise communicate such announcement other than by
issuing a notice of such extension by press release or other public
announcement, which notice shall be issued no later than 9:00 a.m., New York
City time, on the next Business Day after the previously scheduled Expiration
Date.
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If Food 4 Less shall decide to decrease the amount of Old F4L Notes being
sought in either Exchange Offer or to increase or decrease the consideration
offered to holders of Old F4L Notes, and if, at the time that notice of such
increase or decrease is first published, sent or given to holders of Old F4L
Notes in the manner specified above, such Exchange Offer is scheduled to expire
at any time earlier than the expiration of a period ending on the tenth Business
Day from and including the date that such notice is first so published, sent or
given, then such Exchange Offer will be extended for such purposes until the
expiration of such period of ten Business Days. As used in this Prospectus and
Solicitation Statement, "Business Day" has the meaning set forth in Rule 14d-1
(and applicable to Regulation 14E) under the Exchange Act.
If Food 4 Less makes a material change in the terms of either Exchange
Offer or the information concerning either Exchange Offer, or waives any
condition to either Exchange Offer that results in a material change to the
circumstances of such Exchange Offer, then Food 4 Less will disseminate
additional exchange offer or tender offer materials to the extent required under
the Exchange Act and will extend such Exchange Offer to the extent required in
order to permit holders of Old F4L Notes adequate time to consider such
materials. The minimum period during which a tender offer must remain open
following material changes in the terms of the offer or information concerning
the offer, other than a change in price or percentage of securities sought, will
depend upon the specific facts and circumstances, including the relative
materiality of the terms or information.
CONDITIONS
Food 4 Less will not be required to accept any Old F4L Notes for exchange,
and may terminate or amend either or both of the Exchange Offers, as provided
herein, before the acceptance of any Old F4L Notes, if either of the Exchange
Offers has not been consummated. In addition, notwithstanding any other
provision of the Exchange Offers or the Solicitation, Food 4 Less shall not be
required to accept any Old F4L Notes for exchange or any Consents, and may
terminate, extend or amend either or both Exchange Offers or the Solicitation
and may postpone, subject to Rule 14e-1 under the Exchange Act, the acceptance
of Old F4L Notes so tendered and Consents so delivered, whether or not any other
Old F4L Notes or Consents have theretofore been accepted for exchange pursuant
to the applicable Exchange Offer, if, on or prior to the Expiration Date, any of
the following conditions exist:
(i) the Minimum 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 either Exchange Offer by or before any local, state, federal
or foreign government or governmental regulatory or administrative agency
or authority or by any court or tribunal, domestic or foreign, which (a)
challenges or seeks to restrain or prohibit the making or consummation of
either Exchange Offer or the exchange of Old F4L Notes pursuant to the
Exchange Offers, (b) in the sole judgment of Food 4 Less, might directly or
indirectly prohibit, prevent, restrict or delay consummation of either
Exchange Offer or otherwise relates in any manner to either Exchange Offer,
(c) seeks to make illegal the acceptance of Old F4L Notes for exchange
pursuant to either Exchange Offer, (d) makes the Solicitation illegal, (e)
might, in the sole judgment of Food 4 Less, adversely affect the financing
of either Exchange Offer, the Merger, the Other Debt Financing
Transactions, the Bank Financing or the New
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Equity Investment or the transactions contemplated thereby, or (f) in the
sole judgment of Food 4 Less, could materially adversely affect the
business, condition (financial or otherwise), income, operations,
properties, assets, liabilities or prospects of Food 4 Less (or the
Company, after giving effect to the Merger) and its subsidiaries, taken as
a whole, or materially impair the contemplated benefits of the Exchange
Offers and the Solicitation to Food 4 Less (or the Company, after giving
effect to the Merger);
(viii) there shall have occurred or be likely to occur any event
affecting the business or financial affairs of Food 4 Less (or the Company,
after giving effect to the Merger) that, in the sole judgment of Food 4
Less, (a) would or might prohibit, prevent, restrict or delay consummation
of either Exchange Offer, or (b) will, or is reasonably likely to,
materially impair the contemplated benefits to Food 4 Less (or the Company,
after giving effect to the Merger) of the Exchange Offers and the
Solicitation or otherwise result in the consummation of either Exchange
Offer not being in the best interests of Food 4 Less or (c) might be
material to holders of Old F4L Notes in deciding whether to accept either
Exchange Offer or the Solicitation;
(ix) there shall have occurred: (a) any general suspension of trading
in, or limitation on prices for, securities on the New York Stock Exchange
or in the over-the-counter market (whether or not mandatory); (b) any
significant adverse change in the price of either of the Old F4L Senior
Notes or the Old F4L Senior Subordinated Notes; (c) a material impairment
in the trading market for debt securities generally; (d) a declaration of a
banking moratorium or any suspension of payments in respect of banks by
federal or state authorities in the United States (whether or not
mandatory); (e) a declaration of a national emergency or commencement of a
war, armed hostilities or other national or international crisis directly
or indirectly involving the United States; (f) any limitation (whether or
not mandatory) by any governmental or regulatory authority on, or any other
event that in the sole judgment of Food 4 Less might affect, the nature or
extension of credit by banks or other financial institutions; (g) any
significant change in United States currency exchange rates or a suspension
of, or limitation on, the markets therefor (whether or not mandatory); (h)
any significant adverse change in United States securities or financial
markets; or (i) in the case of any of the foregoing existing at the time of
the commencement of the Exchange Offers, in the sole judgment of Food 4
Less, a material acceleration, escalation or worsening thereof;
(x) either of the Old F4L Trustees shall have objected in any respect
to, or taken any action that could, in the sole judgment of Food 4 Less,
adversely affect the consummation of either Exchange Offer or the
Solicitation or Food 4 Less' ability to obtain the Consents or to effect
any of the Proposed Amendments, or shall have taken any action that
challenges the validity or effectiveness of the procedures used by Food 4
Less in soliciting the Consents (including the form thereof) or in the
making of either Exchange Offer or the acceptance for exchange of any of
the Old F4L Notes; or
(xi) the Registration Statement has not been declared effective or a
stop order has been issued in connection therewith.
The foregoing conditions are for the sole benefit of Food 4 Less and may be
asserted by Food 4 Less in its sole discretion regardless of the circumstances
giving rise to any such condition (including any action or inaction by Food 4
Less) and may be waived by Food 4 Less, in whole or in part, at any time and
from time to time in its sole discretion. If any of the foregoing events shall
have occurred, Food 4 Less may, subject to applicable law, (i) terminate the
applicable Exchange Offer or the Solicitation and return all Old F4L Notes
tendered pursuant to such Exchange Offer or the Solicitation to the tendering
holders, (ii) extend the applicable Exchange Offer or the Solicitation and
retain all tendered Old F4L Notes until the extended Expiration Date, (iii)
amend the terms of the applicable Exchange Offer or the Solicitation or modify
the consideration to be paid by Food 4 Less (or the Company as successor by
merger) pursuant to such Exchange Offer or the Solicitation or (iv) waive the
unsatisfied condition or conditions with respect to such Exchange Offer or the
Solicitation and accept all validly tendered Old F4L 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
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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 F4L 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 F4L Notes may be tendered and will be accepted for exchange only in
denominations of $1,000 principal amount and integral multiples thereof. To be
tendered effectively pursuant to the Exchange Offers, (i) the properly completed
Letter of Transmittal, including a valid and unrevoked Consent (or facsimile(s)
thereof), duly executed by the registered holder thereof with any required
signature guarantee(s), together with the certificates for tendered Old F4L
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 F4L 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 procedure set forth
under the heading "-- Guaranteed Delivery Procedure."
THE BLUE CONSENT AND LETTER OF TRANSMITTAL SHOULD BE USED TO TENDER ALL OLD
F4L NOTES.
LETTERS OF TRANSMITTAL AND OLD F4L NOTES SHOULD BE SENT TO THE EXCHANGE
AGENT AND NOT TO FOOD 4 LESS, RGC OR THE DEALER MANAGERS NOR TO EITHER OF THE
TRUSTEES UNDER THE INDENTURES RELATING TO THE OLD F4L NOTES.
A HOLDER OF OLD F4L NOTES WHO DESIRES TO TENDER INTO THE APPLICABLE
EXCHANGE OFFER WITH RESPECT TO ANY OLD F4L SENIOR NOTES OR OLD F4L SENIOR
SUBORDINATED NOTES MUST TENDER ALL OF SUCH HOLDERS' OLD F4L SENIOR NOTES OR OLD
F4L SENIOR SUBORDINATED NOTES, AS THE CASE MAY BE.
Holders of Old F4L Notes will not be able to validly tender in the Exchange
Offers unless they consent to the Proposed Amendments. Tendering holders who
sign the Letter of Transmittal shall be deemed to have consented to the Proposed
Amendments.
All signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old F4L Notes tendered or withdrawn, as the case may be, pursuant
thereto are tendered (i) by a registered holder of Old F4L 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 F4L 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 F4L 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 F4L Notes are to be issued or
returned to a person other than the registered holder, then the Old F4L Notes
must be endorsed by the registered holder, or be accompanied by a written
instrument or instruments of transfer or exchange in form satisfactory to Food 4
Less duly executed by the registered holder, with such signatures guaranteed by
an Eligible Institution. In the event that signatures on a Letter of Transmittal
(or other document) are required to be guaranteed, such guarantee must be by a
firm that is a member of a registered national securities exchange or a member
of the National Association of Securities Dealers, Inc. (the "NASD") or by a
commercial bank or trust company having an office in the United States (each of
the foregoing being an "Eligible Institution").
THE METHOD OF DELIVERY OF OLD F4L 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
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BE DEEMED MADE WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. Instead of
effecting delivery by mail it is recommended that tendering Old F4L 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 F4L Notes and the Exchange Payment), certificates
evidencing New F4L Notes and/or certificates evidencing Old F4L Notes for
amounts not accepted for tender, each as appropriate, are to be issued or sent,
if different from the name and address of the person signing the Letter of
Transmittal. In the case of issuance in a different name, the employer
identification or social security number of the person named must also be
indicated and a substitute Form W-9 for such recipient must be completed. If no
such instructions are given, such payments (including accrued and unpaid
interest in cash on the Old F4L Notes and the Exchange Payment), New F4L Notes
or Old F4L Notes not accepted for tender, as the case may be, will be made or
returned, as the case may be, to the registered holder of Old F4L Notes
tendered. Holders of Old F4L Notes who are not registered holders of, and who
seek to tender, Old F4L Notes should (i) obtain a properly completed Letter of
Transmittal for such Old F4L Notes from the registered holder with signatures
guaranteed by an Eligible Institution and obtain and include with such Letter of
Transmittal Old F4L 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 F4L Notes and
comply with the requirements applicable to registered holders for tendering Old
F4L Notes prior to 12:00 Midnight, New York City time, on the Expiration Date.
Any Old F4L 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 F4L 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 F4L Notes from the name of the
registered holder thereof if the Company does not accept for exchange and
payment such Old F4L Notes.
Issuance of New F4L Notes and payment of the Exchange Payment in exchange
for Old F4L Notes will be made only against deposit of the tendered Old F4L
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 F4L Notes pursuant to the Exchange
Offers and the Solicitation, and 31% of the interest payments due to certain
holders of New F4L Notes. In order to avoid such backup withholding, each
tendering holder of Old F4L Notes electing to exchange Old F4L Notes pursuant to
an Exchange Offer, and, if applicable, each other payee, must provide the
Exchange Agent with such holder's or payee's correct taxpayer identification
number and certify that such holder or payee is not subject to such backup
withholding by completing the Substitute Form W-9 accompanying the Letter of
Transmittal. In general, if a holder or payee is an individual, the taxpayer
identification number is the Social Security number of such individual. If the
Exchange Agent is not provided with the correct taxpayer identification number,
the holder or payee may be subject to a $50 penalty imposed by the Internal
Revenue Service. Certain holders or payees (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. In order to satisfy the Exchange Agent
that a foreign individual qualifies as an exempt recipient, such holder or payee
must submit a statement, signed under penalty of perjury, attesting to that
individual's exempt status. Such statements can be obtained from the Exchange
Agent. For further information concerning backup withholding and instructions
for completing the Substitute Form W-9 (including how to obtain a taxpayer
identification number if you do not have one and how to complete the Substitute
Form W-9 if Old F4L 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
F4L Notes tendered pursuant to the Exchange Offers to be deemed invalidly
tendered, but may require the Exchange Agent to withhold 31% of the amount of
any payments made. Backup withholding is not an additional federal income tax.
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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 F4L
Notes will be determined by Food 4 Less, in its sole discretion, which
determination shall be final and binding. Food 4 Less expressly reserves the
absolute right to reject any and all tenders not in proper form and to determine
whether the acceptance of or payment by it for such tenders would be unlawful.
Food 4 Less also reserves the absolute right, subject to applicable law, to
waive or amend any of the conditions to either Exchange Offer or the
Solicitation or to waive any defect or irregularity in the tender of any of the
Old F4L 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 F4L Notes
will be deemed to have been validly made until all defects and irregularities
with respect to such Old F4L Notes have been cured or waived. Any Old F4L Notes
received by the Exchange Agent that are not properly tendered and as to which
irregularities have not been cured or waived will be returned by the Exchange
Agent to the appropriate tendering holder as soon as practicable. Food 4 Less'
interpretation of the terms and conditions of the Exchange Offers and the
Solicitation (including the Letter of Transmittal and the Instructions thereto)
will be final and binding on all parties.
The Exchange Agent will seek to establish accounts with respect to the Old
F4L Notes at The Depository Trust Company ("DTC"), the Midwest Securities
Transfer Company ("MSTC"), and the Philadelphia Depository Trust Company ("PDTC"
and, together with DTC and MSTC, collectively referred to herein as the
"Book-Entry Transfer Facilities") for the purpose of the Exchange Offers within
two New York Stock Exchange Inc. ("NYSE") trading days. Any financial
institution that is a participant in any of the Book-Entry Transfer Facilities'
systems may make book-entry delivery of Old F4L Notes by causing DTC, MSTC or
PDTC to transfer such Old F4L 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 F4L 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 F4L Notes will not be deemed surrendered for exchange until such
documents are received by the Exchange Agent and delivery of such documents to a
Book-Entry Transfer Facility will not constitute valid delivery to the Exchange
Agent. FOOD 4 LESS UNDERSTANDS THAT THE BOOK-ENTRY TRANSFER FACILITIES WILL MAKE
ARRANGEMENTS FOR EXECUTION OF LETTERS OF TRANSMITTAL TO ACCOMMODATE BENEFICIAL
OWNERS THAT DESIRE TO TENDER OLD F4L NOTES IN THE EXCHANGE OFFERS. HOWEVER, FOOD
4 LESS UNDERSTANDS THAT THE BOOK-ENTRY TRANSFER FACILITIES WILL NOT ARRANGE FOR
THE EXECUTION OF LETTERS OF TRANSMITTAL WITH RESPECT TO THE SOLICITATION, UNLESS
THE OLD F4L NOTES ARE ALSO TENDERED IN THE EXCHANGE OFFERS. HOLDERS MAY CONTACT
THE EXCHANGE AGENT AT ANY OF THE ADDRESSES SET FORTH ON THE BACK COVER PAGE
HEREOF FOR INFORMATION REGARDING WITHDRAWAL OF OLD F4L NOTES FROM A BOOK-ENTRY
TRANSFER FACILITY.
GUARANTEED DELIVERY PROCEDURE
If a registered holder of Old F4L Notes desires to tender such Old F4L
Notes and consent to the Proposed Amendments, and the Old F4L Notes are not
immediately available, or if time will not permit such holder's Old F4L 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 F4L
Notes may nevertheless be
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tendered for exchange and Consents may be effected if all of the following
guaranteed delivery procedure conditions are met:
(i) the tender for exchange and Consent is made by or through an
Eligible Institution;
(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 F4L Notes and the principal
amount of Old F4L Notes tendered for exchange, states that the tender is
being made thereby and guarantees that, within five NYSE trading days after
the date of execution of the Notice of Guaranteed Delivery, the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed,
together with the Old F4L 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 F4L Notes, or a confirmation of a book-entry
transfer of such Old F4L 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 YELLOW NOTICE OF GUARANTEED DELIVERY SHOULD BE USED IN CONNECTION WITH
TENDERS OF ALL OLD F4L NOTES.
Notwithstanding any other provision hereof, the exchange of Old F4L Notes
pursuant to an Exchange Offer will in all cases be made only after timely
receipt by the Exchange Agent of certificates for such Old F4L 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 F4L NOTES FOR EXCHANGE; DELIVERY OF NEW F4L NOTES AND PAYMENT
OF THE EXCHANGE PAYMENT
Upon the terms and subject to the conditions of the Exchange Offers and the
Solicitation, Food 4 Less will accept all Old F4L Notes validly tendered prior
to 12:00 Midnight, New York City time, on the Expiration Date and not validly
withdrawn. The acceptance for exchange of Old F4L Notes validly tendered and not
validly withdrawn and the delivery of New F4L Notes and the payment of the
Exchange Payment (and any accrued and unpaid interest on the Old F4L 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 F4L Notes or to terminate either of
the Exchange Offers or the Solicitation and not accept for exchange any Old F4L
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 F4L Notes and make payments in cash (including
accrued and unpaid interest on the Old F4L Notes and the Exchange Payment) in
exchange for Old F4L Notes pursuant to the Exchange Offers promptly following
acceptance of the Old F4L Notes. In all cases, exchange for Old F4L Notes
accepted for exchange pursuant to the applicable Exchange Offer will be made
only after timely receipt by the Exchange Agent of Old F4L 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 F4L Notes will be issued in denominations of $1,000 principal amount
and integral multiples thereof.
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For purposes of the Exchange Offers and the Solicitation, Food 4 Less shall
be deemed to have accepted validly tendered and not properly withdrawn Old F4L
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 F4L Notes for the purposes of receiving the cash and New F4L Notes from
the Company and transmitting the cash and New F4L Notes to the tendering
holders. Under no circumstances will any additional amount be paid by 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 F4L 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 F4L Notes. Food 4
Less' interpretation of the terms and conditions of the Exchange Offers and the
Solicitation (including the instructions in the Letter of Transmittal) will be
final and binding. Unless waived, any irregularities or defects in connection
with tenders of Old F4L 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 F4L Notes will not be deemed to have been made until such irregularities
have been cured or waived.
If, for any reason whatsoever, acceptance for exchange of any Old F4L Notes
tendered pursuant to the Exchange Offers is delayed, or Food 4 Less is unable to
accept for exchange Old F4L Notes tendered pursuant to the Exchange Offers,
then, without prejudice to Food 4 Less' and the Company's rights set forth
herein, the Exchange Agent may nevertheless, on behalf of Food 4 Less and
subject to rules promulgated pursuant to the Exchange Act, retain tendered Old
F4L Notes, and such Old F4L Notes may not be withdrawn except to the extent that
the tendering holder of such Old F4L Notes is entitled to withdrawal rights as
described herein. See "-- Withdrawal of Tenders and Revocation of Consents."
If any tendered Old F4L Notes are not accepted for exchange because of an
invalid tender, the occurrence or non-occurrence of certain other events set
forth herein or otherwise, then such unaccepted Old F4L Notes will be returned,
at Food 4 Less' expense, to the tendering holder thereof as promptly as
practicable after the Expiration Date or the termination of the applicable
Exchange Offer therefor.
No alternative, conditional or contingent tenders will be accepted. A
tendering holder, by execution of a Letter of Transmittal, or facsimile thereof,
waives all rights to receive notice of acceptance of such holder's Old F4L Notes
for purchase or exchange.
WITHDRAWAL OF TENDERS AND REVOCATION OF CONSENTS
Tenders of Old F4L Notes pursuant to an Exchange 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 F4L Senior Notes
or Old F4L Senior Subordinated Notes, as the case may be, held by persons other
than Food 4 Less 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 Exchange Offer with respect to such issue of Old F4L Notes is terminated
without any Old F4L Notes being accepted for exchange thereunder. Tendering
holders will receive in cash accrued and unpaid interest on Old F4L Notes
accepted for exchange up to, but not including, the date of such exchange.
Interest on the New F4L Notes will accrue from, and including, the date of such
exchange which will be the date of issuance of the New F4L Notes.
A different Consent Date may be established with respect to the Old F4L
Senior Notes and the Old F4L Senior Subordinated Notes. The withdrawal of Old
F4L Notes prior to the applicable Consent Date in accordance with the procedures
set forth hereunder will effect a revocation of the related Consent. Any valid
revocation of Consents will automatically render the prior tender of the Old F4L
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 F4L Notes who has tendered Old F4L Notes or who succeeds
to the record ownership of Old F4L Notes in respect of which such tenders or
Consents previously have been given may withdraw such Old F4L 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 F4L Notes, (ii)
specify the name of the person having tendered the Old F4L Notes to be withdrawn
or as to which Consents are revoked, the principal amount of such Old F4L Notes
to be withdrawn and, if certificates for Old F4L Notes have been tendered, the
name of the registered holder(s) of such Old F4L Notes as set forth in such
certificates, if different from that of the person who tendered such Old F4L
Notes, (iii) identify the Old F4L 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 F4L 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 F4L Notes. If certificates representing Old F4L 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 F4L 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 F4L 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 F4L Notes. If
Old F4L 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 F4L 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 F4L Notes and revocation of
Consents may not be rescinded, and any Old F4L Notes properly withdrawn will
thereafter be deemed not validly tendered and any Consents revoked will be
deemed not validly delivered for purposes of either Exchange Offer; provided,
however, that withdrawn Old F4L Notes may be retendered and revoked Consents may
be redelivered by again following one of the appropriate procedures described
herein at any time prior to 12:00 Midnight, New York City time, on the
Expiration Date.
If Food 4 Less extends an Exchange Offer or is delayed in its acceptance
for exchange of Old F4L Notes or is unable to exchange Old F4L Notes pursuant to
either Exchange Offer for any reason, then, without prejudice to Food 4 Less'
rights under such Exchange Offer, the Exchange Agent may, subject to applicable
law, retain tendered Old F4L Notes on behalf of Food 4 Less, and such Old F4L
Notes may not be withdrawn (subject to Rule 14e-1 under the Exchange Act, which
requires that Food 4 Less deliver the consideration offered or return the Old
F4L Notes deposited by or on behalf of the Old F4L Noteholders promptly after
the termination or withdrawal of an Exchange Offer), except to the extent that
tendering holders are entitled to withdrawal rights as described herein.
All questions as to the validity, form and eligibility (including the time
of receipt) of notices of withdrawal or revocations of Consents will be
determined by Food 4 Less, whose determination will be final and binding on all
parties. None of Food 4 Less, the Exchange Agent, the Dealer Managers or any
other person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or revocation of Consent or incur any
liability for failure to give any such notification.
LOST OR MISSING CERTIFICATES
If a holder of Old F4L Notes desires to tender an Old F4L Note pursuant to
an Exchange Offer, but the Old F4L Note has been mutilated, lost, stolen or
destroyed, such holder should write to or telephone the
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appropriate Old Trustee under the Old F4L Note Indentures at the address listed
below, concerning the procedures for obtaining replacement certificates for such
Old F4L Notes, arranging for indemnification or any other matter that requires
handling by such Old F4L Trustee:
Old F4L Senior Notes Trustee: Norwest Bank Minnesota, N.A.
Sixth and Marquette
Minneapolis, Minnesota 55479-0113
Attn: Corporate Trust Department
(612) 667-8058
Old F4L Senior Subordinated Notes Trustee: United States Trust Company of New York
114 West 47th Street
New York, New York 10036-1532
Attn: Corporate Trust Division
(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, Holdings, Food 4 Less and the Subsidiary Guarantors (together, the
"Issuers") and BT Securities, CS First Boston and DLJ, as dealer managers and
solicitation agents (the "Dealer Managers"), the Issuers have engaged BT
Securities, CS First Boston and DLJ to act as Dealer Managers in connection with
the Exchange Offers, the Solicitation, the RGC Offers 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 F4L Notes and Old RGC Notes accepted for exchange in the Exchange
Offers and the RGC 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 RGC Offers (other than
Old RGC Notes and Old F4L Notes accepted for exchange or purchase, as the case
may be, in the RGC Offers and the Exchange 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 expenses of
its legal counsel, incurred in connection with the Exchange Offers, the
Solicitation, the RGC Offers and the Holdings Offer to Purchase. The Issuers
have agreed to indemnify each of the Dealer Managers against certain liabilities
in connection with Exchange Offers, the Solicitation, the RGC Exchange Offers
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 for such services.
In addition, affiliates of the Dealer Managers are investing in the capital
stock of New Holdings pursuant to the New Equity Investment. After giving effect
to the Merger, BTIP will own approximately 900,000 shares of Series A Preferred
Stock and approximately 3,100,000 shares of Series B Preferred Stock, affiliates
of CS First Boston will own approximately 1,000,000 shares of Series A Preferred
Stock and affiliates of DLJ will own approximately 1,000,000 shares of Series A
Preferred Stock. Affiliates of BTIP additionally own 509,812
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shares of FFL common stock which they had previously acquired and which will be
converted to New Holdings capital stock following the FFL Merger and the
Reincorporation Merger. See "Principal Stockholders" and "Description of Capital
Stock." Affiliates of each of BT Securities, CS First Boston and DLJ are also
investing $5 million, $2.5 million and $2.5 million, respectively, in the
partnership that will purchase the New Discount Debentures. See "Certain
Relationships and Related Transactions -- Food 4 Less and Holdings."
Each of the Dealer Managers has from time to time provided investment
banking and financial advisory services to one or more of Food 4 Less, Holdings
and RGC and/or their respective affiliates and may continue to do so in the
future. The Dealer Managers have received customary fees for such services.
No fees or commission have been or will be paid to any broker, dealer or
other person, other than the Dealer Managers, in connection with the Exchange
Offers, the Solicitation, the RGC Offers or the Holdings Offer to Purchase.
EXCHANGE AGENT
Bankers Trust has been appointed as Exchange Agent for the Exchange Offers
and the Solicitation. Questions and requests for assistance, and all
correspondence in connection with the Exchange Offers, 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 Exchange 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 F4L Notes, respond to inquiries of and
provide information to holders of Old F4L Notes in connection with the Exchange
Offers and the Solicitation and provide other similar advisory services as Food
4 Less may request from time to time. Requests for additional copies of this
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 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 F4L 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 F4L Notes and in handling or forwarding
tenders for exchange and payment. In addition, Food 4 Less will indemnify the
Exchange Agent and the Information Agent against certain liabilities in
connection with their services, including liabilities under the federal
securities laws.
Food 4 Less will pay all transfer taxes, if any, applicable to the exchange
of Old F4L Notes pursuant to the Exchange Offers. If, however, New F4L Notes or
Old F4L 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 F4L Notes, or if tendered Old F4L Notes
are to be registered in the name of any person other than the person signing the
Letter of Transmittal, or if a transfer tax is imposed for any reason other than
the exchange of Old F4L Notes pursuant to an Exchange Offer, then the amount of
any such transfer tax (whether imposed on the registered holder or any other
person) will be payable by the tendering holder. If satisfactory evidence of
payment of such tax or exemption therefrom is not submitted, then the amount of
such transfer tax will be deducted from the Exchange Payment otherwise payable
to such tendering holder. Any remaining amount will be billed directly to such
tendering holder.
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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 Exchange Offers, the RGC Offers and the Holdings Consent
Solicitation are estimated to be approximately $9 million.
MISCELLANEOUS
The Exchange Offers are not subject to Section 13(e) of, or Rules 13e-3 or
13e-4 or Regulation 14D promulgated under, the Exchange Act. The Exchange Offers
are being made in compliance with Regulation 14E under the Exchange Act.
Other than with respect to the Exchange Agent, the Information Agent and
the Dealer Managers, neither Food 4 Less nor any of its affiliates has engaged,
or made any arrangements for, and has no contract, arrangement or understanding
with, any broker, dealer, agent or other person regarding the exchange of Old
F4L Notes hereunder, and no person has been authorized by Food 4 Less, or any of
its affiliates to provide any information or to make any representations in
connection with the Exchange Offers and the Solicitation, other than those
expressly set forth in this 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 F4L NOTES
GENERAL
The New F4L Senior Notes will be issued under an indenture (the "New Senior
Note Indenture"), to be dated as of June 1, 1995, by and among the Company, the
Subsidiary Guarantors and Norwest Bank Minnesota, N.A., as Trustee (the "New
Senior Note Trustee").
The New F4L Senior Subordinated Notes will be issued under an Indenture
(the "New Senior Subordinated Note Indenture", and together with the New Senior
Note Indenture, the "New Indentures") to be dated as of June 1, 1995, by and
among the Company, the Subsidiary Guarantors and United States Trust Company of
New York, as Trustee (the "New Senior Subordinated Note Trustee," and together
with the New Senior Note Trustee, the "New Trustees").
The following summary of certain provisions of the New F4L Notes and the
New Indentures 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 F4L Notes and the
New Indentures, including the definitions of certain terms therein and those
terms made a part of the New Indentures 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 forms of the New Indentures may be
obtained from the Company.
The New F4L Notes will be issued in fully registered form only, without
coupons, in denominations of $1,000 and integral multiples thereof. Initially,
the New Senior Note Trustee will act as Paying Agent and Registrar for the New
F4L Senior Notes and the New Senior Subordinated Note Trustee will act as Paying
Agent and Registrar for the New F4L Senior Subordinated Notes. The New F4L
Senior Notes and the New F4L Senior Subordinated Notes may be presented for
registration or transfer and exchange at the offices of their respective
Registrar, which for the New F4L Senior Notes initially will be the New Senior
Note Trustee's corporate trust office and for the New F4L Senior Subordinated
Notes initially will be the New Senior Subordinated Note Trustee's corporate
trust office. The Company may change any Paying Agent and Registrar without
notice to holders of either the New F4L Senior Notes (the "Senior Noteholders")
or of the New F4L Senior Subordinated Notes (the "Senior Subordinated
Noteholders," and together with the Senior Noteholders, the "Holders"). The
Company will pay principal (and premium, if any) on the New F4L Senior Notes at
the Senior Note Trustee's corporate office, and will pay principal (and premium,
if any) on the New F4L Senior Subordinated Notes at the New Senior Subordinated
Note Trustee's corporate office, each such office located in New York, New York.
At the Company's option, interest may be paid at the New Senior Note Trustee's
corporate trust office (in the case of interest payments on the New F4L Senior
Notes) or the New Senior Subordinated Note Trustee's corporate trust office (in
the case of interest payments on the New F4L Senior Subordinated Notes) or by
check mailed to the registered address of the relevant Holders.
As used below in this "Description of the New F4L Notes," the "Company"
means Food 4 Less Supermarkets, Inc. (and Ralphs Grocery Company, as survivor of
the Merger), but not any of its subsidiaries.
PRINCIPAL AND MATURITY OF AND INTEREST ON THE NEW F4L SENIOR NOTES
The New F4L Senior Notes will mature on June 1, 2004. The up to $175
million principal amount of New F4L Senior Notes offered for exchange hereby
will be part of an issue of up to $470 million aggregate principal amount of New
F4L Senior Notes, up to $295 million aggregate principal amount of which will be
issued pursuant to the Senior Note Public Offering. The Senior Note Public
Offering is expected to price ten Business Days preceding the final Expiration
Date of the Exchange Offers. See "The RGC Offers and the Public Offerings -- The
Public Offerings." The New F4L Senior Notes offered pursuant to the F4L Senior
Notes Exchange Offer will bear interest at a fixed rate per annum equal to the
greater of (a) 10.45% and (b) the Applicable Treasury Rate (as hereinafter
defined) plus 350 basis points (3.50 percentage points); provided, however, that
in no event will the New F4L Senior Notes offered for exchange hereby bear
interest at a rate per annum that is less than the interest rate on the New F4L
Senior Notes offered pursuant to the Senior 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,
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the most recent Federal Reserve Statistical Release H.15 (519)) most nearly
equal to the average life to stated maturity of the New F4L Senior Notes;
provided that if the average life to stated maturity of the New F4L Senior Notes
is not equal to the constant maturity of the United States Treasury security for
which a weekly average yield is given, the 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 on the New F4L Senior Notes will be
payable semi-annually on each June 1 and December 1, commencing on December 1,
1995, to the New F4L Senior Noteholders of record on the immediately preceding
May 15 and November 15. Interest on the New F4L Senior 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.
PRINCIPAL AND MATURITY OF AND INTEREST ON THE NEW F4L SENIOR SUBORDINATED NOTES
The New F4L Senior Subordinated Notes are limited in aggregate principal
amount to $145 million and will mature on June 1, 2005. Interest on the New F4L
Senior Subordinated Notes will accrue at the rate of 13.75% per annum and will
be payable semi-annually on each June 1 and December 1, commencing on December
1, 1995, to the Senior Subordinated Noteholders of record on the immediately
preceding May 15 and November 15. Interest on the New F4L Senior Subordinated
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.
OPTIONAL REDEMPTION OF THE NEW F4L SENIOR NOTES
The New F4L Senior 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 June 1, 2000, at
the following redemption prices (expressed as percentages of the principal
amount) if redeemed during the twelve-month period commencing on June 1 of the
year set forth below, plus, in each case, accrued and unpaid interest to the
date of redemption:
REDEMPTION
YEAR 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 June 1, 1998, the Company may, at its option,
use the net cash proceeds of one or more Public Equity Offerings to redeem up to
an aggregate of 35% of the New F4L Senior Notes originally issued, at a
redemption price equal to 110.45% of the principal amount thereof if redeemed
during the 12 months commencing on June 1, 1995, 109.1438% of the principal
amount thereof if redeemed during the 12 months commencing on June 1, 1996 and
107.8375% of the principal amount thereof if redeemed during the 12 months
commencing on June 1, 1997, in each case plus accrued and unpaid interest, if
any, to the redemption date. In the event that the interest rate on the New F4L
Senior Notes is greater than 10.45%, the above redemption prices will be
correspondingly adjusted. In order to effect the foregoing redemption with the
proceeds of a Public Equity Offering, the Company shall send the redemption
notice not later than 60 days after the consummation of such Public Equity
Offering.
OPTIONAL REDEMPTION OF THE NEW F4L SENIOR SUBORDINATED NOTES
The New F4L Senior Subordinated 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
June 15, 1996, at the following redemption prices (expressed as percentages of
the principal amount) if redeemed during the twelve-month period commencing
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on June 15 of the year set forth below, plus, in each case, accrued and unpaid
interest to the date of redemption:
REDEMPTION
YEAR PRICE
-------------------------------------------------- ----------
1996.............................................. 106.111%
1997.............................................. 104.583%
1998.............................................. 103.056%
1999.............................................. 101.528%
And thereafter.................................... 100.000%
The documents evidencing Senior Indebtedness will restrict the Company's
ability to optionally redeem New F4L Senior Subordinated Notes.
NOTICES AND SELECTION
In the event of a redemption of less than all of the New F4L Senior Notes
or the New F4L Senior Subordinated Notes, as the case may be, such New F4L Notes
will be selected for redemption by the appropriate New Trustee pro rata, by lot
or by any other method that such New Trustee considers fair and appropriate and,
if such New F4L 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 F4L Senior Notes pursuant to the provisions relating to a
Public Equity Offering shall be made on a pro rata basis unless such method is
otherwise legally prohibited. Notice of redemption will be mailed at least 30
days but not more than 60 days before the redemption date to each Holder of New
F4L Notes to be redeemed at such Holder's registered address. On and after the
redemption date, interest will cease to accrue on New F4L Notes or portions
thereof called for redemption (unless the Company shall default in the payment
of the redemption price or accrued interest). New F4L 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 appropriate New Trustee for cancellation.
RANKING OF THE NEW F4L SENIOR NOTES
The New F4L Senior Notes will rank senior in right of payment to all
Subordinated Indebtedness of the Company, including the New F4L Senior
Subordinated Notes and the New RGC Notes. The New F4L Senior Notes will rank
pari passu in right of payment with all unsubordinated Indebtedness and other
liabilities of the Company, including borrowings and other obligations of the
Company and its Subsidiaries under the Credit Agreement. The borrowings and
obligations under the Credit Agreement (and the related guarantees) are secured
by substantially all of the assets of the Company and its Subsidiaries, whereas
the New F4L Senior Notes are senior unsecured obligations of the Company and its
Subsidiaries. As of January 7, 1995, on a pro forma basis after giving effect to
the Merger, the aggregate amount of secured indebtedness and other obligations
of the Company and its Subsidiaries outstanding would have been approximately
$1,057.9 million (and the Company would have had $169.4 million available to be
borrowed under the Credit Agreement).
SUBORDINATION OF THE NEW F4L SENIOR SUBORDINATED NOTES
The payment of the Obligations on the New F4L Senior Subordinated Notes
will be subordinated in right of payment, as set forth in the New Senior
Subordinated 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 or the Company (including, without
limitation, in bankruptcy, insolvency, or receivership proceedings or upon any
assignment
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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 of New F4L Senior Subordinated Notes will be entitled to receive any
payment with respect to the New F4L Senior Subordinated 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 of New F4L Senior
Subordinated Notes 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 of Indenture" below) by or on
behalf of the Company of Obligations on the New F4L Senior Subordinated Notes
whether pursuant to the terms of the New F4L Senior Subordinated 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 Senior Subordinated 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 in cash or Cash Equivalents,
after which the Company shall resume making any and all required payments in
respect of the New F4L Senior Subordinated 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
Senior Subordinated 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 F4L Senior Subordinated Notes, the date of such
acceleration, no such payment (other than payments previously made pursuant to
the provisions described under "-- Defeasance of Indenture" below) may be made
by the Company upon or in respect of the New F4L Senior Subordinated 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 Senior Subordinated 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 in cash or Cash Equivalents), after
which the Company shall resume making any and all required payments in respect
of the New F4L Senior Subordinated 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 F4L Senior Subordinated 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 F4L Senior Subordinated
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 Senior Subordinated Note Indenture
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and would enable the holders of New F4L Senior Subordinated Notes to accelerate
the maturity thereof. See "-- Events of Default."
By reason of such subordination, in the event of the insolvency of the
Company, holders of the New F4L Senior Subordinated 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 $1,512.7 million, 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 $169.4 million
available to be borrowed under the New Revolving Facility.
GUARANTEES
Each Subsidiary Guarantor will unconditionally guarantee, jointly and
severally, (i) the Company's obligations under the New F4L Senior Notes on a
senior unsecured basis (the "Senior Note Guarantees") and (ii) the Company's
obligations under the New F4L Senior Subordinated Notes on a senior subordinated
unsecured basis (the "Senior Subordinated Note Guarantees", and together with
the Senior Note Guarantees, the "Guarantees"). The Indebtedness represented by
each Senior Subordinated Note Guarantee (including the payment of Obligations on
the New F4L Senior Subordinated Notes) will be subordinated on the same basis to
Guarantor Senior Indebtedness as the New F4L Senior Subordinated Notes are
subordinated to Senior Indebtedness. See "-- Subordination of the New F4L Senior
Subordinated Notes".
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 Indentures, such Subsidiary Guarantor
shall be deemed released from all its obligations under its Senior Note
Guarantee and its Senior Subordinated Note 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. Each
of the New Indentures 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 Senior Note Guarantee or its Senior
Subordinated Note Guarantee, as the case may be, and all its obligations under
the applicable New Indenture and (b) such transaction does not (i) violate any
covenants set forth in the applicable New Indenture or (ii) result in a Default
or Event of Default under the applicable New Indenture immediately thereafter
that is continuing.
The obligations of each Subsidiary Guarantor under each of its Senior Note
Guarantee and its Senior Subordinated Note 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 Indebtedness which constitutes Subordinated
Indebtedness with respect to its Senior Note Guarantee or its Senior
Subordinated Note Guarantee, as the case may be) 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 Senior Note Guarantee or Senior Subordinated Note Guarantee, as the case may
be, or pursuant to its contribution obligations under the applicable New
Indenture, result in the obligations of such Subsidiary Guarantor under such
Guarantee not constituting a fraudulent conveyance or fraudulent transfer under
federal or state law. Each Subsidiary Guarantor that makes a
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payment or distribution under a Senior Note Guarantee or Senior Subordinated
Note Guarantee, as the case may be, 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
Each of the New Indentures will provide that, upon the occurrence of a
Change of Control, each Holder of New F4L Notes issued thereunder will have the
right to require the repurchase of such Holder's New F4L 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.
Each of the New Indentures 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 F4L Notes issued under such New
Indenture, with a copy to the applicable New Trustee, which notice shall govern
the terms of the Change of Control Offer. The New Indentures 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"). Each New Indenture shall provide
that the Change of Control Payment Date under the New Senior Note Indenture with
respect to any Change of Control shall be one business day prior to the Change
of Control Payment Date under the New Senior Subordinated Note Indenture with
respect to such Change of Control. Holders electing to have a New F4L Note
purchased pursuant to a Change of Control Offer will be required to surrender
the New F4L Note, with the form entitled "Option of Holder to Elect Purchase" on
the reverse of the New F4L Note completed, to the applicable Paying Agent at the
address specified in the notice prior to the close of business on the Business
Day prior to the applicable Change of Control Payment Date. Each Change of
Control Offer is required to remain open for at least 20 Business Days or such
longer period as may be required by law.
The New Senior Subordinated 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 F4L
Senior Subordinated 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 F4L Senior Subordinated 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 Indentures.
In addition, the New F4L Senior Subordinated Note Indenture will provide
that prior to purchasing New F4L Senior Subordinated Notes tendered in a Change
of Control Offer, the Company shall purchase all New 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 New F4L Senior Note
Indenture, as in effect on the Issue Date.
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
Except as otherwise specified below, each of the New Indentures will
contain, among other things, the following covenants:
Limitation on Restricted Payments. Each of the New Indentures 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
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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 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 Indentures 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, (4) any payments by
the Company or any Subsidiary, or any dividend by the Company or any Subsidiary
to New Holdings the proceeds of which are used by New Holdings to make payments,
required to be made due to the exercise of statutory dissenters', appraisal or
similar rights by holders of common stock of FFL in connection with the FFL
Merger and (5) Permitted Payments; provided, however, that 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), (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), (v), (vi), (viii), (x) or (xi)
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. Each of the New
Indentures 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 F4L Notes issued under such
New Indenture or Event of Default under such New Indenture 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.
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In addition, the New Senior Note Indenture will provide that neither the
Company nor any Subsidiary Guarantor will, directly or indirectly, in any event
incur any Indebtedness that by its terms (or by the terms of any agreement
governing such Indebtedness) is subordinated to any other Indebtedness of the
Company or such Subsidiary Guarantor, as the case may be, unless such
Indebtedness is also by its terms (or by the terms of any agreement governing
such Indebtedness) made expressly subordinate to the New F4L Senior Notes or the
Senior Note Guarantee of such Subsidiary Guarantor, as the case may be, to the
same extent and in the same manner as such Indebtedness is subordinated pursuant
to subordination provisions that are most favorable to the holders of any other
Indebtedness of the Company or such Subsidiary Guarantor, as the case may be.
Limitation on Liens. Each of the New Indentures 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
F4L Notes issued thereunder are equally and ratably secured by the Liens
covering such assets, except for (i) in the case of the New Senior Subordinated
Note Indenture, 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 applicable New 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 applicable New
Indenture; provided that (A) any such Lien is created solely for the purpose of
securing such other Indebtedness representing, or incurred to finance, refinance
or refund, the cost (including sales and excise taxes, installation and delivery
charges and other direct costs of, and other direct expenses paid or charged in
connection with, the purchase (whether through stock or asset purchase, merger
or otherwise) or construction) or improvement of the property subject thereto
(whether real or personal, including fixtures and other equipment), (B) the
principal amount of the Indebtedness secured by such Lien does not exceed 100%
of such costs and (C) such Lien does not extend to or cover any 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 Trustees under the New Indentures and any substantially
equivalent Lien granted to any trustee or similar institution under any
indenture for Indebtedness permitted to be incurred under such New 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. Each of the New Indentures 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, in the case
of the New Senior Subordinated Note Indenture, 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 F4L Notes issued under such New Indenture
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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 or equipment 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 270 days following such acquisition or the completion of such
construction, as the case may be. 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 the record Holders of New F4L
Senior Notes or New F4L Senior Subordinated Notes, as the case may be, as shown
on the register of Holders of such New F4L Notes not less than 325 nor more than
365 days after the relevant Asset Sale, with a copy to the applicable New
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 applicable New Indenture. Upon
receiving notice of the Net Proceeds Offer, Holders of New F4L Senior Notes or
New F4L Senior Subordinated Notes, as the case may be, may elect to tender their
New F4L Notes in whole or in part in integral multiples of $1,000 in exchange
for cash. To the extent Holders properly tender New F4L Senior Notes or New F4L
Senior Subordinated Notes, as the case may be, in an amount exceeding the Net
Proceeds Offer, New F4L Notes of tendering Holders will be repurchased on a pro
rata basis (based on amounts tendered). A Net Proceeds Offer shall remain open
for a period of 20 Business Days or such longer period as may be required by
law.
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 F4L Notes pursuant to a Net Proceeds Offer.
Limitation on Dividends and Other Payment Restrictions Affecting
Subsidiaries. Each of the New Indentures 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 Indentures and any agreement in effect at or entered
into on the Issue Date, (iii) Indebtedness of a person existing at the time such
person becomes a Subsidiary (provided that (x) such Indebtedness is not incurred
in connection with, or in contemplation of, such person becoming a Subsidiary,
(y) such restriction is not applicable to any person, or the properties or
assets of any person, other than the person so acquired and (z) such
Indebtedness is otherwise permitted to be incurred pursuant to the provisions of
the covenant described under "-- Limitation on Incurrences of Additional
Indebtedness" above), (iv) secured Indebtedness otherwise permitted to be
incurred pursuant to the provisions of the covenants described under
"-- Limitation on Incurrences of Additional Indebtedness" and "-- Limitation on
Liens" above that limit the right of the debtor to dispose of the assets
securing such Indebtedness; (b) customary non-assignment provisions restricting
subletting or assignment of any lease or other agreement entered into by a
Subsidiary; (c) customary net worth provisions contained in leases and other
agreements entered into by a Subsidiary in the ordinary course of business; (d)
customary restrictions with respect to a Subsidiary pursuant to an agreement
that has been entered into for the sale or disposition of all or substantially
all of the Capital Stock or assets of such Subsidiary; (e) customary provisions
in joint venture agreements and other similar agreements; and (f) restrictions
contained in Indebtedness incurred to refinance, refund, extend or renew
Indebtedness referred to in clause (a) above; provided that the restrictions
contained therein are not materially more restrictive taken as a whole than
those provided for in such Indebtedness being refinanced, refunded, extended or
renewed and (g) Payment Restrictions contained in any other Indebtedness
permitted to be incurred subsequent to the Issue Date pursuant to the provisions
of the covenant described under "-- Limitation on Incurrences of Additional
Indebtedness" above; provided that any such Payment Restrictions are ordinary
and customary with respect to the type of Indebtedness being incurred (under the
relevant
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circumstances), and, in any event, no more restrictive than the most restrictive
Payment Restrictions in effect on the Issue Date.
Guarantees of Certain Indebtedness. Each of the New Indentures 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 (x)
such Subsidiary, the Company and the New Senior Note Trustee execute and deliver
a supplemental indenture evidencing such Subsidiary's Senior Note Guarantee in
the case of the New Senior Note Indenture and (y) such Subsidiary, the Company
and the New Senior Subordinated Note Trustee execute and deliver a supplemental
indenture evidencing such Subsidiary's Senior Subordinated Note Guarantee in the
case of the New Senior Subordinated Note Indenture.
Limitation on Transactions with Affiliates. Each of the New Indentures
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 applicable New 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 applicable New
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 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 applicable New 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
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transactions are not otherwise prohibited by the applicable New 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
F4L Senior Notes or New F4L Senior Subordinated Notes, as the case may be, 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 F4L Senior Notes or the New F4L Senior Subordinated
Notes, as the case may be, 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 applicable New 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. Each of the New Indentures
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. Each of the New
Indentures 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 such New
Indenture and the New F4L Notes issued thereunder; (2) immediately after and
giving effect to such transaction and the assumption contemplated by clause (1)
above and the incurrence or anticipated incurrence of any Indebtedness to be
incurred in connection therewith, (A) the Surviving Person shall have a
Consolidated Net Worth equal to or greater than the Consolidated Net Worth of
the Company immediately preceding the transaction and (B) the Surviving Person
could incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the provisions of the covenant described under
"-- 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 F4L Notes issued under
such New Indenture shall apply, without alteration or amendment as such
Guarantee applies on the date it was granted under the applicable New Indenture
to the obligations of the Company under the applicable New Indenture and the
applicable New F4L Notes to the obligations of the Company or such Person, as
the case may be, under the applicable New Indenture and the applicable New F4L
Notes, after the consummation of such transaction.
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Notwithstanding the foregoing, the consummation of the Merger on the Issue
Date need only comply with clauses (1) and (3) of the foregoing paragraph.
Each of the New Indentures 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
such New 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 F4L Senior
Subordinated 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 F4L Senior Subordinated Notes or the Senior Subordinated Note Guarantee of
such Subsidiary Guarantor, as the case may be, or (b) subordinate in right of
payment to the New F4L Senior Subordinated Notes or the Senior Subordinated Note
Guarantee of such Subsidiary Guarantor, as the case may be, in the same manner
and at least to the same extent as the New F4L Senior Subordinated Notes are
subordinate to Senior Indebtedness or as such Senior Subordinated Note 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 each of the New
Indentures: (i) failure to make any interest payment on the applicable New F4L
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 applicable New F4L Notes
when due, whether at maturity, upon acceleration, redemption, required
repurchase or otherwise; (iii) failure to comply with any other agreement
contained in the applicable New F4L Notes or the applicable New Indenture, if
such failure continues unremedied for 30 days after written notice given by the
applicable New Trustee or the Holders of at least 25% in principal amount of the
applicable New F4L 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 Merger and
Certain Other Transactions," which shall constitute Events of Default with
notice but without passage of time); (iv) a default under any Indebtedness of
the Company or its Subsidiaries, whether such Indebtedness now exists or shall
hereinafter be created, if both (A) such default either (1) results from the
failure to pay any such Indebtedness at its stated final maturity or (2) relates
to an obligation other than the obligation to pay such 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
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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 issued under such New Indenture 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 under a New Indenture, the New
Trustee under such New Indenture or the Holders of at least 25% in principal
amount of the then outstanding New F4L Notes issued under such New Indenture may
declare due and payable all unpaid principal and interest accrued and unpaid on
the then outstanding New F4L Notes issued under such New Indenture by notice in
writing to the Company, the administrative agent under the Credit Agreement and
the applicable New 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
under a New Indenture, all unpaid principal of and accrued interest on all then
outstanding New F4L Notes issued under such New Indenture shall be immediately
due and payable without any declaration or other act on the part of the
applicable New Trustee or any of the Holders of such New F4L Notes. After a
declaration of acceleration under a New Indenture, subject to certain
conditions, the Holders of a majority in principal amount of the then
outstanding New F4L Notes issued thereunder, by notice to the applicable New
Trustee, may rescind such declaration if all existing Events of Default under
such New Indenture are remedied. In certain cases the Holders of a majority in
principal amount of outstanding New F4L Notes issued under such New Indenture
may waive a past default under such New Indenture and its consequences, except a
default in the payment of or interest on any of the New F4L Notes issued
thereunder.
Each New Indenture provides that if a Default or Event of Default occurs
and is continuing thereunder and if it is known to the applicable New Trustee,
such New Trustee shall mail to each Holder of New F4L Notes issued thereunder
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 such New F4L Notes, including the failure to make payment on a Change of
Control Payment Date pursuant to a Change of Control Offer or payment when due
pursuant to a Net Proceeds Offer the applicable New Trustee may withhold such
notice if it in good faith determines that withholding such notice is in the
interest of the Holders of such New F4L Notes.
Each New Indenture provides that no Holder of New F4L Notes issued
thereunder may pursue any remedy thereunder unless the applicable New Trustee
(i) shall have failed to act for a period of 60 days after receiving written
notice of a continuing Event of Default under such New Indenture by such Holder
and a
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request to act by Holders of at least 25% in principal amount of New F4L Notes
issued under such New Indenture 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 F4L
Notes issued under such New Indenture.
Each New Indenture provides that two officers of the Company are required
to certify to the applicable New Trustee within 120 days after the end of each
fiscal year of the Company whether or not they know of any Default that occurred
under such New Indenture 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 F4L
Senior Notes or the New F4L Senior Subordinated Notes. Such Legal Defeasance
means that the Company shall be deemed to have paid and discharged the entire
Indebtedness represented by the applicable New F4L Notes except for (i) the
rights of Holders of such New F4L Notes to receive payments in respect of the
principal of, premium, if any, and interest on such New F4L Notes when such
payments are due solely from the funds held by the applicable New Trustee in the
trust referred to below; (ii) the Company's obligations to issue temporary New
F4L Notes, register the transfer or exchange of such New F4L Notes, replace
mutilated, destroyed, lost or stolen New F4L Notes and maintain an office or
agency for payments in respect of such New F4L Notes and money for security
payments held in respect of such New F4L Notes, (iii) the rights, powers,
trusts, duties and immunities of the applicable New Trustee and the Company's
obligations in connection therewith; and (iv) the Legal Defeasance provisions of
the New Indentures. 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 such New F4L Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance with
respect to either issue of New F4L Notes, (i) the Company must have irrevocably
deposited with the applicable New Trustee, in trust, for the benefit of the
Holders of such New F4L Notes, cash in U.S. dollars, U.S. Government Obligations
(as defined in the New Indentures), 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 applicable outstanding New F4L Notes to redemption or maturity
provided that the applicable New 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 F4L 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 applicable New 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 F4L 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
applicable New Trustee an opinion of counsel stating that the Holders of New F4L
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 under the applicable New
Indenture on the date of such deposit or insofar as clauses (vi) and (vii) under
the first paragraph under "-- Events of Default" above are concerned, at any
time in the period ending on the 91st day after the date of deposit; (v) such
Legal Defeasance or Covenant Defeasance shall not cause the applicable New
Trustee to have a conflicting interest with respect to the New F4L Notes; (vi)
such Legal Defeasance or Covenant Defeasance shall not result in a breach or
violation of, or constitute a default under, the applicable New Indenture or any
other material agreement or
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instrument to which the Company or any Subsidiary Guarantor is a party or by
which it is bound (and in that connection, the New 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); (vii) the Company shall
have delivered to the applicable New Trustee an opinion of counsel to the effect
that after the 91st day following the deposit (A) in the case of the New Senior
Subordinated Note Indenture, 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 Senior Subordinated Note
Indenture and (B) in the case of each of the New Indentures the trust funds will
not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (viii) the
Company shall have delivered to the applicable New 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 F4L 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 (ix) the Company shall have delivered to the applicable New 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
Each New Indenture will be discharged and will cease to be of further
effect as to all outstanding New F4L Notes issued thereunder, when either (a)
all such New F4L Notes theretofore authenticated and delivered (except lost,
stolen or destroyed New F4L Notes which have been replaced or paid and New F4L
Notes for whose payment money has theretofore been deposited in trust and
thereafter repaid to the Company) have been delivered to the appropriate New
Trustee for cancellation; or (b)(i) all such New F4L Notes not theretofore
delivered to such New 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 such New Trustee as trust
funds in trust for the purpose an amount of money sufficient to pay and
discharge the entire indebtedness on such New F4L Notes not theretofore
delivered to such New Trustee for cancellation for principal, premium, if any,
and accrued interest to the date of maturity or redemption; (ii) no Default or
Event of Default with respect to the applicable New Indenture or the applicable
New F4L Notes shall have occurred and be continuing on the date of such deposit
or shall occur as a result of such deposit and such deposit will not result in a
breach or violation of, or constitute a default under, any other instrument to
which the Company is a party or by which it is bound; (iii) the Company has paid
all sums payable by it under such New Indenture; and (iv) the Company has
delivered irrevocable instructions to the New Trustee under such New Indenture
to apply the deposited money toward the payment of such New F4L 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
appropriate New Trustee stating that all conditions precedent to satisfaction
and discharge have been complied with.
MODIFICATION OF THE NEW INDENTURES
Each of the New Indentures and the New F4L Notes issued thereunder may be
amended or supplemented (and compliance with any provision thereof may be
waived) by the Company, the Subsidiary Guarantors, the New Trustee thereunder
and the Holders of not less than a majority in aggregate principal amount of
such New F4L Notes then outstanding, except that (i) without the consent of each
Holder of such New F4L Notes affected, no such amendment, supplement or waiver
may (1) change the principal amount of the applicable New F4L Notes the Holders
of which must consent to an amendment, supplement or waiver of any provision of
the applicable New Indenture, the applicable New F4L Notes or the applicable
Guarantees, (2) reduce the rate or extend the time for payment of interest on
any applicable New F4L Notes, (3) reduce the principal amount of any applicable
New F4L Notes, (4) change the Maturity Date of any applicable New F4L Notes or
alter the redemption provisions in the applicable New Indenture or the
applicable New F4L Notes in a manner adverse to any Holder of such New F4L
Notes, (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 applicable New F4L
Notes, (6) make the principal of, or interest on, any applicable New F4L Notes
payable with anything or in any manner other than
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as provided for in the applicable New Indenture, the applicable New F4L Notes
and the applicable Guarantees or (7) in the case of the New Senior Subordinated
Note Indenture, modify the subordination provisions of the New Senior
Subordinated Note Indenture (including the related definitions) so as to
adversely affect the ranking of any New F4L Senior Subordinated Note or Senior
Subordinated Note Guarantee; provided, however, that it is understood that any
amendment the purpose of which is to permit the incurrence of additional
Indebtedness under the New Senior Subordinated Note Indenture shall not be
construed as adversely affecting the ranking of any New F4L Senior Subordinated
Note or Senior Subordinated Note Guarantee, (ii) without the consent of Holders
of not less than 75% in aggregate principal amount of such New F4L 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
such New F4L Notes pursuant to the covenant described under "-- Change of
Control" above in a manner adverse to any Holder or waive a Default or Event of
Default resulting from a failure to comply with the covenant described under
"-- Change of Control" above and (iii) without the consent of Holders of not
less than two thirds in aggregate principal amount of such New F4L Notes then
outstanding, no such amendment, supplement or waiver may release any Subsidiary
Guarantor from any of its Obligations under its applicable Guarantee or the
applicable New Indenture other than in accordance with the terms of such
applicable Guarantee and the applicable New Indenture.
In addition, each of the New Indentures, the New F4L Notes issued
thereunder and the related Guarantees may be amended by the Company, the
Subsidiary Guarantors and the applicable New 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 TRUSTEES
Each New Indenture will provide that the Holders of a majority in principal
amount of the outstanding New F4L Notes issued thereunder may remove the New
Trustee thereunder 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 F4L Notes
issued under a New Indenture 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 Trustee under such New Indenture or of exercising any trust
or power conferred on such New Trustee.
Each of the New Indentures will provide that, in case a Default or an Event
of Default has occurred and is continuing thereunder, the New Trustee thereunder
shall exercise such of the rights and powers vested in it by such New 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 Trustee under
each New Indenture is under no obligation to exercise any of its rights or
powers under the applicable New Indenture at the request, order or direction of
any of the Holders of the New F4L Notes issued thereunder, unless they shall
have offered to such New 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 F4L Senior Notes or the New F4L Senior Subordinated Notes as shall have
become due and payable upon demand as specified in the applicable New Indenture,
the New Trustee thereunder, at the request of the Holders of a majority in
aggregate principal amount of such New F4L 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.
Each New Indenture contains limitations on the rights of the New Trustee
thereunder, 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. Each New Trustee is
permitted to engage in other transactions; however, if a New Trustee acquires
any "conflicting interest," it must eliminate such conflict or resign.
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REPORTS
Each New Indenture will provide that the Company will deliver to the New
Trustee thereunder 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. Each New
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 Trustee under such New Indenture and Holders of the New F4L
Notes issued thereunder with such annual reports and such information, documents
and other reports specified in Sections 13 and 15(d) of the Exchange Act. The
Company will also comply with the other provisions of TIA sec. 314(a).
CERTAIN DEFINITIONS
"Acquired Indebtedness" means (i) with respect to any person that becomes a
Subsidiary of the Company (or is merged into the Company or any of its
Subsidiaries) after the Issue Date, Indebtedness of, such person or any of its
Subsidiaries existing at the time such person becomes a Subsidiary of the
Company (or is merged into the Company or any of its Subsidiaries) and which was
not incurred in connection with, or in contemplation of, such person becoming a
Subsidiary of the Company (or being merged into the Company 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 the Guarantee of 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 Indebtedness
which constitutes Subordinated Indebtedness with respect to such Guarantee)),
but excluding liabilities under the Senior Note Guarantee of such Subsidiary
Guarantor, in the case of the New Senior Note Indenture, or the Senior
Subordinated Note Guarantee of such Subsidiary Guarantor, in the case of the New
Senior Subordinated Note Indenture, 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 Indebtedness which constitutes Subordinated
Indebtedness with respect to such Guarantee) and after giving effect to any
collection from any Subsidiary of such Subsidiary Guarantor in respect of the
obligations of such Subsidiary under the applicable Guarantee), excluding debt
in respect of the Senior Note Guarantee of such Subsidiary Guarantor, in the
case of the New Senior Note Indenture, or the Senior Subordinated Note Guarantee
of such Subsidiary Guarantor, in the case of the New Senior Subordinated Note
Indenture, 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 Indentures, 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-
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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 Indentures, 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 such Asset
Sale which are not applied as contemplated in "-- Certain Covenants --
Limitation on Assets Sales" and which, together with all other such Asset Sale
Proceeds, do not exceed $20 million.
"Average Life" means, as of any date of determination, with respect to any
debt security, the quotient obtained by dividing (i) the sum of the products of
the number of years from the date of determination to the dates of each
successive scheduled 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 of Directors" means, with respect to any person, the Board of
Directors of such person or of a subsidiary of such person or any duly
authorized committee of that Board.
"Board Resolution" means, with respect to any person, a duly adopted
resolution of the Board of Directors 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.
"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.
"Cash Equivalents" means (i) obligations issued or unconditionally
guaranteed by the United States of America or any agency thereof, or obligations
issued by any agency or instrumentality thereof and backed by the full faith and
credit of the United States of America, (ii) commercial paper rated the highest
grade by Moody's Investors Service, Inc. and Standard & Poor's Ratings Group and
maturing not more than one year from the date of creation thereof, (iii) time
deposits with, and certificates of deposit and banker's acceptances issued by,
any bank having capital surplus and undivided profits aggregating at least $500
million and maturing not more than one year from the date of creation thereof,
(iv) repurchase agreements that are secured by a perfected security interest in
an obligation described in clause (i) and are with any bank described in clause
(iii), (v) shares of any money market mutual fund that (a) has at least 95% of
its assets invested continuously in the types of investments referred to in
clauses (i) and (ii) above, (b) has net assets of not less than $500 million,
and (c) has the highest rating obtainable from either Standard & Poor's Ratings
Group or Moody's Investors Service, Inc. and (vi) readily marketable direct
obligations issued by any state of the United States of America or any political
subdivision thereof having one of the two highest rating categories obtainable
from either Moody's Investors Service, Inc. or Standard & Poor's Ratings Group.
"Change of Control" means 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
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group beneficially owns (within the meaning of Rule 13d-3 under the Exchange
Act), directly or indirectly, 40% or more of the then outstanding voting
securities entitled to vote on a regular basis for a majority of the Board of
Directors of the Company (but only to the extent that such beneficial ownership
is not shared with any Permitted Holder who has the power to direct the vote
thereof); provided, however, that no such Change of Control shall be deemed to
have occurred if (A) the Permitted Holders beneficially own, in the aggregate,
at such time, a greater percentage of such voting securities than such other
person, entity or group or (B) at the time of such acquisition, the Permitted
Holders (or any of them) possess the ability (by contract or otherwise) to
elect, or cause the election, of a majority of the members of the Company's
Board of Directors.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means, with respect to any person, any and all shares,
interests or other participations in, and other equivalents (however designated
and whether voting or nonvoting) of, such person's common stock, whether
outstanding at the Issue Date or issued after the Issue Date, and includes,
without limitation, all series and classes of such common stock.
"Consolidated Net Income" means, with respect to any person, for any
period, the aggregate of the net income (or loss) of such person and its
subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that (a) the net income of any other person in which such
person or any of its subsidiaries has an interest (which interest does not cause
the net income of such other person to be consolidated with the net income of
such person and its subsidiaries in accordance with GAAP) shall be included only
to the extent of the amount of dividends or distributions actually paid to such
person or such subsidiary by such other person in such period; (b) the net
income of any subsidiary of such person that is subject to any Payment
Restriction shall be excluded to the extent such Payment Restriction actually
prevented the payment of an amount that otherwise could have been paid to, or
received by, such person or a subsidiary of such person not subject to any
Payment Restriction; and (c)(i) the net income (or loss) of any other person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition, (ii) all gains and losses realized on any Asset Sale, (iii)
all gains realized upon or in connection with or as a consequence of the
issuance of the Capital Stock of such person or any of its subsidiaries and any
gains on pension reversions received by such person or any of its subsidiaries,
(iv) all gains and losses realized on the purchase or other acquisition by such
person or any of its subsidiaries of any securities of such person or any of its
subsidiaries, (v) all gains and losses resulting from the cumulative effect of
any accounting change pursuant to the application of Accounting Principles Board
Opinion No. 20, as amended, (vi) all other extraordinary gains and losses, (vii)
(A) all non-cash charges, (B) up to $10 million of severance costs and (C) any
other restructuring reserves or charges (provided, however, that any cash
payments actually made with respect to the liabilities for which such
restructuring reserves or charges were created shall be deducted from
Consolidated Net Income in the period when made), in each case, incurred by the
Company or any of its Subsidiaries in connection with the Merger, including,
without limitation, the divestiture of the Excluded 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; provided further that solely for the purpose of computing amounts
described in subclause (c) of the first paragraph of the covenant described
under "-- Limitation on Restricted Payments" above, "Consolidated Net Income" of
the Company for any period shall be reduced by the aggregate amount of dividends
paid by the Company or a Subsidiary to New Holdings pursuant to clauses (v) and
(vi) of the definition of "Permitted Payments" during such period.
"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).
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"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
Trustees 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.
"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 of the New F4L Senior Notes, in the case of the New Senior Note Indenture,
or the New F4L Senior Subordinated Notes, in the case of the New Senior
Subordinated Note Indenture, 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
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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 F4L 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), (ii) dividend requirements
on Preferred Stock of such person and its consolidated subsidiaries (whether in
cash or otherwise (except dividends payable in shares of Qualified Capital
Stock)) declared or paid, or required to be declared or paid during such period
(except to the extent accrued in a prior period) and excluding items eliminated
in consolidation and (iii) dividends declared or paid or scheduled or required
to be declared or paid to New Holdings which are permitted to be paid pursuant
to clauses (v) and (vi) of the definition of "Permitted Payments". 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 clauses
(ii) and (iii) above, dividend requirements shall be increased to an amount
representing the pretax earnings that would be required to cover such dividend
requirements; accordingly, the increased amount shall be equal to a fraction,
the numerator of which is the amount of such dividend requirements and the
denominator of which is one (1) minus the applicable actual combined federal,
state, local and foreign income tax rate of such person and its subsidiaries
(expressed as a decimal), on a consolidated basis, for the fiscal year
immediately preceding the date of the transaction giving rise to the need to
calculate Fixed Charges.
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"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 Senior Subordinated Note 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 Senior Subordinated Note 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 (in each
case, with respect to the New F4L Senior Subordinated Notes or any Senior
Subordinated Note Guarantee) 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 Senior Subordinated 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
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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 Indentures, 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 or consulting 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.
"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 F4L Notes under
the New Indentures.
"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
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statutes) of any jurisdiction); provided that in no event shall an operating
lease be deemed to constitute a Lien under the New Indentures.
"Maturity Date" means (i) with respect to the New F4L Senior Notes, June 1,
2004 and (ii) with respect to the New F4L Senior Subordinated Notes, June 1,
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.
"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.
"Obligations" means all obligations of every nature whether for principal,
reimbursements, interest, fees, expenses, indemnities or otherwise, and whether
primary, secondary, direct, indirect, contingent, fixed or otherwise (including
obligations of performance) under the documentation governing any Indebtedness.
"Operating Coverage Ratio" means, with respect to any person, the ratio of
(1) EBDIT of such person for the period (the "Pro Forma Period") consisting of
the most recent four full fiscal quarters for which financial information in
respect thereof is available immediately prior to the date of the transaction
giving rise to the need to calculate the Operating Coverage Ratio (the
"Transaction Date") to (2) the aggregate Fixed Charges of such person for the
fiscal quarter in which the Transaction Date occurs and the three fiscal
quarters immediately subsequent to such fiscal quarter (the "Forward Period")
reasonably anticipated by the Board of Directors of such person to become due
from time to time during such period. For purposes of this definition, if the
Transaction Date occurs prior to the first anniversary of the Merger, "EBDIT"
for the Pro Forma Period shall be calculated, in the case of the Company, after
giving effect on a pro forma basis to the Merger as if it had occurred on the
first day of the Pro Forma Period. In addition to, but without duplication of,
the foregoing, for purposes of this definition, "EBDIT" shall be calculated
after giving effect (without duplication), on a pro forma basis for the Pro
Forma Period (but no longer), to (a) any Investment, during the period
commencing
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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 applicable
New 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, (i) in the case of the New Senior Note Indenture,
Indebtedness of such person which ranks pari passu in right of payment to the
New F4L Senior Notes or the Senior Note Guarantee of such Subsidiary Guarantor,
as the case may be, and (ii) in the case of the New Senior Subordinated Note
Indenture, Indebtedness of such person which ranks pari passu in right of
payment to the New F4L Senior Subordinated Notes or the Senior Subordinated Note
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.
"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
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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 applicable New 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 bonuses, 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 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 $15
million.
"Permitted Liens" means (i) Liens for taxes, assessments and governmental
charges or claims not yet due or which are being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted and if a
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor; (ii) statutory Liens of
landlords and carriers, warehousemen, mechanics, suppliers, materialmen,
repairmen or other like Liens arising in the ordinary course of business,
deposits made to obtain the release of such Liens, and with respect to amounts
not yet delinquent for a period of more than 60 days or being contested in good
faith by an appropriate process of law, and for which a reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been
made; (iii) Liens incurred or pledges or deposits made in the ordinary course of
business to secure obligations under workers' compensation, unemployment
insurance and other types of social security or similar legislation; (iv) Liens
incurred or
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deposits made to secure the performance of tenders, bids, leases, statutory
obligations, surety and appeal bonds, government contracts, performance and
return of money bonds and other obligations of a like nature incurred in the
ordinary course of business (exclusive of obligations for the payment of
borrowed money); (v) easements, rights-of-way, zoning or other restrictions,
minor defects or irregularities in title and other similar charges or
encumbrances not interfering in any material respect with the business of the
Company or any of its Subsidiaries incurred in the ordinary course of business;
(vi) Liens upon specific items of inventory or other goods and proceeds of any
person securing such person's obligations in respect of bankers' acceptances
issued or created for the account of such person to facilitate the purchase,
shipment or storage of such inventory or other goods in the ordinary course of
business; (vii) Liens securing reimbursement obligations with respect to letters
of credit which encumber documents and other property relating to such letters
of credit and the products and proceeds thereof; (viii) Liens in favor of
customs and revenue authorities arising as a matter of law to secure payment of
nondelinquent customs duties in connection with the importation of goods; (ix)
judgment and attachment Liens not giving rise to a Default or Event of Default;
(x) leases or subleases granted to others not interfering in any material
respect with the business of the Company or any Subsidiary; (xi) Liens
encumbering customary initial deposits and margin deposits, and other Liens
incurred in the ordinary course of business that are within the general
parameters customary in the industry, in each case securing Indebtedness under
Interest Swap Obligations and Foreign Exchange Agreements and forward contracts,
option futures contracts, futures options or similar agreements or arrangements
designed to protect the Company or any Subsidiary from fluctuations in the price
of commodities; (xii) Liens encumbering deposits made in the ordinary course of
business to secure nondelinquent obligations arising from statutory, regulatory,
contractual or warranty requirements of the Company or its Subsidiaries for
which a reserve or other appropriate provision, if any, as shall be required by
GAAP shall have been made; (xiii) Liens arising out of consignment or similar
arrangements for the sale of goods entered into by the Company or any Subsidiary
in the ordinary course of business in accordance with past practices; (xiv) any
interest or title of a lessor in the property subject to any lease, whether
characterized as capitalized or operating other than any such interest or title
resulting from or arising out of a default by the Company or any Subsidiary of
its obligations under such lease; (xv) Liens arising from filing UCC financing
statements for precautionary purposes in connection with true leases of personal
property that are otherwise permitted under the applicable Indenture and under
which the Company or any Subsidiary is lessee; (xvi) in the case of the New
Senior Subordinated Note Indenture, 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.
"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, or any dividend
by the Company or any Subsidiary to New Holdings the proceeds of which are used
by New Holdings to make payments, (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 or former participants in employee benefit plans
upon termination of employment by such
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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 or loans 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 June 1, 2000, payments of cash
dividends to New Holdings in an amount sufficient to enable New Holdings to make
payments of interest required to be made in respect of the Seller Debentures 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, (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, (x) in the case of the
New Senior Note Indenture, (A) the exchange by the Company of Old RGC Notes for
New RGC Notes, or the purchase for cash of up to $224.5 million aggregate
principal amount of Old RGC Notes, in each case, in accordance with the terms of
the RGC Offers, (B) the exchange by the Company of Old F4L Senior Subordinated
Notes for New F4L Senior Subordinated Notes in accordance with the terms of the
Exchange Offers and (C) the repurchase by the Company of up to $224.5 million
aggregate principal amount of Old RGC Notes, at a repurchase price of 101% of
the principal amount thereof plus accrued interest to the repurchase date,
pursuant to the "change of control purchase offer" provisions set forth in
section 1014 of the Old RGC Indentures as in effect on the Issue Date, and (xi)
the loan by the Company on the Issue Date to RGC Investment Co. of not more than
$5 million.
"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 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
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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 Indentures, 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 applicable New 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
of the applicable New F4L Notes and (y) shall contain subordination and default
provisions no less favorable in any material respect to holders of the
applicable New F4L Notes than those contained in such repaid or amended
Subordinated Indebtedness.
"Reincorporation Merger" means the merger, prior to the Merger, of Holdings
with and into New Holdings.
"Related Business Investment" means (i) any Investment by a person in any
other person a majority of whose revenues are derived from the operation of one
or more retail grocery stores or supermarkets or any other line of business
engaged in by the Company or any of its Subsidiaries as of the Issue Date; (ii)
any Investment by such person in any cooperative or other supplier, including,
without limitation, any joint venture which is intended to supply any product or
service useful to the business of the Company and its Subsidiaries as it is
conducted as of the Issue Date and as such business may thereafter evolve or
change; and (iii) any capital expenditure or Investment, 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.
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"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 Senior Subordinated 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 F4L Senior
Subordinated 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 Senior Subordinated Note Indenture.
"Significant Stockholder" means, with respect to any person, any other
person who is the beneficial owner (within the meaning of Rule 13d-3 under the
Exchange Act) of more than 10% of any class of equity securities of such person
that are entitled to vote on a regular basis for the election of directors of
such person.
"Significant Subsidiary" means each subsidiary of the Company that is
either (a) a "significant subsidiary" as defined in Rule 1-02(v) of Regulation
S-X under the Securities Act 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 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
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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, (i) in the case of the New Senior Note Indenture,
Indebtedness of such person which is subordinated in right of payment to the New
F4L Senior Notes or the Senior Note Guarantee of such Subsidiary Guarantor, as
the case may be, and (ii) in the case of the New Senior Subordinated Note
Indenture, Indebtedness of such person which is subordinated in right of payment
to the New F4L Senior Subordinated Notes or the Senior Subordinated Note
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., 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 F4L 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 a New 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 Indentures.
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MARKET PRICES OF THE OLD F4L NOTES
In general, there has been limited trading of the Old F4L Notes and such
trading has taken place primarily in the over-the-counter market. Prices and
trading volumes of the Old F4L 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 F4L Notes, may differ from actual trading prices
and should be viewed as approximations. Holders of Old F4L Notes are urged to
contact their brokers with respect to current information regarding the Old F4L
Notes that they hold.
THE PROPOSED AMENDMENTS
OLD F4L SENIOR NOTE INDENTURE
The 10.45% Senior Notes due 2000 of Food 4 Less were issued under an
indenture dated as of April 15, 1992 (the "Old F4L Senior Note Indenture")
between Food 4 Less and Norwest Bank Minnesota, N.A., as trustee (the "Old F4L
Senior Notes Trustee").
In connection with the consummation of the Merger, Food 4 Less is
soliciting Consents from the holders of Old F4L Senior Notes to the Proposed
Amendments and is making the 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 F4L Notes and the New RGC 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 F4L Senior Note Indenture. Upon receipt of the Requisite
Consents, a supplemental indenture to the Old F4L Senior Note Indenture will be
executed between Food 4 Less and the Old F4L Senior Notes Trustee (the "F4L
Senior Note Supplemental Indenture"). Following the consummation of the Merger,
the obligations of Food 4 Less under the Old F4L Senior Note Indenture and the
F4L Senior Note Supplemental Indenture will be assumed by the Company. The
Proposed Amendments would make the following changes to the Old F4L Senior Note
Indenture:
1. Eliminate the covenant entitled "Maintenance of Net Worth".
2. Eliminate the covenant entitled "Limitation on Change of Control".
3. Eliminate the covenant entitled "Limitation on Restricted Payments".
4. Eliminate the covenant entitled "Limitation on Incurrences of
Additional Indebtedness".
5. Eliminate the covenant entitled "Limitation on Liens".
6. Eliminate the covenant entitled "Limitation on Disposition of Assets".
7. Eliminate the covenant entitled "Limitation on Payment Restrictions
Affecting Subsidiaries".
8. Eliminate the covenant entitled "Limitation on Transactions with
Affiliates".
9. Eliminate the covenant entitled "Guarantees of Certain Indebtedness".
10. Amend the provisions regarding when Food 4 Less may merge, 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.
11. The definitions relating solely to such eliminated covenants will be
eliminated.
The F4L Senior Note Supplemental Indenture will provide that the New Credit
Facility constitutes a refinancing of the Loan Documents (as defined).
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The remaining sections of the Old F4L Senior Note Indenture will not be
changed by the Proposed Amendments.
Copies of the Old F4L Senior Note Indenture and the form of the F4L Senior
Note Supplemental Indenture are available from Food 4 Less upon request. For a
description of the covenants being amended or eliminated, see "Comparison of Old
F4L Senior Notes and New F4L Senior Notes" set forth in Appendix A hereto.
OLD F4L SENIOR SUBORDINATED NOTE INDENTURE
The 13.75% Senior Subordinated Notes due 2001 of Food 4 Less were issued
under an indenture dated as of June 15, 1991 (the "Old F4L Senior Subordinated
Note Indenture"), between Food 4 Less and United States Trust Company of New
York, as trustee (the "Old F4L Senior Subordinated Notes Trustee").
In connection with the consummation of the Merger, Food 4 Less is
soliciting Consents from the holders of Old F4L Senior Subordinated Notes to the
Proposed Amendments and is making the 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 F4L Notes and the New RGC 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 most of the
restrictive covenants in the Old F4L Senior Subordinated Note Indenture. Upon
receipt of the Requisite Consents, a supplemental indenture to the Old F4L
Senior Subordinated Note Indenture will be executed between Food 4 Less and the
Old F4L Senior Subordinated Notes Trustee (the "F4L Senior Subordinated Note
Supplemental Indenture"). Following the consummation of the Merger, the
obligations of Food 4 Less under the Old F4L Senior Subordinated Note Indenture
and the F4L Senior Subordinated Note Supplemental Indenture will be assumed by
the Company. The Proposed Amendments would make the following changes to the Old
F4L Senior Subordinated Note Indenture:
1. Eliminate the covenant entitled "Maintenance of Net Worth."
2. Eliminate the covenant entitled "Limitation on Restricted Payments".
3. Eliminate the covenant entitled "Limitation on Incurrences of
Additional Indebtedness".
4. Eliminate the covenant entitled "Limitation on Liens".
5. Eliminate the covenant entitled "Limitation on Disposition of Assets".
6. Eliminate the covenant entitled "Limitation on Payment Restrictions
Affecting Subsidiaries".
7. Eliminate the covenant entitled "Limitation on Transactions with
Affiliates".
8. Eliminate the covenant entitled "Limitation on Change of Control".
9. Eliminate the covenant entitled "Guarantees of Certain Indebtedness."
10. Amend the provisions regarding when Food 4 Less may merge, 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.
11. The definitions relating solely to such eliminated covenants will be
eliminated.
The F4L Senior Subordinated Note Supplemental Indenture will provide that
the New Credit Facility constitutes a refinancing of the Loan Documents (as
defined).
The remaining sections of the Old F4L Senior Subordinated Note Indenture
will not be changed by the Proposed Amendments.
Copies of the Old F4L Senior Subordinated Note Indenture and the form of
the F4L Senior Subordinated Note Supplemental Indenture are available from Food
4 Less upon request. For a description of the covenants being amended or
eliminated, see "Comparison of Old F4L Senior Subordinated Notes and New F4L
Senior Subordinated Notes" set forth in Appendix B hereto.
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THE RGC OFFERS AND THE PUBLIC OFFERINGS
Concurrently with the Exchange Offers, Food 4 Less is (A) offering up to
$200 million principal amount of New RGC Notes pursuant to the Subordinated Note
Public Offering, (B) offering up to $295 million principal amount of New F4L
Senior Notes pursuant to the Senior Note Public Offering (which will be part of
the same issue as the New F4L Senior Notes offered for exchange pursuant to the
F4L Senior Note Exchange Offer), (C) offering to holders of the Old RGC Notes
the opportunity to (i) exchange such Old RGC Notes for New RGC Notes (which will
be part of the same issue as the New RGC Notes issued pursuant to the
Subordinated Note Public Offering) plus $20.00 in cash for each $1,000 principal
amount of Old RGC Notes accepted for exchange or (ii) to tender for purchase
such Old RGC Notes for $1,010.00 cash per $1,000 principal amount of Old RGC
Notes accepted for purchased and (D) soliciting consents from holders of the Old
RGC Notes to certain amendments to the Old RGC Indentures. The consummation of
the Public Offerings, the RGC Offers and the Exchange Offers will occur
simultaneously. It is a condition to the consummation of the Exchange Offers
that the Public Offerings and the RGC Offers be successfully consummated. See
"-- The RGC Offers -- The New RGC Notes" for a description of the securities to
be offered pursuant to the Subordinated Note Public Offering and to tendering
holders of Old RGC Notes.
THE RGC OFFERS
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
RGC Minimum Exchange (i.e., at least a majority of the aggregate principal
amount of the outstanding Old RGC Notes being validly tendered in exchange for
New RGC Notes and not withdrawn pursuant to the RGC Offers prior to the date of
expiration); (ii) the receipt of the requisite consents to certain amendments to
the Old RGC Indentures (i.e., consents from Old RGC Noteholders representing at
least a majority in aggregate principal amount of each issue of Old RGC Notes
held by persons other than RGC and its affiliates) on or prior to the date of
expiration; (iii) the satisfaction or waiver, in Food 4 Less's sole discretion,
of all conditions precedent to the Merger; (iv) the prior or contemporaneous
consummation of the Exchange 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.
The terms of the Old RGC 9% Indenture and the Old RGC 10 1/4% Indenture
(collectively, the "Old RGC Indentures") are substantially identical.
Noteholders participating in the RGC Offers will be required to consent to
certain proposed amendments to the Old RGC Indentures. Such proposed amendments
will modify certain terms of such indentures to permit the Merger and will
eliminate substantially all the restrictive covenants in the Old RGC Indentures.
The Old RGC Notes. The Old RGC 10 1/4% Notes were originally issued in
July 1992, are currently outstanding in an aggregate principal amount of $300
million and will mature on July 15, 2002. The Old RGC 9% Notes were originally
issued in March 1993, are currently outstanding in an aggregate principal amount
of $150 million and will mature on April 1, 2003. Interest on the Old RGC
10 1/4% Notes accrues at a rate of 10 1/4% per annum and is payable
semi-annually on each January 15 and July 15. Interest on the Old RGC 9% Notes
accrues at a rate of 9% per annum and is payable semi-annually on each April 1
and October 1.
The Old RGC 10 1/4% Notes are subject to redemption at any time on or after
July 15, 1997, at the option of RGC, in whole or in part, on not less than 30
nor more than 60 days' prior notice in amounts of $1,000 or an integral multiple
of $1,000 at the following redemption prices (expressed as percentages of the
principal amount), if redeemed during the 12-month period beginning July 15 of
the years indicated below:
REDEMPTION
YEAR PRICE
---------------------------------------------------------- ----------
1997...................................................... 105.0%
1998...................................................... 102.5%
1999 and thereafter....................................... 100.0%
in each case plus accrued and unpaid interest to the redemption date (subject to
the right of holders of record on relevant record dates to receive interest due
on an interest payment date).
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The Old RGC 9% Notes are subject to redemption at any time on or after
April 1, 2000, at the option of RGC, in whole or in part, on not less than 30
nor more than 60 days' prior notice in amounts of $1,000 or an integral multiple
of $1,000 at 100% of the principal amount thereof plus accrued interest to the
redemption date (subject to the right of holders of record on relevant record
dates to receive interest due on an interest payment date.)
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 Exchange 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 RGC Offers, upon such a Change of Control Triggering Event
the Company would be obligated to make the Change of Control Offer following the
Merger for all outstanding Old RGC Notes at 101% of the principal amount thereof
plus accrued and unpaid interest to the date of repurchase.
The Old RGC Indentures contain certain covenants, including, but not
limited to, covenants with respect to the following matters: (i) limitation on
incurrence of additional indebtedness; (ii) limitation on dividends and other
restricted payments; (iii) limitation on transactions with affiliates; (iv)
limitation on liens securing subordinated indebtedness; (v) limitation on other
senior subordinated indebtedness; (vi) limitation on preferred stock of
subsidiaries; (vii) limitation on dividend and other payment restrictions
affecting subsidiaries; and (viii) limitation on mergers and sales of assets.
Under the Old RGC Indentures, certain events constitute an event of default
including: (i) the failure to make any principal and interest payment on the Old
RGC Notes when due; (ii) the failure to comply with any other agreement
contained in the Old RGC Indentures or the Old RGC Notes; (iii) a default under
certain indebtedness; (iv) certain final judgments or orders for payments of
money; and (v) certain events occurring under bankruptcy laws.
Upon the consummation of the RGC Offers, supplemental indentures to each of
the Old RGC 9% Indenture and the Old RGC 10 1/4% Indenture will become
effective, reflecting the proposed amendments to the Old RGC 9% Indenture and
the Old RGC 10 1/4% Indenture. Such supplemental indentures will eliminate
substantially all of the restrictive covenants in the Old RGC Indentures,
including covenants with respect to limitation on indebtedness, limitation on
restricted payments, limitation on transactions with affiliates, limitation on
liens securing subordinated indebtedness, restrictions on preferred stock of
subsidiaries and limitation on dividends and other payment restrictions
affecting subsidiaries. In addition, such supplemental indentures will modify
the covenants which limit the ability of RGC to consolidate or merge with, or
sell all or substantially all of its assets, to any other person or entity
unless certain conditions are satisfied, by eliminating the subsections thereof
which require that immediately after giving effect to such transaction on a pro
forma basis RGC or the surviving entity, as the case may be, has a Consolidated
Interest Coverage Ratio (as defined in the Old RGC Indentures) for its four most
recently completed fiscal quarters of at least 1.8 to 1.0.
The New RGC Notes. The New RGC Notes will be issued upon consummation of
the RGC Offers to holders of Old RGC Notes who tender Old RGC Notes in exchange
for New RGC Notes and will be part of the same issue as the New RGC Notes issued
pursuant to the Subordinated Note Public Offering.
The New RGC Notes will bear interest at a fixed rate per annum equal to the
greater of (a) 11.00% and (b) the RGC Applicable Treasury Rate (as hereinafter
defined) plus 400 basis points (4.00 percentage points); provided, however, that
in no event will the New RGC Notes bear interest at a rate per annum that is
less than the interest rate on the New RGC Notes offered pursuant to the
Subordinated Note Public Offering. The "RGC Applicable Treasury Rate" means the
yield to maturity at the time of computation of United States Treasury
securities with a constant maturity (as compiled by and published in the most
recent Federal Reserve Statistical Release H.15 (519)) most nearly equal to the
average life to stated maturity of the New RGC Notes; provided, that if the
average life to stated maturity of the New RGC Notes is not equal to the
constant maturity of the United States Treasury security for which a weekly
average yield is given, the
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Treasury Rate shall be obtained by linear interpolation (calculated to the
nearest one-twelfth of the year) from the weekly average yields of the United
States Treasury securities for which such yields are given. Interest will be
payable on the New RGC Notes on each June 1 and December 1, beginning December
1, 1995. The New RGC Notes will mature on June 1, 2005. On or after June 1,
2000, the New RGC Notes may be redeemed in whole at any time or in part from
time to time, at the option of the Company, at a redemption price equal to the
applicable percentage of the principal amount thereof set forth below, plus
accrued and unpaid interest to the redemption date, if redeemed during the 12
months commencing on June 1 of the years set forth below:
REDEMPTION
YEAR PRICE
---------------------------------------------------------- ----------
2000...................................................... 104.125 %
2001...................................................... 102.750 %
2002...................................................... 101.375 %
2003 and thereafter....................................... 100.000 %
In the event that the interest rate on the New RGC Notes is greater than 11.00%,
the above redemption prices will be correspondingly adjusted.
In addition, on or prior to June 1, 1998 the Company may, at its option,
use the net cash proceeds from one or more Public Equity Offerings to redeem up
to an aggregate of 35% of the principal amount of the New RGC Notes originally
issued, at a redemption price equal to 111% of the principal amount thereof if
redeemed during the 12 months commencing on June 1, 1995, 109.625% of the
principal amount thereof if redeemed during the 12 months commencing on June 1,
1996 and 108.25% of the principal amount thereof if redeemed during the 12
months commencing on June 1, 1997, in each case plus accrued and unpaid
interest, if any, to the redemption date. In the event that the interest rate on
the New RGC Notes is greater than 11.00%, 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 New RGC Note Indenture provides that if a Change of Control (as defined
therein) occurs, each holder will have the right to require the Company to
repurchase such holder's New RGC Notes pursuant to a Change of Control Offer (as
defined therein) at 101% of the principal amount thereof plus accrued interest,
if any, to the date of repurchase.
The New RGC Note Indenture contains certain covenants, including, but not
limited to, covenants with respect to the following matters: (i) limitation on
dividends and other restricted payments; (ii) limitation on incurrences of
additional indebtedness; (iii) limitation on liens; (iv) limitation on asset
sales; (v) limitation on dividend and other payment restrictions affecting
subsidiaries; (vi) limitation on transactions with affiliates; (vii) limitation
on preferred stock of subsidiaries; (viii) limitation on mergers and certain
other transactions; (ix) limitation on other senior subordinated indebtedness;
and (x) limitation on guarantees of certain indebtedness.
The aggregate principal amount of Old RGC Notes and New RGC Notes will be
limited to $650 million at any one time outstanding. The covenants in the
indenture governing the New RGC Notes will be substantially similar to the
covenants in the New F4L Senior Subordinated Note Indenture.
THE PUBLIC OFFERINGS
Concurrently with the Exchange Offers, Food 4 Less is (i) offering up to
$295 million principal amount of New F4L Senior Notes pursuant to the Senior
Note Public Offering and (ii) offering up to $200 million principal amount of
New RGC Notes pursuant to the Subordinated Note Public Offering. The New F4L
Senior Notes offered 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 Senior Notes Exchange Offer and the New RGC Notes offered pursuant to the
Subordinated Note Public Offering will be part of the same issue as the New RGC
Notes offered for exchange pursuant to the RGC Offers. Food 4 Less does not
expect to commence the Public Offerings until such time as the Minimum Exchange
has been satisfied and Requisite Consents have
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been received. The consummation of the Public Offerings, the Exchange Offers,
the RGC Offers and the Holdings Offer to Purchase will occur simultaneously. It
is a condition to the consummation of the Public Offerings, that the Exchange
Offers and the RGC Offers be successfully consummated. Certain proceeds of the
Public Offerings are expected to be used to fund the Change of Control Offer.
See "The Merger and the Financing -- Sources and Uses."
DESCRIPTION OF THE NEW CREDIT FACILITY
In connection with the Merger, Food 4 Less will enter into the New Credit
Facility with a syndicate of financial institutions for whom Bankers Trust will
act as agent. All of Food 4 Less' obligations under the New Credit Facility will
be assumed by the Company immediately following the Merger. Food 4 Less has
accepted a commitment letter (the "Commitment Letter") from Bankers Trust
pursuant to which Bankers Trust has agreed, subject to certain conditions, to
provide the Company up to a maximum aggregate amount of $1,075 million of
financing under the New Credit Facility. The following is a summary of the
anticipated material terms and conditions of the New Credit Facility. This
summary does not purport to be a complete description of the New Credit Facility
and is subject to the detailed provisions of the loan agreement (the "Loan
Agreement") and various related documents to be entered into in connection with
the New Credit Facility. A draft copy of the Loan Agreement will be available
upon request from Food 4 Less.
GENERAL
The New Credit Facility will provide for (i) term loans in the aggregate
amount of $750 million, comprised of the $375 million Tranche A Loan, the $125
million Tranche B Loan, the $125 million Tranche C Loan, and the $125 million
Tranche D Loan; and (ii) the $325 million New Revolving Facility under which
working capital loans may be made and commercial or standby letters of credit in
the maximum aggregate amount of up to $150 million may be issued, under which
approximately $92.6 million of letters of credit are expected to be issued upon
the closing of the Merger. The Tranche A Loan may not be fully funded at the
Closing Date. The New Credit Facility will provide that the portion of the
Tranche A Loan not funded at the Closing Date in an amount not to exceed $225
million will be available for a period of 91 days following the Closing Date to
finance the Change of Control Offer. In addition, if the total principal amount
of the Old RGC Notes exchanged for New RGC Notes exceeds $225 million the
Commitment Letter requires that there be a reduction, in an amount equal to such
excess, in one or any combination of (i) the principal amount of proceeds from
the Senior Note Public 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
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selected by the Company. Applicable interest rates on Tranche A Loan and the New
Revolving Facility and the fees payable under the New Revolving Facility on
letters of credit, will be reduced by up to 0.50% per annum after the New Term
Loans have been reduced by amounts to be agreed upon by the Company and Bankers
Trust and if the Company meets certain financial tests. Up to $30 million of the
New Revolving Facility will be available as a swingline facility and loans
outstanding under the swingline facility shall bear interest at the Base Rate
plus 1.00% per annum (subject to adjustment as described in the preceding
sentence). After the occurrence of a default under the New Credit Facility,
interest will accrue at the rate equal to the rate on loans bearing interest at
the rate determined by reference to the Base Rate plus an additional 2.00% per
annum. The Company will pay the issuing bank a fee of 0.25% on each standby
letter of credit and each commercial letter of credit and will pay the lenders
under the New Credit Facility a fee equal to the margin on Eurodollar Rate loans
under the Revolving Credit Facility (the "Eurodollar Margin") for standby
letters of credit and a fee equal to the Eurodollar Margin minus 1% for
commercial letters of credit. Each of these fees will be calculated based on the
amount available to be drawn under a letter of credit. In addition, the Company
will pay a commitment fee of 0.50% per annum on the undrawn amount of the
Tranche A Loans from the closing of the Merger until the drawing or termination
thereof and on the unused portions of the New Revolving Facility and for
purposes of calculating this fee, loans under the swingline facility shall not
be deemed to be outstanding. The New Credit Facility will require the Company to
enter into hedging agreements to limit its exposure to increases in interest
rates for a period of not less than two years. The New Credit Facility may be
prepaid in whole or in part without premium or penalty.
AMORTIZATION; PREPAYMENTS
The Tranche A Loan will mature six years after the closing of the Merger
and will be subject to amortization, commencing in the fifteenth month after the
closing of the Merger on a quarterly basis in aggregate annual amounts of $45
million in the second year, $75 million in the third year, $80 million in the
fourth year, $85 million in the fifth year, and $90 million in the sixth year.
The Tranche B Loan will mature seven years after the closing of the Merger and
will be subject to amortization on a quarterly basis in aggregate annual amounts
of $1.25 million for the first six years and $117.5 million in the seventh year.
The Tranche C Loan will mature eight years after the closing of the Merger and
will be subject to amortization on a quarterly basis in aggregate annual amounts
of $1.25 million for the first seven years and $116.25 million in the eighth
year. The Tranche D Loan will mature nine years after the closing of the Merger
and will be subject to amortization on a quarterly basis in aggregate annual
amounts of $1.25 million for the first eight years and $115 million in the ninth
year. The New Revolving Facility will mature on the same date as the Tranche A
Loan. The Company will be required to reduce loans outstanding under the New
Revolving Facility to $75 million 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
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priority liens on certain unencumbered real property fee interests of the
Company and its subsidiaries and the Company and its subsidiaries will use their
reasonable economic efforts to provide the lenders with a first priority lien on
certain unencumbered leasehold interests of the Company and its subsidiaries.
COVENANTS
The obligation of the lenders under the New Credit Facility to advance
funds is subject to the satisfaction of certain conditions customary in
agreements of this type. In addition, the Company will be subject to certain
customary affirmative and negative covenants contained in the New Credit
Facility, including, without limitation, covenants that restrict, subject to
specified exceptions, (i) the incurrence of additional indebtedness and other
obligations, (ii) a merger or acquisition, (iii) asset sales, (iv) the granting
of liens, (v) prepayment or repurchase of other indebtedness, (vi) engaging in
transactions with affiliates, or (vii) cash capital expenditures. Certain of
these covenants may be more restrictive than those in favor of holders of the
New F4L Notes as described herein and as set forth in the New F4L Indentures. 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 F4L 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 July 1, 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 the Seller Debentures.
Until June 1, 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 June 1, 2000, on a semi-annual bond equivalent basis
using a 360 day year comprised of twelve 30-day months, such that the Accreted
Value shall be equal to the full principal amount of the New Discount Debentures
on June 1, 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 June 1, 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 June 1 and December 1 of each year, commencing December 1, 2000,
to the holders of record on the immediately preceding May 15 and November 15.
On or after June 1, 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 June 1 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%
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Notwithstanding the foregoing, prior to June 1, 1998, New Holdings may use
the net proceeds of an Initial Public Offering (as defined in the New Debenture
Indenture) of New Holdings or the Company (or of FFL under certain
circumstances) to redeem up to 35% of the New Discount Debentures at a
redemption price equal to 110% of the Accreted Value thereof on the date of
redemption.
In the event of a Change of Control (as defined in the New Debenture
Indenture), each holder has the right to require the repurchase of such holder's
New Discount Debentures at a purchase price equal to 101% of the Accreted Value
thereof on the Change of Control Payment Date (as defined in the New Debenture
Indenture) (if such date is prior to June 1, 2000) or 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, to the Change of
Control Payment Date (if such date is on or after June 1, 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 June 1, 2000, or 100% of the principal amount thereof, plus accrued
interest to the date of purchase, if such date is on or after June 1, 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 will be 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 Merger. New Holdings and its subsidiaries will
agree not to effect any public distribution of securities similar to the New
Discount Debentures until the New Discount Debentures are resold by the
partnership (or until the third anniversary of the Closing Date, if later). New
Holdings believes that the 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 June 1, 2007. The Seller
Debentures will be general unsecured obligations of New Holdings and will be
subordinated to the prior payment when due of all Senior Indebtedness (as
defined in the indenture governing the Seller Debentures (the "Debenture
Indenture")), including the New Discount Debentures and any Discount Notes that
remain outstanding following consummation of the Merger. The Seller Debentures
will bear interest at a rate equal to 13 5/8% per annum. Interest will accrue on
the Seller Debentures beginning from the date of issuance or from the most
recent date to which interest has been paid and will be payable semi-annually in
arrears on each interest payment date. New Holdings will have the option, in its
sole discretion, to issue additional securities ("Secondary Securities") in lieu
of a cash payment of any or all of the interest due for the period prior to the
interest payment date five years after the date of issuance of the Seller
Debentures.
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On or after June 1, 2000, the Seller Debentures may be redeemed, at the
option of New Holdings, in whole at any time or in part from time to time, at a
redemption price equal to the applicable percentage of the principal amount
thereof set forth below, plus accrued and unpaid interest, if any, to the
redemption date, if redeemed during the twelve-month period commencing on June 1
in the years set forth below:
REDEMPTION
YEAR PRICE
------------------------------------------ ----------
2000...................................... 106.8125%
2001...................................... 105.1094%
2002...................................... 103.4063%
2003...................................... 101.7031%
2004 and thereafter....................... 100.0000%
Notwithstanding the foregoing, prior to June 1, 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 Exchange Offers and the RGC 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
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Holdings' sole discretion, of all conditions precedent to the RSI Merger, (iii)
the prior or contemporaneous successful completion of the Public Offerings, the
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 Exchange Offers and
the Solicitation. Such opinion is based on current provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury Regulations,
judicial authority and current administrative rulings and pronouncements of the
Internal Revenue Service (the "Service"), any of which may be altered with
retroactive effect, thereby changing the federal income tax consequences
discussed below. There can be no assurance that the Service will not take a
contrary view, and no ruling from the Service has been or will be sought.
The tax treatment of a holder of Old F4L Notes or New F4L 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 holders who have held the Old F4L
Notes as "capital assets" and who will hold the New F4L 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 OLD F4L
NOTES AND NEW F4L NOTES, INCLUDING THE APPLICABILITY AND EFFECT OF ANY STATE,
LOCAL OR FOREIGN TAX LAWS.
EXCHANGES OF OLD F4L NOTES FOR NEW F4L NOTES AND EXCHANGE PAYMENTS
GENERAL
Whether the exchange of Old F4L Notes for New F4L Notes and Exchange
Payments will be a recapitalization under the Code will depend in part upon
whether the Old F4L Notes and New F4L Notes are considered to be "securities"
within the meaning of the provisions of the Code governing reorganizations. The
test as to whether a debt instrument is a "security" involves an overall
evaluation of the nature of the debt instrument, with the term of the debt
instrument usually regarded as a significant factor. Generally, a debt
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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 F4L Senior Notes and New F4L Senior Notes is
not entirely certain because the stated term of such instruments may be less
than ten years, the Old F4L Senior Notes and New F4L Senior Notes should, and
the Old F4L Senior Subordinated Notes and New F4L Senior Subordinated Notes
will, be treated as "securities" for federal income tax purposes. As a result,
an exchange of Old F4L Notes for New F4L Notes and Exchange Payments pursuant to
the Exchange Offers should constitute a recapitalization for federal income tax
purposes, and exchanging holders of Old F4L Notes who receive New F4L Notes and
Exchange Payments should recognize gain, but not loss, 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 F4L Notes) or (ii) the excess of the
sum of the issue price of the New F4L Notes (or possibly their fair market value
for cash method holders) and the amount of cash (other than that portion, if
any, attributable to accrued but unpaid interest on the Old F4L Notes) received
over the holders' adjusted tax basis in the Old F4L Notes surrendered therefor.
Such gain will be long-term capital gain if the Old F4L Notes had been held for
more than one year. A holder's initial tax basis in the New F4L Notes received
will equal such holder's adjusted tax basis in the Old F4L Notes exchanged
therefor, increased by any gain recognized as a result of the exchange and
decreased by the amount of cash received.
Because the law is unclear, however, Counsel is unable to opine on whether
the Old F4L Senior Notes or New F4L Senior Notes will be treated as "securities"
for federal income tax purposes. If either the Old F4L Senior Notes or New F4L
Senior Notes were determined not to constitute "securities" for federal income
tax purposes, holders exchanging Old F4L Senior Notes for New F4L Senior Notes
and the Exchange Payment would recognize gain or loss equal to the difference
between the sum of the issue price of the New F4L Senior 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 F4L Senior Notes) and the holders' adjusted tax basis on the Old F4L
Senior Notes surrendered therefor. Such gain or loss would generally be
long-term capital gain or loss, provided the Old F4L Senior Notes had been held
for more than one year. It should be noted that restrictions apply to the
deduction of net capital losses. Noncorporate taxpayers may deduct no more than
$3,000 of capital losses from ordinary income and corporations may deduct
capital losses only from capital gains.
ACCRUED INTEREST
Under the terms of the Exchange Offers, accrued interest on tendered Old
F4L Notes up to, but not including, the date on which such Old F4L Notes are
accepted for exchange will be paid in cash promptly after consummation of the
Exchange Offers.
CONSEQUENCES TO HOLDERS OF OLD F4L NOTES NOT PARTICIPATING IN THE EXCHANGE
OFFERS
Although not free from doubt, holders of Old F4L Notes who do not
participate in the Exchange Offers should not recognize any income, gain or loss
for federal income tax purposes as a result of the Proposed Amendments. Because
the law is unclear however, Counsel is unable to opine on whether holders of Old
F4L Notes who do not participate in the Exchange Offers will recognize any such
income, gain or loss. The Service could assert that, due to the adoption of the
Proposed Amendments, such non-participating holders should be treated as having
exchanged their Old F4L Notes for modified Old F4L Notes ("Modified Old F4L
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 F4L Notes may be considered to be issued with
original issue discount if the Old F4L Notes were treated as "traded on an
established securities market" or, in certain circumstances, in the case of a
"potentially-abusive situation." See "-- New F4L Notes -- Original Issue
Discount."
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NEW F4L NOTES
STATED INTEREST
Holders of New F4L 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 F4L Senior Notes) will be equal to the first price at which a
substantial amount of such debt instruments is sold for money. The "issue price"
of a debt instrument that is not part of an issue of debt instruments a
substantial amount of which is issued for money but is issued in exchange for
another debt instrument (such as the New F4L Senior Subordinated Notes) depends
on whether either debt instrument is treated as "traded on an established
securities market." If neither is so traded, the issue price of the debt
instrument received will be equal to its stated principal amount, assuming the
debt instrument provides for "adequate stated interest" (i.e., interest at least
at the applicable federal rate), and will be equal to its "imputed principal
amount" (the sum of the present values of all payments due under the debt
instrument, using a discount rate equal to the applicable federal rate) if
either the debt instrument does not provide for "adequate stated interest" or in
the case of a "potentially abusive situation" (including certain recent sales
transactions). If the debt instrument received is "traded on an established
securities market," then its issue price will be its trading price immediately
following issuance. If the exchanged debt instrument is so traded (but the debt
instrument received in exchange therefor is not), the issue price of the debt
instrument received will generally be equal to the fair market value of the debt
instrument exchanged therefor. The "stated redemption price at maturity" of a
debt instrument is the sum of its principal amount plus all other payments
required thereunder, other than payments of "qualified stated interest" (defined
generally as stated interest that is unconditionally payable in cash or in
property (other than debt instruments of the issuer) at least annually at a
single fixed rate that appropriately takes into account the length of intervals
between payments).
In general, a holder of a debt instrument with original issue discount must
include in gross income for federal income tax purposes the sum of the daily
portions of original issue discount with respect to such debt instrument for
each day during the taxable year or portion of a taxable year on which such
holder holds the debt instrument. The daily portion is determined by allocating
to each day of any accrual period (generally, a six month period or a shorter or
longer period from the date of original issuance) a pro rata portion of an
amount equal to the "adjusted issue price" of the debt instrument at the
beginning of the accrual period multiplied by the yield to maturity of the debt
instrument. The "adjusted issue price" is the issue price of the debt instrument
increased by the accrued original issue discount for all prior accrual periods
(and decreased by the amount of cash payments made in all prior accrual periods,
other than qualified stated interest payments). The tax basis of the debt
instrument in the hands of the holder will be increased by the amount of
original issue discount, if any, on the debt instrument that is included in the
holder's gross income and will be decreased by the amount of any cash payments
(other than qualified stated interest payments) received with respect to the
debt instrument, whether such payments are denominated as principal or interest.
Sections 1272 and 1273 of the Code and the Treasury regulations thereunder
provide detailed rules for computing original issue discount.
Notwithstanding the original issue discount rules described in the
preceding paragraphs, a holder of a debt instrument would not be required to
include original issue discount in income if such holder's tax basis in the debt
instrument were to exceed the debt instrument's stated principal amount. In
addition, a holder would be permitted to offset any original issue discount
income by an amount equal to the excess of such holder's tax basis (if less than
or equal to the stated principal amount) over the adjusted issue price of the
debt instrument.
New F4L Senior Notes. Because the New F4L Senior Notes will be part of an
issue a substantial amount of which will be sold in the Senior Note Public
Offering for money, the issue price of the New F4L Senior
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Notes received by holders in exchange for their Old F4L Senior Notes should be
equal to the first price at which a substantial amount of the New F4L Senior
Notes is sold pursuant to the Senior Note Public Offering. The stated redemption
price at maturity of the New F4L Senior Notes will be equal to their stated
principal amount (in that all interest will be paid on a current basis in cash).
As a result, the New F4L Senior Notes will not be issued with original issue
discount unless the first price at which the New F4L Senior Notes are sold
pursuant to the Senior Note Public Offering is less than the stated principal
amount of the New F4L Senior Notes by more than the de minimis amount.
New F4L Senior Subordinated Notes. If neither the Old F4L Senior
Subordinated Notes nor the New F4L Senior Subordinated Notes were treated as
"traded on an established securities market," the issue price of the New F4L
Senior Subordinated Notes would be equal to their stated principal amount
(except in the case of a "potentially abusive situation," as discussed above)
and, because the stated redemption price at maturity of the New F4L Senior
Subordinated Notes would also be equal to their stated principal amount (in that
all interest will be paid on a current basis in cash), the New F4L Senior
Subordinated Notes would generally not be issued with original issue discount.
If the New F4L Senior Subordinated Notes were considered to be "traded on an
established securities market," their issue price would be their trading price
immediately following their issuance. If the Old F4L Senior Subordinated Notes,
but not the New F4L Senior Subordinated Notes, were considered to be so traded,
then the issue price of the New F4L Senior Subordinated Notes received would be
equal to the fair market value of the Old F4L Senior Subordinated Notes
exchanged therefor. In either event, if such trading price or fair market value
were less than the stated principal amount of the New F4L Senior Subordinated
Notes by more than the de minimis amount, holders of New F4L Senior Subordinated
Notes would be required to include original issue discount in income.
MARKET DISCOUNT
The Code generally requires holders of "market discount bonds" to treat as
ordinary income any gain realized on the disposition (or gift) of such bonds to
the extent of the market discount accrued during the holder's period of
ownership. A "market discount bond" is a debt obligation purchased at a market
discount subject to a statutory de minimis exception. For this purpose, a
purchase at a market discount includes a purchase at or after the original issue
at a price below the stated redemption price at maturity, or, in the case of a
debt instrument issued with original issue discount, at a price below (a) its
"issue price," plus (b) the amount of original issue discount includible in
income by all prior holders of the debt instrument, minus (c) all cash payments
(other than payments constituting qualified stated interest) received by such
previous holders. The accrued market discount generally equals a ratable portion
of the bond's market discount, based on the number of days the taxpayer has held
the bond at the time of such disposition, as a percentage of the number of days
from the date the taxpayer acquired the bond to its date of maturity.
An exception is made for certain tax-free (and partially tax-free)
exchanges, such as the exchange of Old F4L Notes for New F4L Notes and Exchange
Payments. 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 F4L Notes received by a holder of
Old F4L Notes will contain accrued market discount to the extent of the market
discount accrued in the Old F4L 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.
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DISPOSITION
In general, a holder of New F4L Notes will recognize gain or loss upon the
sale, exchange, redemption or other taxable disposition of such New F4L 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 F4L Notes) and (ii) the holder's tax basis in the New F4L
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 F4L 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 F4L Notes had been held for
more than one year.
ELECTION
A holder of New F4L Notes, subject to certain limitations, may elect to
include all interest and discount, if any, on the New F4L Notes in gross income
under the constant yield method. For this purpose, interest includes stated and
unstated interest, acquisition discount, original issue discount, de minimis
market discount and market discount, as adjusted by any acquisition premium.
Such election, if made in respect of a market discount bond, will constitute an
election to include market discount in income currently on all market discount
bonds acquired by such holder on or after the first day of the first taxable
year to which the election applies. See "-- Market Discount."
BACKUP WITHHOLDING
A holder of New F4L Notes may be subject to backup withholding at the rate
of 31% with respect to interest paid on and gross proceeds from a sale of the
New F4L 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 F4L 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 F4L Notes and the Service
the amount of any "reportable payments" (including any interest paid on the New
F4L Notes) and any amount withheld with respect to the New F4L Notes during the
calendar year.
TAX CONSEQUENCES TO THE COMPANY
EXCHANGE OFFERS AND SOLICITATION
In general, the consummation of the Exchange Offers and the Solicitation
will result in no material federal income tax consequences to the Company,
except that the Company will recognize cancellation of indebtedness income to
the extent that the adjusted issue price of the Old F4L Notes surrendered by
holders exceeds the sum of (i) the issue price of the New F4L Notes (as
described above under "New F4L Notes -- Original Issue Discount") and (ii) the
amount of the Exchange Payments delivered to holders in exchange therefor. The
Company does not expect to recognize any cancellation of indebtedness income as
a result of the consummation of the Exchange Offers and the Solicitation,
although no assurance can be given in this regard due to the uncertainty
regarding the issue price of the New F4L Notes (see "New F4L 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
152
164
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 affiliate 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 F4L NOTES AND NEW
F4L NOTES IN LIGHT OF HIS OR HER PARTICULAR CIRCUMSTANCES AND INCOME TAX
SITUATION. EACH HOLDER OF OLD F4L NOTES AND NEW F4L NOTES SHOULD CONSULT HIS OR
HER TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE
EXCHANGE OFFERS AND THE SOLICITATION, INCLUDING THE APPLICATION AND EFFECT OF
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
LEGAL MATTERS
The validity of the New F4L Senior Notes and the New F4L Senior
Subordinated Notes to be issued in connection with the Exchange Offers and the
Solicitation will be passed upon for Food 4 Less by Latham & Watkins, Los
Angeles, California. Certain legal matters in connection with the Exchange
Offers and the Solicitation will be passed upon for the Dealer Managers by
Cahill Gordon & Reindel (a partnership including a professional corporation),
New York, New York.
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 and schedules 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.
153
165
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
166
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
167
RALPHS SUPERMARKETS, INC.
(AS SUCCESSOR TO RALPHS GROCERY COMPANY)
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
JANUARY 30, JANUARY 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
168
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
169
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
170
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
171
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
172
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
173
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
174
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
175
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
176
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
177
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
178
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 estimated 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
179
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 in fiscal year 1995, $19 million in
fiscal year 1996, $13 million in fiscal year 1997, $8 million in fiscal year
1998 and $7 million in fiscal year 1999.
(8) COMMITMENTS AND CONTINGENCIES
In December 1992, three California state antitrust class action suits were
commenced in Los Angeles Superior Court against Ralphs and other major
supermarket chains located in Southern California, alleging that they conspired
to refrain from competing in the retail market for fluid milk and to fix the
retail price of fluid milk above competitive prices. Specifically, class actions
were commenced by Diane Barela and Neila Ross, Ron Moliare and Paul C. Pfeifle
on December 7, December 14, and December 23, 1992, respectively. The Court has
yet to certify any of these classes. A demurrer to the complaints was denied.
Notwithstanding
F-15
180
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
181
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
182
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
183
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
184
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
185
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)
========
F-21
186
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
187
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
188
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
189
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 estimated 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
190
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
191
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
192
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
193
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
JANUARY 7,
1995
JUNE 26, JUNE 25, -------------
1993 1994
-------- -------- (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
194
FOOD 4 LESS SUPERMARKETS, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
LIABILITIES AND STOCKHOLDER'S EQUITY
JANUARY 7,
1995
JUNE 26, JUNE 25, ----------
1993 1994
-------- -------- (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
195
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
196
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
197
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
198
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
199
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
200
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
201
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
202
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
203
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
204
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
205
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
206
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
207
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
208
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
209
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
210
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 $16 million, $20 million, $18 million, $12 million and $7 million
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, a partnership which
owns stock of FFL has assumed the obligation to purchase any FFL shares as to
which terminated plan participants exercise a put option under the terms of
Falley's ESOP. The Company is not required to make cash payments to redeem the
shares. As part of that agreement, the Company may elect, after providing a
right of first refusal to the partnership, to purchase FFL shares put under the
provisions of the plan. However, the partnership's obligation to purchase such
FFL shares is unconditional, and any repurchase of shares by the Company is at
the Company's sole election. During the 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 April 30, 1994, the fair value of the
shares allocated which are subject to a repurchase obligation by the partnership
referred to above was approximately $15,170,000.
The Company also sponsors two ESOPs for employees of the Company who are
members of certain collective bargaining agreements (the "Union ESOPs"). The
Union ESOPs provide for annual contributions based on hours worked at a rate
specified by the terms of the collective bargaining agreements. The Company
contributions are made in the form of Holdings stock or cash for the purchase of
Holdings stock and are to be allocated to participants based on hours worked.
During the 28 weeks ended January 7, 1995, the Company recorded a charge against
operations of approximately $230,000 (unaudited) for benefits under the Union
ESOPs. There were no shares issued to the Union ESOPs at January 7, 1995.
All other full-time employees of the Company who are not members of a
collective bargaining agreement are covered under a separate 401(k) plan (the
"Management Plan"). The Management Plan provides for annual contributions which
are determined at the discretion of the Company. The Company contributions are
allocated to participants based on employee compensation and matching of certain
employee contributions. A portion of the Company contribution allocated based on
compensation is made in the form of stock or cash for the purchase of stock.
F-46
211
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Total charges against operations related to all employee benefit plans
sponsored by the Company and its subsidiaries were $337,000, $284,000 and
$699,000 for the 52 weeks ended June 27, 1992, the 52 weeks ended June 26, 1993,
and the 52 weeks ended June 25, 1994, respectively. No contributions were made
with stock and no stock was acquired by any plans in fiscal 1992, fiscal 1993 or
fiscal 1994.
The Company contributes to multi-employer pension plans administered by
various trustees. Contributions to these plans are based upon negotiated wage
contracts. These plans may be deemed to be defined benefit plans. Information
related to accumulated plan benefits and plan net assets as they may be
allocated to the Company at June 25, 1994 is not available. The Company
contributed $78.6 million, $69.4 million and $57.2 million to these plans for
the 52 weeks ended June 27, 1992, June 26, 1993, and June 25, 1994,
respectively. Management is not aware of any plans to terminate such plans.
The United Food and Commercial Workers health and welfare plans were
overfunded and those employers who contributed to the plans are to receive a pro
rata share of the excess reserves in these plans through a reduction of current
contributions. The Company's share of the excess reserve was $24.2 million, of
which $8.1 million was recognized in the 52 weeks ended June 25, 1994, with the
remainder to be recognized in future periods as the credits are taken.
Offsetting the reduction in employer contributions was a $5.5 million union
contract ratification bonus and contractual wage increases.
(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
F-47
212
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
incurring excessive costs. Additional information pertinent to the value of the
unquoted debt is provided in Note 4.
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.
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213
FOOD 4 LESS SUPERMARKETS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The aggregate purchase price, payable to the stockholders of Ralphs, will
consist of $375 million in cash, $131.5 million initial principal amount of
13 5/8% Senior Subordinated Pay-in-Kind Debentures due 2007 ("Seller
Debentures") and $18.5 million of initial accreted value of 13 5/8% Senior
Discount Debentures due 2005 ("New Discount Debentures"). In addition, 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 non-cash restructuring charge for the write-off of property and
equipment at the 11 stores of $5.1 million.
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214
APPENDIX A
COMPARISON OF OLD F4L SENIOR NOTES AND
NEW F4L SENIOR NOTES
The following is a brief comparison of the principal features of the Old
F4L Senior Notes and the New F4L Senior Notes. The terms of the New F4L Senior
Notes differ from the current (unamended) terms of the Old F4L Senior 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 the Old F4L Senior Note Indenture, the Old F4L
Senior Notes, the New F4L Senior Note Indenture, the New F4L Senior Notes, the
"Description of the New F4L Notes" and "The Proposed Amendments" and the related
definitions contained therein.
OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES
- ------------------------------------------------------ ------------------------------------------------------
ISSUER ISSUER
Food 4 Less. The Company, as successor by merger to Food 4 Less.
PRINCIPAL AMOUNT OUTSTANDING PRINCIPAL AMOUNT OUTSTANDING
As of May 1, 1995, $175 million. The up to $175 million principal amount of New F4L
Senior Notes offered hereby will be part of an issue of
up to $470 million aggregate principal amount of New
F4L Senior Notes, up to $295 million principal amount
of which will be issued pursuant to the Senior Note
Public Offering.
INTEREST RATE INTEREST RATE
The Old F4L Senior Notes bear interest at the rate of The New F4L Senior Notes will bear interest at a fixed
10.45% per annum. rate per annum equal to the greater of (a) 10.45% and
(b) the Applicable Treasury Rate (as hereinafter
defined) plus 350 basis points (3.50 percentage
points); provided, however, that in no event will the
New F4L Senior Notes bear interest at a rate per annum
that is less than the interest rate on the New F4L
Senior Notes offered pursuant to the Senior 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
F4L Senior Notes; provided that if the average life to
stated maturity of the New F4L Senior Notes is not
equal to the constant maturity of the United States
Treasury security for which a weekly average yield is
given, the 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
April 15 and October 15. June 1 and December 1, commencing on December 1, 1995.
FINAL MATURITY DATE FINAL MATURITY DATE
April 15, 2000. June 1, 2004.
OPTIONAL REDEMPTION OPTIONAL REDEMPTION
The Old F4L Senior Notes are redeemable, at the option The New F4L Senior Notes are redeemable, at the option
of Food 4 Less, in whole at any time or in part from of the Company, in whole at any time or in part from
time to time, on or after April 15, 1996, at the time to time, on or after June 1, 2000, at the
following redemption prices if redeemed during the following redemption prices if redeemed during the
twelve-month period commencing on April 15 of the years twelve-month period commencing on June 1 of the years
set forth below: set forth below:
1996..........................................104.48% 2000........................................103.9188%
1997..........................................102.99% 2001........................................102.6125%
1998..........................................101.49% 2002........................................101.3063%
1999 and thereafter...........................100.00% 2003 and thereafter.........................100.0000%
in each case plus accrued and unpaid interest to the in each case plus accrued and unpaid interest to the
date of redemption. date of redemption. In the event 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 June 1, 1998, the
Company may, at its option, use the net cash proceeds
of one or more Public Equity Offerings to redeem up to
an aggregate of 35% of the New F4L Senior Notes
originally issued, at a redemption price equal to
110.45% of the principal amount
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OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES
- ------------------------------------------------------ ------------------------------------------------------
thereof if redeemed during the 12 months commencing on
June 1, 1995, 109.1438% of the principal amount thereof
if redeemed during the 12 months commencing on June 1,
1996 and 107.8375% of the principal amount thereof if
redeemed during the 12 months commencing on June 1,
1997, in each case plus accrued and unpaid interest to
the redemption date. In the event the interest rate on
the New F4L Senior Notes is greater than 10.45%, the
above redemption prices will be correspondingly
adjusted.
MANDATORY REDEMPTION MANDATORY REDEMPTION
Food 4 Less will make a mandatory sinking fund payment The New F4L Senior Notes are not subject to a mandatory
of $87.5 million on April 15, 1999, sufficient to sinking fund requirement.
retire 50% of the Old F4L Senior Notes originally
issued, at a redemption price equal to 100% of the
principal amount thereof, plus accrued and unpaid
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 Notes previously acquired by Food 4 Less and
surrendered to the Old F4L Senior Note Trustee 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 may use the same Old F4L Senior Note as a credit
only once. Food 4 Less intends to credit Old F4L Senior
Notes tendered into the Exchange Offer against its
sinking fund obligation.
RANKING RANKING
The Old F4L Senior Notes are general unsecured senior The New F4L Senior Notes will be senior unsecured
obligations of Food 4 Less and are senior to all obligations of the Company and will be senior to all
Subordinated Indebtedness of Food 4 Less, including the Subordinated Indebtedness. The New F4L Senior Notes
Old F4L Subordinated Notes. The Old F4L Senior Notes will rank pari passu in right of payment with all
rank pari passu in right of payment with all borrowings unsubordinated Indebtedness and other liabilities of
and other obligations of Food 4 Less and its the Company. Such borrowings and obligations under the
subsidiaries under the Credit Agreement. Such Credit Agreement and the related guarantees are secured
borrowings and obligations under the Credit Agreement by substantially all of the assets of the Company and
and related guarantees are secured by substantially all its subsidiaries, whereas the New F4L Senior Notes are
of the assets of Food 4 Less and its subsidiaries, senior unsecured obligations of the Company and its
whereas the Old F4L Senior Notes are senior unsecured subsidiaries.
obligations of Food 4 Less and its subsidiaries.
GUARANTEES GUARANTEES
Each Subsidiary Guarantor has unconditionally Each Subsidiary Guarantor will unconditionally
guaranteed, jointly and severally, the complete and guarantee, jointly and severally, the complete and
prompt performance of Food 4 Less' obligations under prompt performance of the Company's obligations under
the Old F4L Senior Note Indenture and the Old F4L the New F4L Senior Note Indenture and New F4L Senior
Senior Notes. See "Guarantees of Certain Indebtedness" Notes. See "Guarantees of Certain Indebtedness" below.
below.
"Subsidiary Guarantor" means (i) each of Alpha Beta "Subsidiary Guarantor" means (i) each of Alpha Beta
Company, Bell Markets, Inc., Cala Co., Cala Foods, Company, Bay Area Warehouse Stores, Inc., Bell Markets,
Inc., Falley's, Inc., Food 4 Less of California, Inc., Inc., Cala Co., Cala Foods, Inc., Falley's Inc., Food 4
Food 4 Less Merchandising, Inc., Food 4 Less GM, Inc. Less of California, Inc., Food 4 Less Merchandising,
and Food 4 Less of Southern California, Inc., (ii) each Inc., Food 4 Less GM, Inc., Food 4 Less of Southern
of Food 4 Less' subsidiaries which becomes a guarantor California, Inc., (ii) upon consummation of the Merger,
of the Old F4L Senior Notes in compliance with the Crawford Stores, Inc., (iii) each of the Company's
provisions set forth under "Guarantees of Certain subsidiaries which becomes a guarantor of the New F4L
Indebtedness," and (iii) each of Food 4 Less' Senior Notes in compliance with the provisions set
subsidiaries executing a supplemental indenture in forth under "Guarantees of Certain Indebtedness," and
which such subsidiary agrees to be bound by the terms (iv) each of the Company's Subsidiaries executing a
of the Old F4L Senior Note Indenture. supplemental indenture in which such Subsidiary agrees
to be bound by the terms of the New F4L Senior Notes
Indenture.
CHANGE OF CONTROL CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder The New F4L Senior Note Indenture will provide that if
will have the right to require the repurchase of such a Change of Control occurs, each holder will have the
holder's Old F4L Senior Notes at a purchase price equal right to require the Company to repurchase such
to 101% of the principal amount thereof plus accrued holder's New F4L Senior Notes pursuant to a Change of
and unpaid interest to the date of repurchase. Control Offer at 101% of the principal amount thereof
plus accrued and unpaid interest to the date of
"Change of Control" means the acquisition after the repurchase.
Issue Date, in one or more transactions, of beneficial
ownership (within the meaning of Rule 13d-3 under the "Change of Control" means (i) the acquisition after the
Exchange Act) by Issue Date, in one or more transactions, of beneficial
ownership
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OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES
- ------------------------------------------------------ ------------------------------------------------------
(i) any person or entity (other than any Permitted (within the meaning of Rule 13d-3 under the Exchange
Holder) or (ii) any group of persons or entities Act) by (a) any person or entity (other than any
(excluding any Permitted Holders) who constitute a Permitted Holder) or (b) any group of persons or
group (within the meaning of Section 13(d)(3) of the entities (excluding any Permitted Holders) who
Exchange Act), in either case, of any securities of FFL constitute a group (within the meaning of Section
or of Food 4 Less such that, as a result of such 13(d)(3) of the Exchange Act), in either case, of any
acquisition, such person, entity or group either (A) securities of New Holdings or the Company such that, as
beneficially owns (within the meaning of Rule 13d-3 a result of such acquisition, such person, entity or
under the Exchange Act), directly or indirectly, 51% or group either beneficially owns (within the meaning of
more of Food 4 Less' then outstanding voting securities Rule 13d-3 under the Exchange Act), directly or
entitled to vote on a regular basis for a majority of indirectly, 40% or more of the then outstanding voting
the board of directors of Food 4 Less (but only to the securities entitled to vote on a regular basis for a
extent that such beneficial ownership is not shared majority of the board of directors of the Company (but
with any Permitted Holder who has the power to direct only to the extent that such beneficial ownership is
the vote thereof) or (B) otherwise has the ability to not shared with any Permitted Holder who has the power
elect, directly or indirectly, a majority of the to direct the vote thereof), provided, however, that no
members of Food 4 Less' board of directors. such Change of Control shall be deemed to have occurred
if (A) the Permitted Holders beneficially own, in the
"Permitted Holder" means (i) Food 4 Less Equity aggregate, at such time, a greater percentage of such
Partners, L.P., The Yucaipa Companies or any entity voting securities than such other person, entity or
controlled thereby, (ii) an employee benefit plan of group or (B) at the time of such acquisition, the
Food 4 Less, or any participant therein or any of its Permitted Holders (or any of them) possess the ability
subsidiaries, (iii) a trustee or other fiduciary (by contract or otherwise) to elect, or cause the
holding securities under an employee benefit plan of election, of a majority of the members of the Company's
Food 4 Less or any of its subsidiaries or (iv) any board of directors.
Permitted Transferee of any of the foregoing persons.
"Permitted Holder" means (i) Food 4 Less Equity
"Permitted Transferees" means, with respect to any Partners, L.P., and The Yucaipa Companies, or any
person, (i) any affiliates of such person, (ii) the entity controlled thereby or any of the partners
heirs, executors, administrators, testamentary thereof, (ii) Apollo Advisors, L.P., Lion Advisors,
trustees, legatees or beneficiaries of any such person, L.P. or any entity controlled thereby or any of the
and (iii) a trust the beneficiaries of which, or a partners thereof, (iii) an employee benefit plan of the
corporation of partnership, the stockholders or general Company, or any of its subsidiaries or any participant
or limited partners of which, include only such person therein, (iv) a trustee or other fiduciary holding
or his or her spouse or lineal descendents, in each securities under an employee benefit plan of the
case to whom such person has transferred securities of Company or any of its subsidiaries or (v) any Permitted
Food 4 Less. Transferee of any of the foregoing persons.
"Permitted Transferees" means, with respect to any
IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD person, (i) any Affiliate of such person, (ii) the
F4L SENIOR NOTE INDENTURE WILL BE MODIFIED TO ELIMINATE heirs, executors, administrators, testamentary
THIS COVENANT AND CERTAIN RELATED DEFINITIONS. trustees, legatees or beneficiaries of any such person,
(iii) a trust, the beneficiaries of which, or a
corporation or partnership, the stockholders or general
or limited partners of which, include only such person
or his or her spouse or lineal descendants, in each
case to whom such person has transferred the beneficial
ownership of any securities of the Company, (iv) any
investment account whose investment managers and
investment advisors consist solely of such person
and/or Permitted Transferees of such person and (v) any
investment fund or investment entity that is a
subsidiary of such person or a Permitted Transferee of
such person.
CERTAIN COVENANTS CERTAIN COVENANTS
LIMITATION ON RESTRICTED PAYMENTS. Pursuant to the LIMITATION ON RESTRICTED PAYMENTS. Pursuant to the New
Old F4L Senior Note Indenture, Food 4 Less shall not, F4L Senior Note Indenture, the Company shall not, and
and shall cause each of its subsidiaries not to, shall cause each of its subsidiaries not to, directly
directly or indirectly, make any Restricted Payment if, or indirectly, make any Restricted Payment if, at the
at the time of such Restricted Payment, or after giving time of such proposed Restricted Payment, or after
effect thereto, (a) a Default or an Event of Default giving effect thereto, (a) a Default or an Event of
(as defined below) shall have occurred and be continu- Default shall have occurred and be continuing, (b) the
ing, (b) the net worth of Food 4 Less on the last day Company could not incur $1.00 of additional Indebted-
of the full fiscal quarter immediately preceding the ness (other than Permitted Indebtedness) pursuant to
date of such Restricted Payment (pro forma to give the covenant described below under "Limitation on
effect thereto) is not greater than $115 million, (c) Incurrences of Additional Indebtedness" or (c) the
Food 4 Less' Operating Coverage Ratio, calculated on a aggregate amount expended for all Restricted Payments,
pro forma basis as if such Restricted Payment had been including such proposed Restricted Payment (the amount
made at the beginning of the pro forma period, shall be of any Restricted Payment, if other than cash, to be
less than 2.25 to 1.0 or (d) the aggregate amount the fair market value thereof at the date of payment as
expended for all Restricted Payments, including such determined in good faith by the board of directors of
Restricted Payment (the amount of any Restricted the Company), subsequent to the Issue Date, shall
Payment, if other than cash, to be the fair market exceed the sum of (i) 50% of the aggregate Consolidated
value thereof at the date of payment as determined in Net Income (or if such aggregate Consolidated Net
good faith by the board of directors of Food 4 Less Income is a loss, minus 100% of such loss) of the
which determination shall be evidenced by a board Company earned subsequent to the Issue Date and on or
resolution), subsequent to the Issue Date, shall exceed prior to the date of the proposed Restricted Payment
the sum of (i) 25% of the aggregate Consolidated Net (the "Reference Date") plus (ii) 100% of the aggregate
Income (or if such aggregate Consolidated Net Income is net proceeds received by the Company from any person
a loss, minus 100% of such loss) of Food 4 Less earned (other than a subsidiary of the Company) from the
subsequent to the Issue Date and prior to the date issuance and sale
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OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES
- ------------------------------------------------------ ------------------------------------------------------
the Restricted Payment occurs (the "Reference Date") (including upon exchange or conversion for other
plus (ii) 100% of the aggregate net proceeds received securities of the Company) subsequent to the Issue Date
by Food 4 Less from any person (other than a and on or prior to the Reference Date of Qualified
subsidiary) from the issuance and sale (including upon Capital Stock (excluding (A) Qualified Capital Stock
exchange or conversion for other securities of Food 4 paid as a dividend on any capital stock or as interest
Less) subsequent to the Issue Date and on or prior to on any Indebtedness and (B) any net proceeds from
the Reference Date of Qualified Capital Stock issuances and sales financed directly or indirectly
(excluding (A) Qualified Capital Stock paid as a using funds borrowed from the Company or any
dividend on any capital stock or as interest on any subsidiary, until and to the extent such borrowing is
Indebtedness and (B) any net proceeds from issuances repaid), plus (iii) 100% of the aggregate net cash
and sales financed directly or indirectly using funds proceeds received by the Company as capital
borrowed from Food 4 Less or any subsidiary, until and contributions to the Company after the Issue Date, plus
to the extent such borrowing is repaid). (iv) $25 million.
Notwithstanding the foregoing, if no Default or Event Notwithstanding the foregoing, if no Default or Event
of Default shall have occurred and be continuing as a of Default shall have occurred and be continuing as a
consequence thereof, the provisions set forth in the consequence thereof, the provisions set forth in the
immediately preceding paragraph will not prevent (1) immediately preceding paragraph will not prevent (1)
the payment of any dividend within 60 days after the the payment of any dividend within 60 days after the
date of its declaration if the dividend would have been date of its declaration if the dividend would have been
permitted on the date of declaration, (2) the permitted on the date of declaration, (2) the
acquisition of any shares of capital stock of Food 4 acquisition of any shares of capital stock of the
Less or the repayment of any Indebtedness of Food 4 Company or the repurchase, redemption or other
Less in exchange for or solely out of the proceeds of repayment of any Subordinated Indebtedness in exchange
the substantially concurrent sale (other than to a for or solely out of the proceeds of the substantially
subsidiary) of shares of Qualified Capital Stock, (3) concurrent sale (other than to a subsidiary) of shares
the repurchase or redemption of (a) Old F4L Notes in of Qualified Capital Stock of the Company, (3) the
accordance with the provisions of (i) Section 5.04 repurchase, redemption or other repayment or redemption
("Maintenance of Net Worth"), (ii) Section 5.16 of any Subordinated Indebtedness in exchange for or
("Limitation on Change of Control") and (iii) Section solely out of the proceeds of the substantially
5.17 ("Limitation on Disposition of Assets") set forth concurrent sale (other than to a subsidiary) of
in the Old F4L Subordinated Note Indenture or (b) any Subordinated Indebtedness of the Company with an
other Indebtedness of Food 4 Less in exchange for or Average Life equal to or greater than the then
solely out of the proceeds of the substantially remaining Average Life of the Subordinated Indebtedness
concurrent sale (other than to a Subsidiary) of repurchased or redeemed or repaid, (4) any payments by
Indebtedness which is subordinated in right of payment the Company or any Subsidiary, or any dividend by the
to the Old F4L Senior Notes with no scheduled or Company or any Subsidiary to New Holdings the proceeds
required maturity or scheduled or required repayment of of which are used by New Holdings to make payments,
principal or sinking fund payment prior to the final required to be made due to the exercise of statutory
maturity of the Old F4L Senior Notes, or (4) Permitted dissenters, appraisal or similar rights by holders of
Payments; provided that the declaration of each common stock of FFL in connection with the FFL Merger
dividend paid in accordance with clause (1) above, each and (5) Permitted Payments; provided, however, that the
acquisition or repayment made in accordance with, or of declaration of each dividend paid in accordance with
the type set forth in, clause (2) above, each clause (1) above, each acquisition, repurchase,
repurchase of Old F4L Subordinated Notes pursuant to redemption or other repayment made in accordance with,
clause (3)(a)(i) and each payment described in clause or of the type set forth in, clause (2) above, and each
(iii) or (iv) of the definition of "Permitted Payments" payment described in clause (iii), (iv), (vii) and (ix)
shall each be counted for purposes of computing amounts of the definition of the term "Permitted Payments"
expended pursuant to subclause (d) in the immediately shall each be counted for purposes of computing amounts
preceding paragraph, and no payment described in clause expended pursuant to subclause (c) in the immediately
(3) above (other than clause (3)(a)(i)) or pursuant to preceding paragraph, and no amounts expended pursuant
clause (i) or (ii) of the definition of "Permitted to clause (3) above or pursuant to clause (i), (ii),
Payments" shall be so counted. (v), (vi), (viii), (x) or (xi) of the definition of the
term "Permitted Payments" shall be so counted,
"Restricted Payment" means any (i) Stock Payment, provided, further that to the extent any payments made
(ii) Investment (other than a Permitted Investment) or pursuant to clause (vii) of the definition of the term
(iii) Restricted Debt Prepayment. "Permitted Payments" are deducted for purposes of
computing the Consolidated Net Income of the Company,
"Stock Payment" means, with respect to any person, such payments shall not be counted for purposes of
(a) the declaration or payment by such person, either computing amounts expended as Restricted Payments
in cash or in property, of any dividend on (except, in pursuant to subclause (c) in the immediately preceding
the case of Food 4 Less, dividends payable solely in paragraph.
Qualified Capital Stock of Food 4 Less), or the making
by such person or any of its subsidiaries of any other "Restricted Payment" means any (i) Stock Payment, (ii)
distribution in respect of, such person's Qualified Investment (other than a Permitted Investment) or (iii)
Capital Stock or any warrants, rights or options to Restricted Debt Prepayment.
purchase or acquire shares of any class of such capital
stock (other than exchangeable or convertible "Stock Payment" means, with respect to any person, (a)
Indebtedness of such person), or (b) the redemption, the declaration or payment by such person, either in
repurchase, retirement or other acquisition for value cash or in property, of any dividend on (except, in the
by such person or any of its subsidiaries, directly or case of the Company, dividends payable solely in
indirectly, of such person's Qualified Capital Stock Qualified Capital Stock of the Company), or the making
(and, in the case of a subsidiary, Qualified Capital by such person or any of its subsidiaries of any other
Stock of Food 4 Less) or any warrants, rights or distribution in respect of, such person's Qualified
options to purchase or acquire shares of any class of Capital Stock or any warrants, rights or options to
such capital stock (other than exchangeable or purchase or acquire shares of any class of such capital
convertible Indebtedness of such person), other than, stock (other than exchangeable or convertible
in the case of Food 4 Less, through the issuance in Indebtedness of such person), or (b) the redemption,
exchange therefor solely of Qualified Capital Stock of repurchase, retirement or other acquisition for value
Food 4 Less; provided, however, that in the case of a by such person or any of its subsidiaries, directly or
subsidiary, the term "Stock Payment" shall not include indirectly, of such person's Qualified Capital Stock
any such payment with respect to its capital stock or (and, in the
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OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES
- ------------------------------------------------------ ------------------------------------------------------
warrants, rights or options to purchase or acquire case of a subsidiary, Qualified Capital Stock of the
shares of any class of its capital stock that are owned Company) or any warrants, rights or options to purchase
solely by Food 4 Less or a wholly-owned subsidiary. or acquire shares of any class of such capital stock
(other than exchangeable or convertible Indebtedness of
"Investment" by any person in any other person means such person), other than, in the case of the Company,
any investment by such person in such other person, through the issuance in exchange therefor solely of
whether by a purchase of assets, in any transaction or Qualified Capital Stock of the Company; provided,
series of related transactions, individually or in the however, that in the case of a subsidiary, the term
aggregate, in an amount greater than $5 million, share "Stock Payment" shall not include any such payment with
purchase, capital contribution, loan, advance (other respect to its capital stock or warrants, rights or
than reasonable loans and advances to employees for options to purchase or acquire shares of any class of
moving and travel expenses, as salary advances, or to its capital stock that are owned solely by the Company
permit the purchase of Qualified Capital Stock of Food or a wholly-owned subsidiary.
4 Less and other similar customary expenses incurred,
in each case in the ordinary course of business "Investment" by any person in any other person means
consistent with past practice) or similar credit any investment by such person in such other person,
extension constituting Indebtedness of such other whether by share purchase, capital contribution, loan,
person, and any guarantee of Indebtedness of any other advance (other than reasonable loans and advances to
person. employees for moving and travel expenses, as salary
advances, or to permit the purchase of Qualified
"Permitted Investment" by any person means (i) any Capital Stock of the Company and other similar
Related Business Investment, (ii) Investments in customary expenses incurred, in each case in the
securities not constituting cash or cash equivalents ordinary course of business consistent with past
and received in connection with an Asset Sale made practice) or similar credit extension constituting
pursuant to the provisions of the Old F4L Senior Note Indebtedness of such other person, and any guarantee of
Indenture summarized under "Limitation on Disposition Indebtedness of any other person.
of Assets" or any other disposition of assets not
constituting an Asset Sale by reason of the $250,000 "Permitted Investment" by any person means (i) any
threshold contained in the definition thereof, (iii) Related Business Investment, (ii) Investments in
cash and cash equivalents, (iv) Investments existing on securities not constituting cash or cash equivalents
June 17, 1991, (v) Investments specifically permitted and received in connection with an Asset Sale made
by and made in accordance with the provisions of the pursuant to the provisions of the covenant described
Old F4L Senior Note Indenture summarized under under "Limitation on Asset Sales" or any other dispo-
"Limitation on Restricted Payments," "Limitation on sition of assets not constituting an Asset Sale by
Transactions with Affiliates" and "Limitation on reason of the $500,000 threshold contained in the
Incurrences of Additional Indebtedness," and (vi) definition thereof, (iii) cash and cash equivalents,
Investments by Subsidiary Guarantors in other (iv) Investments existing on the Issue Date, (v)
Subsidiary Guarantors and Investments by subsidiaries Investments specifically permitted by and made in
which are not Subsidiary Guarantors in other subsid- accordance with the provisions of the covenant
iaries which are not Subsidiary Guarantors. described under "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 $15 million.
"Restricted Debt Prepayment" means any purchase, "Restricted Debt Prepayment" means any purchase,
redemption, defeasance (including, but not limited redemption, defeasance (including, but not limited to,
to, in-substance or legal defeasance) or other in substance or legal defeasance) or other acquisition
acquisition or retirement for value, directly or or retirement for value, directly or indirectly, by the
indirectly, by Food 4 Less or a subsidiary, prior to Company or a subsidiary, prior to the scheduled
the scheduled maturity or prior to any scheduled maturity or prior to any scheduled repayment of
repayment of principal or sinking fund payment, as the principal or sinking fund payment, as the case may be,
case may be, in respect of Indebtedness of Food 4 Less in respect of Subordinated Indebtedness.
that is subordinate in right of payment to the Old F4L
Senior Subordinated Notes; provided, however, that any "Permitted Payments" means (i) any payment by the Com-
such acquisition shall be deemed not to be a Restricted pany or any Subsidiary, or any dividend by the Company
Debt Prepayment to the extent it is made (x) in or any Subsidiary to New Holdings the proceeds of which
exchange for or with the proceeds from the are utilized by New Holdings to make payments, to The
substantially concurrent issuance of Qualified Capital Yucaipa Companies or the principals or any Affiliates
Stock or (y) in exchange for or with the proceeds from thereof for consulting, management, investment banking
the substantially concurrent issuance of Indebtedness, or similar services, or for reimbursement of losses,
in a principal amount (or, if such Indebtedness costs and expenses pursuant to the Consulting
provides for an amount less than the principal amount Agreement, (ii) any payment by the Company or any
thereof to be due and payable upon the acceleration subsidiary pursuant to the Amended and Restated Tax
thereof, with an original issue price) not to exceed Sharing Agreement, dated as of June 17, 1991, between
the sum of (A) the lesser of (i) the principal amount Food 4 Less and certain subsidiaries, as such Tax
of Indebtedness being acquired in exchange therefor (or Sharing Agreement may be amended from time to time, so
with the proceeds therefrom) and (ii) if such long as the payment thereunder by the Company and its
Indebtedness being acquired was issued at an original subsidiaries shall not exceed the amount of taxes the
issue discount, the original issue price thereof plus Company would be required to pay if it were the filing
amortization of the original issue discount at the time person for all applicable taxes, (iii) any payment by
of the incurrence of the Indebtedness being issued in the Company or any subsidiary pursuant to the Transfer
exchange therefor (or the proceeds of which will and Assumption Agreement, dated as of June 23, 1989,
finance such acquisition), and (B) the amount of between Food 4 Less and Holdings, as in effect on the
penalties, fees and expenses actually incurred with Issue Date, (iv) any payment by the Company or any
respect thereto, and provided further that (x) any such subsidiary, or any dividend by the Company or any
Indebtedness shall have an average life not less than Subsidiary to New Holdings the proceeds of which are
the average life of the Indebtedness being acquired, used by New Holdings to make payments, (a) in
and shall contain subordination and default provisions connection with repurchases of outstanding shares of
no less favorable, in any material respect, to holders the Company's or New
of the Old F4L Senior Subordinated Notes than those
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contained in such Indebtedness being acquired (y) any Holdings' common stock following the death, disability
such Indebtedness that repays the F4L Senior or termination of employment of management
Subordinated Notes shall not have any fixed mandatory stockholders, and (b) of amounts required to be paid by
redemption or sinking fund requirement in an amount New Holdings, the Company or any of its subsidiaries to
greater than or at a time prior to the amounts and participants or former participants in employee benefit
times specified in the F4L Senior Subordinated Notes or plans upon termination of employment by such
any Indebtedness refinancing the F4L Senior Subordi- participants, as provided in the documents related
nated Notes, as the case may be, unless any such thereto, in an aggregate amount (for both clauses (a)
requirement applies on a date after the Maturity Date. and (b)) not to exceed $10 million in any yearly period
(provided that any unused amounts may be carried over
"Permitted Payments" means any payment by Food 4 Less to any subsequent yearly period subject to a maximum
or any subsidiary (i) to The Yucaipa Companies or the amount of $20 million in any yearly period), (v) from
principals thereof for consulting, investment banking and after June 30, 1998, payments of cash dividends or
or similar services during such period pursuant to that loans to New Holdings in an amount sufficient to enable
certain Amended and Restated Consulting Agreement, New Holdings to make payments of interest required to
dated as of June 17, 1991, among Food 4 Less, Yucaipa be made in respect of the Discount Notes in an amount
Management Company and The Yucaipa Companies, as such not to exceed the amount payable thereunder in
amounts would be calculated under such Consulting accordance with the terms thereof in effect on the
Agreement as in effect on the Issue Date, (ii) pursuant Issue Date, (vi) from and after June 1, 2000, payments
to the Amended and Restated Tax Sharing Agreement, of cash dividends to New Holdings in an amount
dated as of June 17, 1991, between Food 4 Less and sufficient to enable New Holdings to make payments of
certain subsidiaries, as such Tax Sharing Agreement may interest required to be made in respect of the Seller
be amended from time to time, so long as the payment Debentures and the New Discount Debentures in an amount
thereunder by Food 4 Less and its subsidiaries shall not to exceed the amount payable thereunder in
not exceed the amount of taxes Food 4 Less would be accordance with the terms thereof in effect on the
required to pay if it were the filing person for all Issue Date, (vii) dividends or other payments to New
applicable taxes, (iii) pursuant to the Transfer and Holdings sufficient to permit New Holdings to perform
Assumption Agreement, dated as of June 23, 1989, accounting, legal, corporate and administrative
between Food 4 Less and FFL, as in effect on the Issue functions in the ordinary course of business or to pay
Date, and (iv) (a) in connection with repurchases of required fees and expenses in connection with the
outstanding shares of Food 4 Less' common stock Merger, the Reincorporation Merger and the registration
following the death, disability or termination of under applicable laws and regulations of its debts and
employment of management stockholders, and (b) of securities, (viii) dividends or other distributions by
amounts required to be paid by FFL, Food 4 Less or any the Company to New Holdings on the Issue Date of shares
of its subsidiaries to participants in employee benefit of New Holdings common stock owned by the Company, (ix)
plans upon any termination of employment by such dividends by the Company to New Holdings of the Net
participants, as provided in the documents related Cash Proceeds of an Asset Sale to the extent that (a)
thereto, in an aggregate amount (for both clauses (a) neither the Company nor any of the Subsidiaries is
and (b)) not to exceed $5 million in any yearly period required, or may be required, pursuant to the documents
(provided that any unused amounts may be carried over governing any outstanding Indebtedness of the Company
to any subsequent yearly period subject to a maximum or any of the Subsidiaries to utilize such Net Cash
amount of $10 million in any yearly period). Proceeds to repay (or offer to repay) such
Indebtedness, (b) such Net Cash Proceeds have not been
"Consolidated Net Income," means, with respect to any utilized to repay outstanding Indebtedness of the
person, for any period, the aggregate of the net income Company or any of the Subsidiaries and (c) New Holdings
(or loss) of such person and its subsidiaries for such is required pursuant to the documents governing any
period, on a consolidated basis, determined in outstanding Indebtedness of New Holdings to utilize
accordance with GAAP; provided that (a) the net income such Net Cash Proceeds to repay (or offer to repay)
of any other person in which such person or any of its such Indebtedness, (x) (A) the exchange by the Company
subsidiaries has an interest (which interest does not of Old RGC Notes for New RGC Notes, or the purchase for
cause the net income of such other person to be cash of up to $224.5 million aggregate principal amount
consolidated with the net income of such person and its of Old RGC Notes, in each case, in accordance with the
subsidiaries in accordance with GAAP) shall be included terms of the RGC Offers, (B) the exchange by the
only to the extent of the amount of dividends or Company of Old F4L Senior Subordinated Notes for New
distributions actually paid to such person or such F4L Senior Subordinated Notes in accordance with the
subsidiary by such other person in such period; (b) the terms of the Exchange Offers and (c) the repurchase by
net income of any subsidiary of such person that is the Company of up to $224.5 million aggregate principal
subject to any Payment Restriction shall be excluded to amount of Old RGC Notes, at a repurchase price of 101%
the extent such Payment Restriction actually prevented of the principal amount thereof plus accrued interest
the payment of an amount that otherwise could have been to the repurchase date, pursuant to the "change of
paid to, or received by, such person or a subsidiary of control purchase offer" provisions set forth in section
such person not subject to any Payment Restriction; and 1014 of the Old RGC Indentures as in effect on the
(c)(i) the net income (or loss) of any other person Issue Date, and (xi) the loan by the Company on the
acquired in a pooling of interests transaction for any Issue Date to RGC Investment Company of not more than
period prior to the date of such acquisition, (ii) all $5 million.
gains and losses realized on any Asset Sale or in
connection with the closure of the Long Beach "Consolidated Net Income" means, with respect to any
Warehouse, (iii) all gains realized upon or in person, for any period, the aggregate of the net income
connection with or as a consequence of the issuance of (or loss) of such person and its subsidiaries for such
the capital stock of such person or any of its period, on a consolidated basis, determined in
subsidiaries and any gains on pension reversions accordance with GAAP; provided that (a) the net income
received by such person or any of its subsidiaries, of any other person in which such person or any of its
(iv) all gains and losses realized on the purchase or subsidiaries has an interest (which interest does not
other acquisition by such person or any of its cause the net income of such other person to be
subsidiaries of any securities of such person or any of consolidated with the net income of such person and its
its subsidiaries, (v) all gains and losses resulting subsidiaries in accordance with GAAP) shall be included
from the cumulative effect of any accounting change only to the extent of the amount of dividends or
pursuant to the application of Accounting Principles distributions actually paid to such person or such
Board Opinion No. 20, as amended, (vi) all other subsidiary by such other person in such period; (b) the
extraordinary gains and losses, and (vii) with respect net income of any subsidiary of such person that is
to Food 4 Less all deferred financing costs written off
in connection with the early
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extinguishment of any Indebtedness shall each be subject to any Payment Restriction shall be excluded to
excluded. the extent such Payment Restriction actually prevented
the payment of an amount that otherwise could have been
IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD paid to, or received by, such person or a subsidiary of
F4L SENIOR NOTE INDENTURE WILL BE MODIFIED TO ELIMINATE such person not subject to any Payment Restriction; and
THIS COVENANT AND CERTAIN RELATED DEFINITIONS. (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) all
non-cash charges 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; provided
further that solely for the purpose of computing
amounts described in subclause (c) of the first
paragraph of the covenant described under
"-- Limitation on Restricted Payments" above,
"Consolidated Net Income" of the Company for any period
shall be reduced by the aggregate amount of dividends
paid by the Company or a Subsidiary to New Holdings
pursuant to clauses (v) and (vi) of the definition of
"Permitted Payments" during such period.
"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).
"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 F4L Senior Notes or the guarantee of such
Subsidiary Guarantor, as the case may be.
LIMITATION ON INCURRENCES OF ADDITIONAL LIMITATION ON INCURRENCES OF ADDITIONAL
INDEBTEDNESS. Pursuant to the Old F4L Senior Note INDEBTEDNESS. Pursuant to the New F4L Senior Note
Indenture, Food 4 Less shall not, and shall not permit Indenture, the Company shall not, and shall not permit
any of its subsidiaries, directly or indirectly, to any of its subsidiaries, directly or indirectly, to
incur, assume, guarantee, become liable, contingently incur, assume, guarantee, become liable, contingently
or otherwise, with respect to, or otherwise become or otherwise, with respect to, or otherwise become
responsible for the payment of (collectively "incur") responsible for the payment of (collectively "incur")
any Indebtedness; provided, however, that (i) Food 4 any Indebtedness other than Permitted Indebtedness;
Less may incur Indebtedness if (A) no Default with provided, however, that if no Default with respect to
respect to payment of principal of, or interest on, the payment of principal of, or interest on, the New F4L
Old F4L Senior Notes or Event of Default shall have Senior Notes issued under the New F4L Senior Note
occurred and be continuing at the time or as a Indenture or Event of Default under the New F4L Senior
consequence of the incurrence of any such Indebtedness Note Indenture shall have occurred and be continuing at
and (B) on the date of the incurrence of such the time or as a consequence of the incurrence of any
Indebtedness the Operating Coverage Ratio of Food 4 such Indebtedness, the Company may incur Indebtedness
Less would be greater than 2.2. to 1.0 if such date is if immediately before and immediately after giving
after June 15, 1994 and prior to June 15, 1996; and effect to the incurrence of such Indebtedness the
greater than 2.4 to 1.0 thereafter; and (ii) a Operating Coverage Ratio of the Company would be
subsidiary may incur Acquired Indebtedness to the greater than 2.0 to 1.0; provided, further, that a
extent such Indebtedness could have been incurred by subsidiary may incur Acquired Indebtedness to the
Food 4 Less pursuant to the preceding clause (i). extent such Indebtedness could have been incurred by
the Company pursuant to the immediately preceding
The foregoing limitation shall not apply to (a) proviso.
Indebtedness of Food 4 Less and its subsidiaries
pursuant to (i) the Term Facility under or pursuant to In addition, the New F4L Senior Note Indenture will
the Loan Documents in an aggregate principal amount at provide that neither the Company nor any Subsidiary
any time outstanding not to exceed $301.7 million, less Guarantor will, directly or indirectly, in any event
the aggregate amount of all principal repay- incur any Indebtedness that by its terms (or by the
terms of any agreement governing such
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ments thereunder out of the net proceeds of the Indebtedness) is subordinated to any other Indebtedness
offering of the Old F4L Senior Notes, and less any of the Company or such Subsidiary Guarantor, as the
future repayments subsequent to the Issue Date, (ii) case may be, unless such Indebtedness is also by its
the Subsidiary Letter of Credit Obligations (and Food 4 terms (or by the terms of any agreement governing such
Less and each subsidiary (to the extent it is not an Indebtedness) made expressly subordinate to the New F4L
obligor) may guarantee such Indebtedness) not to exceed Senior Notes or the guarantee of such Subsidiary
$55 million at any time outstanding and (iii) the Guarantor, as the case may be, to the same extent and
Revolving Facility under the Loan Documents (and Food 4 in the same manner as such Indebtedness is subordi-
Less and each subsidiary (to the extent it is not an nated pursuant to subordination provisions that are
obligor) may guarantee such Indebtedness) in an most favorable to the holders of any other Indebtedness
aggregate principal amount at any time outstanding not of the Company or such Subsidiary Guarantor, as the
to exceed $70 million, less all permanent reductions of case may be.
the unused portion under the Revolving Facility, (b)
the Old F4L Senior Notes; (c) certain intercompany "Indebtedness" means, with respect to any person,
Indebtedness; (d) Indebtedness incurred by Food 4 Less without duplication, (i) all liabilities, contingent or
or any subsidiary in connection with the purchase or otherwise, of such person (a) for borrowed money
improvement of property (real or personal) or equipment (whether or not the recourse of the lender is to the
or other capital expenditures in the ordinary course of whole of the assets of such person or only to a portion
business (including for the purchase of assets or stock thereof), (b) evidenced by bonds, notes, debentures,
of any retail grocery store or business) or consisting drafts accepted or similar instruments or letters of
of capitalized lease obligations, in aggregate not to credit or representing the balance deferred and unpaid
exceed $25 million in any yearly period (provided that of the purchase price of any property (other than any
any unused amounts may be carried over to the next (but such balance that represents an account payable or any
not any subsequent) yearly period); (e) Indebtedness of other monetary obligation to a trade creditor (whether
Food 4 Less under certain Foreign Exchange Agreements or not an affiliate) created, incurred, assumed or
and Interest Swap Obligations; (f) Permitted Guarantees guaranteed by such person in the ordinary course of
of Indebtedness in aggregate not to exceed $25 million business of such person in connection with obtaining
at any time outstanding in addition to those goods, materials or services and due within twelve
outstanding on the date of the Alpha Beta Acquisition; months (or such longer period for payment as is
(g) guarantees by Food 4 Less and its subsidiaries of customarily extended by such trade creditor) of the
Indebtedness incurred by a wholly-owned subsidiary incurrence thereof, which account is not overdue by
provided that the incurrence of such Indebtedness by more than 90 days, according to the original terms of
such wholly-owned subsidiary is permitted under the sale, unless such account payable is being contested in
terms of the Old F4L Senior Note Indenture; (h) good faith), or (c) for the payment of money relating
Refinancing Indebtedness; (i) Indebtedness in to a capitalized lease obligation; (ii) the maximum
connection with the acquisition of the La Habra fixed repurchase price of all Disqualified Capital
Facility and Option Stores if, after giving effect to Stock of such person; (iii) reimbursement obligations
such incurrence, the Operating Coverage Ratio of Food 4 of such person with respect to letters of credit; (iv)
Less would be greater than 2.0 to 1.0; (j) Indebtedness obligations of such person with respect to Interest
for letters of credit relating to workers' compensation Swap Obligations and Foreign Exchange Agreements; (v)
claims and self-insurance or similar requirements in all liabilities of others of the kind described in the
the ordinary course of business; (k) the Old F4L preceding clause (i), (ii), (iii) or (iv) that such
Subordinated Notes and related guarantees; and (l) person has guaranteed or that is otherwise its legal
additional Indebtedness of Food 4 Less and its liability; and (vi) all obligations of others secured
Subsidiary Guarantors in an amount not to exceed $75 by a lien to which any of the properties or assets
million at any time outstanding. (including, without limitation, leasehold interests and
any other tangible or intangible property rights) of
"Indebtedness" means with respect to any person, such person are subject, whether or not the obligations
without duplication, (i) all liabilities, contingent or secured thereby shall have been assumed by such person
otherwise, of such person (a) for borrowed money or shall otherwise be such person's legal liability
(whether or not the recourse of the lender is to the (provided that if the obligations so secured have not
whole of the assets of such person or only to a portion been assumed by such person or are not otherwise such
thereof), (b) evidenced by bonds, notes, debentures, person's legal liability, such obligations shall be
drafts accepted or similar instruments or letters of deemed to be in an amount equal to the fair market
credit or representing the balance deferred and unpaid value of such properties or assets, as determined in
of the purchase price of any property (other than any good faith by the board of directors of such person,
such balance that represents an account payable or any which determination shall be evidenced by a board
other monetary obligation to a trade creditor (whether resolution). For purposes of the preceding sentence,
or not an affiliate) created, incurred, assumed or the "maximum fixed repurchase price" of any
guaranteed by such person in the ordinary course of Disqualified Capital Stock that does not have a fixed
business of such person in connection with obtaining repurchase price shall be calculated in accordance with
goods, materials or services and due within twelve the terms of such Disqualified Capital Stock as if such
months (or such longer period for payment as is Disqualified Capital Stock were purchased on any date
customarily extended by such trade creditor) of the on which Indebtedness shall be required to be
incurrence thereof, which account is not overdue by determined pursuant to this Indenture, and if such
more than 90 days, according to the original terms of price is based upon, or measured by, the fair market
sale, unless such account payable is being contested in value of such Disqualified Capital Stock (or any equity
good faith), or (c) for the payment of money relating security for which it may be exchanged or converted),
to a capitalized lease obligation; (ii) the maximum such fair market value shall be determined in good
fixed repurchase price of all Disqualified Capital faith by the board of directors of such person, which
Stock of such person; (iii) reimbursement obligations determination shall be evidenced by a board resolution.
of such person with respect to letters of credit; (iv) For purposes of the New F4L Senior Note Indenture,
obligations of such person with respect to Interest Indebtedness incurred by any person that is a general
Swap Obligations and Foreign Exchange Agreements; (v) partnership (other than non-recourse Indebtedness)
all liabilities of others of the kind described in the shall be deemed to have been incurred by the general
preceding clause (i), (ii), (iii) or (iv) that such partners of such partnership pro rata in accordance
person has guaranteed or that is otherwise its legal with their respective interests in the liabilities of
liability; and (vi) all obligations of others secured such partnership unless any such general partner shall,
by a lien to which any of the properties or assets in the reasonable determination of the board of
(including, without limitation, leasehold interests and directors of the Company, be unable to satisfy its pro
any other tangible or intangible property rights) of rata share of the liabilities of the partnership, in
such person are subject, whether or not the which case the pro rata share of any Indebtedness
attributable to such partner
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obligations secured thereby shall have been assumed shall be deemed to be incurred at such time by the
by such person or shall otherwise be such person's remaining general partners on a pro rata basis in
legal liability (provided that if the obligations so accordance with their interests.
secured have not been assumed by such person or are
not otherwise such person's legal liability, "Permitted Indebtedness" means (a) Indebtedness of the
such obligations shall be deemed to be in an Company and its Subsidiaries pursuant to (i) the Term
amount equal to the fair market value of such Loans in an aggregate principal amount at any time
properties or assets, as determined in good faith by outstanding not to exceed $750 million or such lesser
the board of directors of such person, which amount as may be actually funded under the Term Loans
determination shall be evidenced by a board on or within 91 days following the Issue Date (with any
resolution). For purposes of the preceding sentence, such amounts funded after the Issue Date to be used to
the "maximum fixed repurchase price" of any finance the repurchase of up to $224.5 million
Disqualified Capital Stock that does not have a fixed aggregate principal amount of Old RGC Notes pursuant to
repurchase price shall be calculated in accordance with the "change of control purchase offer" provision set
the terms of such Disqualified Capital Stock as if such forth in section 1014 of the Old RGC Indentures, plus
Disqualified Capital Stock were purchased on any date related fees and expenses), less the aggregate amount
on which Indebtedness shall be required to be of all principal repayments thereunder pursuant to and
determined pursuant to the Old F4L Senior Note in accordance with the covenant described under
Indenture, and if such price is based upon, or measured "-- Certain Covenants -- Limitation on Asset Sales"
by, the fair market value of such Disqualified Capital above subsequent to the Issue Date, and (ii) the
Stock (or any equity security for which it may be revolving credit facility under the Credit Agreement
exchanged or converted), such fair market value shall (and the Company and each Subsidiary (to the extent it
be determined in good faith by the board of directors is not an obligor) may guarantee such Indebtedness) in
of such person, which determination shall be evidenced an aggregate principal amount at any time outstanding
by a board resolution. For purposes of the Old F4L not to exceed $325 million, less all permanent
Senior Note Indenture, Indebtedness incurred by any reductions thereunder pursuant to and in accordance
person that is a general partnership (other than with the covenant described under "-- Certain
non-recourse Indebtedness) shall be deemed to have been Covenants -- Limitation on Asset Sales" above, (b)
incurred by the general partners of such partnership Indebtedness of the Company or a Subsidiary Guarantor
pro rata in accordance with their respective interests owed to and held by the Company or a Subsidiary
in the liabilities of such partnership unless any such Guarantor; (c) Indebtedness incurred by the Company or
general partner shall, in the reasonable determination any Subsidiary in connection with the purchase or
of the board of directors of Food 4 Less, be unable to improvement of property (real or personal) or equipment
satisfy its pro rata share of the liabilities of the or other capital expenditures in the ordinary course of
partnership, in which case the pro rata share of any business (including for the purchase of assets or stock
Indebtedness attributable to such partner shall be of any retail grocery store or business) or consisting
deemed to be incurred at such time by the remaining of Capitalized Lease Obligations provided that (i) at
general partners on a pro rata basis in accordance with the time of the incurrence thereof, such Indebtedness,
their interests. together with any other Indebtedness incurred during
the most recently completed four fiscal quarter period
"Operating Coverage Ratio" means, with respect to any in reliance upon this clause (c) does not exceed, in
person, the ratio of (1) EBDIT of such person for the the aggregate, 3% of net sales of the Company and its
period (the "Pro Forma Period") consisting of the most Subsidiaries during the most recently completed four
recent four full fiscal quarters for which financial fiscal quarter period on a consolidated basis
information in respect thereof is available immediately (calculated on a pro forma basis if the date of
prior to the date of the transaction giving rise to the incurrence is prior to the first anniversary of the
need to calculate the Operating Coverage Ratio (the Merger) and (ii) such Indebtedness, together with all
"Transaction Date") to (2) the aggregate Fixed Charges then outstanding Indebtedness incurred in reliance upon
of such person for the fiscal quarter in which the this clause (c) does not exceed, in the aggregate, 3%
Transaction Date occurs and the three fiscal quarters of the aggregate net sales of the Company and its
immediately subsequent to such fiscal quarter (the Subsidiaries during the most recently completed twelve
"Forward Period") reasonably anticipated by the board fiscal quarter period on a consolidated basis (calcu-
of directors of such person to become due from time to lated on a pro forma basis if the date of incurrence is
time during such period. For purposes of this prior to the third anniversary of the Merger); (d)
definition, if the Transaction Date occurs prior to the Indebtedness incurred by the Company or any subsidiary
first anniversary of the Alpha Beta Acquisition, in connection with capital expenditures in an aggregate
"EBDIT" for the Pro Forma Period shall be calculated, principal amount not exceeding $150 million, provided
in the case of Food 4 Less, after giving effect on a that such capital expenditures relate solely to the
pro forma basis to the Alpha Beta Acquisition as if it integration of the operations of RSI, Food 4 Less and
had occurred on the first day of the Pro Forma Period. their respective subsidiaries, as described in this
In addition to, but without duplication of, the Amended and Restated Prospectus and Solicitation
foregoing, for purposes of this definition, "EBDIT" Statement; (e) Indebtedness of the Company incurred
shall be calculated after giving effect (without under certain Foreign Exchange Agreements and Interest
duplication), on a pro forma basis for the Pro Forma Swap Obligations; (f) guarantees incurred in the
Period (but no longer), to (a) any Investment, during ordinary course of business by the Company or a
the period commencing on the first day of the Pro Forma Subsidiary of Indebtedness of any other person in
Period to and including the Transaction Date (the aggregate not to exceed $25.0 million at any time
"Reference Period"), in any other person that, as a outstanding; (g) guarantees by the Company or a
result of such Investment, becomes a subsidiary of such Subsidiary Guarantor of Indebtedness incurred by a
person, (b) the acquisition, during the Reference wholly-owned Subsidiary Guarantor so long as the
Period (by merger, consolidation or purchase of stock incurrence of such Indebtedness incurred by such
or assets) of any business or assets, which acquisition wholly-owned Subsidiary Guarantor is permitted under
is not prohibited by the Old F4L Senior Note Indenture, the terms of the applicable New Indenture; (h)
and (c) any sales or other dispositions of assets Refinancing Indebtedness; (i) Indebtedness for letters
(other than sales of inventory in the ordinary course of credit relating to workers' compensation claims and
of business) occurring during the Reference Period, in self-insurance or similar requirements in the ordinary
each case as if such incurrence, Investment, repay- course of business; (j) Existing Indebtedness and other
ment, acquisition or asset sale had occurred on the Indebtedness outstanding on the Issue Date (after
first day of the Reference Period. In addition, for giving effect to the Merger); (k) Indebtedness arising
purposes of this definition, "Fixed Charges" shall be from guarantees of Indebtedness of the Company or any
calculated after giving effect (without duplication), Subsidiary or other agree-
on a pro forma basis for the Forward Period, to any
Indebtedness incurred or repaid on or after the first
day of the
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Forward Period and prior to the Transaction Date. ments of the Company or a Subsidiary providing for
indemnification, adjustment of purchase price or
"Refinancing Indebtedness" means, with respect to any similar obligations, in each case, incurred or assumed
person, Indebtedness of such person issued in exchange in connection with the disposition of any business,
for, or the proceeds from the issuance and sale or assets or Subsidiary, other than guarantees of
disbursement of which are used to substantially Indebtedness incurred by any person acquiring all or
concurrently repay, redeem, refund, refinance, any portion of such bonuses, assets or Subsidiary for
discharge or otherwise retire for value, in whole or in the purpose of financing such acquisition; provided
part (collectively, "repay"), or constituting an that the maximum aggregate liability in respect of all
amendment, modification or supplement to, or a deferral such Indebtedness shall at no time exceed the gross
or renewal of (collectively, an "amendment"), any proceeds actually received by the Company and its
Indebtedness of such person existing on the Issue Date subsidiaries in connection with such disposition; (l)
or Indebtedness (other than Permitted Indebtedness, obligations in respect of performance bonds and
except Permitted Indebtedness incurred pursuant to completion guarantees provided by the Company or any
clauses (a), (c), (d), (h), (j) and (k) of the Subsidiary in the ordinary course of business; and (m)
definition thereof) incurred in accordance with the additional Indebtedness of the Company and the
applicable New Indenture (a) in a principal amount (or, Subsidiary Guarantors in an amount not to exceed $200
if such Refinancing Indebtedness provides for an amount million at any time outstanding.
less than the principal amount thereof to be due and
payable upon the acceleration thereof, with an original "Operating Coverage Ratio" means, with respect to any
issue price) not in excess of (without duplication) (i) person, the ratio of (1) EBDIT of such person for the
the principal amount or the original issue price, as period (the "Pro Forma Period") consisting of the most
the case may be, of the Indebtedness so refinanced (or, recent four full fiscal quarters for which financial
if such Refinancing Indebtedness refinances information in respect thereof is available immediately
Indebtedness under a revolving credit facility or other prior to the date of the transaction giving rise to the
agreement providing a commitment for subsequent need to calculate the Operating Coverage Ratio (the
borrowings, with a maximum commitment not to exceed the "Transaction Date") to (2) the aggregate fixed charges
maximum commitment under such revolving credit facility of such person for the fiscal quarter in which the
or other agreement) plus (ii) unpaid accrued interest Transaction Date occurs and the three fiscal quarters
on such Indebtedness plus (iii) premiums, penalties, immediately subsequent to such fiscal quarter (the
fees and expenses actually incurred by such person in "Forward Period") reasonably anticipated by the board
connection with the repayment or amendment thereof and of directors of such person to become due from time to
(b) with respect to Refinancing Indebtedness that time during such period. For purposes of this
repays or constitutes an amendment to Subordinated definition, if the Transaction Date occurs prior to the
Indebtedness, such Refinancing Indebtedness (x) shall first anniversary of the Merger, "EBDIT" for the Pro
not have any fixed mandatory redemption or sinking fund Forma Period shall be calculated, in the case of the
requirement in an amount greater than or at a time Company, after giving effect on a pro forma basis to
prior to the amounts and times specified in such repaid the Merger as if it had occurred on the first day of
or amended Subordinated Indebtedness, except to the the Pro Forma Period. In addition to, but without
extent that any such requirement applies on a date duplication of, the foregoing, for purposes of this
after the Maturity Date of the New F4L Senior Notes and definition, "EBDIT" shall be calculated after giving
(y) shall contain subordination and default provisions effect (without duplication), on a pro forma basis for
no less favorable in any material respect to holders of the Pro Forma Period (but no longer), to (a) any
the New Senior F4L Notes than those contained in such Investment, during the period commencing on the first
repaid or amended Subordinated Indebtedness. day of the Pro Forma Period to and including the
Transaction Date (the "Reference Period"), in any other
"Loan Documents" means the Credit Agreement and all person that, as a result of such Investment, becomes a
promissory notes, guarantees, security agreements, subsidiary of such person, (b) the acquisition, during
pledge agreements, deeds of trust, mortgages, letters the Reference Period (by merger, consolidation or
of credit and other instruments, agreements and purchase of stock or assets) of any business or assets,
documents executed pursuant thereto or in connection which acquisition is not prohibited by the New F4L
therewith, including all amendments, supplements, Senior Note Indenture, and (c) any sales or other
extensions, renewals, restatements, replacements or dispositions of assets (other than sales of inventory
refinancings thereof, or other modifications (in whole in the ordinary course of business) occurring during
or in part, and without limitation as to amount, terms, the Reference Period, in each case as if such
conditions, covenants or other provisions) thereof from incurrence, Investment, repayment, acquisition or asset
time to time. sale had occurred on the first day of the Reference
Period. In addition, for purposes of this definition,
"Credit Agreement" means the Credit Agreement, dated "Fixed Charges" shall be calculated after giving effect
as of June 17, 1991, by and among Food 4 Less, certain (without duplication), on a pro forma basis for the
of its subsidiaries, the Lenders and Designated Issuers Forward Period, to any Indebtedness incurred or repaid
of the Lenders referred to therein, Bankers Trust on or after the first day of the Forward Period and
Company, Citicorp North America, Inc., and prior to the Transaction Date. If such person or any of
Manufacturers Hanover Trust Company, as Co-Agents, and its subsidiaries directly or indirectly guarantees any
Citicorp North America, Inc., as Administrative Agent, Indebtedness of a third person, the Operating Coverage
as amended, extended, renewed, restated, supplemented Ratio shall give effect to the incurrence of such
or otherwise modified (in whole or in part, and without Indebtedness as if such person or subsidiary had
limitation as to amount, terms, conditions and other directly incurred such guaranteed Indebtedness.
provisions) from time to time, and any agreement
governing Indebtedness required to refund or refinance "Credit Agreement" means the Credit Agreement, dated as
the entirety of the borrowings and commitments then of the Issue Date, by and among Food 4 Less, certain of
outstanding or permitted to be outstanding under such its subsidiaries, the Lenders referred to therein,
Credit Agreement or such agreement. Food 4 Less shall Bankers Trust Company, as administrative agent, as the
promptly notify the Old F4L Senior Note Trustee of any same may be amended, extended, renewed, restated,
such refunding or refinancing of the Credit Agreement. supplemented or otherwise modified (in each case, in
whole or in part, and without limitation as to amount,
"Acquired Indebtedness" means Indebtedness of a terms, conditions, covenants and other provisions) from
person or any of its subsidiaries existing at the time time to time, and any agreement governing Indebtedness
such person becomes a subsidiary or assumed in incurred to refund, replace or refinance any borrowings
connection with the acquisition of assets from such and commitments then outstanding or permitted to be
person and not incurred by such person in connection outstanding under such Credit Agreement or any such
with, or in anticipation or contemplation of, such prior agreement as the same may be amended, extended,
person becom- renewed, restated, supplemented or
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ing a subsidiary or such acquisition. otherwise modified (in each case, in whole or in part,
and without limitation as to amount, terms, conditions,
"Permitted Guarantees" means (i) guarantees in effect covenants and other provisions). The term "Credit
on the Issue Date and (ii) guarantees incurred in the Agreement" shall include all related or ancillary
ordinary course of business, by Food 4 Less or a documents, including, without limitation, any guarantee
subsidiary, of Indebtedness of any other person. agreements and security documents. The Company shall
promptly notify the New Trustee of any such refunding
"Refinancing Indebtedness" means Indebtedness of Food or refinancing of the Credit Agreement.
4 Less or a subsidiary (i) issued in exchange for, or
the proceeds from the issuance and sale or disbursement "Acquired Indebtedness" means (i) with respect to
of which are used to substantially concurrently repay, any person that becomes a subsidiary of the Company
redeem, refund, refinance, discharge or otherwise (or is merged into the Company or any of its
retire for value, in whole or in part (collectively, subsidiaries) after the Issue Date, Indebtness of,
"repay"), or constituting an amendment, modification or such person or any of its subsidiaries existing
supplement to, or a deferral or renewal of at the time such person becomes a subsidiary
(collectively, an "amendment"), any Indebtedness of of the Company (or is merged into the Company or any of
Food 4 Less or a subsidiary (and any penalties, fees its subsidiaries) and which was not incurred in
and expenses actually incurred by Food 4 Less or such connection with, or in contemplation of, such person
subsidiary in connection with the repayment or becoming a subsidiary of the Company (or being merged
amendment thereof) existing immediately after the into the Company or any of its subsidiaries) and (ii)
original issuance of the Old F4L Senior Notes or with respect to the Company or any of its subsidiaries,
incurred pursuant to the Operating Coverage Ratio test any Indebtedness assumed by the Company or any of its
set forth under "Limitation on the Incurrence of subsidiaries in connection with the acquisition of any
Additional Indebtedness," or pursuant to certain other assets from another person (other than the Company or
exceptions thereunder, in a principal amount (or, if any of its subsidiaries), and which was not incurred by
such Refinancing Indebtedness provides for an amount such other person in connection with, or in contem-
less than the principal amount thereof to be due and plation of, such acquisition.
payable upon the acceleration thereof, with an original
issue price) not in excess of (1) the principal amount "EBDIT" means, with respect to any person, for any
of the Indebtedness so refinanced (or, if such period, the Consolidated Net Income of such person for
Refinancing Indebtedness refinances Indebtedness under such period, plus, in each case to the extent deducted
a revolving credit facility or other agreement in computing Consolidated Net Income of such person for
providing a commitment for subsequent borrowings, with such period (without duplication( (i) provisions for
a maximum commitment not to exceed the maximum income taxes or similar charged recognized by such
commitment under such revolving credit facility or person and its consolidated subsidiaries accrued during
other agreement) plus (2) unpaid accrued interest on such period, (ii) depreciation and amortization expense
such Indebtedness plus (3) penalties, fees and ex- of such person and its consolidated subsidiaries
penses actually incurred by Food 4 Less or such accrued during such period (but only to the extent not
subsidiary, as the case may be, in connection with the included in Fixed Charges), (iii) Fixed Charges of such
repayment or amendment thereof; or (ii) in an amount person and its consolidated subsidiaries for such
permitted to be incurred at the time of such incurrence period, (iv) LIFO charges (credits) of such person and
by Food 4 Less or such subsidiary, as the case may be, its consolidated subsidiaries for such period, (v) the
under the Credit Agreement pursuant to "Limitation on amount of any restructuring reserve or charge recorded
the Incurrence of Additional Indebtedness"; provided during such period in accordance with GAAP, including
that (for both clauses (i) and (ii) above) (A) any such reserve or charge related to the Merger, and
Refinancing Indebtedness of any subsidiary shall not be (vi) any other non-cash charges reducing Consolidated
used to repay outstanding Indebtedness of Food 4 Less, Net Income for such period (excluding any such charge
(B) Refinancing Indebtedness of Food 4 Less that repays which requires an accrual of or a cash reserve for cash
or constitutes an amendment to Indebtedness of Food 4 charges for any future period), less, without
Less (other than any of the Old F4L Senior Notes) duplication, (i) non-cash items increasing Consolidated
ranking junior in right of payment to, the Old F4L Net Income of such person for such period (excluding
Senior Notes shall not have an average life less than any such items which represent the reversal of any
the Indebtedness to be so refinanced at the time of accrual of, or cash reserve for, anticipated cash
such incurrence; provided, however, Refinancing charges in any prior period) in each case determined in
Indebtedness of Food 4 Less that repays or constitutes accordance with GAAP and (ii) the amount of all cash
an amendment to the Old F4L Subordinated Notes or any payments made by such person or its subsidiaries during
Indebtedness refinancing the Old F4L Subordinated Notes such period to the extent that such cash payment has
shall not have any fixed mandatory redemption or been provided for in a restructuring reserve or charge
sinking fund requirement in an amount greater than or referred to in clause (v) above (and were not otherwise
at a time prior to the amounts and times specified in deducted in the computation of Consolidated Net Income
the Old F4L Subordinated Notes or any Indebtedness of such person for such period).
refinancing the Old F4L Subordinated Notes, as the case
may be, unless any such requirement applies on a date "Permitted Guarantees" means (i) guarantees in effect
after the final maturity of the Old F4L Senior Notes; on the Issue Date and (ii) guarantees incurred in the
and, in any case, shall contain subordination and ordinary course of business, by the Company or a
default provisions no less favorable in any material subsidiary, of Indebtedness of any other person.
respect to holders of the Old F4L Senior Notes than
those contained in such repaid or amended Indebtedness, "Refinancing Indebtedness" means, with respect to any
and (C) notwithstanding the foregoing, any Refinancing person, Indebtedness of such person issued in exchange
Indebtedness incurred to repay all of the Old F4L for, or the proceeds from the issuance and sale or
Senior Notes then outstanding shall not be limited in disbursement of which are used to substantially
principal amount or otherwise if Food 4 Less concurrently repay, redeem, refund, refinance,
irrevocably deposits with the Old F4L Senior Note discharge or otherwise retire for value, in whole or in
Trustee or Paying Agent an amount of the proceeds of part (collectively, "repay"), or constituting an
such Refinancing Indebtedness sufficient to redeem the amendment, modification or supplement to, or a deferral
outstanding principal amount of the Old F4L Senior or renewal of (collectively, an "amendment"), any
Notes on the date fixed for the repayment thereof. 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 applicable New
Indenture (a) in a principal amount (or, if such
Refinancing Indebtedness provides for an amount
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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 In-
debtedness 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 of the New F4L Senior
Subordinated Notes and (y) shall contain subordination
and default provisions no less favorable in any
material respect to holders of the New Senior
Subordinated F4L Notes than those contained in such
repaid or amended Subordinated Indebtedness.
"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.
"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
and 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.
IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD
F4L SENIOR NOTE INDENTURE WILL BE MODIFIED TO
ELIMINATE THIS COVENANT AND CERTAIN RELATED
DEFINITIONS.
LIMITATION ON LIENS. Pursuant to the Old F4L Senior LIMITATION ON LIENS. Pursuant to the New F4L Senior
Note Indenture, Food 4 Less shall not and shall not Note Indenture, the Company shall not and shall not
permit any subsidiary to create, incur, assume or permit any subsidiary to create, incur, assume or
suffer to exist any liens upon any of their respective suffer to exist any liens upon any of their respective
assets unless the Old F4L Senior Notes are equally and assets unless the New F4L Senior Notes issued
ratably secured by the liens covering such assets, thereunder are equally and ratably secured by the liens
except for (i) existing and future liens securing covering such assets, except for (i) liens on assets of
Indebtedness and other obligations of Food 4 Less its the Company securing Senior Indebtedness and liens on
subsidiaries under the Loan Documents and related assets of a Subsidiary Guarantor which, at the time of
documents or any refinancing or replacement thereof in incurrence, secure Guarantor Senior Indebtedness, (ii)
whole or in part, (ii) Permitted Liens, existing and future liens
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(iii) liens securing Acquired Indebtedness; provided securing Indebtedness and other obligations of the
that such liens (x) are not incurred in connection Company and its subsidiaries under the Credit Agreement
with, or in contemplation of the acquisition of the and related documents or any refinancing or replacement
property or assets acquired and (y) do not extend to or thereof in whole or in part permitted under the New F4L
cover any property or assets of Food 4 Less or any Senior Note Indenture, (iii) Permitted Liens, (iv)
subsidiary other than the property or assets so liens securing Acquired Indebtedness; provided that
acquired, (iv) liens securing Indebtedness to the such liens (x) are not incurred in connection with, or
extent incurred to refinance secured Indebtedness in contemplation of the acquisition of the property or
outstanding as of the Issue Date; provided that such assets acquired and (y) do not extend to or cover any
refinancing Indebtedness shall be secured solely by the property or assets of the Company or any subsidiary
assets securing such currently outstanding Indebt- other than the property or assets acquired, (v) liens
edness, (v) liens to secure certain Indebtedness that to secure capitalized lease obligations and certain
is otherwise permitted under the Old F4L Senior Note other Indebtedness that is otherwise permitted under
Indenture; provided that (A) any such lien is created the New F4L Senior Note Indenture; provided that (A)
solely for the purpose of securing Indebtedness any such lien is created solely for the purpose of
representing, or incurred to finance, refinance or securing such other Indebtedness representing, or
refund, the cost (including sales and excise taxes, incurred to finance, refinance or refund, the cost
installation and delivery charges and other direct (including sales and excise taxes, installation and
costs of, and other direct expenses paid or charged in delivery charges and other direct costs of, and other
connection with, the purchase (whether through stock or direct expenses paid or charged in connection with, the
asset purchase, merger or otherwise) or construction) purchase (whether through stock or asset purchase,
of the property subject thereto, (B) the principal merger or otherwise) or construction) or improvement of
amount of the Indebtedness secured by such lien does the property subject thereto (whether real or personal,
not exceed 100% of such costs and (C) such lien does including fixtures and other equipment), (B) the
not extend to or cover any other property other than principal amount of the Indebtedness secured by such
such item of property and any improvements on such lien does not exceed 100% of such costs and (C) such
item; (vi) liens existing on the Issue Date; (vii) lien does not extend to or cover any other property
liens in favor of the Old F4L Senior Note Trustee; other than such item of property and any improvements
(viii) liens securing Indebtedness permitted by clauses on such item; (vi) liens existing on the Issue Date
(d), (h) or (k) above of "Limitation on Incurrences of (after giving effect to the Merger); (vii) liens in
Additional Indebtedness," provided that, in the case of favor of the New F4L Senior Note Trustee under the New
Indebtedness permitted by clause (h) above, the F4L Senior Note Indenture and any substantially
principal amount of the Indebtedness secured by liens equivalent lien granted to any trustee or similar
does not exceed 100% of the purchase price of the La institution under any indenture for Indebtedness
Habra Facility or the Option Stores, as the case may permitted to be incurred under the New F4L Senior Note
be; and (ix) any replacement, extension or renewal, in Indenture; and (viii) any replacement, extension or
whole or in part, of any lien described in this or the renewal, in whole or in part, of any lien described in
foregoing clauses including in connection with any this or the foregoing clauses including in connection
refinancing of the Indebtedness, in whole or in part, with any refinancing of the Indebtedness, in whole or
secured by any such lien provided that to the extent in part, secured by any such lien provided that to the
any such clause limits the amount secured or the assets extent any such clause limits the amount secured or the
subject to such liens, no extension or renewal shall assets subject to such liens, no extension or renewal
increase the amount of the assets subject to such shall increase the amount or the assets subject to such
liens, except to the extent that the liens associated liens, except to the extent that the liens associated
with such additional assets are otherwise permitted with such additional assets are otherwise permitted
hereunder. hereunder.
"Permitted Liens" shall mean (i) liens for taxes, "Permitted Liens" means (i) liens for taxes,
assessments and governmental charges to the extent assessments and governmental charges or claims not yet
not required to be paid under the Old F4L Senior Note due or which are being contested in good faith by
Indenture; (ii) statutory liens of landlords and appropriate proceedings promptly instituted and
carriers, warehousemen, mechanics, suppliers, ma- diligently conducted and if a reserve or other
terialmen, repairmen or other like liens arising in the appropriate provision, if any, as shall be required in
ordinary course of business and with respect to amounts conformity with GAAP shall have been made therefor;
not yet delinquent or being contested in good faith by (ii) statutory liens of landlords and carriers,
an appropriate process of law, and for which a reserve warehousemen, mechanics, suppliers, materialmen,
or other appropriate provision, if any, as shall be repairmen or other like liens arising in the ordinary
required by GAAP shall have been made; (iii) pledges or course of business, deposits made to obtain the release
deposits in the ordinary course of business to secure of such liens, and with respect to amounts not yet
lease obligations or nondelinquent obligations under delinquent for a period of more than 60 days or being
workers' compensation, unemployment insurance or contested in good faith by an appropriate process of
similar legislation; (iv) liens to secure the law, and for which a reserve or other appropriate
performance of public statutory obligations that are provision, if any, as shall be required by GAAP shall
not delinquent, appeal bonds, performance bonds or have been made; (iii) liens incurred or pledges or
other obligations of a like nature (other than for deposits made in the ordinary course of business to
borrowed money); (v) easements, rights-of-way, secure obligations under workers' compensation,
restrictions, minor defects or irregularities in title unemployment insurance and other types of social
and other similar charges or encumbrances not security or similar legislation; (iv) liens incurred or
interfering in any material respect with the business deposits made to secure the performance of tenders,
of Food 4 Less or any of its subsidiaries incurred in bids, leases, statutory obligations, surety and appeal
the ordinary course of business; (vi) purchase money bonds, government contracts, performance and return of
liens upon or in any real or personal property money bonds and other obligations of a like nature
(including fixtures and other equipment) acquired or incurred in the ordinary course of business (exclusive
held by Food 4 Less or any subsidiary in the ordinary of obligations for the payment of borrowed money); (v)
course of business to secure the purchase price of such easements, rights-of-way, zoning or other restrictions,
property or to secure Indebtedness incurred solely for minor defects or irregularities in title and other
the purpose of financing or refinancing the acquisition similar charges or encumbrances not interfering in any
or improvement of such property, or liens existing on material respect with the business of the Company or
such property at the time of its acquisition (other any of its Subsidiaries incurred in the ordinary course
than any such lien created in contemplation of such of business; (vi) liens upon specific items of
acquisition) provided that (x) no such lien shall inventory or other goods and proceeds of any person
extend to or cover any property other than the property securing such person's obligations in respect of
being acquired or improved and (y) any such bankers' acceptances
Indebtedness would be permitted to
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be incurred pursuant to "Limitation on Incurrences of issued or created for the account of such person to
Additional Indebtedness"; (vii) liens upon specific facilitate the purchase, shipment or storage of such
items of inventory or other goods and proceeds of any inventory or other goods in the ordinary course of
person securing such person's obligations in respect of business; (vii) liens securing reimbursement
bankers' acceptances issued or created for the account obligations with respect to letters of credit which
of such person to facilitate the purchase, shipment or encumber documents and other property relating to such
storage of such inventory or other goods in the letters of credit and the products and proceeds
ordinary course of business; (viii) liens securing thereof; (viii) liens in favor of customs and revenue
reimbursement obligations with respect to letters of authorities arising as a matter of law to secure
credit which encumber documents and other property payment of nondelinquent customs duties in connection
relating to such letters of credit and the products and with the importation of goods; (ix) judgment and
proceeds thereof; (ix) liens in favor of customs and attachment liens not giving rise to a Default or Event
revenue authorities arising as a matter of law to of Default; (x) leases or subleases granted to others
secure payment of nondelinquent customs duties in not interfering in any material respect with the
connection with the importation of goods; (x) judgment business of the Company or any Subsidiary; (xi) liens
and attachment liens not giving rise to a Default or encumbering customary initial deposits and margin
Event of Default; (xi) leases or subleases granted to deposits, and other liens incurred in the ordinary
others not interfering in any material respect with the course of business that are within the general
business of Food 4 Less or any subsidiary; (xii) liens parameters customary in the industry, in each case
encumbering customary initial deposits and margin securing Indebtedness under interest swap obligations
deposits, and other liens incurred in the ordinary and foreign exchange agreements and forward contracts,
course of business that are within the general option futures contracts, futures options or similar
parameters customary in the industry, in each case agreements or arrangements designed to protect the
securing Indebtedness under Interest Swap Obligations Company or any Subsidiary from fluctuations in the
and Foreign Exchange Agreements and forward contracts, price of commodities; (xii) liens encumbering deposits
option futures contracts, futures options or similar made in the ordinary course of business to secure
agreements or arrangements designed to protect Food 4 nondelinquent obligations arising from statutory,
Less or any subsidiary from fluctuations in the price regulatory, contractual or warranty requirements of the
of commodities; (xiii) liens encumbering deposits made Company or its Subsidiaries for which a reserve or
in the ordinary course of business to secure other appropriate provision, if any, as shall be
nondelinquent obligations arising from statutory, required by GAAP shall have been made; (xiii) liens
regulatory, contractual or warranty requirements of arising out of consignment or similar arrangements for
Food 4 Less or its subsidiaries for which a reserve or the sale of goods entered into by the Company or any
other appropriate provision, if any, as shall be Subsidiary in the ordinary course of business in accor-
required by GAAP shall have been made; (xiv) liens dance with past practices; (xiv) any interest or title
arising out of consignment or similar arrangements for of a lessor in the property subject to any lease,
the sale of goods entered into by Food 4 Less or any whether characterized as capitalized or operating other
subsidiary in the ordinary course of business in than any such interest or title resulting from or
accordance with past practices; (xv) any interest or arising out of a default by the Company or any
title of a lessor in the property subject to any lease, Subsidiary of its obligations under such lease; and
whether characterized as capitalized or operating other (xv) liens arising from filing UCC financing statements
than any such interest or title resulting from or for precautionary purposes in connection with true
arising out of a default by Food 4 Less or any leases of personal property that are otherwise
subsidiary of its obligations under such lease; and permitted under the New F4L Senior Note Indenture and
(xvi) liens arising from filing UCC financing under which the Company or any Subsidiary is lessee;
statements for precautionary purposes in connection (xvi) liens on assets of the Company securing
with true leases of personal property that are Indebtedness which would constitute Senior Indebtedness
otherwise permitted under the Old F4L Senior Note but for the provisions of clause (c) in the third
Indenture and under which Food 4 Less or any subsidiary sentence of the definition of Senior Indebtedness and
is a lessee. liens on assets of a Subsidiary Guarantor securing
Indebtedness which would constitute Guarantor Senior
IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD Indebtedness but for the provisions of clause (c) in
F4L SENIOR NOTE INDENTURES WILL BE MODIFIED TO the third sentence of the definition of Guarantor
ELIMINATE THIS PROVISION AND CERTAIN RELATED LIENS. Senior Indebtedness; and (xvii) additional liens
securing Indebtedness at any one time outstanding not
exceeding the sum of (i) $25 million and (ii) 10% of
the aggregate Consolidated Net Income of the Company
earned subsequent to the Issue Date and on or prior to
such time.
LIMITATION ON DISPOSITIONS OF ASSETS. Pursuant to the LIMITATION ON ASSET SALES. Pursuant to the New F4L
Old F4L Senior Note Indenture, Food 4 Less will not, Senior Note Indenture, the Company, will not, and will
and will not permit any of its subsidiaries to make any not permit any of its subsidiaries to make any Asset
Asset Sale unless (a) Food 4 Less or its applicable Sale unless (a) the Company or the applicable
subsidiary receives consideration at the time of such subsidiary receives consideration at the time of such
Asset Sale at least equal to the fair market value of Asset Sale at least equal to the fair market value of
the assets sold or otherwise disposed of and at least the assets sold and (b) upon consummation of an Asset
75% of the consideration so received by Food 4 Less or Sale, the Company will within 365 days of the receipt
such subsidiary is in the form of cash; provided, of the proceeds therefrom either: (i) apply or cause
however, that the amount of (i) any liabilities (as its subsidiary to apply the net cash proceeds of any
shown on Food 4 Less' or such subsidiary's most recent Asset Sale to (A) a Related Business Investment, (B) an
balance sheet or in the notes thereto) of Food 4 Less investment in properties and assets that replace the
or any subsidiary that are assumed by the transferee in properties and assets that are the subject of such
any such transaction and (ii) any cash equivalents or Asset Sale or (C) an investment in properties and
notes or other obligations received by Food 4 Less or assets that will be used in the business of the Company
any subsidiary from such transferee that are and its subsidiaries existing on the Issue Date or in
immediately converted by Food 4 Less or such subsidiary businesses reasonably related thereto; (ii) apply or
into cash, shall both be deemed to be cash, solely to cause to be applied such Net Cash Proceeds to the
the extent of the cash received in the case of this permanent repayment of Pari Passu Indebtedness;
clause (ii), for the purposes of this provision; provided, however, that any repayment of any revolving
provided, further, however, that the 75% limitation loan (under the Credit Agreement or otherwise) shall
referred to above shall not apply to (A) any result in a
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Asset Sale in which the cash portion of the permanent reduction in the commitment thereunder; (iii)
consideration received therefor, determined in use such net cash proceeds to secure Letter of Credit
accordance with the foregoing clause, is equal to or Obligations to the extent the related letters of credit
greater than what the net after-tax proceeds would have have not been drawn upon or returned undrawn; or (iv)
been had such Asset Sale complied with the afore- after such time as the accumulated net cash proceeds
mentioned 75% limitation and (B) any Asset Sale in equals or exceeds $20 million, apply or cause to be
which the consideration received by Food 4 Less or any applied such net cash proceeds to the purchase of New
of its subsidiaries is less than $5 million; and (b) F4L Senior Notes tendered to the Company for purchase
the net cash proceeds received by Food 4 Less or such at a price equal to 100% of the principal amount
subsidiary, as the case may be, will within 180 days of thereof plus accrued interest thereon to the date of
such Asset Sale, at the election of Food 4 Less, either purchase pursuant to an offer to purchase made by the
(i) invest or cause to be invested in a manner that Company as set forth below (a "Net Proceeds Offer");
would constitute a Related Business Investment; (ii) provided, however, that the Company shall have the
apply or cause to be applied to the payment of right to exclude from the foregoing provisions Asset
Indebtedness under the Credit Agreement or used to Sales subsequent to the Issue Date the proceeds of
secure Letter of Credit Obligations to the extent the which are derived from the sale and substantially
related letters of credit have not been drawn upon or concurrent lease-back of a supermarket and/or related
returned undrawn; provided, however, that any repayment assets or equipment which are acquired or constructed
of Indebtedness under the Revolving Facility under the by the Company or a subsidiary subsequent to the Issue
Loan Documents shall result in a permanent reduction in Date, provided that such sale and substantially
the commitment thereunder; or (iii) after such time as concurrent lease-back occurs within 270 days following
the accumulated net cash proceeds equals or exceeds such acquisition or the completion of such
$2.5 million, apply or cause to be applied such net construction, as the case may be. Pending the
cash proceeds to the purchase of Old F4L Senior Notes utilization of any Net Cash Proceeds in the manner (and
tendered to Food 4 Less for purchase at a price equal within the time period) described above, the Company
to 100% of the principal amount thereof plus accrued may use any such Net Cash Proceeds to repay revolving
interest thereon to the date of purchase pursuant to an loans (under the Credit Agreement or otherwise) without
offer to purchase made by Food 4 Less as set forth a permanent reduction of the commitment thereunder.
below (a "Net Proceeds Offer"); provided, however, that
Food 4 Less shall have the right to exclude Asset Sales Pursuant to the New F4L Senior Note Indenture, each Net
subsequent to the Issue Date, the proceeds of which in Proceeds Offer will be mailed to the record holders of
the aggregate do not exceed $10 million, from the New F4L Senior Notes as shown on the register of
foregoing provisions. holders of New F4L Senior Notes not less than 325 nor
more than 365 days after the relevant Asset Sale, with
Pursuant to the Old F4L Senior Note Indenture, each a copy to the New F4L Senior Note Trustee and the
Net Proceeds Offer will be mailed to the record holders Credit Agent. Such notice shall state, among other
of the Old F4L Senior Notes as shown on the register of things, the purchase date (which shall be no earlier
holders of Old F4L Senior Notes not less than 140 nor than 30 days nor later than 40 days from the date such
more than 180 days after the relevant Asset Sale, with notice is mailed) and shall otherwise comply with the
a copy to the Old F4L Senior Note Trustee and the procedures set forth in the New F4L Senior Note
Credit Agent. Such notice shall state, among other Indenture. Upon receiving notice of the Net Proceeds
things, the purchase date (which shall be no earlier Offer, holders may elect to tender their New F4L Senior
than 30 days nor later than 40 days from the date such Notes in whole or in part in integral multiples of
notice is mailed) and shall otherwise comply with the $1,000 in exchange for cash. To the extent holders
procedures set forth in the Old F4L Senior Note properly tender New F4L Senior Notes in an amount
Indenture. Upon receiving notice of the Net Proceeds exceeding the Net Proceeds Offer, New F4L Senior Notes
Offer, holders of the Old F4L Senior Notes may elect to of tendering holders will be repurchased on a pro rata
tender their Old F4L Senior Notes in whole on in part basis (based on amounts tendered). A Net Proceeds Offer
in integral multiples of $1,000 in exchange for cash. shall remain open for a period of 20 Business Days or
To the extent holders properly tender Old F4L Senior such longer period as may be required by law.
Notes in an amount exceeding the Net Proceeds Offer,
Old F4L Senior Notes of tendering holders will be Pursuant to the New F4L Senior Note Indenture, the Com-
repurchased on a pro rata basis (based on amounts pany will comply with the requirements of Rule 14e-1
tendered). under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and
Pursuant to the Old F4L Senior Note Indenture, Food 4 regulations are applicable in connection with the
Less will comply with the requirements of Rule 14e-1 repurchase of New F4L Senior Notes pursuant to a Net
under the Exchange Act and any other securities laws Proceeds Offer.
and regulations thereunder to the extent such laws
and regulations are applicable in connection with the "Asset Sale" means, with respect to any person, any
repurchase of Old F4L Senior Notes pursuant to a Net sale, transfer or other disposition or series of sales,
Proceeds Offer. transfers or other dispositions (including, without
limitation, by merger or consolidation or by exchange
"Asset Sale" means, for any person, any sale, of assets and whether by operation of law or otherwise)
transfer or other disposition or series of sales, made by such person or any of its subsidiaries to any
transfers or other dispositions (including, without person other than such person or one of its
limitation, by merger or consolidation or by exchange wholly-owned subsidiaries (or, in the case of a sale,
of assets and whether by operation of law or otherwise) transfer or other disposition by a subsidiary, to any
made by such person or any of its subsidiaries to any person other than the Company or a directly or
person other than such person or one of its indirectly wholly-owned subsidiary) of any assets of
wholly-owned subsidiaries (or, in the case of a sale, such person or any of its subsidiaries including,
transfer or other disposition by a subsidiary, to any without limitation, assets consisting of any capital
person other than Food 4 Less or a directly or stock or other securities held by such person or any of
indirectly wholly-owned subsidiary) of any assets of its subsidiaries, and any capital stock issued by any
such person or any of its subsidiaries including, subsidiary of such person, in each case, outside of the
without limitation, assets consisting of any capital ordinary course of business, excluding, however, any
stock or other securities held by such person, or any sale, transfer or other disposition, or series of
of its subsidiaries, and any capital stock issued by related sales, transfers or other dispositions (i)
any subsidiary of such person, outside of the ordinary involving only Excluded Assets, (ii) resulting in net
course of business, excluding, however, any sale, proceeds to the Company and the subsidiaries of
transfer or other disposition, or series of related $500,000 or less, (iii) pursuant to any foreclosure of
sales, transfers or other dispositions, having a assets or other remedy provided by applicable law to a
purchase price or transaction value, as the case may creditor of the
be, of
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$250,000 or less. Company with a Lien on such assets, which lien is
permitted under the New F4L Senior Note Indenture,
"Related Business Investment" means (i) any provided that such foreclosure or other remedy is
Investment by a person in any other person a majority conducted in a commercially reasonable manner or in
of whose revenues are derived from the operation of one accordance with any Bankruptcy Law, (iv) involving only
or more retail grocery stores or supermarkets or any Cash Equivalents or inventory in the ordinary course of
other line of business engaged in by Food 4 Less or any business or obsolete equipment in the ordinary course
of its subsidiaries as of the Issue Date; (ii) any of business consistent with past practices of the
Investment by such person in any cooperative or other Company, (v) involving only the lease or sub-lease of
supplier, including, without limitation, any joint any real or personal property in the ordinary course of
venture which is intended to supply any product or business or (vi) the proceeds of such Asset Sale which
service useful to the business of Food 4 Less and its are not applied as contemplated in "-- Certain
subsidiaries as it is conducted as of the Issue Date Covenants -- Limitation on Asset Sales" and which,
and as such business may thereafter evolve or change; together with all other such Asset Sale Proceeds, do
and (iii) any capital expenditure or Investment not exceed $20 million.
(without regard to the $5 million threshold in the
definition thereof), in each case reasonably related to "Related Business Investment" means (i) any Investment
the business of Food 4 Less and its subsidiaries as it by a person in any other person a majority of whose
is conducted as of the Issue Date and as such business revenues are derived from the operation of one or more
may thereafter evolve or change. retail grocery stores or supermarkets or any other line
of business engaged in by the Company or any of its
IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD subsidiaries as of the Issue Date; (ii) any Investment
F4L SENIOR NOTE INDENTURE WILL BE MODIFIED TO ELIMINATE by such person in any cooperative or other supplier,
THIS PROVISION AND CERTAIN RELATED DEFINITIONS. 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.
LIMITATION ON PAYMENT RESTRICTIONS AFFECTING LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS
SUBSIDIARIES. Pursuant to the Old F4L Senior Note AFFECTING SUBSIDIARIES. Pursuant to the New F4L Senior
Indenture, Food 4 Less shall not, and shall not permit Note Indenture, the Company shall not, and shall not
any subsidiary to, directly or indirectly, create or permit any subsidiary to, directly or indirectly,
suffer to exist, or allow to become effective any create or suffer to exist, or allow to become effective
consensual Payment Restriction with respect to any of any consensual Payment Restriction with respect to any
its subsidiaries, except for (a) any such restrictions of its subsidiaries, except for (a) any such
contained in (i) the Loan Documents as in effect on the restrictions contained in (i) the Credit Agreement and
Issue Date as any such payment restriction may apply to related documents as in effect on the Issue Date as any
any present or future subsidiary, (ii) Indebtedness of such payment restriction may apply to any present or
Food 4 Less and any subsidiary existing on the Issue future subsidiary, (ii) the New F4L Senior Note
Date, (iii) the Old F4L Senior Note Indenture, (iv) Indenture and any agreement in effect at or entered
Indebtedness of a person existing at the time such into on the Issue Date, (iii) Indebtedness of a person
person becomes a subsidiary (provided that (x) such existing at the time such person becomes a subsidiary
Indebtedness is not incurred in connection with, or in (provided that (x) such Indebtedness is not incurred in
contemplation of, such person becoming a subsidiary, connection with, or in contemplation of, such person
(y) such restriction is not applicable to any person, becoming a subsidiary, (y) such restriction is not
or the properties or assets of any person, other than applicable to any person, or the properties or assets
the person so acquired and (z) such Indebtedness is of any person, other than the person so acquired and
otherwise permitted to be incurred pursuant to the (z) such Indebtedness is otherwise permitted to be
provisions of "Limitation on Incurrences of Additional incurred pursuant to the provisions described above
Indebtedness"), (v) secured Indebtedness otherwise under "Limitation on Incurrences of Additional
permitted to be incurred pursuant to the provisions of Indebtedness"), (iv) secured Indebtedness otherwise
"Limitation on Incurrences of Additional Indebtedness" permitted to be incurred pursuant to the provisions
and that limits the right of the debtor to dispose of described above under "Limitation on Incurrences of
the assets securing such Indebtedness; (b) customary Additional Indebtedness" and "Limitation on Liens" that
non-assignment provisions restricting subletting or limit the right of the debtor to dispose of the assets
assignment of any lease or assignment of any contract securing such Indebtedness; (b) customary
of any subsidiary; (c) customary net worth provisions non-assignment provisions restricting subletting or
contained in leases and other agreements entered into assignment of any lease or other agreement entered into
by a subsidiary in the ordinary course of business; (d) by a subsidiary; (c) customary net worth provisions
customary restrictions with respect to a subsidiary contained in leases and other agreements entered into
pursuant to an agreement that has been entered into for by a subsidiary in the ordinary course of business; (d)
the sale or disposition of all or substantially all of customary restrictions with respect to a subsidiary
the capital stock or assets of such subsidiary; (e) pursuant to an agreement that has been entered into for
customary provisions in instruments or agreements the sale or disposition of all or substantially all of
relating to a lien permitted to be created, incurred or the capital stock or assets of such subsidiary; (e)
assumed pursuant to the provisions of "Limitation on customary provisions in joint venture agreements and
Liens" and prohibiting the transfer of the property other similar agreements; and (f) restrictions
subject to such lien; (f) customary provisions in joint contained in Indebtedness incurred to refinance,
venture agreements and other similar agreements entered refund, extend or renew Indebtedness referred to in
into in the ordinary course of business which provide clause (a) above; provided that the restrictions
that distributions from such venture may only be made contained therein are not materially more restrictive
with the consent of the partners; and (g) restrictions taken as a whole than those provided for in such
contained in Indebtedness incurred to refinance, Indebtedness being refinanced, refunded, extended or
refund, extend or renew Indebtedness referred to in renewed and (g) Payment Restrictions contained in any
clause (a) above or amendments to the Indebtedness other Indebtedness permitted to be incurred subsequent
referred to to the Issue Date pursuant to the provisions of the
covenant
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in clause (a) above; provided that the restrictions described under "-- Limitation on Incurrences of
contained therein relating to the payment of dividends Additional Indebtedness" above; provided that any such
by such subsidiaries are not materially more Payment Restrictions are ordinary and customary with
restrictive than those provided for in such respect to the type of Indebtedness being incurred
Indebtedness being refinanced, refunded, extended or (under the relevant circumstances), and, in any event,
renewed. 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 "Payment Restriction" means, with respect to a
or limitation, whether by operation of the terms of its subsidiary of any person, any encumbrance, restriction
charter or by reason of any agreement, instrument, or limitation, whether by operation of the terms of its
judgment, decree, order, statute, rule or governmental charter or by reason of any agreement, instrument,
regulation, on the ability of (i) such subsidiary to judgment, decree, order, statute, rule or governmental
(a) pay dividends or make other distributions on its regulation, on the ability of (i) such subsidiary to
capital stock or make payments on any obligation, (a) pay dividends or make other distributions on its
liability or Indebtedness owed to such person or any capital stock or make payments on any obligation,
other subsidiary of such person, (b) make loans or liability or Indebtedness owed to such person or any
advances to such person or any other subsidiary of such other subsidiary of such person, (b) make loans or
person or (c) transfer any of its properties or assets advances to such person or any other subsidiary of such
to such person or any other subsidiary of such person, person or (c) transfer any of its properties or assets
or (ii) such person or any other subsidiary of such to such person or any other subsidiary of such person,
person to receive or retain any such (a) dividends, or (ii) such person or any other subsidiary of such
distributions or payments, (b) loans or advances or (c) person to receive or retain any such (a) dividends,
transfer of properties or assets distributions or payments, (b) loans or advances or (c)
transfer of properties or assets.
IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD
F4L SENIOR NOTE INDENTURES WILL BE MODIFIED TO
ELIMINATE THIS PROVISION, AND CERTAIN RELATED
DEFINITIONS.
GUARANTEES OF CERTAIN INDEBTEDNESS. Pursuant to the GUARANTEES OF CERTAIN INDEBTEDNESS. Pursuant to the New
Old F4L Senior Note Indenture, Food 4 Less shall not F4L Senior Note Indenture, the Company shall not permit
permit any of its subsidiaries, directly or indirectly, any of its subsidiaries to (a) incur, guarantee or
to (a) incur, guarantee or secure through the granting secure through the granting of liens the payment of any
of liens the payment of any Indebtedness under the Term Indebtedness under the term portion of the Credit
Facility under the Credit Agreement or refinancings Agreement or refinancings thereof or (b) pledge any
related thereto or (b) pledge any intercompany notes intercompany notes representing obligations of any of
representing obligations of any of its subsidiaries, to its subsidiaries, to secure the payment of any
secure the payment of any Indebtedness under the Term Indebtedness under the term portion of the Credit
Facility under the Credit Agreement or refinancings Agreement or refinancings thereof, in each case unless
related thereto, in each case unless such subsidiary, such subsidiary, the Company and the New F4L Senior
Food 4 Less and the Old F4L Senior Note Trustee execute Note Trustee execute and deliver a supplemental
and deliver a supplemental indenture evidencing such indenture evidencing such subsidiary's guarantee.
subsidiary's guarantee, such guarantee to be a senior
unsecured obligation of such subsidiary.
IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD
F4L SENIOR NOTE INDENTURE WILL BE MODIFIED TO
ELIMINATE THIS PROVISION AND CERTAIN RELATED
DEFINITIONS.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. Pursuant LIMITATION ON TRANSACTIONS WITH AFFILIATES. Pursuant to
to the Old F4L Senior Note Indenture, neither Food 4 the New F4L Senior Note Indenture, neither the Company
Less nor any of its subsidiaries shall (i) sell, lease, nor any of its Subsidiaries shall (i) sell, lease,
transfer or otherwise dispose of any of its properties, transfer or otherwise dispose of any of its properties,
assets or securities to, (ii) purchase any property, or assets or issue securities (other than equity
assets or securities from, (iii) make any Investment securities which do not constitute Disqualified Capi-
in, or (iv) enter into or suffer to exist any contract tal Stock) to, (ii) purchase any property, assets or
or agreement with or for the benefit of, an affiliate securities (other than equity securities which do not
or Significant Stockholder (and any affiliate of such constitute Disqualified Capital Stock) from, (iii) make
Significant Stockholder) of Food 4 Less or any any Investment in, or (iv) enter into or suffer to
subsidiary (an "Affiliate Transaction"), other than exist any contract or agreement with or for the benefit
Affiliate Transactions (including lease transactions) of, an affiliate or Significant Stockholder (or any
in the ordinary course of business, that are fair to affiliate of such Significant Stockholder) of the
Food 4 Less or such subsidiary, as the case may be, and Company or any Subsidiary (an "Affiliate Transaction"),
on terms at least as favorable as might reasonably have other than (x) Affiliate Transactions permitted under
been obtainable at such time from an unaffiliated the following paragraph and (y) Affiliate Transactions
party, unless the board of directors of Food 4 Less or in the ordinary course of business, that are fair to
such subsidiary, as the case may be, pursuant to a the Company or such Subsidiary, as the case may be, and
board resolution, reasonably and in good faith on terms at least as favorable as might reasonably have
determines that such Affiliate Transaction is fair to been obtainable at such time from an unaffiliated
Food 4 Less or such subsidiary, as the case may be, and party; provided, that (A) with respect to Affiliate
is on terms at least as favorable as might reasonably Transactions involving aggregate payments in excess of
have been obtainable at such time from an unaffiliated $1 million and less than $5 million, the Company or
party. In addition, neither Food 4 Less nor any of its such Subsidiary, as the case may be, shall have
subsidiaries shall enter into an Affiliate Transaction delivered an officers' certificate to the New F4L
or series of related Affiliate Transactions involving Senior Note Trustee certifying that such Affiliate
or having a value of more than $15 million unless Food Transactions complies with clause (y) above (other than
4 Less or such subsidiary, as the case may be, has the requirement set forth in such clause (y) that such
received an opinion from an independent financial Affiliate Transaction be in the ordinary course of
advisor to the effect that the financial terms of such business), (B) with respect to Affiliate Transactions
Affiliate Transaction are fair to Food 4 Less or such involving aggregate payments in excess of $5 million
subsidiary from a financial point of view. and less than $15 million, with respect to which the
Company or such Subsidiary, as the case may, shall have
The provisions of the Old F4L Senior Note Indenture delivered an officers' certificate to the New F4L
de- Senior Note Trustee certifying that
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scribed in the foregoing paragraph shall not apply to such Affiliate Transactions complies with clause (y)
(i) any Permitted Payment, (ii) any Restricted Payment above (other than the requirement set forth in such
that is made in compliance with the provisions set clause (y) that such Affiliate Transaction be in the
forth in "Limitation on Restricted Payments," (iii) ordinary course of business) and that such Affiliate
reasonable and customary fees and compensation paid to, Transactions has received the approval of a majority of
and indemnity provided on behalf of, officers, the disinterested members of the board of directors of
directors, employees or consultants of Food 4 Less or the Company or the Subsidiary, as the case may be, or,
any subsidiary, as determined by the board of directors in the absence of any such approval by the
of Food 4 Less or any subsidiary or the senior disinterested members of the board of directors of the
management thereof in good faith, (iv) transactions Company or that the Subsidiary, as the case may be,
exclusively between or among Food 4 Less and any of its that an independent financial advisor has reasonably
wholly-owned subsidiaries or exclusively between or and in good faith determined that the financial terms
among such subsidiaries, provided such transactions are of such Affiliate Transaction are fair to the Company
not otherwise prohibited by the Old F4L Senior Note or such subsidiary, as the case may be, or that the
Indenture, (v) any agreement as in effect as of the terms of such Affiliate Transaction are at least as
Issue Date or any amendment thereto or any transaction favorable as might reasonably have been obtained at
contemplated thereby (including pursuant to any such time from an unaffiliated party, and that such
amendment thereto) so long as any such amendment is not Independent Financial Advisor has provided written
disadvantageous to the holders of the Old F4L Senior confirmation of such determination to the Board of
Notes in any material respect, (vi) the existence of, Directors and (C) with respect to Affiliate
or the performance by Food 4 Less or any of its Transactions involving aggregate payments in excess of
subsidiaries of its obligations under the terms of, any $15 million, with respect to which the Company or such
stockholders agreement (including any registration subsidiary, as the case may be, shall have delivered to
rights agreement or purchase agreement related thereto) the New F4L Senior Note Trustee, a written opinion from
to which it FFL is a party as of the Issue Date and any an independent financial advisor to the effect that the
similar agreements which it FFL may enter into financial terms of such Affiliate Transaction are fair
thereafter; provided, however, that the existence of, to the Company or such Subsidiary, as the case may be,
or the performance by Food 4 Less or any subsidiaries or that the terms of such Affiliate Transaction are at
of obligations under any future amendment to, any such least as favorable as those that might reasonably have
existing agreement or under any similar agreement been obtained at the time from an unaffiliated party.
entered into after the Issue Date shall only be
permitted by this clause (vi) to the extent that the The provisions of the New F4L Senior Note Indenture de-
terms of any such amendment or new agreement are not scribed in the foregoing paragraph shall not apply to
otherwise disadvantageous to the holders of the Old F4L (i) any Permitted Payment, (ii) any Restricted Payment
Senior Notes in any material respect, (vii) that is made in compliance with the provisions
transactions permitted by, and complying with, the described herein under "Limitation on Restricted
provisions set forth in "Limitation on Merger and Payments," (iii) reasonable and customary fees and
Certain Other Transactions," and (viii) transactions compensation paid to, and indemnity provided on behalf
with Certified Grocers of California, Inc., Affiliated of, officers, directors, employees or consultants of
Wholesale Grocers of Kansas City, Inc. or their the Company or any Subsidiary, as determined by the
subsidiaries or other suppliers in the ordinary course board of directors of the Company or any Subsidiary or
of business (including, without limitation, pursuant to the senior management thereof in good faith, (iv)
joint venture arrangements with such persons) and transactions exclusively between or among the Company
otherwise in compliance with the terms of the Old F4L and any of its wholly-owned Subsidiaries or exclusively
Senior Note Indenture. between or among such wholly-owned Subsidiaries,
provided such transactions are not otherwise prohibited
"Significant Stockholder" means, with respect to any by the New F4L Senior Note Indenture, (v) any agreement
person, any other person who is the beneficial owner as in effect as of the Issue Date or any amendment
(within the meaning of Rule 13d-3 under the Exchange thereto or any transaction contemplated thereby
Act) of more than 10% of any class of equity securities (including pursuant to any amendment thereto) so long
of such person that are entitled to vote on a regular as any such amendment is not disadvantageous to the
basis for the election of directors of such person. holders of the New F4L Senior Notes in any material
respect, (vi) the existence of, or the performance by
IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD the Company or any of its subsidiaries of its
F4L SENIOR NOTE INDENTURE WILL BE MODIFIED TO ELIMINATE obligations under the terms of, any stockholders
THIS PROVISION AND CERTAIN RELATED DEFINITIONS. 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 F4L
Senior Notes in any material respect, (vii)
transactions permitted by, and complying with, the
provisions described below under "Limitation on Merg-
ers and Certain Other Transactions," 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 applicable New F4L
Senior 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.
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"Significant Stockholder" means, with respect to any
person, any other person who is the beneficial owner
(within the meaning of Rule 13d-3 under the Exchange
Act) of more than 10% of any class of equity securities
of such person that are entitled to vote on a regular
basis for the election of directors of such person.
LIMITATION ON CHANGE OF CONTROL. Pursuant to the Old LIMITATION ON CHANGE OF CONTROL. The New F4L Subordi-
F4L Senior Note Indenture, upon the occurrence of a nated Note Indenture will provide that if a Change of
Change of Control, each holder will have the right to Control occurs, each holder will have the right to
require the repurchase of such holder's Old F4L Senior require the Company to repurchase such holder's New F4L
Notes pursuant to the offer described below (the Senior Notes pursuant to a Change of Control Offer at
"Change of Control Offer"), at a purchase price equal 101% of the principal amount thereof plus accrued and
to 101% of the principal amount thereof plus accrued unpaid interest to the date of repurchase.
interest, if any, to the date of purchase. Within 10
days after any Change of Control Date requiring Food 4 The New F4L Senior Note Indenture will further provide
Less to make a Change of Control Offer Food 4 Less that, notwithstanding the foregoing, prior to the
shall so notify the Old F4L Senior Note Trustee and the mailing of the notice of a Change of Control Offer
Credit Agent. Food 4 Less must comply with Rule 14e-1 referred to above, the Company shall within 30 days
under the Securities Exchange Act of 1934, as amended, following any change of control either (a) repay in
and any other applicable provisions of the federal full and terminate all commitments under Indebtedness
securities laws in connection with a Change of Control under the Credit Agreement to the extent the terms
Offer. thereof require repayment upon a Change of Control (or
offer to repay in full and terminate all commitments
Pursuant to the Old F4L Senior Note Indenture, within under all Indebtedness under the Credit Agreement and
30 days following any Change of Control Date, Food 4 repay the Indebtedness owed to each lender which has
Less must send, by first class mail, a notice to each accepted such offer), or (b) obtain the requisite
holder, with copies to the Credit Agent and the Old F4L consents under the Credit Agreement, the terms of which
Senior Subordinated Note Trustee, which notice shall require repayment upon a Change of Control, to permit
govern the terms of the Change of Control Offer. Such the repurchase of the New F4L Senior Notes as provided
notice shall state, among other things, the purchase above. The Company shall first comply with the covenant
date, which must be no earlier than 30 days nor later in the immediately preceding sentence before it shall
than 40 days from the date such notice is mailed, other be required to repurchase New F4L Senior Notes pursuant
than as may be required by law (the "Change of Control to the provisions described below. The Company's
Payment Date"). Holders electing to have a Old F4L failure to comply with the covenants described in this
Senior Note purchased pursuant to a Change of Control paragraph shall constitute an Event of Default under
Offer will be required to surrender the Old F4L Senior the New F4L Senior Note Indenture.
Note, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Old F4L Senior In addition, the New F4L Senior Subordinated Note
Subordinated Note completed, to the Paying Agent at the Indenture will provide that prior to purchasing New F4L
address specified in the notice prior to the close of Senior Subordinated Notes tendered in a Change of
business on the business day prior to the Change of Control Offer, the Company shall purchase all Senior
Control Payment Date. F4L Notes (or permitted refinancings thereof) which it
is required to purchase by reason of such Change of
IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD Control pursuant to the provisions of the indenture
F4L SENIOR NOTE INDENTURE WILL BE MODIFIED TO ELIMINATE under which such New Senior F4L Notes are issued, as in
THIS COVENANT AND CERTAIN RELATED DEFINITIONS. effect on the Issue Date.
LIMITATION ON MERGER AND CERTAIN OTHER LIMITATION ON MERGER AND CERTAIN OTHER
TRANSACTIONS. Pursuant to the Old F4L Senior Note TRANSACTIONS. Pursuant to the New F4L Senior Note
Indenture, Food 4 Less, in a single transaction or Indenture, the Company, in a single transaction or
through a series of related transactions, shall not (i) through a series of related transactions, shall not (i)
consolidate with or merge with or into any other consolidate with or merge with or into any other
person, or transfer (by lease, assignment, sale or person, or transfer (by lease, assignment, sale or
otherwise) all or substantially all of its properties otherwise) all or substantially all of its properties
and assets as an entirety or substantially as an and assets as an entirety or substantially as an
entirety to another person or group of affiliated entirety to another person or group of affiliated
persons or (ii) adopt a plan of liquidation, unless, in persons or (ii) adopt a plan of liquidation, unless, in
either case, (1) either Food 4 Less shall be the either case, (1) either the Company shall be the
continuing person, or the person (if other than Food 4 continuing person, or the person (if other than the
Less) formed by such consolidation or into which Food 4 Company) formed by such consolidation or into which the
Less is merged or to which all or substantially all of Company is merged or to which all or substantially all
the properties and assets of Food 4 Less as an entirety of the properties and assets of the Company as an
or substantially as an entirety are transferred (or, in entirety or substantially as an entirety are
the case of a plan of liquidation, any person to which transferred (or, in the case of a plan of liquidation,
assets are transferred) (Food 4 Less or such other any person to which assets are transferred) (the
person being hereinafter referred to as the "Surviving Company or such other person being hereinafter referred
Person") shall be a corporation organized and validly to as the "Surviving Person") shall be a corporation
existing under the laws of the United States, any state organized and validly existing under the laws of the
thereof or the District of Columbia, and shall United States, any state thereof or the District of
expressly assume, by an indenture supplement, all the Columbia, and shall expressly assume, by an indenture
obligations of Food 4 Less under the Old F4L Senior supplement, all the obligations of the Company under
Notes and the Old F4L Senior Note Indenture; (2) the New F4L Senior Note Indenture and the New F4L
immediately after and giving effect of such transaction Senior Notes; (2) immediately after and giving effect
and the assumption contemplated by clause (1) above and to such transaction and the assumption contemplated by
the incurrence or anticipated incurrence of any In- clause (1) above and the incurrence or anticipated
debtedness to be incurred in connection therewith, (A) incurrence of any Indebtedness to be incurred in
the surviving person shall have a Net Worth equal to or connection therewith, (A) the Surviving Person shall
greater than the Net Worth of Food 4 Less immediately have a Consolidated Net Worth equal to or greater than
preceding the transaction, (B) the surviving person the Consolidated Net Worth of the Company immediately
could incur at least $1 of Indebtedness pursuant to preceding the transaction and (B) the Surviving Person
provisions of the Old F4L Senior Note Indenture could incur at least $1.00 of additional Indebtedness
described in the first paragraph under the heading (other than Permitted Indebtedness) pursuant to the
provisions
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- ------------------------------------------------------ ------------------------------------------------------
"Limitation on the Incurrence of Additional described herein under "Limitation on Incurrences of
Indebtedness" and (C) if the Operating Coverage Ratio Additional Indebtedness;" (3) immediately before and
of Food 4 Less immediately preceding the transaction is immediately after and giving effect to such transaction
within a range set forth under column X below, then the and the assumption of the obligations as set forth in
Surviving Person shall have an Operating Coverage Ratio clause (1) above and the incurrence or anticipated
at least equal to the greater of (i) the actual incurrence of any Indebtedness to be incurred in
Operating Coverage Ratio of Food 4 Less multiplied by connection therewith, no Default or Event of Default
the appropriate percentage set forth in column Y and shall have occurred and be continuing; and (iv) each
(ii) the ratio set forth in column Z below: Subsidiary Guarantor, unless it is the other party to
the transaction, shall have by supplemental indenture
X Y Z confirmed that its guarantee of the obligations of the
- ---------------- ---- ----- Company under the New F4L Senior Notes and the New F4L
1.8:1 to 2.499:1 100% 1.8:1 Senior Note Indenture shall apply, without alteration
2.5:1 to 2.999:1 90% 2.5:1 or amendment as such guarantee applies on the date it
3.0:1 or more 80% 2.7:1 was granted under the New F4L Senior Note Indenture to
the obligations of the Company under the New F4L Senior
and provided, further, that if immediately after giving Notes Indenture and the New F4L Senior Notes to the
effect of such transaction on a pro forma basis, the obligations of the Company or such person, as the case
Operating Coverage Ratio of Food 4 Less or the may be, under the New F4L Senior Note Indenture and the
surviving entity, as the case may be, is 3.2:1 or more, New F4L Senior Notes, after the consummation of such
the calculation in the preceding proviso shall be transaction. Notwithstanding the foregoing, the
inapplicable and such transaction shall be deemed to consummation of the Merger on the Issue Date need only
have complied with the requirements of such provision; comply with clauses (1) and (3) of the foregoing.
(3) immediately before and immediately after and giving
effect to such transaction and the assumption of the "Consolidated Net Worth" means, with respect to any
obligations as set forth in clause (1) above and the person, the total stockholders' equity (exclusive of
incurrence or anticipated incurrence of any any Disqualified Capital Stock) of such person and its
Indebtedness to be incurred in connection therewith, no subsidiaries determined on a consolidated basis in
Default or Event of Default shall have occurred and be accordance with GAAP.
continuing. 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 Food 4 Less shall be deemed to be the
transfer of all or substantially all of the properties
and assets of Food 4 Less. IF THE PROPOSED AMENDMENTS
BECOME OPERATIVE, THE OLD F4L SENIOR NOTE INDENTURES
WILL BE MODIFIED TO ELIMINATE THE SUBSECTIONS OF THIS
PROVISION 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 OR OPERATING COVERAGE RATIO THAT MEETS THE
STANDARDS SET FORTH THEREIN.
MAINTENANCE OF NET WORTH. Pursuant to the Old F4L MAINTENANCE OF NET WORTH. THE NEW F4L SENIOR NOTE
Senior Subordinated Note Indenture, if Food 4 Less' INDENTURE WILL NOT CONTAIN A COVENANT REQUIRING THE
Net Worth at the end of each of any two consecutive MAINTENANCE OF A MINIMUM NET WORTH.
fiscal quarters (the last day of the second fiscal
quarter being referred to as the "Acceleration Date")
is equal to or less than $50 million (the "Minimum Net
Worth"), then Food 4 Less shall make an offer to all
holders (an "Offer") to purchase, on a pro rata basis,
on or before the last day of the next following fiscal
quarter or, in the event that the Acceleration Date is
the last day of Food 4 Less' fiscal year, the
forty-fifth day after the last day of the next
following fiscal quarter (the "Accelerated Payment
Date"), $17.5 million aggregate principal amount of
Old F4L Senior Subordinated Notes (an "Accelerated
Payment") at a purchase price equal to 100% of
principal amount plus accrued but unpaid interest
to the Accelerated Payment Date. Food 4 Less may
credit against the principal amoount of Old F4L
Senior Subordinated Notes to be acquired in any
Accelerated Payment 100% of the principal amount of Old
F4L Senior Subordinated Notes acquired by Food 4 Less
through purchase, optional redemption, exchange or
otherwise during the 180-day period ending on the
Acceleration Date and surrendered for cancellation.
Food 4 Less, however, may not credit Old F4L Senior
Subordinated Notes against an Accelerated Payment if
such Old F4L Senior Subordinated Notes were previously
used as a credit against any other required payment
under the Old F4L Senior Subordinated Note Indenture.
In no event shall the failure of Food 4 Less' Net Worth
to equal or exceed $50 million at the end of any fiscal
quarter be counted toward the making of more than one
Offer.
"Net Worth" as of any date means, with respect to any
person, the amount of the equity of the holders of
capital stock of such person that would appear on the
balance sheet of such person as
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OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES
- ------------------------------------------------------ ------------------------------------------------------
of such date, determined in accordance with GAAP,
adjusted to exclude (to the extent included in such
equity), (i) the amount of equity attributable to
Disqualified Capital Stock and (ii) with respect to
Food 4 Less, the effect of (a) all non-cash charges
reducing such equity amount and attributable to the
early extinguishment of, or acceleration of costs of,
the financing of the Alpha Beta Acquisition (other than
amortization of original issue discount), (b)
prepayment penalties or other charges incurred in
connection with the retirement of certain Indebtedness
of a subsidiary of Food 4 Less existing immediately
prior to the Alpha Beta Acquisition and (c) the
recognition of deferred losses, in an amount not to
exceed $3 million, on the Long Beach Warehouse.
IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD
F4L SENIOR NOTE INDENTURE WILL BE MODIFIED TO ELIMINATE
THIS COVENANT AND CERTAIN RELATED DEFINITIONS.
LIMITATION ON PREFERRED STOCK OF SUBSIDIARIES. The LIMITATION ON PREFERRED STOCK OF SUBSIDIARIES. Pursuant
Old F4L Senior Note Indenture does not have a to the New Senior Note Indenture, the Company will not
covenant providing for the limitation on the issuance permit any of its Subsidiaries to issue any Preferred
of preferred stock of subsidiaries. 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.
EVENTS OF DEFAULT EVENTS OF DEFAULT
Under the terms of the Old F4L Senior Note Indenture Under the terms of the New F4L Senior Note Indenture,
the following events constitute "Events of Default:" the following events constitute "Events of Default":
(i) failure to make any interest payment on the Old F4L (i) failure to make any interest payment on the New F4L
Senior Notes when due and the continuance of such Senior Notes when due and the continuance of such
default for a period of 30 days; (ii) failure to pay default for a period of 30 days; (ii) failure to pay
principal of the Old F4L Senior Notes when due, whether principal of, or premium, if any, on the New F4L Senior
at maturity, upon acceleration, redemption or Notes when due, whether at maturity, upon accelera-
otherwise; (iii) failure to comply with any other tion, redemption, required repurchase or otherwise;
agreement contained in the Old F4L Senior Notes or the (iii) failure to comply with any other agreement
Old F4L Senior Note Indenture, if such failure contained in the New F4L Senior Notes or the New F4L
continues unremedied for 30 days after written notice Senior Note Indenture, if such failure continues
given by the Old F4L Senior Note Trustee or the holders unremedied for 30 days after written notice given by
of at least 25% in principal amount of the Old F4L the New F4L Senior Note Trustee or the holders of at
Senior Notes then outstanding (except in the case of a least 25% in principal amount of the New F4L Senior
default with respect to the covenants set forth in the Notes then outstanding (except in the case of a default
Old F4L Senior Note Indenture, and described herein with respect to the covenants set forth in the New F4L
under the headings "Limitation on Restricted Payments," Senior Note Indenture, and described herein under the
"Maintenance of Net Worth," "Limitations on headings "Limitation on Restricted Payments,"
Dispositions of Assets," "Change of Control," and "Limitations on Asset Sales," "Change of Control," and
"Limitations on Merger and Certain Other Transactions," "Limitations on Merger and Certain Other Transactions,"
which shall constitute Events of Default with notice which shall constitute Events of Default with notice
but without passage of time); (iv) a default under any but without passage of time); (iv) a default under any
Indebtedness of Food 4 Less or its subsidiaries, Indebtedness of the Company or its subsidiaries,
whether such Indebtedness now exists or shall whether such Indebtedness now exists or shall
hereinafter be created, if both (A) such default either hereinafter be created, if both (A) such default either
(1) results from the failure to pay any such (1) results from the failure to pay any such
Indebtedness at its stated final maturity or (2) Indebtedness at its stated final maturity or (2)
relates to an obligation other than the obligation to relates to an obligation other than the obligation to
pay any principal of such Indebtedness at its stated pay such Indebtedness at its stated final maturity and
maturity and results in the holder or holders of such results in the holder or holders of such Indebtedness
Indebtedness causing such Indebtedness to become due causing such Indebtedness to become due prior to its
prior to its stated maturity and (B) the principal stated maturity and (B) the principal amount of such
amount of such Indebtedness, together with the Indebtedness, together with the principal amount of any
principal amount of any other such Indebtedness in other such Indebtedness in default for failure to pay
default for failure to pay principal at maturity or the principal at stated final maturity or the maturity of
maturity of which has been so accelerated, aggregate which has been so accelerated, aggregate $20 million or
$20 million or more at any one time outstanding; (v) more at any one time outstanding; (v) any final
any final judgment or order for payment of money in judgment or order for payment of money in excess of $20
excess of $20 million shall be entered against Food 4 million shall be entered against the Company or any
Less or any Significant Subsidiary and shall not be Significant Subsidiary and shall not be discharged for
discharged for a period of 60 days after such judgment a period of 60 days after such judgment becomes final
becomes final and nonappealable; (vi) either Food 4 and nonappealable; (vi) either the Company or any
Less or any Significant Subsidiary pursuant to or Significant Subsidiary pursuant to or within the
within the meaning of any Bankruptcy Law: (a) commences meaning of any Bankruptcy Law: (a) commences a
a voluntary case or proceeding; (b) consents to the voluntary case or proceeding; (b) consents to the entry
entry of an order for relief against it in an of an order for relief against it in an involuntary
involuntary case or proceeding; (c) consents to the case or proceeding; (c) consents to the appointment of
appointment of a custodian of it or for all or a custodian of it or for all or substantially all of
substantially all of its property; or (d) makes a its property; or (d) makes a general assignment for the
general assignment for the benefit of its creditors; benefit of its creditors; (vii) a court of competent
(vii) a court of competent jurisdiction enters an order jurisdiction enters an order or decree under any
or decree in an involuntary case or proceeding under Bankruptcy Law that: (a) is for relief against the
any Bankruptcy Law that: (a) is for relief against Food Company or any Significant Subsidiary, in an invol-
4 Less or any
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- ------------------------------------------------------ ------------------------------------------------------
Significant Subsidiary; (b) appoints a custodian of untary case or proceeding; (b) appoints a custodian of
Food 4 Less or any Significant Subsidiary, or for all the Company or any Significant Subsidiary, or for all
or any substantial part of their respective properties; or any substantial part of their respective properties;
or (c) orders the liquidation of Food 4 Less or any or (c) orders the liquidation of the Company or any
Significant Subsidiary, and in each case the order or Significant Subsidiary, and in each case the order or
decree remains unstayed and in effect for 60 days; and decree remains unstayed and in effect for 60 days;
(viii) the lenders under the Loan Documents shall (viii) the lenders under the Credit Agreement shall
commence judicial proceedings to foreclose upon any commence judicial proceedings to foreclose upon any
material portion of the assets of Food 4 Less and its material portion of the assets of the Company and its
subsidiaries. In the event of a declaration or subsidiaries; or (ix) any of the guarantees shall be
acceleration because an Event of Default set forth in declared or adjudged invalid in a final judgment or
clause (iv) above has occurred and is continuing, such order issued by any court of governmental authority. In
declaration of acceleration shall be automatically the event of a declaration of acceleration because an
rescinded and annulled if either (i) the holders of the Event of Default set forth in clause (iv) above has
Indebtedness which is the subject of such Event of occurred and is continuing, such declaration of
Default have waived such failure to pay at maturity or acceleration shall be automatically rescinded and
have rescinded the acceleration in respect of such annulled if either (i) the holders of the Indebtedness
Indebtedness within 90 days of such maturity or which is the subject of such Event of Default have
declaration of acceleration, as the case may be, and no waived such failure to pay at maturity or have
other Event of Default has occurred during such 90-day rescinded the acceleration in respect of such
period which has not been cured or waived, or (ii) such Indebtedness within 90 days of such maturity or
Indebtedness shall have been discharged or the maturity declaration of acceleration, as the case may be, and no
thereof shall have been extended such that it is not other Event of Default has occurred during such 90-day
then due and payable, or the underlying default has period which has not been cured or waived, or (ii) such
been cured, within 90 days of such maturity or Indebtedness shall have been discharged or the maturity
declaration of acceleration, as the case may be. thereof shall have been extended such that it is not
then due and payable, or the underlying default has
Pursuant to the Old F4L Senior Note Indenture, if an been cured, within 90 days of such maturity or
Event of Default (other than an Event of Default declaration of acceleration, as the case may be.
resulting from bankruptcy, insolvency, receivership or
reorganization of Food 4 Less) occurs and is Pursuant to the New F4L Senior Note Indenture, if an
continuing, the Old F4L Senior Note Trustee or the Event of Default (other than an Event of Default
holders of at least 25% in principal amount of the Old resulting from bankruptcy, insolvency, receivership or
F4L Senior Notes then outstanding may declare reorganization of the Company or a Subsidiary
immediately due and payable all unpaid principal plus Guarantor) occurs and is continuing, the New F4L Senior
accrued and unpaid interest on the Old F4L Senior Notes Note Trustee or the holders of at least 25% in
then outstanding. If an Event of Default resulting from principal amount of the then outstanding New F4L Senior
certain events of bankruptcy, insolvency, receivership Notes may declare due and payable all unpaid principal
or reorganization of Food 4 Less shall occur, all and interest accrued and unpaid on the then outstanding
unpaid principal and accrued interest shall be New F4L Senior Notes issued under such New F4L Senior
immediately due and payable without any declaration or Note Indenture by notice in writing to the Company, the
other act on the part of the Old F4L Senior Note administrative agent under the Credit Agreement and the
Trustee or any of the holders. Subject to certain applicable New F4L Senior Note Trustee specifying the
conditions, the holders of a majority in principal respective Event of Default and that it is a "notice of
amount of the Old F4L Senior Notes then outstanding, by acceleration" (the "Acceleration Notice"), and the same
notice to the Old F4L Senior Note Trustee, may rescind (i) shall become immediately due and payable or (ii) if
such declaration if all existing Events of Default are there are any amounts outstanding under the Credit
remedied. In certain cases the holders of a majority in Agreement, shall become due and payable upon the first
principal amount of outstanding Old F4L Senior Notes to occur of an acceleration under the Credit Agreement,
may waive any past default and its consequences, except or five business days after receipt by the Company and
a default in the payment of principal of or interest on the administrative agent under the Credit Agreement of
any of the Old F4L Senior Notes. such Acceleration Notice. If an Event of Default
resulting from certain events of bankruptcy, insol-
The Old F4L Senior Note Indenture provides that if a vency, receivership or reorganization of the Company or
Default or Event of Default occurs and is continuing a Subsidiary Guarantor that is a Significant Subsidiary
and if it is known to the Old F4L Senior Note Trustee, shall occur, all unpaid principal of and accrued
the Old F4L Senior Note Trustee shall mail to each interest on all then outstanding New F4L Senior Notes
holder notice of the uncured Default or Event of shall be immediately due and payable without any
Default within 90 days after such Default or Event of declaration or other act on the part of the New F4L
Default occurs; provided, however, that, except in the Senior Note Trustee or any of the holders. After a
case of a Default or Event of Default in the payment of declaration of acceleration, subject to certain
the principal of or interest on any of the Old F4L conditions, the holders of a majority in principal
Senior Notes, including the failure to make payment on amount of the then outstanding New F4L Senior Notes, by
the Change of Control Payment Date pursuant to a Change notice to the New F4L Senior Note Trustee, may rescind
of Control Offer, payment when due pursuant to a Net such declaration if all existing Events of Default are
Proceeds Offer or payment when due pursuant to an Offer remedied. In certain cases the holders of a majority in
described above under "Maintenance of Net Worth," the principal amount of outstanding New F4L Senior Notes
Old F4L Senior Note Trustee may withhold such notice if may waive a past default under the New F4L Senior Note
it in good faith determines that withholding such Indenture and its consequences, except a default in the
notice is in the interest of the holders. payment of or interest on any of the New F4L Senior
Notes.
The Old F4L Senior Note Indenture provides that no
holder may pursue any remedy thereunder unless the Old The New F4L Senior Note Indenture provides that if a
F4L Senior Note Trustee (i) shall have failed to act Default or Event of Default occurs and is continuing
for a period of 60 days after receiving written notice thereunder and if it is known to the New F4L Senior
of a continuing Event of Default by such holder and a Note Trustee, the New F4L Senior Note Trustee shall
request to act by holders of at least 25% in principal mail to each holder of New F4L Senior Notes notice of
amount of Old F4L Senior Notes and (ii) has received the Default or Event of Default within 90 days after
indemnification satisfactory to it; provided, however, such Default or Event of Default occurs; provided,
that such provision does not affect the right of any however, that, except in the case of a Default or Event
holder to sue for enforcement of any overdue payment of of Default in the payment of the principal of or
Old F4L Senior Notes. interest on any New F4L Senior Notes, including the
failure to make payment on a
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OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES
- ------------------------------------------------------ ------------------------------------------------------
Under the Old F4L Senior Note Indenture, two officers Change of Control Payment Date pursuant to a Change of
of Food 4 Less are required to certify to the Old F4L Control Offer or payment when due pursuant to a Net
Senior Note Trustee within 120 days after the end of Proceeds Offer the New F4L Senior Note Trustee may
each fiscal year of Food 4 Less whether or not they withhold such notice if it in good faith determines
know of any Default that occurred during such fiscal that withholding such notice is in the interest of the
year and if applicable, describe such Default and the holders.
status thereof.
The New F4L Senior Note Indenture provides that no
holder of New F4L Senior Notes may pursue any remedy
thereunder unless the New F4L Senior 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 F4L Senior
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 F4L
Senior Notes.
Under the New F4L Senior Note Indenture, two officers
of the Company are required to certify to the New F4L
Senior Note Trustee within 120 days after the end of
each fiscal year of New F4L Senior Note whether or not
they know of any Default that occurred during such
fiscal year and, if applicable, describe such Default
and the status thereof.
MODIFICATION OF THE OLD F4L SENIOR NOTE INDENTURE MODIFICATION OF THE NEW F4L SENIOR NOTE INDENTURE
Pursuant to the terms of the Old F4L Senior Note Pursuant to the terms of the New F4L Senior Note
Indenture, the Old F4L Senior Note Indenture and the Indenture, the New F4L Senior Note Indenture and the
Old F4L Senior Notes may be amended or supplemented New F4L Senior Notes may be amended or supplemented
(and compliance with any provision thereof may be (and compliance with any provision thereof may be
waived) by Food 4 Less, the Old F4L Senior Note Trustee waived) by the Company, the Subsidiary Guarantors, the
and the holders of not less than a majority in New F4L Senior Note Trustee and the holders of not less
aggregate principal amount of the Old F4L Senior Notes than a majority in aggregate principal amount of New
then outstanding, except that without the consent of F4L Senior Notes then outstanding, except that (i)
each holder affected, no such amendment, supplement or without the consent of each holder of New F4L Senior
waiver may (1) change the principal amount of Old F4L Notes affected, no such amendment, supplement or waiver
Senior Notes whose holders must consent to an may (1) change the principal amount of the New F4L
amendment, supplement or waiver of any provision of the Senior Notes the holders of which must consent to an
Old F4L Senior Note Indenture or the Old F4L Senior amendment, supplement or waiver of any provision of the
Notes; (2) reduce the rate or extend the time for New F4L Senior Note Indenture, the New F4L Senior Notes
payment of interest on any Old F4L Senior Note; (3) or the guarantees, (2) reduce the rate or extend the
reduce the principal amount of any Old F4L Senior Note; time for payment of interest on any New F4L Senior
(4) change the date of maturity of any Old F4L Senior Notes, (3) reduce the principal amount of any New F4L
Note or alter the redemption provisions in a manner Senior Notes, (4) change the date of maturity of any
adverse to any holder; (5) make any changes in the New F4L Senior Notes or alter the redemption provisions
provisions concerning waivers of Defaults or Events of in the New F4L Senior Note Indenture or the New F4L
Default by holders or the rights of holders to recover Senior Notes in a manner adverse to any holder, (5)
the principal of, interest on or redemption payment make any changes in the provisions concerning waivers
with respect to any Old F4L Senior Note; and (6) make of Defaults or Events of Default by holders or the
the principal of, or interest on, any Old F4L Senior rights of holders to recover the principal of, interest
Note payable with anything or in any manner other than on or redemption payment with respect to any New F4L
as provided for in the Old F4L Senior Note Indenture Senior Notes or (6) make the principal of, or interest
and the Old F4L Senior Notes. on, any New F4L Senior Notes payable with anything or
in any manner other than as provided for in the New F4L
In addition, pursuant to the Old F4L Senior Note Senior Note Indenture, the New F4L Senior Notes and the
Indenture, Food 4 Less and the Old F4L Senior Note Senior Note Guarantee, (ii) without the consent of
Trustee may amend the Old F4L Senior Note Indenture and Holders of not less than 75% in aggregate principal
the Old F4L Senior Notes (a) to cure any ambiguity, amount of such New F4L Senior Notes then outstanding,
defect or inconsistency therein; provided that such no such amendment, supplement or waiver may change the
amendment or supplement does not adversely affect the Change of Control Payment Date or the purchase price in
rights of any holder or (b) to make any other change connection with any repurchase of such New F4L Senior
that does not adversely affect the rights of any Notes pursuant to the covenant described under "--
holder. Change of Control" 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 such New F4L Senior 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 F4L
Senior Note Indenture other than in accordance with the
terms of such guarantee and the New F4L Senior Note
Indenture.
In addition, to the New F4L Senior Note Indenture, the
New F4L Senior Notes and the related guarantees may be
amended
A-23
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OLD F4L SENIOR NOTES NEW F4L SENIOR NOTES
- ------------------------------------------------------ ------------------------------------------------------
by the Company, the Subsidiary Guarantors and the New
F4L Senior 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.
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APPENDIX B
COMPARISON OF OLD F4L SENIOR SUBORDINATED NOTES AND
NEW F4L SENIOR SUBORDINATED NOTES
The following is a brief comparison of the principal features of the Old
F4L Senior Subordinated Notes to the New F4L Senior Subordinated Notes. The
terms of the New F4L Senior Subordinated Notes differ from the current
(unamended) terms of the Old F4L Senior Subordinated Notes in certain
significant respects, including those discussed below. The summary comparisons
set forth below do not purport to be complete and are qualified in their
entirety by reference to the Old F4L Senior Subordinated Note Indenture, the Old
F4L Senior Subordinated Notes, the New F4L Senior Subordinated Note Indenture,
the New F4L Senior Subordinated Notes, the "Description of the New F4L Notes"
and "The Proposed Amendments" and the related definitions contained therein.
OLD F4L SENIOR SUBORDINATED NOTES NEW F4L SENIOR SUBORDINATED NOTES
- ------------------------------------------------------ ------------------------------------------------------
ISSUER ISSUER.
Food 4 Less. The Company, as successor by merger to Food 4 Less.
PRINCIPAL AMOUNT OUTSTANDING PRINCIPAL AMOUNT OUTSTANDING
As of May 1, 1995, $145 million. Up to $145 million.
INTEREST RATE INTEREST RATE
The Old F4L Senior Subordinated Notes bear interest at The New F4L Senior Subordinated Notes will bear
the rate of 13 3/4% per annum. interest at the rate of 13.75% per annum.
INTEREST PAYMENT DATES INTEREST PAYMENT DATES
June 15 and December 15. June 1 and December 1, commencing on December 1, 1995.
FINAL MATURITY DATE FINAL MATURITY DATE
June 15, 2001. June 1, 2005.
OPTIONAL REDEMPTION OPTIONAL REDEMPTION
The Old F4L Senior Subordinated Notes are redeemable, The New F4L Senior Subordinated Notes are redeemable,
at the option of Food 4 Less, in whole at any time or at the option of the Company in whole at any time or in
in part from time to time, on or after June 15, 1996, part from time to time, on or after June 15, 1996, at
at the following redemption prices if redeemed during the following redemption prices if redeemed during the
the twelve-month period commencing on June 15 of the twelve-month period commencing on June 15 of the years
years set forth below: set forth below:
1996..........................................106.111% 1996..........................................106.111%
1997..........................................104.583% 1997..........................................104.583%
1998..........................................103.056% 1998..........................................103.056%
1999..........................................101.528% 1999..........................................101.528%
2000 and thereafter...........................100.000% 2000 and thereafter...........................100.000%
in each case plus accrued and unpaid interest to the in each case plus accrued and unpaid interest to the
date of redemption. date of redemption.
In the event of a Change of Control, 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, together with accrued and unpaid interest to the
date of redemption, if redeemed during the 12 months
commencing on June 15 in the years set forth below:
YEAR PERCENTAGE
- ---- ----------
1994..........................................109.167%
1995..........................................107.639%
MANDATORY REDEMPTION MANDATORY REDEMPTION
Food 4 Less will make a mandatory sinking fund payment The New F4L Senior Subordinated Notes are not subject
on June 15, 2000, sufficient to retire 50% of the Old to a mandatory sinking fund requirement.
F4L Senior Subordinated Notes originally issued, at a
redemption price equal to 100% of the principal amount
thereof, plus accrued and unpaid 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 Subordinated
Notes previously acquired by Food 4 Less in the open
market and surrendered to the Old F4L Senior
Subordinated Note Trustee 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
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- ------------------------------------------------------ ------------------------------------------------------
Senior Subordinated Note Indenture. Food 4 Less may use
the same Old F4L Senior Subordinated Note as a credit
only once. Food 4 Less intends to credit Old F4L Senior
Subordinated Notes tendered into the Exchange Offer
against its sinking fund obligation.
RANKING RANKING
The Old F4L Senior Subordinated Notes are unsecured The New F4L Senior Subordinated Notes will be unsecured
general obligations of Food 4 Less and are general obligations of the Company and will be
subordinated to all Senior Indebtedness of Food 4 Less, subordinated to all Senior Indebtedness of the Company,
including the Old F4L Senior Notes and the borrowings including the Company's obligations under the Credit
and other obligations under the Credit Agreement. As of Agreement and the indebtedness under the New F4L Senior
January 7, 1995, the aggregate outstanding amount of Notes and the Old F4L Senior Notes, if any. The New F4L
Senior Indebtedness of Food 4 Less (excluding Food 4 Senior Subordinated Notes will rank senior to, or pari
Less guarantees of certain Guarantor Senior Indebted- passu with, all subordinated indebtedness of the
ness) would have been approximately $395.5 million and Company.
the aggregate outstanding amount of Guarantor Senior
Indebtedness of the Subsidiary Guarantors (excluding "Senior Indebtedness" means the principal of, premium,
guarantees by Subsidiary Guarantors of certain Senior if any, and interest on any Indebtedness of the
Indebtedness of Food 4 Less) would have been Company, whether outstanding on the Issue Date or
approximately $16.5 million. 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 F4L Senior Subordinated Notes. Without limiting
the generality of the foregoing, "Senior Indebtedness"
shall include (x) the principal of, premium, if any,
and interest on all obligations of every nature of the
Company from time to time owed to the lenders under the
Credit Agreement, including, without limitation, the
Letter of Credit Obligations and principal of and
interest on, and all fees and expenses payable under
the Credit Agreement and the Letter of Credit
Obligations, 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 F4L Senior Subordinated 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 Indebtedness 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 F4L Senior Subordinated Note
Indenture.
GUARANTEES GUARANTEES
Each Subsidiary Guarantor has unconditionally Each Subsidiary Guarantor will unconditionally
guaranteed, jointly and severally, the full and guarantee, jointly and severally, the full and prompt
prompt performance of Food 4 Less' obligations under performance of the Company's obligations under the New
the Old F4L Senior Subordinated Note Indenture and the F4L Senior Subordinated Note Indenture and the New F4L
Old F4L Subordinated Notes. Senior Subordinated Notes.
"Subsidiary Guarantor" means (i) Cala Co., Cala "Subsidiary Guarantor" means (i) each of Alpha Beta
Foods, Inc., Bell Markets, Inc., Food 4 Less of Company, Bay Area Warehouse Stores, Inc., Bell Markets,
Southern California, Inc., Alpha Beta Company, Food 4 Inc., Cala Co., Cala Foods, Inc., Falley's Inc., Food 4
Less of California, Inc., Falley's, Inc., and Food 4 Less of California, Inc., Food 4 Less Merchandising,
Less Merchandising, Inc., (ii) each of the Food 4 Less' Inc., Food 4 Less GM, Inc., Food 4 Less of Southern
subsidiaries that becomes a guarantor of the Old F4L California, Inc. (ii) upon consummation of the Mergers,
Senior Subordinated Notes pursuant to the provisions of Crawford Stores, Inc., (iii) each of the Company's
the Old F4L Senior Subordinated Note Indenture subsidiaries which becomes a guarantor of the New F4L
summarized under "Guarantees of Certain Indebtedness" Senior Subordinated Notes in compliance with the
and (iii) each of Food 4 Less's subsidiaries executing provisions set forth under "Guarantees of Certain
a supplemental indenture in which such subsidiary Indebtedness," and (iv) each of the Company's
agrees to be bound by the provisions of the Old F4L Subsidiaries executing a supplemental indenture in
Senior Subordinated Note Indenture. See "Guarantees which such Subsidiary agrees to be bound by
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OLD F4L SENIOR SUBORDINATED NOTES NEW F4L SENIOR SUBORDINATED NOTES
- ------------------------------------------------------ ------------------------------------------------------
of Certain Indebtedness" below. the terms of the New F4L Senior Subordinated Indenture.
See "Guarantees of Certain Indebtedness" below.
CHANGE OF CONTROL CHANGE OF CONTROL
Under the occurrence of a Change of Control, each Under the occurrence of a Change of Control, each
holder will have the right to require the repurchase holder will have the right to require the repurchase of
of such holder's Old F4L Senior Subordinated Notes at a such holder's New F4L Senior Subordinated Notes at a
purchase price equal to 101% of the principal amount purchase price equal to 101% of the principal amount
thereof plus accrued and unpaid interest to the date of thereof plus accrued and unpaid interest to the date of
repurchase. See "Limitation on Change of Control" repurchase.
below.
"Change of Control" means (i) the acquisition after the
"Change of Control" means the acquisition, in one or Issue Date, in one or more transactions, of beneficial
more transactions, of beneficial ownership (within the ownership (within the meaning of Rule 13d-3 under the
meaning of Rule 13d-3 under the Exchange Act) by (i) Exchange Act) by (a) any person or entity (other than
any person or entity other than any Permitted Holder any Permitted Holder) or (b) any group of persons or
(as defined below) or (ii) any group of persons or entities (excluding any Permitted Holders) who
entities (excluding any Permitted Holders) who constitute a group (within the meaning of Section
constitute a group (within the meaning of section 13(d)(3) of the Exchange Act), in either case, of any
13(d)(3) of the Exchange Act), in either case, of any securities of New Holdings or the Company such that, as
securities of FFL or Food 4 Less such that, as a result a result of such acquisition, such person, entity or
of such acquisition, such person, entity or group group either beneficially owns (within the meaning of
either (A) beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act), directly or
Rule 13d-3 under the Exchange Act) 51% or more of Food indirectly, 40% or more of the then outstanding voting
4 Less's then outstanding voting securities entitled to securities entitled to vote on a regular basis for a
vote on a regular basis for a majority of the board of majority of the board of directors of the Company (but
directors of Food 4 Less (to the extend such beneficial only to the extent that such beneficial ownership is
ownership is not shared with any Permitted Holder who not shared with any Permitted Holder who has the power
has the power to direct the vote thereof), or (B) to direct the vote thereof), provided, however, that no
otherwise has the ability to elect a majority of the such Change of Control shall be deemed to have occurred
members of Food 4 Less's board of directors. if (A) the Permitted Holders beneficially own, in the
aggregate, at such time, a greater percentage of such
"Permitted Holder" means (i) Food 4 Less Equity voting securities than such other person, entity or
Partners, L.P., The Yucaipa Companies or any entity group or (B) at the time of such acquisition, the
controlled thereby, (ii) an employee benefit plan of Permitted Holders (or any of them) possess the ability
Food 4 Less, or any participant therein or any of its (by contract or otherwise) to elect, or cause the
subsidiaries, (iii) a trustee or other fiduciary election, of a majority of the members of the Company's
holding securities under an employee benefit plan of board of directors.
Food 4 Less or any of its subsidiaries or (iv) any
Permitted Transferee of any of the foregoing persons. "Permitted Holder" means (i) Food 4 Less Equity
Partners, L.P., and The Yucaipa Companies or any entity
"Permitted Transferee" means, with respect to any controlled thereby or any of the partners thereof, (ii)
person, (i) any affiliate of such person, (ii) the Apollo Advisors, L.P., Lion Advisors, L.P. or any
heirs, executors, administrators, testamentary entity controlled thereby or any of the partners
trustees, legatees or beneficiaries of any such person, thereof, (iii) an employee benefit plan of the Company,
and (iii) a trust, the beneficiaries of which, or a or any of its subsidiaries or any participant therein,
corporation or partnership, the stockholders or general (iv) a trustee or other fiduciary holding securities
or limited partners of which, include only such person under an employee benefit plan of the Company or any of
or his or her spouse or lineal descendants, in each its subsidiaries or (v) any Permitted Transferee of any
case to whom such person has transferred securities of of the foregoing persons.
Food 4 Less.
"Permitted Transferees" means, with respect to any
IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD person, (i) any Affiliate of such person, (ii) the
F4L SENIOR SUBORDINATED NOTE INDENTURE WILL BE MODIFIED heirs, executors, administrators, testamentary
TO ELIMINATE THIS COVENANT AND CERTAIN RELATED trustees, legatees or beneficiaries of any such person,
DEFINITIONS. (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 RESTRICTED PAYMENTS. Pursuant to the LIMITATION ON RESTRICTED PAYMENTS. Pursuant to the New
Old F4L Senior Subordinated Note Indenture, Food 4 F4L Senior Subordinated Note Indenture, the Company
Less shall not, and shall cause each of its shall not, and shall cause each of its subsidiaries not
subsidiaries not to, directly or indirectly, make any to, directly or indirectly, make any Restricted Payment
Restricted Payment if, at the time of such Restricted if, at the time of such proposed Restricted Payment, or
Payment, or after giving effect thereto, (a) a Default after giving effect thereto, (a) a Default or an Event
or an Event of Default shall have occurred and be of Default shall have occurred and be continuing, (b)
continuing, (b) the Net Worth of Food 4 Less on the the Company could not incur $1.00 of additional
last day of the full fiscal quarter immediately Indebtedness (other than Permitted Indebtedness)
preceding the date of such Restricted Payment (pro pursuant to the covenant described under "-- Limitation
forma to give effect thereto) is not greater than $115 on Incurrences of Additional Indebtedness" below or (c)
million, (c) Food 4 Less's Operating Coverage Ratio, the aggregate amount expended for all Restricted
calculated on a pro forma basis as if such Restricted Payments, including such proposed
Payment had been made at the
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OLD F4L SENIOR SUBORDINATED NOTES NEW F4L SENIOR SUBORDINATED NOTES
- ------------------------------------------------------ ------------------------------------------------------
beginning of the Pro Forma Period, shall be less than Restricted Payment (the amount of any Restricted
2.25 to 1.0 or (d) the aggregate amount expended for Payment, if other than cash, to be the fair market
all Restricted Payments, including such Restricted value thereof at the date of payment as determined in
Payment (the amount of any Restricted Payment, if other good faith by the board of directors of the Company),
than cash, to be the fair market value thereof at the subsequent to the Issue Date, shall exceed the sum of
date of payment as determined in good faith by the (i) 50% of the aggregate Consolidated Net Income (or if
board of directors of Food 4 Less), subsequent to June such aggregate Consolidated Net Income is a loss, minus
17, 1991, shall exceed the sum of (i) 25% of the 100% of such loss) of the Company earned subsequent to
aggregate Consolidated Net Income (or if such the Issue Date and on or prior to the date of the
Consolidated Net Income is a loss, minus 100% of such proposed Restricted Payment (the "Reference Date") plus
loss) of Food 4 Less earned subsequent to June 17, 1991 (ii) 100% of the aggregate net proceeds received by the
and on or prior to the date the Restricted Payment Company from any person (other than a subsidiary of the
occurs (the "Reference Date") plus (ii) 100% of the Company) from the issuance and sale (including upon
aggregate net proceeds received by Food 4 Less from any exchange or conversion for other securities of the
person (other than a subsidiary) from the issuance and Company) subsequent to the Issue Date and on or prior
sale subsequent to June 17, 1991 and on or prior to the to the Reference Date of Qualified Capital Stock
Reference Date of Qualified Capital Stock (excluding (excluding (A) Qualified Capital Stock paid as a
(A) Qualified Capital Stock paid as a dividend on any dividend on any capital stock or as interest on any
capital stock or as interest on any Indebtedness and Indebtedness and (B) any net proceeds from issuances
(B) any net proceeds from issuances and sales financed and sales financed directly or indirectly using funds
directly or indirectly using funds borrowed from Food 4 borrowed from the Company or any subsidiary, until and
Less or any subsidiary, until and to the extent such to the extent such borrowing is repaid), plus (iii)
borrowing is repaid). 100% of the aggregate net cash proceeds received by the
Company as capital contributions to the Company after
Notwithstanding the foregoing, if no Default or Event the Issue Date, plus (iv) $25 million.
of Default shall have occurred and be continuing as a
consequence thereof, the provisions set forth in the Notwithstanding the foregoing, if no Default or Event
immediately preceding paragraph will not prevent (1) of Default shall have occurred and be continuing as a
the payment of any dividend within 60 days after the consequence thereof, the provisions set forth in the
date of its declaration if the dividend would have been immediately preceding paragraph will not prevent (1)
permitted on the date of declaration, (2) the the payment of any dividend within 60 days after the
acquisition of any shares of capital stock of Food 4 date of its declaration if the dividend would have been
Less or the repayment of any Indebtedness of Food 4 permitted on the date of declaration, (2) the
Less in exchange for or solely out of the proceeds of acquisition of any shares of capital stock of the
the substantially concurrent sale (other than to a Company or the repurchase, redemption or other
subsidiary) of shares of Qualified Capital Stock or the repayment of any Subordinated Indebtedness in exchange
repayment of any Indebtedness of Food 4 Less in ex- for or solely out of the proceeds of the substantially
change for or solely out of the proceeds of the concurrent sale (other than to a subsidiary) of shares
substantially concurrent sale (other than to a of Qualified Capital Stock of the Company, (3) the
subsidiary) of Indebtedness subordinated in right of repurchase, redemption or other repayment of any
payment to the Old F4L Senior Subordinated Notes with Subordinated Indebtedness in exchange for or solely out
no scheduled or required maturity or scheduled or of the proceeds of the substantially concurrent sale
required repayment of principal or sinking fund payment (other than to a subsidiary) of Subordinated
prior to the date of maturity, (3) Permitted Payments; Indebtedness of the Company with an Average Life equal
provided, however, that the declaration of each to or greater than the then remaining Average Life of
dividend paid in accordance with clause (1) above, and the Subordinated Indebtedness repurchased, redeemed or
each acquisition made in accordance with clause (2) repaid, (4) any payments by the Company or any
above, and each payment described in clause (ii), (iii) Subsidiary, or any dividend by the Company or any
or (iv) of the definition of "Permitted Payments" shall Subsidiary to New Holdings the proceeds of which are
each be counted for purposes of computing amounts used by New Holdings to make payments, required to be
expended pursuant to subclause (d) in the immediately made due to the exercise of statutory dissenters',
preceding paragraph, and no amounts expended pursuant appraisal or similar rights by holders of common stock
to clause (i) or (v) of the definition of "Permitted of FFL in connection with the FFL Merger and (5)
Payments" shall be so counted. Permitted Payments; provided, however, that the
declaration of each dividend paid in accordance with
"Restricted Payment" means any (i) Stock Payment, clause (1) above, each acquisition or repayment made in
(ii) Investment (other than a Permitted Investment) or accordance with, or of the type set forth in, clause
(iii) Restricted Debt Prepayment (each as defined (2) above, and each payment described in clause (iii),
below). (iv), (vii) and (ix) of the definition of the term
"Permitted Payments" shall each be counted for purposes
"Stock Payment" means, with respect to any person, of computing amounts expended pursuant to subclause (c)
(a) the declaration or payment by such person, either in the immediately preceding paragraph, and no amounts
in cash or in property, of any dividend on (except, in expended pursuant to clause (3) above or pursuant to
the case of Food 4 Less, dividends payable solely in clause (i), (ii), (v), (vi), (viii) or (x) of the
Qualified Capital Stock of Food 4 Less), or the making definition of the term "Permitted Payments" shall be so
by such person or any of its subsidiaries of any other counted; provided, further that to the extent any
distribution in respect of, such person's Qualified payments made pursuant to clause (vii) of the
Capital Stock or any warrants, rights or options to definition of the term "Permitted Payments" are
purchase or acquire shares of any class of such capital deducted for purposes of computing the Consolidated Net
stock (other than exchangeable or convertible Income of the Company, such payments shall not be
Indebtedness of such person), or (b) the redemption, counted for purposes of computing amounts expended as
repurchase, retirement or other acquisition for value Restricted Payments pursuant to subclause (c) in the
by such person or any of its subsidiaries, directly or immediately preceding paragraph.
indirectly, of such person's Qualified Capital Stock
(and, in the case of a subsidiary, Qualified Capital "Restricted Payment" means any (i) Stock Payment, (ii)
Stock of Food 4 Less) or any warrants, rights or Investment (other than a Permitted Investment) or (iii)
options to purchase or acquire shares of any class of Restricted Debt Prepayment (each as defined below).
such capital stock (other than exchangeable or
convertible Indebtedness of such person), other than, "Stock Payment" means, with respect to any person, (a)
in the case of Food 4 Less, through the issuance in the
exchange therefor solely of Qualified Capital Stock of
Food 4 Less; provided, however, that in the case of a
subsidiary, the term "Stock Payment" shall
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- ------------------------------------------------------ ------------------------------------------------------
not include any such payment with respect to its declaration or payment by such person, either in cash
capital stock or warrants, rights or options to or in property, of any dividend on (except, in the case
purchase or acquire shares of any class of its capital of the Company, dividends payable solely in Qualified
stock that are owned solely by Food 4 Less or a Capital Stock of the Company), or the making by such
wholly-owned subsidiary. person or any of its subsidiaries of any other
distribution in respect of, such person's Qualified
"Investment" by any person in any other person means Capital Stock or any warrants, rights or options to
any investment by such person in such other person, purchase or acquire shares of any class of such capital
whether by a purchase of assets, in any transaction or stock (other than exchangeable or convertible
series of related transactions, individually or in the Indebtedness of such person), or (b) the redemption,
aggregate, in an amount greater than $5 million, share repurchase, retirement or other acquisition for value
purchase, capital contribution, loan, advance (other by such person or any of its subsidiaries, directly or
than reasonable loans and advances to employees for indirectly, of such person's Qualified Capital Stock
moving and travel expenses, as salary advances, or to (and, in the case of a subsidiary, Qualified Capital
permit the purchase of Qualified Capital Stock of Food Stock of the Company) or any warrants, rights or
4 Less and other similar customary expenses incurred, options to purchase or acquire shares of any class of
in each case in the ordinary course of business such capital stock (other than exchangeable or
consistent with past practice) or similar credit convertible Indebtedness of such person), other than,
extension constituting Indebtedness of such other in the case of the Company, through the issuance in
person, and any guarantee of Indebtedness of any other exchange therefor solely of Qualified Capital Stock of
person. 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.
"Investment" by any person in any other person means
"Permitted Investment" by any person means (i) any any investment by such person in such other person,
Related Business Investment, (ii) Investments in whether by share purchase, capital contribution, loan,
securities not constituting cash or cash equivalents advance (other than reasonable loans and advances to
and received in connection with an Asset Sale made employees for moving and travel expenses, as salary
pursuant to the provisions of the Old F4L Senior advances, or to permit the purchase of Qualified
Subordinated Note Indenture summarized under "Limi- Capital Stock of the Company and other similar
tation on Disposition of Assets" or any other customary expenses incurred, in each case in the
disposition of assets not constituting an Asset Sale by ordinary course of business consistent with past
reason of the $250,000 threshold contained in the practice) or similar credit extension constituting
definition thereof, (iii) cash and cash equivalents, Indebtedness of such other person, and any guarantee
(iv) Investments existing on June 17, 1991, (v) of Indebtedness of any other person.
Investments specifically permitted by and made in
accordance with the provisions of the Old F4L Senior "Permitted Investment" by any person means (i) any
Subordinated Note Indenture summarized under Related Business Investment, (ii) Investments in
"Limitation on Restricted Payments," "Limitation on securities not constituting cash or cash equivalents
Transactions with Affiliates" and "Limitation on and received in connection with an Asset Sale made
Incurrences of Additional Indebtedness," and (vi) pursuant to the provisions of the covenant described
Investments by Subsidiary Guarantors in other under "Limitation on Asset Sales" or any other dispo-
Subsidiary Guarantors and Investments by subsidiaries sition of assets not constituting an Asset Sale by
which are not Subsidiary Guarantors in other reason of the $500,000 threshold contained in the
subsidiaries which are not Subsidiary Guarantors. definition thereof, (iii) cash and cash equivalents,
(iv) Investments existing on the Issue Date, (v)
"Restricted Debt Prepayment" means any purchase, Investments specifically permitted by and made in
redemption, defeasance (including, but not limited to, accordance with the provisions of the covenant
in-substance or legal defeasance) or other acquisition described under "Limitation on Transactions with
or retirement for value, directly or indirectly, by Affiliates", (vi) Investments by Subsidiary Guarantors
Food 4 Less or a subsidiary, prior to the scheduled in other Subsidiary Guarantors and Investments by
maturity or prior to any scheduled repayment of subsidiaries which are not Subsidiary Guarantors in
principal or sinking fund payment, as the case may be, other subsidiaries which are not Subsidiary Guarantors
in respect of Indebtedness of Food 4 Less that is and (vii) additional investments in an aggregate amount
subordinate in right of payment to the Old F4L Senior not exceeding $15 million.
Subordinated Notes; provided, however, that any such
acquisition shall be deemed not to be a Restricted Debt "Restricted Debt Prepayment" means any purchase,
Prepayment to the extent it is made (x) in exchange for redemption, defeasance (including, but not limited to,
or with the proceeds from the substantially concurrent in substance or legal defeasance) or other acquisition
issuance of Qualified Capital Stock or (y) in exchange or retirement for value, directly or indirectly, by the
for or with the proceeds from the substantially Company or a subsidiary, prior to the scheduled
concurrent issuance of Indebtedness, in a principal maturity or prior to any scheduled repayment of
amount (or, if such Indebtedness provides for an amount principal or sinking fund payment, as the case may be,
less than the principal amount thereof to be due and in respect of Subordinated Indebtedness.
payable upon the acceleration thereof, with an original
issue price) not to exceed the sum of (A) the lesser of "Permitted Payments" means (i) any payment by the Com-
(i) the principal amount of Indebtedness being acquired pany or any Subsidiary, or any dividend by the Company
in exchange therefor (or with the proceeds therefrom) or any Subsidiary to New Holdings the proceeds of which
and (ii) if such Indebtedness being acquired was issued are utilized by New Holdings to make payments, to The
at an original issue discount, the original issue price Yucaipa Companies or the principals or any Affiliates
thereof plus amortization of the original issue thereof for consulting, management, investment banking
discount at the time of the incurrence of the or similar services, or for reimbursement of losses,
Indebtedness being issued in exchange therefor (or the costs and expenses pursuant to the Consulting
proceeds of which will finance such acquisition), and Agreement, (ii) any payment by the Company or any
(B) the amount of penalties, fees and expenses actually subsidiary pursuant to the Amended and Restated Tax
incurred with respect thereto, and provided further Sharing Agreement, dated as of June 17, 1991, between
that any such Indebtedness shall have an average life Food 4 Less and certain subsidiaries, as such Tax
not less than the average life of the Sharing Agreement may be amended
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Indebtedness being acquired, and shall contain from time to time, so long as the payment thereunder by
subordination and default provisions no less favorable, the Company and its subsidiaries shall not exceed the
in any material respect, to holders of the Old F4L amount of taxes the Company would be required to pay if
Senior Subordinated Notes than those contained in such it were the filing person for all applicable taxes,
Indebtedness being acquired. (iii) any payment by the Company or any subsidiary
pursuant to the Transfer and Assumption Agreement,
"Permitted Payments" means any payment by Food 4 Less dated as of June 23, 1989, between Food 4 Less and
or any subsidiary (i) to The Yucaipa Companies or the Holdings, as in effect on the Issue Date, (iv) any
principals thereof for consulting, investment banking payment by the Company or any subsidiary, or any
or similar services during such period pursuant to that dividend by the Company or any subsidiary to New
certain Amended and Restated Consulting Agreement, Holdings the proceeds of which are used by New Holdings
dated as of June 17, 1991, among Food 4 Less, Yucaipa to make payments, (a) in connection with repurchases of
Management Company and The Yucaipa Companies, as such outstanding shares of the Company's or New Holdings'
amounts would be calculated under such Consulting common stock following the death, disability or termi-
Agreement as in effect on the date of the Old F4L nation of employment of management stockholders, and
Senior Subordinated Note Indenture, (ii) pursuant to (b) of amounts required to be paid by New Holdings, the
the Amended and Restated Tax Sharing Agreement, dated Company or any of its subsidiaries to participants or
as of June 17, 1991, between Food 4 Less and certain former participants in employee benefit plans upon
subsidiaries, as such Tax Sharing Agreement may be termination of employment by such participants, as
amended from time to time, so long as the payment provided in the documents related thereto, in an
thereunder by Food 4 Less and its subsidiaries shall aggregate amount (for both clauses (a) and (b)) not to
not exceed the amount of taxes Food 4 Less would be exceed $10 million in any yearly period (provided that
required to pay if it were the filing person for all any unused amounts may be carried over to any
applicable taxes, (iii) pursuant to the Transfer and subsequent yearly period subject to a maximum amount of
Assumption Agreement, dated as of June 23, 1989, $20 million in any yearly period), (v) from and after
between Food 4 Less and FFL, as in effect on June 17, June 30, 1998, payments of cash dividends or loans to
1991, and (iv) (a) in connection with repurchases of New Holdings in an amount sufficient to enable New
outstanding shares of Food 4 Less's common stock Holdings to make payments of interest required to be
following the death, disability or termination of made in respect of the Discount Notes in an amount not
employment of management stockholders, and (b) of to exceed the amount payable thereunder in accordance
amounts required to be paid by FFL, Food 4 Less or any with the terms thereof in effect on the Issue Date,
of its subsidiaries to participants in employee benefit (vi) from and after June 1, 2000, payments of cash
plans upon any termination of employment by such dividends to New Holdings in an amount sufficient to
participants, as provided in the documents related enable New Holdings to make payments of interest
thereto, in an aggregate amount (for both clauses (a) required to be made in respect of the Seller Debentures
and (b)) not to exceed $5 million in any yearly period and the New Discount Debentures in an amount not to
(provided that any unused amounts may be carried over exceed the amount payable thereunder in accordance with
to any subsequent yearly period subject to a maximum the terms thereof in effect on the Issue Date, (vii)
amount of $10 million in any yearly period). dividends or other payments to New Holdings sufficient
to permit New Holdings to perform accounting, legal,
In addition to the foregoing, the maximum annual fee corporate, and administrative functions in the ordinary
payable to Yucaipa for management and consulting course of business or to pay required fees and expenses
services pursuant to the Amended and Restated in connection with the Merger, the Reincorporation
Consulting Agreement (and thereby allowable as a Merger and the registration under applicable laws and
Permitted Payment under the Old F4L Senior Subordinated regulations of its debt or equity securities, (viii)
Note Indenture) is either (a) one-tenth of one percent dividends or other distributions by the Company to New
of annual revenues or (b) a fixed annual fee of $2 Holdings on the Issue Date of shares of New Holdings
million plus 2.5 percent of the excess of (i) earnings common stock owned by the Company, (ix) dividends by
before interest, taxes, depreciation and amortization the Company to New Holdings of the Net Cash Proceeds of
("EBITDA") over (ii) a minimum EBITDA threshold of $110 an Asset Sale to the extent that (a) neither the
million. Yucaipa may elect either method for Company nor any of the Subsidiaries is required, or may
determining its consulting fee at the beginning of each be required, pursuant to the documents governing any
fiscal year during the term of the agreement. However, outstanding Indebtedness of the Company or any of the
pursuant to the terms of the 1991 Stockholders Agree- Subsidiaries to utilize such Net Cash Proceeds to repay
ment, Yucaipa's consulting fee is currently limited to (or offer to repay) such Indebtedness (or has complied
an amount not greater than that specified in clause (b) with all such requirements), (b) such Net Cash Proceeds
above. The maximum fee payable to Yucaipa for have not been utilized to repay outstanding
transactional consulting services pursuant to the Indebtedness of the Company or any of the Subsidiaries
Amended and Restated Consulting Agreement (and thereby and (c) New Holdings is required pursuant to the
allowable as a Permitted Payment under the Old F4L documents governing any outstanding Indebtedness of New
Senior Subordinated Note Indenture) is one percent of Holdings to utilize such Net Cash Proceeds to repay (or
the cash and noncash consideration paid or received offer to repay) such Indebtedness and (x) the loan by
(including assumed indebtedness) by Food 4 Less in any the Company on the Issue Date to RGC Investment Company
acquisition or disposition transaction, and, without of not more than $5 million.
duplication of the foregoing, one percent of the
maximum principal amount or proceeds of any debt, "Consolidated Net Income" means, with respect to any
equity or lease financing by Food 4 Less. person, for any period, the aggregate of the net income
(or loss) of such person and its subsidiaries for such
"Consolidated Net Income" with respect to any person, period, on a consolidated basis, determined in
for any period, means the aggregate of the net income accordance with GAAP; provided that (a) the net income
(or loss) of such person and its subsidiaries for such of any other person in which such person or any of its
period, on a consolidated basis, determined in subsidiaries has an interest (which interest does not
accordance with GAAP; provided that (a) the net income cause the net income of such other person to be
of any other person in which such person or any of its consolidated with the net income of such person and its
subsidiaries has an interest (which interest does not subsidiaries in accordance with GAAP) shall be included
cause the net income of such other person to be only to the extent of the amount of dividends or
consolidated with the net income of such person and its distributions actually paid to such person or such
subsidiaries in accordance with GAAP) shall be included subsidiary by such other person in such period; (b) the
only to the extent of the amount of dividends or net income of any subsidiary of such person that is
distributions actually paid to such person or such subject to any Payment Restriction shall be excluded to
subsidiary by such other person in such period; the
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(b) the net income of any subsidiary of such person extent such Payment Restriction actually prevented the
that is subject to any Payment Restriction shall be payment of an amount that otherwise could have been
excluded to the extent such Payment Restriction paid to, or received by, such person or a subsidiary of
actually prevented the payment of an amount that such person not subject to any Payment Restriction; and
otherwise could have been paid to, or received by, such (c)(i) the net income (or loss) of any other person
person or a subsidiary of such person not subject to acquired in a pooling of interests transaction for any
any Payment Restriction; and (c)(i) the net income (or period prior to the date of such acquisition, (ii) all
loss) of any other person acquired in a pooling of gains and losses realized on any Asset Sale, (iii) all
interests transaction for any period prior to the date gains realized upon or in connection with or as a
of such acquisition, (ii) all gains and losses-realized consequence of the issuance of the capital stock of
on any Asset Sale or in connection with the closure of such person or any of its subsidiaries and any gains on
the Long Beach Warehouse, (iii) all gains realized upon pension reversions received by such person or any of
or in connection with or as a consequence of the its subsidiaries, (iv) all gains and losses realized on
issuance of the capital stock of such person or any of the purchase or other acquisition by such person or any
its subsidiaries and any gains on pension reversions of its subsidiaries of any securities of such person or
received by such person or any of its subsidiaries, any of its subsidiaries, (v) all gains and losses
(iv) all gains and losses realized on the purchase or resulting from the cumulative effect of any accounting
other acquisition by such person or any of its change pursuant to the application of Accounting
subsidiaries of any securities of such person or any of Principles Board Opinion No. 20, as amended, (vi) all
its subsidiaries, (v) all gains and losses resulting other extraordinary gains and losses, (vii) all
from the cumulative effect of any accounting change non-cash charges incurred by the Company or any of its
pursuant to the application of Accounting Principles subsidiaries in connection with the Merger, including
Board Opinion No. 20, as amended, (vi) all other without limitation the divestiture of the excluded
extraordinary gains and losses, and (vii) with respect assets, (viii) losses incurred by the Company and its
to Food 4 Less, all deferred financing costs written subsidiaries resulting from earthquakes and (ix) with
off in connection with the early extinguishment of any respect to the Company, all deferred financing costs
Indebtedness, shall each be excluded. written off in connection with the early extinguishment
of any Indebtedness, shall each be excluded; provided
IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD further that solely for the purpose of computing
F4L SENIOR SUBORDINATED NOTE INDENTURE WILL BE MODIFIED amounts described in subclause (c) of the first
TO ELIMINATE THIS COVENANT AND CERTAIN RELATED paragraph of the covenant described under
DEFINITIONS. "-- Limitation on Restricted Payments" above,
"Consolidated Net Income" of the Company for any period
shall be reduced by the aggregate amount of dividends
paid by the Company or a Subsidiary to New Holdings
pursuant to clauses (v) and (vi) of the definition of
"Permitted Payments" during such period.
"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).
"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 F4L Senior Subordinated Notes or the senior
subordinated note guarantee of such Subsidiary
Guarantor, as the case may be.
LIMITATION ON INCURRENCES OF ADDITIONAL INDEBTEDNESS. LIMITATION ON INCURRENCES OF ADDITIONAL
Pursuant to the Old F4L Senior Subordinated Note INDEBTEDNESS. Pursuant to the New F4L Senior
Indenture, Food 4 Less shall not, and shall not permit Subordinated Note Indenture, the Company shall not, and
any of its subsidiaries, after the original issuance shall not permit any of its subsidiaries, directly or
of the Old F4L Senior Subordinated Notes, directly indirectly, to incur, assume, guarantee, become liable,
or indirectly, to incur, assume, guarantee, become contingently or otherwise, with respect to, or
liable, contingently or otherwise, with respect to, otherwise become responsible for the payment of
or otherwise become responsible for the payment of (collectively "incur") any Indebtedness other than
(collectively "incur") any Indebtedness; provided, Permitted Indebtedness; provided, however, that if no
however, that if no Default with respect to payment Default with respect to payment of principal of, or
of principal of, or interest on, the Old F4L Senior interest on, the New F4L Senior Subordinated Notes
Subordinated Notes or Event of Default shall have issued under the New F4L Senior Subordinated Note
occurred and be continuing at the time or as a Indenture or Event of Default under the New F4L Senior
consequence of the incurrence of any such Subordinated Note Indenture shall have occurred and be
Indebtedness, Food 4 Less (and, in certain circum- continuing at the time or as a consequence of the
stances subsidiaries) may incur Indebtedness if on the incurrence of any such Indebtedness, the Company may
date of the incurrence of such Indebtedness the incur Indebtedness if immediately before and
Operating Coverage Ratio of Food 4 Less would be immediately after giving effect to the incurrence of
greater than 2.0 to 1.0 if such date is after June 15, such Indebtedness the Operating Coverage Ratio of
1992 and prior to June 15, 1994; greater than 2.2 to Ralphs Grocery would be greater than 2.0 to 1.0;
1.0 if such date is on or after June 15, 1994 and prior provided, further, a subsidiary may incur Acquired
to June 15, 1996; and greater than 2.4 to 1.0 Indebtedness to the extent such Indebtedness could have
thereafter. been incurred by the Company pursuant to the
immediately preceding proviso.
The foregoing limitation shall not apply to (a)
certain Indebtedness of Food 4 Less and its "Indebtedness" means with respect to any person,
subsidiaries pursuant to (i) the Term Facility under without duplication, (i) all liabilities, contingent or
the Loan Documents, (ii) the Subsidiary Letter of otherwise, of such person (a) for borrowed money
Credit Obligations, and (iii) the Revolving Facility (whether or not the recourse of
under the Loan Documents (and Food 4 Less and each
subsidi-
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- ------------------------------------------------------ ------------------------------------------------------
ary (to the extent it is not an obligor) may guarantee the lender is to the whole of the assets of such person
such Indebtedness, subject to certain limitations) (b) or only to a portion thereof), (b) evidenced by bonds,
the Old F4L Senior Subordinated Notes; (c) certain notes, debentures, drafts accepted or similar
intercompany Indebtedness; (d) Indebtedness incurred by instruments or letters of credit or representing the
Food 4 Less or any subsidiary in connection with the balance deferred and unpaid of the purchase price of
purchase or improvement of property (real or personal) any property (other than any such balance that repre-
or equipment or other capital expenditures in the sents an account payable or any other monetary
ordinary course of business (including for the purchase obligation to a trade creditor (whether or not an
of assets or stock of any retail grocery store or affiliate) created, incurred, assumed or guaranteed by
business) or consisting of capitalized lease such person in the ordinary course of business of such
obligations, in aggregate not to exceed $25 million in person in connection with obtaining goods, materials or
any yearly period (provided, that any unused amounts services and due within twelve months (or such longer
may be carried over to the next (but not any subse- period for payment as is customarily extended by such
quent) yearly period); (e) Indebtedness of Food 4 Less trade creditor) of the incurrence thereof, which
under certain Foreign Exchange Agreements and Interest account is not overdue by more than 90 days, according
Swap Obligations; (f) certain Permitted Guarantees of to the original terms of sale, unless such account
Indebtedness, in aggregate not to exceed $25 million at payable is being contested in good faith), or (c) for
any time outstanding, in addition to Permitted the payment of money relating to a capitalized lease
Guarantees outstanding on June 17, 1991; (g) guarantees obligation; (ii) the maximum fixed repurchase price of
by Food 4 Less and its subsidiaries of Indebtedness all Disqualified Capital Stock of such person; (iii)
incurred by a wholly-owned subsidiary so long as the reimbursement obligations of such person with respect
incurrence of such Indebtedness by such wholly-owned to letters of credit; (iv) obligations of such person
subsidiary is permitted under the terms of the Old F4L with respect to Interest Swap Obligations and Foreign
Senior Subordinated Note Indenture; (h) Refinancing Exchange Agreements; (v) all liabilities of others of
Indebtedness; (i) Indebtedness in connection with the the kind described in the preceding clause (i), (ii),
acquisition of the La Habra Facility and Option Stores (iii) or (iv) that such person has guaranteed or that
if, after giving effect to such incurrence, the is otherwise its legal liability, and (vi) all
Operating Coverage Ratio of Food 4 Less would be obligations of others secured by a lien to which any of
greater than 2.0 to 1.0; (j) Indebtedness for letters the properties or assets (including, without
of credit relating to workers compensation claims and limitation, leasehold interests and any other tangible
self-insurance and (k) additional Indebtedness of Food or intangible property rights) of such person are
4 Less and Subsidiary Guarantors not to exceed $75 subject, whether or not the obligations secured thereby
million at any time outstanding. shall have been assumed by such person or shall
otherwise be such person's legal liability (provided,
IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD that if the obligations so secured have not been
F4L SENIOR SUBORDINATED NOTE INDENTURE WILL BE MODIFIED assumed by such person or are not otherwise such
TO ELIMINATE THIS PROVISION AND CERTAIN RELATED person's legal liability, such obligations shall be
DEFINITIONS. deemed to be in an amount equal to the fair market
value of such properties or assets, as determined in
"Indebtedness" means with respect to any person, good faith by the board of directors of such person,
without duplication, (i) all liabilities, contingent or which determination shall be evidenced by a board
otherwise, of such person (a) for borrowed money resolution). For purposes of the preceding sentence,
(whether or not the recourse of the lender is to the the "maximum fixed repurchase price" of any
whole of the assets of such person or only to a portion Disqualified Capital Stock that does not have a fixed
thereof), (b) evidenced by bonds, notes, debentures, repurchase price shall be calculated in accordance with
drafts accepted or similar instruments or letters of the terms of such Disqualified Capital Stock as if such
credit or representing the balance deferred and unpaid Disqualified Capital Stock were purchased on any date
of the purchase price of any property (other than any on which Indebtedness shall be required to be
such balance that represents an account payable or any determined under the New F4L Senior Subordinated Note
other monetary obligation to a trade creditor (whether Indenture, and if such price is based upon, or measured
or not an affiliate) created, incurred, assumed or by, the fair market value of such Disqualified Capital
guaranteed by such person in the ordinary course of Stock (or any equity security for which it may be
business of such person in connection with obtaining exchanged or converted), such fair market value shall
goods, materials or services and due within twelve be determined in good faith by the board of directors
months (or such longer period for payment as is of such person, which determination shall be evidenced
customarily extended by such trade creditor) of the by a board resolution. For purposes of the New F4L
incurrence thereof, which account is not overdue by Senior Subordinated Indenture, Indebtedness incurred by
more than 90 days, according to the original terms of any person that is a general partnership (other than
sale, unless such account payable is being contested in non-recourse Indebtedness) shall be deemed to have been
good faith), or (c) for the payment of money relating incurred by the general partners of such partnership
to a capitalized lease obligation; (ii) the maximum pro rata in accordance with their respective interests
fixed repurchase price of all Disqualified Capital in the liabilities of such partnership unless any such
Stock of such person; (iii) reimbursement obligations general partner shall, in the reasonable determination
of such person with respect to letters of credit; (iv) of the board of directors of the Company, be unable to
obligations of such person with respect to Interest satisfy its pro rata share of the liabilities of the
Swap Obligations and Foreign Exchange Agreements; (v) partnership, in which case the pro rata share of any
all liabilities of others of the kind described in the Indebtedness attributable to such partner shall be
preceding clause (i), (ii), (iii) or (iv) that such deemed to be incurred at such time by the remaining
person has guaranteed or that is otherwise its legal general partners on a pro rata basis in accordance with
liability, and (vi) all obligations of others secured their interests.
by a lien to which any of the properties or assets
(including, without limitation, leasehold interests and "Permitted Indebtedness" means (a) Indebtedness of the
any other tangible or intangible property rights) of Company and its subsidiaries pursuant to (i) the Term
such person are subject, whether or not the obligations Loans in an aggregate principal amount at any time
secured thereby shall have been assumed by such person outstanding not to exceed $750 million or such lesser
or shall otherwise be such person's legal liability amount as may be actually funded under the Term Loans
(provided, that if the obligations so secured have not on or within 91 days following the Issue Date (with any
been assumed by such person or are not otherwise such such amounts funded after the Issue Date to be used to
person's legal liability, such obligations shall be finance the repurchase of up to $224.5 million
deemed to be in an amount equal to the fair market aggregate principal amount of Old RGC Notes pursuant to
value of such properties or assets, as determined in the "change of control purchase offer" provision set
good faith by the board of directors of such person, forth in section 1014 of the Old RGC Indentures, plus
which related fees and
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- ------------------------------------------------------ ------------------------------------------------------
determination shall be evidenced by a board expenses), less the aggregate amount of all principal
resolution). For purposes of the preceding sentence, repayments thereunder pursuant to and in accordance
the "maximum fixed repurchase price" of any with the covenant described under "-- Limitation on
Disqualified Capital Stock that does not have a fixed Asset Sales" herein subsequent to the Issue Date, and
repurchase price shall be calculated in accordance with (ii) the revolving credit facility under the Credit
the terms of such Disqualified Capital Stock as if such Agreement (and the Company and each subsidiary (to the
Disqualified Capital Stock were purchased on any date extent it is not an obligor) may guarantee such
on which Indebtedness would be required to be Indebtedness) in an aggregate principal amount at any
determined under the Old F4L Senior Subordinated Note time outstanding not to exceed $325 million, less all
Indenture, and if such price is based upon, or measured permanent reductions thereunder pursuant to and in
by, the fair market value of such Disqualified Capital accordance with the covenant described under
Stock (or any equity security for which it may be "-- Limitation on Asset Sales" herein, (b) Indebtedness
exchanged or converted), such fair market value shall of the Company or a Subsidiary Guarantor owed to and
be determined in good faith by the board of directors held by the Company or a Subsidiary Guarantor; (c)
of such person, which determination shall be evidenced Indebtedness incurred by the Company or any subsidiary
by a board resolution. in connection with the purchase or improvement of
property (real or personal) or equipment or other
"Operating Coverage Ratio" means, with respect to any capital expenditures in the ordinary course of business
person, the ratio of (1) EBDIT of such person for the (including for the purchase of assets or stock of any
period (the "Pro Forma Period") consisting of the most retail grocery store or business) or consisting of
recent four full fiscal quarters for which financial Capitalized Lease Obligations provided that (i) at the
information in respect thereof is available immediately time of the incurrence thereof, such Indebtedness,
prior to the date of the transaction giving rise to the together with any other Indebtedness incurred during
need to calculate the Operating Coverage Ratio (the the most recently completed four fiscal quarter period
"Transaction Date") to (2) the aggregate Fixed Charges in reliance upon this clause (c) does not exceed, in
of such person for the fiscal quarter in which the the aggregate, 3% of net sales of the Company and its
Transaction Date occurs and the three fiscal quarters subsidiaries during the most recently completed four
immediately subsequent to such fiscal quarter (the fiscal quarter period on a consolidated basis
"Forward Period") reasonably anticipated by the board (calculated on a pro forma basis if the date of
of directors of such person to become due from time to incurrence is prior to the first anniversary of the
time during such period. For purposes of this Merger) and (ii) such Indebtedness, together with all
definition, if the Transaction Date occurs prior to the then outstanding Indebtedness incurred in reliance upon
first anniversary of June 17, 1991, "EBDIT" for the Pro this clause (c) does not exceed, in the aggregate, 3%
Forma Period shall be calculated, in the case of Food 4 of the aggregate net sales of the Company and its
Less, after giving effect on a pro forma basis to the Subsidiaries during the most recently completed twelve
Alpha Beta Acquisition as if it had occurred on the fiscal quarter period on a consolidated basis
first day of the Pro Forma Period. In addition to, but (calculated on a pro forma basis if the date of
without duplication of, the foregoing, for purposes of incurrence is prior to the third anniversary of the
this definition, "EBDIT" shall be calculated after Merger); (d) Indebtedness incurred by the Company or
giving effect (without duplication), on a pro forma any subsidiary in connection with capital expenditures
basis for the Pro Forma Period (but no longer), to (a) in an aggregate principal amount not exceeding $150.0
any Investment, during the period commencing on the million, provided that such capital expenditures relate
first day of the Pro Forma Period to and including the solely to the integration of the operations of RSI,
Transaction Date (the "Reference Period"), in any other Food 4 Less and their respective subsidiaries, as
person that, as a result of such Investment, becomes a described in this Amended and Restated Prospectus and
subsidiary of such person, (b) the acquisition, during Solicitation Statement; (e) Indebtedness of the Company
the Reference Period (by merger, consolidation or incurred under certain Foreign Exchange Agreements and
purchase of stock or assets) of any business or assets, Interest Swap Obligations; (f) guarantees incurred in
which acquisition is not prohibited by the Old F4L the ordinary course of business by the Company or a
Senior Subordinated Note Indenture, and (c) any sales Subsidiary of Indebtedness of any other person in
or other dispositions of assets (other than sales of aggregate not to exceed $25 million at any time
inventory in the ordinary course of business) occurring outstanding; (g) guarantees by the Company or a
during the Reference Period, in each case as if such Subsidiary Guarantor of Indebtedness incurred by a
incurrence, Investment, repayment, acquisition or asset wholly-owned Subsidiary Guarantor so long as the
sale had occurred on the first day of the Reference incurrence of such Indebtedness incurred by such
Period. In addition, for purposes of this definition, wholly-owned Subsidiary Guarantor is permitted under
"Fixed Charges" shall be calculated after giving effect the terms of the applicable New Indenture; (h)
(without duplication), on a pro forma basis for the Refinancing Indebtedness; (i) Indebtedness for letters
Forward Period, to any Indebtedness incurred or repaid of credit relating to workers' compensation claims and
on or after the first day of the Forward Period and self-insurance or similar requirements in the ordinary
prior to the Transaction Date. course of business; (j) Existing Indebtedness and other
Indebtedness outstanding on the Issue Date (after
"Loan Documents" means the Credit Agreement and all giving effect to the Merger); (k) Indebtedness arising
promissory notes, guarantees, security agreements, from guarantees of Indebtedness of the Company or any
pledge agreements, deeds of trust, mortgages, letters subsidiary or other agreements of the Company or a
of credit and other instruments, agreements and subsidiary providing for indemnification, adjustment of
documents executed pursuant thereto or in connection purchase price or similar obligations, in each case,
therewith, including all amendments, supplements, incurred or assumed in connection with the disposition
extensions, renewals, restatements, replacements or of any business, assets or subsidiary, other than
refinancings thereof, or other modifications (in whole guarantees of Indebtedness incurred by any person
or in part, and without limitation as to amount, terms, acquiring all or any portion of such bonuses, assets or
conditions, covenants or other provisions) thereof from subsidiary for the purpose of financing such
time to time. acquisition; provided that the maximum aggregate
liability in respect of all such Indebtedness shall at
"Credit Agreement" means the Credit Agreement, dated no time exceed the gross proceeds actually received by
as of June 17, 1991, by and among Food 4 Less, certain the Company and its subsidiaries in connection with
of its subsidiaries, the Lenders and Designated Issuers such disposition; (l) obligations in respect of
of the Lenders referred to therein, Bankers Trust performance bonds and completion guarantees provided by
Company, Citicorp North America, Inc., and the Company or any subsidiary in the ordinary course of
Manufacturers Hanover Trust Company, as Co-Agents, and business; and (m) additional Indebtedness of the
Citicorp North America, Inc., as Administrative Agent, Company and the Subsidiary Guarantors in an amount not
as the same may be amended, extended, renewed, re- to exceed $200 million at any time outstanding.
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stated, supplemented or otherwise modified (in whole or
in part, and without limitation as to amount, terms, "Operating Coverage Ratio" means, with respect to any
conditions, covenants and other provisions) from time person, the ratio of (1) EBDIT of such person for the
to time, and any agreement governing Indebtedness period (the "Pro Forma Period") consisting of the most
incurred to refund or refinance the entirety of the recent four full fiscal quarters for which financial
borrowings and commitments then outstanding or information in respect thereof is available immediately
permitted to be outstanding under such Credit Agreement prior to the date of the transaction giving rise to the
or such agreement; provided that such refunding or need to calculate the Operating Coverage Ratio (the
refinancing by its terms states that it is intended to "Transaction Date") to (2) the aggregate Fixed Charges
be senior in right of payment to the Old F4L Senior of such person for the fiscal quarter in which the
Subordinated Notes. Food 4 Less shall promptly notify Transaction Date occurs and the three fiscal quarters
the Trustee of any such refunding or refinancing of the immediately subsequent to such fiscal quarter (the
Credit Agreement. "Forward Period") reasonably anticipated by the board
of directors of such person to become due from time to
"Acquired Indebtedness" means Indebtedness of a time during such period. For purposes of this
person or any of its subsidiaries existing at the time definition, if the Transaction Date occurs prior to the
such person becomes a subsidiary of Food 4 Less or first anniversary of the Merger, "EBDIT" for the Pro
assumed in connection with the acquisition of assets Forma Period shall be calculated, in the case of the
from such person and not incurred by such person in Company, after giving effect on a pro forma basis to
connection with, or in anticipation or contemplation the Merger as if it had occurred on the first day of
of, such person becoming a subsidiary or such the Pro Forma Period. In addition to, but without
acquisition. duplication of, the foregoing, for purposes of this
definition, "EBDIT" shall be calculated after giving
"Permitted Guarantees" means (i) guarantees in effect effect (without duplication), on a pro forma basis for
on June 17, 1991 and (ii) guarantees incurred in the the Pro Forma Period (but no longer), to (a) any
ordinary course of business, by Food 4 Less or a Investment, during the period commencing on the first
subsidiary, of Indebtedness of any other person. day of the Pro Forma Period to and including the
Transaction Date (the "Reference Period"), in any other
"Refinancing Indebtedness" means Indebtedness of Food person that, as a result of such Investment, becomes a
4 Less or a subsidiary (i) issued in exchange for, or subsidiary of such person, (b) the acquisition, during
the proceeds from the issuance and sales or the Reference Period (by merger, consolidation or
disbursement of which are used to substantially purchase of stock or assets) of any business or assets,
concurrently repay, redeem, refund, refinance, dis- which acquisition is not prohibited by the New F4L
charge or otherwise retire for value, in whole or in Senior Subordinated Indenture, and (c) any sales or
part (collectively, "repay"), or constituting an other dispositions of assets (other than sales of
amendment, modification or supplement to, or a deferral inventory in the ordinary course of business) occurring
or renewal of (collectively, an "amendment"), any during the Reference Period, in each case as if such
Indebtedness of Food 4 Less or a subsidiary (and any incurrence, Investment, repayment, acquisition or asset
penalties, fees and expenses actually incurred by Food sale had occurred on the first day of the Reference
4 Less or such subsidiary in connection with the Period. In addition, for purposes of this definition,
repayment or amendment thereof) existing immediately "Fixed Charges" shall be calculated after giving effect
after the original issuance of the Old F4L Senior (without duplication), on a pro forma basis for the
Subordinated Notes or incurred pursuant to paragraphs Forward Period, to any Indebtedness incurred or repaid
(b), (c), (d), (f), (g), (h), (i), (j), (k), (l), (m) on or after the first day of the Forward Period and
or (n) of Section 5.13 in a principal amount (or, if prior to the Transaction Date. If such person or any of
such Refinancing Indebtedness provides for an amount its subsidiaries directly or indirectly guarantees any
less than the principal amount thereof to be due and Indebtedness of a third person, the Operating Coverage
payable upon the acceleration thereof, with an original Ratio shall give effect to the incurrence of such
issue price) not in excess of (l) the principal amount Indebtedness as if such person or subsidiary had
of the Indebtedness so refinanced (or, if such directly incurred such guaranteed Indebtedness.
Refinancing Indebtedness refinances Indebtedness under
a revolving facility or other agreement providing a "EBDIT" means, with respect to any person, for any
commitment for subsequent borrowings, with a maximum period, the Consolidated Net Income of such person for
commitment not to exceed the maximum commitment under such period, plus, in each case to the extent deducted
such revolving credit facility or other agreement) plus in computing Consolidated Net Income of such person for
(2) unpaid accrued interest on such Indebtedness plus such period (without duplication)(i) provisions for
(3) penalties, fees and expenses actually incurred by income taxes or similar charges recognized by such
Food 4 Less or such subsidiary, as the case may be, in person and its consolidated subsidiaries accrued during
connection with the repayment or amendment thereof; or such period, (ii) depreciation and amortization expense
(ii) in an amount permitted to be incurred at the time of such person and its consolidated subsidiaries
of such incurrence by Food 4 Less or such subsidiary, accrued during such period (but only to the extent not
as the case may be, under the Credit Agreement pursuant included in Fixed Charges), (iii) Fixed Charges of such
to limitations on Incurrences of Additional person and its consolidated subsidiaries for such
Indebtedness; provided that (for both clauses (i) and period, (iv) LIFO charges (credits) of such person and
(ii) above) (A) Refinancing Indebtedness of any its consolidated subsidiaries for such period, (v) the
subsidiary shall not be used to repay outstanding amount of any restructuring reserve or charge recorded
Indebtedness of Food 4 Less and (B) Refinancing during such period in accordance with GAAP, including
Indebtedness of Food 4 Less that repays or constitutes any such reserve or charge related to the Merger, and
an amendment to Indebtedness of Food 4 Less (other than (vi) any other non-cash charges reducing Consolidated
any of the Securities) ranking pari passu with, or Net Income for such period (excluding any such charge
junior in right of payment to, the Old F4L Senior which requires an accrual of or a cash reserve for cash
Subordinated Notes shall not have an Average Life less charges for any future period), less, without
than the Indebtedness to be so refinanced at the time duplication, (i) non-cash items increasing Consolidated
of such incurrence and shall not rank senior in right Net Income of such person for such period (excluding
of payment in any respect to such repaid or amended any such items which represent the reversal of any
Indebtedness, and (C) notwithstanding the foregoing, accrual of, or cash reserve for, anticipated cash
any Refinancing Indebtedness incurred to repay all of charges in any prior period) in each case determined in
Old F4L Senior Subordinated Notes then outstanding accordance with GAAP and (ii) the amount of all cash
shall not be limited in principal amount or otherwise payments made by such person or its subsidiaries during
if Food 4 Less irrevocably deposits with the Old F4L such period to the extent that such cash payment has
Senior Subordinated Notes Trustee or Paying Agent an been provided for in a restructuring reserve or charge
amount of the proceeds of such Refinancing Indebtedness referred to in
sufficient to redeem the outstand-
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- ------------------------------------------------------ ------------------------------------------------------
ing principal amount of the Old F4L Senior Subordinated clause (v) above (and were not otherwise deducted in
Notes on the date fixed for the repayment thereof. the computation of Consolidated Net Income of such
person for such period).
IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD
F4L SENIOR SUBORDINATED NOTE INDENTURE WILL BE MODIFIED "Credit Agreement" means the Credit Agreement, dated as
TO ELIMINATE THIS COVENANT AND CERTAIN RELATED of the Issue Date, by and among Food 4 Less, certain of
DEFINITIONS. its subsidiaries, the Lenders referred to therein,
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 Trustee of any such refunding or
refinancing of the Credit Agreement.
"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.
"Permitted Guarantees" means (i) guarantees in effect
on the Issue Date and (ii) guarantees incurred in the
ordinary course of business, by the Company or a
subsidiary, of Indebtedness of any other person.
"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 applicable New
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 commit-
ment 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 Indebted-
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- ------------------------------------------------------ ------------------------------------------------------
ness, 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 of the New F4L Senior
Subordinated Notes and (y) shall contain subordination
and default provisions no less favorable in any
material respect to holders of the New Senior
Subordinated F4L Notes than those contained in such
repaid or amended Subordinated Indebtedness.
"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.
"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 LIENS. Pursuant to the Old F4L Senior LIMITATION ON LIENS. Pursuant to the New F4L Senior
Subordinated Note Indenture, Food 4 Less shall not Subordinated Note Indenture, the Company shall not and
and shall not permit any subsidiary to create, incur, shall not permit any subsidiary to create, incur,
assume or suffer to exist any liens upon any of their assume or suffer to exist any liens upon any of their
respective assets, except for (i) existing and future respective assets unless the New F4L Senior
liens securing Senior Indebtedness and Guarantor Senior Subordinated Notes are issued thereunder equally and
Indebtedness of each Subsidiary Guarantor, (ii) ratably secured by the liens covering such assets,
Permitted Liens, (iii) liens securing certain Acquired except for (i) liens on assets of the Company securing
Indebtedness, (iv) liens existing on June 17, 1991, (v) Senior Indebtedness and liens on assets of a Subsidiary
liens securing certain Refinancing Indebtedness, and Guarantor which, at the time of incurrence, secure
(vi) liens to secure certain Indebtedness that is Guarantor Senior Indebtedness, (ii) existing and future
otherwise permitted under the Old F4L Senior liens securing Indebtedness and other obligations of
Subordinated Note Indenture and that is incurred to the Company and its Subsidiaries under the Credit
finance the costs of the property subject thereto, Agreement and related documents or any refinancing or
(vii) liens in favor of the Old F4L Senior Subordinated replacement thereof in whole or in part permitted under
Note Trustee; and (viii) any replacement, extension or the New F4L Senior Subordinated Indenture, (iii)
renewal, in whole or in part, of any lien described in Permitted Liens, (iv) liens securing Acquired
the foregoing clauses (i) through (vii) provided that Indebtedness; provided that such liens (x) are not
if any such clause limits the amount secured or the incurred in connection with, or in contemplation of the
assets subject to such liens, no extension or renewal acquisition of the property or assets acquired and (y)
shall increase the amount of the assets subject to such do not extend to or cover any property or assets of the
liens. Company or any subsidiary other than the property or
assets so acquired, (v) liens to secure capitalized
"Permitted Liens" shall mean (i) liens for taxes, lease obligation and certain other Indebtedness that is
assessments, and governmental charges to the extent not otherwise permitted under the New F4L Senior
required to be paid under the provisions of the Old F4L Subordinated Indenture; provided that (A) any such lien
Senior Subordinated Note Indenture concerning payment is created solely for the purpose of securing such
of taxes and other claims; (ii) statutory liens of other Indebtedness representing, or incurred to
landlords and carriers, warehousemen, mechanics, finance, refinance or refund, the cost (including sales
suppliers, materialmen, repairmen, or other like liens and excise taxes, installation and delivery charges and
arising in the ordinary course of business and with other direct costs of, and other direct expenses paid
respect to amounts not yet delinquent or being or charged in connection with, the purchase (whether
contested in good faith by through
B-12
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- ------------------------------------------------------ ------------------------------------------------------
appropriate process of law, and for which a reserve or stock or asset purchase, merger or otherwise) or
other appropriate provision, if any, as shall be construction) or improvement of the property subject
required by GAAP shall have been made; (iii) pledges or thereto (whether real or personal, including fixtures
deposits in the ordinary course of business to secure and other equipment), (B) the principal amount of the
lease obligations or nondelinquent obligations under Indebtedness secured by such lien does not exceed 100%
workers' compensation, unemployment insurance or of such costs and (C) such lien does not extend to or
similar legislation; (iv) liens to secure the cover any other property other than such item of
performance of public statutory obligations that are property and any improvements on such item; (vi) liens
not delinquent, appeal bonds, performance bonds or existing on the Issue Date (after giving effect to the
other obligations of a like nature (other than for Merger); (vii) liens in favor of the New F4L Senior
borrowed money); (v) easements, rights-of-way, other Subordinated Note Trustee under the New F4L Senior
similar charges or encumbrances not interfering in any Subordinated Indenture; and any substantially
material respect with the business of Food 4 Less or equivalent Lien granted to any trustee or similar
any of its subsidiaries incurred in the ordinary course institution and or any indenture for indebtedness
of business; (vi) purchase money liens upon or in any permitted to be incurred under the New Indentures; and
real or personal property (including fixtures and other (viii) any replacement, extension or renewal, in whole
equipment) acquired or held by Food 4 Less or any or in part, of any lien described in this or the
subsidiary in the ordinary course of business to secure foregoing clauses including in connection with any
the purchase price of such property or to secure refinancing of the Indebtedness, in whole or in part,
Indebtedness incurred solely for the purpose of secured by any such lien provided that to the extent
financing or refinancing the acquisition or improvement any such clause limits the amount secured or the assets
of such property, or liens existing on such property at subject to such liens, no extension or renewal shall
the time of its acquisition (other than any such lien increase the amount or the assets subject to such
created in contemplation of such acquisition); provided liens, except to the extent that the liens associated
that (x) no such lien shall extend to or cover any with such additional assets are otherwise permitted
property other than the property being acquired or hereunder.
improved and (y) any such Indebtedness would be
permitted to be incurred pursuant to the provisions of "Permitted Liens" means (i) liens for taxes,
the Old F4L Senior Subordinated Note Indenture assessments and governmental charges or claims not yet
summarized under "Limitation on Incurrences of due or which are being contested in good faith by
Additional Indebtedness"; (vii) liens upon specific appropriate proceedings promptly instituted and
items of inventory or other goods and proceeds of any diligently conducted and if a reserve or other
person securing such person's obligations in respect of appropriate provision, if any, as shall be required in
bankers' acceptances issued or created for the account conformity with GAAP shall have been made therefor;
of such person to facilitate the purchase, shipment or (ii) statutory liens of landlords and carriers,
storage of such inventory or other goods in the warehousemen, mechanics, suppliers, materialmen,
ordinary course of business; (viii) liens securing repairmen or other like liens arising in the ordinary
reimbursement obligations with respect to letters of course of business, deposits made to obtain the release
credit which encumber documents and other property of such liens, and with respect to amounts not yet
relating to such letters of credit and the products and delinquent for a period of more than 60 days or being
proceeds thereof; (ix) liens in favor of customs and contested in good faith by an appropriate process of
revenue authorities arising as a matter of law to law, and for which a reserve or other appropriate
secure payment of nondelinquent customs duties in provision, if any, as shall be required by GAAP shall
connection with the importation of goods; (x) judgement have been made; (iii) liens incurred or pledges or
and attachments liens not giving rise to a Default of deposits made in the ordinary course of business to
Event of Default; (xi) leases or subleases granted to secure obligations under workers' compensation,
others not interfering in any material respect with the unemployment insurance and other types of social
business of Food 4 Less or any of its subsidiaries; security or similar legislation; (iv) liens incurred or
(xii) liens encumbering customary initial deposits and deposits made to secure the performance of tenders,
margin deposits, and other liens incurred in the bids, leases, statutory obligations, surety and appeal
ordinary course of business that are within the general bonds, government contracts, performance and return of
parameters customary in the industry, in each case money bonds and other obligations of a like nature
securing Indebtedness under Interest Swap Obligations incurred in the ordinary course of business (exclusive
and Foreign Exchange Agreements and forward contracts, of obligations for the payment of borrowed money); (v)
option futures contracts, futures options or similar easements, rights-of-way, zoning or other restrictions,
agreements or arrangements designed to protect Food 4 minor defects or irregularities in title and other
Less or any of its subsidiaries from fluctuations in similar charges or encumbrances not interfering in any
the price of commodities; (xiii) liens encumbering material respect with the business of the Company or
deposits made in the ordinary course of business to any of its subsidiaries incurred in the ordinary course
secure nondelinquent obligations arising from statu- of business; (vi) liens upon specific items of
tory, regulatory, contractual or warranty requirements inventory or other goods and proceeds of any person
of Food 4 Less or its subsidiaries for which a reserve securing such person's obligations in respect of
or other appropriate provision, if any, as shall be bankers' acceptances issued or created for the account
required by GAAP shall have been made; (xiv) liens of such person to facilitate the purchase, shipment or
arising out of consignment or similar arrangements for storage of such inventory or other goods in the
the sale of goods entered into by Food 4 Less or any of ordinary course of business; (vii) liens securing
its subsidiaries in the ordinary course of business in reimbursement obligations with respect to letters of
accordance with past practices; (xv) any interest or credit which encumber documents and other property
title of a lessor in the property subject to any lease, relating to such letters of credit and the products and
whether characterized as capitalized or operating, proceeds thereof; (viii) liens in favor of customs and
other than any such interest or title resulting from or revenue authorities arising as a matter of law to
arising out of a default by Food 4 Less or any of its secure payment of nondelinquent customs duties in
subsidiaries of its obligations under such lease; and connection with the importation of goods; (ix) judgment
(xvi) liens arising from filing UCC financing and attachment liens not giving rise to a Default or
statements for precautionary purposes in connection Event of Default; (x) leases or subleases granted to
with true leases of personal property that are others not interfering in any material respect with the
otherwise permitted under the Old F4L Senior business of the Company or any subsidiary; (xi) liens
Subordinated Note Indenture and under which Food 4 Less encumbering customary initial deposits and margin
or any of its subsidiaries is a lessee. deposits, and other liens incurred in the ordinary
course of business that are within the general
IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD parameters customary in the industry, in each case
F4L SENIOR SUBORDINATED NOTE INDENTURE WILL BE MODIFIED securing Indebtedness under interest swap obligations
TO ELIMI- 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;
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- ------------------------------------------------------ ------------------------------------------------------
NATE THIS PROVISION AND CERTAIN RELATED LIENS. (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 capital-
ized 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; and (xv) liens arising from filing UCC financing
statements for precautionary purposes in connection
with true leases of personal property that are other-
wise permitted under the New F4L Senior Subordinated
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 on or prior to such
time.
LIMITATION ON ASSET SALES. Pursuant to the Old F4L LIMITATION ON ASSET SALES. Pursuant to the New F4L
Senior Subordinated Note Indenture, Food 4 Less will Senior Subordinated Note Indenture, the Company will
not, and will not permit any of its subsidiaries to, not, and will not permit any of its subsidiaries to,
make any Asset Sale unless (a) Food 4 Less or the make any Asset Sale unless (a) the Company or the
applicable subsidiary receives consideration at the applicable subsidiary receives consideration at the
time of such Asset Sale at least equal to the fair time of such Asset Sale at least equal to the fair
market value of the assets sold or otherwise disposed market value of the assets sold and (b) upon
of (as determined in good faith by the board of consummation of an Asset Sale, the Company will within
directors of Food 4 Less or, if the aggregate 365 days of the receipt of the proceeds therefrom,
fair-market value of all non-cash consideration either: (i) apply or cause its subsidiary to apply the
received by the Food 4 Less or such subsidiary, as the net cash proceeds of any Asset Sale to (A) a Related
case may be, from any such Asset Sale shall exceed $15 Business Investment, (B) an investment in properties
million, as determined by an independent financial and assets that replace the properties and assets that
advisor, provided that no such determination by the are the subject of such Asset Sale or (C) an investment
board of directors of Food 4 Less shall be required if in properties and assets that will be used in the
the fair market value of the assets sold or otherwise business of the Company and its subsidiaries existing
disposed of does not exceed $5 million) and (b) an on the Issue Date or in businesses reasonably related
amount equal to the aggregate cash, net of expenses, thereto; (ii) apply or cause to be applied such Net
taxes, commissions and the like incurred in connection Cash Proceeds to the permanent repayment of Pari Passu
with such Asset Sale and the amount of cash required to Indebtedness or Senior Indebtedness; provided, however,
repay any Indebtedness secured by the asset involved in that the repayment of any revolving loan (under the
such Asset Sale, received by Food 4 Less or such Credit Agreement or otherwise) shall result in a
subsidiary, as the case may be, from such Asset Sale permanent reduction in the commitment thereunder; (iii)
(the "Applied Amount") is applied in accordance with use such net cash proceeds to secure Letter of Credit
this covenant and (c) the Applied Amount is within 180 Obligations to the extent the related letters of credit
days of such Asset Sale, at the election of Food 4 Less have not been drawn upon or returned undrawn; or (iv)
(i) either applied or caused to be applied to the after such time as the accumulated net cash proceeds
payment of any Senior Indebtedness or used to secure equals or exceeds $20 million, apply or cause to be
Letter of Credit Obligations to the extent the related applied such net cash proceeds to the purchase of New
letters of credit have not been drawn upon or have not F4L Senior Subordinated Notes issued under such New F4L
been returned undrawn and all other Senior Indebtedness Senior Subordinated Indenture tendered to the Company
has been paid in full; provided, however, that, subject for purchase at a price equal to 100% of the principal
to clause (ii) below, any repayment of Indebtedness amount thereof plus accrued interest to the date of
under the Revolving Facility under the Loan Documents purchase pursuant to an offer to purchase made by the
or other revolving line of credit shall result in a Company as set forth below (a "Net Proceeds Offer");
permanent reduction of the Revolving Commitment or such provided, however, that the Company shall have the
other line of credit in a like amount; (ii) invested or right to exclude from the foregoing provisions Asset
caused to be invested in a manner that would constitute Sales subsequent to the Issue Date the proceeds of
a Related Business Investment hereunder; provided, which are derived from the sale and substantially
however, that pending such Related Business Investment, concurrent lease-back of a supermarket and/or related
nothing contained herein shall prohibit Food 4 Less assets or equipment which have acquired or constructed
from applying or causing to be applied all or any by the Company or a Subsidiary subsequent to the Issue
portion of the Applied Amount to the repayment of Date, provided that such sale and substantially
Indebtedness under the Revolving Facility under the concurrent lease-back occurs within 270 days following
Loan Documents or other revolving line of credit such acquisition or the completion of such
without a permanent reduction of the Revolving construction, as the case may be. Pending utilization
Commitment or such other line of of any net
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credit in a like amount; or (iii) applied or caused to cash proceeds in the manner (and within the time
be applied to the purchase of Old F4L Senior Notes period) described above, the Company may use any such
pursuant to a Net Proceeds Offer as set forth in the net cash proceeds to repay revolving loans (under the
Old F4L Senior Note Indenture provided, however, that Credit Agreement or otherwise) without a permanent
Food 4 Less shall not be required to satisfy the reduction of the commitment thereunder.
condition specified in clause (a) above if such Asset
Sale is pursuant to a foreclosure by the Lenders under Each Net Proceeds Offer will be mailed to the record
the Credit Agreement and the other Loan Documents or holders of New F4L Senior Subordinated Notes, as shown
their Representatives on collateral securing on the register of holders of New F4L Senior
Indebtedness under the Loan Documents; provided, Subordinated Notes not less than 325 nor more than 365
further, that if at any time any non-cash consideration days after the relevant Asset Sale, with a copy to the
received by Food 4 Less or any subsidiary in connection New F4L Senior Subordinated Note Trustee, shall specify
with any Asset Sale is converted into or sold or the purchase date (which shall be no earlier than 30
otherwise disposed of for cash, then such cash shall days nor later than 40 days from the date such notice
constitute Applied Amounts for purposes of this is mailed) and shall otherwise comply with the
covenant and shall be applied in accordance with clause procedures set forth in the New F4L Senior Subordinated
(c) above within 180 days of the receipt of such cash; Note Indenture. Upon receiving notice of the Net
provided, further, Food 4 Less shall have the right to Proceeds Offer, New F4L Senior Subordinated Notes, may
exclude up to $10 million of proceeds in the aggregate elect to tender their New F4L Senior Subordinated Notes
received from Asset Sales subsequent to the Issue Date in whole or in part in integral multiples of $1,000 in
from the provisions of this covenant. To the extent exchange for cash. To the extent holders properly
that the Applied Amount is not actually applied in tender New F4L Senior Subordinated Notes, in an amount
accordance with clauses (c)(i) or (ii) above, or after exceeding the Net Proceeds Offer, New F4L Senior
such application there remains a portion of the Applied Subordinated Notes of tendering holders will be
Amount which, when added to any other Applied Amounts repurchased on a pro rata basis (based on amounts
remaining after such application, accumulates at least tendered). A Net Proceeds Offer shall remain open for a
$2,500,000 subsequent to the previous time Food 4 Less period of 20 Business Days or such longer period as may
shall have accumulated at least such an amount and used be required by law.
it in accordance with this covenant, or if no such
accumulation shall previously have occurred, subsequent The Company will comply with the requirements of Rule
to the date of the Old F4L Senior Note Indenture, Food 14e-1 under the Exchange Act and any other securities
4 Less shall make an offer as described in the Old F4L laws and regulations thereunder to the extent such laws
Senior Note Indenture (the "Net Proceeds Offer") to and regulations are applicable in connection with the
purchase at a price equal to 100% of the aggregate repurchase of New F4L Senior Subordinated Notes
principal amount thereof, plus accrued interest to the pursuant to a Net Proceeds Offer.
date of purchase, such aggregate principal amount of
Old F4L Senior Notes which, when added to the accrued "Asset Sale" means, with respect to any person, any
interest thereon, shall be equal to the Net Proceeds sale, transfer or other disposition or series of sales,
required by this covenant to be used to purchase transfers or other dispositions (including, without
securities in a Net Proceeds Offer; provided, however, limitation, by merger or consolidation or by exchange
that Food 4 Less may credit against the principal of assets and whether by operation of law or otherwise)
amount of Old F4L Senior Notes to be acquired pursuant made by such person or any of its subsidiaries to any
to this covenant the principal amount of Old F4L Senior person other than such person or one of its
Notes acquired by Food 4 Less through purchase, wholly-owned subsidiaries (or, in the case of a sale,
optional redemption, exchange or otherwise following transfer or other disposition by a subsidiary, to any
consummation of the Asset Sale and surrendered for person other than the Company or a directly or
cancellation and not previously used as a credit indirectly wholly-owned subsidiary) of any assets of
against any other required payment pursuant to the Old such person or any of its subsidiaries including,
F4L Senior Note Indenture. The Net Proceeds Offer shall without limitation, assets consisting of any capital
remain open from the time of mailing until 5 days (or stock or other securities held by such person or any of
such shorter period as may be required under applicable its subsidiaries, and any capital stock issued by any
law) before the Proceeds Purchase Date. subsidiary of such person, in each case, outside of the
ordinary course of business, excluding, however, any
"Asset Sale" means, for any person, any sale, sale, transfer or other disposition, or series of
transfer or other disposition or series of sales, related sales, transfers or other dispositions (i)
transfers or other dispositions (including, without involving only Excluded Assets, (ii) resulting in Net
limitation, by merger or consolidation or by exchange Proceeds to the Company and the subsidiaries of
of assets and whether by operation of law or otherwise) $500,000 or less, (iii) pursuant to any foreclosure of
made by such person or any of its subsidiaries to any assets or other remedy provided by applicable law to a
person other than such person or one of its creditor of the Company with a lien on such assets,
wholly-owned subsidiaries (or, in the case of a sale, which lien is permitted under the New F4L Senior
transfer or other disposition by a subsidiary, to any Subordinated Note Indenture, provided that such
person other than Food 4 Less or a directly or foreclosure or other remedy is conducted in a
indirectly wholly-owned subsidiary) of any assets of commercially responsible manner or in accordance with
such person or any of its subsidiaries including, any Bankruptcy Law, (iv) involving only Cash
without limitation, assets consisting of any capital Equivalents or inventory in the ordinary course of
stock or other securities held by such person, or any business or obsolete equipment in the ordinary course
of its subsidiaries, and any capital stock issued by of business consistent with past practices of the
any subsidiary of such person, outside of the ordinary Company, (v) involving only the lease or sub-lease of
course of business, excluding, however, any sale, any real or personal property in the ordinary course of
transfer or other disposition, or series of related business or (vi) the proceeds of such Asset Sale which
sales, transfers or other dispositions, having a are not applied as contemplated in "-- Certain
purchase price or transaction value, as the case may Covenants -- Limitation on Asset Sales" and which,
be, of $250,000 or less. together with all other such Asset Sale Proceeds, do
not exceed $20 million.
"Related Business Investment" means (i) any
Investment by a person in any other person a majority "Related Business Investment" means (i) any Investment
of whose revenues are derived from the operation of one by a person in any other person a majority of whose
or more retail grocery stores or supermarkets or any revenues are derived from the operation of one or more
other line of business engaged in by Food 4 Less or any retail grocery stores or supermarkets or any other line
of its subsidiaries as of the Issue Date; (ii) any 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 Investment by such person in any cooperative or other
supplier, including, without limitation, any joint supplier, including, without limitation, any joint
venture which is intended to supply any product or venture which is intended to supply any product or
service useful to the business of Food 4 Less and its service useful to the business of the Company and its
subsidiaries as it is conducted as of the Issue Date subsidiaries as it is conducted as of the Issue Date
and as such business may thereafter evolve or change; and as such business may thereafter evolve or change;
and (iii) any capital expenditure or Investment and (iii) any capital expenditure or Investment, in
(without regard to the $5 million threshold in the each case reasonably related to the business of the
definition thereof), in each case reasonably related to Company and its subsidiaries as it is conducted as of
the business of Food 4 Less and its subsidiaries as it the Issue Date and as such business may thereafter
is conducted as of the Issue Date and as such business evolve or change.
may thereafter evolve or change.
IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD
F4L SENIOR SUBORDINATED NOTE INDENTURE WILL BE MODIFIED
TO ELIMINATE THIS PROVISION.
LIMITATION ON PAYMENT RESTRICTIONS AFFECTING LIMITATION ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS
SUBSIDIARIES. Pursuant to the Old F4L Senior AFFECTING SUBSIDIARIES. Pursuant to the New F4L Senior
Subordinated Note Indenture, Food 4 Less shall not, and Subordinated Note Indenture, the Company shall not, and
shall not permit any subsidiary to, directly or shall not permit any subsidiary to, directly or
indirectly, create or suffer to exist, or allow to indirectly, create or suffer to exist, or allow to
become effective any consensual Payment Restriction become effective any consensual Payment Restriction
with respect to any of its subsidiaries, except for (a) with respect to any of its subsidiaries, except for (a)
any such restrictions contained in (i) the Loan any such restrictions contained in (i) the Credit
Documents and related documents as in effect on June Agreement and related documents as in effect on the
17, 1991 as any such payment restriction may apply to Issue Date as any such payment restriction may apply to
any present or future subsidiary, (ii) Indebtedness of any present or future subsidiary, (ii) the New F4L
a subsidiary existing on June 17, 1991, (iii) the Old Senior Subordinated Note Indenture and any agreement in
F4L Senior Subordinated Note Indenture, (iv) effect at or entered into on the Issue Date, (iii)
Indebtedness of a person existing at the time such Indebtedness of a person existing at the time such
person becomes a subsidiary (provided, that (x) such person becomes a subsidiary (provided that (x) such
Indebtedness is not incurred in connection with, or in Indebtedness is not incurred in connection with, or in
contemplation of, such person becoming a subsidiary, contemplation of, such person becoming a subsidiary,
(y) such restriction is not applicable to any person, (y) such restriction is not applicable to any person,
or the properties or assets of any person, other than or the properties or assets of any person, other than
the person so acquired and (z) such Indebtedness is the person so acquired and (z) such Indebtedness is
otherwise permitted to be incurred pursuant to the otherwise permitted to be incurred pursuant to the
provisions of the Old F4L Senior Subordinated Note provisions described under "Limitation on Incurrences
Indenture summarized under "Limitation on Incurrences of Additional Indebtedness" above), and (iv) secured
of Additional Indebtedness"), (v) secured Indebtedness Indebtedness otherwise permitted to be incurred
otherwise permitted under the provisions of the Old F4L pursuant to the provisions described under "Limitation
Senior Subordinated Note Indenture summarized under on Incurrences of Additional Indebtedness" and
"Limitation on Incurrences of Additional Indebtedness" "Limitation on Liens" above that limit the right of the
and that limits the right of the debtor to dispose of debtor to dispose of the assets securing such
the assets securing such Indebtedness; (b) customary Indebtedness; (b) customary non-assignment provisions
non-assignment provisions restricting subletting or restricting subletting or assignment of any lease or
assignment of any lease or assignment of any contract other agreement entered into by a subsidiary; (c)
of any subsidiary, (c) customary net worth provisions customary net worth provisions contained in leases and
contained in leases and other agreements entered into other agreements entered into by a subsidiary in the
by a subsidiary in the ordinary course of business; (d) ordinary course of business; (d) customary restrictions
customary restrictions with respect to a subsidiary with respect to a subsidiary pursuant to an agreement
pursuant to an agreement that has been entered into for that has been entered into for the sale or disposition
the sale or disposition of all or substantially all of of all or substantially all of the capital stock or
the capital stock or assets of such subsidiary; (e) assets of such subsidiary; (e) customary provisions in
customary provisions in instruments or agreements joint venture agreements and other similar agreements;
relating to a lien created, incurred or assumed in and (f) restrictions contained in Indebtedness incurred
accordance with the provisions of the Old F4L Senior to refinance, refund, extend or renew Indebtedness
Subordinated Note Indenture summarized under referred to in clause (a) above; provided that the
"Limitation on Liens" and prohibiting the transfer of restrictions contained therein are not materially more
the property subject to such lien; and (f) restrictions restrictive taken as a whole than those provided for in
contained in Indebtedness incurred to refinance, such Indebtedness being refinanced, refunded, extended
refund, extend or renew Indebtedness referred to in or renewed and (g) Payment Restriction contained in any
clause (a) above; provided, that the restrictions other Indebtedness permitted to be incurred subsequent
contained therein relating to the payment of dividends to the Issue Date pursuant to the provisions of the
by such subsidiaries are not materially more covenant described under "-- Limitation on Incurrences
restrictive than those provided for in such of Additional Indebtedness" above; provided that any
Indebtedness being refinanced, refunded, extended, such Payment Restriction is ordinary and customary with
renewed or amended. respect to the type of Indebtedness being incurred
(under the relevant circumstances), and, in any event,
"Payment Restriction" means, with respect to a no more restrictive than the most restrictive Payment
subsidiary of any person, any encumbrance, restriction Restrictions in effect on the Issue Date.
or limitation, whether by operation of the terms of its
charter or by reason of any agreement, instrument, "Payment Restriction" means, with respect to a
judgment, decree, order, statute, rule or governmental subsidiary of any person, any encumbrance, restriction
regulation, on the ability of (i) such subsidiary to or limitation, whether by operation of the terms of its
(a) pay dividends or make other distributions on its charter or by reason of any agreement, instrument,
capital stock or make payments on any obligation, judgment, decree, order, statute, rule or governmental
liability or Indebtedness owed to such person or any regulation, on the ability of (i) such subsidiary to
other subsidiary of such person, (b) make loans or (a) pay dividends or make other distributions on its
advances to such person or any other subsidiary of such capital stock or make payments on any obligation,
person, or (c) transfer any of its properties or assets liability or Indebtedness owed to such person or any
to such person or any other subsidiary of such person, other subsidiary of such person,
or (ii) such person or any other subsidiary of such
person to receive
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or retain any such (a) dividends, distributions or (b) make loans or advances to such person or any other
payments, (b) loans or advances, or (c) transfer of subsidiary of such person, or (c) transfer any of its
properties or assets. properties or assets to such person or any other
subsidiary of such person, or (ii) such person or any
IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD other subsidiary of such person to receive or retain
F4L SENIOR SUBORDINATED NOTE INDENTURE WILL BE MODIFIED any such (a) dividends, distributions or payments, (b)
TO ELIMINATE THIS COVENANT AND CERTAIN RELATED loans or advances, or (c) transfer of properties or
DEFINITIONS. assets.
GUARANTEES OF CERTAIN INDEBTEDNESS. Pursuant to the GUARANTEES OF CERTAIN INDEBTEDNESS. Pursuant to the New
Old F4L Senior Subordinated Note Indenture, Food 4 F4L Senior Subordinated Note Indenture, the Company
Less shall not permit any of its subsidiaries to (a) shall not permit any of its subsidiaries to (a) incur,
incur, guarantee or secure through the granting of guarantee or secure through the granting of liens the
liens the payment of any Indebtedness under the Term payment of any Indebtedness under the term portion of
Facility under the Credit Agreement or any Refinancing the Credit Agreement or refinancings thereof or (b)
Indebtedness related thereto or (b) pledge any pledge any intercompany notes representing obligations
intercompany notes representing obligations of any of of any of its subsidiaries, to secure the payment of
its subsidiaries, to secure the payment of any any Indebtedness under the term portion of the Credit
Indebtedness under the Term Facility under the Credit Agreement or refinancings thereof, in each case unless
Agreement or any Refinancing Indebtedness related such subsidiary, the Company and the New F4L Senior
thereto, in each case unless such subsidiary, Food 4 Subordinated Note Trustee execute and deliver a
Less and the Old F4L Senior Subordinated Note Trustee supplemental indenture evidencing such subsidiary's
execute and deliver a supplemental indenture evidencing guarantee.
such subsidiary's guarantee, such guarantee to be
subordinated to Guarantor Senior Indebtedness in
accordance with the Old F4L Senior Subordinated Note
Indenture.
IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD
F4L SENIOR SUBORDINATED NOTE INDENTURE WILL BE MODIFIED
TO ELIMINATE THIS COVENANT.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. Pursuant LIMITATION ON TRANSACTIONS WITH AFFILIATES. Pursuant to
to the Old F4L Senior Subordinated Note Indentures, the New F4L Senior Subordinated Note Indenture, neither
neither Food 4 Less nor any of its subsidiaries shall the Company nor any of its Subsidiaries shall (i) sell,
(i) sell, lease, transfer or otherwise dispose of any lease, transfer or otherwise dispose of any of its
of its properties, assets or issue debt securities to, properties or assets or issue securities (other than
(ii) purchase any property, assets or securities from, equity securities which do not constitute Disqualified
(iii) make any Investment in, or (iv) enter into or Capital Stock) to, (ii) purchase any property, assets
suffer to exist any contract or agreement with or for or securities from, (iii) make any Investment in, or
the benefit of, an affiliate or Significant Stockholder (iv) enter into or suffer to exist any contract or
(and any affiliate of such Significant Stockholder) of agreement with or for the benefit of, an affiliate or
Food 4 Less or any subsidiary (an "Affiliate Significant Stockholder (or any affiliate of such
Transaction"), other than Affiliate Transactions Significant Stockholder) of the Company or any Subsidi-
(including lease transactions) in the ordinary course ary (an "Affiliate Transaction"), other than (x)
of business, that are fair to Food 4 Less or such Affiliate Transactions permitted under the following
subsidiary, as the case may be, and on terms at least paragraph and (y) Affiliate Transactions in the
as favorable as might reasonably have been obtainable ordinary course of business, that are fair to the
at such time from an unaffiliated party, unless the Company or such Subsidiary, as the case may be, and on
board of directors of Food 4 Less or such subsidiary, terms at least as favorable as might reasonably have
as the case may be, pursuant to a board resolution, been obtainable at such time from an unaffiliated
reasonably and in good faith determines that such party; provided that (A) with respect to Affiliate
Affiliate Transaction is fair to Food 4 Less or such Transactions involving aggregate payments in excess of
subsidiary, as the case may be, and is on terms at $1 million and less than $5 million, the Company or
least as favorable as might reasonably have been such Subsidiary, as the case may be, shall have
obtainable at such time from an unaffiliated party. In delivered an officers' certificate to the New F4L
addition, neither Food 4 Less nor any of its Senior Subordinated Note Trustee certifying that such
subsidiaries shall enter into an Affiliate Transaction Affiliate Transaction complies with clause (y) above
or series of related Affiliate Transactions involving (other than the requirement set forth in such clause
or having a value of more than $15 million unless Food (y) that such Affiliate Transaction be in the ordinary
4 Less or such subsidiary, as the case may be, has course of business), (B) with respect to Affiliate
received an opinion from an independent financial Transactions involving aggregate payments in excess of
advisor to the effect that the financial terms of such $5 million and less than $15 million, with respect to
Affiliate Transaction are fair to Food 4 Less or such which the Company or such Subsidiary, as the case may
subsidiary from a financial point of view. be, shall have delivered an officers' certificate to
the New F4L Senior Subordinated Note Trustee certifying
The provisions of the foregoing paragraph shall not that such Affiliate Transaction complies with clause
apply to (i) any Permitted Payment, (ii) any Restricted (y) above (other than the requirement set forth in such
Payment that is made in compliance with the provisions clause (y) that such Affiliate Transaction be in the
of the Old F4L Senior Subordinated Note Indenture ordinary course of business) and that such Affiliate
summarized above under "Limitation on Restricted Transaction has received the approval of a majority of
Payments," (iii) reasonable and customary fees and the disinterested members of the board of directors of
compensation paid to, and indemnity provided on behalf the Company or the Subsidiary, as the case may be, or,
of, officers, directors, employees or consultants of in the absence of any such approval by the
Food 4 Less or any subsidiary, as determined by the disinterested members of the board of directors of the
board of directors of Food 4 Less or any subsidiary or Company or that the Subsidiary, as the case may be,
the senior management thereof in good faith, (iv) that an independent financial advisor has reasonably
transactions exclusively between or among Food 4 Less and in good faith determined that the financial terms
and any of its wholly owned subsidiaries or exclu- of such Affiliate Transaction are fair to the Company
sively between or among such subsidiaries, provided or such Subsidiary, as the case may be, or that the
such transactions are not otherwise prohibited by the terms of such Affiliate Transaction are at least as
Old F4L Senior Subordinated Note Indenture, (v) any favorable as might reasonably have been obtained at
agreement as in effect as of June 17, 1991 or any such time from an unaffiliated party, and that such
amendment thereto or any transaction independent financial advisor has provided written
confirmation of such determination to the
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contemplated thereby (including pursuant to any board of directors and (C) with respect to Affiliate
amendment thereto) so long as any such amendment is not Transactions involving aggregate payments in excess of
disadvantageous to the holders in any material respect, $15 million, with respect to which the Company or such
(vi) the existence of, or the performance by Food 4 Subsidiary, as the case may be, shall have delivered to
Less or any of its subsidiaries of its obligations the New F4L Senior Subordinated Note Trustee, a written
under the terms of, any stockholders agreement opinion from an independent financial advisor to the
(including any registration rights agreement or effect that the financial terms of such Affiliate
purchase agreement related thereto) to which it (or Transaction are fair to the Company or such Subsidiary,
FFL) is a party as of June 17, 1991 and any similar as the case may be, or that the terms of such Affiliate
agreements which it (or FFL) may enter into thereafter, Transaction are at least as favorable as those that
provided, however, that the existence of, or the might reasonably have been obtained at the time from an
performance by Food 4 Less or any subsidiaries of unaffiliated party.
obligations under any future amendment to, any such
existing agreement or under any similar agreement The provisions of the foregoing paragraph shall not
entered into after June 17, 1991 shall only be apply to (i) any Permitted Payment, (ii) any Restricted
permitted by this clause (vi) to the extent that the Payment that is made in compliance with the provisions
terms of any such amendment or new agreement are not of the covenant described under "-- Limitation on
otherwise disadvantageous to the holders in any Restricted Payments" above, (iii) reasonable and
material respect, (vii) transactions permitted by, and customary fees and compensation paid to, and indemnity
complying with, the provisions of the Old F4L Senior provided on behalf of, officers, directors, employees
Subordinated Note Indenture summarized below under or consultants of the Company or any Subsidiary, as
"Limitations on Merger and Certain Other Transactions," determined by the board of directors of the Company or
(viii) transactions with Certified Grocers of any Subsidiary or the senior management thereof in good
California, Inc., Affiliated Wholesale Grocers of faith, (iv) transactions exclusively between or among
Kansas City, Inc. or other suppliers in the ordinary the Company and any of its wholly-owned Subsidiaries or
course of business and otherwise in compliance with the exclusively between or among such wholly-owned
terms of the Old F4L Senior Subordinated Note Subsidiaries, provided such transactions are not
Indenture. otherwise prohibited by the New F4L Senior Subordinated
Note Indenture, (v) any agreement as in effect as of
"Significant Stockholder" means, with respect to any the Issue Date or any amendment thereto or any
person, any other person who is the beneficial owner transaction contemplated thereby (including pursuant to
(within the meaning of Rule 13d-3 under the Exchange any amendment thereto) so long as any such amendment is
Act) of more than 10% of any class of equity securities not disadvantageous to the holders of the New F4L
of such person that are entitled to vote on a regular Senior Subordinated Notes, in any material respect,
basis for the election of directors of such person. (vi) the existence of, or the performance by the
Company or any of its Subsidiaries of its obligations
IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD under the terms of, any stockholders agreement
F4L SENIOR SUBORDINATED NOTE INDENTURE WILL BE MODIFIED (including any registration rights agreement or
TO ELIMINATE THIS COVENANT AND CERTAIN RELATED purchase agreement related thereto) to which it (or New
DEFINITIONS. 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 F4L
Senior Subordinated 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 New F4L Senior Subordinated
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.
"Significant Stockholder" means, with respect to any
person, any other person who is the beneficial owner
(within the meaning of Rule 13d-3 under the Exchange
Act) of more than 10% of any class of equity securities
of such person that are entitled to vote on a regular
basis for the election of directors of such person.
LIMITATION ON CHANGE OF CONTROL. Pursuant to the Old LIMITATION ON CHANGE OF CONTROL. The New F4L Senior
F4L Senior Subordinated Note Indenture, upon the Subordinated Note Indenture will provide that if a
occurrence of a Change of Control, each holder will Change of Control occurs, each holder will have the
have the right to require the repurchase of such right to require the Company to repurchase such
holder's Old F4L Senior Subordinated Notes pursuant to holder's New F4L Senior Subordinated Notes pursuant to
the offer described below (the "Change of Control a Change of Control Offer at 101% of the principal
Offer"), at a purchase price equal to 101% of the amount thereof plus accrued and unpaid interest to the
principal amount thereof plus accrued interest, if any, date of repurchase.
to the date of purchase. Prior to the mailing of the
notice to holders described below, but in any event The New F4L Senior Subordinated Note Indenture will
within 30 days following the date upon which the Change further provide that, notwithstanding the foregoing,
of Control occurred (the "Change of Control prior to the
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Date"), Food 4 Less will (i) repay in full all mailing of the notice of a Change of Control Offer
Indebtedness of Food 4 Less and its subsidiaries under referred to above, within 30 days following a Change of
the loan documents and related documents or offer to Control the Company shall either (a) repay in full and
repay in full all such Indebtedness and repay the terminate all commitments under Indebtedness under the
Indebtedness of each lender who has accepted such offer Credit Agreement to the extent the terms thereof
or (ii) obtain the requisite consent under the Credit require repayment upon a Change of Control (or offer to
Agreement and related documents to permit the repay in full and terminate all commitments under all
repurchase of the Old F4L Senior Subordinated Notes. such Indebtedness under the Credit Agreement and repay
Food 4 Less must first comply with the covenant in the the Indebtedness owed to each lender which has accepted
preceding sentence before it will be required to such offer), or (b) obtain the requisite consents under
repurchase Old F4L Senior Subordinated Notes pursuant the Credit Agreement, the terms of which require
to a Change of Control Offer. Food 4 Less must comply repayment upon a Change of Control, to permit the
with Rule 14e-1 under the Securities Exchange Act of repurchase of the New F4L Senior Subordinated Notes as
1934, as amended, and any other applicable provisions provided above. The Company shall first comply with the
of the federal securities laws in connection with a covenant in the immediately preceding sentence before
Change of Control Offer. it shall be required to repurchase New F4L Senior
Subordinated Notes pursuant to the provisions described
Pursuant to the Old F4L Senior Subordinated Note below. The Company's failure to comply with the covenants
Indenture, within 30 days following any Change of described in this paragraph shall constitute an Event
Control Date, Food 4 Less must send, by first class of Default under the New F4L Senior Subordinated Note
mail, a notice to each holder, with copies to the Indenture.
Credit Agent and the Old F4L Senior Subordinated Note
Trustee, which notice shall govern the terms of the In addition, the New F4L Senior Subordinated Note
Change of Control Offer. Such notice shall state, among Indenture will provide that prior to purchasing New F4L
other things, the purchase date, which must be no Senior Subordinated Notes tendered in a Change of
earlier than 30 days nor later than 40 days from the Control Offer, the Company shall purchase all Senior
date such notice is mailed, other than as may be F4L Notes (or permitted refinancings thereof) which it
required by law (the "Change of Control Payment Date"). is required to purchase by reason of such Change of
Holders electing to have a Old F4L Senior Subordinated Control pursuant to the provisions of the indenture
Notes purchased pursuant to a Change of Control Offer under which such New Senior F4L Notes are issued, as in
will be required to surrender the Old F4L Senior effect on the Issue Date.
Subordinated Note, with the form entitled "Option of
Holder to Elect Purchase" on the reverse of the Old F4L
Senior Subordinated 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.
IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD
F4L SENIOR SUBORDINATED NOTE INDENTURE WILL BE MODIFIED
TO ELIMINATE THIS COVENANT AND CERTAIN RELATED
DEFINITIONS.
LIMITATIONS ON MERGERS AND CERTAIN OTHER LIMITATIONS ON MERGERS AND CERTAIN OTHER TRANSACTIONS.
TRANSACTIONS. Pursuant to the Old F4L Senior Pursuant to the New F4L Senior Subordinated Note
Subordinated Note Indenture, Food 4 Less shall not, in Indenture, the Company, in a single transaction or
a single transaction or through a series of related through a series of related transactions, shall not (i)
transactions, (i) consolidate with or merge with or consolidate with or merge with or into any other
into any other person, or transfer (by lease, person, or transfer (by lease, assignment, sale or
assignment, sale or otherwise) all or substantially all otherwise) all or substantially all of its properties
of its properties and assets as an entirety or and assets as an entirety or substantially as an
substantially as an entirety to another person or group entirety to another person or group of affiliated
of affiliated persons or (ii) adopt a plan of persons or (ii) adopt a plan of liquidation, unless, in
liquidation, unless, in either case, (1) either Food 4 either case, (1) either the Company shall be the
Less shall be the continuing person, or the person (if continuing person, or the person (if other than the
other than Food 4 Less) formed by such consolidation or Company) formed by such consolidation or into which the
into which Food 4 Less is merged or to which all or Company is merged or to which all or substantially all
substantially all of the properties and assets of Food of the properties and assets of the Company as an
4 Less as an entirety or substantially as an entirety entirety are transferred (or, in the case of a plan of
are transferred (or, in the case of a plan of liquidation, any person to which assets are
liquidation, any person to which assets are transferred) (the Company or such other person being
transferred) (Food 4 Less or such other person being hereinafter referred to as the "Surviving Person")
hereinafter referred to as the "Surviving Person") shall be a corporation organized and validly existing
shall be a corporation organized and validly existing under the laws of the United States, any state thereof
under the laws of the United States, any state thereof or the District of Columbia, and shall expressly
or the District of Columbia, and shall expressly assume, by an indenture supplement, all the obligations
assume, by an indenture supplement executed and of the Company under the New F4L Senior Subordinated
delivered to the Old F4L Senior Subordinated Note Note Indenture and the New F4L Senior Subordinated
Trustee in form satisfactory to the Old F4L Senior Notes thereunder; (2) immediately after and giving
Subordinated Note Trustee, all the obligations of Food effect of such transaction and the assumption
4 Less under the Old F4L Senior Subordinated Notes and contemplated by clause (1) above and the incurrence or
the Old F4L Senior Subordinated Note Indenture; (2) anticipated incurrence of any Indebtedness to be
immediately after and giving effect to such transaction incurred in connection therewith, (A) the Surviving
and the assumption contemplated by clause (1) above and Person shall have a Consolidated Net Worth equal to or
the incurrence or anticipated incurrence of any greater than the Consolidated Net Worth of the Company
Indebtedness to be incurred in connection therewith, immediately preceding the transaction and (B) the
(A) the Surviving Person shall have a net worth equal Surviving Person could incur at least $1.00 of
to or greater than the net worth of Food 4 Less additional Indebtedness (other than Permitted Indebt-
immediately preceding the transaction, (B) the edness) pursuant to the provisions described above
Surviving Person could incur at least $1 of Indebt- under "Limitation on Incurrences of Additional
edness pursuant to provisions of the Old F4L Senior Indebtedness"; (3) immediately before and immediately
Subordinated Note Indenture summarized above in the after and giving effect to such transaction and the
first paragraph under the heading "Limitation on assumption of the obligations as set forth in clause
Incurrences of Additional Indebtedness," and (C) if the (1) above and the incurrence or anticipated incurrence
Operating Coverage Ratio of Food 4 Less immediately of any Indebtedness to be incurred in connection
preceding the transaction is within a range set forth therewith, no
under column X below, then the
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Surviving Person shall have an Operating Coverage Ratio Default or Event of Default shall have occurred and be
at least equal to the greater of (i) the actual continuing; and (iv) each Subsidiary Guarantor, unless
Operating Coverage Ratio of Food 4 Less multiplied by it is the other party to the transaction, shall have by
the appropriate percentage set forth in column Y below supplemental indenture confirmed that its guarantee of
and (ii) the ratio set forth in column Z below: the obligations of the Company under the New F4L Senior
Subordinated Notes and the New F4L Senior Subordinated
X Y Z Note Indenture shall apply, without alteration or
- - - amendment as such guarantee applies on the date it was
1.8:1 to 2.499:1 100% 1.8:1 granted under the New F4L Senior Subordinated Note
2.5:1 to 2.999:1 90% 2.5:1 Indenture to the obligations of the Company under the
3.0:1 or more 80% 2.7:1 New F4L Senior Subordinated Note Indenture and the New
F4L Senior Subordinated Notes to the obligations of the
and, provided further, that if immediately after giving Company or such person, as the case may be, under the
effect to such transaction on a pro forma basis, the New F4L Senior Subordinated Note Indenture and the New
Operating Coverage Ratio of Food 4 Less or the F4L Senior Subordinated Notes, after the consummation
surviving entity, as the case may be, is 3.2:1 or more, of such transaction.
the calculation in the preceding proviso shall be
inapplicable and such transaction shall be deemed to Notwithstanding the foregoing, the consummation of the
have complied with the requirements of such provision; Merger on the Issue Date need only comply with clauses
(3) immediately before and immediately after and giving (1) and (3) of the foregoing paragraph.
effect to such transaction and the assumption of the
obligations as set forth in clause (1) above and the The New F4L Senior Subordinated Note Indenture will
incurrence or anticipated incurrence of any provide that upon any consolidation or merger or any
Indebtedness to be incurred in connection therewith, no transfer of all or substantially all of the assets of
Default or Event of Default shall have occurred and be the Company or any adoption of a plan of liquidation by
continuing. For purposes of the foregoing, the transfer the Company in accordance with the foregoing, the
(by lease, assignment, sale or otherwise) of all or surviving person formed by such consolidation or into
substantially all of the properties and assets of one which the Company is merged or to which such transfer
or more subsidiaries, the capital stock of which is made (or, in the case of a plan of liquidation, to
constitutes all or substantially all of the properties which assets are transferred) shall succeed to, and be
and assets of Food 4 Less shall be deemed to be the substituted for, and may exercise every right and power
transfer of all or substantially all of the properties of, the Company under the New F4L Senior Subordinated
and assets of Food 4 Less. Note Indenture with the same effect as if such
surviving person had been named as the Company therein;
IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD provided, however, that solely for purposes of
F4L SENIOR SUBORDINATED NOTE INDENTURE WILL BE MODIFIED computing amounts described in subclause (c) of the
TO ELIMINATE THE SUBSECTIONS OF THIS PROVISION WHICH first paragraph of the covenant described above under
REQUIRE THAT IMMEDIATELY AFTER GIVING EFFECT TO SUCH "Limitation on Restricted Payments", any such surviving
TRANSACTION AND THE INCURRENCE OF ANY INDEBTEDNESS IN person shall only be deemed to have succeeded to and be
CONNECTION THEREWITH, FOOD 4 LESS OR THE SURVIVING substituted for the Company with respect to periods
ENTITY, AS THE CASE MAY BE, HAS A NET WORTH OR subsequent to the effective time of such merger,
OPERATING COVERAGE RATIO THAT MEETS THE STANDARDS SET consolidation or transfer of assets.
FORTH THEREIN.
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.
"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.
MAINTENANCE OF NET WORTH. Pursuant to the Old F4L MAINTENANCE OF NET WORTH. The New F4L Senior Subordi-
Senior Subordinated Note Indenture, if Food 4 Less' nated Note Indenture will not contain a covenant
Net Worth at the end of each of any two consecutive requiring the maintenance of a minimum net worth.
fiscal quarters (the last day of the second fiscal
quarter being referred to as the "Acceleration Date")
is equal to or less than $50 million (the "Minimum Net
Worth"), then Food 4 Less shall make an offer to all
holders (an "Offer") to purchase, on a pro rata basis,
on or before the last day of the next following fiscal
quarter or, in the event that the Acceleration Date is
the last day of Food 4 Less' fiscal year, the
forty-fifth day after the last day of the next
following fiscal quarter (the "Accelerated Payment
Date"), $14.5 million aggregate principal amount of Old
F4L Senior Subordinated Notes (an "Accelerated
Payment") at a purchase price equal to 100% of
principal amount plus accrued but unpaid interest to
the Accelerated Payment Date. Food 4 Less may credit
against the forty-fifth day after the last day of the
next following fiscal quarter (the "Accelerated Payment
Date"), $14.5 million aggregate principal amount of Old
F4L Senior Subordinated Notes (an "Accelerated
Payment") at a purchase price equal to 100% of
principal amount plus accrued but unpaid interest to
the Accelerated Payment Date. Food 4 Less may credit
against the principal amount of Old F4L Senior
Subordinated Notes to be
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- ------------------------------------------------------ ------------------------------------------------------
acquired in any Accelerated Payment 100% of the
principal amount of Old F4L Senior Subordinated Notes
acquired by Food 4 Less through purchase, optional
redemption, exchange or otherwise during the 180-day
period ending on the Acceleration Date and surrendered
for cancellation. Food 4 Less, however, may not credit
Old F4L Senior Subordinated Notes against an
Accelerated Payment if such Old F4L Senior Subordinated
Notes were previously used as a credit against any
other required payment under the Old F4L Senior
Subordinated Note Indenture. In no event shall the
failure of Food 4 Less' Net Worth to equal or exceed
$50 million at the end of any fiscal quarter be counted
toward the making of more than one Offer.
"Net Worth" as of any date means, with respect to any
person, the amount of the equity of the holders of
capital stock of such person that would appear on the
balance sheet of such person as of such date,
determined in accordance with GAAP, adjusted to exclude
(to the extent included in such equity), (i) the amount
of equity attributable to Disqualified Capital Stock
and (ii) with respect to Food 4 Less, the effect of (a)
all non-cash charges reducing such equity amount and
attributable to the early extinguishment of, or
acceleration of costs of, the financing of the Alpha
Beta Acquisition (other than amortization of original
issue discount), (b) prepayment penalties or other
charges incurred in connection with the retirement of
certain Indebtedness of a subsidiary of Food 4 Less
existing immediately prior to June 17, 1991 and (c) the
recognition of deferred losses, in an amount not to
exceed $3 million, on the Long Beach Warehouse.
IF THE PROPOSED AMENDMENTS BECOME OPERATIVE, THE OLD
F4L SENIOR SUBORDINATED NOTE INDENTURE WILL BE MODIFIED
TO ELIMINATE THIS COVENANT AND CERTAIN RELATED
DEFINITIONS.
LIMITATION ON OTHER SENIOR SUBORDINATED LIMITATION ON OTHER SENIOR SUBORDINATED
INDEBTEDNESS. The Old F4L Senior Subordinated Note INDEBTEDNESS. The New F4L Senior Subordinated Note
Indenture does not have a covenant providing for the Indenture will provide that neither the Company nor any
limitation on other senior subordinated indebtedness. Subsidiary Guarantor will, directly or indirectly,
incur any Indebtedness (including Acquired In-
debtedness) that is subordinate in right of payment to
any Indebtendess of the Company or such Subsidiary
Guarantor, as the case may be, unless such Indebtedness
is either (a) pari passu in right or payment with the
New F4L Senior Subordinated Notes or the Senior
Subordinated Note Guarantee of such Subsidiary
Guarantor, as the case may be, or (b) subordinate in
right of payment to the New F4L Senior Subordinated
Notes or the Senior Subordinated Note Guarantee of such
Subsidiary Guarantor, as the case may be, in the same
manner and at least to the same extent as the New F4L
Senior Subordinated Notes are subordinate to Senior
Indebtedness or as such Senior Subordinated Note
Guarantee is subordinated to Guarantor Senior
Indebtedness of such Subsidiary Guarantor, as the case
may be.
"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 Senior Subordinated Note 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 Senior Subordinated Note Guarantee of
such Subsidiary Guarantor, (b) Indebtedness that is
expressly subordinate or
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- ------------------------------------------------------ ------------------------------------------------------
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
(in each case, with respect to the New F4L Senior
Subordinated Notes or any Senior Subordinated Note
Guarantee) 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 Senior
Subordinated Note Indenture.
LIMITATION ON PREFERRED STOCK OF SUBSIDIARIES. The LIMITATION ON PREFERRED STOCK OF SUBSIDIARIES. Pursuant
Old F4L Senior Subordinated Note Indenture does not have to the New Senior Subordinated Note Indenture, the
a covenant providing for the limitation on the issuance Company will not permit any of its Subsidiaries to
of preferred stock of subsidiaries. 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.
EVENTS OF DEFAULT EVENTS OF DEFAULT
Pursuant to the Old F4L Senior Subordinated Note Pursuant to the New F4L Senior Subordinated Note
Indenture, the following events constitute "Events of Indenture the following events constitute "Events of
Default": (i) failure to make any interest payment on Default": (i) failure to make any interest payment on
the Old F4L Senior Subordinated Notes when due, and the the New F4L Senior Subordinated Notes when due and the
continuance of such default for a period of 30 days continuance of such default for a period of 30 days;
(whether or not such payment would be prohibited by the (ii) failure to pay principal of, or premium, if any,
provisions of the Old F4L Senior Subordinated Note on the New F4L Senior Subordinated Notes when due,
Indenture concerning the subordination of the Old F4L whether at maturity, upon acceleration, redemption,
Senior Subordinated Notes); (ii) failure to pay required repurchase or otherwise; (iii) failure to
principal of the Old F4L Senior Subordinated Notes when comply with any other agreement contained in the New
due, whether at maturity, upon acceleration, redemption F4L Senior Subordinated Notes or the New F4L Senior
or otherwise (including the failure to make an Subordinated Note Indenture, if such failure continues
Accelerated Payment and whether or not such payment unremedied for 30 days after written notice given by
would be prohibited by the provisions of the Old F4L the New F4L Senior Subordinated Note Trustee or the
Senior Subordinated Note Indenture concerning the holders of at least 25% in principal amount of the New
subordination of the New F4L Senior Subordinated F4L Senior Subordinated Notes then outstanding (except
Notes); (iii) failure to comply with any other in the case of a default with respect to the covenants
agreement contained in the New F4L Senior Subordinated described under "Limitation on Restricted Payments,"
Notes or the Old F4L Senior Subordinated Note "Limitations on Asset Sales," "Change of Control," and
Indenture, if such failure continues unremedied for 30 "Limitations on Merger and Certain Other Transactions,"
days after written notice given by the Old F4L Senior which shall constitute Events of Default with notice
Subordinated Note Trustee or the holders of at least but without passage of time); (iv) a default under any
33 1/3% in principal amount of the Old F4L Senior Indebtedness of the Company or its subsidiaries,
Subordinated Notes then outstanding (except in the case whether such Indebtedness now exists or shall
of a default with respect to the covenants set forth in hereinafter be created, if both (A) such default either
the Old F4L Senior Subordinated Note Indenture under (1) results from the failure to pay any such
the headings "Limitation on Restricted Payments," Indebtedness at its stated final maturity or (2)
"Maintenance of Net Worth," "Limitation on Disposition relates to an obligation other than the obligation to
of Assets," "Limitation on Change of Control," and pay such Indebtedness at its stated final maturity and
"Limitations on Merger and Certain Other Transactions," results in the holder or holders of such Indebtedness
which shall constitute Events of Default with notice causing such Indebtedness to become due prior to its
but without passage of time specified); (iv) a default stated maturity and (B) the principal amount of such
under any Indebtedness, whether such Indebtedness now Indebtedness, together with the principal amount of any
exists or shall hereinafter be created, if both (A) other such Indebtedness in default for failure to pay
such default either (1) results from the failure to pay principal at stated final maturity or the maturity of
any such Indebtedness at its stated final maturity or which has been so accelerated, aggregate $20 million or
(2) relates to an obligation other than the obligation more at any one time outstanding; (v) any final
to pay such Indebtedness at its stated maturity and judgment or order for payment of money in excess of $20
results in the holder or holders of such Indebtedness million shall be entered against the Company or any
causing such Indebtedness to become due prior to its Significant Subsidiary and shall not be discharged for
stated maturity and (B) the principal amount of such a period of 60 days after such judgment becomes final
Indebtedness, together with the principal amount of any and nonappealable; (vi) either the Company or any
other such Indebtedness in default for failure to pay Significant Subsidiary pursuant to or within the
principal at maturity or the maturity of which has been meaning of any Bankruptcy Law: (a) commences a
so accelerated, aggregates $20 million or more at any voluntary case or proceeding; (b) consents to the entry
one time outstanding, (v) either Food 4 Less or any of an order for relief against it in an involuntary
Significant Subsidiary (a) admits in writing its case or proceeding; (c) consents to the appointment
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- ------------------------------------------------------ ------------------------------------------------------
inability to pay its debts generally as they become of a custodian of it or for all or substantially all of
due, (b) commences a voluntary case or proceeding under its property; or (d) makes a general assignment for the
any Bankruptcy Law; (c) consents to the entry of a benefit of its creditors; (vii) a court of competent
judgment, decree or order for relief against it in an jurisdiction enters an order or decree under any
involuntary case or proceeding under any Bankruptcy Bankruptcy Law that: (a) is for relief against the
Law; (d) consents to the appointment of a Custodian of Company or any significant subsidiary, in an
it or for all or substantially all of its property, (e) involuntary case or proceeding; (b) appoints a
consents to or acquieces in the institution of a custodian of the Company or any significant subsidiary,
bankruptcy or an insolvency proceeding against it, (f) or for all or any substantial part of their respective
makes a general assignment for the benefit of its properties; or (c) orders the liquidation of the Com-
creditors, or (g) takes any corporate action to pany or any significant subsidiary, and in each case
authorize or effect any of the foregoing; (vi) a court the order or decree remains unstayed and in effect for
of competent jurisdiction enters a judgment, decree or 60 days; (viii) the lenders under the Credit Agreement
order for relief in respect of Food 4 Less or any shall commence judicial proceedings to foreclose upon
Significant Subsidiary in an involuntary case or any material portion of the assets of the Company and
proceeding under any Bankruptcy Law which shall: (a) its subsidiaries; or (ix) any of the guarantees issued
approve as properly filed a petition seeking under the New F4L Senior Subordinated Indenture shall
reorganization, arrangement, adjustment or composition be declared or adjudged unenforceable or invalid in a
in respect of Food 4 Less or any Significant final judgment or order issued by any court of
Subsidiary, (b) appoint a Custodian of Food 4 Less or governmental authority. In the event of a declaration
any Significant Subsidiary, or for substantially all of of acceleration because an Event of Default set forth
their respective properties; or (c) order the winding in clause (iv) above has occurred and is continuing,
up liquidation of its affairs, and in each case the such declaration of acceleration shall be automati-
order or decree remains unstayed and in effect for 60 cally rescinded and annulled if either (i) the holders
days; (vii) any Warrant of attachment is issued against of the Indebtedness which is the subject of such Event
any portion of the property of Food 4 Less or any of Default have waived such failure to pay at maturity
Significant Subsidiary having a value of at least $20 or have rescinded the acceleration in respect of such
million, which Warrant is not released within 60 days Indebtedness within 90 days of such maturity or
after service of process with respect thereto, or final declaration of acceleration, as the case may be, and no
judgment not covered by insurance which in the other Event of Default has occurred during such 90-day
aggregate at any one time exceeds $20 million shall be period which has not been cured or waived, or (ii) such
entered against Food 4 Less or any Significant Indebtedness shall have been discharged or the maturity
Subsidiary and shall not be discharged for a period of thereof shall have been extended such that it is not
60 days after such judgment becomes final and then due and payable, or the underlying default has
nonappealable; and (viii) the lenders under the Loan been cured, within 90 days of such maturity or
Documents or any refinancing indebtedness related declaration of acceleration, as the case may be.
thereto shall foreclose or take any action to foreclose
upon any material portion of the collateral securing Under the terms of the New F4L Senior Subordinated Note
such indebtedness. In the event of a declaration of Indenture, if an Event of Default (other than an Event
acceleration because an Event of Default set forth in of Default resulting from bankruptcy, insolvency,
clause (iv) above has occurred and is continuing, such receivership or reorganization of the Company or a
declaration of acceleration shall be automatically Subsidiary Guarantor) occurs and is continuing, the New
rescinded and annulled if either (i) the holders of the F4L Senior Subordinated Note Trustee or the holders of
Indebtedness which is the subject of such Event of at least 25% in principal amount of the then
Default have waived such failure to pay at maturity or outstanding New F4L Senior Subordinated Notes issued
have rescinded the acceleration in respect of such under the New Indenture may declare immediately due and
Indebtedness within 90 days of such maturity or payable all unpaid principal and interest accrued and
declaration of acceleration, as the case may be, and no unpaid on the then outstanding New F4L Senior
other Event of Default has occurred during such 90-day Subordinated Notes by notice in writing to the Company,
period which has not been cured or waived, or (ii) such the administrative agent under the Credit Agreement and
Indebtedness shall have been discharged or the maturity the New F4L Senior Subordinated Note Trustee specifying
thereof shall have been extended such that it is not the respective Event of Default and that it is a
then due and payable, or the underlying default has "notice of acceleration" (the "Acceleration Notice"),
been cured, within 90 days of such maturity or and the same (i) shall become immediately due and
declaration of acceleration, as the case may be. payable or (ii) if there are any amounts outstanding
under the Credit Agreement, shall become due and
Under the terms of the Old F4L Senior Subordinated payable upon the first to occur of an acceleration
Note Indenture, if an Event of Default (other than an under the Credit Agreement, or five business days after
Event of Default resulting from bankruptcy, insolvency, receipt by the Company and the administrative agent
receivership or reorganization of Food 4 Less) occurs under the Credit Agreement of such Acceleration Notice.
and is continuing, the Old F4L Senior Subordinated Note If an Event of Default resulting from certain events of
Trustee or the holders of at least 33 1/3% in principal bankruptcy, insolvency, receivership or reorganization
amount of the Old F4L Senior Subordinated Notes then of the Company or a Subsidiary Guarantor that is a
outstanding may declare immediately due and payable all Significant Subsidiary shall occur, all unpaid
unpaid principal and interest accrued and unpaid on the principal of and accrued interest on all then outstand-
Old F4L Senior Subordinated Notes then outstanding; ing New F4L Senior Subordinated Notes shall be
provided, however, that if any Senior Indebtedness is immediately due and payable without any declaration or
outstanding under the Credit Agreement or the Credit other act on the part of the New F4L Senior
Agreement is otherwise in effect, upon any such Subordinated Note Trustee or any of the holders. After
declaration, all unpaid principal and interest accrued a declaration of acceleration, subject to certain
and unpaid on the Old F4L Senior Subordinated Notes conditions, the holders of a majority in principal
then outstanding shall become due and payable upon the amount of the then outstanding New F4L Senior
first to occur of (i) five business days after notice Subordinated Notes, by notice to the New F4L Senior
is received by Food 4 Less and the Credit Agent; and Subordinated Note Trustee, may rescind such declaration
(ii) an acceleration under the Credit Agreement. If an if all existing Events of Default are remedied. In
Event of Default resulting from certain events of certain cases the holders of a majority in principal
bankruptcy, insolvency, receivership or reorganization amount of outstanding New F4L Senior Subordinated Notes
shall occur, all unpaid principal and accrued interest may waive a past default under the New F4L Senior
shall be immediately due and payable without any Subordinated Note Indenture and its consequences,
declaration or other act on the part of the Old F4L except a default in the payment of or interest on any
Senior Subordinated Note Trustee or any of the holders. of the New F4L Senior Subordinated Notes.
Subject to certain conditions, the holders of a
majority in principal amount of the Old F4L Senior
Subordi-
B-23
261
OLD F4L SENIOR SUBORDINATED NOTES NEW F4L SENIOR SUBORDINATED NOTES
- ------------------------------------------------------ ------------------------------------------------------
nated Notes then outstanding, by notice to the Old F4L The New F4L Senior Subordinated Note Indenture provides
Senior Subordinated Note Trustee, may rescind such that if a Default or Event of Default occurs and is
declaration if all existing Events of Default are continuing thereunder and if it is known to the New F4L
remedied. In certain cases the holders of a majority in Senior Subordinated Note Trustee, the New F4L Senior
principal amount of outstanding Old F4L Senior Subordinated Note Trustee shall mail to each holder of
Subordinated Notes may waive any past default and its New F4L Senior Subordinated Notes notice of the Default
consequences, except a default in the payment of or Event of Default within 90 days after such Default
principal of or interest on any of the Old F4L Senior or Event of Default occurs; provided, however, that,
Subordinated Notes. except in the case of a Default or Event of Default in
the payment of the principal of or interest on any New
The Old F4L Senior Subordinated Note Indenture F4L Senior Subordinated Note, including the failure to
provides that if a Default or Event of Default occurs make payment on a Change of Control Payment Date
and is continuing and if it is known to the Old F4L pursuant to a Change of Control Offer or payment when
Senior Subordinated Note Trustee, the Old F4L Senior due pursuant to a Proceeds Offer the New F4L Senior
Subordinated Note Trustee shall mail to each holder Subordinated Note Trustee may withhold such notice if
notice of the uncured Default or Event of Default it in good faith determines that withholding such
within 90 days after such Default or Event of Default notice is in the interest of the holders.
occurs; provided, however, that, except in the case of
a Default or Event of Default in the payment of the The New F4L Senior Subordinated Note Indenture provides
principal of or interest on any of the Old F4L Senior that no holder of New F4L Senior Subordinated Notes may
Subordinated Notes, including an Accelerated Payment pursue any remedy thereunder unless the New F4L Senior
and the failure to make payment on the Change of Subordinated Note Trustee (i) shall have failed to act
Control Payment Date pursuant to a Change of Control for a period of 60 days after receiving written notice
Offer, the Old F4L Senior Subordinated Note Trustee may of a continuing Event of Default by such holder and a
withhold such notice if it in good faith determines request to act by holders of at least 25% in principal
that withholding such notice is in the interest of the amount of New F4L Senior Subordinated Notes and (ii)
holders. has received indemnification satisfactory to it;
provided, however, that such provision does not affect
The Old F4L Senior Subordinated Note Indenture the right of any holder to sue for enforcement of any
provides that no holder may pursue any remedy overdue payment of New F4L Senior Subordinated Notes.
thereunder unless the Old F4L Senior Subordinated Note
Trustee (i) shall have failed to act for a period of 60 Under the New F4L Senior Subordinated Note Indenture,
days after receiving written notice of a continuing two officers of the Company are required to certify to
Event of Default by such holder and a request to act by the New F4L Senior Subordinated Note Trustee within 120
holders of at least 33 1/3% in principal amount of Old days after the end of each fiscal year of the Company
F4L Senior Subordinated Notes and (ii) has received whether or not they know of any Default that occurred
indemnification satisfactory to it; provided, however, during such fiscal year and, if applicable, describe
that such provision does not affect the right of any such Default and the status thereof.
holder to sue for enforcement of any overdue payment on
Old F4L Senior Subordinated Notes.
Under the Old F4L Senior Subordinated Note Indenture,
two officers of Food 4 Less are required to certify to
the Trustee within 120 days after the end of each
fiscal year of Food 4 Less whether or not they know of
any Default that occurred during such fiscal year and,
if applicable, describe such Default and the status
thereof.
MODIFICATION OF THE OLD F4L SENIOR MODIFICATION OF THE NEW F4L SENIOR
SUBORDINATED NOTE INDENTURE SUBORDINATED NOTE INDENTURE
Pursuant to the terms of the Old F4L Senior Pursuant to the terms of the New F4L Senior
Subordinated Note Indenture, the Old F4L Senior Subordinated Note Indenture, the New F4L Senior
Subordinated Note Indenture and the Old F4L Senior Subordinated Note Indenture and the New F4L Senior
Subordinated Notes may be amended or supplemented (and Subordinated Notes may be amended or supplemented (and
compliance with any provision thereof may be waived) by compliance with any provision thereof may be waived) by
Food 4 Less, the Old F4L Senior Subordinated Note the Company, the Subsidiary Guarantors, the New F4L
Trustee and the holders of not less than a majority in Senior Subordinated Note Trustee and the holders of not
aggregate principal amount of the Old F4L Senior less than a majority in aggregate principal amount of
Subordinated Notes then outstanding, except that (A) New F4L Senior Subordinated Notes then outstanding,
without the consent of each holder affected, no such except that (i) without the consent of each holder of
amendment supplement or waiver may (1) change the New F4L Senior Subordinated Notes affected, no such
principal amount of Old F4L Senior Subordinated Notes amendment, supplement or waiver may (1) change the
whose holders must consent to an amendment, supplement principal amount of the New F4L Senior Subordinated
or waiver of any provision of the Old F4L Senior Notes the holders of which must consent to an
Subordinated Note Indenture or the Old F4L Senior amendment, supplement or waiver of any provision of the
Subordinated Notes; (2) reduce the rate or extend the New F4L Senior Subordinated Note Indenture, the New F4L
time for payment of interest on any Old F4L Senior Senior Subordinated Notes or the senior subordinated
Subordinated Note; (3) reduce the principal amount of guarantee, (2) reduce the rate or extend the time for
any Old F4L Senior Subordinated Note; (4) change the payment of interest on the New F4L Senior Subordinated
date of maturity of any Old F4L Senior Subordinated Notes, (3) reduce the principal amount of any New F4L
Note, or alter the redemption provisions in a manner Senior Subordinated Notes, (4) change the Maturity Date
adverse to any holder; (5) make any changes in the of the New F4L Senior Subordinated Notes or the Change
provisions concerning waivers of Defaults or Events of of Control Payment Date or alter the redemption
Default by holders or the rights of holders to recover provisions in the New F4L Senior Subordinated Note
the principal of, interest on, or redemption payment Indenture, the New F4L Senior Subordinated Notes or the
with respect to, any Old F4L Senior Subordinated Note; purchase price in connection with any repurchase of New
or (6) make the principal of, or the interest on, any F4L Senior Subordinated Notes pursuant to the covenant
Old F4L Senior Subordinated Note payable with anything described under " -- Limitation on Change of Control"
or in any manner other than as provided for in the Old above in a manner adverse to any holder of the New F4L
F4L Senior Subordinated Note Indenture and the Old F4L Senior Subordinated Notes, (5) make any changes in the
Senior Subordinated Notes; and (B) no provision in any provisions concerning waivers of Defaults or Events of
supplemental indenture that affects the subordination Default by holders or the rights
of the Old F4L
B-24
262
OLD F4L SENIOR SUBORDINATED NOTES NEW F4L SENIOR SUBORDINATED NOTES
- ------------------------------------------------------ ------------------------------------------------------
Senior Subordinated Notes and the Guarantee Obligations of holders to recover the principal of, interest on or
or other provisions relating thereto shall be effective redemption payment with respect to New F4L Senior
against the holders of the Senior Indebtedness or Subordinated Notes, (6) make the principal of, or
Senior Guarantor Indebtedness who have not consented interest on, any New F4L Senior Subordinated Notes
thereto. payable with anything or in any manner other than as
provided for in the New F4L Senior Subordinated Note
According to the terms of the Old F4L Senior Indenture, the New F4L Senior Subordinated Notes and
Subordinated Note Indenture, Food 4 Less and the the Senior Subordinated Note Guarantee, (7) modify the
Trustee may amend the Old F4L Senior Subordinated Note subordination provisions of the New F4L Senior
Indenture and the Old F4L Senior Subordinated Notes (a) Subordinated Note Indenture (including the related
to cure any ambiguity, defect or inconsistency therein; definitions) so as to adversely affect the ranking of
provided, that such amendment or supplement does not the New F4L Senior Subordinated Notes or any Senior
adversely affect the rights of any holder or (b) to Subordinated Note Guarantee; provided, however, that it
make any other change that does not adversely affect is understood that any amendment the purpose of which
the rights of any holder. is to permit the incurrence of additional Indebtedness
under the New Senior Subordinated Note Indenture shall
not be construed as adversely affecting the ranking of
any New F4L Senior Subordinated Note or Senior
Subordinated Note Guarantee, (ii) without the consent
of Holders of not less than 75% in aggregate principal
amount of such New F4L Senior Subordinated 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
such New F4L Senior Subordinated Notes pursuant to the
covenant described under "-- Change of Control" 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 F4L Senior Subordinated Notes then
outstanding, no such amendment, supplement or waiver
may release any Guarantor from any of its obligations
under its guarantee or the New F4L Senior Subordinated
Note Indenture other than in accordance with the terms
of the senior subordinated guarantee and the New F4L
Senior Subordinated Note Indenture.
In addition, the New F4L Senior Subordinated Note
Indentures, the New F4L Senior Subordinated Notes and
the guarantees may be amended by the Company, the
Subsidiary Guarantors and the New F4L Senior
Subordinated 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.
B-25
263
Facsimile copies of the Letters of Transmittal, properly completed and duly
executed, will be accepted, Letters of Transmittal, certificates for the Old F4L
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 Letters of
Transmittal and the Notices of Guaranteed Delivery may be directed to the
Information Agent or one of the Dealer Managers at their respective telephone
numbers and locations set forth below. You may also contact your broker, dealer,
commercial bank, trust company or other nominee for assistance concerning the
Exchange Offers and the Solicitation.
The Information Agent is:
D.F. KING & CO., INC.
Call Toll Free: (800) 669-5550
77 Water Street
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
264
EDGAR APPENDIX
This EDGAR Appendix is filed in compliance with Item 304 of Regulation S-T
regarding graphic and image information. It describes material appearing on
pages 8 and 9 of the Amended and Restated Prospectus and Solicitation Statement.
PAGE 8
The chart consists of two columns which graphically illustrate the
respective corporate structures of Food 4 Less and Ralphs before the Merger.
Food 4 Less' corporate structure illustrates that Food 4 Less, Inc. ("FFL") owns
Food 4 Less Holdings, Inc. ("Holdings"), which, in turn, owns Food 4 Less
Supermarkets, Inc. ("Food 4 Less") which, in turn, owns several other Food 4
Less subsidiaries. The Ralphs' corporate structure illustrates that Ralphs
Supermarkets, Inc. ("RSI"), owns Ralphs Grocery Company ("RGC") which, in turn,
owns Crawford Stores, Inc. A dotted arrow has been drawn from the box
representing Food 4 Less to the box representing RSI to simulate the RSI Merger.
A dotted arrow has been drawn from the box representing RGC to the box
representing RSI to simulate the RGC Merger. A dotted arrow has been drawn to
the box representing Holdings from the box representing FFL to simulate the FFL
Merger.
PAGE 9
The chart illustrates the corporate structure of the Company after the
Merger and the FFL Merger. The corporate structure illustrates that New Holdings
owns the Company which, in turn, is the parent of all other subsidiaries of the
Company. The anticipated debt obligations of New Holdings are placed in order of
ranking next to the box representing New Holdings and the anticipated debt
obligations of the Company are placed in order of ranking next to the box
representing the Company.
265
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
266
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 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
II-2
267
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
268
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Post-effective Amendment No. 2 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 May 11, 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. 2 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 May 11, 1995
- --------------------------------------------- Director (Principal Executive
Ronald W. Burkle Officer)
* Executive Vice President -- May 11, 1995
- --------------------------------------------- Finance/Administration and
Greg Mays Chief Financial Officer
(Principal Financial and
Accounting Officer)
* Director May 11, 1995
- ---------------------------------------------
Joe S. Burkle
/s/ MARK A. RESNIK Director May 11, 1995
- ---------------------------------------------
Mark A. Resnik
* Director May 11, 1995
- ---------------------------------------------
George G. Golleher
* Power of Attorney by
/s/ MARK A. RESNIK
- ---------------------------------------------
Mark A. Resnik
Vice President and Secretary
II-4
269
SIGNATURES
(continued)
Pursuant to the requirements of the Securities Act of 1933, the registrants
have duly caused this Post-effective Amendment No. 2 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 May 11, 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. 2 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 May 11, 1995
- --------------------------------------------- Board of each Registrant
Ronald W. Burkle
* Chief Executive Officer and May 11, 1995
- --------------------------------------------- Director (Principal Executive
George G. Golleher Officer) of each Registrant
* Executive Vice President -- May 11, 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
270
SIGNATURES
(continued)
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Post-effective Amendment No. 2 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 May 11, 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. 2 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 May 11, 1995
- --------------------------------------------- Officer (Principal Executive
Ronald W. Burkle Officer)
* Director May 11, 1995
- ---------------------------------------------
George G. Golleher
* Executive Vice President -- May 11, 1995
- --------------------------------------------- Finance/Administration and
Greg Mays Chief Financial Officer
(Principal Financial and
Accounting Officer)
* Power of Attorney by
/s/ MARK A. ESNIK
- ---------------------------------------------
Mark A. Resnik
Vice President and Secretary
II-6
271
SIGNATURES
(continued)
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Post-effective Amendment No. 2 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 May 11, 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. 2 to the Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE
- --------------------------------------------- -------------------------------- ---------------
* Director May 11, 1995
- ---------------------------------------------
Ronald W. Burkle
* Director May 11, 1995
- ---------------------------------------------
George G. Golleher
* Chief Executive Officer May 11, 1995
- --------------------------------------------- (Principal Executive Officer)
Joe S. Burkle
* Director May 11, 1995
- ---------------------------------------------
Michael Saltman
* Executive Vice President -- May 11, 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
272
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
May 10, 1995
S-1
273
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
274
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
275
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
276
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+.........
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 Agreement and Plan of
Merger by and among Food 4 Less, Inc., Food 4 Less Holdings, Inc.,
Food 4 Less Holdings, Inc. (a Delaware corporation), Food 4 Less,
Ralphs Supermarkets, Inc. and the stockholders of Ralphs Supermarkets,
Inc.+.................................................................
2.1.2 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+.................................................................
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+.................................................................
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277
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ---------------------------------------------------------------------- ----
4.3 Form of Senior Subordinated Note Indenture dated as of
, 1995 by and among Ralphs Grocery Company (as
successor by merger to Food 4 Less), the subsidiary guarantors
identified therein and United States Trust Company of New York, as
trustee, with respect to its Senior Subordinated Notes due 2005
(incorporated herein by reference to Exhibit 4.3 to Amendment No. 1 to
Food 4 Less' Registration Statement on Form S-4, No. 33-56445)........
4.4.1 Form of First Supplemental Indenture dated as of , 1995
by and between Ralphs Grocery Company and United States Trust Company
of New York, as trustee, with respect to its 10 1/4% Senior
Subordinated Notes due 2002 (incorporated herein by reference to
Exhibit 4.4.1 to Amendment No. 1 to Food 4 Less' Registration
Statement on Form S-4, No. 33-56445)..................................
4.4.2 Form of Second Supplemental Indenture dated as of ,
1995 by and between Ralphs Grocery Company (as successor by merger to
Food 4 Less) and United States Trust Company of New York, as trustee,
with respect to its 10 1/4% Senior Subordinated Notes due 2002
(incorporated herein by reference to Exhibit 4.4.2 to Amendment No. 1
to Food 4 Less' Registration Statement on Form S-4, No. 33-56445).....
4.5.1 Form of Second Supplemental Indenture dated as of
, 1995 by and between Ralphs Grocery Company and
United States Trust Company of New York, as trustee, with respect to
its 9% Senior Subordinated Notes due 2003 (incorporated herein by
reference to Exhibit 4.5.1 to Amendment No. 1 to Food 4 Less'
Registration Statement on Form S-4, No. 33-56445).....................
4.5.2 Form of Third Supplemental Indenture dated as of , 1995
by and between Ralphs Grocery Company (as successor by merger to Food
4 Less) and United States Trust Company of New York, as trustee, with
respect to its 9% Senior Subordinated Notes due 2003 (incorporated
herein by reference to Exhibit 4.5.2 to Amendment No. 1 to Food 4
Less' Registration Statement on Form S-4, No. 33-56445)...............
4.6 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+.........................................
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+.............................................................
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)....................
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278
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ---------------------------------------------------------------------- ----
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+............
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+...........................
4.8 Credit Agreement dated as of June 17, 1991 by and among Food 4 Less,
Alpha Beta Company, The Boys Markets, Inc., 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 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, Alpha Beta Company, The Boys Markets, Inc., 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 4.5.1 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, 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 4.5.2 to Food 4
Less' Annual Report on Form 10-K for the fiscal year ended June 27,
1992).................................................................
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279
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ---------------------------------------------------------------------- ----
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 fiscal year 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 Partners, all as identified
therein+..............................................................
4.8.7 Seventh Modification Agreement dated as of January 25, 1995 by and
among Food 4 Less, the subsidiaries named therein, as borrowers, and
Bankers Trust Company, Citicorp North America, Inc. and Chemical Bank
as Co-Agents, Citicorp North America, Inc. as Administrative Agent and
the Required Lenders and the other Loan Partners, all as identified
therein+..............................................................
4.9 Bank commitment letter by and among Food 4 Less, the guarantors named
therein and Bankers Trust Company, as agent, and the financial
institutions identified therein+......................................
4.9.1 Form of Amendment No. 1 to bank commitment letter by and among Food 4
Less Supermarkets, Inc., the guarantors named therein and Bankers
Trust Company, as agent, and the financial institutions identified
therein (incorporated herein by reference to Exhibit 4.10.2 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 Notes
due 2004, the 13.75% Senior Subordinated Notes due 2005, the 10.45%
Senior Notes due 2000, as amended, and the 13.75% Senior Subordinated
Notes due 2001, 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. .......................................................
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280
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ---------------------------------------------------------------------- ----
8.1 Opinion of Latham & Watkins regarding certain tax matters with respect
to the Senior Notes due 2004, the 13.75% Senior Subordinated Notes due
2005, the 10.45% Senior Notes due 2000, as amended, and the 13.75%
Senior Subordinated Notes due 2001, 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).....................
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)...
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281
EXHIBIT
NUMBER DESCRIPTION PAGE
------- ---------------------------------------------------------------------- ----
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 Norwest Bank
Minnesota, N.A., as trustee, under the Indenture for the Senior Notes
due 2004+.............................................................
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+........................
25.3 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 (incorporated herein by
reference to Exhibit 25.1 to Amendment No. 1 to Food 4 Less'
Registration Statement on Form S-4, No. 33-56445).....................
99.1 Letter of Transmittal and Consent with respect to the Exchange Offers
and the Solicitation..................................................
99.2 Notice of Guaranteed Delivery with respect to the Exchange Offers and
the Solicitation......................................................
99.3 Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees with respect to the Exchange Offers and the
Solicitation..........................................................
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EXHIBIT
NUMBER DESCRIPTION PAGE
------- ---------------------------------------------------------------------- ----
99.4 Letter to Clients with respect to the Exchange Offers and the
Solicitation..........................................................
99.5 Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9...................................................
- ---------------
+ Previously filed.
E-7